Archive for May, 2012

True Cost of Homeownership

With “For Sale” signs appearing on lawns in the Boston area this spring, you may decide to take the plunge. In your favor are ultra-low interest rates,  but don’t forget to take a close look at how much it actually costs to live in a house.

Homebuyers are usually aware that they will have to pay property tax and insurance, but those costs are just the beginning of a long list.

Kiplinger.com article, The True cost of Owning a Home,  lists expenses incurred over a 4-year period of homeownership including items you might overlook, such as asphalt driveway sealing, garden tools, leaf blowers, and pest control.

Your actual  list may be longer. Additional expenses such as a security alarm, central air conditioning, chimney maintenance, snow removal, and a sprinkler system are found in the New York Times article, Estimating Expenses Before Buying Your First Home.

Remember to budget for repair and maintenance needs when preparing your home buying plan.

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Be a Smart Investor

Joshua S. Grinspoon,  Attorney, U.S. Securities and Exchange Commission, Boston Regional Office, spoke on Investment Fraud and How to Avoid It at our May 16, 2012 Financial Literacy at the Library event.

Mr. Grinspoon began by introducing a primer on the basic financial instruments:

  • Stocks – owning stock is like having a piece of a company;  you share in the revenue and are eligible to vote on corporate matters.  Generally considered a risky investment because the company could fail to make money or could commit fraudulent acts.  An extreme example is of the 1929 stock market crash.  It took until 1954 for the market to return to its pre-depression value. Risk cannot be completely eliminated but can be minimized by researching the company and diversifying stock ownership among several companies, industries and geographical locations.
  • Bonds – are long-term debt instruments issued by companies (corporate bonds) and governments (municipal bonds) with a fixed interest rate.  They are riskier than people realize.  If the institution goes bankrupt, the bond will not be repaid and both bond income and principal will be lost.  Further, their value is tied to prevailing interest rates.  If rates go up, the value of the bond decreases and will be difficult to sell. If the investor has no plans to sell the bond, then the interest rate volatility is not a great concern.
  • Mutual Funds – are a basket of stocks alone or with bonds, normally diversified both by industry and geographically.  Theoretically, this makes them less risky, but one still needs to be careful.  In some downturns, all asset classes can lose value, as they did in 2007.  Mutual Funds often require fees, perhaps 1% to 1 1/2% per year plus load fees.
  • CDs – are bank deposits.  If invested with an FDIC member institution in amounts lower than the covered maximum (currently $250,000 per depositor, per insured bank, for each account ownership category), they are a low risk investment. Although the principal is insured against loss, the interest rate can be lower than the inflation rate, resulting in a net decrease in economic value.

When employing a Broker who will act as your conduit to the market, be sure to research the Broker’s credentials.

  • Begin by looking them up on the FINRA Broker Check.  You may also want to check their status with the Massachusetts Securities Division  or the Massachusetts Attorney General.
  • Ask about their commission structure.  Is there a financial incentive for recommending a particular investment?
  • Ask for references.
  • Ask if they have frequently switched companies.
  • Be wary of unsolicited offers and attractive glossy mailers.
  • Be wary of “Senior Advisors”

Other important tips:

  • Don’t invest too much in any one stock.
  • Don’t lose sight of your investments – Periodically review your portfolio.
  • Brokers have a responsibility to put you in “suitable” investments

Remember the Basic Rule of Finance: If you don’t understand the investment, avoid it.

The College-Retirement Dilemma

It’s a year-round issue, but with the season of college acceptance upon us, the subject really has our attention.  I am talking about how to finance your child’s education while still saving enough for your own upcoming retirement.

Here are highlights of several articles on this dual savings challenge.

First of all from SavingforCollege.com, you may need to cut back on both goals, says  Tough Choices: Retirement versus College.

“You should…expect some trade-offs as you try to balance these goals. You may have to work longer than you would like or your children may have to borrow more money than they would like.”

Your priority for retirement savings should be to fund your 401K and 403B sufficiently enough to get the employer match.  Remember that your assets in these accounts are not counted in assessing your child’s prospects for federal financial aid.

To lower the cost of college, consider a 2-plus-2 plan where your child goes to community college (lower tuition) for the first two years, then transfers to a more prestigious 4-year institution for the diploma.

Bankrate.com advises in the article Retirement Coming But So Are College Costs  to take another tact by requiring your children to pay for part of their college costs.  For example, they can take out federal direct loans.

And yahoo.com believes it is possible to achieve both goals if you start early, save aggressively, and spend wisely.  See  Five Ways to Balance Retirement savings with cost of Kids’ College.

“Put retirement first…don’t give in to the temptation to pitch in heavily for college without making sure your retirement savings are on track.”  Start early on college savings, and also contribute 11-15% of your salary into 401K and 403Bs.  Cut college costs by having your child do four years in just six or seven semesters.

DIY Tips at Pinterest

You may be familiar with Pinterest, the fast-growing website where anyone can post photos.

What does it have to do with financial tips?  Quite a lot, according to an article at Kiplinger.com. It is full of ideas for low-cost ways to do home repair, redecorate, restyle old clothes, reorganize storage space, hair styling, and many other practical areas. Because it is a non-commercial site, these ideas aren’t tied to buying new things or hiring expensive services.  Instead, it’s a huge collection of ideas from everywhere.

Here’s a sampling:

  • Posters and other artwork that you can easily make yourself
  • Reviving old clothes, e.g. decorating old t-shirts
  • Refinishing furniture with creative touches
  • Remodeling or repairing kitchen cabinets and furniture

To read the whole article, click here or get into a financial frame of mind and visit Pinterest.com.

Free Money Conference

Conferences on finances and investing are a dime a dozen in the Boston area, but they often charge entrance fees or are led by sales people.  Here’s a conference that will boost your financial expertise with no cost and less bias.

The 2012 Money Conference, sponsored by the State Treasury and the Massachusetts Financial Literacy Trust Fund, will be held on Saturday, May 19th at Bristol Community College in Fall River, MA from 8:30 a.m. to 3:00 p.m.

“The Money Conference is a FREE one-day event presented by The Office of Massachusetts State Treasury and the Massachusetts Financial Literacy Trust Fund, and in conjunction with local cities and community partners to help households build their financial knowledge and improve their financial behavior through quality financial education.”

This year’s conference is on “Financial Empowerment for Individuals & Families”.

To register or to find more information, go to www.themoneyconference.com.