May 22 2015

How to Maximize Your Wealth Potential

By |May 22nd, 2015|General Personal Finance|0 Comments|

Rather than wasting your time with half-hearted efforts to attain more money, why not focus on the money you already have? Whether you are thinking of buying a property, looking for a suitable investment or attempting to increase your savings, you should seize any opportunity to make the most of your finances. Here are some ways to maximise your wealth potential.

1. Improve your financial literacy

Do you ever have trouble making sense of your finances? Deciphering documents such invoices and tax returns can be a complicated process, especially if you don’t have much experience with managing accounts. Expanding your financial vocabulary will make bookkeeping significantly less confusing and enable you to comprehend the most important details of your finances. A qualified accountant or financial planner can help to broaden your understanding of money, giving you the potential to maximise your wealth and secure a financially stable future.

Dollar cost averaging to reduce risk

2. Forex trading

Forex trading involves speculating the value of currencies on the foreign exchange market, with the objective of generating a profit. It may sound complicated, but anyone can learn how to become a forex trader, and it presents the possibility to generate a source of income. If the world of trading sounds appealing to you, consider expanding your knowledge with a training organisation such as Learn to Trade , where experienced traders can provide expert advice via a Forex workshop .

3. Establish an investment plan

In order to successfully invest your money, it is essential to have some sort of a plan in place. Resist the urge to rush out and invest your savings without stopping to consider the consequences first. Identifying an appropriate investment can take time, but by studying the stock market and taking note of current market trends, an opportunity to maximise your wealth potential should eventually present itself. Even putting as little as 10% of your earnings each month into an investment can eventually lead to a valuable source of capital, especially as your wage increases over time.

4. Combine your bank accounts

Unless your have an unavoidable reason to keep your checking accounts separate, combining them could save you hundreds of dollars in bank fees. As small as they are, you might not take much notice of fees as they are deducted from your account, but they can add up over time and hinder your capacity to maximise your wealth potential. By transferring every last cent of your day-to-day spending money into the one account, you can protect your hard earned cashed from costly fees. In order to resist spending your savings, they should be kept separate, preferably in a high interest account where they can’t be easily accessed, and any unused banks accounts should be closed down immediately.

Anyone can maximise their wealth potential, regardless of their current financial situation. Do you have any advice on how to make the most of your money? What has worked and what hasn’t worked for you? Share your thoughts in the comments below and contribute to the discussion.

May 22 2015

When it comes to managing cash, do what works

By |May 22nd, 2015|Blog|1 Comment|

Most of my more recent friends think of me as being good with money. To an extent, their perception is accurate. I love talking about total return, asset allocation and risk tolerance. I would happily debate the merits of holding stocks in a portfolio past retirement age, or the importance of guarding against inflation risk.

These are concepts related to investing. Cash management, however, is an entirely different animal.

From the time I was little, my relationship with cash has leaned toward the dysfunctional. I have experimented with multiple bank accounts at different institutions, paying myself for services I have decided to forgo, and putting money in a swear jar. I have gone to ridiculous lengths to keep from raiding the proverbial cookie jar, including bank accounts in far away cities with no access points whatsoever and complicated electronic “envelope systems” that ultimately and inexplicably led to overdraft fees in multiple accounts at the same time.

Some time after I joined the “real” world, cash and I reached an understanding. I no longer need go to ridiculous lengths to keep my family solvent. But even now, careful scrutiny of my comparatively streamlined approach to cash management will betray signs of its tumultuous beginnings.

Here are some of the tricks I have used to save for a goal, keep my spending under control, and keep things interesting. Because let’s face it, managing cash can be BORING.

The Coffee Game. Ever have a habit that needs a hard look, but is too dear to you to bear scrutiny? Mine was fancy coffee. $4 worth of it, nearly every day. So I started saving my coffee money and brewing the coffee at home, just to see how fast it would grow. I used a jar because I wanted to literally watch it grow, but these days online banking makes it easy to do it in a bank account. But I like the cash – it makes it more fun. (The result of my diligence was a taste for only black coffee, which has saved me lots of money over the years.)

Save the Fives. This is another one that helped me make good decisions about my smaller spending decisions. There was never a time in my life where spending $5 would cause me to lose sleep, yet saving my fives was enormously satisfying. I’ve used this one to save for things that I didn’t think I could afford at the time, and it taught me to be mindful of how small changes can have a big effect on my financial situation.

Turn on the autopilot. When online banking became a thing, I was sure it was a gift from heaven, just for me. I started adding up my fixed expenses (rent, car payment, insurance, etc.) and redirecting them to a separate account (the one in a different city with no access point, actually.) I also included just a little bit extra each month, just to be safe, set up all my bills on autopay, and pretty much put the whole thing out of my mind. Lo and behold, when I checked back several months later, there was a surprising amount of money in the account – more, in fact, than I had ever had at one time. It was that feeling that helped the lesson sink in. In order to build wealth, I had to find a way to foil my own worst self.

Obvious, yet elusive

I am perfectly aware that not one of these scenarios netted a result I couldn’t have foreseen with some pretty basic calculator work.   But that’s not the point. As you may be aware, it’s a theme of mine that people rarely behave rationally, and I am a spectacular example. There is absolutely no reason to be ashamed or embarrassed because you find the basics of managing cash to be elusive. Saving money is difficult for many of us, and admitting that you may need to do something unconventional to accomplish what is simple in concept is the first step to building wealth.

Of course, from a strictly financial standpoint, not one of these strategies makes sense. Don’t let that stop you. Remember that sometimes the best tool for managing cash is the one that works for you.

May 20 2015

YourWela Review

By |May 20th, 2015|Personal Finance Tips|0 Comments|

Have you been looking for a place to organize all of your investing accounts or create and track your financial goals?

YourWela.com is one site that can help you do just that, plus so much more.

Getting Organized with YourWela

YourWela.com is different compared to other financial tools websites and I have checked several of them. What makes them unique is that they will give you holistic and real visions of your financial situation.

They don’t sugar-coat things and make you hear what you want to hear. Whether this is regarding investments, getting out of debt, cash or real estate values, they are straight to the point. You can use this information to make a plan and stay motivated to reach your financial goals.

Another great offer they have is the ability to create a personal portal which allows you to set the most relevant financial goals to you and as a user you will also have access to real people that can relate to you and your situation to share tips and pointers for financial improvement.

The creators of Wela have decades of experience as financial advisors, so you know that you are in good hands.

YourWela Review

Aside from this, their website is chock full of great features? They offer free tools and resources so that you can customize and create your own action items and goals. One of my favorite parts of the free service is that they’ll send you emails to keep you accountable for the goals you set.

If you would like the assistance of one of their team members for investment management, they also offer it at a very low cost.

Here’s a complete breakdown of what you can get with a free account:

  • A personalized financial game plan to help you reach your goals step by step
  • The ability to view all financial accounts from one dashboard
  • Detailed 401k and 403b allocation
  • How much house you can afford
  • How much you should save for your children’s college
  • Debt destroyer calculator
  • Set and track financial goals
  • Have emails sent to you to keep you on track with your goals

Choose YourWela

There is a no-one-size-fits-all approach to finances and YourWela knows this. They will look at your current financial situation with the goals you have in mind, create a game plan for you, and help keep you accountable.

You can check out Your Wela here.

May 18 2015

Should you rebalance your own portfolio?

By |May 18th, 2015|General Personal Finance|0 Comments|

When it comes to my money, I’m a big fan of doing things automatically. Of all of the things I have done to improve my own financial situation, no one thing has had a more positive impact than “set it and forget it.” Generally speaking, I can get behind just about anything that defends me against my own very human nature.

This is one of the reasons I like investments like Target Date funds and asset allocation portfolios. You can choose the best investment mix for you, and someone else does the heavy lifting to see that you maintain it. But some of us don’t like to give up that much control. You can certainly rebalance your investment yourself, but get ready – rebalancing can be hard work. Have an honest conversation with yourself about whether your desire for control will expose you to unnecessary risk.

This is an important point. Sometimes, you have to take a good, hard look in the mirror and decide how far you can trust yourself. Not because you’re inherently untrustworthy, but because, as you may recall me mentioning once or twice, people tend to be unrealistic about their capacity for behaving rationally.

What rebalancing is and why you have to do it

Rebalancing refers to the process of bringing your portfolio back to its original intended asset mix. When you determine your ideal asset mix, you align your investments accordingly. However, your individual investments will grow – or shrink – at rates that are independent of one another. This independent movement will eventually alter your asset mix.

Say you decide the ideal mix for your risk tolerance and time horizon is 70% stocks and 30% bonds. The stocks in the portfolio will tend to be more volatile than the bonds, which means that their value may change at a more rapid pace. That means that, over time, if the stocks do well, they will represent more than 70% of your investment, which is contrary to your original goal. If your stocks perform negatively, the total percentage allocated to stocks will shrink, and your mix will more heavily favor bonds. This is a problem because these shifts can dramatically alter your risk profile, causing you to take on too much or too little volatility.

And here is the crux of the problem. The reason that rebalancing is difficult is because it runs counter to human nature. At this point, you have to steal yourself to make one of two decisions that investors generally hate. Assuming that you don’t have additional capital to invest to bring the portfolio in line, you will either have to purchase more stocks, in the case of a loss, or in the case that stocks have done well, sell off a well-performing asset and use the proceeds to add to your bond allocation.

Seems like logical behavior, right? Any one of us can see that this is a classic “buy low, sell high” scenario. But time and time again, investor behavior proves how unlikely it is that any one of us will actually do it.

So what is an investor to do? I hate to be a broken record here, but the key is to be brutally honest with yourself. Do you have the stomach to hit the brakes on a well-performing mutual fund, or to invest more money into an investment that is down 30% over a year or 18 months? I might be able to do it once, but I wouldn’t trust myself to be consistent. You might be different, and rebalancing your portfolio may not be a problem. But you need to know which camp you’re in.

Make a rule

No matter how rational you believe yourself to be, trusting yourself to make the best decision in the heat of a big gain or demoralizing loss is a fool’s errand. In order to make the best decision possible, you need to make it before it becomes necessary. Basically, you need a rule.

Perhaps you rebalance quarterly, or when your asset mix falls 5% out of line in either direction – there are sound, logic-based reasons for each of these approaches. The most important criterion, from my perspective, is that you actually do it. Which means that you can, if you so choose, save yourself the headache of determining the best method from a performance standpoint. As with many things that are good for us, the very best way to do it is the one that works for you.

May 15 2015

Breaking down mutual fund fees

By |May 15th, 2015|General Personal Finance|0 Comments|

Mutual fund investors love to complain about fees. None of us wants to see our returns reduced by expenses, in any market. When our investments are down, it seems like insult to injury. And when they’re up? Our investment has grown, which means that we actually pay more than we would if it hadn’t.

A word of advice: it doesn’t pay to think about it too much. I’m not saying that comparing expense ratios isn’t absolutely necessary for making responsible investment decisions. But I’ll be honest – I have never in my life converted that ratio into actual dollars for any of my mutual fund investments. Why? Because I don’t need to, and because looking at actual dollars going out of my account will probably drive me crazy.

That being said, you won’t find me ranting about fees. My investments are available to me because someone created them and put them on the market – expecting to take advantage of them without paying for it isn’t reasonable or ethical. Just like any other product, however, some operate more efficiently than others, and thus cost less. Index funds tend to be cheaper, for example, in part because the time and effort it takes to run them is less than for an actively managed fund.

No one loves fees.  But you should know what you're paying for. Here's a breakdown of mutual fund fees.

I stand by my advice not to dwell on it. But I also find that it helps to know where your money is going. Here is a rundown of the types of fees charged by mutual funds, though not all funds charge all of these fees:

Sales charges, or loads. These can apply at the time of purchase or at redemption, and they are used to pay commission to a broker. No-load funds, as the name implies, don’t have sales charges. But they may have any of the other fees on this list, including a purchase fee.

Purchase and redemption fees. These differ from sales loads only in that the fee is paid to the fund, rather than a broker.

Exchange fee. May apply when a shareholder switches funds within the same fund family.

Account fee. Accounts below a certain amount are purported to cost the fund company more money than they earn in fees, and as such may be subject to an account fee. (I say “are purported” not necessarily because I don’t believe it, but simply because I’ve never seen the math.)

Management fees. These are paid to the fund’s investment advisor for managing the fund.

12b-1 Fees. Also called distribution fees, these relate to sales and marketing activities by the fund, and some shareholder services. Not all funds charge 12b-1s, so you want to pay attention to these.

Other expenses. You knew it was coming – that miscellaneous category of expenses.

Check your prospectus, and a final word of advice.

All of this information is available as a table in a mutual fund’s prospectus. If you have never read a mutual fund prospectus, I recommend you give it more than a passing glance. For starters, prospectuses have a general order to them, so once you get the hang of one, you’ll be able to easily peruse another for the information you deem relevant. Additionally, prospectuses contain information you won’t find in a quick web description or analyst’s report. Be advised, however, that it is an excruciatingly boring read, even for me. If you aren’t the prospectus-reading type, and even if you are, there are a number of calculators available on the web for comparing fees between mutual funds.

As with most things we purchase, cost is an important consideration, but not the only one. Choosing a fund by expense ratio alone makes about as much sense as buying a house based on price and nothing else. You can pat yourself on the back that you paid a low price, but you may not much like where you’re living.

May 13 2015

Life insurance as an investment

By |May 13th, 2015|General Personal Finance|1 Comment|

When it comes to life insurance recommendations, I am pretty much in the term camp. There are several reasons for my position, the most important being that life insurance is first and foremost about protection. And since whole or universal life can literally cost over 10 times what term costs for the same coverage, not many of us can actually afford the protection we need in a permanent product.

You may have heard that it’s better to own your coverage than to rent it, and other such nonsense. I’m not buying it. The fact is, most term products provide cheaper coverage at every level – including cost of insurance. And the argument that you’ve thrown your money away if you don’t die (yes, I’ve heard it) is ridiculous. Every insurance product carries cost of insurance, which is not recovered by either the policy-holder or the beneficiary when the policy pays out or is liquidated.

With all that said, I do actually own a permanent insurance product; a VUL, or variable universal life insurance policy. If you Google VUL, you’ll find predominantly two camps: those who sell them and those who hate them. Not a good sign, generally speaking. But I don’t believe that any product is inherently bad, and the policy that I hold works very well for me.

What is a VUL?

First, though, a quick explanation. A VUL combines an insurance product with an investment. Part of the premium paid by the policy holder goes to cost of insurance, and the rest to an investment sub-account. The account can be overfunded, which means paying more than the required premium, with the extra money going into the subaccount. That money can be borrowed down the road for whatever the policy holder wants to spend it on, with any remaining balance on the loan paid off by the death benefit.

Permanent life insurance may be worth a look in certain situations. Here's an overview of VUL.

A product for a narrow market

There are many features of the VUL that make it different from other investment accounts, but I’d like to highlight two.

Earnings grow tax-deferred. A Variable Universal Life policy is an insurance contract with an investment account attached. Your premium amount will represent your minimum payment every month, but you can and should contribute more in this situation. Overfunding a VUL allows you to invest the amount of the overage and take advantage of tax-deferred earnings. The opportunity is not limitless – there is a point at which you will be penalized for investing too much at once – but there is still a fair amount of wiggle room. The cash value of your policy – or the amount in your investment account – is available for you to borrow without penalty, since any interest is paid back to you.

Benefits are paid out tax-free. Life insurance benefits pass straight to the beneficiary without being taxed or going through probate. If you’re overfunding a VUL, for example, all the assets held in your VUL – the death benefit amount plus the amount held in the investment account – will pass straight to your beneficiaries tax-free. This makes VULs a potentially excellent tool for distributing wealth.

A word of warning

No doubt, there are a few readers who are fuming right about now, given some of the drawbacks of VULs. But as I often repeat, I believe that an informed investor is a more responsible investor. While the niche for this product is rather limited, it definitely deserves consideration in some quarters. If you make too much to qualify for a Roth IRA, for example, and are maxing out your retirement contributions each year, a VUL might be worth a look. Or if you have assets to distribute among heirs, you might consider this option.

The bottom line is that VULs are complicated products that vary greatly between options, so it is imperative to do your homework. They often carry high fees and expensive insurance, so it is important to shop around. Lastly, insurance agents are generally well-compensated for selling them, so it is important to work with someone you know and trust, who is experienced in this area.