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Saturday, 24 March 2012

Retirement Secrets of Successful Investors

What can we learn about retirement planning from successful investors? Plenty! Bank of America and Merrill Lynch recently published their Affluent Insights Survey of 1,000 investors with assets of $250,000 or more, and the results are indeed insightful.

Any time successful people are willing to share their point of view, I'm interested to see what I can learn. You'll see that these secrets aren't rocket science and can be used by anybody, not just the privileged, to get ahead financially. In fact, these "secrets" are just common sense, offering guidelines on what to do -- and not do -- when it comes to your money. Let's take a look.

Secret No. 1: Redefine retirement

The successful investors consulted for the survey are changing the definition of retirement. Almost three-fourths of respondents who aren't yet retired view this upcoming life stage as a second act during which they plan to work full or part time. Almost 30 percent intend to cycle between work and leisure, 22 percent plan to work at a job they enjoy more than the one they currently have, and 14 percent want to continue working part time in their current job.

About one in four define retirement as never working again, while only 14 percent define retirement as hitting a certain age.

Secret No. 2: Make lifestyle tradeoffs

If given the choice, half of the affluent Americans surveyed who are not yet retired would rather retire later than make tradeoffs in their lifestyle now. But 81 percent would choose to reduce their standard of living when push comes to shove -- as it most certainly will, even for affluent investors. The survey respondents reported a variety of actions they'd be willing to take; each of the following actions would be taken by one-fourth to one-third of the survey respondents:

-- Trim day-to-day expenses
-- Buy fewer luxuries
-- Limit vacations
-- Cut back on entertainment
-- Keep the same car longer
-- Leave less of an inheritance
-- Downsize their home

I contend that these actions won't ruin their lives. Even if they have to implement some of these strategies in order to save enough for retirement, they'll still enjoy a good life.

Secret No. 3: Plan for retirement

Affluent investors who are preparing to retire in the next five years are taking steps to make sure their money lasts during their lifetime. More than one-third of the Merrill Lynch survey respondents are saving more, tracking expenses more closely and developing a monthly budget for living expenses.

While it may seem obvious that you should plan for retirement, various surveys show that only about half of all Americans do any kind of planning before pulling the plug on their job. For example, the 2012 Retirement Confidence Survey from the Employee Benefit Research Institute shows that only 42 percent of survey respondents do any sort of calculation to determine how much money they need to retire or how much they should save for retirement. Yet those respondents who actually did some planning report they feel more confident about their retirement security, and they're making more realistic calculations of their retirement needs.

Secret No. 4: Don't ignore rising health care costs

A majority of the Merrill Lynch survey respondents -- 79 percent -- cited rising health care costs as their top financial concern. Yet among the respondents over age 50, almost two-thirds reported that they haven't yet estimated what their health care costs will be during their retirement years.

Estimating your medical costs during retirement isn't an easy task for those who may be mathematically challenged. But you can get an idea of what your medical costs will be from Fidelity's annual survey of average retiree medical costs. Its 2011 survey estimated that the present value of lifetime, out-of-pocket medical costs for a retired couple age 65 is $230,000.

Some retirement planning software will let you estimate your health-care costs during retirement; one example is the RetireMark software developed by HealthView Services. Rising health care costs are one risk to your retirement security that you just can't ignore.

So now you can use the retirement planning secrets of affluent investors. Start making changes today that will make a difference in your future.

Getting a Cool $1 Million for Retirement

I always hear that if someone starts investing in their 30s and earns 8% a year, they can retire with $1 million because of compound interest. Is this true and, if so, where can I find investments that will earn that return? -- Denise, Sacramento, Calif.

There are many paths to a million-dollar nest egg.

A 30-year-old who saves $500 a month and earns a return of 8% a year on those savings would end up with just over $1 million by age 65.

Similarly, if that same 30-year-old earned $40,000 a year and saved 12% of salary each month, she would also have roughly $1 million by 65, assuming 2% annual raises and an 8% annual return.

There are plenty more ways to reach $1 million, depending on when you start, how much you put away on a regular basis and how you invest what you save.

You can also estimate how many years it might take you to reach the seven-figure mark by going to our Millionaire Calculator and plugging in your age, projected investment return, the amount you've already saved and how much you plan to add each month to your savings.

But while scenarios give you a sense of what's involved in building wealth over the long term, it's important to remember that what seems clear and direct in a hypothetical example may not be so straightforward in the real world.

It's one thing to assume savings of $500 a month or 12% of salary over 35 years. But layoffs, career changes and unexpected expenses could easily wreak havoc with that plan.

The same goes for returns. You can easily calculate the average gains stock and bond mutual funds have delivered in the past. Predicting future returns is much dicier.

And even if you manage to forecast the average return for the next few decades, you still wouldn't know for sure how much money you would accumulate. That's because when you're adding money on a regular basis to a portfolio (or pulling it out), the annual or monthly pattern of returns determines how much dough you end up with, not the average return.

So rather than think of building a nest egg as a matter of plugging in a few assumptions and following an unwavering path to a definite outcome, look at it as taking a number of steps that, while not assuring success, can increase your chances of ending up with the money you'll need.

Here are four key steps:

1. Start saving ASAP. The sooner you begin saving, the more time your money will have to grow, and the larger the sum you'll eventually have at retirement, whatever return you earn.

Many of us don't get as early a jump as we'd like but that's not cause for despair. No matter how far along you are in your career, you can always improve your situation by saving.

So while starting from scratch at 40 isn't as effective as beginning your savings regimen at 30, it's a lot better than waiting to 50. And starting at 50 is preferable to starting at 60.

2. Push yourself to save more than you planned. Given the uncertainty in preparing for retirement, it pays to build a cushion into your planning. And that's exactly what throwing extra money into the savings coffer does. It provides a buffer that limits the downside should your investments earn less than you anticipated or your saving regimen falter at some point in the future.

So if you're planning on contributing, say, 8% of salary to your 401(k), try gradually bumping it up to 10% or even 12% to add a margin of safety.

3. Focus on your portfolio, not returns. No one knows what returns the market will generate in the future. So it makes little sense to set 8% or any number as a target, and then go hunting for investments you hope will be able to hit that mark.

A better approach is to build a diversified portfolio of stock and bond funds that will allow you to share in whatever level of gains the markets deliver. And instead of focusing on return, think about managing risk.

Typically that means starting out heavy in stocks when you're young and scaling back as you age when preserving capital becomes more important than growing it. You'd put together a portfolio that can give you the trade-off of risk and return that's appropriate for you.

Whatever blend of stocks and bonds you decide on, you'll keep more of the return that mix generates by sticking to the low-cost index funds and ETFs on our MONEY 70 list of recommended funds.

4. Look beyond the big number. Much of retirement planning these days revolves around finding "Your Number." And no number seems to capture the imagination more than a big round one like $1 million.

But the chances that a million dollars or any other figure will be right for you are low. There are just too many unknowns to calculate with any precision the exact amount you'll need years off in the future.

So rather than focusing on a number that may be misleading, you're better off going to T. Rowe Price's calculator that allows you to estimate how much you should save and how you should invest in order to maintain your current standard of living in retirement.

As your financial situation changes throughout your career -- your salary rises, your savings grow, etc. -- you can then gauge your progress and make adjustments to your strategy as you go along.

Or you can skip these steps, follow one of those simple scenarios you've heard about and shoot for that cool million.

Saturday, 17 March 2012

6 Reasons Why You Should Never Retire

Threats to retirement security are everywhere. The list is topped by the recession-fueled impact on retirement confidence: People haven't set aside nearly enough money to fund their retirements. Next on the list is the regular drumbeat from critics that the Social Security system is running out of money and won't be able to honor its current promises to people nearing retirement. Perhaps the third stake in the heart of retirement is that people are living longer and longer, raising legitimate fears they will outlive their money.

All well and good, perhaps. But these concerns have obscured the compelling arguments against ever retiring, except for physical reasons. The short list of reasons never to retire include:

1. There is no physical reason to retire.

2. Continued work can support healthy aging, including better physical and mental health.

3. Well-being and happiness are boosted when people are engaged in challenging and meaningful activities. Work is a major place to find such activities in our society.

4. Older people have rich experience and mentoring skills to help enrich the workplace experiences of younger colleagues.

5. Declining numbers of younger workers, courtesy of lower fertility rates, will raise the need to retain older employees in the workforce.

6. We need and like the money, and shorter retirements sharply cut the risk we will outlive our assets.

There are physically demanding jobs that wear people out by the time they hit their 60s. Other people have suffered disabling injuries and diseases, some related to work, and simply cannot hold demanding jobs any longer. We have safety nets for these folks, although they should be stronger, especially as support rises for raising the official retirement age to 68 or even 70.

For the rest of us, retirement is, quite frankly, often a default choice that we've been brainwashed into accepting. Saying that it's time to retire becomes less and less relevant with each passing year. Not only are we living longer, but the quality of our lives in older age can also improve. Physically taxing jobs are disappearing. Knowledge jobs can be done quite well by older people.

Continuing to work keeps people engaged and requires learning new skills. While the perfect antidote to the hazards of aging has not yet been identified, performing meaningful work is certainly a major part of the answer. For people who have "retired" in a technical sense, there has been a boom in encore careers and other volunteer experiences. Many of these people are working as hard and effectively as they ever have, and reaping big health and wellness benefits (although clearly not earning commensurately large paychecks).

The recession and painfully slow jobs recovery that has followed have occasioned some sniping at older workers. It is time for them to move on, we're told, and to open up slots for deserving younger job candidates. Similar "job stealing" charges have been levied at illegal immigrants. This is an understandable but short-sighted reaction. Labor shortages will be making headlines in a few years, and we'll need workers of all ages and origins.

The financial argument for staying at work has, of course, been front and center in the past few years. But labor-force participation rates for older people have been rising for 20 years, and financial motivations were important even before the recession. Beyond the money, there have been other benefits as well.

Older employees are ceasing to be oddities in the workplace. Recognition and sensitivity to multigenerational workforces have been growing. Older workers thus are more likely to be accepted by younger colleagues and managers.

Successful people have seldom selected retirement when they turn 65. Warren Buffett may be the poster child for lifetime employment, but he is hardly unique. Changing the "65 and out" mindset is helped by greater social acceptance of an extended working role for older people. This transition becomes even more powerful when the older person not only accepts a different future but embraces it.

Early Retirement Without a Fortune

For many people who suffered lackluster investment returns after enduring a highly volatile stock market, retirement has become an elusive goal. Some financial experts recommend that workers postpone retirement as wages stagnate, 401(k) portfolios underperform and pension plans go the way of the rotary phone.

However, some people have discovered that retirement is not as hard as it looks. With a bit of careful planning and dedication, that time of leisure can come earlier than 65 -- much earlier in some cases.

Bankrate profiled four people who managed early retirement at ages ranging from 33 to 52. None of them had the advantages of a family fortune, a lottery jackpot or an initial public offering, or IPO, windfall to support them. Instead, these retirees learned the importance of patient savings and cost-cutting while ignoring risky bets and avoiding trendy get-rich-quick schemes.

Satisfying early retirement

Bob
Scottsdale, Ariz.
Age: 62
Retired at 52

Bob began saving for retirement at 30, stashing away 15 percent to 25 percent of his annual income. He was able to amass $500,000 in a retirement fund by the time he stopped working just 22 years later.

Since then, he has kept that money in an IRA and lives on an annual pension of $40,000, which is about half of his pre-retirement income. That, combined with the inheritance of a modest estate from his parents, has given him a comfortable retirement.

However, his IRA portfolio lost $250,000 after the crash in 2008. He hopes to recover that money before he turns 64, when he intends on drawing on his IRA. The experience also taught him to simplify his life by cutting expenses and having less stuff.

Bob calls his investment approach "very conservative" -- he invested for long-term growth and avoided riskier investment opportunities. He also believes in cost-cutting on big items. For example, with the proceeds from a home sale, he bought his current house outright in cash to avoid having a mortgage. The biggest financial hurdle for him is medical care. He spends a quarter of his yearly income on health insurance alone.

Frugal early retirement

Gary
U.S. Virgin Islands
Age: 66
Retired at 49

Gary retired about 17 years ago with approximately $350,000 in a variety of investments. Before choosing to retire, he and his wife Julie spent about $80,000 a year. In the last couple of years before they quit working, they made retirement a priority and cut costs. They now live on about $50,000 a year.

With a paltry pension of just $49 a year, Gary and his wife currently receive about $17,000 from Social Security and an additional $33,000 annually from various investments. Gary says this is enough to fund a fulfilling lifestyle. Their only financial worry now is the $10,000 deductible on their health insurance. While working, they invested aggressively in growth stocks, but since retirement, they have focused more on conservative mutual funds.

They live on a smaller income, so they cut down on expenses. Most importantly, they gave up status items. Before retiring, they had two Mercedes-Benzes, designer-label clothing and a "country-club lifestyle." Now they live more simply.

These days, Gary finds his frugal lifestyle to be fulfilling. "It is more important to be together 24 hours a day than to be working and earning a lot of money," he says.

Happily retired

Syd
San Francisco
Age: 47
Retired at 44

While most people try to save a fixed amount before retirement, Syd took a different approach to early retirement and looked at her costs instead. "I've never believed in calculating your retirement nest egg based on a percentage of your annual income," says Syd, who regularly blogs about retirement. Instead, she calculated that her post-retirement expenses would be 65 percent of her pre-retirement spending. After three years, she found it was an accurate estimate -- often, she has spent a bit less.

It took Syd 15 years to build a nest egg 33 times her total projected annual costs. With this amount of money, she has been able to withdraw 3 percent of her savings -- which means she will not run out of money as long as her investments perform well. She actively tracks her portfolio and rebalances her investments when they underperform.

Syd has followed different strategies to build her investments and make them last. Before retirement, she invested aggressively in stock funds to increase her net worth as quickly as possible. Now she is more conservative, with more than 30 percent of her portfolio in cash and the rest in diversified mutual funds.

Really early retirement

Jacob
San Francisco
Age: 36
Retired at 33

Jacob named his website "Early Retirement Extreme," where he describes his philosophy and financial strategy. After working in academia for five years, Jacob decided to quit.

This was possible because of his aggressive savings strategy. While working, Jacob saved nearly 80 percent of his after-tax income by eschewing a consumerist lifestyle. Then he began managing his own investment accounts.

"If you're retiring at my age, it's because you prefer time more than money, which is a somewhat rare attitude in this day and age," says Jacob. "Fortunately, I've learned to live quite well on little money." He cuts costs by using a bicycle instead of a car, eating at home and enjoying low-cost activities.

Jacob lives on about $7,000 a year -- $1,000 of which goes to sports hobbies, while the rest covers his basic expenses. He describes himself as a conservative investor who focuses on nongrowth dividend-yielding stocks, and he tries to withdraw less than 3 percent of his portfolio annually. Jacob shares a recreational vehicle, or RV, with his wife, and they split costs halfway. Jacob's monthly expenses include $270 for rent and utilities, about $100 for food, $95 for health insurance and $120 for discretionary expenses.

5 People Who Turned $1,000 Into $1 Million

Most millionaires are self-made millionaires, but becoming one is something that still seems out of reach for most people.

In many cases, we dismiss the idea of building a million-dollar business because, well, you need a lot of money for that, right? You've got to spend money to make money, don't you?

As it turns out, you don't really have to spend that much.

I spent the last few weeks interviewing dozens of millionaire entrepreneurs. Many of these individuals started businesses with less than $1,000 and are now earning more than $1 million per year in revenue. All of them bootstrapped their own business with no outside cash and a minimal capital investment from their own bank account. Here is a brief primer on bootstrapping a business.

So how does one start with very little money and turn that into $1 million per year? Here are five stories of regular people building million-dollar businesses.

PostcardMania. Joy Gendusa was a freelancer who wanted to buy some postcards to advertise her business. She was shocked by the unnecessary fees she had to pay just to get some postcards made, so she decided to start her own postcard business with a friendly price structure for customers. PostcardMania was born.

Gendusa started the company with no capital investment and used the money from the first customer to pay the printer for her first postcards. In the early days, the payment schedule was tight. She had to get money from the customers and use that cash to pay her printer, but she kept bringing in new business and eventually built up a little bit of cash.

As PostcardMania continued to grow, Gendusa noticed customers asking for other services. They would say things like, "Who built your website?" or "Can you do email marketing too?" So PostcardMania started branching into those areas as well. Today, the company offers all sorts of advertising and marketing for its clients and makes close to $20 million per year.

The success of PostcardMania is a direct result of the sales and marketing techniques Gendusa used to get her company off the ground. Here are more tips and tricks for effective sales and marketing.

Blue Buddha Boutique. Rebeca Mojica went to a Renaissance Festival and noticed a unique metal belt made from chainmaille rings. After searching for something similar, she couldn't find the belts anywhere and decided to try and make her own.

Mojica spent $20 on that first set of rings and sold a few belts to a friends and family. However, it wasn't until she started teaching other people how to make the belts that she really saw the potential for a business.

Mojica began teaching chainmaille classes and decided to sell the rings and pliers needed to make the belts to her students. She made $300 the first time she sold the supplies. Soon after, Blue Buddha Boutique was born and it rapidly became one of the top sellers of chainmaille jewelry supplies. Blue Buddha Boutique now has 13 employees and is set to break the million dollar mark in 2012.

FIELD Beef Jerky. Matt Levey, Tom Donigan, and Scott Fiesinger were three friends who went on a ski trip together and couldn't stop talking about the homemade beef jerky they picked up in the mountains.

For a few years they would playfully say, "We should make our own beef jerky and sell it!" Eventually the trio decided to talk with grocery-store managers and owners about their idea.

The founders asked the grocery stores if they liked the idea of a natural, organic beef jerky made from quality meat. The response was unanimous: Every store owner wanted something that fit the description, but they couldn't find it anywhere.

After spending a little money playing with different recipes and figuring out how to package and ship the jerky to grocery stores, the three friends formed a new company called FIELD Beef Jerky.

In the early days, the owners took orders themselves and delivered them to grocery stores in New York City on their bicycles. After a few months of hustling around the city, their product was picked up by a distributor and has since exploded in popularity. FIELD Beef Jerky is now available in more than 600 locations nationwide and is starting to gain traction in major chains like Wegmans. The company is on pace to break $1 million in 2012.

M&E Painting. Matt Shoup worked as a painter during the summers in college. When he was let go from his job his financial services job a few years later, he decided to start a painting business.

Starting with just $100, Shoup woke up the next day and went door to door in his neighborhood, knocking on houses that looked like they could use a paint job. He enlisted a few friends for help and M&E Painting made more than $500,000 in that first year. Seven years later, the company has more than 4,000 customers and makes between $1.5 and $2.5 million every year.

Stories like this one beg the question: Should you quit your job to follow your dreams?

AddressTwo. Nick Carter used to run a marketing consulting agency. When a client came to him and asked if they could figure out a Customer Relationship Management (CRM) software for his company, Carter decided to build their own software solution. Carter used the money from that first client to finance the creation of AddressTwo and soon after, selling the software became his primary business.

Using a growth method that Carter calls "customer capital," he added features to the software when new clients were willing to pay for an addition. Slowly, the software improved and gained more customers. Today, Carter has built a successful CRM software that serves more than 500 businesses every month without any outside funding or large investment.

How can you get started? One of the common themes I noticed in my interviews with successful entrepreneurs was that they have the ability to decide. Simply put, most people want to work for themselves, but few people decide to take that first step.

If you're looking for ways to make that first step easier, you can ease into working for yourself by freelancing. For example, here are 7 ways to earn an extra $1,000 this month.

Building a million-dollar business from scratch isn't easy, but it is possible.

James Clear is the founder of PassivePanda.com, a website that teaches you the skills you need to know to work for yourself. Join Passive Panda's free newsletter for fresh ideas on earning more money.

Thursday, 15 March 2012

Departing Goldman banker slams 'rip-off' culture

By Douwe Miedema and Lauren Tara LaCapra

LONDON/NEW YORK (Reuters) - Goldman Sachs faced an unprecedented assault from one of its own on Wednesday after a banker published a withering resignation letter in the New York Times, calling the Wall Street titan a "toxic" place where managing directors referred to their own clients as "muppets."

It was the latest blow for the investment bank. The company -- dubbed a "great vampire squid" in a 2009 article in Rolling Stone magazine -- has been embroiled in the biggest-ever insider trading scandal on Wall Street. And just weeks ago, a top judge criticized Goldman for big conflicts of interest in an energy deal.

In an opinion column in Wednesday's Times, Greg Smith, who worked in equity derivatives, said Goldman (GS.N) had become "as toxic and destructive as I have ever seen it.

"It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets,'" Smith said.

In the United States "muppet" brings to mind lovable puppets like Kermit the Frog, but in Britain, "muppet" is slang for a stupid person. (Goldman, as it happens, was at one time also the bank for the family of Muppets creator Jim Henson.)

Goldman Sachs issued a short statement in response:

"We disagree with the views expressed, which we don't think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves."

In a memo to staff, Goldman Chief Executive Lloyd Blankfein and Chief Operating Officer Gary Cohn said Smith's views were in the minority among his 12,000 fellow vice presidents.

"And, what do our people think about how we interact with our clients? Across the firm at all levels, 89 percent of you said that the firm provides exceptional service to them," they said in the memo, a copy of which was reviewed by Reuters.

Congressman Barney Frank, an architect of the 2010 Dodd-Frank financial reform law, said Smith's piece would have "a big impact" on the banking industry's efforts to push back against financial reform.

"It puts the burden on Goldman Sachs and others to show us how what they do benefits the clients and therefore the broader economy," he told Reuters.

Goldman shares closed 3.3 percent lower, on a day when broader markets were up slightly. At least one bank wasted no time in trying to take advantage of the situation.

"In my experience ... client success and firm success can peacefully coexist; in fact thrive," Harris Private Bank Chief Investment Officer Jack Ablin said in an open letter.

"Having served clients for nearly 30 years I can tell you that the long-term success of any institution, whether in the financial field or not, depends on the long-term success and satisfaction of its clients," said Ablin, who oversees $60 billion of investments for individuals and families.

But the company, which sometimes lacks for defenders, garnered at least some public support in response to Smith.

"The many people we have dealt with there have all been exceptionally talented and high-grade, and never once have we had a negative experience in which we felt that they took advantage of us or didn't do what they said they would do," well-known fund manager Whitney Tilson said in a note.

FRIENDLY AND GENUINE?

Smith, who did not return voice mails on his cellphone, carried the title of executive director, but it was not nearly as illustrious as it might sound. Goldman's roughly 12,000 vice presidents and executive directors compare with 450 managing directors -- the next rung up in the Goldman hierarchy and a job classification that Smith didn't achieve. Overall, the company has about 33,000 employees, meaning that 36 percent of Goldman's workforce carried a title similar to Smith's.

South African David Berman, founder of hedge fund Durban Capital and friends with Smith, called him "a very understated, humble type of guy who would tell the truth as truth is important to him.

"But he never struck me as the Goldman-type as he isn't aggressive nor (the) salesman type one expects," Berman said, adding, "I am convinced this is for real with no selfish intent here."

According to the British Financial Services Authority's register, Smith joined Goldman's UK unit a year ago.

Johannesburg-born Smith attended universities in his home country and in the United States, where he received a degree in economics from Stanford University in 2001. He also interviewed to be a Rhodes Scholar in South Africa in 2002.

While at student at Stanford he had a summer internship at Paine Webber in 1999 and a summer internship at Goldman in 2000. Upon graduating from Stanford in 2001, he landed at Goldman.

Internally, Smith's op-ed piece was not necessarily well received. A trader, who knew Smith in passing, said the company is telling staff that Smith is a disgruntled employee who is leaving because he didn't make managing director.

This trader, who did not want to be named, says former Goldman colleagues are saying that Smith "wasn't very commercial," which means he wasn't producing the kind of sales the company wanted.

PAST MEDIA STORMS

Goldman Sachs -- fourth among investment banks last year based on fee-income rankings compiled by Thomson Reuters and Freeman Consulting -- has a history of tension with client interests, experts say.

"Greg Smith refers to the last 12 years, but in fact Goldman has been doing this kind of thing since going back to the Great Depression," author William Cohan told Reuters Insider.

"It's not just the last 12 years; unfortunately it's part of the firm's DNA," said Cohan, author of the Goldman profile "Money and Power" and a former Wall Street banker himself.

In recent years the company has faced other high-profile incidents damaging to its image after the near-collapse of the global banking system in 2008.

Earlier this month it was accused of a major conflict of interest for advising El Paso Corp on its sale to Kinder Morgan, while being a significant shareholder in Kinder.

A lawyer representing an Australian fund in a lawsuit against Goldman over mortgage-backed securities, filed in New York last year and alleging fraud and breach of contract, said he may seek Smith's deposition to help bolster his case.

"Part of Goldman's defense is everybody is sophisticated and everybody knew as much as we knew did," the lawyer, Eric Lewis, said. "But if you're calling your clients muppets -- most muppets don't have the cranial capacity of Goldman."

Paul Volcker, a former Federal Reserve chairman, called the Smith piece a "reflection of the change in market mentality over the last 15, over the last 20 years" at an economics summit in Washington hosted by the Atlantic magazine.

TWITTER IGNITES

Unsurprisingly, Smith's resignation letter captured the imagination of Twitter users. "Greg Smith" was a worldwide trending topic early Wednesday, meaning it had suddenly spiked in interest, while both that and "Goldman Sachs" were trending in the United States.

Many of the commentators expressed surprise about the allegations in the piece, while others called for Smith to shed light on why he left the bank, or pointed out that he seemed to have been employed in a comparatively junior role.

As happens on the Internet in cases like this, near-instant parodies of Smith's letter cropped up. The most popular by far had Darth Vader of "Star Wars" fame resigning from the Empire via a letter similar to Smith's.

"To put the problem in the simplest terms, throttling people with your mind continues to be sidelined in the way the firm operates and thinks about making people dead," the film franchise's dark lord wrote.

(Additional reporting by Kirstin Ridley, Laurence Fletcher and Naomi O'Leary in London, Pascal Fletcher and Marius Bosch in South Africa, Matthew Goldstein, Katya Wachtel, Sam Forgione, Jennifer Ablan and Fred Katayama in New York and Alexandra Alper in Washington; Writing by Douwe Miedema in London and Ben Berkowitz in Boston; Editing by Edward Tobin, Andrew Callus, Alexander Smith and Steve Orlofsky)

Sunday, 11 March 2012

7 Ways You're Wasting Money Without Realizing It

Wasting money doesn't necessarily mean you're bad with money. You don't have to be a shopaholic or a frivolous spender to spend more money than you should. Often, there are leaks in our budgets that could easily be fixed if we knew what to look for. Some of the biggest money mistakes can be eliminated without even making a big change to your lifestyle.

So before you vow never to eat out again or take a vacation, see if you can plug these money leaks that you may not have even noticed.

1. Investing in expensive mutual funds. Unlike your gas or electric bill, mutual funds don't send you a monthly statement showing how much they cost. Even though the cost is hard to see, mutual funds that charge high fees are just eating away at your returns. High fees, which can include trading costs and the fund's management fees, can go unnoticed because investors don't get a bill for the fees. Instead, the fees are simply deducted from your account, reducing the overall return on your investments.

Instead of investing in expensive mutual funds, look for funds that charge less than 0.50 percent in fees annually. You can find index funds charge less than 0.1 percent. And if you need some help with your investing, rather than paying 1 percent or more for someone to manage your investments, use a service like Betterment. This online service makes investing a snap, and Betterment recently lowered its fees.

2. Ignoring your credit score. Everyone knows just how important a good credit score is, but most people probably don't think of it in terms of wasting dollars. Your credit score affects everything from interest rates to auto insurance premiums. Today, it can even affect your chances of getting a job, as some employers use credit history as part of their hiring criteria. It's simple: The better your credit, the more money you are going to have in your pocket.

For example, while you may be able to qualify for a mortgage with a credit score of 620, you won't get the best rates. To get the best mortgage rates, you need a score of about 760. And the difference in interest rates between a score of 620 and 760 can be well over 1 percent. Over the life of a mortgage, the better score can save you tens of thousands of dollars in interest payments.

3. Failing to get lower rates. The only good thing about high rates is that they can be lowered. You can lower you rate on just about anything--credit cards, mortgages, car loans, and student loans. There are several ways to get lower rates. The easiest way is to ask. Particularly with credit cards, just asking for a lower rate has proven to be very effective.

With mortgages, car loans, and student loans, refinancing is an option if rates are lower. And keep in mind that even if prevailing rates have not changed since you obtained your loan, you still might be able to get a lower rate if your credit score has improved. And finally, with credit cards, there are several very good 0% balance transfer options to consider. The point is, there are opportunities to lower your rates and not doing so is just throwing money away.

4. Overpaying for car insurance. Car insurance is one of those necessary evils in life. We all hate to pay for it, but we have to have it. Fortunately, there are many ways to reduce car insurance premiums with just a little effort. For example, you can raise deductibles or even cancel certain types of insurance for older vehicles. Auto insurance companies offer numerous discounts, and comparing insurance online takes just minutes.

5. Buying brand-name products. It's easy to get caught up buying brand-name products. After all, these big companies force-feed us with their captivating slogans on a daily basis. Looking past the pretty labels and catchy commercials, however, will save you money. Many of the "off bands" are often made by the same brand-named companies so the product is basically the same, but with a better price. This is especially true when it comes to prescriptions and over-the-counter medications.

6. Buying too much life insurance. Like car insurance, life insurance is a necessary expense if others are relying on your income. The key is to buy only the life insurance you need at the cheapest available price. For many, this means buying term life insurance, not universal or whole life policies that combine life insurance with investment products. And as your life circumstances change, consider whether you can reduce the amount of insurance you need, or even eliminate it completely.

7. Failing to get the company 401(k) match. Getting the most out of your 401(k) is essential to your retirement planning. Many companies will match a portion of an employee's contributions to a 401(k). But to take advantage of a company match, you must contribute a certain amount that varies by plan. By not making the most of an employer's matching contributions, many lose what would otherwise be free money. So take full advantage of your 401(k) by contributing up to the amount your employer will match.

DR is the founder of the popular personal finance blog The Dough Roller, and the credit card review site Credit Card Offers IQ.

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