How Much Do You Have in Net Investible Assets?

You’ve probably heard of Net Worth as a term used to measure your wealth. It’s a simple calculation of Assets – Liabilities. But many financial advisors do not consider Net Worth to be an accurate assessment of your wealth. Oh, and first a reminder, “wealth” is not equal to “rich”, it is just a word to describe the value of your money. Okay, now back to our topic.

Net Worth assumes that if you needed to sell your assets—like cars, a house, jewelry—that you would receive current value. That’s rarely the case. Net Investible Assets, however, determines the amount of money that you have to invest. Financial advisors like to look at this value because it tells them how much of their client’s money is available to work with.

To calculate your Net Investible Assets add all your savings and investments and subtract your consumer debt (credit cards and loans). Don’t look at how much equity you have in your home or the appraised value of your wedding ring and grandmother’s jewelry or your family mountain home. This leaves you with investable assets. This tells you how much money you have available without selling all your personal properties.

If you begin to look at your financial position using Net Investible Assets you might start looking at your financial picture a bit differently. Although investment advisors may include emergency and regular savings accounts in your Net Investible Assets calculation, I would suggest that you take these out of the equation. Look at your Net Investible Assets as money that you can invest and leave the other savings for their intended purposes. And like your other savings, assign a goal to any funds that are included in your Net Investible Assets. If you are just starting to build these funds establish a savings vehicle that you can regularly and automatically fund. If you are working with an advisor, tell them upfront that this is the money you’ve allocated toward investing. Protect your emergency and regular savings to use when needed.

Looking only at your Net Worth can be a way to deceive yourself into thinking that you’re in good financial health. The Net Investible Assets calculation can be sadly eye-opening.

Congress Allows Extra Changes to 529 Allocations

It's been a rough year for investments everywhere. Okay, duh! But it's sad when those investments hurt kids.

Parents and grandparents who have been investing in their youngsters future through 529 plans got hit just as hard as other investors this year. But Congress is allowing 529 investors an extra change to their allocations to reduce loss. This is the only year Congress has given 529 investors the ability to change up their allocations twice. Normally you can make changes once in a year.

The reason for the modification is that losses among 529's were crazy high. And the reason for that is many investors lost 20-30% through popular age-based plans. These plans use the logical investing strategy of starting out aggressive while the beneficiary (the child) is young and becoming more conservative as the child ages. For a child this is a much shorter spread than an adult would follow. Usually investments will be aggressive for a very young child, about 0-8 years old. From ages 9 to 15 investments might be considered moderate and after that become more conservative. It was those beneficiaries in the aggressive investing years that really got hit hard.

If you have a 529 that falls into that hard-hit group you need to remember that you have two chances this year to save face. If you haven't changed up your allocations yet, now is the time. If you've been using an age-based plan you can change to more a conservative approach. Then when things look up you can take another look, but you may not want to return to the age-based plan. It will depend on the age of your child and the state of the market.

If you want to avoid age-based plans, you might consider managing your own 529 account through either:

• Asset-allocation portfolios, which blend several mutual funds together to achieve a targeted mix of stocks, bonds and money market funds, or
  
• Single-fund options, in which each portfolio is invested in a single mutual fund whether that be a stock fund, bond fund or money market fund.

If you already reviewed and changed your 529 once this year, hold on for your second opportunity. Things have changed much in the investment world so far, but that doesn't mean we won't see an upswing during the last quarter.

We may not see the opportunity to make two allocation changes next year. So, don't pass by your chances this year. Your best bet is to carefully review the performance of your current allocations, take a close look at the funds within your plan to be sure they haven't changed and that you are accomplishing your goals. Consult your financial advisor for assistance with changing allocations.

Conquer Your Inner Bag Lady

Bag lady sleeping with her furs

by Caroline on Crack

Bag Lady Syndrome can happen to even the most financially well-off women. It's a deep fear of losing it all that stagnates women into avoiding the monetary side of their lives. They may totally avoid by leaving all financial decisions up to their husbands. Or they may become overly conservative with investments. All too often women who suffer from BLS only keep their money in basic checking and savings accounts--staying safe.





BLS isn't a real psychological condition, but it is quite common. Like it or not the fact is that we've been programmed to count on the men in our lives to know more about money. We've been taught that boys are good at math and so we deduct that they must also naturally know more about money. Guys on the other hand have bought the conditioning in their favor and tend not to worry so much. That's why so many women are hit devastatingly hard in the wallet when divorce or death takes that money man away.





I'm not making this stuff up. This recent article states, "Lily Tomlin, Gloria Steinem, Shirley MacLaine and Katie Couric all admit to having a bag lady in their anxiety closet."





So how do conquer BLS? Well, you can contribute further to your anxieties and spend money on a therapist that will help you work through your issues. Or you could look the problem squarely in the eye. Read some books to start. Eventually you've got to talk with people who know this stuff. Find a good financial advisor who won't just tell you where to put your money, but will discuss your goals--not just monetary goals. If you'd like to learn more about stock investing a good advisor will baby step you toward that goals. A good advisor won't coddle you, they empower you. It's like any other anxiety the fear is more powerful than the actual problem.





Have you banished your bag lady?

Social Lending is Catching on

Beyond Twitter, Facebook and LinkedIn loads of people are using social network to find friends with money that will help them pay off their bills or build their businesses. A year ago I would have thought this was just crazy talk, but as the ecomomy kept sliding social lending has gone wild.

It's call Peer-to-Peer Lending or P2P Lending. Sites like the Lending Club, Prosper or Zopa have been at it for several years. Borrowers post their needs for anything from fixing broken appliances to raising capital for their small business. Lenders are more like investors. As a lender you can shop for a cause that you consider worthy, pledge the money and eventually collect your loan with interest. Some lenders enjoy the goodwill of helping others. And some are in it to make themselves some cash.

If David Bowie needed cash now he might try social networking rather than using Bowie Bonds and being blamed for bringing down the global economy.

Should you stop your 401(k) contributions?

Well yesterday was a good day on Wall Street, but no one is quite sure if this is the start of the upswing. Meanwhile, our family's personal investments have been tanking at a meager existence, probably like most people. So my husband was wondering if he should suspend his 401(k) contributions and instead use that money to pay down debt.

I am no expert on this, so I went straight to the Coors Credit Union Investment and Retirement Team and asked financial planner, Nelisha Wilson. Here's what she said...

Without knowing your specific situation, generally it is not a good idea to suspend contributions when the market is down. You've heard the old saying "buy low, sell high"... the market is "on sale" right now for long term investors. You may feel like the money you are putting into the 401k is disappearing, but it is not. Every dollar you are putting into it is buying more shares of your funds. Therefore, when the market rebounds you have more shares to accumulate wealth.

Why would you wait for the market to rebound and pay more for the same security? Is that how you shop for other things? If you see a shirt for sale for $100 do you buy it or wait for it to go onsale at $75? You purchase at the sales price-- same concept works in the market.

Also, unless you are extremely disciplined I doubt if you suspended your contributions any of that money would be used to pay off debt. You would find something else to spend the money on.

Ouch that last remark-the money probably wouldn't be used to pay debt-really stung, but was right on. If my husband and I were extremely disciplined we probably wouldn't be carrying debt anyway. And there's always something that comes up right? A car needs tires, the dog gets injured...

Each of Nelisha's points makes perfect sense. But when you see you dollars going down, down, down it's hard not to feel like you are drowning and panic. Thanks Nelisha for showing us the sensible side of the craziness that is our economy right now.

Online Investing—Dabbling

Online investing a.k.a. Do It Yourself investing has been gaining in popularity. You might even feel left out if you're not into it. But is it for you? This week we'll explore the basics of online investing.

Yesterday I pointed out that online investing isn’t for beginners. That doesn’t mean that you should steer clear. If you’re the type who would rather brave the water by jumping in you can learn a lot while still playing it somewhat safe in the shallow end. But remember people can drown in just a few inches of water. Nothing is a safe bet. To be more direct—you can lose money.

Before you dive in make sure you’ve got the basics down. Investing is full of specific terminology and keeping it all straight can make your head spin in the beginning. Two great online resources are The Motley Fool and Investipedia.

But knowing the terminology won’t make you an expert. That’s when you’ll learn more by doing. Like I mentioned yesterday there are several free online trading playgrounds. Personally, I think this is a good way to learn, but some may prefer to do it for real.

First Step: Pick a Broker.

Yes, you need a broker. Online trading is often thought of as “do-it-yourself” trading—and it is, however, you need a broker to transact the sales. Just like you don’t walk in to Hewlett Packard and buy a computer, you have to use a sales outlet to purchase stocks. Tomorrow we’ll take a look at the various online brokerage firms.

Next: Research

Fortunately most brokerages have tools to help investors research stocks. For example, Fidelity provides free third party analysis. They also have a nice knowledge base to help you brush up and get beyond basic understanding. It’s important to know more about the company than just name and product.

Then: Place an Order

Here’s where it really is as easy as the Etrade baby makes it look. Buy a stock that you like, hold onto it, if it’s really tanking sell. Simple, right? Maybe. Again there is a lot of terminology regarding different types of buys. But don’t worry this part is fairly easy to catch and not only will your brokerage have info, you can always access other sources.

And wait: Watching Your Portfolio

Now you’ve place an order or orders and you’ve got a portfolio. As a beginner, you want to let it ride for a bit. The nice thing about online investing is that you can watch your portfolio anytime and signup for alerts. Once you get past this you’ll be listening to analysts, watching trends and trying to out-think the market—but that comes later. Right now we’re just getting started.

The beautiful thing about online investing is that you can dabble and learn. Sure you can do this with a live broker as well. But online investing gives you a little more hands on feeling.

Online Investing--Getting Your Toes Wet

Online investing a.k.a. Do It Yourself investing has been gaining in popularity. You might even feel left out if you're not into it. But is it for you? This week we'll explore the basics of online investing.

I used to think of stock investors as old guys in sitting around cigar clouded rooms talking about stuff I couldn’t understand or playboys wearing Italian suits and driving fancy sports cars. That’s a result of too much TV I’m sure.

But then there are those Etrade commercials...

Cute, funny they make it look so easy. Is it? Is online trading right for the beginner?

The top 5 online investing sites (not necessarily in ranking order) are:
1) E*Trade Financial Network

2) ShareBuilder.com

3) Fidelity.com

4) Ameritrade.com

5) Schwab.com

Most online sites are not for true investing newbies. You’ve got to know something about what you are doing. And then there’s Sharebuilder.

First understand that this isn’t an advertisement or endorsement for Sharebuilder. I just haven’t found any other online investment vehicle that really allows you to get your feet wet the way this one does.

Sharebuilder began in 1996. Then in late 2007 they were purchased by ING. So now when you type in sharebuilder.com you’ll see the big orange ING logo.

Sharebuilder is different from the others because it uses a DRIP like style of investing rather than true dollar cost average. Though you can perform weekly investments (Tuesdays) for any dollar amount (even $1) it’s really designed for ongoing investments. Besides real investors don't change their portfolio every week. You decide an amount to invest (yes, even $1) and the frequency (weekly, biweekly or monthly). Earnings are then reinvested into your portfolio.

In Summary: I don’t have a lot of personal experience with Sharebuilder. A coworker used this account for her nephews. Instead of giving them gifts of cash she gave them investments in their favorite companies like toy companies and Harley Davidson. It was fun for them.

Pros: good for new investors, cheap, flexible, owned by ING

Cons: Not useful for true dollar cost averaging unless you have lots to contribute each month. If you're comfortable with stock investing one of the other online trading companies may offer more sophistication for you.

Wanna Play but not Pay: For no-risk investing there are games you can use to become familiar with investing. These are good tools for anyone to who wants to learn. Books are good too, but a game can give you a more real experience.

Wall Street Survivor

Investopedia Stock Simulator

Virtual Stock Exchange