Investing Curiouscatblog

Category: Personal finance

  • Record Home Price Declines

    Since the S&P/Case-Shiller 20 city home price index peaked in June 2006 it has fallen 19.5%. In the year ending July 2008 the decline was 16.3%. That is a record drop. In that year Las Vegas declined 29.9%, Phoenix 29.3% and Miami 28.2%. For the largest cities: New York City declined 7.4%, Los Angeles 26.2%, Chicago 10% and Dallas 2.5% (the second lowest decline – Charlotte declined 1.8%); Houston and Philadelphia, the 4th and 5th largest cities are not included in the 20 city index.

    Only one city shows a decline in housing values since January, 2000: Detroit is down nearly 7%. Washington is up 95% since January, 2000 (even with a 15.8% decline in the last year), Los Angels and New York are tied for second at 93% increases. The 20 city index is up 66% from January 2000 to July 2008.

    The S&P/Case-Shiller Composite of 20 Home Price Index is a value-weighted average of the 20 metro area indices for single family homes.

    Source: Record Home Price Declines (pdf)

    Related: Housing Prices Post Record Declines – Home Price Declines Exceeding 10% Seen for 20% of Housing Markets – Fourteen Fold Increase in 31 Years – The Ever Expanding House – Coming Collapse in Housing?

  • Stock Market Decline

    Watching your new worth decline isn’t fun. But when investing over the long term you will have some good periods and some bad periods. Diversification can help smooth out the extremes but the markets are often driven by emotion. And those emotions (greed, fear…) cause extreme price swings. I am getting ready to invest more in the market. I don’t know how much further we will go down, or if we are at the bottom now (unlikely). But there are investments I am happy to own at these prices. The main reason I don’t buy more is the limitation of my capital. And I would rather buy in slowly so if prices decline I can get more for my money.

    Not surprisingly the stocks I am looking at are those in the 12 stocks for 10 years portfolio. I am looking at buying more Templeton Dragon Fund, Toyota and Google for myself now. I am happy to be able to buy more of these stocks for the long term. It is not fun to see my net asset value decrease but that does provide some opportunities for buying stocks at lower prices. They may turn out to be bargains, or maybe they will drop much further. That only time will tell, but I am happy to add to those positions at these prices.

    On the overall market I am waiting and watching. But I am leaning now toward moving more of my long term investing into stocks – I am already over-weighted there compared to the conventional wisdom but that is my style. I am willing to take more risk with a long long term investment portfolio. As the time frame shrinks (and the assets grow) I believe in reducing the risk profile for the overall portfolio (though I still believe conventional wisdom over-emphasizes price volatility risk (compared to inflation risk, for example). This market does have real potential for creating serious long term problems, which is why I need to think more (and get more information) about the long term implications.

    Related: Investment Risks – books on investing – Does a Declining Stock Market Worry You? – Uncertain Economic Times

  • Allocations Make A Big Difference

    Why Allocations Make A Big Difference

    the closer you get to the time when you want to cash in your investments, the safer you want to get with those investments. Traditionally, stocks are very volatile (ranging from -15% to 20% annual return), while bonds are pretty stable (returning 4-8% consistently).

    Good advice, but I believe people need to be much more careful with bonds than many people believe. Long term bonds can be volatile (both due to interest rate and other risks). And with interest rates low this risk is higher. The duration of your bonds (as well as credit/business risk) is a very important factor (the longer the duration the higher the interest rate risk).

    I also think the importance of asset allocation increases as your assets increase and the goal gets closer (normally retirement but also could be a child’s education fund…). And I think you need to look at more than just stocks versus bonds (different types of stocks, real estate… are important considerations). I discussed some possible retirement account allocations possibilities for early in life in a previous post.

    Related: Lazy Portfolio Results – Investing books – Roth IRA – Dollar Cost Averaging

  • Frugality Plus

    What Is Frugality? What Are The Best Examples?

    think of frugality in terms of (at least) three dimensions: Money, Time and Earth. Zero-sum frugality pits these elements against each other as tradeoffs. But there is also win/win frugality where all the elements are aligned. For example, energy efficient light bulbs:

    * Money – less money on replacements and monthly utilities.
    * Time – less time at hardware stores and climbing ladders.
    * Earth – less burning of fossil fuels to generate electricity.

    Very nice example. I do think including time in personal finance discussions makes sense. At times people seem to spend far too long on minimal savings (and/or buy things that break, don’t work well, require extra time to use…), in my opinion.

    Related: New Graduates Should Live Frugally – Frugality Versus Better Returns – Too Much Stuff

  • More Americans Working Into Late 60’s and Beyond

    Americans working past retirement

    While the average retirement age remains 63, that standard may soon be going the way of the gold watch — a trend expected to accelerate as baby boomers close in on retirement without sufficient savings.
    …
    Twenty-nine percent of people in their late 60s were working in 2006, up from 18 percent in 1985, according to the Bureau of Labor Statistics. Nearly 6 million workers last year were 65 or over. Over the next decade, the number of 55-and-up workers is expected to rise at more than five times the rate of the overall work force, the BLS reported.
    …
    Working another three years — from 62 to 65, for example — and continuing to save 15 percent of salary could raise annual income from investments by 22 percent. Make it five years and boost savings contributions still higher — even better.

    Putting off retirement also may enable people to delay when they start taking Social Security benefits, which can significantly increase payments.

    “The longer the delay, the better” financially, said Fahlund. “To me the ideal would be 70, because you get the biggest Social Security benefit possible and all those additional years of employment. And it keeps you going mentally and physically too.”

    The economic reality is retiring at 62 is not realistic for most people today. Retirement age has barely budged at life expectancy has increased by 20 years. I have long felt the best practice for the economy is to provide part time work to transition into retirement. This allows people to slow down their work lives, but not completely leave it behind. And the financial benefits are very helpful to all those that did not save enough early in their lives.

    Related: Retirement Delayed, Working Longer – Our Only Hope: Retiring Later – Many Retirees Face Prospect of Outliving Savings – Retirement Savings Survey Results – Saving for Retirement – Spending Guidelines in Retirement – Tips To Allow Retiring Sooner

  • 10 Things Your Bank Won’t Tell You

    10 things your bank won’t tell you

    Take out cash from an ATM in London, and you’ll get hit with a foreign-transaction fee, plus a fee for using a competitor’s ATM. All told, it can cost up to $7 just to withdraw $200. Credit card purchases aren’t much better. Visa and MasterCard charge 1% of the purchase price for converting currency. And the issuing banks may take another cut, which can bring the total to 3% of your purchase price
    …
    For people who travel a lot, Arnold recommends a Capital One credit card, which charges no overseas-transaction fees (and even declines to pass on Visa and MasterCard’s 1% fee to customers).
    …
    Last year, the Government Accountability Office sent investigators to see how well banks explained their fees and other conditions to potential customers. Though banks are required by law to make this information available, the GAO said one-third of the branches it surveyed didn’t provide the required information. Worse, more than half didn’t have any fee information on their Web sites.
    …
    Though big banks offer many conveniences, they can come at a price: high fees. In 2006, the 10 largest banks generated 54% of revenue from fees and service charges. By contrast, the 10 smallest banks generated just 28% from those sources.

    Related: Sneaky Fees – Don’t Let the Credit Card Companies Play You for a Fool – Majoring in Credit Card Debt – Avoid Getting Squeezed by Credit Card Companies – Legislation to Address the Worst Credit Card Fee Abuse, Maybe –Bad Practice: .05% Interest From a Stock Broker – Hidden Credit Card Fees

  • Save Money on Printing

    Unfortunately some companies think the way to make money is to try and con their customers out of cash. Certain industries seem to prefer this tactic: credit cards, banks, printer companies… To avoid rewarding them for behaving badly read: Take That, Stupid Printer!

    It refused to print a thing until I replaced the cartridge. But I’m a toner miser…
    But my printer’s pages hadn’t been fading at all. Did it really need new toner – or was my printer lying to me?
    …
    To find out, I did what I normally do when I’m trying to save $60: I Googled. Eventually I came upon a note on FixYourOwnPrinter.com
    …
    covering the sensor with a small piece of dark electrical tape tricked the printer into thinking he’d installed a new cartridge. I followed his instructions, and my printer began to work. At least eight months have passed. I’ve printed hundreds of pages since, and the text still hasn’t begun to fade.
    …
    many Hewlett-Packard printers can be brought back to life by digging deep into their onboard menus and pressing certain combinations of buttons. (HP buries these commands in the darkest recesses of its instruction manuals

    You can believe what I am sure would be arguments by the companies for why breaking customers printers is helpful or you can save money and the environment by realizing that printer companies are notorious for trying to manipulate customers and use the internet to find ways to protect yourself and the earth from such abuse.

    Related: Price Discrimination in the Internet Age – $8,000 Per Gallon Ink – Kodak Debuts Printers With Inexpensive Cartridges – Zero Ink Printing – HP Poor Service – Industry Standard?

  • Medieval Peasants had More Vacation Time

    There are ways to get more vacation time

    De Graff, national coordinator of Take Back Your Time Day, based his figures on the number of religious holidays peasants took off to eat, drink and spend time with their families, and found it was about two weeks extra.
    …
    According to Robinson, mentioning to your boss that you are willing to go on vacation without any pay can often be a very effective way to get some time off.
    …
    Take what you get: It may seem obvious, but many people don’t check how much time they are entitled to take off. Many others are reluctant to take the average nine days of paid vacation to which they are entitled, often because they are afraid it will show weakness or lack of loyalty.

    Joe Robinson said there may be “ongoing subtle discouragement” in the work force, but employees should remember that they are entitled to their vacation and should not be afraid to take it. In 2005, U.S. workers collectively turned down a staggering 1.6 million years of vacation time that was offered to them.

    I find these discussions of how little time off we have interesting. Similar studies look further back, at hunter gathers and find similar patterns. Still they are a bit misleading. What about total hours worked during the year (for peasants). What about the conditions of work and life. What about life expectancy… Still I agree with the thought that more vacation is more important than more work to fund more spending. I would rather reduce my spending and have more free time. I have taken unpaid vacation myself, and have worked part time, at times, to buy myself more freedom to spend my time as I wished.

    Related: Vacation: Systems Thinking – Workplace Experiments

  • Can I Afford That?

    I figure it is pretty easy to figure out if I can afford something. Do I have cash available (my paycheck already has retirement funds etc. deducted before it shows up in my checking account)? I also have a separate saving account for medium term savings and a separate brokerage account for long term investing (and a Roth IRA). So the money in my checking account basically is how much I have to spend. If I have the money and want to spend it, I can afford it. If I don’t have the money, I can’t afford it. I can just save until I can.

    There is a nice post, How to find out if you can afford something, that explores when that simple concept isn’t quite enough.

    For example, when determining if you can buy a car or not you not only after factor in the cost or monthly payments, but also insurance, gas and maintenance costs. The same applies for a home.

    I made this mistake when I decided to start a saltwater aquarium. I found a great deal on the tank and some supplies on Craigslist, and went ahead and bought it. What I didn’t factor in was the costs of additional supplies, fish and ongoing maintenance. Turns out, saltwater aquariums are an expensive hobby. In hindsight, I wish I had done my homework a little more.

    Good Advice. Related: Americans are Drowning in Debt – Too Much Stuff – Add to Your Roth IRA – Teaching Children About Money Matters

  • Bankruptcies Among Seniors Soaring

    Bankruptcies among seniors soaring

    The average age for filing bankruptcy has increased and the rate of bankruptcy among those ages 65 and older has more than doubled since 1991, say researchers Teresa Sullivan of the University of Michigan, Deborah Thorne of Ohio University and Elizabeth Warren of Harvard Law School.

    Expensive health care costs from a serious illness before a patient received Medicare and the inability to work during and after a serious illness are the prime contributors to financial crises among those 55 and older. But even among those 75 to 84 and receiving retirement, Social Security and Medicare benefits, the rates soared—from just 1.8 percent of all filers in 1991 to 5 percent in 2007.

    Most Americans have two major assets: their homes and their retirement plans. And borrowing against those assets can present new risks when home values and stock markets decline, Sullivan and colleagues say. In some cases, older Americans trying to help children and grandchildren, borrow too much, putting themselves at risk.

    Related: Boomers Face Retirement – Retirement Tips from TIAA CREF – Saving for Retirement