My 2Cents!~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A Newsletter all about Living with Abundance, Ditching Debt and Collecting Cash.
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------------------------------------------------------------------------------------------Janine Bolon, Editor janine@smartcentsinc.com
[NAME] Welcome to MY 2Cents!
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In this issue -- Note from the Editor -- Simple Investments Work Best, by guest writer, Rob Bennet -- Why are You Saving Money? -- Read Along with Me: Book for June, Passion Savings! -- Charity Highlight: Doctors Without Borders -- Reader Question: What are Some Resources to Educate Yourself on Investing? -- WHO WE ARE
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Note from the Editor ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Dear Frugal Friend, This issue of My 2Cents is all about investing and savings. I have had numerous emails and phone calls these past two weeks on this subject to the point that I have called in another self-made millionaire to assist me in the discussion of this fear-laden topic! I am thrilled to introduce you to this issue’s guest writer, Rob Bennet. He is the author of “Passion Savings” and has been highlighted in an article for Payscale.com (along with yours truly) called “Thinking Big: From Middle-Class American to Millionaire!” by Kristina Cowan. Since that article, Rob and I have been working together on our blogs and phone discussions to bring the debt-free lifestyle to our clients. Rob and I share the same opinions on how to become wealthy. We differ only in how we implemented these principles to achieve our respective financial independence. Give his site a visit to learn more about investing, after you read his article “Simple Investments Work Best.” He wrote this article at my request when I had a client email me with an investment strategy that scared me witless. Rob is giving his 2Cents on how to invest when you finally have money sitting in the bank. Just remember, he and I are totally self-taught and you may see stuff you’re not used to reading! My article, “Why are you Saving?” addresses the fear most folks have about investing because of that nasty word, “risk.” There are some pointers for handling the fear of losing money as well as many resources listed in the Reader’s Question this issue to guide you in your education. Wishing you abundance, Janine Simple Investments Work Best, by guest writer Rob Bennet ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Janine asked me to share my thoughts on an investment that involves using borrowed money to buy homes or expensive cars. She was skeptical. I have never heard anything about this investment idea, but I am skeptical too, so skeptical that I do not even want to take the time to learn more about this idea. (Editor’s Note: Rob is referring here to a client of mine who asked about taking the equity in her home and investing it with a company that specializes in such transfers.) It is not for me. I’ll try to explain here why I do not think it should be for you either. Why is it that you are able to earn money on your money by investing it? It is because you are taking risk. An investment choice that contains no risk provides a small return. This is an iron law. There is no reason to put your money in little-known investments except to earn a greater return than you could earn by investing in things on which lots and lots of information is already available. I would not consider this investment unless it promised a greater return than what I can get with investments I already know something about. But, if it did, I would be wary of the risk I was taking on. I would need to study it in great depth before I would be comfortable with it. Why should I agree to devote that time to something I am not sure about when there are appealing asset classes available that are far better known and that are far easier to research? Do you know what pays off big-time for middle-class investors? Spending the time to understand the most ordinary investment classes in depth. I love Ibonds and Treasury Inflation-Protected Securities (TIPS). Both are easy-to-understand investment classes, and both are safe. Neither provides a great return. But TIPS and Ibonds both are a good place for that portion of your portfolio for which you don’t want to take chances. For long-term growth, I like investing in broad U.S. index funds. The one concern I have with this investment today is that stocks are priced high and that limits the return you will likely obtain in the next 10 or 20 years. In the distant long-term, though, an index fund is likely to provide a more-than-solid return. And it’s possible that the return even over 10 or 20 years will not be too bad. Index funds will certainly be a good choice once prices return to moderate levels. Why not spend any time you have to direct to learning about investing to developing an in-depth understanding of how index funds work? If you choose to invest in them now, your in-depth understanding will help you become a true buy-and-hold investor, which is the key to long-term success. If you choose to hold off until prices drop, you can spend your energies preparing for the harvest you will reap when U.S. Stocks are available at appealing prices. Either way your time will be well spent. The key to successful investing is coming to possess an in-depth knowledge of the fundamentals of the investing classes in which you elect to invest. We all only have so much time. Spend your time where it will bring the surest and best reward — learning about investment classes that have stood the test of time. Let me know what you think of Rob’s comments and if you like what he has to say, we’ll ask him to come back for another visit!You can read more of Rob’s wisdom on his site and blog; (http://www.passionsaving.com/the-financial-freedom-blog.html) Why are You Saving Money? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I was attending a wedding of a student of mine and had a group of her family walk over to the table where I was enjoying the bride’s company. As they approached, she commented, “Oh, I know what this is about, Janine. You’re to settle a bet!” You can imagine the nerves I had then. First off, I didn’t want to cause any difficulties for the bride since being married is rarely a simple event to organize, but also, I knew only a few of her family members and I didn’t want to start the evening off by angering anyone! As the man in the lead (I believe he was the bride’s brother) stopped by my chair and the other seven folks clustered around, he asked me point blank, “Janine Bolon? Hi, we need you to settle a bet.” Uh oh, I thought. “How may I be of service?” was what actually came out of my mouth. He then began to state the problem. It seems that there was a bit of conflict in the group about the best way to save money (a.k.a. invest it). Should you keep it in a CD, should you keep it in Bonds, should you save enough to buy rental properties, or should you keep it in a money market fund, etc. Basically, all these questions were excellent, but each individual of the group had their own reasons for supporting each choice. After a six-minute introduction to the problem, who was in favor of which choice and what each person thought my answer would be, the bride’s brother turned to me and says, “So, what do you think? Who is right?” After I put down my fork (the chocolate cake was to die for, and while they were talking I was eating!), I calmly asked, “Why are you saving money?” For a moment I was met with dead silence and then three of the folks around the brother said (almost in unison)”We’re saving money because you said so!” My dear frugal friend, when it comes to saving your money and how it should be handled never take someone’s advice just because they “say so.” I felt like I had really failed these people at the wedding party. They were following the 60/40 principle without thinking about what they were doing. They now have several thousands of dollars saved up and they were arguing about how they were to invest it with family members rather than INVESTIGATING the options available to them. Each person’s needs are different. Each person has a different financial situation as well as risk tolerance. Arguing about the “one” right answer is absurd! There is no “one” correct answer. Each situation calls for a different tactic. Each person will require a slightly different strategy. The point is simply this. No one cares more about your money than you do. Because no one cares as much about your money, you will have to be the one who does the research, collects the data and evaluates the risk. Then, you will have to make a choice. That decision is what most folks dread. Why? They fear failure. Well, guess what? I haven’t met a millionaire yet that received a positive return on every single investment they ever made. You will make mistakes with your money. Accept that fact and you will be much less stressed. Accept the fact that some investments do well while others don’t. The key is to make sure that the money you invest won’t cause you to skip the house payment for three months because the investment return didn’t pan out like you expected. Here are some pointers when it comes to saving money. First and foremost, why are you saving money? Do you want to be so wealthy you can buy an island when you’re 55? Do you want to have your own recording studio? Or do you wish to travel the world? By answering this question first, you’ll be guided on what options you will want to investigate when it comes to making your money work for you. Second, what are the goals you have for the money you are saving? Many of you have short-term and long-term savings accounts. Well, your goals for each account will determine what you do with that cash. It wouldn’t hurt to have a dollar figure allocated to each goal, either. This will give you a benchmark at which to aim. Third, education, education, education. You must teach yourself what is a viable return on the money you wish to invest. Don’t take anyone’s word for something. Check out multiple sources on different funds and avenues. Ask around, but then, after all the data has been collected, make a choice and don’t agonize over it. You’ve done the best that you could at educating yourself. Saving money requires a certain frame of mind that allows you to visualize what you want in the future. You also have to learn to face the fear you have of investing and do it anyway. Educate yourself as much as you can, make a choice and move on. Sometimes you’ll win big and sometimes you won’t, but the point is you’ll be moving forward and you won’t be standing around arguing about what is “right” with your relatives at the next wedding. Read Along with Me: May’s book, “God wants You to be Rich” ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Here we are in the middle of May! How are you doing on the latest book? You can pop by my blog http://themoneymuse.blogspot.com/ to join in the conversation. What did you think about the chapters/subchapters, “Should You Quit Before You’re Fired?” or “Economic Alchemy”? Visit the blog and tell me type up your impressions. Just so you can be prepared for June’s book, you might want to order “Passion Savings”, by Rob Bennet and read along with the rest of the Frugal Friends Network as we move toward wealth together. Charity Highlight: Doctors Without Borders ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Doctors Without Borders is an organization that I have donated to in the past. I have medical friends who volunteer in this organization and I have seen first hand the work from this group. In 2005 this organization was rated as one of the best relief charities, exceeding industry standards and outperforming most charities according to Charity Navigator. The American Institute of Philanthropy also gave them an “A” rating for their incredible work and efficient use of financial resources. Doctors Without Borders/Medecins Sans Frontieres (MSF) was founded in 1971 as the first nongovernmental organization to both provide emergency medical assistance and bear witness publicly to the plight of the people it assists. A private nonprofit association, MSF is an international network with sections in 19 countries. MSF is often one of the first humanitarian organizations to arrive at the scene of an emergency. Its large-scale logistical capacity ensures that MSF emergency teams hit the ground with the specialized medical kits and equipment they need to start saving lives immediately. If you wish more information on this organization then go to: http://www.doctorswithoutborders.org/donate/ Reader Question: ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Hi Janine, My wife and I have enjoyed living the 60/40 principle and learned so much from you and many of the resources from your book "Money, It's Not Just For Rich People." Thank you for helping us to help ourselves become financially independent. I am writing to ask if you could recommend some resources that we can use to educate ourselves on investing (books, magazines, etc.)? Being so unfamiliar with any other types of investments besides 401K and CDs, we would appreciate information on a variety of investment topics. Thank you, MJ, Washington D.C. MJ- Great to hear from you. As for resources on investing the best thing to do is jump into the pool with both feet. This is how Brad and I did it. We subscribed to “Money” magazine and read it cover to cover for two years. That is their cycle on investment topics and it was an excellent way to learn investing from a variety of people. While we were waiting on the magazine to come in we asked Vanguard and Fidelity to send us their new investor’s packets. We called their 1-800 numbers and told them that we were ignoramuses and please help us. That was back in 1992 before many of these companies had stuff on the internet. Today, you may be referred to their web sites where you will be able to download most everything we received in the mail. Lastly, you may want to start reading different blogs on the topic of money. Also, join in the discussion. The point is this: ASK QUESTIONS! If you don't know what something means, ask. Then research. Look up unknown words on Google by typing "define: rollover 401k" and see what pops up. Wikipedia (http://en.wikipedia.org) is as an excellent source for definitions and solid information. You can also go to my blog: (http://themoneymuse.blogspot.com/). I read a book a month and hold discussions on a chapter by chapter basis as we go over basic concepts of money management and investment considerations. When it comes to how to invest your money...you must talk, gather data, read magazines and web sites. No one will have a higher interest in what your money is doing than you. So, don't rely on books. By the time most books are published the advice and strategies are moving in a new direction. Use on-line dictionaries to help you understand terms that are unfamiliar to you. If you can't find what you’re looking for DON'T GIVE UP! Call your accountant or attorney and they can help describe the terms. Always offer to pay for their time on the phone. I hope this gives you some guidance. Just remember you didn't learn to read the English language in a day. It took you steady effort for a period of time. Investing is the same. When it comes to money, you must have data. To get appropriate data you must have a lot of sources. To get sources, you have to research. You see where I'm going with this? Have fun learning about the Money Game, because that is what investing is…a game! Money…It’s Not Just for Rich People! LIVE! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Here is the simple financial system you’ve been waiting for on a 5 CD set! No crazy budgets, no incomprehensible financial jargon, just every day language and easy-to-understand exercises to rocket you out of debt and guide you to a wealth accumulation lifestyle. SmartCents is all about changing people’s mentality from financial scarcity to that of abundance. Usually this is done in a two day seminar where you are given exercises and are shown the flow of money and how to partition your money according to the 60/40 Principle. SmartCents has made this two day seminar available on a 5 CD set. It was recorded live so you can hear questions from the audience as well as get a dose of my wacky humor. You can order your set for only $80 (includes shipping) from: http://www.speakupproductions.com/Money_Live.htm Do You Have a Question or Charity for the Next Newsletter? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ If you've got a question or charity you want me to address in the next newsletter, please send it to janine@smartcentsinc.com with the subject line "Newletter Question/Charity." My 2Cents will feature a question and a charity each issue from the Frugal Friends Network. If you wish to remain anonymous, not a problem! Just state that in your email.
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