I was reading my local paper today and it reminded me of the shenanigans that continues to ensue with respect to “Target Date Funds”.  Many investment plans and almost all major mutual fund companies now offer these target date funds that claim to provide the right mix of stocks and bonds (basically, to optimize returns vs. volatility) for investors based on their age.  Aside from the fact that everyone’s risk tolerance and actual investment objectives are different, the funds themselves have wildly divergent returns for the same target year.  For instance, take a look at this snapshot of various 2040 funds.  How can one have a 1Q2013 return of 9.0% while another has a return of 2.9%?  That’s insane.  I’d be annoyed if I were a 20-something or 30-something that thought I was getting a relatively high performing mix of primarily stocks and yet the fund only returned 2.9%, especially when paying a higher fee (see how bad the fees are on target date funds).  Here’s the snapshot:

An additional consideration is that it’s a bit of a misnomer to classify any of the funds as “best” and “worst” as the article portrays.  All these returns really indicate is that one fund had a higher mix of stocks than the other.  So, in a downturn, that “best” fund would vastly underperform and lose more money as well and end up in the “worst” category instantly.

How to shield yourself from all this nonsense and actually achieve better returns?  Buy the lowest cost index funds you can get your hands on instead and balance yourself as you age.  These target date funds tend to have much higher expense ratios and don’t accomplish anything you can’t do yourself.  Over a decades-long period of time, enjoying lower annual expenses will boost your retirement fund returns much more than trying to pick the right actively manager and target date funds.  These are the facts.

Do You Use Target Date Funds?

©2013 Darwin's Money. All Rights Reserved.

Since we’ve decided to stay in our home semi-permanently (whatever that means – we decided to forgo new construction, put an anchor in our backyard and not move), I’ve been thinking more about enacting some longer-term, higher cost projects around the house like new windows, replacing the front door, etc. These are things we know we’re going to need someday anyway, so why wait? There are two schools of thought here:

• If You Don’t Have the Funds, You can’t Afford It – It annoys me to no end to see people using their homes as piggybanks to fund trips to Disneyworld, cars they couldn’t otherwise afford and all kinds of other lavish lifestyle upgrades and then when the housing market crashes, they’re playing the victim and walking away from mortgages because they’re underwater. That’s self-imposed. The old school of thought is to abhor borrowing and if you don’t have the cash on hand now, then you can’t afford it. That type of thinking will surely prevent you from getting in trouble in life. But what about when there’s a gray area? Say you have the funds, but you’d prefer not to use THOSE funds. In my case, I have plenty of cash, but I’d prefer to reserve that as an emergency fund rather than shell it out on $10-$15K in home improvements and then need to tap my emergency fund someday. Likewise, I have 5 figures in a traditional trading account, but I’d trigger thousands of dollars in capital gains by selling off my Apples, Googles, Baidus and other stocks that have appreciated over the years. (Why pay capital gains taxes today when I can pay them tomorrow!). So, that leads to the next point…
• Better Use of Cash/Other People’s Money – There’s a big difference between the way average people think and the wealthy. Average people think about making a salary, saving, spending and budgets. Wealthy people look to put other people’s money to work for them and optimize the use of funds available to them. Average people view debt and leverage as a risk, whereas the wealthy try to use it as an opportunity. The smart ones don’t get burned. So, a key distinction here is that the use of leverage and debt usually applies to “investments” when you’re thinking about successful wealthy Americans, but the same could apply to spending as well, right? I wrote recently about all the great stuff we’ve done in our lives by eschewing the ridiculous common advice on keeping a massive emergency fund. While I’d like to maintain an emergency fund of say, $15K, what if I want to spend that much on home improvements? I’d argue that rather than building up another $15K which may take over a year if I’m only able to save an additional $1K/month given all my other goals for 529, IRA, 401(k), etc., why not just do it now?
• Begging People to Borrow Money – So, if I can get a home equity loan for 3-3.5% and use it as a tax deduction, I’m effectively borrowing money at less than 3%.  The same goes for cash-our refis and new home purchases with incredibly low interest rates (see today’s rates). Meanwhile, I have investments that yield north of 5% even when the market dips. It’s not a total wash since it’s not like I’m borrowing those funds and diverting it right to investments, but money is fungible. It’s my discount rate. If I think money is worth, conservatively, 5% to me and I can borrow it at 3%, I might as well borrow!

What Are Your Thoughts?

Would You Make the Home Improvements with a Home Equity Loan Now?  Or Wait Another Year or Two?

©2013 Darwin's Money. All Rights Reserved.

There’s a recent study out stating that a mom is worth about $60,000 based on the type and amount of work she does if these services were rendered on the open market.  First of all, this study is quite flawed in my opinion and doesn’t reflect in any way any typical family since the standard deviation across households is absolutely enormous.  But it also begs the question as to what each spouse is worth in your household which I’ll get into a bit later.  But first, let’s consider trying to value what a mom is worth and why that’s kind of impossible to do in aggregate for Americans, and why the notion of doing so is a bit insulting and useless to begin with:

• Moms and Dads are Interchangeable – I can only assume there was an agenda going into these studies to show how undervalued women are in society and by showing a typical mom is worth $60,000 (which is north of the median income in the US by the way), it dispels that notion.  While it’s a noble cause, it doesn’t mean it’s right.  First of all, isn’t listing out a bunch of domestic responsibilities that a 50s housewife had traditionally done and pricing them out a bit sexist in this day and age?  I have a co-worker whose wife travels constantly. Nonstop, I can’t even exaggerate.  She’s gone 5-6 days a week about 3 weeks a month. She’s barely ever home and rarely sees the kids.  So, he’s basically raising them during the week.  He does all the cooking, cleaning, driving them to sports, school, lessons, etc.  He’s fulfilling the role that the “mom” plays in the study.  Plus he works a full-time job of course.  So, she’s not fulfilling virtually any of “mom jobs” the study relies on. I have another situation with a dad realtor/mom teacher.  Same thing; he’s home a lot more so he does all the kid stuff including cooking, cleaning, etc.  Cop friend, same thing.  He works 5 days on 5 days off.  On his 5 days off, he has virtually nothing to do!  So he’s mom.  He deals with everything kid related, cooking, cleaning, etc.  I have another female neighbor who loves mowing the lawn.  My wife wouldn’t touch the tractor, but this woman is out there twice a week mowing meticulously.  That’s traditionally a male role, but who cares, she does it.  These are all anecdotes but I’m sure you think of many, which demonstrate that it’s basically useless and impossible to cost out what a woman is worth based on 1950s definitions.
• What’s a “Dad” Worth?  Presumably, the same logic could apply to dads, but I haven’t seen that study. Funny how that works.  But let’s just think about all the things I do on the side, aside from my day job.  I just powerwashed our deck, mowed the lawn, did a bunch of crap for the pool opening, landscaping, took the boys fishing and drove/coached my kids all this past weekend alone.  I also paid the bills, disputed a healthcare expense, did a return on Amazon, set up an outing for Adventure Guides that I have to run and countless other things.  Last night, I ran my kid to piano lessons and I also spend time with him doing his assignments and practicing with him.  It would be absolutely silly and useless to cost these items out and claim that I’m really worth whatever it is, say, $50,000 above any beyond my ordinary salary.  Because I’m not!  No reasonable person would outsource 100% of their parental role.

• This Study Looks at the Wrong Things – It doesn’t really matter what someone wants to claim a mom or a dad is worth based on outsourcing everything, because nobody really does that (not in the bottom 99.5%).  It’s called being a parent.  Parents do stuff with and for their kids.  Aside from this, of course, there’s no adjustment for cost of living (all these tasks cost twice as much in the Northeast and West Coast compared to Alabama or North Dakota), and the assumptions are just too generic to be representative of any routine family.  It’s just an average of wildly divergent assumptions.  An assessment families should really do is what is it worth for a second spouse to work versus stay home, if that’s something they’re unsure of.
• What’s a Second Income Versus Staying at Home Worth?  This is a real question families should consider.  My co-worker I told you about – he was lamenting the fact that now their tax rate is over 50% when considering the Obamacare taxes, the higher marginal federal rate, state, local and payroll taxes.  Then on top of it, he’s gotta pay for daycare for one kid still, pay a sitter all the time when he can’t get home from work in time or has a night-time call for work and more.  If his hourly rate is say, $50 an hour, he’s working for like $20…marginally speaking.  And they can’t invest in a Roth IRA either at that level. If he were on his own, of course he’d have to work.  But could they live off just his wife’s salary and save all the money they shell out now and pay a much lower tax rate?  Sure!  They’d end up getting a child tax credit, more deductions, stop paying the Obamacare rate on income and investments and more.  When I did the analysis for my wife working while our kids would have required daycare, it was more like $10 an hour.  I’m sorry, but for someone with a Master’s Degree and the opportunity to stay at home and live a more reasonable, enjoyable lifestyle for 10 years, $10 an hour just wasn’t worth it.  Don’t get me wrong, I do look forward to getting her back in the workforce once the kids are all in school, especially since teachers get pretty good healthcare, livable income and my job is anything but secure the way my industry’s going.  But for now?  It’s just not worth her going back.

So, rather than trying to value what my wife’s “jobs” are actually worth, we looked at it from the top down instead and questioned whether it’s really worth her working on a teacher’s salary when we’d be shelling out so much on childcare, higher taxes, gas/depreciation on an extra car, and all the money teachers spend out of pocket to be a teacher (something parents rarely give them credit for).

What Are Your Thoughts on What a Mom Is Worth?

Is It Even Appropriate to Try and Define?

©2013 Darwin's Money. All Rights Reserved.

It’s tough to not see so many asset classes moving in the right direction while the economy and the globe seem to remain in constant turmoil and wonder what’s going on.  US equities continue to break new interim highs and more recently, all-time highs.  Treasury bond yields continue to sink to historic lows, with mortgage rates following, and we have had some positive home price moves finally.  Here are some thoughts on each:

• Stocks – US equities have been on a complete tear, up over 12% YTD, and 131% since the March market lows if you were lucky enough to buy at the pivot bottom.  That does not include dividends.  People had often equated stock market performance with the economy, but this time does in fact seem different.  The economy is pretty stagnant, joblessness remains quite high, tax rates are increasing, the stimulus spending has ceased and sequestration isn’t helping.  Yet, stocks continue to rally.  In some ways, it’s a self-fulfilling prophecy.  See, during the recent recession, firms were in a relentless survival mode, cutting all forms of spending possible, often fixed costs like salaries.  These layoffs resulted in new ways of doing things, often automation and outsourcing.  Well, now that demand has finally picked up, companies are simply scaling these newly efficient processing.  Hiring in higher paying, high skilled jobs has simply not picked up.  This has helped boost bottom lines.  Corporate profits are at an all-time high.  And then with bond yields at record lows, companies are borrowing like mad (i.e. Apple’s announcement this week) to simply buy back their own stock or issue dividends.  This prevents them from having to repatriate funds from overseas, saves them money on their tax bills and shifts equity and dividend payments over to investors.  It’s a virtuous cycle.  Probably won’t end well, but it may last years.
• Bonds – You’d think all this money flowing into stocks would have been due to a great rotation out of bonds into stocks, but not the case. Funds are obviously still flowing into bonds given the record low yields.  QE is driving much of the directional movement, but also fear.  Large funds seeking refuge will sooner take a near-zero yield then chase more volatile stock returns and there’s little inflation to speak of in such a weak economy, so inflationary pressures aren’t driving yields up either.
• Housing – We just had a recent report that home prices were up nationally 9% year over year.  It’s been over 7 years since we’ve seen a jump like that in home prices.  It may just be a temporary blip, but I think this one may be for real.  I’ve been so bearish on housing for so long primarily because of the jobs situation and the economy, but eventually, when the tide turns and people start rushing into housing again for fear of missing a rising market, we’ll see a new bubble form quickly.  I’ve seen the euphoria already with a recent family member purchase and then our neighbor just listed their house and had it under contract the very first day they showed it.  These are anecdotes, but the next day, another realtor showed up at our door asking if we’d sell our house for $20,000 more because they were angry they didn’t get to show their clients the house that just sold.  We’re not even in a hot area!  I can sense a new rush into housing from people who have been sitting on the sidelines waiting for the conditions to improve.

With these trends in mind, what trading moves are you making?  Anything different than normal or just set it and forget it?

©2013 Darwin's Money. All Rights Reserved.

I just got the life insurance bill for my wife’s annual premium today and it reminded me of our overall insurance situation.  Her bill is $250 for a 20 year term $250,000 coverage.  I bought term instead of life because I figure after 20 years, the kids will be through college, I’ll be close to retirement, and in the event of her death, it wouldn’t be nearly the same financial hit that it would be now.  Even though she’s home with the kids, I’d certainly have to lay out funds for childcare, funeral expenses, pay for many of the things she handles now, and it would help account for some of her future income.  Some might suggest a lower or higher amount, but $250K is where we landed recently.  But this got me thinking about other types of insurance as well.

My Life Insurance

I have a 10X salary option through my employer which is a pretty good amount.  Some people (especially insurance salesmen) recommend higher, like 15-20X salary, but I believe this to be a rule of thumb and people really need to assess their situations individually.  See, we have a relatively low mortgage/tax situation and our kids aren’t in private school, nor do we have any debt besides the mortgage.  So, obviously this picture is different than someone with $30K/year in private school costs, thousands per year in credit card interest payments and a larger mortgage.  Aside from that, I have plenty of funds set aside in traditional and retirement accounts.  And finally, the kids’ college accounts have a decent start.  So, I’m able to sleep at night with 10X.

Auto/Homeowners Insurance

We have all our insurance through State Farm Insurance.  I don’t know that they’re the best company in the world, but the longer we’ve been with them, the discounts keep improving, and we’ve bundled everything up.  I compared them to USAA once and even with the dividends or whatever those annual paybacks are, we were even by just staying with State Farm.  Anyway, we have pretty standard auto and homeowner’s – nothing crazy.  Although I did get a water damage rider for the basement after we had a flood in the basement a few years back from a failed sump pump.

Other Types of Insurance

Through my employer, I have various other types of insurance like disability, a small policy on each child and more.  Some people opt to get everything from funeral insurance to pet insurance to income protection.  I suppose much depends on your personal preference  a realistic assessment of the likelihood of ever requiring a file a claim and your capability to weather an event if going uninsured.

I’d like to think we’re in the “adequately insured” bucket, but some may beg to differ.  I’m curious where you think you fall.

Are You Over, Under Insured or Just Right?

©2013 Darwin's Money. All Rights Reserved.

A lot of finance sites focus on getting out of debt or making more money.  However, what is seldom discussed is what to do if you actually have “too much” money.  That may sound absurd at first, but think about it.  Many people oversave and worry about running out of money so much during their 30s through 50s that by the time they’re in their sixties and seventies  they realize they’ve only got a decade or so left of active, healthy living and they have more money than they know what to do with.  They’ve already gotten the kids through college, paid off the mortgage and the Social Security checks are just starting to roll in to supplement their income.  So, what now?

Seeing this situation play out with various family members, friends of the family and such that are reaching their “golden years”, I’ve seen numerous approaches to this “problem” if you will.  After all, nobody wants to die with too much money – meaning you could have done more with it during your living years.  Here are some of the things I’m seeing people do with their money – whether these are prudent or distasteful, I defer to your opinion:

• Family Vacations (Large Groups) – We have a few friends that get to go on annual family vacations now with their mother/father or both, where they pay for massive groups of their children and grandchildren to all go to Disney, cruises, shore houses and more each year.  Must be nice!  They don’t pay a dime except for some gas to get where they’re going and maybe some food/drinks.  But all rooming, flights, cruise costs, etc are paid for by their benevolent aging parents.  If we are in that situation when we’re older, I could see us doing something like that rather than just trying to continuously grow our nest egg into a larger and larger valuation.  After all, nobody’s on their death bed wishing they earned an extra few thousand dollars in their retirement funds.  I’m a big believer in life experiences.
• Philanthropy – Many people find great value and purpose in philanthropy.  There are so many forms of philanthropy that it perhaps shouldn’t all be considered one bucket.  There’s the giving of one’s personal time and energy along with funds.  There’s very targeted giving to a particular cause.  There’s the shotgun approach of donating funds to several different worthy causes, religious institutions, the poor, medical causes, etc.  And then there’s the notion of letting someone else make the best use of your funds.  For instance, the likes of Warren Buffet handing over substantial sums to the Gates foundation to manage is an admission that the foundation could probably make better use of his money than he could himself.
• Gifting – Many people have mixed emotions on gifting to their family members.  On one hand, it’s keeping money out of the hands of the government by staying below the threshold for death taxes (or minimizing the hit).  That’s a noble cause, since most people would rather see their money spent on their family than all the absurd things the federal and state governments do with taxpayer funds.  To the contrary though, is it sort of enabling and babying a generation?  Many people want to see their kids make it on their own and not be getting what’s basically a very high-value allowance each year, if they’re giving say, $13,000 to each spouse at Christmas every year.  To that, I’d say, if I’m in the position to gift to my future heirs when I’m older, I’d like to do that rather than send it to government coffers.  But I probably wouldn’t start doing that until my kids are older and established, not in their early twenties for instance.  You also have to make sure they don’t become accustomed to it, or expect an annual gift.  Then it truly becomes an allowance.
• Cars, Jewelry, Etc. – I’ve seen my fair share of seemingly silly purchases by elderly folks that don’t seem to make a lot of sense.  There’s the proverbial mid-life crisis car purchase, second and third vacation homes that are seldomly used, expensive jewelry which still baffles me, and all sorts of other gadgets.  I suppose this behavior is no different in golden years than someone who makes these sort of purchases during their younger years, but people sometimes seem to get this urgency to spend their money and in treating it as such a pressing issue, they don’t research, they don’t haggle, and it appears outwardly that they don’t even think – they just spend.  But then again – it’s their money!  They’ve earned it, they have more of it than they need, and they should spend it how they see fit.  Who are we to judge?

If you find yourself in this position as you reach your golden years, what approach will you take?

©2013 Darwin's Money. All Rights Reserved.

The following is an contribution for your consideration:

Tuesday morning’s purchasing manager index from Chinese HSBC proved to be particularly disappointing, at just 50.5, spoiling Monday’s strong European finish on Wall Street. As long as poor data continues to feed in, there will be sustained concerns, in spite of relatively resilient markets in the US and Europe.

Eurozone manufacturing and services PMI data for April is widely expected to show some measure of improvement compared to a fortnight ago, but there are still significant worries about the state of the French economy. Announcements have been disappointing, with things sliding downward for the key Eurozone member. Confidence in President Hollande is also decreasing rapidly, furthering the uncertainty. Having said that, French manufacturing PMI figures are due for a 0.1 improvement, with services expected to receive a 0.7 boost. The current 41.3 services index is a four year low.

Germany is still the exception to the rule in Europe, with a sturdy outlook, but is not showing huge signs of improvement. There is no expected manufacturing change, with the figure staying at 49. Services should see a rise from 50.9 to 51.

Across the board, the European figures should see a slight increase in services, up to 46.5, though manufacturing is likely to be a static 46.8. The economy isn’t facing any significant barriers, but it is certainly hesitant, which has contributed to the current decrease in long term currency trading volumes. Forex spread betting and scalping is more popular in the current climate.

The political stalemate in Italy will ensure that consumer confidence will continue its slide by a couple of percentage points, down from 85.2. Things may change if the President makes good of his threat to resign, or the politicians attempt to make progress, but the outlook is negative for the time being.

Last week saw the UK predictably stripped of its triple-A credit rating from Fitch, with the country becoming somewhat a hotbed of debate over the argument between debt and austerity. This is a topic affecting not only the UK and Europe, but economies all over the world. It’s certainly the primary cause for fiscal friction within governments.

As a result of European problems, UK Chancellor George Osborne looks to be easing his policy of heavy public spending cuts, with growth issues likely playing on his mind. Public finance numbers for March show that the annual deficit is likely to reach close to 2012’s figure of £121 billion. This slight improvement will be much greater than Osborne’s earlier estimate, made last year.

The debt versus austerity debate has claimed the reputation of both ratings agencies and the IMF, as contradictory views have been issued and proved false. Currently, Standard and Poor’s is the only agency to have the UK on an AAA rating, issued on the Chancellor’s current plan. This would suggest that Osborne will continue in a similar fashion regardless of the IMF’s input when they give their immanent review of the UK’s financial status.

©2013 Darwin's Money. All Rights Reserved.

Real estate transactions are incredibly frustrating.  In most transactions, someone gets really screwed – either the buyer or seller.  And often times, both parties feel they got screwed regardless.  There are any number of reasons this happens, not the least of which being the misaligned incentives of real estate agents, who tend to strike much better deals for themselves when buying personal properties than for their clients.  You’ve gotta remember that an agent is going to get their 5% or 6% or whatever, regardless of how well they represented you – and they have an incentive to just get the deal done.  But aside from that, much is about leverage and pissing matches.  And finally, the buyers often get screwed because they become so emotionally attached to a prospective property that it’s death by a thousand cuts. They can be drawn into more and more costs along the way because they’ve already made up their mind they want – need a property.

Real-Life Situation

We have a set of close friends who are looking at a newer larger home in an affluent area.  They’re leaving the townhouse behind and moving into an area where the real estate isn’t cheap, but there’s some “name recognition” to the area and the homes listed are in nice condition.  They landed on one that seemed too good to be true.  It was just a bit out of their price range (we all play this game right?  If your range peaks at $400,000, of course you’ll at least peak at something listed for $450,000 right?) and had lots of upgrades – marble, finished basement and a pool in good shape.  What’s not to like?

• Paid over ask price – Apparently, this property was so sought after that the first day it was open to the public there were 2 bids.  They had to put theirs in and were competing with an all cash bid allegedly.  While they were never told what the other bid was, the opposing realtor said that they had to put in $5,000 over the ask price so they could tell the other cash buyers that they had offered more.  This was posed as some sort of legal requirement or something which sounds like total BS to me.  It was just to extract an extra $5K over the ask price, but they bit.  So, they’re already starting off $5K more than they intended (which was already above their initial range of houses they were looking at).
• Mold – This is the most prominent piece here.  When most people hear mold, they run. End of story.  Well, during the inspection, the inspector found a pretty bad mold problem on the house because they had stucco which wasn’t done right.  That’s a recipe for disaster, especially in the northeast where it’s quite wet.  Here’s the best part.  The realtor was like, “What?  I don’t smell any mold!?”  I shit you not.  The realtor actually said that, kind of insinuating that the inspector was just making it up.  I started laughing when I heard this and said, “What, they also don’t see any Radon?”.  I mean, if that’s not a red flag, I don’t know what is.  But regardless, they want the house so badly that not only are they willing to buy it upon remediation but the seller can smell the fear/desire and proposed that they split the remediation cost of $15,000.  This sounded nuts to me.  I mean, clearly, the mold is a prior owner issue and there’s no logical reason why this should be open for negotiation.  In a situation where, sure, there’s a debate over whether you really need to repair a cosmetic issue, or replace a window with broken seals or whatever, fine, sometimes the buyer just eats it and moves on.  But mold?  Well, they bit.  See, the seller said if they don’t go along, she’ll just sell to that cash buyer (who, incidentally, has no idea the house has mold).  So, boom. Another $7500 gone.
• New Siding/Stone – Of course, since the stucco was the problem to begin with, that has to be replaced/repaired.  But they don’t want that to happen again so they’re going to get a new facade of siding/stone.  That’s another few grand on the buyers.
• Appraisal Fibs – This was a bit interesting as well.  Apparently, the buyer forced them to accept a contingency that if the appraisal comes in low, which means the bank wouldn’t normally give them a loan for the full 80% LTV or whatever, they have to come up with the funds themselves to cover the difference.  In other words, if an appraiser finds that the house isn’t worth nearly what they’re willing to pay, they’ll pay it anyway.  And dig into emergency funds/other to make it happen, since the bank will only lend up to the appraised amount.  That should be another red flag that perhaps they’re overpaying (not even counting all the mold/siding costs).  And they’re not supposed to mention the mold thing to the appraiser either; I guess the bank wouldn’t lend the money otherwise?  I dunno, sounded pretty shady to me.  Not like the buyers are doing something wrong, per se, but taking on inordinate risk just to get this coveted property while the seller keeps screwing them at every turn.

This Is What Emotions Do

I’m not criticizing these buyers.  I know what happens when you’re all excited about buying a new home.  You always “push the envelope” a little.  A couple grand on a 30 year loan is only a few bucks a month.  There are a million ways we justify extending ourselves further than we initially promised ourselves we would. We were looking to build a few years back.  Things kept getting more and more expensive.  I outlined some new construction option costs ($1300 for a garage door opener?) here that I’d never even heard of.  I’m trying to make my wife happy, have that nice big house that many of our friends and co-workers have, ya know?  I wanted that big yard for the boys.  It all sounded so ideal.  But I had to start to detach myself emotionally and force more discipline and analysis on the situation.  Not only were we getting worse and worse bids on our current home, but the builder finally started selling some lots and we lost our leverage there, so his prices started going up (or the gracious discounts he was initially offering started to dwindle).

The spread became too big.  Could have “afforded it”?  Of course, I could afford to do a lot.  But did it feel right?  No.  We were taking a larger and larger loss on our property and paying more for new construction than we had promised ourselves we would.  We walked.  It was time to pull the plug.  Sometimes, you need to set a threshold and when you’re past it, that’s it.  It’s called a walkaway price in negotiations.  The problem is, when people get too emotionally attached to an idea, they keep altering their walkaway price to the point where it doesn’t exist anymore.  We ended up putting in a pool, upgrading the home here, and at this time, we’re quite happy with our lower taxes, smaller mortgage payments and the same school and neighbors we already liked.  Would we have been happier in the other place?  Maybe, but we’ll never know.

What Painful Lessons Have You Learned or Seen Due to Emotions?

©2013 Darwin's Money. All Rights Reserved.

I was thinking back to how I first became so enthusiastic about saving and investing and how far I’ve come since my dad brought home the first finance book I’d ever read from the library.  It was a book about George Soros and how he’d made Billions on a bet against the British Pound.  I’m not sure why that book had such a profound impact on me since I never got into currency trading at all, but I suppose it was the story of what a guy with some investment prowess and a unique idea (and some leverage) could do.  Following that book, I’d read the Millionaire Next Door, Beating the Street and some of the other common investing and personal finance books of the 90s and was hooked on investing.

My First Investment

I was in college at the time and usually had a few bucks left over from each summer.  Since I worked during college too, to help defray expenses, a good part of what I made during summers was available to invest.  So, rather than letting it languish in a savings account forever, I’d decided to put it to work with a mutual fund company rather than trying to invest in stocks myself.  It was a load mutual fund investing in a broad market basket of stocks.  The fund company had since been taken over and I don’t recall the actual name of the fund, but it got me started.  What I do recall was the the going was a bit slow initially and I wanted to see more substantial gains.  I was impatient and naive.  This is funny, but now that I recall my next move, it reminds me that there weren’t even online brokerages at the time.  I called up an actual live stockbroker and paid what was probably $50 at the time, to place my first investment in Philip Morris as well.  I’m not sure why I was so hot on that stock; I’d probably read somewhere about cigarettes becoming popular in emerging markets or something.  Looking back, over a 2 decade period of time, that stock probably would have done pretty well if I’d just held onto it.  But I didn’t.  I grew bored of slow returns quickly as well and sold that also.

It wasn’t until I started my real job out of college that I started to have enough money to make actual trades with an online brokerage.  I must say, having a couple years to trade during the internet boom was quite exciting.  I was trading in and out of Amazon, Yahoo and other hot stocks that were zooming up and down each day.  But in hindsight, that’s not what investing is supposed to be all about.  That’s the high you get from gambling.  And like many gamblers, taking inventory of my trades in those early years, after the dotcom crash, I came out a loser.  It was fun and exciting while it lasted, but a valuable learning experience.  Of late, my focus has been more on long-term returns, keeping my costs low with the lowest expense ratio funds and ETFs I can find, and diverisifying my asset classes.

What Was Your First Investment Experience Like?

©2013 Darwin's Money. All Rights Reserved.

In our constant quest to save money on routine expenditures, I’ve reassessed where we have some opportunities and have already taken action in a few spaces to cut out recurring expenses.  Here are some key categories and considerations we’ve undertaken which may be of interest to you as well:

Competitive Bidding – We need to have some trees taken down and rather than going with a single quote like many people do, we got 3 quotes from reputable tree services.  To be honest, I was amazed at how much lower one of them came in.  He just has lower overhead, he lives around the corner and the job was just the right size for him.  He said he’d gang it with another job in our neighborhood the same day.  So, that’s a few hundred dollars we’re saving over going with the first service our neighbors recommended.

Early Payment Discount – I’m all about the early payment discount (otherwise known as dynamic pricing), as it’s the most effortless, risk-free savings you can get.  Many companies and municipalities are cash-flow constrained so for them, they reward early payers with a discount.  When looking at the annual tax bills for both my personal real estate tax, as well as our rental units, there’s a 2% discount for paying 2 months early.  That’s equivalent to roughly a 12% annualized risk-free return, which is impossible to find anywhere else.  When I add up the savings across all entities, it’s several hundred dollars this year.

Cancellation of Services You’re Don’t Really Need – While this may sound a bit cliche and obvious, step back for a minute and honestly assess whether you’re really using all your recurring subscriptions?  After some introspection, I was able to easily cancel my Sirius satellite subscription, eliminate my daily newspaper delivery (I kept Sunday only).

Play Competitors Against Each Other – One of the favorite tactics I like to share that’s worth sharing again is to play competitors in the utility space against each other.  With all our neighbors switching to Verizon FIOS, I remind my Comcast customer service rep of this fact and request discounted monthly pricing to “remain a loyal customer” (here were the details of when I saved 21% on my bill).  I get free premium channels, DVR and an extra discount, probably totaling $60-$90 in savings each month just for an annoying phone call once or twice a year.  The same could be done for trash companies, pest control or any other number of service providers.

Test the Waters Every So Often – It’s a dynamic market out there and even though you may have secured some quotes a year ago and feel you know the landscape, it could have changed again.  Take Tesco Car Insurance for instance.  By simply checking out the latest discounts and quotes against the market, you could save big bucks each year, especially if you have multiple cars in the household and/or teenagers who tend to have very high insurance rates. The same goes for Co op car insurance.

What Are Your 2013 Money-Saving Tactics?

©2013 Darwin's Money. All Rights Reserved.