Certificates of Deposit. The Best of both worlds

Certificate of Deposits, which are also called “CD’s” are investments products offered by most banks, and credit unions which guarantee your principal, and a steady stream of interest at a predetermined rate based upon how long you keep your money in the CD’s.

All CD’s have maturity dates, at either 3 months, 6 months, or 12 months, depending on how long you are willing to lock in your money for the interest. Obviously, the longer you “lock in” your money into a CD, the higher the interest rate(Example: 3month CD at .50% interest, or 12 month CD at 1.40% interest).

This is beneficial to the banks because of the simple fact that they use your money to fund their operations(They do this for EVERY bank product offered by the way, that’s how banks operate), and in return they give you interest and no risk guarantee on your money, backed by the FDIC.

They are really good investments because they offer little risk, a practical easy way to invest, and can be tailored to your investment time horizon. Most require at least $500.00 to invest into them.

If you need answers about the rates on individual CD’s, or the different techniques you can use to invest with CD’s, you can check out:

http://www.bankrate.com/cd.aspx

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Stocks vs. Stock Funds

I don’t know if i have already covered this in another post but stock funds are a basket of stocks and foreign stocks. Whereas individual stocks are exactly how they sound. Individual shares of an company.

Stock funds are great for long term growth. It has a somewhat “set it and forget it’ type attribute to it. Beware though, just because you can, “set it and forget it” doesn’t mean you should, actually you should not. With stock funds, its best to rotate out of them periodically(not every month of course). So that you can keep an eye on what funds are achieving YOUR goals, and what are poor performers.

One way of doing this is set a limit on how much you are going to contribute to a fund. Say for instance we are investing $2,000 in the Vanguard Star Fund. put $5,000 as your limit in the fund. Once it get to $5,000, use the gains that you received from the first fund and put them into another fund.

Often times i see people just buy mutual funds that have no personal purpose except for diversification. Each fund should have a purpose, and should be used according to that purpose you have set forth financially.

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The market as it stands now(Yes i am back!)

I am finally back after a long hiatus. For a little background info, i am finishing my last semester in school and i am absolutely thrilled it will be over once and for all. Now that i have that out of the way, lets take a look at how the markets are performing.

Up, down, down, up (oops, its down again), down, down… you get the idea.

The best advice from a personal perspective i can give any investor is to possibly consider temporarily switching to high yield corporate bond funds, and good old fashioned money market accounts. Money market accounts? Say what? Yeah i said it. I know that a mattress could possibly earn you more interest but its safe and liquid, and combining them with high yield bond funds that are doing really good could SOMEWHAT limit the up and down effect of the market.

I know the conventional school of thought is to stay with equities, even through the up and down bounce its doing, but i think it would be better to be somewhat balanced in putting money into high yield bond funds(the money you want to invest), then slowly dollar cost average your way back into equities as the market goes through its bi-polar faze. That’s what i am thinking about doing…

And yes.. I am back… No worries 🙂

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Athlete Money. Riches or Bust?

It is very common for the average athlete, a bench warmer even to make more than a doctor or lawyer. I am not writing this to berate the system’s of rewarding of entertainers salaries more than those that save lives. What i am writing about is the problem we see with athlete’s coming into the major leagues(NFL, NBA,MLB etc) with no type of financial savvy, or financial advisers. Most of these guys get up front bonus for just joining these teams. Most are in the millions. Some of these guys come from low or middle income backgrounds and have no experience dealing with that kind of money. They usually go out and buy brand new phantoms, and Maserati’s, and Lamborghini’s and do not even think about their future.

Even though, i don’t think any high profile sports figures read this particular blog, the following ways are the best way to preserve your new found wealth so that it will last you throughout your career. Since most professional athlete’s have short careers(in the sense that they don’t work more than 20 years) its important that you use the time and income you have now to grow your money overtime. Here are the following steps and advice:

1.Get a reputable financial adviser(Cousin Carl, and Auntie Ray won’t cut it)

2.The upfront money you receive, put it in a short term CD until you get your ducks in a row(call adviser, get a tax attorney, etc)

3. One you have an adviser, tell them your risk tolerance, and they will take it over from there.

4. If you must spend your new money take 10% out of it, give the rest to the adviser firm, and use that 10% and buy what you want.

To address credit cards: If you have millions in the bank, there is NO legitimate reason to get an credit card. Live off cash. If you can not afford it with cash then wait until you have the money to buy it.

Just my two cents….

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Building a Portfolio..

I know it sounds kinda bland, but if you want to see real growth in your investments, you have to build a good portfolio that grows your money and protects it from unnecessary risk at the same time. In my opinion, you can’t just build an all stock portfolio, sit back, and wait for it to bring in good interest on your principal. First of all, building an all stock portfolio is NEVER a good idea. If you want an high risk portfolio(collection of investment vehicles) then go for it. Just don’t be too surprised if your portfolio is bouncing around like a rubber ball in a padded room. From what i have experinced, if you want a successful portfolio you have to ask yourself these questions:

1. What am i investing for?

2. What is the time horizon for my goal?

3. How much risk am i willing to take on?

4. How much trading am i going to do? (Implement a buy and hold strategy, or trade in/out of funds when there are gains)?

5.Is the risk worth the growth of my capital?

Once you ask yourself these questions you can can successfully build a portfolio, that is tailored to your situation, and one that most likely will help you achieve what ever goal you set forth.

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Dollar Cost Averaging your way up!

Dollar Cost Averaging also Called DCA is a really good way to protect yourself from violent shifts in market direction(up or down suddenly). DCA involves basically buying a fixed number of shares over the long term in certain amounts. For example, say for instance stock (A) cost 10.00 per share. You put 50.00 dollars a month towards buying stock (A). As the share price goes up you scale back(a little) on how much you contribute to buying Stock (A) which is 10.00 per share. If the share price goes down from 10.00 to say 5.00 per share you buy more. You buy more shares(at a fixed amount) because you know that what comes down, will eventually go back up again.

When it goes back up, the value of the shares will be worth more in the long run. In laymen terms, buy low, but keep buying at a fixed amount no matter if the market is up or down. That way you keep your losses at a minimal if markets fall, and you have more in value if the markets rise.

Most people try to time the market(pull out all money when market falls, put in money when market rises) which can actually hurt you because no one knows when the market is going to go back up and you run the risk of not getting all of the returns that happen when the market rises.

Its definitely not hard to do, all it takes is a little discipline and asset allocation to make it happen!!

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