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The Top 10 Best Investing Books For Beginners

April 9, 2012 By Leave a Comment

If you’re new to the world of investments, then it’s very easy to literally burn through all your capital and have nothing left to show for it. Markets are fast-moving and highly volatile – the last few years are the perfect example of this. One minute your stock could be doing well, the next it could be in free-fall because of surprisingly poor economic data being released or a new competitor enters the market with a better product.

So before you start building up your investment portfolio, take some time to acquaint yourself with investing and the mindset it requires. To help you get started, Andy Boyd, co-founder of Australian credit card comparison website, www.creditcardcompare.com.au, offers up his list of 10 top investing books. Some are even available as free ebook downloads, so you can get started with your research right away!

1. “Rich Dad, Poor Dad” by Robert T. Kiyosaki

Mr. Kiyosaki wrote this top seller investing book based on his personal life experiences with financial matters that he learned from two sources – his real father, his “poor dad”, and the father of his best friend, his “rich dad”. The two dads had different upbringings, different educations, and different philosophies on life and money in general.

They are exactly the opposite of what you may think – his “poor dad” was very educated and made a good salary running the Hawaiian school system. His “rich dad” dropped out of high school and was constantly working on running his own business.

Although he wasn’t technically “rich”, he did not deny himself all the pleasures in life he desired and instead found ways to afford them (unlike the “poor dad” who always claimed they were too broke to afford any of these same pleasures). These two dads each taught Robert very different life lessons about money and finance, which he shares in this book.

2. “Irrational Exuberance, 2nd Paperback Edition” by Robert J. Shiller (2005)

This book title came from the infamous comment made by Alan Greenspan about the impracticality of stock market valuations. In his book, he predicts the impending burst of the dotcom bubble.

As a Yale educated economist, he does not go along with the traditional belief that the market is rational and can be played as such. Instead, he firmly believes that the market if full of speculation, emotion, and “herd behaviour”.

This second edition (the original edition was published in 2000) again chillingly predicts the housing market crash and the plethora of bankruptcies and recession that followed. Irrational Exuberence is one of the best investing books for beginners and comes highly recommended to help understand the post credit crisis world we live in.

3. “One Up on Wall Street: How to Use What You Already Know to Make Money in the Market” by Peter Lynch

Wall Street legend, Peter Lynch, presents his theory that your everyday observations in your life and the world around you can help you determine which stocks can make a lot of money for you.

He poses the argument that an occasional grand slam of a stock completely makes up for several others that clearly strike out. He is also a firm believer in ignoring the experts and analysts, as well as refusing to try to predict the economy or the market.

He encourages you instead to concentrate on industries that you are familiar with and do diligent research on them, while keeping your ears open to people in that industry who know what is going on and can be great predictors of success.

4. “The 9 Steps to Financial Freedom: Practical and Spiritual Steps So You Can Stop Worrying” by Suze Orman

Suze Orman’s book takes a spiritual and emotional viewpoint about money and accentuates the fact that the major hindrances to achieving wealth are anger, shame and fear.

She helps you gain control over the money you have – and do not have – while teaching you to be responsible and respectful of your money and understand what wealth truly means.

5. “Common Stocks and Uncommon Profits” by Phillip Fisher

Even though this book was published over 50 years ago, the teachings in it are still successfully applicable today. Mr. Fisher was instrumental in establishing the world of financial analysis. Modern investment theory has been largely influenced by his teachings.

He pioneered the general idea behind using the growth potential of a business to help analyse stock. He believes in evaluating the ability of a business to turn a profit and to focus on the quality of that business.

6. “Stock Investing for Dummies” by Peter Mladjenovic

This is one of the easier books to get your head around. As the title suggests, this book guides the beginner investor to assemble a stock portfolio that is highly profitable.

It discusses the basics, explains different types of risks, helps you make knowledgeable investment choices, assists you in building a strong portfolio foundation, while exploring expert tactics and tips to help you succeed.

7. “The Essays of Warren Buffett: Lessons for Corporate America, Second Edition” by Warren Buffett and Professor Lawrence Cunningham

Although Mr. Buffett is somewhat secretive about his specific investments, he is always more than willing to talk about his strategies behind choosing his investments.

He has written many personal letters to shareholders over the past 30 years and this book is a collection of those letters. You can also download a copy of this book for free.

8. “The Neatest Little Guide to Stock Market Investing (Fourth Edition)” by Jason Kelly (2010)

This book is one of the most highly purchased stock books on the market and has sold over 200,000 copies. This edition has been updated with recent information and strategies following the financial system crisis that began in 2008 and is still recovering.

This edition (unlike prior editions) delves into technical analysis tools, which Mr. Kelly believes are paramount in assessing the health of the market and the level of risk associated with your investments.

9. “The Intelligent Investor: The Classic Text on Value Investing” by Benjamin Graham

Mr. Graham is unequivocally the “guru” of value investing. While this book does not specifically advise you on how to choose stocks to purchase, it does provide you with dependable principals that investors have tested (successfully) time and time again.

Mr. Graham’s most notable student, Warren Buffett, has spoken highly of this book as the best investment book written. Mr. Graham also wrote “Security Analysis” which investors have quoted and relied upon for decades, even though it is a difficult book to read. “The Intelligent Investor” is much more reader-friendly.

10. “Start Over, Finish Rich” by David Bach

Mr. Bach shares with you the 10 essential financial points to focus on coming out of this recession in order to gain wealth. He is a financial expert who has had several books reach #1 on the New York Time Bestseller’s List.

Mr. Bach illustrates how we have the best chances for becoming rich right in front of us, after the recession we have suffered through. He explains how to set yourself up to recover right along with the economy. A version of the book is available as a free download here.

Author Bio: Andy is the co-founder of CreditCardCompare.com.au, one of Australia’s leading credit card comparison services. He has had work published with Wisebread, Economy Watch and Dynamic Business among others.

Filed Under: Investing Tagged With: , ,

Why Buying Gold Is Still A Good Investment – A Guide For Beginners

January 30, 2012 By 3 Comments

You may have at one time or another recently heard an ad on the radio or on TV claiming that you need to buy gold now to protect your financial future.  In fact, this is often true when the stock market takes a huge dive people tend to look towards commodities such as gold as safe havens to protect their investments.

In fact if you look at this recent chart below of what gold prices have done over the last year alone you can see that they’ve done exceptionable well.

is gold a good investmentWith over a 30% gain in the last year alone it’s no wonder people are jumping on this band wagon, but before you get caught in all the drama you may want to take a deeper look.  So in this article I’m going to give you the pro’s why buying gold is still a good investment, the con’s, and how to buy gold the right way.

The Pro’s Of Buying Gold

Currency Devaluation.  The first thing that makes gold so great is that as the US Dollar continues to be worth less and less while gold is still skyrocketing.  In fact, when we look at the historical value of the dollar in the chart below we can see how the value of a dollar has drop over the last 110 years.

Market Downturns.  On top of that, gold also does well in market downturns as well.  If you’re still looking for that one reason to buy gold as a good investment, it can be a great way to protect against losing out in big market downturns like the recent one we faced in 2008.

Below is a chart showing the last 5 year market returns of the Dow Jones Industrial Averages, which is the blue line.  The red line is a random gold exchange traded fund I found.

Notice how the gold ETF is up by 155% while the DJIA is only showing just over a 1% average.  Just by these numbers alone shows that gold is still a good investment.

Global Currency.  Another great thing about gold is that is accepted almost everywhere and can be exchanged for money or other assets all over the world.

Physical.  Finally, unlike stock, bonds, and other paper assets you can actually hold gold in you hand and won’t lose its value if some company goes under.  In fact gold will always have a value.

The Con’s Of Buying Gold

Now that we have an idea of why gold is a good investment it doesn’t mean that their isn’t any disadvantages though. So here are few to consider.

Fee’s.  If you plan to buy gold in the physical form such as gold coins or bullion you will have to realize that their will be fees known as a spread, and not only are these fees charged when you buy but also when you sell.  Later in this article I’ll show you how to avoid these fees altogether.

Storage.  The next thing you need to consider is where you are going to store your gold at.  If you plan to store it you’ll defiantly need a safe of some sort.  With gold trading around $1700 or more for just one ounce you will need to protect it, especially if you are buying large amounts.

However, if you don’t like the idea of buying your own safe you may be able to have someone hold it for you, however this will cost money as well and can be an extra added fee that will cut into your earnings.

Volatility.  Finally, when it comes down to it gold is a very volatile investment.  In fact if you look at the chart I showed in the very beginning of this article you will notice even in the short span of a few months prices can drop dramatically.    If you notice in the last 4 months of 2011 gold lost over 14% in this period.

How To Buy Gold The Right Way

Step 1: Diversify.  Now that we’ve covered the pros and cons of buying gold I feel it’s still worth owning.  So in this section I’m going to show the best way to buy gold. First off, one thing you should not do when investing in gold is that you should never invest all of your money in gold.

As I mentioned earlier it can be a very volatile investment and instead I recommend that you not invest anymore than 10% to 20% of your entire portfolio in gold.  Just like any other investment you need to diversify your money and with gold it’s no different.

 Step 2:  Choose Your Investment Vehicle.  One of the first places I suggest people to look when it comes to investing in gold is their current investments.  So if you have an IRA or a 401k at your place of work they may already offer a gold fund within their current portfolio.

However,  if you would rather invest in gold on the side I suggest going with a gold exchange traded fund, also known as a gold ETF.  A gold ETF allows you to have the investment power of a mutual fund were you don’t have to physically own the gold but also allows you to sell your gold at any time you want like a stock or a bond.

On top of that when you choose either of the two options I’ve covered you won’t have to worry about the spread fees and storing the gold since this will all be done for you.

Step 3: Use Dollar Cost Averaging.  The last step to investing you money with gold is to use Dollar Cost Averaging.  This is the process of investing your money on a gradual basis, such as every month.  The reason I suggest this is because investing in gold is again very volatile and if you invest all of your money at the wrong time you could take a huge lose right up front.

By gradually investing your money you will spread the risk of volatility over time and stand less of chance to losing your money.

Final Thoughts…

When it comes down to it gold really is a good investment right now, you just need to be careful how you do it.  On top of that know that even though at the time of this writing gold prices have been going through the roof but they will fall.  Just like any other investment gold has it’s up’s and down’s, so follow my simple 3 step process and you should do just fine.

Do you invest in gold?  How is it working for you?  Are investing in gold ETF’s or are you buying gold coins or bullion?  Feel free to share you thoughts, comments, tips and questions about why buying gold is still a good investment below.

Cheer!

Filed Under: Investing

Target Date Retirement Funds: How Do They Stack Up

October 29, 2011 By 2 Comments

Recently, I’ve been planning to start new Roth IRA account, since I’m not happy with my current Roth IRAs funds performance.  As a result I’ve been on the search for a more reliable place to invest.  This lead me to an investment I’ve hearing a lot of people talk about lately called target date funds, and in this article I’m going to show you just exactly what they are and how they stack up.

What Are Target Date Mutual Funds

To start target date are just what they say they are, they are set up so they will conform to the time at which you plan to retire.  For example, if you were to go with the 2040 Vanguard Target Date Fund, it would mean that you are planning to retire in the year of 2040.

On top of that as you get closer and closer to your retirement date the fund will automatically become more and more conservative until you retire at which time the account will move into a preservative investment strategy were it will take on the least amount of risk as possible but still work to earn a small return.  Below is a chart that shows how this process will take place.

In the chart above it shows that in the beginning you will have nearly 75% of your money invested in stocks while 25% of your portfolio will be invested bonds, and once you hit your target retirement date you will have only 25% in stocks, 65% in bonds, and the last 10% will be held in cash.

As you can see the great thing about these funds is that it gives you that carefree mentality that you don’t have to continually monitor your investments.  For example, my current retirement plan at my work place has me invested in a moderate aggressive fund.  However if I wanted to move to a conservative fund I would have to do it manually.  With a target date retirement funds you wouldn’t have to worry about this because it would be done automatically.

How Do Target Date Funds Stack Up

Now that we know what target date mutual funds are let’s see how they stack up overall.  To do this we are going to look at fees, and returns of three prominent companies funds, Vanguard, American Funds, and Franklin Templeton, and see what is the best target date retirement funds.

Vanguard 2030Target Date Mutual Fund

Returns Since Inception: 1.57%

Fees: 0% Sales Charge and a 0.18% Annual Expense Fee

How It Stacks Up:  The up side to this fund is that it carries a very low fee which is what Vanguard is well know for.  In fact this fund only charges at total of $414 in fees over the 20 year period which is incredibly low.  However when we consider the returns of the fund we can see they are not very promising.

In fact if you look at the chart above you can see that if the fund were to earn the same rate of return over the next 20 years it would only bring in a total profit of $3,172.  This isn’t very promising for someone to retire on.

However you may not want to to discount this fund since it’s currently only been around for 5+ years and may see some increases in returns over time.

American Funds 2030 Target Date Retirement Fund

Returns Since Inception: -1.20%

Fees:  5.75% Sales Charge and a 0.79% Annual Expense Fee

How Does It Stack Up:  The 2030 target date fund from American Funds does not seem to stack up all that great, with a -1.20% loss since it started.  However we also need to consider the fact that this fund is not even 5 years old.

On top of that the fees are are a bit on the extreme side with a large sales charge fee.  On the other hand the annual expense fee is fairly low.  However over time I expect this fund to improve.

Franklin Templeton 2035 Retirement Target Fund

Returns Since Inception: 1.62%

Fees: 5.75% Sales Charge and an Annual Expense Fee of 1.33%

How The Fund Stacks Up:  With the Franklin Templeton 2035 target date retirement fund we can see that the fees are fairly steep.  With a 5.75% sales charge and a 1.33% annual operating expense fee we would need at least a 2% return to break even.  In fact with a current return of 1.62% we would still lose money after 20 years.

Final Thoughts…

As you can see my research has brought up a few interesting points you should note.  First off, when we look at returns for target date funds notice that the returns only range from as high as 2% to as low as a -2%.  Not very encouraging for retirement investment.

Secondly, consider the fees.  For the exception of the Vanguard fund, the fees with American Funds and Franklin Templeton seem to be extremely high.  The reason I’m pointing this out is because with a higher annual expense fees we could assume that they would have more working capital to make better investment choices but this is clearly not the case.

Finally, take note as to how long these funds have been around.  Two of the funds have only been around for 5+ years and the second not even that long.  These funds may gain higher returns over the long run but only time will tell.

So before you invest with your money with target date retirement funds take the time to do your homework first and see what kind of fees they are charging and what kind of returns they have currently achieved since they’ve started.

So what are your thoughts about target date mutual funds?  Are they worth it? Is their one you prefer and invest with?  Feel free to share your thoughts, comments, and questions below.

This post was recently featured in The Carnival of Personal Finance by Sustainable Personal Finance.

Filed Under: Investing

How Much Money Do You Need For Retirement

October 19, 2011 By 1 Comment

Retirement is an essential part of everyones financial plan and one of the questions you may have been asking yourself as you’ve been planning is how much money do you need to retire?  So in this article I’m going walk you through the steps and show how easy this really can be for you, and to do this I will be using my numbers as an example. So let’s get started.

5 Factors To Consider Before You Start

Before we jump into the how to part on how much will I need to retire, their are a few factors you need to consider before you get started.  These factors are the variables that stand between you having a successful retirement or not having one at all.

  • Taxes.  First off, taxes need to be a part of this plan.  You can pay your taxes in one of two ways, the first is you can pay them up front with a Roth IRA, or you can pay them when you retire and pull money out of your account.  Either way you do it you will have to pay ordinary income taxes on that money.
  • Inflation.  The second factor you need to consider is inflation.  This is the cost of goods and services going up over time.  The best example I can give on this is gas prices.  15 years ago when I got my licenses to drive, gas cost less than a $1.  Today we’re paying over $3 a gallon, and 15 years from now I expect things to increase even more simply because of inflation.
  • Age.  Third, you need to consider your current age and at what age you plan to retire.  My suggestion is that need at least 30 years to save for retirement but if you can go longer than that do it.
  • Rate Of Return.  Next we need to consider the rate of return we plan to earn on average.  As a general guideline try to average at least 8%.  This is a fairly conservative number and not to over the top.  Now you might argue that you could earn 10% or 12%, if it does that’s great but if it doesn’t you could be setting yourself up for disaster.
  • Contributions.  Finally, the last thing you need to consider is how much you are able to contribute to your retirement plan.  This is just a matter of preference and what you have available to save.
Now that we have main factors out on the table let’s see how much money do you need to retire?

Step 1: How Much Do You Need To Retire

To start you need to consider how much money is needed to retire, and to do this I will be using a great tool developed by Kiplingers which you can check out here.  In my. case I would like to have at least $50,000 in annual income.

 In the first step simply type in how much money you would like to have as an annual income each year.  In my case I chose $50,000 since that is what I’m earning right now.  Then select how many years it will be till you begin your retirement, and finally consider what percentage of your annual income you would like to receive each year.  In may case I chose 100% but feel free to go less if you want.

Step 2: Social Security And Pensions

Now that we have a good idea of how much money we would like to have in retirement let’s consider any social security and pension income.

At this point you will need to decide how much of an income you will receive from social security and any pension you might have.  In my case I’m not planning on getting any money from social security simply because I’m not sure what will actually be their when I’m even of age to draw an income from it.  However if I do recieve an income from it I just consider it an extra added bonus.

Step 3: How Much Money Have You Currently Saved

The next step in determining how much money you need to retire is to consider how much money you already have saved.

In the picture above I currently have $30000 set aside.  Below that you will have to decide what type of return you think you could average with your retirement account.  In my case I chose 8%.  Now I actually invest very aggressivly with my money but I like to plan with a lower interest rate since I know 8% is more attainable, however if I do earn 10% or better I’ll just consider it an extra added bonus.

Step 4: Home Equity

In the fourth step you need to consider if you will use  the equity in your home as part of your retirement.  A lot of seniors have been turning towards reverse mortgages as an extra option to provide a retirement income but it doesn’t have to be if you plan correctly.

 

If you plan properly you won’t also have to worry about having to deal with a mortgage either when you retire, luckily for me none of these issues are a concern for me.

Step 5:  How Big Should Your Nest Egg Be

Finally, in the last step when your considering how much money do I need to retire, you need to determine how many years you expect to be in retirement.  In my case I plan to be retired by 60 and based on my families age history I can expect to live to age 90.

On top of that I plan to invest 65% of my money towards stocks.  Finally, you can also chose to add any additional assets you expect to receive at retirement.  In my case I’m not counting on it, but you never know.

So now that we have completed all 5 steps let’s see how much I need for retirement.

The Results

In the picture above I will need at least an annual income of $104,500 to have the same $50,000 I’m spending today.  On top of that I will need at least $2 million set aside to achieve my retirement goal, and finally I will need to save at least $1564 a month in order to hit this goal.

Final Thoughts…

Now you might be thinking what if you can’t set aside $1500 a month?   If you fall into the situation which a lot of people will you will either have to look into scaling back your retirement goal or finding an additional source of income to make this payment.

In the end when it comes down to how much you need to retire follow my simple 5 step plan and you should be right on track to a successful retirement.  Feel free to share your thoughts, comments, and questions below.

Filed Under: Investing Tagged With: , , , , , , , ,

Where Is The Best Place To Invest Your Money Right Now

October 12, 2011 By Leave a Comment

Lately I’ve been considering all of the places I invest money at and one of the questions I posed to myself was where is the best place to invest your money right now?

Some people might argue that stocks are the best place, or that forex trading is, and the biggest one I’ve seen lately is investing in gold.  Now I think all three of these places are a great way to invest money but one place I’ve been dabbling in a lot over the past few years is investing my money in online businesses.

This might sound like an odd way to invest money but in this article I will compare the risk , show you why starting an online business is the best way to go,  and show you how to get started.

Consider The Risk

To start let’s compare the risk of stocks, forex, and gold first.

  • Could Lose Value. First off, all three of these investments could lose value.  This also means their is no guarantee that you will also earn any profit at all.
  • Complicated. Second, investing in stocks, forex, and gold, can be a bit overwhelming and complicated to the beginner.  This leaves you open to the possibility of losing a lot of money if you’re not careful.
  • No Control.  Finally, the last risk all of these investment opportunities has in common is that you have no control over what is happening.  If the market tanks you can’t do anything to push it back up.

Now that we know the risk basic risk stocks, gold, and forex trading have with them let’s see how starting an online business compares.

  • May Not Make Money Right Away. When I started my online business I did make money in my first year but it wasn’t much.  In fact it took me nearly 2 years to start reaping the fruits of my labor.
  • Time Requirements.  Secondly, when you are starting an online business you will have to dedicate some sort of time towards your business in order to get it off the ground, however this doesn’t mean you have to put in a 40 hour week.  In fact I can take as much time off as I need and things will keep running.
  • Knowledge. This business will require some know how about the internet and how to make money with it.  In fact when I got started in this business only a few short years ago I started with no knowledge as to how to do this but with a little help to point me in the right direction I was on my way.
  • Will Require Some Upfront Cost. Finally, this kind of business will require some upfront cost.  In my case was the cost of buying a domain name for $9 a year, and a hosting fee of $10 a month to start my site.  So even though their is an upfront cost it can very minimal.

Why An Online Business Is The Best Place To Invest Money

Now that we’ve evaluated the risk associated with investing in an online business their are several huge benefits that also come along with this option.

The Market.  First off, the market is flat out wide open.  A lot of people might argue this point but I can prove it.  Just consider this site which is centered around one of the hardest financial topics in the industry.  Their are hundreds of thousand of people online these days, in fact let’s consider the term “mortgage.”

mortgage_searchesIn the picture above their are over 11 million people who type in a search phrase in Google with the word mortgage in it every month.  Also take note of how competitive this market is as well.  With a low competition and a large search volume it can be one of the best place to invest money now.

Low Volatility.  Another great thing about investing into an online business is that volatility is very minimal.  With stocks, gold, and forex trading you run the risk in losing value every day.  To prove my point check out the chart below.

Even the S&P 500 has a lot of volatility, and when the market goes down you lose money.  In fact in early August of 2011 the market seen a huge decline and has been roller costing up and down ever since.  Now let’s look at how my online business compares.

When we look at the earning of my online business over the last year we can see a lot of ups and downs but if you notice on the top it shows that my estimated daily earnings were around $34.27.  Even though things are going up and down it doesn’t necessarily mean I’m losing value, it just means I’m earning various amounts each day and when you add them up at the end of the month I’m always in the black.

Control. Finally, the last reason I believe an online business is the best place to invest your money right now is because it allows you to have complete control.  If you invest in gold and the market tanks what are your options?  You could sell your gold and take the loss, or you could hang in their until the market returns, other than that you have no real control.

Now let’s consider the online business.  If things tank you could build up your sites content, test different advertisers, try different monitization methods, and the list goes on and on.  In fact I recently went through some tough times this last year when Google made some algorithm changes to their search engine, however this doesn’t mean my business lost value.  In fact my business is doing better than ever.

How Much Is My Investment Really Worth

Finally before I close this article I want to show you how much my business is really worth.  At this point my online business is earning around $1000 on average each month.  Over an entire year that’s $12,000 in earnings.  If you were earning a 5% interest rate,  how much money would you need to earn $12,000 in interest each year?

The answer, you would need an account with $240,000 earning a 5% interest rate to pay you $12,000 a year.  Now let me ask you this.  How long would it take you to save $240,000?   Could you do it in 10,15, or even 20 years?  I did it in less than 2 years by starting an online business.

Where To Get Started

Now if all this seam interesting to you, you might be wondering how you could get a part of this opportunity?  To get started check out The Keyword Academy.  The Keyword Academy is an online membership site that shows you how to take advantage of the opportunities I covered in this article.  So get started today and check out The Keyword Academy today.

In the end when you’re thinking about where is the best place to invest your money consider starting an online business as a way to invest your future and get ahead in your life.  Also feel free to share your thoughts, comments, and questions below.

This article was included in the carnival of personal finance by Squirrelers.

Filed Under: Investing Tagged With: , , , , ,

Low Fee IRA – Is It Really The Best Way To Save For Retirement

September 28, 2011 By 2 Comments

low-fee-iraLately I’ve been seeing a lot of commercials on TV talking about low fee IRA programs such as Vanguard.  This company offers low cost IRA fees versus most of the other brokers out there.  In fact some of these fees can be so low you almost have to wander how to they stay in business.  This prompted me to do some research and find out, are low fee IRA companies a good way to invest for your retirement?

Fee Comparison

To start I’m going to do a fee comparison between two similar funds.  One being a fund I actually invest in, the Transamerica Moderate Growth Fund and the second being a low cost mutual fund, the Vanguard Life Strategy Moderate Growth Fund.  Here is what I found when I compared the cost on these two funds.

fee_comparison

When you compare these two funds side by side you can obviously see which fund cost more in fees. Both funds earned an 8% return and started with an investment of $10,000.  The Transamerica fund charged a total of $6100 over a 20 year period.

On the other hand the Vanguard fund only charged a total of $882 in total fees.  By going with the Vanguard fund you saved yourself a total of  $5218!

On top of that by going with the Vanguard fund you earned a total of $34,871, while the Transamerica fund only earned you a total of $22,761.  That’s a difference of  $12,110!

Now obviously from the research I did it looks as if the low cost mutual funds with Vanguard are the clear winner but I want to take things a step further and compare the returns between the Transamerica fund  and what the low fee mutual funds with Vanguard had over the last 20 years.

Fee And Performance Comparison

To start we will look at the Transamerica Fund first.  This fund earned a return of 7.45% since the fund was started, and carries the same fees as the first example.

transamerica_fund_pf

If you look at the picture above you can see that by investing $10,000 over a 10 year period it cost me a total of $2435.  However this fund had over a 7% return and yielded me $16,719 as a result.  That’s a total gain of $6719, not bad.

Now lets compare are results with the Vanguard low fee IRA company.  The Vanguard low cost mutual fund earned only 4.24% since the fund started. Here is what I found.

vanguard_pf

In picture above after investing $10,000 with Vanguard for 10 years I only paid a total of $223 in fees, which isn’t bad at all.  However when you compare the earning this fund only showed a profit of $4,862 for a total of $14,862.

The Results

When you compare the total results the Vanguard fund has less fees than the Transamerica fund but the performance is better with the Transamerica fund versus the low fee mutual fund with Vanguard.

As a result the Transamerica fund actually out earned the Vanguard fund, earning $1857 more than the Vanguard fund even though it had lower fees.  In this comparison Transamerica is the clear winner.

So what are your thoughts, feel free to share your thoughts and questions below.

This article was recently featured in the carnival of personal finance by Hope To Prosper.

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Are Stock Options A Good Investment

December 11, 2010 By 1 Comment

If you’ve ever had the notion to invest money into stocks you may have heard of something called stock options.  In fact you may have been told that this may be a great way to invest money as well.  However  in this article I’m going to cover what a stock option is and if they really make good  investments after all.

What Are Stock Options

A stock option is nothing more than a contract that give the investor the right to either buy or sell their stock at a predetermined price.  This right does not mean you are obligated to do it but if you would like to execute the option you will have the full right to.  Option contracts also come with a predetermined time period as well.

For example a typical stock options contract might say you have from January 7, 2011 till February 7, 2011 to buy Walmart stock at $25.  Once February 7th has passed though you will no longer be able to take advantage of this option.

Now you might be wondering why would someone want to take advantage of something like this?  With a stock option your hedging the bet that you could get a contract with a lower call price and that the put price will be much higher.  For example, if you hedging that Walmart stock at $25 is cheap and that the Christmas season will drive the price per share up to at least $35 it would be worth taking out a stock option contract.  However the opposite could happen as well, but if your right you could earn $10 a share and if you had 1000 shares you make a gain of $10,000.

However you could use stock option contracts in other ways.  For example if you bought Walmart shares at $35 and wanted to make sure you didn’t lose much of your investment you could get an options contract that would allow you to sell your share by a predetermined time if the price happened to fall short.

The Risk Of Stock Options

When it comes to stock options though their also comes a lot of risk as well.  In fact this particular investing option is not for beginners and newbies.  Before considering an option like this I recommend at least some sort of training and education such as an online training course, a book at your local book store, or even a class at your local college.  I’ve seen a lot of people jump head first into the stock market thinking they’ll make millions without the training and end up losing thousands as a result.

The next thing you need to do is start small.  Don’t start out investing your entire life saving when you don’t know all the risk.  Instead start small putting in a few hundred bucks.  Losing this won’t put you into a financial strain.

Finally, learn as you go.  When your first getting started your bound to make mistakes, on top of that you will still be in the learning curve and picking up new things as you go.  Take the time learn from your mistakes when their small ones, this way you won’t blow a bunch of money and you’ll learn the skills you need to use stock options successfully.

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5 Good Investments You Should Defiantly Look Into

December 10, 2010 By Leave a Comment

If you’re looking for a place to invest a few bucks your in luck.  In this article I’m going to cover five good investments that you will defiantly want to look into.  However these investments won’t be your average stocks and bonds though.

Lending Club

The first option is Lending Club.  This is what is known as a social lending business.  What happens is investors sign up to lend money to others who need it.  These people can be business owners, people looking to pay off debt, upgrade their house, buy a car, even pay for a wedding if needed.

The returns on an investment like this can pay out anywhere from 7% to 23%.  The returns you get with Lending Club can out do most bank CD’s and money market accounts, however this doesn’t mean their isn’t any risk though.  Borrowers do default on loan occasionally although your money can be diversified into hundreds of different loans to minimize the risk.

Tax Free Municipal Bonds

The third option is Tax Free Municipal Bonds.  These are bonds that are held by the state.  These are used to help raise money to fix roads, maintain bridges, and even help our schools.  The great thing about these bonds though is that they are completely tax free and if you buy them in the state you live in federal taxes are with held as well.

Returns on this type of investment can yield as much as 8% but in tough economic times the rates are sure to be much lower. However with municipal bonds your money will be much safer than investing in stocks and real estate.

Vanguard

TheFourth option for investing your money is a company called Vanguard.  Now you might be wondering with all the financial companies out there why would I recommend this one?  The reason for that is because Vanguard offers some of the lowest investing fees around.

For example, a typical mutual fund company would charge a sales fee of 6% and an annual expense fee of 1.20% but with Vanguard they don’t charge any sales fee and the annual expense charges are around 0.30%.  This can save you a bundle on fees and expenses over time.

The Keyword Academy

The next option is a business opportunity.  Business opportunities like the Keyword Academy can be a great investment because as an internet marketing business it has  low overhead and carries a very low risk.

In fact as a Keyword Academy member myself I earned at least a 30% return nearly every month over the last year but returns are subject each person ability.  This investment is not the type that you just put money in and forget about.  This investment requires time and effort as well, in fact I put anywhere from 10 to 15 hours each week into this business.

World Financial Group

The final investment opportunity is World Financial Group.  WFG is a financial services company that helps families get out of debt, plan for risk with insurance, and help them save for retirement.  I worked with this company for nearly four and a half years learned a lot.

However this is not your usual investment as it will require hard work and effort but as with anything doing just those things can prove to earn big returns.  In fact while working with WFG the average person would earn anywhere from $50,000 to $100,000 a year.  Although their are risk to a business like this though.  To get started in a business like this it may cost you around $1000 to get licensed and trained  and if you don’t stick with it you could lose everything you’ve invested.

It The End…

These investments are just the beginning, their are many more where these came from however these are just a few that I’ve worked with. If you would like to learn more about any one of these investment opportunities check out the link with each and they will give you more info.

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How To Spot A Good Investment

December 9, 2010 By 1 Comment

Do you know how to spot good investments?  This is the golden question when it comes to investing your hard earn dollars in any investment.  So in this article I’m going to cover what it takes to uncover those hidden gems and find the investments that will earn decent returns.

Risk Vs. Reward

The first thing you need to do is evaluate the risk versus the reward.  Whether its investing in real estate or saving money for retirement you need to know what the risk of the investment will be and what the potential reward will be.

Risk is defined as a possibility of loss, or better way to think of it as what are you going to loose if you invest in this particular proposition.  Define exactly what it is you are going to lose.  Knowing this will give you a better sense of what is really at steak.

For example, when I was asked to invest in the opportunity of starting my own financial business it was going to cost me a $100 to get started and around $900 to complete my licensing.  So the risk to investing in this opportunity was $1000 and the time it took to achieve that success.

In another example lets say you want to invest in an apartment complex but your not sure if it’s a good deal.  The complex will cost $150,000 with 10% down at closing.  This means you’ll be at risk of losing $15,000 if this investment doesn’t pan out.

The next thing you have to consider is the reward.  Reward is defined as the possibility of a gain, or a better way to look at it is what are you going to gain if this investment works out.  Before you consider any investment define exactly what it is you’ll gain by investing in this opportunity.

For example going back to the investment business opportunity if I were to take part in this opportunity what would I gain.  For the average person working with this financial service company they were earning between $50,000 to $100,000 a year.  This means that the reward was much higher than the loss.

On the other hand considering the real estate example if I were to invest the $15,000 to buy the apartment complex and as the reward I were to earn $1200 a month or $14400 a year the reward might just be worth the opportunity. However their is one more thing you need to do before you consider this investment.

Due Diligence

Before you can consider any opportunity no matter how great the reward looks you need to do your due diligence.  In other words you need to research what you’re about to invest in.  Knowing exactly what your investing in is very important.

For example, as in the business opportunity investment the reward was very high and the risk was minimal.  However what is all going to be involved in an investment like this?  Will their be other cost and fees such as E&O insurance, training fees, and most importantly what kind of time and effort is going to be required of you.

The same goes with the real estate example, the reward over powers the risk but what about the extra added fees such as utilities, and tenant issues, vacancy rates, and most importantly the time  involved to maintain an investment like this?

Knowing these things upfront makes it easier to make a confident investing decisions.  Are you considering these things to spot good investments?  If not take this time to do it now, and in the end it will make you a more confident investor.

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Good Financial Investments: Did You Pick The Right Ones

December 8, 2010 By 2 Comments

In a recent article I showed you how to go about picking good investments for you retirement portfolio by using a risk tolerance quiz developed by a company called Morning Star.  So in this article I’m going to give you a few other tidbits to look at as well and in the end hopefully by the end of this article you may have realized if you’ve picked the right ones or not.

Past Performance

As a previous financial representative I can tell with all the people I’ve dealt with over the years one thing is certain.  Not many of them looked the three things I’m about to cover. First off, we have the past performance of the funds your looking at investing into.

Now I know that past performance does not indicate future results but it does give you a good idea as to what lies ahead for the funds you are choosing.  For example in the picture below you can see an example of a few funds offer by Vanguard.

fundsIf you notice in the picture above I like to look at the inception number column.  This column shows me what the fund has done from the day it started.  The reason it’s better to look at this column versus say the 1 years average returns column is because it will give you a long term approach of how this fund might do over the next few decades.  In fact some people will only look at the 1 year returns and end up always chasing the fund that has the best return.  This not a good idea and is a sure way to destroy your retirement.

Cost

The next thing to look at is the cost of the funds you are buying.  I can tell you in all the years I spent helping people save for retirement not one person told me that a fund was to expensive.  In fact as a financial representative I was required to show them and no one ever thought twice about questioning it.

This leads me to the point that most people pay way to much for their investments.  In factI  find a lot of times people will pay brokers up to 6% in upfront commissions and annual expense fees of  up to 1.5%.  The truth is their are much better deals out their than this.  In fact below is a picture of one of Vanguards funds.

feesNotice how low the fees are compared to similar companies.  The expense ratio is only 0.18%, that’s damn cheap.

Type Of Funds

Finally, you need to consider the type of funds your investing in.  Some funds are riskier than others.  This may have prompted you to stay in the least risky investments.  However being in these investments can be a risk as well.  You may not lose as much money with these funds but you’ll struggle to get high enough returns to build a solid retirement.

Instead stick with a mix and variety of different funds.  In fact a good portfolio will have funds invested into everything from conservative investments like bonds, Tbills, and even cash to riskier investments like stocks, real estate and commodity funds.

Now that I’ve shown you a few things to look at on your portfolio I suggest you take the time now to see if you meet all the criteria I’ve covered above.  You might be surprised at what you find.

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