The ETF Price War

Image via WikipediaThe cost to invest in ETF's has dropped dramatically this year. From the high commission fees of previously years, to sometimes zero commission fees, today. The competition between brokerage houses has benefited the consumer. With the amount of money these companies make it's about time they give a break to the consumer. It really helps the beginning investor the most. Because they're the ones who need the most help in the beginning years of investing. 
 
My favorite investment company Vanguard has expanded it's ETF line-up with 20 new funds. The most known fund the Vanguard 500 Index Fund now has an ETF version. With an expense charge of only 0.06%. The lowest cost for any S&P 500 ETF. The new funds bring Vanguards ETF offerings to 66. 
 
This is a great thing for competition in the investing world. Charles Schwab cut expense ratios and removed trading commissions on all it's own ETFs. Fidelity has also waived fees on 25 iShares ETFs. In assets, State Street and iShares are first and second in assets. But Vanguard is third with $103 billion in assets, with a $14 billion increase in assets so far this year. 
 
All this competition is a great benefit to the consumer. Vanguards new ETFs include an international real estate fund, mini bond funds, and value and growth-style stock funds. 
 
This is something along time coming. It benefits new investors and old alike. The low expenses and ease of investing will only attract new investors and impact the brokerage houses bottom line for the better. As always for long-term investors, regular index mutual funds with low cost, remain an excellent option. 

College Loan Defaults Increasing

Image via WikipediaOver at Yahoo.com there's an interesting article about graduates not paying their student loans. Figures from the U. S. Department of Education shows 7 percent of borrowers of federal student loans defaulted within two years of graduation, up 6.7 percent from the previous year and 5.2 percent the year before that. 
 
Her we have the perfect storm of easy flowing money from the government. Coupled with the recession starting and the cutback in job hiring. These two factors really hurt the newly graduating students. 
 
Even before the recession was on the horizon student borrowing had doubled. Education Secretary Arne Duncan voiced his concern over excessive debt and useless degrees. The article goes on to argue not about the burden, all this debt has but, who's debt is worse public or private schools. 
 
Here we see the bureaucrat mentality. The common sense rules of excessive debt isn't even explored. Just who to point fingers at. We have 2 problems here. First a mindset of non-restrictive borrowing. No preset guidelines depending on the degree your seeking. For example, borrowing $100,000 for a job that only pays $35,000 per year. Secondly, why is the government so deep in the student loan business? I can see some intercession by the government for it being the source of last resort for people who can't borrow anywhere else. 
 
Even some private sector loans are guaranteed by the government. The government has a never ending supply of money to loan out. In this day of an ever expanding government. Do we have to address every need of the citizen. Maybe it's time for Uncle Sam to but out. 

8 Great Money Moves

Image via Wikipedia

 
 
In today's economy confusion is the norm. So what's the right thing to do? Here are 10 positive suggestions of things to do with your money. 
 
1. Max out that 401(k) 
This is an easy one. Every dollar that you invest comes off your taxable income. Better yet if your company matches that's a 100% gain. 
 
2. Give up your vacation home. 
I know it's your favorite thing but it also is your most expensive financial burden. They cost big money to buy and we only use them only a few weekends a month. Don't forget the annual upkeep, maintenance, and taxes. 
 
3. Put $5000 into a IRA or Roth 
If you over 50 you can put $6000 and your spouse can do the same. A regular IRA cuts your taxable income and grows tax free, it's only taxable when you take it out. In a Roth, you contribute after-tax dollars, buy then it's tax free forever. 
 
4. Pay off your credit card debt. 
If your carrying a balance your paying high interest on somebody else's investment. Pocket that interest payment and stop helping credit card company's get rich. 
 
5. Fire your Banker. 
Most banks we use today have high fees. Dump them and find a nice local community bank that will look after your money for a lot less. 
 
6. Get your tax refund early. 
Make sure your withholding on your pay is correct so at tax time you don't get a big tax refund. Don't lend Uncle Sam your money interest free. 
 
7. Buy inflation-protected bonds. 
Treasury inflation-protected securities, or TIPS are boring and won't make you rich, but they are guaranteed. The U.S. Government and the coupons and principle is adjusted for rising inflation. Make sure they are in a tax-sheltered account because they are susceptible to taxes. 
 
8. Play tough with your Insurance company. 
Whether it s you car,home or boat call up your agent and ask for a reduction or shop around for better prices. Also raising your deductible can also save you money 
 
Try these money move and start saving money. 

Your Investment Advisor Can Juggle, Too!

Image by jericl cat via FlickrOver at Schwab.com they have a new Investment Adviser survey. It has quite a few details of what your advisor has to go through. The job of your investment advisor is part guide and part handholder. Advising is a person to person business. You must establish trust and build a relationship. We are handing over our money, which is like our children. 
 
One survey reflects the difficulty in achieving a clients goal. The data shows back in July 2007 it was quite easy, only 27% thought it was a problem. It peaked at 84%, January 2009. This shows the good times when everything was fine and money was being made. But when the market tanked, I'm sure your advisor was on the phone all day trying to calm down their clients. 
 
The survey reflects the changing activities of clients. Clients have increased their activities in reducing expenses at home. Also, reducing their spending on discretionary items. Everyone is tightening their belts during these times. 
 
The chart demonstrating the reasons clients leave the advisor, states 62% leave because they have lost trust in the firm. 64% leave because they want more personal service. 33% leave because they have lost money. Which also leads to losing faith in the advisor. When the market pulls back your bottom line is not the only thing that suffers. Your advisor catches alot of the blame. 
 
When ask to pull out their crystal ball and asked for a prediction on which sectors would rise, they said the top 3 sectors to rise are Information Technology, Energy and Health Care. Also 20% of the adviser's revealed they had no view of the future. They are the smartest of the bunch. 
 
I have a healthy respect for financial adviser's, there consul and advice have helped me succeed in investing. It's always good to pay an independent advisor to get a recommendation and learn a little about your investments. It's like your yearly Doctor's visit. Do you take as good care of your money as your body? 

How To: Create A Budget

Image by Casey Serin via Flickr
As we go through life if we don't have a plan we make mistakes. Just like taking a road trip, if we don't have a 

map we could get lost. That's what a budget is, a financial map for our money.

Ben Franklin said,

"Buy failing to prepare, you are preparing to fail."

 Because we have a natural tendency to spend all we have, we all need a budget. It doesn't matter what age, stage of life, or if we're rich or poor. The most important part of the budget is it helps us coordinate our spending with our priorities. Here are three budgeting forms: Online Budget Form , Printable Budget Form and Spreadsheet Budget Forms.
 
Step 1 Start the budget by entering your income at the top. This will should include all income. Whether it's salary, pension, social security, investment income, or other. 
 
Step 2 
Now we go to the expense section. Here we list the fixed expenses first like the mortgage/rent, car loans, and home equity loans. Also your student loans and credit card payments. 
 
Step 3 
List the amounts that you are saving for. They could be college, emergency, vacation funds. Don't forget to enter your monthly amount for investing. 
 
Step 4 
Then comes the variable expenses. These would be your electricity, gas, telephone, water, household repairs, childcare, clothing, food and dining out. Also personal care(haircuts), medical/dental, and charities. 
 
As you adjust the numbers you will see how the changes affect your ability to save more or less. The chart will also have a section where you can add the actual numbers so you can compare and adjust for next month. Don't forget that this is not your first and last budget. This has to be done every month for it to help you organize and stay organized. 
 

John Maxwell says,

" a budget is telling your money where to go instead of wondering where it went" 

 
The goals of budgeting are you will see where your money is going. If you see where it's going your more able to adjust spending and plan better. 
 
Don't worry if your doing it all right at the beginning. It takes time to get it right. But with time you will get better and better. For the items that occur that are unforeseen, that you can't budget for, that's what the emergency fund is for. 

How much should I save for college?

 Fidelity Investments released guidelines last month for how much parents should save in a 529 college savings plan. It shows both annual and monthly selections. If the plan is followed you should not have to take out any loans. 
 
The guidelines estimate what a four year in-state college would cost in 18 years from now for a parent with a newborn infant today. It used data from the College Board about the average cost of public and private colleges today and how much those costs are growing annually. It assumes a 5.4 percent annual growth rate in costs for the next 18 years. 
 
Next, using Sallie Mae data, Fidelity estimated how much in scholarships, grants and family gifts households currently earning $55,000, $75,000 and $100,000 annually could expect to receive and subtracted that amount from the expected cost. Then it estimated how much, at each of those income levels, a family would need to save to cover future college costs. Assuming they put the money in a 529 plan that gave a return in line with what the company estimates an investment in Fidelity's age based investment option should provide. 
 
The table reflects their findings and supplies their actual dollar amounts to be invested every month. 
 
 Their are no guidelines for family's making over $100,000 dollars per year. But they should examine the guidelines and interpret a plan that suits their own situation. Also the proposed savings amount don't consider the extra expenses that go with college, only tuition. Though transportation and health care are qualified 529 expenses. 
 
Fidelity Investments claims if you follow their recommendations the family making $55,000 would accumulate $48,000 for public college and $107,000 for a private college. The $75,000 family would have to save $51,000 for public college and $115,000 for a private college. The family making $100,000 would need to save $55,000 for public college and $123,000 for a private college. 
 
Now these figures are very subjective. We don't know what the final amounts would have grown to. Also we don't know if a family could sustain making these large payments for 18 years. But if they could the 529 accounts would become substantial. I am aware that it's pretty hard to estimate all this and I have to give Fidelity credit for attempting this. The amounts of monthly savings are relatively close. The family incomes are not, so the burden is on the lower wage earners. Like I said it's a place to start. w