Monthly Archives: April 2012

How to Dodge Investment Scams

If you have only just started to consider the options you have in terms of investing your money, you will no doubt be considering lots of different investment opportunities. It makes sense to see how many options you have and what they are, because this is the only way there is to be sure you choose the best financial investments for your needs.

But at the same time you do need to be very careful of straying across scams of various kinds. We’ve all heard of Ponzi schemes and we all think we wouldn’t fall prey to them. But whether this is true or not, there are still many other types of scams out there that could be waiting around the corner to tempt us.

So how can you be sure you don’t get caught out? Here are a few things to be aware of.

Always do your research

Research is critical before making any kind of investment. But if you have come across an investment opportunity offered by a company you have never heard of you definitely need to put this tip into action. You also need to give it special consideration if you are looking into a new type of investment you may not have knowledge of.

Doing your research takes time, but it is better to spend time researching something now rather than wishing you had later on, when you’ve lost money on something that looked and sounded good at the time.

And remember, if anyone tries to tempt you with an opportunity but isn’t very keen on providing information about their business history or investment history, say goodbye and walk away.

Remember the golden rule…

This applies in lots of different areas in life, but none more than finances. The rule is this: “If it sounds too good to be true, the chances are it is just that.”

If you bear this in mind you can reduce the odds of being tempted by something that sounds terrific but in reality probably just wouldn’t work.

Don’t assume all dodgy scams are internet based

There are certainly a number of investment schemes that have glossy websites and much more besides to back them up. But they are not restricted to the internet, and indeed they began long before this particular medium came to fruition.

If you are approached by anyone who has news of an excellent investment opportunity, make sure you check them out just as you would with anything else in life. Don’t let them make the decision for you.

Finally remember there is no such thing as a sure investment. It is quite common for people to tempt you to join one scheme or another now because it is about to close. Never rush into something for fear of losing out. You could well lose out if you do rush through the door before it is closed in your face. It always goes back to that first point – the need to do your research.

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Important Home Insurance Factors

When dealing with home insurance, many people notice how certain factors or information can change the overall policy.

Whether it increases or cuts down the premiums, there are certain facts that home insurance companies like to look out for. Understanding how this works, and why these companies focus on such information, can give you a better insight into the business.

Furthermore, understanding how and why this works will help you receive the best home insurance, as you can negotiate and discuss your options on an equal footing if you both know where the major problems are.

Age of the Home

This is one of the more common priorities. Simply put, an older house will more likely cost more to insure than an old one. The main reason for this is the choice of materials. More modern materials are designed with safety and structure in mind and older houses simply don’t have these.

Older houses feature the likes of wooden beams and supports, which are an obvious fire hazard. Since an accidental repair is theoretically more expensive in this regard, as well as the potential costs of replacing or repairing damages to match the original quality, the insurance has to cost more to cover this.

Historic buildings

Furthermore, listed buildings or historic buildings will often have increased costs. This is because their current standard needs to be maintained where possible, and any repairs often have to be with the same materials to replicate the existing work, similar to a restoration project.

These additional costs are considered heavily by your insurance provider, as they are the ones covering the costs if something goes wrong. This can also go for areas such as the greenbelt and countryside, where the local council have strict rules on your homes appearance.

In summary, there are many factors that indicate home insurance quotes. You may not be able to lower them all, but knowing where the problem lies can often lead to a few solutions to drive down the cost.

Surviving the Recession with Your Investments Intact – Best Moves to Make

The Great Recession may be on a downhill slide, but we’re nowhere near the end. Everyone has heard horror stories of people nearing retirement who were forced to helplessly stand by and watch their 401k accounts plummet in a matter of months. Others saw mutual funds and other investment accounts bottom out as well.

These are scary times, and emerging from the recession with your investments intact is one of the highest financial priorities for American families today. Here are some ways to survive the recession without losing your shirt.

Diversify, Diversify, Diversify

Can’t say it enough. You’ve likely heard the expression “don’t put all your eggs in one basket” many times in the past, I’m sure. Financial advisors spout the old adage in droves, and for good reason. Diversifying your investments has always been sound financial advice, but the recession has transformed the idea from a recommendation to a necessity.

To come out of the most historic economic downturn since the Great Depression with your money intact, it’s imperative to mix up your investment vehicles. Think real estate, savings, CDs, bonds, mutual funds, and retirement accounts. Spread the love and you’ll weather the storm far more effectively than your “sink everything into the old IRA” counterparts.

Stick to the Right Stocks

If you’re still investing in the stock market during these trying times, that’s okay. Many people are avoiding investing in stocks altogether, and this strategy isn’t necessarily a great one. You can still invest in stocks during a recession; you simply need to ensure you’re picking the right companies.

Although no stock is 100% safe, there are some companies in which it’s just safer to invest your money in during a recessionary period. Stick to massive, established companies that have lengthy business histories. When you adopt this strategy, you’re essentially picking brands that have the goods to withstand long stints of market weakness.

Some characteristics to look for in the companies you’re considering include those that have strong balance sheets, strong cash flow, and only a small amount of debt. Established companies with strong cash flows are the safest stock picks during a downturn because they have a greater chance of riding out the storm until it passes and emerge stronger than ever.

Protect Your 401k

Taking some smart, defensive action is a great way to protect your retirement account from getting whacked when another recession rolls around. One personal finance blogger over at Money Green Life saw his 401k suffer a 50% loss in 2008, when the market took a 45% nosedive. He was determined not to make the same mistake twice, and in 2011, when the S&P 500 was down 8%, his 401k was enjoying a 0.1% gain for the year.

How did he do it?

First, he taught himself more about his 401k and the investments that comprised it. He shifted all his money into the money market fund, which, as he points out, is essentially 100% cash. His plan was to ride out the recession by sitting on the sidelines until the storm passed and reinvest his funds accordingly when things were stable once again. While this strategy may not work for everyone, it’s a testament to educating yourself, even just a little, about your investments. That, in itself, is the single best way to protect them from a recession.

Ideas for Good Investments

In the current economic climate, most people consider investing to be very risky business. People are much more skeptical about what constitutes a good investment, and the Great Recession didn’t help matters in the least. However, things are beginning to look up, and although we’re nowhere near out of the woods yet, reports are surfacing from the likes of Forbes and USA Today that highlight ideas for good investments.Let’s take a look at some of the suggested investment ideas that may be good options for you to sink money into in 2012.

Consider Growth Stocks

A few different publications have been highlighting growth stocks as good options for investing right now. You should try to to seek out companies that have a steady, proven track record of growth despite the sagging economy. The prime candidates for your dollar are companies that display good pricing power – businesses that demonstrate they have what it takes to grow their revenues and earnings in a harsh economic climate.

Go Global

With all the money trouble coming out of Europe, you need to make sure that you keep some of your investments global. Checking out corporations with worldwide reach will better shield you from the financial crisis going on in European countries. Plus, global companies can find growth areas in Europe even during a downswing, so you’ll have that on your side, too.

Buffett and Others on Tech Stocks

You should also think about tech stocks. According to this post on Forbes.com, 2012 has ushered in a slew of predictions from Warren Buffett and others regarding their faves for tech stock picks. According to the post, Chuck Carlson, the Dividend Reinvestment Plans editor at Forbes, recommends Intel (INTC) as his top pick this year. Carlson recommends Intel because the company currently enjoys a great market position and a divided of 3%.

Legendary stock-picking gurus George Gilder and Warren Buffet – notorious for their disagreements – have actually agreed on Intel as a safe pick as well. This fact alone should tell you something about the expected performance of the company this year.

Natural Gas May be a Winner

Another safe bet for 2012 would be putting your money in domestic energy stocks. The great thing about investing in these kinds of stocks is that you are not only putting your money in a safe place, you’re also keeping it at home in the United States by investing in domestic natural gas.

Some analysts even believe that enough investors may be able to help the U.S. make the transition from chiefly importing energy to primarily exporting at some point in the future.

Look to 2011 for Further Ideas

If you’ve scanned this list and you still can’t seem to find stocks that you like, don’t fret. Many of the stocks that did well in 2011 are projected to perform in a similar fashion this year as well. The market is down, and the risks are lessening, but investors are still fraught with woe about the outlook. Things are expected to level out, however, and the slow recovery is the reason that last year’s winners are a safe bet for this year, too.

Start Investing Money April Carnival Roundup

We are happy to have our articles included in the following articles. A big Thank You to all who hosted these amazing carnivals.

Totally Money Blog Carnival at My Personal Finance Journey
Carnival of Financial Planning at Thriftability
Carnival of Money Pros at My Journey to Millions
Yakezie Carnival at Faithful With A Few
Carnival of Retirement at Broke Professionals
Carnival of MoneyPros at Novel Investor
Fin. Carn. for Young Adults at 20′s Finances
Yakezie Carnival at Money Q&A
Carnival of Financial Planning at Mom’s Plans
Totally Money Blog Carnival at Stupid Cents
Festival of Frugality at One Smart Dollar
Yakezie Carnival at Watson Inc
Carnival of Retirement at Passive Income to Retire
Carnival of MoneyPros at Beating Broke
Yakezie Carnival at 20s Finances
Carnival of MoneyPros at Financially Consumed
Carnival of Retirement at Tackling Our Debt
Fin. Carn. for Young Adults at 20s Finances
Carnival of Financial Planning at Free Money Finance
Carnival of Financial Camaraderie at Step Away From The Mall
Totally Money Blog Carnival at Thirty Six Months
Festival of Frugality at Dewey’s Treehouse

Can Fun Money Fit into a Smart Investing Plan?

Everyone knows that investing is an essential part of planning for the future. It’s great to be able to go out and spend money on a whim. But if you do that all the time you won’t be well equipped to cope with life’s financial emergencies when they arise.

But is investing all there is to life? Budgeting and preparing for the future are all very well, but they’re not a lot of fun if that is all you do. This is why it makes sense to build your budget carefully and to allow a bit of breathing room to have some fun.

How can you tell when a budget is successful?

In my opinion, it’s when you can stick to it quite easily, pay off any debts you have, save for the future and STILL have some fun. There are other elements to successful budgeting of course, such as being able to reduce some of the regular payments you have for various things simply by shopping around.

But here we are focusing on the idea of keeping some cash back just to enjoy on a daily basis. If you don’t do this, if you don’t keep some ‘fun money’ back for your own enjoyment, you could find it a lot harder to stick to your budget for the long term. And that in turn could lead you to blow it.

How hard do you have to work at saving money?

Depending on your savings goals and how much you are bringing in, it stands to reason that you have some control over how hard you are working to make those all important savings. So by the same token you should think about building in some fun money as well.

It doesn’t have to be a lot of money – in fact it shouldn’t be too much otherwise it defeats the purpose of budgeting in the first place. But be sure to set aside a few dollars every week – maybe $20 for example – to spend on whatever you like. This shouldn’t be for clothing items or anything else that is essential, even if only from time to time. Instead it should be for frivolous things. Say for example you usually take a coffee to work with you in a special insulated mug you’ve got at home. Maybe you could use your $20 allowance to treat yourself to a special coffee from the local coffee shop as a treat, perhaps every Friday morning to kick start the weekend. I’m sure you can think of other options and ideas for being frivolous.

The point is you don’t need to spend a lot to give yourself a treat in this way. It means you can stick to your budget, allocate plenty of money for your investments and still get a treat every now and then. So when you construct your budget, make sure you don’t forget the here and now as well as the future.

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10 Tips to Succeed With Mutual Funds

Mutual funds are great long-term investments, but if you blindly pick one without researching what’s out there and carefully weighing your options, then you are setting yourself up for disappointment – and massive losses – down the road. You should keep a few things in mind to succeed with mutual funds, and following these 10 simple tips can help you pick a winner.

1.       Stick with no-load funds.

Many mutual funds come with fees that are levied any time a fund manager buys or sells a stock. If you opt for a no-load fund, you can sidestep these fees and put more money back in your pocket in the form of returns.

2.       Make sure there’s a low turnover rate.

Mutual funds incur fees whenever stocks are bought and sold. Lower turnover equals lower fees and lower capital gains taxes, too.

3.       Look for consistent returns.

You need to make sure the returns investments in the fund are receiving are consistent. We’re not talking sky-high returns – the key here is stability for the long haul.

4.       Keep cash reserves low.

If a mutual fund has a high cash reserve, then this means that your investment will suffer as a result. Cash is generally held back to pay for new investments and to pay off any investors that decide to jump ship and cash out their funds, which cuts into you profit potential. Opt instead for a mutual fund with a low cash reserve.

5.       Be aware of your tax burden.

According to the SEC, you are liable for paying capital gains taxes on a mutual fund. Funds are required to pay investors any stocks they sell for a profit as long as those stocks can’t be offset by a loss. You will be responsible for paying taxes on any distributions you receive from the fund – even if the fund itself is operating in the red.

6.       Don’t buy a new fund.

It’s important to purchase a mutual fund that had been around for a while. The long-term performance of brand new funds has not yet been established, so they’re more vulnerable to negative earnings.

7.       Buy a fund with lots of assets.

More assets equals greater security, plain and simple. The key to stability is diversification.

8.       Keep the turnover rate in mind.

A higher turnover of securities in a mutual fund will incur higher fees and taxes.

9.       See what services are available to you.

Many funds offer services to their investors, such as help lines, live chat, check-writing privileges, and other perks. Find out what’s available to you that can help you easily manage your account before you buy.

10.   Keep your overall portfolio in mind.

Before you invest in mutual funds, you should make sure they fit in with your overall investment strategy. If it doesn’t make financial sense to invest in a fund instead of another financial instrument, don’t do it. Talk to someone who specializes in security analysis and portfolio management.

Good Budgeting Habits Mean Better Investment Success

How good are you at budgeting? Do you even have a budget? If the answers are ‘not very good’ and ‘no’, don’t be too surprised if you haven’t had much success at investing either. While the two areas may seem to be unrelated, nothing could be further from the truth. People who are good at budgeting on a daily basis will typically have more cash available to invest, and thus will be able to build a bigger nest egg with it.

How to reserve more cash for investments each and every month

Since most of us aren’t lucky enough or fortunate enough to get a pay raise every single month, it’s best to tackle this challenge from the other direction. You should focus on your outgoings so you can find ways of reducing them. Don’t look to reduce one thing in a big way – look at ways of reducing lots of things in small ways. This is the best way to get a bigger amount of cash left at the end of the month that you can invest in whatever way you wish.

Keep it up

Anyone can create a budget but it takes real determination to stick to it for the long term. You are more likely to do it if you write your budget down instead of doing it in your head. Put it somewhere where you will see it every day.

You might find it easier to pay for some things in cash too. For example say you work out a budget that provides you with, say, $10 a day for incidental expenses. Having that money in cash makes it a lot more difficult to spend. If you pay for everything by credit card you’ll find it more tempting to go over your budget.

Fix a reward for sticking to your good budgeting habits

Saving money and investing it wisely is definitely a good thing. But in reality you should also think about rewarding yourself when you keep up these good habits.

For example, if you manage to meet your budgetary constraints for one month, treat yourself to something that will mark your success. Think about eating out or grabbing a takeaway for example. Perhaps you go enjoy going to see a movie or celebrating your good habits in some other way. A monthly goal like this makes it more exciting to try and meet your financial targets and stick to your good habits for longer – preferably for good.

Be prepared to fail

You should also be aware that you will very likely slip off your path and spend too much from time to time, especially in the early stages. Don’t worry too much about this; just acknowledge that it has happened and be ready to get back on track again. It’s up to you to decide whether your good habit is ruined for a single day or for a much longer period of time. If you opt for the former you’ll be back on track again the very next day.

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Types of Common Stocks

Stocks are essentially partial ownership in a company. When you buy shares, you are buying a small piece of the company itself. Depending on the type of company, its size, and a variety of other factors, a stock may be classified a certain way. There are quite a few categories of common stocks, but most fall into one of just a few larger categories.

Established Growth Stocks

Established growth stocks are great because you are essentially investing in a company that has taken root and is performing consistently in the marketplace. The company is stable, but there is room for growth, so you will not pay as much as you would for stock in a mega-company that is enjoying record profits and massive earnings. The downside is that earnings for companies that offer established growth stocks are typically reinvested in the company, so you won’t see the money as dividends, but you are investing in the potential for capital gains down the road.

Blue Chip Stocks

Blue chip stocks are those offered by the biggest companies on the planet – think Wal-Mart or General Motors. The cost is higher, and there is not much room for growth since the companies are so massive, but the upside is that you will enjoy consistent, low-risk returns on your money. Blue chip stocks pay divideds to those who invest in the companies consistently, so although the returns won’t be the greatest, they’re the closest to guaranteed that the stock market has to offer.

Utility Stocks

Public works companies offer utility stocks. Water and power companies sell stock, and there are many advantages to investing in utilities. The main advantage is that the competition is almost nonexistent for utilities. For instance, it’s highly likely that you only have one option when it comes to choosing the company that keeps you lights on. Since utilities have a near-monopoly in the marketplace, they are low-risk, safe investments to make. However, since utilities are so highly regulated, the return on investment is low.

Emerging Growth Stocks

Emerging growth stocks are risky, but the risk is sometimes worth the reward. Since the companies offering these kinds of stocks are new and still establishing themselves, there is greater risk and they will not have the capital to pay dividends to investors. On the other hand, these kinds of stocks can be very fruitful if a start-up company takes off and you happen to buy stock when the company is still on the ground floor.

The Average Returns to Expect on Mutual Funds

When you are deciding on a vehicle for investing your money, mutual funds may come up in conversation more often than not. Because the risk is spread out, the investment is perceived as safer than gambling on individual stocks. It’s also much more lucrative than squirreling away your hard-earned dollars in a low-interest-bearing savings account. If you use mutual funds as a long-term investment strategy, you can earn returns of up to 12%. However, it’s important to choose the right fund and watch it closely, because if you invest in a loser, you may wind up earning far less in interest.

Consistent Investment Strategy

The single best way to construct a safe, diversified investment portfolio is to make sure you pick a mutual fund with a manager that invests in the same things consistently. You also need to check on the manager’s investing track record. If your fund is designed for investment in particular classes of stocks, then you need to follow up to ensure that the manager is indeed sticking to the plan. If he doesn’t, then random picks and sporadic buying could jeopardize your long-term returns.

Pick a Winner

Sometimes the market as a whole is bad. Other times, the sector that your mutual fund owns stocks in may be having an off year. Neither case merits jumping ship. It’s better to weather economic dips and spikes such as these in favor of looking out for your long-term gains with a fund. On the other hand, if you have a mutual fund that lags behind similar funds substantially for more than one year, then you may have a problem. Keep a close eye on the fund, and be prepared to walk away if you think you may have a loser on your hands.

Watch the Management

Be aware of the fund manager’s activities at all times. Read your annual statements and check on the performance and the manger’s purchases occasionally. If management changes on you, then it may be time to keep a closer watch. You need to ensure that the new fund manager closely matches the old in investment choices if you fund has been doing well, otherwise you may be in store for a bumpy ride. Conversely, if your fund was tanking and management changes hands, give the new guy a shot before you decide to sell off.

Expenses Involved With Mutual Funds

When you’re in the market for a mutual fund, finding a fund with the lowest overhead is always a good idea. Selecting a no-load fund is a smart move because you will avoid fees incurred when stocks are bought and sold within the fund. There are, however, other fees and costs related to owning a mutual fund that you cannot sidestep, and understanding the true costs of owning a mutual fund is important so that you can calculate exactly how much your real return on investment will be.

Transaction Costs

When buying a mutual fund, you may encounter three types of transaction costs. You may pay brokerage commissions, a spread cost, and market impact costs. The amount of each cost is difficult to predict, so asking a financial professional about which of these costs your fund may have associated with it is a shrewd move before you buy.

Expense Ratio

A mutual fund’s expense ratio is a more well-known cost, because this fee is used to pay for the fund’s management and other costs incurred for marketing and distribution. It’s a continuous cost, and you can figure out what the amount will be for the fund you choose by reading the prospectus.

Cash Drag

The cash drag of a mutual fund is the amount of money that a fund manager must hold aside to keep the fund liquid to purchase stocks. It’s also used to pay off fund investors who choose to cash out. This puts a major dent in a fund’s performance if the stocks in the fund become more valuable and the amount is greater than the cash the fund manager has held back. Cash drag affects people who buy mutual funds for the long term, because the amount of cash held back could be used for more stocks in the fund, but instead, it is being kept aside for investors who may choose to cash out more quickly.

Taxes

As with all financial instruments, taxes are a necessary evil and a cost that must be factored in when selecting a mutual fund. If you buy a mutual fund that contains stocks that have already increased in value, then you run the risk of being subjected to capital gains taxes for these stocks. Therefore, you should speak with a tax professional prior to purchasing a mutual fund to determine whether you will need to pay these taxes, and what the cost will be in relation to your potential returns.

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