Archive for the ‘Uncategorized’ Category

Maximizing Cash Back Credit Cards


2012
09.26

While I always love long-term investing with high-yield dividend stocks, I’m also a huge fan of maximizing the rewards you can get from the cash back credit & debit cards.  This only works if you’re responsible and confident with paying off credit card balances every month.  With a little planning, you can easily get 5% cash back on purchases you’d normally be making anyway.  Cards that are very attractive right now (in order of my own interest) include the following:

  • US Bank Cash+ Visa Signature (5% cash back on rotating categories you can pick yourself, 1% cash back on everything else, additional bonuses included)
  • Discover More Credit Card (5% cash back on fixed rotating categories (gas, food, etc.), 1% cash back on everything else, plus a nice redeeming system for additional savings)
  • Chase Freedom Visa (5% cash back on rotating categories, 1% on everything else, great signup $100 signup bonus, excellent redeeming system)
  • PerkStreet Debit Card (1% cash back on everything, 2% cash back for online purchases, 5% cash back on PowerPerks rotating categories)
  • Capital One Cash Rewards (1% cash back on everything, plus 50% back on the cash earned… averages out to 1.5% back overall.. good for “hands off” users)

I’ve owned the Discover More Card for about 3 years now, and without much effort I’ve been getting anywhere from $300 to $500 in rewards every year.  I use these rewards to get even further discounts on renewing my Sams Club membership cards ($40 for a $50 membership), paying for items on Amazon.com, buying gift cards for my favorite restaurants, etc.  And I think that when you can get 5% cash back on gas for 3 months straight (there is a limit on how much money can be applied), along with 5% cash back on other major categories such as supermarket spending, restaurants and travel, I think the Discover More card is a great one to have in your wallet.

I also own the PerkStreet Debit Card.  PerkStreet provides you with free checks when you get started, and the account provides a lot of flexibility to withdraw money from various ATMs, while still allowing you to get 1% cash back on all purchases.  2% cash back applies for certain online purchases, and there are some 5% rotating PowerPerks categories every month.  The debit card comes with a PIN number, but when you apply it as a credit card transaction (it’s a Mastercard), the cash back system goes into effect.  PerkStreet recently upgraded their PowerPerks system this month, and I’m hoping the options will get a lot better.  Personally, however, I have a love/hate relationship with PerkStreet, because they started out with a 2% cash back program on all purchases and then downgraded to a 1% system in the middle of 2012.  Because of this, I’m looking to replace the card with a new one that gets 5%.

And that new 5% card is the US Bank Cash+ Visa Signature card.  It looks like a great card! Once I can become more familiar with the program, I can provide further information, but the part that sounds the most exciting is the fact that IF you can stand to let your cash-back balance grow without redeeming it right away, US Bank will bump your rewards percentage up to 6.25%.  I also really like how you can select your own 5% categories, and I imagine this could really help to remember what the categories are.  This always seems to be an issue for me with the Discover More card since I always forget how many months certain categories last, etc.

Admitting you’re wrong, taking action, and moving on


2012
09.13

Admitting You’re Wrong:
About a month ago, my portfolio of stocks reached an all-time high.  As the price of gas continued to climb, all I could think about were the brutal hits the market took in 2011 and early 2012.  Without letting my greed take over, I decided to reduce almost all of my positions in the market, and I also sold a lot of the stocks I didn’t want or need for the long-term.  The funny part is how I had justified everything in my mind by thinking “this is an election year, and the stocks have gone up & up recently, so the only option is to go down”.  Wrong.  Oh man was I wrong.  First of all, it is a complete MYTH that the market is too risky or that it will go down during an election year.  Secondly, I think I’ve learned an important lesson here:  It is never (and I mean NEVER) possible to predict the market unless you extrapolate the market 10-20 years into the future.  I’ve now missed out on a lot of gains.  My negative thoughts took over last month, and I’ve now found myself looking back, wondering what happened to my “long term” investment strategy!

Taking Action:
In order to rethink things, I spent a lot of time at a local book store last weekend in the ‘Self Help’ section reading books on finance and real estate.  One of the workers stopped by the area, curious to see what I was researching.  I mentioned how much I liked the stock market, and he suddenly had all sorts of book recommendations for me, and he was also really eager to share some conversations with me.  I mentioned how I had thought the stock market was fascinating while I was pointing to a chart I found in one of the books (the same 86 year Stocks, Bonds, Bills and Inflation chart I posted previously), and I mentioned how none of my friends found it as interesting as I did.  He was grinning the whole time, and he seemed to be agreeing a lot.  I asked him, “So, why do you think that is?  I mean, why aren’t people interested in stocks, even after looking at this chart?”.  His reply is something I will never forget.  He said, “The thing is, nobody wants to wait 86 years to make money.  Everyone wants it now.”  He’s right!  Nobody has the time or the patience to play the market in a “safe” way for the long-term when they can take risks & win like the TRUE winners win.  Everyone wants a story to tell and of course they want a big story.  And he is right; Nobody has that kind of patience or that kind of time…   Unless you’re smart and can set up your savings and investments to take place like paying your normal bills every month.

So the purpose of hanging out in the Self Help section was to figure out how I could eventually take action to correct the wrong assumptions I had made about the market taking a huge dive last month.  I found an interesting description in one book about the Dogs of the Dow, which mentioned how you can do really well by finding the top 10 highest paying dividend stocks every December, invest in them for the next year, and then repeat the process next December with the next top 10, and so on.  They traced this strategy back 50 years and found that it resulted in an average of 15% gain per year, which is higher than the return you’d get from a general index fund that tracks the Dow Jones Industrial Average.  The Dow is only comprised of 30 stocks though, so someone did an analysis with the top 10 dividend stocks in the S&P 500 and traced it back 50 years and found that it returns 17% on average.  That’s really high!!

Another book I found was one on real-estate called ‘Profit From Real Estate Right Now!’ by Dean Grazioso.  This guy is all over TV, especially in the South, and he comes across as a scam artist, so I was really skeptical when I started going through it.  It was written after the housing market crashed, which was the #1 thing I had checked, and by the time my feet were hurting from standing around for so long, I ended up buying it for $16.  I think it will at least be an interesting read.

So my new strategy will be to use the S&P 500’s “Top Dogs” strategy, along with buying real estate somewhere, and I’ve already gotten started with one of them.  I think it’s really important to stay active with investing unless you’ve (1) already inherited a lot of money and don’t need it, (2) you’ve started your own business – in which you’ve already invested your money anyway, or (3) you really don’t care about money.

Anyway, the fed came out with some interesting news today, and as much as I hate all of the control they have over being able to ‘tweak’ the market, I also have a lot of respect for their work, because I truly believe they’re smarter than I am.  Hah!  Bernanke announced another “stimulus” plan for the economy, and to be honest, the word “stimulus plan” makes my skin crawl, because I hate the idea of introducing more money into the market.  But, this time the money is being spent on mortgage backed securities, and the Fed will buy $40B of these every month, starting this Friday.  $40B!!!  They have also stated how they will lower the interest rates for loans and keep the bank mortgage rates low.  The whole idea is to encourage everyone to spend more money, which should drive the economy up even higher.  I think it will work, but I really don’t think it will solve anything long-term, because eventually inflation will take over, everything will level off, and there will be more market corrections.  We could potentially be in a position much worse than we are now.  But then again, it’s easy to confuse the economy with the stock market, and I think this is a difficult topic that even a lot of the news articles get wrong.  Everyone always mentions how the stock market is down because of the jobs report, or how the economy is driving stocks higher and higher.  I don’t think you can make these generalizations half of the time, but I do believe they are linked somehow – especially when the fed gets involved.

Moving On:
So regarding long term strategies, I think it’s important to stay on track at the end of the day.  I’m a huge fan of diversifying in multiple stocks along with multiple accounts (Roth IRA, Individual Account, 401K, Savings/CD, + Other(s)) and I also think it’s important to experiment with buying/selling within your different accounts at various times.  Yes, that’s exactly it.  My decision to sell last month was an “experiment”.  Hah.  With all kidding aside, I’m ready to put this behind me and to focus on what’s next, and I’ve already created a strategy to take action with.  I’m ready to move on.

How about you?  What is your action plan, and how will you be moving on?

Commission Fees and Percentage of Buy/Sell


2012
07.26

A good rule of thumb when you buy or sell a stock is to make sure the commission fees don’t exceed 1% of the transaction.  For example, if your broker charges $10 per transaction, and you buy $1000 of stock XYZ, you’re right at the 1% mark.  When I first started buying stocks, I had no clue about this and I was buying quantities of $300, etc.  I don’t think it’s necessarily a bad thing to exceed 1%, especially for more long term, safer (or boring) stocks, but it certainly shouldn’t become the norm.

A lot of advisors will suggest putting your first $10,000 into an index fund or an ETF, but I’m against this unless you’re putting your money into an IRA or another conservative retirement account.  Yes, index funds and ETFs are safer investments due to their diversity, but they’re not nearly intriguing enough to keep people interested in the market.  But if you’re very worried about the market and how it will affect you, you might be interested in something called ‘The Permanent Portfolio’.  This is something a friend of mine mentioned to me once, and I will have to leave it up to you to investigate the details.  The fund’s name is PRPFX, and it invests equally among a diverse range of stocks, bonds, and commodities.  Frankly, it’s far too conservative considering how actively I check my own stocks.  I mean, if you put a bunch of your money into some stocks, wouldn’t you be curious to see how it’s doing?  Putting money into a really boring, safe location doesn’t create enough of a challenge for  younger investors, so I always suggest individual stocks.  And I’m not talking about stocks like Zynga, Facebook, or penny stocks.  I’m talking about high quality, safe stocks like GE, JNJ, KO, etc.

So, take some time to research safe dividend stocks, divide your money up to avoid +1% commission fees, and get going!  🙂

Gas prices vs. Stocks


2012
07.20

An article just came out today about the price of gas, and it has me worried.  The article states that gas has risen over the past three weeks.

http://money.cnn.com/2012/07/19/news/economy/gas-prices/index.htm

I’ve noticed there seems to be a creepy relationship between the price of gas and the Dow Jones Industrial Average.  When gas prices go down, stocks go up.  But, now, I’m worried.  Not because I’m afraid all of my long positions will go sour, but because I also hold a few speculative stocks, and I enjoy trading these speculative stocks from time to time.  Trading and investing are different, and it’s important to avoid trading (short term buy/sells) unless you have a lot of time and can keep a close watch on the stocks you buy.  Also, an investing approach with dividend stocks is always the way to go if you’re putting some of your savings into the stock market and don’t need the money for awhile.  But, then again, what do I know?

Really though, there’s no way to time the market, and no matter how much the “experts” try to convince you how smart they are, NOBODY can time the market.

But with the price of gas going up now, I’ll be watching stocks very closely.  I’d love to buy a second property…  Or to put more money into REITs.  The catalyst for making any new moves will be freeing up some of the money I have in stocks.  And for anyone who’s considering buying into the market right now, even though it’s impossible to time the market, I think it’s safe to say that some general predictions can be made, and my conservative prediction is that the stock market will go DOWN from now, so I would seriously AVOID buying into the market for a little while.  The reason is because everything is at an all-time high right now….  at least it is for me… and I don’t think it will go much higher from here.  This is also an election year, and there’s also a lot of pressure from Europe.  If I was a betting man, I would say…

SELL, SELL!

Stocks, bonds, bills and inflation


2012
07.08

Mr. Market has a reputation of taking investors on a bumpy ride that instills fear, driving them away from stocks and investing. With all the negative news generated regarding the instability in Europe, the poor job reports, and the chances of looming recessions, it’s no surprise that people avoid the stock market to keep their money in savings accounts and CDs. It makes sense to protect your money this way, but giving in to market-phobia can mean missing out on some big wins while losing out to future inflation.

Investing in stocks can be risky, but it doesn’t need to be if you can take the time to invest in safer stocks. A general rule of thumb is that if you can withstand a potential downturn that lasts 5-10 years, then investing in the stock market should be a no-brainer. In most cases, it is even less risky than that! Here, let’s take a look at a common chart on stocks, bonds, bills and inflation.

 

 

The chart shows 86 years of history where you can very easily observe an upward trend. There’s no guarantee that past performance will guarantee future returns.  But as long as the population continues to grow and we have the natural resources to support the growth, the economy should follow. This will result in future inflation and positive growth in the stock market.

But don’t take the advice from me, take it from the nation’s 400 richest people who have been using Mr. Market to make money from stocks all along.

How the Richest 400 People in America Got So Rich
http://www.theatlantic.com/business/archive/2012/07/how-the-richest-400-people-in-america-got-so-rich/259520/

After deciding how much money to invest, the next step is to open an account with an online broker. You’ll most likely have a pretty good idea of what you’ll want to invest in by this point; Just make sure you’re not investing everything in 1 or 2 stocks, because I know some really smart friends and family members who sadly fell into this trap.  It really changed their opinions of the stock market, too.

There are literally thousands of articles on the internet related to picking safe stock investments, and it’s up to you on how much research you want to do. It really doesn’t take too much work. Just make sure to buy at least 5 stocks in different areas, and to check for consistent dividend payouts. And if you can get vested in a DRIP through a Roth IRA, you’ll be all set.

Sound simple?  I thought so.  Now get started!

 

Quarterly earnings results help gauge performance


2012
04.16

The NYSE had a major rally in the first quarter of 2012, and as history shows, stocks usually rally in April before selling off in May.  Next week will be one of the busiest weeks of the quarterly earnings reporting period where 86 companies out of the S&P 500 will report.  We’ll have companies like Microsoft ($MSFT), Verizon ($VZ), McDonald’s ($MCD), Johnson & Johnson ($JNJ), Coca-Cola ($KO), and General Electric ($GE) reporting, all of which I have in my portfolio.  And then there will be some of the big banks like Goldman Sachs ($GS), Citigroup ($C), and Morgan Stanley ($MS) reporting.  So far, reports from companies earlier have exceeded analysts’ expectations, so the week ahead should be something to look forward to.

If you’re new to investing, reading weekly or even monthly articles on the stock market can help provide clues to understanding its volatility, however, it’s critical to avoid getting too emotional during a large selloff, such as the one that happened last week, unless you’re thinking you might need your money out of the market really quickly.  And if that’s the case, it is much safer to keep your money out of the market until you can safely afford a long–term position. There are a lot of investors who will wait on the sidelines during a rally (such as the one we’ve had so far in 2012) to buy when the market drops.  When the market continues to rally, however, frustration starts to set in, and the passion to invest starts to diminish.  As always, my thoughts on this are to find a few companies that you believe in, do a little bit of research, and then buy into the market somewhat blindly (yes – you can do this when you’re first getting started) without thinking of where your stocks have been or will be in the surrounding months.  If you think long term, and you can set some goals for yourself to avoid panicking during large selloffs, it will usually be a safe bet.   Afterall, the stock market is far less risky than gambling your money away in Vegas.  😉

Top 3 Things to Check When Choosing an Online Stock Broker


2011
12.21

I was thinking the other day about how horrible the banks are for putting your money right now, especially if you’re in your 20’s, 30’s or 40’s.  With the interest rates below 1%, it’s damn near impossible to grow your money.  Going back to 2008, you could sign up for savings accounts that would offer 6% interest or more.  Now in 2011/2012, the only way to achieve that is through buying stocks with dividends.  But, you need to be careful in how you choose your dividend paying stocks, because if you put all your eggs in one basket (for example NLY, which provides a 14% dividend, which is great!) you take on the risk that the stock and/or the dividend plummets to ‘0’ because there is never any guarantee that the rate will stay the same – and this also applies to the banks and other institutions; The APY is never fixed, it’s changing all the time.  I remember when I signed up for my first online savings account after searching on www.bankrate.com (it was with FNBO Direct).  I literally saw the APY fall from 6% to 1% overnight!  Back then, I was really naive; I had no idea the rates could change like that.

Stocks seem like the way to go, but there’s always ‘tomorrow’ to get started.  It’s really easy to get caught up in thinking you can begin investing ‘tomorrow’, and it’s easy to fall into the trap of making excuses, too.  A lot of people think they need to have everything perfect before they can begin investing – in other words – they think they need to do a bunch of research to find the best mutual fund(s), or the best variety of stocks.  As I pointed out in my first post, that is the wrong approach.  Once you can make the decision to invest “X” amount of money, the second step is to move quickly and get signed up with an online broker.  But, how do you choose from all the options out there?!  Well, it’s not exactly an easy task, but it’s also not as difficult as you might think.

When looking at the options, you’ll need to consider what’s important to you.  I’d suggest doing a quick search for the ‘best online broker’ on Google.  You’ll find a lot of great information there, including websites with comparison charts, etc.  There are even sites that will ask you a series of questions to determine what broker is best for you, such as Kiplinger’s site:  http://www.kiplinger.com/tools/online_brokers/.  But don’t settle with results from just one site.  Make sure to look around on multiple sites, and keep in mind your own investment strategy (how aggressive, etc.).  When I first got signed up, I had no idea what my investment strategy would be; I was just interested in buying into the Visa IPO and some of the more exciting stocks to me at the time like Starbucks, IMAX, and Palm.  Your strategy doesn’t need to be complicated though, in fact, you don’t even need a strategy if you don’t have one right away.  (Again – don’t let this hold you back from finding a broker.)

Now if you’re looking at the stock market as an investment tool to replace the horrible interest rates at the banks, you’re going to want to invest in dividend stocks, which I’ll write about in more detail later.  I used to think these types of stocks were boring, and they actually are if you watch them every day or month.  But if you let them sit in your portfolio for years, I can guarantee you’ll thank yourself later.

The beauty of dividend stocks is that you can combine them with what is called a DRIP, or a Dividend ReInvestment Plan.  A DRIP is something an online broker offers to reinvest a dividend back into a stock.  But, what if the dividend payout doesn’t equal 1 share of the stock?  Well, most DRIP programs will automatically reinvest the money into partial shares, but not all of them.  Also, most DRIP programs are free; In fact, I haven’t come across one that’s not.  Ultimately, the #1 advantage to all this is compound interest.  Compound interest works like pure magic, and it’s a really exciting topic for me.  The only downside to a DRIP program is tracking the dividends when you do your taxes, but even with 20+ dividend stocks in a DRIP, that type of work is minimal.

So, let’s cut to the chase.  When it comes to selecting an online broker, here are the Top 3 Things to Check:

1) Fees/Commissions
For this, I would seriously avoid E-Trade, because it’s very expensive.  Also, the more services a broker provides, the more they’ll charge.  If you don’t need all the extras, don’t pay for them.

2) Account Minimums
Some accounts require a minimum amount of money to invest.  For example, TD Ameritrade requires at least $2,000 for a cash account.  (A cash account is the place you hold your money before investing.)

3) Broker Features – (DRIP or No DRIP)
For some people, 24/7 live phone support is really important.  For others, it’s important to have global trading on foreign exchanges.  I think having extra research tools can really help when you’re new to investing, but most importantly, make sure the broker you choose has a free DRIP program that invests back into fractional shares.  Here is a great chart to further investigate the DRIP offerings out there:  http://www.onlinebrokerrev.com/other_articles/dividend-reinvestment-plans.php

To further help in your selection, you may want to look at the perks you get when you sign up with a broker by going to their website.  Some brokers will offer 30 days of free trading (no commission fees), or they’ll give you a cashback bonus for signing up.  But, don’t let these ‘bonuses’ trap you into making the decision.  Just assume that your interest level and involvement with investing will increase over time.  Also, make sure you assume the broker will be a long-term choice.

Two good resources for comparing brokers include:
http://www.fool.com/how-to-invest/broker/index.aspx  (not everything is on this list, so be sure to look around Google to see what else is out there!)
http://online-stock-trading-review.toptenreviews.com/  (not everything is on this list, and it’s also biased toward optionsXpress, so this is not the best place to look)

Ultimately, the decision is up to you.  There are a lot of newer sites popping up for online brokers, which means they’re new to the game and may be making some mistakes along the way (ie – tracking all of the data that goes along with everyone’s individual accounts can be challenging, and sometimes there are ‘hiccups’ along the way where your history can get deleted).  I would stick with something that has a proven track record.  Personally, I’ve had good experiences with TD Ameritrade and Sharebuilder, but I use these accounts for completely different purposes.  Some of my friends really like Scottrade,  but Scottrade doesn’t have a DRIP program.  Fidelity and Vanguard look like solid choices, and Trade King looks interesting as well.  Thinkorswim is another one, but its DRIP program doesn’t invest in partial shares, which can lead to a lot of lost money over time.

When you start to hone in on a few brokers that meet your style, make sure you also look at their options for IRAs.  Can you invest in a Roth IRA using that broker?  Can you also use a DRIP program specifically within your IRA??  The answers to these questions could help you make the final decision.

Good luck!

 

A quick observation


2011
12.15

Strangely enough, I’ve noticed over the past several months that every time I post anything related to finance or investing on Facebook or Twitter, nobody ever hits the ‘Like’ button or leaves any comments.

I read an article the other day that said if you put your money in a savings account, and you contribute $5,000 per year ($417/month), and the bank offers 3% annual return that compounds 4 times a year, after 40 years, you’ll have $387,095 saved for retirement.  It went on to mention that if you waited (procrastinated) 5 years to get started, the difference in savings would be $77,041.

Start a Savings Account Now – Waiting Can Cost You

A lot of people will live paycheck to paycheck – which is fine – so do I – but it’s really important to at least save a little money on the side.  Investing in high-yield blue chip dividend stocks is the way to go – especially when you’re in your 30’s and 40’s.

How to start investing – Huh?!


2011
08.30

When you’re ready to begin investing, or when you think you’re ready to invest, the 1st step is to figure out how much money you’d like to invest.  Most experts will say the 2nd step is to research where you want to put the money.  In other words, what assets do you want to purchase (stocks? mutual funds? bonds?)

Wrong.

The 2nd step is to get your ass in gear, stop procrastinating, and open up an individual or a retirement account with an online broker.  This doesn’t require any risk, and it’s a necessary step anyway.  If you want to invest and you’re sure you won’t need the money in the next 6 months, there’s no harm in at least getting something set up so you can pull the trigger (ie – invest the money) when you want.