Saturday, September 13, 2014

Pro Athletes and Their Money

One of the highest paying jobs in America is to be a successful pro athlete. The appetite for sports in our country is insatiable. TV ratings are impressive, especially for NFL games. CBS just premiered its Thursday night NFL game with monster ratings. The money that teams get for airing their games is off the charts. In pro sports, you have millionaire athletes working for billionaire team owners. Sports is entertainment, and entertainers get paid big bucks, whether one is an NFL quarterback, a pop music star or a movie star. Sports are the ultimate reality TV show when you think about it. Millions are watching things unfold live and it's a communal experience. Fans pack the sports bars and living rooms all over the country to experience the thrill of competition.

Athletes take big chances in order to earn the big paychecks. They sacrifice their bodies to earn their glory. Yes they are paid well, but only 1% of college athletes make it to the next level. Even then, their careers are often short, just a handful of years. When the big paychecks stop coming, they must have other career options. 78% of NFL players go bankrupt within 5 years of retirement. For the NBA it's 60%. When one makes a lot of money they often want to show off with expensive homes, cars, jewelry and clothes. Mike Tyson earned $400 million over his career but still ended up broke. Pro athletes sometimes see their money disappear due to corrupt business managers, substance abuse problems, divorce/child support payments, poor investments, legal trouble, and unwise choices in everyday life. What these athletes really need is education on the basics of handling money in order to make it last a lifetime. One thinks of the old adage "A fool and his money are soon parted".

The ESPN series 30 for 30 did a program about athletes and their money. Many prominent athletes are profiled and they talk about how easy it is to get confortable with a lavish lifestyle and waste the money over time. Watch it here.

Sunday, August 24, 2014

Better Returns than Google and Apple? Yep.

In the past 15 years, we have experienced unprecedented growth in the tech industry. Many have invested in the stocks of the companies that make software, hardware and cutting edge websites. Google (GOOG) and Apple (AAPL) have been all-stars for investors, providing staggering returns over the past few years. But, some stocks offer even better returns. Over the past 5 years, Under Armour (UA) is up over 1,000%! Biogen (BIIB) and Pioneer (PXD) are up over 600% in the past 5 years. Constellation (STZ) is up 500% in five years. Read the full article here.

Saturday, July 19, 2014

It's Not about What You Make, It's about How You Handle it

Saving little by little over time and frugal spending habits can lead to a comfortable retirement. You don't need to make millions to have a secure retirement nest egg. The following link tells the story of a miltary couple and a grocery store worker who made all the right moves financially that helped them to have a comfortable retirement. Neither were making millions per year, they simply made the right choices. Read the article here.

Sunday, July 13, 2014

Choosing a Financial Advisor

Anyone can call themselves a financial advisor. That is a generic term that requires no specific education or certification. Some who are financial advisors will push their clients into products that benefit the customer very little, but they generate a large commission for the consultant. Many annuities and whole life policies fall into this category. Many tasks regarding financial management can be done on your own, utilizing websites where one can buy and sell securities, and obtain advice and information online. But, if one wants to hire a financial expert a good option is to hire a certified financial planner (CFP). Those with the CFP designation must complete certain financial college courses beyond a bachelor's degree, and they must take an oath to act in the interest of the customer, not simply push them into investments that will generate the highest commission. A CFP must pass a rigorous exam and undergo continuing education classes to keep up-to-date on developments in the financial industry. They must have at least 3 years experience as a financial planner. High ethical standards and a thorough background check are required. Honesty and integrity in financial advising has always been an issue, but hiring a CFP is one way to lower your risk of being put into poor investments.

Saturday, July 12, 2014

Nothing Ventured, Nothing Gained

Risk is a part of investing. But, you can control your amount of risk. If you are afraid of taking chances you can still invest, but don't count on a good return on your money. A certificate of deposit or a government treasury bill would be safe, but don't look to get rich off of those. Diversification will help to control your risk. Mutual funds or exchange traded funds are diversified since they are composed of many stocks bundled into one investment vehicle. Consider the Vanguard Total Stock Market ETF (VTI). The year to date total return on this is 7.00%. The 52 week range is between $84 and $103. It is currently at $101 per share. It contains large, mid, small and micro cap stocks. So this is an index fund that offers you a way to invest while controlling risk.

More risk can lead to more potential reward. Buy individual stocks to increase risk and potential return. But, don't put all of your eggs in one basket. Let's say you have $1000 to invest. Is it better to put 100% of your money into one individual stock, or better to split it up five ways and put 20% into different stocks, all in different sectors? It depends on your risk tolerance and also your investing time horizon. You might want to put $200 into a tech stock, $200 into an auto stock, $200 into a health care stock, and the like. Young people and those with more disposable income can afford to risk more and lose more.

Jeremy Siegel is a professor at the University of Pennsylvania's Wharton School of Finance, the premier business school in the US. In his book, "Stocks for the Long Run", he writes about how investing in the stock market over a long period of time is a proven way to build wealth.

Thursday, July 10, 2014

Fight Back against the Big Banks!

Since the housing industry debacle of a few years ago, the banking industry has had a public relations problem. Their reputation has suffered and people are tired of the shenanigans of the powerful bankers who manipulate people. Not all bankers are bad, but those who came up with the sub prime mortgage schemes that almost led to a worldwide financial collapse a few years ago are despicable. Fraudulent mortgages were bundled together to make derivatives that people could bet on. They were called CDOs or collateralized debt obligations. The ratings services like S&P and Moody's were bribed to give them top ratings even though they were poor investments, the equivalent of penny stocks. Learn more about this in the documentary "Inside Job".

Anyway, the best way to fight back against the banks is to not give them your money. When we borrow money and pay interest, we help the banks. Learn to buy things only when you can pay for them one hundred percent. I heard a caller on Dave Ramsey's radio show who paid off $750,000 worth of debt. This was made up of student loans from medical school, a mortgage, credit card debt and more. It took him eight years of sacrificing, but he did it. Now he has zero debt payments of any kind. Imagine the feeling of freedom if you had no house payment, no car payment, no student loans, no credit card debt, etc.

A Penny Saved is a Penny Earned

When it comes to personal finance, little changes can make a big difference. We know that gas prices fluctuate frequently. Let's say that you normally put 10 gallons of gas in your car. And let's say that fuel varies between $3.50 and $3.90 per gallon. Try to always buy gas when it is at a low price. 10 gallons times a $.40 variable leads to a savings of $4.00 every time you get gas. If you fuel up once per week that is $208 saved in a year.

Do you go out to eat? Let's say you get lunch at a fast food restaurant once per week at work and spend $7.00 for each meal. Bring some inexpensive food from home instead, and you save $364 over a year's time.

If you make the above two changes to your budget, you will save $572 in a year's time. At the current stock prices, that money could be used to buy 7 shares of Procter and Gamble (PG) or 6 shares of Apple stock (AAPL).

Making small incremental changes like these over time will aid in building wealth.

Wednesday, July 2, 2014

The Psychology of the Rich

OK, so I'm not a rich guy but I find it fascinating to study the psychology of the rich. What do they do differently than poor people? You might say, that's easy, they make more money. Not necessarily true. It's not about how much you make, it's all about how you handle it. This blog entry is based on an article from Entrepreneur magazine. It listed the 9 habits of rich people. But get this, none of the 9 factors have to do with money. They are all about attitude, priorities and how the rich spend their time. If one wants to be rich, study rich people. It's just like weight loss. Want to be in good shape? Study those who eat right and exercise. Here are the habits of the rich.

1. They are goal oriented, and they write down their goals.

2. They have a to-do list that prioritizes tasks that need to be done.

3. They watch very little TV, especially staying away from reality shows. They use their time wisely, and often watching TV is a waste of time.

4. They read a lot, especially self-improvement books. They always want to get better and push themselves to succeed.

5. They enjoy audiobooks, often listening to them in the car while commuting.

6. At work, they go above and beyond what is required.

7. They seldom play the lottery. The rich know that the lottery is a foolish way to spend money.

8. They take care of their health by watching their diet and exercising. An unhealthy body can stand in the way of being financially successful.

9. They take care of their teeth, often flossing every day. Dental problems can be painful and expensive.

What do these have in common? They all boil down to properly managing finite resources, such as time, money and health.

Information from this article.

Tuesday, June 24, 2014

"The Millionaire Next Door"

What does a rich person look like? What is their lifestyle? From what we see on TV on shows like MTV's "Cribs", they drive outrageous luxury cars by Rolls Royce or Lamborghini, wear expensive Italian suits and live in over-the-top multi-million dollar mansions. That is true for some people, but assuming that all wealthy people live that way is incorrect. They often don't drive luxury cars, they don't always buy $25,000 fancy Rolex watches or have closets full of Armani suits. They have basic credit cards like Visa, Master Card, Sears and JC Penney. They are rich because they are frugal. They stay rich because they are smart with money.

These topics are covered in a book called "The Millionaire Next Door: The Surprising Secrets of America's Wealthy" by Thomas Stanley and William Danko.

There is a phrase that says "The rich get richer and the poor get poorer." This happens since the rich know how to put their money to work for them. They spend time studying personal finance and accounting. They read publications like Forbes magazine and The Wall Street Journal. They know to avoid the pitfalls that lead to financial ruin such as accumulating too much debt. They stay away from wasteful spending like rent-to-own stores, playing the lottery and falling for fraudulent investing schemes. Are there exceptions to the rule? Yes, there are many. Often the rich get greedy and take foolish risks in order to multiply their wealth. Look no further than the likes of Bernie Madoff or the crooked bankers behind the 2008 housing crisis.

Those who have inherited money tend to be show-offs more often, buying expensive possessions, when compared with those who have earned their wealth. Earning something makes you enjoy it rather than having it handed to you with no work involved.

You can't judge a book by its cover. Spotting a truly wealthy person is not as easy as you might think.

Tuesday, June 10, 2014

Apple Stock is Now Much More Affordable

Due to a 7-for-1 stock split, Apple (AAPL) is now under $100 per share. Last Friday it was $645. If you want volatility, this may be a good buy. The beta is 0.74, so it goes up and down frequently. Steve Jobs' innovations like the i-pod, i-pad and i-phone have made Apple the go-to tech company with fiercely loyal followers. The stock has been amazingly successful, rivaled only by another tech stock, Google (GOOG). The 52-week range has been between $55 and $95 per share so one can get in and get out and make a tidy profit, or hold onto it for the long haul. The stock scouter rating on gives this a 10 out of 10. The chart above shows the monumental rise of Apple since 1992, and it is nothing short of amazing. In 2007 it was $100 per share and it has shot up to over $600 since then. A plus for investors is the fact that this stock gives a good dividend too, of 13.16 and a yield of 2%. As of 9/28/13 the total assets are $207 billion and the total liabilities are $83 billion, so the debt load for this company is not too high. Investing in a company that is drowning in debt is not a good move. Looking at the amount of debt compared to assets is a key indicator of whether or not a stock is a good investment. Debt can sabotage monetary success, whether we are talking about a business, or personal finance. Many will be interested in buying this stock at a "bargain" price. At over $600 per share, it was out of reach for many. Google stock is currently $555 per share. Will they follow suit and also exercise a stock split to make their stock more affordable? Information on the implications for Apple shareholders who exercise options can be found here.

Wednesday, June 4, 2014

Millionaire's Top Investing Mistakes

Building wealth is not easy. Make the right decisions and it can be done. The rich make good decisions more than they make bad decisions, but they are not perfect. Unless money is inherited, becoming wealthy is about hard work and researching how to make your money work for you. I contend it is not about having a big salary. Over and over, the rich become poor due to bad decisions. Those with a modest salary can build a significant nest egg if they have discipline and knowledge. CNBC found out the top 5 investing mistakes of millionaires.

1. Failure to diversify. Don't put all of your eggs in one basket. Do this through investing in mutual funds or if you have individual stocks, do not have more than 20% of your investments in one sector. Don't have all tech stocks, or all bank stocks for example.

2. Investing without a plan. Have a plan for your portfolio. Think about your risk tolerance, investing timeline and your goals. Are your investments going toward retirement or are you planning on selling once you make a profit?

3. Making emotional decisions. It's easy to fall into certain investing trends or fads, but the successful investor will adjust the portfolio based on research, not emotions.

4. Failing to review the portfolio on a regular basis. Make a plan to review your investments every so often. If you are investing for the long term, as most do, then reviewing it often is not as important since you can afford to ride out the ups and downs. A short term investor will want to watch the portfolio more closely. A 5% loss can turn into a 25% loss quickly.

5. Focusing too much on the historical returns of investments. The past matters a certain amount, but future performance is what really matters. One cannot invest in past gains, only future gains.

The whole article can be accessed here.