Category Archives for Invest & Retire

Creating a Lifestyle of Financial Independence, Whatever That Means to You

The following is a guest post. Enjoy! 

This is a personal goal, but it’s something that a lot of people share. Financial independence means different things to different people. For some, it means never working again. To me, it means doing the work that I choose, that gives me pleasure, and never putting enormous energy into something I don’t believe in. Because let’s face it, many of us are raised in a system where we’ve got to pour all of our energy into pursuits we care nothing about. That first dawned on me in high school at my private school and at my first job at a fast food chicken restaurant.

Lots of us just get used to doing things we hate. “That’s life,” we say. And that isn’t wrong. That’s a principle of many philosophies and religion. Buddhists hold as a central tenet that life, itself, is suffering. Now, while I don’t mind sitting down with that thought and mulling it over for awhile, I’m not going to let that sort of thinking lock me in to life and work that is boring, painful, or soulsucking. That doesn’t mean I’m not going to work, or even work really really hard. But it means I’m going to work for something that I feel matters.

But in order to do that, you’ve got to be able to pay the rent. If you already have a job that you love, that affords you a lifestyle you enjoy, then congratufreakinlations. Not everybody is there, though. For those of you who are not, and who don’t have a specific direction in mind to get out of this cycle, here are some practical steps.

• Replace Horrible Tasks With Less Horrible Tasks. If you hate your job, get a job you hate less. If you can’t find one, simple try to get one that pays better. If you can’t do that and your job is draining you of all energy, quit. Quitting puts you in survival mode. You’ll have to take stock of yourself, your skills, and ways you can work to survive. I did it once, and started my writing career which, within a year, had doubled my income from my previous job. Quitting is extreme, but it’s better to accept lower pay for something that doesn’t sap your life force. You’ll have energy to make better decisions, to help yourself along, than you will if you stay at a terrible job just for the money. Slowly find ways to replace income, and replace those with better fit or better paying tasks, till you are busy with stuff that at least pays well and hopefully gives you enjoyment.
• Activate Your Own Creativity. Find something you can create, and create it, no matter what. You can try different things: starting a blog, doing woodworking, writing and recording songs, starting a small business. But stick to it for a year and see where it leads you. Don’t put any financial expectations on this work, just let it develop. In time, chances are you’ll be making money on this thing, perhaps enough to replace your normal income with.

The end goal is fulfillment. If you enjoy your work, you’ll be a lot closer to enjoying your life. You won’t have to sustain an expensive lifestyle to give yourself happiness shots in the arm every few hours. You’ll just be happy. From there, financial independence comes a lot easier. You can save and invest much easier.

Savings and Investment will further buoy your new lifestyle. You won’t be so worried about bills, and you’ll have extra income and financial security from your investments. Eventually, investments like the ones I’ve mentioned may bring in a lot of extra income, enough to replace some of the leftover work that you may have to do but don’t enjoy. In a way, this is a financial dream, but it’s a dream that thousands of people are living. You’ve got to work and make it a priority, but in the end you are the priority. This is your life. Make it work the way you want.

Why You Can’t Take a Binary Options Platform for Granted

The following is a guest post. Enjoy!

Making it as a binary options trader takes a lot of hard work. While this form of investing is certainly preferable to a lot of other versions, that doesn’t mean it’s a walk in the park either. You’ll need to put in the time it takes to learn the ropes and, of course, practice in real world situations. However, without the help of a quality binary options platform, none of this will add up to much. Even a good broker can’t replace the importance of the right platform.

Platforms Are How You See the Market

Trading options well demands that you see the market clearly.  This is one of the main things a binary options platform does. You have to be able to follow various underlying assets and the market as a whole in order to know which option to purchase. Otherwise, you’re just taking stabs in the dark and might as well be spending your money at the roulette wheel.

It Decides How Much You Earn

A binary options platform will control how much you earn on your investments in two very important ways. First, as we touched on above, the better the platform, the better you’ll be able to do. A low-quality platform will always mean you make less money with binary options.

However, platforms are often linked to your payouts too, like when they come with your broker. In that case, they affect the percentage you’ll get for every win. No platform or broker will pay out 100%. The amount you get can go up to around 85% or a whole lot lower. It’s definitely worth taking the time to find out how much you’ll be able to expect from your platform.

It Limits What You Can Trade

Another way your binary options platform will affect your earnings is by controlling what you’re able to trade. You don’t have to be in investing for long to know that you always want to diversify your portfolio. With options, you can choose to trade just about anything, including commodities, stocks and currency.

Ideally, you want a platform that can handle as many as possible and supports a number of different currencies too. This will give you a lot of room to move depending on how the market is acting. While most people love that options allow you to make money no matter how the world’s economies are doing, it’s still a good idea to give yourself plenty of possibilities to work with.

High Security

Finally, don’t use any binary options platform that doesn’t come with a high level of security. You want 128-bit SSL encryption at the very least and it should come from a top provider in the industry. Otherwise, your funds will always be at risk.

Once you have a quality platform to trade from and a decent broker, you’ll have a much easier time pulling in profits from binary option trading.

How I Earn Extra Income By Renting Out Extra Space

The following is a guest post by Bryn Wied. Bryn is a stay at home mom whose love of travel and budgeting needs only grew when the kids started coming. You can find more thrifty travel parenting stories, ideas and tips at her blog at http://www.ihavekidswilltravel.com/. Enjoy! 

Landlording on the side can be a quite profitable side gig and another way to add a couple hundred extra dollars to the travel fund. The great part it is it can almost border on passive income, meaning it doesn’t take a lot of extra work or time, especially if you can land yourself a full time boarder position. You get to meet new people, make some money from home, and walk away with a couple of good stories and a few lessons learned along the way.

These days, you don’t need to be a millionaire with an entire house to rent out to become a landlord or to make money renting out to borders. Any extra space you may have, from a house, guest cottage, tent, or even an extra couch, can be up for grabs as a potential to bring in some extra cash.

My husband and I first moved across the country in an RV. After upgrading to an apartment, we weren’t able to sell our camper because we still owed money on it from when we first bought it. So we decided to become “landlords” and rent out our extra space instead! Not only did we immediately start making money off of it, but we have since paid it off and now have a steady stream of side income coming in with little to no work involved.

Attracting Business

Utilizing online resources will probably be the best way to attract business when you are first starting out renting. By all means spread the news through word of mouth, because you never know where networking can lead you. But unless you happen to know someone who is actively looking for a place to rent, there are a handful of great websites that are already set in place to help you start renting as soon and hassle free as possible.

I briefly dabbled in airbnb.com. It was very easy to use, and much easier to protect yourself by collecting information ahead of time, secured payments, etc. I also received quite a few inquiries, although the clientele consisted mainly of occasional vacationers who needed a night or two, so if you are looking for a steady renter you should probably try elsewhere. The key is to under price the competition; I consistently do research for similar finds or even just all finds in my area and underbid them by $5. You wouldn’t believe how much business I have attracted simply by underbidding the competition. The same people who look for alternative housing tend to be the same people who think outside the box and are always on the lookout for a deal.

I also used craigslist.com, and have found the most success for long term renters here. The obvious drawback is Craigslist is sketchy. I only did month to month rentals, nothing shorter so as to attract only people who were going to be there for a while and less likely to bounce without paying. I met potential renters with my husband, never alone, and always in a public place first. It helped that the RV we were renting out was stored in a very active and well maintained RV Resort, so there were always lots of people around and a good security system in place. Do what makes sense for you, but just be smart.

We also found a fair amount of business through local church bulletin listings and newsletters. There were a few people who were in need of housing in-between moves or were looking for a place to stay while they looked for more permanent housing in the area.

Safety

Obviously as a stay at home mom, safety of my daughter is a big deal to me. In our specific situation, we didn’t have anyone staying with us, so it wasn’t as if I was sharing my house with someone. We still did face some issues, like renters not paying on time, and the possibility that someone could show up and literally drive off with our RV in the middle of the night and we would have no idea.

The first safety measure that should be put in place is collect money UP FRONT. I know this sounds like Captain Obvious, but we admit we made this mistake, and unfortunately with a long term renter. It took us 2 months to kick him out, and in the end I still don’t think we were ever fully paid. He was also an incredibly sweet guy, which only made it more awkward. My advice would be to avoid that whole situation and just get paid up front and on time.

A great way to make sure this happens, and another step to have in place to protect yourself, is get something in writing. You don’t have to have a law degree to write up a very functional agreement or contract that will protect you in the case of a misunderstanding down the road. Be sure to include:

• Everyone’s name
• Date
• How long the agreement is valid for
• When rent is due and what sort of fine/termination is allowed should rent not be paid on time
• What your responsibilities as landlords are (who pays utilities? What if something breaks?) and what is the responsibility of the tenant
• Any safety deposits needed and their return time
• Move out date

You can add additional information if needed. The important part is to print it out, and have everyone involved sign and date it. Make sure to make 2 copies, one for you and one for the tenant.

Another good idea if you are renting out a larger space such as a guest house, room or RV is to take pictures of the area before your rent it out. That where there is no confusion as to who is responsible for the stained carpet or the broken mirror.

Live Long and Prosper

Hopefully none of the above scares you away from renting out extra space for supplemental income. As a stay at home mom, I can take care of collecting rent and do nothing else while still earning an extra $300-500 a month consistently for the past year and a half. That’s around $4000 a year of extra income we get to use traveling! If we ever get sick of renting, we can turn around and sell the camper for an extra couple thousand. As a bonus, our current renters have become great friends and now are permanently renting the RV.

***Photo courtesy of http://www.flickr.com/photos/106574022@N04/11415400896/in/

What to Know Before Buying Your First Investment Property

The following is a guest post. Enjoy! 

Investing in your first property is a big financial step to take. Depending on whether things go well or not, you could find yourself with a new passion for real estate investment. With something so important, it’s crucial to do as much research and absorb as much information as possible before committing to your chosen property. Here are some of the key things you should know before you even think about making a purchase.

Your Ideal Price Range

Choosing a property above your financial capacity will obviously have negative repercussions, but settling for one below your price range isn’t ideal either because you’ll be limiting your returns. Something you should do long before you start looking at potential properties is to analyse your finances and work out the appropriate price bracket for your investment to fall into. Of course, this will usually be based on what you can afford as a deposit and what you can manage to repay over time; thanks to investment loans, you can invest in a property long before you’ve accumulated enough funds to pay for it outright.

The Area

It’s important to have some basic knowledge of the area where the property you’re investing in resides. This will be easier if you’re investing close to home, but there are plenty of ways to gather information about a locale further abroad – start online, order some market reports, and make some phone calls to relevant agencies in the area. Having some fundamental knowledge of the city or town’s recent and likely future market trends will help you ensure that you end up paying the correct amount for your property. It will also help you establish whether this location is actually ideal for your investment.

Your Endgame

The exact importance of the location will depend heavily on your endgame, i.e. where you want this investment to eventually lead. If your goal is to resell, the area you choose will still influence the kind of tenants you attract and the appropriate amount of rent to charge, though the likely resale value will be a larger factor. If your plan is to one day move into your investment property, then the location becomes all the more significant. If this is the case, you’ll want to take extra care when researching both the neighborhood and the property itself to ensure that they will be suited to your needs and desires in the future.

The Kind of Tenants You Would Prefer

If you have a preference for a particular type of tenant, you need to consider this when looking at potential properties. A small apartment in the city won’t appeal to families, while a spacious house in the outer suburbs probably won’t have university students applying for the lease. So, if you have a specific image in mind of who you’d like to rent your property, choose accordingly.

Buying your first investment property is a big decision. There are lots of factors to consider and plenty of research to be conducted. But your financial future – and your future in general – could depend heavily on the outcome of this purchase, so it’s crucial that you don’t try to take any shortcuts. Investing wisely and carefully should leave you with a positive result and perhaps even put you in the position to invest in another property.

5 Ways to Avoid Borrowing Against Your Tax Refund

Anum Yoon recently joined the blogging bandwagon to write about money management, frugal advice, and financial trends. She started and maintains her personal finance blog, Current on Currency.

Tax season is pretty much over now that April 15^th is just around the corner. While many have already received their tax returns, there are others who are still waiting. For those of you that are still sitting tight, you’re probably hankering for that glorious check so that you can indulge in a big purchase, pay off debt, or pay outstanding bills.

Until 2013, the most popular method for getting your refund quickly was the Refund Anticipation Loan. The Refund Anticipation Loan (RAL) is a loan taken against the taxpayer’s anticipated tax refund. This loan usually lasts for 7-14 days before the IRS actually issues the refund check.

Although RALs allow you to get your cash a little bit earlier than waiting for a check from the IRS, they are both costly and inherently risky. Loan fees typically range from $30 to $130 and sometimes additional fees are added on top of that. If you expected a refund of around a few thousand dollars, you can see a significant chunk of change deducted from your refund as fees. Are all these additional costs worth getting your refund a mere week or two faster than waiting for the IRS?

In addition to these fees and costs, there is also risk involved with taking out a RAL. This loan must be repaid even if the IRS denies or delays your refund, or even if your refund is smaller than you anticipated. This can mean costly interest payments if you do not repay the loan and it will end up negatively affecting your credit score or your account being sent to a debt collector.

Be Careful

Many tax time advertisements for “Fast Cash Refunds,” “Money Now,” or “Instant Refunds” are actually Refund Anticipation Loans. These ads are targeted towards people who need money in a pinch and believe they cannot wait the extra week or two for their refund to come in. The fees involved and the risks of not getting enough money for your refund are too high to justify getting your money a little earlier.

There are ways to get your money as quickly as possible without taking out a Refund Anticipation Loan. Avoid the temptation of taking less money now instead of more money later.

Instead of putting yourself in a financial blunder, you can avoid the entire dilemma in the first place by following these five steps:

1. File Early

While this won’t help you now, it is something to keep in mind for next year. Filing your taxes earlier will not only improve your chances of getting a quick refund, but you will also be able to track the status of your tax refund if you do it online. You’ll be thanking your impatient self next year when you won’t have to wait until April.

2. Borrow the Money from a Friend or Family Member

One of the reasons you shouldn’t borrow against your tax refund is because you may not get as much as you anticipate. Since loans against tax refunds usually come with high interest rates, you end up further in debt. Borrowing money from a friend or family member saves you from that because you will probably not have to deal with interest and if you don’t get as much as you planned from the IRS, you’ll have longer to pay the loan back without penalties.

3. File Online and Check the Status

If you haven’t filed yet, consider doing it online. Taxes filed online are often processed faster. You can also check the status of your check. While you may check it multiple times a day as you eagerly await its arrival, it’s better than taking out a loan against it.

4. Choose the Direct Deposit Option

Just as filing online speeds up the process, so does choosing the direct deposit method. This is mostly because you don’t have to wait on the postal service for your check.

5. Decrease the Tax Return Amount

If you have a really hard time not borrowing against the refund, you may want to consider cutting down your refund check next year. You can do this by paying less to the IRS throughout the year. This does make tax season less enjoyable if you get money back, but it helps you battle the urge to borrow against it.

Patience is a virtue. While you’re excited about having some extra money to play with, try to tell yourself that even though waiting a few more weeks might hurt a little now, borrowing against your refund will hurt a lot more later.

How about you all?  Do you have any experiences with RALs? Do you have other ideas or tips on how to not borrow against your tax refund?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/carbonnyc/2204277278

Five Reasons To Work Early in Your Retirement

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Many people can’t wait to retire. At the same time, a lot of people – including many of those who can’t wait to retire – are also more than a little bit concerned by the prospect of outliving their money. It can be a nightmarish thought too – to consider the possibility of being several years into retirement, then running out of money. That creates some compelling reasons to continue to work early in your retirement years.

Here are some advantages to doing just that:

1. Maximize Your Social Security Benefits

Statistically, the majority of people retire at age 62 or shortly thereafter. Financially, this is an unwise move. Your Social Security benefits can rise significantly the longer that you delay collecting your benefits past age 62. In fact, benefits increase somewhere between 5% and 8% each you that you delay collecting them, up to age 70. (There is no advantage to delay taking your benefits past age 70, since increases won’t apply.)

According to this chart put out by the Social Security Administration, Effect of Early or Delayed Retirement on Retirement Benefits, if you begin collecting benefits at age 62, your monthly check the only 70% of what it will be if you wait until you’re full retirement age, which for anyone born in 1960 or later, will be age 67.

Further, if you delay collecting your benefits until age 70, your monthly check will be 24% higher than it would be if you start collecting at the full retirement age of 67.

This is an excellent strategy to increase your Social Security income in retirement. But it’s one of the very best retirement strategies you can take advantage of if you don’t feel that you have saved enough in your retirement plan to retire comfortably. If you can continue to work past age 62, you can increase your monthly benefit for every year that you delay.

2. Maximize Your Investment Earnings and Contributions

If you can work early in your retirement years, you’ll have an opportunity to continue to increase your retirement savings. This is another excellent catch-up strategy, if your retirement savings will be insufficient by the time you reach retirement age.

Let’s work an example to illustrate how effective this strategy can be.

Let’s say that you will have $250,000 saved for retirement by age 62 – the age at which you hope to retire. Using the safe withdrawal rate of 4% per year, your retirement portfolio will provide you with an income of $10,000 per year. Combined with a Social Security benefit of $14,000 per year, you’ll scrape by on an annual income of $24,000 per year, or about $2,000 per month.

But let’s say that you really can’t live on that kind of money – what can you do?

If you delay your retirement until you’re full retirement age of 67, and continue to work, how much can you increase your retirement savings in just five years? More than you think!

If you are earning an average of 8% per year in investment income on your retirement savings, that means that will add an additional $20,000 per year to your portfolio for every year that you delay your retirement.

Now let’s also say that you are contributing $10,000 per year to your company 401(k) plan. If you add that to the $20,000 in annual investment income on your portfolio, that means that you will be adding $30,000 to your retirement plan each year you delay your retirement.

After five years ($30,000 per year X 5 years), your plan grows to $400,000. Again, applying the safe withdrawal rate of 4% per year to your retirement portfolio, you’ll be able to withdraw $16,000 per year from your savings.

At the same time, by continuing to work until you reach your full retirement age, your annual Social Security income rises to $20,000. When you add that to the $16,000 in retirement plan distributions, you are now up to $36,000 per year – or $3,000 per month – in retirement income.

That’s an increase of $1,000 per month – or 50% more than you would have gotten at age 62 – just for continuing to work, and delay your retirement for five years.

3. Minimize Your Retirement Portfolio Drawdown

The earlier that you begin taking withdrawals from your retirement portfolio, the more quickly the account will become depleted. By continuing to work and delaying your retirement, you’ll also avoid drawing down on your retirement portfolio.

This is an arrangement that can work especially well, when you consider that in the early retirement years, you will likely be more able to earn additional income than you will be later in life. It makes a strong case for deferring tapping your retirement assets until later in life when it’s more necessary. The longer you can work, the longer you can do that.

4. Reduce the Number of Years You Need to Rely on Your Portfolio

The other advantage to continuing with work early in the retirement years is that you can reduce the number of years that you need to draw from your retirement portfolio.

For example, let’s say that you expect to retire at 65, and to live to be 85. That means that you need your retirement savings to last for 20 years.

You will have $400,000 in retirement savings by age 65. You decide that you really need $24,000 per year from your retirement savings, but when you divide that by $400,000 (assuming that future investment income is offset by inflation), that will only cover a little over 16 years.

If you continue to work until you are 69, and delay taking withdrawals from your retirement plan for four years, your retirement savings will still get you to age 85 (age 69 + 16 years worth of retirement savings).

5. To Take On New Challenges That Weren’t Possible Before

60-something is a lot younger today than it was 50 years ago. This is in part because people generally are taking better care of themselves, there have been significant medical advances, and the fact that people are doing work today that is much less physically taxing than what it used to be.

It is entirely possible that, unburdened by the necessities of middle age, you will be able to embark on an entirely new career. It may well be that there is a career or business idea somewhere out there that you have been harboring for many years. The early retirement years may be the very best time to turn that dream into a reality.

Retiring to a life of leisure is hardly a universal desire. Even people who have the financial means to completely retire, often continue to work, or to simply move into a different venture. A new venture may be something that’s a lot less stressful, and a lot more enjoyable. The early retirement years can represent an opportunity to pursue that kind of goal.

If you find such a career, it will enable you to put virtually all of the strategies in this article into effect. If you can, your retirement years will be the easiest years of your life, even if you don’t ever actually retire.

How about you all? Do you have any experience or know someone who has had experience with continuing to work during the early retirement years? Do you know of other benefits to working in your early retirement years that are not listed above?

Share your experiences by commenting below!

***Photo courtesy: https://www.flickr.com/photos/92334668@N07/11123538363/sizes/n/

Why Stocks Are Your Best Inflation Hedge

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Any talk about the effects of inflation on investing will move into the realm of precious metals at some point in the discussion. And while precious metals do have a history of responding favorably to periods of high inflation, they tend to languish or even fall during times of low-inflation.

But, if we look at the long-term trend, stocks are your best inflation hedge.

Though that may seem counter-intuitive, there’s plenty of evidence to support the case for stocks as the best long-term inflation hedge.

Stocks Do Well In the Low Inflation Environment That’s More Typical

Over the past 100 years they have been a couple of periods that involved relatively high inflation. Those occurred in the early 1940’s (due to World War II), and the entire decade of the 1970’s. Apart from those two periods, inflation has been pretty tame for the other 85 years.

That’s not a small point, either. When we look at the effects of inflation, we have to consider it in terms of what it does to money that is invested over decades, and not just years. And in most of the low inflationary years, stocks outperformed precious metals.

The best example has been the performance of stocks since the early 1980’s. Inflation has been tame during the entire period, staying mainly below 5% and usually much lower. According to the Bureau of Labor Statistics Inflation Calculator general price levels have increased by about 250% since 1982. But during that time frame, stocks have risen from a low of Dow 800, to the current level of nearly 18,000. That’s an increase of more than 2,200%.

That performance has more than overcome the stagnation that stocks experienced between 1970 and 1982. If you were a young person saving and investing for retirement since and during the 1970’s and early 1980’s, you would have done much better on the inflation front investing in stocks than just about any other asset class.

Commodities Aren’t the Inflation Hedges That We Assume Them to Be

There’s no question that commodities performed very well during the 1970’s, certainly much better than stocks. But looking at the same time frame used above, gold averaged roughly $400 an ounce in 1982. It currently trades at about $1,200, which is to say that it’s 300% higher than it was in 1982.

Now to be sure, gold has acted as a true inflation hedge, increasing by 300% while general price levels increased by 250%. But it didn’t do much more than keep up. Compare gold’s 300% price increase with the 2,200% increase in stocks (as measured by the Dow), and decide which has been the better inflation hedge.

We have to remember that inflation isn’t marked just by the times when it is particularly high. When you’re investing for the long run, you have to account for inflation over the course of your lifetime. When viewed from that angle, stocks are the better inflation hedge.

Bonds Are a Guaranteed Money Loser to Inflation

Whether stocks or commodities are a better inflation hedge, one thing is certain: bonds are an inflation train wreck. Probably no investment security is more vulnerable to inflation than bonds.

Here’s why…

Bonds are priced at a specific amount, say $1,000. They also carry a fixed interest rate, say 3%. If inflation rises and causes bond rates to rise to 4%, the value of the bond will fall. The reason that it will fall is so that its price drops low enough that the yield on its market value will produce a 4% return to match market level returns.

If you bought a 30 year bond for $1,000 at 3% ($30 per year), and rates increased to 4%, the value of the bond would have to fall to $750 to support a 4% yield ($30 divided by $750 equals 4%).

Inflation is the primary factor driving higher interest rates. When inflation rises, so do interest rates – and that causes bond prices fall.

Translation: Bonds are not an inflation hedge. They’re more of a classic inflation victim.

Real Estate is a Good Inflation Hedge – But Stocks are Easier

Much like stocks, real estate can be an excellent inflation hedge. This is true not the least of which because it can be easily leveraged For example, if you can buy a property for $200,000 with a 20% down payment (plus a $160,000 mortgage), and the value of the house doubles to $400,000 in 20 years, you will get a 600% return on your investment.

You put $40,000 down on the property ($200,000 X 20%), and you’re equity grows from $40,000 to $240,000 (the $400,000 current value, less the original mortgage of $160,000). The calculation becomes even more impressive if you factor in the pay down on your mortgage.

So far so good. But real estate is not necessarily an easy investment, and that’s true whether it is an investment property or the home that you live in. You will pay real estate taxes, insurance, and utilities, as well as the costs to maintain, repair, and upgrade the property over those 20 years.

None of those complications exist with stocks. You invest your money with only very small costs (transaction fees and investment expenses), and because your investments are highly liquid, you can move in and out of them virtually any time that you want.

Real estate may be as effective as stocks as an inflation hedge over the long-term, but stocks are the easier solution. This is even more true when you consider that real estate goes through periods of illiquidity, when it is close to impossible to sell out at any price. That’s never true for stocks, or at least hasn’t been up to this point.

The Track Record of Stocks Speaks for Itself

When you look at the track record of stocks, it’s hard to argue against them on any level. The historic rate of return on stocks as measured by the S&P 500 is somewhere between 9.60% (geometric) and 11.53% (arithmetic) for the period from 1928 through 2014. Either is an impressive number, especially when you consider that it covers 86 years.

That time frame includes periods of growth, inflation, depression (deflation), wars and political crises. That’s the precise type of investment that you want to be in for the long-term, and certainly for retirement planning.

Different Stocks for Different Inflationary Environments

There’s one other aspect of stocks in regard to inflation that doesn’t get much coverage. Unlike most other investments, stocks are highly segmented. That means that the potential exists to hold stocks even during periods of high inflation, and still come out ahead.

You can do this by investing a larger percentage of your portfolio into sectors that specifically benefit from inflation. This can include stocks and funds that are invested in precious metals, energy, food, and other commodities. This kind of investment strategy can enable you to continue earning outsized returns even during a period of inflation that may not be beneficial to the stock market in general.

So in the event that high inflation returns, you don’t need to dump your stocks – you’ll just have to shift the allocations to take advantage of the new trend.

How about you all? What do you utilize in your investing portfolio for hedging your bets against inflation?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/101332430@N03/9681099086/in/

Is It Time to Take a Serious Look at Energy Stocks?

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Oil prices have been collapsing since the middle of 2014. There have been front page stories, and widespread speculations, that the price is heading still lower. But in an ironic twist, that applies to oil in particular – and energy in general – the sector may be worthy of buying into. It really is time to take a serious look at energy stocks.

The Time to Buy is When the “Blood is Running in the Streets”

That saying has been credited to Baron Rothschild (of the Rothschild family financial dynasty), and it has been a mantra on Wall Street since he was first believed to have said it back in 1871. As gruesome as it sounds, it makes perfect sense. It’s a crude version of another popular investment saying, buy when everyone else is selling, and sell what everyone else is buying. Or more simply buy low, sell high.

Right now the energy sector has entered a low phase when the rest of the stock market has pushed forward into still higher record territory. There are few sectors in the market where a buying opportunity has become more obvious than is the case right now with energy.

After a gradual multi-year increase in the price of oil, the price has collapsed since June of last year. That has largely flushed the speculators out of the energy sector, leaving prices based on the fundamentals of the underlying companies. If you are a value investor, this is exactly the type of investments you’ll be looking for.

An industry-wide purge like what energy is now seeing presents a sector-wide buying opportunity that comes along no more than once in a decade.

Oil Has Always been Volatile

This is an excellent time to remember that the price of oil has always been volatile. This
Crude Oil Price History Chart proves the point. The trend lines on this chart look like the teeth of a very jagged saw. There are times of price spikes, followed by a steep declines, which are then followed by a more steady recovery in price, sometimes to new record highs.

The most recent spike pattern took place in 2008, which isn’t that long ago. In June of that year, the price of oil people up over $133 a barrel. But by December of the same year, it was down to $41. But then notice that by May of 2011 – less than 2.5 years later – the price of oil climbed back to over $110. From there it traded in a narrow range of between $88 and $106 a barrel until June of 2014. It has since fallen to the $50 range and even lower.

If we look at the historic performance of oil, it’s clear that it is currently trading near a major multi-year low. Yes, it can certainly continue falling from where it is right now. But the likelihood of some sort of significant price recovery – one of several years in duration – is much more likely.

The Industry has been Purged – There are Deals Everywhere

As measured by the Dow Jones Industrial Average, general stock prices are up roughly 5% since the middle of 2014. However, in looking at the performance of the Vanguard Energy Index Fund (VENAX), energy related investments are down about 20% in the same space of time.

The entire energy investment spectrum has been purged by the dramatic fall in oil prices. This has created investment opportunities of the sort that come along only about once in a decade.

With the rest of the market being richly priced, energy is one of the few major sectors that represents a buying opportunity in the current market environment. And since we know that oil prices will bounce back – sooner or later – it’s one step short of guaranteed play, at least for the long-term investor.

The World Still Can’t Live Without Oil

There’s always the possibility that oil prices could fall even more than they have so far. A deep global recession can depress the demand for oil, that will cause prices to continue falling. There’s also the possibility that one or more cash dependent oil producing nations could ramp up production in an attempt to gain greater market share.

But there’s also at least an equal possibility that political instability in one or more oil rich countries could take most or even all of that country’s production off-line. If that were to happen, the price of oil would spike immediately. And an improvement in the global economy would have a similar effect, though it would happen more slowly.

The bottom line is that the world still cannot live without oil. All of the technological changes that have occurred in the past 40 years have not altered that fact. Oil is a basic economic and industrial commodity and it’s here to stay. Anytime the price of a base commodity tanks, that’s a sign to begin looking for investment opportunities in that sector.

Energy May be An Excellent Diversification Against a General Market Decline

Commodities have often been viewed as a counter play on stocks. Though precious metals – gold in particular – get most of the attention in this area, energy is probably even more significant.

Commodities are seen as more valuable at times when paper assets are losing their value. That certainly would be the case in a general decline in the stock markets. Market disruptions cause money to move from one asset class to another. And in general, money tends to move into underperforming assets during such a decline.

Given that energy is an underperforming asset during an otherwise strong market, it could become part of a general flight to safety in a major market decline. That can make it an excellent diversification against a disruption in the stock market.

That doesn’t mean that it’s time to go headlong into energy-related investments. But this is clearly a time to begin investigating the possibilities in the sector. The speculation has largely been driven out of energy investments, providing a clearer picture of the strength of the underlying companies. It’s likely that there are some investment candidates out there that will give you continued bullish returns even when the overall market turns bearish.

How about you all? Do you currently invest in energy stocks/ETFs/mutual funds? Why or why not?

Share your experiences by commenting below! 

Who Can Invest in Hedge Funds and Hedge Fund-Like Alternatives?

For the beginner investor, hedge funds can be very intimidating.  Hedge funds are basically a lump sum of money from many investors that gets invested into securities or other investments in hopes of getting positive returns.  The hedge fund can also be described as a “private partnership” between different individual investors that is managed by an individual person (i.e. a money manager).  Hedge funds are set up this way so that in the event the company in which the investments lie goes bankrupt, collectors can’t go after the individual investors for money.

Who can invest in hedge funds?

Investing in hedge funds is no simple task.  It is certainly something that requires a lot of prior research before jumping in head first.

In general, there are a few different ways you can invest in hedge funds, many of which are going to require that you have a lot of assets or a large income in order to invest.

The Accredited Investor

First, most of the time, if you want to invest in hedge funds you need to become an accredited investor.  According to the U.S. Securities and Exchange Commission, an accredited investor is one who:

• …“earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the two prior years, and reasonably expects the same for the current year” …OR…
• …”has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence)”.

In addition to individuals that met these criteria, other entities that can become accredited investors are banks, partnerships, corporations, nonprofits, and trusts. In order for any of these entities to be considered accredited investors, they must fulfill these criteria:

• …”any trust, with total assets in excess of $5 million, not formed to specifically purchase the subject securities, whose purchase is directed by a sophisticated person”….OR…
• …”any entity in which all the equity owners are accredited investors”.

Note: A “sophisticated person” is basically someone that is highly knowledgeable about investing and about the company in which the investors are putting their hedge funds.

Aside from becoming an accredited investor, you still might not be able to get your hands dirty with hedge fund investing.  For example, hedge fund partners can allow whoever they want into their “circle”, so even if you’re an accredited investor, they can easily say “no”.

Also, even if you meet the requirements to become an accredited investor, you still might not meet the minimum requirements for specific hedge funds themselves.  Some require a $100,000 minimum, which if you become an accredited investor you obviously fulfill, but some hedge funds require upwards of a $25 million minimum investment, so if that’s the hedge fund you want, you won’t be able to invest if you don’t have those kinds of funds.

Hedge Funds For The Not-So-Super-Rich

For the longest time, hedge funds were only available to those with significant funds or assets as described above.  However, in the more recent past, other opportunities to invest in hedge fund-like programs have become available for people who may not have the significant cash flow as tradition requires.

Now, these opportunities are not true hedge funds by SEC definition, however, for those people wishing to invest in hedge funds but simply can’t since they don’t qualify to become accredited investors, these similar programs may be a good way to increase their net worth so that one day they may qualify.

Alternative Mutual Funds

Dubbed “Hedge Fund Lite” by the Wall Street Journal and many others, these alternative mutual funds are probably as good as it gets for those people wanting to invest in hedge funds but can’t due to lack of funds.  Similar to hedge fund strategies, these alternative mutual funds use long/short investing strategies.  They allow you to invest in individual stocks that are “going up” and profit from individual stocks that are “going down”.

While these “hedge fund lite” programs don’t require the high performance fees that hedge funds do, they do require annual management fees that can reach upwards of 4% of your assets.

Replicating Returns

Sometimes called “liquid beta” or “replication funds”, replicating returns programs are another way for individuals to invest in a similar manner as hedge funds without requiring the massive income as assets as required for accredited investors.

These “liquid beta” fund programs try to follow a similar path as hedge fund benchmarks by “’backtest[ing]’ their portfolios of stocks, bonds, currencies, and other assets…until they approximately copy the trailing returns of the average hedge fund as tracked by research firms” (Source: WSJ).

Copycat Investing

Copycat investing is basically a way for non-hedge fund investors to act like hedge fund investors.  With copycat investing, you in essence are shadowing the investing behavior of real hedge fund investors and trying to move investments the way you see them moving their investments.  One issue here becomes is that once you get the information regarding what the real hedge fund investors did, it may be too late for you to perform the same action, thus potentially putting your assets in jeopardy of going bye-bye.

Conclusions

Unless you meet the requirement of becoming an accredited investor, which means you have to have a very large income and assets, you can’t truly invest in hedge funds.  However, there are some similar types of investment strategies like the ones briefly described above, that can allow people without significant sums of money to invest in similar hedge fund-like manners.

8 Ways to Get a Free College Education Even If Obama’s Free Community College Proposal Fails

The following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

If you’ve been to college, you know how expensive it can be.  I graduated from college 20 years ago, and even with a scholarship that paid all of my tuition and fees at a community college for two years AND generous grants when I transferred to a four year institution, I still, after graduate school, left college with $20,000 in student loan debt.  It took me 13 years to pay off that debt.

Now, college is even more expensive, and, unfortunately, out of reach for many perspective college students.  In his recent State of the Union address, President Obama said that he wants every student to have access to a free, two year community college education providing that they maintain at least a 2.5 GPA and take at least a half-time load of classes.

Most experts don’t think this will happen.

Even if it doesn’t, there are still ways that you can get your education for free or at a greatly discounted price.  Keep in mind, not all of these tips are simple, but they all do help you reach the end goal of a low-cost education.

Take advantage of a “Promise” opportunity  

Many locations are now offering free college tuition.  For instance, the Kalamazoo Promise offers all Kalamazoo, Michigan school graduates who reside in the district of Kalamazoo County a free college education at a Michigan college or university.  The student must have graduated from a Kalamazoo district high school and must maintain at least a 2.0 GPA in college.  The amount of tuition received is prorated based on the number of years a student attended a Kalamazoo public school.  (If the student only attended a Kalamazoo high school, he’ll receive 65% of his tuition paid.  If he attended K-12, he’ll receive 100% free tuition.)

However, Kalamazoo isn’t the only place offering this type of promise.  All El Dorado High School students in Arkansas are offered tuition in a program very similar to Kalamazoo’s.  In addition, there is the Pittsburgh Promise.  (CollegeSavings.com).

Sometimes an entire state offers free tuition including West Virginia and Tennessee.  What’s interesting about Tennessee’s Promise is that homeschool students are also eligible.

Become a resident of the state first

If you have your heart set on attending an out-of-state college, there are ways to overcome the high cost of out-of-state tuition.  If you’re willing to delay starting college, you can move to the state after high school and get a job.  Most states require that you live and work in the state for a year before being considered a resident for college application purposes.  After you’ve met the year requirement, apply for college.  If you’re accepted, you will only pay in-state tuition.

Work at the college you want to attend first

Another option is to work at the school that you want to attend.  Many colleges offer tuition discounts to employees.  If you work full-time at the college or university, you may be able to get your tuition for free.

Of course, you’ll still be working full-time while getting your degree, so you likely won’t finish in four year.  You may take as many as eight years to complete your degree, yet when you have it, you will likely be debt free.

Another option is to have a parent work at the university or college so that she can get free tuition for her dependents.  My husband is currently employed at a university, and our plan is for our children to attend the university that he works at so they can get their tuition for free.  Of course, our kids can decide to attend a different university, but we won’t be able to help them much financially.

Take advantage of employer-based tuition programs

Another option is to work for an employer that will help pay for your college education.  For instance, if you’re an elementary school teacher with a bachelor’s degree, your employer likely will help you pay for a master’s degree.  There are also many employers who will help their employees pay for a bachelor’s degree.

Consider an honors scholarship to a community college

There are many, many community colleges that offer honors scholarships.  I, myself, received one when I attended a community college.  I had to have an interview, write an essay, complete an application, and submit my transcript and ACT/SAT scores.  I was awarded free tuition for two years, which helped me financially.  I hate to think how much more I would have had in student loans if I hadn’t been accepted to this program.

Being in the program gave me the opportunity to take smaller honors classes with a lower student-to-teacher ratio.  In addition, the program, along with my GPA at the community college, helped me transfer to a top university in my state.

Apply for scholarships

You may think it’s not worthwhile applying for scholarships because you don’t have a 4.0 or higher GPA.  However, there are many scholarships available, and not all of them are based on grades alone.

You may be surprised how quickly the scholarships can add up, even if they are only for small amounts.  “One mother forced her daughter to apply for two scholarships every day as if it were her job.  She didn’t have great grades, but kept sending applications in—winning enough to pay for the first three years of college alone” (America’s Money Smart Family).

Attend a free college

Yep, you read that right.  There are free colleges out there.  Some of them include:

• College of the Ozarks,
• Berea College,
• Curtis Institute of Music,
• Alice Lloyd College,
• Webb Institute,
• Deep Springs College,
• United States Military Academy,
• United States Coast Guard Academy,
• United States Naval Academy,
• United States Air Force Academy,
• United States Merchant Marine Academy (US News).

As you may guess, admission to these colleges is highly competitive.

In addition, the old adage “Nothing in life is free” does apply to these schools.  For many of the colleges, students are required to work on campus 10 to 15 hours a week.  In addition, there are sometimes residency restrictions.  For instance, Alice Lloyd College only offers free tuition to students who live in the Central Appalachian service area.

Finally, those who get a free ride to the United States military academies must also serve in the military after graduation.

Join the military

If you are interested in the military but can’t get into one of the elite military academies, you can choose to join the military and, as a perk, benefit from tuition discounts or even free tuition.  How much you receive and when depends on many factors.

Another option is to join the military after you complete college.  The Army, Navy, and Air Force all have plans to help you pay off your loans.  For instance, “in the full-time-duty Army, soldiers can qualify to have their loans repaid by the Military at the rate of one-third of the loan for each year of full-time duty served (maximum loan repayment is $65,000)” (Today’s Military).

Even though, in 2012, 7 out of 10 students graduated with loan debt averaging $29,400 (The Institute for College Access and Success), it doesn’t have to be this way.  If you’re willing to compromise on your college choice and take a non-traditional path to college, you CAN graduate without college debt, regardless of the passage of Obama’s free community college tuition.

How about you all? How do you plan to, or how did you, keep your own college costs low?

Share your experiences by commenting below! 

***Photo courtesy of http://pixabay.com/en/dartmouth-college-campus-school-292587/