Entries for July 2008

It's tough to scrape together enough cash to start investing, but even small sums become significant down the road. In this post from TheStreet.com, financial planner Ginita Wall, coauthor of It's More Than Your Money—It's Your Life: The New Money Club for Women, shares ways to invest $500, $1,000, $2,500, or $5,000:

$500: Buy an I savings bond, which currently pays 4.84 percent (the interest rate adjusts on a semiannual basis). At the current rate, she says your $500 will quadruple to $2,000 in 30 years. Savings bonds are a safe place to park your money, but it's worth considering what the purchasing power of $2,000 will be in three decades.

Last week, we ran a package of stories on alternative energy, including a guide to green companies—a list of major players, midsize firms, and up-and-comers involved in clean energy. Today, I heard about SustainableBusiness.com's list (published in its Progressive Investor newsletter) of the 20 most innovative companies making progress in greening their operations or developing a clean-technology business. Note that some of these companies don't trade on U.S. exchanges, but a handful do (I've provided ticker symbols):

Accsys Technologies: A U.K.-based company that converts softwoods into a new type of wood with attributes similar to hardwoods

Apogee Enterprises (APOG): Specializes in green building and energy-efficient construction

There's more to the 401(k) business than you may think. According to CNNMoney's "The Mole," administering a 401(k) plan is expensive, what with record keeping and compliance costs. As a result, some administrators offer low-cost plans to employers that are loaded with expensive mutual fund options. If this is the case at your job, the Mole suggests approaching your employer about changing 401(k) providers and otherwise opening an IRA (after you take advantage of any matching funds offered by your employer).

But how do you know if your 401(k) is subpar? Jeremy at GenerationXFinance, who works as a retirement planning specialist, provides a couple of red flags to help you determine if you're in a lousy plan:

I just spoke with Tom Lydon, a financial adviser, blogger, and coauthor of the new book iMoney: Profitable ETF Strategies for Every Investor. Here's his advice for novice investors interested in building an all-ETF portfolio:

For a new investor, it's important to have diversification. Given that we've had a decline in the market, it's a good time to get in. I'd encourage large, mid, small, and international ETFs. From a diversification standpoint, Vanguard Total Stock Market (symbol: VTI) is a fund to consider. It's a good, quick allocation for someone who doesn't want to necessarily have to pick asset classes. The underlying index has a little bit of everything.

Here's the thing about international investing: The world's market cap is two thirds outside the U.S. But here domestically, we have the vast majority of our allocation in the U.S. We are way overallocated domestically, and we should have more allocation internationally. If you want just international stocks, because you're pretty well represented domestically, consider Vanguard FTSE All-World ex-U.S. (symbol: VEU).

A whopping 40 percent of workers between the ages of 20 and 40 cash out of their retirement plan when they switch jobs, according to a recent Fidelity survey. Raiding your 401(k) piggy bank can be tempting—what with the shaky economy and the shrinking value of investments—but the consequences are steep.

Fidelity came up with this calculation: A person in the 25 percent federal tax bracket who makes a $50,000 withdrawal before age 59½ will pay federal taxes of $12,500 on that money. Assuming a hypothetical 7 percent state tax, that's an additional $3,500. Then, there's a 10 percent early withdrawal penalty ($5,000 in this case). So, after taxes and penalties, that $50,000 in retirement savings becomes $29,000.

Exchange-traded funds are known for their dirt-cheap annual expenses, but data from Morningstar show that they're getting pricier: The average ETF now charges 0.54 percent in annual fees, up from 0.41 percent a year ago.

That may seem like chump change, but as the Wall Street Journal points out, if you put $10,000 into an ETF with a 0.54 percent expense ratio that earns an annualized 8 percent over 20 years, you'll have $41,826—about $1,100 less than if you had invested in a fund with a 0.41 percent expense ratio (which earned the same return over that period).

When building an ETF portfolio, you could go the all-in-one route or go about assembling a team of sorts. You do this by choosing one fund that invests in large, U.S.-based companies, another that invests overseas, and so on.

Columnist Matt Krantz of USA Today recommends a 10-ETF portfolio, using a core holding of the Standard & Poor's 500 ETF (symbol SPY); an ETF that tracks large-value stocks, such as Vanguard's Large Cap Value ETF (VTV); and ETFs that invest in the following sectors: small companies, small-value companies, emerging markets, international, small-company international, real estate investment trusts (REITs), and bonds. He suggests rounding out the portfolio with a money-market fund.