Savings Advice

It is not how much money you make that matters but how much you save!!

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Vonage Mobile–Essential for Frequent Travelers

If you are an international traveler mammoth mobile bills are a common pain. Vonage Mobile has an irresistible worldwide calling plan which promises to cut down your bills drastically. All you need is a Wi-Fi signal to turn your iPod Touch into a phone.

Blackberry or iPhone models can also take advantage of this. The special US – Canada rates of 1 cent a minute is unbeatable.

Vonage Mobile is a free application from Apple. All you need is a headphone set and a wireless connection to make your iPod a phone. You may also download it from Vonage Mobile websites when using phones.

For the frequent traveler, Vonage’s world mobile plan offers unlimited calling to 60 countries for a nominal monthly charge of $24.99. You may have to pay per minute rates ranging from 2 cents to $13.92 depending on the country you want to call. The call quality is generally good, depending on the wireless signal and microphone used.

Dave Ramsey’s 7 Baby Steps

I like to go back and take a look at Dave Ramsey’s 7 Baby Steps from time to time.  I think they are very helpful and a great plan to follow.

The Seven Baby Steps

Baby Step 1

$1,000 to start an Emergency Fund

An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, and the list goes on and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen. Learn more

Baby Step 2

Pay off all debt using the Debt Snowball

List your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first. Learn more

Baby Step 3

3 to 6 months of expenses in savings

Once you complete the first two baby steps, you will have built serious momentum. But don’t start throwing all your “extra” money into investments quite yet. It’s time to build your full emergency fund. Learn more

Baby Step 4

Invest 15% of household income into Roth IRAs and pre-tax retirement

When you reach this step, you’ll have no payments—except the house—and a fully funded emergency fund. Now it’s time to get serious about building wealth. Learn more

Baby Step 5

College funding for children

By this point, you should have already started Baby Step 4—investing 15% of your income—before saving for college. Whether you are saving for you or your child to go to college, you need to start nowLearn more

Baby Step 6

Pay off home early

Now it’s time to begin chunking all of your extra money toward the mortgage. You are getting closer to realizing the dream of a life with no house payments. Learn more

Baby Step 7

Build wealth and give!

It’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess. It’s really the only way to live! Learn more

Nice Article from Div Growth Investor

6 Great Dividend Stocks to Consider

Johnson & Johnson engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates through three segments: Consumer, Pharmaceutical, Medical Devices and Diagnostics. Johnson & Johnson has consistently increased dividends for 46 years in a row. The stock yields 3.40%. The yield on cost on stock purchased at the end of 1989 is 29.10%. (analysis)

The Procter & Gamble Company (PG) engages in the manufacture and sale of consumer goods worldwide. The company operates in three global business units (GBUs): Beauty, Health and Well-Being, and Household Care. The company has rewarded stockholders with dividend increases for 53 consecutive years. Check my analysis of the stock.

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The world’s largest retailer has a 35 year record of annual dividend raises. I would be a buyer of WMT on dips. Check my analysis of the stock.

McDonald’s Corporation (MCD), together with its subsidiaries, franchises and operates McDonald’s restaurants in the food service industry worldwide. The company’s share of the US fast food market is several times larger than its closest competitors, Burger King (BKC) and Wendy’s (WEN). McDonald’s is a major component of the S&P 500 and Dow Industrials indexes. The company is also a dividend aristocrat, which has been consistently increasing its dividends for 33 consecutive years. (analysis)

Consolidated Edison provides electric, gas, and steam utility services in the United States. This dividend aristocrat has raised annual distributions for 36 years in a row. The stock spots a yield of 5.3%, which a good compensation if you seek current income for the next 5 – 10 years. Check my analysis of Consolidated Edison.

Kinder Morgan (KMP) owns and manages energy transportation and storage assets in North America. This dividend achiever has raised annual distributions for the past 14 years. The stock currently yields 6.50%. Check my analysis of Kinder Morgan.

Great Article on Index Investing

Improving Your Finances What the Bogleheads Know for Sure

By Christine Benz | 03-03-10 | 06:00 AM | E-mail Article

If you’ve frequented the “Discuss” area of Morningstar.com, chances are you know the name Taylor Larimore. Taylor, a former IRS officer and retired chief of the Small Business Association’s finance division in South Florida, has contributed more than 24,000 posts to the Morningstar.com discussion boards for more than a decade, and also posts on a related site, http://www.bogleheads.org. He is also co-author of two Bogleheads’ books: The Bogleheads’ Guide to Investing (Wiley, 2007) and The Bogleheads’ Guide to Retirement Planning (Wiley, 2009).

I recently caught up with Taylor to discuss his investment philosophy and his view that the simplest investment plans are usually the most effective.

1. What was the genesis of the Vanguard Diehards forum on

Morningstar.com?

I have long been a student of mutual fund investing, and Morningstar is by far the best source of reliable mutual fund information. It is where I go to learn. When Morningstar started its first public forum in 1997, I began asking questions on the John Rekenthaler Forum. John is now Morningstar’s vice president of research and was a wonderful source of information and sound advice. For some reason, a large percentage of the questions (and answers) on the site were from Vanguard investors. Several of us asked the forum administrator at that time, Jenny Barrie, to start a Vanguard Forum. We argued so long and loudly that Morningstar gave us its first company forum and that’s why Morningstar called it “Vanguard Diehards.” I posted in the first conversation in March 1998.

2. You’re a big fan of simplicity when it comes to investing, and that comes through loud and clear in the two Bogleheads’ books. What are some key pieces of advice for those wishing to simplify their investment lives?

I have been investing more than 50 years. Most of those years I spent constructing complex portfolios and often using market-timing strategies–all in an attempt to beat the market. Well, guess what? Despite all the time and effort I was spending trying to beat the market–the market was beating me–especially after taxes. I’ve now come to realize that the best portfolios for ordinary investors are low-cost and simple to understand and maintain. Most unbiased investing experts agree. Index funds are a great starting point for those looking to simplify their investment lives. Jack Bogle introduced the first index fund for retail investors in 1976–the Vanguard S&P 500 Index Fund (VFINX). That fund represents about 75% of the U.S. stock market in market value. Fidelity called his fund, “Bogle’s Folly,” but it is interesting to learn what’s happened. In the 40-year period ending December 2008, $10,000 invested in Vanguard’s S&P Index Fund would have grown to $346,117. During the same period the average managed domestic equity fund increased to$201,513–a huge difference.

The Arithmetic of Active Management by Nobel Laureate William Sharpe explains why an average actively managed fund must have a lower return than the average index fund. Other significant advantages of index funds are less volatility, neverbelow-average returns, no manager changes, no overlap, no style drift, tax efficiency, and peace of mind leaving more time for family and other endeavors.

Total market index funds make it even easier to build and oversee a simple and effective portfolio. Vanguard Total Bond Market Index Fund (VBMFX) was launched in 1986, followed by Total Stock Market Index Fund (VTSMX) in 1992 and Total International Stock Index Fund (VGTSX) in 1996. Using just these three funds, representing more than 10,000 individual securities, today’s investor can achieve market returns (less costs) with diversification that was unheard of when I started investing. A second key to investment simplicity is to stay the course. Once we have decided on our asset allocation, it is important to do nothing (except rebalance). This is much harder than it sounds because Wall Street’s marketing machine, aided by the media, is constantly urging us to take action. Bogleheads call this “investment pornography.” Mr. Bogle wrote in Common Sense on Mutual Funds: “‘Stay the course.’ It is the most important single piece of investment wisdom I can give to you.” Other investing experts agree.

3. Your latest book, The Bogleheads’ Guide to Retirement Planning, was a collaborative effort with several other longtime Bogleheads. What are some of the key pieces of advice you would give to retirees attempting to navigate the current environment of very low yields?

Safe investment options are currently limited to low returns. Higher return nearly always means higher risk. In our retirement account, my wife, Pat, and I currently hold 50% in Vanguard Total Bond Market Index Fund and 50% in Vanguard Inflation-Protected Securities Fund (VIPSX). The worst annual return for either fund was negative 2.6% in 2004. We can live with that. Another option, especially for older retirees, is a single-premium immediate annuity. It is the only type of annuity I like, but a SPIA will provide the largest guaranteed lifetime income of any investment. We purchased two SPIAs when we were in our late 70s. It was comforting to have their steady income during the recent bear market and to know that we won’t run out of money before running out of life. I think the key piece of advice for most retirees is to do what is necessary to keep what they’ve accumulated. This usually means a large allocation to relatively safe investments such as money market funds, CDs, and good-quality bonds. I like Mr. Bogle’s rule that our allocation to bonds should about equal our age. Stocks are very unpredictable. The Dow plunged 89% during my lifetime. Retirees must resistthe urge to seek higher returns if it means taking unnecessary risk.

4. You once ran a contest on Morningstar.com to illustrate the futility of

timing the market. What would you say to individual investors and advisors timing the market. What would you say to individual investors and advisors who employ more tactical approaches?

I would repeat what I learned in your Morningstar Course 106: “We’re not keen on market-timing. It just doesn’t work.” Every reliable study I’ve seen arrives at this same conclusion. Mr. Bogle wrote in his great book, Common Sense on Mutual Funds: “After nearly fifty years in this business, I do not know of anybody who has done market timing successfully and consistently. I don’t even know anybody who knows anybody who as done it successfully and consistently.” It seems to be human nature to think we can forecast the stock market. To demonstrate how difficult it is, at the beginning of 2001, I started a Boglehead Contest on the Morningstar Diehard forum. I asked each Boglehead to guess what the U.S. stock market return would be at year-end. The average Boglehead forecast a 6% gain. Instead, the market lost 11%. Last year we had 282 Bogleheads register. Their year-end forecasts for the S&P 500 Index, made in January 2009, ranged all the way from a decline of 40% to a gain of 27%. No one really knows what the securities markets will do tomorrow, next year, or the next 10 years. Ten years ago virtually no one was forecasting that bonds would outperform stocks 10 years later.

I think the best strategy is to spend time creating a sensible, long-term asset allocation plan, then stick with it. My friend Bill Bernstein wrote: “If over the past 10 or 20 years, you had simply held a portfolio consisting of one quarter each of indexes of large U.S. stocks, small U.S. stocks, foreign stocks, and high-quality U.S. bonds, you would have beaten over 90% of all professional money managers and with considerably less risk.”

5. If you could sum up what you have learned during a lifetime of investing experience, what would you say?

My advice to be a successful investor is this: Save regularly, develop a personal asset-allocation plan, use a few broad market index funds, keep costs low (including taxes), avoid mistakes, strive for simplicity, and stay the course.

Opening a Vanguard Account

I just opened a new Vanguard Account.  The process took about 10 minutes and was very easy.  The only thing to be aware of is that a new account requires a minimum of $3,000. for each fund that is opened.  The great thing about Vanguard is the account expense fees are very low.  Most of the mutual funds at Vanguard have an expense fee of around 0.20%.  Mutual funds generally have fees in the 1% range.  So the savings are substantial.

I decided to open the Vanguard account in order to diversify my portfolio and reduce risk just in case another major financial institution goes broke.  I currently have an E-Trade account that is used to purchase stocks that focus on dividend yield.  I also have a Merrill Lynch Account that is professionally managed.

I will post my mutual fund strategy in the next blog.

Merrill Lynch v. E-Trade v. Scott-Trade

I have posted in the past a ranking of brokers that was published in Smart Money. I wanted to give my impressions after using 3 different brokers:

1) Merrill Lynch--Merrill Lynch is one of the most well known companies on Wall Street. They have excellent customer service and my financial advisor is not only a close friend but I trust his judgment without question. ML is great for someone that wants an advisor to manage their IRAs or Brokerage Accounts. The Fees for Stock Trades is higher than E-Trade or Scott-Trade but you are also getting full service. The thing that is not good at ML is their web-page it seems to always be 24 hours behind. The other problem is that when you look at posted (credits/debits) transactions to the account it does not show you a running balance.

2) Scott-Trade-has a good service–very good customer service–simple web-page that is easy to understand and get around. The Fees are the lowest of the three only $7 per trade. The thing that led me to switch to E-Trade has to do wit the banking features. The problem with Scott-Trade is that you can electronically transfer money into the account but you cannot electronically transfer money out. This just does not make sense. Why do they need to send you a check. If you are in need of your money quickly this is just not convenient.

3) E-Trade–has a great web-site–lot of information that is easy to access. The fees are a bit higher than Scott-Trade but the banking features are much better. You can also get one of the highest interest rates around by putting money into their Savings Accounts–3.3% currently. The good thing is that you can electronically get your money out. So far I am very happy with E-Trade.