Simple Investment Ideas and Concepts for Friends

A friend of mine and I were talking about investing of retirement money this weekend, and they asked me for some advice.

They wondered if I could look at their investment portfolio and give them some an assessment of their mutual fund choices.

My first reaction was:

"Gee...I might have a few bucks in my retirement account, but I don't think I'm an expert."

Well, I still agree with not bring an expert, but I have to say that I might be selling myself short with regard to not knowing something about investing.....yes, my knowledge is simple, but I think it is always useful. (I didn't make it up, so don't let me make you think I created a special set of investment rules)

No, I thought about what I might suggest, and my first rule of thumb would be to diversified.

Simple enough.....

The my second rule of thumb.....set it and forget it. (sort of....at least try to do your homework and pick long term investments and only monkey with those investments once a year, or should the bottom fall out. Oh, if things crash, certainly then it is time to GET OUT ahead of the others while there is still a "bottom" to the market)

My friend told me they initially put their money into a socially responsible fund....and I noted that this actually might not be such a bad place....you just have to do a bit of homework to see what that particular set of funds is doing and if it invests in good growth areas, or things that are under stess. (and of course, past performance is no indication of future performance....but you have to look at something if you don't have a crystal ball.....at least try to look at and assess its more long term potential.)

So I suppose I will look at their portfolio and see if anything "pops out at me".

Surprised by a calculation and a few words on what money is to me

MY NET WORTH:
Last night I was facing down my two girl's college tuition bills and trying to figure out where exactly to take the money from.

I began my investigation by making a list of the various places we have money invested. (I'm a bit of a worry-wart, so I like to be pretty well diversified.)

So I made a list of both retirement and straight savings.....of money I have and money the girls have too.

My first observation was that I was surprised at the money we had saved. Well, not shocked....but it had grown to level that was slightly higher than I thought. Very close to a goal Cheryl and I had a while back......before the great stock market melt-down early this decade. But here it was, after losing about 25% back then. (and many lost much more.....but being a conservative investor, I don't chase risk....so I also don't make as much as I could either, but it's not about who dies with the most money anyways....right)

MOM AND DAD HELP THE GIRLS:
So after the pleasant net worth surprise, I also remembered some bonds that my mother and father had been buying for Kimberly and Kristen all those years.....earmarked for their education.

You see, over the years my mother bought them EE savings bonds with the idea that they would be used for their education. They were not very large denominations....mostly $25, $50 and a few $100.....but she would do that maybe twice a year...birthday and Christmas.

The idea was that it showed the girls that she was supporting our country and helping them save for college. (My parents were not at all wealthy, but were big into saving.....I believe they only had one credit card, from Sears, and that was just in case a home appliance failed and they needed to get one. They taught me to be a saver.....a cash buyer if you will)

Anyways.....over the years, these savings bonds added up....and over half of them have surpassed their face value. (ex: a $50 EE bond costs $25 to buy, but gets to $50 according to the rule of 72 "Doubling time" depending on the interest they pay....and they keep getting that interest for I think it is 30 years)

NOTE: To be fair....I always talk about my mother when I speak of money....she held the purse strings, but bothy my mom and dad were very good savers...and while my mom knew the value of a buck, I think my dad had a better handle on "the math" any how compound interest was your friend....if that makes sense.

My mother started this bond buying as soon as the girls were born. Kim has 31 bonds and Kristen 18. (It looks as though Kristen was short-changed, but she seems to have larger denomination bonds for some reason)

Kim currently has $12,767.56 and Kristen $10,346.66. (I knew my mother would NEVER have favored one over the other...and the totals show that.)

So why think of this at this point......Kimberly is a senior. This is her last year to use this money for school, and therefore get the interest tax-free. Kristen has three more years to user hers....and since she is planning to go on to a PhD, she has even more time.

WHAT IS MONEY FOR:
My parents were really the best......yes, I suppose I am biased, but I truly mean that. (yes, they were far from perfect....let me state that for the record...but who is anyways?)

My parents were product sof the great depression, and they started out very poor. Bother were not well educated, having dropped out of High School for different reasons (My mom to take care of her mother, and my father to go into the war) but they didn't have a hate or fear of money. (or education for that matter)

In fact, they really appreciated the value of both...and they also saw the negatives and pitfalls each offered too. To some, it doesn't seem as though money or education can have a negative side...but my parents felt that if you let money rule your life, you might never be happy.....and if you let education get you to think you were somehow better, superior or better than others.....you would suffer as well. (and not live up to your potential in terms of your value to society)

So they always taught me that money was a tool....a means, and in no way an end. We didn't work and save to amass money for power...or in any way for greed. If we saved, we did so for good, honest reasons.....and we saved money for a particular purpose.....not just for the sake of saving money.

Saving for a house was great.....we have to have a place to live, and owning a house brings a certain level of stability to life. Saving for education was great.....making ourselves better with knowledge would allow us to be more valuable to the world so we might be able to give back more. Saving money to help others in time of need was good as well.....to them it was ok for money to help with security......but not power and in no way was it the reason to save in and of itself. (saving for retirement was important to them because it allowed the parents to be self-sufficient and NOT become a burden on their kids.....who BTW, they felt had an obligation to help their parents.....so if the parents saved, they would be further helping their kids by NOT becoming a burden)

Bottom line is what my dad used to day all the time:

"Money doesn't make the world go around, but it sure greases the wheel."

It is important....it must be dealt with, perhaps even respected.....it is a tool, but it can not be the end in and of itself.

My mistake....feels like FREE money! (how stupid of me!)

If it were not due to my own stupidity, I would have considered myself double lucky today.

You see I have been looking at this "bill" I had in the kitchen for Spring classes at Rivier College. The bill was for $2550, and was due on June 6th, 2007.

At about that point, I was looking at my bank account level and knowing I just didn't have the money to pay that....so I was going to defer it as long as I could.

I was going to put it on a credit card, except I really only have an American Express card...my Mastercard is really a DEBIT....so that wasn't going to work.

Well, I put it off until today, when I found that I had just enough money to pay it off. I called up with my Debit card in mind and was ready to pay the late interest fee.....but guess what? I had apparently paid this bill in May!

HUH?

That's that they told me....my current balance was ZERO. I own nothing......so I instantly felt a shot of happiness travel up my spine. (forgetting about how DUMB I was to not have accounted for all that properly for the past couple of months)

Anyways.....even though it was the result of my own mistake, I feel lucky today! I feel almost as though I just won free money!

The Rules of Money...Book Review

I went to Barns and Noble bookstore tonight and I came across this book. I flipped through it, and thought it was a very interesting book.

It isn't written like a typical chapter book as it is written as "100 Golden Behaviors" for gaining and using wealth.

The rules I flipped through seem to present a very common sense approach...yet there are so many who don't have that common sense as their base. A reference book like this might be ideal.

I am going to Amazon and ordering it as a used book. It looks interesting.

Back to long-term money thinking.....

I have started to come back around and think about the long term investment outlook a bit. I was talking to my financial advisor and he made a comment that perked my ears up.

He noted that the market was still going up. It initially perked my ears up because I had just decided to go from a 70%-30% equity to bond portfolio to a 50%-50% mix.

I perked up because I thought I was making a mistake, and I guess I looked worried to him because he instantly shot back and said "This is when I start to get worried about the market. When everyone in the world thinks it's hot is when I start to worry that it is at some sort of a top." (which made me feel better)

But let me not give you the wrong impression....I am not a market timer. At least not with the majority of our money. (I have a very small amount that I had initially had in Vonage stock that I have since moved into two Chinese telecom stocks....but even that money has been sitting there inactive.....and I have no idea how that is doing!)

I am certainly more of a buy-and-hold person. I think I made one rebalance in the portfolio in the past year....and I went from about 60%-40% up to the 70%-30% I mentioned above......and just a couple of weeks ago down.

I guess I have been a bit pessimistic for the past year, but the markets seem to continue to be fairly strong. (except the housing market that is)

So I'm starting to get re-energized about thinking long term again.

Here are a few online calculators to help you think about the long term affects of interest and money growth.

First, this one I find interesting because it lets me easily calculate what a million bucks in 1980 (when I graduated College and dreamed of such things) is today. (how much I need to have to have the buying power of a millinaire in 1980)

Then this Yahoo calculator lets me type in my current financial situation, play with projected interest and load rates, and calculate my worth in future years. (in net and constant value dollars) That is a lot of fun because it gets me charged about about saving and long term growth.

Of course, being the visual person that I am, I love to look at this online graphing program that lets me watch money growth of particular situations. You pick all ins and outs of your investment and expense money flow and it graphs the growth....albeit with a static year to year model. (such is life....no model is perfect)

So I guess I suggest that you start playing with these tools and put yourself in a mindset of Rip Van Winkle awakening from a nap in 10 or 20 years.....then put your investment on autopilot until then. (doing an analysis and perhaps rebalancing every 6 to 12 months)

How Rich Are You?

Maybe you are wealthier than you think!

I was reading Consumerism Commentary BLOG which pointed me at a website that calculates your position of wealth in the world based on your income.

The describe why they created the website as:

"We are obsessed with wealth. But we gauge how rich we are by looking upwards at those who have more than us. This makes us feel poor.

We wanted to do something which would help people understand, in real terms, where they stand globally. And make us realise that in fact most of us (who are able to view this web page) are in the privileged minority.

We want people to feel rich. And give some of their extra money to a worthwhile charity."

They then describe the way they calculate your place in the world, and show the graph below which shows how the distribution of wealth exists...that is no where it is distributed, but how across how many people.

Of course this isn't a totally fair picture of things because the cost of living isn't exactly equal across the world either.

They then go off and describe who is behind this site, and ask you to go visit their main website....Poke in the UK.

"Poke are a creative company based in London. Our aim is to inspire people through interactive media.

We built this site because we wanted to challenge people's perception of their personal wealth. And while we're at it hopefully raise some money for a good cause. For contact details visit: Poke

With thanks to: Meghann Mackenzie for bringing us donuts and number crunching."

I'm not sure if this is all that accurate, but it is interesting to play with it to see where you stand. (But I'm not telling you where I stand)

Hard Landing, Soft Landing.....any landing at all....

With all the negative economic news in the recent months and all the talk of hard and soft landings, I thought it would be interesting to look at some of the recent news a bit more.

It certainly is easy to miss or dismiss things during the holiday season....but it was the lack of Black Friday shopping traffic that initially made me pause and consider the situation. (though E-Commerce sales seems to have increased nicely 42% over last year)

My interest in HARD vs SOFT landings came when reading articles like this one which talks about how the currency markets are worried about a weak US economy. Apparently the Dollar slid further against the Euro and the Pound, and hitting a 14 year low against the latter.

But surely a piece of the currency traders concern includes announcements by China that they will diversify some of their currency reserves into other currencies....and away from dollars. Now this announcement is a bit dated, but that together with a possible slip in the US economy may have the currency traders thinking that China will make good on their word sooner than later. (I have heard people say that if there is a dollar crash, everyone gets hurt....but those that get out fast get hurt less)

So with talk like that, perhaps the dollar slide is a self-fulfilling prophesy!

So perhaps the next bit of news about the unexpected manufacturing contraction in November was another piece of the reason for the latest pessimism. Apparently the Institute for Supply Management said its index of national factory activity unexpectedly dropped to 49.5 from 51.2 in October. Economists had forecast a slight rise to 51.5. It was the first time the index had fallen below 50 since April 2003. An index below 50 indicates shrinking activity in the sector.

It was the first time the index had fallen below 50, which indicates shrinking activity in the sector, since April 2003. The Commerce Department reported U.S. construction spending declined 1 percent in October, more than expected and adding to a growing pile of evidence that the housing market is cooling." type="hidden"> U.S. construction spending as reported by the Commerce Department declined 1 percent in October, more than expected. But this simply adds to the already large mound of evidence that the housing market is more than cool......is perhaps stone cold. (but we probably will NOT be able to assess that until the normally spirited spring sales season rides around)

What about retail....we don't have to wait for spring for an assessment there....holiday time is the hot time for retail. Well, the market is apparently worried that Walmart may be the canary in the coal mine as they have recently reported November sales were their first month's decline in sales in 10 years. They also warn that December projections only indicate a 1% increase, and they are looking forward to a very disappointing holiday shopping season. (to be fair, Target reported sales increases above what the analysts expected, but then again, JC Penny and Costco also fell short of Wall Street expectations.)

But even with all the pessimism, there are plenty of people who are not ready to use the word recession. Of course, it is my experience that recessions are not "called" until after the fact. (I think this is because predicting it early can result in a self-fulfilling prophesy)

But what about this report of US income and spending increases for October? This surely indicates good signs. Well, this does indeed bode well, except the pessimist in me worries that the average US citizen may not be all that good with their money because they are the very people who bid up housing costs to mania levels while maintaining a zero balance savings account. I'm not sure why as continue to spend....the only answer I have is because we were offered more credit. (not because we actually have any money saved)

Yes...I warned you...I am often a pessimist.

So how about the other "unexpected" report a few days ago about the jobless rate being higher than expected.

The Labor Department reported that the number of U.S. workers applying for jobless benefits rose a higher-than-expected 34,000 to a seasonally adjusted 357,000. Analysts had predicted claims would edge down to 314,000, so this increase seems like another "surprise".

It was also reported that claims in the prior week were revised UP slightly to 323,000 from the prior estimate of 321,000....also a sign that the current increase is probably not a mis-calculation. Today's news article has a very similar conclusion.

Of course, the Federal Reserve is not so negative....though they are currently using worrisome words like "cautiously optimistic" when talking about the holiday retail sales picture. They often seem to "cherry pick" their statistics to paint the picture they want to see. I suspect they want to always paint a positive picture and never be the "reason" for the economy slowing down. They are much more comfortable "calling" the slow-down after it happened with a set of "revised numbers".

The third quarter US GDP numbers have also been revised upward to indicate a 2.2% growth. But the news report had a comment by an economist that indicated that these numbers are not a rosy as they look because "some of the new business investment seen in the past quarter went into inventories." Increased inventories mean an eventual further slow-down in production until those inventories are consumed. (possibly not good news for future production businesses)

There was apparently a downward estimate of imports in a prior report, but this was even a possible further sign of a slowdown as it might indicate a general decrease in purchasing. (which sounds consistent with the numbers from Walmart and Costco)

In the latest reports from Japan about their stock market, it appears that perhaps some or all of the above is enough to depress Japanese stock prices. Ditto for reports about the Australian Stock market.

Oh, one last thing....the weather is a bit warmer here in the Northeast than normal....but this has not kept fuel prices from continuing their slow yet steady rise in recent times.

As an aside, I looked at the Wiki article on the "Housing Bubble", and found it to be very detailed and complete. (as far as I can tell) In fact, I have to read it over again because it really seems to be a great synopsis of the whole situation.

At this point we might want to get our reading on "soft-landings" up to date....for this I also recommend the Wiki on "Growth Recession" and plain old "Recessions". (let's hope there is no need to read ahead to "Boom / Bust", Panic, "Long Depression", "Great Depression" or "economic disaster")

Remember....I can't see the future, I'm not even an economist.....I'm just an Engineer who tends to be a pessimist. (who is rarely disappointed)

Hey Money Bloggers....do you listen to Money Blogger Podcast?

Ok, so this might be a matter of preaching to the choir but there may be a few of you out there that have not heard of the Money Blogger Podcast.

This is an audio podcast where he this guy interviews a whole array of Money Bloggers....and gets there perspectives on money and why they BLOG. (You can check out tons of Money and Personal Finance BLOGs at:
http://pfblogs.org/)

It is interesting to see why people BLOG, and what they expect to get out of their writings themselves. To me it is very interesting to hear these bloggers that I have often read and hearing their voice is often gives me great insight into the personality and individual behind the thoughts and words.

Most of the shows I have listened to are very interesting.....I suggest you give it a listen.

Here is how this podcaster describes his Podcast:

Money Blogger Podcast

Welcome to the blog for the Money Blogger Podcast! I interview bloggers, authors, and columnists who write about personal finance and the meaning of money. To subscribe to the podcast enter the following in your podcatcher:
HTTP://BLOGGERPODCAST.AUDIOBLOG.COM/RSS/MONEY_BLOGGER_PODCAST.XML

Charitable Giving is a Part of Personal Finance too

Tis the season to give!

I was reading a personal finance BLOG today that was talking about how it is "More Blessed to give than to receive". Being a Christian, this is certainly something I have been taught all my life as well...but trust me, I'm not here to preach.

Ok...there are plenty of aspects of charitable giving that can be discussed. The most obvious is the implications it has on one's taxes, and while this is certainly perhaps the most obvious one to discuss in a Personal Fianance BLOG...I think I will leave that to others.

Another couple of angles from which to discuss giving comes from our general giving back to society, and how we might try to teach our kids about that same thing. (here is an NPR broadcast that talks about teaching kids about giving) I could go on and on about this sort of thing, but this might be considered preachy....and while I think discussing charitable giving IS fair game for a personal finance BLOG, I'm going there in this post.

So without getting into religion or morals I will say that I think the most good we can have is when we roll-up our sleeves and get personally involved in a charity. Giving money is certainly easier, is tax deductable and in any cases may be the most helpful thing for a particular charity, but I feel our hands-on support is as good for us as it is for the people we try to help. (and it does go a lot longer way to teaching our kids the lesson of charity. Writing a check just does not give children the same "connection" to the help being given.)

Don't worry, I am not going to "push" a particular charity...I think you can find one that you would want to support right in your own town! There is no shortage of need even in a country as blessed with wealth as ours. (and there are certainly plenty more in the rest of the world too)

The above mentioned BLOG did turn me on to what looks like a very useful website that evaluates charities. It apparently looks through their form 990 tax returns from which it breakdown the charities income and how it is spent. If you have a list of charities you give to, you can look them up there....but perhaps even more interesting is the "search" mechanism you can use to fine one that caters to a particular mission.

So no matter how much money you make, I do urge you to give back. If you don't have time or money...I suggest simple random acts of kindness would be great. (actually, that would be great for everyone to consider too....starting today! After all, tomorrow is World Kindness Day)

Tis the season to give, and you will feel better having done so too!

Calendar of Economic Announcements

Just a quick post about a site that I found that seems to list all the various world economic indicators announcement dates. The owner of the site, Grace Cheng is a Forex money trader who BLOGs and offers a class on trading...and this sort of detail is apparently very important in the currency exchange world. (which I keep reading is the largest global trading market)

Anyways, I am not an expert in all these statistics, but I find them interesting.....while it might take me while to feel at home with any of the numbers, I think the longer term trend might be what might be useful to me. (because right now I tend to have many more buy and hold investments)

Currency Information Site

Here is an interesting website for those of you who have an interest in either tracking or knowing more about foreign currency exchange rates.

This site has many simple conversion tools as well as a lot of information to help you learn more about currency exchange and the world of money. I have looked around this site quite a bit tonight, and I feel I have barely scratched he surface.

Check it out.

Teaching kids about money and saving....

When I was a kid, I remember my parents teaching me about money and the value of saving. But I also remember that they did more than just "tell me" what to do...they would walk the talk as well.

My parents were not wealthy....and they started life from very humble beginnings. My mother had a high school education, and my father finished college in his mid-thirties.

Both of them had to work to make ends meet, but they were always happy and never in debt. They kept telling me that the key to it all was being frugal and having a mind to save!

So when my wife Cheryl and I had kids, we talked a lot about what we wanted to teach them...and how we would also try to practice what we preach. (I hope we are at least a little successful)

We wanted to give our daughters an appreciation for how saving could be done, so we decided to start by giving them an incentive to save. It all started with their receiving an allowance for doing their chores. We tried to connect the chores with the allowance, though I don't think we ever held it back if chores were not all completed. (they sort of worked on salary I guess...but they did their chores)

But how to teach saving....well, I thought that I would introduce them to the idea of making interest in money saved. But kids have a short attention span....they were not going to see the value of earning 10% per year....so I raised the ante and offered them 10% a month! (and I rounded up to the closest dollar)

We would get together at the end of each month, look in their saving box and I would pay them the interest right on the spot. It started out giving them a buck or two, but when they saw it growing, they naturally started holding the money. They quickly saw that they could actually make more in interest payments than in allowance....and if they were patient enough, they would be buying candy with interest alone with no need to touch the new allowance or principle!

Soon after that, they noticed that their saving would allow them to have enough to buy some pretty cool things they wanted. Kristen actually bought Elijah (her dog) for $600 at one point!

What did I do when their savings level hit $500 and I was giving out $50 a month....I kept it up because I saw it was working and they were really thinking about whether they wanted to "blow" money on something or save it. (besides, if I quit, they certainly would have had an incentive to just spend it)

I think they both ended up with about $1000 in savings each, and this was what they used to open up their bank account that they have to this day.

I guess the lesson I myself learned is two fold.....first, if you want to teach your kids something, you have to be proactive and do it. You can't expect them to somehow "pick it up" along the way. (It's the parents responsibility)

Second, once we started, we had to keep it up, and more importantly....we had to ourselves be consistent......to live by example ourselves. So Cheryl and I always tried to save, and to include out girls in on that thought.

So far, both of our girls have turned out to be very good with money, and very frugal as well. I believe it was at least in part due to our little lessons along the way.

Our Elected Officials Finances

I was going to post here simply reminding people to VOTE tomorrow....but being a finance/money/frugality BLOG, I thought I needed a "money" angle to the post.

My next thought was...."vote your pocketbook"....or "look at how much tax you pay"....but you know, there are other things in life besides money, and plenty of other reasons to vote. (probably more important things in the long run too)

But when I found this little website put up by The Center for Responsive Politics, I thought I had made the connection. Ok...so the info here will probably NOT sway your vote one way or the other...and I'm not suggesting it should. But it is very interesting to see the diversity of wealth and income among our current elected officials.

These people also have a lot of other information on our elected officials, some that they claim might help you decide when you are in the voting booth. I don't know about that since I have not looked at all the other information. (Reader beware I guess)

Check it out at:
http://opensecrets.org/

Interesting site with plenty of useful tools

Just a quick post to tell you about a site http://moneychimp.com that has quite a number of great calculator and tools on it to help people make their money and investment decisions.

For those of you who have an interest in Economics, they have a page that describes some of the economic indicators and when they are posted. This page also links you to the official government website that discusses that particular statistic.

Here is a page they put together to help people understand the value of a particular stock.

How about a page the describes Index Funds and some of the plusses and minuses in your using them.

The list of tools goes on and on.... (Roth IRA info, Capital Gains Calculators, Inflation Calculators, etc....)

Check it out.

Where does your salary rank you against everyone else?

Kiplinger.com has a very simple one line calculator that simply asks you to input your salary, and it quickly calculates what percentile your pay is in, and gives you some quick facts about how much tax people in that percentile pay.

I was a bit surprised at how high my pay was.....and you might be as well.

I suggest you try it out because if you happen to be above the 50% mark, you have to worry when someone running for office says they want to "tax" the fat cats.....they might be aiming squarely at you!

Check it out at: http://www.kiplinger.com/tools/income_rank/index.php