Here’s something a wee bit off the beaten path for this blog: so lets say you’ve got a consistent cash cow, or at least a cash calf, of a program? Well, I’m a) just not a very spendy person and b) have no efficient method of spending dollars on physical goods and c) have hideous tax and exchange consequences if I ever turn dollars into yen. So basically my Bingo Card Creator earnings have sat in my US bank account and every month when I send home my transfer to my student loans I tack on the earnings. Which is saves me 7% a year, and 7% times my lifetime earnings from Bingo Card Creator can buy a whole muffin. ;) (I actually sort of pre-spent the money I saved from September: it gets me a Wii bit closer to a certain Christmas-present-for-me come December 12th, since I won’t have to transfer that amount of money home to my loans.)
However, as of next month, my student loans are going to be totally paid off (this has been my singleminded financial obsession since I got my current day job). Hip, hip, hurray. So I need to do something else with the money rather than let it languish in my checking account. I considered opening a savings account with my American bank (Bank of America, naturally) but their .5% annual interest makes me wonder if they are sane. I opened a wee little savings account at ING Direct which pays I want to say 4.4%, and after I figured “Eh, I’m not going to actually touch the money anytime soon” moved it to a 9 month 5.05% CD with them instead. But investing in CDs is painfully boring and low-return.
Of course, generally as your return goes up so does your risk. I’m perfectly OK with that, since I’ve been happily living within my means thanks to my day job and have always treated my uISV and the income it produces as an intellectually stimulating hobby. If I were to sock it away in a portfolio that lost 20% of the value over the next year, it wouldn’t cause me to blink financially. So I decided to fulfill a lifetime financial goal and become an investor. (Note for those not in the know: I’m rather young. I’m honestly embarassed to admit how young, because I have given people advice despite them having been professionals in this field when I was in swaddling clothes, but suffice it to say most people my age aren’t thinking of retirement yet. Then again, most of us don’t have software companies, either.)
So here’s the question: what to invest in. I’ve been reading the Wall Street Journal since the age of 8 and this is what I have learned from the experience: the market aggregates information with efficiency and scale which makes Google look like a single-celled organism. I am not terrible at investing in the way I am terrible at art. No, I am worse than terrible: I had a mock portfolio in 8th grade and managed to lose 15% of it in an up market in 6 weeks. So I’m going to do the same thing with stock picking that I do with stock icons: outsource.
So some people would guess “Ah hah, mutual fund, huh”. Well, yes. Except not an actively managed mutual fund. Paying 2% of my investment every year to somebody who has about a 1 in 4 chance of matching the return of the market does not appeal to me. So instead I’m going with an index fund: pretty much a mathematical guarantee of being about a point below the market, as measured by whatever the tracked index is. Since my job prospects are heavily, heavily dependent on the health of the Japanese economy, I decided to pick a US index: it lowers the risk of me having a catastrophically negative job market and a catastrophically negative investment market at the same time, and if those two countries are ever both down simultaneously then the world as I know it is pretty much screwed anyhow. :) And since my job prospects are similarly very intimately entwined with the tech field I decided to go with something broader (i.e. not NASDAQ): S&P500 sounds good.
Now, when there are billions of dollars to be made doing something there are a million ways to do it, and there are billions of dollars to be made in index funds. I picked two vehicles based on convinience and a wee bit of research. The first is a lightly managed large cap S&P500 index fund available through ING, which I figure is good enough for government work. The second is buying shares in spiders (if you don’t know, pretend its a mutual fund which implements the Stock interface, it will save you pain) on Sharebuilder. Both are relatively friendly for teeny-tiny little investors like myself, and extremely cheap on the fees (nothing for ING aside from the fairly low management fees on the fund, $4 a trade on Sharebuilder and I plan on making probably one trade a month).
I should also note that I anticipate getting $25 for signing up for Sharebuilder, which ought to improve my annual return a weeee bit :) I signed up for them after logging into ebates.com, which is essentially an affiliate site that splits their affiliate commission with the customers. Sharebuilder pays them a $50 affiliate commission or whatever and they Paypal you $25 of it eventually. (There are also instructions online for abusing Sharebuilder promotion codes to get money from them, but I’m honest. Besides, this blog gets hit enough by people looking for promotion codes, typically for free Mrs. Fields cookies from Quill, which I mentioned in a few of my posts about customer service. Oh, if you were searching for a code to get cookies out of Quill, try JUSTFREAKINGASKFORTHEM.)
