Archive for January, 2007
(This is the second in my series of Model Portfolio Comparisons.)
This next portfolio comes from The Boglehead’s Guide To Investing by Larimore, Lindauer, and LeBoeuf. Taylor Larimore and Mel Lindauer are frequent and respected contributors at the Vanguard Diehards Forum. While obviously they are Bogle fans, they do present their own views on things. Four different model portfolios are given, but I will focus only on two of them.
Young Investor Model Portfolio
Asset Allocation for 80% Stocks/20% Bonds
55% Domestic Large Cap Stocks
25% Domestic Mid/Small Cap Stocks
20% Intermediate-Term Bonds
The domestic stock component of 70% Large and 30% Mid/Small Cap is actually how the entire U.S. stock market is broken down on a cap-weighted basis. Thus, you only need one US Total Market fund to cover both.
Investor in Early Retirement Model Portfolio
30% Diversified Domestic Stocks
10% Diversified International Stocks
30% Intermediate-Term Bonds
30% US Inflation-Protected Securities, or TIPs
The other two portfolios are for the Middle Aged Investor (30% US Large-Cap, 15% US Mid/Small-Cap, 10% International, 5% REITs, 20% Intermediate-Term Bonds, and 20% TIPs) and the Late Retirement Investor (20% Diversified Domestic, 40% Short/Intermediate-Term Bonds, 40% TIPs).
Overall, another simple but diversified portfolio - easy to build, easy to maintain. The risk profile is adjusted with age, going from more aggressive to less so with time. There is not very much international exposure.
Posted in General | 21 Comments »
I sensed that people weren't quite satisfied with my Rate of Return Estimation Calculator. After wasting lots of time trying to program the internal-rate-of-return (IRR) function myself, I realized I could simply embed an online spreadsheet. Ain't technology grand?
The spreadsheets below will do all the exact calculations for you. I made one for 2006 and one for calculating your ongoing year-to-date and annualized returns in 2007. You will need to supply the date and amount of all deposits and withdrawals in your accounts. If you reinvested dividends then those can be ignored and rolled into the return.
Calculate Your 2006 Portfolio Return
Read the rest of this entry...
Posted in Investing, Tools & Calculators | 10 Comments »
(This is the first in my series of Model Portfolio Comparisons.)
The Couch Potato Portfolio is the invention of Scott Burns, a personal finance columnist at the Dallas Morning News. Originally, the portfolio consisted of just two funds - the Vanguard S&P 500 Index Fund (VFINX) and the Vanguard Total Bond Index Fund (VTBMX). That was over 15 years ago, and it has beaten most balanced funds in the meantime. The current version is below.
Asset Allocation (All Ages)
50% Total US Stock Market
50% US Inflation-Indexed Securities.
There are many ways that people find fault with this portfolio - low stock allocation, no risk adjustment with time, no international exposure, no REIT fund. Partially in response to these, Burns has also introduced other variations like the Margarita Portfolio and Four Square Portfolio. The Margarita Portfolio is 33% Total US Stock Market, 33% Total International Stock Market, and 34% Inflation Protected Securities. But still, you can’t beat the simplicity.
Posted in Investing, Retirement | 13 Comments »
In my rough guide to investing, I suggested some all-in-one mutual funds for beginners. But what if you want to go a step further and design your own portfolio? Or you have a 401k with only limited choices?
Of course, the best answer is always to read some good books. But another idea I’ve been meaning to do for a while is to collect the model portfolios from lots of different reputable books and sources and compare them to each other. You won’t see any individual stock picks here, all the sources will be based (at least loosely) upon modern portfolio theory and thus focus on optimizing the risk/reward ratio using proper asset allocation.
I think it should go without saying that since these are model portfolios, they are imperfect by design and at most should serve as rough guidelines for your own investing. Everyone has a different time horizons and situations. Use them as one part of your own research.
One way to tailor these portfolios to your own use is to adjust the stock/bond ratio according to how aggressive you wish to be. Accordingly, I have tried to separate the stock and bond components.
Completed Model Portfolios
- Couch Potato Portfolio
- Boglehead’s Guide To Investing
- All About Asset Allocation
- The Intelligent Asset Allocator
- A Random Walk Down Wall Street
- FundAdvice.com by Merriman
- Unconventional Success by Swensen
- Columnist Ben Stein
Future Model Portfolios (in progress)
Here are the remaining sources that I have in mind so far. Please feel free to suggest others.
- The Four Pillars of Investing by Bernstein (Review)
- Common Sense on Mutual Funds by Bogle (Review)
- The Informed Investor by Armstrong (Review)
- Index Funds: The 12-Step Program for Active Investors by Hebner (Review)
- Coffeehouse Portfolio by Schultheis
This index of posts has been added to my Rough Guide To Investing.
Posted in Investing, Retirement | 24 Comments »
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Here are some posts from other bloggers that caught my eye:
Guzzo the Contrarian writes about Arizona tax lien certificates. I remember these being vaguely mentioned as superior to bank CDs in the Rich Dad, Poor Dad book series. I’m sure these involve more risk, so while I don’t believe that, it would be interesting to see how much these pay in my area.
Madame X shares how she successfully tracks her spending by using a PDA. I found it amusing that her old unsuccessful method is pretty much my current one - buy everything with a credit card, and count all the ATM withdrawals as either food, coffee, or beer. She lists some useful PDA financial software.
Jane Dough brings up the always-controversial subject of engagement rings and has some wise and practical thoughts. You can read my opinion on diamonds here. In short, like everything else in relationships, it all boils down to communication! There is no right or wrong. Every couple should do what’s right for themselves.
Mighty Bargain Hunter counts out 16 ways being disorganized costs you money. I think the main way disorganization costs you money is because it costs you time. Time that could be spent improving your career, executing money-making ideas, or learning more about investing.
If you haven’t been keeping up, the Carnival of Investing has been chugging along, with #55 at Binary Dollar, and #56 at Sun’s Financial Diary. New hosts are always welcome.
Posted in General | 7 Comments »
On top of the free federal E-filing options, more and more states are also offering their own online income tax filing. This makes sense, as it reduces errors and saves the state from having to go through all those paper returns. Other states have partnered with some online preparers to offer free online filing for certain groups, such as the active military and those under a certain income limit.
So I decided to try and gather the information that was available for all 50 states. Some of these were hard to find! Be sure to read all the details, the offers can be confusing, and you might have to click on a specific link to qualify. Even if you don’t qualify for a free return, sometimes you can still net a cheap return by paying for the federal return and getting the state for free.
In alphabetical order (just click on the state):
| State |
Restrictions |
| Alabama |
Lower income wage earners, senior citizens, students, or active duty military personnel |
| Alaska |
(no state income tax) |
| Arizona |
Lower income wage earners, senior citizens, young adults, or active duty military personnel |
| Arkansas |
Lower income wage earners, senior citizens, young adults, or active duty military personnel |
| California |
California resident for the entire year |
Read the rest of this entry…
Posted in Deals & Offers, Taxes | 8 Comments »
The IRS website has been updated to show their free 2007 filing options for those people with adjusted gross incomes under $52,000 and satisfy certain other conditions that vary by preparer. Remember, 401k contributions lower your AGI so you may be better off than you think. Also, you only pay at the end, so if you end up over the limit you can still back out. There is even a helpful form to determine which companies are free for your specific situation.
If you have state income tax returns, be sure to look up those prices ahead of time, they can be $30 or higher and ruin any potential savings (TurboTax, TaxSlayer and TaxEngine offer free returns for certain states). Anyone can get a free Federal return + Free E-file + $12.95 State return at TaxAct, so there is really no need to pay more than $13 unless you have complicated taxes.
State Farm customers may also get free TurboTax Federal + State filing by signing up for online access and linking your accounts.
Posted in Deals & Offers, Taxes | 9 Comments »
Thanks to reader Heather, I have a new favorite real estate guru: Tom Vu. I guess I was too young to know about this guy when he was in his prime. His bluntness and blatant disrespect for our intelligence is so refreshing. You simply must watch.
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Posted in Real Estate | 20 Comments »
As I’ve mentioned, my favorite travel rewards card is the Starwood Preferred Guest American Express Card. Some people may have gotten it for the $100 sign-up bonus, but I’ve been using mine a lot recently and wanted share the many other ways that it can be utilized. It’s the Swiss Army knife of travel cards. 
With it:
- You can “top off” several different frequent flier accounts to get to that coveted reward ticket level.
- You can convert just a few miles to keep your other miles from expiring.
- You can get 1.25 miles per dollar spent, 25% more than most other airlines cards.
- It’s a cheap way to get free nights at decent hotels.
Starwood Points Convert Easily to Frequent Flier Miles
The first reason why this card is so useful is that Starwood points (or Starpoints) can be converted on a 1:1 basis on most major domestic airlines and several international ones, including Alaska, American, Delta, Northwest, Hawaiian, and US Airways/America West. That means 1 Starwood point = 1 frequent flier mile. The ratio is lower (2:1) for Continental and United.
Reaching Your Next Free Flight Award
I’m sure most people have faced this - you’re only a few thousand miles short of a free ticket, but you need to buy a ticket and would really like to make it free. Although there are other options that involve spending money, you can simply “top off” your balance by transferring as little as 1,500 miles to the specific airline programs that you want. You can even convert a specific number of points. Just need 2,854 miles here and 1,567 somewhere else? No problem.
Keep Your Miles From Expiring
With most airlines, your miles expire after three years of inactivity. Delta now only gives people two years. But any activity counts (not only flying), so I quickly transferred 1,500 miles over last month to save 20,000 points from expiring.
Recently, I transferred over another ~25,000 points (30,000 miles, see below) to add to those existing 20,000 Delta miles to get 50k for two free award flights to a wedding this summer. Delta was the only who had a free ticket to this location, so the flexibility was handy.
Better Than Other Airlines Cards - Earn 25% More Miles
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Posted in Credit Cards, Frugal Living | 32 Comments »
Since the IRS starts accepting electronic returns this week, let’s start off with the tax tips. First, an easy one: the IRS Telephone Tax Refund.
Summary: Courts decide old phone tax not legit, should be refunded. You and I get money back.
Easy way: Check a box and take the standard amount, which is $30-$60 depending on how many exemptions you claim. Single people with one exemption get $30. No bills, no paperwork.
Hard way: Gather all your old cell phone, landline, and VoIP bills from February 28, 2003 to August 1, 2006 and add up all the excise tax you paid for those 41 months. If it’s more than what you would have gotten with the easy way, fill out Form 8913 and get that amount instead. If you kept your bills, this might be worth the effort.
I’m going to a CPA this year to get my taxes done for the first time ever, I wonder what he’d say if I came in with a huge box of paper and pretended that they were 41 months of phone bills that I wanted him to sift through…
More information from the source: Telephone Tax Refund Q&A page.
Posted in Taxes | 25 Comments »
The Motley Fool used to be a great resource for investing, espousing index funds and low-cost investing, but it is gradually becoming just a factory that churns out stock tip newsletters. Last January, they made some Stock Predictions for 2006.
Read the predictions first, or at least skim the excerpts below. Which do you agree with?
#1: Shares of Google will fall in 2006
Wall Street didn’t want to buy into Google when it went public at $85, but now that the stock trades five times higher that that, bears are hard to come by. The humbled market mavens have responded with higher price targets, but gravity always seems to be just a disappointing quarter away.
#2: Both XM and Sirius will close out 2006 higher
Just as your cable bills creep higher every year, XM and Sirius will likely be charging more in the future. Tack on premium offerings and next-generation receivers that will blow the earnings potential through the roof — by allowing for everything from digital downloads to immediate responses to sponsored pitches — and I really believe that in five to 10 years, a lot of the bears will be licking their self-inflicted wounds for missing this obvious play into a promising duopoly.
#3: TiVo will bounce back
I’m expecting TiVo shares to bounce back dramatically, possibly even into the double digits. I still believe that TiVo — rich in brand, patents, and daydreams — will find a way to matter in a form that investors will find attractive. Cool companies never die without a fight.
#4: Six Flags will be one of the top stocks of 2006
With shares of Six Flags trading in the double digits for the first time in nearly four years, the market seems to be willing to give Dan Snyder and ESPN prodigy Mark Shapiro better than a fighting chance to turn the regional amusement-park operator around.
The stock may have tripled since bottoming out last year, but that doesn’t mean the value of the company has tripled. This is an important distinction to make. Because the company’s balance sheet is packing $2.1 billion in debt, the enterprise value of Six Flags has actually risen by just a little better than 50% to $3.5 billion. That’s the beauty of leverage in a turnaround situation: The stock can double here in 2006, growing sixfold in two years, yet the company’s enterprise value will have only doubled in that time.
Now, if you tracked these stocks this year you may already know which were right…
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Posted in Investing | 23 Comments »
AllFreeCalls.net is offering free international calls to select countries. All you have to do is call this Iowa phone number: (712) 858-8094, and then enter the usual 011 + Country Code + Phone Number. How do they make money? Via TechCrunch:
Iowa is apparently the only state taking advantage of an FCC kickback scheme that gives telco?s a portion of the fees generated from every inbound call to an Iowa number. So when you call the AllFreeCalls phone number, a portion of any long distance fees you are paying go to the company. The kickback is apparently authorized via the Universal Service Fund. These kickbacks are enough on average to more than cover the international outbound calling fees.
Posted in Frugal Living | 25 Comments »
I’m naturally skeptical of most real estate gurus, with all that feel-good “You too can be rich!” talk and very little substance. Still, I was curious to see what was inside Robert Allen’s best-selling book Nothing Down for the 2000s: Dynamic New Wealth Strategies in Real Estate. As you’ve probably guessed, it’s supposed to be about getting rich by investing in real estate with none of your own money.
If you cut out the copious amounts of go-change-your-life fluff in this book, it boils down to two main ideas:
Buy below market price by finding a “don’t-wanter” seller. A “don’t wanter” is someone who is going through some sort of trouble so that they don’t have the time or ability (or intelligence) to get market value for their property. Maybe they can no longer support the payments and are almost in foreclosure. Or they are tired of property management headaches.
Use creative mortgages to buy the property with little or no down payment. Then sell for a profit. Lending ideas included:
- Getting the owner to finance the house, so you pay them a mortgage each month instead of the bank.
- Using interest-only mortgages to minimize the monthly payment while you try to flip the house.
- Do 110% financing where you borrow more than the value of the house, and take the rest out in cash to cover the down payment (or buy another property)
- Use a loan backed by Property #1 to buy Property #2.
- Use credit cards or signature loans from the bank as a down payment.
- Buy an apartment complex right before rent is due, and use the rent and security deposits as a down payment.
Read the rest of this entry…
Posted in Book Reviews, Real Estate | 15 Comments »
It can be tough watching CNBC and reading stock market articles without knowing the proper terms. Here are some helpful pointers:
- Profit-taking: All-purpose explanation for why the market went down.
- Correction: A major market crash made to sound like a minor mistake.
- Momentum investor: Buyer of stuff that’s already gone up.
- Value investor: Buyer of stuff that looks like it’ll never go up.
- Broker: What you’ll be, if you follow their advice.
- Financial consultant: Broker trying to appear respectable.
- Financial planner: Financial consultant who might actually be respectable.
- The smart money: Owners of whatever has lately performed well. No permanent members.
- Federal Reserve: Extremely powerful, like God, and also moves in strange and mysterious ways.
- Warren Buffett: Widely admired investor who is often quoted by lesser mortals seeking to buttress their arguments.
- Futures: Trade these too much, and you won’t have one.
- Collectibles: Justification for buying things that will never appreciate in value, but you really, really want.
- Stock options: A way for senior executives to get rich.
- Hedge funds: Like mutual funds, except with much higher fees. But the bragging rights are priceless.
- Cash-value life insurance: Great strategy for retirement, assuming you’re an insurance agent and you can sell enough of these policies.
- Variable annuities: Chance for ordinary investors to pay hedge-fund-like fees.
- Commodities: Pigs with lipstick.
Excerpted from Jonathan Clements in the Wall Street Journal (subscription required), found via No Money In Poetry.
Posted in Investing | 9 Comments »
