Author: Mike Holman

This is my review of Investing Made Simple written by Mike Piper who is the author of the investing blog Oblivous Investor. I’ve highlighted both Mike’s blog and book before and I was quite happy to review the book for him.  I think it’s a great resource for a non-investor or someone who is just getting started and needs a good introduction in one quick book.  It’s reasonably short at 100 pages and contains a lot of good basic investing information to help someone get started with investing.

This is a fantastic book to give as a stocking stuffer idea for that friend or relative who needs some investment guidance but you don’t feel comfortable broaching the subject or maybe you don’t know quite enough yourself to try to teach someone else. It might even be a good book for you if you lack confidence in the investment area.

To order this book:

Here are the chapters titles with some notes

Chapter 1 – Building blocks of investing.

Explanation of various investment products such as mutual funds, stocks, exchange traded funds and bonds.

Chapter 2 – Types of investment accounts

The basic concepts behind common investment accounts such as  Traditional and IRA Roths, 401ks – please note that this is the only chapter that doesn’t apply to Canadians.

Chapter 3 – Risk and Return

This chapter explores the idea about taking on higher risk for potentially higher return. Over the long term it can be worthwhile to take on some extra risk with equities.

Chapter 4 – How much money do you need to retire?

Mike goes over a very simple formula to do a rough estimate of how much money you will need to save up in order to retire.

Chapter 5 – Don’t bother picking individual stocks

He explains quite clearly why it is a waste of time to try and pick your own stocks and suggests low-cost mutual funds instead.

Chapter 6 – Index funds win.

Brief explanation of low-cost index funds and why they should be the cornerstone of your portfolio.  The perils of picking ‘hot’ funds.  A warning that not all index funds are low cost and he also discusses a strategy to lower the costs if you are mainly invested in a limited-option 401k plan.

Chapter 7 – Asset allocation

This chapter starts off talking about the tradeoffs between bonds/stocks. Buying home country stocks vs international – currency risks.  He concludes that it’s better to have an asset allocation that is too conservative than too aggressive.  I agree!

Rebalancing is also covered as well as target date retirement funds.  It is mentioned that while the concept is great -the execution can be weak with managers using expensive funds. Check to make sure the asset allocation is in line with your desired allocation

Chapter 8 – Putting it all together

Mike goes over how to implement your asset allocation plan – which indexes are good ones to follow. Also includes a very simple sample portfolio. Watch your expenses!

Talks about some more differences between index funds and etfs. One thing that might have been mentioned here is that index funds transactions  can be easily automated whereas ETFs trades can’t be.  You can construct an extremely well diversified, low-cost portfolio using just a few index funds.

Chapter 9 – Think long term

He covers the importance of not being spooked by drops in the market or the financial media (ignore them).  Don’t look at your portfolio too often and don’t panic.  Conversely – if the markets are doing well – don’t be tempted to buy more stocks – stick to your plan.

Chapter 10 – How to find a good advisor

He says that most investors don’t need an investment advisor but there are situations where one might be required. Various types of advisor compensation are discussed. He makes a good point that the dreaded “commission” based advisor can be the cheapest option for a lot of people with smaller portfolios.

Chapter 11 – Automate your investing

If possible then set up automatic contributions via payroll options at work or with your investment company. Pay yourself first.

Chapter 12 – Beware the hot fund

Not unlike the hot stove – hot funds are just as dangerous. Keep in mind that hot funds (and stocks) are not likely to stay hot and there’s a good chance that it took on extra risk to get the eye-popping return.

Chapter 13 – Turn off the tv

Good advice in general – this basically says don’t watch the daily market performance.

Chapter 14 – Steer clear of stock-picking newsletters

Don’t buy stock pick suggestions from anyone.

Chapter 15 – Conclusion

Keep it simple.

To order this book:

Earlier today, I published a You Need a Budget review – budget software to help you organize your finances.  I have set up a special coupon code with YNAB so that if you want to purchase this software you can save 10% off the purchase price.

To get the discount just go to the You Need a Budget website and enter the coupon code:

fourpillars

That’s it!  Also, YNAB informed me that if you download the free trial you can get another coupon code for 10% (if you purchase with 48 hours) thereby saving a total of 20%.  The price of YNAB is $49.95 so after the 20% discount the cost will be $39.96.

If you do try the software – either from the free download or from a purchase then please let me know what you think of it.

In this post I’ll be reviewing the budgeting tool called “YNAB” which stands for “You Need a Budget”.  There are quite a few financial software tools available on the market such as Microsoft Money (discontinued) and Quicken, so it can be difficult to sort out which tools (if any) are right for you.  YNAB is a much smaller company and the software is quite different than the normal all-encompassing money management tools.

I do all my budgets and financial “stuff” on Excel spreadsheets but I’ve been thinking of getting some proper financial software.  I have regular bank accounts, a multitude of investment accounts and a small business.  I’m doing ok with Excel, I’m thinking that maybe I should upgrade.  I’ll be taking a look at various financial software starting with this one.

What is YNAB?

YNAB is a financial budgeting tool.  On the simplest level you enter your various transactions into the software and it helps you determine how much money you can allocate to various goals.  It also comes with a set of financial rules which are worth reading by themselves if you are learning the basics of financial management.  It works on the principal of “zero balance” so that all your income and expenses plus savings have to be reconciled each month.

Here are the 4 “YNAB” rules:

1. Give every dollar a job.   This isn’t an election campaign slogan – the idea is that if you don’t have a clear goal for each dollar then it will disappear (ie get spent on crap).  By assigning ALL your money to one function or the other, there should be less leakage of moola.
2. Save for a rainy day.  This is basically spreading out a future fixed cost over time so that you don’t get nailed with a large cost one month (ie annual insurance payment) that you might have forgotten about (or ignored).
3. Roll with the punches.  There is some important flexibilities build into the software so if you do have trouble in a particular month YNAB will make up for it the following month by reducing the budget.
4. Stop living paycheck to paycheck.  If you are currently living paycheck to paycheck then the software is designed to help you get ahead of your payments so that you have a bit of financial breathing room each month.

You can import data from the YNAB spreadsheet version (not supported anymore) or just start fresh.  It also accepts financial feeds from any bank.  I tried importing some data from my bank (CIBC) and it worked great.

Who is it for?

I think this tool is mainly for people who are working to get control of their finances and need a bit of help to get organized.  If you want to improve your finances and aren’t sure where to start, living paycheck to paycheck and/or trying to get out of major debt then you might want to consider this program.  It’s not just a budgeting tool…it’s a way of life.  🙂  Ok, that’s an exaggeration.  It really is more than just a financial tool though- it’s almost like a financial tool with an “improve your finances” philosophy built into it.

If you are someone who is at the point in life where you don’t need to track every expense in order to meet your financial goals then this software might not be as useful to you.  If your investments are the only thing you want to track then Quicken is probably a better bet.  Keep in mind however, that even if you don’t “need” to budget – it can help you achieve your goals quicker even if you are not in debt.  One of our goals is to pay off the mortgage and there is no doubt in my mind that we could achieve it faster with a stricter budget.

I won’t be buying this software because it doesn’t meet my current needs – there was a time when I was paying off debts when this software probably would have helped a lot.

I was impressed by the software itself – the original version of YNAB was Excel-based and I didn’t know what to expect with the new software but it is quite good.  The creators of this software are very passionate about debt reduction and financial management and it shows on the YNAB site.

How much does it cost?

The sticker price is $49.95 but I’ll be posting an offer later on today which will provide a big discount on this price.  Check out the “fourpillars” coupon code for big savings.

What doesn’t it do?

It won’t track investments so someone who is more asset-rich might not have as much use for this software.

Guarantee

Along with the 7 day free trial there is a 60 day guarantee on this software so you are pretty safe if you decide you don’t like it.

YNAB 3.0

In November there will be a major upgrade of this software, but don’t worry – if you end up purchasing the existing version (2.0) then you get a free upgrade to 3.0.

Free trial

You can do a 7 day trial if you are interested in checking out the software before buying.  Or if (like me) you just want to see what it looks like.  Basically you do the normal download and then at the end just click on the “7 day trial”.  There is no obligation and you don’t have to give any kind of information to do the trial run.

Here are the 4 different sections of the YNAB system and some screen prints so you can see what it looks like:

Register

Start by setting up your register – this is a list of all your transactions.  First step is to select a bank account or credit card/loan.  Then you enter the expenses/income etc within that account.  The register is set up like a spreadsheet where the different bank accounts are tabs along the top and you select each account/tab to see the details.

The register screen looks as follows – you can see I’ve set up two accounts by looking at the tabs at the top (checking and savings):  Click on the image to see the full-sized image.

You can import data from your bank account quite easily.  Just export the database from the online bank account interface and then import using YNAB.  I used the “Intuit Quicken” export option since that uses the same default file format as YNAB.  If you have set YNAB as the default application for financial downloads (it will ask you on installation) then YNAB will open up automatically with the new data.

Budget

Scheduler

Reports

Whenever I’ve tried to figure out how much someone should contribute to an RESP for their child – I’ve always gotten stuck on the issue of whether the kid lives at home during his school years or goes to school out of town.  My rough calculations indicate that if you contribute the maximum allowed each year for an RESP then you will probably have enough money if the child goes to school out of town (roughly speaking).

But what if you save all this money and they decide to live at home?  In that case the total cost gets cut about 40-50% since they don’t have to pay for accomodation and food.  You can’t really plan for this since most students don’t know where they will be going to school for sure until less than a year before graduating high school.

I’ve always thought that you would just have to get the child to spend more money (drive a new car?) while in school to use up the funds.  Alternatively, you could save some money in an RESP and some in an open account which would cover both situations. In fact, the answer is to just withdraw any contributions that you made to the RESP.  They can be withdrawn by the account owner (ie Mom & Dad) once the child starts school with no penalty of any kind.  You wouldn’t have to withdraw all the contributions – just whatever you feel is the right amount. If the kid is starting her 4th year and there is still $50k in the RESP then that would be a good time to figure out how much the contributions were.

Make sure the student is getting non-contributions

If you run into a similar situation then make sure the financial institution you are dealing with is withdrawing non-contribution money when sending money to the student.  Similarily if you withdraw contributions for yourself – clarify with the financial institution that this is indeed happening.  You can just call the company that holds your RESP to find out what the total contributions are.

One suggestion for saving money that I’ve read on countless websites is to participate in free (or very cheap) activities that are happening in your community.  Things like festivals, open houses etc are good examples.  I’ve never really followed this advice since most “community” events seem to be geared toward people with kids – a group I wasn’t a part of until a few years ago.  Now that I have a couple of little rugrats I seek out this sort of thing mainly because it is something to do with the kids.

We did one such activity a while back with the annual Toronto Fire Academy open house.  We missed this event last year so we made sure to plan for it this year.  Basically the academy does all the training for the Toronto Fire Department:  classes and field training.  They have a large building which I assume holds all the training classrooms.  There are also other training “props” on site – a train car, a car – both of which can be set on fire.   At the open house they had demos for quite a few exciting training exercises.  The great thing about this open house was that although it was geared towards kids, anyone with any interest in seeing things on fire (and who doesn’t?) would enjoy it.

My only complaint about a lot of these local events is that it can be hard to find out about them.

Do you go to local, free events?  How do you find out about them?

Here were some of the highlights of the fire academy open house:

Train Tanker car on fire

This was the best demo of the day – they had us about 300 feet back from the fire and you could really feel the heat.  I can’t imagine how hot is must be when you are only 50 feet away.

Burning car

This was pretty neat – although not as good as the train car.

Ladder truck with extended ladder

This was pretty cool – I had never seen a big fire truck up close and the guy swinging around at the top of the ladder was quite impressive.  The ladder is 105 feet long and he said the truck appears small when you are at the top.  Note the hydraulic system used to keep the truck level.  We also got to sit in the driver’s seat as well.  There were a couple of different firemen who went up the ladder and they both took quite a few pictures with their cell phones.  I guess it’s one of the few times they get to climb the ladder in a relaxed setting.

“Jaws of life” demo

This demo wasn’t as visually interesting as the fire demos but the firemen had both of the doors of the car off in about 10 minutes.  The tools they use are incredible – very, very powerful.  They could probably have gotten the doors off quicker but safety for the firemen and the people trapped in the car is more important so they take a bit of time.

Last year my wife and I took advantage of the ING Direct pre-TFSA deal where they paid extra interest on your pre-TFSA contribution which kind of made it like a TFSA.  This year, ING is doing it again – if you have money earmarked for your 2010 TFSA contribution room then you can put the money into their TFSA “kick start” account and they will pay extra interest to make up for any taxes on the interest.

Of course one big difference this year is that the TFSA high interest account interest rate is 1.05% unlike the 3% offered last year.  Needless to say, you aren’t going to save big bucks by taking advantage of this offer but in our case we save about $9 which is worthwhile since we were going to move this money into a TFSA anyway.  Being able to move the money now is the best perk of this deal.  ING will move the money into an actual TFSA on January 1, 2010.

Here is a refresher on the TFSA rules (Tax Free Savings Account).

We’re keeping our emergency fund in a TFSA

I used to be very anti-emergency fund but I’ve changed my mind on that subject.  Although I still agree in theory that using a line of credit for an emergency fund is a more efficient way to manage your money – having survived several rounds of job cuts in the past year I have embraced the idea of having plain old cash as an emergency fund.  Our EF is $20,000 which is about 5-6 months of expenses.

Earn $25 by setting up a new ING account

ING Direct has a promotion going on where you can use an existing customer Orange Key referral code and both you and the original customer will receive a bonus of $25.

To recieve the bonus you must do the following:

• Set up new account on the ING Direct main page.
• Enter the orange key code 33089336S1.  See pic below.
• Fund the account with $100.

That’s it!

Photo credit Nutmeg15