This is a guest post by Rob Bennett

It's a question you always hear after a stock crash. It's usually asked in apologetic tones, as if it were a dumb question. It's not. It's a question that most of the big-name experts don't fully grasp the answer to. Understand this one and you go to the head of class in Investing School.

When stock prices crash, where does the money go? It goes "Poof!"

That's the truth. People think of stock investing as a serious business played by serious people. So they assume that there must be a complicated answer to this question. There must be some mysterious process by which the trillions of dollars of wealth that are lost in a stock crash disappear.

Nope. We can bid stock prices up to any level we want. We can all vote ourselves raises if we like. The only penalty is that, when we bid them up too high, they must crash back down in the following years. What is made from nothing must eventually return to nothing. It always happens that way. It always will happen that way. Now you know.

The strategy takeaway? Don't invest too heavily in stocks when prices are high. Someone has to pay the bill for those times when we bid prices up too high. It doesn't have to be you.

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Rob Bennett is author of the A Rich Life blog and recently wrote a Google Knol entitled "Why Buy-and-Hold Investing Can Never Work." (J: I don't necessarily agree or disagree with "buy and hold," (although I usually hold way more than sell) but I do find this topic interesting.)

Labels: crazy economy, guest post, investing, stock market

Stocks are great to know about, yes, but even BETTER would be basic financial management. Who gets right out of high school and starts investing before landing their first job/credit card/own apartment? I know people do it, I just don't see the logic (although I'd admit it does seem more fun).

Check out this comment by girlwithredballoon on an older post of mine:

"You know, I took Personal Finance in high school, but they didn't teach anything about credit cards, compounding interest, different types of student loans - none of that! They taught us how to write checks, and then we had to play a stock market game where we chose companies to invest in. I know investing is important but knowing the dangers of credit cards ahead of time may have helped me to avoid them in college!"

Exactly! I learned how to write checks and balance a checkbook in Senior year too, but that was about it. There was no mention of 401k, IRAs (were they around in the 90's?), credit cards, or just plain saving. But of course we had to play those stock investing games! God forbid we leave school without doubling up our FAKE money.

Maybe I'm naive, but I just don't see how investing in individual stocks should come before the main pillars of personal finance. Think about it. Say a student triples his/her money in the "fake" market and then thinks he/she can make it big in real life and tries to out game it all? The odds are against them, especially if they think they can do it again in the 3-4 months allotted like in class. They then lose a chunk of their money and end up walking away thinking investing isn't for them.

Only INVESTING isn't about just individual stocks! It can be a main ingredient, but there's plenty of other places you can put your money - CDs, bonds, mutual funds, target-date funds, treasury bills, etc etc. Stocks can do wonders for your portfolio (I love 'em to death!) but you should have a grasp on the rest of the areas before jumping in and playing.

You teach a kid how to save 10% of all their income, or pay their debt off on-time, and it's a whole new ball game! Not as fun to teach I'm sure, but it'll stick with them MUCH longer than some crazy stock game. Am I right? Am I missing something here?

Labels: education, in the real world, money management, personal finance, stock market

[Guest post by Mr. Moneybags]

Don't get me wrong, budgets are definitely attractive on their own merit, but if you were to line them up side-by-side next to stocks, it would be like comparing the attractiveness of Al Pacino to the attractiveness of Megan Fox. I mean, sure, Al Pacino is a rather cool and attractive old man but not many guys would give up one of their testicles to spend a night with him (see: Megan Fox).

And just like someone would have a massive case of approach anxiety when given the chance to advance upon Megan Fox (or any other equally hot creature), it seems that people are equally terrified when it comes to approaching the stock market.

Ever since I accidentally created the stock market in 12th century France while searching for a way to smuggle pilgrims across the border, I have noticed that people are more afraid of the stock market than they are of being viciously attacked by a pack of wild boars. If I can be completely honest: It pains me to see my wonderful creation be loathed so vehemently - which is precisely why I have decided to temporarily abdicate my secret cave (more commonly referred to as www.BigFatMoneybags.com) and clear up the bad name that investing and the stock market has gotten over the last few years via new venues (regards to J. Money).

Throughout my vast experience with the stock market, I have noticed that people use the same few excuses over and over again as to why they don't invest their money in the stock market:

1. You don't know enough about the stock market nor do you have an idea of where to start

It's okay, it happens to the best of us. In fact, it even happened to our friendly neighborhood budgeter, J. Money. (J: true, but I am getting good at copying Warren Buffett!) Thankfully, this seemingly daunting problem is quite possibly the easiest out of all problems to solve.

I've noticed that the main reason people don't go out of their way to learn more about the stock market (and other money matters for that matter) is because rather than utilizing the current educational tools that are available to them, people would rather run into incoming traffic with a paper bag over their heads (true story). Thankfully, great heroes such as the mighty Mr. Moneybags (that would be me) and J. Money exist, providing a seemingly dead subject matter with a breath of fresh air (a.k.a. humor and entertainment) while subsequently ridding the world of imbecility (and poverty).

If you have little-to-no understanding of the concept of stocks or the stock market then I would highly recommend you read the free eBook I have available on my site called "Welcome to the Stock Market!" And unless as a result of my guest post on this site, a catastrophic sequence of events leads to the implosion of the internet (or if J. Money permits) I will gladly post more guest articles educating you people as to the workings of the stock market. For now, if you have any questions, leave a comment at the end of this post and I will happily answer any questions that you may have in great detail (while explaining to you why you are an imbecile).

2. Stocks are too risky

Before I go on explaining the absurdity of that previous statement, let me start this section off by citing a statistic initially stated by the great Jeremy Siegel:

"One dollar invested and reinvested in stocks since 1802 would have accumulated to over $12.7 million by the end of 2006."

Yes, you read that correctly. This is despite two hundred plus years of stock market declines, famine, wars, bigger wars, crisis, pandemics, epidemics, depressions, more epidemics, hippies, terrorism, political turmoil, global warming and even swine flu.

Of course, you people are going to say that two hundred years is a rather long holding period or that times have changed or whatever else but the truth of the matter is that the investor is what makes an investment risky, not the investment itself.

Risk comes from not knowing what you are doing. If you know what you are doing and if you research your investments diligently enough, your margin of risk is reduced faster than King Kong plummeting off of the Empire State building.

3. You have to be a professional to make money in the markets

Nothing is further from the truth. If you can literally walk into a store and say "Wow, this looks like a great business!" then you can make money in the stock market. That's not even an over-exaggeration of any kind.

In fact, I find that the "professionals" make less money in the markets than your typical outside-the-box thinking investor (which I will teach you to become). All you really need in order to safely invest in the stock market is a strong will and a smidge of clever thinking. That's it.

Closing Thoughts

I find that those are the top three reasons people avoid the stock market like the plague. If you feel that you are unique in your scenario, do not hesitate to leave a comment and I will try to help you out as best I can - and if I can't... prepare to be destroyed.

Now get out there and make some big fat moneybags!

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This is a Guest Post from Mr. Moneybags - the richest being in the universe ever to have existed and ever to exist. He and his blog are determined to prove to the world that the subject of money shouldn't make you want to douse yourself in gasoline and run into a forest fire. (He also advises you to do your homework before investing!)

Labels: guest post, investing, stock market

I don't talk about stocks too much on here, but I thought I'd follow up on Operation Copy Buffett. If you were around back then, you'll remember I wanted to invest in stocks but I hadn't a clue where to start (and I wasn't going to randomly choose for the hell of it like previous times).

So instead, I decided to check out all of Warren Buffett's choices and cherry pick from there :) Some people thought I was an idiot, and others thought it was a great idea. After all, if you're going to copy someone, why not Buffett right? Well, just like I reported in the past, I couldn't be happier with the choices I/he's made. Here's a breakdown of all the stocks I currently own - tucked away in my Brokerage Roth IRA:


[the italicized purchase prices are averages over multiple buys]

What more could a guy ask for? Granted the recent explosion of the market has done wonders to everyone's portfolios (thank goodness cuz we needed that!), but I'd like to think these picks are in it for the long haul. Oh, and in case you're wondering, yes I did throw in some picks of my own including GE & SIRI :) I can't let him do ALL the work, right? haha...I'll continue to play a little myself, but for the most part I don't plan on risking a whole lot.

The majority of my retirement funds come straight from my 401(k) - these stocks are just supplemental to add a little more fun into the game. If I lost 100% of them, it wouldn't affect the overall game plan. It would SUCK BALLS (and the world would probably be ending if those companies all went under) but it's a small % of my overall retirement monies. I just need more action than my mutual funds can provide...

My portfolio is far from being perfect, or stable, (always best to consult with a professional - don't just do what I do!) but I thought I'd share as it's always cool to hear how others are trying to reach their goals as well. With everything in finance, it comes down to personal preference and game plans. Are you guys rockin' out anything good?

Labels: investing, roth ira, stock market, Warren Buffett

I do, but only because I want it to :) I'm sitting in front of the TV and it's currently at 9,909.91. That's less than 100 points away! Remember how just last year around this time we had the largest plunge ever and everything was going to $hit? Cheap stocks to buy aside (more on that tomorrow), I'm pretty excited about this. We still may have a wild and rocky road ahead of us, but I'll take news of encouragement any day.

UPDATE: We hit 10,000 today (10-14-09)!!! Now we'll see what happens...

Labels: crazy economy, stock market

Because when it comes to investing, Warren Buffett's the freakin' man! Why start from scratch analyzing and trying to pick the very best stocks out there when I know absolutely *nothing* about the industry?

Don't get me wrong, I'll still be doing my best to learn and see why, exactly, he picks what he picks, but when it comes down to it I trust his opinions over anyone else's out there - obviously including my own ;) After all, it was Buffett himself who said he doesn't invest in anything he's not familiar with! And since I'm not familiar yet, I shall copy him :) haha...

Actually, I should say I'll be copying his stock choices minus some financial ones that have been causing him trouble lately. I wish I could remember which personal finance mag I got this idea from [got it: May,09 ed. SmartMoney - "Buffett, Half Off" by Jack Hough], but either way it's genius. Especially while everything's so freaking LOW! We'll never be able to compete w/ Warren in getting the absolute *best* rates of going stocks, but while things are 1/2 off right now we can get damn close. In fact, I'd venture to say that now is the only time we can beat him if we pick up the same ones he did last year when they were much higher!

Okay, so now that you know what i'm up to over here, WHICH stocks do I plan on getting? Well, I've already picked up 3 of the 6 recommended by that same pf mag that I can't recall, and all 6 are owned by his Berkshire Hathaway company. In an effort to keep things simple for me, and not go TOO overboard, I've decided to invest $500 in each stock over time:



So far so good! Another way to "be like him" would be to just invest in one of his Berkshire funds, but considering one goes for $92,000+, and the other for $3,000+, I figured this is the better way to go ;) Again, mainly because how cheap they are at the moment.

And if you missed it, these new friends of mine will be living in my Brokerage Roth IRA. I'll continue to max out my 401(k) every year with a handful of diversified mutual funds and all, but this is my "play account". Even IF it's a bit excessive - I'd much rather spend my extra money investing & learning a bit over material stuff I don't need at all.

I don't recommend this game plan for everyone, but for me it's on like Donkey Kong!

Labels: investing, retirement, stock market, Warren Buffett

Yup, just opened up my very own Brokerage Roth IRA with USAA today! And, as usual, it went swimmingly. They answered all my questions, took the time to explain everything to me, and even opened it up 1-2-3 over the phone for me. Total call time? 14 mins. 37 secs. (hotness!)

They even helped me to xfer my target mutual funds from my regular Roth into this new Roth, allowing me to keep everything into one account! I'm telling you, I really should work for that place - I've now technically got 13 accounts opened with them! haha....although i'll drop the other Roth here shortly to keep things nice and clean.

So, why the big move now? To purchase those stocks I was talkin' about the other day! Yup, I figured the only way I'll be able to play the game correctly is to consider these new stocks as "retirement" funds. That is, I pick them up and then keep them for a while instead of buying and selling all over the place. And for ME, that means having them live in my Roth IRA.

Up until the other day, it never dawned on me that I could purchase individual stocks and keep them in my Roth account. I was just so used to thinking about mutual funds when it came to retirement accounts (cuz that's what the media and every other person out there talks about). But, with a Roth IRA, You can invest in anything you'd like! Mutual Funds, individual stocks, cds, money markets, you name it. The Roth is just your vehicle to get you there, sorta like a "catch all" account for investing.

The thing was, however, was that the original Roth I initially set up was only made for mutual funds, so I had to change it over into a "Brokerage Roth" in order to have trading capabilities as well now. From this one account, I can now choose whatever my heart desires :) All under the same imposed Roth Limits of course.

But what's even MORE awesome is that I don't have to worry about the taxes from it all!!! I don't know about you, but the idea of dealing with taxes in itself is enough to steer me away from investing sometimes :( But since the money flowing into this account is already taxed by Mr. Obama & crew, the need to hit 'em up again goes away! When it's time to cash out 30 years from now, all deposits & gains will be 100% tax-free :)

Needless to say I am one excited little puppy over here. I've got the game plan all set up, the mechanism now in place, and now all I need are the right stocks! haha...that's all.

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PS: In case you're wondering, and I know a few of you are, the cost for each trade placed with this Brokerage Roth @ USAA is $11.95 - a lot higher than Sharebuilder, E*Trade, and some others. Since I'll only be placing a few trades each year though, it's not that big of a deal for me. I'd much rather have all my accounts in one place and easily accessed :) Oh, and I pay no monthly fees.
PPS: Here's a pimp list of the "best brokerages" out there if you're interested in checking some out.

Labels: retirement, roth ira, stock market, USAA

It's been a long time since I've owned individual stocks (6 years), and I'm feelin' lucky! The market's down, our savings are up, and I'm ready to give it the ol' college try again. Plus, I'm a lot better off financially and emotionally than I was the last time I gave it a shot.

6 years ago I was just rollin' the dice and doing my best to outgame the system. Sometimes I won (bought XMSR @ $20 one day, and then sold it months later @ $29), while other times I crashed and burned (bought Sirius @ $2.25, then sold it weeks later for $1, only to watch it go right back up). The reality of it all was that I just didn't have a game plan. All I knew was that I a) wanted to be a baller and "trade" stocks, and b) wanted to make some fast money with no effort ;)

Needless to say I was a financial loon, and certainly no baller. Although I'm sure E*Trade loved me! They tend to like it when you drop $10 a trade every other day, haha...even worse, I was losing a sizeable chunk of money right from the get-go! If you're only playing with $100 or $200 of stock to begin with, you're automatically giving away 5-10% every time you hit that buy or sell button. I was seriously smoking something, and it wasn't the good stuff either! (not that i know what the "good stuff" is or anything)

But if you're gonna play the game, you've got to have a plan. And this time I have one :) You ready for it? It's gonna blow your mind I just know it! Okay, here we go....drum roll please....bah-buh-bah-bah, alright, here it is! My plan is....I'm going to invest it for the long haul. Sexy, huh?! haha....well, it may not SEEM all hot & juicy, but it's a lot better a plan. You see, I'm not in the business of making quick cash anymore. Nope, I'm ready to kick back, be patient, and watch it grow over time while I earn my wrinkles.

I've also decided to give myself an allowance for this, and it's all money I can live without. That way, if my repeat performance sucks again I'm not gonna lose any sleep over it. No siree, it'll be just like taking a trip to Vegas, except with better odds. In Vegas, I bring $200 bucks to "play" the tables, and when I lose (because I always do) I'm cut off - no hitting up that ATM again. In this new venture, I bring that same $200 and when it's spent it's spent - no going back and xfering in more money to "break even". This way I get to have a little fun, but at the same time I don't go overboard.

Plus, I'm not counting on becoming a millionaire off it or anything. I just want a little more investing experience while I have the means to do so - and while the market is still so freakin' low... and I'm not gonna sell it every time it takes a dip either. This time around it's all about buying it low and holding onto it baby! I doubt I'll pick the right stocks at the right times, but you know what? That's okay. It's just time daddy gets a new toy to play with ;) I love my mutual & money market funds, but every now and then ya gotta spice things up a bit. And for me, that time is now.

Labels: investing, retirement, stock market

Yeah, I love you. I think. But could you perhaps pause and wait for me to find large piles of money as to pick up your stocks SUPER CHEAP? ...No? Okay then...i think i've just made up my mind: I Hate you.

Labels: randomness 3000, stock market

Today's "Would you rather" question comes from one of our readers here - my boy Philip - and it circles around the economy these days. I don't know about you, but people around here are starting to freak out more every day, and it's starting to get out of hand. So with that in mind, Philip and I bring you the latest from our fun little game:

"Would you rather take one big hit and then be done, or just keep getting hit left and right for a long time?"

Rather interesting in my opinion! The old me probably would have liked to drag it out a bit and pad the shock, but the NEW me is getting tired of it all and would like to swallow the loss and start moving on. Of course, in real life you don't really have a say in the matter, but you do here on this blog ;)

So what say you? Are you daring enough to watch your nest eggs take a one-time plummet? Or do you have patience to stick it out and watch it continously drop, little by little, day by day? Curious minds want to know.

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Previous "would you rather"'s:
- Would your rather keep $500k to yourself, or give away $1million?
- Would you rather default on ALL loans, or...
- George Bush gives you $2million, but...
- Would you rather take $500k now, or...

Labels: crazy economy, stock market, would you rather

Not that it was all that surprising, right? Most of my "worth" is in my 401k, like many of you, and the market just tore it up this month.

It's all good though, just part of the stock market game - at least i'm not personally doing anything stupid! In fact, Roth & 401k aside, I actually did pretty well!

My Cashing Savings went up due to some new blogging income (finally!), and i'm still religiously paying off my Credit Card with any extra income i get my hands on - which is mostly my old car payment amount at the present time.

I've also decided to continue tracking "my" net worth separately until the end of the year. I find that my current method is a PERFECT way for me to track my progress, esp. since I have those 3 main goals i'm working on right now: 1) Erasing all our "credit card" debt, 2) Pumping up my half of our Emergency Fund, and 3) Getting my Net Worth to $100k! (my fav. goal)

So while the Mrs. and I are, indeed, starting to combine all our monies and what not, you'll just have to wait and see what our new totals will be until January ;) And believe me, there are a LOT of changes coming! Esp considering that the Mrs. is now in Grad School and we're technically living off one one income. I say "technically" because we do have some other surplus' coming in like our pay it forward money, as well as her teaching assistantship income of 12k per school year. (thank goodness!) I'll be posting more about the Grad School stuff soon.

Here's how it breaks down this month:

CASH SAVINGS: Looking good! I had a few random expenditures like wedding gifts and wedding trips to pay for, but most of it was covered from our savings accounts which are set up for these sorta things :) So most of the increase here can be attributed to some new blogging income! That's right, companies are finally hitting me up for some advertising action. It only took 7 months ;) haha...

Besides the obvious adsense, and a cple graphics here and there, you can find them under my "Sexy Sponsors" section. I still don't do pay per posts, paid reviews, or any weird linking within any of my posts whatsoever. I don't want any confusion at all with my posts or main site, so dontcha worry about that. Not sure if this month was a fluke or not, but i'm def. hoping it continues!

ROTH IRA: Floating on the whims of the market as usual! Haven't thrown in a dime in months. Once i max out my 401k and Emergency Fund, I'll reconsider.

401(k): Sad :( And not only because of the economey either. Only ONE deposit made it into my account this month - our 401k company F'd up again and waiting for it all to be straightened out again. So while I tecnically threw in a total of $2,565 this month, including company match, only $1,282.50 was physically deposited! Then i got an extra $242.52 in dividends as well. So after all that, i stiiiiiiiiiiiiiiiiiil came out in the negative. I'll tell you one thing though, i'm sure as hell gonna enjoy picking up all these funds at lower costs now!

SAVINGS BONDS: Nada. Man, bonds sure are slow ;) You can check out the breakdown of all my old a$$ bonds here.

CONDO INVESTMENT: I stopped lending money to my brother 2 months ago, so we're now just building up this amount by 5% each month until he pays it off in full. He actually just mailed me a check for $350 of it yesterday, so that's promising as hell! Not to mention ahead of schedule (he doesn't have to pay it back until he sells his condo). A+, brother, A+.

HOME EQUITY: This amount still reflects our purchase price minus the money we accidently paid off the mortgage when our heloc froze. Still not sure how to calculate our TRUE equity involved here, but we leave it alone for now. I'll probably end up using Zilllow to estimate the value of it now, and then deduct the amounts we have left on our mortgages but we'll see.

AUTO WORTH (kbb): A loss of only $25 buck?! HOTNESS! haha...i don't know if you'll remember, but i was losing anywhere from $450- $1200 a MONTH w/ the Highlander, so i'll take this loss for my new Caddy any time!

CREDIT CARDS: Still applying my old $443 car payments towards the balance here. It shows i only paid off like $418 in my graph above, but it's only becuase USAA messed up (for once) and the corrections haven't been applied yet - their system didn't catch that the c/c check I used to buy the Caddy was in line with a promotion they were doing, so they charged me a small fee and more interest than they should have. This $6400 is locked in at 3.4% for 12 months, and covers the purchase of the Caddy, and the payoff amount that was left on the Highlander.

AUTO LOAN: Zeroooooooooooooo! That is, if you don't read the paragraph above :)

Well, that's it for this month. I hope you all mastered this market better than i have! Let's just pray that the economy corrects itself and next month brings double digit gains ;) Layter hayters.

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*The sweet & sexy side bars have been updated.
*And here are the past Net Worth updates.

Labels: net worth, stock market

I like to think i'm a pretty positive person here, but i do believe i have just peed myself. Time to get back to my book of accomplishments! (if you're into torture, you can check out the story here.)

********
update: Now that i'm home and out of work/commuting hell, i've rethunk my negativity here and now looking forward to a sexy come back 2morrow! Can i get a wha wha?

Labels: cockamamy indeed, stock market

I get breaking news text alerts via CNN, and i was just hit with this:

"The Dow ends nearly 500 points lower -- its worst point drop in more than seven years -- as bank woes scare investors."

WOW, i guess we're not at rock bottom yet...but at least stocks are cheap!

Labels: stock market

Please refrain from selling off your investments every time a dirty piece of bad news hits the stands. You are causing a lot of pain and torture to us patient ones. Unless you are elderly and/or about to retire, i do not like you.

Thank you kindly,
J. "My 401K keeps going down the tubes" Savings.

ps: i'm not bitter ;)

Labels: cockamamy indeed, rant, stock market

HAPPY Friday the 13th! If you're a superstitious one, you might enjoy this post. Turns out that while I was away, a LOT of horrible stuff happened, yet when I came back the world was happier! haha ... check it out for yourself ;)

This is what happens when J goes away:

• The stock market goes dooooooown, down, down.
• Floods carry away homes in the midwest :(
• And an elderly man gets hit by car, causing rage across the entire country!

And this is what happens when J comes back:

• There's piles of gifts and money on our tables. Sexy!
• A doorman wins $5 million scratch off lottery, and keeps job :)
  
• Obama wins the Democratic nominee! (sure this happened while away, but im counting it here. he he)

Is the world telling me somthing? haha ... we'll never know!

Labels: barack obama, lottery, politics, stock market

What a day for the consumer: The Fed cut rates by 3/4 a point, AND the Dow is up 400 pts!

(FOUR HUNDRED)

That's what i'm talking about :) This is huge for us as it'll drop our variable HELOC rate by .75%! Of course, this news isn't the best for those high-yield saving accts, but currently that doesn't apply to us.

A good 8 months ago we were paying 9% on our home equity line (our 2nd mortgage). But after all the fed cuts and refinancin' we did, it'll now be at an astonishing. 4.8%! Freakin' unbelievable. Of course, most of this is purely luck and timing, but hey i'll take that.

For those of you checking around for a decent loan or mortgage out there, i'd say it's not a bad time to pick one up these days ... And for all you investors out there. HOLLER!

Labels: federal reserve, helocs, interest, mortgages, stock market

The Dow skyrocketed up 416 pts today - The highest since July 24, 2002!

".. the Federal Reserve said it plans to pump $200 billion into the financial markets ... The Fed — acting in concert with the European Central Bank, the Bank of Canada and the Swiss National Bank — agreed to loan investment banks money in exchange for debt, including slumping mortgage-backed securities." - msnbc.com

This is insane!!!
Insanely AWESOME :)

Labels: stock market