Investing Curiouscatblog

Category: Investing

  • Example of Mortgage Payments Depending on Credit Score

    Example 30 year mortgage rates (from myfico.com – see site for current rate estimates):

    FICO score APR Monthly payment*
    760-850 5.860% $2,362
    700-759 6.082% $2,419
    660-699 6.366% $2,493
    620-659 7.176% $2,709
    580-619 8.820% $3,167
    500-579 9.679% $3,416

    Amounts shown for borrowing $400,000 and rates as of May 7th. For scores above 620, the APRs above assume a mortgage with 1.0 points and 80% Loan-to-Value Ratio. For scores below 620, these APRs assume a mortgage with 0 points and 60 to 80% Loan-to-Value Ratio.

    FICO scores are determined by your:

    • Payment history – 35%
    • Amounts owed – 30%
    • Length of credit history – 15%
    • New credit – 10%
    • Types of credit used – 10%

    Related: 30 Year Fixed Rate Mortgage Rates – Learning About Mortgages

  • Live From Omaha

    Live From Omaha: The Berkshire Hathaway Meeting a nice series of posts at fool.com, including:

    Buffett cautioned, though, that the difference between investing on paper and investing with real money is like the difference between reading a romance novel and, as he delicately put it, “doing something else.” “There’s nothing like having a little experience in investing,” he said. Once you’ve done that, you can decide whether, as Buffett said, “it turns you on.”

    On a final note, he gave a not-too-surprising suggestion to always look a stock in terms of the whole company. So, for example, if you’re thinking about buying GM (NYSE: GM) at $30, he said, you should consider whether you think the entire company is really worth $18 billion.

    I wish someone would post a transcript or at least more details. If you know of a good source, please let me know.

    Related: Great investors, Warren Buffett – Buffett’s Newest Letter to Shareholders – Warren Buffett’s Annual Report 2004

  • How Much Retirement Income?

    Current vs. retirement income: How much do I need?:

    some people say you need 70 percent of pre-retirement income after retiring, while others claim it’s 80 percent, 85 percent or 90 percent. But whatever version of this rule you hear, I think you need to take it with a very large block of salt. Of course, that’s true of all rules of thumb, whether it’s the percentage of pre-retirement income you need, “the 4 percent rule” on withdrawing funds from your portfolio in retirement, the “save 10 percent for retirement rule” or any other benchmark.

    After all, rules of thumb are shortcuts; they’re solutions that are supposed to work for the “average” person.

    Good advice. The rules of thumb can help you get an idea of the ballpark for a fictional “average” person in general. But your particular situation is different.

  • Very Good Amazon Earnings

    Wow. I have been a believer in Amazon’s long term strategy. Earnings have not been as positive as many expected (over the last few years) but I continued to believe Jeff Bezos’ long term strategy and execution were very positive. I was a bit concerned that present earnings were not better. This quarter the earnings were quite impressive. One quarters numbers are not significant to the long term success. And if earnings were to be less impressive in the coming quarters that would not sour me on the stock. But the good earning are a nice surprise and something that has been made possible through many years of smart moves by Amazon (that reduced short term profits over those years).

    Net sales increased 32% to $3.02 billion in the first quarter, compared with $2.28 billion in first quarter 2006. Excluding the $84 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 29% compared with first quarter 2006. Operating income increased 38% to $145 million in the first quarter, compared with $106 million in first quarter 2006.

    Net income increased 115% to $111 million in the first quarter, or $0.26 per diluted share, compared with net income of $51 million, or $0.12 per diluted share in first quarter 2006. First quarter 2007 effective tax rate was 23% compared with an effective tax rate of 47% in first quarter 2006.

    Related: Amazon Innovation

  • Great Google Earnings

    Google quarterly earnings are amazing again. Google reported revenues of $3.66 billion for the quarter ended March 31, 2007, an increase of 63% compared to the first quarter of 2006 and an increase of 14% compared to the fourth quarter of 2006. 63% jump to $3.66 billion, very impressive and a 64% increase in earnings.

    GAAP operating income for the first quarter of 2007 was $1.22 billion, or 33% of revenues. This compares to GAAP operating income of $1.06 billion, or 33% of revenues, in the fourth quarter of 2006. Non-GAAP operating income in the first quarter of 2007 was $1.41 billion, or 38% of revenues. For 2006, GAAP operating income for the first quarter of 2006 was $743 million, or 33% of revenues.

    This type of performance is next to impossible to achieve, which makes it amazing they have achieved it but also unlikely it will continue. Still I am happy to own some Google (and glad I have owned it for awhile).

    Related: 10 Stocks for 10 Years Update – Sleepwell portfolio results (largest holdings: Google, Templeton Dragon Fund and Toyota) – Investment Books

  • Retirement Savings Survey Results

    Have less than $25K in savings? Get in line

    Nearly half of all workers saving for retirement have savings that fall short of the $25,000 mark, according to the 2007 Retirement Confidence Survey by the Employee Benefit Research Institute and Matthew Greenwald & Associates. Predictably, the youngest workers (ages 25-34) dominate this group – 68 percent of them have less than $25,000 earmarked for their later years. But so do half of workers age 35 to 44 and a third of workers age 45 to 55 and over.

    What is a very rough estimate of what you need? Well obviously factors like a pension, social security payments, age at retirement, home ownership, health insurance, marital status… make a huge difference in the total amount needed. But something in the neighborhood of 10-25 times your desired retirement income is in the ballpark of what most experts recommend. So if you want $50,000 in income you need $500,000 – $1,250,000. Obviously that is difficult to save over a short period of time. The key to retirement saving is consistent, long term commitment to saving.

    Related: Saving for Retirement – Start Young with 401k and Roth IRA – Retirement Delayed: Working Longer

  • Victim of Real Estate Bust: Your Pension

    Victim of Real Estate Bust: Your Pension – Part 2:

    The skeptics also point out that credit spreads for junk bonds are so low today because we’ve had several years of historically low bond default rates. But anyone who’s ever opened up a book on economic history will tell you that most bad loans are made when times are good and the markets are complacent, not when times are bad and Wall Street is full of fear.

    The central premise of this post is that risk is being mispriced by the market (by failing to account for the risks bonds… are overpriced). And that when those risks are exposed (for example, as the sub prime crisis builds, recession…) prices will fall. Historically markets do exhibit this pattern – when times are good risks are not fully factored into prices, then those risks are appreciated and prices decline.

    Related: adjustable rate mortgage – investment risks – Mortgage Defaults: Latest Woe for Housing – Coming Collapse in Housing? – How Not to Convert Equity – Saving for Retirement

    This interesting graph, shows the amount of adjustable rate mortgages due for interest rate adjustments (which will increase mortgage payments for millions of people).
    (more…)

  • The Great Risk Shift

    The Great Risk Shift by Jacob Hacker presents some interesting data. I don’t always agree with his conclusions but I think the information he presents is interesting.

    The most interesting piece of data to me: The chance of a 50% drop in income in 1970 was 7% for any person. By 2002 it had grown to 16%. While this seems to include some questionable “data” such as divorces, retirees… Still the fairly steady climb (see chart page 31) from 1970 to 2002 shows this is one factor that should be a consideration in saving and spending plans. Don’t assume you will earn more and more every year. You will likely have some fairly large drops in income during your lifetime. Plan for it.

    Some more interesting data in 1992 7.9% of 25-34 year olds in the USA had debt payments over 40% of their income. In 2001 that rose to 13.3%. In 1984 median wealth for families with a head of household 55-64 was 4 1/2 times as wealth as those of 25-34 year olds, in 2003 it was 13 1/2 times as great. (page 99)

    While the average 401(k) balance is $47,000 the median balance is $13,000 (a relatively few large balances skew the average to make it much higher).

    Overall I tend to look at the data he presents and think people better consider these realities and plan knowing them. Jacob Hacker seems to more often say that this is unreasonable and show the hardships faced by those that either could not plan better (it was out of there hands which I would agree is part of the problem and requires some public policy changes) or who choose not to (which I would find the case more often than he would). Well worth reading in my opinion.

  • Boomers Face Retirement

    Boomers on brink of retirement wonder if they can afford it:

    Scholz was among a small group of economists cited in a recent front page story in the New York Times who said – to the shock of many – that the financial industry overstates how much money people will need in retirement.
    …
    Scholz doesn’t go that far, but he does question the popular notion that most baby boomers are “blowing it” in their preparation for retirement. He says the group’s research showed that, by and large, Americans born between 1931 and 1941 were faring quite well financially during their retirement. “That was very surprising to us,” he says. “So then an interesting question is, does the experience of that generation carry over to households that are younger?”
    …
    “They’re like, ‘Well, I finally got a cell phone.’ They use a computer but it’s one that’s eight years old. Their cars run forever.” That mindset is far different from most baby boomers, Haunty argues. To them, items once viewed as luxuries are now considered necessities. And, he adds, this “propensity to consume” is even more prevalent among Americans in their 20s and 30s. Haunty says he’s not advocating that baby boomers “save every penny and wear the same jeans they wore 10 years ago. But they’ve got to strike a balance.”

    Well said. If you have enough money to afford whatever you want and can maintain an emergency fund, buy disability insurance, buy health insurance, save for retirement, avoid personal debt, save for children’s education… great. If not, then choices need to be made about what is most important and then you get to live with the consequences of those choice.

  • The Real Threat Is Decreased Productivity

    The Real Threat Isn’t Housing by Michael Mandel:

    In short, the productivity acceleration of the past 10 years has created a total of $6.4 trillion in extra output since 1995, measured in 2006 dollars. That helps explain why American households, taken together, are so much richer than they were: Household nonhousing net worth, adjusted for inflation and federal debt, has soared by almost $14 trillion over the same period, despite the dot-com debacle that crashed the market.

    The massive amount of additional production is a key reason why the U.S. has not faced upward pressure on prices. And good productivity gains gave the economy enough momentum to fight off the disasters of 2001–the terrorist attacks, the stock market crash, the collapse of Enron–with only a minimal recession.

    But the bonanza starts to disappear if productivity growth drops much further below its current level. Such a decline is a lot more possible than most economists realize or are willing to accept.

    Related: Manufacturing Productivity – Be Thankful for Lean Thinking – Manufacturing Jobs Data: USA and China