AboutPaul Henneman Expertise Stock forecasting and fair market valuations.
Experience
Past/Present clients CBSMarketwatch.com, Hoovers.com, Multexinvestor.com, Bank of NY, numerous hedge funds and institutions, other partners and clients can be viewed at http://www.valuengine.com/about/careers.html
I am a 35 year old hispanic female. I was born here in US but then raised in Puerto Rico where I finished a Bachelor's Degree in Communications. At age 27 I came back to US when I accepted a Radio job offer in Philadelphia. My english was very poor (it still is) but I have been studying english on my own and I am doing fairly good to be able to communicate as properly as I can. I am an only child, and growing up I always had a bad relationship with money. My parents are the "savers" type. We were a middle class family, only my father worked and he never invested in the stock market. He does not even know how that works. He still thinks that is something for the "millionaires" out there and for multi-billionaire companies. I grew up thinking that the only way to be financially sound and prepared for retirement was to save in a regular savings account. And not touch it!
Now i live in New York, I am living with my partner who earns a great salary and i started a small freelance business as a Voice Over Talent. My partner although has a great Management job in NY , do not know how to invest either. I do not make what I use to, but i make decent money. Some months are better than others. I currently do not have health insurance since I lost a great job at Univision Radio New York, when they re-organized the company and during my time there i earned over $100,000 annualy, then during my suddenly unemployed year I lost over $60,000 from my savings in living expenses. I only have over $3,000 left in my savings account. The good thing is my car is paid off and I have no debt. And the money I make now its not even a third of what I was making. This has been a huge wake up call for me. I feel completely lost financially. I know it is time to take care of my money as little or much I make, and learn how to invest. I have read a couple of books about money and I am not sure if with the amount of money I am making which is not much, should i start investing some? Or should I set up a nice nest savings first? I do not want to keep adopting my parents mentality of "living with what we make and saving pennies in the bank". I am alone in United States, I only have a partner who can be there for a long time or we can end the relationship in a year and I want to be able to stand on my two feet, with or without him. I just do not know where to start. Women by history have been always delegating the money issue to their husbands, like if money is a "man's" thing and latinos specially, think the way to go is to just save and spend less. I want to build wealth. How can i start? Is it too late at 35? Any help will be very much appreciated. Thank you Paul. I always read your comments.
Liliana
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ANSWER: Thank you Liliana for your question!
It is a great thing that you are thinking about this now, and 35 is definitely not too late. In fact, you actually are early in that most people in this country do not begin to invest or financially plan for the future until their late 40's. The way that investment returns compound over time means that the longer your investments work, the better. At 35 you could begin investing now, and build strong assets for retirement in 25 to 30 years. I strongly suggest you think in terms of building a financial plan for yourself going forward, not just try to find an investment or two in the short term. I think from the tone of your question this is exactly how you would like to proceed, that is plan for your overall future. Here are my general thoughts on how to do this:
The earlier you begin to plan, the easier it will be. Investments take time to grow. Start right now.
I believe that you should think of things in terms of three different categories, and I will offer further specifics on each: 1. Debt reduction to lead to debt elimination 2. Education 3. Action
1. Debt Reduction and elimination of debt:
It sounds like you already have this well under control, but I would like to address it anyway as it is so important to your financial future. People in this country has a very bad habit of running high debt in the form of credit cards, car loans, and all sorts of credit for just about anything. Credit is so easy to get, it is difficult for many young people to resist. By the time most of us are adults, the terrible cycle of high debt is already established. The first key to a wonderful lifestyle in the second half of life is to resist this.
Most credit cards charge 15% or more in interest. It does not make sense to invest when folks are paying so much extra for each purchase! If you have credit cards and/or car loans, pay them off. This usually frees up hundreds and hundreds of extra dollars each month that normally goes to these bills. This can be used to both invest and improve your lifestyle. If you can't pay cash, you can't afford it! The exception is real estate, as that is 'appreciating asset' that increases in value over time. It is a good move to purchase and own a home if it is feasible, but this is not a requirement.
There is nothing worse than paying high interest on a car, then having that car decline so rapidly in value as you use it, possibly the worst of 租epreciating assets that exists. Of course we all need cars, but if the money is not there, don't buy an Acura when a Honda will do so to speak. Put as much down as possible, and see about a 3 year or less loan. The goal is to pay it off as quickly as possible, then drive it 'free and clear' for as long as possible. Cars are perhaps the largest things standing in the way of most people having a truly wonderful second half of life. We are conditioned to buy the most expensive car possible and this is a huge drain on our finances.
Good investors can double their money every five years. Take the $25,000 price tag of an average car these days, go out 40 years, and see how much that car actually costs!
2. Education
Successful investing takes discipline, education, and patience. A plan should be established and strictly followed for decades. My suggestion is to spend the next six months researching. Start with "Investing for Dummies", available at amazon.com and most major bookstores. This will give you the basics on most major forms of investment, and you can do further research on what appeals to you. In general, the higher the possible return of an investment, the more risky it is. As an example, a money market account will earn you about 2% a year; this is a very low gain. But it is perfectly safe and you would get that 2% every year without fail. CD's (Certificate of Deposits) can earn perhaps 5% annual returns and are also perfectly safe, most banks offer CD's. www.NetBank.com has some of the best rates I have seen. No risk here, but your investments are locked up for one to two years depending on the CD. A portfolio of stocks can earn you on average 20% or more each year. But some years will be good, and others bad. Many investors lost half or more of their worth during the bad markets of 2001 and 2002. However, over a long period of time, the risk evens out and the returns are much more substantial. An average of 20% return each year would double your investment every four years. (Not every five, as you have to account for the growth in the portfolio for the next year returns). Another good resource here is any of the books written by William O誰eil, founder of Investment Business Daily. Keep in mind this is one approach, but he goes into depth on how he successfully selects stocks and builds a stock portfolio. Always read with a critical mind, no one has the holy grail when it comes to investing. If they claim that they do, it is a scam. There will always be failures, but the idea is find more successes than failures. This is very possible over time.
I believe that the ultimate solution is two fold. First, move slowly. While stocks and other investments can treat you well, they can also treat you very poorly if the wrong decisions are made. Start with a money market, this is a great place to 'park' your savings while you learn more. The one I like best, with the highest returns I have seen and FDIC insured (very important) is www.NetBank.com. Then I suggest mutual funds. Do your research. The book I mentioned above will help, and www.morningstar.com is perhaps the best-known source of mutual fund information available. Lipper is another. When you have more than $5,000 invested, branch out to several mutual funds that specialize in different areas such as real estate, technology, health care, utilities, or others. That way if a specific industry does poorly, you will not feel it too badly.
Only after a few years or whenever you feel confident should you venture into stocks. But start practicing right away. Begin researching possible stocks you would want to invest in (again the book I mentioned will help you learn what to look for). Track your ideas on a free service such as yahoo.finance.com and see what your stock picks do.
There is another alternative. If you want to get started right away, consider an index mutual fund. These are funds that exactly copy the major stock market indexes. For example, the Vanguard S&P500 index fund is a good one, this one copies the Standard and Poors 500 Index. If you invest in this one fund, your performance will exactly match that index. You will never perform better, or worse, than the overall index. Over the years you could expect perhaps 12% returns on average, again some years will be much greater and some much worse. The symbol is VFINX, and you can buy this on any major trading service website. It is a great way to get started while you learn more.
3. Action
When you are finally ready, my suggestion would be to have some of your assets in very safe investments such as CD's, and some in more risky investments such as a stock portfoli0 (this could be in the form of the Index Fund I mentioned earlier if you want something simple and easy). You will likely not have a large amount to start with, so begin with a mutual fund, perhaps one or two thousand is needed to start. Continue to contribute every month, and it should grow further in addition to the returns you get. When you have enough, buy into a second, then a third mutual fund to add diversity to your holdings. When you are ready to begin to think about a stock portfolio, always hold a basket of stocks, not a single stock, as it is too risky if you are wrong in your decision. For trading services I like www.FOLIOfn.com the best, www.ScotTrade.com is also good. These are discount brokerage firms that can make trades for you online for very low fees. You could establish an account with a major brokerage firm. I do not recommend this. They charge very high fees that come out of your returns. And their so-called 粗xperts do not have your concerns as their number one priority. Instead they are looking for the fees, and often push stocks or investments according to their organizations best interests, not yours. You will be much better served if you do the research yourself. Of course if you are not interested finance as a topic and the time needed (a few hours a week should do it), working with a full service brokerage may be more attractive.
To keep you motivated, here is a link to an investment calculator. You can enter how much you plan to invest each month, the likely returns you will get (5% for a risk free CD's, 12% for an index mutual fund, perhaps 20% for a stock portfolio) and the time until you need the funds.
One final suggestion is to consider setting up the above investments in a ROTH IRA account. There are HUGE tax advantages to doing this. That book I recommended earlier "Investing for Dummies" will give you the specifics on these advantages. Any online service such as those mentioned above can set up a ROTH IRA account for you, and you could then buy or sell mutual funds, index funds, CD's, or stocks in that account, with no taxes!
The most important thing is to STICK WITH IT!! Even with a minimal income everyone in this country would retire wealthy if they avoided debt and planned for the future with at least a small contribution to their investments each month. I congratulate you on your interest and sincerely wish you the best. It takes work, but your finances should become a hobby, learn every chance you get. This is the secret. The wealthy make their money over time, not overnight. If I can be of any further service, please do not hesitate to follow up with me!
Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
---------- FOLLOW-UP ----------
QUESTION: Hi again Paul,
I have my business and personal accounts with Bank of America. I want to follow your advice and open a ROTH IRA. Should I do so with Bank of America since all my accounts are there? Or should I go with Netbank or other? What are the benefits, if any and cons if I open it with an outside bank? Thanks!!
Answer Liliana,
Thank you for the follow up question!
Either way will work, but let me outline the differences.
Bank of America is a full service bank, so they probably will put into some sort of managed IRA. This means that they will manage your IRA for you, and select what stocks or mutual funds you will have in the IRA based upon some type of profile. This is great if you do not want to spend time on researching your investments, or simply do not feel confident yet.
An online account with a pure brokerage firm such as Etrade.com, Scottrade.com, or foliofn.com will allow you to set up the IRA, then have complete control over what stocks and mutual funds you want to buy and/or sell. This will require a great deal more work on your part, investing is not so easy. However, the simplest way to do this if you choose this path is to look at Index Mutual funds. For example, Vanguard has the fund with ticker VFINX that tracks the S&P500 overall index, the most stable and appropriate index for this purpose.
Again, either approach is acceptable depending upon how involved you want to be. I would at least sit down with someone at Bank of America to see what their IRA program looks like, and assuming it is a managed type of account, look at the historical returns. An index mutual fund like the one I mentioned should offer about 11% on average return each year (some years will be good, others bad, that is an average). This way you will have a benchmark to compare what the Bank of America can offer.
Also be sure to have them completely explain the fees to you. If you set up the IRA yourself online, there will be very low fees, almost not worth even worrying about. Bank of America will likely have higher fees, so make sure you get all of that information.
I hope that this helps! Never be afraid to ask questions when you speak with Bank of America. It is your money, you are in control. Also, keep in mind that if you do start the IRA at Bank of America, then for whatever reason decide in the future that you want to manage the IRA account yourself, you can always have it transferred to a different provider.
Please do not hesitate to follow up with me if I can be of any additional service!
Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com
