Asset Allocation - What's That?

You may have had someone tell you, at some point or another, that 90% of the return on your investments comes from asset allocation. Asset allocation? What’s that?

Each investor has a different time frame, as well as a varying appetite for risk (and thus reward). Some people need their money in a few years, while others have decades to ride the markets. Some investors freak when they lose 5, 10, or 20%, while others ride on without being too phased by losses. While these investors have very different profiles, they all need one important strategy: asset allocation.

Asset allocation is, in Everyman’s terms, the way that you divide your investments between various categories of equities, fixed income products, and cash. Taking time horizon, risk tolerance, and other factors into consideration, this breakdown of funds can look very different from person to the next.

Example: Two investors with two very different asset allocations:
1. 23-year-old that understands that he’s in it for the long run and could almost not care less about short-term gains/losses.
2. 52-year-old that would like to retire next year, living off of her investment income, among other sources.

By diversifying their portfolios, each of these investors can buffer themselves against sever market fluctuations. However, the 23-year-old is still much more likely to have a higher risk profile – but will have at least 30 years to make up those losses. If the 52-year-old, however, had the same investments as the 23-year-old and lost 20% of the value of her portfolio, she may have to postpone retirement or live on less than she was expecting to be able to have available for her needs.

Reiterating, the two main determining factors in asset allocation are:
1. Time (horizon)
2. Tolerance (to risk)

If you have the time to make up your losses on some bad years, as well as the stomach to swallow those losses in the pursuit of larger gains, you’ll be more heavily invested in investments that have higher standard deviations of returns (but historically higher average returns as well).

Here is what their sample portfolios might consist of:

23-year-old – Aggressive Growth Portfolio
Category - % of Portfolio
International Equity - 25
Large Cap Value - 21
Large Cap Growth - 17
Mid Cap - 14
Small Cap - 12
REITs - 6
Emerging Market Equity - 5
Short-Term Bond - 0
Aggregate Bond - 0
Cash - 0
High Yield Bond - 0
International Bond - 0

As you can see, the entire portfolio is invested in equities. This would represent a very risky, yet potentially high-reward portfolio. This portfolio is likely to see both large gains and significant losses. Given a large number of years, however, it is likely to have a higher return than the next portfolio.

52-year-old – Conservative Income Portfolio
Category - % of Portfolio
Short-Term Bond - 35
Aggregate Bond - 25
Cash - 10
Large Cap Value - 8
High Yield Bond - 5
International Bond - 5
International Equity - 5
Large Cap Growth - 5
Mid Cap - 2
Small Cap - 0
Emerging Market Equity - 0
REITs - 0

This portfolio have very little exposure to the equity markets and is almost entirely in fixed income and cash. This makes sense, as both fixed income and cash have smaller standard deviations of their returns (and thus, are more predictable in determining what the return will be on the investment).

These two portfolios are more on the extreme edges of the spectrum. The majority of you will fall somewhere in between these two, with a balanced mix of equities, bonds, and cash. Generally, the closer you are to retirement (time horizon) and the more sensitive you are to short term losses (risk tolerance), the more you’ll be invested in bonds rather than equities.

Overtime, both of these two hypothetical investors will want to rebalance their investment portfolios to move them back to their original allocation percentages. This, in theory, also helps investors by forcing them to capture gains (if large cap growth did really well, it may now be at 25% of your holdings instead of the original 17%), as well as purchase securities when they are “cheap”(if small caps had an off year, you need to buy more to get it back up to its original allocation). This follows the basic (yet so psychologically difficult) premise of buying low and selling high. Too often, we tend to buy the “hot” option at the time, only to find out that we missed out on most of the growth and instead have most likely jumped on just before it comes back to normal (thus, a loss for you, Mr. Late to the Party!).

Smart investors use asset allocation strategies. So should you, the Everyman!

To find out what percentage of your money you should have in each category, try out a couple of these helpful tools online:
http://www.smartmoney.com/oneasset/
http://cgi.money.cnn.com/tools/assetallocwizard/assetallocwizard.html
http://www.money-zine.com/Calculators/Investment-Calculators/Asset-Allocation-Calculator/
http://www.nationwidefinancial.com/mm/pub/advice/assetAllocation/assetAllocation.html
http://www.rcu.org/java/AssetAllocator.phtml

Best Time of Day to Book Flights!

Ever wondered if you were really getting the best deal by using some of the online travel site to book your flight?

Just a short tip with this blog post, but it can be valuable!

The best times to book flights online are at 2PM, 4:30PM, and midnight. Why? Those are the most common times that the best deals will be uploaded to the travel sites.

What days should you look for flights? While there is always some debate about this, the consensus is that Wednesday is the best, followed by Tuesday. At all costs, avoid booking flights on the weekends! The demand increases (that's when many others also are booking their flights) and they will be charging more!

If you can, also schedule your departure for Saturday morning rather than Friday night. The airport will be much less crowder, the odds of cancellation are much smaller, and even if you do, you don't have to wait until the next day to get onto another flight.

What kind of tips do you have for airline travel? Leave comments below!

Save over $500 per year - Inflate Your Tires!

According to this page, the majority of cars are running on tires that are only filled to 80% of capacity. What does this mean to the Everyman?

Not only are under(or over) inflated tires a safety hazard, but they also are a hazard to your wallet! According to the referenced study (from the site link above), the typical 12,000 mile per year driver uses an extra 144 gallons each year due to under-inflated tires. 144 x $4.00 = more than $500 savings per year.

The beauty of this tip? It's free! While a few places may charge you to use their air tank (and if they do, you're bound to find enough change underneath your driver seat), the majority (at least here in Minnesota) offer compressed air for free.

In order to find out how much air you need to put into your tires, you'll need to locate the manufacturer's recommendations, which can be found on the outside of the tire. While it may be hard to see, you should find it in raised lettering outside of the hubcap area of your tire. The tire should indicate the recommended PSI, which is the pounds (of air) per square inch.

You'll also need to pick up a tire pressure gauge, which will tell you what the pressure is currently at in the tire (and also allow you to monitor your progress at increments while filling your tires to their correct PSI). This gauge shouldn't cost you more than a few bucks (I even found a digital one at Target a few months ago for about $10).

This simple way to save some money should provide you immediate results at a low (if not zero) cost. Go ahead and give it a try! (Hey, I can think of ways to spend $500 per year - on things other than gas!).

Free Movie Rentals!

While a number of my friends are subscribed to services that provide movies directly to their homes, I prefer the McDonalds Redbox. Why? Because many times the rentals are FREE!

By searching the Internet for promo codes, you can find an almost limitless supply of codes - and free movie rentals! The catch is that the codes expire (the majority, anyway), and you cannot normally use a code more than once per credit card.

If you don't use a code, the rentals are $1.00 (plus tax) per day. Still pretty cheap!

Check out the following sites for Redbox promo codes:
Inside Redbox
Redbox Codes

Also, you can rent and return the Redbox DVDs to any other Redbox location. This is GREAT for road-trips. Just look ahead and locate the various locations that have Redbox rental centers before you go!

Goodbye Landline!

In my last post, I pointed out how much you can save by not subscribing to a multitude of channels for your cable service. Over $50 per month! This time, I want to share with you how to save money on another form of communication – your phone. While many of us have made the switch, many others have not. What switch is that? Dropping your landline!

A recent survey has shown that 1 in 5 American adults has made the switch and no longer has a landline at their place of residence. 1 in 5? That’s it? That may seem high to a lot of you, but to this Everyman, I’m surprised that more people haven’t made the switch. Another survey, however, showed that 49% of movers are ditching the landline after they move. With the added convenience of only one phone – plus the fact that you won’t miss calls when you’re not at home, those numbers fall closer in line with what I’d expect. Smart people like you shouldn't be paying $10, $20, $30 or more extra per month to have a landline you don't need!

Another way that this Everyman has saved on his phone bill is by remaining on a family plan with my parents and siblings. That majority of the personal (that I would have to pay for) phone calls that I make are to them and my wife. Thus, all calls to my parents/siblings are free (because we’re in the same plan). In addition, I don’t talk for long on the phone with my wife, as I see her every morning and evening. So why have a long-distance phone line, or a phone line in general, when the people that I call most are already covered? That leaves those extra minutes on my cell plan for calling people outside of this group. For $5 more per month, my night time minutes start at 6PM. And being that I don’t get home from work until 5:30 on a normal night, that also cuts down on the amount of daytime minutes that I need/use, even lowering my portion of the bill even further.

If you do need to make long-distance phone calls, a great way to do it is by using a service called Skype. This allows you to call other Skype members over the Internet for free (you can also make calls to landlines and cell phones for a fee). But if you need that way to call your grandmother in Florida – and grandma is “up” with the technology to get on Skype (a free download), you’re covered! Plus, you can even use video to check out how grandma’s new wig looks!

It’s not that difficult to save money. Everyman (and woman) can do it – and so can you. It just takes a lot of common sense and a little bit of determination. Quit paying for that landline you don't need!

How to Save $300,000 - on your cable bill!

Over lunch with some co-workers a while back, it came about that I was the only one in the group that didn’t have more than basic cable to satisfy his/her television viewing cravings. Don’t get me wrong, there are definitely days when it would be nice (I can only catch my Minnesota Twins games on Sunday afternoons – and most of the time I’m not inside on a Sunday afternoon). But my lineup of the networks, along with some oddly entertaining community access channels, as well as WGN (if only I were a Cubs fan!) and MSNBS (no clue why this shows up – if only that were Fox Sports Net or ESPN!).

Why am I telling you this? In total, I pay about $50 per month for Internet access and basic cable. I’m sure there are people that would question why I would have basic cable when I could pretty much pick up most of those channels from an antenna. I had the same thought. Turns out, it’s the exact same price to have Internet with basic cable and to simply have Internet access. Guess you get a discount for Internet when you have cable. Fair enough, plus I don’t have to deal with the good old bunny ear antennae – as well as the change over to a digital signal in Feb. 2009.

For me to add the next package up, the “Digital Starter” package, I’d be paying $50 MORE per month. And no, that doesn’t include the premier movie channels or any other subscriptions. Or HD (sorry, that’s another $7 per month). (Another tip for those of us who don’t have movie channels – McDonald’s Redbox has the latest releases for only $1 per night – or FREE if you use promo codes that you find by searching on Google!)

Now maybe this isn’t resonating with all the readers out there, but think about that for a second: $50 per month? If you haven’t figured it out by now, I’m fairly young. One thing I have figured out, however, is that with the power of compounding interest, a little now can go a long way in the future. Say I took that $50 every month an invested it. Every month, for 40 years. In reality, that $50 difference is like to increase (with inflation). And let’s say I average 10% per year on my investments. In 40 years, that $50 per month will net me over $300,000! Yes, that won’t go as far in the future, but still, even if it were $50,000 in today’s dollars – that’s a lot of money!

If you’ve never taken the plunge – or thought about how you really don’t need all those channels – now is the perfect time to try. What do you have to lose? You can always get your channels back (they’ll be more than happy to get you back on that higher package!). But I’m from Minnesota and our summers are not that long. Why not enjoy them rather than sitting in front of the TV all summer? Plus, this Everyman is saving a lot of money in the process!

Saving Money: Gas Prices

In the latest fight against high oil and gas prices, a proposal has come up in congress that would reenact a national speed limit of 55 mph. And while this Everyman is not old enough to remember the days of a speed limit that low, he can imagine what that will do to the length of his road trips.

Is this a good idea? The numbers are there: I've been reading all over the Net that for every 5 mph faster you go than that 60 is like adding $0.30 per gallon to the cost of gas.

But if you're like the typical Everyman, you're not too thrilled to learn that you just added an extra hour onto the trip to go visit Otherman on Lake Somewhere Better Than Here. That can mean the difference between arriving in time to get a little fishing in or missing out on the evening bite.

So, what are some ways that you can save gas without driving like your grandmother?

Pay for gas in cash - it's not all that well known, but the gas stations pay a fairly hefty fee when you pay for your gas by using a credit card. Recently, many gas stations have been offering discounts to those that are willing to pay in cash for their gasoline purchases. Because they are not paying these fees, they can pass the savings on to you! So I encourage you to ask around for discounts on gas - most can be found at non-chain owned stations. It never hurts to ask!

Get the best prices online - I know it's not always convenient, but if you have access to a computer (which you do if you're reading this!) and know you'll need gas soon, check out gasbuddy.com for the best deals on gasoline in your area. This site collects prices from volunteers that will post the price at the various gas stations - so you don't have to drive around looking for the best deal! The differences can be significant - often I'll see one station charging at least 10 cents more per gallon - and their only a mile or two apart (and both on the way to my destination)!

Avoid the stations closest to the main roadways - if you're going to veer further off the beaten path anyway, it's best not to simply buy the gas at the first station off the of the interstate. Because of their location, they can sell at a premium. The opposite holds true for the station a 1/2 mile down the road. In order to get your business, they may charge 5 cents less. Hey, if you're a typical Everyman, you know that you can get quite a delicious donut inside the store with that money you just saved!

Ditch the SUV/Truck - I know, it's hard for the Everyman to do. But really, is it worth it to drive around a tank that gets 10 mpg (if you're lucky) when you can drive just about any decent sized sedan and get close to 30 mpg? Do you realize that 400 mile round trip to see your parents costs you $160 compared to $53.33 at $4.00 per gallon? That's a LOT of money. Maybe you can compromise and get an old truck for when you need it, while driving a more fuel-efficient sedan for your main vehicle. This Everyman works in a downtown metropolitan office-building and sees more SUVs/Trucks with only one occupant than he can even count. Worth it? I'm not so sure...

What Do You Do to Save on Gas? Comment below!

Questions About Credit Scores - Improve Your Credit Score

Your credit score. It’s a number that’s just as important as your anniversary date, social security number, ATM PIN, and golf handicap. And while having a great handicap in golf won’t get you better interest rates (unless, I suppose, you’re golfing with the CEO of Countrywide), having an excellent credit score will.

Why Is Your Credit Score Important?

Credit scores not only determine the rates/conditions of loans/credit offers that you will receive, but they also can determine whether or not you’ll even receive an offer! Those with low credit scores may not even be able to receive a line of credit or loan at all!

Where Do Credit Scores Come From?

So who determines this monumental number in your life? There are three credit bureaus that operate in the United States:
- Experian
- Transunion
- Equifax

Each provides their own score, which will slightly vary between the three, all ranging between 300 (ouch!) and 850 (rumor has it, it is impossible to achieve). Your are entitled to a free credit report from each of these bureaus once every 12 months. If you are only doing it as a continual check, it’s possible to get a free credit report every 4 months by rotating which company you request from. That way, you should always have an idea of what it is that creditors are also viewing.

How Is Your Credit Score Determined?

How is your credit score determined? Much of it comes from your payment history (how well you are at paying your bills on time), as well as the amount you owe in comparison to how much credit you have available. However, other factors that come into play is the length of your credit history (someone who pays their bills on time and has a good ratio of debt to credit available, but has only 5 months of credit history is still pretty risky), recently issued credit, and the type of credit used.

Weighting of Impact on Credit Score:

35% Payment History
30% Ratio of Debt to Credit Available
15% Length of Credit History
10% New Credit
10% Type of Credit Use

Monitoring Your Credit

One option for monitoring your credit, which I’ve used for a few years after a small case of identity theft (I’ll tell you about that at a future date), is a service that Experian offers that is called TripleAlert. This service, which costs $4.95 per month, monitors ALL THREE of the credit bureaus for changes on a daily basis. Thus, if anyone were to try to open credit in my name – or if anything else were to change on my credit report – I would be notified within 24 hours. It’s been effective in catching any changes (which I’ve been able to test when legitimately applying for credit since I’ve added the service) and I’d highly recommend it as a tool to prevent destruction of your credit score by identity theft. In all, it monitors for new inquiries, potentially negative information, public information, new accounts, and address changes. You can even have it alert you by SMS text message. Cool, huh?

Ways to Improve Your Credit Score:

- Pay bills on time! This may be common sense, but if you don’t pay when you are required to, your score will take a big hit (see the weighting from the above section). Sometimes, people have the resources, but not the capacity to remember to pay their bills. If this is you, sign up for automatic payments on your accounts or bill pay through your banking institution. I enjoy the freedom of not having to be bogged down with paying bills, while continuing to have access to view the bill each month to monitor its accuracy. Again, it’s important that you keep sufficient funds in your checking account to pay these bills each month (but not too much in your checking account, as you can get a much better return in an online savings account!).

- Take the time to correct the errors - If you’ve never seen your credit report before, you might be surprised to see how many errors might actually be included. While you might not even realize they are there, you can be sure that they are dinging your score – this could be greatly impacting the terms of credit that you might have been or will be offered! If you know that you’ll have an upcoming purchase that you’ll need credit for, it’s worth the time to correct your score now. In fact, it can take 2-3 months (or more, in instances) to fix problems on the report. So start now! And if you find errors, be sure to contact the credit bureaus and get those cleaned up!

- Keep old accounts OPEN – Not surprisingly, this can be confusing to people. Why would I keep accounts open that I don’t use? The first reason is the “length of credit history” weighting. If you have a line of credit that you’ve had for a length of time, it should help your score. Remove that credit and the result will be a shorter length of credit history = lower credit score.

- Keep your debt/available credit ratio to about 25% - Just because your credit card company says that you can go out and spend $10,000 doesn’t mean you should! Ideally, you should be using no more than about 25% of your available credit. Would you rather offer a line of credit to someone who already has maxed out their other lines of credit? Probably not. So don’t be that guy that doesn’t know when to quit! This is also another reason not to close accounts – closing accounts will lower your available credit and raise your ratio of debt/available credit.

- Remember that parking ticket or library fine? – Yes, even forgetting to pay off that library fine or parking ticket can result in a significant decrease in your credit score. Don’t forget things like your utility bills! You can be sure that they will also report you if you fail to pay. That late library book fine might damage your credit report for a good SEVEN YEARS! Be careful about paying those off on time!

- Don’t open a lot of store cards (or any cards for that matter) – Yes, it may be tempting to open that card at (name your favorite retailer here) because they are offering (name amazing perk here) if you apply today! While many of those cards have sometimes astronomical APRs, it also looks horrible to have multiple inquiries and new accounts in a short period of time, especially right before you are looking to obtain credit for a more legitimate purpose (a car or home). Besides, you already have enough to keep track of with your finances. Do you really need to open another account to remember to pay off? These leads to my next point.

- If you can’t handle your cards or find yourself getting behind… - Sometimes people just reach a point where they lose self control. They have large credit limits and soon reach a point where they can barely make the minimum payments. While your credit score may have already taken a hit, it’ll be severely damaged if you are forced to start missing payments – or worse, file for bankruptcy (and that, my friend, will stay on your credit report for 10 years). I can’t take credit for the idea, but I also can’t remember where I heard it. If you need a break from your credit cards, go all cash for a while. In the mean time, take your credit cards and freeze them in water. That way, you’ll still have them, but in order to use them, you’ll have to make the choice to thaw the card out after pulling it out of the freezer. Yes, maybe a bit drastic for some, but it’s well worth it to help you slow down and live within your means.

- Share your tips – Anything else Everyman didn’t think of that you think would be beneficial for readers to know? Submit a comment below!

Overall, a good credit score can make life much easier. Your interest rates will be lower (this can be a significant reduction in payments, especially on large items such as homes) and you’ll have more credit available to you. By taking a few initial steps to improve your credit, along with consistent credit monitoring, everyman can maintain an excellent credit rating.

Saving Money: Taking the Bus or Subway

If you've been living under a rock, you might not have noticed that gas prices have gone up a bit lately. (gasbuddy.com)And if you're like most of us Everymen, you need to drive to work. Fortunately, you have options! In my case, I save a whopping $12.93 PER WORK DAY.


If you've read this far, you can see the astronomical amount of money that I save each year by riding the bus. And this does not include even more benefits:

• Less stress - rather than sitting in white-knuckle traffic, I'm nice and relaxed, both when I get to work, as well as when I get home to my wife.
• More time - not only is the commute shorter when you ride the bus (buses can run on the shoulder of the road!), I also have more time to read/listen to music or podcasts/take a nap/etc.
  
• Entertainment - let's face it: public transportation can be interesting. Mind you, I ride in from a suburb that is relatively well-off. But the stories still abound! From the lady who attempts to sing along to her imaginary headphones, to the one who always tries to short-pay her fair with a new driver (plays the "can't speak English" card), there's always something happening on the bus!

I know that some of you don't have the option to take mass transit. There are other ways to save money on transit, however, and I'll touch on those in a future post.

If anyone wants to use my spreadsheet with their own numbers, let me know and I'll send it to you.

Everyman has to get to work. How much you save on the way is up to you!

Best Deals on the Internet

In my quest to save money, I've come across a number of sites that offer great deals that you may only be able to find on the Internet.

Slickdeals.net
This site includes daily deals (technology, clothing, samples, and more), as well as coupons (that you can search for by company name), and forums that users can contribute to with their own deals that they've come across.

Spoofee.com
I really like this site for deals because of the rating system that is used. The more stars that the deal gets, the more attention that I'll give it! I can't even count the number of sales, coupons, and forum postings on this site. You can find some GREAT deals on here!

Secretprices.com
Their motto is "Prices other sites simply don't tell you". And it's true! You can find some great deals on anything from books, movies, clothing, electronics, and more

Dealhack.com
"We Search, You Save". Pretty straighforward, eh? This site is also in my Top 5 for saving. Again, selection is across the board. One thing I do like about this site is that you can also search for features such as "Free Shipping".

Restaurant.com
If you like to dine out (who doesn't?) but don't like to pay the full price, here's a site for you! With this site, you can buy gift certificates for various restaurants in your local area. Most metropolitan areas have restaurants listed. The catch? The best deals are at the end of the month...however, once the gift certificates are gone for the month from that restaurant, they don't get any more until the next month. Expect to find certificates that will cause your jaw to drop, however ($10 certificate for $3...$50 for $20...and more!). For cheaper eats, this is the place to check out! A lot of high quality restaurants listed on this site!

Your Favorites?
I'm always looking for new suggestions - where do you save money online??

Welcome to Everyman's Money

I've created this site to be for you.

Many of the personal finance blogs out there are rather unrealistic - people that are making 250K per year or post about their dilemma between which vacation home to go to. They may even let you follow their pace toward becoming a multimillionaire by the age of 23.

No, this page is for those of us who are looking for better ways to manage our finances and make smart choices about our money, while making a decent return.