Category Archives: investing - Page 2

How to invest with a low budget

large_image_investing.jpgIf you’re living on a tight budget like me, you can’t always put down a grand here or there on your investment plans. Say you’re only making about 20-25 thousand a year and you know you should start investing for the future, whether it’s for your children’s education or for your retirement savings. This is still possible even for people with small income if you invest in small doses. Investing in small doses can add up real fast if you invest on regular basis.

Looking at the past ten years, the stock market has an average return of 8%. Lets take S&P 500 Index for example. Say you invest only 10 dollars a week and we’re assuming that S&P 500 returns at an average of 8%, over the next ten years you’re looking at 8,000 dollars, if you’re fortunate and it goes for an average of 12% then you can expect about 10,000 dollars!

Also, if you meet the requirements and you’re not making that much money, the government can refund as much as 50% of what you put in! So say you were able to put in 1,000 dollars for your IRA or 401k account that year, you would get at least 500 of that back. Then, if you’re really a dedicated investor, you can put that 500 into next years investment :)

When investing with little money, you should look into mutual funds. Mutual funds can hold anywhere from a dozen to hundreds of stocks, so when a stock doesn’t do all so well the impact will not hurt your portfolio as much.

Here is a list of fund companies I found on MSN Money who accept small investors:

1.) Steward Funds.investing_pic.jpg

Minimum initial investment: $25

Minimum monthly investment: $25

2.) Amana Funds.

Minimum initial investment: $250

Minimum monthly investment: $25

3.) Hodges Fund.

Minimum initial investment: $250

Minimum monthly investment: $50

4.) TIAA-CREF.

Minimum initial investment: $100

Minimum monthly investment: $100

Mutual Funds 101

mutual-fund.jpgBuying a mutual fund may be the smartest decision you can ever make , however with over 12,000 mutual funds to choose from, it can also be your worst if you don’t know what your doing. If you’re thinking to invest in a mutual fund, then you’re in the right process of thinking, but you have to make sure that you do your research first. There are some things you should know before you get into investing in funds.

Things to know:
1.) What is a Mutual fund
2.) Different kinds of stock funds
3.) Importance of low expenses
4.) Don’t go after the “winners”
5.) Don’t be too quick to dump a fund
6.) Be aware of taxes

1.) A mutual fund is simply a collection of stocks and/or bonds. A mutual fund pools money from hundreds and thousands of investors to construct a portfolio of stocks, bonds, real estate or other securities, according to its charter. Each investor in the fund gets a slice of the total pie.

2.) The different kinds of stock funds includes growth funds, which buy shares of burgeoning companies; sector funds, which buy shares of companies in a particular sector such as technology or health care; and index funds, which buy shares of every stock in a particular index, such as the S&P 500.

3.) The importance of low expenses are crucial when looking for a fund. Companies add on these expenses to cover their expenses and to make profit of course so watch out for these. They don’t charge more a few percentage points a year, expenses may not sound substantial, but they create a serious drag on performance over time.

4.) Don’t go after the winners because stats show that funds that rank very highly over one period of time rarely finishes on top in the later ones. When choosing a fund, do some research and look for consistent long term results.

5.) Don’t be quick to dump a fund because every fund will have its off year. If you find your fund to be losing a little here and there don’t be so quick to dump it. Although you may be tempted to sell a losing fund, check to see its previous behaviors and see if whether it has trailed comparable funds for more than two years. If it hasn’t then be patient. However if earnings have been consistently below par, it may be time to move on.

6.) Be aware of taxes even if you don’t sell your fund shares, you could still end up stuck with a big tax bite. If a fund owns dividend-paying stocks, or if a fund manager sells some big winners, shareholders will owe their share of Uncle Sam’s bill. Tax-efficient funds avoid rapid trading (and high short-term capital gains taxes) and match winning trades with losing trades. Also don’t double pay your taxes!
Now here are some advantages and disadvantages of mutual funds:

Advantages:

  • Low start -You can get started for as little as $100, but 2000 – 3000 is the common minimum.
  • Diversification- Buying a mutual fund provides instant holdings of several different companies.
  • Liquidity- Like individual stocks, a mutual fund investment can be converted into cash upon your request, in other words, it gives you convenient access to your money.

Disadvantages:

  • The Wisdom of Professional Management- That’s right, this is not an advantage. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but will charge you fees as though he/she is.
  • No Control- Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else’s car.
  • Dilution- Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund’s top holdings still doesn’t make much of a difference in a mutual fund’s total performance.
  • Buried Costs- Many mutual funds specialize in burying their costs and in hiring salesmen who do not make those costs clear to their clients.

The key thing is to research research and research. You want to have a very good understanding of how all the fees work and review their prospectus. Their Prospectus should provide things such as fees, objectives, risks, etc. All in all, study and know what your putting your money into. There are many websites with very useful information and here are some that are updated pretty frequently. Have fun!

How to create your investment plan

m-beginchess.jpgThe concept of investing can be very intimidating at first. You ask your self, where do I start? Stocks, bonds, cash investment? In order to start, you need to set your financial goals, whether you want to save for your retirement, school education, new house or starting up your own business. To succeed as an investor, planning and discipline is a must.

First step in creating your investment plan is to know what you want to do with your money and when you’ll need it.

  • Check your time frame, this is important because your investments will rise and fall in value throughout the time you own them.The longer your time frame, the greater your ability to ride out the ups and downs of the markets. Because you won’t need your money right away, you can more reasonably select investments whose values might fluctuate in the short term in hopes of earning greater returns over the long term.
  • Consider all your goals. Ask your self how can I invest to meet my goals. Whatever your goals are, keep in mind that the sooner you start the better your off.

Understand and choose your assets. Take the time to understand the basics of each asset class and how you can spread the risks around.

  • Stocks. Stock represents a share of ownership in a corporation. Stock returns are based on a company’s dividends and profits and how investors assess its potential for future profits. Historically, stocks have provided the highest returns over time, but stock prices fluctuate — sometimes dramatically. Investors typically choose stocks for growth of capital, which can help them stay ahead of inflation over the long term.
  • Bonds. Bonds are IOUs issued by governments, government agencies, and corporations. Interest-rate changes directly affect the prices and returns of bonds, but in general, bond prices fluctuate less than those of stocks. Investors typically choose bonds to receive income and to diversify stock portfolios.
  • Cash investments. A cash investment is a very short-term IOU issued by a government, corporation, bank, or other financial institution. Using the interest payments from such IOUs, money market mutual funds provide income—most often, less than that provided by bond funds—while maintaining a stable price of $1 a share. Investors typically rely on this type of fund to stash money they’ll need for emergencies and short-term goals.
    Once you have decided what asset your comfortable, your next step is to select the right investments. Although you could build your portfolio with your own individual stocks, I recommend starting with a mutual fund.

The next thing is to know when to change your investment mix. Life changing events can alter your financial situation and give you good reasons to change your mix. If you need to make a change, you can re-balance in three ways:

  1. Make an exchange. If your asset allocation is dramatically out of balance, you can transfer money from one type of fund to another. If you move retirement money within your employer’s plan or an IRA, you won’t owe any taxes. Outside a retirement plan, however, you may incur taxable capital gains by exchanging shares. If this is the case, you may prefer to re-balance using one of the next two methods.
  2. Redirect your new investments. You could simply add new money to the asset class that’s underrepresented in your portfolio.
  3. Redirect dividends and capital gains. Have your fund company invest dividends and capital gains from funds that have grown out of proportion in the funds that need a boost.
    Next and final step is to take action. Once you have designed your plans, start working on it. Remember that the longer you wait, the more you miss out. Each day counts.

Thomas Edison once said “Opportunity is missed by most people because it is dressed in overalls and looks like work.”.The truth is there’s no magic to investing, anyone can learn to do it with just a little effort.

Five rules for investing

lally_02.jpgSetting your goals is an important step when considering to start investing. You should have an investment plan which can help you develop a strategy that suits your goals and financial situations. But I’m gonna assume that you have already done that. So here I present to you five rule for investing:

  1. Diversify
  2. Keep costs down
  3. Pay attention to taxes
  4. Buy and hold for the long run
  5. Know yourself

1.) Keep in mind that all investments involve some risk. The best thing to do is to spread the risk around by investing in a mix of stocks, bonds, and cash investments and diversifying your investments within each of those asset classes. This way if some investments are not doing so well, the other investments may help even out the ups and downs of your overall portfolio.

2.) Don’t let the costs fool you into thinking that higher costs and fees means you’ll get more for your money. Normally, people think that you get what you paid for but when buying mutual funds, this is not the case. Overall, higher costs and fees will reduce your total performance.

3.)After the investment costs and inflation, taxes take the biggest bite out of your return. For your taxable accounts, consider investing in:

  • Municipal bonds or municipal bond funds, which are exempt from federal (and often state and local) income taxes.
  • Tax-managed mutual funds, which use special strategies in seeking to reduce taxes on investment returns.
  • Index funds, which tend to have lower turnover and so are less likely than actively managed funds to pass along taxable gains. (This may not always be the case for index funds that track a benchmark for a narrow market segment or industry sector.)

4.) Don’t waste your time trying to predict the market. No one can predict the ups and downs of the market often enough to make market-timing a consistently winning strategy. Just be patient and hold your ground.

5.) Know what you are comfortable with. If you can’t sleep at night because your over-worried at the fact that the value of your investments is bounding around, then you need to build a portfolio with a more conservative mix. This way may not reach you to your goals as fast, but as least you will be more comfortable and more rested along the way.

Save money by investing in Pre-Paid Legal

libmig6_1_4.jpgThe average cost of a lawyer is estimated to be around $200 – $350 per hour, and this does not cover any kinds of other fees that might be attached. Now tell me who do you know that can dish out couple grand out of their pocket at any given time, cause that’s about how much it would cost to get a lawyer(if not more). The solution to this is Pre-paid Legal. Pre-paid legal services refers to individual or group employee benefit legal plans in which members pay a monthly fee in exchange for access to a range of legal services on-call.

There are a number of reasons for choosing a pre-paid legal service.
Let me ask you this, have you ever..

  • Been overcharged for a repair?
  • Received a speeding ticket?
  • Been audited?
  • Purchased a home?
  • Tried to return a defective product?
  • Lost a security deposit?
  • Signed a contract?
  • Prepared a will?
  • Been in an accident?

Even though most people find themselves in these situations, the majority do not seek the advice or help of a qualified lawyer because

  1. It may cost too much.
  2. They may not know where to begin.
  3. The process is intimidating.

By having prepaid legal, you can call and talk to a lawyer about anything and get legal advise on how you should handle certain situations. Well there’s a saying that goes like this,” If you don’t know your rights, you don’t have any! “. If having prepaid legal services means having protection for me and my family and this only costs me 17 dollars a month, then it’s worth the investment because you never know what lurks around the corner. When you get into a situation where you know your being taken advantage of, sometimes all it takes is a letter from a lawyer to end it right there. You just never know what’s going happen.

This past summer I had a car accident (right after I bought my car btw) and I was 100% not at fault, but guess what, I ended up paying the total cost of my damage which came to 2200 dollars all because of two thing.

  1. The driver did not admit to hitting me on my side
  2. There were no witnesses

I later found out that all I needed was a lawyer to handle this situation and I would have saved two grand simply because I didn’t know what to do and how to approach the problem when it happened. So learn from my mistake and get prepaid legal because I don’t know what else you can buy for $17 that’s more important. You can check out their site here.

Here are some general benefits of having prepaid legal:

  • Writing a will for you and your spouse.
  • Creating trusts.
  • Court representation on charges such as DUI.
  • Mediation in neighbor disputes.
  • Representation in real estate transactions.
  • Review of contracts.
  • Divorce.
  • Discounts on legal services through a network of attorneys;
  • Free legal services, such as the preparation of a property deed or simple will;
  • Access to a database of legal forms and documents.

CBCNEWS has an article Pre-paid legal services: Worth the money?, you should check it out.

When will you become a millionaire?

one_million_dollars.jpgIt seems that everyone is trying to climb that millionaire ladder of success, that includes me and Dr. Evil. But unlike Dr. Evil, I don’t intend on taking the world hostage and asking for money. Instead, my goal is to get there by making smart money moves and to be there by early 40′s. Think its reasonable? I certainly do, heres my plans/situations and what differentiate me from the rest.

  • I am currently in school and will have absolutely no loans after I’m done. In fact, I am currently getting paid to go to school.
  • I will have a steady income of 50k+ a year after graduation, which is a nice start.
  • The company that I work for will pay for my masters and in returns will also give me a nice raise.
  • My plans to own my first home by the age of 25 will help me by not dumping my money away to pay for rent. The monthly mortgage will be going towards my house and not be dumping away into someone else’s hand.
  • I have plans for investing in real estate and expect to own a few houses by mid 30′s, where I will be renting out to people for monthly income.
  • I intend on putting away most of my checks in index funds.
  • I have a great start just because I started to save/invest at such an early age.
  • I think long term and have already started planning out my budget for my first home.

These are just some cases and plans I currently have. Here is a site that calculates when your gonna hit your million mark(rough estimation). After putting in my data, my results came out to be 20 years and 6 months. Ha! Take that Dr. Evil!

Retire Young Retire Rich

retire_young_retire_rich.jpgOne of the Chirstmas gifts I got this year was a book called Retire Young Retire Rich, from the same author who wrote the best seller Rich Dad Poor Dad, Robert Kiyosaki. I am looking forward to reading this book and possibly share some key points and post them here. My goal is to read at least one chapther a day so that means I should be done in twenty one days which is the 16th of January.

So far I have read the introduction to the book called ”Why David Met Goliath” and want to point out some parts that I liked. Robert Kiyosaki talks about how one the most important word in the world of money is leverage. He says, “Leverage is the reason some people become rich and others do not become rich.” The book is broken up into four sections based on leverage.

  1. The leverage of your mind (chap 1-8)
  2. The leverage of your plan (chap 9-13)
  3. The leverage of your actions (chap 14-20)
  4. The leverage of the first step (chap 21)

In the introduction, he noted that David and Goliath was one of rich dad’s favorite stories. Saying that he suspects that his rich dad may have seen himself as David, a man who started with nothing, yet to rose to compete against the giants of business. Rich dad said,”David could beat Goliath because David knew how to use the power of leverage. A young boy and a simple slingshot were far more powerful than the feared giant, Goliath. That is the power of leverage.”

I’m looking forward to starting this book.

50 Smart Money Tips That You Never Want to Avoid

Between Thanksgiving and Christmas, people are going to spend over some 124 billion dollars just on their credit cards. Now this may be why the average per household debt in the U.S, not including mortgage debt, is about $14,500. So if there is 300,334,644 people living in America and there are roughly 1.2 billion credit cards in use, that comes out to about 4 credit cards per person!! I think it’s safe to say that we Americans are complusive spenders. So I have gathered 50 good money tips for everyone and especially since it’s the holiday season I think we could all benefit from them. Here they are.

Budgeting:

1. Create and stick to a budget. It is important to know where and how your money is spent so you can wallet.jpgcut unnecessary expenditure and meet your financial goals.

2. Set goals for yourself. Working toward a fixed goal makes saving money much easier.

3. Earn More, Spend Less. Ensure that your earning power is more than your spending power. It’s easy to let go and spend, spend, spend. For once, try to curtail your spending so that it stays within your income limits. You’ll be surprised at how much you can save this way.

4. Keep track of your spending. Begin with writing down your daily expenses in a journal for at least a month. At the end of this period, review your spending decisions and make necessary adjustments.

debt_cards.jpg5. Pay your debts ASAP. Debt is never a good thing. If you’ve bought something on credit, try to pay off those bills ASAP. This will help you avoid late fees and prevent overspending.

6. Emergency Fund. This will come in handy when you have any immediate requirements, and will help you stay away from unnecessary loans.
Credit:

7. Ensure that your credit score is healthy. Pay your bills on time, avoid maxing your credit line and don’t collect more than a couple of credit cards.

8. Get yourself a debit card. It helps you develop the discipline of staying within your financial limits. Debit cards give you instant access to your money and limit your spending capacity. It’s a good idea to shop around before opening a checking account.

9. Get cards that offer some sort of incentives and rewards.

10. No Cash Advances: Avoid using your card to make cash advances. This will not reflect too well on your credit score and you will also have to deal with unbelievable interest rates.

11. Credit Report. You can get a free copy of your credit report once a year from Experian, TransUnion or Equifax. This will help you know where you stand and what you need to do to better your score.

12. Prevent your APR from rising. You can do this by paying your credit card balances in full every month.

Education and student loans:

student_loan.jpg13. Get professionally qualified. You cannot afford to stop studying once you are out of college. The more professional qualifications you have under your belt, higher is your value.

14. Search for public universities in your state rather than attend out of state schools or private schools. This will save you some serious money.textbook.bmp

15. Invest in a 529-college savings account. It’s tax-free.

16. Don’t waste money buying new textbooks. It’s a phenomenal waste of good money. Buy used textbooks instead.

17.Check Scholarships and grants: There’s a lot of free money floating around in the form of scholarships/grants. You may have to be quite persistent with this but if you keep trying, you are sure to find some that will help you reduce your costs.

General Saving:

atm.jpg18. Avoid ATM machines that charge fees. What you could do is budget your monthly expenditure and withdraw a fixed amount each month.

19. Stop being lazy. Try to walk or ride a bike to school/ college. This way you can leave the car at home and not have to bother about insurance, maintenance and gas – things that eat right into your savings. Or better, you could go around with a friend who owns a car (let them handle the expenses).

20. Avoid eating out all the time. Eating out can be a huge drain on your resources and your health as well. Your neighborhood fast-food restaurant not only helps you bloat your belly, but also reduces your bank account considerably.

21. Get a cell. Some cell phones allow unlimited calling on nights and weekends, or a flat rate for all calls. If you are lucky enough to find a plan that fits your requirements, get yourself a cell phone and cancel your regular phone line.

22.Write letters or use e-mail instead of calling long distance.

greygoose.jpg23. Limit your consumption of liquor and cigarettes. These are expensive habits and you must indulge in them only if you have huge sums of money to shell out.

24. Stay At Home. It may not be the coolest thing to move in back with your parents. But if your intention is to save lots of money fast, then probably moving back home will be a wise decision. You could save thousands of dollars a year on rent and bills. And plus you get the added benefit of homemade food.

25. Resist peer pressure. Whether in high school, college or at work, you’ll always find some people who like to live the high life. And if you tag along with them you’ll be pressured into spending money you don’t have. Learn to say no.

26. Make your home more energy-efficient. This way you’ll be able to reduce your heating and cooling costs.

27. Get back shape. It’s very easy for us to get so involved in our daily activities that we tend to forget ourselves. Daily life becomes a routine and getting to work becomes more important than reducing that flab. But don’t forget, a healthy body costs far less to maintain than an unhealthy body. So, keeping yourself healthy can improve your financial health too.

28. Enjoyment need not come from spending bucket loads of money and getting the latest gadgets, clothes, etc. There are other ways to find fulfillment. You could try joining various clubs, or write articles, compose music – in short, do anything that interests you.

29. Love Your Job. Being good at what you do and enjoying it will help boost your career beyond your wildest dreams. 
Saving while shopping:

30. Try to buy things at a sale. Sometimes, shops are ready to offer goods at a lower price – you only need to ask if the item you require is on sale or if you could get it at a sale price.

31. Diversify your stores. When your out shopping, you will be able to save more if you don’t limit yourself to one store.store-for-sale.jpg

32. Use coupons, cut expenses. You could look up your local newspapers for coupons.

33. Shop smart. Grocery shopping can be quite a drain if you are not careful. Don’t go in for fancy brands, use generic or shop brands, cook simple meals from scratch and eat homemade food more often.

34. Be patient. When you want to buy something, ask yourself if you really need that thing. You should never buy on impulse.

35. Do You ‘Need’ Or ‘Want’. It’s okay to get something for your self every now and then but make sure you don’t get in the habbit of it.

Saving on transportation/traveling:

36. If you haven’t got a car already, dont bother getting one unless there are no other means of transportation. Use the metro. I have a friend, who has a friend who hasn’t had a car for the past 3 years and he’s savings tons of money.

37. If car is needed, compare prices. Before settling for a car, try to compare insurance, maintenance, and repair costs for different models. A model with low operating costs can save you thousands of dollars. Also you should get used cars, it will save you tons of money and is cheaper to maintain.

38. Drive safely. Not only does it help save your neck, it keeps your insurance down as well. Insurance companies charge less for drivers who have no violations or accidents.

39. Combine errands and reduce travel. This way, you’ll only have to take your car out once or twice carpool.jpginstead of all day long and for those taking the bus, it will have you couple of bucks.

40. Carpool. This is energy saving, environment friendly, and a great money saver.

41. Save over $100 a year on gas by keeping your engine tuned and tires inflated to their proper pressure.

42. Save on Gasoline: You can save a few hundred dollars a year on gasoline if you compare  prices at different stations. Pumping gas yourself, and use the lowest-octane called for in your owner’s manual to reduce prices further.

43. Buy airplane tickets in advance to take optimum advantage of low rates.

44. When traveling on vacation, get an idea of how much you’ll be required to spend, create a budget and try to stick to it.

 

Investing
lf_investing.gif45. Begin investing as soon as you begin to earn. You could invest in index funds, and other investments or contribute to a 401k.

46. Research Before You Buy. A golden rule of investment is that you should know what you are putting your money into. If you don’t understand how the investment works, take the time to learn.

47. Use Your Employment Benefits. At work you can avail of numerous employment benefits like a 401(k) plan, flexible-spending accounts, medical and dental insurance, etc. All this adds up to a lot of money, so remember to make full use of these benefits and reduce your expenses and taxes.

48. Increase and optimize your 401k or IRA contributions. If your employer offers employer match, try to set your 401k contribution to that amount. This will help save taxes and is beneficial in the future as well. 

49. Invest your spare cash instead of letting it lie in a savings account. If you are young, you could think of investing in stocks, which are a good long-term investment strategy. As you grow older, you could consider less risky options like bonds.

50. Never put all your eggs in one basket. You must diversify your portfolio so that not more than 10 percent of your portfolio lies with any one company.

And thats it. I want to thank bankruptcy reader for the inspiration on their 101 financial tips. Cheers!