The Ghost of Munny Present

My previous post, The Ghost of Munny Past, covered some of my pre-2015 experiences with money and investing. Here we get caught up to present-day with a few more recent adventures.

At the start of 2015, most of my net worth was tied up in my Back Bay condo, which had originally been purchased with proceeds from the Sapient stock I’d acquired as an early employee.

At the end of 2015, I moved to Pittsburgh, which meant putting the condo on the market: my first home sale. Fortunately, despite needing renovation, it sold promptly on Leap Day 2016, for a reasonable “profit”. I use the word “profit” advisedly, given the things I said about mortgages in my previous post. Still, investing the proceeds from my condo sale has been one of my biggest preoccupations for the past year.

Cash: I Has It! Now What?

After the closing, I suddenly found myself sitting on a buttload of real and actual cold, hard cash. Now, everyone “knows” that cash is presumably the worst place to keep your cash, but having been kept busy with the move and the home sale, I hadn’t developed a plan for what to do with the proceeds.

I hesitated to move it into anything riskier than cash, since the stock market in early 2016 wasn’t looking all that sanguine, and I wasn’t comfortable with bonds or other investment vehicles. I didn’t know what to do, but at least I knew I didn’t know what I didn’t know,

So I did what any red-blooded intellectual (who didn’t know what to do) would do: I devoted myself to studying what to do! For more than a year, I read books, studied the financial news, took online education, consulted brokers, and gradually developed a plan of action. All while enduring the increasing bemusement of my partner, who naturally saw a lot of preparation happening, but almost no action.

To further emphasize the point, my mother’s passing at the beginning of 2017 resulted in a small amount of insurance and pension proceeds being added to my languishing all-cash position. It really was time to start putting a year of immobile study into action.

Strategic Redeployment

The biggest theme in personal financial planning is asset allocation and diversification. While it was easy to come up with a theoretical target allocation of one third cash and bonds, one third stock, and one third mutual funds and ETFs, that proved a little more challenging to accomplish in real life.

I found myself faced with decisions regarding actively-managed funds versus passive index funds; whether I wanted to get into options trading; environmental, social, and governance considerations; market timing vs. dollar cost averaging; gold and commodities futures; and more. And I was especially dismayed by the prohibitive complexity involved in buying bonds, which are presumably among the safest investments around.

Ultimately I developed a watchlist and opportunistically market-timed my way into several positions. For all my equity investments—stocks, mutual funds, and ETFs—the idea is to buy them once and hold them long-term. Frequent trading incurs a lot of taxes and sales charges that dramatically erode your returns.

Leaving equities aside for now, I threw a chunk of my cash allocation into a 2-year certificate of deposit, bought a similar-duration US Treasury Note, and bought into the GLD gold ETF. Those are defensive options that will be readily available if I need to tap my cash reserves in the near future, while having the advantage of giving me protection from market downturns and some return on my cash.

Mutual funds and ETFs represent my core holdings, since they’re less risky than individual stocks. I’m still tweaking and building these positions, but the current plan is to spread the bulk of my savings out over a core S&P 500 ETF, domestic and international dividend funds, municipal bond funds, and a small cap ETF.

My smaller chunk of discretionary / aggressive investing money has been spread between a couple dozen individual stocks. Being more volatile than mutual funds and ETFs, stocks can give you significantly market-beating results, but with corresponding downside risk, of course.

Since people enjoy hearing specific stock picks, I’ll mention those holdings. For the most part, there are no big surprises here: Wells Fargo, Johnson & Johnson, Amazon, KeyBank, Google, Facebook, Embraer, Fedex, Home Depot, Thermo-Fisher, International Paper, Emerson Electric, US Bancorp.

Unlike my tepid stock purchases prior to 2015 (listed at the end of my previous post), my 2017 picks have done very well so far. I’ve held most of them for less than a year, but already have an overall average return of 22 percent, with the worst having appreciated by 12 percent. Fourteen winners and zero losers! Well, I can’t take a lot of credit for that; it helps that the overall market had a tremendous year in 2017. As during the internet boom, I have again benefited from fortuitous timing.

Still, both the performance of my picks as well as the resulting paper profits make me feel pretty good. I’ve got more work to do, but two years after my condo sale, my portfolio is finally starting to take shape, and earning me some significant returns. Hopefully that will hold true until my next big financial milestone arrives.

Future Returns?

Returning to what I said at the start of this series, money is one of my six necessities for happiness. So far I’m meeting my needs while enjoying and mostly succeeding at hands-on money management.

Of course, that’s easy to say when the whole market is trending upward, but no one knows what challenges the future holds. Having written about The Ghost of Munny Past and The Ghost of Munny Present, there’s not much I can say about The Ghost of Munny Yet to Come. I can only take prudent precautions and hope that when he shows up, he’ll be as nice to me as his predecessors have been!

But here in my fifties, I’m delighted to be able to sit back and say, “So far, so good…”