Smart Saving and Investing

On Wednesday, I wrote about the ups and downs of the market and how that affects the way you invest, sleep and keep your sanity. Well, everyone is being tested after today with the DOW closing down -311.50. WOW!!

Well, this is what happens sometimes. The markets have been going crazy all year long and everyone kind of knew something like this would happen and more could be coming, we’ll see.

But not to worry. If you’re a new saver and mutual fund investor, then this is part of the show. This is where you start looking at what mutual funds lose the least in times like this but make the most in the up times.

If your a trader or someone who buys and sells stocks for the long haul or short term, there will most likely be some stocks you’ll be able to get into cheap that you’ve been waiting for.

If you’re an options trader and you watch the volatility jump all over the place because of all this and the swings that are most likely to follow, then there will be nice opportunities to grab some profits from both Calls and Puts.

Talking about Puts, wouldn’t it have been great to be in some of those today? Puts allow you to make money as stocks go down. You heard me right. Again, I need to put an Options definition page up soon.

No matter how you look at it, things are sure exciting to watch.

I hope you can stomach all this and stand strong for the long-haul.

Here are some quotes on perseverance to keep you going:

“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.“ - Thomas A. Edison

“Perseverance is a great element of success. If you only knock long enough and loud enough at the gate, you’re bound to wake up somebody!” - Henry Wadsworth Longfellow

“A diamond is a lump of coal that stuck with it.” - Unknown

“Take time to deliberate, but when the time for action has arrived, stop thinking and go in.” - Napoleon Bonaparte

“The wise man bridges the gap by laying out the path by means of which he can get from where he is to where he wants to go.” - John Pierpont Morgan

“Buy when everyone else is selling and hold until everyone else is buying. That’snot just a catchy slogan. It’s the very essence of successful investing.” - J. Paul Getty

And on a lighter note…

“Getting on a plane, I told the ticket lady, “Send one of my bags to New York, send one to Los Angeles, and send one to Miami.” She said, “We can’t do that!” I told her, “You did it last week!” - Henny Youngman

“I told the doctor I broke my leg in two places. He told me to quit going to those places.” - Henny Youngman

“What’s the use of happiness? It can’t buy you money.” - Henny Youngman

“For my birthday I got a humidifier and a de-humidifier… I put them in the same room and let them fight it out.” - Steven Wright

“I went to a general store but they wouldn’t let me buy anything specific.” - Steven Wright

“What happens if you put a slinky on an escalator?” - Steve Wright

written by Bill Stevens

So what is a Mutual Fund anyway? There are many ways to answer this question but here are a few definitions from some excellent sources:

‘A mutual fund is a form of collective investments that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager who is also known as the portfolio manager, trades the fund’s underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.’ Source

‘A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, or other securities.’ Source

…For them, the financial industry invested mutual funds - pools of stocks or bonds that are managed by professional investors.’ Source

‘…A mutual fund brings together people, too–people who want to invest. The fund pools together the group’s money and invests it for them in a collection of securities, such as stocks or bonds or a combination of the two.’ Source

‘A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund.’ Source

‘A mutual fund pools money from hundreds and thousands of investors to construct a portfolio of stocks, bonds, real estate, or other securities, according to its charter. Each investor in the fund gets a slice of the total pie.’ Source

So What is a Mutual Fund?

Hopefully by now you know what a mutual fund is. To put it simply - a mutual fund is basket of investment vehicles including stocks, bonds and other securities.

Have a look at the Hodges Fund (HDPMX). This is an excellent fund that is categorized as a Mid-Cap Blend fund by Morningstar. The father-son dynamo fund management team of Don and Craig Hodges list the funds top 25 weekly holdings at their website. Pretty cool. The stocks that are listed are considered the investment vehicles, stocks in this case and the stocks are in a mutual fund called the Hodges Fund, symbol HDPMX.

You can visit Morningstar, MSN Money, Yahoo Finance, and Google Finance to view other mutual funds and their holdings. Just find the ticker symbol, for example HDPMX to look up funds you’re interested in.

Mutual Funds are managed by one manager who makes the day-to-day decisions or the fund could be managed by a team of people who you really don’t know or don’t know who’s on the team today or tomorrow. That’s why it’s good to find a fund with someone who has a track record that you can pinpoint to help determine the success of the fund’s performance in the future.

A lot of folks mention that a fund’s past performance won’t guarantee future success, which is true. However, just like a great baseball pitcher or batter, your odds of success go up when you are in a fund with a great manager who has a great track record.

Another group of folks want to know what stocks are in their funds so they can tell their friends and acquaintances what stocks they own in their mutual funds. That is not a good thing to do because the stocks you knew were in your fund yesterday could not be in your fund today.

Stock Mutual Funds - Also known as “equity funds”, are mutual funds that invest only in stocks. They are considered to be more risky. However, sometimes with greater risk comes greater reward. Over long periods of time, stocks have outperformed both bonds and cash investments. I would be 100% in stock mutual funds while I’m under 50 years old. Pretty darn aggressive but that’s just me.

Bond Mutual Funds - Bond funds invest in bonds and other debt securities. These make them more conservative investments that aim to protect your investment money. You typically choose bond funds for income and diversification. Bond funds are considered “low risk”. I would move 30% of my money into bond funds if I were 50 and over. That’s a bit aggressive at age 50 but that’s just me.

I’ll save other types of funds for another post but the stock and bond funds are two biggies.

My Secret

Let me share with you that over 25 years ago I had no idea what a mutual fund or even a stock was. After searching far and wide on how to invest in stocks, make my own stock selection, etc. I discovered mutual funds and felt a great relief as I could invest in stocks without having to make the day-to-day buy, sell or hold decisions and that there were folks out there called fund managers who would do that for me.

One outstanding resource that I encourage folks to listen to is The Mutual Fund Store Radio Show hosted by Adam Bold. Adam talks about mutual funds, saving, kids and college, and mutual fund recommendations. Check it out!!

Still don’t know what a mutual fund is? If you need more information, below are more great articles to read or you can just do a search on mutual funds using your favorite search engine. You can also shoot me an email at billstevens2000@gmail.com or comment on this article to start a discussion.

• Money 101: Investing in Mutual Funds
• Invest Wisely: An Introduction to Mutual Funds
• Mutual Fund Education Alliance

If are new to mutual funds and want more mutual fund analysis, recommendations and information on what to look for in mutual funds, keep an eye on this site for future mutual fund news.

written by Bill Stevens

When you’re young, married, working and it’s just the two of you, here’s one way to look at your financial life regarding saving money.

Online Savings Account

I’ve explained this in Action One, both husband and wife should have their own online savings account paying 5.05% (2007) at HSBCDirect, EmigrantDirect.com or your choice of any fine, comparable online savings account.

There is another view and it’s having a third account called the “family” account. Where both individuals contribute to the “family” account for “family” oriented savings as well as their own accounts. If you can do all three savings accounts and that’s something that fits your saving style, then that’s just fine.

I do believe each person should have their own account. Sometimes when you’re young and in the early stages of love you do everything together, another view of the “family” account which is fine, but there is another view that involves taking care of one another. Which means, each person in the relationship makes sure the other has opened an online savings account and is contributing to it.

When you work hard, save money and both of you are contributing to a “family” or shared online savings account only, it only takes a wayward purchase made by a spouse to upset the other spouse. Like one spouse decides to buy a new drum set with the savings. This would NOT be a good thing to do if there was only one “family” or shared online savings account being used for “Rainy Day” money or building up emergency money.

I have also seen where the person in the relationship who is making significantly more money than the other contribute to the partner’s savings as well. Again, taking care of that person to make sure they feel secure with their own money.

Now, some of that leaves a lot of room for irresponsibility. These are the things to talk about that I mentioned in 7 Scenarios of Money in Marriage. Again, it sounds so simple but it’s very difficult to sit down and talk through what could happen or how each of you think of money that you’ve saved and how it should be spent.

You should hold savings, rainy day, emergency fund discussions at a minimum of once a year. Quarterly would be best. Ask, “How are we doing with our savings?”, “How much did we tell each other we’d save?”, “How much did we actually save?”, “How much of our savings did we need to use and why?”, etc., etc. I also like money discussions during tax season when everybody loves the mood that tax season puts you in.

If there are issues with saving and spending the savings on frivolous things then there’s no time like the present to put the kabosh on that in some way, communicating until it’s agreed upon and completely resolved. Sometimes this can lead to drastic decisions that should be thoroughly discussed with a marriage relationship counselor over a long period of time.

written by Bill Stevens

Ok, I know it’s early to be talking about Christmas and the holidays but here’s a sure fire way NOT to spend too much money during the holidays.

Alter how much you deposit in your online savings accounts at HSBCDirect or EmigrantDirect.com or wherever you automatically save money for your “Rainy Day” or “Emergency” account. So for a simple example, let’s say you’ve setup your deposits to be $100.00 every month from January thru December. I know that’s a lot for some folks so stay with me, I’m using these figures just for the example. You could setup your savings something like the following:

January thru June - $100.00 every month

July thru September - $150.00 every month

October thru December - $200.00 every month

I know it’s hard for some folks to save more money for the rest of the year but what this will do is help you from NOT spending too much during the holidays. You might be thinking that you’re saving more money so you can have more to spend but remember I’m preaching NOT using your “Rainy Day”, “Emergency” money for Christmas and gifts during the holidays.

I believe that people, especially young folks remember the time, attention and interactions you have with them during the holidays not what you give them. Some of you know this by simply asking a young person to recall what you bought them for the holidays last year. A lot of times they don’t remember.

Think of your past holidays where you might remember an uncle, aunt, grandmother, grandfather, etc. who did special things that stuck in your mind as being great memories. These are the types of presents to save up for.

So start saving for the holidays by coming up with the gifts of communication and interaction with those you’ll be celebrating with, funny stories, stupid old stories that “Uncle Bill” always tells every year, games, songs, activities, etc.

written by Bill Stevens

Here are the automatically simple 3 actions to do for the first week of the third quarter:

1. Check your online savings account balance and transfers to ensure it reflects what you’ve been saving and what you’re expecting.
2. Check your retirement plan account that your have through your employer.  Don’t panic if it’s less than last quarter.  If it’s steadily gone down for the last two or three quarters, we’ll make note of that and see how it does this third quarter of 2007.  However, if it’s gone up this last quarter then great!!  Use Morningstar to check how you’re doing by comparing your funds to others like it and the indexes that are used for the benchmarks of your funds.
3. Check your Roth IRA and see how it’s doing.  The market’s have been on fire the first two quarters of 2007.  Head over to Morningstar and compare your funds by again, searching for them and comparing them to their indexes and the other funds in the same category.

That’s it!!  Hopefully that takes you less than 1 hour.  Pretty simple and helps educate you for the long term.  In another post we’ll explore what to look for when you’re comparing your funds to the indexes and categories at Morningstar.

written by Bill Stevens