Donald asks…
what/where should i invest my limited money in?
i just started my first job and i wanted to get into the investment world early;
i was thinking investing around the lines of $500-1000/month, or even spare change every now and then…
where/what should i invest in for the highest returns?
should i go for a Financial Management Company like Fidelity or Charles Schwab?
Justin answers:
Your first priority should be to pay down debt consumer debt such as credit cards.
If you do not have an emergency fund, start one. In the current economy, most people are recommending at least 6-8 months of expenses held in a liquid account (such as short term CD’s, savings account or money market account). If you need to build up your emergency fund, shop around for the best interest rate. Online banks (like Ally and ING) tend to pay higher interest yields than brick and mortar banks. Credit Unions (if you qualify for membership) tend to pay higher rates than traditional banks as well.
If you are debt free (except for first mortgage or low-rate student loans) and you have your emergency fund, then you can look at longer term investments.
If you are looking for a safe investment, then government savings bonds would probably be the best bet for the amount of money that you have. You can purchase them from any bank or directly from the Treasury. I’ve linked the Treasury sales site below so that you can read up on how the savings bonds (Series EE or I is what you would want) are structured and what their rates are.
If you are more risk tolerant and feel comfortable and knowledgeable with the stock market, you can open up an online brokerage account (I know that Scottrade only requires $500 to start). From there you can see what stocks, exchange traded funds and mutual funds you can purchase. Unfortunately, you do not have enough capital to be able to purchase any federal, state, municipal or corporate bonds. Be sure to research any security before you purchase it. Remember that any security purchase is risky an you may loose some or all of your investment, so only invest money that you can afford to loose.
There is no magic sector for high returns. It is all dependent upon the individual company. You will need to learn how to make an analysis of companies and sectors. Once you have learned how the market works, how to value a company and how to spot macro and micro-economic trends, then you will be in a better position to decide what stocks are undervalued.
If you want someone else to charge you for playing with your money, then look for investment advisory/wealth management services, but pick them very carefully. Remember Madoff was a very well respected, highly trusted and considered exceptionally reputable, before he announced that he was running a Ponzi scheme.
William asks…
Is the blip in the stock market after Obama’s speeches, the closest thing Wall Street has to a conscience?
Justin answers:
Why all this false importance placed on the stock market. As its collapse demonstrated just as Enron and others have in the past, it has very little to do with reality and everything to do with perception and mob psychology, just as any other Ponzi scheme does. Only Republicans believe the day-to-day fluctuations in the stock market “as a whole” (a phrase I also apply in pseudo-Italian-homonymic form to Republicans) have any deep meaning for the state of the economy. And these are the same people who believe in the “Invisible Hand.” 
James asks…
Do you support privatized social security?
This would be the McCain message.
Justin answers:
Of course–it is the only solution that will last.
Face it–social security is a nightmare.
The government takes money away from you for thirty years and gives it somebody else.
__________________
the tax rate is over 15% according to the wikipedia article snippet below.
____________
Tax on wages and self-employment income
Benefits are funded by taxes imposed on wages of employees and self-employed persons. As explained below, in the case of employment, the employer and employee are each responsible for one half of the Social Security tax, with the employee’s half being withheld from the employee’s pay check. In the case of self-employed persons (i.e., independent contractors), the self-employed person is responsible for the entire amount of Social Security tax.
The Federal Insurance Contributions Act (FICA) (codified in the Internal Revenue Code) imposes a Social Security withholding tax equal to 6.20% of the gross wage amount, up to but not exceeding the Social Security Wage Base ($94,200 for the year 2006; $97,500 for 2007; and $102,000 for 2008). The same 6.20% tax is imposed on employers. For each calendar year for which the worker is assessed the FICA contribution, the SSA credits those wages as that year’s covered wages. The income cutoff is adjusted yearly for inflation and other factors.
A separate payroll tax of 1.45% of an employee’s income is paid directly by the employer, and an additional 1.45% deducted from the employee’s paycheck, yielding a total tax rate of 2.90%. There is no maximum limit on this portion of the tax. This portion of the tax is used to fund the Medicare program, which is primarily responsible for providing health benefits to retirees.
The combined tax rate of these two federal programs is 15.30% (7.65% paid by the employee and 7.65% paid by the employer).
_______________________________________
Just think–15% of your pay is taken by the government–and given back to you in a social security check–starting at age 62–if you retire then–and at a reduced rate.
If each person would take that money and invest it we would all be millionaires by the time we retire–we would not need medicare or social security.
The average return of the stock market over a 30 year period is 8%–it has been since before the great depression.
If you die at 61 years old–and your kids are grown-that money is GONE!–the government keeps it (IT IS REALLY ALREADY SPENT) but think about it for a minute–if you had personal control over that you could WILL it to your children–we are talking hundreds of thousands to millions of dollars you could pass on to your children when you die.
Instead the government takes 15% of their income for their working life too.
Face it Social Security is a boondoggle of biblical proportions—-It has embedded itself in the Government and empowered our politicians to control our lives in our GOLDEN YEARS. In the near future it will go into the negative–sending more money out than it takes in–unless something is done about it–and it will only get worse.
The democratic party solution–Tax people more–and delay the time to obtain benefits.–so people in the future will have to work longer years (40 or so)to obtain the same benefits as someone who only had to work 35 years before. –WHOOOPEEE!
Of course–Bush proposed gradually moving people off socail security and into PERSONAL RETIREMENT ACCOUNTS–and he was defeated miserable–with a lot of Republicans siding with the democrats–
AFTER ALL–everybody that is currently in Congress now–will probably not be there when the whole PONZI SCHEME collapses in on itself–leaving some other politicians to blame it all on.
By the way—the current lifespan in the USA is around 77 years old–but if your BLACK–it is less about 6 years—so they get screwed even worse by the Social Security Agency.
I’m white so if I retire at 67–I receive full benefits–a social security check for the next ten years of my life (if it is average) and in that time–I will have to accept whatever the Government feels like giving me.—If that money was mine–and I had invested it over the 30 plus years of my working life-and received the average return–I would be able to travel around the world and live comfortable until I died. Then give my children whatever was left after I died–if that money reached 1 million dollars–not inconceivable mind you)–and it continued to earn 8% during my retirement years–I could spend 80,000 a year–for the rest of my life and my children would receive that 1 million dollars upon my death.—Instead the government takes it from me–spends it immediately and still can’t keep Social Security solvent.–and I have to worry If I will every see that money
Social security is a nightmare–I can’t repeat that enough.
George asks…
Current Financial Crisis – how to understand?
Can someone elaborate, for a layman like me, what is this current financial crisis. Why stock markets and banks are collapsing all over the world. What impact it has on our money, and how. Is there some solution? Please describe for common people. I tried to get it on the net, but there are hundreds of financial terms, hard to absorb. Thankss in advance.
Justin answers:
It was basically a Ponzi scheme, in which all parties assumed that real estate values would always increase.
Lenders made loans and sold them to investors, collecting fees for profit. The lenders did not have to worry about the borrowers paying back the loans because that risk was passed along to the investors.
In the “old” days, when I started my career in the financial business, most mortgages were made by Savings and Loan organizations, and they kept these loans until they were paid off. Since the early 1980s, mortgage lenders have “securitized” their loans, meaning they sell the loan to investors and get money back to lend again.
Eventually, homeowners started to default on their loans in large numbers and that caused a lot of homes to go to foreclosure. The next outcome in the domino chain was that home values began to fall as a result of all the foreclosures.
As home values began to fall more and more, even people who could make their mortgage payments started to walk away because they didn’t want to owe $500,000 on a home that was worth only $300,000.
Now, no one is willing to buy the investments backed up by mortgage loans because they are afraid of losing all their money. The banks depend on these loans being bought up by investors in order to make new loans – this is called “liquidity.”
The end result is that credit has frozen up, and that bank assets are becoming worthless. If a bank’s assets are worthless, it means that it is under-capitalized and the regulators have to shut it down.
Since credit is frozen, businesses can’t borrow money to make payroll, and then they have to shut down, laying off all their employees.
Everyone is worried, so even small investors are panicking and pulling their funds out of the stock market. That causes investors all over the world to panic, and investors in stock markets in Japan, Australia, Brazil, etc., are pulling out their investments. This is causing world-wide financial panic.
Chris asks…
Is the stock market a Ponzi scheme?
Notice that the only way anyone will invest in the stock market these days is if the Federal Reserve prints more money. In a Ponzi scheme the scheme can only continue if the person running the Ponzi scheme can find more suckers to give him money. Otherwise the whole plan starts to collapse.
I am beginning to get the feeling that this whole thing of printing more is necessary to keep this Ponzi scheme going for a little bit longer.
Don’t get me wrong I know how the stock market works. Its like a flea market for ownership of stocks. I mean that is how it is supposed to work. But when was the last time you went to a flea market and one guy went in there with lots of pull and bought the whole toothpaste isle. Thus forcing you to pay 50 dollars for a bar of toothpaste. Then the guy decides to short sale the toothpastes to the point that its only worth pennies on the dollar.
Sounds ridiculous?
Thank you! That is what I thought.
@Typo- Where do you think that money ultimately winds up at. When people on welfare buy that garbage made in foreign countries with a deflated currency. Its those who control the marekt who get the money. Jamie Dimon is head of the welfare establishment lol.
@Jasmin- You are right and that is why the market is as volatile as it is. The funny thing is that its that 1% who moves the market back and forth to where it wants it to be. End the Fed!
Justin answers:
80% of the stock market is owned by 1-3% of the people in the market.
Daniel asks…
So, if Libya retaliates against the U.S., will that start a new war?
Justin answers:
The reason Libya is falling apart is clear. It was in the news recently Gaddafi lost money from Stanford’s Ponzi scheme and he can no longer financially hold his country together so the international community is stepping in to prevent a mass surge of people moving into Europe. Since the financial crash the dictators of the Mid East and North Africa are cash strapped. Their still personally rich but their countries which depended so much on them are Kaput. One good honest look at their country from an economist and they have nothing. It would appear the Egyptian Stock Market revolved around spinning an image of Egypt as a beautiful tourist location.
Mark asks…
what are monthly income and ISA’s accounts? and what are AER how does it differs from APR.?
can someone explain the different types of bank account in the UK, how does it differs from the US, and about holding savings account online.
Justin answers:
In the ‘old days’ Banks offered ‘current’ (USA = ‘checking’) accounts (in UK there were no monthly charges but the Banks would make their profits out of Overdraft fees and interest, especially on ‘unauthorised’ overdrafts) whilst building Societies offer ‘savings’ accounts (which paid interest but you had to notify them, usually 1 month in advance, if you wanted to take money out). Now all types of account are available from both sources and most ‘savings’ account now have ‘instant access’ (and, indeed, some offer Debit cards and even permit Overdrafts)
In UK, any interest you earn on savings was taxed at your ‘marginal’ rate (so if you were a higher rate tax payer, you paid 40% Tax on any savings interest). This was seen as a ‘disincentive’ to savings, so the Government introduced the concept of a ‘Tax Free interest’ account (‘Individual Savings Account’ = ISA) but limits the amount you were allowed to put in per year. If you decide to invest in the Stock market. You can have an ISA with double the annual limit.
Banks are highly regulated .. And deposits (well the first £50,000 anyway) with banks and building societies are ‘guaranteed’ against loss by the Government. You are protected by the bank against fraud by any other bank customer.
(Life) Insurance Companies offer a type of single payment monthly income only bond known as an ‘annuity’ – these are typically very poor value (you pay £thousands to get an income of pennies per month ‘for life’ – when you die the income stops & the bond has zero ‘capital value’), however since the income is ‘guaranteed’, annuities are popular with retirees (and others with limited life expectancy).
AER and APR are both ways to calculate annual interest and definitions can be found on the web (try Wikipedia).
Most banks and building societies offer on-line access to your accounts.
Many non-bank operations exist that offer ‘on-line accounts’ .. Many are complete SCAMS (mainly ‘ponzi’ style Pyramid Schemes) the rest operate on a NON-REGULATED ‘money transfer’ basis – even the BEST (PayPal) will not protect you against fraud in any way – see link 1, and PP goes out of it’s way to ‘pass on’ fraud by one of it’s member to any ‘counter party’ it can find (link 2 = PP will NOT take a loss if they can stick that loss onto some 3rd party who is almost always innocent (any crook will have taken the money and been long gone)).
Pure ‘money transfer’ companies also exist (such as Western Union and Money Gram ) – with their untraceable non-reversible anonymous cash based system these seem to exist only to facilitate money laundering and international fraud (most 419 Advanced Fee fraud involves Western Union transfers at some stage).
Ken asks…
When would people wake up?
When would people realize that the whole stock market is just another Ponzi scheme?
Justin answers:
I think it’s all a conspiracy. I bet you NYSE doesn’t even exist! ^–Sarcasm^
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