Book Review: The 3% Signal

The 3% Signal: The Investing Technique That Will Change Your Life

About the Book:

Take the stress out of investing with this revolutionary new strategy from the author of The Neatest Little Guide to Stock Market Investing, now in its fifth edition

In today's troubling economic times, the quality of our retirement depends upon our own portfolio management. But for most of us, investing can be stressful and confusing, especially when supposedly expert predictions fail. Enter The 3% Signal. Simple and effective, Kelly's plan can be applied to any type of account, including 401(k)s -- and requires only fifteen minutes of strategizing per quarter. No stress. No noise. No confusion.

By targeting three percent growth and adjusting holdings to meet that goal, even novice investors can level the financial playing field and ensure a secure retirement free from the stress of noisy advice that doesn't work. The plan's simple technique cuts through the folly of human emotion by reacting intelligently to price changes and automatically buying low and selling high. Relayed in the same easy-to-understand language that has made The Neatest Little Guide to Stock Market Investing such a staple in the investing community, The 3% Signal is sure to become your most trusted guide to investing success. 

My Comments:

If you ask any reasonable person who invests in the stock market about goals, the general one given is to "buy low, sell high".  Yet, many people end up doing the exact opposite.  Why? Is there any way to change that?  Jason Kelly opines that trying to predict the market is a fool's game.  There are lots of pundits giving out lots of information (or at least making lots of noise), but the reality is no one knows when the stock market will fall next, or how far, we only know that it will fall one day, and that eventually, it will grow beyond where it is now.  In other words, the general trajectory of the market is up, but there are plenty of downs along the way.  All too often people follow the crowd--everyone gets afraid of falling stock prices, so "everyone" sells, and stock prices continue to fall, so the sellers lock in their losses.  Then the real winners step in; those who buy at low prices.  How can we be in that number?  This book by Jason Kelly describes and defends his system for buying low and selling high.  Using historical data and just general numbers, he shows why the system works and the advantages of using it.  

In short, as you can see on his website (so I'm not telling secrets) Kelly advocates an 80/20 stock/bond allocation for most investors, and advocates using two mutual funds to implement his system.  Every quarter that the stock portion of the portfolio grows by more than 3%, Kelly advocates selling shares in the stock fund and putting them into the bond fund such that you only keep the 3% gain in stocks, the rest is converted to bonds.  If, at the end of a quarter, your stock fund has not gained 3%, you use the money in the bond fund to buy more stock so that there is a 3% increase in the value of the fund.  The only hitch in the system is that if the value of the stock fund falls far enough, in order to get full value from the system, you may have to put outside money into it.  However, even without the outside money, the system in and of itself, with its discipline of only looking at the gains/losses quarterly and with its determined path of acting on what has clearly happened, will grant you superior returns over the long term.  While you won't beat "Peter Perfect", you'll beat most investors.  

So, why does it take a whole book to talk about a system I described in a paragraph?  Kelly leads readers through probability exercises to show why the system works.  He talks about why predicting the market is so hard, and, in the end, it is so useless to try.  He recommends mutual funds that are appropriate to use in the plan and advises how to put the plan into action.  He even carries you through the life of the plan.  

The system sounds good to me and I wanted to try it with my 401(k).  My husband did not like the idea of that much money in a small cap stock fund.  The compromise is that I am going to stick with the funds I have but use the 3% rule with each.  

I'd like to thank the publisher for making a review copy available via NetGalley.  I do not know how my NetGalley advance copy compares to the final Amazon edition.  However, my NetGalley for my Kindle does not properly display c.harts, graphs etc.  The  NetGalley that I read on Adobe Digital Editions looks fine.    Grade: B

Kickfurther Payoff!

Earlier this month I wrote about Kickfurther, a company that allows ordinary investors to lend money to small companies seeking to grow their businesses.  Companies apply for loans, and if they make it through Kickfurther's underwriting process, Kickfurther puts the loan up on its website so investors can purchase shares of it.  Once the loan is fully subscribed, Kickfurther takes the money, collects a certain portion as their fee and then purchases the goods the company wants to sell.  The picture above is deodorant. North Coast Organics had to opportunity to sell to TJ Maxx but needed money to finance the inventory.  They requested over $7,000 and offered an 8% return.  Well, they got paid for the deodorant so those of us who invested got our money back today, plus 8% interest.  They had my money for two and a half months.  

Since my $50.00 (plus $4.00) was back in my account, and another company was looking for money, I signed up.  

You use this stuff for screen printing, a process I won't pretend I understand.  This company will pay 10% after six months.

Marlie Madison is a Texas boutique that sells pretty things like these:

They promised a payback of 11% after six months.  I invested $50, and so far they've paid me back $8.07.  They are supposed to make another payment in four days.  

So far, Kickfurther is looking like a winner for me.  A few more good payoffs, and no losses would convince me to put some real money into this.  Right now, the problem I see with the site is a lack of borrowers.  The last three offers I've seen were all funded within hours.  Right now, if I wanted to invest in something, there is nothing available.  

Wandering the Web

Have you read anything interesting lately?  Here are some articles that caught my eye recently:

Social Security: Why the 8% "Return" Myth Shouldn't Make You Wait to Retire  I keep reading about what a great idea it is to delay taking Social Security as long as you can, because the amount you get per year grows every year you choose not to take it.  From what I've read, I agree, taking Social Security at 63, if you are still collecting enough of a paycheck to survive, is probably not a good idea.  However, once you pass full retirement age and Social Security no longer witholds part of your check if you have other earnings, the math gets much more interesting, and this article explains why.

21 Things I've Learned As an Investor Over the Last Decade 

The 'Safety First' Guide to Retirement Withdrawals  Unless you have a pension that meets your living expenses, spending during retirement is a balancing act between enjoying the lifestyle for which you've saved, and making sure there is enough money to support you for your entire life.  This post goes beyond the "4% rule" to talk about planning your spending.

Peer to Peer Lending Sites Review #1- Full Disclosure  This article is written from the borrower's point of view rather than the investor's but it still gives a good rundown on the various sites.

A Better Way to Tap Your Retirement Savings  Another alternative to the 4% rule.

Is Retirement Overrated? You May Be Surprised By the Answer  I hope it isn't overrated!

9 Safe Investments That Aren't Bonds  Lending Club is one choice.