Monday, December 24, 2007

Fight the assessors office!

Falling home values and rising property taxes in many parts of the country are generating the loudest complaints about property levies since the 1970s, forcing state and local officials to address the outcry even as the housing-market slump eats into many sources of their revenue.

Indiana residents held public protests this summer against a surge in property taxes and acted on their frustration by ousting the mayor of Indianapolis. Florida voters will decide next month whether to adopt massive property-tax cuts, in a debate that has pitted part-time residents against full-time Floridians.

In California, thousands of homeowners are having their assessments reduced under a decades-old state law, and lower tax revenue due to the weaker housing market is likely to force an emergency budget session.

In Indiana, a spike in real-estate tax bills for Marion County, which includes the state capital of Indianapolis, caused a backlash this summer. In some neighborhoods, property-tax bills as much as doubled. Residents staged a rally at which they dunked a giant tea bag in a canal -- a reference to the Boston Tea Party -- and a July 4 protest outside the governor's mansion.

"I was holding a microphone and saying, 'I'm right there with you,' " said Michael Rodman, Marion County treasurer, who joined protesters after seeing his property-tax bill jump 80%.

Property taxes in the county were increased by new assessments, the elimination of a business-inventory tax that shifted more of the tax burden to homeowners, and greater spending by local government and schools.

Indiana Gov. Mitch Daniels stepped in, freezing tax bills for Marion and several other counties at 2006 levels pending a new round of assessments.

In October, the governor released a plan that would cap homeowners' property taxes at 1% of assessed value, shift the full cost of school and child-welfare operations to the state, and require voter approval of major building projects. But voters could face a rise in the state sales tax to 7% from 6% under the plan, which the state legislature has discussed in committee hearings this month.

Despite efforts to address voter outrage, Indianapolis Mayor Bart Peterson, considered a shoo-in before the revolt, was defeated in a Nov. 6 election by Greg Ballard, a little-known Republican challenger whose campaign, as of mid-April, had reported less than $10,000 in cash on hand.

In Florida, where the falling housing market has gouged the state's economy, residents are debating massive property-tax cuts that will be voted on Jan. 29. Implementing the proposed changes would require amending the state's constitution. The plan, which strongly favors longtime homeowners over new buyers and part-time residents, has sparked opposition.

In Washington state last month, legislators held a special session to reinstate a cap on property taxes that would limit the growth in property-tax revenue from the existing tax base to 1% annually. Earlier in November, the state Supreme Court threw out a 2001 referendum on the cap, saying voters weren't adequately informed about what they were choosing.

Across the U.S., concerns about property taxes have reached levels not seen since the passage of California's Proposition 13 in 1978. That landmark law capped property taxes at 1% of assessed value and said the base assessment on a home couldn't increase more than 2% a year until it is sold. A companion initiative, Proposition 8, allows homeowners to get assessments temporarily reduced during a weak housing market, until home prices recover.

This year, thousands of California homeowners -- primarily those who bought their homes in the past few years, at the market's peak -- are getting a tax break because of Proposition 8. Assessors in counties such as Ventura and Contra Costa decided to review thousands of properties sold since 2005 and reduced many of the tax bills mailed this fall.

California has been hit so hard by housing-related problems that Gov. Arnold Schwarzenegger said Friday that he plans to declare a state of "fiscal emergency," in order to address a projected $10 billion to $14 billion budget shortfall during the next 18 months. Slower-than-expected growth in property-tax revenue is partly to blame for the expected gap.

In several states, there has been a push against sharp property-tax reductions. The most extreme plan was floated in Georgia, where House Speaker Glenn Richardson last month proposed eliminating all property taxes. But after touring the state to get feedback from residents, he has scaled back his plans and hopes to eliminate property taxes over time, starting with a few measures that he presented to the state House last week. He would offset the lost revenue by eliminating sales-tax exemptions on lottery tickets and groceries, and by adding taxes to consumer services.

In New Jersey this fall, residents received the largest property-tax rebate checks in state history, with 1.8 million homeowners getting an average $1,000 refund. But on Nov. 6, voters turned down an amendment that would dedicate a portion of last year's sales-tax increase to reducing property taxes further. Initially, the proposed measure was expected to pass easily, but critics called it a gimmick, at a time when New Jersey is facing a $3 billion budget deficit.

Falling real-estate prices and turmoil in the mortgage market are expected to reduce property values for U.S. homeowners by a total of $1.2 trillion next year, according to Global Insight Inc., a research-and-consulting firm in Lexington, Mass.

Unless tax rates are changed, California could lose $2.96 billion in property taxes over several years because of the housing bust, the firm predicted. New York could lose $686 million; Florida, $589 million.

Nationwide, falling real-estate prices mean local property-tax growth probably will slow significantly, and taxes could even fall in many places, Global Insight said in a report released last month by the U.S. Conference of Mayors.

In some markets where real-estate values had been rising sharply for years, property taxes are still climbing. That is because it can take a long time for assessments, which commonly are based on a property's estimated market value, to catch up with the realities of the real-estate market.

The lag time has led to an outcry to cut property taxes reminiscent of the 1970s, says Gerald Prante, an economist with the Tax Foundation, a nonprofit, nonpartisan research group in Washington.

"In many cases, incomes were growing faster than property-tax bills in the 1990s," Mr. Prante says. "Recently, property-tax bills have grown faster than incomes, on average."

State and local property-tax collections increased 50% from 2000-06, according to Census Bureau data. During the same time period, the median household income rose 15%, before adjustment for inflation.

Wednesday, October 17, 2007

My Chinese stocks are up MAD!

Everyone knows that China is a rising world superpower, and an economic powerhouse. Never mind their massive polluting of the earth, the repression of their people, or any of that ancillary stuff. I own 5 Chinese stocks and they are flipping insane!

Guangshen Railway (GSH) -- up 13.72% today
iShares FTSE Xinhua 25 (FXI) -- up 9.27% today
China Unicom (CHU) -- up 8.07% today
China Telecom (CHA) -- up 7.24% today (CTRP) -- up 6.43% today

These held 5 of the 6 top spots today. I continue to be amazed at the heights these stocks are reaching. I haven't allocated a massive portion of our portfolio to them, but they are outpacing my other holdings. I am hesitant to plow new money into these stocks, but I am not selling either. I just get the feeling I'm holding on to something special - something like the Chinese Wal-Mart. We'll see!

Tuesday, July 3, 2007

Confession – I am dipping my toe in the 0% balance transfer game

Well, I’ve done it. Something I said I would never do. Something I said was a complete waste of time. I’ve argued that it wrecks your credit score, and diverts your precious attention from investing, all for a few measly thousand bucks a year.

I’ve borrowed $22,000 on a credit card. And it wasn’t even a 0% card! And I plan on borrowing more!

The situation is as such: A little over a year ago, my wife and I assessed our lives and what was happening within our marriage. I was working 60-70 hours a week, often not even seeing my young daughter at all during the day – I’d leave early in the morning, and arrive home with her already asleep. My wife was working a job that was stressing her out too. She once quipped to me that she felt “like a single mom.” That was a real eye-opener – sort of a mix between a slap across the face, and a reality check.

We made changes. I accepted a job for less money that’s one mile from our house, and my wife went part time, which eliminated the most stressful duties of her job. We took a big financial hit, but it has actually increased our quality of life.

It has not increased the quantity of our portfolio, though. My investing goals have not changed (20% rise in net worth every year for the next 15 years), but it did slow us down a bit.

Then, my wife was pregnant with our second child, and it was time to ditch my old car. Time for a minivan. Back in February 2007, we purchased a used 2006 Honda Odyssey. I used our Home Equity Line of Credit to make the purchase. After trade in, it cost us $16,000. After borrowing on the HELOC, the balance was back up to $45,000. This balance consisted of the minivan purchase, a few home repairs we had made, and the down payment on our lakehouse (I still plan on posting about our October 2005 lakehouse purchase, and where it fits into our retirement plans).

The HELOC’s interest rate is Prime minus .01, or 8.24% at this time. As I am able to deduct this interest on our taxes, the after tax interest rate is 5.93%. That means right now, I’m coughing up over $300 a month in interest.

Not that this matters to the discussion, but I am completely comfortable with the portion of the HELOC debt related to the lakehouse. Trust me, this was a good investment, and is a blast to boot. I am less comfortable with the minivan purchase, even though the van rocks and really is a great way to get the family around.

Couple all of this with my desire to continue investing (it’s been going so well this year, why stop now?), and the fact that we’re not going applying for any large loans any time soon (no more apartment building purchases, one is enough – therefore, less of a need for a top-notch credit score), and it was clear to me – I have to get this debt shielded from interest.

Bingo – throw it on a bunch of 0% credit cards. The typical credit card arbitrager (is that a word?) is taking the cash pulled from their credit cards and investing it in a high-yield savings account. The highest online rate I’ve seen is 6%. By eliminating this monthly interest charge, I am in effect earning about 6%. Better yet, I can use that savings to pay down on the principal.

To fully shield us from interest, I need to get the full $45,000 onto credit cards. My first transaction involved a card we already held – a Bank of America Visa card. It’s one my wife held but never used. They sent us a letter stating that the credit limit had been raised to $18,000, and that a balance transfer or a cash advance could be done at 0.99% APR until November 2007. This included a max fee of $90.

I called and tried to get them to waive the $90 fee. They could not do that for me, but they did extend the offer until March of 2008, while raising the interest rate one one-hundredth of a point to 1.00% APR. They also raised the credit limit to $22,000. It had just been raised to $18,000 – why not raise it to $22,000?!?!?!?

So this was not the perfect deal, but there were some things to like about it. First off, I did not have to do a balance transfer, i.e., I did not have to already have credit card debt. Since I bank at Bank of America, they were able to wire the money right into my checking account. Second, the 1% interest rate is going to cost me about $18/month in interest – it’s not zero, but it’s not too shabby. Third, the $90 fee was more than I wanted to pay, but I calculated that by shielding this $22,000 from the high interest rate I was paying, I will have saved approximately $1,000 by the time March rolls around.

And besides that, I don’t plan on stopping. I am going to apply for a Citi card next, as I believe they will also send me a check (or wire me). Hopefully I can get the remaining $23,000 onto 0% cards, and then just keep hacking away at the principal, while also investing in our Roth IRAs.

And if it ever does come time to pay the piper, I have my HELOC checkbook. I write a check to the credit card companies, and we’re out of credit card debt.

Even my wife, who is a cautious cat, eagerly endorsed the idea. The HELOC debt bothers her. It bothers me, but to a much lesser extent. I have our net worth steadily on the increase, and this debt is manageable, so I’m not freaking out about it. But she wants to increase the pace with which we get it paid off, while I want to continue to invest while still paying the debt down. Not an argument, per se. She trusts me, and we’re doing well. But it surprised me how quickly she saw the wisdom in this credit card arbitrage plan of mine.

I’ll keep everyone posted as to how it goes, but I’m excited to get out from under this debt, and this plan should accelerate that. I welcome any comments or advice you might have.

Wednesday, June 27, 2007

Investing success (or not) for 6/27/07

The Dow was up 90 points today, and my portfolio blew the doors off with a gain of $1,200.

I love when a gain in the Dow corresponds to a much larger-than-expected gain in my portfolio. It normally does not happen this way. I usually see a commensurable gain in my portfolio when compared to the rise in the Dow, but an oversized drop in my portfolio when compared with a modest drop in the Dow. I don't know why that is - it could have something to do with the small cap stocks I own, which introduce a higher volatility to my portfolio. I could also just be imagining this phenomenon.

Investing successes today:
First off, I had some big gainers today, and I'll highlight them below. But today was unusual in the sheer number of stocks that were up. I had 45 advancers today, next to 10 decliners. That makes for a good portfolio day! I had 18 stocks that were up at least 2% today. Some details:

Inventiv Health (VTIV) - up 7.1%.

Nuance Communications (NUAN) - up 5.7%

Dawson Geophysical (DWSN) - up 4.4%

OYO Geospace (OYOG) - up 4.2%

Volcom (VLCM) - up 4%

Investing failures today:
Peerless Systems (PRLS) - down 5.4%. Big whoop, I own $300 bucks of this - it's the runt of the litter.

A few other decliners, nothing of great significance. It was a great day!

Also, I will soon bring news of a financial transaction that I recently consummated - something I said I would never do! Stay tuned.

Tuesday, June 26, 2007

Robert Kiyosaki - complete moron

Hello all! I am back from my self-imposed baby exile.... and I'm remarkably well-rested. Baby is sleeping well at night, save for the feeding every three hours. Today is my first day back at work (ughh), and judging by my inboxes (both paper and email), I may be in for a rough week!

Thanks for your patience while I was absent. I will be posting at a much more regular clip in the next few weeks.

I ran across this article on Yahoo Finance by our favorite author Robert Kiyosaki. I have opined in the past on how much of an idiot this guy is (see here). I am not even suggesting you read the attached article. If you really want to be entertained, just read the 150+ comments. It's a laugh riot - Yahoo Finance has readers that are practically trained to trash this guy whenever he posts an article.

It's true - this guy is a sub-par author and finance expert.

Just grab a beer and read through all of the comments - good times!

Friday, June 15, 2007

Daughter #2 has arrived

Here's a pic! Our C-section went as planned, and at 10:10am this morning, we were blessed with another beautiful daughter. Everyone is doing well. Talk to everyone soon!


Thursday, June 14, 2007

We're havin' a baby!

Q is going to be MIA for a few days, as we're having a baby tomorrow. My wife is scheduled for a C-section at 9:30am. Our almost 3-year old daughter is excited, and so are we. My wife is super-excited to return to her normal playing weight! We think we're ready to go.

I'll see everyone next week - take care, and thanks for visiting my blog.


Tuesday, June 12, 2007

Silly question - would you buy a year's supply of gasoline at these prices?

There is a gas station directly across the street from my place of work. Many of our employees do alot of driving, so the price of gasoline is a constant topic of conversation, and worry.

However, according to an analyst quoted in this Yahoo Finance article, gas prices have likely peaked for the summer. If we have a bad hurricane season, or if we go to war with Iran, prices could be adversely affected.

And across the street, regular unleaded is now at $2.77/gallon, down from $3.04/gallon a few weeks ago. Our Honda Odyssey (gas hog) cost $49 to fill up recently, so these lower prices are a welcome sight.

That got me thinking - if I had massive underground storage tanks under my house, ones that the neighborhood association either wouldn't know about or would somehow approve of, AND if coming up with the money was not an issue, would I buy a year's worth of gasoline at $2.77/gallon?

For some strange reason, I'm thinking I would. We had a light hurricane season last year, so we're probably due (I am not a meteorologist, nor did I stay at a Holiday Inn Express last night). Also, I am thinking that our war in Iraq is not going to get any better -- the Middle East seems farther and farther away from peace, and the Palestinians are attacking each other and about to start a civil war. Frankly, $2.77/gallon looks great to me right now.

How much is regular unleaded where you live, and if you had the chance to stock up on gas at today's prices, would you?

Monday, June 11, 2007

Use other people’s money - Recap of discussion

I was very glad to see a keen interest in my recent topic of discussion – “Buy a company with debt or with cash?” I hinted that there may be a personal finance lesson to be learned, and I will speak to that below.

The company-buying scenario proffered in my previous post is one that I lived through (of course I changed the names to protect the innocent). I joined a company several years ago that had been purchased by some venture capitalists, and by an individual for whom I had worked previously. I joined as the deal was being consummated, and dealt with a lot of buyer/seller issues. It was awkward at times, as I was clearly pro-buyer (that’s who hired me), but I still had to deal with the sellers at times. The motto “It’s just business” sometimes didn’t seem to fit. Things got nasty – I sometimes wonder why rich people squabble over very small sums of money. Perhaps that’s how they got where they are?

The interesting part of the whole transaction was where the money was coming from.

First off, the two previous owners were forced, through negotiation, to give the new company a 5-year, interest-only loan. This was a very successful business, so they could be reasonably assured that their money was safe. Plus, they were each pulling in a massive interest check each month. It provided more than enough spending money for their months in Florida. : ) Even more interesting was that the buyers made it an interest-only loan. I had previously worked for another company that had an interest-only loan on their building, and quite obviously, they weren’t building much equity in the place, besides a bit of appreciation. When it comes to a transaction like a mortgage on our house, we are told by every expert that an interest-only loan is just unhealthy (and I agree). I know they are used in San Francisco and other red-hot markets, because otherwise young people can’t buy a house. Nevertheless, I feel pain for people that use such loans. And yet, an interest-only loan was used to partially finance this purchase.

Secondly, and much more interestingly, the venture capitalists were handling the money of some extremely wealthy folks about town. These were the “blue bloods” of my hometown – people with net worth’s of $50-600 million. Big, big-time cash. This transaction was rather small for guys like this. This VC firm was put together and funded to buy small to medium-sized companies, with the intent of holding them for awhile. They felt this size of business was not normally targeted by private equity, and they wanted to profit from it. I agree with them – these folks are going to make a lot of money at this.

But then I thought to myself, “Why even bother borrowing here?” I mean, really, what’s the point? One guy in the group had a $600 million net worth. Their combined net worth easily exceeded $1 billion. Why are the VC’s over at the bank borrowing $10-20 million? Why are they negotiating tooth-and-nail with the former owners over a small, interest-only loan? Why don’t they just put up the cash, own it outright, and take in the profits? It’s streamlined, it’s simple, and you’re beholden to no one.

The answer was two-fold: Return on Invested Capital, and taxes. I will speak more extensively on ROIC, but these guys paid a helluva lot of attention to taxes. I don’t have as extensive an understanding of taxes as they and their tax accountants do (as a CPA, I worked in the audit department of my old CPA firm), but I can tell you that they structured this thing to be as tax-efficient as possible. My two scenarios were entirely based on pre-tax calculations, for discussion purposes.

The real reason you borrow in this case is to achieve the highest Return on Invested Capital you can. There is a way to annually make money, and own a business, using less of your capital. You go to the bank and you borrow. By borrowing, you are able to control an asset, and profit from it, using the least amount of up-front cash as possible. As the poor simpletons we are (sorry, it’s hard to match wits with $600 million!!!), we do the exact same thing when we buy a house. Most of us use a mortgage because that’s all we can afford to do. But as I’ve pointed out here, if you absolutely have to have a house, a mortgage could end up being the most profitable way to do it. It allows you to retain more of your cash now, which can be used to invest in stocks and/or rental real estate.

Plonkee nailed it right on the head – when you borrow (option 2), you get a year 1 Return on Invested Capital of 37.8%, before taxes. Option 1 yields a year 1 ROIC of 17%, and is less tax efficient. These ultra-wealthy folks look at this, and the choice is simple – borrow. Use other people’s money to achieve a superior return. For folks like this, emotions do not factor in – they run the numbers, they trust their advisors, and they gun for maximum return.

Full disclosure: company cash flow suffers a bit in option 2, as you’re making a large loan payment ON TIME each month. This business was a cash cow – we had a few struggles, but they were mostly timing issues - nothing we couldn’t handle.

There is another aspect of option 2 that I find very interesting. Each year, as you pay off the 7-year term loan, you own more and more of the company. In year one, you generate a before-tax profit of $3.78 million, but you also build $2.57 million in equity. If you combine those two numbers, you earn a first year return of 64%! I think you have to figure that in. You put in $10 million, and after one year, you now have $16.35 million. It wallops the return of option 1.

My apartment building is much the same way. I put approximately $60,000 down on a $300,000 building, and besides repairs and maintenance (which can admittedly be a bit costly every once in awhile), that’s the last bit of capital I will put in the building. The business itself makes the payments (rents from the tenants). So I put $60,000 in, and in 30 years I will own a building that will probably be worth $400,000. Not to mention the excess cash it generates each month and the big depreciation tax write-off.

When choosing option 2, where you’re investing $10,000,000 instead of $36,000,000, some people wondered if you could earn an equal or greater return with the rest of that unspent $26,000,000. I do not live the lives these people live, but I would have to guess yes. Personally, I would not be concerned with this. My approach would be to invest the right amount of money, in the right places, for the right returns, and at the right time.

That’s the lesson I take from this experience - invest the right amount of money, in the right places, for the right returns, and at the right time. One might argue that middle class folks cannot afford to make financial decisions in the same manner that rich people do. I argue that you cannot afford NOT to emulate them.

Right now I have a 5.5% 30-year mortgage. Due to some previous prepayments, I’m probably ten years along on the amortization schedule. We itemize on our taxes, so I am able to take the mortgage interest deduction, and we are in the 28% tax bracket. That means that any prepayments I make on my mortgage would generate an after-tax return of 3.96%. I CAN BEAT THAT! Let’s be clear - when I have that damn mortgage paid off, it will feel better than watching Paris Hilton return to jail – this will be an emotional day! However, if I run the numbers and keep my emotions out of it, I realize that my excess month-to-month cash can be put to work a lot harder than prepaying on my mortgage. So we stopped prepaying years ago.

Why are people averse to debt? Simply put, debt equals risk. And risk = increased blood pressure. It is better, or it feels better, to owe no one anything. I look forward to the day when all mortgages are paid off – I will probably be a wealthy guy by then, and with no monthly mortgage payment, I will have a myriad of life’s options in front of me. But I cannot be in a rush to pay off a mortgage that in effect produces a 3.96% return for me. There is a better way.

As we invest our cash in the smartest ways I can dream up, I am giving myself the very best chance to be sitting on a big brokerage account 10-15 years from now. And 20 years from now, when the mortgage is finally paid off? Who knows how much we’ll have by then?!?!?

Thanks to everyone that commented in the previous post. It’s great to have you all here as readers. Cheers!

Thursday, June 7, 2007

Question for discussion - Buy a company with cash or with debt?

I would like to throw out two scenarios for discussion. Please offer your opinions, run the numbers if you like, and discuss your feelings on each scenario. This may seem a bit off-topic for a personal finance blog, but… … .. .. Hint hint – there may be a personal finance lesson to be learned here.

The discussion involves buying a company. It is not important what the company does, but I will provide you with some monetary details, and you tell me which scenario is preferable and why. If you feel there are details missing, please let me know. I can assure you the details will be overly simple and will not be as all-encompassing as if you were actually purchasing such a company. However, I believe I will provide enough to generate conversation.

I am very anxious to garner different opinions on the subject, and afterwards, I plan on posting another article with a wrap-up of the commentary and my opinion on the subject.


  • You are a wealthy individual. How you got to be wealthy is unimportant, but you are a very savvy investor.
  • The company you wish to buy is for sale at $36,000,000. This is the price you’ll have to pay – no negotiations.
  • The company currently earns, before taxes and interest, $6,000,000 per year. The company currently has no debt and incurs no interest expense. The company’s prospects will not change when you buy it. Earnings, unless mentioned below in the particular scenarios, will remain the same. Expenses, unless mentioned below, will remain equal. Revenues and earnings will remain flat.
  • You intend to purchase and hold the company and do not have an exit strategy – you do not currently plan to “flip” the business.
  • The future worth of the company is undetermined. It will not be lower than your purchase price.

Now, the two purchase scenarios:

Scenario #1:

  • You pay $36,000,000 in cash for the business
  • The business therefore carries no debt from the purchase, and no debt of any other kind, save for the regular accounts payable and such.
  • For argument’s sake, you had the $36,000,000 in cash lying around and did not have to personally borrow to come up with the money. You may also assume that you were able to comfortably afford this, and that this is not even close to “putting all of your eggs in one basket.”
  • You therefore own 100% of the business free and clear.
  • It continues to earn $6,000,000/yr

Scenario #2:
  • You pay $36,000,000 for the business.
  • The purchase price comes from the following sources:
    • You put in $10,000,000 of your own money. Assume that you did not have to personally borrow to come up with the $10 million.
    • You borrow $8,000,000 from the former owner. It’s a five year interest-only loan at 9% per annum, payable monthly at $60,000/month. At the end of 5 years, you will either draw up a new note or pay the former owner off in part or in whole. This is currently undetermined. The owner no longer has any equity in the business – just a loan held against it. Business sales often result in the former owners retaining a small piece of the company, or, in this case, the former owners give a loan to the new company – this is often done to consummate such a transaction, as the buyer gains tacit assurance that the company is on solid footing.
    • You borrow $18,000,000 from a bank. It’s a 7 year level term loan, with an interest rate of 9% per annum. Business purchases are often financed with such a loan. Many times the interest rate is tied to an interest rate benchmark like the 1-month LIBOR + 3 or 4%, but for simplicity’s sake, we’ll just have a 9% non-floating interest rate. Your monthly payment contains the same amount of principal payoff each month, and in this case, you pay interest on the remaining principal. Therefore, interest in the first years is greater. Use this term loan analyzer to assist your calculations. This would leave you with a monthly principal payment of $214,286 and a first year interest bill on this loan of approximately $1.5 million.
    • You therefore incur interest during the first year of ownership of $2.22 million, which lowers your first year profit to $3,780,000.

Which is the better deal, and why?

Wednesday, June 6, 2007

I salute our veterans on D-Day, June 6th

After visiting Normandy in June of 1994, I gained a complete appreciation for what our soldiers went through to secure the freedom of Europe and save the world. Yes, I was actually in Normandy for the 50th anniversary of D-Day. But no, they wouldn't let us anywhere near the beaches - there were obviously thousands of veterans over there, President Clinton was there.... no access to the fabled sites for anyone that wasn't a veteran or the President. So we sat in a bar in Caen and had a few beers and played pool. Then we backpacked around Europe for 6 weeks and returned to Normandy once the hoopla had died down. If you've ever seen Saving Private Ryan, where the old man is crying over Tom Hanks' grave, I've been there. It's an impeccably kept somber cemetary, overlooking Omaha Beach. It knocked me on my ass.

An old man across the street from me, who had recently been constantly taking spills around his house, just moved into a managed care facility. He served in WWII and was part of D-Day. He is incredibly feeble, and will be gone soon. It's just sad.

So today is the 63rd anniversary of D-Day -- 63 is not one of the bigger anniversary numbers, but for some reason, this day is special to me.

Here's a little reading for today - remember their sacrifice.

Saving money for retirement - Part VI

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the sixth pitfall that I believe you need to avoid on your road to retirement:

6. Failing to take advantage of a.) IRAs, and b.) 401(k) matches

IRAs and 401(k)'s are the preeminent retirement vehicles at our disposal - not taking advantage of them is foolish.

With an IRA, you have a limited amount you can invest each year ($4,000 in 2007, $5,000 in 2008, higher if you're over 50), so it behooves you to max it out each year to the best of your ability. Coupled with the magic of time and compounding, this gives you the best fighting chance to have a sizable retirement nest egg. $4,000 a year doesn't seem like a lot of money when you think about it in retirement terms (you used to only be able to stash $2,000/yr in an IRA). It just doesn't feel like you're going to get there on a mere $4,000/yr. But it adds up. If you start stashing $4,000/yr in an IRA returning 8% per year, you'll have over $450,000 in 30 years. If you are married and your wife does the same, you'll together have $900,000. If you earn 10%, the historical return of the S&P 500, you'd have two accounts worth a grand total of $1,328,000. Now $4,000 doesn't seem so puny!

With a 401(k), if you're lucky enough to work at a place that offers a match, make sure you max out the match! If your place of work matches 25 cents on the dollar up to 5%, be sure that you withhold 5% from your paycheck. If this is too much to withhold from your check, then you're not pinching enough in other areas. You should never be too poor to take FREE MONEY. Most 401(k) plans have vesting schedules, i.e., you do not legally own the match portion of your investment until you work at your employer for a certain number of years. Even if you're not sure if you plan to remain at your current employer, you should still take full advantage of the match. At the very least, you'll be saving for retirement. At the most, you remain at the employer for the entire vesting period and you receive a bunch of additional free compensation that grows tax-free.

Tuesday, June 5, 2007

6/5/07 spin on the blog carousel

I haven't shared links to my favorite articles in a while. Here goes:

The Frugal Law Student has compiled a massive, extremely impressive personal finance resource list. I haven't even clicked on 10% of the links yet. Lots here.

Advanced Personal Finance says term insurance is the only kind of insurance you need. I agree - don't overpay for whole life, etc etc. You need to leave money to someone in case you die - do it as cheaply as possible. This guy has two of my favorite articles of all time (because they speak directly to my sensibilities): Only buy term insurance, and Wal-Mart sucks. Cheers!

Get Rich Slowly asked "Is it better to invest or to prepay a mortgage?" I have posted about that here, and you know my answer is INVEST! But there are two sides to every story, and there is a wide-ranging discussion in the comments section there, with 96 comments as of this writing. I posted a few comments.

Money Smart Life has an introduction to exchange-traded funds (ETF's). I own SPY, DVY, RSP, FXI, and VTI. I consider these the anchors of my portfolio. Then I venture out with my other money into the individual small cap stock world.

The Money Mythos offers a way for small-time investors to get a piece of those high-flying hedge funds. Everyone has witnessed the 30% plus annual returns these funds generate for their wealthy investors, so now there's a way for the little guy to get it. Know the risks involved, though.

Monday, June 4, 2007

Investing success (or not) for 6/4/07

The market showed amazing resiliency today. Shanghai had an 8% meltdown yesterday (well, today, but it feels like yesterday to us because we were all sleeping), and this has typically led to similar pullbacks across the world's bourses. But not today. USA! USA! USA!

But seriously, both the Dow and the S&P 500 posted new records (again). The weird thing is that the gains were miniscule, and yet my portfolio was up $504. I love days like that!

Investing successes today:
Dawson Geophysical (DWSN) - up 4.9%.

OYO Geospace (OYOG) - up 4.1%.

I had 12 other stocks that were up at least 1.5% today.

My Chinese stocks - besides Kongzhong, which bears mentioning below in the "failures" section, my Chinese holdings held up rather well. Typically on a day where Shanghai has a huge drop, my Chinese holdings take a bit of a beating. I was just surprised that that did not happen today.

Investing failures today:
Sadia (SDA) - down 2.7%. No big deal, I'm still up 89% on this stock.

Kongzhong (KONG) - down 2.4%. The stock with the coolest ticker symbol is a real pain in my arse. I have two lots - one is down 40%, the other is down 28%. This stock is barking.

Be careful what you eat

Just a little bit of humor for a Monday afternoon. Don't worry, $1 Million to My Name is still a family blog!

NOTE: TV report contained in link does contain drug references, for those of you at work.

Carnival of Personal Finance #103

The 103rd Carnival of Personal Finance is up over at Clever Dude. Check it out - another wonderful collection of personal finance articles. And be sure to check out my submission!

Saving money for retirement - Part V

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the fifth pitfall that I believe you need to avoid on your road to retirement:

5. Buying more house than you can afford

Purchasing anything that's more than you can afford is obviously a problem! But purchasing a house that's more than you can afford is a real retirement killer. That runs counter to the idea that your house can actually be a vehicle to drive towards retirement. I argue the opposite - that you should buy a house well within your means, or even below your means, while still meeting your day-to-day needs. Then, as previously espoused, pay your monthly payment each month, do not prepay on principal, and stash the remaining money in the market.

I also have an extensive post on this subject here.

Simply put, it is much more difficult to get your retirement money out of a house than it is a retirement fund. For one thing, to get your retirement money out of your house, you yourself might have to get out of your house! Unless you plan on using a reverse mortgage, you'll have to sell your house and downsize, and I don't think many people understand how that's going to make them feel in the future.

Even I am somewhat guilty of this. We bought a lakehouse back in 2005. A small little place, but still so much fun. With our primary residence and our lakehouse, we're still living below our means and are able to save for retirement each month. But, one of the justifications in my head for the purchase was, "I'm young, I should just do this now. If I get to retirement age and I don't have enough saved up, I'll sell the place." Yeah right, I love that house! I love drinking beer by the lakeside, I love canoeing, playing the bimini ring game I set up, playing ping pong, and on and on. It's a blast - I will post some pictures sometime. Needless to say, I'm going to make damn sure I have enough retirement assets such that I'll never have to sell the place.

I have previously advocated buying a house instead of renting, and I still believe that. But I do not recommend "stretching" when purchasing your house. Find the house that's right for you, that you can fall in love with. But don't overpay, and never live beyond your means.

Friday, June 1, 2007

Q's May 2007 Net Worth Report

We're almost halfway through the year - WOW, where is the year going? - and we've seen a very robust stock market. This rising tide has certainly lifted our boat. I've been at my job for a year now, and it pays less than my previous job (by choice, I get to spend alot more time with my family). And my wife is now 2 days a week, so she's earning 40% of what she used to. We therefore are not able to pump as much into savings, or pay down our Home Equity Line of Credit, as fast as we used to.

Still, our net worth continues to climb. We started off the year with $187,000, and with my goal of increasing our net worth by 20%, that left us with a year-end goal of $224,400. Here's where we are at the end of May:

Net worth, excluding primary residence, cars, and all other possessions: $212,700, up $5,548, or up almost 2.7% for the month. So far for the year, we've seen a $25,275 increase in our net worth, or almost a 13.5% increase. We're well over halfway to our goal with 7 months of the year remaining.

What worked this month:
1. Our investments. Most of my small caps are performing great, including BWLD and CTRP. I'm very excited to see where this portfolio is going to stand in a few years. I started investing in small caps one year ago this month, and I have doubled the return of the S&P 500. I don't think I can expect that kind of performance each and every year, but we've been very blessed with how well it's gone this year.

2. The apartment building. I believe I have the troublesome tenant situation under control. I deposited both his May and June rent checks last Saturday, and I have not had either of them bounce yet. He assured me the money would be in his account, and it appears he was a man of his word. Also, no vacancies and the place is looking great. I do have one tenant that may be moving out due to her father's health (long story), but she is still in the apartment. She is the only tenant out of the four that hasn't paid for June, but she usually pays by the 3rd or 4th. She is wonderful and has never been a problem.

What did NOT work this month:
1. Saving money. We just had alot of things to buy this month, with baby #2 coming in two weeks, etc. Actually, it's last month's purchases that are showing up on this month's Discover bill ($1,500). Usually my last paycheck of the month can be almost fully saved and invested, but not this month. Last night I was only able to use $300 of my paycheck to pay down our Home Equity Line of Credit (which effectively increases the equity we have in the lakehouse).

Note: My $212,700 net worth does not include the equity we have in our primary residence, nor our cars, jewelry, or personal belongings. If included, these additional items would bring our total net worth to $364,400. I pay much more attention to the $212,700 number, so that's the one I'll usually refer to.

Saving money for retirement - Part IV

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the fourth pitfall that I believe you need to avoid on your road to retirement:

4. Accumulating credit card debt/not getting credit card debt paid off.

Every dollar of credit card debt you have means you're paying interest instead of investing for your retirement. Hopefully you at least own nice things as a reward for being in credit card debt! This is probably the most damaging thing you can do to your financial future. If you end up spending several years to get out of credit card debt, that's several years you could have been investing. And as I showed here, every year counts.

If you are in massive credit card debt and are looking for a way to lessen the blow of those interest charges, I would actually recommend procuring some 0% interest balance transfer credit cards. Yes, get more credit cards! But this time, you're doing it for a good reason. Five Cent Nickel and My Money Blog both have extensive sections on 0% balance transfers. Transfer credit card debt to these, and you'll shield yourself from further interest. Use the money you would have been paying to interest to pay down the principal. DO NOT go spend that money elsewhere!

I would also recommend, if possible, opening up a Home Equity Line of Credit. I pay 8.24% on my HELOC right now, and that is not only lower than the interest rate on most credit cards, but the interest is tax deductible (to me, at least, since we itemize). I would recommend this route if you are unable to open up additional lines of credit that offer 0% balance transfers. I would even recommend it if you don't itemize, since the interest rate will likely be lower than your credit card interest rate. But again, if you are successful in applying for new 0% balance transfer credit cards, that would be the more economical route to go.

Finally, if you cannot discipline yourself to avoid spending on your credit card, get rid of that card! Cut them all up. Yes, forgo those free points, cash back, or airline miles your card pays you. Forget those perks - you are spending more money on interest than you're receiving back in rewards. And I'm speaking to the people that eventually get that debt paid down to zero, only to rack it up again. Without serious discipline, you may fall in the same debt trap you just dug yourself out of. Ditch the cards if you can't control yourself.

Thursday, May 31, 2007

The rich don't save either

As part of my "Save For Retirement" series, I am obviously poking and prodding you to save for retirement! The goal is to get to a point where you're rich enough to stop working, do what you want to do with your time, and have financial security no matter how old you live to be.

Should rich people save money? "Rich" is obviously a relative term, but I would say that the rich should at least maintain a certain level of net worth and not ever see it go down year-over-year. I've often thought that's how I'd handle myself if I won the lottery. In order to avoid become one of those boobs that squanders away the entire prize, I came up with this - If I received $20 million or so in cash after taxes, my pledge would be to only grow my net worth each year, and never see it go below $20 million due to frivolous spending or careless investing. Perhaps a good way to live anyway, huh?

Not enough Americans are saving for retirement. However, I read this article on how the rich aren't really saving either. In fact, a full 34% of people earning over $250,000 said that paying everyday bills was an obstacle to saving. And 49% say they're not saving more because they just "want some spending money." I suppose once you're earning $250,000 instead of $50,000, your lifestyle gets ratcheted up 500% as well!

Wednesday, May 30, 2007

Save money for retirement - avoid these pitfalls! Part III

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the third pitfall that I believe you need to avoid on your road to retirement:

3. Counting on an inheritance

There is a danger in changing your current saving and investing behaviors because you think you may inherit some money. This is terribly dangerous - there are so many things that can happen that could reduce your prospective inheritance to zero. Your parents could get sick and be racked with medical bills, or even long-term care bills. (My grandpa paid $5,000/month to be in a nice long-term care facility. Ouch!). They could live to age 100 - I'd be 75 by that point! I'd better have my retirement secured all by myself by then! They may end up deciding, through dementia or not, that it's their money and they're going to spend it how they see fit. They could get scammed out of the money. They might decide to give some or all of their money to charity. And due to any of these above reasons, they could end up running out of money, which could potentially have you supporting them during their final years.

Wow, lots of ways to have that inheritance slip through your fingers, huh?

Here's my situation. My parents are in their early 60's. My dad is retired, while my mom works 4 days a week. They have about $1.5 million. My wife's dad died penniless (very long story, he had millions, bad things happened). Her mom has a few hundred thousand maybe, maybe half a million, and owns two houses outright. Beyond that, it's hard to pinpoint how much she has. My wife's aunt and uncle, neither of which had children, own two farms totalling 200 acres, and also own 5-10 rental properties, some outright and some with mortgages. They live very frugally and have done very well for themselves. Their money, along with my mother-in-law's money, would be passed down to my wife and her two brothers. My mother-in-law has a will, while I don't think the aunt and uncle do. The ownership structure of these farms and rental properties is unclear to me - they do not keep airtight books (nothing illegal, they just sort of fly by the seat of their pants).

We're talking about a few million bucks in play here. I hope I never inherit it, which means that everyone lives to a very ripe old age. But if some of them should die before me, I cannot tell a lie - it would be nice to inherit some of that money. My $210,000 net worth could use a shot in the arm, right? I have to admit that I think about it sometimes.

But it is nothing I can count on, and I know with my current plan, I can get to retirement without inheriting any money. Put together a plan that can do the same thing for you.

Tuesday, May 29, 2007

Save money for retirement - avoid these pitfalls! Part II

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the second pitfall that I believe you need to avoid on your road to retirement:

2. Believing it's OK to start investing later in life - waiting to begin saving.

You've heard it said a million times - the magic of compound interest is the key to amassing the money you need for retirement. Still, many people, for many reasons, delay saving until some time later in life. One reason might be that they have material things they'd rather spend the money on now. Another related reason might be a general lack of discipline with regards to money. Still another related reason might be a lack of a vision for the future, a lack of a plan for retirement.

My favorite reason for delaying retirement saving is psychological - "I'm young, I can only save $200/month, and that's nothing! I'm not going to get anywhere saving $200/month - why even bother????? I save $200/month, and I end up with a measly $2,500 or so after a year? Big whoop."

As I am a CPA, I turn to my trusty spreadsheet - run one using the scenario of your choice and amaze yourself with the results.

Here's mine: imagine you're 25 and you begin investing $200 a month, assuming an 8% return per annum. With annual compounding (not monthly), you end up with $728,000 by the time you're 65. $200 a month, a conservative 8% return, and you have over $700,000. Keep in mind that the average return of the stock market is over 10%, and you're very likely to be able to save more than $200/month as you age and advance in your career.

Now, assume that you wait until age 30. You wait just 5 years. That's a cumulative $12,000 over 5 years that you did not invest. Instead of $728,000, you end up with $485,000 at age 65, or $243,000 less than if you had started at 25! Holy crap, what happened? Simple - thru this so called magic of compounding, it is beneficial to have your money grow for 40 years instead of 35 years.

What if you wait until 35? At 65, you end up with $320,000, or $408,000 less. Wait until 40, you end up with $207,000.

These results are OK if you want to work well into your 80's! But if you're like me and want to retire in your 50's or 60's, you simply should not wait until your 30's or 40's to begin investing.

What if you do wait? Let's say you wait until you're 40, and you want to get to that $728,000 nest egg that you would have had if you had started saving at 25. You would need to sock away $700/month instead of $200. For many working professionals, this is entirely possible. But why bother waiting? If you're able to start saving earlier, no matter how much it is that you can save, it only makes that retirement pile of money bigger.

Here's my favorite scenario that I use to encourage young people to invest - start at 25, invest $300/month in the stock market. You cross the million dollar mark at age 64. It can happen, if you start early and prove yourself a consistent saver.

Wednesday, May 23, 2007

Save money for retirement - avoid these pitfalls! Part 1

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the first pitfall that I believe you need to avoid on your road to retirement:

1. Don't prepay on your mortgage.

I expect heat for this, especially since I once was making prepayments on our mortgage. And I would actually encourage a discussion amongst my readers - if you disagree, or if I'm making any specious arguments, please let me know!

If you have excess cash each month, you have a choice. You can prepay on your mortgage, you can invest the money for retirement, or you can do a mixture of the two (or you can spend it willy nilly, not a choice for Q!). Here is what you need to know: investing for retirement should be the winning choice if you can invest the cash for a rate of return greater than what you would save by paying off the mortgage early.

For example, I have a 5.5% 30-year mortgage. We currently itemize on our taxes due to the large amounts of interest we're paying on two mortgages (principal residence and lakehouse). Because we itemize, we get a tax break on this interest. I believe we're in the 28% tax bracket, so the net damage to our finances due to paying interest on our mortgage is actually about 4%. So I am in effect earning 4% on any money I place towards prepayments on our mortgage. As we lose the ability to itemize (not sure when this will happen, but it will happen), my return would them shoot up to 5.5%.

Can you beat 5.5% by investing your excess cash instead? Currently, it couldn't be any easier! An FNBO Direct Savings Account will do the trick. If you decide to lift a finger and put even a little effort in to investing the money, you should be able to earn 8% a year. If you get aggressive, you can probably average a 10% return a year (reduce this rate of return if in a taxable account, do not reduce the rate of return if your retirement funds are in a Roth). Heck, I don't think it's sustainable, but my basket of small cap stocks earned 32% in the last year, doubling the return of the S&P 500. (Lord, why isn't that sustainable?!?!?)

Clearly, investing your excess cash is the winner. When running the numbers on yourself, your percentages will obviously vary based on your mortgage interest rate and your tax bracket. But in most cases, you should be able to generate a higher return by investing than in owning your house more quickly. A 10% return wallops a 4% return! For example, on $50,000 invested in year 0, with no further monies invested, an annual 4% return would leave you with $162,000 after 30 years. A 10% annual return would leave you with $872,000. To quote Shaggy, "ZOINKS!" Another eye-opening example is down lower in this column.

Therefore, risk factors and all other things being equal, always choose the higher rate of return.

Why, then, do people choose to prepay on their mortgage?

1. I don't want to pay all of that interest. If you run a 30-year amortization table on your mortgage, you will see some scary dollars going to interest. I have always gone to Karl's Mortgage Calculator to run numbers on various apartment building scenarios. Plug some numbers in and look at the damage. A 30-year, $300,000 mortgage (assuming 20% down, this is a $350,000 house) will have you shelling out $347,515 in interest over 30 years - equal to the price of the damn house! But, if you prepay just $500/month, you will shave off $161,000 in interest. Sounds great, right? Instead of thinking in dollar terms, you have to think in percentage terms. $161,000 in interest savings sounds great right now because we're all dirt poor! But, if you invest that $500 a month and achieve a 10% rate of return, you'll have $996,482 in 30 years - almost $1 million! Here's the deal, plain and simple -- Don't live in a large house with massive mortgage payments unless you can afford it, get the lowest mortgage interest rate you can, and then don't pay attention to the raw dollars in interest you're paying because it will mess with your head.

2. I want to be free of my mortgage payment. It's the largest monthly expense for most people. Once your house is paid off, you're free. Waaa-hooo! I will not lie to you - it will be a grand day when my house is paid off. But I will not be free. I still need to invest my way towards retirement. Then I will have to navigate my way through an uncertain future, making sure I have health insurance, paying for college for two kids (should my wife and I wish to do that), and paying for two weddings. Ugh! Look at it that way, and realize that your house is not a vehicle to drive towards retirement. A very fat brokerage account is what you need.

3. How could it possibly be good to keep debt around? That's not what the experts say! It does seem counter intuitive to keep debt around, especially just so you can get the mortgage interest deduction. Of course, as demonstrated above, you're not keeping the debt around because you like it, and you're not keeping it around for the tax deduction. You're keeping it because you wish to continue to live in your house, and there is a demonstrably superior place to apply your excess cash.

Part deux to come. Continue saving!

Saving money on car insurance...

By switching to Geico? Hahaaa, maybe. But not the subject of this column.

Why are cars and everything related to them so confusing and painful to deal with? To wit:

1. Buying a car is usually a painful experience, unless you enjoy cutthroat negotiation where you rarely have the upperhand (especially if you get emotional about cars like me.)

2. Then you have to title a car, and get plates, inspections, and pay taxes on the car. I've always wondered why it can't be as simple as buying a TV. I don't have to title my TV.

3. Then the car depreciates quickly, especially if you bought new.

4. Then it breaks down. If you don't know anything about auto repair, you take the mechanic's word for it. I am positive I've been jacked around on an auto repair before. And if you're a woman, some mechanics will really take advantage of that.

5. Finally there's auto insurance - comprehensive this, collision that - one ticket and your rates go up. Insurance salesman are not a whole lot better to deal with than the car salesman you bought the car from - maybe a little better.

There are some ways to save on your auto insurance. Below are some tips:

1. Be a good driver. Bad drivers pay more. If you have an accident that's your fault, you can expect your rates to go up as much as 40%.

2. Don't let your friend drive your car. If he crashes your vehicle, you will have to file this through your insurance company, and your rates will go up. If your friend was uninsured, bad news... if he injures another driver, that driver can come after you for medical bills, etc.

3. Check for installment payment fees. Your insurance company may offer you the ability to pay for your insurance on a monthly, quarterly, or semi-annual basis. They can even withdraw the amount from your designated bank account via ACH. However, they may charge a fee for this, so check with your agent. I have my premium ACH'ed from my account monthly, which really helps for personal budgetary purposes. However, I do pay a fee. If you want to avoid such a fee, pay your annual premium up front.

4. You may not owe sales tax on a replacement vehicle. You will have to be proactive and ask your agent about this, but 28 states require insurance companies to pay the sales tax when you replace your totaled car. The states are Alaska, Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Kentucky, Maryland, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Vermont, Washington, West Virginia and Wisconsin.

5. Wait to add your teenager to your insurance until he or she is licensed. You do not need to add a young driver to your policy until they are actually licensed to drive. Of course, until they are licensed, keep them from getting behind the wheel. (I am guilty of this, when I was 17, I took my 12 year old brother driving in the cemetary. He got alot of driving practice before he turned 16! My mom was taken aback at how good he was).

6. When switching insurance companies, be sure to officially cancel. You cannot cancel by simply ignoring the next invoice. They will cancel your coverage, but that non-payment will be a blemish on your credit record. Call your agent and provide the date and time you wish to cancel. They will often send you a form already filled out - sign, date, and send back.

7. You will pay less for auto insurance if you have good credit. Huh? What's the connection? This is quite controversial, but studies have shown a direct correlation between your credit score and your propensity to file a claim. If you sign up for auto insurance, there is a high likelihood that the insurance company will pull your credit report. They use it to create an "insurance-risk score," which is one factor in determining your rates. So, if you have a low credit score due to late payments or credit card arbitrage/Apporama/0% balance transfers, you may be paying more for your auto insurance.

Tuesday, May 22, 2007

Investing success (or not) for 5/22/07

Today the markets were basically flat, and my TDAmeritrade accounts were up a combined $75. My accounts there are now above $95,000 in total, which is easily a new record for me. I have pumped some cash into them in the last few months, but the prospects for being able to do so in the next few months are looking pretty grim. Baby-related expenses, along with preschool for my almost 3-year-old daughter, are going to eat into the budget. My wife and I will both be receiving raises (me in July, my wife in September), which will hopefully offset these expenses to a degree.

Some interesting things happened in my portfolio today.

Investing success:
Planetout Inc. (LGBT) -- up 13.3%. This after being down throughout the day. This stock sucks so bad, where the hell is Rupert Murdoch to snap this company up and save me?!? Tell you what, since I'm already down huge in this stock (look at this one year chart!), this will be the last time I ever mention anything about Planetout in this column. Unless it goes up or down by more than 25% in a day.

Novastar Financial (NFI) -- up 7%. Another stock I don't care about. LGBT and this one are the two biggest dogs in my portfolio, so I actually hate listing them as successes. They did well today, but are an overall cancer on my portfolio. I think I'll stop listing this one too, unless it makes a 25% move. I see alot of bloggers stating, "Invest at your own risk, this site is for entertainment purposes only, I am not making official recommendations to buy stocks, don't sue me..." I can safely advise you to avoid LGBT and NFI. Just walk the other way.

Meritage Homes (MTH) -- up 4.6%. Home builders are a beaten down bunch. But these stocks cannot remain in the dumps forever. I bought this stock at a very unpopular time for homebuilding stocks, and I'm up 6.3% in total. I have hopes this will go higher.

Sadia (SDA) -- up 3.9%, and I'm up 80% in total on this stock.

Vail Resorts (MTN) -- up 3.3%. A ski resort operator has its stock go up in May? I know it's alot more complicated than that....

I had eight other stocks that were up between 1.5% and 3%.

Investing failures:
Kongzhong (KONG) -- down 25.8%. Oh dear. Out of my six Chinese holdings, this one is seriously underperforming. But down 25% in one day? KONG, you're killing me! I'm down 32% on this one overall.

Blackboard Inc (BBBB) -- down 6.5%. The stock fell on news of a downgrade from a single analyst. One guy dropped his rating to "Hold" from "Buy." One analyst. And he basically said the stock was approaching his $43 price target. The stock is now at $40.17. Does any of this add up? I don't think so. This is a prime example of how Wall Street overreacts to news - this is where you can profit. I did not add to my position today because of limited cash, but Warren Buffett's voice is ringing in my ear again... "Profit from folly rather than participate in it."

I am also still holding two $525 checks from my troublesome tenant. He gets paid on the 26th of each month, which falls on a Saturday this month. I assume he'll be getting paid on Friday then. I plan on calling him this week just to confirm that there's going to be $1,050 in his account ready to go.

Monday, May 21, 2007

Young people with money and their leeching friends

Imagine you're a 20-something successful lawyer, and you happen to be earning an annual salary that dwarfs those of your friends. What typically happens when you're out for a night on the town, and the check arrives? Well, either your friends kick in their portion of the bill, or they look to you to cover it.

Why would they look to you to pay their bar tab? As the person at the table with the greatest means, you'd have the greatest ability to pay it without feeling the financial impact. After all, you're earning all this money, while your friends are still 20-somethings with low-paying jobs (if they have jobs at all).

Moving from this phase of your life to one of financial maturity can be a very awkward time for young people, especially young people that happen to earn much more than their long-time friends. Along with spiritual maturation, having kids, and the like, financial maturation can test friendships and put a real strain on old relationships.

If you're a young person achieving more (at least financially) than many of your friends, you may feel a sense of obligation to those friends for sticking with you throughout your rise to the top. More likely, they may feel a sense of entitlement for cheering you on during that rise.

It's very similar to what I call the "Lottery Syndrome." Have you ever noticed that folks that earned $10 million through business ownership are bothered alot less for money than folks that won $10 million through the lottery? For whatever reason, many of those lottery winners feel compelled and are almost excited to respond to these overtures. "I'm going to do something with my money." At the same time, the business owner has quietly put a financial plan in place, not in any hurry to start doling out money (while hopefully giving to favorite charities over the years).

How to keep the friends you want and at the same time maintain sane, mature finances?

First off, be understanding of friends that don't have as much money as you. If you don't want your friends to expect you to pay for dinner, don't choose an expensive restaurant to dine at. Dine where your friends would dine. Maybe this is not your lifestyle anymore, but you can hardly expect your less wealthy friends to be able to pay for an expensive meal just because that's what you can afford. Second, you hopefully have friends that will be understanding of your situation. I have some friends that make more than my wife and I do, and we've simply had to say "no" a few times. Finances were tight, I had investing goals for the month, whatever the reason. I just had to say, "No, we can't join you tonight, money is tight." Finally, you hopefully have a group of friends that are not just hanging around you for the money. But if you do, you may feel forced to realign your relationships. Or put another way, ditch some of those so-called friends.

Friday, May 18, 2007

Buying stocks at the right price

If you'll have a gander at my latest net worth update, you'll see I have about $100,000 in equities. Nothing to sneeze at, but nothing to write home about. To get to $1 million, I have to multiply that pile of money by 10. I have some work to do!

One of my credos that I will repeat until I'm blue in the face is to stay diversified, and I define diversification as not having any one position in my portfolio comprise more than 5% of my holdings. My two exceptions are my real estate, and my S&P 500 index funds - two safe risks, in my opinion.

Because of my 5% rule, I own alot of stocks. And since I don't have alot of money to invest, the positions I usually take in stocks are small. I own $4,000 of some companies, $300 of other companies. If I'm not sure about a particular stock, I will open up a $300-500 position. I pay $9.99 per trade, and I'm not concerned with this. If my stock doubles, that $10 is nothing in the grand scheme of things. And I have 21 stocks that are up 25% or more in the past year. I paid $209.79 to get into those 21 stocks. That's worth it to me.

Now, because I'm buying small positions, I'm not buying alot of shares. If a stock is at $30, and I'm buying $300 worth, I'm buying a measly 10 shares. The question is: With a long term hold strategy, and with the small amount of shares I'm buying, does the price paid for the shares really matter? I mean, if I pay $32 per share instead of $30, is that a big deal?

My answer is: YES! Here's why: Buying stocks is a learning process for me. I find a company I like, and I review its 1-month, 3-month, 1-year, 2-year, and 5-year charts. I try to determine what I'd like my entry point to be. And then I stick to it. I decide what I want to pay for the stock, and then I do not deviate from that decision. But why bother when it's only a few extra bucks here and there to buy the stocks I want?

I might only have $100,000 now, but I might (will!) be in control of $1 million, maybe $2 million some day. Instead of buying 10 shares of a stock, I'll be buying 1,000 shares. When purchasing 10 shares at $32 instead of $30, I paid an extra $20, but I really paid 6.7% more than I should have. When it comes time to buying 1,000 shares, it's the same 6.7%, but now my overpayment is $2,000! By sticking to my guns now, by keeping my emotions out of the equation (buy now before it's too late!), I am training myself to not only buy stocks at the right price, but to avoid jumping in at the wrong price.

So even a 50 cent spread is a big deal, no matter how many shares you're buying. Train yourself to act with discipline now when you're not throwing alot of money around, and you'll be well prepared to handle greater amounts in the future.

Thursday, May 17, 2007

Update on knucklehead tenant that owes me money

As stated yesterday, I am having a problem with one of my tenants. Since we purchased the building back in 2004, he has paid rent late every single month. However, he has consistently paid between the 12th and the 15th, which has done us no real financial harm. Consistency + no bounced checks = happiness for now.

But, in reviewing a few of my previous posts, you'll note that he's starting to stretch my patience. A few bounced checks, a request to hold his April rent check until April 26th (four weeks late!), and now another request to hold May's rent until the 26th. I still have that April check - my bank told me it wouldn't clear, so I called up Mr. Tenant and told him so, and found that cash in my mailbox.

I patiently waited until the 26th last month, but decided to push back this month. Receiving his rent four weeks late every month is just not acceptable. And it cuts the timing of my mortgage payment on the building pretty close. Now, I cannot get this guy to pick up the phone when I call, and he will not call me. No matter how many times I tell him to "Call me to discuss," he never does. He works the night shift, so what he does is write me notes and drop them in my mailbox. The guy simply will not pick up the phone to call me. My wife pointed out that maybe he didn't want to call me because he knew he'd lose his patience and yell at me. Thanks honey.

I dropped off a letter in his mailbox yesterday, asking to be paid immediately. I also told him we need to get back on track, and I wanted to hear how he's going to do this. I provided him all of my phone numbers, and told him to call me. I asked him if I should use this old April check for May's rent, and I needed to know when I could take it in for deposit. Needless to say, I laid my head on my pillow last night wondering if there would be a note in my mailbox.

The note was there this morning. A long rambling letter, along with a check. (another check?). Here's the note (sorry Mr. Tenant if you're a reader of my blog - start paying me on time, and I won't have to drop your pants in public again):


I received your letter and I am truly sorry for any inconvenience I have caused you and your family. Without going into alot of detail, there have been a couple of personal setbacks for me but those are not your problem.

To address the issue at hand, this is how I propose to you to get back on track. My pay periods at work have changed to once a month on the 26th of the month. (aaahh, so that's where this 26th of the month thing is coming in). I have direct deposit so the money is electronically deposited in to my account. Last month, when you left me a message that the bank wouldn't clear my check, the money was there when I called and I went there, withdrew the cash and brought it to you.

Q, here is a check for June that I am giving you now so you can have it on the 26th. You will be able to take it to the bank on that morning and I will make sure you have all future rent checks by the 26th or 27th of each month. Again, I am sorry for the inconvenience and do appreciate your patience.

I know that paying the rent even a few days late is unacceptable, but if I could ask you for your understanding one more time. If you could please wait until the 26th to deposit both checks, it will be the last time I will need this favor from you and in all future months you will have all rent checks by the 26th or the 27th. I know it is a burden you don't need but your understanding in this matter is greatly appreciated.

Thank you,


So, what do you guys think? Am I getting taken for a ride by this guy?

Wednesday, May 16, 2007

Investing success (or not) for 5/16/07

Today the Dow, Nasdaq, S&P 500, and Q were all up! No more mixed markets like the last few days - all markets were up, and so was I. Today my TDAmeritrade accounts were up $715. I got paid yesterday, but was unable to pump any money into the market - mortgages, bills, and school uniforms for my daughter sucked me dry! I get paid again on the 31st, and a great portion of that will be invested.

Today's investing success:
Guangshen Railway (GSH) - up 5.5%. Look at this 5-day chart for GSH. That's a thing of beauty!

Blackboard Inc (BBBB) - up 4.4%. My position is up 69% in total.

Sadia (SDA) - up 3.7%

Rofin-Sinar Technologies (RSTI) - up 3.5%

China Unicom (CHU) - up 3%

Today's investing failures:
Planetout (LGBT) - down 4.9%. I now own $77 worth of this stock. F you executives at Planetout, get this stock out of the dumps! Look at this crappy 1-year chart.

My apartment building - out of my 4 tenants, one is causing trouble. We bought the building back in 2004, and this guy has paid his rent late every single month since then. We usually get his check between the 12th and the 15th of the month. However, as described here, we have not rocked the boat with the guy because we just can't be bothered with it right now. Just too busy to mess with him. If I get his check consistently by the 15th, it does no harm to our finances.

But lately he has been slipping. First he bounces a check back in February. Then he asks me to hold his April check until April 26th (long story, again described here). Since he paid me cash last month, I still have his April check. I just need to know from him when I can cash it. So I call him, leave him a message telling him to call me with information. This morning there's a note in our mailbox asking if I can hold that check until the 26th AGAIN. I asked the guy to call me to talk to me about his situation - I need to know what's going on with this guy's finances. If he talks to me, perhaps I'm willing to work with him. No call, just these sneaky notes in my mailbox.

The answer is no, I cannot wait until the 26th. I wrote him a letter and dropped it in his mailbox, stating that I need my money now, and I want to know what the hell is going on with him. I said that if I don't get my money, and I don't hear from him, I'm going to have to start eviction proceedings. I guess I didn't want to rock the boat, but I'm really rocking it now!

Stay tuned.

How to use less gasoline

The price of gasoline has just hit a new all time high. Luckily, Q has a 3 mile round trip commute to work, and Mrs. Q only works Thursdays and Fridays. I have driven 30 miles a day for previous jobs, and I know some would scoff at that amount of driving as nothing. Supercommuters with daily round trips of 100 miles or more must be getting killed by these gas prices.

How to consume less fuel? CNN Money had a story on "4 gas-saving myths" that dispelled several popular notions about how to use less gasoline.


1. Additives. Not only do the liquid additives, pills, and magnets not really save much fuel, they cost money to use, thereby eliminating most if not all savings you realized by using them.

2. Don't use your air conditioning, but don't roll your windows down either. Running your A/C is a gas guzzler, right? And putting your windows down makes your car less aerodynamic? Not exactly true. In fact, during summer months, it's better to have your windows down in the city with no A/C, while rolling up your windows and running the A/C on the highway.

3. Fill up on Wednesday. Prices will have come down from their weekend highs. Not exactly so. Prices may be higher on the weekend, but there is no ideal day during the week to purchase gas. The price of gas fluctuates due to numerous external factors (station owners, refinery capacity, Middle-East tensions, etc).

4. Starting your car consumes lots of fuel. Not so for new cars. Fuel-injected cars do not use an inordinate amount of fuel when starting up. I do not agree with the notion that if you're sitting in a drive thru for 30 seconds that you should turn off your car. Too much of that and you're likely to wear out your starter!

So how can you really save on your petrol bill?

1. Inflate your tires to the proper PSI.

2. Do not unnecessarily haul around extra weight.

3. Use cruise control on longer highway trips.

4. Do not drive a gas-guzzling vehicle. We own a 6-cylinder Honda Odyssey, a vehicle that shuts off three cylinders when the engine is not being pushed too hard. It does not matter how I drive this thing - it sucks down the fuel. I love the vehicle for its versatility and know it will make hauling around my two daughters much easier, but it is a gas guzzler.

5. Drive slowly! No drag races off the line. No lighting up the tires for you youngsters! And when driving in city traffic, do not unnecessarily accelerate to the next stoplight. Driving the speed limit is very annoying and just seems too slow sometimes, but you will consume less fuel.