This is a guest post from Mariusz Skonieczny, founder and president of Classic Value Investors, LLC, an investment management company. He is also the author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

The investment industry has done a wonderful job convincing people that diversification is a no-brainer. Who can argue that it is prudent to put all your eggs in one basket? However, is diversification really protecting you or is it protecting your broker or financial advisor?

Warren Buffett, the greatest investor in the world, said: “Diversification is protection against ignorance. It makes very little sense for those who know what they are doing.”

If your broker or financial advisor preaches wide diversification, he or she is saying, “I don’t know what I am doing and therefore, I advise that you invest your money into 100 positions (or invest in mutual funds that hold 100 positions) to protect you against my lack of knowledge.” It makes sense if you really think about it.

Let’s imagine that you want to get into the investment industry. You apply for a job with a big name investment firm that is supposed to provide you with investment training. After you land your position, you realize that all you are learning is how to be a good salesman. So when you get a client with $100,000 to invest, will you advise him or her to invest in 10 stocks that you personally selected? Of course not, because you have no clue how to pick stocks. And even if you did, you wouldn’t have the time because your entire day consists of cold-calling and meeting new prospective clients.

Your job is not to invest but to gather assets under management. So instead, you simply advise the client to buy many positions because if one of them blows up, it will not have a huge effect on your client’s portfolio. However, if one of them does really well, it will not have a huge positive effect either.

There is a huge difference between putting all your eggs in one basket and being over-diversified. What most people understand clearly is that it is not wise to put 100 percent of your money into one position because if something unexpected, such as fraud, occurs then all of the capital can get wiped out.

What most people don’t understand is that owning 100 positions in a portfolio or through a mutual fund reduces your chances of earning favorable returns. If you want mediocre returns, you don’t need to pay anyone to do it. Paying someone a commission or fee to put you into such an over-diversified portfolio does not make any sense. You can invest in 100 positions yourself without any help.

However, when you pay someone a fee, then you should expect the person to know something about investing instead of selling you a fantasy, which Wall Street is known to do. You wouldn’t get a haircut from someone who never cut hair and you shouldn’t invest your hard-earned money with someone who has sales skills in place of investing skills. Next time someone preaches wide diversification, ask yourself if it is to protect you or them.

photo credit: rednuht

Gold serves as an excellent hedge against declines in the stock market and many advisors recommend keeping at least 20% of your assets in gold. The value of gold goes up in times of booming government deficits, inflation, and currency collapses – all factors that are very much in play in the world today. This mineral’s appeal as a safe haven investment has recently sent it to record highs.

The free Gold Report by Gold Source America details the many benefits of owning gold and specifically why you should invest in gold coins. Learn how you can profit from gold and silver in this valuable report. All you need to do is fill out a simple form and they will rush you the Gold Report at no cost and no obligation. Reading this in-depth report will make it clear why there are so many positive Gold Source America reviews – these guys really know their stuff.

By getting this free report you will learn why investing in gold coins is better than gold bars. Gold coins are not only more convenient than bars, but you can buy them in smaller quantities as well. As the Gold Source America report points out, the collectibility of gold coins has always provided a stronger resale value than other forms of the mineral.

It’s easy to see why gold is considered such an important investment. Historically the mineral has been used as a form of payment and as a basis for world currencies. Also, gold is traded on markets throughout the world, making it easy to liquidate your position if you need cash.

With Gold Source America, as with other investment advisors, it’s important to note that gold should not be your sole investment. It is best used in conjunction with the stocks and bonds you currently own. But as a hedge against future declines in the rest of your portfolio, gold coins from Gold Source America are hard to beat. World events – like the recent crisis in the Euro – that cause the stock market to plummet have the opposite effect on the price of gold. So holding gold in your account can counteract declines in other securities you may own.

The specialists at Gold Source America can provide you with a free consultation and can guide you through every step of the gold buying process. While investing in gold may seem straightforward, there are many intricacies and pitfalls to be aware of. The advisors at Gold Source America can help you avoid these pitfalls make make a successful – and highly profitable – investment in gold.

Start on the road to profitable investing in gold by getting the free Gold Report now.

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No Risk Investor does two things better than anyone else: it shows you how to get a great return on investment and how to buy properties for pennies on the dollar. This program is unique in that it finds a way to make money off of today’s horrible real estate market. How? Through a little known investment called tax liens and deeds.

While the housing downturn may have caused untold pain for millions of homeowners, it has also created an enormous opportunity for savvy investors. The smart money is buying tax liens right now – but they are not taking big risks. Instead, they are letting the government guarantee their returns.

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With home prices in many areas of the country only a fraction of what they were a few years ago you probably recognize what a great time to buy this is. But you probably also have questions: what do I buy? Where do I buy? How do I find the good deals? No Risk Investors gives you clear, easy answers to those questions and creates a proven roadmap for making money in the current economy.

What makes me particularly impressed by No Risk Investor is their amazing “No Risk Property Guarantee.” They guarantee that within 7 days you will have the opportunity to purchase an investment property for pennies on the dollar.

No Risk Investor teaches you the same strategy that sophisticated investors, banks, and high net worth individuals have been using for over 150 years – buying tax liens. When you give your money to the bank they pay you 1-2% interest. What do they do with your money? You guessed it – invest in tax liens that earn a 16% to 50% return on investment.

Sounds complicated? It’s not. Tax Lien Properties are investments that become available because the owner of a property has been delinquent on their taxes. The investor pays the amount of the property tax and then receives the tax lien certificate on the property. The homeowner has a set amount of time to pay the investor back the tax, plus a set amount of interest. Investing in tax lien properties can be a very secure investment – you will either be paid with interest, or you will end up owning a property for pennies on the dollar.

No Risk Investor provides its students with lists of regularly updated tax lien certificates coming up at property tax sales as well as tax lien certificates available over-the-counter. This allows you to research pre-auction lists in preparation for future auction purchases or you can buy directly from the county from an over-the-counter list. No Risk Investor also provides its students with a comprehensive list of property tax sales happening across the country. This is the kind of hands-on information that allows you to take action now.

There are some seminars out there that will teach you this proven strategy, but they can cost you $3,000 or more. You also don’t get any personal support or resources.

With No Risk Investor, you get access to top notch training videos online, available 24 hours a day. Plus they provide a full education package, an exclusive quick start properties guide, and tax lien certificate lists that are updated regularly with the latest deals and information. You’ll also get access to an investor forum to get all your questions answered.

Now here’s the kicker – No Risk Investor is now offering a free 7 day no obligation trial membership. That means free access to their team of experts, free training, free use of all student resources for a full 7 days. You could even make your first successful real estate investment during your free 7 day trial period! This allows you the opportunity to make sure this is something you really want.

What impresses me about the No Risk Investor program is that you can cancel at anytime. There is no obligation, no contracts and no commitments. The company backs all of this up with an ironclad 30-day money back guarantee. The folks at No Risk Investor know that in this tough economy you don’t have the cash to spend thousands of dollars on a training program – which is why the 7 day free trial is so powerful.

You can now be in the right place at the right time with tax lien investments. There has never been a better time than right now to take advantage of real estate.

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Over the course of 13 seasons in the NBA, basketball star Antoine Walker of the Boston Celtics made a mind-numbing $110 million. Now Walker is practically broke. How did a renowned star blow through so much money in such a short time? ESPN’s interview with Walker provides the sad story.

Walker’s outsized spending was legendary in a league where high rollers are the norm. Think racks of custom-tailored suits, a driveway littered with Bentleys and Hummers, and mansions for himself and his family.

Add to that Walker’s entourage of 8 or 9 buddies who would travel the world with him in high style. Walker blew $2.5 million on a Chicago mansion for his mother with an indoor pool and – count ‘em – 10 bathrooms. Another $3.1 million went for a Miami home and yet another $4.1 million went for a downtown Chicago condo, both of which are now for sale.

And then there was the gambling. He would regulalry play blackjack for a couple of thousand dollars a hand. He finally surrendered to authorities in South Lake Tahoe for bouncing checks totaling $1 million at Harrah’s Casino.

With all that spending came numerous creditors including his former agent who won almost $600,000 from Walker for unpaid fees. To compound Walker’s woes, a $10 million real estate investmen in Chicago is in the process of going south.

If there is a moral to be had from the sad tale of Antoine Walker it is this: how you spend your money is just as important as how much money you make. Unfortunately for Antoine, he found out the hard way.

The Bottom Line: no matter how much money you make, always be careful with how you spend and invest it.

photo credit: Keith Allison

But what if you don’t want to lock in your money for the full five year period? Most banks, including Ally, will charge you an early withdrawal penalty if you pull your money out before the term of the CD is over. In Ally’s case they charge a penalty of the last 60 days of interest.

But with the dramatic difference in yields between the 1-year and 5-year CDs, you would actually come out ahead by only keeping your money in the 5-year CD and pulling it out after a year if you needed. If you factor in the withdrawal penalty you would still be making an annualized rate of 2.57% after one year in the 5-year CD. There is no bank that will pay you anything close to 2.57% for a one-year CD.

After 2 years your annualized rate, factoring in withdrawal penalties, is 2.83%, which still beats Ally’s current 2-year CD rate of 2.00% APY.

After 3 years your big yield advantage starts to drop off. You annualized rate for 3 years is 2.91%, which is an excellent rate although a few banks do offer 3-year CDs around that level.

Here is a chart from My Money Blog that shows the annualized rate of return with and without a withdrawal penalty:

Now one thing to watch out for with this strategy is whether Ally (or whichever bank you go with) changes their early withdrawal rules. If this changes to 180 days worth of interest then the advantages of breaking a 5-year CD term are probably gone.

One strategy for maximizing your savings would be to buy several CDs in smaller denominations. If you wanted to put $100,000 aside, for example, you could buy five $20,000 5-year CDs. If you needed to withdraw $20,000 you would only need to break one CD and would leave the other four intact. You would be maximizing your short-term yield while minimizing your withdrawal penalties.

The Bottom Line: If you’re looking for better short-term CD rates, put your money into a 5-year CD with small withdrawal penalties. If you need to pull your money out sooner than five years you’ll still be making a much better yield than a 1 or 2 year CD.

While the Dow Jones Industrial Average flirts with the 11,000 mark, an increasing number of signs are pointing to potential trouble ahead. The markets have been on an incredible run over the last year with the Dow up more than 60 percent from its lows 12 months ago and the Nasdaq up a whopping 90 percent.

Despite the run-up, there are a few reasons to think that we’re close to a short-term peak in the market:

Price to earnings ratios – perhaps the most basic measurement of the market – are significantly above their average. Ratios in the Standard & Poors 500 index are 13 percent above the average since 2005. In contrast, just a year ago they were 40 percent below the average, suggesting that the market has come too far too fast.

Based on data going back 90 years, whenever the Dow has experienced a rate of change exceeding 40 percent in a 12 month period, it has often been a sign of a market peak (see the chart above). According to Bloomberg, in three cases when the market has experienced a rate of change above 40% it has only signaled a short term pause, after which the market went higher. However, in 11 other cases a rapid rate of change has been followed by sizable downturns, including the 1929 crash.

Interest rates will likely rise. Numerous factors are pointing to the Federal Reserve having to increase interest rates over the next year. While the exact timing isn’t known, it’s almost certain that rates will be higher in a year than they are now. Higher interest rates could pull some investors out of the stock market due to the higher yields offered.

Housing may not recover. The nascent housing recovery may have started to stall in many areas of the country. Rising interest rates, continued foreclosures, and the end of the federal first-time homebuyer rebate program will only make the situation worse.

The big question that no one can answer is: if the market falls, how much will it fall? Are we looking at a mild correction or another serious downturn?

The Bottom Line: with the stock market reaching new highs it’s time to exercise healthy caution. Several factors point to trouble ahead.

If you are looking for more yield in your savings account, there is hope. According to Bankaholic, the best savings account in the country pays 2.00% APY. While that won’t make anyone rich overnight, it’s a lot better than the close-to-zero rates many consumers are currently seeing in their savings accounts.

The best savings rate in the country was posted by Southern Community Bank and Trust, which has 20 branches in North Carolina. The bank pays 2.00% through its Readysaver.com website with no minimum balance. That’s better than most 1 year CD rates, and better than what Southern Community offers on savings accounts opened at its branches.

Franklin Synergy Bank in Tennessee came in second with a savings account that pays 1.70% APY. But you must make a minimum deposit of $25,000 to open an account and maintain a $500 balance to get that rate.

Three other banks are paying 1.50% APY on savings accounts: Chesapeake Bank, newdominionDIRECT.com, and First Trade Union Bank.

The Bottom Line: If your bank isn’t paying you interest on your savings account it’s time to start shopping around for a new bank. You can find 2.00% APY elsewhere.

photo credit: AMagill

If you talk to any real estate agent you’ll hear the same mantra: it’s a great time to buy a home. Realtors said it in 2001 when home prices were climbing steadily, they said it when prices peaked in 2005, and they continue to say it today. So what’s the real answer?

There a couple of ways to figure out the timing of the housing market: one involving poring over statistics and one much easier to figure out.

If you’re statistics minded there are three metrics to examine, according to Barry Ritholtz, C.E.O. and director of equity research at FusionIQ, a quantitative research firm, quoted recently in the New York Times:

the ratio of median income to median home prices, which gives you an idea about affordability
the cost of ownership versus renting – if rents in your area are much cheaper than carrying a mortgage that’s a sure warning sign
the value of the national housing stock as a percentage of gross domestic product

Each of these factors were greatly inflated during the housing bubble and are still not back to historical levels. According to Ritholtz there are two ways for these metrics to get back to normal: home prices could drop another 15 percent, or they could remain flat over a period of seven years while the GDP and personal incomes grow. That’s certainly not a vote of confidence in the current housing market.

A simpler method of evaluating the housing market is to simply look at where interest rates are headed. Will borrowing money get cheaper or more expensive? That determines whether you cna buy more or less house.

While it may be impossible to predict whether housing prices have truly bottomed out, all signs point to interest rates climbing over the next few years making it more expensive to finance a home.

The bottom line is this: if you’re thinking about buying a home do it for the right reasons. Don’t view your home as a short-term investment and be sure to compare the cost of buying vs. renting. If you’re in it for the long-haul, then this is as good a time to buy as any. But if you’re looking to make a quick buck, the housing market is not the place to do it.

photo credit: coffeego

If you have been looking at your checking account or money market statements recently you may have noticed an eye-opening number: zero. That’s the yield that many banks are offering to checking or money market customers – yes, that’s a 0.0% return for giving your money to the bank.

One of the best checking account deals I have seen recently comes from The Provident Bank which offers its “free smart checking” account. While this account may not be for everyone, if you fit the requirements it can be a very good deal.

At the time of writing The Provident Bank was offering a yield of 3.26% APR for up to $25,000. That’s a whole lot better than even the most aggressive 2 year CD rates and unlike CDs your money isn’t locked in for a specified period. Provident is paying 0.75% on the portion of your account balance greater than $25,000, which is still pretty good.

There are other things to like about the account: Provident will refund ATM fees from other banks, it provides online bill bay services, and the account is free as long as you meet the requirements.

Speaking of requirements, to get the benefits described you will have to meet three requirements each statement period:

• Use your Provident Bank debit card at least 10 times per month
• Receive one direct deposit or process one automatic ACH debit per month
• Enroll in online banking and receive e-statements

So what happens if you fail to meet one of these requirements in a month? The good part is that you’ll still enjoy free checking. The downside is that the yield goes down to 0.25% on your entire balance. That’s still better than the 0.0% yield most of us are seeing on our current accounts, but obviously not as stellar as the 3.26% you’ll get if you meet the requirements each month.

Now those requirements might be tough for some people to pull off and if that’s the case you can probably find a better deal somewhere else. But if you regularly use your debit card, get direct deposit, and don’t mind foregoing paper statements, the Provident Bank “free smart checking” program is the best to come around in quite while.

You can get more information on the program here.

The economic downturn has decimated many people’s retirement accounts and other savings, making it impossible to stop working when they had originally planned. As America ages, this will likely become an increasingly comment trend, so prepare yourself.

On a positive note, many people are choosing not to retire because they enjoy their job or fear that retirement may be too boring. Others are continuing to work because they need the health insurance and additional benefits provided by their job.

If you are planning on postponing retirement, there are some important steps to take:

• Communicate with your HR department. The folks in human resources can help you plan your future within the company past the normal retirement age.
• Network. Whether you want to keep your current job or find a new one, maintaining your network both socially and professionally is crucial for keeping your options open.
• Be flexible. While you may suddenly decide to stay in your job, your supervisor may have had other plans for the position. Being willing to change assignments could make the difference between staying on at your company and being laid off.
• Become a mentor. Mature workers have a vast reservoir of experience and knowledge. Sharing this with people inside and outside your company shows your worth to your current employer.