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Am I Addicted to Investing?

by retirebyforty on August 6, 2014 · 42 comments

in investing, rental property

addiction addicted to investingMy dad has an addictive personality. He drinks a bottle of red wine every day when he visits us in Portland. He likes Cabernet Sauvignon and it’s much more affordable here in the US than Thailand. I think a high import tax and the low demand cause the price to be quite high where he lives. He’s getting close to 70 and that’s probably too much alcohol at that age.

He also had a gambling problem when I was young. He used to go to Las Vegas all the time to gamble over the weekend. Now that he’s not making much money, he doesn’t gamble anymore. He is investing like gambling, though. He day trades and buys as many IPO stocks as he can get his hands on. He doesn’t believe in ‘buy and hold’, that’s for sure.

I think I also have an addictive personality, but to a lesser degree. I used to be addicted to video games and wasted a ton of time with my Playstation and Xbox. I had a long layoff from gaming, but since I got my Republic Wireless Moto X, casual gaming has been taking up more of my valuable time.  Casual games are probably even more insidious than the video games of old. You can play anytime and the phone is always pinging me that my “troops are ready for battle…”

Stock Market Investing

I’m a little better on the investment side. I figured out my target asset allocation and I’ve been sticking with it. I believe in the ‘buy and hold’ strategy with our investing horizon (20+ years.) Well, I’m getting more conservative now that I’m a bit older and not making as much income. My asset allocation for bond increased from 5% in 2010 to 20% this year.

The problem I have is that I can’t stop investing. Recently, I sold some Intel stocks because it hasn’t been this high since the dot com bubble. I had a bit too much Intel stocks because I got them via grant, the employee purchase plan, and stock option plan. Intel made up almost 20% of our dividend portfolio at the beginning of 2014. I have been planning to sell some for a while now, but inertia was difficult to overcome. Currently, our Intel holding is reduced to 10% of the dividend portfolio and I feel much less exposed to the company.

However, the US stock market had a great run since 2009 and many analysts are expecting a correction (10%) or even the return of a bear market (20% or more) soon. Actually, we might be in the process now. The last few days have been pretty bad on the stock market. The DOW declined almost 4% and the S&P 500 went down about 3%. Anyway, I have some cash from the Intel stock sales and I’m itching to invest them. Actually, I already purchased 100 shares of Deere & Company. It’s really hard for me to stay on the sidelines and sit on some cash. Cash in the saving account is earning less than 1% interest and I’d rather invest them.

The stock market is volatile at the moment and my brain says I should sit on the cash for a while. My heart tells me to put everything back in, though… The last few years have been great to our net worth and it’s addicting to see the consistent increase.

Investment properties

I’m having the same dilemma with our investment properties. We just sold our rental home and 4-plex and I couldn’t sit on the sidelines. We did a 1031 exchange and purchased a small duplex nearby. It’s a sellers market in Portland and we couldn’t get a great deal like we did with our 4-plex in 2011. However, we will need a bigger place soon, so the plan is to move in eventually. The property is in a popular area with some of the better public schools in the city. The 1031 exchange also lets us defer a big tax bill (~$45,000) so I couldn’t say no. Mrs. RB40 doesn’t like being a landlord, but she’ll have to put up with it for a few more years.

Lump sum investing

I really don’t like having a lot of cash in my bank account. When I first left my job, we kept $50,000 in cash just in case we need it. After a year, we were still doing fine, so I reduced our emergency fund to around $20,000. That’s 4-5 months of our living expense. With the recent changes, our cash position crept up over $50,000 again. I’m itching to put most of that into the stock market, but it’s probably better to wait for a correction.

So do you think I have an addiction to investing? I don’t trade very often and I don’t even check the stock market every day. I just have a compulsive need to put our money to work. I guess there are many worse things to be addicted to. At least I don’t have a substance abuse or a gambling problem.

What would you do if you have a lump sum to invest right now? 

Photo credit: Wikipedia Addictive personality

{ 42 comments… read them below or add one }

papadad August 6, 2014 at 12:34 am

No magic words of advice here. You may be exhibiting “addict/instant gratification” personality traits -they tend to be genetic – be it gambling, alcohol, investing, or other behaviors. As long as you recognize it, you should be ok to manage it.

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retirebyforty August 6, 2014 at 9:38 am

According to Wiki, studies have shown that addictive personality can be heredity so I probably got some of that from my dad. My mom doesn’t have that personality though so maybe it balanced out.

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Under The Money Tree August 6, 2014 at 12:59 am

Great post. I’ve got a very similar personality to you by the sounds of it, with mildly addictive traits. I too find it very hard to sit on cash, even when I know better value will likely be had at some point in the future.

That’s the beauty of investing. It’s the thrill of trying to resist your personality traits and internal biases and stick to a logical, objective strategy. Easier said than done!

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retirebyforty August 6, 2014 at 9:39 am

I guess it’s because of short term memory. The last 5 years have been so good that it’s hard to sit on cash. I’m sure it would be easier if we were in a prolonged bear market…

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KimB August 6, 2014 at 2:59 am

I too have the same itch and traits! I read your post on paying down your mortgage early so have decided not to “invest” in lowering the mortgage anymore. I am OK with owing the bank and I know that the mortgage will get paid. I have continually made lump sum payments over the past few years because I feel that is better than just sitting on the cash.
I have been reading your blog for some time and just hanging in the sidelines….this is my first time posting. The cash holdings is burning a hole in my pocket because I know it could be doing SO much more for us but DON’T have any clue where or how to invest it??? I don’t trust financial advisors OR do not feel any of them will have our best interest in mind, only their own….I have an appointment with my accountant tomorrow to discuss, but could use some direction on how to begin??
Thanks!

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retirebyforty August 6, 2014 at 9:47 am

Thanks for reading Retire By 40! Yeah, if your mortgage rate is low, it’s not worth paying it down too much.
If you need help, I suggest talking to a fee-only financial adviser. You work with the fee-only adviser on an as-need basis. They can review your finance and give some guidance. A good one shouldn’t try to sell you any financial instruments, mutual funds and such.
If you want to go DIY, then you should figure out your risk tolerance and asset allocation. Then just stick with that and rebalance once or twice per year.
http://retireby40.org/early-retirement-asset-allocation/
Good luck!

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KimB August 9, 2014 at 3:20 pm

Thanks for your reply Joe. I met with my accountant the other day and he suggested talking to an advisor that operates “assets under management”. Is that the same as a fee-only? Do you recommend any? I trust YOU more than I trust just walking into just any company looking for advise :)

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retirebyforty August 11, 2014 at 9:40 am

I don’t know if that’s the same thing. I only know one financial adviser – Jeff Rose at Good Financial Cents.
Here is a good post on what to ask the financial advisor.
http://www.goodfinancialcents.com/questions-to-ask-financial-planner-illinois/
Also ask how they get paid. If they get commission from selling funds to clients, then you’d want to avoid them. You just need someone to look over your finance and build a guideline. Good luck!

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mary w August 11, 2014 at 2:27 pm

Kim – I think “assets under mngt” means that he will want to manage your portfolio (AKA assets) for a fixed % each year.

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Even Steven August 6, 2014 at 5:44 am

I don’t think it’s an addiction to investing, I think it’s a want and desire to take care of your family and be successful. If that’s an addiction it’s a great one to have and investing is a great choice to take care of your family, especially if the other option is gambling.

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Stefanie August 6, 2014 at 6:17 am

There are worse things than a compulsive need to put your money to work (like video game addition) ;) I would probably throw it into some index funds.

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so August 6, 2014 at 6:32 am

“What would you do if you have a lump sum to invest right now?”

Same as any windfall above $20K: I pay down an investment property mortgage or line of credit. No risk, a return that is 3-4% higher than a CD. Pay down the duplex since you will live there eventually anyways and you’ll be that much closer to living there mortgage free.

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retirebyforty August 6, 2014 at 9:49 am

That’s one option. I don’t like paying down the mortgage on a rental, though. It’s doesn’t make sense from a cash flow point of view. When we move in, we’ll pay down extra. :)

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Adam Hargrove August 23, 2014 at 4:32 am

Rent out or live in it, what’s the difference when paying down a debt? You own it either way, and faster with less total interest over time. IMO the balance sheet takes priority over the cash flow statement.

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Vince August 6, 2014 at 7:42 am

If you’re not obsessing and looking at it every day, then you are certainly not addicted to investing. After all, it isn’t like you’re so worried that you would post a concern about it on your blog or something…

Seriously, your blog is a highlight for me. I’d retire now, but I’m a chicken. While I’m making good money, I guess I want to just keep socking it away. Lately I’ve been thinking I’m missing out on some of the better parts of life, though, especially as I age and my body breaks down (I’m 57).

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retirebyforty August 6, 2014 at 9:51 am

Thanks for the encouragement. Maybe you can slowly ramp down a bit or take a sabbatical. That will help you decide if slowing down is the right move for you. As long as your finance is in order, it’s probably to transition earlier so you can travel and enjoy life while it’s easy. Good luck!

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LeisureFreak Tommy August 6, 2014 at 8:56 am

I am in the same situation and now sitting on what I call dead money in my savings account. I ran into this last year too. I agree with you that the market is a bit too volatile to jump in right now and I manage my nagging brain to do something with that cash by telling myself my goal is for that savings to make money, not lose money. So instead of telling yourself you are addicted to investing tell yourself you are addicted to making money to support your family. If your gut and market indicators says now might not be the best time to jump in then follow it. You are still on point with your need to earn money from your money. Jumping in later can still end up with a temporary loss but I am much easier on myself if I lose after following my gut and the information I had than if I am impatient and go against it. Great article, it made me touch and analyze my own dead money position today.

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peter August 6, 2014 at 9:38 am

No, you do not have an addiction. What you have is what most people have and that is to feel like you are in control, while you are not. No one really is, not even God Sachs (they had to be bailed out by WB).
You feel like you are in control when when you buy/sell stocks in response to the rise/fall of the market. An investor does nothing; wannabees “throw” (it into a fund) “play” (the market) etc.

Berkshire’s top four holdings account for 58% of WB’s equity investments. He sits on 16% cash which he admits is too much and given it’s size, baggage to investing.

Now, that you have reduced INTC to 10% it’s time to execute your plan, if you had one. Presumably you did not have one, and there will be unintended consequences (costs) that must be paid to appease the gods of order. If I were you, I’d make peace with the gods by accepting the rates on cash. I’d then formulate a plan and execute it.

Good luck!

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Dividend Mantra August 6, 2014 at 10:13 am

Joe,

I don’t think I exhibit or experience addictive traits, but I do have a “collector” mentality. I used to collect coins when I was young. Now I collect stocks. Of course, what could be better than collecting something that pays you to collect it? But I think of all the addictive habits you could possibly have, investing is by far the best!!!!

I’ve read all the studies that show that market timing doesn’t work, so I don’t try. I invest spare cash whenever it’s available. I typically don’t sit on much cash.

If I had $50k right now I’d probably not lump sum invest it simply because I’m not used to deploying that much capital all at once, and I don’t know if I could find that many attractive opportunities. I’m used to investing $1,500-$3,000 per month. But $50k would be a good problem to have! I’m jealous. :)

But I think I could probably deploy that over a 6-9 month period, no problem. I’d be looking at DE, V, and GE right now.

Best wishes!

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Steve August 6, 2014 at 11:40 am

Hi Jason,

If investing small amount, 1k to 50k was not so expensive here in Switzerland, I would follow the same strategy, but when you spend in total 2% to buy and sell, it’s not worthwhile.

How much cost you buying and selling for the amount you mentioned?

Regards,

Steve

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Dividend Mantra August 6, 2014 at 2:38 pm

Steve,

I pay $7 per transaction. So the % will vary depending on how much you invest, but I generally try to invest $1,400 per transaction, which is 0.5%.

Best regards.

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retirebyforty August 7, 2014 at 10:27 am

I usually don’t try to time the market either. If I have an extra $1000/month, then I just put it in the stock market. That’s easy. But a lump sum is much more difficult. Averaging in over 6-9 months is probably the best way to go.

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JP August 6, 2014 at 10:39 am

It is an addiction; and it is genetics. You got it from your dad.

We are selling our investment home and we’ll get about $140K. We will use $100K to pay off our current mortgage; but not sure what to do with the remaining $40K. I do believe the market is a bit high these days.

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Steve August 6, 2014 at 11:36 am

Hi,

I have been sitting over 200k for the last 3 months and in this week, I invested 180k with the actual pull-back that the market gives us.

Let’s see if my tactic, not strategy because it is more an impulsing need to invest that a clear and calculated strategy.

I am happy to see that we are all the same :-)

Cheers from Switzerland

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retirebyforty August 7, 2014 at 10:29 am

Oh wow. Nice job. It’s hard to invest during the pullback too. I’m always afraid that it will drop more.

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Justin August 6, 2014 at 11:37 am

I wouldn’t say your addicted. Just that you know long term you can make more in the markets than 1% in a bank.

I’m sitting on $35-40k right now and getting about 1%. I don’t think I want to have more than that sitting in cash. I’m actually thinking about replacing our roof and siding for $10-15k instead of investing it in the market right now.

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retirebyforty August 7, 2014 at 10:30 am

Actually, we’re going to replace the roof on the new rental and I’m thinking about putting in a metal roof. It will last forever and cut down energy bill too. Probably cost over $20k, though. I’m getting some estimates.

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Tawcan August 6, 2014 at 11:57 am

I wouldn’t call you an addict. I’ve been thinking about the same question on some of the lump sum sitting in the bank. That money is collecting dust (well getting like 1% interest). I kept thinking it’d be a good idea to just invest that money in dividend paying stocks but I keep asking myself the what if question. You really should only invest money that you don’t need in the near future.

Having said that, if I were you and had $50k, I’d first determine if I truly need that money in the next 5 years. If not I’d buy some dividend paying stocks. Since you’re in the US I’d be looking at high dividend growth companies like Visa. If you want to get some international exposures maybe China Mobile and Telefonica.

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retirebyforty August 7, 2014 at 10:32 am

We will need some emergency fund, but that’s about it. I don’t see any big expenses coming up in the next 5 years. Our car should last longer than that. Visa sounds good. I’ll check it out.

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One Cent at a Time August 6, 2014 at 5:38 pm

Right now I am in pull back mode. Need to arrange for mortgage down payment. And for next few months entire savings would go to home improvements. Investment can take back burner now. I have my retirement saving on track though. It’s deducted from my ay check anyway.

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Chris August 6, 2014 at 5:54 pm

I was addicted to options for a while. It is a hard habit to quit. It is just something about the thrill of watching stocks go up or down.

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Addison August 6, 2014 at 9:32 pm

I think it’s smart to want to make your money to work harder for you than earning a measly 1% interest in a savings account, especially since you’re earning less money now. I’m not sure if I would describe you as an investing addict.

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Jon August 7, 2014 at 6:03 am

Hey Joe,

It depends. If you have a lot of low risk assets, maybe some individual growth stocks for the long run with solid risk reward ratios. It´s worked out well for me. If not dividend stocks or index fund should be fine.

You´re my inspiration. I´m 28 looking to retire in 2 years.

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retirebyforty August 7, 2014 at 10:37 am

Thanks for the compliment. Good luck with your journey!

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Little House August 7, 2014 at 6:20 am

I think your addiction is just fine, in fact, it might even be a healthy one! Who says addiction is always bad anyway? ;)

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Merlion August 7, 2014 at 1:28 pm

I have 2 rental properties which I bought last year and so far they are doing quite well. I am looking at deploying my cash reserves to buy a foreclosure property. I was actually at the courthouse this morning to attend a foreclosure auction. It is a new experience for me and I am hoping it will work out as planned.

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retirebyforty August 8, 2014 at 9:32 am

Great job with the 2 properties! Which area of the country are you in? It’s really tough to get a good deal here in Portland. Even the auctions are good deals.

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Merlion August 10, 2014 at 4:45 pm

Thanks! I am quite apprehensive at first at being a landlord but I think I am slowly getting the hang of it. I am in the Raleigh-Durham, NC area and the houses are more expensive compared to last year, hence the rationale for looking at foreclosed properties for a better deal.

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SimpleRyan August 8, 2014 at 9:40 am

Hi Joe!
Naaw…you don’t have an addiction problem at all. You just like putting your money to work for you instead of having it sit around not earning any interest at all.
It’s not like you’re selling your kids toys on Ebay trying to make a quick buck so that you can invest it.

If you were doing that…then MAYBE I’d say you need to find yourself some help. But since that’s not the case..I think you’re good! :-)

I’m sitting on some cash myself right now. I was waiting for a pullback in the markets before I put some more in. So looks like it’s going to be time soon to put some in.
I’m going to be doing some research soon into which companies I want to buy. I’m all about buying quality companies that pay dividends and holding for the long term.

No need to swing for the fences and risk losing it all when base hits and doubles or triples can win the game as well.

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Kiat August 10, 2014 at 1:12 am

I do not think it is an addiction, I have been through this phrase also. I think this is expectation, that money sit inside the bank will earn less than money being invested. Over the years I have become more patience, even if money sit inside the bank earn less return, I will wait for the right time to enter the stock market, this will save quite a bit of money and not buy stock at the peak.

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retirebyforty August 11, 2014 at 9:41 am

Thanks for your comment. I don’t think I’ve reached that point yet, but I’ll keep trying.

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Ryan August 14, 2014 at 11:49 am

I don’t know if it’s necessarily an addiction, but watching your net worth increase is definitely something that can be addicting. I’ve got some cash that I’ve been itching to invest, but I’m planning on riding it out. Valuations are a little bit on the higher side, and I’d love to be able to take advantage of a 10-20% correction and buy some bluechips at a discount.

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