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Basic 401k Recipe – How To 401k

January 9, 2018 by Finance Gourmet

When I was a financial advisor, it always surprised me how often people who didn’t know the first thing about money, investing, or 401(k) plans ended up being so successful at saving for retirement. For them, when they got their first “real” job all those years ago, they signed up for the 401k — because someone told them to — put in 6% of their salary — because that’s how you get the full match — and just chose a basic stock index fund as their investment choice — because that’s all you really need to do right now. Then, 30 years later, after having contributed 6% into a basic stock index fund every paycheck, during every recession, during every boom, during every bust, they ended up with a pile of money thanks to dollar cost averaging and compound interest — all without ever knowing anything about it. In contrast, I also met many people who knew “everything” about money. They quizzed me on minutia like where a company becomes a mid-cap stock versus a small-cap stock, or what month the Federal Reserve raised interest rates, but ended up with very little money in their 401k plans. As it turns …

Is FAANG a Good Investment?

December 15, 2017 by Finance Gourmet

Even if you’ve never heard of FAANG, chances are you have heard of all the stock components and maybe even contemplated an investment in one or more members, but is FAANG a good investment or bad investment? What Is FAANG? Let’s start from the beginning. FAANG stands for Facebook, Apple, Amazon, Netflix and Google. As you can probably tell, these are very big, very well known, technology stocks. They are also frequent investments among investors who only invest in a few individual stocks, people often called Main Street investors (as opposed to Wall Street investors). One omission from the list is Microsoft, which is also a very large, very well known, technology company. Unlike the others, however, Microsoft’s stock is not well loved by Wall Street investors and analysts, in large part due to its sideways performance from 2002 to 2013. While its stock has recently done well, it still doesn’t have the same shine, or flair as the others. Perhaps this makes it a less “noisy” investment with fewer fair-weather, amateur, investors? That’s an article for another day. For professional stock analysts and investors, FAANG represents a quick look at the “new” titans of American business. Each of these …

Disney Buys Fox Assets With Stock

December 14, 2017 by Finance Gourmet

Well, this is a big deal on the merger front. Disney is buying a bunch of 21st Century Fox’s media assets. Now, before you start in with your political conspiracies, the deal is to buy the movie and TV studio businesses, not stuff like Fox News. All Stock Deal What makes this deal a little crazy is that according to reports it is for $52.4 billion, but it is an all stock offering. It also comes with Disney assuming $13.7 billion in debt. That makes the cost to Disney for this takeover astronomical, but again, it’s all on paper. The purpose of the deal seems to be let 86-year old Rupert Murdoch sort of retire. He’s built up this empire over the years, but running a big company takes a lot of commitment, and these days, Murdoch seems to care less about movies and entertainment than he does about politics. More specifically, by selling, Murdoch is cashing in his empire for billions of stock in a major U.S. company. This no doubt more about estate planning for Murdoch, than any expectation for the future of the companies. Leaving a giant company to an heir is always a bit risky, and …

December Rate Hike (Again)

December 11, 2017 by Finance Gourmet

The Fed has now completely given up the pretense that it’s interest rate increases have anything to do with its 2% inflation target. Now, it is about tightening up the financial conditions, and in particular trying to put the breaks on the stock market. As noted over at Market Watch Reinhart said current policy is not dissimilar to the steady quarter-point rate hikes seen from 2004-2006. The only thing missing is the phrase “measured pace,” he said. Beginning in the summer of 2004, the Fed raised its short-term rate target from 1.25% to 5.25% in 17 straight quarter-point moves. But the policy failed to trigger tighter financial conditions, Harris noted. And, this is what should be terrifying. From 2004 to 2006, the Fed insisted on raising rates right into what would become the Great Recession. By raising rates when there is no inflation, the Fed becomes a really powerful group of market timers who have decided the stock market (this time, the real estate market last time) is “too high.” Ironically, this all becomes a self-fulfilling prophecy. When the Fed’s interest rate hikes finally do get the attention of Wall Street, it comes in the form of a knife slashing …

Is Credit Repair Legit, or Just a Credit Repair Scam?

December 12, 2017December 7, 2017 by Finance Gourmet

Is it just me, or are you getting a lot more offers for real credit repair these days? Legitimate Credit Repair Is there a way for someone to do legit credit repair? After all, there are all of these people out there selling credit repair services, so there has to be some real credit repair that isn’t just a scam, right? The reality is that credit scores, credit reports, and the credit bureaus that run the whole racket is big business. While you may know about credit scores and credit reports as what determines if you get credit or not, on the other side of the equation are big banks and investors who build billion dollar portfolios off of pools of borrowers. The key to both buying and selling these pools is the credit scores of the borrowers. Getting fake credit scores, or borrowers who fixed their credit with a scam, would be a big problem. Check out my Credit Karma review. The reality is that there really isn’t any legitimate way to fix your credit, other than to do better with your credit. Once upon a time, back before the housing bust and the Great Recession, you could fix …

Home Office Tax Deduction

December 6, 2017 by Finance Gourmet

One of the best deductions for self-employed people who work from home is the home office tax deduction. Basically, you take the square footage of your home office and compare it to the total square footage of your home, and then you get to deduct a similar percentage of certain house expenses as a business deduction. It’s one of the ways to take a little bit of the sting out of self-employment taxes. How To Claim Home Office Deduction Like most self-employed small business tax deductions, you take the home office tax deduction on Schedule C. You’ll need Form 8829 Expenses for Business Use of Your Home to calculate and file your deduction. If you use tax prep software like TurboTax, it will do this for you. (You’ll need one of the small business editions to take this deduction, but it’s most likely going to save you a lot more money than you pay for a more expensive version of TurboTax.) To qualify for the home office deduction, you have to use a specific area of your home exclusively, and on a regular basis. In other words, it has to actually be your office where you do your work for …

Can I Text My Financial Advisor?

November 28, 2017 by Finance Gourmet

When it comes to technology, the financial industry often moves slowly. Back when I was starting out as a financial planner and financial advisor, I was forbidden from having a website, or financial blog like this one for fear that it would constitute non-compliant advertising. The irony was that as someone a bit ahead of the curve on that, I likely could have built up the financial planning practice I wanted, without doing something I didn’t want, cold calling. These days, numerous financial advisory firms run websites and blogs exactly like the one I wanted to run a decade ago. It begs the question how it can be perfectly fine, and non-scary now, but not then. I also never understood how a person who feels good fast-talking strangers on the phone would be considered “more honest” than someone willing to put into writing what they were saying. But, rules are rules. Text Messaging Financial Professionals and Brokers Not long after I left financial planning, I wrote some articles about the SEC and FINRA slowly loosening rules on various forms of electronic financial communications, in particular releasing things like Quarterly Reports on a company website, instead of the, then current, default …

Stock Market Rising More

October 24, 2017 by Finance Gourmet

Anyone out there with their “the stock market is doomed” predictions acknowledging how much money they would have cost you if you had listened to them and gotten out of the markets in the last several months, or even the last year or two? No? Didn’t think so. It looks like the doomsdayers will have to wait a little bit longer as U.S. companies such as Caterpillar and 3M both reported pretty solid earnings this week driving up the stock market further. It’s a little hard to claim that there is no basis for increasing stock prices when stocks are actually doing well. Give it a week or two. Once earnings season has passed they’ll be back to tell you about how overbought, overvalued, and over-hyped the market is. How Long Will Stocks Keep Rising I don’t know how much longer the stock market will keep going up, and neither does anyone else. That’s why money mangers are always careful to compare themselves to the stock market, and not to their own predictions or track record of being right. Imagine how much more responsible financial analysis might be if you had to publish not only your trading record versus a …

Worried About Another Black Monday?

October 18, 2017 by Finance Gourmet

30 years ago, the stock market “crashed” on a single day. It was called Black Monday. At the time, I was in high school. I put aside the newspaper from that day thinking it would be a major collectors item in years to come. It hasn’t, but not because it wasn’t a big event. Black Monday was the name given to the biggest one day drop in the stock market. On October 19, 1987, the Dow Jones Industrial Average plunged 22.6% in one day. Back then, the Dow was still everything. The NASDAQ was the stock market where also-ran stocks that couldn’t qualify for the NYSE traded. The S&P 500 was known to savvy investors, but your average American still didn’t know much about the stock market beyond what showed up in 45 seconds on the nightly newscast. In fact, many of them didn’t own any stocks, unless they had a 401k account at work. Online trading was still in the future, and discount brokers took orders on the telephone. Unlike previous crashes, Black Monday did not start a panic. It did not lead to a depression. The drop was serious, and real. For the rest of 1987, the market …

Yellen Admits 2% Target Is Phony

September 27, 2017 by Finance Gourmet

Janet Yellen admitted that the Fed’s two percent inflation target is largely phony. She didn’t say that in as many words of course. What she actually said was It would be imprudent to keep monetary policy on hold until inflation is back to 2 percent On the one hand, that makes sense. The levers that steer the economy do so more like those that control a supertanker, and less like the steering wheel of a Tesla. So, the Fed Chairwoman is right that you can’t simply wait for inflation to hit 2% and then start raising interest rates. That could lead to a hard landing, or worse, not work at all. Stealth Inflation But, that isn’t what she meant. What she meant was that there is no data indicating that inflation will be 2% anytime soon, but that doesn’t square with what she thinks is/maybe/will be happening in the economy. You see, she is convinced that inflation is hiding somewhere, cloaked in stealth mode, undetectable by economic statistics, like some sort of cloaked Klingon finance battleship. That seems to be a popular theory because of two factors. One, the stock market keeps going higher, and people are starting to worry …