“The next thing I say to you will be true.  The last thing I said was a lie.” — Devo

Last week I wrote about my Three-Minute Portfolio based on low-expense-ratio index funds.  That’s a great way to put your investments on autopilot.  However, an index fund, by definition, will never beat the market.

If you’re willing to put a little time and attention into your investments you can make a portfolio that will (probably) do a bit better than the market.

Didja’ notice some wishy-washy words in that last sentence?

• “Probably”:  No one can guarantee you returns that beat the market.  Anyone who does is related to Bernie Madoff.
• “A bit better”:  This is not a get-rich-quick scheme, it is a way to consider other sensible investments.

That being said, it is reasonable to consider what you would choose if you want to reach a bit beyond index funds.

A sensible place to look is to use Morningstar’s rating system.  They rate all mutual funds from one to five stars.  The worst 10% of all funds rank one star, 22.5% rank two stars, 35% rank three stars, 22.5% four stars, and the best 10% rank five stars.  The funds are grouped by category (e.g. US Large Cap) and adjusted for risk. Continue Reading »

What do you get when you cross an artist with a $20 bill?  Apparently the answer is:  Art.

Moneygami is origami with money — especially when the final design highlights the portrait, or other distinguishing feature, on the bill.

Here, just for fun, are some sites showing the art:

• DesigniousTimes
• FunFever
• Origami Resource Center
• Crandall11

If you want to try it yourself, here are some videos to get you started:

• making a butterfly
• making a star (with a great soundtrack)
• making a spring-thingy

Next time you’re leaving a tip, if you can’t be a big spender, try leaving it as a bit of art.  Who wouldn’t love to receive, say, an aardvark.  Heck, they might not even notice it’s a Lincoln and not a Hamilton.

Image Credit:  andreas hopf at Flickr

Funny from Funny About Money wrote in with additional questions about the advantages and disadvantages of structuring a business as an S-corporation.   I’m sure other folks have similar questions, so I thought I’d respond in a post to help readers find the answers (rather than leaving them buried deep in the comment boneyard).

Funny wrote:

Thank you for this information!

My tax lawyer formed an S-corp for me and then apparently left town. Haven’t been able to get an answer about how I pay myself and when, how, and where I send the taxes. Or about these idle questions:

Do you have to pay yourself on a monthly or semimonthly basis? Or are you allowed to pay your “wages” quarterly or yearly?

If you pay yourself (this assumes you have no other employees) more often than once a year–say, monthly or quarterly–does the corporation have to send in the FICA and other taxes each time a paycheck is disbursed? How? Where?

And…uhm… This is going to sound stupid, but given the amazingly stupid stuff I’ve encountered in trying to figure out Medicare and Social Security, “stupid” may be the order of the day. So here goes: there’s a law that says you have to prove each employee is a US citizen. Do I the corporation’s employee have to prove to me the corporation’s director that I was born in the USA? Is there some government agency where I have to depose that my employee (me) is a citizen? What will happen if I just say, should I be challenged, that I’ve seen my birth certificate and believe it to be authentic? Continue Reading »

“The perfect is the enemy of the good” — Voltaire

“I’m finally ready to begin investing, but I don’t know where to begin.  Stocks. Bonds. Mutual funds. ETF’s.  It’s all very confusing.  I have some cash in a savings account, but I want my money to work harder.  What do I do?”

The premise

Getting started with an investment portfolio doesn’t need to be difficult.  The following steps will take you to a solid, low-cost, easy-to-maintain portfolio.  You might not end up challenging Warren Buffett for the title of World’s Best Investor, but you’ll sleep well, and you won’t spend every waking hour worrying about your investments.

Well-managed index funds have low expense ratios, since you’re not paying anyone to scout out the world’s best companies.  All the manager does is maintain a portfolio of stocks or bonds as indicated by the index, whether it’s the S&P 500 or the MSCI EAFE.* Mutual funds (including index funds) give you a little bit of ownership of hundreds of companies.  If one company stumbles, you won’t lose too much money; conversely, your returns are not going to “hit it out of the park.”  The idea is to move up and down with the market, with the assumption that in the long run, there will be more up than down. Continue Reading »

Be aware that the mutual fund historical data graphs at both Google Finance and Yahoo! Finance (and perhaps other sites) do not correctly calculate the total return of a fund.  This can be very misleading when comparing a fund’s performance to an index or to another fund.

For example, you might want to know whether a particular mutual fund performed better than the overall market.  Let’s use Fidelity Magellan (FMAGX) as an example.

If you compare FMAGX to the S&P 500 Index for 2007 at Google, you get a graph like this:

The blue line is the value of the mutual fund and the red line is the value of the index.  Looks like they came out about even, right?  So the mutual fund did no better than the index.  Not so, mon frere.  Take a closer look.  Continue Reading »

Joan wrote in asking: Can an 18-year old get a car loan?

Great question, Joan.

The initial hurdle is the legality of the loan.  Each state has laws about how old a person must be to enter into a contract.  I live in Massachusetts where the legal age is 18. You’ll have to check the laws in your particular state.

The second hurdle is the practicality of the loan.  Every loan company is (or at least should be) looking for your ability to pay off the loan.  You’ll need to prove that you have steady income that will enable you to pay off the loan.  In addition, you’ll need to pay for the other expenses that come with car ownership: sales tax, title and registration, inspection, insurance, gas, and maintenance.

It begins to make riding a bike or taking the bus sound like pretty good options.

You might want to approach car ownership by setting aside the amount of a car payment, say $300/month, until you have at least half of the amount of the car price.  Better yet, save up the entire amount and pay cash for the car.  You’ll have a lot more strength negotiating down the purchase price with a pile of cash on the table.  (Figuratively speaking, of course — never actually put a pile of cash on a table).

You should consider buying a used car.  New cars lose their value quickly, and used cars are much less expensive to insure. Choose one with a low theft rate, again to minimize the cost of insurance.

If the car dealer isn’t offering a good financing deal (they are these days, but it isn’t always the case), you can do better by bringing your own financing — that is, get a loan through your local bank or insurance company, they might have better rates.

Good luck, Joan, let me know if this answers your question.

Image credit: KaroliK at Flickr.