It has been one crazy week! I don't even know where all of the time went between working and class and everything else that life has thrown at me in between. Sorry for the lack of updates...I promise to do better!
Next month, my company is going to hold a training class for the staff on how to begin investing in real estate (i.e. how to buy your first home, whether you should buy a singe family home or a 4-plex, & how to buy a small commercial building). This should be great blog material. Look out for that in the near future.
But let's get back to investing in stocks which is the topic du jour. Now that we've picked an online investment firm, we need to understand what a stock is.
This may sound very elementary but understanding this basic principle is crucial in allowing us to make informed decisions when we invest in the stock market. So please, bear with me!
Basically, when you buy stock you are buying partial ownership of a company and therefore a claim on it's future earnings. The more stocks you own, the more say you have in how the company is run and are the larger your claim is on the company's future earnings (paid out in dividends). The more the value of the company grows, the higher the stock price is likely to go, thus allowing you to sell your stock at a later time for a higher price. Conversely, if the value of the company declines, you will not be able to sell your stock for as high a price as you bought it for and you will lose money (boo).
Therefore, when you buy a stock you want to know as much as you can about the past and future potential earnings of the company so you can gauge how safe your investment is and what the potential for return is. Learning about the past financial history of the company is the easy part. Predicting the future...well that's another story. So let's start with understanding the past.
All corporations are required to issue financial statements to investors at least once a year. Once you are able to read these financial statements you will be able to make a more educated decision on whether or not a stock is a good investment or not. The 4 important financial statements are:
Income statement: Records the revenue and expenses and provides the net income or net loss for the year
Cash Flow Statement: Records where cash is being spent and how they are financing business operations
Balance Sheet: Records all of the company's assets, liabilities and stockholder's equity
Retained Earnings Statement: Records how much of their Net Income was paid out in dividends
Financial statements are available for all companies if you go to NYSE website. Simply go to the "Listed Company Directory" and pull the "SEC Filings" for the company you are interested in.
The information in the financial statements allows investors to calculate different ratios that can measure a company's performance (i.e. Earnings per share and Price-Earnings ratio), track the company's revenues, and see how much debt the company has, among many other things.
Knowing what everything in the financial statements means will probably take lots of time, but reading through even at a high level will give you a greater sense of the operations of the business, how the company intends to grow (if at all), and how profitable the company is.
It can be fun to read through financial statements randomly. I would recommend to think of a product you love, or an industry that you are familiar with and read through some of the annual reports for those companies. You will probably learn a lot!
Next: What to look for in a company...
**Disclaimer: Please keep in mind that I am by no means an expert in investing in the stock market. Quite to the contrary! These are just my general findings as I educate myself on how to invest wisely so please, take everything I saw with a grain of salt. And I'd love to hear your opinions and advice from your own experiences!
Monday, February 27, 2006
It has been one crazy week! I don't even know where all of the time went between working and class and everything else that life has thrown at me in between. Sorry for the lack of updates...I promise to do better!
Monday, February 20, 2006
Investing in the stock market can be a scary thing. It is something that I've heard about a lot but never actually took the time to understand. Part of the reason why it seems so difficult is because you may not know where to start.
Do you start by looking up ticker symbols and viewing graphs and charts that mean absolutely nothing to you?
Do you start by reading about companies and industries and what is going on in the market as a whole?
Do you start by looking up definitions and terms so you might stand a fighting chance of understanding investment jargon?
Personally, I think the first move that someone interested in investing in the stock market should take is to choose a brokerage firm where you will conduct your business of buying and selling stocks. Why is it so important? Well for starters, for every transaction that you conduct you will have to pay a fee. The total amount of fees that you pay for buying and selling shares could have a significant impact on your total overall return on your investment. The amount that you are willing to pay may vary depending on any number of factors including how often you want to buy/sell, how much you are investing, and what kind of tools you are looking for to research and track your investments.
For the beginning investor (like myself) there are a number of online investment companies. Each one offers a different fee schedule, different plans and research tools.
Sharebuilder: Offers the lowest fees for trading that I have found so far. There are 3 levels of accounts:
Transferring money is simple. You can link it directly with your checking and savings account and transfer money online. Under the basic plan you set your investment plan to do everything automatically for you.
Basic: $4 per investment, $15.95 for a real time trade (buying or selling a stock at the current market price), and $19.95 for a real time trade limit order (buying or selling at a specific price).
Also includes a Portfolio Builder tool which recommends stocks based on a simple survey that tests your risk tolerance, goals and experience.
Standard: $12/month which includes 6 free investments per month + $2 per additional, $14.95 real time trade, $18.95 real time trade limit order.
In addition to the Portfolio Builder you get a Gain & Loss tracker which tracks the performance of your stocks.
Advantage: $20/month which includes 20 free investments per month + $1 per additional, $11.95 real time trade, $15.95 real time trade limit order.
In addition to the Portfolio Builder and Gain & Loss Tracker you have access to a tool that tracks your capital gains for tax purposes and an IPO (company's first sale of stock) priority notifier.
For example, let's say that you have $100 to invest every month. You can create your own custom portfolio and have it invest in those same stocks every month (or every week). You can also set it up so that you can make a one-time investment. The only problem that I have is that investments can only be made on a Tuesday so if it is Wednesday you will have to wait nearly a week to buy (unless of course you want to pay the $14.95 for a real time trade).
Also, I decided on Sharebuilder because of a promotion through Costco where new members earn $65 just for signing up for an account and conducting their first transaction. Can't beat that if you are already a Costco member and are interested in beginning to invest.
Ameritrade: There is only one type of individual investing account. They charge $10.99 per internet equity trade which includes stop and limit orders.
Their fee structure seems to be a lot trickier. For instance, the $10.99 fee for trading only applies to stocks being traded online. If you decide to do it over the phone they will charge $14.99 and if you want to talk to an actual broker it is $24.99 for a market order and $29.99 for a limit order. OR if you want to trade a mutual fund rather than a stock you will be subject to a whole different fee structure. And it doesn't end there. They will charge a $15 maintenance per quarter if the liquidation value of your account is below $2,000 in addition to the normal trading fees.
Bottom line that they will probably find a way to charge you for anything and everything they possibly can.
Ameritrade offers a variety of tools, some of which come with a fee. Some of the complimentary services they provide are the Ameritrade Streamer which gives you customizable real time streaming quotes and the Quote Scope feature which will give you the best bid and offer and last trade prices for a stock and displays such things as the Liquidity ratio and Flow indicator for your selected stocks. There is also the Advanced Analyzer which tracks the performance of your portfolio for $19.99/month.
Scottrade: As with Ameritrade there is only one level of account. They offer $7.00 online trades, $12 for a limit order and a minimum of $500 to open an account. They do not charge inactivity fees so that is a plus. Reading some customer reviews I noticed many people had the complaint that they had lots of technical errors (servers crashing, website being frequently unavailable) which would be frustrating if you are used to have 24/7 access to your accounts. The layout of their website leaves much to be desired; searching for info on their fees and services is quite a challenge. From what I can tell they offer the following research tools:
Scottrade: Online portal to track your account including news alerts, access to stock quotes and research.
Scottrader: Live streaming quotes, Top Ten lists and interactive charts, personal stock lists and Quick quotes to track individual stocks.
Scottrade Elite: Free if your account value is over $25,000. With this tool you can get Dow Jones News, Comtex News, advanced charting capabilities, and technical analysis.
Plus they were rated 6 times in a row for Highest Investor Satisfaction with Online trading services.
Well, I'm sure there are lots more that I haven't covered yet like E*Trade, Buy and Hold, etc but you get the idea of what types of things to consider when you are on the hunt to find a right match for your investment needs.
Sunday, February 19, 2006
There are two parts to getting out of debt and to saving money in general. They are "make more" and "spend less". Making more without spending less will never result in an increase in net worth. Alternatively, spending less without making more is a good start, but will never help you achieve your maximum potential.
The posts on this blog have primarily focused on the "spend less" part of the equation and recently I have felt that there are not many more ways I can cut back on spending without resorting to eating nothing more than beans and rice, taking public transport and living in a cardboard box. A girl has got to have her limits.
The best part about focusing on "making more" is that there is no limit to how much you can make. Depending on your skills and your willingness to take risk, you can make millions with luck, a good idea and hard work. Granted, most of us will not make millions (darn it) but the point is that how much you earn is entirely up to you whereas spending less is limited to the amount of money you already have.
For years I avoided thinking very much about money because I thought only greedy people thought about money a lot. Then, as you already know, I got myself into loads of debt, over $30,000 by the time I graduated from college in 2004. (I've only been tracking the amount of debt I had since I started this blog last year but yes it was much more to begin with!)
Being in debt has taught me a lot about what money really means. It's not about buying new cars, clothes and jewelry, although it can be for some people. What I have realized is that having money is more about having freedom. The freedom to do what you love, help others and be happier as a result. Now, I don't feel so guilty about thinking about ways to make money because I've learned how it feels to be powerless without it.
There are so many ways to make money but most people only focus on the one tried and true way: getting a job. I'm sure this does not apply to some of you. Obviously if you are reading personal finance blogs on a regular basis you have an advantage over the average person. Nonetheless, I want to take a beginners approach to all the myriad ways a person can increase their income while at the same time spending less.
I'm thinking of doing a series of articles taking each topic from beginners level to advanced. Maybe something on investing in stocks, real estate, starting a business, advancing your career.
What do you think? What would you like to see? Obviously, I'm not an expert in any of these fields (yet) so if you would like to contribute, let me know!
Friday, February 17, 2006
My first transaction with Sharebuilder went through this week. I decided on investing in the S&P 500. I actually didn't give much thought to what investment to go with. I contemplated doing hours of research but didn't think that I would be too savvy any time soon. I vaguely remember reading something that the S&P 500 has consistently outperformed actively managed funds and thought that it would be a overall safe choice for this testing period. Also, I heard somewhere that if you really over analyze your decisions, you are more likely to make a bad decision than if you go with your gut. No serious. Read about it here.
The problem is now I find myself wanting to check it all the time. Definitely not good for someone with OCD, like me. :) But what is great is that I qualify for the $65 ($55?) account promotion since I have now completed my first transaction.
Thinking about stocks and how relatively uneducated I am with the lingo, I decided I would add a new feature called "Definition of the Week" to encourage me to learn about the technical aspects of investing and finance. Hopefully, it will prove to be useful.
Today was another Friday payday. All of my additional money after making minimum payments on the credit card are going directly to my savings account instead of straight to the credit card. This way, I will be earning interest on the money instead of it paying down a balance I am not paying interest on. You'll continue to see the debt balance go down on the sidebar but I am calculating the total based off of the balance owed on the credit card minus the amount I have in my savings. I have it down to $6,488 which feels so big and so small at the same time. Sometimes I feel like I'm am trying to move mountains paying down this debt!
Sunday, February 12, 2006
Aside from reading numerous personal finance blogs and websites on the internet, I am finding more and more outlets for finance related inspiration and knowledge. The wealth of information out there is truly amazing! Here are just a few alternative's to the internet:
The Suze Orman Show
Most of you have probably heard of Suze Orman before and maybe even watched her show. She cracks me up; she's like a cross between Judge Judy and Ricki Lake talking about finance. With show titles like "Confessions of a Video Vixen" you know that there is more than just straight up financial talk about IRA's, insurance and the like (and there is plenty of that too).
The Dave Ramsey Podcast
Dave Ramsey is quite possibly the King of Debt Reduction. The best thing about the podcast is his southern accent a la Dr. Phil. He's a no nonsense kind of guy. Debt is not an option. Whenever I feel like getting out of debt might not be as big of a priority as I have made it, I listen to his show. He will remind me of how important it is to make it my numero uno priority to get out of debt NOW!
Investment advice from a nut-case. I usually can only watch half of a show because I can feel my blood pressure go up from his yelling and screaming. But it's cool because since I know next to nothing about investing, I feel like I can glean a lot of information about what people look for when evaluating stocks. I definitely don't take his advice as gospel but its interesting to see what is being put out there as advice to investors. He also has a podcast available through iTunes.
Marketplace Radio Show
News about the economy and businesses as well as personal finance related advice. I usually listen to it on public radio but they also have a Podcast of the best of the week. You can stream the entire show from their website. Examples of current stories:
Getting a Raise: Advice from an expert at Salary.com.
Emergency Savings: Tips on how to save for a rainy day.
ETFs: Buzzword of the week.
No Credit Needed Podcast
One of the first PF bloggers that I know of to branch out to podcasting. Very well put together, reminiscent of Dave Ramsey. He talks about his own experiences of recently becoming debt free and advice and his weight loss goals. And theres just something endearing about the southern accent.
Those are just some of the alternatives I find to the standard website. What do you recommend?
Tuesday, February 07, 2006
Some Cap at Stop Buying Crap has challenged people to show the contents of their wallets. For some strange reason, I feel compelled to share as well. There is something strangely voyeuristic about sharing intimate banal details.
Not only that, but I rarely take the time to actually look in my wallet to see what is in there. This is what I found in the black abyss of my wallet:
Photos of friends over drivers license to hide my crappy mugshot. People gasp and laugh hysterically when they see my drivers license photo. It's a real tragedy.
Regal Cinema Crown Club Card
Old old old Mervyn's gift card (only has $2 but I never go to Mervyn's so it will probably stay in my wallet forever)
Costco club card
Starbucks gift card
Spa gift card
Coupon for the Limited
Medical insurance cards
Library cards (3 different cities, why?)
Ikea gift card
Petco PALS card
Dave & Buster's Power Card
Frequent Boba drinker card (taro milk tea is my favorite)
Blockbuster card (even though I haven't been to Blockbuster for 3 years)
Southwest Rapid Rewards card (haven't flown anywhere for a long time nor do I plan on flying any time soon)
Office Depot gift card
Petsmart Pet Perks card
No no wait, theres more!
$82 cash (I have a lot of cash from a bonus I got from work, long story)
Old movie tickets
Coupons (car washes, kitty litter, cat food & oil change)
Emergency contact information (i.e. relatives phone numbers from other states/countries that could help in case local phone lines are down)
So I guess the real question is what don't I have in my wallet????
Monday, February 06, 2006
Citibank, gotta love them, has sent my credit card to me without my apartment number. Kind of annoying but not really the end of the world. I was still able to call them to make the balance transfer and they offered to overnight me my card to the proper address. "No need" I tell them, "just send it regular mail". I figured I had no need to have the card in my hand by the next day so why go through all the trouble of sending it overnight. Plus, I was afraid that I might have to sign for it and I wouldn't be there, thus causing further delays...
Anyways, I still had some extra money lying around in my checking account (its a nice feeling) however the online payments hadn't been set up for my account (there is a 6 business day delay) and as I hadn't received my card yet I didn't know my account number and thus couldn't access the auto menu where I assume I would have been given the option to pay be phone. I have gotten in such a habit of making payments to my card whenever I had the money available that I decided I might as well call a customer service rep to make the payment over the phone. Mind you, the payment is not due until 2/23 so I still had plenty of time.
The lady I talked to was rather terse and interrogated me as if I was some sort of imposter trying to make a payment over the phone but I was fine with that as I would rather her give me the 3rd degree than not care at all. After a long series of questions she says, "Now you know, theres a $14.95 fee to process a payment over the phone, right?"
What? Are you kidding me? I told her to forget it of course; I didn't want to give them my money that bad after all. I told her it didn't make any sense in the nicest way possible to which she replied "Well, we are providing you a service by offering payments over the phone." Riiiiiiight.
So when did offering ways to pay them money become a service they provide? You would think that payment is just part of the deal. My car insurance company pulls the same trick. For every payment that you make they will charge a $3.00 fee. If you want to send in a physical check, well, that is an additional $10 fee. Naturally, I do not send them any checks.
So being a little annoyed but not really mad because it really had no negative affect on me besides having to wait a few days to make a payment I started thinking. Why was I in such a rush to pay them?
Part of it is that I am paranoid that if I am late for a payment my interest rate will go through the roof. But the major reason is habit. I got in the habit of sending in payments whenever I had the money was available so that I could lower the average daily balance thus lowering the amount of interest that I paid for the month. Now that I am not paying interest, I have no incentive to make extra payments before the 12 month 0% interest period is up so I could make the minimum payment, save the rest in a high yield savings account, and then once I have built up to the amount I owe, pay it off in 1 big payment.
If I did this over an 8 month period (which is the time I estimate it will take me to pay off the remaining debt) I could end up with an extra $120, which is not a lot but is more than I would have if I paid directly to my credit card.
Sunday, February 05, 2006
Yesterday, as I was surfing around the blogosphere I came across a post here on a great deal from Costco.
Costco is currently offering a special for members who open a new account with Sharebuilder. Just for signing up and completing your first transaction you will receive a $55 account bonus and rebates on transaction fees (25% if executive member, 10% everyone else). If you are already a Costco member and were considering starting to invest, this is a good opportunity to get started. Check out the nitty gritty details here. Offer is valid until 4/2/06.
So despite the fact that I am still not out of debt I think I might as well at least sign up and complete one transaction to take advantage of the free money. I'm not yet sure what I want to invest in or how much I should invest but I am hoping this will also be good practice for my accounting class. Part of the class is a group project where we have to choose a publicly traded company and analyze its financial statements so it will be much more interesting if I have a vested interest in the company that we choose.
Any advice on where to start? Of course, there are the big individually traded stocks like Microsoft, Google, General Electric, Pfizer or I could go with an exchange traded fund like the S&P 500. It seems a bit intimidating now, kind of like when you first go to Vegas to gamble. I feel like when I hit buy I will be hitting the big red nuclear button of investing. I'm not sure what is going to happen but it feels nerve wrecking. :)
Saturday, February 04, 2006
Just ran across this post from 2 Million Blog outlining important things to know about taking advantage of balance transfer offers to earn additional income. Great read if you are considering taking the plunge.
Click here to read the post.
Friday, February 03, 2006
This morning I logged on to my online banking statement and was pleasantly surprised that not only was today Friday payday but that my tax return already went through and deposited into my account. It was a very joyous morning because with both the overtime money earned from the conference and the tax return I was able to pay off the remaining $1,500 on my Chase credit card with money to spare.
Hurrah! Hurrah! The interest payments are dead. Never again will I have to pay credit card interest (assuming of course that I am able to pay off the remaining balance on my 0% interest for 12 months card).
Only $7,500 to go until I can breathe again. As soon as the payment posts to my account I will call them to see if I can do the 0% balance transfer for 6 months to my account and move the money to my ING savings account. And yes...I promise to be careful! I will beat them at their own game.
I started my accounting class this week and so far I am fascinated. I know that sounds totally nerdy to say but it's true! What is wrong with me? Whenever I tell people that I am taking an accounting class they look at me with pity. Hopefully, I'll be able to maintain the enthusiasm throughout the course, but from what I can tell it will be immensely useful to not only my professional life but my personal finances as well. After I get out of debt I want to start investing in the stock market and the best thing about accounting is that it teaches you how to read financial statement so you can make wise decisions on whether to invest in a company or not. So stay tuned...