investments http://www.wisebread.com/taxonomy/term/3930/all en-US 5 Expensive Life Essentials Worth Investing In http://www.wisebread.com/5-expensive-life-essentials-worth-investing-in <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-expensive-life-essentials-worth-investing-in" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/new_graduate_000030222646.jpg" alt="New grad investing in expensive life essentials" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Everybody loves a bargain, and there are few things in life as satisfying as getting the lowest possible price on anything you buy. Even better when it's an item that you use every single day for a long time.</p> <p>But what if that &quot;steal&quot; harms your health, causes you pain, or limits your earning potential? Here are five expensive life essentials that you shouldn't skimp on.</p> <h2>1. Right-Fit Mattress</h2> <p>Inadequate sleep has several side effects that compromise your health and may even shorten your life. Sleep disorders can put you at risk for <a href="http://www.webmd.com/sleep-disorders/excessive-sleepiness-10/10-results-sleep-loss">serious health problems</a>, including heart disease, high blood pressure, and diabetes.</p> <p>When you sleep eight hours per day that means that you spend one third of your life in bed. Your bed is by far the most important piece of furniture in your home. Take care of your body by making a worthwhile investment in mattress that is a right fit for you. However, this doesn't mean to directly go for the most expensive one.</p> <p>Here are four considerations when shopping for a mattress:</p> <ul> <ul> <li>Got neck or back pain? Avoid mattresses that are too soft or too hard.<br /> &nbsp;</li> <li>Need your head raised? Look for adjustable mattresses.<br /> &nbsp;</li> <li>Got allergies or asthma? Consider mattresses labeled hypoallergenic.<br /> &nbsp;</li> <li>Have a partner that moves around a lot? Test memory foam mattresses because they reduce motion transfer.</li> </ul> </ul> <p>Once you've <a href="http://www.wisebread.com/how-to-buy-a-mattress-in-10-minutes-or-less">decided on your top mattress picks</a>, take the time to review the warranty and refund policies. Look for at least a 10-year full warranty and a grace period to decide whether or not you want to keep the mattress. (See also: <a href="http://www.wisebread.com/the-5-best-mattresses?ref=seealso">The 5 Best Mattresses</a>)</p> <h2>2. LASIK Eye Surgery</h2> <p>When asked &quot;What expensive product is actually worth every penny?&quot; the Reddit community responded &quot;<a href="https://www.reddit.com/r/AskReddit/comments/1l97ga/what_expensive_product_is_actually_worth_every/">LASIK eye surgery</a>&quot; loud and clear. For about <a href="http://www.allaboutvision.com/visionsurgery/cost.htm">$2,073 per eye</a> (average cost in 2013), you can upgrade yourself just like in a video game.</p> <p>While LASIK eye surgery will make a considerable dent on your bank account now, consider how much money you will save over the long run. The average national <a href="http://health.costhelper.com/eyeglasses.html">cost for eyeglasses</a> is around $196. If you were to take that $196 every year and put it an 8% index fund for 30 years, that annual foregone expense could compound to a staggering $23,153.88!</p> <p>If you're wearing non-disposable contacts and don't have insurance, your annual costs can be much higher: ranging between $150 and $375 a year ($170&ndash;$400 a year for disposable contacts without insurance). Just think about how much more you could do with that extra dough!</p> <p>If you have nearsightedness, farsightedness, or astigmatism, you may be eligible for this procedure. Consult your eye doctor to determine whether or not you're eligible for LASIK eye surgery or another similar refractive procedure.</p> <h2>3. College Degree</h2> <p>Education, smeducation. Mark Zuckerberg, Bill Gates, and Steve Jobs didn't have a college degree and look what they achieved, right?</p> <p>True, but most of us can benefit from having one.</p> <p>During the 2014&ndash;2015 school year, the <a href="http://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10064">average cost of tuition and fees</a> was $31,231 at private colleges, $9,139 for state residents at public colleges, and $22,958 for out-of-state residents at public colleges.</p> <p>These numbers may easily scare away many people. However, there are four powerful reasons to invest in a college education.</p> <ul> <li>More than <a href="http://www.gallup.com/poll/168386/americans-say-college-degree-leads-better-life.aspx">9 in 10 Americans </a>believe in the importance of postsecondary education.<br /> &nbsp;</li> <li>Individuals with a bachelor's degree, no matter what field, <a href="http://www.usnews.com/education/best-colleges/articles/2011/08/05/how-higher-education-affects-lifetime-salary">earn about $1 million more</a> in their lifetimes than their counterparts with only a high school diploma.<br /> &nbsp;</li> <li>Higher level degrees increase your earnings potential: a master's gets you $2.67 million more in your lifetime; a PhD, $3.25 million; and a professional degree, $3.65 million.<br /> &nbsp;</li> <li>People with at least a bachelor's degree have <a href="http://www.cdc.gov/media/releases/2012/p0516_higher_education.html">better health</a>, smaller chance to develop obesity, and higher life expectancy.</li> </ul> <p>Top-notch education is worth every penny. While you may have to settle for a more frugal lifestyle during your college years, there are several freebies that can help you out. (See also: <a href="http://www.wisebread.com/20-freebies-for-college-students?ref=seealso">20+ Freebies for College Students</a>)</p> <h2>4. Properly Fitted Bra</h2> <p>It may shock you to find such an everyday item on this list. Here's why:</p> <ul> <li>Physicians point out that poor fitting bras put <a href="http://www.dailymail.co.uk/health/article-3000486/Is-BRA-making-ill-Poorly-fitting-underwear-causes-problems-pain-heartburn-read-definitive-guide-picking-best-one-you.html">unnecessary pressure on the diaphragm</a>, affecting your breathing and potentially causing digestion problems, such as irritable bowel syndrome.<br /> &nbsp;</li> <li>Ill-fitted bras contribute to bad posture. Without proper support, breasts may pull on side and back muscles, bend the spine, and, when not corrected, cause a misaligned spine.</li> </ul> <p>Reaching for the most expensive bras at Victoria's Secret isn't the solution either. Instead, women should invest in a bra fitting done by a professional. According to the owner of a bra-fitting store in New York, about 80% of customers are wearing the <a href="http://www.health.com/health/article/0,,20411060,00.html">wrong size bra</a>. Some studies put that statistic higher at 85%.</p> <p>With bras going as low as $2.00 on Amazon, it may seem outrageous to spend $70 on a properly fitted bra. However, take it from this lady on Reddit: &quot;I look 10 pounds slimmer, my back doesn't hurt anymore, and my clothes fit better.&quot; (On that note, check out the 39,000+ community <a href="http://www.reddit.com/r/ABraThatFits">ABraThatFits</a> on Reddit; it has tons of information.)</p> <p>Let a pro help you out. Spending a minute trying out something isn't the same as spending eight hours in it.</p> <h2>5. Mechanical Keyboard</h2> <p>Talking about something that you use for eight hours (or more!) a day, let's focus now on the importance of getting a darn good keyboard.</p> <p>Programmers, journalists, college students, and secretaries all know how much it sucks to be stuck with a crappy keyboard. The solution is simple: switch to a more ergonomic and high quality mechanical keyboard.</p> <p>Unlike today's computer and laptop keyboards, mechanical keyboards use individual, high quality mechanical switches under every key. Old school programmers, early IBM and Mac users, and keyboard enthusiasts refer to the typing experience on a mechanical keyboard as the satisfying &quot;clickety-clack.&quot;</p> <p>While there are several accounts of how satisfying it's to use a mechanical keyboard, here is one that is health related. Heavy keyboard users provide testimonies that using mechanical keyboards may alleviate the pain of <a href="https://geekhack.org/index.php?topic=27940.0">repetitive strain injury</a>.</p> <p>Depending on the model, brand, and list of features, mechanical keyboards range from $50 to $300. The higher price of mechanical keyboards is due to small number of manufacturers. Some models to consider are the <a href="http://www.amazon.com/gp/product/B00S5E4KH2/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=390957&amp;creativeASIN=B00S5E4KH2&amp;linkCode=as2&amp;tag=wisbre03-20&amp;linkId=4UXDNH26RR2ZNU5C">Rosewill RK-9000</a>, the Ducky Channel, the Das Keyboard, and the <a href="http://www.amazon.com/gp/product/B00IG3GP84/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=390957&amp;creativeASIN=B00IG3GP84&amp;linkCode=as2&amp;tag=wisbre03-20&amp;linkId=6AMMTHZ7YU4TJHK2">Razer Blackwidow</a>.</p> <p>Before you drop several hundred bucks on a super expensive mechanical keyboard, start with a well-documented model. Based on customer reviews at Amazon a good starting point could be the <a href="http://www.amazon.com/Das-Keyboard-Professional-Mechanical-DASK3MKPROCLI/dp/B008PFABI8/ref=sr_1_4?s=pc&amp;ie=UTF8&amp;qid=1431476085&amp;sr=1-4">Das Keyboard Model S Professional</a>.</p> <p><em>What are other expensive life essentials worth every penny?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/5-expensive-life-essentials-worth-investing-in">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-cool-uses-for-your-coffee-maker">11 Cool Uses for Your Coffee Maker</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-cheap-ways-to-lower-your-blood-sugar">13 Natural and Easy Ways to Lower Your Blood Sugar</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-score-free-rides-on-uber-lyft-and-sidecar">How to Score Free Rides on Uber, Lyft, and Sidecar</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/51-uses-for-coca-cola-the-ultimate-list">51 Uses for Coca-Cola – the Ultimate List</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-tips-to-win-any-argument">6 Tips to Win Any Argument</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Life Hacks essentials everyday items investments Splurging Tue, 26 May 2015 13:00:10 +0000 Damian Davila 1431131 at http://www.wisebread.com 5 Times You Shouldn't Rush to Pay Off Your Mortgage http://www.wisebread.com/5-times-you-shouldnt-rush-to-pay-off-your-mortgage <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-times-you-shouldnt-rush-to-pay-off-your-mortgage" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/father_daughter_000039463172.jpg" alt="Father not rushing to pay off his mortgage" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you're fortunate enough to have disposable income, <a href="http://www.wisebread.com/6-money-moves-to-make-for-tomorrows-mortgage">paying off your mortgage</a> early might seem like a smart way to spend your cash. It's definitely a better approach than wasting your money on shopping and recreation. And given how a mortgage loan can take up a third of your monthly income, getting rid of this debt lets you do other things with your cashflow. But just because you have extra cash to pay off a mortgage doesn't mean you always should.</p> <p>Here's a look at five times when you shouldn't rush to pay off your mortgage.</p> <h2>1. You'll Miss Out on Tax Advantages</h2> <p>During the first half of a 30-year mortgage, a large percentage of your mortgage payments go toward paying down the interest, so your principal balance only decreases a little from year-to-year. It's frustrating to say the least, but think twice before dumping your disposable cash on extra principal payments.</p> <p>Some people will jump at any opportunity to pay off their home sooner, but there are tax advantages to keeping a mortgage loan. If you itemize your yearly tax return, there's the option of writing off your mortgage interest payments and lowering your taxable income. This reduces the amount owed to the state and federal government, or it might result in a bigger refund. This single deduction reduces my tax liability by more than $2,000 a year.</p> <h2>2. You Don't Have Any Type of Emergency Fund</h2> <p>Everyone needs an emergency fund, period. It doesn't matter who you are or what you do, if you're a middle-income American, you're going to hit at least one rough patch in your lifetime. A six to 12-month cash reserve is your backup plan for unexpected expenses or major setbacks like a job loss. However, you might feel paying off your home takes priority over saving. Your home is your biggest investment, and naturally, you want to protect it. But ask yourself: How's your savings account looking?</p> <p>If you have plenty of cash in a rainy day fund to handle life's curveballs, paying off your house early isn't a bad plan. But if you don't have any type of emergency savings, the focus should be on building your account. Paying more toward your principal builds equity and gets you closer to owning the property outright, but this plan might backfire if you find yourself unemployed without a cushion.</p> <h2>3. You Don't Have a Solid Retirement Plan</h2> <p>A few years ago I had a conversation with a couple that was committed to paying off their 30-year mortgage early. They put every extra cent toward their mortgage, sometimes paying an extra $400 or $500 a month. Both were in their early 40s, and despite their age, neither had started saving for retirement.</p> <p>Their plan was to focus on retirement planning after paying off the house. From their point-of-view, the house was their retirement. Without a mortgage, they wouldn't need as much monthly income later in life. I understand their thinking, but there are no guarantees a plan like this will work.</p> <p>Their plan didn't take into account curveballs like long-term unemployment due to illnesses or layoffs. If for some reason they couldn't pay their mortgage, they would potentially lose their house and their equity &mdash; and essentially their retirement.</p> <p>There's nothing wrong with paying extra toward your mortgage, just make sure you're also planning for the future and saving enough for retirement.</p> <h2>4. You Have High Interest Debt</h2> <p>What you paid for your house is probably more than what you owe on credit cards, and getting rid of your biggest expense may seem like the best way to attack debt. But although we spend hundreds of thousands of dollars buying a house, average mortgage interest rates aren't as high as some credit cards'.</p> <p>Credit card debt is a never-ending battle, especially when you have a high interest rate and you're only paying your minimum. Paying off your mortgage early is an excellent goal, but don't rush. Make high-interest debt your priority. These include credit cards, personal loans, and other lines of credit. Besides, paying off these debts gives your credit score a boost. Once you have these creditors off your back, you can focus on paying off your mortgage.</p> <h2>5. You Have a Prepayment Penalty</h2> <p>Some mortgage lenders stick borrowers with a prepayment penalty, which is basically a fee for paying off their mortgages early, usually within the first five years. This penalty discourages early pay-offs. Lenders calculate an estimated rate of return for each loan, and the longer a borrower owes on a loan, the more a bank earns.</p> <p>Typically, a prepayment penalty only applies to refinances and cash payoffs, and most banks waive the fee if a borrower sells the home. If you're coming into money and thinking about paying off your home, read your paperwork to learn whether your mortgage has a prepayment penalty.</p> <p><em>Did you pay off your mortgage early? Do you have other tips on why we shouldn't? I'd love to hear your thoughts in the comments below.</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> of <a href="http://www.wisebread.com/5-times-you-shouldnt-rush-to-pay-off-your-mortgage">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-things-millennials-can-do-to-buy-a-house-within-the-next-decade">5 Things Millennials Can Do to Buy a House Within the Next Decade</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/when-it-makes-sense-to-apply-for-a-mortgage-loan-without-your-spouse">When It Makes Sense to Apply for a Mortgage Loan Without Your Spouse</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-money-moves-to-make-for-tomorrows-mortgage">6 Money Moves to Make for Tomorrow&#039;s Mortgage</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-inspiring-people-who-each-paid-off-over-100000-in-debt">5 Inspiring People Who Each Paid Off Over $100,000 in Debt</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-times-its-actually-okay-to-be-underwater-on-your-home">6 Times It&#039;s Actually Okay to Be Underwater on Your Home</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing debt investments mortgages savings Mon, 18 May 2015 09:00:11 +0000 Mikey Rox 1421641 at http://www.wisebread.com How to Enjoy Retirement If You Haven't Saved Enough http://www.wisebread.com/how-to-enjoy-retirement-if-you-havent-saved-enough <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-enjoy-retirement-if-you-havent-saved-enough" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/retired_couple_vacation_000038250840.jpg" alt="Retired couple taking cheap vacation" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Are you ready to retire, but haven't managed to save enough yet?</p> <p>In fact, the U.S. Census Bureau of Labor Statistics says that although the average retirement age is 62, many seniors are retiring at age 65 or older, and a large percentage &mdash; roughly 80% &mdash; still will not have saved enough by then. Of them, about a third will depend entirely on Social Security benefits. If you're within five years of calling it quits but haven't saved enough to retire, here are a few steps that may bring retirement closer within reach.</p> <h2>1. Wait Until You're 65</h2> <p>Wait until you're age 65 or older before you start collecting Social Security benefits, as the longer you wait, the larger your benefit. Use Bankrate's Social Security <a href="http://www.bankrate.com/calculators/retirement/social-security-benefits-calculator.aspx">benefit calculator</a> to estimate your future payments.</p> <h2>2. Don't Wait to Downsize</h2> <p>Consider selling your home and investing the profits. Downsize to a lower-cost senior living community or condominium in an area where your property taxes will be affordable. You can also inquire about school parcel tax exemptions that allow seniors to apply for tax exemption from taxes imposed by local school districts.</p> <h2>3. Move to a No Tax State</h2> <p>Move to a state with no income tax on pension, Social Security, or dividend income. Florida, Nevada, New Hampshire, Pennsylvania, Washington, and Wyoming are among the states that do not tax that income.</p> <h2>4. Accept Government-Sponsored Medical Insurance</h2> <p>Medicare provides adequate health insurance coverage for doctor's visits, emergency care, assisted living, etc., but does not cover prescription drugs, dental, or vision care. For this, you will need add-on coverage like those offered by Medicare Advantage and Supplemental Insurance (Medigap). Consult with your insurance provider prior to retirement to ensure you can afford proper health insurance coverage. If you can't, inquire about government subsidies or senior plans offered by the likes of <a href="http://www.aarp.org/">AARP</a>.</p> <h2>5. Max-Out Retirement Accounts</h2> <p>By now you should be fully funding all of your retirement accounts and making any catch-up contributions. The 2015 catch-up contributions for IRAs total an additional $1,000 ($6,500) and $6,000 ($24,000) for your 401(k). As they are the most tax advantageous, make sure you are fully funding these accounts over the next few years preceding your retirement.</p> <h2>6. Diversify Using Bonds and ETFs</h2> <p>As you are nearing retirement age, you will want to gradually rebalance your portfolio so that it has less of volatile investments like stocks, and more of safer investments such as bonds and exchange-traded funds, or ETFs.</p> <h2>7. Join AARP</h2> <p>The benefits of joining AARP are endless. For those unfamiliar, AARP is the popular senior citizens advocacy group. The annual membership fee is only $16 and is discounted even further when years are bought in bulk. Members receive invaluable discounts on dining, travel, roadside assistance, auto insurance, health benefits, and more. This is a program that's definitely well worth signing up for.</p> <p><em>Are you prepared for retirement? What are you doing to get ready?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/qiana-chavaia">Qiana Chavaia</a> of <a href="http://www.wisebread.com/how-to-enjoy-retirement-if-you-havent-saved-enough">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/follow-these-5-steps-to-full-health-care-coverage-in-retirement">Follow These 5 Steps to Full Health Care Coverage in Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-start-saving-for-retirement-at-40">How to Start Saving for Retirement at 40+</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-things-millennials-should-do-today-to-prepare-for-retirement">4 Things Millennials Should Do Today to Prepare for Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/12-things-you-didnt-know-about-retirement">12 Things You Didn&#039;t Know About Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">Choosing a Retirement Account: What&#039;s Available, and What’s Best for You?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) aarp investments IRAs saving money social security Fri, 01 May 2015 15:00:25 +0000 Qiana Chavaia 1400950 at http://www.wisebread.com Here's How Much You'd Have Today if You'd Bought Bitcoins a Few Years Ago http://www.wisebread.com/heres-how-much-youd-have-today-if-youd-bought-bitcoins-a-few-years-ago <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/heres-how-much-youd-have-today-if-youd-bought-bitcoins-a-few-years-ago" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/bitcoins_000040764986.jpg" alt="How Much You&#039;d Have If You&#039;d Bought Bitcoins " title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Virtual currencies like Bitcoins are speculative investments, to say the least. During my time writing about the <a href="http://www.wisebread.com/heres-what-you-should-know-about-bitcoin">Bitcoin scene</a>, I've met people who came into unexpected windfalls, like a team of academics who bought Bitcoins for a research project at $5-$15 each and watched the price soar, <a href="http://www.coindesk.com/researcher-tracks-bitcoin-movements-anonymity/">multiplying their money</a> 50 times over.</p> <p>But I've also seen people make what were in retrospect costly mistakes, like the entrepreneur who prepaid 43 Bitcoins (worth $5,000 at the time) for a &quot;Bitcoin ATM,&quot; then realized that if he had held onto the Bitcoin instead, he would have had $25,000 by the time the machine was delivered.</p> <p>Here is how you would have fared if you'd invested $100 in Bitcoins at various points in the crypto-currency's history.</p> <h2>August 2, 2010</h2> <p>Bitcoin closing price: 6 cents</p> <p>$100 buys 1666.7 BTC</p> <p>Value as of April 16, 2015*: $372,624.12</p> <h2>December 17, 2012</h2> <p>Bitcoin closing price: $13.41</p> <p>$100 buys 7.46 BTC</p> <p>Value as of April 15, 2015*: $1,667.83</p> <h2>April 1, 2013</h2> <p>Bitcoin closing price: $133.76</p> <p>$100 buys 0.75 BTC</p> <p>Value as of April 15, 2015*: $167.14</p> <h2>November 25, 2013</h2> <p>Bitcoin closing price: $979.45</p> <p>$100 buys 0.10 BTC</p> <p>Value as of April 15, 2015*: $22.83</p> <h2>September 29, 2014</h2> <p>Bitcoin closing price: $359.43</p> <p>$100 buys 0.28 BTC</p> <p>Value as of April 15, 2015*: $62.20</p> <h2>January 12, 2015</h2> <p>Bitcoin closing price: $214.08</p> <p>$100 buys 0.47 BTC</p> <p>Value as of April 15, 2015*: $104.43</p> <p>So, is buying Bitcoin ever a worthwhile investment?</p> <p>&quot;Don't <a href="http://www.coindesk.com/already-bigger-than-some-currencies-bitcoin-can-get-bigger-gavin-andresen-says/">invest your life savings</a> in Bitcoin unless you're willing to lose your life savings,&quot; Bitcoin Foundation chief scientist Gavin Andresen told me in a May 2013 interview.</p> <p>On the day Gavin told me that, I could have purchased one Bitcoin for $124. On the day I am writing this, I could sell that same bitcoin for $229. But that's nothing! If I'd had the foresight to sell Bitcoin at its peak at the end of 2013, my $124 investment could have netted me a tenfold return, <a href="http://blogs.marketwatch.com/thetell/2013/11/29/bitcoin-hits-record-1242-as-it-nears-value-of-ounce-of-gold/">selling for $1,242</a>!</p> <p>Of course, if you had purchased one Bitcoin at at the end of 2013, that $1,000 plus investment would have lost 80% of its value by today.</p> <p><em>Disclosure: All Bitcoin prices in this article are from the </em><a href="http://www.coindesk.com/price/"><em>CoinDesk Bitcoin Price Index</em></a><em>. Carrie Kirby occasionally writes for CoinDesk.com.</em></p> <p>*4/15/15 closing price $223.57</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carrie-kirby">Carrie Kirby</a> of <a href="http://www.wisebread.com/heres-how-much-youd-have-today-if-youd-bought-bitcoins-a-few-years-ago">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-smart-ways-to-use-old-savings-bonds">6 Smart Ways to Use Old Savings Bonds</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-there-such-a-thing-as-risk-free-investing">Is There Such a Thing as Risk-Free Investing?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/plan-for-your-wants">Plan for your wants</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance bitcoins crypto currencies investments volatility Mon, 27 Apr 2015 13:00:04 +0000 Carrie Kirby 1397549 at http://www.wisebread.com 6 Smart Ways to Use Old Savings Bonds http://www.wisebread.com/6-smart-ways-to-use-old-savings-bonds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-smart-ways-to-use-old-savings-bonds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/savings-bonds-Dollarphotoclub_2278220.jpg" alt="savings bonds" title="savings bonds" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Still hanging on to those old savings bonds your grandparents bought for you when you were a kid? If so, you're probably wondering what to do with them and how much they're worth.</p> <p>Savings bonds are debt securities issued by the U.S. Treasury Department. If you own paper bonds, they are likely Series E, EE, or Series I Bonds, which in the past 30 years earned roughly 3.5% to 7.5%. If you're interested in calculating the face value of your bonds, use the <a href="http://www.treasurydirect.gov/BC/SBCPrice">Treasury Direct online calculator</a>. Or, use the <a href="https://www.treasurydirect.gov/indiv/tools/tools_treasuryhunt.htm">Treasury Hunt tool</a> to determine if you were ever the beneficiary of a bond you don't know about. (See also: <a href="http://www.wisebread.com/receiving-your-tax-refund-in-savings-bonds?ref=seealso">Receiving Your Tax Refund in Savings Bonds</a>)</p> <p>Once you know what they're worth, here's what you can do with your old savings bonds.</p> <h2>1. Hang On to Them Until the Maturity Date</h2> <p>Savings bonds were designed for long-term savings, so if you don't need the money now, you should hold on to your bonds until they mature before cashing them in. The maturity date is at least 5-years from the date of issuance and up to 30 years (the maturity is listed on your bonds). However, Series E/EE Bonds can be redeemed after one year and Series I Bonds after just six months. The early redemption penalty for cashing them within the first five years is forgoing the last three months of interest.</p> <h2>2. Convert Them to Electronic Savings Bonds</h2> <p>As of 2012, paper bonds are no longer available. Using <a href="https://www.treasurydirect.gov/indiv/research/indepth/smartexchangeinfo.htm">TreasuryDirect's Smart Exchange</a> you can convert your old paper bonds into electronic bonds by simply following the getting started resources on the website. This allows you to keep track of and manage your bonds online, plus it enables you to make any future bond purchases easily electronically. And it'll save you some time and hassle in the future when you choose to redeem your bonds.</p> <h2>3. Cash Them In and Invest</h2> <p>The best thing you could do is put your money straight back to work for you. After cashing in your bonds, reinvest the capital in the stock market. If your bonds are less than 30-years old and are still earning interest, they are likely underperforming the average annual stock market return. But unlike stocks, bonds are low-risk investment. To minimize some risk while still taking advantage of the stock market, consider investing in ETFs and mutual funds through your Roth IRA.</p> <h2>4. Pay for College, a Certificate, or Vocational Training</h2> <p>Cash in Series EE and Series I bonds issued after 1989 to pay for qualified education expenses, and you won't pay income tax on earnings. Educational expenses include all tuition and fees, including room and board, course materials, and other fees. Expenses can be for yourself, a child, spouse, or relative.</p> <h2>5. Locate Tax Records</h2> <p>If you were the recipient of a savings bond with or without a parent or grandparent listed as the beneficiary, to avoid income tax on accrued interest, the co-owner may have filed a federal income tax return for you as a child, in order to report investment earnings. And, because you were a child who did not cross the earned income threshold for filing a return, no tax would be due. Upon redemption of your savings bonds you would only owe tax for the current year's accrued interest.</p> <h2>6. Convert Them to TIPS</h2> <p><a href="https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm">Treasury Inflation Protected Securities (TIPS)</a> are exactly what they sound like: Bonds designed to keep pace with inflation. Unlike the traditional savings bonds you may be holding, their value adjusts with the inflation rate, so that their worth is not eroded over time. Selling your traditional bonds and using the proceeds to acquire TIPS, instead, might protect your capital better from inflation.</p> <p><em>Do you have old savings bonds? How do you intend to use them?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/qiana-chavaia">Qiana Chavaia</a> of <a href="http://www.wisebread.com/6-smart-ways-to-use-old-savings-bonds">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-simple-guide-to-series-i-savings-bonds-i-bonds">A Simple Guide to Series I Savings Bonds (I-Bonds)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/plan-for-your-wants">Plan for your wants</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-post-really-suk-kuks-examining-islamic-finance">This Post Really Suk-kuks: Examining Islamic Finance</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-times-you-shouldnt-rush-to-pay-off-your-mortgage">5 Times You Shouldn&#039;t Rush to Pay Off Your Mortgage</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance bonds investments savings savings bonds treasuries Tue, 30 Dec 2014 14:00:13 +0000 Qiana Chavaia 1274851 at http://www.wisebread.com 3 Survival Instincts That Harm Investors http://www.wisebread.com/3-survival-instincts-that-harm-investors <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-survival-instincts-that-harm-investors" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggy-bank-2110371-small.jpg" alt="broken piggy bank" title="broken piggy bank" class="imagecache imagecache-250w" width="250" height="230" /></a> </div> </div> </div> <p>I remember as a kid how my inclination toward saving hurt me. One day, during a neighborhood gathering, a boy named Chuck was dispensing malted milk candies to his friends, me included.</p> <p>The other kids ate the candy as soon as they got theirs, but I ate a few pieces and stored the rest. So, when Chuck noticed that I hadn't consumed my portion, he said he wouldn't give me as much in the second round of candy distribution. (See also: <a href="http://www.wisebread.com/delayed-gratification-and-the-secret-to-will-power">Delayed Gratification and the Secret to Will Power</a>)</p> <p>Back then, my desire to set aside a gift for another day worked against me. Later, as a teen and adult, saving tendencies became advantageous to my financial well-being.</p> <p>Similarly, primitive instincts that ensure our survival in some circumstances can work against us in modern-day scenarios. There are three areas in which our natural tendencies, embedded in our psyches from the days of our <a href="http://en.wikipedia.org/wiki/Hunter-gatherer">hunter-gatherer ancestors</a>, may detract from investing success.</p> <h2>1. Consume Right Away</h2> <p>As a kid, I may have been healthier than others by limiting consumption of candy at one sitting. But in leaner times, millenniums before packaged candy and grocery stores were commonplace, eating immediately after trapping or gathering food was essential to survival and strength. Otherwise, items would spoil and the effort to hunt and gather was wasted.</p> <p>Today, the instinct to consume right away rather than set aside for consumption years or decades later can hurt our investing success, former <a href="http://www.jonathanclements.com/aboutclements.html">Wall Street Journal personal-finance writer Jonathan Clements</a> once told me. Put simply, our focus on short-term survival causes us to spend now. As a result, we often don't have money to take care of long-term needs. (See also: <a href="http://www.wisebread.com/the-case-of-the-martini-is-instant-gratification-financially-responsible">Is Instant Gratification Financially Responsible?</a>)</p> <p>We need to overcome the instinct to spend on immediate and pressing concerns, leaving us the cash to save for financial goals, such as our children's education or our retirement. A first and very important step to successful investing is to consume less than you earn and set aside money for the future.</p> <h2>2. Favor What Is Popular</h2> <p>Many experts point to the &quot;<a href="http://www.investopedia.com/terms/h/herdinstinct.asp">herd instinct</a>&quot; as a detriment to investing success. In <a target="_blank" href="http://www.amazon.com/gp/product/074945637X/ref=as_li_ss_tl?ie=UTF8&amp;camp=1789&amp;creative=390957&amp;creativeASIN=074945637X&amp;linkCode=as2&amp;tag=wisbre03-20">Forecasting Financial Markets: The Psychology of Successful Investing</a>, author Tony Plummer explains how this inclination can hurt investors: &quot;On the one hand, their own 'personal' approach to making an investment decision may suggest one course of action; on the other, the lure of the 'herd instinct' may be pulling entirely in the opposite direction.&quot; He goes on to say that even professionals can be swayed by popular opinion at times when ignoring the crowd would ultimately be more profitable.</p> <p>Today, the instinct to listen to the group and follow the crowd is often useful. For example, you may choose a restaurant based on reviews on <a href="http://www.yelp.com">Yelp</a>, book a room at an inn after referencing feedback on <a href="http://www.tripadvisor.com/">TripAdvisor</a>, or choose a plumber by following recommendations from Facebook friends. (See also: <a href="http://www.wisebread.com/10-ways-to-make-facebook-productive">How to Make Facebook Productive</a>)</p> <p>This instinct to favor what is popular and well-liked among family, friends, and neighbors was crucial in the human race's early days. Clements notes that common group knowledge supported survival. For example, if everyone drank from a certain body of water or ate a strange food and lived happily afterward, then the water or food was deemed safe to consume. Following the crowd simplified decision making, offering an easy and secure way to live.</p> <p>Today, however, we may suffer harm when we apply such thought processes to investing decisions. That is, favoring what is popular or following the crowd may not be the best way to invest our money. Specifically, we often wrongly chase performance, buying shares of stocks, mutual funds, or other assets based on recent past performance and unloading them from our portfolio when everyone else is selling.</p> <p>We need to retrain our instincts not to ignore the crowd altogether but to place a much greater weight to a disciplined investment approach.</p> <h2>3. Never Take Risks</h2> <p>In hunter-gatherer days, little was gained by taking risks. There was no upside to trying something new and generally much to lose on the downside. For example, being the first to sample the water of a newly found stream or taste a new food could result in death.</p> <p>Today, being the first to discover and market a new drug, technology, product, etc. is often associated with greater wealth. For example, being an early investor in a startup that becomes wildly successful could provide rich rewards when the company becomes profitable and its stock price soars. (See also: <a href="http://www.wisebread.com/15-ways-to-manage-risk-in-your-financial-life">How to Manage Risk in Your Financial Life</a>)</p> <p>Further, avoiding risk can actually be risky. That is, if you keep all your money in a low-yield savings account, then you may not be able to earn enough interest to beat the inflation rate. So by not taking on risk in the stock market or other investments, your purchasing power is diminished, albeit slowly over time.</p> <p>Avoiding loss in the past was a positive attribute and helped people to stay safe and preserve their well-being.</p> <p>Now, though, the instinct to avoid risk may prevent us from investing at all and reaping gains through these investments. Though we shouldn't be reckless with our lives or our money, we do need to take appropriate risks when needed to grow our investment portfolio.</p> <p>You don't need to abandon your survival instincts. But you should learn to recognize when to counteract instinctual decisions to save money for investing, take appropriate risks, and stick to an investment plan.</p> <p><em>Have your survival instincts gotten in the way of your investments?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/3-survival-instincts-that-harm-investors">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/best-asset-allocation-for-your-portfolio">Best asset allocation for your portfolio</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-there-such-a-thing-as-risk-free-investing">Is There Such a Thing as Risk-Free Investing?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-cheap-easy-ways-to-invest-your-first-1000">4 Cheap, Easy Ways to Invest Your First $1000</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-silly-reasons-people-dont-invest-but-should">9 Silly Reasons People Don&#039;t Invest (But Should)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-dumb-investments-smart-people-make">5 Dumb Investments Smart People Make</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment investing investments psychology Thu, 19 Sep 2013 10:24:17 +0000 Julie Rains 988368 at http://www.wisebread.com HP Giving Away $500 to a Lucky Wise Bread Reader http://www.wisebread.com/hp-giving-away-500-to-a-lucky-wise-bread-reader <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/hp-giving-away-500-to-a-lucky-wise-bread-reader" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/smart-ip-investment-woman.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p><em>Editor's Note: The contest is officially closed! Congratulations to Wise Bread reader Ben Marvin for his <a href="http://www.wisebread.com/hp-giving-away-500-to-a-lucky-wise-bread-reader?page=2#comment-506334">winning comment</a>!</em></p> <p>HP is launching a new blog for lifehackers, work-from-home entrepreneurs, and small business owners called&nbsp;<a target="_blank" href="http://ad.doubleclick.net/clk;244309449;67587931;y">Input/Output</a>. It has a lot of relevant tips for savvy Wise Bread readers, such as&nbsp;<a target="_blank" href="http://h30565.www3.hp.com/t5/Feature-Articles/5-Tips-to-Cutting-Hidden-IT-Costs/ba-p/324">5 Tips to Cutting Hidden IT Costs</a>,&nbsp;<a target="_blank" href="http://h30565.www3.hp.com/t5/Feature-Articles/How-to-Avoid-Blowing-Your-IT-Job-Interview-Stop-Spewing-Acronyms/ba-p/296">How Not to &nbsp;Blow Your IT Job Interview</a>, and&nbsp;<a target="_blank" href="http://h30565.www3.hp.com/t5/Feature-Articles/Three-Ways-to-Print-from-Your-Mobile-Phone/ba-p/262">3 Ways to Print From Your Mobile Phone</a>,&nbsp;</p> <p>To celebrate the launch of Input/Output,&nbsp;<b>HP is giving Away $500 to Wise Bread Readers!</b></p> <h2>How to Enter</h2> <p>Simply <strong><a href="http://www.wisebread.com/hp-giving-away-500-to-a-lucky-wise-bread-reader#comments">leave a comment below</a></strong> answering the question:&nbsp;<b>What is the smartest investment you&rsquo;ve ever made?</b>&nbsp;(Answer must be at least <strong>two sentences long</strong>.)</p> <p>It can be any kind of investment&mdash;business, personal, or family investment. What is an investment that has yielded a solid return for you? Perhaps a degree, office equipment, cooking lessons, or a new suit?</p> <p>Prize is a <strong>$500 Visa gift card</strong>.</p> <p>Be sure to leave your name and email so we can contact you when you win!</p> <p>Comment must be entered before September 23, 2011 at 11:59 p.m. ET.<b><br /> </b></p> <h2>Contest Rules</h2> <p>NO PURCHASE NECESSARY.&nbsp;Legal residents of the 50 United States (D.C.) 18 years or older.&nbsp;&nbsp;Ends 9/23/11.&nbsp;&nbsp;Winners will be randomly selected and announced on Wise Bread before end of September. See&nbsp;<a target="_blank" href="http://www.wisebread.com/node/685396">Official Rules</a>. Void where prohibited.</p> <h2>More About INPUT / OUTPUT</h2> <p>One of the best ways to achieve success is to emulate successful people. <a target="_blank" href="http://ad.doubleclick.net/clk;244309449;67587931;y">HP's new blog</a> features original articles from the industry&rsquo;s most respected writers and exclusive interviews with technology leaders.</p> <p>You can learn life and business lessons from the top business minds of our time. Some of my favorites include:</p> <ul> <li><a href="http://h30565.www3.hp.com/t5/HPIO-Video/Chris-Anderson-The-Next-Business-Model-Video/ba-p/281">Chris Anderson</a> (Editor-in-Chief, Wired Magazine)</li> <li> <div><a href="http://h30565.www3.hp.com/t5/HPIO-Video/James-Surowiecki-Powering-Crowdsourcing-Video/ba-p/288">James&nbsp;Surowiecki</a> (Author of <em>Wisdom of Crowds</em>)</div> </li> <li><a href="http://h30565.www3.hp.com/t5/HPIO-Video/Tony-Hsieh-Marketing-to-the-New-Customer-Video/ba-p/292">Tony Hsieh</a>&nbsp;(CEO, Zappos)</li> <li><a href="http://h30565.www3.hp.com/t5/HPIO-Video/Jason-Fried-The-New-Workplace-for-the-New-Normal-Video/ba-p/287">Jason Fried</a>&nbsp;(37 Signals)</li> </ul> <p><strong><a href="http://www.wisebread.com/hp-giving-away-500-to-a-lucky-wise-bread-reader#comments">Enter the contest now by leaving a comment</a>!</strong></p> <p><em>This post is brought to you by HP. For more information on HP and HP products visit us at </em><a target="_blank" href="http://ad.doubleclick.net/clk;244309449;67587931;y"><em>Inputcreatesoutput.com</em></a><em>.</em></p><br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/will-chen">Will Chen</a> of <a href="http://www.wisebread.com/hp-giving-away-500-to-a-lucky-wise-bread-reader">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-7"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/planwise-is-giving-away-up-to-1250-to-wise-bread-readers">Planwise is Giving Away Up to $1250 to Wise Bread Readers!</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/enter-to-win-over-1000-in-hedgeable-s-holiday-giveaway">Enter to Win Over $1,000 in Hedgeable’s Holiday Giveaway!</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/ask-the-readers-i-used-to-but-now-i">Ask the Readers: I used to __, but now I __ to save money.</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/ask-the-readers-how-do-you-care-for-your-pet-affordably">Ask the Readers: How Do You Care For Your Pet Affordably?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/enter-the-life-after-debt-16000-giveaway-plus-500-just-for-wise-bread-readers">Enter the “Life After Debt” $16,000 Giveaway: Plus $500 Just for Wise Bread Readers</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Giveaways Contest giveaway investments Wed, 31 Aug 2011 15:05:07 +0000 Will Chen 685397 at http://www.wisebread.com Buy-and-Hold Investing: 4 Ways to Make It More Effective http://www.wisebread.com/buy-and-hold-investing-four-ways-to-make-it-more-effective <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/buy-and-hold-investing-four-ways-to-make-it-more-effective" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/buy and hold dead.jpg" alt="Buy and hold is dead?" title="Is buy and hold resting in peace?" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>The buy-and-hold investing strategy is kind of like my dad's 1981 Toyota pickup truck: dependable, reliable, old, and a little raggedy looking. It's been around forever and everyone always takes it for granted.</p> <p>But every time it breaks down, people tell him to dump it already. Enough with the 29-year old car already, they say.</p> <p>Buy and hold investing just had a break down and everyone is rushing to claim it's no longer a valid investing strategy. If you read the news about investing, you'd think buy-and-hold was outdated, antiquated, and broken.</p> <p>I do believe it needs a fresh coat of paint and maybe a new bumper, but the engine under the hood is still as sound as ever.</p> <h2>What the Media Says</h2> <p>Go to Google, type in &quot;buy and hold dead&quot; and you'll see what I'm talking about. Last year the stock market sucked and critics decided to run some analysis on how the S&amp;P 500 did in the previous ten years. Here's what that would look like:</p> <p><img border="1" alt="S&amp;P 500 1999 to 2009" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u781/s_p_500_buy_hold.jpg" /><br /> <em>Courtesy of <a href="http://finance.yahoo.com/">Yahoo! Finance</a></em></p> <p>Now, most of these experts consider 10 years a really long time, which is kind of disingenuous. But what this &quot;analysis&quot; did was support the idea that buying a stock and holding it for a long period of time (10 years) no longer worked. Look at the data! It's over! Panic! Buy more papers and read our website!</p> <p>To that I say: Paprikash!</p> <p>Buy-and-hold still works, but if you're having trouble believing and want to try something to beef up your buy-and-hold investing, here are four ways to invest when you have a long-term view on a stock.</p> <h2>Moving Average</h2> <p>I read about this one over at MSN Money. The author of <a href="http://articles.moneycentral.msn.com/learn-how-to-invest/stock-markets-real-return-paltry.aspx?page=1">this story</a> uses a 12-month moving average to determine whether it's time to buy into the stock or to sell out and put the money into something safe like bonds.</p> <p>It's a pretty interesting concept since it doesn't involve a lot of buying and selling. Check out the S&amp;P over that same period of time with the 12-month moving average line. The idea is to buy when the black line goes over the red line and sell when it goes under:</p> <p><img border="1" alt="S&amp;P Moving Average" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u781/S_P_Moving_average.jpg" /></p> <p>According to the chart, you should've sold off your S&amp;P stock right at the end of 2000, and not gotten back in until mid-2003. Look at the swoon you saved yourself from! Then you would've ridden the bull market all the way up to the beginning of 2008. Oh and that crash in late 2008? You would've been safe and sound.</p> <p>That's ten years and only four moves (including one false alarm in 1999) &mdash; not bad at all.</p> <p>Now, I'll be perfectly frank: I think technical analysis like this is kind of junky. I would never just buy and sell when a chart told me it was time.</p> <p>But if you have a long-term interest in a stock this gives you an interesting way of skipping over the bad times and being in there for the good times.</p> <p><strong>Upside: </strong>Easy to follow, few transactions to pay fees on.</p> <p><strong>Downside: </strong>Taxes are a pain unless you're in a tax-protected account like a Roth, relying on a chart.</p> <h2>Value Averaging</h2> <p>I first heard about this strategy from <a href="http://cashmoneylife.com/2008/10/14/dollar-cost-averaging-vs-value-averaging/">Cash Money Life</a> and I had to <a href="http://www.thewriterscoin.com/2008/11/07/value-averaging-take-the-blindfolds-off/">write about it myself</a>. It's very similar to dollar-cost averaging, which is simply making regular investments over a period of time to smooth out the ups and downs of the market. It's a very safe, very conservative strategy.</p> <p>What value averaging does is smarten up your traditional dollar-cost strategy. In my own words:</p> <blockquote><p>You want to have $5,000 invested at the end of the year so you invest the first $1,000, then wait until your next buying period. If the market goes up, you invest less. If the market goes down, you invest more. At the end of the year, you&rsquo;ve invested the same $5,000 but you&rsquo;ve made small changes as to when you put your money into the market. It&rsquo;s classic buy low, sell high.</p></blockquote> <p>For more on this strategy, check out <a href="http://www.studyfinance.com/jfsd/pdffiles/v13n1/marshall.pdf">this paper</a> that goes into a lot more detail.</p> <p><strong>Upside:</strong> Easy, simple, conservative.</p> <p><strong>Downside:</strong> Must pay attention to the market and decide when it's &quot;high&quot; or &quot;low.&quot;</p> <h2>Take Your Money and Run</h2> <p>This is one <a href="http://www.thewriterscoin.com/2008/07/17/rethinking-the-buy-and-hold-strategy/">I came up with in 2008</a> when things started to go really bad. I was still enamored with buy and sell, but wanted to find a way to avoid some of the pitfalls.</p> <p>So I started to think like a trader: take your profits when you can get them and try to minimize the losing of money. One way of doing this is to set an artificial barrier &mdash; once you gain that amount you sell off and take some profits.</p> <p>This may not sound like buy and hold anymore and I don't know how much of a fan I am of this concept anymore, but it's worth a look.</p> <p>Say you decide 20% is your bar. If you gain 20% in a stock, you sell off some (or all) of it to reap the rewards. Then you have to decide when to get back in, which opens up a whole can of worms.</p> <p><strong>Upside:</strong> You'll never lose money if you don't sell at a loss.</p> <p><strong>Downside:</strong> When do you buy again? Artificial barrier is very unscientific.</p> <h2>Options</h2> <p>Trading options is <a href="http://www.thewriterscoin.com/2009/12/16/option-trading-complicated/">not as complicated as you think</a>. In fact, in many cases they are less risky than investing in stocks. And one way to use a long-term view on a stock with options is called a covered call.</p> <p>This strategy is one of the most basic options moves out there, and it works like this: you own a stock and you sell calls on those stocks. What this means is you get some money from selling the calls and you will do better than just owning the stock if it:</p> <ul> <li>Stays flat</li> <li>Goes down</li> </ul> <p>If the stock goes up beyond the strike price of your call, your stock is still going up but you did worse that just owning the stock. Still, two out of three ain't bad.</p> <p>Check out <a href="http://www.investopedia.com/terms/c/coveredcall.asp">Investopedia's Covered Call</a> entry for more details on this strategy.</p> <p><strong>Upside: </strong>Very straightforward, protects you on two out of three outcomes.</p> <p><strong>Downside:</strong> Need to learn options, open an options-trading account.</p> <h2>Buy-and-Hold Is Here to Stay</h2> <p>There are a bunch of ways of making buy and hold more attractive, and these are just four of them. I especially like the idea of using the moving average strategy in a tax-protected account like a Roth IRA and owning dividend-yielding stocks.</p> <p>This way you're not exposed to the huge drops, you get your dividend payments, and you don't pay any taxes on all the times you buy in and sell off.</p> <p>The fundamental engine under buy and hold's hood seems to be as good as ever, although recent events have changed a lot of people's minds.</p> <p><em>Do you still believe in buy-and-hold?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carlos-portocarrero">Carlos Portocarrero</a> of <a href="http://www.wisebread.com/buy-and-hold-investing-four-ways-to-make-it-more-effective">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-8"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-debate-between-buy-and-hold-vs-timing-the-market">The Debate Between Buy and Hold vs Timing The Market</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-4-greatest-stock-reversals-in-the-last-decade">The 4 Greatest Stock Reversals in the Last Decade</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-top-5-index-funds-to-own-now">The Top 5 Index Funds to Own Now</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-and-why-i-held-onto-a-tanking-stock-and-what-happened-next">How and Why I Held Onto a Tanking Stock — And What Happened Next</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-investing-in-companies-you-hate-can-make-you-rich">Here&#039;s How Investing in Companies You Hate Can Make You Rich</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment buy and hold investments stock market Tue, 09 Feb 2010 17:00:07 +0000 Carlos Portocarrero 5115 at http://www.wisebread.com Optimize Your IRA and 401(k) http://www.wisebread.com/optimize-your-ira-and-401k <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/optimize-your-ira-and-401k" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/apollo-4-liftoffa.jpg" alt="Apollo 4 Liftoff" title="Apollo 4 Liftoff" class="imagecache imagecache-250w" width="250" height="345" /></a> </div> </div> </div> <p>Your IRA and 401(k) (or 403(b) if you work for a non-profit) are great tools for deferring taxes, and have other advantages as well. But because they're labeled &quot;retirement&quot; accounts, people are much too likely to put the wrong investments in them. Here's how to use them correctly.</p> <p>Because of rules designed to discourage people from taking money out until they approach retirement age, people assume that they ought to put their &quot;long-term&quot; investments in their 401(k). But that's the wrong way to think about it.</p> <p>The key difference in a 401(k) or IRA account is not that it's supposed to be for your retirement. The key difference is that money that goes into the account--and money earned in the account--is tax deferred. If you let the fact that the accounts are called &quot;retirement&quot; accounts influence what assets you hold in them, you're unlikely to make maximum use of their key feature--and that amounts to throwing money away.</p> <h2>Use that tax deferral!</h2> <p>There are two steps to optimizing your various retirement accounts. The first is to get some money into them, and the second is to put the right investments into the right accounts.</p> <p>First of all, you probably want to put as a big chunk of your regular income into your 401(k), as you can.</p> <p>I say &quot;probably&quot; because there are a few reasons why you might want to limit how much money you put in your 401(k):</p> <ul> <li><strong>Your income is very low</strong>. If your income is low enough that you're being taxed at 10% or less, there's a pretty good chance that you'd pay higher taxes when you take the money out of your 401(k) after retirement.</li> <li><strong>Your income is very high</strong>. Both the IRS and your company limit how much money you can tax defer if you have a very high income.</li> <li><strong>Your employer's plan is crappy</strong>. Some plans have high fees or poor choices of investments.</li> <li><strong>You want to save money outside the plan</strong>, such as because you want to use it before you're retirement age.</li> </ul> <p>Of course, if your company still provides a corporate match, that plays into the decision as well.&nbsp; I've got a post on <a href="http://www.wisebread.com/when-not-to-put-money-in-your-401-k">when NOT to put money in your 401(k)</a> that talks about those issues in some detail. To what I'd say there I'd only add that federal income tax rates are currently at generational lows. That, combined with the current level of the deficit, suggests to me that future tax rates are likely to be higher than current tax rates--another reason why you might not want to put all your long-term savings in your 401(k).</p> <h2>Separate asset allocation from account selection</h2> <p>The allocation of assets among your various long-term goals is a completely different step from the selection of which account should hold which asset. <strong>Understanding this can add substantially to your wealth.</strong></p> <p>You probably have several long-term goals. Retirement (including early retirement) is one, but anything that requires years of saving qualifies as a long-term goal. (Examples: college savings for a young child, money to start a business, your dream home, a round-the-world cruise).</p> <p>Investments for all your long-term goals can <strong>and should be</strong> managed together. All your assets support all your goals; you just confuse yourself if you start thinking that <em>these</em> stocks are for retirement while <em>those other ones</em> are to put a new roof on the house someday.</p> <p>So, step one is to figure out your <a href="http://www.wisebread.com/best-asset-allocation-for-your-portfolio">ideal asset allocation</a>. This probably includes putting a large fraction of your investments in a broad-based, low-cost stock index fund, but may include investments in many other asset classes: mutual funds that invest in foreign stocks or dividend-paying stocks (or direct investments in such stocks), bonds, real estate, gold, silver, other commodities, etc.</p> <p>Only after you've figured out how you want to invest your entire portfolio do you want to figure out which accounts should hold which investments.</p> <h2>Choosing compartments</h2> <p>The key to this step is to put income-earning investments in tax-deferred accounts.</p> <p>Your asset allocation may include an investment in non-dividend paying stocks. They'd be part of a long-term investment strategy whose purpose is to produce growth over the next 20 or 30 years--but just because they're long-term does not mean that they should go in your 401(k)! Quite the reverse: a non-dividend paying stock that's a core holding in your portfolio should be in your regular brokerage account. If it does well you can go on holding it for years and years and won't have to pay any taxes until you sell--and when you do sell, you'll owe taxes at the low capital-gains rate.</p> <p>Holding that investment in your retirement account would be crazy. First, since you already don't owe taxes while you're holding it, you'd get no benefit from the tax deferral. Second, when you withdraw money from a retirement account you have to pay taxes on it as regular income--losing the favorable tax treatment for capital gains.</p> <p>(It doesn't work out any better if the investment does poorly--in your regular brokerage account you can use a capital loss to offset other gains before paying taxes, but losses in a retirement account are just losses.)</p> <p>You don't want the compartment decision to drive your asset allocation--you already decided what investments you wanted to hold. But those assets should end up in compartments based on tax considerations. Interest-earning investments like bonds go in tax-deferred accounts. So do investments with frequent turnover--if you make trades in your regular brokerage account you have to pay taxes on your profits every year.</p> <p>Dividends are a special case. Currently dividends are receiving favorable tax treatment, so you're probably better off keeping most dividend-paying stocks outside of your 401(k) at the moment. This is likely to change, though, so you'll have to monitor the situation.</p> <p>If you have a good 401(k) plan with lots of low-cost fund choices, it should be easy to hit your target allocation with most of your interest-earning investments (and investments that you might trade actively) inside the plan.</p> <h2>Limitations</h2> <p>In an ideal world it would be straightforward to allocate things to the different categories: You'd put the things that earned interest into your 401(k) and IRA while keeping things that produced capital gains (and currently dividends as well) in regular accounts.</p> <p>In the real world there are a bunch of constraints on that, the biggest being that many people, especially younger folks, have practically their whole wealth concentrated in their 401(k).</p> <p>This happens almost automatically: You get a job, you direct enough money into your 401(k) to get the full corporate match (back when companies actually paid a corporate match), and then you spent most of your take-home pay. You can't hold your stock portfolio in your brokerage account (where you'd get the maximum tax advantage of the capital gains and dividend tax breaks) because you just don't have enough money outside the 401(k).</p> <p>This and similar real-world considerations are going to limit your ability to get this exactly right--and that's to be expected. The important thing is to base your asset-allocation decisions on your best analysis of your goals and your expectations for the future. Below I've got a few tips for dealing with specific situations.</p> <p>The main limitation on your ability to optimize your 401(k) plan has to do with the choices your employer offers within the plan. Happily, you can work around even a pretty mediocre plan's limitations, as long as you at least some of your long-term savings outside your 401(k).</p> <p>First, take a close look at the investment choices you've got and compare them to your desired asset allocation. Maybe there's no bond fund, but there is a balanced investment fund that's half-and-half stocks and bonds. If you wanted 20% in bonds you could get that by putting 40% of your money into the balanced fund. (That would also put 20% of your money into stocks--which is fine, as long as your stock allocation is at least 20%, which it probably is.)</p> <p>Second, where you really can't find the investments you need within the plan (no international fund, perhaps, or no gold fund) you have to cover that fraction of your asset allocation elsewhere--which is also fine, as long as you have some of your long-term investments outside the plan. If the investment is one that ought to be tax-deferred, see if you can't buy the appropriate asset within an IRA.</p> <p>Generally, make hitting your asset allocation your number one priority. Maximum tax efficiency is a secondary consideration--but to the extent that you can keep your bond investments (and any investments where you make frequent trades) inside a tax-deferred plan, you'll come out ahead.</p> <p>As a secondary matter, start saving some money outside your 401(k). As the sum grows, use it to invest for capital gains (and, for however long they remain tax-advantaged, dividends)--and simultaneously shift your 401(k) toward interest-earning investments that make maximum use of the 401(k)'s tax advantages.</p> <p>For most people this will probably be a long-term problem: Unless you become quite wealthy, your 401(k) will always be larger than the amount of money you want to hold in bonds. But that's not a big problem. Just stick with your asset allocation and emphasize capital gains and dividends outside the 401(k).</p> <h2>Using a Roth</h2> <p>A Roth IRA is a special case. If you follow the rules (wait until your Roth is 5 years old and until you're 59-and-a-half), you can avoid paying any taxes on money earned in a Roth.</p> <p>The upshot is that most of these issues don't really apply to a Roth. Just invest according to your asset allocation and don't worry about it.</p> <p>Remember that tax rates always change (and everyone's individual tax situation is different), so be sure to check and understand how the rules will actually apply in your case.</p> <p>Whatever mix of retirement accounts you end up using, don't let the fact that they're called &quot;retirement&quot; accounts distract you from the essential features that distinguish those accounts: the tax advantages. Taking maximum advantage of those features can add significantly to your wealth over the next few decades.</p> <p><em>&nbsp;[Update 6 August 2009:&nbsp; This post was included in the </em><a href="http://www.christianpf.com/famous-money-quotes-copf/"><em>Carnival of Personal Finance</em></a><em>.]</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/optimize-your-ira-and-401k">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-9"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/retirement-accounts-and-money-to-spend">Retirement accounts and money to spend</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-why-you-cant-postpone-planning-for-your-retirement-and-how-to-start">This Is Why You Can&#039;t Postpone Planning for Your Retirement (And How to Start)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-choose-a-roth-401k-or-a-regular-401k">Should You Choose a Roth 401k or a Regular 401k?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/left-a-job-do-a-rollover">Left a job? Do a rollover.</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/plan-for-your-wants">Plan for your wants</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance 401(k) 401(k) plans 401k 401k plans investing investments IRA long-term Roth savings tax tax-advantaged tax-deferred taxes Wed, 29 Jul 2009 20:00:11 +0000 Philip Brewer 3442 at http://www.wisebread.com Tactics of the rich http://www.wisebread.com/tactics-of-the-rich <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/tactics-of-the-rich" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/sunsinger.jpg" alt="Sunsinger statue in Allerton Park" title="Sunsinger" class="imagecache imagecache-250w" width="250" height="334" /></a> </div> </div> </div> <p>There are things the rich do that working class and middle class folks don't. Some of them--living off the return on capital rather than wages or salary--are only available to the rich. Others--seeking a first-rate education for your kids, working for yourself rather than others--are things that ordinary folks do to the extent that they can, but their ability is limited. Even so, it's worth learning the tactics of the rich and applying them where possible.</p> <p>Some of the tactics of the wealthy are unsavory. One key tactic is to share as little as possible of the profits of the enterprise. This is why working for yourself is such an important tactic--the owners and managers are in a position to grab the lion's share. Put your suppliers in the position of competing with one another for the lowest price, put your workers in the position of competing with the unemployed for the lowest wage, and pocket the savings (via dividends if you're an owner, via bonuses if you're a manager).</p> <p>Others, though--tactics like frugality, living within your means, avoiding debt (except to invest in a money-earning enterprise), and working hard--are positive virtues, or at least neutral. (And they're generally the ones that lead to wealth creation. The others are largely about wealth preservation.)</p> <p>These tactics are not kept secret, exactly, but various factors keep them largely out of view from ordinary folks. The biggest is simply that consumption is interesting while frugality is dull. So, buying a yacht makes the news, whereas driving a 10-year-old car one more year doesn't get noticed. The result is that popular culture shows the excesses of super-wealthy but not the ordinary lifestyles of the ordinary wealthy. But there are way more of the latter than there are of the former.</p> <h2>Not a level playing field</h2> <p>There are a lot of ways in which the deck is stacked in favor of the rich. The advantage I mentioned at the beginning--owners and managers being able to skim off an outsized share of the profits--is a huge one, but there are others:</p> <ul> <li>The legal system heavily favors the rich.</li> <li>The financial system offers high quality services to the wealthy (often for free), while the poor make do with expensive check-cashing services and payday lenders.</li> <li>The rich are in a much better position to wait for a good deal--which gets them lower interest rates on loans, lower rents, lower insurance rates, and better prices on just about everything.</li> <li>And then there are simple social realities--affluent neighborhoods are safer, stores that cater to the affluent have more and better choices (and often cheaper ones as well), schools in affluent neighborhoods are better and safer.</li> </ul> <h2>Knowledge can help level it</h2> <p>If you know enough, though, most of these advantages of the wealthy are available to the poor as well:</p> <ul> <li>Anybody can start a small business. The internet has vastly increased the range of options that require almost no capital (and has made a wide range of formerly expensive services available cheap or free). This mean that anybody can work for themselves rather than others.</li> <li>Anybody can be frugal and live within their means, as long as they don't assume that they're entitled to some particular standard of living.</li> <li>Anybody can avoid debt. More important, anybody can understand the difference between <a href="http://www.wisebread.com/good-debt-bad-debt">productive debt</a> (invested to earn the money to pay itself off) and unproductive debt (spent on consumption).</li> <li>Anybody can do the research to find the good public schools. The affluent have a lot more choices, but you only need to find one affordable place to live in a safe neighborhood with good schools.</li> <li>Anyone (even <a href="http://www.wisebread.com/making-direct-deposit-safe-for-the-garnished">people with garnishments</a>) can open a bank account and quit using the check-chasing places.</li> <li>Anyone can be patient and refuse to take a bad deal--which will, over time, get you the same good prices that the rich get.</li> </ul> <p>It takes time and effort to learn the tricks and pitfalls, and this is where the children of the affluent get their biggest leg up: They learn these things from their parents and their friends' parents, from their classmates and teachers and neighbors. They also generally reach adulthood with at least <a href="http://www.wisebread.com/join-the-rentier-class">a little capital</a> (instead of student loan debts). But you can learn these things too. It's one reason for reading Wise Bread.</p> <p> &nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/tactics-of-the-rich">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-10"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/if-youre-so-smart-why-arent-you-rich">If you&#039;re so smart, why aren&#039;t you rich?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/if-you-won-the-lottery-you-would">If You Won The Lottery, You Would...</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-decent-standard-of-living">A decent standard of living</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/eight-natural-ways-to-make-water-more-flavorful">Eight Natural Ways to Make Water More Flavorful</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-savings-mistakes-even-smart-people-make">8 Savings Mistakes Even Smart People Make</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Frugal Living class investments rentier class rich tactics wealthy Sun, 12 Apr 2009 21:18:49 +0000 Philip Brewer 3037 at http://www.wisebread.com Is There Such a Thing as Risk-Free Investing? http://www.wisebread.com/is-there-such-a-thing-as-risk-free-investing <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/is-there-such-a-thing-as-risk-free-investing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/DA logo.png" alt="deposit accounts" title="depositaccounts.com" class="imagecache imagecache-250w" width="250" height="49" /></a> </div> </div> </div> <p>Most <a href="http://www.google.com/search?hl=en&amp;client=firefox-a&amp;rlz=1R1GGGL_en___US319&amp;hs=cck&amp;defl=en&amp;q=define:investing&amp;ei=kiPFSc6GEY7ItgfN2u3HCg&amp;sa=X&amp;oi=glossary_definition&amp;ct=title&amp;cts=1237656439284">definitions</a> for &ldquo;investing&rdquo; indicate that the term is used to describe money that is invested with an expectation of profit. This definition determines that an investment doesn't necessarily need an element of risk in order to be considered investing, even though many people fear investing because of the risk of losing their money.</p> <p>Risk-free investing and savings options are insured by the Federal Deposit Insurance Corporation (FDIC) up to a certain amount of money per person. The FDIC is an independent agency of the US government that is fully backed by the government. Since the FDIC was created in 1933, no one depositing money into an FDIC insured institution has lost any of their FDIC-insured funds.</p> <p>You have a few options for investing your money (saving money with an expectation of earning a profit on the money you save) that are considered free of risks for losing any of the money you contribute. In addition to the standard or online <a href="http://www.depositaccounts.com/savings/">savings accounts</a> and interest-earning checking account, the following are risk free investment strategies for growing your money:</p> <p><em>Money Market Funds</em>: Often confused with Money Market Accounts which are not risk-free, the Money Market Fund is a deposit account that earns interest. If you open a Money Market Fund with an FDIC institution, your insured up to $100,000 for standard accounts and up to $250,000 for retirement Money Market Funds. These accounts offer a higher interest rate than your typical savings or interest-earning checking account, but usually limit the number of transactions you can make per month.</p> <p><em>Fixed Rate IRA</em>: If you're looking to deposit your money and save for a specific length of time, the fixed rate IRA might be a good option. Fixed rate IRAs are funded with Certificate of Deposits, give you a fixed interest rate of return, and all interest is tax deferred. In some cases, you may be able to deduct contributions to fixed rate IRAs on your federal income taxes (check with an accountant for eligibility requirements). Like a traditional IRA, if you withdraw your money before it reaches the date of maturity, you will end up with an early withdrawal penalty &ndash; however, leaving your money in for the full term gives you a grace period at maturity during which you can withdraw the funds without penalty or re-invest.</p> <p><em>Certificate of Deposits</em>: When you use a CD to save your money, you earn higher rates of return the longer the savings term you select. You are basically loaning money to the bank, and earning an interest for doing so. The longer you &ldquo;loan&rdquo; the money, the more you will receive in interest. CDs opened at FDIC insured institutions will be guaranteed by the federal government up to specified limits.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/debbie-dragon">Debbie Dragon</a> of <a href="http://www.wisebread.com/is-there-such-a-thing-as-risk-free-investing">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-11"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/retirement-for-stay-at-home-parents">Retirement for Stay-at-Home Parents</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/best-asset-allocation-for-your-portfolio">Best asset allocation for your portfolio</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-highest-yielding-safe-investment-now-tax-exempt-money-market-funds">The Highest Yielding &quot;Safe&quot; Investment Now - Tax Exempt Money Market Funds</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-pros-and-cons-of-dollar-cost-averaging">The Pros and Cons of Dollar-Cost Averaging</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Investment investing investments saving money savings accounts Sat, 21 Mar 2009 17:33:58 +0000 Debbie Dragon 2947 at http://www.wisebread.com Plan for your wants http://www.wisebread.com/plan-for-your-wants <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/plan-for-your-wants" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/tall-ships_0.jpg" alt="Tall ships" title="Tall Ships" class="imagecache imagecache-250w" width="250" height="137" /></a> </div> </div> </div> <p>Budgets tend to focus on needs--food, shelter, heat, light, transportation, and (of course) taxes.&nbsp; They also provide for wants, but generally the smaller, shorter-term wants--cable TV, a magazine subscription, an occasional restaurant meal.&nbsp; Instead of a budget line, the larger, longer-term wants are covered implicitly when your budget spends less than all you earn.&nbsp; Somewhere, though, those big, long-term wants deserve a plan.</p> <p>Having a long-term plan to satisfy your wants is an important tool for keeping your budget focused on your needs.&nbsp; Satisfying a few of your little wants is what makes your life luxurious and splendid, but it's very easy to let the amount of little luxuries in your life grow until they devour the surplus that might have paid for the big luxuries.</p> <p>That's where a plan comes in.</p> <p>Make a list.&nbsp; Or several lists.&nbsp; Brainstorm with all the members of your family.&nbsp; There are the wants that are almost needs--sending the kids to college.&nbsp; There are the wants that are perfectly affordable, if you make them a priority--a house with a yard.&nbsp; There are the wants that can wait a long time, if that's what it takes--a round-the-world cruise.&nbsp; There are the wants that you may never satisfy, unless careful planning meets extraordinary good luck--a racing yacht.&nbsp; Write them down and sort them in different ways.&nbsp;</p> <p>You can produce a strictly ordered list, with the most important want at the top, and then knock them off one at a time, if that's how your mind works.&nbsp; Alternatively, you can put just the top three or four wants in a &quot;this year&quot; list, with the rest of the wants in no particular order on list marked &quot;the future.&quot;&nbsp; Maybe the cheap wants go on one list and the expensive wants go an another.&nbsp; Find a way that works for you.</p> <p>These lists do several things:</p> <ol> <li>They remind you, when you're tempted by a transitory want, what your important wants are.</li> <li>They help you structure your spending when you get a windfall.&nbsp; Maybe the next item on your want list is where that money should go.&nbsp; Or maybe it should be invested against some larger want that's further down the list.</li> <li>They help you structure your spending when see a sale on something you want.&nbsp; If a great price makes one of the top items on your want list affordable, maybe you should just buy it.&nbsp; On the other hand, if the price isn't all that great, or the item isn't near the top of your list, maybe you shouldn't.</li> </ol> <p>If you include some cost notes in your list, you can estimate just how far off the fullfilment of any particular want might be--and you can compare them to one another.&nbsp; How much sooner could you take your trip to Fiji if you quit eating lunch out every day?&nbsp; If it just means you could go in August rather than February, maybe keep the indulgence.&nbsp; On the other hand, if it means you could go next year instead of three years from now, maybe those lunches out are costing you more than they're worth.</p> <p>Making and maintaining these lists, by the way, is a good deal of the fun.&nbsp; My wife and I are contemplating renting a garden plot from the local park district and have reached the list-making stage.&nbsp; It's a small want--use of the plot from April to October will cost $20--but there's plenty to plan.&nbsp; We need to investigate what grows well here and then match those possibilities with what we want to grow and what we want to eat.&nbsp; We'll have to buy (or acquire some other way) a few tools, some seeds and some seedlings.&nbsp; Now, at the turn of the year, is the time to read books on gardening.</p> <p>Depending on your nature, these lists might change all the time, or they may be quite constant from year to year.&nbsp; Not too long ago, I came upon a list of wants I'd made in my last semester of college.&nbsp; I'd just become interested in money and investing, and one thing on the list was an expensive subscription to a financial newsletter.&nbsp; I remember that I did get that subscription.&nbsp; I read (and reread) those articles for several years in the early 1980s--a want satisfied with pleasure that I remember with great fondness.&nbsp; (And stuff I learned in those articles informs my writing here to this day.)&nbsp; Also on the list, though, were wants I'd long forgotten.&nbsp; Some I'd satisfied along the way, but that I don't remember with any special pleasure.&nbsp; Others I'd forgotten without them ever having made it to the top of the list.&nbsp; Looking at old lists of wants can give you real perspective when you start feeling like you've got to have the top item on your current list right now.</p> <p>It's your plan; use it however you like.&nbsp; Maybe you want to put one big want--a sports car, a two-year sabbatical, a cottage by the lake--on the top of the list and focus on it to the exclusion of all else.&nbsp; Maybe you want to juggle many large and small wants in one big list.&nbsp; Maybe you want two lists, one with the small wants and one with the big wants.&nbsp; However you structure it, though, remember that its purpose is to support your budget.&nbsp; The plan to satisfy your wants is what you come to when you're tempted to blow out some line item on your budget.&nbsp; Look at your list.&nbsp; If this is something that belongs right at the top, then scribble it in there.&nbsp; If not, scratch it in wherever it goes.</p> <p>Then, live that way.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/plan-for-your-wants">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-12"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/simplify-budgeting-with-personal-money">Simplify budgeting with personal money</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/too-broke-to-be-frugal">Too broke to be frugal?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/budgeting-in-a-time-of-inflation">Budgeting in a time of inflation</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/will-a-dental-discount-plan-save-you-money">Will A Dental Discount Plan Save You Money?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Budgeting budget budgeting investments long-term plan planning save savings Sat, 27 Dec 2008 21:15:15 +0000 Philip Brewer 2681 at http://www.wisebread.com This Post Really Suk-kuks: Examining Islamic Finance http://www.wisebread.com/this-post-really-suk-kuks-examining-islamic-finance <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-post-really-suk-kuks-examining-islamic-finance" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/Islamic Finance.jpg" alt="" title="" class="imagecache imagecache-250w" width="117" height="78" /></a> </div> </div> </div> <p>Before you read on, know that this one of those listen-to-me-now-believe-me-later on posts.</p> <p>Enter the <a href="http://en.wikipedia.org/wiki/Sukuk"><u>Sukuk</u></a>: the interest-free loan, based on Muslim principals and before you laugh, understand this: Citigroup, Morgan Stanley, HSBC, Standard Chartered and others are getting into the Sukuk issuance business in force. <p>Moreover, while we grunt and grimace at the fact that it took 50 bucks to &quot;fill-er up&quot; or that 40 bucks only got us to three quarters of a tank or in some cases, only half a tank -- the sheer quantity of cash from petrodollars is creating a financial boom in the Middle East as well as Asian Tiger economies such as Malaysia and Indonesia -- all seats of Islam, the dominant religion among that region&#39;s populations.</p> <p>Mohammed Mahmud Awan, a scholar at Malaysia-based International Center for Education in Islamic Finance, said recently in a speech that the mortgage crisis is &quot;unthinkable&quot; under Islamic principles regarding debt. Awan said that it was &quot;time&quot; for the Islamic banking industry to present solutions to the global economic community in the wake of the crisis. </p> <p>Huh?</p> <p>Well, Islamic finance assets are growing at an annual pace of 20% and are set to hit $2 trillion in 2010 from the current $900 billion, literally fuelled by us who create flood in the desert of petrodollars, which by extension folks, means the import -- forced through business conditions or voluntarily - of some of these principles and philosophies to western banking circles.</p> <p>In the Gulf and Asia, Standard &amp; Poor&#39;s estimates that 2 out of every 10 banking customers would without thinking about it, choose an Islamic loan package for housing and business financing over a conventional one even if it had a similar risk-return profile.</p> <p>Yeah, Yeah, Yeah you say, &quot;what does this have to do with me?&quot;</p> <p>Nothing much right now. However, there is a coorelation between the growth of Islamic finance and high oil prices. Where do you think they get their money? Date farming? Sand? Manufacturing? I think not. </p> <p>And you should know that Oil-rich Middle Eastern and Central Asian sovereign wealth funds are large shareholders of many foundering Western banks who are in dire need of capital because of exposure to the interest-bearing and complex loan packages that created the subprime meltdown. This could mean that one day soon, some of these large shareholders will demand an entry into profitable and growing markets. Again enter the Sukuk. </p> <p>Not withstanding events that are beyond our control, at present, the equation is simple -- albeit with many variables.</p> <p>Oil Prices = High Gas Prices = Mega Petrodollars = Expansion X More Petrodollars + More Money in Islamic Banks = Growth of Islamic Finance + Stakes Acquired in Non-Islamic Banks+Islamic-Style Banks Having a Say in the Expansion of Western Banks which will one day offer yes: Islamic Sukuks.</p> <p>Whew.</p> <p><strong>An &quot;Interest-ing&quot; History</strong></p> <p>Charging a vig on a loan (interest on credit) has its roots in the Roman Empire&#39;s coin-based economy that was backed by vast amounts of resources in the treasury. The concept of interest became a staple during the rise of mercantilism during the Italian and European renaissance. Merchant of Venice anyone?</p> <p>And before any xenophobia sets in, it&#39;s important to note that speaking out against the concept of interest-based financing is not solely a Muslim thing. In fact, St. Thomas Aquinas of Catholic fame was said to have espoused that the charging of interest was morally wrong because it amounts to usury, i.e., charging for both the amount and the use of the amount. But the concept still took shape during the industrial revolution and has been trucking along ever since and remains a matter of life and debt for our country.</p> <p>So now the equation is this: Our paper money, for their black gold, means we have to borrow more paper money from them to buy more black gold, while they use the proceeds of our black gold purchases to build their own infrastructure, capitalize their own banks, buy shares in our banks and the rest is history or our potential future at the very least.</p> <p>Hence it&#39;s not inconceivable that some of us -- especially of the international traveler persuasion -- will be taking out interest-free loans sometime in the future and on a larger level this is a subset of the clash of civilizations. Credit isn&#39;t going anywhere mind you, as it goes so do we but the thing question is: Will we some day be at an economic disadvantage because of credit-tinged opulence when other white-hot economies are playing it straight up? Or is it straight up? Is the concept as it is with the sukuk, of renting your loan amount instead of essentially paying down a principal amount plus interest more viable? </p> <p>One Islamic finance scholar, a Rice University Prof. Mahmoud El-Gamal ,has famously suggested that there has been no major test case for the sukuk yet to ensure that Shariah-compliant loans can work, or for that matter be deemed as anything other than a way to market to religious sensibilities.</p> <p>In an August 2007 blog posting, he wrote: </p> <p>&quot;Unless and until we have a high-visibilty case of bankruptcy, we will not know with any certainty who owns what in the maze of SPVs that lawyers and structured financiers love to use. Until then, many will continue to line their pockets with legal, structuring, and advisory fees, as they congratulate themselves on &quot;innovative Islamic products.&quot; What a shame!&quot;</p> <p>Given that, what are your thoughts on a world where you have to buy what you can buy with legal tender and not be able to get by on credit? Do we have a moral obligation to fix our financial system and change our attitudes about spending and consumption while recognizing the bubbling competition?</p> <p> What do you think? </p> <p>Interest or no interest? </p> <p>What do you believe in? </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jabulani-leffall">Jabulani Leffall</a> of <a href="http://www.wisebread.com/this-post-really-suk-kuks-examining-islamic-finance">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-13"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/will-a-dental-discount-plan-save-you-money">Will A Dental Discount Plan Save You Money?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-sleek-marketing-ploys-aimed-at-getting-more-of-your-grocery-money">5 Sleek Marketing Ploys Aimed at Getting More of Your Grocery Money</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-smart-ways-to-use-old-savings-bonds">6 Smart Ways to Use Old Savings Bonds</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/behind-the-times-i-learn-about-keep-the-change">Behind the Times - I learn about Keep the Change</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-simple-guide-to-series-i-savings-bonds-i-bonds">A Simple Guide to Series I Savings Bonds (I-Bonds)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Banking Consumer Affairs Investment finance investments Islam loan Muslim savings Shariah Sukuk Sun, 11 May 2008 22:04:23 +0000 Jabulani Leffall 2085 at http://www.wisebread.com Book review: Cash-Rich Retirement http://www.wisebread.com/book-review-cash-rich-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/book-review-cash-rich-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-rich-retirement-cover.jpg" alt="Cover of Cash-Rich Retirement" title="Cover of Cash-Rich Retirement" class="imagecache imagecache-250w" width="105" height="160" /></a> </div> </div> </div> <p><a href="http://www.amazon.com/gp/product/0312377401?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0312377401">Cash-Rich Retirement: Use the Investing Techniques of the Mega-Wealthy to Secure Your Retirement Future</a>&nbsp;by Jim Schlagheck.</p> <p>Do you need a kick in the pants to get you saving for retirement?&nbsp; Do you need someone to wave their arms and run around screaming that your whole future is at risk, in order to motivate you to put some serious money aside and take the time to learn how your 401(k) works?&nbsp; If so, this is the book for you.</p> <p>It's fascinating to read this book in conjunction with <a href="/book-review-work-less-live-more"><em>Work Less, Live More</em></a>, which I checked out of the library the same day.</p> <p>Where that book goes way beyond the classic notion of retirement at age 65, suggesting that not just retirement, but <em>early</em> retirement, is readily available to almost anyone--if they're willing to live frugally and maybe keep on doing a bit of work on the side--this book is the complete opposite. &nbsp;</p> <p>Schlagheck scarcely talks about early retirement, and it doesn't even seem to imagine that anyone might do any work to earn money after they retire.&nbsp; It's all about straight-up retirement:&nbsp; You work to retirement age, and then you quit.&nbsp; And, it warns, if that's your plan, you may be in for an unpleasant surprise.&nbsp; Not only is your retirement in &quot;grave danger,&quot; the <em>whole system</em> of retirement is on the verge of being a failed experiment.</p> <p>Schlagheck sees two sources of danger.</p> <p>The first is the &quot;coming demographic storm&quot; of baby boomers all getting set to retire at once.&nbsp;&nbsp; Not only are they all going to want to get their social security payments at once, they're also going to be taking their pensions (from old-line businesses and from state and local governments) at once.&nbsp; Plus, they're all going to stop accumulating investments, and switch to selling them instead.&nbsp; With everyone trying to get their money at once, Schlagheck sees a real danger that they won't all succeed.</p> <p>The second is a set of foolish ideas about investing.&nbsp; You cannot, he says, safely rely on capital gains for your investment returns; reliable long-term returns are largely going to come from income:&nbsp; dividends, interest, and rents.&nbsp; In addition, you can't&nbsp; get adequate diversification simply by dividing your investments among American companies of different sizes (a generous helping of S&amp;P 500 seasoned with some mid-cap and small-cap funds).&nbsp; You need to diversify both internationally and among asset classes (stocks, bonds, REITs, etc.).</p> <p>I actually agree with most of what Schlagheck says, especially about his focus on income in your investment portfolio and on the kinds of investments you ought to be focusing on.&nbsp; In addition to the excellent chapters on investing, he's got a good chapter on health insurance, some interesting thoughts on long-term care insurance, and lots of good detail about complicated subjects like annuities (that aren't so well covered other places).</p> <p>Where I have a problem is in the way he's trying to work the reader up into a tizzy.&nbsp; The book could not have been printed before the digital age, because in the days of metal type the printer would have used up his entire supply of exclamation points before getting halfway through the manuscript.&nbsp; Every page is splashed with italics warning you of a threat or urging you to action.&nbsp; The repeated exhortations to &quot;save, save, save&quot; become wearisome, and the drumbeat warning that your retirement is in danger don't become more compelling with repetition.</p> <p>Still, if you or someone you know is just blithely assuming that retirement will take care of itself, a wake-up call like this may be just what you (or they) need.&nbsp; The information is right on, even if I got an unusually vigorous workout for my eye-rolling muscles as I plowed through the cautions, dangers, perils, warnings, and urgent urgings. &nbsp;</p> <p>For the right person, though&nbsp;<a href="http://www.amazon.com/gp/product/0312377401?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0312377401">Cash-Rich Retirement</a> by Jim Schlagheck is a fine book.&nbsp; Excellent content.&nbsp; Just a little strident for my tastes.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/book-review-cash-rich-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-14"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-work-less-live-more">Book review: Work Less, Live More</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-the-only-investment-guide-youll-ever-need">Book review: The Only Investment Guide You&#039;ll Ever Need</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-the-little-book-of-common-sense-investing">Book review: The Little Book of Common Sense Investing</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-your-money-or-your-life">Book review: Your Money or Your Life</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Retirement book review books dividends interest investing investments rents retire retirees retirement benefits retirement funding retirement planning review Mon, 28 Apr 2008 13:08:05 +0000 Philip Brewer 2046 at http://www.wisebread.com Best asset allocation for your portfolio http://www.wisebread.com/best-asset-allocation-for-your-portfolio <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-asset-allocation-for-your-portfolio" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/eagle-on-monument.jpg" alt="Eagle sculpture on a civil-war monument" title="Eagle on Monument" class="imagecache imagecache-250w" width="250" height="338" /></a> </div> </div> </div> <p>This is the first Wise Bread post that I&#39;ve been afraid to write. </p> <p>I&#39;ve thought about it many times, but haven&#39;t even gotten as far as making notes until today, when I finally figured out why it was so tough: It&#39;s going to be wrong. Five years from now, there&#39;s going to be one investment that did better than any other. With the perspective of hindsight, no investment advice will look good compared to &quot;Put all your money into SubprimeHybridSmartphones.com&quot; (or <a href="/gold-as-an-investment">gold</a> or farmland or <a href="/tips-and-i-bonds">TIPS</a> or whatever it turns out to be).</p> <p>Of course, you don&#39;t know what that investment will turn out to be. (Guess wrong and put all your money into SolarOrganicBicycles.biz instead and you&#39;ll be sorry--except maybe <em>that&#39;ll</em> turn out to be the best investment over the next <em>ten</em> years. After all, something has to be.)</p> <p>The desire to come up with an ideal asset allocation is a strong one. Investing magazines are always making up asset allocations after-the-fact and telling you about three funds that doubled or ten stocks that tripled last year--a useless activity that anyone with an internet connection could do. What we want is the right asset allocation for <em>next</em> year, a want that will not be satisfied, except occasionally by luck. </p> <p>Given that we don&#39;t know the future, what guidelines can we use to make our investment decisions?</p> <h2>Get your financial house in order</h2> <p>Before you do any serious investing, make sure you&#39;ve got:</p> <ol> <li>Your debts paid off (with the possible exception of mortgages and student loans, if they&#39;re at low, fixed rates)</li> <li>An emergency fund (with 3-6 months living expenses)</li> </ol> <h2>Think about your goals</h2> <p>I&#39;ve talked before about the <a href="/the-false-goal-of-maximizing-investment-returns">False goal of maximum investment return</a>. The purpose of your investment portfolio is to support your life goals. Obviously, to the extent that your goals can be satisfied with money, higher total returns gets your satisfaction earlier. But the fact is, many goals can&#39;t be satisfied with money, and for many of the others, <em>early</em> satisfaction isn&#39;t as important as <em>certain</em> satisfaction.</p> <p>The ideal asset allocation for someone who&#39;s saving up for a down payment on a house in three or four years is different from the allocation for someone who&#39;s saving to put their kid through college in 15 years, which is different from the allocation for someone saving for retirement in 30 years. (They&#39;re not completely different, though, especially if at least some of your goals are long-term ones.)</p> <p>Make a list of your financial goals, and come up with both a rough dollar figure and a target time range for each one.</p> <p>Except for very short-term goals (saving for a summer vacation or a new sofa), it&#39;s a mistake to create different accounts for different goals. What you want is one investment portfolio that supports all your goals.</p> <h2>Create your asset allocation</h2> <p>As long as the economy is ticking along, the stock portion of your investment portfolio is going to provide the bulk of the gains. Because of that, it makes sense to start with a theoretical 100% stock asset allocation, and then work backwards to account for all the reasons that you don&#39;t want all your money invested in stocks.</p> <h3>Considerations</h3> <p>First, the economy may not continue ticking along. Stocks entitle you to a share of the company&#39;s prosperity--and if the company doesn&#39;t prosper, that&#39;s not worth much. You want to have some investments that do well precisely when the economy is doing poorly--government bonds, for example.</p> <p>Second, most investments--stocks, bonds, bank accounts--even cash, when you get right down to it--are really <em>promises</em>. They&#39;re promises to pay some specific amount, promises to share (in the case of stocks), or the general promise to provide goods and services in exchange for money. Some of those sorts of promises tend to be kept (US government bonds, for example, have a great record). Others (just lately, subprime mortgage loans) haven&#39;t done as well. Sometimes the economy goes through extended periods during which promises aren&#39;t kept as well as usual. In those times, it&#39;s nice to own something that isn&#39;t a promise. The alternative to promises is <em>actual stuff</em>. Owning <a href="/huge-tax-free-investment-returns">stuff that you&#39;re going to use</a> is often an unbeatable investment. Once you&#39;ve stockpiled as much as makes sense, then you&#39;re talking about things like gold and silver. <em>Real estate</em> is an actual thing, although it&#39;s a special case for many reasons. It can be tempting to view companies that produce or own actual stuff as a special case as well, but remember that shares in such a company are still a promise. You want to own some amount of actual stuff, for times when promises aren&#39;t doing so well.<a href="/huge-tax-free-investment-returns" title="http://www.wisebread.com/huge-tax-free-investment-returns"><br /></a></p> <p>Third, many of your goals are not financial, and your portfolio ought to support those as well. For example, sleeping well at night is a goal for most of us, and many people find a portfolio whose value jumps around a lot bad for sleep. Putting some cash and some bonds into your portfolio helps with that. Living in a pleasant community is another goal, as is living in a just society, and allocating some of your investment portfolio to support local businesses, green businesses, and businesses who follow fair business practices can help there.</p> <p>Finally, although stock investments will likely get you to your goal sooner, <em>unlucky</em> stock investments might not get you there at all. Bonds, on the other hand, can almost certainly get you to your goal (although it may take your whole career).</p> <h3>Numbers</h3> <p>So, what does all that boil down to?</p> <p>A common rule-of-thumb used to be to subtract your age from 100 to get your stock allocation. So a 20-year-old would put 80% of the portfolio into stocks, while a 65-year-old would have only 35% stocks. The reason is that a 20-year-old can ride out even a long-term bear market. (In fact, a bear market that strikes just as your salary really starts to grow would be perfect, letting you you load up on cheap stocks for years.) Once you retire, though, a bear market is just a bad thing, so it&#39;s best not to have your whole investment portfolio exposed to stocks.</p> <p>Over the past 25 years, stocks have done so well that many advisors have been uping the stock percentage. Personally, I&#39;m reasonably happy with the old rule of thumb, at least for people of working age. I would be inclined to stop reducing the stock percentage when it hits about 35% and just hold it there through at least the first half of someone&#39;s retirement. </p> <p>So, what about the rest of your money? I&#39;d put a tidy chunk (half or more of the non-stock portion) into long-term government bonds. I&#39;d like to have some invested in <a href="/gold-as-an-investment">gold</a> and silver, but I wouldn&#39;t be inclined to buy much of either at current prices.</p> <p>After you&#39;ve funded your emergency account, there&#39;s only two good reason to hold cash in your investment portfolio:</p> <ol> <li>To support your near-term goals. As the time approaches to take that vacation or buy that sofa--or as the college-bound child goes to junior high and then to high school--make sure that you&#39;re shifting enough of your investment portfolio into cash to be able to write the checks. For things where the time horizon is very flexible, you can let the market dictate when you spend the money--I know one guy who repaved his driveway when our company stock hit an all-time high--but you don&#39;t want to find yourself trying to convince your daughter to put off getting married for a few years until the market recovers enough to fund the wedding.</li> <li>To take advantage of market opportunities. This is a good reason in theory, but it&#39;s hardly ever a good reason in practice. If you have enough cash on hand to really take advantage of a good opportunity, you&#39;re probably missing out on more market gains than your opportunity will provide. Just keep feeding your savings into your asset allocation you&#39;ve selected.</li> </ol> <p>Here&#39;s an example for a 40-year-old:</p> <ul> <li>60% stocks (half in an S&amp;P index fund, the rest divided between an international fund and a mid-cap fund)</li> <li>25% bonds (mostly long-term government bonds)</li> <li>10% stuff (stockpiled goods that you plan to use, then gold and silver)</li> <li>5% cash (percentage adjusted to support near-term goals)</li> </ul> <h2>Account for your illiquid holdings</h2> <p>Do you already own something that amounts to a major portion of your net worth, but that you couldn&#39;t just sell by calling your broker? The two most common things that fall into this category are a <em>house</em> or a <em>business</em>, but there are plenty of other possibilities, such as a large loan to a friend or relative (that you actually expect to be repaid).</p> <p>Assign a value to the illiquid investment, and include it in your portfolio, in whatever category comes closest. For example, a business probably goes in the category with stock market investments. A house would go in a &quot;real estate&quot; category.</p> <p>The liquid portion of your investment portfolio should emphasize the investment categories that are most different from your illiquid assets. If most of your net worth is tied up in your house, you wouldn&#39;t want to have additional real estate investments. </p> <h2>Account for your debt</h2> <p>Debts that you owe are part of your investment portfolio too. They should be entered as a negative value in the appropriate part of your portfolio (bonds for mortgages and student loans, cash for credit card debt or merchant debt).</p> <p>That can be kind of a scary exercise. Suppose, for example, a guy has a conservative asset allocation like the one above, and then bought a house. After that, his asset allocation might look like this:</p> <ul> <li>60% stocks</li> <li>150% real estate</li> <li>-120% bonds (including the mortgage)</li> <li>10% stuff</li> <li>0% cash (drained to make the down payment)</li> </ul> <p>Clearly, this guy is over-invested in real estate and under-invested in bonds (a near universal situation for new homeowners). There&#39;s no easy way to bring things quickly back into balance. It would probably make sense to sell some stock to replenish the cash and to pay down the mortgage. The stock is likely to have a better long-term return than the house, though, so I wouldn&#39;t reduce the stock percentage a whole lot. Over the long term, paying off the mortgage will bring this portfolio back into balance.</p> <p>It&#39;s worth doing the arithmetic to see what your portfolio looks like with your debts and illiquid assets included. If the results scare you, that will provide a bit of extra incentive to make the necessary adjustments.</p> <h2>Put your investments somewhere</h2> <p>I&#39;ve written before about not confusing the investments and the <a href="/your-401-k-is-not-an-investment">compartments to hold the investments in</a>. I&#39;ve also talked about when to use and <a href="/when-not-to-put-money-in-your-401-k">when not to use certain compartments</a>. This article isn&#39;t about that. It&#39;s about allocating your investment dollars among the various investment options.</p> <p>It&#39;d be nice if we knew which investments would do best, but none of us know the future. Given that, the best you can do is invest in stocks for growth, bonds for the times when growth is hard to find, and stuff, for the days when promises like stocks and bonds aren&#39;t kept.</p> <p>Good luck. </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/best-asset-allocation-for-your-portfolio">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-15"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-crucial-things-you-should-know-about-bonds">5 Crucial Things You Should Know About Bonds</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-basics-of-asset-allocation">The Basics of Asset Allocation</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/2-investing-concepts-everyone-should-know">2 Investing Concepts Everyone Should Know</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-there-such-a-thing-as-risk-free-investing">Is There Such a Thing as Risk-Free Investing?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-survival-instincts-that-harm-investors">3 Survival Instincts That Harm Investors</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment asset allocation investing investments Wed, 07 Nov 2007 15:02:45 +0000 Philip Brewer 1370 at http://www.wisebread.com