Car / Retirement
Question: I’m looking at cars, and I’m torn between a very impressive new car, and something more affordable. What do you suggest?
Answer: There’s an easy barometer you can use to measure whether to buy a new car or a used car. If you’re under 25, and still accident-prone, which most of us are at that age, you should buy a used car. If you’re over 25, and purchasing a new car won’t break the bank, then go ahead. However, I still do not suggest buying luxury cars, unless you have a job that requires such a thing. Buying luxury cars just doesn’t make sense unless you’re extremely privileged or a retiree. Every little extra perk usually tacks over a thousand dollars onto the price, making it unnecessary in almost every case.
Question: I have bottomed out in the stock market. A few stocks that were extremely attractive have fallen through the floor, and I don’t know how to recover. What do you suggest for someone whose investment nest egg has suddenly disappeared?
Answer: It’s time to evaluate the strategies you use for investing. What kind of return do you really need to be successful in the long run? In truth it’s really just anything over 10%. How do you capture that return on a regular basis? Through a site called Prosper, which you can find on our Links page. They arrange direct lending agreements between private parties, where returns as high as 20% can be achieved. The wonderful thing is that once a deal is arranged, the return is set in stone. Right now my Prosper portfolio is returning 13%, guaranteed. A few minutes on that site each day are all that is required to really build a powerful portfolio.
Question: I want to be wealthy in the future, but I’m having trouble making progress. What’s the best way to start?
Answer: Creating financial success is all about doing things in increments. Start by saving $1,000 in a basic savings account. Then get it up to $5,000. After you’ve gotten it to $10,000, put half of that in a money market account. Soon enough you’ll be at $20,000 and you can start getting into some mutual funds and other options. Before you know it you’ll have enough to put a down payment on some property, and that’s when the real fun starts!
Question: I’ve been a member of investment clubs in the past, but recently I feel like I can’t rely on anyone’s advice. Can you suggest a good source for tips?
Answer: Jim Cramer on CNBC’s Mad Money can be relied upon for some inspiration. I also like the ideas posed in Robert Kiyosaki’s series of books. The Motley Fool website has a great investment community. The thing to keep in mind is that beating the market is very hard to do. If you focus your strategy around keeping pace with market growth, your expectations will be more in line with reality.
Question: All of my friends keep telling me that I should invest in gold due to the current market volatility. Do you think it’s a good idea?
Answer: I have no problem investing in precious metal funds, or exclusively gold funds. However, I recommend doing that through a normal brokerage. I’m wary of services that offer only gold products, and gold storage options. Gold should only be a small fraction of your portfolio, and setting up a separate service just to take care of your gold needs does not make sense. If the gold market plunges, services that only deal in gold might put your account at risk, just like firms that specialize in mortgage-backed securities are currently putting their investors at risk.
Question: I have wanted to retire for years, but I just can’t seem to save the proper amount. What do you suggest for people who didn’t start portfolio building until later in life?
Answer: Making up for years of non-saving is hard to do. The best suggestion I can give is to downgrade your living expenses and downgrade your automobile. Make sure that you avoid using credit, and if you own your house you may want to consider selling it to create some extra liquid cash, or renting out a room or two. The problem with procrastinating on saving for retirement is that there is no way to get that time back. Single people usually only have to save about $30,000 by the time they turn 30 in order to secure a healthy retirement. However, if that goal is put off for a decade or two, you may as well put an extra zero on that requirement.
Question: I’m looking into opening an online brokerage account, but have no idea what the differences are between the vendors. How can I know who to go with?
Answer: There are quite a few options, and the broker you pick depends more on you than on them. Each broker has it’s own niche in the market, so picking the right one depends on your own needs. Are you going to be trading options, commodities, or currencies? Do you need connections with international markets? Will you need a human to walk you through certain choices? Are you willing to give up certain choices in order to get a lower cost per trade? Do you care about incentives, like referral bonuses and minimum balance benefits? All brokerages are offering the same product, so measure what your individual needs are and then pick the one that caters to them.
Question: Everyone keeps telling me to buy a used car because new cars lose so much value as soon as they leave the dealership. However, I want to buy a new car because that way I get to buy exactly what I want. What advice do you have for me?
Answer: Buying any car can be quite an ordeal. As someone that has bought both used and new cars, I can tell you that they both have their pluses and minuses. For teenagers, it typically doesn’t make sense to buy a new car because that next fender bender could be right around the corner. Plus the insurance costs can be quite high. However, if you’re an established driver and you want certain things from your car, there’s nothing wrong with buying something new if you can get a good deal. If your credit is good and you have a healthy income, you can walk off the lot with a good purchase if you play your cards right. Try and visit the dealership near the end of the year, when they are making room for the new models. Make sure that you get around a 25% discount on whatever you buy. Those kinds of deals are out there! Keep your eyes open and you’ll find them.
Question: How can I still achieve a healthy return on my investments when the economy is on a downturn?
Answer: Today there are lots of opportunities. Sites like www.Prosper.com allow you to lend money to people that need it. These sites get rid of the banking middleman, thereby allowing the borrower to get a better rate and the lender to get a better return. The transactions are auctioned off and the return is at a fixed rate that never changes once the deal is settled. The default rate for these transactions is much lower than usual, usually occurring less than 5% of the time. The increased return more than makes up for the risk. These businesses are revolutionizing lending and there has never been a better time to take advantage of them. Also, sites like www.Paypal.com offer a better short-term money market return than most other options. If you are looking for inexpensive ways to invest, www.Sharebuilder.com offers $4 stock trades. When costs are that cheap, you can put your investment choices on autopilot.
Question: I am ready to replace my old car, but I’m not sure how to get the most return from it. What should I do?
Answer: The best way to make your old car work for you is to donate it to a local charity. The tax deduction will almost always be more than what a car dealership might offer. Selling your car to a private party can also be a big hassle, and no one wants to deal with an unhappy buyer if something goes wrong a few months later. I also suggest trying to arrange for an immediate family member to take over possession of the vehicle. Governing bodies usually allow vehicle titles to be transferred to family members at no charge.
Question: I want to buy a car. What kind of loan should I get?
Answer: Shoot for the lowest interest rate possible, and make sure the monthly payment is less than 10% of your monthly income. Don't get tempted by a car you can't afford. If you can't make your payments and your car gets repossesed, that's a big smudge on your credit report.
Question: How much money will I need to retire?
Answer: There's no way to truly tell. However, if you save roughly 20% of your income from age 18 to age 28, and invest it in an IRA, that is probably all you'll need. If you're past that age range, save as much as you can. You never know what might happen in the future.
