How Morningstar Readers Invest Their 'Fun Money'
Their opportunistic picks run the gamut from fairly staid to pretty daring.
Over the years, many readers have told us that they have a "mad money" or "fun money" portfolio. This is usually a small slice of a more diversified portfolio that isn't necessarily invested with a goal in mind; therefore, people tend to be more opportunistic with this money.
This week, we asked some questions to find out more about our readers' opportunistic portfolios. We learned some interesting things. Overall, it seems that the percentage of the overall portfolio devoted to fun money was fairly consistent across responses; most people who reported a percentage said it did not exceed 10%. There was a fairly wide range in investors' risk appetites, however--from the conservative (high-quality, dividend-producing equities) to the speculative (investments in beaten-down Chinese companies and Greek banks, as well as angel investments in startup companies).
To read the complete thread or share your own views on this topic, please click here. Here's a summary of what respondents had to say.
Great Stock Picks With Long Holding Periods
Some readers had very fun stories to tell about their forays into individual stocks.
Dragonpat tells the story of an initial investment in Apple Inc (AAPL) 17 years ago: "My original 'mad' money ... was only 10% of our cash ... from my husband's and my savings account. He wanted to invest it in Apple stock and usually his ideal investment back then was a CD, so I opened a joint brokerage account and invested the money. He just reinvests his dividends now in even more Apple stock, and won't hear about investing in something else."
JHAsheville tells the exciting tale of 20 shares of Chico's (CHS) stock, bought for less than $400 and then forgotten about for 15 years. "Long story short, we had moved and the brokerage firm lost our address, so the stock had been sold and turned over to the state of Florida to try and find the owners. ... [We] researched the issue ourselves, paid a nominal fee, and were reunited with our now-sold stock to the tune of $68,000. Obviously, after many splits and many good years, Chico's had done OK. That's the biggest and best investing excitement we ever had ... even if the unexpected money showed up on Dec. 30, which created a nasty tax event for us that year. Otherwise, we are just boring investors."
Kjfato05, a newer investor with a long time horizon, aspires to someday have some stock-investing success stories like the ones above. "I wanted to buy companies that were trading for less than 15 times forward price/earnings, had a return on invested capital of greater than 25%, and had innovative products. [Apple and Gilead Sciences (GILD) ] fit the bill for me. I may add a few more as opportunities arise, but I don't plan on having more than five companies in my little business empire. Since I am fairly young, 28, this is my experiment with setting up a highly focused portfolio and never selling. It'll be interesting to see what it will look like when I am much older."
Many readers told us they like dividend-paying stocks, which allow them to pick up some fun money along the way as the rest of their opportunistic portfolio grows.
As Mobones explains, "I put some fun in my portfolio--literally. I bought Cedar Fair (FUN). I am a dividend investor and while this is a fun stock, it also has a nice yield of 5.3%."
Homebrewer's portfolio includes high-yielding ETFs and closed-end funds alongside dividend-paying stocks, such as Navios Maritime Partners (NMM), Gabelli Equity Trust (GAB), Prospect Capital Corporation (PSEC), and TAL International Group (TAL). "We are currently reinvesting the dividends since our play account has enough money for a few vacations."
"I'm retired and generate a positive cash flow from high-quality dividend equities [no spend-down]," notes Conserv63, who holds Vanguard High Dividend Yield ETF (VYM) as well as in-the-money calls on Apple and Gilead Sciences.
Meanwhile, KathieL used to own biotechs, but in retirement prefers high-yielding master limited partnerships. "Now that I'm retired, I want my fun money to make money for me. I own a collection of mostly MLPs that bring in a goodly amount of (mostly tax-free) cash. That cash pays for things I might balk at otherwise: a meal at a Michelin-starred restaurant, a case of expensive wine, etc."
No Fun Money for Me, Thanks
Some respondents said that they do not set aside a portion of their money for "fun money" at all. As texasboy explains, "I have no fun money. It's all serious with me."
Retired yogibearbull notes that while the "fun money" days are over, a "core and explore" portfolio strategy still allows for fun. "My explore portion is in options, stocks, stock funds, ETFs, CEFs--enough fun for me."
Retiredgary looks at the whole portfolio as investments, including "growth" holdings. "We've learned we are pretty good investors and pretty lousy speculators. So we'd rather get our fun outside the portfolio from doing and buying things we want and leave the portfolio to be one of just dull old investing."
BillInGA agrees. "None for me. I'm retired so all of my fun money goes for real fun; travel, hobbies, Irish whiskey, scotch, beer, and wine."
"Our 'fun money' went into the purchase of real estate this year ... a smaller retirement house for us with access to all the 'fun' things in the community. While we expect to profit from our real estate investment due to its location, enjoying oneself while one is able is also important for leading a happier life," said seaside1.
By contrast, others have fun dialing up the risk in this portion of their portfolio. Many respondents mentioned that they had a penchant for investing in biotechs, including Dogdoc, who said, "[You] never know when the next Celgene (CELG) will come along."
Though the majority of farhorizons' portfolio is invested in "highly diversified index funds," 10% is used to make angel investments into startups or pre-IPO young companies. "It's high-risk, potentially high-reward, and done only with money that I could live with evaporating completely. But it's amazingly fun and twice as mentally invigorating as picking individual public stocks."
Other respondents said they are finding bargains among beaten-down stocks in volatile markets such as China and Greece.
Mwleach discussed a short-term investment iShares China Large-Cap (FXI).
Meanwhile, Number's appetite extended to beaten-down Greek banks: "A few days ago I bought 1,000 shares of National Bank of Greece (NBG). High-risk but potentially big gain if things get better in Greece."
Stockvapors also invests in China on occasion. "I have owned Alibaba (BABA) and Baidu (BIDU). I made money on them, but they were a bit too unpredictable. So now I am in Tencent (TCEHY). It is growing, but more slow and steady. But then if the Chinese economy ramps up again, who knows?"
Karen Wallace does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.