Safer Investing for the Limited Capital Worrying Investor

Some investors out there have seemingly unlimited capital and look like, at least on this sites forums, that they just throw money around. Most likely that is not the case – everything the successful investors do is still perfectly calculated and planned before hand to make money – and not lose it with wasteful spending.

For those of you who are scared to get into the investing part of it because of your limited capital, fear not! Anyone who is interested in Investing can get into it and make sure they take all the precautions to try and safely manage their capital.

First of all, you need to make sure you have budgeted the rest of your monthly expenses around your paycheck accordingly. I won't tell you how to manage your money as it is your money. I wanted to express my way of doing it on a limited budget. Every month, I have a chunk of money that I put directly into a savings account that counts as money that I am not allowed to spend on my monthly expenses, or entertainment, etc. This is money I am saving for a rainy day, retirement, etc. so eventually I will invest portions of this money so it is not just sitting in a back with .025% interest.

Well, Lego can be one of those investments. So I suggest if you have a piece of your paycheck that you keep out for savings in a separate account (if you don't use a separate account, I would suggest doing so as its usually free and WAY easier) then find a piece of this per month savings that you want to put back and invest into Lego. If you keep your monthly expenses inside a piece of software like Excel, make this a section and give yourself that chunk as a ceiling for the month.

Now just having something to keep track of your money and a set ceiling for money spent per month doesn't mean anything unless you stick to it. I normally keep all of my Lego receipts and immediately log them in this when I get home. This also really really helps you set your standards high as to what sets you are going to buy. Think if you only had $20 to eat on a week – would you be impulsively buying fast food? Probably not. You would make sure you made your money count. This will be the same for your Lego Investing.

Another big problem for limited capital investors is one that I experience constantly: I just bought this awesome set for investing, got it here, and I saw it and I want to build it now. Problem is, you spent your investing money on this set and if you build it, you will lose the investment (opening the box loses value) and you have now spent the investing money on entertainment. This is a tough choice most of the time, so I deal with it in a couple of ways. First off, when I receive a set I bought online for investing, I check to make sure its in good shape and then it goes back into the box back into storage. If you leave it out all day, you are going to eventually succumb to temptation. Second, if I do give in, the money I spent on that set immediately is taken out of my other monthly spending money for entertainment, etc. This acts as a really good deterrent to keep me out of that box.

Now for choosing what sets to buy. No one here can tell you for sure which are the sets that will earn big time money when they finally retire. But, there are plenty of members here that have a boat load of experience on predicting sets values. Articles and reviews tell you everything you need to know. And if you have a question on a set, post in the forums as you will get plenty of opinions on how well a set may do. The best part about the forums is that you normally get a mix of the pessimists and the optimists which means you get both sides of the argument every time. On limited capital, I normally go for the sets that people agree on pretty astoundingly that they will do well. They must have a history in the theme of doing well and are very popular so there is little chance of a failed investment.

After you have chosen sets to buy, the problem becomes – what can I spend to make sure I am safely and smartly spending money? Well, no one can tell you for sure, but I want to offer an example of what I have come up with that has seemingly worked for me:

• First off, I only buy sets that have been out for 6+ months. This gives us great data, especially on BrickPicker to tell how popular the set is (how many have sold) and what people are willing to pay for it.
• Second, I determine a price where I feel like even if the set was a dud in the secondary market, I will be able to mostly get my money back. This can become tricky as we don;t know what a set will do, right? First off, if a set fails, chances are its not going above its retail value. So lets start there. Next, you will most likely have to sell it and ship it. The highest fees around are on Ebay which are roughly 11%. If you use Paypal, you are looking at another ~3% (this is off your total sale as Ebay transfers you all of the money then bills you for their fees). Shipping usually is right around 10% of the retail price roughly with a minimum ceiling of $5 to be safe (for small sets that are $10, chances are it won't be $1 to ship). With shipping, it all depends on where its going, but since you have control over that in most sales sites, 10% is a good estimate. This leaves us with 24% off retail.
• Next I look at the current BrickPicker data for the set New. Once I have that and my 24% off retail estimate, I average them together. Whichever one is lower gets weighted 3/4 of the average as a further precaution. This becomes my suggested buying price (including tax and shipping).

Let me show you an example. One of my favorite investments right now is the 7965 Millennium Falcon. I wont go into why this is a good investment in this article, but I feel it is. 7965 costs $140 retail (yes I rounded the penny):

$140 * .76 = $106.4

BP price New = $127.45

Average = (($106.4*3) + $127.45)/4 = $111.66

I should look to spend no more than $111.66 total for this set.

Let's do another example:

9474 LOTR Helm's Deep Retail = $130

$130 * .76 = $98.8

BP price New = $105.26

Average = (($105.26*3) + $105.26)/4= $ 100.42

I should look to spend no more than $100.42 for this set.

So what about sets like 10228 Haunted House that never get discounted? Well this can be a problem. Lets take a look at my formula for the Haunted House:

Retail = $180

$180 * .76 = $136.8

BP new is an amazing $213.32

Average = (($136.8 * 3) + $213.32)/4 = $155.93

As you can see, on exclusive sets like this that don't see a ton of discounts, this is very rough. In general, this is why it is a suggested formula. I see the suggested price and decide whether I am willing to risk the extra money I might not get out of it if its a dud depending on my thoughts on the set. I think the Haunted House is a serious home run, so I would take my chances.

Obviously this could be improved in many more ways depending on themes, size of the set, price per piece, etc. I plan on improving it in the future, but for now this gives me a good safe amount I feel I can trust.

Now another common problem that comes up: Let's say you pull the trigger on a 7965 you get from Walmart.com after discounts at $105. When you receive the item, the box has got some rough points on it. Some don't worry about it and others probably worry about it a little too much. FCBarcelona recently wrote an article debunking how much this affects the value of a set.

However, as a limited capital investor, I strongly urge you to talk to the retailer. Either get a further discount on the set or have them send you a new one. Yes the pay off may only be a couple of dollars, but when you are investing on a very limited budget, that money counts more than ever. Pus, though it requires a call or an email, it really wont cost you anything most of the time to try and get it replaced or get a damage discount.

Another thing I see differing opinions on is clearance. Every one here that seen clearance Legos knows how excited you get when you see that mega discount on all these sets. Most of us probably go get a cart and just shove everything into it we can reach. Chances are, items that are clearanced off are always going to meet my investment standard above, but that doesn't mean they are sound investments. I would still make sure you go through the process of searching Brickpicker and other websites for data to make sure this is a sound Lego purchase. A bunch of people may have bought Build-A-Zergs on a whim, but they still overpaid at 70% off. With limited capital you have less chances to take, so don't just purchase something because it is clearance.

Returns

Returning items can sometimes be just as important buying them for a limited capital investor. Let's say you have $200 to spend per month on Lego investments. Early in the month, you find a 7965 Falcon on sale and score it for $105. You now have $95 left for the month. Late in the month, Amazon puts the Tower Bridge 10214 down to $195!!! But you already spent your monthly money? This is why you keep the receipt. With a receipt, pretty much every store that carries Lego's will let you return them and get the money back on your credit card or in cash. If you don't have a receipt, many will take it back, but they give you store credit which could encourage you to further spend money and means your capital is continuously tied up until you spend that gift card. Now you can return that Falcon and get that Tower Bridge knowing its a once in a lifetime deal.

Rewards Dollars

When you earn rewards points with something like Ebates or the Ebay Bucks Program, or others, most will treat this as free money – which in some ways it is. They count it as money immediately off their investment and then spend accordingly.

While there is no strict reason again this, as a Limited Capital investor, I like treating them another way. Every dollar I earn in rewards dollars I still use, but count them against my Lego Investor capital for the month. This can seem weird – now you are just going to save more money in your savings account? In truth, it is a safety precaution though. It means you get your normal monthly investments but you have more money on hand. On top of that, this really helps curb your spending. I used to get a $10 rewards gift card to TRU and immediately go buy something for $25 because I said “I'm getting it for $15”. But I may have still overpaid in this instance and used money that I could have saved for later, or kept as investment money.
This is just another added safety precaution to make sure I get the most out of my Lego investing without taking the risks.

Conclusion

Nothing comes without risk – there are levels involved anytime you invest in something, even your 401K. But there are ways to manage and eliminate some of those risks. The above wont help you do that completely, but it should serve as a guide to those of us with very limited capital. It should also encourage investors who are shy about getting into the game that there are safety precautions you can take to make sure you don't end up failing at the end.

Note: All of the information here are my own opinions and are pulled from my experiences. You may or may not have success with these methods.