If You Want to Buy the Things You Need

Investments are only one part of your financial plan that is needed to have a good comfortable life. You also need education to get a good job. Third, you need to be able to control your income and expenses so that your net worth can grow. Net Worth will open the doors for you to gain status in society. The higher you go in society, the better off your children will be. It all comes down to where your children will start in life. The child that worries about where their next meal will come from or if they will live through the day in school will not do as well as the person who does not have to worry about such things. The fourth part smooths out your financial plan. That fourth part is your credit rating.

Let's review what you have learned in the past about your credit.

Typically, you would find out when an account goes to collections. But sometimes a bill can slip through the cracks, like an old utility bill sent but not forwarded after you've changed addresses.

If you want to buy the things that you need, you better maintain good credit. If you want a good paying job, you better maintain good credit. If you want to buy a new A1 condition car, you better maintain good credit. If you want to borrow a car, you better have good credit.

These are the things that the public school system will not teach you or your children. Many people think that credit is an extension of their paychecks and they do not have to pay it back. I can recall people saying things like, “I know my credit is bad” like they are proud of such a status. Some very ignorant and stupid well-wishers think that co-signing a loan for someone is the Christian thing to do. They don’t pay the loan and the loan falls on you, the well-wisher. You don’t pay the loan and your credit is the one that is damaged. 

The only thing people have of any value is their word! This is what is meant by the saying, “His word is as good as gold.” or "his word ain't worth shit!" When you borrow money and you say that you are going to pay it back with interest, you are giving your word that this is what you are going to do. Here is why people will give you a high paying job and lend you ever increasing amounts of money.

Things happen through life, job dismissals, illnesses, home break ups, and etc.  If this happens to you, it might take years for you to get your credit back to a 750 to 820 credit score. The first thing that you must do is monitor your credit report.  

When you monitor your credit regularly, you can make sure that anything negative appearing on your report is accurate. If I were you, I would monitor my credit report at least once a year. Most credit reporting services will allow you to do that. Look for “dings” in your credit report that can cause you to lose that good job, new car, or the revolving low credit high sealing credit account that you want. Here's an idea of what these items are and the impact they have on your credit score.

Late payments

Late payments can damage your score, depending on how late the payment was made, and how long it's been since that occurred. The later the payment was made, the more it hurts your score. If you are one day late making your payment, you are 30 days late. That clock starts when the store or bank receives your payment, not when you put the payment in the mail.

However, its effect on your credit diminishes over time. If you made a late payment 3 years ago and you have not had one since, that late payment will mean very little to your creditors.

Collections

 Reviewing your report can help here: if you find an item that isn't yours, you can dispute it, and if it is yours, you can pay it. These items can stay on your credit report for up to seven years. As with late payments, the longer it's been on your report, the less it affects your score.

Adverse public records

As a general rule, unpaid city, state, and federal tax liens can remain on your credit reports for up to 7 years from the payment date. These items will negatively affect your credit score and only time diminishes their impact on your credit. Generally, Chapter 7, 11, and 13 bankruptcies appear as public record items on your credit report for up to 10 years after filing. Chapter 13 bankruptcy records are sometimes taken off sooner, 7 years after filing, depending on the credit reporting company's policy.

Your best course of action

Start by checking your credit report. If you believe any items on your credit report are inaccurate, dispute them with the associated bureau.

If items are accurate, make sure you've paid any overdue accounts. Then ask the credit bureau how much longer the item will remain on your credit report. In the meantime, maintain your overall good credit health by paying bills on time and using less than 35 percent of your available credit. Keep monitoring to watch your progress!

The Law Vs. Investments

An IRA or 401(k) is like an empty piece of luggage that you take on your journey to retirement. In other works, an IRA or 401(k) is the law that covers your investments for retirement.


According to Nathalie Gorman in the article "What's in Your Retirement Account?",

"You must choose what to pack inside it—stocks, bonds, cash—or else the firm that handles your account will choose for you (if that ends up being a cash account, you'll miss out on the opportunity to earn bigger returns by putting at least a portion of that money in stocks)."

I agree with Nathalie, there is no "best" retirement investment.

Nathalie goes on to say, "What's right for you and for your closest friend can be wildly different, depending on a variety of factors: your age, whether you will have other retirement income sources (Social Security, a pension, an inheritance), your appetite for risk. If you invest through an employer-provided plan, look for educational material on the company Web site to help you choose the right mix. If you're investing on your own, consider consulting a trusted financial adviser. Overall, I recommend subtracting your age from 100 and putting that percentage in stocks (so if you're 30, that means 70 percent)."

If you are investing through your company plan, diversification is key.

"When you invest through a retirement plan at work, you're usually offered a menu of mutual funds, which provide a basket of investments in one shot. With your own IRA, you can also build a diversified portfolio by opting for low-cost exchange-traded funds (ETFs): Each fund holds dozens if not hundreds of investments." ,  according to Nathalie. I suggest buying discounted bonds. Over time diversify your bond portfolio and reinvest your interest and principal into more bonds. 

Now What Happens When I Retire?

  http://www.blogger.com/blogger.g?blogID=4951871798238945144#editor/target=post;postID=6871141336570686293

Josh Mellberg walks you through the pros and cons of annuities step-by-step. He shows one way of dealing with your retirement money once you retire. I do not expect the stock market to make large gains in the next 20 years. I expect bond yields to go up over time. This is why I suggest investing in High Yield Bonds (not bond funds, they are not the same). I do not endorse or debunk Josh Mellberg's strategies. My job is to make you aware of his insurance concepts and strategies. 

Avoiding Work Place Investment Traps

A friend sent me an online copy of an article, “The Trap: Overlooking Invisible-Until-Now 401(k) Fees” in “O Magazine.” The article was written by Nathalie Gorman. I think it is worth talking about.


“A recent AARP study found that 71 percent of Americans think they don't pay any fees for their 401(k) plan. Actually, every 401(k) plan out there charges fees to every single one of its investors. For small plans, it can be as much as 2 to 3 percent of your investment. For large companies, it can be less than 1 percent, explains Mike Alfred, co-founder and CEO of BrightScope, a company that analyzes retirement plans. This might sound like a teensy fee, but it can make a big difference. For example, imagine that you were to invest $15,000 total in a 401(k) fund that earns 7 percent interest and has a 6 percent yield. In 30 years, a fund for which you pay a 1 percent fee would be worth $86,152. By contrast, a fund for which you pay a 3 percent fee would be worth $48,651. So, a 3 percent fee means that your fund would have half the worth of a fund for which the fee is 1 percent.”

Here is the reason why I say that if you are going to use your companies 401(k), you better know how much it cost you and what type of funds they offer you.

Nathalie goes on to say, “The Solution: It used to be that plan sponsors (i.e. employers) were not obligated to disclose the rate at which employees were charged for contributing to their 401(k) accounts. That has all changed as a result of new Department of Labor regulations that went into effect July 1, 2012. The amount that you pay in fees must be made plain on your statement, just like your bank lets you know when they've charged a fee to your account. It may be in the fine print on page 7 of 8 in an attempt to dissuade you from looking for it, but it's definitely there. The next time you receive a statement, take a look and figure out what kind of fee you're being charged. If you're concerned by it, dig out that HR packet and see if your company offers plans with different fees. Then, if it does, make a note to remind yourself to change funds during the opt-in period that usually happens at the end of the year. (If your company doesn't offer reputable funds with low fees, you might want to talk to your HR department to see if they will be including one for the next opt-in period.)”

If they are not giving you matching funds, I would consider discontinuing your 401(k) and opening an IRA where you can invest in individual securities or low cost funds.

Special People and Places: Daniel is heading to Rochester, NY

Special People and Places: Daniel is heading to Rochester, NY: The Two Sub-Bantam 2KM (1.24 Miles) Gold Medal Winners for the 2012 USATF Mid-Atlantic Association Junior Olympic Cross Country Champions...

Investing in Zeros

 
When I was in my early 30s, I came in contact with Zero Coupon Bonds. This type of bond known as Zeros pay interest only when they mature.  The advantage of this type of bond is that investors pay a relatively small sum for the bond when purchased.  At maturity, investors receive a large payback.  Zeros come in face values as low as $1,000. They are sold at large discounts of 50% to 80% of its face value, depending on how long you wait to collect the interest at maturity.

Let me give you an example. An investor could buy a $1,000 Zero Bond, yielding 7.5% that matures in 20 years. That bond would probably be purchased at $235. At maturity, the investor will receive $1,000. 

 Buy the bond with little money when she is born. At maturity 18 years later, use it to pay for her college education when she enters college.

The longer the term of the Zero, the less you the investor will have to pay now to buy a Zero.  Another advantage of the Zero is that it is easy to figure out how much the investor will have at maturity.

 If you do not receive interest on your bond every year, you cannot compound your interest in your account. The reason why I have a year to date 20.45% return as of Nov. 6, 2012 is because of compounding.

If the company files for bankruptcy, you may never see that interest.

Now let’s talk about the disadvantages. Taxes are a potential drawback if you purchase these bonds outside of your retirement account such as an IRA, 401K, Keogh,  Defined-Contribution Plan, or other retirement programs. Investors don’t actually receive interest on the Zero each year but the IRS still tax the interest as if you received it.  The problem, you are taking business risk meaning that you may never receive that interest.  What if the company goes out of business or defaults on its debt? The investor may never receive that interest but the investor paid taxes on it.  

Zeros are much more sensitive to interest rate changes than regular bonds.  This can be a curse if the investor does not hold the bond to maturity.  The investor may sell the bond at a loss.  But if rates fall, the investor may sell the bond at a substantial profit.

In my opinion, outside my retirement account, I would speculate using Zeros on the direction of interest rates. If I was just starting out in a retirement program, I would start by buying Zeros because they are cheap and safer than stock.

 If I have new born children, I would buy Zeros for their advance education after high school.

Investors can calculate how much they will expect to have when the Zero matures.