Know When to Hold ’Em

Credit: stockimages

One of the most important questions I try to help people answer is when they should sell a particular stock. It’s a valid question, and if someone has a large number of shares of a single stock or a significant portion of their wealth is directly tied to one company’s stock performance, it can be one of the most important questions I ever help them answer.

There are many methods available in determining when the “perfect” time to sell a particular stock is: you could rely on your gut instinct, you could go with what everyone else is saying about the stock, you could try to read into the latest analyst estimates or quarterly earnings release, or you could take my advice and rely on Kenny Rogers. You probably know by now that I am big on using analogies to help explain complex financial issues in a way that can actually be understood, and helping someone decide when to sell a stock is no exception. I can offer fancy, technical analysis all day long, or I can quote a few lines from Kenny Rogers’ “The Gambler:”

You got to know when to hold ‘em,
Know when to fold ’em,
Know when to walk away
And know when to run
 

You should probably consider holding your specific stock if you do not have a specific cash flow need for the stock proceeds, you are debt-free, and most importantly, you have already reached financial independence with prudently diversified assets. However, by shrewdly taking some of the gain off the table when your stock has made some money, and by avoiding the temptation to always wait for one more dollar in stock price, you may avoid having to fold (sell) your stock when it is down at an inopportune time.

You should probably walk away from your specific stock if you know your stock has generated enough gain to provide for a specific cash flow need (such as paying for your child’s college), has generated enough gain for you to reach financial independence (assuming you sell your stock and smartly reinvest the proceeds in a prudently diversified strategy), or if you believe that the stock’s price will be flat or lower in the near future. It’s true that you might be better off if you had held your stock a little longer and its price continued to rise, and you should always consider the tax implications of selling you stock, but there is something to be said for walking away with a bird in hand.

If your specific stock has generated more than enough gain to provide for a specific cash flow need or allow you to reach financial independence, what are you waiting for? Run! I always keep in mind a comment a client shared with me once: “Little pigs get fat. Hogs get slaughtered.”

So what should you do with your individual stock holdings? It still depends. Please know that I’m happy to help you determine what you should consider doing with your stock and/or the proceeds from your stock. I just caution you not to count your money when you’re still sitting at the table. There will be time enough for counting when the dealing is done!

-Tom

TARGETed

Credit: jscreationzs 

Identity theft is a terrible problem that is sadly becoming more and more common. I must confess that I wasn’t that surprised when I first heard about the Target data breach over the holidays, but as the number of potentially affected shoppers has crept up close to 100 million, a lot more of my friends, family members, and clients have been asking me about it. Ask and you shall receive! Here are some suggestions for how you can try to protect yourself from identity theft whether you are a Target shopper or not:

• Check your statements! It is so easy to throw away the statements or auto pay your bills and ignore your transaction history, but I urge you to take a look. Without reviewing my statements I would not have found out about my Michigan “stunt double” who likes really nice women’s boots from Zappos or my Athens, Georgia, “doppelganger” who went to town at the Apple store shortly after waiting on me at a restaurant. Those two fraudulent instances happened to me in the last three years and could have cost me more than one thousand dollars, but they didn’t because I review my statements.
• Minimize (or eliminate) the number of times you use a debit card for purchases. When you use your debit card (or someone successfully claiming to be you uses your debit card), the money immediately leaves your bank account. When debit card fraud occurs, you will have to fight to get your money back, and it will take time. With credit card fraud you will still probably have to fill out some paperwork, but at least the money will never leave your hands (assuming you check your statement before you pay the bill!).
• Destroy the labels on your prescriptions and on packages you receive so that your information is less available to any trash or recyclable “treasure hunters.” Rip up or shred documents containing personal information, and cut up your expired credit cards before you just toss them in the wastebasket.
• Make a copy of your credit cards and important documents like your passport and driver’s license, and put them somewhere really safe. They won’t be of much value should the originals be lost, stolen, or disappear, but at least you will still have access to your information and quickly be able to find the 1-800 numbers you need to call to take action should a situation arise.
• Be careful using public wireless networks. Computers are not my area of expertise, but I know enough to tell you that really smart, bad people can probably gain access to your information if you are not on an encrypted website or using a network that is not properly protected. I’m sorry, but airports, coffee shops, and hotels probably aren’t the best places to check your bank statement, pay your bills, or conduct personal business.
• Take advantage of some of the notification features and fraud alerts that many banks and credit card companies offer. If someone tries to use my card for a significant amount or in a particular city or state I’m not often in, I’ve been able to set it up so that I get notified. It’s quick, it’s easy, and it’s usually free. Besides, if you’re spending a lot of dough in a lot of different cities, it can be a good reminder for you to cool your spending jets!
• Review your credit report every year or two. You’re entitled to a free copy of your credit report every 12 months from Equifax, Experian, and TransUnion, so take advantage of that. Credit reports can help you detect identity theft, and they are good to review to make sure they are correct and up to date as credit reports can affect loan interest rates and even job applications.
• There are tons of other things you can do to protect your identity, like freezing your credit or purchasing more encompassing identity theft protection services. If you are really worried, have been a recent victim of identity theft, or have a reason to think you could be at a high risk of identity theft, you may want to look into some of these additional techniques and services. Either way, I’d advise you to think like a thief when it comes to identity theft prevention - at least make it hard for them!

 

Target probably should have been more careful, more vigilant, and had more safeguards in place to prevent or at least quickly detect identity theft. That being said, all of us probably should.

 

-Tom

Tips for Buying a Car

Credit: me

Since my junior year of college, I have enjoyed driving a Jeep Liberty. People knew me far and wide for the very large “Georgia G” logo on my spare tire cover that was proudly displayed on my back tailgate. Unfortunately, all good things must come to an end, and my wife and I recently purchased a new vehicle to replace my Liberty. Fortunately, the intoxicating new car smells and my recent experience of buying a new car gave me some fodder for a new post!

If you or someone you know is getting ready to buy a new car, I offer five tips:

1. Do your homework. My wife and I ended up making a Jeep Grand Cherokee the newest member of our family, but that wasn’t before we had looked at several crossover SUVs from Honda, Toyota, and Jeep. Not only did we narrow the field of potential options and research our possible new cars online using Consumer Reports, Edmunds, DealerRater, and CarSort, but we actually went to three dealerships and took five test drives. Some people might call that overkill, but I don’t know a lot of people who want to make a $30,000 (or more) mistake and walk away with the wrong vehicle. When we were looking at the Jeep dealership, the dealer had Grand Cherokees ranging from the high $20,000s to the high $70,000s! By doing our homework, we already knew the seats came in Morocco black or Grand Canyon brown, and we already knew the differences among the Laredo, Laredo E, Limited, Overland, and Summit models, and I can’t emphasize how much easier that made trying to sort through a salesperson’s chatter.
2. Be flexible, but stick to your guns. Because my wife and I had done our homework, we knew what we had in savings, and we knew what our budget could afford. We had a solid game plan going into car shopping. We started at Toyota because we both really liked how a couple of their vehicles looked, but we left with questions (and because of the salesperson’s attitude). We went to Honda because we’ve had a good experience with my wife’s Civic, but after our visit, my wife and I realized we had reached different conclusions. Since neither Toyota nor Honda had a car that completely grabbed both of us, we called an audible and started looking at Jeep vehicles in honor of my old car. Throughout the entire process, we stuck to our guns and only looked at cars that met our specific requirements and were within our budget, but we were also flexible by looking at a different automaker than we originally intended. In the end, we found that we could save several thousand dollars (and still get the car we wanted) by going with a lower model with some upgrades rather than a higher model with a few options taken off.
3. Know your trade-in. Before we visited dealerships, I made sure my old Liberty was in tip-top shape. I even went to one of those car spa places and spent a little extra to make sure everything was shining. I kid you not, I had a salesperson tell me that the cleanliness of a trade-in can influence the price $500-$600 dollars! Now before you get some Armor All and your Shop Vac and go at it, also take the time to get a good estimate on how much your car is really worth so you know if the dealer is playing straight with you. Go to somewhere like CarMax and get a free quote or at least look at Kelley Blue Book before you go in, as I challenged the dealer's initial trade-in offer with my Kelley Blue Book figure, and it took less than five minutes for the dealer to revise his estimate up to the Kelley Blue Book number! On a side note, I’d also strongly recommend you trade in your car as opposed to selling it. It’s safer and less of a hassle, and if you’re a Georgia resident (after March 1, 2013) or a resident of a state where all of the ad valorem tax is collected up front as opposed to every year around your birthday, it’s a great way to reduce the taxes you must pay on your new vehicle (the sales price of the new vehicle is reduced by the trade-in price of your old vehicle).
4. Be crafty. Whatever you do, don’t let a salesperson hear you say you love a car until you’ve signed the paperwork! Be crafty; it’s part of the game. I know people who have walked away bigger winners than we were, but with some reasonable give and take and keeping up a pretty decent poker face throughout the negotiations, my wife and I doubled the duration and miles of our warranty, we got the sticker price reduced by more than $3,000, we got a free tank of gas, and we got a complimentary upgrade to a full-sized spare tire. Some people hate the negotiating game and some people love it, but I’d advise you at least play it to try to get as sweet of a deal as you can.
5. Make sure everyone is happy. I alluded to this earlier, but I really do think it is important that all of the potential primary drivers of a new vehicle be comfortable with the new vehicle. Sure, I will be the most frequent pilot of our new car as it is replacing my old car, but there will be times when I’m out of town, I’m sick, or my wife’s car is in the shop, and she needs to be able to drive our new car with confidence. Some cars my wife liked, and I did not. Other cars I liked, and she did not. The one we purchased we both like, and I’d recommend that strategy to everyone!

My old Liberty and I had a lot of good times, and it will be missed, but it was time. The next time you are getting ready to buy a new car I hope you’ll think of these tips and get yourself a sweet, new ride as well.

-Tom

Why You Need to Save Now

Credit: Stuart Miles

Whether they choose to or not, I would wager that most people know they need to be saving money for retirement. After all, unless you’re planning to work until the day you die, or you’re willing to make do solely on your Social Security income (and any pension income), how could retirement be possible? What concerns me is that most people seem to wait until their 40s and 50s to really start saving for retirement. Don’t get me wrong, a dollar saved for retirement is a good thing at any time, but let’s be clear: A dollar saved in your 50s is not the same as a dollar saved in your 30s!

Let’s say you want to have $1 million saved by retirement at age 60. At an 8% annual investment return, you would need to have put in a whopping $5,500 per month every month from age 50 on in order to hit that goal because you’d only have 10 years to save and potentially grow your money. If you had started at age 40 and had a 20-year time horizon, you’d only need to stash away around $1,700 per month. If you started at age 30 and had 30 years before retirement, you’d need to save around $700 per month, and if you were incredibly ambitious and started at age 20 with 40 years to go, you would theoretically only need around $300 per month in order to hit your retirement goal. Now there will be years where the market roars (like last year), years where the market dives, and years where the market stays about flat, but do you see my point? I don’t know about you, but I’d rather save $700 per month in my 30s than $5,500 per month in my 50s!

In light of these figures, I issue you a challenge: Consider increasing your 401(k) or retirement plan contributions by a few percentage points. If you were lucky and got a raise at the end of last year, you can probably do this without feeling the extra withholding from your pay check. Even if you didn’t get a raise at the end of last year (and should have!), I’d still encourage you to bump up your contribution rate a few dollars or percentage points. Please don’t do this if you are truly fighting to make ends meet, but if you can, I really believe that making a slight, mostly painless adjustment could lead to a much better retirement picture.

I want you to know that I practice what I preach. I just finished filling out the required form to raise my contribution rate to my 401(k) a few percentage points. It is my hope and expectation that this will allow me to retire sooner as I will have more dollars saved with a longer time horizon to grow.

Do you accept my challenge?

-Tom