Once upon a time, long long ago (Actually, it was only about 10 years ago) all the financial news was filtered through only a few sources. You either got your financial news from a broker, a newspaper or a subscription service such as Morningstar or Valueline.

These days, however, it is the wild wild west, with many sources of financial news. With all the options, the question has to be, “Just who do you use”?

Over the next few days I will give you a few of my thoughts on some of the various financial sites; your mileage may vary.If you have a favorite or want to disagree with me or my conclusions, let me know in the comments!

Yahoo Finance

For those of us who where on the web before Google instituted their plan of world domination, Yahoo holds a special place in our hearts. One of the first major finance portals, it is still one of the most highly trafficked pages on the internet.

The thing I like most about Yahoo is the breadth of coverage; everything from wire headlines to quotes to charts (but, I do not like the new java based charts as much as the old school charts they used to have). That being said, I do not know how much of this is habit and how much is due to their efforts. It is hard to change, and the older I get, the harder it is.

One huge advantage (for me) with Yahoo Finance is their homepage is easy on the eyes and well laid out, so I can see the “whole picture” at a glance.

In short, the main reasons I use Yahoo Finance is it is convenient, it is well done and it is trusted… what more can I ask for?

Pretty much everyone knows that the name of the game is to get a good rate of return on your money. After all, you do not have to be a genius to know that getting 8% on your money is a better thing than getting a 6% rate of return. But, just how much better is it?

How long until your money doubles?

If you have a 12% average rate of return on your money (say, in an index fund), then your money will, all things being equal, double in just six years. Drop your rate of return down to 10% (still respectable by anyone’s definition) and now it takes a bit over seven years to double. Bump your rate of return up a bit and get a 13% average and your money doubles in 5 and a half years.

If you do not happen to be a math super genius, you can calculate how long it will take your money to double at a given interst rate by useing the rule of 72.

Money invested at 1% interest will double every 72 years. If you get a higher rate of return, just divide 72 by the rate of return and the answer is the number of years until your investment fund doubles.

Example:

I have $1000 and will put it in the bank at 5% interest. How long until I have $2000?

72 divided by 5 = 14.4 years (better not need it soon!).

While not precise, it is accurate enough for quick calculation and quickly shows the value in getting the highest rate of return possible on your money.

If it were a perfect world, the sky would always be blue, everyone would be skinny and healthy and Warren Buffet would manage my stock portfolio.

It NOT being a perfect world, I guess I will have to put up with occasional thunderstorms and I will have to learn to stay on a diet; however, there IS a way to get investment returns like Warren Buffet. Two ways, actually.

The first, and most obvious thing you could do is buy shares of his company, Berkshire Hathaway. Since Warren is the chief stock picker for this company, literally he will be investing your money, along with his own and that of the other shareholders. Of course, their is a small problem… one share of this company is currently selling for about $140,000.00 (!).

Yeah, that stinks.

The other thing you could do is invest in a mutual fund that owns Berkshire, or buy shares in a mutual fund that holds the same stocks. A few such funds can be found in this post over at the Motley Fool.

In my post yesterday, I mentioned 529 Plans as a great tool to save for college.  I thought I would expound on them a bit today.

A 529 Plan is a investment account in the United States  that allows you to save for college in a tax-advantaged manner. You get to save money for the education expenses of a specific person, called the beneficiary. The plan is named after section 529 of the US Internal Revenue Code.

Each state has its own plan, with significant differences from state to state, but because of the underlying federal legislation, they all have quite a few things in common.

Two Plans

The first thing you should know is that there are actually two types of plans; a pre-paid one and an investment one.

• The pre-paid plan is basically what it sounds like; you pay the current tuition now, and when they go to school, the bill has been paid. In other words, you are paying future expenses with current dollars.  Generally, this is not a good idea. Besides, the problem for most people is they don’t have the money to pay for college; thus, they need to save for it.

• The investment plan is based on investment options in the account, usually mutual funds. Most plans offer quite a few options, both equity and debt based (stock funds and bond funds). You can typically move the money within the account from fund to fund as your needs change. The inner workings (as far as the owner are concerned ) are a lot like your 401K at work; there is the Growth fund, the Aggressive Growth fund, the Risk Free (savings) fund and so on.

The investment plan is best for most folks. While it is administered by the state, the day to day operation is typically out-sourced to a mutual fund company. You are not required to use the plan offered by the state you live in but there may be tax advantages to doing so; do your research or ask your adviser.

Pros and Cons

Pros:

• All growth is income tax free (both state and federal).
• Beneficiary can be changed to another family member.
• Most states do not tax withdrawals as long as they are used for education.
• Withdrawals can pay for tuition, fees, dorm expense, books and almost any educational expense.
• Very High Contribution Limits
• A very attractive estate planning vehicle for those who qualify.
• 529 Plans offer some bankruptcy protection.
• Very low minimum monthly contribution limits, putting it in the range of most budgets

Cons:

The only real con is that some states have outrageous fees. You can use this website to find out the details of your state’s plan and can use it to compare the fees. In fact, sometimes the excessive fees are a good enough reason to abandon your state’s plan in favor of another, even disregarding the tax benefits you get from staying in state.

Perhaps you are struggling to find that oh-so perfect Christmas present for your children or grandchildren. Well, join the club, because it seems like it gets harder and harder each year. You ask yourself if those kids really need another toy, another gadget or more clothes that will just be out of style next year or, much more likely, next month!

Every year, banks all over the US push savings bonds on ill informed grandparents and parents, urging them to buy these bonds to “help pay for college”. While it is no doubt better for their future than the latest ipod, there are much better ways to pay for college.

I suggest that you look into some sort of investment vehicle, such as the 529 plan. The 529 plan (the exact details vary from state to state) allows you to put after tax dollars into an account that grows tax deferred and can be withdrawn tax free for qualified educational expenses. The funds are invested in mutual funds that can be tracked and followed on the Internet or in the local paper and you are allowed to move the money between funds in the plan.

Even if you did not opt to use a 529 plan, or if you live outside the US, it is still a good idea to skip the savings bonds and buy your grandchild a stock or a mutual fund. After all, the sooner they learn about investing in equities, the more likely they are to be comfortable investing when they get older.

There is perhaps nothing that will so affect your success as an investor as your capacity for risk. If you are the sort that freaks out over any loss at all, then you will not be able to invest in the things that will give you the rate of return you need to grow your portfolio at a rapid rate. Similarly, if you are a risk junkie, then you will have access to the potential returns, but perhaps you will not sell at the right time, preferring to let it all ride. (Note, by the way, that there is a profound difference between investing and gambling, but I digress).

In all, it is a search for a balance between a reasonable rate of return and a reasonable margin of safety. The problem, of course, is in your definition of reasonable.

Cruising through the archives of CNNMoney, I found this cute and irreverent test to determine just what sort of investor you really are. While it is very funny, it also contains a lot of truth. While relaxing this weekend with turkey leftovers (if you are in the USA), you may want to check it out.

Have a great weekend, and we will get back to serious investing talk next week, when I tackle the subject of investing time-frames.

If you are like a lot of small investors, you may have an account at E-Trade. If so, you may be comforted by a full page ad they have in today’s Wall Street Journal, where E-Trade maintains it is NOT going under and that all deposits are safe and are fully protected by the FDIC.

On November 9th, E-Trade’s stock declined by 59% (!), [click here for a chart] causing many to wonder if their money is safe and if they should “get their money while they can”. E-trade has put a link on their homepage to a letter from the President of E-Trade, Jarrett Lilien. In the letter, Lillen says, “The credit crunch has had a tremendous impact, but we are taking appropriate and decisive action to manage through it.” Further, on the subject of whether your money is safe, he says this:

Many of you have also asked me about asset protection, so to be clear—your money is safe at E*TRADE FINANCIAL. Here are the facts:

• FDIC insures all E*TRADE Bank accounts to at least $100,000 and Extended Insurance Sweep Deposit Accounts to $500,0001.
• SIPC protects E*TRADE Securities customers up to $500,000 (including $100,000 for claims for cash).
• Additional E*TRADE Securities protection provides up to $150 million per brokerage account, underwritten by London insurers (aggregate $600 million).
• E*TRADE is well-capitalized by regulatory standards.

Only time will tell if E-trade can pull itself out of this, but I would probably not go out of my way to open an E-trade account right now.

If you were to pick a list of the greatest stock market investors of all time, any serious list would be topped by Warren Buffett. His exploits as the Prime Mover behind Berkshire Hathaway are the stuff of legend, with consistent double digit returns and occasional years when he beat the overall market by 10 percentage points or more. However, the real secret to Buffett’s success is his long term perspective.

Over on Motley Fool, they point out that there are occasional five year periods when even the Oracle of Omaha falls behind the S&P 500 (for a chart, check this one out). If you looked at just that five year period, you would think this guy is an idiot, that he did not know his armpit from third base and why in the heck would anybody follow his advice. Obviously, you would also be very, very wrong.

The real key though, is that Buffett has a 10-20 year perspective, and sometimes much, much longer. After all, this is from the guy who said that his favorite holding period is “forever”.

The original article points out that in addition to his outstanding understanding of the market, Warren Buffett also has tremendous patience (that 10-20 year perspective) and tremendous confidence, as seen in his famous statement that “risk is not knowing what you are doing”.

What sort of time frame are you looking at to meet your investing goals? Let’s talk about it in the comments.

There are many schools of thought when it comes to selecting companies. There are value methods, as endorsed by Benjamin Graham and Warren Buffett. There are technical methods that look at numbers and statistics only. There is the dart board method, the dogs of the Dow and hundreds or thousands of others. I would like to talk about something that can be used in concurrence with any of them. This has been in the news lately and I think it warrants a bit of discussion. How responsible is the company that you are investing in and do their practices match up with your beliefs?

This is a highly individual perspective on investing and is different for each of us. I have invested in a small biotech company that is totally outside the parameters of my usual stock selection methods. I did so because I felt the product they were researching would have a highly positive impact on humanity and I wanted to be a part of that process. I also thought that if when they succeed; I would make a boat load of money.

I spoke to a friend about the company and she asked how they tested their product. I had no idea. She refused to invest unless she knew their methods were ethical and that they didn’t do animal testing. That statement got me thinking about other investments I have made. Do you feel right investing in companies that have huge returns, but have really bad environmental practices? Do you invest in companies that are looking to the future and have positive charitable causes?

Phillip Morris spends a lot of money on educating people on the dangers of tobacco use, but they still make their money by selling a product that is known to kill people as a side effect. It also is a product used more by the uneducated and the poor. They also only make those commercials and provide that education as part of a lawsuit settlement. So can you invest in a company that has practices like that?

I am not making a judgment on them, or on anyone who chooses to invest in them. I just feel that people need to realize what they are getting into and how companies make their money. This issue has become larger as more information gets out to the public and people begin to live their lives to a higher standard. British Petroleum, BP, has started to shift their focus to other energy sources than oil. They have gone so far as to say that the BP now also stands for ‘beyond petroleum.’ Is it just hype in their commercials or do they have a mission that rises above their roots? That is also for you to judge.

Many investment firms now are offering mutual funds that take the socially responsible investing into account. There are funds specifically for alternative fuels and funds for environmentally responsible companies. Other focuses include quality of life, avoiding nuclear power usage, employment policies, community relationships, alcohol and weapons production, just to name a few.

Where do you stand? Again, this is not passing judgment. The purpose is to expose you to the concepts of what is available out there for your consideration.

Investment clubs can truly be a beneficial way for anyone to learn about investing. These investment clubs are quickly gaining popularity thanks to all of the great information that can be learned from them. However, it would be extremely wise of you to follow some simple and straightforward guidelines before you join any type of investment club. Knowing exactly what you are getting yourself into is an important part of protecting yourself and your assets. 

Local Investment Clubs – Do you enjoy face-to-face socializing, and personal interactions? Joining an investment club that is local to you may be the best option depending on how you feel about face-to-face interacting. In these investment clubs, you typically meet with other members around once a month, and investing professionals and other experts are typically invited to speak at these meetings on various topics.

These meetings are an excellent opportunity for any and all members to learn from past investing experiences and to ask questions of the experts who truly have been there and tried virtually everything. There are plenty of local investment clubs out there; you simply have to know who to ask and where to look in order to find them.

Online Investment Clubs – These investment clubs are meant to offer convenience to their members. Online investment clubs typically have forums or chat rooms that make it possible to post and respond to questions and to participate in text-based conversations. If you have little time to get together in person for some like-minded mingling, it may be best for you to join an online investment club instead.

Investment Capital – After you have determined what type of investment club to join, you have to determine how much money you are looking to invest. Some investment clubs actually have a set minimum in place for how much investing you must do. What makes investment clubs so great is that the investment money is pooled and invested on a joint basis. This means that you do not have to have a lot of investment money from the beginning but can still participate. 

The Investment Period – You absolutely must make sure that you know how long your investment capital is going to be tied up before any single investment is made. Many investment clubs actually have set rules and limits regarding the minimum length of time for a particular investment. Avoid getting stuck paying penalties by pulling money out early, simply by knowing how long you are expected to be a part of the investment for.

Read, and Understand the Fine Print – Before you sign on any dotted lines, make sure that you read over everything completely and thoroughly. You need to make sure that you understand every facet of your commitment, and that you are completely comfortable with whatever conditions and terms are set forth for this investment club. Look for early withdrawal penalties and hidden fees, and avoid them at all costs.

Investing through investment clubs can be an extremely interesting, easy and fun way to learn how to invest and to experience new forms of investing. But it is important for you to make wise decisions and to take care of your assets when investing; otherwise you may not enjoy the experience you were looking forward to.