Flagpole or other finance gurus: What should be my plan of action for 2011?

First plan of action:

Quit asking for financial advice from strangers on the internet.

Especially morons like flagpole.

My first three cars were new ones. I had each for a long time, many miles, an average of over 150,000 each. Then, I started buying carefully selected used cars, from private parties, in the $4,000 to $6,000 range, roughly $15K to $20K less than they cost new.

I'd never buy another new car again, or a used one from a dealer. It's very easy to find a person who is selling a super well maintined car (often from a parent or grandparent of theirs) who just wants to sell it for cash, to make their own car payments, or pay bills in general.

Find a car that seems like a steal, bring it to a mechanic and pay him $100 to go over every aspect of it. Even he uncovers a lemon the first time or two, when you find the steal that is for real, you'll save thousands each year in car payments. My repair bills are also low, after buying only an excellently maintained car in excellent condition.

I've been doing this for 20 years now, always have two cars, and every time a friend or family member needs a car, I help them find a good one. It's easy. There's junk out there, but you are just buying only one car. The best deal in a major metropolitan area in the $4K to $6K range in any given month is a great financial victory for the buyer.

Your $180K in student loans is a big negative number, but buying cars as I recommend will save you money otherwise wasted on grossly inflated new or dealer used cars, so you can retire that student loan debt.

My bank loves giving me the car loans, as the price I am paying is always below their listed value of the car for its age and miles, so the interest rate is low, as are the payments.

Good luck.

FredF wrote:

First plan of action:

Quit asking for financial advice from strangers on the internet.

Especially morons like flagpole.

Perhaps this might be good advice, but asking advice isn't necessarily unproductive. Believing anyone to be an expert and following that advise blindly might be.

From my experience, the media, internet sites, friends, family and academicians even payed professionals have what seems solid "advice" about investing or investments, but unfortunately lack the kind of meaningful value you or I may be after.

While many have something to sell, some even with the best intentions are biased in some way that assume their way of viewing the world is the correct way and so to their versions of the future.

Some are gifted with the power of persuasion, but fail to provide evidence. Some use evidence, but fail to use the evidence correctly to conclude a strong basis for his or her belief.

That said, there are some good general ideas that are useful, such as understanding how compounding interest works, understanding the nature of risk and capital allocation, etc. Study, learn and understand probability and statistics at an intuitive level!!!

Most advise about vehicles of investment I would avoid. After a while, I have learned that I am far better not listening to "booyah".

I can say with good reason that no can tell the future beyond chance, and even if one had been right after the fact, chance alone would expect this.

There are a number of investment newsletters, brokerage advisers and subscription services that have been reviewed and I believe that I am not incorrect in stating that while some have had consistent and better than "average"( index or benchmark) results, not one has demonstrated performance that one could conclude has statistical significance. That means that even though the past(in sample) has shown results that indicate better than average performance, this is independent of future(out of sample)results.

While seemingly pessimistic, I do believe, there are "edges" that go beyond insider trading. Specialized knowledge about some asset class industry etc. could be of value assuming one understands the nature of risk, capital allocation and evaluating evidence.

Knowing when and that you have an edge is important, but so too is the ability to understand how much risk is required. Even with an edge, one can go broke miscalculating position sizes.

Good art wrote:

I believe that I am not incorrect in stating that while some have had consistent and better than "average"( index or benchmark) results, not one has demonstrated performance that one could conclude has statistical significance. That means that even though the past(in sample) has shown results that indicate better than average performance, this is independent of future(out of sample)results.

While seemingly pessimistic, I do believe, there are "edges" that go beyond insider trading. Specialized knowledge about some asset class industry etc. could be of value assuming one understands the nature of risk, capital allocation and evaluating evidence.

Knowing when and that you have an edge is important, but so too is the ability to understand how much risk is required. Even with an edge, one can go broke miscalculating position sizes.

There are managed funds and private investors that have made consistently high returns for decades running - something that would be statistically significant to the nth degree. As you mentioned, there are definitely "edges" one can find in market inconsistencies, which has been exploited by arbitragers. There are also fundamental advantages that one can take advantage of to "beat the market," but a lot of it has to do with properly evaluating and protecting against risk. I think catastrophe bonds are a good example, they work on essentially the same principle that insurance companies use to make money (catastrophic event risk neutral-pricing yields higher returns to those "selling" the bonds/insurance).

In the equity market, understanding the fundamentals of an industry/its trajectory, such as investors like Warren Buffet rely on, can yield great returns.

I'm not sure risk neutral was the right word, it's been a few years since I did this in school. Think about if you have a $100,000 house, and it was a 1% chance of burning down in your lifetime, your expected loss is $1000. But at market rates, you will end up paying over $1000 in insurance since you want to avoid the rare but catastrophic event of your house burning down.

Now picture an insurance company that sells hurricane insurance in Florida. If a hurricane hits, it basically becomes the "customer" who needs insurance (traditionally done by re-insurance, but now cat bonds are another option for investors who want to expose themselves to that risk/can diversify in multiple, uncorrelated markets).

Don't worry about your credit score. You are in no position to need it.

You can probably save 3k in the next 3 months while you are looking around and can get a decent car for that. When I was first starting out, I bought 2 cheap cars so if one needed work, I always had another to drive. Since I just had liability insurance on them, it didn't cost that much more. Get 1 credit card to use but pay if off every month. Work on getting the school loan paid down. After 2 or 3 years, your credit score will be better on its own. Most people don't want to do it, but if you live in a less nice place and drive a less nice car when you are first starting out, you can save the money to have much nicer stuff a lot sooner in life. The people that have better credit get better terms and end up paying far less for stuff than others that wanted all the nice stuff right away.

If your job only requires 40-45 hours, find something you can do in your spare time to make a little extra money. I got a cleaning contract at a small office building that took about 10 hours a week and I made an extra 400-500 a month. If you did that, you could dedicate that to a car payment. Never get a payment that takes more than 3 years though as the car will be worth less than the loan for sometime if you get a loan for a longer time.

I wouldn't even think about investing until you get the majority of the school loans paid off. You will have all kinds of fools tell you how much more money you can make in the market but paying off the loans is a "sure" thing. That can never be said about the market.

Do you have mortgages on 14 houses? If so, you owe on, not own 14 houses.

I knew a guy who "owned" ten houses and soon afterwards was upside down on ten different properties. He was a genius at making people thing he was wealthy. He was just the most indebted person anyone knew.

I actually own one. It's easier and better.

Clarification Needed wrote:

Do you have mortgages on 14 houses? If so, you owe on, not own 14 houses.

I knew a guy who "owned" ten houses and soon afterwards was upside down on ten different properties. He was a genius at making people thing he was wealthy. He was just the most indebted person anyone knew.

I actually own one. It's easier and better.

In his case the bank really owned the houses.

I always pay cash when I buy another house. For some reason, the banks like that much better these days!!

I started my parents in rental properties about 13 years ago and they own another 14 houses.

The people that followed those get rich quick schemes by leveraging real estate never lasted and I would see their block of 8 or 10 houses at sheriffs sales over the years. Having a bunch of rental properties that are heavily mortgaged is a very poor business plan.

"In the equity market, understanding the fundamentals of an industry/its trajectory, such as investors like Warren Buffet rely on, can yield great returns."

I wonder to what degree we can reasonably understand growth rates of industry or any other complex system and to what time into the future we can hold such understanding.

Given enough time and compounding, someone could theoretically own the world within his or her lifetime, but this does not happen. Warren Buffet, I'm sure is no exception.

bump

$180,000 in student loans is a LOT. I hope you will soon be making more money so you can attack those loans.

Some points:

1) Don't go out of your way to raise your credit score. A good one just means you can borrow more money, and you don't need to be borrowing any more money brother, until you get some traction on those student loans.

2) Buy a beater car ($5,000 or less). You do NOT need to be making payments of $250 a month for 5 years on a car that isn't even new. Just drive the beater to and from work and don't take big trips with it. If you need to take a long trip, rent a car.

3) Once you get your credit cards paid off, then (unless you have a problem with spending) you should go get one (I find them incredibly convenient even though Dave Ramsey says not to have them). It's a category called "revolving credit". But again, I don't care too much about your credit score. Even when you want to buy a house some day, you can do manual underwriting, or just save up a bunch an put such a down payment on a home that even a bad interest rate won't matter much as you will then pay the house off in about 5 years. I would only do the secured credit card route if you can't get an unsecured one. Typically with the secured card you will pay an annual fee, and then they MIGHT let it transfer to an unsecured card after 18 months or so. Just go to your local bank (where you have a checking account) and apply for an unsecured card and see what they say. Might want to wait until you have the other cards all paid off. In the meantime, use a debit card for convenience.

4) If I were you (single with no kids I presume) I would live as if I were making $25,000 and stockpile some cash. Normally I would say a single guy only needs 3 months of expenses saved in an Emergency Fund, but since you have that HUGE student loan, I'd up it to 6-8 months. Pay the minimum for now on that loan, but once you start making more money, you should consider paying it off as quickly as possible.