How To Choose Investments Based On Time

How To Choose Investments Based On Time
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What does Time have to do with your money?

First, it’s the driving force behind where you put that money. If you need it next week or next month, you’ll want to put it in a sort of parking garage with 24 hour security. That would be your checking account or a money market fund at your bank.

Where you put your money is related to when you need to use it. Learn this concept and you’ll be a smarter manager of your money. In this article, we’ll focus on 3 time periods for when you need to use that money, and where to put it.

Short-term: Today to 2 years
Middle-term: 2 to 10 years
Long-term: 10 to 40 years

Short-term: Today to 2 years

Very short term needs should stay in a checking or money market account. Slightly longer term goals can be met with 6-12 month Certificates of Deposit (CDs), U.S. Treasury Bills (T-Bills) or money market accounts. This could include savings for a house or car down payment, a wedding, the start of graduate school, or preparing for a possible lay-off.

You can also use a money market mutual fund. These are the mutual funds’ equivalent of a short-term parking garage. While you won’t get 24 hour security since there is no FDIC insurance with mutual funds, you can get access to a family of other investments. Stay focused on safety of principal with short-term savings.

Middle-term: 2 to 10 years

Where do you put any money you might need in 2-10 years? This gets a little trickier. Once you have your short-term funds (today to 2 years away) safely parked, you can put mid-term money into a low-risk but higher growth category. Longer term CDs (up to 5 years) can lock in a little better interest rate than short-term CDs. If we’re in a rising interest rate environment though, you risk locking in a low rate.

Another option is to move some money to a mutual fund company for the diversity a “family” of funds provides. Within the mutual fund industry, companies like Vanguard, T.Rowe Price, and Fidelity offer many mutual fund choices.

Here’s where you get to start testing your “water wings” if you’re a beginning investor. Look for mutual funds that emphasize safety and have a short to medium term focus for that 2-10 year time period. Read the prospectus or summary of the mutual fund. Each fund will tell you who it’s for, what’s inside it, and how it has performed over various time periods.

For example, a short-term bond fund may tell you it emphasizes safety of principal and is appropriate for short-term investors. An income fund may tell you it includes 60% bonds, 35% stocks, 5% cash, and is aimed at those who need regular income. You get to choose your level of safety balanced with growth.

Long-term: 10-40 years

Now, what do you do with money you won’t need for a long time, like 10-40 years? This is the category of money that really needs to emphasize growth for most people, as it’s often for retirement years. All of a sudden, you have many more choices. You can go mutual fund shopping and pick a basket of various Index funds if you want to minimize costs.

One formula for choosing funds–take the number 110 and subtract your age from that. The number left over is the percentage you can invest in stocks, the rest in bonds. This formula assumes you have an average to above average risk tolerance. For example, Jean, who is age 35, takes the number 110 minus (age) 35= 75.

Jean plans to invest 75% of her long-term money into a broad-based stock fund, and 25% into a broad-based bond fund. As she gets older, she’ll need to change the balance to own fewer stock funds near retirement age.

Target Date mutual funds do this adjustment for you. Pick a fund with a maturity date near the date of your retirement. The fund managers change the investment mixture over time to a less aggressive mix as you age. Sketch a time line estimating when you’ll need your money. Then invest with confidence.

The Top Mutual Funds & Your Best Investment

The Top Mutual Funds & Your Best Investment
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The top mutual funds are funds from mutual funds companies that are investor friendly. These top mutual funds are actually easy to find, and are probably the best investment for most people. Here’s how to find funds that work for you and give you a performance advantage year after year.

The top mutual funds offer you an investment advantage year after year and they can prove it. These are your best investment if, like most people, you need help managing your investment assets. I call them investor friendly simply because they do not charge you an arm and a leg when you invest money with them; plus they offer good service and a broad array of investment options.

Mutual funds are sold to investors and managed for them by mutual fund companies or families. Some market their funds through middlemen and pay professional money managers big bucks to actively manage their funds in an attempt to outperform their competitors and/or benchmarks. Then they pay big bucks to advertise. Who pays for all of this? Put another way, do you always get what you pay for?

Since NO mutual fund can prove that it consistently outperforms its competition, it makes no sense to look for the top mutual funds based on past investment performance. Middle- men can cost YOU sales charges of 5% or more off the top when you invest money.

Active professional management and high marketing expenses and other services can cost you 2% or more a year to just hold your investment. I don’t call that investor friendly. No, you do not always get what you pay for.

The top mutual funds, in my opinion, work with you and not against you by operating efficiently and honestly while passing the savings on to you. Some of the largest fund companies in America work directly with investors and offer good service at low cost.

In my opinion this represents the average investor’s best investment. Simply put, all costs associated with investing work to eat away at your investment earnings. For example, if you can get 2% interest a year at the bank, why pay 3% off the top and more than 1% a year to earn 5% or 6% in a bond fund?

Here’s how to find the top mutual funds that are investor friendly with low costs. Start by going to the internet and searching “no-load funds”. These funds have NO SALES CHARGES or commissions when you invest directly with the fund company. Then go to a couple of the sponsor sites at the top of the page. For example, Vanguard, Fidelity and T Rowe Price will likely be there. They are large mutual fund companies.

Then go to one of these sites and search for INDEX FUNDS. These funds do not actively try to beat their competition or benchmark (which is an index). They simply invest in line with the index to duplicate its performance. By doing this they save on management costs and pass the savings on to you. Since few funds consistently beat their benchmark, and many perform worse, why take a chance and pay extra for active management?

Check out the EXPENSE RATIO of the various index funds a company offers. Since these are no-load funds there are no sales charges, but all funds charge for yearly expenses. For example, you can find stock and bond index funds with expense ratios of less than ½% a year. Basically, that’s your total cost of holding that investment for a year. A low cost of investing gives you higher net profits, and works to your advantage year after year.

Investments: Leverage, Other People’s Money, Credit Report

Investments: Leverage, Other People's Money, Credit Report
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When someone mentions needing leverage, what comes to mind? Being that I work in the oilfield, the first thing that I think of is a cheater pipe. This is a tool that is placed on the end of a pipe wrench used to provide additional leverage.

The leverage comes in the form of additional force to tighten or loosen bolts or a section of threaded pipe. For investing, leverage is referred to as investing a small amount of capital or borrowing capital that yields a higher return in relationship to the money needed for the investment.

If you have ever taken a seminar on investing, I am sure that you have heard the catch phrase “Other People’s Money” thrown around like it is easy to obtain. One way we can leverage our capital by using “Other People’s Money” is obtaining a loan from a bank for an investment such as rental property. When applying for a loan you want the best credit score possible. A credit report is a good tool you can use to help you manage your credit rating.

Leverage – When investing, you want to leverage your money. By leveraging your capital, you can maximize your returns for your long term investments. This will allow you to grow your investments faster and on a larger scale. My primary concern with leveraging capital is growing too fast. If you are like me, you will stretch your resources to begin investing.

Although I have an exit plan for my investments to keep myself from getting in trouble with my finances, I can see how easy it would be to grow too fast once you have a little success with your investment strategy. I caution anyone leveraging their capital not to grow too fast.

The last thing you want to experience is an unforeseen problem with your strategy that would cause you to ruin your credit score. Always do your due diligence prior to leveraging your capital. As you obtain more experience in investing, you will be able to increase your leverage. Avoid being reckless with your investments.

Other People’s Money – This is a catch phrase that everyone likes to use when talking about investing. “Other People’s Money” is a form of good debt. This money typically comes in the form of a loan or credit. When planning to use “Other People’s Money” to leverage your capital, your return on your investment must be higher than the interest applied to the capital borrowed. When I use “Other People’s Money” I try to forecast excessive cash flow in order to reinvest in my investments.

Credit Report – One advantage of managing your credit through a credit report is to monitor your credit. A credit report will help you determine if someone has stolen your identity which could ruin your credit. It also shows your weaknesses in your credit report which could help you work on areas in an effort to lower your credit score.

The higher your credit score, the lower your interest rate you qualify for when applying for loans to leverage your capital; therefore, it is imperative that you have the best credit score possible to maximize your investments. For more information on credit reports see my guest blogger report Know Your Credit Score.

I try to focus on investments that allow me to leverage my capital. I also try to invest in assets that I have more control over. Although I do invest a small portion of my capital in the Stock Market, I do not use the Stock Market as the primary vehicle for financial freedom. The fact that we have limited control of the stock that we purchase and we cannot obtain a loan to invest in the Stock Market is the reason the Stock Market is not my preferred vehicle for my investments.

Five Ways to Pick a Charity and Feel Good About Your Choice

Five Ways to Pick a Charity and Feel Good About Your Choice
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Giving money to a worthy cause should be a personally satisfying experience. But for many people donating money is nothing more than the impersonal experience of writing a check. Busy folks might not have the time to be active volunteers for the charities they want to support. So, how to be more involved than just writing a check? Here are five ways:

1. Give Direct Consider donating directly to a worthy cause versus a big bureaucratic charity that simply divides up your donation into tiny amounts distributed among many different organizations. You decide which particular charity is worthy of your donation. Why leave that personal decision up to someone else?

2. Take the Time to Decide
It’s your hard earned money. Spend the time to think through what cause or organization you really care about. If you did have the time to devote yourself to a cause or volunteer for a nonprofit organization, what would it be? What stirs your passion? If you love animals, consider your local Humane Society.

You should be able to find a charter school to support, if educating children is your special passion. Of course the religious organization that promotes your faith is worthy of your financial support. But you can be even more targeted in your support by designating gifts to particular programs sponsored by the organization.

3. Ask to See Results
Modern technologies offer many ways you can see the direct results of your charitable giving from the comfort of your living room couch or office chair. Reports with digital photos can be emailed by staff in response to requests from donors. Most organizations have websites that are regularly updated with news about projects and the organization’s initiatives. Every donor has the right, and should exercise it, to see a nonprofit’s financials.

4. Read the Reports and Look at the Pictures
But you don’t need to immerse yourself in the financial minutiae of the charitable organization to feel involved. Enjoy the photos of those kids playing in the shoes you donated. Watch the video posted on the website of the well being dug in that remote mountain village. If you don’t have the time to pound nails, you can still enjoy the photos of the house going up.

5. Require Accountability
If you’re not an accountant and don’t want to audit the books of your chosen charity, don’t. Just ask to see proof that your money has been used in the way you directed. When you give money to the athletic department of your alma mater to purchase new jerseys for the basketball team, there is nothing wrong with asking for a team photo showing off the team’s new outfits.

Tracking your donation to make sure it has done what you wanted is your right. And don’t be afraid to ask what percentage of the nonprofit’s receipts goes to administrative overhead. Any organization that has hefty administrative costs may be more focused on paying its personnel than fulfilling the mission you want to support.
Americans are the most generous givers in the history of the planet.

Whipping out the billfold or writing a check to support worthy causes is a regular exercise of most Americans. The transaction can end as nothing more than a simple transfer of funds. Or, it can be the beginning of a satisfying relationship. When the charitable donor and the charitable organization engage in mutual sharing, both sides will find the relationship more meaningful.

Real Estate – Be a Contrarian

Real Estate - Be a Contrarian
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REAL ESTATE – The nature of a contrarian is to look at the general consensus and then act in the opposite manner. This can happen in any niche as we’ve just seen with Warren Buffet buying a railroad company, an investment he used to scorn! Well, you probably don’t have 30 billion or so to buy your own railroad company, but a huge contrarian opportunity exists in real estate at the moment.

Location, location, location – these are the three words chanted endlessly by those in the real estate market. While location is critical to a good real estate investment, so is time, time and time. The basic idea of any investment is to buy low and sell high.

This is why one of the mandates of real estate buying is to purchase the worst home on the block in a neighborhood. Over time, you’ll be able to fix it up and reap a huge gain in the equity while writing off your improvements once you sell the home.

Well, time is providing us with a contrarian opportunity now. Things in the economy as a whole, and real estate in particular, looked really ugly a year ago. The idea of a second Great Depression was gaining serious traction. It was a scary time and I’ll flat out call you a liar if you don’t admit you weren’t a tad worried as well at one point or another.

Well, flash forward a year and things have stabilized for the most part. The rampant fear is gone. Real estate markets haven’t improved much. In fact, many are still dropping in value but the movements are more of a trickle than an avalanche.

So, how does time play into this? Now is the time to buy. There may never have been a better time in the history of the real estate market. Think about it. The market has stabilized, but people are still doom and gloom. This is the perfect opportunity for a contrarian. You can jump in near the bottom of the market and ride that rebound to a huge equity gain.

Still have doubts? Let me ask you a simple question. Where do you think the real estate market will be in five years? The economy is going to return to normal and housing is going to return to its previous values or close to them. That presents a huge potential gain just begging you to come along for the ride.

Ah, but what if things don’t recover? What if the national debt goes crazy? What if housing completely crashes? What if we fall into a Great Depression? Well, so what? If these things happen, your money, 401k and so on isn’t going to be worth anything anyways.

If the planet is destroyed in 2012 per the Mayans [who must be miffed they are being marketed like this], it really isn’t going to matter what you did, so jump in and make some money today!
Step away from the herd. Look at things with your own eyes. What do you see? An opportunity to make money in real estate like we have not ever seen in this country. Take advantage of it!

Future Commodity Prices – US And Its Economy

Future Commodity Prices - US And Its Economy
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Compared to the past, the US economy is much weaker today. Despite this, its policies are still geared towards solving its short-term problems instead of its inherent long-term weakness. Such myopia will lead the US to an economic storm involving commodities. Let us now analyze the US’s strength today, flaws of its policies and their eventual impact on prices of commodities.

In contrast to the 1970s, the incoming crisis for commodities will be more severe because the US has increasingly lost its ability to increase the supplies of oil and other commodities. Also, the root of the demand supply squeeze then came from politics while that for the crisis arriving will be related to its fundamentals, being harder to solve.

To add on, during the 1970s, a reduction in US demand for commodities was strong enough to impact commodity prices. However, the US can no longer do so because developing nations now consume more oil than developed countries today. Thus, even if developed nations reduce their demand, developing countries won’t because their only way to grow involves the increase of demand for commodities.

Today, developing nations have to grow because they want to reduce unemployment. Thus, given the conflict if interests between developed and developing countries coupled with a reduced sphere of US influence, it will be hard for commodity prices to fall.

To make things worse, with the world having no more spare production capacity for commodities (since all are running out), we will be further threatened with a situation or rising commodity prices we cannot deal with. This is because we are sandwiched between rising demand (to grow) and dwindling supplies (rising scarcity), both having the ability to rip economies apart as their magnitudes build up.

Furthermore, to reduce commodity demand, the US must hurt itself first by engineering a recession and reduce consumption. However, it is unlikely to happen as US debt levels as % of GDP are higher today than that of the Great Depression. This is because the baby boom generation borrowed a lot of money to buy luxuries (especially homes) and necessities in the 1980s.

Moreover, government and business debt has been rising sharply. All these make it harder for consumers and businesses to pay off debt, reducing profits and in turn increasing unemployment and bankruptcies. Due to such unhealthy debt levels, the US economy is more vulnerable than before and thus even the mildest recession can become vicious in a very short time.

Because of this susceptibility, the Federal Reserve cannot create a recession and reduce consumption to push commodity prices down because it will hurt itself more in this process. This will threaten its position of supremacy in the world as other nations being in better shape can rebound faster than the US to take advantage of such changes.

In addition, given the high debt levels, the Federal Reserve’s main goal today is to maintain home prices as home mortgages make up the bulk of consumer debt. Compared to the 1980s, homes are far more leveraged today with home mortgages at 40% of home value against 27% then.

Because of this inherent weakness, any fall in home prices can increase bankruptcies and this will jeopardize the US financial system as this fall will pose a heavy threat to the survival of banks.

The government’s fear of recession has been clearly proven by the Federal Reserve’s immediate action to increase money supply and slash interest rates for the 2008 crisis. To make it more obvious, they bailed out Freddie Mac and Fannie Mac immediately as they carried more than 50% of US home mortgages worth US$5.4 trillion.

Thus, though the only way to reduce global commodity demand is by creating a US recession big enough to spread to developing nations, it is very unlikely to happen because of the dangers it can pose. To add on, such a recession is hard to engineer and can easily backfire if commodity prices only fall temporarily.

Hence, to conclude, given the few undesirable options available for decreasing global commodity demand, commodity prices will rise in the near future unless countries are willing to hurt themselves to reduce the prices. With the low likelihood of such solutions happening, there is a rather high chance for commodities to be a good bet for your future.