Strategies for Life: April 2006

Saturday, April 29, 2006

Jim Cramer Mad Money Stock Picks

First of all as I have mentioned before I am a big fan of Jim Cramer and his CNBC show Mad Money. Fortunately, I have XM Radio and I can catch the show on the way home. Did you know that there are a over a half a dozen ways that you can keep track of Jim Cramer and his stock picks. Below you will find the top 8 ways that I recommend for keeping track of Jim Cramer.

Mad Money Recaps: If you miss the show one day no worries my friend simple goto the the Mad Money Recaps page and you will be able to read through all of Jim Cramer's stock picks for the week, including the featured stocks of the day, the lightening round, and even his interviews.

Real Money Radio Show: Hey if you didn't have time to catch the Mad Money show on CNBC, I don't know maybe you don't have cable or XM Radio, that's ok, you could always catch Cramer's Real Money Radio Show. I find the Real Money Radio Show to be a little calmer that the Mad Money Show but basically it is the same idea and it is available for free!

Jim Cramer Podcasts: This just in, actually just in last weekend for me anyway, maybe you knew about it. Did you know that you can also download Cramer's Real Money Show and parts of the Mad Money program to your ipod. Pretty cool! This really works for me because I can stackup a few shows and then catch up all in one day. Just open up you I-Tunes and goto the store and select Podcast. Isn't technology amazing and again its free. Hey if you don't have an ipod you can shop for them right here.

Mad Money Stock Screener: Ok so now you don't feel like listening to Cramer every day or reading what he said but you have a stock idea and you would like to get Cramer's take on the particular stock. No problem just goto the Mad Money Screener and type in the symbol of your stock and Booyah! you have instant knowledge on when was the last time Cramer has mentioned the stock and if he thought it was a buy, sell or hold.

The Street.com: Another way to keep up with Cramer is to checkout his stories that he writes for The Street.com. It is another excellent way for you to get the same type of information about what he is saying everyday. What I find is he is saying the same thing each day he just has multiple channels to try and reach his audience.

The Daily Booyah: Are you still feeling lazy and looking for an even easier way, why not sign up for The Daily Booyah! Cramer will email you twice a day for free the recap of the Real Money Show and Mad Money as well. I just found this out this morning and I signed up. Pretty cool!
Action Alerts Plus Charitable Trust: Ok so all of the above stuff is still not enough for you and you really want to know what Cramer is doing? Then you need to buy a subscription to Cramer's Action Alerts Plus. The cost is $399.95 for an annual subscription, hey you can probably make that up in one good trade. Good luck and let me know how it works out for you. You can even try for 2 weeks for free. Free is always good, I am cheap.

Books by Jim Cramer: Jim has written three books on investing and his style and thoughts about the market. His 4 books are: Jim Cramer's Real Money: Sane Investing in an Insane World, Confessions of a Street Addict, and You Got Screwed! Why Wall Street Tanked and How You Can Prosper, and his latest book Watch TV Get Rich. So if you are having trouble popping for the Actions Alerts Plus, note I haven't signed up yet either, why not buy the books by Jim Cramer.

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Thursday, April 27, 2006

Investing in Hedge Funds

Hedge funds are not mutual funds, they are a significantly different animal. A hedge fund is a fund the applies a defensive management of your investments. There are significant differences between a hedge fund and mutual fund. Wikipedia defines a hedge fund as follows: A hedge fund generally refers to a lightly regulated private investment fund, often a partnership rather than a corporation in form, and characterized by unconventional strategies (e.g., strategies other than investing long only in bonds, equities or money markets).
The term hedge fund dates back to the first such fund founded by Alfred Winslow Jones in 1949. Jones' innovation was to sell short some stocks while buying others, thus some of the market risk was hedged. While most of today's hedge funds still trade stocks both long and short, many do not trade stocks at all.Let take a look at some of the differences.

First of all a Mutual Fund is regulated by the SEC a hedge fund is a private investment vehicles and is not regulated by the SEC.
Mutual funds allow a Minimum Investment that is usually small and obtainable by most investors. Hedge funds require a large minimum investment which averages about $1 million.
In a mutual fund the number of investors is not limited however, in a hedge fund you are limited to 499 investors or "limited partners" who can invest in any one fund.
Mutual funds are available to the general public unlike hedge funds where you are required to have a certain net worth or income requirement.
Mutual funds have a high level of liquidity and shares can be redeem daily, hedge funds redemptions varies from monthly to annually.
Mutual funds are limited to 30% of profits from short sales with hedge funds this is not limited.

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Sunday, April 23, 2006

Lessons on Paying for College

The Wall Street Journal had a great article this weekend on Lessons on Paying for College. Most of the time, couples making over $100,000 per year a not eligible for financial aid packages due to their high level of income. However, recently this general rule of thumb has been changing. College costs have gone up so quickly that making a $100,000 per year is really not enough to ensure that you will be able to save enough to pay for you child's college education. Especially if you are considering sending your child to a pricey private school, which can approach $50,000 per year.

As a result of this the private schools are increasing the availability of financial aid to families earning higher incomes. For example, John Hopkins has 25% of freshman familes getting need based aid that earn more than $120,000 per year and 13% were above $150,000 per year. This aid can include low interest loans, campus jobs, and grants that families don't have to pay back. This trend however is not as prevalant at state universities. If you are making over six figures it maybe difficult for your child to qualify for any need based financial aid. The difference is that the average cost for undergrad tuition, fees, room and board at four year public schools is $12,127 per year vs. $29,026 for a private school. This level of tuition is more in reach with a family making six figures.

Tips on paying for your kids college: Here are some of the tips suggested in the article.

Send applications to a lot of schools to determine if you can get any financial aid.
Consider hiring a pro to help you with the aid forms and in your search for financial aid.
Start saving for your kids college education early. My wife and I started mutual funds for our kids the month that they were born. Most mutual fund companies will let you setup an automatic monthly deposit as low as $50 per month. Not sure what college might cost 12 to 18 years from now, try the College Costs Calculator.
Get start looking for financial aid early. Looking for financial aid needs to start early consider starting you search during the first or second year of high school.
Additionally, you need to also consider saving in a 529 plan which allows you child's savings to grow and be withdrawn tax free for paying for higher education.
Also you could consider a prepaid tuition program that is available in some states. One of the drawbacks of this you are limited on the number of schools that you can attend. Make sure before you signup for a prepaid program that you understand the rules of the program.
U.S. Saving bonds should also be considered since the interest on a savings bond if used for paying for higher is tax free.

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Wednesday, April 19, 2006

Interest Only Mortgages and Loans

Until recently the Adjustable Rate Mortgages were one of the most popular mortgage types. However with the recent rise in interest rates the difference between an adjustable rate mortgage and a fix mortgage has diminished. As a result of this many borrowers are turning to interest only mortgages looking for ways to reduce their monthly mortgage payments.

How does an interest only mortgage work: An interest only loan allows you to lock in a fixed interest rate for the term of the loan and pay interest only for the first 10 to 15 years of the loan. Interest only home loans are a relatively new product which really didn't even exist 2 years ago. After the initial period of interest only the monthly payment jumps up so the borrower can repay the loan over the remaining term. Effectively you are converting your interest only loan into a 15 or 20 year conventional loan because to have to payoff the mortgage in the remaining years of the loan.

Disadvantages of interst only mortgages: First of all as the name of the loan says it is an interest only loan and therefore you will not be building up any equity in your house except for the potential increase in the value of you home. Secondly, many borrowers may go into payment shock when the intial period ends and you have to accept the higher monthly payments. However, you can always refinance the loan into a new loan when that time comes. However, remember you are starting at ground zero. You have not paid anything off on the balance of your mortgage debt. To address this problem if you do select this type of loan you should make principal payments on a regular basis to help work down the principle on the mortgage. Bankrate.com has an interest only mortgage calculator that allow you to calculate the payment. Make sure you compare the payment on an interest only loan to that of a fixed rate loan to understand exactly what the difference will be.

Examples: Below I have compared the monthly payments for an interest only mortgage loan compared to that of a fixed rate loan. I have assumed a $150,000 loan for 3 years.

Interest only loan payment: $656.00 per month
Conventional 30 year fixed: $936.00 per month

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Friday, April 14, 2006

Keeping track of your investments returns

Keeping track of your investment returns

When you become an active investor or day trader you can end up having a lot of paper work to keep track of your investment returns. Additionally, it is important to understand your cost basis and buy and sell points. There are several ways to keep track of your stocks and mutual funds. The following are some of my favorite tools for tracking captial gains and stock performance of your individual portfolio.

Stock broker: Fortunately you can keep of your gains and losses through your stock broker. When you purchase a stock through your broker your cost basis is established. Additionally, the performance of the investment can be seen relative to the price that you paid. However, depending on your broker it may or may not give you and annual rate of return if you hold the stock for more than a year. For example lets say you bought Tim Horton's stock during the IPO. You know you are up lets say 10% but you may not know what the annual return rate is if you have held it for 18 months or 2.5 years etc.
Quicken: Fortunately software program like Quicken can provide you with the annual rate of return and the capital gains calculations for both stocks and mutual funds. This obviously is important when you sell a stock because you need to report it on your taxes. Mutual funds are tricky to figure out the actual gain because a lot of times you might have had annual capital gains that have been automatically rolled into the fund at the end of each year.
My Yahoo page: Quicken and your stock broker are great however, most of the time you won't be able to log into your brokerage account every 10 minutes to check on the status of the account. Sometimes you need quick access to you stock positions and an understanding of what you paid for them. I really like to use the portfolio feature on My Yahoo. It allows you to add unlimited number of portfolios and stocks to keep track of the price paid, number of shares and current value. The prices are updated about every 20 minutes.
Yahoo widgets: Another really cool feature that I have just started using is Yahoo widgets. This is a really cool little desk top program that doesn't even require you to open your browser. You can setup your Yahoo widget with all of your stocks and they will be displayed right on your desktop when you are connected to the internet.
Email alerts: You can also have Yahoo Alerts or your brokerage account automatically send you email alerts when certain criteria of your stock is reached. This is a handy feature however if you are a real active trader the text message alerts might even be better because you never know when you might not be at your computer.
Text message alerts: Did you know that the same Yahoo Alerts or Google stock alerts that can be sent to your email could also be sent to your mobile phone. This is a really handy feature especially if you are out and about and not sitting at your desk all day.

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Thursday, April 13, 2006

Debt Consolidation paying off your debts

Debt Consolidation, paying off your debts

Are you considering a debt consolidation loan? Do you have credit card debt, student loans, or other high interest rate consumer debt that you would like to consolidate in one low monthly payment?

Debt consolidation ideas: First of all a debt consolidation loan sounds like a great idea to most people. Get out of those high credit card interest rates, payoff all of those credit card bills and get them down to one nice low monthly payment. It does sound good in principle, however, it is something that you really should only do once as a correction for a life style that was probably a little out of control. Remember if you cannot pay off you monthly debts you are not living within your means. Anyway, I am not hear to tell you what you already know the important thing is to make a commitment that if you are going to do a debt consolidation loan that you plan to cut up the credit cards, not take on any additionally short term consumer debt and agree to live within your means and establish a family budget that you can live with.

Make a commitment before taking on a debt consolidation loan: Why is this important, if you don't make this commitment you may just end up causing the same problem all over again. Consider this if you are still paying for a vacation and a plasma TV that you bought last year, with a debt consolidation loan you could continue to pay for these items for the next ten years. The memory of the vacation will be long gone in ten years and chances are you might not even have the plasma TV in ten years. So the questions is how long did you really want to pay for these items.

Consider the rule of 72 to figure out how much your debt costs you: Additionally, you must consider the rule of 72 which is a simple way to calculate the cost of your interest on your credit cards debts or any debt. Basically, the rule of 72 is, take your interest rate and divide it into 72 and that is the number of years it takes for you to double the cost of your debt. So for an easy math example lets say you have a credit card that is at 7.2% interest rate, you and I wish it was that low. Anyway, 7.2% goes into 72 exactly 10 times so if you have a $2000 debt at 7.2% interest and you take 10 years to pay it off you have doubled the cost of the item. That is you paid $4000 for the item. If the interest rate is 14.4% then it only takes 5 years for the cost of the items to double. Again 14.4% is a pretty low rate, how many cards do you have that are at 18% or 21%. Do you now see why credit card companies love when you run up a debt. They are stealing from you legally. We all have trouble making ends meet and paying for the things we want but do we really want to pay twice for things we only bought or did once? How many dinners are you paying for over time? Remember if you make the minimum monthly payment the credit card companies don't really care how long it takes you to pay of you debt. Based on that opening I really do not recommend a debt consolidation loan however in some cases it makes sense especially if you are going to make the commitment to not run up any more debt.

Debt consolidation tools: Below I have listed several resources on debt consolidation including debt consolidation calculators. Please take some time to use these tools to help you determine your best path forward.

Debt consolidation calculator: MSN has a debt consolidation calculator that allows you to enter in all of you credit card debts and determine when you will be debt free using a debt consolidation loan. It is an easy to use web base tool. MSN debt consolidation calculator
Another alternative to a debt consolidation loan is to enroll yourself in a debt management program. An example would be the services of American Consumer Credit Counseling. Just remember to be careful before you enroll in any debt management program. Ask for references, call the references, call the Better Business Bureau for there opinion on the company. Make sure you do you due diligences before signing.

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Saturday, April 08, 2006

Setting a family or personal budget

Setting a family budget

One of the most important steps to getting your financial house in order is to understand where your money is going and living within a family budget. "Living within your means" is a term that describes people that know how much they make in take home pay and how much they are spending and making sure that they are living within their budget and not incurring additional debt.

Key things to remember about living within a family budget:

The golden rule spend less than you make
Understand where your money is going on a monthly basis
Develop a rainy day fund to help out with the unexpected
Pay yourself first, are you saving for retirement in a company 401K or in an IRA?
Pay off your credit cards every month

So lets get started. If your take home monthly pay is $2000 a month or $500o per month it really doesn't matter. You need to understand how much your monthly expenses are. A simple way to understand what your budget should be is to look back at your last 6 months of expenses and develop a list of what you spend each month in each category. If you don't know how much you spent over the last 6 months now is a great time to start working on you family budget. Additionally, if you are moving to a new area and you would like to get and estimate of the typical family budget in a particular area check out the family budget calculator.

Here is a list of common monthly expense categories that you can start with to establish your family budget.

Rent or mortgage payment
Car payment
Grocery bill
Restaurant bill
Entertainment
Electric bill
Phone bill
Gas bill
Cellular phone bill

Here is a list of common annual expense catergories:

House insurance
Car insurance
Life insurnance
Vacation costs
Clothing
House hold items

There are other things that you should also consider in your family budget that don't come along all the time but really need to be budgeted for including.

Health care costs
Car repairs
Home repairs

Are you within budget: Once you understand what your expenses now you need to determine if you are living within you means. If you are spending more on average than you are taking home you are over budget. Which means that you are either incurring debt or you are paying for things out of your longer term savings. In order to get things under control you need to determine what expenses you can cut. Some things are discretionary expenses such as eating dinners out, entertainment, new clothes, magazine subscritions, cable TV, etc. If you can cut these expenses do this first. In some cases you may not have discretionary expense that are easy to cut but your fixed expenses like car payments and rent are too high. In that case you may need to determine how to reduce you fixed expenses such as moving to a low cost apartment or home, selling the car and buying something less expenses.

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