It’s been speculated that Facebook is looking to raise $10 billion from the stock IPO, and achieve a measly market valuation of $100 billion (for comparison, Ford is valued at $38 billion and Yahoo is valued at $19 billion).

If you’re not sure what an IPO is – it’s an acronym for “initial public offering”. It basically means that Facebook would be raising significant capital to run its business through selling and opening up its stock to the public for the first, or initial time.

And if you’re not sure what an IPO is, that also is a telltale warning sign that you probably should not be buying the stock.

Familiarity Does Not = Good Investment

Why not buy the stock of a company you know and love? Everyone knows Facebook and what it is. We have all likely used it at some point or another. Many of us every day. And many of us love it, at that. But that doesn’t necessarily mean that its stock and the fundamental business behind it will be successful.

Knowing what a business is or does is a good first step. But when you frequent a business, you tend to get emotionally connected to it. It would be easy (and dangerous) to assume that just because everyone knows and most use Facebook, its stock can only go up. Let’s pull the trigger, I don’t want to miss out on it if it explodes, right?! That kind of assumption and desire to turn a blind eye to business fundamentals can result in you getting burned.

Looking at some other famous internet IPO’s of the past year:

• Groupon: now trades at $16, down almost 40% from its end of first day trading price of $26.
• LinkedIn: now trades at $59, down 37% from its end of first day trading price of $94.
• Pandora: now trades shy of $10, down 50% from its end of first day trading price of $19

I have used and like all three companies. And had I followed my emotions and bought them up right away without doing my homework, I would have lost significant money. Why? The businesses behind the stocks have failed to live up to their hype.

Now, don’t get me wrong. I’m not trying to deter you from buying Facebook stock. All I’m saying is this: do your homework beforehand & don’t just follow your emotions or the herd.

Before Buying Facebook Stock Right After its IPO, Consider These Questions…

Here are some questions that you might want to consider before jumping on the Facebook IPO, or any IPO:

1. What is the company’s business model? How does it make money?
2. How does it stack up against similar company’s in some of the key metrics (i.e. in Facebook’s case: revenue per user, revenue per 1,000 impressions).
3. Can the price of whatever the company makes money from increase?
4. How is it doing financially? Does its revenue growth rate warrant the likely price/earnings ratio it will command?
5. Is the company’s growth rate increasing? Can it continue increasing?
6. Does the company have a huge amount of debt that will be tough to overcome?
7. How much room for user-base growth is there?
8. Is there room for geographic expansion?
9. Is there significant potential to grow the amount of revenue per user? Will the company’s user-base buy into that or permit that?
10. Are there any governmental investigations that might hurt the company?
11. Are there any major lawsuits against the company?
12. Does, or will, the company have a dominant market position versus its rivals?
13. Are there significant competitive threats from startups or other giant players entering their niche?
14. Do you believe in the company’s management?
15. Would you buy the company if you weren’t a user/customer and weren’t familiar with them?
16. Would I only be buying this stock because I don’t want to miss out on it if it explodes? (this is what causes bubbles, my friends)
17. Am I only buying because everyone else is buying it?
18. Is it a good market right now for an IPO to succeed?

Oh, and when you’re done pondering those questions, don’t forget to like the 20somethingfinance Facebook page.

Facebook Stock IPO Discussion:

• Would you buy the Facebook IPO? Why or why not?
• Do you think Facebook will continue its rapid growth?
• How do you see Facebook growing revenue?
• How do you think Facebook’s stock will perform?

Related Posts:

• Should you Pay off Debt or Invest?
• Passive Index Investing
• How to Get Over the Fear of Investing
• How to Start an Online Broker Account

Facebook Stock IPO: Should you Buy it? is copyrighted by 20somethingfinance.com without consent to republish.

Bank of America, the second largest bank in the U.S., was the final to cave. They joined Chase (the largest bank), Wells Fargo, SunTrust, and Regions in abandoning their strategy to add new debit card fees on their customers.

This comes just days before “Bank Transfer Day” – a consumer advocate movement urging Americans to switch from (for-profit) banks to (non-profit) credit unions. The movement was created by a Bank of America customer who was upset with the implementation of the debit card fees and created a Facebook event. The Facebook page has since grown to over 36,000 followers.

A separate online petition was created to urge BofA to abandon the debit card fees. It received over 300,000 signatures online.

Bank of America Chief Operating Officer, David Darnell, released the following statement on their decision to drop the debit card fees:

“We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so.”

Power in Numbers

As I stated in my post on banks with no checking account or debit card fees, you can vote by taking your business elsewhere. This is happening more and more lately, and to surprisingly effective results.

The Internet has truly powered consumers by providing a means to communicate information like new corporate fees and providing a platform for consumers to join together to create movements against unreasonable corporate actions.

Netflix’s streak of price increases and foolish move to split the company in two enraged customers to the level of millions unsubscribing, tens of thousands of negative comments on the Netflix blog, and the company stock price dropping 75% this year. Finally, the company caved, and decided to abandon splitting the company.

I find these examples absolutely exhilarating and refreshing. It gives me renewed faith in the power of the Internet, in consumer awareness and advocacy, and in our country. And it all happened without government intervention. Good stuff!

Just the Beginning

Consumers have won this battle, but I don’t think that it will stop banks from finding other crafty new fees to implement in order to drive corporate profits higher. Banks exist for one reason – to make money. And when an egotistical banking executive’s bonus or job is on the line if he/she can’t drive year over year profit growth, price increases and new fees are often bound to be passed on to customers.

Stay on your toes, stay vocal, and don’t be afraid to take your business elsewhere if you need to.

Maybe someone needs to start a “Comcast Transfer Day”… hmmm….

Big Banks Abandon Debit Card Fees: Score Another Win for Consumers! is copyrighted by 20somethingfinance.com without consent to republish.

Out of a group of 30 twenty-somethings, zero people raised their hands. ZERO!

That shocked me, and I decided that I wanted to help readers overcome some of their big objections or fears on getting started investing.

The series included:

1. Investing outside of a 401K: I polled readers on why they haven’t invested outside of a 401K.
2. Should you pay off debt or invest? I took a look at where you should focus when you have discretionary income.
3. How to start an online broker account: I discuss where to start your investment account.
4. Getting over the fear of investing: I highlight the danger of not investing.
5. Passive index investing: I discuss one of my favorite investment strategies for amateurs.

I’ve also covered some additional investing basics in the past:

• What is an ETF?
• ETF’s vs. Index Funds
• How to make a stock trade
• What is a mutual fund?
• How to buy a mutual fund
• Investing in a REIT

But one thing that I don’t think we’ve discussed enough is our confidence in the market.

Our generation has grown up watching the stock market lose money, as a whole, over the last 12 years. Before that, it was just expected that you could invest your money and pull in 10-12% annually, on average. Automatic, invest it and forget it, and retire a rich woman/man.

But those days are seemingly gone. Our stock markets have been heavily influenced by:

• the media
• war/terrorist acts
• institutional/professional investors
• energy prices
• political turmoil
• debt crises
• the global economy
• currency drama
• computerized trading

And watching all these manic fluctuations and no net gain in over a decade has really destroyed our confidence in investing in the market.

It just occurred to me as I was sitting and thinking about barriers to investing that this, possibly more than any other issue, is why our generation hasn’t jumped to be active investors.

So, I want to throw the questions out to you:

• Have you lost confidence in the stock market? (take the poll)
• Why do/don’t you have confidence in the market?
• What would it take for you to have more confidence in the market?

Have you Lost all Confidence in the Stock Market? is copyrighted by 20somethingfinance.com without consent to republish.

Bank of America ($5 monthly debit card fee) and CitiBank ($15 or $20 monthly checking account fee) started adding new fees to help replace billions of lost revenue that resulted from an amendment to the Wall Street Reform & Consumer Protection Act that cuts debit card swipe fees by the banks 44 cents to 23.9 cents on an average transaction. This change, lobbied by merchants, was intended to lower the costs for merchants and ideally consumers. The change kicked in October 1.

The other, unspoken agenda in adding these fees is that these banks are hoping that those who use their debit cards will simply switch to a credit card, which will be more profitable for the bank if these customers end up paying interest on their debt.

Is this the start of a bigger fee-happy trend? Absolutely. Banks will look to increase their fees to replace the lost revenue, estimated to be around $1.3 billion per month. They threatened Congress prior to the passage of the legislation that they would retaliate by increasing fees and they have delivered.

Did you expect anything less? These greedy banks still get 23.9 cents per swipe, ATM fees, and the needed liquidity that you allowing them to hold your cash provides. And now they want to charge you to use your own money so that their executives can maintain the same ridiculous bonuses? NO. EFFING. WAY!

So where can you take your business?

You can protest by taking your business elsewhere. In the process, you might start wondering why you haven’t done so earlier. Reader, Sandi, writes to me in response to that post:

It’s for that reason that I plan on leaving Bank of America before the end of this year. The $5/mo debit card fee is the last straw. I’m looking into alternative banking options and am strongly considering Charles Schwab. What do you know about their checking accounts and do you recommend any others. I’ve been spoiled by Bank of America’s online bill pay, and most other banks aren’t as good. I’d love your input.

Awesome to see readers standing up for themselves. Fortunately, there are still plenty of alternatives out there for free checking accounts and debit cards. Offers with credit unions can vary, but the four banks that made the list all offer:

• free debit cards
• free checking accounts
• no minimum balance to avoid fees
• free online banking & bill pay

1. EverBank

This was a late addition, but EverBank has perhaps the best offering right now with no fees, an interest bearing account, reimbursed ATM fees and they’ll even pay you $60 to switch to them!

• Monthly Account Fee: $0
• Debit Card Fee: $0
• Opening Deposit: $1,500 deposit to open
• Checks: free checks
• ATM Fees: zero ATM fees – if your balance is over $5,000 they will reimburse you the ATM fees from other banks.
• Interest: EverBank guarantees that you will earn interest that is in the top 5% of what all banks offer.
• Cashback Rewards on Debit Card: n/a

2. PerkStreet Financial

PerkStreet Financial offers a no fee MasterCard debit card and checking account. With PerkStreet, online bill pay and banking and banking are free and there is:

• Monthly Account Fee: $0 monthly account fee if you have at least one debit card transaction.
• Debit Card Fee: $0
• Opening Deposit: A$25 deposit will get you started.
• Checks: free checks
• ATM fees: 37,000 ATM’s nationally that you can withdraw from without surcharge, otherwise $2 surcharge.
• Interest: no interest earned on your balance.
• Cashback Rewards on Debit Card: Perkstreet’s biggest appeal is that at a time when other banks are beginning to charge you for debit cards, they offer you cash back! If you maintain a $5,000 balance, you get an outstanding 2% cashback. If under $5,000, you’ll get 1%. There are also 5% cash back categories throughout the year with PerkStreet.

3. Ally Bank

I’m a big fan of Ally Bank because they don’t do business like other large, national banks. They create appealing products that don’t take advantage of their customers. Ally Bank Interest Checking offers:

• Monthly Account Fee: $0
• Debit Card Fee: $0
• Opening Deposit: $0 deposit to open
• Checks: free checks
• ATM Fees: zero ATM fees – they actually pay for fees charged by other banks!
• Interest: you earn interest on your balance.
• Cashback Rewards on Debit Card: n/a

4. USAA

USAA offers financial services to active members of the military, veterans, or their family members (here is a list of parties that can become a USAA member). USAA’s free checking account offers:

• Monthly Account Fee: $0
• Debit Card Fee: $0
• Opening Deposit: $0 deposit to open
• Checks: free checks
• ATM Fees: no charge on first 10 withdrawals and they’ll refund up to $15 per month that other banks charge.
• Interest: you earn interest on your balance if over $1,000.
• Cashback Rewards on Debit Card: n/a

5. Ing Direct

One of the first online banks, Ing Direct, is still one of the best. Ing Direct’s Electric Orange checking account offers:

• Monthly Account Fee: $0
• Debit Card Fee: $0
• Opening Deposit: $1 deposit to open
• Checks: free checks
• ATM Fees: No fees at 35,000 Allpoint ATM’s.
• Interest: you earn interest on your balance if over $1,000.
• Cashback Rewards on Debit Card: n/a

Related Posts:

• 10 Free Financial Services
• Does Closing a Savings or Checking Account Hurt your Credit Score?
• New Bank Overdraft Protection Fee Rules
• Ally Bank Raise your Rate CD

5 Banks where Checking Accounts & Debit Cards are Still Free is copyrighted by 20somethingfinance.com without consent to republish.

We are all trying to figure out exactly what this movement is about, who is taking part in it, and what they want. And some of us are even joining in on the peaceful protests because they know something just ain’t right.

The movement’s greatest strength, and perhaps its biggest weakness is its ambiguity.

The Occupy Wall Street mission statement, found on the official website, lacks clarity,

Occupy Wall Street is leaderless resistance movement with people of many colors, genders and political persuasions. The one thing we all have in common is that We Are The 99% that will no longer tolerate the greed and corruption of the 1%. We are using the revolutionary Arab Spring tactic to achieve our ends and encourage the use of nonviolence to maximize the safety of all participants.

The mission appears to be the act of protest itself. But who’s decision is that in the first place? The organization claims to be leaderless… but someone is sitting behind a keyboard somewhere leading the narrative on the ‘official’ Occupy website.

As a strength, this ambiguity has allowed the movement to quickly pick up steam. We are all passionate, angry, vocal, or uncomfortable with a political or economic issue at the moment. Protesting is a unifier.

As a weakness, this ambiguity has made it difficult for many, myself included, to see what the end goal is. Getting out in the streets and protesting a wide variety of economic and political issues may seem thrilling or unifying at first, but what exactly do people want? Every revolution must have an end goal in order for it to succeed. What is the end goal of Occupy?

If I had to sum up what “Occupy” means to me in one word, it would be “change”. But again… that is an ambiguous term.

We are at a period of time in our country where we KNOW we need change – but we don’t know how to achieve it.

Politicians on both sides, who set the course of our country, have failed us. Is there any doubt that special interest and corporate money has compromised what is in the best interests of the country?

The negative attention given to Wall Street seems a little misdirected, in my judgment. It is true that the banks put us in the present economic downturn, but Wall Street greed is more of a symptom of a society gone wrong than a true cause of the discontent in this country.

The REAL problem is that the American Dream is eroding for all but the income elite. The middle class is taking blow after blow, like an underdog fighter on his last legs in the 12th round.

Let’s look at the big picture:

1. Health Care

We’ve seen health care costs increase 6X vs. a 3X cost of living increase.  In 2011, it will have increased 7.6% more. The health of entire families are beholden to one or two family member’s job prospects.

2. Education

We’ve seen educational costs increase 10X in that same period of time. The boomer generation graduated mostly debt free, but for gen x and gen y it’s more common these days to graduate six figures in debt and student debt has surpassed credit card debt.

3. Economy

Globalization has led to the U.S. losing over 5 million manufacturing jobs in the last decade and some of the very same decisions made by our politicians ensured this result. It’s a huge reason why the unemployment rate in the wealthiest country in the world is still over 9%.

We’ve also seen the rich get richer and the poor get poorer. The Occupy group likes to state the top 1% of income earners possess 40% of all assets, but the top 10% possess 80% of all financial assets. The other 90% of the country only holds the remaining 20% of the wealth.

4. Housing

Due to greed and malpractice by banks inflating property values, we’ve seen the housing market in the U.S. (once a sure bet as a wealth builder) completely ruin the financial lives of many families as they’ve had to foreclose and take losses on their homes, resulting in a destroyed credit history. Ironically, those credit histories are now being used as a job applicant screening tool.

5. Work/Life Balance

The average productivity per American worker has increased 400% since 1950. One way to look at that is that it should only take one-quarter the work hours, or 11 hours per week, to afford the same standard of living as a worker in 1950 (or our standard of living should be 4 times higher). Is that the case? Obviously not. The American family could once live comfortably on one income. Now they live very uncomfortably on two. Someone is profiting, it’s just not the average American worker.

According to the ILO, “Americans work 137 more hours per year than Japanese workers, 260 more hours per year than British workers, and 499 more hours per year than French workers.” We have less days off than any other industrialized nation. Our employers are clearly doing more with much less people in order to boost profit.

Check out my post for more on how Americans are overworked. With over 9,000 Facebook likes, it struck a nerve.

6. Environment

We’ve compromised our environment and seen CO2 emissions skyrocket. Despite the obvious fact that should this continue, our existence as a species will cease to persist, the problem has grown exponentially. And our politicians and corporations have watched (even encouraged) it to happen.

7. Money & Political Influence

Money buys ads and resources, which buys elections. If it wasn’t bad enough already (and it was bad), Citizens United Vs. the FEC, a landmark Supreme Court Case, made it legal for corporations and unions to spend from their general treasuries to finance independent expenditures. These ‘Independent Expenditure Only Committees” are unofficially dubbed “Super PAC’s” and they can raise and spend unlimited funds from individuals, corporations, unions, etc.

The Goal to Achieve All Goals

It’s not that Americans want “something for nothing”, as many critics of the Occupy movement have stated. It’s that we want to stop seeing every part of the American dream erode due to decisions that are completely out of our control. Just as our country fought for its own independence from the British empire, we are now fighting to restore and maintain the American dream as it is being ripped away from us. This is what our country was founded on. Can you blame us?

IF the Occupy group wants that to change, their one demand should be to end the influence of money in politics, as it is the one problem that influences all others. Politicians no longer fight for the citizens of this country. They fight for corporations and special interests so that they can get the advertising representation to keep their jobs. It is killing our democracy and our country and it is the most fixable problem. Start there. Three changes will achieve this result, as I called for back in August:

1. Limit political contributions to individuals only, and only $100 to level the playing field for citizens.

2. Eliminate all independent expenditure contributions and immediately overturn Citizens United.

3. Break up the two-party political system (#1 and #2 will help ensure this).

That is it. That is what we need to get change in this country.

Nothing will come from protesting Wall Street bankers. They are the leeches that have been feeding off a system gone wrong. They should be addressed, but they are not the root of the problem. The root is corruption by our elected leaders.

We should be occupying D.C. first. Wall Street’s time will come.

Let the Occupiers know.

Discussion:

What does the Occupy movement mean to you?

Forget Wall St. – Occupy Needs to Head to DC is copyrighted by 20somethingfinance.com without consent to republish.

Why invest in them? Diversification and dividends. Real estate has proven over time to be a strong alternative to traditional company stock investments for those looking to diversify their investment portfolio. REITs have historically provided very strong dividend yields as well – making them a popular choice amongst dividend seekers.

I’ll discuss who REITs might make sense for and some of the risks involved. But first, a little bit more on exactly what they are…

What is a REIT?

A REIT is a company that invests most of its capital into real estate properties and/or mortgages. The income they make is generated from the rental income on the properties they own or the payments on the mortgages they own.

What makes REITs really unique is that they are required by the government to distribute at least 90% of their earnings in the form of dividends to their investors (many distribute 100%). In exchange, they are not required to pay corporate income taxes on their earnings.

REITs distribute dividends on their income four times each year (once per quarter). The dividend yield is the annual dividends divided by the price per share. If you invested in a REIT that had a dividend yield of 10%, for example, and a share price of $100, you would have received a total of $10 over the course of the year.

Different Types of REITs

There are a number of different types of REITs. Many invest only in the properties themselves, while others invest in mortgage securities. Some invest in both.

REITs also differ in the types of real estate that they specialize in. Their focus could be in office real estate, industrial properties, retail (shopping centers/malls), mortgage, health care facilities, self-storage, etc.

A REITs investment focus should be clearly labeled in their 10K (annual report), which you can locate on their website or in the SEC’s EDGAR search database.

Who are they for?

REITs have historically had very high dividend yields. As such, they are great for re-investing and locking in returns or taking dividend payouts as income. They are a popular investment choice for those looking for high yields to generate income.

They are also popular amongst investors who want to invest in real estate, but simply don’t have the resources or the desire to become landlords.

REITs also provide diversification to a balanced portfolio as their share price movement doesn’t usually swing with the ups and downs of the stock market, much like commodities like gold, silver, and oil.

Risks Involved with REITs

The main risk involved with REITs is that they are traded like stocks, and just like stocks their share price and increase or decrease based on market conditions.

If you are thinking of investing in an individual REIT, you should definitely know what types of properties or mortgages they specialize in and the risks involved in that particular sector.

As I highlighted earlier, a REIT investment focus should be clearly labeled in their 10K (annual report), which you can locate on their website or in the SEC’s EDGAR search database.

One thing to consider right now with mortgage REITs is that they often have very high yields due to mortgage interest rates being so low. Should this change (and it will eventually), these types of REITs would become less profitable and be forced to cut their dividend yields. Their share prices could also decline.

It would be a poor investment strategy to simply go out and search for the REITs with the highest yields and buy them because of their yields without understanding why those yields are so high and what the risks are if present market conditions were to change.

Also, it’s worth noting that income that comes from investing in individual REITs is taxed at your ordinary income tax rate, vs. the present 15% capital gains tax rate.

Where can I Find a REIT to Invest in?

If you want to invest in REITs but really don’t know what to look for, an ETF or index fund is probably a safer bet for you as they invest in a number of REITs to diversify your risk.

Vanguard (VNQ), iShares (ICF), First Trust (FRI), Schwab (SCHH), and Dow Jones (RWR) all offer popular REIT ETF’s.

On the index fund side, Vanguard (VGSIX) is the clear leader in the category. There are a number of REIT mutual funds, however, their fees are all much higher than VGSIX and the REIT ETF’s.

Make sure to compare the ETF and index fund fees involved. Most REIT funds and ETF’s have very low fees.

If you want to find individual REIT’s to invest in, you can start by looking at the holdings of these index funds and ETF’s to find them. Wikipedia also has a list of popular REIT’s that are publicly traded. Keep in mind that this may be a risky strategy – always do your homework first.

Where can I Buy a REIT?

REITs are traded on the market just like stocks are. You are able to buy REITs through making a trade with a discount online broker like TradeKing or Zecco – just like with any other stock trade.

Simply choose how many shares you’d like to buy and execute the trade. You are charged the standard trading fee that is assessed by your discount broker.

Related Posts:

• Passive Index Investing
• Zecco Review
• TradeKing Review

REIT Investing 101 is copyrighted by 20somethingfinance.com without consent to republish.

AT&T has the second most cellular subscribers in the U.S. behind Verizon and would have become #1 with a purchase of T-Mobile. If you think this news won’t impact you, think again. If you own a mobile device and want to keep your costs in check, this impacts you. I’ll explain why.

AT&T, Verizon, T-Mobile, and Sprint own 90% of the cellular carrier business in the U.S. Four may seem like a healthy number for competition’s sake, but consider that those four were once seven not too long ago. Since 2002:

• Cingular bought AT&T and kept the AT&T name in 2004.
• Sprint bought Nextel in 2005.
• Verizon bought Alltel in 2009.

Remember Cingular, Alltel and Nextel? Kind of nice when you had all those options, no? If AT&T is able to move forward with its purchase of T-Mobile, Verizon would almost certainly follow-up with an offer to purchase Sprint. At that point, what was once seven strong national carriers would be whittled down to two.

The Negative Impact of Industry Consolidation

AT&T and T-Mobile compete head to head nationwide, including in 97 of the nation’s largest 100 cellular marketing areas. They are direct competitors in every sense. What happens when seven becomes four and four becomes three and three becomes two and direct competition is killed? Your options as a consumer are extremely limited. And that is why the Department of Justice wants to block this acquisition.

According to Deputy Attorney General James M. Cole,

“The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services.”

We’re already starting to see it. Verizon and AT&T’s offerings are almost identical in terms of service and price. And as soon as one offers something different, the other follows suit.

To prove my point, here are a few screenshots from each carriers ‘plans’ pages.

AT&T Offers:

Verizon Offers:

Look similar?

Earlier this year, when AT&T axed their unlimited data plan, Verizon did the same within a month. When faced with a competitive disadvantage, competition is forced to keep up or become irrelevant. But when the competition decides to cut their offerings due to limited challenge from competitors and a desire to chase the bottom line, the remaining competitors are inspired to do the same.

AT&T were already competing as if they were the only two cellular providers in the marketplace!

T-Mobile, Sprint, and some of the smaller players in the market offer an alternative in order to attract subscribers against these bigger players.

As a consumer no good can come from fewer options in the marketplace. Just go ask any Comcast customer. I applaud the U.S. Justice Department for having the guts to make this call and protect consumers. Fundamentalist free-market lovers will hate this decision, but this is better for consumers and technological innovation in this country.

Are you in favor of this move? Why or why not?

Related Posts:

• Cheapest Data Plans
• Virgin Mobile Price Increases
• Net10 Review
• Tracfone Review

U.S. Justice Department Blocks AT&T Acquisition of T-Mobile: What Does it Mean for You? is copyrighted by 20somethingfinance.com without consent to republish.

What was the result of this disturbing and incredibly wasteful trend?

1. An estimated 64 million empty housing apartment units in China that are too expensive for most Chinese families to afford.

2. Occupancy rates in these new cities are at less than 25%.

3. The ‘world’s largest shopping mall’ is almost completely empty.

4. Universities built to accommodate 2.3 million students that have a slightly lower enrollment of a mere 11,000.

Brilliant, guys.

The Get Rich Quick Bug is Universal

If this trend wasn’t disturbing enough on its own, the Chinese are compounding it. It turns out, that just like Americans, the Chinese also love the idea of getting rich quick. They already got the stock buying bug a few years back when the Chinese stock market quintupled in value in one year (yes, I said quintupled, here’s the chart, if you don’t believe it).

Then, the Americans had to have this little thing called “the housing crisis”, driven by a combination of greedy banks looking to bend the rules to maximize profit by lending people more than they could afford and greedy homebuyers looking to profit in a market where home prices were only seen to go up. We all know what happened next. That bubble completely burst. And the American homeowners were slaughtered.

As U.S. and global markets tanked, the Shanghai Stock Exchange did too, and the Chinese stock owner lemmings were slaughtered as well (see chart above).

The Chinese Housing Boom

Having learned absolutely nothing from our greedy blunders, the Chinese are now one-upping us at our own game.

Chinese citizens have apparently been buying second and even third homes as investments in order to resell them at higher prices in the future. As a result, home sales have surged 25% in the first seven months from a year earlier and prices climbed in 67 of 70 cities monitored by the government in the first half of the year.

The lemmings march on…

In an effort to quell the possibility of the housing market completely caving in under its own weight, the Chinese government has raised the down payment for second mortgages, and about 40 Chinese cities have begun to limit apartment purchases to two per family, or one for non-locals. The government has also asked commercial banks to stop offering loans to third-home buyers.

Like any entrepreneurial society, loopholes were bound to be found. Bloomberg reported that couples were now filing for fake (and sometimes real) divorces, in order to buy more homes. And they are being encouraged by banks and home developers (seeking profit) to find these loopholes in order to do this.

All this is happening, in complete denial of the fact that there are an estimated 64 million empty housing units (because most families can’t afford them). If that doesn’t fit the definition of a bubble, I don’t know what does.

All Bubbles…

So what you have going on is speculators buying homes from other speculators – fueled entirely by debt – in one giant ponzi scheme that is bound to come crashing down because nobody can really afford to buy and live in these increasingly overpriced homes.

If the numbers that are being reported are true, there will inevitably be a Chinese housing crisis and it will COMPLETELY dwarf the housing crisis in the U.S.

The Chinese home speculators will be slaughtered. The Chinese banks will be slaughtered. Whatever Chinese stock speculators that are left will be slaughtered. The entire Chinese economy will be slaughtered.

And the rest of the world?

We’ll find out.

The Chinese Housing Crisis that will Send the World into a Great Depression is copyrighted by 20somethingfinance.com without consent to republish.

Newbie: “What are some good stocks or funds I should invest in?”

Me: “Well, I don’t really give specific recommendations. What are you investing in now?”

Newbie: “A and B mutual funds.” (more commonly…”Nothing Yet”)

Me: “Have you looked at ETF’s?’

Newbie: “What is an ETF?”

Me: “A cheap way to distribute your risk.”

Newbie: “Oh.”

(P.S. – There is nothing wrong with being a “newbie” and I’m definitely not a “pro”).

As you can see, ETF’s are not easy to explain in a conversation, so I tend to just focus on the benefits. ETF’s are often misunderstood at best, or avoided out of fear at worst, despite the fact that they tend to outperform mutual funds and have similar risk distribution. They are a relatively new kid on the block in the investing world and aren’t as well known as mutual funds. So I wanted to take some time to go into detail on what they are and why they are not something to fear, despite their weird name.

What is an ETF?

An ETF (short for Exchange Traded Fund) is a type of investment fund that combines elements of a mutual fund and elements of a stock.

ETF’s are like mutual funds in that each has ownership in a number of assets (i.e. stocks, bonds, currencies, etc.). The ownership of multiple assets diversifies the risk for the investor, much like a mutual fund is intended for.

Where they differ from mutual funds is in how you can buy and sell them. Here, they are similar to stocks in that they are traded throughout the day on the market like a stock is.

I thought I’d go through each individual attribute of an ETF as it relates to you and compare it to other investments to break it down for you:

Investment Diversification:

• Mutual funds/index funds: Diversified in that they invest in a group of securities like stocks, bonds, currency, etc.
• Stocks: Not diversified. It is only one company.
• ETF: Diversified like mutual/index funds by investing in a group of securities.

Share Price:

• Mutual funds/index funds: Share price is determined by calculating the NAV (net asset value) of all the holdings in that fund, once at the end of the trading day.
• Stocks: Share price is determined throughout the day based on buy and sell trade volume for that stock’s shares.
• ETF: Share price is determined throughout the day based on buy and sell trade volume for that ETF’s shares. Market price may be influenced by the NAV of the holdings (i.e. investors may see value, leading to higher demand for shares and an upward movement in price), but it is based on the actual trading and not the value of the holdings.

Trade Price:

• Mutual funds/index funds: Can be bought directly through the managing mutual fund company, usually without a fee. If bought through an online broker to consolidate, some are free (no load funds), but others require a one-time buy and sell fee (no fee to buy additional shares). For example, Zecco charges $10 to buy in or sell out of most mutual funds while TradeKing charges $9.95.
• Stocks: You pay a trading fee every time you buy or sell shares. Zecco and TradeKing both charge $4.95 per trade.
• ETF: Same as stocks. You pay every time you buy or sell shares. Zecco and TradeKing both charge $4.95 per trade.

Ownership Fees (Expense Ratio):

• Mutual funds/index funds: You pay a % of total assets to the mutual fund manager. This fee generally ranges between 0.5% and 1.5%, but index funds are almost always cheaper than mutual funds because the investing is more automated based on the index.
• Stocks: There are no ownership fees with stocks.
• ETF: You pay a % of total assets to the ETF manager. ETF’s have historically had significantly lower management fees than similar mutual/index funds. For example, Vanguard’s S&P 500 ETF, VOO, has an expense ratio of 0.06% while its S&P 500 index fund counterpart has a 0.17% fee. Meanwhile, Vanguard’s REIT ETF, VNQ, has a 0.12% expense ratio, while its REIT index fund counterpart charges 0.26%. The more infrequently you buy or sell shares, the more ETF’s come out in your favor.

Reasons to Buy an ETF (or Not):

ETF’s are one of my favorite investment vehicles in that they are diversified, yet have lower management costs than index funds or mutual funds, are tax efficient, and they offer flexibility that can’t be found with index or mutual funds. For example, if I wanted to execute a trailing stop loss order, I can’t do that with a fund, but I can with an ETF. That type of flexibility is important in a volatile market and important for investors who are a bit lazy in keeping up with their investments (guilty as charged).

With all that being said, you have to watch the number of times you buy or sell shares of an ETF. If you don’t hold on to them for long periods like you would with a mutual or index fund or you frequently add to your position, the trading fees can add up quickly. If you don’t have that type of discipline, you may want to opt for index funds instead.

Related Posts:

• Passive Index Investing
• Zecco Review
• TradeKing Review
• ETFs Versus Index Funds

What is an ETF? is copyrighted by 20somethingfinance.com without consent to republish.

A reader writes in with a good question on closing a checking account and I thought I’d share the answer, to provide some insight:

“G.E., I have an older checking account that I want to close. Will closing a checking account hurt my credit score or credit history in any way? Are there any other possible negatives to doing this?”

The short answer is NO (so is the long… but let me explain why…).

Credit reports and credit scores are out there as a means for lenders to determine if you are credit worthy based on your past and current borrowing and payment history.

Savings and checking accounts, on the other hand, are both assets that you own. As such, they have no impact on your credit (what you borrow). So they won’t show up on your credit reports and your credit score will not be negatively impacted by shutting them down.

The only time your checking account may come in to play in a lending situation is if a lender asks you to prove your assets. I have had this happen when taking out a mortgage. Sometimes lenders like to see that you actually have liquid cash somewhere that you can tap, if needed, to pay them back. But closing a savings or checking an account would still have no impact on your credit score, whatsoever.

I have heard of banks flagging customers for abuse of closing and opening checking accounts to score free promotions. So that might be your only downside. Who would do such a thing?

Related Posts:

• How to Improve your Credit Score
• How to Get Free Credit Reports
• What is a VantageScore?
• CreditKarma Review

Does Closing a Savings or Checking Account Hurt your Credit Score? is copyrighted by 20somethingfinance.com without consent to republish.