Baby Steps to Wealth

Midlife Malaise, Episode 4: Our Spending, Our Saving

Chocolate Coins or Real Ones? A short-short story

How to Have Enough Money

A Word With Marty: "INVESTING" (Time and money)

A Word With Marty: "STOCK"

My Money Secrets

A Realist Talks Money

Finding and Growing Money

The previous installments in this The Quests series are on finding a good job, relationship, peace of mind, place to live, and diet discipline.

In my Psychology Today article today, we turn to money: how to get it, how to grow it.

How to Avoid Irrationally Low or High Risk Tolerance

Financial advisors and apps ask clients to rate their risk tolerance, usually accept the answer, and find appropriate investments.

But why might someone's risk tolerance might be irrationally high or low. To become more rational, My Psychology Today article today offers 11 causes of and suggestions for irrationally high or low risk tolerance.

The Psychology in Spending and Saving

Like most of our important behaviors, how we deal with money has a psychological component. My Psychology Today article today offers thoughts on how to use that in your favor.

Tough Problems: Money

My PsychologyToday.com article today offers the third in the Tough Problems series. In each, I present two composite questions faced by my clients and my response to each.

The World's Shortest Course on Your Money: Making it, spending it, investing it

School teaches many things but gives short shrift to money: making it, spending it, investing it.
My PsychologyToday.com article today offers the most important things you need to know. The advice is aimed at young adults but may well be worth reading by people of any age.  It is the advice I’d give a family member.

What I'd Tell My Teenager About Earning, Spending, and Saving

What I'd say to my teenager about money: earning, spending, saving. That's my PsychologyToday.com article today.

You and Money: It's Not As Complicated As You May Think

My article today on PsychologyToday.com is You and Money: It's not as complicated as you may think.

Investing Reinvented

Especially in these tight times that will likely be with us for the foreseeable future, whatever savings we have should be invested wisely.

Fortunately, it's far easier than financial advisers--who make their money by making us feel we need them--would have us believe.

Even many sophisticated investment advisers agree that the following no-brains-required strategy is likely to, over the long run, yield better results than most investors obtain using strategies that are far more time-consuming, anxiety-provoking, and requiring great expertise or paying a hefty fee to a financial adviser.

1. Keep most of your money in a low-cost, no-load mutual fund. They offer greater potential rewards than a bank CD but with greater risk. One of the best is a Vanguard All-in-One Fund. Those come in different flavors depending on your risk tolerance and how long you plan to keep your money invested.

1a. If you're in the top federal tax bracket (the 35% rate), you might be better off in a tax-managed fund such as the Vanguard Tax-Managed Capital Appreciation Fund or the less aggressive Vanguard Tax-Managed Balanced Fund.

Do not try to time the market. Every time you have an extra $500-$2,500 to invest, do so that day. That way, your money goes to work for you immediately. Also, that automatically buys you more shares when prices are low, fewer when prices are high.

2. Keep an amount equal to six months living expenses in one of the nation's highest yielding bank CDs. How do you find them? Easy: bankrate.com lists them daily. It feels great to see your savings grow. It's like magic--you earn interest on your interest. That's making money without having to do a thing--and with bank CDs, there's essentially no risk, especially if you choose one of the banks with a high safety rating.

2a. If you're in the top federal tax bracket (the 35% rate), you might be better off in a Vanguard tax-exempt bond fund. than in a bank CD.

I believe that all citizens should be taught that model of investing. It would likely result in more net assets for the public, more confidence that it's worth saving for a rainy day, and a greater sense of security, something we could all use in these insecure times.

Disclaimer: I am not a professional investment adviser and thus am NOT giving investment advice here. This merely is a model I've used in my investing. Also, except for the bank CDs, please note that these are uninsured investments and subject to losses. Finally, I am not affiliated with the companies mentioned in this article and have nothing to gain from your investing in them.

Don't Panic: Stay the Course

In past stock market declines, many people sold stock near the bottom, thereby missing the larger recovery that, heretofore at least, has always occurred. 

No one can accurately predict the stock market's bottom or whether it will recover more than it has lost, but I personally would rather bet on humankind than against it.  

So, I will continue to invest in the stock market without trying to time it:  Whenever my checking account has five thousand dollars more in it than I need, I invest that in Vanguard Total Stock Market ETF, which offers broad stock diversification at an extremely low fee--0.07% plus the rock-bottom $4-per-trade commission charged by Sharebuilder. 

That approach to investing means that over time, I end up owning more shares bought when prices are low than when they're high. And I don't have the stress of trying to do what even most professional investors can't do: time the market and pick individual stocks that will beat the market.

Of course, before investing, everyone should have at least a few months worth of cash reserves in a money market account to allow for emergencies. 

I want to be clear: I am not a professional financial advisor, and your individual situation may warrant a different investment strategy than mine, for example, if you need to insulate your money against wide short-term swings. So, it's typically wise to consult a trusted financial advisor, perhaps showing this blog post to him or her.

Tips for Tough Times

• Enjoy low-cost pleasures.  In risky times, unless you're wealthy, it's wise to hold off on the new car, expensive vacation, clothes and jewelry, etc. 

You're likely to derive as much joy from low-cost pleasures: a walk in the woods, reading a book or watching a video you got free from the library, inviting friends over, creating something artistic, watching a good show on TV, playing a favorite video game, or being a volunteer tutor or mentor. Not only will you derive more pleasure from those than from buying expensive things, you'll avoid a big credit-card bill.

Last night, my wife and I spent an hour playing with our dog, Einstein. We got as much pleasure from it as any expensive pleasure I can think of. 

• Rent rather than buy a home. Home prices have risen, basically uninterrupted, for decades and have declined only for the last three years.  That decline will likely continue, and not just because of the tight credit market. Until real estate prices started to decline, potential buyers felt they had to act fast: "If I don't buy now, prices will be higher." Now, the psychology has reversed, "If I wait, prices will come down." That psychology is decreasing demand, which of course will lower prices. Remember, objects in motion tend to stay in motion in the same direction.  

So, if I were thinking about buying a house, I'd wait until the prices in my target market were up 10%. Sure, I'd miss the bottom of the market, but I'd thereby have significantly reduced my downside risk. As they say in the financial world: Never catch a falling knife.

• Solidify your position at work: Make yourself indispensable to your boss, become beloved by co-workers, ask a trusted colleague if your boss dislikes you--and fix the situation.

• Don't bet against the world. Sure there are big worry signs now, but rather than put your money under a mattress, invest it in a good mutual fund, for example, one of Vanguard's All-in-One funds.

Or essentially eliminate your risk by investing in high-yielding bank CDs. Bankrate.com lists banks offering high CD rates. Probably, the government would pay off depositors in failed banks but, to be safe, I'd give up a few tenths of a point in interest to have my money in a bank rated safe on Bankrate.com.