Monthly Archives: November 2014

Staying in the Black this Black Friday

best deals on black friday

So how do you stay “in the black” this Black Friday?  There are some great deals to be had, for sure.  But I’m not a fan of Black Friday because I think it spurs unnecessary spending from all the “discount frenzy”, even leading to fighting and ugly consumerism.  That doesn’t mean you should avoid it all together.  I’m here to help you take advantage of the deals you need, keep your budget on track and maybe even help you avoid those shopping bag beat-downs you see in the news coverage.

Buy What You Need

Just like I tell people to stick to a shopping list while at the grocery store, the same is true for Black Friday.  A new tablet or laptop might be deeply discounted, but if you don’t really need it, that deal is only hurting your bottom line.  So as a strategy, think of what will be on your holiday list for friends, family and yourself, and try to stick to that.  Kohl’s and Amazon are offering some great deals on toys for Black Friday, which almost everyone needs to buy for the holidays.  So that’s a great place to look.  Knowing what you need ahead of time will also help you research deals so that you know exactly where to go and when.  So where are the best deals in-store and online?  Deals.com is listing the best Black Friday deals here.

Stay Home to Find the Best Deals

I don’t know about you, but I can’t wait to drift into a glorious food coma in my stretchy pants after my Thanksgiving meal.  The last thing I want to do is wait in the cold in front of some box store for a lottery number just so I can get a new flat screen TV.  And retailers are starting to understand this.  So they now offer the majority of their Black Friday deals online.  Most of these deals have already started and will continue until Cyber Monday.  So there’s no need to interrupt your holiday to shop.  Start now for the best selection or take your time over the weekend comparing deals.  According to Deals.com, Amazon, NewEgg, Best Buy, Walmart, and Tiger Direct are offering the best discounts this year on their sites.

Or Just Avoid Black Friday Altogether

Not to be a Grinch, but Nerd Wallet did a study of retailers and found that 93% of the special prices offered on Black Friday are also offered at least one other time, making all the crowds and frenzy not worth it.  And the frenzy can be addicting!  In the past, I’ve usually been pretty good about avoiding Black Friday shopping.  But while researching this article I found myself wanting to buy so many things just because they were “on-sale”.  I even called my husband and asked him if we needed a new flat screen after looking at Best Buy’s deals.  Nerd Wallet’s study also showed that the average middle income family will have 2.6 months of debt after the holidays.  I think getting through the holidays debt free is the best deal of all!

 

Photo Credit: Wang Shein

What Kind of Broker is Best for You?

Stocks Higher On Job Market News, European Stability

If you’re at the point of taking investing beyond contributions to a 401(k) and you’re ready to build a portfolio, the first thing you should think about is where you want to open a brokerage account.  These accounts allow you to buy stocks, bonds, mutual funds, and other types of investments by paying professionals to buy and sell the ones you choose.  In last week’s post we talked about bond basics and I mentioned that you can buy bonds directly yourself.  But with the exception of treasury bonds, bonds can be tricky to purchase individually and best left to professionals who buy in high quantities.  As for stocks, some companies allow you to purchase stock directly from them.  But with stock trade commission’s being so low right now, you’re better off opening an account from a broker you trust and having your stocks in one place.

There are two types of brokers: traditional or discount.  (I already like the sound of the discount one, don’t you?)  All brokerages charge a commission for you to use their services.  The difference lies in what services they offer and how much of a commission they charge.

Traditional

Traditional brokers work like money managers and offer you advice on what types of investments to make, provide tax guidance and assist with retirement planning.  As a result, these brokers are much more costly.  These brokers usually charge a commission that is a percentage of your portfolio value, and it can typically be 1-2%.  Therefore if your portfolio is worth $100,000, you can plan on being charged a commission of $1,000 – $2,000 each year.  These fees could quickly eat away at the returns your portfolio is earning and even delay your retirement date.  Some of the best known traditional brokerages include Morgan Stanly, Edward Jones, Merrill Lynch and Smith Barney.

Discount

Discount brokers rely on you to make your own investment choices and merely complete the purchase for you, but charge much lower commissions.  However, many discount brokers offer lots of resources to help educate you to make better investment choices.  The fees for a discount broker vary depending on the type of investment you’re purchasing.  Stocks are usually between $5-10 per trade, and mutual funds have percentage based fee, which are significantly less than traditional brokers.  TD Ameritrade, Trade King, ScottTrade and E Trade are some of the more popular discount brokers online.

Regardless of the type of broker you choose, make sure you understand their fees up front.  They should be clearly stated on their website, but if not give them a call and ask.  Even discount brokers have a contact number with professionals available to answer your support questions, like verifying a trade was issued, questions about price and fees, etc.

Think you would like a traditional AND discount broker depending on the type of investment?  Firms like Merrill Lynch and Charles Schwab offer both types of services, which provides nice flexibility if you need advice about some investments but not all of them and want your investments in one place.

 

 

Understand the Basics of Bonds

How to buy bonds

Bonds.  I’ll be honest, I think they’re pretty boring.  They’ve always confused me.  Lots of confusing terminology and calculations.  Now, don’t get me wrong.  Bonds can be great so I shouldn’t give them a bad rap.  They can be a conservative addition to your portfolio to help you offset the risk of your stock investments.  And lucky for you and I, there are plenty of resources available on the internet to help you with calculating all that boring stuff I just mentioned, making it much easier for you to select a bond that’s right for you.  So we’ll just go over some bond basics to help you get started.  This might not be the most glamorous post but definitely one worth reading.  So… are you with me?  Lets do this!

What is a Bond?

Think of a bond as a loan you’re making to a corporation or government entity.  Doesn’t that sound fancy?  Just like you get charged interest on the debt you have from your car, home or credit cards, these entities also pay debt.  So a bond is your chance to get in on the all that interest they’re paying!  Here are some basics terms you need to understand:

Par Value – This is the price of the bond (usually in $100 or $1000 increments) that will get paid back to you when the bond matures.

Maturity – This is the length of time until the par value of the bond is paid back to you.  Maturity of a bond can be in months or years.

Coupon Rate – This is the interest rate the bond will pay until it matures.

Why They’re Great

Bonds balance out a portfolio of stocks because although they tend to offer lower returns, are deemed less risky.  But the stability of bonds will counter the fluctuation of stocks.  The risk you are exposed to with bonds is the risk the bond issuer (the corporation or government you received the bond from) will default on their debt to you.  Each bond is given a rating which reflects the credit rating of the issuer (just like lenders look at your credit score before giving you a loan, credit card, etc.).  The bonds are rated AAA, AA, A, BBB, BB, B, CCC, CC, C, with AAA being the safest bond to purchase and C bonds having the highest risk for default (also known as junk bonds).  Bonds issued by the US Government, called Treasury Bonds or T-bills, are deemed some of the safest out there due to the government’s ability to always pay back its debts on time.

Making Money on a Bond

Your biggest question is probably “how much can I make from bond investments?”  This is where things can get a little confusing.  If you buy a bond at par value and hold it until maturity, it’s easy to calculate how much you’ll get as a return.  If you buy a bond for a par value of $1,000 and your coupon (interest) rate is 6%, $60 will be paid to you on an annual or semi-annual basis and you’ll get your $1,000 back when the bond matures.  However, the prices of bonds are always fluctuating with changes in the market and interest rates.  The current market price of a bond is called its “yield”.  Once you’ve bought the bond, if you plan on holding it to maturity you don’t have to worry about whether the yield continues to change.  You’ll always get what you paid for the bond if you hold it all the way to the maturity date.  But if you need to sell it sooner, this may affect your investment.

How Do I Buy Bonds

You can buy bonds online through a broker.  Many brokers require a minimum bond purchase of $5,000.  If you don’t wish to invest this much in bonds, a mutual fund that specializes in bonds may be a better alternative.  I actually recommend mutual funds that are made up of bonds (or a mixture of bonds and stocks).  Fund managers buy millions of dollars’ worth of bonds at a time so their transaction costs are lower than if you tried to purchase bonds on your own.

Now, if you plan on buying treasury bonds, these are very easy to purchase individually.  You can buy treasury bonds directly from the US Treasury here.  Remember that the earnings on these bonds are also exempt from state and local taxes, which means they earn more than standard bonds of the same coupon rate.

If you really want to understand bonds and their yields better, Investopedia has a great article that offers a more in-depth explanation on the basics of bonds.

 

Photo Credit: US National Archives and Records Administration