Investing Curiouscatblog

Tag: Personal finance

  • Building an Emergency Fund

    Many people find personal financial planing boring. Building a cash safety net is an important part of your personal finances even though it isn’t exciting. I have written previously the very simple idea that you can just not buy what you can’t pay for. If you can’t pay for it this month, don’t buy it.

    But that leaves out one thing. Even if you do have the cash you should be building up a cash reserve before buying luxuries. The typical advice is to build up 6 months of expenses in cash (rent or mortgage, food bills, utilities, health care, etc.). Now actually building up to that level can take awhile and forgoing all non-mandatory expenses until you have that saved is not usually reasonable. But as part of your personal finances building up an cash reserve is important (even if it is boring). And I believe you really should aim at a higher level – say building to 1 year.

    A significant portion of downward spirals in personal finances are started when people have emergency expenses and have to borrow that money (since they don’t have cash reserves). And even worse when they start racking up huge fees for late payments, increased interest rates on outstanding debt, health care expenses if they fail to keep health care insurance…

    If you are over say 26 and don’t have a cash reserve yet saving for it should be part of your monthly budget. How quickly you build that up is a personal decision but I would say a 2% of the target amount (so if you are aiming for a cash reserve of $20,000 then $400/month). If you have next to nothing saved now start aiming at 6 months. As you get 3 months saved up start aiming at 9 months. As you get 6 months saved up start aiming at 1 year. And you have to also be saving for other needs – you shouldn’t raid your emergency fund savings for other things (a new car, a vacation…). This takes real discipline but it is much easier than the challenges our ancestors had to face of billions of people face financially today. So yes it is not easy, but really those that feel sorry for themselves need to realize they shouldn’t expect that they are so special the world owns them financial riches with little effort.

    Doing something is better than nothing so do what you can (even if it is less than 2% of you target). But realize that is one of the weaknesses in your personal finances and try to fix that as soon as possible.

    Very important personal financial allocations for you to put first include: current needs (food, car payment, rent/mortgage, utilities…), insurance, creating a cash reserve, retirement savings, saving for future purchases. Then there are luxuries and treats, such as: eating out, vacations, cable TV… Many people put current needs, luxuries and treats fist and then say they don’t have the ability to do what is responsible (check how rich you are – before making such claims yourself).

    Related: How to Protect Your Financial Health – Save Some of Each Raise – Buying Stuff to Feel Powerful – Consumer Debt Down Over $100 Billion So Far in 2009 – posts on basic personal finance matters

  • Jubak Looks at What Stocks to Hold Now

    Excellent post by James Jubak, Get your portfolio ready for the profitless global economic recovery

    the world hasn’t begun to address the problems of excess capital and the excess production capacity that it creates under current economic rules, the global economic recovery is going to turn out to be extraordinarily profitless in industry after industry as producers with excess capacity cut prices in an effort to buy market share.
    …
    To avoid the trap of excess capacity killing even modest profits I think you have to look for sectors that have barriers that prevent excess capacity from driving down all prices as companies slit each other’s throats to acquire profitless market share.
    …
    Cisco is the IBM of the Internet—companies can buy the company’s gear and know that it will talk to the rest of the gear in their network (because Cisco probably sold them a good part of that gear and because everybody makes sure their gear works with Cisco equipment.) Plus Cisco has used recent acquisitions to continue its transformation from a simple—but globally dominant–seller of routers into a company that builds unified digital communications systems.

    A second is Google (GOOG). Yes, Google stands a good chance of getting kicked out of China with its 1.3 billion potential Internet users (How old does a baby need to be to use the Gmail?). But no company is better positioned for the long-term trend toward distributed computing over the Internet than Google.

    Both Google and Cisco have been long term investments in my 12 stocks for 10 years portfolio. Jubak’s blog is excellent: the best investing blog I know of. He does trade quite a bit more than I do but his performance has been exceptional.

    Related: Jubak Looks at 5 Technology Stocks – Why Investing is Safer Overseas – 10 Stocks for Income Investors – Tesco: Consistent Earnings Growth at Attractive Price

  • Investments of Nobel Prize Economists

    3 Nobel prize winning economists, Robert C. Merton, Robert Solow and Paul Samuelson, took questions about the impending retirement savings crisis from PBS NewsHour correspondent Paul Solman in October 2008. Paul Solman asked them about their personal portfolios in the clip shown above.

    Robert Merton tells his portfolio portfolio is in a Global Index Fund, Treasury Inflation-Protected Securities, and one hedge fund. He said he had been invested in a TIAA commercial real estate fund until recently, but sold in early 2008 when he worried commercial real estate prices had increased too far. He also sold out his Municipal bond holdings.

    Robert Solow says he has no idea of his portfolio.

    Paul Samuelson declined to say. He did offer that timing is not something investors can successfully do. He stated that timing the selling of assets was not as difficult as timing when to get back in. And that markets move very quickly so you can miss out on big gains. 2009 provided a great example of this. Many people sold stocks in late 2008 and early 2009. And most did not get back in. In 2009 the S&P 500 was up 26%.

    Related: Retirement Savings Allocation for 2010 – How Much Will I Need to Save for Retirement? – Gen X Retirement – Many Retirees Face Prospect of Outliving Savings

  • Save Money on Cell Phone Service – Price Reductions

    Well done article on CNET looks at theAT&T-Verizon price war and provides usable information.

    AT&T and Verizon have each reduced the price on their unlimited voice plans. The plans have dropped from $99.99 to $69.99 per month for individuals.
    …
    If I am an existing customer paying a higher fee for my voice service, can I switch to the all-you-can-talk plan without being penalized?
    Yes, AT&T and Verizon Wireless representatives say all you have to do is call a customer service agent to change your plan. You will not be charged any kind of fee for switching. And you will not extend your existing contract by switching to the lower cost plan.
    …
    Each of these plans will cost about $120 a month. Unlimited texting and voice is about $90 a month. And the data service is an additional $30 a month. The price of unlimited voice, text, and data from these carriers previously was about $150, because the unlimited voice service was $30 more expensive.

    Are the data plans really unlimited or is there a 5 gigabyte limit?
    AT&T and Verizon Wireless say their data plans are unlimited for all phone customers. The 5GB limit only applies to customers using their 3G broadband service for laptops.

    Do either AT&T or Verizon Wireless allow tethering phones to laptops for Internet service? How much does this cost?
    AT&T and Verizon Wireless each allow attaching phones to a laptop to get 3G wireless service. Verizon allows tethering on most devices, but not all. For smartphone customers with a voice and data plan, the tethering plan costs an additional $30 per month. For customers wanting to connect their laptops to a feature phone, the tethering plan will cost about $49.99 if you use the new plans. In either scenario, customers are subject to the 5GB limit for tethering usage with 5 cents per MB for overage.
    …
    Sprint’s Simply Everything plan costs $99.99 and includes unlimited voice, texting, and data. This is still $20 cheaper than a comparable unlimited plan for an AT&T smartphone or any Verizon phone
    …
    T-Mobile USA offers an unlimited voice, text, and data plan for $79.99 a month, which is $40 less than the new equivalent plans from AT&T for smartphone devices and Verizon Wireless

    Related: Move to Finland for Cell Phone Service Savings – Kiss Your Phone Bill Good-bye – iPhone + AT&T = Yikes – Customer Service is Important

  • Retirement Benefits: What to Expect in 2010

    Retirement Benefits: What to Expect in 2010

    No Social Security increase. Monthly Social Security checks for most beneficiaries will not increase in 2010. Retirement payouts are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers, which fell between the third quarter of 2008 and the third quarter of 2009. Next year will be the first without a Social Security increase since cost-of-living adjustments went into effect in 1975.
    …
    Higher Medicare Part B premiums for some. Most current Social Security recipients will continue to pay $96.40 each month for Medicare Part B medical insurance, the same amount as in 2009. But for new enrollees, Medicare Part B monthly premiums will be $110.50, a 15 percent increase from 2009 prices. Retirees with incomes greater than $85,000 ($170,000 for couples) also will pay higher premiums, ranging from $154.70 to $353.60 each month, depending on the income reported on their 2008 tax return.
    …
    Among Fidelity-administered 401(k) plans, 27 percent of employers that cut contributions to employee retirement accounts have already resumed the match or plan to reinstate it next year. Another survey, by the Profit Sharing/401(k) Council of America, found that almost half (47 percent) of companies that suspended their employee match are planning to restore it within the first quarter of 2010.

    Related: How Much Will I Need to Save for Retirement? – 401(k)s are a Great Way to Save for Retirement – Retirement Savings Survey Results

  • Curious Cat Investing and Economics Carnival #6

    Welcome to the Curious Cat Investing and Economics Carnival: we highlight recent personal finance, investing and economics blog posts we found interesting.

    • 5 Financial Milestones to Aim for By Age 30 – 1. Contribute to a Roth and a Traditional IRA… 2. Build Six Months Worth of Expenses in your Emergency Fund… 3. Make the Credit Card Companies Hate You…
    • USA again the leading manufacturing country, data of the Largest Manufacturing Countries in 2008 by John Hunter – The USA’s share of the manufacturing output, of the countries that manufactured over $185 billion in 2008, 28% in 1990, 28% in 1995, 32% in 2000, 28% in 2005… 24% in 2008. China’s share has grown from 4% in 1990… 10% in 2000… to 18% in 2008.
    • Afraid to stay in but scared to get out? Join the club by James Jubak – “If you have to keep $60,000 in cash so that you can sleep at night knowing that you’ve got your financial bases cover, then the loss of a potential gain on that money is, in my book, worth it. I’ve sold into this rally to sock away my kids’ tuition for 2010 and my 2010 tax payment.”
    • Invented, Completely New Meaning of the “Invisible Hand” by Gavin Kennedy – “In fact, Stigler explicitly criticises ‘legends’ of the ‘naïve doctrine’ that Smith should be associated with notions that ‘whenever a person seeks to serve his own ends, he invariably serves the ends of society’.”
    • The Quiet Danger of Non-Inflation-Adjusted Stock Returns by Stephen Dubner – “the ‘real-real’ value of stocks does make you appreciate how so many people got so jazzed about the spike in housing prices over the last decade: it’’ exciting to see inflation working in your favor day after day…”
    • Think You Don’t Need Health Insurance? Think Again – “Very bad medical problems can and do happen to many of us – maybe even you. Those very bad medical problems can be very expensive and potentially ruin one’s financial future if they do not have adequate health insurance.”
    • Don’t Be Suckered By Stock Market Rally In 2010 – “For those who do not want to invest, it is best to save up your money and wait for better opportunities since valuations are high right now… I suggest fixed deposits as the best option to preserve your principal.”
    • Resolving U.S. Indebtedness: Various Scenarios by Arnold Kling – “Some major technologies, probably either wet or dry nanotech, produce so much economic growth that the ratio of debt to GDP stays under control. I give this a 20 percent chance… Inflate away the debt with moderate inflation… I gives this a 15 percent chance….”

    Related: Curious Cat Investing and Economics Custom Search Engine – Curious Cat Investing and Economics Carnival #2

  • Finding a Credit Union

    NCUA logo

    I have discussed the advantage of using credit unions over trying to cope with a bank since so many banks constantly try to trick customers into paying huge fees. Here are some resources to help:

    • Find a local credit union (site broke link so I removed the link) – with an overview of services offered
    • Find a local credit union from (NCAU) with links to Financial Performance Report data.
    • Credit Unions have National Credit Union Share Insurance Fund (NCUSIF) (“backed by the full faith and credit of the U.S. Government”) instead of FDIC. The limits on the share insurance are the same as the limits on FDIC, currently $250,000 per individual account holder. Use the link to make sure your credit union provides NCUSIF coverage.

    You can also get credit cards through your credit union. In general credit unions are much more interested in trying to provide the customer value instead of trying to stick them with huge fees. But don’t just trust your credit union, check out the rates and fees they charge and comparison shop for the best credit card.

    Related: posts on banking – FDIC Study of Bank Overdraft Fees – Credit Unions Slowly Fill Payday Lenders Void

  • Home Prices Increase for 5th Straight Month

    Home Prices in 20 U.S. Cities Rose for Fifth Month

    The seasonally adjusted 20-city index has been rising on a month-to-month basis since June, the first gain since it started dropping in June 2006.
    …
    “The tax credit had the intended impact of drawing buyers in and lowering inventory,” Lawrence Yun, the real-estate agents group’s chief economist, said in a news conference. “An estimated 2 million buyers have taken advantage of the credit.”
    …
    Foreclosure filings in 2009 will reach a record for the second consecutive year with 3.9 million notices sent to homeowners in default, RealtyTrac Inc., the Irvine, California- based company said Dec. 10. This year’s filings will surpass 2008’s total of 3.2 million.

    The housing market seems to have been stabilized with the tax credits, previous declines, continued low mortgage rates and a somewhat better credit environment. The market is still far from healthy. And the credit environment is still very tight. But housing may have hit a bottom nationwide, though this is not certain. I do expect mortgage rates to increase in 2010 which will put pressure on housing prices.

    Related: House Prices Seem to be Stabilizing (Oct 2009) – USA Housing Foreclosures Slowly Declining – The Value of Home Ownership – Your Home as an Investment

  • Investing – My Thoughts at the End of 2009

    In December 2008 I decided to substantially increase my investments in the stock market. This turned out to be quite successful. As I said at the time, the economy continues to struggle and the prospects for 2009 did not look good. And I even guessed the stock market (in the USA) would be lower 12 months from now. But, I also said I was far from certain, in that guess and that I had been increasing my stock investment and would continue to do so.

    At this time my retirement contributions are going 100% to stock investments (if I were close to retirement I would not do this). I am likely going to reduce the contributions going forward (maybe 75% stocks – 25% money market). Unfortunately my retirement fund does not have great alternatives – it has very good real estate options but I am not ready to start putting new funds there (though I likely will during 2010, at some point).

    I did sell reduce my equity exposure in a retirement account that I am not adding to this month. It reduced my overall equity exposure of my portfolio by a couple percentage points, at most. It is still significantly higher than a year ago, due to the incredible gains for 2009 in my stock investments.

    Last year I fully fund my Roth IRA, in January and bought Amazon (AMZN), Templeton Emerging Market Fund (EMF) and PetroChina (PTR). I will fully fund the Roth IRA in January again. I am leaning toward some combination of Templeton Emerging Market Fund (EMF), Vanguard Emerging Markets Stock (VWO), Toyota (TM) and maybe Danaher (DHR). I purchased all of those in my non-retirement account in 2009.

    Investing well is not easy. Saving money is though, sometime people get these confused. You need to save money for retirement – aim for 10% of your income and invest that conservatively if you do not wish to focus on investing. I have no question fully funding your Roth IRA is a wise move for almost everyone. How to invest once you do that is a bit trickier but funding it is not a difficult question to answer. It was not easy to increase investments into stocks last year, when so many others were selling (and the press is full of stories reinforcing the bad news, bad prospects and risks). You can get great opportunities when others are panicking, but things do not always recovery so nicely.

    What the next year holds, again for 2010, if very difficult to see. The economy looks to be in much better shape than a year ago. But it is far from strong. And the recovery in the stock market means the higher prices stocks command today leave more downside risk for stocks, if things do not go well. I am more concentrated in stocks now than I was a year ago, but I am not comfortable with that. I don’t see bonds, even short term bonds, as an acceptable alternative. The risks are not at all justified by the returns in my opinion. I am happy with my real estate investments and may even look to increase that area though I think it may be too early for commercial real estate. I think individual companies may well prosper even if the economy falters – such as Google, Amazon, Danaher, Toyota, Tesco (though Amazon’s price increases may already have more than accounted for this) – all of these are in my 12 stocks for 10 years portfolio.

    Related: Save Some of Each Raise – It is Never to Late to Invest – Does a Declining Stock Market Worry You? – Uncertain Economic Times

  • Anytime is the Season to Help Deserving Entrepreneurs

    I made several more loans using Kiva today to entrepreneurs in: Mongolia, Costa Rica, Kenya, Togo and Peru. One nice improvement they have made to the layout of the site is to show the “portfolio yield” (which is their form of APR – to provide an idea of the fees an entrepreneurs must pay).

    Since I am making loans on Kiva to help others out one of the big factors for me is the cost to the entrepreneur. I just would much rather provide funding for loans where the entrepreneurs gets a reasonably low rate. I understand there are costs the lenders have to cover. I have no problem with that, but if my choice is helping an entrepreneurs get a loan at 20% or 40% I am going to take 40%. I figure the odds that the entrepreneurs benefits will be much greater with lower costs. I also prefer loans where I see how the loan will let them be more productive, for example by purchasing a machine to help improve productivity.

    I wish Kiva would let me selected lenders I like and then have the results shown only for those lenders (as one option).

    I encourage you to join me: let me know if you contribute to Kiva and I will add your Kiva page to our list of Curious Cat Kivans. Also join the Curious Cats Kiva Lending Team.

    Related: 100th Entrepreneur Loan – Creating a World Without Poverty – Financial Thanksgiving – MicroFinance Currency Risk