eFIPO Finance and Politics

Most people have a loose coin bucket in which they throw their change at the end of the day. After a few months of accumulating your pounds and pounds of change, you decide to go to a supermarket to cash it all in. It feels so nice losing five pounds of change and converting it into little pieces of paper that you can easily slip into your pocket. Now let me ask you a question. Have you ever willingly paid an additional 8%-10% on something for no apparent reason? If not, stop using automated cash counting machines in supermarkets.

Go to YOUR bank! They provide FREE paper rollers and usually supply you with a quick counter which makes your change counting easy. After about ten minutes of work you can save a ton of money. I went to the bank about three months ago and it took me around twelve minutes to count, roll, and deposit $246.87. If I had gone to a coin counting machine they would have deducted $19.75-$24.68 from my total after around ten minutes of labor. Man, wouldn’t life be incredible if you could make $20-25 for every ten minutes of labor? Now go ahead and start saving wisely. A penny saved is a penny earned. -- Benjamin Franklin.

Pension Plans are finally getting reformed, which is a wonderful thing to the American economy. Pension plans were a huge drain on many big businesses in America forcing companies to declare bankruptcy. Ford Motor Company, Delta, and GM are having huge problems making a profit when they have to give away almost a billion dollars a year to pension retirees. The old pension system would force companies to increase their revenues so they would be able to pay pension benefits. This would force businesses to re-evaluate their businesses plans and try to cut costs just to try to break even. What did businesses do to cut costs? Terminate thousands of good employees, purchase lower cost goods making their products have inferior quality, and a whole lot of out sourcing. Realistically, before the year even starts a lot of big businesses were one billion dollars in the hole. Big American businesses were almost doomed right from the start.

Example: Why is AirTran much more profitable then Delta? Before cutting cost Delta was a wonderful company. They were always ranked highest in customer satisfaction, and had a loyal customer base. Did poor management really destroy the company? I doubt it. After September 11th, their sales decreased, and their pension plan inflated because there were more people about to retire.

America was in a catch 22 system before the pension plan reform. American companies have to cut cost, and reduce prices just to compete with foreign companies (that still might be producing a better product). Foreign companies can increase spending in advertising, quality management, and research and development to improve their product and sales, while American companies have to cut that out of their budget to fund pension plans of present and future retirees.

A lot of Americans rely on big businesses for jobs, community development, and competitive prices. I am not saying that pension plans should be cut for present retirees, or people currently contributing, but the pension reform plan will enable big American businesses to be competitive again.

*Next post will be about the financial side of the pension reform. Read this article to see what will be talked about next week*

Even though this topic applies to an older audience, this will be heavily debated subject in the next two decades. As a young man I know that this social program will probably be depleted by the time I retire, but most people my age that do not save for their retirement still believe the government will support them in the years they can no longer work.

According to USA Today, “Last year, that rate sank to -0.5%. Households spent $41.6 billion more than they earned. The rate’s last dip into negative territory was in 1933, when banks were closed and breadlines were long. In January, the savings rate fell further, to -0.7%.” This seems like a scary statement, but it draws a vivid picture of our future. How is the younger generation supposed to save when our parents spend more than what they make?

Another scary statistic is that the percentage of households putting money into their savings fell to 56.1% in 2004, down from 59.2% in 2001. It gives me shivers down my spine thinking about what long-term effects this will have on America. Unless this cycle is broken, and our generation starts to save, our country will be in financial ruin.

This program was created to help the retirees have financial benefits post retirement. The big problem is that the government did not predict some huge factors contributing to the downfall of the plan such as: women in the workplace lowering the birth rate (the biggest factor), men and woman living past the age of 60, inflation, and the rapid development of foreign countries. President Bush tried to put together a plan to reform Social Security that would update the program, but of course was shot down. This program MUST be reformed so that our generation of non-savers will still have a forced savings plan.

Even though I personally think the government should not have a huge role in our retirement, many people do. I also think that when you look at the program itself it looks like an illegal Pyramid Scheme. That is just my opinion. Read what the SEC describes as a pyramid scheme and then you cannot tell me there aren’t any similarities between both programs. In conclusion, I think that we need to save for ourselves and hope others will catch on before they have to retire. Finish rich by early saving and let the wonder of compound interest take its course.

I will address how to save for retirement correctly in a future financial post.

Is the point of credit cards ruining people’s lives, or are people’s lifestyles ruining the point of credit cards. Most people say that credit cards are destructive pieces of plastic that can dig you deeper and deeper into a hole of never-ending debt. This is not always so - personally, credit cards gave me a wonderful credit score that allowed me purchase a house when I was 20 without a huge down payment. If used correctly, credit cards can be your best friend. They will help you save money, build credit, and give you perks if you use the card for legitimate purchases.

Credit cards wield a powerful affect on your credit score. They make up a huge portion of the over all score; therefore you should not mess up with credit cards. They can either make or break you. There are many credit cards out there that have all sorts of benefits and perks. To pick out the best credit card for you go to Creditcard.com and select what attributes you want in a credit card. If you want to use a credit card, but think you will abuse its power (buy now - pay later) think of it as a debit card for the first year. When you make a purchase pay it off immediately when you get back home. This system worked for me, and it made me realize that my credit purchases directly affect my checking account. When your checking account is depleted, don’t go off buying a ton of stuff. There are good purchases and stupid purchases. Be wise and stay safe.

10 bad habits that lead to debt disaster according to Bankrate (along with Jeremie’s input):

1. Misusing balance transfers. - Moving credit card balances over to prevent you from having to pay the balance in full is an awful idea. Pay it off when you get the bill.

2. Not checking credit reports. – Always check your credit reports yearly. They allow you to see it for free at Annual Credit Reports so check it out. If you find any mistakes - correct them ASAP.

3. Failing to alert creditors about a financial hardship. – Make sure you talk to someone if you have a life changing event that will prevent you from making payments such as: job loss, personal injury, death in the family, ect.

4. Thinking of “budget” as a dirty word. – Budgets work for some people, but I believe in the “pay yourself first” method, so budgets are not on the top of my priority list.

5. Using retail store credit cards to make use of discounts. – Using retail cards for discounts is sometimes a great thing on big purchases, but do not open a credit card at every retail store, and remember the extremely high interest rates on those cards.

6. Procrastinating on creating an emergency fund. – Always have a six to eight month emergency fund to protect yourself from job loss, or personal injury.

7. Paying bills in no particular order. Pay your important bills first. Mortgage, rent, and utility bills always come first. Credit comes second.

8. Charging purchases instead of paying in cash or with a debit card. – I believe in the total opposite. If you can afford it pay in credit, then pay off your balances. This builds your credit, and, depending on your card, can give you cash back.

9. Making credit card payments late. – This will not happen to you, because you’ve registered to pay your bills online, RIGHT? Late payments can ruin your credit, and you lose a ton of money in late fees.

10. Making the minimum payments only. – This will make you so poor. If you had a $5000.00 balance at 13.5%, it would take you 28 years paying the minimum payment. Pay your balances in full!

Try some of these tips to really save your money on fuel.

1. Keep your car maintained. Your fuel efficiency will increase by 25% over a poorly maintained vehicle.
2. Don’t get high octane gas unless you have a high performance vehicle. Most automobiles run fine on the regular octane with a $6.00 gas booster (which needs to be added every six months).
3. Check the pressure. Make sure your tires are at the pressure your manufacturer recommends. This will increase fuel efficiency by 30%.
4. Think of a driving plan. Make sure your daily errands are properly designed. If you are overlapping your driving routes, change it.
5. Stop beating people off the line. Accelerate your car at a regular rate. Think of it this way. Every time you speed up at a red light you lose 25% of your fuel versus accelerating slower, and when you accelerate quickly at a traffic light people make fun of you. Trust me. They do…
6. Slow down, speed racer. If you obey the speed limit you will have your car running at maximum efficiency. You will also save money by never having to pay a speeding ticket ever again!
7. Try to cruise. Using your cruise control feature (if your car has it) can save you from constantly accelerating, and decelerating. Avoid slower cars, and anticipate future traffic so you slow down slowly instead of hitting the brakes and smashing your head on the steering wheel.

If you would like some more tips. Go to Bankrate and Wiki and remember an inefficient car is an expensive car.

The score I am referring to is not your grade point average back in high school, and it’s not how many times you called in sick at work. It’s a score that will be following you around through thick and thin. Think of it like a marriage that doesn’t have a 55% divorce rate. It’s your FICO score; which is an acronym for Fair Isaac Credit Organization. The higher your FICO the less you will have to pay on any kind of credit services such as: credit cards, mortgages, and personal loans. A FICO score represents your credit history that is monitored by three separate credit bureaus (TransUnion, Experian, and Equifax).

The highest score possible is an 850 while the lowest is a 300. The FICO score is roughly put together using this formula: 35% punctuality of payment in the past, 30% capacity used: the ratio of current revolving debt (credit card balances, etc.), total available revolving credit (credit limitations), 15% length of credit history (how long credit you have been using credit), 10% types of credit used (installment, revolving,), and 10% recent search for credit and/or amount of credit obtained recently.

Knowing your score before you apply for a loan can save you hundreds of dollars monthly, and thousands yearly. Here’s a quick example of a 30 year fixed $100,000 mortgage having two different credit scores: A score of 760 and above, your avg. payment would be 632.07(using 6.5%), but having a credit score of 620-639 your avg. payment would be 740.05(using 8.09%). A difference of nearly $1300.00 a year. When you apply for a loan this score will cut your shopping time by 75% because you will know a ballpark range of the interest lenders will offer you. If you don’t know your score find it out now. Go to myFICO and start saving money!

Have you looked at your stock/mutual fund portfolio in disgust? Are you not getting the returns you deserve? Wondering where you should cast the blame? Want to take revenge on the person that is giving you skimpy returns? Walk to the closest mirror and slap yourself in the back of the head. You don’t control the market, but you do control your financial decisions even if you are with a broker. It amazes me how long people will stay with their financial planner or broker while getting substandard returns on their portfolio. Would you keep your job if you knew about an identical position with another company that paid three times more? Doubt it! So why are you staying with your broker/financial planner? I’m not saying to leave the company after a couple of bad years, but I would recommend looking around if you’ve had five consecutive years of poor returns.

Shopping around shouldn’t just be for clothing and electronics. Finding a good place to have your investment/retirement accounts is key for financial independence. I currently have two different investment portfolios. My first portfolio is with a mutual fund company that holds 40% of my retirement account. The rest of my portfolio is for purchasing individual stocks using an online broker. Since the inception with my mutual fund company I have received an average of ~18% return a year.

1st year was ~21%
2nd year was ~19%
3rd year was ~12%
4th year was ~17%
This year since January 06 ~8%

My stocks have increased ~11% since January ‘06. How have I received such high returns on my investments? I have to admit to one thing about my mutual fund return. I was really really lucky the first two years. I just picked small and large value mutual funds and lucked out. After year three, I studied what other great investors were doing. After reading Rule #1, The New Buffettology, and The Four Pillars of Investing I had a new insight on investing. Those books all had different strategies to build wealth using stocks, but there was one parallel between all of them and that was long term growth.

Like the world’s greatest investor, Warren Buffett, once said “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” Buying the “hot” new stock is a fad that he does not like getting involved with. Buffett has always liked buying stocks at a value that he can predict getting a great return because of the way the businesses do business. Check out what securities are included in Berkshire Hathaway.

One of the dumbest things you can do is go into the stock market uneducated and expect a high return, or even a return at all. “The first rule is not to lose. The second rule is not to forget the first rule.” That statement is the formula that Warren Buffett has lived by for over 40 years and it has really paid off. Realistically, I do not expect to receive his 23% return a year for the next 40 years, but I do expect to obtain over 15%. It is an achievable goal that if you purchase and hold securities correctly you can get an extremely high return. Always look at the big picture when it comes to retirement because you end up living half of your life in it!

Recommended reading list for this article

The Intelligent Investor

Rule #1

The New Buffettology

The Four Pillars of Investing

Is getting a huge refund check really a good thing? Most people think that it is, but you need to stop looking at it as a big payout and begin viewing it from a different angle. When you get a huge refund that means you’ve been paying too much in taxes over the past year. This also means the government has been getting some good interest on your money. If you are receiving, or paying more than $500.00 a year on taxes, consider going to your payroll department to change your tax withholdings.

Example: if you were supposed to get a $2500.00 tax check, have your payroll department help you modify your tax withholdings so that you get an extra $208.33(2500/12) per month. After you change your tax withholdings, you put the additional money into your savings account (avg. of 5%), and at the end of the year you will receive an extra $75.00. Do yourself a favor and stop giving more money away than you have to.

By Mickey

So the time has come up trash that old clunker of a PC and pick up a nice shiny new one. Great! While your specific needs may vary, here are some tips to help you save some money on your new purchase.

1. Figure out what you need. Dual-core chips are all the rage now, but do you really need one? These are processors that are essentially two processors in one, making that part of your computer nearly twice as fast. However, most pieces of software (including games) can't use both at the same time. There are exceptions, such as the latest version of Adobe Photoshop. In addition, if you often run multiple programs at once it can help. Otherwise, just stick with a faster (but cheaper) single-core chip.

2. LCDs aren't as great as you think. The cool thing now is to get a flat LCD monitor. However, compared to an big, heavy CRT:

-- LCDs don't look as sharp.
-- LCDs can't handle as wide of a variety of resolutions.
-- LCDs tend to cost more.

Now, if you need desk space then it might be worth getting an LCD. If not, you might be able to find a sweet bargin on a much larger CRT.

3. Keep your old monitor. Wanna save a couple hundred bucks? Keep your old monitor. If you'll continue to use your old PC (for the kid's homework or something), you'll need to go ahead and purchase another monitor. However, if you plan on not using your old PC any longer once the new one is going, you can just use your old monitor on the new system. There won't be any compatibility issues.

4. Dude, don't buy a Dell. Dells are cheap. If you compare the major features of a computer (processor, memory, hard drive, etc), a Dell is the cheapest almost every time. The problem is that they really skimp out on internal parts. If you need to upgrade down the road, you'll be in big trouble with a Dell.

To use an example, our church just bought a brand new, fairly nice Dell. I needed to add a second video card to it, and had very few options because of how the Dell was built. It didn't include a PCI-Express slot and it didn't even include an AGP slot - just some normal (older) PCI slots. This meant that out of the 25 or 30 video cards I was looking at in the store, I could only choose between TWO of them - the rest used PCI-E or AGP.

I don't fault Dell for this, as they're in the business of selling computers, and cheap computers sell very well. Just don't be one of the people that buys one.

5. Microsoft Office vs. OpenOffice.org. One of the biggest expenses when purchasing a new PC is getting Microsoft Office on there - you're talking about a couple hundred dollars. We all need it - Word, Excel, Outlook, Powerpoint, etc. The great news is that there is a free alternative - OpenOffice.org. It is a full-blown office package that is 100% free and 100% legal. I'll admit that it's not quick as slick looking as Microsoft Office, but it's real close. It will read all of their files and it does a nice job. Even if you have MS Office already, go ahead and check it out. www.openoffice.org

6. Virus scan is optional. I considered not putting this item on here, but thought I'd share my views. Running a virus scan program such as Norton Anti-Virus or McAfee Virusscan is a HUGE resource drain. They're constantly monitoring your system and really make it run much slower than it needs to. If you are a semi-literate computer user and you keep your Windows Updates current, odds are that you'll never catch a major virus. Realize that it's a slight gamble, though.

Here's the magic - your computer can't "catch" a virus. They don't just slip in there like a germ in the air. You need to work to get a virus - open an infected e-mail, download an infected program, etc. You still should run a system-wide scan from time to time, but there are free programs that do this just as well as the commercial ones. Your best bet is likely Avast (www.avast.com). Dig around on their site and you'll find the free edition.

Now, if you tend to download a lot of software, or have friends over that like to download stuff, you might want to consider sticking with a full-blown AV program like Norton or McAfee just to be safe. If not, then this is a good place to save $50.

Beyond those items, it's just a matter of what you want. It's a tough line to spend as little as possible but still try to buy something that will last for years to come. If you have specific questions about "what should I buy?", feel free to ask me and I'll try to help you decide.

For other tips on how to make your PC (new or old) run more smoothly, you can visit SpeedUPMyXP.com.

I know investing for a retirement plan might not sound like the most exciting thing in the world when you are in your twenties and early thirties. Even though this site is designed for long term planning and growth, short term goals are the foundation for great long term results. One of the richest people in the world once said that time is a wonderful thing. Every 20 year old has the opportunity to be much richer than s/he is, because of that wonderful thing called time. Remember “Save while you’re Broke. Spend when you’re Rich”? Well, I am going to add some new content and an example on why saving now is so important.

Too many people want to see immediate results, or they don’t want to set aside 15% of their income to long term retirement plans. “I want to spend the money that I am getting. I don’t want to be 50 or 60 and finally get to start using the money that I have saved up my whole entire life. I want stuff now!” That is the reoccurring statement that I receive almost every single time when talking to younger people about retirement. This example will show you how just saving for twelve years (from 18 to 30 years old) can build such a big nest egg that when you are 30 you can start spending most of your future salary on things that you want, like a boat or a new car.

Example: Use this calculator to input date
18 year old puts a $1000.00 into a Roth IRA.
He/she adds $2650.00 a year to the IRA (~$220.00 a month)
After 12 years of growth at a 16% compound interest rate
Ending balance will be over $100,000.00

Now let’s say you never add another penny to your retirement. You spend all your hard earned money on new cars, expensive houses, boats, etc. You leave your retirement nest egg alone and don’t touch it ‘til you are 55 (when you want to think about retiring). Again, keep in mind that you have all your expensive cars, a beautiful house; you’ve been on a ton of nice vacations, etc. At 55 years old you would have generated almost 4.2 million dollars!

After hearing you have all this money, you decide to retire at 55 years old (way younger than the national average). You will have $111,314.00 of yearly after tax spending money (assuming there is no more interest adding up)! Now if this example doesn’t show you why saving now pays off, then clearly you need to read over this post again. So for all those people that want to spend while you’re young and still retire rich, this is the way to do it. Even though I do not recommend just relying on one source of income for retirement, one is still better than nothing!

Recommended reading list for this article

Bull's Eye Investing

Rule #1

The Intelligent Investor

*Next post will be about how to get rich using real estate*

1. Get a FREE checking account! Most national and local banks now offer free checking products. If you already have a checking account make sure it’s all free, and if it’s not; make it free or change banks. A lot of people don’t understand the real power that banks have over your money. They insure it up to $100,000.00 so that you don’t have to walk around with all those bills in your pockets.

2. No more NSF’s for you! Pretend that $100.00 is really $0.00. Meaning if you go under $100.00 you have to bring it back up to $100.00. This very useful trick makes you NEVER have to pay an insufficient funds penalty (NSF fee.) I have known many people that have saved hundreds of dollars and sometimes thousands because they have implemented this trick.

3.Open a high yield savings account. There are so many online banks such as www.INGDirect.com and Emigrantdirect.com that offer extremely high yield APY (Annual Percentage Yield) usually over 4.5%. Before you go online for savings account shopping, make sure your local bank isn’t offering a product that will compare. All real online banks offer insurance up to $100,000.00 just like your regular brick and mortar branch. If you are looking for the highest rates possible www.bankrate.com will be able to help you out a ton. Just remember that sometimes an online bank such as INGDirect might not have the highest APY but they have some of the best customer service in the industry, and also offer other savings tools that you can only get with an INGDirect savings account. So do your research!

4. Pay bills online. You might not think that saving a few dollars a month on stamps is worth it, but have you also thought of the fact that your bank INSURES the check? If you were to send it through regular mail and it is lost your out of luck. With eBanking, which is usually FREE with your checking account, you no longer have to worry about late charges, stamps, and lost mail.

5. Direct Deposit it! Does your job offer direct deposit? Ask your financial or human resource department if it’s available. This not only saves you a ton of time by not having to go to the bank and wait in line, but saves you money. How? Well it is proven that if you cash your check you are more likely to spend money on stupid stuff. Less anxiety. More time. More money. Direct Deposit. It’s a beautiful thing.

6. 401(k) is the 1st step to riches. This is one of those things I can’t stress more about. Ask your HR department if you have an active 401(k) or 403(b) programs. It’s like having a free raise at work if they have a matching program. Here’s an example: lets just say that you put in 5% of your pay into a 401(k) (sponsored by your company) your company can sometimes match up to that 5%. That’s a 5% raise without doing anything at all! This is also pretax money, *UNLESS your in a Roth 401(k)* which usually also lowers your taxes.

7. Shop around. It still confuses me to this day that some people still don’t shop around when purchasing items such as a computer. They will complain about wanting a raise, yet they go to the first place they find and spend too much on a product or service. Did you know that getting a raise by two dollars usually puts only one dollar after Uncle Sam gets his part? Did you also know that saving $50-$100 for a computer pretty much just gave you a raise of $100-$200 dollars? Think about it. You have the internet now, so you don’t have any excuses paying too much for big ticket items. This also applies to insurance. So shop around and have fun doing it.

8. Getting a productive and cheap hobby. Something as simple as working out or reading can have serious effects on your spending habits. Finding something that occupies your time and gives you a sense of accomplishment will not only save you money but it promotes a healthy lifestyle.

9. Stop smoking! This is not only for smokers but also to the non-smokers. Do you have something in your life that you use on daily basis that costs a ton of money that you could seriously live without? Something like going to get coffee in the morning, buying a Twix bar at lunch, buying a pack of cigarettes, or buying a Fuji water for $2.00!! Seriously people its water…. Cutting out some items that you usually purchase on a daily basis can give you a ton of money at the end of the month. Seriously try this for one month and tell me you don’t see your savings account balance going straight up.

10. 10-15% Factor. Pay yourself first and save10-15% of your income before you spend it. If you make this automatic using your online savings account or direct depositing a portion of your check into your savings account you won’t even miss that money. Another great thing about this savings tip is you can realistically blow all your money on anything you want if you are at least saving 10%. If you are paid on a bi-weekly basis try saving 10% on your first check, and then doing 15% on the last. Most of the time commissions, bonuses, and overtime are tied to the final check of the month and by saving that extra money you will definitely see your savings go up and up.

Have you looked at your bills and said “God, I hate paying so much!?!” Well if you have a regular landline phone get either VoIP or just cancel your phone service and use your cell phone. VoIP is a lot like your regular phone service but is MUCH cheaper. Only catch is you need to have high speed cable internet. Consider this MCI current unlimited calling plans start at $49.99; while Vonage.com is offering the same plan with more features for $24.99! That’s twenty five bucks by just switching to VoIP and you can still keep your old phone number. Do the research and you will see the value. Save your money for something like a down payment on a new car or even better put it in your online savings account!

The pension reform bill that was recently signed in by George W. Bush has changed the future of retirement planning. Businesses no longer have the heavy burden of paying for its former employees to get rich while their profits suffer. This new plan encourages economic growth and will make us twenty and thirty year olds have a successful economy again. This plan also introduced a new forced savings plan for working individuals with a company sponsored 401(k) program. In the past decades people would depend on the government (social security), and business (pension plans) to fund their retirement nest egg. Finally, it is up to the individual to achieve financial independence, but business will still play a key role in the future.

If you read the article “Big changes for your 401(k), retirement” it describes the ways 401(k) plans will be offered when a new employee gets hired by a company. Starting in 2008, companies can automatically enroll new employees into their company sponsored retirement plan. The rules state that they can enroll an employee in a conservative diversification of funds (probably bonds, and other fixed income securities). Even though I think this is a win-win situation, people still need to be proactive in their retirement. Companies will also offer advice to maximize your 401(k) growth potential. Remember that their advice is still somewhat biased to the company you work for. So do your homework and read some books like “401(k) for Dummies” or “A Commonsense Guide to Your 401(k)”.

I have always said that a 401(k) program should be one of the biggest parts of your retirement savings (if you work for a company that offers one), but remember to always do some research in the funds that are inside the plan. Everyone’s plan is unique to their lifestyles (risk tolerance, age, income, how much you have already saved, ect.), but the younger generation should typically invest in 60% high risk and 40% high quality growth. Here are some other great articles to help you understand your 401(k) “7 hot 401(k) trends” and “FAQ about 401(k)s”

Recommended Books for This Topic

401(k) for Dummies

A Commonsense Guide to Your 401(k)

Shopping for a retirement account can be very time consuming and sometimes even confusing. Personally, it took me over a month to find the right place to open my retirement account. Because I am so nice to the devoted eFIPO.com readers I will breakdown the best places for you to start your retirement account.

Before you start shopping, you need to ask yourself some basic investing questions. Here is a short quiz, designed by yours truly, to give you pointers for your investing future. It’s like a Cosmo quiz (for the ladies) or a FHM quiz (for the men). If you answer them based on your independent lifestyle it should give you some good information. So answer them truthfully.

You have to go to http://www.efipo.com/20060914/74/ to take the real test and get your results!

Where should I invest?

1. Do you want to learn about investing?

Yes. I want to read as much as I can about investing
I will read some, but I just want to get started
No. I want everything done for me
2. What is your risk tolerance?

High. Expecting long term growth
Medium. I do not like huge market fluctuations
Low. Slow and steady
3. How much do you want to invest now?

More than $10,000.00
More than $5000.00, but less than $10,000.00
Less than $5000.00
4. How much do you plan to save on a yearly basis? (Invested monthly)

Over $300.00
Over $200.00, less than $300
Less than $200.00
5. How much do you expect your investment to grow on average yearly basis?

Over 15%
Over 10%, less than 15%
Under 10%
6. Do individual stocks scare you?

Yes! They go up and down too much!
Hell no! The stock market has always been the place to make money
Not really, but I like to keep it simple
7. How many books are you willing to read about investing?

Less than 2
3
More than 3
8. When do you plan to retire?

30+, but less than 50
Regular retirement age
Less than 60. Probably late 50’s
9. How much do you plan to have when you retire (with inflation)? Be realistic!

1 million - 2 million
More than 2 million less than 4 million
More than 4 million
10. How well educated are you when it comes to the stock market?

More than most people my age
Less than most people my age
Average

Nice! You completed the test. Click on the “Grade me!” button to get your score. After you obtain your score, scroll to the bottom of this post to get my personal suggestions based on the question you answered. My recommendations will be broad, so I am just going to point you in the right direction. Always ask for professional advice if you do not feel comfortable with investments. This test was in no way to sell you any securities. Decisions based on information contained on eFIPO.com’s site are the sole responsibility of the visitor, and agrees to hold eFIPO harmless against any claims for damages arising from any decisions that the visitor makes based on such information.


What you should do based on your score.

40+ — With 10k to invest or more- Consider getting individual stocks if you are experienced enough to diversify your portfolio. I recommend using Sharebuilder because they have some great investing programs for first time investors.

—-With less than 10k to invest- Stick with mutual funds. You probably don’t have enough money to properly diversify your portfolio. INGDirect, Fidelity, and Vanguard have some great mutual funds to get started. I recommend getting in long-term growth investments such as: small-value cap funds, international funds, large cap growth funds.

30+, but less than 40 — Mutual funds, and ETF’s are the way to go. INGDirect, Fidelity, and Vanguard have some great mutual funds to get started. Go into sectors that you know about. They also have a MorningStar rating for the fund’s financial strength. Go with the highest rated ones for less volatility.

20+, but less than 30 — Mutual funds are sometimes referred to as plain, but they usually work. I still recommend using INGDirect, Fidelity, and Vanguard for your mutuals funds. Stick with large growth funds, large-value funds, and other sectors you feel comfortable with.

10-20 — Yup, you guessed it mutual funds. Invest using balanced funds, and large growth funds.

Recommended books to read about stocks and mutual funds
Rule #1
Jim Cramer’s Real Money
The Intelligent Investor
The New Buffettology
The Four Pillars of Investing

I received this really great question about IRA’s: “What kind of IRA should I get? Do you think I should just put my money in a fixed IRA?”

Even though I think this is a very easy question to answer many people do not really know what to do with their IRA. First, single individuals with modified adjusted gross income (MAGI) of $95,000 or less should contribute to a Roth IRA. There are so many benefits to the Roth IRA such as tax-free earnings, borrowing from the plan (I do not recommend this), and there are no minimum distributions during your lifetime.

The second part of the question can be answered using this calculator. Let’s say you save the maximum annual contribution of $4000.00 a year which is ~$333.0 a month (in this example assume the contribution rate stays the same).

Fixed plan with the highest paying APR of 5.12% (according to Bankrate):
In 30 years you will have a total amount of $284,583.00 with total paying interest of $164,702.00. This is still pretty good return because all you invested was $119,880.00

Growth plan using the S&P average return of 11% over 80 years of data:
You will have a total amount of $942,466 with a total paying interest of $822,285.00
While still putting in a total of $119,880.00

It seems incredibly self explanatory doesn’t it? Well unfortunately, I know more people in a fixed IRA then a mutual fund IRA. So if you are in a fixed get out of it! Open one up using an online brokerage firm like INGDirect, Fidelity, and Vanguard.

Please email me at admin@efipo.com if you have any financial questions that you would like me to write about on eFIPO.com.

I received this really great question about 401(k)’s and Roth IRA’s: “So my mom just surprised me and said that I have a very small chunk of $$ in a ROTH IRA account with Fidelity that she opened for me over 5 years ago. She said it’s less than $2500 which I think I get fee taken out because of it, so I would like to transfer $$ into this account from my 401K. So here are my questions

1. Can I roll over my entire or partial amt of my 401K into this Roth IRA?

2. Will my 401K penalize me a fee for this rollover other than the tax I will have to pay for going into a Roth fund?

3. I understand the rules that since my Roth IRA account is over 5 years old and I can take what I have in there out now penalty and tax free. So with this in mind, does this apply also if I were to put in my new rolled over $$ or do I have to wait to withdraw another 5 year time frame on this new deposit of $?”

This is a tough question, and it will force me to put on my thinking cap. About three months ago I went through the same scenario. I rolled my entire 401(k) balance into two different Roth IRAs with no problem. The one difference that I see here is that I actually left the company I worked for and it sounds like you are staying. Most of the time companies do not let you take your 401(k) prior to leaving the business unless you are in a huge financial problem. I do not recommend taking any money out of your 401(k) because of the taxes and penalties. Check with your Human Resource department and ask them.

Secondly, if you were to leave the company and transfer your 401(k) balance to a Roth there is something you must do first. You have to open up a Traditional IRA before you make the roll-over. Your 401(k) balance is pre-tax money just like a Traditional so you have to open that first. There shouldn’t be any fees tied with the transfer, but again check with your HR department. After you transfer your funds you can later move it into a Roth IRA. At this point you will have to pay regular taxes on the amount of money you are transferring over. Eventually (In the year 2010), they will be allowing straight roll-overs from your 401(k) to a Roth. So if you have a large 401(k) balance you might want to do it in increments so that you won’t get pushed up to a higher tax bracket.

Your last question is partially true. You can take out the contributions you made to your Roth IRA after five years (again HIGHLY do not recommend this), but the interest that has accrued in the Roth will be taxed and penalized. If you do not like where your Roth IRA is housed then transfer it to another brokerage or mutual fund company.

A rule of thumb that I think young investors should follow is “If you have less than $25,000.00, invest in a good mutual fund. If you have over $25,000.00 you can consider investing in single stocks and ETFs. Remember that diversification is still key, and always do your homework before you invest in single stocks. Unless you are Warren Buffet consider staying in a mutual fund.