Wednesday, August 22, 2007

My MOMA Advice

I was tagged by Stealth Wealth to continue Moolanomy’s My One Money Advice (MOMA) Meme. Moolanomy is trying to promote financial responsibility and awareness in our hyper consumption society.

The question: If you can give one advice, tip, or story related to money, what would you share?

My advice is to form habits. It doesn't really matter what they are, but remember there's a difference between forming habits and picking them up (at least in the way I use the words). Forming implies some directed effort, I think, whereas picking up implies that it's all happenstance. Picked up habits are often bad, whereas formed habits are often virtuous. Exercising regularly, for instance, doesn't just happen for many people, it has to be consciously achieved.

Today, a lot of things in the financial realm of our lives can be automated. Many bills can be paid automatically, savings can be deducted from your paycheck, IRA and 401(k) contributions can be made automatically. Those should be taken advantage of whenever possible, but it's interesting that automating your life externally is in a sense a way to avoid forming good habits internally. So even though I make automatic payments when I can, I still have mixed feelings about it because I don't think it provides you with the same benefits.

One of the habits that I'm trying to form right now is checking my mail regularly. Sad huh? In the past I have gone for a month at a time without checking the mail. One time the mailbox was so full that the mailman left me a note saying he couldn't fit any more mail into the box! I think I picked up that habit through classical conditioning -- when I had a lot of credit card debt, going to the mailbox began producing the same sense of dread as opening the mail to find a credit card statement that I felt like I had no hope of paying off.

Oftentimes, a good habit may seem totally unrelated to your finances, but will nonetheless have an impact. For instance, a seemingly non-financial habit I'm trying to form is keeping my apartment clean. This includes taking the trash out regularly, doing the dishes each night, vacuuming, etc. What's that have to do with finances? Well now that it's cleaner, I realize that I used to seek to escape my apartment by going out and doing useless stuff that ended up wasting a lot of money. I would go out to a cafe to have an expensive coffee just to be in a different environment. I went out for dinner a lot because the kitchen was too messy.

Another nice habit is getting up early and having a morning routine. I'm one of those people who, for most of their life, got up at the last minute, threw on some clothes, and always seemed to be a few minutes late. I want to be the kind of person who gets up early, makes a nice breakfast, and has a cup of coffee with the morning paper. Financial benefit: eating breakfast regularly at home will save lots of money compared to stopping at the drive through. Health benefit: well, it's a lot healthier too.

But the main benefit of forming habits isn't the immediate financial payoff. It's that you become a more responsible and balanced person and, I feel, you are more connected to life. In the long run, I think that can have a huge impact on your finances and general well-being.

If anybody wants to suggest some other good non-financial habits that end up having a positive impact, I'd love to hear about them. :)

Monday, August 6, 2007

Bought more AAV

On my lunch break I happened to see that AAV was down about 6%. There isn't any news that suggests a reason for this, but the Yahoo Finance message boards speculate that the sharp drop is due to two factors. First, they speculate that over the past few months, hedge funds have been spending a lot on Canadian energy stocks because of the possibility of quick gains from mergers and acquisitions within the industry due to the depressed share prices. There has been some activity on those fronts, but not as much as was expected. Now that prices have been recovering, they are not as attractive for takeovers, so people are losing faith in buyout rumors. The hedge funds need to sell their shares and take their money elsewhere. Some have suggested that they are facing credit pressures due to their use of margin and leverage. Whatever the reason, there's no doubt that there was a large amount of selling done today.

Anyway, the second factor (according to the boards) in the price drop was that Canada's markets are closed today. This took away a good portion of the support for AAV in terms of buyers. The high selling activity in combination with the low buying activity can only mean one thing -- sharp drops in price.

Who knows how accurate the part about hedge funds is, but on the face of it this looks like another good chance to buy some AAV while it's undervalued. I originally got in even lower than this point, and as it climbed I regretted not buying more shares. Now it seems that I have another chance. To get some fast cash, I sold my entire DUK position. I'm not disenchanted with DUK or anything, but it was either that or GE. I put the proceeds into AAV.

This is one of the two reasons I don't have AAV in my IRA. The first one is that I heard that the foreign taxes on AAV dividends can't be recovered in an IRA (which doesn't bother me right now, but could be important down the road). The second is that it's a pretty volatile stock and that's not the sort of thing you want in a small IRA. My IRA money is fully invested and I can't contribute anything more this year. If a stock drops significantly, I'm stuck just watching it or cutting my losses and selling. As my balance grows over the years (can someone tell me why contribution limits are so annoyingly low, when 401(k)'s and other retirement instruments have much higher limits??? It really stinks for those of us who don't have a retirement plans via their jobs) I will build up enough ballast in the form of bonds and cash that I can invest in riskier stocks. But until then, my IRA will have to be a bit more conservative.

Luckily, I got in just before AAV began a slight recovery. Even if it goes up quickly again, I don't think I'll sell these shares. Instead, I'll take my next few contributions and restore my position in DUK. I'm excited thinking about what my portfolio will look like by Christmas.

By the way, even though it's high summer, with temperatures reaching 100F, Christmas is only about 4.5 months away. Isn't that weird? I need to take a few more trips to the beach this year before the sun is gone. I should also start thinking about budgeting for presents in advance (something I've never, ever successfully done).

Friday, August 3, 2007

Growth estimation formula

I was thinking yesterday of how cool it would be to open an investment account for your kids when they're born and deposit $2000 a year in each one. To figure out how much money they would have after n years on a calculator isn't easy, due to the addition of money each year. In a flash of inspiration, though, I realized that the total growth could be calculated easily if you pad the initial deposit such that the interest earned in the first year equals the amount you would normally deposit. Then at the end, subtract the initial padded amount.

For instance, how much money would your child have at age 20? Well, assuming 10% return, you would need $20k to generate your $2k payment. So we use the simple compound interest formula to get 20000 * 1.1^20 = 134550. Subtract the original 20000 and you're left with 114550. How does this compare to using, say, They come up with 125052, which is pretty close. How cool of a college graduation present would that be?

Is there a more accurate estimation that's still easy to compute? I play these number fantasy games all the time, so any tips would be appreciated. :)

Thursday, August 2, 2007


I was surprised to see that Best Buy had given me a little dividend in my IRA and it's already been reinvested in partial shares. Some bloggers post a nice table of historical dividend returns, and it's really cool to see how (pretty much) each time the dividend gets a little bit bigger. So I'm going to start doing that. At least it'll give me something to post about! Hmm, well since most of my investing money is in Scottrade still, which doesn't have free dividend reinvestment, you won't see the same exciting compounding action. But most of the companies I invest in have a history of raising their dividend periodically, so there will be at least some increase. Anyway, without further ado:


  • July 2007 - $36.51

  • July 2007 - $2.10, reinvested into 0.021 shares

  • July 2007 - $2.00, reinvested into 0.046 shares

  • Coming in September...

GE (Scottrade)
  • July 2007 - $28.00

GE (TD Ameritrade)
  • July 2007 - $5.60, reinvested into 0.139 shares

  • Coming in September...