July 2006
You are currently browsing the articles from General Finance written in the month of July 2006.
All people and families need to have an emergency fund even if you think you don’t. After you have paid your debt off you need to start an emergency fund in case something happens and you are unable to work for several months. You should not even think of saving for a house until you have at least 6 months worth of living expenses saving in an emergency fund.
Start putting that money in either a high-interest savings account like ING or HSBC. Another good way to put money away for a rainy day is to put it in a money market. Banks and mutual funds both have money market accounts so try Bankrate.com to compare what interest rates are available.
Written by mike on July 21st, 2006 with no comments.
Read more articles on Budgeting and Household.
Often when looking at a certain investments return people ignore inflation. As stated before investing in small cap and large caps bring with it more risk and more potential for reward. During this period inflation averaged 3.2% per year. When you examine closer that would mean the return of Treasury bills at 3.9% per year is barely out-pacing inflation while exposing you to little risk. Government bonds fair a little better with a 5.7% return, but is almost 3 times as risky as T-bills. On the other hand, large and small company stocks have 7 times the volitility of T-bills and 11 times the risk of T-bills. The average return of small caps was 17.3%, but because of the volitility its compound return is only 12.4% because of its peaks and valleys that go along with this type of investment. Large caps have a 13% return average over this period and 11% compound return.
This information is important when deciding what to invest in long-term, mid-term and short-term. Plus it give you an idea how to best allocate your funds while keeping your eye on how inflation will effect your investments.
Written by mike on July 20th, 2006 with no comments.
Read more articles on Investing.
Diversification is essential to investing mainly because it lowers your company risk. It does not eliminate risk, but there is a correlation to having more stocks in your portfolio and having lower company risk. When you limit the number of securities you increase your level of risk while not receiving the benefit of higher returns. Investment tools like mutual funds typically have scores of stocks inside their portfolio. Because of this mutual funds are very useful to investors.
Most Americans cannot just go out and buy 100 stocks. Therefore, the use of mutual funds can help the individual investor greatly because these funds have millions and millions of dollars to invest in hundreds of stocks.
Mutual funds also expose your portfolio to more asset classes and this is very important to lowering the company risk and helping the performance of a portfolio (in general). For example, if you have 100 securities in your portfolio your company risk level is negligible whereas if you own one security your company risk is enormous. Market risk is something you can never get rid of in your portfolio, but limiting the company risk by adding more and more securities will lower your company risk.
Written by mike on July 19th, 2006 with no comments.
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When looking at annual ranges of returns for asset classes historically you can better understand the risk involved in each investment. Each asset class has some risk; some more than others. If look at the peak and trough of each asset class you will see the inherant risk.
For example, small cap stocks between 1926 and 2000 had a peak of 142% and a trough of -58%. Large caps’ best return was 54% and worst was -43.3%. Long-term government bonds high was 40.4% and low was -9.2%. Intermediate-term government bonds highest return was 29.1% and low was -5.1%. Finally, Treasury bills never returned higher than 14.7% and 0% return was its lowest.
From this information you can conclude that small caps have the most amount of risk because they have the largest difference between their peak and trough and so on down the list.
Investing is risk versus return and these statistics bear that out.
Written by mike on July 18th, 2006 with 1 comment.
Read more articles on Stock Market.
In investing, if you desire high long-term performance you have to be willing to take on high levels of volatility because those are the asset classes that typically produce that type of return.
Risk can vary within asset classes and outside as well. Typically, different asset classes will have differing levels of risk.
Treasury bills and CDs historically have provided low long-term performance, however, that is because they possess very little risk. Small cap companies and international asset classes are higher risk investments so historically they will average higher returns than lower risk investments.
When you are developing a regular investment plan or a retirement investment plan risk tolerance and risk levels are an important place to start. You need to understandtheir correlation to asset classes and then determine if risks are worth it or not for you.
Written by mike on July 17th, 2006 with no comments.
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Money orders are sold in various places across the United States. MoneyGram, Western Union and the U.S. Post Office are the most popular places to go, but often you can acquire them at a local convenience store or grocery. There is often a charge to buy a money order at these places, but if you do have a bank they typically give you one for free.
They are extremely useful if you do not have a checking account. Plus they are safe because only the recipient you name on the money order can cash it–this is much better than sending money through the mail. Even if you do have a checking account it is safer to use money orders than check because you check has your bank account number and routing number.
Remember to keep your receipt in case something happens to the money order so you have proof of your purchase. Also, know that there is limits to the amount of money you can purchase a money order so if your transaction is large be prepared to buy more than one.
Written by mike on July 16th, 2006 with no comments.
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With oil reaching new heights each day it is quite possible we will have $100 a barrel oil soon. That is no joke and many industry leaders would tell you the same. With the problems in the Lebanon escalating and Iran’s connections to Hezbollah the world is waiting for the other shoe to drop because many say Israel is going to far in their attacks and the U.S. is not stopping Israel.
If Iran gets involved in this conflict their large oil reserves will have an even more important strategic significance and if they chose oil prices could skyrocket. Right now this is speculation, but if this issue is not solved quickly we will be paying $4 for a gallon of gas.
Written by mike on July 15th, 2006 with no comments.
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The S&P 500 fell to negative performance YTD after a tough week on Wall Street (June 30th article). Bears are currently dominating trading and it seems like The Herd is almost to a tipping point of negativity. Let’s hope it does not reach that point because that is when millions will follow and make the stock market bump a bruise.
People are particularly nervous because oil has reached a new record high each of the last few days. Oil prices are rising because Israel is taking on Palestine and Lebanon right now and it could make the Middle East even more volatile. The situation in Iraq is no better with an extraordinary amount of sectarian violence this week.
Problems with Iran and North Korea are not helping global stability either. Volitile times like this, as you have seen, negatively affects the stock market. If these problems get worse look for the stock market to reflect that.
Written by mike on July 14th, 2006 with no comments.
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Have ever sat down and really examined what your financial goals are? Do you know exactly where your money goes? How are you saving for retirement? College funds? Medical costs?
If this scares you—well it should. Because if you are not planning for the future it will be much more difficult to start being disciplined as you grow older. Don’t count on the government solving Social Security’s future or for them to figure out Medicare. You need a plan to take care of yourself and your family.
You need to ask yourself those tough questions. Are you doing everything you should so you and you family’s future is taken care of? It is never too late, but you really need to start now if you have not already.
Start by doing the following:
- Budget: know where all you money goes
- Have smart accounts: this means get the best interest rate on checking and savings accounts (bankrate.com)
- Pay your bills online-less paper and more organized way of paying
- Direct Deposit: most do this already with their paycheck—but start if you have not
- Direct Debit: investment or Roth IRA funds directly debited from your bank account
- Refinance your mortgage if it can save you money (rates haven risen, but are still very low historically speaking)
- Ask your credit card to lower your interest rate
Next you need to set some goals.
For example, let’s say you want to buy a home.
- Do you have any debt (especially credit card)?
- Do you have a safety net of at least 6 months of funds to get you by in case of a loss of job, accident, etc.?
You really want a house, but you need to take care of these things first. The average American has $8000 just in credit card debt—that does not even count other types of debt. If you are paying 12% on $10,000 credit card debt you should not be thinking about buying a house yet. You can plan, but you need to focus on reducing high APR debt that you have.
Maybe, you are single, have no debt and little to no savings.
- How do you plan on getting a down payment for a home?
- If you do get a down payment what happens if you are hurt and cannot work or lose your job?
Yes, this is difficult but these are only the first couple steps. If you have all of that taken care of you need to try seeing if you can save enough money each month that will be consumed by the mortgage, taxes and insurance.
- Can you really afford that house?
- Do you have enough money left to pay the rest of the bills? Save money, save for retirement, etc?
It is something to seriously consider.
Written by mike on July 13th, 2006 with no comments.
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A few weeks back we discussed the importance of taking personal finance classes. The face-to-face experience can be more effective for some people in order to learn what they need to know. Others can pick up through reading a blog or website with good content.Investing can be tricky and very scary for beginners and even investors with some experience.
Investors Business Daily has investing classes that they put together in some major U.S. cities. They have four levels of classes and each level gets more expensive. However, the beginning class is $179 and it would be a great primer to start you up on a solid investing path. The information would be some of the best available at a cost of what a community college class might cost. Click here to find out more. So if you live near or can access these cities and can make it to the investing classes it surely would be worth it.
Written by mike on July 12th, 2006 with no comments.
Read more articles on Investing.
All people and families need to have an emergency fund even if you think you don’t. After you have paid your debt off you need to start an emergency fund in case something happens and you are unable to work for several months. You should not even think of saving for a house until you have at least 6 months worth of living expenses saving in an emergency fund.
