Smart Saving and Investing

It’s Labor Day Weekend 2007.

If you have a budget that guides you on a month-to-month basis or just a general overview of what’s coming in and what’s going out you can also do “mini-budgets”.

Mini-Budgets are budgets for times like Labor Day where you have the possibility of over spending. A lot of folks have a 3-day weekend and possible cookouts, parties, football games, etc.

These are the times where you can end up spending more than you can or should. So a good way to keep it under control is to make a list of what you’re doing over the 3-day weekend and how that will affect the money you spend.

For great inspiration on being frugal check these folks out:

Here are 5 questions to ask yourself while you make a list of what you’re doing and what you’re spending this weekend:

1. Where are you driving to and how far?

Spend a few moments finding the closest gas station that offers a bit less expensvive gas for your drive?

2. How much food will you need?

Spend a few moments clipping coupons. If you don’t like doing that just clip a few that will make a minor or major impact.

3. How much cash do you have?

Do you have a money jar sitting around that you put loose change in during the week, month, etc.? If so, grab that to use for buying extra stuff for the Labor Day holiday weekend outings.

4. What debt can you avoid?

You know what will make you slide into debt. Be conscious of that and ask, with every amount of money you spend this weekend will it make you slide into a debt hole you might already be in.

5. What do you want for your future?

Think about the goals you have for the future. What you do with your money this weekend can affect your goals for the future. I’m not talking about depriving yourself of fun now and not doing anything now, I’m promoting balance. You need to satisfy your “I want it now!!” needs and still preserve your future goals, wants and needs.

If you have a partner make sure you think of and do these tasks together. If you’re single make sure you sit down with your dog or cat and explain to them what you want to accomplish. Stuffed animals or dolls work too.

Have a great weekend!!

written by Bill Stevens

Paint.NET is free image and photo editing software for computers that run Windows. I discovered Paint.NET over a year ago when it was in its infancy.

It started as an undergraduate college design project and is currently being maintained by some of the alumni that originally worked on it. It has grown into a powerful yet simple image and photo editor tool.

It has been compared to other digital photo editing software packages such as Adobe® Photoshop®, Corel® Paint Shop Pro®, Microsoft Photo Editor, and The GIMP.

It has received rave reviews from some big name reviewers and you can read them on the Paint.NET website.

Paint.NET has come a long way. When it was released to the public a few years ago it was in a state that you really didn’t want to use it. But it has matured to an extremely easy and fast loading image and photo editor.

The screen below shows what Paint.NET looks like after you load it.

Features:

• A “simple, intuitive and innovative interface” that provides tabs where you can view thumbnail versions of the images you’re working on.
• Layers - In image and photo editing, layers allow you to create “levels” of work that are stacked on top of one another to create your final image.
• When you first start Paint.NET it checks to see if there are any new versions that can automatically be downloaded and installed for you. If there are the program will restart to reflect the update.
• Paint.NET includes many standard special effects such as blurring, sharpening, distortion, noise, etc.
• There are many tools included that are typically found in image and photo editing software like a gradient tool, drawing shapes, a text editor, cloning, etc.
• A history list of what you’ve done to an image that is only limited by how much disk space you have. This is a life saver when you’re working with images and you need to make adjustments to what you’ve done.
• An online forum that is very active.
• Tutorials, Tutorials, Tutorials
• Paint.NET also allows plugins as well. Plugins are snippets of functionality that help users do specific things.

Here’s a link to the Paint.NET documentation.

I own Photoshop but I am not a heavy photo editing kind of person. For my purposes I use Paint.NET because I’ve been able to do everything I need to and that works very nice for me. Besides, who doesn’t like free when you look at the price of Photoshop. YIKES!!

Download Paint.NET here.

written by Bill Stevens

When you invest, you are taking some risk.

So if you think you don’t like risk or you think you don’t have any risky investments, then look again. You are taking some risk when you invest.

Below are 10 attributes of Investment Risk:

1. Market Risk

This is the ups and downs of the market. Lately, this has made a lot of folks sick. The sicker it makes you feel the more you should look at your portfolio and adjust it so you can handle the wild swings of the market. This could mean that you invest a higher percentage of your portfolio in bonds.

2. Inflation Risk

The cost of living goes up. If you invest in something that returns 2% and inflation goes up 4% then you’ve lost 2% of the value in your investment. My parents and parents-in-law thought they would be able to live their retirement years with $100,000.00. Back then, 1930s thru 1940s, $100,000.00 made people feel they were rich forever.

3. Opportunity Risk

Opportunity Risk is when you decide to invest in one type of investment, you’re also deciding not to invest in others. So if you commit money to a certain investment and it goes down in value, you’re stuck in that investment and are not able to participate in another investment that might be more attractive.

This is especially apparent when you purchase your own bonds for instance. You could be stuck in a 10-year bond and you want to get out because of high interest rates. You would then be forced to sell for a loss. It’s much better to invest in bond funds because the fund manager has the ability to invest in many different types of bonds.

4. Reinvestment Risk

Reinvestment Risk has to do with timed investments like CDs and bonds that you purchase yourself. A mutual fund manager has the ability to diversify a portfolio of these types of investments by selecting from a larger basket of different types of CDs and bonds to reduce the risk.

5. Concentration Risk

Diversification, Diversification, Diversification. Don’t concentrate your investment dollars in one type of investment. Read my article here on Diversification.

6. Interest Rate Risk

When the Fed messes around with the interest rates moving them up and down, the markets react. The value of bonds go up when interest rates go down. The value of bonds go down when interest rates go up. Keeping a well diversified portfolio will reduce the affects the Fed’s have on your portfolio.

7. Credit Risk

“The Credit Crunch” is what we’ve been in lately. The financial sector has taken a hit. The financial sector includes lenders like Countrywide Bank. On another note, I’m watching that sector with everyone else because it just might be getting ripe to pick. Since I write about options at this site that’s how I’d play it if something comes up that looks interesting.

8. Marketability Risk

Having the ability to sell you investment(s). This pertains to a low interest in stocks, bonds or CDs that you may personally own. By “low interest” I mean not enough buyers. This is reduced immensely if you invest in a mutual fund.

9. Currency Translation Risk

The value of the dollar goes up and down in the international market depending on what country. This is one reason why it’s good to just have 10% of your portfolio in the international market.

10. Timing Risk

The market goes down and you feel uncomfortable about it so you sell one of your investments that you shouldn’t sell - bad timing.

What to do

Invest in mutual funds and you’ll reduce a lot of this risk. Not completely, but enough to make you sleep at night while your money is working hard for you.

written by Bill Stevens

If you’re a high school student or in college and worked over the summer to make some money, then you can get started on the two actions I talk about at this site - open up an online savings account and start a Roth IRA.

I know you think you need all the money you made over the summer or the part time job your holding during school but it’s easier than ever to start saving and investing when you’re young and it’s crucial to your financial practices throughout your life.

#1 - Open an Online Savings Account

Below is a list of online savings accounts to get started. These types of accounts make it easy for you to open up an account quickly with as little as $1.00. These accounts also make it easy to transfer funds to the account. However, please set this account up so that you are depositing money on a regular basis (for example, monthly) and automatically (say from your checking account) so you’re not tempted to spend all of what you make.

What is APY?

Some online savings accounts currently pay 5.05% APY. APY stands for Annual Percentage Yield. The APY is similar and sometimes confused with APR - Annual Percentage Rate. But it’s different in that Annual Percentage Yield is calculated using the effects of compounding. Typically APY is compounded daily.

Here are some online savings account that allow you to open up an account paying 5.05% APY with a minimum of a dollar to start:

• HSBCDirect
• EmigrantDirect.com
• ETrade Complete Savings Account

There are plenty of online savings accounts out there and if you don’t want to do a bunch of research then one of the above will do you good. Just get going and set your deposits up automatically every month or whenever you can afford to.

However if you would like to do some more research here are a couple sites to get started with:

• Bankrate.com
• Bankaholic.com
• Banking Review on Savings Square

It’s extremely easy to say, “Oh, I’ll just do it when I finish college and get a great job.” Well, there’s more going on here than starting to save when you have money. It gets really hard to do it when you hardly have any money.

This is a common scenario for students who finish college and start a new job with a bunch of school loan debt and possibly bad credit card debt. Your money is your money!! Respect it by respecting yourself by doing the right thing - pay yourself first no matter what!!

The money in your life makes a lot of things happen and makes you act and react to life’s events as they are presented to you as well as the relationships you have with other people.

#2 - Open a Roth IRA

If you’re under age, you’ll need your parent or guardian to open a custodial account for you. After that, if you have or had earned income (money from your job) for 2007, you can invest in a Roth IRA.

Try this mutual fund and follow the steps here to get going. If you don’t like this fund make sure you read this and this before you invest in a mutual fund that you’re interested in.

written by Bill Stevens

In What is an Option? - Part 1, I covered the two types of options - a put and a call.

Here are some option attributes:

• options are like ice cubes, they are worth something and then melt away to nothing ($0.00) over time.
• one option typically represents 100 shares of stock.
• there is an expiration date that is set - think of this as the day the option is all done melting away to $0.00.
• there is also a strike price or set price - this is the price of the stock that is set no matter what the stock is worth on the expiration date.
• expiration day is always the third Friday of every month. That is when your option is worth $0.00. Typically at the end of the trading day on the third Friday of the month that your option expires.
• a call option allows you to buy the 100 shares of stock at a fixed priced on or before a fixed day, expiration day.

But here’s the kicker - we don’t want to buy the stock. As options traders we want the stock to go up so our call option goes up as well. If there is enough time left before our call option expires and the stock value goes up, most likely the value of our our call option will go up.

In reality, a call option allows us to buy the 100 shares of stock for a fixed price no matter what the market price is for the stock. If we bought a $10.00 call option on an $8.00 a share stock and it went up to $12.00 a share, we certainly could buy the 100 shares of stock for $10.00 a share rather than $12.00 a share because we paid for the right to do that when we bought our call option. WOW!! I know that’s a lot to take in but read it over and over until you get it. If you have any questions post them in the comments area.

However, if that stock went up to $12.00 a share, that means our call option would go up as well. As long as we haven’t reached the expiration date, our call option should be worth more than what we paid for it. Remember, it costs us a lot less to buy a call option than 100 shares of stock.

The Down Side

Yes, there’s a down side. If the value of the stock stays the same or goes down and stays that way up to the end of expiration day, then we’ll lose money. For example, if we buy a call option on a stock that is worth $8.00 a share and we hope it goes to $10.00 a share or more but it never does, then our option will go down and down with every passing day until expiration. Remember that melting ice cube?

Another Example

Like the POZN call option we talked about last week and profited handsomely (on paper anyway) on, we’ll take a look at another one this week. The stock is Taiwan Semiconductor, symbol TSM. The October 10 calls are being bought up like something crazy!!

Look at the options table below taken from Big Charts:

That is what we call institutional buyers coming in and hoping to snag a deal because they know something we don’t or they’re just desperate to make some money at the end of the summer. We call these guys the “smart money”. Well, let’s hope that’s all true.

Again for this example, we could buy 1 call option contract for $50.00 (.50 times 100 shares of stock) or we could really gamble and buy 10 contracts for $500.00 (.50 times 1,000) or if we’re feeling really giddy we could buy 100 contracts for $5,000.00 (.50 times 10,000 shares of stock) . That sounds good to me.

We’ll paper trade this, which again means we’ll write it down on paper (or this blog) that we paid $5,000.00 for 100 contracts of the September 10 Calls, option symbol TSMJB.

On another note, if you want to do this trade over at the CBOE, you can use their Virtual Trade Tool to see what happens. Maybe I’ll do a post on their Virtual Trade Tool sometime. But if you feel you understand some of this go over and read about the Virtual Trade Tool and give it a try. If not, stop back soon to see what happens with this trade.

If we get a nice move up between now and the third Friday in October 2007 we’ll make a good chunk of change and be done with it.

We’ll also be looking to exit this position if we lose too much as well. We won’t set a limit of what we want to make just yet since we have over a month to watch this trade. We also won’t set a limit on the downside just yet because of the time that we have and the fact that stocks and their options can jump all over the place in a short period of time.

If you have any question about options let me know and always remember, “Pigs get fat, hogs get slaughtered!!”

written by Bill Stevens