What Type of Investor Are You?

by FI Fighter on December 9, 2013

in Thoughts

giant_grizzly

When I first started this blog in February of 2012, I was a full-fledged dividend growth investor. Well, maybe not quite, but I was pretty close! Sometimes I took gambles and invested in non-dividend growth companies like Exelon (EXC), Transocean (RIG), Apple (AAPL), etc. With EXC, I went for perceived value (low P/E) even though the dividend was frozen. RIG was another sort of value play, even though they had just issued a dividend cut. Lastly, when I invested in AAPL, it was a growth story and this was well before Tim Cook announced a dividend reinstatement.

Investing in Stocks

The results were varied. I was burned by EXC, sold for a loss with RIG, and rode AAPL up to $700 (but was too greedy and didn’t cash out at the top). Would I have been better served just sticking to dividend growth stocks? From this small sample size, yes, probably. However, even with mediocre results, I don’t think I could ever declare myself a TRUE (100%) dividend growth investor.

And I’m fine with that… I like to keep my options open. I try my best to be adaptable. This year, the stock market has been on fire, and it’s been very difficult to locate bargains. Since the value isn’t there, it’s hard for me to get excited with such low returns on most dividend stocks. Earlier this year, I decided to look elsewhere to try and unearth some value.

In May, I took a gamble on Tesla Motors (TSLA) and ended up making over $20,000 in capital gains. I wish I would have bought Google (GOOG) when it first went public in 2004… and I still wish I had a crystal ball too, but I digress. Even though I got lucky with TSLA, I know better than to outright declare myself a growth stock investor. I’m certain I’m not cut out for this type of investing.

I see both sides of the coin. On one hand, if you’re trying to build a passive income stream, of course it makes more sense to allocate a larger percentage of your portfolio to dividend stocks. However, if you have full conviction on a growth stock, then you probably should at least allocate a portion to these investments. Appreciation should never be the main focal point of your investment portfolio, but to miss out on these potent gains would be unfortunate.

Like with most things in life, it’s all about finding the right balance.

Investing in Real Estate

In 2012, my primary focus was on dividend investing. Based off my recent activity this year, I don’t think it’s a secret that I’ve shifted my investment strategies over to real estate. Does that make me a full-fledged real estate investor? Even though real estate now makes up the majority of my investment holdings, I would say no.

No? Does that come as a surprise to you? After all, I own four rental properties and am trying to buy another one early next year. I’ve even made it a goal to acquire ten rental properties by the end of 2015. How can I possibly say I’m not a real estate investor?

Having dabbled in both stocks and real estate, I see the benefits and reasons for investing in both. Right now, it makes more sense to me to invest in rentals primarily because:

  • Interest rates are so low.
  • I’m finding returns that generate greater than 15% cash-on-cash (not accounting for additional gains due to principal paydown, depreciation/tax breaks, etc.).
  • I want to maximize the number of loans I can get before I quit my W-2 job. Lending is strict — no job, no loans!

But real estate also comes with its own set of disadvantages. Properties are highly illiquid, the income isn’t truly passive, and cash flow can be highly unpredictable (due to maintenance, vacancy, and other expenses).

I’m certain there will come a time when I’ll feel like I have enough allocation in rental properties, and will want to re-shift my focus towards dividend stocks again.

Investing in Financial Independence

At the end of the day, I’m not a dividend growth stock investor. I’m not a growth stock investor. And I’m not a real estate investor.

Just what am I?

I am a financial independence investor. My allegiance is to financial freedom and I will invest in whatever options I have available to help me get to the top of the mountain in the shortest amount of time, with the least amount of my own capital.

Markets change. They go up and down. Everything is dynamic… So, I have to be able and willing to adapt.

Lately, I’ve been hearing a lot of buzz about this whole bitcoin thing… I don’t know anything about it yet, but if I’ve learned anything, it’s that I’m not willing to shut the door on potential investment ideas. Then there’s virtual real estate investing, lending club, etc.

The list goes on and on… Ultimately, I think the most important thing is to find a strategy, or strategies that best suit you. It’s not written in the stars anywhere that you can’t invest in multiple platforms. When I was a kid, I owned a Sega Genesis and a Super Nintendo. Remember those Mario vs. Sonic debates? What a waste of time… I enjoyed both titles! :)

 

What type of investor are you? Are you comfortable declaring your allegiance to just one form of investing? One to rule them all… Are you also a financial independence investor?

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{ 21 comments… read them below or add one }

Fast WeeklyNo Gravatar December 9, 2013 at 7:41 am

I am a value investor FI, but I dabble in other areas. I’ve learned to focus on cashflow and want to steer as much as possible into my pocket. Given my background I should have embraced real estate investing more, but live and learn.
-Bryan

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FI FighterNo Gravatar December 9, 2013 at 11:57 pm

Bryan,

Cash flow is the name of the game! That’s my focus as well, and what I’ve been concentrating most on. Eventually, I might want to buy into higher quality neighborhoods, so this would force me to take a cash flow hit, but buy me more appreciation potential. Ultimately, I’m looking to build a balanced portfolio of rentals… After that, I’ll get back to dabbling in other areas, like yourself.

Thanks for sharing!

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FFdividendNo Gravatar December 9, 2013 at 7:45 am

I’m a financial independence investor as well!!

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FI FighterNo Gravatar December 9, 2013 at 11:57 pm

FFdividend,

Cool! The more the merrier!

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theFIREstarterNo Gravatar December 10, 2013 at 11:44 pm

With you on that one!

No point in sticking to just one type of investment. Many fingers in many pies.

I would like to get into a rental property and try out some p2p lending in 2014

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Brad @ RichmondSavers.comNo Gravatar December 9, 2013 at 8:45 am

I’m not sure I’m any type of investor other than a long-term one. I like the thought of investing in low-cost total stock market mutual funds and holding them for fifty years or so…

I can’t time the market and I have a huge time horizon, so why not go for low cost funds? Likely better net returns after expenses and no stress or hassle.

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FI FighterNo Gravatar December 9, 2013 at 11:59 pm

Brad,

Low expense ratio index funds are an awesome solution to long term investing needs. I love em and have quite a bit tucked away in my retirement plans.

Since I want to reach early FI soon, I also need an early retirement plan, hence the rentals. For someone with a longer time horizon, I agree that the index funds are a great solution. No need to do extra research, or market timing either, which is pretty sweet.

Cheers!

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moneyconeNo Gravatar December 9, 2013 at 9:40 am

I’ve had my share of success and failures in the market. The way I look at it is – this is the price you pay for an education in investing! You quickly learn what doesn’t work and slowly learn what works!

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FI FighterNo Gravatar December 10, 2013 at 12:02 am

moneycone,

There’s a lot of truth to that — It takes experience to really figure out what works and what doesn’t. The sting of a bad investment will probably be the most useful (yet painful) lesson you can experience…

Good thing there are lots of quality blogs/resources out there to help investors avoid making the same mistakes… If possible, learn from others mistakes so you don’t doom yourself to the same pain.

Cheers!

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Done by FortyNo Gravatar December 9, 2013 at 1:29 pm

I think I’m a crappy investor. :) (So I just buy index funds.)

I think we’ll try to follow your path a bit though and buy some investment properties in the next couple years, while still investing in the markets. The goal for us is like yours: not to focus on a specific type, but to reach financial independence.

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FI FighterNo Gravatar December 10, 2013 at 12:04 am

Done by Forty,

Haha, if you’re a “crappy” investor, well, you’re still beating 99% of active fund managers out there. It’s hard to beat index funds… you don’t have to do any work and you still get the results! I love em myself…

It’s a good idea to diversify into different holdings. Since I own a lot of index funds in my traditional retirement accounts, I like having rentals to diversify my holdings. They both have their place in a balanced portfolio.

Cheers!

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The First Million is the HardestNo Gravatar December 9, 2013 at 6:34 pm

Financial independence investor. I like that.

I’d consider myself a value investor. Not in that I stick to “value” stocks, but I’ll consider any investment that I perceive to be undervalued at the time.

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FI FighterNo Gravatar December 10, 2013 at 12:07 am

Jay,

Being a value investor is a great way to build wealth. It’s a bit easier said than done, unfortunately, since it does take a lot of skill to accurately perceive what is really undervalued… I’m not very good at this — evident by my failed purchases into “value” with EXC, RIG, etc…

Props to you if you have the skills to utilize this strategy!

Take care!

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Charles@gettingarichlifeNo Gravatar December 9, 2013 at 10:19 pm

I’m a being poor sucked and I never want to be like that again investor.

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FI FighterNo Gravatar December 10, 2013 at 12:09 am

Charles,

LOL! That’s hilarious…I’m one of those too! :)

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MartinNo Gravatar December 10, 2013 at 7:28 pm

I like your term “a financial independence investor”. I will use it.

Well I bet if you read my blog you know what investor I am. I also am not a strict dividend growth investor. I use selling options (puts and covered calls) to boost my income. The ultimate goal is the income and I will use all possible means to get it no matter what valuation of my assets is as long as it generates enough income.

Since I started late unlike others, I have to use options to boost my income and use all sorts of leveraging. That’s why I also trade with margin (which you do obviously too with your real estate investing).

So good luck with you investments and happily into the new year! Merry Christmas!

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FI FighterNo Gravatar December 15, 2013 at 6:59 pm

Martin,

Thanks! Selling puts and covered calls are a great way to generate extra income. If I was still playing in stocks, I would also make use of those options. You have a great strategy!

I’ve never traded using margin, but I definitely do my best to utilize leverage when it comes to real estate investing. Real estate has a much higher barrier to entry than stocks, so it’s almost impossible for someone just starting out to purchase without making use of leverage. Just gotta be careful with it…

Merry Christmas my friend!

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JC @ Passive-Income-PursuitNo Gravatar December 11, 2013 at 2:10 pm

Financial independence investor, I would gladly let someone call me by that name. I’m hoping to branch into some real estate next year but that’s going to largely depend on the opportunities. I think for the first rental I want to have it nearby so it kind of limits the properties. Plus that will be the best way to get the wife further on board.

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FI FighterNo Gravatar December 15, 2013 at 7:00 pm

JC,

Hopefully you’re able to locate something good in your area next year! A rental property would be a great complement to your dividend portfolio. 2014 is gonna be an interesting year. Looking forward to following your journey and progress.

All the best!

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Jon @ MoneySmartGuidesNo Gravatar December 11, 2013 at 3:56 pm

I love your description of the type of investor you are. I am a passive investor. I’ve never heard of virtual real estate investing….what does that entail?

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FI FighterNo Gravatar December 15, 2013 at 7:02 pm

Jon,

Thanks! Virtual real estate is exactly that… it only exists in the virtual world. Kind of like selling weapons from Warcraft online to other gamers… There are videogames out there where people sell virtual buildings/hotels to others using real currency… Sounds very far fetched and out of left field, but apparently there are those out there who make six figures (real money) doing this…

I’m 99.9% sure I would never invest in virtual real estate, but again, I won’t slam the door shut on it either…

Cheers!

Reply

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