Investing in Municipal Bonds Now

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Is now a good time to be investing in municipal bonds? Also known as muni bonds, municipal bonds are bonds issued by state and local governments. Typically, these bonds are used to finance government operations or capital investments for various local and state government agencies. Like corporate bonds, muni bonds pay interest and return your principal at the end of the bond’s term. Should You Invest in Municipal Bonds Now? Municipal bonds are a great investment opportunity that goes largely unnoticed by most non-professional investors. Muni bonds are safer than stocks over a long period of time and can offer significant tax advantages. When investors do take advantage of investing in muni bonds, it is often via muni bond funds which offers a very different investment experience than investing directly in actual muni bonds. So, is now a good time to invest in munis? Like all bonds, the price of muni bonds moves in the opposite direction of interest rates. That is if interest rates rise, bond prices fall. The Federal Reserve’s benchmark interest rate is currently at zero, which means that the part of bond pricing that is attributable to interest rates can only go down. In essence, bond …

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World’s Easiest Retirement Plan

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easy retirement plan

So, you want to do some retirement planning, but it all looks very complicated. There are numerous ways to save for retirement, and there are a lot of different investment accounts, and so on. You may be wondering if you need a financial advisor or financial planner just to make heads or tails of everything. Don’t worry. Most of that stuff isn’t necessary. There are a few facts that will help you develop a rock solid retirement plan for free, in no time at all. Easy Retirement Planning Keep in mind that most of the complications that come from talking about things like financial planning or retirement planning come from the fact that there are actually a lot of different people and a lot of different financial situations. But, when it comes to building a retirement plan yourself, or with a professional, the reality is that 90 to 95 percent of people just need a basic retirement plan with no bells, whistles, or complex calculations. Fact #1: It is almost impossible to save too much money for retirement. The reality is that most people are very much under-saving for retirement. Fully funding a retirement at a lifestyle nearly equal to the …

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Stocks Freak Out, You Shouldn’t

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The stock market is down big again. What is going on? Two weeks ago it was the Federal Reserve and interest rates, last week was something. Now it’s… well… A big drop in Biotech stocks comes after the least sympathetic man in all creation bought the rights to a decades old drug and then raised the price more than 5000%, then went on television to defend the increase. You remember that old Simpsons episode where they show Richard Nixon in a debate with Kennedy looking like Satan. Yeah. I was just like that. Having attracted enough attention that politicians smell air time, Congressional Democrats now want to subpoena Valeant Pharmaceuticals (VRX), which although unrelated, has recently pushed the same business model of acquiring the rights to old drugs and then driving up the prices. Biotech stocks are down across the board. Oh, plus the uncertainty around the Fed and interest rates is still a thing. Oh, and China too. Market News and Reality Here is where you can start to see the cracks in the idea that the stock market always rationally follows current new events. First, Democrats do not control Congress. Republicans do, and they do not cooperate with …

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Use Accounts to Save and Budget

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I talk a lot about the psychology of money. The reality is that no matter how much something makes sense mathematically, it just may not work for most people because money isn’t just something we move around on a spreadsheet. One of the most common questions I see are in the form of “What should I do with $5,000,” or “How should I invest $3,000?” The answer is to put it in your savings unless you currently have enough money saved for your emergency fund and short-term goals, otherwise, put it in one of your investment accounts. People don’t like this answer. Why? Money psychology. Use More Accounts to Save One of the problems with money on a personal financial level is that it comes and goes so easily, often without really noticing or appreciating it. Consider a man (or woman) age 35. He earns $120,000 per year, has a mortgage, a car payment, some nice hobbies and he puts money away for his kid’s college and his own retirement. Honestly, that’s pretty great and he should be (and is) pretty happy. Financially speaking, this means that each month he earns $10,000. His company takes out $5,000 for taxes, insurance premiums, …

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How To Rebuild Credit After Bankruptcy

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Filing bankruptcy hammers your credit score. In addition to all of your credit lines being marked as discharged in bankruptcy, the bankruptcy itself counts against your credit score. Fortunately, your credit begins rebuilding immediately. Unfortunately, you might not be getting all of the “credit” you deserve. Credit Lines Closed in Bankruptcy For some people who file bankruptcy, the process ends with every line of credit they have being discharged. At this point, no payments of any kind are made to the creditors, and their financial life starts over. However, many people end up continuing to make payments on certain credit lines. For example, if you have a car loan, and you want to keep your car, you have to keep making payments or it will be repossessed by the lender. (A bankruptcy erases the loan, it does not erase the right to collect the collateral that you secured the loan with.) If the loan was discharged in bankruptcy, the lender will no longer attempt to collect the debt. You have to make payments on your own. In addition, the lender will no longer report any information about your payments (good or bad) to the credit bureaus, so you won’t get …

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Fed Does Not Raise Rates Market Confused

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So, this is interesting. The Federal Reserve did not raise interest rates at its September (2015) meeting. This is not surprising, per se. There were numerous international banks and organizations, plus tons of U.S. economists who worried that an increase would be too soon for a fragile economy. Here is where it gets weird. The stock market LOVES to plunge in reaction to a rate increase. Sure, it only lasts a day or two, but there’s nothing quite as fulfilling to a stock market index as dropping 200 or 300 points whenever the Fed raises interest rates. The catch is that Wall Street actually secretly loves interest rate hikes. A Federal Reserve increasing interest rates is the equivalent of a stern father taking away our credit card for our own good. The market throws a temper tantrum, of course, but it’s better for everyone in the long term. If the Fed raises interest rates, then there won’t be an inflation boogeyman. Based on all the pundits and analysts out there, it sure seems like the stock market was expecting a rate increase and all ready to throw its fit and wring its hand, probably just until the weekend, but still. …

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Investor Types

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Often, when I write about stock market news, or other economic events, I conclude by reminding long-term investors that there is no need to overreact (or really react at all) to the current short-term events. It was brought to my attention that not everyone is a long-term investor. That’s not true, but what is true is that not everyone is solely a long-term investor. And, that being the case, perhaps it is worth me addressing other investing types and issues, here on Finance Gourmet. That sounds fair, but in order to do so, I think I need to start with the different types of investors. Different Types of Investors Long-Term Investors The most common type of investor is the long-term investor. Everyone with a 401k or an IRA falls into this category. The goal of this investor should be to construct a well diversified portfolio and then review and rebalance it regularly. The strength of this type of investor is that over time, this is a sound approach that has never failed. The weakness of this type of investor is forgetting the strength and reacting inappropriately to short-term events. This category could be broken into two sub-types, those who are only investing …

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Stock Market Down On Jobs

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The Dow Jones Industrial Average is down about 300 points right now because of a good jobs report. As the main character in one of my daughter’s shows says, “What the huh?” Jobs Good, Rates Rise? No one thing seems to move the stock market more regularly than the jobs report. As always, this new report is actually about last month. After all, it takes some time to collect and calculate the data. What makes this particular jobs report so important is its timing. The Federal Reserve Board is scheduled to meet in September. The Fed has expressed a willingness, if not a desire, to raise interest rates this year if the economy is doing well enough. Everything looked pretty good for a rate increase in September, but then the whole China market blowup thing happened and with it, the U.S. stock market took a hit, and the idea of a rate hike got a little more iffy. But, with a good jobs report, the rate hike is back on the table… maybe. You see, the jobs report was good, but not good enough to make this a no brainer. Jobs were created, but well below the 200,000 that would be …

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Medicare While Still Employed

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Everyone knows that Medicare provides heath care coverage for retired Americans over 65 years old. But, with more American’s working beyond age 65, there is plenty of confusion about how Medicare works if you are still employed and working at a job, especially if it provides health insurance. Medicare is a health care program for American workers age 65 and older. Although it is often paired with Social Security, the programs are different. In fact, with modifications to the Social Security retirement age moving back full retirement benefits, there is now an age disconnect between the two programs. This can cause a financial issue if you aren’t thinking about Medicare when you turn 65 because you are still working a job and don’t need Medicare insurance because you have coverage at work. Medicare Late Enrollment Penalty Does it make sense to enroll in Medicare if you are still working when you turn 65? When you turn 65, you must enroll in Medicare during your initial enrollment period to avoid paying a penalty when you enroll later. The penalty for late enrollment in Part A is an increase in your monthly premium of up to 10% for twice as many years …

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Stock Market See-Saw

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Yesterday, I wrote about how the stock market plunge in China and the subsequent drop in the U.S. markets was not something anyone other than short-term investors should be worried about. Typically, I wouldn’t write another article about the stock market again right away, because I believe that most people would be better off watching the markets less, rather than more. But, I couldn’t resist today. Yesterday, there was an article that included the word “Bearmageddon” suggesting that a bear market of armageddon-like proportions was in the offing after the U.S. markets closed down six-days in a row. Other articles couldn’t stop pointing out thing like the biggest drop ever, or the longest-streak of down days since whenever, and so on. Today, the markets closed up. The stories today are about the “biggest gain in almost 4 years.” Talk about whiplash. The reality is that the U.S. stock market trades, in the long-term, based upon the fundamentals of the United States’ economy. While it is true that the issues in other countries, like China, can inform potential issues in the U.S. economy, it is important to remember that those issues must be American issues, not Chinese issues. The truth is …

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