The best help with investing that I have gotten has been at the local library via books on tape and books on CD. Books written by David Bach in particular have been very helpful.
Here is some of the best help I can offer:
1. Start investing now. The sooner the better. Just open an account, preferably with someone with cheap transaction fees. You also want to make sure they offer dividend reinvestment. I use an online broker called BuyAndHold.com. I have been very happy with them.
2. Start off conservative. Don’t jump in into the stock market and start buying every hot stock. This is a ticket to losing money! Don’t learn investing by diving into the financial pool in a sink or swim strategy. Start off buying funds. Buy index funds! S&P 500, small cap, large cap, mid cap, emerging markets, etc. Avoid funds that are too narrow in scope. Buy an international fund is great. Don’t buy funds in a single country, or even continent. Avoid funds in a single sector such as energy, biotech, etc. You want broad general index funds. If you invest too narrowly,the stuff you you invest might go south, while everything else goes up.
3. Try to increase the amount you invest each month. If you increase your investments each month, you won’t miss the money much.
4. The best way to invest is in a tax deferred account. 401k is your absolute best bet! It might even have employer matching. Next is an IRA. I like Roth IRA’s! Your money will grow much faster it the returns are not being eaten up by taxes!
5. Don’t trade stocks! Buy the funds, and keep adding to them. After you get comfortable with investing in funds, then you can start buying individual stocks. Start this slowly. Buy stocks as if you were going to be trapped on a deserted island for ten years. If you don’t feel absolutely sure that the company will still be around, and still be profitable ten years from now, don’t buy it! If you start buying and selling stocks in short periods (trading), your money will start getting eaten up in transaction fees, taxes, and mistakes.
6. Don’t be TOO conservative! Saving your money in a savings account seems safe. But in reality you are losing money to inflation. If you are getting 1% interest, and the rate of inflation is 2%, you will be losing money each year! CDs (certificates of deposit) aren’t a lot better. Savings bonds also have poor rates of return.
I the above advice will help with your investing!
The Enron trial verdict is in! Skilling guilty! Lay guilty!
Skilling was found guilty on 19 counts. Apparently he got out of 9 counts of insider trading. Lay was found guilty on all 6 counts! According to legal experts, both scumbags face 20 to 30 years in prison. Of course they will appeal!
Sentecing is scheduled for the week of September 11th. Not sure if that is an omen? One of the biggest drops my 401k ever took was following the September 11th terrorist attacks. The other big drop was when the Enron scandal started off a chain of financial scandals!
Now that we have the Enron trial verdict in, I look forward to seeing these scumbags in jail! I want to see them go away for a long time!
Rot in hell Kenneth Lay and Jeffrey Skilling! Maybe some of your fellow inmates will personally demonstrate on you what you did to your investors and employees!
I decided to do a 401k rebalance. Some of my funds were significantly higher than other funds in my 401k. And when we switched from Amvescap to Fidelity, our available funds changed. They moved us in to roughly equivalent funds at fidelity. I was going to add in American Funds Growth Fund of America (RGAEX) which has been doing quite well. I would have divided my balance into 20% each. But then I decided to drop the S&P 500, and stick with just the 4 funds, all that have been outperforming the S&P 500. So I am investing in the most aggressive funds available to me in my 401k. This strategy has been working for me very well so far. The 401k rebalance should take place sometime after the market closes.
So my new 401k balance would be:
25% American Funds Growth Fund (RGAEX)
25% Victory Special Value Fund (SSVSX)
25% Oppenheimer Main Street Small Cap Fund (OPMSX)
25% American Funds Europacific Growth Fund (REREX)
401k loans are a bad choice. I have borrowed from my 401k, and it was a mistake. I wish I hadn’t done it. It was years ago. My 401k had just reached $6000. I was able to borrow half. So I borrow $3000. I intended to use it towards our wedding and honeymoon. I think I ended up piddling much of it away. I repaid the load over the next year or two. But meanwhile my 401k continued to rise. If I had had that $3000 in my 401k working for me, I would have had more money in the long run. My 401k is currently worht about $250,000. But if I hadn’t borrowed that $3000 in those early days, how much more would I have had? 401k loans are a bad idea!
But, sometimes you HAVE to have the money. 401k loans are an option if you are unable to get money elsewhere.
Employers may have limits. They may require you to have a minimum balance before you can take 401k loans. You might only be able to borrow a portion of the money you have in your 401k. If you do take 401k loans, You will have to pay the money back over a certain period of time. If you default on the loan, the IRS will consider it a withdrawl, and you will have to pay taxes and penalties on the money.
Besides 401k loans, there other cases where you can withdraw money from your 401k plan without penalties. You will still probably have to pay taxes on the money however: Here is what the IRS website says:
Hardship distributions. A 401k plan may allow you to receive a hardship distribution because of an immediate and heavy financial need. Hardship distributions from a 401k plan are limited to the amount of the employee’s elective deferrals and generally do not include any income earned on the deferred amounts. If the plan permits, certain employer matching contributions and employer discretionary contributions may also be included in hardship distributions. Hardship distributions cannot be rolled over to another plan or IRA.
A distribution is treated as a hardship distribution only if it is made on account of the hardship. For purposes of this rule, a distribution is made on account of hardship only if the distribution is made both on account of an immediate and heavy financial need of the employee and is necessary to satisfy that financial need. The determination of the existence of an immediate and heavy financial need and of the amount necessary to meet the need must be made in accordance with nondiscriminatory and objective standards set forth in the plan.
A distribution on account of hardship must be limited to the distributable amount. The distributable amount is equal to your total elective deferrals as of the date of distribution, reduced by the amount of previous distributions of elective contributions.
Immediate and heavy financial need. Whether an employee has an immediate and heavy financial need is to be determined based on all relevant facts and circumstances. A distribution made to an employee for the purchase of a boat or television would generally not constitute a distribution made on account of an immediate and heavy financial need. A financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee.
A distribution is deemed to be on account of an immediate and heavy financial need of the employee if the distribution is for:
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Expenses for medical care previously incurred by the employee, the employee’s spouse, or any dependents of the employee or necessary for these persons to obtain medical care;
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Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments);
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Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of postsecondary education for the employee, or the employee’s spouse, children, or dependents; or
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Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence.
Note: The final 401k regulations were published in December 2004 and apply for plan years beginning on or after January 1, 2006. However, plan sponsors are permitted to apply these final regulations in the current plan year. Check with your plan administrator to see if your plan has been amended to apply the new hardship rules provided for under the final regulations.
The final regulations add the following expenses to those deemed to be immediate and heavy financial needs:
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Funeral expenses
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Certain expenses relating to the repair of damage to the employee’s principal residence.
Distribution necessary to satisfy financial need. A distribution may not be treated as necessary to satisfy an immediate and heavy financial need of an employee to the extent the amount of the distribution is in excess of the amount required to relieve the financial need or to the extent the need may be satisfied from other resources that are reasonably available to the employee.
This determination generally is to be made on the basis of all relevant facts and circumstances. The employee’s resources are deemed to include those assets of the employee’s spouse and minor children that are reasonably available to the employee. Thus, for example, a vacation home owned by the employee and the employee’s spouse, whether as community property, joint tenants, tenants by the entirety, or tenants in common, generally will be deemed a resource of the employee. The amount of an immediate and heavy financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution.
An immediate and heavy financial need generally may be treated as not capable of being relieved from other resources reasonably available to the employee if the employer relies upon the employee’s written representation, unless the employer has actual knowledge to the contrary, that the need cannot reasonably be relieved:
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Through reimbursement or compensation by insurance or otherwise;
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By liquidation of the employee’s assets;
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By cessation of elective contributions or employee contributions under the plan; or
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By other distributions or nontaxable (at the time of the loan) loans from plans maintained by the employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need.
A need cannot reasonably be relieved by one of the actions listed above if the effect would be to increase the amount of the need. For example, the need for funds to purchase a principal residence cannot reasonably be relieved by a plan loan if the loan would disqualify the employee from obtaining other necessary financing.
A distribution is deemed necessary to satisfy an immediate and heavy financial need of an employee if all of the following requirements are satisfied:
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The distribution is not in excess of the amount of the immediate and heavy financial need of the employee.
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The employee has obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the employer.
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The employee is prohibited, under the terms of the plan or an otherwise legally enforceable agreement, from making elective contributions and employee contributions to the plan and all other plans maintained by the employer for at least 6 months after receipt of the hardship distribution.
But please heed my advice! Avoid 401k loans! Don’t make the same mistake I did.
The formula to achieve financial freedom is save more than you spend. Pretty simple huh? Here’s how it works. Let’s say you earn $2000 a month. After taxes, you might have maybe $1500 left. If you spend the $1500 on food, rent, clothes, gas, etc, you have nothing to save.
You can lower the amount you spend. If you only spend $1400 a month on stuff, then you can save $100 a month.
You can raise the amount you earn. So if you now earn $2100 a month, you might bring home $1575 a month. So you could save $75 a month.
What if you lowered the amount you spend, and increased the amount you earn. If you earn $2100, and spend only $1400 as in the examples above, you could save $175 a month.
$175 doesn’t seem like much does it? But if you saved that $175 a month for a year, that adds up to $2100. If you invested that $2100 and were earning 10% returns, after 10 years, that $2100 would be worth about $5447. But what if you saved $2100 every year for 10 years, investing it so it would earn 10% interest? How much would have? Over $36,500!
Okay, so you can’t retire on $36,000. That does not achieve financial freedom. But that is only $175 a month. What if you continue working on raising your earnings, and lowering your spending?
There is a saying in racing, that the easiest way to lighten a race car by 100 pounds, is to lighten the car by one pound in a 100 places. When it comes to saving money, the best place to start is the repeated spending. Do you go out to lunch every day at work? Do you maybe spend $5 on lunch every day? That’s about 20 work days a month. $5 times 20 is $100. What if you bought lunch a few times a week. You might save $50. What other things do you do every day that you might save money on?
Maybe try to earn more money. I make a good living at work. But make quite a bit working at home as well. Some of the ways I have made money working at home is writing a selling shareware programs, selling stuff on eBay, selling books on Amazon.com, building websites with affiliate links, building websites with Google AdSense. I have also looked at manufacturing some products, but these ventures haven’t been successful yet. But I am always looking for money making ideas. And I occasionally take educated risks. More often than not, they work out. Once in a while they don’t. Oh well, see what works, and do more of it. If you tried it, and it didn’t work, you still have learned what doesn’t work. There is always a chance to change something, and make it work. But you have to keep plugging away at it.
Saving money can be addictive. As you start saving money, you will see it grow. As you see it grow you will to save even more money. Don’t be tempted to take the money you have built and spend it. The money you spend, won’t be earning you more money. Money is like seeds. The more you plant, the more you benefit later on.
Saving money and investing it is how to achieve financial freedom!