Entries Tagged 'Investing' ↓

Although this blog is called Saving Cash Tips, we often talk about investing and the best way to invest money now, since keeping your money is just as key as saving it! But in this post, we want to talk a little about how to invest if you only have small amounts of money to invest.

First off, what do we mean by small amounts? Well if you’re just getting started with a savings plan, amounts like $100, $100 or $1000 are small amounts. Generally, any amount under $5,000 is a small amount, if you are considering stock investing. You want to minimize risk, and continue to save, without your money being lost to market fluctuations or high fees. It’s also important to realize that as an investor, you really cant count on “buy and hold” for long time periods, as the market we are in now is probably unique in history, in that it is quite unstable. There are not going to be 20 year upswings like we thought we’d have in he past. So, that means if you are in the market, you have to be prepared to buy and sell when the conditions require it.

As a result, for amounts in this range, sometimes buying stocks is not a good idea, and here’s why: You will pay a larger portion of your base investment in trading commissions or fees. If you are buying stocks, you’ll pay both to buy and when you sell stock. Since you can’t just buy and never sell, you will pay on both ends. In addition, the appreciation in stock is likely not going to be huge on just a couple dozen shares. Until you have a larger amount to invest, its probably better to select investments where you can make some money, but forgo the casino that is the stock market until you can afford to lose to the house.

A couple good examples of place to invest with small amounts of money are savings accounts, CDs, savings bonds, and ETFs. For example, you and open a high interest savings account online usually with $100 minimum investment, and you can earn a couple points in interest, while having your savings insured (which is not true in the stock market). A certificate of deposit, or CD, will give you an extra half percent or so, but may come with restrictions if you have to take the money out before the CD matures.

Another option is to buy savings bonds. The U.S. Treasury now sells these online at Treasury Direct, and you can invest with a transfer from your bank account in amounts as small as $25. As of this writing, a November 2009 I-Bond, which is indexed for inflation, is earning 3.77%, which is nothing to sneeze at considering the market is all over the place. As with any bonds, you have restrictions on when you can withdraw your funds, but you can also have money automatically deposited into this account, and use it to buy savings bonds as well as Treasury bonds.

If you are looking for the best way to invest with little money, you want to start small, and keep making deposits, and build up your investment account before taking larger risks. Today you have plenty of choices for smaller investments, where you can have a safe, insured account until you are ready to take the next step.

For anyone watching the stock market come back 60% since the lows of 2009, it might seem like you should get back into the stock market and start buying stocks again. But you might want to stop and think twice before stock buying, since the market is still quite unsettled, due to unemployment fears, dollar weakness, and other factors.

When faced with an uncertain market, deciding what stocks to buy can be difficult. With years of a stock bubble in our past, we keep looking for returns that come only with situations that are bound to reverse. For example, throughout most of the 2000′s decade, the market was inflated by extremely low interest rates, and the resulting massive lending and borrowing by consumers and businesses alike. As we all know, the bursting of this bubble was a rude awakening for people around the globe.

It’s hard not to keep coming back to buying stocks as a way to rebuild one’s investment nest egg or portfolio. Today, stock picking is nowhere near as easy as it was in the 1990′s or in the last decade, since stock bubbles drove all stocks up, and everyone had winning stock picks whether they were experts or not. Instead, the choice now of which stocks to buy will require more education, even for experienced investors, and decisions that must be made more frequently, instead of expecting the market to always go up. Stock buying has some new twists in it, which can make it both more risky and less risky for the average investor.

You might consider buying ETFs. Exchange traded funds are similar to mutual funds, but they trade like stocks. So you can purchase the indexes, you can purchase currencies or commodities, but you are buying shares just like stocks, and not having to deal with minimum investments and so on. Another way to trade this uncertain market is to buy options. Options are becoming popular, because the returns are greater incrementally than they would be trading the underlying stock. They can also be an excellent way to protect one’s self against market fluctuations. You can purchase “put” to protect against stocks going down, and “call” options to capitalize on stocks going up. This is a whole area of investing that requires education and expertise, so be sure you also invest time in learning to trade these derivatives, and not just invest money blindly. While stock buying might have changed, there is always a way to make money in any market. Finding new ideas for buying stocks and new vehicles for investing is one way you can get into the market to make money no matter the market direction.

Here at Saving Cash Tips, we’re hosting Part 2 of the Investing Carnival. We’ve been checking out some posts on investing blogs around the web, looking for good ideas about how to invest. Here are some posts we think you’ll find helpful in your investing efforts:

In this tough economy it can be hard to stay focused on saving for retirement. At
Retire Early Guide they teach you effective savings tips so that you can stay on top of saving for your future now! The site covers topics such as paying off your mortgage faster, saving for your childrens education and cutting variable expenses!

Jim Cramer has given me great insight into the stock market through a service he created called Action Alerts Plus which allows us to watch as he makes his own trades through a charitable trust portfolio. Read my review and sign up for a free two week trial.

And here’s some good advice about 401k rollover options: When deciding to leave your current employer, you have more to think about than your new job. If you have invested in the company’s 401k you need to decide what you will do with your retirement funds.  Educating yourself about your rollover options is crucial before taking action.

Ty Coon over at Stock Market Investing Today has started his Poor Man’s Stock Market Investing Challenge. He’s helping people use a stock simulator to learn how to start investing in the stock market.

According to Stock Market for Beginners Guide, for all newbies who wish to make money in the stock market the difference in making big bucks versus losing is the education. To begin it is important to understand how the stock market works and how the stock exchanges operate. Understanding the stock market today will help avoid a few costly mistakes while you are a beginner. It will also help as then you will be a notch above those who venture into the stock market with no knowledge and understanding of the markets.

At 401k Rollover Answers, they’ve pointed out that in this time when many people are facing a job transition, one of the important details that can fall through the cracks is the question of what to do with one’s 401k account. It is a good idea to do some research before deciding what to do with the retirement fund from your old company. This article demonstrates some of the common mistakes people make, from cashing it out early, to forgetting they’ll need to pay back a 401k loan.

Hope you find these Investing Carnival links profitable!

So since March, the stock market has been going up. I haven’t heard anyone on tee vee, except for one or two who are quickly dismissed, explain why. Instead we hear about all the amazing earnings surprises, returns to profitability… a bunch of crap.

Companies are showing “profit” because:

(1) They fired a few million people, reducing expenses.
(2) They CUT INVENTORY, and so spent less.
(3) Their income is coming from sales overseas, but not here.
(4) They froze or reduced salaries, benefits, etc. for the workers they have left.
(5) And plenty of other bookkeeping tricks to show “profit”, “growth” and “productivity”.

Goldman, JP Morgan, etc. etc., they are hugely profitable because why? Because unlike us average Americans, they have been getting interest free loans from the government. We are not talking about TARP here, but the loans available through FDIC, the Federal Reserve and other agencies, in the trillions of dollars. And our money has been used by Treasury to buy the bad assets off their books at inflated prices, prices no other Wall Street firm would ever pay. So, of course the S&P is up, since it is weighted with financial stocks.

If a firm has billions of free money to invest, and you invest it in the market for your own account, and you don’t lend any to anyone else, and you drive the market with your volume – what do you think happens? The firm makes money of course. It’s a pyramid scheme to rival Bernie Madoff.

And how many people still working are still putting money into their 401K accounts? And how many pension funds are still putting money in? The price of stocks will go up as long as someone buys these instruments, regardless of their value. That the index is higher, does not mean there is value there, the “value” is illusory.

Don’t be fooled. Nothing has changed. There is little or no money being lent, because the TARP money has been used to shore up the capital requirements of the companies that got the money. They were virtually bankrupt. They used taxpayer funded loans to make it look like they were profitable. As one talking head said this week, if today we were to try to strengthen our banking system by increasing capital requirements we would bankrupt these “too big to fail” banks.

Basically, the Government is doing nothing for the average American but borrowing our children’s meager finances. We are going into more and more debt. China and Japan are going to resist our habit eventually. There is no reason a crash like last fall can’t happen again tomorrow – there are zero safety nets in place other than the Fed’s willingness to print as much money as they can as fast as they can.

And how can any company be profitable if they aren’t selling anything? If we don’t have jobs, and are under a ton or debt, and aren’t buying as much crap as we did when we re-fi’d our houses to buy bigger plasma tee vees, where are all these amazing profits supposed to come from next year and the year after that? Our “growth” was based on credit. Well there ain’t no more credit now, so now what? No one who is telling you things are getting better can explain that one.

What can you do? Where do you invest in 2010, or for your long term future? You can’t just put money into an account today, and leave it for teh “long term”. You need to stay on top of what you are invested in, where that market is headed, and be ready to switch as the markets do. Learn to invest money and build your plan accordingly. Don’t count on stable markets, because for now, there is no such animal. There really never was, that was a story made up for the non-investor middle class…

Based on what I hear from economists who are HONEST about what’s going on, investments that might look good right now are some foreign currencies, some muni bonds, Asian stocks, and shorting the dollar. Keeping an eye on oil prices too. You can’t “buy and hold” or you will get burned. (Six months up does not mean you’re in the clear.) Instead, PAY ATTENTION. Learn for yourself about investing and what works for YOU, don’t spend time listening to bullshit con artists on cable tee vee. Read books, listen to alternative opinions. Make your own informed decisions. If you don’t want to do the work, you shouldn’t be in the market.

I finally heard Suze Orman say it last night – to set up a self directed IRA rollover account with a discount brokerage so that YOU are in control of your funds. I don’t think you can get video of her broadcasts, I will keep looking for the link.

At the beginning of the downturn in mid-2008, she had some typical, conventional  things to say, you know, the old “if you’re in the market for ten more years then stay put” crap, but she’s coming around.  Now she is telling folks facing imminent retirement that they need self directed accounts and to set up 401K rollover accounts – and not leave them at the mercy of a former employer.

She also answered one caller, whose employer has stopped the match and who makes too much to contribute to a ROTH, telling her NOT to “keep putting in the max to your 401k”.  Wow – she instead said do a non-tax deductible IRA, then roll it into a ROTH each year.  Go Suze!   BTW – so many money types say only put in up to the match, then go ROTH or otherwise – Jim Cramer, now Suze.  Maybe some folks will get the message.

So what do you do? Open a self directed IRA or a 401k rollover account with a top rated discount broker.  Learn to invest money in the markets.  LEARN what works, for YOU. Don’t expect anyone to tell you the right thing to do.  Then place your own investments. Today, you can even open a Roth 401k with a discount broker.

And while I”m at it – I’m passing this article around to all of my friends.  The article, by Jeffrey Goldberg, is titled “Why I Fired My Broker” and it explains why you should too.  Read it and understand why your employer’s 401k managers and financial advisors generally are a waste of your time.

Why I Fired My Broker, by Jeffrey Goldberg

Their job is to make money for their firm.  Not protect you from downturns.  As long as their losses aren’t as great as the losses in the index funds, they consider that a “win”.

There are many ways to invest money that are safer for the long term, but you will have to learn more about investing, learn more about the markets, and not just expect to park your money in a mutual fund somewhere and let it sit.  This is not just a “down” market. This is potentially a stagnant market, with little or limited growth for years, even decades, to come.  It requires a different understanding to be successful, as opposed to just waiting out a temporary downturn in a bull market as has happened in the past.  You will have to learn the best way to invest money for yourself, and not rely solely on tee vee talking heads or even experienced financial planners to help you. Keep your $$ in a CD or high interest checking account so you have cash available when you need it.

Stay tuned here in the next few posts as I list some publications you really want to read.  These will not give you the same old buy and hold bull – they will explain why the “advice” you’ve been getting has been skewed against you from the beginning.  Start with Crash Proof, by Peter Schiff  (the new edition, Crash Proof 2.0, is coming soon!).

Bottom line:  Take advice from NO ONE. Not even us.  And read outside the lines folks.  Don’t take conventional wisdom for truth.