Monday, March 26, 2007

Join Our VSE Stock Market Game!

Join Our VSE Stock Market Game!


Dear readers of Wealth Weekly,

When it comes to stock market investing, we always encourage you to look at directly purchasing stocks only after getting your financial foundation in order. That means eliminating (bad) debt, establishing an emergency fund, fully funding your 401(k) and IRA (using index funds wherever possible) , and THEN look at investing in individual stocks. It's a guideline that will ensure the most success, so you can follow or ignore as you wish. Later this week I will be posting a conversation from a talk given to the NSBE Chapter at Columbia University, which I thoroughly enjoyed. So this week I will actually be posting 2 articles (well, only if you include this one).

So we wanted to get people's minds wrapped around the concept of what investing in the stock market entails, so that when the time comes, you will know what you're truly getting into. Unlike most games where you start with a large sum of money and manage it over a couple months, our game will run for 1 YEAR—this will show us just how readers, fellow bloggers, and others endure the ups and downs of the stock market for 1 year. You will be given $10,000 (fake money) and will invest it for over a year.


Click [here] to register for the game and join in.

When the page loads, look in the lower right-hand side of the screen for a box called "Create or Join a Game" and enter the Game ID: PF_Investors. If you haven't been registered, you should register (its free) and follow the instructions to join our game.


The game officially begins on April 1, 2007 and runs through April 1, 2008. I haven't discussed any prize information, but I may try to come up with something to spur participation as we move on. Take a moment to register at MarketWatch and join our game. I'll be sending reminders for the next week encouraging you to get involved.


Good luck!

--Charles J

Monday, March 19, 2007

Wealth Barriers - Fear, Time, and You?

I spent the last week with some friends in Atlanta, including the authors of the excellent website Brilliant Brown, who discuss different issues outside of your finances. I’ve known these guys for over a decade now, and I can attest that they have some good experience about movie and music reviews, relationships, etc. Click [here] to check them out.


Secondly, if you look over to the right, you will see some results from my Google Reader. There are posts from some of the best personal finance writers, bloggers, and experts around. Basically, you can read what I read and know the breadth of some of my research behind the articles I write.


So this week I wanted to talk about the importance of getting started with investing. Many young people are (unnecessarily) afraid of the Stock Market, or getting into Real Estate, starting a business, etc. So generally, people create excuses for reasons that they don’t participate in these markets or they “invest” their money in “guaranteed” returns, which is notoriously low over the long haul.

For example, some of the excuses we make fall along the lines of:

- I have plenty of time to invest, because I’m only [enter any twenty-something age here].

- It’s too risky to get into the market/real estate. I may lose money.

- The government will take care of us.

- It's pointless to really save money for retirement. You can't take it with you.

There are two big reasons why people progress through life without ever meeting their goals like they want—time and fear. Those of us who are young think that there will always be time to put money away or we think we will always be working (until death). Those who are a bit older are simply afraid to try investing because they may lose their money. Many in this latter group believe that a combination of savings, Social Security, and pensions will fund their later years. Some may have such a luxury. If you’re in your 20s and 30s it’s a luxury you may only be able to read about.

It’s important to note that it’s these reasons paralyze many people when it comes to making the choice to put their money in a better place. Let’s face it: working hard and trying to build up enough money to retire from an FDIC-insured savings account is not going to work. At some point, you have to take risks—that’s how most of those in our society who’ve created their own wealth got it.

So how does one “overcome procrastination and other wealth barriers” (as our title suggests)? Below are some ways—not by any means an exhaustive list:

- Educate Yourself. One way to minimize risk is to learn about the investment world and learn to use the Laws of Averages to your advantage. Read books like the Richest Man in Babylon, The Millionaire Next Door, and even Rich Dad Poor Dad. Most of these books serve as a gateway to investing. Know basic rules like how the historical returns of the stock market have outperformed every major investment vehicle. Know how index mutual funds are the best choice for the risk-averse investor. Peruse websites (like the ones under our “Research Links” to the right).

- Get help. Don’t be afraid to ask people for help. Many professionals are ready to help you, many for free or at a very low cost. Dave Ramsey, a popular personal finance guru tells his radio listeners to find someone “with the heart of a teacher,” who you feel comfortable working with.

- Make the Big (First) Step. Once you’re learned the basics, and how to keep your costs down when investing, set a firm date and go. Don’t try to wait until the market gets to a “safe entry point” for you to jump in. If you research your investments very well and diversify chances are high that you will do very well—usually much better than having your money sit in a basic savings account for a long period of time.

There will be more to come. For more information, check out our archives!

Comments are welcome. See you next week.

Monday, March 12, 2007

Health and Wealth Distribution

Health and Wealth Re-distribution –

There have been numerous discussions again about the idea of finding ways to make sure Americans are gaining access to reasonable housing and health care plans in the U.S. In the 1990s the Clinton Administration took a swing at the idea and almost suffered a political catastrophe. The Democrats were overtaken by a wave of Republicans and their Contract with America in 1994, promising to reduce the size of government and become wiser spenders of the taxpayer’s money. Americans at the time felt that healthcare reform, although an “issue,” wasn’t ready for government takeover.

Fast forward 12 years later, and we see that after the Big Three U.S. Motor companies have struggled to pay their health obligations to their employees, and how health costs have really skyrocketed despite “competition” among the health insurance providers, Americans have probably moved a little closer to some type of universal health care. Democrats and some Republicans are calling for insurance plans. States across the country are moving forward with some type of insurance for their residents.

Health care prices are not showing any signs of declining anytime soon, which most likely means…wealth redistribution.

Some of you out there cringe at the thought of the Robin Hood Complex many have—it’s the desire to take from “the Rich” and give to “the Poor, Hard Working, and Middle Class Americans.” The latter group, of course, usually means “everybody who makes less than a million dollars a year.”

Before going on, I’d like to say that I try to avoid partisan political issues as much as possible on this site—however, sometimes financial well-being unavoidably crosses into the field of politics. If you fear the worst, this is a good time to stop reading and move to another article. You have been warned.

I think that every American should have access to low cost (read: not free) insurance and housing. Most Americans feel the same way. However, who pays? That’s where the question of Wealth Distribution comes in. Some people believe in the concept of “from each according to ability, to each according to need.” Although historically, I have been against this, I think that moving forward we may not have much of a choice. Whether implemented on the state level of the national level, some form of Wealth Distribution is coming. One plan that I wouldn’t mind getting behind (at least in the abstract) is Ben Stein’s idea of raising the taxes of those who have earn 5 million dollars or more annually and using the revenues to provide low-cost (not free) health care to individuals who have no coverage at all.

Wealth gatherers generally find creative ways to exploit the current capitalist system. Capitalism, by definition, is designed to reward those who produce, and it can be harsh to those who choose not to participate. It’s hard work to succeed in our system, no doubt. However, there are many others who haven’t had such opportunities (or the tools) to succeed, and we should provide basic care so that average people who work hard aren’t put out on the street because of a health bill. And with many companies reducing or eliminating health care options, this issue will rise to the top soon, and we have to be ready to meet these challenges head on. Besides, you may become wealthy through your prudence, but eventually, you may not be able to run away from the problems within your community forever. As a rule I take a “fly above the fray” approach to problems like these, but even I realize that this problem isn’t going to solve itself.

So what do you think? Personally, I would start with an idea that we apply towards education: we seem to use the lottery to fund education, why not start using lottery funds to cover health care on a state level? It may help with the whole wealth distribution thing. Some people say that lotteries is like the Robin Hood complex in reverse—most of the players are from the lower class, and most lotteries fund college education (which is attended mostly by the middle and upper classes). Using a lottery for health care may help those who can’t afford health care get some basic services. This is a catch-22 if there ever was one—I don’t encourage spending more than 1% of income on lotteries per year, and that’s only for entertainment purposes only—but it could possibly help.

Just an idea though. What do you think?

Monday, March 05, 2007

Market Tanks, Life Goes On…



At least, that's how the headlines should've read.


So last week the stock market to a nice hit on the chin after the Asian market corrected itself (read: collected on some its profits.) However, it should be noted that although we saw the greatest fall in the US markets since September 11, it shouldn't really startle the average investor because it really doesn't matter in the long run (5-10 years). So the markets had a big drop, but we're still well above the "record high 12000" milestone people are always talking about (as if the economy-driven market indices are expected to simply stay within some arbitrary number range).


The stock market will be fine. All the Big Boys know that, and even most media outlets know that, but you know how news shows are with their 24-hour news cycles and quests for ratings. Let's not get started on them.


It's important to resist the urge to panic when the market slips—it's difficult to not follow the Crowd. Back in 2005, gas prices spiked in Georgia and other areas because of expected "shortages" and people lost their minds, pulling into gas stations and topping off nearly-filled tanks with gas priced well north of $5/gallon "just in case." Others were unfortunately low on gas and angrily filled their tanks at the inflated prices, arguing "What if there's no gas on Monday?" (There was). Consumers screamed about price gouging. Businesses screamed about having no to gas to sell.

Looking back, it seemed pretty silly, did it not?


The main point, of course is that it's important to find an investment strategy, and stick to it. Trading stocks every day/week is not a good idea. With commissions and capital gains taxes with for you every time you trade, it's much better to buy stock in sound companies with focused income-producing strategies and hold on to them until the company moves in a way that is outside your investment objectives. Granted, it's not going to work every time, but it will more often than not.


Overall, just be patient, and resist the urge to move when the financial media says the bottom has fallen out of the market. Generally, they're usually just wrong.

For more information, check out this fool.com article on the importance of patience and being rational when the stock market experiences dips and rises.

Let me know what you think about our topic this week. Should you move when the big guys do? I mean, they do have degrees and are your "ear on the ground" as market traders. Or should you fly above the fray and take a long-term approach? I support the latter. Comment below!