The Passive Dad » Investments

5 Tips to Start Planning for Retirement

Traci K. — Mon, 30 Aug 2010 15:00:58 +0000

There are a lot of different options when it comes to planning for retirement: 401k, Traditional IRA, Roth IRA, Regular Savings, Money Markets, and even Stocks. All of these methods have time tested value, although some come with more risk than others. If you’re just starting to plan for retirement, this may seem like I’m talking in gibberish. Let’s simplify! Here are 5 tips if you’re just starting to save for your retirement.

401(k): If your job offers a 401(k) retirement plan (and ESPECIALLY if they match anything at all), use it. The bigger the company match, the better off you’ll fare. What this means is that if you have a company that matches 50% of your 401(k), and you save $2,000 for the year, your company will add an additional $1,000 or 50% of what you saved. It’s free money, it doesn’t get sweeter than that. Like any type of important long-term savings, put as much as you can in! The suggested percent of your total income to stash in all savings is 10%. If you can’t make that, do what you can. If you’re older, it’s more important to make that as much of an amount as possible.
IRA: If you don’t have a 401(k) through your work, you should consider an IRA. Deposits to IRA retirement accounts can be deducted from your taxes at the end of the year, although there is a maximum deposit amount per year for tax purposes. There are two types of IRA accounts: Traditional and Roth. Traditional IRA accounts mean that no taxes are taken out of your money before it’s sent to your IRA. So, when you pull it out to use it in retirement you will have to pay taxes on it. A Roth IRA means you’ve already paid your taxes on that income, so when you do use your savings in retirement you won’t owe taxes on it. I opt for a Roth IRA because the idea on paying taxes on (hopefully) $50,000+ makes me stomach lurch to my throat.
High-Interest: Another way to contribute to your retirement savings is by stashing your main emergency savings and/or long term savings in a high-interest account or CD (or other similar investment). These types of savings are low-risk so you won’t lose money, although the money you will gain is potentially lower than other high-risk options.
Make it Automatic: Just like any savings account, make the transfer of money automatic so you forget about it and it’s not part of your incoming income.
Diversify: Although this becomes more important as you get older, it can be helpful to have retirement funding in several different types of accounts. Most low-interest accounts like IRA’s, savings, and CD’s and Bonds are pretty consistent through time, but if you have some high-risk investments (like a 401(k) that’s also based on stock prices) then make sure you have other low risk investments and savings as well.

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Book Review: Rich Dad Poor Dad

Jessie — Wed, 25 Aug 2010 07:35:33 +0000

While this was the type of book I’d joke about buying Dad at the bookstore, very aptly describing the fluctuating income as he siblings came and left the home, I bit the bullet and decided to give it a read to see what all the fuss was about.

‘Rich Dad Poor Dad’ is by Robert Kiyosaki and Sharon Lechter and it details the highs and lows of business, investment and finance in a personable narrative through the eyes of a son with two father figures in his life- Rich Dad and Poor Dad.

Poor Dad is an educated man who has always viewed education as the key to success but seemingly lacks common sense. He represents the average man, so perplexed by the thought of financial instability that he plods along life taking safe routes and is often reluctant to act at opportune moments.

Rich Dad, on the other hand, only made it to the eighth grade yet proves himself to be more business-minded, often sacrificing the safe option for the smart option. Throughout the novel, the two fathers yearn for success traveling very different paths, allowing the reader to compare and scrutinize their attempts and realize their outcomes.

The son reflects on the valuable lessons that have taught him sensible approaches towards education, investing and measuring success by both Rich and Poor Dad. The novel draws on themes of financial intelligence as an important concept, allowing for clear distinctions between assets and liabilities.

This book was a big hit for me in making me realize personal obstacles that were preventing me from pocketing maximum wealth. Fear, idleness, bad habits and skepticism are listed as factors that restrict a sturdy financial flow.

‘Rich Dad Poor Dad’ gave me a wealth of ideas and solid advice in better money handling skills. Through the book, I now have solid aspirations and firm goals and will get active about decision-making.

The book made me understand the importance of friendships and the power of influence in shaping my own decision-making. I realized I am very luck to be surrounded by a like-minded network of friends with attributes that inspire me and often assist me in personal and financial advancement. Furthermore, the underlying and most poignant theme of all that struck a big chord with me was not to stop learning – be open to opportunities, stay up to date with world affairs and read newspapers. Ideas are everywhere!

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Primerica Coming To Discuss Personal Finance Options Tomorrow

Scott — Fri, 23 Jan 2009 13:30:12 +0000

My wife has a friend coming over tomorrow to discuss our personal finance goals for 2009 including life insurance and I believe our investments as well. I’ve never heard of Primerica, did a quick google search, and found that they have been in business for years selling life insurance policies. Primerica also is part of Citigroup, so I’m surprised I’ve never heard of them before. My wife did not give me any other info other than we are meeting with her to discuss financial goals. Since I’m a “hand on” personal finance type, I’m curious what she will want to discuss. Since it’s the beginning of 2009, I figure now is a good time to review our insurance policies for home, autos, and life. Not sure what she can do with our investments, but won’t hurt to ask.

Has anyone used Primerica for life insurance or investments?

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Help a neighborhood and your home value through sweat equity

Scott — Sun, 21 Dec 2008 23:23:56 +0000

photo credit: joguldi

Are you looking for a cheap foreclosure or short sale investment opportunity? Some properties may not be in desirable areas or might be far from your house and require some travel. What about an opportunity in your own neighborhood or on your same street? I’m not talking about buying the house, but putting in some sweat equity. I’ve had two properties near my house that have gone from ordinary sales to bank owned foreclosures and wondered if they could have sold if the homes had some minor maintenance issues fixed. One had a front yard that was neglected for 6 months and had weeds, branches, leaves, and overall yard cleanup issues. Would you help clean a neighbors yard? What if it meant a better price for the home and an increase in your own home value? Some homes are having the water turned off and lawns are dying. Would you every consider watering a neighbors yard with your hose? That green lawn could equate to some additional green in your wallet if you needed to sell your house.
Home values have decreased 40% in our neighborhood and blood is in the streets as home values are declining every month. Once the bank owns the home, the incentive will be gone to upkeep the house and the neighborhood could see another 5-10% decline in house values. What would you do? Have you considered doing some yard maintenance or painting to help sell a neighborhood home?

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Washington Mutual (Wamu) Fails. Deposits are still safe

Scott — Fri, 26 Sep 2008 02:19:09 +0000

Washington Mutual is the largest bank failure in U.S. history. Federal regulators took over Washington Mutual today and shut down the firm due to inadequate liquidity. According to the Wall Street Journal depositors had withdrawn $16.7 billion in assets since September 15th. The large withdrawals caused Wamu to drop below fdic minimum requirements. What does this mean for your deposits. Apparently the deposits of Wamu are secure and some $300 billion in assets were purchased by J.P. Morgan today. Under the brokered deal between the federal government and J.P. Morgan, customer deposits and bank branches would be transferred to J.P. Morgan. The Wall St. Journal reports that the FDIC insurance would not be used and that assets above $100k would still be liquid. Still many details need to be worked out, but it appears that Wamu branches will now be run by J.P. Morgan.

Do you think Wamu could have survived had the $700 billion bailout passed? If you are a Washington Mutual customer, what are you planning to do with your savings and checking accounts? The assets appear to be guaranteed by both J.P. Morgan and the FDIC. Would you move your assets to another firm or stay with J.P. Morgan?

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When Stocks Slide What Do You Do?

Scott — Thu, 18 Sep 2008 07:10:22 +0000

Today I watched several more financial stocks getting hammered with speculation about bad debt and unfavorable balance sheets. Yes, I was glued to CNBC for most of the day and watched companies like Goldman Sachs (GS) and Morgan Stanley (MS) shed 30% in market value. As I’m writing this post news agencies are reporting that talks between several banks and brokerage firms are being held late tonight to head off another government bailout. All of this feels a bit surreal and can overwhelm our ability to think rationally. How are you dealing with the financial stress of paying your monthly bills and the thought that your portfolio may lose even more value in the coming days?

Here are a few things I’m trying to remind myself to stay calm:

1. I am a long term investor. The money in my 401k and IRA are not needed for over 30 years and markets will go up and markets will go down. Lehman Brothers might fail in 2008, but another investment bank will flourish in the next 30 years. We will always need credit and investments.

2. Turn off the tv and stop listening to the chatter of the moment. I find myself watching tv and watching my blood pressure rise with every new announcement. The stock traders are probably watching the same CNBC show and feeding off the same nervous energy.

3. Take a walk. Get some fresh air and clear my head. People are still working and shopping and kids are still going to school. My two dogs need to go for a walk and don’t care that Goldman Sachs (GS) is trading below $100.

4. Don’t call my bank again and ask about FDIC insurance. I’ve done it already and received the standard FDIC insurance mailing that every bank sends out. If you want some extra reassurance you can visit a new website that Susie Orman and the FDIC put together. It’s called My FDIC Insurance and you can check your particular bank.

5. Don’t be tempted. It’s tempting to try and jump on some fire sales on companies like General Electric (GE), Bank of America (BAC), or Goldman Sachs (GS). These might be fantastic companies in 30 years, but can I handle another 10-20% decline in stock price? I shouldn’t jump in a stock for a quick trade when I would be violating rule #1 above.

I need to remind myself to follow my own advice. I’m sure the first thing I will do is check CNBC when the market opens at 6:30am Pacific Time. I probably should just take the dogs for a walk and leave the tv off for the rest of the week. What kind of emotions are you feeling with these 400-500 point declines in the stock market? Are you checking your account balances daily? Has the sense of fear and doom hit your outlook for the market? Do you take a walk and just ignore the markets?

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U.S. Government Takes Over AIG in 85 Billion Bailout

Scott — Wed, 17 Sep 2008 07:08:47 +0000

To say this has been a wild ride for finance stocks, would be a huge understatement. Lehman Brothers, Merrill Lynch, and now AIG being rescued by the federal government for 85 billion dollars. The U.S. government through this bailout shows that AIG is too big to fail. What does this mean? Why can’t it fail? Well, apparently if AIG were to go out of business the financial impact would be felt from airline companies to life insurance recipients. AIG insures large and small businesses and the domino effect would be detrimental to the global economy. It should also be noted that AIG is a Dow 30 stock and held by thousands of individual and institutional investors. If you own a mutual fund, your portfolio manager might hold AIG stock. Well, the question of who’s next comes to mind. What made AIG unique from other insurance companies? Apparently they had similar exposure to investments tied to home foreclosures. What other U.S. companies are too big to fail? Do you agree? Should government be laissez faire or “hands off” with companies and allow them to fail?

Here’s a quick list of several U.S. global companies that may be too big to fail:

1. General Electric (GE)
2. American Express (AXP)
3. JPMorgan Chase (JPM)
4. General Motors (GM)
5. Ford (F)
6. Citigroup (C)
7. Washington Mutual (WM)
8. Wachovia (WB)
9. Bank of America (BAC)
10. ???? What would you add to this list?

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Lehman Brothers Bankruptcy. Millions Lost In Residual Passive Income

Scott — Tue, 16 Sep 2008 13:00:47 +0000

The bankruptcy filing from Lehman Brothers over the weekend will not only impact thousands of employees, families, students, foundations, and stock holders, but it will be felt by small and large companies that will have millions lost in residual passive income. Lehman will be different from Fannie Mae and Freddie Mac that will continue to operate and provide loans to thousands of households across the country. Lehman may have assets sold off to other investment firms, including the asset management firm Neuberger Berman who will be sold to the highest bidder. I don’t want to gloss over the significant loss of income for thousands of families who will be looking for work after the bankruptcy or the investors who had assets in Lehman stock and bonds. Since this is a personal finance blog with an emphasis on passive income, I do want to look at the impact the Lehman Brothers bankruptcy has for other companies. Thousands and millions of dollars will be lost with this bankruptcy to companies that earn residual passive income through software licenses, research, suppliers, and even vending sales. Microsoft, Cisco, Bloomberg and even small mom and pop vending machine companies will all feel the financial impact of the Lehman bankruptcy.

So how will the Lehman Brothers Bankruptcy impact these companies residual passive income?
1. Microsoft will lose millions through lost license revenue from windows vista, xp and server sales. Each computer, laptop, and server running Windows software must have a valid license. Lehman is probably just one of Microsoft’s many licensees, so the impact would not be as significant as the others down this list.

2. Cisco, Nortel, or Juniper are also going to lose out on lost server revenue from Lehman Brothers. Lehman must have spent thousands, if not millions on network servers and security for client data.

3. Bloomberg, the company founded by Michael Bloomberg will also lose thousands if not millions from Lehman Brothers. Traders and brokers utilize the Bloomberg terminal on a daily basis for bond prices, news, and even researching mortgage backed securities and municipal bonds. These terminals are a tremendous source of residual passive income for Bloomberg and Lehman probably had hundreds of them worldwide.

4. Staples or Officemax, two of the countries biggest office supply distributors may be impacted by the Lehman bankruptcy as well. Staples may have lost thousands of dollars in passive income from sales of pens, paper, toner cartridges, and office supplies.

5. Xerox, Fuji, or Konica Minolta. These large printing companies could also lose thousands for lost revenue from printing supplies like toner cartridges and ink for large color copy machines. Lehman Brothers probably had a copy room on every floor and would print thousands of color copies each day.

6. Office Lease. Lehman Brothers had numerous offices around the world and landlords will feel the impact of the loss in passive income. Real estate can offer a tremendous passive income opportunity for investors once the initial investment is purchased.

7. Stock research. Lehman Brothers probably spend thousands of dollars each year on stock research updated daily from Goldman Sachs, Merrill Lynch, or even Bear Stearns. Research material would have been utilized for clients and website information. Stock research or analysis can be an incredible source of residual passive income for other brokerage firms. In fact some smaller websites have profited from stock research newsletters, showing this to be passive income to the writer.

8. Coke, Pepsi, and vending machine companies. Even the big two Coke and Pepsi, will feel the impact of the Lehman bankruptcy. A vending machine can offer passive income as the cost of running the business is very little and cans of Coke and Pepsi sell themselves.

9. Newspaper and magazine subscriptions. The Wall Street Journal, Barrons, New York Times, and others will all be impacted by the Lehman Brothers bankruptcy. Thousands of subscriptions were probably delivered daily to brokers, traders, and analysts and will not be suspended. If these Lehman employees move to another firm, the residual passive income for the newspapers would be reinstated again.

10. Service industry. With thousands of Lehman Brothers employees being impacted by a bankruptcy numerous service industries will feel the impact from lost income. Many service companies offer subscription based models that will certainly feel an impact on residual passive income streams. Cable companies like Time Warner, At&t, Comcast may have a reduction in subscriptions. At&t wireless, Sprint, and Verizon may not sell as many phones and might even have Lehman customers cut back on cell phone plans.

The impact from the Lehman Brothers bankruptcy will be felt not only by the thousands of employees, but by businesses around the world. Fortunately for companies like Microsoft, Cisco, AT&T, Coke, Pepsi, Staples, Xerox, and The Wall Street Journal, they will be able to offset the loss in passive income with new customers. But what about the small business owner or catering company that held exclusive contracts with Lehman Brothers?

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How Many Homes Do You Own?

Scott — Mon, 25 Aug 2008 15:00:24 +0000

I typically can’t stomach a lot of the political news making headlines, but one did catch my eye this last week from Sen. John McCain. Since it touched a financial nerve and set-off the debate of what it means to be wealthy in America, I think we should take a closer look at the comment.

My intent is not to debate whether Sen. McCain has a pulse on the working middle class in the U.S. or whether he thinks a wealthy person is someone making over 5 million dollars. I do want to ask what you consider a “Home” to be, and whether you would consider investments as a second “home”?

“How Many Homes Do You Own?” This statement can be taken many different ways and could even be hard for you to answer. Yep, I mean myself, you, your friends, anybody. What do I mean? Well, let’s take a look.

One answer would be how many homes do you have legal title over? In other words, how many property titles have the name John or Cindy McCain?

Now here are some other interpretations of the same question, “How many homes do you own?”

1. I really don’t own my home, as my mortgage is with a bank. I make payments to my bank and they own the home. In fact, they own more than 50% of my residence. Technically, I don’t own a home until I have paid back 100% of the mortgage. Now this may sound extreme, but is it?

2. Are you a partner of a trust? Maybe the trust owns buildings, property, or rentals and you own a share of those properties. Technically, you don’t own 100% of anything. If you have one partner, you may own 50% of the properties. I think we would all argue this as owning a property, but would you?

3. Do you own mutual funds or REITs? Could it be possible that you own thousands of properties? I own shares of VNQ Vanguard REIT ETF that tracks various REITS. Could I possibly name all the properties held in VNQ? No way! Do I own thousands of properties? I own a small fraction or interest in these properties as a shareholder. But, technically I don’t own any of them as my name is not on the title.

4. How about a timeshare? Do you include this as a home? Do you own a Hilton, Disney, Marriott or RCI timeshare? Typically these timeshares allow you to buy points or credits towards time at various properties, making it fractional ownership. You may hold a title and you may not. Check your contract as you might just own points. Although, I’m sure if you own a timeshare, you feel like you are making one extra mortgage payment a year.

5. What about a co-op or vacation house you share with friends and family? You might have that cabin in the woods or maybe you have a beach house near the Jersey shore that you share with friends. Do you include this as a residence? You own a partial interest, but would you consider this a “home”?

I’m not try to speculate what Sen. McCain was thinking when he was asked the same question, but it does appear that a lot could have been going through his head. Most homeowners would probably answer “one”, even though we might have a partnership or condo timeshare. If you have a real estate partnership, vacation property, or timeshare, it might take you a few minutes to answer. Well, how would you respond to the same question?

If you want to read the full context of the story and even hear McCain answer the question, you can go to the Politico website here.

photo credit: fotografar

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Prosper Passive Income Update

Scott — Wed, 13 Aug 2008 15:00:05 +0000

It’s been a few months since I have written about my Prosper loan income, and I wanted to give an overview of the good and the not-so-good of my passive income. The good news is I have 21 loans that are on time and current with payments, the not-so-good, I have 1 loan that is 15 days late and another that is in default. I’m surprised by my default as he had a Prosper credit rating of B and income of over $100,000. One of the red flags on his profile was the 95% bankcard utilization, but this is not unique to this individual. Many Prosper borrowers have high bankcard utilization numbers. This is why they are turning to Prosper, so they can refinance high rates. It wasn’t a total loss, I did receive $3.24 in payments, but overall lost $46.76 on this loan. I do have a chance that the Amsher collection agency can collect some of that money, but I’m not holding my breath.

Now for the good news. I have 21 loans all current and earning 19.30% interest, or a daily accrual rate of .53 cents. If these loans stay current it should take 88.22 days to break even on the bad loan of $46.76.

Will I invest more funds in Prosper? Yes, I am learning more about the lending process, and about the need for diversification. It is tempting to bid more than $50 on some loans, as they appear to be wonderful opportunities, but I have to stop myself and remember they are investments. I really enjoy the opportunity to help others refinance credit cards and escape the grips of the payday loan and cash loan companies. Many of these payday loan companies can charge in excess of 200% and keep borrowers in the grips of high fees forever. Prosper offers the opportunity to bid on loans of all types, from AA all the way to HR loans. Even bidding on the safe AA loans offer great opportunities to earn in excess of 6% interest on your money.

What is my goal for Prosper? To fund enough loans to create $100 a month in passive income. At that point, I could transfer the funds or reinvest in Prosper and fund more loans.

If you are interested in joining Proser as a lender, they are still offering a referral sign-up bonus of $25. You can send me an email to thepassivedad at gmail.com and I will send you the referral email. Remember that you should treat money invested in Prosper the same as that invested in the stock market, they are not fdic insured and can lose value.

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The Passive Dad » Investments

5 Tips to Start Planning for Retirement

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photo credit: fotografar

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