Dating is like walking on a minefield: You never know what your next step will bring. Now to make it even harder, dating experts are adding a new twist.

It used to be as easy as intuition, dinner and a movie, but now experts say that financial compatibility is an important factor in finding the right person. If turns out that if the man or woman you are dating is a financial mess, they can take you down with them.

If you survived the dating battlefield like me and are now married, you probably have some of your own war stories. But if you are still out there in dating never-never land, you may need a little help. I can give you a few tips on how to figure out if your date is a financial dud.

You just have to read the signs:

1. Overspends like crazy

If your date keeps trying to impress you with how much everything they own costs, you might think twice about your future with them. Wild spending can lead to all kinds of financial problems as witnessed by the record number of mortgage defaults and credit card delinquencies seen in the last couple of years. If your date seems overly impressed by their own spending, it may be that they are forgetting an important fact: Eventually they have to pay for it all.

2. Leases to impress

Although it is not a set rule, in most cases buying a car is a much better financial option than leasing a car. As long as you don’t plan on changing cars often, it’s better to build a little equity as you make your monthly payments. But even worse than leasing, is leasing solely to impress.

If your date is driving a leased the car that seems to be way beyond what they can afford, you are not dating a financial wizard. Chances are pretty good that they are being taken to the cleaners on their lease deal and those costly lease provisions.

3. Loves get-rich schemes

It may not the most exciting thing in the world to hear your date discuss their dollar-cost-averaging approach to retirement savings, but at least your date has a financial vision. Wouldn’t you rather have your date bore you with details about their 401K than hear about how they have figured out how to make a million dollars from online poker?

If your date’s retirement plans seems to be wrapped up in a multi-level marketing or other pyramid scheme designed to double your money in two weeks, then run for the hills.

4. Pays only with prepaid cards

You might think that if your date uses a prepaid credit card that they are showing a certain amount of financial responsibility. After all, they are only spending what has been loaded on the card and they are not building up debt. Unfortunately, it’s not that simple. The problem is that using prepaid credit cards can be a huge warning sign that your date has bad credit and can’t qualify for a normal credit card.

5. Doesn’t believe in saving for a rainy day

Let’s be honest. There is nothing sexy about investing in a certificate of deposit or opening a savings account at a bank. But a little advance planning can go a long way when trying to pay for a wedding, a vacation or your first house. It takes a little discipline and an ability to go against the crowd. If your date thinks keeping a savings account at a bank is uncool, you know they may not be very adept at long term financial planning.

6. Tips too much or too little

You can tell a lot about a person by how they tip. In some ways it can be a microcosm for their overall financial intelligence. A person savvy with money will tip based on the level of service. They don’t stick by hard-and-fast rules, but will adjust on the fly. They don’t tip on the tax and will always check to see if the tip has already been included on the bill.

The financial dud is easy to spot when it comes to tipping. Either they will tip way too much because the waiter or waitress was slightly flirty or they refuse to pay a premium tip of over 15 percent even if the service was excellent. You will also get a bad feeling about your date if he or she asks to borrow pennies and nickels to get the tip just right. Go with your gut. If they can’t handle tipping, they may struggle mightily with the bigger financial decisions coming down the road.

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Source URL: 6 signs your date is a financial dud

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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I never really paid much attention to the rewards programs offered by different credit card companies. I was raised to use credit cards only for emergencies and not for everyday use, so my sole criteria for getting a card was that the interest rate be as low as possible.

But then a friend of mine told me he was planning a trip to China, and was going to pay for his plane ticket through the rewards he was earning on his credit card.

“I’m paying for everything with my card,” he said. “All my monthly bills – the rent, the groceries, the phone bill, everything. Then at the end of the month, I just write a check to the credit card company instead of eight or 10 checks to all these other places.”

And it worked. After several months, my friend and his wife were able to get the tickets for next to nothing–all thanks to the judicious use of their credit card.

The fine print of rewards cards

Even if you’re not planning a trip to China, this approach can work for anyone, provided you keep a few things in mind as you decide which rewards credit card programs works best for you:

• Rewards cards usually carry higher interest rates than non-rewards cards. That means if you’re not paying off the balance every month, your interest payments will quickly exceed your rewards.
• Look for rewards that you’ll use. The points you earn aren’t as valuable if you have to buy stuff you don’t use, or can’t get cash rewards.
• Consider getting a card that offers cash back instead of points; according to the Federal Deposit Insurance Corporation, cash-back cards tend to be more generous with rewards.
• Check to see if the card you’re considering has an annual fee. Will you earn enough points to just the annual cost of the card? According to the FDIC, some credit cards with rewards don’t carry annual fees but some do.
• Avoid unnecessary spending. You might be tempted to buy something you don’t really need just because you’re on this mission to earn points. Don’t let points accumulation cloud your good judgment and convince you to buy something you don’t need.
• Read the requirements closely. Find out if there is an expiration date for your points, and check to see if you will be charged transaction fees that could wipe out your savings from rewards.

Rewards cards: options and hazards

There are a dizzying variety of cards available out there, increasing the chances that you’ll find a card that fits your needs or spending habits. For instance, some cards will put money into a retirement account every time you accumulate a certain number of points. Another provides discounts on travel when it’s booked on the website Travelocity. You can also get tickets to Disney attractions or passes to the NFL Draft event.

It also pays to assess just how much you have to spend to achieve your rewards goals. For instance, with one card that rewards two miles of travel for every dollar you spend, you might have to charge $30,000 to get a $400 ticket. You can do it, but it might take more time than you have.

While shopping for rewards cards, it’s important to realize that you can also damage your credit rating by applying for too many lines of credit, so try not to get more than two. And keep in mind that some offers are only introductory, lasting over for the first six months you have the card.

How to find a rewards card that fits your lifestyle

There are a number of card-comparison websites, that can help you pick which reward card is right for you. For example on CardRatings.com, they typically ask what kind of rewards you are interested in, how much you spend each month and whether you pay off your balance each month. Then they provide a listing of cards, displaying what kind of credit score you’ll need, a brief description of the perks you could qualify for, and a link to help you apply for the card.

Also, check out our own list of the best rewards credit cards if you’re looking for great cards to start out with.

Jim Sloan is a free-lance writer and a higher-education communications specialist. He previously worked as an editor and writer for newspapers and magazines. He is the author of two books, and his stories have been selected for a number of anthologies. He has a degree in journalism and environmental science from the University of Maine.

Source URL: How to use rewards credit cards

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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The Chinese Revolution

If you are like me, when you think about China you almost get dizzy. It’s hard to imagine over one billion people living in a country with a market for goods and services that is literally exploding as the country modernizes. By 2014 the International Monetary Fund estimates that over 10 percent of the world’s GDP will be accounted for by China. Now that’s an economic revolution.

You just can’t help but wonder what kind of investment opportunities exist in China for individual investors like us?

Should you invest in China?

Before we discuss investment strategies, we should consider if it’s unpatriotic to invest abroad. My answer is a simple no. First of all, if you invest in China and earn dividends or take profits, that money comes right back to the United States. Also, in the global economy countries rely on each other. We need the Chinese to keep buying our foreign debt and they need us to keep buying their goods.

China has a lot of long-term economic potential. This means that the earlier in your life you can start investing in China, the better off you may be. Even just a few dollars from your monthly paycheck could mean a big payoff at retirement if growth in China is as strong as projected. If you have an IRA account, investing in China may be even more advantageous due to the tax advantages and the power of compounding returns.

3 easy ways to invest in China

MoneyBlueBook has found a few good ways that you can invest in China, even if you are only starting with a small amount of money:

1. Mutual funds that invest in China. There are funds that target Chinese stocks specifically or regional funds that target China along with other Asian countries. Morningstar.com is a good place to start in your search. You can sort funds by type, performance or holdings.
2. Exchange-Traded Funds (ETFs) that target China. An ETF is simply a basket of related stocks that are traded openly on an exchange. You can use one of the best online brokers with low account minimums and good commission rates to buy ETFs.
3. Chinese currency You can also bet on China by holding their currency called the yuan. Many U.S. banks will allow you to convert U.S. dollars into yuan directly or you can open a FOREX trading account at a brokerage firm. Just remember, currency trading can be high-risk, high-return.

One not so easy way to invest in China

So why not just buy individual shares of Chinese stocks? Why hit a single, when you can swing for a home run? The answer is that direct investing in Chinese stocks on the Shanghai Exchange, Hong Kong exchange or via American ADRs can be tricky, not to mention the higher commissions and service fees that you will get hit with. You also increase your risk when you own just a few stocks, instead of a mutual fund or ETF.

Take the stock of Baidu Inc., the company that runs the Chinese search engine that rivals Google, as an example. You could research the incredible growth potential of the market for internet search in China and evaluate the stock’s fundamentals. But do you feel comfortable forecasting how the Chinese government may police or limit internet usage in China? That’s what we mean by tricky and risky.

A better plan is to avoid buying individual stocks in China and let the expert portfolio managers worry about the politics in China.

Keeping the proper asset allocation

If you invest in China via mutual funds, ETFs or currency trading you have already helped to diversify your portfolio. Another important consideration is asset allocation. Many financial analysts recommend that you keep no more than ten to fifteen percent of your assets in foreign equities. This means as you buy more China-based assets, keep on eye on the total percentage of your portfolio wrapped up in China and other foreign investments.

Clark Schultz is a writer who contributes articles on the topics of finance, the economy and savings for major financial sites. He resides in University City, Missouri with his wife and three young children.

Image: Salvatore Vuono / FreeDigitalPhotos.net

Source URL: Are you investing in China yet?

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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I have to laugh when I see the interest my bank deposits into my checking and savings accounts each month. It is barely worth the effort to add in the pennies (but I do).

But if you think, like I once did, that you are doomed to get low percentage rates on any money you have squirreled away in you bank, you are mistaken. You don’t have to settle for miserly interest rates — particularly if you have enough accumulated in your combined checking and savings accounts to open up a “rewards” checking account.

Rewards checking accounts are typically no-fee, no minimum deposit, and can earn up to 3 to 6 percent in annual percentage yield (APY). This is higher than most savings accounts, CDs, and even money market rates. What’s the catch? Well, there are actually five.

The basics of a rewards checking account

To get the “reward” of a high interest rate checking account you do need to fulfill some basic conditions (banks may vary on conditions), but these are generally what’s required:

1. 8-15 debit or signature transactions on your debit card per month. (ATM fees are reimbursed each month)
2. One direct deposit or direct bill pay each month.
3. Agree to only get electronic statements (no more paper statements).
4. Log into your account at least once a month.
5. Maintain a balance of less than $25,000 (some banks are higher, some lower).

One other important catch: The highest interest rates for rewards checking accounts are often given by local and regional banks, and credit unions; big banks don’t typically offer them.

But these are growing in popularity since 2006; most likely your local bank or credit union will offer it through a product that is administered by BancVue. Each bank may go by a different name of its rewards checking program, so ask first.

While you can sometimes open a bank account online from any state, the majority of local banks and credit unions have this kind of high yield checking account available only to local residents. If you don’t meet all the requirements in a given month, then often your interest rate plummets to less than 1 percent (usually around .03 percent) and you’ll have to pay the ATM fees associated with your debit card usage.

In my mind, the biggest drawback would be all of the debit card transactions necessary each month (visits to ATMs don’t count). But if you make a conscious effort to use your debit card for groceries, to refill your prescription, online purchases, or even for your cup of latte every morning or to donate to your favorite online charity it can easily add up to the required withdrawals.

The profit of getting rewards

So are rewards checking accounts worth the bother? Let’s do the math.

Let’s say you take all your bank savings and checking money, totaling $10,000, and combine it into a rewards checking account. Here’s what you could get:

$10,000 x 5 percent APY = $500 per year

Compare that to a 1 percent APY of a typical checking and savings account; for that you’ll get $100 per year on $10,000.

No brainer.

When not to open a rewards account

If you don’t keep a lot of money in your bank accounts, a rewards checking account may not be worth the effort. For example, if you are earning 5 percent APY on a balance of $2,000 each month you’ll get less than $10 a month in interest in a rewards checking account.

One slip up and you’ll be charged all those ATM fees; plus there’s a chance that all those withdrawals will put your account on overdraft. Not worth it.

But if you keep $5000 or more deposited, the interest starts adding up in dollars, not pennies.

Marcia Passos Duffy is a freelance writer and author based in New Hampshire. Her articles have appeared on Yahoo Finance, CNBC, Fox Business News, and The Weather Channel’s Forecast Earth, among other online and print publications. She also publishes two online magazines, The Heart of New England.com and Home Office Weekly.com, and is the author of the book, Be Your Own Boss.

Source URL: The Rewards of “Rewards” Checking Accounts

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Like many people, the recession encouraged me to take a harder line with my budget. I’m definitely saving more and being more careful with spending.  But I’m also looking past just saving the money I already have — I’m looking into earning it.

This morning, I checked on the interest rate on my emergency savings account, and it turned out to be less than 0.5 percent, much lower than I realized! As a result, my next financial move will be to shift some of those savings into a fund where the interest is higher. I decided to do some research, and thought it might be helpful to those foraying into this higher return territory.

From savings accounts to mutual funds

While your basic emergency savings should stay intact in a fund where the money can be accessed quickly when necessary, as soon as that savings account has reached your target comfort level it is time to move into slightly riskier territory to increase the return on your money.

Investors with a deep understanding of the stock market might feel ready to invest in individual stocks, but individuals who are new to the investment world tend to opt for a mutual fund. A mutual fund pools money from investors and builds a portfolio of investments within the fund, with the investors sharing in the gains or losses of the fund.

The main reason new investors opt for mutual funds, besides their professional management, is that

they often allow small investments of as little as few hundred dollars. Unlike a certificate of deposit with penalties for early withdrawal, mutual fund investors can also redeem their shares at any time.

What to watch out for

On the downside, investing in mutual funds usually requires the payment of fees or sales charges that cut into your profits. Working with a discount brokerage can reduce your fees, and if you take the time to find the best online broker you may be able avoid fees almost altogether.

For those of us used to our principal being FDIC-insured, it is important to know that mutual funds are not insured and can lose money. However, in general, these funds can be safer than buying individual stocks because they are professionally managed and diversified.

Types of mutual funds

While thousands of mutual funds are available for investors, there are three main categories:

1. Money market funds: relatively low risk investments because they can only invest in high-quality, short-term investments. But low-risk also means that the returns are somewhat low.
2. Bond funds: Bonds vary widely in their investment choice, so some are riskier than others. The safest invest in government bonds, while the riskiest are high-yield bond funds called junk bonds. Investing in municipal bond funds have the added benefit that they can help reduce your taxes.
3. Stock funds: Stock funds include growth funds that invest in stocks with potentially large capital gains; income funds that invest in stocks that pay dividends; index funds that invest in the stocks in a market index like the S&P 500; and sector funds that invest in a particular industry such as health care or consumer products.

Mutual funds: How do I find them?

Some mutual fund shares can be purchased directly from the fund, but most are sold through brokers, banks, financial planners or sometimes insurance agents. When choosing a broker, make sure you search for the best online brokers or best online banks that meet your needs. If you intend to stick to investing in mutual funds rather than trying your hand at buying and selling individual stocks, look for an investment company that offers a wide variety of mutual funds so that diversifying is easier.

One good option can be a brokerage such as Vanguard or Fidelity that offers a variety of funds within one company. Some of these brokerages will allow you to transfer your investment from one fund to another without paying a fee.

Make sure you check to see the fees associated with different mutual fund accounts you are considering. Try to find a fund with low fees so you don’t lose too much of your investment to expenses. In addition, look for a “tax-efficient” fund so you don’t get hit with a big tax bill on your dividends.

Taking the time to do a little bit of research into the reputation of various brokerages can go a long way to making your first dip into the mutual fund pool profitable.

Personal risk assessment

Once you have chosen a brokerage, you need to do some research (and perhaps a little soul-searching) about your comfort level with risk. If you have funded your emergency savings, you may be more comfortable taking some investment risks. In addition, your age should influence your willingness to take risks. Younger people have more time to recoup any losses than those nearing retirement age.

Whatever investment strategy you decide to go with, make sure to periodicaly reassess your investments, and make sure that they’re working for you, not vice cersa.

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance and business. Her clients include The Washington Times, Urban Land Magazine, NAREIT’s Real Estate Portfolio, and numerous Realtor association publications. Michele’s first book, “HOMEBUYING: Tough Times, First Time, Any Time” is available now at Amazon.com or from www.MicheleLerner.com.

Source URL: A quick guide for moving into mutual funds

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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By Richard Barrington

Have you ever run a long-distance race?

I find it useful to think of saving money like distance running. If you obsess over the total distance, then each step seems hopelessly insignificant in covering the necessary ground. If instead you just start making those steps, and concentrate on finding a comfortable and consistent pace, you’ll find that before you know it, the distance will take care of itself.

In other words, focus on the next step, because that is what you can most directly control.

In terms of saving money, a great way to make that next step is with a contribution to an IRA — either a traditional or a Roth IRA. To help you make that step, there are a few things you should know about IRAs, including important information on IRA contribution limitations for this year.

1. Traditional and Roth IRA contribution limitations

Both traditional and Roth IRAs have certain tax advantages, which will be discussed below in “Deciding on a traditional vs. a Roth IRA.” However, for anyone considering starting an IRA this year or making continued contributions into an IRA account, it’s critical to know that there are limits on how much you can contribute to IRAs each year.

To start with the simple part, the basic contribution limits for both traditional and Roth IRAs are the same, and are unchanged for 2011. The only difference is that taxpayers who are aged 50 and over are allowed to make higher, “catch-up” contributions.

IRA Contribution Limits

Note that these limits apply to total IRA contributions, so if you have multiple IRAs, including both a traditional and a Roth IRA, any amount you contribute to one reduces the amount you are able to contribute to the other.

Another limitation is that the amount you contribute to an IRA cannot exceed your taxable income for the year. That seems simple enough, but there are complications for higher earners. Depending on your tax status and income bracket, your eligibility to make IRA contributions might be reduced — or eliminated altogether.

2. Income ceilings for traditional and Roth contributions

For both traditional and Roth IRAs, there is an income level at which the amount you can contribute starts to be reduced, and a level at which it is eliminated completely. This is known as a contribution phase-out.

With traditional IRAs, this applies only if you or your spouse were covered by an employer-sponsored retirement plan during the tax year for which you are making the IRA contribution. For Roth IRAs, however, the contribution phase-outs apply to anyone who falls within the applicable income limits.

Income parameters for deduction phase-outs are described in the tables below. In each case, eligible contribution amounts start to be reduced at the lower end of the ranges given, and are eliminated altogether at the upper end of those ranges:

Traditional IRA deduction phase-outs

Roth IRA contribution phase-outs

3. Deciding on a traditional vs. a Roth IRA

So, should you be contributing to a traditional or a Roth IRA? These three key differences can help you decide:

1. Contributions to traditional IRAs are tax-deductible, but distributions from them are taxed, whereas the reverse is true for Roth IRA (as long as distribution guidelines are followed).
2. For traditional IRAs, distributions before you are aged 59 1/2 not only are taxed, but are also subject to a 10 percent penalty, whereas a Roth IRA allows for certain exceptions, such as for buying a first home or in the case of disability.
3. Traditional IRAs require you to start taking distributions after you reach age 70 1/2, whereas you are not required to take distributions from a Roth IRA at any time.

In some ways, this makes a Roth IRA ideal for younger savers who might feel they are in a lower tax bracket now than they will be in when they retire (and thus they would prefer to pay taxes now and get IRA distributions tax-free later). Also, younger savers might like the flexibility of being able to withdraw money from a Roth IRA to buy a home.

Whichever IRA you choose, the important thing is to start contributing to one this year so that you can start harnessing the power of compound interest and make your money work for you. The tax man even gives you a little leeway — IRA contributions for the 2010 tax year don’t have to be made until April 15, 2011. If retirement saving is like a long-distance race, that leeway can help you get a little bit of a head start.

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

Source URL: 2011 IRA contribution limits: 3 ways to maximize your retirement tax advantages

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Last year, my sister and brother-in-law wanted to remodel their kitchen. They both have good, secure jobs and great credit scores, and could easily have raised the money they needed, even in this economic climate. However, at the same time my mom had quite a hefty balance in a high yield savings account. With bank rates running low, it didn’t take them long to work out that my mother could earn more interest, and my sister pay less, if they cut out the bank, and worked out loan terms between themselves.

And that, in essence, is what peer-to-peer lending (a.k.a. person-to-person or P2P lending ) is all about. By eliminating the costly overheads and shareholder profits of banks (not to mention those bonuses), a loan between individuals can make both the borrower and lender better off. None of this is new. Families and friends have been helping each other out for millennia.

P2P lending web sites

What is new is the worldwide web. This allows strangers to lend and borrow through a middleman website that charges a small fraction of the mark-up that banks take for, in effect, brokering a loan. The first of these sites in America, Prosper, began in 2006, and by October 2010 had attracted more than a million members and had funded $205 million worth of loans.

The other big player in this country is Lending Club, which was founded the following year and, also by October 2010, had funded 17,630 loans worth over $170 million.

Buddy, can you spare a dime?

You’ve already spotted the flaw in this model. You wouldn’t lend your hard-earned cash to some guy who walked up to you in the street and asked for money, so why would you do so to a total stranger whom you’d never even met?

Well, Prosper, Lending Club and other similar sites do all they can to tell you what you need to know about that stranger. Prosper lets pretty much anyone post a request to borrow money, but it also allows prospective lenders to view each person’s history, credit details and loan-to-income ratio. Lending Club goes even further. It vets every loan application before it’s posted, and 90 percent of those never make it onto the site. And it too provides detailed information on every borrower.

Risky business

If you’re really smart, you may have spotted another problem. Prosper was founded in 2006, Lending Club in 2007, and in 2008… we saw the biggest crash in recent history. People lost huge sums of money in real estate and the stock market. And some did–although usually smaller sums–in peer-to-peer lending too. And, of course, these person-to-person loans aren’t secured by FDIC insurance.

Let’s face it, hard-nosed bank managers and credit card underwriters–all of whom were trained professionals who know a thing or two about risk–also had enormous losses. The same applied in P2P lending. Those who lent to people with poor credit in return for 20 percent plus rates tended to take the biggest hits.

That may explain why Lending Club claims that many fewer of its members–especially those who spread risk widely–made losses than those in some other programs. Its pre-screening prevented lenders from making sub-prime loans.

Eggs and baskets

Of course, not everyone made losses, which is, presumably, why these sites are not only still in business, but also adding lenders and borrowers all the time. And there are ways to spread your risk.

Suppose you have $10,000 to invest. You’d be either mad or very brave to hand the whole lot over to one stranger, no matter how stellar his or her credit score is.

A better strategy is to put a bit of your lump sum into a number of loans–up to 400, in fact. Because $25 is the minimum you can put into one loan note. Now, the only way you could lose all your money would be if all 400 defaulted before their first payments were due, an exceedingly unlikely scenario even today.

Rates

Prosper rates are largely determined by the borrower, who states the highest he or she is prepared to pay. Lenders then review the file, and decide whether or not to invest by balancing risk against return. They can bid under the highest rate that the borrower has indicated, and–when the full amount needed has been subscribed–those who bid the lowest get to make the loan. Obviously, borrowers who set their rates too low don’t get their loans.

Lending Club operates differently. It sets the rate (usually between eight percent and 25 percent) in accordance with its appraisal of the credit risk. Because this site pre-screens borrowers, pretty much 100 percent of applications that appear succeed.

The way forward?

There hasn’t been a significant part of the financial sector that’s escaped the dire consequences of the recent recession. And peer-to-peer lending is no exception. But there are many signs of things improving, and both borrowers and lenders–such as my mom and sister–are again discovering the benefits of person-to-person lending.

Peter Andrew has been writing about–and for–business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

Source URL: Peer-to-peer lending can benefit borrowers and lenders

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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When people ask me if they could be successful at day trading, my first response is, “Do you know what day trading is?”

Most people don’t. You might think day trading is about finding the best online brokerage, grabbing a stack of financial reports, arming yourself with financial blogs and news and then diving in.

What many would-be day traders don’t realize is that success doesn’t come from the uncanny ability to analyze balance sheets and fundamentals like Warren Buffett. And even if you have the ability to interpret charts and price action–the primary skill for day trading–this is secondary to having the strict discipline of adhering to specific rules and guidelines.

Without these rules in place, day trading is like a child playing with a chainsaw.

I’m not judging the merits of day trading. I know both very successful day traders and those who blew themselves up financially with day trading. (For what it’s worth, I know many more of the latter variety.) But if you’re going to succeed at this kind of investing, you’d better understand what it takes.

What it takes to succeed

Here are observations from my experience as both a professional trader and money manager about what it takes to succeed at day trading:

• Hard work. Brains don’t hurt, but day trading is a skill, and that skill needs to be developed by treating this as a business. A lot of people day trade as a side avocation or hobby, maybe because it seems like an easy road to riches. Don’t fall for that mentality. I’ve known people with a gambling mentality who have been drawn to trading, only to be chewed up because they treated the markets as a casino and not a business.
• Discipline. Do you ever see the same people wandering around your gym who have no noticeable changes in their appearance from a year ago? It’s from lack of discipline and goal-setting. Trading is no different. People jump from strategy to strategy, or worse, have no strategy at all. The importance of discipline to day trading can’t be overstated. You may think you have discipline, but the true litmus test is your results.
• A keen grasp of probabilities. The best baseball players–the ones who get paid the most–hit the ball around three times for every 10 at-bats. A guy who hits it four times for every 10 at-bats is the best in the business. Put another way, even the best baseball players in the world achieve an undesirable result most of the times they get up to bat. Great traders are the same. Making money through day trading doesn’t mean you make the right call most of the time. The key is to lose a little when you are wrong (which is often) and make a lot when you are right.
• Letting go of the need to be right. Some people would rather be right than make money (or would rather be right than be happy, but that’s another blog post!). This personality trait makes for lousy day traders. In day trading, you will be wrong more than you are right, but that is not failure, it’s probability.

Defining your day trading personality

On a recent episode of “America’s Got Talent” (I admit it, I somehow got hooked on a summer reality TV show) judge Piers Morgan told one performer that he did not know how to define his act and asked the performer how he would define himself. The entertainer looked completely bewildered, and it’s no surprise that his act fell flat.

Ask 100 people to define their “investment personality,” and you’re going to get 90 blank stares. Lacking a clear description of your investment personality–are you a trader, gambler, investor or saver?–is a common error, one that can make or break your results.

In the broadest sense, everyone’s financial goal in investing is to make money. But that’s not enough. You have to find a strategy and set of rules that you’ll stick to and will keep you from an expensive labyrinth of mistakes.

Spending some time doing a little self-discovery can yield a strategy that is more in sync with your personality type, which may help reduce some of the emotional impulses that often lead people astray.

Still think you have what it takes to be a successful day trader? You’re the only one who can really know. But if you lack any of the key traits or a strong investment personality, don’t be surprised if you’re in for a long grind–or a financial meltdown.

Marc Pearlman is the author of the Positive Money Mindset and host of the popular radio show Your Money Matters! For more about Marc, visit marcpearlman.com or www.Yourmoneymattersradio.com.

Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Marc Pearlman, Representative. Your Money Matters! radio show and the Securities America companies are unaffiliated.

Source URL: Day trading: Do you have what it takes?

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Source URL: Investing tips for today: Q&A with money expert Saly Glassman

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Of course, until I find a way to definitively achieve financial independence or acquire a method to ensure a guaranteed passive income stream, I will inevitably have to end my extended vacation and return to my full time job sometime in the next few weeks. Thus I’ll be getting back to my regular full time day job as a self employed attorney and part time gig as a blogger very shortly. Blogging has been an interesting part time job for me for the last two years (bringing in a very steady and rather lucrative income stream), however at some point, the inevitable pangs of writer’s block and declined motivation inevitably creep. Thus it was nice to finally get away and get a multiple month breather after all this time. However, now that I’ve taken my sabbatical, spent time with the family, and pursued other extracurricular activities, I’m almost ready to get back on the horse again and retake the reins.

My Current Net Worth and Financial Status Update Compared To Last Month

Reliable Passive Online Income Through Blogging

Despite my multiple month absence from my normal blogging duties, I continue to rake in a steady monthly income via my small network on profitable blogs and affiliate websites. While I used to earn a significant portion of my monthly take via my small legal practice as an attorney, I have been undergoing a winding down process in recent months to slowly transition my way out of the whole trading hours for dollars routine that working as an attorney entailed. While the legal work and training has certainly been interesting at times, my heart has never been all that much into it. Pursing the viability of online businesses and trying to harness all that the Internet can provide has always drawn much more appeal for me. The lure of being able to make money online by blogging from the comforts of one’s home is what got me started in this industry years ago.

As my primary online blogs (most notably, the financial blog you are reading now) have grown to the point where their traffic levels are now inherently stable and the sizable income profits they now earn are now very reliably self sustaining, I am at the process of trying to decide where to go from here – call it a fork in the road if you will. Do I sell off a few major sites for instant income now and turn my entrepreneurial attention elsewhere, or do I put in the additional effort now and continue to grow these sites into something inevitably bigger?

While the nature of blogs and Internet businesses can be fickle at times, I truly believe that the future of media and information lies with the adaptive power of Internet. The web is continuously transforming how old and new information is consumed. While it would certainly be great to possibly sell off my most prized websites in terms of traffic levels and income, I am somewhat cautious about cashing out too soon when I think there is still tremendous upside to be had in the coming years. Of course, anything is possible and these things are just a handful of the issues that I’ll be pondering a lot about in the coming months as I slowly get back to my old blogging routine again.

Continue Investing In A Down Stock Market

Not much further needs to be pointed out about the stock markets beyond the truism that big wealth can be made during the worst of times. Markets have certainly been choppy and volatile recently, but given a sufficiently long period of time, they will almost always recover in spades. Despite having rather significant chunks of money invested into various index funds and individual stocks, I barely glanced at my holdings throughout the month. Perhaps it was because I’ve been traveling overseas, but more likely than not it was because I see my investments as appropriately geared for the long haul and I don’t want to be overly bothered by the emotional highs and lows of short term price swings. “Set it and forget it” is how I’ve been investing these past few months.

If you haven’t already opened up an investment account with a discount broker or opened up a retirement account with a Roth IRA broker, now is as good of a time as any.

My New Home Construction Is Nearly Complete

As long time readers may already know, my new house has been under construction since summer 2009. After months of construction activity and suffering through periodic pauses due to severe winter snow, the home is now nearly complete. With construction now projected to conclude by the end of March 2010 and with my home mortgage application paperwork eagerly waiting on the sidelines, I am preparing to close on the house by the end of March. It’s been an interesting ride in terms of my journey to become a first time homeowner. I went through spats of doubt, indecision, and even exuberance during my home purchasing process, so one can’t say that I didn’t fully think my decision through. I had and still have occasional doubts of the timing of my purchase, particularly in light of the reality that the real estate market is still lingering in the doldrums. However, I have faith that in due time, the home prices and sales numbers will recover, as early indicators do seem to be bearing that out. Particularly in the Washington D.C. suburbs of Maryland and Northern Virginia where I live, the housing market has been remarkably resilient. Living close to the epicenter of the federal government, which powers and maintains such a reliable supply of jobs definitely has its positive secondary benefits in terms of ensuring the need of a continuously growing housing supply.

Source URL: February 2010: Net Worth Report and Making Money By Blogging

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