Avoid being a horrible investor

1. Do little or no research before buying a stock.
Would you trust a stranger to take care of your kids or drive your car? Then why would you entrust your portfolio, your hard-earned money, to the hands of management teams and businesses that you hardly know?

If you want to make blind bets, head to Vegas. It’s more fun losing money in a casino than in front of your computer. While you’re at it, you could do a little research on casino stocks, and you’ll see that the house always wins — especially when companies like MGM Mirage (NYSE: MGM), Las Vegas Sands (NYSE: LVS), and Wynn Resorts (Nasdaq: WYNN) dodge their financial problems for an amazing 2009.

Remember, every time you buy a stock, there’s someone on the other side of the trade. Consider these other people the “house.” If they know more than you about the stock, you’re at a disadvantage.

2. Buy stocks based on tips and rumors.
In my life, I’ve gotten two tips that could be construed as insider information, which I declined to act on. Both tips were of the “I have a friend, who knows a guy, whose cousin” variety. Anyways, I checked out the tickers about a year after hearing the tips, and both had plummeted.

3. Be an envious investor.
Charlie Munger often states that the worst of the seven deadly sins is envy, because other sins, like lust or gluttony, provide the sinner with pleasure. Envy, on the other hand, has no pleasurable aspect whatsoever.

I blame envy for a lot of things. I think envious investors bid stocks like eBay (Nasdaq: EBAY) and Yahoo (Nasdaq: YHOO) up to amazing heights during the tech boom, and Crocs (Nasdaq: CROX) to over $75 a share two years ago. I think envy drove Shaq and Kobe apart and effectively dismantled the Lakers dynasty — at least temporarily. I also think envy causes the average investor to get swept up into bull markets and decimated in the subsequent crashes.

4. Invest with low conviction.
Doing a lot of research doesn’t help much if you don’t stick around to reap the benefits. I think investing without conviction is like marrying someone you just met a week ago. After the initial honeymoon phase, failure awaits after the first set of speed-bumps.

When investing in stocks, I can almost guarantee you won’t catch the bottom. There are just too many random factors involved in the collective buying and selling activities of millions of people around the globe.

In fact, I think investing without conviction almost guarantees failure. Let’s say you were smart enough to figure out that Apple (Nasdaq: AAPL) was a bargain back in 2001, and bought in the $10-12 range. The stock had cratered more than 70%, so investors could reasonably think that was the bottom of the barrel.

Unfortunately, everyone who invested in Apple’s stock in 2001 would’ve seen their investment fall around 20%-30% over the next year. They’d also have to wait nearly two years just to get back to breakeven. Many investors would not have the conviction to ride out this storm, and would have bailed out at a loss. However, those with conviction who held on would be sitting on a 20-bagger, with the stock currently above $210 per share.

5. Fail to separate price from value.
Oddly enough, we have no problem distinguishing between price and value at the mall. We don’t say, this Gucci handbag is worth $3,000. We say, wow, that handbag costs $3,000. What a rip. At the mall, we know that the price people want us to pay, and the value we receive, can be two very different things.

The same rules apply to the stock market. For most companies, share prices move around a lot more than intrinsic value. Sometimes the two move together, sometimes they don’t — but they’re two very different things.

The investor who fails to discriminate between price and value fares no better than the tone-deaf contestant in American Idol. Both lack vital ingredients for success.

Final thoughts
So there are a couple of examples of what not to do. If you eliminate as many bad investing habits as possible, you might just turn into a great investor.

Source: Fool.com

Top 2 Stocks For Cashing In On Obama’s Stimulus Plan

While the politics behind President Obama’s stimulus plan are debatable…

The potential for making money from this rare $787 billion investment in America is undeniable.

Because unlike the nebulous “bailout plans” that are propping up the U.S. automakers and floundering financial institutions like Citigroup and Bank of America, this stimulus plan isn’t a bailout.

It’s a massive investment that will hand billions of dollars’ worth of projects to healthy, competitive businesses. (Like the companies you’ll discover just ahead…)

And this may be your one-time chance to invest in the companies that could see their revenues soar once the stimulus money rolls in…

But a quick word of warning — not all stocks will go up in the months and years ahead. There will be some big names that never recover from this downturn…

Just as the brutal bear market of 1973-74 sounded the death knell for many darling stocks of the day, like Bethlehem Steel and Johns-Mansville…

At the same time that it set the stage for historic run-ups by a handful of companies like Radio Shack (a gain of 1,557% between 1978 and 1983!) and Wal-Mart (a 1,900% surge from 1973 to 1983!).

The bottom line in all this: You can make a very profitable decision right now. By striking at this rare historical moment, you could build for yourself and your family a comfortable lining of wealth.

Of course, you need an edge. A trusted, independent resource. And that’s where The Motley Fool comes in!

Because while a lot of so-called experts are picking “Obama stocks” that might jump up a little bit in the months ahead…

The Motley Fool’s Inside Value investment advisory service team of researchers dug deeper…

They scoured the world of undervalued stocks… looking for those rare investments that change lives. The stocks that will be talked about decades from now…

And the only stocks that can deliver that kind of long-term performance are the ones with pristine balance sheets and high intrinsic values that sit smack-dab in the slipstream created by a monster trend — the multibillion-dollar trend of Obama’s epic investment in America!

So let’s dive right in… and take a look at the one company that’s in a prime position to cash in on the coming Internet expansion boom…

And take a look at our next investment… it’s a rock-solid company that’s in the sector the U.S. Department of Labor estimates will generate 3 million new jobs by 2016.

And by 2010, Americans will be faithfully handing over $2.6 trillion each year to companies in this industry. Discover how you can profit from this phenomenon…

Overhauling The U.S. Healthcare System

How about a quick quiz to test your healthcare know-how? Pencils, everyone:

1. Approximately what percentage of the U.S. population is uninsured?
1. 1%
2. 5%
3. 15%

Answer: C. The Census Bureau estimates that some 46 million Americans were uninsured in 2007.

2. In 2004 (the year for which the most recent data are available), which location had the lowest infant mortality rate?
1. Cuba
2. Detroit, Mich.
3. Russia

Answer: A. Cuba’s infant mortality rate was 5.8 per 1,000 births, compared with Russia’s 11.5 and Detroit’s 15.5.

3. Which product does Starbucks [Nasdaq: SBUX] spend more money on?
1. Coffee beans
2. Health insurance for employees

Answer: B.

You don’t have to be a neurosurgeon to realize that something seems awry here. When a nation spends more than $2 trillion a year (roughly 16% of the gross domestic product) on health expenditures yet has a healthcare system ranked 37th in performance in the world, according to the World Health Organization, or when “a doctor… can get more data on the starting third baseman on his fantasy baseball team than on the effectiveness of life-and-death medical procedures” — as stated in a New York Times op-ed — something certainly needs revamping.

To bring America’s health care up to speed, the government is investing more than $140 billion into the sector. Some of the money will update the industry’s technological capabilities, some will fund research, and the remainder will increase Medicare and Medicaid budgets. One company clearly stands to benefit: UnitedHealth Group [NYSE: UNH], the country’s largest provider of health care services.

UnitedHealth operates with four divisions, but the bulk of its business ($75.9 billion, out of $81.2 billion in revenue during 2008) comes from its health care services segment. It provides both fee-based and traditional risk-based coverage to small and midsize companies as well as to families and individuals. Under the fee-based plans, UnitedHealth simply acts as an intermediary, collecting fees for administering the plan and leaving insurers with the potential risks of higher costs. With risk-based coverage, UnitedHealth collects monthly premiums that are ideally 15% to 20% higher than the costs it will pay out in claims.

Government-sponsored health plans like Medicare and Medicaid also fall into this division. For these, UnitedHealth bids on contracts from the government and manages the program with the government’s funds. The size of UnitedHealth’s network gives it a competitive edge when bidding for these plans, meaning it’s likely to receive the bulk of the money coming from the stimulus plan.

And then there’s Obama’s campaign promise of universal health care. Bruce Berkowitz, founder of Fairholme Capital Management and manager of the Fairholme Fund [FAIRX], which owns nearly 1.5% of UnitedHealth’s outstanding shares, believes that if this promise comes to fruition, the government could only accomplish it in one way: by using the managed health care companies, of which UnitedHealth is the largest.

Its current share price more than accounts for the possible risks, meaning we believe there is significant value to be found, with high potential reward. This investment is exactly what the doctor ordered.

Our next company is smack-dab in the momentous effort to rebuild America’s transportation infrastructure. Find out the name of the company that’s in the perfect position to cash in…

Rebuilding America’s Highways

Any driver knows that our roads could use some TLC. But just how bad are they?

According to the American Society of Civil Engineers, more than a quarter of our nation’s bridges “are either structurally deficient or functionally obsolete.” As for our roads, we “spend 4.2 billion hours a year stuck in traffic,” sucking some $78 billion out of our economy. Not only does this cause unnecessary damage to our cars, but these road conditions lead to 14,000 deaths a year.

Over the past two decades, as government spending skyrocketed to historic highs, infrastructure spending has plummeted to record lows.

So to bring our roads up to speed, the stimulus plan is slated to invest nearly $30 billion in our highways and bridges, which alone should help create more than 500,000 new jobs. It should also fuel economic growth because, as Gov. Arnold Schwarzenegger of California recently put it, “The faster we can move people and goods, the stronger our economy is.” Some have estimated that every $1 invested into highways generates $5.40 in economic benefits.

Vulcan Materials [NYSE: VMC] is one company whose products will see a significant spike in demand as our roads are revamped. According to company data, Vulcan is the nation’s largest producer of aggregates (think crushed stone, sand, and gravel), a top-five asphalt producer, and a top-10 concrete producer, operating with a strategically significant coast-to-coast distribution network.

About 20% of the company’s revenue comes from the residential market. Growth here will likely stay slow until the housing market recovers — but the overwhelming majority of Vulcan’s revenue comes from public projects such as highways, so the increased demand in this area should more than compensate for the residential slowdown.

This company has an enormously wide moat, with assets that are not easy to come by, making Vulcan a dominant player in a high-demand industry today. It’s trading more than 40% below our estimated intrinsic value, with a 3.8% dividend — now is as good a time as any to buy stock.

Next up is the smartest way to cash in on the coming “Green Energy” boom. Find out its name and ticker symbol…

The Smart Way to Invest in Green Energy

We’re willing to bet the phrase “energy-independent America” was one of the most-used taglines of both Senator McCain’s and President Obama’s campaigns. But it hasn’t disappeared — it just made an appearance in the economic stimulus plan, with nearly $79 billion allocated to this initiative in the form of tax credits, grants, and dedicated research.

Despite many experts claiming to know whether it will be specifically wind power or biofuels that ignite a green revolution, there is simply too much uncertainty and too many unknown variables to discern which technology will emerge as the most profitable. Not to mention that no green energy company has yet to dig a wide moat — heck, many aren’t even profitable at all.

But that’s not to say you should avoid this emerging sector in its entirety.

Rather, we think that if you want exposure, it makes the most sense to not put all your green eggs in one basket. That’s why we think an inexpensive ETF like PowerShares WilderHill Clean Energy [NYSE: PBW] is the smartest way to go if you want to profit from green technology.

This ETF has positions in roughly 50 clean-energy names with business models ranging from manufacturing green-friendly auto parts to manufacturing solar energy equipment. Most of its positions are in small caps, with the weighted average market capitalization clocking in at just $2.3 billion. Even though the portfolio is relatively diverse, an investment in this ETF will likely be volatile. We certainly wouldn’t recommend overweighting your allocation here, but long term it’s sure to be a winner.

But if all this government spending has you worried about inflation, discover an investment that will help you protect your nest egg…

Inflation-Proof Your Portfolio

The stimulus plan’s passage brings the total price tag of the government’s intervention to an astonishing $9.7 trillion. Two Bloomberg columnists calculated that that’s would be enough to pay off more than 90% of America’s mortgages.

That many dollars added into the economic system, coupled with rock-bottom interest rates, means one thing is certain: Inflation is a-comin’.

Knowing that it’s inevitable, we have one final investment recommendation that will counteract the effect inflation could have on your portfolio over the long term: Vanguard Inflation-Protected Securities [VIPSX].

This mutual fund is a cheap and easy way to get access to Treasury Inflation-Protected Securities, or TIPS as they’re known in the bond world. The principal on TIPS is adjusted upward as inflation rises (likewise, it falls during deflationary periods), so your interest payments similarly rise with inflation (or fall with deflation). With inflation on the horizon, this is a smart way to ensure that a portion of your portfolio will keep up with it. It makes sense to have a significant portion of your bond allocation in TIPS, especially if you’re in or nearing retirement, and this Vanguard fund is the cheapest one out there to help you do so.
What to Do Now

There you have it — our five best ideas for how to profit from this momentous economic stimulus package, all arising from our in-depth analysis and independent research.

Truth be told, the same holds true for all the stocks recommended in Motley Fool Inside Value, the investment advisory service behind our top picks: Sprint Nextel, UnitedHealth Group, and Vulcan Materials.

But it doesn’t have to stop there. The Motley Fool just put the finishing touches on its brand new premium report highlighting the very best small-cap stocks, selected for you by some of the nation’s top independent equity analysts.

Source: fool.com

So if you’re looking for ways to accelerate your retirement, here’s how you can move the date of your retirement party up a few years:

1. Add cash.
Yes, it takes money to make money. So the first step in starting and growing your retirement nest egg is finding ways to get more cash into your retirement accounts.

When times are tight, saving more can be a tall order. But you may get some help. If your employer offers a matching contribution to your 401(k) plan, you might double those extra savings. Similarly, Uncle Sam offers benefits in the form of deductions for contributions to 401(k) plans and traditional IRAs, as well as tax credits for low- and middle-income taxpayers who contribute to IRAs.

It takes a little more than $550 per month in savings, earning a 7% return, to get to $1 million over the course of a 35-year career. But if you can add just $100 per month to that — including what your employer puts in and your tax savings — you can cut more than two years off your wait.

2. Embrace stocks.
Saving more is great, but there’s only so much you’ll be able to put aside. You have to make the most of what you have.

People are often too conservative in their retirement investments. Despite the sometimes violent ups and downs of the stock market, the long-term return on stocks far exceeds that of less risky investments like bonds and bank savings accounts. If you have all your money in cash, you won’t lose a penny — but you’re lucky to make 1%-2% right now. Even target funds and other balanced retirement options have sizable portions of their assets in bonds.

A 7% return is a reasonable average for a portfolio that has slightly more in bonds than in stocks. But throughout most of your career, you can afford to take more risk. Owning more stock could raise that return to 9%, lopping off almost five more years from your target.

3. Hit for the fences.
If you only want to match the S&P 500, buying index funds is easy. To get higher returns, however, you’ll have to find stocks that will outperform the index. Here are some examples from the past 20 years:

Those stocks have done particularly well, especially given how badly stocks have done since 2000. But you don’t have to belt all your picks out of the park to retire sooner. If you can eke out just another couple of percentage points on your average return — boosting it to 11% — then that’ll cut another 3 1/2 years off your target.

4. Become a cheapskate.
So far, we’ve only looked at half of the story. How much you spend plays just as important a role in retirement as how much you save. And while many expenses go away when you stop working, new ones quickly take their place — things like travel, entertainment, hobbies, and medical care.

But you have a lot of control over many of these expenses. If it’s worth it to you to spend less in retirement, you won’t have to save as much before you retire. Cutting 10% off your spending means you’ll get to your smaller goal a year earlier.

All in all, combining these four simple tips can let you retire as much as a decade or more sooner than you otherwise would. That thought just might be enough to make even a bad day at work seem brighter.

Source: Fool.com

Proven ways to make money

1. Pay yourself first
This is the single best money tip of them all and it’s easy. Just set up an automatic payroll deduction that will whisk away 5% to 10% of your paycheque before you ever see it, and deposit that amount in a good, low-cost mutual fund. Soon, with no effort on your part, you’ll have a healthy nest egg. Why does this trick work so well? Because most people find it hard to save money by sticking to a budget — it’s just too tempting to spend what’s left over. But if you make saving an automatic first priority, you quickly adjust to living on the cash that remains.

2. Mark it down
Use the calendar to your advantage, says Barb Garbens, a fee-only financial planner at BL Garbens Associates Inc. in Toronto. By contributing to your RRSPs at the beginning of the year rather than at the end, you can enjoy an extra year of tax-free compounding. And by paying your mortgage weekly or bi-weekly instead of monthly, you can pay off your mortgage years faster than someone who sticks to a monthly schedule.

3. Get real
About your expectations, that is. Advertisements depict a world in which everyone makes a six-figure salary, retires at 55 and earns 15% a year on their investments. The reality is different. Most Canadians make under $50,000 a year. The typical man retires at 63, the typical woman at 60. The median return of balanced mutual funds over the past five years has been a meagre 5%. What do all these numbers mean? That you shouldn’t stress if you’re not on track to retire in your mid-fifties — and that you should be very suspicious of fast-talking brokers who promise you 20% annual returns.

4. Think twice
Before hiring someone to take care of a job you could do yourself. Why? Because you earn money in pre-tax dollars, but you pay bills in after-tax dollars. Thus, many middle-class earners will discover that paying an $800 landscaper’s bill (in after-tax dollars) really costs them nearly $1,500 in before-tax salary. Think about it: if you do the landscaping yourself, you’re giving yourself the equivalent of a $1,500 raise.

5. Pick a date
New Year’s Day, for instance, or Canada Day — and draw up a net worth statement on that day every year. Begin by listing your assets at their current value. This includes your house, your car, your RRSPs, and anything else you own. Then subtract your liabilities — the amount you have left owing on your mortgage, your credit card and other loans. What remains is your net worth. If it’s going up every year, that’s great. If not, start asking questions.

6. Repeat after us: time is money
Literally. Every dollar that you invest now will double in 12 years, assuming a 6% annual return. So even if you don’t feel particularly wealthy in your 20s and 30s, try to put away what you can, either by investing or by paying down your mortgage and other debts. You’ll be pleased you did when you look at your net worth in your 40s and 50s.

7. Learn the virtues of standing still
The biggest single mistake that people make in trying to build their wealth is being too active — they flip in and out of investments and chase yesterday’s hot mutual funds or stocks. Problem is, yesterday’s winners are often tomorrow’s losers. What’s more, the transaction costs of jumping in and out of investments can eat up profits. So avoid frequent trading. Never buy an investment — whether it’s a house,a stock or a fund — if you’re not prepared to hold it for the next 10 years.

8. Spend less than you make
This is still the only way to build wealth — and it’s easier than you may think. Just promise yourself not to increase your spending when you get a raise at work or a windfall of some other type. Instead, bump up your automatic payroll deductions by the after-tax amount of the raise, and soon you’ll be soaking away barrels of cash, without having to give up anything you currently enjoy.

9. Distinguish between bad debt and good debt
Bad debt is money you borrow to purchase something that quickly declines in value — a vacation, clothes, restaurant meals. Good debt is money you borrow to buy things that can go up in value or increase your earnings potential: an education, stocks, bonds, mutual funds, a house.

10. Pay it off
Pay off your credit cards and mortgage before beginning to invest. Chances are you’ll earn a higher rate of return from erasing loans than from playing the stock market. Paying down your credit card, for instance, guarantees you a risk-free after-tax return of about 18%. To achieve a similar return through investing, you would have to earn more than 25% before tax and you would have to take on risk.

11. Attack debt
Attack debt systematically rather than trying to pay the same amount to everyone. Start by paying off your highest-interest debt — credit card debt is usually the worst.Then move on to car loans and your mortgage. If you’re carrying a lot of high interest rate debt, talk to your bank about the possibility of taking out a lower cost consolidation loan, backed by your home, and use that money to pay off your most expensive debt.

12. Forget the fees
No one should pay a fee to use a credit card when there are better cards out there for free. For instance, the TD Gold Select Visa offers purchase protection, extended warranties, travel accident and car rental insurance, emergency travel assistance and preferred rates at Budget — all for an annual fee of zippo. If you want rewards, the Citi Enrich MasterCard and Capital One 1% Cash Rebate Platinum MasterCard give you 1% of your money back, the TD GM Visa card gives you up to 3% back towards a GM vehicle, and the President’s Choice Financial MasterCard hands you a break on groceries. Best of all, none charge an annual fee.

13. Don’t lease cars
When you lease, you’re paying a premium to drive a new vehicle, plus you’re essentially financing almost the entire cost of your new car. That’s fine if you absolutely must have a new car every three years, but not a great strategy otherwise. You’ll almost always save money by buying a car and driving it for five to 10 years.

14. Hire a fee-only financial adviser
For a truly unbiased look at your finances, hire a fee-only financial adviser that you pay by the hour. These folks don’t have a conflict of interest. In contrast, most conventional advisers earn their incomes from selling you mutual funds and other products and have a built-in bias as a result. While fee-only advisers charge $200 to $300 an hour, they can be cheaper in the long run than conventional advisers. And they’re certainly more objective.

15. Negotiate
Never accept your bank’s first offer without asking if a better deal is available. Whether you’re buying a GIC or negotiating a mortgage, bank reps usually have a bit of room to negotiate. If you’re a good customer, point out that fact — and suggest you’ll look elsewhere if you can’t get a slightly higher interest rate on your GIC or a lower rate on your mortgage.

16. Use professionals
Use mortgage brokers and insurance brokers to help you shop for the best deal in their respective areas. Unlike salespeople who represent just a single bank or insurance company, brokers can show you products from several firms and steer you to the best deal. An insurance broker can compare features of policies from competing companies; similarly, a mortgage broker can offer you deals from dozens of small lenders that you would otherwise have missed.

17. Open a president’s choice or ING account
Both these banks operate primarily through websites and over the phone with only a limited number of ATMs and physical locations. The benefit is that they offer higher interest rates on your savings and lower fees than the Big Five banks. What’s not to like about that?

18. Know when to renew
Pass up your adviser’s pitch for expensive whole-life and universal-life policies and buy a renewable term-life policy instead. Such a policy typically covers you for either 10 or 20 years and is far cheaper than the alternatives. When the policy expires, you’re guaranteed to be able to renew it, so you can extend your coverage if you wish.

19. Compare policies
Term-life policies can vary hugely in cost, so check out quotes from rival firms at Term.ca or Term4sale.com before you buy. An insurance broker can help steer you through the competing choices.

20. Increase deductibles
Raise the deductible on your car or home insurance and your premiums will plunge by as much as 40%. For instance, simply raising the deductible on your home insurance from $500 to $5,000 could cut the insurance bill for a three-bedroom Toronto home to $420 from $700. While you’re at it, find out how much you could save by insuring both your car and your house with the same company. Most insurers offer a discount to people who give them all their business.

21. Don’t buy life insurance you don’t need
The only good reason to purchase a policy is if someone will suffer financial distress from your death. So if you’re single, you probably don’t need insurance. And if you’re married with kids, you don’t need policies on your kids’ lives. (If — heaven forbid — anything were to happen to your children, you would be grief-stricken, but you wouldn’t suffer a financial loss, would you?)

22. Put extra money toward your mortgage
Your return will beat anything you could get on a GIC or mutual fund. For instance, if you have a $250,000 25-year mortgage at 5% and you pay $200 a month on top of your regular payments, you’ll save $40,000 in interest and pay off your home five years sooner, says Andy MacDonald, president of MortgageBroker Inc. in Mississauga, Ont.

23. Consider Manulife One
A product which merges your mortgage with a line of credit and a chequing account. Any cash you deposit immediately reduces your mortgage total; any cheque you write adds to your total owing. Result? You never have idle cash lying around.

24. Become a landlord
If you’re sending junior off to university, consider buying him a house. That’s right — if you buy a home at the right price, and your teenager acts as the property manager and rents out rooms to other students, you can often turn a profit when you sell the house upon your child’s graduation. Even if home prices don’t go up, you can usually count on housing your offspring for free for four years.

25. Negotiate fees with your agent
Insist on a better deal from your real estate agent when it comes time to sell your home. Especially if you’re listing a pricey property in a hot market, ask your agent to discount the standard 6% commission. Alan Silverstein, a Toronto real estate lawyer, says you can often get an agent down to 4% or lower if he or she thinks your house will sell quickly. Saving a couple of percentage points will mean $6,000 more in your pocket on the sale of a $300,000 home.

26. Keep receipts
Take advantage of the small stuff, says Lee Bernstein, a tax accountant in Toronto. You can write off the cost of a safety deposit box, for instance. Two-income families can also deduct the cost of kids’ after-school lessons and summer camp if those expenses allow the parents to work and earn money. Moving expenses incurred to take a job elsewhere in Canada are deductible; as are tax preparation fees in some cases. And don’t forget medical and dental expenses — you can miss out if you don’t keep receipts.

27. Invest right to avoid taxes
The key is to remember that capital gains and stock dividends enjoy tax breaks, while interest payments from bonds and GICs don’t. So keep any bonds or GICs you own in your RRSP. If you run out of contribution room, your stocks and stock-based mutual funds can remain outside your RRSP without inflicting too much tax damage.

28. Contribute to your RRSP
The biggest, best tax loophole is contributing to an RRSP. Yep, we know it sounds mundane — but it’s also true. So stop whining and make that contribution.

29. Beat the taxman by re-arranging debt
In general, interest on money you borrow to invest is tax deductible, but interest on money you borrow to spend isn’t. So rather than using your savings to buy stocks and borrowing to buy furniture, switch it around: by borrowing cash to buy stocks and using savings for the sofa, you turn the interest into a tax deduction.

30. Get help
If you find a tax accountant you like, stick with her — she can suggest ways to minimize your taxes. Software can also make your return a snap. QuickTax, TaxWiz and UFile each cost less than $50, but save you hours of tedium.

31. Split income with your spouse, both now and in retirement
By making your incomes as equal as possible, you’ll minimize the overall tax that both of you will pay. One strategy is for a high-earning spouse to contribute to a spousal RRSP for his or her stay-at-home partner. If you run your own business, you can cut your family’s overall tax bill by employing your lower earning spouse — or kids — to perform some tasks you would otherwise have to do yourself.

32. Diversify
You’ll be glad you did. Holding a varied portfolio ensures that no single disaster can blow a hole in your nest egg; it also guarantees you’ll have a part of any good news going. To ensure you’re diversified, make sure that your holdings include both stocks and bonds. Your stocks should span several industries, rather than being concentrated in a single sector. They should also be geographically diversified, with Canadian, U.S. and international firms in the mix.

33. Think in terms of your portfolio, not individual stocks or funds
About 90% of the difference between the returns of different portfolios comes down to broad decisions about which types of assets to buy, rather than narrow decisions about which specific stocks, bonds or mutual funds to hold. The classic blend is to put 60% of your holdings in stocks and 40% in bonds. Conservative investors may want to reverse those proportions, while aggressive investors may want to drop the bond component to 20%.

34. Steal other people’s ideas
Unlike students writing a university essay, investors get rewarded in their portfolios for copying the work of the smartest people they know. One of our favorite sites is Gurufocus.com, which tracks the commentary and holdings of more than 25 great investors, including Warren Buffett.

35. Follow our couch potato strategy
It beats 80% of the money managed by professionals over the long term and requires only 15 minutes of your time each year. For step-by-step instructions on how to become a Couch Potato, click here.

36. Cut your costs
This is the single best way to juice your returns. Despite what you may think, paying more for money management doesn’t improve results. So look at low-cost index funds or exchange-traded funds (ETFs). If you truly want an active manager, pick a fund with a below-median management expense ratio to ensure profits stay in your pocket.

37. Be realistic
About how much you can withdraw from your retirement portfolio each year. Many new retirees assume they can spend 7% to 10% of their nest egg every year.That’s fine in a rising stock market, but if the market slumps and you keep taking out that much, you’ll quickly run down your savings. Studies agree that to make your money last you should count on withdrawing only about 4% a year.

38. Count on a government pension
Most of us will get more from Ottawa than we think. A married couple with no savings or company pension can expect $24,000 a year from all government sources when they retire; the average combined payout from just the Canada Pension Plan and Old Age Security is now almost $11,000 per retired person a year.

39. Protect yourself
Protect yourself from stock market slumps in retirement by keeping five years’ worth of living expenses invested in a “ladder” of safe bonds, with one fifth of your holdings maturing each year. That way you can live off the money from your maturing bonds during a market downturn, and you won’t end up decimating your portfolio by cashing in stocks when they’re down.

40. Make a will
Making a will doesn’t take a lot of time, it doesn’t cost much, and it can save your heirs thousands in taxes and legal fees as well as legal squabbles. If you can avoid all that by hiring a lawyer to draft a will for $200 to $300,why wouldn’t you?

41. Talking about wills
Our advice is to talk about wills. Most feuds over wills come about because parents don’t communicate their decisions to their kids while they’re alive. When the will is read, heirs are surprised, feelings are bruised, and nastiness ensues as sibling turns on sibling. So, before you make a will, talk it over with everyone involved. Then, after you have the will, keep on talking — the best will is one that surprises no one when it comes time to use it.

42. Make use of registered education savings plans (RESPs)
After you open one of these plans at your local bank, you can contribute up to $4,000 a year per child to a lifetime limit of $42,000. The money grows tax-free until it’s withdrawn for your child’s education. But here’s the even niftier part: the federal government gives you an immediate top up for each contribution. The amount of the grant varies according to your family income, but it’s worth a minimum of 20% of the first $2,000 per child you contribute — in other words, $400 a year for free. Sounds like a deal to us.

43. Live closer to work
Many of us underestimate the true cost of commuting, both in terms of stress and in terms of dollars. Case in point: The Canadian Automobile Association calculates a husband and wife can spend $140,000 over five years making the one-hour commute from Hamilton, Ont., to Toronto in separate Chevy Cavaliers.

44. Money isn’t everything
Switching to a new job where you have more trust in management brings you as much happiness as a 36% pay raise, according to a recent study by economists John Helliwell and Haifang Huang at the University of British Columbia. Switching to a job that offers more variety is like getting a 21% pay raise, and getting a position that requires a high level of skill is worth a 19% raise.

45. Give your kids part of their inheritance while you’re still alive
A bit of cash when your kids are in their 30s could save them a fortune in mortgage interest — and you’ll enjoy being around to see the difference your money makes.

Source: canadianbusiness.ca

#1 Take stock of your current financial situation and goals

This involves calculating your net worth (assets minus liabilities), knowing how much money you have for stocks after paying your expenses, and setting financial objectives to cover everything from a comfortable retirement to your children’s university education.

#2 Determine the approach you’ll take to investing

An investor’s stock picking style will largely depend on a person’s stage in life, Dagys says. For example, a recent university grad with a high-paying job may want to consider a more aggressive approach that relies on growth stocks, while an individual nearing retirement may want to choose more conservative stocks, such as banks, to help preserve capital. The underlying reason is the stock market has historically gone up over the long-term, but has also shown multi-year periods of up and down cycles.

#3 Know your risks

This means understanding the downsides from all the risks associated with a company. For example, the returns on an American stock will be affected by the exchange rate between Canadian and U.S. dollars. Irrational shareholders can push the price of stock into bubble territory, or an emerging technology could soon make a company’s product obsolete.

#4 Get the right information

Making informed investment decisions requires reading and understanding financial statements, Dagys says. But be aware that a company’s bad news can be buried in footnotes

In the first hour of trading, the Dow Jones industrial average rose 135.65, or 1.28 percent, to 10,745.31, but by the afternoon had dropped more than 100 points, before inching upward again.

The Fed’s move was aimed at boosting waning confidence that governments can stop the crisis from spinning out of control and at getting banks around the world to open their ever-tightening purse strings. Banks have been increasingly reluctant to lend to each other as distrust spread throughout the financial system.

As the market fluctuated, speculation swirled about the futures of such major players as thrift bank Washington Mutual Inc. and investment bank Morgan Stanley. Media reports have been saying that Wells Fargo & Co. and Citigroup Inc. are interested in a possible takeover of Washington Mutual, and that Morgan Stanley and Wachovia Corp. are in talks about a possible combination.

CBS News correspondent Jeff Glor reports investors Thursday morning have expressed lots of frustration here this over the so-called snowball effect on U.S. banks and wondering just when it will end.

Asian markets closed lower, but the Fed action helped send European stocks higher after three days of losses.

Worries that other financial companies could fail and further upend the economic system may cast a pall on the central banks’ step, which spread billions of dollars around the world in exchange for foreign currencies.

President George W. Bush, who canceled a Republican fundraising trip to Florida and Alabama to focus on the crisis, said the markets are adjusting to the “extraordinary measures” that have been taken in recent days.

“Our financial markets continue to deal with serious challenges,” Mr. Bush said in two minutes of remarks – his first on the turmoil since Monday. “As our recent actions demonstrate, my administration is focused on meeting these challenges.”

He did not specify what additional actions would be taken. The president was to meet with economic advisers over much of the day, and was seeing Treasury Secretary Henry Paulson at the White House later Thursday.

For more than a year, investors have watched with growing alarm as the U.S. economy, the world’s largest, has struggled to right itself before being tipped over the edge by massive foreclosures, shrinking consumer spending and rising inflation.

The turmoil has swallowed some of the most storied names on Wall Street. Three of its five major investment banks – Bear Stearns, Lehman Brothers and Merrill Lynch – have either gone out of business or been driven into the arms of another bank.

The two remaining – Goldman Sachs Group Inc. and Morgan Stanley – were under siege.

A sharp rise in borrowing costs has worsened. The total amount of commercial paper fell by $52.1 billion for the week that ended Wednesday, as banks cut back the short-term loans companies from small garment factories to General Electric Co. depend on for their daily operations. At the same time, the interest rate on those short-term loans more than doubled, with rates for seven-day paper jumping to 4.5 percent from 2.5 percent.

Russia closed its stock exchanges for a second day Thursday as President Dmitry Medvedev pledged a 500 billion ruble ($20 billion) injection into financial markets to stem a dizzying plummet in share prices – and quash fears of a repeat of the country’s 1998 financial collapse.

In a statement Thursday, the Fed said it had authorized the expansion of swap lines, or reciprocal currency arrangements, with the other central banks, including amounts up to $110 billion by the European Central Bank and up to $27 million by the Swiss National Bank.

The Fed also said new swap facilities had been authorized with the Bank of Japan for as much as $60 billion; $40 billion for the Bank of England and $10 billion for the Bank of Canada.

All told, Fed action increased lines of cash to central banks by $180 billion to $247 billion.

Shares of the largest U.S. thrift, Washington Mutual Inc., fell 13 percent amid reports that the government was trying to find a buyer for the bank, which has been battered by bad home loans. It lost $3.3 billion in the second quarter.

And, demand for super-safe Treasurys surged Wednesday, sending the yield on the 3-month Treasury bill briefly into negative territory for the first time since 1940, as investors rushed for the closest thing to cash.

After the government bailed out AIG and a money fund “broke the buck,” investors were worried about the risk of most assets.

It was the fourth consecutive day of extraordinary turmoil for the American financial system, beginning with news on Sunday that Lehman Brothers, would be forced to file for bankruptcy.

The 4 percent drop Wednesday in the Dow reflected the stock market’s first chance to digest the Fed’s decision to rescue AIG with an $85 billion taxpayer loan that effectively gives it a majority stake in the company. AIG is important because it has essentially become a primary source of insurance for the entire financial industry.

Mortgage rates, which had fallen after the U.S. government’s takeover of mortgage giants Fannie Mae and Freddie Mac, rose again, removing a glimmer of hope that the housing crisis, the kindling for the broader financial meltdown, was hitting bottom.

And new statistics showed that construction of new homes and apartments fell a surprising 6.2 percent in August to the weakest pace in 17 years.

The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs.

Treasury officials said the action did not mean that the Fed was running short of cash, but simply was a way for the government to better manage its financing needs.

Separately, the Securities and Exchange Commission tightened rules on short selling, the practice of betting that a stock will fall.

A $62 billion money market fund – Primary Fund from Reserve – on Tuesday saw its holdings fall below its total deposits, a condition known as “breaking the buck” that hasn’t happened to a money market fund since 1994, Rosenberg said. Money market funds are supposed to be conservatively invested and almost as safe as cash.

Withdrawals from money market funds have become one factor in the global tightening of credit, as investors and banks hoard their cash.

Source: cbs.com

A million bucks. That’s how much money I’m going to have when I retire – at the very least. How am I going to do it? Not by flipping real estate, not by playing the lottery and no, not by responding to one of those Make big $$$ at home ads. I’m going to do… it the old-fashioned way, by saving a small portion of my salary each year and investing it well over a long period of time. It’s true that it will take me 28 years to make my million, but in my view there’s no easier way to get rich.

To make your own million, it’s better if you start young. If you have 30 years before you retire, you’re very lucky. You may not be flush with cash, but you’re rich in time. All you have to do is save about 10% of your salary each year, invest it automatically in a low-cost portfolio that’s heavy in stocks, and wait.

I started by saving $300 a month when I was 32, but you could start later if you’re willing to save more. I opened a discount brokerage RRSP account at my bank and chose a couple of low-cost balanced mutual funds to invest in. I set up an automatic transfer from my chequing account, so that twice a month when my paycheque was deposited, $150 was immediately whisked away and invested.

Then I surfed over to the online Vancity savings calculator to see how I was doing. (Go to www.vancity.com, click on my money, then tools & calculators, then online calculators, then savings calculator.) I entered my facts: I had 33 years to go until I retired at 65, I was saving $300 a month, and I hoped for a 7% return. The savings calculator told me I was on my way to a nest egg of $440,000.

That’s quite a bit short of a million, but I had done the hardest part: I had started. To make my million, all I had to do next was gradually increase the amount I saved each month as I made more money. It’s easy to increase the amount you save when you get a raise, because even after bumping up your savings, you still have more left over to spend than you did before. Now I have only 28 years left until I retire, but I’ve increased the amount I save every month so I’m on track to make my million.

For instance, if you were making $75,000, your double-your-salary mark would be $150,000. If you had that much in your portfolio and you were saving 10% of your salary each year, in one year your savings would grow by $18,200 (assuming a 7% return). Of that growth, $7,500 would be due to your contributions and a full $10,700 would be from investment growth. If you reach that point by your early 40s, you’re well on your way to becoming a millionaire.

Getting an investment return of 7% a year is tough, but it’s certainly not impossible. I recommend investing in a portfolio that’s at least 60% stocks, because stocks have beat every other type of investment over the long run. Yes, real estate has been on fire lately, but it has its cold periods, too. Toronto, for instance, has seen average home price increases of only 2.4% a year after inflation since 1980, even with the recent run-up.

If you invest in the markets, you should invest in an RRSP to reduce the drag from taxes, and choose a low-cost portfolio to reduce the drag from fees. I recommend our Classic Couch Potato Portfolio, which has the lowest fees going, and has produced an average annual return of 11.8% since 1976. Or you could go with a low-cost balanced mutual fund. You can find information about the Couch Potato at www.moneysense.ca, and you can check out our latest mutual fund ranking while you’re there.

The longer you save, the easier it gets, because it’s near the end that your money really balloons. In the last few years, your portfolio will be rocketing up by more than $70,000 a year.

Since my saving is on autopilot, I rarely even think about it. But if my resolve ever falters, I just go back to that Vancity calculator to check in on my plan. So far, it’s doing just fine. In fact I’ll be able to finish paying off some debt this year, so I’ll have an extra $250 a month to play with. I could easily spend the cash, but the calculator tells me that saving it might be worthwhile. If I do, I’ll retire with $1.3 million.

Source: msn.ca