Why You Need to Have $6,500 in the Bank for Healthcare, Even if You Have Obamacare

With health insurance, the premium is just one part of the equation.  A small part.  Bigger factors are your deductible and your out-of-pocket maximum.  (There are also other important things like which doctors and hospitals are in your network, but I’ll leave that for another website to cover.)

Many people say they are happy with their health insurance if they are young and healthy so long as their premiums are relatively low.  They say this because they rarely go to the doctor, and therefore don’t really use their health insurance, so the premium is really all that they see.  Many individuals from countries that have socialized medicine say it is great when they are young and healthy.  They are often less enthused when they are old and sick after being told that the surgery that must be done immediately cannot be scheduled for 12 months.  The best insurance plans in Canada pay for travel and healthcare in the US because the waits there are often long.

Still, even for young and healthy people, bad things happen.  You get into a car accident and spend a week in the hospital, complete with lots of x-rays and surgeries.  You have an appendicitis.  You swallow something you should not have that needs to be surgically removed, or fall while you are rock climbing.  Maybe you travel to a foreign country and get a rare parasite like those seen on The Monsters Inside Me.  For women, it can be something as simple as having a child, especially if a surgery is needed due to complications or the baby is premature.

One of the issue with the plans under the Affordable Care Act is that they have really high deductibles and really high out-of-pocket max amounts.  To see how high, check out this article in Forbes.  As you can see, the yearly premiums vary by state, but tend to be between $2000 and $4000 for young people.  For all of those except those in the lowest income brackets, the deductible is $5,000 and the Out-Of-Pocket max is $6350.  This is a lot more than people have for cash-on-hand.

The deductible is how much you would need to pay before the insurance paid for anything.  This means that if you make $30,000 per year or more in most states, you will pay your $2,000-$4,000 premium plus $5,000 before the insurance pays for anything.  If you think this is a lot and that it is very unlikely you will pay out this amount in any given year, you are right.  If you think you would most likely be better off saving up your $4,000 premium each year and just pay cash when you need medical help, you would also be right most of the time.  The only time you would be wrong is if you were unlucky and one of the things I mention above happened when you were 21 or 22, before you had time to save up much money.

The out-of-pocket maximum is the most you would pay in any year before insurance would cover the rest.  Note that this is per year, so if something happens one year and then something happens again the next, or if something happens that requires treatment in different years, you would need to meet the out-of-pocket max each year before the rest would be covered by insurance.  Try not to get sick the week of New Years!

So really, even if you have Obamacare (or really any health insurance nowadays since many plans are converging on the same limits as the ACA), you really should still have about $6500 in the bank at all times just in case one of those freak things happened to you.  You should have even more if you’re in the period of your life where you are having children, or later in life and starting to have more surgeries and procedures.

How will you save up $6500, however, if you’re spending $4000 in health insurance premiums?  The answer is that if you are young and healthy you shouldn’t be spending that much on premiums.  You should be spending something around $1,000 because the chances of something happening to you where you would have costs that exceed the deductible are remote.  The issue is that you are covering all of the people who are older and sicker than you when you are paying your premiums.  You then need to hope that someone will do the same for you when you are older.

There is a better way.  Instead of sending money into insurance companies when people are young and healthy, they could be sending the money into Health Savings Accounts (HSA)s when they are young and letting that money build until they need it when they are older.  They could buy a major medical insurance plan that covers everything over maybe $6,000 or $10,000, which would cost maybe $800 per year, to take care of the times when some freak thing does happen and they end up in the hospital.  In twenty to thirty years most people would have plenty of cash to cover their medical care.  They would also be paying cash, which means those big insurance companies everyone criticizes would lose a lot of their business.

That is one of the odd things about the ACA.  It was passed when people were talking about how bad insurance companies are, and yet it makes everyone send all of the money for their healthcare to the insurance companies!  This leaves people with little money to use to take care of themselves when insurance fails them and doesn’t cover a procedure they need or doesn’t include the doctor they need for their rare medical condition.  People who are wealthy have the money to pay out-of-pocket for better care.  Because of the ACA, those in the middle class will not.

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Should you Buy Single Stocks?

In some of the funniest radio I’ve heard in a long time, Dave Ramsey (of the Dave Ramsey Show) responded to an emailer’s question, in which the caller asked what she should do with her BP shares, now that they have declined. He screamed into the radio, to paraphrase, “I don’t buy single stocks, because you never know when the company you buy will dig a hole into the bottom of the ocean and kill everything in the vicinity!!!”

For those who don’t know, Dave Ramsey is the author of a series of books and the host of a popular radio show. The theme of the show and the books is getting out of debt and generally getting your financial house in order. Clips can be heard at their website, http://www.daveramsey.com/radio/home/ . He offers great advice on setting yourself up into a position where you can start investing and growing wealth (by getting rid of all of your debt and spending less than you make so you can invest).

Mr. Ramsey’s shuns individual stocks. His investing style is to buy mutual funds. Specifically, he spreads his investments over mutual funds in the categories of growth, growth and income, aggressive growth, and international. He does not buy individual stocks because he believes the risk to be too great. And as he said, you never know what will happen with any one stock you own. It may actually drill a hole in the bottom of the ocean. Or it may just really misread demographics and see earnings implode.

While I do not agree that mutual funds are the only way to go, ownership of only one stock is not advisable, and the number of stocks owned should grow as one’s tolerance for risk declines. To invest in individual stocks, one must understand their behavior and plan accordingly. The price of individual stocks changes rapidly, and sometimes for no good reason. The current price offered reflects people’s feelings about the near-term prospects for the future, what the market is doing, what people expect others to do, where other investments are priced, other events in people’s lives, and recent movements in price. One cannot buy a stock and expect 10% to be added to their bank account year after year just like a savings account. Some years it will double, other years it will fall by 50%. Some years it will move up or down by 2%. Bad things do happen to good companies as well, and sometimes individual stocks fall rapidly in price, sometimes never to recover.

Because of this, placing large amounts in only one stock or even just a few stocks is foolish. There were many retirees from GE who watched their life savings implode along with the price of GE stock during the last recession. If you have large sums of money, you should spread it out over a number of stocks, and even into different sectors and asset categories (stocks, bonds, treasuries, etc…).

For those who do not have a lot of money, however, concentration in a few stocks can be a good thing. If one is a fairly good stock picker, or even picks one huge winner out of five, one can do very well. The difference is that if one has a lot of money, the risk of losing a large sum outweighs the potential rewards that can be gained through concentration. If one only has a small sum to invest, however, it is worth the risk of suffering a loss. If one only has $1000 and it grows at 10% per year, one would only have $2000 after 7 years. It is worth the risk of losing the $1000 for the potential to have $10,000 after those same seven years.

That said, you should be contributing to retirement accounts like 401Ks (10-15% of your paycheck if you want to be assured of a comfortable retirement) and investing that money in mutual funds.  You don’t want to risk your retirement on your stock picking.  You also want to start diversifying into mutual funds as your portfolio value grows.  As some of your positions get large, sell a few shares and buy shares in a fund to start to protect your gains.  The greater the portion of your portfolio that you have in mutual funds, the less volatility (meaning how much your portfolio value moves up or down) you’ll see.  You’ll also be reducing your potential rate of return, however, so holding onto a few single stocks is often worth the risk.  Hopefully you’ll do so well that while the percentage of individual stocks you own declines as you get older, the absolute value will stay the same or even grow because your portfolio will just get that much larger than when you started.

Here are the rules I generally use in determining the maximum size of individual stock positions:

1. Never have more in one position then you are willing to lose. If you cannot afford a loss of $1000, you do not belong in individual stocks. Very few people (except multi-millionaires) could afford to lose $100,000, so positions that grow so large should be split up into smaller positions.

2. On the other hand, make sure positions are large enough that if one is right about a stock, one make’s a good profit. It does no good to be right about a stock that goes from $20 top $40 if one only has $500 invested, since only $500 will be made. Make sure to take large enough positions so that your winners will result in a large return.

3. The more money you have, and the shorter your time horizon, the more diversification you should have. If you have a significant amount of money, or if you do not have much time to recover from a setback, your level of risk should drop. A person who will retire in five years and plans to live off of his savings should not have his money invested such that a drop in a few stocks would affect his plans.

4. Have money that is really needed in the next five-ten years in cash. Again, if you will be retiring soon, there is nothing like having enough to live on for five years in cash. It was sad to hear of so many putting off retirement because of the recent recession. These individuals should have been sitting on a pile of cash such that they could care less about the stock market drop.

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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Dollar Cost Averaging – the Improved Version

Dollar Cost Averaging is a common technique for investing that will result in better results than simply buying all at once much of the time.  In Dollar Cost Averaging (DCA), one invests a fixed amount of money on a regular basis. For example, an investor may put $1000 in a mutual fund every month regardless of market conditions or other factors. By fixing the amount, the effect is to buy more shares when the price is relatively low, and less shares when the price is relatively high; therefore, even if the market stays essentially flat, just moving up and down between a couple of limits, because more shares are bought at the lower prices, the cost basis will be below the average of the price range, so a profit will be made.

DCA can be automated.  Many mutual fund companies allow you to make regular automated deposits from your checking account.  For example, you can set it up where you send $200 every two weeks, right after you get paid, into the fund company to buy shares of a fund that you own.  Because the payments are made based on a fixed time-basis, regardless of what the market is doing, you will be doing DCA.  The nice thing about this strategy is that it is very easy – just set it up once and leave things alone.

DCA is a very automated, easy, no-decision way of investing that is a good approach. It can also be improved upon, however, without a lot of additional effort.  The reason is that while the movement of a stock over any given day are effectively random (you have about a 50-50 probability of the stock ending up or down on any given day), the more a stock goes down the more likely it is to go up, at least eventually.  This is because there is a fundamental value for a company based on the value of assets they own and their ability to make money.  The more a stock goes down in price, the more it needs to increase to return to this fundamental value.  It is very common for stocks to become undervalued during a sell-off as people let their emotions drive them into selling for less than the stock is worth just to get out without further losses.The modification to the dollar cost averaging strategy is therefore to wait for periods where the stock has fallen in price by a specific percentage before making investments. In doing so, a better price will be gained than that gained through blind averaging.

Choosing when to buy in this method is somewhat arbitrary. One could buy when the price falls for three days in a row, or when the price drops by 10% or so. This can be done without following the stock price constantly by setting limit orders 10% below the current price of the stock.  For example, if the stock were trading at $40 per share, a limit could be set at $36 per share.  By making the order “Good ‘Til Cancelled,” or GTC, the order would remain in place for a month and only need to be renewed if not executed within that amount of time.

Obviously a method should be chosen such that the stock can be bought regularly. Waiting for the price to drop by 20%, say, before making a purchase, may result in few shares actually being purchased while the stock climbs to the sky, leaving you behind.  Waiting for a 10% drop might also be too much – perhaps 5% would be a better limit for stocks that are not very volatile (meaning they don’t change in price very much just through random fluctuations).  And that is the danger in using this method.  The big gains in stocks are often had in a few days or maybe a few weeks, then the price will tend to tread water for a while.  If you wait too long for too good a price, you might see the company shoot through the ceiling while you are standing there with your money on the sideline.

In general trying to time the markets is a bad idea.  At least with this strategy, however, you’ll always have most of your money invested – you’re just holding back with the money you are adding to the position.  (I’m not suggesting selling out when the price goes up, just delaying purchases until a drop in price has occurred.)  You therefore won’t entirely miss out on the big gains – you just won’t do quite as well as you would have if you had been buying using DCA, where you bought shares even if the stock was in a big uptrend anyway.

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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Where to Invest $1,000, $10,000, or $100,000 Today

Money magazine periodically has an issue where they discuss what to do with $1,000, $10,000, or $100,000.   I’m always surprised by some of the suggestions, which include thing like this year’s entries, “Rent a muscle car for a day,” or “Take a yoga class.”  There are some good articles on budgeting and investing, but there are also a lot of articles on spending money, often in foolish and frivolous ways.  This month’s issue included an article on the best credit cards.  No one who is wealthy ever got there by earning points on credit cards.

Growing wealth involves investing.  It may be investing in starting a business (something most millionaires did to become wealthy), investing to learn skills to make a better living, or investing in stocks and bonds to make your money grow faster than you can through your own labor alone.  Even the modest $1,000 can turn into a year’s worth of expenses when you retire if you invest it when you are first starting your working career.   So what would I do with $1,000, $10,000, or $100,000 right now? Here are some suggestions.

What to do with $1,000.

  • Put it in a money market fund and keep it as an emergency fund. The next time the car breaks down, you’ll have the cash ready, which means you won’t need to put it on a credit card and start paying out a portion of your earnings in interest..
  • Pay down some credit card debt. This is like investing at 18%, meaning it is like saving $1000 every 3 years.
  • Pay a couple of extra payments on the home. If you make just one extra payment on a 30 year mortgage a year, you’ll pay it off about 8 years early. With a $1,000 per month payment, that is a savings of about $74,000.
  • Put it in a CD and then save up $1,000 to $3,000 more to invest in an index fund or shares of a young growth company. Make this a regular practice and you’re on the path to becoming wealthy.
  • Pick a growth stock trading for under $20 (a young company with a lot of room to grow), buy 50 shares and forget you own it for a while.

What to do with $10,000.

  • Pay off your credit cards. At 18% interest, you’ll be saving $10,000 every three years!
  • Pay off your cars, or buy a couple of 5-6 year old used cars for $5000 each. Not having a car payment will allow you to pay cash for cars from now on if you save up the money you would have been putting towards payments, even after paying for repairs.  That’s how wealthy people have money to pay cash for things.
  • Fund your IRA and that of your spouse. Retirement may be a ways off but you’ll need a lot of money when you get there for necessities and medical bills.
  • Start an educational IRA for your kids. If you’re hoping for your kids to go to college, you need to start saving early. You can put $2,000 per child into an educational IRA that is tax-free for educational expenses.
  • Buy shares of a large cap and a small cap index fund or index ETF. Index funds have low costs, which will make a big difference over time. Buying two sectors of the market reduces volatility.
  • Buy 100 shares each of 3-5 of your top stock picks. Add to these positions over time, gradually diversifying into more stocks and mutual funds as you get older and your portfolio grows.

What to do with $100,000.

  • Pay off any remaining debts, except for maybe the house. Paying off debts increases the amount of money you have available since you are no longer losing money to interest. With rates as low as they are, keeping a home mortgage might make sense to have some money for investing, but there is also no other feeling like owning your home outright.
  • Buy a set of index funds. Include large cap stocks, small cap stocks, real estate (through REITs), and income stocks. Consider international stocks as well. The younger you are the greater the proportion of growth you should have and the lower the portion of income funds.  Bonds also belong in your portfolio, but they are to risky right now due to the low-interest rates.
  • Buy 200-500 shares each in 5 stocks that are the best performing growth stocks in their industries. Keep these positions small enough that you can stand a loss should one of them fail outright.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

A Better Plan for Fixing Health Insurance

As the Affordable Care Act is being rolled out in drips and drabs, and having portions delayed to avoid angering voters right before critical elections, it is becoming clear that the predictions made by pundits as the law was being passed are coming true.  Healthcare premiums are rising way up due to the requirement that insurance have no limits and cover preexisting conditions (the money to pay for these things needs to come from premiums).  People are losing jobs as employers are cutting workers – both to stay below the 50 person threshold where health insurance is mandatory and to offset costs from increases in healthcare premiums.  Other employers are cutting fulltime employees and shifting them to part-time shifts (less than 30 hours per week) to reduce the number of full-time employees below the threshold.  Not only are people not getting insured – they are losing wages as well!

Predictions on the supply side are also coming to pass.  Doctors are quitting the practice to avoid having their payments dictated and face a mountain of paperwork.  Others are shifting to concierge practices and not seeing patients with insurance at all.   Networks are being shrunk to reduce costs, resulting in long drives to see specialists or even primary care doctors.  Copays are also going up as insurers try to cover costs.

Costs are also not decreasing  – they are increasing.  This is partly because individual who originally bought minimal plans, because this was what they could afford, lost those plans and had to pay for plans with a lot more services they may or may not use.  (This is like wanting to buy regular gas but being forced to buy premium.  Sure, it is better gas, but not worth the cost to many people.)  In addition, younger individuals are needing to subsidize the healthcare costs of older, sicker individuals.  Even with these increases in premiums, insurance companies are not covering costs.  Healthy individuals are deciding to go uninsured because the price is not worth the perceived value (if you are healthy), some individuals simply cannot afford the higher premiums, and the penalties for not signing up were delayed another year.  As a result, only the sicker individuals who are using far more healthcare than they are paying for are enrolling.  Because of this, premiums are not covering costs and it is expected that the government will need to bail out these insurers.

The Affordable Care Act actually exacerbates the issues that existed with traditional health insurance.  These are:

1) Everyone pays essentially the same cost whether they use healthcare or not, so there is an inclination to go to the doctor for every little thing and there is no reason to choose lower cost treatment options.  Increased demand results in higher costs, and higher payouts result in higher premiums.

2) Pricing is greatly distorted by insurance.  Just try asking the front desk in your doctor’s office what a procedure will cost with your insurance (your portion and what the insurance will pay) and it is unlikely anyone in the office will know.

3) A lot of people aren’t paying, or paying very little, so those that do pay are paying for ten or twelve other people besides themselves.  (Imagine what eating out would cost if you had to pay for the meals of five tables sitting next to you.)  This makes fewer people willing to save up and pay because the costs are so much higher than the value received (for example, $10 aspirin in hospitals), so people would rather not save and then rely on charity when they need healthcare.

Realize that there is no magic that allows people to pay less than the cost of their care, on average.  If someone gets care for free, someone else must pay twice.  This is true of anything – someone needs to create the value that is used.  Everyone cannot have free cupcakes.  Someone needs to put in the effort to make the cupcakes and must buy the ingredients, and few people will make free cupcakes indefinitely if they are not compensated for their efforts.

The secret to reducing the price of healthcare, and making getting it a non-issue for virtually everyone just as buying food is a non-issue for anyone with a job, is to get most people to actually pay for it.  This means that they need to save up money for the inevitable times where they will need healthcare.  It also means having them pay for the services they receive to give them an incentive to use less or choose lower cost options when it really isn’t important.  The solution is therefore the following:

1.  Require that everyone sets up a Health Savings Account (HSA) and contributes a required portion of their income to the account, up to a certain dollar value of income.  The contribution percentage would decline after a certain amount is saved in the HSA, meaning that those who used little healthcare would have a higher take-home pay, providing an incentive to maintain high account balances and not spend money unless needed.  Those who cannot contribute enough to cover reasonable costs would have their contributions subsidized.  Any money left at death would be passed to heirs.

2.  Require that everyone also buy major medical insurance – insurance that pays for costs above a certain, large threshold, like $20,000.  Ensure that there are enough insurance companies competing that the price of this coverage is as low as possible and the service is as good as possible.   These policies must be clear on what is covered and government should fine any company that does not immediately pay for a covered service (no denying payments for sick people, hoping they won’t dispute the mistake and just pay the cost themselves).  The threshold could also be raised as an individual increased the amount in his HSA, thereby lowering the premiums.  For example, an individual with $40,000 in an HSA could have a major medical plan with a $40,000 deductible, which would cost less than one with a $20,000 deductible.

3.  Develop a high risk pool, subsidized by taxes, that covers those with really bad medical luck (like a major disease at 18 years old before starting a job and getting major medical insurance).  These individuals are rare so most people would be able to cover themselves with everyone saving up a portion of their income in an HSA, so spreading the risk out over the whole population won’t cost much.

4.  Require that all medical providers post costs and stick to those costs (no preference for one patient over another).  This would allow individuals to shop around for the best deal and eliminate price disparities as currently exist.

What would things be like after this plan is implemented?   Most people would just pay for their medical treatments out of their HSA when needed because they would have the cash saved up.  There would be no need for the doctor’s office to file insurance, reducing costs.  In addition, because most people were paying their bills and you wouldn’t need to pay for other people, costs would drop dramatically.  Imagine $20 office visits, $15 X-Rays, etc….  Hospital stays would be maybe $150 a day instead of the thousands they now cost per day.

There would also be incentive to save money, and therefore people would pick the cheaper option when it really didn’t matter and not use healthcare when not really needed.  This would cause less demand, and therefore lower prices.  Doctors could also provide a discount for procedures that really reduce costs like certain exams.  Prices would decline to the point where getting healthcare is no big deal for most people.  With most everyone paying for their own healthcare, the cost to cover those who could not would be easily obtained through charity or taxes.  Now that’s health insurance reform.

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

How to find Income Producing Stocks

When a company becomes mature, a smaller percentage of profits must be reinvested to fund research, growth of the company, and marketing. This leaves money for the company to pay out in dividends – payments of a portion of the profits of the company directly to investors. This is the ultimate reason that people buy companies since, without dividends, investors would never receive any of the profits of the company.

Many investors think that dividends are not important since they make their money selling stocks and capturing a capital gain, but if the company was going to reinvest forever, or just keep growing salaries of the executives and the workers and never pay out any money to the stockholders – the owners of the company – there would be no reason to buy the shares and make the price increase. Indeed, even for companies that pay no dividend, investors are paying more for the company as earnings increase because they expect to get a good return on their investment at a latter date. That reward comes in the form of a dividend.

Realize also that the yield percentage you see today is only part of the picture. (Note that the percentage of profits paid out in the form of a dividend is called yield, while payments from a bank account or a bond are called interest and the percentage paid the interest rate.) When you buy a stock, you are effectively locking in the amount you are committing, so your yield is based on the amount you invested even if the price of the company increases. If you buy a company with a 1% dividend, that may not seem exciting compared to bonds paying 6% interest or even some long-term CDs paying 2% interest.

If the company is growing, however, and the dividend is increasing by 15% per year, the dividend will double every five years. So in five years, that dividend becomes 2%, in 10 years it is 4%, and in 15 years it is 8%. At that point your shares in a solid company are paying more than many junk bonds, but you also have the prospect for growth of the company (and future growth of the dividend). The price of the stock may have doubled each time the dividend did, meaning the company is still only paying out a 1% dividend, but to you the yield is 8%. You could also choose to sell your stock and realize the large capital gain you’ve received as well.

That said, young people with a long time to invest shouldn’t concentrate their money in dividend paying stocks. These companies tend to be large, well-established companies that just can’t grow as fast as younger companies because of their size. (Think about how difficult it would be for Coca-Cola to double their sales, versus a restaurant chain with 50 locations.) You will do a lot better over time buying smaller companies with room to grow than large companies that have started to stagnate.

Still, for those who need the income these stocks provide to pay for living expenses or supplement job income, income stocks are a good buy. If your stocks are paying enough in dividends to meet your spending needs, there is no need to sell shares each time you need to raise cash. You also don’t need to worry about selling shares at low prices after a fall to raise cash. You will be unaffected as long as economic conditions don’t become so bad so as to cause companies to cut dividends.

They should also make up a portion of most portfolios since income stocks add stability. This is because the percentage yield provided by the dividend increases as the stock price goes down (because the dollar amount of the dividend remains fixed), eventually getting to the point where buyers come in and help prevent the stock price from falling further.  In doing so, they are getting more income from dividend stocks than they can elsewhere. This means that a portfolio full of income stocks will not fall as far as one filled with growth stocks. A holder of dividend paying stocks will also be getting a return from the dividends even during stagnant periods when stock prices are not increasing,  This takes a little of the bite off of drops in the markets and helps increase returns during down markets or stagnant markets.  During boom times, however, growth stocks will provide returns several percentage points above those of income stocks. Those who have longer investment horizons, and therefore can wait for the boom times to come, and those who don’t need a regular stream of income should limit the percentage of income stocks in their portfolio to their age or less to increase their total returns.

To find income producing stocks, just look for those with a relatively high dividend. Be wary of those that have very high dividend compared to other stocks because this may be a company that is having financial troubles, causing the price of the stock to decline. Such a company may well cut their dividend in the near future. Traditionally heavily regulated industries like utilities are good sources of income stocks because the regulators allow the company to generate a certain profit level and if needed raise their prices to maintain that profit level. Their products also tend to be things people need to buy no matter what and there is little competition. Other income stocks are the large, household-name companies. If you buy several of their products a month, so do a lot of other people, so they will probably be generating a lot of income and can pay out a portion as a dividend.

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Cooking Great Bacon

Making Bacon

Making Bacon

Today I have another post on basic cooking skills. Learning to cook at home is an important skill if you want to be able to grow wealthy since eating out costs a lot.   Even at fast food prices, a family of four will spend $60 per day, or more than $21,000 per year eating every meal out.  That’s a year or two at college with room and board.  Even if you only eat out once a day, you’re still spending $7300 per day even if every meal is at McDonalds.  That’s enough to fund an IRA and educational savings account for a year.  No wonder no one has money for retirement and college.

Many people today don’t have basic cooking skills because their parents never cooked or they just didn’t help out in the kitchen when they were growing up.  The trouble is that when most people try to learn to cook, they get a complicated recipe that requires all sorts of ingredients and dirties every utensil, bowl, and pan in the house.  They usually agree that the meal was good, but aren’t eager to cook it very often because of the work involved.

I therefore try to provide information on cooking simple dishes that you really can cook daily.  Today I thought I’d cover bacon since we were frying up a pound.  I’ve found that the skill for cooking bacon has disappeared, even at many coffee shops and country diners, which really should know how to cook good bacon.

First of all, bacon should never go anywhere near a microwave, even to be defrosted.  There is no reason to freeze bacon – it’s a cured meat that will last a month or two in the refrigerator.  It would probably last a week of more on the counter, although I wouldn’t try this.  You see, salt and sugar both prevent bacteria from growing, so the heavy salting and sweetening that bacon gets will make it last a long time.

Cooking bacon in the microwave should be illegal.  It comes our red and limp and just sorry to look at.  I am amazed when I go to restaurants and get microwaved bacon.  Cooking in the oven is tolerable if you have a lot of bacon to cook, but it will get grease everywhere and probably result in a lot more work if you include cleaning the oven.

Bacon belongs on the stove, and ideally cooked in cast iron.  Cast iron is ideal for frying, particularly breakfast foods, because it stays hot when you put cold food on it.  It has a lot of thermal mass, meaning there is a lot of energy in it, so adding some cold food to it won’t cause the temperature to drop precipitously.  That’s why you get nice evenly browned pancakes with cast iron and not with a thin stainless steel or aluminum frying pan.  If you don’t have a cast iron skillet, get one the next chance you get.

So here is the ideal way to cook bacon:

1.  Get your skillet warming on medium heat.  I usually put the stove on 5 or 6 out of 10, but of course every stove is different.  Don’t let it get too hot before you add food or it can damage the pan.

2.  Place the bacon in a single layer as flat as possible.  Arrange the bacon in opposite directions between slices to fit as much as possible.  I usually get five or six slices per batch.  Do not add too much – it will actually cook faster with enough room than if you overload the pan.

3.  There are two philosophies on when to flip.  Some say to let it cook for about 5 minutes on one side and then flip once.  Other say to flip every couple of minutes.  I usually flip more often, but either way may work.

4.  Pull the bacon out when it is at your personal level of doneness.  If you want crisp bacon, let it shrink a bit and get brown but not too brown.  Leave ti too long and it will burn, so watch it closely near the end.  You must get it to at least 180 degrees to kill all of the germs, even if you like it somewhat limp, so be sure it shrinks a bit and is bubbling hot on both sides.   Also, do not add new bacon to nearly cooked bacon since you could contaminate the cooked food (although this is unliklely since the cooked bacon will be so hot).  Complete one batch before starting another.

5.  Put the bacon on paper towels to dry.  If desired, you can place a plate of bacon in the oven on 200 degrees to keep warm.  Just be careful the towels are nowhere near the element or you could start a fire.

6.  After cooking about three-quarters of a pound, you will have built up a lot of grease, as shown ain the picture bove.  Do not put this in your sink or it will solidify and ruin your pipes.   You can pour this off very carefully into a tin can.  We usually save one for grease.  Note, keep the can away from the edge of the counter since someone would get a really bad burn if it dumped over on them.  In the old days bacon grease, called lard, was very valuable to coat pans for frying and would be saved in a can.  To start a meal, you would scoop some out.

7.  To clean the pan, let it sit while you’re having breakfast.  Once it is reasonable cool so it won’t melt the liner, but still liquified, pour it into the trash can or into your grease can.  Heat the pan with a little water to nearly boiling, then brush it out with a brush.  If using cast iron, make sure you dry it thoroughly or it will rust.

And there you have it.  How to make bacon at home.  At $3 per side order at a restaurant, versus $5 for a pound of bacon at the grocery store, you can save about $12 per package by cooking bacon at home.  Add an egg and some toast, and you’ll have a better meal than you can get most places today for a lot less.

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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.