As I mentioned at the beginning of the year, I’m participating in an investing competition — well more of just a game than a competition — with several other writers and bloggers this year. The premise of the game is to start the year with $1,000 invested in discount brokerages of our choice, and track the progress throughout the year. It’s similar to the stock market game played in thousands of elementary schools in the United States, only with real money.
The investing philosophy I wanted to work with was simple. My investments would be those companies that affect my life on a daily basis. I chose Honda (my car), Samsung (my phone, tablet, and television), Google (affects the work I do), Microsoft (the computer software on which I do my work), and Canon (my photography). Because I had to by whole shares, and in some cases, whole shares of ADRs or ETFs instead of the investments directly, I had some money left over from the $1,000, so I invested all of the rest (plus $8.82) in a broad USA index fund.
My first report in January showed the immediate losses due to transaction fees at ShareBuilder. This is a pretty good lesson. If you’re trading small amounts, you’re in for losses that will always be tough to recover. Transaction fees eat heavily into your profits. If you buy $100 worth of stock with a $7 transaction fee, your investment has to earn 7.5% just to recover the loss from the transaction!
It’s a ridiculous system, not designed for small-time traders. Trading stocks is a losing game for everyone except the brokerage, who makes money even if you lose everything.
After two months, my investments haven’t recovered at all. Each one of the investments is underperforming the index, which itself hasn’t recovered from the $6.95 transaction fee.
Here are the latest results, as of February 28.
Despite the poor performance thus far — exacerbated by the high cost of trading — I will stick with this plan for the year. I have no need to buy or sell any of these investments, and the purpose of this game is to see how this strategy performs over the longer term. Had I invested the full $1,000 (or $1,008.82) in the S&P 500 index fund without a transaction fee, I would be slightly ahead for the year instead of significantly behind.
The good news is that in my main investing accounts, with assets that outweigh the $1,000 stock market game, returns in February have more than wiped out losses in January. The bulk of my portfolio, a mix of stock and bond index funds, is positive for the year. I had a call with my Certified Financial Planner earlier this year (here’s the report from my initial discussion a few years ago) and he didn’t see the need to make any significant changes to my plan despite my concerns about bond performance. I’m still thinking long-term with my investments, leaving them alone while I’m still in “accumulation mode.”
My income is certainly down from when I used to own a business and will continue to be until it’s time for me to take on bigger projects. Nevertheless, my goal is to keep my investments alone, reinvesting dividends and interest, and living off my income. Friends and colleagues have suggested I take some time off, enjoy the fact that I’ve been able to sell a business, and spend some of the proceeds from the sale of the business on myself, but I’ve been mostly reluctant to do that. And perhaps I’m a victim of the economic perception; I’ll feel more comfortable spending my assets when the market is performing better.
How are your investments performing this year?
Published or updated March 3, 2014.