Why Shouldn’t I Just Buy An Index Fund?

Okay, on this one, I’ll start off by noting that, just like the idea of doing-it-yourself, it’s entirely possible that this could work, and in some specific time periods in the past it has worked. Of course, funds which follow the same index but are from different fund families behave a little differently, and within fund families there are funds which track dozens of different indexes. My English teacher would remind me that I should say “indices”, but I do what I do, and she does what she does.(That lesson did actually stick, I’m just having fun today.)

Let’s look at one of the most popular indexes, the S&P 500.

Lots of fund companies offer a version of this, which essentially is Read More …

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What’s A Dumb Financial Question?

Oh good, an easy question! ?

There isn’t one.
Say you came into my office and asked me a question, I explained the answer, and you nodded and went about your business, understanding a little bit of the answer but not really why or well enough even to remember a week later. Would I have done my job? Not really, or at least not yet.

That’s how a lot of information gets “shared” these days though. “Answers” are disseminated across the TV and the Web by people who know what they’re talking about and by people who don’t. Some of them are in official positions and so “should know” and others are not so official, like many bloggers, but could and do really know.

The opposite is also true,but what’s really important to you is, do YOU know? After all, it’s YOUR money.

Here’s my approach: Read More …

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Financial Idea: Should I Be Buying Gold Or Looking At Emerging Market Stocks?

Yes, if you don’t think what you’re doing currently is risky enough.

Both types of investments are what are known as “niche investments”, along with other examples such as high-yield or “junk” bonds, and they can seriously mess up your portfolio by introducing wide price swings that make it very unpleasant to stay invested for the long term.

Warren Buffett has said, among multitudes of things, that you should invest in something with the idea that you can’t trade back out of it tomorrow or anytime in the next three years.  In other words, that you should have the confidence in what you’re getting into that you can, while not ignoring it, be comfortable with holding it for the long term.

Taking that approach is going to keep your investment costs down for one thing, even when you’re paying a commission to trade.  It’s also likely to help you keep your stress levels down.  If you’re the sort of person who has to read the financial pages or watch the financial TV shows every day, you’ve gotten too close to the picture.  Imagine being in an art gallery and standing with your nose two inches away from a painting and pretending to able to objectively evaluate it.  That’s roughly the same thing.

Now, if you really like gold and/or emerging market stocks Read More …

Technorati Tags: Financial Ideas, Gold Investment Information, how to invest in stock, Investing strategy, Warren Buffett

How did dotcom companies become so overvalued in the late 1990s?

A great example of a dotcom company that suffered the classic fate of many in the 1990s was VA Linux.VA Linux specialized in hardware, computers and servers that used the Linux operating system as opposed to the Windows version. The founders, Larry Augustin and James Vera, had discovered a niche in the hardware business. In the throes of the internet boom, when a “back of the napkin” business model was considered too formal for the new paradigm, a profit-making tech company that was not traded publicly was unthinkable. Thus, VA Linux was cajoled into an IPO.

The VA Linux IPO was an extremely hot issue. In retrospect, it has become a good example of just how out of control the dotcom bubble became in 1999. On December 9, 1999, VA Linux shares went on sale at an offering price of $35. By the end of the trading day, they were selling at over $235. Later that week, they broke $300. Normally, a steep rise in share price is to be expected as unseasoned securities are snapped up and traded by speculators. A rise of almost 700%, however, would seem to suggest gross negligence on the part of the investment bank underwriting the issue. Not that the founders of VA Linux were complaining; in a single day, they had gone from owning a company of modest profits to paper millionaires - siliconaires, to use the lingo of the times.

Unfortunately, the VA Linux IPO came just before the dotcom bubble popped. Over the following year, Augustin and Vera watched their company shed value at an alarming rate. By April, their stock was down below $50. By December, it was trading for less than $10. In 2001, VA Linux flirted with becoming a penny stock. In 2002, the stock spent most of the year trading for less than a dollar. From 2001 onwards, VA Linux, renamed SourceForge Inc., reworked its business into a software development firm – a move that helped the company rebuild. In 2006, SourceForge recorded its first profit since its IPO. In 2008, the company has traded around the $1-3 range – a far cry from the $300 it once commanded.

This question was answered by Andrew Beattie.

Resource: http://investopedia.com

Technorati Tags: Financial Ideas, Investing strategy, Retirement

Is Tech Stock Hot? Technology Financial Ideas

My goodness… I guess it’s time for that one again.

So, why do I say that?  I mean, lots of gurus on the net are saying that.  It’s simple, lots of gurus are indeed saying that, and lots of other gurus are saying that this sector is hot or that sector is hot, and you’d be foolish to ignore them (so they say).  Other gurus are saying this sector is cold or that sector is cold, and you shouldn’t touch them with a ten-foot pole.

Keep in mind that the reason they’re saying what they’re saying is because they often are trying to sell you their newsletter with even more detail about whatever it is they’re touting, probably with recommendations you’ve never heard of.  That can only mean it must be a great secret that hopefully you still have time to cash in on……right?  They do this because it’s far easier to conduct their business at arm’s length with no regard for you or your unique purposes.

Read More …

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Financial Ideas for ‘Would-Be’ Small Business Owners

Hmmmm….I guess the first question here is “why are you starting a small business?”

You should know that generally speaking I think that starting a small business is a great thing.  After all, this country was founded by entrepreneurs running their own printing presses or stables or whatever, and now only about 2% of Americans have their own businesses.  Most of us think quite wrongly that we have no choice but to work for “the man”, but guess what?  “The man” is just one of us who has already figured it out.

While there are distinct advantages to being a W-2 employee instead of being a 1099 contractor or your own boss, for many people it’s just not the fulfillment or the freedom that they were looking for.

Okay, with that disclaimer out of the way, the answer to the question in the first paragraph might be one of the following: Read More …

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Some Financial Advisors Are Doing Well In Today’s Economy

Why is this? It’s because they have the presence of mind to step back and look at the big picture. Remember the chart in the last article (below) about saving money in an IRA for 50 years?

Look at the early years in that graph.

That was a test.

What are the early years? The first one, two, three? There’s hardly any difference between that and the start. “You mean I’ve been investing for three years with you now and I’ve hardly made anything? I’ll never get anywhere!”

Read More …

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Don’t Be Apprehensive About The Market!

“Oh, my gosh! Did you see what happened in the stock market today? It was down almost 120 points!”

Ever heard that before? If you haven’t, you will. The question is: should you listen? The answer is: only if you like being really depressed one day and really excited the next day, because that’s typically what happens? Sometimes we get really good days back-to-back and sometimes really bad days a few times in a row, but that’s still not stepping back far enough.

Let’s say you’re 40 years old, and you started putting money into the stock market 20 years ago. The S&P 500 was trading at approximately 340 points, compared to nearly 10,000 today. Or maybe you’re 50 and your start was 30 years ago. The S&P 500 then was trading for about 100 points. So between 1979 and 1989, the market tripled. Between 1989 and 2009, the market grew by 33 times!

Isn’t that a better concept to stick in your mind than what most of the media is alarming you with lately? Like a market down about 33% in the past two years?

The only reason – at all – to be concerned about the short term in the market is if you plan to retire in the next few years. If you’re younger than that or if you like your job, you should be taking advantage of the magic of compounding returns to get you in a position where you have choices! Having the choice to work or not work is a whole lot better than needing to work to make ends meet. That’s when you might have no choice but to be really aggressive, which can hurt a lot if things don’t go the way you hoped.

And don’t listen to people who say you can’t be too conservative, because you can be! Remember my article (below) about the Rule of 72. If you put all your money into CDs right now, your money will grow at a rate lower than inflation. I don’t know about you, but I’d like my money to double sooner than three to four (or more) decades!

Still confused about the right thing to do? Let’s talk, and create a plan that’s right for you and your family.

Email: John@financialideasblog.com

1.888.379.4352  Extension 1000

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What’s The Difference Between A Stock And A Bond?

This poses an interesting question because it highlights how many people really have no idea about the different type of investment “vehicles”, as they are often called.

*You know what “equity” is, right?

Especially if you own a home, it’s the difference between what you owe and what you own.  If you have a $300,000 house and you owe $200,000, then you have $100,000 in equity, or ownership.

Stocks are much the same thing, except that what you own is (typically) a VERY small piece of a major company.  In most cases, you’ve already paid for it in full, and therefore you own it outright with no debt.  (It is possible to borrow ownership, but that’s a level 200 course).

This is why stocks are often called equities, and vice versa.  Think of yourself as a part owner, you can attend the annual meetings and vote on issues as requested by the board of directors – using what are known as “proxy statements”.

You will probably have a very limited impact on the direction of the company unless you own 5% or more of the outstanding stock, what most people buy stocks for is to Read More …

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College Investing – Where Do I Start?

Lifetime Career Earnings:  H.S. Graduate Vs College Graduate

Finally, an easy question!  I wish I could say that the answer was just as easy to take, but it’s not, because college costs continue to go through the roof.
When I do a forecast for anyone saving for college, whether it’s for themselves later on or for their children or grandchildren, I forecast the college tuition inflation rate to be no less than 7%, which is twice the average inflation rate for the rest of the economy.

So, the biggest and hardest part to get through is going to be how much you might have to save and how early you might have to start.

In my neighborhood, there are dozens of young families Read More …

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