The Affordable Portfolio

Will September be August Part II?

2011-09-01T16:51:00.000-07:00

It was definitely a wild and rocky August. Looking at the "Top 20" charts for all-time Dow point gains and losses shows us this much:

August 4th was number eleven on the losses chart (-512.76)
August 8th was number six on the losses chart (-634.76)
August 9th was number ten on the gains chart (+429.92)
August 10th was number nine on the losses chart (-519.83)
August 11th was number eleven on the gains chart (+423.37)

August ninth also had the 20th largest intraday point swing of all time (639.94). The price of gold topped $1700, then $1800, and was briefly over $1900 before dropping back down. Let us also not forget Standard & Poor's decision to take away the coveted "AAA" from our government.

While August 2011 did end with some positive days for the markets, don't expect this to continue throughout September. Recent indicators already suggest the economy is back at 2009 levels. This will create more uncertainty for the markets, meaning more sideways movement. Those "Top 20" charts may have some new entries on them by the time this month ends.

Change Is A-Comin'...

2011-08-26T12:59:00.000-07:00

Haven't posted anything in a while (except for the previous Random Blathering). Fact is, I've been working on expanding The Affordable Portfolio. It's been my dream to make TAP more than a blog. The blog just seemed to be a good jumping off point. I'll still post an article here and there, just not as often.

"It's Not 2008," BUT...

2011-08-26T12:29:00.000-07:00

The talking heads at CNBC and Fox Business have developed a disturbing habit. Lately they want to bandy about the same phrase over and over again: "This is not 2008." True, last time I checked my calendar, it said "2011".

Of course they are referring to the year of the housing collapse, the debacle that really crippled our economy. Banks were lending money to people so they could buy houses they shouldn't have been buying to begin with. The banks weren't happy with just collecting payments on the resulting mortgages, so they bundled them up and sold them to each other. The payments slow to a crawl, pandemonium breaks out. The mortgage bundles are now worthless. They litter the financial landscape to this day after several long-standing institutions have disappeared from the face of the earth.

The recap above is over-simplified, but since this is a Random Blathering, I am trying to keep this post short. The point I am trying to make is this: Sure, it's not 2008 anymore, but we are still feeling its effects in 2011.

ConocoPhillips Stock Purchase Plan

2011-08-11T15:52:00.000-07:00

This next Portfolio Pick is a stock that can be bought from the company. Many companies today offer shares of their stock this way. Their fees can be cheaper than if you had bought from a broker. This is one of them. I introduce to you the ConocoPhillips Stock Purchase Plan (COP).

Station selling ConocoPhillips branded gas. Photo taken by the author.

ConocoPhillips is one of the three leading energy companies in the nation (ExxonMobil and Chevron are the other two). If you ever pumped your gas under a sign that says "Conoco", "Phillips 66", or "76", you did business with them. The dividends have been steadily going up for this company since its formation in 2002 (when Conoco and Phillips merged). It currently pays a dividend of 66 cents a share.

The minimum amount required to own ConocoPhillips through this method is $250. This amount can be waived if you agree to buy every month at $25 (at least ten consecutive months). Here's the best part: there are no fees ($15 if you sell). That's right, every penny goes toward buying this stock. The dividends may also be reinvested (also at no charge). This type of investment is meant to be long-term. It is not suitable for traders.

How I Would Invest: First I would make sure that my portfolio was diversified in a basket of funds and cash. Then I would wait for a possible price dip and do the $25/month (at no fees, why not?). I would reinvest the dividends at first. When each dividend payment reaches around $15 or so, I would then take the cash to put into something else.

I currently do not own any shares of ConocoPhillips.

8/12 Edit: OOPS! It seems I forgot to mention a few more things. That's one of the consequences of having roommates urging you to hurry up on the computer. Anyway, this account can be opened online through BNY Mellon's website. The plan materials are here. BNY Mellon also offers plans from other companies.

I still do not own any shares of ConocoPhillips.

Ally Bank No Penalty CD

2011-08-08T14:03:00.000-07:00

Cash is king. Every portfolio should have some portion of it dedicated to cash. That is why for my latest Portfolio Pick I'm going to highlight the Ally Bank No Penalty CD.

Ally Bank advertisement featuring the No Penalty CD. Video embedded from Ally Bank's YouTube channel.

It happens every now and then, you have a decent sum of cash in your savings account and you want a higher return. So you open a certificate of deposit to get that return. Suddenly a circumstance comes up that your savings can't cover. You have no choice but to tap into that CD and take a penalty for early withdrawal. If you close the account early in the CD's term, you end up with less money than when you opened it.

The Ally Bank No Penalty CD is one of those rare accounts that will let you "Have your cake and eat it too". As the name suggests, this CD will let you take out your cash without getting hit by that early withdrawal penalty (after the first six days of funding). It also pays a higher interest rate than most savings accounts, giving your cash reserve that extra boost while maintaining liquidity.

This CD is available in a single term of eleven months. The minimum balance to open an account is $0. The account may be opened online or by calling 1-877-247-ALLY (2559).

How I Would Invest: I would open an account with an amount of cash I felt comfortable with sacrificing. Yeah, I know could it back without getting penalized, but I want that higher rate of return. I would let the interest compound.

This is not a recommendation to open an account. While I do have accounts with Ally Bank, none of them currently are CD's. That may change in the future.

Blues In The Key Of AA+

2011-08-06T09:31:00.000-07:00

It's official: the country is being run by Standard & Poor's. It's not being run by somebody in the Oval Office, nor 535 squabbling and bickering politcos, but some division of a major publishing company. Replacing the third "A" with a "plus" will definitely have an impact on this nation for years to come.

Will Moody's ally with the S&P and form a cartel?

Following The Bouncing Dow

2011-08-06T08:57:00.000-07:00

It definitely was a bizarre end to a bizarre week. "Buyers vs. Sellers" was the theme for the day. When the dust settled, the Dow finished higher. I don't think the buyers won this round.

Amana Growth Fund

2011-08-05T17:42:00.000-07:00

It's time for Portfolio Pick number two. I present you with a growth fund that invests in large companies. This fund is not like the other large growth funds on the market, however. I am talking about the Amana Growth Fund (AMAGX).

Performance of the Amana Growth Fund (in blue) vs. the S&P 500 Index (in green) and the Dow Jones Industrial Average (in red). Graph captured from Yahoo! Finance (8/5/2011).

So how is this fund different? It takes an Islamic approach to investing: stocks are o.k., bonds are not. Any portion of AMAGX's assets not invested in stocks remains in non-interest bearing cash.

Not all stocks qualify, either. Any company that does not adhere to the principles of Sharia law are also excluded. Examples include:

Banks - no JPMorgan Chase (JPM) here
Adult Entertainment - New Frontier Media (NOOF) not allowed
Liquor - forget Brown-Forman (BF.A/B)
Gambling - Ameristar Casinos (ASCA) is out
Pork Processing - sorry Hormel (HRL)

Despite leaving these types of companies out, this fund does pretty darn well. Notice that graph above? AMAGX has been consistently beating the 500 and the Dow since around 2004. Morningstar gives the fund five stars.

Getting into this fund requires a minimum investment of $250 ($100 for IRA's). The minimum must be met head-on; there are no waivers for an automatic plan. Once enrolled, subsequent purchases may be made for $25/month. Although you can't open an account online, the necessary forms are available at Amana's website (the applications and prospectus can be found here).

How I Would Invest: Not much to say here. If I didn't have the minimum funds required, I would sock away the money in a savings account until I did. I would then sign up for the automatic investment plan, and reinvest the dividends and capital gains.

This is not a recommendation to buy. It's up to you whether you should own this Portfolio Pick or not. Consult a financial expert if you need to. I currently do not own any shares of this fund. I am also not a Muslim.

Never Mind...

2011-08-04T13:41:00.000-07:00

The Dow had a one-game winning streak. It's over now. It didn't just lose, it got spanked. There have been bigger point losses in the past (this loss ranks at number 9 on the list). Percentage wise, it pales in comparison to Black Monday (-4.31 vs. -22.61). What does makes this loss troublesome is the fact that it came the day after it bounced back after eight straight defeats.

Out Of The Woods Yet?

2011-08-03T14:10:00.000-07:00

The Dow managed to end its losing streak at eight straight sessions. If it had finished lower today, it would have marked the first nine-straight-day loss since 1978. Back then, Jimmy Carter was leader of our country (it would be about another year before the infamous Malaise Speech). The general public was introduced to unusual economic terms like "stagflation" and "misery index". Can the DJIA be starting a new streak?

Homestead Small-Company Stock Fund

2011-08-03T13:50:00.000-07:00

Here it is, my first Portfolio Pick. I must say I really thought about playing it safe. "Start off with an index fund" I thought to myself. So I went through my list of affordable investments looking for such a fund. This little gem caught my eye; I couldn't pass it up. So I decided to go another direction and kick off Portfolio Picks with the Homestead Small-Company Stock Fund (HSCSX).

Performance of the Homestead Small-Company Stock Fund (in blue) vs. the Russell 2000 Index (in green) and the S&P 500 Index (in red). Graph captured from Yahoo! Finance (8/3/2011).

I like small company stocks. Many of them have potential to become the industry leaders of tomorrow. This, of course, results in huge gains for an Affordable Portfolio. Consider these following examples:

Walmart (WMT) was once a single five and dime store in a small town in Arkansas
McDonald's (MCD) originally operated as a hamburger stand run by two brothers
Microsoft (MSFT) was founded by two childhood friends to design software for a hobby kit computer

Now these companies are the behemoths of their respected industries. I personally know a lot of people who wish they could travel back in time to 1986 (when Microsoft went public).

Small companies as a whole are more volatile than their larger brethren. That's why it is best to jump into them through a fund. This particular fund does not disappoint. It carries a five-star rating from Morningstar; it gets a "1" (strong buy) from Zacks.

HSCSX only requires a $500 minimum investment ($200 for IRA's). However, the minimum is waived if the prospective buyer agrees to sign up for an automatic investment plan. Interestingly, the minimum for such a plan is $0 ($25 sounds like a fair amount). The account can not be opened online, so you would have to go to the website, download an application (don't forget the prospectus too), print it, fill it out, and mail it to the address listed on the form.

How I Would Invest: Instead of putting the full $500 up front, I would start off with at least $100, but no more than $250. I would then sign up for the plan at $25/month and let dollar cost averaging work its magic. Those dividends and capital gains would also be reinvested.

As I have mentioned before, this is not a recommendation to buy. It's up to you whether you should own this Portfolio Pick or not. Consult a financial expert if you need to. I currently do not own any shares of this fund.

Out Of The Frying Pan...

2011-08-02T14:47:00.000-07:00

So our government pulled its head out of the proverbial a** and finally got a deal in place. Now can it avoid a possible downgrade in its debt from the "scary" S&P and Moody's? S&P did downgrade Japan back in January, and frankly the earthquakes and tsunamis did more damage to that country than the agency ever could.

Introducing The Affordable Portfolio - Investments Anyone Can Buy

2011-08-02T09:57:00.000-07:00

Sometimes I think that those in the world of financial media live under a rock. They have this assumption that the general public has a sizeable wad of cash to plow into the market. They'll put out a magazine article advising you to ADD THESE FUNDS TO YOUR PORTFOLIO NOW!!! The problem is many of these investments require anywhere from 3 to 10 thousand dollars just to get in. Sorry, but not all of us make six figures a year.

From time to time, a personal finance writer will crawl out from under that rock. He will notice that there are those who don't have a lot of money, but would like to put it to work. So he writes an article about mutual funds that can be bought for a pittance, gets it published, then crawls back under to rave about the next batch of inaccessible investments. He's done us a huge favor, but he is only one voice out of thousands. Affordable investing shouldn't have to be restricted to just a single page in magazines like Kiplinger's or Money.

This is where I come in. Just like the writer mentioned in the previous paragraph, I too, am just one voice. Unlike him, I don't live under a rock. I want to show you that there financial products out there that can be yours for $500 or less. They are still out there. The investments I will profile include:

Mutual Funds
Cash and CD's
Stocks
Alternative Investments

DISCLAIMER AND DISCLOSURE UP FRONT: Just because I write about these products doesn't mean I am recommending them. Many of them I don't own myself. This website is for information purposes only. You should carefully consider whether they are suitable investments for you or not. Consult with a financial professional if you need to.

Anyway, I should finish now. I promise to return soon with some ideas for your Affordable Portfolio. Until then, MANY HAPPY RETURNS!

Before I Begin...

2011-08-01T15:58:00.000-07:00

Here it is, one day before our government could default on its debt, and I'm starting a personal finance blog? Is it bad timing? Am I nuts? However this game of "congressional chicken" plays out, I'll stick to my mission. I will return with my first full post explaining this site's purpose.

Stay tuned...