Walk With Money » Investments

Reader Mailbag: A Bit of Auden

Robert Wilkinson — Thu, 03 Jun 2010 16:20:02 +0000

“You need not see what someone is doing
to know if it is his vocation,
you have only to watch his eyes:
a cook mixing a sauce, a surgeon
making a primary incision,
a clerk completing a bill of lading,
wear the same rapt expression,
forgetting themselves in a function.
How beautiful it is,
that eye-on-the-object look.”
- W.H. Auden, Horae Canonicae

I’m a 30 yr old professional and have saved up about $40k from living within my means sitting in my savings account (I know, I could put it to better use). I contribute about 10-15% in 401k off and on (due to job jumps and 6-12 months working period for eligibility) and have approximately $20k in it. I recently read “rich dad poor dad” and realized it would be a dream come true to no longer have to “work for money”. The book talked about buying “assets”, as in things that would generate more money for me, and use the money generated to buy more “assets”. But I don’t know what to buy. I’d like to keep $10k as emergency money and put the rest to generate money for me. I know I can always buy index funds, but are there any ideas on what I can buy that’ll immediately start making money for me?

I live in Northern Virginia (DC suburbs), so rental property is out – real estate is expensive and rent is a lot cheaper than mortgage.
- Paul

First of all, be aware that Rich Dad, Poor Dad paints an insanely optimistic picture of “making your money work for you.” Remember that it is supposed to be a parable – in his own words, Kiyosaki compared the book to Harry Potter (in the Feb. 2003 issue of SmartMoney).

The idea that you should really take home from the book is that there is a lot of merit in purchasing investments that earn you money without continued work input from you. Fully managed rentals are one type of this. Another type is a stock that has paid dividends over a very long history (and thus will likely to continue paying dividends). Treasury notes are another very stable example of this – they don’t pay as well as the others, but they’re rock solid.

The book essentially proposes that you look for bargains on such assets and keep accumulating them until they produce enough income for you to live on.

If you have about $10K to start with, one place to start might be stocks that pay a strong dividend, as you don’t have enough to really buy rental properties yet and you don’t need the rock-solid stability of treasuries, either.

It’s important to remember that such “income-paying investments” aren’t necessarily the best investments for the long-term growth of your money. They’re simply nice in that they provide a steady income for the owner.

I am very upset. Our Chevron gas card that we’ve had since 1987 is now handled by GM Money Bank. Our joint account now lists my husband as the account holder with me as an authorized user. I didn’t notice this until they start calling to verify purchases as part of their fraud prevention program. If you don’t respond, they block the card and won’t talk to me about anything. I handle the billing and payments on all our accounts, and am incensed that they won’t talk to me. They wouldn’t even let me report fraudulent purchases posted to the account. Are there no longer joint accounts available? What happens if he is incapacitated and unable to speak?
- Cindy

Many credit cards have moved to a single cardholder with additional authorized users, mostly in an effort to standardize accounts. It’s not really anything to worry about.

If you are the main cardholder’s spouse, you should have power of attorney over his affairs in the event that he is incapacitated. This will give you the right to make choices and administrative decisions about his credit card.

I really wouldn’t worry about it too much. For now, it doesn’t change anything about how you two use the cards. If he did wind up being incapable of managing the card, you would be able to do it for him.

When my wife and I got married, we took ‘control’ of a 40K full-service/managed investment account that had been set up for her in the past by her parents. I have been considering turning that into a self-directed account, as the managers of that account just about matched the stock market, and i prefer to just invest in a long term, low fee indexing strategy.

However, we are also underwater on our mortgage by about 15-25K. We have no trouble paying our mortgage and in fact put a couple hundred extra towards principle every month. We are securely employed, although of course you never know what will happen, and ive been considering putting a chunk or most of the 40K towards the principle of our mortgage, to get us above-water and guarantee the roughly 6% return on that money. It also might give us a better shot at refinancing to today’s really low rates. Also might put 5K towards auto loan at 3.9%, which will cut that loan in half.

We also have 15K in liquid savings and another 45K in IRAs and CDs. Any advice?
- Brian

That seems good on paper, but there are very painful tax complications to doing that.

If you take $20,000 out of a 401(k) before retirement, not only will you have to pay income tax on whatever you pull out, you’ll also have to pay a 10% early withdrawal fee. This will quickly eliminate about 30% of your savings (depending on your exact tax bracket, of course).

You’re better off leaving the money there. The 10% penalty alone will eat up any potential “extra” return you might earn versus leaving it in the 401(k).

My boyfriend and I live together and he makes a lot more than me because I’m in graduate school. We split bills 50/50 for the house we rent right now, but we’re moving into a bigger house soon and he will pay more of the rent than me. He also has money saved for when we one day decide to get married and buy a house. Since we’re not married or even engaged at this point, I feel a bit guilty that he will be paying more of the rent than me. How do unmarried couples (or married couples, for that matter) reconcile differences in income? It really bothers me when wives expect too much from their husbands financially and I never want to turn into that.
- Kate

I think it’s completely reasonable to proportion bills in proportion to the incomes of the household members. Of course, that proportion would have to change every time there is a change in income for either household member or in household ...

Should You Buy Actively Managed ETFs?

Robert Wilkinson — Thu, 22 Apr 2010 17:20:02 +0000

Since exchange-traded funds (ETFs) were launched more than a decade ago, the trend in investing has been towards low-cost investing. People are shunning investments which charge an arm and a leg to do something many people feel they could do more easily and cost-effectively. This is the result of increased competition in the investment world or what I like to call – the democratization of the investment space.

The most direct consequence of this is how investments in index mutual funds have changed. Investors in index mutual funds – which invest client money passively to track an index – started comparing that to investing in Index ETFs which are identical to index mutual funds in terms of strategy, but are cheaper, more tax-efficient, more liquid and more transparent than index mutual funds. Given a choice of the two, it sounds like a no-brainer right? Most investors agreed and have poured money into Index ETFs, with global ETF assets crossing the $1 trillion mark recently. And in fact, in 2009, for the first time, Index ETFs had more assets than index mutual funds.

But in the broader scheme of things, only about 10% of assets are passively-managed. Active management is alive and well as the large majority of assets continue to lie in actively-managed mutual funds where portfolio managers are striving to outperform their benchmark rather than just matching its performance. This is despite volumes of research that suggests active managers have a hard time outperforming indices.

So let’s start by addressing a fundamental question up front – why do people continue to look for active management?

Active Management: What’s the pull factor?

85-90% of assets are still in actively-managed mutual funds. Part of the reason for that is the existing difference in market size – with so much money in active strategies, active managers have greater resources to market and attract investors than passive strategies. And active managers have been around for much longer too.

However, the bigger reason I feel, is the need for people to strive for higher performance – they just don’t want to “settle” for the benchmark return. Allow me to draw an analogy: If you are given a choice between receiving a guaranteed $25 or a 10% chance to win $200, I’m willing to bet that most people will take the chance, despite the odds against that choice. People believe in their ability to beat the odds and this same logic carries over to investing. Investors believe that they have the ability to pick the star manager that will outperform the benchmark and hence continue to plow money into active mutual funds even though on average, active managers may not be beating their benchmarks.

This investor mindset creates an overflow of money and especially fees accruing to active mutual funds even though they often charge 1-2% per year, while only disclosing their holdings quarterly and trading just once a day. When you take into account the effect of compounding, these fees can result in huge difference in long-term performance. At this stage, you might ask, then why do investors continue to put their money in these active mutual funds? They do it because, up till recently, if investors wanted an active manager – which most people do for the reasons described above – the only choice they had was to go with mutual funds. They could have moved their investments into Index ETFs but those structures would not allow for active management. In other words, mutual funds had a monopoly on active management. But that is finally changing.

Actively-Managed ETFs: What’s In It For You?

Active ETFs arrived on the financial scene in 2008 once the SEC approved the launch of these products. Today, there are 17 Active ETFs in the United States and also a bunch in Canada. You can visit EtfsHub to find a full database of these Active ETFs and their details.

These ETFs are different from traditional ETFs because the portfolio managers behind these funds are not just looking to track ...

Transferring Brokerage Assets from E*Trade to TradeKing

Robert Wilkinson — Thu, 25 Feb 2010 23:20:48 +0000

When I learned about E*Trade selling their banking business to Discover, I knew my days with them were numbered (I later learned that only bank accounts with no brokerage relationships were moving… but alas the ball was already rolling). Brokers are finding it increasingly difficult to differentiate themselves and when you can get good customer service at a cheaper cost elsewhere, even the pioneers are going to find their businesses suffering. Those who have been reading for a while may remember me mentioning my investments at E*Trade and how I’ve been doing any new investing with TradeKing. My original approach was to leave my assets at E*Trade until I sell them, but a recent offer changed my mind.

TradeKing has a promotion where they will reimburse new accounts, defined as opened in the last thirty days, up to $150 in transfer fees. My account is far older than that but I asked a CSR if they’d be willing to extend that offer to me and they agreed! (had they not agreed, I wouldn’t have transferred…) E*Trade has a $60 full account transfer fee, much less than the $150 reimbursement limit, that is paid using account assets. I’m not sure what would happen if I had $0 cash, but the simple solution was to transfer $60 into the account prior to initiating the transfer. If you plan on doing this, be sure you have the amount of the fee in cash or you might not like what the brokerage does on your behalf!

ACATS

The process, surprisingly, was painless. ...

Lending Club Review – Peer to Peer Lending, a Solid Investment and Borrowing Alternative

Robert Wilkinson — Fri, 15 Jan 2010 19:20:18 +0000

10 Comments

After the stock market crashed at the end of 2008, many people, including younger generations became very skeptical of the stock market and what it had to offer as a legitimate place to park your money. Peer-to-peer lending is a concept that has been around for a very long time, but the method as to how it was carried out was not always efficient at all. It went a little something like this:

Friend #1: Hey best friend, can I borrow $1,500 to get a new car?
Friend #2: Do you promise to pay me back?
Friend #1: Of course, you know that I’m good for it!
Friend #2: Ok fine, I’ll get the money to you by next week.

The truth is that these situations are very common. We enter into lending/borrowing agreements with friends and families all the time, and the lender enters into a situation with unlimited risk and no reward for their risk.

This is where a website like Lending Club comes into play. Lending Club is a peer-to-peer lending network that brings investors and borrowers together to satisfy both parties needs by offering a secure, legal, and efficient service. Those people who wish to take more control of their investments can lend money to borrowers, and borrowers who are tired of having limited options for choosing a personal loan product can try Lending Club.

How Lending Club Works

For Investors – sign up as a Lending Club investor

Deposit funds (via ACH, wire, check or PayPal).
Easily build a portfolio of loans based on your criteria.
Receive monthly payments of principal and interest. There are no maintenance fees.

For Borrowers – sign up as a Lending Club borrower

Get quick approval on a fixed-rate, 3-year loan from $1,000 to $25,000
Once approved, most loans fund in less ...

Top 10 Financial Blogs To Follow In 2010 By Category

Robert Wilkinson — Mon, 04 Jan 2010 23:20:07 +0000

Today, I’d like to share with everyone blogs that I read and think you should check out. For each blog, I will provide details on what is great about it so that you can understand better which blogs might be best for you. I hope that the following blog recommendations will help you find additional helpful resources on the web. I also hope that you will add your own recommendations in the comments. Without further ado…

Photo by dalequetepego via Flickr

Best Economic & Financial Insight Blog

Zero hedge is truly an amazing blog with some serious insight into the economy and the financial sector. While much of the information might be over the head of your regular personal finance blog reader, I believe it is good for individuals to expand their knowledge and read about some more complex topics. Additionally, one of my favorite aspects of zero hedge is the informed readership; as such, you can learn as much from the many comments for each post as you can from the post itself in many cases.

Who should read zero hedge:

Individuals looking for in depth analysis on the markets, the economy and monetary policy
Individuals who want to be a part of a well informed community of readers

Best Investing & Trading Blog

My favorite blog on trading and investing is Fund My Mutual Fund. While trades and investments are done through a model mutual fund, the analysis is excellent. The author Mark presents in depth analysis on many individual companies as well as broad stock market insight. He details every trade and documents his performance, which is insanely good.

Who should read Fund My Mutual Fund

Individuals looking to learn about active investing & trading
Individuals looking for companies to invest in outside the large, well known companies
Individuals who want to learn some basic technical analysis

Best Frugality Blog

Early Retirement Extreme is the journey of an individual who “retired” very early in life by slashing his expenses down to the bare minimum and living on the money he saved while working. The author discusses his journey to financial independence which included saving the majority of his income over several years and exchanging a materialistic lifestyle for one of frugality and freedom. He provides great advice on how to save money in various areas of life and a great perspective on living a very frugal life.

Who should read Early Retirement Extreme:

Individuals looking to embrace a more frugal lifestyle
Individuals who want to retire early

Best Blog For Young People

20smoney is my blog. It’s purpose is to educate young people to take the financial situation to the next level. 20smoney.com is more than a personal finance blog; rather, it assumes you have the basics down and focuses on the “next level” topics with regards to increasing income, generating better returns on investments and other economic related topics.

Who ...

How to Work Less and Make More Money With Multiple Streams of Income

Robert Wilkinson — Sun, 20 Dec 2009 19:20:22 +0000

Most of us would like the chance to spend more time with our families, work a lot less and still bring in a sizeable income. If you’re only going to rely on your current income, the chances of that happening are pretty small, unless you’ve got an incredible job. However, there are ways that you can achieve this dream and they’re a lot easier than you might think. You’re about to learn how to work smarter and less and still make more money than you are right now.

The key to working less is having more than one stream of income coming into your pocket every month. This is a sound principle for many different reasons. First, you’re reducing your risks by not having to rely on your main source of income to pay your bills and keep living well. You can spread that risk around and if you do lose your job, you’ll have the resources on hand to keep paying your bills until you can find a new one.

Another benefit of having multiple streams of income is that you can eventually phase out your full time job, if you’re making the right investments, and start working part time. The old adage that two part time jobs make one full time job is certainly true here. By creating another stream of steady income that you can rely on, you can eventually scale back your current hours until you’re working only part time. If you’ve got some really great streams of income coming in, you may even be able to quit that full time job and focus on these streams instead.

Ok, so we understand how multiple streams of income can make your life easier, but how do you get started? You’ll need to take a small amount of risk here if you want to get to the point of being able to spend less time at work, but it is well worth it. It is best to try to reduce these risks when you’re first getting started so that you don’t jeopardize your finances, but with smart choices, it’s easy to pick a great income stream.

Some of the most common forms of creating multiple streams of income are actually the most simple. Let’s say that you have a knack for fixing cars. During the day, you’re a buttoned down corporate worker, but on the weekends, you’re a car fixing fool. Start taking on outside work during those weekends and boom – you’ve got your first income stream coming in. As word of mouth travels, you’ll get more business and it will most likely pay better than your current job.

Other streams of income include investing in P2P lending, other business opportunities, or even stocks and bonds that have a steady rate of return. The main goal of using multiple income streams to work less is to stop treading water at your job and start doing what you love while you’re getting paid for it. With the right amount of dedication, you should be able to go part time or even quit your old job.

Photo Credits: 1

Originally posted 2008-12-04 23:42:16. Republished by Blog Post Promoter

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How to Stop Living Paycheck to Paycheck

Robert Wilkinson — Wed, 09 Dec 2009 23:20:26 +0000

Right now, more than 80% of households in the United States live on a paycheck to paycheck basis. This means that a lost job could result in financial disaster for a large chunk of the population. Once you get into the trap of relying so heavily on one paycheck, it can be pretty hard to break free from that cycle. There are ways however to reduce your reliance on that paycheck and get other streams of income rolling in.

Whenever we get a job, we get excited about that paycheck and the temptation is there to get a nicer car, or a nicer house or just to spend more than we should. Before we know it, we’re stretching our limits. If you get a raise, the same thing usually happens. Instead of taking that money and using it to make more, we simply throw it out the door on things that we don’t really need.

We’re not saying that you have to live your life like a Spartan – far from it. However, you should never rely solely on one income to meet your needs. This is a recipe for disaster, and for thousands of Americans, this can be the risk of ending up homeless. So, how do you break free from this cycle and open up more streams of income?

The easiest answer is to get a second job so that you have more income coming in each month. The only problem is that most of us are spread so thin that it is just not feasible to try to work more. You can try starting your own little side business, but again, if you don’t have a lot of time, this can be more trouble than it is worth.

The second choice is to find a way to create passive streams of income. This is money that you don’t have to “work” for. In essence, you’re not doing anything, but you still have money coming in. Examples of passive income include investments, interest payments and dividends. You make that initial investment and then sit back to watch the money roll in.

This is the most ideal means of making more money to reduce your reliance on your paycheck. However, there are times when you may not have enough cash to create a new income stream. In this situation, you can try what is called leveraging debt. This means getting a loan that will be used for an investment to create more income.

Now, we do not recommend leveraging debt on risky investments, this is just a bad idea. It is best to start small, with something that you feel comfortable will have a good rate of return. This may mean a high interest bearing savings account or something similar that has less risk than a stock.

Whatever you decide to do, the important thing is to stop relying on that paycheck. Once you do get more income coming in, don’t fall into that same trap of overspending again. Put it aside, or use it to invest in new income streams.

Photo Credits: 1

Originally posted 2008-12-07 00:30:38. Republished by Blog Post Promoter

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Better Budgeting Software: YNAB or Quicken?

Robert Wilkinson — Sun, 06 Dec 2009 17:20:38 +0000

I lately received an e-mail from Reader Donald asking if I could do a immediate comparison in between You Need A Budget (YNAB) and Quicken. Getting lately used both to write a YNAB review and a Quicken 2010 review, I was familiar with both and could effortlessly share my ideas.

To add a small colour to the discussion, which I hope you’ll join in on, is that Donald does his taxes utilizing TurboTax and the potentially seamless integration of Quicken and TurboTax “hobbles” him from purchasing YNAB. Also, he has but to get benefit of the 7-day totally free trial of YNAB (no e-mail or registration needed for the trial, you can download the application here). Finally, he does all his banking with a regional credit score union in California and becoming in a position to pull banking records is an important feature.

Money Management vs. Budgeting

I have always seen Quicken as a complete scope money management application and YNAB as mainly a budgeting device. Quicken has introduced some budgeting features, this kind of as scheduling bills and billpay, but the strength of Quicken is in all aspects of money management – from banking to investments to credit score to long term preparing. Quicken does have budgeting features constructed in its Planning tabs, categorizing your investing and helping you review your cash movement. Nevertheless, ...

Where to Begin with Investing

Robert Wilkinson — Sun, 06 Dec 2009 17:20:20 +0000

If you are just starting out on youn as an adult, or iu are approaching the age of retirement, you are probably thinking about exactly where you stand financially and what your financial future will be like. It is time to stop thinking and begin really planning and taking action.

Investing can be a real mystery for the typical person. The initial action that you are heading to want to get when building up your portfolio is to make sure that you have a brokerage account; so open 1 up if you do not already have 1. The purpose of these accounts is to make it feasible for you to purchase bonds, stocks, mutual funds and other kinds of investments. You are basically permitted to spend professionals to buy or promote whatever objects you ask them to. The charge that you spend to these individuals is known as a commission, and a commission can range from in between $5 and $ten bucks to $100 or more based on the broker.

The biggest difference is the cost is heading to arrive from choosing in between a low cost broker or a conventional broker. Traditional brokers tend to be capable of providing a much larger range of financial solutions, and their cost tag matches this. They serve in the same way as professional money managers, and they are capable of offering advice for what kind of investments will greatest match your requirements.

Discount brokerage businesses on the other hand are businesses tailoring to self directed investors, simply because they do not offer any specific advice concerning exactly where you ought to put your money. What this does is leaves you to make your personal financial decisions, but in return you end up saving money in comparison to conventional brokerages. There are a quantity of brokerage firms that offer each solutions, this kind of as Merrill Lynch and Charles Schwab for example. What this means is that customers are able to choose in between low cost and conventional formats.

When you open a new account, the minimum quantity of your investment can vary from $500 to $1000 for most investments, and even much less if you are investing in an schooling account, a retirement account or an IRA account. Most of these options allow you to have an application type sent straight to you, or you can fill the application type out on-line, printing it out and mailing it with a check for the investment quantity. This is a simple and directly forward procedure that can be completed rapidly from almost any financial institution.

Amongst the greatest in the realm of low cost brokers for investing are Ameritrade, E-Trade, TD Waterhouse, Suretrade, Fast & Reilly and Datek On-line. Every asks for a commission of in between $eight and $30 and have websites that are relatively easy to navigate. Nearly all of these businesses allow you to make investments in typical stocks as well as mutual funds, which is a fantastic plus if you are trying to handle your personal finances.

Photo Credits: smellyknee

Initially posted 2009-08-06 05:03:17. Republished by Blog Publish Promoter

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Paying off Debt in 9 Steps pt 2

Robert Wilkinson — Thu, 29 Oct 2009 06:20:20 +0000

Part two in the series on paying off debt: Throwing away your bills and shredding your credit card payment reminders simply is not going to make the problem go away. Debt is going to hover over you until you find a way to deal with it. Interest will continue to compound, and payments will continue to climb until you are in debt up to your eyeballs with no apparent way out. Luckily there is a solution - These 9 steps will have you paying debt off in no time.

3 - Now you are going to want to cash your savings account out. Use the proceeds from your savings and your investments in order to put them toward the repayment of your debt. No one really wants to do that, but it is a good idea if you have debt. Once you get out of debt you can work on rebuilding your savings as well as your investment portfolio. When you pay off your debt this way, it happens much quicker than if you try to simply budget for eventual debt repayment.

4 - Borrow money against your insurance. If you have life insurance that has a cash value attached to it, then something that you can do is to borrow against that policy. You are essentially just borrowing your own money in this way. The interest rate tends to be below what commercial rates are at, and so you can generally take your time when it comes to repaying that loan. It is important that you do eventually pay it back, though. If you should happen to die before the debt is repaid, then the outstanding balance with additional interest is going to be deducted out of the policy's face value meaning that your beneficiaries will receive less money than was originally anticipated. If you make sure to repay the debt back before you die, then this really is a small price to pay for the sake of getting out of your debt problem.

5 - Finagle money out of your family and your friends. You may be able to get a loan floated by someone in your life. Think about who knows you and trusts you - These people trust you more than a lender will. Unless you happen to be a black sheep, the chances are you will get a pretty decent interest rate from your family or friends as well. They may even be extremely tolerant of a late payment. If you want to maintain this relationship then you are definitely going to want to pay the debt back. If you know someone that can help you out in this way, it's a good way to go - But you really need to make sure that you pay the debt back because you do not want to end up losing a friend or a loved one over money and debt issues.

Photo Credits: Iain Farrell

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Walk With Money » Investments

Reader Mailbag: A Bit of Auden

Related Searches:

Should You Buy Actively Managed ETFs?

Active Management: What’s the pull factor?

Actively-Managed ETFs: What’s In It For You?

Transferring Brokerage Assets from E*Trade to TradeKing

ACATS

Related Searches:

Lending Club Review – Peer to Peer Lending, a Solid Investment and Borrowing Alternative

How Lending Club Works

Top 10 Financial Blogs To Follow In 2010 By Category

Best Economic & Financial Insight Blog

Best Investing & Trading Blog

Best Frugality Blog

Best Blog For Young People

How to Work Less and Make More Money With Multiple Streams of Income

How to Stop Living Paycheck to Paycheck

Better Budgeting Software: YNAB or Quicken?

Money Management vs. Budgeting

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Where to Begin with Investing

Paying off Debt in 9 Steps pt 2

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