Daily Money Tips

Money Links (April 6, 2008)

noreply@blogger.com (Unknown) — Sun, 06 Apr 2008 11:54:00 +0000

CNBC feels your pain.

Doug Kass turns bullish? It must have been April Fools Day.

My Post How My Investment Strategy Has Changed Over 12 Years was included in this week's Carnival of Personal Finance #146.

This week's Carnival of Everything Finance #16 included my post
Will the Bear Market Last Until 2014?.

Bible Money Matters hosted Money Hacks Carnival #6 which included my post How I Sold My Home in a Slow Real Estate Market.

How Not to Pay off Debt

noreply@blogger.com (Unknown) — Tue, 01 Apr 2008 13:25:00 +0000

I don’t like debt. I’m currently debt free except for my mortgage and I hope to be completely debt free in five years. I paid off debt by downsizing and spending less. There are plenty of good ways to pay off debt but there are also dumb ways to pay off debt.

Avoid 401(k) withdrawals. If you take money out of your 401(k) then you will pay fees. You will pay taxes on your withdrawal plus a 10% penalty. Ouch!

Don’t borrow against your 401(k). When you borrow money from your own 401(k), you usually must pay back the money with interest over five years. This sounds like a good idea because you are paying yourself the interest. There are a few drawbacks. If you leave your current employer for any reason, you will probably have to pay the loan back immediately or face the fees of an early withdrawal. The money you withdraw will also no longer be appreciating in value so you lose the impact of compounding interest. The money used to repay your loan is also not tax sheltered. A primary advantage of a 401(k) is the tax shelter. When you repay your 401(k) loan, those payments are made with after-tax dollars. Then when you take withdrawals at retirement, you pay taxes again.

Don’t borrow against your home. Don’t use a home equity loan or home equity line of credit (HELOC) to pay off debt. Your home is used as collateral with these loans. If you aren’t able to pay back your loan then the lender can force you to sell your home.

Unfortunately, these are common strategies people use to get out of debt. I personally know several people who have used these tactics. I am writing this article today to hopefully persuade others from making the same mistake.

Money Links (March 30, 2008)

noreply@blogger.com (Unknown) — Sun, 30 Mar 2008 12:17:00 +0000

Do you need help reading your credit report?

Have you read the Idiot's Guide to Improving Your Credit Score?

Do you think the U.S. economy is heading towards a perfect financial storm?

New plan would give the Fed greater power. Is this a good thing?

Great advice if you are buying a house.

Dow 20,000 within a year? I'm not counting on it.

This week's Carnival of Personal Finance #145 hosted by Million Dollar Journey included my post Don't Chase Investment Performance.

Antishay Ventenne hosted Money Hacks Carnival #5 which included my post
Good or Bad: The Federal Reserve Rate Cuts Will Impact You.

Will the Bear Market Last Until 2014?

noreply@blogger.com (Unknown) — Sat, 29 Mar 2008 00:56:00 +0000

Check out this insightful interview dated December 10, 2007 with Russell Napier, author of Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms. The interview takes several minutes but it is well worth the listen.

Napier studied the four historic market bottoms of the 20th century with major lows created in 1921, 1932, 1949, and 1982. He defines these market bottoms by declines in market valuations. He also comments on the market tops and suggests we reached a market top in 2000 and a new long-term bear could last until 2014. Napier states that there are plenty of great trading opportunities during these long-term bears but they are not “buy and hold” markets. I tend to agree.

Napier’s research is amazing as he read 70,000 Wall Street Journal articles two months prior and two months after each of these bear market bottoms. Based on his research, what sort of headlines should we expect to see before we declare a new market bottom? Napier expects to see plenty of these sort of headlines:

Disgruntlement with the Federal Reserve
Pressure for a new monetary system
Lots of discussion why you should never buy equities
Talk of a possible bond collapse
Dangers of holding your money in a bank
Talk of deflation
Questions about the long-term future of America

In my opinion, we are starting to see some of these headlines but I agree with Napier that we have a ways to go before we hit bottom. If the Fed hadn’t stepped in and bailed out the market over the past 6 months, we might be seeing more of these headlines. In my opinion, the Fed is just prolonging the agony. You may not agree with my opinion. Regardless, Napier’s research is certainly interesting.

How My Investment Strategy Has Changed Over 12 Years

noreply@blogger.com (Unknown) — Wed, 26 Mar 2008 18:49:00 +0000

I’ve learned a great deal over the past 12 years of investing. Today I want to share my past investment performance compared to the S&P 500. I also want to share my current investment strategy.

1996-1998
I held a basket of random mutual funds and followed a “buy and hold” strategy. I experienced 3 straight years of underperformance.

1999-2001
I decided to jump on the bandwagon and I chased investment performance. The “dot com” stocks were taking off and I didn’t want to miss out. Unfortunately, my timing was terrible as the “dot com” bubble popped in 2000. As we entered a recession, I wisely sold my “dot com” stocks mid 2001 and cut my losses. During this time, I experienced another 3 straight years of underperformance.

2002-2006
I needed a new approach to investing. As I sold my “dot com” stocks, I made a conscious decision to partially abandon the “buy and hold” strategy.

My new approach was two-fold:
Buy and Hold: Approximately 40% of my portfolio still comprised of a “buy and hold” strategy. I decided to purchase mutual funds with managers who had long tenures and proven track records. I decided to put my money behind Bill Nygren OAKLX and Bill Miller LMVTX. I also invested in OAKEX for international exposure. Overall, these funds performed well for me but these fund managers eventually lost their golden touch.

Market Timing: The other 60% of my portfolio was designated to time the market. This is a very controversial approach to investing, but if you are nimble, then you can be successful. My market timing approach has developed over time but mostly consists of technical analysis, oversold/undersold market indicators, and taking a contrarian approach to market sentiment (I buy when others sell, I sell when others buy).

I outperformed the market 4 out of 5 years during this period.

2007-Present
My current approach to investing is still two-fold. However, my “buy and hold” strategy now consists of 100% index funds implementing lazy portfolios. I continue to be successful in my market timing strategy as I outperformed the market in 2007 and I’m on pace to outperform the market in 2008. However, unless you have proven success in market timing, I don’t recommend it. A market timing approach is not for everyone. I personally recommend lazy portfolios to my family and friends.

Consumer Confidence and Home Prices Continue Slide

noreply@blogger.com (Unknown) — Wed, 26 Mar 2008 03:20:00 +0000

Consumer confidence and home prices continue their sharp declines as the stock market shrugs off the bad news today. Nothing really surprises me with the stock market these days. I guess the bulls continue to trust that Ben Bernanke will save the day. I fear the Fed will eventually run out of cards to play before doing more harm to our economy than good.

Consumer Confidence Index
The Conference Board's consumer confidence index fell to 64.5 points in March compared to 76.4 in February. This is the lowest reading in five years. The consumer expectations component of the index fell to 47.9, the lowest reading in 35 years.

S&P Case Schiller Home Price Index
According to the Standard & Poor’s / Case-Schiller home price index, the housing crisis is getting worse. Home prices in January dropped 10.7% from a year ago in 20 major U.S. cities measured. This marks 13 consecutive months of decline.

The data was ugly today. In my opinion, it is inevitable we are heading towards a recession. Perhaps your local economy is already in a recession.

How should this data impact your investment strategy? I’m not ready to call a bottom yet. While most personal finance bloggers preach a “buy and hold” strategy, I'm not convinced. I’m sticking with my large cash position and I continue to protect my capital. I abandoned the “buy and hold” strategy 7 years ago and I’ve outperformed the S&P 500 in 6 of those years.

How I Sold My Home in a Slow Real Estate Market

noreply@blogger.com (Unknown) — Mon, 24 Mar 2008 12:27:00 +0000

I did all the things everyone else suggests such as cleaning, decluttering, and deodorizing. These things were a no-brainer to me and were completed well before my home went on the market. Once these things were finished, I took the following steps and successfully sold my home in a slow real estate market in less than three months.

I hired a realtor. No one likes to pay a realtor 5% - 6% to sell their house. But if you want to sell your house, bite the bullet and hire a realtor. I am 99.9% confident that my house would not have sold for sale by owner (FSBO). I was very particular when I hired a realtor. I hired someone who had a successful track record with over 15 years of experience. The realtor I hired was a full-time realtor. I would never hire a part-time realtor. Finally, I hired someone I had good rapport with.
I studied the competition. Once I hired a realtor, we did a complete market analysis. On paper we reviewed the prices of all comparable homes sold in the past 6 months. We also reviewed all comparable homes currently listed on the market. We then walked through every comparable home listed in my neighborhood as well as surrounding neighborhoods.
I priced my house competitively. I decided to set my home’s price slightly lower than the comparable homes we researched. Overall, we felt my home provided the best overall value in my neighborhood as well as surrounding neighborhoods.
I re-evaluated. As my house sat on the market for over a month I continued to study the competition. Every weekend, I visited all open houses in the surrounding area. I also received feedback from other realtors and prospective buyers. I started to notice, a few other houses offered more value to potential buyers. I knew buyers were in short supply so I had a decision to make. I could either lower my price or I could make improvements to my home. The most negative feedback I received was the worn carpet in high traffic areas and a cracked sidewalk. I quickly decided to replace the carpet in the entire house as well as fix the cracked sidewalk. This was quickly completed within one week.
I wasn’t discouraged by a low offer. Shortly after I made these improvements, I received my first offer. Unfortunately, the offer came in $30k below my asking price. At first I was discouraged. However, I knew buyers were scarce and I didn’t want to lose this opportunity.
I was realistic. After receiving the low offer, I took a closer look at comparable homes sold in my area. It turns out that based on what has actually sold, my home was overpriced. Even though my home was one of the top values compared to other homes currently listed on the market, I quickly came to realize everyone was overpriced. Recognizing that my home was overpriced was not easy but it was necessary to get my house sold. After a week of intense negotiations, I finally came to an agreement to sell my home for $20k below my original asking price.

I learned a few things from my experience. If I had to do it all over again, I would have set my original asking price lower. I based my original price on comparable homes currently listed on the market. Basing my price on recently sold homes would have been more successful. I think this is the #1 reason why homes don’t sell in a down market. I also should have replaced the carpet and fixed the sidewalk before my home went on the market. The competition was fierce and the buyers were limited. My home should have been in top condition from day one.

Overall my strategy proved to be successful. A little luck probably didn’t hurt either.

Money Links (March 23, 2008)

noreply@blogger.com (Unknown) — Sun, 23 Mar 2008 12:18:00 +0000

10 questions to ponder before you buy something.

When will you receive your economic stimulus rebate check?

Managing debt in turbulent times.

More advice during turbulent times.

Even with lower rates, here are more reasons to save at ING Direct.

Recent key ETF performance.

Be sure to check out this week's Carnival of Personal Finance #144 hosted by beingfrugal.net that included my post How to Prepare for a Recession.

My post Investment Advice in Unstable Markets was included in this week's Money Hacks Carnival #4 hosted by The Amatureist Financial Journey.

Don’t Chase Investment Performance

noreply@blogger.com (Unknown) — Thu, 20 Mar 2008 13:57:00 +0000

As my own investment rule, I don’t chase performance. I learned my lesson in the “dot com” bubble. Frequently, investors jump on the hot investments only to later realize they bought at the top. Commodities are a recent example.

On March 5, 2009 a friend wrote:

“I was thinking that some hedge funds … may start to sell positions that have big gains to offset mortgage-related losses - the big gains coming from commodities. I then read in Barron’s that some did not think this would happen because the commodity trade has been strong, will continue, etc. With the gains that wheat, corn, etc have been making, it seems like a good time for them to exit. And, nothing goes up forever. It seems to me that many commodities are in a short-term bubble and if hedge funds start selling, the drop could be severe, but possibly short.”

I replied:

“I definitely wouldn't short any commodities. I considered (for about 1 minute) buying some commodities since they've been on fire but they seem to be priced too high for me. These sort of "bubbles" seem to last longer than they should, however.”

Over the last couple of days we have seen a sharp fall in commodities. Check out Bespoke’s Commodity Snapshot to see how far commodities have fallen in just a few days. The goal is to buy low and sell high. Don’t be tempted to “follow the herd” and pursue the latest hot investment trends.

Good or Bad: The Federal Reserve Rate Cuts Will Impact You

noreply@blogger.com (Unknown) — Wed, 19 Mar 2008 21:01:00 +0000

I’m not happy with Ben Bernanke and the Federal Reserve over the past six months. Since last September, the Fed Funds Rate has been cut from 5.25% to 2.25%. The Fed is cutting rates because “financial markets remain under considerable stress.” In other words, the Fed is bailing out greedy and careless financial institutions. Mr. Bernanke, what about those of us who take care of our finances? Why should we pay for the mistakes of these reckless banks and brokerage firms?

How does a rate cut affect you? That depends on your financial circumstances.

Savings Accounts – Bad news for savers. CDs and money market accounts will drop with the Fed Funds Rate. Since last September, my ING savings APY% has dropped from 4.50% to 3.00%.
Mortgages – Fixed rate mortgages aren’t impacted by short-term interest rates. The bond market sets the long-term loans. Yes, the 30 year fixed rate has fallen approximately 0.4% since the Fed started cutting rates. But don’t thank Ben Bernanke for that.
Home Equity Loans and Lines of Credit (HELOC) – Good news for everyone who has a HELOC. These rates are tied to the prime rate. Since the prime rate moves directly with the Fed Funds Rate, you should be seeing a drop in interest rates.
Credit Cards – A lower Fed Funds Rate is good for everyone who carries a credit card balance. Credit card interest rates are tied to the prime rate. Be sure to call your credit card lender and ask for a rate adjustment.
Automobile Loans – New automobile loans will also likely see lower rates.

Just in case you haven’t noticed. Savers are penalized and spenders are rewarded. So how does a rate cut affect you?

Don’t Put All Your Eggs in One Basket

noreply@blogger.com (Unknown) — Mon, 17 Mar 2008 16:44:00 +0000

This is a quick reminder. If you have all of your 401(k) in your company’s stock, please diversify immediately. Haven’t we learned from Enron or Worldcom? I’m starting to hear stories about Bear Stearns employees who have lost their entire retirement accounts because they were not diversified. This is sad development.

Money Links (March 16, 2008)

noreply@blogger.com (Unknown) — Sun, 16 Mar 2008 12:19:00 +0000

Are you going to spend your economic stimulus rebate check wisely? I've already spent mine on a new Apple iMac. I hope the check arrives!

Ten ways to translate your passion into additional income.

Even at 90% off it's not a deal if you don't need it.

Download this free eBook Money Matters for All Ages brought to you by sixteen different personal financial bloggers.

Avoid major mistakes when you play the 0% credit card balance transfer game.

Be sure to check out this week's Carnival of Personal Finance #143 hosted by Quest For Four Pillars that included my post Can the Dow Reach 24,000,000 by the Year 2100?

My post Avoid Identity Theft – Don’t Go Phishing was included in this week's Money Hacks Carnival #3 hosted by My Dollar Plan.

Investment Advice in Unstable Markets

noreply@blogger.com (Unknown) — Sat, 15 Mar 2008 15:18:00 +0000

The stock market, measured by the S&P 500 is down 12.3% this year and down 17.7% from the all time high set last October. During this time, the stock market has been very turbulent, often up big one day and giving those gains back the next day. So what is an investor to do? A recent letter to Vanguard investors gives 4 tips for remaining calm in turbulent markets

1. Maintain a long-term perspective. I’m mixed on this advice. Yes, I do believe in maintaining a long-term perspective in my retirement accounts. However, I’m also a huge advocate of protecting my capital. In a bear market like we are in, sometimes protecting capital should be priority #1. Do you remember the last bear market of 2000-2003? The S&P 500 gave back nearly 50% from the highs. To quote Warren Buffet. "The first rule is not to lose. The second rule is not to forget the first rule. "
2. Tune out the headlines. Last month I wrote about the dangers of getting your investment advice from CNBC.
3. Be balanced and diversified. I maintain a diversified portfolio with a blend of index funds.
4. Have a plan and stick to it. It’s important to write down your financial goals. If you don’t know your investment goals, how can you possibly make the best investment decisions?

So what are you doing in this turbulent market? Are you sticking with your plan?

Is Your Local Economy in a Recession?

noreply@blogger.com (Unknown) — Wed, 12 Mar 2008 15:24:00 +0000

USA Today published a great article last week entitled How’s the economy in your hometown? The piece does an excellent job of explaining that economies are local. The article claims five states are already in a recession including Arizona, California, Florida, Nevada, and Michigan. Fifteen other states are “at risk” of slipping into a recession. The remaining thirty states are currently experiencing economic expansion.

My new hometown of Houston is holding up well. Unfortunately, my old hometown of Minneapolis is currently “at risk” of recession. Is your local economy in a recession? If so, my advice is to do your best to ride it out. Over the past five decades, the average recession lasted only 11 months. Yesterday, I explained how I prepared myself for a recession. If your local economy is at risk of a recession, the most important thing you can do is make yourself invaluable at work, get rid of debt, and improve your cash flow.

How to Prepare for a Recession

noreply@blogger.com (Unknown) — Tue, 11 Mar 2008 12:04:00 +0000

It is likely that the U.S economy is heading towards a recession in 2008. We may even be in a recession now. But what does this mean to you? Are you prepared for a recession? How do you survive in an economic downturn? In my opinion, if you aren’t prepared for the current recession, it may be too late. So start now and prepare yourself for the next recession. That’s exactly what I did.

The last recession in the U.S started in March 2001 and ended November 2001. I was not prepared. I nearly lost my job. I had a very small emergency fund. I had debt. I had a mortgage. I had a family to support. I was stressed and worried. As Harry S. Truman said, “It's a recession when your neighbor loses his job; it's a depression when you lose yours.” Fortunately I didn’t lose my job, but I vowed to never put my family in that position again. Below are the steps I took to prepare myself for the next recession.

I improved my job security. During the last recession, my company had several rounds of layoffs. To make the situation worse, the small community I lived and worked in had very few other professional opportunities. Rather than leave my company, I found an opportunity in a different department and relocated to a major metropolitan area. This allowed me to stay with my company and protect myself from future downturns. I still work for the same company and I’m very happy with the moves I have made.
I paid off debt. The only debt I had in the last recession was two car notes and a mortgage. But I also realized I would default on these loans quickly if my income suffered. I no longer have debt other than a mortgage.
I downsized. I downsized from two vehicles to one. Surprisingly, sharing vehicles with my wife is only a small inconvenience. My home is also much more affordable after relocating a second time.
I cut spending. I haven’t gone overboard but I’ve always been frugal. I’ve rejected temptations to spend on large ticket items. I've also avoided the "Keeping up with the Joneses" mentality.
I built an emergency fund. My emergency fund during the last recession would have went dry after only one month of unemployment. Due to my downsizing and spending reduction efforts, my emergency fund is now comfortably more than one year of living expenses. This might be a little extreme, but it feels comfortable and I’m currently earning approximately 5% on this money.

I recommend my readers take the necessary steps to prepare for the next recession. Start today and don’t panic. Put an action plan in place and work diligently to make it happen. Be consistent and practice patience. My plans took several years to come to fruition and it’s always a work in progress.

I’d like to hear what others are doing to prepare for the next recession. Please feel free to comment.

Stash Your Cash in Tax-Exempt Money Market Funds

noreply@blogger.com (Unknown) — Mon, 10 Mar 2008 12:18:00 +0000

Most of my emergency fund is laddered in CD’s currently averaging 5.10% yield with ING Direct. My last CD is set to mature in January 2009. The remainder of my emergency fund is earning 3.40% in an ING Direct savings account.

I’m a huge fan of ING Direct but I’m also a happy customer with Vanguard. I’m currently in the process of moving my ING Direct savings account to Vanguard’s Tax-Exempt Money Market Fund (VMSXX). The current yield is 3.22%. If you are in the 25% tax bracket, this is equivalent to a yield of 4.29%. Over the past year, VMSXX has returned 3.62%. This is equivalent to 4.83% in the 25% tax bracket.

The yield for VMSXX is based on a seven-day yield that is annualized. This yield can change every seven days based on supply and demand for the fund's holdings. So even though the yield is high today, this can change next week.

Also consider that Vanguard’s Tax Exempt Money Market Fund (VMSXX) requires an initial minimum investment of $3000. Keep in mind that money market funds are not FDIC Insured and even municipal money market funds are not completely risk free. However, I feel Vanguard has an excellent track record and reputation.

Money Links (March 9, 2008)

noreply@blogger.com (Unknown) — Sun, 09 Mar 2008 12:40:00 +0000

Find out where kids eat free.

A great list of alternative income ideas.

You should know the important retirement ages.

A great way to teach your preschooler the value of the dollar.

10 ideas to retire on less.

10 Signs You Have Financial OCD. I'm only guilty of 4 of these!

Avoid scam emails from the IRS.

Do you think we are headed towards a recession?

Another reason why I like ING Direct

Be sure to check out this week's Carnival of Personal Finance #142 hosted by The Baglady that included my post Is Dual Income the Right Decision for You?

How Do You Choose the Best 529 College Savings Plan?

noreply@blogger.com (Unknown) — Sat, 08 Mar 2008 15:02:00 +0000

A few weeks ago, a friend asked me to recommend a good 529 plan. I have 529 plans with New York. I originally started the New York plan because I was a resident of New York when I opened the plan and my contributions were deductible for state income tax. Now that I live in Texas, I still believe the New York plan is a good choice.

Selecting a 529 plan can be very confusing . In my opinion, there are to many plans to choose from. I counted over 100 different plans. To add to the confusion, almost every financial publication recommends a different plan so I wanted to do my own research and recommend a plan based on the criteria that is important to his situation. A great source for 529 plan research is Savingforcollege.com.

Below are the steps we took to determine what plan was best for him:
- We only considered the 529 savings plans and not the 529 prepaid tuition plans.
- We only considered plans that invested directly with the state so we could bypass the high fees and commissions charged by brokers. By choosing a direct-sold 529 plan you can invest without paying this sales fee.
- My friend lives in Minnesota so we reviewed the Minnesota state plan first to see if he qualified for special benefits. No benefits were offered to in-state residents so we researched other plans.
- We only considered plans with total annual fees less than 1%.
- We also reviewed the investment options. I’m a big fan of Vanguard so we took a closer look at the plans that offered Vanguard funds with the lowest fees.

We narrowed our search down to 3 plans all offering very low fees and Vanguard funds:

Iowa
New York
Utah

All three of these plans are a great choice. We felt the Iowa plan had the overall best Vanguard investment options with low total costs. Even though Utah has the lowest total cost, we felt the cost structure was a little confusing. Both Iowa and New York charge flat management fees. The Utah fee structure is based off quarterly account maintenance fees, program management fees, and additional expenses from underlying investments. That’s just too confusing. So my friend chose Iowa. For me, I’m sticking with New York since the differences just aren’t enough to justify transferring my plans to Iowa.

Avoid Identity Theft – Don’t Go Phishing

noreply@blogger.com (Unknown) — Fri, 07 Mar 2008 13:19:00 +0000

Many people have heard of phishing but still don’t understand the concept. Phishing is an attempt to fraudulently gain access to your username and password for an online account that contains sensitive information such as your credit card number. Phishing is commonly executed via email. Perhaps the best way to explain phishing is to show an example.

Below is a common phishing attempt received by my dad via email earlier this week:

From: "PayPal Inc"
Date: March 5, 2008 8:45:56 AM CST
Subject: Required Security Update
Reply-To:

Dear Customer,

As part of our security measures, we regularly screen activity in the PayPal system. We are contacting you after noticing an issue on your account.

We requested information from you for the following reason:

Our system detected unusual activity on your PayPal account.

Case ID Number: PP-316-510-158

Please click the link below and log in as soon as possible:

https://www.paypal.com/cgi-bin/webscr?cmd=_login-run(this is normally a link)

Once you log in, you will be provided with steps to restore your account access. We appreciate your understanding as we work to ensure account safety.

In accordance with PayPal's User Agreement, your account access will remain limited until the issue has been resolved. Unfortunately, if access to your account remains limited for an extended period of time, it may result in further limitations or eventual account closure.

We thank you for your prompt attention to this matter. Please understand that this is a security measure intended to help protect you and your account. We apologize for any inconvenience.

Sincerely,
PayPal Account Review Department

The above email allegedly comes from PayPal claiming “unusual activity on your PayPal account” and makes an attempt to look legitimate. Like many phishing attempts, this email tries to create panic so you immediately click on the link to investigate the issue. When you receive an email like this, don’t panic. Immediately delete the email and never click on the link. If you are concerned that your account may be compromised then contact your account provider directly.

Get Rich Quick? Not So Fast

noreply@blogger.com (Unknown) — Fri, 07 Mar 2008 01:32:00 +0000

I’m sure you’ve all seen the late night infomercials on television promising you easy riches. All you need to do is purchase their “wealth-building” materials and you are on your way to financial freedom. I don’t know anyone who has admittedly fallen for such a scheme so I had to obtain stories from Ripoff Report.

Lisa from Preston, Iowa comments on Don Lapre’s Making Money Package:

“I spent big bucks to get the internet pages for four companies and never got anything but a call from some other salesperson that told me they went bankrupt. The credit card companies are trying to help, but if they can not I will need help from elsewhere. Hope that someone can help. It was over 5000 that I sunk in this crap, I was desperate and depressed--- and stupid!"

Perhaps you’ve heard of Carlton Sheets and his Real Estate System. Don from Interlochen, Michigan writes:

“My wife initially purchased this product after a television advertisement. The commercial misrepresented the price of the program, which is over $500, as $120. The materials were received and were mediocre in quality, but she was determined to uphold her end of the deal. This organization waited until after the deadline had passed and then sent an invoice for over $500. The materials were all returned to this organization, and they realized that we were onto them, so they jumped the gun and accelerated the payment schedule to collect earlier than they stated, before we could stop payment on the credit card. Upon being called, they stated that they had closed the account, leaving a 'zero balance,' (after illegitimately collecting over $200.) They waited a month and then sent out a new bill, stating a new account balance of $48. These people are crooks and liars, and should be shut down.”

I'm interested to hear what my readers have to say. Have you been successful with these "Get Rich Quick" programs? Have you been burned? Please share your story.

Can the Dow Reach 24,000,000 by the Year 2100?

noreply@blogger.com (Unknown) — Wed, 05 Mar 2008 13:42:00 +0000

Yesterday I recommended lazy portfolios for long-term investing. To help make my case, I quoted Warren Buffet from his annual letter to Berkshire Hathaway shareholders.

Warren Buffet has many other interesting perspectives in his annual letter to shareholders including the following thought:

“I should mention that people who expect to earn 10% annually from equities during this century – envisioning that 2% of that will come from dividends and 8% from price appreciation – are implicitly forecasting a level of about 24,000,000 on the Dow by 2100. If your adviser talks to you about doubledigit returns from equities, explain this math to him – not that it will faze him. Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many as six impossible things before breakfast.” Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.”
- Warren Buffet

Price appreciation of 8% takes the Dow to about 24,000,000 by the year 2100. For investors who expect price appreciation of 10%, the Dow would reach astronomical levels. So the next time your financial advisor promises future returns of 10% per year, perhaps you should remind him at that pace the Dow would reach 158,437,353 by the year 2100. I don’t know about you, but this doesn’t seem achievable to me.

Use Lazy Portfolios for Long-Term Investing

noreply@blogger.com (Unknown) — Tue, 04 Mar 2008 13:13:00 +0000

I’m a fan of using a lazy portfolio strategy for long-term investments. A lazy portfolio consists of diversified, low-cost, no-load index funds or exchange-traded funds. Lazy portfolios implement the buy-and-hold strategy with occasional rebalancing. I finally became a convert after reading the excellent work by Charles Kirk. I recommend all my readers spend quality time reading his blog.

My lazy portfolio currently consists of:
45% Vanguard Total Stock Market Index (VTSMX)
45% Vanguard Total International Stock Market Index (VGTSX)
10% Vanguard Total Bond Market Index (VBMFX)

If you don’t believe me, perhaps you will take advice from Warren Buffet's annual letter to Berkshire Hathaway shareholders.

“Naturally, everyone expects to be above average. And those helpers – bless their hearts – will certainly encourage their clients in this belief. But, as a class, the helper-aided group must be below average. The reason is simple: 1) Investors, overall, will necessarily earn an average return, minus costs they incur; 2) Passive and index investors, through their very inactivity, will earn that average minus costs that are very low; 3) With that group earning average returns, so must the remaining group – the active investors. But this group will incur high transaction, management, and advisory costs. Therefore, the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group – the “know-nothings” – must win”.
- Warren Buffet

I’m convinced almost every investor should fire their highly commissioned financial advisers and brokers and implement a passive lazy portfolio instead.

Free Money Finance March Madness - Game 21

noreply@blogger.com (Unknown) — Mon, 03 Mar 2008 17:30:00 +0000

Be sure to check out Free Money Finance's March Madness. This is a competition between other financial bloggers. I am in Game #21. Check it out here and be sure to vote for my post Your House is a Home, Not an Investment.

Free Money Finance will donate $500 to a charity of the winner's choice. If I win, the Children's Miracle Network will receive this donation.

Diversify Your Financial Plan

noreply@blogger.com (Unknown) — Mon, 03 Mar 2008 12:48:00 +0000

Are you diversified? When investing in the stock market, we’ve all heard it's wise to limit risk by balancing your asset allocation between stocks, bonds, and cash. It’s also wise to balance your investments globally between different industry sectors and company sizes.

But are you diversified beyond your investments? Do you have a diversified financial plan? Or is your net worth comprised of a single asset, like your house?

A diversified financial plan should have a comfortable mix of assets spread among your retirement accounts, real estate investments, your personal business assets, and cash. A diversified financial plan also isn’t complete without sufficient life insurance, disability insurance, health insurance, and a will.

Like a diversified investment portfolio, a diversified financial plan will help you to reduce risk. Remember, “don’t put all your eggs in one basket." Take a hard took at all your assets and start to diversify today.

Free Money Finance March Madness - Game 13

noreply@blogger.com (Unknown) — Sun, 02 Mar 2008 21:17:00 +0000

Be sure to check out Free Money Finance's March Madness. This is a competition between other financial bloggers. I am in Game #13. Check it out here and be sure to vote for my post You Need an Emergency Fund.

Free Money Finance will donate $500 to a charity of the winner's choice. If I win, the Children's Miracle Network will receive this donation.