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?

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 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 (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!

 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
 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:


  • 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

  •  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,

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.


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.


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.