Investing Curiouscatblog

Tag: Personal finance

  • Nearly 10% of Mortgages Delinquent or in Foreclosure

    The percentage of loans in the foreclosure process at the end of the third quarter was 2.97 percent, an increase of 22 basis points from the second quarter of 2008 and 128 basis points from one year ago. The percentage of loans in the process of foreclosure set a new record this quarter, to 1.35 million.

    Mortgages are counted as delinquent or in foreclosure (once they are in foreclosure they are not counted as delinquent). So the total percentage of mortgages not being paid by the homeowner is 2.97% (in foreclosure) + 6.99% (delinquent) = 9.96%. That is amazingly bad. In February of 2007 I wrote about this and the delinquency rate was 4.7% which sounded pretty bad to me. Amazingly 4.4% is a historic low for this figure. Can you believe 1/25 mortgages is delinquent and that is as good as we ever get? That is pretty shocking to me.

    The seasonally adjusted total delinquency rate is now the highest recorded in the Mortgage Bankers Association survey. The seasonally adjusted delinquency rate increased 41 basis points to 4.34 percent for prime loans, increased 136 basis points to 20.03 percent for subprime loans, increased 29 basis points to 12.92 percent for FHA loans, and increased 46 basis points to 7.28 percent for VA loans.

    The percent of loans in the foreclosure process increased 16 basis points to 1.58 percent for prime loans, and increased 74 basis points for subprime loans to 12.55 percent. FHA loans saw an eight basis point increase in the foreclosure inventory rate to 2.32 percent, while the foreclosure inventory rate for VA loans increased 13 basis points to 1.46 percent.

    Since loans that would have gone into foreclosure in the past are being kept out of foreclosure due to some programs ( ) the rate or seriously delinquent is a useful measure of serious problems. Seriously delinquent mortgages are 90 days past due. The rate increased 52 basis points for prime loans to 2.87 percent, increased 171 basis points for subprime loans to 19.56 percent, increased 62 basis points for FHA loans to 6.05 percent, and increased 45 basis points for VA loans percent to 3.45 percent.

    Compared to a year ago: the seriously delinquent rate was 156 basis points higher for prime loans and 818 basis points higher for subprime loans. The rate also increased 51 basis points for FHA loans and 89 basis points for VA loans.

    Related: Homes Entering Foreclosure at Record (Sep 2007) – Foreclosure Filings Continue to Rise – How Much Worse Can the Mortgage Crisis Get? – How Not to Convert Equity

  • Kiss Your Phone Bill Good-bye

    All you need is a broadband internet connection and you can Kiss your phone bill good-bye:

    The Ooma service uses so-called Voice over Internet Protocol (or VOIP) technology to deliver calls to your existing phone using a broadband connection. Consumers need only to buy a $249 Ooma Hub (it was a hefty $399 when the service launched last year); all domestic calls are free. (Ooma charges a few pennies a minute for international calls to landlines and 20 to 30 cents a minute for overseas calls to mobile phones. Calls from Ooma box to Ooma box are free.)
    …
    Replacing your phone service is, of course, just the start for Ooma. In some ways, calling is the Trojan horse to get the box in your house and then figure out other services to sell, like enhanced network security or kid-safe Web surfing.

    One Year Later: Ooma by Michael Arrington

    I’ve been a happy Ooma customer for a year now. I also use Vonage, and Ooma’s call quality is better and there are fewer problems in general. If I didn’t have one I’d buy one now.

    I just ordered mine from Amazon for $203. I have been using Vonage for awhile and have been considering canceling it for awhile (and just using my cell phone) but I currently have a limited cell phone plan (because unlike so many people, I don’t feel a need to talk to someone every single minute of the day). I normally just use the cell phone if I am meeting someone or traveling. Otherwise, just leave a message, I don’t need to speak to you right now.

    Related: Save Money on Printing – Frugality Plus – Save Money on Food

  • Families Shouldn’t Finance Everyday Purchases on Credit

    Why the Germans just hate to spend, spend, spend

    “Millions of Americans,” croaked the US Treasury secretary, were being denied credit or facing rising credit card rates, “making it more expensive for families to finance everyday purchases”. The notion that families should finance everyday purchases on credit, the anchor commented, “suggests Washington has still to understand what brought us there in the first place”.
    …
    US, French and British officials puzzle over Germany’s refusal to tackle the recession head-on. German leaders, meanwhile, cannot see why their taxpayers’ money should go into encouraging precisely the kind of behaviour – reckless lending, careless borrowing and overconsumption – that precipitated the financial crisis.

    I am with the Germans on this one. The people that want to find some more credit cards to run up don’t understand the problem. Until they come up with strong policies that admit we have been living beyond our means for decades and have to pay for this at some point and fashion a policy based on that understanding we are in danger. Yes another credit card can allow you to continue to live beyond your means, but it also puts you into even worse financial shape than you have already gotten yourself into. It is not a solution, it is an emergency to deal with the complete failure of yourself previously and without a plan to change it is just setting yourself up for a worse situation soon.

    Related: How to Use Your Credit Card Responsibly – Have you Saved Your Emergency Fund Yet? – Can I Afford That? – Too Much Stuff

  • Dazzling Diversification

    Diversification overrated? Not a chance [the broken link has been removed] by Jason Zweig

    A diversified portfolio always has, and always will, underperform the hottest investment of the moment.

    For anyone with a sustainable ability to identify the hottest investment of the moment, diversification is a mistake. But if you really believe you’ve got that ability, you’re not just mistaken. You need to be hauled off in a straitjacket to the Institute for the Treatment of Investment Insanity.

    Exactly right. As we posted previously Warren Buffett’s diversification thoughts are similar

    If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time. Make sure you don’t buy at the wrong price or the wrong time. That’s what most people should do, buy a cheap index fund and slowly dollar cost average into it.

    You have to remember when Warren Buffett says “professional and have confidence” he doesn’t really mean just what those words say. He mean if you are Charlie Munger, George Soros, Jimmy Rodgers and maybe 10 other people alive today (maybe I am too restrictive, maybe he would include 50 more people alive today, but I doubt it).

    Related: Dilbert on Investing – investment risks – Curious Cat Investing and Economics Search Engine

  • Financial Thanksgiving

    photo of Frew Wube in Ethiopia

    For me, giving back to others is part of my personal financial plan. As I have said most people that are actually able to read this are financially much better off than billions of other people today. At least they have the potential to be if they don’t chose to live beyond their means. Here are some of the ways I give back to others.

    Kiva is a wonderful organization and particularly well suited to discuss because they do a great job of using the internet to make the experience rewarding for people looking to help – as I have mentioned before: Using Capitalism to Make a Better World. One of my goals for this blog is to increase the number of readers participating in Kiva – see current Curious Cat Kivans. I have also created a lending team on Kiva. Kiva added a feature that allows people to connect online. When you make a loan you may link you loan to a group.

    I actually give more to Trickle Up (even though I write about Kiva much more). I have been giving to them for a long time. They appeal to my same desire to help people help themselves. I believe in the power of capitalism and people to provide long term increases in standards of living. I love the idea of providing support that grows over time. I like investing and reaping the rewards myself later (with investment I make for myself). But I also like to do that with my gifts. I would like to be able to provide opportunities to many people and have many of them take advantage of that to build a better life for themselves, their families and their children.

    The photo shows Frew Wube, Haimanot and Melkan (brother and two sisters), an entrepreneur that received a grant from Trickle up. Trickle Up provides grants to entrepreneur, similar to micro loans, except the entrepreneur does not have to pay back the grant. They are able to use the full funds to invest in their business and use all the income they are able to generate to increase their standard of living and re-invest in the business.

    Haimanot and Melkan quickly learned the ropes of the job and started working with their brother in the business. Soon, the two girls managed the clothing business on their own, and Frew began to think about other income-generating opportunities.

    “I also save every month,” says Frew, who has over $40 stored in a cooperative savings fund. The capital he has saved with other people in his group is used to provide loans to group members at a low interest rate. Frew, now able to access credit thanks to his Trickle Up clothing business, has taken progressively larger loans from the group, including his latest loan of $300 to start a candle business.

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  • How to Thrive When this Bear Market Ends

    How to thrive when this bear dies by Jim Jubak

    Believe it or not, someday, almost certainly within the next 12 months, the bear market will be over. Then investors will have an opportunity to rebuild their wealth if stocks come roaring back, as they typically do.
    …
    In the case of the 2000-02 bear, the initial rush after the end of the bear delivered a huge share of the 101% gain for the bull market that ran from October 2002 through October 2007. In the 16 months from the Oct. 9, 2002, low through Feb. 9, 2004, the S&P 500 gained 47%. The gains from the remaining years of the “great” bull market of the “Oughts” were rather anemic: just 9% in 2004, 3% in 2005 and 14% in 2006.
    …
    If I’m right about the arrival of a secular bear, emerging economies and their stock markets will deliver higher returns, despite relatively slow growth, than the even more slowly growing developed economies. If I’m wrong about the secular bear, emerging economies will still deliver stronger growth than the world’s developed economies. Under either scenario, investors want to increase their exposure to the world’s emerging economies, which deliver more performance bang for less risk than most investors think.

    Jim Jubak is one of my favorite investing writers. He can of course be wrong but he provides worthwhile insight, backed with research, and specific suggestions. I am also positive on the outlook for stocks (though what the next year or so hold I am less certain) and on emerging markets.

    Related: Why Investing is Safer Overseas – Rodgers on the US and Chinese Economies – Beating the Market – The Growing Size of non-USA Economies – Warren Buffett’s 2004Annual Report

  • Personal Finance Basics: Dollar Cost Averaging

    With the recent turmoil in the financial market this is a good time to look at Dollar cost averaging. The strategy is one that helps you actually benefit from market volatility simply.

    You actually are better off with wild swings in stock prices, when you dollar cost average, than if they just went up .8% every single month (if both ended with stocks at the same price 20 years later). Really the wilder the better (the limit is essentially the limit at which the economy was harmed by the wild swings and people decided they didn’t want to take risk and make investments.

    Here are two examples, if you invest $1,000 in a mutual fund and the price goes up every year (for this example the prices I used over 20 years: 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 24, 26, 28, 30, 33, 36,39) you would end up with $40,800 and you would have invested $20,000. The mutual fund went from $10 a share to $39 over that period (which is a 7% return compounded annually for the share price). If you have the same final value but instead of the price going up every year the price was volatile (for example: 10, 11, 7, 12, 16, 18, 20, 13, 10, 16, 20, 15, 24,29, 36, 27, 24, 34, 39) you end up with more most often (in this example: $45,900).

    You could actually end up with less if the price shot up well above the final price very early on and then stayed there and then dropped in the last few years. As you get close to retirement (10 years to start paying close attention) you need to adopt a strategy that is very focused on reducing risk of investment declines for your entire portfolio.

    The reason you end up with more money is that when the price is lower you buy more shares. Dollar cost averaging does not guaranty a good return. If the investment does poorly over the entire period you will still suffer. But if the investment does well over the long term the added volatility will add to your return. By buying a consistent amount each year (or month…) you will buy more share when prices are low, you will buy fewer shares when prices are high and the effect will be to add to your total return.

    Now if you could time the market and sell all your shares when prices peaked and buy again when prices were low you could have fantastic returns. The problem is essentially no-one has been able to do so over the long term. Trying to time the market fails over and over for huge numbers of investors. Dollar cost averaging is simple and boring but effective as long as you chose a good long term investment vehicle.

    Investing to your IRA every year is one great way to take advantage of dollar cost averaging. Adding to your 401(k) retirement plan at work is another (and normally this will automatically dollar cost average for you).

    Related: Does a Declining Stock Market Worry You? – Save Some of Each Raise – Starting Retirement Account Allocations for Someone Under 40 – Save an Emergency Fund

  • Scott Adams on Investing

    In his blog Scott Adams, author of Dilbert, provides often quite intelligent and interesting thoughts. In a recent post he wrote on investing and Diversification:

    When I first started making serious Dilbert money, I let experts manage half of it, and I managed the rest, as a hedge against both the experts and myself. The experts invested in Enron, Worldcom, and a number of other companies that promptly exploded. The experts reduced their portion of my money by about a third over five years. (The experts work for one of the most respected financial institutions on Earth, by the way.) My own investments did better, precisely because they were more diversified. So now I handle my own investments, probably incompetently.

    I didn’t own much in the way of stocks for the past several years, thanks to not using professional advisors. A big chunk of my money has been in California Municipal bonds of various types, and all are insured.
    …
    In order to diversify more, I started migrating money over to the stock market during this recent plunge. The market could go a lot lower still, but this is either the beginning of the end of the United States as we know it, in which case it doesn’t matter how I invested, or it is a once-in-a-lifetime stock buying opportunity. It was an easy decision.

    Related: Stock Market Decline – Warren Buffett on Diversification – Investment Allocations Make A Big Difference

    Dilbert comic on investors

  • Personal Finance Basics: Long-term Care Insurance

    Long term care insurance is an important part of a personal financial portfolio. It provides insurance for for expenses beyond medical and nursing care for chronic illnesses (assisted living expenses). So while looking at your personal finance insurance needs (health insurance, disability insurance, automobile insurance, homeowners [or rental] insurance [with personal liability insurance – or separate personal liability insurance] and life insurance don’t forget to consider long term care insurance.

    Can You Afford Long-Term-Care Insurance?

    Long-term care is likely to be most Americans’ greatest expense of all in retirement. A private room in a nursing home costs $76,460 annually on average, or $209 a day, and Medicare typically won’t cover it.
    …
    AARP estimates that a 65-year-old in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing-home and home care.

    “About 70 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. Over 40 percent will need care in a nursing home for some period of time.” – National Clearinghouse for Long-Term Care Information

    Advice on buying long term care insurance from AARP, the Department of Health and Human Services and Consumer Reports.
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  • Will Americans Actually Save and Worsen the Recession?

    Americans need to save much more money. This is true for people’s personal financial health. And it is true for the long term health of the economy. Of course the credit card immediate gratification culture doesn’t put much weight on those factors. And if Americans actually do reduce their consumption to save more that will harm the economy in the short term. But since those reading this are people (the economy can’t read) the smart thing for most readers is to save more to create a stronger financial future for themselves.

    Turmoil May Make Americans Savers, Worsening ‘Nasty’ Recession

    U.S. retail sales fell in September for the third straight month, the longest slump since the government began keeping records in 1992.
    …
    From 1960 until 1990, households socked away an average of about 9 percent of their after-tax income, Commerce Department figures show. But Americans got out of the saving habit starting in the 1990s
    …
    “Consumers are starting to realize that they’ve been living in a fantasy world,” says Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington. “They will have to begin salting away money for retirement, their children’s education and other reasons.”

    Americans have a way to go to catch up with their counterparts in other countries. The 0.4 percent of disposable income that U.S. households saved last year compares with 10.9 percent for Germany and 3.1 percent for Japan

    Related: Americans are Drowning in Debt – Too Much Stuff – Financial Illiteracy Credit Trap