UOH Book Summary - Rescue Your Money by Ric Edelman

      For those of you interested in personal finance, Ric Edelman is one of the most popular authors on this topic. His 2009 book titled, Rescue Your Money, makes for a quick read, but the content is very powerful. Below is a summary of the book.

            

Book Summary:

Essentially, the trick to investment success is buying low and selling high. People want to beat the market which they typically gauge as the S&P 500. This is a basket of the top 500 US public companies. The problem with this mentality is that your investment happiness is determined against the index rather than the overall performance.

For example, in 2008 if you lost only 20% instead of 35% that the market lost, you would have beat the market and therefore consider that a success. But losing money should not be a happy event. Ric states “only one thing matters when it comes to investing: achieving financial security. That is your one major goal.” (Page 8)

      His book, and our Personal Finance Under One Hour both explain that the main reducer of return on investments are taxes and investments, and there are multiple levels of taxes. See the two charts below:

 

Top Tax Rates (Page 13)              Inflation (Page 15)              

These are the biggest reducer because they generally are overlooked! Ric shows a great example in his book of this very concept.

“Let’s assume that you pay both federal and state income taxes. Let’s further assume that your combined federal/state tax bracket is 30 percent. Since the CD paid 3.1%, you lose .93% to taxes, leaving you with a profit of 2.17%. But let’s not forget inflation. If inflation is averaging 3.2%, you’re actually losing 1.03% on every dollar you invested in that CD. Now, losing 1.03% annually might not seem like much, considering the S&P 500 lost 38.5% in 2008. But the stock market doesn’t lose every year, while the CD does.” (Page 16 & 17)

The figure below shows the numerical example of taxes and inflation affecting your CD returns.

         Taxes and Inflation (Page 18)  

We explain CD’s in our book, Personal Finance Under One Hour, and they can be a good investment in some cases. For instance, today’s CD rates are better than leaving the money in a savings account, however, you cannot touch the money and you still lose on the taxes and inflation. Safety is the main reason consumers like CD’s. “As a result, millions of Americans are going broke safely and they don’t even know it!” (Page 20)

This next picture lists all of the products that are safe, but not great for generating the returns to rely on.

    Product Returns (Page 25)

Parts of this next section in his book are worth quoting directly. It is a great look into the big picture of consumer investing. It explains the issues with fads and the media.

“What about CNBC’s Jim Cramer, who offers a barrage of advice on each night’s broadcast? Barron’s studied each of Cramer’s recommendations in 2006 and 2007, and in its August 20, 2007, issue concluded that his picks gained an average of 12 percent. Barron’s noted that for the same period the S&P 500 gained 22 percent. Cramer was about half as good.” (Page 39) 

“Clearly, trusting the media’s investment advice is not a successful strategy, yet judging from the millions of people who read, listen, and watch all the commentaries, it’s also clear that most people don’t know this.” (Page 42)

“It doesn’t surprise us when the weathermen get it wrong. It doesn’t surprise us when sportswriters get it wrong. Why, then, does it surprise us to think that an investment analyst or portfolio manager might be wrong? And why are so many people willing to invest their life savings on the prognostications of such a person?” (Page 44)

  

Another common pitfall is investing in large companies. There is nothing wrong with investing with them, however, they do lose money from time to time and many people focus solely on these companies for the majority of their retirement or investing.

One of the biggest mistakes can be investing the most in your employer. Typically, you can buy your company’s stock at a slight discount which makes buying very beneficial. While you may believe in the company you work for, what happens if the company folds? Not only do you lose a job (your source of income) but you could also lose all you have invested over the years. “Do you really want to risk your financial security on the fortunes of a company over which you have little knowledge and no control?” (Page 49)

The basics of Buy Low, Sell High.

S&P 500 (Page 57)

This chart shows how the stock market typically performs during the booms and busts. The market typically rises for a longer period of time than the market falls. This is due to more money going into the market, companies continuing to grow, and the economy expanding. Essentially, every time the market falls from a previous high, it will climb even higher over time. The market never falls and stays down.

So when the markets are troubled, such as January of 2016, it is usually a good time to buy, not sell. The key is your intention for investing, and typically that is not to pull your money out within a month or two. Usually, you are looking at investing for a long period of time. That said, Ric asks,

“Why bother looking at your account each hour, day, or month? Looking often at your investments is likely to make you do the opposite of what you should do. If you see that prices are down, you’ll become upset and want to sell. If you see that prices are up, you’ll get excited and want to buy.” (Page 64)

“History provides the reason why you shouldn’t do that: past recessions, panics, and depressions have taught us that stock markets recover with astonishing suddenness and velocity. By the time you realize that the bottom has been reached, prices have already risen sharply – meaning that you are forced to buy back in at prices that are higher than when you sold.” (Page 113)

Can you predict when those short spurts are going to occur? Me neither. That’s why we remain invested the entire time, so we can catch the profits when they come.” (Page 107) 

Ric, and many other advisors, recommend patience with the market. Diversify your portfolio, then let it sit. Over time, he recommends strategic rebalancing.

        

   

     Jan 1^st Portfolio (Page 117)            Dec 31^st Portfolio (Page 119)

The idea is counterintuitive at first. You would think that since Stocks performed better than cash, we would take money out of cash and put more into stocks…However, this is not what Ric recommends, and so many investors do what was just mentioned. Instead, he recommends selling stocks as that has become the majority of the portfolio and therefore subjects the portfolio to the ups and downs significantly more; If the stock market declines, your portfolio will be affected much greater.

“In other words, we sell the asset that made the most money and we buy the asset that made the least (or maybe even lost) money.” (Page 120) This is kind of like buying and selling on Ebay; you want to buy coins when they are cheap, and sell them at a higher price. Most of the time, investors want to buy the investments that made the most money recently.

“No one wants to buy gold at $200 an ounce. But when it reaches $1,000 an ounce, they load up. Later, when it falls to $700 and they’ve lost 30%, they sell and swear that never again will they buy gold.” (Page 123) 

For instance, a short-term anomaly might cause an asset class to jump in price momentarily. A quick sale of high-priced assets and a purchase of low-cost assets would have locked in your gains. But calendar rebalancing will miss it.” (Page 127)

      To diversify, Ric, as well as our book, recommends exchange-traded funds (ETF’s). With mutual funds, the fees will eat into your returns while ETF’s have very low or negligible fees. Mutual funds might also trade in and out of stocks meaning that the short-term gains and losses actually turn you into a short-term trader when tax time comes around.

“In all, you’re paying the average retail mutual fund 2.67% per year. Based on the stock market’s average annual return of 9.6% a year, that means you’re giving away 28% of your profits on an annual basis.” (Page 148)

The U.S. retail mutual fund industry is a $9.4 trillion industry. Collectively, U.S. equity and bond mutual funds charge $248 billion in fees each year. No wonder these guys are among the wealthiest people in America.” (Page 151)

As a recap, Ric’s advice sums up to the following:

·       Diversify into several non-related asset classes (S&P 500 ETF, International ETF, Bond ETF, Short term Security ETF, and cash to name a few)

·       Rebalance periodically based on the pieces of the pie in your portfolio becoming too large compared to your other investments. Sell the part that made the most money, and put that in the parts that lost money.

·       This is not to say sell the S&P 500 ETF to put in your single failing experimental biotech stock, but instead put it into another non-correlated ETF. Avoid putting a significant amount of money in a single stock.

Buy the book:

      Have you read this book?  If not, does this summary inspire you to read it? If you are interested, you can get Rescue Your Money by Ric Edelman here.

Let us know your thoughts in the comments, and make sure to subscribe!

Setting Yourself up for Success in 2016 - Setting and Keeping Goals

I hope you had a great 2015, but now it’s time to look towards 2016. If you are like most people, you had some good times and bad times during the year. Maybe you completed some goals or resolutions, but maybe you also developed some bad or addictive habits. It is easy to get into a routine that you don’t care for, but it is important to understand that habits can be broken, and new goals can be made.

With the beginning of a new year coming up, about half of the United States makes some sort of New Year’s Resolution. Most of these resolutions are not seen through fruition, however, they are much more likely to be completed if they are written down.

Perhaps one of the best type of goals you can make is a flexible or easy daily goal. This can be as simple as doing 5 minutes of stretching when you wake up every morning. The point is, it’s something that starts you right, is not difficult, and feels good having completed your first task of the day. You can also use this for larger goals in tandem. For instance, if you want to lose 25 pounds, you don’t have to do it all in one week. You can, and should, space it out by focusing on modifying the habits that allowed you to gain weight. Maybe it’s as simple as replacing 1 soda per day with a glass of water. Might not be the biggest change, but it adds up over time.

You don’t have to start on every single goal at once. By taking on too much, you risk not doing anything. You can start small, and once you master one goal, move on to the next goal. Or, you might make new goals every quarter instead of just once per year.

A great idea is to reward yourself along the way. Once you’ve completed a month’s worth of your goal, or goals, give yourself a reward. Make sure it’s something you enjoy instead of something that will either break your goal or revert to a habit you don’t necessarily want. It might be something you have been wanting or needing for a while, but the completion of your goal gives you permission to finally do it.

Make the reward another type of benefit. For instance, if your goal is to eat something healthy every day so that you can lose weight, you might reward yourself with that blender or appliance you’ve been wanting. This might help you feel great about all that you have accomplished and will contribute to your success in the end result.

Tracking your progress is another great way to figure out when you earned your reward and how far you have come. If you get off track of your goal, or miss a day, know that it’s ok and keep trying. You've probably made some progress, and keeping a log will help you realize that.

Make each relapse a competition. If you successfully completed 12 days of your goal before you missed a day, try for 15 days in a row. Just keep pushing yourself. You’ll benefit even if you only completed 5 days the next time. Just try to make it a fun competition with yourself and don't get down on yourself for being human and making mistakes. At least you are one of the few people that are actually trying to get back up and keep improving yourself.

Pursuing these goals with friends or family can really help you to stay accountable and accomplish more. It might also be fun to do beneficial activities together and grow together.

Good luck on your 2016 goals!

Andrew Brown

More Articles: 

http://www.huffingtonpost.com/tasha-eurich-phd/new-years-resolutions_b_4512944.html

http://life.gaiam.com/article/10-tips-help-you-keep-your-new-year-s-resolution

The Martian - Andy Weir's Story from Programmer to Bestseller

You may be aware of a little movie phenomenon called The Martian, in theaters as of October 2nd. The movie is actually based on the best-selling book by the same name. Below is the incredible story of how Andy Weir became a best-selling author with a top box office movie rights.

What is The Martian:

"When astronauts blast off from the planet Mars, they leave behind Mark Watney (Matt Damon), presumed dead after a fierce storm. With only a meager amount of supplies, the stranded visitor must utilize his wits and spirit to find a way to survive on the hostile planet. Meanwhile, back on Earth, members of NASA and a team of international scientists work tirelessly to bring him home, while his crew mates hatch their own plan for a daring rescue mission." (Wikipedia description)

The movie and book are very similar, however, this post will focus mainly about the book's rapid success. Once you start reading it, you immediately understand that Andy put an extensive amount of research into the science behind the story. In fact, the entire plot is based on real science available today. Essentially, it's a fake story about a real scenario based on existing technology.
          In order to keep it from sounding like a Wikipedia article, Andy modelled the main character after himself and included a ton of humor and wit into the story.

Summary of success:

Andy started by publishing chapters of The Martian on his website and gave it away for free. His readers asked that he put the book on Kindle and immediately sales took off. This got the attention of an agent, then a publisher, and finally movie rights all within a week! Sounds like a pretty good week if you ask me.

Life before The Martian:

Growing up, Andy loved to write fan fiction and read his dad’s sci-fi books. He also started computer programming around 9. In college and all throughout his 20’s, he wrote his first book and a few short stories. He then went full time into a programming job. From there, he held a few different positions until one day he was laid off with a large severance.

At this point, he decided to try writing again. He wrote another book and started a web comic. His website grew pretty fast with readers for the web comic. He eventually went back to programming once his savings got to his low predetermined amount. While working, he continued to post stories online from time to time.

He slowly accumulated readers over a several years and had about 50K readers for the web comic. At that point he wanted to get into more narrative fiction through short stories and novels. One of his early successes of writing, while still having a day job, was a short story called The Egg. His readers really enjoyed and shared it which helped his readership. Andy claims it's all luck because the story was so short and didn’t take him long to write. His reasoning is “It doesn’t require a big time commitment, [only about an hour and a half to read]. A lot of people take the entire content of the text, the whole story, and post it to their blog.” (InterviewingAuthors.com)

Andy then started on The Martian “by visualizing what it would be like to be an astronaut and live on Mars. What mishaps their might be and see if that could make a good story. Tons of research to be as realistic as possible. Mark is started out as, you know, me in my mind.   As the story progressed I started developing a unique character for Mark.” (InterviewingAuthors.com)

He posted e-versions of the chapters to his website since readers requested it. When readers were having issues downloading these onto their devices, they asked him to publish on Kindle. The problem here is that Andy previously gave his content away for free on his website, but with Kindle, he had to list it at the minimum price of $.99.

Ironically, more people bought it from Kindle than downloaded it for free from his site. This is most likely due to the power of Amazon with its recommendation features. It quickly moved up the rankings and essentially sold exponentially from there. The craziest part is, Andy didn’t really do any marketing for the book, which is a dream come true for most authors.

This is when the agent, publisher and movie rights approached him. He received a book and movie contract all in the same week; both in the low to mid six figures, according to The Washington Post reports.

"In fact, it was such a sudden launch into the big leagues that I literally had a difficult time believing it," Weir said in an interview on his site. "I actually worried it could all be an elaborate scam. So I guess that was my first reaction: "Is this really happening?'" (BusinessInsider.com)

Andy Weir’s Advice:

Writing an international bestseller usually has a ton of setbacks, and Andy’s story has plenty. For new authors, he has some lessons learned after going through his process.

Like most new authors, Andy had a day job and could only write in the evenings or the weekends. He didn’t really have a schedule and with the amount of research, it took him 3 years to write The Martian. Now that he is a full time writer, he writes during the time he would have been working at his previous job. His goal is to write a certain number of words per day regardless of quality. Once they are written, he can edit it later.

In fact, in the early versions of his The Martian, he gained a lot of science-minded readers who offered feedback. The part they helped him out the most was with the chemistry. Andy is more into space and physics than chemistry, so they actually helped him accurately revise his book.

Of course he gets writer’s block every now and then, but what he does is bracket off the to-do for the section and then continues moving forward. Additionally, when he stops for the day, he tries to stop at a place that interests him. It’s easier to start up again if you stop at an interesting point verses a dry point. Finally, if you have a story or part of a story in mind, just write it down to get it going.

With the internet, it’s really not necessary to go the traditional route of having an agent and publisher. One person can do it all and if it’s a good book, people will buy and refer. However, for his situation, having an agent helped him with the business side of everything.

Life After The Martian:

Naturally, Andy was propelled into money and fame with those major writing and movie contracts. He is now working on writing other books for the publisher that signed with him.

Since the book's sudden success, Andy has been invited to ComicCon, many NASA events, and tours. I look forward to his next venture and using his inspiring story to continue writing my books.

Buy the Book:

If you are interested in supporting Andy Weir, you can do so on Amazon: The Martian.

Sources:

 http://interviewingauthors.com/andy-weir-talent-that-reaches-mars-and-beyond/

http://www.wsj.com/news/articles/SB10001424052702304558804579375161461671196

http://www.businessinsider.com/how-andy-weirs-the-martian-became-so-successful-2015-6

Internet Streaming Services - Comparing Netflix, Hulu, and Amazon Prime (Guest Post)

Hello, now that the fall sweeps are starting up, UOH has asked me (Kristin Dahlman; EntertainmentRanter.Blogspot.com) to look into a hot topic: Netflix vs. Hulu vs. Amazon Prime for all your TV/movie watching needs. These three providers are the main options when it comes to streaming films or TV shows. The big question is, which one is the best option for you? While your friend may swear by Netflix, it might not have the show or movie you're looking for. Never fear as UOH has asked me (a habitual TV and movie streamer) to give you a little insight into these services.

NETFLIX

Let's start out with Netflix, as this option is probably the most familiar to you. Netflix is great for a family or multiple users, since you can create different profiles under the same account. These profiles will show you movies or shows personalized to you based on your interests. While all of the these providers show you items based on your history, Netflix goes the most in depth in this process and will show you titles upon titles to get a better idea of what you like to watch. Netflix is great for movies and main stream shows, like Friends, Grey's Anatomy and Criminal Minds, however if you like reality shows, Netflix is not your best option. Your best option would be Hulu, or more accurately, Hulu Plus.

Netflix has three different monthly streaming plans, Basic, Standard, and Premium. The main difference, besides price, is the number of screens you can watch at once which is important for accounts with multiple users, like families. The Basic plan is $7.99 with 1 screen at a time, Standard is $8.99 with 2 screens at a time, while the Premium is $11.99 with 4 screens at a time. The Standard and Premium plans also offer high definition availability. Netflix also offers DVD and Blue-Ray rentals through the mail. These start at $7.99 and $9.99 respectively and go up in price from there depending on how many movies you want to watch at a time.

HULU

Hulu Plus has a great selection of early 2000's reality shows that are just horrible to watch, yet are so funny. They really are all train wrecks. Hulu has a mix of TV shows and movies as well. The movies tend to be a little lesser known and maybe a little older, but good nonetheless. Hulu also offers the option of adding Showtime to your account, which lets you access their shows and movies. Hulu is pretty good if you’re looking for a specific show or film, but this provider does not offer recommendations at the same level Netflix and Amazon Prime do.

Hulu pricing is much simpler than Netflix with only one plan at $7.99 per month. This plan gives you full access with less ads. Unfortunately, there are still some ads, but that’s the tradeoff for being able to see the newer shows.

AMAZON PRIME

Speaking of Amazon Prime, this provider is for all of Amazon, however for this post I'll only focus on the streaming portion. Prime has a some very obscure films along with mainstream films, which makes it fun to discover new things. For TV shows, it also includes portions of HBO's line up, which is amazing, however no Game of Thrones, yet. Prime offers a lot of binge watching shows and opportunities, which makes for some fun lazy days.

Prime is basically Amazon’s VIP resource for all that they offer. Benefits include: “FREE Two-Day Shipping for eligible purchases, unlimited streaming of movies and TV shows with Prime Instant Video, and the ability to borrow books from the Kindle Owners' Lending Library for $99 a year. [8.25/month]” So Amazon Prime can actually be a really good deal if you use their other services and then get the access of their internet streaming.

OTHER SERVICES

Some other services include Yahoo Screen, YouTube and TV provider websites. Yahoo Screen only has a few shows that they produce themselves such as Community, Sin City Saints, and Other Space. Their other videos are mostly short clips, news, or summaries. YouTube has a bunch of older or not popular TV shows, movies, and documentaries for free. Some popular shows are How It’s Made, Mystery Science Theater, or Carl Sagan’s Cosmos. A simple google search will show these shows and movies. For specific new TV shows, you can usually watch them for free (some require your cable provider login) on the TV provider’s website the next day but usually with some ads. Examples would be Fox’s Family Guy, or Comedy Central shows.

Before you go and commit to the streaming provider, do a little research. Prime and Hulu are easy enough to search without committing, however to search Netflix you need an account; therefore use this link to see what's on Netflix and Prime before you get an account, www.instantwatcher.com. 

Enjoy streaming!!

Kristin Dahlman

Blog - EntertainmentRanter.Blogspot.com

Buying Inexpensive, but Healthy Food

Hi UOH friends!!

Under One Hour has generously invited me to write a guest post for healthy eating on a budget.  For those of you who don’t know, I am a Registered Dietitian and yoga instructor with a blog over at www.lifenutritionyoga.blogspot.com.  I love creating inexpensive, tasty, and healthy meals, which is why I’m here today.  Let’s get started, shall we?!

First things first, set your budget.  Like many other things in life, it is good to have a plan and budget before you get to the store.  Look online at store ads to see what’s on sale and compare it with what your family eats (food thrown away is wasted money and resources, so be sure to eat what you buy).

Next, make a list with your family and be sure to have a snack before going to the store.  It is much more tempting to buy food when you are hungry.

When you get to the store, search for the deals.  Things like a reduced price produce cart are always a good find, just make sure to use those items first because they might spoil quicker.  Also, stick to your list, making only select exceptions.

Finally, for a touch of variety and fun, each week, buy at least one fruit or vegetable that you have never tried.  Special produce can be a bit more expensive, but when you buy small quantities of it every now and then, it allows different nutrients into your diet as well as new flavors and variety! Remember, it can take up to 15 tries before someone likes a food, so if a new food doesn’t take right away, try preparing it differently another time.

For instance, have you ever tried purple Cauliflower?

Thanks again to Under One Hour for letting me write this guest post. I hope the information helps the next time you go to the grocery store. Be sure to check out my blog at www.lifenutritionyoga.blogspot.com

Kathy Brown, RDN, LDN
Blog - www.lifenutritionyoga.blogspot.com
Website - www.TheYogiRD.com 

Your 1st Step Toward Creating a Budget

       So you want to gain control of your finances. One of the best ways to start is by creating a budget! In our first book, Personal Finance Under One Hour, we show you exactly how to create a budget from ground 0 and what philosophy works for most people who have mastered their finances. 

       The below is an excerpt direct from the Banking and Budgeting (Second 10 Minutes) section of our book. Please enjoy.

       A good first step when creating a budget is to list your regular income streams and monthly expenses. This might include employment income, rent or loan repayments, food, and gas. Then, look at your current bank and credit card statements to help fill out each section in the budget template. These can help you list your estimated monthly expenses such as food, clothing, and entertainment.

       Next, look through a year-long calendar for large planned expenses like vacations, holidays, birthdays, insurance, taxes, etc. Once the sections are accurately filled out, you can calculate the difference between your income and expenses to show your cash flow (positive or negative) and track how you are doing on a monthly basis.

       After you have a complete picture of what your current budget is, you can fine tune it to increase your cash flow. You can start by keeping a money journal, with your budget goals in mind, and write down everything you spend and earn over the next couple months. This allows you to catch yourself spending money on unnecessary items and keeps you honest to your financial goals. It is a great way to identify certain buckets where you are spending too much and saving too little.

       Using the money journal and budget template, look for ways to make more money and cut expenses. Income and rent are usually fixed amounts and hardest to change; however, you might be able to ask for a raise, change jobs, or move. Food, clothing, and entertainment are usually variable and the quickest things to change since they are directly controlled by your spending habits.

The chart below shows some guidelines for recommended maximums per spending bucket:

       While the picture above is a general guideline, you should strive for smaller expense buckets and larger savings bucket. 

       Was that excert helpful? Of course, that was only part of the Second 10 Minutes section, so it didn't explain everything about budgeting. The Income and Spending (First 10 Minutes) section goes deeper into those parts of the budget. Best of all, this section is available for FREE here. Talk about good budgeting...

        Please let us know how you are using this information to help create your budget! What else would you like to know about? What was the hardest part in creating your budget? Let us know in the comments below and be sure to submit your e-mail to follow our blog and share the posts you like! We have a new blog post every 1st and 3rd wednesday of the month about success in one of these topics: finance, health, relationships, lifestyle. If you would like to write a blog post for us sharing your experience or a review on your product, contact us for more details.

-Andrew and Brendan, 8-5-15