Some energetic insight
Posted by Mike
I've been wondering recently about energy investments, and BP in particular. Not to undermine the tragedy of the oil spill, but it may have a number of immediate and long term effects in the energy market. My environmental side hopes this helps push alternative energy sources a little further into the mainstream.
In any case, Fortune magazine recently interviewed T. Boone Pickens, a successful financier and energy investor. Check out the interview - if nothing else, it offers some insight into the fact that even the most experienced investor still isn't sure what to do with your investments in the short run.
Some thoughts on banking
Posted by Mike
As promised, here's a short post inspired by BankSimple's blog:
A lot of people don't fully understand how banking works at the fundamental level - especially when it comes to the fees we see as consumers. The basics are spelled out in this blog entry, which, admittedly, is somewhat of an indirect advertisement for BankSimple. It explains that since deregulation in the 70's, transaction fees have been the key to profit for large banks. Things may be changing with the new regulations, but we'll have to wait a few months to see how it all pans out.
Allocate the future
Posted by Mike
I just came across a tool that seems pretty interesting (free registration required). It's a calculator that looks at the probability of getting a return over a period of time given your initial investments, monthly contributions, and the allocations of your investments. So, for example, if I have a $10,000 portfolio today, and invest $500 a month, then it tells me:
- if my portfolio is invested "moderately", I have a 71% chance of having $250,000 after 25 years
- if my portfolio is invested "aggressively", I have a 75% chance of the same
- if my portfolio is invested "conservatively", I have a 0% chance of having $500,000 after 25 years... oops...
"Modest", "aggressive" and "conservative" are pre-set asset allocations, but you can redefine these to match the allocation percentages in your portfolio, choosing from five asset types:
- cash holdings
- bond holdings
- large cap stocks
- small to medium cap stocks
- foreign stock
Try it out and see what you think.
Don’t want to bank on banks?
Posted by Mike
A few days ago, I posted about Mint.com, and I wanted to follow up with a few other online services that I've seen that may be useful. Most, if not all of these have been written up in a recent New York Times article, which has some useful information.
Now these aren't like mint.com in that they work as banks. Mint.com doesn't let you move any money - you can only see your accounts - but these services are online alternatives to your everyday checking and savings accounts. I'm not going to go into the deep details of each service, partially because I don't have first hand experience with each, and partially because Murphy's law states that any details will be changed as soon as I publish this, but here's a slightly annotated list.
SmartyPig: SmartyPig is meant to be a savings account replacement, offering relatively high interest rates (currently 2.15%) , as long as you keep a low balance. If you save more than $50 000 with them, your interest rate falls to 0.5%.
PerkStreet: PerkStreet offers you an alternative to your everyday checking account. They offer free checks and no-fee banking, and you can even get cash back on debit card purchases. Check out all the details though - and shop around. This may be one that looked good to me, but it also may not be the best one out there.
ING Direct: Perhaps the original online banking option, ING offers just about everything any other bank would, but with higher interest where you want and lower interest where you don't.
Bank Simple is an up-and-coming online bank option that seems to have the right philosophy - happy customers means loyal customers. They have a little info about how they'll work, as well as an interesting blog that may inspire a few future posting here. I'll let you know as soon as I see they're up and running.
That's it for me - do you have any other suggestions?
Save yourself from any flation…
Posted by Mike
Although a few months old, an article I just read offers some interesting tips to protect yourself against either inflation deflation. Now it's true that this was written a few months ago, but their points are still valid:
Basically, the market hasn't recovered from the financial crisis - we've seen in the news this past week that unemployment is a major concern, and that housing sales have dropped since the federal tax credit expired. As people continue to avoid spending, we may see prices drop, which would lead to a deflation of the American dollar. On the other hand,other's say that recent government spending (and a $13 trillion debt!) may cause just the opposite - a high inflation rate.
So the question is, how to avoid trouble in either circumstance. Their suggestions are to invest in:
- Stocks with pricing power
- Cash-rich blue chips
- Emerging-markets stocks
- Inflation-indexed bonds
- Foreign bonds
- And commodities and real estate
Check out the article for a more details on each (same link as above).
Less talk. More stock.
Posted by Mike
We've all had that moment when you look at the stock prices and think, "Why didn't I actually invest that money instead of buying another Tron motorcycle?" Well, maybe not that exact moment; I know some people went for the Batmobile replica.
In any case, if you've decided to avoid these moments in the future and to start investing, you'll need to find a stock broker. Brokers can range from a self-service stock trading service online to a full-service investment advisor and manager. Depending on your confidence - and experience - an online trading service may be right for you, and we'll look at some of these later. Right now, though, take a look at some articles that discuss how to make this decision and what to consider.
Plenty of websites have articles about picking a stock broker. You can check out those on moneyunder30.com, allbusiness.com, and ehow.com, for example. The biggest lesson, of course, is that when you hire someone you should make sure you know exactly what you're buying - both in terms of service and stock.
A little about risk
Posted by Mike
I came across an article a few days ago that I didn't find too interesting. Upon rereading it though, I realize that I didn't give the attention it deserves.
A lot of us don't really consider how we think about risk - we see it as some kind of measurement of probability of winning or losing. The Wall Street Journal's Moshe Milevsky offers a way to think a little smarter about it. For example, he notes that a drop in the stock market may have a greater impact on our wallets then we first acknowledge, and suggests balancing the market's multiple influences on our lives. He also talks about our human capital and how to view it - and more importantly, its insurance - as an asset.
As I mentioned, my opinion's changed about the article. I'm not going to give my full opinion, but I'm curious about what you think. Is this the right way to think about risk?
The value of education
Posted by Mike
I've just received a bill for the next few years of my life, and it's rather daunting. In fact, it's greater than any other bill I've received - by at least two zeros.
Tertiary education is expensive. Period. Sure, many students get funding and win scholarships, but for most of them, the few hundred dollars they get won't go too far. And saving up for your child can be difficult too - in fact, a child born today will already cost about $222,360 to raise, without any higher education.
There are ways to make things a little easier though:
- 529 college funds lets you invest in higher education for anyone. With low minimum contributions, you can simply invest a couple dollars a month so that by the time you need it, there's a nice amount to help with tuition, book, and living expenses. Picking a fund may be tricky, but there are some articles out there that can give you a few tips. All this said, a 529 may not be your best option.
- Student loans are a useful option, but don't forget you need to start paying them back when you graduate...
- On that note, 50 colleges in the US recently announced major changes to their financial support structure in an attempt to reduce debt load and financial hardship of their graduates. Harvard, Yale, Stanford, and others will be reducing or eliminating loans from their financial aid and replacing them with other debt-free options.
- Read up on how to be financially smart when it comes to university, and of course, plan ahead. You can easily find out about costs involved and and budget accordingly. If you'd like to compare tuition rates in the US, a couple sites offer a quick tuition look-up. (Here's a student budget calculator to help too.)
So is it worth the trouble? Absolutely. With a college education, your children are more likely to get a better job with a higher salary, which means that you'll have less to worry about when your grandkids get their tuition bills.
Pond hopping
Posted by Mike
There's a lot going on in the European market right now. With the financial situation that seems to be calling for new financial regulation (membership required) by France and Germany it can be hard to know whether you need to worry about your European investments.
Whether you're thinking of pulling out, or want reassurance that you shouldn't, check out what the Wall Street Journal says about how to handle situations like this. They claim that there's not good reason to liquidate European assets right now, but more importantly, they give also a few tips about how to go about it if you are.
My First Mortgage: Part One
Posted by Mike
One of the biggest pieces of financial advice people look for is how to buy their home. Most people who are looking probably already know about the basics, but we want to offer a little introduction to those who may not.
Mortgages may seem complicated when you're looking for your first one, but they're actually quite simple. When you want to buy a home, but don't have enough to pay for it in its entirety, you borrow money from the bank with the property as collateral. Essentially the bank buys the house for you, and you pay back the bank over the period of your mortgage (or amortization).
To make this profitable for the bank, it charges you an annual interest rate on this loan. This is one point where things can seem intimidating. Because of the large amounts and long time-periods (usually 30 years) involved in these loans, even the most competitive loan rates can lead to you paying almost double the amount you borrow. So know the facts and details about your specific loan offers before buying.
There are two main kinds of mortgage. Fixed-rate mortgages will set the interest rate in advance for the entire length of your mortgage. Variable-rate mortgages (also known as floating- or adjustable-rate mortgages), on the other hand, will offer an interest rate that varies with the Central Bank rate. This means that in a variable-rate mortgage, both you and the bank are gambling on the interest rate over the course of the loan - the bank wants it to go up, and you want it to go down.
There are other forms of mortgages that we'll talk about in future, and there are plenty more details that you should know about. For now we'll leave you with some simple mortgage calculators that can help you show how much a loan will cost based on the loan's principal (the total sale amount less what you can put down), its interest rate, and its amortization period.
- Check out Century 21's amortization calculator for a basic look at how interest and principle would be paid over the course of a mortgage. You can also see their mortgage calculator to include things like insurance and tax rates.
- Most banks, such as TD, Wells Fargo, and Bank of America, have mortgage calculators, but you may need a little more than we've presented here to use all the tools they offer.