My Personal Finance Journey

All posts by Jacob A Irwin

Educate Yourself On Finance, Knowledge Is The Key To Fiscal Responsibility

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Today’s guest post comes to us from Brad Tussle. Brad lives and breathes personal finance. Writing in his free time, he enjoys sharing his knowledge about some of the top online finance schools.
Educate Yourself On Finance, Knowledge Is The Key To Fiscal Responsibility
In today’s economy, practicing fiscal responsibility is more important than ever. Being fiscally responsible means managing your assets in a way that is productive and in the best interests of your future. 
It means not wildly spending money or buying things that are outside of your price range. While that hot new car or big TV probably seems like a necessity today, it will come back to haunt you in the future. A person who is fiscally responsible understands that they can’t get caught up in what they want today because they need to be able to have money to finance their needs of tomorrow. Before someone is qualified to practice fiscal responsibility or teach others about the topic, they must understand several basic concepts of finance.
What You Need vs. What You Want
The basic principle of personal finance is understanding the difference between needs and wants. A thorough understanding of this topic can be a significant budget helper because it allows you to make sure you have enough money to make the purchases that are most important to your life, while the extras and frivolous wants are only purchased after all needs are met. The basic needs include shelter, clothing and food. That means you should make sure any rental or mortgage payments and grocery bills are taken care of before worrying about anything else. To some people, a higher education is also a basic need. If you are one of these people, you should put money away into a college fund before making other purchases.
Save Save Save
You need to know what to do with any money you have left over after meeting your needs. Saving money must be your top priority for surplus income if you want to practice true fiscal responsibility. A percentage, no matter how small, of your paycheck should always go into a savings account. Even modest contributions to a savings account adds up over time, giving you financial security in the event something goes wrong. Even if you completely happy with your life, you should still be putting money away. You never know when something out of the ordinary might occur and you could be stuck in a financial bind.
Stick to Your Budget
The concept of a simple budget is one of the first things taught in any finance class. People should be taught about budgeting as early as possible. As soon as someone earns an income, even if it from a part time job, they should be creating a budget. On a budget, the basic necessities of life should be the top priority. Those are followed by any goods or services that are not completely necessary, but make your life easier. For example, an automobile tuneup is not a necessity to survive, but it will sure help your commute. Adding things like this into your budget can actually help you save money in the long run. Make sure to include the amount of money you want to put into your savings on every budget.
Want to Learn More?
While these are the basic things you need to know about finance to practice fiscal responsibility, you may want to learn more to really make your money work for you. If so, it might be a good idea to take some classes on finance at your local college or university. 
Learning about finance from online schools is also a quality option. You can learn at your own pace from the comfort of your home. The top online finance schools teach you everything you need to know about finance. With this knowledge, you are qualified to teach your kids or friends about how they too can be fiscally responsible and live a better quality life.

How about you all? What is the biggest key in your life to being fiscally responsible? Have finance classes helped you to further your understanding? 


Share your experiences by commenting below!

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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My Current Asset Allocation and Net Worth Growth – September-December 2010

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So, this fall has been quite crazy. I got all moved in to my new condo in Virginia, and started graduate school on August 23.
As is usually the case with buying a new home and moving, my finances were all over the map towards the end of July. However, I was finally able to sit down after the fires had died down from the semester and assess where I stood financially.

Let’s take a look….


Net Worth Growth (not including condo)

From July 14 (when the last portfolio update was published – see link below for more information) to December 28th, the S&P 500 index went up by 14.9%. Very nice run for a quarter!!!

My Personal Finance Journey – July 2010 Portfolio and Net Worth

During that time period, my net worth (excluding condo ownership) increased by 5%. While this increase is respectable, the fact that my net worth growth is not keeping up with the market indicates that since I have taken a 67% pay cut in graduate school, I am not able to save money as effectively (which is probably to be expected)

Condo Equity Growth


Since I am not counting the home equity in my condo as part of my asset allocation, I have added a new section to these monthly portfolio reviews to account for this important aspect.

Currently, I have 9% home ownership in my condo (up from 0% in July), with this accounting for 34% of my real net worth (so net worth subtracting the condo loan – this is different from the net worth above).

Update on Financial Goals for 2010

I have now achieved the following financial goals in 2010. I have done quite well I think – thanks to everyone’s help for keeping me motivated and accountable!

  • Achieved my short term target net worth for this year.
  • Contributed the maximum contribution level of $5000 allowed for my Roth IRA for the year 2010 (and 2009 as well).
  • Eliminated all significant holdings in individual stocks from my portfolios.
  • Eliminated the actively managed Vanguard Short-Term Investment-Grade Fund (MUTF: VFSTX) and replaced it with the following short-term bond index fund – Vanguard Short-Term Bond Index Fund (MUTF: VBISX).
  • Successfully purchased a condominium to live in for graduate school. Yah!!!
  • Initiated Rollover IRA to Vanguard from my Fidelity 401k from my previous employer.
    • Purchasing a TIPS inflation protected mutual fund.
  • And last but certainly not least, sold out of the actively managed mutual fund, CGMFX (CGM Focus Fund) recommended by Jim Cramer several years ago that didn’t make me any money at all! 
  • Completed my will. Next step is to have it reviewed by a lawyer.
  • Set up accounts for making home ownership automatic – automatic deductions for loan repayments, real estate taxes, maintenance reserve funds, insurance, etc.

    For a detailed list of my short term, mid term, and long term financial goals, click on the link below:

    My Personal Finance Journey – Financial Goals


    Review of Current Asset Allocation (excludes condo)

    • Overall Fixed Income / Equity Allocation
      • Currently, 26% of my net worth is invested in fixed income instruments (cash or bond funds), and 74% is invested in equity.
      • This is almost perfectly aligned with my targets for these categories of 25% (fixed income) and 75% (equity).
    • Equity Allocation
      • In the equity portion of my portfolio, 74% is invested in US Domestic Equities with the remaining 26% being held in international equities. 
      • This is almost perfectly aligned with my equity breakdown targets of 71% and 29%, respectively, for US Domestic and international holdings.

    While the overall percentages for these categories looks pretty good, a detailed look (table below) at the allocation breakdown reveals the real story and provides for better analysis of the current state.

    Remember: a red flag goes off if your current % allocation in a category is greater than +/- 5% off of the target allocation. This is my trigger that I need to rebalance that aspect of my portfolio.

    % Cash (money market target 5%) 7%
    % non-inflat Bond Funds (target 15%) 15%
    % TIPS Bonds (target 5%) 4%
    % International Equity (Target 11%) 11%
    % International Emerging Markets (Target 11%) 9%
    % Domestic Large Cap (Target 8%) 8%
    % Domestic Small Cap (Target 8%) 9%
    % Domestic Small Cap Value (Target 14%) 15%
    % Domestic Large Cap Value (Target 13%) 14%
    % REIT (target 10%) 9%

    Analyzing my current asset allocation percentages, it appears that I am lucky enough to be exactly on target with all of my asset classes (within +/- 5% banding) . Therefore, no rebalancing is required.

    My next moves for the December 2010 / January 2011 time frame will be to do the following:

    • Begin contributing to my Roth IRA for the 2011 tax period!
    • Reanalyze my dreams and goals and set  new ones for 2011.
      • Possible candidates at first glance would be to save money for a washer/dryer installation in my condo and saving for a possible trip to the Grand Canyon (something I have never seen).

    Wish List

    • At some point, purchase the Vanguard Total Stock Mkt Idx (MUTF:VTSMX) to replace S&P 500 index fund. This gives better, broader diversification to the US stock market.
    • Purchase more microloans in developing countries as part of my “making a difference” life value in my Purpose Focused Financial Plan.

    How about you all? Did you make any big moves that affected your net worth this past month? 


    Do you consider your home equity as part of your net worth or do you leave it as separate?

    How about you all? Share your experiences by commenting below!

    Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

    Subscribe to My Personal Finance Journey via Email


    ***Photo courtesy of http://www.black-collegian.com/issues/gradissue07/images/im_why_graduate_0407.jpg

    Best of Credit Cards and Saving Money Carnival – December 28th, 2010 – Ridiculous Arnold Schwarzenegger Videos Edition

    My Personal Finance Journey Homepage

    Welcome to the December 28th, 2010 edition of the Best of Credit Cards and Saving Money Carnival.


    The goal of this carnival is to highlight articles each week that provide a unique view of credit cards, credit scores, and personal finance that can help people save money.


    To give us all a little break from the stresses that can almost certainly come around the holidays, the theme of this week’s edition is the one, the only, Arnold Schwarzenegger. 


    Enjoy the articles and be sure to let me know which clip is your favorite in the comments section! 

    MadTV Spoof of Arnold’s Made-Up movie, Stolen Identity 3. Enjoy!

    Credit Cards

    Janet presents Credit Card Use and Materialism posted at Credit Cards Canada.

    Silicon Valley Blogger presents Blue Sky Credit Card from American Express Review posted at The Digerati Life, saying, “My review of Amex Blue Sky. 🙂 Thanks!”

    Michael Pruser presents Citi ThankYou Premier Card $200 Bonus posted at The Dough Roller, saying, “Citibank has launched a new and improved rewards credit card known as the “ThankYou” card, offering $200 in gift cards right away.”

    Michael presents The Plum Card® from American Express OPEN 1.5% Cash Back posted at Consumerism Commentary, saying, “The Plum Card from AMEX Open offers small businesses a chance to survive and thrive.”

    Jeff Weber presents Getting a Virtually No Fee Balance Transfer posted at Smart Balance Transfers, saying, “Tips on how to reduce balance transfer expenses.”

    Clair Schwan presents “Abusing” Credit Cards – A Contrarian Perspective | SELF RELIANCE WORKS posted at SELF RELIANCE WORKS, saying, “Mark Zeiger presents an alternative view of credit cards, and highlights how even those with a subsistence income can use them responsibly.”

    Boomer presents Get Out Of Credit Card Debt! posted at Boomer& Echo, saying, “If you are currently holding a balance and continue to use your card when credit becomes available you are basically paying your future income to the credit card companies for decades to come.”

    MoneyThinking presents Kids Do Stupid Things in College posted at Money Thinking.

    Tim Chen presents Best Way To Buy Gas? Gas Credit Cards or Discount Stations? posted at NerdWallet Blog – Credit Card Watch, saying, “Figuring out how you can score the cheapest gas can get complicated.”

    Ben presents Citi ThankYou Premier & Preferred Cards posted at Money Smart Life, saying, “A comparison of the new Citi ThankYou cards”

    Jeff Weber presents Chase Freedom Card Review | Chase Freedom Visa and Mastercard posted at Smart Balance Transfers, saying, “A look at the Chase Freedom credit card.”

    Every Arnold Scream From Every Movie – All In One!


    Credit Scores

    BWL presents Consumer Info About Credit Scores posted at Christian Personal Finance, saying, “A look at some of the things that affect our credit scores…”


    Finance

    David de Souza presents Three Ways Christmas Could Affect Your Tax Bill posted at UK Tax Blog, saying, “Guide to three ways that Christmas can impact on the amount of tax that you pay”

    Kyle Taylor presents Best Ways to Sell a Gift Card posted at The Penny Hoarder.


    Frugality

    Tim Rakeman presents How To Be Frugal: Grow a Garden to Save Money posted at All Things Frugal, saying, “When it comes to saving money on groceries, unfortunately that usually means eating a lot of processed crap. Anyone who has been in a grocery store knows the cost of a calorie is a lot cheaper in the form of a frozen pizza than it is in an apple.”

    Miranda presents Is a Prepaid Cell Phone Right For You? posted at Moolanomy.

    Hercules in New York Clips – Arnold’s First and Best Movie Ever! 


    Personal Finance

    Card Wisdom presents Tips for Recovering from Credit Card Debt in the New Year posted at Credit Card Wisdom, saying, “Ideas to get finances in order and reduce debt in the new year.”

    BWL presents Tax Act 2010: Social Security Tax Reduced in 2011 posted at Christian Personal Finance, saying, “A look at how the latest tax act has social security rates reduced in 2011…”

    Michael Pruser presents You Have Many Choices When it Comes to CD’s posted at The Dough Roller, saying, “When it comes to saving in CD’s, you have more options than you might think.”

    And if you really are a fan and want to relive all of Arnold’s 10000 movies from the past 20 years in ten minutes, take a look at the clip below! (Beware, there are a few bad words)


    Saving Money

    One Family presents Mortgage Refinancing Decision – How to posted at One Family’s Blog, saying, “Thanks!”

    Darwin presents Energy Tax Credit 2011 – Not What It Used to Be posted at Darwin’s Money, saying, “Check out the new 2011 Energy Tax Credits in the spending bill just passed by Congress. The window, door and HVAC credits aren’t as generous as they used to be, but they’re in there.”

    That concludes this edition. Next week, the Carnival of Credit Cards and Saving Money will be returning to Card Wisdom. Submit your article for inclusion in the upcoming edition by clicking the following link – Jan 3 Edition of the Carnival

    Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

    Subscribe to My Personal Finance Journey via Email


    ***Photo courtesy of http://imagecache2.allposters.com/IMAGES/54/039_1071.jpg

    Carnival of Wealth – December 26th, 2010 – Fantabulous YouTube Christmas Videos Edition

    It is an honor to be hosting this week’s edition of The Carnival of Wealth. The focus of the carnival is to feature writings related to creation, management, and enjoyment of wealth.
     
    The weekly Carnival of Wealth features the best articles in the blogosphere on the following broad topics – Investing, Personal Finance, Taxes, Estate Planning, Careers, Entrepreneurship, Family, Lifestyle, and Travel.
    The theme for this edition (since it is Christmas and all) of the Carnival of Wealth is awesome, amazing, funny, hilarious, fantastic YouTube videos related to Christmas! Enjoy! Please let me know which video is your favorite! 

    This Week’s Editor’s Picks! Congrats to the winners!
    1. Sustainable PF presents Your Dog’s Diet Could Cost You and Your Dog posted at Sustainable Personal Finance.

    2. Erin Pavlina presents Cultivating Command and Leadership posted at Erin Pavlina – Spiritual Wisdom for Conscious People.

    3. Jeff Rose, CFP presents How to Protect Your Child From Identity Theft posted at Jeff Rose.After that stellar reading, you definitely need a breather. So, enjoy Gayla Peevey in her famous song, I Want a Hippo for Xmas! Enjoy!

    I Want a Hippopotamus For Christmas – Gayla Peevey

    Below are the rest of this week’s submissions! 
     
    Careers
     
    Job-Interview-Site.com presents How to Resign From a Job & Reasons for Job Resignation posted at Career Guide.
     
    Tom @ Canadian Finance Blog presents Resume Psychology posted at Canadian Finance Blog.
     
     
    Echo presents Employee Performance Management posted at Boomer&Echo.
     
    Job-Interview-Site.com presents “Why Should We Hire You” posted at Job Interview Guide.
     
    Entrepreneurship
     
    Estate Planning
     

    Family

     
    Marvin Grossman presents What’s more dangerous? A surprising look at everyday risks posted at Insure.
     

    Jingle All The Way Clip – Sinbad Goes Crazy! Enjoy!

    Investing

     
    Arjun Rudra presents A Review of Smarter Than the Street: Invest and Make Money in Any Market and Interview with Gary Kaminsky posted at Investing Thesis.
     
    Barb Friedberg presents The Friedberg Family Portfolio-Revisited posted at Barbara Friedberg Personal Finance.
     
    Freefrombroke presents What Is Peer to Peer (Person to Person) Lending? posted at Free From Broke.
     
    Mich presents Canadian REITS: Yours to Discover posted at BeatingTheIndex.com.
     
    MikeAhi presents Why Buy Gold? posted at After Hours Investing.
     
     
    pfblogger presents Investing in Stocks During an Economic Crisis posted at Personal Cents.

    Lifestyle

    Jessie Stanton presents Hippie Wedding Theme Ideas posted at Wedding Theme Ideas.
     
    Ahmed presents Daydreaming for Success posted at LIVING! Not Surviving.
     
    Joe Plemon presents Financial – And Life – Lessons From 40 Years of Marriage posted at Personal Finance By The Book.

    12 Pains of Christmas

     

    Personal Finance

    Janet presents Bye-Bye Penny – Hello Swedish Rounding? posted at Credit Cards Canada.

    Silicon Valley Blogger presents How To Be A Smart Credit Card User (Infographic) posted at The Digerati Life.

     MoneyCone presents How to get your credit score from all 3 credit bureaus for free! posted at Money Cone.

    Odysseas presents Store Credit Cards and Bad Credit posted at Wallet Blog.
    Jeff Weber presents 4 Tips for Choosing an Airline Credit Card posted at Smart Balance Transfers.
    Tim Rakeman presents How To Be Frugal: Grow a Garden to Save Money posted at All Things Frugal.
     
    Rich D presents Best Instant Access Savings Accounts posted at Qwoter.
     
    Clair Schwan presents Capitalism And Compound Interest – Two Reasons You Have No Excuses posted at SELF RELIANCE WORKS.
     
    Money Thinker presents Should I Buy a Home Now? posted at Money Thinking.
    Joe Manausa, MBA presents Jim Cramer Backs Off Of Real Estate posted at Tallahassee Real Estate Blog.
     
    Shaun presents Servicing Your Wealth: Cashing in on Christmas Time posted at Money Cactus.
     
    MoneyNing presents What Do You Splurge On? Where Do You Save? posted at Money Ning. 
     
    Mark presents Banks Are Stealing Your Money posted at Buy Like Buffett.
     
    Pinyo presents Is Prepaid Cell Phone Right for You? posted at Moolanomy.

    Dominic the Italian Christmas Donkey

     

    Taxes

     
     
    N.W. Journey presents What Does That Gift Really Cost posted at Networth Journey.
    Travel
     
    Gorilla Golf Blog presents The Top 5 New Zealand Golf Courses posted at Gorilla Golf Blog.
    That concludes this edition. If your article was selected to appear in this week’s Carnival, please link back to this page within a week’s time.
     
    Also, remember to submit your blog article to the next edition of Carnival of Wealth using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

    Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

    Subscribe to My Personal Finance Journey via Email


    ***Photo courtesy of http://optimum-capital.com/wp-content/uploads/2010/06/wealth.jpg

    Merry Christmas From My Personal Finance Journey

    My Personal Finance Journey Homepage

    Good Christmas morning everyone! 
    I know we’re all busy with our families today, but I just wanted to send out a quick Christmas greetings note and say thank you for being supporter of our blog! 
    My family shared our gifts and had Christmas dinner last night to accommodate work schedules, but I think today, we are going to go for a hike and then go see Meet The Little Fockers at the movie theater!

    How about you all? Do you have any good Christmas plans for today?


    Share your experiences by commenting below!

    Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

    Subscribe to My Personal Finance Journey via Email


    ***Photo courtesy of http://solarimg.org/wp-content/uploads/2010/12/MerryChristmasCats2.gif

    Can Investing in Stocks of Companies With Happy Employees Make You Money?



    This post was selected as the #3 top post in the 107th Best of Money Carnival at Small Biz Big Dreams.

    While reading through the December 2010 edition of Smart Money magazine (page 34 to be exact), I came across a brief article that brought up the idea that companies with upbeat and happy employees often times achieve better results, and similarly, higher stock returns.
     
    If you have a been reading the blog for a while, you probably can guess that I really enjoyed this article – since I really enjoy when personal welfare and/or environmental benefits can be obtained by partaking in an monetarily beneficial activity.
    One thing that I did not like about this article was that it was too short. It only gave one brief fact about a Wharton finance professor finding that companies listed in Fortune magazine’s 100 Best Companies to Work for list outperform comparable firms by approximately 2% per year between 1984 and 2009.
     
    To me, I feel this is very vague. First of all, what defines a “comparable” company? Ok, I have a couple guesses at that. Furthermore, how does this compare to my current investment strategy of using index mutal funds?
     
    Would this method of investing in these companies with happy employees pay off?

     

    As many of you know from reading about my investment strategy, I am not a big proponent of investing in individual stocks. However, I cannot deny that individual stocks are very interesting. And, this type of historical comparison/analysis is just the sort of thing that I love to do! 
     
    So, let’s get started!
     
    Literature Review
     
    As always when beginning one of these analyses, I find it is helpful to gain perspective about what has currently been discovered about this topic. 
     
    From reviewing internet records, the best record of this type of study to date was published by Cullen F. Goenner, an Assistant Professor of Economics at the University of North Dakota. His detailed manuscript can be accessed using the link below.
     
    Investing in Fortune’s 100 Best Companies to Work for in America
     
    While this study was very robust and extensive, I feel that expecting individual investors to hold all 100 stocks of the 100 companies listed in the Fortune 100 Best Companies to Work For is unrealistic. Additionally, the study was restricted to looking at performance in the years of 1998-2005 – a time period too short to accurately judge performance going forward.
     
    I hope to improve upon these aspects in my analysis.
     
    Assumptions
     
    Every analysis needs to also start with key assumptions. The assumptions that I will use are listed below.
    1. Assume only hold the common stock of the top 5 companies on Fortune’s list of the 100 Best Companies to Work For. I believe this is more realistic for the common individual investor – data source –  Fortune’s Top 100 Companies to Work For
    2. If the stock is not publicly traded, it is naturally not invested in. The study could be expanded to include more stocks in the list, but I feel we should stick with only the best of the best companies.
    3. We will perform the analysis for the past 10 years – 2001-2010
    4. We will assume that the top 5 companies’ stocks are purchased on the exact publication date of the list each year.
    5. We will assume that the companies’ stock is held until it no longer places in the top 5 (at which time it is sold).
    List of Companies
     
    After doing some serious digging around (mainly for the 2001-2003 data), I compiled the following lists of the top 5 companies for the past ten years.
    One thing that immediately sticks out in my mind is that the majority of these companies are private. Very interesting……I wonder if not having shareholders to report to allows for additional flexibility for employees….Any one have any thoughts?
     
    2001
    • Container Store – private
    • SAS Institute – private
    • Cisco Systems
    • Southwest Airlines
    • Charles Schwab
    2002
    • Edward Jones – private
    • Container Store  – private
    • SAS Institute  – private
    • TDIndustries – private
    • Synovus Financial 
    2003
    •  Edward Jones – private
    • Container Store – private
    • Alston & Bird – private
    • Xilinx
    • Adobe
    2004
    • J.M Smucker
    • Alston & Bird – private
    • Container Store- private
    • Edward Jones- private
    • Republic Bancorp
    2005
    • Wegmans – private
    • W.L Gore – private
    • Republic Bancorp
    • Genentech
    • Xilinx
    2006
    • Genentech
    • Wegmans – private
    • Valero Energy
    • Griffins Hospital – private
    • W.L Gore – private
    2007
    • Google
    • Genentech
    • Wegmans – private
    • Container Store – private
    • Whole Foods
    2008
    • Google
    • Quicken Loans – private
    • Wegmans – private
    • Edward Jones – private
    • Genentech
    2009
    • NetApp
    • Edward Jones – private
    • Boston Consulting – private
    • Google
    • Wegmans – private
    2010
    • SAS – private
    • Wegmans – private
    • Edward Jones – private
    • Google
    • Nugget Market – private
    Performance of Companies Versus Benchmark Index Mutual Fund


    The table below shows the performance of each stock during its respective holding period and shows the comparison with the benchmark index mutual fund that I frequently use, The Vanguard Total Stock Market Index Mutual Fund (Ticker symbol VTSMX).

    As can be seen in the table above, the average performance of the stocks from Fortune’s list of the 100 best companies to work for was 7% during the respective holding periods. When compared to the benchmark index, we saw that the top companies to work for outperformed them by 4%, on average.

    At first glance, I have to admit that this data is looking promising. Believe me, I want to believe in individual stock investing, but just haven’t found an investment system with enough data to support it.

    However, the true test of the metal of the performance of these stocks is whether or not investing in these individual stocks would make you money overall after the 10 year total investing period.

    To do this, let’s take a look at two scenarios:


    Scenario 1 – Invest $100,000 10 years ago in the index mutual fund, VTSMX, and let it sit.

    The total return over the past 10 years has been 10% – meaning that our money would be worth $110,000. This is not too promising of a return for the past ten years!


    Scenario 2 – Invest $100,000 starting amount in the individual stocks, according to the schedule above and assuming that we are fully invested at all times.

    • Year 1 – Invested $33k in Cisco, Southwest Airlines, and Charles Schwab – resulted in loss of $40k. Yikes!
      • Remaining money to invest = $60k
    • Year 2 – Invest $60k in Synovus – results in 25% loss
      • Remaining money to invest = $45k
        • Wait a second! We’ve lost 50% of our money already! Yikes again!
    • Year 3 – Invest $22.5k in both Xilinx and Adobe – results in heft gains of 79% and 44%, respectively.
      • Remaining money to invest = $72.7k
      • Things are looking a little better!
    • Year 4 – Invest $36.4k in both J.M Smucker and Republic Bancorp (hold two years) – results in respectable gains of 3% and 21% (but after two years), respectively.
      • Remaining money to invest now = $37.4k 
    • Year 5 – Invest $18.7k in both Genentech (hold until 2009) and Xilinx – Xilinx results in gain of 6.46%
      • Remaining money to invest = $64k (from selling Republic Bancorp and Xilinx)
    • Year 6 – Invest $64k in Valero – obtain loss of 12%
      • Remaining money to invest = $56k
    • Year 7 – Invest $28k in both Google (hold for three years) and Whole Foods – results in gain of 24% for Google and a 25% loss in Whole Foods
      • Remaining money to invest = $21k (from sale of Whole Foods)
    • Year 8 – No additional purchases in this year – so add $21k to Google
      • Remaining money to invest = $0k
    • Year 9 – Sell Genentech, invest $18.3k proceeds in NetApp
      • Remaining money to invest = $0k
    • Year 10 – NetApp goes up 106%, Google has increased 24%
      • Final total money remaining = $98,450



    Conclusions


    Even though there is a certain allure and “sex-appeal” of investing in individual stocks, even the method of investing in companies with the most satisfied employees falls short.

    This can be seen from the fact that investing in scenario 1 with the index mutual fund produces a final investment value of nearly $12,000 more.

    Scoreboard Update


    Index mutual funds – 100000, individual stock investing still 0.


    How about you all? Have you ever invested in companies listed on Fortune’s 100 Best Companies to Work For? How did it work out?


    Share your experiences by commenting below!

    Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

    Subscribe to My Personal Finance Journey via Email

    ***Photo courtesy of http://kolorkube.com/klick/wp-content/uploads/2010/09/Happy-Employees.jpg

    Announcing a New Personal Finance Blog Carnival – The Carnival of Passive Investing

    My Personal Finance Journey Homepage

    Good day blogosphere! I wanted to let everyone know about a personal finance carnival I created just today – The Carnival of Passive Investing

    Why did I create this carnival?

    Whew…The real question here is where do I start? Let’s just make a list, shall we?
    1) The first reason that I created this carnival is because I myself, as you have probably found out from reading my blog, am a big supporting of the passive investing strategy. In fact, if you take a look at my investing strategy, you’ll see that it is almost entirely composed of passively managed mutual funds.

    2) In hosting previous carnivals, I have come across a great deal of very high quality posts about many topics in the vast realm of personal finance. During this time, I have found myself wondering – wouldn’t it be awesome to sit down and have a collection of ONLY passive investing strategy articles to review?!
    Out of curiosity, I ventured over to Blogcarnival.com and looked in the money & finance carnival category (see link below for details).
    List of Money and Finance category blog carnivals, sorted by upcoming edition dates at Blogcarnival.com

    The following carnivals were listed as having upcoming editions:
    • Coupon crazy
    • Growth stock investing
    • Holiday spirit
    • Carnival of wealth
    • Carnival of money stories
    • Festival of stocks
    • Real estate investing carnival
    • Best of credit cards and saving money
    • The wealth builder carnival
    • Cavalcade of risk
    • Stock carnival ecstacy
    • Best of money carnival
    • Frugal feast…OK – you get the idea!
    Clearly, there are a lot of options! However, not one has zoned in on this specific niche of passive investing. While I do realize that the other carnivals no doubt provide an outlet for passive investing blog articles, I figured, “Why not see if we can showcase these articles?”
    So, let’s give it a try and see what we find out!

    How do you submit your article for review?

    If you have a great article about passive investing, submitting your article for inclusion in the carnival if super-easy! Simply visit the following link to view the Carnival of Passive Investing’s page at Blogcarnival.com – The Carnival of Passive Investing @ Blogcarnival.com.
    Or, you can submit your article directly to the upcoming December 31st edition of the Carnival.

    How often are the carnivals currently scheduled for?

    For now (and until we can get a gauge of the blogosphere’s response to this carnival), the Carnival of Passive Investing will be held 1X (once) per once. The deadline for submitting your post is the 30th of each month, and the carnival will be published the following day (either the 31st or the 1st, depending on the month).

    How can I sign up to be a host?

    If you would like to host an upcoming edition of the Carnival of Passive Investing, simply email me at jacob@mypersonalfinancejourney.com and we’ll figure out a slot that works well for you!

    Also – just a quick note to say that I am hosting the Carnival of Wealth’s December 26th, 2010 edition later this week. Submit your entries for review by clicking the following link

    Subscribe to My Personal Finance Journey via Email


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    3 Risks To Consider Before Investing in Fixed Annuities

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    Today’s guest post comes to us from Lisa Cintron on behalf of OnlineAnnuityRates.com.

    Annuities are savings instruments issued by insurance companies to individual investors. The annuity contract specifies the amount and time period for the premiums to be paid. It also specifies the amount and time period for payments to the investor after the premiums are paid. Fixed annuities do not invest in stocks, only fixed income assets such as bonds and guaranteed insurance contracts. Fixed annuities have guaranteed principal and payment amounts that do not change.

    Advantages of Fixed Annuities


    ▪ Investors prefer fixed annuities for guaranteed principal and interest by issuing insurance company.

    ▪ Tax deferred compounding of interest until payment request.

    ▪ Issuing company rating by Moody’s, Standard & Poor, Fitch and A. M. Best easily accessible. Typically, you want to seek out companies rated AAA to minimize your risk.

    ▪ Underlying fixed income investments are safer and more stable than equity (stock) based investments.


    Fixed annuity potential risks


    There are some possible risks associated with fixed annuities. All investments have some form of risk. Investors need to weigh these risks against the rewards of fixed annuity investments. They are as follows with details discussed below:


    ▪ Inflation risk.

    ▪ Interest rate risk.

    ▪ Low liquidity risk.


    Inflation risk


    A fixed annuity’s biggest attraction for most investors also presents risk to investors. The guaranteed principal and interest offers no protection from inflation. Financial planners emphasize that the biggest threats to an individuals savings and investments are taxes and inflation. The longer the period for premium payments and any deferral of payments gives inflation more time to erode the future purchasing power of the dollar. E. g., a fixed annuity guarantees a payment of $200.00 monthly 30 years from now. If 30 years from now the dollars purchasing power declines by 25%, The $200.00 payment then only buys $150.00 in todays economy. A simple and effective method to offset this risk is to diversify investments into stocks or mutual funds which provide higher potential rewards on a long term basis.


    Interest rate risk


    A fixed annuity guaranteed principal and interest also generates interest rate risk. This is basically a loss of opportunity to acquire higher rates of return as interest rates go up during the purchase and deferral stages of an annuity. If an annuity guarantees a 3% interest rate and interest rates go to 6%, investors lose the ability to double their rate of return. Investors can offset this risk by purchasing a variable annuity. Variable annuities returns are based on the actual returns of the annuity’s portfolio. Some Variable annuities invest in stocks, usually through mutual funds, This gives investors the ability to realize some of the higher returns available when interest rate or stock returns are up.


    Low liquidity risk


    Fixed annuities are very inflexible about accesssing funds during the accumulation phase. This gives the annuity investment managers some stability to allow them to make long term investments which pay higher returns. Any withdrawals over 10% a year can be penalized by the annuity. Check the annuity contract for details on this if an early withdrawal may be needed. A good way to offset this risk is to maintain emergency funds. Most financial planners advise at least 6 months expenses set aside for dire needs like unemployment or unexpected medical expenses.

    How about you all? Have you ever used annuities? What was the risk you were most worried about? 


    Please Share your experiences by commenting below!

    Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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    The Basics of Debt Snowballing

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    Today’s guest post comes to us from Louise Baker. Louise is a freelance blogger and journalist who writes for Zen College Life, the directory of higher education, distance learning, and online degrees. She most recently wrote about where to get the best online criminal justice degree.

    The Basics of Debt Snowballing

    The idea of using a debt snowball to eliminate debt has become a commonly used debt reduction strategy in recent years. A debt snowball prioritizes debts by balance rather than interest rate. Many debt counselors will suggest this as the method of choice due to its ability to motivate individuals and families to continue on their path to becoming debt free. The snowball debt method is most commonly used for revolving debts, such as credit cards, but can be successful with other debt as well. Oftentimes, debt counselors will leave mortgage and car loans out of the debt snowball and focus on those debts at a later step.

    At a very basic level, a debt snowball works in this way:

    1. List all revolving debts that you plan to include in the snowball method.
    2. Order all debts from lowest balance to highest balance. In the case that two balances are similar, use the debt with the highest interest rate as the higher priority debt. This order will be the order in which you pay off your debts.
    3. List the minimum payment on every debt and commit to paying it on time each month.
    4. Determine how much extra money, apart from the minimum payments, you can devote to paying extra on your debts.
    5. Pay all debts on time, adding the extra amount from the previous step to the minimum payment on the top priority debt (smallest balance).
    6. As each debt is paid in full, add the minimum balance to the extra amount in step 4, and pay on the new lowest balance.
    In order to do understand the principal, it is best to see an example. Take the following debts:
    • Debt 1: Balance of $50 – Minimum Payment of $10
    • Debt 2: Balance of $150 – Minimum Payment of $50
    • Debt 3: Balance of $500 – Minimum Payment of $30
    • Extra money that can be used to help pay off debt: $40
    Using the principals above, you would make a payment of $50 on debt 1 (the minimum amount plus the extra amount you devoted to paying off debt). After the first month, the first debt is paid in full, so you now have the following debts:
    • Debt 1: Balance of $100 – Minimum Payment of $50 (paid off $50 last month)
    • Debt 2: Balance of $470 – Minimum Payment of $30 (paid off $30 last month)
    • Extra money that can be used to help pay off debts: $50 (original $40 plus the previous debt’s minimum of $10).
    Now you are able to pay $100 on the lowest balance debt. This includes the minimum payment of $50 as well as your “snowball” of $50. You continue with the principal until all debts are paid in full. As you can see, your extra money available to help pay off debts will increase as each debt is paid and a new minimum payment is freed. This is the “snowballing” effect. As you progressively pay off each new debt, it will act as a motivator to keep on track to becoming debt-free.

    How about you all? Have you ever used a debt-snowball to help motivate you to get rid of your debts? Did it work well for you? Share your experiences by commenting below!


    Related articles:

    • Debt Snowball

    Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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    ***Photo courtesy of http://www.consumercreditcardguide.com/credit-card-help/uploads/debt-snowball.jpg

    What Are Balance Transfers & How Do They Work

    My Personal Finance Journey Homepage

    Today’s guest post comes to us from Jeff Weber. Jeff writes about saving money with balance transfers at www.smartbalancetransfers.com/blog, a site designed to help people find the best money saving balance transfer offers.

    What Are Balance Transfers & How Do They Work

    There are two types of credit card balance transfers: those with introductory offers and those with fixed rates for life.  

    An introductory offer transfer means you will receive a 0% or a low interest rate on the money transferred to the card for a limited period of time.  You will commonly see 0% balance transfer offers for 12 months, for example.  A fixed rate balance transfer provides a specified interest rate on the money transferred until the balance is paid in full.  Fixed rate balance transfers are currently not available due to economic conditions, so if you are looking to do a balance transfer, you will need to seek out a card with a low short term rate.

    Choosing a Good Balance Transfer Offer

    Right now, the best type of balance transfer offers provides 0% interest on the transferred balances for 12 months to as long as 24 months and charge 3% transfer fees. Some credit cards advertise 0% interest for “up to 12 months”; but these offers should be avoided because if you do not qualify for the full 12 months, you could find yourself with only six months of 0% interest. As with any credit card offer, the devil is in the details, so be sure to review the fine print before you being filling out the application.

    How To Transfer Credit Card Balances

    Once you find a good balance transfer, it’s quite easy to set up.  When applying for a new card offering 0% interest on balance transfers, you can enter the information from your current credit cards directly on the application.  If your application is approved, the credit card will be issued in your name and the balances from the credit cards you included on the application will be transferred to the new card automatically. This can take anywhere from a week to a month, so be sure to continue paying your high rate cards until the transfer clears.

    If you are not approved for a high enough credit limit to transfer all of your credit card balances, first transfer balances from your credit cards with the highest interest rates.   If you have good credit, you may want to consider applying for another balance transfer credit card to consolidate the rest of your higher interest credit card debt. Applying for multiple cards can have a negative impact on your credit score, so take this into consideration, especially if you will be applying for a car loan or mortgage soon.


    How Much Money Can Be Saved With a Balance Transfer

    Carrying $3000 of credit card debt can be expensive. At a 15% interest rate, it can cost you almost $450 a year. By transferring that debt to a 0% credit card, you can save that money. However, because of standard 3% balance transfer fees, your total savings will likely be closer to $300. Despite these fees, a balance transfer can still save you a lot of money.

    How much you save after the first year will depend on what your new interest rate is beyond the introductory 0% period.  Ideally, you will choose a balance transfer offer that has a lower interest rate after the introductory period than you are currently paying on your credit cards.  Alternatively, at the end of the 0% introductory period, you could begin looking for a new 0% balance transfer offer to move the remaining balance again so you can continue making interest-free payments on the debt until it is fully repaid.

    How about you all? Do you have credit card debt? Have you ever used balance transfers to help diminish the balance you owe? If not, why? Share your experiences by commenting below!

    Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

    Subscribe to My Personal Finance Journey via Email


    ***Photo courtesy of http://uk.creditcards.com/credit-card-news/images/balance-credit-cards.jpg

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