Leverage Consulting

Best Mutual Fund Managers...

Why do they give out the 'best mutual fund manager awards'? 

Well for starters only 1 in 5 beat the market.  Here's and article giving out the recognition.

Keep in mind though, Simplicity is the winner in finances.  This includes mutual funds.  And while it is O.K. to own non-index funds in your portfolio; you had better do your homework if you are buying one.  And you should still have the bulk of your portfolio in index funds. 

Subprime explained...

You've probably heard alot about 'subprime' in the news lately.

Here's and article to help explain it.

Fancy and Finances doesn't mix...

Have you ever been confused by a financial product? 

First, a financial product could be a loan, investment, or insurance.

Back to the question; if you have ever been confused...it was probably a 'fancy' product.   

Home loans such as 1,3,5,7-year ARMs (adjustable-rate-mortgage) are a great example of a 'fancy' loan.  Let me bring you up to speed on an ARM; the rate is low and fixed for the first 1,3,5,7 years, then it goes adjustable to the current market rates.  When the rates adjust after your fixed period, you better hope rates are lower or you are selling (which you still have to buy something else) or plan on forking out some extra cash every month, maybe as much as $500/month. 

Some sophisticated investors can safely use an ARM, but don't assume you fall under my umbrella of 'sophisticated investors'.  I personally used a fixed loan for my current home.  Just ask yourself a very simple question:  Can I guarantee that rates will be lower?  Again, you can't use the 'I'm gonna sell in a few years' excuse.  You still have to buy something else at the new rates and you can't guarantee what the housing market will do.  And if you can only afford to buy the house with ARM rates, then you are buying too much house.  You also can't assume that you will make more money in the future to make up for the increased payment after your rate adjusts. 

So if it sounds fancy, you probably don't want to get mixed up with it...remember:  you can't predict the future; so prepare accordingly!

Real Estate Brokers...

10 Things... your Real Estate broker won't tell you. 

I love the monthly '10 things...' lists in Smart Money magazine.  This article is a great one to look over if you are selling/buying a home at some point in your lifetime (a must read). 

As I have probably mentioned before, I subscribe to nearly 10 business magazines.  Some are good every issue, some every other issue.  Kiplinger's Personal Finance is probably the best bang-for-the-buck business mag with an investment focus.  Another underdog is Small Biz by Business Week.  Kiplinger's $10/year, Small Biz is Free (just started a couple of years ago and still growing).

So you need proof?

Here's an article that backs up the whole point of this entire blog's existence. 

I know the article is a little long (even for a finance geek).  However, I do think that you need to read it.  Keep in mind, the article reviews a 10-year study; not some fly-by-night guessing game. 

Ironically, if you look at the last line of the article you will see that someone else believes the Leverage Consulting mantra:  Do more with less!

Your child's college education ideas

Here's an idea I have to pay for your child's college education. 

Buy a rental property when your child is born (or within a few years) and use that to fund your child's college.  Just in case you think I am making it sound too easy, here are the details:

Say you live in the city and you want to buy some rental property.  You are probably going to need to look at condos.  Say a decent 2 bed 2 bath runs $100K.  You might need a $10K down payment (depending on your current home equity, etc.).  If so, $300 a month for 3 years covers your down payment.  Even if you have to wait until the child is 3-4 to purchase the rental property, it's still more profitable.  The idea is to 'leverage' your resources to obtain the best investment bang-for-your-buck.

In 20 years the condo is paid for (worth around $200K) and providing at least $1000/mo. rental income.  Remember, this investment should have only cost you $10K out-of-pocket.  At this point there are several ways you can go...sell the condo right away to pay for college expenses, use the rental income while your child is still in school, then sell the condo after graduation, you could keep the condo and take out an equity loan to pay off college expenses, or you could give the condo to your child to leverage for college expenses, 1st-home down-payment, etc. 

One other opinion I will throw in...whatever you decide, don't write the check until there is a diploma in hand.  Every child/young adult needs incentive.  Show them the math...even give the $1000/mo rental income to them during college, but make them take out student loans or work for the rest.  Then tell them it's real simple, you receive $X and have no debt when you graduate, graduate being the key word.  If they decide not to graduate, then the bill is their problem.   

$10K or $48K?  That's the out-of-pocket difference between a rental condo or $200/mo for 20 years.  And you can still invest the other $38K for your own retirement.  I think I'll choose the former...

Hey, this is just one idea...there are many ways to leverage your investments.  I'd love to hear your ideas and/or plans. 

Don't always put your 'em first!

Your children should always be your first priority, except when you are saving for retirement.  Let me further explain; you should always provide shelter, food, clothing, etc., even before your own retirement.  But when it comes to saving for your child's college education, put yourself first. 

Nearly every parent (these days) wants their children to graduate from college.  They should...the statistics are absolutely undeniable.  But along with wanting their children to graduate from college, usually comes the desire to provide financial assistance.  I completely agree with parents helping their children out financially to assist in their graduation.  But where I disagree is when that desire to help out financially smothering their own retirement.   

Most important rule:  Never stop investing in a 401k that provides a company match to invest in your child's education. 

This doesn't mean that you shouldn't invest for your child's education.  In fact, I believe the opposite.  But I believe in being smart about your investments overall.  And depleting your entire life's savings (and/or future retirement) so your child can graduate from an Ivy League school is a horrible investment.  Put plainly, disregarding your own retirement is not the best investment...

Tomorrow I will provide some ideas for you to consider when saving for your child's education.

Teaching kids about money...

Here's an article that I think does a descent job of getting you to think about teaching children about money.  The most important factor is to do 'something at all' to teach children about money...not necessarily using this article literally, maybe just using it as a template that you polish to your own standards. 

Again, the main thing is just to do something.  You don't have to save the world and practice 'money' concepts everyday with your children.  But it is your responsibility to help them not make the mistakes you made......easy now, I'm not saying you made world-changing mistakes, but chances are you would do things a little different given the gift of hindsight. 

I don't have children, but I'll use this analogy to help put it into perspective:  they say a great leader or manager will always hire someone that is smarter than they are, and that the goal is to help them be better or 'get-them-where-they're-going'.  So, you are the leader and manager of your children while they are growing up; don't you want them to be better than you in regards to finances?  If a good leader/manager is willing to help somebody that only works for/with them, surely a good parent is willing to help their own child. 

Buy Gold!

Sorry for not posting 3 days this week...out of town.

I was sitting on a plane the other day listening to other people talk (like I always do) and the two gentlemen next to me were having a classic investment conversation.  They talked about their 401ks, their homes, and then of course, what's 'hot'.  In particular, I got a real kick out of the 'what's hot' segment. 

It went a little like this:  the one guy says 'i've made a killin' investing in gold the last couple of years, you should look into it'.  The other responds 'i got a call from my broker about that, i was getting ready to take the plunge'. 

Rule #1:  never invest in anything that is 'hot'.

Rule #2:  definitely never invest in anything that is 'hot' that a broker calls you about.  Remember they need you to be doing something in order to get paid;  transactions-pay, for the luxury house on-the-bay.

Investing isn't about hopping on the latest trend.  It's about patience and facts.  The fact is that you need more time than money to be rich.  We could all be multi-millionaires if we just had more time for the compound interest to snowball.  The fact is that 4 of every 5 mutual funds do not outperform the S&P 500 annually; think about how many will over a 20-year period...nearly none (for starters most mutual funds don't even exist for 20 years).  So just because a gold stock or fund has returned 50% in the last year, doesn't mean that it will over the long term.

In fact, gold in particular is talked about frequently as an investment.  It is actually a horrible investment.  Over the long-term it has only kept up with inflation.  Meaning that one dollar invested in gold for a long-period of time (20 years or more) is worth roughly one dollar after inflation.

When it comes to investing, if it sounds like a gimmick, it is a gimmick.  The only way to invest is by using patience and facts...

Email me with your investment questions:  jw@leverage-consulting.com

My Mutual Funds...

Here is the list of the mutual funds I hold in my Roth IRA and Rollover IRA accounts.

Excelsior Value and Restructuring - UMBIX - 15% - Large cap fund

Vanguard S&P 500 Index - VFINX - 25% - Large cap fund

Bridgeway Ultra Small Company - BRSIX - 20% - Small cap fund

Bridgeway Aggressive Investors 2 - BRAIX - 10% - Mid cap fund

Dodge and Cox International - DODFX - 20% - International fund

Dodge and Cox Income - DODIX - 10% - Bond fund

Generally speaking I would suggest more index funds if you are only investing in an IRA than I hold in the above accounts.  I also hold mutual funds in my employer's 401k in which I put more weight on index funds.

If you are able to max out your IRA and 401k and need a place to put even more extra cash (great job, by the way), then you should just focus your 'taxable' account almost completely with index funds.  This is because of tax implications.

'Talk about FULL DISCLOSURE';  ask your broker for his/her list (they probably won't provide it).  And by posting this, I truly hope you are able to use it to your advantage.  If you are using a broker, I would challenge you to give this list to your broker and ask him/her why they can not provide a better list (they can't).  (Just to get you ready)...this will put them on the defensive which is when you will have to start looking for the smoke and mirrors; i.e., they will suggest that over a 30-year period their funds will outperform; the problem with that is that they won't let you hold anything for near that long...they need you to move your money around to make money themselves.

KEEP IN MIND:  Everybody has different needs based on their current situation.  Don't assume the above is a one-size-fits-all portfolio.  Email me at:  jw@leverage-consulting.com with questions regarding your specific situation.