RICH MONEY MILLION

How To Know When to Buy and Sell Stocks

2008-02-20T12:18:00.014-05:00

While browsing through my blog roll this morning, I noticed that someone had written (about themselves) that when picking investments, “I buy and sell at the wrong times."

It got me thinking about timing. When is the wrong time? When is the right time? How can we tell the difference? How can you truly know when to buy and when to sell?

In the world of investing, it seems it's not so much a matter of ‘how much’ as ‘when’; timing can be everything. When you get in, how long you stay in, and when you get out are emphasized. Like alchemists, traders feverishly scream 'buy, sell, hold!' in an attmept to turn lead into gold. But it’s not so easy to figure out when things are going to go down and when they’re going to go up.

Unless you practice insider trading, where you have privileged information about a company or a sector and use that information to your advantage when trading (which is illegal), the fact is that no one can accurately tell you when it's the right time to buy, sell, or hold. It’s all a guessing game, and comes down to trying to predict the future.

If you talk to a hundred investors, you may get a hundred different techniques of predicting the market and profits. Some rely on sophisticated computer programs and mathematical formulas to develop charts and analyze historic data. Some literally look to the heavens, believing that weather patterns play a role; they theorize that stormy weather puts a damper on investors’ moods as much as it does the corn commodities in Nebraska. Some study politics, checking in to see how the latest revolution or war on the other side of the planet may be influencing shipping routes and oil prices. There are even those who peer into crystal balls, analyze dreams, and seek spirit guides for advice. And, you all know my favorite: getting blindfolded monkeys to throw darts at newspaper stock pages.

The monkey with darts theory was inspired by Burton Malkiel’s book A Random Walk Down Wall Street. In 1988 the Wall Street Journal, inspired by the Princeton professor's theory, created a contest to see if monkeys throwing darts would actually work at selecting a profitable portfolio. They used WSJ staffers rather than monkeys due to liability insurance reasons; personally, I think not using the monkeys was disadvantageous. It was quite interesting, the findings were controversial and much discussed.

While some of these methods may be more scientific than others, there is still the element of uncertainty. The fact is that there are an infinite number of influences on the market, risk of loss can never be eliminated, and the unexpected should always be expected. Ultimately, no one can predict the future and, at best, we're all just making guesses. We can't clearly know when to buy and when to sell. Each person has to develop their own strategy with which they feel comfortable. Otherwise you will be constantly and anxiously looking at the market ticker, and never get a good night's sleep for the rest of your life.

The best method I've heard of so far comes from Warren Buffet who is a firm believer in the 'buy and hold' strategy. He is famous for ignoring the day-to-day rumblings on Wall Street and focuses less on 'when' to invest and more on 'what' to invest in. He has a very precise method for picking the types of companies that he puts his money into, and believes that if you pick good companies, you can get in and stay in for a long time without having to preoccupy yourself with timing.

I like this method and use it; however, I'm still known to fling darts at the newspaper stock pages on occasion.

Foreign-Invested Mutual Funds

2008-02-18T10:45:00.011-05:00

CNN Money recently posted a listing of their opinion of the 70 best mutual funds that you can buy. I was very interested because I have an affinity for mutual funds as opposed to individual stocks and bonds, as an investment.

I think that mutual funds (a collection or ‘grab-bag’ of stocks picked by an investment professional, from companies that often are from the same sector or geographic area) are the best investment for my money because it allows me the opportunity to diversify without having to study hundreds of stock options and it allows me to invest in an area or industrial sector I feel confident about.

In the past I’ve shared how I’ve invested in mutual funds that are connected to the Asian and European markets. If you know me, you know that I’m partial to foreign funds. I think that many domestic investors avoid foreign investments because they believe that they can carry more risk that American investments, due to foreign government instability, world economic issues, and other reasons. I think that many Americans feel more confident and patriotic buying into good old GM, IBM, and Sears, than they do about companies from Asia or Latin America. However, being from a foreign country originally, I appreciate that fact that many foreign countries have stable governments, educated populations, valuable resources, and growing industries. Personally, I think that for maximum investment growth potential it’s better to invest in a foreign country. I was curious to see what CNN Money had to say about my choices and to see what other recommendations that had to make.

What was pleasing to me was to see that they listed my old friend American Funds EuroPacific Growth A (AEPGX); it’s got over 21% returns on a 5-year investment, and over 16% on a 2-year investment. Other items that caught my eye were American Funds New World A (NEWFX), T. Rowe Price Emerging Markets Stock (PRMSX), T. Rowe Price International Discovery (PRIDX), Vanguard Emerging Markets Stock Index (VEIEX), and Vanguard Emerging Markets ETF (VWO).

I recommend doing a Google search on these funds (see search bar convieniently placed below) and taking a look at their past performance and the areas and industries they’ve invested into, and compare them to domestic funds. You'll find that they meet or beat the competition every time. For me, as a younger investor with a lot of years to go before retirement, I can be a little more aggressive and speculative in my investment strategy. My philoposphy is that I should aim for high gains now while time is on my side, and then in ten years or so, start to pull back into a safer position. Although there will be losses, as is natural and expected, I guarantee (to me, not to you) that I'll be way ahead of the other guy. I have over 10K in AEPGX and REREX together and have experienced 20%+ returns so far, and some of these others seem promising as well.

Images: Mumbai (India), Kuala Lumpur (Malaysia), Shanghai (China)

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How To Save Money On Your Property Taxes

2008-02-15T16:32:00.005-05:00

For many homeowners, property taxes are a great burden. They have risen at more than twice the rate of inflation this decade. This surge was understandable during the bubble when the market was hot and house prices were rising, as property tax is linked to home values. But now, when things have cooled off and property prices are actually dropping, some owners are still dealing with rising property taxes. If the value of your home isn’t going up but your property taxes are, you should file an appeal.

Fewer than 1 in 50 homeowners try to appeal assessments, even though up to 60% of properties are overvalued by assessors, according to figures cited by the National Taxpayers Union. Remember that the assessors work for the county; it’s in their best interest to assess your home for as high a price as possible as they receive the taxes you pay on it.

You actually stand a pretty good chance of success in getting your taxes lowered. Here’s a process that could potentially save you hundreds or thousands of dollars each year:

Understand Your Local System

Different tax authorities use different methods to calculate home values. Some looks at recent sales of similar homes, others estimate cost to rebuild, and others may do something entire differently. Call your assessors office and talk with then to clarify exactly what method they use.

Look At Your Assessor’s Evidence

Speak with your local assessor about your particular property and ask for the evidence or documentation used to value your home. Make sure that details about the characteristics of your property are accurate. The assessor’s file should have a worksheet that the appraiser filled out with the addresses of homes that he or she used to compare with yours. Make sure that the others house are in fact similar (built around the same time, similar square footage, number of rooms, add-ons). This may seem a bit pushy, but it’s your home, time, and money we’re talking about.

Get Your Own Evidence

You may have around 60 days or less from the time your annual tax assessment was mailed (typically during summer) to file an appeal. Prior to this you need to do your own research and arm yourself with recent comparable sales or assessments of similar homes that were sold or appraised for at least 10% below your own. Get at least five to ten examples. Actually drive out to the properties, take photos of the exteriors, note any similarities or difference, and put together a listing of your findings.

Present Your Case

Meet with the assessor and go over the evidence you’ve found. He or she may agree with your findings, which makes the rest of the process easier. If he or she does not agree, find our why. Make careful note of these reasons as this is what your need to counter during the formal appeal.

File A Formal Appeal

Get the paperwork and file a formal appeal with your local county board. Be prepared for a wait/response time of weeks, perhaps months. In the meanwhile, attend another hearing to get accustomed to the process. Prepare presentation materials (photos, visuals) and rehearse what you want to say. Keep it brief and allow time for questions.

With reason and a bit of luck, you may have a decision in your favor and a few extra dollars in your pocket.

An Audit You Want

2008-02-14T12:19:00.008-05:00

They say that there's global warming. Lately, I haven't been feeling it. It doesn't snow where I live, but it's been getting pretty cold. That means that my heating bill has been getting heftier and I'm not liking it.

To save a little we've installed double-paned windows, wrapped our water heater in a fiberglass sleeve, keep the thermostat at a reasonable setting, sleep under heavy blankets, and close vents to rooms that we're not in often.

Yesterday, we decided to get an energy audit done of our house to see if there was anything that needed to be done with the actual building to help save money on heating now, and cooling in the summer later this year. We'd been putting it off for a while, because of busy schedules, but last week we finally decided to schedule it and yesterday the guy came out.

Where I live the local utility company is managed by the city and offers energy audits for free. The guy spent about an hour at the house and found that most things were in order, except that we didn't have nearly enough insulation in the attic crawl space and our cooling/heater units badly needed to be cleaned. Because the city manages the energy company, they offer incentives for homeowners to make their homes more energy efficient. We were able to get a $250 credit toward getting our cooling/heater units cleaned professionally. We were also able to get a credit toward the cost of having insulation installed.

The cooling/heating company guys came out this morning and spent about two hours cleaning and tuning up the units. The bill came up to $242, so there was no cost to us. Just at they were leaving, the insulation guys came and spent about another two hours putting in insulation. It ended up costing $900 for the insulation and labor. But, becasue the city gave us a credit for 100% of the first $500 spent and 80% of the rest of the cost, we ended up paying only $70 out-of-pocket for almost $1200 in goods and services!

Because of this experience, I definitely recommend calling up your utility company today and find out about getting an energy audit. They will probably also be able to tell you about credit programs that your local state, county, or city government offers for homeowners. It's worth it, for a few hours of your time, to save hundreds (and eventually, thousands) of dollars.

What's Your Salary?

2008-02-13T15:02:00.008-05:00

toothpastefordinner.com

It's supposed to be rude to ask someone how much money they make. And most people don't typically share this information. I've heard that people are more comfortable talking about their sex life, past drug use, criminal history, and medical issues than about how much money they make.

I think that it has something to do with self-esteem and competition, and the idea that your salary can be perceived by others (and maybe yourself) as a representation of what you're worth. Obviously people don't want to feel less important than anyone else. Or maybe people refuse to acknowlege what they earn to avoid judgement of others who may think that they live beyond their means (especially if the actually do).

In direct opposition to this tradition of secrecy, I'd like to share the following information:

According to Forbes, in terms of actual job salaries, anesthesiologists made the most with an average of $184,340 per year while fast-food workers make the least with an average of $15,230.

According to the U.S. Census Bureau (August 2007), the average household (not individual, per capita) income in the United States was $48,201.

According to the Bureau of Labor Statistics National Compensation Survey, white-collar earnings averaged $21.85 per hour, blue-collar earnings averaged $15.03 per hour, and service occupations averaged $10.40 per hour.

Racially, Blacks households had the lowest median income ($31,969) while Asian households had the highest ($64,238).

Gender-wise, on median men ($42,261) earn more than women ($32,515).

In terms of immigrant status, households maintained by foreign-born non-citizen individuals had the lowest median income ($39,497) while those maintained by foreign-born US-citizen individuals had the highest ($51,440). Households maintained by native-born US-citizens fell in between ($49,074).

Geographically, median household income inside of metropolitan areas was $50,616 while those outside was $38,293. Also, households in the Northeast ($52,057) and the West ($52,249) had the highest incomes while those in the South had the lowest ($43,884).

Is College Worth it?

2008-02-11T16:08:00.001-05:00

What do Richard Branson, David Geffen, Michael Dell, Bill Gates, and Steve Jobs have in common? Apart from the fact that they’re all billionaires, none of them graduated from college.

Granted it takes talent and genius to reach the heights that these men have reached, I have to question, financially, is it worth it to pursue higher education?

According to the US Census Bureau, on average high school grads earn about $28,000 while college grads earn about $51,000 and those with advanced degrees earn about $78,000 per year. Anyone hearing these figures could be convinced that unless you go to college you’ll end up poor and broke.

I was born outside of the US and migrated here when I was 17, just in time to go to college. My parents and other relatives spent a great deal of energy preaching to me about the importance of getting a good education and going to college if I wanted to be successful, financially and otherwise. In many other countries I think that it is very much the case that to have any form of success you have to get an education first.

But here in the United States – the land of opportunity – anyone can be anything, do anything, and have anything. There are successful millionaires with no degrees, and there are Harvard educated businessmen that have run good companies into the ground. It takes a while to realize that education does not necessarily mean success; I had already spent six years in college and grad school and earned a master’s degree before I began to question what it was worth.

According to the American Council on Education, student loan debt held by the average private-institution bachelors-level graduate was $17,000. For masters-level and doctoral level these figures are $29,000 and $71,000 respectively. For all levels, about 70-80% of students were in debt for academic-related loans. In the last decade the average debt for a college graduate has gone up 50% after inflation, according to the Project on Student Debt, a non-profit advocacy group.

In my last job I worked in an office 8am to 5pm, being a good blue-collar, widget-making, cog-in-the-machine worker. I was making about $45,000 a year, before taxes, with a master’s degree and about $50,000 in student debt. I did this for years before I woke up and realized that my life held much, much more potential than this.

I have a friend who is still in school racking up six-figures worth of student loans while he’s studying to be a doctor; I imagine that he may be able to earn $150,000-200,000 a year once he’s done. But, he lives in a very expensive city, has a taste for brand name things, and may, I suspect, struggle to spend less than he earns.

On the other hand, I also have another friend who didn’t go to college, got a job in the oil industry on an oilrig, works about six months out of the year, and makes about $150,000. He has no student loans, and was earning more money in his second year out high school that I was after grad school. He also owns his home, and recently bought several rental properties.

Student loans are burden that many people carry with them for decades, and it’s almost impossible to think about college without getting loans. According to the Center for Economic Policy and Research, college tuition has risen at twice the rate of consumer prices in the last twenty-five years. In the 1980s a student could work full time all summer at minimum wage job and earn about two-thirds of annual college costs; today, a student earning minimum wage would have to work full time for a year to afford one year of education at a four-year public university, assuming he saves every penny.

If I had to do it over again I’d get my undergraduate degree, but not my graduate degree; the benefits gained for the extra time and money spent are not equitable. I’m saving in a 529 plan for my two infant sons’ college education so that they don’t have to get into debt to get an education. But I’m also going to make sure to tell them that they can be just as financially successful on their own. While there’s a lot to be said for academic pursuits, there’s also no honor in getting into debt and working twice as much as others for the same dollar.

Also see, external link: long list of other very successful people who didn't start, or never finished college.

Invest In Foreclosures

2008-02-06T15:00:00.000-05:00

If buying a home is the American dream, then foreclosure is the American nightmare. In prior years, hordes of lenders approved prospective homeowners for loans that were unethical for their erratic interest rates and astronomical long-term cost to the borrower. People ended up in houses that were too big, too expensive, and too much to manage. As a result, thousands of homeowners across the nation are now in foreclosure on their properties. This result has triggered a downturn in the real estate market, decreased revenue for local and state governments, panic in the stock markets, and recession in the economy. While the situation may seem as if it’s all hit the fan, there is opportunity to be found in the very place that caused it all: the real estate market.

Looking at the situation on an individual, human level, there are now untold numbers of people in foreclosure who are being forced out of homes that they once owned. Most are decent, hardworking people who simply were sold a bad mortgage product. These folks and their families now need a place to live, but are now have damaged credit and are tentative about banks and mortgages anyway. They are going to look for someplace that’s safe and requires less financial demand from them. They are going to look for a place to rent.

For investors who are able this is an opportunity to benefit from a in-demand rental market and a weakened mortgage and real estate market. Sales are down, and in neighborhoods all over the nation residential properties have sat for months and months with no interested buyers. Now, agents and auctioneers will lay out a red carpet and individual and corporate sellers will offer all sorts of incentives to entice you. In some areas, prices are still falling, but in other areas they’ve already reached as low as they’ll go or are slowly rising again. It’s now a great time to buy real estate that can be used as or converted to rental property.

Duplex, triplex, apartment, and efficiency properties will be relatively easy to obtain, and easy to rent in this economy. People may not be able to afford mortgages, property taxes, insurance, home owner association fees, and maintenance expenses, but they may be able to afford a deposit and their monthly rent. For the investor, renting properties is a great way to have other people pay the mortgage for you while you build equity in a tangible brick-and-mortar asset that will never be worth nothing as, theoretically, any stock market investment might.

Invest In China Instead

2008-02-01T14:50:00.000-05:00

According to Jim Rogers, famed investor and co-founder (with George Soros) of the Quantum Fund, economic hardship in the United States is only just beginning. He predicts that in the US “we are probably going to have one of the worst recessions we’ve had since the Second World War”. In other parts of the world, specifically China, he sees opportunity and growth.

In December he published his latest book entitled ‘A Bull in China: How to Invest Profitably in the World’s Greatest Market’. That month he also sold his Manhattan townhouse (bought 30 years ago for $100,000 and sold in today’s market for $15.75 million!) and moved his family to Singapore.

He acknowledges that the Chinese market was overheating and may have been in danger of becoming a bubble, but praises the government there for its efforts to cool things down with the real estate and stock markets. He still thinks that there’s some cool down needed, but points out that he’s “starting to prepare his list of things to buy in China”. He also mentions that he’s “not thinking about buying in America”.

So, what Chinese investments is he interested in? Companies and sectors that are involved in tourism, agriculture, power generation, communication, and transportation, providing goods and services that are used nationally and regionally in China and Southeast Asia, as opposed to those that export to the US.

Manufacturers in China who sell goods to America retails giants like Sears and Wal-Mart will feel the US recession half a world away, but he says that “most parts of the Chinese economy are going to be untouched. They won’t even know America’s in recession. They won’t care if America falls off the face of the earth”.

According to Rogers, in the US “things are going to go way, way, way down. The investment banks are down now because of problems in the credit market. Wait until the effects of the bear market come along. If you just go back and look at other bear markets, investment bank stocks have gone down enormously. We haven’t gotten to that stage yet. This is going to get much worse”.

The Largest Fraud in Banking History

2008-01-25T14:41:00.000-05:00

Speculative trading done by Nick Leeson, a British trader working in Southeast Asia, caused a loss of $1.4 billion and the 1995 collapse of Barings Bank, the UK’s oldest investment bank. This event, however, does not come close to events earlier this week.

Jerome Kerviel, a trader working at Societe General, one of the oldest banks in France, manipulated the market by making large fraudulent trades and hiding his positions. These positions were discovered on January 19 by his managers; total losses for the bank are estimated at $7.1 billion. In the few days following, there was a large drop in equity indices (on January 21 and 22), and suggestions that the loss may be partially related to the Federal Reserve Bank’s decision (January 22) to slash interest rates by 0.75% - although the Feds deny this.

What’s also interesting is that Societe General says that it will still make a profit of about $1 billion despite the loss.

Image: Jerome Kerviel mugshot (Smile!)

Finding Balance

2008-01-18T16:49:00.000-05:00

I recently came across the story of Paul Navone, a 78-year-old second-generation Italian-American retiree who, on a salary of $11 an hour, accumulated a multi-million dollar fortune. Paul worked in the New Jersey mills, and made his fortune through buying rental properties and investing his money in the stock market. He also lived a very frugal life, shopping at thrift stores and not having a television or telephone. In interviews, he indicated that the last thing he remembers seeing on television was the NASA moon landing in 1969. Paul never married and had no children. He traveled out of New Jersey only three times in his life (one time for vacation, and one time for a work-related convention, and one time when he was drafted to the Army). He was described as somewhat reclusive; in fact, the only reason he became known is because he recently donated several million dollars to various schools.

Many, many people have found Paul to have an inspiring millionaire-next-door rags-to-riches story. But there have also been many others who, like me, find this to actually be a sad story.

Helen Keller, the deaf-blind American author and activist on whose life the play The Miracle Worker is based, was quoted as saying “Life is either a daring adventure or nothing.” In my opinion, life is about balance and about quality of existence. While it’s very important to save and invest, to avoid waste and seek opportunity, and to think about tomorrow, earning millions means nothing if it’s not used to improve and enrich the quality of your life. If you live like you have nothing, you might as well have nothing; what’s the difference? For all the importance we place on wealth and money here, in the end it’s only a tool, a piece of paper, a currency that we can exchange for goods and services. It’s really only as good as what we use it for. Living a disconnected life, from people and the world around you, is not healthy. Having a telephone and television will not determine whether you become rich or poor; neither will taking vacations, or getting married, or having kids (which, I’ve found, make life much more beautiful and meaningful). When your entire focus is on investing and frugality, you lose focus of all the other important things in life, like family, friends, experiences, spiritual fulfillment, and happiness. Living a hard and lonely life with monk-like austerity, and waiting until you are almost eighty years old before touching your money is, in my opinion, not inspirational or something to strive toward at all.

Happy New Year!...to all my readers who've noticed (like Joe in Tallahassee) that I haven't posted in almost a month. I wish you happiness, peace, and prosperity in 2008!

Interesting Facts About US Currency

2007-12-19T23:41:00.000-05:00

The Bank of the United States was the first central bank chartered by the U. S. Congress. The bank issued the first currency bearing the words "United States". This $50 note was issued in 1801. The bank closed in 1811 when Congress failed to renew its charter.

In 1816 the U. S. Congress chartered the second Bank of the United States which issued this one thousand dollar note.

This ten thousand dollar note from 1928 issued by the Federal Reserve Bank is the highest U. S. denomination ever issued for public circulation. It bears the portrait of Salman P. Chase who served as Secretary of the treasury and Chief Justice of the United States.

This one hundred thousand dollar bill is the highest U.S. denomination; there are no one million dollar bills, contrary to urban legend. The bill bears the portrait of President Woodrow Wilson. There were 42 thousand of these bills printed, and all were used for transactions between the Federal Reserve Bank and the Treasury Department; they were never issued for public circulation. The government stopped using them in 1960 and most were destroyed. Only three are known to exist, and it's illegal for a private person to own one of these notes.

Present-day money is printed by the Bureau of Engraving and Printing (part of the Department of the Treasury) in Washington D.C. and in Fort Worth, Texas. Coin currency is produced elsewhere, by the U.S. Mint. The Bureau of Engraving and Printing's website has a rather interesting URL name: http://www.moneyfactory.gov/. Each day they print 38 million notes, with a face value of approximately $750 million. The notes are printed on paper made by the Crane Paper Company of Dalton, Massachusetts, and made of 25% linen and 75% cotton. Approximately 18 tons of ink are used daily to print the notes.

Counterfeiting, mutilation, defacement, and other currency-related crimes are investigated by the U.S. Secret Service.

The Power of Compounding Interest

2007-12-15T15:50:00.001-05:00

What has been called the most powerful force in the universe, the eighth wonder of the world, and one of the greatest discoveries of our time? No, it's not Rich Money Million - but good guess! It's actually the concept of compounding interest, which can turn a little bit of money, invested well over time, into a fortune.

The easiest way to understand how it works is to imagine a snowball. If you stand at the top of a hill and roll a marble-sized snowball down the slope, as it travels on its journey to the bottom it picks up more and more snow, slowing increasing it's overall volume, and eventually gets so big that it sends punk snowboarders fleeing in fear.

When you save or invest and your money is compounded annually, in the first year you earn interest on the original principal. In the second year you earn interest on the original principal as well as the interest from the first year. In the third year you earn interest on the original principal, as well as the interest from the first two years. And so on. Even at a modest interest rate, given enough time, an unremarkable sum of money can grow to a staggering size.

For example, if you saved $10 a day (about the cost of a fast food meal) and used the money to purchase shares once a year in an investment that offered a modest rate of return (the market average has been about 12% for the last hundred years or so, even counting the crashes of 1929 and 1987), and allowed all your profit to be re-invested (adding your interest to your prinical), after 30 years you would have invested a total of $54,750 and would have a balance of over $1.9 million! If you were smart enough to purchase shares in an investment that offered higher rates of return, you would do even better. With the same figures, but at 15% return you'd end up with over $4.4 million!

Try out this great Compound Interest Calculator, from the National Council on Economic Education. It allows you to experiment with different variables for amount invested, time invested, and rate of return.

To take full advantage of compounding interest, there are three rules to remember:

Start early

With compounding interest, your best friend is time. Start rolling your snowball at the top of the hill and you'll have a much bigger mass at the bottom than someone who started halfway down. Even if you invest for a few years in the beginning then stopped, allowing interest to earn only on what has been invested thus far, you can still walk away a big winner. This point is illustrated in a (paraphrased) example from a book called The Random Walk Guide to Investing by Burton Malkiel.

William and James are twin brothers who are 65 years old. 45 years ago (at the end of the year when he reached 20), William started an IRA and put $2K in the account at the end of each year. After 20 years of contributions, William stopped making new deposits but left the accumulated contributions in the IRA fund. The fund produced returns of 10% per year tax-free. James started his own IRA when he reached the age of 40 (just after William quit) and contributed $2K per year for 25 years, making his last contribution when he turned 65. James invested 25% more money in total than William. James also earned 10% on his investments tax-free. What are the values of William’s and James’s IRA funds today? The answer is that William has $1,365,227 while James has $218,364. James invested 25% more than William, but through the magic of compounded returns, William’s IRA fund is worth more than six times as much!

A little goes a long way

In another article I wrote about how saving pennies can add up to hundreds of dollars. Remember that a bucket of water is filled drop by drop, and you don't necessarily need to have thousands of dollars to start investing. If you started when you were twenty years old and saved $50 a month (less than $2 per day) to purchase shares in an investment earning 10% per year, at age sixty-five your investment of $27,000 would have grown to $528,000!

A little change (pun intended) can make a difference elsewhere in compounding, as well. For instance, if that same investment earned 9% annually instead of 10%, you would end up with $373,000 in the same period of time - a difference of $155,000. The lesson is that it's much better to start investing when you're young, and to do so aggressively in the beginning. If you are relatively young and have several decades before retirement, you should invest as much as possible in stocks or mutual funds (I prefer the latter) and avoid bonds and other conservative investments.

Get it and forget it

There are some investors who have to check the stock ticker every hour and reallocate their investments every week based on what's happening in economics, politics, and even the weather. This is time-consuming, stressful, and is generally not a good practice. It's much more reasonable to pick your investments wisely, and then stick with them for some time. Being steady and patient is one of the cornerstones of Warren Buffet's own investment philosophy.

It can be excruciating at first, as you monitor the growth of your investment, as it will grow very, very slowly in the beginning. There's no exciting, dramatic, double-your-money-in-six-months scenario. But you have to remember that for compounding to work its awesome power, time is the magic ingredient. As your money earns more, it grows and earns even more and more.

Most People Don't Save For Retirement

2007-12-14T11:41:00.001-05:00

A recent Government Accountability Office report estimated that only about 36% of all workers participate in a 401(k) or other retirement plan, and for those with plans the average account balance was less than $23,000. More startling are estimates suggesting that 37% of today’s teen and young adult workers will reach retirement age with absolutely no money saved for retirement.

I did a little more research and found that some experts suggest that many young people know that saving and investing is important, but don’t have any retirement accounts because of a lack of confidence in their knowledge and ability to make good financial decisions and a lack of action. I spoke to several of my friends and co-workers – most of who are in their late 20’s to mid-30’s, and many tell me that they have not saved for retirement either for similar reasons. They say that they know it’s important, but that it’s all too confusing, too overwhelming, and that they’ll figure it out later.

I, myself, did not start saving for retirement until I was in my mid-20s. I guess that places me ahead of the pack, but I completely understand how intimidating it can be to get started. I originally didn’t want to start saving. I thought I could wait until I was in my 40’s or so. I think the thing that spurred me into opening that account was reading an article in a magazine about the power of compounding. The thought of turning a little money into a lot excited me. When I opened my first investment account, I didn’t have a clue what I was doing. I didn’t know what a mutual fund was, I didn’t know who Warren Buffet was, and I didn’t know the difference between a regular IRA and a Roth IRA. Although there was a 1-800 number to call to speak with a financial advisor, the thought of speaking to some stuffy-shirt numbers-and-charts nerd did not sound appealing. For me back then, choosing funds was an eenie-meenie-minie-moe process and all I cared about was which investment would make me the most money. I read a few issues of Kiplinger, and I took a look at historic rates of return and picked the investments which had the highest returns. I figured that I could take the risk of being aggressive and possibly losing it all as I was still young and had time to make it all back up if needed. The company I worked for then did not have a matching contribution and I only managed to invest about $2000, which did well and has more than doubled in less than three years. Now I save more, have diversified my investments, and have incredible – but realistic – plans to have several million dollars saved when I retire.

Going back to today’s young adults who are not saving, on one hand I can appreciate their predicament of not knowing where to start. Knowledge of money matters is not something that many parents share with their children. It’s been said that people are more willing to discuss their sexual habits that they are their income. Additionally, even though there is the vast information resource of the internet available now, and there are many great ‘plain-language’ sites on financial matters (like this one!), there are also many million more stuffy-shirt numbers-and charts sites that can be confusing and leave the reader feeling dumber about money matters. On the other hand, I think about the story of the grasshopper and the ants. I know that Social Security is most likely going to be worthless by the time I’m ready to retire (around 2035), and that if you don’t make the effort to save now, you’ll be out in the cold when winter comes. With the welfare systems in place, these folks will possibly have a little help, but at the cost of taxpayers and those of us who are choosing to be hard-working and responsible. So many young adults prefer to spend their income on frivolities. It’s always amazing to me how co-workers and friends with full-time professional jobs, but with no kids and no mortgage, also never have any money.

To them and you I say, stop spending so much and start saving and investing. If you think you don’t know a whole lot about the process, remember that none of us do, and if we waited until we did, we’d never start. I, myself, learn something new about the market, investment, and economics almost every time I sit down to blog here. If you have a few bucks to spare - and we all should - open a Zecco trading account or enroll in your company’s retirement plan. Invest in one or two mutual funds that you feel comfortable with, and then take it from there. Before long you’ll become a Rich Money Millionaire too, - you’ll see.

7 Tips To Improve Your Credit Score

2007-12-13T14:12:00.000-05:00

Don’t buy it if you can’t pay for it

Living beyond your means and purchasing goods and services which you truly cannot afford eventually result in repossession, foreclosure, bankruptcy, and ruined credit. Credit and loans are okay, and ‘wanting-it-now is okay, - as long as you can pay for it later. If not, you can live without it.

Pay off balances every month

When the bills arrive, pay off the balance on all your accounts. Carrying balances costs you in interest payments as well as in credit points. You lose 1 point for every percent of your credit limit that you use. So if you have a total credit limit of $10,000 and have an outstanding balance of $4,000 (40%), your score would be 40 points lower than if you had a $0 balance. Simply put, the more you owe the less your score will be.

Pay on time

Not paying bills when they are due tells lenders how reliable you aren't. If you're 30 days past due and your balance is still unpaid, you can expect your score to drop some 60 points. That could mean a much higher interest rate on current balances as well as future loans you try to obtain. Late payments from your past that you have since paid off will have less and less of a negative effect on your score as time passes, once you establish a pattern of regular, on-time payments.

Keep your credit cards

Many people will suggest to you to cut up and cancel your credit cards once they are paid off or the balances are transferred. While this may sound like good advice, it’s not. Even if you are a responsible, on-time, in-full bill payer, your credit score won't be as high as it could be if you have just one credit account. Lenders actually like to see a potential borrower responsibly managing a mix of revolving debt (such as multiple credit cards) and installment debt (such as a car loan or mortgage). Further, closing credit accounts may increase your debt to credit percentage on accounts that you still have open.

Keep your accounts open longer

Lenders prefer borrowers who have responsibly managed the same accounts for years. For them, this is a more reliable indicator of creditworthiness than a few months of exemplary behavior on a new account. Accounts open less than six months will hurt your score, while those open six months or more neither hurt nor help, and those open at least two years will help your score.

Apply for credit only if you can get it

Every time a lender pulls your credit report, when you apply for a new card or a loan, the inquiry can costs you points. There is an exception if they’re all done within a two week window, in which case they count as one inquiry. If not, your score may be dinged by 5 points with each inquiry. It’s better to apply to several creditors at the same time, to avoid excessive card-hopping, and to apply when you know you will be approved.

Check your credit score yourself

If there are errors in your credit report, all the responsible lifestyle choices you make don’t matter. Lenders base their decisions on what your report contains, and if errors and misinformation go unnoticed and unchallenged by you, no one is there to correct them. You may have had your identity stolen, your spouse may be hiding debt from you, or there may be clerical errors in your report. It’s up to you to order a credit report or to subscribe to a credit monitoring service.

Getting your credit score information and credit monitoring is not free. While you may be able to get a copy of your credit report for free, it will not contain your score from any of the three main credit agencies, and you can only get your report from each agency once a year. To get the whole picture and all your information, I suggest using myFICO credit monitoring service (I believe they offer a free 30-day trial to new customers); it will save you so many headaches if there is ever a problem.

Profit From Rising Food Prices

2007-12-13T01:48:00.000-05:00

In a recent MSN Money article, financial guru Jim Jubak suggested that investors may want to consider investing in agriculture/food commodities now as the trend of rising food prices worldwide may cause reconsideration of the old saying 'money doesn't grow on trees'.

Anything made of grains or legumes, which includes bread and cereals, and livestock that feed on grains or legumes, are all anticipated to cost more in 2008. Like energy/oil prices, food prices will continue to rise as supplies struggle to keep up with rising demand from consumers in developing economies. Farmers are producing more food than ever, but global consumption has risen even faster. Simply put, there are more people eating more food. Further, with new biofuel and ethanol vehicles, there has also been a rise in demand for soybeans and corn with which these fuels are made. Add to this mix global warming and weather problems which affect crop growth, such as drought or severe storms, and prospects for suppliers meeting demand diminish. With these trends, investors should start thinking about food commodities as an investment the same way they currently think about oil and gold.

If you compare prices of various food items last year and this year, world wheat prices are up to 65% higher, soybean prices up to 70% higher, and milk prices are 100% higher. For a consumer the pain that was limited to 'at the pump' can now be felt 'at the cashier'. For an investor though, the growth of market demands for these items is a phenomenal opportunity. Other than directly buying grain and other food commodities, suggestions for investments include stocks in agricultural equipment companies and fertilizer producers.

How To Do Your Taxes For Free

2007-11-29T12:01:00.000-05:00

It's almost the end of November, and the end of the year. If you're like me, and don't like to proscrastinate and wait around until April 15th, you're already thinking about taxes. It's always amazing to me to see the news reports of people lined up outside post offices at five minutes to midnight to mail their taxes. Hopefully, none of my readers are this lackadaisical about their finances! For me, the sooner I file, the sooner I can get that tax refund check, and the sooner I can invest it.

There are many tax return preparation software programs available on the market, and for the small cost of purchasing the program, you can save yourself tons of time and stress. Most are intuitive and, in a matter of a few hours, automatically complete your return for you by asking you a series of plain-language questions. You can forget about trying to decipher the tax code yourself, and forget about dealing with that amateur accountant from those porta-booths in the mall. Most software programs even allow you to electonically sign and file your return with the IRS. What could be easier or better?

Well, I'll tell you! How about FREE tax preparation software and filing? There are a small number of companies that offer this to eligible taxpayers (eligibility is usuallybased on income, complexity of the return you are filing, or military/veteran status). Using this service, you can effectively save money and time, increase the likelihood of an error-free return, and maybe get back a larger refund from Uncle Sam.

I-CAN! E-File will complete and file your return for you, in English or Spanish, once your combined household income is less than $50,000. TaxSlayer will do the same for you if you are a member of the military. There a a few others as well, with varying income or status eligibility requirements. The one I recommend, as I've used it in the past and liked it, is TurboTax.

Turbo Tax is probably the most well-known, widely-used tax software on the market. Their product is actually somewhat costly, but they have an initiative called the Tax Freedom Project that offers free online tax preparation and filing. It's been around since 1998, and has donated free services to millions of Americans over the years. If I qualified still, I'd use it in a heartbeat.

Finally, for full disclosure, I should mention that this article is a product/service review. I am not a direct seller or affiliate of any of the companies discussed in this article, and I have not received any compensation for promoting them. In fact, the products/services discussed are free, so there's no sale, no commission, no nothing! Just a big, fat refund check to you!

Smart Lottery Winners Seek Advice

2007-11-20T12:59:00.001-05:00

Although this blog has, thus far, included articles about saving and investing money, my site analytics tell me that the vast majority of site visitors have come here searching for advice about what to do after winning the lottery. They've been drawn in by one of my first articles: When You Win The Lottery.

I find this rather interesting, almost exclusively for the fact that so many people appear to be winning jackpots and then, probably with a mixture of excitement and confusion, thinking to themselves, "what do I do now?". I have to admit that I always thought that, when asked what they would do if they won, most people would clearly already know. Fantastical answers like, "buy a mansion on every continent, buy a different Lamborghini for each day of the week, and fill my swimming pool with champagne" come to mind. But, based on my site statistics, it seems that winners are being level-headed and rethinking their options, and are more careful with their windfall than is commonly thought. Rather, the real answer when asked about what they'd do if they won is, "Go right away to RICH MONEY MILLION !"

By seeking good advice and carefully considering their options, these winners are many times more likely to remain wealthy. They are a different breed from the rags to riches to rags again train wrecks that are often portrayed in the media. Rather than indulge their every fantasy, smart winners don't let the money distract them from the wisdom of good planning and investing.

For the many readers who may also be interested: Click here for a CNNMoney/Fortune magazine article about a lottery winner who, in my opinion, was very wise about his winnings.

How Warren Buffet Made Billions

2007-10-24T23:16:00.000-04:00

Warren Buffet has made billions investing in the stock market, and is considered to be the second richest man in the world (after Bill Gates). The company he manages, Berkshire Hathaway, has the highest priced stock on the market – at just under $130,000 per share currently. His long-term buy and hold investment style is encapsulated in this quote:

"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value."

The above paragraph contains a handful of significant points that form the cornerstones of Buffett's philosophy:

'an easily-understandable business'

One of Buffett's key principles is the "circle of competence". In essence, limit your stock market efforts to a handful of industries that you understand. The greater your understanding of a business, the more likely you'll recognize investment opportunities and danger signs.

As Buffett writes:

"Investors should remember that their scorecard is not computed using Olympic-diving methods: Degree-of-difficulty doesn't count. If you are right about a business whose value is largely dependent on a single key factor that is both easy to understand and enduring, the payoff is the same as if you had correctly analysed an investment alternative characterized by many constantly shifting and complex variables."

"What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know. An investor needs
to do very few things right as long as he or she avoids big mistakes."

'whose earnings are virtually certain to be materially higher five, ten and twenty years from now'

With the future always uncertain, how can an investor pinpoint companies whose profits will be 'materially' higher in the years to come? Buffett's trick is to look for businesses that already have competitive strengths and -- crucially -- operate in areas that are not susceptible to major change:

"You will see that we favour businesses and industries unlikely to experience major change. The reason for that is simple: We are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now. A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek."

More than anything, Buffett looks for companies that have a sustainable competitive advantage:

"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors."

'a rational price'

Buffett's investing style remains faithful to the principle of the margin of safety:

"We insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buying. We believe this margin-of-safety principle, to be the cornerstone of investment success."

But how does Buffett assess the value of a common stock? Rather than traditional short-term ratios, he focuses on the cash that a company can generate throughout its remaining life:

"The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset."

"Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation except to the extent they provide clues to the amount and timing of cash flows into and from the business."

'only a few companies meet these standards'

Great, straightforward businesses rarely sell at attractive prices. So much so that Buffet has only bought into a handful of long-term share investments in the past 29 years. Concentrating just on his common stock portfolio every year since 1977, Buffett has owned meaningful investments in, on average, only 9 different stocks at any one time.

Furthermore, aproximately a third (actually 32%, on average yearly since 1977) of his portfolio has generally been invested in just one holding. In fact, Buffett actually states that greater diversification can actually increase your risk:

"If you are a know-something investor, able to understand business economics and to find five to ten sensibly prived companies that possess important long-term competitive advantages, conventional diversification makes no sense to you. It is apt simply to hurt your results and increase your risk. I cannot understand why an investor of that sort elects to put money into a business that is his 20th favorite, rather than simply adding that money to his top choices - the businesses he understands best and that present the least risk, along with the greatest profit potential".

If you invest in individual shares, then making big and bold investments is the only way to consistently beat the stock market over the long-term.

The Incredible Power of Stocks

2007-10-18T10:43:00.000-04:00

For many people, it’s difficult to comprehend that a small investment today can grow into a fortune. But with time, patience, and compounding interest, amazing things are possible.

Making Fortunes

In the mid 1940’s, a woman named Anne Scheiber retired from the IRS where she worked as an auditor. Using a $5,000 lump sum she had saved, and a pension of roughly $3,150, over the next 50+ years, she built a fortune from her tiny New York apartment that exceeded $22,000,000 upon her death in 1995.

She put her money into stocks of companies that made things and offered services with which she was personally familiar, such as Coca-Cola, Merck and Loew's. Scheiber had a law degree, but she believed she had been thwarted in her desire to move up to better job at the Internal Revenue Service where she worked, because she was a woman. She decided not only to save until she had a fortune but also never to give a penny of her profits to the IRS. She did this simply by never selling her shares, by creating her own personal IRA, in effect, but without the up-front tax deduction.

Donald Othmer, a professor of chemical engineering in Brooklyn, and his wife Mildred, a former teacher and dress-store buyer, died within three years of each other. They lived quiet, unpretentious lives -- which is why their friends were surprised to learn that they had left estates worth $800 million and were giving nearly all of it to charity.

The Othmers started in the early 1960s by turning over $50,000 in savings to their Omaha neighbor, Warren Buffett. Obviously, having Buffett, the nation's most successful investor, manage your money, is a smart or lucky thing to do. In 1970, the Othmers converted their original holdings in the Buffett partnership into shares of Berkshire Hathaway, Inc., a company which Buffett chairs, which trades on the New York Stock Exchange and which owns shares in other large companies such as Gillette, American Express and the Washington Post Co.

In 1970, one share of Berkshire cost $42. At the time of Mrs. Othmer's death in 1998 it was trading at $70,000 (today one share of Berkshire costs about $130,000 - the highest price per share of any stock).

Guaranteed Growth

Over one-year periods between 1926 and 1997 stock returns were positive in 52 out of 72 years, or roughly three-quarters of the time. In the best year, stocks returned 54 percent; in the worst, minus-43 percent. Looking at longer periods, at five-year rolling cycles over the same era (1926-30, 1927-31, etc.), out of 68 separate, overlapping periods, stock returns were positive 61 times. Over 15-year rolling periods (there were 58 of them) stock returns were positive every time.

Points to Remember

It's never, never, never too late to start investing.
It doesn't take a fortune to make a fortune.
Be familiar with and stay informed about companies you invest in.
In the short run, the markey is very risky, but in the long run, it is not.
Consistently strong stock returns go to those who buy and hold, and who stay in the markey for long periods of time.

Money and Sex

2007-10-16T02:50:00.000-04:00

The richer you are, apparently, the better sex you have. That's according to a recent survey of more than 600 high-net-worth individuals. And rich women, it seems, enjoy sex the most.

"In seeking a higher-quality sexual experience, the number of well-heeled women that lead more adventurous and exotic sex lives, have had an affair or joined the mile-high club far outdistances that of men -- and the affluent gender gap in views on sex doesn't end there," Hannah Shaw Grove and Russ Alan Prince, two well-known researchers on the habits of the rich and famous, found.

Grove and Prince surveyed people with an average net worth of $89 million, an individual minimum net worth of $30 million, and who make more than $9 million per year. They found that money is an enabler in a number of ways to enhance sexual experiences.

"The majority of men and women credit their private wealth with achieving a better sex life. When viewed separately, a larger percentage of women agree with the statement, perhaps indicating that females derive a greater degree of empowerment from their financial independence than their male counterparts," the survey found.

Some 84% of rich women and 63% of rich men say having money means having better sex.

Ian Kerner, a New York-based sex therapist, says the study sheds new light on the links between money and sex. One reason that wealth would equate to better sex, he says, is that money helps alleviate many of the daily stresses that can inhibit a couple’s sex life.

“I see in my practice that financial stress can have huge impacts on the libido and can cause general dissatisfaction,” he says. “When you strip away those elements of financial hardship and stress, that can make for better sex. This shows that sex and money are very intertwined.”

In the survey, three-quarters of men cited more frequent sex and a greater variety of partners as the primary benefits of having wealth, revealing a fascination with quantity. "In short, men equate more with better," Grove and Prince write.

By contrast, women placed significantly less value on the volume of sexual interactions and partners they had than the overall excellence of the experience: Nearly 93% of women cited higher-quality sex as the greatest sexual benefit of personal wealth -- and the biggest benefit overall to being rich.

Mr. Kerner says the increased sexual activity by wealthy women doesn’t reflect the “pool boy” syndrome commonly portrayed in the media: bored young trophy wives having affairs with household help. Today’s rich women are powerful businesspeople who feel secure in having relationships outside their marriage — mostly with professional colleagues.

“We’re not talking about the woman who’s home with two kids and who’s dependent on her husband,” Mr. Kerner says. “Those women are more likely to worry about the consequences of having other relationships.”

He added that especially for women, sex is closely linked to self-esteem. And since wealth usually brings greater self-esteem, it can improve a woman’s sex life.

“For the minute percentage of women who are that wealthy, this wealth can be a big ego booster and allow them to feel very comfortable and relaxed about sex,” he says. “They have a strong sense of identity and they know they don’t have to be inhibited about communicating their needs. It’s about the confidence and power and opportunity that comes with having a lot of wealth.”

"And while having sex with multiple partners simultaneously was less important to both genders, more than three times as many men cited it as a benefit than women did," Grove and Prince said.

The rich people surveyed believe their fortunes allow them to lead more daring and exciting sex lives than they otherwise would have if they had less money.

"It is difficult to identify the benchmark for adventurous and exotic sex -- since what might entice one person could leave another indifferent," Grove and Prince noted. "But the much higher response rate from wealthy women once again underscores the liberating byproducts of money as it relates to sexual exploration."

For example, 72% of wealthy women say they have now joined the "mile-high club," having had sex in an airplane. Meanwhile, 33% of men say they have had sex in flight.

The survey found that all of the participants owned private jets, either partly or outright. So wealth affording privacy may explain the high membership percentages there.

The average age of the survey respondents was 57 and most of them, 85%, are currently married. More than half of respondents had been divorced at least once and almost half, 44%, had already remarried.

Yet, money doesn't instill a sense of fidelity: 53% of the wealthy men surveyed, and 73% of the wealthy women surveyed, say they have had extramarital affairs.

According to "The Monogamy Myth: A Personal Handbook for Dealing with Affairs," 60% of men and 40% of women will have an extramarital affair.

And while Grove and Prince point out that the world's wealthiest men and women feel the same way about sex as their less wealthy counterparts do -- that is, feel sex is important -- clearly having more money can add to the experience.

5 Rules for Commodities

2007-10-15T17:28:00.000-04:00

Today the price of crude oil rose above $86 a barrel (see graph below). Other commodities that have gone up in value, such as gold and soybeans, have demonstrated that good investors need to look beyond plain old stocks and mutual funds.

Experts recommend commodities as a way to diversify your portfolio, especially as they continue to advance when stocks are struggling, and suggest that you allocate at least five percent of your investment funds to gold and other commodities. Prudent investors will own both the physical commodity (e.g. actual gold bars) as well as shares of the resource producers. There are some things to watch out for though.

Scam artists are prevalent; deal only with registered firms

All legitimate brokerages must be registered with the National Futures Association with a list of all complaints, sanctions and arbitrations. Go to the Association's Web site, and click on the Investor Learning Center link for helpful information about trading and how to protect yourself against swindlers. Stay away from anyone who first tells you how much money you can make, without defining how much is at risk.

Manage your money wisely; stick to a smart trading plan

Don't risk too much of your account value on a single trade. Set your entry and exit points, and clearly define an in and an out with each trade you make. If things drop lower than expected, don't lower your trading stops in the hope that a losing position will recover.

Stay informed, especially if you're trading

Keep track of the fundamental reports that affect the market you are trading. Read trade journals, bulletins, and tickers, and make the appropriate adjustments to maximize profits and minimize losses, by adjusting stops and profit objectives appropriately. Strive to spend 15 to 30 minutes a day learning the fundamental, technical and psychological aspects of commodities trading.

Be careful about costs

In trading, there's a winner on one side and a loser on the other, less a transaction fee for the broker. Brokers can charge whatever than can get from the customer, but any broker charging more excessive fees for a round-trip commission when it's not a managed account is definitely looking to fleece you instead of advise you.

Admit mistakes, then move on

In any market, if you let a trade go south and you aren't willing to admit you are wrong, you are destined for failure. Things are always unpredictable, and you have to expect losses as much as you expect gains, especially in commodities trading. Don’t use with money you can’t lose in the short term.

AIM Funds China I (IACFX)

2007-10-12T13:47:00.000-04:00

As you already know, I am very much in favor for investing in the Asian market as I think that this is where the most profits are to be made. I've already discussed American Funds EuroPacific Growth. Here's another Asian investment that I really love, and that I recommend.

AIM Investments China I (IACFX) fund currently has an insane year-to-date return of 100.52% and a 1-year return of 159.10%. It's top holdings include PetroChina, China Mobile, China Life Insurance, China Construction Bank, and Industrial and Commercial Bank of China. There is definite profit potential here. The only downside is that the plan administrators only accept minimum investments of $1 million; this makes it out-of-reach for the average investor, but if you or your investment club is in a position to get it, do so.

Can Money Buy Happiness?

2007-10-09T15:52:00.000-04:00

Every day we're bombarded by television and tabloids that put the rich and famous on display. We see them and they seem to be tremendously happy in their chauffeur-driven limousines, their private jets, and their multi-million dollar homes. In our own lives, we keenly observe the homes and cars of our neighbors, the paychecks of our bosses, and the material wealth our rich relatives. We feel a strong sense of envy and malcontent with our own worth. We tell ourselves that the only way to be happy is to have it all. That’s the formula for happiness, right? Not so, say countless researchers.

In polls taken by the National Opinion Research Center in the 1950s, about one-third of Americans described themselves as "very happy." The center has conducted essentially the same poll periodically since then, and despite more Americans having more wealth, the percentage of those who are happy remains almost exactly the same today as in the past.

According to a research study by Stony Brook University School of Medicine Professor and Vice-Chairman of the Department of Psychiatry Arthur Stone, Princeton economist Alan Krueger, Nobel Prize-winning psychologist Daniel Kahneman, and other colleagues, once you reach a certain income level, more money does not contribute significantly to well-being and may actually result in more stress and less bliss.

Findings, published in Science, reveal that "The belief that high income is associated with good mood is widespread but mostly illusory," and that "people with above average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense and do not spend more time in particularly enjoyable activities."

In a TIME poll, when people were asked about their major source of happiness, money did not even rank in the top ten.

According to a survey conducted by Ed Diener, a University of Illinois researcher, there is virtually the same level of happiness between the very rich individuals on the Forbes 400 and the Maasai herdsmen of East Africa.

Surveys conducted with lottery winners found that they tend to return to their pre-winning level of happiness within five years, and in many cases become unhappy after winning.

And, going back to the rich and famous celebrities, even with their obscene bank accounts, they still have to wrestle with relationship problems, stress,
and basic human misery.

That money never satisfies is also suggested by this telling fact: polls show that Americans believe that, whatever their income level, they need more to live well. Even those making large sums said still larger sums were required. We seem conditioned to think we do not have enough, even if objectively our lives are comfortable. Fixated on always getting more, we fail to appreciate how much we have.

That's not to say that increased income doesn't matter at all. There is a very small correlation between wealth and happiness--accounting for about 1% of the happiness reported by people answering surveys.

How much money buys happiness? A wide body of research suggests the number is approximately forty thousand dollars a year. Daniel Gilbert, professor of psychology at Harvard University, says once you have enough money to meet basic needs – food and shelter, — incremental increases have little effect on your happiness.

Why doesn't wealth bring a constant sense of joy?

"Part of the reason is that people aren't very good at figuring out what to do with the money," says George Loewenstein, an economist at Carnegie Mellon University. People generally overestimate the amount of long-term pleasure they'll get from a given object.

Sometimes, Loewenstein notes, the way people spend their money can actually make them less happy. For example, people derive a great deal of pleasure from interacting with others. If the first thing lottery winners do is quit their job and move to a palatial but isolated estate where they don't see any neighbors, they could find themselves isolated and depressed.

Other trophies simply don't bring the payoff one expects. Says Loewenstein, "If you're a single male driving around in the Ferrari with nobody next to you, it's a glaring omission."

The central problem is that the human brain becomes conditioned to positive experiences. Getting a chunk of money registers as a good thing, but as time passes, the response wears off. An expected paycheck doesn't bring any buzz at all--and doesn't contribute to overall happiness.

However, there may be at least one important relationship between money and happiness, according to Ed Diener, the researcher who surveyed the Forbes 400 and the Maasai, happy people tend to have higher incomes later on in their lives. So, while money may not help make people happy, being happy may help them make money.

Psychology and sociology aside, there is a final reason money can't buy happiness: the things that really matter in life are not sold in stores. Love, friendship, family, respect, a place in the community, the belief that your life has purpose--those are the essentials of human fulfillment, and they cannot be purchased with cash. Everyone needs a certain amount of money, but chasing money rather than meaning is a formula for discontent.

5 Must-Have Financial Assets

2007-10-08T09:15:00.000-04:00

For good financial health and planning, there are at least five assets that everyone should have.

Savings Account

This is simply an account in which you automatically deposit a percentage of your income on a regular basis. I recommend that you always have at least three months' worth of income saved up. The funds in this account are for a 'rainy day' or emergency use mainly, but may also be used to supplement other assets on occasion. Although savings accounts are not known for their ability to grow, there are a number of online banks that offer surprisingly good interest rates.

Investment Account

Once you have your savings account fully funded, part of the income that you were diverting to savings should be diverted toward investments. This can include stocks, funds, gold, and material goods that you expect to appreciate in value over time. You can distribute and re-distribute funds according to where you think is most profitable, based on your acceptable level of risk, but with full knowledge that a profit is not guaranteed and that a loss is possible.

Reitrement Account

The other part of the income that you were diverting toward savings should be directed toward retirement. It's similar to an investment account in terms of where the funds may be allocated (stocks, mutual funds, etc.). However, as your retirement account is something that you will definitely need in the future and cannot afford to learn from or lose (see Wecome to Wal-Mart, Sonny! article), it's recommended that you have a professional manage these assets.

Real Estate

If you rent, you are helping someone else get rich. Their name is on the property and you are paying their mortgage for them. At the end of the day, they have a paid-for property, and you have a bunch of rent receipts. As soon as you can, buy property (see Home Buyer Primer article). It doesn't matter if it's a house, a duplex, an apartment complex, an office building, or an undeveloped lot. Real estate has, and always will be, one of the best investments you can ever make.

Life Insurance

Although its awkward to discuss, we're all going to die. Especially if you have a family, it's responsible to make sure that they are not burdened and that your debts will not wipe out the assets that you have worked hard to obtain. Your life insurance coverage should be at least eqivalent to your debts, but having more is ideal. Also, life insurance is appropriate at any age as the future can be unpredictable.

Home Buyer Primer (Part 3 of 3)

2007-10-06T15:22:00.001-04:00

You have spent the last few weeks house hunting and have finally found that piece of property that you want. Time to make an offer!

Making An Offer

If it were a couple of years ago, I'd recomend that you act quickly if you didn't want to lose the property to another buyer. Houses were not cheaper, but easy mortgages were being handed out like candy and everybody and their brother were buying a house. These are all the folks now who are in foreclosure as they should not have qualified in the first place.

Now, however, it's a buyer's market and the stars are in your favor. There are much more houses than buyers, and houses are sitting on the market longer. That means that sellers are often desperate to get an offer, and you have lots of room to negotiate. It pays, literally, to have a savvy real estate agent at this stage of the game. My recommendation is to knock at least ten percent off whatever the asking price is, more if you feel inclined, and start the negotiations from there. You may offer less if there are things about the property that are in need of repair or are dated.

Generally, this is the most dramatic part of the process. You make an offer, via your agent, and the seller makes a counter-offer, via their agent. There is a little back and forth dance, and eventually one person has to say 'okay, I'll take it!'; as much as possible, you want the seller to be the one to give in. Once an amount has been decided on, your agent will draw up a contract for sale. Now, most people don't realize that just because the negotiation has ended doesn't mean the final price has been determined. There are many factors in your favor that can allow you to negotiate a better price.

You want to pay for an official house inspection. This may cost a couple hundred bucks, but it's worth it for a professional to certify that there are no major issues with the foundation or wiring or roof, for instance. You'll also need this inspection to get homeowners insurance, and your yearly premium factors in how good or bad the condition of the house is. Apart from the house inspection, get online and check your local property appraiser's office to make sure that permits were obtained for any major improvements done to the house. Missing permits may be a sign of 'under-the-table' work that may fail later on. If there are issues found you may be able to back out of the contract or negotiate a better deal.

Getting Your Loan

Once all the details regarding the house have been settled, it's time to call the lender and turn that pre-qualification into real money. The mortgage officer will walk you through what you need to do. Basically, all this consists of is you being able to produce documentation to verify income, assets, debts, and so on. You will have a million forms to sign and fax back and forth. If you don't understand any of the forms, make sure to ask your lender or real estate agent about them. Don't sign stuff if you don't know what it is.

Regarding your mortgage, there are a few terms that you need to be familiar with: Escrow - an account opened by the mortgage company in your name into which a part of your monthly payment is deposited, and used later on to pay taxes and insurance fees; PMI - mortgage insurance required on most loans when you owe more that eighty percent of the the loan value, to ensure that the lender gets paid if you fail to make payments; Closing Costs - a bunch of fees required by lenders and the government that are impossible to avoid, except in cases where the lender waives their portion; Title Company - an agency hired by you or the lender to make sure that the sellers actually own the house being sold and and have authority to do so. Obviously, this list is not comprehensive, but these three are the main ones that that most people are confused by.

Closing The Deal

Once your loan is approved and the title is clear a closing date will be set. On the day before the closing day you and your agent visit the house and do a 'walk-thru' to make sure that it still looks like you expect it to look, and that, basically, all the windows and doors are still there. On closing day you go to the title company with a cashier's check for your down payment (may range from 5 to 25%, typically) and meet the seller. After signing a bunch of legal forms, keys are exchanged, and then - Congratulations! You are now a home owner!