This post will explore some of my best and worst investments of the year (2013, for those stumbling on this in the distant future).
I’ll look at what I did right, what I did wrong, and what I might do differently next year.
As someone who aspires to someday reside comfortably on the B/I side of the Cash Flow Quadrant, this sort of analysis can be helpful in seeing what’s working for you on a semi-short-term basis. If you haven’t looked at how your investments fared this year, take some time to do it.
And by investments, I should clarify I’m not talking about stocks. For whatever reason, I can’t get excited about the stock market.
I don’t know what it is, just have never been that into it. When I do invest in the market, it’s usually just set-it-and-forget-it boring index funds.
OK, first-off a refresher course on the Cash Flow Quadrant if you’re not familiar.
This framework comes from Robert Kiyosaki in Rich Dad, Poor Dad.
(image credit)
On the left-hand side of the quadrant, Employees (E) and Self-Employed (S) people work for money.
On the right-hand side of the quadrant, Business Owners (B) and Investors (I) put their money to work for them.
The problem is, you either need a business or a bunch of money to play on the right-side!
But even a part-time business counts — side hustle entrepreneurs CAN use this framework.
In some capacity, I’ve occupied all 4 quadrants at different points. Maybe you have too.
Most often over the last few years, I’ve found myself in the Self-Employed quadrant, trying to transition myself to the Business Owner box. It’s a fun goal, but definitely a challenge.
In that spirit, here are some of my best and worst investments of the year.
My Best Investments
1. Adding Amazon to ShoeSniper
Cost: $2000
Revenue: $10,000+
Annualized Return: 500%
I had been reluctant to add Amazon’s footwear inventory to the ShoeSniper database for several reasons (read: excuses).
Their API and product catalog are complicated and difficult to use. Their commission rates are WAY lower than the industry standard. Their cookie duration only lasts a day, or maybe just for the duration of the visitor’s browser session. (In the industry, 30-60 days is more common.)
They also have a HUGE selection. I was worried of flooding my catalog with low-priced, low-commission shoes from Amazon, and cannibalizing more profitable sales.
But ultimately I had to take the customer-centric stance. If I wanted to build a valuable comparison shopping service, it wouldn’t be possible without the footwear selection from the world’s largest retailer.
It was a risky experiment, with a development cost of around $2000. It could have driven the average order value down to unprofitable levels.
But it turned out that ShoeSniper visitors loved it, and Amazon traffic converted at such a high rate, it made up for their super-low commission.
To be sure, a certain percentage of the sales had to have been cannibalized from other advertisers, but I feel like the majority of the business was incremental, which is why I’m including it here as my best investment of the year.
I also like this one because it shows that sometimes your best investment is the one you make in your own business.
You’ve got to bet on yourself now star, ’cause that’s your best bet. –311, All Mixed Up
2. Peer-to-Peer Lending with Prosper.com
Annualized Return (non-seasoned 2013 notes): 18.49%
Although that ROI will definitely decrease as time goes on (12-15% would be more realistic, and still awesome), I’m very excited about the growth of my Prosper portfolio, and the cash flow it spins off.
So far, I just reinvest the monthly cash flow back into more loans.
I feel like I’m getting smarter with my picks, thanks in part to detailed analyses of defaults like this.
Lately it’s been a challenge to find attractive loans to help fund, but I see that as validation of the peer-to-peer lending market. More and more investors are putting their trust and dollars into the market, meaning the demand is starting to outstrip the supply (at least for the notes I believe have the best chance for a good return).
I haven’t ventured onto LendingClub.com yet (Prosper’s primary competition), but I’m still high on peer-to-peer lending as part of my “passive income” investment strategy.
Have you tried Prosper or LendingClub yet? What do you think?
If you’d like to test it out, feel free to sign-up with my affiliate link.
3. Buying My Own Modem
Cost: $18
Annual Savings: $84
Annualized Return: 467%
I include this one as an example of cost-savings being an equally important investment strategy.
After we moved, I was engaging in a frustratingly difficult battle with Comcast to try and get our service transferred from the new address to the old address. Never as easy to do business with as you’d like!
But in the process of examining all the random charges on our bill, I noticed they’d been charging us $7 a month for a modem rental!
For years they’d been doing this and I never noticed! Stupid, stupid, stupid.
So I found a modem on Amazon — actually a newer model than the one we had — for $18. I’d “break even” on the deal in just 2 and a half months.
This may be an extreme example, but I like the idea of spending a little more upfront to rid yourself of an ongoing monthly expense — especially when it’s something you know you’ll use for a long time.
In fact, I need to look into this for our cell phone plans, since our contract is up and there may be some attractive alternatives to paying Verizon $125 a month!
My Worst Investments
1. Attempting to Outsource a Book Project
Cost: $220
Resulting Revenue: $0
This fall, I had an idea for a new book project.
With the goal of getting it done faster, I thought I’d try and farm out the actual writing of it.
Big mistake. The results I got back were not up to my standards and there was no way I could publish that work under my own name and charge money for it.
I ended up re-writing the entire thing myself, and am MUCH happier with the final product.
In a purely monetary sense, it was a total waste of money, but it was a valuable lesson in what kind of work should and should not be outsourced.
2. Adding DNA Footwear to ShoeSniper
Cost: $240
Revenue: $120
Annualized Return: -50%
With new store integrations, you win some and you lose some. While Amazon was definitely a big win, I include this one to show they don’t always work out.
Shortly after adding DNA Footwear to the site, they switched affiliate management companies to one of the worst in the business, and haven’t updated their product catalog since August.
There was no way of knowing that when I made the investment, but it still stings a little. Had I known they were going to be so mis-managed, I probably never would have added them.
3. Cash
Interest Rate: 0.75%
Inflation Rate: 2%
Net Loss: -1.25%
One of my worst investments this year was making no investment at all.
The S&P is up 26% for the year, but my savings actually lost value after inflation.
There’s a fine line between keeping some necessary and emergency cash on hand, vs. hoarding unnecessary amounts for no real reason.
This is definitely something I can improve on.
Do you subscribe to Mark Cuban’s “war chest” theory, where he keeps most of his net worth in cash so it’s ready to deploy on exciting opportunities as they come up?
Or do you like to stay invested to take maximum advantage of the market?
Of course hindsight is 20/20 but in 2013, holding cash was an expensive mistake.
“Intangible” Investments
During the year, I made several “intangible” investments that may not generate any sort of measurable financial return.
Travel
For example, this fall Bryn and I spent more than a month traveling in Japan and SE Asia. It wasn’t cheap, but it wasn’t that expensive either.
I call it an investment because it was such an awesome experience exploring another part of the world, practicing minimalism, and creating memories. No direct return, but worth every penny.
Podcasting
Even The Side Hustle Show podcast would be considered an intangible investment at this point.
See: How Much Does it Cost to Start a Podcast?
It costs time and money to produce, and it’s been super-fun to connect with inspiring and insightful people I might otherwise never have had an excuse to talk to, but there’s no sponsorship or “monetization” strategy in place.
Still, I think it’s an important, worthwhile, and fun avenue to pursue. It may be a long-term payoff, or there may not be much payoff at all aside from personal growth and experience.
Time will tell.
Conferences
When you don’t return from a conference with a signed deal in hand, it can be tough to justify the registration and travel expense.
Instead, I think you have to look at it from a networking standpoint and an educational standpoint.
Also, there’s some value derived simply from “showing up.” People begin to get familiar with your face and your work, and it’s a presence that builds over time.
This year, I attended my 5th and 6th Affiliate Summits, along with my first World Domination Summit.
In January, I’m scheduled to attend New Media Expo for the first time. I’ve heard nothing but good things and I’m really excited for it!
Your Turn
Now it’s your turn.
Did you have any homerun investments this year?
Any ones that were real stinkers?
Any plans for experimenting with some new investing strategies in 2014? (I’ve got a couple ideas I might like to try.)
Let me know in the comments below!