Friday, December 15, 2006

Budge-It Plus!

So there’s no end to all the software out there to help you manage your money. This one will be no different. Well, except the developer is yours truly!

I’m sure there will be plenty of bugs to work out that you guys will be able to find, but what I tried to avoid was making this worksheet become “all things to all people.” So after paring it down a bit, I’m come up with a nice, no-frills system designed to help you manage your spending plan. (And what the heck is a frill anyway?)

Since there are no macros in this file, I have decided to offer this free of charge (but I don’t hesitate to accept charitable donations if you find the file helpful. If you choose not to, that’s completely fine as well!)


This Excel file contains several features. I’ve also included a few screenshots as you can see below. The file also includes a sample, filled-out (or is that filled-in?) form for you to follow as an example. Let me know if you have any questions. My gift to you folks. Merry Christmas and Happy Holidays!



Screenshot - Top View


Screenshot - Bottom view


Download the spreadsheet here. The link will take you to our Download Center where you can download and use the file.


Each sheet is currently protected. You can unprotect the sheet at your own risk. (There is no password). Send all bugs, questions, etc. To the charles[dot]norwood[at]gmail[dot]com.

Friday, December 08, 2006

Q & A: Getting Started

THINGS YOU MAY HAVE WANTED TO KNOW ABOUT THE ONLINE BANKING CRAZE AND MUTUAL FUNDS, BUT WERE AFRAID TO ASK!


So this week, we're going to have a little Q&A about starting to invest in mutual funds or using an high-yield savings account like ING or Emigrant Direct. These questions arose out of a conversation I had (and of course, was granted permission to reproduce them here!)




-What types of fees are there involved with the investment in either the [high-yield] savings or mutual fund?

Using EmigrantDirect (http://www.emigrantdirect.com) or ING (www.ingdirect.com) will allow you to have an account with as little as $1 in it. I implore you, however, to move your long-term savings out of a regular (low-yield) savings account and into one of these accounts. It's the smart thing to do. Neither of these banks have minimum-balance requirements nor charge any fees. Emigrant's rates are at 5.0% and ING is currently at 4.5%. I use both, and have had no problems.

Mutual funds vary of course. You will have to go to the mutual fund's websites and find out specific information (like fees and expense ratio information). I do of course recommend Vanguard Funds, American Century, and even T. Rowe Price is a nice, long-term company as well (you've seen the commercials). In the end, you'll have to pick which works for you, because each company has it's own investment strategies and charge different rates.





-Are there lock up dates where the money would not be accessible, and if so, what types of penalties are there?

The HY (High-Yield) savings does not have a lock-up date. (Not like CDs, (certificates of deposit) which have a date where your money is "locked up" and cannot be withdrawn until the agreed-upon date, with few exceptions).

You can move the money into a high-yield savings account today and move it out next week. You wouldn't do this of course, if you are trying to get the interest accrual. MF (Mutual Funds) may have some. If you are talking about starting a Roth IRA and using MF, then there will be penalties for trading in and out (like taxes). If you plan to touch the money in the next 5 years or less, put it in the HY-Savings. If you're time horizon is longer, the MF should be OK.



-Should I only get with a proven mutual with a 10 year that may not have as good a yield as a younger one?


Yes. Minimum 5 years. The "younger" funds have not endured a market cycle yet. So stick with the guys who have shown they can meet-or-beat the S&P 500 over 5-10 years. Don't compromise on this. Some companies show the 1-yr and 3-yr, but that's nothing. Think about it as a coin flips. It's pretty simple to get 3 heads in a row. But if you get 10 heads in a row (on average) then there's some skill there. So you may see some companies that may have stratospheric returns over a short time. They may even turn out to be pretty good. But it's a chance you shouldn't take until they've really proven themselves.



-Is there a particular company with really good user interface that is easy to understand?

I would start with ING for HY-Savings. It's a slightly lower rate, but its this most user friendly. EmigrantDirect is not as "colorful" but it's still fairly easy to use. If you can use Online Banking with your current bank, this shouldn't be a problem. There are quite a few others out there but I cannot vouch for them at all.


-What are the chances of losing on a mutual fund (negative yield in short or relatively long term)?

Depends on who you choose. With MF's of course there's nothing guaranteed. But great risk can lead to great reward, and that's why they encourage you to start young (so you have time to recover). This shouldn't discourage you, because the money you put into a MF is money "left over" after you've budgeted anyway. Once you've covered all your expenses, then you invest the rest (in the community and in yourself).


What you have to do is minimize your risk. So when you choose your mutual fund according to what we learned previously, you know you can choose your fund more comfortably. If a Fund has outperformed the S&P 500 for the last 10-20 years, chances are it will continue (not guaranteed of course). When you start investing, there will be some volatility (you will have some really up years, some OK years, and some down ones. By choosing long term funds, making sure the expenses are low (like less than 1%), and diversifying (across growth funds, income funds, international funds, real estate funds, etc.) you will position yourself to be quite successful.




-What is a good amount to invest in for mutuals?


Most funds have "requirements" for initial entry (usually between $1000-$10000) unless you work for a Corporation or other business with a 401(k). I usually think the 401(k) is the best to start with because it's pretty diversified. (Plus the company throws in extra money too). The IRA is what you use if you have even more money to put away. You'll again have to check Morningstar.com or a company's website for more information.

Please Keep your questions and comments coming. See you next week.

--Charles

Saturday, December 02, 2006

You Can't?

Certainly, you've heard the following:

"You can't get wealthy working for someone else, so go into business for yourself."

You often hear that statement at forums led by savvy business people, and as you look around you're compelled to nod and agree with the others in the audience.

I would caution my dear readers to take that statement and analyze it very carefully and understand how mislead this statement can become. Oftentimes this statement is "supported" by the logic that since the person who writes your check is "more wealthy than you are," then you cannot make any money working for a business or Corporation. Young professionals who enter high-stress, high-paying jobs like investment banking do quite well and can amass a large amount of capital in a very short period of time (that is, if you're in a rush to make a lot of money).

I wonder how they reconcile this with the fact that the people who work for them who also desire to be rich. Using this logic, few would work for anyone--after all, most people want to be wealthy, right? That being said, I do realize their point. In many cases there are instances where working for yourself is more rewarding than working for someone else, especially if you have a skill that would make you successful as a sole proprietorship.

However, because there are many ways to become wealthy, I suggest you do what works for you! If you are working in a public corporation, chances are the company offers revenue-sharing programs, dividends, and offer 401(k) programs in which the company will match your contributions up to a certain percentage or dollar amount. In the end (given that the company is relatively stable, low-turnover workforce) you can end up being quite wealth at a young age, given that you invest your money in a proper way.

So its very possible to retire while "working for someone else," it's just highly-dependent on your industry and what you consider "wealthy," which can mean different things to different people. So if you hear that statement, remember to ask yourself if you have a "job" or a "career." And if you can swing it, you can always supplement your income with a job on the side!

See you next week.

Thursday, November 23, 2006

Be Thankful.

This week, make sure you take stock of your life--financial and otherwise, and give thanks to Whom thanks is due. For me, I thanked the Lord this week for getting my Dad safely out of the hospital this week and for getting the whole family together for a nice Thanksgiving.

Also, take a moment to slide over to visit my boys at http://www.brilliantbrown.com . They're trying to build their site traffic up just like I am, and I know how hard it is to get people to read stuff you write!

For you lurkers out there, if you find anything on this site informative, I'd be quite thankful if you were to do a link exchange with this site. use the comments section below.

Oh yes--it's at this point of the non-article I'm writing to let you know there is obviously no focused topic this week. Take the time to reflect on your accomplishments and blessings and continue to strive for many more. Eat to your fill, and relax.

Then, if you go to the Black Friday sales, by all means keep your head on straight and not forget about all the things you prayed/reflected on this week. Be courteous, and spend wisely!

See you next week.

Wednesday, November 15, 2006

How to Really Do It

A SIMPLE, ACTIVE APPROACH GENERALLY WORKS BEST. HERE’S HOW.

If you’re going to invest money, it’s best to make sure you have the money to do so. I spent the past week or so tweaking my Excel skills in developing a user-friendly, active system to help manage money. (It'll be done next time). There are many ways to do this, and you may determine that the best way to manage your money is to find a tracking system that works for you. However, it is very important that you track it.


Step 1: Train Your Behavior
Some people think that the best way to track your money is using a passive system, like letting the bank do it. (Which means all you do is go online and “check your bank account.” This is definitely not the best way to go about things if you (1) are planning to Run a Business One Day, or (2) if you care at all about keeping an eye on where your money goes. Think about this: Let’s say you had a bank account and everyday I would slip in and take away one buck. How long would it take you to realize that I’m slowly ripping you off? Hopefully not long, but because of “bigness bias” when people have “a lot” of money in their account, they tend to pay little attention to how small fees and expenditures eat into their accounts. Thus, if you make $1000/month, you may not bother canceling that $20-a-month subscription to Columbia House or Netflix that you’re not bothering to stop subscription or the Vibe/Time/Robb Report magazines you’re not reading.

Although most people will “wait until they get a real job/more money” to start managing their money, it really is a great idea to at least take a crack at it now. Remember, all more money will do is further enable the same money habits you have now. What could that mean for you?


Step 2: Determine Income-Outgo from last month.
This is fairly easy if you have a bank statement. Simply determine you income and outgo from last month and look for a net increase or decrease. It doesn’t matter if there was an “irregular expense” from the previous month. There will always be irregular expenses, as we will talk about in the next step. If you can determine spending by category, then you’re in very good shape. If you really can’t, then next month will be the time to do it.


Step 3: Determine Your Future Income-Outgo Money Flow from the past.
Monitoring your spending by using a simple spreadsheet program to track future expenses is the key step. (Pencil and paper work well too.) This is where we separate those who have the discipline to empower themselves versus those who will simply drag along in hopes of “outearning” the need to develop a written spending plan. Writing it down forces you consciously track how you spend as you go along instead of simply checking how you spent your money.

It would make little sense to try to use Mapquest only after you’ve gotten on the road just to “check where you’ve driven so far.” Maps are used to plan your route to your destination, and it complements your own common sense to find your destination safely and in good time.


Planning your spending ahead of time is about as easy as using a (good) roadmap. Most track month-to-month, and some track it monthly, but at the weekly level. There are many expenses that are somewhat fixed (rent, cable, etc) and some that are variable and usage-based (food, cell phone, some utilities, fuel, etc.) These recurring expenses can be tracked and you will know about them before they come up.


Most budgeting systems like Intuit’s Quicken and Microsoft’s Money are good at keeping track of where you’ve been, but to see where you’re going depends on you. You have to track for yourself money you haven’t spent yet because, well, you haven’t spent it yet. Microsoft may be good, but they’re not that good yet. Start with a simple spreadsheet to track your expenses. For those of you who are just “too busy” managing other people’s money to worry about your own, it would be in your interest to make time for yourself. I will end with a couple spreadsheets on that Financial Underground known as the internet where you can get some easy-to-use budgeting tools free-of-charge.


Thanks for reading. Have an excellent Thanksgiving.



Some of the best of the web (more to be added later):

From the It's Your Money blog site.
http://www.mdmproofing.com/iym/files/spendplan.zip


Thursday, November 02, 2006

Life's Terrible...Uh, Right?

Because that's what I heard on TV!

Nevada and Colorado are considering legalizing small amounts (up to 1 oz.) of pot. Arizona is considering a ballot initiative giving $1 million dollars to a lucky voter. Michigan voters are considering eliminating Affirmative Action in public institutions. Yes, this off-year election season is very interesting. (Let me cue up some evil election ad music…You can’t hear it of course, but work with me here.)

Both Democrats and Republicans want you to think that this is The Most Important Election of Our Lifetime, because if Democrats win the terrorists will detonate a bomb in Your City later in the week, and if the Republicans win then citizens will be out on the streets standing in bread lines because of lower pay and no minimum wage increases.

People are running out of money. They cannot pay their bills. People aren’t saving like they used to. Things must change. You must vote.

The recurring theme is the same as it is every even-numbered year: Life is more terrible than ever. (hear the eerie music?) buh-buh-buuuuuh!) Yeah.

But is it really?

I took a look at this Forbes article on how the Average American is doing today compared to the middle of America’s Golden Age 1965. (By the way, have you ever met the Average American? Where does this guy live?) Here are some of the stats the article highlighted:

48% of Americans believe they're worse off than their parents were.

Troubling…but vague. However…

Mr. and Mrs. Median's $46,326 in annual income is 32% more than their mid-'60s counterparts, even when adjusted for inflation, and 13% more than those at the median in the economic boom year of 1985. And thanks to ballooning real estate values, average household net worth has increased even faster. The typical American household has a net worth of $465,970, up 83% from 1965, 60% from 1985 and 35% from 1995.

The article goes on to say that people may be dissatisfied because of what Milton Friedman calls Permanent Income Theory (PIT). Be warned—the preceding link will take you to Wikipedia page on boring economic theory. For those who don’t salivate at reading ramblings that use terms like “propensity to consume,” I’ll save you a bit of time. In simple terms the PIT means people measure their “better/worse off” assertions based on how they were doing a couple years ago (not a couple decades). They couple that idea with the future money they’re “going to make” with little consideration to how the cost of living will increase as well. Thus, if you expect to have 5% pay increases over the next 3 years and you only receive on average 3.5% increases, you’ll tend to be unhappy (even though you would have more spending power than you did before).

In addition, people compare how they’re doing to their rich neighbors and famous people—which is a poor marker. We always advise against comparing yourself to the Joneses. Seek to make enough money to pursue your dreams and to help you to achieve financial independence, and do not look for acceptance among your neighbors or what you see on TV. Who knows, they may be trying to impress you. Contrary to popular belief, most people are doing OK. For you mutual fund owners out there, if you’ve diversified well and solidified in index funds, you may realize that long-term, you’re doing pretty good.

Finally a word on this permanent income thing: one thing people do (without thinking properly) is that they will make more money in the future and they bank their current purchases off of future income. The trouble arises when that doesn’t happen. It’s like when people accept one of those dog-awful Interest-Only or Adjustable-Rate mortgages, fooling themselves into thinking that (a) they will invest the extra money they have to work with or (b) their adjustable-rate mortgage will adjust down. Remember, very few companies set an interest rate and then say “You know what? Let me adjust your rate down for you so I can collect less money… Cause I just love making less profit!”

Life hardly ever plays out like we expect it to. People have kids. People buy 40-inch flat screen TVs and new cars. People get hurt and sometimes have health issues they never saw coming before. So make responsible decisions and don’t listen to the negative hype machines out there. Oh yeah…go vote too…I guess. See you next week.

Thursday, October 26, 2006

Christmastime is Here..Well, Almost.

Well, we're on the latter end of October and it's almost time for the holiday season. Are you prepared? This year, try to get a jump on the season by bracing for the coming "generosity complex" by planning your holiday spending. What do I mean?


Well, it starts when you purchase that first ticket for Thanksgiving (for those of you who fly to other areas for the holiday). The day after the Big Meal (Black Friday) is often called the largest shopping day of the year (but this has not really been reliably confirmed). Then you have to fly/drive home again for the Christmas holidays. And then New Year's Day parties...And $500-$600 for a video game system? Does it come with spinning rims? Add in all the spending you do because you're "generous," and the next thing you know, you ring in the New Year with some new debt. Let's call it the January Jolt: you don't realize how broke you are until maybe that second week in January, and you think "What happened?" Then you start looking around for gifts to take back to the store…

This of course, can be prevented. By starting now, you can set aside a little bit of cash here and there for the coming season, it can help soften the blow. Try to give an estimated (but realistic) value on the amount you want to spend on gifts during the holiday season, being mindful of travel expenses, etc. Then, determine how much you expect to spend during the Christmas holidays. Finally, count the number of shopping weeks available to you—then count back to this week. Try to make a goal of saving a set amount over each available week.

For example, if you want to spend $500 on gifts, and $300 on travel and entertainment, and you find you have eight shopping weeks, then you calculate $800/8 weeks = $100/week. Try to consciously save this amount every week, and when it's time to shop, it's very important that you spend it! Not only does it program your mind to set and meet realistic goals and discourage being a scrooge at Christmastime, it'll soften the financial blow to your account. You'll be in better financial health, and you don't have to worry about debt!

So this time, ring the New Year in right: Christmas happens on the same date every year, and so your shopping days are coming. If you haven't started already, start saving now. Hit the Black Friday sales (if you dare), order online, and relax.

Friday, October 20, 2006

Special Contributor Joseph Hogans: Income Investing



[Ed. Note: Wealth Weekly Readers! Please welcome Mr. Joseph Hogans of Georgia Tech, who will help us out at WW by contributing articles for the site. This is his first, (with a little analysis from me). This article will appear in the next Hueman Press. Thanks to Joseph for giving us a sneak peek!]

There are two basic types of investments: growth and income. This article will present some income investment opportunities that are available. In case you are unsure about the difference between growth and income, the following examples should help clarify.

Growth vs. Income

Growth: On June 2, 2006, I invest $1,000 by buying 10 shares of AASU Inc. at $100 per share. On June 2, 2008, I sell my 10 shares of AASU Inc. for $140 per share for a total of $1,400. My total profit from my ASSU investment was $400. I earned this $400 because the price of AASU stock “grew.”

Income: One June 2, 2006, I invest $1,000 by buying 10 shares of GTSBE Inc. at $100 per share. On June 2, 2008, I sell my 10 shares of GTSBE Inc. for $100 per share for a total of $1,000. However for the past 2 years, GTBSE Inc. has paid a quarterly dividend of $5 per share. Every three months, I received a check for $50 ($5 per share* 10 shares). Over the span of 2 years, I have received $400 income from my GTSBE investment.


Bonds

Whenever a corporation or government needs money, a preferred method of raising cash is to issues bonds. In the simplest definition, bonds are IOUs. You give me $1,000 now; and I’ll pay you interest on your money until the bond’s maturity date. At maturity, I’ll stop paying interest and just write you a check for the original $1,000.
Bonds issued by the government are considered the safest investments possible. However because of this low risk, you can expect a low return on your investment. Bonds issued by corporations having varying degrees of risk and therefore varying rates of return. To help you determine which companies are safe and which ones aren’t, companies are assigned credit ratings that range from AAA (Lowest risk) to C (Highest risk). When buying bonds from a company with a high credit rating, you can comfortably assume that you will receive your payments as agreed. This high comfort level translates into low returns. When buying bonds from a company with a low credit rating, there is a good chance that you may never get your money back as originally agreed. However because you are taking on more risk, there is the potential to get a higher return on your investment.
The key to bond investing is determining your level of comfort when it comes to risk and reward. I hesitantly mentioned bonds with low credit ratings, known as junk bonds, because only experienced, educated, wealthy investors should even consider them. For everyone else, the only reason to invest in bonds is because you want a safe, low risk method of making money. It is just important to remember that you will not earn much income from low risk investments such as government bonds.

Mortgage-Backed Securities (MBSs)
If I want to buy a $200,000 home today, do I need to have to $200,000 sitting in the bank? No. Whenever a potential homeowner wants to buy a home, they place a small down payment on the house and borrow the remaining amount in the form of a loan known as a mortgage. A later article will discuss the various types of mortgages, but for now, let’s assume it is a 30-year fixed rate mortgage. This means that for the next 30 years, I will be making fixed monthly payments to my mortgage lender. A portion of this monthly payment goes towards paying principal (the original $200,000) and another portion goes toward interest (the price you have to pay for borrowing the money).
Investing in mortgage-backed securities allow you to become a mortgage lender. When you invest in a mortgage-backed security, your money is pooled with other people’s money to lend to homebuyers. In essence, you are financing other people’s mortgages. Every month when these homeowners make their monthly payment, you will receive a check in the mail. In this situation, the bank merely acts as a middle man. The home owner makes a monthly payment to the bank; the bank passes the money onto you. Of course, this is America so the bank takes a little cut of the money for all of its hard work and trouble, but you still receive a steady source of income. Because there are slight risks associated with this investment, you can expect a rate of return that is a couple points above that of a bond.
The easiest way to invest in mortgage-backed securities is to do so through a mutual fund that invests in MBSs or GNMAs. If you want to buy a MBS directly without going through a mutual fund, you’ll need to have a minimum investment of at least $25,000.


Real Estate Investment Trusts (REIT)
What’s the one thing your parents always told you about renting an apartment? “Don’t rent because when you do, you’re making somebody else rich.” Instead of blindly taking this advice, the prudent investor would figure out how to make money off of other people’s rent payments. Real Estate Investment Trusts are an opportunity to do just that.
A REIT is a company that owns income-generating commercial and/or residential property. A commercial example of such a property is a mall. Each store and kiosk in the mall pays monthly rent to the mall owner. A residential example of such a property is an apartment complex. (FYI- Post Properties, owner of apartments in the Southeast United States, is a REIT).
By law, REITs are required to distribute 90% of their taxable income to shareholders. These distributions occur quarterly in the form of dividends. REITs provide a unique opportunity that other investments do not because they usually perform well in multiple economy environments and provide both growth and income. When the economy is booming, interest rates are low, and real estate prices are rising, REITs do well become their primary asset is real estate and property. As the price of real estate increases, the value of the REIT’s assets increases which will usually cause the stock price to increase. On the other hand, when interest rates are high and people cannot afford to buy homes, REITs benefit from increased income because many people are forced to rent instead of owning.
The best way to invest in REITs is to do so through a REIT mutual fund. The average annualized return of these funds has been over 20% for the past three years. In case you’re wondering, 20% is considered a good return.

[Editor’s Note: 20% return, over three years, is a good return, however, we at Wealth Weekly encourage our investors to look to then long term. How do REITs work over a 5 year term? Or 10 years? Consider the fact that while REITs have returned about 13% over the past 20 years, index funds have returned about 15%. We look over long periods of time so that we can see how mutual fund managers handle volatile markets (like Real Estate) through the ups and downs.]

Bottom Line
The 3 income investments outlined above are by no means the only ones available. However if you are truly interested in investments, they are three with which you should be fairly familiar. Income investments are attractive investments for retirement accounts because the income generated from the investments are not taxable. You can take $1,000, put it in a savings account earning 0.5% interest, and still have to pay taxes on the minimal interest you earned. Alternately, you can take $1000 in your IRA, invest it in a REIT earning about 20% in growth and income, and never have to pay taxes on the money. The better choice is obvious.

[Ed. Note – Careful readers. When investing in any mutual fund, when you take the money out of the investment, you are charged capital gains taxes of about 20% on any profit you make on the investment UNLESS you invest in a tax-deferred retirement account known as a Roth IRA. (And would you invest in anything else?) And, you have to hold the REIT for at least 12 months for favorable tax rates.]


If you have any questions, feel free to write jwhogans@gatech.edu.

Wednesday, October 11, 2006

Family, Money, Health, and Career Balancing: The Concept of “Enough”

I finished a book a couple months ago (and never commented on) called Your Money or Your Life spoke about the important of reaching financial independence and letting that be the end-all of your money pursuits—and to instead consider the pursuits of Life as intended.

I keep hearing about Terrell Owens recent incident and the aftermath it created. One of the small things that seemed to go overlooked is the publicist’s remark that T.O. had no reason to kill himself –in fact, he had “25 million reasons” not to, referring to the superstar’s paycheck. Because of course, we’ve never had cases of rich people offing themselves. I mean, if they have money, they have life right?

OK, let me hop up on this here platform.. Man, this soapbox is awful dusty..Anyway, what was I saying? Oh yeah:

In writing about personal finance, I’ve often overlooked the concept of “enough”—how much money is enough for you to live a fulfilling life? Clearly, money is tied to success in life, but it is NOT the whole thing. You must consider your health, your family, and how far you want your career to go—and it all is determined how we value those things and why.

I really like capitalism. I think it provides a great way for people to acquire the capital they need to pursue those dreams and meet their goals, especially if you not only work hard, but intelligently. However, some think that it takes large amounts of money to acquired in a short period of time so you can retire and “live a complete life,” when it really doesn’t.

Some think they need large amounts of capital so that they can buy things to entertain (impress) their friends, relatives, love interests, or neighbors. Smart, enterprising individuals and corporations have found a way to exploit this feeling by telling you that if you really want to feel good, be noticed, attractive sexually, then you must own The . Your kids will love you, women/men will flock to you, your friends will praise you, etc. Seriously, I want you to consciously go out one day on your way to work, or on your way to school, and see how many commercials, billboards, and products you use everyday. See how you are tricked into believing that only millionaires have the good life. Shoot, there’s even a MySpace clone site out now, Zebo.com, which is specifically designed to list your status about what stuff you have.

At some point, you have to say “enough.” It won’t come easily either. It’s human nature to always want more stuff. In your pursuit of stuff though, always be conscious that happiness will elude you by placing itself just out of your reach. I can’t help you with that. Each person has to set a major goal and to set things in order to reach that one particular goal. Determine what will make you happy

Career/Family Aspirations—today’s society is filled with ways for individuals to reach certain income levels—for the average technically-oriented college graduate these days 100,000+ salaries and Soon, that $50,000+ entry-level job out of college inspires you to go for 70,000..then 90,000, then 100,000, and on and on. As salary increases, so does responsibility and hours worked. Investment bankers, for example work notoriously long hours. If you are single and unattached, a few years in this profession may not hurt you, but you should still be aware. Those who end up getting married and have kids have the ultimate job of balancing work and family responsibility and determining how money fits into that equation. If you

Health and Spiritual Aspirations—Many people who attain wealth still are unhappy because of many reasons. Sometimes, there are health concerns. There are many people who would trade all the money in the world for their health. Another issue is the feeling that people feel unfulfilled (empty inside) because they spend so much time working for the pursuit of more and more money that they fail to seek a spiritual balance. Instead, they try to fill it with “stuff” that will make them “happy.” However, the stuff they chase usually brings on a temporary feeling of happiness that goes away after, oh, say a week or two. Then it’s on to the next “thing” which cost more money, which you have to work so hard to get.

Importance of Balance—all that rambling to say that balance is extremely important, and it’s good to make a habit of it at a young age to prevent a mid-life crisis (or even a quarter-life crisis). Seek a profession where you are content and you see a future for yourself. Determine early on how much money you think you will need to be happy and to invest in the things to make you and your family’s future secure. It must also fit into a dedicated spiritual pursuit--whether you have a place of worship, practice a spiritual enlightenment activity like yoga or tai chi, or even something as simple as volunteering regularly in your local community will get your mind off the everyday challenges and can help keep yourself grounded

Dangers of Exceeding Enough— There will come a time where you may go through some self-evaluation. If you find your self falling into the get-up-go-to-work-go-home-go to-sleep-get-up-again cycle, and this is your life, be careful. Soon you find yourself living to work. You should actively implement other activities and downtime in your life while pursuing financial satisfaction. Seek financial independence, but be mindful of your future and decide at what point you are more than just a company’s cog. Find an interest and pursue it.

Its important to recognize the concept of what is “enough.” For some it may be a million, others 10 million; some more, some less. Be sure though that you know how money fits into maintaining you health, your spiritual life, and how you family (or your future family) will fit. Generally, families cannot be “planned” (as in “I will work and find a man/woman at the age of 35 and we will have 3 kids and one dog…) because usually, it doesn’t happen that way.

Or, you can sit on this soapbox I’ve been standing on, and think of another solution. I've rambled on too much. In fact, I’ve said enough.

Comment (as you often do) below!

Wednesday, October 04, 2006

Basic Investment Vehicles, Part I: The What, How, and When of Investments

Below is a comprehensive (but certainly not exhaustive) choices of where you can put your money. I’ve also listed a time-horizon for when you should place your money in these investment vehicles. I also tried to talk a little bit about risk. Most young investors (under 40) should probably be heavily invested the last three choices.

Low-Yield Savings Accounts

The first interest-bearing account most people learn about. Most banks offer a small percentage of interest (usually no more than 2%). It’s also the lowest risk. Local bank Savings Accounts should actually be the place to store the majority your next-day funds if it is directly connected to your checking account (meaning if you have a Wachovia savings account attached to your Wachovia checking account). That way instant transfers are available and you can get the money quickly.

Note – notice I didn’t start with checking accounts—this is because the majority of checking accounts are NOT investment vehicles. In fact, you should only keep enough money in your checking account to stay above minimum-balance requirements and to cover everyday expense. Large balances in checking accounts do NOT help you.

Money market Accounts (MMAs), High Yield Savings and CDs

For the savvy folks out there these options are the superior place to put the majority of your money for the short-term (under 5 years). To repeat, these options present the SUPERIOR place to park your SHORT-TERM savings. If you plan to use your savings in the next 5 years, consider the following:

High Yield Savings (HYS) accounts (generally online) have little or no overhead and so are able to offer higher rates. You should generally only stick to rates with low or no balance requirements. In fact, many people associate/interchange MMAs with HYS accounts HYS are just glorified versions of MMAs (and usually, a more attractive option). The top 5 $1-or-less-minimum, no fee HYS accounts and their interest rates, according to this writing as of October 3, 2006 appear below:

1. UFB Direct (5.27%)

2. Amboy Direct (5.15%)

3. Grand Yield Direct (5.25)

4. Emigrant Direct (5.05%)

5. Citibank Direct (5.00%)

There is a lead time of about 2 business days to transfer your money. You should keep this in mind when allocating savings from everyday spending.

CDs (Certificates of Deposit) are like lending agreements. Basically you lend the bank some money for a certain period of time. After that time period is up, they give you the money back with interest. Generally (but not all the time), CDs offer the highest interest rate among low-risk investments. However (and this is big) the “risk” involved is more on you than it is with the bank. In a CD, once you put the money in it is agreed that you can’t take it out before the agreed-upon time period. If you do, there is a penalty that may even leave you with less money that you put in the account in the first place.


401(k)/IRAs

Finally, for long-term saving (more than 5 years), its best to consider the higher-risk, higher reward option that comes with your job. Most employers have a 401(k), which is a deferred-payment program and is a good introduction to investing. I highly recommend it. Many major companies require it and will auto-enroll you into their 401(k). Once you’ve set up your budget, this should be your primary investment vehicle. The earlier you start contributing to this program, the better off you’ll be.

So how does it work? You simply elect to set aside a portion of your gross pay into a series of mutual funds or company stock (or a mix of both). Usually the company leaves the allocation to you, but usually will have someone offer investment advice. However, they will leave the final decision up to you.

The 401(k) is tied to your place of employment. When you leave that particular company to work for another company (or yourself), you have some options. If you are satisfied with the investment holdings that company has (and you have more than 5,000 invested) you can leave it with the company, especially if the holdings your new company owns are not as attractive.

The other advisable option is to roll over that money into an IRA (Individual Retirement Account). Think of as a 401(k) that is not attached to the company. You get more freedom in how your money is allocated and to what funds are included. When you change jobs, the IRA can go with you, and no more rolling is needed.

What is NOT advised though, is to take the “cash option”—this is where people elect to simply take a check from the company they’re leaving. This is very bad because it will be subject to absurdly high taxes which can cut your savings SIGNIFICANTLY. First, there will be a 10% penalty if you take out the money before you’re 59 and a half. Then, you’re taxed in whatever bracket your income is in—so if the income is enough to be taxed at the 28% tax bracket, then that’s 10+28=38% of your money gone when you get your check. And unless you live in Texas, Florida, or any other no-income tax state, you will be subject to state taxes as well!

So save yourself the trouble. By rolling the money into an IRA, there’s no loss.

Some of the best reading and tips explaining the IRA in detail can be found at fool.com. Go here to find info on 401(k)s, and here to find info on IRAs.

Wednesday, September 27, 2006

Today's Colleges Students: A Nation of Boomerangs?



So I was looking for a topic today and stumbled on a Wikipedia article on the
Boomerang Generation. Unbeknownst to me, there is a large group of individuals from those born in 1981-1986 that are in financial straights. The reason why? Well, it seems college is to blame.

Apparently, many students are attending college and are paying absurd amounts of money in tuition and fees—check that—they are borrowing absurd amounts on money in tuition and fees to pursue their major. However, upon graduation the students end up with debt loads that rival home mortgages—forcing the student to move back home with their parents until the debt is paid off. A recent film, Failure to Launch, explores this concept. Note, however, that this is not to be confused with cultures where many children move back home specifically to care for their parents.

Truth be told, I think its unfortunate. People are brought up to believe that “if you just go to school, you can do anything!” Unfortunately, people are beginning to realize that you have to qualify that with some substance and some common sense. One should go to college to pursue knowledge, yes, but you should also be equipping yourself with the knowledge to succeed in our ever-flattening world. There are many people who went to college (and are going to college) who graduate and cannot find a job, or are underemployed—and are therefore not able to pay back all those student loans.


It’s a terrible idea to start your life in The Real World with debt you cannot pay. Many people unknowingly pursue careers that will be outdated and sometimes don't realize this when they trek to the Job Market after graduation. As I’ve said before, if you can imagine your career being digitized in the near future, you should probably find another career. Quickly.


Well, there are many of you (well, perhaps all of you) who pretty much cannot change the decision you made. But for the lurkers out there who may be at the college crossroads, take note. For one, you should try to avoid paying for college at all costs—unless of course you’re headed to med school. There are scholarships abound, especially for minority students. Secondly, consider going to school in-state, especially if you’re considering popular choices like English, engineering or the sciences. Going in state will not only save you a bundle, but you’ll be surprised that most employers don’t care if you went to an Ivy League or not. State schools are usually much lower in cost and provide you with the same level of educational experience without you having to sign your soul over to the Lending Mafias out there.

Finally, come to the realization that its getting competitive out there and you should be prepared. Many people boast that they’re “good at math” (as I have) yet they don’t cash flow their debt and income before or during college and wait for the post-graduation shock that their job offer won’t be high enough to cover debt and living expenses. Bill Cosby stated once that human beings are the only species that allows their children to come back to the nest to live. Understandably, some of us need to get back on our feet. However, remember that in your pursuit of education it’s important to crack a financial book along with your others to be well prepared once your leave the grad stage in May and enter the next Stage of life.

But perhaps you feel differently. Leave a note in the comment section, and let’s talk about it!

By the way, Facebookers who read this site through the Facebook can click through to get access to the Wealth Weekly Archives! Go to http://wealthweekly.blogspot.com for more information

Next Week: We put Personal Finance to the side to explore IRA/401(k)’s in detail. See you then.

Tuesday, September 19, 2006

Well, Duh!

To get wealth, the best way is to focus not only on bringing in income, but you also have to make sure you adhere to the Millionaires’ Secret. I’ll mention it below. After reading it, it may seem obvious. But why don’t people do it?

The following clip comes from Saturday Night Live—it’s not one of the best clips, but the message was priceless.

http://danwho.net/mp/index.php?id=snl_dontbuystuff

For those of you who did not (or maybe can not) click through, here is the gist of what went on:

[cutscene to kitchen table, couple balancing their checkbook]

Wife: (sighs) I just can't get these numbers to add up.
Husband: Like we're never going to get out of this hole.
Wife: Credit card debt, does it ever end?

Finance Guy CP: [walks in] Maybe I can help.

Husband: We sure could use it.
Wife: We've tried debt consolidation companies.
Husband: We've even taken out loans to help make payments.
CP: Well, you're not the only ones. Did you know that millions of Americans live with debt they cannot control? That's why I developed this unique new program for managing your debt. It's called [presents book] "Don't Buy Stuff You Cannot Afford."

Wife: Let me see that... [grabs book, reads] "If you don't have any money, you should not buy anything." Hmm, sounds interesting
Husband: Sounds confusing.

Wife: Ok, so what if I want something but I don’t have any money?
CP: You don't buy it.
Husband: Well let's say I don't have enough money to buy something. Should I buy it anyways?
CP: No-o-o-o.
Husband: Now I'm really confused!
CP: It's a little confusing at first.

Wife: Well what if you have the money, can you buy something?
CP: Yes.
Wife: Now take the money away. Same story?
CP: Nope. You shouldn't buy stuff until you have the money.
Husband: Oh, THEN you buy it. But shouldn't you buy it before you have the money?
CP: No-o-o-o.
Wife: Why not?
CP: It's in the book. It's only one page long. The advice is priceless and the book is free.
Wife: Well, I like the sound of that.
Husband: Yeah, we can put it on our credit card.
CP: [shakes head]

(SOURCE: http://snltranscripts.jt.org/05/05lbuy.phtml)

Remember that managing finances, as in everything, is more behavioral than mathematical. Most of us know that you shouldn’t buy things you can’t afford, but with today’s emphasis on the “look” and not necessarily the responsibility, it’s quite difficult. So many young people (and “older” young people) put purchases on credit and make small payments in anticipation of a job. Thus you’re paying for something you can’t afford to impress people who, in turn, are probably trying to impress you too. Don’t get me wrong. If you wanna ball, by all means, ball. But it must be done in moderation if wealth is where you want to be.

Let me be clear. I’m not much of a doom-and-gloom guy—I could ramble about how Americans are not saving like they should but I’m sure you are quite aware of that already. However, Americans are saving in some areas that are not tracked—according to The Motley Fool, capital gains savings are not tracked in American savings numbers. So for those of you who are investing by socking significant money into your 401(k) or IRA, you’re doing well, but it should also be coupled with storing up a good emergency fund, debt-free living, and giving back to your community through your church or other community-outreach organizations.

Tuesday, September 12, 2006

The Feeling's Mutual

5 Tips for a Great Portfolio Relationship

The staple of any investor’s portfolio is the mutual fund. A mutual fund is a collection of securities (stocks, bonds, and sometimes money) usually managed by a financial company. Before you learn about individual stock analysis and the like, you should really focus on your foundation, and generally, mutual funds are the start. Think of it as your “Investments for Real Life, 102” that everything will be based on moving forward. Got it? Well let’s begin. What is the best way to guide your decision about investing in a mutual fund? It’s almost like a good relationship.

1. The Return – You want more out than you put in. This is the primary (but by far not the only) screener. You should look for funds with the highest returns. Most fund-screeners do a good job of this for you. However, a return is arbitrary unless you compare it with…

2. Experience. Good relationships survive through thick and thin, and don’t turn tail when things get a little dicey. The next and perhaps most important step would be the consistency of said returns. If the fund has not been around for at least five years, don’t even deal with it. Stick with something that’s proven. Combined with #1, you want a fund that’s been around through the ups-and-downs of the stock market and has returns that are consistent and high.

3. Low Turnover. Anytime you trade a stock (which is what most mainstream mutual funds do) there are taxes incurred on any gains made in the stock, called capital gains. For instance, if a stock is bought by a mutual fund owner at $20, and it’s sold a $25, a 20% tax is levied by the government on the $5 income gained. A company that trades in and out of stocks in your mutual fund very often can build up large capital gains taxes that they pass on to the consumer. Therefore, stick with a company that doesn’t obsess over trading in and out of the stock market. Low in this instance is based on a scale from 1-100, and the smaller the number, the better.

4. Low-Maintenance. Maintenance fees are the fees charged for “running” the mutual fund. It’s like the “cost” of the relationship. The best option is to choose a fund with low maintenance fee/expense ratio (anything below 1.5% is good.) It’s also good to stick with funds that have low (or no) loads attached to running the fund. However, sometimes the load and fees may be worth it, but it depends—if the loads and fees eat into you returns to the point where they are at or below the annualized return of the S&P 500 for a 10-year period or more, drop it. If the fees are low but the returns are also low, this is not a good choice either. You want to find the “sweet spot” where the fees are reasonable and the returns are greater than the S & P 500. Otherwise, its best to pick up an index fund, which meets average market returns and fees are lowest.

5. Patience. Obsessing over a relation is the quickest way to kill it—even if the relationship seems “good.” The old adage says fire needs air to burn. If you want your stock returns to stay hot, then leave it alone! Don’t trade into and out of different funds, and don’t go chasing rates every year. There will be down years (remember the dot-com crash), and significant drops and significant gains (the last year or so)—it’s the nature of any relationship—financial or otherwise! Stick with what works, and let it be. Then you can enjoy Life’s Other Pleasures without obsessing over money and retirement. Leave that to the day-traders and the folks on Wall Street.

For more info on how mutual funds work, go

here (Wikipedia) or even

here (Fool.com).

Tuesday, September 05, 2006

Marriage, Money, Togetherness and De$truction: Bank Accounts


Many people struggle to get their Finances in order. let's Discuss how you can avoid trouble in the future once you make the Big Step.

Sounds like a snarky book-circuit title huh? Sure, you may have heard that the number 1 seed for divorce is based on finances. Specifically, I would venture that its not the actual money, but rather conflict avoidance--the fear (or refusal) to talk about money by initiating a you-do-your thing-I-do-mine policy with the money brought in by the couple. Whether your married, living together, or dating seriously, ignoring or avoiding the discussion of sharing finances can be the foundation crack to your cause your relationship to fall, unless...

You take pre-emptive action. It is a serious threat. You should attack the problem while in infancy so that when times get tough, you can be prepared to defend your beautiful relationship against the wiles of financial destruction—the love of money.

Who Do You Love More?
Which brings us to the first rule—establish at the outset which is most important to you in your particular relationship: your money, or your commitment/trust to your significant other? Understand that commitment is stronger than love alone. If your relationship with money is so strong that it may cause doubt or apprehension in how you share it with your partner (if you do), then that will affect your decisions in a different way than two people who put their relationship above their finances. You have to be honest with yourself either way. Some deny that money is more important, but don’t hesitate to withhold spending decisions with their significant other.


The Banks Account(s)…
In today’s two-income world, this question is the paramount one. Once you get to the point where you are sharing bills (and you probably should if you’re married and you both work) this should have already been fleshed out. Your income becomes more than just “yours” when you say “I do.” I can appreciate the words of Dave Ramsey who said “When you get married, the pastor didn’t say ‘and now you are a joint venture,’ he said ‘and now you are one.’” But then again, Dave is a little old-school and that may be a little difficult for many in the New Age to accept that marriage is not just peaches and cream and happiness every day. Therefore, you should sit with your partner and determine early on how and when money will be split regardless of income.


Option 1: Joint-Main, Jr. Option
In my opinion the optimal setup would be to have a joint account to handle all expenses—and expenses include charitable contributions in addition to utilities, insurance, car payments, etc. This “main” account would be where the bulk of all you tracked spending would go. Generally its probably best to have separate retirement accounts--not only can you share your retirement money, but it offers an opportunity to diversify your retirement options.

Additionally, a second “separate” account would be used for separate personal and gift purchases. This account should probably be very small compared to the main account—the vast majority of your money should go towards building your financial future. However, purchases you make together come out of the main account—vacations, for instance, should be funded by both of you if you both work. If you want to treat your special lady to a pedicure, or if you want to spring for the big screen for your man (and you don’t want them to know how much you spent) then the “gift accounts” are also beneficial because it allows you to surprise each other without destroying the budget. This option also works if you have obligations to other areas that are not a part of the immediate family; paying loans not in your name, alimony, or helping out in-laws/family members.


Option 2: Main-Separate Option
The option that seems “the best” according to many would be the separate accounts for each partner. In this option bills may be split but each partner is responsible for their own portion. Many choose this path to reduce friction in discussing finances. Furthermore, it allows each partner to avoid any guilt because the money spent on any particular item is not questioned. (So if Jane buys 30 pairs or shoes, it’s not a problem because it didn’t come out of Joe’s pocket).

To me I think this option sows the seeds for trouble. If you get to the point where you’re hiding purchases form each other, it’s not a far walk to withhold a few other things down the road. Frank, open discussion for finances builds trust in one of the most challenging areas for a relationship—money. It’s a time to discuss what purchases are fair. Talking about money openly is almost like being in kindergarten again—you learn that there is no more “mine,” but it’s “ours” no matter how much money is made. You’re officially a family unit and not a family with subsidiaries. And if the two incomes fall to one, then there’s the added hassle of switching around billpay features,


Option 3: Joint, All-In
The hardest option, which many aspire to but few reach, is the single joint checking account. All purchases, including gifts, etc. are included. Every purchase is open for both you and your partner/spouse to view. Single-income families find that this one may fit the best. Dual-income families should aspire to this option, because at some point, the amount of money spent on a gift should not matter.

However, those my views and I’m interested in hearing yours. Comment below!


Monday, August 28, 2006

Being Online No Longer a Secret

(Edited 29 Aug 2006 at 6:45 pm)


OK, so you have a savings account. How much interest is it gaining? If you’ve decided to go against the grain of the American instant gratification system and opt for the ability to save your way to wealth or park your 3-6 month emergency fund, shouldn’t you be rewarded with more than 0.75% interest? The online banks think you do. Read on…

Perhaps you’ve heard of the concept of the online bank to store savings. I’ve written about it before. These banks are gaining more popularity as people begin to shift their savings into these crown jewels of low risk "investing." The main banks out there are ING Direct, Emigrant Direct, and HSBC Direct, and there are many others—you can check them out at http://www.bankrate.com/. It’s not a good idea to hold large amounts of money in your checking account if it won’t gain interest (which we will address later). Here are a few reasons why you should consider the online banks:

1. The Interest Rates – With inflation eating into your money at about 3% per year, you need to put your money in a place that returns values higher than that. Otherwise, saving a dollar this year would give you a buying power of about 0.96 two years from now. Imagine if you set a goal to save to make a purchase of an item in two years (or maybe even a down payment on a home) and you come to find that inflation leaves you a couple thousand dollars short of your goal at buying time.

So you need a bank that will reward you for saving by keep your interest rate high. Online banks generally have very few (if any) brick-and-mortar locations so their overhead is low. Currently the highest published interest rates for savings accounts in the industry, according to Bankrate are shown below:

Top 5+1 Online Banking Rates (among no fee, $1 minimum banks)

Rank - National Institution

Rate (APY)

Website

1 - UFB Direct Savings

5.26%

www.UFBdirect.com

2 - Emigrant Direct Savings

5.15%

www.EmigrantDirect.com

3 - HSBC Direct Savings

5.05%

www.HSBCdirect.com

4 - Citibank Direct Savings

5 - WaMu Statement Savings

5.00%

5.00%

http://direct.citibank.com

Google "5% WaMu"

6 - ING Direct Savings

4.35%

www.INGdirect.com



Moving forward, the Wealth Weekly blog will keep the top 5 (+1) savings rates on the front page, so when you’re ready to jump in, you’ll know the best places to put your money. We don’t advocate rate-chasing (it’s a hassle), but your money should be safely stashed among one of the top 5 performers. For a low-risk “investment,” these accounts provide a pretty significant return.

2. Safety – Tracking your money online is a turn off for many savers who fear that their account information being compromised. However, many of these types don’t think twice about making purchases online (airline tickets, for example), or banking online at their local bank. However, one should take comfort that the big boy online banks have as good or better security than most online banks—in addition they are FDIC insured—meaning that you have a layer of protection of up to 100,000 per bank!

3. No feesNo fees! That may sound weird—the way banks charge fees these days is outrageous. You’re charged money for not having enough money. You’re charged for walking in the door and talking to the human teller. You’re charged for withdrawing your money. (Washington Mutual, excluded of course.) Even the mighty WaMu has jumped into the game, offering 5% APY for accounts opened online (though not advertised heavily). Most of the online banks have no minimums or fees charged for the account. So if you have $1, or $1000, you can open an account and not worry about low balance fees, and you can still get the high interest rates they publish.

4. Account Access. For these banks, once the money has posted to the account, you can usually get it transferred to you in two business days’ tops—if you need it. Its transferred directly into your checking account with no need to eliminate with whom you currently bank. However, it’s best to place only your long-term savings (longer than a month) there to get the superior interest. Therefore, be aware that if you need $1000 by tomorrow for some reason, its best to have that $1000 sitting in checking for immediate access. Depending on which online bank you choose, this may not be a problem either. Some of the banks, including HSBC Direct, Citibank Direct, and provide an ATM card that you can use to withdraw money from any STAR/PLUS ATM instantly, and many reimburse you for fees incurred for withdrawing from a owner’s ATM.

5. Few Downsides

For all the great features of a money-market savings account (that’s what most of these online savings accounts are) there are risks. If you need money for an immediate emergency, it will be difficult to get the money before two-days’ notice. If your “emergency” can wait that long, then you’re in good shape. These banks offer the best return for a low-risk investment like savings. If you’re afraid that your money will disappear or that the dollar will become useless, then this is not the account for you.

Interest Checking?

In addition to high-interest savings accounts, some banks do offer interest checking above a certain amount. The most popular, Presidential Bank, Bank of Internet and Evergreen (also know as Everbank Freenet) offer pretty sound rates, all well above inflation (most banks have 0% interest on checking for most accounts). Careful, there are only about 5 of these banks in existence, and they do come with NSF fees, and some charge monthly fees. You can find more info on Presidential here and the other four banks here.

So, interested?

If this piques your interest, you have several options to choose from. Different banks have different rates (in both Savings and Checking) so make an educated choice. Choose a bank that has returns greater than inflation, which means the return on your money should be at least above 3% (at the minimum). Most online banks start above 4%. Next, make sure the bank you choose fits you. Some banks have high rates but charge fees or minimums/tiers—for instance while one bank may return 5.15% with no fees or minimums, others may return 5.25% but require your balance to stay above $1000.

This site at BankRate provides an excellent table to get you started with the online banking:

Pay attention if you venture into the world of online checking. If you feel safer having a neighborhood brick-and-mortar bank, leave some money there—pare it down to a few bucks above the minimum (if there are minimums). Keeping some money with your bank can build loyalty if you ever need them for a loan. Hopefully, the only thing you’ll need a loan is for a purchase that goes up in value (a home) and not down (a car).Otherwise, don’t feel obligated to your bank. Remember whose money it is!

Tuesday, August 22, 2006

Kiyosaki: No Doom and Gloom, Please

I think Robert Kiyoskai has done a great deal for many Americans by getting them interested in the world of investing. He is a smart businessman and is quite a wealthy guy, touting his real-estate ownership principles to millions worldwide. However (and you knew it was coming)...

However, I think the popularity has gone to his head just a little when he wrote his book in 2002: Rich Dad’s Prophecy. The book pretty much predicts that the stock market will experience a significant crash in 2016, causing worldwide depression, screaming in the streets, and moms and dads, grandmas and grandpas everywhere will be on the street because of the economic recession caused by the stock market crash. His solution to survive the crash (of course) is to generate cash from rental properties.

Yeah…

Well, to each is own. I have history on my side, which, contrary to popular belief, can be fairly indicative of future results when predicting market performance as a whole.

Rest assured readers – the stock market is dependent not only on IRA/401(k) contributions, but also by American spending and American confidence in its economy. I bet that’s not going away. Consider some of the following points as you examine Kiyosaki’s idea closely:

- The Sky is still up there. Kiyosaki has not been the first guy to claim that the economy is going to hell in a nicely-bowed handbasket. A cursory review of the reviewers even find that they predicted (in 2003) a “major” stock crash in 2006. Well…maybe they’ll have a shot–there’s 4 months left! There was once a common belief in the 80’s and 90’s that the stock market was going to decline as the best source to keep your funds. However, the stock market still stands as the superior place for long-term funds, even when you consider the crashes of 1929, 1987, and 2000.

- The Housing Market is not Bulletproof, either. Kiyosaki suggests, as he does in several of his works, that the real-estate market is the best solution to “ride out” the coming stock market crash in 2016. But you have to realize that owning real estate is much harder than owning stock over a long-term period. Real estate is a fabulous investment, but it’s not something you could cash out whenever you want. Know that when you own real estate, especially as rental property, you have to take into account that tenants don’t always pay on time and sometimes will abandon property if they cannot pay.

If the stock market falls in on individual investors because older people are forced to take out money from their IRAs, what would stop these investors from using their real estate investments as leverage to cover their losses from the stock market? The housing/real estate market will most likely follow closely behind the stock market if a major crash is on the horizon.

So ignore the fearmongering. Bottom line—no one knows what life will present ten years from now. Back in 1996, few people actually believed that we would be where we are now—financially or politically. After the crash in 1987, few believed that the stock market would come roaring back to some of the highest returns ever. Maybe some did, but really, its at best educated guesswork. After all, you’d probably find just as many people who “predicted” the 1990’s bull market as those who “predicted” it wouldn’t happen. Political changes to ERISA may happen in 10 years to prevent such a catastrophic fall, and then again maybe it won’t need to. History tells us that we’ll be OK.

The American economy—and by extension, the stock market—is largely driven by American consumer confidence. It’s what keeps us afloat even in struggling times. Investors who are on board for the “long-haul” will laugh all the way to the bank—and chances are strong that the only thing that will hit them from the sky is a little rain.


As usual, I don’t claim to be right on issues like these, but I like to spark discussion. Leave a comment or two, and let’s talk about it.


Next Week: Online Banks—Revisited!