Invest In What You Know

A good investor wants to reap the rewards of good choices, and this is why a good investor will tell you to only invest in what you know best. This is the first step in improving your chances for having a successful portfolio that yields dividends and solid investment returns.

Having the Investment Advantage

Invest in what you know best
Always invest in what you know best

While you may understand how a company works investment-wise by looking at their revenues and growth percentages, you definitely have an advantage when you understand the things about a business that are not so obvious. When you really know a company’s products or their target customers, you understand the ins and outs of the industry and can comprehend what factors will help a company perform great or not-so-great.

Your comfort level with an investment certainly gives you an advantage when making decisions. Your confidence in what you know helps you to make better, more educated decisions. If you are always second-guessing your decisions in markets you don’t know, it is likely you will not find the same successes.

What You Don’t Know CAN Hurt

The old adage, “what you don’t know can’t hurt you,” doesn’t apply to investing. in fact, the opposite is true. When you are dabbling in uncharted territory, there is higher risk of making mistakes with your investments. You are also likely to fall for schemes and scams that will rob you of your time, patience, and ultimately your hard earned money.

Investment scams aren’t new but they are becoming more complex and harder to detect, especially if you are playing on a field where you are not familiar. Scam artists are great at what they do and can make a pitch so believably good, you have no choice but to throw money their way. When you don’t stick with what you know, you are likely a prime target for an investment fraud scheme.

Start With the Basics

There are literally thousands of unique investment opportunities out there. Start by investing in what you know, then branching out to other types of investments as you grow and learn. For example, if you understand the precious metals market, then you may consider buying gold, silver, or other precious metals as an investment. If you understand the stock market, or the general principles, then consider buying stocks and bonds. The same thing goes for an investment such as real estate.

If you are nervous about putting in too much money into any one investment, then consider buying funds, which offer more diversification and spread your risk profile better than you can do if you buy individual investments. You can invest in a variety of funds which tackle different market segments, including gold and precious metals mutual funds or ETFs, stock and bond funds and ETFs, or REITs for real estate investments.

The point is to start small, and expand your investment profile as you learn.

Photo credit: digitalmoneyworld


Retirement Planning with a Roth IRA – Why You Should Start Now

Each person in the workforce, regardless of occupation, age, or earnings shares a common goal: retirement.

The irony of the situation is not lost on many people who realize that one of the most important goals a person can set when they enter the workforce is how they will save for the day they will exit the workforce.  Think about that for a moment.

Of course it is important to have other career goals. You don’t want to spend your entire adult life counting down the days until you no longer have to work.  Nevertheless, retirement planning is essential to ensure you are able to live comfortably when the paychecks stop rolling in.  Let’s look at some important factors that must be considered when you are planning for your retirement.

Retirement Planning – Start Now

You need a Roth IRA
You need a Roth IRA

If you haven’t yet begun the process of saving for retirement, you must start now.  This is true for people in their early 20’s or people in their late 50’s.  It is, of course, easier for younger people to save for retirement simple because they have more time to grow their money (compound interest is the most powerful force in the universe, after all!).  A person in their early 20’s will have to save less per year to have the same amount or more money than a person who doesn’t start saving until their 30’s, 40’s or beyond.  This is not to say that older people should give up on saving for retirement.  That is definitely not the case as any savings efforts are worthwhile to ensure financial stability in your golden years.  It does mean however that older individuals have no time to waste and must get started saving immediately.

Don’t forget Uncle Sam

There are several different retirement plans available to individuals and couples today.  Many of the popular plans like the 401k or IRA come with certain tax advantages.  When saving for retirement it is important to understand how your savings will be taxed and when, to select the plan that best meets your needs.  One way or the other, the government will expect their cut of your money, therefore it is better to be prepared and plan accordingly than be taken by surprise later.

Use a Roth IRA

Roth IRAs are one of the best retirement planning options for investors because it gives them the power to control how and when they take their retirement withdrawals. Roth IRAs are similar to Traditional IRAs, however, they differ in one major aspect: how and when you investments are taxed. Traditional IRAs offer a tax break now – your contributions are not taxed when you make them, giving you a tax break now. However, your withdrawals in retirement years are taxed. Roth IRAs follow the opposite pattern. Your contributions are made with income which has already been taxed, but your withdrawals are tax free. This gives you the opportunity to grow your next egg without the drag or threat of taxes, and it helps you better plan your retirement years.

There is one more major consideration: Required Minimum Distributions. Traditional IRAs require investors to take a minimum withdrawal once they reach a certain age, regardless of whether or not they need the income. Roth IRAs don’t have such a provision. This makes it easier to plan retirement income.

Understand your Investment Options

With the upheaval in the world of finances in the past few years, many people are feeling less inclined to risk their hard earned money in equities such as stocks and bonds.  Unfortunately, letting your money languish in a savings account is not going to provide the growth opportunities necessary to retire in comfort.  That being said, there is no need to risk it all in the hopes of coming out ahead.  It is important for any individual with long term savings goals to review and consider all of the options available.  If financial planning is not your strong point, you may want to enlist the help of a professional. However it is imperative you always remain in charge of your finances and aware of where your money is and the risks you assume.

Retirement planning is a process that will undoubtedly change throughout your lifetime.  If you have an end goal in mind as well as a plan to reach that goal, you are on the right track toward financial security in your later years.  And a Roth IRA can help you get there in style.

real estate and mortgages

How to Refinance a Mortgage

Many people consider refinancing their mortgage in order to reduce their monthly payment, save money on interest, or to take some money from the equity of the home to do home repairs or consolidate other debts. But do you know how to refinance a mortgage? Before jumping in, let;s look at a couple considerations, including the fact that refinancing is not always a good idea, and there are a variety of aspects to consider before you try to refinance your mortgage.

Good Reasons to Refinance Your Mortgage

You don’t want to refinance the mortgage if it’s going to cost you more money over the long run.  Common reasons to refinance:

  • to switch from an adjustable rate mortgage to a fixed rate mortgage,  if the interest rates are predicted to increase. If you are overseas, you may have a standard variable rate mortgage.
  • to lower your interest rate, if the rates were higher when you first took out the mortgage than they are now; or if your credit is better and would enable you to obtain a lower interest rate than you currently have
  • to consolidate debts or to use the equity in your house to pay college expenses, living expenses if laid off, or make home repairs

Does Refinancing Your Mortgage Make Sense?

Sometimes it doesn’t make sense financially to refinance your mortgage.  There are costs involved with a refinance including fees for getting the new loan, potential closing costs again, and sometimes penalties for paying off the original mortgage earlier than planned.

If you may move from your home before you’ve experienced savings in your new monthly mortgage payments to recover the costs of the fees associated with refinancing, it doesn’t make sense to refinance.

If you refinance for a longer term (you had 20 years remaining on your original loan but refinanced to a 30 year mortgage) in order to get a lower monthly payment, you’ll still end up paying more for the home over the long term if you pay for it longer.  This doesn’t make sense financially if you intend to remain in the home that long; or if you can afford your existing monthly payments without refinancing.

Costs of Refinancing a Mortgage

Despite the potential financial benefits of refinancing a mortgage, there are potential costs associated with refinancing, including:

  • Points – prepaid interest to the lender.  The more points you pay at the start of the loan, the lower your interest rate will be.
  • Appraisal Fees – your home will need to be appraised in order to refinance the mortgage, unless it was just done recently.
  • Loan Origination Fees – this fee varies but is normally between .5 and 1% of the total loan amount.
  • Miscellaneous Fees – some mortgage refinances will have recording, copying, document preparation fees, or application fees.

Apply for Refinancing

If you decide that it makes sense to refinance, you’ll need to find a lender and apply.  You can often get the best deal from your existing lender, but you’ll want to shop around and find the lender who can offer you the best interest rate and lowest fees before choosing.

Once your application is complete, it will be sent off for approval and if approved, you’ll be scheduled for a closing and the mortgage will be refinanced.


Limit Six Savings Account Withdrawals Per Month

Many people may not be aware of it, but the Federal Reserve limits the number of transfers and withdrawals you can make from your savings accounts to a total of 6 per calendar month or statement cycle. (A statement cycle is equivalent to one month for most institutions.)

This regulation has been around for a while, but many people still get tripped up by it, probably because it is not talked about often. With more and more people looking to online savings accounts to earn higher interest rates, this is an important rule to be aware of.

Here’s what types of withdrawals are limited on certain accounts.

Savings account transactions that are limited

This savings account withdrawal limitation only applies to certain withdrawals and transfers:

  • Online transfers from savings account to a linked non-loan account (checking, CD, etc.)
  • Outgoing online transfers or payments to third party accounts via wire transfer or ACH
  • Transfers or payments made via telephone or fax
  • Pre-authorized deductions by a third party
  • Checks written from a money market account
  • Transfers for overdraft protection
  • In addition no more than three of the 6 transactions may be made by check, draft, debit card, or similar order and payable to a third party

Savings account transactions that are NOT limited

Good news – these types of transactions are not limited:

  • In person transfer and withdrawal requests
  • ATM transactions
  • Transactions made via mail
  • Transactions to make a payment on a loan account at the same institution

Why does the Federal Reserve limit transactions?

It all has to do with how much money the banks can lend. Savings accounts are classified by the Federal Reserve as a “saving deposit.” The reserve requirement for savings accounts is 0%, which means banks don’t have to hold back any of the money you place in savings with them. They can lend out the exact amount you put in.

Other accounts that are labeled as “transaction accounts,” such as checking accounts, have a reserve requirement of 10%, meaning the banks must keep 10% of the balance on hand and cannot loan that money out. The reason for the difference is the assumption that you will be withdrawing money more often from transaction accounts than from saving deposits.

Be careful when using online savings accounts!

Since most high yield savings accounts are only online, you might need to plan your transactions carefully so you don’t go over the withdrawal limit. I usually keep a local bank handy for paying bills and keep use one of the best online savings accounts strictly for the high interest rates.


Looking for a Loan? Tips to Get the Loan You Need

Looking for a loan?
Are you looking for a loan?

The year 2012 is a shaky year for finances. The economy is still sluggish, the job market is questionable and the credit scores of millions of Americans have taken a serious hit since the downturn of the economy in 2008. This makes looking for a loan in 2012 a slippery slope for many Americans. Even if you have impeccable credit history, you may still have a problem securing a loan for a rate that is affordable. Banks and other lenders are becoming stricter regarding who they will lend money to, meaning that if your credit score is phenomenal, you may be denied a loan because you have too much debt or because you work for yourself; plenty of other situations apply, as well.

Students – If you are looking for a student loan in 2012 you may have trouble finding one. Many banks are not offering private student loans anymore. Those that are require significant credit history with an impeccable score, meaning many students will need a parent or friend with excellent credit to cosign a loan on their behalf. The federal government does offer loans to students that do not require a credit check; these are called Stafford loans. These loans must be repaid once a student graduates or leaves school and they do not require a credit check or credit history.

Home buyers – Home loans are still being offered to people. Those that have less than perfect credit will need a large down payment or the help of a federal program to apply for a home loan. Additionally, home loans for people without exceptional credit will come with steep interest rates, making payments more expensive and the cost of the home much more over time. Still, many people without good credit are still managing to find a way to apply for a home loan in 2012.

Car shoppers – Vehicle loans are more difficult to get. Without a hefty down payment, many lenders and auto companies are unwilling to finance buyers for a new or used car unless they have perfect credit. This is leading to an increased number of vehicle sales through buy here pay here car dealerships, which often require at least 20 percent of the total cost of the vehicle up front; sometimes more.

Consolidation loans – Consolidation loans are loans that are big in 2012. Many people are looking to consolidate their finances by taking out a large lump sum loan in order to pay off their smaller debts; freeing up their income and making one large payment to their consolidation loan rather than several small payments for their debts. Consolidation loans are much easier to secure than a home loan or a vehicle loan and many people are opting for them.

Obtaining the type of loan you want or need in 2012 may be very easy or it could be a process; it all depends on your credit score and your personal finances. Always remember to shop around for the best rates for loans; banks and credit unions are a good starting point for obtaining loan information.

Photo  credit: alancleaver_2000


Retirement Planning: A Long-term but Worthwhile Investment

Saving for a pension- It’s not the get rich quick option, and in a tough financial market it may seem like saving for retirement can take a back seat, you’re only young after all. It’s a common fallacy. Don’t be tempted into apathy when it comes to retirement planning, saving a little now could leave you far better off in the future.

Why bother?

Once working life draws to a close many of us would like to enjoy a relaxing and well deserved break as we move into our twilight years, and the sooner you start to prepare and save for a pension income the more generous it is likely to be. There’s no doubt about it, retirement planning is all about the long-haul and in most cases the longer you are able to leave you pension fund invested the greater the level of growth you are likely to see.

You may of course be entitled to social security payments when you retire, and while it is important to investigate all possible income streams that could support you in your old age, social security is unlikely to meet the full cost of living maintaining the standard that you set before retirement. As a result, saving into a retirement pension plan is still important even if you do find that you may be eligible for social security or other state benefits.

Retirement planning

So what can you do to secure your future? You need to investigate you options. There are a number of different ways you can save and invest for retirement, through IRAs or 401(k)s for example, many of which offer excellent tax benefits and exemptions meaning that every dollar you put away is worth that little bit more.

The type of retirement fund most suitable for you will depend on a range of factors including:

  • The age at which you wish to retire
  • The age at which you start your pension saving
  • The risk to return ratio you are comfortable with.
  • Whether you are currently employed and whether your employer will contribute to your savings.
  • How accessible you require your funds to be.

Doing your research now will pay off later, if you are unsure you may want to speak to an independent financial advisor who can help guide you through your options.

Make the most of employer contributions

If you are an employee and your employer is willing to match your contributions to a pension scheme such as a 401(k), put your name down and make the most of the opportunity. Every penny counts and when your employer contributes its essentially like getting a pay rise- it’d be crazy to turn it down!

Plan for a better future

Don’t scrimp on retirement savings now, set a goal, start planning and enjoy a greater sense of security and financial freedom in later life.

saving money

Social Media For Borrowers, Savings, and the College-Bound

Social media isn’t just about posting pictures of a beer pong tournament anymore. There is a growing industry for online financial services like peer to peer lending sites, which created $5.8 billion in loans last year. College savings and social banking sites are also becoming popular, allowing options for people to both take out a healthy line of credit with established financial institutions such as the Aurora Bank while also pursuing additional loans. The following list accounts for five flourishing social media sites for the financially aware:

Lending Club—This peer to peer lending site works by linking together borrowers and lenders through a social media service. The borrowers pay an origination fee (between 2.25 percent-4.75 percent) and create a listing with details of what loan they are requesting. Lenders can browse the listings and choose loans that want to fund, paying a service fee of 1% of what the borrower pays. The Lending Club generated $20 million in loans in 2011, a record number that is likely the result of the Club’s focus on high credit borrowers. In fact, LC turned down about 90% of their loan applications. Their popularity also stems from their offering better interest rates than banks by about 20-30 percent, if you have a FICO credit score of 660 or better.

Prosper—The direct rival to Lending Club in the peer to peer lending industry, Prosper originally manifested itself as an eBay like auction where borrowers and lenders negotiated rates. It then developed into a business model more in the vein of Lending Club, where investors decide upon an already established rate requested by a borrower. With powerful business alliances like Fidelity Ventures and Benchmark Capital, Prosper demands a 640 credit score and charges borrowers cheaper origination fees of between 0.25 percent to 3 percent.

GreenNote—This crowd-funding social media site helps students raise money for their college tuition. No credit score is required, all you have to do is create a profile and hope to receive some charity. So far 23,000 members have signed up, donating thousands of dollars for college-bound students.

SmartyPig—A social banking site that is free, FDIC-insured and allows users to create personalized savings accounts of specific purchases. Encouraging a “save-then-spend” ethos, this site is geared toward creating actionable financial goals.

GradeFund—Another fundraising platform for the college-bound, GradeFund seeks to uplift students into the financial status they need in order to afford tuition. The site attempts to combine the efforts of family members, friends, philanthropists, corporations, and public agencies.

These five social networks are geared towards various goals, from loans to savings to fundraising, but they all demonstrate the growing influence of social media on financial planning and saving. If you’re looking to take out a loan, you no longer have to rely on just a bank. Now you have the Internet too!


What Triggers Your Impulse Buying?

Quick reactions are a survival trait. When we began the long trek from our point of origin on Earth responding to threats, like lions, and opportunities, like deer, meant the difference between life and death. We owe our existence today to the quick reactions of our forebears.

Those hunters reactions survive in us today. They make us good drivers or excellent at games like table-tennis. They make us adept and alert, able to spot targets instantaneously and react with lightning speed. They can also fill our cupboards with stuff we neither need or really want. Quick reactions aren’t a survival requirement on a shopping trip.

Are you an impulse shopper?

impulse shopping
Are you an impulse shopper?

Being aware of the wiring that makes us impulse buy can help us bring it under control. Shopping with the hunter’s mindset feels rewarding if we’ve camped on the pavement at the start of the sales but isn’t as rewarding if every target has been stunned before we arrive. That rush of tension which we feel when we spot something desirable comes from the same place as the impulse to freeze when our prey is spotted. For a second or two we hold our breath. And then we pounce. It’s over in seconds. That hunter’s instinct is satisfied. We’ve bagged another trophy.

On the plains of Africa hunters could wander for days before finding something lunch-worthy. In a shopping center it’s hard to wander for a minute without going “Oooooo, I wonder how much that is?”

As hunters ourselves we should consider this. Have we wandered into someone else’s trap? Retail outlets today are designed like wonderful mazes with a delightful surprise around every corner. It’s almost like they know we’re coming.

Impulse buying is unsatisfying because we put so little into it. There’s a cost, of course, but if we’re hammering plastic that cost is deferred. It can even lead to omniomania, or a shopping addiction. The real downside is that feeling of doubt. Outside on the pavement, loaded down with bags it starts to creep in. It carries on when we get home and survey our spoils. Do we really need this stuff? Some of us go so far as to squirrel away recent purchases, hoping that partners or loved ones won’t spot them. Bags are folded away neatly and stuffed in the garbage. It’s almost like nothing has happened. But of course something has happened. We’ve hammered the plastic and there’s a bill coming soon.

Even if we’ve shopped carefully, that bill is going to be unpleasant because unless it’s settled immediately all of the supposed savings are going to be wiped out by interest. Borrowing to “save” money is a truly terrible strategy but it’s what we do when we impulse buy a ‘bargain’. To hunt effectively we need to be light on our feet, not weighed down by debt. If price tags in store were able to show us the real cost perhaps we could check that hunter’s instinct for a second or two and think carefully before bagging another trophy.

Photo credit: Annie Mole


The Lo(an) Down – A loan guide

More and more people are turning to loans for an extra boost of cash in these tough times – but it’s a risky game to play. Statistics from the Federal Reserve indicate consumer debt, such as money borrowed from credit cards and loans, stood at nearly $2.4 trillion in 2010 – nearly $7,800 for every person in the U.S. The good news is consumers are working hard to dig themselves out of debt. Figures from the American Bankers Association show that the US consumer delinquency rate (late credit repayments) fell in second quarter of last year and suggest that individuals are wising up to the dangers of late or missed loan repayments.

Loan Guide – Types of Loans

Our loan guide below has been designed to explain the various types of loans available on the market so consumers can know exactly what they are getting themselves into when searching for a loan.

Unsecured loan

An unsecured loan is one which is backed against no particular asset – this can be compared to a secured loan which is usually secured or guaranteed against a property. Due to the current financial climate, unsecured loans which were once readily available are now harder to come by. Despite this, borrowers wanting smaller loans over a shorter period of time will find an unsecured loan their best option. As a rule of thumb, unsecured loans are more readily available for smaller amounts of money usually up to $25,000 as there is less at stake for the lender. Although there is much less of a risk of having your assets repossessed should you fail to meet repayments, you may however pay a higher interest rate than that of on a secured loan.

Secured loan

A secured loan, also known as a homeowner loan, is borrowed money which is secured an asset – something of financial value – that you own such as a property. Banks and lenders are more willing to lend if a loan can be backed against an asset, particularly on larger amounts from $40,000 plus, because it proves less risky for themselves.

Our current economic situation means that lenders are much more cautious lending out unsecured loans for which they have no guarantee of repayment. As a result, secured loans – which were once considered as a last resort option – are now in use more than ever. Indeed, if you are a borrower with a less than perfect credit history it is now much easier to access a loan which is secured against your property. Although the consequence of late or failure to meet repayments can be severe – at worse your home could be at risk of repossession – you may be charged less interest on a secured loan compared to an unsecured one.

Other loans also fall underneath the secured loan category and will depend on your mortgage status; a second charge loan is one that is secured against a mortgaged household, whereas a first charge is one secured against a property in which the mortgage has been wholly repaid, or in other words, owned outright.

Auto Title Loan

An auto title loan is a specific type of secured loan which is guaranteed by the borrower’s vehicle. The amount borrowed is usually based on the value of the car. Auto title loans typical have term (the repayment time frame) of one month and loan sizes usually range between $600 and $2,500.

Payday loan

Payday loans, also known as cash advances, are small unsecured loans which are usually paid back by the borrowers next pay check. Best used as a short-term loan solution, they are often used for paying unexpected large bills. Borrowers should be aware that payday loans which are not paid back promptly are at a very high risk of spiraling out of control. Some lenders are known to offer the loans with interest rates costs regularly exceeding 30% a month with hefty late or missed repayment charges to boot. Although hugely controversial in the US – a number of states have passed laws capping maximum interest rates – a payday loan is still a viable borrowing option if used with caution.

Consolidation loan

Consolidation loans, also known as debt consolidation, is a method of combining a number of existing loans into one single new loan. Used carefully, it can often be a good way of controlling your finances by managing and monitoring multiple and often confusing loan repayments and deadlines. They can also potentially lower monthly repayments by offering smaller interest rates and by spreading the repayments over a longer period of time – although this means you may pay more in the long run.

Whilst it may be best to avoid borrowing money wherever possible, sometimes our financial circumstances mean that you will need that extra cash injection. 0% interest, or interest free loans, are particularly rare to come by these days which means that you will always be paying more than the original amount you borrow. Whichever loan you chose, always read the terms and conditions of your contract; weigh up both the positive and negative aspects and make an informed decision.


Fake Credit Cards

As promised, I continue to dig for potential threats to the financial integrity of American consumers. Most recently I reported on scammers spoofing caller ID numbers of Chase and Bank of America cardholders to gain access to sensitive information to steal from consumers. Now we are taking a look at fake credit cards – how they are made and how to avoid becoming a victim to these identity and credit card thieves.

There are many ways that crooks can illegally obtain account numbers – via stolen mail, dumpster diving, scamming at the register, skimming email, breaching retail accounts, etc. Once they have the account numbers, the thief sells them to another who then assembles fake cards, which are quickly used to rack up huge amounts debt. Many people are not aware there’s a problem until they get a call from the credit card company about suspicious transactions.

  • Recoding Cards: An actual card is required for crooks to use this method to fake a legitimate account. The information on the magnetic stripe is recoded to tap a stolen account without reflecting that information on the front of the card. In essence, it looks legit with the user’s name but purchases are charged against a stolen account number. To make it more difficult to recognize a fraudulent account, they’ll make an ID from another state, knowing that most people won’t be able to discern a fake ID from a real one.
  • Cloning Duplicates: In this situation, the thief takes the stolen account number and imprints it onto a blank card and uses it as the original. Cloning a credit card takes seconds. While a card is being swiped for payment – dishonest staff can swipe the card details which are downloaded on the computer. A duplicate card is made and until your next credit card statement arrives to alert you the cloner can spend at will.
  • Faking Gift Cards: This is one of the more ingenious ways to steal using credit cards. Counterfeit gift cards are imprinted with the stolen number. Merchants think nothing of accepting what appears to be a legitimate gift voucher to pay for a purchase, while all the while they’re actually paying with someone’s stolen credit card account. Requiring no identification, fake gift cards are difficult to track; the perpetrators can perform the embossing from the trunk of a car and are known to travel across the country to perform their fraud.

Financial institutions work to keep ahead of the latest scams online and off. The Federal Trade Commission offers educational resources like the articles “Avoiding Credit and Charge Card Fraud” on their website to help consumers avoid becoming a victim. Credit card companies also are actively involved in preventing fraud. If you are a victim, contact the institutions involved and file a complaint with the FTC or call 1.877.382.4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad.