Know Your Worth

The largest asset you have is you. The greatest obstacle for you moving ahead in your financial life is your salary. If you could earn more, wouldn't it be easier for you to accomplish the things you want financially? The answer should be yes if you are not going to inflate your lifestyle with your salary.

Since you answered yes, it means that you must know when to move on. You have to know when you can no longer progress within your company and you have reached the challenge level or the salary level that you can. It might be hard to make a change sometimes, your company might have a 401(k) that's not fully vested or maybe they promised a bonus. However, remember that if you've reached the limit, seeking another job now will make your future 401(k) vest sooner and you will be able to prove yourself faster to get another bonus at your future company. Therefore, make goals of what you want to make in the future and make sure you are doing what you need to, to attain these goals.

If you thought that a particular stock you are holding would not increase in value in the future, but would only provide a stable low dividend, wouldn't you want to sell the stock and buy something that would give you a regular dividend that's larger and would have the potential to increase in value? Think of your job as a stock and see if it helps to analyze it that way.

Re-shuffling your Portfolio

You should be saving for retirement, which means you are buying mutual funds, ETFs, stocks, bonds, or some other form of investments. You should look into your investments on a schedule. For example, once after the 90 day period that you are allowed to trade your no-load mutual funds without a fee and twice a year. Those dates should be memorable if you tend to forget to check up on your investments.

Just like checking your annualcreditreport.com on specified dates such as time changes and the 4th of July, you should set dates to re-balance your portfolio. If associating re-balancing with particular dates is not memorable enough, you should mark your yearly calendar with dates now. Almost everyone has a phone with a calendar capability and if you are planning to keep your phone for awhile, you should set your phone calendar with an alarm. Do it now.

Re-balancing is so important as you do not want too much cash, you also do not want investments that are failing and you would not buy today. If it's been awhile since your last close look, you probably bought new investments. You should know how everything fits together. You can use the Morningstar X-Ray to evaluate this.

Investment Advise - Invest in What You Understand

People often follow the news or stock picks by analysts and choose stocks based on this information. If you are going to invest in individual stocks rather than mutual funds, you really need to know what you are investing in.

The best way to pick stocks is to invest in what you know and understand. If you do not understand what a company is doing, like a new technology that they are heavily investing in, then steer clear.

If you work in a certain sector like the food industry, then you should understand who the big players are and who has the best business strategy. You should invest in those companies. You should be able to spot the red flags in industries that you are familiar with much faster than you would in a stock that you picked based on a newspaper article.

Therefore, always know the company or at least what they do, listen to the news to get extra information, and pick wisely.

Investments and Holding On

A lot of people hold on to bad investments that they know they want to sell simply because people want to recover any losses that might have happened.

I've been skimming through Suze Orman's Young Fabulous and Broke and bumped into some common sense knowledge that not everyone follows. You must learn how to let go of investments that are no longer working. Once in awhile review your stocks and mutual funds and see if you would still buy them today. If you wouldn't buy them today, why are you holding on to them now when you can be making a profit somewhere else? It might be difficult to loose money in the stock market, however, the missed opportunity cost and the potential for further losses is too great so get out of the investments that are no longer working for you today!

Mutual Funds Trading

Unlike stocks, mutual funds do not trade in the middle of the day. The stock market is open 9-4 eastern time and you can only buy and sell mutual funds at the end of the day. Therefore, even if you place an order during the day, it will not be executed until the end of the day. Also, if you want to see the value of your mutual fund, you must wait until the end of the day.

Mutual funds consist of a variety of stocks and it would be too difficult to compute the value of all stocks in a given mutual fund at a specific time as stock prices can change every second.

NetWorth IQ

There are several ways to track your net worth. The most convenient for me, has thus far been Mint.com because it does everything automatically. However, another way to track your net worth is through NetWorth IQ. Here are it's advantages and disadvantages.

Disadvantages:

1. You must manually enter all your data
2. All other people's data is manually entered as well and might not be accurate for comparison
3. You must enter your data every month to see the progress

Advantages:

1. You can track your net worth with a graph
2. You can see the percentage change in each category
3. You can make your net worth public so other people can comment on your progress
4. Making your net worth public might motivate you to get that number up
5. You do not need to give out personal login information
6. You can compare your net worth to others your age, or in your occupation, for example
7. You can also compare each category such as student loan debt, credit card debt, or retirement assets to others in your demographic groups

MorningStar X-Ray of Your Portfolio

If you hold several stocks or mutual funds, chances are you are not aware of the percentage of your portfolio that is in US stocks or in utilities. A great way to know the exact breakdown of what you hold by percentage is to do the MorningStar X-Ray. You can also do this before you buy an additional stock or mutual fund to make sure that you are saturating your portfolio in one type of area (unless that's what you are looking for). It's always best though - to go for diversification.

Rule of 100 - Portfolio Diversification

To know how much of your portfolio should be invested in stocks vs. bonds/CD/other safer investments, you can use the simple rule of 100. What you need to do is subtract your age from 100. For example, if you are 25: 100-25=75. You should have 75% of your portfolio invested in stocks and 25% in bonds, etc.

Of course, if you want to be more aggressive, you can invest more money in stocks or the other way around. If you want to be safer, you can invest more money in bonds and CDs. However, the rule of 100 can provide a basic guideline.

A New(ly Discovered) Search Engine

Nowadays information is readily available, however, sometimes you just want a snapshot of what you are looking at or a clear 'yes' or 'no' answer. Here is a great search engine WolframAlpha. The search engine will tell you almost about anything with a quick snapshot. This is great for checking out a company if you want to buy the stock (type: Google), finding out the population, weather, and median home price of a city (type: Washington DC), by finding out how much you will pay in interest over a life of the loan (type: loan 10% interest 10 years $10,000), etc.

 

Try it out and look at the Examples page to see what else this search engine can do.