Make your kid a millionaire

Posted on January 2, 2011 by J.Wenger

That’s the gist of an article from Paul Katzeff, entitled “Make your Kid into an IRA Millionaire“.

The article is basically a great compound interest example.  To summarize, if you start your children saving in an IRA when they are 10 years old, they can potentially be millionaire by the time they retire (65).

I do take issue with using an 8% average rate of return to say someone will be a millionaire when they retire.  Over the past 10 years, we (at least in the US) haven’t averaged an 8% annual return.  And using a “market” average does not reflect the fees, costs, and commissions that are a fact of life when it comes to making investments.

A more conservative number for future returns (4%-6%) would provide a greater margin of safety and protect against those unexpected events that we call “life”.

That said, teaching children personal finance and investing at an early age is a great idea.  Period.  Regardless of the numbers used or whether the end result is millions of dollars, the early you can teach kids about investing, the better off they will be when they reach adulthood.

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Measuring Success

Posted on December 28, 2010 by J.Wenger

Ever since my first losing trade, I steadily increased my use of processes for investing. As my knowledge of process development grew, I learned that you can’t measure progress if you don’t have a stable starting point (current state).

Measuring your success and failures is required if you want better results, investing or otherwise.

So it was great to read the following blog post at The Reformed Broker: Trade School: If It Can’t Be Measured, It Can’t Be Managed.

If you’re not measuring both successes and failures, how on earth can you manage your portfolio or trading account?

Start 2011 off on the right foot and get things stabilized.

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Fundamental issues with the GM IPO

Posted on November 21, 2010 by J.Wenger

The GM IPO (General Motors initial public offering) has come and gone, with the stock price settling just above $34 at the end last week. A few of you may have even been able to get your hands on some shares.

The fact that shares were scarce may be a blessing in disguise if you are using any investment technique other than purely technical analysis (and since there isn’t a whole lot of price/volume action to use, even that technique is a stretch).

Here’s why:

The prospectus states the following:

“We [ed.GM] have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan.”

For you, the retail investor, the lack of effective internal controls means that you cannot trust the numbers being reported by GM. Which means that fundamental analysis techniques will not work.

After taking my personal situation into account, Ford (F) stock is a better play. But if I make that statement, I also have to say that there are many other investments that are much better than either Ford or GM for me personally!

Full Disclosure: The author does not own any positions in General Motors (GM) or Ford (F).

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What do fear and greed get you?

Posted on November 9, 2010 by J.Wenger

Behaviorgap.com comes up with some pretty good sketches related to investing.

The site, which was recently featured on The Big Picture blog, is run by Carl Richards; a CFP and founder of Prasada Capital Management.

Below is his take on Fear and Greed, and what they yield when it comes to investing.

Fear and Greed

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The Best Books on Personal Finance

Posted on October 27, 2010 by J.Wenger

Finding the best books on personal finance can be a real challenge. Personal finance is a very broad subject, covering money management, investing, insurance, and financial planning just to name a few.

From an investing perspective, personal finance is your first step. And, much like investing, it involves a process, so there are several different parts to consider.

Books on personal finance generally focus on special situations (how to avoid bankruptcy) or are very general and leave you wanting more (i.e. their next book).

For books on investing, most focus on the “how” of investing (i.e. what techniques to use) or try to describe the “why” (i.e. markets behave this way or that way).

Both are important, but not the complete picture. In the end, safe investing is about making money. As a safe investor, your goal is to put money into the market (via stocks, bonds, etc.) now, and get more money out at some point in the future.

No one strategy will work 100% of the time (easiest example is that it is impossible to day-trade in an employer sponsored retirement account).

So, here are some of the best books on personal finance and investing:

For an overview of how “markets” function (i.e. the “rules” of the game):

  • Trading & Exchanges – Larry Harris

For a big-picture view of personal finance and how investing fits (i.e. your starting position):

  • Rich Dad Poor Dad – Robert Kiyosaki
  • The Richest Man in Babylon – Clason
  • The Elements of Investing – Malkiel and Ellis

For different “techniques” (i.e. the method you’ll use to make your millions):

  • Intelligent Investor – Benjamin Graham
  • Reminiscences of a Stock Operator – Edwin Lefevre
  • How to Make Money in Stocks – William J. Oneil
  • Methods of a Wall Street Master – Victor Sperandeo
  • Trendfollowing – Micheal Covel
  • Trading Systems that Work – Thomas Stridsman

And for goal setting:

  • Think and Grow Rich – Napoleon Hill

Have Fun!

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Don’t Be Average!

Posted on September 23, 2010 by J.Wenger

“The average man doesn’t wish to be told that it is a bull or bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think. It is too much bother to have to count the money that he picks up from the ground.”

– Jesse Livermore

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Simplest Way To Avoid Back Taxes

Posted on August 25, 2010 by J.Wenger

The simplest way to avoid back taxes is to file a tax return. It really is that simple!

For a lot of individual investors, taxes aren’t something that gets much attention until March and April.

However, the IRS is always watching, as the subject of an article from the NY Daily News found out recently. The last paragraph is the one point that all investors should remember.

“If you don’t file, the IRS assumes that you have 100% profit, that basically it’s as if you bought the stock at no cost.” – Manhattan CPA Marc Albaum

While buying a stock at no cost would be great, that’s probably the ONLY way you could truly afford the resulting tax bill.

Until someone figures that trick out, stick with filing a Schedule D. Even if you get it totally wrong, you’ll still be better off than that guy!

Sources:

Trader nailed with $172 million bill in back taxes, asks ‘What’s the IRS?’
Bill Hutchinson – Daily News – August 24, 2010
http://www.nydailynews.com/ny_local/2010/08/24/2010-08-24_thought_you_had_irs_problems_failed_daytrader_nailed_with_172m_bill.html

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