Coming Up With The Capital

Most people live from check-to-check. This is one of the unfortunate realities of the current market. Coming up with the start-up capital to begin investing is obviously the first step. Some people have used a home or auto refinance strategy to come up with the money. Another option is to open up a separate account that is automatically withdrawn from you paycheck, possible a foreign currency account. You should first look at your monthly budget to figure out how much you can afford. This might require some changes to your spending habits but the sooner you start saving, the better.

Considering the Long-term

You need to take the long view on what you’re going to need in the future. For years now, 401k’s and IRA’s have been the most popular investment vehicles for those looking to save for retirement. 401k’s are traditionally offered by employers to their workers as a way to put aside money. This money is matched by employers, usually up to six percent. Some people prefer IRA’s due to the diversity of options. These are two of the most stable long-term strategies that have a very low level of risk and should be a part of any savings approach.

Diversification

People who jump into the stock market are often unaware of the risk of investing in too few options. If you’re putting any amount of your savings towards the market, you need to diversity your holdings. Mutual Funds are the best way to spread out the risk through many stocks.Another interesting strategy would be to try Forex Capital Markets trading with FXCM as it could protect you from some of the market volatility if things go back. Ideally, you shouldn’t put any more than ten percent of your holdings in any single stock option. Spread everything out across options like property, commodity, and mutual funds so you are giving yourself extra protection against the collapse of any single investment sector.

There are many other savings options for consumers and if you’re not that familiar with all of the options, it would be best to speak with an investment professional first. You can also look online for other tips towards similar goals. You can always invest in the short-term in various stocks currently trading on the market, but it’s essential that you don’t confuse the two. You don’t want to risk money that you can’t afford to loose on a stock that has too much risk attached to it.

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Wade Slome is the author of How I Managed $20,000,000,000.00 by Age 32 which I recently reviewed. He is also the founder of Sidoxia Capital Management, LLC. The author was gracious enough to take some time to answer a few questions that I had. We did an email interview.

The following are Wade’s answers to my questions. Enjoy!

1. Wade, what inspired you to write the book?

Not everyone gets to manage a $20 billion investment fund in their lifetime, nor do they understand the commitment and skill necessary to successfully manage and navigate such large pools of money. My passion for investing was evident at an early age – as early as high school when I participated in stock market competitions. I have been extremely blessed in my professional career, and I believe it’s my duty to share my experiences and strategies so that investors of all experience levels can learn and apply the successful tools I collected over the years to their personal investment portfolios.

2. What do you hope your readers will get out of the book? What is the most important lesson or lessons that someone could learn from your life or your book?

At one level, I wanted to provide certain entertainment value to what some readers traditionally consider a dry subject…investing. In Chapter 6, “Managing Billions – Riding the Bull,” I cover a lot ground. Everything from descriptive stories about my global travels, and interactions with corporate titans like Google CEO Eric Schmidt and Wal-Mart chief Lee Scott are covered. Not to mention, unexpected FBI interviews, and jet flights with the likes of baseball Hall of Famer, George Brett.

On another level, I really wanted to demystify the world of investing in terms that a layman can understand. For example, I highlight opportunistic strategies and point out the pitfalls and dirty little secrets of the investment industry, in terms the reader can understand. There are three main areas of investing where I see the most mistakes committed: excessive trading, excessive fees charged by brokers, and an emotional ad hoc approach to investing. Most recreational investors, or aggressive brokers, read newspaper headlines and are overconfident in their ability to generate short-term profits. They feel they can do no wrong, if they are constantly buying investment ideas based on good news and selling on bad news. These tendencies may feel right or work in the short-run, but evidence shows, come the post-mortem review of trading statements, that individuals get crushed over longer periods of time. John Bogle, the very successful founder of The Vanguard Group, did an eighteen year study showing that individual investors underperformed the “do-nothing” index strategy by more than 10%…PER YEAR. I find it astonishing how much trading, fees, and emotions can impact long-run returns.

3. With such success at a young age, how have you stayed grounded. Has faith played any part in this?

I consider myself extremely fortunate in all aspects of my life. One reason I can place my success in perspective is due to the challenges and hardships I have faced during life. With two of my immediate family members having passed away at young ages, faith has definitely played a role in grounding me. I take my profession extremely seriously, but hundred point drops in the Dow no longer cloud my perspective. Having my wife constantly remind me to take out the garbage and clean the dishes has a way of grounding me as well.

4. What money moves are you making right now in this market?

I am putting more of my cash to work. With the tremendous volatility, fear, and panic in the marketplace also comes vast amounts of opportunity. And you really don’t need to listen to me, but rather you can just indulge me by paying attention to the wealthiest man in the world…Warren Buffet. He is putting his money where his mouth is and placing billions of his investment dollars to work in the U.S. financial markets. Right now, he is like a kid in a candy store doing cart wheels. And why not? Prices on many investments are on sale, by more than 50% in some instances. Therefore, the credo to “buy fear, and sell greed” makes all the sense in the world.
What many people don’t realize is that investing is NOT a black or white proposition. Many investors toggle between investing in 100% stock or investing in 100% cash. However, I’m finding tremendous value in the fixed income markets (bonds), where traditional equity-like returns may be achieved in the next three to five years. There are trillions of dollars in cash investments that investors are effectively stocking away in their bunkers because it feels safe and comfortable…for now. However with the Federal Funds Rate (interest rate target set by the Federal Reserve) basically sitting at 0%, investors who are stuffing money under the mattress are doing more financial harm to their financial futures than they are doing good.

5. With the markets being so volatile and the media talking about the end of the world (at least in terms of the stock market), what advice can you give the average investor who’s afraid to invest in the current market?

The best advice I can give people is to turn off the TV. I almost feel like hitting myself with a hammer every time I turn on the evening news. There is a difference between remaining informed versus constantly surrounding yourself in never-ending panic. Sure, global economic conditions will be tough and deteriorating for at least the next three to six months, but this is not new news. The pessimism we are constantly surrounded by is arguably largely factored into current market prices. What many investors fail to realize is that recessions are the BEST times to invest. According to Hays Advisory Services, the average bull market increase is greater than 88% from market bottoms. Even after the collapse of the market in 1932, prices rose approximately four-fold from 1932 to 1937. We may not be at bottom yet, but regardless, Boomers’ retirements are accelerating and many should be investing for the next 20+ years (not the next 20 days). Certainly some investors may have no business investing in the stock market, but I am clearly finding more opportunities now relative to a year ago.

6. And on a side note, have you entered in any Poker tournaments and won some big money?

As I write in my book, successful investing requires skillful use of both art and science. What I find so fascinating is that the same principles apply to poker playing. Like investing, poker is also a game of skill. Take for example professional poker player Patrick Harrington. In 2003 he finished 3rd at the World Series of Poker Main Event (the Super Bowl of poker) out of a pool of 839 players. In 2004, the following year, despite the pool more than tripling to 2,576 participants, Mr. Harrington managed to finish 4th and take how a cool $1.5 million in prize money. Luck? I think not. Odds, if left to chance, would be 1 in 25,000 for repeating this feat according to the Economist. I consider myself an above average player and I’ve won a few small tournaments, but it may be a while before you see me on ESPN winning the World Series of Poker (however, don’t be surprised if it happens!).

Wade W. Slome, CFA, CFP®
Sidoxia Capital Management, LLC (www.Sidoxia.com)
Plan. Invest. Prosper.

Thanks Wade for the interview and for taking the time to answer some questions for my readers at Christian Finance Blog!

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ING Direct – Free $25 instantly if you open an Electric Orange or Orange Savings Account (currently yielding 3%) with at least $250. That’s an instant 10% return just for saving! Start your emergency fund or save up for that new toy!

This is easily my favorite online savings account and I’ve been with them since 2005. Highly recommended with great customer service and competitive rates. You can link the savings account to a checking account from another bank so you don’t even have to switch banks!

Contact me and I’ll send you a referral link. You can only get the bonus if you open through a referral link.

Prosper – Get $25 free to get started after you fund your first loan as a lender (minimum $50). This is the next revolution in finance called micro-finance where multiple people fund one loan with smaller micro-payments of as little as $50. This spreads the risk across many people and lowers the risk for you.

This is the first person-to-person lending marketplace in America with over 670,000 members and over $130 million in loans.

You can bid on eBay-style loan listings and you can view credit ratings, income information, etc. to help you make a good decision. I personally won’t lend to anyone with less than AA credit and I’m averaging a 9% return on my loans.

Email me and I’ll send you a referral link.

Zecco – Free China Shakes the World book ($15 value) PLUS I’ll personally send you $10 to your Paypal account (must have Paypal account to qualify) when you open and fund your account!

Zecco is the first online broker to offer free stock trades (up to 10 per month with minimum $2500 in equity) or only $4.50 per trade (if less than $2500). No minimums to open and it’s my main online stock broker. Highly recommended if you want to get started with stock trading. Fees are what kill returns so if you can lower fees as much as possible, it really helps your potential capital gains!

Email me and I’ll send you a referral link. Email me again when you open and fund your account and I’ll send you $10 to your Paypal account!

Scottrade – Get 3 free online trades as a sign-up bonus just for opening an account. Scottrade only charges $7 per trade, has local branches across the country and has great customer service! I have my Roth IRA with them and I can’t recommend them enough!

Contact me and I’ll send you a referral link. Your 3 free trades will be available once you open your account.

Sharebuilder – Get a $55 cash bonus (if you’re a Costco member, otherwise $25) to invest. All you have to do is open an account (no minimum) and trade.

Sharebuilder offers automatic trades at $4 a trade or $9.95 real-time trades. ING Direct recently bought them out so you can expect the same level of customer service. Although I prefer Zecco over Sharebuilder as a discount stock broker, this is a good option for anyone who doesn’t have much to invest.

Contact me and I’ll send you a referral link. Your cash bonus will be available 4-6 weeks after your first transaction.

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What does this mean to you and me? The rate cuts means lower rates for borrowers but also lower rates for savers. Average 30 year mortgage rates now stand at 5.49% which is also the lowest in two years. If you’re looking to buy a home, it seems like now’s the time to buy with home prices considerably lower than even a couple years ago in some markets. It may also be time to refinance your existing home mortgage if you can save at least one percentage point or more.

You should also see lower rates for your variable credit cards. If you don’t, give your credit card company a quick call and ask them to lower the rate. If they don’t, ask for the retention department and threaten closing your account and transferring balances elsewhere. The retention department has the power to lower the rate for you. Of course, this doesn’t affect you if you pay off your credit balances off each month.

But these rate cuts also mean lower rates for your emergency cash savings in CDs and savings accounts. ING Direct now stands at 3.40% and Electric Orange is at 2.25% for balances up to $49,999 (if you want a free $25 for opening an account, let me know). FNBO Direct (which is where most of my emergency fund now sits) is at a still-great rate of 4.30%. WaMu’s online savings account now stands at 4.25%. HSBC Direct stands at 3.80%. You can check out Bankrate.com for the latest rates. But your emergency fund is not designed to make you money; it’s just there for an emergency and it’s nice to earn a little interest on it. But if you already have your 6 to 9 month emergency fund in place, it may be time to look at longer-term investments in the stock market. I absolutely love Roth IRAs and an index fund within a Roth IRA is perfect for most people! If you have a 401K offered by your employer, it may be time to increase your contributions.

One last thing to remember. Just because the rates are lower doesn’t mean you have to borrow. Remember that the goal is to save more and not spend or borrow more. But at the same time, there may be some opportunities to save some money. God Bless!

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Since ING Direct purchased and acquired ShareBuilder on November 19, 2007 for $220 million, everyone was wondering what changes would come about. Well, there’s good news! Not only did they change the color scheme, but the price for real-time trades has gone down to $9.95 per trade rather than the old $15.95. That’s a 35% discount! This price brings ShareBuilder in line with other discount online brokers, but it still does not beat free stock trades with Zecco. Contact me if you want to open a Zecco account for a FREE $25 bonus!

ING Direct is the country’s largest direct bank with assets of $77 billion with about six million customers. I contacted media relations for ING regarding the changes that would come about due to the acquisition but they have not gotten back to me yet. I’m interested to see if there will be more changes since I am a customer for both ShareBuilder and ING Direct. It would be great if there were instant transfers from ING accounts to/from ShareBuilder just like the transfers between Electric Orange (checking) and Orange Savings.

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If you haven’t heard of Kiva, you need to hear it now. Kiva means “unity” or “agreement” in Swahili. The basic idea behind Kiva is the concept of microlending or microfinance. The premise behind microlending is that many smaller loans from different sources fund a whole complete loan. The difference between Kiva and another micro-finance based site, Prosper, is that interest isn’t charged to the borrowers. Also, the borrowers are small business owners in third-world and poorer countries of the world so these are loans that truly bless people who need it. Also, because these interest-free loans are loans rather than gifts, both the lender (you) and the borrower are on the same level so everyone feels good. And the Bible teaches that we shouldn’t charge interest to the poor anyway.

All it takes is a computer, the Internet, and a Paypal account to get started! If you go to the Kiva website, you will be able to browse small businesses from around the world from places such as Cambodia, Mexico, and others (however, because of recent huge press coverage, all loans are currently funded). You will be able to see a picture and a little description of what the loan is going to be used for. Some people own small markets and need some money to buy some inventory. Others raise sheep and need some money to buy some more to expand their business. Once you find someone you’re interested in helping, all you have to do is send via Paypal a minimum of $25 to help finance the entire loan. Loans have a 6 month or 12 month terms and the pay back rate has been an amazing 99%! You’ll get progress reports on how things are going for your specific “sponsored” small business as time goes on. As of right now, the entire amount that you loan goes to the entrepreneur in the other country. Kiva does not take a cut at all and is supported by donations from lenders.

This is a great way to help the working poor around the world by lending some money to microfinance a loan. These really are loans that change lives and make a difference. Plus, you’re likely to get your money back so you can loan to someone else in need.

Check out the Christian Finance Kiva page and Kiva.org for more information!

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**This post is sponsored by:**

Searching for loans can be time consuming. At The Thrifty Scot we have access to over 500 personal loans and 200 secured loans which can be applied online.

**Advertisements do not constitute endorsement by Christian Finance Blog.

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The Dow took a huge hit today! It was the second largest point drop so far this year (-311). The biggest was -416 on February 27, 2007. The largest point drop in history was when the market opened back up on September 17, 2001 after September 11th (-685).

The thing about any drops (or gains) in the market are that they’re just paper losses (or gains). They are unrealized losses (or gains) “on paper” and they don’t really matter until you sell your investments. It’s always wise to keep things in perspective. People tend to get emotional and scared when the Dow drops. It’s never wise to be emotional when investing. That’s why many people buy high, and sell low. I had a co-worker who stopped his contributions to his 401k after a big drop a few years back. That’s also not wise. You’ll miss out on the the employer match as well as any gains that usually come after a big drop.

Remember that investing is for the long term. It’s never good to look at the short term when investing (unless you’re a day trader). Just leave your 401k or IRA’s alone and review them quarterly.

So what can you do to survive a market crash? (From a CNN Money article):

Amp up your 401(k). It is true that a down market can be a time when stocks are on sale.

Adjust your risk. If your mutual funds went down more than you’re comfortable with, you may need to adjust your risk.

Determine your deadlines. As you near retirement, you need to adjust your stock/bond allocation so that there’s less risk as you near retirement. The common method is to subtract your age from 120 to figure out what percentage you should have in stocks (some say 100 if you’re more conservative). So if you’re 30 years old you should have approximately 90% of your investments in stocks.

Spread your bets. Owning an international or overseas fund can be a hedge against big drops here in the U.S. Often when the U.S. market suffers, the international markets are doing well. Being diversified is the key!

Source: CNN Money

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Zecco is an online stock brokerage firm whose claim to fame was their no fees and free stock trades (up to 10 a day and 40 a month). I’ve been considering opening an account since I first heard of them a few months ago. Now that Zecco has no minimums to open an account (used to be $2500 minimum), I will probably open an account to try it out. I’m currently using Sharebuilder but I don’t like the $15.95 commission to sell stocks. Plus I’m not a big stock trader. Still the free stock trades are very tempting.

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Check out Morningstar’s FREE investing classroom. There are 172 different courses on stocks, funds, bonds, and portfolio building and monitoring. Take the quizzes and earn points. If you get 790 points, you will receive a 60 day premium Morningstar.com membership. It’s free to join and earn points so try it today and learn a thing or two on investing! It takes you from the basics to advanced techniques. You have nothing to lose. Click here.

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