Young Investors Shunning Stocks

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A story over at CNNMoney.com caught my interest. It told of a young man of 18 years, deciding to pull his $25,000 investment in an aggressive mutual fund, out. When he was tired of seeing his money dwindle down during the decline in 2008, he moved it to a certificate of deposit. 
 
While all investors have become more cautious, the biggest change has come from those in the under 35 crowd. The youths have witnessed the decline in the value of their parents portfolios and seen how their parents have decided to delay retirement or even go back to work. The younger investors consider themselves more conservative today than they were a year ago. 
 
If your in your 20s you have seen the market drop 55%, climb 88% and then drop again in a short span of time. During the last decade you seen the stock market return 0%. 
 
This younger generation will probably live to 100 and beyond, because of all the medical breakthroughs now and the ones they will see when they retire. The only way they can afford retirement is through the investing in equities or they will be working way past the time they want to retire for lack of assets. 
 
Like us all, the under 35 crowd is leery about investing in the volatile stock market. History reveals that equities have earned 7% each year after inflation over the last 200 years. It most likely will continue. Has this been the worst market decline? In modern times, yes. But don't forget the early 90's and 1987 decline. If you really want to check out declines, check out the Dow Chart from 1900-2010 at this link. 
 
There have been corrections of 50% or more, over and over again throughout the the stock markets history and there will be again. Why does it shock people, like this has never happened before. If you keep investing in good times and bad you will come out at the end. The fear people feel when their investments go down is unnerving. A great decline like we just went through, makes people afraid and sometimes scares people away from investing. It still is the best way to go if you are in for the long haul.  

Book Review: The Difference

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Jean Chatzky has a new book called "The Difference". It describes the different traits of people who attain financial success and the ones who don't. She claims that in previous times the difference between rich and poor was great. Today the percentage of rich who came up from the middle class is 83 percent. The super rich who usually stay that way give the other 17 percent. Of the rich, their income is derived from 10 percent coming from passive investments and 90 percent coming from active business'. 
 
Ms. Chatzky breaks all of us down into four groups. Wealthy, Comfortable, Paycheck to paycheck and Further in debt. The reasons for someone to end up in one of these categories is our attitudes and behaviors. The four groups our: 
 

• Financial Attitudes and Behaviors 
• Goals 
• Personality 
• Non financial Behaviors 

 
Of course the greater your positive attributes are in these category's the more successful you will be. She says we don't have to be excellent in all these category's but just good. 
 
I have to add that her accent on good personality traits only work if you make a decent living. You spend less than you make. You invest your money so it can work for you in retirement and protect yourself and your finances from disaster. 
 
I admit I have only read the first chapter online at Oprah.com. Yet the book seems to rehash the same concepts of the book "The Millionaire Next Door". I can agree with the author that you have to have the right traits and behaviors to make money and to keep it. If you have the right knowledge you will be able to attain financial success. 
 
This book is well written and can be a good aid in discovering what you could be doing wrong. It has a lot of interesting facts and puts aside a lot of the myths of the rich and how they got there. If you never read other books about how work, good behaviors and a work ethic transfers into wealth, this book will be good for you. 
 
In reading a lot about this subject I believe that after a while all this good advice is just advice. It's all up to you to get up and put the book down and go make some money. 

Investing 101: TIPS - Treasury Inflation-Protected Securities

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Treasury Inflation-Protected Securities, or TIPS have been around since 1997. The Treasury issues TIPS. They produce a fixed interest rate paid semi-annually. The treasury uses the Consumer Price Index as a guide to adjust the principal for inflation. Both principal and interest are adjusted for inflation. If deflation occurs your still guaranteed the original principle according to Bankrate.com 
 
Newly issued TIPS are purchased directly from the government through it's TreasuryDirect program, in the months they are auctioned off. There is a secondary market where they can be purchased all year. 
 
You can buy TIPS with 5, 10 and 20 year maturities. You will have to pay taxes on the increase in principle, even though you don't receive it till the bond matures. So it is better to have TIPS in a tax-deferred account. 
 
The experts say the best way to buy TIPS is through a mutual fund. It's more expensive and there is a minimum of $1000 when buying individual TIPS. 
 
So what's so good about TIPS? With normal fixed income investments there is risk of inflation eroding their value. With TIPS, they are guaranteed to keep up with inflation. If you believe inflation is a danger then TIPS are for you. Your money will be protected. 
 
TIPS are one part of a well diversified portfolio. They receive a nice interest rate and are protected from rising inflation. The downside to TIPS: The principal of the bonds and the coupons fall when prices decline.

10 Reasons To Rent

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Don't you sometimes get sick of all the maintenance you have to do when you own a house? Starting with the most annoying thing, mowing the lawn and trimming the bushes or trees. Then there is painting to do and leaky faucet. What about that remodeling job your wife wants you to do. It's always something breaking. The American dream becomes the American pain in the butt. 
 
Over on CBS' Moneywatch.com they had a top ten list of the advantages of renting. 
 
1.Fancier Living: You may not ever be able to afford to own it, but with renting, you can enjoy that luxury condo overlooking the ocean. 
 
2.Perks!: A lot of apartments come with community pools and gyms. My favorite thing about the apartment complex that I lived in during college was the massive swimming pool they had. 
 
3.Water/Heat Included: Oftentimes, apartments come with water and heat included, so that's less bills that you have to keep up with. And the world is better with less bills to pay. 
 
4.No Need For Weeding: I've never mowed a lawn when I've rented. You don't have to do any yard work. 
 
5.When The Move Bug Bites....: While renting, the worst case scenario is waiting a year to move. Bad landlord? Move out. Annoying neighbor? Good-Bye. With a 
Home it's much more complicated. 
 
6.No Maintenance Background Needed: As mentioned before when a pipe bursts or any other maintenance issue pops up, just make a call to the landlord and sit back and relax. 
 
7.Momentarily Cheaper: there's a lot of us financially struggling thanks to the economy and when it may be money down the drain, I am not spending nearly as much as a mortgage. 
 
8.Home Prices Fluctuate: Its a buyers market or is it a sellers market? I have no idea, because I don't have to know, I rent. 
 
9.No Risks: if you do try to sell your home during a bad economic time, your at risk for losing money. But with renting, you hopefully get your deposit check back. 
 
10.Property Tax and Insurance: No taxes for renting and renters insurance is way cheaper than homeowners insurance. 

Michael Douglas & Life

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Michael Douglas revealed this week that he has throat cancer. He is going through a regiment of radiation and chemotherapy. Fortunately his doctor found it in time to start treatment. Doctors say that the cause of the tumor was probably Douglas' smoking and drinking habits. Although the cancer has spread to his lymph nodes, it remains in his neck giving him a 80 percent chance at recovery. It's still unknown how this will effect his acting career. 
 
This news is of great interest to all of us especially to us over 50 years old. At this time of our lives we have to be on the look out for many different kind of illnesses, especially cancer. It starts in our late forty's with checking of the prostate. In the 50's, 60's and 70's we also must look out for skin and other related cancers. Mr. Douglas is 65 years old and still very active. If his doctors have caught the cancer early enough he can remain acting and speaking. 
 
Every few years a high profile person is in the news with a health crisis. Last time it was Farrah Fawcett and her cancer battle. Do we ever learn anything from their tragedy's. Do we change our health care habits? Do we get check-ups and cancer screenings. I hope some of us do. 
 
At 65 years of age Mr. Douglas is at a time he can relax and enjoy his success. His lovely wife and two small children are there to make his years even more precious. His life reminds me of what our lives could be at 65. Are we enjoying the life we prepared for, are we prepared. In a financial way are we ready. 
 
It's seems that preparation and planning are paramount for our successful retirement years. Our health also must be prepared for our older years. Do we exercise and eat healthy. Do we get regular check-ups? Maybe Michael Douglas was prepared in all these ways, yet he still got sick. It's something to think about and prepare for.

Investing 101: Index Funds

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If your thinking about getting into investing and want an easy way to get your feet wet why not try Index Funds. We all have the common problem of which of the 3000 plus mutual funds do we put are money in. You can search for the hot fund or the fund with the great long term track record. But when you purchased it, it tanked. What to do? I would just like to pick a fund that will let me get some sleep at night!

The answer for you is Index Funds. Jack Bogle founder of Vanguard Funds and pioneer of index funds says," Why look for a needle in a haystack when you can buy the whole haystack." Get great diversification by buying everything. You will ride the markets ups and downs like a roller coaster. But always with a upward trend. You will be at ease in your choice of index funds because you won't have second thoughts. How can you? You own everything, you don't have to believe you have the wrong stock or fund, you own them all. Another plus for your index portfolio is, by not buying and selling a lot you'll save all those transaction fees. Also buying from Vanguard, there will be none if you buy their mutual funds directly.

Now what do you do to get started? What funds to buy? Start with the basic three with percentage allocations:

• Total Stock Market Index Fund. 60%
• Total International Market Index Fund. 30%
• Total Bond Market Index Fund. 10%

This is a good place to start. Your allocations can be adjusted based on years till retirement. There are many other index funds to add to this list for further diversification. There are TIPS, Small-Cap,Specialty Foreign, REITs and others. As your portfolio increases new money can be put here. To get some good advice study the work of John Bogle. He's the main source to go to. Others like Paul Merriman on his web site Fundadvice.com. He offers his own proprietary work on index funds including his "Ultimate Buy an Hold Strategy". He offers sample index fund portfolios. He also produces many educational videos on investing. His active web site keeps you going back for more good advice. Also Paul Farrel over at Marketwatch.com keeps a scoreboard of the top eight index fund portfolios. He has there performance over the last 10 years and its updated daily. You'll also enjoy his "Andy Rooney" style commentary's. He is many years experience in the equity markets and writes a thoughtful column. Here's a list of the Index Fund Portfolios Courtesy of Paul Farrel's column at Marketwatch.com.

Take the strain and worry of investing away with index funds. Open an account Or if you have one see if you can purchase them there. If you go to Vanguard Funds there is a minimum investment of $3000. At Schwab their index funds have a minimum of $100. You can start there and latter move to the mother ship Vanguard. To be sure you will be saving money because a nice feature of these index funds is the low expense fees. Vanguards Total Stock Market Index Fund has an expense ratio of  0.18%. One of the lowest. But be careful because I have seen some expense fees as high as 1.5%. There is no reason for these high fees.