November 10, 2010

Investing in energy might boost your portfolio’s performance…

America is somewhat curbing its dependence on foreign oil by investing in “clean energy” and by making improvements in its infrastructure. Our historical “oil-for-dollars” policy has been a significant transfer of wealth and will potentially jeopardize America’s standing as a world power amongst others...if we don't act now.  The Obama administration is spending billions of dollars to not only create jobs – but to also make necessary improvements to make America greener and somewhat more self-sufficient.

What does this mean for you?

Well, even if you’re not one of the individuals that will be employed by this investment in infrastructure – you can still make some money by America becoming green.

A big investment from the Obama administration is directly related to an increase in public transportation…or electric trains. In order to reduce our dependence on foreign oil – we need less cars and trucks on the roads. One way to do this is by having more electric high speed trains that can get people from point A to point B. By the way, AMTRAK has recently reported a deal with Siemens to develop more electric locomotives with the first being delivered in 2013. AMTRAK also plans to expand its entire fleet over the next 30 years.  Click here to see this article.

Not everyone will be able to ride a train, unfortunately, which is why there are new fuel standards for every car to reach at least 35mpg in 2016…which means there will be more electric and/or hybrid vehicles on the road in the future (Nissan just released its all-electric vehicle called the Nissan Leaf).

What should you invest in?

A smart move would be to include some stocks and bonds of utility companies, coal mining companies, nuclear companies, and battery manufacturers to name a few. Let’s not forget that other countries besides America needs these resources as well…and as more emerging economies seek expansion and more global influence, expect these commodities to become a bit more expensive. This means more profits for you. Call it your “paper-dollar-for-real-commodities” policy!

BE FREE

November 9, 2010

Please Invest Responsibly....

The rise of online discount brokerages is a great way to make some money on your own….but please use with caution! Don’t get tangled up with excessive trading which leads to fees, commissions, and other expenses that can eat up your nest egg.

Brokerage firms/banks already know that most investors will react with emotion when investing – which is why so many discount brokerages are popping up like candy stores all over the place today….because when investors panic or get greedy…it leads to excessive trading.

Excessive trading = more revenues for brokerages/banks. So please invest responsibly.  There's only one thing that can happen when you leave the investing up to individuals that probably know nothing about investing but decide to buy a stock or a bond from a company they know nothing about....they'll simply lose their money. 

For instance - Sharebuilder, TD Ameritrade, OptionsHouse, OptionsXpress, Charles Schwab, WellsTrade, TradeStation, ScottTrade, and Zecco are just a few discount brokerage firms that I can think of that are eager to take your money.  You'll see that they spend a lot of money on marketing/advertising in order to get your attention...especially since the economy is recovering and people are starting to feel greedy.

Here's my advice - if you don't know what you're doing - then invest in an Index Fund (such as the S&P 500 - ticker symbol SPY) or a Bond fund (ticker symbol AGG) that will spread a portion of your money into all of the stocks on the exchange...known as dollar cost averaging.  Index Funds and ETFs (Exchange Traded Funds) are the best way to invest on your own, especially when you don't know what you're doing!  In fact, several "professional" wealth fund managers can't beat the performance of an Index fund...so why not put your money here?

Lastly, once your money is invested - you should leave it there until you get ready to retire (depending on your age bracket).  Don't panic about the ups and downs of the market...studies show that the stocks generally appreciate as time progresses.

BE FREE

November 4, 2010

QE2


Interesting article at MarketWatch.com about Quantitative Easing II and Ben Bernanke defending the Fed's decision to purchase $600B in securities (click here).  What does this mean in English?  Basically, the Federal Open Market Committee decided to put more money into our economy by printing more money - this causes money to be cheaper and hopefully increase the flow of credit and investments - which are intended to help "spur" the economy along. 

This makes the value of the dollar worth a little less than what it was worth yesterday...so your cash savings in your bank account, that's earning maybe 1%, is worth even less today.  So with that being the case, the average consumer decides it's more beneficial to invest than it is to save...so more money pours into the stock market (essentially giving money to corporations and small businesses so that they may grow, expand, and hire more people). 

An influx of jobs would be great for the economy - but with the government debasing the dollar's value, things will inevitably become more expensive (i.e., commodities such as food, oil, gas, etc....which further supports my last few articles for you to invest into commodities if you haven't already!). 

Hate him or love him, Bernanke is concerned about the economy and the high unemployment, and he's also concerned about the near unsustainable deficits carried by the US....as he mentions in the article - the Fed alone cannot save the economy.  It will be a combination of several other factors working together to get America thriving again.

What am I doing? I'm still a fan of commodities although I have some stock favorites as well.  Here's a few ticker symbols of my favorite investments that I plan to pour more money into:

PWE
BP
F
S
DTE
SLV
HD
XOM

BE FREE

October 25, 2010

Residential Real Estate, Commercial Real Estate....

The American economy is very resilient and over the past decade we've made it through some tough ups and downs where some people made money and some people got burned.  As the market goes up - there are a lot of "con artists" stating that the economy is sound and can reach even new highs (remember the dot-com bubble, and the credit-era of 2007?).  When the market is super hot and everything is going up - investors can quickly become infected with greed and FOMO disease...(Fear Of Missing Out).  Only to be dissapointed when the market comes crashing down and they're stuck with something they paid too much for.

On the contrary, when the market is in a deep recession or depression - similar to the one we just came out of or are currently in - these same "con artists" pop up again.  This time around they tell you that interest rates are so low and property is cheap...and you need to buy now before everything goes up.  Or they may tell you that you should get out of the stock market because everything is crashing down and you need to put your money in bonds.  Maybe they say you need to trade in your gold metals in return for declining-in-value paper dollars.  Should you believe them?  Who do you trust?

You must learn to trust yourself...that gut feeling...or second thought that we have and so often choose not to listen to.  Also we must do our own research and use some common sense.  Let me elaborate on residential real estate....

During the 2007 credit-era, banks were allowed to lend out money on an 10:1 ratio... that means if a bank has $1 million dollars of actual cash in its vaults - they are allowed to "create" or lend up to $10 million dollars for mortgages, car notes, and various other small loans to give to consumers...they're able to do this because the money is "backed" by the full faith of the bank not going broke or "failing"...(some banks are deemed "too big to fail"...remember?) Even though they failed us anyway...nevertheless...because the banks had so much (paper) money to lend, they were willing to give it away to whomever had a pulse and simply asked for it (i.e., home builders).

Builders got loans to start residential construction...even if they didn't have enough home buyers to move into the properties.  So what happens to the newly built homes?  Investors rush in to flip the properties....to other investors foolish enough to buy it from them....and the cycle goes on until the price of the house doubles, triples, or even quadruples...then the price comes crashing down.  Today, we have several of these types of properties on the market for dirt cheap, as well as foreclosures...but still not enough buyers.  I think it's funny how there are some investors looking for new home construction as a sign that the economy is back...lol. 

New home construction will not solely be a sign that the economy is going strong again...but for those investors looking to "get in while the gettin's good", they should also be prepared to hold these assets for about 5-7 years before even considering to sell again.  If you're just looking for a good rental - then look hard....don't just buy the first thing because it's cheap.

A good sign that the economy is returning to full swing might be to take a look at commercial real estate...you know, strip malls, hotels, business offices, shopping centers, etc.  Might not be a bad place to invest your hard earned money if you haven't already.  Why?  Because the US is still a consumption based economy - so business travel will soon pick up as a sign that corporations are earning again (I'm currently writing this article while on business travel).  People will want to start enjoying those very much needed vacations again (the airline industry is a good investment as well).  Don't believe me?  Take a Saturday and drive up to your favorite outlet mall this wknd and look at how full the parking lot is. 

Trust your own instincts...do your own research and learn about Investing 101...if you need help, find a tutor or someone offering an investment class.
The consumer is slowly coming back around...and the bulls are starting to see red (or in this case, green).

BE FREE

October 24, 2010

401ks get tapped....

Interesting article...

http://www.marketwatch.com/story/more-401k-savers-take-loans-2010-10-22?siteid=nwhpf

I'm not too surprised though - as most people are trying to stay afloat during the current state of the economy.  This is evident that many Americans are living beyond their means - and a good reason "why most Americans will not be able to retire".

We're not investing enough, we're not saving enough....be sure that you're not "following the crowd" with your finances.  Be different.  Be financially responsible for your future. 

BE FREE

October 12, 2010

Investments for 2011 and words for Corporate America. Just 2 quick thoughts of mine...

My investment picks for 2011

There's a war going on....a war with your money...yes your paper money.  Nations all over the world are becoming increasingly interdependent, and yet simultaneously more powerful ever since they all left the Bretton Woods system and began to intervene in the currency markets (i.e., The Plaza Accord).  But to avoid giving you a big history lesson - ever since the most powerful governments of the world began to meddle in currencies, have you noticed that the standard of living and potential for retirement has dramatically decreased for citizens in almost all countries?  The governments of the world are printing money and increasing the debt levels with reckless abandon (something our founding fathers feared would happen if there was a central bank, i.e. Federal Reserve).  While placing the burden onto its citizens via increased taxes and steadily pushing up the retirement age.  The only winners in this game is the International Monetary Fund, the World Bank, US Federal Reserve, Goldman Sachs, Bank of America, UBS, Wells Fargo......see a trend?
Forget what your "financial advisor" is telling you about how you should only invest in stocks and bonds...what good is your money in stocks when you find out that your company has been "cooking the books" (Enron, Worldcom, MCI)?  What good is your money in bonds when you find out that your company will file for bankruptcy (Chrylser, GM, Delta)?  What good is your retirement if your sole source of retirement income will be the stocks and bonds owned by your 401k?  or your IRA?  Assuming that you're able to retire considering the government keeps raising the retirement age....and we all know that social security in the future will barely pay our cellphone bills.

So what will I be investing in for 2011?  What's going to maintain your level of wealth going forward?  Well, I'm glad you asked.  Because I'm going back to the basics - I'm investing in the same vehicles that the most powerful governments and wealthy people are investing in...or should be investing in.  Commodities!  (Oil, Gas, Silver, Wheat, Corn, Coffee, Pigs, Cows, etc.)  And also real estate! (Land, Buildings, REITS, etc.)  Why do I like these investments?  Because as the government keeps printing money - the value of our dollar goes down.  And what goes up?  The cost of food, electricity, gas (notice how gas prices are slowly going up?), shelter, transportation, etc.

The wealthiest people in the world are starting to catch on to this trend....the governments with the most cash on hand are looking to diversify into commodities as well (i.e., China).  China and other countries with cash surpluses are looking to buy up oil wells in the US, Canada, Africa, and other countries around the globe.  These types of transactions create jobs nonetheless, but ultimately we will be working for China's prosperity.  I probably just opened up another can of worms with that statement - but I'm forcing myself to stop here...to insure that these are quick thoughts of mine.

Generation Y & Corporate America

Oil and water.  Stripes and Polka dots.  They don't mix.  Nor do Generation Yers and traditional Corporate America.  Why?  Because most of us do not see the point in working 8am - 5pm, M-F, without any flexibility for the next 50+ years of our life.  Key word is flexibility.  Look for Corporate America to change as we know it going forward...hopefully. 

Corporations today (especially newer corporations) are becoming more efficient, leaner in operations, more productive, and more flexible.  Relaxing the standards in the dress code, hours worked, and allowing for some telecommuting.  While this is just the tip of the iceberg - I expect more Gen. Yers to force change at the top...and for those corporations reluctant to change - watch as they wither away.  Because the intelligent hyper-flexible Gen Y individual will probably leave the corporation or become an entrepreneur and compete against it.

Most corporations have decisions made at the top and then those decisions trickle down to the employees.  But instead it should allow for decisions and ideas to flow horizontally throughout the corporation and allow for the employees to have input with the managers about the direction the corporation should go.  This allows for more profitable corporations and bigger salaries for all those who are employed by it.  It's a win-win environment...the managers win because they realize that better ideas and improved operations can come from those who are currently working in the operational positions.  Employees win because they have a sense of ownership and more input and involvment within their company, and more communication and transparency with upper management about the finances and direction of the company.

That being said...I still root for the employee and the entrepreneur that lies within.  Because your financial position and financial outlook on life is a lot better as an entrepreneur.  Leverage the skills you learn on your job and then find make a plan to branch out on your own after 3-5 years on the job.  It will be tough, and success might not come right away...but keep working at it.  Or give up and just settle for a mundane 8-5, M-F job where you have to ask some other adult to use your vacation time, where you feel you're making less than you're worth, and you're subject to a dress code...for the next 50+ years.  The call is yours.

BE FREE

September 30, 2010

Workers in Europe Protest Austerity Measures - NYTimes.com

Workers in Europe Protest Austerity Measures - NYTimes.com: "Workers in Europe Protest Austerity Measures"

Click on link above to read article...

This is the result of a weak economy, too much government spending, and not enough taxes to fill the void. What's their solution? Well the Portuguese government proposes that they'll freeze pensions, increase the tax rate, and reduce their spending in order to get the deficit under control again.

How can we relate this to the United States?

Currently our economy is weak and government is spending frivolously in the form of bailouts, stimulus, Recovery Acts, and a so-called Jobs Bill. Not to mention Republicans and Democrats alike are screaming for tax cuts for everyone (it is an election year for them - so they're trying to save face.) So basically, like the Portuguese, the United States has high deficits and our tax revenues are low. So what reason do we have to believe that our government won't implement some of the same "austerity measures" being used in Portugal?

In the current administration or the next - expect higher taxes on everyone, less government spending (hopefully), another increase in the retirement age, and a reduction of retirement benefits. Listen closely how politicians choose their words carefully in these upcoming campaigns - and listen to how many campaign promises that will go unfulfilled.

How many hard-working individuals are not retiring in the United States? I would like to know the statistics of those who can retire vs. those who cannot. Interestingly enough, on every street corner there's a "financial advisor" or "Personal Banker" preaching the gospel of why we must plan now through saving and investing in order to retire comfortably. Invest in a 401K and all will be OK they say...Plan for your children's college by investing in a 529 Plan and all will be OK they say...Invest in Roth IRA and all will be ok they say. But what if these "advisors" are not telling me all I need to know?

Will a car salesman try to sell you on a car by telling you all that it cannot do? Or will they instead tell you how smart you are for selecting a certain model? Or how dependable this model will be? How good of an investment you're making.... you know, all of the warm & fuzzy stuff that blows your head up.

Why should we expect a financial salesman to do any different? Like a car salesman, they'll try to sell you on the benefits of a product without necessarily telling you all of the costs, uncertainty, and risks entangled within your retirement plan.

You might be thinking - well I need to buy a car every now and then so I can go to work....and I need to invest in some type of retirement plan so that I can retire. But I say - what if you owned the dealership? And you sold enough cars to other people - that you were able to use their money to purchase your car? What if you had multiple streams of income from your businesses or through entrepreneurial efforts, that paid you every month? Do you really need a 401K if you spend your life building multiple income streams - instead of saving for just one? If you managed to build a cash flow of $10K a month, do you really need social security - which will pay out approximately $1,500/month in today's dollars?

I seriously doubt it.

Just a thought...

BE FREE

September 29, 2010

TAXLOOT is coming!

Everyone has heard the saying "the rich get richer, and the poor get poorer".  But has anyone ever thought why this is so?  What are the rich doing differently? 

Well there is one obvious answer to this question- TAX SHELTERS!!!  "The Rich" have highly- paid wealth and tax advisors that find various tax shelters that shield their wealth from income taxes.  These highly paid advisors also find investments that provide tax-free income!

I'm going to include these major tax shelters and passive investments used by the rich in a book that you can USE!  I'm calling this book TAXLOOT - A Wealth Planning Guide.

This book will included a step by step process that will show you how to:
  • Purchase Municipal Bonds that provide tax-free income (federal and state)
  • Invest in securities
  • Utilize income shifting to reduce your taxable income
  • Partake in gift leasebacks
  • Take advantage of new tax shelters being created during the Obama administration
  • And More!
Coming soon....

BE FREE

September 21, 2010

Funding your education without loans is easy.....

There was an article released yesterday (click here to read the article) stating that credit card debt has been surpassed by student loans.  Everyday it seems as if the necessity of going to college to meet the skill demand for tomorrow's jobs has been rivaled with the necessity of scholarships, grants, and loans required to be able to afford the cost of tuition.  Some students are lucky enough to find jobs within their college towns, to assist with their living expenses . ..while others simply have to find other means of covering their living expenses.

But the reason for this article is that it is considered the norm to take out loans for a college education because most people are trying to finish their degrees "on-time" in 4yrs, 6yrs, or 8yrs depending on their discipline.  And the cost to finish "on-time" is normally more than what most people can afford - which is why loans are used to fill this gap.

But there is another way....why do we HAVE to finish a "four"year degree in four years? Is there any reason why we need to do so?  Because I'm willing to bet that a student, who goes against the norm, could attend college without any student loans, and without any help from their parents.  Here's my plan for those students attending college in the near future that do not want to be faced with the pressure of repaying loans like most Americans :

- Students should attend a two-year community college (which is dirt cheap) by using grants, scholarships, and also working part-time if necessary to fund their living expenses, books, etc.

- After passing community college, enroll in a four year, in-state, public university, while using grants, scholarships, and working part time.

Of course, the goal is to finish the community college in two years and finish up your degree at the University in two years, which would give you four years total for your education.  BUT - if you can't afford to finish in four years - then stay a little longer while working and pay as you go!  So what if it takes you an additional two years to finish?  You'll have a better standard of living than most of your peers that struggle to pay off their loans and have to find a job that offers a decent salary to cover those loans.  If there's a recession or a downturn in hiring (like the one we're currently in), you won't feel the pinch as much as your friends will.  They'll be forced to accept almost any working condition because they have the pain and stress of debt collectors harassing them if they don't.

BE FREE.

September 20, 2010

Recession is over?

The recession is over – but is it a false sense of reality? The government still has the economy propped up with stimulus money, company bailouts, and many other incentives that make it seem as if the recession is over. But what happens when the government begins to withdraw the money from the economy? Eventually corporations that have borrowed taxpayer money will have to pay it back. But what happens if and when the government can’t get every cent of taxpayer money refunded? The article released today is bittersweet (click here to read this article)…yes supposedly we’re out of a recession, but today there’s something else that should also get headline attention…the surge of Gold and the new low of the dollar this month.  Click here to read this article.  The Federal Printing Agency…uh, I mean the Federal Reserve is scheduled to meet tomorrow. Let’s see if they decide to print even more dollars to “spur” the economy and its weak recovery.

There is some good news though…we know that corporations and banks are sitting on cash…lots of it. Corporations know that they’re eventually going to have to expand and increase hiring because there’s only so far they can overwork their employees without hiring additional help. And the unwritten rule of business is that “either you’re growing, or you’re dying”. Banks are going to have to continually increase their ROI (Return On Investments), and since banks are in the business of making loans, it doesn’t make sense for them to have too much paper laying around.

People who are smart with money are optimistic in a bull economy or a bear economy…a Republican administration or a Democratic one…because there are (or at least should be) opportunities abound with both. Recession or not – learn how to be prosperous and increase your wealth, no matter what lies ahead.

BE FREE

September 12, 2010

Government in the way? What you can do to better your situation.

During the credit-era (2005-2007), America had a false sense of production, growth, and access to easy money in the form of credit. Anyone that could blink their eyes could get credit to buy cars, houses, investment properties, etc. We thought there was no end in sight and wanted to “let the good times roll”. But as we all know, a house of cards will soon come crashing down...and then there’s a period of rebuilding again. All the while misguided individuals are yearning to get back to the way things were and blame the current administration for not correcting the issues quickly….ironically, these individuals also say the current administration is in the way of prosperity.

So will the economy take another turn for the worse? I’d say not right now.  The government has too much money pumping into the economy that’s keeping us falsely afloat right now…the same way the credit-era gave us false growth in consumer spending and productivity. What's keeping us falsely afloat during this recession is stimulus money, bailouts, several unemployment benefit extensions, and a ridiculous jobs bill that is soon to be implemented. The problem comes when this money has to eventually be repaid back to the taxpayer…and how will the government raise revenue? Through higher taxes, of course. And starting 2011, increased taxes for individuals are definitely coming – they say it’s to pay for the government sponsored healthcare plan that won’t be implemented until 2014 – but I’m willing to bet that this money will get spent on the current deficit...and then Congress will increase our taxes again in 2014 to actually fund the government’s healthcare plan. The same way Social Security and Medicare taxes are used to fund wars…and not for our well being in retirement.

But history tells us that increasing taxes on a weak economy makes a bad situation, worse. And if history is any indication of the future…then expect a long slow path to prosperity and growth from the private sector…hopefully….depending on if the government doesn’t do any more harm than good by creating another jobs bill.

So what can you do amid the current recession and a boatload of taxes coming your way?

• Get out of debt (owe no one!)

• Save at least 8 months of expenses

• Invest

• Try your hand at becoming an entrepreneur or producing other streams of income

Of course, this is against what the government would like us to do right now. They’d rather we just spend the money – which is why they’re keeping interest rates slow to discourage us from saving any paper money. Nevertheless, right now the stock market is on sale across the board and you can get a better return on your money by investing it in sound companies like HD, DTE, F, XOM, PWE, SLV, and an index fund or two like SPY. Invest on your own by using discount brokerages like Sharebuilder.com, E-trade, or Charles Schwab.

The private sector is what America is made of…and what will keep America going strong. Not the government.

BE FREE.

September 9, 2010

What's Missing in the Internet Kill-Switch Debate

Interesting article concerning the debate over giving the power to cancel the internet, to one man....the President.  Important issues such as this one never become important to the majority of Americans.  As I type this - the #1 search trend on Google is Willow Smith.



Please click on link:
http://www.time.com/time/nation/article/0,8599,2009758,00.html

Our freedoms are slowly being taken away, yet all the majority of us care about is celebrities and ESPN Sportscenter.

Just a thought.....

BE FREE.

August 16, 2010

China's economy passes Japan's as world's second-largest - latimes.com

China's economy passes Japan's as world's second-largest - latimes.com: "China's economy passes Japan's as world's second-largest"

Interesting article - click on link above!

I wonder if China will soon have the ability to pass the USA as the world's largest economy? They seem to be allowing their currency to fluctuate with the market now...instead of keeping it artificially low which unfairly supports their export-based economy. But, in the future, it is possible that more of China's citizens will become wealthier and buy more goods. What global economic impact will occur if and when China's economy turns from export-based to that of consumer-based, like that of the United States?

China's population is undoubtedly the largest and most populous country in the world - growing approximately 12-13 million annually! Economically speaking, where there is growth, there will be a demand/desire for resources and luxurious items. The trend of American companies expanding far east is indicative that this growth hasn't gone unnoticed. Is it too early for China to say..."we got next?"

BE FREE.

August 11, 2010

The REIT Way

The REIT Way: "The REIT Way"

Interesting article - click on link above!

BE FREE.

August 2, 2010

Healthcare Overhaul...Is it really just a Tax Heist?

Mysha, my wife, and I were having a discussion about the Obama administration’s solution for healthcare in America. We discussed how the government has overstepped its boundaries and pretty much eliminated (at least temporarily eliminated) any solution that the private sector would have to offer. Instead of simply making healthcare more affordable, the government would rather take control of the entire industry…basically, the government aims to discourage individuals from seeking alternatives and better treatment by heavily taxing and penalizing the better healthcare plans (namely, Cadillac healthcare plans) and those indivduals.

At this point of the conversation, Mysha said something I thought was intriguing…she said “the healthcare overhaul isn’t at all about healthcare… it’s about taxes and revenue. The government is covering up a tax heist, but making it about a healthcare overhaul issue because they don’t want to truthfully tell Americans that their government needs more money to pay the tab for the wars, social security, bailouts, and our large deficit.” I paused for a moment and thought about it…I didn’t think about the healthcare overhaul being a tax heist on already hard working American citizens. I knew that there are some people in government who were squeezing the life out of capitalism and wiping out the middle class…but an actual tax heist? Sounds like a phrase used for wealth redistribution.

I decided to do a little research on Mysha’s statement. How could a tax heist really happen this day and age? Taxation without representation? Well…when you think about it there are several tea parties running about nowadays. And our nation’s deficit is really high too…probably due to mismanagement or political games played in Washington. President George W Bush’s administration went to war while implementing tax cuts – and President Obama’s administration is spending and borrowing money without a logical plan to reduce our nation’s debt. I suppose maybe these factors could inded create a recipe for a tax heist. After all, the tax increases begin before we will actually have universal healthcare. The tax heist begins in 2011, yet Universal Healthcare won’t be implemented until Fiscal year 2016. That is a 5 year difference in which the government will collect extra revenue - but not use it towards healthcare! I wonder what will they actually use this extra money on? Do you really think the government is going to save the money or just replace it with IOU’s? The same way it has sloppily done with our Social Security, Medicare, and Mediacaid?

The Tax Foundation states:

The health care bill passed by Congress and signed by President Obama is arguably the most significant piece of domestic policy legislation since the 1960s. The law will transform the financing of U.S. health care as government mandates coverage for individuals and becomes more involved in the pricing and terms of the policies they buy. Also, the bill expands Medicaid so that more people above the poverty line will now be eligible (up to 138 percent of poverty level).

But expanding subsidized access to health care is no free lunch. Somebody must pay for it. Because of this reality, in this Tax Foundation Fiscal Fact, we estimate the distributional effects of the health care reform law, the Patient Protection and Affordable Care Act.[1] That is, we quantify the transfer of money from higher-income groups that will be used to fund benefits for lower-income and middle-income groups.   http://www.taxfoundation.org/news/show/26200.html

In summary, I think my wife was on the right track… a modern day tax heist right before our eyes. Perhaps this is why major corporations and the private sector will be slow to add jobs? Maybe GDP growth will be sluggish for a few more years? Well now…What do you think about that?  If you're fine with this...then do nothing...if this upsets you - be prepared to vote this November.  And vote against anything else that may threaten your financial well-being.

Take the oath of financial responsibility by signing up with The BE FREE Compact!

BE FREE.

July 20, 2010

New tax reporting rules....


New tax reporting rules leave IRS to mop up Congress's mess - Jul. 9, 2010:


Click on link above to see article.


My comment:
Looks like the government has found another way to rust out the wheels of commerce and entrepreneurship. Seriously, does this new mandate allow for increased productivity and lower unemployment? Or does this mandate serve to further complicate business and increase the size of government? One might say it's an economic "death by a thousand cuts"...

BE FREE.

July 18, 2010

Lever UP! Applying the Debt/Equity ratio to the US Government


This is a read for financial fanatics like me…

The term “Lever UP” is a term used by mostly investment bankers/politicians when they’re considering using leverage (or in other words – debt) to expand, increase profits, or to cover an entity’s operations. Using leverage requires great discipline of the individual, corporation, or government entity that chooses to borrow money for whatever purpose. Unfortunately, it’s easy for a person or an organization to easily have bad judgment in determining how much leverage he/she can manage…and I wonder if the United States is misjudging its ability to contain its debt woes.

The CIA World Factbook is constantly updated every 2 weeks with intelligence and information about various governments around the world. Concerning the United States, the CIA World Factbook states the following:

“US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households.” “Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups.”

https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

Take, for instance, an over-leveraged corporation that has an unsustainable amount of debt and in order for it to maintain just the interest payments on the debt it has incurred – it must raise its prices and reduce employee benefits (expenses) by cutting its healthcare benefits, reduce salaries, and engage in massive layoffs.

Does this sound familiar? Does it remind you of our government? Where we are embarking on trillions of dollars in debt!? From a governmental standpoint, where a government is over-leveraged, it will (or it should) raise its taxes (i.e., Government will be dramatically raising taxes beginning 2011) and cut healthcare entitlements such as Medicare and Medicaid (i.e., Both of these programs are severely underfunded), it will cut Social Security payouts (i.e., Trustees estimate this will be bankrupt by 2037), and have temporary high unemployment (i.e., Currently the unemployment rate is at 9.3%).

Let’s consider the United States’ debt/equity ratio (I replaced the word company with [government] for purpose of this article):

Investopedia.com states - A debt ratio of greater than 1 indicates that a [government] has more debt than assets, meanwhile, a debt ratio of less than 1 indicates that a [government] has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a [government]’s level of risk.

The United States has a GDP of $14.26 Trillion as of 2009; nevertheless, we also have $13.45 Trillion in debt owed to other countries. Which equates to a debt ratio of $13.45t/$14.26t = .94 !

A high debt ratio is explained by Investopedia.com

A high debt/equity ratio generally means that a [government] has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense.

If a lot of debt is used to finance increased operations (high debt to equity), the [government] could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the [government] generates on the debt through investment and business activities and become too much for the [government] to handle. This can lead to bankruptcy, which would leave shareholders with nothing.

What do we do?

It seems not to matter what your political party may be, because Democrats and Republicans alike seem to increase the debt of this country. Everyone is out for self-interest before they consider other’s interests. So we have to be financially responsible for ourselves – no matter what’s going on in Washington.

So, protect your self-interests….my advice is the same as it always have been – I would advise people to get out of debt, invest a portion of your wealth in commodities such as silver and gold, oil, real estate, etc. Establishing a retirement plan just with paper dollars is a huge risk – so those of us who are considering retiring with a 401K and/or Social Security might be putting too much risk into paper dollars and on the capability of his/her government. It’s time to consider some alternative assets.

BE FREE

July 14, 2010

Where the Wealthy (and Scared) Invest: U.S. Trust Advice - TIME

Where the Wealthy (and Scared) Invest: U.S. Trust Advice - TIME:

Click on hyperlink above.

Very interesting article - I especially liked the paragraph that details the unemployment rate on uneducated, and unskilled workers versus the unemployment rate on educated and skilled workers. Proves that education must be a valuable commodity - one that helps people stay employed in good times and bad!

It's your life. BE FREE.
http://www.befreecompact.com/

July 7, 2010

July 1, 2010

Retirement age could rise every five years - Telegraph

Retirement age could rise every five years - Telegraph: "Retirement age could rise every five years"

See link above:

Unfortunately, this really isn't news...in fact this is expected. It's eventually expected for all nations. It's a shame that a nation's citizens can't foresee or don't get upset enough over such an obvious heist. For instance, let's say a person put their money in a savings account at a bank for 45 years, then at the end of those 45 years they decide to go to the bank and withdraw some money. But the bank says "unfortunately we don't have your money today - you're going to have to wait another 5 years before you can receive it." The person is confused and asks "well...why do I have to wait for my money? You guaranteed that my money was safe and it would be available to me when I was ready. Where is it?"

The bank replies, "we spent your money to expand our banking and financial services to new states - so we could serve more people. But - don't worry, we've replaced your cash with IOU's."

If this was a true story, I bet a lot of people would be livid to find out that their money was missing....oh wait - this IS a true story. Only the bank is the government and the money represents your social security that you've been required to pay through involuntary taxes.

In the same manner that the once "guaranteed" traditional pension plans were eventually considered too expensive for companies to carry and continuously pay out to its retired employees - government pensions or "entitlement programs" such as social security, medicare, welfare, etcetera, are becoming too expensive to carry and continously pay to its retired citizens.

How did this happen? How can we prepare to avoid working until we're 70? 80? Or will we ever be allowed to retire? Will we be able to afford it?

The best answer is to not count on social security or even a pension plan as a sole retirement plan...but only as a supplement or alternative to your real retirement plan. A real retirement plan consists of real estate, buildings, commodities, etcetera that can produce or provide multiple income streams for you.

June 29, 2010

Greeks Strike to Protest Pensions, Labor Law Overhaul - BusinessWeek

Greeks Strike to Protest Pensions, Labor Law Overhaul - BusinessWeek: "Greeks Strike to Protest Pensions, Labor Law Overhaul"

Click on link above:

This is what happens when a government is close to defaulting on its debts - it's currency's value plummets, deficits soar, and people protest the outcome. Therefore, little gets accomplished that would help turn the economy around...in this case it's Greece.

Although less severe, the Americans are undergoing the same situation as the Greeks. Our currency's value is falling, deficits are soaring, and people are protesting. Think of the ongoing/recent strikes by pilots in the airline industry, or the teacher strikes in Oakland, California?

Some cities are also on the verge of bankruptcy:

Detroit, Michigan
Harrisburg, Pennsylvania
Jefferson County, Alabama


Has government made us powerless? Needy? Less innovative? Back in the old days people provided for self and their communities - and goverment was small. When government becomes "too big to fail" or expands too quickly, it puts pressure on its citizens to cover expansion costs by raising taxes, cutting pensions, trimming salaries, devaluing its currency, etcetera. This causes unemployment to go up, deficits to increase, strikes, etcetera. We don't want goverment too small (as in non-existent), but an oversized government reaps disaster.

June 24, 2010

Seesaw Economics


The market is up a few days…then down the next few days. European debt is solved…and European debt is a problem. US government is cutting spending…and US government raises the debt ceiling. The dollar is strong…the dollar is weak again. Gas prices go down…and gas prices are up. Get the picture? Recession or not – people all over the world will have to get comfortable with a seesaw economy. When governments bailout a company, country, and/or raise the debt ceiling – it’s viewed as a temporary solution to a long term problem. However, in the short term, markets go up when the government excessively intervenes...but, inevitably, markets will go down in the long term.

Why?
Answer:
As a country’s government borrows money, this increases the deficit or debt that must be paid back eventually – and because the government doesn’t produce wealth itself, it must raise taxes on its citizens or cut spending in the long run to pay back what it has borrowed. Governments are extremely reluctant to cut spending, and instead will resort to increasing taxes or perhaps equally as bad – create inflation.

In the short term – government borrows money to support whatever objective it deems necessary. However, in the long term – raising taxes to reduce the deficit puts increased undue pressure on its citizens…which means less money for personal consumption (i.e. savings, education, health care, business expansion, or any desired purchases).

Why the fluctuations? Why seesaw economics?
Answer:
FIAT money. A monetary system based on faith…if people lost faith (declared a currency to be worthless) then the value or worth of that currency will collapse. In essence, the government can eventually grow to “control” its citizens, because it “controls” the currency. By increasing taxes or continuously printing dollars that devalue the currency, the government can theoretically create workers that: don’t have enough for savings, will never retire, and can’t afford healthcare, can’t afford to own any assets (i.e. a home). Yet simultaneously, the government will increase the entitlement or welfare programs that are just enough to keep the populus working…without retirement until death.

Thomas Jefferson said, "I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared. To preserve our independence, we must not let our rulers load us with public debt. We must make our choice between economy and liberty or confusion and servitude. If we run into such debts, we must be taxed in our meat and drink, in our necessities and comforts, in our labor and in our amusements. If we can prevent the government from wasting the labor of the people, under the pretense of 'caring for them,' they will be happy."

To keep an economy strong, a nation’s citizens must focus on restoring sound economic policies and to minimize the government’s intervention in the private industry.

It’s your life. BE FREE.

June 21, 2010

Wall St jumps on China yuan promise | News | Business Spectator

Wall St jumps on China yuan promise News Business Spectator: "Wall St jumps on China yuan promise"

Looks like China is going to play ball - and stop artificially lowering their currency to make their goods cheaper than anyone else. Imagine how the global market will change as China becomes more of a consumption based economy and not just an export-based one?

Time for US manufacturers/entrepreneurs to step up!

June 20, 2010

Just a quick thought from Adam Smith and I

A dollar today is better than a dollar tomorrow…..

However, most people are saving dollars today that will be worth considerably less in the future. Yet – we hope we have enough depreciating dollars to live off of in retirement. How foolish are we? Why would anyone try to save water in a bucket that has a hole in it?

We’re constantly told that we must save for retirement – especially since corporations have decided to do away with pension plans and require employees to be more responsible for their own retirement. (So, as the pension plan and guaranteed retirement was sliced…in comes the 401K and tentative retirement as employees have to save enough money while working incessantly to keep up with inflation, debt, and those darn taxes.)

Adam Smith (often dubbed as the Father of Economics) 1723-1790, in his interpretation of the Wealth of Nations, discovered that “wealth was an annual flow of goods and services, not an accumulated fund of precious metals.”

Putting that in today’s words – having wealth, or a comfortable retirement for that matter, means that you must have multiple income streams and not just an accumulated amount in your 401K, 403b, IRA or whatever. Don’t let your 401K be your sole means of retirement – it is only designed to be a supplement source of wealth to help fund your retirement.

It’s your life. BE FREE.

June 10, 2010

What's the deal with luxury vehicles?

Just a quick thought of mine...

Why do people spend their hard earned money to buy luxury vehicles?  Just to put them in traffic on the same roads with people who might've spent $500 or less on their vehicle...?  And to make matters worse - there are some nuts on the road!  People act as if cars are assets - when indeed they're just a liability and an expense.  Purchasing a car between $30K - 100K makes no sense at all to me...especially if your income doesn't justify the purchase and you have to take out a 72-month note to drive it home.

I'm sure someone may try to justify the purchase of an expensive automobile by saying (in their most snooty voice....or ghetto voice) "well I've got the best insurance money can buy to protect my investment in the event of an auto accident".   And my response would be "yes - they can repair it after you've first paid the deductible and the value of your car will have dropped considerably"....and hopefully it runs the same afterwards.

Nevertheless, why would you want to pay the high maintenance costs associated with these vehicles?  Brakes are more expensive, tune ups, transmission, electrical, paint jobs, insurance...all are more expensive than purchasing a more common car - say a 3 year old -base model Chevy Impala, or a 3yr old F-150.  With these "common" vehicles the purchase is cheap, maintenance is cheap, and you don't have to worry about parking 2 miles from any other car because you're afraid it will get scratched or bumped.  When you're not spending your money maintaining a luxury vehicle - you have more discretionary income to use for things that matter...like your home, land, and other REAL investments.

Think of the few new or recent models of Lexus, Mercedes, BMWs, Audi, etc. (people seem to associate foreign vehicles with luxury for some reason) that you may see on any given highway and on any given day...then think of the all the other vehicles that could damage it.  The top 5 selling vehicles of all time are:
  1. Toyota Corolla
  2. Ford F-150 (F-series)
  3. Volkswagen Golf
  4. Volkswagen Beetle
  5. Ford Escort (discontinued)

Chances are - if you have a luxury vehicle - you will be getting hit, scraped, or bumped by one of these top 5 cars listed above.  Now why don't you just be smart and get a "common" vehicle?  Let's stop trying to "buy in" or lease a lifestyle and get things we can't afford.  The average millionaire next door drives a common vehicle...not a luxurious money pit.  So...What's in your driveway?

BE FREE

June 4, 2010

What's going on with the markets?

What’s going on with the markets?

As the market goes up and down, so does people’s retirement plans and 401k’s – with all of the so-called “experts” out there, not too many of them are getting good results (or as they call it, “finding alpha”) in this economic environment.  And there are a plethora of problems out there causing a fear factor and massive sell offs of equities and a rush to buy up treasuries, bonds, CDs, and other “safe” investments.  How do you protect your assets from the Euro debt crisis?  What about the on-going deficits and future tax burden of the US?  What’s the best strategy to invest your money?  There are some people making a ton of money out there…with this much volatility in the markets – hedge funds, day traders, and a few others should be having somewhat of a field day.

There are several alternatives to suggest – but my best suggestion would be to invest in companies that are paying dividends and then select another stock or investment vehicle to act as a hedge.  First let’s talk about the dividends…Yes I know this sounds old school – but anytime you can receive an extra buck it’s a good thing, right?  …Especially when that extra buck doesn’t require you to “clock in” to earn it.  There are several companies that have been paying dividends consistently that I like for my portfolio: BP, PWE, MO, and DTE to name a few. (Of course, depending on your tax bracket, the Obama administration is going to potentially tax this unearned revenue to help fund his new healthcare overhaul.)

Nevertheless, you can still have your money work hard for you by paying you dividends while you keep your day job for now.  The Federal Reserve is keeping interest rates artificially low in order to restore the economy – which means that the money in your savings account is not earning much interest at all (go ahead and check…you’ll see that I’m right).  Why is this?  Well – it’s because the government doesn’t want you to save right now…Uncle Sam wants you to spend!  When Americans spend – the economy rebounds because consumer spending is more than 60% of our GDP.

Therefore, if no one spends, then companies won’t make any money and inventory builds up, bank lending freezes over, and unemployment remains high.  So the Federal Reserve reacts by dropping interest rates, which means banks will pay us next to nothing to keep our money in savings… so consumers react by taking their money out of savings and most likely will invest their money in equities, or company stock.  Companies begin to see an increase in their bottom line due to the inflow of cash from consumers’ investment – which means it will hire more people to expand operations, or maybe acquire another company.

When more people have jobs – then we can assume the more people will spend – and the economy will rebound.  (This is only but one watered-down economic theory out of several different schools of thought.)

Anyway, what is hedging? And why would you hedge against your investments?  Whenever the market exudes such volatility and has extreme “DOWN” and “UP” swings, then you are going to want to protect your assets and practice “alternative” strategies.  A Hedge Fund is not an asset class – but merely a fund that uses different strategies that are applied to make sure an individual is able to profit in “DOWN” and “UP” markets!

To be brief and simple – whenever you buy a stock, you are going “long”, or expecting the market to go UP…on the contrary, if you’re expecting the market to go down then you would buy a “Put Option”.  A Put Option increases in value as the market goes down…plain and simple.  This is one a simple form of a hedge…it gets more complicated – but that is outside of my scope today.

 So, back to my previous stocks DTE, BP, PWE, and MO – if you owned these stocks and wanted a simple hedge – then buy Put Options for these stocks or any other stock that you may own for that matter.  A good hedging strategy is the best way to make a profit in these volatile markets.

 BE FREE

June 1, 2010

Review & Outlook: The Union Pension Bailout - WSJ.com

The Union Pension Bailout

via Review & Outlook: The Union Pension Bailout - WSJ.com.

Here's an article from the Wall Street Journal about bailing out those who have pension funds...

OK - this is REALLY getting out of hand folks.  Something has got to be wrong here....will increased government intervention stifle innovation and growth here in America?  Let me know your thoughts.

BE FREE

May 18, 2010

America's underclass: The growing gap between the rich and poor: Tech Ticker, Yahoo! Finance

America's Underclass: The Growing Gap Between the Rich and Poor

via america's underclass the growing gap between the rich and poor: Tech Ticker, Yahoo! Finance.

Take heed people!  If there is an underclass emerging - let's work to make sure that we are on the "rich" end of the stick.

BE FREE

April 22, 2010

"The Great Contraction" and "The Great Recession"...A repeat ofevents...?

Just a quick thought of mine....

I've recently read a book written by Milton Friedman and Anna Schwartz titled "The Great Contraction: 1929 - 1933", in this book it details about the events leading up to the Great Depression and how the government failed to identify "bubbles" in the economy before they popped - and also how the government failed to properly react in order to get the economy back on track.  Nevertheless, after the Great Depression, the government finally implemented a series of laws to prevent this from ever happening again...but over time, eventually lobbyists were able to get these laws repealed (such as the Glass-Steagall act, the Uptick Rule, etc.) to lift the "restraints" of capitalism so that a free market could be just that...free.

But, as we learned from the Great Depression, when the markets are left without some form of control in place (even a minute form of control) - greed and fraud will most certainly erect itself at the expense and demise of others.  For example, ever heard of the Bank of United States?  It was one of the largest banks in the country - until it went belly up during the past Great Depression.  But I bet you've heard of Lehman Brothers...?  How about Bear Sterns?  These banks went belly up with the current recession, along with people's investments, retirement fund, and jobs were lost.

So kudos goes to the Obama administration (assisted by Paul Volcker...i.e., the Volcker Rule) for taking the steps it feels necessary to reinstate the modest laws that were already in place after the Great Depression to keep the system from going too far astray where American families lost their retirement, homes, and their future due to a few people or companies that have succumbed to greed.  As I told a friend of mine today - a strong economy is not completely about what laws matter to a Democrat, Independent, or Republican...it's ultimately about lessons learned from history and modern economics - and how best we can use our resources to inspire businesses and entrepreneurs to reach new heights and profits (legitimately), and also support the highest confidence and faith within our market economy.

Here's what should you do to help your community, country, and secure your future....
  • Vote for the person(s) you feel is right for the American economy
  • Vote in other ballots in addition to the Presidential one
  • Know what you're investing in...if you don't understand it - DON'T BUY IT!
  • Work smarter to increase your income steams, savings, and investments
  • Work smarter to reduce debts
  • Study the essentials of Personal Finance

BE FREE

April 21, 2010

Obama suggests value-added tax may be an option - Yahoo! News

Obama suggests value-added tax may be an option

via Obama suggests value-added tax may be an option - Yahoo! News.

Interesting topic - with the current deficits growing, the Obama administration needs to find away to deal with cutting debts and also not harming America's recovery.  Time to take your medicine America...we've come a long way baby, but now it must be time to pay up.

April 15, 2010

How to manage debt...a complex concept?

Managing debt may not be a complex concept within personal finance – but, interestingly enough, managing debt seems to be the most complex subject for individuals & families today (Even the government could use a lesson…but that’s another story!) Many hard working Americans have huge amounts of debt in the form of a mortgage, student loans, credit cards, etc.  But why is this?  The answer can be derived from 3 sources:
  1. Lack of financial education
  2. Devalue of American currency
  3. Societal pressure to “keep up with the Joneses”

The lack of financial education in our schools creates a society that doesn’t know much about investing, retirement, and the benefits of saving.  This is why most Americans leave all of the “hard work” to other “experts” like financial advisors and bankers that may or may not have their best interests in mind.

The devaluation of the dollar has forced many people to struggle to afford the basic necessities of life.  Gas prices, cars, houses, clothes, and food prices are steadily increasing – and it is becoming more common for Americans to compete for labor in addition to our full-time jobs…such as part-time jobs or weekend work to keep up with the cost of living.

Everyone can see the lifestyles of the rich and famous – and wants to have their own “American dream”.  But unfortunately many of us try to have this lifestyle even though we can’t afford it – which is why during the current economic recession we can see “who’s been swimming naked”.  Meaning, we can see those who file for bankruptcy, foreclosure, or have their creditor repossess the leased assets for lack of payment.

How do we fix the problem?  Start with the man (or woman) in the mirror – learn your credit score and history from the 3 credit bureaus Experian, Transunion, and Equifax.  Live below your means and reduce as much debt as possible so that you’re able to save 8-12 months of your annual income for an emergency fund.  Learn how to invest and increase your cash flow.  Reduce student loans by applying for grants and scholarships – if there is still a need for loans to cover the costs of tuition…then consider starting the first 2 years at a community college if possible, go to a University within your home state, and maybe work while at college.

April 12, 2010

PersonalFinance: Negotiating Student Aid - ABC News

PersonalFinance: Negotiating Student Aid

via PersonalFinance: Negotiating Student Aid - ABC News.

Interesting article for those looking to return to school now or in the future.  Click on link above... my comments are below:

The demand for educational loans is skyrocketing.  But what is this about the government taking on the brunt of the matter (i.e. Stafford loans) and eliminating guaranteed loans from private lenders?  Well, the US government has huge amounts of debt already – so where will this government money come from to help people seeking higher education?  The government will have to borrow it from the private lenders!  So, now the government is borrowing money from private lenders at a negotiated lower interest rate, and loaning this money out to individuals seeking student aid...at a higher interest rate.  The pros/cons of this is that the government could keep interest rates artificially low for educational loans – which initially means low interest rates on student loans.  But in return this could increase the debt owed to private lenders…which means inevitable higher taxes for all down the road.     


 


This is excellent for the private lenders – whose money will be backed by the “full faith and credit of the US government” – because loans from the government are not forgiven.  Which means a student cannot file for bankruptcy and have his student loan debt wiped clean. 


 


Interesting article.


 


BE FREE

April 5, 2010

CORPORATE PERK GIVEAWAY!

As many of you know or may not know – I write to a few blogs all over the web.  One blog (Examiner.com) requested that I post my articles to their website…and in return they will pay me and also give me corporate discounts at major retailers nationwide.  Well, today I’m allowed to share these discounts with family and friends.  So I figure, why not give these perks back to my readers?!  Everyone likes to save a buck...so here is a summary of what you could save below:

Examiner.com is excited to offer a valuable new benefit to active Correspondents. Examiner Perks is a Correspondent Discount Program with discounts at over 28,000 retailers nationwide to help you reduce your personal expenses. With Examiner Perks, you will save on everything from groceries, movie tickets, clothing and accessories to electronics, vacations and personal care items.

 Savings negotiated this week for you to celebrate the launch:

 If you’re interested – please contact me via email or the Contact Form on my website and I'll add you to my guest account.

* Please send me your first and last name, along with your email address and you too can begin saving money!

 BE FREE

March 31, 2010

An email to a friend....for investing beginners!

In my efforts to help those seeking advice about investing - I thought I'd post my email response to a FAQ (frequently asked question), from a friend of mine in regards to her question of "What is the best way to get started with investing in the stock market?".  While it should be understood that one person's risk preference or investing strategy will differ from the next - this is a good reference point for all ...(generally speaking)!

Stacey (name changed for privacy):

I need to be educated more on stocks and bonds! How would you suggest I start investing and how much to start off with?

Barrington:
It depends on how much you're willing to risk...because it is a considerate amount of risk involved so you want to make sure you're able to sleep at night.  Don't put your life savings in the stock market - because you can lose it all. 


The stock market is like musical chairs...when the music is playing and the good times are rolling, people are making lots of money.  But when the music stops, a lot of people lose money!  Just like this past recession...you have to know when to get out.  


First you'll need to get setup with a discount broker, such as:


I hear Schwab is the best - but I've yet to research them for myself.  I currently use Sharebuilder.com (they are very easy to use for setting up your account) and they let you start investing for as little as $4 per stock!

 Click below...they are also offering a $50 bonus for signing up!

http://content.sharebuilder.com/MgdCon/Jump/Web/welcome/promo/trust50/?s_tnt=26679:0:0

 There are several ways to invest...I tell most people the best way to get started is to invest in index funds that allow you to invest using dollar cost averaging (for example, SPY).  Click on this link http://www.google.com/finance?q=spy
 This fund is a good passive way to invest your money and watch the stock appreciate as time goes by...


If you are looking to receive income today then buy individual stocks that offer to pay you dividends or you can buy bonds that pay interest. 

The difference between dividend paying stocks and bonds paying interest:


    IF YOUR COMPANY (INVESTMENT) DOES NOT FAIL

  • Bonds are guaranteed to pay you interest
  • Stocks are not required to pay you dividends
  • Bonds pay less interest because they must pay you
  • Stocks pay higher dividends because they are not required to pay you

    IF YOUR COMPANY (INVESTMENT) DOES FAIL
  •  Bondholders are first in line to receive payments or collateral on the failed company.
  • Stockholders are last in line to receive payments...if they receive any payments at all.

 This is just introductory but should be enough to get you started on your investment journey!

 Additional sites for research are Yahoo Finance, Google Finance, Investopedia.com

March 29, 2010

Personal Economics

There are many theories (proven and unproven) concerning economics that will explain what is going on with our economy and how to fix it.  For instance, Supply Side economics, Keynesian economics, and Classical economics are just a few theories from the Economic school of thought that attempts to elaborate on past and current problems concerning supply and demand.  So I decided to introduce my own theory of Personal Economics to expound on a few solutions for individuals suffering from the financial downward trend of the US economy.

What is the best way to protect our financial well being from what happens in Washington?

First, let me explain the “gloom and doom” situation that the United States is in and afterwards I will show you how all is not lost – if we act now.  Our debt levels have reached critical and somewhat unsustainable point where we, as a country, might not be able to “dig” our way out.  As posted in a Reuters article “Roughly 70 percent of China's $2 trillion foreign exchange reserves are U.S. government loans. China is the biggest holder of the $10.9 trillion U.S. government debt in the world, followed closely by Japan who, along with the United Kingdom, shares more than 50 percent of it.

Not only does our government owe other nations, we owe Americans as well…mostly older Americans, or Baby Boomers, that rely on or will rely on Social Security, Medicare, and other promised benefits that there is no money for.  Here’s an article posted by the Associated Press on March 15th, 2010:

“For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.

Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg's municipal offices.

Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.”

It looks pretty bad – the United States is supposedly the most powerful country in the world…but what happens if we become not so powerful?  Research your world history…many empires have come and gone not due to outside threats but mostly due to the might of their own hand.  The Roman empire imploded…the Chinese empire (Ming dynasty) imploded…the Egyptian empire imploded.  Get the picture?  Is the US economy next?  Imploding under the pressure of increased taxation of its citizens and corporations?

How to protect your financial well being:
  • Pay off your debts (credit cards, car notes, student loans, mortgage, etc.) as much as possible, and as fast as possible!
  • Increase your income by any (legal) means necessary…preferably your residual income.  Tax laws always benefit the rich – which is why the rich WILL get richer.
  • Find out what people are doing to make money…and do it.  Sometimes you have to put your passions on the back burner.
  • Education is important – but so are street smarts (common sense).
  • Invest your money in Real Assets such as Metals, Oil, Land, and Real Estate.  (This is what all Financial Assets are derived from)
  • Stocks are nice investments – especially when they pay a dividend.  But you are the first to lose your money should a company fail.  Bonds have to pay you a yield on your money – and you are the first in line (before the stockholders) to receive collateral should a company fail.

And most importantly – increase your Financial IQ.  The strong take advantage of the weak…and the knowledgable take advantage of the ignorant.  Study money.  Find out how banks work.  Learn about your Personal Economics.

BE FREE

March 13, 2010

Creative financing...for a college education?

When the economy drags, and the unemployment rate soars, many people that are laid off or can't find jobs find themselves running to the refuge of the colleges and universities in order to gain skills and/or certifications that will separate them from their peers for better jobs.  What makes this educational voyage possible is the availability of all the loans out there provided by the government and other private investors, such as Sallie Mae.

The costs for a college tuition is soaring - at often double the rate of inflation (similar to healthcare costs) and the demand for loans is increasing at students need more money to cover their tuition, books, and probably to cover some living expenses.  CNN did a study and concluded that the average student graduates with approximately $21,000 in debt.  In addition, consider the costs associated for an advanced medical degree - sometimes these students can get loans as high as $300,000 that have to be paid back as soon as they get their diploma.  Eventually, students won't be able to afford to graduate with career and a boat load of debt.  How can they seriously pay these loans back?

CBS MoneyWatch reports in an article dated 03/12/2010:

"A young worker starting out with a $30k income from their first job and over $100k in student loans is in deep trouble, unless they’re a doctor, lawyer, or Wall Street banker. And even then, it’s no sure thing."

This reminds me of the mortgage bubble that just popped. More and more people wanted to afford a house that they couldnt - so the bankers constructed these exotic loans and derivatives to mitigate risk and allowed people who should've never qualified for a mortgage...qualify for one.  Well the same might become true for those seeking college degrees - more people want one, and the costs are steadily going up.  It will be just a matter of time before these exotic loans and derivatives become available to the student loan pool.

Imagine "interest-only" loans to fund students seeking a medical degree.  Or "negative amortization" loans available for students seeking nuclear engineering degrees or for students seeking to enroll at an overpriced Ivy league school such as Harvard or Yale.  In the near future, there will be more college graduates in the fields of medicine, engineering, business, etc. who will file for bankruptcy than any other generation has done before.  Heaven forbid should they decide to finance/purchase a house and a car after they graduate and begin working and start a family.

Financially savvy people will find ways around the cycle of debt - they will reduce costs and take 2 years of community college first, they'll work through college, obtain scholarships and grants, go to cheaper and just as qualified schools, etc.  Remember the rule of thumb...Don't bite off more than you can chew.

BE FREE

March 11, 2010

My problem with average retirement plans...

As we all know, there are 3 class of people in America - poor, middle class, and the wealthy folks.  Once all classes of people begin their working years and actually begin saving for retirement, say about 23yrs old, the retirement vehicles available to the poor and middle class for retirement differ greatly from the vehicles available to the wealthy people for retirement.  Because the poor people mostly depend on the government for social security and WIC - we will exclude them from the remainder of this article.

As for the middle class, 401Ks, IRA's, 403B plans, 529 plans, and pensions all serve as vehicles to help the largest class of people within America save for retirement.  The problem with these plans are that they are "long-only" plans...meaning that when the market does well, the retirement plans do well.  But when the market does poorly - as we just recently experienced - these so-called retirement plans do poorly.  It's almost as if you have to time the market in order to retire...think about those elderly people who lost 30-40% of their retirement plan and now have to go back to work at 70yrs old as Walmart greeters or grocery baggers.

The reason for this is because these type of retirement plans are just average retirement plans...and don't serve as great investment vehicles for retirement.  These retirement plans just give off average returns - and there are better investment vehicles available...the problem is that they're only available to the wealthy.  Why?  Because the SEC says so.  What I'm talking about is the investment vehicles provided by hedge funds and they're only available to the wealthy class of people.  The good deal about these hedge funds is that their able to give their investors ABSOLUTE RETURNs.  Meaning if the market goes up or down - these funds are able to make profits.  So if you're invested in a hedge fund, you make money when the market goes up...AND when the market goes down.  But the SEC says you must be an "accredited" investor to get accepted into these funds - meaning you need at least $1million dollars just to get a high class investor to be willing to manage your money.

These type of hedge funds should be made available for middle class people too...why should the majority of Americans be forced to suffer with the harsh reality that they may never be able to retire?  Some laws should be changed...

But all is not lost for the middle class - the most simple and sure way to retire is to get rid of your debts!  Just pay off the car notes, student loans, credit cards, mortgage, etc. and then use your money to invest in assets and commodities that offer a nice return of cash flow into your pockets. 

It's your life.  BE FREE.