Investing

Average Stock Market Return: Where Does 7% Come From?

Whenever I talk about investing in stocks, I usually suggest that you can earn a 7% annual return on average. That percentage is based on a few assumptions. First, I’m assuming that you’re investing for longer than ten years. That’s because in a given year, the stock market is very volatile. Some years see an …

Categories: Investing

Is This Everything You Need To Know About Financial Planning?

Here’s an interesting article I discovered over at the Vanguard site about the basics of retirement planning. In it, the article quotes a section of Scott Adams’ 2002 book Dilbert and the Way of the Weasel: Everything you need to know about financial planning Make a will. Pay off your credit cards. Get term life …

Categories: Investing, Retirement

Could Cyprus Happen Here? What Can We Do?

Several readers have sent me rather concerned emails over the past week over the banking situation in Cyprus, where the government, facing a deep financial emergency, essentially took money from every bank account in the country, anywhere from 6.7% to 9.9% depending on the size of your balance. Here’s a detailed description of what happened …

The Investment Trinity

Every investment you make requires you to balance three different factors. The first factor is risk. How likely is it that you’re going to get the return you expect over the next year, or the next five years? Generally, lower risk is better. The second factor is liquidity. How easy is it for you to …

Categories: Investing

How Does Inflation Affect a Mortgage?

Karen writes in: My brother has argued with me that I shouldn’t make any extra payments on our mortgage because we’re losing money over the long term by making early payments. He says that with inflation at 3% and our money able to earn 1% at minimum in a savings account and more if we …

Categories: Investing

My Plan for Handling a Big Windfall

Kelly writes in: What would you do if you won the lottery? Since I don’t play the lottery, I’ll answer this question under the assumption that instead I’m just receiving a very big inheritance from my unknown Uncle Rockefeller and Aunt Vanderbilt. The first step I’d take is to make absolutely sure all taxes on …

Categories: Family, Investing

Does a “Savings Club” Account Work?

Carol writes in: My local bank offers an interesting account each year. It starts on the first Saturday in January and the deal is that if you deposit the same amount each week for 49 weeks, they will make the 50th deposit for you and give you the money at the end of the year …

Categories: Banking, Investing

More Than 25 Percent of Americans Are Making a Huge Financial Mistake

What mistake? According to the Arizona Star, more than 25% of Americans are raiding their 401(k)s to stay afloat. The only way this even looks like a good idea at all is if you’re looking only at the very, very short term. If you look beyond that, making this move is pretty clearly worse than …

Categories: Investing, Retirement

Why I Never Use Stock Market Predictions to Invest

Let’s say, hypothetically, that I figured out some ingenious way to predict the stock market so well that I would always significantly beat the annual returns of the S&P 500. Every year, year in and year out, I could get a 30% to 50% return in the stock market. Assuming I’m not so altruistic as …

Categories: Investing

Financing to Make Money

Connie writes in: My husband and I are in great financial shape thanks to living well below our means for many years. We are in our mid 40s and have $300,000 in the bank along with no personal debts. We’ve been thinking about buying an apartment building in our area. There’s a person who may …

Categories: Investing

An Example of Dividend Stock Investing

Several people have written to me recently asking me how exactly investing in dividend-paying stocks actually works. I thought I’d walk through this in a step-by-step fashion so that people can see how it actually works. First, a few caveats. Dividend stock investing is something I do with only a small part of our investments. …

Categories: Investing

Investments, Taxes, and Worry

Johnny writes in: The one thing that has kept me from diving into investing is fear of taxes. Every time I read about taxes and investments, it seems really, really complicated and I’m worried I’m going to be stuck with a big tax bill at the end of a given year even if I think …

Stomaching the Roller Coaster

Jane writes in: I think you’re giving bad advice to people when you tell them not to put everything in stocks or real estate when making a long-term investment. Over a long period like ten years or more, you simply can’t beat the returns there. Long-term investing relies on several assumptions, two of which hinge …

Categories: Investing

Building an Investing Future

John writes in: You’ve mentioned before how a person might slowly build up income-earning investments to provide an income stream for them. How would that actually work? Let’s say I can squeeze out $100 a month for this. What would I do? Okay, let’s do this. First of all, you need to have selected something …

Categories: Investing

Five Red Flags for Bad Financial Advice

Every once in a while, I’ll find myself in an airport or somewhere else where a personal finance or investment program is on television. I’ll watch it for a bit and usually find myself frustrated because, every time I watch, I see a bunch of red flags that indicate that I should take what’s being …

Retirement Investing Obsession

Vitaly writes in: My problem is that I can’t stop looking at my retirement accounts. Whenever I see an investment option that’s doing a little bit better than whatever I’m doing, I start to feel sick to my stomach and I panic and I have to switch my investments over. Then a week later I …

Categories: Investing, Retirement

Saving for Future Uncertainty

I’m at a pretty content point in my life. We have no debts. Our home is paid for. I have work that I’m happy with and a number of long-term projects I’m passionate about. Sarah has work that she loves as well. We have some money saved up. When we look ahead, we don’t see …

Investing Advice For Indirect (or No) Financial Returns

When a person is free from debt and is earning more than they spend, the natural thing to do is to turn to investment advice. Should I invest in stocks or bonds? Should I buy some real estate? The goal of such investments is straightforward: the person simply wants to raise more money. Now that …

Categories: Investing

Savings Account as Investment

Quite often, I’ll get emails from readers saying that they’re looking to invest their money and that the money they want to invest is currently sitting in a savings account. What these readers often overlook is that the money in their savings account is already invested. An investment simply means that you’ve put aside a …

Categories: Investing