What I’m Doing With My Investments During This Unpredictable Time

I don’t pay much attention to the news although I also don’t ignore them entirely. I guess it is a case of calm isolation as opposed to total immersion when it comes to the news for me.

A while back I logged into my brokerage account and could not believe what I was looking at.

My portfolio had a huge hit. For every $100 I had invested the value was now seated at $88. Like I normally do when panic sets in, I log out of my account and think hard. — Ok, I mostly go on a reading spree to find out how to fix my shit.

My mistakes

When I started investing, I paid so much attention to index funds and individual stocks. Even the index funds that I held were also stock collections.

This meant that my portfolio had about 90% invested in stocks. I thought I was diversifying by buying different index funds and stocks but that wasn’t enough diversification.

Also, the stocks I bought were heavily concentrated in specific industries which further exposed me to unnecessary risk.

My portfolio was weak and taking a hit from the first time I created it which only got worse with each of the many negative world events that took place.

My Solution

I do not move money around based on news or any form of world events. Which I think is a very good mindset to have if you are considering holding your investments for a long time.

My calm isolation from the news, therefore, is an advantage. I don’t pay attention to the news. By not paying attention to the news, I don’t mean that I’m callous.

I keep up with what is going on in the world but I do not let it factor into my investment decisions. This is what I mean when I say that I am don’t pay attention to the news.

This is first of all possible by having a plan. If you do not have a plan for your investments, then you have to make one as it will give you a framework with which to make your investment choices and prevent you from making stupid decisions as I did.

This is the plan that I am currently following.

Having an emergency fund

The first step is having an emergency fund that helps me handle any situations that I may find myself in that require money.

This fund also prevents me from dipping into my investment portfolio which can help me retain a cool mind as I work on building that out.

I didn’t have an emergency fund when I first started investing which was risky because it increased the chances of taking the money out. Thankfully, I didn’t.

I build the emergency fund pretty much the same way I build my investment portfolio. i.e, contributing to it monthly instead of waiting for a lump sum of money to hit my bank account.

At the moment, I have 3 income streams and those are the payments that I dynamically use to steer my finances.

Each month, the least of them all becomes my spending for the month, the middle one goes to my emergency fund, and the one with the most income that month goes to my investment portfolio.

I also have a different bank account that holds my emergency fund. This is a little harder for me to access than the account containing my monthly spending.

Floating-rate bonds

TIPS,(Treasury Inflation-Protected Securities), are useful if you want to protect your investments in bonds that are indexed to inflation. These are issued by the U.S government and other countries also have such types of bonds issued by those countries’ governments which makes them the safest investments if you can get them.

I don’t own any TIPs at the moment but I went for the next best thing which in my opinion is floating-rate bonds purchased through ETFs or mutual funds.

Bonds usually offer a fixed interest rate for the life of the bond. This is not a good investment if inflation is increasing because, with each inflation increase, your returns are reduced.

To reduce that effect, floating-rate bonds are used because with these types of bonds, the payouts increase in response to the upticks in interest rates caused by rising inflation.

I find these easier so I decided to add them to my portfolio.

Low-cost stock index funds

When buying stocks, I quickly learned that it can be a terrible idea to buy individual stocks so I have them relegated to speculative sections which include crypto.

Low-cost stock index funds collect a portfolio of stocks that can be very useful in diversifying your stock picks.

In my investment earlier on, I only had low stock index funds and individual stocks. Even though the index funds were a good idea, my overall portfolio suffered because it was not hedged against inflation and it was exposed to the unnecessary risk of holding so many speculative individual stocks.

Having low-cost index funds minimizes your expense ratios and management fees which increases your returns over a long time.

There are a few things that I haven't talked about such as picking ETFs and stocks that give a dividend. This can help you reinvest and grow your portfolio much faster.

As far as allocation is concerned, I have 60/40 in stocks and bonds respectively.

I am still doing more research to figure out how to make my portfolio better but these are some improvements that are helping me get better results.

If you are interested in starting your investment journey, apparently, the brokerage I use will give you up to $1000,… and $200 for me if you use my link. But I only have 15 slots for this year on that link. Does that mean I’m giving away $15000? Anyway, that means hurry while they last.

Happy investing.