Wednesday, August 5, 2009

Investing Basics (ETFs)

This is a guest post from one of my best friends, Rich. He went to college with me and also majored in Business Management with a concentration in Finance. I asked him to write a little introduction about investing in ETFs since he has some experience with this and has been investing for the past year. He even ties the last sentence into the name of my blog! How clever!

Putting money in the stock market is a scary notion for many amateur investors. You can be the guy who turns $50,000 into $500,000 or the guy who losses millions of dollars. As rewarding as stocks can be, they bite back twice as hard. That's the problem with stocks - people (i) do not believe they have the financial background to invest in stocks and (ii) consider stocks too risky of an investment.

When people think of the stock market, they often relate to individual stock picking, which is the investment into the performance of single businesses, like Ford, Goldman Sachs, Microsoft etc. Individual stock picking is quite risky and does require some financial acumen. This is because every company performs differently and groups of companies in different sectors perform differently. Additionally on a more macro level, markets in different regions perform differently, such as the US market compared to the European market or Emerging markets. This is just the tip of the iceberg so as you can see, the stock market can be quite a daunting place to put your hard-earned money.

Fortunately for us investors, there is an investing instrument that decreases the risk of the stock market while also capturing the upside of gains in the market. This magical instrument is called an exchange-traded fund, more commonly known as an ETF. ETFs typically track a wide range of stocks, which can be an index like the S&P 500 or a specific region like the European market. There are tons of ETFs out there, depending on your preference. You can invest in ETFs that track the whole stock market itself, or ETFs that are solely comprised of energy stocks. The important thing to remember is that ETFs are usually well diversified in their respective category. For example, a healthcare ETF will be composed of many diversified stocks in the healthcare indusry. The reason ETFs are so well diversified is because money managers like Vanguard and Fidelity put these ETFs together, and they charge a very minimal management fee. As a reference, Vanguard charges around a 0.1% fee for its ETFs, whereas mutual funds charge around 1.5%. You are getting the benefit of a mutual fund at a much lower cost!

ETFs trade just like individual stocks. When you purchase an ETF, you purchase one share of the ETF. The difference is that the ETF is composed of many, many stocks so you are not exposing yourself to individual stock picking. To invest in ETFs, simply sign up for an account at a brokerage firm. Some brokerage firms include AmeriTrade, ETrade, Scottrade, TradeKing and iShares - there isn't much difference aside from a $5 - $15 fee charged per transaction and resource tools. I personally use Scottrade because of a relatively cheap $7 fee and it provides great resources.

A good way to start with ETFs is to just track the broad stock market, or regions. For example, buy some ETFs that track the S&P500, or ETFs that track the whole stock market, or ETFs that track emerging markets and ETFs that track the European market. If you want to be risk adverse, put more of your money into broad stock market ETFs or bond ETFs (bonds are generally safer investments than stocks). If you feel more risky, put more money into emerging markets or pacific markets. If you feel like you know an industry/sector well or feel like an industry is going to outperform, put money into that industry ETF. I would advise investing a good amount (50% to 70% of the total amount you want to invest) into the broader market to start off, because its easier to begin on the safe side. As you gain more knowledge in the stock market, start taking riskier bets.

In my belief, as well as many of the top analysts on Wall Street, the markets are on an upswing after the huge recession we faced in the past year. The Nasdaq has been up almost everday for the past 2-3 weeks and the S&P 500 finally went over 1,000 for the first time since November of last year. U.S. stocks are at nine-month highs and are projected to increase even more. Hopefully, the trend continues so we can all be more "in the money."

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Sunday, July 26, 2009

Eating Economically

My roommates and I bought a great charcoal grill off craigslist (for only $40) at the beginning of the summer. Since then, we have been grilling almost every weekend and on some weeknights for dinner. When be barbeque, we like to go all out and feast. Our usual BBQs consist of some combination of the following: home-made burgers, hotdogs/sausages, chicken, corn, vegetable salad, and pasta salad. Although we like to eat well, we still try to be economical with the food we purchase. We are usually able to keep the costs below $5 a person for the meal.

This is how we do it:

1. We purchase what is on sale - We plan our meals around what is on sale at the supermarket. Last week, we bought 10lbs of chicken at an amazing $.49/lb.

2. We buy in bulk - It is almost always cheaper to buy in larger quantities. We bought a large box of cheese slices knowing that we would be grilling burgers every week.

3. We make our own burgers - This is fun and the burgers always taste better. We buy ground beef and mix in garlic, onions, and seasoning. Not only are the burgers tastier, but the costs end up cheaper than purchasing premade burger patties.

Here is another example of eating economically.

Last weekend, 16 of my college friends and I had a mini reunion at a bed and breakfast in Lake George, NY. We had a blast and we ate gloriously for a minimal cost of $15. Food was partially covered by the bed and breakfast, but we cooked our own lunches and dinners. We ate four meals, ate snacks and drank 48 beers in total for a mere $15/person. We had a BBQ as described above, ate home-made pizza for lunch the next day, had pasta with choices of meat sauce, lemon pepper chicken pasta, and vegetable sauce for dinner, and finished with a final lunch of leftover burgers and pasta. For snacks we had chips, pretzels, and vegetables with ranch dressing.

Eating well for so little was achieved by simply planning ahead and taking advantage of good deals at the supermarket. Buying the generic brands can also save you money as ultimately, they are the same product - only cheaper.

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Thursday, July 23, 2009

Always Fight Speeding Tickets

In April, I got my first speeding ticket. I almost never speed, but I was driving my friend's car and was not really paying attention to how fast I was going. I was given two citations: speeding ($180) and passing on the right ($100). I appealed and received a court date to meet with the Magistrate who would make a decision. Note that this was not a trial. I have written about getting out of speeding tickets in the past and about the trial process. This meeting was the step before the trial. Some cities/towns have you meet with the magistrate to expedite the process. If I was unsatisfied with the magistrates decision, I could appeal and set a court date for a trial.

Here is what happened at my hearing. I was called into a room with the magistrate and a police officer (not the one who pulled me over, but a representative) and the charges against me were read by the police officer. These were the notes that the officer had written on my citation. I then gave my case. The magistrate then made a decision. He found me not responsible for the passing on the right and reduced the speeding ticket to $120.

At first, I asked to appeal right away, but then thought about it and took his decision. My reasoning was that it would cost me $50 to appeal and schedule a court date. So the only difference would be $70 and possibly a slight bump in my insurance. Since this was my first and only ticket, I don't see my insurance rate jumping significantly. I figured it would take me half a day to go to court and complete the trial. This would not make it worthwhile for me to waste my time, so I decided against going to trial.

I am pretty certain I would have won the case if I had gone to trial. I remember all the details of the day and noted them on my blackberry right after the traffic stop. The officer only had the notes on his citation and there is no way he would have remembered a 6 minute traffic stop 2 months ago. If he even showed up to court, I could have discredited his testimony by asking him questions about the incident that he would not know the answer to. (ie. the weather that day, traffic flow, what color shirt I was wearing, etc). I do not think they could prove beyond a reasonable doubt that I was speeding and passing on the right. Still, it made more sense to take the magistrates decision because of the opportunity cost (ie. my time).

Have you had similar experiences?

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Thursday, July 16, 2009

Wasting Time

I found that I waste a lot of time. As a person with an entrepreneurial mindset, I believe that I miss out of opportunities when I waste my time. I wanted to write time is money, but part of me says this isn't true. Money is not everything, and sometimes, the most valuable time is spent with family and friends doing something unproductive, yet fun. Still, I see myself and many others wasting their time. Here are a few ways I used to waste my time and sometimes still do:

1. TV - I used to watch an immense amount of TV. In college, I really cut down on this because there are many other more entertaining ways to spend my time (ie. hanging out with friends, parties, extracurricular clubs, sports, etc) However, my first big purchase after I got my job was a large flatscreen LCD TV. Since then, I watch almost an hour of TV every night before I go to sleep. I find it as a way to relax from a hard day of work, but it is now starting to become a habit that I think is mindless and wasteful. My goal is to start cutting back on watching so much TV.

2. Youtube - Before I got busy with work, this blog, my business, and real estate, I used to waste countless hours and entire nights watching videos on youtube. This can be a very fun time as we find plenty of entertaining videos to watch. When I think about it though, I find that I have gotten nothing out of watching those videos. I didn't learn anything, I didn't help anyone, I didn't increase my income, and I certainly don't remember any of those videos.

3. AIM/Gchat/Online Chats - When I was in high school, I used to chat on AIM constantly. I really loved talking to all my friends and I still do. This continued into college until one day, in my second year of college, one of my best friends, Rich, sent me a link or something to download and my buddy list just blew up. I lost all my contacts and never felt like replenishing my buddy list. So, thanks to Rich, I only use Gchat to communicate with friend on occassion. As much as I love to keep in touch with friends, there are other medians to do this (ie. email, facebook, calling). I'm historically very bad at keeping in touch, so hopefully my friends understand that and don't hold it against me. Still, I have found that not being on AIM/Gchat has given me a few more hours each day to be productive. Give it a try, take a week off from chatting online and see how much more you can get done.

What are your time wasters?