The Investor Dispatch

When Will Savings Account Rates Go Back Up?

2011-08-03T12:00:00.001-05:00

Some people claim that mattresses pay out better interest rates these days than savings accounts. While that is a bit facetious, many long-term savers have become dismayed by the extremely paltry savings rates that banks have been offering the past 3-4 years. Most banks currently pay interest rates less than 1%, and some pay much less than that. Obviously, savings accounts aren't a way for anyone to get rich these days.

About a decade ago, it wouldn't be that terribly difficult to find a bank that paid out 5-6% in interest. This makes a world of a difference for savers, especially those nearing retirement. If you had $100,000 in the bank, you would be collecting $5000-$6000 per year on your savings accounts, and nowadays, you'd be rather fortunate to be making a $1000 per year.

If you made your retirement calculations a decade ago, you probably didn't imagine a world of less than 1% in interest rates facing your account. So naturally, you're probably wondering--when will the higher rates return? There is not necessarily a clear answer. If the United States economy takes off again, then the federal reserve will start to raise rates. But as long as unemployment remains high, I doubt the federal reserve will raise rates. Ask yourself when you think American unemployment will once again return to the 6-7% range, and then you can get an idea of when you can expect to earn 3% or so on your savings account. The only way the federal reserve will raise rates is if inflation takes off or unemployment declines sharply.

When Am I Ready To Take Out A Mortgage?

2011-08-03T08:00:00.001-05:00

During this past decade, many of us became spoiled. Some banks were offering mortgages with hardly any money down, and others were offering future homeowners the opportunity to buy a house and only pay the mortgage interest for the first few years. Obviously, this was not a good formula for success. The recession of 2008 hit the housing industry hard, and it still hasn't recovered.

Because of this, banks have drastically sharpened their lending standards and criteria--some of this has been mandated by the federal government, and some of it is a desire by banks to take toxic assets off of their balance sheets. Because of this, future homeowners must go to greater lengths to prove that they can afford a home than they had to in years past.

This is not such a bad thing, though. The more money you can contribute up front to a down payment, the lower the amount of your wealth that you have to ship to banks in the form of interest payments. The best advice to follow is that you should prepare for a mortgage the same way our grandparents did. Make sure that you can make a 20% downpayment on a home, and do not purchase a house that exceeds 5x your annual income. If you follow this conservative advice, you will be fine in the long-run. You don't want to stretch yourself too thin and find the local bank foreclosing on you when another recession hits us here in a few years.

What Should I Do If I Get A Pay Cut?

2011-08-02T08:00:00.000-05:00

Pay cuts are awful. Most people assume that every year they spend on a job will lead to increased earnings. Who hasn't come to expect a 3-5% raise for each year they spend on the job? It's perfectly natural. Even though we all know that we shouldn't be counting our chickens before they hatch, we oftentimes do.

And that's a problem. We tend to think of stagnating wages as the enemy, but a sharp pay cut can be troublesome as well. Whether it be new ownership, poor performance, or a poor economic climate, there are plenty of factors that can cause someone to endure a pay cut. When this happens, you will probably feel the lowest you have ever felt in your life, and you'll have no idea where to go from here.

You might start shopping for a new job, think about quitting, or do both. You might consider protesting the pay cut, pointing to your superior performance in the work place, and demand that your employer reconsider their decision. However, let's say you are stuck with a pay cut--what should you do?

The first thing you should do is make sure you have enough money to cover your basic expenses--gas, mortgage, utilities, and food. If you no longer have enough money to meet these needs, you need to consider severely downsizing your living costs. If you are still earning enough money to meet these financial obligations, you should cut everything else from your life until your once again a secure financial footing. No matter what happens, you should avoid credit card debt at all costs. It will eat you alive. A year or two of pain on a low-income is much preferable to the alternative of jeopardizing yourself for decades to come.

When To Start Investing?

2011-08-01T08:00:00.003-05:00

I think that every household should have 2-3 months in expenses covered before they even begin thinking about investing. After all, when you buy a stock, you should be intending to hold it for the long-term. However, if you are short on cash to meet everyday expenses, you might have to sell some of your stock to meet your everyday needs. This is not a good situation.

Generally speaking, the odds are decent that the time you need to have money could also be a time when your stocks aren't performing well. Think about it--stocks go down when there is a recession because companies aren't making as much money. Do you think that you're more likely to need money during a recession or during times of economic expansion? Most likely, during a recession. If you have to sell your stocks at this time, you'll most likely have to take a 10-30% loss, and this is not a good way to live.

A much better approach would be to make sure that you have enough liquidity on hand. Lehman Brothers, the legendary Wall Street firm, was worth billions upon billions of dollars, but they went bankrupt in the fall of 2008 because they had tied up too much of their money and didn't have enough cash to meet everyday expenses. And the same could happen to you.

Get in the habit of regularly setting aside $50-$100 a month for an emergency fund, and quickly replenish any funds that you have to take out to meet a short-term need. If you get in the habit of regularly putting aside money, you will not have to jeopardize your long-term fiscal health. Having to put $1000s of dollars on your credit card is the surest way to shoot yourself in the foot, and you will end up paying 10%+ on your debt. You can't get ahead making these kinds of decisions. Focus on having enough cash on hand, even if that means scaling back your lifestyle, and you'll be surprised by how many of your problems will disappear.

Should I Not Pay My Bills If I'm Starting A Business?

2011-07-31T08:00:00.000-05:00

There is nothing harder than starting a business. Trust me, I know. When I first started blogging, I thought it would be a walk in the park. I thought plenty of readers would flock to my content, and I figured I'd be raking in hundreds of dollars within no time. Unfortunately, reality is much harsher than that--I haven't made diddly squat, and it's incredibly difficult to constantly think of topics to blog about. But still, I trudge on.

Likewise, it can be difficult for those starting a business to decide which bills to pay. You probably aren't spending a lot of time at the office if you're starting your own business--or even harder yet, you're not bringing in any income while your business tries to kick start itself off the ground. If you have to decide whether or not to pay your bills or keep your business dream going, the choice you have to make could be a daunting task.

What's worse--missing a water bill or having your dreams destroyed? Do you decide to throw that extra $500 at a business improvement, or do you skip a credit card bill? These are the types of decisions facing plenty of small business owners every day, and unfortunately, there is no clear right answer.

For me, I would make sure I paid my mortgage, electric, water, and other utility bills. These are essentials for basic living, and have to come before your business. For other costs, I would pay the bill, and then cancel the service so I could focus on my business. Who needs TV anyway--that just means more time you have to throw at your business. There is no clear right or wrong answer, but I do think the smartest thing you can do is pay for the bare essentials, cancel everything else, and the fanatically focus on growing your business. In the long-term, I think this will make you the happiest.

What Moron Doesn't Have Free Checking?

2011-07-30T08:00:00.001-05:00

I am absolutely astounded by the fact that almost a third of Americans belong to banks that charge a monthly fee for running your checking account. That absolutely shocks. I can't believe so many Americans are suckers for such a deal. Almost every credit union, and most regional banks, offer free checking. In fact, as of January 2011, more banks in the United States offer free checking than those that don't.

Which naturally begs the question--why belong to a bank that charges a monthly fee? Consumers give a variety of reasons, ranging from 'Well, I've always had an account with them' to 'It's only $5 a month' to 'They're a big bank. I can access them anywhere.' But this is dumb. As long as you have checks and a debit card, you do have a bank anywhere. Considering that an overwhelming majority of credit unions offer free checking (and generally better services in other areas as well), I cannot recommend highly enough that you consider putting your money with them instead of a bank that charges you for a checking service.

Generally speaking, the banks that charge you for checking are the types of banks that will nickel and dime you in other ways, be it high overdraft fees or ATM fees. You are doing banks a favor by keeping your money with them because it enables them to make loans. You don't need to make things worse by paying them a direct fee for the 'privilege' of you holding an account with them. That's just not a good way to live.

Is It Smart To Pay Off Mortgage Early?

2011-07-29T08:00:00.000-05:00

There is nothing more financially satisfying than being debt-free. For most people, a mortgage is the largest debt that they carry throughout their life, and it is a burden that they probably would be quite happy to get rid of. In fact, knowing that you own your house outright would probably lead to one of the most surefire feelings of financial security possible.

But there are some drawbacks to consider. You should only consider making extra payments on a house if you have a large amount of cash on hand, because if you lack liquidity, you could lose everything in a recession. Let's say you can afford to spend $2000 on house payments each month on a $1500 mortgage. If you throw that extra money into the house, and find yourself laid off in the coming years and unable to make a house payment, than you will run into quite a bit of trouble if the bank doesn't give you a home equity line of credit, and instead chooses to foreclose on your home. Instead, I recommend that you use the extra $500 a month to invest in blue-chip stocks and use the income it throws off to go towards an additional house payment. Think of it like this--that extra $500 a month, or $6000 a year, would give you $180 in dividends that you could use to go towards the house payment.

That way, if you do find yourself in dire straights at some point in your life, you could simply sell off the stocks to meet your needs. If you have to rely on your house as a piggy back, you could find yourself in for a nasty surprise.

Should I Use Coinstar?

2011-07-28T11:00:00.000-05:00

I've never understood why people put their money into a Coinstar vending machine. You have to pay 8-9% in commissions to the company just for the privilege of making change for your money, and the other options they present you with are just as bad. Depending on your location, you may be allowed to get your exchange fee waived if you agree to accept a Starbucks or Amazon gift card. This kind of defeats the purpose, though, because you will be blowing your money on coffee and online junk, which is probably what you would have done if you didn't have a coin jar in the first place.

I think there are two intelligent approaches to taking care of loose change which are vastly superior to paying a substantial convenience fee to use Coinstar. First of all, you should consider rolling up your coins and taking them into a bank to deposit into your account--that way, you pay no fees, and the money goes straight toward your savings. If by some chance your bank doesn't deposit change, or if you have a weird hang-up about coming across as the crazy cat lady with a bag full of coins, then you should consider purchasing your own automatic coin-counter machine that sorts the coins into the rolls for you. They only cost about $25 to $30, so after your first $350 in loose change costs, you'll come out ahead. Plus, you'll have an incentive to maintain your loose change because you'll have a cool machine that auto-sorts the money for you.

The Stock Market And Your Nest Egg

2011-07-28T08:00:00.001-05:00

If you are a stock investor, there is no time that you are at the mercy of the stock market quite like during your retirement. After all, if you buy shares of Coca-Cola during your 20s, 30s, or 40s, you can weather a stock market crash. All you have to do is hold your shares steady, reinvest the dividends, and then coming out owning more Coca-Cola stock once the economy improves. But, if the stock market crash of 2008 coincides with your retirement, then you do not have that luxury.

Let’s try this hypothetical example. You decide to invest in General Electric during the 1970s. After all, it’s a stodgy blue-chip that has been delivering excellent returns to its investors for over a century. Seems like a no-brainer, right? And then Jack Welch runs the company phenomenally well during the 1990s and early 2000s, as you pad yourself on the back for making such an outstanding investment. And let’s say you continued to hold the General Electric (GE) stock after you retired at the end of 2007. When the recession hit in 2008, the stock completely tanked, falling to as low as $6. And if you were relying on GE dividends to fund your retirement lifestyle, you would be incredibly disappointed to know that they reduced their dividend payments by over 75% during the recession. If you were relying on GE dividends to pay for your retirement, you would be out of luck—a very poor consolation for a lifetime of sedulous investing.

The moral of the story is to diversify your investments, and if a severe recession hits during part of your retirement, you should adjust your withdrawals to the best of your ability to make out only enough money so that you can ensure that you never run out of funds.

How To Cope With Reaching Credit Card Limit

2011-07-27T08:00:00.000-05:00

It's going to be difficult for me to do a post on how to cope with maxing out credit cards, because the odds are, if you've reached this point, you're in desperate lifestyle change. In fact, for most people, maxing out a credit card can be a sign that it is time to change your life's spending habits by either increasing your income or decreasing the amount of money that you spend.

But sometimes, life happens. Your car could break, your spouse could lose a job, and you could have to put food on the table for your family. Sometimes, you have to make do with a less-than-idea situation, and you have to figure out what to do if you're maxed out.

If your maxed out on your cards, you could try and open up another one. This is not something I would recommend, but, if you are still making your monthly payments on your other credit cards, you should be able to find another credit card issuer that will open an account for you if need be.

You could also call your bank and ask that they raise your credit limit. If you're already maxed out, the odds are decent that the bank will say no, but if you can provide a compelling reason for why you would need a credit increase, then you'll most likely get it. Especially if you make your payments to the bank on time, you might be able to do this.

These are only short-term solutions to a larger problem at hand. If you find yourself in the situation of having to increase your debt each month, that means every four weeks, you are getting further behind. This is not a good way to live. At that point, you should take a serious look at trimming your expenditures, or if possible, increasing your income.

How To Fix Bad Credit

2011-07-26T08:00:00.003-05:00

It sucks to have bad credit. Not only do you have to deal with higher interest rates, less forgiving terms, and the likelihood of rejection for certain credit requests, but you also have to contend with maximum limits and other restrictions placed on your borrowing ability. If you find yourself in a situation with a less than stellar credit rating, and you want to improve it, there are three easy things that you can do.

#1. By far the most important, don't ever miss any payments. Even if you're in the undesirable position of only being able to make minimum payments, you must be sure to make them. Nothing will lower your credit score like delinquency on debt, and if you're in the habit of missing payments, you'll never get ahead. It's absolutely imperative that you at least tender a monthly payment on all debts outstanding that you have.

#2. You should keep the gap between available credit (i.e. your credit limit) and the amount of credit you use as wide as possible. If you're allowed to borrow up to $5000 and you max your credit cards at $5000, you will not be seen as someone with a handle on your finances. Instead, you should get in the habit of spending less than $1 for every $5 in available credit, because your ability to resist using your total credit limit will make you seem like a better risk in the eyes of creditors.

#3. Keep a handle on the number of credit cards outstanding that you have. It's perfectly okay to have a Visa, Mastercard, and American Express card, but when you start to have a credit card from every department score that you frequent, you start to have problems. Odds are, if you a Uncle Jack's Liquor store card, you have too many.

This is the most straightforward way to start rebuilding your credit.

What To Do After Bankruptcy

2011-07-25T08:00:00.000-05:00

Whenever an individual or a couple declares bankruptcy, they often feel miserable and have no idea where to begin their rehabilitation. But of course, there is light at the end of the tunnel, even if it's not apparent at the time. The smartest thing you can possibly do in your recovery from bankruptcy is to begin to build a cash reserve to the best of your ability. Hopefully, you can scrounge out $300-400 off the bat, and then add $50 per paycheck to the reserve, so your safety cushion can grow over time. Credit card companies and other lenders aren't going to be doing you any favors--your odds of getting favorable credit terms after filing bankruptcy are about as likely as the Cubs winning the World Series this year--I wouldn't bet on it.

The smartest thing you can do is get in the habit of making your purchases with cash as you build up a slowly growing emergency fund. If you want to rebuild your credit score, the best thing you can do is use prepaid debit cards. There is no way that you should be applying for a credit card at this point in your life--after all, it is most likely that the irresponsible use of a credit card played a role in leading you to bankruptcy. Instead of focusing on getting back on the credit card game, you should try and establish footing by building cash reserves and increasing your liquidity. If you can get in the habit of having a little bit more cash on hand each month than you had the previous month, you're going to position yourself to do well in the long run.

Eliminate Credit Card Debt put out a wortwhile piece on the topic, and the consensus disagrees from mine, but I still recommend it as a read. Be sure to check it out by clicking here: http://eliminate-credit-card-debt.us/click-here-to-help-and-is-now-out-of-debt-2-753.htm .

The Paradox of Thrift

2011-07-24T08:00:00.001-05:00

One of the more amusing paradoxes that surfaces up in textbook economics is known as the 'paradox of thrift,' which occurs when one person engages in a financial beneficial action, but has negative consequences when the whole country does it. For instance, let's say that, going into the 2008 recession, I had $20,000 in debt. When the economy tanked, I got spooked, and vowed to never get into that type of poor fiscal health again. Like a responsible adult, I kept my vow in 2010 and 2011 as the economy slowly but surely began to improve. Instead of going out and increasing my purchases, I use my excess disposable income to pay down my debt and improve my finances.

This is perfectly logical, smart, and leads to long-term financial security. But what if an entire country engages in this practice? The economy needs consumers to spend money in order to grow, and if consumers are paying down their debt instead of enjoying fancy meals and luxury goods, then it hampers economic growth, employment, wage increases, etc. It seems incredibly counter-intuitive that being responsible with your money doesn't add to the country's growth, but it doesn't matter. Getting in a position where you are no longer suffering from bone-breaking debt is the most important goal, and if that means it takes you longer to contribute to the GDP, then so be it.

Wall Street Daily recently put out a good post on this very subject: http://www.wallstreetdaily.com/2011/06/24/investment-news-in-perspective/ .

A Beginner's Guide To Couponing

2011-07-23T08:00:00.001-05:00

The rise of the recent television show 'Extreme Couponing' has led many Americans to look for ways to save on groceries. The prospect of only having to spend $25 on a regular $150 shopping bill excites a lot of people, but unfortunately, this is not going to be the reality for most of us.

First of all, do you really think that Wal-Mart can afford to get in the habit of giving out absurd discounts such as 75% off and remain a viable business? Of course not. Extreme couponers often do not use coupons in the manner intended, and some of them cut ethical corners to achieve their ends. Now you may be thinking, 'That's too bad for Wal-Mart, I want to save money.' Even if using coupons intended for six packs of soda on $.99 cent 2-liter bottles doesn't bother you, there's still some trade-offs that you have to make if you decide that extreme couponing is right up your alley.

You're going to have to start making your purchases and large quantities, even if you don't plan on using it for awhile. Does the prospect of owning a hundred tubes of toothpaste sound interesting to you? Also, you'll more than likely found yourself buying items that you don't need simply because you can get a deal on it. You weren't planning on buying more soap, but hey, it only costs .25 cents, so why not? This is one of the traps that most couponers get caught in. And of course, you'll never be satisfied, because you'll always believe that you could have gotten a better deal, if you just tried harder.

The most intelligent approach to couponing is to look at the coupon offers in the local Sunday newspapers, decide which products you need, and make your purchases accordingly. That way, you'll find yourself buying $100 worth of goods for $65-$75. While it may not provide you with the absurd savings that you would enjoy with the extreme couponing life style, it will allow you to know that you have used coupons the way that they were intended, and you will also be able to keep your mental sanity, which isn't a bad trade-off, in my opinion.

If you want to read a good article on couponing, check out Daria at savingtoberich.com by clicking here: http://savingtoberich.com/2011/07/mondays-money-tip-beginners-guide-to-couponing/ .

Make Money With A Rental Home?

2011-07-22T12:00:00.000-05:00

It seems like an easy extension of the American dream. You take out a $100,000 mortgage on a house, buy a nice suburban property, plop a 'For Rent' sign up, find a buyer, and then watch the money roll in, right? Let's say you can negotiate a $1,200 mortgage payment on the house, and then charge someone $1,500 a month for occupancy. Not a bad deal, eh? Not only would you be paying off a mortgage so that you'd one day have an additional property under your belt, but you'd also make a little something for yourself, right?

Unfortunately, it's not this simple. There are so many caveats with associated with owning a rental property that it's an absolute shame and disservice to the American people that they are not always aware of what they are getting into when they decide to take on an additional home. First of all, what happens if you can't find a renter? Do you have $1,200 in disposable income each month as a back-up to get you through the monthly mortgage payment if you don't have an occupant? What if they occupant doesn't pay one month? What are you going to do? Are you prepared to temporarily bridge the difference, lest you have to pay exorbitant late fees, or, if the situation gets bad enough, eventual foreclosure?

But let's say you are indeed fortunate enough to look in an occupant. What happens when the house needs a new rough? The basement floods? The air conditioning breaks? Basic repairs could not only undo any financial gains purchasing the property might give you, but additionally, they could sink a lot of your time, causing stress and needless headaches. Are you prepared to take on this liability with limited gain? I'd rather soak my money into high-quality blue chip stocks like Johnson & Johnson or Coca-Cola than face the uncertainty of bringing on a rental home. If you want to read a great article on the types of decisions facing home buyers, I'd like to reference you to this gem over at Mint.com by clicking here: http://www.mint.com/blog/goals/home-buyer-beware-pros-and-cons-of-different-property-types/ .

Is My Home An Investment?

2011-07-22T11:00:00.001-05:00

I am a big believer that people should treat their houses as homes, not investments. An easy trap that home-buyers can easily fall into is the false hope that a home purchase will become a source of riches for years to come. Another disappointing decision-trap that diminishes the long-term wealth of home-buyers is when they decide to use their home as a piggy bank, draining the equity from their home to meet their financial needs today.

First of all, home price appreciation generally corresponds with the inflation rate. Since the early 1970s, home prices have gone up, on average, just shy of 4% per year. Meanwhile, since 1970, the rate of inflation in the United States has been about 3.1-3.4%, depending on where you live. When you factor in property taxes, home upkeep, and financing costs, you will be fortunate to find yourself breaking even on the purchase of your home over the long-term. Especially considering the fact that American large-cap stocks have returned about 10% per year since 1970, it seems incredibly self-evident that high-quality stocks should be the place to park your investment capital, not homes.

To be fair, there is one advantage with homes that you won’t find with stocks—they’re much more tangible. If you a company’s stock, there is always the small, outside chance that management is faking earnings and cooking the books. Generally speaking, you can’t fake the existence of a house. There is very little chance that your home will lose 70-80% of its value, and an almost 0% chance that your home will ever be worth $0. Of course, the same thing can’t be said for stocks. However, if you get in the habit of buying a dozen or so firms with strong earnings potential and hold them for the long haul, you will do phenomenally better than if you consider your home purchase to be an investment.

Is Being Frugal Always Good?

2011-07-22T08:00:00.000-05:00

One thing that I find particularly important to remember is the fact that too much of a good thing can have disastrous consequences. It's possible to exercise too much (and develop knee and other joint problems), it's possible to drink too much water (you can flood your kidney or cause electrolyte imbalances), and yes, it's possible to be too frugal. Of course, one thing that is usually in the eye of the beholder, and draws a lot of interest on personal finance blogs, is the difference between being cheap and being frugal. My best advice on determining the difference would be to use this rule of thumb. If whatever action you're considering would appear in the following day's newspaper, ask yourself, 'Would I be proud of my thriftiness or would I be ashamed to see my actions plastered across the front page?' By honestly answering this question, you can go a long way towards determining the ethical validity of your action. Shortchanging a waitress at a restaurant by declining to leave a tip is cheap. Buying a new-looking Brooks Brothers suit at Goodwill for $7.50 is frugal. So to answer my hypothetical question, I would add that it is always good to be frugal (properly understood), and it is always desirable to avoid being cheap.

If you're in the mood for reading a great article on when it's okay to say goodbye to frugality for a night of importance such as an anniversary, be sure to check out Frugal Dad's article here: http://frugaldad.com/2011/07/07/a-frugal-marriage/

What Lowers Your Credit Score

2011-07-21T12:00:00.001-05:00

As important as it is to go over and repeat the wise decisions that lead to establishing a credit history and building your credit score, it's also important to remember the two dumbest things you can do to lower your credit score. The first one ought to go without saying, but it bears repeating--make your payments! In a perfect world, you will have $10,000 of revolving credit access each month, only spend $1,000 or less on your credit card each month, and then pay it off promptly when the bill arrives. But unfortunately, this is a far-off dream for too many people. Life happens, and it's easy to let debts rack up when unexpected expenses enter your life. But I cannot stress how important it is to regularly be making payments on your card. Nothing, with the exception of bankruptcy, can quickly wreak havoc on your credit-worthiness reputation like not making payments on your credit card. The only thing faster than a light year is the amount of time it takes a credit card company to report to an agency that you missed a payment.

The other dumb thing you can do is acquire a hodge podge of credit cards from a bunch of different companies--all of which you use--and then make minimum payments on. Not only does this cripple you financially, ensuring that you ship off a portion of your hard-earned wealth to the credit agencies each month, but it also lowers your credit scores. Credit-card companies don't like to see you putting $1,000 on that Kitty Litter card, that Clock Magic account, or whatever other odd-ball account you create. But these are just two of the biggest errors you can make. If you want to check out a great article on the types of things that can lower your credit score, be sure to check out this post by the guys over at One Money Design by clicking here: http://www.onemoneydesign.com/what-can-affect-your-credit-score/ .

Fall-Out For CEO of News Corp, Rupert Murdoch

2011-07-21T11:00:00.002-05:00

News Corp, the communications firm run by media mogul Rupert Murdoch, has found itself in hot water recently as phone hacking allegations at one of his newspapers, News of the World, has raised serious questions about the journalistic ethics and standards of decency at his firm. News Corp stock has been underperforming the market since the scandal hit, trading in the $15-$16 range from a high of $19 earlier this year. Murdoch has responded to the allegations by shutting down the News of the World, and recently testified before the British Parliament that his newspapers’ indiscretions have led to ‘the most humble day of [his] life.’

Critics of Murdoch have alleged that he has finally received his comeuppance after running a newspaper that has been willing to air the dirty laundry and political secrets of those whom he has covered. Others have alleged that Murdoch has used his vast media empire to intimidate others from speaking out against him because he has such a strong presence in the press. To get an idea of what Murdoch controls, here is a list of some of News Corp’s most notable holdings: 20^th Century Fox, Fox Broadcasting Company, STAR TV, Fox Sports Net, National Geographic Channel, americanidol.com, askmen.com, hulu.com, UK’s The Sun, UK’s The Times, UK’s The Sunday Times, The Daily Telegraph, The Herald Sun, Barron’s Magazine, Marketwatch, The Dow Jones News Wire, and of course, The Wall Street Journal.

Because of the ethical concerns at the British publication The News of the World, some individuals have called into question the ethics of Murdoch’s other holdings as well, and most likely Murdoch’s greatest fear is that his American holdings will take a reputational hit from his fallout with the British press. This scandal has already prevented Murdoch from buying other broadcasting networks, and it is going to be interesting to see how this scandal affects Murdoch’s influence in the coming years.

How To Start Investing with $1000 or Less

2011-07-21T08:00:00.000-05:00

One of the hardest things facing beginning investors is getting started with a plan in the first place. Not only are there hundreds of decisions swirling around facing each investor--whether to buy stocks, bonds, mutual funds, real estate investment trusts, or whatever, but each investor has the burden of finding a low-cost provider so he doesn't have to burn a lot of his hard-earned savings on trading fees and commissions. If you open an account with a brokerage house, the odds are high that you will have to pay a trading fee each time you purchase shares, ranging from a few dollars ($4.95) to a more substantial chunk of change ($29.95).

I highly recommend that you visit websites such as Computershare (formerly Equiserve) or BNY Mellon. They give you the opportunity to regularly purchase large-cap stocks with fees ranging from nothing to a few dollars per transaction. If you're reality is that you will be investing less than a $1000, then you can't afford to be spending $20, or even $10, on a purchase. Those fees will eat you alive. That's why finding a company participating with either Computershare or BNY Mellon is intelligent, because the fees that you will be spending on trades will be far lower than you will find with a typical brokerage house. The Passive Income Earner recently put out a great article on accumulating wealth slowly by investing your money into direct purchase stocks, and I recommend that you visit his link by clicking here: http://www.thepassiveincomeearner.com/2011/06/how-to-start-dividend-investing-with-little-money.html .

Would Warren Buffett Buy Airline Stocks?

2011-07-20T12:00:00.000-05:00

One of the most uncharacteristic stock purchases in Warren Buffett's storied history was his acquisition of JetBlue Airlines shares in the late 1980s. Buffett sold his shares in JetBlue Airlines several years later, vowing to never again invest in airline stocks. The airline industry is the only sector of the economy that, as a whole, has lost money over every rolling ten year period since 1965.

These are not places to make easy money. Airlines have to contend with fixed labor costs, fixed prices of seemingly ever increasing fuel charges, and very intense competition. The margins are slim, often wiped out by fuel charges or plans not carrying fuel capacity, and I don't think you'll be hearing stories of an airline sustaining and raising a dividend for a half century, like we have seen from some of the best companies on the Dividend Aristocrat Index. The only blessing in the industry is the relatively high barrier to entry, but given its awful track record, and given the fact that oil costs can offset any profits, I don't see any long-term wealth creation in the airline industry. When you could purchase a company like Johnson & Johnson, which has billions of dollars in profits from over 1,000 different sources, and has been steadily increasing its dividend for 50+ years, how could you justify buying an airline stock? I just don't see it. Mark at Buy Like Buffett points to some of the difficulties in the airline industry, and I recommend that you check out his great thoughts on the subject by clicking here: http://buylikebuffett.com/buy-stocks-2/why-you-should-stay-away-from-airline-stocks/ .

Border's Shut Down Marks End of Era

2011-07-20T10:00:00.000-05:00

I find the recent Borders announcement to shutter the remaining 399 stores to be incredibly sad. Not only does the dissolution of Borders mark the end of an era for those of us who have ever spent a few days and evenings in tucked away in the corner of a bookstore sipping a coffee, but the shareholders who bought stock in Borders over the years are now left with nothing to show for it.

And it didn't necessarily have to be that way. Unfortunately, Borders lost the faith of its creditors and vendors during the 2008-2009 recession, which exacerbated their financial difficulties. Instead of having the option to pay book agents and publishers ninety days later, these folks started demanding payment upfront because they questioned Borders' ability to pay them back. Well, this only made things worse. Borders was in no position to meet these demands--book sales were down because a lot of shoppers found ways to buy the exact same products online for only a fraction of the price, and Borders business model broke.

They had to pay high rental rates on the stores they used, and they simply weren't able to get enough customers to throw out $29.99 for a new hardcover book release. When the country is in a recession, someone is going to just go online and buy the same book for $5 instead of spending $30. The cracks in the business model had been getting bigger as online retail became increasingly entrenched, and an American recession finally drowned this pillar of the literary community.

What Are Target Date Mutual Funds?

2011-07-20T08:00:00.000-05:00

The recession of 2008-2009 taught us that target date mutual funds may not provide investors with the protection that they had in mind when they made their initial purchase. The general expectation of target date mutual funds is that you are theoretically able to buy a mutual fund that will get more conservative as you get closer to retirement age.

However, many investors who had purchased 2010 Target Date funds lost anywhere from 10-30% in their target date funds, which would definitely qualify as 'less than ideal' if you were planning to retire in the past couple of years. Some people may assume that target date funds will shield you from big losses in the years before your retirement, but the truth is, the different funds offer different kinds of protection to investors. For instance, Fidelity target date funds increase bond holdings substantially as retirement comes closer, based on the logic that those seeking retirement will be concerned about protecting against losses. T Rowe Price, on the other hand, has a whole host of target date funds that hold more stocks, and are generally riskier, than other target date funds, so you should expect more volatility from their funds in the short-term, but higher price appreciate to compensate for that risk in the long-term.

Obviously, this should go without saying, but you should be sure to read thoroughly your investment prospectus before buying any security. Jim Yih at Group Benefits Online wrote a great article about target date funds, which you can read by clicking here: http://groupbenefitsonline.ca/a-target-date-fund-makes-investing-easy/ .

Bill Miller's Legg-Mason Fund

2011-07-19T12:00:00.000-05:00

The numbers are out. Over the past decade, Bill Miller, the once-esteemed fund manager of the Legg-Mason fund, has trailed the market by a several percent per year. Throughout the 1990s, Bill Miller became one of the darlings of the fund industry, constantly churning out returns that stomped the market at-large. Regarded as a financial genius, Bill Miller acquired almost $1 billion in his fund. Now, the pendulum has swung in the other direction as the stocks that Bill Miller has purchased have fallen out of favor.

Not only does this demonstrate just how quickly yesterday's stars can turn into today's burnouts, they also demonstrate the futility of trying to time and beat the market. If Bill Miller, a very intelligent man who had beaten the stock market for over a decade and a half, can lose his prowess and start underperforming the market, then what basis does the average investor have for thinking that he or she can achieve market superior returns? Of course, the right answer is that low-cost index funds, such as those found at Vanguard, are the safest way to bolster your retirement savings, as your general returns will be quite similar to the overall market, minus the frictional expenses. Robert Wasilewski over at RW Investing wrote a great article on Bill Miller's falling out of favor in the fund industry, and I highly recommend that you check out his article here: http://rwinvesting.blogspot.com/2011/07/legg-mason-10-year-results.html .

Are Bonds Good Investments Right Now?

2011-07-19T08:00:00.000-05:00

Now is an awful time to buy long-term bonds. The interest rates are currently less than 1%, which means that they are much more likely to be higher five years from now than they are today. I certainly wouldn't bet that interest rates will be lower in 2015 than in 2011. Of course, if you're near retirement, or if you're looking to allocate part of your assets to the 'safe compartment' of your overall savings, then you might want to buy bonds even if the rates aren't all that great right now.

One of the better deals out there available to investors is I-bonds issued by the federal government. You can purchase them at face value, and they are guaranteed to never fall in value, and you earn an interest rate determined by a fixed rate and the inflation rate as measured by the Consumer Price Index. Right now, that rate gives you interest between 3-4%. That's pretty good, considering the interest rates on other safe alternatives yield a paltry 1-2%. Most likely, as the United States continues to inflate its way out of the debt, the savings accounts will yield more, but unfortunately, that will be offset by the fact that goods will cost more to buy. To read a good article on the pricing of bonds, be sure to check out this article over at Michael James Money: http://michaeljamesmoney.blogspot.com/2011/07/bond-misconceptions.html .