Last week I finally got around to making another deposit into my Roth IRA to max out the contributions for this year. It’s been a while since I’ve talked about this account, so you may want to read The Roth IRA Re-visited, Starting my Roth IRA, and the Best of the Roth IRA if you haven’t already. Here’s a brief overview though if you’re to lazy to read the other posts:

• There are no tax benefits in the current year, but the earnings and gains are tax free.
• Withdrawals can be made after age 59 1/2
• Your contributions can be withdrawn without penalty at any time (they were after tax remember)

Now for what I do with my Roth IRA. Unlike many personal finance writers, I don’t opt for the frequent contributions to broad market index funds. I’ve heard all of the arguments for them, and will admit that they’re a great fit for many people. I don’t want to dissuade anyone from using them if that’s what you want to do. I’m just not into them.

I, on the other hand, prefer to buy individual stocks and assemble my own “mutual fund” if you will. I don’t buy and sell very often at all, and I’m definitely not what you would call a day trader. I mostly just buy actually and I very rarely sell. Currently I’m working on assembling a very solid base of large cap stocks with steady dividends. After this foundation is established I will then probably branch out into other areas.

If you read the other posts earlier, you’d know that I have my Roth IRA through Scottrade and they charge $7 per trade. I typically buy in $1K increments which is enough to keep me from making rash decisions and keeps the expense ratio pretty low. This doesn’t provide instant diversification, but over time it does and will.

As for my most recent contributions I’ve already made one purchase and am looking to make another. I decided to add to my position in Bank of America (BAC) since the stock has been hammered lately along with the entire financial sector. I’m pretty sure that they’re not going anywhere anytime soon and that they will still be a good company in the future. It also helps that because of the recent sell-off the dividend yield is up over 6 percent.

Like I mentioned before I’m still looking for one more purchase, and I’ve had my eye on a couple of different companies. I was interested in Jack in the Box (JBX) over a year ago and they have since doubled. I’m still interested, but I’m not sure they’re worth quite as much as what they’re currently trading for. I would also like to own McDonald’s (MCD) but they’re also pretty expensive with a P/E ratio of about 41.

I’d like to hear from you though. If you were looking to purchase a stock right now, which one would it be? What would your reasoning be? Hopefully I’ll be able to learn something…

I’d also like to give a mention to two new commenters here at Fiscal Musings:

• David at Marketing Deviant and
• Racer X over at Life, Liberty and the Pursuit of Money

Over the years I’ve had many different experiences with credit and financing. I started out with a Mastercard from Sears since I worked there during school. I then got a rewards card from Citibank since I figured I may as well get a little something back off of my purchases. I have also had an auto loan, multiple mortgages and some student loans. All of these things have given me a decent amount of experience when it comes to different financing options.

If you’d like to learn more about the various types of loans and financing that is available, you can check out CreditLoan which has many different articles on this very subject. The site is well organized and has a great clean look to it. To learn more, just check out their website.

I’ve been to a few different people’s houses recently for various activities, and something struck me the other day. I have noticed all of the beverages that people have available at their houses. There all different kinds of sodas be it Pepsi products, Coke products, or some other brand. There are also all of the different kinds of beer. And then there are those who have to have a glass of wine in the evening or at some other time.

I’m sure it’s no secret where I’m going with this. It can’t be all that cheap to always have these beverages in the house. Wine can be pretty expensive, especially if you’re pretty picky about it. Beer doesn’t come cheap either no matter which kind you buy. And the cost of soda can really add up after a while as well.

If you’re familiar with David Bach, then I’m sure you’ve heard of his “Latte Factor”, and this isn’t really any different. It’s just applied to something else. I’m not going to go through all the math of what you could save and how much it would be worth in 40 years (I’m not a big fan of those calculations), but I’m sure it would be significant. I mean, soda alone is about $3 per 12-pack and that can really add up after a while.

So what ever happened to just drinking water? And I’m not talking about bottled water which can also be expensive. It’s pretty much free and is probably the most healthy thing for you.

I’m also always amazed when I hear that someone’s finances are stretched so thin, yet I see all of the beverages that they absolutely must have. I’m not trying to say that we should never drink some of these things, but I do want to mention that it can be a significant cost to us. You can also save quite a bit on your restaurant bills if you’d order water instead of something else. Just something to keep in mind.

1. With all the politics going on right now, perhaps you’d like to take a look at some of the candidate’s finances. CNN Money has a bit called Millionaires in Chief and goes through seven of the candidates. Interesting to know for sure, but the suggestions at the end are kind of useless. They’ve obviously done rather well for themselves on their own.

2. This time of year a major focus is on giving. An article at MSN Money, however, talks about the financial benefits of giving. Give and Grow Rich mostly covers the issue of tax deductions for charitable contributions. It’s one thing to already know this, but another to know the details of what’s allowed and what isn’t.

3. This Christmas, one gift has certainly garnered most of the attention. I’m speaking here of the Nintendo Wii. And Mrs. Micah goes into a discussion about whether the lack of Wiis will drive demand for other gaming systems. I have to say that I believe it is, but I don’t think that Nintendo is intentionally keeping the supply low. An interesting read if you’re caught up in the Wii craze.

4. Another Fiscal Musings Throwback (FMT): Way back when, I explained why I don’t keep an income statement for myself. I also explain how I handle all my income. The process is simple and doesn’t require any budgeting or spreadsheets. It ensures a positive financial future, plain and simple.

And now for a little humour for the weekend. I recently posted a video at The Milk Crate that you may have already seen, but I laugh every time anyway. You can’t help but laugh as well because the newscasters just won’t stop laughing. Anyway, check it out.

I apologize for not having a post up bright and early this morning. I’ve really been trying to make sure that I’ve got something new everyday, except on the weekends where I do my Weekend Editions. Unfortunately, I’ve been a little busy lately didn’t have one ready. However, you can be sure there is plenty to come.

I thought I would explain a little about the site for those of you that are new to it (welcome Shoemoney readers by the way). As the title of the blog suggests, I write about pretty much any and everything financial. You can look in the sidebar to find a list of topics, but anything is fair game. I’ll cover investing, savings, business and entrepreneurship, debt, financial blunders and much more.

But it’s not just about what I want to talk about. I enjoy answering readers questions and looking at opposing viewpoints, because you probably won’t always agree with me. If you’ve got something to say, I invite you say it. There will also be a few sponsored post from time to time, and if these bother you just ignore them (seriously, it’s not too hard to scroll past them). They do help to keep the site up and going though.

Also, as I’ve mentioned before, if you’d like a spot in the Blog List and in an upcoming post, let me know in a comment and I’ll check out your site cause I’m always looking.

If you’re looking for an unsecured loan to consolidate debt or start a business, EZUnsecured.com wants to help provide it. They offer a quick and easy process along with fast funding. They want to make it as easy as possible for you to get a Startup Loan if that’s what you’re after. Check out there site for more information.

Anyone who has invested in anything is familiar with the trade-off between risk and return whether you’ve consciously weighed the options and thought about it or not. Before you’ve bought into an investment, you’ve decided that you’re able to stomach the risk is hopes of certain returns. And in order to make long term financial progress you need to decide what level of risk you can handle while at the same time remaining comfortable with your investments.

Investment risk can be defined as the chance that an investment’s actual return will be different than expected. Risk also means that there is the possibility of losing some, if not all, or your investment. Where there are low levels of uncertainty, there are low potential returns. The opposite is true for high levels of uncertainty.

It is important however, to remember that higher risk does not equal higher returns. Higher risk only gives us the possibility for higher returns. There are also greater potential losses.

While we’re on this subject, I think it’s also important to bring up the concept of the risk premium. Too many try to balance their risk against the wrong return. If they’re going to take a risk in the stock market, they’re looking for a return of about %11 percent or so. Now, would you be willing to take the same risk for only 6%? Because this is what you’re doing essentially.

Take a look at U.S. Government bonds and what they are paying. Let’s say that they’re offering a 5% return. Because these types of bonds are virtually risk free, they represent a risk free rate of return. Mutual funds may have losses of -6% one year and gains of 20% the next for an average of around 11%. The difference between the 11% and the 5% is called the risk premium. The risk you take by investing in mutual funds is for the additional 6% return.

Not everyone goes through this type of analysis when they’re investing, but the concept is important to understand. You don’t want to take on a large amount of risk if there isn’t a significant risk premium.