Investing Baby Steps #2: Different Investing Strategies for Beginners Part 2

by Mike | Posted in Investing, Investment Thursdsays | 5 Comments

A couple of weeks ago, I started the different investing strategies for beginners with the most secure asset allocations. Especially when you start investing, you don’t know exactly where you are heading and you do not want to take too much risk. However, even among beginner investors, there are some who are willing and able to invest in a more aggressive manner. This is why I am talking about the next 3 asset allocations:

The SUV (60%-40% fixed income / 40%-50% equity)

The SUV is useful and versatile. This is the type of vehicle that allows you to benefit from more stability on the road during storms while helping you to drive fast enough in beautifule weather. This asset allocation is usually qualified as a “balanced asset allocation”. You are basically looking to a half and half (fixed income / equity) structure.

- This is the most common type of investor according to investment guide: the balanced profile. While reaching 50% in both fixed income and equity, you have plenty of managed portfolios for your need. Select one that is well diversified in terms of geography and sectors of the economy (different industries) and that is low on MERs (management fees).

- If you are diligent in your research, you will be able to find package ETFs (exchange traded funds) that follow indices. Therefore, your stock portfolio won’t cost much in terms of Management fees and will track several indices (bonds, US market, Canadian market, International market and emerging markets for example).

- Mortgage funds, privileged shares’ funds or REITs can be added for the fixed income portion (I would avoid dividend funds as they are often sold as fixed income funds but they are still contain stocks for the most part).

The BMW M3 (30%-20% fixed income / 70%-80% equity)

If you have ever tried to race against a BMW M3, you probably realized that you need a pretty fast car to win! The M3 is very stable at high speeds and is not afraid to take a curve at 80 mph. However, if you push it too much, you can surely end-up in the ditch!

- Now, you are joining the most aggressive investors. Remember that growth portfolios reached almost -25% in 2008. If you think you can handle it, you can try managed portfolios. They offer a great investing opportunity as they rebalance your portfolio every 6 months to make sure that you keep the same asset allocation.

- However, I would lean more towards a combination of index funds, ETFs, money market funds (for liquidity) and bond funds.

- If you think you can handle the pressure, dividend funds or preferred shares funds could be a good alternative for your fixed income part. They will provide higher fluctuations than bonds or money market funds but they could provide a better return over the long run.

The Formula 1 (10%-0% fixed income / 90%-100% equity)

If you are in this category of investors, it means that you are married to the market (for better and for worse!). The formula 1 is the fastest car but don’t count on it to go through road blocks. High speed, but high fluctuations are part of the package as well!

- The only fixed income held in your investment portfolio should be money market funds for liquidity. This allows protecting your cash from inflation and you can withdraw this money at anytime to make your next investment move.

- If you have a systematic investment mindset, I suggest you purchase index funds with it. ETFs have a lower MERs (fees) but they cannot be bought on a monthly basis (without including the transaction fees). Be careful with index funds. Try to get general index (like index linked to S&P 500 or international markets) at first.

- If you prefer to trade directly, I suggest you open a brokerage account and get some trading courses (You can try these 10 trading lessons for free (no commitment or hidden subscription fees) from INO).

Author: Mike.

Image source:Jennifer Phoon, The Pug Father , A Geek Mom

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If you can’t handle $5, why should I give you $10?

by Stew | Posted in Wealth Little By Little | 9 Comments

I think the above statement most readily applies to government, but I know there are some folks out there who think that government does not have enough money . . .  Politics aside, how often do we think, “Boy, if I would just win the lottery,”  or “I wonder if I am in somebody’s will?” or, “if I could just find something around my house that would sell for five figures on Antique Roadshow, all my money troubles would be over!”

But will more money smooth your financial road? The truth is that one in three lottery winners will go broke withing five years and one of the most difficult challenges for professional athletes is the transition from being broke to great riches in just a few years. Purchasing a lottery ticket probably demonstrates poor financial decision making skills in and of itself.

As I walk through life, I observe that some of the wealthiest people pry money out of their wallets with great effort. They drive humble cars and live in houses that are comfortable but not extravagant. In contrast, many folks who have “flashy” riches often deal with major debt behind closed doors or their financial lives follow a cycle of boom and bust. When their income stream is full, they live high on the hog, never thinking that their income might change in the future.

Luke 16:10

Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much. So if you have not been trustworthy in handling worldly wealth, who will trust you with true riches? And if you have not been trustworthy with someone else’s property, who will give you property of your own?

If one cannot handle the few pennies that are in his possession right now, how can he be a good steward of quarters and dollars in the future? If you struggle with debt and overspending, more money will compound and multiply your struggles. However, in this passage, Christ is not just speaking of financial wealth, he is explaining that we have all been entrusted with assets in this life. We all have something that we bring to the table. And if we want more, if we desire greater responsibilities, his question to us will be: “What are you doing with the things that I have already given you?”

Article by Stew

Photo by House of Sims

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How to Properly Prepare for Filing Your Taxes

by Mike | Posted in Guest Posts, Taxes | 2 Comments

The following is a guest post from Manuel Davis. Manuel is a tax accountant and writer for BackTaxesHelp.com and helps individuals with various IRS problems.

How to Properly Prepare for Filing Your Taxes

While April 15th may seem far away, now is the time to start thinking about your taxes to ensure that your tax filing goes smoothly. The main causes of tax filing errors are rushing and not having all necessary tax documents on hand. Even if you plan to use a tax professional, it is important to start working with them early since it is likely they will be rushed towards the end of tax season. Below are some steps to follow to ensure your taxes get done properly and nothing is missed.

  1. Organize Documents ASAP: The sooner your organize your tax documents the sooner you can spot errors or figure out what is missing. You should typically receive all your documents needed to file your taxes by the first week in February since companies are required to post mark most tax related documents by January 31st. These documents can include W-2s, 1099s, Interest & Dividends reports, 1099Bs, and 1098s. If you notice you are missing any of these documents by the end of the first week in February it is a good idea to follow up with the company you are missing these documents from to ensure they are on their way.
  2. Research: The tax code changes every year and there are more tax credits and deductions that become available. It is a good idea to look up the most common tax credits and deductions that you can legally take. If any of these apply to you then it is important to get the proper documentation to backup your claims for how much you are going to deduct on your tax return. If you want to learn everything you can about filing your 2009 tax return, you can read IRS publication 17, a 305 page document created by the IRS detailing information about your federal income taxes.
  3. Consider Hiring Professional Help: The tax code is complex, and it is unlikely you will read a 300+ page document that details your individual income tax filing for 2009. For this reason, hiring a tax professional is recommended. They file many returns and will likely know fairly quickly what tax credits and deductions will apply to you after a brief interview about your finances and other applicable situations. If you think about it, if a tax professional can find one small deduction that you would have missed, this will likely more than justify the expense of using the tax professional. Also consider going to the tax professional early on in February in order to get started. They can do a brief review of the documents you already have and can advise you on other documentation that you should receive or need in order to get your taxes properly filed. There are also many tax programs or computer software applications that simplify the tax filing process for individuals and businesses.  However, it is still advised to use a tax professional as deductions and credits can still easily be missed when using tax preparation programs.
  4. Are you going to owe taxes? Consider how to pay: Typically individuals do not realize they will have tax debt at the end of the year and fail set aside enough money to pay what they owe in full. If you are one of these individuals it is important to plan how you will pay. The IRS may encourage the use of a credit card but this may cost you more in interest and fees than other methods that are available. The most common way to pay taxes if you cannot pay in full is through the use of an installment agreement. An installment agreement will allow you to make monthly payments towards the taxes owed. The interest and fees involved with this type of payment arrangement is typically less than using a credit card but will require a bit more paper work to get setup. It is important to file this right away with your taxes in order to reduce the failure to pay penalty.
  5. Plan how you will file: If you mail in your tax return via standard mail and the IRS does not receive it, it is the same thing as you not filing. For this reason, it is a good idea to consider using certified mail. Using certified mail will provide proof that the tax return was mailed prior to the due date and you will know the return was actually received. Another great option is to file your return electronically because you will receive an acknowledgment that your return was received within 48 hours. If you foresee difficulties in getting your tax return filed by April 15th, consider filing for an extension. An extension will give you until October 15th to file your taxes, but if you owe taxes you must pay 90% by April 15th.

Preparing for your tax filing does not need to be overly time consuming, it just needs to be organized and planned out early. Early planning and organization can greatly decrease your chances of making mistakes and can lead to higher deductions and possibly a larger refund each year. While a tax professional is not required, it is highly recommended since it is likely that the fee for their service will be more than offset by savings you will likely receive.

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What will you do with your tax refund?

by Stew | Posted in Taxes | 20 Comments

A couple of weeks ago, I asked, Should a believer contribute to IRA’s, 401K’s or other retirement accounts? The post generated some interesting comments and discussion. While I still think that some form of retirement savings is a good idea, my financial focus was challenged by that thought: Am I really storing up treasure in heaven? Or am I focused on comfortable life here on earth?

This weekend, I finished the bulk of my tax work. I have just about all of the numbers entered and I am waiting for a few documents to arrive before I submit my final filing through Turbo Tax. It looks like I am going to get a pretty nice refund. I’m not crazy about our government sending all kinds of cash to people like me who are going to get more money back than they paid in the first place, but I accept it as a fact of our country.

You see, we are in a financial situation where we depend on our tax refund, again, I wish that was not the case, but this year, that money will go toward paying off the final portion of my school loans and the rest of a 0% introductory APR balance transfer that is about to expire in March. Every year we get closer to balancing our budget without that tax refund – this year will be the closest that we have come to that point. Most years, our refund money is spent before it is direct deposited in my checking account, but I started thinking: what I would do if I could balance my books without that influx of cash every March?

You know what I wish I could do? I would like to my tax refund to my church. Think about it – it is a painless donation, all I have to do is file my taxes. If we could live within our annual income, I could make a charitable donation with my tax refund! Since tax refunds do not count toward annual taxable income, the donation would provide a major deduction on next year’s taxes. I have a number of friends who are getting refunds in the amounts of$4,000 to $6,000 – that is major money.

Now, I prefer to give most of my charitable donations to my church. I am confident that the money is being used wisely and according to the budget. I am certain that funds given to my church will be used in a God-honoring way. You might not have the same confidence in your church – I would ask, then why are you attending there? But if your are not comfortable with a church donation, maybe choose a charity that you are excited about.

I know, the temptation to use free money for retirement or to add to one’s savings account is strong.  I know of a lot of people who use their tax refund for stuff like flat screen televisions or an extra vacation or a down payment on a car or an Xbox or a Wii – yikes! God has promised to meet our needs and if He has met your needs,  maybe your tax refund is something that He could use to meet the needs of your neighbor.

(If your income level is such that you do not qualify for a tax refund, I want to thank you for the donation that you have given the rest of us.)

Article by Stew

Photo by diametrik

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Friday Gathering: Signing Day Edition

by Stew | Posted in Friday Gatherings | 4 Comments

If you are a college football fan, this was a big week. All the fans in my state are upset about all the top recruits that signed to play out of state . . . Here are some articles that I found interesting this week:

I am not quite sure what to think of Lynnae’s post about her 5-second rule. I tend to be a little like Jerry Seinfeld when it comes to germs. Maybe that’s why Lynnae is “being frugal” and I’m just Stew . . .

I do not think I have a shopping addiction, but I read the Silicon Valley Blogger’s ten questions just to make sure.

Ron asks, Would you rather be right or be employed? I tested the boundaries of that concept recently . . . thankfully I am still employed. ;)

Mighty Bargain Hunter eats oat meal for snacks. Bleh. But he seems to save money doing it, maybe I need to broaden my tastes.

Generation X Finance relays some advice on what to do when you have a bad financial advisor. Good article, is what should I do when I give myself bad financial advice?

That’s the list. Have a great weekend and remember, do not just spend money, spend time with family.

Article by Stew

Photo by SD Dirk

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