It’s time to sell your losing stocks held in taxable accounts

Pen finance chartMost people saw nice returns this year if they stayed with their portfolio that lost heavily last year. However, you may still have some losers within your portfolio that you should now sell in order to take advantage of losses to offset capital gains. For example, let’s say within your portfolio of 10 different company stocks, you had 8 winners which posted gains, while the other 2 may lost money. If you sell those losers now, you can take those losses against your capital gains for the year, thus decreasing your tax liability. You can deduct up to $3,000 if married or $1,500 if filing separately and or individually. Anything over and above that loss threshold you can carry over and claim on your subsequent year’s taxes.

It doesn’t make sense to do this for just any losing stock, especially if you feel the investment is a good one. Truly, you only want to do this if your quite certain the investment was a bad one.

Not to mention, current capital gains rates are at 15%, it’s certainly possible with the new administration that these rates will increase over the next several years, thus enabling you to take excess losses against gains over the next few years.

Making sense of a companies’ P/E ratios is easier than you think

financeJeremy Siegel, Ph.D, wrote over on Yahoo finance yesterday “What’s the Stock Market Worth Now?” In the article, he takes a look at a well known financial ratio, the P/E (P-E) or Price to Earnings ratio. He surmises that their is still great upside potential to the market as P/E ratios are historically low.  He also does a fairly good job explaining the difference between operating earnings and GAAP reported earnings and explains which number is more meaningful to look at ( I won’t get into this discussion as the difference in the two numbers on average is minimal). As mentioned, he looks at how current P-E levels relate to historical levels and provides insight as to what he thinks this will mean to the markets in the short and long term. Below, I will do my best job to explain what P/E ratios should mean to you and provide an example of how to evaluate them.

First, let’s discuss P-E ratios. It’s really quite simple, this ratio looks at the price of the stock compared to how much they’re earning. What does this tell you? By itself, very little. But if you compare a P-E of one company to it’s peers and or the industry and to historical levels, you can get a better idea if the stock price is over or under valued and how much people are paying for the earnings.

“Over the past century, stocks have been valued, on average, at about 15 times annual earnings, a number called the price-earnings ratio, or P-E ratio. This implies that annual earnings on stocks have averaged 1/15, or 6.7 percent of the stock’s price. Another way of looking at this is that the average dollar invested in the stock market has earned 6.7 percent, which is called the earnings yield and is the reciprocal of the P-E ratio. Since earnings derive from real assets (factories, inventories, copyrights, etc.), the earnings yield represents the average real return to stock investors. This is why lower P-E ratios imply higher earnings yields and better returns for investors.”

The Price to Earnings (P/E) Ratio is an indicator of a company’s expected growth in earnings.  The P/E Ratio is calculated by dividing the most recent close price of a stock by its most recent reported Earnings Per Share (EPS) value. There are many different variations of the P/E calculation though – some use projected earnings to calculate a “forward” looking price to earnings, while others may use a trailing or past average of earnings to calculate the P/E ratio.

Investopedia explains Price-Earnings Ratio – P/E Ratio
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn’t tell us the whole story by itself. It’s usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company’s own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.

The P/E is sometimes referred to as the “multiple”, because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of  current earnings.

It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.

Let’s evaluate Wal-mart and its competitors for an example.

pe ratios

In the above example, the p/e ratio looks at the price of the stock compared to its previous 12 months of earnings reports averaged.

So, people purchasing Wal-Mart stock are willing to pay about $15.81 per $1 of earnings. Compare that to Amazon, where people are paying $78.41 per $1 of earnings. What does this tell you? What’s the better buy according to their P/E ratios?

At first glance, you may be inclined to think that Wal-Mart is the much better deal. Heck, it costs nearly $60 less to earn the same $1. So why is Amazon so high? That’s the problem with using only one ratio – it doesn’t tell the entire picture. The truth is, speculation on future earnings of Amazon is showing that people expect their earnings to increase in the future, while Walmart may not be slated to grow as fast. So, it’s important to consider future earning potential when evaluating the current p/e ratio of a particular company or industry. After weighing the future predicted earnings against the past, you can determine which stock is the better value. Do you want to go with a potentially less risky/less rewarding stable stock such as Walmart – or with a stock such as Amazon that may be priced a bit high – but has the potential to really do well. This is a question only you can answer.

Are you a saver or a spender? Why should you care?

savings ratesRecognizing your bad habits will help you on the road to better understand how to correct them. The problem is, most people don’t even see a problem to begin with. The fact is, most people under 30 or 40 are spenders, and have pushed saving aside for the latest TV, iPhone, shoes, purse, clothes, car, or whatever the latest trend may be. To their credit, this may not be their fault, consumerism and advertisers have done their job and created a need when there really wasn’t one. It’s only the consumers fault when they recognize what they’re doing, and don’t change their habits.

So, are you a saver or a spender? Do you even have a savings account? Do you look at your checking account as a spending account? Most people look at their checking account balance as how much they have left to spend, and they shouldn’t. You must set aside money separately to build a savings and investment nest egg for your future. It makes sense to setup a savings account separately, and most companies with direct deposit allow you the ability to have a portion deposited to savings and the other to your checking (this way you don’t even miss it).

The point in writing this article is awareness, to make you aware that you’re probably a spender, not a saver. If you’re questioning what constitutes being a saver or spender, wonder no more; A good rule would be that if you’re  not putting aside at least 10% of your income into saving, you’re a spender.

As shown in the graph above, at one time not long ago (20 years ago we had household savings around 7-8% in the US) we were closer to a nation of savers instead of spenders, and if you look back 20 years before that, the US savings rate was at or above 10%, see below.

savings rates historicalSo why should you save versus spend? Do you want  to always have to work for money, or would you rather have your money work for you? Most people don’t even understand this concept or way of living, and are forced to always work for their money. Most of the wealthiest people start off in life like you or me, working hard for money. The difference though, they take a small portion of their money and save and invest, earning money on their money, forever and ever, providing an additional income of which they will never have to work for again. You may question “how will I ever be able to save, I can barely meet my bills.” If you’re saying this, you need a budget, and better get started sooner than later – you’re going to be buried in debt before you know it. Even the worst situations can be overcome, with time and patience and understanding. But don’t delay, get started now with the help of this site or something similar.

Now that you are aware, maybe you should consider making the choice to put something aside every paycheck, and become a saver.

Your retirement or your kids college?

college or retirementSo, you’ve come to the point in time where you’re debating whether you should save for your own retirement or divert those investments to the future well being of your children. The truth is, research has shown nearly 15% of investors with children under 18, choose to invest in their children over themselves. Is this the right move or not? The answer may surprise you.

How will your kids be able to afford college if you don’t do something for them now? Will they hate you if you don’t do anything for them? Is it your responsibility to do something for them, and forget about your needs? Below, I will walk through the reasons you should consider holding off investing in your child’s education, and instead focus on your own retirement needs.

Too many people allow their emotions to control their mind, and they make poor financial decisions as a result. Just because you think and or know it’s your responsibility to fund your kids educational needs, doesn’t mean you have to do it now, and at the sacrifice of your retirement.

There are alternative means to help them down the road, instead of investing the little you can on them now, you should be putting that aside for your own retirement. Case in point, your kids can take out loans (and or you can take out parental loans on behalf of your child to pay for their education), but you can’t take out a loan to fund your retirement.

Parents should first focus on building their own nest egg, only when they feel comfortable that their needs for retirement have been met should they move to funding educational accounts for their children, such as 529 plans, or Coverdell Savings Accounts. It’s not that you don’t care about them, it’s the smarter financial decision.

A better idea would be to take the opportunity to fund these investments for them instead of buying them toys or other crap for birthday gifts or Christmas or other holidays.

Just because something seems like the best thing to do, it doesn’t mean it always is – you must weight the pros and cons and determine what is the best possible financial decision you can make – and stick to it.

Financial planning advice in your 40s

40_year_oldWe’re going to make the assumption that you’ve been investing now for some time, maybe not too long though. Now is a great time to reevaluate where your portfolio stands, and think about reallocating assets to somewhat less risky choices. Our rule of thumb is 120 less your current age, should be your stock to bond ratio. So Say you’re 45, that would mean take 120-45 = 75. You should be at around 75% stocks now, with 25% in less risky money market accounts and or bonds. Granted, that’s somewhat aggressive, if you want to be conservative, use a factor of 100 instead of 120 (100-45=55%) and your mix would be 55% stock, 45% bonds. So, by now, your asset mix should be some where between 55%-75% stocks. You’re probably saying that’s a huge swing, which is true, but the more aggressive path should be used by those trying to make up more ground, while the conservatives would be those who started investing earlier and their interest is in preserving capital, not necessarily being risky to accumulate more.

Good financial planning advice in your 40s is to not panic, remember that you still have around 20-30 years to reorient your finances and optimize your retirement fund. If retirement saving has not been topmost on your agenda till now you need to consider maximizing your contributions to the top limits on any 401k or IRAs that you do have, and consider pumping up as much as possible with the catch-up contributions.

It is good to not rely solely on employer-sponsored pension type plans and buy into at least one private retirement fund plan. Your 40s are the ideal life stage to review and adjust your financial assets or to get going if you’ve procrastinated til now, remember, you still have a bunch of time to make up. Look at the big picture when it comes to your whole financial position. If you have been investing aggressively in the more volatile investments such as stocks and mutual funds then now is the time to move toward consolidation. Scale back on those stock options to around three quarters of your total assets, and move that cash into saver options such as bonds and or certificates of deposit.

As you enter your 40s, you will probably be at or around the peak of your earning power. You need to review your financial portfolio so the mix of funds can move from growth-oriented investments to wealth consolidation funds, while re balancing your holdings towards those in money market and bond funds. Your late 40s may even be the time to consider buying an annuity for early retirement. Annuities can be a good way to make good a shortfall between your projected income and your life expectancy.

A necessary piece of financial advice in your 40s is to make the best possible ‘guesstimate’ of how long you will live and to set financial goals accordingly if you haven’t done so already. If you want to leave a maximum of assets to the beneficiaries of your estate, then you will require a different investment strategy to a situation where you simply want a good income for the whole of your life and leaving nothing ‘on the table’ when you die. If your best estimate of life expectancy is say 85 and your investments only give a target income to 80 then an annuity can provide the extra five years of income and will cost you less if you buy it in your 40s. Consider a living will too, if you already haven’t done so.

As your retirement approaches, the balance should shift further from wealth consolidation to bonds that yield a regular income stream but without reversing your capital growth rate. You should still hold on to some growth funds in your portfolio to ensure that your assets will be sufficient to see you through the remainder of your retirement in the lifestyle that you want.

Financial planning advice for your 30s

30sGood financial planning advice for your 30s

When you are 30 something you are probably beginning to reap the rewards of your study and hard work with a bigger salary. If you started a retirement fund in your 20s, then good financial planning advice in your 30s is to keep it up. Add to your 401k and IRA accounts with contributions through your 30s. Most experts agree that you should be investing around 10% of earnings by this stage in your life. As important as cash investment is, investment in learning about investment. By proactively learning to control your own investments you can avoid being scammed and save a great deal of money on brokerage fees and financial advisers.

If you are in your 30s and have not yet started to save and invest for your future then the only good financial planning advice is to start NOW! You will have to save more than 10% to make up for lost time. Most Americans change jobs several times over the course of their working lives. Do not waste time and money by allowing periods of non-contribution to your 401k to occur with new employers.

Good financial planning advice in your 30s has the following three aspects in priority order.

* First – pay off any outstanding debts and live within your income. Unsecured debt such as credit card balances that carry over from month to month are very expensive. The interest rate that you pay on debt far exceeds the interest that you earn on savings. So pay it up as soon as you can and avoid it from then on.
* Second – maximize your retirement fund savings in your 401k or IRA. The tax deferment benefits are excellent so time spent without contributing or contributing less than the maximum is like refusing to take free money.
* Third – add to your home equity balance whenever possible. This saves you large amounts of interest on your mortgage.

Most Americans buy their first homes when in their 30s. They also probably see this real estate as an investment that will appreciate in value and contribute to their retirement income when that time comes. For your home to be a good investment you need to think in terms of the equity you have in it. This is the actual amount of money in your home value that is yours and not a mortgage. It is best to minimize your mortgage when you first take it on by maximizing your deposit and paying cash for the set-up and administration costs. A good idea is to then take any salary increase you get and increase your mortgage repayments or continue with repayments at high interest levels even when the interest rate goes down.

Financial planning advice in your 20s

20sSaving now is the best financial planning advice in your 20s.

If you are in the second decade of your life you are just beginning your economically productive period. Your income is at the bottom of its (hopefully) upward curve while your economic needs are at their greatest. Here are four pieces of financial planning advice that, if heeded will enable you to have an effective financial life.

1. Save at least 10% of your income. This is very difficult because the human psyche tends to discount the future. We all seem to feel that having things today is two or three times as valuable as having them in ten years time. But also be aware that there will be lean times in your life and it is up to you to carry some fat over to help you through those times. When you finish working you must have sufficient savings to have the lifestyle of your choice. Save 10% for a minimum standard of lifestyle, 15% for a good standard, 20% for affluent choices. This rule of thumb will work for you only if you start saving for retirement early in your 20s.

2. Live within your means and this includes 10% saving from your current income. It really isn’t optional! Save money to buy the things you want in the short term. They can often be bought for a discount when you negotiate with cash. Avoid getting into debt if at all possible but if it is too late for you, work towards becoming debt free as soon as possible. Invest early and aggressively to get the benefits of compound interest. The only way to survive lean times is to have savings set-up that help you to manage your finances.

3. Time is your greatest asset when you think of financial planning in your 20’s. At this time in 2009 the economy is at the bottom of the business cycle. Looking ahead you can expect a number of booms to be followed by a number of busts. So plan for the worst and hope for the best. Don’t invest at the top of the market and be proactive in converting stocks and higher risk investments to bonds and certificates of deposit before stock market bubbles burst.

4. Unfortunately, you can no longer rely on Social Security to carry you through your retirement years. Investing is not just for people with a large capital sum. Start now and choose safe, long-term investments that put your principal out of reach. This prevents temptation for short term spending. Options to explore are Individual Retirement Accounts that provide valuable tax deferments as well as compounding interest on your investment. Spending temptation can be removed if you go for a 401k. This is a savings plan that automatically deducts from your paycheck and can give you a healthy nest egg later in life.

Best personal finance software for your needs

personalfinancesoftwareWhat does the best personal finance software look like?

The best personal finance software is the one that you use. Most people have access to a computer and many of them come ready to use with personal finance software. But large numbers of people never look at it or look at it with the intention to use it but then revert to previous money management tools.

Personal money management programs are nothing more than tools and as the old adage goes a bad workman always blames his tools while a good workman makes the best of the tools he has on hand. You can have the best personal finance software, such as Quicken Starter edition on your PC but if you don’t use it on a daily basis to track your income and expenses it is useless.

The best personal finance software can make modern financial management easier and less stressful. There are seven things to consider when seeking the best personal finance software that you will use.

* User friendliness and ease of installation. Quicken comes out top of a user survey on this criteria but Moneydance and AceMoney are not significantly less rated.
* Quicken also comes top in the same survey when it comes to banking and bills. It is way ahead of the competition such as Home Bookkeeping or 3click Budget. The best personal finance software has a great online banking section that lets you do all of your banking for multiple accounts.
* Reporting. The best personal finance software gives you cash flow reports, tax reports and net worth reports, so that you can track where your money is at all times. These reports are essential when planning your future. BankTree personal and RichOrPoor to do this as well as any software and often this comes down to personal style preference.
* If you are into personal investing, say with your 401K IRA then Quicken will not be the best personal finance software for you. It focuses on the other criteria and you are well advised to look at Moneydance or AceMoney.
* Tax options are always going to be something you need to be on top of. Quicken is reported by users to be well ahead of the competition in this regard.
* Only the best personal finance software will include financial calculators in the package. While you may only take out a loan every few years or one or two mortgages in your lifetime it is very important to analyze and understand them before committing to them.

In summary, remember that personal finance software can be a great tool but only if you use it.

Financial Planning for retirement

retiredThere are 3 crucial time periods to do financial planning for retirement.

Financial planning for retirement is all about being proactive. Believe me when I say that nobody is as interested in your income in your retirement years as you are.

Financial planning for retirement is all about being proactive in three key periods of time. The first period is right now, this month. The second is the five years immediately before your retirement date. The third key period is the one from your retirement age to your expected date of death.

Now death may not be something you wish to think about but you cannot do remotely accurate financial planning for retirement without a realistic estimate of how many months you will live in retirement. For example if you expect to live until age 80 you need to plan for 20 X 12 months of X dollars of income.

Right now, this month, you need to gather all available data and estimates of income and expenses for each month in your retirement. A good place to start is with your bank statement. Calculate how your bank statement will look for the month you retire. Go through each item and ask yourself if you’ll get this money or be spending that money when 60.

If you have a Roth or 401(k) (employer sponsored) individual retirement account request an income projection statement from the fund manager. This will enable you to fill in the major income part of your ‘retirement bank statement’. If you are not saving money at the present time for your retirement income then you need to start. Find a financial planning company website with a retirement income calculator. This will guide on how much you need to be saving at each age, in order to have your specified retirement income.

It is your judgment whether you have enough savings to achieve your target income for your full retirement period. If not you should consider buying an annuity or increasing your investments or both.

When it comes to the last 5 years of your work life you need to be proactive about consolidating and protecting your savings. Two things to think about are, what stage of the business cycle is the economy in? (The best time to liquidate assets is at or near the Dow-Jones peak valuations). At what time should you convert riskier investments such as stocks to safer, probably lower-earning certificates of deposit and or bonds?

By all means take the advice of a certified financial planner at all stages of your financial planning for retirement but always remember that it is up to you to make it happen with decisions at the crucial times.

Rebuild your credit with Next Millennium

Best Secured Credit CardThe Next Millennium Card is the long awaited and totally sensible missing link between savings and spending. So many Americans have got into trouble with mounting debt because of the cheap credit decade of the ‘noughties’, that it will be a long time before the nation can get back to common sense money management. But the new Next Millennium Card is a great step forward in personal budgeting.

The big problem with credit cards has been the fact that they amount to unsecured loans. The new Next Millennium Card is lending secured on actual savings. So when you buy stuff with your Next Millennium Card you must have the money in an FDIC insured savings account. You can only spend on the card the amount that you have in savings.

NO credit checks, NO turn downs, and secured credit limits can go as high as $5,000.00. Get the Next Millennium Card today.

Because the Next Millennium Card is a secured credit card based on your real assets, your savings there is no credit check involved when you apply for one. Application is a simple process you will only need to have your usual demographic data verified. This means your age, your social security number of course and your home address. All of which will be verified without reference to your repayment track record or FICO score.

The processing fee, payable when you apply for the Next Millennium Card is $93 and so confident are they that you will be approved, that they offer a double refund of this amount in the unlikely event that you fail to gain approval. Look for the details of this ‘double your money back guarantee’ in the terms and conditions on the Next Millennium Card website. There are 5 easy steps to this application process;

* Fill in and submit your application form along with the processing fee.
* Next Millennium Card will confirm receipt of fee and provide documents the saver needs to open the FDIC insured savings account that underpins the repayment of the credit card balance. If, and this is very unlikely, you can not meet all of these conditions, this offer will be withdrawn, and your processing fee will be lost to you. Failing to send your deposit will, of course lead to the application failure. Inaccurate or false information will also mean loss of deposit.
* Once the documents are completed and received along with the funds for the deposit, your age, social security number and residence data will be verified.
* You must open the savings account with the Next Millenium bank with a minimum deposit of $300 ($5000 maximum). If you do not open an account meeting these requirements within 60 days, the offer of credit will be withdrawn and your deposit lost.
* After verification your credit card will be sent to you and you can spend up to the limit of your savings by using the credit card in the usual. If data cannot be verified you will receive a full refund of your savings account and double your processing fee.

Many Americans, overburdened with debt at this time, will find the new secured Next Millennium Card allows them to rebuild their credit score. They and you can have an improved relationship with creditors every time you and they make repayments on time. A 100% credit track record on your account is a pre-requisite to getting control over your finances. Lenders will steadily become more confident in your ability to ask for and receive increased credit limits. With the Next Millennium Card you can increase your credit limits at any time with extra savings deposits.

The Next Millennium Card has a credit limit minimum of $300.00 and a maximum of $5,000.00 per card. These figures are also the initial deposit limits per card. But you control the actual limit by choosing the the amount you deposit in your secured savings account with New Millennium Bank. Your credit limit and your savings balance in your insured savings account are always the same.

The beauty of the next Millenium Card is that it puts you firmly in control of your financial life. This is your money, which you commit to secure repayment of all credit offered to you through this program.

This Secured Credit Card is accepted ANYWHERE MasterCard is accepted! Get it NOW!