eep misgivings, I followed his advice, wagering a very small amount of my savings (around $1500) in the worst stock market since the Depression. I am delighted to report that a year later, I am 25% up on the investment. $375 won't go far, but it's a darn sight better than the return I would have achieved on my savings account right now, which offers a pathetic return of less than 1%. The laughably named "high yield" promotional CD currently offered by Bank of America would bump it up to a less than stunning 1.2% APY.I am by no means an investment guru (perhaps this post should come with a financial health warning?) - but as a result of the sale of the Brooklyn Chateau, I now have significantly more to invest than I did last year. Of course, I also have a great deal more to lose.
Real estate has been good to me. I sold my first (London) apartment for double the amount I paid for it within five years. The little house in New York also realized a decent return, even in a truly lousy market in which to sell. In the medium term, most of the proceeds from the chateau will be reinvested in a new nest somewhere in Santa Cruz county. So my current preoccupation is figuring out how best to invest this money in the very short term (next six months), to achieve a decent return without excessive risk.
Of course, I am not alone. Savers all over the country are trying to find a way to make their money work for them, rather than working for the banks they so recently had to bail out. (Sidebar: American check-clearing rules are deeply antiquated, and seriously favor the banks, as the New York Times pointed out this weekend). Saturday's Wall Street Journal warned folks about the possible dangers of fleeing to bonds in search of yield, noting that investors in bonds could get slaughtered should interest rates rise (as they surely will in the not too distant future). Strike one for bonds (particularly longer term bonds).
Mutual funds are regularly touted as the safe option for the risk-averse investor. But many of them have expenses which could significantly reduce gains in as short a time period as six months, or penalties for early redemption (not helpful should we suddenly find our dream home and need to produce a down payment at short notice). But part of our plan will surely involve an index fund or two, as a relatively safe bet.
Stocks offer potentially rich rewards, but possibly devastating losses. I do plan to take a very small holding in Berkshire Hathaway, as a tip of the hat to the Oracle of Omaha for his earlier advice. But at over $3000 per share, it really will be a very tiny stake. Since investors receive Warren's newsletter, I hope to garner more pearls of wisdom in the coming months.
Now some of you might think that it is worth paying for professional advice. But very few financial gurus saw last year's financial tsunami coming. So could I be sure that a professional would look after my interests better than I can? If I lose my own money, I'll be irritated. If someone else loses it for me, I'll be madder than a chimp during a banana shortage.
The reality is, of course, that the old saw of keeping a balanced portfolio is still the best advice. We can neither afford to put our nest egg in only one low-interest producing basket, or in too many risky baskets.
In an earlier post, I mentioned our audition for Who Wants to Be a Millionaire? Despite our screen test, our Millionaire plan did not work out. We will not be coming to a TV screen near you anytime soon. So the real financial plan is pretty critical. Eric and I are still figuring out how to allocate our assets. If anyone has the silver bullet, please let us know. Otherwise we will muddle through, and (without detailing dollars and cents) let you know how our investment decisions pan out, percentage-wise, in due course. In the words of the Oracle, we hope to profit from folly, not participate in it...
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