Investing Curiouscatblog

Category: Personal finance

  • Tips To Allow Retiring Sooner

    The Motely Fool is one of the best web sites for learning about investing (it is one of the sites included in our investing links – on the left column of this page). A recent article on the site is worth reading – Ways to Retire Sooner:

    Add cash… It takes a little more than $550 per month in savings earning a 7% return to get to $1 million over the course of a 35-year career. But if you can add just $100 per month to that — including what your employer puts in and your tax savings — you can cut more than two years off your wait.
    Embrace stocks Saving more is great, but there’s only so much you’ll be able to put aside. You have to make the most of what you have. People are often too conservative in their retirement investments. Despite the sometimes-violent ups and downs of the stock market, the long-term return on stocks far exceeds that of less risky investments like bonds and bank savings accounts.

    These are not exactly earth shattering recommendation but so many people fail to take even the most basic steps to assure a economically viable retirement the simple advice needs to be re-enforced. No one piece of advice can assure success but by educating yourself about investing and retirement planning and taking steps when you are in your 20s, 30s and 40s you can succeed. You can also succeed without doing anything in your 20s it just means you have to do more work later. Those that get started earlier get a huge advantage.

    Related: Saving for Retirement – Retirement Tips from TIAA CREF – Retiring Later, Out of Necessity – investment risks – IRA (Individual Retirement Accounts)

  • Majoring in Credit Card Debt

    Majoring in credit-card debt:

    Critics say that as the companies compete for this important growth market, they offer credit lines far out of proportion to students’ financial means, reaching $10,000 or more for youngsters without jobs. The cards often come with little or no financial education, leaving some unsophisticated students with no idea what their obligations will be. Then when students build up balances on their cards, they find themselves trapped in a maze of jargon and baffling fees, with annual interest rates shooting up to more than 30%. “No industry in America is more deserving of oversight by Congress,” says Travis Plunkett, legislative director for Consumer Federation of America, a consumer advocacy group.

    First, it is sad that college students are so lame they can’t even understand basic personal finance concepts like high interest credit card debt is very bad. But millions of them seem to actually be that lame (not exactly a great sign from our future leaders :-/). The credit card companies actually claim: “Our overall approach toward college students is to help them build good financial habits and a credit history that prepares them for a lifetime of successful credit use.” Does anyone believe this? A related articles discussed how much cash universities were taking from credit card companies: The Dirty Secret of Campus Credit Cards.

    But Leech warns that schools that get money from credit card companies through affinity contracts or other marketing agreements face intractable problems, in which the school’s financial interests are in direct conflict with those of students and alumni.

    It really isn’t that hard to do the right thing. Credit card companies have learned to profit by gauging their customers. If they claim that they are trying to teach good financial habit then the university to set up a contract to favor that. If bad practices occur (students not paying off the full balance say) they the credit card companies don’t get to make a profit on that – since it would be rewarding failure by the credit card company. How you want to do this is up to you but I can’t think of several ways. It is pretty simple – don’t let the credit card companies profit by encouraging stupid credit card use – like they do now.

    Yes, creating a climate where the universities focus on the credit card companies actually doing what they say they want to do is a new way of thinking. But paying universities millions to market exorbitantly expensive financial products that harm students finances and teach them bad financial lessons is not some grand tradition passed down from Cambridge 200 years ago. Obviously neither side minds doing things differently for the right amount of cash. Lets see if they mind doing so to help the students learn. My guess is they will mind doing that. But I will be happy if I am proved wrong. My guess is that some schools would (and maybe even are doing this) – some schools really do care about helping their students learn.

    The universities could choose to use their clout to help student instead of just getting a big payday for themselves. That would be a good lesson for students to learn. Much more effective then telling students they really should act ethically and not only chase after the dollars after they graduate. Such “advice” rings pretty hollow if you see that same university selling students out for a quick buck.

    Related: Poor “Customer Service” from Discover Card – Credit Card Tips – Don’t Let the Credit Card Companies Play You for a Fool

  • Homes Entering Foreclosure at Record

    Some pretty amazing statistics are in this article – Homes entering foreclosure at record:

    Delinquencies hit 5.12 percent of all outstanding mortgages, up from 4.39 percent a year ago, the Mortgage Bankers Association (MBA) said in a quarterly survey.

    Serious delinquencies, those 90 days or more late, jumped to 1.11 percent of all loans, from 0.98 percent in the first quarter. The loans actually entering foreclosure proceedings stood at 0.65 percent, a rise from 0.58 percent in the first three months – and the highest rate in the MBA’s 55-year history.

    This quote however is a bit misguided I think:

    More Americans are falling behind in their mortgage payments as stagnant home prices, auto-industry weakness and climbing interest rates have taken a toll on housing affordability.

    Stagnant home prices have not taken a toll on housing affordability. Yes people that put nothing down and took out mortgage where they could not pay the monthly payments and planned to just borrow even more from the house if the house price went up can’t afford it – but they couldn’t afford it in the first place.

    Related: Learning About Mortgages – Mortgage Defaults: Latest Woe for Housing – Ignorance of Many Mortgage Holders – Median Housing Prices Down 1.5% in the Last Year – How Not to Convert Equity

  • Credit Cards Ratings

    The best and worst credit cards:

    In a survey of more than 36,000 cardholders conducted by Consumer Reports, five of the largest MasterCard and Visa issuers, JPMorgan Chase (Charts, Fortune 500), Bank of America (Charts, Fortune 500), Citibank, Capital One (Charts, Fortune 500), and HSBC (Charts) — which together control about 80 percent of the market — earned mediocre rating scores.

    Consumer Report’s survey on the best and worst credit cards found that five of the largest MasterCard and Visa issuers earned so-so ratings. The card issuer USAA Federal Savings, which scored 95 points out of a possible 100, earned the highest rating. The Navy Federal Credit Union and other credit unions followed suit with high scores. The top three rated issuers charged interest rates between 9 percent and 11 percent.

    That’s much lower than the two lowest-rated issuers, Direct Merchants (scoring 67 points) and Washington Mutual’s Providian (earning 61 points), which both charge 17 percent. And there is good news for anyone shopping for a card. Until recently the USAA Federal Savings card has been limited to members of the military, retired military personnel and their families. It’s now opened up its membership policy so that almost anyone can join.

    Related: Credit Card Tips – Hidden Credit Card Fees – Customer Hostility from Discover Card (I got another “negative invoice” from Discover – still no check)

  • Credit Freeze Stops Identity Theft Cold

    Credit freeze stops identity theft cold (link broken, so it was removed):

    Every day, about 27,000 Americans are the victims of identity theft, according to the Federal Trade Commission. In about a third of those crimes, crooks use the information to open new accounts in their victims’ names.
    …
    But the landscape is improving with security freezes, a safeguard promoted by Consumers Union (the nonprofit publisher of Consumer Reports) and other consumer groups that has been adopted in 37 states, including California, and the District of Columbia.

    A freeze essentially locks up the information needed to conduct a credit check, and creditors won’t open new accounts without that check. An imposter will be foiled, but you can lift the freeze using a PIN if you want to open new accounts. A security freeze provides much stronger protection than the fraud alert currently available under federal law.
    …
    Credit bureaus also make big bucks from selling to consumers more expensive credit-monitoring services, which are unnecessary, especially when a security freeze is in place. Consumers Union has asked the Federal Trade Commission to help inform consumers about security freezes.

    See if your state has protected citizens or is not doing what it should: credit freeze status by state.

    Related: Real Free Credit Report – Credit Card Tips – links on identity theft

  • Housing Inventory Glut

    Housing inventory glut gets fatter

    Zip monitors 18 metro-area markets from all four regions of the country. For the 12 months ended July 31, only Boston and San Diego showed drops. Boston’s inventory fell 5.8 percent and San Diego’s dropped 2.1 percent. The average for the 18 cities was a 19 percent increase in homes on the market
    …
    The wait for tenants may be a long one. It’s much harder to get a loan these days for all but the best borrowers. Borrowers, for the most part, now must put more money down, document their income and assets, have few dings against their credit worthiness and show that they can afford the payments. Those tightened lending restrictions eliminate potential buyers from the market, reducing demand even as more supply hits the listings due to big jumps in foreclosures and builders finishing up projects initiated before the slump took hold.

    What does the current data show about the real estate market overall? Across the country in the last year the median price has actually increased slightly. It looks like the data for the calendar year 2007 will show a decline for about 2%. Some areas have been much harder hit with median prices dropping over 10% (Las Vegas, Florida, Phoenix…). Mortgages any of 1) questionable credit score 2) jumbo loan or to a lessor extent with little money down are becoming hard to come by. Foreclosures are increasing dramatically. Builders are having a great deal of difficulty selling new housing they have built.

    Still the decline in median prices is far from as dramatic as many feel (there have been large changes in the market but it still has not lead to a crash in home values or even a noticeable decline in most places). The increasing supply of houses for sale will put pressure on housing prices to decline. But without a significant continued increase in foreclosures (which is possible but it is still difficult to predict how large an increase we will see) I still do not believe we will see dramatic price declines in most of the country. The possibility (of say declines of over 15% in a year or two) is much higher now than it was in the last couple of years.

    Post from 2004 on the real estate bubble worries then – again prices would have to fall a great deal to fall below the prices in 2004 (possible but not very likely to happen in the coming years). The real estate problems are significant and pose a danger to the economy (they certainly are already decreasing economic growth) however that is much different than a crash in housing prices. And as bad as the credit markets have been and rising foreclosures, increased housing inventory the anticipated crash in prices has still not been seen nationwide – and I stand by my belief we won’t see it. Though I will admit less confidently than at any time so far – I would hedge my bet on this prediction at this point (if I actually had bet any money on that prediction – I have no desire to sell any of my 401k money invested in real estate, my rental property or my house).

  • Credit Score to Ignore Authorized User History

    Your credit score may change as FICO creators drop authorized users

    the formula for the widely used FICO credit score is about to change. Fair Isaac Corp., creator of the FICO score used by lenders, says it will no longer consider authorized user accounts when factoring a consumer’s score. An authorized user of a credit card is free to use the plastic, but doesn’t have to pay the bill. Parents often make a child an authorized user of their card to give a youngster access to credit. But this has other perks. The child inherits the parents’ credit history. And if it’s a good one, the child receives a high credit score.

    But some Internet-based credit-repair firms have been using this to boost the credit scores of strangers with poor credit. The firms pay a person with an excellent credit score to add someone with a rocky record as an authorized user on a card for a few months. The authorized user doesn’t ever use the plastic. Instead, he or she gets the benefit of the account owner’s credit history, which can raise a weak score by a couple of hundred points.
    …
    Worse for some, the change will mean no FICO score at all. Fair Isaac estimates 1.5 million to 3 million consumers will no longer have enough information in their credit report to be able to produce a FICO score. Among those most likely affected are young adults who have been added to their parents’ accounts.

    Related: Example of Mortgage Payments Depending on Credit Score – Your FICO credit score explained

  • Too Much Stuff

    Buy less stuff. Save more. Not a complicated plan, along the lines of: Eat food. Not too much. Mostly plants. Paul Graham posts excellent essays online. His latest is another good one – Stuff:

    Companies that sell stuff have spent huge sums training us to think stuff is still valuable. But it would be closer to the truth to treat stuff as worthless. In fact, worse than worthless, because once you’ve accumulated a certain amount of stuff, it starts to own you rather than the other way around.
    …
    In industrialized countries the same thing happened with food in the middle of the twentieth century. As food got cheaper (or we got richer; they’re indistinguishable), eating too much started to be a bigger danger than eating too little. We’ve now reached that point with stuff. For most people, rich or poor, stuff has become a burden.

    Related: Saving for Retirement – Frugality Versus Better Returns – Real Free Credit Report – Our Policy is to Stick Our Heads in the Sand

  • Ignorance of Many Mortgage Holders

    Mortgage ignorance rampant

    In the survey of 1,004 adults conducted by Gfk Roper, homeowners with mortgages were asked what type of mortgage they had. A stunning 34 percent of the homeowners had no idea. “That’s a symptom of the complexity of the mortgage market today,” says Ken Wade, chief executive officer of NeighborWorks America, a nonprofit organization that provides financing and training to neighborhood-based housing organizations.

    Sorry but that is a symptom of massive ignorance. Not knowing an incredible important aspect of your largest financial decision is like not know what days you are suppose to show up for work. There is a minimum amount of knowledge people should have that sign a mortgage. I think at least 34% of mortgage holders need to read this blog. Ok, I probably alienated all of them, so if that is the case then they should read some of the blogs we list in our blogroll.

    Nationwide, 36 percent of homeowners who now have an ARM said they planned to refinance to a fixed-rate loan when their ARM changes. Only 2 percent planned to refinance into another ARM.

    There is a big problem in that logic – it could maybe make sense if you had good reason to believe rates will be lower in the future than when you took out the loan (but that is a very questionable). I don’t know why someone would think that in the last couple of years – the risks have been much better than rates would go up a few hundred basis points than down that much. Basically I can see someone that is very financially savvy using an adjustable mortgage to qualify and if they know they will move in a fairly short period…

    Related: Learning About Mortgages – Mortgage Defaults: Latest Woe for Housing – How Not to Convert Equity – 30 year fixed Mortgage Rates

  • Old and Wealthy

    I am not exactly sure why but for some reason people seem very ignorant of the wealth distribution by age. The richest group by far are those over 65. There are several reasons for this including self preservation. Once you stop working you better have a large pool of capital or you will most likely have little income (you could have a great pension and no other savings but…). Another is that the “miracle” of compound interest. Those that actually saved enough for retirement often find their investments out-earning their spending thus wealth increasing yearly. This effect over time results in wealth increasing dramatically. Many of those that failed to save enough will have their savings dissolve very quickly thus leaving the inverse of a bell curve (a high number of wealthy and of poor and a lessor number in the middle). Social Security helps those that failed to save enough for retirement to slow the decline (and those that saved enough to become even wealthier even faster). The presence of large numbers of poor elderly I think is one reason so many are surprised that they are the richest age group.

    I used to be surprised how few people know this – now I know, for those I talk to anyway, they are always surprised. This has several public policy impacts such as why do we have a huge “social security transfer system” (social security including medicare) to move money from the young to the old when the old are wealthier than the young? People see the 7.65% deducted from their check but the employer has to pay an equal amount to this transfer of wealth between the generations bringing the total to 15.3%.

    It doesn’t make much sense to me to have those working at Wal-mart and McDonalds transfer 15.3% of the income from their labor to much wealthier people. Yes, paying something in I think is fair. But the system should be adjusted. One method I would use is to reduce (or eliminate) payments to the wealthy elderly (continuing the existing payments to the poor elderly is affordable so I see continuing those payments as good public policy) and reduce taxes on the working poor. Obviously others disagree so we transfer a large amount of money from those working at Wal-mart to those with hundreds of thousands in investments. I think this is wrong. I wish at least the facts would be known so that the decision is made with awareness of the facts.

    The median net worth of people 55 to 64 has climbed to nearly $250,000, while it has dropped to about $50,000 for those in their late 30s
    …
    The growing divide between the rich and poor in America is more generation gap than class conflict, according to a USA TODAY analysis of federal government data. The rich are getting richer, but what’s received little attention is who these rich people are. Overwhelmingly, they’re older folks. Nearly all additional wealth created in the USA since 1989 has gone to people 55 and older, according to Federal Reserve data. Wealth has doubled since 1989 in households headed by older Americans.
    …
    The implications are far-reaching and can turn conventional wisdom on its head. Social Security and Medicare increasingly are functioning as a transfer of money from less affluent young people to much wealthier older people.

    Wow, I don’t recall seeing publications actually point out this fact very often. Good for the USA Today.
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