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The Simple Dollar

Retirement: What's the best investment option?

Retirement saving can seem daunting, especially with the wealth of options out there. Which is best for you? Retirement is question 10 in this week's mailbag.

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Q6: Starting online businesses
 I am a teacher of 20+ years and am looking to get into a internet blogging as a business. I need tips and advise. How do you get paid, is my first question, if I may ask? Hope that’s not too personal. What would be helpful for me to get started?
 - Rachel

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Bloggers typically get paid via the advertisements on their site.

The challenge, of course, is how you get paid. Most advertisements are paid via CPM, which means cost per thousand views. Typical CPM rates are $3 per 1,000 views. So, in order to make $3, you have to have a thousand visitors to a page.

Thus, the trick for most internet sites is simply generating enough traffic. A thousand views a month will only earn you $3. A million views a month will earn you $3,000.

You can, of course, have multiple ads, but if you have too many ads, you’ll drive away readers.

The real key? Have good content that people want to read. The key there is to write from the heart.

Q7: Tithing question
 My wife and I moved to a new community recently and joined a new church in this community. At our old church, there was almost no pressure to donate. They passed around a collection plate and that was about it and I felt good about putting money in it. At our new church, though, they talk about tithing all the time and send envelopes to our house seeking donations. Do you think it is necessary to tithe 10% of your income to a church?
 - Leon

It depends on the rules and requirements for membership in such a group. If part of the requirement for membership is a 10% tithing, then that’s their call.

Of course, you don’t have to be a member of such an organization. That’s your choice as well.

Should people give away 10% of their money as a religious requirement? Again, I think that’s up to individual belief. Sarah and I give away money to a variety of charities each year, but we don’t force ourselves to match a specific giving amount.

Q8: Multiple credit cards
 I’m 22. Trying to build my credit. It’s pretty low right now, but I’ve had a credit card for about 6 months. I’ve paid it off diligently and really just use it for small things to keep it going. I have now started getting tons of offers in the mail for credit cards. My question is will opening more than one credit card at a time build my credit faster? I know if I opened another card I wouldn’t have any problem paying it off or getting out of control with spending.
 - Donald

Getting another credit card can provide a small boost to your credit, but it won’t help as much as the first one. Your first card is the one that will really establish the length of your credit history.

This new card would only help your credit in terms of bolstering your debt-to-credit ratio, which basically means the amount of debt you have on all of your cards as compared to the total credit line on all of your cards. It can have a very minor impact in other areas, too.

Your best bet, if you were to get a second card, is to either get one and sit it in your closet untouched or get one that you use for a very specific purpose, like a card associated with your gas station of choice.

Q9: Improving memory
 I have a terrible time with short term memory. I always forget things I’m trying to remember, like the three items I need to get when I stop at a grocery store or the four errands I need to run. Any good memory tips?
 - Colleen

Over the last year, I’ve come to really rely on the “memory palace” tactic for such things. It’s a simple tactic, but it really works.

All you do is visualize a familiar place in your head, such as your home or the house you grew up in. Imagine yourself walking through that home. As you’re imagining it, imagine giant versions of the items you need or of the errands you need to run throughout the home. Absurdly giant versions, preferably with another absurd attribute related to it. Imagine a giant piece of cheese dominating your kitchen. Imagine a giant carton of milk in your living room that your cat is bathing in.

Walk your mind through this absurd version of your house a few times and you’ll find it much easier to recollect the items you want to remember in an hour or so.

Q10: Saving options for retirement
 I will make about $125-$130k this year, so I believe that I dont qualify to contribute to a Roth IRA anymore. My employer of 2 years now offers a 401k but doesnt offer a match (we are still in start-up mode). I’ve been contributing to the 401 anyways, just to make sure I am putting something towards retirement. In the past I did Roth’s as well.

My question is, what other options do I have to save for retirement considering my situation? I am not really well versed in investing so any help would be appreciated.

For what its worth my grandmother has been retired for about 40 years now and swears by CD’s and EE bonds and tells me its better to just save then to worry about the best return.
 - James

The big advantage that a 401(k) has for retirement is that it shifts the income tax burden from today until your retirement (when you’re in a lower tax bracket). It also allows you to change your investments without tax implications (within the 401(k)) and you can sometimes get an employer match. However, you’re usually restricted to a pretty small set of investment choices, many of which are going to be relatively substandard. A 401(k) is also inflexible when it comes to making career shifts. If you want to quit and use some of that money for starting a business, you can’t get a loan from it and you can’t withdraw from it without a huge penalty. I think a 401(k) works great for most people who intend to minimize their job hopping in the decades before retirement and don’t really desire to become self-employed or start their own business, but it’s not the only option.

It sounds like your grandmother saved for retirement outside of a 401(k), which certainly works. In fact, her plan for retirement savings would have worked really well at various points in history. There were times when savings bonds and CDs returned well over 10% and it wasn’t too long ago when they were still returning over 5%. Given the flexibility that they offer, that’s a pretty good deal.

The problem is that savings bonds, CDs, and treasuries are now returning below 3% – and most of them are approaching a 1% annual return. That’s just not a great return no matter how you slice it.

Assuming that you’re relatively young, if I were in your shoes, I would probably invest in a very large and very secure dividend-paying company, like Verizon. Buy stocks in that company and reinvest the dividends.

You’ll have to pay taxes on those dividends and you’ll also have to pay taxes on the capital gains you earn when you sell, but you’ll still get a better return over the long haul than you would with CDs and savings bonds right now.

Then, if the rates on CDs and treasury notes climbs in the future (above 5%, at least), I’d lock my investment down with those.

Again, this is what I would do in your shoes. I encourage you to do your own research and reading.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on www.thesimpledollar.com.

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