Month: September 2014

Over the weekend, I was cleaning around my house and noticed that I had small stashes of coins in various places around my home and inside my car. I wondered how much money that it would add up to and of course decided to count to find out for sure. All told, it ended up being around $50, I had just lying around doing nothing. I think that most people probably have more change than this around in their home but I don’t really use cash all that often, so this haul seemed significant. Significant? What good is $50 in change? Well, this post is going to discuss why even your loose change matters in creating wealth.

It’s losing Value to Inflation

Money that’s not being put towards some kind of economic gain in the form of dividends, profits, or interest payments is being subject to inflation. That’s right each year that change sits there it is losing real value over time. Even if one were to collect that change and put it into a savings account, that yield would still be losing ground to inflation currently, though not as much.

Sucks, right? Not only is change taking up space in your house but it’s not even producing anything of value for you. It’s actually losing some of the value it has.

Change can be put towards debt

If you have some sort of debt, whether that be of the credit card or student loan variety, even this pile of change you have can go at least some of the way towards paying it down. That $50 of change that I collect around my house represents 5% of a $1,000 debt. Considering that I have a credit card with a balance of under $1,000 that I am pushing to finish paying off for good, it goes even further in my case. Every penny counts towards paying off debts because interest accrues on the balance, making it take even longer to pay off the amount of money you borrowed.

Change can be invested

$50 can be invested and indeed be turned into something significant. For instance, had one invested in American Express stock 5-6 years ago, it could have been had for roughly $10 a share. It has since then, reached a high of over $96 a share. If one were to have reinvested the dividends paid on those 5 shares of AXP stock, it would have reached about $500 in value. Not a bad return, eh? This could have been done using a broker like Sharebuilder.com which has no minimum to open an account and by using a promo code for a free automatic investment credit or real time trade. Thus, avoiding fees and putting that small bit of money to work for you.

Now, of course to see that kind of return in such a short period of time, one would have had to pick the right stock. Still, even in an index fund would represent a return better than inflation and would compound over time. Here is a Return of Investment Calculator to see some of the results.

It can be invested in your education

Even $50 can go a long way towards increasing one’s base of knowledge. For example, if you have one particular field of study that interests you, that small amount of money can be used for books on the topic. Many used books on Amazon, total about $5 with shipping, so feasibly up to 10 books on a topic can be had, just for collecting loose change!

For non-readers, it is hard to explain the benefits and dividends you receive from reading books. No, 10 books will not make you an expert. However, let’s say you bought books on personal finance and investing with you spare change. Would that information not save you a ton of money over time by teaching you to budget money, how to invest money, how to structure you taxes, etc. This small investment could yield thousands of dollars in benefits over time.

I’m not proclaiming loose change to necessarily be life changing BUT it is much more useful than people give it credit for. Coins can be used in a variety of ways to your benefit and so many people just have them lying around the house collecting dust and losing value. It can also be used to fund the start of an online business.

How to Start a Website

How to Get Ideas for a Niche Site

For the small time investor, there are very few options available to being your investing journey without having a sizable minimum amount just to open up a brokerage account. One such place that has no minimums to get started is, Sharebuilder.com. Sharebuilder is now owned by Capital One but before that it was owned by ING Direct and someone else before that, I believe. To me, it is the best choice that I have found for the small time investor, especially one who is of the buy and hold mindset. With some clever uses of free Automatic Investment Credit promo codes, I have not paid one cent in trading fees since I opened up my account with Sharebuilder in 2012. That is huge in terms of return on investment because even when I could only put in $100, I avoided paying the $3.95 fee which is a 3.95% loss of my money right off the bat.

One of Sharebuilder’s newest tools for the small time investor is something they call “Portfolio Builder”. Here is how they describe this tool:

PortfolioBuilder is an investment strategy tool for the self-directed investor. As a self-directed investor you select the investment amount, investment style and asset allocation model that corresponds to your financial situation and investment goals. The asset allocation models were designed to help investors diversify their portfolios, using risk profiles ranging from very conservative to aggressive.

Essentially, Portfolio Builder is a program which an investor decides how much they want to invest in total and then purchase a portfolio of Exchange Traded Funds (ETF) at once for a fee of $18.95 currently. Every dollar is allocated to a specific fund at a certain percentage.

So for example, if one were to choose their “Moderately Aggressive” investment style plan, 24% of the money would go into a large cap value fund while 6% of the money would be place in a fund for International emerging markets. The entire portfolio consists of 8 ETF’s for different sectors of the global economy.

The money is broken down into securities (stocks, REIT’s) and fixed income assets (bonds), thus, giving instant diversification for the new investor. Sharebuilder offers varying investment styles from very conservative to very aggressive (100% in securities). So based on age and/or taste for risk it is designed to fir a person as an investment template.

The great thing is that there are plenty of funds to choose from in order to make the best portfolio for your own brand of investment. There are plenty of index funds which are not managed and thus also have a low expense ratio, meaning, you won’t have to pay really high management fees and your portfolio is pegged to market composition and not actively managed.

One downside, that I do see with PortfolioBuilder is that the percentages in the asset allocation are fixed upon purchase and it is up to you to re-balance the portfolio later. Having 85% of your money in securities and only 15% in fixed income assets seems really aggressive to me but that is what is termed the “Moderately Aggressive” plan. For me to start a plan under that model, I would immediately add more money to the fixed income side of my portfolio to achieve a better balance for my age and retirement strategy.

Another issue I see, is the possibility of being over diversified, in a way. One theoretically could achieve diversification with 4 funds but this program puts your money in 8 smaller segmented funds. The rate of return for the 8 fund approach could actually under perform, one that wasn’t divvied up quite as much. However, this does seem like an easy way to achieve an indexed portfolio in one fell swoop after some initial research.

The cost is $18.95, which spread over 8 ETF’s is roughly $2.37 for each position. In itself, that is pretty good, BUT it does take a pretty large chunk out of the smaller segmented positions in the portfolio. For instance, if one were to invest $1000 into a PortfolioBuilder plan, such as the Moderately Aggressive. It would allocated 6% into International Developing Market Stocks, which equals $60.

If the fee is $2.37 and the total amount invested ends up being $60, then right off the bat that eats up 3.95% of the investment. On a larger upfront investment that might not matter but with $200 being the minimum to start a PortfolioBuilder plan that is concerning.

I think that perhaps the best way to become diversified with index funds is to have a set plan going in and see if you can’t find some Automatic investment credit promo codes to invest money for free. Perhaps scale back and do a 4 fund plan. I don’t know, though, I don’t think PortfolioBuilder is for me.