Thursday, February 27, 2014

Do it yourself or hire an expert.

Have you saved enough money to invest?
Do you have the time to research stocks, bonds, etc?
Do you enjoy following the stock market and discussing opportunities with friends? Not everyone does.

I do not repair my own car nor do I repair the plumbing in my home. I hire an expert. You may consider hiring an expert to manage your money if you have neither the time nor the inclination to figure out investing.

A stock broker (aka financial advisor, wealth management advisor) works for an investment firm and will build a portfolio for you, buy and sell investments and charge you commissions on your trades. Stock brokers do not work under a fiduciary agreement where they are required to put the clients' interests before their own. There may be a "conflict of interest" because what they sell you affects how they get paid.

Remember a previous $ Tip: ask "What's this going to cost me? How do you get paid?

A "fee only" advisor will charge a fee for services like preparing a financial plan or making financial recommendations. Fees might be hourly or per service provided. Since they do not sell the investments they recommend there is no conflict of interest.

A money manager or investment advisor will charge a percentage of the money they manage for you. They do not charge a commission for each "buy" or "sell". You pay an annual rate, usually paid monthly and deducted from your account. That rate may range from 1% to 3% (or more). If you give a money manager $50,000 and they charge 1.2% you would pay $600 for the year or $50 per month. It is in the interest of the money manager to make your money grow as he/she would receive more in fees over time as your money grows - e.g. 1.2% of $75,000 = $900. 1.2% of $100,000 = $1,200 . Money managers usually operate under a fiduciary rule to put their clients' interests first.

No matter which route you take, ask questions, research the individual online (SEC website) and if it sounds too good to be true - RUN!

Be $ smart.

Wednesday, February 19, 2014

Do yourself a favor - keep your old 401k (or 403b)

The temptation is great - you left your job, cash is tight, you have money invested in your 401k - makes sense to cash out the account - right?

NO! Here are four good reasons to leave the money where it is:

1. You will need the money some day in retirement. Money invested while you are young has many more years of compounding growth than if you double up on savings in your 50's.

2. Your 401k is protected from creditors and bankruptcy.
It makes no sense to cash out and then lose the money in bankruptcy or to your creditors. Keep it for yourself.

3. Taxes, taxes and penalty eat away the proceeds.
The money you receive will be taxed as ordinary income (whatever tax bracket you are in) by both your state and the federal government. If you are under 59 1/2 you will pay a 10% penalty.
e.g. $5000 in your plan.
Federal tax 28% + state tax 6% + 10% penalty = 44% X $5000 = $2200.
$5000-$2200 = $2800.
Your $5000 shrinks to $2800. If you leave it to grow $5000 could build to over $8000 in 10 years, $10,000 in 15 years earning a mere 5%.

4. 401k plans usually have better investment choices.
Your company has negotiated for good, diversified funds not always available to the individual investor.

Give it some thought - keeping your 401k will bring rewards later in life.
Be $ smart!

Thursday, February 6, 2014

Putting your money to work...

Once I finished school and started working it did not take me long to realize I had to start saving some money to "thrive", not just survive.
I recognized there were only so many hours in each week that I could work. I had to work smarter. I had to put my money to work!

I could not ignore the dollars starting to build in my savings account. The bank was paying low interest so I knew my money could not grow very fast.

Taking some risk, I learned to invest.
I started small by opening a mutual fund account at Vanguard Funds. I chose a fund that invested in the top 500 companies in the U.S. That meant I owned a little bit of 500 different companies. It's called diversification. If something negative happened to one company, the other 499 could do well and compensate for the losing one.
I did not buy just one stock which is like putting all my eggs in one basket.

Vanguard had a minimum initial purchase of $3000 which is the amount I invested. (Some companies charge less, some charge more.) I then set-up automatic withdrawal from my savings account for $100 a month.
Over time, I watched the account grow - with the normal ups and downs of the stock market. When the account reached $10,000 I bought another mutual fund and switched my $100 per month to the new fund. This fund held international companies - all outside the U.S. When the international fund reached $6000 I purchased yet another fund - a total bond fund. And again, changed the $100 to build the new fund.

Stocks and bonds sometimes move in sync and sometimes not.
We never know year to year which part of the market will do best so we buy a little of each.

This might sound very basic but many people have no idea how to start investing. It does not require a great deal of money. It does require determination and patience.

I have had great satisfaction watching my money grow. I am willing to help anyone get started. Call or email with your questions.

Saturday, February 1, 2014

The Family Bank

The past few years have been truly difficult for our young adults. With diplomas in hand they eagerly sought employment. Some were fortunate to find work but many, not so lucky, "launched" in reverse - they moved back home.

Recent statistics show 44% of parents over 55 financially aided adult children in the past year. It might be tough for the graduates to be back with mom and dad but for mom and dad it strains saving for retirement or even postpones retirement for the next generation.

Continued support for young adults can drain a well-planned retirement.
Parents want to help their offspring but some rules must be considered.
Adult children must realize parents are not bottomless ATM's.
- Room and board could be in exchange for chores: yard work, painting, simple repairs, window washing, clearing a yard or a garage.
- Money loaned needs a signed, promissory note stating the date, amount, interest and term (date of repayment).
- Clear communication of expectations by both sides, in writing, keep feathers from flying.

Yes, parents want to help their children but consider the consequences:
When parents run out of money in retirement where will they go? They will move in with their children.
Parents - do you really want to live with your kids?
Young adults - do you really want your parents moving in with you?

Make it easy for everyone - talk about expectations; put them in writing.
Be $ smart!