Better late than never, that’s what I say. So, on to the weekly recap!

• Probably my favorite post of the week was a guest post by Millionaire Mommy Next Door  on Get Rich Slowly called How I Became a Millionaire While Working in my Pajamas. She talks about how she and her husband started young with a small income and achieved financial security by starting a business. Talking about saving money and cutting spending has it’s place, but stories like this one show why I believe that entrepreneurship and increased income are the real key.
• On a related note, Mrs. Micah wrote about determining what your time is worth when it comes to different ways of making money, particularly online. She mentions things like paid surveys, which can seem like good money but often work out to a very low hourly rate. I do like surveys for a little spare time cash, but her point of knowing how to focus on profitable use of your time is well taken.
• Continuing the income theme, No Credit Needed wrote about how just $10 a day can add up to $750,000 over a 50 year period with only a 5% return. Two points here: 1-Even a small investment really adds up over time, and 2-time is the most important factor, so procrastination is costly.
• Shifting gears, My Dollar Plan has a good list of 10 tips for holiday shopping online. I know that the convenience and lack of crowds has converted me to shopping online almost exclusively, and this list has some good tips to get the most out of it.

Finishing on a holiday note: 10 days till Christmas, are you ready?

Miscellaneous | 3 Comments »

Old and Busted: Savings bond

When it comes to gifts, one that nearly everyone has received at some point is the US Savings bond. They are easy to buy and people think of them as a good “investment for the future” compared to a check.

But people are wrong.

EE Bonds sold between November 2007 and April 2008 will pay a fixed 3% interest rate. That’s hardly keeping up with inflation, much less increasing in value! Additionally, cashing the bonds in the first 5 years costs three months interest as a penalty, and the bonds won’t reach face value for 20 years!

Obviously, from a financial standpoint savings bonds don’t make much sense (or cents). But other than a check, what is a fiscally minded giver to do?

New Hotness: Shares of Stock!

Forget about savings bonds and 3% returns, consider giving shares of stock instead! Giving shares is a better option for several reasons:

• Greater growth potential. Since 1926, the average total return for the S&P 500 in a 20 year period (the time it takes a bond to mature) is almost 406%, compared to 100% for a savings bond. (Source)
• Multiple ways to grow. With a stock, you can make money through share price increases and dividends, and stock splits can compound your gains (resulting in the higher returns above.)
• Increase financial knowledge. Perhaps the biggest benefit of giving stock, particularly to young people, is that it can increase their interest in investing. Talking about money is one thing, actually owning a piece of Disney or Coke is much more interesting!

Is There a Catch?

Obviously, the return on a stock is not guaranteed like a savings bond. The figures above are based on the S&P 500 index as a whole, the performance of an individual stock may be less, or even nothing if the company goes out of business.

You can reduce the risk by buying only big blue chip companies. The risk of Disney going out of business is pretty small (though not zero)! Another way to reduce risk, though maybe at the expense of “coolness”, is to give shares of an exchange traded fund (ETF). ETF’s are basically mutual funds that trade like stocks, so you can diversify and reduce risks.

So this Christmas, ditch the bonds and give something that will really appreciate (and be appreciated.) Stocks in everyone’s stockings! 

Tips | 1 Comment »