Apps for Personal Finance and Purchases

Choosing personal finance applications or "apps" to use on your smart phone or tablet computer can be time consuming and at times confusing. To help you save time and money, I used my iPad and iPhone to compile a list of the best reviewed apps to help manage your finances. Other devices using the Android operating system may offer the same or similar apps.

Pageonce (Cost: Free for ad supported; 12.99 for Pro) Pageonce automatically organizes and tracks your money and bills. You can see your banks, credit cards, bills and investment accounts in one centralized place. This application also allows you to track other activity, such as your Amazon.com account, cell phone usage and real-time updates on flights. Pageonce is shielded by 256-bit encryption, and the company sends you an e-mail alert of suspicious activity if "you" spend above your usual levels.

Mint.com (Cost: Free) Similar to Pageonce, Mint's app allow you to manage your finances on the go allowing you to see all your accounts on one page. Mint automatically pulls in and categorizes your transactions daily. It will also create a budget based on your spending habits or you can customize your budget. Another nice feature is email or text alerts for payment due dates, low balances, and unusual activity. Mint is protected by a unique 4 digit PIN and your account can be deactivated if you lose your phone.

Loan Calculator Pro (Cost: $0.99) This is an easy to use financial calculator enabling you to calculate monthly payments for fixed rate loans such as home mortgages, car loans and credit cards. You can also see how additional payments will help you increase equity and save you money.

CNBC RT (Cost: Free) This has breaking news updates, interactive charts and real time quotes for stocks, indexes, and commodities. Navigation is simple and easy to understand between news, indexes and pre-market opening prices. You can also create a "My Stocks" list for funds or individual stocks you are tracking.

Amazon.com (Cost: Free) I tried Red Alert, a scanning application that allows you to take a picture of the bar code on a product which then looks up competitors prices giving you the best deal. It was hard to line up the bar code or keep the phone steady enough for Red Alert to work properly. Instead, I use Amazon.com to input the product and model number to look up prices. Amazon offers great prices, no sales tax (most of the time), and free shipping. Customer service is also very good.

Grocery IQ (Cost: Free) Either type or scan the barcodes for products you are running low on. You can create lists for multiple stores, add product details, and share your list. Because you need to enter only a few letters of any word, drawing up your list is incredibly quick. Even better, you can check off each item as you buy it — and if you tell Grocery IQ about the layout of your neighborhood market, it will sort the list according to aisle number.

Index Investing

Indexing is an investment approach that seeks to track the performance of a specific benchmark, or index. Index funds do this by holding all (or a sample) of the securities in the index being tracked. This “passive” investment approach emphasizes broad diversification, limited trading of the securities held in the portfolio, and low costs. The emphasis of indexing is on broad areas of the market and not individual securities.

THE BENEFITS OF INDEXING

Diversification

Maintaining a well-diversified portfolio is an essential part of a solid investment plan. Indexing can be an ideal way to achieve diversification. It’s difficult for actively managed funds to compete with index funds when it comes to diversification because index funds generally hold most or all of the securities in their target indexes. An actively managed fund typically holds a much smaller selection of securities that the fund manager believes will outperform its benchmark index. Although the diversification that index funds offer can’t protect you against broad market declines, it can reduce the risk posed by a dramatic decline in any one security or economic area.

Low Costs

Index funds have a return advantage from the beginning compared to actively managed fund and that is much lower costs. There are two main reasons that indexing costs less:

• Lower management fees: It costs less to manage and operate an index fund. That’s because index funds don’t have to employ highly paid fund managers and their staffs to analyze and select stocks.

• Lower transaction costs: Index funds use a fundamental buy-and-hold approach, which means that index fund managers generally turn their portfolios over far less often than active fund managers. This reduces the brokerage, commission, and other expenses associated with trading securities, and results in lower trading costs. You get to keep more of your money when using index funds.

Competitive Performance

Thanks to their diversification and low costs, index funds can be an effective way to achieve competitive returns over the long run. Depending on the asset class, various studies have shown 80% to 90% of index funds beat actively managed mutual funds in a given year.

Potential Tax-Efficiency

As noted earlier, index funds typically have much lower portfolio turnover than actively managed funds. Therefore, most index funds tend to realize and distribute only modest capital gains. This is particularly important if you hold index funds in taxable accounts.

Simplicity

The investments inside of an index fund are transparent and easy to compare. They have a precise, easily understood objective—to track the performance of a specific index. With index funds, you always know how your money is invested.

What are the risks?

As with any investment, it’s important to remember that mutual funds (including index funds) are subject to risk, including possible loss of principal. In addition, diversification does not ensure a profit or protect against a loss in a declining market. Finally, investments in bond funds are subject to interest rate, credit, and inflation risk. That’s why index investors should make a long-term investment commitment.

Common Indexes

Below are common indexes used by Exchange Traded Funds and other investment products.

The Dow Jones Industrial Average: The oldest barometer of the U.S. stock market and the one most often quoted in the media. The Dow tracks the stocks of 30 major companies from a variety of industries.

Standard & Poor’s 500 Index: Synonymous with the “U.S. stock market,” the S&P 500 tracks the stocks of 500 leading U.S. companies.

Dow Jones U.S. Total Stock Market Index: A measure of the entire U.S. stock market, the Dow Jones U.S. Total Stock Market. Index includes large, midsize, and small companies.

Russell 2000 Index: The Russell 2000 represents the smallest two-thirds of the 3,000 largest U.S. companies.

The Nasdaq Composite Index: The Nasdaq Composite Index includes the stocks of more than 3,000 companies listed on the Nasdaq Stock Market, including the stocks of many widely followed technology companies.

Morgan Stanley Capital International Europe, Australasia, Far East Index: Designed to measure developed markets equity performance outside North America, the MSCI EAFE Index tracks more than 1,000 stocks traded on 21 exchanges in Europe, Australasia, and the Far East.

Barclays Capital U.S. Aggregate Bond Index: A measure of the taxable, investment-grade U.S. bond market, including U.S. Treasury and corporate bonds, the Barclays Capital Aggregate Bond Index excludes low-quality bonds whose issuers are considered more likely to default.

401(k) & Other Retirement Account Rollovers

Rolling over your 401(k) and other qualified retirement accounts into IRAs has many benefits:

• Provides maximum investment choices to help you create a portfolio moreappropriate for your specific situation. Customize a highly diversified portfolio to hopefully provide more consistent returns.
• Rolling over to an IRA can lower your costs by using low expense ETFs. Many 401(k) providers charge custodial and administration fees and the mutual funds choices probably have high internal expenses.
• Allows you to keep on earning high interest on your retirement savings under tax-deferred conditions.
• It can allow you to avoid income taxes and penalties. An additional 10% penalty on withdrawals before age 59 1/2.

There are two ways to move your retirement money to another retirement account:

1. Rollover: A rollover occurs when an employee physically receives the check in their name and then deposits the amount in a rollover IRA or, sometimes, into another qualified plan or another SIMPLE. This is treated as a cash out transaction and your employer will be required to withhold a 20% tax amount. A rollover of distributions from qualified plans, IRAs, 403(b) plans, SEPs, and SIMPLEs can be made tax-free if the rollover is made within 60 days of the receipt of the distribution. Only one rollover is permitted per year.

2. Direct Transfer: The direct rollover or transfer is accomplished by the financial institution making payment directly to another qualified plan or rollover IRA. The money will be electronically transferred or sometimes a check will be mailed to you. If the check is mailed to you, it has to be payable to the financial institution where your new retirement account is held. Again, you have 60 days to deposit the check into your new account. Any number of transfers can be made in a year. If a direct rollover or transfer is used, the distribution is not subject to a 20% federal tax withholding.

The 20% withholding is mandatory for a rollover in the event of the employees death. But, there are two exceptions:

• Distributions due to the minimum distributions requirement rules
• Distributions that are part of a series of substantially equal payments.

These distributions can not be rolled over.

A rollover of a SIMPLE IRA may be made only to another SIMPLE IRA during the first two years of an employee's participation in the plan.

Be Consistent

With the ups and downs in investing over the past three plus years, many investors tolerance for risk has changed. Unfortunately, their attitudes towards risk usually are in the wrong direction depending on the trend of stock prices.

Many work up the courage to buy what has done well recently and ignore what has performed poorly. This is evident in numerous studies of what investor’s returns are compared to the index returns. A 2011 Dalbar study found that for the twenty-year period, equity investors earned 3.83% and asset allocation fund investors earned 2.56% compared to the S&P 500 return of 9.14%. For the same period, fixed income investors earned 1.01% compared to the Barclays Aggregate Bond Index return of 6.89%.

When answering a risk profile questionnaire, it is easy to pick answers based on your current feelings and what has recently happened with stocks. This is a poor way to determine your risk profile because it doesn’t produce a true reflection of how much risk you are willing to take.

Here is a typical scenario: An investor lost 40% or more during the financial crisis in 2007 and 2008 and was worried sick. They decided to become more conservative by selling stocks and buying more bonds. Then the market bottomed in the beginning of 2009 and stocks went up 100% in two years. The investor looks at their relatively lower returns during that period and decides to buy stocks again. They don’t realize that stocks move in cycles and to buy now means buying when stocks are much more expensive than they were in 2009. Now is the time to be defensive and wait for opportunities to buy discounted prices.

A more appropriate way to make purchasing decisions is to maintain a consistent risk profile that takes into account a maximum loss in one year’s time. Rebalance to your stock, bond, and alternative asset targets once or twice a year and reap the benefits of buying when prices are low.