The Incubator


Tax season is upon us! Use it as another opportunity to strengthen your retirement position. Here are a couple of suggestions – 

1.  Did you know you can contribute to your 2011 IRA (or Roth IRA) right up until the time you file your 2011 tax return? It’s a great opportunity to make the full annual contribution for 2011 that you are entitled to, if you haven’t done so already. In addition, contributions made to a standard IRA (but not Roth IRA) are fully deductible for those who file separately and make less than $56-66,000, even if you are contributing to a retirement plan at work. For those who make more the deduction phases out. Since tax rules are tricky, we recommend using the services of an accountant or other tax professional.

2.  Will you be getting a tax refund for 2011?? While it’s a lot of fun to use a tax refund as a splurge on treats, how about cutting your retirement program in on the take? My plan this year is to put 40% of my refund toward outstanding obligations, use 50% as a contribution to my DRIP accounts, and the remaining 10% will be for a personal treat.

It's January! Resolutions for 2012

It's hard to avoid. Every January with the new year we resolve to lose a couple pounds, pay a couple bills but the follow through has usually disappeared by February 1st. If you are one of the many who have waited too long to address the looming issues related to retirement, then this is your year!! The bloggers here at ITR have declared 2012 to be "The Year of the DRIP" and it's time for you to get on board!! (hey the longer you wait, the more it's going to hurt!)

Here's some suggestions of pro-active steps you can take to assess your spending and saving rates, and look for ways to improve your situation.

1.  "Where does the money go? I run out of money before I run out of month!!" Look closely at how you spend your money. Here's an exercise that will answer this question -- write down every penny you spend for a month. At the end of each day record where the money went; bills, lattes, vending machines, tolls. 

2. At the end of the month, take the list you made in step 1 and record each expenditure in an appropriate category -- use one of the many available apps, if you can and you've now got the makings of a BUDGET. Woo hoo!! Once you've got a budget showing where the money goes it's so much easier to get a handle on places where spending habits can be altered.

3.  To get your retirement savings plan started, begin with small steps! Find $20, $50, $100 amounts and use that money to invest in a DRIP. For example, I bought a new computer printer and the manufacturer sent me a $100 rebate. That $100 is now part of my BDX DRIP. And the stock purchase was painless!

4. How do you set up a DRIP?? That's the next topic! Just keep reading . . .

September Update: Setting up my DRIPs

I’ve been reading through company information and working to set up my DRIP investment portfolio. Here’s how I got started with my initial stock purchases: First, I reviewed the weekly blogs that we’ve posted and listed the criteria that I wanted to use for assessing stocks that were of interest to me. I wanted to begin by purchasing stock in 5 companies, and I decided that my initial purchase would be $250 for each company, for a total of $1,250.

I worked my way through the Master List of stocks. I made a list of the companies that interested me the most and then read the Investor Relations page that each of these companies supplies on its website (there is a link you can use by clicking on the Ticker). I then used Yahoo Finance to determine the “Price/Earnings” ratio (P/E) for each company, which I preferred to be below 15. I next checked the “5 yr Beta” (on the Master List) for my companies of interest, also preferring that to be low - below 1. And next I checked the “Debt/Equity” ratio (also on the Master List) which I wanted to be below 0.85. One of my selected companies (NEE) has a Debt/Equity ratio of 1.44 but it is a utility and additional factors are in play, so I kept it on my list. I could see the wisdom behind selecting my starting group of companies across several categories of “S&P Industry” (on the Master List). I picked two companies from the industrials category (NSC, UTX), one company from the health care industry (BDX), one is consumer staples (HRL), and the last represents utilities (NEE). Three of my companies are Lifeboat Stocks (BDX, HRL, NEE). One company was mentioned in the Risk blog as being a riskier stock (NSC) but I felt there were sufficient gains to offset the higher risk.

Finally, I was ready to make my initial purchases. I decided I could afford to set up an automatic monthly investment plan for one stock. The stock I selected for this was Hormel (HRL) and I chose HRL because its current P/E was around 16. This P/E ratio is low for HRL - it typically has a higher P/E that is over 20, which left me thinking this is a good time to be purchasing this stock. I’m going to make a monthly purchase of HRL for the next 6 months and then re-evaluate my position. I checked computershare and found that HRL is not available through that website. It has to be purchased through a stockbroker or through ING’s stock purchasing website, Sharebuilder. As a coincidence, I had just received an advertisement email from ING inviting me to open a Sharebuilder account, and with the added enticement of ING adding $50 to my new account. I landed on that offer with both feet. When I created my new account, ING offered me several account options. I could have a standard “Individual Account” or I could select between one of two IRA options:  a standard IRA or a Roth IRA. The Roth IRA is a particularly attractive option because I plan to use my DRIP accounts as supplemental retirement income, and money withdrawn from a ROTH IRA will not be taxed. [A word of caution - if you’re not familiar with IRAs, or pre-tax vs. post-tax income, it would be wise to do some reading and research BEFORE creating your accounts.]

To make a stock purchase through Sharebuilder, I will be charged $4 for the transaction. I want to keep my buying and selling expenses low, so I have set costs of 2% as my limit. That means that for each $4 fee I’m going to be charged, I want to make a MINIMUM purchase of $200. My initial purchase of HRL was for $250 and I set up my automatic monthly purchase at $200.

For my 4 remaining stocks that I wanted to purchase, I made an initial $250 purchase of NSC through Sharebuilder as well. My last 3 stocks were all available from computershare, which has the added advantage of not charging a fee for the stock purchase or dividend reinvestment. I bought $250 each of UTX, BDX and NEE. Oh and there is a what I thought was a quirky feature of computershare. Unlike many other websites where you create an account and then make a purchase, computershare is the opposite. You make your stock purchase and then following that your stocks are collected together into an account.

And don’t forget!!  When you purchase your shares and set up accounts - remember to select the “automatically reinvest dividends” option! The dividends your shares earn will be used to purchase more shares which will be added to your account (at no additional charge to you)!
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August:  "Let Me Explain Myself . . ."

We’re going to switch writers in this section of the blog. I’m the one who started this blogging endeavor believing my role would be limited to finalizing and uploading posts to the website but as I read, edited and posted, a persistent dialog began to spool in my head. It went something like this . . .

     Me: “But I want to see a sample investment platform set up that shows me how information from the weekly ITR posts is useful for my investments.”

     Myself: “Oh no no no – you’re not taking me there! No more futile investing endeavors! I’ve been so much happier since I dumped that mutual fund, and I refuse to get involved in more Wall Street hooliganism!”

     Me: “Right! Money is now safely accounted for in an ING Orange Savings Account! Secure. Know right where to find it . . . but how much has it earned???”

     Myself:  “Oh groan. Don’t start. I lost 42% of my investment by the time I finally gave up, pulled out the funds, and stuck them in the savings account. I’m not going back there. I’ll keep my 42% thank you very much!”

     Me: “But what does a savings account pay?”

     Myself: “What?? Pay? Pay?? I’m not concerned with being paid! I want to know where my 42% is, and this time I’ve also got the law on my side. ING can’t vaporize 42%! I asked, and they assured me it’s illegal. If they do, the sheriff takes care of it this time. He’ll ride in and bust up that little rattlesnake rodeo. Ha! Fool me once!”

     Me: “Check the earnings? Pretty please?”

Dang. I couldn’t stop my hand from picking up a mouse and clicking my way through computer screens until I found my current ING balance. Sure enough, my 42% was still there AND it was also earning interest!!

     Myself: “Sweet! I’m making money!!”

     Me: “Ahhhhh . . . 0.995%?? Really. You could beat that using the investment program designed in the blog. Come on. Accept the challenge . . . After all, look at how low the bar has been set by the mutual fund! Surely you can beat -42%. In fact, I’ll bet you could even beat the +0.995% rate of your savings account!”

     Myself: <groaning, wheezing noises>

Thus was birthed a new tab on the ITR home page entitled “The Incubator.” Why an incubator? Well, I work in a biomedical research laboratory where we are fond of inoculating flasks of nutrient rich media with bugs like E. coli and then leaving the flask in a warm incubator while cells grow and divide. That’s my idea of an investment. Something I set up to grow, check on at intervals, and then pull out of the incubator and use at the designated time.

In this Incubator, though, I will be setting up a long-term investment platform using the principles outlined in the weekly ITR blogs. I will explain my investing choices and decisions, and I’ll also assess how my investments are doing. Since the purpose of this section of the blog is to provide practical help, examples, and tools for investing, I will outline the reasons and steps I take to buy and sell my investments.

Here are my chosen priorities and goals for my investment platform:
  • I want to hold my investment portfolio for a minimum of 10 yrs.
  • I want to withdraw $1,000 from my ING Orange Savings Account to make my initial investment purchases and set up my portfolio.
  • I can safely set aside $100 per month out of my budget for the next year to add to my initial investment of $1,000.
  • Saving and investing for retirement is important, and my original goal was to invest more than $100/month but I can’t see right now where I can find the extra money in my budget. What I’ve decided to do is make a commitment to finding those extra dollars to invest whenever and wherever I can – I’ll tell you how I do that as part of my investing reports.
My task now is to select companies that interest me, read their websites, and compare my notes with the advice provided in the ITR blog. Stay tuned . . . I’ll post my report in this space . . .