Investing: Buying and Selling

Well, that brokerage account is now open. You have followed their instructions on how to fund it. They gave you an account number, a user name and a password of your own choosing. You are now ready to rumble!

Many online brokerage firms now have research available to you once you are a client. Check out the Web site by seeing if it has a tab labeled, “Research.” Or, you can go to the numerous Web sites that offer free information and research on various sectors and stocks.

You might check out the Web site finance.yahoo.com for example, and when it requests a stock symbol, put one in and see what information pops up regarding that stock. There are also links on the page taking you to more detailed information should you choose to use it.

You might also check out Microsoft’s www.moneycentral.msn.com, and again put in the stock symbol or ask the site to find it for you by putting in the name of the company, and then check out all the information available.

I guarantee you there will be more information available on these Web sites than you would need to make an intelligent decision. You might want to read up on, say, the 10 most important things you need to know about a company/stock before you buy. This information is available online or through various books on investing in the library or at your local bookstore.

Other great sources of information are available on CNBC and Bloomberg Financial News cable TV channels. Watching these programs for a few hours a day will be an education in itself in how to invest and what to look for in the stock market. Don’t be put off by the terminology that you don’t understand. You can always write down words or phrases that mystify you and look them up later online or in a book you’ve purchased. Or ask someone who is further along in the investment world than you. Help is never hard to find!

So now you are online, eyeing your balance in the brokerage account and rarin’ to make a trade. You spent some time doing your research via your brokerage firm’s Web site and the Web sites mentioned above, plus asking around to those who have been buying stocks for a lot longer than you have.

You’re ready to buy.

The first thing you need to do is figure out how much the stock you want is trading for currently. You can check this by accessing the real time stock quotes of your brokerage firm. If the firm offers this benefit, you can set it up via your ISP provider so that it shows key information about specific stocks you are interested in or own: current price of the stock — in real time, not delayed 20 minutes — $ change in the price as of this trading day, % change up or down since its close yesterday, volume of shares trading and other pieces of information you would like to know. Let’s say the stock is currently trading at $25 per share. (Chances are it’s trading an uneven amount, but we’ll use this amount for convenience sake.)

Let’s say you have $1,000 in cash in your brokerage account, having deposited money into the account to open it. If you could capture that $25 price on the stock without it moving higher, you could buy 40 shares. However, that doesn’t take into account the brokerage commission, whatever it is. Let’s say it’s $10 per trade. You need to buy the number of shares that will allow you to stay under the amount you have in the account and also pay the commission, therefore, you should enter a buy order for 39 shares.

Next, you select “buy” and put in the symbol of the stock. Then you put in the number of shares you want to buy. (Be very careful that all this information is accurate and that you check “buy,” not “sell.”) Then you select the type of order you want: I recommend a market order, which means whatever the current price of the stock is when your order hits, that is the price you will pay.

However, there are some stock advisors who would say you should always put in a “limit” order, which means you assign a given price for the stock and will not pay more. You limit, in other words, the price you will pay. I think if you’re trading in thousands of shares, a limit order is essential. But for your 39 shares, it’s not that important, since the difference in a few pennies in the price of the stock doesn’t matter when you’re only buying a low number of shares.

Also, you want the order to be a “day” order, meaning the trade should go through on this market day and not carry over to the next.

You hit “place order” and usually have one more chance to change anything or exit the order. If you hit place order again, the order goes in and is execute.

You are now a stock owner!!

Next time we will figure out what to do with that stock you own, how to oversee and manage it.

Investing: Start Here

If you are new to and untried in the investing world, if the stock market has piqued your interest but you’ve never put your toes into the water, if what you hear and see in the news about the U.S. economy and the future of companies and civilizations around the world scares you, this is the time to start looking to equities as part of your investment portfolio.

Wait a minute! You thought I was going to say, “Run! Run fast and in a different direction!” because of the red flags mentioned with fear and trembling in the paragraph above.

I am writing this to the many new thesavvygal.com readers we have who may not have been in on the progression of articles starting a few years ago when we began this venture. If so, we wanted you new readers to come back to the beginning with us as we talk about the logistics of opening a brokerage account and learning how to do some minimal stock market investing for your future.

Whatever your investing knowledge or background, it is good for every woman — every savvy gal — to learn what the stock market is all about and how it works. Some day you may have to take care of yourself financially, if you aren’t already doing so, and this information will be vital.

We’re going to focus on stocks rather than bonds because during the decades of investing, stocks do better than bonds. A share of stock, then, means that you own a very tiny portion of the company in which you are invested. And I do mean very tiny. But ownership is ownership, and if you own one share of McDonalds, for example, you are just as entitled to go to their shareholders’ meeting and vote to make decisions as the person or institutional investor who have hundreds of thousands of shares.

So owning shares of stock means you own a piece of the company. This would behoove you to do some good research and buy only companies whose prospects are good, because that would mean the stock price would go up, not down. And you always want to buy the stocks that go up!!

But how exactly do you buy those shares, whether they are 10 or 1,000? In order to do so, you must have a brokerage account in your name. Brokerage firms are those businesses that trade stocks — buying and selling — for their clients, charging a commission (which varies from firm to firm) to do so. Decades ago, you would have to go to the bricks and mortar building, fill out an application, talk to someone who works there, give them a check, and wait for your account to be opened. Then you would call the broker assigned to your account (unless you knew the broker going in) to start trading stocks. And your commission fees would be exorbitant, because they were usually doing all the work for you.

No more. Nowadays you can pick your online discount broker, go to their Web site, fill out an application and email it back to them, wire funds from your bank to theirs, and within a few days you’re ready to trade. And there are no brokers to give you advice or guide you; in fact, by law discount brokers cannot do so. You’re on your own. Now, if this seems a bit frightening, remember that nowadays there is also a plethora of information and research available to you on the Internet. Anything available to the broker at the full-service brokerage firms is now available to you as an individual, low-scale investor.

Ask around: this is the best way to discover the online discount broker that most people use and are happy with. Yes, they do vary according to fees (some as low as $5 and some as high as $14, for the same level of services) and according to how user friendly their Web sites are. So check around, ask friends, go online to their websites, try to find the one that works best for you. You will be pleasantly surprised at how easy the online brokerage firms are to use.

Once you have identified a brokerage firm you’d like to use, fill out their application. You will do a joint account if you’re married and want your spouse on the account, or an individual account if you’re single. Mail it in or hand-deliver it along with the amount of money required to open the type of account you want (retirement accounts require smaller amounts), and wait until they notify you of the fact that your account is now ready to use. They will usually send you a password to initially gain access to the account, after which you can change it to something you prefer once you have access.

Next time we’ll talk about what to do now that the brokerage account is open!

Investing: Bottom’s Up!

It’s a new quarter in the investment world. It reminds me of New Year’s Eve, where you stand on the precipice of a new year and have hopes and dreams you hope will come true because the calendar has turned over one day to the next.

And so it is with our investments. We hope against hope that the new quarter we’re now in will be kinder to us than the previous one, especially since the previous one has been so awful. One of the debates among investors in markets like this is how you know when the market has made a bottom and is about to turn back up. Some days in this market look good, and some look bad. How is one to know when things are going to turn upward permanently?

The answer: you don’t. If anyone — professional or amateur, expert or beginner — tells you they have a surefire way to judge the bottom of a downturn in the market, run in the other direction. The best they can do is an intelligent guess, whatever their skills or programs or methodology. Market timers, as they are called, are notoriously weak when it comes to the figuring of their profits.

The only way to tell a bottom in the stock market is to look back at it six months later. In other words, hindsight is the best guarantee that you were right … or wrong. In the economy this seems to be true elsewhere: economists can’t tell you you’re in a recession until you’re either deeply into it or finally out of it.

So if you can’t predict the bottom in the stock market, what difference does it make? Not much. That “bottom” can be pretty broad (no jokes, please), meaning that it doesn’t just happen on one particular trading day but over a specific time period, perhaps days or weeks.

And this should be good news to those of us watching and waiting to see when we can or should jump back into the stock market. If we’ve been smart and gone somewhat to cash while the market thrashes about and sinks like a stone, we should be in the position of having some cash to put back to work for us when it seems the worst is over.

All of this takes watching, waiting, discerning. You have to watch the news, listen to the talking heads, see which direction their conversations are going: up or down, positive or negative. If the news begins to sound a bit more optimistic, if Chicken Little stops yelling that the sky is falling down, then you can begin to nibble on stocks that were beaten down. The good news about all of this is that after a market has turned downward, you are almost forced to apply the greatest maxim in investing logic: buy low and sell high. If most stocks have dived, you are by definition going to be buying them back when they are low.

You have to take the risk eventually that the market is going to turn around. Otherwise, you’ll miss the opportunity to ride stocks back up. But be careful what you’re looking at. If it’s a sector that has been severely beaten up, like financials or housing in the U.S. market, make sure you pick the cream of the crop, the best of the best to nibble. Don’t pick the most speculative stock in that sector but one you know has performed well in the past.

You do have to be extra careful you don’t risk your investment assets because someone has told you of a “sure thing,” particularly in a market like the one we’re in. In a raging bull market, you can pick quite a few stocks that will make you money. In a bear market or one that is recovering, it’s not this easy. You have to do your homework and your research and then trust you’ve made a good decision, watch your stock(s) carefully so you can get out if you made a mistake.

(And yes, you can easily make a mistake. We’ve talked about this in the past: it’s okay to make a mistake in the stock market, as long as you adjust quickly and accordingly. Don’t spend a lot of time beating yourself up but move on.)
It’s always tricky, isn’t it, this investing stuff? And perhaps you’re like me in that outmaneuvering the market (as if the market is a person and out to trip me up!) is as much fun as making money on a particular stock. Well, okay, maybe not as much fun, but fun.

Patience, Patience: Investing

One of the hardest things for most of us to do is to wait patiently for something. If you’re like me, you hate to stand in line, delay the purchase of something, wait for the evening mail to come.

Whatever tasks you have each day, it’s difficult to be patient about their fulfillment and the results. We are a driven, impatient people here in the U.S., aren’t we?

We are nurtured on fast food commercials and are told using our credit card means we can have it and we can have it now. We don’t like to wait patiently, indeed.

So what I’m going to recommend to you as a stock investor in this article is not going to be easy. In fact, it may be the most difficult piece of information you’ve received since I started writing this column.

But it is most appropriate and necessary in the current market climate; it is also a behavior pattern able to serve you well in the weeks and months to come. I am encouraging you — no, I am pleading with you — to be patient when it comes to buying stock.

Too often we discover a stock we like and buy it quickly. We may do a little research to make ourselves feel justified we have done our due diligence, but many times it’s not enough research or, truthfully, it doesn’t matter. In a stock market climate where the bulls are running free and things continue to move upward, impatience often doesn’t have repercussions to harm us. But when the market is as dicey as this one is, patience pays off as much as or more than good solid research. Why? Patience enables us to buy slowly and steadily rather than impulsively and haphazardly.

Let me give you an example: in this market, any given stock is capable of being up in price one day and down considerably the next. This kind of roller coaster ride is typical of a bear market, when the least bit of negative news can be interpreted as the end of the world as we know it.

So let’s say you want to wind up ultimately with 500 shares of XYZ stock. Instead of buying all 500 shares at one time, or just buying them on the day you make the decision about this purchase, let’s set out a patient, plodding strategy that would work better, I think, in this market than any other strategy.

Wait patiently until a day when XYZ stock is down. In this market, you shouldn’t have to wait too long, as the market is so volatile and up and down. On a down day, then, take a nibble on the stock. Buy 100 shares. Sit tight. Wait for another day when the stock is down. Buy 200 shares. In this way, you will participate in what is called “dollar cost averaging,” meaning that by waiting patiently for the stock to keep reducing its price, you are paying less overall than if you were to buy 500 shares all at once and then have it go down a few more times.

Now, of course, this hinges on the fact that eventually — when you own all 500 of your shares — the stock now turns and goes up instead of continuing to go down. But even if it does go down a bit more after you have purchased all your shares, be consoled by the fact that your patience allowed you to get the total 500 shares cheaper than buying them all at once.

Then, once you own the 500 shares, you must sit back and be patient once more. (Sorry, if you are an impatient type, this is really beginning to annoy you, I realize.)

Now your patience becomes more about when you sell. If this is a long-term purchase and you have no intention of selling the stock in the near future, just patiently put it away from your mind and, as Tony Soprano would say, “Forget about it!” The vagaries of the market should not drive you crazy because you’re in it for the long haul.

If, however, being the impatient type that you are, you want to make a profit and get out of the stock so you can pursue purchasing yet another winner (I am ever the optimist), here’s a rule for you to obey: don’t ever sell the stock on a down day, when it is in the red. Wait patiently — there’s the nasty word again — for a day when the stock is up, and then sell it and move on.

Why do I recommend this? Because it’s a good lesson in patience and it’s a good habit to form when trading stocks. It causes you to be more confident in your ability to wait and do the right thing.

And let’s face it: patience IS a virtue, anywhere, even in the world of stock investing.

Home Sweet Home: Other Investments

Real estate can be one of the best investments of your lifetime. Everyone knows it is most likely your home that will wind up being the best place to accrue value and profit at the end of a few decades.

So it goes: Buy a home and sit back and relax and enjoy it, while you watch it appreciate in value. Then, when you reach retirement and the kids are all out of the house (hopefully never to return), you should be able to sell the home, downsize, and live off of the equity you’ve built up over the decades.

Not so fast. This is just no longer true. Here’s what’s been going on in the real estate world in the last few years in a simple explanatory form (which I need for myself, because it can get very complicated and confusing): if you have a mortgage on your home or condo that took quite a bit of effort to obtain because either your credit isn’t stellar or your income isn’t soaring, you might have gotten what is called a sub-prime mortgage. This means that a lending institution checked your credit and although it wasn’t commendable, they still felt you qualified to buy a home and they were willing to loan you the money to do so. (Again, I am grossly oversimplifying this; please understand. I’d rather you understand it broadly than try to give such details and background information, making your head spin off your shoulders yet still without grasping it.)

Now, perhaps you didn’t understand or figure int things when you purchased your home that the interest rate you got when you first borrowed the money was subject to change, meaning, bound to increase. And increase it did. Now, however, you and millions of other homeowners are in trouble, because as the interest rates went up, it forced your monthly mortgage payment up, too. In fact, up so high that perhaps it put you out of the ballpark for easily making your house payments. Remember, you were hard-pressed to get the loan in the first place, but the mortgage company liked you so they gave you the loan in spite of your credit appearance.

Month after month you struggled to make the payments, but eventually you fell behind. Your only hope to get out from those monthly payments and to not ruin your credit was to try to sell the house at a reduced price. But it wasn’t as easy as just selling, because there were so many homes on the market, allowing a buyer to be very selective and pick and choose from what’s out there. Perhaps, you started getting nasty letters from the bank or other mortgage institution where your loan was held. Before you knew it, your house was in foreclosure.

Now, this doesn’t only happen to you as a homeowner, although, of course, you feel the major brunt of the situation. You thought your home was going to be your nest egg to supplement your stock portfolio, an appreciating asset you were able to enjoy by living in it at the same time as it was increasing in value.

But now there’s a glut of re-sale homes on the market. This affects the new home construction business, because people now have the choice of a new home with all the work involved (lawns, landscaping, putting in a pool, etc.) or a home in which someone has already done the work, both inside and out. So the building of homes becomes a hurting business.

If people are losing their homes, they are certainly not running down to Home Depot to repair and renovate those houses. So retail starts to hurt in terms of businesses that have something to do with housing in any way, shape, or form. If people can’t make their mortgage payments, they are usually hurting in other financial ways and stop spending money in other retail arenas. This is one of the results of the sub-prime mortgage debacle: it has affected so many other areas as well.

Rents go up in apartments and rental units because people who have lost their homes need a place to live and are willing to pay higher rent to do so. The entire economy suffers in one way or another; it’s all tied together. And the ripples in one area can become tsunamis in another.

So what’s an investor to do? Well, first of all, if you are looking to buy a home for the first time, make sure you qualify for your loan easily and comfortably, and make sure you find out what would happen on a monthly payment basis if the interest rates went up on the loan. If you’re already in your home and if the payments aren’t too severe for you, count your blessings and look for other ways to invest for your future. This is not the time to sell a home unless you absolutely have to. Wait until the cycle is more in your favor, which it inevitably will be, perhaps in a year or two.

Be it ever so humble, there is no place like home. Make sure yours remains an asset and not a liability in your overall portfolio of investments.

Close Your Eyes and Jump!

This year, 2008, has not been a stellar year for stocks so far, has it? I am looking at stocks down 20 or 30 percent for the year … which only equates to one month!

In fact, statistics are indicating this may be the worst beginning for the stock market in decades and decades. Not what we wanted to hear, is it?

What to do? With all the uncertainty spiraling around our heads — an election year, economic downturn, global turmoil, national infrastructure disasters — how are we to make money in this market?

And since the Federal Reserve continues to lower interest rates to an ever-depressing 3 percent or less, we can’t even use the strategy of putting money into a short-term CD until “everything blows over.” Three percent interest will hardly keep up with the cost of living (although, keep in mind it’s always better than losing money, which definitely won’t keep up).

My advice is to treat this kind of situation as a great learning opportunity and a great test of your courage. Because I’m going to ask you to do something that might at first seem counterintuitive to what you believe you should do. I’m going to ask you to do your research, pick a few good stocks, and then, as they say in the bungee jumping business, “Close your eyes and jump!” In other words, buy. Buy now when sell-offs happen every day on Wall Street. Buy now when it’s a buyer’s market, when the stocks you drooled over last year were too expensive, so you walked away from them. Well, now they’re “on sale,” and you have an extraordinary opportunity to do the wisest thing on Wall Street: buy low and sell high.

If you’re breaking into a cold sweat at the mere thought of buying a stock in this market, let me encourage you. If you do your research as you’ve been coached to do in dozens of previous The Savvy Gal articles, and if by doing this research you are coming up with two or three stocks whose statistics look really good for the coming year but still have been shaved price-wise, if you like these stocks but are just unsure about the surrounding market, then go ahead and buy. Nibble. You don’t have to buy full positions all at once. After all, they still may correct and come down even lower in price. But stick your toe in. Get the feeling of buying when everyone else is selling; see how it registers in your soul.

(It’s not so bad, is it? Kind of makes you feel like a maverick.)

The great analogy for women for this kind of action is the wonderful dress you fell in love with at Nordstrom a month ago. You wanted to buy it, but you just couldn’t justify the price tag, so you walked away. You knew someone else would wind up with it and be adorable in it, but that’s life. You’re a big girl. You can deal with it. Now you go back to the same department, and the dress (in your size) is still there! There is a God! But wait, there’s an even greater blessing: the dress is now half the price!

If you were even for a second thinking of buying it before, now that it’s reduced by 50 percent, of course you should buy it. It’s the same dress; nothing has changed about it at all. It’s just that supply and demand — the great arbiter of economic equality — has rendered your dress discounted.

Why wouldn’t you buy it at the reduced price? Given the fact that nothing else has changed (no incendiary material was discovered, the dressmaker still remains one of the top in the field) except the price, you’d actually be a fool not to take advantage of the sale. (This is what I tell my husband … I say I actually saved him money by buying it on sale. Then, while he’s scratching his head trying to figure that out, I hang the dress in my closet.)

With the purchase of a stock on sale, the added benefit is the expectation of the stock price increasing during the weeks and months ahead, and when you do decide to sell it, you can make a nice profit, which is, of course, the name of the game in investing.

Profit. However you can eke it out, do it. If it means buying when others are selling, make sure you know what you’re buying and why. If it means selling before everyone else starts to do so, not getting greedy, do it. A profit is always better than a loss, so always make sure you aim for being in the black.

In this kind of volatile and ugly market, being wise is always a good thing, but it doesn’t mean you always have to stand on the sidelines and do nothing. You just have to be wiser about the stocks you’re hanging in your closet!

A Year of Investing

It’s the end of one investment year, the beginning of another. Every year, the same questions always come up to me: How do I position myself as smartly as possible for the coming year? What steps do I need to take to reapportion my stock portfolio so as to maximize what the next, new year has in store (as far as anyone can intelligently predict, that is)?

So let’s do this today: if you have a list of the stocks in your portfolio (and hopefully you keep some kind of spreadsheet record of them), get the list out and use it to check against what I’m going to tell you in this article.

First of all, how many stocks do you own in this portfolio? This is a basic question to ask each year, as sometimes we find ourselves adding to the portfolio and not selling off anything, which leads to us becoming so encumbered by the number of stocks to keep track of. My recommendation is for you to have no more than ten stocks in your portfolio, and perhaps five or six would be even more manageable if time and attention is a problem for you.

Secondly, if you have too many stocks, which one(s) do you sell off at the beginning of a new year? My recommendation is for you to make a list of the well-performing stocks from the previous year. If you are in profits, how long have you owned the stock? Would you be subject to short-term or long-term capital gains on the profit? (Keep in mind that for most of us, the tax consequences of profit in one stock are not very significant, so don’t let taxes be the sole basis of your decision as to whether or not to keep a stock in your portfolio.) However, I like to include this information about tax consequences because I know there are people out there reading this who do want to take into consideration whether or not profit in a stock sale would increase their taxes for the previous year.

Another reason to sell off a stock or stocks that actually made money is, after doing some good, basic research, you have discovered the fundamentals of the company (or its sector or the environment) have changed. In this case, there is a strong possibility the stock will not do as well in the new year as it has in the past. Keeping profitable stocks is never a foolish thing to do when you have a winner in your portfolio. But beware! Don’t track a stock after you sell it (and have made good money on it), it might lead to despair; if the stock continues to rise, you may find yourself wishing you had kept it. Don’t do this! Move on once you sell it, whether it goes up or down.

You might sell just because you want to keep your portfolio more fluid, not settling in with certain stocks for the long haul. The days of buying and holding the stocks forever are gone. You are not married to anything you own in your portfolio, and it is solely up to you when you decide to sell. The end of a year is a good time to do this; like a New Year’s resolution, it starts you off with a clean slate for the future.

Now the flip side of the profit coin is that you may decide to sell a poor-performing stock from the year. This is called “cutting your losses.” If the research you do indicates there is no reason for the stock or its company to do any better in the coming year, then why hold on to it? It was a “mistake” to buy it — so sell it. No use crying over stock losers. This only breeds defeat and discouragement. Instead, look at it as cleaning house, throwing away what doesn’t work for you and putting into your portfolio a stock that could be a big winner in the coming year.

If you’re like me, you might like to track the performance of your stock portfolio in the coming year. In order to do this, capture the value of the portfolio as of the close of the stock market on the last day of the year, put it somewhere into the spreadsheet, and then you can see how your stocks perform during the new year.

Remember if you add new money during the new year to this portfolio, it will distort the percentage of profit or loss. So when you do the math on this, remember to subtract the new money amounts you put in.

Starting fresh is always good, whether it’s with a stock portfolio or anything else for the new year. I hope this will give you some incentive to make 2008 a year of investment know-how for you.

Retirement Realities

If you have a retirement account, a 401k or IRA, you might be wondering what the best way to invest within its confines is for you. Afterall, how financially sound you are with the investment contained in your retirement account will mean the difference between a good retirement, a bad one or none at all.

Unfortunately there are many people who, as they approach retirement age, find they are unable to retire and do something wonderful with the rest of their lives because they weren’t prudent and didn’t pay attention to their retirement accounts when they were in their 30s, 40s, and 50s.

So if you’re reading this and concerned about the topic, you’re ahead of the game, because your interest means you want to do something about the money you are putting aside toward your retirement.

In general terms, there are several key retirement vehicles. Let’s look at the most common ones so you can get a general idea which one would be your preference, and then you can do more research or talk to some experts to get more information.

Individual IRAs (Individual Retirement Accounts): These are for individuals (hence the name) and can be opened at banks or brokerage firms. Federal laws regulate the amounts you can deposit each year into these accounts; as of this writing, the amount is $4,000 per year. This law seems to be firmly in place until 2010, but who knows? Make sure you check on the amount you can deposit, and then do your best to maximize the IRA by putting in as much as you can in any given year.

401ks, 403bs: These are retirement vehicles for employees at larger organizations. The benefit of these retirement accounts is that the employer usually makes matching deposits into the account. You administer it yourself if you want, you can have automatic deductions from your paycheck so you won’t even see the amount being taken out, and the retirement account grows and grows until you’re retirement age.

Keogh’s, SEP IRAs, and SIMPLEs: These are designed for the self-employed or small business owner, since the 401k’s and 403b’s of larger companies are too complicated (and costly) for you if you fit into the self-employed or small business owner category. The government created these vehicles for you to have the same retirement potential as your counterpart in big business. They are in essence personal pension plans you set up yourself with the proper organization: a bank, a brokerage firm.

What sets these retirement accounts apart from the IRAs and big business accounts is the fact you can put rather large amounts of money into them each year: between $6,000 and $30,000 a year. (I see a smile on your face, as you contemplate being able to put $30,000 into your retirement account in 2008: “Yeah, right,” you’re saying. But at least you CAN do it if you can. And that’s something!)

What are some of the benefits of opening up at least one of these retirement accounts as soon as possible?

First of all, your money grows tax-deferred, meaning no matter how good of a job you do of managing it and how much it grows, you will not have tax consequences until you’re retired, when those tax consequences should be much lower. This is in opposition to a regular brokerage account, where your tax consequences can be formidable for gains you make during any given year.

Secondly, a retirement account can be a forced savings plan, if you have automatic deductions go directly from your paycheck to your account. It’s money you never see, so hopefully you won’t miss it.

Thirdly, your taxable income is reduced by the amount you put into your retirement account, a factor that always helps when it comes to doing your yearly tax returns.

And lastly, your retirement account can experience tax-deferred growth, meaning a pure growth plan not hampered by taxable consequences.

Setting up the account; diversify

Now, I’m assuming you have set up a retirement account in the first place, either at a bank or at a brokerage firm (if not at your employer). It’s very easy to do if you need to take this first step: just go to the locale of your choice and talk to someone in new accounts or (if it’s going to be an online brokerage account), go to the brokerage firm’s Web site and follow instructions for opening up any kind of account, paying attention to the retirement information.

Once the account is set up, diversify your investments. One of the saddest things to have happened in recent years to people with retirement accounts is they have “put all their eggs in one basket,” meaning stuffing their retirement investments with shares of the company where they are employed. This is great if your company has tremendous growth and the stock goes higher and higher. In years’ past, for example, companies like Microsoft and Google have made millionaires of retirees who kept buying shares of those companies’ stocks to fund their retirement accounts.
However, on the opposite end of the spectrum, there’s the Enron debacle, where employees were wiped out completely and lost their entire retirement portfolio because they were so heavily invested in the company, which ultimately went belly up and sent the company officers to jail and early deaths. So make sure — even if you work for what you think is the best company in the world — that you diversify your retirement portfolio.

So, this is the time, by the way, to be a bit more aggressive in your investments within this account, since there are no tax consequences — in terms of capital gains taxes. Even if the investments in this account do fantastically well, you do not have to pay taxes on the profits until you start withdrawing money from the account, many years down the road, when your tax bracket will probably be lower than what it is now.

Of course, being more aggressive in a retirement account means you will have downturns in your portfolio. Relax! The ups and downs of the market should not impact you, because statistics are in your favor: over the years, even decades, the route of the U.S. stock market is decidedly northward and upward! Your philosophy concerning your retirement account must be this: I’m in it for the long haul; I’m picking equities and investment pieces that should, over the years, go upward rather than downward, I’ve done my homework, my research, so I’m going to sit back and let this money work for itself.

Can’t do it? It makes you too nervous, it deprives you of sleep at night? You keep seeing yourself as a bag lady on the street, you know, one of those women pushing shopping carts stacked with green trash bags filled with who knows what?

Then think about this instead: if you don’t do something about your retirement investment situation, you will be sorry. Don’t count on Social Security, don’t look to a man to rescue you from your future, or your parents, your company or your stockbroker. It’s up to you to monitor your retirement funding and where it’s working for you. Remember the mantra we have spoken over and over in this column: No one cares about your money like you do.

I have seen people – men and women alike – become paralyzed with their investments, particularly in their retirement accounts, and do nothing, to the detriment of their funding for their future. Like a deer caught in the headlights, they do nothing because they don’t know where to make the right moves, and by doing nothing, they watch as their plans to move to Florida go away with the downturns of the market.

You have to do some work on this to make it work for you in the future. All in all, a retirement is something you really should have. You owe it to yourself to give yourself the best possible retirement you can, and this will mean an amount of money saved during the years that you can live on until you die.

It’s not difficult to set up, so why not make the beginning of 2008 the time when you set your mind to this task and get it done? You will be the envy of your friends who have not taken on this job, with security written all over your mug. (And yes, a little gloating is allowed.)

After all, you’re a savvy gal who has assured herself of a future that is safe and secure.

So, until next time, happy and profitable investing.

Savings Plans for Holiday Spending

It’s mid-November, and I know what you’re doing: you’re often thinking about Christmas presents, their cost, how you are going to pay for them and how much credit card debt you willing to undertake to make everyone in your gift exchange list happy.

Am I right?

If the Christmas and/or Hanukkah season sends you into depression and fear and trembling, take heart, because there is a solution: a savings plan.

You can create a savings account, which is designated for your holiday spending, and you can put money into it every month, starting in January, toward the next Christmas. You can determine the amount of money you want to deposit every month to give you a decided-upon total, and you can even have it set up to be deducted from your checking account or paycheck automatically so you don’t even have to give it another thought once it’s up and running.

Then, when you’re ready to hit the malls and Internet, the money is there to pay for your expenditures, thus rendering Christmas the enjoyable time of year that it’s supposed to be rather than striking terror.

And rather than putting you into credit card debt that you can’t pay off until the next holiday season comes and goes … and sometimes not even then, you should be free and clear to start saving for the following Christmas (assuming you stay within the budgeted amount.)

Interestingly enough, there hasn’t been a lot of hooplah about Christmas savings plans in recent years here in the United States, although about three decades ago, they were very much in favor. (As credit card debt has increased, maybe Mastercard and Visa put pressure on these savings plans and their institutions to disband them so people are forced to use their credit cards instead? Is there a conspiracy theory brewing here? Probably not …)

I don’t know exactly why they fell out of favor here in the U.S.; maybe financial institutions didn’t see enough profit in allowing people to open savings accounts with such a low balance to begin with. After all, if you’re investing, say, $100/month into your Christmas club, it’s quite a while before there’s enough of a balance to make it worth the bank’s while to do the required paperwork and handling of such an account. Maybe it just wasn’t worth the trouble.

Another important facet of the old Christmas clubs, as they were called by financial institutions, was that they didn’t pay interest. Starting December 1 for the following year, you could begin putting in your money and then making a deposit every month thereafter until some time in November, when you were paid whatever amount you had put in … and not a penny more. No interest was accrued to your account. After all, the bank was supposedly doing you a big favor by allowing you to keep this money separate for Christmas spending so that you wouldn’t spend it elsewhere and then have to run out and use those darned credit cards. Thanks a lot, Big Banking!

Today, however, there are financial institutions where you can set up a Christmas savings plan and be paid interest on the money you deposit each month, with no service charge for the amount being fairly low to begin with.

So here’s how to start a Christmas club of your own: first identify the financial institution where you’re going to open the account. Once you have ascertained that you will collect interest but not be charged a service charge (perhaps this smaller account can be tied into your other bank accounts as the “freebie” you’re needing and asking for), open the account. Make sure you open it by December of this year for saving toward Christmas of next year, because you’re going to need to withdraw the money some time next November.

Sit down with your Christmas gift list and figure out a ballpark amount that you will need to spend to make everyone — including yourself — happy. Be realistic. Work within a budget to allow you to participate happily in the holidays but won’t break your back financially. Once you have decided on this amount, divide it by 12. This is the amount you must deposit every month for 12 months. If it helps you, have it automatically deducted from your checking account or paycheck so you don’t accidentally spend it elsewhere.

I think you will be so excited when you go to the bank some time in November of 2008 and have a check handed to you that it will allow you the joy of spending on others for the holidays! Try it! I believe you’ll have a new interpretation of “Joy to the World.”

Savings Plans for Holiday Spending

It’s mid-November, and I know what you’re doing: you’re often thinking about Christmas presents, their cost, how you are going to pay for them and how much credit card debt you willing to undertake to make everyone in your gift exchange list happy.

Am I right?

If the Christmas and/or Hanukkah season sends you into depression and fear and trembling, take heart, because there is a solution: a savings plan.

You can create a savings account, which is designated for your holiday spending, and you can put money into it every month, starting in January, toward the next Christmas. You can determine the amount of money you want to deposit every month to give you a decided-upon total, and you can even have it set up to be deducted from your checking account or paycheck automatically so you don’t even have to give it another thought once it’s up and running.

Then, when you’re ready to hit the malls and Internet, the money is there to pay for your expenditures, thus rendering Christmas the enjoyable time of year that it’s supposed to be rather than striking terror.

And rather than putting you into credit card debt that you can’t pay off until the next holiday season comes and goes … and sometimes not even then, you should be free and clear to start saving for the following Christmas (assuming you stay within the budgeted amount.)

Interestingly enough, there hasn’t been a lot of hooplah about Christmas savings plans in recent years here in the United States, although about three decades ago, they were very much in favor. (As credit card debt has increased, maybe Mastercard and Visa put pressure on these savings plans and their institutions to disband them so people are forced to use their credit cards instead? Is there a conspiracy theory brewing here? Probably not …)

I don’t know exactly why they fell out of favor here in the U.S.; maybe financial institutions didn’t see enough profit in allowing people to open savings accounts with such a low balance to begin with. After all, if you’re investing, say, $100/month into your Christmas club, it’s quite a while before there’s enough of a balance to make it worth the bank’s while to do the required paperwork and handling of such an account. Maybe it just wasn’t worth the trouble.

Another important facet of the old Christmas clubs, as they were called by financial institutions, was that they didn’t pay interest. Starting December 1 for the following year, you could begin putting in your money and then making a deposit every month thereafter until some time in November, when you were paid whatever amount you had put in … and not a penny more. No interest was accrued to your account. After all, the bank was supposedly doing you a big favor by allowing you to keep this money separate for Christmas spending so that you wouldn’t spend it elsewhere and then have to run out and use those darned credit cards. Thanks a lot, Big Banking!

Today, however, there are financial institutions where you can set up a Christmas savings plan and be paid interest on the money you deposit each month, with no service charge for the amount being fairly low to begin with.

So here’s how to start a Christmas club of your own: first identify the financial institution where you’re going to open the account. Once you have ascertained that you will collect interest but not be charged a service charge (perhaps this smaller account can be tied into your other bank accounts as the “freebie” you’re needing and asking for), open the account. Make sure you open it by December of this year for saving toward Christmas of next year, because you’re going to need to withdraw the money some time next November.

Sit down with your Christmas gift list and figure out a ballpark amount that you will need to spend to make everyone — including yourself — happy. Be realistic. Work within a budget to allow you to participate happily in the holidays but won’t break your back financially. Once you have decided on this amount, divide it by 12. This is the amount you must deposit every month for 12 months. If it helps you, have it automatically deducted from your checking account or paycheck so you don’t accidentally spend it elsewhere.

I think you will be so excited when you go to the bank some time in November of 2008 and have a check handed to you that it will allow you the joy of spending on others for the holidays! Try it! I believe you’ll have a new interpretation of “Joy to the World.”