A Method To Select & Analyze 401K Investment Choices

When your employer offers you the benefit of a 401K investment option, you need to select from the choices they offer in the retirement plan. My employer is revamping and forcing investors to switch companies and select from a few choices. Here's the process I followed to make my decision.
Disclaimer: I am not a financial advisor and considering this information is at your own risk.

1.  Go to your companies 401K website and find the link for the comparison of the "Various products, fees and investment items". There you should find a quarterly performance report for the last quarter. 
2. The first thing I review is the historical returns, and the fees. I eliminate any with high fees over about 5%.
3. Then I look for double digit returns in the last year. Eliminate any choices that don't have at least double digit returns in the past three to five years.
4. Also consider the type of fund being considered and what risk range is preferred.
5. So, now you only have a handful to investigate further. Find out the ticker symbol of the fund or stock so you can investigate dividends, review the performance charts and see projected dividends.
6. With your ticker symbol, you can search google finance to determine the last years dividend. If there is no dividend, then eliminate the choice from your remaining inventory.
7. I like to use a free android app called Dividend Tracker to look up and research funds.
8. Then I made a chart in Excel where I could compare the potential of the ticker symbol by taking the share price minus the annual fee cost and add the annual dividend income (average 5 year) to come up with the final projected value of the the fund/stock.
9. Using Dividend Tracker I can find the 5 year average dividend which I use instead of last years. I also can review the dividend history to see if they have been decreasing or increasing, or have stopped altogether.
10. Review your choices and add more to your chart if none of them look promising. If you decide on a fund, google it and research it further to be sure it aligns with your investment strategies.

stock	price	#shares in 100K	fee	-fee	divd per share	+annual dividend	value+AVG divd-fee	5 yr avg divd	5yr divd proj	price to div ratio
RGAEX	49.63	2073.83	6.8	$  680.00	$   5.08	$  10,535.05	$  107,283.50	$3.84	10.55%	9
VCSRX	22.50	4623.21	5.6	$  560.00	$   2.04	$     9,431.35	$  103,508.42	$0.88	9.45%	11
LSSIX	27.23	3725.78	9.4	$  940.00	$   2.58	$     9,612.52	$  107,256.72	$2.20	9.61%	10
INGIX	15.90	6561.68	2.7	$  270.00	$   0.95	$     6,233.60	$  108,260.18	$1.30	51.62%	16
RNPEX	44.24	2341.37	8	$  800.00	$   2.83	$     6,626.08	$  104,468.09	$2.25	6.33%	15
IICIX	10.40	9532.89	3.5	$  350.00	$   0.18	$     1,715.92	$  102,700.52	$0.32	4.23%	58
VIIIX	272.79	382.54	0.2	$     20.00	$   3.30	$     1,262.38	$  101,747.34	$4.62	1.93%	79

The chart starts with the price of the fund. It assumes you have $100,000 invested and divides by share price to give the Number of Shares. Then fees are listed by %, and dollar amount based on your principle of $100K. The dividend per share amount is taken from Dividend tracker and used to calculate the annual dividend by taking the last years dividend amount multiplied by the number of shares. Then you can add your $100K + annual dividend - fee = value of your money. Of course you want the largest value, but it is not guaranteed. This is just a projection if all funds are analyzed equally. 

I like to also consider the share price vs dividend ratio by dividing the share price by the last years dividend. The smaller number the better value. In fact that is the column I sort my chart by, the dividend ratio.

You will notice that just because a fund has a high fee does not mean it is the worst choice. It may have a high dividend and low share price to compensate for that and provide you with good value at the end of the year.

You will also notice that a low fee fund is not necessarily the best choice either. It may not provide good dividends or any dividends.

Again, I remind you I am not a finance advisor and this is just an example of how I review choices to invest in.

Good Luck!

#money #invest #retire

When The Market Crashes

These days the stock market is really tankin' and its kind of depressing, the only consolation I have is that its happening to the whole world. So what to do? I could be like this giraffe at Busch Gardens and just munch away on some grass like I don't have a care in the world. That actually is probably sound advice, don't panic. But actually if you have a little bit of cash that needs investing, this is the time. But stick to the solid dividend stocks that don't really change a whole lot, except to mostly just increase in value and keep paying out dividends. I've had a couple energy stocks this past quarter that totally dived with the gas prices and not surprisingly; they ceased paying dividends. Now they aren't worth much, plus they quit paying the dividend that made it worth it in the first place. Needless to say, I don't check www.mint.com everyday these days.

The Frugal Millionaire Next Door

 

A lady at work was teasing me the other day because I didn't want to spend eight dollars on a group lunch. She was telling a coworker that I'm "loaded" but can't bring myself to spend any money, ever. This of course is not true, but she is one of the most unfrugal persons I know - frivolous and also generous, but not frugal. Anyway, I am not loaded despite her impression (i'ts not from my frayed shirt sleeves and my scuffed old Rockports), but I hope to be loaded someday by following these simple guidelines to becoming the unassuming rich neighbor someday.

 

1. Spend less than you make.

This is simple math, doesn't require a college degree so even 4th graders should be able to figure out they can't buy that new $30 video game if they only got $20 in birthday money. Apply this principle throughout your life and money will amass almost by itself. This is non a negotiable factor, in fact if this is the only thing you do, you will do okay. The millionaire next door will decline those invitations to go on an expensive dinner party and suggest instead that everyone have a BBQ at their place or the local park.

 

2. Maintain what you have - repair rather than replace.

I  have a favorite pair of khaki shorts that has patches all over and the material is so fragile and thin with strangling threads on the seams. They are over fifteen years old and get worn about 200 days a year. They are top quality materials and they just last forever. The older an item is generally the better quality it was when it was manufactured. Stuff made in the 1980s is rock solid. Our best appliances were made in the 80's and its a shame to pass them on. New stuff is cheap and uses cheap components that do not last, its built into the design so you have to replace the item. The millionaire next door likely wears tattered but clean clothing, that may be a little out of style but they don't really care what you think. They're comfortable and practical.

 

3. Drive your cars until they aren't reliable.

Cars over ten years old are cheap to own. If you get a good quality vehicle (i.e., not Chevrolet) it should last a couple decades with minimal maintenance - brakes, tires, oil changes. We just replaced the brakes on our 15 year old Ford truck for the first time. This truck still has another fifteen years in it. Older vehicles are cheaper to insure and own. The unassuming millionaire next door likely has a couple of old, well maintained vehicles in their driveway or garage.

 

4. Spend less than 2.5x of your annual salary on a house.

This is where a lot of people have screwed up their chances of ever becoming millionaires on an ordinary middle class income. These days you can't plan on your income increasing throughout your career. When you buy a house you need to just use your income NOW. If you make $40K per year, you should only be looking at houses that cost less than $100K. If you spend more, you will be house poor and all the extra income you should be investing and saving will be used up in housing expenses. Don't concern yourself with the amount bankers will tell you you're approved for, they don't have to live with that expense for the next 15-30 years. The millionaire next door likely has a modest, ordinary home that brings no illusions of grandeur that you might think a millionaire would display.

 

5. Don't move.

This goes along with the point above, get an affordable home and don't move. Ever - if you can help it. Struggle through those years with the kids growing up and having to share rooms, and in the end you will not have to downsize when the kids all move out (and they will move out...). If you make a good decision on your home purchase, in a friendly, safe location near lots of job opportunities you can stay there your whole life. Moving is expensive and a waste of money paid to all the providers who make it happen. And of course, if you move you need new drapes and furniture. So, a few thousand dollars for a move turns into several times that by the time you are settled in. The millionaire next door likely has lived in their same home for twenty or thirty years and has no plans to move.

 

6. Invest regularly and don't touch it.

Every small amount adds up. A regular weekly contribution to stocks, IRA's or company 401Ks will slowly amass to a considerable amount over time. People who make this part of their budget early in life may simply be millionaires with some lucky investments in time tested stocks growing over the years. Sure there will be some mistakes and some losses but over time the stock market is a solid investment vehicle. The millionaire next door is the guy who made a middle class income all his life, who lived below their means but invested regularly and didn't cash it in during an emergency - probably since he had an emergency fund too. 

 

7. Don't divorce.

This goes without saying that the millionaire next door is content in their life enjoying simple pleasures like sitting outside on a beautiful day, the warmth of a fire on a cool night, and the conversation of friends and family, and the companionship of their spouse. All these things are free. Sure money can make things easier, but it is the emotional support and love of a healthy relationship that can ensure that a partnership is permanent. A divorce is a senseless way to waste lots of assets and money. If you're not committed for marriage then don't do it because a divorce is one of the worst things that you could do to screw up your chances of financial success. Having kids as part of that divorce makes it even worse. The millionaire next door has likely been happily married for several decades.

 

8. If you have kids teach them your frugal ways so they are self sufficient adults.

One of the greatest gifts a parent can bestow on a child is financial savvyness. Starting at a young age children can learn the value of saving, coupons, deals, and investing. As they grow they can see how frugal ways increase the life of items so they don't need replacing, and that taking care of something is important to longevity. Then as they near adulthood and make independent spending decisions they learn the consequences of poor decisions and also how smart their parents really are. Your children will learn to manage money the way you manage money. The millionaire next door does not have any adult children he is providing for, they are self sufficient.

 

9. Choose quality over quantity.

One important factor that comes into every purchase decision is quality. The better quality item will cost more than the poorer quality item. But it should have a better performance, longer life, less maintenance and ease of use. We cut a lot of fire wood for fires and over the years we have owned a half dozen chain saws. We always got the cheap ones at Home Depot and they only ever lasted a year or two before performance issues became the problem. Our last one we bought was a Stihl and we've had it many years now and it operates like brand new every time we use it. It was three times the cost of a cheaper one, but it is a pleasure to use. We also do a lot of kitchen preparation of salads and meals. A constant dissatisfier is crappy, dull knives. I finally bought a $400 chefs knife for DH and it has transformed meal prep. Now he is always looking for something he can cut up. It is a joy to use. I wish we would have had it years ago. The millionaire next door will have top quality tools, electronics or functional items even though they are expensive. The millionaire next door does not tolerate cheap shit that doesn't work as designed.

 

10. Ignore the Jones' and all their new stuff.

Be tough and don't give into peer pressure to  buy new stuff when the stuff you have functions as designed. So what if its not all shiny and full of bells and whistles, if yours still functions it is all you need. Once you advance to fancy stuff, it's really hard to go  back to frugal. But then again, because you are frugal you can enjoy the occasional splurge in a high quality item that seems to be frivolous. But the trick is that not all you have is frivolous, only a couple things.

 

So there is my recipe for success to becoming the millionaire next door. Do you have anything to add?

What Can You Learn From Ted Williams? (The Guy With the Golden Voice)

What can you learn from Ted William's sudden fame?

Ted Williams shot to fame when his interview went on YouTube. The interview was made at the time when he was homeless and used to ask for donations at a bus stand with a board in his hand and his recorded voice asking for donations. The interview became so famous that lots of job offers landed in his lap. Even NBA has asked him to join. There are a lot of financial lessons one can learn from his sudden shot to fame. This is true that happiness as well as misery is not permanent and it depends upon you to have a determination in life to change your misery into happiness. You need to have a good savings plan so that you can tackle any financial shortcoming.

Frugal lessons worth learning from Ted Williams' story
There are a lot of times in life when you feel confused about the debts you have and how to get out of financial misery. There are a lot of people who have a lot of money and don't know what they can do with it. You can also win sudden lottery and may not know what to purchase first. You must have a clear vision of everything so that you don't get greedy and lose everything in the process. Take a look at the financial lessons you can learn from Ted Williams' story:

1. Clear about what you want

You must be clear about you want from life. There may be times in life when you may get confused about the different things that may land into your lap. If you get confused about the job offers or other financial things you get, you must prioritize the things and choose the ones that match your needs. If you have a lot of job offers, you may try to go for those interviews that solve your purpose and recognizes for your caliber and whet you can do. If you have a lot of debts, you must pay the ones with the largest interest rates first while paying your other debts minimally. This clear vision of yours can really help you reach the goal you've set for yourself. 

2. Put a stop to reckless spending

You may be a millionaire or a pauper. But if you earn $5, you must try to save $3 and spend $2. This is smart financing and if you're smart with money, you can reach anywhere you want. At least, you'll not have debts to pay off. Money doesn't take time to get over and once it's over you need to think of other ways to secure your future. You need to draw a line between "wants" and "needs". If you know the difference between the two, you'll be able to save money. Try to consult your family before purchasing any big thing so that you know if others are ready for it. When you get a check, try to save most of it. Don't spend any money till the time you get the check in your hands. Try to work out a budget and include your kids too in the budget formation so that they can learn to be money responsible. 

3. Get experts advice

This is another way you can manage your finances. If you are confused about the money you want to save and the amount you need to spend, you can seek financial advice from your experts or elders so that you don't fall into debts. Try to put all your problems in front of them so that they can give you the required advice on the ways to manage your money. When Ted Williams was asked about the jobs he would choose, he said that he'll seek help of a therapist and would focus only on few offers. He also wanted to solve his previous financial problems so that he wouldn't make the same mistakes again. 

4. Invest apart from savings

If you have a savings account and want to grow our money more, you can go for investment options so that you can have a safe and secured future. Look for lucrative investments so that you can get better returns. Start small and don't get greedy in the process. You must also lead an honest life and pay your taxes on time. Keep away some money for emergencies so that you don't have to break your investments. Try to seek experts' advice when you're going for investments so that you know which ones suit you the most.  

Apart from the financial tips and lessons given above, you must take things slow in your life. If you have any problems in life, try to tackle it smartly and never get carried away. Manage the money you earn and have so that your future doesn't get into debts.

Author's Bio : RP is a guest writer for various finance related Communities including CDFA, FCB, Debt Consolidation Care etc. She is a PG degree holder in Marketing and Finance and right now working in a reputed bank as a relationship manager. She is well equipped to write articles on debt consolidation , debt settlement, frugality, savings, economies of states etc.

Is Your 2009 IRA Fully Funded?

You still have a few months to contribute to your IRA and Roth IRA's for 2009. This is a great way to cut your tax burden and save for retirement. There are some exciting changes for Roth IRA conversions this coming year that you should investigate which allow you to defer claiming half of the contribution until 2011, therefore easing the tax burden. According to the IRS, maximum IRA contributions for 2009 are the same for both a Traditional IRA and Roth IRA.  You can also split your contributions among both Roth and Traditional, but your combined contribution amounts are subject to these same limits.
Under 50 years old at the end of 2008:

• Traditional IRA contribution limits = $5,000
• Roth IRA contribution limits = $5,000
• Combined IRA contribution limits = $5,000

Over 50 years old as the end of 2008:

• Traditional IRA contribution limits = $6,000
• Roth IRA contribution limits = $6,000
• Combined IRA contribution limits = $6,000

IRA deadline for 2009 contributions is April 15, 2010.