Smart Saving and Investing

Can you stomach this market? The DOW took a dive today to the tune of -226 points. How does that make you feel?

Will you sleep okay tonight or be miserable about what investments you’re in and how they dropped along with the market?

Does this remind you of earlier this decade when the likes of Enron and Level Three were near or at triple digits and ultimately ended up, well you heard about Enron and Level Three (LVLT) closed at $5.82 a share today. I guess it’s time to jump into LVLT. Just kidding.

Well if you’re a smart saver and investor, you don’t care what happened today. That’s right. Today is one day in many that you’ll experience a big down turn in the market.

You don’t need to track the markets on a day-to-day basis. That will make you sick. Of course, it’s hard to ignore when it’s plastered everyone in the media. But I’d rather view it as a time to do my normal, every day routine or don’t even bother watching market news.

However, if you’re an investor, you might be thinking about getting in something that’s now cheap enough to get into. If you play the Options market and you were “guessing” the markets and/or your favorite stocks were heading south, you could have bought Puts to make some money. Yes, you can make money on stocks when they go down. But that’s for another Funny Money Friday post about Options and this site promotes owning mutual funds for us smart savers and investors.

Long-Term

You want to focus on the long-term. The 10, 20, 30 years out that we’re investing for our retirement and more. You have to ride the roller coaster called the markets.

The Standard & Poor’s 500 or more affectionately known as the S&P 500, which is the world-renowned index that includes 500 leading companies in leading industries of the U.S. and is the best single gauge of the U.S. equities market, has returned over 10% in the last 20 years and there’s been some tough times in the last 20 years.

You have to remind yourself of the financial goals you’ve set. You have set some financial goals, right? Well, we’ll discuss it in another post.

Risk Level

How about your risk level. Your tolerance for the markets ups and downs. Assessing your risk level will determine what type of investments you’ll select. For example, we know stocks are more aggressive and riskier than bonds which also means stocks could include higher returns than bonds. Bonds are more safe investment choices and should be looked at closely as being part of your investment portfolio as life goes forward. That was a politically correct statement that really means, as you get older.

In other words, you’ll experience wilder swings in your stock mutual funds (mutual funds that include stocks in them) than in bonds. For some it will create wilder swings in your stomach as well.

Diversification & Asset Allocation

Diversification and Asset Allocation means investing in a variety of investments in different asset classes or categories. The “don’t put your eggs in one basket” thinking. That way, when one investment does poorly, the other might be doing just fine and another might be screeching higher and higher. Here at www.smartsavinginvesting.com, that means an allocation of mutual funds that include the following:

Large Growth - 35%

Large Value - 20%

Small Growth - 20%

Small Value - 15%

International - 10%

In another post we’ll discuss a good mix of index funds as well as throwing in some bond funds for safety sake and those older folks like me that I was talking about earlier, so they can protect their assets they’ve accumulated over the years.

Using dollar cost averaging to systematically invest a fixed amount of money at regular time intervals, say monthly, you won’t have to worry about timing the market. This will help even out the effects of market volatility.

So if you want a taste of doom and gloom read the following. But read it for education purposes and being able to stomach some of the bad news. It’s okay. Really.

• Tough day on Wall Street
• Dow Takes A Nosedive
• Dow Slides More Than 200 Points
• Stocks tumble amid mortgage, earnings worries
• Housing worries clobber stocks

written by Bill Stevens

I used to tell my kids when they were getting close to the ripe old age of independence, around 18 to 21 years of age, “Don’t get caught up in life.” They’d say, “What does that mean?” Then I’d present the list:

1. When you’re in college or just starting out on your own you buy a pet(s).
2. When you’re in college or just starting out on your own you get involved in a deep relationship.
3. When you’re in college or just starting out on your own you buy a house because you think renting is bad.
4. When you’re in college or just starting out on your own you buy a car and you live on campus.
5. on and on…adding more and more stuff in your life that you have to manage and focus your time on.

I would then compare that to someone their age who had the ability to just pick up and go. Go to a job interview clear across the country and be able to accept the job with very little resistance from the “getting caught up” list. Move to another country for a while to study or accept an internship or even a long-term job.

However, getting caught up for some people has resulted in completely acceptable lives that they still would do the same way over again if they had the chance. Someone in my family was married years ago when they were young and both students in college. Popping babies out every two years, three times (three kids in other words). Debt collectors calling constantly that went unanswered. Sometimes never really knowing how or when things where going to get paid.

Thirty years later, one spouse works while the other stays home on the acreage that’s worth well over $400,000.00 in the Midwest. What happened? The magic of time allowed the working spouse to pursue their passion in a business field where company’s would pay for them to finish college, even a master’s degree, so they’d be more valuable to the company and other companies they moved to. Raising the level of your marketability. The spouse was “caught up”, if you will, in a career that would blossom with time.

I still preach to young folks, “don’t get caught up so you’re frozen from not pursuing all the many angles in life when you’re starting out.” It’s tough enough, let alone adding extra stuff on to your life to make it harder than it already is to start out on your own.

written by Bill Stevens

Here’s 7 scenarios of money in marriage to watch out for and discuss prior to getting married as well as during.

1. If your spouse comes through the door at the end of the day holding a bottle of your favorite soft drink for themselves and not one for you…it’s ok and not the end of the world. I saw this one not too long ago. This typically happens during young love when money is tight and buying a soft drink could be considered a frivolous expense. I’m trying to remember if I was ever like that…hmmm. Of course, words of encouragement for the next time your spouse forgets to bring you a soft drink helps too.
2. If your spouse runs to the end of the couch and looks out the picture window in despair when you’re discussing family finance issues, that’s not ok. You’ve got to talk about it no matter how painful it is. I saw this recently in a couple that had been together for a few years.
3. If your spouse lies in bed facing the wall in complete silence because your budget overrunneth, that’s not ok either. It’s ok to clam up for a while out of anger and frustration and tell your spouse you need to be alone for a bit, but ultimately you have to talk about it.
4. If your spouse comes home with a big ticket item (car, vacation home, having a pool installed, etc.) that you didn’t discuss and can’t really afford, that’s not too cool either.
5. If your spouse ends up in life making so much money they also end up controlling everything, demanding you do this and do that and have this ready and have that ready, etc. I’ve seen this in the past week. Fifty year olds, where one spouse makes millions and the other spouse raised the family while the other was away making millions. “It didn’t start this way. I don’t know what happened.” I’ve also seen in the last month, where the one spouse who makes millions, mows their own yard, cleans their own pool, organizes their own garage, makes sure their spouse has plenty of money in their checking account, etc. Two different pictures of wealth.
6. If your spouse flirts with younger folks in front of you in such a way that makes you feel uncomfortable or is complaining about you on an on-going basis. That not ok.
7. Failing to have a durable power of attorney for health care (typically free at any hospital) and a revocable living trust in place.

IMHO, all of the above have to do with…respect. One of the biggest attributes you can hold towards your spouse.

Well, I’m sure there’s more than seven, but I decided to stick with seven because one of my daughters is getting married tomorrow - 07/07/07, as well as a billion other folks around the world. It seems to be a popular date. I wish everyone the best and it will be fun to watch.

written by Bill Stevens

Do you do something repetitively every day, every week, every month that you could do without? Well there’s nothing like the present to just stop.

For instance, I had a huge addiction a few years back driving through fast food restaurants and ordering the breakfast of the day because I felt like I didn’t have the time to make my own breakfast or eat healthy, since I was young and invincible. Not only is this unhealthy, but you go through some valuable dollars that you could otherwise use to save and invest.

So that’s it, is there something you can stop that saves you money and possibly makes you healthier and happier?

Ok, here’s another confession, years ago when I was a budding programmer, our programming team at work seemed to code 20+ hours a day. It was a blast, creating new stuff that people use on a daily basis that saves the company money. Very worthwhile indeed. We all smoked cigarettes too.

One night when I was working, I thought, I’m never going to be able to kick this. It’s too convenient, I was in a job where you sit at your desk, worked long hours and the employer let you smoke at your desk. What a benefit? Well, I did kick the habit and it wasn’t easy but I did it long ago too which was good.

So there you go again. Do something that’s good for you, your health, your money, your family.

written by Bill Stevens

A young person I know received $20,000.00 at 18 years-old. The grandfather had left thousands of dollars to his young grandchild when the grandfather passed away, while the grandfather’s son, the uncle of the 18 year-old watched over the money that was in a mutual fund until the child was of legal age to receive the money.

“The money is to be used for college”, the grandfather said. However, there were no rules, no stipulations and no guidance. The uncle gladly turned the money over to the 18 year-old when it was time for college. So, the young bright-eyed 18 year-old announced, “I’ve decided to go to Europe this summer before college starts. I’ll never have this time again.”

Oh no!!

So off they went, the 18 year-old and best friend. It was all over in a matter of weeks. Great times, photographs, stories, new experiences, you name it. Nothing could have been better.

Ready for college, the 18 year-old moved out of mom and dad’s house and into…”my own house. Everybody knows you’re throwing away money when you rent. Besides I have down payment money.”

Got a hand-me down car from mom. Bought a cell phone and plan. Needed to be safe driving around. Text messaging guaranteed closeness to all. Internet access to transfer pictures, videos, and get email. “Everyone has it.”

Fast forward, the 18 year-old is now 26. Called mom and dad the other day, “I need a $1,100.00 brake job.” On the third car between 18 years-old and 26.

“I don’t have enough money or credit. I know I went from college to a professional job of my choice. I know my finances went from nothing to something. I know in college I was earning $0.00. Now I earn $30,000.00 a year with full benefits.”

Ouch!!

Oh the house? New water heater, had to have professional tree trimmers come out and cut down a big tree that was about to fall on the neighbor’s house. New plumbing in the only bathroom in the house. The bathroom roof needs to be replaced because it leaks every time it rains.

I’m sure there’s more.

written by Bill Stevens