Invest in the right opportunity

November 28, 2010 · 14 comments

Just a few weeks ago I opened the floor up for discussion regarding short to mid term investing strategies. I didn’t really know where I should be putting our extra savings. I was thinking I could put some in the bank, some in bonds, some in stocks, and invest the rest in this guy…

Many of you took the time to provide a little insight and let me know what you would do. Thankfully I’ve reached a decision.

I’m going to invest in opportunities.

Ha, how’s that for vague? Here’s my tentative game plan….

- Give away 10% of income.
- Contribute 15% gross income to retirement (401K and Roth IRA).
- Maintain a lifestyle that allows us to live on my income, so we can bank Girl Ninja’s.
- Put anywhere between $15,000 to $30,000 in our savings account each year.
- Wait.

You see that last step? It’s the most important. I want to build as much liquidity as possible so I can afford to take advantage of fantastic opportunities as they presents themselves. Here are 3 examples of what those opportunities might be…

1) Purchase an investment property for pennies (foreclosure, auction, market plummet, low interest rates, etc).

2) Throw money in the stock market when it is on sale…

3) Have the ability to do what I want, when I want, all because my bank account is loaded (e.g. take advantage of cheap airfare, pay cash for a new car when the auto industry is suffering, remodel the kitchen when materials are deeply discounted, etc).

While my savings account may only offer me a meager 1.1% return, the liquidity and flexibility it affords could lead to much higher gains (both financially and personally). Heck it’s worth a shot at least.

Are you saving up for the ‘right’ opportunity? Have you ever been presented with a fantastic deal, but lacked the discretionary savings to take advantage of it? Is that unicorn man not the creepiest thing you’ve ever seen in your life? Okay, second creepiest, this picture (that I’ve posted before) being the first…

{ 14 comments }

1 StackingCash

Those pics are creepy! What websites do you go to? Wait, never mind…

I like your perspective on having the cash to invest in opportunities. I really never thought of it like that, thanks for giving me another reason to have so much in our “emergency fund.”

I grew up lower middle class and have always had a strong savings ethic. Now that we have some money in the bank, I feel like I need to spend it. That saying that money tends to burn a hole in one’s pocket is very true. I don’t have second thoughts about blowing up to $100 on a meal now, that was inconceivable back in the day. On the flip side, I do have a problem of spending our savings on large items like a house and/or car. It takes a great deal of effort to save so much and so little effort to spend so much. I guess it just comes to what you value the most. Or what opportunities arise :)

Sometimes I do wish I wasn’t so burned by investing, I probably would find some great opportunities in the stock market these days. We are looking for a new home in Las Vegas, such a buyers market! Then again, to drop such a large amount for a down payment scares me more that it did on my current home. Hopefully we’ll get that “great opportunity” soon, I’m itching for a housing upgrade.

2 First Gen American

We were looking at a boarded up ocean front property this year. In the end we decided not to put an offer in because we didn’t have enough money to put a decent down payment on it. The monthly mortgage would be too high and the taxes on the property were insane. We would be up the creek if one of us lost our jobs. I’m happy we didn’t have the cash. It would have been too much extra stress. I wrote about it here:
http://firstgenamerican.com/2010/09/11/dream-homes-and-gut-reactions/

We are doing something similar. My husband wants to save for the next house downpayment. I want to save for a side jig small business fund. (In addition to the normal 401K stuff).

3 Mo D

I can’t get past the creepy pics to comment on the subject at hand!

4 Kevin @ Thousandaire.com

I think you are keeping too much money in a liquid savings account, but I do love the idea of having tons of cash to invest when you find something cheap! My strategy would be to do the same, but invest more now and have less for the big sale you are looking for down the road.

5 MoneyCone

I actually bought some stocks right after the flash crash, even wrote about it and made a decent profit. But I have to admit, I did have that sinking feeling in my stomach when I pressed ‘Buy’! It ain’t easy!

6 rePete

Great post, on many levels. I agree that one shouldn’t invest until they are very sure about what they are getting into (liquid assets, physical assets, and even multiple years of staple food like grains). In the meantime, just pile up the cash!

7 retirebyforty

Cash is king baby! Liquidity is great, but you also need to look at the opportunity cost. There is no way to tell if the DOW is going to be 15,000 or 5,000 by the end of next year. How do you know if NOW is not the best time to invest? For an average investor, it is better to dollar cost average and buy every month. Saving up for a house down payment is a good thing though. Good luck

8 Lola

All in all, a pretty good strategy, especially since you are open to moving around for the next couple of years. Having a bunch of cash will keep all your options open. But if you are banking upwards of, say $20K, each of the next two or three years, I tend to agree with Kevin that you might be keeping too much in low-interest cash savings. Inflation looks to stay fairly low, but it will still eat away at some of that cash ball. You might want to look around a little more for some highly rated no load funds (still very liquid and with a lot of diversification) and put some of your savings in that, after you’ve stashed your benchmark in your savings account. I’ll just add that your idea is good to buy low when it looks like the stock market is on sale, but selling at the right time, in my experience, is the hard part.

As to your questions, 1) now that the hubs is retired, we might plow some fairly big bucks into building a consulting business (or a hedge fund, ha ha!). So far it’s just been state gov registration, web hosting/domain name, business cards, etc. But on the other hand, he might teach. On the actual venture side, we are loaning $10K to a former business partner at 8.14% with payments spread over 5 years. The parnter returned well on the first venture, so this should work out as a win-win. 2) Some 20 years ago, the hubs didn’t think we had the funds to buy our dream house without selling our dinky house first, but I disagreed. We bought the house and sold the other one, just as I said we would, and it’s been happily ever after ever since. 3) I’m with SC – I don’t even want to know where you find these images. Thank goodness you’ve had Mom Ninja and now Girl Ninja to keep you from completely sliding into the snake pit….

9 Desi Guy

Having cash at hand to invest can work both ways. In early 2005, i really wanted to invest in stocks, notably apple and GE, but didn’t have the ready money in the bank to buy a significant amount. If i had – the $31 a piece apple share would be worth $315 today while the almost $40 GE share would be around the $15 mark, so when it comes to the stock market it is always a risk and cost averaging is the best bet.
Having money in the bank for a house down payment where u intend to stay for at least 7-10 years is surely the way to go. If you can buy a place with 20% down, you will not only have a mortgage payment which is 20% smaller, but you will also save up on PMI costs which can average about $150-$200 a month.

10 Patriciah

great post – I like your idea of having liquid funds to do what you want when you want too. That’s the point I want to be in our financial life soon.

Freaky pics…..but then again you always post something that’s out there!

11 Jenna

I think I’m scared for life thanks to that last picture…

BTW – Have you had time to check out Adaptu? What are your thoughts?

12 Angie

Totally off point here, but I thought you might be interested. The newest Dave Ramsey giveaway is, “$3,000 CASH Punch your debt in the face!”
Yes, it actually says to punch debt in the face. Ramsey (or at least one of his employees) reads your blog. Congratulations – you’ve hit the big time now.

13 TKO

I think that is a really good idea, stock up cash on hand to invest when a really great opportunity comes along. I think I remember an article on Mark Cuban doing the same thing. Also that is how Buffett made his money, he made huge investments in great companies when they were trading at good prices.

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