Roth IRAs vs. 401(k)s

CNN Money recently had an article discussing Roth IRAs vs. 401(k)s. The columnist, Walter Updegrave, correctly emphasizes at the beginning of his advice that, for a person in their 20's, deciding to save anything at all is a major victory. To think I was 31 years old and, besides the house we had just put 20% down on, we had $28,000 to our name. I should have been able to save up more throughout my 20's, but just didn't do it. And I did not have to pay for my own schooling. So shame on me - at least I'm making up for lost time now.

The first point to be made is that you should max out any match you get on your 401(k) at work. When comparing a Roth IRA and a 401(k), no amount of tax analysis you do can trump getting free money today from your employer. If you are lucky enough to have a match, it's the easiest advice I can give - take this free money!

The rest of the decision, according to the article, has to do with taxes. A 401(k) is a better deal if you think your tax rate will be lower in retirement, and a Roth IRA is a better deal if you think your tax rate will be higher. The article goes into alot of detail that I will not rehash. It does correctly point out that, unless you're Kreskin, you may have a very hard time guessing what your tax bracket is going to be in 25 or 30 years. Going a step further, can we even know what our tax system will be like in 30 years? Will we go to a flat tax, as much of Eastern Europe has adopted? The top marginal income tax rate in the 1970's was 70%. Now it is half that. Could the long-haired Led-Zeppelin-listening muscle-car-driving investors of the 1970's have predicted that the top rate in the new millenium would be 35%? No way. Honestly, this uncertainty has me caring less and less about this decision of where to save - do some 401(k), do some Roth IRA = JUST DO SOMETHING!

One thing the article does not mention, but that you should consider, is what I call "investing freedom." I love my IRA's, because I'm able to freely trade (read: buy) stocks in them. I cannot do this in my retirement plan at work (which is a SIMPLE IRA - we don't offer a 401(k)). I get a dollar for dollar 3% match here at work, so I pump money into the plan here first. Then I fund Roth IRA's. Then, if I have any money left over to save, I pay off our Home Equity Line of Credit. But I really like those IRA's that I have because I'm able to buy the small cap stocks that I want, and that investing freedom has really paid off for me in the last year.

You son-of-a-@#%*&, where's my money?

Let me lead off by restating the following: owning an apartment building has been an absolute boon to our finances, and I would do it all over again, no questions asked. In fact, I'll probably state this at the top of every apartment building-related post I make, just so you don't think I'm wavering.

With that being said, one of my four tenants is giving me headaches. When we purchased the building back in December 2004, we inherited this tenant, and he is the only one left out of the inherited folks (we had a young CPA leave, and then of course there were the loud arguing newlyweds that I told you about here. They and their defecating dog are long gone).

This gentleman is in his mid to late 40's and works the night shift at UPS. He hasn't been much of a troublemaker, nor a complainer. The one thing he does consistently, though, is pay his rent late. Rent is due on the 1st of the month, and I usually get his around the 15th (i.e., I would get May's rent around May 15th.)

This has not been a problem for us financially, as I would typically use, say, May's rent to pay June's mortgage bill. So we always have the mortgage bill covered, with cash to spare. However, back in February, his check to me bounced. And I did not happen to notice this until the day my Bank of America ePay for my mortgage was scheduled to leave my account. So I rushed up to the ATM at 10pm that night and deposited a check out of our Home Equity Line of Credit, just to get a deposit on the books at least. I was not sure this was going to work, but I had to do something. BofA ended up honoring 2 ePays, including the all important mortgage payment, after charging me $40 in fees. I also got hit with a $5 fee for the bounced check.

I called the guy up, pretty pissed off. He assured me the money was there now. I noticed he also banked at Bank of America, so I went up to my local branch and asked if they could see if this check was going to now clear. They told me it would, and the helpful teller told me she could place a "hold" on the funds in his account, which would guarantee that the money in there would be designated for me. SURE! Needless to say, I visited the bank in March and had them do the same thing.

April rolls around, and I get his check around the 15th, but there's a note in the envelope. He asks if I can hold his check and not deposit it until the 26th. Something about he owed $1,600 in taxes, and that the money would be in the account on the 26th. He asked me to do this once before, but he asked me to wait till the 18th or the 19th, not the 26th! I didn't really feel like doing this for him, but I played along (I'll explain below).

So I went to the bank on the 26th and asked if the check would clear. The teller, a very helpful fellow, looked at me and sort of scrunched his face, raised the pitch of his voice a bit, and said, "It's clooose." Close doesn't count in check cashing! So I raced home (a 15 second drive) and called the tenant up. His car was out in front of the apt. building, but he did not answer his phone. I suppose since he works the night shift, he was sleeping. I told him I followed his instructions to take the check up on the 26th, but that the bank told me "the check was undepositable." Those were the exact words I used. I told him I was floating this money myself plus interest, so that it was causing me undue financial hardship. I told him to call me and tell me when I could deposit this check.

No messages, no calls from him for the next 24 hours. Now I'm getting ticked off.

I come home for lunch on the 27th, Friday, expecting a message on my home voicemail. Nothing. I also checked the mailbox - nothing in there. (I instinctively check the mailbox every time I walk by it now, looking for tenant checks.) I leave the front door open, and I start typing up a letter that's going to include the word "eviction" in it somewhere. I eat some lunch, and as I'm getting ready to leave, I see a blank envelope in my mailbox. Since we live one street over from the building, many tenants just throw their rent in my mailbox. The envelope is from this pesky tenant. In it is $525 in cash. The dude just threw $525 in cash in my mailbox! For anyone to steal! He saw my car outside, and my front door was wide open - didn't think to knock or explain himself. Moron.

So now I have his April rent, plus an uncashed check for $525. I am going to be calling him and trying to figure out why this is all happening. I don't think the guy wants to be a problem, but I think his finances sometimes get stretched. I am going to be asking him if I can just use this check for May's rent, and I will find out when I can cash this check.

There is a very important reason that I haven't rocked the boat with this guy. Why I haven't pressed him on the late rent, etc. As a new building owner, I really need the money. The building has been very easy to show and rent, but I just can't be bothered with an eviction fight right now, I can't afford not to get paid by him, and I would not be able to find the time to prep his apartment for the next tenant. The other three apartments have all been painted - his needs painting badly. And his bathroom is a mess - needs major scrubbing. My wife (7.5 months pregnant) and I do not have the time right now. So I made the decision to take a little abuse from this guy, but to also continue to receive his checks, albeit with a few headaches.

Q's 5 obsessions

I've been tagged by the fine folks at Binary Dollar to list at least 5 obsessions. Here they are, in no particular order:


My time and my child - soon to be "children." (6/15/07) I almost need to list 6 obsessions, but to keep it to 5, I combined these two. I am very protective of my personal time, and have actually had a rough time transitioning from having nothing to do but wake up on Saturday and read the paper at the coffee shop to waking up at 6am with my 2.5 year old daughter standing next to my bed poking me. With that being said, she means everything to me, and a second daughter is on the way in June. I get cranky when I have to work more than 50 hours in a week, because any extra time at work is just taken away from my daughter and my wife. My previous job had me working 70 hours a week (I earned $15,000 more, too). My wife once said to me, "I feel like a single mom." Perhaps a little overdramatic, but it was one of those "crossroads" moments. I then realized what was really important, or at least what should have been more important than it was at the time. We rebalanced - I took a less stressful Controller job 1 mile from home, and my wife went to two days a week. It has worked out well, for the most part. Less money, but more free time. It just means I have to invest that much smarter.

Internet news - I could surf the Net all day. Wikipedia, Google News, CNN, ESPN, MSNBC, Fark, and so on and so on. And now I've discovered personal finance blogs. It's a smorgasboard every day, and I love it.

Cars - This, coming from a guy that has a 2001 RAV4 and a 2006 Honda Odyssey. But I can dream, right? I once owned a red 1971 Beetle Convertible..... until it caught on fire on the highway. One melted convertible top later, I was driving something a bit safer. I want a Mercedes G-Wagen, a Mercedes CLS-500, a Porsche Cayenne, an Audi A8..... the list is sick and wrong. I plan on writing more about this, but as far as insidious drains on your net worth, a somewhat distant second to credit card debt is car debt. Then again, every time I see a CLS-500, my heart races. At least my wife respects this and really wants me to get a great car someday.

Food and wine - I am not some gourmand or oenophile - I would consider those folks to be real experts of food and wine - but I love dining out and I do enjoy a great wine. With finances the way they are, I find myself drinking Charles Shaw "Three Buck Chuck" from Trader Joes (Two bucks if you live on the coasts, three bucks if you live in the Midwest). I drink wine with dinner every night. And dining out is the greatest treat for me - the most wonderful gift you could give me.

Our net worth, and hitting my goals - This might rank #1. Like many of you, I track our investments and our net worth monthly. I do not have many friends that are that hands-on with their money (I think most of them have more money than me, so....). I assume my fellow bloggers are this hands on, though. I am truly obsessive about it - I update my list of investments throughout the month as well, trying to project how much we will have added by the end of the month. And on the night of the last day of the month, I do a month end spreadsheet. I print it out, share the results with my wife, and then file it away. Today, I received our Federal Tax Refund via ACH, and went home over lunch and set up an ACH to send it off to Ameritrade, and updated my spreadsheet. I seriously can't get enough of it. Even if the market is taking a nosedive, I still get into it.

We are roadtripping to see my mother-in-law this weekend, so everyone take care of yourselves, and I'll write at you next week. Peace!

Q

4/26 spin on the Blog Carousel

The Sun's Financial Diary has an article on "Where I Put Our Emergency Money." I do not keep an emergency fund, but for all you smart people that do, please read this article.

Advanced Personal Finance discusses "Money Smart Moves I Do Not Make." This article interested me greatly, only because I drive a very reliable 2001 Toyota RAV4. But I'm extremely interested in buying a Mercedes CLS-500. This will never happen, but the temptation is so incredibly great. I just love cars - this is a curse.

Money, Matter, and More Musings asks "Are Car Manufacturers Compromising on Safety In Favor of Style? The Story of Poor Bumper Design." The answer of course is a resounding yes. But check out the awesome picture of the 1981 Ford Escort!

Five Cent Nickel outlines "The Cost of a Wired World." The proliferation of computers (which are often left on 24/7, unlike your TV) is causing massive increases in electricity consumption. I've heard that you even consume a little electricity by leaving your TV plugged in (discussed here). I am not crazy enough to unplug it after every use.

"Debt Avoidance"

Yahoo Finance has an article on "Getting Back in the Black." It offers the "Six habits for highly effective debt avoidance." Here they are:

1. Live below your means. I think my wife and I do this pretty well. I would say that the purchase of our lakehouse (which I plan to write about in the future) was a rather unnecessary move that definitely brought us a bit closer to living at our means. But I'm comfortable with our finances as is.

2. Absolutely pay bills monthly. Simple enough, but such a challenge for some. I recommend creating a monthly budget. We have done this and it really helps us stay on track. I do not track my monthly expenses like I would at my business, but my budget allows me to see approximately how much I should be squirreling away each month. I plan on sharing our budget in a future post.

3. Create an emergency reserve. This is something that we have not done, and I frankly don't have any plans to. This may seem shortsighted, but a.) emergencies don't happen all that often, so I don't want to have cash idly sitting by earning a paltry interest rate for me, b.) if an employment related emergency comes up, I am a CPA and will be able to quickly earn some money, and c.) if such an emergency comes up, it will be covered by our Home Equity Line of Credit.

4. Use credit only with a plan. My debt is all real estate debt, and I plan to keep it that way. Some folks use the tactic known as Apporama to earn interest off their multiple credit cards. I will not waste my time with this. Precious time is much better spent, IMHO, and I do not wish to damage my credit score over a few thousand dollars. Now, as far as debt, you'll see from my balance sheet (previously posted) that we have three mortgages (house, apartment, and lakehouse), and a Home Equity Line of Credit at $46,000. Half that HELOC balance is for the 20% downpayment we made on the lakehouse back in October 2005. The other half was for the purchase of our Honda Odyssey (expanding family, we felt like we needed a minivan. Don't knock it, this vehicle is awesome!). My viewpoint is that the minivan debt is the only "bad" debt I have. And at least it's in a HELOC where the interest is tax deductible. We have no credit card debt, and we never have. In six years of marriage, we have never failed to pay off our credit card balance each month. YOU CAN DO THIS TOO, and I highly recommend it for obvious reasons. And we both came into our marriage in December 2000 with not only no credit card debt, but no student loans or debt of any other kind. Lucky us on the student loans.

5. Get family committments. Be on the same page as your significant other. I am very very lucky in this regard. I handle our finances, I do it well, and my wife trusts me. Plus, she is not a shopaholic or anything like that. Frankly, I make more discretionary expenditures than she does - I go out for lunch more often, I go to Starbucks several times a week, etc. But this is critical - you must be able to sit down with your husband or wife and chart out your financial future in real terms that make sense to everyone. Financial discord will lead to financial disaster, and then to marital discord.

6. Reward results. I am probably better at this than I should be. But seriously, you gotta live your life! Should we have purchased that lakehouse? The smart financial answer is no. But I cannot tell you how much joy it has brought into our lives, and we don't even make it down there as often as we should. The place is 35 miles from our house - not bad! But we've been so darn busy getting ready for baby #2 (6/15/07, the countdown is on). I can tell you that I am 100% comfortable with that purchase. If, in retirement, I need to sell the place, I will. I do not predict that I will need to sell it. I am 36, and my wife is 33. I predict we will have plenty of money by the time we're in our 50's. As I previously alluded to, I do reward myself with lunches, Starbucks, and wine. We don't really buy clothes, or go to expensive plays, theatre, or sporting events. We like to dine out. Long story short, I am not overly frugal, but I am smart with our money, and I demand of myself one thing - hit my financial goals each year. In 2007, we started out with $187,000, and I demand a 20% increase in that by the end of the year - that would leave us at $224,400. As of last night, we're at $207,000 (what a market!). If I can it 20% a year without fail, we will be just fine. Live a little!

The article cites Peter Sander, author of "The Pocket Idiot's Guide to Living on a Budget." He says "It's all about awareness, commitment and control." Weave all six of these above points into your personal financial life, and you should be financially, emotionally, and spiritually happy. That's a recipe for future financial independence.

2 great stocks today, one dog

Two of my stocks are making nice moves today:

Loopnet, Inc. (LOOP), up 10%
Meritage Homes Corp. (MTH), up 7.8%

On MTH, I got in at 34, so this move is only helping recoup losses. I like this as a long-term hold -- home builders have been so beat up, and of all of them, I think MTH is positioned well for the long-term. I have had some folks look at me cockeyed for buying this, but it goes back to another favorite Warren Buffett quote: "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." The market is down on home builders - I see an opportunity to get in.

Besides Novastar Financial (NFI), the other dog of my portfolio is Planetout, Inc. (LGBT). Down 15% today, and down 64% for me overall. Luckily, I hold only 50 shares, so basically a $360 investment has turned into $130. I really thought they would get bought out by News Corp., but alas it hasn't happened yet. Q1 revenue failed to meet expectations; hence, the freefall. NFI and LGBT - two of those stocks that I have a hate-hate relationship with. Do any of you ever get "attached" to your stocks? I wouldn't call it love, but seriously - how can you not love a stock like Middleby (MIDD)? Up 77% from where I bought it less than a year ago? It is best not develop "personal relationships" with your stocks. But how can you help yourself from cursing a blue streak at NFI or LGBT? You just hate holdings like that!

The key is to not let your emotions, be they positive or negative, get the best of you.

3 of my stocks are making moves today

I have three stocks that are making wonderful moves today:

Portfolio Recovery Associates (PRAA) , up 11%
RC2 Corporation (RCRC), up 12%
Cheesecake Factory (CAKE), up almost 10%

I can't remember a day where I had three shoot up that much

Top 10 things I've heard a tenant or a prospective tenant say

As previously stated, my wife and I purchased a 4-family apartment building right across the alley from our house. It has proven to be a wise investment (so far), and I expect we will own the place until we croak. I expect it to provide retirement income, possibly money for college if I happen to need it, and a nice asset to pass on to my kids. By the time the building is paid off (less than 28 years to go, w00-hoo!), I expect it will be generating at least $3,000 a month in revenue. But wow, who knows how much rents will be in 2034???? Right now I have folks paying $510, $525, $540, and $540 per month. Plus two garage spots rented at $40/month each.

The difference between investing in rental real estate and the stock market is people. You really don't have to deal with people when investing in the stock market. Unless you pay a management company (who will skim 10% at least off the top) to manage your building, you will be dealing with people when you own an apartment building. And dealing with people is an art form.

Here's the top 10 things I've heard in the 2+ years I've owned the building - it's a sampling of prospective tenants and actual tenants. Note that we run a no smoking, no pets building. NO EXCEPTIONS! (By the way, do not weaken in your principles - if you do not want pets, do not accept them! See below)

Prospective tenants:
1. (via email) "Hello, I was searching for a new apartment and noticed your ad in craigslist.org. I also noticed that you prefer to not have pets. I was wondering if there was anyway you could bend the rules. I have a small 6lb., short hair, declawed cat. I am an incredibly neat person and have impeccable credit. If you could bend the rules a little, I would really like to view the apartment." No, where did you get "prefer" out of my NO PETS policy?

2. (over the phone) I told a lady I didn't accept pets. "Sir, would you like to meet my cat?" No, I wouldn't.

3. (in person) I showed a nice lady one of the apartments, and after we're done, she reveals she has a dog. I told her NO PETS. She said, "Here's the deal. I was just at the vet last week, and he gave me some very sad news. He told me that Scruffles has maybe one or two months to live. He isn't doing well. I really want to move in to your place, and don't want to be separated from my dog during his last months." Yes, this tugs at the heart, but NO PETS.

4. (over the phone) "Would you allow me to run a small telemarketing company out of the apartment?" Please, no.

5. (over the phone) A guy saw the yard sign, and called me while sitting outside the building. This often happens, and since it's right across the alley, either my wife or I can run across and show the place immediately. It's a real competitive advantage over alot of the other building owners. Anyway, I'm talking with the guy, who had a heavy Bosnian accent. I hear at least two small kids in the background, making noise. He's speaking very slowly, asking alot of bizarre questions. Finally, we get around to business - he wants to see the place, and I tell him I can't come show him tonight, because the unit is currently occupied. The current occupant was graciously allowing me to show the place when he wasn't around. I told this guy on the phone that I'd have to call him to arrange a good time. He goes, "Oh no, I'm sorry, we're looking for a place to stay tonight." Yo, that doesn't give me much time to run a background check!

Actual tenants:
6. As I was painting one of the units (I inherited a vacant unit when I bought the place), I heard a rather loud argument being had across the hall. It was an engaged couple, a couple that I inherited when I bought the place. These people argued about everything. I heard her yell, in a shrieky voice that you cannot imagine, "I HATE YOUUUUU!" This was like two weeks before they were supposed to get married.

7. Same arguing couple - again, when I was painting, I heard them yelling at each other. The guy said something about his mom calling, and the girl goes, "Well, tell your mom not to call when I'm taking a sh*t." Classy.

8. Same arguing couple - I went in their place to allow a city inspector to view the place, and their dog left a brown pile of defecation right on the hardwood floors. The inspector grabbed a paper towel and cleaned it up for me! Above and beyond the call of duty!

9. Same arguing couple - "We need to get out of our lease early. My husband has been diagnosed with a brain disorder, a tumor of some sort. We're going to be moving in with his parents." These people sucked so bad, I let them go. I wanted them and that mangy dog out of there. Come to find out, they were buying a house and just wanted out of their lease. I had to go move all of their stuff to the basement because they were too lazy to come get it. Then they accused me of scuffing up all their furniture. The girl was pre-law (she wasn't going to be that good a lawyer, trust me), so she wrote this awful legalistic letter that basically was a shot across the bow that I should not come after them for breaking the lease. I wasn't planning on it, but I did confiscate their entire security deposit!

10. When I was buying the place, I spoke with one of the tenants. She informed me that the current owner of the building, who also owned a famous Italian restaurant right in our neighborhood, was likely in the Mob. And to think I negotiated hard with this guy - I was expecting my car to blow up for months.

And that's only in 2 years. The building is a gold mine for stories!

Your safe deposit box

The Money Tortoise has posted some advice on what not to put in a safe deposit box. This is total news to me. And I don't have a will, which is terrible. At least I have a safe deposit box!

Trade Triggers firing

My TDAmeritrade Trade Triggers are firing like mad today. I have never used their Trade Trigger service to actually have a trade execute automatically - I just have it send me an email. Here are the stocks, and the levels I deemed important at the time I set up the triggers.

MRH, dropped below $17.49
LOOP, below $16.01
IIVI, below $30.00
OXPS, below $23.99
LOOP, below $15.29 (I have two triggers, and they both fired, as the stock is down 4% today)
NFLX, below $21.37

I do not think I am going to buy MRH, nor NFLX. I have been tempted to open a position in NFLX, but think they are being put at a competitive disadvantage by Blockbuster Total Access. As I posted earlier, I added to my IIVI position today. I am considering opening positions in LOOP and OXPS, but have not done so yet.



UPDATE: literally 5 seconds after hitting the "publish button," another trigger fired.

BEBE, dropped below $17.45

IIVI on the way down - I'm buying

I own a small position in II-VI, Inc., which I bought some months back at $24.17/share. The stock is down 18% this morning on lower guidance for the remainder of this fiscal year. I added to my position on this drop - got in at $28.41.

UPDATE - now down over 23%! Oh well, I bought a little early.

Monday night trip on the blog carousel

Golbguru at Money, Matter, and More Musings has a great list of “Stuff That’s Painful When Piled,” and boy does it ring true.

The Sun at The Sun’s Financial Diary asks if we should simplify our finances. As we age, we seem to accumulate bank accounts, brokerage accounts, credit card accounts, etc. I always start feeling sorry for the person who has to clean all this up when I die!

Advanced Personal Finance lists “6 Dumb 401(k) moves,” and there are some on here that I wish were more highly publicized. As a CPA and Controller, I have been the 401(k) administrator at several companies over the years. I cannot tell you how many times people have cashed out when changing jobs, how many loans were taken against 401(k) funds, and how many times people just left their money in the money market option because they didn’t know any better. My ability to offer advice was a bit limited – just sad stuff.

LATE EDITION:
My Money Blog talks of Spring Cleaning, which is basically getting rid of stuff you haven't used in a long time but you know the minute you get rid of it, you'll really need it. Painful stuff!

Investing in an apartment building

Back in December of 2004, my wife and I purchased a 4-family apartment building in our neighborhood. We had been interested in acquiring an investment property for some time, and once we finally had the money saved up (sort of, I'll explain later), we started looking for properties. The one property we really wanted was actually right behind our house, right across the alley. After taking care of the building for 2+ years now, I can tell you the close proximity to our house is a real blessing.

The building cost us $287,500 - they were asking $299,000. The street where this building is located has apartment building of the exact same shape and size lining both sides of the street. And I said, it's one street over from our house. Our neighborhood was laid out by planners many years ago to include a street with brick apartment buildings, then the next street (our street) had modest houses, then the next two streets had larger houses, and so on. I guess they were attempting to bring diversity to our neighborhood even back then.

We had to come up with $60,000 or so for the down payment. We had about $10,000 or so sitting in a money market fund that my wife had earned by doing some freelance work. I sold off some mutual funds, bringing my cash total to about $30,000. We then took out a $35,000 Home Equity Line of Credit with Chase. We had our $60,000. Note that back then interest rates were VERY low - our HELOC is tied to Prime, so it had a 4.75% interest rate when we first took out the line in November 2004 - cheap money, in my opinion.

I have had friends that want to get into rental real estate, but don't do it because they think it's going to be too much work. There is some work involved, but in my case, there are a few points to remember:

1. The building is in great shape, and in a great neighborhood. It attracts good tenants.
2. We installed central air and put in new windows over the past two years. It has been very easy to rent. In fact, last year I fully rented out the four apartments and the four garage spots, without a single day of vacancy. Not sure that will ever happen again! I even had someone move out, but still was able to get someone to move in the very next day.
3. The building generates a little cash, probably to the tune of a few hundred dollars a month. The mortgage with escrow payment included is $1,800 a month, and I bring in on average about $2,150/month.
4. As many of you are probably already aware, this does not mean I had a tax profit on the building. To the contrary, it generates a sizable loss. I have to admit to forgetting about this as I set my withholdings for 2005. When I did our taxes, I found us getting back thousands. (Pleasant surprise, until I realized I had provided Uncle Sam with an interest free loan.) In 2006, for instance, I had $26,000 in income on the building, with $21,500 in cash expenses, and $12,500 in depreciation. Obviously the depreciation is the kicker - and we'll have that for the next 25 years.
5. The building is right behind us - makes it so much easier to maintain.
6. The bottom line when purchasing it was simple. Do I want to put down $60,000 now that will turn into a guaranteed $300,000 in 30 years? And frankly, that's an extremely low number. The building will be worth much more than that in the future, it generates cash, it saves on taxes, and after I own it, it will still kick off revenue to me each month. All in all, a fabulous deal for us.

The work involved includes keeping the place tidy, and finding renters when needed. A simple yard sign and a posting on Craigslist is all that we've had to do. The building really does sell itself well.

We have been tempted to buy another one in the area, but I have resisted. First, I do not have $60,000 in cash lying around. Second, I don't have enough borrowing power to borrow $60,000 for the down payment. Our HELOC is now an $85,000 line, of which we have $38,000 available to borrow. But lastly, I am extremely interested in building up our equity holdings. As of this weekend, we're at $103,000 in stocks and mutual funds. And we have almost $102,000 in equity in our apartment building and our lakehouse. During the past year, I have been meeting with great success investing in small cap stocks, and I really want to keep this going.

So there's no room in our lives for a second apartment building. But I would seriously recommend investing in one if you can find a solid building whose maintenance you can fit into your everyday lives. By the way, full disclosure - I can't fix anything on my own and always have to hire someone. I am 0.0% handy, but the building is still a good investment!

How to influence people

A recent article in the Wall Street Journal noted that a Swedish crisp-bread maker, Wasa, had seen U.S. sales soar more than 50% in a few weeks time. The reason - Oprah Winfrey whipped out a box of their crackers on the air and ate some of them. Wasa didn't even pay for the placement.

My only reason for posting this was to say how irritatingly disgusting it is that Oprah has that much influence! Wouldn't you like to be that influential? With that little amount of effort?

Stock market panic

I was reading a March Wall Street Journal article this morning (I just can't throw them away till I read them) and came across an article on the subprime lender mess (see my earlier NFI post). It's actually interesting to pick up a one or two month old paper and read its contents with today's perspective.

Here we are knocking on the door of 13,000, and this article spoke of the troubles the market was having back then. "We're in a kind of panic mode," said one economist from RBS Greenwich Capital. It goes back to one of my favorite quotes of Warren Buffett: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." I love when the market overreacts, whether in general or to a specific stock I own, because it always presents a buying opportunity. Sometimes the panic even seems irrational - as far as I can tell, we still have a mess on our hands with the subprime lenders. This problem has not been fixed, and yet the market was really uptight about it a month or more ago, but has simply shrugged it off in April.

The worst recent example of this overreaction, in my opinion, was the recent British sailor hostage crisis with Iran. The market had a bit of trouble digesting this news. Of course we were all on edge over their capture, as we all wondered if they had actually done anything wrong. I had a tough time figuring out what this had to do with stock prices. Then, the headline in Businessweek read, "Stocks Jump as Oil Dips - Crude oil prices dropped on hopes the Iran hostage crisis will be resolved diplomatically." And then of course it was resolved, and the market reacted positively. Iran was still the same country after they released those hostages (a threat, a nuclear threat, a friend, whatever your opinion is) - nothing really had changed about Iran! Further, nothing had changed regarding the fundamentals of any publicly traded company, except maybe oil companies.

You can profit from these erratic market fluctuations. The tempation for so many Americans is to stay out of the market when there's signs of trouble, but to pour money in when things are on the rise. Do the opposite, to the best of your ability, and you'll do very well for yourself. Take a long-term view, and you'll not only be able to stomach market turbulence, but profit greatly from it.

Novastar Financial - OUCH!

Full disclosure: I once owned $1,000 worth of Novastar Financial (NFI), and now I own about $100 worth. @#$%&@!

First off, it's pretty disconcerting when one of your holdings drops by 90%. I had originally purchased Novastar for its high dividend yield, and I probably pulled almost $500 in dividends off it over the last few years. Nevertheless, it clearly ranks as my biggest investing disappointment ever.

And the great part is that it's not really holding me back. Besides owning a bunch of index funds, and Fidelity Contrafund (FCNTX), I own a basket of approximately 40 stocks. Novastar represented only a small part of my holdings, and that's of course intentional. The majority of my other stocks are on the rise - this dog dropped precipitously and probably isn't coming back. (The dividend is probably toast, too). But the pain was mitigated by diversification.

I don't even diversify in the classic sense - I don't own any bonds, and I keep very little cash around. But that large basket of stocks allows me to not sweat a little meltdown like Novastar's.

At this point, I'm not sure it's even worth selling - I don't need the $100 dollars. Perhaps Novastar will be purchased and I'll recoup at least some of my money.

A note about donating to $1 Million to My Name

As I have made about $12 so far writing for my blog, you can be assured this exercise of mine is not about the money. However, if my blog has ever helped you with your personal finances or your investing, and you feel compelled to thank me with money, you now have the option to do so. Click on the "Make a Donation" button out on the front page, and thank you!

Cheers,
Q

Exchange Traded Funds

Motley Fool has a nice recap of the Wall Street Journal front page article of Thursday the 19th that discussed ETF's. Exchange traded funds are really skyrocketing in popularity, and the number of ETF's available is rapidly increasing. So much so that indexing patriarch John Bogle has had some very choice words for this growing industry (also a growing thread to Vanguard!).

For me, the bottom line is this: I believe that a core group of index funds is the right start for your portfolio. I own SPY, DVY, RSP, VTI, and FXI. I also own VFINX, which obviously is redundant since I also own SPY. I have not added much to this pile recently, as I've been investing much more in Small Caps. But I encourage anyone starting out to own some index funds. They are safe core holdings that are not expensive to own.

With all of that being said, I am not sure I necessarily need to own many more of these ETF's. There's one coming out that's going to own companies with high customer loyalty. Please do not mistake owning one of these for being diversified. Owning the Vanguard Total Stock Market Index is diversification - the rest of these super-specialized ETF's feel a bit gimmicky to me.

One note on RSP - this has been a wonderful holding for me. Perhaps I'm killing my diversification by holding it along with SPY, but I do not care. This fund owns all of the companies in the S&P 500, but without respect to market capitalization. It owns an equal amount of each company. I would argue that this will have your portfolio even more diversified than if you held SPY.

A little history on where we've come from...

When I first started saving and investing, the advice from investment professionals was to just start saving - anything - on a regular basis. The advice usually told me to start off with a 401(k) - max that out. Then if you have more money you can sock away, send it to your Roth IRA.

If you're just starting out and don't earn a big salary, this advice might leave you feeling a bit left out in the cold. Nevertheless, the advice is sound - save as much as you possibly can, starting as early as you can. Frankly, if I had heeded this advice starting in my late teens or early 20's, there is no telling how much I'd have now!

What the professionals are saying, I think, is that constant, month-to-month saving is the first key to financial success. The way I look at this: aim for a certain PERCENTAGE increase in your net worth, each and every year. If you're just out of college, and you end up with $5,000 after a year, your percentage increase is tremendous! If after year 2 you have $10,000, that's a 100% increase! Yes, it's only a $5,000 increase - perhaps not something to feel good about. Wrong, in my opinion. That's the very attitude that keeps young people from saving.

My goal has always been a constant 20% increase in my net worth. Of course, 20% is easy to eclipse during those early years. But run a spreadsheet - if you hit 20% each and every year, you end up a millionaire.

My wife and I bought our house in October 2000, cashing in a bunch of mutual funds in order to make the down payment. That left us a bit poor at the end of 2000.

Here is what my wife and I have done since then:
End of 2001: $28,725
End of 2002: $39,630, a 38% increase over 2001
End of 2003: $76,082, a 92% increase over 2002
End of 2004: $110,149, a 45% increase over 2003
End of 2005: $131,493, a 19% increase over 2004 (not 20%, dang)
End of 2006: $187,426, a 42% increase over 2005

Steady growth wins the race.

Net worth to date

Here's a personal balance sheet on my wife and I:

ASSETS:
Equity investments: $98,863
Home value: $221,000
4-family apartment building: $312,261
Lakehouse: $143,080
Personal property (cars, furnishings, jewelry): $71,100

TOTAL ASSETS: $846,304


LIABILITIES:
Home mortgage: $118,184
Apartment mortgage: $223,587
Lakehouse mortgage: $106,141
Home Equity Line of Credit: $45,300

TOTAL LIABILITIES: $493,212


NET WORTH: $353,092


As I'm chasing $1 million dollars, I am not looking at this net worth number. I calculate this number as part of my personal balance sheet, but the number I seriously track excludes our principal residence and our personal property.

Excluding that stuff leaves my wife and I at $198,972. That is comprised of:

Equity investments & cash at Ameritrade: $98,863
Apartment building equity: $87,425
Lakehouse equity: $12,683

More details to come.

The goal...

The goal is $1 million to my name. I have seen similar quests debated on many a blog. How did you pick that number? That's not going to be enough to retire on!

The answer is simple. I am a firm believer that each fortune in this world was built starting with a dime. Even the lucky folks that inherit money from weathly relatives are inherting a fortune that was once built from scratch. If you're starting out with nothing, as my wife and I have, the thought of retirement is mind boggling. Investment experts tell you to contribute to your 401(k), even $50 a pay period if that's all you can afford. And THAT'S supposed to get me to retirement?? It sometimes seems daunting - but it is completely achievable.

So, without regard to whether $1 million is enough to retire on, it is still a tangible, achievable goal. Unless you're hitting 30% returns every year, it might be a long road. So I really believe you have to keep yourself psyched up to do this. Which is a better goal to chase (day after day after day...):

1. I want to save enough for retirement
2. I want to be worth One Million Dollars

I would posit that #2 is the way to go. Even if you feel like you'll need 2 or 3 million.... set a goal of $1 million and go!

Welcome!

Welcome to my investing and personal finance blog! I am a 36 year old, am married to a beautiful 33 year old woman, we have a little girl that's almost 3 years old, and we have another girl on the way in mid June.

I am a CPA, and have served as Controller for several organizations in my area. I enjoy my work, but not to the point where I'm putting in 60 hour weeks (I've done that, and it's bad for my health!).

The goal of this blog is to just share my thoughts, hopefully answer any questions I can about how I conduct my personal finances, and hopefully educate. I have young cousins that ask me all the time:
"Should I invest in my 401k?"
"Where do I even begin?"
"Can you recommend some stocks?"

And so on! All great questions - I find there are so many people that need investing and personal finance advice. For some of us, this stuff seems like second nature, but to others, personal finance is a great challenge. It's hard to not ring up massive credit card debt. It's even harder to get out. It's hard to pick the right stocks. It's hard to know how to keep your investing expenses down. There are so many aspects to running a clean, solid financial house that I wanted to share what's working for me.

My next post will outline where I've come from investing-wise, what I hold now, and where I plan to be in the future. More to come!