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Why Following Hot Mutual Fund Managers Doesn’t Work
My Personal Finance Journey Homepage
, was highly recommending 1) to follow his technique for picking your own stocks and 2) if an individual could not devote the time to picking his/her own stocks, to put your money in the care of a fantastic money manager at a mutual fund.Since this was in my learning, naive days, I followed Jim Cramer’s advice and bought this mutual fund in a Roth IRA account.
This was probably one of the stupidest things I have done financially to date. Let’s analyze why.
- First, it is an actively managed fund. And, as we have found in many financial books (A Random Walk Down Wall Street, for example), 70% of actively managed mutual funds fail to beat the market index averages.
- Second, the expenses ratio/fee for owning the CGM Focus fund is 1.23%.
- This is much higher than the Vanguard Total Stock Market Index, whose expense ratio is 0.18%.
- The CGM Focus Fund cannot keep all of it’s money invested in equity at all times due to the fact that it has to maintain reserves to redeem shares when investors buy and sell shares. This decreases returns for investors.
- For example, CGM keeps >1% of it’s assets in cash vs. Vanguard’s Total Stock Market Index which maintains 0.31% in cash.
- Over the past 10 years…
- CGM Focus Fund has increased 120% vs. the S&P500 which has decreased 30% overall.
- Over the past 5 years…
- CGM Focus Fund has decreased 30% vs. the S&P500 which has decreased 15% overall.
- Over the past year…
- CGM Focus Fund has decreased 2% vs. the S&P500 which has increased 15% overall.
- Since I bought the CGM Focus Fund
- My holdings have decreased 22% overall. Wonderful!
- During this same time period, the S&P500 indexed decreased 19%, beating the CGM Focus Fund. Remember, this is even before considering the expense ratio of the CGM Focus fund further diminishing returns.
Why following recent “hot” fund managers does not work
Moolanomy.com recently put out a good piece discussing several reasons why past performance will not be the same going forward. See the link below for more information.
Moolanomy.com – How Important Is Mutual Fund Historic Performance?
Recently, while reading the book by Jerry Tweddell titled, Winning With Index Mutual Funds
, I came across a brilliant and very complete section about the reasons why “hot” mutual funds do not perform well in the future. The key findings are listed below.
- The top 20 best performing mutual funds from 1982-1992 fell to an average rank of 142 out of 309 funds in the period 1992-2002. This is basically reverting to average performance.
- When a fund becomes successful, publicity increases, causing more funds to pour in to the fund.
- All too often, this creates the situation of the mutual fund manager having more money than good ideas. This can even put pressure on the manager to purchase additional stocks that he or she is not as enthusiastic about.
- An increase in funds also means that the fund will need to bring in more personnel to handle additional workload. This can create additional people-management problems that the mutual fund manager must handle, distracting him or her from investment analysis.
- Success also increases the chances that a fund manager will be hired away to another firm or start their own business all-together. This increases the chance of turnover in the mutual fund.
. Looking at Amazon, it appears that the book was published December 4th, 2007. Great! We have our beginning date.- Since the published date, the CGM Focus Fund has decreased 54%, compared to the S&P500 index which has decreased 26%.
As you can see, Jim Cramer recommended the CGM Focus Fund when it was FAR outperforming the S&P500 index (in 3Q-4Q 2007). However, almost immediately after his book was published, the price decreased dramatically.
While there may have been other factors involved in this price decrease, it is interesting how it looks like a classic case of being doomed by your own success, as discussed by Tweddell in his book.
This will be the topic of future post. So, keep your eyes out for it! On the way soon!
How about you all? Do you all own actively managed funds? How have they performed compared to the market indices? Are you thinking of selling out of them?
My Personal Finance Journey
Learning For Life
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Track Your Spending for 7 Days – Save Big Money
My Personal Finance Journey Homepage
, the author, David Bach introduced the idea of the Smart Couples’ 7-Day Financial Challenge. Since I found this Challenge of value, I wanted to share it with you all tonight.
Background
What is the 7-Day Challenge?
Essentially, the 7-Day Challenge is a personal finance exercise that you can go through where you will religiously track each and every purchase you make for a 7 day period.
The idea is that after you have kept track of your purchases for 7 days, you will then have a good idea about certain areas where you are either 1) spending excessively or 2) can identify as the Latte Factor previously discussed.
My Personal Finance Journey 7-Day Challenge
In his book, David pretty much ends his description of the financial challenge there. However, I feel that several minor modifications can be made to make it a more worthwhile experience.
Since corny phrases are very catchy, we will coin the modified exercise the My Personal Finance 7-Day Challenge.
Steps to complete the Challenge
To move through this exercise, just follow the easy steps outlined below:
- For 7 days, record each and every purchase you make in the Google Docs spreadsheet I put together at the link below. Do not change your spending habits just because you are doing this exercise.
- To obtain a copy that you can edit and use to track your own spending, simply save the document as an Excel file on your computer.
- In the spreadsheet above, there are 6 categories to place each purchase under. Please feel free to adapt these categories as you see fit for your specific situation.
- Entertainment
- Housing
- Transportation
- Investing/Donations
- Food
- Miscellaneous
- The spreadsheet will automatically generate 1) the total amount you spent during the period and 2) the pie chart and % breakdown of where you spent your money.
- Once you have your pie chart generated, take an in-depth look your spending. Look for patterns and areas where you may be spending too much. Listed below are some questions to help get you thinking.
- Do you spend 70% of your money on food? How can that be reduced?
- Are you spending too much going out to eat?
- Are your tabs at the bar costing you $500 per week?
- Etc…
Once you have gone through your results, post a comment and let me know how it goes!
What categories were you spending too much in? Did you find your Latte Factor? Do you know any one else who falls in to these habits of spending?
My Personal Finance Journey
Learning for Life
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Should I Invest in Bank IRA’s?
In a previous post (shown at the link below), I discussed the different points to consider when choosing whether to choose a Traditional or Roth IRA for your Individual Retirement Account (IRA) needs/investing.
My Money Blog – Deciding Between a Roth and Traditional IRA
However, one thing I did not cover in this previous post on where to invest is analyze the different locations/institutions where an individual can open up one of these IRA’s (once you decided upon which IRA is right for you). This analysis will be the topic of today’s posting.
Note: In this analysis, we will go through several examples of products offered by different banking institutions. For simplicity, we will assume that you have chosen to go with a Roth IRA.
So, let’s get started with a little background of my own experiences.
A little background on what I’ve experienced
Back in around 2004 when I was just starting college, I had read several personal finance books and decided that a Roth IRA was best suited for my needs. So, I knew that I wanted to open up a Roth IRA, but I did not receive any guidance on where to open one.
Because of the lack of guidance, I turned to the closest banking institution to my circumstances, Bank of America, since that is the bank in which I currently held my checking account.
I proceeded through the online Roth IRA application steps on the Bank of America website, opened up the Roth IRA, and figured I was set until retirement!
However, I later realized that the Bank of America IRA was structured in such a way that I could only invest in low-yielding money market, savings, and Certificate of Deposit instruments. Even though all of these products are FDIC insured, I soon became aware that I would need to change to another IRA provider in order to invest in more risky (and therefore higher yielding) investment instruments.
Looking back on my actions now, I realize that I was rather ignorant. However, I believe this is a fairly common occurrence among beginning investors.
So, what do bank IRA’s offer?
At the link below, you can find the different types of investments offered for Roth IRA accounts at both Bank of America and CitiBank.
Bank of America Roth IRA Investment Options
CitiBank Roth IRA’s
As you can see on the website, you have the following options for how your Roth IRA funds are invested with Bank of America.
- Lock your money in an FDIC insured Certificate of Deposit earning a 1.06% return for 1-3 years.
- This is not appealing at all for young investors needing to earn a good return.
- Place your money in an FDIC insured money market account earning < 1% per year.
- Same comment as above.
- Invest your money in mutual funds or individual stocks offered through Bank of America in partnership with Merrill Lynch.
- As discussed before, it is a rule of My Money Blog followers that we do not invest in individual stocks, unless it is play money.
- The mutual funds that Merrill Lynch offers are inferior to the mutual funds by Fidelity and Vanguard because 1) many are actively managed vs. index (increases fees) and 2) involve a sales charge / load (increases fees)
As you can see from the points above, to be perfectly blunt, Bank IRA’s are inferior and should not be bought.
Then where should I open up an IRA?
In my mind, there are really only two options for opening up an IRA account – Vanguard and Fidelity.
Both companies offer extremely low fees and a broad range of international, fixed income, US domestic, and index mutual funds.
And, if you demand to have FDIC insured protection of your investments (not recommended unless you are already in retirement), Vanguard and Fidelity both offer Certificate of Deposit options as well.
Key Takeaway
Bank IRA’s are by far, inferior to IRA’s offered by Vanguard and Fidelity because Bank IRA’s offer lower returns and a reduced amount of investment options.
Keep on learning!
Jacob
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Is It Good To Give Your Children An Allowance?
Recently, while reading a section of the book titled, Young Bucks – How to Raise a Future Millionaire
, by Troy Dunn, I came across a very interesting section on the ongoing debate of whether or not it is best to give your children an allowance while they are growing up. This topic will be subject of discussion in today’s post.
If you were like most children (me included), one of the things you looked forward to most was receiving an allowance at a regular interval of once every week or two.
The intended aim behind the allowance was twofold – 1) for you to be able to buy things that you want and 2) to teach you to begin thinking of managing your own money.
I am in agreement with the first element of the aim of an allowance. If I ever do have children, one of the things that I would want them to experience is being able to have access to certain opportunities to increase their happiness.
However, it is the opinion of this blogger and Troy Dunn in his book referenced above that too many times, instead of teaching children how to manage money, the receipt of an allowance only teaches a child 1) how to spend, 2) rely on their parents for funding, and 3) become accustomed at a young age that it is better to earn a steady salary than invest money to start and grow a business.
If money is simply handed to a child each week, it is my belief that it is seen as more of a gift, instead of what it actually is in the real world: compensation for work done (just as it is at your full time job).
Item #3 above is a big topic discussed in the Robert Kiyosaki Rich Dad Poor Dad
series. In his books, Kiyosaki states there there are three ways to become rich. You either have to inherit wealth, marry wealth, or create it yourself. And, he mentions that the largest percentage of people create wealth by starting businesses that create value for other people.
Because of this, Kiyosaki believes that the primary goal of parents should be to encourage their children to start something that helps others from a young age, instead of teaching them that the solution to life is going to college, getting a good education, and becoming reliant on a salary their entire life. And, by giving them an allowance, parents are merely teaching them at an early age that receiving a regular salary is the way of life.
I agree partially with Kiyosaki on this. I believe that it is beneficial to expose children to the idea of creating something of their own.
However, I also I believe that working for a salary is a good way to gain experience and learn the skills that may be necessary to start the type of business you want to. In addition, I see nothing wrong with working for a salary if you are doing the type of job you love.
An alternative to an allowance – Give your children the most powerful gift of all: the gift of want
In Troy Dunn’s book, he encourages parents to (as an alternative to just giving children an allowance) give their children the gift of want by teaching them to earn the money they need to buy what they want themselves.
By doing this, the children will get used to the idea of creating value for others being the key to obtaining what they want in life as well.
If I really think about it, the gift of want was probably the best gift that my parents gave me. They inspired me to always want to learn more and make more of myself, and for that, I am very thankful.
Troy mentions that this can be done in several ways. First, if they are old enough to be employed part-time, they can obtain a job. However, if they are too young to be employed, parents can help them to create their own businesses.
What are some examples of these businesses that children can create?
Troy describes in great detail many of potential businesses. However, several of them are listed below. Think lemonade stand type ideas!
- Scrubbing and cleaning tile floors and showers in people’s bathrooms
- Selling items of eBay
- Having garage sales
- Preparing meals from customer’s own recipes
- Convert old VHS tapes to DVDs.
- And more!
Keep on learning!
Jacob
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How I Decided Between HMO, PPO, POS Health Insurance Coverage
If you are like me, this decision can feel slightly rushed, since you are scrambling to learn a new job and adjust to a new way of life.
However, similar to deciding which 401k mutual funds/investments you will invest in, choosing which type of health coverage you will go with is a very important decision as well. Unfortunately, many new employees use the technique of asking/following what their cubicle mates use (see Cubicle Copying post for more information).
In this post, we’ll try to sort through the positive and negative aspects of each type of coverage generally offered by employer-sponsored plans, and I’ll try to share my experiences, when possible, to provide some life to the subject.
Let’s get started!
What are the three types of health insurance managed care plans?
The three types of coverage available from most employers are 1) health maintenance organizations (HMO) ,2) preferred-provider organizations (PPO), and 3) point-of-service (POS) plans.
HMO Coverage
- Are generally the most restrictive form of health insurance plan.
- When you sign up, you select a primary care physician from a network list provided.
- If a health problem materializes, you must see the primary care physician before going to see anyone else/ a specialist. If you go to see a specialist without consulting your primary care physician, the specialist visit will not be covered.
- Because of their restrictions, they are also the cheapest form of health care coverage.
Will HMO’s cover you if you have to go to the emergency room?
As I was writing the description above about HMO’s, I began to wonder if emergency visits were covered by HMO insurance.
In reading more on this subject, I learned that emergency room visits/emergency care is covered by HMO insurance, with a $50 co-pay. However, what makes me very uneasy is this clause: “Out-of-network emergency room visit are covered for serious or life threatening emergency care treated in an emergency room.”
Personally, I read this as the insurance company being able to determine what is an emergency or serious injury, and what is not.
For example, what if you are up in the middle of the night with a horrible stomach pain from a flu virus and decide to go to the ER?
Now, while that may be an emergency to you, will it be considered as such by your insurance company? Personally, I would not want to take that chance.
PPO Coverage
- Consists of a group network of doctors, medical practices, and hospitals.
- Do not require the primary physician “gatekeeper.” You may have a primary care physician, but you can go see a specialist without a referral.
- Slightly mor expensive than HMO programs.
- This is the type of coverage that I personally have with my employer. More details on that in the section below on my experiences.
POS Coverage
- Combines features of both HMOs and PPOs.
- Allows you to save money if you use in-network care providers, or you can elect to visit a provider outside the network, in which case, you would pay a deductible.
How do you determine which coverage is best for you?
In David Bach’s book, Smart Couples Finish Rich, he recommends to always steer clear of HMO’s and to generally take the most expensive policy your employer offers (because it will give you the most flexibility).
I tend to agree with the HMO avoidance piece of this advice. However, since PPO’s provide a good bit of flexibility and save you money compared to the POS plans, I have found PPO’s to be best suited to my needs.
My experience
My employer offers 3 options for health insurance coverage:
- PPO
- Enables you to visit in-network and out-of-network providers. However, in-network providers cost less.
- This is the coverage I elected to use, and I have never had a problem with it all.
- However, I have not been seriously injured during the time I’ve had the coverage, and have just seen my primary care physician for annual check-ups, etc. So, I can’t comment on how good it would be if I were to be hurt badly.
- 80/20 In-Network and Out-of-Network (similar to POS discussed above)
- Covers a range of services, including preventative care, emergency, and primary care.
- When you need to see a medical provier, you may choose to go in-network or out-of-network.
- If you go out of network, you will be covered 80% by your insurance. If you go in-network, it will be less.
- HMO
- Follows the HMO model described above.
- Provides no coverage for care received out-of-network or if a failure occurs in getting a referral from your primary doctor, except for emergencies.
- No annual deductible, and most care is 100% covered, with the exception of a co-pay for emergency visits and visits to your primary care physician.
I hope this post has helped you sort through some of the confusion surrounding the different health coverage plans available.
Keep on learning!
Jacob
Should I Invest In Annuities?
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Smart Couples Finish Rich
By David Bach -
Personal Finance for Dummies by Eric Tyson
by Eric Tyson
You (the investor) opens up an annuity account, funds it, and in return, the insurance companies gives you a guarantee that you will receive a regular stream of monthly payments/income for a set amount of time..
In the account, your contributions can grow tax-deferred until withdrawal at the age of retirement (59.5 years of age).
It is important to also note that there are two major differences between annuities and regular retirement accounts:
1) Annuities have no annual maximum contribution limit.
2) Contributions to an annuity are after-tax. However, once in the annuity account, your contributions can grow tax deferred until withdrawal.
- You have already contributed the maximum annual amounts allowed by law to your 401k and IRA accounts.
- You expect to keep the contributions invested in the annuity for 10-15 years or more.
- Immediate – you begin receiving payment immediately
- Deferred – you have to wait a certain period of time before the payments start (usually when you begin your retirement)
- Fixed rate – receive guaranteed payment / interest rate for a certain number of years
- Variable rate – your money is invested in a mixture of instruments, so the payout will vary depending on return obtained. However, usually with variable rate annuities, you are guaranteed a certain level of payout, but then also have the opportunity to earn additional income, depending on how successful your investments are.
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No-load – have very low management fees, no surrender charges, and no sales commissions.
So, now that we know what options are out there as far as annuities go, how do we go about deciding on which to choose in the real world?
Since Vanguard annuities are very highly recommended in financial literature, and I have a lot of my other accounts with them, I will restrict my analysis to the annuities that Vanguard offers.
The link below shows a good comparison of the different features that different annuities offer.
Vanguard.com – Comparison of Vanguard Annuity Products
According to this link from Vanguard, there are really 3 options. Below each option, I have noted how I have gone about deciding between the options.
- Vanguard Variable Annuity
- Best suited for individuals who have 10-15 years to retirement, have $5000 minimum to place in an annuity, and want control over how their portfolio is invested.
- Vanguard Fixed Annuity – Single 5
- Best suited for individuals who have slightly less time before retirement and have $10000 minimum to place in an annuity at a fixed rate.
- Vanguard Lifetime Income Program
- Best suited for individuals who are already retired and looking to convert their assets in to an income stream.
As you might have guessed, since I am young, the Vanguard Variable Annuity is best suited to my needs.
At the link below is the spec sheet for the Vanguard Variable Annuity.
- Annuity involves two phases of ownership
- Accumulation phase – Can add new funds to annuity at any time you work, after opening with a minimum $5000 investment.
- Income phase – Begins when you convert your annuity assets in to a stream of payments. You also designate how long the stream of income will last. Conversion can occur any time after age 59.5 and before age 95.
- Average cost for Vanguard Variable Annuity is 0.61%, 1/4 of industry average.
- No sales or surrender charges.
- Tax-free and commission-free exchanges between different mutual funds within the annuity.
- $25 account maintance fee per year for accounts under $25,000 value.
- A good selection of index mutual fund investment options, including money market, short-term bond, total stock market, international, and REIT index funds.
What type of investing strategy (and quantity) will I use with this annuity?
Since the investments are tax-deferred, I will make sure that I place tax-deferred appropriate mutual funds inside the account, and incorporate it in to my overall asset allocation management.
As I get closer to retirement, I will then replace the more aggressive equity investments with fixed income investments to provide a more stable portfolio.
Should I Buy Life Insurance Even Though I Don’t Need It?
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Are you married?
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Me: No.
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Do you have children?
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Me: No.
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Would your parents and/or siblings have trouble paying for your funeral if you were to die?
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Me: Probably not.
Since I answered “no” to all of these questions, it is quite easy to see that I do not necessarily need life insurance.
However, would it be a wise investment decision to lock in a life insurance term rate now (at age 24 when I do not need it) than to wait until I do need life insurance? This will be the subject of today’s posting.
To do this analysis, we’ll need to compare the total cost of two scenarios – #1) the total cost of obtaining life insurance now, at age ~25 or #2) the total cost of obtaining life insurance at age 31, an age when I will be closer to having a wife/children. Both scenarios will involve obtaining a $1MM, 30 year level term policy quote from LifeQuotes, Inc.
Scenario 1
Annual premium = $688
Scenario 2
Annual premium =$891, ($738 current quote increased with inflation for 6 years from to simulate buying at age 31)
As you might have guessed, because I am younger in Scenario 1, the annual premium cost is less than in Scenario 2. However, we need to understand the magnitude of this difference in order to make a final decision.
The Google Docs spreadsheet, which can be accessed at the link below, provides a comparison between these two scenarios.
Google Docs – Should I Buy Life Insurance Even Though I Don’t Need It Now?
As you can see on the comparison, the difference, in today’s Dollars, is approximately a $6000 total savings by obtaining life insurance now vs. waiting until I am in my 30’s.
While this is a significant amount of money, it is not enough to influence me to buy life insurance now. Furthermore, the advantage of locking in coverage now diminishes further when you look at the opportunity cost of having your funds tied up in life insurance premiums.
For example, if I took the $688 annual premium for life insurance that I would pay between the ages of 25-31, invest it in the stock market, and assume an average return of 10%, it would result in an invested balance of $5300.
So, I would encourage each of you all to examine your own situation (and the benefits and negatives involved) and determine when is the most appropriate time for you to obtain life insurance.
Keep on learning!
Jacob
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Roth 401k Plans – What Are They and Should You Invest In Them?
Recently, while reading David Bach’s book, Fight For Your Money
, I read a passage describing a new type of investment instrument that is being offerred by some employers for their employee’s retirement savings.
It is called a Roth 401k. First, let’s take a look at exactly what a Roth 401k is.
What is a Roth 401k?
In a previous post (see link below), I sorted through the decision making process of whether a Roth IRA or Traditional IRA is better suited for your needs.
My Money Blog – Roth IRA vs. Traditional IRA
A Roth 401k has many of the same characteristics as a Roth IRA. The attributes of Roth 401k’s are listed below:
- Offered through your employer’s benefits department.
- Employees contribute funds to the Roth 401k on a post-tax elective deferral basis, in addition to, or instead of, pre-tax elective deferrals under their traditional 401k plan.
- Combined pre-tax and post-tax contributions to a 401k is still limited to the regular $16,500 maximum contribution required by the government.
- Key Feature
- Withdrawals/earnings from the Roth 401k account will be tax free, provided that the Roth 401k account has been open/active for > 5 years and you are 59.5 years of age or older.
For more information on Roth 401k accounts, click on the link below:
Wikipedia.org – Roth 401k
Is a Roth 401k Right For Me?
A general rule of thumb that can be used is that if you determined (from decision process in previous post at link above) that a Roth IRA is best for you, then a Roth 401k is a good investment decision for you as well.
As we discussed in the previous post, the decision to elect a Roth 401k over a Traditional 401k hinges on what tax bracket you currently are in and what bracket you will be in upon retirement (when you want to choose to pay the taxes on your investments).
- If you think you will be in a higher tax bracket when you retire, a Roth IRA/401k is best for you.
- In general, this situation applies to most young (18-30 year old) investors who start saving money early and expect to have accumulated a good nest egg when they retire.
- If you think you will be in a lower tax when you retire, a Traditional IRA/401k is best for you.
The article shown at the link below from Wikipedia.org provides a good matrix comparison of the benefits of both types of 401k programs.
401k – Roth vs. Traditional Matrix
Another tool that I found in doing some research on this topic is shown below. It is a calculator that allows you to enter several details about your financial situation, and then it projects 1) the effect on your current income and 2) the effect on your income during retirement, as a result of electing to use either a Roth or Traditional 401k plan.
Schwab.com – Roth 401k vs. Traditional 401k Calculator
At age 24, my results were as follows:
- Using a Roth 401k will decrease my current take-home pay by 7%, over a Traditional 401k.
- Using a Roth 401k will increase my annual income during retirement by 41%, assuming that my tax bracket stays the same as it is now.
- If my tax bracket increases from 29% (now) to 35% at retirement, using a Roth 401k will increase my annual income during retirement by 54%. Wow!
How Accessible Are Roth 401k’s?
So, in my case, it would clearly be beneficial for me to use a Roth 401k account. However, the program is that these types of accounts are not readily being adopted by employers. I just called the benefits center at my work, and they said that they do not offer a Roth 401k option.
In fact, it is estimated that only 1 in 4 employers currently is offering a Roth 401k as an account option.
So, don’t be too dissappointed if this option, while good, is not yet available to you.
Key Takeaway
Roth 401k’s, like Roth IRA, are a relatively new form of investment tool/account that is slowly being adopted in to our society.
Everyone should analyze their own situation carefully to determine if a Roth plan is right for you. If it is determined that paying tax now with a Roth account is better than waiting until retirement, it is beneficial to 1) open up a Roth IRA and 2) call your current employer to ask if they offer a Roth 401k as well.
Keep on learning!
Jacob
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Home-Based Business Opportunities
Over the years, I’ve had the distinct priviledge of having an active drive to try out new business ideas. While not all of these turned out to be huge money makers (some were downright scams and lose me money), all of them were incredible learning opportunities.
So, feel free to post your thoughts in the comments section below.
Let’s get started…
- Surveys
- Paid survey taking is one of the few legitimate work-at-home money making opportunities.
- However, the pay is generally not very much.
- David Bach, in his book titled, Fight For Your Money, recommends the following survey taking providers/websites.
- American Consumer Opinion
- National Family Opinion
- Survey Savvy
- My Experience
- I have tried taking surveys from each of the above websites.
- Generally, I have found that there is not much money at all to be made with these because 1) they don’t send you enough survey opportunities and 2) they usually place high payout levels on the accounts, which makes it tough to ever reach the level where you can get paid.
- As a result of my experience, my verdict is as follows – Survey taking is not a scam, but I would not recommend it to make money from home.
- Envelope Stuffing
- This one is absolutely, 100%, a scam. Do not attempt it.
- My Experience
- Thankfully, I have never tried this one and have therefore, never been ripped off.
- ChaCha
- ChaCha is an interesting, legitimate home business/money making opportunity.
- ChaCha is a free text message question-answering service in which users text message questions to the ChaCha system, and then ChaCha Guides (as they are called) answer the question by looking it up on their home computer through Google.com. It is actually pretty fun!
- The pay rates usually range from about 5 cents to 25 cents per answer that you give.
- My Experience
- I signed up for and performed as a ChaCha guide for about 1 month last year.
- During my time, I made approximately $5.
- Overall, the work was not that hard (and was pretty fun), except that it tended to take a lot longer than I thought to accumulate enough earnings to reach the $100 payout level.
- As a result of my experience, I would not recommend ChaCha as a home-business opportunity.
- eBay Selling and Amazon Selling
- I have summarized the benefits and pitfalls of selling items on both eBay and Amazon in the link below.
- In my experience, no home-business opportunity has made me more money than selling items on eBay. I would highly recommend it.
- Blogging
- Blogging is a legitimate home-business opportunity.
- However, it takes a long time (> 1 year) to build up enough of a reader-base to make money through advertising on your site.
- However, the good thing is that with sites like Blogger.com (what I use for this blog) and WordPress.com, you can start a blog about anything you want for FREE.
- My Experience
- Personally, I really enjoy writing my personal finance blog. It is one of the joys of my life that I look forward to doing each day.
- However, you should not expect to make big money with it. If you are thinking of starting a blog, make sure to pick a topic that you enjoy and can use your blog to learn more about that topic.
- Pet Waste Removal Service
- Starting your own pet waste removal service (or a pay-for-fee service where people pay you to clean up the pet excrement from their yards) is an easy, low cost business to start up and run, provided that you can stomach the smell of a little fecal matter.
- This service is surprisingly in high demand, as yards have gotten smaller and smaller and people’s time has become more limited.
- Fees for service can range from $15-$50 per week, depending on the size of the person’s yard and number/size of dogs/cats.
- My Experience
- Back in 2006-2007, I started up one of these services, and became pretty successful at it, gathering a collection of clients that I serviced on a weekly basis.
- Earnings – In total, I probably made about $500 from this venture.
- I had to stop doing it my senior year of college because my time outside of school was so limited.
- Mystery Shopping
- Essentially, what mystery shopping involves is getting paid for providing an evaluation of your “customer experience” when you go in to a store and purchase items like normal.
- Big chain-stores pay large amounts of money to people in order to improve the experience that customers have.
- Personally, I have never tried mystery shopping, but David Bach (in Fight For Your Money) recommends the following websites/providers for mystery shopping. He also mentions that it is one of the few legitimate home business opportunities.
- ICC Decisions Services
- Corporate Research International Mystery Shops
- Mystery Guest
- Service Intelligence Experience Exchange
- Customer-Service Representative
- This is yet another home-business opportunity that I have not tried, but just found out about in David Bach’s book.
- In his book, David relates the fact that approximately 700,000 Americans earn around $8 per hour as customer service reps, handling customer-service calls out of their own homes for resort, hotel, and other companies.
- Several of the agencies offering these legitimate opportunities are listed below:
- Multi Level Marketing
- At a high level, multi-level marketing opportunities offer you the ability to make money in two ways – 1) by selling products offered by the organization, and 2) selling the business opportunity that you are doing to others. Since these MLM (multi-level marketing) organizations involve selling products, they are creating value for others, and are therefore technically legal.
- However, it is very difficult to make any money with these opportunities. I would highly recommend avoiding them at all costs.
Keep on learning!
Jacob
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Top 10 Highest Paid Supermodels in 2010
Top 10 Highest Paid Supermodels in 2010
Thanks for reading and keep on learning!
Jacob
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