Why should you invest your savings?

Why should you invest your savings?

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  1. Mike Finley says:

    You invest your savings to stay ahead of inflation. Without properly investing, your savings (in the bank or credit union) will end up being eaten up by the inflation monster. A dollar today will be worth 96 cents next year and if you earn 1 cent that still shows a loss of 3 cents. The compounding effect of that scenario can be devastating to a person’s financial future.

    This is why we must invest and that means taking risk in the stock and bond markets. Stocks specifically have produced a return over time around 7% above the inflation rate, which means your 1 in the future will be worth more even after inflation with that compounding effect in your favor now instead of working against you.

    Focus on investing wisely and at a low cost when implementing this basic idea. That means you own no-load index mutual funds that own entire markets all over the world at the lowest possible cost. A good start would be the Total Stock Market Index Fund at Vanguard or something similar within a 401(k) plan. Financial freedom to follow!

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Why is Passive Investing the Wise Choice?

Why is passive investing the wise choice?

2 thoughts on “Why is Passive Investing the Wise Choice?”

  1. Mike Finley says:

    This answer could make up an entire book (and it has, read The Power of Passive Investing by Rick Ferri), but let’s get down to the nuts and bolts of the matter. Passive investing, index funds, ETFs that are not traded, actively managed funds with very low turnover, keep your costs low and in the game of investing costs are very important.

    The lower you get those costs, the higher your returns will be over time with a diversified portfolio of passively invested funds that allow you to capture market returns (stocks and bonds) at the lowest possible cost. Education will set you free on this matter when you are ready to accept the reality.

    Read these books: What Color is the Sky, The Little Book of Common Sense Investing, The Smartest Investment Book You’ll Ever Read, Index Funds, Winning the Loser’s Game, and The Four Pillars of Investing. Wisdom, followed by higher returns to follow. Onward!

  2. Mike Finley says:

    This answer could make up an entire book (and it has, read The Power of Passive Investing by Rick Ferri), but let’s get down to the nuts and bolts of the matter. Passive investing, index funds, ETFs that are not traded, actively managed funds with very low turnover, keep your costs low and in the game of investing costs are very important.

    The lower you get those costs, the higher your returns will be over time with a diversified portfolio of passively invested funds that allow you to capture market returns (stocks and bonds) at the lowest possible cost. Education will set you free on this matter when you are ready to accept the reality.

    Read these books and wisdom will follow: What Color is the Sky, The Little Book of Common Sense Investing, The Smartest Investment Book You’ll Ever Read, Index Funds, Winning the Loser’s Game, and The Four Pillars of Investing. Higher returns followed by financial freedom can be yours!

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How can the Extended Warranty Protection on your Credit Card help you?

How can the Extended Warranty Protection on your Credit Card help you?

One thought on “How can the Extended Warranty Protection on your Credit Card help you?”

  1. Mike Finley says:

    Many credit cards provide an extended warranty protection on your purchases up to a certain period of time (usually a year). For example, you buy a computer and you receive a free 1 year warranty that comes with the new toy (do not buy the expensive extended warranties that are pushed on you when making the purchase).

    With the extend warranty protection on a credit card, you will receive a 2 year warranty that is absolutely free. Just make sure to save the receipts on all big ticket items when buying with your credit card so you can retrieve them at a later date as needed. Knowledge + ACTION will set you FREE!

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Social Security

What is the Social Security spousal benefit and who can benefit from it?

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  1. Mike Finley says:

    The spousal benefit has been severely limited with new legislation in 2015, but there is still opportunities for some. IF you were 62 years old at the end of 2015, you can still file for this benefit off of your spouses benefit as you delay your benefit, letting it grow at a guaranteed 8% per year.

    The strategy is fairly simple, but full of potholes for those who are lacking information. One spouse must file and then the other spouse files for the spousal benefit as they receive half of the other spouse’s benefit at Full Retirement Age (FRA). This smart strategy has pitfalls so keep reading.

    File the spousal benefit only when you reach FRA (65,66, or 67 based on birth year). If you were younger than 62 at the end of 2015, don’t do it unless you have little to no benefit yourself. You will end up being deemed and that means you will get the spousal or your benefit, whichever is bigger.

    There is plenty to learn on the this subject. Read Graduation! to better understand the issue as it relates to retirement and creating more fixed income. Also read, Get What’s Yours (updated version) to learn in more depth on the subject of Social Security and the many options you may have.

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Credit Cards

What makes a credit card evil vs. what makes it a trusted companion?

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  1. Mike Finley says:

    The user! Credit cards are stupid pieces of plastic. No more and no less. It comes down to how the individual uses that piece of plastic. That will tell the tale!

    A credit card becomes evil when the individual runs it up without thoughts of what the bill will be, makes minimum payments on it because “that’s all they require,” and allows compound interest to devastate their bottom line. Within a short period of time, the card ends up controlling their life and negative things flow quickly downhill.

    A credit card becomes a trusted companion when the individual uses it reasonably, pays it off in full every month and understands the many benefits that include fraud protection, price protection, extended warranties, car rental deductible protection, rebates, and more. It’s all in how the individual handles the credit card. Use it wisely or get rid of it!

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Retirement Plan

What criteria should one identify when selecting investments within a 401(k) at work?

One thought on “Retirement Plan”

  1. Mike Finley says:

    What asset class or classes do you want to own and what do they cost? That is the simple answer, but as usual, there is more to the story. The asset class? Stocks (equities), bonds (fixed income), Real estate (REITs), and cash (Money Market) are the big four. Cost? What is the expense ratio (the fee that goes to the mutual fund company and possibly others) on each mutual fund you are considering?

    Here are a few basics. Focus on owning a total stock index fund that owns the entire U.S. market when possible. Add in an international index fund when it works. Finally, consider a bond index fund and a REIT index fund AS YOU CONSIDER ANY OTHER INVESTMENTS YOU OWN OUTSIDE YOUR COMPANY RETIREMENT PLAN. The index funds will keep your costs as low as possible whether you have a good plan or not.

    What is not important? The past returns on those funds and the star ratings mean absolutely nothing. Just ignore that noise. This means NOT chasing past performance. It gives you no information on what fund to select and that is important to know. Focus your efforts on owning broad market funds (hopefully index funds are offered, if not, contact HR and demand it) that own stocks and bonds in the right mix that fits your time horizon, risk tolerance and goals.

    Feed those accounts (strive to go heavy on stocks through much of your working life when possible for maximum growth over time) as much as you can month after month and year after year as you watch the amazing thing of compound interest do its magic. Learn more on this subject by reading What Color is the Sky. Education followed by action will set you free. Believe in that and believe in YOU.

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Experts

Why is it so important to educate yourself on financial matters from independent sources?

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  1. Mike Finley says:

    Most people who “help” you usually have a conflict of interest with the information they are sharing. The local life insurance agent makes his money through commissions, trailer fees, bonuses, etc. and so, he ends up recommending high cost annuities and whole life policies because they make him the most money. Good for him, not for you!

    The local fee-based financial advisor gets his money through loads, commissions, trailer fees, kickbacks, bonuses, etc. and so, they also must be avoided as they “recommend” the best funds for your needs. The conflicts of interest hurt the average investor as the advisor ends up working for the people who pay him “behind the scenes.”

    The third group is a hodge podge of charlatans, clowns who have strong opinions, and others who spout off with little to no evidence to support their positions. This means shutting off the television in most cases and not listening to Fred in the break room or Uncle Joe at the dinner table. You must look elsewhere when learning about the world of money.

    The key is in finding those independent experts who truly know what they are talking about and are not earning money outside of what you pay them. Here are some of those experts: Jane Bryant Quinn, Eric Tyson, Jason Zweig and Jonathan Clements when it comes to the world of money.

    When learning about the world of investing, go here: John Bogle, William Bernstein, Burton Malkiel, Charles Ellis, Larry Swedroe, Rick Ferri, David Swensen, and a guy by the name of Warren Buffett. Wisdom will follow as you start to see the truth amongst the noise and outright lies. The path is clear. Identify it and get on it as you take action with what you learn. Financial freedom to follow!

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Vesting

What is Vesting in regards to your retirement account and why do you need to know it?

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  1. Mike Finley says:

    Vesting deals with ownership of matching money provided by the business. Your vesting period will run from 3 to 5 years in many cases based on where you work and how the employer has set up the plan. This means that you need to work at that location for a set period of years to be fully vested in the plan. Vested means you become the owner of the matching money instead of the business. This is important!

    The money you put into a retirement plan at work is always yours no matter how long you work there. The matching money becomes yours based on the vesting period and that can be different based on the employer. Some employers provide you a percentage per year (like 20%) rather than an all or nothing approach. You want to fully understand your plan and how your employer does it if matching money is offered.

    Let’s say you have a 5 year vesting period. Many employers will provide you vesting at 20% per year. So after 3 years, 60% of the matching money becomes yours and after 5 years, it all becomes yours. Other employers give you all or nothing based on a set period of years like 5 years. Knowing this information should help a person think carefully before moving on to another opportunity. Get vested!

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Negative Correlated Assets

Why is it critical that you have negative correlated assets in your portfolio?

One thought on “Negative Correlated Assets”

  1. Mike Finley says:

    You need negative correlated assets in your portfolio so everything doesn’t go down at the same time. What is negative correlated assets? Assets that go in different directions. Stocks and high quality government and corporate bonds would be one good example.

    These two asset classes tend to go in different directions much of the time (but not all of the time). It is the see saw affect. One is going up and the other is going down. These keeps your portfolio from tanking as one asset class keeps you afloat during the stormy weather.

    There are other negative correlated asset classes, but they are more correlated than stocks and quality bonds in most cases. Here are a few:

    Emerging Market stocks and U.S. stocks.
    REITs (commercial real estate) and large cap U.S. Stocks.
    Small company stocks and large company stocks.
    Developed Market stocks and U.S. stocks.
    Value stocks and growth stocks.
    Short-term bonds and intermediate-term bonds.

    Here is the key when applying this information to your life. Work at owning all of these asset classes in your portfolio over time to reduce the volatility (not eliminate it) and increase your returns. Wealth to follow! Learn more about this issue by reading What Color is the Sky.

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Defined Benefit vs. Defined Contribution

What is the difference between a defined benefit plan vs. a defined contribution plan? Why should you care?

One thought on “Defined Benefit vs. Defined Contribution”

  1. Mike Finley says:

    A defined benefit plan (pension) has the employer doing most if not all of the work for you in this retirement plan. They put in the money, they take the risk, and one day you get the pot of money that has built up over time. Years past, this was the norm. Gradually, they are being replaced with defined contribution plans.

    A defined contribution plan (401k, 403b, 457, TSP) has the employee putting in most if not all of the money into his or her retirement plan. The responsibility of funding the account and risk has been shifted to the employee. The fund grows in many cases based on the employees efforts and knowledge about investing money.

    You should care because that is your future we are talking about. What you know and what you do will play a big part in how your future retirement needs are met. Educate yourself further by reading What Color is the Sky and Graduation! Financial freedom to follow.

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The Crazy Man in the Pink Wig