Knowing the Investment Products

Investing can be overwhelming. The key is knowing what is available and where to start. There are many investment products. I will list them below and provide a high level overview of some of their features and inherent risks.

INVESTMENT TYPE FEATURES COMPANY BENEFITS BENEFITS RISKS
Stocks Capital appreciation & Dividend payments Capital & Market expansion Growth potential Volatility
Bonds Steady income & Capital preservation Capital investments Predictable returns Interest Rate Risk
Certificates of Deposits Steady income & Insured balances Low cost access to liquidity No risk Low returns
Real Estate Investment Trust Investing in commercial real estate Access to capital Diversification & real estate income Lack of transparency
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Most Common Investment Frauds

Fraud

I discussed in a previous post that there are mechanisms in place to protect investors however, we should never under estimate the determination of a scammer. Their most recent successes show that they are innovating just as quickly as the laws are evolving to stay ahead of the regulators. One of the ways that you can protect yourself is by learning to recognize the features of a fraud  before it happens. Here I will discuss some of the most recent and successful schemes that have robbed Americans of billions.

PONZI SCHEME: The fraud is set up in a way that the existing investors’ “returns” are actually payments from the funds collected from new investors. The issue with a Ponzi scheme is that the investment managers do not actually invest the money so there is no return. The dividends being paid out rely on a continuous flow of new investors and eventually, they will run out of new investors, at which point the oldest investors will see their returns decline and the newer ones will never have a chance at getting their money back as the scam collapses.

Some red flags include guaranteed returns (there is no such thing), unlicensed investment managers (no regulatory oversight), inaccurate or inconsistent records (if it’s true the information should be correct and consistent every time).

PYRAMID SCHEMES: We’ve all seen the social media posts of Shakeology/Beach Body, Herbal Life, #shoppingannuity, etc. Before social media, those of us who were kids in the 90s remember our parents discussing Amway. They are old and the concept has not changed. The only thing that changed is the service or product they’re selling. Essentially, the participant offers a service or product, but the key to actually making money heavily relies on recruiting new members. Participation often requires steep membership fees or even low but regular dues that quickly add up in addition to being required to buy the product being offered. The primary emphasis is usually on recruiting as the products being sold tend to be available elsewhere for a more reasonable price, making it difficult to build a consistent client base with it. All pyramid schemes will collapse eventually and most investors except for those at the very top of the pyramid will lose their money.

Pyramid scheme red flags are aggressive recruiting efforts that border desperation (that’s where the real money is), confusing commission structure (why does everyone above you get a cut of what you earn?), no real revenue from product (as stated above).

PUMP AND DUMP SCHEMES: This one is near and dear to my heart. When I first started investing in the stock market at 22, I lost $5,000 in a pump and dump scheme after following the advice of someone I thought was a knowledgeable after he made some good profit on Citi stock. Usually the scammers will tell you they have info (pumping) on this hot new stock, often penny stocks (which is why some brokerage firms won’t let you invest in penny stocks if you don’t mean a minimum account balance). You and hundreds if not thousands of other people invest and the activity drives up the price of the stock. The fraudsters then decide when they get tired of the game or when they have run out of people to contact, they sell their share of the stock (dumping) making big profits right before the price collapses and everyone else who didn’t know better loses big time.

Some red flags you should watch for are stocks that no one else has heard of, stocks that you’ve only ever seen on social media or unsolicited email chains, stocks for companies where little to no financial information is available.

Remember that no one is immune fraud no matter how seasoned or inexperienced the investor is. The key is to stay vigilant and scrutinize every proposal.

Introduction to Investing

Investing

I often talk about the importance of financial independence; at least to me. However you can’t achieve that through working only. Your earning potential is limited as a wage earner and only the most exceptional and/or connected will ever get to a salary level where their earnings alone will make them independently wealthy. So the rest of us turn to investments.

The approach that I take to investment is to look at every dollar I have as an employee. They are supposed to work and be productive. If they aren’t working they are costing me and I need to find an activity for them. But the drawback is finding the right “work site”. I believe that diversification is extremely important. Some of my dollars are doing heavy lifting in the real estate market, some are doing lazy work in CDs and savings and others are doing risky work in the stock market. That is my way of diversifying.

Diversification is an old and basic investment concept. It is a tool used to spread out your risk to ensure that you don’t have all your eggs in one basket. In my case, I use real estate as a mechanism to provide me with guaranteed cash flow since people will always need a place to live. I use my CD and savings accounts to provide me with flexibility and liquidity. Meanwhile, I use my stock market investments as a tax tool since they are work sponsored retirement plans.

My husband finds humor in me saying that investing is fun. But the truth is, the fun doesn’t stem from the process of learning to navigate the market or feeling my stomach drop every time a bad political move causes the DOW to fluctuate or mortgage rates to spike. The fun comes in knowing that even when I sleep, I’m still earning money. When I’m working, I’m earning my wage was well as money from all of my investments. I don’t have to work as hard but I can make more money than the person sitting next to me for the same amount of work.

However, as much fun as it is when you’re performing well, investing can be tricky. A lot of investments, particularly stock market investments are volatile. Not only that, they are also not backed by the full faith of the U.S. government. My CDs are in a banking institution that carries insurance on my deposit up to $250,000. If I put that same amount in the stock market today, I could wake up tomorrow and have it disappear with no recourse. In a best case scenario, I will retire at 62 or 67 with a million dollar portfolio that will give me enough dividends to live on until I die. The goal is to not outlive my investments. But there are no guarantees. And even when I get my way, I’m still going to be subject to both emotional and financial roller coaster rides over the next 30 years.

None of this means that the industry is unregulated. The Securities and Exchange Commission is the agency that oversees investment advisers and enforces securities laws. But they are just there to make sure that the companies don’t get away with committing fraud, not to guarantee your investments. And even with the regulations in place, even the law enforcement safeguards in place do not guarantee safety as you know by Bernie Madoff’s actions. So it is best to know what you are doing and how to protect yourself by being informed. There is a plethora of resources available and I hope to share them with you here.

De-clutter Challenge

are-you-up-for-the-challenge

In a previous post I briefly discussed money challenges and how people use them as extra motivators to either boost savings or pay down debt. Whether you’re saving for a vacation, a house or just want to improve your money management skills, you can never have too many tools or tricks at your disposal. This is why I encourage people to get creative about improving their financial behaviors. Not everyone gets as excited about personal finances as I do, so it doesn’t hurt to find a way to spice it up.

Today’s post is dedicated to the de-clutter challenge.

What is it: This challenge requires a little bit of elbow grease, but besides needing some motivation and patience, it  is not very difficult. We tend to acquire a lot of things over the years and the less we move the more we accumulate. Given that spring is in full swing, I think this timing is appropriate. Regardless of your financial goals, I think anyone can benefit from this activity.

This is spring cleaning with a purpose! Make a pile of everything you have not used in 12 months and separate the pile into 2 more categories. One is what you think you will use in the near future (maybe you broke your arm this winter and that’s why you haven’t used your skis, but you’ll be done with rehab soon and will be hitting the slopes for sure in 2018). The other pile what you don’t foresee yourself using, or anything that you have 2 of (newly weds, this is where you will shine! When I got married, I suddenly ended up with 2, if not 3, of everything. Seriously… I have 2 microwaves & 3 toasters). Take very good pictures from various angles (the more valuable, the better the pictures should be) and post your items on various sites for sale. I use Facebook, Amazon and Letgo. While I generally don’t mind ebay, I do not like that their listings expire every 7 days, making me a slave to continuously have to go back and relist the items.

Outcome: Results will vary, but the more items you have and the better the quality, the higher your revenue will be.

Variations: If you’ve already done that, try the same challenge with unused furniture. This will work well if you live in a college town where young students cannot always afford new furniture.

Why I like it: This is a great way to hit two birds with one stone.

If you love cash and your messy garage has been driving you crazy, this is the challenge for you.

“Two Seats have been Reserved in your Honor…”

wedding invite

I never liked that wording. I could never put my finger on why exactly but it’s not my cup of tea. I’m a fan of the more traditional “The honor of your presence is requested…” In part because I’m all about efficiency. The first one requires you to go in and note a number for every single card. We have enough details to attend to and this shouldn’t be one of them. However, this has also opened the door for people to decide your guest list by making executive decisions and inviting who they think you may have left out.

I received an RSVP card 2 days before the deadline from a husband and wife pair who decided that they were not satisfied with simply checking off the “Will Attend” box on the reply card. Instead they went back, scratched out the check mark and wrote “FOUR” on that line. Who are the other two people? I don’t know them. Maybe they wanted to invite their kids. It could be that 1 set of in-laws live with them. Hell, for all we know, their distant cousin Tim might be in town temporarily, on sabbatical from his Alaska fishing job and they decided to add him and his lady friend of the month to the invitation for a free night out, courtesy of my wallet.

For starters, I specifically addressed the invitation to Mr. and Mrs. Smith*. Not to The Smith Family. That may have gone over their heads, but it was a calculated move. Furthermore, while I think they have kids, their kids are at least high school aged. If they don’t attend my wedding, I’m certain they can watch themselves while mommy and daddy are away for a few hours since they only leave about 15-20 miles from my venue. Given the fact that I was paying per person for each guest, I think it was quite presumptuous of them to assume that I must host their children (or whoever, because frankly, I don’t even know who they intended to save the other 2 seats for) if I invite them. There was no attempt made to call me or ask if it was ok. Just a change to my invitation and my guest list count without my input/permission. Maybe they were hoping they could sneak it in without me noticing.

I set the card aside and I contacted them about this “evident mistake” they’ve made in “accidentally” sending a card back with the “incorrect number of guests” (hehe). I eventually heard back and was advised it was for their (as I suspected) teen aged children. Since I am a take-no-prisoners kind of person, I dealt with this the best way I know how: I sent an invitation for two. Not 3, not 4. TWO. I will either have 2 of them at the wedding or 0. They declined. The attendance of the Smith family was 0.

To be clear, Mr. and Mrs. Smith are distant family friends and were not invited because of their direct connection with me. They were invited as guests of my other family members. So they’re essentially guests of guests, inviting other guests. What do we call that? 3rd hand guests? Which makes the situation even more ridiculous.

People love to tests your limits. This is why I am a firm believer in setting boundaries and remaining consistent. Otherwise, we run the risk of putting people’s comfort so far ahead of our needs that we find ourselves in precarious circumstances that may impact us for a long time. If I allowed every couple to bring 2 additional guests, I would have had a 500-person guest list, a 6-figure wedding and a massive amount of debt.

We are expected to be responsible and spend only what we can afford. Bride and grooms are often criticized, by the very people they hosts, for having a lavish affair. Yet, they continue to insist on creating a situation where we overspend on the most expensive portion of the wedding. No thank you and be gone.

The only people invited are the ones listed on the invitation. If you’re a guest, please refrain from “suggesting” anyone else unless you’re writing me a check.

*Names have been changed to protect the guilty and etiquette violators.

Guest List Battle Royale: How to Win

The gauntlet has been thrown! People are in an uproar and you don’t want to ruffle feathers. You know why you should cut your guest list but you just can’t figure out how. Let me share my top 5 favorite tips on how to reign in your guest list.

Just say no. Say no to people asking to invite random acquaintances. It’s ok, they’ll get over it.

Don’t exclude significant others. People in relationships must be invited as one unit. But you are not required to give EVERYONE  a plus one. Some people who are single will ask for a plus one just so they don’t have to be alone. Showing up somewhere and not knowing anyone happens sometimes. It’s part of life. You don’t know everyone on the train on your way to work, yet you manage to survive without dragging an unwilling party behind you. They can survive vows and a dinner on their own.

Don’t invite someone simply because they invited you to their own wedding. Weddings are not tit-for-tat, give and take events. To explain it better, relationships change over time. If someone got married 10 years ago and invited you to their affair, you may have lost touch with them or the friendship may not be the same today. Do not feel like you have to invite them to your own wedding. They should have invited you because they wanted you there. Not because they were hoping you’d invite them to your own later.

Don’t write “Smith Family” on the invitation if you’re not inviting the kids. Make sure you note Mr. and Mrs. John Smith so you can avoid having to make that awkward phone call because they wrote “2 High Chairs” under the special dietary needs section.

Be clear about who is and who isn’t invited. Believe it or not, people will try to invite themselves to your wedding or assume they’re invited. If they jokingly (or not) say: “Am I invited?” laughing it off without setting the record straight my set certain expectations. You’ll either have to have a more awkward conversation later on, or if you’re the type to shy away from confrontation, you could end up creating a C list and giving out invitations to people you didn’t really want there to begin with.

Happy affordable planning!

Thursday Wedding Tip: Cut Your Biggest Expense

Once you start planning a wedding, everyone will tell you the same thing: food and beverage will be your biggest expense. Whether you have a big or small wedding, aged steak or backyard barbecue, you will spend the bulk of your money on your caterer. So what is your biggest path to huge savings? Cutting your guest list. This is a taboo area for many people. We don’t want to offend our friends and family. We don’t want to make people feel left out and we want to follow etiquette. But at what point does making things right by our our friends and family cross the line into doing something that is harmful to us?

I have no interest in the “this is my day” rhetoric of self-centered bratty brides. I do, however, have a lot of interest in making sure that people do not take on more than they can chew. What purpose does it serve to spend more than you can afford so other people can be happy? All your guests and their flavor of the month +1 are not vested in your life past the point of celebration. When you return from the honeymoon, your utility bill will still be waiting for you. (One month, well before our solar days, when we had electric heat our bill was $620. Thanks National Greed Grid!) You still need to put food on the table, and you still need to save for retirement.

Sure, there are some people who will say: “If you can’t afford it have a smaller wedding!” or my absolute favorite: “Don’t get married!” Of course. I will put off getting married until I am able to pay for your sister who I haven’t seen in 10 years or spoken to in 5, to come to my wedding. /snark

People just love to make brides and grooms feel guilty about setting boundaries by using negative terms such as bridezilla or by calling people selfish. But is the couple really the source of issue? Because, if you think about it, what other kind of event do you go to where you think you can demand to bring people? What other events do you go to where you call the host and find it acceptable to suggest changes to the guest list? None. Your job’s Christmas party? You tend to find a babysitter or you stay home. If your neighbor invites you to a barbecue, do you say “my sister was wondering why she wasn’t invited” or do you just go?

The point of a wedding celebration is for the couple to celebrate the beginning of their (hopefully) lifelong journey with those who are the closest to them. It’s not a block party. Most importantly, as the hosts, they decide the guest list. Not you. You don’t have a say unless you’re writing checks. Period. It is extremely disrespectful, entitled and self-centered to think that you can dictate how others spend their money.

In an attempt at guilt-tripping you into doing their bidding, people will even go as far as giving you the following friendly reminder: “Don’t let this go to your head. Do you really want to ruin friendships over a one-day party? If you were really my friend, you would invite my neighbor’s cousin’s dog along with the litter of new born puppy from Forks, WA.” (Twilight reference FTW!) In those cases, you have my blessing to tell them: “Do you really think I’m dumb enough to let a one-day party put me in a financial hole? If you were really my friend you would be more respectful of my boundaries and be appreciative that I consider us close enough to invite you.”

Why should you cut your guest list? Let’s do some math:
Say you’re inviting 210 people at $100 a piece. But you decide to cut out 10 of them. That’s not just $1,000 in savings. There are administrative fees, for me they were 19%, ($190), there are taxes (6.25% where I am which means $74.38 since the administrative fees are taxable), non-taxable automatic gratuity 15% ($150). 10 less people means 1 less table, therefore, 1 less centerpiece. Centerpieces can range anywhere between $50 to $150. I’ll put them right in the middle at $100. That’s another $106.25 saved with the florist (keeping the same tax rate of 6.25%). Cake costs up to $6 a person if you want anything above basic scroll work (i.e. fondant, fresh flowers etc.), so that’s $63.74 for cake including tax. Don’t forget to budget for favors at $3 a person so there goes another $31.87. If you want those nice chiavari chairs, they will cost between $7 and $10 to rent depending on where you are and who you’re getting them from. But for to avoid complicating this any further, let’s assume all that good stuff is already included in your $100 package (it’s not but humor me).

Have you been keeping track? You can check my math if you want but I’m up to $1,616.24. “It’s just 10 more guests!” doesn’t sound as trivial if I remind you that this is probably a month’s rent for a lot of people, does it?