Hope for your financial life and beyond

Emotions and Investing Do Not Mix

Today I’m guest posting and commenting at the personal finance blog Frugal Rules. Click the link below to read about why emotions and investing don’t mix, including some boneheaded investing mistakes I’ve made through the years when my emotions got the best of me.

emotions and investingSome things fit perfectly together. Peanut butter and jelly. Batman and Robin. Yellow and blue. Separately they have value. When combined they create something extraordinary.

The same cannot be said for emotions and investing. Like oil and water, they simply don’t mix. There is no place for emotion in the investing world if you want to have success.

My Emotional History With Investing

I started investing in 1996, just after my wife and I were married. It was the height of the 1990s bull market run that saw computer, technology and Internet stocks in particular soar to record highs. A company could go public one day and be at $200 a share the next without ever making a single penny in profit. (That’s a slight exaggeration but accurately defines the lunacy of the time.)…

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Your Best Investment Ever Won’t Be In The Stock Market

best investmentWhat is the best investment you could ever make? Historical analysis suggests an investor in the U.S. stock market can reasonably count on an average annual return of 8-10%. To get that, I’ll have to weather down periods in the market. It’s would be worth it knowing the good years will balance out the lean years to achieve that return.

While the stock market is a great creator of wealth, it’s not the best investment we can ever make. Nor is it land, rental properties, CDs, bonds, or commodities. None of those will bring the level of return needed to really succeed in our life, in our career and with our finances.

There is one investment that outshines them all in terms of total lifetime return. That’s the investment you make in yourself. Nothing will move you forward quicker, push you farther and have more lasting impact than the time and money spent on oneself.

Why Investing In Yourself Is the Best Investment

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Do You Want to Beat the Market for 60 Cents Per Hour?

The following is a guest post from Graham Clark at Moneystepper.com

Pennies falling out of a tipped over jarWhy do we invest? Presumably, we all invest money to obtain the best returns we can to improve our financial future. Effectively, this means that we are investing to earn money.

We invest in the stock market because we think it “pays well”. Investing in the stock market (assuming we can earn the market returns of the S&P 500 since 1970) can earn us 15.79%. Alternatively, holding money in cash returns approximately 5%.

Investing in the stock market is therefore the equivalent of working at a legal firm instead of McDonalds – the wages are better.

Hourly wage of investing

Let’s say you have $10,000 invested in the Vanguard S&P 500 (with an annual TER of 0.1%). Therefore, your average annual return, after costs, is equal to $1,569. How much work did this take? To set up your Vanguard account and buy the fund, and then to completely forget about it for the year, probably takes about one hour.

So, you are earning an hourly basic wage of $1,569 per hour. Not bad. Well done you!

Now, I’m going to give you the opportunity to earn another 60 cents per hour. Would you like to do that?

You probably wouldn’t. Moreover, you would probably report me to the authorities for exploiting my employees!! But, millions of people are doing this when they are trying to beat the market.

Can you beat the market?

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5 Warning Signs When Choosing a Financial Adviser

A few years back, my wife and I encountered some life planning issues that we felt inadequate to handle. Not wanting to cause significant damage to our finances, we decided to seek the counsel of a financial adviser. For weeks we conducted a methodical search to track one down in our area.

financial adviserWe felt very nervous, opening our financial life – warts and all – to a complete stranger. Fortunately, our research found that most of the financial advisers in our area offered an initial consultation that didn’t require we make a long-term commitment to them. So with that encouraging news, we contacted four prospects and scheduled interviews.

In those four interviews, I saw the good, the not so good and the bad of the financial adviser world.

Looking For a Financial Adviser

These were the kinds of financial advisers we encountered:

Interview #1: The Index Guy

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How Are Various Investing Markets Related to Each Other?

The following is a guest post by Troy Bombardia.

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Commodities: An oil refinery at dusk

In the world of investing we have something that is known as correlation. The basic definition of correlation is simple: how do changes in variable X affect changes in variable Y (oh no, more math!)?

Correlation and relations exist in the financial markets. Changes in the price of certain markets (i.e. stocks) will have impacts on prices in other markets (i.e. bonds, currencies, commodities). In this post, I’m going to examine how various markets are related to each other (their correlation).

Why is it important to understand the relationships between various markets? Because if you know how one market is reacting and what relationship other markets have to this market, you can predict what the future price of other markets will be (which equals more profits!).

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Global Shares Plunge! OMG…The World’s Coming to An End!

ID-100178554It’s another typical early morning. With a busy day ahead, I’m getting a bit of writing done before the kids drag themselves out of bed and downstairs for breakfast. I’m clicking around the Internet and wiping the sleep from my eyes when I’m greeted with this headline from Yahoo Finance:

“Global Shares Plunge as U.S. Slowdown Adds to Emerging Markets Woes”

I quickly pulled up a stock chart and noticed the financial markets have been in a free fall since the start of January. As of this writing (the morning of 2/4/14), the Dow Jones Industrial Average has fallen over 1,200 points (about 7%) since Jan. 1st. Many are calling for another 3-5% drop from here. Yikes!

Well, faced with that news what could I do? I grabbed my shotgun, some bottled water and my case of Ritz Crackers ‘n Cheese and headed for the bunker I’ve built in the basement. It’s fully stocked for Armageddon. The wife and kids will have to fend for themselves.

Clearly the world is coming to an end.

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This One Stock Chart Could Make or Break You Over the Next 20 Years

stock chartMy investment plan is pretty simple – invest in retirement and non-retirement stock and bond mutual funds and sprinkle in a little real estate investing along the way. I invest for the long-term and don’t pull money out of the market at the first sign of a downtrend. Instead, I continue to invest monthly during a downturn to pick up more shares of stock at lower prices.

Because this is my philosophy, I don’t pay attention to the day-to-day fluctuations of the market. I quit listening to CNBC and other financial news programs years ago. While some of the programming was tolerable, they are news organizations, interested in ratings and what’s happening with the markets in the short-term.

The majority of the opinions I heard on any given day about the state of the markets and what I should be doing accordingly, didn’t jive with my long-term investment strategy.

One aspect of investing that has always intrigued me though is the stock chart. When these pop up on the news channels or I see one online (like I did yesterday) I often take notice.

Short-Term Stock Chart

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5 Common Rental Real Estate Mistakes Landlords Will Make

rental real estate mistakesSo, you are ready to take the rental real estate plunge and become a landlord. Awesome! I hope that you have come to that decision by desire (you really want to do this) and not by necessity (you were forced into it because your house wouldn’t sell). One of those scenarios (hint: the first one) generally works out better than the other.

My wife and I have been renting properties for some time now and our landlord experience has been positive. I believe our success comes from a desire to run a quality business, as we never considered this to be a whimsical adventure. We spent over a year studying the idea to make sure rental real estate was right for us because we knew it has its darker side. I believe we set ourselves up for success as landlords by doing that because we went into it with our eyes wide open.

Rental Real Estate Mistakes Landlords Should Avoid

Even with all our preparation we made some mistakes with our rental real estate. Here are five big ones I want to help you avoid.

1. Paying too much for a property

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High Risk Investing: When I Turned One Thousand Dollars Into…

high risk investingI marvel at how Wall Street creates wealth, even sometimes through high risk investing. Purchase a few 100 shares in a small company that hits it’s stride or a start-up that goes supernova and you could be a millionaire inside a decade.

That’s not the norm, for investors as it usually takes multiple decades of steady, solid investing to create significant wealth. But it does happen from time to time, as we all have seen.

That’s why we get caught up in new companies and try to buy in on the opening day of trading. IPOs (initial public offerings) tend to be extremely volatile, which is why investors are better off waiting for several months before they decide to purchase shares. (Unless you were investing in the 1990s bull market Internet frenzy when pretty much all IPOs skyrocketed on day one. Heck, mygrandmother.com would have opened 50 points higher!)

What if you could purchase shares in a company before it went public though? That would be stratospheric high risk investing – putting money into a company that might not even make it to market. Technically, I wouldn’t even call that investing. More like speculation.

Would you do that given the opportunity? Put money on the line with a chance to hit it big or lose it all? Here’s the story of when I did.

My High Risk Investing Venture

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Shock Treatment to Break Your Financial Procrastination

Shock coilsCollege breeds procrastinators.

At no time of my life did I put more things off until the last minute than my first few months in college. Every hour something new would entice me to put the books aside and enjoy the other, more exciting things college had to offer.

The pickup hoops game at the gym.

The late night pizza runs.

The cute girl one dorm over.

Time and time again this would happen, especially early on in my college life. As a result of my attention to anything unrelated to studies, I would often find myself starting papers at 11:00 pm that were due the next afternoon. Talk about putting your back up against a wall. It was an all night scramble of writing, filled with Mountain Dew and Ho-Hos.

“Fairly quickly” is the answer to the question “How long did it take you to develop a more disciplined attitude?” Had to…my freshman GPA (and ultimately my graduation) was depending on it. I realized there was no way I could maintain those negative patterns of time management and succeed at that level of education.

Procrastination creeps into all areas of our life. We put off dealing with relationship issues, work assignments, our spiritual health and even kid problems. Perhaps in no area does it rear its ugly head more so than in the world of personal finance. What is it about money that keeps us from confronting our difficulty with managing it?

Are you a personal finance procrastinator? Ever said any of these things:

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Investing Made Easy (Part V): Common Investing Mistakes

oops - MistakesIn this final edition of the Investing Made Easy series, I’d like to detail some common investing mistakes. Investing doesn’t have to be complicated but we make it so by doing some very silly things. In the end, our meddling brings nothing but frustration and lower returns.

I’ve already touched on a few of the most common mistakes in previous articles such as not having a plan, failing to evaluate one’s risk tolerance and ignoring investing fees.  And of course we want to understand every investment into which we place our money. If we don’t understand it, we shouldn’t be investing in it.

I’ve noticed through the years however, that other, less obvious issues inhibit me from having the success I desire. Each of them have hampered my investing at one point or another and it was only through losing money and honestly evaluating myself in the mirror that I was able to overcome them. (“Overcome” is a strong word, because they still creep back up from time to time and I have to fight them off again and again.)

Common Investment Mistakes

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