I changed the name of my blog from "Financial Advice for Ordinary People" to "Freedom". And I also changed the description. I don't remember what it used to be, but now it's more representative of the way I think, for now.
I haven't liked the title "Financial Advice for Ordinary People" for a long time. When I came up with that name, my goal was to appeal to readers who weren't born rich, and to provide information I think helped me to be relatively well off.
Just now I understood why I never really like that title. It didn't reflect what it was intented for. It sounded like I was some know-it-all (financial advice) speaking to all you peasants (ordinary people).
So, I changed the name to "Freedom". The only complaint I have about that choice is that it's a bit too general. The description is also not as high-and-mighty sounding. So really all that's new and improved is the title and description of this blog. Everything else is pretty much the same old same old. Marketing and sales have never been my forte. So, I'm just gonna go with that for the time being.
I found out that after the feds dropped interest rates by half a point, my money-market account dropped the interest they were paying me by by more than 1%, to about 3.2%. I was disappointed, and took advantage of a promo- 3 mo 5.15% bond being offered through Ameritrade. I transferred about two-thirds of what was in my money-market account to invest in this promo-bond from 10/17/07 to 1/17/08. It's money I know I will not need for at least 3 months.
So, I'll be earning almost 2 whole percentage points more in interest over the next 3 months. It's not substantial - as if I could make a house payment with the difference. But it's money for me, and amounts to about $234 more than what I'd have, otherwise. So, let's say that's about $156 after taxes are paid. If I work about 20 to 25 days in a given month - that's easily free lunch for a month.
Tuesday, October 16, 2007
Sunday, September 30, 2007
Recent Savings
It's been awhile since I wrote about some of my more recent basic money saving ideas. These are some of the things I've been doing to keep more of my hard earned money.
#1 - Car Insurance
My car insurance company increased my premium. I was under the impression it had been increased in the past, but looking at the chart, it wasn't. I bought my car in March 2005 and this is what I've paid over time, since:
9/05: $528.20
3/06: $528.20
9/06: $499.30
3/07: $499.30
I don't remember what the original amount was, for 9/07, except than it was over $500 - I just remember calling and complaining about it. I haven't had any accidents or made any claims. I drive th car rarely, and I don't see a reason to pay more when my car's worth less than it was in March.
So for 9/07 my bill was reduced to $454.40. Call your car insurance company the next time you get a bill and tell them you think it should be less. The worse that can happen is nothing.
#2 - Dish
I dumped cable at the end of last year. Comcast effectively doubled my payments over the past 7 years - without providing any additional features or services. I thought about dish for a while, but was afraid of reception. Comcast would always libelously slam DirecTV, in their commercials, by telling us we'd regret switching to dish, since the picture would be all fuzzy and distorted depending on the weather. Guess what: that's a lie. I live in San Francisco, and it's foggy half the time. My picture is as good as ever, and my service hasn't been interrupted any, since I first signed up. DirecTV cost about the same as what I paid for Comcast, except that I have way more channels. Some good, ones too.
I feel like I'm subsidizing Comcast's DSL customers. I think they can lower their price for their Internet customers, and remain competitive by charging their TV Cable customers more. At least that's my theory, and why I think they kept asking me to pay more. Evaluate your expenses, and make sure that if you're paying more, it not so that someone else can be paying less.
#3 No More Landline Long Distance
I cut out long distance from my AT&T bill. I have a cellphone I barely use. Skype isn't the greatest, but I do occasionally mess around with it. One day, I'm sure it'll be fantastic. But right now, people complain about not hearing me very well through Skype. Also I was getting disconnected every 5 minutes for some reason. I don't make that many long distance calls, in the first place.
Before last October, my AT&T bills ranged from $106 to $124, and now they are pretty much always about $90 per month, every month. Make sure you're not paying for something you aren't using.
#4 Commuter Checks
The company I now work for offers commuter checks. They deduct a specified amount of pre-tax money from my paycheck, and send me a voucher for the amount they deducted each month.
My Fast Pass costs $45 a month. And when I buy it using the $45 pre-tax voucher, it costs me $24.52. So my already cheap cost of trasportation is cut in half. Check out CBM to see if this might be available at the company you work for.
#5 ESPP
The company I now work for also offers an employee stock purchase plan, ESPP. I can elect to have up to 10% of my salary deducted, and in May and again in November the money that was deducted buys shares of the company I work for. The price is the 15% less than the lower of the value at the start of the 6 month period, or the value at the end of the 6 month period. If I sold the shares I bought in the last 6 month period today, I'd make a profit. If I sell those shares in May next year, I won't have to pay as much tax on that profit. It's like free money. And although I'm not guaranteed to make a profit, my chances are quite good.
#6 Flexible Spending Account
The company I now work for offers a cafeteria plan, or a Flexible Spending Account. This year I got two new crowns, which I knew my share of would be $1374. So last year I elected to contribute $1374 throughout this year. Of course it doesn't feel great having so much deducted from my check each pay period, about $57, but I needed to get those crowns anyway, and like my commuter check vouchers, the money is pre-taxed. I haven't done the math, but something tells me it's probably about half-price like with my commuter check vouchers.
What's also nice is that I got both crowns at the same time, in July, and have already been reimbursed for the $1374. That's how the plan works, and maybe something lots of people don't know about: I haven't even finished paying the $1374 to the flexible savings account, but have already been reimbursed the amount I elected to contribute throughout the year.
#7 Employee Match on 401(k)
If you've read some of my earlier posts, you know I'm not a hardcore retirement savings plan advocate. My philosophy is that they're safety nets for those of us who will fail in life - and they're pushed by banks who want to tie up our hard earned money for decades. But I do think they can be valuable, and maybe even life-savers for some of us. They also are good ways to save tax dollars.
I'm fortunate enough to work for, if I'm not mistaken, the first company I ever worked for that matches my 401(k) contribution by at least 50%. They do it for up to 6% of my earnings. So I contribute exactly 6%. So I'm not not taxed on that 6%, and really what's going into my account each pay period is 9%. Even though I can't spend any of it till I'm old, if I'm lucky enough - it's like making 3% more money.
If you're making a decent salary, can use a good tax write-off, don't see an absolute need the money in the foreseeable future, and your company matches your 401(k) contribution, contribute up to the amount they match.
Ok. That's my update for now. I'll see if I can think of any more for later.
#1 - Car Insurance
My car insurance company increased my premium. I was under the impression it had been increased in the past, but looking at the chart, it wasn't. I bought my car in March 2005 and this is what I've paid over time, since:
9/05: $528.20
3/06: $528.20
9/06: $499.30
3/07: $499.30
I don't remember what the original amount was, for 9/07, except than it was over $500 - I just remember calling and complaining about it. I haven't had any accidents or made any claims. I drive th car rarely, and I don't see a reason to pay more when my car's worth less than it was in March.
So for 9/07 my bill was reduced to $454.40. Call your car insurance company the next time you get a bill and tell them you think it should be less. The worse that can happen is nothing.
#2 - Dish
I dumped cable at the end of last year. Comcast effectively doubled my payments over the past 7 years - without providing any additional features or services. I thought about dish for a while, but was afraid of reception. Comcast would always libelously slam DirecTV, in their commercials, by telling us we'd regret switching to dish, since the picture would be all fuzzy and distorted depending on the weather. Guess what: that's a lie. I live in San Francisco, and it's foggy half the time. My picture is as good as ever, and my service hasn't been interrupted any, since I first signed up. DirecTV cost about the same as what I paid for Comcast, except that I have way more channels. Some good, ones too.
I feel like I'm subsidizing Comcast's DSL customers. I think they can lower their price for their Internet customers, and remain competitive by charging their TV Cable customers more. At least that's my theory, and why I think they kept asking me to pay more. Evaluate your expenses, and make sure that if you're paying more, it not so that someone else can be paying less.
#3 No More Landline Long Distance
I cut out long distance from my AT&T bill. I have a cellphone I barely use. Skype isn't the greatest, but I do occasionally mess around with it. One day, I'm sure it'll be fantastic. But right now, people complain about not hearing me very well through Skype. Also I was getting disconnected every 5 minutes for some reason. I don't make that many long distance calls, in the first place.
Before last October, my AT&T bills ranged from $106 to $124, and now they are pretty much always about $90 per month, every month. Make sure you're not paying for something you aren't using.
#4 Commuter Checks
The company I now work for offers commuter checks. They deduct a specified amount of pre-tax money from my paycheck, and send me a voucher for the amount they deducted each month.
My Fast Pass costs $45 a month. And when I buy it using the $45 pre-tax voucher, it costs me $24.52. So my already cheap cost of trasportation is cut in half. Check out CBM to see if this might be available at the company you work for.
#5 ESPP
The company I now work for also offers an employee stock purchase plan, ESPP. I can elect to have up to 10% of my salary deducted, and in May and again in November the money that was deducted buys shares of the company I work for. The price is the 15% less than the lower of the value at the start of the 6 month period, or the value at the end of the 6 month period. If I sold the shares I bought in the last 6 month period today, I'd make a profit. If I sell those shares in May next year, I won't have to pay as much tax on that profit. It's like free money. And although I'm not guaranteed to make a profit, my chances are quite good.
#6 Flexible Spending Account
The company I now work for offers a cafeteria plan, or a Flexible Spending Account. This year I got two new crowns, which I knew my share of would be $1374. So last year I elected to contribute $1374 throughout this year. Of course it doesn't feel great having so much deducted from my check each pay period, about $57, but I needed to get those crowns anyway, and like my commuter check vouchers, the money is pre-taxed. I haven't done the math, but something tells me it's probably about half-price like with my commuter check vouchers.
What's also nice is that I got both crowns at the same time, in July, and have already been reimbursed for the $1374. That's how the plan works, and maybe something lots of people don't know about: I haven't even finished paying the $1374 to the flexible savings account, but have already been reimbursed the amount I elected to contribute throughout the year.
#7 Employee Match on 401(k)
If you've read some of my earlier posts, you know I'm not a hardcore retirement savings plan advocate. My philosophy is that they're safety nets for those of us who will fail in life - and they're pushed by banks who want to tie up our hard earned money for decades. But I do think they can be valuable, and maybe even life-savers for some of us. They also are good ways to save tax dollars.
I'm fortunate enough to work for, if I'm not mistaken, the first company I ever worked for that matches my 401(k) contribution by at least 50%. They do it for up to 6% of my earnings. So I contribute exactly 6%. So I'm not not taxed on that 6%, and really what's going into my account each pay period is 9%. Even though I can't spend any of it till I'm old, if I'm lucky enough - it's like making 3% more money.
If you're making a decent salary, can use a good tax write-off, don't see an absolute need the money in the foreseeable future, and your company matches your 401(k) contribution, contribute up to the amount they match.
Ok. That's my update for now. I'll see if I can think of any more for later.
Saturday, September 29, 2007
The 'R' Word
I made some adjustments to my investment portfolio this month. I did three things:
1.) On 9/17 I bought a new mutual fund, JORNX.
2.) On 9/20 I reset my 401(k) existing and future elections.
3.) On 9/24 I converted my YHOO to XLE.
The effect of lowered interest rates, by 0.5%, had a huge positive impact on my current investments. It also affected my short-term confidence - which led up to those three adjustments I made.
I know the Fed is going to lower rates again before the end of the year. Not sure by how much, but at least 0.25% and I don't think 0.5% is completely out of the question - our economy is falling into a relatively small recession, and these guys are desperate. I have wanted a new mutual fund for a while, and since I have DPCCX and PRLAX, I needed one that focuses on something I believe in, and that isn't international. JORNX sounded perfect.
Another action I took to get as much out of the possibility of a short term run-up: I also swapped out all my conservative 401(k) investments for the riskiest ones I could find.
But after buying JORNX, I have so much in tech stocks... I needed an existing candidate to convert into something else. I needed to sell something so I can go ahead and pay my 20% on its gains, while I'm not desperate to take my profits. The end of the year is approaching, and I've only sold off part of one company, INTC, I can write off losses for.
I selected YHOO as my candidate. It has been pretty flat since 2003. I originally bought YHOO in 1998, and much more in 2003. I decided lately, it was having too many swings, up and down - and I don't really like the roller-coaster activity. I've been thinking about buying energy - since I have none, and it's been doing quite well for such a long time. I'm particularly interested in alternative energy. So when I started researching alternative energy funds, I learned about these things called exchange-traded funds, or ETFs. I also understand that it may still be a little early to invest in alternative energy. ETFs are similar to mutual funds, but trade like regular common stocks. They're relatively new, and there aren't very many.
When it comes to money and finances, you have to think with your head, and XLE sounded like a solid, safe, short-term investment. It's a relief to not have to worry about what's going to happen with YHOO anymore.
Here's my plan: At the end of this year, I'm selling the rest of my common stock and two of the mutual funds I've held for many years. I'm resetting my 401(k) so that everything is reasonably conservatively invested.
I'm going to pay a lot of attention to Christmas sales. Based on this, I'll decide at what point during the 1st half of 2008 I'll sell my remaining mutual funds and XLE.
I'm waiting for a downturn. I'm prepared to wait awhile, and things may actually go up for some time, but I can't count on that, because that may not be the case. But it will be obvious when the huge sell-offs start happening. And I'm so sure they will, and the extent will probably depend somewhat on how much the interest rate gets lowered, this next time around.
Then when it's all gone down sufficiently enough, I plan to step back in, and one of the first mutual funds I plan to buy is New Alternatives Fund, NALFX. I really, really like what I've read about it, and I don't care about the load, so much.
Anyway - that's my plan for now. I'll update on any changes of heart I experience over the next few months.
1.) On 9/17 I bought a new mutual fund, JORNX.
2.) On 9/20 I reset my 401(k) existing and future elections.
3.) On 9/24 I converted my YHOO to XLE.
The effect of lowered interest rates, by 0.5%, had a huge positive impact on my current investments. It also affected my short-term confidence - which led up to those three adjustments I made.
I know the Fed is going to lower rates again before the end of the year. Not sure by how much, but at least 0.25% and I don't think 0.5% is completely out of the question - our economy is falling into a relatively small recession, and these guys are desperate. I have wanted a new mutual fund for a while, and since I have DPCCX and PRLAX, I needed one that focuses on something I believe in, and that isn't international. JORNX sounded perfect.
Another action I took to get as much out of the possibility of a short term run-up: I also swapped out all my conservative 401(k) investments for the riskiest ones I could find.
But after buying JORNX, I have so much in tech stocks... I needed an existing candidate to convert into something else. I needed to sell something so I can go ahead and pay my 20% on its gains, while I'm not desperate to take my profits. The end of the year is approaching, and I've only sold off part of one company, INTC, I can write off losses for.
I selected YHOO as my candidate. It has been pretty flat since 2003. I originally bought YHOO in 1998, and much more in 2003. I decided lately, it was having too many swings, up and down - and I don't really like the roller-coaster activity. I've been thinking about buying energy - since I have none, and it's been doing quite well for such a long time. I'm particularly interested in alternative energy. So when I started researching alternative energy funds, I learned about these things called exchange-traded funds, or ETFs. I also understand that it may still be a little early to invest in alternative energy. ETFs are similar to mutual funds, but trade like regular common stocks. They're relatively new, and there aren't very many.
When it comes to money and finances, you have to think with your head, and XLE sounded like a solid, safe, short-term investment. It's a relief to not have to worry about what's going to happen with YHOO anymore.
Here's my plan: At the end of this year, I'm selling the rest of my common stock and two of the mutual funds I've held for many years. I'm resetting my 401(k) so that everything is reasonably conservatively invested.
I'm going to pay a lot of attention to Christmas sales. Based on this, I'll decide at what point during the 1st half of 2008 I'll sell my remaining mutual funds and XLE.
I'm waiting for a downturn. I'm prepared to wait awhile, and things may actually go up for some time, but I can't count on that, because that may not be the case. But it will be obvious when the huge sell-offs start happening. And I'm so sure they will, and the extent will probably depend somewhat on how much the interest rate gets lowered, this next time around.
Then when it's all gone down sufficiently enough, I plan to step back in, and one of the first mutual funds I plan to buy is New Alternatives Fund, NALFX. I really, really like what I've read about it, and I don't care about the load, so much.
Anyway - that's my plan for now. I'll update on any changes of heart I experience over the next few months.
Tuesday, September 18, 2007
Manage Your Own Money
My house has lost some of its value over the past couple years. I called a real estate agent the other day with questions about selling my house and moving to a more desirable neighborhood. He recommended that I wait till April. His advice is that the worst time to sell is between June and December, and the best time is between January and June.
The agent said my neighborhood had been hit pretty hard with the mortgage fallout for two reasons: It attracts people who have been sub-prime borrowers and are now having a hard time getting approved for loans. It also houses many sub-prime borrowers who are having a hard time making their payments, and being forced to sell their houses. He thinks my house would have sold for more in the first half of 2005, because that was the last time demand was so high with respect to supply, in my neighborhood.
The good news for me, is that other parts of San Francisco are keeping the value from sinking as low as it would have, had I bought in, say one of the outlying suburbs. Is that what they mean by "A rising tide lifts all ships"? I've decided to check back with the real estate agent in April.
Oh, if you happen to get a call from a representative from a financial services firm - someone who wants to plan your retirement for you - and you're just an ordinary person, like me. My advice is to be skeptical. I say that because that's exactly what happened to me a couple weeks ago. In a nutshell, here's how it went:
Step 1: They sent me a questionaire to fill out.
Step 2: A data entry person entered the information into a spreadsheet, and ran some standard application that generates a pie chart that breaks down how they think your assets should be allocated.
Step 3: The company has a relationship with several mutual funds, and mapped a mutual fund to each of the quadrants from the pie chart.
Step 4: If I would have enrolled, the company would collect 1.5% of the assets that are being managed through the mutual funds.
My question is "How does that little bit of work entitle these people to 1.5% of the money I put into their account for as long as it's there?"
So, say I tell them to manage $50000. They invest the money in their choice of mutual funds. Then each quarter, if each of the mutual funds maintains about the same value, I pay a managment fee of about (50,000 * .015) / 4 = $187.5, regardless. What's important to keep in mind, is that for each of the mutual funds, I'm already paying a management fee. So, I'm paying to have my money managed by people who are already managing it. That doesn't sit well with me. Do people actually go along with such a plan? I don't understand it at all. It just doesn't compute.
The kicker is that the mutual funds that were chosen by my "financial advisor" were these 'safe' mutual funds. 25% were fixed income (bonds) that returned about 2 to 3% per year for the past couple years. I don't know if that's enough to even keep up with inflation. So, what incentive do these financial service firms actually have? They protect themselves with all this legal jargon on the application you have to fill out when you enroll. They have no obligation to make you any money, or even do any work, and they get paid no matter what.
Are they really gonna work their asses off to double my $50000 so they can make $1500 a year? Seems much easier to just sit and do nothing for $750.
Now, my advice: You can log into any number of sites that provide information about mutual funds, including fees, performance, risks, ratings, etc. and within minutes, pick a handful that are likely to serve your purpose. The ones you pick don't have to be the ones the financial advisor has a relationship with. Once you decide to buy one, you don't even need to pay a management fee.
The agent said my neighborhood had been hit pretty hard with the mortgage fallout for two reasons: It attracts people who have been sub-prime borrowers and are now having a hard time getting approved for loans. It also houses many sub-prime borrowers who are having a hard time making their payments, and being forced to sell their houses. He thinks my house would have sold for more in the first half of 2005, because that was the last time demand was so high with respect to supply, in my neighborhood.
The good news for me, is that other parts of San Francisco are keeping the value from sinking as low as it would have, had I bought in, say one of the outlying suburbs. Is that what they mean by "A rising tide lifts all ships"? I've decided to check back with the real estate agent in April.
Oh, if you happen to get a call from a representative from a financial services firm - someone who wants to plan your retirement for you - and you're just an ordinary person, like me. My advice is to be skeptical. I say that because that's exactly what happened to me a couple weeks ago. In a nutshell, here's how it went:
Step 1: They sent me a questionaire to fill out.
Step 2: A data entry person entered the information into a spreadsheet, and ran some standard application that generates a pie chart that breaks down how they think your assets should be allocated.
Step 3: The company has a relationship with several mutual funds, and mapped a mutual fund to each of the quadrants from the pie chart.
Step 4: If I would have enrolled, the company would collect 1.5% of the assets that are being managed through the mutual funds.
My question is "How does that little bit of work entitle these people to 1.5% of the money I put into their account for as long as it's there?"
So, say I tell them to manage $50000. They invest the money in their choice of mutual funds. Then each quarter, if each of the mutual funds maintains about the same value, I pay a managment fee of about (50,000 * .015) / 4 = $187.5, regardless. What's important to keep in mind, is that for each of the mutual funds, I'm already paying a management fee. So, I'm paying to have my money managed by people who are already managing it. That doesn't sit well with me. Do people actually go along with such a plan? I don't understand it at all. It just doesn't compute.
The kicker is that the mutual funds that were chosen by my "financial advisor" were these 'safe' mutual funds. 25% were fixed income (bonds) that returned about 2 to 3% per year for the past couple years. I don't know if that's enough to even keep up with inflation. So, what incentive do these financial service firms actually have? They protect themselves with all this legal jargon on the application you have to fill out when you enroll. They have no obligation to make you any money, or even do any work, and they get paid no matter what.
Are they really gonna work their asses off to double my $50000 so they can make $1500 a year? Seems much easier to just sit and do nothing for $750.
Now, my advice: You can log into any number of sites that provide information about mutual funds, including fees, performance, risks, ratings, etc. and within minutes, pick a handful that are likely to serve your purpose. The ones you pick don't have to be the ones the financial advisor has a relationship with. Once you decide to buy one, you don't even need to pay a management fee.
Friday, May 25, 2007
Mutual Funds Are Paying Off
Wow, I just read my last post, and I would be surprised if it made any sense to anybody. Sorry about that. It sounded sorta like I just finished off a bottle of wine before I started writing it.
Succinctly, what I was trying to say was this: "It seems like my money will work more for me if I take some out of the money market account and put it into a mutual fund."
And after I sobered up, I did exactly that.
So, here's the breakdown.
I have an Ameritrade account, and I took the 100 and 200 level courses. Anyone can do it. Here's how to get there: Navigate to http://www.ameritrade.com/ and click on the 'Research & Ideas' tab. Then click on the 'Mutual Funds' link and then on the left navbar, click on the 'Investing Classroom' option. Make sure you take all the courses in 100 and 200 level, and then you'll know as much as I did before I made my choice. It's actually very interesting, what you will learn.
Then I bought 2 new mutual funds. I'll go ahead and tell you what I bought - I used what I learned in those courses to help guide me in my decision. So, this is just information, and not advice.
On January 23, I took $5,000 out my money market, and "Bought 132.908 PRLAX @ 37.62". On February 22, I took $10,000 out of my money market, and "Bought 260.892 DPCCX @ 38.33".
A couple days after I bought the China mutual fund, (DPCCX), it took a nose-dive. It was depressing, and I hated myself very much. If you don't believe me, google 'DPCCX', and look on the chart at what happened on 2/23. It sucked. But look at what happened between then and now. While you have the chart open, type in 'PRLAX' to see how my Latin America mutual fund (PRLAX) perfomed.
Right now, the $15,000 I invested into those 2 mutual funds is worth $17,650. I weight-averaged it to $15,000 invested over 3 1/3 months, or 0.27778 yr.
And here goes the math: $ (17,650 - 15,000) / $15,000 = 0.176667, or 17.6667%. I'm not a financial analyst, but I think that means I've made 17.6667% / 0.27778 yr = 63.6APR. Am I right? That sounds like an awful lot - especially when you consider the initial loss I had to make up for, in the beginning. Maybe I made a mistake in my calculation. I'll go back over it again, later. But one thing's for sure: I made me some money.
So, there you have it. I made about as much with $15,000 over a 3 1/3 month period invested in 2 somewhat risky mutual funds, as I will with the approximately $70,000 I have in my very safe money market account, in about 9 months at 5% APR - (I'm actually getting more like 4 1/2 %):
$70,000 * 1.05 = $73,500. $(73,500 - 70,000) / (9/12) = $2,625.
Correct me if I'm wrong. But if I'm right, this seems like a risk worth taking. I'll follow up again on what's going on. But I do plan to buy some more mutual fund pretty soon.
Succinctly, what I was trying to say was this: "It seems like my money will work more for me if I take some out of the money market account and put it into a mutual fund."
And after I sobered up, I did exactly that.
So, here's the breakdown.
I have an Ameritrade account, and I took the 100 and 200 level courses. Anyone can do it. Here's how to get there: Navigate to http://www.ameritrade.com/ and click on the 'Research & Ideas' tab. Then click on the 'Mutual Funds' link and then on the left navbar, click on the 'Investing Classroom' option. Make sure you take all the courses in 100 and 200 level, and then you'll know as much as I did before I made my choice. It's actually very interesting, what you will learn.
Then I bought 2 new mutual funds. I'll go ahead and tell you what I bought - I used what I learned in those courses to help guide me in my decision. So, this is just information, and not advice.
On January 23, I took $5,000 out my money market, and "Bought 132.908 PRLAX @ 37.62". On February 22, I took $10,000 out of my money market, and "Bought 260.892 DPCCX @ 38.33".
A couple days after I bought the China mutual fund, (DPCCX), it took a nose-dive. It was depressing, and I hated myself very much. If you don't believe me, google 'DPCCX', and look on the chart at what happened on 2/23. It sucked. But look at what happened between then and now. While you have the chart open, type in 'PRLAX' to see how my Latin America mutual fund (PRLAX) perfomed.
Right now, the $15,000 I invested into those 2 mutual funds is worth $17,650. I weight-averaged it to $15,000 invested over 3 1/3 months, or 0.27778 yr.
And here goes the math: $ (17,650 - 15,000) / $15,000 = 0.176667, or 17.6667%. I'm not a financial analyst, but I think that means I've made 17.6667% / 0.27778 yr = 63.6APR. Am I right? That sounds like an awful lot - especially when you consider the initial loss I had to make up for, in the beginning. Maybe I made a mistake in my calculation. I'll go back over it again, later. But one thing's for sure: I made me some money.
So, there you have it. I made about as much with $15,000 over a 3 1/3 month period invested in 2 somewhat risky mutual funds, as I will with the approximately $70,000 I have in my very safe money market account, in about 9 months at 5% APR - (I'm actually getting more like 4 1/2 %):
$70,000 * 1.05 = $73,500. $(73,500 - 70,000) / (9/12) = $2,625.
Correct me if I'm wrong. But if I'm right, this seems like a risk worth taking. I'll follow up again on what's going on. But I do plan to buy some more mutual fund pretty soon.
Thursday, January 04, 2007
Revisiting Mutual Funds
'2006 was a good year' was an update on how things have changed for me in a year. It wasn't really advice, so much as it was reinforcement that following my own advice paid off - at least last year.
Somewhere underneath all that explanation, you might have gathered that 'changing jobs' was some good advice. See, I was impacted by the dot-com boom / bust cycle in such a way that I had to crawl back out. Changing jobs twice last year was a strategy. For the most part, I sat still, and didn't make too many risky financial moves.
So, now I'm sitting here looking at how my investments paid off. The best seems to have been one of my 2 mutual funds. It's one that you would consider risky for a mutual fund, because it's an international fund. The other mutual fund I have is less risky, and didn't perform nearly as well.
Combined, these 2 mutual funds returned 17.4% between 1/1/06 and 1/1/07.
Aside from any dividends, I never have to pay any tax on these gains until I sell. I consider them a line of defense that I haven't had to cross. In fact my diversification is a set of buffers, where cash is on the outside, and the retirement accounts are on the inside.
At the beginning of the year, I had about $47,500 in my money market account, and throughout the year it has accrued and lost and accrued again, cash. The reason it lost cash at some point is that I pay an extra lump sum payment against my mortgage every year. The balance is now about $83,000. Last month, it drew about 4.75% interest. I earned $2,700 in interest from this account last year.
It seemed so sudden, how much cash I wound up with. And when you have what seems to be a lot, if you're like me, you are more afraid of taking risks that could mean losing large chunks of capital.
If in 2007 the interest rate remains constant at 4.75% and I start off with $83,000 and make no withdrawals or deposits (purely theoretical), then at the end of the year, the account will be worth just over $87,000. That sounds nice, and I'm not used to making so much money in interest every month. It's $330-$340 per month. If I follow this strategy, in 2008 I'll pay about $1,000 in taxes on the $4,000 I made. Right now isn't the best time for me to have to adjust my salary up before paying taxes.
What if I take $25,000 of that and buy into a (not super-duper risky) mutual fund like the ones I have - and haven't been afraid of holding on to? If it earns 15%, then its market value would be roughly $28,800 at the end of 12 months. And I don't have to cash it out.
If I lose my job sometime in the future, or retire, and am unemployed for several months. I wouldn't have to pay as much tax on that $3800:
In addition to the roughly $12,000 I'd make from unemplyment benefits, or whatever piddling amount I'd be getting from social security, I'd hardly be in a top tier tax bracket, but the $3,800 would sure help out. Remember that that the $3,800 is about $800 more than what I would walk away with, after paying taxes on the interest I would draw off my money market account.
Also, while neither is exactly chump change, recall that I stand to benefit less with $83,000 than with $25,000.
Somewhere underneath all that explanation, you might have gathered that 'changing jobs' was some good advice. See, I was impacted by the dot-com boom / bust cycle in such a way that I had to crawl back out. Changing jobs twice last year was a strategy. For the most part, I sat still, and didn't make too many risky financial moves.
So, now I'm sitting here looking at how my investments paid off. The best seems to have been one of my 2 mutual funds. It's one that you would consider risky for a mutual fund, because it's an international fund. The other mutual fund I have is less risky, and didn't perform nearly as well.
Combined, these 2 mutual funds returned 17.4% between 1/1/06 and 1/1/07.
Aside from any dividends, I never have to pay any tax on these gains until I sell. I consider them a line of defense that I haven't had to cross. In fact my diversification is a set of buffers, where cash is on the outside, and the retirement accounts are on the inside.
At the beginning of the year, I had about $47,500 in my money market account, and throughout the year it has accrued and lost and accrued again, cash. The reason it lost cash at some point is that I pay an extra lump sum payment against my mortgage every year. The balance is now about $83,000. Last month, it drew about 4.75% interest. I earned $2,700 in interest from this account last year.
It seemed so sudden, how much cash I wound up with. And when you have what seems to be a lot, if you're like me, you are more afraid of taking risks that could mean losing large chunks of capital.
If in 2007 the interest rate remains constant at 4.75% and I start off with $83,000 and make no withdrawals or deposits (purely theoretical), then at the end of the year, the account will be worth just over $87,000. That sounds nice, and I'm not used to making so much money in interest every month. It's $330-$340 per month. If I follow this strategy, in 2008 I'll pay about $1,000 in taxes on the $4,000 I made. Right now isn't the best time for me to have to adjust my salary up before paying taxes.
What if I take $25,000 of that and buy into a (not super-duper risky) mutual fund like the ones I have - and haven't been afraid of holding on to? If it earns 15%, then its market value would be roughly $28,800 at the end of 12 months. And I don't have to cash it out.
If I lose my job sometime in the future, or retire, and am unemployed for several months. I wouldn't have to pay as much tax on that $3800:
In addition to the roughly $12,000 I'd make from unemplyment benefits, or whatever piddling amount I'd be getting from social security, I'd hardly be in a top tier tax bracket, but the $3,800 would sure help out. Remember that that the $3,800 is about $800 more than what I would walk away with, after paying taxes on the interest I would draw off my money market account.
Also, while neither is exactly chump change, recall that I stand to benefit less with $83,000 than with $25,000.
2006 was a good year
It's been more than a year since I posted my last article.
I want to give you an update on how my financial state has changed in only one year:
I have changed jobs twice. The company I worked for was a consulting company with about 30 software developers. I started working with a very small start-up company in March that had just received it's initial round of funding.
I relived some deja vu by working there, and grew skeptical. I decided to quit after working there for only 3 months.
I have been working for a new company - which coincidentally has financial institutions, namely portfolio managers, for customers. It has a lot in common with Arthur Andersen, in terms of my co-workers and level of job responsibility. More is expected of me, of course, because I was an entry level programmer back then. At Arthur Andersen, when I was in my late 20s this work environment bothered me. It seemed too slow paced. But now, I enjoy it either because I'm older or just have over a decade more work experience.
We'll refer to the original company I worked for a year ago "company A". We'll call the company I worked for after that "company B", and my current company, "company C".
Between company A and company B, I earned $11000 more in annual salary. I switched from a PPO with a $250 deductible (which I never used) to a High Deductible PPO with at $2400 deductible (also never used), and enrolled into a Health Savings Account (HSA) to which the company contributed $200 per month. I lost my dental insurance (they didn't tell me about this during the interview process, by the way, although it wouldn't have mattered because of the salary increase). My commute dropped in cost by about a third. I lost my 401(k) plan, but I wasn't contributing to very much since the company I worked for only matched 15% which didn't vest for 4 years. That was bunk that was offset by the shares I never expected to cash out.
Between company B and company C, I earned an additional $5000 in annual salary. I now have everything in terms of benefits - it's at least as much as I ever had in my life. I gained a week of vacation - 3 weeks now instead of the original 2 - which for me is better than additional money. I take public transportation and the cost is that of a $45 FastPass. The company offers commuter checks, which allow me to pay that $45 before taxes are accounted for. I enrolled into a Flexible Spending Account, which works for me now that I am not afraid of going to the hospital for a check up or to the dentist - and I have gone to both. Oh, remember that HSA? Free crown. I do have to pay a small portion for my benefits. But overall, it's worth it. I regained a 401(k) plan that matches 50% of the 1st 6% I contribute. I contribute exactly 6%. I enrolled into a Legal Plan which costs about $8.50 per half month. I'm using it for estate planning - something I've put off for a long time.
I'm looking at a Microsoft Money report on my "Net worth over time", customized from 1/1/2006 to 1/1/2007, and it shows a steady gain of $54,645. And it doesn't have any 'corrections' like a house re-assessment. It's a real increase in net worth over 1 year. I haven't analyzed where the greatest gains came from.
Remember the money market account I wrote about in my article titled 'Diversification'? It has grown to have quite a large amount of money in it. I contributed to it, gradually, over the past year. At some point, I moved cash that was in my Ameritrade account (earning less than 1% interest) to this account. I felt like a fool because I left more than $15000 - just sitting there. Interest rates had been rising over the year, and my money market account was already paying about 4%. I have a car loan that I won't pay off because the interest rate is lower than what I get from my mutual fund (regardless of having to pay tax on the interest). I have over $80,000 in my money market account.
My company had a laptop stolen that contained some personal information about employees. Someone broke in and stole a laptop in December. It had our social security numbers and addresses in a spreadsheet, or something like that. So, to make us feel better, we all got free accounts so we could see our credit.
The last time I checked, was when I re-financed my home loan in 2001, and my score was 791. Now it's 805. According to the service, that translates into having better credit than 99.97% of consumers.
I want to give you an update on how my financial state has changed in only one year:
I have changed jobs twice. The company I worked for was a consulting company with about 30 software developers. I started working with a very small start-up company in March that had just received it's initial round of funding.
I relived some deja vu by working there, and grew skeptical. I decided to quit after working there for only 3 months.
I have been working for a new company - which coincidentally has financial institutions, namely portfolio managers, for customers. It has a lot in common with Arthur Andersen, in terms of my co-workers and level of job responsibility. More is expected of me, of course, because I was an entry level programmer back then. At Arthur Andersen, when I was in my late 20s this work environment bothered me. It seemed too slow paced. But now, I enjoy it either because I'm older or just have over a decade more work experience.
We'll refer to the original company I worked for a year ago "company A". We'll call the company I worked for after that "company B", and my current company, "company C".
Between company A and company B, I earned $11000 more in annual salary. I switched from a PPO with a $250 deductible (which I never used) to a High Deductible PPO with at $2400 deductible (also never used), and enrolled into a Health Savings Account (HSA) to which the company contributed $200 per month. I lost my dental insurance (they didn't tell me about this during the interview process, by the way, although it wouldn't have mattered because of the salary increase). My commute dropped in cost by about a third. I lost my 401(k) plan, but I wasn't contributing to very much since the company I worked for only matched 15% which didn't vest for 4 years. That was bunk that was offset by the shares I never expected to cash out.
Between company B and company C, I earned an additional $5000 in annual salary. I now have everything in terms of benefits - it's at least as much as I ever had in my life. I gained a week of vacation - 3 weeks now instead of the original 2 - which for me is better than additional money. I take public transportation and the cost is that of a $45 FastPass. The company offers commuter checks, which allow me to pay that $45 before taxes are accounted for. I enrolled into a Flexible Spending Account, which works for me now that I am not afraid of going to the hospital for a check up or to the dentist - and I have gone to both. Oh, remember that HSA? Free crown. I do have to pay a small portion for my benefits. But overall, it's worth it. I regained a 401(k) plan that matches 50% of the 1st 6% I contribute. I contribute exactly 6%. I enrolled into a Legal Plan which costs about $8.50 per half month. I'm using it for estate planning - something I've put off for a long time.
I'm looking at a Microsoft Money report on my "Net worth over time", customized from 1/1/2006 to 1/1/2007, and it shows a steady gain of $54,645. And it doesn't have any 'corrections' like a house re-assessment. It's a real increase in net worth over 1 year. I haven't analyzed where the greatest gains came from.
Remember the money market account I wrote about in my article titled 'Diversification'? It has grown to have quite a large amount of money in it. I contributed to it, gradually, over the past year. At some point, I moved cash that was in my Ameritrade account (earning less than 1% interest) to this account. I felt like a fool because I left more than $15000 - just sitting there. Interest rates had been rising over the year, and my money market account was already paying about 4%. I have a car loan that I won't pay off because the interest rate is lower than what I get from my mutual fund (regardless of having to pay tax on the interest). I have over $80,000 in my money market account.
My company had a laptop stolen that contained some personal information about employees. Someone broke in and stole a laptop in December. It had our social security numbers and addresses in a spreadsheet, or something like that. So, to make us feel better, we all got free accounts so we could see our credit.
The last time I checked, was when I re-financed my home loan in 2001, and my score was 791. Now it's 805. According to the service, that translates into having better credit than 99.97% of consumers.
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