Investment en-US Best Money Tips: How to Start Investing <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-how-to-start-investing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="money graph" title="money graph" class="imagecache imagecache-250w" width="250" height="173" /></a> </div> </div> </div> <p>Welcome to Wise Bread's <a href="">Best Money Tips</a> Roundup! Today we found some stellar articles on how to start investing, time management for part-time entrepreneurs, and home staging on a budget.</p> <h2>Top 5 Articles</h2> <p><a href="">How to start investing</a> &mdash; If you are just getting started with investing, remember to not try to beat the market and keep fees low. [Ask Liz Weston]</p> <p><a href="">Time Management for Part-Time Entrepreneurs</a> &mdash; To better manage their time, part-time entrepreneurs can harness the power of routines. [PT Money]</p> <p><a href=";int=a86509">10 Keys to Home Staging on a Budget</a> &mdash; Refreshing your landscape and painting are a couple low-cost ways to stage your home on a budget [US News &amp; World Report]</p> <p><a href="">Celebrating Your Achievement Without Undoing Your Progress</a> &mdash; Celebrate your achievements without undoing your progress by finding other ways to commemorate the occasion if you think your celebration may be something you will regret. [The Simple Dollar]</p> <p><a href="">Don't Let Your Co-Workers Bring You Down</a> &mdash; To avoid letting your co-workers bring you down, try to be positive. [PopSugar Smart Living]</p> <h2>Other Essential Reading</h2> <p><a href="">5 Easy Investment Strategies that Build Wealth</a> &mdash; Cutting costs and diversifying your investments can help you build wealth. [MintLife Blog]</p> <p><a href="">Four Tips To Help Women Excel In The Workplace</a> &mdash; Women need to be willing to take risks in order to excel in the workplace. [Forbes]</p> <p><a href="">Car Insurance Woes for Millenials</a> &mdash; Millenials are being subjected to the highest car insurance premiums. [MainStreet]</p> <p><a href="">First Baby? Here are 4 Products Worth Splurging On</a> &mdash; It is worth it to splurge on the safety gear you'll use the most often with your new baby. [MoneyNing]</p> <p><a href="">10 Best Blogs for Your Family Budget</a> &mdash; Have you ever checked out Mom Advice or Daily Finance? [Parenting Squad]</p> <a href="" class="sharethis-link" title="Best Money Tips: How to Start Investing" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Ashley Jacobs</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment best money tips how to investing Wed, 16 Apr 2014 09:24:20 +0000 Ashley Jacobs 1135645 at 5 Beginning Investor Mistakes I've Made (And You Don't Have To) <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-beginning-investor-mistakes-ive-made-and-you-dont-have-to" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="stressed man" title="stressed man" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>There's something I've noticed about a lot of people who write about investing: They're either very rich or they work as investment professionals. Now, I don't think that that makes them unqualified to give advice to those of us who don't have a seven (or eight!) figure net worth, but it does make it a little hard to identify with them. After all, if I had a million bucks in the bank, putting some of it in riskier investments would be a lot easier to stomach. Ditto for investing other people's money.</p> <p>But here's the thing. I'm an investor, too. I'm not a professional one or a rich one. But I am <em>richer</em> than before I started. And I'm a smarter investor than I was when I started, too. I'm also getting more confident about investing money in the stock market. That said, I made a lot of rookie mistakes along the way. Here are five of the ones that stand out. Try to avoid them, OK? (See also: <a href="">Online Brokers for Newbies</a>)</p> <h2>1. Avoiding (Any and All) Risk</h2> <p>When you've lived as a poor college student for five years, a salary is a beautiful thing. A precious thing. A thing to be carefully guarded, saved, and lovingly spent on all the things you couldn't afford before. If it feels like you don't have enough money to risk losing a penny in the markets, I hear you. Investing &mdash; especially investing in things that could potentially lose value &mdash; can be a tough sell for anyone on a tight budget.</p> <p>It was for me, so at first, I stuck to investing in things with guaranteed returns. The problem with this strategy is that guarantees come at a price. And while funneling my savings into investments that yielded two or three percent made me <em>feel</em> safe, what I didn't realize is that in most cases, those guaranteed returns weren't even keeping pace with inflation. I might have been amassing money, but it was technically becoming less valuable over time.</p> <p>Does that mean I threw all my money into risky stocks? No! But if you actually want to grow your portfolio (and this is especially true for those who are young and just starting out) you have to add some higher-risk investments. My fear of risk stemmed mostly from a lack of education about investing risk and how to manage it. To be honest, it took me a couple of years of reading and thinking to be able to embrace it and move into investing in more stocks, but it's made a huge difference in my portfolio. (See also: <a href="">Asset Allocation Basics</a>)</p> <h2>2. Listening to the Guy at the Bank</h2> <p>For many people, their only exposure to investment advice comes from whichever associate happens to be available at the bank that day. And if you're a brand-new investor it can be really easy to feel like you have to listen to whatever the guy in the suit says. What I learned, however, is that you have to be very, very careful about who you take advice from. (See also: <a href="">Investment Advice You Shouldn't Hear from Your Advisor</a>)</p> <p>I quickly learned that while many of the representatives at my bank did receive training, most were more salespeople than they were advisors. What I also noticed is that they tended to really want me to buy certain investments, like mutual funds, even though my research told me that index funds were the better bet. Unfortunately, it took me a while to get the courage and confidence to take my own advice over theirs. And that cost me money.</p> <p>Does this mean you should close your ears to every piece of advice you're given? Absolutely not. What you do need to learn is that you don't need to be intimated by a business suit. In fact, if you've really been doing your investing homework, chances are the guy or girl behind the desk knows less than you do. So don't be afraid to ask questions &mdash; and even question the advice you're given. If it doesn't feel right to you, refuse it. It's your money we're talking about!</p> <h2>3. Fearing the Crash</h2> <p>I started investing a few years before the mortgage bubble popped in the U.S., sending stock markets into a tailspin. That crash scared me. In fact, it scared me so much I failed to buy a single thing during that downturn. Big mistake.</p> <p>What I've since realized is that I should have been doing the opposite, because when the entire market as a whole takes a beating, that's a great time to buy a solid stock.</p> <p>Think of &quot;the market&quot; as an ocean. When things go wrong with the economy, it's like the tide going out, and all the boats are left bobbing in shallow water, no matter how stalwart and seaworthy they are. What we often forget, however, is that those big, strong, air-tight companies will float right back up when that tide comes back in.</p> <p>I'm not saying you should throw your life savings into a down market, but if you can afford to purchase a couple of great, profitable companies, that's the time to do it. Next time the financial markets crash, you can bet I'll be buying. (See also: <a href="">Staying Calm in a Volatile Market</a>)</p> <h2>4. Failing to Play With &quot;The House's Money&quot;</h2> <p>I recently bought a small amount of stock in a company that had declared bankruptcy. It was a small buy &mdash; the company was bankrupt after all &mdash; but because of the industry it was in, I believed it would survive. I was right: The stock climbed as the company worked its way back to solvency. I made a 40% return and, when things started to look pretty risky, I sold it. And I was happy with that ... except for the fact that my husband decided to keep his shares. And guess what? That stock kept appreciating, and appreciating and, well, it's still appreciating.</p> <p>Should I have kept those shares when things looked uncertain? Maybe not. But I still could have done better by selling some of the stock to recoup my initial investment and letting the rest run. That's called &quot;playing with the house's money.&quot; It was definitely worth considering in this situation; I just wasn't thinking. As a result, I lost out on some major gains. And trust me, I know just how major they are; every time that stock goes up, I have someone to remind me.</p> <h2>5. Holding a Loser</h2> <p>I've made a few truly bad stock picks, mostly because I had some money to invest and wasn't patient enough to wait for the right thing to come around (that's another rookie mistake right there). But where I've really gone wrong is in holding these bad apples in the hope that they'll break even again. And holding them. And holding them.</p> <p>That strategy makes me feel like I'm preserving my initial investment. In reality, what's more likely to happen is that I miss out on buying other, better stocks that could be making me money<em> right now</em>. In other words, I'm obsessing over the money I'm supposedly losing, when I could just redirect my energy to making it back somewhere else. I guess breaking up is hard to do, but when you're sure the stock you've picked is a loser, it's time to kick it out of your portfolio and find something better.</p> <h2>Bonus Lesson: Learn From Your Mistakes!</h2> <p>Investing is hard, but what really makes the stock market seem so insurmountable for people is that they just don't understand how it works. Learning that takes, time, energy and, to be honest, a certain amount of failure. What's important is that you avoid taking on too much risk at once, and learn everything you can from your mistakes &mdash; and, I hope, from a few of mine.</p> <p><em>What investing mistakes have you made? Please share in comments!</em></p> <a href="" class="sharethis-link" title="5 Beginning Investor Mistakes I&#039;ve Made (And You Don&#039;t Have To)" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Tara Struyk</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment beginning investing investing advice investing mistakes new investors Mon, 14 Apr 2014 08:36:29 +0000 Tara Struyk 1135139 at 12 Smart Ways to Turn $500 Into a Better Future <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/12-smart-ways-to-turn-500-into-a-better-future" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="cash" title="cash" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p style="font-size: 13px;">Do you have a little extra money you don't know how to spend? Maybe you've been tweaking your budget so that you now have $500 saved. Or perhaps you've just received a nice little tax refund, or&nbsp;<a href="">you've been saving your $5 bills for a while</a>&nbsp;and realize that they add up to the equivalent of five Benjamins. What do you do now? (See also:&nbsp;<a href="">5 Savings Tricks You Haven't Tried</a>)</p> <p style="font-size: 13px;">You've worked hard to save that money, so you want to put it to good use. You might think it's not enough to really invest in anything useful, but nothing could be further from the truth. A smart investment of your $500 could reap some very big rewards. So the next time you're wondering what to do with a spare $500, plan on doing one of the following.</p> <h2>Traditional Investments</h2> <p style="font-size: 13px;">Yes, $500 really is big enough to invest in stocks and bonds, whether via a retirement account or a brokerage account.</p> <h3>1. Contribute to Your Retirement Account</h3> <p style="font-size: 13px;">The $500 you put into your 401(k) or IRA today will grow to over&nbsp;<a href="">$8,700 in 30 years</a>, assuming a 10% yearly interest rate. If your employer matches your contribution and you have not yet reached the matching limit, then your $500 will be worth even more.</p> <p style="font-size: 13px;">While you're at it, adjust your monthly contribution to your 401(k) up by $42. That equals an additional $500 per year, and you'll never miss the money from your paycheck.</p> <h3>2. Consider an Exchange Traded Fund</h3> <p style="font-size: 13px;">If you already have an IRA or brokerage account, then you could use it to purchase a&nbsp;<a href="">commission-free, indexed ETF</a>. These investments are like mutual funds, in that they have a variety of assets within each ETF, but they trade like stocks. They also have lower expense ratios than mutual funds. Since $500 is a low investment to start, you will want to find an ETF that does not charge a commission and that keeps its expense ratio very low.</p> <h3>3. Invest in the Stock Market</h3> <p style="font-size: 13px;">If you already feel like you're on a good path with your retirement account, you might try your hand at stock investing with your $500. Stocks are risky assets, but that also means they offer the greatest opportunity for big returns.</p> <p style="font-size: 13px;">However, since nearly all brokerage accounts (which you have to have in order to play) charge a fee per transaction, it does not make sense to try to buy and sell your way to wealth. Instead, choose a stock that you can purchase and &quot;forget&quot; about. Ideally, you'll want a large company that you can rely on for decent growth and whose stock pays dividends. (See also:&nbsp;<a href="">Getting Started With Index Funds</a>)</p> <h3>4. Make a Peer-to-Peer Loan</h3> <p style="font-size: 13px;">Peer-to-peer lending allows borrowers to qualify for loans at rates that they generally would not be able to see from banks, while the lenders are able to invest smaller amounts and get higher returns than they could find elsewhere. In addition, investors in peer-to-peer lending are not charged fees, so your entire $500 can go toward growth.</p> <h3>5. Improve Your Investment IQ</h3> <p style="font-size: 13px;">If options one through four were all Greek to you, and the thought of your (non-existent) retirement account puts you in a cold sweat, then spending your $500 on your own financial education could be an excellent investment. For instance, you could spend your $500 on<a href="">&nbsp;Business Insider's list of the 22 most important finance books ever written</a>. Not only will you provide yourself with an excellent reading list for the year, but you will improve your understanding of investment, finance, and past market disasters.</p> <p style="font-size: 13px;">Alternatively, your $500 will pay for a meeting or three with a fee-only financial planner who can help you define and start working toward your financial goals. Generally, you can expect to pay between $100 and $150 per hour to meet with a fee-only planner, which ought to give you enough time to set up a financial plan for your future. Find a fee-only planner in your area at&nbsp;<a href=""></a>.</p> <h2>Invest in Your Home</h2> <p style="font-size: 13px;">With just $500 you can spruce up a room, improve your home's energy efficiency, or protect your important papers.</p> <h3>6. Buy a Safe</h3> <p style="font-size: 13px;">If you're like most people, you have important papers scattered around your house that you've been meaning to put someplace secure for a long time. Purchase a fire-resistant safe to protect all of those documents &mdash; especially in case of a fire, flood, or zombie apocalypse.</p> <p style="font-size: 13px;">You can find a good safe for prices as low as $200. Plan on cashing whatever is leftover of your $500 and keeping it in your safe. In addition to your important documents, you will also need some cash in case of an emergency. (See also:&nbsp;<a href="">Add These Items to Your Emergency Kit</a>)</p> <h3>7. Insulate Your Attic</h3> <p style="font-size: 13px;">Whether you buy some blanket insulation rolls or rent a blower to blow loose-fill insulation into your attic, you can easily improve your home's efficiency and your utility bills for under $500 and one weekend's worth of work.</p> <h3>8. Update a Bathroom</h3> <p style="font-size: 13px;">For about $500 &mdash; and as long as you are willing to DIY &mdash; you can brighten a bathroom. Plan on investing in a can of paint, a new faucet, and a new light fixture with your $500. The best part is that bathroom remodels (even modest ones) tend to have a&nbsp;<a href="">high return on investment</a>.</p> <h2>Invest in Yourself</h2> <p style="font-size: 13px;">You're a valuable asset, too. Five hundred dollars can go a long way toward improving that asset in mind, body, and soul.</p> <h3>9. Take a Course</h3> <p style="font-size: 13px;">Your local community college likely has courses on any number of topics that could help your career or simply stimulate your mind. Expect the tuition for a single course, plus books and associated costs to take pretty much all of your $500. (See also:&nbsp;<a href="">Ways to Learn New Things Every Day</a>)</p> <h3>10. Hire a Personal Trainer</h3> <p style="font-size: 13px;">There are so many great reasons to get in shape &mdash; and having a personal trainer help you map out fitness plan and teach you the basics can be the impetus needed to finally get fit.</p> <h3>11. Write Your Will</h3> <p style="font-size: 13px;">If you haven't put together a will, you ought to make an appointment with a lawyer to do so. It will ensure that your family is taken care of and that your estate will go where you intend. Find a local lawyer at&nbsp;<a href=""></a>.</p> <h3>12. Buy a Bike</h3> <p style="font-size: 13px;">You can get a decent bicycle for under $500, and work on improving your health and reducing your commuting costs by using it to get to and from work. (Make sure you budget enough to also buy a helmet!)</p> <h2>Knowing That Your Spending Is Just Right</h2> <p style="font-size: 13px;">No matter how you choose to invest your $500, remember that you can make responsible money choices even with relatively small amounts of money.</p> <p style="font-size: 13px;"><em>How would you spend $500? Share the wealth in comments!</em></p> <a href="" class="sharethis-link" title="12 Smart Ways to Turn $500 Into a Better Future" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Emily Guy Birken</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment investing saving windfall Mon, 31 Mar 2014 09:36:22 +0000 Emily Guy Birken 1133519 at 4 Reasons Why You Must Open a Roth IRA Before April 15 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-reasons-why-you-must-open-a-roth-ira-before-april-15" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="cash" title="cash" class="imagecache imagecache-250w" width="250" height="164" /></a> </div> </div> </div> <p>It's that time of year again. While tax season can bring a lot of stress, there are some things you can do to make it pay off for you.</p> <p>One of them is to open a Roth IRA, which is a little <a href="">different than a traditional IRA</a>. The key difference is that contributions to traditional IRAs are pre-tax, while Roth IRA contributions are after tax. There are a few other differences with respect to withdrawals, but rather than focus on all of that, let's look at four reasons you should consider funding a Roth IRA this year. (See also: <a href="">How to Set Up an IRA to Build Wealth</a>)</p> <h2>You Can Double Your Annual Contribution</h2> <p>If you open up a Roth IRA by April 15, you get a great opportunity &mdash; you're still allowed to make a contribution for the previous (2013) tax year.</p> <p>How much?</p> <p>The most you can contribute in 2013, depending on your income and filing status, is $5,500 if you're 49 years old or younger in 2013. But if you're 50 years old or older in 2013, then you're allowed to contribute an additional $1,000, bringing your total to $6,500.</p> <p>But that's just for 2013.</p> <p>In 2014, you can contribute another $5,500 if you're 49 years old or younger in 2014. Similarly, if you're 50 years old or older in 2014, then you're allowed to contribute an additional $1,000 &mdash; again bringing your total to $6,500. (Check out the<a href=",-Employee/Retirement-Topics-IRA-Contribution-Limits"> IRS page</a> for more details on contribution limits.)</p> <p>This means that this year, you can potentially put a total of $13,000 towards your Roth IRA to build a financially secure retirement.</p> <p>Don't think that the extra $5,500 for 2013 will make a big difference?</p> <p>If you put the $5,500 in an investment that grows 7% each year, then in 30 years it'll be worth over $41,800. Best of all, if you obey the rules in withdrawing the money, you get to keep all of it and won't have to pay any taxes.</p> <p>What could you do with an extra $41,800?</p> <h2>You'll Have Better Investment Options</h2> <p>A lot of people have employer-sponsored retirement plans, such as a 401(k). Many, however, complain that the investment fund options available to them are poor. Specifically, these funds tend to have high expense ratios, which are the fees that go toward managing the fund. (See also: <a href="">Why a Roth IRA May Be Better Than Your 401(k)</a>)</p> <p>Even though all funds have these fees, they tend to be much higher in employer plans. With a Roth IRA, on the other hand, you can invest with a company that offers funds with much lower costs.</p> <p>For instance, it's not uncommon that funds from employer plans cost around 0.9% each year. If you open up a Roth IRA, however, you can invest with a company that offers funds that cost about 0.2% each year.</p> <p>That small amount makes a big difference over time.</p> <p>Let's say you invest $5,500 each year in a fund that grows by 7% each year. If the fund costs 0.9%, in 30 years you'll have just under $439,000. That's not bad.</p> <p>On the other hand, what if you invest in a lower-cost fund? If you invest $5,500 each year in a fund that grows by 7% each year, but that fund costs only 0.2%, then in 30 years you'll have over $499,000.</p> <p>In other words, a difference of over $60,000. How much would it hurt you to lose $60,000?</p> <h2>You'll Have Tax-Free Money</h2> <p>With a Roth IRA, you contribute money that's already been taxed. But if you follow the withdrawal rules (the main one being to wait until you're 59 &frac12; years old), then you get a huge benefit. That benefit is the pleasure of spending the money &mdash; including the money earned via investments &mdash; without paying taxes. (See also: <a href="">Get the Best Tax Benefit From Your Retirement Portfolio</a>)</p> <p>Let's say you invest $5,500 in a regular, taxable investment account each year, and your money grows by 7% each year. If you're in the 25% tax bracket, in 30 years you'll have just under $402,000.</p> <p>But if you contribute $5,500 in a Roth IRA each year, and your money grows by 7% each year, in 30 years you'll have over $555,000. (Check out<a href=""> this calculator</a> to run your own numbers.)</p> <p>In other words, taxes would eat up over $154,000 of your retirement money.</p> <h2>You'll Have Emergency Access to Your Money</h2> <p>Lastly, your contributions (that is, the money that you put into your Roth) can be taken out at any time, free of taxes and penalties. This is not true, however, of earnings on your contributions, which have more complex rules. (See also: <a href="">Balancing Retirement Savings, Emergency Fund, and Paying Off Debt</a>)</p> <p>Of course, since this a retirement account, you should only do this in the event of a true emergency. But it's nice to know that some of your money is available if you really need it. This is not the case for most other retirement investments you could put your money in.</p> <p>Remember, tax time doesn't have to be associated only with stress. With opening a Roth IRA, there's a bright side to the season.</p> <p><em>What other reasons for opening up a Roth IRA can you think of?</em></p> <a href="" class="sharethis-link" title="4 Reasons Why You Must Open a Roth IRA Before April 15" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Darren Wu</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment Retirement investment IRA Roth IRA taxes Tue, 25 Mar 2014 09:36:14 +0000 Darren Wu 1132830 at 6 Basics You Must Know Before You Start Investing <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-basics-you-must-know-before-you-start-investing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="finance" title="finance" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>So, you wanna be an investor? Like, a real, stock-trading, market-following investor?</p> <p>It's kind of terrifying, right? You probably have friends who've lost money &mdash; or maybe even their shirts. And it's hard not to notice all the news about market crashes and bankruptcies and even fraud.</p> <p>Sure, you could put your money in a savings account, or some other investment with little or no risk. But here's the thing: A little risk can go long way to increasing your returns. And while portfolio managers tend to quote average returns of 10% per year for the S&amp;P 500, a <a href="">recent report</a> by LPL Financial's Jeff Kleintop found that the most common rate of return is actually more like 15%-20%. (See also: <a href="">The Basics of Asset Allocation</a>)</p> <p>So, does that mean you should throw all your money into the stock market? Don't be stupid. If you're smart about it though, a little stock investing can go a long way. Here are a few tricks about how to ease yourself in, keep your money safe, and emerge with a better net worth.</p> <h2>Get Educated</h2> <p>Learning how the stock market works takes time. Choosing stocks take time. Managing your portfolio to weed out losses and boost returns takes time. Investing safely isn't a get-rich-quick scheme &mdash; it's a lifestyle. If it isn't one you're willing to adopt, you should probably stick to set-it-and-forget-it savings and investments. As Warren Buffett once said, &quot;No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant.&quot; He's a multi-<em>billionaire</em> who made most of his money on the stock market. But it took a while. Take it from him. (See also: <a href="">Investment Secrets of the Rich and Famous</a>)</p> <p>Need somewhere to start? Consider picking up a copy of <a href=";camp=1789&amp;creative=390957&amp;creativeASIN=1416573186&amp;linkCode=as2&amp;tag=wisbre03-20">Warren Buffett and the Interpretation of Financial Statements</a> by Mary Buffett and David Clark. It's a great starting point for beginning to understand what allows a company to succeed &mdash; and how investors can find those stocks. For the most basic info on how the markets and various investments work, check out <a href="">CNN's Money 101</a>. (See also: <a href="">5 Free Killer Investment Resources</a>)</p> <h2>Lose the Fear</h2> <p>It's easy to get emotional about money, and to be fair, the fear of losing it in the market is hardly unfounded. Companies do go out of business. The market does crash. And money does disappear. But often what really costs people in those situations is fear. It's fear that sends people running to sell everything in their portfolios (at a loss) when the market takes a nosedive. It's fear that causes them to trade too much, or too little, or to invest in way too many different things. It's only when you understand what you're doing and are able to make educated decisions about what to buy and when to buy and sell that things stop being so scary. (See also: <a href="">4 Quick Ways to Decide of a Company Is Worth Your Investment</a>)</p> <p>So how can you actually do that? First, learn all you can about the basics. Then, be sure to stick to investments you understand and are comfortable with. Yes, some risk can be a good thing in a portfolio, but only if you can get comfortable with it.</p> <h2>Start Small</h2> <p>OK, so maybe you're reading some books about how to choose stocks, and are doing some research about which stocks you might like to buy, but you don't quite feel ready. What's next? You dive right in. Seriously. The only way you're actually going to be invested (literally) enough to learn the ropes is to put some money in the market. (See also: <a href="">A Guide to Online Brokers for Newbies</a>)</p> <p>Open a low-cost trading account, <em>carefully</em> choose a couple of stocks that you think have long-term potential and invest an amount you can afford to lose, and <a href="">compare prices among brokers</a>. In most cases you can also purchase stocks, mutual funds, and other investments at your regular bank. Note, however, that discount brokerage fees are often less expensive, so it can be worth shopping around. Whatever you deposit, consider it an investment in your financial education, and use it as an opportunity to research, track, and <em>learn</em> about investing.</p> <p>If you're looking for resources on how to get started on stock picking, try <a href=";camp=1789&amp;creative=390957&amp;creativeASIN=0743200403&amp;linkCode=as2&amp;tag=wisbre03-20">One Up on Wall Street</a> by Peter Lynch or <a href=";camp=1789&amp;creative=390957&amp;creativeASIN=0060555661&amp;linkCode=as2&amp;tag=wisbre03-20">The Intelligent Investor</a> by Benjamin Graham.</p> <h2>Go With Blue Chips</h2> <p>What often draws people to the stock market are tales of once-in-a-lifetime startup stock picks that become the next Microsoft. That does happen, but it is rare. Business is, well, business. It's ruthlessly competitive, very expensive, and requires not only a great concept and good execution, but a whole lot of luck. Depending on who you ask, start-ups fail somewhere between 75% and 90% of the time. That is not good odds.</p> <p>More established companies, on the other hand, can be virtual cash machines. These so-called <a href="">&quot;high-market cap&quot; or &quot;Blue Chip&quot; companies</a> have been consistently profitable for many years, have been around for many more, and are so big and well established that it would take quite a blow to take them down. Over the long haul, these types of companies are the best bet for those who want to dip into stocks and limit their exposure to risk. Many of them also pay <a href="">dividends</a>, which can really help boost what you earn over the long term.</p> <h2>Pay Attention to Fees</h2> <p>When you have your mind on big returns, it's easy to overlook all the little things that can have a huge impact on your net worth. Trading fees, for example; keep them cheap. If you're sticking to a long-term portfolio you shouldn't be trading a lot, but why pay more than you have to? The same goes for management fees, which tend to apply to fund-style investments. A bigger management fee doesn't equal a higher return. <a href="">It's a fact</a>. Seek out a low one.</p> <p>The best way to do this is ask what trading fees are on any investment you purchase, then shop around to see how other brokerages &mdash; and other types of investments &mdash; compare.</p> <h2>Don't Forget Index Funds</h2> <p>Individual stock picking isn't for everyone, but index funds just might be. These are essentially baskets of stocks designed to provide similar returns to the overall market they represent. So, an S&amp;P 500 index will provide a similar return as the 500 stocks represented in the S&amp;P 500 as a whole. You're unlikely to get the high returns you could get if you managed to pick the best of those 500 stocks, but with such broad diversification, you'll also have a lot less risk to contend with. Plus, these investments are very low maintenance and, in most cases, <a href="">they beat out professionally managed portfolios</a> (such as mutual funds) anyway. (See also: <a href="">3 Steps to Getting Started With Index Funds</a>)</p> <p>I'm not going to say that buying and selling stocks successfully is easy. If it was, everyone would be rich (including me!). But it also isn't as hard as you might think it is. The key is to make sure that your very first investment is in learning to get it right.</p> <h2>Wise Bread Investment Guide</h2> <p>Read more tips about investment:</p> <ul> <li><a href="">Investing 101: 5 Essential Steps</a><br /> &nbsp;</li> <li><a href="">A Guide to Online Brokers for Investing Newbies (and Beyond)</a><br /> &nbsp;</li> <li><a href="">7 Great Investments for First-Timers</a><br /> &nbsp;</li> <li><a href="">5 Killer Free Investment Resources</a><br /> &nbsp;</li> <li><a href="">Why Index Funds Are the Best Choice for New Investors</a><br /> &nbsp;</li> <li><a href="">3 Steps to Getting Started in the Stock Market With Index Funds</a><br /> &nbsp;</li> <li><a href="">Begin Your Investing Career Right With Some Mutual Fund Basics</a><br /> &nbsp;</li> <li><a href="">The 3-Step Plan to Choosing Your First (or Next) Mutual Fund</a><br /> &nbsp;</li> <li><a href="">The Basics of Asset Allocation</a><br /> &nbsp;</li> <li><a href="">5 Investing Basics That Can Make You Rich</a><br /> &nbsp;</li> <li><a href="">5 Best Online Brokerages</a><br /> &nbsp;</li> <li><a href="">TradeKing Review: The Best Brokerage for New and Intermediate Investors?</a><br /> &nbsp;</li> <li><a href="">4 Quick Ways to Decide of a Company Is Worth Your Investment</a><br /> &nbsp;</li> <li><a href="">7 Common Investing Mistakes</a><br /> &nbsp;</li> <li><a href="">Keep an Eye on Your Money With These 7 Online Investing Tools</a><br /> &nbsp;</li> <li><a href="">What Makes a Company an Attractive Investment?</a><br /> &nbsp;</li> <li><a href="">Self-Made Billionaires: Investment Lessons From Their Success</a><br /> &nbsp;</li> <li><a href="">Investment Secrets of the Rich and Famous</a></li> </ul> <a href="" class="sharethis-link" title="6 Basics You Must Know Before You Start Investing" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Tara Struyk</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment investing basics investing tricks start investing Mon, 24 Mar 2014 09:36:18 +0000 Tara Struyk 1131912 at This Is How Donald Trump Builds Wealth (and You Can Too) <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-is-how-donald-trump-builds-wealth-and-you-can-too" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="cash magnet" title="cash magnet" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>For most people the name Donald Trump conjures up many images &mdash; the hair, the pout, the Tower, the casinos. And, of course, &quot;The Apprentice.&quot; He is certainly one of our culture's most recognizable personalities, and since the 1970s he has accumulated enormous wealth. But has that wealth made him financially independent? Not necessarily, at least not until recently. To see why, let's take a brief look at how his financial investments and priorities have evolved over the years. (See also: <a href="">Money Lessons From Millionaires</a>)</p> <h2>1970s to 1980s: The Asset Accumulation Years</h2> <p>In 1971 Donald Trump moved to Manhattan, where he quickly established a name for himself as a leading New York City real estate developer. At first, he focused on multi-unit residential complexes, but he then expanded into commercial properties, including hotels and office buildings. By the 1980s Trump's assets from real estate holdings, development activities, and property sales had grown significantly. There were liabilities (mortgage debt) associated with these assets, but at first they didn't appear to be excessive. As a result Trump had substantial net worth, or wealth. (See also: <a href="">Investing in Real Estate</a>)</p> <h2>1990s: The &quot;Bad Wealth&quot; Years</h2> <p>By 1990 Donald Trump had broadened his investment interests to include football, airlines, and casinos. It was the latter, in particular the Taj Mahal Casino in Atlantic City, that together with increasing debts on his other properties led to a serious debt problem. In fact, by the early '90s his personal debt had grown to $900 million and his business debt was nearly $3.5 billion.</p> <p>The problem? Despite having substantial assets, the liabilities were excessive. To make matters worse, the assets weren't generating sufficient cash flow to cover the debt payments. On paper, Trump might have still been a multi-millionaire, with total assets several million dollars more than total liabilities; so he had wealth. But negative cash flow meant he was far from financially independent. In fact, he was on the brink of personal bankruptcy. Hence, the &quot;bad wealth&quot; years.</p> <h2>2000s: The &quot;Good Wealth&quot; Years: The Apprentice to the Rescue</h2> <p>In 2003, NBC launched &quot;The Apprentice,&quot; a reality TV show hosted and produced by Trump. During the first season Trump was paid $50,000 per episode, or roughly $700,000 for the year. These days, Trump is reportedly paid $3 million per episode. Calling this venture a cash cow would be an understatement. It is a great example of &quot;good wealth:&quot; an asset (in this case a business) that generates substantial positive cash flow.</p> <h2>The Lesson? Cash Flow Is King</h2> <p>&quot;The Donald&quot; knows how to take a good thing and make it better. Starting with his real estate activities and especially now with his media success, Trump has established and fully leveraged the branding of his name. And he's done so with a particular focus on relatively low cost (and therefore low debt) ventures that generate multiple income streams. Some examples:</p> <ul> <li> <p>Books and tours</p> </li> <li> <p>&quot;The Apprentice&quot; memorabilia and game items</p> </li> <li> <p>Speaking engagements, where he reportedly receives up to $1.5 million per presentation</p> </li> <li> <p>Allowing (for a fee) his name to be displayed on buildings owned by others</p> </li> </ul> <p>These specific types of activities are generally beyond our reach. But the financial principles they illustrate are simple and relevant to us all: Seek to develop a portfolio of assets that <a href="">generate positive cash flow</a>.</p> <h2>How the Rest of Us Can Learn From Trump</h2> <p>What are some examples of cash flow-generating assets available to common folk like us who don't have Donald Trump's resources? Here are a four.</p> <h3>Retirement and Savings Accounts With Matching Contributions</h3> <p>If your employer offers a 401(k), employee stock, or savings program that includes a company match, you are being offered free money. Where else can you find a deal like that? It's a no-brainer. Contribute an amount that gets you the maximum match from your employer. (See also: <a href="">Valid Reasons Not to Contribute to Your 401(k)</a>)</p> <h3>Income-Generating Businesses</h3> <p>Yes, you too can start your own business without quitting your day job. The challenge, of course, is getting it to cash flow positive. Increase your odds of success by avoiding or at least minimizing the two biggest cash flow drags: paying employees a salary and paying rent. These two expenses are common to traditional retail businesses but not to service businesses, so think about providing a service.</p> <p>Some examples of service businesses include writing, conducting or coordinating webinars or live workshops, giving music or other lessons, and consulting. Or perhaps you have an invention, product, or service that can be licensed to multiple users, thereby creating multiple sources of income. (See also: <a href="">10 Great Home-Based Businesses</a>)</p> <h3>Dividend-Paying Stocks</h3> <p>Stocks are one of two major asset types owned by the financially successful, because in general stock growth outpaces inflation. Stocks that increase in price and also pay dividends offer the added bonus of quarterly cash flow payments (which, by the way, can be reinvested to compound the growth).</p> <h3>Income-Generating Property</h3> <p>The other major asset type owned by the financial elite is real estate. But not just any real estate. Remember, we don't want to fall into the debt trap, with excessive monthly mortgage expenses and other carrying costs. Generating rental income from a property can offset, or in some cases exceed, the negative cash flow. Being a full-fledged landlord isn't for everyone, however, so keep in mind that renting a room, a garage, or a parking space can create a regular income stream with a little less responsibility.</p> <p>Other types of properties can be rented, too. For example, trucks or trailers. So can specialty equipment and tools. Have a boat or a classic car? They can also be rented.</p> <p>So, what kind of apprentice will you be? Will you take advantage of opportunities to create &quot;good wealth&quot; &mdash; the kind that generates cash flow? Or will you accumulate assets with debts that spiral out of control? Having been there himself, The Donald has an expression for people who let that happen: &quot;You're fired!&quot;</p> <p><em>Have you thought about how to turn your assets into cash flow generators?</em></p> <a href="" class="sharethis-link" title="This Is How Donald Trump Builds Wealth (and You Can Too)" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Keith Whelan</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Debt Management Investment cash flow trump wealth Fri, 14 Mar 2014 10:24:07 +0000 Keith Whelan 1130798 at Real Estate Investing Is Cheaper and Easier Than You Think <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/real-estate-investing-is-cheaper-and-easier-than-you-think" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="house" title="house" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Real estate often seems to be the &quot;ugly stepchild&quot; of the personal finance community.</p> <p>Most individuals understand that there is something there, but don&#39;t talk about it because it appears mysterious, complicated, and only for the super rich. However, I believe real estate investing can be used by anyone looking to broaden their financial outlook and can add significant potential for building wealth to their plans. (See also: <a href="">5 Investing Basics</a>)</p> <ul> <li>It&#39;s not just for the rich.<br /> &nbsp;</li> <li>It&#39;s not just for the old.<br /> &nbsp;</li> <li>It&#39;s not just for the risky.</li> </ul> <p>Real estate investing can be right <em>for you, now</em>. It can take years off your day job, add thousands to your net worth, and be a lot of fun. This post is going to explore the basic process for getting involved with real estate investing and hopefully, will take some of the mystery away so you can see real estate for what it is: an opportunity.</p> <h2>Why Invest in Real Estate?</h2> <p>First, let&#39;s talk about why you should even get involved with real estate in the first place. For me, there are several key reasons.</p> <h3>1. Leverage Helps</h3> <p>Remember as a child when you played on the see-saw and you discovered that by sitting further back or closer to the center, you could affect how much weight you could lift? (Am I the only one with that memory?) Or perhaps you&#39;ve heard the famous quote from Archimedes who said, <em>&quot;Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.&quot;</em></p> <p>The point is, leverage is the ability to use a small amount of force to move a much larger object. In real estate, the same principle is true in terms of cash. By using just a small amount of cash (a down payment) you can control and reap the benefits (and the risks) of an entire property. In other words &mdash; if you wanted to buy $100,000 worth of gold, you would need to have $100,000. However, you can buy $100,000 worth of real estate with far less than $100,000 &mdash; sometimes as little as nothing down.</p> <h3>2. Investor Control</h3> <p>Second, I love real estate investing because it&#39;s an asset class that I can control. When Google, Apple, or one of a million other stocks go up or down, there is little I can do about it but buy or sell. I have practically no say in how that stock actually moves. However, I fully control my real estate investments and the success or failure of that investment is on me &mdash; not a board of directors I have never met. (See also: <a href="">Quick Ways to Know If You Should Invest in a Company</a>)</p> <h3>3. Investment Variety</h3> <p>There are a lot of different ways you can invest in real estate, which we&#39;ll cover more specifically in a moment. The benefit of this is that you will be able to find an investment strategy that works for you, that will fit your personality, and which will work within your time schedule. There is an absurd amount of variety within real estate, which makes it even more fun to deal with.</p> <h3>4. It&#39;s a People&#39;s Game</h3> <p>Yes, there are avenues to invest in real estate on paper only &mdash; but I love the diversity of it. I&#39;m not just looking at numbers on a page &mdash; I&#39;m looking at real people, real money, real life.</p> <h3>5. Profit Today and Tomorrow</h3> <p>Finally, one of my favorite aspects of real estate investing is that when structured correctly, real estate can boost your checking account both now and in the future.</p> <h2>How Is Money Made With Real Estate Investing?</h2> <p>Asking this question is a bit like asking &quot;how do Americans make money?&quot; There are numerous different avenues to create wealth and income with real estate, and as I mentioned earlier &mdash; much of it depends on your personality and the way you want to run your investments. However, the following four streams of wealth are the most popular methods you&#39;ll see today.</p> <h3>1. Cash Flow</h3> <p>Cash flow is the income that is left in your bank account after <em>all</em> the bills have been paid. This is the profit you make each and every month from your rental portfolio. For example, if the rent on a property was $1,000 per month, and all the bills came to $800 &mdash; your cash flow would be $200 per month. It&#39;s basic addition and subtraction, but this one concept can change lives. Imagine receiving $200 per month in cash flow. Pretty great, but not life-changing in any regard. However, imagine receiving $200 per month per unit in cash flow. Suddenly, the picture changes. (See also: <a href="">Should You Become a Landlord?</a>)</p> <ul> <li>What if you bought two rental houses?<br /> &nbsp;</li> <li>What if you bought a fourplex?<br /> &nbsp;</li> <li>What if you bought a 100 unit apartment building?</li> </ul> <p>Suddenly, we&#39;re talking about some pretty serious dough here! Obviously, most people don&#39;t jump from owning nothing to owning a 100 unit apartment complex, but the math is the same no matter the scale of the property.</p> <p>To top it all off &mdash; remember the concept of leverage from earlier? You don&#39;t need millions of dollars to start making monthly cash flow from real estate investing, when you have the right leverage applied. And don&#39;t get me started on how powerful &quot;compound interest&quot; is when you start to recycle this cash flow back into more investments!</p> <h3>2. Appreciation</h3> <p>The second way people build wealth in real estate is through appreciation &mdash; the rising of property values. In the past, I believe investors placed far too much emphasis on appreciation and not enough on cash flow, so when the real estate market collapsed several years ago, a lot of people lost their shirts.</p> <p>However, when you combine the <em>potential</em> for appreciation with the stability of great cash flow, you are pulling out a double barreled shotgun that can do some awesome things. Imagine holding on to your property, which is providing $200 per month in cash flow, until the market doubles in value. It might take 5 years, it might take 10 years, it might take 20 years. The point is &mdash; you are okay either way and you are building wealth every month. Now, appreciation isn&#39;t guaranteed, but over time, we can assume that in a great number of cases, you&#39;ll see some kind of positive appreciation unless the market you&#39;re investing in is severely depressed. (See also: <a href="">Ways to Boost Your Home&#39;s Value</a>)</p> <p>Furthermore, each and every month you hold onto the property, your loan balance decreases, so in essence &mdash; your tenants are paying down the mortgage for you automatically. If nothing else, in thirty years (or less, depending on how long your mortgage was for) you&#39;ll own the property free and clear!</p> <h3>3. Flipping</h3> <p>If you&#39;ve ever watched one of the &quot;flipping&quot; TV shows, you&#39;ll recognize this strategy. House flipping is the process of buying a distressed property, rehabbing it, and reselling it &mdash; hopefully making a profit on the difference. Flipping can be one of the more risky ways to invest in real estate but with some of the highest potential for financial reward. Although flipping is more closely associated with the &quot;buy low, sell high&quot; model of a retail shopping store, many of the same real estate investing principles are used to make a profit in this line of work.</p> <h3>4. Return on Investment</h3> <p>Up until this point, we&#39;ve dealt primarily with the more &quot;active&quot; forms of investing in real estate. However, many others choose to invest in real estate from a purely &quot;passive&quot; viewpoint, focusing instead on simply earning a good return on investment for their money. Primarily, there are two common ways to make this happen.</p> <ul> <li><strong>REITS:</strong> A REIT, or Real Estate Investment Trust, is a security that can be bought and sold like a stock, but that uses the raised funds to invest in real estate, primarily large commercial properties. REITS can invest in either property directly, or in mortgages on property that other investors own, and the best part is that by design, they are required to pay out a dividend.<br /> &nbsp;</li> <li><strong>Notes:</strong> Other investors invest in Notes (also known as &quot;paper&quot; or &quot;mortgages&quot;) to earn a solid return on investment. You may have had some experience with this in the past if you&#39;ve ever had a mortgage on your own home &quot;sold&quot; to another company. Mortgages are bought and sold all the time, though the borrowers seldom recognize this because it doesn&#39;t affect them.</li> </ul> <h2>Making a Plan</h2> <p>Let&#39;s move from the theory and jump into some of the practical ways you can get started investing in real estate. Although you may be excited to jump in and start buying property, the first step is actually to sit back, relax, and make a plan.</p> <p>A plan is like a road map &mdash; it tells you the best way to get from A to B and how to avoid the dead ends, tourist traps, and potholes.</p> <h3>1. Get Educated</h3> <p>Step one in creating a road map begins with gaining a solid education on what you want to do. I&#39;m not advocating spending thousands of dollars to go to some special school or training program, but at least spend some time reading real estate books, listening to real estate investing podcasts, or chatting with other real estate investors. By sinking into the education, you will create a solid foundation to build upon. I&#39;m staunchly opposed to buying the latest get rich quick manual or joining some expensive bootcamp or course from the guru of the hour, however. There are plenty of great ways to learn real estate without breaking the bank &mdash; do your homework and you&#39;ll find them. (See also: <a href="">21 Real Estate Terms You Need to Know</a>)</p> <h3>2. Choose an Investment Type</h3> <p>Step two in your plan is deciding what kind of investment you want to buy. There are numerous different choices you can pick from, including:</p> <ul> <li>Vacant Land<br /> &nbsp;</li> <li>Single Family Homes<br /> &nbsp;</li> <li>Small Multifamily Properties<br /> &nbsp;</li> <li>Large Multifamily Properties<br /> &nbsp;</li> <li>Commercial Real Estate<br /> &nbsp;</li> <li>Mobile Homes<br /> &nbsp;</li> <li>Notes/Paper/Mortgages<br /> &nbsp;</li> <li>...and more.</li> </ul> <p>The more time you spend educating yourself on the different types of real estate, the more you&#39;ll find yourself drawn to certain types that fit your personality, time schedule, and checkbook. (See also: <a href="">How to Evaluate a Neighborhood</a>)</p> <h3>3. Determine Your Goal</h3> <p>Finally, look at the place you want to arrive at. Is it a million dollars in the bank? $10,000 per month in cash flow by the time you retire? Whatever your goals are, write them down. Then, simply work backward, using the knowledge you gained from your education to determine what you need to do to get there.</p> <p>For example, if your goal is $10,000 per month in passive income in the next twenty years &mdash; and your plan is to buy single family homes that cash flow $200 per month, how many houses do you need? How many is that per year? How much down payment will that require each year?</p> <p>To learn more about getting started with real estate investing, check out <a href="">The Ultimate Beginner&#39;s Guide to Real Estate Investing</a> that we put out earlier this year.</p> <p>Real estate investing can have a tremendous impact on your financial future if you take the time needed to learn how to best get started. Whether you have millions in the bank or just getting started &mdash; I believe real estate investing can and should be a significant part of your portfolio. Use this post as a springboard to your education.</p> <p>The more you learn about real estate, the more you&#39;ll see it&#39;s not the ugly stepchild of personal finance, it just might be your new best friend.</p> <a href="" class="sharethis-link" title="Real Estate Investing Is Cheaper and Easier Than You Think" rel="nofollow">ShareThis</a><div class="field field-type-text field-field-guestpost-blurb"> <div class="field-label">Guest Post Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p>Joshua Dorkin is the Founder and CEO of <a href=""></a>, the real estate investing social network, marketplace, and information hub, and is the host of the popular <a href="">BiggerPockets Podcast</a>. Josh built BiggerPockets to help find answers for his own real estate investing questions, and in the process has helped millions of others.</p> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Joshua Dorkin</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment Real Estate and Housing income property investing real estate real estate investing Thu, 06 Feb 2014 11:24:42 +0000 Joshua Dorkin 1123795 at Best Money Tips: Common Sense Investing Tips <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-common-sense-investing-tips" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="man thinking" title="man thinking" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Welcome to Wise Bread&#39;s <a href="">Best Money Tips</a> Roundup! Today we found some fantastic articles on investing tips everyone should follow, why your finances are a mess, and what to ask at a job interview</p> <h2>Top 5 Articles</h2> <p><a href="">8 Common Sense Investing Tips Everyone Should Follow</a> &mdash; Always be sure to keep it slow and steady when you are investing. [Christian PF]</p> <p><a href="">33 Reasons Why Your Finances Are A Complete Mess</a> &mdash; Your finances may be a complete mess if you think emergency funds are for worrywarts. [Len Penzo dot Com]</p> <p><a href="">Ask This, Not That, At a Job Interview</a> &mdash; When interviewing for a job, ask your interviewer what your typical day would look like. [PopSugar Smart Living]</p> <p><a href="">Are you a compulsive shopper? Six questions to ask when shopping</a> &mdash; Determine whether or not you are a compulsive shopper by asking yourself if what would happen if you waited to buy something. [Frugal Portland]</p> <p><a href="">Tax Return Decisions: How To Make Informed Choices</a> &mdash; To make informed tax return decisions, do separate calculations to see if a 1040 or 1040A will cost you less in taxes. [MainStreet]</p> <h2>Other Essential Reading</h2> <p><a href="">How Much Of A Financial Fighter Are You?</a> &mdash; Are you fighting for your financial future by saving for retirement now? [Bible Money Matters]</p> <p><a href="">Wednesday Welcome: The Benefit Of Being A Big Fish In A Small Pond</a> &mdash; When it comes to going to college, sometimes you can get a better education by immersing yourself in student government. [Jean Chatzky Making Money Make Sense]</p> <p><a href="">Should You Buy a Metal Roof?</a> &mdash; Most metal roofing options have warranties of 50 years and hold up well in the elements. [Sustainable Personal Finance]</p> <p><a href="">How to Get Through to a Live Person in Customer Service</a> &mdash; If you want to get through to a customer service agent, opt for the tech support option when placing a call to a company. [Frugal Confessions]</p> <p><a href="">12 Pinterest Hacks to Make Housekeeping Easier</a> &mdash; To make housekeeping easier, try running a squeegee along your carpets to remove pet hair. [Parenting Squad]</p> <a href="" class="sharethis-link" title="Best Money Tips: Common Sense Investing Tips" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Ashley Jacobs</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment best money tips common sense investing tips Wed, 05 Feb 2014 11:00:11 +0000 Ashley Jacobs 1123718 at 5 Investing Basics That Can Make You Rich <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-investing-basics-that-can-make-you-rich" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="finances" title="finances" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>So you want to become a better investor, build more wealth, and gain financial freedom?</p> <p>Great!</p> <p>Where do you begin? There&#39;s tons of advice out there about how to make money in the market. And sadly, not all of it is <em>good</em> advice. In fact, some of it is downright <em>damaging</em>. (See also: <a href="">Investing Concepts to Ignore and to Follow</a>)</p> <p>But don&#39;t worry, there&#39;s good news: If you boil all the advice down to a few key fundamentals, what&#39;s left is a short list of true words of wisdom &mdash; real advice that&#39;ll put more money in your pocket over a lifetime of investing.</p> <h2>1. Start Early and Invest Regularly</h2> <p>If you start at age 25 and put in the maximum to your Roth IRA ($5,500 in 2014) every year for just 10 years (until you&#39;re 35, and then stop contributing), and your money grows by 8% each year, by the time you&#39;re 65 you&#39;ll have over $865,000. (See also: <a href="">Retirement Planning If You&rsquo;re Under 30</a>)</p> <p>But if you procrastinate for 10 years, start investing at age 35, and invest the maximum every year until you&#39;re 65 (30 years), you&#39;ll have just under $673,000 &mdash; a difference of over $192,000.</p> <p>How much would it hurt to lose $192,000?</p> <p>By starting a bit earlier, you put in less of your own cash, and end up with more money than if you started later and had to put in more of your own cash.</p> <h2>2. Choose Your Asset Allocation</h2> <p>This refers to how you split your money between the two main types of investments &mdash; stocks and bonds. (See also: <a href="">Asset Allocation Basics</a>)</p> <p>To highlight the importance of this decision, here&#39;s what William Bernstein, author of &quot;<a href=";camp=1789&amp;creative=390957&amp;creativeASIN=0071747052&amp;linkCode=as2&amp;tag=wisbre03-20">The Four Pillars of Investing</a>,&quot; says about it: &quot;The fundamental investment choice faced by any individual is the overall stock/bond mix.&quot;</p> <p>So how do you choose?</p> <p>Here&#39;s a rule of thumb recommended by John Bogle, founder of the Vanguard, the world&#39;s largest mutual fund company: Put your age in bonds. So if you&#39;re 30 years old, put 30% in bonds and 70% in stocks. Once you turn 60, put 60% in bonds and 40% in stocks.</p> <h2>3. Rebalance Yearly</h2> <p>Rebalancing means restoring your investment portfolio to its original asset allocation. For instance, if stocks have a good year, they&#39;ll increase in value and make up a larger percentage than your original allocation.</p> <p>To rebalance, simply sell the appropriate amount of your stocks and buy more bonds (or, to avoid capital gains tax on the sale, try this <a href="">contributions rebalancing trick</a>). By doing this, you&#39;re also following another investing idiom: buy low, and sell high.</p> <h2>4. Make Index Funds the Core (or All) of Your Portfolio</h2> <p>Here&#39;s what Warren Buffet, second richest man in America, has to say about the effectiveness of index funds for building wealth: &quot;Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.&quot;</p> <h2>5. Keep Costs Down</h2> <p>When it comes to fund investing, your costs are the fund&#39;s expense ratio. According to a report from the Investment Company Institute, the average actively managed fund costs 0.92% a year. With index funds (see #4 above), however, you pay a lot less. The average index fund costs just 0.13% a year.</p> <p>Why does this matter?</p> <p>Suppose you invest $5,500 each year for the next 20 years. Also, let&#39;s assume that both the actively managed and index funds grow by 8% each year.</p> <p>If you chose the actively managed fund, at the end of the 20 years you&#39;d have just under $242,000 &mdash; a fair amount. But if you invested in the lower-cost index fund, you&#39;d have grown your wealth to the sum of over $267,000 &mdash; a difference of over $25,000.</p> <p>Could you use an extra $25,000?</p> <p>Following these investing fundamentals, and you&#39;ll be sure to gain the financial freedom you&#39;re seeking.</p> <p><em>Anything I&#39;ve missed? What additional fundamental investing rules do you follow?</em></p> <a href="" class="sharethis-link" title="5 Investing Basics That Can Make You Rich" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Darren Wu</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment investing rules investment retirement saving saving Tue, 14 Jan 2014 10:36:16 +0000 Darren Wu 1111192 at One Simple Trick to Get the Best Tax Benefit From Your Retirement Portfolio <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/one-simple-trick-to-get-the-best-tax-benefit-from-your-retirement-portfolio" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="balance" title="balance" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>The most basic strategy for long-term investing is asset allocation. But keeping to an allocation means rebalancing your portfolio, and rebalancing is fraught with complications &mdash; one big one being the tax implications of the sales you need to make. A simple trick can help you deal with that issue, but first let&#39;s take a closer look at asset allocation and rebalancing. (See also: <a href="">The Best Asset Allocation for Your Portfolio</a>)</p> <h2>What Is Asset Allocation?</h2> <p>The idea of asset allocation is to spread your investments among various categories (stocks, bonds, cash, gold, real estate, etc.), with the percentages in each category chosen to balance your desire for return and willingness to take risk.</p> <p>There are a lot of rules of thumb for asset allocation.</p> <h3>Spreading Your Wealth Around</h3> <p>One simple one is to set the stock fraction of your portfolio equal to 100 minus your age &mdash; so a 24-year-old would go with a portfolio of 76% stocks with the rest in bonds. Each year the portfolio gets a little more conservative, gradually shifting to only 35% stocks by age 65.</p> <p>An asset allocation championed by financial writer Harry Browne was a simple 25% each divided among stocks, bonds, gold, and cash.</p> <p>Many financial writers and advisors have model asset allocations. There is, of course, no way to know what asset allocation will turn out to be the best (until the future arrives, and it turns out that an asset allocation of 100% in whatever went up the most would have been best).</p> <p>My own sense is that any reasonably well-diversified portfolio will be okay: Just pick one. Sticking to an asset allocation means that you automatically avoid the error of putting all your money into whatever last year&#39;s hot investment was. (See also: <a href="">How to Know if a Company Is Worth Your Investment</a>)</p> <h2>What Is Rebalancing?</h2> <p>Because investment prices are constantly changing, your portfolio will almost immediately be out of balance. If stocks have gone up, the percentage of your portfolio invested in stocks will be above the target level. Rebalancing is the process of getting each category of your portfolio back to its target percentage. (See also: <a href="">7 Online Investing Tools and Apps</a>)</p> <p>In theory, rebalancing is easy:</p> <ol> <li>Calculate your total assets.<br /> &nbsp;</li> <li>Apply your target percentages to figure out how much money you should have in each category.<br /> &nbsp;</li> <li>In any category that&#39;s over its allocation, sell enough to bring the category down to the target.<br /> &nbsp;</li> <li>Use the money from those sales to buy the appropriate amount in each category that was under it&#39;s percentage.</li> </ol> <p>In practice, rebalancing is trickier than that, for several reasons.</p> <h2>Rebalancing Complications</h2> <p>The first issue with rebalancing is deciding how often to do it. You could do it every day &mdash; or even every second &mdash; selling a little of anything that had gone up a penny and buying whatever had gone down a penny, but that much churning would just add complexity and expense to no particular benefit. The general consensus is that annual rebalancing is about right, but you could make the case that doing it monthly or quarterly would be better.</p> <p>The second issue with rebalancing is procrastination. There&#39;s just natural inertia &mdash; it&#39;s one more thing to do, but one that doesn&#39;t have a real deadline, so it gets put off until later. (See also: <a href="">10 Ways to Stop Procrastinating</a>)</p> <p>There&#39;s another factor, though, which is that after a year, your portfolio is probably pretty far off from its target percentages &mdash; but in what seems like a good way. You&#39;ll have more of your winners and less of your losers, and who doesn&#39;t want that? Selling your winners is always tough, and buying the laggards even tougher.</p> <p>Those are both real issues, but this post is about the third issue with rebalancing, which is taxes.</p> <h2>Tax-Efficiency in Rebalancing</h2> <p>Besides the issue of it just being tough to let your winners go, rebalancing also raises the issue of capital gains taxes. All those sales of winners incur tax liabilities. (Worse, since you&#39;re not selling the losers, you don&#39;t even have any losses to offset your gains.)</p> <h3>Rebalance Via Contributions Rather Than Sales</h3> <p>There&#39;s one basic trick to ameliorate this issue, which works pretty well: <em>Use your contributions to rebalance your portfolio.</em> Instead of dividing your contributions up the same as your target percentages, divide them up so as to move your portfolio closer toward balance.</p> <p>The calculations can get complicated if you let them &mdash; but you don&#39;t need to let them.</p> <p>If you make contributions frequently, and especially if a single contribution isn&#39;t big enough to bring your portfolio entirely back into balance, you can do it the easiest possible way: Figure out which category is the most dollars below its target, and put your whole contribution into that one category. Do the calculation afresh for the each contribution, and your portfolio will stay reasonably close to your desired asset allocation.</p> <p>The same thing can work when you leave the contribution phase of your life and move into the draw-down phase: Use your withdrawals to move your portfolio back into balance by selling from whatever category is the most dollars over its target.</p> <p>Rebalancing by targeting your contributions works very well, especially in the early phases of building your portfolio, when each month&#39;s contribution is large compared to the size of your total portfolio.</p> <p>After ten or twenty years, your portfolio (we very much hope) will be large compared to each month&#39;s contribution, and it will drift from your target asset allocation faster than targeting your contributions can bring it back in line. This is somewhat eased by the fact that you&#39;ll probably be able to make larger contributions as you progress along in your career, but eventually market volatility will almost certainly force you to going back to plan A: Sell things that have gone up and buy things that have gone down. But a careful application of rebalancing with your contributions will minimize the amount you have to sell &mdash; and thereby minimize the amount of capital gains taxes you incur. (<a href="">Clever use of tax-advantaged accounts</a>, like IRAs and 401(k)s, will also help.)</p> <p><em>Do you look after your retirement funds via asset allocation? What tricks do you use to keep everything in balance?</em></p> <a href="" class="sharethis-link" title="One Simple Trick to Get the Best Tax Benefit From Your Retirement Portfolio" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Philip Brewer</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment Taxes asset allocation investment rebalancing retirement Wed, 08 Jan 2014 10:37:23 +0000 Philip Brewer 1107269 at Best Money Tips: Ways to "Beat" the Stock Market <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-ways-to-beat-the-stock-market" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="businessman boxing" title="businessman boxing" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Welcome to Wise Bread&#39;s <a href="">Best Money Tips</a> Roundup! Today we found some great articles on ways to &quot;beat&quot; the stock market, saving for retirement, and prepping for guests with Dollar Store buys.</p> <h2>Top 5 Articles</h2> <p><a href="">9 Ways to &quot;Beat&quot; the Stock Market</a> &mdash; If you want to beat the stock market, watch out for high fees and don&#39;t be afraid to take some risks. [Money Smart Life]</p> <p><a href="">Saving for Retirement at Each Stage of Life</a> &mdash; If you are in your 30s, consider gradually increasing the amount you save for retirement as your salary increases. [Frugal Portland]</p> <p><a href="">Prep For Guests With Dollar Store Buys</a> &mdash; Did you know you can buy bathroom supplies and general cleaners at the Dollar Store? [PopSugar Smart Living]</p> <p><a href="">How to wipe out debt - this time, for good</a> &mdash; Wipe out your debt once and for all by learning new money habits. [Living On The Cheap]</p> <p><a href="">Cheap Honeymoon Ideas</a> &mdash; To save money on your honeymoon, try to travel in the off season. [And Then We Saved]</p> <h2>Other Essential Reading</h2> <p><a href="">How to Stay On Top of Student Debt and Save While in School</a> &mdash; Save money and stay on top of your debt while in school by purchasing your books used. [NarrowBridge Finance]</p> <p><a href="">Online Basics Every New Business Needs</a> &mdash; Every new business needs to provide links to its ecommerce site. [Yes, I Am Cheap]</p> <p><a href="">5 Co-Sleeping Myths Busted</a> &mdash; It is a myth that co-sleeping prevents independence. [Parenting Squad]</p> <p><a href="">How Should you Choose a Home Security System</a> &mdash; When choosing an home security system, consult reviews and consider whether or not you want motion sensors. [Green Panda Treehouse]</p> <p><a href="">Becoming a Successful Freelancer</a> &mdash; To become a successful freelancer, let your presence be felt. [One Cent At A Time]</p> <a href="" class="sharethis-link" title="Best Money Tips: Ways to &quot;Beat&quot; the Stock Market" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Ashley Jacobs</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment best money tips investing stock market Tue, 12 Nov 2013 09:48:03 +0000 Ashley Jacobs 1093854 at Investing Advice by the Decade: Ages 11-20 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/investing-advice-by-the-decade-ages-11-20" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="teen and mom" title="teen and mom" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Just as they do in their first decade of life, kids go through a ton of changes in their second decade. For boys, their deepening voices leave them thankfully less vulnerable to being confused for their mothers when they answer the phone! But more to the point for a financial blog post, kids undergo some very significant money-related changes between ages 11 and 20 as well.</p> <h2>New Concepts</h2> <p>Those who have studied what financial concepts compute in a kids&#39; mind say the second decade of life is when they can more fully understand some of the most important investing ideas. Some kids can grasp these ideas even earlier. (See also: <a href="">Investment Allocation by Age: Birth to 10 Years Old</a>)</p> <p>According to the National Endowment for Financial Education&#39;s (NEFE) brochure, <a href="">Simple Steps to Raising a Money-Smart Child</a>, between ages 11 and 13 they can understand what Einstein meant when he supposedly described compound interest as the eighth wonder of the world. Between ages 14 and 18, they can learn what stocks and bonds are all about, and they can appreciate the value of diversification.</p> <p><strong>Introducing Mutual Funds</strong></p> <p>That last point opens the door to discussions about mutual funds. While kids younger than 10 are much more likely to understand stocks than mutual funds, once they start moving through their second decade of life, mutual funds may make sense.</p> <p>As a teaching aid, just pull up a description of a mutual fund using the website of a broker like Charles Schwab. Take a look at <a href=";&amp;path=%2FProspect%2FResearch%2Fmutualfunds%2Fsummary.asp%3Fsymbol%3DSWPPX">Schwab&#39;s S&amp;P 500 Index Fund</a>, for example. By clicking on the &quot;Portfolio&quot; tab, you can show your child what companies the fund invests in. She will recognize some of the top 10 holdings, such as Apple and Google. For as little as $100, she can diversify her investment across 500 leading companies whose stocks trade on the U.S. stock markets. That&#39;s pretty amazing. (See also: <a href="">Tips From a Financially Savvy Teen</a>)</p> <p>Investing in an index fund is a fine way to mirror the market&#39;s return and can serve as a springboard for learning all sorts of foundational lessons about investing, like <a href="">what the S&amp;P 500 is</a>, the <a href="">historical returns of stocks</a> vs. other asset classes, what is and what are the benefits of <a href="">dollar cost averaging</a>, the dangers of trying to <a href="">time the market</a>, and more. &nbsp;</p> <h2>First Jobs and Investing</h2> <p>As kids move through their second decade of life, their allowance often increases, and so do their opportunities to earn money outside the home. The Department of Labor&#39;s <a href="">Youth Rules website</a> explains what labor laws say about how many hours kids can work at various ages and what sorts of jobs they can hold.</p> <p>Hopefully in the first decade of their lives you&#39;ve instilled in your kids the habit of setting aside a portion of all the money they receive for savings. Now that they have more money coming in, they have the potential to sock away a lot more, and it makes all the more sense to get them involved in investing. (See also: <a href="">5 Things Your Teen Needs in a Back Account</a>)</p> <p><strong>Custodial Investment Accounts</strong></p> <p>Even when their kids are still in the first decade of life, I encourage parents to open a custodial investment account for them (you need to be 18 or older to have an investment account in your own name). In the second decade of life, when a kid is likely to begin earning money, it&#39;s time to open a custodial IRA account, preferably a custodial Roth IRA. In order to qualify to make contributions to an IRA, you have to have earned income. You can open such an account at <a href="">Charles Schwab</a> with as little as $100.</p> <p>One chief advantage to having your kids invest through an IRA is the tax benefit. If they did really well investing through a regular custodial account, they may bump up against the painful reality that they&#39;d have to pay tax on their earnings.</p> <p>OK, they&#39;d have to have a <em>lot </em>of money in the account for a kid since tax would be due only if investment income exceeded $1,000, and it would take an account balance of over $14,000 to generate that much interest income, assuming a 7% return, but still.</p> <p>With money invested through a Roth IRA, if your kid doesn&#39;t touch the account until age 59 and a half, there would be no tax due on the earnings. But kids don&#39;t have to wait such an unimaginable amount of time before they can access the money. Contributions may be withdrawn at any time for any reason without penalty. And even the earnings may be withdrawn without tax or penalty under certain circumstances.</p> <h2>Investing and College Financial Aid</h2> <p>Anyone who attempts to understand the rules and regs related to college financial aid should be forewarned that such attempts may cause confusion and will cause drowsiness. (See also: <a href="">5 Reasons Why Every Student Should Fill Out the FAFSA</a>)</p> <p><strong>Regular Savings Reduces College Financial Aid</strong></p> <p>The financial aid formulas count a portion of an incoming student&#39;s savings and income <em>against </em>his or her family. So, a kid who heads to college not having worked a single day of his life, or not having saved any of the money he <em>did </em>earn, will qualify for more financial aid than one who has worked, saved, and invested.</p> <p>Knowing this, some families may be tempted to have their kids not work because of the possible impact on financial aid. But the many benefits of work &mdash; diligence, responsibility, new skill development &mdash; will likely outweigh any of the drawbacks.</p> <p>There is one last point about the financial aid formula that should be pointed out. Money in a retirement account does <em>not </em>count against the family. All the more reason to move from a custodial investment account to a custodial IRA when your kids start <em>earning </em>money.</p> <p>The downside here is that if the money is taken out of the IRA to pay for school, it will be considered student income in the financial aid calculations. One way around that is to use such funds for the student&rsquo;s senior year. The FAFSA form impacts the next year&rsquo;s financial aid package. By using a student&rsquo;s Roth IRA money for his senior year&rsquo;s expenses, there won&rsquo;t be a financial aid package next year to worry about.</p> <p>Teaching your kids about investing is a great investment unto itself. A kid who enters adulthood knowing how and why to invest will be a very unusual kid &mdash; unusually well-positioned for success, that is.</p> <p><em>Have you introduced important financial concepts to teens? What worked?</em></p> <a href="" class="sharethis-link" title="Investing Advice by the Decade: Ages 11-20" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Matt Bell</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment financial education investing money and kids Thu, 10 Oct 2013 09:48:03 +0000 Matt Bell 1005000 at 7 Reasons Why I Savings Bonds Are a Good Choice for New Investors <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-reasons-why-i-savings-bonds-are-a-good-choice-for-new-investors" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="woman holding piggy bank" title="woman holding piggy bank" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>For new investors worried about risk and challenged by high minimum requirements, U.S. Savings Bonds, particularly I Bonds, offer a great alternative. When you buy a Savings Bond, you essentially lend money to the U.S. government, which pays you interest in return. (See also: <a href="">5 Super Safe Investments</a>)</p> <p>An I Bond interest rate is a composite of a fixed rate that stays the same and a variable rate that changes every six months based on the Consumer Price Index. The combined rate will never be less than zero, even if there is deflation and prices are falling. Interest is earned monthly and compounded twice a year.</p> <p>The government also offers EE Saving Bonds, which are similar to I Bonds, but pay fixed interest rates. EE Bonds offer the same safety, tax advantages, and low minimums as I Bonds. However, because EE Bonds sold since 2005 feature fixed rates, they don't offer the same protection against inflation.</p> <p>Here are seven reasons why I Bonds are a good investment.</p> <h2>1. Safety</h2> <p>They are safe. Stock prices rise and fall, sometimes substantially. Their proponents say stocks offer the best long-term return, but stocks can drop or remain flat over long periods, like the 1970s or early 2000s. Bonds are generally seen as safer, yet bond values fall when interest rates rise, meaning you can lose money.</p> <p>I Bonds are arguably even safer than bank CDs and savings accounts insured by the government (FDIC). Instead of keeping your money in bank accounts insured by the government, you lend it to the government itself.</p> <h2>2. Low Minimums</h2> <p>A Savings Bond can be purchased for as little as $25. By comparison, bank CDs typically require at least $500 or $1,000. Mutual funds require at least $2,500. Some want $5,000 to start, a tough hurdle for beginning investors.</p> <h2>3. Favorable Tax Treatment</h2> <p>I Bond interest is not subject to state or local income tax. You don't pay federal income tax until you redeem them and pocket your interest. (See also: <a href="">Tax Penalties for Early Retirement Withdrawals</a>)</p> <h2>4. Deductible Educational Expenses</h2> <p>You may be able to avoid paying taxes on your interest if you have &quot;<a href="">qualified education expenses</a>.&quot; Qualified expenses include tuition and fees and expenses paid for a course required for a degree or certificate, but not books or room and board.</p> <p>Educational expenses for your child can qualify if the bond is registered in your name or spouse's name. Expenses for your spouse may qualify if you file a joint return.</p> <h2>5. Inflation Protection</h2> <p>I Bonds can be used to protect yourself against inflation because their interest rate is adjusted twice a year based on the Consumer Price Index. So if inflation increases, the bond's interest payment also increases, an important consideration when many investments lose value due to inflation. (See also: <a href="">Savings Rates Below Inflation? Save Anyway</a>)</p> <h2>6. Retirement Income</h2> <p>Because they keep paying interest for 30 years and offer favorable tax treatment, I Bonds can be good source of supplemental retirement income. Favorable tax treatment is another retirement advantage. Since you only pay taxes on interest when redeeming the bonds, you could postpone taxes until you're retired and possibly in a lower tax bracket. (See also: <a href="">Retirement Planning If You're Under 30</a>)</p> <h2>7. Convenient to Buy</h2> <p>To purchase Saving Bonds, you have to set up an account at <a href=""></a>. Once the account is set up and linked with your bank account, buying them is as easy as a few mouse clicks. You don't have to worry about storing paper bonds. You can also set up an <a href="">automatic payroll savings plan</a>, if your employer participates in a plan.</p> <p>You can use your tax refund to buy paper I Bonds in multiples of $50 up to $5,000. All you have to do is select the option by filing Form 8888. Except for I Bonds purchased with tax refunds, Savings Bonds are only sold electronically.</p> <p>I Bonds have some drawbacks. You have to hold them at least 12 months before redeeming them. And if you redeem them within five years, you lose the last three months of interest.</p> <p>Their rates are not spectacular. For instance, the composite rate, or combined fixed- and variable-rate, for I Bonds issued May 1, 2013 to Oct. 31, 2013, was set at 1.18 percent. Still, given their other advantages, I Bonds are a good choice for new &mdash; as well as experienced &mdash; investors.</p> <p><em>Have you ever invested in I Bonds? Would you consider it?</em></p> <a href="" class="sharethis-link" title="7 Reasons Why I Savings Bonds Are a Good Choice for New Investors" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Michael Kling</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment i bonds investment options new investors safe investments saving bonds Fri, 20 Sep 2013 10:18:20 +0000 Michael Kling 981647 at 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="" 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="">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="">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="">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="">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="">herd instinct</a>&quot; as a detriment to investing success. In <a href=";camp=1789&amp;creative=390957&amp;creativeASIN=074945637X&amp;linkCode=as2&amp;tag=wisbre03-20" target="_blank">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="">Yelp</a>, book a room at an inn after referencing feedback on <a href="">TripAdvisor</a>, or choose a plumber by following recommendations from Facebook friends. (See also: <a href="">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="">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> <a href="" class="sharethis-link" title="3 Survival Instincts That Harm Investors" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Julie Rains</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment investing investments psychology Thu, 19 Sep 2013 10:24:17 +0000 Julie Rains 988368 at What Makes a Company an Attractive Investment? <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-makes-a-company-an-attractive-investment" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="crowd of business people" title="crowd of business people" class="imagecache imagecache-250w" width="250" height="176" /></a> </div> </div> </div> <p>What makes a company attractive to investors? There are compelling attributes besides an alluring <a href="">valuation</a> or expectations of <a href="">explosive growth</a>. (See also: <a href="">Investing 101: 5 Essential Steps</a>)</p> <p>When starting to evaluate a company for possible investment, here are some key characteristics worth noticing.</p> <h2>Wide Economic Moat</h2> <p>The economic moat is the unique, sustainable advantage that keeps competitors away and allows a company to generate higher-than-average profits. (See also: <a href="">Why It's So Hard to Follow Warren Buffet's Advice</a>)</p> <p>Billionaire investor <a href="">Warren Buffett is credited with popularizing the term</a> &quot;economic moat.&quot; Investing sites such as <a href="">Morningstar</a> and <a href="">The Motley Fool </a>reference the phrase. Just as in medieval days, the moat protects its owners from situations like these:</p> <ul> <li>Attacks by upstarts offering flashier or cheaper products or services.<br /> &nbsp;</li> <li>Direct competitors stealing customers with high-performing products or services.<br /> &nbsp;</li> <li>Well-established firms entering the marketplace and capturing market share.</li> </ul> <p>The wider the moat, the longer a company's financial success should last.</p> <p>For example, a pharmaceutical company with a patent on a popular drug that won't expire until 2017 has a protective moat of four years. A corporation with numerous patents and more drugs in the development pipeline could have an even stronger and longer-lasting advantage.</p> <p>Other examples of moats include:</p> <ul> <li>Loyal base of customers (such as search-engine users or business subscribers).<br /> &nbsp;</li> <li>Products and services that are difficult, costly, and time-consuming to drop for a competitor's offering (such as software embedded in various aspects of daily operations).<br /> &nbsp;</li> <li>Connectedness that leads to more connections (such as a network of buyers and sellers or a payment method widely accepted by merchants that becomes more and more in demand by consumers).<br /> &nbsp;</li> <li>Infrastructure such as an electrical grid or small package delivery service's hubs, distribution center, and trucks.<br /> &nbsp;</li> <li>Intellectual property, such as patents, brands, proprietary technology, and copyrighted materials.<br /> &nbsp;</li> <li>Low manufacturing and distribution costs obtained through methods not easily duplicated by newcomers or outsiders such as high-volume purchase contracts, partnerships with suppliers and customers, and efficient production processes.</li> </ul> <p>Recognizing an economic moat is relatively easy; projecting whether it will be valuable years from now is not so simple. Demand for certain products and services may disappear or <a href="">disruptive (or game-changing) technologies</a> and business models may surface, eliminating or weakening the strength of the moat. Still, it's wise to consider whether a company has advantages that protect from invaders.</p> <h2>Integrated Into Our Daily Lives</h2> <p>A great company has products and services that you easily and gladly integrate into your daily life at home, work, or both. These may be your favorite store or materials supplier, streaming entertainment provider or online software company, search engine or database, cellphone company or telecom provider, apparel brand or uniform laundry, online broker or bank, etc.</p> <p>These companies are able to fulfill needs and wants through methods that are understandable, prices that are affordable, and distribution channels that are accessible to you.</p> <h2>Profitable</h2> <p>A profitable company makes more money than it spends. The profit margin indicates how much profit every dollar of sales produces; calculate this number by <a href="">dividing net income by revenue</a>. Sure, we expect businesses to be profitable simply by being a for-profit organization, but many survive for years by securing outside financing or using excess cash. So, it's worth checking financial statements to look at profit margins. (See also: <a href="">Myths Non-Business People Believe About Business</a>)</p> <p>A great company generates a profit by charging more than enough to cover its costs. Very often, a wide economic moat allows the business to 1) charge a premium for its products or services; 2) sell a high volume to customers; 3) control its costs and operate efficiently; or 4) do a combination of these.</p> <p>Profit margins vary by industry. Some industries have higher margins than others, so compare profitability among competitors to identify the best companies in each category.</p> <h2>Free Cash Flow</h2> <p>Free cash flow is defined by <a href="">Investopedia</a> as &quot;cash flow from operations (operating cash) - capital expenditures&quot; or &quot;how much cash a company has after paying its bills for ongoing activities and growth.&quot;</p> <p>Capital expenditures, or capex, lower free cash flow, though such spending is often necessary to fortify an economic moat and desirable for continued growth. For example, a company may use cash to 1) pay for the construction of new stores in order to reach more customers or 2) upgrade systems for more efficient operations. These expenditures should eventually reap cash-generating benefits such as higher sales and higher profit margins or lower costs.</p> <p>Similarly, you might use cash to renovate your home and add solar panels or similar upgrades. Your cash flow suffers in the years you make these purchases but you'll be better positioned for the future with lower energy costs, for example. The important thing is to avoid overspending on frivolous changes that don't add value.</p> <p>Companies that generate a lot of cash tend to be healthy and profitable plus <a href="">well positioned</a> to take on new opportunities or defend themselves from competitive threats.</p> <h2>Visionary Leadership and Effective Management</h2> <p>Visionary leaders inspire a company to maintain its relevancy while remaining true to its core purpose as customers grow and change, culture evolves, technology advances, and competitors try to encroach on its territory. Effective managers make sure that ideas are communicated throughout the organization and assures that plans are executed properly. (See also: <a href="">A 94-Year-Old Explains Good Decision-Making</a>)</p> <p>Both leadership and management are crucial to the success of a great company. In addition to setting overall direction, their values often permeate the entire organization. So, if the top-level people believe in the brand message, show commitment to quality, value innovation, and appreciate customers, then it's more likely that the front-line employees will, too. Your experiences with a company, then, can help you detect an outstanding organization.</p> <p>In my experience, no one or no company is perfect all the time. A great company generally has at least three or more (but possibly not all) of these attributes.</p> <p>Note that there's a difference between a great company and a great investment. That is, a wonderful company may have characteristics that may make its stock a poor candidate for your investment dollars. But it's worth considering what makes a company great before you invest.</p> <p><em>What characteristics do you look for in a company?</em></p> <a href="" class="sharethis-link" title="What Makes a Company an Attractive Investment?" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Julie Rains</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment company valuation good investments investing Wed, 11 Sep 2013 14:07:11 +0000 Julie Rains 981862 at