tag:blogger.com,1999:blog-65962418404314272132024-02-20T07:55:59.305-05:00Patient InvestingThe story of me, investing.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-6596241840431427213.post-51891683910495909962008-09-16T23:29:00.003-04:002008-09-16T23:47:23.433-04:00Balance transfer offer -- no thanks!Chase just sent me a "great" balance transfer offer: 3% fee ($75 max), 0% APR until 3/2009. What a joke. Considering the risk in paying at the last minute plus the delay in getting the cash, that's only like 4 to 5 months for the promotional rate! At the amount I'm considering ($10k) that is hardly worth it. At ING I'd earn roughly $10k * 3% * 4.5/12 - $75 = $37.50 over the entire period.<br /><br />Ah... upon closer examination, the promotional rate ends at the opening date of my 3/2009 statement... in other words, 2/2009. So make that 4 months max!<br /><br />And furthermore, switching my purchases to another card would mean losing quite a bit of cash as this is my best rewards card.<br /><br />Thanks Chase! But no thanks.<br /><br />Notice that a 3% fee for 4 months equates to approximately 9% APR. I love how tricky they are, it's like a game.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com24tag:blogger.com,1999:blog-6596241840431427213.post-26950653210164970432008-09-02T11:11:00.002-04:002008-09-02T11:42:10.046-04:00Profit so farIn July, which was a partial month, I earned $7.64 in interest. In August, I earned $11.23. Not much but a good proof of concept. It certainly beats filling out little online surveys for 10 points (7.5 cents)!<br /><br />At the end of the balance transfer, I'll transfer the leftover money in the account to my Fun fund.<br /><br />My Prosper loans are doing well. I added a little bit more money and bid on three more loans. Prosper is fun but also scary. I spend quite a bit of time looking for loans I think sound reasonable and am pretty horrified at what some people are willing to bid on. I've seen listings that are entirely blank, but offer 33% interest or so, and have many people bidding. What are they bidding on?? Surely these loans don't make it past the review period. My only guess is that people with automatic portfolio plans have settings that pick up these awful loans. Good luck to them. Who knows what other garbage loans they catch.<br /><br />One thing that irritates me about Prosper is how they strip out any identifying information from the loan application. I understand it's a safety issue, but it's kind of ridiculous.<br /><br />Another is the waiting period after you bid on a loan where your money is tied up, earning no interest, until the loan is created or it expires. I don't know who bids on loans that are 10% funded with 5 days left, but someone does. I just sort the loans by time remaining and look at the ones that expire within a day.<br /><br />The net result is it takes me a good week or so to find a few loans worth bidding on. Kind of silly for a $50 loan, in terms of return on my time investment. I guess I do Prosper mostly for the fun. If I ever invest serious amounts of money, it would probably be better to do one of those "Reinvest in Prosper" loans and let someone else do the work. I wonder if there are any stats about their performance versus Prosper loans in general.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com0tag:blogger.com,1999:blog-6596241840431427213.post-79400576621893065092008-07-23T20:25:00.003-04:002008-07-23T20:28:08.077-04:00Balance transfer trickinessWell, I got a letter in the mail (how quaint) from Citibank confirming my balance transfer and got a rude surprise. They calculate the end of my 0% term as December 2008! Apparently the "12 month 0% transfer" is still from last year when I opened my account. I emailed customer service and they confirmed that.<br /><br />Oh well, I'll still make some money. I'm glad I didn't do something rash like stick the money in a CD. And I'll still be on the lookout for other profitable balance transfer offers!Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com0tag:blogger.com,1999:blog-6596241840431427213.post-6419511252904302972008-07-20T15:43:00.003-04:002008-07-20T15:56:09.157-04:00Kiva -- loan sharks?I really like the idea of kiva.org but I keep getting dissuaded by one fact -- they charge a very high interest rate to borrowers, but expect you to loan them money interest free.<br /><br />On the info page of any field partner (the local agency that actually lends the money and collects payments), you can see stats about how much interest they charge for Kiva loans. For instance, <a href="http://www.kiva.org/about/aboutPartner?id=58">Fundación Paraguaya</a> charges 20% interest, and you can see that the average charged by all Kiva partners is 22.77%. I have to ask... why?? The money is entirely put up by sponsors so there's zero risk to the lending partner. I understand that they have overhead costs, but come on, this is an outrageous interest rate. I could understand 5% - 10% to recover costs, but 20%?<br /><br />Keep in mind that even though these are micro-loans, to the people borrowing the money they can be fairly large, like the equivalent of a year's income. Imagine getting a loan equivalent to your salary and then paying 22% interest on it! Good luck actually making a profit on your new farm equipment or whatever.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com1tag:blogger.com,1999:blog-6596241840431427213.post-42871673778588704192008-07-17T11:09:00.003-04:002008-07-17T11:29:42.151-04:00Credit card rewardsI'm getting my first cash-back rewards check from my Chase Freedom card -- for $200 of credit I'm getting a $250 check! Not bad.<br /><br />On a related note, I used Chase's online credit limit increase request function to give myself an additional $22k credit. Holy crap! We're in a credit crunch, right? I'm not planning on using any of it until Chase comes through with a great no-fee balance transfer offer. I'm patient. Maybe I should open up a few more cards with Citibank, wait a while, and then increase my credit limits with them.<br /><br />If I can 10x my balance transfer amount then I'll be making around $25/week even in this low interest rate environment. That is going to trounce my cash-back rewards.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com1tag:blogger.com,1999:blog-6596241840431427213.post-14690972501643347952008-07-11T08:37:00.002-04:002008-07-11T08:52:55.637-04:00Balance transfer account fundedThe deposit from Citibank came in today and I immediately opened up a new savings account to hold it. I should earn 36 to 37 cents each day in interest. There's also a chance that within a year interest rates will rise.<br /><br />The only snag is I don't know what the minimum payment is going to be until August because it still says 0 for the amount due at the end of July. I have to remember to check on that!Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com6tag:blogger.com,1999:blog-6596241840431427213.post-9724678125117622562008-07-08T16:52:00.002-04:002008-07-08T17:16:32.038-04:00First attempt at credit card arbitrageI randomly signed on to Citicards.com (Citibank's credit card website) to see what's up and I found a balance transfer offer on one of my unused, zero-balance cards. There's no balance transfer fee and no interest for 12 months. Let's make some money!<br /><br />Just now I submitted my balance transfer request and the money should show up in my ING Electric Orange in a few days. Here's my plan:<br /><br /><ol><br /><li>Set up a new savings account and transfer the money into it.</li><br /><li>Set up an automatic transfer from the new savings account to my Electric Orange monthly for slightly above the minimum payment amount required by Citibank.</li><br /><li>Set up an automatic payment for the same amount from my Electric Orange to Citibank, scheduled waaaaay in advance of the due date.</li><br /></ol><br /><br />I only transferred a few thousand dollars because A) I have a pretty small credit limit on this card and B) I've never done this before and I don't want to get burned too badly. Next year I'll pay off the balance and all of the interest will be mine to keep. I figure I'll make around $100. That's not much money over the course of a year, but considering it's going to be fully automated it's worth it.<br /><br />Maybe in a few years I can build up to $50,000 or more in balance transfer offers and make some significant money. I bet that interest rates will be heading up (they sure can't get much lower) so it'll only become more profitable. Maybe credit card companies don't make such sweet deals when interest rates are up, though. We'll see.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com0tag:blogger.com,1999:blog-6596241840431427213.post-31803528432639086152008-06-11T07:13:00.001-04:002008-06-11T07:22:09.397-04:00Personal finance advice at Arby'sArby's is one of my favorite fast food restaurants and served as my lunchtime destination yesterday (I had a good coupon). I was the only one there (I took a late lunch at around 2:30pm) and I paid with my credit card with a rewards program. The cashier looked at the card and said, "Be careful, this is dangerous." My confusion was evident and he continued, "I mean credit cards. They're all thieves and liars!"<br /><br />So I talked with him for a few minutes about the evils of credit cards. He told me he had cut all of his up and always paid in cash. It was triggered by a combination of high interest rates and identity theft. The credit card companies gave him a hard time about which purchases were fraudulent and he finally had had enough.<br /><br />It's pretty rare that someone randomly starts talking about personal finance issues, so I was surprised and pleased.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com3tag:blogger.com,1999:blog-6596241840431427213.post-45099058656033654452008-06-09T09:18:00.002-04:002008-06-09T10:00:04.850-04:00Interesting things from my credit reportI just used up one of my three free credit reports from <a href="http://annualcreditreport.com">annualcreditreport.com</a> and found some interesting things.<br /><br /><ul><br /><li>I have a $1500 Belk card with no balance. At first I had no idea where it came from. 15 minutes later I realized it is from when I had to buy a suit for my sister's wedding and I wanted the discount that came with a new card. Funny thing is they never mailed me the card! I guess I should cancel it.</li><br /><br /><li>I had a $6500 Bank of America card when I was 10 years old. Luckily my 10 year old self never missed a payment. I think I vaguely remember that my (older) sister said she wanted to add me as an authorized user so I could start building a credit history. I guess she really did! The odd thing is it's listed as a joint account on my credit report. Maybe that's how authorized users are listed. I wonder if anybody who checks my credit report thinks "Whoa what was this kid doing when he was 10?" I'm also pretty surprised that a credit card company would add a 10 year old as an authorized user OR a joint account holder.</li><br /><br /><li>My car loan is not with the company I thought it was. I write checks to Southeast Toyota Finance, but my loan is with World Omni. Well, a little searching reveals that World Omni is the parent company of Southeast Toyota Finance. This explains why, a few months ago when I had to call my credit card company to authorize a large purchase (new computer), the person who was verifying my identity by asking me questions from my credit report sounded so skeptical about my answers! She even asked, "Are you sure your car loan isn't with another company?" and I was like, "No, it's definitely Southeast Toyota Finance." Even with one wrong answer I passed the identity check.</li><br /><br /><li>Discover Financial Services has made 15 credit checks on me in the last year. Apparently each check was followed up by sending me an incredibly thick envelope of credit card advertisements.</li><br /><br /><li>Household Bank is my biggest stalker, with 18 credit checks in the last year. I've never heard of them, never gotten a credit card offer from them, nothing. Maybe they run checks for other banks.</li><br /></ul><br /><br />This is only the second time I've ever checked my credit report. It was pretty fun. Credit reports should be free and unlimited, though. It doesn't cost Equifax anything to let me access it on the web. Maybe they're concerned that some of their big customers, like car dealerships, would let people log in and get the free report rather than paying for it themselves. Oh well.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com3tag:blogger.com,1999:blog-6596241840431427213.post-2674291362209519922008-05-06T19:38:00.005-04:002008-05-06T20:58:10.707-04:00Prosper ProgressI started lending on Prosper almost two months ago, mainly for the $25 signup bonus. It turned out to be pretty fun looking through loans so I ended up loaning out $325. I thought I'd occasionally make a post on how my loans are doing. Here are the loans I've made so far:<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp0.blogger.com/_Lq2QjJnxlCk/SCDtQ84PIGI/AAAAAAAAACA/4iqhrT7ZO2Q/s1600-h/prosperloans.png"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer;" src="http://bp0.blogger.com/_Lq2QjJnxlCk/SCDtQ84PIGI/AAAAAAAAACA/4iqhrT7ZO2Q/s320/prosperloans.png" alt="" id="BLOGGER_PHOTO_ID_5197414845461241954" border="0" /></a><br /><br />As you can see, I'm going for fairly high interest rates. I'm interested in people who are taking out small loans to rebuild their credit. Essentially they're gaming the system by getting a small loan and having Prosper report positively when they repay it on time. Since the loans are small and will probably be paid back early they can afford exorbitant interest rates.<br /><br />The other interesting one was from someone with an AA credit rating who needed capital to start up a youth home. He claimed he already had contracts with the city so it seemed like a pretty sure thing.<br /><br />Here you can see a summary of my account:<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://bp1.blogger.com/_Lq2QjJnxlCk/SCD-OM4PIHI/AAAAAAAAACI/sjPPZWfZzP0/s1600-h/prospersummary.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;" src="http://bp1.blogger.com/_Lq2QjJnxlCk/SCD-OM4PIHI/AAAAAAAAACI/sjPPZWfZzP0/s320/prospersummary.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5197433489914273906" /></a><br /><br />If you'd like to sign up for Prosper, use the following referral link and you will get a $25 signup bonus (as will I):<br /><br /><a href="http://www.prosper.com/referrals/lender.aspx?referrer=jrbrock&utm_source=referrer-jrbrock&utm_medium=referral-button&utm_content=lender_dark-468x60&utm_campaign=referrals-lender"><img src="http://www.prosper.com/images/referrals/referral_lender_dark468x60.gif" width="468" height="60" border="0" alt="Business & Personal Loans. Great Rates. Prosper."></a>Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com1tag:blogger.com,1999:blog-6596241840431427213.post-32585146893117369742008-05-02T08:30:00.003-04:002008-05-02T09:26:45.091-04:00Shocking marginal tax rateI just got a raise of $250/month at my job. My take home pay increased by $150.37. At first I thought that must be a mistake! I'm in the 25% tax bracket, but this represents almost a 40% tax rate! Sure enough, when I added up the various taxes that are taken out:<br /><br />25% Federal<br />6% State<br />6% Social Security<br />1% Medicare<br />-----------<br />38% Total<br /><br />Holy crap! What kind of country do we live in? This is a seriously socialist level marginal tax rate, and we're not even looking at consumption taxes yet. Of course, my overall tax rate is a bit lower, but it's crazy that of every new dollar I earn, I get to keep just a little over half of it.<br /><br />When I think about stuff like this, I realize that economics is the most important issue that the government should be concerned with. Lower my taxes. Reduce the deficit. Cut educational spending in half to put us more in line with other developed countries. Get out of Iraq or charge them for our expenses. Phase out Social Security over a 20+ year period... and no I don't care that I won't get any benefits.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com0tag:blogger.com,1999:blog-6596241840431427213.post-21626023663053407792008-02-24T17:40:00.005-05:002008-02-24T19:04:02.690-05:00The tax refund comethFor once I filed my tax return in a timely fashion and now I'm reaping the reward. I already have my refund! It was direct-deposited into my ING savings account on Friday. Now the question is what do I do with it? Well I already used it all up (or rather, it's partially used up and partially scheduled to be used up on Monday).<br /><br />My tax refund was bigger than I expected -- about $1100 total. I put $700 in my Scottrade account, $100 in my emergency fund, and $300 in the Sharebuilder account I set up for my nieces and nephew. In one fell swoop I took care of presents for their birthdays and Christmas! Of course I still have to get them tangible presents, but they can be pretty cheap and thus easy to pick out. For instance, my nephew's birthday is next week and I bought him a jigsaw puzzle of the cover of a Beatles album.<br /><br />The shocking thing is that the account now has almost $700 in it (including the $50 opening bonus). Granted, that's to be divided between the three of them, but it's a not insignificant chunk of change! Seeing that large figure really validated this idea to me. I could have bought $600 worth of <i>stuff</i> and today there would be hardly anything to show for it. Certainly most of the presents I've bought for them in the past have been put away or forgotten.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com2tag:blogger.com,1999:blog-6596241840431427213.post-73904988087998148022008-02-08T08:50:00.001-05:002008-02-08T08:56:01.314-05:00Buying patientlyI haven't done much trading in the last few months. I haven't sold anything despite the market falling and showing no signs of stopping. It's a liberating feeling to not be tied to the whims of the market.<br /><br />I bought some shares of Washington Mutual while it was down (it's still down). I suspect that it will survive, or be bought by a larger bank, and in a 5 years the credit crunch will be a distant memory.<br /><br />I also bought some more shares of AAV while it was down (it's also still down). It's mysterious in the way it moves, but I think the future for natural gas is strong. In 5 years we'll see if I'm right!<br /><br />It's interesting to look back and think about the profits you could have had, while also trying to remember what you thought at the time, your hopes for the future. I could have (and desperately wanted to) sell AAV when it was up 40%, but at the same time I thought, well I don't need the money, and 40% is peanuts compared to what it can do over the long term. I still think that's right, although wouldn't it be nice to get both!Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com1tag:blogger.com,1999:blog-6596241840431427213.post-54891676107817892892007-11-26T12:05:00.001-05:002007-11-26T14:13:18.359-05:00Tips are bad, mmkay?<a href="http://www.stealthwealth.net/">Stealth Wealth</a> wrote an article about <a href="http://www.stealthwealth.net/2007/11/23/tipping-for-the-holidays/">why he thinks the practice of tipping has gotten out of hand</a>. I agree and further I think the practice has become counterproductive, at least when it comes to restaurants.<br /><br />Let's look at some of the effects of the current system.<br /><br />No special service required -- tipping isn't for special service, it's for standard service. People will pay 15% unless service is truly terrible. Unfortunately, people will only pay 20%-25% for very good service. Since 15% is the norm, that translates to a 5%-10% tip for special service... not very motivating!<br /><br />Quantity over quality -- Going along with the above, there is an obvious emphasis on quantity over quantity. It's generally more profitable (and definitely more of a sure thing) to give good service to 6 tables than to give excellent service to 3 tables. Waiters always tell the hostess "No I'm not too busy, give me the next table!" They will never say "Gee, give it to X, his last table left quickly and I want to continue providing excellent service to my existing customers."<br /><br />Service depends on what you order -- Have you ever gone out for lunch, by yourself, and gotten something small like a salad with just water to drink? Your waiter's motivation to provide good service is approximately zero. It takes as much effort to refill your water glass as it does to bring that other guy another $4 beer.<br /><br />Time is a factor -- Want to sit at the table and reminisce with your friends for 2 hours getting free refills all the while? Most people realize that they should tip more in that situation, but few pay significantly more, meaning a 50% tip instead of 25% or 30%. That's why service trails off.<br /><br />Waiter takes blame for restaurant mistakes -- Most people recognize when a problem isn't their waiter's fault, but some don't.<br /><br />Stereotyping leads to self-fulfilling prophecies -- If you look like a bad tipper, you will receive bad service, and you will most likely leave a bad tip. Or if you're a regular customer and you frequently leave bad tips, you will get bad service. I think pretty much every restaurant has some groups like that. When I was a waiter, we would seriously try to avoid getting stuck with a certain group of 6 or 7 old women who came in once a week. Suddenly everybody would be taking a smoke break, going to the bathroom, or whatever. It was funny. The reason was that they would all order fairly small meals, only drink water, and for a tip each one would round their bill up to the next dollar.<br /><br />All of those issues could be resolved by paying waiters a normal wage. People could still leave tips if they received truly exceptional service. Bad service could be addressed by speaking to the manager (which is almost universally more appropriate and effective than not saying anything and leaving no tip).Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com2tag:blogger.com,1999:blog-6596241840431427213.post-56222740327074475752007-10-13T11:38:00.000-04:002007-10-24T13:07:17.961-04:00Investment updateI thought I'd do a quick investment update. I only own shares in 4 companies right now: AAV, GE, PFE, and JNJ (that's in order of investment size, with AAV being the largest).<br /><br />AAV has done very well and I have had nice returns both in price and in dividends. With oil so high and <a href="http://money.cnn.com/data/commodities/">natural gas prices</a> heading up for the winter, I'm going to hold this position for the foreseeable future. AAV <a href="http://biz.yahoo.com/prnews/070906/to479.html?.v=24">recently bought</a> another energy company called Sound Energy Trust. This is probably a good move since all of the Canadian Royalty Trusts took a big hit in stock price in the last year (which is why I invested to begin with). So AAV is eating up some of the low hanging fruit, which makes them more valuable in the future.<br /><br />GE has done better than I imagined, up almost 15%. I wrote before about why I liked GE and some of the issues I talked about have already started to bear out. As <a href="http://marketplace.publicradio.org/apheadline_detail.php?story_id=D8S7V5RG0&group=ap.online.headlines.business">the Associated Press notes</a>:<br /><blockquote><br />General Electric Co.'s profit rose 14 percent in the third quarter on strong global sales of airplane engines, locomotives and other equipment that have led to a record order backlog.<br /></blockquote><br />That's fairly obvious, I guess, but it still is nice to know that I wasn't completely off base. They have over $50 billion in their order backlog, which means they have a pretty safe revenue stream for the next few years. I wonder how big their dividend increase will be this year.<br /><br />Pfizer has recovered a bit from its low, as I suspected. Recently there have been <a href="http://money.cnn.com/2007/10/10/magazines/fortune/simons_sanofi.fortune/">rumors</a> that Pfizer is going to buy the French company Sanofi, which is the 3rd largest drug company in the world (Pfizer is #1). Well, a lot of people think that's unlikely if only because the French government probably wouldn't allow it. But it seems like Pfizer is definitely looking to buy *something*, which is good since it will give them a future revenue stream once their most profitable drugs lose patent protection. Pfizer currently has about $40 billion in cash just sitting around waiting to be used.<br /><br />Johnson and Johnson has been rising slowly but steadily. I don't have huge expectations for it since it's a very long term play, and I'm happy so far. One of the silly things I do these days is look out for J&J products at the store. I started using Aveeno shaving cream, which is made by them. When I had to restock on band-aids, I eschewed the store brand for the original BAND-AID brand (by J&J). Every bit counts!Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com5tag:blogger.com,1999:blog-6596241840431427213.post-28152012223450844142007-10-01T16:07:00.000-04:002007-10-01T16:45:58.089-04:00The 401(k) matchI hardly know anything about 401(k) plans because the company I work for doesn't offer them (or any other type of retirement package). But one of the things you hear bantered around the PF world is the "company match." This is typically a scheme where the company will match 50% or 100% of the money you contribute up to a certain total amount of your salary (usually 6% or 3% respectively). People are advised to max out their matched amounts as the first step to retirement savings, followed by an IRA or more unmatched 401(k).<br /><br />Anyway, what effect does a 50% match have on your savings? It's fairly substantial in the beginning, certainly, but what is the long-term effect? From what I've read, typical 401(k) plans have limited investment choices. Usually you can choose from a mix of mutual funds, perhaps ETFs, and money market funds, but it seems rather limited. Over a 30 year period, how much better do you have to be at investing to overcome the 50% match?<br /><br />Let's look at how you calculate something like that.<br /><br />The basic formula for simple compound interest is x = y * (1+z)^t, where t is time, z is your interest rate, y is the initial investment amount, and x is the total at the end.<br /><br />Well with a 50% match, any y that you invest automatically becomes 1.5 * y. Let's assume that we want x, y, and t to be constant, and we'll see what happens to z. We'll use z for the first interest rate (in the matching 401(k) version) and z' for the second interest rate. Since we're looking for equality, our equation is <br /><br />1.5 * y * (1+z)^t = y * (1+z')^t<br /><br />Doing some math...<br /><br />1.5 * (1+z)^t = (1+z')^t<br /><br />ln(1.5) + t*ln(1+z) = t * ln(1+z')<br /><br />z' = e^((ln(1.5) + t*ln(1+z))/t)) - 1<br /><br />A little complicated. Let's plug in some numbers so we can get a feel for what this equation means. In a short timespan of 2 years (t = 2), if the matched fund returns 10% annually (z = 0.1), our little independent investor would need an annualized return of 34.7% to overcome his disadvantage in not having a match. Over a 10 year period, he would have to achieve 14.5%. Over a 30 year period, he would need 11.5%, a bit easier to achieve.<br /><br />What does this mean? Well, confirming the obvious, having a company match is a significant advantage in terms of how well your money will grow. However, if you fancy yourself a better than average investor, your 401(k) doesn't provide enough freedom to invest how you like, AND you have a fairly long time horizon, then it may be worthwhile to <i>ignore the company match</i> and make a go of it on your own. As you get closer to retirement age, you would stop your own investments and start taking advantage of the company match. The crossover point could be determined by substituting guessed values for z and z' (based on historical performance perhaps, though remember that's no guarantee of future performance!) and then solving for t.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com5tag:blogger.com,1999:blog-6596241840431427213.post-64843507805358599872007-09-28T09:04:00.000-04:002007-09-28T09:50:05.581-04:00Equal weight ETFsYesterday I explored a new (to me) ETF called the Rydex S&P Equal Weight ETF (AMEX:RSP). The idea is that instead of representing the underlying companies proportionally to their market capitalization, each one is represented, well, equally.<br /><br />Looking at RSP vs. SPY, the most famous S&P 500 ETF, there are a few things I immediately like. There is a bit less weight given to financial companies in RSP, which is good because at this point I don't really want to invest in them. SPY, on the other hand, has among its top 5 holdings both Bank of America and Citigroup. There's more weight given to sectors I like, such as consumer goods and services, industrials, and basic materials.<br /><br />Consumer goods is a great sector to invest in right now given the downward spiral of our economy. We should be looking at recession-resistant companies. Consumer goods companies like Procter & Gamble sell essential products like soap and detergent that people buy regardless of how the economy is doing.<br /><br />I like industrials and basic materials for a different reason -- globalization. Every day, some news comes out about GE's overseas deals. They're building locomotive factories in India, selling jet engines to Dubai, partnering with Japanese companies to build nuclear reactors, selling special furnaces to Chinese steel companies, and on and on. According to GE's <a href="http://www.ge.com/company/citizenship/2007_citizenship/index.html">Citizenship Report</a> (silly term heh), more than half of their revenue will come from overseas this year. Large industrial companies in the US are in a great position to earn massive amounts of money overseas, especially with the falling dollar. And again with the falling dollar, basic materials companies will find it easier to compete with imports, as well as become more attractive overseas.<br /><br />Aside from sector allocation, perhaps the best thing about RSP is that their reallocation strategy is more correct. Say a company has a great year and its market cap increases 50% (yay!). SPY will buy more of the company because now it represents a bigger piece of the S&P 500 pie. If the next year the stock goes down a bit, SPY will sell shares. Buy high, sell low -- doesn't sound like a winning strategy!<br /><br />RSP, on the other hand, will behave better. If the stock goes up, RSP sells shares because it ignores market cap and looks at a fixed percentage. In other words, every company should represent 0.2% (1/500) of the total fund. If a company doubles, it will be above its allotted 0.2%, so they sell shares to bring it back down. Then if the company drops a bit, it will fall below 0.2% and they will buy shares. Buy low, sell high, just what we want to hear.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com0tag:blogger.com,1999:blog-6596241840431427213.post-6484560295823701842007-09-27T13:05:00.000-04:002007-09-27T13:15:26.958-04:00A frugalish recipeA few weeks ago, I bought some Pyrex containers so I could start cooking in bulk and freezing food. Another plus is I can take more complex foods to work, keep them in the refrigerator, and have a nice lunch. Before, I was pretty much limited to sandwiches and fruit.<br /><br />Anyway, for lunch today I had leftover thin spaghetti, a dollop (or two) of olive oil, and some grated Parmesan cheese. Normally when I have spaghetti for dinner, I toss the extra noodles, but this lunch was so yummy I'll probably do it again. I think the total cost of this meal was less than $1, though it's hard to say because I don't remember how much the cheese had cost. It's truly amazing how much money you can save by bringing lunch, and specifically leftovers, from home. And it tastes so much better than a $5 sub or, even the <a href="http://www.thesimpledollar.com/2007/09/12/does-cooking-at-home-really-beat-the-mcdonalds-1-double-cheeseburger/">McDonald's double cheeseburger</a>.Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com2tag:blogger.com,1999:blog-6596241840431427213.post-82747869026854750642007-09-11T20:37:00.000-04:002007-09-11T21:04:02.188-04:00My niece's first purchaseToday being Tuesday, Sharebuilder executed my (one-time) automatic savings plan in the new account I set up for my niece. The account now has 2.0738 shares of... wait for it... <span symbol="PFE">Pfizer!</span> I know in previous posts I've gone on at length about why I didn't like Pfizer as a stock to own (if not as a company), but they've taken a real beating in the market lately and it looks good to me. The dividend yield is just about 5% and is set to increase regularly. Since I'm honestly planning not to sell these shares for 20 years (think of what the $19.95 real-time commission would do to the profits!), I feel like that gives Pfizer plenty of time to come up with a few great new drugs, raise the dividend significantly, and perhaps buy a few smaller drug companies to stimulate growth.<br /><br />Speaking of the real-time commission, at some point these shares *will* have to be sold. Therefore my strategy is going to be to invest in just a few securities (some individual stocks and some ETFs) so that each position is big enough in 20 years that the commission won't seriously hurt it.<br /><br />Since I just opened the account, I was able to participate in a free trial of Sharebuilder's standard pricing program, which means there was no commission on the purchase. However, after this month is up I'm going to have to come up with a strategy to minimize commissions. It will probably involve investing her birthday and Christmas presents together.<br /><br />Another idea is to use this account for my other niece and nephew rather than opening separate accounts for them. Even though I'll miss out on potential promotions (like the $50 I got for opening this account), over the long run it'll save quite a lot in commissions. The downside is that transferring the shares to them will be more complicated. Well, I don't have to decide now!Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com1tag:blogger.com,1999:blog-6596241840431427213.post-87616762224105431162007-09-11T17:28:00.000-04:002007-09-11T20:37:29.637-04:00A use for marginMargin is a tool that lets an investor borrow money from his broker to buy stocks. Because you're using borrowed money, you're increasing the leverage of your non-borrowed money. For instance, if you invest $1000 and borrow $500, the total of $1500 is 1.5 times greater than your $1000 alone. That can be good if stocks go up, because you get 1.5 times the profit. Of course, if stocks go down, you lose 1.5 times as much. And in the worst case-, you can lose more money than you invested to begin with because you'll still owe the margin!<br /><br />Investing with margin can be a dangerous game, much like speculating in real estate. Is there ever a wise time to use margin? Well since I opened a stock trading account for my niece, I've been thinking a lot about investing small sums of money ($50 or so). Let's say that the interest rate on your margin loan is 12% to make the math easyish (margin rates are usually lower).<br /><br />So, if we're using Sharebuilder, commissions are $4, which means that every time you invest $50 you lose 4/50 = 8%. That's the equivalent of 8 months of margin interest (ignoring compounding), which should tell us there's some probably an equilibrium point around there. So let's look at the total cost of borrowing 8 months worth of investments on margin compared to simply investing each month.<br /><br />8 months of interest = 8% * 50 + 7% * 50 + 6% * 50 + 5% * 50 + 4% * 50 + 3% * 50 + 2% * 50 + 1% * 50 = 0.36 * 50 = $18.<br /><br />8 months of commissions = 8 * 4 = $32.<br /><br />Total amount invested = 8 * 50 = $400<br /><br />Overhead of margin = 18/400 = 4.5%<br /><br />Overhead of commissions = 32/400 = 8%<br /><br />As you can see, despite the huge interest rate, using margin has actually cut our overhead almost in half.<br /><br />Of course, the other method is to save up 8 months of investments and invest all at once, giving an overhead of only 4/400 = 1%. Now you have to judge whether your investment will gain 3.5% over the next 8 months. Well most people who want to invest are optimistic that the future will always be higher (on average), otherwise they wouldn't be investing! So this actually seems like a fairly wise use of margin. It's something to think about if you are making frequent, small investments!Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com0tag:blogger.com,1999:blog-6596241840431427213.post-1666957058118796822007-09-06T15:46:00.000-04:002007-09-06T17:03:45.663-04:00Stocks for kidsMy niece is turning three this month so I've been spending some time figuring out what to get her. I came up with three options: toys, activities, and stocks. She has plenty of toys already so when I looked through the aisles at some local toy stores, nothing jumped out at me. Does she need yet another doll? I decided not. Activities are a nice gift but she's already enrolled in gymnastics and my mom is getting her swimming lessons. That left me with stocks. I've been wanting to do that for a few years, to be honest, but now I'm finally doing some research into how it's done.<br /><br />The thing is, what's the best way to give stocks to other people's kids? I guess for most people the easiest way is to give the parents the money and ask them invest it. I sort of tried that already with my other niece (both are my sister's daughters) but my sister said something pretty shocking: She told me she was going to take all the birthday money from everyone and put it towards a sandbox! Maybe that's not shocking, I don't know. I was shocked but my mom thought it was fine.<br /><br />My sister's in-laws actually avoided the situation by announcing that they had opened a savings accounts for each child and deposited some money into them. At the time (this was before my sister's plan was revealed) I thought, wow isn't that kind of rude and mistrustful? Plus, how wise is it to save $X.00 a year in a SAVINGS ACCOUNT earning 2% interest or whatever, when the money won't be needed for perhaps 20 years?<br /><br />Anyway, when my sister let slip her intentions for all the money, I realized the importance of being able to maintain some control over your gift. Not to be mean, but I want to give this gift to my niece and not my sister. I'm sad that she doesn't already have a nice little stock trading account with a few years' worth of investments.<br /><br />So I began investigating what options I had.<br /><br />The easiest thing is for parents to be involved, no question. Everything I read pretty much assumes that the parents are the ones setting up the account, whether it's an IRA, 529 account, or custodial account.<br /><br />It turns out that for 3-year olds, IRAs are pretty much out of the question. Apparently the IRS doesn't consider allowances to qualify as earned income, and nobody would believe a 3-year old was a participant in a home business. Then I read that you can actually deposit unearned income in an IRA and pay a 6% penalty on it. Not bad, right? A 6% penalty in exchange for tax free growth! Well then I found out that the 6% penalty happens every year that the unearned income remains in the account, until it's all gone! So IRAs are definitely out.<br /><br /><a href="http://www.collegesavings.org/whatIs529.aspx">Section 529 plans</a> are almost an ideal solution to the issue. Anybody can open one and you don't even have to be related to the beneficiary. There are two reasons I don't like them, though. First of all, they're limited to paying for education-related expenses (college). What if she gets a full scholarship and doesn't need the money for college? Then you pay income tax on the withdrawal plus a 10% penalty. Well, paying for college is a really boring gift that is better left to her parents anyway. I'm thinking she can use it to buy a car, start investing, or travel around Europe!<br /><br />Oh and the second reason is that they are awfully limited in their investment choices. The 529 plan for my state doesn't offer the ability to buy individual stocks. Instead, you have to choose from 12 mutual funds. That's not my style.<br /><br />Coverdell ESAs (Education Savings Accounts) are similar to 529 plans except that (from what I can tell) only the parents can set one up (though anybody can contribute) and you can invest in stocks. Again, there's a penalty if the child uses the money for non-educational expenses, plus there's the whole thing about the parents having to set it up.<br /><br />Custodial accounts are generally (always?) opened by a parent of the child. The bad thing about them is that anything you put into the account actually belongs to the child. When they turn 18, they can do whatever they want with it. To me, the ideal time for a gift like this is a year or two after college graduation. That way they have some life experience and some appreciation for money and savings.<br /><br />Then I read three very interesting things. First, the gift tax exemption is something like $12000 a year, and if you're married you can use both exemptions for a total of $24000. Second, if you transfer shares of stock to someone as a gift, the characteristics such as basis cost and <i>time held</i> stay the same. Third, if you're in a low tax bracket (10% or 15%), the long-term capital gains tax is only 5%! Whoa! So basically, by keeping the stocks myself, I can give her up to $12000 in stock <i>per year</i> and if she sells immediately she only has to pay 5% capital gains tax. Good deal! Of course, I'll have two responsibilities in the meantime: pay taxes on dividends (which won't be huge) and make sure to buy-and-hold (no problem). Plus I have to make sure to give it all to her before she starts making lots of money.<br /><br />So yesterday I opened up a new Sharebuilder account in my name and used a promotion code to get a $50 gift. Plus, I signed up for a free trial of their "standard pricing" program, which means I get 6 free trades. So I'm taking the promotion gift and the birthday gift and investing in a single stock. I'm thinking about doing the Christmas gift now too, to avoid commissions.<br /><br />I'm plagued with doubts about whether I did the right thing, though. Is it mean to basically prevent my sister from using the cash as she sees fit? Do I have to get my niece a regular present as well, since a Sharebuilder account statement isn't very exciting? Have I overlooked any important tax consequences of this action?Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com2tag:blogger.com,1999:blog-6596241840431427213.post-3780175976823352942007-08-22T11:23:00.000-04:002007-08-22T13:41:03.764-04:00My MOMA AdviceI was tagged by <a href="http://www.stealthwealth.net/">Stealth Wealth</a> to continue Moolanomy’s <a href="http://www.moolanomy.com/88/my-one-money-advice-meme/">My One Money Advice (MOMA) Meme</a>. <a href="http://www.moolanomy.com/">Moolanomy</a> is trying to promote financial responsibility and awareness in our hyper consumption society.<br /><br /><b>The question</b>: If you can give one advice, tip, or story related to money, what would you share?<br /><br />My advice is to <b>form habits</b>. 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.<br /><br />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.<br /><br />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.<br /><br />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.<br /><br />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.<br /><br />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.<br /><br />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. :)Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com4tag:blogger.com,1999:blog-6596241840431427213.post-80371194864535073652007-08-06T13:40:00.000-04:002007-08-06T14:15:34.225-04:00Bought more AAVOn my lunch break I happened to see that <span symbol="AAV">AAV</span> 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.<br /><br />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.<br /><br />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 <span symbol="DUK">DUK</span> position. I'm not disenchanted with DUK or anything, but it was either that or <span symbol="GE">GE</span>. I put the proceeds into AAV.<br /><br />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.<br /><br />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.<br /><br />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).Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com5tag:blogger.com,1999:blog-6596241840431427213.post-76705701767122218102007-08-03T10:20:00.001-04:002007-08-03T10:37:01.077-04:00Growth estimation formulaI 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.<br /><br />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, bankrate.com? They come up with 125052, which is pretty close. How cool of a college graduation present would that be?<br /><br />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. :)Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com0tag:blogger.com,1999:blog-6596241840431427213.post-19018010895933462482007-08-02T21:29:00.000-04:002007-08-03T08:21:53.446-04:00DividendsI was surprised to see that <span symbol="BBY">Best Buy</span> 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:<br /><br />AAV<ul><li>July 2007 - $36.51</li></ul><br /><br />AGG<ul><li>July 2007 - $2.10, reinvested into 0.021 shares</li></ul><br /><br />BBY<ul><li>July 2007 - $2.00, reinvested into 0.046 shares</li></ul><br /><br />DUK<ul><li>Coming in September...</li></ul><br /><br />GE (Scottrade)<ul><li>July 2007 - $28.00</li></ul><br /><br />GE (TD Ameritrade)<ul><li>July 2007 - $5.60, reinvested into 0.139 shares</li></ul><br /><br />JNJ<ul><li>Coming in September...</li></ul>Jonhttp://www.blogger.com/profile/03060882352687149007noreply@blogger.com3