Is your car costing you a future?

Rolling your way into the car of your dreams:

The idea is simple in its premise if not a little challenging in its implementation. You save a few thousand dollars and pay cash for a car that simply gets you from here to there. Now this car may not turn the head of anyone in your neighborhood but does reliably get you from point A to point B. At the same time you start setting aside what would have been a car payment of $250 (or there abouts) each month in a online line savings account which earns you around 5% interest. At the end of three years you will have almost ten thousand dollars in that account. Take the ten grand and the car you’re driving roll them together. With the $10,000 and the trade in you should be able to trade up for “a little nicer” car. (Caution: Don’t let your ego overreach and roll the $10,000 + the trade in + a LOAN for this “little nicer” car.) Repeat the $250 a month set aside process. In another 3 years roll the new 10 grand with the “little nicer” car and upgrade again if you must. In short if you can save $250 a month then six years and two rolls later you can be driving a paid for automobile that turns the neighbor’s heads. OR

Roll your future not the car:

After you have rolled into a “little nicer” car then perhaps you realize that this type of ride isn’t so bad after all. The next three years you continue to save as planned but at the end you don’t roll into a different car. You decide, “screw the neighbors I’m going to be cash rich not car poor.” The $10,000 gets left in the online savings account earning interest and waiting until you NEED a different car. The $250 a month now gets pushed into a less than fully funded ROTH or a less than maxed out 401(k) or a nice dividend reinvestment program.

A look at what could be:

$250 a month invested that returns 9% gets you about $10,700 in three years. For five years of focus it grows to around $19,500. For those that are disciplined, in ten years you have just shy of $50,000. For those of you starting young, twenty years rolls to just under $170,000.

Bottom-line:

As I said the idea is simple: drive a paid for car and invest what would have been a car payment. It is the implementation of that idea that is the challenge. But, for the ones who rise to that challenge, master their car emotions there is indeed a rich reward for the disciplined and focused.

That’s it for today. Here’s to paid off cars, fully funded ROTHs, and to keeping an eye on your EveryDay Money.

Piloting my ROTH (investing)

For some time now I have thought of ROTHs and mutual funds in tandem. Mutual funds seem to have all the diversity the “professional management” that I equate with a nice safe retirement. So as my wife and I have pitched nickels and dimes into a ROTH the money has always landed in a mutual fund. That is until a short while ago.

Toward the beginning of November (2006) I pushed a hand full of nickels into a ROTH opened with my favorite online brokerage. Now with this money I have none of the diversity or “professional management” but all the fun and excitement that comes from flying the plane instead of merely being a passenger. My thinking was this; surely I could beat the averages since I was only running such a small amount of cash. The money so concentrated that any winner picked would have a dramatic impact on my returns. On the other hand if I stepped on an Enron… well let’s not focus too hard on that hand.

So this year, with spousal support, I will take a turn at piloting my own ROTH. I know full well the long term hazards if this should go against me. This idea of picking individual stocks to place in a ROTH is probably not for everyone. (By the end of 2007 it might not be for me) I’ll let you know.

Do you pick individual stocks for your ROTH or fly with the “pros”?

That’s it for today. Here’s to great returns and fully funded ROTHs. And to keeping a sharp eye on your EveryDay Money.


technorati tags
investing retirement roth

What’s in a name? (investing)

American Express (AXP) has been a part of my long term holdings for over 15 years. It has done me well over the years. From the beginning I have had their anorexic dividend reinvested through their DRIP. It is tiny but every little bit helps over the years.

Thursday last, AXP jumped up over 3%. Rumors that Citi Bank maybe looking to buy AXP was suggested as the main driving force for the upward move. I don’t really know, but it is nice to see AXP over $60 per. I just feel a little better when my stocks go up. The reason I’m not more excited is that I have heard this tune before. It seems every so often for the past few years some “pro” starts talking about how great a “fit” AXP would be with (your bank of choice). Nothing has happened yet. Citi and American Express have no comment right now. I think that is what AXP said last time the rumors started.

Let’s say for argument’s sake this time is different, Citi does buy American Express. Two things come to mind quickly. What would they use as a name for the new company? The American Express name is worth its weight in gold, at least I think it is. It would make me a little sad, after all these years, to see the name erased from the corporate landscape. The other thing is would Citi make a cash offer or would we receive Citi stock? I already own a bank and not really sure if I want my money tied up in two.

It is all speculation anyway right now. If I had to guess probability, this Sunday afternoon, it would be less than 20% chance that Citi throws money on the table. Now if come Monday morning Citi announces an offer in that $75 - $100 share range we will know I was wrong. Wrong and a few dollars better off than I was at Friday’s close.

That’s it for today, good luck during the new trading week. And as always keep an eye on your EveryDay Money.

DRIP DRIP (investing)

You put a bucket under a steady drip and in time the bucket gets full. Give it a little more time and it overflows. This is precisely the idea behind Dividend Reinvestment Plans (DRIPs). Those smallish dividend checks that we don’t seem to really know what to do with now have a purpose. Many companies offer the chance to reinvest those checks back into fractional shares. Your dividends buy more shares, which throw off more dividends, which buys more shares… DRIP DRIP DRIP.

Make no mistake; these plans work best over the long haul. I have had a couple of my DRIPs for over 10 years and counting. With DRIPs and a long term view you will see the market different, at least I do. You may even catch yourself looking for the stock to drop some so your dividends will buy you even more shares. The natural ups and downs of the market becomes an advantage over the long run. Your checks buy more when the stock is down and less when the stock is up allowing you to average a good buy price.

Companies that have a strong track record of paying dividends are good places to start looking. You also want companies whose payout ratio is not super high. If the payout ratio is high then they may be using all of the profits to pay dividends instead of using the money to grow the business. Ideally you want a company that is still growing, it doesn't need to have rocketing growth. This growth allows them to not only pay consistently but also increase the size of the dividend, yearly would be nice. Think bigger and bigger drops in the bucket.

A few companies that pop into my head are MO, XOM, GE, and PG. (The fine print: these are ideas only; please do your own homework, make your own decisions, and take responsibility for the good and bad things that result.) Here are some of the companies that mange all the paperwork and details of the DRIP programs for many companies (a place to start). Computershare.com,
Bank of New York, and Mellon Investor.


Remember the sooner you get your bucket under the DRIPs the quicker it will get full and start overflowing.

That’s it for today. Have patience with the DRIPs and keep an eye on your EveryDay Money.

Building blocks (investing)

Picked up a good book from the library the other day,
“Building Wealth with Dividend Stocks”. The book is not a nail biting page turner but well worth the read. This is more of your foundation type book. The book walks you through how to pick solid companies with growing dividends. There is also a nice section on DRIPs (dividend reinvestment plans), how they work and the long term benefit of being involved with a good one. In the back of the book is a huge listing of companies that offer DRIPs to their shareholders. The list makes getting started a snap. It provides web addresses, summary of the DRIP plan, and even a phone number to the company. If you are new to investing or just want to get some consistent pieces in place before short term trading then spend sometime with this book. I admit, I had a little smile as I scanned down the list of top quality companies and realized that I had DRIPs with some of them. I make all my own decisions after my own research, and take full responsibility for the ups and downs. But, it is still nice every now and then to see someone else agreeing with those picks. If you get a chance to take a look at it the author’s name is Joseph R. Tigue.

More later

Good foundations

Before I start I want to give a nod to the Pearl Harbor boys getting together, perhaps for the last time. Deepest thanks to you and all the ones that wear the uniform THEN and NOW.

It is again today, with CROX and SNDK falling off the table that I am reminded why you don’t trade with your retirement money. That and how much I like the steadiness of dividend reinvestment programs.

I would urge everyone to look into creating a solid foundation of top mutual funds and dividend reinvestment programs before going off and trading stocks. And if you still have a balance on your credit cards… I would fix that before playing in the Street. Don’t get me wrong I really like trading and the research and the ups and downs and trying new strategies and well all of it. But I don’t think I would enjoy it as much if I hadn’t first strung a safety net. I was told and stick with one simple reminder:
“Don’t push any money into the market that you aren’t totally ok with it disappearing… forever.”

If you need ideas take a look at the post “Do you Roth?” Do a search on index mutual funds, dividend reinvestment programs, and ROTH IRAs. That should get you started. I’ll be doing a more in-depth piece on dividend reinvestment soon (it is the get rich slowly theory).

Trust me, build that solid money foundation so when you have a SNDK fall 3% from under your feet in a day it will be easier to remember the sky really isn’t falling.

That’s it for today, here’s to hoping you always remember Enron, until tomorrow keep your eye on your EveryDay Money.