A Look Back at Military Money Might’s Postings for September 2008

September 30, 2008

Now that Military Money Might has been going strong for almost two months, I thought that I would share with you some of our most popular articles from the past sixty days.  Please feel free to share these with your friends and family.  Thanks…

Notable articles from the blog:

  1. Mutual Fund Recommendations From Money Magazine – The top seventy mutual funds rated by the magazine.  If you are looking for a new fund to invest in, start with this list as a good screen.
  2. Kiplinger’s Personal Finance Magazine’s Top 25 Mutual Funds – My favorite personal finance magazine lists its top twenty-five mutual funds in its annual list.  Kiplinger’s includes what it deems as the perfect portfolio asset allocations for different time in an investor’s life.  For young investors, check out their long term portfolio.
  3. An Army Second Lieutenant (2LT) Will Earn Over $100,000 – My favorite rule of thumb is the “Rule of 72”.  Find out how long it will take for your money to double in value…24 years at 3% for example.
  4. “Personal Finance 101” PowerPoint Presentation – Check out an introduction to personal finance.
  5. Knowing the Factors that Make Up Your Credit Score – Knowing the key attributes of your score will let you know how to improve it.
  6. Tips To Make Bill Paying Easier – Make things automatic with bill paying services on the internet.  Pay yourself first and save in late fees.
  7. What Is a Good Stock: A Six Part Series – What characteristics make an individual stock a good investment?  We covered many attributes over a week.

Blog Carnivals (The Best of the Blogshere):

Military Money Might was featured in the following Blog Carnivals this month…..

I hope that you have enjoyed the blog these past two months as much as I have enjoyed writing it and that you will continue reading.  Thanks again….

 

Hank

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Interesting Articles for August and September 2008

September 29, 2008

I usually read about thirty blogs in my Google RSS reader.  Thank goodness a lot of them do not post everyday.  I follow both a lot of civilian and military personal finance blogs and some logistics blogs as well.  I thought that I would share some of the articles from my feeder that I have saved as a favorite.

Notable articles from my reader:

Personal Finance:

Supply Chain & Logistics:


Protect Yourself From These Classic Investment Scams

September 27, 2008

In today’s financial crisis, stock market scams are alive and well.  Many of these schemes prey on citizens’ fears, and the increasing trend for these schemes are running wild with the current financial turmoil that is consuming America.  Below are a list of the most famous investment scams and tips on how to protect yourself from them.

Ponzi Scam.  During the Great Depression, Charles Ponzi promised to double investors’ money within 90 days.  He collected money from investors and paid them off with the proceeds from new investors who entered the scam.  Eventually, the last investors who piled in were left with nothing when Ponzi ran off with their money.  An off shoot of this scam is also when owners of a business sell off more than 100% of the business to investors in small bite sized pieces.  This was the plot of the Broadway musical, “The Producers”, who sold the rights to the show’s profits to investors hoping that the show would tank at the box office so they could pocket the money and not payout anything to the investors.

Nigerian 419.  Named after the section of the small African country’s criminal code that handles fraud, the internet scam artists offer would be investors a cut of money they are trying to smuggle out of the country for an upfront fee.  A couple of years ago, a U.S. navy officer used some of his ship’s petty cash fund to try and earn a quick profit with this scheme, but he was burned when the Nigerian money was never wired to him.  Cash Money Life, one of my favorite personal finance blogs, went into even more details about this scam in a recent posting.

Pump and Dump.  Investors in penny stocks sold on the over the counter (OTC) bulletin boards are often the victims of this scam.  Early investors in a cheap penny stock that is too small to trade on a regular New York stock exchange are touted through spam e-mails and internet discussion boards, which creates an artificial buzz about the stock encouraging novice investors to pile in.  The scam artists then dump their shares of the thinly traded securities which cause the newly inflated price to plummet for everyone else.  This scam was predominantly featured in the movie, “Boiler Room”.

Pyramid Scheme.  While not necessarily a stock scheme or scam, I cannot resist adding the pyramid scheme to the list here as well because of the prevalence on military bases.  Pyramid deals seem to attract many military spouses looking for a little extra income.  The sales force on the bottom of the pyramid does all of the heavy lifting and kicks up a portion of their sales to the top members of the pyramid who signed the bottom levels up.  How many military spouses have makeup, rubber plates and bowls, vitamins, or designer baskets hidden away in the closet unsold?

How to Protect Yourself.  All stock brokers and insurance agents have to be licensed to sell their products and services.  You can check to make sure that individuals that you are conducting business with are fully licensed at www.finra.org and www.nasaa.org.  Only about 10% of all investments scams and complaints involve licensed dealers.  So, checking these websites ahead of time can solve most of your potential problems.

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A Horrible Boss Can Be the Best Thing for Your Career

September 26, 2008

Most of us have had some really horrible bosses throughout our careers. A 2001 study found that almost 80% of the employees surveyed said their boss was a lousy manager. And, 70% of the survey’s respondents said that their immediate superior had “no clue” what to do to become a good manager. But, a bad boss may actually be the best thing for your career and help your job performance.

Learn from his mistakes. I am constantly watching my boss and taking mental notes. What is he doing wrong? What is he doing right? What could I do better if I was in his shoes? Eventually, I am going to be in his position. One day, I am going to move up the ladder and take more responsibility, and I want to be ready. By taking the best and worst attributes from all your bosses and learning from them, you are assured to be a better leader.

Rise to the challenge. A horrible boss challenges you. Many times we find out that we can accomplish greater things than we ever thought possible because of far fetching goals and unrealistic expectations put on us by a horrible boss. Many subordinates get into a funk and are actually less productive when they are faced with a bad boss. But, if you recognize the situation early and challenge yourself to rise above it, you will not fall victim to your boss’s mediocrity. It is the perfect time to excel and leave your boss in the dust. Do not let a bad boss affect your job performance.

Become a subject matter expert. The more that you know about a specific topic, the more indispensable you will become. You will have a wider berth from your bad boss if you are viewed as essential to the team’s tasks. The star quarterback always receives the least amount of scrutiny from the head coach even when he messes up. No one wants to ruffle the star’s feathers, and the same can be true in the corporate world. Strive to be the star, and your boss may just leave you alone even when you make an error.

Distance yourself. Stay away from your bad boss as much as you can. Birds of a feather flock together, and you do not want to be brought down by a negative or incompetent boss. It will always be better if your star can shine on its own without your boss always being nearby. If you identify your boss as being a poor leader, chances are that his bosses have seen it too. You do not want to be caught up in his eventual downfall.

If all else fails…..

He will move on. Hang in there. The average American switches jobs, gets promoted, transfers, moves on, etc. every two to three years. It’s an even faster turnover in the military. Your boss won’t be your boss forever. Hang in there and wait him out.

How do you deal with a bad boss? I’d love to hear your comments…
If you enjoyed this posting, you might also like these:
1. An Army Second Lieutenant (2LT) Will Earn Over $100,000 in 2032
2. How to Pick a Good Individual Stock to Buy? – Part 1
3. Best Advice I Ever Received

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Are You Covered by Your Renters or Home Owners Insurance Policy? Double Check

September 25, 2008

A study by the National Association of Insurance Commissioners revealed that many homeowners think the standard insurance policy covers more than it does. Among their mistakes:

33% of homeowners believe that flood damage is covered.
68% think vehicles such as cars, boats and motorcycles stolen from or damaged on their property are covered.
51% think damages from a break in the water line on their property supplying water to their home are covered.
37% think damages due to a break in the sewer line on their property that connects to their municipal sewer system are covered.
35% think damages from earthquakes are covered.
34% think damages from mold are covered.
31% think damages from termites or other infestation are covered.
22% think pets stolen from or injured on their property are covered.

You might not be as covered as you think you are. Check with your insurer to make sure that you have the coverage you need and want. You do not want to be caught with an inadequate policy when you need it the most.

Joseph “J.J.” Montanaro is a certified financial planner with USAA Financial Planning Services, one of the USAA family of companies. Montanaro is a West Point graduate and served in the U.S. Army for six years on active duty. He is currently a Lieutenant Colonel in the U.S. Army Reserve.


Investing 101: Defining Bear and Bull Markets and Recession

September 23, 2008

A lot of Servicemembers and even regular civilians are not as well versed in some of the concepts, terms, financial products, and options used throughout the investing world. But, everyone should have a basic understanding of the financial markets because they affect all of us. Like freshman year of college, everyone should have an introductory level of knowledge and understanding about the stock market, investments, mutual funds, insurance, etc….an “Investing 101” level of knowledge.

Long and Short. Many investors use the terms long and short to define what kind of investor they are or where they believe a stock or the market is headed. Being “Long” is when you are investing in the hope that the stock market will rise in price. This is what most investors are. Being “Short”, like a short seller, is the opposite and invests thinking that a stock price will decline.

Bull and Bear Markets. For centuries, stock markets around the world have been called bull and bear markets. Bulls or bullish investors that think stock prices will rise and that things in the market will get better. This is a lot like being long in the market as well. The upward market is called a bull because bulls swing their horns upward to strike. Bears or a bearish investors have a negative outlook on a specific stock, industry, or the entire stock market. The financial situation that the U.S. economy is currently in is a classic bear market. A bear market is technically defined as a broad market index such as the S&P 500 index declining by 20%. There have been recent bear markets in 1987, 1990, and 2000. An investor can be bullish on the total stock market while still being a bear on certain industries. I am personally bullish on the stock market improving over the long term, but I am bearish on any airline stock and the entire automobile industry for example. I think that they both have horrible unions that are strangling companies in those industries. A down market is called a bear market because bears strike things down with their claws in a downward motion.

Recession. There is always a great debate as to whether the U.S. economy is actually in a recession or headed towards a recession. There is so much negative connotation surrounding the term that many politicians, economists, and other professionals are leery of even saying the word out loud. But, what is a recession? It all depends on how you look at it and define the term. With the financial markets’ currently turmoil, you might say that it is a “no brainer”. But, not so fast! Technically, a recession is defined as two consecutives quarters of declining Gross Domestic Product (GDP), which is the market value of all goods and services produced by a country. We have not actually had that yet. The GDP of the United States has actually increased 0.9% in the first quarter and 1.9% in the second quarter of this year. To make matters worse, the data provided by government economists lags the economy which is why we do not have more current figures. So, we actually won’t official know if we are in a recession until it is halfway over. But, this is just semantics. Many scholars and practitioners think that the definition is outdated. Many believe that a recession in the United States really started in about November 2007, and most ordinary citizens agree when their wallets are chronically lighter like they have been these past few months.

Over the coming weeks, I’ll continue to talk about classic finance terms and concepts. Next week, I’ll delve into risk versus reward and your risk tolerance. Do you have any investing or money terms that you would like to see discussed here? Let me know by going to the contact page and send me an e-mail.

If you enjoyed this posting, you might also like these:
1. An Army Second Lieutenant (2LT) Will Earn Over $100,000 in 2032
2. How to Pick a Good Individual Stock to Buy? – Part 1
3. Lump Sum or Dollar Cost Averaging?

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Roth IRA vs. Thrift Savings Plan (TSP) 401k – Which Is Better?

September 22, 2008

Should members of the military, their families, and U.S. Government Federal employees invest in a Roth IRA or the Federal Thrift Savings Plan (TSP)? Both investing options are great choices to invest for retirement, but there are certain strategies for members of the military and their family to consider when investing. There are several fundamental differences between the two plans which point to where you might want to invest first. A Roth IRA allows investors to contribute “after tax” dollars to the investment and then withdraw the principle and earnings tax free during retirement. The Federal Government’s Thrift Savings Plan (TSP) functions like a civilian corporate 401(k) plan or public 403(b) plan. Money contributed to TSP is “before tax” dollars and withdraws in retirement are then taxed at your normal income tax rate.

There are many differences in the two plans, and you need to understand the intricacies to get the most out of your investments. Below is a list of the common features of both:

 

Thrift Savings Plan

Roth IRA

Contribution Limit $15,500 per year $5,000 per year
Minimum Age to Begin Withdraw 59 ½ years-old No Minimum Age
Age for Mandatory Withdraws 70 ½ years-old Never
Taxed When? When Withdrawn Before Invested
Getting Out of the Military? Contributions must stop Contributions can continue

Most members of the military are in a low income tax bracket while serving in the military and then usually move into a higher tax bracket towards the end of their careers and in retirement. Because TSP money is taxed when you withdraw it, you would then end up paying more in taxes using a 401-k retirement plan or TSP rather than a Roth in most scenarios. There is a distinct tax advantage to maxing out your contributions to a Roth IRA first, and then investing in the TSP with any additional savings after that.

For example, say you had $1,000 to invest and are in the 25% tax bracket right now. Your one time investment of $1,000 will go straight into TSP and grow to a little over $4,600 in twenty years (8% growth a year). Then, you withdraw it and owe taxes. But, now you are in the 38% tax bracket twenty years into the future. So, you get to keep $2,880 of your hard earned money after taxes. If you had invested that $1,000 twenty years ago in a Roth IRA, you would have $750 to invest after 25% was taken out right away for taxes. That $750 would grow into $3,500 in those twenty years and can be withdrawn tax free.

Now think of that $1,000 on a larger scale. If you maxed out a Roth IRA (currently $5,000 per year if you are under the age of 50) from the time you were 22 until 65, you would have $1.9 million tax free. Don’t believe me? Check out this easy to understand MS Excel spreadsheet where you can plug in your specific circumstances and see how much a Roth is actually worth. The spreadsheet gives you a comparison between a Roth IRA, a 401-k plan like TSP, and a standard mutual fund. Take a look at the spreadsheet and see how much each letter of the word Roth could be worth to you.

There is one last thing to think about with respect to the TSP for all the non-military Federal employees. The U.S. Government contributes a match of up to the first 5% you put into TSP. That is equivalent to a 100% return!! You should always put the maximum the government will match in TSP first or else you are just throwing away free money.

As of 2008, a person can put up to $5,000 in a Roth IRA or $10,000 in a joint fund if married. To open a Roth IRA, an investor has to have earned an income and file taxes. High wage earners making over $114,000 a year or $166,000 if filing a joint tax return cannot contribute to a Roth IRA. People over the age of 50 can invest an extra $1,000 as a catch-up payment for a total maximum investment of $6,000.

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