$1 Million to My Name

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

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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 Because the money is withdrawn before taxes, you'll lose less than 1% from your take-home pay.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

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

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

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

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

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

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

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

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

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

5. Buying more house than you can afford

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

I also have an extensive post on this subject here.

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

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

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

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.