Darwin's Finance

Weekend Reading – iPad Cometh Edition

Darwin — Sat, 13 Mar 2010 04:03:17 +0000

With Apple’s stock at an all-time high on anticipation of blockbuster iPad sales with an estimated 20,000 units sold per hour on opening day today, it makes you wonder whether such a hot item is completely recession-proof. People need that iPad! It’s quite amazing, and I’m holding plenty of Apple stock (see Darwin’s Portfolio – The Full Monty). But as far as buying one myself, I’m gonna have to wait it out. I’ll wait. And watch. And see if I’d actually be able and willing to use one of these devices to its potential. And then I’ll buy a second generation when they make it better. Enough on Apple though, here are some great reads for the week with a couple new blogs I’m following as well as some usual suspects:

A new favorite blog I read is by “the Mish“. With a title like this, how can you not read this article?
“Hardball In New Jersey, No Balls In Virginia; Brass Balls In Las Vegas”

The Dividend Guy shares essential tips for the struggling investor.

My Journey to Millions rightly points out that comparatively speaking, a Million Dollars IS a lot of money

Consumerism Commentary meanwhile, says I Might Need $3,000,000 To Retire: What’s Your Number?

Wealth Pilgrim shows us How To Teach Kids About Money

Len Penzo on the Deadbeat Generation

Simple Dollar on Convenience Foods: What They Really Cost

Steadfast Finances on Why it’s Important to Buy during the Doom & Gloom News

And check out this Yakazie Challenge where bloggers are teaming up to increase their Alexa rankings (see this week’s challenge). Impressive!

Stuff You Might Like from Yours Truly:

in Money:

Investing:

Carnivals that Featured My Content Recently:

Money Hacks

Money Stories

Fast Swings

Carnival of Personal Finance

Festival of Frugality

Personal Finance

Darwin’s Portfolio – The Full Monty

Darwin — Thu, 11 Mar 2010 12:48:20 +0000

The Full Monty. My trading portfolio in all its glory.

I used to update readers on my portfolio holdings and performance at Everyday Finance, but that blog was recently locked up in unceremonious fashion by the Blogger team at Google, so until that is resolved, there may be some cross-content over here at Darwin’s Finance.

Basically, I have various investment accounts including 529s/ESAs for the kids, a 401K, my own IRA mutual funds and self-directed and I have this traditional trading account. I had posted last week on how I’ve been making double digit returns regardless of market direction by selling short leveraged ETF pairs simultaneously. It’s really been working out spectacularly. Feel free to revisit that article for the short portion of the portfolio. I also have a decent sized Stock Option portion of my portfolio. On the long end though, these are the stocks I own with a brief explanation of why I own them.

Baidu.come (BIDU) – Dubbed the Google of China, this stock has benefited of late from Google’s troubles in China, well, actually Google having a backbone and standing up to China’s recent hack attacks. That being said, by owning both Google and Baidu, I’m confident that I’ll capture the net growth in China which is going to grow orders of magnitude during the next several years. They’re both holders.

Apple (AAPL) – As you can see, Apple’s been up big since entry – well over 100%. When everyone was running for the exits in early 2009, I loaded up on Apple with 100 shares. It was a huge portion of my portfolio, but being a recent iPod enthusiast myself and seeing the euphoria over the iPhone versions to date, I became a believer. Along the way, I sold some covered calls to collect income and I’ve since unloaded more than half the shares because the position was starting to comprise too large a portion of my overall portfolio. It freed up some extra cash for other plays to diversify. I’m not complaining though, with Apple breaking through new highs on news of their iPad launch date confirmed.

IMAX (IMAX) - When the Avatar buzz was building, I snatched up shares. Then I Saw Avatar and became a believer. IMAX 3-D is the future of movies in my opinion. They’re able to garner massive premiums on tickets and any future action flick that wants to be an “it” movie for the season will be forced to launch in the IMAX format. Shares were further bolstered this week by the wild success of Alice and Wonderland. I’m just sayin’ wait for Clash of the Titans! (a childhood favorite being remade and launched next month in IMAX 3-D).

Chiplotle Grill (CMG) – This was a recent purchase. From the Warren Buffet “buy what you know” playbook, after eating in one of these for the first time and having researched the stock without ever pulling the trigger, I was sold. I looked at the chain, future growth, the arms-distance help from McDonald’s, the “health/natural” movement with food following movies like Food Inc. and general attitudes in America, I see huge potential for the franchise.

Green Mountain Coffee Roaster (GMCR) – This is another one of those “Buy what you know” stocks. I started buying and drinking their flavored coffees over a year ago and I’m kicking myself for not buying shares sooner. They’ve greatly outperformed the market and continue to rally on growth prospects. People just love their coffee!

Google (GOOG) – Even though they wiped out my blog, Google’s incredible. If Google stays in China, you want to own it. If they don’t they’ll still do fine. With print advertising dying a slow death and Google gaining market share consistently, they’re really running like a fine-tuned machine. They have the best and the brightest engineers figuring out more and more ways to organize and monetize the world’s data. This is one of those 21st century stocks everyone should own.

Pimco Muni Fund (PMF) – I bought this one when I wrote about the high yield muni ETFs and how you could get incredible 8% tax-free yields payed monthly and without interruption. Well, a year later, I’m still collecting my tax-free dividends monthly. I still think at current yields, PMF holds promise over the yields you can get even from the highest online savings rates.

Vimplecom (VIP) – This is a Russian telecom I’ve owned for some time. At one point, it was up 100%, then down 50%. It’s quite volatile, as is Russia. I intend on holding as an emerging market play on Russia.

GDXJ (Gold Miner Junior ETF) - While I’ve knocked the gold rush as hype in prior posts, I bought this ETF based on my presumption of continued dollar weakness and the fact that this ETF is levered to gold, as opposed to buying a gold ETF itself given tax differences in a bullion ETF vs. a company ETF. You may have noticed I included the 2X gold ETFs in my long/short strategy I referred to earlier as well, so if gold takes off and that pair falls apart, the underlying GDXJ will offset any losses. It’s up marginally so no complaints.

TYH – Ignore this one. It’s part of one of those double-short ETF pairs trades but I opened the position with long stock and it didn’t reconcile my short stocks, so it’s stuck in this section of the ledger.

Goldman Sachs (GS) – Basically, of all the big banks, financials or whatever you want to call them post-TARP, Goldman was the standout winner. They were solvent, they didn’t need TARP funds, they had incredible proprietary trading results and Warren Buffett was snatching up warrants. However, as the political ire was directed toward Goldman for their role in the crisis and $700,000 bonuses projected, the stock has been under fire since. It’s moved up a bit, but I did buy high. I’m holding though, I still believe in them long term.

If you like ETFs over stocks, check out ETFBase where I just outlined the top 400%+ gainers over the prior year from the March lows.

What Are Your Favorite Stocks?

43% of Americans have less than $10k for Retirement, Seriously

Darwin — Wed, 10 Mar 2010 03:39:31 +0000

I was shocked by the results of a recent survey outlining how almost half of Americans have virtually no savings, no retirement, nothing (Employee Benefit Research Institute’s annual Retirement Confidence Survey via CNN) . Now, this excludes the value of real estate and pension promises, which is a major culprit I believe. With the nanny state and bailout nation that’s been fostered stemming from the financial crisis, I’d be surprised if this situation improves in the near term. How did we get here?

I recall a conversation with a family friend who’s nearing retirement. He’s a public school teacher. When talking about savings and retirement, he boasted,

“We’ve never saved a dollar. Not one dollar. Why would we? We don’t have to. I get my full pension when I retire”

So, that’s problematic from a few fronts. First, it is case in point of unionized public sector workers living off the public largess which is simply untenable. My wife’s a teacher by the way, so I don’t have anything against teachers. But for firemen, police, teachers and the seemingly endless litany of other roles that are becoming increasingly dependent on the taxpayer to fund, there’s an expectation of full or near-complete salary pension payments for life. With life expectancy increasing and healthcare becoming ever more expensive, it should be evident that this is not sustainable. Now, I can’t blame workers themselves; I mean they worked a job for 25-30 years, they were made certain promises regarding their pensions, and they planned accordingly.

“But look at Greece”

We aren’t too far off. We already have a few states on the verge of bankruptcy. They need a bailout next, right? And for the US as a whole, when you look at deficits as a % of GDP, the hopeless gap in revenues minus spending and debt service over the next several years and a massive shift from private sector employment to public sector employment (the private sector has to pay for the public sector [govt]), it would not be beyond the realm of possibilities that the US is going to need some “austerity measures” of their own sometime down the road. This may include a reduction in promised pension benefits, a increased retirement age, higher taxes or other measures that shift the calculus of this family friend from “why would I bother saving” to “I’m really screwed and wish I saved some money and didn’t rely on the public teet for my retirement”.

Let’s get off public sector employees though. We’re talking about 43% of working Americans in the survey. I realize there’s a portion of the workforce in the survey that are young workers that perhaps haven’t started saving yet or haven’t yet breached $10,000…but 43% !?! How does that happen? I mean, a mildly liberal emergency funds should start at $10,000 for many families. How do this many people not have either? No savings, no retirement funding and no emergency fund? This many people living paycheck to paycheck just blows my mind.

It’s automatic! Many jobs these days have automatic investment plan participation. Studies have shown that when they’re opt out instead of opt-in, the participation rates are far higher. For workers that perhaps aren’t with a large company with a retirement plan, there’s always been the traditional IRA which comes with a tax break under the threshold and good old cash/stocks in a traditional account.

The only thing I can say is if you’re not saving for retirement, you better start investing today, and if you think a government or corporate pension are going to take care of 100% of your retirement needs, you may want to think again. Pensions can be cut. Benefits can be cut. Taxes can go up. Inflation can take off. While there are ways to hedge energy costs, hedge currency crashes and dodge some bullets, if you don’t have enough money in retirement to begin with, these are minor band-aids for a major malady.

Do You Feel You’re On Track for a Reasonably Comfortable Retirement?

6 Reasons You Won’t Go to Finance Hell if You’re Getting a Tax Refund This Year

Darwin — Tue, 09 Mar 2010 13:01:52 +0000

There are a select few articles that get republished year in and year out that start to become “gospel” in the personal finance world. With tax time approaching, you’re going to see several writers and talking heads on television chastise you for the “free loan” you gave the US government this year if you’re receiving a tax refund. With the average tax refund estimate at around $2700 from the 2009 tax year, that’s roughly $50 per week you could have had in your account instead of on the government’s coffers, right?

Let’s consider the realistic reasons you don’t go to Hell. Not the hypothetical, but the pragmatic.

Interest Rates are a Joke. This is the primary reason this “loan” issue is bunk. With savings rates paying less than 1% for the most part, save for some top online savings rates you can find, how much are you really lending? Note that inflation is virtually non-existent as well. Conservatively, by “lending” $2,700 at 1.3%, you forgo a whopping $35 in interest. I say conservatively because a) 1.3% is the top rate you’ll find virtually anywhere and b) because this assumes a 1 time payment made a full year back. However, you’re making gradual $50 payments throughout an entire year, so that December payment for instance, earned a couple pennies only. So, in reality, you’re losing out on LESS THAN $35 by getting a refund this year. While you could cite last year’s stock market performance and how much you “could have made”, this isn’t a good proxy. You won’t see massive returns like that again (save for following the next financial crisis) and by that logic, you could LOSE much more than just lending it to the government in a down year in the future (aren’t you happy you loaned the Feds money in 2008?).
Most Americans spend what they make – or more. The tax refund is at least one autopilot program that virtually guarantees a few thousand dollars coming in at a set time each year. Most people would simply spend the additional $50 each week instead of say, investing that exact amount. This is reality over theory speaking, but sometimes, you’ve gotta recognize and accept human behavior over spreadsheets and assumptions.
Tax Refunds Act as a Special Savings Account – many people use the annual refund to pay for anything from this summer’s vacation to making a final investment into the prior year’s IRA allowance. There are few mini-windfalls in life, but this is an annual one that lends some routine stability to a family budget. Even an annual bonus isn’t guaranteed to those that were used to them in prior years.
Many Americans Don’t have an Emergency Fund – for those that don’t, an annual refund could be used to pay for an unforeseen medical emergency, help with monthly payments following a recent layoff, or pay for that water heater that just busted. It may be the only time per year that one of these mini-windfalls ever comes around.
A Better Strategy for Funds Allocation – Many people don’t really have a good “plan” for what to do with $50 weekly. Perhaps disciplined investors do set up that automatic monthly withdrawal into an investment account, but with a single 4-figure payment coming in once per year, there’s plenty of time to plan and think about how to best deploy that cash. Perhaps with that money, you ‘ll want to make a high ROI investment in your house under the cash for caulkers plan that is just being finalized now. Perhaps you’ll want to buy a few thousand dollars of shares in a particular stock which you can’t do with $50 generally (DRIP plans perhaps but they have their drawbacks). Basically, with some time and planning and a one-time payment, many people will put that money to work better than ongoing micropayments weekly.
You May OWE Money! – Nobody ever gets it exactly right when toying with projected deductions, projected income and adjusting dependents. Depending on how your year went, what the latest tax law changes were that you may have missed and how much you actually made, let’s say you end up owing $500 come April. Is that where you want to be? You had those extra $50 each week last year, but now you’ve gotta come up with an unplanned tax payment within a month!

So, there is something to be said for maximizing returns in the long-term, beating inflation and optimizing cash flow. In the corporate world, cashflow management is gospel and accounts payable/accounts receivable should be optimized to squeeze every penny out of the timing of transactions. However, you’ve also got to realistically assess what the impact would be to having no tax refund vs. a few thousand dollars each year. Ask yourself (since most of you ARE getting a refund this year) – Do you wish you weren’t getting that refund and had the money weekly last year? Or are you relieved and pleased that it’s coming?

If your annual refund is enormous, like over $10,000 each year, perhaps it’s worth reconsidering whether that’s too high and your money could be put to better use throughout the year. If you carry revolving credit card debt and for whatever reason haven’t bounced that into a 0% balance transfer, perhaps the money could be better utilized paying down debt monthly (with requisite discipline). But if it’s say, $1,500 or even the national average tax refund estimate at $2,700, perhaps for your given budget, you’re better off each year just leaving it alone.

I’m interested in your thoughts:

For 2009, Did You: Lend it or Leave it?

Best of Money Carnival #41

Darwin — Mon, 08 Mar 2010 12:35:38 +0000

Welcome to Darwin’s Finance. If your new to this evolutionary approach to money, feel free to peruse articles on either Personal Finance or Alternative Investments and please consider signing up for FREE Updates via RSS.

This week, I had the opportunity to host the Best of Money Carnival. What is this carnival business? Basically, it’s a “traveling” showcase of the Top 10 Best Articles in Money from around the blogosphere. By showcasing top content on various blogs, readers are introduced to new bloggers and ideas on a weekly basis. There were so many great articles submitted this week so narrowing it down to the top 10 was very tough:

#1 – Pick of the Week: Man Vs. Debt presents 8 Effective Ways to Raise Frugal Kids – A great article on avoiding the rampant consumerism our kids are constantly confronted with. My parents were frugal and instilled some key money behaviors that I’m finding tough to mimic in today’s society. It’s always good to get some good ideas from people having success with it.

The remaining are in no particular order:

The Amateur Financier presents Unemployment and Motivation: A Case Study – an interesting perspective from someone who was a recipient of unemployment insurance and how the system may influence people’s willingness to go back to work for a lower paying salary.
Canadian Finance Blog shares How I Got $8 Glasses – a unique set of steps to get really cheap glasses instead of the conventional brick and mortar store route.
The Smarter Wallet opines on Becoming An Entrepreneur: Are They Born or Made? – an assessment of nature vs. nurture in the business owner world.
Magical Penny presents The Treadmill that Does Not Get You Fit (financially) – a neat entry from a new blog I just came across – check it out!
Budgets are Sexy presents No More “I Can’t Afford That” – railing against people’s use of this annoying phrase as an excuse.
Financial Samurai presents The Curse Of Making Too Much Money And Not Pursuing Your Dreams – an interesting window into a high earner that isn’t feeling fulfilled.
Good Financial Cents presents How to Become a Successful Financial Advisor- this isn’t just an article about Financial Advisors. It shows the trials and tribulations Jeff went through early in his career to realize the success he enjoys now; applicable to virtually any job today.
Free Money Finance presents Making the Most of Your Most Valuable Financial Asset – some analysis and tips to enjoying higher lifetime earnings by focusing on higher annual raises.
Barganeering presents Best Places to Hide Money At Home - I haven’t considered this facet of personal finance in a while and it’s always interesting to see what the author and commenters are doing to thwart the thieves and save for a rainy day.

How Does Society Value Additional Time for Your Dying Loved One?

Darwin — Sun, 07 Mar 2010 13:06:42 +0000

There is an excellent article in this week’s BusinessWeek written by the widow of a man who fought a long and courageous battle with cancer. What differentiated this article from other similar accounts is that the article stepped through a very detailed financial account of just how costly it is to sustain a terminal patient at the end of their life when the end is imminent. While she did personalize her account with what a devoted husband and father he was and what a fighter he was, the key message she sent to the millions who read this article is that the US needs to get real about the untenable situation we’re facing with an aging bolus of boomers approaching this same scenario.

The family paid only $9,400 of the $640,000 total bill. So, she asks the question as to whether they would have gone to these lengths if the costs were borne by the family and not a distant pool of healthy participants paying into an insurance pool. While politicians like to paint insurance companies as these draconian profiteering outfits, cases about where they’re shelling out hundreds of thousands of dollars to prolong the life of a terminal patient. When they raise premiums 10% or more each year and America cries foul, nobody’s really digging any deeper than the fact that they are for profit. But these premium increases aren’t all going to the bottom line – the balance sheets and stock prices surely don’t support that notion. No, we have an unhealthy, aging population that demands more and newer more innovative medical treatments – which are costly.

I’ve had this talk about when enough is enough with my wife and as impractical as it sounds (to me at least), she says “you can’t put a price on a day of life. I’d spend every last penny to keep you (me) alive for an extra month”. As romantic as that sounds, it’s just not feasible to spend an infinite amount of money on an ever increasing population of aging Americans. Paying $100K for this regimen of chemo, $100K for a prolonged hospital stay, $50K for this treatment, $25K for that one – it simply isn’t sustainable. It will bankrupt our country and our children. But it’s a conversation no policy makers are having.

Putting aside the controversial aspects of the reform bill like special deals to buy votes, the special Union deal and the lack of tort reform, this issue isn’t really addressed in the bill but eventually America’s going to have to have the conversation. Organizations looking to block the bill and scare voters brought up this “death panel” topic, and while the ghastly name would give anyone pause, I’ve gotta wonder about whether the cliff we’re running toward needs some sort of reasonable cost controls and assumptions in place. i.e. if you’ve failed on this treatment and that treatment, you’re 82 years old and other organs are failing, is it a prudent use of another $200,000 to prolong that life another 2 months? I don’t know. I don’t ever want to have to make a decision on allowing a human life to expire due to money, but someone has to. What is the alternative? Insolvency.

My wife and I have established our living wills and medical directives to insert some logic and reason into the decision making process should something terrible occur. If we’re in a devastating car accident and I’m in a vegetative state for life, rather than depleting our estate so I can rot in a bed braindead for 20 years (this happens quite frequently, and it’s a great cost-center for hospitals), I’d prefer to have the plug pulled. I’d pick my children having money for college over enduring that hell for 20 years any day. But the decisions are rarely that simple. I can tell you now, with young kids and a lot to live for, if I were diagnosed with cancer, I’d be fighting it like hell, and my insurer would likely be shelling out a ton to keep me going. However, if the situation reached the point of hopelessness and we were depleting our family’s future, I don’t know how long I’d keep fighting. I guess you can’t judge that situation until you’re in those shoes, which I’m not.

So, What’s the Solution?

Do we need to have limits on cost of treatment?
Should there be some sort of independent panel that determines the plausibility of continued treatment in hopeless situations?
Do we need families to shoulder more of the burden than insurers and the taxpayer (under government plans)?
Should age, health and possibility of recovery be factored in?
Should everyone get the same treatment regardless of their insurance and financial situation?
What else can be done?

Because to do nothing is to drive our economy right off a cliff.

Can You Put a Value on Extending a Life? Should You?

Check Out These Interesting Financial Products and Deals

Darwin — Fri, 05 Mar 2010 12:44:08 +0000

There are some neat new sites, services and deals out there that can either boost your bottom line with minimal effort or flat out provide entertainment value with no discernible benefit. Here are a few in no particular order:

Blippy – Blippy is perhaps one of the strangest new services I’ve seen this year. I have yet to figure out what the actual value or utility is to society, but I’ve gotta admit, it’s an interesting concept and rather amusing to watch. Frankly, I’m not sure if I’m more amused by the content of the site or the fact that multiple legitimate venture capital firms are backing this garage experiment. Basically, you create a profile and publicize for the world to see every purchase you make. On one hand, this sort of voyeurism is sure to be a hit for the same population that loves reality TV and blogs that share relatively insipid yet personal details about the author that for some reason draw massive readership. Conversely, from the participant’s point of view, perhaps it’s either narcissism or a last-ditch attempt to force some sort of fiscal restraint by just putting it all out there for all to see. For instance, many studies have shown that people are more likely to lose weight if they face public shame or embarrassment by not meeting their objective once their journey is tracked by a viewing public. i.e. The Biggest Loser, someone posting a before/after body shot on their blog, etc.

Whatever the outcome of this venture, it’s worth at least looking at once to just ask, “Why?”

6-Figure Salaries – If you’re making $75,000 or more and want to at least keep tabs on what your market value is outside your current role, The Ladders is such a cool site. I signed up a while back and I get automated emails based on my preferences for region, the field I’m in, positions I’d consider, etc. I get an update weekly or so with Director of this, Project Manager of that, salaries list, locations, etc. It’s pretty neat – and it’s FREE to sign up and get the initial updates. Since so many job postings out there aren’t aligned with your actual interests or they have lousy salaries, The Ladders is great at screening just what you’re interested in (or finding out what your boss makes!).

A CD You Control? – There’s a pretty interesting new product from Ally Bank that I’ve never seen before. The Rising Rate CD is a certificate of deposit that allows you to actually increase the rate once during the term in case rates rise on the same term CD and you feel you’re missing out. Feel like a sucker locking in a low rate today so it’s just sitting in an even lower yielding savings account indefinitely? This may be the solution. If rates spike as the Fed reacts to inflationary forces, you can jump your rate up at will. Check out the Rising Rate CD details.

No Penalty CD – Ally Bank also has a No Penalty CD that combines a competitive rate with the ability to break the CD and withdraw funds without the downside of a CD penalty. More info on the No Penalty CD.

$100 Signup Bonus – at OptionsXpress. This is a top options trading outfit that of course, allows you to trade stocks as well. Given the $100 signup bonus, even if you already have an online broker you like using, it’s worth setting up this extra account for a free $100. You only need $500 to open the account so it’s a 20% ROI right off!

0% Down Mortgage? In 2010? You’re not seeing things. Under an obscure US government program that isn’t widely publicized, thousands of American families are still getting mortgages with NO money down. It’s called the USDA Farm Loan but most of the people partaking live on anything but a farm.