Archives for December 2004

Monthly Goal due 1/31: Asset Allocation Implementation

Now that I have chosen my Asset Allocation, I want to implement it and be fully invested in the stock and bond market by 1/31. This might be tricky, as I am moving some assets away from E*Trade and according to the paperwork it can take up to 4-6 weeks. But I should be able to do the rest by the end of January.

As a side note, I am vacationing to warmer weather for the next week, and may or may not have internet access. I am bringing along Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor by John Bogle, as well as some Vanguard prospectuses for the plane ride. Happy New Year!

Asset Allocation Decided

After some thought and reading, I have decided on the following asset allocation ratio for my current age and position:

70% Stocks / 30% Bonds

Although since I am only 26, some people say I should be more aggressive, I am being realistic in the amount of volatility that I think I can endure and still stick to my plan. Would you really keep your positions if they dropped 35% in one year? That would mean about $20,000 for me, enough to cause some serious heartburn.

However, I am saving for a house as well, and since I’ll need that money in less than 5 years, I think of it as a separate “basket” of money. I am going to handle it much more conservatively. More on that later, but that will allow me to change the rest of my portfolio to:

80% Stock / 20% Bonds, or more specifically:

40% Large Cap / 20% Mid&Small Cap / 20% International / 20% Bonds

This is very similar to my current 401k Asset Allocation. My Monthly Goal due 12/31 is now complete. I thought about putting some in REITs, but I personally think they are a bit inflated right now, and I will get exposure to Real Estate when I buy a house.

January 2005 Financial Status Update

Not quite 2005, but I’m going on vacation on Friday, so here is my monthly snapshot:


My net worth increased by $3006 since last month’s snapshot, which is pretty nice but a little skewed since I get paid bi-weekly and I got 3 paychecks this month. My non-retirement funds now total $25,411, an increase of $2045. Not bad considering since this includes my holiday damage. More analysis on these results later…

Free Online Resources about Investing

In addition to the many good books out there, you can get a pretty decent grasp of the investing world just by surfing around a bit. Many big sites have in-depth mini-universities. There is a lot of overlap and the some of the advice is pretty generic, but I still use them as resources whenever a question pops up. Here are a few:

CNN Money 101 Basics: Tutorials
SmartMoney University (My overall favorite)
MSN Money Decision Center

Die Hard! The Vanguard Way

Wasn’t Die Hard a great movie? It’s even got a Christmas theme =). I can’t remember a single thing about the sequels though… Anyways! is a forum for people to discuss mutual funds, more specifically Vanguard mutual funds but not exclusively. The forum is a bit tedious to wade through, with tons of posts and little organization. However, the people there are very nice (even to newbies) and each have their own interesting spin on mutual funds and asset allocation strategies. Supposedly Mr. Bogle himself stops by occassionally. Here are some of the more interesting threads that I came across:

The Intelligent Asset Allocator by Wm. Bernst” by 3515duck
“My Asset Allocation Plan” by Robin
Newbie portfolio comments appreciated” by ramesh
Single Target Retirement Fund in an IRA” by Arenal

Yippie Ky Yay…

Modest Needs: Small Change. A World Of Difference.(TM) is a non-profit 501(c) charity, operating predominanlty online, with a goal of helping people who live paycheck to paycheck survive past life’s unexpected speed-bumps and perhaps save them from a slippery slope to financial ruin or even homelessness. Most of their “grants” are less than $300 and go for things like unexpected medical bills. Much of it is based on the honor system, and all the money flow is very transparent and shown online. The neat thing is that it started (and continues) with a teacher giving 10% of his salary to others in need.

Instead of the $5 suggested monthly pledge, I only gave a one-time $20, but I thought I’d spread the word a bit as well. Happy Holidays!

Affluenza: On the Epidemic of Overconsumption

As the holiday blitz starts coming to an end, my family and I watched an interesting PBS program called Affluenza (there is also a book of the same name). As stated on the site, it talks about the high social and environmental costs of materialism and overconsumption. Did you know that 2/3rds of all newspapers is just ads? Or than the average house in the 1950s was just 900 square feet? Even more surprising, 70% of people visit the mall every week. On average, Americans shop six hours a week and spend only 40 minutes playing with their children.

I don’t have kids yet, and I hate going to the mall with a passion, but I definitely feel overwhelmed by the amount of ads out there. I’m somewhat comforted by the fact that with my TiVo, I now watch virtually no TV ads. It’s kind of nice not knowing what is trendy or what’s on sale. I also use an internet pop-up blocker to nix as many ads as I can. As for materialism, I can’t say I don’t get distracted by plasma HDTV’s and the latest gadgetry. I love my laptop and home wireless network. But this show helps put things into perspective a bit. Is it a bit ironic that I checked it out for free at the local public library?

Buyer Beware: Financial “Advisors” often = Pure salespeople

As I am reading up on mutual funds and investing currently, I can see why so many people let others do the work for them. I mean, there are people trained to do this, so why not, right? Wrong. Especially for people with net worths under a million dollars.

As noted in this CNN Money article and another MSN article, most brokers that service us non-millionaires such as Edward D. Jones or American Express Financial Advisors are simply salespeople who get their money from “revenue sharing”, aka commissions. You can even read about the job here or here. Note that your salary in both places is heavily dependent on commissions.

These kickbacks, er, “revenue sharing”, usually mean mutual funds with loads or various insurance products that sound really good but aren’t. I’ve recently sat down with these people, and they are slick – usually attractive and charismatic. But once you ask them pointedly about the fees and why they don’t recommend no-load mutual funds instead, or about actual returns on the portfolios they manage compared to the overall market, they get a bit nervous. It was a good learning experience though, it reinforces my interest in doing the research myself and buying no-load no-transaction-fee mutual funds using Vanguard, which is actually owned by its shareholders.

Holiday Shopping Done! How much did we spend?

Ok, all the gifts are bought and sent. Everyone talks about how Christmas isn’t about buying stuff for people, but I don’t mind exchanging gifts with people (I do hate crowded mall parking and shopping, though). As since this is the first year where both my wife and I have jobs, we went a bit crazy this year. After totalling the receipts:

Total on gifts: $1060
Shipping:         $130
Total:               $1190

According to this article at MSN Money:

Depending on which survey you read, during the holidays Americans last year spent an average of about $483 (The Conference Board), $853 (Roper), $1,600 (Consumer Credit and Counseling Service) or $1,656 (American Express).

So I am right at the average of all those data points ($1148). That is definitely the most I’ve ever spent for holiday gifts – of course, my family has grown significantly since getting married. I won’t fret though, as I am going to be paying off all these credit card bills in full as they come in. However, it will definitely put a dent in my mid-term goal progress.

Mid-Term Goal: $100,000 Non-Retirement by mid-2007

After setting my Short-Term Goal for this month, I am now setting my Mid-Term Goal. As I have mentioned, I plan to buy a house in an area with insane real estate prices for the long term for family reasons. As we are planning to move in mid-2007, that is the target date. $100,000 in non-retirement accounts will be enough for a good-sized downpayment, as well as other incidental costs.

Let’s check on the current status – If I contribute $14,000 to my wife and I’s Roth IRA in January for 2004/2005, my net worth will look like:

Non-retirement: $23,366
Retirement:        $32,384

Thus, I am 23% to my goal, with 2.5 years remaining. That means my required savings and earnings pace will have to amount to $2555/month. That’s going to be tough, the stock and bond markets will hopefully help me out. If I assume a certain earnings rate, then my monthly savings amount may be more reasonable. I will have to consult my economics-trained friends! My other option is to put less into retirement.

Learning about Worthless Securities

While filling out my form to process my worthless Enron stock, I came across these two choices: 1) Relinquish the security, or 2) Sell the security for $0.01 ?For the Lot.?. They sounded pretty similar to me, so I consulted Google and came across Turbotax’s FAQ on Worthless Securities. In short, proving a security to be “worthless” is a bit grey unless you actually register a sale. Therefore, E*Trade gets my 100 defunct Enron shares for the bargain price of $0.01! (I also have to pay $5 for them to process the sale.)

E*Trade update

Well, E*Trade finally responded to my e-mail inquiry, ten days after it was submitted:

Dear Mr. [MyMoneyBlog]:

Thank you for your inquiry, Enron Corp. is currently being held in your account as a worthless security. In order to remove it from your account you must send us the Worthless Security Authorization Form. You can find this form under Accounts>Forms & Applications>Trading & Tax>Worthless Security Authorization Form. There is a $5 processing fee in order to complete your request which will be automatically debited from your account.

And they had one of those usually-annoying surveys at the end, which I gladly filled out this time. I wonder if I’ll get any response. The answer to the question was satifactory, and the fee is pretty standard. Hopefully it can be processed by the end of the year.