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Asset Allocation - A Basic Understanding

December 5th, 2010    Subscribe To Our Feed

Asset allocation is not a matter of owning several stocks or several mutual funds. You need to be holding assets in different sectors of the market. When talking about mutual funds they are generally divided into the sectors of large cap, small cap, international and fixed income. Cap is short for the word capitalization, how much capital a particular company has. A large cap company might for example have $5 billion in capital while a small company may have only $50 million.

You can further divide these sectors into value and growth. Value stocks are ones that are not performing up to par. Maybe there was some bad news about the company that caused the stock price to decrease, but overall the company is believed to be a good company. Generally these are large, well established companies where there is normally not a lot of volatility in the stock price, but are currently selling below their value. Growth stocks on the other hand are expected to be increasing in size at a rapid pace, maybe because of a new product coming on the market or because the company has developed a new technology. This company is expected to get bigger. It is important to note that while one financial analyst may consider a stock a value stock, another financial analyst may consider that same stock a growth stock.

The purpose of asset allocation is to reduce the overall risk of your portfolio while achieving a good rate of return. The point is that you have assets in all sectors all the time. Today and for the next six months it may be that international funds are going to be performing better than usual. Or maybe it will be small cap growth stocks are performing better. Do you know which sector of the market is going to be the “hot” sector for the next several months? By having your investment diversified into the different sectors you are going to have part of your money in that hot sector. No trying to time the market and figure out where the best place to be is next.

How much you put into each sector of the market will vary with the level of risk that you are willing to accept. As a 20-something you might be willing to put 40% into international stocks, which are considered more volatile while as a 70-something you may only put 10% into an international fund. You still need asset allocation at every age. There are numerous programs available that can help you determine the best allocation for someone of your age and risk level. They can be found on the websites of most mutual fund families.

The key to a good asset allocation portfolio is rebalancing. Say for example that large cap growth stocks have done well in the market for the last six months. If your ideal portfolio is 30% large cap, 25% small cap, 30% international and 10% fixed income you may now have 45% large cap since there has been a run-up in these funds. At the same time small cap funds were doing poorly and now only represent 15% of your portfolio. You need to sell some of the large cap fund and buy some of the small cap fund to bring your portfolio back into balance.

What does this cause? It causes you to sell when a fund is high and buy when a fund is low. This is exactly what you need to do to increase the overall rate of return without increasing the risk of your portfolio. Rebalancing can be done as often as quarterly or as little as once a year. Rebalancing your portfolio more than quarterly is not considered advantageous. The goal is to keep your portfolio at the percentages that you determine when you set the portfolio up. Do not get caught up in the fact that a fund is doing really well and thinking that you should not sell it. How will you feel in six months if the fund is under-performing?

Are you unsure of knowing when to sell? Do you not want to be tied to having to remember to rebalance every quarter? Do you not want to incur the tax consequences that may result if you are rebalancing in a taxable account? Have only a small amount of money to invest? Invest in one of the many asset allocation funds available. These funds do the allocating and the rebalancing for you. Generally you only need to decide if you want the aggressive, moderate, or conservative allocation fund. These funds may also go by the name of target retirement funds or lifestyle funds. What you are looking for is a fund that invests in all the sectors of the market.

Get Prosperity Minded

November 17th, 2010    Subscribe To Our Feed

If what you want is wealth and prosperity and to fulfill your dreams, then focusing on poverty or scarcity will not move you in the right direction. Remember - what you focus on expands!

If you study poverty you get more poverty; if you focus on wealth and abundance you get more wealth and abundance. This does not mean that focusing on one or the other will automatically bring about those scenarios. What does happen is that when people focus on poverty or scarcity they put into place action that supports the belief system of poverty.

An example - the media tells us that “there are no jobs” so people believe that and quit looking for jobs. People with an abundant mentally believe that there are plenty of jobs for everyone and they may have to explore different avenues to create a job.

People’s favorite reason for not pursuing their dreams is “the economy.” If the economy is on the rise, people get Inflation Elation Fixation. If the economy is slowing down, they get Recession Depression Obsession. If the economy is stable, people will shake their heads slowly and mutter something about the “stagnant economy.” Do any of these scenarios sound familiar?

Economically we are facing challenging times. Yet people who have chosen to see the abundance or opportunities, are making “lemonade out of lemons” and are thriving. These people are not focusing on the news, the drama, or the trauma because they know these times and challenges will pass.

If you have dreams that you put on a shelf “until things get better” it is time to take your dreams off the shelf and take control of moving your life forward.

Begin to focus on what you want, what you need to do to have what you want. Surround yourself with positive and abundant people, read inspirational books, quit listening to the negative news, honor and embrace your dreams today.

Action is always the key to success and prosperity. In our world there is not a lack of anything - money, jobs, happiness, success, love, joy, etc. Lack only exists in our minds not in the world. Ask yourself what have you been unwilling to do to live the life you desire? Once you identify what you have been unwilling to do, get started doing those things. Quit waiting for life to be “better” - go out and make it better.

There is a quote that says - “if you think you have all the time in the world, then that is how long it will take you to be successful.” Choose to be successful and prosperous today.

Student Loan Consolidation

June 1st, 2010    Subscribe To Our Feed

Consumer reports reveal that the cost of education in the United States is much higher compared to other countries. To most, this may seem the only way to get a good job after graduation. Many decide to apply for a loan from various sources which is much easier than getting a competitive scholarship.

When the student has finally graduated, it is time to pay back the creditors for the money that was borrowed. Since many apply for more than one loan, the best thing to do is apply for student loan consolidation.

A student loan consolidation is very similar to what an individual does with credit card debts. Instead of getting separate bills, this is combined into one to make it easier to monitor.

Why is the student loan consolidation program being encouraged among students? This is because it buys time to pay it back at a lower interest rate. After all, the person will also need the money for other things such as bills, renting a place to stay and even buying a car.

There are two types of student consolidation loans. The first is from the federal government called the Federal Family Education Loan Program or FFELP which is also supported by private organizations. The second is called the Federal Direct Loan Program where all the money comes from the taxpayers.

Those who avail of these programs may choose to pay the same amount monthly or contribute a small amount in the first few months then pay a bigger chunk later on. Some people prefer the second option because in theory, the employee has the potential to be promoted and receive a higher pay in the future.

Those who decide to sign up for student loan consolidation should do some research first before signing up for any plan.

When an agreement has been reached, all the person has to do is pay the dues on time. Those who fail to do so are just making the situation worse since penalties will be imposed.

The student loan consolidation program is not just for those who are straight out of college. Those who are working on a master’s or a doctorate can also make use of this since this is payable over a period of 10 years.

If people have more money, it is possible to fast track the plan so the debt is fully paid. The secret is learning to budget one’s finances because this too will affect one’s credit rating.

Money should never be a hindrance in getting quality education. If the future of this nation lies with the youth, the government and private organizations should do whatever it takes to make this an even greater nation.

Credit Monitoring Services - How They Can Help You

May 20th, 2010    Subscribe To Our Feed

One of the most effective ways to repair your post-bankruptcy credit is to get new credit. But, as you get that new credit you need an efficient way to monitor the effect it is having on your credit report. To do that, you should use a credit monitoring service. While you can do the monitoring yourself, using a credit monitoring service is helpful for a number of reasons.

1. Credit monitoring services monitor any inquiry made on your credit report and give you the reason for the inquiry.

By getting regular reports of the queries on your credit report and the reasons for those queries you can easily discover any unauthorized activities being done under your name.

2. Credit monitoring services notify you when any new credit accounts are opened in your name.

Obviously, you’ll know about the accounts you open. But, one of the ways identity thieves use your private information is to open up new credit accounts in your name. Then, they max out those accounts and leave you with the bill. A credit monitoring service protects you from the damages of identity theft because you’ll know immediately if a new credit account has been opened in your name.

3. Credit monitoring services monitor any changes to your mailing address on your credit accounts.

Another tactic of identity thieves is to change your mailing address for your credit cards. They do this so that your credit card statements are sent to them. When they get those statements, they steal your account information and use it to run up charges on your account. If this ever happens to you, it could take you months to sort out the problem and figure out exactly what happened. With a credit monitoring service you’ll get an immediate notification when there are unauthorized changes of address on any of your credit accounts.

4. Credit monitoring services monitor credit limit changes on your credit cards.

Identity thieves like to request increases on your credit card limits. This allows them to run up even more debt for you. A good credit monitoring service alerts you to such changes as soon as they happen.

5. Credit monitoring services give you quick, convenient access to your credit report.

The ability to access your account information online is a big time saver. And, you can opt to have the credit bureaus email you any alerts on your credit report account. Those alerts are delivered as soon as a change is detected in your account. This makes it easier for you to avoid becoming a victim of fraud. Online access to your credit report also makes it much easier for you to correct any inaccurate information on your account very quickly and easily.

Using a credit monitoring service has many benefits for you as you recover from bankruptcy and start the process of rebuilding your credit. If you want to secure you financial future and make the most of your fresh start out of bankruptcy, you owe it to yourself to sign up for a good credit monitoring service.

Home Equity Loans

March 30th, 2010    Subscribe To Our Feed

The equity of your house can be a great source of cash, especially if you have an immediate need for it, through what is called a Home Equity Loan. However, before you plunge right into the process of drawing a loan out of the equity of your property you need to understand different aspects of this loan as they may be easy to acquire, but a nightmare of not done correctly.

Here are some aspects of home equity loan that you need to consider:

Points

Most lenders charge a part of the loan, called ‘points’ for commissions for themselves and for their sub-agents. Actually such points vary from little to exorbitant; it all depends on the company and the type of loan. If you are charged 1 point, this would mean 1 percent of the loan. And so 1 percent of a 100,000 dollar loan is an up front charge of 1000 dollars. So shop around to find the best deal as there are lenders who do not charge any points at all.

Loan Interest Rate Terms

Is the loan a fixed or variable rate type of loan? If it is a fixed loan, then you do not have to worry about external forces such as economic situations directly affecting your interest rate. But on the other hand, if you have a variable rate loan, you could start out with a great interest rate that could become costly over time as your payment will increase as the interest rate increases. Check to see if you can switch from variable to fixed. That way if you see interest rates rising, you could always change over to the fixed rate.

Pre-Payment Penalties

Lenders tend to charge a penalty for paying off your loans early. You have to be aware that indeed, many second time loans have pre-payment penalties. Pre-payment penalties lock you into paying off your loan over its entire duration, and if you still decide on paying it off early, the lending company will add a penalty that could be costly depending on the size of the loan and how much time is remaining on the loan.

Late Payment Penalties

Does a home equity loan’s interest rate go up with late payments? With many lenders, with delinquent payment, penalties usually follow. More so, there sometimes is a clause in the loan, on default interest rate increase, which raises automatically the loan rates when payments are late. This can actually be costly for the borrower.

Insurance

You have to check if the home equity loan that you are prospecting has insurance costs hidden somewhere, a cost that you definitely do not want. Whenever you get a loan, you can take in corresponding credit insurance. You can have credit life insurance, which takes care of your loan in the event that you die. However, if in the case of a home equity loan, if you feel that insurance is just an added cost, then by all means avoid the lender that requires you to pay for them.

Doing due diligence upfront and asking questions to ensure you understand the different aspects of the home equity loan is a must. The better understanding you have before you sign on the line will go a far way to ensure there are no disappointing surprises later on.

How To Make A Budget

February 8th, 2010    Subscribe To Our Feed

Many people turn green when they hear the word ‘budget’, but if asked where their money went, could they account for it? Instead of it being seen as a ‘negative’, having a clear sense of ‘in-come’ and ‘out-go’ can really put you in the driver’s seat of having a great financial future. The real key is to have one before you need one.

So, how do you make a budget? Their are two things absolutely necessary in creating a budget. You need to know what your total income is and what all your expenses are.

Determine Average Monthly Income

For many, knowing their total income for a month or a year is simple and straightforward: that is those who work salaried jobs, who are paid a fixed wage. For others it may take a little more effort to come up with a figure. For people whose income is based on commission, look at your previous year’s net income and divide it by 12 to get an average monthly value. If you have increased or decreased your sales by some percentage, factor that in. For people who have no ‘regular’ income, it’s going to be very important to have a clear understanding of your expenses to know the minimum amount your monthly income needs to be to accomplish your financial goals.

Calculate Average Monthly Expenses

Determining expenses can be a little more tricky. To really get a handle on where your money goes, record for at least a month, even longer, every penny you spend. Though this can be tedious, it can also be very enlightening. Also, checking out those bank statements that so often go unopened, can shed some light on where money is going, if you’ve never paid attention to monthly service fees.

Once you record your monthly expenses, you need to add in expenses that may only occur once or twice a year, such as car or home insurances, school tuition fees, water heater rentals, etc. There are many spreadsheets available online to help identify expenses by categories, and can then be used to do the math for you. (You can get a spreadsheet
here.) If you’re manually doing to calculations, for the expenses that occur only once or twice a year, divide their amounts by 12 to determine what their average monthly cost is and add it into your expense calculations that way.

Compare Monthly Income And Expenses

After you have determined your average monthly income and your average monthly expenses, you need to compare the two figures, and for some - with fingers crossed - hope that the income exceeds the outgo.

Happy Day

For those with greater income than expense, you can consider what you are going to do with the excess, be it developing a strategy to pay down debt, or investigating ways to make it grow.

Decision Time

For those whose expenses exceed their income, it becomes decision time as there are really only two alternatives. One is to look at ways to cut back, the other is to expand your income. I guess it’s three if you do both!

If you decide to cut back, you have to review your expenses and divide them into ‘fixed’ and ‘variable’ categories. Fixed expenses include things like power and rent or mortgage payments, anything which has to be paid. The variable category would contain expenses such as things falling into the entertainment category - the things that are nice to have, such as cable TV, but you wouldn’t die if you didn’t have them (even if you claim you would!!).

Your food expenses could also fall into this category. Yes, you could die if you didn’t have food, but what could potentially change here would be the number of restaurant meals purchased in a month, or the number of ‘prepared’ meals bought from the grocery store. Making coffee at home in the morning instead of stopping somewhere on the way to work - even if all it cost was a dollar a day, makes a difference of $30.00 at the end of the month.

If you decide you’d rather increase your income, be careful not to inadvertently loosen your grip on your pocket book and spend a little extra here or there. Make sure that that extra money you are earning is going to the exact place you went out and earned it for.

Get A Little Help

If you’d like some help with getting a real grip on where your money is going, here is a service that you may be interested in trying out. Note that this is for US residents only.

See Your Budget As Your Friend

Since budget is not a four-letter word the sooner it becomes a friend, the better your chance of sticking to it and ultimately making your money work for you, rather than you having to work for it.

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