Making Money More Fun
By Natalie Pace
This month, I’ve heard more complaints about money! While all of us want to get rich quick, almost no one wants to open his or her 401Kstatements! And the bills! Piles and piles of bills each month, which become a mountain of paper to sort for days at the end of the year. While getting surly, ripping envelopes and snarling at your mate only makes things much worse, that is what comes very natural when you don’t have a system. Frustration is never pretty.
Here’s the good news. Getting a system really makes things so much easier that you might actually find yourself ENJOYING bill paying and monitoring the investments you own. Further, the tips below do not require tons of organizing time and money. You will not have to spend hours boring yourself to tears with flow charts and reading up on systems theories. Take ten minutes to read this list. Buy a few folders. Consider getting a filing cabinet. Before you know it, you may find yourself falling in love with finances and kissing your lover spontaneously when the brokerage statements arrive!
The Stock Market Ostriches
“I hate stocks! I’ll never learn about them. I don’t want to look at charts and a bunch of words that I really don’t understand. I give up!” This was a message we received at NataliePace.com last week from a frustrated investor.
Giving up doesn’t mean that you aren’t still invested in the stock market. It likely just means that you’ll continue to lose money on every dollar that you put in your retirement plan. Since January 2000, putting money in your 401k can mean cutting every dollar in half. NASDAQ is still down -55%, S&P500 is off -25%, the Dow Jones Industrials are under -10%, Nortel is still in negative territory at -100%. The Toronto Stock Exchange is off -2.8%. Over 50% of Americans are invested in the stock market-most through their retirement plan. So, if you are an ostrich, sticking your head in the sand instead of figuring out a more profitable plan for your future, know that when you finally pull your head out, your retirement account may well have blown away in the sand storm.
If you aren’t educating yourself, pruning the losers out of your portfolio and taking your profits after mini bull runs, then most likely your portfolio is still losing money, as it has been since January of 2000 (with the exception of 2003′s outstanding year). The Roaring 90s are over. Most sophisticated market minds are estimating a conservative 6-8% annual return in the stock markets (considering dividends). Bonds were the worst performing asset in the second quarter of 2004, producing negative returns. Alan Greenspan is speaking before Congress on whether or not the real estate bubble is ready to pop. Where is your money safe?
Below are thirteen easy tips that will improve the performance of your portfolio. Trust me, gains and profits make monthly statements a lot more fun to look at! And there are smart investors out there who are improving their portfolio performance by picking good stocks and being selective about their buy-in and profit-taking strategies. You do not have to add a lot of risk to outperform the markets. You just need to start educating yourself.
1. Meet with your broker twice a year. First of all, you want to make sure that you keep your portfolio diversified according to a carefully laid out asset distribution plan. If one asset class has had a great year, take some profits and redistribute the money according to your formula. If another asset class is entering a downturn (think bonds), trim back your exposure BEFORE you lose the money. Tips: January is, historically, the top performing month for stocks, while September is typically the worst performing month. These may be the best months for your semi-annual broker meeting.
2. Diversify your assets! A good rule of thumb is to have the same percentage as your age in a safe asset class. Bonds are not a safe asset class in a rising interest rate environment. Stocks are never a safe asset class. Cash, CDs and savings are relatively safe, except in the case of fire, theft and Armageddon (in which case you’ll have much more important things to worry about).
3. Trim back on bonds and bond funds. In a rising interest rates environment, bond values go down and can turn negative. As Pete Colhoun says, “Bond values go down if interest rates rise, and one must be alive at the maturity date to get face value.” For more information on how and why bonds were the worst performing asset class in the second quarter of this year, read Paul Woods’ article, “Global Gas and Summer Heat,” from NataliePace.com issue 51.
4. September BACK TO SCHOOL Stock Sale. The markets are down. Fuel prices are skyrocketing. Terrorism alerts continue to be high. The natural feeling is PANIC! You might be tempted to sell everything (for a loss) and head for the hills. Here is where you can take comfort in some statistics. September is typically the worst performing month of the year. Trading volume (the amount of people buying and selling) goes down during the SUMMER DOLDRUMS while everyone is on vacation. Think of September as a great time to pick up companies you like at a bargain. (Yes, September is a great month for one of your semi-annual broker meetings!) See below for a chart of market returns by month.
5. January profit taking. January is the top-performing month of the year, and a great time to do your profit taking. Investors who took their profits last January (2004) are pretty happy about it. 2003 was a great performing year. Nortel advanced +325%. TSE + 24%. NASDAQ +50%. S&P500 and Dow Jones were up 25% and 22% respectively. Investors who “let it ride” have seen some of their gains disappear. Nortel took a haircut of 250%. NASDAQ has lost 8% since the beginning of the year. Additionally, when there has been a good run-up in stocks (or any other asset class), if you don’t take some profits and realign your portfolio, you have more money at risk in one asset class than you’ve planned for. Your best protection against market corrections is to realign your portfolio regularly and be sure to lock in some of your profits!
6. Pick some individual stocks. In addition to what you have on autopilot-say payroll deductions that roll into your 401K-take a little money to learn and play in more risky maneuvers. You don’t want your entire stock portfolio to be individual stocks if you have never picked stocks before, but it is a good idea to take some money and start making your own stock investments, so that you start learning about the market fundamentals. Limit that investment to money you are willing to lose. (This is your learning experience.) In the beginning, find a stock-picking guru and invest in the companies s/he recommends. Pick the companies from their list that make the most sense to you as a consumer. Stock picking gurus include Louis Navallier, the Motley Fools, NataliePace.com and Investor’s Business Daily, to name a few. As you follow their guidance and wisdom, you’ll gain enough knowledge to start venturing out with stock picks of your own.
7. Dinner with friends. An investment club will help you to start building a new income stream AND improve your social life at the same time. There are a few tricks to starting a club. You can order an investment club startup kit with NataliePace.com that will save you lots of time and money. (If you set up the wrong kind of partnership, you’ll pay hundreds of unnecessary taxes. The kit will help you avoid that.) One big tip: start the club with people whom you respect and would love to hang out with more. Call 866.NataliePace.com for more information.
8. NEVER USE CASH! The best tip I ever received from any financial professional was to use credit cards for all purchases. (SHOPAHOLICS get professional help and get on this program because this system saves days off of financial organization!) Credit card companies, once you are gold status or above, send you annual statements that are organized by category! They do all of the accounting organizational work for you, making your tally for the accountant a breeze! Additionally, you can earn points toward airfare and vacations. Not only will you save time, but you’ll also save money and REWARD yourself at the same time!
9. File folders. Take five minutes to label file folders. Insert credit card statements once you’ve looked them over for errors. Insert bank statements in a different file. File utilities and other statements in a separate file. Remember, you shouldn’t have to look at any statements other than your credit card and bank statements at the end of the year if you’ve paid all of your bills and made all purchases by credit card. This saves DAYS, perhaps even weeks, of your time!
10. Educate yourself! Start with Peter Lynch’s books. To follow are three. Amazon and Overstock have them for under $12.00. One Up On Wall Street: How to Use what You Already Know to Make Money in the Market. Beating the Street. Learn to Earn: A Beginner’s Guide to the Basics of Investing and Business.
11. Get a fixed rate on your mortgage. Interest rates are the lowest that they’ve been in 40 years, but they are on the rise. Greenspan has hinted that he will be aggressive about raising rates if inflation warrants it. Lock in your low rate now. It will save you thousands of dollars over the next few years.
12. Consider a home equity loan. If you are near retirement, it may be far more advantageous for you to ignore this one, unless you have credit card debt that you are paying off at a high interest rate. If you are employed and under 50, money right now can be borrowed for almost free. Freeing up some cash could help you in many ways. Most importantly, liquidity allows you to invest should a fantastic buying opportunity come along. It might allow you to expand your business or pay down credit card debt. Don’t be in a hurry to invest the money, until you figure out a solid plan that has a high probability of good returns. Oftentimes that means waiting for a great buying opportunity. Most importantly, don’t risk your cash on something that you don’t know or understand! Don’t trust hot tips. As Peter Lynch says, “Investing without research is like playing stud poker and never looking at the cards.”
13. Ditch your SUV! Here’s a new flash. Gas and oil prices are not expected to go down anytime soon because supply is limited and China has begun consuming like there is no tomorrow. You can cut your gas bill IN HALF by giving up your SUV and going for an economy or hybrid car. Better yet! Going economy these days doesn’t mean giving up style. BMW, Ford and Volvo have cars that have almost zero emissions and are great on gas. For a list of “green” cars that will cut your gas bill in half, click here.
So, friends, in short we’re saying read a little. Meet with your broker twice a year. Put everything on credit card and stop using cash. Write some words on a few file folders. Take the plunge and buy stock in at least one company (in September), so that you can start educating yourself about the seasons of the market and how to buy companies at a good value and sell the stock for a profit. (We highly recommend buying stock in a company that you know, understand and love their product and/or service. This will increase your odds of success tremendously.) Ditch your gas-guzzling car! None of these recommended changes require days of filing torture or deciphering charts or watching financial news 24/7. Starting on a new path of planned prosperity and disciplined abundance is truly as easy as making these few, simple adjustments. As your assets grow, you will need to expand the system, but by that time you’ll be so thrilled with your financial success that you’ll actually ENJOY finding new ways to count all of your money.
Yes, part of the problem now-the main reason you avoid your bills and financial statements–is that you think of those pieces of paper as BAD NEWS. Things definitely change when your financial statements are bringing GREAT NEWS about how hard your money is working for you, while you are off vacationing on all of those mileage points you’ve accrued.
Invest in your mind and watch your assets grow.
About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street and host of the Pace and Prosperity radio show on BlogTalkRadio.com/NataliePace. She is a repeat guest on Fox News, CNBC, ABC-TV and a contributor to HuffingtonPost.com, Forbes.com, Sohu.com and BestEverYou.com. As a philanthropist, she has helped to raise more than two million for Los Angeles public schools and financial literacy. Follow her onhttp://www.facebook.com/pages/NWPace, and on YouTube.com/NataliePaceDOTCOM. For more information please visit, http://www.nataliepace.com.
