Last night I had a meeting up at my church and the youth were going ice skating that same night. I was invited to come along, and I went since I love to ice skate and have my own ice hockey skates. At first I wasn’t sure that I wanted to go and had all sorts of reasons why not like I would be tired from work and would rather just relax at home doing nothing.

I reminded myself though of all the times that I didn’t really feel like getting out and doing something yet went anyway. And I’ve always been glad afterwards that I went and actually did something rather than staying home and doing nothing. So I decided that I would go, and naturally I had a good time and was able to socialize with everyone else who was there.

I was thinking about this because it’s a lot like our financial and investing lives. A lot of times we don’t really feel like putting in the effort that is required to find or choose good investments. Putting our financial house in order would just take too much time that we’d rather spend sitting in front of the television. However, once you do take the time to, let’s say, list out all of your debts and formulate a plan to eliminate them, you’re always glad that you did. This is because it usually feels good to accomplish something.

I’ve also heard a lot of people complain about how complicated it is to invest or that they can never find a good investment. I also know that most of these people have never taken the time to read a book about investing or have never spent any time in search of a good investment. And some things in life require some doing.

For example, I’ve had a rental property for about a year and a half now, and I’ve been asked numerous times how I went about the whole thing. I’ve also listened to many people tell me how they would like to do the same thing but they haven’t found anything or haven’t gotten around to it. So let me dispel the myth for you… an investment property didn’t just fall into my lap, and it won’t fall into yours either.

I could tell you of the many hours spent looking at properties with different agents and without agents. I could mention the time spent with a mortgage broker discussing how I could make it happen and what I would need to do. There was also the time I spent with an accountant learning all about the tax implications and benefits. It was a great learning experience, but it took a lot of time. And this doesn’t even include all the books I read about real estate investing and the seminar I went to.

So what does all of this have to do with my initial thoughts about going ice skating? The point is to get out do things and make things happen. There will always be time to sit and watch TV, but if there’s something that you want to do or accomplish, you just need to get out there and do it. I know you’ll be glad you did, and you definitely won’t regret it.

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

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.

When you start to invest or begin looking at your different options of what to invest in, it is paramount that you understand what you’re investing in. This concept applies to many aspects of our lives, but here I’m focusing on investing. You’ve got to understand what you’re doing.

There are so many options available to us these days that it can be extremely tough to choose where to put your money. There are full service brokerages, self service brokerages, retirement accounts (both employer sponsored and not), mutual funds, individual stocks, real estate (residential, commercial, etc.) and so much more. If you understand how money is made in each of these investments you can do quite well for yourself. If, however, you’re not sure how they work, you can also lose a lot of money.

I’m sure most all of you have seen those late night infomercials telling you how easy it is to make money in something like real estate. And I’m sure there are all sorts of opinions on this subject as well. Well, the truth is that there is both money to be made in real estate and money to be lost. Donald Trump is a typical example of someone who knows how to make money in real estate and you probably know someone who has lost money in real estate. The difference, I submit, is that some understand the game and others don’t.

The stock market is another place where some people make money and others lose money. There are people like Warren Buffett and (once again) there are plenty of others who have lost a ton of money in the market. I don’t think anyone will dispute that Warren Buffett understands how the market works and how to profit from it. Those who continually lose money in the market probably don’t understand it like they should.

So what does all of this mean for us? What should we invest in and how? It may behoove us to step back and instead of wondering what to invest in, decide what we understand or what we want to understand better. If you’re interested in the stock market, begin by researching how one makes money in it. Just because you’ve heard that you can make a lot of money through options trading doesn’t mean that you know how to. Someone you know may have made some money by shorting a stock. Does this mean that you should all of a sudden start shorting stocks?

Now, instead of realizing all of the things that you don’t understand, take the time time to educate yourself in areas of investing that interest you. Perhaps you can find a mentor of sorts that knows how to do what you want to do. There are also a ton of books at the local library with a wealth of information on various investing topics. It may be time to invest a little time in yourself before you start investing your money.

1. The social networking site Facebook is pulling its ad campaign. Apparently Facebook is able to track your online purchases and would then post them in your profile. Users were complaining because they didn’t want everyone knowing what it was they were purchasing, especially as we enter the holiday season. It probably wasn’t the best idea, but I don’t think that it’ll be the end of Facebook.

2. Are you among the thousands of consumers that are looking for a Wii? You’re definitely not alone in this one; Nintendo is again having trouble keeping up with the intense demand. It seems that they’ve tapped a consumer base far larger than the usual gaming circles. I wouldn’t be so concerned about this, but I’m looking for one as well. My parents want to get me one for Christmas, and they’ve enlisted my help to try and find one.

3. MoneyNing discusses what individual investors should do with all of the current fear in the market. He recognizes the different types of investors and comments on each kind. An interesting read for any investor.

4. Fiscal Musings Throwback (FMT): Too often, people worry about what percentage of their income to save or invest. And instead of saving something to begin with you wait until you figure out what percentage is the “best”. It’s an interesting phenomenon, but I’ll let you just read the article.

So much has been written on the topic of saving money. You can find articles talking about how to save money, ways to save money, and the benefits of saving money. It would seem that this is one area of personal finance on which everyone could agree. But that’s not the case. There is a contrarian viewpoint however, that one ought to at least consider before deciding what is best for their situation.

There are those who don’t really believe in saving money. It’s not that they think it should just be spent frivolously, but that there are better things to do with it than just saving it and having it sit there. Just take a look at the following quote.

“There is nothing in saving money. The thing to do with it is to put it back into yourself, into your work, into the thing that is important, into whatever you are so much interested in that it is more important than money.” -Henry Ford

As you can see from this statement, it’s possible that investing in yourself and trying to further your own efforts may be more beneficial than putting your money in some account at a bank. It’s apparent that this statement from Ford has an entrepreneurial slant to it, but you get the idea nonetheless.

This belief, as some may think, is not just a passing thought from Henry Ford. This is something that he really believed in. It is also interesting to read another quote from him on the same subject.

“Old men are always advising young men to save money. That is bad advice. Don’t save every nickel. Invest in yourself. I never saved a dollar until I was 40 years old.” -Henry Ford

Whatever your thoughts are on this subject, I think it’s at least interesting to see a different perspective. Maybe you’ll want to continue on the same path that you’ve always been on, but you may also want to include this advice in your plans, at least to some extent.

This is a guest post from The Rogue League.

There are many ways to invest your money. To me, the stock market has always been the most interesting. I offer a few of my thoughts on investing in stocks here. And since I like fantasy baseball, I’ll offer examples of how these principles would apply in that realm. Note that I’m not actually offering investment advice here, and it’s important to remember that these are general principles– certain situations may require specific actions that go contrary to conventional wisdom.

1) Be Interested - this means to educate yourself on some general economic principles. It means to keep a level of interest in your investments sufficient that you will be aware of all the market forces that can affect it. Ideally, it would be in a company that you are naturally interested in, or perhaps already purchase products from. In terms of fantasy baseball, you have to be aware of what all is going on in major league baseball, enough so that you can make roster moves as needed.

2) Practice Patience - a good stock is a good stock. Hopefully you were able to buy it at a bargain. But perhaps it’s not doing so well right now. In terms of fantasy baseball, if you have Alex Rodriguez on your team, and he hits only .220 in April, would you drop him? You’re not a fool, are you? You keep him, because you know he’ll come around and get you good stats. If you have a good stock, but it’s struggling a bit, give it some time. That’s not to say there aren’t instances where the stock is tanking, and really you just need to get out and cut your losses. Many times, however, people panic prematurely. If you can avoid being one of those guys, you can profit off of them.

3) Embrace Change - sometimes one stock opportunity will have dried up when another is presenting itself. Don’t be afraid to re-evaluate your portfolio and make changes. Indeed, change is a constant in our economy. Our ancestors in the 1920’s could not have dreamed of the internet. However, today’s latest technology will be obsolete tomorrow as new products come to market. How we respond to change is the key. This may seem contrary to #2, but really what it’s saying is, once you’ve made the determination that you’ve been sufficiently patient, now, adapt to the differences. In fantasy baseball terms, once you’ve finally come to the realization that Mike Mussina is simply not, and no longer will be, the player he once was, don’t be afraid to drop him and grab a promising rookie off the waiver wire.