Kenneth Dickson is a blogger/writer and has written about investing, entrepreneurship and personal finance for the last eight years at InvestorBlogger.com. We recently sat down with Kenneth to talk about the state of the market today and to hear his thoughts on how to invest wisely and handle debt effectively.
Given that you don’t have a formal background in finance or stocks, what led you to start a blog that focuses on these topics?
Many years ago at the beginning of the tech bubble that burst in 2000, I was investing and alternately losing quite a bit of money on the stock market. I had read many of the popular investing books of the day, and I was becoming disillusioned with the message that they were portraying. So I decided that I would write my own investing blog. I figured I couldn’t do worse than the perceived wisdom of the financial community.
Over the years, the focus of the blog has cycled from investing to entrepreneurship to blogging and back as my own life has changed. I make no pretense that I deal with all three themes thoroughly, but I write because I hope that I can inspire a few others to get out of the trap of investing as determined by the “big boys of investment.
Are there still viable income sources and revenue streams available for bloggers today?
There are many viable income sources; some are traditional, some are new. A lot also depends on the individual: their education, experience, and skills. But the real challenge to develop an entrepreneurial mindset means that you have to face up to doing things in a much holistic way than if you were following a traditional career.
What are the financial challenges that many people are facing these days as opposed to ten or twenty years ago?
In many Western countries, middle-class salaries are stagnant, school debts are high, large companies have flattened corporate structures, and promotion opportunities are fewer as a result. With deflation rearing its ugly head, many workers are now facing negative yields and rising tax rates. And yet, the top 1% are making out like bandits.
Ordinary people are facing a real squeeze on their incomes from all sides; it’s one of the reasons that the economic recovery cycle has been so anemic. So I think that for many workers (old and young), saving money has become less important generationally.
Houses are unaffordable in many areas, mortgages require larger down payments, and retirement savings are uncertain. Many younger people are thinking “why bother saving for a house I can’t afford or a retirement that may run out of money?” And who’s to say they aren’t right? Whether you save in the bank, the stock market, or the housing market, your returns are getting crushed or your goals are slipping further and further away.
The list of challenges is endless, but the opportunities are also endless.
Your site tracks how well your investments have performed against the market over the last 16 years. So, how have you done?
I’m still calculating the actual buys and sells, but overall the performance has been dismal. My total activity in investing has generated total returns of -11.5% over this time. I started out making a lot of mistakes, but the nature and scale of the initial bad purchases have not been mitigated much by my increased competence or better judgment.
It’s only in other areas that I’ve been able to make up the losses, such as owning an educational service business, making separate automated investments into investment products, running online services for blogging and hosting, and providing private consulting services.
The essence of any successful investment is choosing your investment, including the type of investing that makes you comfortable, managing your entry points and exit points to the investment (i.e. what entry prices indicate a profit or loss), how interested you are in the investment, and determining at what point you want to exit the investment. It’s taken a long time to figure out these essential ideas. The losses are my own down payment on my financial education.
For someone who is new to investing, what is the one piece of advice that you would give them?
The only advice I would give: there is no such thing as passive income. Not even dividends. You must be active in managing your portfolio, you must monitor their performance actively, and you must determine your entry/exit points so that you can reduce the emotional cost of investing.
The losses have forced me to look at other investment options:
a) not relying on the stock market for significant portions of investment
b) building cash flow from dividends and avoiding purchasing “dream” stocks with no dividends, no profits, and only a dream (more like a “nightmare”)
c) focusing on other investments to “balance” my portfolio income.
For someone who is considering buying or refinancing a home, what are some potential pitfalls or surprises to watch out for?
I don’t give advice about buying a house. For many people, buying a house represents an emotional attachment; it’s not a particularly good way to invest your assets because you can’t make any income from owning your own house. If you’re fortunate, you might be able to sell it in the future for a capital gain.
But because it represents a lot of a person’s cash, most of the practical suggestions I’d make would be focused on not spending too much money. Houses may appreciate in value over time, and interest rates are very low.
I’d try to secure a longer term mortgage at as low an interest rate as possible – perhaps one that is even fixed for a part or all of the mortgage period. I would pay as much towards the deposit as possible, and I’d try to pay off the mortgage as fast as I can. Having said that, the mortgage is the cheapest money you’ll ever be able to borrow.
Lastly, I’d avoid paying too much for a house at the outset. Prices in many markets are poised for a fall; and if interest rates do pick up, prices could drop. Avoiding negative equity will be important if you want to retain your ability to move around the country in search of work.
Debt is a major problem for many Americans today. What is the one major action that someone can take to manage or reduce his or her outstanding debt?
It’s really simple.
Stop borrowing new money at usurious rates, and pay off the old loans as fast as possible. Living on borrowed money means that you are spending a lot of dollars on interest payments – money that could easily go to more fruitful activities such as emergency savings, a mortgage down payment, retirement plans, house renovations, or a vacation.
Borrowing money today to pay for your lifestyle means that tomorrow your lifestyle will be compromised because tomorrow’s cash will be used to pay interest for products or services that have already been consumed.
What changes do you see in investing and money management over the next five to ten years?
I have no magical insight into the trends in investing. But I would suggest paying attention to macro-trends, like an aging population and the services they will need, increased automation in the home as well as the workplace, and global warming as a business opportunity.
By becoming a more rounded investor, you will add value to your life, your bank account, and even your employer. It’s no longer the best employee at a particular job who will prosper, but the employee who best understands the wider context and its impact on their employer.
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