Entries from April 2009 ↓

I am really sick and tired of hearing these BS artists on television telling their callers not to sell their mutual funds or stocks because they will “lock in their losses”. The last time I heard this it was from – who else – Carmen Wang Ulrich. This is probably the most stupid scare tactic ever invented to prevent people who don’t want to learn how to invest from taking action. How stupid is that?

Here’s why it’s ridiculous to even listen to this dangerous myth:

- What if your stock goes to zero? Or the company goes bankrupt? At what point exactly should you sell? For a mutual fund, how low does it have to go before you throw in the towel?

- What if while you watch your investment lose money, you see that there are others out there that are making money? Do you not sell to avoid “locking in a loss”? You are guaranteed a loss if you don’t switch to something that’s making money!

- What if we have another market dive? What if we have zero growth for ten years – just as today’s market has wiped out all of the increases of the past ten? When do you sell in favor of something else? Like a CD?

OK let’s do the math. Investor A and Investor B each have $10,000 in a mutual fund that’s down 30% so they each now only have $7,000. All indications are that the market is still headed down. Or at least, that’s the investors’ fear.

Investor A listens to Carmen and sits there watching it lose another 20% because Investor A believed without knowing why that you shouldn’t “lock in” your loss by selling. Except that now Investor A has $5,600 in her account. (By the way: If you listened to Carmen last October, this is EXACTLY where you would be right now.) She sits there and watches her $5,000 bounce around the bottom of the market, because this is a market like nothing the tee vee people have ever seen before, and they don’t know what to do either. Eventually, the market moves up 10% after six months, but that puts her at only $5,500. She’s a long way off from gaining back her losses.

Investor B instead uses common sense, and doesn’t listen to tee vee “experts”, and sells when her account is down the first 30%, moving her $7,000 to a Ginne Mae (government) bond fund (not actual performance, only an example), earning 5% over the next 6 months, so she now has a $350 gain instead of a $1,400 loss, for a total of $7,350. She now moves $4,000 of that back into mutual funds that she feels confident are now moving up again. Investor B gets the same 10% market move that Investor A got, so she has $4,400 from her move back into mutal funds. And since she’s made 5% on the remaining $4,350 her totals are $4,400 + $4,565 for a total of $8,965 in her account, well ahead of Investor A. (She will now also keep watch on the market and know when to sell and when to buy!)

OK which person do you want to be?

No matter that the market is doing today, you DO NOT LOSE BY SELLING. This fear of selling is the one characteristic that will definitely make you a loser in the markets every time. You must understand that you will win some, you lose some, when you are smart about investing, you take your losses before they get too big, and move the money to where it will be working for you again. There is no such thing as “buy and hold for the long term”. Those days are gone. Learn what to do now, or stay away from the markets.

Before the economic crisis, plenty of people invested in index mutual funds as a way to diversify and ride the market without knowing too much about investing.  Whether you continue to invest in index mutual funds depends on what you think the future will hold.   Do you believe that the world economy will grow? Do you believe that US economy will grow?  Today we aren’t so sure. When you look at a major stock index, you are seeing an indicator of what investors think will happen to economic growth. Used to be, a whole year ago, you could make good money buying index funds. Today? Not so much.  Still: if you are in for the long term, are index funds for you?

It’s important to learn how do  mutual funds work, if you’re not clear on the specifics. Long term (and we don’t know exactly what that means), stocks are likely to go up. Eventually. But at what rate? How long will it take? Is this downturn “different” than the last time? It all makes things very difficult for the investor that use to spend ten minutes a month sending money to their index fund in their 401(K). Yet with all the many indexes around the world, there may be some opportunities there.

For index mutual funds, the fund share price will change according to the index performance. For example, thousands of mutual funds use the S&P 500 as the base of their portfolio. But the S&P is heavily weighted with financials, so there has been a real loss for investors who chose that index fund. you’ll also find there are many differences between  funds for operating expenses and “load” fees.  Fees and commissions can compound a loss in share price.

When you’re looking at index funds, you may also consider looking at Exchange Traded Funds, or ETFs. These are really just baskets of stocks, and don’t require the same active management as do mutual funds, even index mutual funds. You can choose ETFs that include the best of certain stocks or industries, but leave out the financial companies or other industries you want to avoid. You will also find lower fees for ETFs vs. most index funds. For the long term investor who wants to put certain amounts in each month, you want to stick with low fees. but today, even with index mutual funds, you don’t want to think that you can simply choose the best mutual fund, send your money, and in ten years you’ll be rich. For example, as of today, all gains for the past ten years were wiped out with the rcent market downturn. So again, what is the “long term” time horizon you are comfortable with?

The best strategy for investing in index mutual funds is one where you review regularly, move your funds according to market conditions, and don’t expect it to be like the old days a whole 10 months ago – you will have to be more actively aware of what your money is doing to avoid losses.

To an extent, diversification of your portfolio can help, if you add bond funds, emerging markets and other different types of indexes to your mix. In this crazy market, be sure you are knowledgable about what stocks you ar invested in, even if you’re investing in an index fund. That’s the best way to avoid big losses in your index mutual fund, and enjoy long term gains.

It seems like a lot of people are concerned about how to save money in a depression, or how to protect what they have in the near term. I’m getting queries like “moving to the country to survive a depression” and “How to earn money in a depression”.

You have to remember, when we think of what we might face in terms of a depression, that we know very little of true depressions (hardly anything in personal experience terms). In the 1930′s, the depression hurt a lot of people because there was no social security safety net, no unemployment benefits, no welfare and food stamps. It was because of that lack that these safety net programs where instituted.

In addition, it’s well known that Herbert Hoover let the depression sink in because he refused to spend any more. Guess where we’d be if some conservatives had their way? Why would they want to repeat the mistakes of Hoover? True, we are building up a huge financial deficit. But there could be – could be – growth to get us out of it, if all goes according to Obama’s plan.

Nevertheless – if a family faces job loss or downsizing, foreclosure, if big banks fail and consumers hunker down and stop spending, we could be in for some tough economic times. Yet I tend to see this as a step on a path to a new way of thinking about how we live – just like social programs resulted from the Great Depression of the 1930′s.

Here’s where things could go, IMHO. We could start learning to live with less money. OK, after we default on our homes and credit cards, we learn that we don’t need all the latest doo dads to keep us happy. We plant gardens. We keep the cars we have running. We barter and trade with our neighbors – lawn cutting for piano lessons or something. We turn to our communities for swap meets and recipe trades and getting back to basics. We start to be creative again, not just consumers of someone else’s creativity, that is, we bake and cook instead of going out; we play games and go for walks instead of spending hundreds a month on cable; we go to the movie at the town hall with our blanket and picnic instead of paying $50 or more at the theater. We take a composting class or a bike repair course and learn a new language with friends.

We find that we don’t need the things we have been conditioned to buy. We find that yes, if we save instead of spend, we put some people out of work, but we reach out to those people and help them become useful in other capacities. We learn that this too is just a phase, on our way to a more sustainable, friendlier, less consumption driven lifestyle, where there wasn’t much substance behind all that garbage.

My feeling is you’d do better in a community, not the country, where people can share and educate and lend and play and work together to make things work. You are not well served by harboring fear or complacency, but rather we can do so much better by harnessing the same “we can do it” strength that we felt after 9/11. We are facing difficulty as a country, not alone, but together, and only with constructive effort and creativity – not fear-mongering and ignorance and infighting – will be succeed and build something better out of our challenges.

And believe me – there are going to be amazing investment opportunities. I’ll be posting some of those to keep a watch on in the coming weeks and months.

Seeing your sky high electric bill these days is almost enough to cause a heart attack. You may have tried everything you can think of to save on electricity back but still can’t get the numbers low enough. There may be additional electricty saving steps you can take to reduce your use that you haven’t come across. Finding new ways to conserve energy can be easy, but it will take the effort of your entire family. here are a few ideas:

1. Reduce your heating or cooling needs. In summer, raise your thermostat setting above 80 degrees, and use fans, both the ceiling and floor fans. They help stir the air and add to comfort. Be sure the ceiling fan is circulating air down, not up. In winter, up is fine when you want to move warm air from the ceiling down to the floor level. Using a fan can save more than $600 per year.

2. When you’re not home, turn off the air conditioning. The constant running means it’s working harder. You can raise the temp so it doesn’t run all day, and turn it back on when you get home.

3. Be sure to keep your air conditioner’s filter clean by cleaning it at least once a month. A dirty filter will make your AC work less efficiently and that requires more power. Be sure to also Clean registers in all rooms as well as the intake register. Close the registers in all rooms not in regular use. And speaking of clean, you can take a cool shower just before bed to help you feel cooler.

4. Cover your outside condenser with shade, and you can save up to 10% on electric. Just make sure shrubs or grass don’t block the unit’s air flow.

5. Examine your ducts for leaks. Older ductwork can leak more. In the attic, check how hot it is there. Use insulation to save up to 40% of colling power. You might also consider installing an attic fan, since by reducing your attic temperature by just 10 degrees, you can save as much as 10% on your electric bill.

5. Put compact fluorescent light bulbs everywhere you can. An old-fashioned incandescent light is just a mini heater that emits light. Fluorescent bulbs are cooler, and more popular than ever as money savers, so prices are coming down. They give off only 10% heat for 90% light compared to incandescent.

6. Paint your home a light color on the exterior, to reflect heat. Dark paint absorbs up to 20% more heat thereby increasing cooling needs.

7. Watch your appliance use. Use full loads in the dishwasher and laundry, or air dry clothing on a clothesline in good weather. You can also air-dry dishes the old fashioned way, and skip the high-power heated drying cycle. Also, replace old appliances with Energy Star, which use much less electricity.

8. Consider a tankless water heater. Traditional water heaters keep water heated all day long regardless of use, but a tankless heater heats water only as you need it. This can save as much as 25% to 50% of your utility bills!

9. An obvious one is to turn off electric appliances, electronics and other power hogs when not in use. Even when plugged in, “ghost load” power that keeps LED clocks and fast-on switch powered costs as much as 10-15% extra.

By saving just a few watts of electricity here and there it can really add up, plus you can see your success immediately right in your monthly bill! Make it a goal to cut your bills by 20%, and see if you can’t do that with simple changes. Saving energy helps you save money, and that’s something you can really bank on.

When the financial times get rough, everyone looks for new ways to make income. On this blog, we talk about Saving Cash, but that also means making more so youchave more to save.

A majority of Americans are insecure about their jobs right now, and rightfully so. The way to feel a little more secure is if you cut yoru costs, save the money, and also find ways to make more money and save that too. You can get a second job, possibly, but there are also options for working at home to make extra money.

Of course, nearly everyone would love to make a lot of money at home, be their own boss, and sit back and bank the dollars. Well, it just doesn’t work that way. But if you spend some time learning about what options are out there to make money from home, within three to six months, you could be putting aside a coupel hundred dollars a month. That’s a car payment, or at least some nice extra savings!

There are always plenty of scams too. Buying expensive courses is also not necessary. Here are a couple options for getting started making some cash at home, without any investment up front.

1. Sell your own stuff on EBay or Craig’s List. This is a classic, and believe it or not, people are still buying on ebay too! So, get rid of you junk, or offer to sell other people’s stuff, Ebay has excellent tutorials, and if you sell enough you might consider opening a store.

2. Sell other companies’ goods on your website. This is called affilate marketing. You are an affiliate of a merchant, build a website, and send traffic to the merchant, for a cut of the profits. Sites like Commission Junction and Ebay Partner Network help you get started. You will need a website however, but using a free service like Squidoo helps you set up sites where you can sell all kinds of affiliate goods to your visitors.

3. You can build a free blog that earns you money when visitors click on ads. Thius type of site uses Google Adsense, where Google places the ads, and you make money when your visitors click the ads.

4. You can create and sell items through sites like CafePress.com, which also provides you with a basic website for free to sell your own designs or those of other members.

These are just three starter ideas for building a business at home that makes money. We’ll post most in a future post about where to find more information and get your business in gear. Making money at home isn’t rocket science, considering how many people are making a living at it. Spend an hour each day and you could see extra cash rolling in in no time!