Setting Goals to Get What You Want

How specific are you when you set your goals? If you were more detailed do you think you’d be more likely to reach them?

I’ve always heard that being very specifc about your goals increases your chances of achieving them. Last weekend, I saw some pretty good examples of this theory in action.

A Ten Year Plan

I met with about 40 other people for our 10 year college reunion and spent a few hours catching up and visiting about where they were in life.  During the course of the evening they were showing a video that was taped about 10 years ago, interviewing members of our class right before graduation.

One of the questions people answered on the tape was, “Where do you think you’ll be in 10 years from now”.  Some of the responses were pretty general like “I hope I’ll be making a lot of money somewhere”. Other people laid out their plans in great detail.

Unfortunately, I wasn’t on the video.  I’m not sure why I didn’t participate; perhaps I was studying hard for finals or maybe I was celebrating my pending graduation.  Whatever the reason, I know if I had that I wouldn’t have been as detailed as many of the responses that I heard.

Achieving Goals

As I visited with people after we watched the video I made a point to ask each person how close they had come to meeting their “ten year plan”.

Not surprisingly, more of the alumni with very detailed plans had reached the point in their life that they had been aiming for.   Of course not everyone’s plans had worked out.  Some people had changed course over time, others had tried unsuccessfully and had to change their plans.

Overall, the people that were specific about what they wanted their life to be like ten years down the road were more likely to have achieved those goals.  Now I need to sit down and make out my 10 year plan to get my family where we want to be when our kids are teenagers, gulp : )

---

What Kind of Spender Are You?

When you look around at all the things you own, what story does it tell about the kind of spender you are? Are you a smart, calculated spender that parts with your money only when necessary or do you tend to spend more freely and frivolously?

When I bought myself a green hooded Columbia Sportswear winter jacket over ten years ago I didn’t realize it would come to symoblize the kind of spender that I would become.

As a broke college freshmen combing through the bargain racks in the mall I almost choked on my gum when I found the deal on the coat. I almost felt like I was stealing the jacket it was so heavily discounted. Turns out the coat was a great purchase, it’s kept me warm through many cold winter days over the years.

As I walked into my 10 year college reunion dinner this weekend I realized I was wearing that same winter coat, the one I’d used throughout my college career. Reflecting on why I was the only one sporting a vintage 1990’s jacket I was reminded that I’m a rather miserly spender. I didn’t mention my observation to my wife because she I’m sure would have been embarrased and sworn then and there to buy me a new coat.

Of course you don’t have to keep the same coat for over 10 years to think of yourself as a smart spender. Everyone’s priorities are different, you may feel more strongly about your wardrobe than I do and update it more frequently. But look at the overall trend of your spending to see how you spend money. If you spend freely and often in all areas of your life then you have the potential to save yourself thousands of dollars a year simply by taking the time to think over each purchase for a few seconds and ask yourself whether you’re being a smart spender

For me, my green coat represents the approach of minimalist spending; I try and spend money only when I have to. That approach doesn’t work for everyone but I’ve done a decent job mastering the skill.

What approach do you take to spending? How much money could you save each year if you put a little more thought and discipline into your spending?

---

Bond Investing Strategies

Bond investing strategies to help you decide how to invest in bonds are the next topic to cover now that we’ve talked about bond investing basics and some bond investment terms.

Bond Ladders

Bond ladders are a strategy where an investor purchases bonds with different maturity dates. It is the fixed income equivalent of dollar cost averaging. Let’s say for example, an investor wants to spread out the maturities of their bonds, but keep an average weighted maturity of 5 years. They can purchase five bonds with maturities of 1, 3, 5, 7 & 9 years. As the bonds mature, the investor will continue to purchase bonds at the longer maturity.

This helps the investor manage interest rate risk. When interest rates are rising, they can purchase into those bonds with the higher yields. If the rates are dipping, the investor will still purchase the bond and take advantage of the yields of the current bonds they own.

The further the maturity the date, the riskier the investment can be. Most bonds are issued with a maturity date 30 years out. If an investor has a longer timeframe, they can push out the maturity dates of the ladder for a possible higher yield.

Bullet Bond Strategy

This strategy is great for an investor who has a specific target date. For example, a child will be attending college in 15 years. The investor does not need the principal of their investments until that time. Bonds of different varieties and lengths, but with maturity dates around the same time 14-15 years out, can be purchased and held until maturity. There is no interest rate risk because the funds are not being used to purchase new bonds.

Another way to do this, or combine with the bullet strategy is to purchase zero-coupon bonds. These are bonds that are sold at a deep discount, but do not pay any interest. An investor can purchase these bonds and hold them until maturity and take advantage of the discount they received.

Barbell Bond Strategy

With a barbell, the investor purchases bonds with a short-term maturity date and then others 20-30 years out. You create an average weighted maturity somewhere mid-term. In this case, the investor is hoping to take advantage of the inverse relationship of price and yield. If the yield of the longer term bonds drops, the price of the actual bond on the market will go up. The investor will then sell those bonds and realize the gain in principal. They use the shorter term bonds for the interest.

All investment strategies have risks, but this one can hit you on both ends. The yield of short term bonds can drop and long term bonds can rise. If this happens, the barbell strategy becomes a loser for this investor.

Bond Diversification

One final strategy is to treat your bond portfolio as you do your stocks. Think of the maturities and credit ratings of bonds the way you do market cap for stocks. You can purchase a mixture of bonds based on industries, maturities, credit rating and geographic location. We won’t go into the details here because this takes a bit more work, and is not for the novice investor. It can have a rewarding effect on your portfolio though.

As with any investment, each of these strategies comes with varying degrees of risk and different tax implications so make sure you consult a financial professional before making any decisions.

---

PayPal Discourages Use of Credit Cards

PayPal encouraged me to pay with my bank account rather than my credit card as I was setting up a subscription payment last night.  When I first setup the subscription in PayPal it defaulted to use my bank account as the funding source.

I wanted to switch it over to use my credit card just in case the subscription payment was due and there was no cash in the bank account.  In my case it wouldn’t be that I didn’t have the cash, it just might be in another account.  So rather than have the payment not go through, I set it up to use my credit card as a funding source.  Plus that buys me another few weeks of time I can hang onto my money before I actually have to pay for it.

When I attempted to change my funding options from bank account to credit card, PayPal prompted me with the message below:

You’re choosing not to pay with a bank account. Please note that both bank account and credit card payments are sent instantly, and account numbers are never exposed to the merchant.

 

You’ll also find that transactions paid with a bank account:

 

    * Will not accrue credit card finance charges.
    * Let you stay in control of spending and avoid credit card debt.

 

No matter how you pay, you get 100% protection against unauthorized payments sent from your account.

 

Do you want to make this payment with your bank account?

I went ahead and choose the credit card option but thought it was interesting that PayPal is discouraging the use of credit cards and encouraging paying with cash using this approach.  Perhaps it’s to avoid paying fees to the credit card company for processing?

I’ve been to plenty of brick and mortar businesses where they don’t take credit cards to avoid the fees but whatever the reason, this is the first time I’ve ever seen something like this online before.  Have you ever had a business or payment processor encourage you to use cash over credit online?

---

Bond Investing Terms

Bond investing terms can be confusing for someone who’s never been around the bond market. I remember the first conversation I had with a bond investor; I knew he was speaking English but his talk of yield curves and zero coupon bonds made it feel like a foreign language.

If you don’t know the bond investing basics jargon, you could easily get left behind, or worse, make a poor decision. Here’s a quick list of terms to help as you navigate investing in the bond market:

Accrued Interest – The interest that has been earned, but not paid out to the bondholder. Bond interest accrues equally every day and does not compound.

Call Date – Some bonds have a provision that give the issuer the ability to redeem the bond early. There is usually one call date per year. The list of dates is called the “call schedule.”

Call Premium – The payment by the bond issuer if the bond is called before the maturity date. This is the incentive that makes bond investors look at callable bonds compared to non-callable ones.

Coupon Payment – The actual dollar amount paid to the bondholders at each coupon date.

Coupon Rate – The annual interest rate paid to bondholders. Rates are generally fixed, though variable rate bonds are available.

Current Yield – The annual interest payment divided by the current market price of the bond.

Discount – This is when a bond is sold at a discount to its face value.

Face Value – Also called the principal or par value of the bond, this is the amount that will be repaid when the bond matures.

Maturity Date – The day in which the last interest payment is made, and the face value of the bond will be repaid.

Real Rate of Return – The combination of the interest earned and the market value of the bond.

Term to Maturity – The time left until the bond matures and the principal is repaid.

Yield to Call – This is the calculated yield from the current time until the call date. It is assumed that the bond will be called at the next call date.

Yield to Maturity – The compound average annual expected rate of return if the bond is purchased at its current market price and held to maturity. It is assumed in the calculation that the interest payments are reinvested for the life of the bond at the same yield. This is also called the internal rate of return of the bond.

Yield to Worst – This is a “worst case scenario” in terms of yield on a bond. It is the lowest yield possible for a bond.

This is certainly not an all-encompassing list, but I do hope it helps you the next time you hear investors talking about the bond market on television or if you’re looking up a bond quote yourself. For an intro to bonds you can check out the bond investing basics post; next time we’ll take a look at some bond investing strategies.

---

Bond Investing Basics

Bond Investing Overview

Bond investments should probably be a part of most portfolios; across all ages, investing goals, and levels of risk tolerance. The problem is many people spend their time learning how to invest in stocks and aren’t aware of the benefits that investing in bonds can offer.

In general, investors spend very little time investigating the opportunities in bonds, and because of this can leave money on the table. Over the course of the next few articles, I’m going to share some details on the different types of bonds, some bond investing terms, and finally some bond investing strategies that you can implement in your portfolio.

Bond Definition

Let’s start at the very beginning. A bond is a debt security. When an investor purchases a bond, they are lending money to the issuer of that bond. In return for the cash, the issuer gives you a document, or a “bond,” stating that they will return your money to you at a certain date, either the maturity of the bond or when it is “called.”

You will also receive a specific rate of interest for the life of that bond. Like stocks, most of them are traded electronically now, so you will not receive an actual “document,” but you will receive all of this other information.

Types of Bonds

There are many different types of bonds. They each have their own features and benefits. Which ones fit into your portfolio depend on what you are looking for.

Municipal Bonds – These are bonds that have been issued by states, counties, local municipalities and other government entities. They are used to finance the building of hospitals, highways, schools and other public projects that help that community. Many of these bonds offer both state and federal tax exempt income for residents of that state. For example, if you lived in Texas and purchased a San Antonio Hospital bond, the interest you earn from that bond will be tax-free. Not every bond offers this, so make sure you know what you are purchasing or consult a professional.

U.S. Treasury Securities – These encompass T-bills, T-bonds & T-notes. TIPS also fall under this category. These are securities issued by the U.S. Treasury and are backed by the “full faith and credit” of the U.S. government. These are considered to be the safest investment and have no “credit risk” in that the chances of not receiving your interest or principal back from the government are extremely small (trust me, if you don’t get paid, we all have a LOT more to worry about at that point).

Corporate Bonds – These are bonds that are issued by companies to help finance expansion other capital investment or cash flow. Investors have a much wider range of possibilities here, but also more risk. Whenever you invest in a bond, you always take on the chance that the company could go bankrupt or fold. It is important to know the credit rating of a specific bond and that company before you purchase the bond.

Mortgage-Backed/Asset-Backed Securities – When an investor purchases one of these, they receive a stake in pools of loans or other financial assets. As the loans, or other assets get paid off, the investor receives interest. These securities have come under considerable fire over the last two years. With the housing bubble and the implosion of several major financial companies, these types of investments were used too often, and in ways they were not made for.

These are the four major categories of bonds. Inside each of these are many more varieties of bonds and other debt securities. As always, make sure you do your due diligence when purchasing bonds. They have more moving parts than a stock. I’ll go over those moving parts in the next article on bond investing.

---

Ally Bank Review

Ally Bank,  formerly known as GMAC Bank,  is an online bank designed with the needs of the consumer in mind.  The bank offers an online savings account, certificates of deposit products, and a money market account – all which are FDIC insured.

About Ally Bank

Ally Bank was built on the foundation of GMAC Financial Services.  They took their years of experience in the industry as GMAC, combined with the knowledge that the consumer has different banking needs in our existing economic conditions, and morphed into Ally Bank and a new way of doing business.  Accounts can be opened without a minimum deposit required, and you do not have to maintain a minimum monthly balance, either.  When Ally Bank says their banking charges no monthly fees – they mean there are no monthly fees.

The Ally Bank Difference

The Ally Bank mission is to be straightforward with their customers.  They strive to find the various pain points customers experience with other banks – and then eliminate them through their own practices and policies.  They don’t hide any terms or conditions – as evident in the many Ally Bank commercials circulating television and Youtube.  While the commercials are very entertaining, they also make the point well that keeping things hidden or in fine print is wrong – and claim that doing so is not how they do business.

Ally Bank alerts their customers when their money could be earning more.  For example, with their 10 day Guarantee for best rates on Certificates of Deposit products, Ally will ensure you get the best rate possible.  Most other banks don’t provide any rate guarantee, which means the CD rate you receive will never be higher than expected, but it could be lower.  Ally Bank compounds interest daily, helping your money earn more compared to banks that compound monthly, quarterly, or even annually.

Another difference between Ally Bank and many others is their understanding that not everyone lives and sleeps on the same schedule.  In order to accommodate the various lifestyles of it’s customers, Ally Bank offers customer support services 24 hours a day, 7 days a week.  This should eliminate some of the frustrations graveyard shift workers experience when trying to call their banks.  People who work the overnight shift are typically sleeping during the standard banker’s hours.

Since Ally Bank is an online bank, their overhead operating costs are much lower than a bank with physical branches to maintain.  The savings they receive through lower operating costs are passed through to their customers in terms of higher interest rates.  Ally Bank, being part of the GMAC family of financial products, also has an asset generation business, enabling them to put deposits to work more efficiently.  They originate competitive, quality loan assets from the GMAC mortgage and auto loan operations profitably at these deposit rates.

Financial Products Offered at Ally  Bank

Ally Bank offers a number of financial products.  If they think your money could be earning a higher rate – you’ll receive a “sleeping money alert”, letting you know you might be able to get a better rate with a different product.  Financial products available at Ally Bank include:

• 1 year classic certificate of deposit
• 9 month no penalty certificate of deposit
• online savings accounts
• money market account

How to Take Advantage of FDIC Insurance at Ally Bank

You can feel confident your deposits are safe, because Ally Bank is FDIC insured up to $250,000 per investor through December 31, 2009.  You can actually insure money over $250,000 as well.  Each individual in your family can be insured up to $250,000 on a single-name, FDIC insured savings account.

For example, Mike Smith can open an account in his name and receive full FDIC insurance coverage.  His wife, Mary Smith, can open another account in her name, and receive full FDIC insurance coverage.  The Smiths would currently be FDIC protected for $500,000.  If they still had more money to deposit, they could open a joint account, in the name of Mike and Mary Smith, and receive $250,000 FDIC insurance protection on that account, too!

In some states, you would also be allowed to open single-named accounts in children’s names.  Another option to increase your FDIC insurance protection would be to consider opening trust accounts, with the money payable to the beneficiaries of the account upon your death.

To open an account or check out the current rates for the online savings account, money market account, or certificate of deposit click here.

---

529 College Savings Plan Overview

A 529 college savings plan is another way for U.S. families to prepare for the high costs of college. Named after section 529 of the Internal Revenue Code, this investment vehicle has some similarities with and differences from the Coverdell ESA.

A 529 plan is another tax-advantaged plan that is designed to give incentives for education planning. Like the ESA, there is one custodian and one beneficiary for each account. The beneficiary can be anybody, even yourself (yes, you can go back to school for that degree you’ve been thinking of AND take advantage of the 529 for yourself).

State 529 Plans

Each state manages their own 529 plan and usually offers incentives for its residents to utilize the in-state version. Some states offer state tax deductions for contributions to residents. If you feel the tax deduction is not as important as performance, you can do the research and pick a better program and invest in that plan.

There are two types of 529 plans: the prepaid tuition program and the savings program.

529 Prepaid Tuition

The pre-paid plan gives you the ability to purchase future tuition at today’s prices. It generally covers all state and community colleges and may encompass private schools as well. It is best to confirm if your state offers this program and what the rules and limitations are. In this program, all funds are pooled together and invested to cover the increase in tuition over time (or so they hope).

Many of these pre-paid plans require that the beneficiary be 15 years old or younger. The tuition can be purchased in a lump sum or paid through monthly installments. Be aware, having a pre-paid tuition plan does NOT guarantee that the student will be accepted to that school.

529 Savings Program

The savings plan works much like a 401k does, in that the custodian has the choice of choosing the different mutual funds offered in the plan to invest in. In most cases, the “age-based” portfolios are the most popular. There are generally some kind of maintenance fee associated with the plan, and if the plan is bought through a financial advisor, mutual fund-type commissions. Each state offers different options and must be researched before you make a decision.

529 Contributions

Currently the contribution limits follow the rules for gifting. $13,000 may be contributed per beneficiary per person. This means mom & dad can put $13,000 each in for little Johnny or Suzy. There is a 5-year “pay-forward” in which you can put up to five years worth in at one time. This works out well for estate purposes; Grandma & Grandpa can each contribute $65,000 and remove the funds from their estate for tax purposes.

There are no income or age limitations to the savings plan. Anybody can contribute and take advantage of the opportunity. Like ESAs, 529 plans are also not factored in when applying for financial aid.

529 Distributions

Like the ESA, qualified withdrawals are federally tax-exempt, and in most cases, state as well. Unlike the ESA, 529s can only be used for secondary education. These funds can be used at any accredited college or university in the US, and in some cases, abroad as well.

If the beneficiary does not go to college or receives a scholarship, there are options to do something with the funds. One alternative is that they can be transferred to another member of the beneficiary’s family. If the funds are withdrawn for an unqualified reason, the earnings (but not the original contribution) would be subject to both federal and state taxation as well as a 10% penalty.

College Savings Plan

It is estimated that for children born this year, the average cost of a four year college education will cost over $250,000. Sure, that number is intimidating but it will be less so if you start saving now, even if it’s only one dollar at a time.

---

Coverdell Education Savings Account (ESA) Overview

Coverdell Education Savings Account History
Years ago, there used to be an account called the Education IRA. It was created by the government to help parents prepare for the costs of schooling for their children. This account was not that popular, because at the time, it had a $500 annual contribution limit. I remember clients telling me back then that the low limit “just wasn’t worth it.”

In 2002, like any smart company would do when their product isn’t getting used, Congress went back to the drawing board. It was re-branded as the Coverdell Education Savings Account or ESA (named after the main sponsor, Paul Coverdell, R-GA). The new & improved product took care of the biggest flaw by raising the annual contribution limit to $2,000.

Coverdell Account Contributions & Limits

That ESA limit is the same today, but it is subject to income thresholds. The person funding the account (whether it is a parent, grandparent, uncle, etc.) must have an AGI below $95,000 if single and $190,000 for anybody filing a joint return. These limits are phased out for income between $95,000 – $110,000 and $190,000 – $220,000 respectively. One way you can avoid this issue is by gifting the money to the child so that they make the contribution it to the ESA.

Contributions can be made until the beneficiary reaches the age of 18. The account must be depleted by the time that person reaches the age of 30 to avoid tax penalties. The custodian for the account can also appoint another eligible beneficiary.

Coverdell Investing Options

Unlike a 529 plan where you are limited to the investments of the specific sponsored plan, ESAs have the ability to invest in stocks, bonds, mutual funds, etc. Like the 529 plan or any other custodial account, the custodian has the authority to run the account and make investment decisions. However, those decisions must be based on the minor’s situation. For example, a 17 year old high school senior should not have their account invested in aggressive stocks if the money is to be used the next year for college.

Coverdell Distributions

All withdrawals for “qualified expenses” are tax free. “Qualified” is a broad term in this case for the IRS. All room, board & tuition, books, etc. qualify for the tax-free treatment. However, if your child wants an apartment off campus, the rent for that apartment is NOT qualified. The biggest difference between the ESA and a 529 is that the ESA allows you to use the funds for primary and secondary school expenses. 529s only allow the use of the funds post-high school graduation.

College Planning

Keep in mind the money inside an ESA is not factored into financial aid analysis because technically the funds are not owned by the beneficiary. Hopefully this info on the ESA gave you some things to consider when you look into investing in your child’s future. Some people may choose an ESA over a 529, others may choose both. Either way, use something, it will certainly be in your and your child’s best interest to do so.

---

TradeKing Promotion $50 Bonus

TradeKing $50 bonus for new accounts starts today & runs through the end of the month. The online stock brokerage is running this promotion for new customers that open an account in the month of October. No TradeKing promo code is necessary, you’ll get your $50 bonus after you make your first trade.

You can read more about the online broker in this TradeKing review. Kiplinger picked them as the best in customer service in 2008, beating brokerages such as E-Trade, TD Ameritrade, and Charles Schwab.

There was a similar TradeKing promotion in the fall of 2008 and just like last year this bonus isn’t avaible directly through their site. To earn the $50 bonus, you have to go to this page to sign up. The promotion runs through the end of the month, in order to get the bonus you must open a new account and make a trade. Click Here to Try

---

Page 87 of 190« First«...102030...8586878889...100110120...»Last »