Monthly update

Ad income: $0.38 (is this good for two blogs less than a month old?)


Savings account balances: $2,131.49
Scottrade cash: $23.24
Firstrade Roth cash (CAMXX): $100.52
Sharebuilder cash (BDMXX): $0
TradeKing cash (RUTXX): $40.81

Note: I've transferred my Sharebuilder account to TradeKing, which cost $50. However, TradeKing is supposed to reimburse me. Cash doesn't reflect this. Also not reflected is gift spending, which was on credit cards (will be paid off fully in January) and money I owe to my girlfriend, who bought gifts on my behalf. This should be under $200.

Total cash: $2296.06

Stocks and Funds:

Blackrock Enhanced Equity Yield Fund (EEF): $113.12
Janus Smart Growth Portfolio (JSPGX): $770.61
General Electric (GE): $74.14
Overseas Shipholding Group (OSG): $669.87
Reynolds American (RAI): $593.64
Royce Focus Trust (FUND): $148.66
DuPont (DD): $484.99
(RJA): $448.13

Other Investments:

Prosper.com: $100 (will describe this in a later post)

Total Stocks/Mutual Funds: $3403.16

Total Investments and Cash as of 1/1/08: $5699.22 (18.22% gain over last month, not that great considering what I started out with, but I'm happy it's growing rather than shrinking. I would be extremely happy if I gain, from month to month at that rate.)

Pretty much all my gains this month came from work. All stocks, with the exception of FUND, which gave a pretty big dividend, lost value. EEF and RAI are both ex-div.


Investing in Agriculture, ETN, Jim Rogers

I've recently started a small position in The Rogers International Commodity Index Agriculture Total Return ETN (RJA). View the prospectus here.

RJA is rather new, just starting out in October. It tracks the RICI-Agriculture Index, which "is an index of 20 commodity futures contracts, representing commodities consumed in the global economy." It "aims to be an effective measure of the price action of raw agriculture materials...around the world."

The positive aspects about investing in agriculture:

1. Worldwide demand for food (grains, livestock) is out pacing production, and is expected to do so for quite a while.

2. Worldwide supply of food is at 30 year lows.

3. An emerging middle class in places like China contributes to rising grain and livestock prices. The new middle class buys more meat, thus raising prices. As livestock feed on grain, grain prices rise also.

4. Grain prices, especially corn, rising because of US Congress' obsession with ethanol.

Positive aspects of investing in RJA:

1. .75% expense ratio and commodities have a negative correlation with the stock market as a whole.

2. As mentioned above, RJA includes some 20 different agriculture commodities.

3. It's a great hedge on inflation.

Here are some negative aspects that I've considered:

1. The commodity market prices can change unpredictably.

2. The publisher of the index may stop publishing, which would make it harder to price the market value of RJA.

3. While diversified over a host of agriculture materials (e.g. cotton, corn, wheat, sugar), it is not a diversifed investment because it is concentrated in the agriculture sector.

4. No dividends.

5. Very low liquidity, at least right now. As of the previous market close of this post, the average dollar trading volume was around $1.5 million.

6. This is an ETN (exchange traded note), not an ETF or a closed end exchange traded fund. It attempts to track an index and is traded on AMEX, but it's a bond. This means that there's issuer risk in the sense that the bank issuing this unsecured debt can default. Here, the issuer is a Swedish bank SEK. It is a quasi governmental entity, so its default risk should be low. Apart from default risk, there is also credit rating risk. That is, if SEK's credit rating is downgraded, RJA's value may decrease even while the underlying index rises.

Other things to consider:

1. If RJA is not diversified enough for you, maybe ELEMENTS Rogers International Commodity ETN (RJI) is. Agriculture is about 1/3 of its holdings, with other commodities, such as metals, natural gas, and oil, making up the rest. View the prospectus here.

Another option includes investing in the Goldman Sachs Commodities Index through iPATH S&P TOTAL RETURN INDEX (GSP), also an ETN. Just as RJI, it is spread out through agriculture, energy, and metals. Its expense ratio is .75%. While this ETN has been around since the 3rd or 4th quarter of 2006, it is still very thinly traded, with an average daily trading volume around $1.3 million. As GSP has been around longer than the Rogers ETNs, it may indicate how RJA and RJI will be traded a year from now--still thinly. However, given rising inflation, investors may become more interested in commodities to diversify their portfolios.

iPATH offers other commodity ETNs, with different allocations and underlying indices. If you are interested, check out their page. In the upper left hand corner you should see a tab labeled "commodities." Clicking on that shows you 11 different ETNs.

2. Some stocks, such as Dupont (DD), Monsanto (MON), and Deere (DE) might be better options for investors, as they offer dividends and more liquidity.

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Bought a little DuPont

I've resolved to only build a core portfolio of dividend paying stocks of relatively large, steady companies.

To this end, taking advantage of my last free trade at Scottrade before it expires, I bought El DuPont de Nemours & Co. (DD).

The bad:

DD is one of the largest autopaint makers in the world. As the US economy heads for a slow down or a recession, this isn't that good for the company.

What should outweigh the bad above is that

1. DD is the 2nd largest in world in the agricultural business. The demand for food already outpaces production, and this should continue. Moreover, DD should benefit from rising corn seed prices because increased biofeul production.

2. Almost 60% of DD's sales come from outside the US. As the dollar falls, DD will make more on the currency exchange.

3. Right now it has a 3.6% dividend yield, which is pretty good. DD also has a long, steady history of increasing dividend payments. Just recently it raised its dividend by about 11%.

4. With a price/sales ratio of about 1.37, this is the cheapest DD has been in about a decade.

5. The company has bought back shares, and intends to buy back an additional $1.1 billion worth.

6. DD recently acquired IsoTherming Technology from Process Dynamics. This will help grow DD's Clean Technologies business because it provides refiners with a faster, cheaper way of producing cleaner fuel.

7. Eventually, the economy will improve, so DD's other business segments, which are flat or shrinking now, will improve.

I intend to keep DD forever, and add to my position on a hopefully regular basis. I might transfer it over to my Tradeking account, which has free dividend reinvestment, for compounded returns on the dividend.

My next stock purchase will most likely be additional shares of GE.

Update, sold DuPont.


ING Direct Sharebuilder Review

Regular Individual Account

Here's the good:

1. You can buy fractional shares. You just specify the dollar amount. This means that you can invest any amount you like, no matter how much a share costs. For example, you can buy $200 worth of Berkshire Hathaway (BRK-A, over $100,000 a share).

2. For automatic investments (based on a schedule or by amount, i.e. you pick which Tuesday of the month to invest, or you specify how much to invest and when you have this sum in your account Sharebuilder invests it for you), in the Basic plan the commission is $4 a trade. The Standard plan, which costs $12 a month, gives you six free automatic investments per month. Each additional investment is $2. The Advantage plan, for $20 a month, gives you 20 free automatic investments per month. Additional investments are $1 each. Depending on how many investments you're planning to make per month, each plan has its advantages and can dramatically lower your costs.

3. Deposits into your account take about 1 business day if you make them electronically.

4. For automatic investments, you can buy shares with funds from your bank account without any extra fees; you don't have to have money in your Sharebuilder account.

5. There are no fees for taking your money out, and once the initial hold is gone (usually 3 days after your deposit) you can take your money out within a day. E.g. if you have cash in your account and want to transfer it to your bank account, if you do it before 5 P.M., you'll have the money the next day.

6. Free dividend reinvestment if you choose to have it. You have a choice for every dividend paying stock whether you want to automatically reinvest dividends.

7. No account minimums or inactivity fees. As of November 2008, there are no IRA maintenance fees (used to be $25 a year).

8. Sharebuilder now offers mutual funds (although a very limited selection so far).

9. You can trade options (but this is expensive).

10. Free real-time quotes. (Thanks to the anonymous commenter below for alerting me to this change.)

The not so good:

1. You can't specify a limit price for automatic investments. They're made at market price.

2. Automatic investments are only on Tuesdays, and you have to place your order by Monday afternoon.

3. There is an initial hold of a few days after every deposit, so you can't have your money back right away.

4. The site is a bit hard to navigate.

5. Express funding for mutual funds and real-time trades, unlike for automatic trades, costs $5 (unless you have an ING Electric Orange bank account).

6. Customer service is somewhat slow, at least with email. It takes from 24 to 48 hours to get a response (unless you write them on Friday, in which case you probably have to wait at least until Tuesday), and some of the responses I've received were form emails having nothing to do with my question.

7. Transferring your account to another brokerage costs $50 and takes up to 30 days. Transferring individual securities to another broker costs $10 each (but $50 maximum--for example, it's $50 if you transfer 5 stocks or 20.) Unless your commissions at the other broker are free, this is cheaper than selling the stocks in Sharebuilder and buying them at the other broker.

8. While automatic investments cost $4 (or less, depending on your plan), you have to make a real-time trade when selling. That's $9.95 (but better than the $15.95 it used to be).

10. The research section of the site is not as good as it can be, but getting better. It must be noted that Sharebuilder is not a broker for traders. The tools it offers are for buy and hold investors.

The bad:

1. Execution is much slower than other brokerages. The one position I sold went through my limit price (I saw real-time quotes on Scottrade) a couple of times before the order was executed.

2. The number of different stocks, ETFs, and mutual funds that you can buy is limited.

3. No bid/ask displayed for real time trades.

4. No bid/ask for options trades.

5. Where's the symbol lookup for options?

Bottom line:

An ING Sharebuilder individual account is great for buy and hold investors who use dollar cost averaging by investing small amounts on a regular basis. Just make sure to keep the commissions under 2% of your order. Sharebuilder is terrible for traders, as the execution is bad, and the fees will eat you alive.

This review will be updated periodically. Sharebuilder is getting better. There have been significant improvements since ING bought it. Let's hope this continues.

Updated December 28, 2008.


My Newbie Investor Mistakes

I started investing about two years ago. Since then I've made several blunders, that I'm sure many others make too. Here are a couple:

  1. I bought a stock because someone else recommended it (twice).
  2. I let my returns be crushed by commissions.

1. Never listen to the guys in the investment magazines, newsletters, and on the TV. Maybe they have great track records and their bad picks are just a fluke. They recommend so many stocks, however, that their picks are pretty much like an index, and over the long run indexes (large collection of stocks) tend to go up. Individual investors don't have enough money to invest in every single recommendation, and it might be that 20th or 30th stock that you had no more money to buy that would put your portfolio in positive territory.

If Warren Buffett had a stock recommendation show or column, would it last? I doubt it. Weeks would go by without a single stock pick. Stock pumpers on CNBC like Jim Cramer, however, have to find a new bunch of stocks five days a week. They make a living not on investment advice, but on entertainment. Don't listen to them.

2. Try to keep your brokerage commissions under 2%. Don't buy $100 worth of stock when the broker charges you $10 to buy and sell. In such a scenario, your stock has to go up 20% in price just so you break even!

What silly investing mistakes have you made? Feel free to post a comment.

First Entry

My goals are the following by the time I'm 40:

1. To have a liquid net worth, adjusted for inflation, of at least $1,000,000
2. To have a steady source of passive income that pays for my and my family's living expenses and increases my net worth.

I want to do this with as little work as possible. This blog will document my progress.

Here's how it is at the start:

Age: 25

My current income stream:

Part time job: $270 - $360 per week
Bank interest & stock dividends: ~$70 a year
Ad income: $0


Savings account balances: $2,127.78
Scottrade cash: $317.92
Firstrade Roth cash (CAMXX): $100.52
Sharebuilder cash (BDMXX): $37.58
Tradeking cash (RUTXX): $3.17

Stocks and Funds:

Blackrock Enhanced Equity Yield Fund (EEF): $118.09
Janus Smart Growth Portfolio (JSPGX): $607.56
General Electric (GE): $74.46
Overseas Shipholding Group (OSG): $676.8
Reynolds American (RAI): $626.67
Royce Focus Trust (FUND): $130.34

Total Investments and Cash as of 12/9/07: $4,820.89


Graduate school tuition: ~$9,000 this year
Commuting: less than or equal to $75 a month
Entertainment/gifts: ~$100 a month

My short term goals are to increase my ad revenue. My medium term goal is to generate enough income, without getting a full time job, to cover my liabilities.