wealth accumulation http://www.wisebread.com/taxonomy/term/8063/all en-US 8 Cheap, Easy, and Not-So-Obvious Ways to Invest in a Company's Stock http://www.wisebread.com/8-cheap-easy-and-not-so-obvious-ways-to-invest-in-a-companys-stock <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-cheap-easy-and-not-so-obvious-ways-to-invest-in-a-companys-stock" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/business-5141293-small.jpg" alt="woman" title="woman" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Investors typically purchase shares of a stock through an online brokerage or full-service firm. They research possibilities among the universe of available stocks, identify a stock to buy, and place an order online or agree to a purchase based on a broker's recommendation. (See also: <a href="http://www.wisebread.com/begin-your-investing-career-right-with-some-mutual-fund-basics">Begin Your Investing Career Right With Some Mutual Fund Basics</a>)</p> <p>But there are other ways to invest in a company's stock. Some are cheap (or free!) ways to acquire shares while others are simply an alternative to a standard investment account. Here are eight nontraditional ways to make a stock investment:</p> <h2>1. Direct Stock Purchase Plans (DSPPs) or Dividend Reinvestment Plans (DRIPs)</h2> <p>Invest through a <a href="http://www.investopedia.com/terms/d/directstockpurchaseplan.asp">direct stock purchase plan (DSPP)</a> or <a href="http://www.investopedia.com/terms/d/dividendreinvestmentplan.asp">dividend reinvestment plan (DRIP)</a> if such a plan is available for your desired company. Many <a href="http://www.wisebread.com/slow-drip-into-investing">name-brand companies offer a plan</a> administered by a transfer agent.</p> <p>Visit the Shareholder Services section of the company's website to determine if a plan is offered. Alternatively, view participating companies at <a href="http://www-us.computershare.com/investor/3x/plans/planslist.asp?stype=dspp">Computershare InvestorCentre</a>, <a href="http://www.firstshare.com/">First Share</a>, <a href="https://www.shareowneronline.com/UserManagement/WFIndex.aspx">Shareowner Online</a>, or similar sites that facilitate investments in these plans. Note that mutual funds may be listed along with corporations such as Best Buy, Du Pont, Hanesbrands, Nike, Pfizer, and Target.</p> <p>The advantage of investing through DSPPs and DRIPs is that you can avoid charges from brokerage firms. However, you may incur other fees, and you can't specify the price (<a href="http://www.wikihow.com/Place-a-Limit-Order">place a limit order</a>) for the stock; instead, shares are typically purchased on a prescribed schedule for the market price.</p> <h2>2. Mutual Funds</h2> <p>When you buy a mutual fund, you invest in the companies' stocks held by the fund. For a current list of these stocks, view holdings by visiting the fund's website, looking up the ticker on <a href="http://morningstar.com/">Morningstar.com</a>, reviewing the prospectus, or reading the shareholder's report. Note that holdings change periodically.</p> <p>You can't select individual stocks (although you might choose a mutual fund based on its underlying holdings). And you'll pay fees for fund administration, whether the fund is actively or passively managed. However, this method is ideal for the hands-off investor who wants to participate in the growth of the economy without having to scrutinize and keep up with individual securities.</p> <h2>3. Exchange-Traded Funds</h2> <p>Similar to purchasing mutual fund shares, buying shares means you are investing in stock held by the <a href="http://www.sec.gov/answers/etf.htm">ETF</a>. To view a list of its holdings, research the fund on your brokerage firm's website; alternatively, request a prospectus for a breakdown of the stocks represented by the ETF.</p> <p>Again, like the mutual fund, the advantage of the ETF is that you don't have to make stock-picking selections, while the disadvantage is, well, you can't choose individual stocks.</p> <h2>4. Profit-Sharing Plans</h2> <p>You may receive stocks, bonds, or mutual funds through a <a href="http://www.dol.gov/ebsa/publications/profitsharing.html">profit-sharing plan</a> offered by your employer.</p> <p>The employer specifies the securities or other forms of compensation to be distributed through the profit-sharing plan. You might receive company stock, shares of a mutual fund from a pre-selected list, or cash that you can invest yourself.</p> <p>Although you can't control what specific investment your employer shares through its plan, you can benefit from the investments made on your behalf.</p> <h2>5. Stock Options</h2> <p>As a performance incentive and employee benefit, your company may give <a href="http://money.howstuffworks.com/personal-finance/financial-planning/stock-options.htm">stock options</a>. Generally, you'll get the option to buy a certain number of shares at a designated price within a specific time frame.</p> <p>Ideally, you'll exercise the options at a time when the stock price is above the option price. For example, you may be given the option to purchase 100 shares of ABC stock at $10 per share for the next two years. This contract is attractive if the shares are trading at $15 on the NYSE (New York Stock Exchange). You invest $1,000 but increase your net worth by $1,500.</p> <p>Note that stock options are not a sure way to make money. The stock price could fall below the option price, making them worthless.</p> <p>Exercising stock options can be an excellent way to build wealth, albeit in a <a href="http://www.schwab.com/public/schwab/resource_center/expert_insight/investing_strategies/portfolio_planning/the_concentration_trap.html">concentrated position</a> (aka lots of eggs in one basket) that is considered risky.</p> <h2>6. Employee Stock Ownership Plans (ESOPs)</h2> <p>Similar to exercising stock options, you can acquire a large position in single stock through an <a href="http://www.nceo.org/articles/esop-employee-stock-ownership-plan">employee stock ownership plan (ESOP)</a>. Your employer gives you shares of company stock according to a formula that may be based on salary, years of service, etc.</p> <p>Again, like stock options, you can acquire significant assets through an ESOP, especially if the company (and its stock price) performs well over time. On the other hand, the value can easily be diminished if the company and its stock falter.</p> <h2>7. 401(k) or Similar Plan</h2> <p>Through a <a href="http://www.wisebread.com/your-401-k-is-not-an-investment">401(k) or similar plan</a>, you can invest in mutual funds or other securities available from a pre-selected list. Your investments may be boosted if your employer matches your contribution.</p> <p>Your company's 401(k) plan may or may not have a great selection of mutual funds. The fees charged may be reasonable or excessively high. Still, participating in such a plan is an easy and automatic way to invest.</p> <h2>8. Gifts</h2> <p>If you are fortunate to have a wealthy friend or family member who is an investor, you may become <a href="http://www.wisebread.com/do-i-have-to-report-this-income-0">the recipient of a stock gift</a>. Most likely, you'll need to open a brokerage account to receive the shares.</p> <p>Obviously, you won't be able to pick the stock. But typically you'll have the choice to either keep the shares or sell them and invest the proceeds in another investment of your choice.</p> <p>As you can see, you may not be able to invest using all of these techniques. Your employer may not offer stock options or profit sharing, for example. But you could invest through direct stock purchase plans or buy an ETF for a low fee.</p> <p>However you acquire shares, remember to look at your entire portfolio when making investment and asset allocation decisions, not just what's sitting in your brokerage firm's account. The wealth accumulated through these nontraditional methods may be significantly larger than amounts inside your brokerage account.</p> <p><em>Are you an investor? Which of the above methods do you use to buy shares?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/8-cheap-easy-and-not-so-obvious-ways-to-invest-in-a-companys-stock">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-build-an-investment-portfolio-for-under-5000">How to Build an Investment Portfolio for Under $5000</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-investment-mistakes-we-all-make">11 Investment Mistakes We All Make</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-boring-investments-make-life-exciting">4 Ways &quot;Boring&quot; Investments Make Life Exciting</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-duel-etfs-vs-mutual-funds">The Duel: ETFs vs. Mutual Funds</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-to-invest-in-biotech-without-getting-burned">7 Ways to Invest in Biotech Without Getting Burned</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment DRIPs DSPPs ETFs mutual funds retirement plans stock options wealth accumulation Tue, 30 Jul 2013 10:00:42 +0000 Julie Rains 980926 at http://www.wisebread.com Do You Really Want to Be Rich? http://www.wisebread.com/do-you-really-want-to-be-rich <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/do-you-really-want-to-be-rich" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/2458096615_cdda13d0d9_z.jpg" alt="heart in penny" title="heart in penny" class="imagecache imagecache-250w" width="250" height="187" /></a> </div> </div> </div> <p>Here&rsquo;s a statistic for you &mdash; according to the U.S. Census Bureau, about 57% of people over the age of 18 play the lottery in a given year. That suggests there are a whole lot of people out there who are angling to be rich &mdash; or at least richer.</p> <p>Maybe it&rsquo;s only human nature to dream about wanting more out of life, whether that means a bigger house, a better car, more time off, or real financial security. But here&rsquo;s the thing &mdash; while I&rsquo;d venture to guess that most people would like a little extra padding in their finances, very few actually take any steps to make it happen. To me, that&rsquo;s a bit like wishing for washboard abs while watching the &ldquo;The Biggest Loser Workout&rdquo; videos &mdash; and scarfing down a family sized bag of potato chips. What I mean to say is that it just doesn&rsquo;t make sense.</p> <p>It makes me wonder...how many of us are actually willing to do the real work that&rsquo;s most often involved in raking in the big bucks? And if we aren&rsquo;t willing to get our hands dirty, are we really interested in being rich at all? (See also: <a href="http://www.wisebread.com/5-money-lessons-from-millionaires">5 Money&nbsp;Lessons From&nbsp;Millionaires</a>)</p> <h3>What It Takes to Be Rich</h3> <p>Take a look at the <a href="http://www.forbes.com/forbes-400/list/">Forbes list of the richest people in America</a>, and it becomes very clear that there are really only a few key ways to become filthy, stinking rich (because, let's face it, moderation just doesn't factor into our dreams):</p> <ol> <li>Inherit</li> <li>Found a successful company</li> <li>Invest</li> </ol> <p>Unless you&rsquo;re the heir to a major fortune, you can scratch the first one of your list right off the bat. Now you&rsquo;re left with two solid options. And when I say solid, I mean that they&rsquo;re possible, not that they&rsquo;re easy. Building a business is a huge commitment of time, effort, money, and risk. In the end, a lot of start-ups fail despite the heroic efforts of their founders. But when your own business pays off, you get to enjoy a lot more of the spoils than if you were simply an employee.</p> <p>Investing your way to wealth may be even more difficult. Even with high returns, you&rsquo;ll need a fairly large amount of money to work with. That means you have to either earn more or save more. Plus, scoring a huge win (often called a &ldquo;tenbagger&rdquo;) in investing is very rare and tends to be a once-in-a-lifetime deal, even for many of the best investors out there.</p> <h3>A Practical Option</h3> <p>I don&rsquo;t mean to burst your bubble, but all in all, the odds of being very rich aren&rsquo;t that good, at least not in the near future. So do you have <em>any</em> chance of being richer? The answer is yes &mdash; if you can muster a little patience.</p> <p>Let&rsquo;s go back to the <a href="http://www.wisebread.com/creating-an-artificial-windfall-generator">people who play the lottery</a>. According to the North American Association of State &amp; Provincial Lotteries (NASPL), about 20% of players spend more than $1,300 per year on lottery tickets. That&rsquo;s a lot of money, especially when you consider that those regular players tend to be on the lower end of the income spectrum.</p> <p>Now, I can totally understand the lure of dreaming about winning the jackpot, but based on the odds, I think I can safely say that it won&rsquo;t happen to you. What I can say with all certainty is that if you were to invest that $1,300 per year at a modest 5% rate, you&rsquo;d have $70,000 at the end of 25 years. Kick in a little extra here and there, and you&rsquo;ll have yourself a respectable retirement account. OK, so maybe you won&rsquo;t be rolling in a giant pile of cash, but <a href="http://www.wisebread.com/7-tips-for-stress-free-retirement-investing">having some money to spare during retirement</a> doesn&rsquo;t sound all that bad, now does it?</p> <h3>Do You <em>Really</em> Want to Be Rich?</h3> <p>&ldquo;Whether rich or poor, it&rsquo;s always nice to have money,&rdquo; the old saying goes. I&rsquo;m not going to say that having more money can&rsquo;t make life more comfortable, but most studies show that the sense of well-being that comes from wealth peaks well below a six-figure salary, never mind millions. That suggests that you might get more mileage out of a living in a house and dreaming about a mansion than you will out of actually crossing the threshold to become truly rich. Plus, a level of wealth that meets all your needs, leaves room for a few wants, and allows you to build a secure financial future is a lot more attainable for everyone.</p> <p>The bottom line is that there&rsquo;s no magic pill for wealth. Hard work and smart choices play a key role, but any successful businessperson or investor will also tell you there&rsquo;s <a href="http://www.wisebread.com/good-luck-bad-luck-who-can-tell">more than a little luck involved</a>. Working hard, saving as much as you can, and investing well will put you in a position to capitalize on that luck. The best part is even if you never get lucky, you'll still be better off. That's more than I can say for the other options. Spending your money on lottery tickets (or just idly wishing for a bigger bank account) are likely to leave you broke and possibly bitter.</p> <p>So here's the bad news &mdash; extravagant wealth is pretty hard to come by, and unless you&rsquo;re the heir to a fortune, it's pretty unlikely you'll get there, even with hard work and sacrifice. So why not work toward creating a life where your needs are met and you don't have to walk the thin line between survival and financial failure? Sure, it's a lot less glamorous than a million-dollar lifestyle. The good news is if you put in the work, the odds on this one are in your favor.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tara-struyk">Tara Struyk</a> of <a href="http://www.wisebread.com/do-you-really-want-to-be-rich">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-12-month-get-richer-plan">The 12-Month Get-Richer Plan</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-good-manners-make-you-wealthier">5 Ways Good Manners Make You Wealthier</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-millionaire-next-door-riches-de-mystified">The Millionaire Next Door: Riches De-mystified</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/women-and-savings-what-to-do-at-your-life-stage">Women and Savings: What to Do at Your Life Stage</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-quiet-millionaire-part-2-major-obstacles-to-financial-success">The Quiet Millionaire: Part 2 – Major Obstacles to Financial Success</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance get rich money and happiness wealth accumulation Tue, 19 Jun 2012 10:24:12 +0000 Tara Struyk 935187 at http://www.wisebread.com Women and Savings: What to Do at Your Life Stage http://www.wisebread.com/women-and-savings-what-to-do-at-your-life-stage <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/women-and-savings-what-to-do-at-your-life-stage" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/6575294183_52858f5ca0_b.jpg" alt="three generations of women" title="three generations of women" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The recession has pushed almost all of us, regardless of age, a decade behind in building personal wealth. Don&rsquo;t beat yourself up if you&rsquo;re in your 20s and haven&rsquo;t paid off student loans, or in your late 30s or early 40s and still paying off debt or saving up for a down payment. If your retirement account isn&rsquo;t where you&rsquo;d like it to be in your 50s, do the best you can to build it up. What matters is doing the best you can to make sound financial decisions so you can enjoy the important things in life without worrying too much about money. Here are few tips for women in their 20s, 30s, 40s, and 50s on saving and building wealth. (See also: <a href="http://www.wisebread.com/37-savings-changes-you-can-make-today">37&nbsp;Savings Changes You&nbsp;Can Make Today</a>)</p> <h2>In&nbsp;Your 20s</h2> <p>I can&rsquo;t stress this enough &mdash; start saving early. Even if you think you&rsquo;re broke, give up lattes twice a week and put the $25 a month you save into a retirement account. The hilarious truth of the matter is that the earlier you start saving, when you can least afford it, the harder that money works for you to earn interest. Investing just 5% of a $40,000 salary annually from age 25-65 can pay off big in the long run. Assuming a 6% rate of return, at age 65 you&rsquo;d have $479,241 in your 401(k) thanks to the magic of compound interest. Invest 10% of a $40,000 salary, and that number grows to $830,678 by age 65.</p> <p>On to credit card debt, especially important in your 20s. I know about this one first hand. I thought I had a great handle on my credit card spending in my early 20s. So great, in fact, that over the next several years I didn&rsquo;t bat an eyelash at charging multiple plane tickets to Europe, rounds of drinks with friends, and several pairs of new shoes.</p> <p>Several years later, I was still paying it off. &nbsp;The only way I dug myself out of debt was to get a second job in addition to my full time job while I was finishing school. That meant a 60-plus hour work week, no social life, no excess spending, little sleep, and a lot of headaches for over a year. Trust me, you do NOT want to put yourself through the stress that excess debt causes. Before you whip out the credit card to travel or go out or buy a new gadget, ask yourself if you really need it. Force yourself to spend responsibly. If you want to travel, set aside 10% of your earnings and take one great trip a year.</p> <h2>In&nbsp;Your 30s</h2> <p>In your 30s, the traditional wisdom says you should be buying a house, saving up for a family, and finally paying off your student loans and credit card debts. Realistically, with the low pulse of the housing and job markets, many people are delaying purchasing property or starting a family. So if you&rsquo;re still working on paying down debt and building up savings, that&rsquo;s okay. Don&rsquo;t beat yourself up; just continue to save.</p> <p>Still, your 30s do represent a transition into being a &ldquo;real&rdquo; adult, and along with that comes responsibility, like it or not. Aim on building a savings account with three to six months&rsquo; worth of living expenses. Try to finish paying off high interest debt, like credit cards and car loans. If you do decide to buy property, add up all the costs of ownership before making a commitment.</p> <h2>In Your 40s</h2> <p>Most women in their 40s seem to have a good handle on the concept that managing your money well leads to more freedom down the road. At this point, most women are probably mid-career and earning more than they did in previous decades. Whether you&rsquo;re a single-income or dual-income household, use the peak earning years to your advantage. <a href="http://www.wisebread.com/a-comprehensive-guide-to-the-debt-snowball-method-0">Pay down all the debt</a> you can, ramp up retirement contributions and review your savings goals on a regular basis. Remember, not all workers are lucky enough to have a company pension plan, and who knows what the future holds for social security. Once your emergency fund is built, use extra cash to build up retirement savings.</p> <h2>In Your 50s and Beyond</h2> <p>Women live longer than men, over five years on average, which means we should be saving more for retirement, not less. A <a href="https://www.wellsfargo.com/press/2011/20110202_Retirement">Wells Fargo survey</a> on women and retirement found that 30% of women aged 40 to 69 &ldquo;weren&rsquo;t sure&rdquo; or &ldquo;couldn&rsquo;t estimate&rdquo; how much they&rsquo;d need in retirement. Well, let&rsquo;s knock that excuse out first. Here&rsquo;s a great calculator from <a href="http://www.bankrate.com/calculators/retirement/retirement-plan-income-calculator.aspx"> Bankrate</a> to estimate how much income your retirement savings will generate.</p> <p>If you&rsquo;re in your 50s and 60s and your retirement income isn&rsquo;t what it should be, you&rsquo;ll need to ramp up saving to meet your estimated expenses. Make sure you don&rsquo;t make risky or aggressive investments during this time period, as the goal is to safely build wealth for upcoming retirement.</p> <p>Some people might want to have a part-time job during &ldquo;retirement,&rdquo; so take that into consideration as well. If you do decide to exit the work force, <a href="http://www.wisebread.com/deciding-what-you-want-out-of-retirement">consider what expenses you&rsquo;ll have in retirement</a>. Will you have a mortgage or car payment? Do you plan on traveling? What about healthcare costs? Keeping a handle on how much you&rsquo;ll need to live on can prevent unpleasant surprises down the road.&nbsp;</p> <p><em>This post is a part of Women's Money Week 2012. For more posts about saving, see <a href="http://womensmoneyweek.com">womensmoneyweek.com</a>. </em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/erin-c-oneil">Erin C. O&#039;Neil</a> of <a href="http://www.wisebread.com/women-and-savings-what-to-do-at-your-life-stage">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-personal-finance-lessons-women-learn-in-their-20s">8 Personal Finance Lessons Women Learn in Their 20s</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-financial-obstacles-that-are-especially-tough-for-women">5 Financial Obstacles That Are Especially Tough for Women</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-quiet-millionaire-part-2-major-obstacles-to-financial-success">The Quiet Millionaire: Part 2 – Major Obstacles to Financial Success</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-you-really-want-to-be-rich">Do You Really Want to Be Rich?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-money-moves-to-make-the-moment-you-graduate">5 Money Moves to Make the Moment You Graduate</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance wealth accumulation women and money women and retirement Fri, 09 Mar 2012 11:24:17 +0000 Erin C. O'Neil 909814 at http://www.wisebread.com The Fallacy of Homeownership as a Sound Investment http://www.wisebread.com/the-fallacy-of-homeownership-as-a-sound-investment <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-fallacy-of-homeownership-as-a-sound-investment" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/1988187373_548be0682c.jpg" alt="beach house" title="beach house" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>Homeownership is ingrained in the American psyche. Beyond that, the idea of owning a home has become a moral imperative in the United States. Presidents from Herbert Hoover to George W. Bush have extolled the virtues of homeownership as a symbol of American freedoms and values. &quot;No man who owns his own house and lot can be a Communist,&quot; the preeminent 20th century builder William Levitt famously said.</p> <p>Owning a home has become inextricably linked to the American dream, as much a part of the social fabric as baseball and apple pie. But the reality is that most Americans would be better off buying shares of Apple instead of trying to use homeownership as a vehicle for wealth creation.</p> <p>The contention flies in the face of maxims and political mantras that millions of Americans have accepted as Gospel truth. But the numbers, the economists and the historical patterns lead to the same general conclusion: Homeownership is not a wise investment.</p> <h2>A Dearth of Diversity</h2> <p>There's a clich&eacute; about eggs and baskets that's rather apropos here. In most cases, investors would shudder at the thought of pumping a majority of their capital into a single stock, no matter how blue the chip. But that's exactly what most homeowners are doing. And it can have devastating long-term consequences given the unpredictable, fluctuating nature of the housing market. Just ask the thousands of near-retirees nationwide who've been forced to hold off on retirement because of the one-two punch of diminished stock portfolios and plummeting home values.</p> <p>&quot;You're supposed to diversify as much as possible &mdash; put your money into stocks, bonds, many different geographies &mdash; and then use the income to rent whatever you like, which allows for greater flexibility, as well as efficiencies,&quot; Robert Schiller, a professor of economics at Yale University, wrote in an October 2008 issue of Newsweek. &quot;The popular argument that renting is throwing money down the drain is really fallacious, since if one rents one can invest the money one would have put in the home in other investments, and so offset the rent with the dividends from the investments.&quot;</p> <p>Homeownership can become a black hole for income that could otherwise be redirected into investments with more stable, proven returns. Isn't the stock market risky? Sure, it certainly can prove tumultuous, especially looking at the last two years. But for most homeowners interested in maximizing return on investment, history is not on your side...</p> <h2>History is Not on Your Side</h2> <p>It doesn't square with the American mantra of homeownership, but there are numerous studies from economists, real estate experts, sociologists and others that continually lead to the same conclusion: Homeowners are lucky to break even when using their home as an investment. The reality is that, in most cases, historical returns are much more favorable for the stock market and other forms of business and even real-estate investment.</p> <p>For example, the average appreciation for U.S. homes was 5.6 percent from 1987 to 2006, according to the S&amp;P National Home Price Index. Adjusted for inflation, that's more in the ballpark of a 3- to 5-percent return. Factor in the 2 percent expense ratio of owning a home (the cost of ownership as a percentage of its value over the course of a year, as defined by The Motley Fool) and those margins shrink even further. At the same time, there are proven, big-time companies whose returns have far outstripped market averages for decades.</p> <p>Economists also point to the Case-Shiller index, a composite of 10 major cities. The return on homes is a mere 1.14 percent a year over inflation since 1987. Since 1994, the figure has increased slightly to an annual return of 4.7 percent. But factor in inflation during that span (about 2.5 percent) and you're still looking at thin margins &mdash; around 2.2 percent annually above inflation. As the Wall Street Journal recently noted, investors routinely perform better with government bonds.</p> <h2>Buying a House is Just Renting Anyway</h2> <p>Speaking of mantras and clich&eacute;s, there's one in particular that tends to dominate the buy v. rent discussion: Paying rent is simply throwing away money every month. But how many homeowners get back their mortgage interest payments, or their property taxes, or their monthly maintenance expenses?</p> <p>Homebuyers spend a good 20 years paying mortgage interest before their monthly payment starts scratching away at more of the principal than the remaining interest. In essence, homeowners are renting money from their commercial lender. Compounding that is, well, the compounding. Homebuyers will typically pay for the cost of their home again just in interest payments. Factor in two or three decades of property taxes, insurance, maintenance and improvements and a $300,000 home quite easily becomes a $1 million purchase.</p> <p>Here's an example with some numbers:</p> <p>You want to buy a $200,000 house. You put down $40,000 (at 20 percent you avoid mortgage insurance) and finance the remaining $140,000 at 5.25 percent on a 30-year mortgage. A decade later, you decide to sell your &quot;investment&quot; for $300,000.</p> <p>It's here that some homeowners are tempted to proclaim they made a cool $100,000 profit on their home investment. Ah, but not so fast...</p> <h2>The Fallacies of Cashing Out</h2> <p>With homeownership, appearance and reality are two very different things. Let's keep that same example. After the first 10 years of payments, you will have spent about $100,000, with more than $75,000 going solely toward mortgage interest. Include the $40,000 down payment and that's about $146,000 during the first decade.</p> <p>At the time of sale, you can subtract the remaining mortgage balance and sale proceeds. You're left with a whopping $22,684 return.</p> <p>But that doesn't include the money you've shelled out during the last 10 years in property taxes, insurance, maintenance and improvements. Taxes and insurance over the last decade could easily total another $35,000 to $40,000. Now you're losing money &mdash; big time. And we're not even worrying about inflation.</p> <p>Tax deductions could offset some of the pain during that decade, but certainly not enough to ease the pain.</p> <p>Homeowners can easily overlook the mountain of money they've spent during the course of owning a home when the time comes to sell. There's something about holding a six-figure check that somehow disables the brain's ability to do simple math.</p> <p>The costs of homeownership rarely meet up with price appreciation. Homeowners who bought in the Dallas area in 1986 didn't see home appreciation until 1998. In 2000, Los Angeles homebuyers finally saw home values return to what they been in 1990. Beyond that, money spent on upgrades and improvements don't generally translate into extra dollars in your pocket come closing day.</p> <p>Whatever &quot;profit&quot; emerges upon selling your home, chances are you've already spent most of it on taxes, mortgage interest and upkeep. Besides, that &quot;profit&quot; is usually short-lived anyway. Many people turn around days later and pour those funds into a new mortgage.</p> <h2>It's a Lifestyle, Not an Investment</h2> <p>Despite the political pronouncements and moral imperatives, homeownership is not a wise investment. But it's an important cornerstone of American society &mdash; one that people still hold tightly to despite boom and bust cycles and the overall grim economic picture. A Rasmussen Report in September 2008 showed two-thirds of Americans believe home buying is the best investment families can make.</p> <p>While that notion is a complete fallacy, its pervasiveness speaks to how deeply rooted the concept remains, despite mounting evidence to the contrary. For many Americans, homeownership is a right that brings an autonomy and self-fulfillment that renting will never inspire. If owning a home suits your lifestyle, find a trusted lender and the home of your dreams.</p> <p>But don't view your home as anything other than a place to hang your hat. Grand visions of home ownership as the path to wealth creation will likely leave you hanging your head.</p> <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>This is a guest post by Brandon Laughridge. Brandon is the editor of the <a mce_href="http://www.mortgageloanplace.com/blog" href="http://www.mortgageloanplace.com/blog">Mortgage Loan Place blog</a>. &nbsp;MLP focuses on providing free <a mce_href="http://www.mortgageloanplace.com/widgets/" href="http://www.mortgageloanplace.com/widgets/">mortgage tools</a> and educating consumers about all types of <a mce_href="http://www.mortgageloanplace.com/government-mortgage.html" href="http://www.mortgageloanplace.com/government-mortgage.html">government mortgage loans</a>.</p> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/brandon-laughridge">Brandon Laughridge</a> of <a href="http://www.wisebread.com/the-fallacy-of-homeownership-as-a-sound-investment">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-you-should-be-saving-big-with-bi-weekly-mortgage-payments">Why You Should Be Saving Big With Bi-Weekly Mortgage Payments</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-reasons-why-2015-is-the-year-to-buy-a-house">5 Reasons Why 2015 is the Year to Buy a House</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-is-private-mortgage-insurance-anyway">What Is Private Mortgage Insurance, Anyway?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-process-for-purchasing-a-house-with-cash">The Process for Purchasing a House With Cash</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-one-family-lives-well-and-even-owns-a-home-on-just-11-an-hour">How One Family Lives Well (And Even Owns a Home) on Just $11 an Hour</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing buying a house homeownership wealth accumulation Mon, 23 Nov 2009 16:00:03 +0000 Brandon Laughridge 3842 at http://www.wisebread.com The Quiet Millionaire: Part 2 – Major Obstacles to Financial Success http://www.wisebread.com/the-quiet-millionaire-part-2-major-obstacles-to-financial-success <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-quiet-millionaire-part-2-major-obstacles-to-financial-success" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/obstacle race.jpg" alt="man in obstacle race" title="obstacle course" class="imagecache imagecache-250w" width="250" height="183" /></a> </div> </div> </div> <p>Want to have the wealth you need to follow your dreams? Brett Wilder, Certified Financial Planner and author of <em><a href="/%3Ca%20href=%22http://www.amazon.com/gp/product/0978772008?ie=UTF8&amp;tag=wwwwisebreadc-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0978772008&quot;&gt;The Quiet Millionaire: A Guide for Accumulating and Keeping Your Wealth&lt;/a&gt;&lt;img src=&quot;http://www.assoc-amazon.com/e/ir?t=wwwwisebreadc-20&amp;l=as2&amp;o=1&amp;a=0978772008&quot; width=&quot;1&quot; height=&quot;1&quot; border=&quot;0&quot; alt=&quot;&quot; style=&quot;border:none !important; margin:0px !important;&quot;&gt;" target="_blank" title="//www.amazon.com/gp/product/0978772008?ie=UTF8&amp;tag=wwwwisebreadc-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0978772008&quot;&gt;The Quiet Millionaire: A Guide for Accumulating and Keeping Your Wealth&lt;/a&gt;&lt;img src=&quot;http://www.assoc-amazon.com/e/ir?t=wwwwisebreadc-20&amp;l=as2&amp;o=1&amp;a=0978772008&quot; width=&quot;1&quot; height=&quot;1&quot; border=&quot;0&quot; alt=&quot;&quot; style=&quot;border:none !important; margin:0px !important;&quot;&gt;">The Quiet Millionaire</a></em> suggests that there are 7 major obstacles to financial success. They are:</p> <ol> <li><strong>Undisciplined Spending</strong></li> <li><strong>Materialistic Thinking</strong></li> <li><strong>Burdensome Costly Debt</strong></li> <li><strong>Taxes</strong></li> <li><strong>Inflation</strong></li> <li><strong>Poorly Structured Investment Portfolios</strong></li> <li><strong>Unforeseen, Life-Changing, Financially Devastating Events</strong></li> </ol> <p>For those starting out, #1 (<strong>undisciplined spending</strong>) and #3 (<strong>burdensome costly debt</strong>) are great candidates to tackle first. </p> <p>#3 (<strong>burdensome costly debt</strong>) largely represents credit card debt, which should be avoided and, if incurred, paid off as quickly as possible. #1 (<strong>undisciplined spending</strong>) and #2 (<strong>materialistic thinking</strong>) may have caused such debt; or, if you are like me, acquisition of basic assets (clothing to wear to work, a sofa rather than pillows for seating in a living room) on an entry-level salary. At some point, you&#39;ll move beyond real-world start-up expenses and can focus on controlling your spending and even saving and investing. </p> <p>#2 (<strong>materialistic thinking</strong>) is described by Mr. Wilder as</p> <blockquote><p>preoccupation with owning physical assets and things rather than pursuing intellectual and spiritual endeavors to enrich your life. </p> </blockquote> <p>Materialistic thinking can happen at any stage of your life but may start to intrude at the point where you can finally afford the house in a nice neighborhood with great schools, the luxury car, real-wood furniture, and tailored clothing. It&#39;s not the purchase of these items that are obstacles but rather the unending pursuit of the latest model car or newest home in the best neighborhood, which may prevent you from investing and protecting your assets. </p> <p>Consumerism has also entered a new realm. After reading Carrie&#39;s post on a <a href="/who-saves-money-when-you-pick-apples-the-grower" target="_blank" title="http://www.wisebread.com/who-saves-money-when-you-pick-apples-the-grower">day trip to an apple orchard</a> (and considering the cost of organized, back-to-nature trips I&#39;ve investigated), I&#39;ll also note that pricey <em>experiences</em> are being packaged and sold more prevalently, perhaps as a supplement to or substitute for expensive things. Pursuits, even worthy ones, can be obstacles to financial success. </p> <p>If you&#39;ve paid off your credit card debt and are focusing on enjoying the free but finer things in life, you may have time to review your spending. You are welcome to track every penny you spend but it&#39;s reasonable to track your expenses for a couple of months to detect patterns; you&#39;ll also need to add in non-monthly expenses such as insurance payments, property taxes, or car maintenance expenses. Mr. Wilder has a <a href="http://www.quietmillionaire.com/worksheets/cash-flow-planning.pdf" target="_blank" title="http://www.quietmillionaire.com/worksheets/cash-flow-planning.pdf">Cash Flow Planning Worksheet</a> (PDF) available for download in the planning tools section of <a href="http://www.quietmillionaire.com/" target="_blank" title="http://www.quietmillionaire.com/">his book&#39;s website</a> to get you started. Here&#39;s another way to break it down:  </p> <p><strong>+ Income</strong></p> <ul> <li>Amount of the check from your job (your pay less deductions)</li> <li>Earnings from other sources</li> </ul> <p><strong>- Savings </strong>(negative for cash flow but positive for net worth)</p> <ul> <li>Savings or investments paid from your paycheck or other earnings (doesn&#39;t consider payroll deductions for direct deposits to 401ks, savings accounts, etc.) </li> </ul> <p><strong>- Fixed Expenses</strong> (you can change these but it would involve a significant disruption to your life, such as moving to a new house or changing your child’s school)</p> <ul> <li>Housing</li> <li>Car Loans</li> <li>Student Loans</li> <li>Other Loans</li> <li>School Tuition</li> <li>Childcare </li> </ul> <p><strong>- Controllable Expenses But Not So Easy to Adjust</strong> </p> <ul> <li>Phone</li> <li>Internet</li> <li>Subscriptions (TV, radio, magazine)</li> <li>Transportation (parking fees, gas, bus passes)</li> <li>Utilities </li> <li>Insurance (Life, Health, Property)</li> <li>Gym Membership</li> </ul> <p><strong>- Most Controllable on a Day-to-Day Basis</strong></p> <ul> <li>Groceries</li> <li>Meals Eaten Out</li> <li>Clothing</li> <li>Entertainment</li> <li>Supplies (school, office)</li> <li>Gifts </li> </ul> <p><strong>- Big Ticket Items – To Be Planned for</strong></p> <ul> <li>Travel</li> <li>Furniture </li> <li>Appliances</li> <li>Home Remodeling</li> <li>Car</li> </ul> <p> +/<strong>- Other</strong> (add year-end bonuses and <a href="/sweeping-101-what-the-real-winners-know" target="_blank" title="http://www.wisebread.com/sweeping-101-what-the-real-winners-know">winnings from sweepstakes</a>; subtract other, miscellaneous expenses) </p> <p> When you evaluate your spending, you may see that you are:</p> <ul> <li>capable of saving more than your realized;</li> <li>not controlling your spending;</li> <li>controlling your spending on a monthly basis but not preparing for non-monthly expenses.</li> </ul> <p>Just taking a look at your finances can prompt you to consider ways of reducing unnecessary expenses. Wise Bread has some great resources for making the most of your money; many are found in <a href="/topic/frugal-living/food-and-drink" target="_blank" title="http://www.wisebread.com/topic/frugal-living/food-and-drink">Food &amp; Drink</a>, <a href="/topic/frugal-living/diy" target="_blank" title="http://www.wisebread.com/topic/frugal-living/diy">DIY Projects</a>, and <a href="/topic/frugal-living/health-and-beauty" target="_blank" title="http://www.wisebread.com/topic/frugal-living/health-and-beauty">Health &amp; Beauty</a> on the Frugal Living channel. </p> <p>When you start to generate positive cash flow, then you can start saving and investing. Even if you have just $25 or $50 per month extra, you can invest through a <a href="/slow-drip-into-investing" target="_blank" title="http://www.wisebread.com/slow-drip-into-investing">DRIP</a> (dividend reinvestment plan), <a href="/mutual-funds-for-wise-bloggers" target="_blank" title="http://www.wisebread.com/mutual-funds-for-wise-bloggers">mutual funds</a> including <a href="/socially-responsible-investing-goes-green" target="_blank" title="http://www.wisebread.com/socially-responsible-investing-goes-green">green funds</a>, or stocks using <a href="/stock-investing-online-sharebuilder-vs-discount-brokerage" target="_blank" title="http://www.wisebread.com/stock-investing-online-sharebuilder-vs-discount-brokerage">ShareBuilder</a> or an online brokerage account. As you accumulate wealth, you&#39;ll start being concerned about #4 (<strong>taxes</strong> incurred from the sale of investments), #5 (<strong>inflation</strong>, are your investments giving you a return above inflation?), and #6 (<strong>poorly structured investment portfolios</strong> as protecting wealth can be trickier than accumulating it). All along, you&#39;ll need to consider #7 (<strong>unforeseen, life-changing, financially devastating events</strong> -- some of which can be made less financially devastating through the purchase of insurance coverage for <a href="/choosing-life-insurance-term-or-permanent" target="_blank" title="http://www.wisebread.com/choosing-life-insurance-term-or-permanent">life</a>, <a href="/health-insurance-costs-too-high-alternative-not-pretty" target="_blank" title="http://www.wisebread.com/health-insurance-costs-too-high-alternative-not-pretty">health</a>, <a href="/long-term-care-insurance-for-wise-bloggers" target="_blank" title="http://www.wisebread.com/long-term-care-insurance-for-wise-bloggers">long-term care</a>, and more). </p> <p>Having major obstacles defined by Mr. Wilder has made achieving and maintaining financial success seem less daunting. And, wherever you are in your path to wealth, you can keep moving along.</p> <p>Note: I was given <em><a href="/%3Ca%20href=%22http://www.amazon.com/gp/product/0978772008?ie=UTF8&amp;tag=wwwwisebreadc-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0978772008&quot;&gt;The Quiet Millionaire: A Guide for Accumulating and Keeping Your Wealth&lt;/a&gt;&lt;img src=&quot;http://www.assoc-amazon.com/e/ir?t=wwwwisebreadc-20&amp;l=as2&amp;o=1&amp;a=0978772008&quot; width=&quot;1&quot; height=&quot;1&quot; border=&quot;0&quot; alt=&quot;&quot; style=&quot;border:none !important; margin:0px !important;&quot;&gt;" target="_blank" title="//www.amazon.com/gp/product/0978772008?ie=UTF8&amp;tag=wwwwisebreadc-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0978772008&quot;&gt;The Quiet Millionaire: A Guide for Accumulating and Keeping Your Wealth&lt;/a&gt;&lt;img src=&quot;http://www.assoc-amazon.com/e/ir?t=wwwwisebreadc-20&amp;l=as2&amp;o=1&amp;a=0978772008&quot; width=&quot;1&quot; height=&quot;1&quot; border=&quot;0&quot; alt=&quot;&quot; style=&quot;border:none !important; margin:0px !important;&quot;&gt;">The Quiet Millionaire</a></em> so that I could review the book for Wise Bread readers. </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/the-quiet-millionaire-part-2-major-obstacles-to-financial-success">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/47-simple-ways-to-waste-money">47 Simple Ways To Waste Money</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-ways-staying-on-budget-can-be-fun-really">9 Ways Staying on Budget Can Be Fun (Really!)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/too-broke-to-be-frugal">Too broke to be frugal?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/start-with-recurring-monthly-expenses">Start with recurring monthly expenses</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/13-dumb-little-purchases-you-need-to-stop-making-today">13 Dumb Little Purchases You Need to Stop Making Today</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Budgeting budgeting cash flow cash flow planning quiet millionaire spending wealth accumulation Fri, 26 Oct 2007 19:36:13 +0000 Julie Rains 1321 at http://www.wisebread.com