Below is a funny but true video clip from Saturday Night Live (SNL) titled “Don’t Buy Stuff You Can’t afford”.  Sticking to this simple advice can keep most people out of financial problems.  Unfortunately, most people ignore this rule!

SNL Video – Don’t Buy Stuff You Can’t Afford

Starting in 2010 anyone can convert from a traditional IRA to a Roth IRA regardless of income.  Currently, you must earn less than $116,000 for individuals or less than $169,000 for couples to be eligible for the Roth IRA partial contribution.  For full contribution, its $101,000 for individuals or less than $159,000 for couples.  

Additionally, if you make over $100,000 per year, you are not eligible to convert a traditional IRA to a Roth IRA.  But in 2010 the doors will be swung wide open to everyone because of the Tax Increase Prevention and Reconciliation Act of 2005 signed into law on May 17, 2006, by President George Bush, which included a provision dealing with conversions of traditional IRAs to Roth IRAs.  

But beware, because traditional IRAs are pretax dollars and Roth IRAs are after-tax dollars, you must pay taxes on the money to transfer to the Roth.  Many financial advisers recommend that younger investors roll over into the Roth and pay the income tax because in the long-run they benefit from tax-free growth.  Other financial advisers recommend converting now (regardless of age) because it’s inevitable that income and capital gain taxes will increase due to the growing national deficit and current corporate bailouts.

To help soften the blow of paying taxes if you decide to transfer to a Roth IRA you can spread the tax bill over 2011 and 2012.  For example, if you convert $50,000 from a traditional IRA to a Roth IRA, assuming a 30% tax bracket, you will have to pay $15,000 tax bill.  However, if you transfer in 2010, you can declare $25,000 in 2010 and $25,000 in 2011, which in essence gives you a one time, interest free loan from Uncle Sam for 1 year.

In today’s rough economic times, we are all looking to save money.  One way to save money is to use coupons when making purchases.  But who wants to go through the Sunday newspaper clipping coupons?  

With the Internet, finding coupons are easier.  Before making a purchase, you should always use the Internet to find discount codes or coupons.  Below are 8 sites that can help you save on your next purchase, regardless what it may be:

CoolSavings.com – includes printable and online coupons from retailers on a wide range of products.

Coupious.com – is a free mobile app that can be installed on your iPhone, iPod Touch, or Android-based phone, which uses location services to search for businesses in your location and finds coupons for you.

CouponAlbum.com – is a one-stop shop for everything on sale right now, from software, toys, sporting goods, to food.

CouponCabin.com – offers coupons from to major stores like Target, Wal-Mart, and GameStop.

CouponGood.org – provides coupons for online stores exclusively.

Coupons.com – offers coupons for local supermarkets or grocery stores with printable coupons on goods ranging from food to cleaning supplies.

CouponsDeluxe.com – good for finding tech deals with coupons for software and electronic hardware.

CouponTweet.com – searches Twitter to find deals and when it does, it notifies you via a tweet. The service is currently in private beta testing.

Of course there is always the Google Search to find coupons or coupon codes for items you are looking to purchase.

In the late 1990s to early 2000’s when Internet stocks were blowing up, I went along for the ride and was exhilarated like most other investors.  Those were the good old days when everyone was making money.  

You didn’t have to know anything about investing in the stock market – just purchase some Internet stocks and you were almost guaranteed to make money.  Never mind if a company had no earnings, just buy it and watch your money double within days or weeks!  It was that simple.  

In the 3 years I spent investing in Internet stocks I invested about $40,000 and watched my portfolio (taxable and IRA) balloon to about $365,000 when the NASDAQ hit 5,000.   With my margin account, I had over $477,000 in stocks and felt my portfolio could hit $1 million in a matter of months.  Looking back, when the NASDAQ hit 5,000 (in March 2000) I should have sold everything because that was the beginning of the end of the ride! 

See screenshots of my stock statements before the downturn

Unfortunately, I ended up losing most of that money for 5 main reasons listed below:  

Reason one – I got greedy and started borrowing money to invest, using a margin account.  When the market started tanking, the value of my portfolio dropped faster with the margin account and I ended up having to sell fearing a margin call.  A margin call is when the value of your portfolio drops to a certain point to where the brokerage house wants their money back ASAP.  If you don’t sell your stocks to pay back the money or deposit extra funds in your account, the brokerage house will liquidate your stocks for you.

Reason two – I listened to the so-called experts and company executives in the news and on CNBC telling investors to hold on and to ride it out.   They all ended up being wrong. Looking back, many of the company executives pretty much lied so you wouldn’t sell their company stock.  They would paint a rosy picture of their company’s future, but many of them ended up bankrupt or were sold off.

Reason three – I got emotionally attached to my stocks.  There were many times I looked at my portfolio and thought about dumping all my stocks, but just couldn’t.  I liked my companies and I rationalized that it was just a market correction and soon the good old days would come back.  

Reason four – I didn’t want to send Uncle Sam a big tax check.  If I sold about $326,000 in profit, I would get killed with taxes.  I didn’t want to pay at least 40% (or $130,000) to Uncle Sam.  That would have been one hard check to write.  Looking back, I should have happily paid the money.

Reason five – Nothing goes up in a straight line forever.  A good friend of mine kept warning me that the Internet bubble would eventually burst and I should take some money out the market.   I wish I had taken his advice.

To this day, I’m still amazed that I rode the market all the way up and rode it all the way down, losing most of the money.  For a few years when I think about it, I would get this warm tingly feeling all over my body of anger at myself.  But today I’m over it. I’ve learned from my mistakes and hopefully I will not repeat them in the future.

The lessons I’ve learned about investing in the stock market are:

It’s never a profit until you sell – If you invest in the stock market, whether it’s in individual stocks or mutual funds, it’s never a profit until you sell.  Looking at your portfolio and feeling happy that it’s worth a certain amount is great, but remember until it becomes cash by you selling, the money can vaporize almost overnight.

Have an entrance and an exit strategy – It’s easy to buy a stock, but for many people it’s hard to sell.  If a stock goes up and makes you money, you may hold on hoping it goes up further.  If a stock goes down, you may not want to sell at a loss and you might want to wait for a recovery that may never come.  

Set Stop Orders – In your brokerage account it’s a good idea to set Stop Orders to automatically sell a stock if it falls below a certain point.  This will protect your money from substantial losses.

Don’t be greedy – If you purchase a stock looking for a 30% return and you get it, sell it and be happy.  Why risk losing your nice profit?

Don’t become emotional, it’s all about business – Money is very emotional.  If you lose it, you will be unhappy, if you gain it, you will be happy.  Develop an investing strategy and stick to it no matter what.  If your strategy is to sell a stock that falls 15% below the purchase price, then stick to that strategy no matter what.  If you strategy is to sell if you earn a 30% return, then stick to it no matter what.  Don’t get emotional and deviate from your strategies.

Buy the best stocks – Many amateur investors look for cheap stocks or stocks that have been beaten up (i.e., the current auto stocks).  They figure they can get a lot of shares for cheap.  This is backwards thinking.  The fact is, you should look for stocks that are going up with great financial performance and don’t worry about share price or number of shares you can purchase.  Worry about the return on your investment.  (See Related Article: Find the Best Stocks Using Investors.com Screening Tools)

Never put all your eggs in one basket – Diversify your portfolio.  Never put all your money in one thing.  I’ve heard countless stories of people putting all their 401K money in their employer stock (Lucent comes to mind) and for years enjoyed watching their portfolio balloon, and then all of a sudden it’s wiped out, leaving them penniless. (i.e., the current Bernard Madoff story also comes to mind).

Do you know you can invest in the stock market with no risk of losing the money you initially invest?  There’s a fairly new type of security called Absolute Return Notes which offers investors a chance to earn investment returns tied to the stock market’s performance, without risking any of the money invested.  Your principal investment is 100% guaranteed.

Absolute Return Notes started in Europe and have recently become popular in the U.S. as investors struggle to cope with the depressing stock market.

During a set time period, the notes pay the absolute value of the performance of a stock market index, within a specified range.  As an example, if the S&P 500 goes up or down 8%, the note will pay 8%.  However, if the market goes out of that range, for example 20%, you will make no money but will get back 100% of your principal.  Now if the index gains 25%, you still get no money but it may hurt thinking you could have made a nice return.

Issuers of Absolute Return Notes include UBS, Barclays and Merrill Lynch.  Fees for the notes are typically included into the formula that determines the payout.  If you pay $10K for a note that offers 100% principal protection, you will get at least $10K at maturity.

Absolute Return Notes is a good short-term investment strategy if you believe the stock market will trade flat or sideways and you want to capitalize on its volatility in either direction with very little risk of losing your money.

After much debate, President Barack Obama’s $787 billion economic stimulus package was finally by Congress. The package calls for spending $185 billion this year, which should increase GDP (Gross Domestic Product) by 1.4% to 3.8% and create 1 to 2 million jobs. The plan is to shorten the recession, which is defined by a negative GDP growth. The stimulus package should also calm the stock market.

So what does the stimulus package actually cover? Below is a basic breakdown of 7 areas of where the money will be spent.

Relief for Families – $260 billion over 10 years

• $2,500 college tuition tax credit
• $8,000 tax credit for first-time homebuyers in 2009
• A tax deduction of sales tax on new car purchases
• Extension of unemployment benefits
• Suspension of taxes on unemployment benefits through 2009
• Reduce taxes by $400 for individuals and $800 for families
• Pay $250 to each recipient of Social Security, veterans pension and SSI benefits
• $70 billion to continue the Alternative Minimum Tax (AMT) tax shelter
• For the working poor Greater access to child tax credit
• Expand earned-income tax credit to families with 3 children

Expand Health Care

• $24 billion: Subsidize COBRA benefits for laid off workers
• $87 billion: Assist states with Medicaid
• $10 billion: National Institute for Health
• $17 billion: Modernize health (IT) information technology systems

Improve Education

• $54 billion: School districts and states
• $21 billion: School modernization
• $17 billion: Increase Pell Grants
• $13 billion: Head Start
• $12 billion: Special Education programs

Modernize Federal Infrastructure

• $46 billion: Transportation and mass transit projects
• $31 billion: Modernize federal buildings
• $6 billion: Water projects

Increase Alternative Energy Production

• $17 billion: Renewable energy tax cuts
• $5 billion: Weatherize homes

Invest in Science Research and Technology

• $10 billion: Science facilities
• $4 billion: Increase broadband infrastructure
• $4 billion: Science research and physics

Assist Small Businesses

• $54 billion: Assist small businesses by various tax incentives and write-offs

The basic overall plan for spending all this money is to:

• Encourage consumer spending via tax rebates.
• Help businesses revitalize the economy, especially small businesses.
• Assist states from raising property taxes or cutting needed services.
• Create public works construction to retain or add 3 million jobs, and lower transportation costs.

Once the danger or a recession is over, all incentives should be removed, and then Obama’s plan is to reduce the deficit and avoid future inflation. Only time shall tell if President Obama’s plan will work. The next few months will be very interesting!

If you are an amateur investor thinking about investing in the stock market, beware! Over the years, I’ve spoken to many people about investing in the stock market and I cringe when I hear people get excited about buying stocks that are cheap or have dropped a lot. I’m certainly no expert, but I’ve learned a lot of what “NOT TO DO” when investing in the stock market.

A few months ago, I had a friend tell me that now may be a great time to buy Ford stock. Of course I immediately cringed and  asked him why he would take such a risk on a company  in an industry that’s doing so poorly. He stated the stock was cheap and he “felt” Ford would rebound one day. I then asked him; why not find a company that was performing excellently? He answered, “That’s a good point.”

I then went on to tell my friend my basic philosophy of buying a stock. It’s quite simple. Buy the best stock you can find. Not number 2 or 3, find the best – number 1. Don’t worry about the share price, or how many shares you can purchase, worry about the % return. There are many expensive stocks that can double giving you a 100% return. Would you prefer to buy a stock for $5 and have it go to $6, for by a stock for $75 and watch it go to $150?

Below is a screen shot of Ford’s stock and NetFlix’s stock? Which one would you take a chance on? I sure wouldn’t be buying Ford’s stock.   I would have a much better chance with NetFlix, just by looking at the stock chart.

Ford vs. NetFlix

(Which stock would your take a chance on?)

So the question is, how do you find the best stock? Over the years, I’ve tried many techniques such as online screening tools, reading newsletters that recommended stocks, visitng forums/chat boards to get ideas, and creating my own system to identify great stocks. Then one day I ran into Investors Business Daily’s (at Investors.com) website and was really impressed with how easy and quickly they made it to screen the market to identify the best stocks. I’ve used their service in the past and have purchased stocks based on IBD screening tools, which made me money. Their system really works!  Now, I’m not saying that every stock identified as an A+ did well.  But out of every 10 stocks I purchased, 6-8 of them did well over a 6-month period. The other 2-4 didn’t do so well, but I didn’t loose that much money. Overall, my portfolio was profitable.

One of the tools I like to use is the IBD Stock Checkup. You enter the stock symbol and it gives you an overall ranking. The stocks are ranked from A+ to E; A+ being the best stock and E being the worst stock. The rank is based on the stock’s technical rating, fundamental rating, attractiveness rating, and the stock’s group technical rating and fundamental ratings.

Let’s say you are considering purchasing Ford. You can get a ranking using IBD Stock Checkup.

IBD Stock Checkup for Ford Motor Company

Would you purchase Ford based on the information above? I would not; I want to find an A+ stock! . See the IBD Stock Checkup for NetFlix below.

IBD Stock Checkup for NetFlix

I would certainly consider taking a chance with NetFlix’s stock.

Investors.com also features several other tools to find A+ stocks which include:

• The CAN SLIM Select tracks market–leading stocks that in general show strong earnings growth, positive institutional sponsorship, excellent industry strength, and solid sales growth, profit margins and return on equity. I’ve purchased stocks from this list that did well.

• The IBD 100 List the daily top 100 stocks based on their ranking system. (See example here).

• Daily Stocks on the Move lists the top performing stocks for the day.

Investors.com is filled with tons of educational material on how to be successful in investing in stocks and really helps individuals identify top rated stocks. You can sign up for a 4 week free trial to check out their service. If you are looking to purchase stocks, I highly recommend Investors.com. Good luck; but remember it’s never a profit until you sell!

For more information visit Investors.com.