In reality, investment management is really all about financial management - after all, you can't (or shouldn't) invest money in the stock market if you don't have some extra money to begin with. So realistically you need to have tools to help you with the following things:
1. Budgeting
2. Debt/Asset Management
3. Trading (including Research)
4. Tax Preparation
And since part of good, sound financial health is knowing what your credit score is (crucial for making large purchases like automobiles or houses), let add to that list:
5. Credit Tracking
I'm not necessarily going to talk about them in that order - but let's start with the first item - Budgeting.
There are many ways to keep a budget. Spreadsheets are awesome. You can also buy software specifically for tracking a budget. And most banks now support some sort of budget tracking in their online web apps. But really the important thing is to know how much income you have, and then decide how to parcel that out. Most of us can do that - but the problem is that there are always unexpected expenses that crop up (repairs, accidents, doctors, etc), and sometimes even the expenses we expected are higher than anticipated. So while planning a budget out in advance is important, it's equally important to reconcile that with what you are really spending your money on. This also helps you plan on what to try to cut back on, leaving you with extra money for investing!
The tool I use for this is Mint.com. Mint is a free service - just sign up with a valid email address and you're off and running. Once you have an account, you tell Mint about your other financial accounts - bank accounts, credit cards, mortgages, loans, brokerage accounts, etc - and give it access to them. This is all done securely, with a high level of encryption. Once this is done, Mint can access your accounts and create a nice overview of the state of your finances - plusses and minuses. The nice thing is that by looking at your bank account Mint can tell just where you are spending money - and now so can you. Your spending habits are broken down into general categories - e.g. household, food, recreation - and you can tweak and customize it if necessary. Then, every month, you can look at the way you've been spending and decide where (if anywhere) to cut back. For example, last month I spent far more than usual on restaurants. Not only does Mint show me this, but it even sends me an email letting me know! You can of course set a budget amount for each of the categories, and Mint will tell you when you are getting close to - or over - the preset limit. Mint also takes care of the Debt/Asset Management part of your finances, by giving you a nice summary of each and linking to the appropriate category.
While Mint does have links to your credit score, for Credit Tracking I like to use CreditKarma.com. CreditKarma is another 100% free service that takes some of your personal information (again, securely) and then pulls your credit score from all 3 major bureaus. This pull does not affect your score in any way, and you can check your score at any time, as often as you like. CreditKarma will update your score, and more importantly it will tell you why your score is at the level it is - listing factors such as credit utilization, missed payments, etc. And when your credit changes CreditKarma tells you why - for example, maybe your balance went up - or down - on a credit card. CreditKarma also makes suggestions for how you can improve your score, and will link you to available offers for loan consolidation or low interest rate credit cards.
Now that you have your finances under control, lets talk about investing tools. The first step is to set up a Brokerage Account. A brokerage is the entity that can actually buy and sell stocks for you, and while you can do this at a Brick and Mortar company, like your bank, chances are that they will charge you significantly higher fees for trading than if you just do it yourself on a website. There are many online brokerages to choose from, and they're all very similar - I use eTrade.com, but you should shop around (click here) and see which one you like best. Each brokerage will have different requirements - some will have a minimum account balance, others may have a minimum number of transactions required, and all of them will charge you a commission fee per trade. The advice and bling they offer will vary too - I choose eTrade because the $9.99 commission per trade is reasonable, and the online tools for stock evaluation, as well as the mobile apps they offer, are really nice. Add to that the fact that eTrade talks seamlessly with my Tax Tool (below), and it's a no-brainer.
Now that you are ready to start trading, it's time to figure out which stocks to invest in. When I am Trading I pay attention to a couple of web sites - one of which you've already read about extensively if you follow me regularly. Dividend.com is by far the easiest place to find out which companies pay a dividend, how much that dividend is, and how regularly they've paid - or increased - it. I like to just sort the companies by percentage yield and scroll down to about the 9% or lower mark (if you've read my previous articles you'll know why) and then jot down the companies that I think merit further investigation.And that takes us to the next subtopic of trading - doing your Research. Dividend.com is one stop you should make, but not all of your stocks are likely to be dividend yielders - you should also have a few stocks that are just good bets for the future - Apple (APPL), General Electric (GE), and Coke (KO) are all stocks that seem to do good for their shareholders despite their relatively low dividend yield. But how do you choose what stock to buy? The answer is buy companies that you know something about - in industries you know something about - and buy those companies because you think they'll do well in the future. You should spend some extra time researching them on sites like Yahoo Finance, where you can see their press releases, or even at the Motley Fool, which is a great site for investors (I'm a member). Eventually you'll have a big list of stocks that you want to buy - and that's where SigFig.com comes in.
SigFig is designed to be a one-stop portal for you to track your investments - it ties in to your brokerage account and gives you live, updated quotes - and values - for all the stocks in your portfolio. It also displays the latest news on all of the companies, as well as clever widget that shows you where the stock is trading today compared to the past year - which is extremely useful when it comes to making decisions like "buy more" or "sell". It also comes with a very handy mobile app, so you can track this data on the go.I like SigFig so much that I not only gave it access (securely, again) to my eTrade portfolio, but I created a manual portfolio that I called "To Buy". You guessed it - this is where I keep that list of all the stocks I want to buy in the future. Now I can quickly and easily look at all of them and see their current price, relative to the past year, the current dividend yield, and all pertinent news. This makes it far easier to weed through the list of all the stocks I want to buy, and pick the one I'm buying today.
There's only one more tool to talk about, and that one deals with Tax Preparation. We all have to do it, and we all hate doing it, so why not make it as simple as possible?
I work two jobs - one is my "main" job in my home town, and for the other job I teach online at a major University in another state. The end result of this is that I have to file not only Federal taxes and taxes in my home state, but I have to file taxes in state where my other job is based. Add to that my portfolio and my taxes are more complex than your standard "EZ" form allows for. That's why I love TurboTax (and if you click on that link and actually use TurboTax, you'll get 20% as a referral from me for doing so!). TurboTax makes everything easy by literally walking you through each step of your return, asking simple questions to help make sure that you file everything correctly - and maximize your return. That's a huge selling point right there - TurboTax walks you through every possible means of saving money and increasing your refund - very cool. It also can speak to your brokerage account, pulling in all of your transaction and dividend data - and let me tell you, that saves you a HUGE amount of time over doing it manually! It also can pull in W2 forms from most large employers, and best of all, once you've put all your information in, doing next year's taxes becomes trivial - all of your information on home, filing status, dependents, etc. is already there and gets imported. I kid you not, I finished my taxes in about 45 minutes this year, and TurboTax filed everything electronically for me and made sure the refunds were deposited straight into my bank account. It couldn't be simpler! There are many other tools that I've not talked about - and I'm sure many of them are just as good, or possibly even better, than the ones I've mentioned here. I've focused on the tools I use - and have used for several years - because they're the ones I know best and have come to trust. I'm not getting any sort of compensation from any of the companies above (although if you do end up using TurboTax through that link I'll also get an Amazon Gift Card, so think about it...).
That wraps up this special edition - hope you enjoyed it!
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Disclaimer - I am not a financial expert and I am not responsible for any losses - or gains - you may make if you make decisions based on the information posted here. If you do make money, please feel free to let me know!
Disclosure - Wolfgang Rumpf owns shares in Apple (APPL), General Electric (GE), and Coke (KO).
Disclosure - Wolfgang Rumpf owns shares in Apple (APPL), General Electric (GE), and Coke (KO).
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