Erik’s Blog: Board Shorts and Business Suits

In such a crazy investment envrionment one can either forget about the stock market completely or become glued to its every move. I for one have chose the latter. Following the markets volatility has become a daily thing for me. Not because I day trade or have large sums of money riding on these movements, but because its drama filled.

I of course check my google finance to see what the market as a whole is doing but while I move around I also check the news. While CNN Money is a nice one to browse I recently (yes I’m out of the llop) discovered that while the online version of the Wall Street Journal has mostly paid access, the mobile version is free.

Although the articles are more limited than the online version you can’t beat free from a great in the know investing resource.

So as I sit from my mobile phone writing this let me direct you to http://m.wsj.com.

As I was sitting out on the waves today during my lunch break I began to think about some recent “affiliate” income that I was able to generate. It got me to thinking how great the offer is and how it essentially creates $35 for the economy.

Some of you may remember one of my first posts titled Wanna Make $25. It could have been better titled “Here’s $25 for Free” or earn “Earn 10% On an Investment in One Day.” But either way it got the point across. Inspired by Steve Pavlina’s post (surprise surprise) about offering his ING referrals through his website I thought I would do the same. Besides I was learning about affiliate income being generated through other websites and this was a sure fire way to have people make me $10.

For those of you who don’t know the deal goes like this. INGDirect.com is an online banking firm with very few physical banks anywhere. Essentially 1 per major city. Having less people and leases allows them to give back more to their customers in the way of interest. Currently their interest rate on a basic savings account is 3.9%. Better than a lot of CDs that I have seen from local banks. When you sign-up with them you are allowed to get people to sign-up through you and make some money. When the referral you acquire joins INGDirect by funding their account with at least $250, you’ll get $10 credited to your account but better yet your referral will get $25. They don’t even have to put any more money in the account and they still get to keep the $25.

Yup, the only affiliate program I know of where your customer gets payed, guaranteed.

The best part is, you tie your checking account to the savings account and transfer money between the two just like you would if you had a savings account at your own bank. It’s that easy to fun the account. You can withdraw money whenever and you can fund the account whenever. Just like your bank it takes a day or two to clear between accounts and that’s it. No fees, nothing.

Well, as I mentioned I posted that about 5 months ago when this blog first went live. Since then I have gotten 0, the doughnut, to sign-up. I had one person email me about it but no one sign-up. Then, out of the blue, on Monday I got an email from someone interested in getting an ING account but not wanting to fund their account without the opportunity to get the free money.

All I had to do was get her email address and her first and last name and send her an email from my ING account with that information and there you have it. Done! $25 for her, $10 for me, $35 of free money created.

By the way if you would like to get and ING Direct account and make $25 for free send me and email at evossman@gmail.com and include your return email address, First, and Last name, and I’ll get you a referral link as soon as possible.

FREE MONEY

I opened up the business section of the local paper, The Honolulu Advertiser, today to find quite a shock. I was checking to see how the DOW and NASDAQ were doing, what were the big movers and shakers of the previous day and also how some commodities were fairing when I stumbled across an interesting and astonishing quote.

SILVER IS AT $14.00 AN OZ.!!!!!!!!!!!!!!!

Could that be right?

Sure is. A while back I posted about how if you had a decent source of 1, 5, and 10 oz. silver or gold bars you could stand to make a sure profit on EBay, so long as you bought at a few dimes over spot price. (spot is fancy for saying the quote, like a stock quote, measured in dollars per troy oz.) I had bought and sold several bars but didn’t have the time to track down a source, or which there wasn’t one on the island here in Hawaii. Shipping would kill my margins if not bought in huge quantities. At the time I was buying the bars oz. by oz. for $7.00 and oz. at a local jewelery store.

I had done some research into precious metal price trends and from what I could tell both gold and silver would be a strong buy, so long as interest rates continued to rise and the economy made an OK comeback. Everything the fed was indicating suggested interest rates were on the rise and the economy had already rebounded, precious metals just hadn’t responded yet.

My idea was to keep buying silver and eventually gold and selling it on EBay. With the profits and only the profits I would buy silver bars and keep them as part of an investment. This way I would be risking nothing but my time and energy for a sure thing investment and learn about marketing, EBay sales, and running an investment business. “Precious metals are a poor investment,” said the jeweler that I was buying from.

Now as I mentioned I didn’t really have the time to become an internet entrepreneur in silver and I didn’t have the boat loads of cash to be spending on the silver to negate shipping costs in terms of my margin. However, having someone in the business of precious metals telling me it was a bad investment didn’t necessarily help all that much.

This is where I should have seen what those comments were, which was someone who goes with the norm and what they’ve been told and doesn’t want to take the risk which at the time and from my limited research seemed like a solid investment. Funny that I read that today as I just finished a book titled The Essential Buffet about Warren Buffet and his using Value investing when everyone else preaches diversification and uses a more high portfolio turnover approach. Buffet has gone against the norms for over 40 years of investing and done quite fine for himself.

Lesson learned. Stick to your calculations, stick to your own ideals, and try to not be so influenced by the norm. If I had continued with the so called risky investment plan I would be up 100% in one year. It may now be too late to get into the mix but I will have to evaluate the market once again and see where things could go from here.

What’s the difference between a Roth IRA, a Traditional IRA, and a 401K. ? This is a common question I have heard from friends and co-workers looking to start saving for their retirement. All through school we were pounded with the talks of start early and you’ll make more in the long run. Well I must say a lot of people have taken that to heart and want to know what the difference is.

I have outlined several questions that I have asked or heard people ask. I’ll start with a short description and will get into the questions soon after.

BRIEF DESCRIPTION

401K - This is an employee sponsored retirement program. People can invest in several options, chosen by their employer to grow tax free. The initial contributions are not taxed while the money you take out after the age of 59 and 1/2 is. One great thing about 401K’s are they allow your company to match your contributions and invest money for you. Some match 10% and some match 100%, it just depends. A lot, (almost all) companies match with a vesting period meaning that they’ll set the money aside for you but you have to work for them for a certain period and you’ll get more of what they set aside the longer you work for them. Where I work the vesting period is 5 years meaning every year I get 20% of what they set aside. If I work for 4 years I’ll get 80% of everything set aside even that which was set aside by my company during year 1.

Roth IRA - A Roth individual retirement account allows you to contribute money that is already taxed and take it out tax free at the age of 59 and 1/2. The money you put in is also unable to be tax deferred. These usually can be set up through most banks or investment institutions.

Traditional IRA - A Traditional IRA lets you have the option of putting money that is already taxed in or money that can be tax deferred into the account. Like a Roth IRA a Traditional IRA can be set up through most banks or investment institutions.

TAXES - WHEN AM I TAXED

401K - You are taxed on a 401K when you take the money out. This means that on your paycheck the money you have deferred to your 401K plan is not taxed by the federal government. The money goes into the 401K plan prior to Uncle Sam grabbing his piece. While in the plan your money grows tax free as non-taxable interest. Yippeee! Once you reach, currently, the age of 59 and 1/2 years of age and you begin to take the money out you will be taxed at your then current income tax bracket rate, whatever it may be.

Roth IRA - With a Roth IRA you put money in that has already been taxed and is not tax deductible. The money then grows tax free, so long as you don’t touch it. At the age of 59 and 1/2 you can then take the money out contributions and earnings (meaning all interest made, dividends, or other earnings) tax free. Super, Super!

Traditional IRA - A Traditional IRA has different tax standings from a Roth in that the money you put into the account can be tax deductible during the year that you put it in depending on your status. The money then grows, again tax free as long as you don’t touch it until maturity. Upon maturing at the age of 70 and 1/2 the money can be withdraw but both initial contributions and the earnings are subject to federal income tax. Depending on your status if you made non tax deferred contributions you may not be subject to income tax on withdrawal, maybe. The biggest difference is the deferring at the contribution stage.

HOW MUCH CAN I PUT IN

401K - For a 401K an employee in the year 2006 can contribute up to $15,000. This amount can increase on a year to year basis as the government sees fit following inflation. If your employer matches to some degree to your contribution there is also a limit of $44,000 total between your contributions and the employers. (If they match 200% like that though tell me, cause I want into your plan.)

Roth IRA - For a Roth IRA the contribution limits (how much you can put in) are $4,000 for 2006 and 2007 and $5,000 for 2008. Now if you are over the age of 50 the government allows you to play catch-up and add a little more. For 2006 and 2007 you may put in $5,000 and for 2008 it’s $6,000.

Traditional IRA - For a Traditional IRA the contribution limits are the same as those listed above for the Roth IRA.

WHAT CAN I INVEST IN

401K - 401K plans are sponsored by your employer and most of the time setup and run by an outside company. Your employer, with or without your suggestions, picks several investment options usually mutual funds, money market funds, and/or bond funds. You are then allowed to designate a dollar amount or percentage of your deferment to this funds. You can choose to have all your money go in one fund or have your money split up among several.

Roth IRA - A Roth IRA us just like it says, an individual retirement account where you can direct the money wherever you see fit. You usually have to set it up through a financial institution of some sort like a bank, fund manager, or stock broker. Also with the plethora of online brokers available an easy way to go is through one of them allowing you to invest easily in stocks for you retirement. The beauty of the Roth IRA is that you have a lot more options with what you want to invest in. You can put it in a simple investment account like a savings or CD through your bank, or you can get complex and setup an online trading account through a company like ShareBuilder and control the money essentially daily. With an IRA you are in control of that money on a daily basis, you can’t take it out without penalty but you can try and maximize your profits (although there is a lot more risk with this).

Traditional IRA - Like a Roth IRA you are in control of the account on a more day to day basis and you can invest in a wider variety of places. See above for more description on your options.

WHERE CAN I MOVE MY MONEY

401k - 401K’s are sponsored by your company and usually only have 5-10 funds you can choose from. You can probably change between the funds regularly but will have to suggest a fund to your HR department if they don’t have it. They can then evaluate it and see if it’s a good add to the program (works better for smaller companies.)

If you were to change jobs for any reason you are usually able to transfer funds from the previous companies 401K funds to your new companies investment options, so long as they stay in the 401K “shelter.” You also may be able to keep the money in the previous employers 4o1K funds but I haven’t heard of plans allowing you to invest from your new company’s paycheck into that old companies plan. Let me know if you can with yours.

Roth IRA - Roth IRAs are setup as individual accounts allowing you the freedom to open the account with the financial institution of your choice. This means you can invest in a savings account with your bank, a mutual fund with someone like Janus Funds, or stocks with a stock broker (like online brokerage firms.) You can do all this so long as you keep the funds under the Roth IRA tax shelter. You can also transfer accounts from one institution to another. changing what you invest in. An example of this is if you invest in stocks with an online trading company and then change your mind wanting a safer investment in something like a low risk mutual fund. There may be fees associated with this but you’ll have to check the specific company for details.

Also something you may want to check into that I am not sure if you can do is taking some of your funds from say your banks saving account Roth IRA to say your online brokerage Roth IRA. Not sure if you can transfer part of your account but it’s worth the research.

Traditional IRA - Traditional IRAs allow you the same investment options as a Roth IRA. Just read more about the differences below.

CAN I TAKE THE MONEY OUT EARLY

401K - With a 401K, like all other accounts you incur a penalty if you take money out prior to turning 59 1/2. If you do there is penalty. With a 401K the penalty is 10% tax on top of the income tax that you would pay depending on your income tax bracket. There are exceptions to this rule where you would only be assessed income tax like death, permanent disability, and other such extenuating circumstances.

There is however one option you may have if your employer allows it. If allowed you can take out a loan that has to be repaid with after tax income and at an interest rate defined by the people who run your 401K plan. The principle you took out as well as the interest you pay in become part of the 401K balance.

Roth IRA - A Roth IRA has several options to withdraw money from it. You can of course with draw money at the age of 59 and 1/2 tax free. If you want to withdraw earlier you can withdraw up to the total of contributions (the taxed money you put in) tax free. If you withdraw any earned income from the Roth IRA you will be assessed a 10% penalty tax plus income tax which you normally wouldn’t have been taxed from. Ouch!

You may also be eligible to withdraw the money, contributions and earned income, if you are making a first home purchase or a qualified educational expense. Check with the IRS for more details.

Traditional IRA - Penalties are similar to the Roth IRA but you should check in with the IRS for more details. Tax deferments on contributions can get tricky. Also the age you are forced to take money out is 70 and 1/2.

This is of course just a primer on retirement accounts. You should always check with your banker, employer, or an investment specialist when considering where to put your money. The options can be daunting and you should research your particular situation as much as possible. Read books, Google it, or whatever it takes. Some resources I found helpful are the Wikipedia and the IRS. Check these places out, they have more links to more pages as well.

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“I tell you stocks before they can make you money, those other guys tell you stocks after they could have made you money.” Jim Cramer, host of CNBC’s Mad Money repeats this religiously. If you haven’t tuned into Mad Money or flipped past the crazy man yelling with excitement about energy companies and emerging tech stocks, you should. He’s on at 7:00 pm est and worth every minute. Prior to having Tivo I was never around at the right time to watch him. Now that I can record his show I have been tuning in more and more.

Jim Cramer is beyond crazy. His show has the sound effects that a 1940’s radio program would have but with some balding middle age man (Jim) running around, throwing little foam bears and bulls around, ripping their heads off and kissing pictures of himself. The crazyness doesn’t stop there. His newest theme song to promote going global with your portfolio is Ludacris’s Pimpin’ all over the World. Yeah, he’s big on appealing to a broad audience.

Aside from his crazy antics the biggest takeaway from Jim Cramer should be that he wants to tell you the stocks which will make you money, not the stocks that could have made you money. The way he does this is by researching, researching, researching. Take for instance yesterday’s first pick of the day. He opened by discussing the California Board of Energies vote coming up on whether or not to pass a $2 billion bill on Solar Energy Funding. He then raddled off 3 or 4 solar companies which he previously told his audience to buy then sell, making them money on all of them and “MAD MONEY” on one of them. He finally lands on his most recent solar play which he is recommending you get into ASAP. It turns out to be a tool automation company out of Canada called ATS Automation (ATA.CN). It’s traded on the Canadian stock exchange, so if you have access to their market, I would buy.

ATS Automation is an industrial automation design and manufacturing company that has a solar energy development department. Jim Cramer points out that the big players, both in the US and internationally, use ATS for their solar manufacturing automation needs. He also found out that they hired a prestigious banker type to unlock the value of a company who’s stock is currently at $14 a share.

You see, this is what Jim Cramer does on Mad Money. He has been around a while and knows what makes stock prices rise and what makes them flat line. He’s been there and now he wants to share this knowledge with everyone. Many of his stock picks are like the one above. He researches the players behind the obvious. He then weeds those out to find the ones that are trying to make their shareholders more money. Of course there are many researchers like this out there but you would have to pay thousands a year just to get their knowledge. Jim Cramer offers this to you for nothing and if you have Tivo, you don’t even have to pay attention to the commercials.

He started and I believe still runs TheStreet.com and has many books available (I suggest Jim Cramer’s Real Money) to tell you how he does it. He also runs a charitable trust portfolio that’s valued in the multi-million dollar range. Now if you don’t have time to watch his shows and don’t’ have Tivo, I found a great site called Mad Money Recap where the publisher quotes Jim on all his stock tips throughout the show, good or bad. It’s a great site even if you watch the show.

My plan over the next month is to use some of my savings to invest as Jim Cramer says to invest. I currently have a Sharebuilder portfolio which I add to regularly to build shares in different stocks. This is great for a more longer term look at investing. Jim Cramer on the other hand is all about getting in before the stock is big and then taking your profits. Once a stock has made you some money, get out and look for the next deal. My goal is to put together $1000 and go with a company like Scottrade or eTrade to buy and sell stocks along his suggestions. I will post here once I start and even post the value of the portfolio, good or bad.

If you haven’t seen the mad man speak, stop by and watch, if even for a minute. You’ll surely be entertained and you might learn something.

I leave you with a big Hawaii Boo-Yah. (Tune in to find out more about that)

Erik

I am unofficially out of credit card debt. I just posted my last payment to my Bank of America credit card which once cleared will make me debt free of credit cards. In one and a half years I wiped out almost $5,ooo in credit card debt following some easy quidelines I set out for myself. I do still have some very large student loans to pay off but at least I don’t have to worry about the $50-$100 monthly payments I was making to my credit card companies. I had two and was able to pay them both off.

Most of my debt stemmed from college. After I was unable to work for the summer I was undergoing cancer treatment I used a credit card to make silly purchases like going to the bar, or a dinner here and there. Pretty soon I was making them all the time and using my cash to by other things, it was like having two sources of income. Most of my cards were new so they had some promotional deal like 0% interest for 15 months or something. Wonderful, free money and I don’t have to worry about the interest. Well I kept using them when I shouldn’t have and left college with about $4,500 in credit card debt.

That summer I ripped up my cards and began the long path of paying them off. I had 3 in all and implemented a few strategies to do just that. It took me a year and a half but I was able to pay off all of my CC debt and can proudly say I now have none.

1. Cut ‘em Up

First thing you have to do is simple, cut up your credit cards. Don’t even give yourself the chance to use them impulsively. Even though you could still potentially use them online with just the number at least you’ll have to get your statement and look it up to do that. This will give you time to think about what a mistake you are about to make.

2. Transfer to 0%

Next thing you need to do is transfer your balances to a 0% interest card. There are tons of them out there that offer introductory rates of 0% for the first year or so. Be sure to get one that doesn’t charge a transfer fee, if it does look for another one, they’re there. I made the mistake twice of transferring my credit card debt to one that charged a transfer fee. With the debt load I was carrying they charged me the maximum of $75. That’s usually more than one payment you’ll be making. Learn from me and don’t make that mistake.

3. Pay more than the Minimum

In order to pay off your debt in a reasonable time period you need to pay off more than the minimum. If you don’t think you can, look closer at your finances. Do you need to buy that extra case of beer, or pack of cigarettes, or 24 hour fitness membership you never use. Cut out a few things a month that aren’t necessities and you’ll be able to scrounge together $50-$100 rather than $15-$30 (usual minimum payments).

I was paying $100 a month on any credit cards I had. This meant living paycheck to paycheck but I needed to do it. I cut out some going out, (getting a job really helps this), and I began finding ways to squeeze a few extra dollars out of my paychecks every month.

4. Switch again

If you’re 0% introductory rate is running out don’t fall behind. The month before it runs out find another credit card with the same rate and no transfer fee. It usually takes a month to process the transfer, although they seemed to be speeding things up towards the end. Sure you’ll have more credit cards and people think this lowers your credit score but who cares. Isn’t the goal to get out of debt completely?

Just do it (thanks again Nike) and make your payments on time. That’s way more important.

5. Use your tax refund

If you’re in any type of significant credit card debt there’s a good chance you’ll get a refund at the end of the year, that is if you have been paying a little more than your share each month. Which most people do. Last year was my first year working at a career and it was my first large refund. All of it, and I mean all of it, state and federal went to my credit card debt. it was money that I didn’t know I had so why should I go waste it on a want. Unless you have a really, really, really good reason not to, you should be putting all of towards paying off your debt.

6. Pay a final lump

Try and make the last payment in one lump sum. I made two large final payments to my carriers and was able to wash out the debt completely. Being the holiday’s and having switched my student loans to interest only (not a great idea) I was able to save more every paycheck. Then when I had enough saved I didn’t go looking for “wants” to spend it on, I took the plunge and payed my debts off. Go for it, don’t mull it over and think what you could be spending the money on. You need to get out of debt.

These six steps are what helped me reduce and get out of credit card debt completely. Look them over and see how simple it can be. There’s no magic formula, no crazy Suze Orman telling you what to do. Just a guy who is in debt up to his eyeballs and managed to slice away over $4000 while still playing in paradise.

Aloha,
Debt Free Erik
(credit card debt at least)

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Microsoft fell 18 cents today and I went skiing and snowboarding for 7 hours in a nice Wisconsin winter. I am back home in WI visiting family and friends for the holidays and trying to enjoying weather that my body hasn’t seen for almost 2 years. Quite an adjustment. My parents keep their house colder than the average air temp in Honolulu. My girlfriend and I just missed 15 degree weather (that’s F) by a day and have had low to mid thirties for the duration of our trip. It made for slushy ice skating on Christmas Day, but the skiing and snowboarding today was great, overcast and about 33F.

Enough with the small talk, lets get down to business. Microsoft stock price is on par with what I wrote about in the article Is Microsoft a Strong Buy?. I posted at the end of November and the stock had risen above $28 a share. Now if you recall I mentioned that within a few months the stock would more than likely crawl back to $25 a share, just as it has been doing for the last 4 years straight. As a matter of fact 2 months before, in September the price was around $25 a share. I upped my holdings then and have been waiting out the spike.

Some good news about Windows Vista, the Microsoft Live product line, as well as the xBox 360 arriving on shelves and the price raced past $27 on to $28. Some shaky economic news; inflation, bonds, fed hikes, and MSFT is on its downward trend. Today it finished at 26.46 a share. Good buy now? I think so. However I plan on waiting out the downward trend to below $26 and double my holdings. As I mentioned in that previous article I hope to build enough shares that I can buy and sell on the ups and downs while still holding a decent amount in my portfolio.

MSFT also managed to let some of it’s war-chest go upping their 4th quarter dividend. Now if you read the last article you know I’m hot on stocks that offer consistent dividends. MSFT, TWX, GE, and yes even WMT although WMT hasn’t done so well. The dividend is the main reason for my wanting to hold some MSFT in my portfolio at all times.

Wait with me or buy now but I still say MSFT is a good buy. xBox 360 is still a great system, Windows Vista will be released next year, and Google now has a competitor that it can’t buy-out. Stay warm and make some money.

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In my quest to become better at saving money I have started to employ the pay myself first method. This is explained in Rich Dad, Poor Dad as basically paying yourself before you pay your bills. Why should you give your money away before you even get a chance at it? Now I’m not saying skip out on your bills and don’t pay them at all. That would be foolishly throwing money away. I try not to do that. Rather, the act of paying your savings first gives you less money to spend on useless things. Like that $100 bar tab I ran up this weekend?, hmmm?

Before I get to the bulk of my savings discussion I’ll tell you right off how to make $25. INGdirect.com. They offer $25 to any new person that signs up through a referral and starts their account with $250 initial deposit. If you do that your referral will get $10 deposited into their account. So essentially they are giving away $35. Really it’s true and they are offering a 3.75% yield. Now with that said of course I am looking for the $10 so shoot me and email and I will email you the referral. However, if you know someone who has an account and like what you read below, tell them to email you a referral. They’re your friend and I’m just some guy. $25 in your pocket, $10 in theirs. But if not drop me a line.

Now back to why I like the pay yourself first and how INGdirect and other online bank accounts are the way to go.

I would first like to say that I am coming from debt experience. Paying yourself first isn’t just for the rich. I have about $88,000 in student loans (that’s just from undergrad), and about $2,000 in credit card debt. Not to mention house payments, phone bills, heating bills, cable bills, gas, food, electricity, condo fees, you get the idea. I manage to pay off all of this and stash away around $100 every month just in my savings (I also try to get a little into stocks, and some in my 401K.) Some months it’s more some it’s less. You just have to consistently put money away.

As I mentioned above I do all this and some how run up a $100 bar tab on the weekend. Now that’s not every weekend, but what I’m trying to get across is that I do this and also have fun. That’s not to say it doesn’t come with some stress. I am living paycheck to paycheck but now that I started putting away at least $100 a month in a plane Jane savings account I can sleep a little better. I have only been doing this for 5 months and I’m over $500 in savings alone.

You may be saying to yourself, “Yippee, I can put all that money away and earn 0.5% from my bank.” Don’t use your bank. I repeat don’t use your bank. Unless you have $10,000+ to put into an account (in which case you wouldn’t be reading this article) it’s not worth it. I have yet to see a local bank anywhere offering anything to make it worth anything to use their savings program. Sure you may get a free toaster but if you put that money in a savings account yielding 7-8 times that you can buy a toaster easily with the interest. Where can you find a savings rate that is 7-8 times what you get locally? On the internet of course. I know, I know, isn’t it dangerous to keep your money on the internet? I say to that, Don’t you have access to your local checking and savings account online? (If you don’t’ you should probably switch banks, in fact, you SHOULD switch banks.) It also makes banking ten times easier and more convenient to save money. If this stuff wasn’t online there is no way I would be saving the money that I am today.

Getting over the, “But isn’t it dangerous” myth

Let me just reiterate, it’s an online service. If your bank isn’t giving you online access you need to switch. If you are using online services from your bank then I say, what’s the difference. The online banks offer FDIC insurance up to way more than most people will even have in their accounts. (I believe the average is $250,000 per account or maybe its the norm. If you have more than 250K you don’t know what to do with I got some loans I need paying off, let’s talk.) This FDIC insurance is the same as your local bank so there should be no worries at all.

With this insurance most banks now-a-days don’t even think twice about correcting fraudulent purchasing or activity. That’s what they have insurance for. These banks also realize that a lot of people are worried about giving any information online let alone bank information. Therefore they will do whatever it takes to keep you as a customer and tell your friend all about how well they work and how much money they are making. This alone is enough to make it as safe as possible.

Saving Money isn’t easy

This was where I needed to improve my savings techniques. I needed it to be easier to save. My local bank wasn’t offering enough in the savings account. Coupled with that even to make it worth something I needed to transfer the money between a liquid savings account a money market account and/or CDs. Quite cumbersome. Online services have made my life a lot simpler. The current rate I’m getting at my INGdirect account is 3.75% and I never have to walk into a bank.

Using online banking is really easy for me. I just log onto my account at INGdirect and click transfer money, it automatically takes the money out of my linked checking account for me. Safe and easy. Within two days my money is posted to my account. This is the only real drawback is that the money doesn’t leave your checking account for a day or two. But if you treat it as a check there shouldn’t be any problem. You wouldn’t overdraft if you wrote a large check so don’t do it with savings.

How can they offer such low rates?

This is an easy one. The way these companies make money is by having everything online. They get rid of all the rent for buildings, the tellers, the paper processors, all of it. That way they spend more money on you. Presto larger savings return. Who doesn’t want a big ROI?

Why is ING direct so good?

I keep my money at ING direct because they are well known and offer lots of other products. There are some savings accounts out there that offer a 4% or better rate but you have to open the account with a little more money and that’s all you get. They don’t have any other options. You can open an ING account with pennies and they offer other products like home loans, CDs, and investment accounts.

The investment accounts are the accounts that interested me. My plan is to begin by just applying my money to a savings account at INGdirect. After I accumulate some savings I am going to diversify within the same account and invest in several of their mutual fund offerings. The best part of their accounts is that they make it really simple with low risk, medium, and high risk portfolio options that they already set up. This is another thing that could fit into the really easy category. Easy diversification.

Conclusion

My conclusion is that you shouldn’t give up on savings accounts altogether. Just give up on them from your local banks. Until they offer a better toaster why wouldn’t you go with an online service such as INGdirect. Start paying yourself first and watch your savings grow. Don’t touch it, unless there is an emergency. (bar tabs aren’t emergencies, unless she’s really worth it) Just trust me, paying yourself first will be the best first move you can make towards realizing your financial goals.

For the last 5 years I have bee following Microsoft stock (MSFT). I bought 2 shares for $100 back in the summer of 2002 just before it split using my ShareBuilder account. My thought was that I would use the cheap fees of ShareBuilder to build up shares in MSFT. Being that Microsoft was and is the software giant of the world I though this would be a sound investment. Since then the stock has split and I was up to four shares, I was a poor college student who didn’t invest for about 2 years and now have increased my holdings to 42.65 shares (Sharebuilder allows you to buy by the dollar amount and not the shares).

MSFT is still at $27 a share and continues to fester at the this price. I have been able to wait out the ups and downs and buy in the downs where it is at $25 and then wait it out for the next cycle. If I had enough money (common catch phrase) I would buy 500 shares every time this stock nears $25. As you can see in the graph provided by yahoo MSFT has consistently moved within this window over the last 3 years. I suspect a lot of people have done this that have the money.

One good thing about holding onto Microsoft stock is their good dividend payment. Currently the yearly payout is $0.32 per share. Last December they gave out more than $30 billion in a year end $3 per share payout; some people I imagine made a pretty penny here. I however only had my 4 shares and made a measly $12.

So what do I think about Microsoft as a stock…

Strong Buy

Disclaimer:
Let me begin by restating that I only own 42 shares of MSFT. I don’t think I have anything to gain by giving you my opinion on why I think Microsoft will be a good stock to own for the upcoming year. Another reason is that these are just insights into why I see MSFT as a strong buy, I am an engineer not a Stock Adviser. But then again, who really are stock advisers?

On to the reasons why MSFT should be in your portfolio.

1. Xbox 360

If you haven’t noticed every single Xbox 360 that was shipped for opening weekend has been sold. Current price on eBay for an Xbox 360 is right around $1000.00. That’s $700 more than

MSRP. Now I have heard that Microsoft actually looses money by selling you an Xbox so why would they want to keep supply up? Probably because they sell games for $60 a piece, and last time I checked a DVD and a burner don’t total that much. There is time spent programming but think of all the license fees that MSFT sells off, the advertising in games, and the peripherals.

The closest competition Sony isn’t slated to come out with their competing PlayStation 3 system until mid 2006. That leaves a lot of time for Microsoft to make some pretty decent profits. And think of all those kids that have Xbox 360 on their Christmas list, when parents are unable to provide the system, they’ll get the games. With all those games already sold, Microsoft will just make a few more systems and repeat.

2. Windows Vista (aka Longhorn)

New Windows Operating System, enough said. Coming late next year, 2006.

3. Online Software and Marketing

We all knew it was coming, Microsoft vs. Google. The fight is on. With MSFT’s www.live.com they have officially entered the online realm. Very similar to Google’s search portal, live.com integrates nicely with internet explorer and opens itself up to programmers to design web add ins.

Beating Google to the punch Microsoft has unveiled a new step in Software development. Often talked about within the Google world is creating an operating system on the web. Having all documents be accessible everywhere using web-based software. Well sorry Google on the slate in the spring of ‘06 is Office Live. Initially Microsoft says Office Live will be geared towards small businesses who normally email large files in formats such as Word, Excel, and FrontPage back and forth. This new software allows companies with employees located in several geographical locations (not to mention those of us too lazy to wander down floor) share files easily and allow real-time simultaneous access to the same documents (or so they say).

Rumor has it that a free ad supported version will be available during beta test. Yes listen to those words, ad supported.

Also rumored to be coming is an AdSense-like product from Microsoft. Already beginning to post similar ads on their pages (read here) Microsoft is jumping into the billion dollar a quarter market that Google and Yahoo have cornered for the last few years.

If Microsoft can even take %10 of the huge market share that Google has that will be profits unseen currently by MSFT using little capital to begin with. This is a giant step for Microsoft but one that is needed if it wants to stay ahead in the new era of software.

4. Cash on Hand

$40.06 billion. That’s over $3 a share. That is quite a war chest to do whatever it wants, research, takeovers, payoffs etc. Now some financial analysts will say too much cash on hand represents a company that isn’t up for growth. Can we really say that about Microsoft? I foresee a lot of money spent in optimizing online software. Bill Gates is no dummy. He knows where the world is headed and more than likely intends to spend his companies money getting there.

With that much cash on hand it seems like another generous year end dividend could be around the corner. Microsoft knows it needs to show it isn’t a monopolizing tyrant. Paying people off is usually a good start. Get it in now and you could easily make a dollar or two a share.

5. Image Adjustment

Everyone knows Microsoft has a tendency to overpower the little guy (Netscape comes to mind). Lately however they have been settling disputes and trying to appeal to the little guy. Now I don’t expect to see Microsoft using open source coding but I do expect them to allow more people to join in the development of their online tools. Within days of live.com’s arrival to the web there were about 30 add ins, or Gadgets as they call them. Currently there are 87. These are add ons that can be added to customize your msn search homepage. They display things such as weather, news clippings, horoscope, games, quotes, etc.

While Microsoft tries to soften its image Google seems to be turning into a giant of its own. Stopping by a few forums lately I have noticed a few questions regarding Google’s takeover of companies such as Urchin (web stats), Picasa (pictures), and Keyhole (Google Earth). Although they have provided all of these programs for free choosing to make the bulk of their money via advertising revenue, one has to wonder how long it will take for the tides to start to turn against the company whose company motto is “Don’t be evil.”

Final Thought

Anyway you slice it Microsoft has to be a strong buy. Their direction is well planned. With the release of Xbox 360, the launch of live.com, the upcoming Office Live suite and the anticipated Windows Vista, Microsoft looks poised to make solid profits and growth over the next few years. My plan, if the finances allow is to buy on those inevitable dips below $26 and accumulate as many shares as I can. using my ShareBuilder account. If the stock rises above $28 and holds I won’t stop, just steadily build my position and wait out the next two years.

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