My Personal Finance Journey

Category Archives for Invest & Retire

How to Diversify When Investing in Mutual Funds

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The following is a guest post from Jessica. Jessica is an author of articles about mutual funds and can guide you with information on how to profit by investing in mutual funds. 
 
How to Diversify When Investing in Mutual Funds
Know diversification before investing in mutual funds
The diversification of mutual funds is a must. A diversified mutual fund can be defined as a mutual fund that is broadly composed of different types of instruments for investments. This can also be taken as one of the major advantages of investing in mutual funds. Another advantage is that there is a possibility for you to invest a relatively small amount of money and attain a diversified portfolio. In other cases, you will have to face many risks by purchasing individual securities.
The difference between diversified and non-diversified mutual fund is that there is a minimal risk that is involved with diversified ones. There are layers of diversification of mutual funds – the first layer being by asset class. The primary assets are stocks, cash, cash, and commodities. The investment can be classified into any one of the above assets. There can also be classified further into smaller groups. And with these sub groups, there is less of diversification that is possible.
Diversification rules to employ while investing in mutual funds
  • The first thing you need to do while investing in mutual funds and diversifying them is to gain a thorough knowledge about mutual funds and identify the objectives of the investments that are stated in the portfolio. The time that you will need the portfolio, the mutual funds rates, the amount that you are about to invest, the returns, and the risk factors must be carefully analyzed before constructing a mutual fund portfolio. 
  • Zero in on a good investment strategy that you think will work for you. With all the necessary details choose a strategy in accord with it. When a portfolio consists of high risk tolerance and a longer time period, the strategy is to have more mutual funds with greater risks and greater returns. For a balanced mutual fund mutual portfolio you need to include some low funds with risks. 
  • The rebalancing of your portfolio can be done by taking from the profits you earned from one shares and investing in the ones that you did not gain any profit from. 
  • With the amount of money you can afford to invest, you can choose the mutual fund rates accordingly and there are several kinds of mutual funds that include index funds, bond market and money market. Understand that every kind of mutual fund has risks. 
  • Before choosing the right one to invest in, know about mutual funds thoroughly, list out a few of the profitable funds and make a comparison between them and choose the one that suits your conditions.

How about you all? What general rules do you employ when investing in mutual funds? 

Share your experiences by commenting below!


***Photo courtesy of http://www.shareslounge.com/wp-content/themes/color_of_success/images/graph.png

Ask The Readers – Are You Investing In Your IRA for 2011 Today?

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OK OK – so I realize that being as today is Saturday, the financial markets won’t be open again until Monday, so the title of the post is not totally accurate.
However, one of the things that I get very excited about around the time of New Year is to prospect of being able to contribute to my Roth IRA when contributions open up during the new year on January 1st. 
So, my question for the readers is – will you contribute to your IRA during the first few days of January? Or, do you have to be a extreme financial nerd like me to do this sort of thing?

Quick note – I just checked, and the IRA contribution limit during the 2011 year is the same as last year, $5,000 if you are under 50 at the end of 2011. See source information below from the IRS’s website.
IRA 2011 Contribution Limits

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1st Ever Carnival of Passive Investing – December 31, 2010 – Hittin’ The Open Road Again Edition

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Welcome to the 1st ever edition of the Carnival of Passive Investing!

As discussed in my introductory post for this carnival, the purpose of this carnival is two-fold:

  • To provide a forum to showcase articles and research in passive investing strategies (i.e. investing in ETFs, index mutual funds, etc. in such a way that one avoids employing active stock picking). By investing with the market, we are able to beat 70% of investment “professionals.”
  • To create a community of passive investment bloggers to connect and share expertise.
Considering that the Carnival is less than a week old, I am proud to report that there has been a very positive response thus far from the blogosphere!
The theme for this month’s Carnival is world travel! Below, you will find various images of some of the amazing places my family has had the privileged of seeing through the years. This theme is quite fitting since I am very excited about going to Chile next week for a family vacation! 
Please enjoy!
Listed below are this month’s top 3 editor’s picks! Congrats to Free Money Finance, PT Money, and Smart On Money for winning!
1) FMF presents The Active versus Passive Decision posted at Free Money Finance, saying, “Why passive investing is a more reasonable approach to investing.”
2) PT presents Dividend Mutual Funds Provide Protection From Complete Losers posted at Prime Time Money, saying, “The basics of dividend paying mutual funds.”
3) Mr. Money Smarts presents 5 Reasons Why You Should Never Open A Roth IRA posted at Smart On Money, saying, “Why you should never open a Roth IRA.”
View from the Porch at Our Hotel in Cabo San Lucas, Mexico – 2009

Listed below are the top picks of this month’s awesome passive investing articles in the various Carnival categories.

Financial Planning

Mike Piper presents shares some valuable tax considerations to keep in mind as we are executing our passive investing strategy in 2011 Tax Brackets: What Will Change and How Should We Plan for It? posted at The Oblivious Investor, saying, “After the passing of the new tax act, what is going to change in 2011, and how should we plan for that?”
Michael Pruser presents The Disappointing Status of Social Security posted at The Dough Roller, saying, “Social Security seems to be getting worse with each passing day but don’t lose hope yet!”

Me at Mont Blanc, France – 2008

Investing

FreeFromBroke presents Busting Common Investing Myths – A Tweetup With Motley Fool’s Tom Gardner and ShareBuilder’s Dan Greenshields posted at Free From Broke, saying, “I had the fortune to see Tom Gardner of The Motley Fool speak. One of his pieces of advice? Invest for the long run and control your emotions.”

Aussie presents Buying Shares posted at Australian Stock Market Blog, saying, “So you’ve managed to save a little extra money. You know that to make it grow you’ll need to consider some other investment options beyond term deposits and online savings accounts. You’ve heard that buying shares is one of the investment options you should consider – but what’s the next step? This article discusses how to get started if you want to buy shares as an investment.”

FIRE Getters presents Tax FREE Money Market Mutual Funds! posted at FIRE Finance, saying, “Most astute investors are aware of municipal mutual funds also known as MUNIs. These funds invest in term debts issued by various state and local governments. In general, dividends and gains from muni funds are exempt from federal as well as state taxes.”


La Sagrada Familia, Barcelona, Spain – 2008

Personal Finance

Michael presents Traditional and Roth IRA Contribution Limits posted at Consumerism Commentary, saying, “When filing your taxes this year, don’t forget to count the money you’ve deposited into your IRA!”
Sun presents Six Money Moves To Make Before Year End posted at The Sun’s Financial Diary.
Highest CD Rates presents What is a Jumbo CD? posted at Highest CD Rates Info, saying, “A jumbo CD can be a safe place to earn some extra money on a large sum of money.”
That concludes this month’s edition. Submit your blog article to the next edition of Carnival of Passive Investing using our handy carnival submission form.

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

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

Let’s take a look….


Net Worth Growth (not including condo)

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

My Personal Finance Journey – July 2010 Portfolio and Net Worth

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

Condo Equity Growth


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

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

Update on Financial Goals for 2010

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

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

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

    My Personal Finance Journey – Financial Goals


    Review of Current Asset Allocation (excludes condo)

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

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

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

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

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

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

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

    Wish List

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

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


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

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

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

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

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



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

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

     

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


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

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

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

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

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


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

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


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

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



    Conclusions


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

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

    Scoreboard Update


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


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


    Share your experiences by commenting below!

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

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

    3 Risks To Consider Before Investing in Fixed Annuities

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

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

    Advantages of Fixed Annuities


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

    ▪ Tax deferred compounding of interest until payment request.

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

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


    Fixed annuity potential risks


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


    ▪ Inflation risk.

    ▪ Interest rate risk.

    ▪ Low liquidity risk.


    Inflation risk


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


    Interest rate risk


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


    Low liquidity risk


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

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


    Please Share your experiences by commenting below!

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

    Subscribe to My Personal Finance Journey via Email


    ***Photo courtesy of http://cdn.bloggingwithsuccess.net/wp-content/uploads/2010/08/look-before-leap.jpg

    How To Compare Business Loans

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    Today’s guest post comes to us from Andrew. Andrew has been working in the finance industry for several years. He helps people to refinance their home loans and provides advice on debt consolidation.
    How To Compare Business Loans

    Business owners occasionally need financial assistance to assist in start-up costs, working capital, business expansion, or renovations (i.e to make money in the long run).  For each of these reasons and many more, there’s a countless amount of loan options available.  In order to make an efficient decision on a business loan, business owners need to understand how to assess loans and what the differences can mean for their business.
    The following questions will help you, as a business owner, to differentiate the options available and give you a better understanding of the loans offered.

    1.    What kind of interest rate does the loan carry?

    There are two types of interest rates that are used in a business loan; fixed and variable.  A fixed interest rate is a finance charge that stays the same throughout the life of the loan.  This charge is independent of the market which is the opposite for variable rates.  A variable interest rate is one that may change depending on the index published each quarter nationally.  This rate may assist your payments in decreasing, but could also be increased abruptly.  An advantage of variable rates is the tendency to have more flexibility with the loan and the payment schedule; though the stability and security of a fixed rate is not there.
    2.    What are the exit fees and penalties?
    A possibility with many loans is an added stipulation that if you pay out the loan early, there is an additional fee.  If a loan is repaid before the term ends, the lender will lose some of the interest payments.  For this reason, lenders choose to put a fee on ending early to minimise the loss of interest.  Before agreeing to a loan, make sure you ask about the hidden fees and it is written out clearly.
    3.    Is the loan secured or unsecured?
    Secured loans use some sort of equity (such as real estate property or a car), as collateral to ensure the lenders money is covered.  Secured loans are more popular and typically carry lower interest rates; longer loan terms and higher loan amounts will be made available to you.  If you do not have equity available to secure a loan, an option is an unsecured loan.  This type of loan carries a much higher risk for the lender, therefore is hard to obtain, especially in today’s economic climate.
    4.    What is the maximum or minimum loan term available?
    The loan term refers to the range of time the funds are lent to you.  Loan terms are highly dependent on the amount of money borrowed.  Typically, small amounts of money range no longer than a few years; while large loans (i.e. home loans) range up to 30 years.
    5.    What are the lender’s requirements specific to business loans?
    If a company is a start-up or in the infant stages of its business there could be additional requirements or stipulations; as the risk is higher than it would be if the lender was lending to a well established firm.  There may be higher collateral required or the interest rate may be adjusted.  Adversely, there are some lenders who specifically lend to the young businesses.

    How about you all? What specific questions and/or considerations do you make when assessment a potential loan? 


    Share your experiences by commenting below!

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

    Subscribe to My Personal Finance Journey via Email


    ***Photo courtesy of http://farm1.static.flickr.com/138/323966496_481679d370.jpg

    Why I Sold Out of My Actively Managed Mutual Fund

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    Hello everyone! It’s Jacob! I am happy to report that I am emerging from the dead of my first semester PhD in Chemical Engineering program to bring you my first post since 24-Aug-2010 (see link below for the last post I authored).
    Let’s get up to speed with each other shall we?!

    • Since my last posting, we had the pleasure of featuring 15 great guest posts.
    • My Personal Finance Journey hosted the 247th Festival of Frugality.
    • On Nov 1st, the good folks over at Yakezie.com put up with hearing the gruesome details about how I started this blog.
    • Since my last posting, we have moved from an Alexa ranking of 569,000 to 496,000.
    • More importantly, we have had ~5,000 more visitors read and benefit from the site! This is great news!
    • I have a backlog of >100 post topics that I am eager to unload for the blogosphere! You can’t shut me up forever! haha

    Selling My Actively Managed Mutual Fund Holdings

    Along with having many changes to my personal finances since quitting my full time engineering job and returning to graduate school (making 67% less), one of the actions steps I have taken is that I sold my holdings in my only actively managed mutual fund (CGM Focus Fund), and rolled over the Roth IRA assets to passively managed index funds with Vanguard.


    This was done as a follow up to some research I performed in writing the post below about why following hot fund managers does not work. See the link below for more information.

    Why Following “Hot” Mutual Fund Managers Does Not Work

    In the previous post, I had mentioned that I needed to perform some additional research in a future post before making the final decision.

    However, this semester when I really got down to thinking about it, I realized that I was only postponing the inevitable: eventually, I would have to concede my loses, acknowledge my mistake, and sell my holdings in the actively managed mutual fund.

    Thinking further about this predicament, I realized that this is a very common mistake that investors make. That is, they fail to acknowledge their losses (especially with individual stocks), sell their holdings, and move on with life! And, here I was falling for it!

    Counting Up My Losses



    As a starting point, I should reveal that my holdings in the CGM Focus Fund totaled ~$4,400. Shameful, I know to hold so much money in an actively managed mutual fund! But, bear with me please!

    • From the time when I bought the CGM Focus Fund in December of 2007 until 29-October-2010 when my holdings were sold, the fund decreased 48.33%. Fun!
    • During this same time, the S&P500 index decreased only 22%. Fantastic! I am feeling better all of the time.
    • Furthermore, the Vanguard S&P500 index fund has an expense ratio of 0.18%, while CGM Focus fund has an expense ratio of 1.23%.
    • Adding it all up, assuming that I invested all of my assets at once, my money was worth only $2,112 in the CGM Focus Fund vs. $3,405 if I had invested my money with Vanguard’s index fund.

    This is quite an astounding difference, isn’t it!?

    What’s more is that another excuse that I kept coming up with was that the asset transfer process would be cumbersome, and it would be time consuming. It was just the opposite, actually.

    It only took two phone calls (one to Vanguard and one to CGM to set up the asset transfer). Additionally, there were no fees at either end to transfer the funds.

    I feel safe to know that my funds are no safely resting in a Vanguard Short Term Bond Index Fund (since rebalancing to my asset allocation percentages dictated that I invest more in fixed-income securities due to the recent market upturn).

    How about you all? Do you all invest in any actively managed mutual funds? How has the performance been? Are you thinking about selling your holdings? Share your experiences by commenting below!

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

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    Investing Outside The Box

    My Personal Finance Journey Homepage

    Today’s guest post comes to us from Richard Adams. Richard blogs about his own personal finance experiences at Debt Assistance Guru (http://www.debtassistanceguru.com). Stop by his website to learn more on the topics he writes about!
    When many people consider the subject of investing they think of topics such as futures, foreign currency trading, digital currency trading, shares and/or bonds. In the case of all of these investments, the hope is that they will pay off over the long term.
     
    And while there’s nothing inherently wrong with this view of investing, there are a few downsides worth considering.
     
    One example of this is the risk to reward ratio. Nice, safe, sensible investments tend to offer relatively small potential returns. In contrast investments which offer far higher potential returns are often far more risky and put you in a position where you could lose a considerable sum of money if things go wrong.
     
    Then there is the amount of research needed to order to invest smartly in the stock market and find the best investments of 2011. Reading company reports, competitor analysis, charting and so on can all come with the territory which means considerable time will be required if you are to invest wisely. But it’s not just the time factor but also the effort – quite simply many people find the idea of doing this kind of research just plain dull.
     
    Which is why today I would like to discuss the concept of “investing outside the box”. Of getting more entrepreneurial and creative when it comes to finding ways to make your money work for you.
     
    Over the last decade or so my entrepreneurial streak has led me to try out all sorts of unusual investment ideas to see what sort of results I can generate – and some of the results have been far more exciting (and in my opinion lower risk) than handing my cash to a stock broker.
     
    One example of this is website flipping. Did you know there is a growing market for pre-built websites? I didn’t until not to long ago. It seems there are wealthy investors looking for new ways to leverage their capital and one way they are doing this is buying up existing, profitable websites.
     
    It’s rather like buying up apartments with sitting tennants so you know you have income from day one, but transferred into the internet age.
     
    A few years ago I set up a website from scratch and spent some time marketing it in my free time and on a very limited budget. I then went on to sell it for a five figure profit. Putting aside the time invested for a moment, I would realistically say I invested less than $1000 in cash into the venture and multiplied that by 15-20 times in the space of a couple of years. Now that’s what I call an exciting return on investment!
     
    Here’s another idea I tried. I spent a small amount of money last Spring buying some compost, flower seeds and seed trays. When the plants had germinated and grown to a decent size I placed the flower plants into attractive pots and spent some time at local farmers markets and boot sales selling them as the perfect Mothers Day gift.
     
    The costs were virtually nothing (how much does a pack of seeds cost?) but they sold for up to $10 each for the larger containers filled with a range of flowering plants. Again, we’re talking returns of several hundred – if not thousand – percent.
     
    I could go on but the point here is simply to encourage you to think about investing (some of) your money into rather more exciting vehicles than treasury bonds. Think outside the box. Make a list of ideas to test and see just how much fun (and how much of a return you can make) when you get creative with your investment decisions.
     
    How about you all? What sort of creative investments have you done in the past? Share your experiences by commenting below!
     
    Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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    Financial Freedom For All The Bravehearts

    My Personal Finance Journey Homepage

    Today’s guest post comes to us from Shelly. Shelly is an accomplished SEO (Search Engine Optimization) specialist and also the owner/creator of the personal finance blog, Finance Wand. Enjoy!



    Financial Freedom For All The Bravehearts

    Do you have to depend on somebody financially? Are you overburdened with the debt that you have? Do you feel that you want to be independent and do things your way? You can have the freedom to make your own choices by being financially independent.
     
    What is financial freedom?
     
    When you don’t have to depend on your spouse or parents for money related matters and when you don’t have to ask somebody before you take a financial decision, you have financial freedom. You no longer have to depend on anyone to do the things that you have always wanted to do. You can make investment decisions and plan your finances accordingly to get better returns than what you are already getting.
     
    How can you achieve financial freedom?
     
    It is neither too easy nor too difficult to achieve financial freedom. You need the right attitude and the right frame of mind to be able to achieve anything that you want.
     
    Let us take a look at the top 4 tips on how to achieve financial freedom:
     
    1. Plan: Everyone needs to be smart about their financial planning. This is the most important thing when you want such kind of independence. If you dream of being your own boss, plan now. Don’t think this is a silly thing to do. Only when you dream can you have a concrete plan to support your dreams.
     
    2. Discover: Learn new things everyday. It could mean anything. You could educate yourself with any small financial subject every day – one new thing at a time. Reading could be very helpful at this stage. Learn money management and the art of investing right. You could take help from money management websites or visit a library for books on the subject.
     
    3. Get rid of debts: You can never be financially free unless you get rid of your debts. Make sure you are debt free before you plan any kind of investment.
     
    4. Make investments: You may need a little discipline in this matter. The next time you have the urge to buy, invest in an asset instead of just a commodity. An asset is meant to generate money in the long run. So, you could invest your money in buying real estate, or mutual funds, stocks, or online currency trading that would give you good returns when you need them to. You may also invest in further education, which you can utilize later to achieve more financial freedom. Before you buy anything, first check out if it will give you any return in the future.
     
    You feel a lot relaxed when you are financially free. You no longer have to depend on others to fulfil a wish. You can do it yourself. Being financially free might require you to discipline your life a lot. You must value time and money as both are precious. Give yourself a little time and you will surely achieve the freedom that you have desired so long.

     

    How about you all? Are you financially free? If so, what was the number one piece of advice you would give to others so that they too can achieve financial freedom?


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


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