Jim at Bargaineering had an insightful piece a few days ago: Your Best High Yield Savings Account? in which he pointed out that there’s not much difference between 1.5% and 2.05% when you think about it. We’ve had an account with HSBC for years (three, actually) and now that it’s fallen to a rate of 1.65% the incentive to invest more money in it has become much less.  You could also argue – and I would – that 1.65% far exceeds the rate of return on our 0.00% checking account, so there’s no need to sneer at the rate of return, which is very competitive with the market.

It is ironic that at this moment, when all news stories seem to be indicating that Americans are returning to a culture of frugality and saving, that we have so few options for safe, healthy returns on our investments. I am sure if HSBC offered 7% returns many people – like me – would be pulling all of our money out of our brokerage accounts and stashing them there.  They can’t offer rates like that, of course, but the truth is that people are anxious to save and someone will make the case to be safe enough and offer high enough returns to pull in those savers eventually.

Earn 1.65% APY* at www.hsbcdirect.com

photo credit: Unhindered by Talent

In the personal finance classic The Millionaire Next Door, two men consider time spent on money-related activities. One spends a month researching new luxury cars, calling dealers and getting the best deal. The other buys a cheap car without significant research but spends a month studying investment possibilities. Which one do you think is going to have more money at the end of the next year?

One of the biggest concerns you may have about investing (I had it myself) is “how can I possibly spend enough time researching companies and making sensible investments?” In the past, many people assumed that stocks and mutual funds were “safe.” You may not feel a need to research GE’s debt or financial statements before investing in them. I am sure many Enron investors were unconcerned by the fact that they didn’t understand what Enron actually did. But any investment requires serious study and examination.

If you don’t feel you have enough time in your life to study investments – be it real estate investments, making a P2P loan or a stock market purchase – let me ask you a simple question: have you seen an episode of a sitcom this month? Voila – 30 minutes. If it’s a rerun, there’s 60 minutes of your life that could have been spent making yourself richer. I know people will say that they need to relax. I turn on an episode of Family Guy from time to time myself. But if you do that, make sure that it’s not time taken away from studying and research in your financial future.

Another reason people find they don’t have enough time to research their investments is a lack of focus. If you try to become an expert in the entire Fortune 500 and real estate investing and the best mutual funds and 15 different alternative investments, you won’t ever have enough time to master them all. You’ll be a dabbler. You can’t focus on just one area, of course; diversification is one of the granite cornerstones of the personal finance temple. But pick specific areas to focus your attention. I worked in the financial services industry, and I have always enjoyed following the news in that area. I try to follow stocks in those areas. I don’t do much real estate investing, but I do follow my local market and the markets in areas where I have some knowledge because I visit frequently. I used to spend time trying to research 100 different means of gaining alternative income but then I realized it was better to focus on a few I’m interested in like P2P lending and creating content (writing, developing websites), or studying the best ways to sell on eBay, where you can make money selling off your unused stuff!

So the next time you think you don’t have time to study your investments, make time. If you get as much enjoyment out of investing as you do from watching a favorite rerun of Seinfeld, you’ll always have time.

photo credit: Emi ♫

If you have teenagers, then this thought must have crossed your mind at some point: “if only they would do some of the things I wish I had done!” Maybe you always dreamed of visiting Paris or taking a year off after high school to try your hand at painting. Perhaps you hope your children will take the leaps you never took, and now that they are teenagers they may be ready to take those leaps. The most important thing you can do now is to give them the basic skills to succeed in life. One of the best ways to do this is to teach the teenagers in your life how to invest their money – at least once they start making it!

Just as saving is a good subject for children to learn, investing is a great skill for teenagers. Sadly, investing is still not taught in most secondary schools, and many parents who are struggling to get out of debt may not have the background themselves to educate their children. Parents may be embarrassed to admit everything they don’t know about investing, but just like “the talk” about sex or drugs, that embarrassment must be overcome for the teenager’s sake!

So what can you do? A few simple steps can be taken. None of them require a huge investment of time.

1. Open a custodial account. A custodial account is opened in the name of an adult “for the benefit of” a minor as a Uniform Gift to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), depending on your state of residence. If your child’s interest and dividend income (including capital gain distributions) total less than $8,500, the child’s parent may be able to choose to include that income on the parent’s return rather than file a return for the child. If the child’s interest, dividends, and other investment income total more than $1,700, part of that income may be taxed at the parent’s tax rate instead of the child’s tax rate.
2. Put some dollars in their investment account – the amount is not particularly important. If you have the resources to give your child a lot of money to invest, do it. If you don’t have the resources, don’t worry – the purpose is to educate at an early age. Once they have their own money, they can invest it themselves. Your role is to start the fire, not to bring the logs.
3. Contribute a certain amount in lieu of gifts. So much angst is created in our consumer-driven society by a corporate-imposed mandate to buy love through “stuff.” Your child is going to whine when you don’t buy them a Wii and instead give them $300 to invest. Your job as a parent is to show them, both in word and action, that until they make their own money, it is your money to spend as you see fit. Toys will be forgotten.
4. Sit down and explain the basics. You may not understand the basics of investing. Study. Read blogs, read some of the basic books on investing. You don’t need to understand option puts. You need to understand what a share is, why dividends are paid, what unrealized and realized gains and losses are. If you don’t understand these terms, study.
5. Don’t just buy a “how to” book, though. If you buy a cookbook and follow its directions point-for-point, you can bake a cake. But teachers don’t just stand in front of a classroom reading directions from a textbook point-for-point, though, and great chefs do not rush back and forth to check whether to add flour or bacon grease to a chocolate cake. They understand their subject well enough to teach it themselves, not just by reading a book aloud. Do the same with investing – read about investing, not “how to” invest. Sit down with them. Make sure you read the books at the same time as they do. Work through the book with them – make it a question-and-answer exercise.
6. Choose investments together; involve them. To illustrate this point, we made the mistake of steering my wife’s (much) younger sister away from a “trendy” stock (AAPL) she wanted to buy in favor of a “solid” one (INTL). Even though our reasoning was sound, the decision to buy a particular stock has to be the teenager’s, not yours, or she will lose interest in investing. If you make the choices, it becomes another adult-driven enterprise that they have no real “say” in. If they want to invest in risky investments that fail, let them! Losing money can be as much of a lesson as making money. Teenagers are young; they have time to recover from their losses.
7. Go over it every month or quarter or year to review what went right and wrong. Make sure you sit down and look at “what ifs.” What if that dividend had been reinvested? What if the money had been put in a CD instead of stocks? Maybe it would have been better, maybe it would have been worse. Make sure they understand the parts that went wrong – it may be even more important than understanding what went right.
8. If your teen makes some money, ask them to reinvest at least 10% of it, even it that means just a single dollar. Reinvesting is one of the keys to building wealth. Dividends and gains are not money for spending – not ever. Teach your teenager that just because they’ve received a dividend is no reason to spend it on “stuff.” Learn how to reinvest before ever even touching the money by using DRIPs (dividend reinvesting plans).
9. Teach them not to touch their principal. I find that thinking of principal as if it were a house’s foundation is useful. Before you can build a castle, you have to lay down a foundation. You can’t pull chunks out of the foundation just because you’re running short of concrete to build a tower. The base of an investment portfolio has to be thought of as untouchable.
10. Consider alternative ways of investing. Most of the examples I’ve given are equities, because that’s a low-barrier entry into investing. You can easily invest small amounts in the market. That doesn’t mean your teenager can’t learn about investing in real estate or businesses or P2P lending. The same lessons can come from successes and failures in those areas. If your teenager is more interested in building an online business with their investing money, let them. Help them decide, let them succeed or fail on their own, and help them review the results. Despite what the conventional wisdom of the retirement-planning industry may say, you can invest without putting money in the market.

Keep your teenagers engaged and interested, and YOU may even get excited about investing – even if you’ve never done it before! Remember that spending and saving habits are established early in life. Small actions now can stoke the fire of determination to achieve financial success for a lifetime. You can provide the spark.

photo credit: lenifuzhead

A great book to get started with is The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of