$1 Million to My Name

Becoming a millionaire used to mean you were on top of the world. Nowadays, it means you are climbing up the ladder. While a million dollars is completely out of reach for many people, it's just a step along the way for many others. Why? Because it doesn't go as far as it used to.

The term millionaire has been synonymous with being rich ever since we became a country. The person most often credited to be the first American millionaire, Elias Hasket Derby, made his fortune as a privateer during the American revolution. Back then a millionaire did really mean rich.

Also, we all love round numbers. We love to see 1999 become 2000, and our odometer roll over to 100,000 miles. So it's only natural we would fixate on $1,000,000. It's a milestone with a lot of zeros. It's even got an additional comma. Now that's rich -- having two commas in your net worth! But what does that get you? Not as much as you would think.

Housing

Housing is where most people hold their largest chunk of wealth and with real estate falling considerably in many areas, some might think that the lifestyle a million dollars would provide would be luxurious. But that depends on where you live.

There are plenty of nice places to live that don't cost very much, but according to the California Association of Realtors, the median house price in Palo Alto, Los Altos, Manhattan Beach and Cupertino is over $1 million. The median price for the entire San Francisco Bay Area tops $500,000 and Orange County is right behind at just under that. And those are just averages, not even something special. While other areas of the country aren't nearly this expensive, being a millionaire in some areas just means you paid off the mortgage.

Retirement

Another aspect of becoming a millionaire is not working. If you had a $1 million right now, could you retire and would your money last? This is a simple calculation. If you want to try to live off the interest and you invest the money in tax exempt municipal bonds that pay 4 percent, then you would have $40,000 a year to live on.

But that doesn't account for inflation going forward. If $1 million today doesn't feel like much, imagine what it will feel like in 30 years. At 3 percent inflation compounding for the next 30 years, $1 million dollars will have the purchasing power of $412,000 today and your $40,000 income will feel like $16,500. So retiring when you have $1 million may sound nice, but it's likely that it won't be what many people have in mind when they think of retiring a millionaire.

Instead of living on the interest, you could tap into the principal as well. Those are slightly more difficult calculations. For example, if you were 50 years old right now and wanted to plan for your money to last until you were 95, then you need money for 45 years in retirement. If you stick with the 4 percent return, then you could withdraw about $48,000 a year. Again this doesn't account for inflation going forward. Each year if prices rise, your standard of living would fall. In this example, you have 45 years of prices going up at 3 percent. So that last year will feel like $12,600 does today.

Combining Retirement and Real Estate

If we factor in a house, this gets even worse. If we take the price for a house out of the $1 million, even in a reasonable area and not San Francisco, it's going to be a big piece of your net worth and cut into your funds for retirement. For example, if you bought a nice $250,000 home, you would only have $750,000 left to live on. At 4 percent that would be $30,000 a year or $2,500 a month. That's before inflation takes a bit every year.

These retirement calculations show that even if your house is paid off, that living off a million dollars isn't what it's cracked up to be. And if your house isn't paid off, it's probably not even close to what you want to do.

Bottom Line

So the bad news is that even if you fall into a million dollars, you probably aren't set for life, especially if you are young. But the good news is, you'll still be a millionaire, and that's better than the alternative.

The Networking Witches!

2009-11-10T16:42:00.000-06:00

http://www.networkingwitches.com/

Rizzotees.com

2008-10-23T08:19:00.001-05:00

http://www.rizzotees.com

Save yourself $100

2008-05-02T09:32:00.000-05:00

It can be a little daunting to think about all your major savings goals at one time. There's the massive retirement fund that you want to build, which never seems to get big enough. There's the emergency account that should be filled with at least enough money to cover three to six months' worth of expenses. There might even be one or more college funds, assuming college doesn't cost an actual arm and a leg by the time the little tykes grow up. Add these all up, and we're talking about hundreds of thousands of dollars. Yikes!

Obviously, you can't save all that money tomorrow, so let's start small. Think in more humble terms, especially if you're not saving at all or you can't figure out why you're not saving more. Ask yourself how you could put aside just an extra $100 per month.

Saving an additional $100 a month means (obviously) you'll have saved an extra $1,200 in a year. If you had put an extra $1,200 in your child's college fund this year, it would be worth $2,263 by the time she heads to college. That assumes a pretty conservative 5% growth rate.

Let's say you saved that money for retirement and invested your $1,200 in a fund that tracked the performance of the Standard & Poor's 500 Index, which represents about 70% of all U.S. publicly traded companies. Buying an index fund gets you shares of some of the biggest companies in the country.

The long-term average growth of the market has averaged about 10%. If the market kept up that performance, the $1,200 saved by a 35-year-old today would be grow to $20,939 by the time that person retired at age 65.

So, there's plenty of incentive to figure out how to save that extra $100 every month. To get you started, here's a list of savings ideas that don't require any major lifestyle changes. You may have to do a little research, but you won't have to sacrifice your morning jolt of caffeine. Combine a few and you might hit $100 in savings without doing much at all.

Contribute an extra 1% of your salary to your 401(k) or other workplace retirement plan. Because the money is withdrawn before taxes, you'll lose less than 1% from your take-home pay. You'll probably never even notice the money's gone, but your retirement fund will start to fatten up faster.

Review your telephone, mobile phone, Internet, and cable service. If your mailbox is anything like mine, it's full of special offers and bundled packages. See if you can get a better deal than the one you have now. If you see a better rate advertised, try calling your current providers and asking them whether they'll meet the competitor's rate. While you're reviewing all this, cancel any flashy services or premium channels that you don't use.

Call your credit card company and ask them to lower your interest rate. This could mean serious savings for anyone struggling to pay off a balance. (Your extra $100 should go straight to the credit card instead of going into savings, by the way.) If your credit company is hesitant to lower your rate, arm yourself with offers from competitors. You've probably gotten a bunch recently. If they won't budge, look for balance transfer options with lower rates. Before making any move, examine transfer fees and look at the interest rate that will be in place after any teaser rate expires.

Reexamine your car insurance. Your policy probably renews automatically. If you haven't looked at it since you first signed up, see if you still need all the coverage you have. Consider raising the deductible. You can take that extra money and stash it in an emergency fund so paying the deductible won't be a problem.

Stop heating the whole neighborhood. A little weather stripping and a programmable thermostat can go a long way to cutting the utility bills. They're cheap and easy to install, and they also save energy. Turn down the heat on your water heater if you have it set to "scald." Fix anything that's leaking. By the same token, shut down your computer at night and turn off the lights when you leave the room. (Yes, I know I sound like your nagging mother, but there's a reason she nagged you about this.)

Cancel any gym membership or subscription you aren't using.

Eat out of your pantry for a while. If you dig back there, you will find long-lost bags of pasta, cans of soup or beans, piles of rice. I, personally, have enough dry goods in my kitchen to feed the entire neighborhood for about a year. There's probably enough in your pantry to cut your grocery bill down significantly for a while. And, if you've been buying bottled water, consider switching to a filtered pitcher.

Hopefully, that will get you started thinking creatively about ways to fill your savings accounts without making radical changes. Then make sure to put that $100 in spare change toward your big savings goals.

Inflation should change your savings rules

2008-05-01T13:27:00.000-05:00

If prices keep rising, you may need to think differently about a few things. Have you seen the price of milk lately? It's up 13% since last year.

The pain isn't only at the supermarket, however. Hospital costs are up 8%; gas, 33%; and prices overall climbed 4% (vs. less than 3% annually over the past decade). Plus, with the Fed pumping money into the economy, the price pinch probably isn't improving soon.

No wonder inflation ranked as the No. 1 financial worry in a recent poll. While we're nowhere near the 1970s - yet - it's a good time to review how inflation changes the rules.

Rule 1: You can lose by saving

A one-year CD now pays 1.97% a year on average. At 4% inflation, you lose 2% a year before taxes. Best strategy: Shop for top savings rates. Keep bond and CD maturities short.

Rule 2: Stuff beats paper assets...on paper

When inflation is high, tangible goods - gold, oil, gems, art, even wheat - tend to have an edge over securities, especially bonds.

Reason: Because of their rarity, beauty or usefulness, these items have an intrinsic worth that doesn't change, even as paper money loses value.

That said, the market's evaluation of their intrinsic worth varies wildly - for many commodities, it's dangerously exuberant right now. Also, the cost of insuring and maintaining things like art eats into any profits.

Rule 3: Fixed-rate debt is your friend

Here's why: You repay a fixed number of ever-cheaper dollars. Not so with variable-rate loans like ARMs, HELOCs and - worst of all - credit cards.

$4 per gallon! Time for some commuting tips

2008-04-29T10:03:00.000-05:00

Just getting to work is getting more expensive. But there are ways to cut down on commuting costs. Here are some top tips on how to save while driving to work.

1. Calculate Alternatives

Do you know just how much money you're using by commuting back and forth to work?

The typical commuter pays over $200 per month just to get back and forth to work. That's over $2,400 per year, or put differently, the same as a $3,500 raise in your salary.

So, think about how much you would save by taking mass transit instead.

Check out this calculator from commuterchoice.com that let's you see what the cost benefit could be if you hopped on the train or the bus.

2. Improve your mileage

Getting the most out of your gas tank is a priority.

Here's how to do it:

First, simply maintain your car. One of the most important things you can do it to make sure your tires are inflated properly.

According to tests done by Edmunds.com, driving with tires underinflated by 25% caused a loss of fuel economy on an average of 3.75%.

If you have a roof rack that you're not using, take it down. It can cause a fuel loss of 1%.

And if you have a lot of junk in the trunk, make sure you get rid of it. That heavy load can really add to your gas bill.

If both spouses drive to work in separate cars, use the more fuel-efficient one for the longest commute.

3. Look to your employer

The federal and most state governments offer big tax breaks for commuters.

If your employer offers a flexible spending plan for transportation, take advantage of it. This program lets you put pretax money away for your transit passes or parking expenses.

And the money you contribute to this fund lowers your taxable income, so you'll be shielding the cash from Uncle Sam.

Make sure you ask your employer if this perk is offered.

4. Find a buddy

Driving to work may be a drag, but you can drastically cut down on your mileage by sharing the ride with a colleague or a buddy.

Sign up for the free service http://www.erideshare.com/ to find fellow travelers who are looking to connect and share rides.

You can also check out commuterchoice.com or your state's department of transportation for more information.

5. Call your insurance company

If you do cut your commute, let your auto insurer know.

You'll generally get a low-mileage discount if you drive fewer than 40 miles per day.

You may also be able to cut down on your mileage by pitching the idea of telecommuting one or two days a week to your boss.

Stimulus Payments to Go Out Ahead of Schedule

2008-04-26T14:17:00.000-05:00

The federal government, eager to boost the flagging economy, will start distributing special stimulus payments Monday—four days earlier than expected.

"Beginning Monday, the effects of the stimulus will begin to reach households," President Bush said Friday. "This money is going to help Americans offset the high prices we're seeing at the gas pump and at the grocery store."

The department announced the early arrival of the payments Thursday after saying last month that it would begin sending out the money on May 2.

As of next week, 800,000 tax filers daily will begin to have their checks directly deposited Monday, Tuesday and Wednesday. No checks will be distributed Thursday, and 5 million payments will be made Friday.

The payments will go out ahead of schedule because of a new computer program that updates records daily—faster than an older program that updates weekly, according to Andrew DeSouza, a Treasury spokesman.

Overall, the Treasury will distribute more than $110 billion to 130 million taxpayers by July and hopes to get the first $50 billion out by the end of May, DeSouza said.

The checks are the centerpiece of an economic stimulus program signed into law by President Bush in February. The aim is to boost consumer spending and help mitigate problems caused by the slowing economy.

Checks are being distributed to people who file 2007 tax returns. Those who opt for direct deposit with the Internal Revenue Service will start getting payments before those who use the mail.

The program calls for rebates of up to $600 for single filers making less than $75,000. Couples making less than $150,000 would receive rebates of up to $1,200. In addition, parents would receive $300 rebates per child. Filers who do not owe income taxes but have at least $3,000 in income would get a $300 payment.

Payments to taxpayers slated to get paper checks will start to go out May 9—one week earlier than originally planned.

The order in which tax filers will receive their payments will be based on the last two digits of their Social Security numbers.

Under the government's economic stimulus plan, 130 million people will receive tax rebate checks for $300 and up, starting Monday. What do you plan to do with your check? How do you think the stimulus plan will affect the economy?

There is fear that many, many Americans will pay down personal debt (which will not act as an immediate stimulus to the economy). And that's what we're doing. We still have over $45,000 in Home Equity Line of Credit debt hanging out there. My wife and I are starting a business and have been using excess cash to fund that. Therefore, we haven't had as much cash to pay down the debt. When our $1,800 arrives, I'm paying down debt.

Killer credit card rewards

2008-04-17T15:25:00.000-05:00

As the quantity and variety of credit card offers seem to expand like options on a Chinese food take-out menu, card issuers keep searching for new ways to capture and retain customers. One approach has been to appeal to consumers interested in benefits other than typical financial inducements such as low interest rates, no annual fees and travel rewards. By offering rewards that benefit the specific passions and interests of consumer niches, issuers have found that they can appeal to a particularly loyal base of customers.

Whether you are an extremely generous or loyal person, or someone in need of extreme pampering, there is almost certainly a credit card tailored for you. And if you are a partisan of long-term relationships, there is a credit card that claims it can make you a millionaire!

Extreme Generosity

Yes, Virginia, you really can do good things with your credit card beyond feeding your own selfish needs and desires. Some credit cards offer a convenient way to support worthy charitable and socially conscious programs.

Best Friends Animal Sanctuary Platinum Visa Card

This card benefits the Best Friends Animal Society, which operates an animal sanctuary in Utah and promotes the No More Homeless Pets campaign.

Basic reward:

0.55 percent of purchases charged to the card are donated directly to the Best Friends Animal Society.

Bank of America Brighter Planet Visa Credit Card

Want to use your plastic to boost renewable energy projects? This card benefits Brighter Planet, which helps combat global warming and fund community-based renewable energy projects. Current projects include a wind turbine project supplying electricity to a rural Colorado school district and a methane abatement project at a Pennsylvania dairy farm.

Basic rewards:

Earn one point for each dollar spent.
Points automatically redeemed each month by Bank of America to purchase carbon offsets.
Through 2008, Bank of America will make matching contributions. At the current price of carbon offsets, this amounts to about $18 total redemption for each $1,000 charged (or 1.8 percent).

Target Visa REDcard Credit Card

Here's a credit card that helps build school playgrounds and purchase books. Select your kids' school or another eligible school. Through its Take Charge of Education program, Target will send twice annual checks to the school.

Basic rewards:

Earn one point for every dollar you spend at Target and every two dollars spent elsewhere.
Enjoy a 10 percent discount for a full day at Target every time you earn 1,000 points on your credit card.
Receive a 10 percent discount on prescriptions at Target pharmacies.
Target will donate 1 percent of your Target purchases to the eligible school of your choice.

Extreme Loyalty

Everyone has at least one substantial passion. Whether yours involves a pet, a theme park, a city, or a sports team, chances are that you will be able to merge that loyalty with a credit card. Here are a few examples:

Bank of America PetRewards Platinum Plus Visa Card

Pets are great, but they can be a costly indulgence. This card can take a bite out of that financial strain, while offering you the opportunity to carry a credit card emblazoned with your pet's photo.

Basic rewards:

Personalize your card with a photo of your pet or choose from one of three stock designs.
Earn one point for every dollar you spend on everyday purchases and two points for purchases at participating veterinary clinics and pet stores.
Redeem rewards for pet food discounts, veterinary care savings and shelter donations.

Disney Rewards Visa Card from Chase

How many households can you think of that have kids, but don't have at least a few Disney-related items and a desire to visit a Disney theme park? Probably not many, and that's why a Disney-branded credit card appeals to so many parents.

Basic rewards:

Earn one reward dollar for every $100 of card purchases.
Redeem reward dollars throughout the Disney empire--Disney stores, theme parks, cruise lines, and through the Disney catalog (clothing, DVDs, toys).
Receive additional theme park discounts, with no blackout dates.
Pay 0 percent interest for six months on select vacation packages.
Choose among six different Disney-theme card designs.

IN:CHICAGO Card from American Express

If Chicago is your kind of town, the IN:CHICAGO Card might be your kind of credit card.

Basic rewards:

Earn one point for each dollar spent anywhere, and double points for selective services in the city.
Redeem your points for rewards (dining, entertainment) in Chicago, and receive special discounts on a range of activities around town.
American Express offers similar cards for New York City and Los Angeles, and points earned on each card are redeemable in all three cities.

Nordstrom Visa Signature® Credit Card
Store-branded cards can be great choices for frequent shoppers. Nordstrom's is one retailer whose card was rated highly by an October 2007 Consumer Reports survey.

Basic rewards:

Earn two reward points for each dollar spent at Nordstrom's, and one reward point for card purchases elsewhere.
Earn double rewards during special sales held twice annually.
Automatically receive $20 Nordstrom Notes by mail every time you accumulate 2,000 reward points.
Free concierge services.

The KISS Visa Card with Chase Flexible Rewards

Fans of aging rock stars with painted faces and prominent tongues can bond with their musical heroes financially with this card. For better or for worse, there don't seem to be any KISS-specific rewards associated with this card beyond the colorful face of the card itself.

Basic rewards:

Earn one point for each dollar of card purchases.
Redeem points for the typical array of travel, cash, and merchandise offerings.

Extreme Gamble

Enjoy rolling the dice? Rest assured that you can find a credit card to satisfy the craving.

American DreamCard

This card centers around a monthly jackpot drawing. The jackpot, which is equal to 0.5 percent of total dollars spent by cardholders that month, has ranged from $12,000 to $25,000 over the past two years. Winners' names are posted on the Web site. The more you charge, the better your odds of winning. This is probably not, however, a smart choice for those with gambling and shopping addictions.

Basic rewards:

Earn one entry into monthly drawing for each dollar charged.
With Lady Luck's cooperation, win the monthly jackpot.

Extreme Pampering

"Concierge service" and "exclusive" are buzzwords in the promotional efforts aimed at credit card customers looking for a little extra attention. These cards tend to flow to high net-worth customers seeking individualized service, flexible or substantial credit limits, and a helping hand with scoring dinner reservations or finding a gift.

American Express Platinum Card

If you want more, sometimes you have to pay more. This card carries a hefty $450 annual fee, but promises experiences "that are a cut above the rest."

Basic rewards:

Exclusive travel benefits (airport club access, cruise discounts, hotel upgrades).
Concierge service.
Access to invitation-only events.

MERRILL+ Visa+ Credit Card

If your idea of being pampered is having the option to spend huge amounts of money, here's a card that offers credit limits up to a whopping $250,000.

Basic rewards:

Earn one point for each dollar spent.
Redeem points for air rewards (any airline, no blackout dates) or merchandise.
Concierge service.

Bank of America Rewards American Express Card

Here's a card available to consumers with good, but not necessarily great, credit ratings.

Basic rewards:

Earn one point for each dollar charged.
Redeem points for travel (no blackout dates), hotel discounts, cash, or merchandise.
Flexibility to pay balance over time.
Concierge service.

Which presidential candidate is best for your wallet?

2008-02-06T15:20:00.000-06:00

Regardless of how much money you make, you have skin in this game.

The four leading presidential candidates say they're concerned about the taxes that Americans pay out of their paychecks. And they all vow to do something about it if elected.

Now with the economy at the forefront of the presidential campaign, the leading candidates' tax proposals will come under increasing scrutiny in the coming weeks.

Here's a look at some of the ways that Hillary Clinton, Barack Obama, John McCain and Mitt Romney would realign tax policies and how those changes could affect your take-home pay.

Keeping the tax cuts in place

One of the central questions is what to do about a series of tax cuts passed in 2001 and 2003 set to expire in three years.

The four candidates seem to agree on one thing: They want to preserve the cuts for low- and middle-income earners. Those tax cuts include lower rates, reduced taxes paid by married couples and a higher standard deduction.

But the Democratic and Republican candidates part company when it comes to upper-income earners.

Both McCain and Romney have said they would preserve the tax cuts for high-income earners - typically defined as households that make $250,000 or more. Clinton and Obama want to repeal them for taxpayers in that group.

Clinton also would reduce the value of some personal exemptions and itemized deductions for big earners.

Part of the rationale given for restoring higher taxes on upper-income households is that they benefited the most from the 2001 and 2003 tax cuts, and that continuation of the tax cuts for those at the top of the heap may force the government to raise taxes on everyone else or cut spending.

Those who oppose taxing the rich more note that the top 1% - taxpayers making more than $250,000 - already account for 40% of all federal income tax revenue. Taxing them more, proponents of extending the tax cuts say, may lower tax receipts because high-income filers will seek more ways to shelter their money from taxes.

New tax breaks

The candidates also have somewhat different ideas about what kind of new income tax breaks to offer.

On the Republican side, Romney has said he wants to permanently lower the rate on the lowest tax bracket to 7.5% from 10%. Currently that tax bracket applies to roughly the first $8,000 for single filers and the first $16,000 for married couples filing jointly.

And he has proposed permanently exempting workers over 65 from having to pay payroll taxes, which are used to fund Social Security.

McCain hasn't yet offered up any individual income tax breaks beyond proposing to make the 2001 and 2003 breaks permanent.

On the Democratic side, Obama would offer a tax break to seniors by eliminating their income taxes if they make less than $50,000.

Obama also would create a credit worth up to $500 per working person ($1,000 per family) to offset Social Security tax on the first $8,100 of earnings. The credit would start to phase out for people with incomes between $150,000 and $200,000.

Both he and Clinton have said they want to expand the earned income tax credit for low-income workers. And they want to offer an expanded saver's tax credit although in somewhat different ways.

Clinton would offer a savers' credit equal to 100% on the first $1,000 saved by married couples making less than $60,000, and a 50% matching credit for couples making between $60,000 and $100,000.

Obama would match 50 percent of the first $1,000 of savings for families that earn under $75,000.

New retirement tax bites

The candidates' tax proposals aren't all sugar. There are notable differences, for instance, in how they might treat payroll taxes in a bid to shore up Social Security over the long haul.

Obama would consider increasing the amount of wages subject to the payroll tax. Currently, the first $102,000 of wage income is subject to the 12.4% tax, half of which is paid by workers and half by their employers.

Obama has indicated he might favor lifting that cap but only after imposing a "donut." A donut would protect from the payroll tax a certain portion of wages above the current cap - for instance, wages between $102,000 and $202,000. But any earnings above that ceiling would be taxed.

It's not clear yet whether a payroll tax increase would be in the offing under Clinton or McCain, because both candidates have been spare on details.

Clinton has said she doesn't want to eliminate the cap on the income subject to the Social Security tax. But that doesn't necessarily rule out an increase in that cap or a higher tax rate.

McCain, meanwhile, has said he would prefer Social Security funding to be shored up by reducing growth in benefits rather than by raising the payroll tax.

Romney doesn't want to raise payroll taxes, but instead favors the idea of letting workers have individual investment accounts and fund them with money from the surplus paid into the system.

Clinton and Obama oppose the notion of diverting payroll taxes - whether from the system's surplus or direct from your paycheck - to fund accounts.

Don't rearrange your budget yet

Of course, campaign promises are often easier to make than they are to keep. A lot can come between a newly elected president and his or her ideas about taxes.

Political reality, for one. Just look at President Bush and Congress. Their inability to come to agreement has stymied decisions.

Then there's deficit reality. The budget that Bush submitted Monday projects a deficit of more than $400 billion. That could tie the hands of the next president to make tax changes.

Or consider the Alternative Minimum Tax (AMT). Everyone in Washington says they want to do something about the outmoded tax scheme, which was originally aimed at the rich but is increasingly hitting the middle class. But no one has an appealing way to pay for fixing it. The price tag for reform or repeal ranges between $500 billion and $1 trillion over 10 years.

"No one has really staked out a credible claim at fiscal responsibility," said Len Burman, director of the Tax Policy Center. "They'd just devote deficits to different purposes."

Fight the assessors office!

2007-12-24T09:51:00.000-06:00

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.

My Chinese stocks are up MAD!

2007-10-17T15:03:00.000-05:00

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
Ctrip.com (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!

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

2007-07-03T14:07:00.000-05:00

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.

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

2007-06-27T17:05:00.000-05:00

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.

Robert Kiyosaki - complete moron

2007-06-26T08:49:00.000-05:00

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!

Daughter #2 has arrived

2007-06-15T16:18:00.000-05:00

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!

Q

We're havin' a baby!

2007-06-14T13:59:00.000-05:00

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.

Q

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

2007-06-12T14:29:00.000-05:00

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?

Use other people’s money - Recap of discussion

2007-06-11T09:54:00.000-05:00

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!

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

2007-06-07T08:29:00.000-05:00

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.

THE DETAILS:

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?

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

2007-06-06T08:24:00.000-05:00

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

2007-06-06T07:54:00.000-05:00

6/5/07 spin on the blog carousel

2007-06-05T15:43:00.000-05:00

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.

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

2007-06-04T16:30:00.000-05:00

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

2007-06-04T13:33:00.000-05:00

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

2007-06-04T10:57:00.000-05:00

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

2007-06-04T09:52:00.000-05:00

Q's May 2007 Net Worth Report

2007-06-01T13:46:00.000-05:00

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

2007-06-01T09:16:00.000-05:00

The rich don't save either

2007-05-31T13:29:00.000-05:00

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!

Save money for retirement - avoid these pitfalls! Part III

2007-05-30T10:15:00.002-05:00

Save money for retirement - avoid these pitfalls! Part II

2007-05-29T09:18:00.001-05:00

Save money for retirement - avoid these pitfalls! Part 1

2007-05-23T15:41:00.000-05:00

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...

2007-05-23T08:49:00.000-05:00

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.

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

2007-05-22T15:54:00.000-05:00

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.

Young people with money and their leeching friends

2007-05-21T10:07:00.000-05:00

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.

Buying stocks at the right price

2007-05-18T09:00:00.000-05:00

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.

Update on knucklehead tenant that owes me money

2007-05-17T15:22:00.000-05:00

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):

>>BEGIN LETTER
Q,

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,
Tenant

>>END LETTER

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

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

2007-05-16T21:15:00.000-05:00

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

2007-05-16T10:50:00.000-05:00

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.

THE MYTHS:

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.

Investing success (or not) for 5/15/07

2007-05-15T16:07:00.000-05:00

Another mixed day in the market, but another very lousy day for Q. My 5 TDAmeritrade accounts were down $606. The portfolio is bleeding a bit ... ..... tis but a flesh wound! The small caps I'm invested in are all fantastic companies, but they have bigger mood swings than large caps. Again, it just feels odd to be setting new records for the Dow while my net worth is taking a hit.

Today's investing successes:
Guangshen Railway (GSH) - up 4.3%. A nice three day run here.

Sadia (SDA) - up 3.8%. My position is up 76% here

Nuance Communications (NUAN) - up 3%. I am up 103% overall here.

Today's failures:
Peerless Systems (PRLS) - down 6.4%. My small position is now up 1%

Vaalco Energy (EGY) - down 4.3%. Tiny position, so I'm not concerned.

PlanetOut (LGBT) - down 4.1%. Surprise surprise. Read my rant here.

Scottish Re Group (SCT) - down 4.1%. I'm still up 30% overall with this stock.

Same as yesterday, I had well over 10 stocks that were off 2% or more. There are days like this, even when the Dow is up. This is no time to get discouraged. In fact, I am scouring my holdings looking for chances to add to my positions. I believe I'll find some buying opportunities, and I'll share what I've done once I've done it!

John Chow dot Com - who is this dot com mogul?

2007-05-15T12:52:00.000-05:00

I started my personal finance and investing blog almost a month ago. My intention was to write about what I know - saving and investing all the way to a million dollars. As you can see, I have placed ads on my site in the hope that I'll make a little money while doing something I love (talking about investing).

Over the past few weeks, I have found so many wonderful personal finance and investing blogs, and have learned a great deal from these sites. I have noticed that some of the sites don't have ads. Some do, but say they're not in it for the money.

Regardless of your situation, as a blogger, you have the option of monetizing your site. For the time that you spend writing for your site, there is nothing wrong with getting paid for it.

There are quite a few successful blogs that discuss monetizing your blog. I have found no one more successful at this very thing than John Chow at John Chow dot com. A self-professed "dot com mogul," John's blog is about helping his fellow blogger make money online. I have found the site to be very informative, but there's something more to it. It's inspirational. If you are a blogger and want to monetize your site, there is nothing more inspiring than reading a post like this.

With a Google Pagerank of 6, who are any of us to argue? Even the very concept of enticing fellow bloggers to review his site, as I am doing, is pure genius. Each link to John Chow dot Com is only increasing the chances that his PR will climb.

I am very new at this game, and have really enjoyed persusing John's site. And his success has inspired me to keep at it.

If you're visiting from John's site, welcome! And please do come back. Cheers.

Summer car deals are right around the corner

2007-05-15T11:38:00.000-05:00

With gas prices approaching $4/gallon and auto inventories creeping up, we are due to see the big auto incentives return this summer.

If you can avoid spending money on a car, please do so. Automobile expense is typically the second highest monthly expense for families, and it can even be #1 if you have two car payments! Automobiles are net-worth killers. If you have to buy a car, buy used - you will save thousands. But if you can continue to drive the car you already have, do it - the effect that saving (and investing) this money can have on your future portfolio is truly amazing.

Also, if you're able to pay cash for a car, that's fine. If you have to borrow, either get a great financing deal, or use your Home Equity Line of Credit (HELOC). Using HELOC money will make your interest tax deductible.

The Holy Grail of new car financing - 0% for 72 months - is coming back. It makes it super tempting to head to the car dealer, doesn't it?

A related article is posted at Yahoo Finance.

States with the priciest speeding tickets

2007-05-15T08:46:00.000-05:00

If you've got a lead foot and a fast car, and you just can't help but break every speed limit, beware! MSN recently had an article on the states with the priciest speeding ticket fines.

First off, in the interest of frugality, driving slowly can be a real boon to your finances. Less wear and tear on your car and your tires, and better gas mileage. You can also avoid costly speeding tickets, and costly trips to an attorney if you decide to get your ticket fixed. I received two speeding tickets in two months right after turning 16. In the last twenty years, I've received two more tickets, both of which I got fixed. I now tend to drive very slowly, which isn't hard to do when you're driving a 4-cylinder RAV4. Having a little girl in the backseat tends to have you driving a bit safer, too.

Have a look at the list, and slow down in Illinois, Georgia, Nevada, New Hampshire, and North Carolina. Missouri and Nevada even have 6-month jail terms awaiting you. Please do not mouth off to your ticket-writing police officer, I guess!

Investing success (or not) for 5/14/07

2007-05-14T15:26:00.000-05:00

The market was mixed today, with the DOW slightly up and the S&P slightly down.

My portfolio was decidedly down - my 5 TDAmeritrade accounts were collectively down $717. Nothing took a massive nosedive for me, but several larger holdings declined, while the ones that were up today happened to be much smaller holdings. Just a weird day for me, with the market being basically flat, to have the portfolio drop that much.

Today's investing successes:
Guangshen Railway (GSH) - up 3%. I have alot of faith in my Chinese holdings, and each of them has performed well, except.....

KongZhong Corp (KONG) - up 2.7%. I opened up a position in KONG, and it dropped 17%. I opened a second position, and it kept dropping. With today's move, my second lot is back to breakeven.

Today's failures:
OYO Geospace (OYOG) - down 5%

Novastar Financial (NFI) - down 4.6%. I don't even care anymore.

Buffalo Wild Wings (BWLD) - down 4.25%. This stock seems to be prone to wild price swings, but definitely with a propensity towards UP. This has been wonderful to me, so I don't complain about days like today.

Whole Foods (WFMI) - down almost 4%. I am really starting to regret purchasing this stock. I really like going to Whole Foods, high prices and all. Their steaks are kickass - awesome meat department. I really thought they had a niche with high barriers to entry. Who knew Wal-Mart would start offering tons of organic food? Who knew hundreds of other local grocers across the country would (and could) do the same thing? The stock price got juiced a bit by the Wild Oats merger announcement back in February. But the stock has fallen again, and my lot is down 18%. Ugggh.

I had ten other stocks that were down 2% or more. Rough day in Q's portfolio.

Saving For Retirement

2007-05-14T09:30:00.000-05:00

When setting retirement goals, we often have alot of formulas and benchmarks thrown our way. Subtract your age from 100, and that's the percentage of your holdings you should have in stocks. You'll need to generate annual cash equal to 60-70% of your pre-retirement income. You will need 1.6 times your salary in savings at age 35, 3.5 times your salary at age 40 (and so on... check out the article at The Simple Dollar). Head spinning yet?

Perhaps the most simplistic formula to follow is "Save 10% of your gross income." (I have also seen 15% discussed as the number to save.) This keeps it simple - you're not having to sit down and draw up a pro-forma budget for 30 years in the future. It's not alot of complex math. It doesn't even take into account your asset allocation. Just save 10% of your gross income.

Will this work for you? In a word, maybe. If you begin religiously saving 10% of your income at the very beginning of your career, and invest wisely, there is the distinct possibility you'll have a comfortable retirement. Real life doesn't always work that way. To wit:

Did you start saving 10% right away, in your early to mid 20's? (I didn't.)
Will you stick with it consistently for FORTY YEARS STRAIGHT?
What will happen when emergencies occur? Busted furnace, car accident, you have a special needs child, roof is leaking, etc etc. Will this throw off your ability to save 10%?
Could you possibly have any clue how much money you're going to need to live your daily life 30-40 years from now? Can we even predict how much health insurance and college tuition will cost? How much will our government tax us in the future?

People want a simple answer to know that they are saving enough to retire. While I will not pretend to know what life is going to cost me in 30-40 years, I will preach the following:

Start now! No matter what your age, begin saving immediately. If you are in your 20's, start saving yesterday! I wish I could appear as an apparition before myself back in the 90's - I would haunt the 20-year-old version of myself and spookily say "SAAAAAVVVE." Save anything you can - any amount, no matter how small. It adds up!
Invest aggressively. I have invested in an apartment building, index funds, and small cap stocks (these stocks being the very aggressive part of my portfolio). Bonds are not for me - history shows their return is inferior to stocks, and as I'm only 36, I cannot afford to be conservative at this time.
Track your progress. Create a spreadsheet outlining your net worth, and update it at the end of each month, just like businesses that run month-end statements. Print it out and review it. Talk about it with your significant other. Shame yourself into never looking at a month-end statement that's lower than the previous month.
Set annual goals, and don't fall short. My goal is a 20% increase in net worth every year. This is very easy to achieve initially, as increasing your net worth from $5,000 to $10,000 yields a 100% increase! As you accumulate wealth, your percentage increases will drop. However, I have committed to myself that the percentage increase will never be below 20%. I haven't missed an annual goal yet.

Realize this - if you do not start saving early, the annual amount you must save goes up. The money you're saving in your 20's will seem like a pittance. It is not - save everything you can, because it adds up. If you do not start saving early, that 10% number goes up big time! If you're 50 years old, making $80,000 a year, but you haven't saved anything, that 10% savings figure is now 30% - probably impossible to achieve.

Start saving now.

The 100th Carnival of Personal Finance is up

2007-05-14T09:27:00.000-05:00

The big-top is up over at My Open Wallet - the 100th Carnival of Personal Finance. And my first carnival... good times. Check out my submission here. And check out the rest of the submissions - just a wonderful wealth of information. The C-Note edition is worth checking out!

My favorite pub has burned

2007-05-14T06:08:00.000-05:00

This has nothing to do with personal finance, but my favorite pub in the whole world has burned. The Perch, in Binsey, Oxford England, has had a devastating fire. I have been to Oxford several times, visiting a friend that was schooling there. This was a wonderful place to throw back a pint. Stories about it, including pictures, are here and here.

Luckily there are still at least 50 other awesome pubs to drink at in Oxford!

Benchmarking your holdings against the S&P 500

2007-05-12T07:05:00.000-05:00

Mutual fund managers, investment portfolio managers, and individual investors want to know if they're "beating the market." The benchmark they often compare themselves to is the S&P 500, a basket of the 500 largest large-cap, mostly American stocks. Many times, this is not even the benchmark you should be comparing yourself to. For instance, a small cap mutual fund should benchmark against the S&P 600 SmallCap Index or the Russell 2000 Index.

For simplicity's sake, if I want to know if I'm beating the market, I compare my investment performance to the S&P 500. Comparing my portfolio to this benchmark tells me if I'm doing better with my money than if I had simply dumped all of my funds into an S&P 500 index fund, which is the advice you'll get from many retirement gurus. I do have some of my money in index funds, and recommend that young folks start out their portfolio with index funds. But I also hold over 40 small cap stocks, and I don't want to waste my time researching them and pay hundreds in commissions unless I'm "beating the market."

To compare your performance over any particular time period, you can go to Yahoo Finance and pull down the daily closing prices of the S&P 500 (or any stock, for that matter). You can enter in any date range you like and get daily, weekly, or monthy closing prices. You can then dump the info into an Excel spreadsheet and calculate returns over any time period you like.

Also of note is a post over at All Financial Matters entitled, "S&P 500 Fun Facts." JLP looked at the seventy-seven 5-year holding periods between 1926 and 2006. Besides learning a little more about this famous benchmark, you'll note that over those 77 periods, you would have made money 67 times, and lost money 10 times. You make money 87% of the time. And the average annualized return over those 77 periods is 10.41%.

While the market might be frothy right now, and while you might be nervous and think it's overpriced, history proves that the markets are the best place to keep your money, and that you'll make money over the long haul. Look at these historical charts - I wonder what people in 1987 were thinking - they were staring at an S&P 500 that had risen from 62.34 in late 1974 to 335.89 in 1987. I'll bet many an investor had thought the market had topped out, that it was peaking, time to get out. Truth be told, Black Monday did take a nice chunk out of the market - the S&P 500 dropped as low as 223.91. But just look now - we're topping 1,500 again. From 223 to 1,500! To have the foresight and courage during a difficult 1987 to continue to invest in the market would have you sitting on a large pile of money today.

Investing success (or not) - new feature

2007-05-11T17:16:00.000-05:00

Today I'm going to start a new regular feature called "Investing success (or not)." On days where significant things happen in my portfolio, I'll write about it. I may also share updates on the apartment building in this new feature.

With this blog, I want to steer young people (and middle-aged folks too, if you haven't started) towards saving and investing. There are plenty of articles to write about that subject. But I also want to communicate with investors that invest primarily in mutual funds, or even money market funds. I am not recommending the stocks that I own and will consequently talk about. But I will be candid about what I own and which stocks are doing great and which ones are killing me. I hope that it opens the eyes of my readers to the wonderful world of small cap stocks - I have been buying them for almost a year now, and I have killed the market. My 12 month return on my portfolio of small cap stocks is 31.6%, versus 16.6% for the S&P 500 and 11.9% for the Russell 2000.

So take a look at these stocks, if you like. Do your own research and invest at your own risk. Here goes.....

It was hard not to have success today! The DOW was up over 110 points.

Today's investing success:
Novastar Financial (NFI) -- up 8.2% today. I'm hardly jumping for joy, as my lot is still down almost 87% - easily the worst stock I have ever owned, without peer! But any up days with this dog are welcome news to me.

Guangshen Railway (GSH) - up 6.3% today, up 41% over the last year.

Dawson Geophysical (DWSN) - up 5.7% today.

iShares FTSE/Xinhua China 25 Index Fund (FXI) - up 5.5% today

China Telecom (CHA) - up 5.25%

Today's failures:
PlanetOut, Inc. (LGBT) - down 6.82%. This after being down 29% yesterday. LET ME TAKE THIS MOMENT TO PUBLICLY FLOG THIS STOCK. I wrote here about LGBT, and that you want to keep emotions out of your decision-making. Now that my small holding in this company is down 77%, I say the hell with that. I hate this stock! PlanetOut is a media and entertainment company that caters to the lesbian, gay, bi-sexual, and trans-gender community; hence, their LGBT stock symbol. I read somewhere that this company could be a takeover target for News Corp. And I have nothing against the LGBT community, certainly nothing that would keep me from investing in a micro-cap stock. So I opened up a small position, just a few hundred dollars. Well, this one has been nothing but a total disappointment. I have no plans to sell, since I'd reap so little cash by getting out.

Peerless Systems Corp (PRLS) - down 7.19% today, up 8% from where I bought it. This one languished down near $2 before recently rebounding to above $3.50. My position is very small, so I'm not really fretting this one.

The upsell - you can say no, save your money!

2007-05-11T09:48:00.000-05:00

Have you ever called Customer Service at your bank or credit card company, only to find yourself in the middle of a sales call? Several months ago, I had to call American Express to dispute a charge - I purchased a Nikon D50 digital SLR from an unscrupulous NYC camera outfit, only to receive a gray market version - a camera built for the Japanese market! Needless to say, I was furious, and instead of trying to negotiate with the folks at this company, I disputed the charge immediately (AMEX is extremely helpful in this regard). Five minutes into the call, I'm being offered fraud protection, travel programs, etc etc.

There was an article recently on MSN Money entitled "Just say no to the upsell," and its premise was that companies find it much easier to sell additional services to their existing customers than to spend marketing dollars chasing new customers. Back in high school, I worked at JC Penney in the mens' dress shirt department. Upsell! My boss would say, "Q, if someone is looking for a dress shirt, upsell them. Show them a tie that nicely complements their shirt purchase. Take them to belts. Perhaps they need a handkerchief."

Everything is a commercial now - sales pitches are all around us (many of these blogs, including this one, are loaded with ads). Where there was once outrage and disdain among Americans regarding this saturation of ads, there is now a dull, numb acceptance. And it is not exclusive to the U.S. Whereas our baseball and football uniforms are free of advertising (except the occasional Nike swoosh), European soccer teams' uniforms are adorned with ads.

The upsell barrage continues because it works. And when an upsell is successful, the margin is usually fat. But, did you really need what they sold you? During a time of distress, like calling your credit card company to report a stolen card, an offer of credit report monitoring might make sense (while at the same time striking you as horribly opportunistic). I had some trouble with my DirecTV service - first time in 7 years I had a problem of any kind. The phone rep sold me hard on the service plan, which for xx dollars a month would make service calls free. I never had a problem in 7 years, and it's their satellite service that's broken, not mine. I kindly talked them into fixing it for free, and asked them to keep their service plan.

Many consumers feel obligated to listen to these prewritten scripts, and some even feel compelled to buy. You do not have to buy, and you do not have to listen! You can even remain polite while regaining control of the conversation (I am unfailingly polite on the phone, Mrs. Q even laughs about this). Your time is precious, and you don't have time to listen about the latest gizmo guaranteed to enhance your banking experience. You may wait until the schpiel is over, or you may kindly interject.

"Sir (or ma'am), I have something cooking on the stove, may we please complete our business here?"

"Sir, I have to put my daughter to bed, may we conclude our business?"

Please do not feel compelled to buy - your bank, credit card company, etc - they are there for you, not the other way around. Any money you spend on an upsell could be invested for retirement. Save your money.

5/9/07 spin on the blog carousel

2007-05-09T20:14:00.000-05:00

Advanced Personal Finance says he doesn't have a large emergency fund. I'm right there with you, buddy - I lean on the Home Equity Line of Credit when an emergency occurs - and they don't occur very often. I sweep all available cash to my 5 TDAmeritrade accounts, or pay down my HELOC - excess cash drives me nuts.

The Simple Dollar has a guide to eyeglasses. I have had awful vision since I was a kid, and am scared to get laser eye surgery. I bought an $800 pair of Koh Sakai eyeglasses back in 1997 (when that was a TON of money for me ... wait, it's still a ton of money!) and they have lasted me for 10 years. I truly got what I paid for.

Get Rich Slowly says blogging is not a quick path to wealth. Some poor fellow lost his job and wanted to start a blog to earn enough quick income to keep his house. Ouch. I sincerely hope to pull in a few hundred bucks a month some day, and while I do plan on blogging for many years to come, I can't imagine it will ever be my main source of income. He did mention John Chow, who seems to be the extremely rare exception to the rule.

Speaking of John Chow, here he details his amazing rise to Interwebernet prominence, including a whopping payday for the month of April. Holy phreakin cow, this guy is good!

Binary Dollar says taking a defensive driving course can sometimes save you money on your auto insurance. You should check with your insurance agent first to make sure taking the class will lower your rates (or if you desperately need to learn how to drive, take the class anyway!)

Diversify your stock holdings

2007-05-09T10:58:00.000-05:00

Once I create labels and categories for my blog, this will get the "Duh!" label!

When I talk diversification, I do not speak of holding xx% in bonds, xx% in muni bonds, xx% in international holdings. I don't own any bonds - well-picked stocks will always outpace bonds. And I'm 36 and feel I'm too young to be conservative. Diversification for me means ensuring that no one position comprises more than 5% of my portfolio. I make two exceptions: 1.) I own Vanguard 500 Index (VFINX) and the S&P 500 SPDR (SPY), and together they currently comprise 9.3% of my holdings. I recommend that young investors start out with a nice base of index funds, and then move on to stocks and mutual funds, and 2.) I own an apartment building and a lakehouse that currently comprise 49.3% of my portfolio. That number is dropping as I refocus on pumping cash into my 5 TDAmeritrade accounts. I am very unconcerned about this number, as real estate is an extremely safe place for my money.

Why do I apply this 5% rule to my portfolio? Take a look at Dendreon Corp (DNDN) this morning. It's off a whopping 58% on bad news. Now take a look at the Yahoo Message Boards for DNDN (warning: if you've never been to the Yahoo Message Boards, it can get a little "randy" in there, so if you're offended by foul language, do not click the link!). There is a thread with over 60 posts entitled "my life is over. God bless." The person that started the thread is claiming to have lost one million dollars, plus another million on margin.

As previously stated, the Yahoo Message Boards are, needless to say, a little wacky, so take it all with a grain of salt. But has this not happened to countless investors before? Some folks that worked at Enron had all of their eggs in one seriously shaky basket. If this investor at Yahoo Message Boards was worth $100 million, then this 58% price drop in DNDN is no big deal. If this person indeed lost everything (at least on paper), then this person was not diversified the Q way.

Monitor your portfolio and ensure that no one position makes up more than 5% of your holdings. Then, when bad news strikes one of your stocks, the stress will roll right off your back, you won't panic, and you'll keep your focus on your long term investing goals.

Great top 5 lists at Problogger.net

2007-05-08T12:57:00.000-05:00

132 submissions on the first day! Wow..... I was perusing the list of first-day entries for Darren Rowse's Top 5 Group Writing Project. Great stuff.. here's a sampling:

All Tips and Tricks has My five fingers ranked - now that's just damn funny.
My Wealth Building has Top 5 Money Leaks in April. I'm right there with you on the coffee, although I spend more than $26/month on it.
NZ Reality TV lists the Top 5 Reasons Paris Hilton Drove with a suspended license. Did anyone else shed a tear when she got sentenced. I didn't.
Green Llama has the Top 5 money makers (for blogs). I am employing a few of them.
Free Money Finance has Top 5 Steps to Grow Your Net Worth. "Spend less than you earn" - how could this still be a foreign concept to some?
Generation X Finance has the Top 5 Ways to Become a Millionaire. Obviously, a list after my own heart.

And there's still several days left - many more lists to come. Stay tuned.

Top 5 good reasons to sell a stock

2007-05-08T11:57:00.000-05:00

Sell or hold? We've all struggled with what to do with a particular stock, whether it's risen 90% or plummeted 90%. Darren Rowse at Problogger.net is hosting a Top-5 Group Writing Project, so I would like to discuss the good reasons to part with a stock holding.

1. You need the money. For me, this seems like the worst of the good reasons listed here. But there are situations that mandate a sale. If you are a retiree, it might be time to liquidate some holdings to generate some cash. Or you may want to reinvest in an investment vehicle that can generate income for you (dividend paying stock, for instance). Maybe you're a father or mother and it's time to pay for college. Or maybe you're younger and have hit a money crunch (please set up your personal finances in a way so that this can't happen to you!) But sometimes, no matter what you do, you may get into a crunch, and if you absoultely need the money and have no place else to turn, you may have to sell.

2. You have a superior investment that you can make with the money. For me, I would only sell in this instance if I didn't have available cash laying around to make that superior investment. That's one reason I sold NRGY. I had invested most of my cash and needed some funds to invest in a stock I really liked. So I sold half my position (50 shares) and invested the cash in my new stock. Also, the stock had risen over the years and I just didn't want to own that much of it anymore. I originally bought it because of its dividend, but never really did alot of research on it. So I sold half for a gain and generated some cash. As I said though, for me the decision would have been tougher had I had some excess cash laying around to invest in the new stock - I would likely have held on to all 100 shares.

3. You need to rebalance your portfolio. Come to think of it, my NRGY sale also sort of fits here. I owned almost $3,500 of it, while many of my small cap stock purchases are for amounts between $500 and $1,000. I just did not feel the need to own that much of NRGY (besides the fact that the stock had been good to me). If one of your holdings rises 1,000% and starts to represent over 10%, 20% of your overall net worth, you might feel better about your portfolio if you sell some or all of it and rebalance. Of course, I hope you're not selling the next Wal-Mart (WMT) -- that's scares the bejesus out of me and it's what keeps me holding on to the majority of my small caps -- hope that I'm holding that next superstar stock. So besides my NRGY sale, I haven't had to or done much rebalancing. But it's not a bad idea.

4. The company you've invested in has changed. You bought into a company because of its story, but for whatever reason, times have changed. Circuit City (CC) was actually featured in the cultish business book Good to Great, but look at it now. Its price is lower than it was 5 years ago. AOL was once a stratospheric stock .... need we say anything at all about it now? If the story has changed, that is OK - time change, people change, hairstyles change. Get out if you must.

5. Your stock has risen to what you think it's truly worth. For me, this also means that you don't think it's going to go any higher, that it's leveled off. For the value investor, I think it would mean that there is no longer hidden value to be unearthed in the price and it's time to move on. Either way, if you feel like the stock is worth a price that is just perfect for you, whatever that may mean, it may be time to sell.

How billionaires invest

2007-05-08T09:00:00.000-05:00

Motley Fool (via MSNBC.com) had an article that spoke directly to my investing strategy. It talked about the top three richest people in the world. Number 2 and number 3 on the list are Warren Buffett and Carlos Slim. Two guys that built up $50 billion fortunes investing with nothing very exciting- Coca Cola, Altria, Saks 5th Avenue.

Buffett is generally regarded as one of the greatest investors of all time, but Carlos Slim just passed him on the billionaire list! His net worth gained $19 billion last year. "Cigarettes, real estate, soda bottling, auto parts, and insurance" - not exactly flashy businesses.

These guys are doing two things: 1. They are identifying wonderful businesses, and 2. They're not overpaying for them. They are buying great stocks when no one else is interested - Slim bought businesses during Mexico's 1982 economic crisis. When everyone else was panicking, he was buying.

Look at this chart of Volcom (VLCM), the clothing distributor. Almost one year ago, I got in at $33. Then look at what happened in late July 2006 - one of their main customers, Pacific Sunwear (PSUN), had a bad second quarter, and Volcom took it on the chin. Hard - it dropped down to $18, losing almost half its value. I reviewed the numbers, and it just looked like typical Wall Street overreaction - one of Volcom's customers was having a rough go of it, but it didn't look like a permanent issue. So I bought in at $20, and that lot has more than doubled.

Note this - at the time I had about $15,000 in cash in an IRA, and I actually considered putting $10,000 into Volcom. This would have been a huge risk - it would have been a seriously oversized position in my portfolio. Look what would have happened had I done it! Oh well, I still made very decent money off the stock, and I still hold it today. Knowing that I could have made over $10,000 in about 8 months time at least gave me confidence in my investing thought process.

The moral of the story is my favorite quote from Warren Buffett - "Profit from folly rather than participate in it." Buy on the dips - when others are panicking, get in.

5/7/07 spin on the Blog Carousel

2007-05-07T13:29:00.000-05:00

My Money Blog talks about trying to avoid lifestyle inflation. Similar to my article on buying the right size house, a smart financial life involves moderation and common sense. He does talk about being realistic about cars, which is so smart, but so very very hard!

Consumerism Commentary takes up the discussion on how renting makes you richer. As I stated in my article of yesterday, not every purchase you make in life has to be by the numbers. I would simply rather live in a house, a place for my family and I to call our own, so that's what we did. They say "the numbers never lie," but I choose to take a broader approach to this question.

All Financial Matters says young people are ignoring retirement planning. As I have stated and will continue to state, start now, start early, save often! It may not seem like a lot of money you're saving right now, but it will add up!

Get Rich Slowly discusses easy ways to spend less on your computer. Not buying more processing power than you need, taking advantage of free software, and even using Linux are all ways to save yourself some cash.

The Simple Dollar ranks 26 personal finance books, from worst to first. I spend most of my time reading the Wall Street Journal, and now PF blogs! I see a few Cramer books on there - the guy is a genius, but why don't humans come with a volume knob? :-)

Advanced Personal Finance says he pays more at Target than at Wal-Mart, and he does it on purpose! Bravo for this post - as I said in the comments section there, I wish I had posted that. Wal-Mart is a degrading experience.

Mighty Bargain Hunter asks "Is having an extra car worth it?" I say no, even though there have been numerous occasions where a 3rd car in our family would have really helped out. I cannot justify the expense, especially right now when my job is one mile from home.

The Sun's Financial Diary and Plus 6 Personal Finance both discuss the 7 net worth killers. My theme of the day seems to be real estate, so I will again point out the obvious - do not use your main residence as a retirement vehicle...... which means don't buy too much house.

Housing -- Renting is not better than buying

2007-05-07T12:04:00.000-05:00

I have a Chinese friend that I used to work with. He's maybe 24, graduated from college 2 years ago, brilliant guy. I've been counseling him on investing, and he's doing pretty well. First off, he's actually setting aside money from his paycheck. Always a grand first step! And he's now buying stocks, and doing pretty well, I believe. We trade investing advice - he's the one that convinced me to steer clear of investing in NFLX, which I now thank him for.

He emailed me regarding this article, which basically postulates that renting an apartment instead of purchasing a residence will leave you in much better shape over the long haul. He lives in an apartment and wanted my advice on this issue.

Renting or buying - I have seen this issue tackled by many a blog, and I will not rehash what they said, nor will I address the calculations put forth in the linked MSN article.

What I will tell you is this - do not think of your main residence as an investment. First and foremost, an investment should be a tool you use to reach retirement. Your primary residence, as discussed here earlier today, should not be used as a vehicle towards retirement. It's a place to live - a place to while away your time when you're not at work. More romantically, it's a place to have candlelight dinners with your wife, to host your family for Christmas. It's a place to raise your kids, to watch them take their first steps, to read them stories. It's a place to make memories that last a lifetime.

Can you do these things in an apartment? Yes. And do you leave those memories behind when you move, as many homeowners do? Yes, perhaps.

My wife and I have no plans to move, and we actually own an apartment building, so I come at this from a different angle than some. But I am a sappy romantic - I love our house and already have so many great memories in the 6+ years we've lived there.

Why can't you do the same things in an apartment? First off, in many ways you cannot make an apartment your own. Many landlords do not allow you to paint (I don't allow painting - the walls stay white). I do not allow my tenants to affix DirecTV satellites to my building, so they're stuck with cable or broadcast television. My building has hardwood floors - if you want wall-to-wall carpeting, you'll have to move. Light fixtures, bathroom fixtures, appliances - you're often stuck with what's there. You can't add a room or renovate to your tastes.

Many apartments don't have much of a yard to play in. My daughter would be crushed if she didn't have her Little Tykes playground to play on. And if there isn't a yard or common area at your apartment complex, where are you going to BBQ?

While the house next store can still throw a wicked party, you're much more likely to be disturbed by your apartment neighbors - noise comes through those walls, even plaster walls. And if you live below someone, hopefully they don't walk around in their hard sole shoes, because trust me, you can really hear that! And if you're really (un)lucky, you might hear the couple in the next apartment doing "other things."

And apartments, all other things being equal, are not as permanent as a home. As long as you make the payments on your home, and don't live near the latest highway-widening project, your home will be yours forever. In an apartment, your rent can be raised. If your apartment is in a very nice area, the rent could get raised to levels that you cannot pay, forcing you to move. Or the building could be turned into condos - unless you buy your unit, you're out. Many people don't want this uncertainty.

So without running the numbers (and the numbers on home ownership aren't even that bad), I posit that owning a house wins hands down! Just buy a bit below your means, and your finances upon retirement will still shake out just fine.

A bigger house does not guarantee a richer retirement

2007-05-07T05:54:00.000-05:00

I have seen alot of discussion on various blogs about the virtues of renting vs. buying -- should you buy a house, or should you rent an apartment, ostensibly for a lower monthly cost and a much lower down payment.

Another twist to the home ownership discussion is "Should you buy big or small?" Or, "Should you buy beneath your means, at your means, or above your means?" There are some people that actually use their primary residence as the main part of their retirement strategy - buy a very big house, hoping that the real estate boom continues (ooops), and then trade down to a smaller house at retirement, living off the gains of your big house. Let's explore whether this will work or not.

In our example, you're 35, you have a $400,000 home, and have a $300,000 mortgage. "The small house strategy" would have you staying in this house, paying down that mortgage over the next 25 or so years, investing your spare cash in stocks, mutual funds, and the like. Your other option would be "The mansion strategy." You sell your small house, roll the $100,000 in equity into a $1 million house, leaving you with a $900,000 mortgage. At age 65, you would then sell your mansion and move back into a $400,000 house.

Which strategy would leave you more prepared for retirement? The numbers are as such: on the mansion, you're going to have a monthly payment of approximately $5,700/month. Remember that borrowing $900,000 easily qualifies as a "jumbo mortgage," which carries a higher interest rate than a conventional mortgage. When selling the small house, you would incur commissions on the sale, somewhere north of $20,000. Also, when selling your mansion in the future, unless the real estate world gets turned totally upside down, you'll be incurring commissions to sell that house too. In 25 to 30 years, your $1 million house would be worth, let's assume, $1.8 million. So you would incur almost $100,000 in commissions on the sale of the mansion (perhaps you could swing a deal to lower that). When it's time to trade down 25-30 years from now, your $400,000 will likely cost at least $700,000, assuming a 5% annual appreciation (many of us are not getting that now, but it's the historical average).

Overall, with the big house strategy, you'd be left with roughly $1 million for retirement. That's before any capital gains you'd have to pay on the sale of the mansion, and it's before any mortgage interest tax deduction that you received over the years. $1 million! But the picture is not so rosy. First off, you will face a gargantuan mortgage payment each and every month. If you can truly afford that, good for you. But if you're using this large home as a retirement vehicle in the first place, you are probably going to scraping by. I also didn't take into consideration the additional cost of upkeep on a mansion. You'll pay higher taxes, homeowner's insurance, utilities, yard care, maintenance, etc etc. Everything will cost more with the mansion, and probably proportionally more than it would with the small house.

The other option would be to stay in the smaller house. You'd be socking away your excess cash in stocks, mutual funds, IRAs, and your 401(k). You'd probably end up seeing about a 7% average annual return on these investments. But even if your returns were a mere 2% above inflation (currently at 3%), you'd still end up with almost $2 million at age 65. Twice as much as the big house strategy! If you did earn that 7% return, you'd have roughly $3 million at age 65.

True, with the smaller house, you'd have a smaller mortgage interest deduction. But you'd have a larger deduction by maxing out your 401(k), something we're assuming you could not do if you were living above your means in the mansion. And you would have ongoing expenses and a mortgage payment, just like you would in the mansion. But they would clearly be more managable. My uncle lives in a big house on a few acres, and the upkeep on the place is killer. Not only the yard and the pool, but just the upkeep on the systems of the house. Great house, but you truly have to be able to afford it to live there.

There is one big plus of going with the mansion strategy - you get to live in a mansion for the next 30 years. But our example assumes you'd have to leave that place in your mid 60's, and would you honestly be able to do that and not miss living that way?

So the small house strategy wins big here. Do not buy above your means - at least buy a place at or below your means, and leave yourself a healthy chunk of cash each month to invest. The markets are the ticket to retirement, not a large house.

7 tips for making a better Kentucky Derby bet

2007-05-04T15:53:00.000-05:00

Gambling is the last path to financial independence, but if you're so inclined to bet on tomorrow's Kentucky Derby, at least make a good bet. Marketwatch offers lucky seven tips for making a better Kentucky Derby bet. I am not a gambler - I have been to gambling boats twice in my life and didn't really enjoy much besides the free drinks. My feet did stick to the floor alot, though.

I lose whenever I play Hold 'Em with friends. I always think my superior math skills will allow me to clean them out. It never works out that way. :-(

Mint Juleps for everyone! Have a great weekend.

Lower your gasoline consumption

2007-05-04T14:05:00.000-05:00

Yahoo Finance recently posted an article on how to lower your gas consumption. My offices are directly across the street from a Phillips 66, so we can watch the price fluctuate (GO UP) every day of the work week. The other day, regular unleaded went from $2.96 up to $3.16. I was over there filling up before work, and I saw a woman there that works with me. She is a young black woman, drives a really big old Caprice, and since I'm Controller of the organization, I know that she barely makes $20,000. I asked her "How much does that thing hold?" She wasn't sure of the tank size, but she said it cost her about $70 to fill up. She also said it only runs on premium, and that was $3.36 a gallon.

She lives quite a ways away from work, too. I live 1 mile from our offices, so I don't burn thru alot of gas. Nevertheless, there are some things you can do to save a bit on gas:

1. Walk! I should be doing this. I need the exercise, and I could go an entire week without driving. But I usually just want to get to work and get as much done as possible, so I don't feel like setting aside the 20 minutes to walk to work.

2. Buy cheap gas. Some cars simply require premium. Funny, my lawn more runs like crap if I don't use premium. But neither of our cars require it, so we don't use it. Read the owners manual for direction on this.

3. Drive slowly. You are not Mario Andretti, and it's not a race. Take off slowly from a dead stop. Not only will this save gas, but you will save your car from wear and tear.

The article outlines quite a few more tips. I am very concerned that our economy will not be able to absorb $4/gallon prices this summer - not to mention my weekend trips to the lake are suddenly going to be super-expensive!

Microsoft buying Yahoo???

2007-05-04T09:20:00.000-05:00

Google is scaring the dickens out of Microsoft! Two newspapers are reporting that Microsoft is aggressively pursuing a purchase of Yahoo. The best line from the article: "Microsoft has complained that the acquisition of DoubleClick would give Google almost monopolistic powers in search advertising online, with the power to dictate terms to online publishers and service providers."

Irony can be pretty ironic sometimes, no? Or as Ted Striker said in Airplane - "I guess the foot's on the other hand now!"

24/7 Wall St even thinks Google could buy Yahoo.

The 4-Hour Work Week

2007-05-03T09:28:00.000-05:00

Problogger Darren Rowse has published a multi-part interview with Tim Ferriss, author of The Four Hour Work Week - Escape 9-5, Live Anywhere, and Join the New Rich. Ferriss' book has hit the Amazon best seller list - I have yet to read it, and frankly I'm afraid to. I've heard that this book will turn your view on work upside down, and I'm not sure I'm ready for such upheaval at this time! :) Frankly, I think a 4-Hour work day would be something to shoot for! So the theories espoused in this book sound incredible.

It's a great interview. The best part - it was conducted via IM. You gotta love technology.