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Monthly Archives: February 2012

Sex Ratios & Men’s Finances- I Bet You Didn’t Know This

26 Feb

An academic study came out suggesting that men are less responsible with their finances when they live in an area with a male biased sex ratio (more men than women). The article is called The Financial Consequences of Too Many Men: Sex Ratio Effects on Saving, Borrowing, and Spending (from the journal of Personality & Social Psychology January 2012).  What the article comes down to is men spend more money when women are scarce. Now I’m sure the ladies love hearing stuff like this because it makes them feel special, and in all honesty it should. It shows that we need you, and are willing to go through extraordinary measures to get you.

When I first started reading this article I didn’t buy it. I always seemed to me that I spend way more money having a girlfriend then I would if I didn’t. All the dinners for two,  the vacations for two, and even filling up two gas tanks. No, this article had to be wrong. If men spend more money when women aren’t around then what are they spending it on?

As I read further, the picture began to fill itself in. Every man wants a woman. When there are more men than women it makes matching of partners impossible. Every man wants a woman, but they all can’t have one. So what do we as men do? Well, thousands of years ago we probably would have ran around beating our chests and killing each other to find out who’s the strongest. Since we can’t do that anymore (and women have more say in the matter), we go out and spend money to try and lure women into choosing us.

As it turns out, the more male biased the sex ratio, the more money women are expecting men to spend on them. If you can’t take them to a nice dinner and buy them expensive gifts they will find someone who can (I realize not all women are like this). So to prevent that from happening what do we do? We take on debt. So not only are we spending more but we also have more debt, and with more debt comes less savings; However, when the tides have turned (and there are more women than men), men spend less on their women.

I think this article is interesting because it shows us that there are underlying issues that affect our finances that we might not even think about. They use an example of two cities that are located close together, but their finances are completely different. The city that has more debt is the one with a male biased sex ratio. It’s an issue most of us would never have even thought about, but it seems like it could have a substantial impact. That’s why the study of psychology, sociology, and finance mixed together is so great. Have any of you heard about other psychological/sociological issues affect finances (I’m always looking for some good reading materials)?

 
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Posted by on February 26, 2012 in Uncategorized

 

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Forget Those Other Guys- Take Control of Your Own Finances

23 Feb

Can you believe all the crazy things that have happened within the last decade in the financial community? I’ve never heard about so many crooks within one industry; all the scandals have really affected my view on personal finance. I can’t turn on the news without seeing examples of people cooking the books or running Ponzi schemes. These really are unfortunate times. Luckily for us we can help ourselves when it comes to personal finance.

When I was looking up the definition of the word personal, many explanations came up. The one thing they all had in common is the word personal involves one person. I strongly believe that all the corruption in the finance world really shows us that everyone should take a hand on approach when dealing with their own finances. The days of having confidence that other people can take care of your money are over. Finance might not be the most interesting topic in the world (or even close to it), but it is one of the most important. People need to start educating themselves on their own investments and stop trusting others to take care of it for them. No one wants to lose everything because of financial greed. It’s a real life monster that will steal your heart and soul when you least expect it.

I understand it may not appear like an easy task, but you have a responsibility to yourself and your family to take care of your finances. Remember that no one will care about your money as much as you do. You don’t need to go off and start dealing in derivatives and swaps to make money; you can keep it simple and still be successful. I’m not ignorant to the fact that some people will continue to trust the wrong people. The way I see it, you already have enough market risks tied to your investments, so you don’t need to add risk by using an outsider to manage your investments.

For those of you that have no interest in managing your own investments I have one suggestion: Only use fee based financial institutions to manage your money. They have no ulterior motive when they give you advice. They aren’t making a commission by getting you to buy their products, and they won’t hedge their bets against you. I don’t think they are as good as taking responsibility for your finances, but they are definitely better than those other guys.

 
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Posted by on February 23, 2012 in Uncategorized

 

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When It Comes To Saving, It’s Always Better Late Than Never

21 Feb

There are tons of things in life that we know we need to do, but we never get around to it. It’s not that we don’t plan on completing these tasks, they just live on to be done another day.  For example, this blog post was supposed to be done on Monday, but here I am on Tuesday finishing it up. I might lose some points on my homework assignment, but sometimes when life gets crazy you  have to re-asses your situation. Luckily the cost of changing plans for something as little as a homework assignment isn’t too steep, however, I cannot say the same thing about the process of saving for retirement.

Everyone will tell you one of the most important things about a retirement plan is starting while you’re young. I completely agree that that would likely be a huge help. However, there are millions of people over the age of 45 with no savings at all. Now if you are one of those people, what are you to do?  I mean, no one wants to work for the rest of their lives (and that’s if they are fortunate enough to be able to). No one knows how long social security will be around for, and who can live off of that alone anyways? After thinking about these questions, no easy answer occurred to me. They are hard questions with hard answers. The only idea that really came to mind is: start saving right away!

I come from a family that has never been good at saving money so I understand how people get in these situations. There are multiple reasons/emotions that explain why someone would wait so long to start saving for retirement. They might have had other issues that seemed more important at the time, or maybe it’s as simple as they don’t know how to start. Whatever the reason may be, it’s important to remember that when it comes to saving, it’s ALWAYS better late than never. You might have feelings of discouragement now, but after you get started, you’ll feel so much better (just like I do now that my homework is almost done). Even if you start out small, that’s better than nothing. Then, opportunities might present themselves where you can save more and more. No matter how it turns out, I can promise you that you’ll be better off than you were before. And that’s all any of us really want, to be a little bit better, to live a little happier, and of course, to have a little more money in our savings accounts.

But seriously, if you want some good tips for retirement savings click this link and read a helpful article from moneyeconomics.com.

 
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Posted by on February 21, 2012 in Uncategorized

 

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Stock Market Investing- 4 Mistakes I’ve Made So You Don’t Have To

17 Feb

I started getting interested in stocks at the tender age of 15. Like most investment beginners, I had dreams of striking it rich. I mean how hard could it be?  I came up with all sorts of schemes that, at the time, seemed like great ideas. There was no way they could go wrong. I was 15 after all. I knew everything. It was tough when I realized that, most the time, the stock market isn’t a get rich quick kind of place, and I’m hoping my folly can save you money.

1)      Don’t Buy A Stock Just Because It Splits:

A stock split usually occurs when a company thinks their stock price “looks” too expensive (which would prevent investors from buying it). There are all different kinds of stock splits, but the easiest to understand is a 1 to 2 split. When I was 17, EBay announced they were going to do a 1 to 2 stock split. Their stock price went from (around) $80 a share to $40 a share. No value was gained or lost because the number of EBay shares available doubled ($80*1 share= $80 and $40*2 share= $80). To me, as a new investor, I thought this was the deal of the century. I mean the stock price HAD to go back up to $80.00 a share.  Unfortunately, I didn’t understand that rarely happens and lost money.

 

2)      Not all IPOs (Initial Public Offerings) Are A Good Buy:

An IPO is stock that will be available to buy for the first time on the stock market. When I first started investing I was obsessed with them. I thought that it was a good opportunity to make money quick. The reality is IPOs are very uncertain. They are prone to sharp spikes and drops as the market tries to figure out their true value. It is possible to make money with IPOs, like my Google examples from my first blog post, but more often than not it’s best to stay away from them when you’re first starting out.  My advice is if you really want to buy an IPO wait a few months for it to find its feet. If you really believe in the company a few months of waiting won’t kill you.

3)      Don’t Become a Day Trader With A Small Stack Of Cash:

A day trader is someone who is willing to hold stocks for a very short amount of time. They constantly buy and sell all day long just to try and make a little profit. The idea of day trading seemed exciting to me. Trading stocks all day long would be exciting, and I wouldn’t have to be patient and wait for the stock price to go up.  It would be easy money, and I wanted easy money. The problem with day trading is it’s for people that have a lot of money. They don’t have to worry about the trading fees because it’s nothing compared to the investment they are involved in. I found myself losing money even when a stock’s value would go up because of the trading fees. It’s important to understand that if you’re getting involved in the stock market with a small amount of money ($1,000 or less per company), the fees can eat you alive.

4)      Penny Stocks Suck:

The fantasy of buying a stock for $0.01 a share and selling it for $10 a share is very appealing to investors. Who wouldn’t want to get rich over night?  The thing to keep in mind is that there is a reason that the stock is so cheap. The amount of risk you take by buying a penny stock (which the SEC defines as a stock trading under $5 a share) normally outweighs the reward. A friend of my parents talked them into buying a cell phone company’s penny stock. He sold them on the idea of a green cell phone. How could that idea not take off?  In just a few months they were going to be like Richie Rich! That was two years ago. They bought the stock for $0.05 a share and today it’s worth $0.01 a share. I did some digging and realized people have been talking this particular stock up for years but it has never moved very far. They failed to realize that the stock market is just like everything else, and if something seems too good to be true it normally is.

 
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Posted by on February 17, 2012 in Uncategorized

 

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Buy High, Sell Low… Wait That’s Not Right

12 Feb

I’m going to use my blog as a tool to help people understand personal finance. After studying finance in college I realized that it’s an out-dated science. There are some old concepts that work, but there are even more concepts that need to be revamped. This blog will be used in a manner that will help educate readers on the basics of personal finance, while looking at investing techniques to accomplish financial success.

Everyone has heard the term buy low and sell high. It’s interesting to me how everyone knows this general concept, but events like the real estate bubble still occur. This morning I was reading an article called Stock Market Psychology- Why We Buy High & Sell Low by Shibashake. In this article I think they nailed the psychology behind bad investing. I’m going to go over one aspect of the article now; however, I would recommend reading the whole thing.

When you’re young it’s common to make a mistake and then blame it on friend. Your parents might have said “If your friend jumped off a bridge does that mean you should do it too?” According to the idea of social proof, you probably would. Social proof is the idea that if people around you are doing something, you’re likely to rush in and do it too. This relates to investing because sudden high volumes of demand on a stock will inflate the price. This means that you’re more likely to buy this stock even if it’s overvalued. The article makes this seem like a bad thing, but I have a different take on the matter. When I was a teenager Google announced its IPO ($100 a share). I really wanted to buy some, but my dad talked me out of it. As time went on, Google’s share price kept climbing and climbing. I knew I made a mistake not following my gut. My father wanted to save me from social proof, but if you’re able to get on the bandwagon early it isn’t always a bad idea. In fact, it can be a great way to gain big profits. The ideas to keep in mind are that it’s important to protect yourself and understand what you’re doing. If you’re going to take a calculated risk, make sure you set up a sell-stop order. This will prevent you from losing too much money.  You set the sell-stop price, and if the price falls below the set amount it will automatically be sold.

If you decided that you would rather try to avoid social proofing all together (which is what I would recommend to beginners), the article has one ingenious way to get around it: THINK BEFORE YOU ACT! It seems so simple, but we all know how easy it is to rush into a decision. The article suggests coming up with an investment strategy to prevent this. I agree that this is the easiest way to gauge if your investment is well thought out, but I also know that many people won’t want to take the time to do this. My suggestion to those people is to set up a time frame that you give yourself to think about the investment. Unless you’re a big player, a solid investment won’t require a split second decision. Once the time frame is up, go ahead and make your move.

 
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Posted by on February 12, 2012 in Uncategorized

 

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