My Birth as an Investor

by · 24 comments

Hi.  My name is Matt… and I’m an investor. (“Hi Matt.”)

  • Yes I have begun investing.
  • Yes I still have debt.
  • No I have not abandoned my stance on debt reduction before investing.
  • No I have not slowed my aggressive debt reduction strategy.

So what gives?

Why did I begin investing while still in debt?

In a sentence… to better prepare myself for my future as an investor.

There is no doubt that debt repayment is the best investment opportunity currently available to me, and that is why I continue to use all available funds to do just that.  Well, all available funds with the exception of $600 and all Lending Club affiliate earnings.

Where am I investing?

1.  Index Funds with Schwab.com

A few days back I moved $600 of my side hustle earnings into my Roth IRA Account with Schwab who allows beginning investors to start investing with $1,000 or less.  I did this for several reasons:

  1. I cannot max out my 2009 Roth IRA contribution this year, but wanted to contribute at least something… so I did.
  2. Schwab has very low mutual fund investment thresholds, and I wanted to take advantage of the opportunity while it still exists.
  3. I have turned myself into an avid student of investment theory and wanted to use actual money to put that knowledge to practice.
  4. I wanted to get my basic portfolio diversification strategy in place so that when I am ready to invest regularly I can just initiate automatic contributions and stand confident behind my choice of funds.

With help from my friend and blogging colleague Mike Piper (aka The Oblivious Investor) I chose a modified (index fund) version of #7 of these 8 lazy etf portfolios:

  • 30% in Schwab S&P 500 Index Fund (SWPPX)
  • 30% in Schwab Small-Cap Index Fund (SWSSX)
  • 30% in Schwab International Index Fund (SWISX)
  • 10% in the Schwab Total Bond Market Fund (SWLBX)

2.  Lending Club Affiliate Earnings

Investment portfolios are not the only thing we should be diversifying!  Our income should be diversified too.  I hold to this philosophy when monetizing Debt Free Adventure by using as many revenue sources as possible.

One of those revenue sources is Lending Club.  Each month, the earnings from Lending Club are simply deposited into my Lending Club investors account where then put them to work accordingly.

  • I currently have $300 invested in Lending Club notes and hope to see this amount increase nicely over the next few years.

If I had less debt and more cash flow I would be investing much more with Lending Club.  My confidence in LC as an investment vehicle grows as I watch seasoned investors continue to make great returns on their money month after month.

I you are interested in investing with Lending Club:

In closing…

I hope to realize some decent returns from my Lending Club investment while my Schwab Roth IRA account is more of a placeholder for now.  I should also add that neither of the amounts used to fund these investments were taken from our budget; they were taken from my side hustle earnings, allowing me to fund the investments without having to alter our existing budget in any way.

Any thoughts or opinions on my decision to begin investing?

photo by Sir Mervs


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1 Austin

Congrats, Matt!

I suggest blocking CNBC, Google Finance, and any other stock ticker from your life for the next 6 months. The ups and downs will teach you more about how you value money than anything else.

Good luck!

2 Mike Piper

Congratulations indeed.

And, not surprisingly, I second Austin’s suggestion to do your best to avoid checking your account value everyday. 🙂

3 Miranda

Congrats! I like index funds, too 🙂 Boring, but they get the job done with minimal stress.

4 Matt Jabs

@Austin, Mike, & Miranda: They can be boring, and I have already logged into Schwab once per day to check their progress. Not because it will make or break an decisions to sell or change positions… but just because it’s fun to watch – as you know all too well! 🙂

So… I will take your advice and practice the discipline of thinking on other things. Thanks.

5 Evan

Congrats Matt it is a huge step.

I like your approach working with Mike’s modified Index Fund portfolio. The only thing I would have attempted first (and you might have) was taking a risk analysis/questionaire to understand where you stand as an investor.

Could you have “stomached” more risk? Did you need Less Risk to sleep at night?

6 Matt Jabs

I’m basing my investing risk around what type of risk I cannot tolerate rather than what type of risk I can tolerate. In other words I have determined what amount of risk would cause me worry, then focused on minimizing the likelihood of involving myself in said risk.

7 BG

Paying off your debt is investing too, and as you stated, it is currently the best investment choice you have right now.

Another point: be careful with splitting your investments across many ETFs (especially when you are talking small amount of money), since you will incur losses due to the brokerage fees. I think you said earlier that Schwab’s bond ETF carry these fees, and if you are investing only $60 into that ETF (and the fees are $12.95), you have already seen a 21% loss — impossible to come back from…

ETF are good if you have huge piles of money to move around (1-time transactions), but if you are investing every month, avoid ETFs due to the brokerage fees.

8 Matt Jabs

I didn’t invest in ETFs, I invested in index funds… no fees.

9 BG

Ah, I see that now — not sure why I was thinking these were ETFs. You did the right thing.

10 Craig

Was the Roth fund on top of your 401K? I started a side general investing account with Vanguard but have heard good things about lending clubs. Just not sure if they are worth it.

11 Matt Jabs

What do you mean you’re not sure they are worth it?

12 Craig

Why invest in a lending club opposed to just a mutual fund? What are the benefits?

13 Matt Jabs

Just a few include:

  1. High average net annualized returns regardless of bear/bull market – currently 9%+ since June of 2007.
  2. Less volatility than mutual funds.
  3. Greater control of risk and/or diversification by funding a vast number of notes with varying degrees of risk according to your tolerance.
  4. Disintermediation of banks.
  5. Option to fund loans for situations in which you would like lend a helping hand – ie) credit card debt reduction loans, or small business loans.

    14 Financial Samurai

    Hi Matt – Good stuff. And put it this way, even if your stock or index fund goes to zero, the most you will lose is $1,000! Good to start slow and build from the experience commensurate with the money you have.

    Besides trying to prove a theory that it’s mostly LUCK when it comes to investing with The Samurai Fund, the other main purpose to have help educate readers and participants on the stock market, income statements, industries, and fund management business!

    I will probably open up the fund to new participants end of the month or 2Q, if you’d like to throw your hat in the ring. The pick has to be solely based off your name/site name!

    Best, Sam

    15 Matt Jabs

    Easy tiger… one step at a time for this guy.

    Thanks for the offer but this article details the extent of my capacity to invest… until of course the katana puts my debt to rest once and for all. 😉

    16 Financial Samurai

    No worries man. The Samurai Fund is a free fund, with no money involved. As they say, knowledge is power, and this is what the fund serves to bring.

    Wouldn’t it be neat if you got more affiliate income than the investment in your Lending Club account? Whatcha think about using those proceeds to fund your lending account to $1,000 or more like the Schwab, instead of just $270? Having more in your Lending Club account may help readers more readily sign up, because they’ll think if Matt has several thouand in Lending Club, he’s got high conviction in the product, and then I too shall join!

    Just a thought!

    17 Matt Jabs

    Maybe I’m not understanding 100% of what you mean, but I do invest 100% of my Lending Club affiliate earnings back into my LC investing account. The $300 is the earnings for the last 3 months. I hope to see this increase over time, and thus see my investment earnings increase accordingly.

    18 Financial Samurai

    Ah, gotcha. Sounds good. Just saying that you seem to be very enthusiastic about LC, hence maybe invest a bigger chunk of savings into the program. This will encourage more readers to sign up, and then you can earn even more affiliate income, whoo hoo!

    19 Matt Jabs

    Yeah – I plan on this account building itself up into the thousands relatively quickly.

    Then I plan to do a lot of posts explaining how to wisely invest with Lending Club – and how it produces solid and predictable returns regardless of bear/bull market conditions. 🙂

    20 Christine

    I still think you should pay off all your debt first.

    21 Griff

    I’ve done the same thing with my finances. I still have debt, but I have realized that it is extremely important to start investing very small increments right now so that it will start to grow for the future. Getting out of debt is more important, but investing should not be stopped altogether. This is the same type of philosophy I teach people on my site http://financialsecrets101.com.

    Good post! thanks for the advice!

    22 Ryan @ Planting Dollars

    haha, did you get the birth on video and did you name your funds?

    I think it’s a good idea to at least have some money in the markets. It makes it a lot more real and the moment I started investing I payed a lot more attention to how the markets were doing. I suppose that could become a bad thing because checking your portfolio everyday is so incredibly unproductive.

    Hopefully this will become a very big baby for you!

    23 Matt Jabs

    Ha ha… dang it! I knew I should have charged up the battery on my Flip UltraHD. 😉

    Yeah – saving some and investing some, even while in aggressive debt repayment can be very important… per each individual situation. To be honest, I go back and forth on this every month. I try to commit 100% of my discretionary income to debt repayment, but I just keep feeling terrible about not paying myself at least something… even if it’s just 1%. I think there is a lot of wisdom in the old adage, “always pay yourself first – no matter how little.”

    24 Financial Samurai

    Will be an excellent goal Matt! Investing gets addicting, especially if you start making a good return. Virtuous cycle!

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