How to Pick a Winning Mutual Fund

    Most investors today are passive investors that only take advantage of their employer's 401(k) or 403(b) plan.  Employer plan administrators and brokers have oversimplified how employees are choosing their retirement investment vehicles.  Some plans don't even require employees to pick mutual funds.  Many employers allow their employees to simply choose risk tolerance packages that the brokers put together.  Risk tolerance packages are a collection of assets that may include several different mutual funds or other investment vehicles.  These Packages further remove the investor from any kind of investment decision making.  Any investor that will depend on their retirement savings should be more proactive when deciding how and what to invest in.  Investors should choose their own mutual funds starting with a few basic criteria.  This basic criteria will apply to any type of mutual fund category.

1. Invest in a no-load fund that also has low expenses (less than 0.5%)- Fees and commissions eat away at a fund's return on investment.  If there are market beating mutual funds (there are plenty) with low expenses and no commissions, why would you pay these fees?
2. Select funds that have great long-term returns-  Mutual fund returns (just like individual stocks) can have fluctuating returns from year to year.  If you only look at what the fund has done over the last year, you aren't seeing the entire picture.  Remember, you are investing for the long haul (most likely 15-40 years before retirement) and you need proven and sustainable performance.  Ideally, look at the fund's 10 year annualized return and compare it to peers of the same category. 
3. Look for a long term manager-  A mutual fund with a manager that has been in charge for at least 5 years is ideal.  You can't accurately predict how a fund will perform in the next few years if it has a new manager. 

     Those are the basic criteria to pick winning mutual funds.  When you are ready to pick a mutual fund, start with these criteria to get your short list.  Then select a fund based on your personal preferences:  company, category, asset allocation, etc.  You should also learn more about asset allocations before you invest in mutual funds.  Every investor will have a different risk profile that can be controlled with different asset allocations.  In summary, you should have control of your retirement nest egg, not some broker that simply put together a generic package of mutual funds.

   Learn how to pick winning individual stocks, get The Buffett System

Save Time and Money with a Smart Phone

     Ever had to run an errand during the big game?  No problem!  A smart phone can download a software program (called application or app) that allows you to stream a radio station through your phone speaker.  Sometimes you can even watch the game on your phone. 

Smart phone are convenient and they can also save you money.  Here are some of my favorite apps and different ways to use your smart phone: 

• Avoid overdraft fees- Check your bank account balance before you checkout at the store (to make sure your covered)
• Find the cheapest gas- Use the app gasbuddy to find the cheapest gas prices near your location
• Never get lost- A navigation app will tell you the most direct way to get to your destination (no more asking for directions or wasting gas driving lost)
• Buy cheap- Shopsavvy is an app that allows you to scan a barcode and get full details about the product.  The app also pulls up a list of where the product can be purchased for the cheapest price.
• Avoid costly directory assistance calls- You can search for a local business phone number and dial it (all in less than 30 seconds on your smart phone).
• Get free music- The app Pandora gives you free music right on your phone.  It allows you to customize your own channel by selecting which songs you like and which ones you don't.
• Get more work done- I have done online work from my phone many times.  It's perfect for times when you are waiting for something (bus, store checkout, restaurant seating, etc.).
• Know the weather- Want to know if your softball game will get rained out?  Use the Weather Channel app if you aren't near your t.v. or computer. 
• Get a recipe- While at the grocery store you decide that you want to try a new dish.  Search recipe.com and find the recipe on your smart phone. 

    How do you save time or money with your smart phone?  

 

Rule of Thumb for Your Major Expenses

     Do you consider what your monthly payments will be when shopping for a house, apartment, or car?  You'll be in financial hot water if you aren't careful.  The following rule of thumbs will keep you in the clear.  If you can get a handle on these major expenses, the rest should follow suit. 

1.     Monthly housing payment  This includes taxes, insurance, interest, principal, utilities, and maintenance.  Everything should be no higher than 25% of your take home pay.   

2.     Monthly transportation  This shouldn't be any more than 10% of your take home pay.  This includes both cars if you have two vehicles.  10% seems like a small amount, but remember that you should buy used, not new.  If you aren't convinced to buy used, make sure to read Should I Buy a New or Used Vehicle.

3.     Retirement  If you don't budget for it now, you'll never save.  Remember that tomorrow never comes, so start saving money today!  You should be socking away at least 20% of your gross pay.  Make sure to take full advantage of your employer retirement match on top of your 20% contribution.
   
      It's obvious that these rule of thumbs are tough to live by.  If you can keep it up, you are well on your way to a comfortable life and even better retirement.  Make sure to read Your Guide to Think Like the Rich.

What are your percentages?

Get the Scoop on Generics

     Do you always buy name brand products?  The fact is that name brand products have a large marketing budget to make the product seem superior to the generic alternative.  When comparing the well known product vs. generic, you will find that they are almost always manufactured with the same components, ingredients, or raw materials.  In fact, most brand name label companies also produce private label goods.  Private label goods are the in-store generic products.

   These products are usually produced by a name brand manufacturer but packaged to accommodate the retailers' brand.  Private label is just another income stream to supplement their main money makers.  Most large manufacturers won't produce private label competing products, but they will manufacture a similar product. 

An example:  A name brand manufacturer that produces jars of peanut butter may also produce bags of private label peanuts. 


     Retailers prefer to sell their store brand products because private label profit margins are generally higher.  Stores are able to control the retail price without having to worry about product discounts, deals, and coupons (which eat away at a store's bottom line).  Generics can save you up to 50% off and sometimes more.  Look at your shirt.  Does it have a guy on a horse logo?  If so, you most likely paid 300-400% more to have it on there (so take good care of it). 
 
    There are times when the quality of a generic product doesn't stand up to its brand name counterpart.  In general, you don't know the quality of an item until after you make the purchase. 
Some products are worth the extra cost.  There is one item in our household that will never be replaced by it's generic cousin:

What are some irreplaceable brand name items in your home? 

What are some generic products that are saving you some mega cash?

5 Ways to Avoid Paying State Sales Tax

1.     Shop online-  When you purchase items from a company that is based in a different state than you, the business will not charge you their state sales tax.

2.     Go off the grid-  Shop auctions, flea markets, garage sales, and classifieds to avoid paying the tax. 

3.     Buy on vacation-  According to the Sales Tax Clearinghouse, the following states don't charge sales tax:  Alaska, Delaware, Montana, New Hampshire, and Oregon.  Make sure to pack light so you have room to bring back all your favorite souvenirs!

4.    Timely purchases-  Most states have promotional tax free weekends for "back to school" type shopping. 

5.    Stick to groceries-  When you eat out, you pay!  In most states, there is no sales tax on groceries.  Be careful because there is a fine line between groceries and convenience foods.  Convenience foods such as potato chips, soda, and other snacks may not have the same exemption.

Want to learn more?  Get The Ultimate Tax Reduction Guide