Inve$tment Club

Compound Interest

2011-07-19T18:30:00.000-07:00

CompoundingInterest.doc
Excel Spreedsheet - Change Interest Rates and fees to see how it affects your outcome.

The sooner you start saving for retirement the more you will have.

Compounding Interest is a beautiful thing.

Bi-Weekly Mortgage Payments

2010-01-14T15:29:00.000-08:00

No time to edit and make it look good so I will just post an email conversation I had with a friend.

---

I'm always going back and forth about whether to
pay the house off or keep the money in an account to pay the house
off. I definitely see both sides to Ramsey's vs Edelman's argument.

The bank has to be willing to receive payments for this and their is usually a fee to set it up.

This is not magic.
You are simply paying 1 extra payment a year.

If you are going to go this route you should try and put more down on your house at the beginning. As the bank makes most its money off of you in the first 5 years. And most people only hold their house for 7 years.

The negative side.
The faster you pay it off, the less you can deduct on taxes.

I'm not sure why I reply to your emails.
I already know you know this.

Craig.

-----

So one of the most amazing things I have
learned about investing is is Bi-Weekly mortgage payments.
This can easily take 7-10 years off your 30 year
payment plan.

Please take a look at my favorite website of financial
calculators:

http://www.dinkytown.net/java/ExistingBiweekly.html

Howto add Dave Ramsey Podcast to iPod using iTunes

2009-03-30T14:08:00.000-07:00

After you have downloaded and installed iTunes from http://www.apple.com/itunes/download/
Click on "iTunes Store" then type "Dave Ramsey" into the Search box.

Now Click Subscribe.

Everyday you turn on your iTunes you should get a new 40 minute Dave Ramsey radio show episode. If it does not automatically download, right click and select "Update Podcast."

Now attached your iPod.
It will show up in the left.
Click on the podcast tab to make certain your iPod and computer Sync.

If you don't have an iPod you can listen to the podcasts from your computer by pressing play.
There are a lot more podcasts out there.
Ric Edelman
Real Estate
Investing

How to Purchase an Index fund with Scottrade

2008-10-16T18:38:00.000-07:00

When you purchase an Index Fund it will be under the "Mutual Fund" section.
$3000 is the minimum initial investment.

Reinvesting the cash back into the fund will help it grow faster.

This page is to helping you to remember that this is a long-term investment.
The cost of $17 is higher than the usual $7 because it is an Index fund instead of individual Stock.
I believe if you have a Vanguard account, they don't charge you the $17 cost.

Index Funds

2008-09-18T11:40:00.000-07:00

Index Funds

"Indeed, I have terrible news about brokers and money managers generally - news which I expect you've suspected, but couldn't quite believe, all along. There are no brokers who can beat the market consistently and by enough of a margin to more than make up for their brokerage fees. Or, if there are a few, they are not going to work for peanuts - and any account under $500,000 is peanuts. By and large you should manage your own money. No one is going to care about it as much as you."

"This is a very simple concept but profound: just by investing all the money you have earmarked for the stock market in the Vanguard Index Trust, you will generally do better than most bank trust departments, mutual fund managers, and private investors--with far less effort!"
Andrew Tobias "The Only Investment Guide You'll Ever Need."

Example Portfolios with multiple Index funds
http://www.thekirkreport.com/lazy_portfolios/index.html

VTSMX - (Vanguard Total Stock Market Index Fund)

http://www.fool.com/investing/mutual-funds/2007/04/26/the-4-best-words-of-investing-advice.aspx

First, hold a portfolio that's diversified across market caps and industries. One way to do this is to anchor your portfolio in a broad market index fund such as Vanguard Total Stock Market (VTSMX) -- a low-cost option that holds more than 3,700 names and includes heavy exposure to stalwarts such as Microsoft, Intel (Nasdaq: INTC), and Google (Nasdaq: GOOG). Thus, when your micro caps inevitably dip and dive, the effect on your portfolio will be muted by the relative stability of your index.

Buffett on Index vs ETF

http://www.marketwatch.com/news/story/story.aspx?guid=4A899C35-02F6-42CB-BB01-7B7E303003D4&siteid=yhoo&dist=yhoo

Other Vanguard Index funds

http://www.fool.com/investing/mutual-funds/2007/05/07/vanguards-best-index-funds.aspx?source=mppromo

Saving & Investing

2008-09-15T21:02:00.000-07:00

Here are the notes of a class I taught today.
More detail is found within the blog.

Saving & Investing

1) Emergency Savings – 3 to 9 months of monthly costs.
• http://savingsaccounts.com/
• HSBCDirect
• EmigrantDirect
• INGDirect
Avoid credit card debt and using retirement account.
Reduce stress with job loss, car accident, and natural disaster.

2) Retirement Account - matching.
• 401k, TSP, 403b, Roth IRA
"By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals." ~Warren Buffett

The miracle of Compounding Interest:
http://www.geocities.com/craigfield12/IRASheet.jpg

3) Education - the fun way!
iTunes - Podcasts
• Dave Ramsey - Basics
• Ric Edelman - Advanced
http://finance.yahoo.com/
Expert Opinion – Great Articles

4) Take Action!
If you know you are going to have 7 years of plenty what decisions will you make before the 7 years of famine?

My blog:
http://colonial-investment-club.blogspot.com/

Dave Ramsey classes taught to 60% of high school students in Utah, sponsored by Zions Bank.
http://www.daveramsey.com/etc/cms/index.cfm?intContentID=8922

Financial Experts

2008-06-25T20:44:00.000-07:00

I find it very interesting to compare advise from financial advisers.

Dave Ramsey
If you have $300,000+ of debt listen to me to get motivated and make the required sacrifices to get out of debt by selling the second car and getting a second job. "Out of debt" includes your mortgage. Then buy a mutual fund but keep it simple or you won't do anything.

Ric Edelman
Once you are out of debt get diversified with all available asset classes, stocks, bonds, ETFs, Index Funds, International funds, real estate, natural resources and cash; but stay away from evil 3% annual fee Mutual Funds.

Suzy Orman
Get out of debt and diversify for women. And once you are as rich as me, buy Munibonds.

Robert Kiyosaki
Nothing works but real estate investing and silver. The US dollar will never be worth anything again because US is going broke due to Social Security and Medicare.

Jeremy Siegel
Macroeconomics tells us to keep investing for the long-haul and I've created my own ETFs called Wisdomtree to help you get there. (Economist for Wharton.) Economists always will give you a reason as to why their earlier predictions were so wrong.

Larry Kudlow
Always optimistic about America no matter what!

Cramerica
Buy! Sell! Buy! Sell!

At the end of all of this, I find I like listening to all of them because they do help somebody. When I try to help people most tend to be strapped with debt, then they slowly move to buying a house and getting a few mutual funds with their retirement account. Emotions and bad ideas from the media will drive them in and out of bad investments with even worst timing.

Most people will hopefully be realistic about their financial life, get out of debt, eventually pay off their house and stick with Warren Buffett's "Buy one or two low cost Index funds" idea and they will probably be fine. Unfortunately most won't make it this far.

Amazingly most of this list of financial experts admit to having made extremely large financial mistakes. Experience is what they have to share. Perhaps the best thing to happen to you will be an extremely bad choice early in life.

Craig.

Inve$tment Club - Final

2008-05-17T10:01:00.000-07:00

1. Closing Costs

Here is an article that talks about all the closing costs.
http://www.fool.com/homecenter/deal/deal04.htm

As we learned first hand from one of our members it can cost as much as $12,000 of closing costs for a $280,000 home. Make sure to take the time to know the fees and know that everything can be negotiated.

2. FICO
FICO -Fair Isaac Corporation was developed in 1956 by two guys named Fair and Isaac. This is the mostly widely used credit scoring system but not the only one. Some creditors will use their own system.

Improving your FICO credit score will entitle you to a better interest rate on a home.
Just because you are entitled to the rate, doesn't mean they will give it to you, so show around when it comes to financing a home.
http://www.myfico.com/CreditEducation/ImproveYourScore.aspx

Congress passed a law to allow everyone to view their credit "report" for free once every year. If you want your FICO credit "score" at the same time it is usually around $10.

Here is the site for your FREE report.
https://www.annualcreditreport.com/cra/index.jsp

The Three credit reporting agencies are Experian, TransUnion and Equifax.

3. Warren Buffett

I finished reading a compilation of some of Warren Buffett's annual reports and here are some quotes I feel pertain to our investment strategies.

"Another situation requiring wide diversification occurs when an investor who does not understand the economics of specific businesses nevertheless believes it in his interest to be a long-term owner of American industry. That investor should both own a large number of equities and space out his purchases. By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when "dumb" money acknowledges its limitations, it ceases to be dumb."

"If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes."

"The most common cause of low prices is pessimism--sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer." (Translation: When everybody thinks stocks are a bad idea, is when you can buy them cheap. Buy low, sell high.)

4. Scams and Schemes

A wise man once told me that half of investing is knowing what NOT to invest in.

If somebody "guarantees" you 20% a month or a year.
It's not a good investment, it's a scam.

One of the most convincing, and still used, large scale schemes is called a Ponzi scheme which is also very similar to a Pyramid scheme.
http://en.wikipedia.org/wiki/Ponzi_scheme

State of Utah, top 10 investment scams for 2008.
http://www.securities.state.ut.us/press/topscams2008.pdf

Buying a House?

2008-03-24T14:31:00.000-07:00

Just bought a place!

A big Thank You to Ross for going over how he just purchased a foreclosure.

He figured out what he could afford and asked for referrals from people who had great experiences with a Realtor and great experience with obtaining a mortgage.
He visited over 40 foreclosures before deciding.
He purchased his home for six figures lower than comparable houses.

Opinions.

Everyone will have an opinion.

It's time to buy.
It's time to sell.
It's time to wait.

At some point everybody is right.
You need to figure out what is right for you.

Personally I think it is a time to wait.
Ross has proven it's a time to buy.

Everyone is at a different point in their life.
To play it safe you should:

Buy when you intend to stay in the home for at least 5 years.
Have a good credit score of above 700.
Have at least a 10% down payment.
Six months worth of your costs in cash.
Make sure you aren't stretching yourself too much.

Here is a Spreadsheet to help you figure out what you can afford.

TSP

2008-02-25T14:44:00.000-08:00

This month Ross was kind enough to put together information on government TSP (Thrift Savings Plan) accounts.

He recommends diversifying your investments by putting your money into 3 Funds.
C Fund - Stocks of large and medium-sized U.S. companies.
S Fund - Stocks of small to medium-sized U.S. companies. (not included in the C Fund)
I Fund - International stocks of 21 developed countries.

Here is the comparison of the different plans:
http://www.tsp.gov/forms/comparison.pdf
Their costs (total expense ratio) is extremely cheap at below .05%

Historic Returns:
http://www.tsp.gov/rates/monthly-history.html

Feb 22-March 2 is National Save Week. (No I did not make that up.)
http://www.americasaves.org/national/saves_week.asp

Calculator to give you a ball park of how much you have to save now to have a comfortable retirement.
http://www.choosetosave.org/ballpark/

Article giving some reasons why you should not take a loan with your 401k:
The 5 biggest 401k mistakes

Three reasons not to take a loan from your 401k: (Ric Edelman version)

1) The money you borrow isn't not borrowed.
It is removed from the plan so it can no longer grow inside the tax shelter.

2) You have to repay the loan, that means you have to pay taxes twice on the same money.

3) You think you have 5 years to repay the load, but if you lose your job you have to replay the loan within 90 days.
Otherwise you get hit with taxes and a 10% penalty.

If you can absolutely avoid it, do NOT borrow from your 401k.

Want a $100,000?

2008-01-31T07:30:00.000-08:00

PROBLEM
It is extremely important for your financial future to understand fees.
If you are giving to your 401k, they are probably putting you in Mutual Funds.

Congress is trying to force 401k providers to disclose all of their fees because Wall Street is completely taking advantage of us.

Historically the Stock Market has averaged around 10% return over a long period of time.
The more fees you pay to buy the stock market the less money you will have when you retire.

In some situations all of your fees put together actually become higher than 10%.
Which means you aren't making any money.

FEES
Here is an example of American Mutual Fund (AMRMX) fees:
1) Total Expense Ratio - .55%
2) 12b-1 fee (Advertising) - .22%
3) Front Load (Sales charge) - 5.75%
4) Managers fee - .26%
5) End of year distribution - 1.29%
6) SAI fee (Statement of Additional Information) averages - 1.25%

Total if bought in 2007: 9.32%!!!
Total each year after: 2.28% minimum.

Note that using a financial planner could cost you a flat fee or 1% of your entire investment.
When you are ready to retire, the difference will be hundreds of thousands of dollars!

There are currently bills on Capitol Hill that are trying to force Mutual Funds to show all of their fees:
http://www.hreonline.com/HRE/story.jsp?storyId=45931600

"[Education and Labor Committee Chairman Rep. George]Miller's bill, the "401(k) Fair Disclosure for Retirement Security Act", also would force companies to offer plan participants at least one low-priced index fund.

Sen. Herb Kohl, D-Wis., chairman of the Special Senate Committee on Aging, is expected to introduce a version of the Miller bill..."

While the House is expected to pass 401(k) fee disclosure legislation, the bill is not expected to make it through the Senate.

And the response of one of the Lobbiest:"...the proposed rules "would dramatically increase the administrative costs paid by plan participants while overwhelming them with information that is of little practical value as they make the decision to participate in the 401(k) plan and the decision of which investment option to select."

TRANSLATION
If we tell people how much it costs we will have to charge them more.
And they won't understand it anyway.

Image if you went into a store and bought some milk. At the cash register they say they can't tell you how much it costs because then they will have to charge you more and you won't understand it anyway. (No it doesn't make sense.)

Why does making something complicated make money for businesses?http://finance.yahoo.com/expert/article/moneyhappy/64338;_ylt=A9j8aqaG0KFHGLcA1J27YWsA

RESOLUTION
"By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals." ~Warren Buffett

We may never know all the fees associated with Mutual Funds because they don't have to tell us.
Mutual Funds hide their fees and the fact that most of them can't beat an Index Fund.

Diversify?

2008-01-25T20:43:00.000-08:00

The main point of our discussion was the different between Index Fund Fees and Mutual Fund Fees.

I compared S&P 500 (SPY) vs American Funds (AMRMX)

In this picture you will notice that both funds have many of the same stocks.
Holding the same stock should give you the same returns.

One reason Index Funds do better long-term is their lack of fees.
The Index Fund (SPY) has a fee called "Total Expense Ratio" of .08%.

Mutual Fund AMRMX has many other fees:
1) Total Expense Ratio - .55%
2) 12b-1 fee (Advertising) - .22%
3) Front Load (Sales charge) - 5.75%
4) Managers fee - .26%
5) End of year distribution - 1.29%
6) SAI fee (Statement of Additional Information) averages - 1.25%

Total if bought in 2007: 9.32%!!!
Total each year after: 2.28% minimum

What is the difference between a few percentage points in fees?

Diversify means putting your eggs in multiple baskets instead of all your eggs in one basket.
Instead of buying one stock you are buying one index fund that has many stocks.

First you become diversified by buying an Index Fund that owns a lot of different stocks.
Then you become more diversified by buying multiple Index Funds.

Later in life you become even more diversify by buying Multiple Index Funds, Bonds and other things.

Ric Edelman's Guide to Portfolio Selection (GPS) gives an example of what a well diversified portfolio looks like for someone who has over 75,000 to invest.

https://www.advisorlynx.com/secure/edelman/

It's good to read through the questions.
You do not have to put your personal information in when they ask for it.

For the rest of us, just start with a few well diversified Index Funds.
SPY - US Large Cap - Index Fund
EFA - International Large Cap - Index Fund
EEM - Emerging Markets - Index Fund

Here is some very detailed information about Index Funds:
http://www.geocities.com/Heartland/Prairie/3524/faqperm5.html

In conclusion: a Warren Buffett quote to backup our thinking:
Index funds are appropriate for inexperienced investors. In response to a question about why Buffett recommends index funds to investors, he said that for "a know-nothing investor, a low-cost index fund will beat professionally managed money." He also said he had a standing offer to anyone who could name 10 hedge funds that will beat a low-cost index fund. No one has taken him up on his offer.

401k Rollover.

2007-11-16T16:18:00.000-08:00

TSP and 401k

I had both a government TSP and a company 401k account.
401k, 403b, TSP are all basically the same things. They are tax shelters that the government gives you so that you can save for retirement.

I had the option of keeping both TSP and 401k accounts but I wanted more control over my money. 401k's made me buy company stock and Mutual Funds. I didn't want to buy either, but the company match is worth it.

To rollover your money, or in other words move it from one tax shelter to another tax shelter you need to do the following.

1) Open a "Traditional Rollover IRA" account. I chose Scottrade because of their low fees.
2) Once your account is open, contact the holders of the TSP and 401k and tell them you want to move your money. They will have paperwork to fill out. Your HR department can tell you who holds your account.
3) Make certain you do not have them send YOU the money. They must send the money directly to your new Scottrade account. If you don't do that, then the IRS believes you "cashed out" and now you have to pay almost 30% in taxes.
4) Once the money is moved to the new Scottrade account, you now get to buy something with it.

What should I buy?

Ben Stein is one of my favorite financial voices to listen to. He has always state that people have to save more money and have a plan for that money.

The simplest plan is to spread your money equally between three diversified index funds and just keep buying them and don't sell until you retire.

3 Index Funds

VTSMX - Vanguard Total Stock Market Index (You are buying America.)
EFA - Europe Far East Asia (Foreign Developed Nations.)
EEM - Emerging Market. (Small nations that have huge opportunity for growth.)

Ric Edelman

This week I went to a Hilton in Tysons Corner and listened to one of the best financial planners in the business.
He goes through the fact that Mutual Funds (non-index) are ripping people off. The average mutual fund is costing you almost 3% a year or more.
Index funds are less than 1% a year.

Here is a great write-up by Ric about the fees of Mutual Funds:
http://www.edelmanfinancial.com/galleries/default-file/EMAPtruecost.pdf

The fees for Mutual Funds are called the Expense Ratio.
(Why can't they just call them fees?)

Mutual funds have other fees that they don't even have to tell you about called SAI charges.
SAI stands for Statement of Additional Information. You have to specifically request this information from your mutual fund.

The point is, the old way of buying Mutual Funds will severely hinder the profits. As a whole, Index Funds are cheaper and long-term they beat almost all Mutual Funds.

I would recommend listening to Ric's radio programs for free.
http://www.ricedelman.com/cs/radio_show

As always, I'm more than happy to help if you have questions.
Keep Saving, Keep Learning, Keep Investing, Retire Early!

Craig

For those who wanted a soft copy of the compounding Interest worksheet:
www.geocities.com/craigfield12/IRASheet.jpg

The book that we talked about:
The Wall Street Journal Guide to Money and Investing

For those who want an example of other portfolios:
http://madmoneymachine.com/2007/07/02/lazy-portfolios-update-1st-half-2007/

The Picture is an Example of Ric Elderman's recommendation for the information that I put into his website. Buying broad based Index funds or ETFs makes you diversified because you are putting your eggs in multiple baskets. Instead of owning 1 stock, you own 1 Index fund that has hundreds of stocks.
Everyone will have their own idea of what is being properly diversified.

The other point Rick Elderman had is that many people are using Morningstar.com to choose Mutual Funds. First of all he doesn't want you to buy Mutual Funds. Secondly everyone is choosing a Fund based on how many stars it has.

A 5 star rating is telling you that this fund has done well over the last several months. Which means you are going to buy when it is high. Human natures makes you want to buy something so you can tell people you bought a 5 star instead of a two star.

When you buy a 5 start and you don't get the returns that you thought you would get, you sell the fund and buy another 5 star. Again, you are buying high and selling low. The exact opposite of what you should be doing.

I hope our group sticks to Warren Buffet's idea for small investors. Buy a good broad based index fund and just keep buying it. We don't care what stars it has. We don't care that it goes up one week and down the next. We care that there are low fees (expense ratios), low or no management fees, no SAI fees and it is widely diversified.

Why do I have to pay more taxes in Mutual Funds than in Index Funds:
http://www.fool.com/school/mutualfunds/costs/taxes.htm

Inve$tment Club - Marriage - Saver or Spender?

2007-09-01T14:46:00.000-07:00

Hello Investors,

1) Statistically Speaking

Statistics show most Americans don't save money.
Statistics show that the number one reason for divorce is money.

Statistics show that money does not buy as much as it used to, so you have to save a lot more to get what your parents have.

Now ask yourself, "Am I a saver or a spender?"
"Will I marry a saver or a spender?"

Statistically you will marry a spender.
This is looking at marriage from a financial perspective only.

However, if both you and your spouse are spenders the chances of that relationship working long-term is significatly reduced.

September's Ensign has an article for saving that I highly recommend.
If you answered that you are a spender and not a saver the time to learn, disapline and commit yourself to a financial goal is now.

2) Financial Mantra

I believe everyone needs a personal saying that will help you save.
When you learn about finances your brain hears something that it truly connects with.

Not everyone will react to the same saying so find your own and stick to it.

My favorite saying this year has been:

"Pay attention to your costs and your revenues will take care of themselves."
I'm certain Warren Buffet said this in an article but I can't find the exact quote.

This saying helped me to reexamine all my costs and see where I could cut corners.
You can find your financial mantra by reading financial articles or books on tape.

Read the articles that yahoo has to offer.

"When it comes to saving money, there are two types of people -- those who save and those who wish they were saving."

"Nobody cares more about your money than you."
"A penny saved is a penny earned."

"The best way to save money is not to lose it."

"The individual most accountable for your future financial welfare, is the one you see in the mirror today"

"Money in the bank is like toothpaste in the tube. Easy to take out, hard to put back."

"I am indeed rich, since my income is superior to my expense, and my expense is equal to my wishes."

3) How much does my Mutual Fund cost me?

This month we discussed how to know what a mutual fund costs. You want to keep your costs below 1% a year if possible.

Yahoo is my favorite place to find costs.

Here is the annual cost for SPY (S&P500 Index Fund)

In the lower right hand corner you will see a fancy word called "Total Expense Ratio."
All that means is what percent they will charge you per year for them to manage the fund.

SPY has an expense ratio of .08%
VTSMX has an expense ratio of .19%
EFA has an expense ratio of .35%

Most Mutual Funds have expense ratios of 1.4% and higher!
Try to get out of those and buy index funds that have less than 1% expense ratio.

4) Financial Planners

Some people have asked me about financial planners.
I'm against them, but if you really want to speak with one see if your company has one for free.

If not, get one on a fee basis.

Some of them will charge you $175 an hour, then put your in a mutual fund that has a "front load" of 5% of your money. (Front load just means a fee of 5% when you buy. A back load of 5% means a fee of 5% when you sell.)

The mutual fund could also have a "Total Expense Ratio" of 5%.
Which means they just took 10% of your money before you even invested!

Other finanical planners will charge you 1% of everything you have to invest. Which could be much higher than $175 an hour.

Many financial planners are just salesman looking to take your money away from you.
Get your own education on money.

If you make a mistake you now learned from it,
if they make the mistake, it's now your mistake too.

5) Everyone should be a millionaire.

http://finance.yahoo.com/banking-budgeting/article/103410/your-first-million-is-the-toughest?mod=oneclick

6) Setting Financial Goals

http://financialplan.about.com/cs/personalfinance/a/FinancialGoals.htm

7) Real Estate

This article just made me chuckle.
Read the last part about the chief economist for the National Association of Realtors.

http://www.nytimes.com/2007/08/26/business/26housing.html?ei=5065&en=90a6583c461dae0d&ex=1188792000&adxnnl=1&partner=MYWAY&adxnnlx=1188159108-WNoSnoidJyy8bbtWJaJyDA&pagewanted=print

Conclusion, nobody knows what's going to happen in real estate - especially the experts.
Make sure you know you can afford the house because YOU have done the math.

And make sure you have enough cash in a high-yield savings account to take care of the mortgage and all your costs for at least 3 months. You never know when you will be out of a job or even worst - an accident.

That's it for this time.
As always I'm more than happy to help if you have any questions.

Craig

With no action, there is only thought.
http://colonial-investment-club.blogspot.com/

Investing 101

2007-06-14T19:00:00.000-07:00

How do I start investing for retirement?

Emergency Fund. Save at least 3 months to a year of money for emergencies. That way if you lose your job, get in a car accident etc, you will not be tempted to take money out of your retirement accounts. You can keep this money in a High Yield Savings Account like HSBC or Emigrant Direct.
401k. Put money into your 401k before your Roth IRA.
Roth IRA. After you have filled up your 401k to the "company matched" amount, then fill up your Roth IRA.

What’s a Stock?

Buying stock means you own a piece of a company.

Mutual Fund vs. Index Fund

Mutual Funds and Index Funds are just a lot of different stocks bundled together.

Mutual Funds charge you 1-3% a year to own the Fund. There is someone managing the fund, so you pay extra to have it managed.
Index Funds charge less than 1%. This fund follows a major index. It's done by a computer so it's cheaper than a Mutual Fund. (This is a better idea.)

401k vs. Roth IRA

401k - IRS will tax you when you take the money out when you are retiring. (It's called 403b or TSP for government employees.)
Roth IRA - You've already paid income tax so when you take the money out at retirement, the money is now TAX FREE.

This topic has been addressed on a previous blog under "Answer to a Question."

http://www.fool.com/news/commentary/2003/commentary030416.htm

Why don’t I just pay someone to invest for me?

"Indeed, I have terrible news about brokers and money managers generally - news which I expect you've suspected, but couldn't quite believe, all along. There are no brokers who can beat the market consistently and by enough of a margin to more than make up for their brokerage fees. Or, if there are a few, they are not going to work for peanuts - and any account under $500,000 is peanuts.

By and large you should manage your own money. No one is going to care about it as much as you.”

Andrew Tobias
"The Only Investment Guide You'll Ever Need."
(There are three copies of this at the Arlington Library)

Open an Account

Picking a discount broker is like choosing an email account between Hotmail, Yahoo and Gmail.
There are pros and cons to each, but they all do basically the same thing.

Here is a recent list of pros and cons for Discount Brokers.
http://www.jdpower.com/finance/ratings/online_investment/index.asp

Scottrade is currently the best for lowest costs to get started.

They boast a no-fee Roth IRA
http://www.scottrade.com/ira/index.asp

To open an account you will go to this site and click "Apply Online Now".
You will fill out some paperwork with Social Security number, birthday, beneficiary and end up signing and sending in some papers. It takes around 10 days for an account to be created.
Once your account has been created you can fund the account by sending them a check, or better yet transferring directly from your checking account. There is no cost to do this.
This money will be transfered into your Scottrade account and sit as cash.
You will then buy something and that will cost $7: Stock, Index Fund, Mutual Fund, etc.

What do I buy?

Answer: Index Funds!

"The best way in my view is to just buy a low-cost index fund and keep buying it regularly over time, because you'll be buying into a wonderful industry, which in effect is all of American industry," Warren Buffett (Rich old guy everybody should listen to.)

So which Index Funds do I buy?

That's a little more difficult as there are many to choose from. Here are two that I keep coming across in many articles which I have also purchased myself.

VTSMX

VTSMX is the ticker symbol for "Vanguard Total Stock Market Index Fund."
You are buying America. This fund has thousands of US based companies.

"Truth be told, your most important retirement asset isn't your cash -- it's your time."
Here is a good article that explains this idea and recommends VTSMX.

EFA

(iShares MSCI EAFE Index Fund)
Covers Index funds for Europe, Asia, Far East.
Most popular International Index.

How much do I buy?

60% - VTSMX
40% - EFA

Jeremy Siegel’s book “The Future for Investors” recommends different investment strategies. The simplest one is buy 60% in US based companies and 40% in Foreign based companies.

As you gain more experience and more financial knowledge you will begin to buy more and different fund to "diversify."

Final Goal

Please read one financial article a week or listen to a finance book on tape from your local library.

No one will care more about your money than you.

The final goal is to make long-term around 10% a year on Index Funds. This amount beats out almost all Mutual Funds over time.

If the economy goes up, keep saving money for retirement.
If the economy goes down, keep saving money for retirement.

Continuously put money away over a long period of time and you will retire rich.
Time is your biggest asset. Since most people don't save, you will be in a position to help others.

The sooner you take action, the sooner you will be in this position.
Learn more, save, buy index funds, continue to learn more, continue to invest.

You are now an investor, start taking action like one!

Home Ownership - Living the American Dream

2007-05-02T18:32:00.000-07:00

Stephen Hales gave a fantastic presentation and answered all of our questions.
I have some "Home Buyers Guides" for those who could not attend.
Here is a summary of things he went over.

1. Do you know your credit score (FICO)? (Between 500 and 850)

If your credit score is less than 720 it will cost you more to purchase a home.
Helpful ways to increase you credit score, read this article.
Hold onto old credit card accounts if you have a history of prompt payments.
FICO is a type of credit score that most banks look at so you need to take interest in it.

2. Loans and amortization schedules

There are a lot of different mortgages out there and you need to figure out what is right for you.
30 Year fixed loans, 80/20 loans, interest only loans. If none of these make sense to you , join the club.
Simply, if this is your first home purchase, use an agent so they can explain everything and help you avoid the bad ideas and rookie mistakes.

3. Why buy (or why buy now)?

If you intend to own less than a few years, DON'T BUY!!!
Real Estate is a nice tax shelter.
Pride of Ownership (hang up those pictures without landlord approval).
Let roommates help pay the mortgage.

4. How can a Realtor help me?

Expertise of the area and the process. (Knowledge of schools, neighborhoods, planned developments).
Someone to hold our hand through the process:

Explain contracts
Negotiate on your behalf
Assist in home inspection process
Help sift through inventory to find good deals

The seller has someone looking out for their interests, you should too!!!
You've never done this before and may not know what your rights are.

5. Helpful links:
www.bankrate.com
(This will help to watch interest rates.)

www.fool.com
(Great articles and help in figuring this all out.)

www.jeacle.ie/mortgage
Mortgage calculator.
(Visually understanding principle versus interest)

6. Interesting side notes:

Stephen notices more women than men having enough money and saving sense to purchase homes. (Come on men. You can do it!)
Right now is a poor time to look at buying a condo. The market is heading down and a lot of new condos are scheduled to be built.
Recent articles show DC prices going down from now into 2008. But nobody ever perfectly predicts where the bottom is.

7. Questions that Stephen can help you answer:

Appraisals vs. Assessments
Do I need a home inspection?
What are home warranties, and why should I consider buying one?
What is title insurance?
What is the difference between a lender pre-qualification letter and lender pre-approval letter?
What are polybutylene pipes and why should I care?
Do I have to pay out of pocket for a buyer agent to represent me?
What happens at settlement (i.e. when I sign over my life)?
How much should I expect for closing costs?
What is earnest money?
Should I pay down my mortgage early?
What are the tax benefits of owning a home?

Lets Get Budgeting!

2007-04-06T14:30:00.000-07:00

Thank you,

To all those who were able to show up and contributed at the first Investment Club.
Since there is such an interest in it, next time we will go over mortgages and how to afford a house.

Here is what we went over for our first meeting.

1) Keep a budget.

Keep a budget so that you can figure out where your money is going.
Here is the Excel Sheet from Nathan to help you get started:

http://www.geocities.com/craigfield12/Budget_Sheet.xls
Nathan also recommended keeping 3 months worth of receipts to keep an average of your costs.

2) Keep track of your credit.

This is the website that is free.
Other sites will try to sell you a service, but this one is free.

annualcreditreport.com

It's good to look at this at least once a year to know that nobody has stolen your identity.
You can also make sure there are no mistakes.

3) Take advantage of High Interest Savings Accounts.

I believe everyone should have a High Interest Savings Account.
This account will be extremely beneficial to you.

Here is the one I currently use:
www.hsbcdirect.com
6% until April, then back to 5.05%.

I can not stress this point enough,
if you have cash that is just sitting in a regular account you are most likely making 1% interest.
Just moving that money into an HSBC account means your money will work harder for you.

4) Make your Credit Card Work for you.

Ben in our group has a good Credit Card Chase Rewards Plus (Visa).
Unfortunately, it doesn't appear to be available right now.

Here is a site that has a comparable Chase card as well as the card I currently have
Citibank Dividend Platinum Select (Mastercard):
http://www.creditcards.com/reward.php

My favorite features of this card are:
3% cash back on gas, groceries etc.
1% cash back on everything else.
Once I have accumulated over $25, I just login and click "send me a check."
I get a couple hundred dollars a year from this.
Virtual Credit Card: This is a program that lets you buy things online with a credit card number that will expire the next month. That way if the company gets hacked and they steel your credit card number, it will expire too soon for them to use it.

Side note:
I have friends who don't use credit cards. They got burned and they stay away from them. If you know you can't trust yourself with Credit Cards then stick with what you are comfortable with. My suggestion would be that if you learn more about credit you will learn to become more comfortable using it. It's also very difficult to get a loan with no credit history. If you don't have a credit card, you won't have a credit history.

5) Take advantage of Compounding Interest.
This file shows what can happen with a little money and a lot of time.
In short, the sooner you start the more you will have for retirement.

www.geocities.com/craigfield12/IRASheet.jpg

If you don't have a retirement account (401K, Roth IRA), then you need to start one now.

6) Read Financial Articles.

Nobody is going to take care of your money better than you.
I would suggest reading the weekly articles posted by yahoo.
These are from authors of many famous financial books.
The authors tend to repeat what is in their books and they speak about more up-to-date information as well.

http://finance.yahoo.com/expert/index

My favorites are Ben Stein, Suzy Orman, Jeremy Seigel and Robert Kiyosaki.
Books from these authors are at your local library.

Here is a website that keeps up-to-date information on the best interest rates.
www.bankrate.com

7) Ask a lot of questions.

For some reason it's a faux pas to speak about finance.
Yet we all need to master finances to take care of ourselves and our family.
Hopefully we will all be willing to share our successes and mistakes so that others may benefit.

Answer to a question:

Here is the article that goes into details about keeping both Roth IRA and 401k.

http://www.fool.com/news/commentary/2003/commentary030416.htm

In short,
1) Fill up your 401K to the amount that your employer matches (around 5%). then

2) Fill up your Roth IRA since it grows tax-free (which is better than tax-differed if you expect to be in a higher tax bracket when you start to withdraw from the Roth).
Roth IRA contribution limit for 2007 = $4000, then

3) If you still have money that you want for retirement, go back to filling your 401K.

Also take into consideration that you want to buy a house. Roth and 401k are investment vehicles for money you don’t want to touch until retirement.

There is the ability to take money out, but the point is to not touch it and let it grow with the tax shelter benefits.