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Ask The M-Network: Investing Newbie

Wednesday, February 4th, 2009

This week the Ask The M-Network question is about investing.  Investing can be an intimidating and scary topic for a lot of people, me included.  There is a lot of information out there and it is hard to sort out what you need to know.  The question I received from a reader was:

I’ve put in so much energy in the past few years to educate myself about finances. However the one BIG thing I just cannot grasp is investing. I still barely understand mutual funds, stocks, bonds, and how to handle and understand my own 403b plan. I’d love to know about the best, most concise, and simplest book or website about the issue, that is really made for people who need to start from scratch to learn all those terms! To top this all off, I’m really interested in socially responsible investing, so many of the traditional avenues of investing turn me off because of the inability to control or know where your money is truly going. Thanks!

And thanks for the question!  First, I turn to two of my fellow M-Network members who have a whole lot more background in investing than I do:

Pinyo at Moolanomy answers:

There’s two parts to this question and I’ll answer them separately.

For the first part about investing
Yes, information about the stock market can be overwhelming, but it’s not hard for you to invest in the stock market. If your employer provides a 401k, that may be the easiest route. Just call up HR and have a small portion (e.g., 1-2% directed to the plan) and pick a Target Retirement Fund (TRF) to start investing. A TRF has a date (e.g., 2030, 2035, 2040, etc.) next to the name, you just have to pick the one with the date closest to your retirement date.

If you don’t have a 401k plan, make sure you start with money that you can lose. Then find a discount brokerage firm in your area. For first time investor, I prefer TD Ameritrade or Charles Schwab where you can physically go to the local branch and talk to someone who can help you open the right kind of account, deposit the money, and help you start investing. For the first time account, the key question to answer is how soon will you need this money again?

* If it’s within 5 years, do yourself a favor and deposit it in the best interest rate CD or high yield savings account.
* If you need it before your turn 59 and a half, keep the money in the a normal account
* If you don’t need it until retirement, then start an IRA. I prefer the Roth IRA due to the tax-free withdrawal (you pay taxes upfront) — but that’s another (and rather long) discussion for another time.

Now what should you invest in? Whatever you do, I would suggest you avoid buying individual company stocks — i.e., Microsoft, GM, GE, Citigroup, etc. With the small initial investment, you can’t achieve the kind of diversification needed for a good portfolio. For the very first investment, I’d suggest looking at Vanguard Target Retirement Fund, or any of the Vanguard Index Funds.

What’s next? There’s a lot of things to learn and I would suggest reading my investing resource page; focus especially on the “Basics” articles and go from there. Feel free to leave question via comment form on the article, or use the contact form.

Now, What About Socially Responsible Investing
For this part feel free to disagree with me. I feel that SRI is very hard to define and not every SRI fund defines socially responsible the same way as you, so it will take A LOT of research to find one that’s socially responsible enough. Secondly, with everything so interconnected nowadays, it’s virtually impossible to find a company that is 100% socially responsible. For example, if a company deals with paper products, is it socially responsible because it contributes to destruction of trees? If a company buys parts from, or outsources services to, 3rd world country companies that use low-paid labor in sub-standard work environments, is it socially responsible? If a company lends money to borrowers who can’t afford to pay it back, is it socially responsible? I think I just described most companies in the U.S. Even a company that you’re sure is “clean” will probably have some kind of business arrangements with many irresponsible companies — it’s a web that we can’t escape.

Most SRI funds are more expensive (they charge you more for being socially responsible) and usually provide sub-par performance because of the more “limited” selection. Would you rather waste 2-3% or more in performance in an attempt to be socially responsible? You would be better off letting your investments do the best possible without any hindrance. You can turn around and donate the 2-3% difference to the causes that you care about. You are guaranteed to make more of a difference that way.

And Patrick from Cash Money Life adds his thoughts:

I think Pinyo’s answer is great. Right now I would focus on getting used to the idea of investing in a 401(k) or IRAat regular intervals through Dollar Cost Averaging (DCA). With DCA, you contribute the same amount of money each month, buying more shares when prices are low, and fewer shares when prices are higher. Over the long run, the markets tend to rise, so you will be buying into that theory.

As for where to put your money, I would also recommend a target retirement fund until you know more about stocks, bonds, REITs, and other forms of investments. A target fund will automatically give you an asset allocation based on your target retirement date, hopefully giving you the best balance of growth with the least amount of volatility.

I also don’t personally participate in socially responsible investing for many of the same reasons Pinyo mentioned. The fees are often inordinately high, which cuts into your returns, the “socially responsible” companies in the fund you purchase may not be as socially responsible as you think, and you are limiting your investment choices. I prefer to invest in very low cost index funds and give money to the charity of my choice.

And I’ll add my own perspective as well:

As for my thoughts, all I have to add is that a friend of mine recently started a blog called ABCs of Investing, where I have been learning the definition of all the investing terms that are thrown about in the media. It doesn’t teach you where to invest, but teaches you how to understand the terms you hear every day so you can make more informed choices.  I have learned a lot reading it!

If you have a question you’d like to Ask the M-Network, feel free to submit it via my contact form or by a comment to this post.  Not all questions will be answered, and we are not finance professionals – just people who spend a lot of time thinking about money.  I’ll try to feature one question of interest to readers a week.

Ask The M-Network: Frugal Business Clothes Shopping

Thursday, January 29th, 2009

At the beginning of this month, the M-Network started a new feature in which readers could ask one of us a finance-related question and several of the M-Network members would weigh in with their answer.  I received several questions, which I will be featuring on a periodic basis on the blog.  One of the ones I received by email is the following:

My question is about frugality in clothes shopping. I make a good income and I work in a professional environment, so maintaining a wardrobe is probably my second largest business expense (after commuting). But the kicker is, I’m not an “average” size. The few retail and online stores I’ve found which sell durable, lasting professional clothing are expensive. How do you save money on clothing when nothing in a thrift shop or consignment store will fit you? Am I stuck buying off the rack?

I am not an “average size” either, but I don’t work in a business environment so I don’t have the same concerns.   For my few “expensive” clothing purchases, I have turned to buying one of an item “off the rack” so to speak, and then scouring the internet for deals on several more of the same identical item.  This worked for me for undergarments, but I somehow doubt you want 5 identical pairs of slacks.  Maybe in different colors…

So I turned to my M-Network friends for help, and this is what they had to say:

Patrick of Cash Money Life:

When you are trying to build a professional wardrobe on a budget, it is important to remember that you do not need designer clothing to look good.

When I built my first professional wardrobe shortly after leaving the military, I focused on purchasing classic items such as solid color shirts and slacks. With classic cuts and colors you can mix and match to make several outfits. Avoid trendy clothing which can quickly go out of fashion.

Finally, buy quality items and take care of them. Quality clothing looks better, fits better, and lasts longer. You should also take care of your items as well, including polishing your shoes and ironing your clothes. These will help them last longer and give people a better first impression.

Lynnae of Being Frugal:

You might be able to find some discounted, professional pieces of clothing at stores such as Ross, Marshall’s, or TJ Maxx. If you do buy off the rack, make sure you buy quality items in classic styles.

The frugal option isn’t always the cheapest option initially. If you buy clothes that will last a long time and won’t go out of style, in the long run, you will save money.

Plonkee of Plonkee Money:

I am not an average size. I’m 5ft tall and US size 10-12 (too short for petite clothes and not exactly svelte). I have never found anything suitable second hand, not many people give away short and wide clothes.

I’m in the UK, so I probably can’t help you out with specific shops to go to. My tactics to cut costs are to have very few suits (I now possess 3) and lots more plain solid colour tops in different weights. I wear the suits in heavy rotation and so am willing to spend a fair amount of money on them – I alter the sleeve and hem lengths to fit. With the suits, I find that I can wear fitted t-shirts and they look just as smart as buttoned shirts, but it’s easier to find cheaper plain and basic ones that fit well in discount stores. When I find a top that’s at a good price, and fits I buy several in different colours.

If you’ve scoured all the second-hand shops in your area and can never find anything then I think you might be stuck buying off the rack. My only other suggestions are ebay and pricing up the cost of having a tailor make you up something. If you travel overseas at all, most large cities in Asia have areas where good tailors can copy an existing garment for a very reasonable price.

Glblguy of Gather Little By Little:

Tough one. From what I understand finding clothes like you need is tough. I know stores like TJ Maxx, Ross Dress for Less, and Marshall’s all have “non-average” size clothing…not much, but they do.

I might also suggest visiting yard sales and consignment shops. They will often have really nice clothing available. Yard sales are hit or miss, but I have found some really nice items, especially high end dress cloths. I bought a really nice high-end sport jacket at a yard sale for $10. Guessing new it was $500 or more. The lady’s husband had passed away and he was just my size. I even offered her more and she wouldn’t take it.

As plonkee suggested, eBay might be a really good option for you as well, just be smart and comparison shop. There are great deals on eBay along with great rip-offs.

One other thing I might suggest is posting a “wanted” article on Craigslist.org that you are looking for clothing and the details on what you are looking for. You might be surprised at the responses you get. I’ve done this a few times for hard to find items and always received good replies.

What’s your take? How do you find good quality clothing at a reasonable price?

(If you have a finance-related question you’d like to ask the M-Network, feel free to submit it via my contact form or by commenting to this post!  Not all questions will be answered but all will be considered. )

Financial Questions? Ask The M-Network!

Wednesday, January 7th, 2009

The M-Network, a group of financial blogs including Being Frugal, Cash Money Life, Gather Little By Little, I’ve Paid For This Twice Already…, Moolanomy, Mrs. Micah, My Two Dollars, and Plonkee Money, is announcing a new monthly feature – Ask The M-Network!  Every month, we will take user-submitted questions, give our collective input, and answer them.  The questions can be any personal finance related topic.  Not all members will weigh in on every question, and the question (and answers) will be posted on the blog where you submitted the question.

Here at I’ve Paid For This Twice Already, you can submit questions by either commenting on this post or using my contact form, and I will post a once monthly wrapup of questions submitted and the answers from the collective M-Network. Not all questions will be used, and I will identify the submitter by whatever designation they ask me to (a first name, user name, or a link to their blog if they would like). Also, our answers are opinions not professional financial advice – please remember that we are personal finance bloggers and not finance professionals. Our answers should not be considered professional advice and we assume no responsibility of any kind. Please consult a certified financial expert as needed.

You can read more details here – and feel free to submit a question via a comment to this post or my contact form!

Link Love: 12 Days and 12 Peeps to Love

Tuesday, December 16th, 2008

Over the last two weeks, I had the privilege of participating in the M-Network‘s holiday project, The 12 Days of Christmas, Personal Finance Style.  This is a tradition we started last year, of taking the 12 Days of Christmas list from the popular holiday song, and turning it into 12 Days devoted to personal finance truisms and tips.  I had the honor of kicking it off this year with the first day, and also providing Day 8.  If you missed a day (or more) and want to catch up with the whole series – the list is as follows:

Also, even though it is already December 16th (so I am a little late!) I wanted to go back and thank my top referrers for November.  Every month, new people find my blog through other blogs linking me or my articles.  I am very grateful for these referrals because it is how the blog grows.  Hopefully you find some inspiration, laughter, or motivation to work on improving your own financial life by watching me attempt to improve my own!  Here are the 12 blogs that sent the most traffic my way in November with a link to one of my favorite and most relevant of their November (or December) posts:

    1. MoolanomyCD Ladder Explained
    2. Simple MomLearn About Investing So You Can Teach Your Kids
    3. Cash Money LifeBig Ticket Items – Is It Better To Rent Or Buy?
    4. Remodeling This LifeIt’s Not Savings Unless You Save It
    5. No Credit NeededTen Steps To Escaping The Paycheck to Paycheck Cycle
    6. Almost FrugalBecoming Frugal Is Like Quitting Smoking
    7. Mrs. MicahTips To Hold On To Your Job and Beat Debt In A Recession
    8. Being FrugalReusing Storage Bags
    9. My Dollar PlanSimplify Your Holiday In Three Easy Steps
    10. Gather Little By LittleThe Stress Of Two Mortgages
    11. Mighty Bargain HunterInvesting With a Financial Advisor?  Don’t Go In Cold!
    12. Frugal HacksExtending Tithing To What I Already Have  (disclaimer:  I wrote this!  ;) )

      Thanks to all the sites that have sent people my way and I hope to get back into the groove of doing periodic roundup posts of the best of the blogosphere and return the favor!

      Sunday Morning Link Love

      Sunday, August 24th, 2008

      With illness traveling around my family, I haven’t had the time or energy to read anything outside my own blog for a little while.  But this week, as we all feel better and my son started preschool, I’ve had a little time to start catching up.

      My son announced to me this morning he was sick (he has a stuffy nose).  Great.  Thanks school germs!

      While I hope his stuffy nose goes away and no one else catches it, here are some articles from other personal finance blogs I enjoyed:

      My Two DollarsUS Food Prices Set For Biggest Increase in 20 Years.  Um… great.  Argh.

      MoolanomyRetirement Savings vs Student Loans.  Where do you stand?  What would you do?

      Being FrugalDon’t Be Squeamish Over Gently Used.  Don’t!  I think almost everything in our house is used.  Including the house!  ;)

      Mrs MicahWhat My Parents Did and Didn’t Teach Me About Credit and Money Management.  I always find it interesting what others’ growing up was like.

      Cash Money LifeTen Commonalities Of Debt and Carbs.  Watching my spouse on his meal plan, I have experienced many of these realizations myself as well.

      Gather Little By LittleBuying A Used Auto With High Miles.  I’m too squeamish to do this but it can be a great bargain!  If you know how to pick ‘em.  :)

      Plonkee MoneyFix Your Finances, Save Money – Step One.  And stick around for the whole series!

      Single Guy MoneyPersonal Finance Back to Basics.  Another series on basic concepts that a lot of people don’t quite understand.

      Dough RollerDo You Believe In Financial Miracles?  A really touching story.

      No Credit NeededDeveloping Strategies To Remain Debt Free.  A post I hope to be able to write my own take on, sooner rather than later!