Cashola

P2P Lending - Viable Alternative Income?

Peer-to-Peer Lending seems to be a controversial subject in the personal finance world.  Sites such as Prosper and Zopa offer Peer-2-Peer Lending, allowing individuals to engage in financial transactions such as lending or borrowing without the intermediation of a traditional financial institution.  Prospective lenders bid on borrowers ebay style - The borrowers post the maximum interest rate they are willing to make on their loan, and the lenders go to a bid war trying to offer a better interest rate.  Borrower’s credit history and debt ratio are appraised by the site and are given a credit score on their profile ranging from AA all the way to D, so lenders can have a general idea about the person they are bidding on.  Some Lenders are claiming returns of up to 10-19%.  Sounds great so sign me up! Wait just a second.  I needed to research a little more and with all the good that I found, I found an equal amount of bad.  There were a fair share of horror stories of borrowers defaulting on their loans and failure of the company to collect.  Ugh.  There were also lenders who mentioned that their returns were no better than your average CD after fees and tax.  Why all the risk, when you can go with a secure CD? I personally haven’t dabbled with P2P lending, but despite all the negatives, it still has me interested.  I don’t think that this can be used as a viable means for alternative income or investing just yet, but it can be something FUN to experiment with your play money.  Depending on my expenses this month, I may throw the minimum $50 to test it out so I’ll keep you posted.

Financial Tracking - Software beats Paper

Tracking your finances accurately is a necessity. The thought of organizing and tracking your finances brings on thoughts of sifting through piles and piles of paper work just to find any relevant data. The keyword here is data. You still need to process, organize, and structure all this data, by busting your brain and pulling your hair out, to make it useful to you. I know there are some people that are old school and don’t like change, but we are living in the age of technology and computers…let’s put it to good use! The ability to see ALL aspects of your finances put together in a processed and organized manner is a godsend, giving you the ability to make smarter financial decisions. Today I decided to take my financial planning to another level…digitizing it. I did some research and decided I would choose Quicken over Microsoft Money. I’m a sucker for cnet reviews, plus I’m not much of a Microsoft fan boy. With Quicken you can connect to your financial institutions (banks, mutual fund companies, credit card companies, etc) and it will update your info seamlessly. You also have the option to scan your paper work and encrypt that information locally on the hardrive. Let me tell you now, Paperless is the future! Aside from Quicken and M$ Money, there were online options available such as mint.com, wesabe.com and yodlee.com, but I’m still a little hesitant to use such services. I guess there’s still a little old fashioned in me, but who knows…maybe one day. Regardless of what you choose to track your finances, the goal here is to do it (easily) and stick with it!

Words to Live by to Invest Well

If reading investing books isn’t your thing, there are seven words that can sum up how to invest well. Those words, offered by Michael Pollan, are:

Index (mostly). Save a ton. Reallocate infrequently.

The book I’m reading now, Bogleheads’ Guide to Investing, and most investing/personal finance information sources I’ve read point readers in that direction. Index Funds, with lower operating expenses and low portfolio turnover, have generally kept up or even out performed actively managed accounts. If Warren Buffett recommends Index Funds, you better listen! Saving a ton is just common sense. You can’t build wealth if you spend more than you earn. Lastly, Reallocating infrequently (every 6 to 12 months) will discipline you to stick to your guns with your investments, keeping you from impulsive decisions and needless costs. You can read more financial basics offered by Pollan in the full article - Five Basics for Building a Solid Financial Future

Vanguard STAR Fund - The Beginner’s Best Bet

The time has finally come for me to take my dive into the world of investing. This weekend, I’ll be opening my Roth IRA with Vanguard and investing my money in the Vanguard Star Fund (VGSTX). J.D. of Get Rich Slowly wrote a helpful article - “How to Start a Roth IRA (and Where to Do It)” which opened my eyes to what’s available. J.D.’s article featured “The Big Three”:

Fidelity Investments offers a no-fee IRA. There’s a $2,500 minimum initial deposit, but this is waived if you commit to $200/month automatic contributions. They offer 4,500 mutual funds, about a quarter of which have no transaction fee. In short, you can open a no-cost IRA at Fidelity with a $200 starting investment if you invest in mutual funds and you agree to contribute $200/month. Apply for a Roth IRA with Fidelity.

It’s also possible to open a no-cost Roth IRA at The Vanguard Group. To do this, you must elect to receive electronic statements and start with $1000 in the company’s STAR fund. (The STAR fund is an mutual fund of mutual funds, a safe choice for beginners.) Additional contributions require a minimum of $100 unless you use their Automatic Investment Plan, in which case the minimum is $50. There are no fees to purchase the STAR fund. Start a Roth IRA at Vanguard.

T. Rowe Price charges $10/year for Roth IRA accounts until you have a balance above $5,000, after which there is no fee. You need $1,000 to open your IRA, but this minimum goes away if you sign up to contribute at least $50/month with the Automatic Asset Builder. There are no sales fees or commissions to invest this money in T. Rowe Price mutual funds. Open an IRA at T. Rowe Price.

All these investment houses are great choices for the beginning investor, but I’ve always been somewhat infatuated with Vanguard and decided to hold out until I could hop on the Bogle boat. What attracted me to Vanguard is their low expense ratios and great overall performance. Now the STAR fund may not be that impressive, but it’s great for the beginning investor who doesn’t have much money to initially invest. With regular deposits, your Vanguard STAR fund is a great stepping stone to the higher priced Target Retirement Funds which require a $3000 minimum. My projected date to transfer out of my STAR Fund into a Target Retirement Fund is January 2009. How’s that for a goal? In the end, you can’t go wrong with what you choose. Do your research and find out what suits you best.

Bernanke’s Fed Fails

Yes, Ben Bernanke has run out of ammo, leaving him to sit there with his fingers crossed as he lets the market take on it’s own course. The Federal Reserve released minutes and has announced yesterday that our economy hasn’t seen the worst of it yet. The economic growth forecast for 2008 is as hopeful as Gary Coleman hitting 5 feet tall. Bring on the inflation and unemployment. Want to see the numbers? Taken from an article on Forbes.com:

“the central bank now expects 2008 GDP in a 0.3% to 1.2% after the downward revision, unemployment of 5.5% to 5.7%, and inflation of 3.1% to 3.4%.”

After the release of the Fed’s minutes, the already struggling market took another blow.

“The Dow dropped 189 points, or 1.5%, to 12,640, with much of the decline coming after the Fed minutes hit. The S&P 500 lost 17 points, or 1.2%, to 1,397, and the Nasdaq shed 35 points, or 1.4%, to 2,457.”

Not only that, but travelers will be feeling the heat immediately. Due to rising gas prices, which by the way oil hit a record breaking $134 a barrel today, airline stocks plummeted. American Airlines cut their fourth quarter capacity by up to 12% and put 75 planes to rest. American Airlines will also be raising passenger fees and charge $15 for your first checked bag. With news like this, it makes me apprehensive to start my investing plan at the end of this month and revert to strictly saving, but I must practice what I preached in my previous post, “Psst! Want to know the best time to invest?“. Wish me luck.

Psst! Want to know the best time to invest?

So, you want to know the best time to invest? I’ll tell you. The best time to invest is now! There is no one in the world who has a crystal ball or a little bird that whispers in their ear to tell them whether the market will rise or fall. One of the biggest mistakes investors make is attempting to time the market and using past performance to determine how the market will perform. A majority of investors are better off using whats called Dollar-Cost Averaging. With Dollar-Cost Averaging, an investor invests a fixed dollar amount at regular intervals. For example, my goal will be to invest $400 every month, regardless of how the market may be perceived at the time. Using Dollar-Cost Averaging with Index Funds may be the best advice for most investors to take. The advice doesn’t make for exciting reading, but who cares?!

Help, Gas prices are killing me!

With crude oil reaching near $128 a barrel, the trend of gas prices rising doesn’t seem to be ending anytime soon. My car averages 24 mpg highway and only takes premium. I catch myself looking enviously at Toyota Prius’s and Mini Coopers, with their 30+ mpg rating, when I see them on the road. What can we do to save money on gas? Here are a few that I personally follow:

1. Check gasbuddy.com or gaspricewatch.com to find the cheapest gas available in your area. I find this site to be very helpful in finding the cheapest gas in a certain area. Even saving 2 cents per gallon can mean over $50 dollars in savings a year.

2. Checking your tire pressure. This is one of the easiest ways to get the best gas mileage out of your car. Properly inflated tires equates to approximately 3.3 percent savings on your fuel economy. What does this mean to you? Savings of about 10 cents per gallon! I admit, I get lazy at times and don’t check my tire pressure often, but with the way things are going now…that’s got to change.

3. Accelerate and Brake lightly and steadily. Abrupt accelerating and braking can mean hell on your mpg! I drive a manual and shift as low as 2k rpm when accelerating, and I coast as much as possible when slowing down to a stop. It makes all the difference. Oh yeah, cruise control is your friend.

4. Remove Excess Weight. Yes, those golf clubs in your trunk you haul around town cuts down on your mpg. Avoid keeping unnecessary items in your car. 100 pounds in your vehicle can reduce your mpg by 2%.

Another method that I’ve seen people use has nothing to do with their car habits at all. Sign up for a credit card that rewards a percentage on their gas purchases. I’m not sure about the details on this as I haven’t done much research, but it sounds interesting. If you can find a card that has a low interest rate or one you can pay off in full every month it could possibly be worth the hassle.

Listen to Money Girl and be Wealthy

I was browsing through a couple of my favorite sites when I ran into this little treasure trove of personal finance information: Money Girl’s Quick and Dirty Tips for a Richer Life. Yesterday’s podcast covered Common Investing Mistakes and was easy to listen to, informative and to the point. You have the option to listen to a stream on the webpage, or even download the podcast to save on your computer to listen to at another time or to put in your ipod to listen on the go (which I find very convenient). A couple topics featured that I found interesting were: Tips for Creating Long-Term Wealth With Real Estate, Investing for Retirement, and Improve Your Credit Score. Check it out now!

How to Claim Hidden Money to Invest

You may have some unclaimed money out there and not even know it. I’ve heard stories of people with unclaimed money ranging from anything as low $5 all the way up to thousands of dollars. We all know the power of compounding. Imagine how much this money could be worth now if you had known about it earlier and invested it. If you’d like to find out if you have money owed to you, check out: MissingMoney.com!

Roth IRA defeats Credit Card debt

As you can see, I’ve been gung-ho about investing and personal finance as of late. Receiving my first check, I’ve been thinking of ways to effectively apply everything I’ve learned so far. In my previous post “How to Get a Better Interest Rate on Savings“, I discussed how I decided to open a high-yield savings account with Washington Mutual. So far so good, but I ran into a dilemma. Do I completely pay off my $900 credit card debt this month and wait until the end of next month to start my Vanguard STAR Fund -or- do I pay off my card in 3 months and open my Roth IRA at the end of this month. If my credit card debt had a high interest rate (which it previously did at 21%), I would’ve probably payed of the credit card first; however, I transfered the balance to American Express Blue and I am now sitting at a manageable 4.99% APR. I figure the benefits on investing in my Roth IRA now and slightly delaying the payoff of my credit card debt will outweigh paying off my credit card debt now and delaying investing in my Roth IRA.