Investing101 Archives - Page 5 of 6

Income Sources

Most of you all already know that you can earn income from many different ways. But maybe you didn’t know the actual categories each income source belongs too. I wanted to share with all of you these income sources and give you a brief description and hopefully you can understand how you earn your money better. Personal finance is hard to figure out for many people, but this post will get you one step closer to understanding how one income source favors the other.

Income Sources:

Earned
Portfolio
Passive

Brief Descriptions of each Source:

Earned – Income derived from working for someone else or from a business you own or are a part of. This type of income is taxed the highest out of all the other incomes. It is also the biggest chunk of tax the government makes off individuals for GDP Revenue. In certain situations this type of income can be taxed at and up to 50% of the gross amount you make. The reason being that in this income type you have to pay Social security and medicare taxes.

Portfolio – Income derived from investments including dividends, interest, royalties, and capital gains. When you put your money in a savings account and the bank pays you for having it there that is considered portfolio income. If you write a book, then the royalties of the book sales are considered portfolio income. The tax implications from these types of incomes can be confusing, but dividends and capital gains taxes usually are up to a max of 20% and royalties can be taxed like self-employment ordinary income.

Passive – Income made of work in which you do not actively participate in. Examples include Rental real estate and silent business arraignments. This type of income is what people call gravy because you do not have to put your blood, sweat, and tears into it. Building a rental real estate empire is considered passive income for tax purposes, but believe me when I tell you managing something like a rental empire does take a lot of participation unless you hire a management company and reduce your time commitment.

In the United States people make the mistake to think that income from dividends are considered passive income and this is a mistake, the IRS clearly defines that type of income as portfolio. In my opinion I believe it is mandatory to try to build income from all three sources and then to begin to eliminate earned income and focus on growing the portfolio and passive income sources. If you can eventually grow your portfolio and passive income to cover all expenses then you are finally considered financially free.

Comment to let me know what are your thoughts to the three types of income sources listed above.

Always consult with a tax professional if you have a tax related question or if you are receiving income from different sources as mentioned above. If your taxes are complicated always consult with a certified CPA professional.

RichUncle EL

Investment Options

What would you do given the many options to invest? Would you go all out and just take a risk with the highest yield or would you play it safe with a CD. Either way you are doing an awesome job if you take the plunge and use all the investment options available now instead of all those live by the moment soon to broke people. HA HA. I want to illustrate without drawing, the different kind of options we all have to invest our hard earned dollars, unless you are one of the fortunate ones to get an inheritance aka Free money. What options you ask?

Continue reading Investment Options

50 Years Paying Dividends

Hey guys I know how hard it is for some of you out there to trust the stock market or the fact that you hear of random stock tips by non-credible sources. Let me tell you that the stock market does have risk, and nothing is guaranteed. In addition to this there is risk with letting your money lose value sitting in a measly bank account or under the mattress, due to inflation.

What can you do to protect your hard-earned money aka Mula?

-Have a great offense to accompany your defense. Look for companies with a history of 50 years paying dividends.

Did you know that many companies have been in business for over 50 years and been paying and increasing dividends for the exact same time frame. Yes you heard it here first and I know with information comes power. Companies are in the business to make money, which includes making money for the owners of the business aka Share owners. Your next question would and should be; What are the mysterious companies you are talking about and how can I invest in them? See below for the list of Dividend Champions:

50+ Years Paying Dividends:

-3M Company
-American States Water
-Cincinnati Financial
-Coca-Cola Company
-Diebold Inc.
-Dover Corp.
-Emerson Electric
-Genuine Parts Co.
-Johnson & Johnson
-Lowe’s Companies
-Northwest Natural Gas
-Parker-Hannifin Corp.
-Proctor & Gamble
-Vectren Corp.

Now after you just learned that these companies offer 50 years paying and increasing dividends for shareholders wouldn’t it make you a little bit more at ease investing in one of these companies? If you maintain a long-term position in these companies and reinvest all the dividends into new shares of stock I believe you can beat inflation hands down. In addition to having a good track record most of these companies have had stock splits throughout the years and that means more shares in your pocket. (aka More Profit)

Granted history does not repeat itself and past results may not indicate future results, but wouldn’t you rather be in the game than thinking, I could have made so much money if I had invested. Just a brief example for you, if you had invested 1,000 dollars in Coca-Cola in 1962 those shares would be worth about 165K dollars today. Obviously it would be a lot more with all the stock splits and if you invested more dollars through out the years. (Calculator did not take into account the stock splits)

Any of these stocks above are available through the myriad of online discount brokers and directly by contacting each company’s shareholder services for the dividend paying companies. Research the fees associated for each and make a decision as to what is best for you.

Now tell me would you be more confident investing in a company that has never stopped a dividend payment for 50+ years?

I would be and you can too if you sign up with: Trade king. See the banner link at the bottom of this post.

RichUncle EL

*I get a referal fee if you use my link and sign up for an account with tradeking. Thanks.

Why I like Vanguard Funds

I will give you the reasons why I like Vanguard as my primary online investing option for Index funds only. A lot of people preach that simplicity is better and leads to a more fulfilled life. But when it comes to investing things can get a little skewed and complicated. Vanguard is my number one option for Roth IRA and Traditional IRA account options including transferring any old 401K employer accounts.

For stock investing I do this at another online broker because I for one like having a little separation of wealth to avoid risk and also my online broker is cheaper when it comes to doing stock trades. Plus some of the big name investing options charge more than the discount brokers per trade usually, unless you have massive wealth and then the discounts are available due to the size of your nest egg. Having a big amount of money has it’s perks.

Back to the matter at hand, Vanguard index funds. I find their customer service to be exceptional. Every time I have contacted them over the phone, I get a person who is both knowledgeable and very customer service driven. They always answer my questions and I am not steered into doing something I am not 100% knowledgeable on the subject matter and comfortable doing. Give them a chance and you will see how easy it is to maneuver around online and set up an account with them.

They have all types of accounts available like, mutual funds, IRA’s, 529 plans, stocks / bonds, and ETF’s. In addition to being a full service broker you can invest as little as $50 a month automatically from you’re bank account to your IRA (only) investing account for no additional fees. This is called a bank ACH debit and can be very convenient for your online money system.

I promote Vanguard because I like how the company is run and how inexpensive most of their funds are to own. I am not being compensated for promoting them and you can find them at their website Vanguard.com. I am just passionate about sharing what is and has worked for me and the great reputation of a good financial company. If you have any questions you can call them directly, go on their home site, or send me an email at Moneywatch101@gmail.

Here is a link to a another fellow blogger who loves Vanguard as well: MrMoneymustache

RichUncle EL

Photo credit to Businessweek and Vanguard.

Watches equals Value

I wanted to do a post on a topic that I have never read before anywhere else and something that is different than my usual posts. I did internet research and even interviewed a few watch dealers to get this valuable information. I am fascinated with watches and a thought came to me one day. What watch brands hold their value or even increase in value as time passes? The list below is a great list with excellent brands, but unfortunately cost an arm and a leg just to get your hands on some of these. So if you want to invest in one of these you better start saving now because they are costly? Obviously if you are in the market for one of these you should be debt free, on solid financial ground, and have a huge net worth before attempting to buy one of these time pieces. Make a new budget category labeled future watch purchase, hahaha.

I have heard through the grapevine that wealthy individuals actually invest in timepieces as a way to hedge part of their money against other risky investments in their portfolios or to place surplus money in a hard asset. Have any of you heard of anything like this? Would you consider this for your own investment strategy if you could? If you knew for a fact that certain watches equals value would you drop a few thousand and make a purchase?

Examples of Hard Assets:

Jewelry (Gold, Silver, Precious Stones)
Real Estate
Cars, Planes, Boats
Watches
Vintage Furniture / Artwork
Machinery ( For Businesses)

The important thing to consider when purchasing one of these watches is first and foremost is to decide what movement you desire and if it is made by the company itself or not. Automatic, mechanical, quartz, and Solar are the only options for watch movements. By far the automatic movements with a power reserve (powered by your mobility aka Kinetic) are pricier than the others and it will hold its value longer. In addition to the complications mentioned before always make sure that the movement is Swiss made as this will pay off later in eventual resale. You will see a small print in the face of the watch that will verify if it is or not Swiss made. In addition to this if you dig a little further you can find out if the movement is a Valjoux which is a highly respected and recognized movement. The retail prices of most of these brands range between $1,500 – 80,000+. IWC and Omega are on the lower end of the price range and Patek Philippe and Jaeger LeCoultre are on the higher range price point. The companies who market their brands too heavily are disgraced by watch collectors because they are more mass produced in the world of watches and thus eventually will not increase in value. Quality over quantity is a key lesson for watch aficionados. This is something to consider prior to a time piece purchase.

Best Watches equals Value Brands:

-Rolex
-Bremont
-Cartier
-Blancpain
-A. Lange & Sohne
-Patek Philippe
-Jaeger LeCoultre
-Vacheron Constatine
-IWC*
-Omega*
-Breitling*
-Audemars Piguet*
-Zenith
-Sinn

If you notice there are some brands that are not mentioned here like Movado or Oris, I do recognize that these two brands and a few others as being good for certain target markets, but overall they do not increase in value as the brands on the list if they do at all. Granted other companies offer excellent watches, but the value of certain brands tend to stay level.

Important fact and a distinction people overlook is for what purpose you are buying this timepiece whether you want this time piece to be for everyday wear or for special occasions? Always remember that you should look at purchasing a timepiece that is timeless literally, because then you can pass it down to your heirs. Even though most of the brands on this list might be considered luxury and can cost more than what the average person might want to spend. It is important to understand that this category of watches aka luxury are the ones that increase in value over time while the budget based watch categories do not. (Examples of budget based brands: Seiko, Citizen, Bulova, Timex, Invicta, Swiss Legend, Fossil, etc.)

Companies who are honorably mentioned for having excellent timepieces but did not make the list: Hamilton, Tissot, Bell & Ross, Momo Design, Oris, and Tag Huerer. (Value increases if any will not be as substantial) Also any watch made by a fashion designers like Coach, Versace, Michael Kors, or Gucci is blasphemy for real watch collectors, but might hold a special place for certain brand lovers. They are hell bent on making a fashion statement rather than making a fine time piece. Also to all you Michael Kors watch loving people, did you know that fossil is the maker of their watch movement? Enough Said.
-Getting a watch that will increase in value and could possibly be triple its worth in 15 years is another example of watching your money!

RichUncle EL

PS: Ask Men has a cool section called the watch snob where the author answers any questions you may have with luxury based watches.

*The series and movement of these brands will determine if the value will increase.

PSS: Rolex is the most recognized brand and it is renowned worldwide as a timeless brand. Pic By Rolex

Buying vs. Investing

Did you know that with simple smart decision making tactics you can adjust bad spending habits and transform them into investing opportunities. For example instead of getting another video game which retails for up to $60 dollars, you could borrow it first to see if you really like it and then you can invest that money for the time being while you decide. Where would this smart investor place the money? Sixty bucks can buy about 4 shares of vanguard’s international stock index fund(VGTSX). These index funds have a risk rating between 1-5 and are already diversified for added safety, by pooling together all the funds invested into a variety of stocks and other funds.

Another option for the $60 dollars is about 6 shares of Ford Stock. The current price of the stock is about $9.30 a share about 4 years ago the stock was at it’s lowest levels of 2 dollars and this was the perfect time to place a trade. Many analyst predict the stock is still cheap and will only go up from here. The current dividend yield on this stock is about 2.14%, and the more shares you own the greater the dividend payout you will receive.

It all boils down to this do you want to be a owner of money producing stocks and index funds or would you rather have something that collects dust in your house that after a few days you basically lose interest in it? So if you decide to change bad habits with good ones, your financial future will make a drastic turn for the better. Asset accumulation is the game the wealthy play in order to become wealthier. Anyone can do it, it just takes effort to understand and actually drop those dimes on something worthwhile that will possibly grow in the future as compared to a thing that will never ever grow or give you returns in you’re entire lifetime. I know my readers will make great decisions with their financial futures by taking surplus money and putting it to work to make more dollars on top of dollars. Also if you make the investing consistent and a part of your monthly routine you will be ahead of the majority of people.

Below is a quick run down of several scenarios between buying as compared to investing options for most people.

Buying Vs. Investing

A pair of Nike sneakers- $90 = 6 Shares of (VGTSX)

An Ipad Tablet- $500 = 53 Shares of Ford Stock

A Video Game -$60= 2 Shares of AT&T or CBS Stock

New Sunglasses- $120= 4 Shares of PSE&G Stock

RichUncle EL

FYI: Please do some research before buying stocks as they always have risk attached to them. The stocks I mentioned above were selected to show an investing example please take the time to buy those stocks that are right for you.

Top 10 steps for Money Growth

Warren Buffet

Money Growth Steps

Protect your income- Save those dollars
Live for tomorrow by watching what you do in the present
Avoid debt like the plaque
Keep expenses very low and do not succumb to lifestyle inflation
Increase retirement and emergency contributions by 1% or more every year
Have piggy bank and every year cash in the coins for savings or debt repayment
Use as many rewards / cash back programs as possible
Work harder in finding side gigs
Buy assets that pay interest or dividends
Read PF Blogs and watch your Net Worth

These are all the steps I do to increase my nest egg and I think each and every one of you should do the same. I sometimes feel with simple steps, we all can see great results. These steps are things you may have already done in the past, but maybe you are too busy with life’s routine and have not adhered to some of the steps above in a while. Well I am here to set you on the right money path. Find the time and the energy to do what is right to make your wallet fat with dollar bills. Don’t be like that baby in the capital one commercial that turns down free money. Use the skills you have and follow your path to achieving a greater sense of financial freedom.

Personal growth comes from realizing who you are and then improving on your weaknesses. Thus changing bad spending habits into routines that will enhance your money mantra. A lot of you are already realizing that to make it in life is getting harder then folks had it back in the good ol’ days, but do not fret as you have the ability to change and improve. Follow the steps above while establishing a online financial system to really change your future.

The pic above is a shot of the most successful business person ever: Warren Buffet. He is a living definition of what it is to have money growth. As he grew up in the middle class and now is worth over 40 billion dollars.

Comment if you already follow the steps listed above or if you have another system you use to stay in tuned with your finances?

RichUncle EL

Pic provided by AP press.

Apple vs. Google

Two giants in the Internet and consumer electronics retail space battling it out for supremacy. Which company do you support ? Now if you support one of these companies by buying their retail products, does that mean you might consider investing with them? Both companies are doing great things in terms of technology and pushing the consumer to try on new gadgets they normally would not even consider buying in their everyday life.

Just 4 years ago nobody had a tablet, now all I see are a bunch of zombies typing away at an IPAD or Kindle Fire or an Android powered Tablet on the streets. Even little kids are being held captive by launching into their hands by their parents a $599 Ipad / IPhone so they can play their favorite app games. What a bright future we have when I walk into my local pizza eatery and I see a cute couple typing and finger pointing at their devices instead of having a genuinely rich soul fulfilling conversation. Instead, that great couple became a travesty in today’s society by being in the present and not really being there. You can thank all the smart phone companies and the cell phone companies for turning us into fanatic (checking status updates) individuals every 3 minutes to make sure you do not miss a single picture or comment. Can you say media overload three times?

Let’s get back to the matter at hand Apple Vs. Google. Who is better? Who has better opportunities to grow the stock and finally reach the $1000 per share price?

Current Price for each Stock is:

Aapl- $606 per Share
Goog- $576 per Share*

1 Year Target Est:

Aapl- $723
Goog- $733*

Price to Earnings (How cheap the current stock price is compared to it’s earnings):

Aapl: 14.80*
Goog: 17.58

So there you have it one company dominates the the Internet search arena and the other has a steady growth rate in the consumer electronics market place. One of them owns the android cell phone operating system and the other has the mac operating system with the most popular cell phone in the world, the IPhone. I think one day their will be an (I) in front of every word and Apple will own thousands of new more sophisticated products. See below for a small breakdown of each companies competitive advantage in a each others target market space.

Apple Owns: Google Owns:

IPhone/Ipad                                                    Android/YouTube/Google +
Itunes Streaming Industry                                Blogger Industry / Adsense
Mac TV / Computers                                     Worlds #1 Search Engine Site / Google Earth
Retail Mega-Stores / Great Culture                  Nexus 7 Tablet / Motorola / G Series Cellphones

In my opinion I tend to favor the company that offers a dividend (Apple) as a potential company to invest in as a general rule of thumb. But Google has so much more to offer and in a wider audience than Apple does. Just with YouTube alone, I think Google will be the #1 company in the world in the next 5 years in terms of brand loyalty. On the other hand I think Apple will reach the 1,000 dollar price faster than Google, so for market capitalization only apple will hold the #1 position for the time being. One thing I noticed before thinking of who will be the world’s best company is an important fact to consider, that Google has a lot more competitors as compared to Apple. Which is not very good for business.

I am taking your bets as who you think is the better company by the comments below.

RichUncle EL