Tuesday, September 30, 2008
Nevertheless, seeing even a temporary bottom in the stock market should reduce some folks' fear level. The world is not coming to an end, and in the end the U.S. economy is bound to come out of this tail-spin stronger and better prepared for the future.
Still, those miserable folks at Congress are playing with fire by not taking decisive and quick action to stablize the situation. Hopefully, the nay sayers will see the light in short order. If not, they will have to answer to the public, who in due course will understand the magnitude of the problem and the failure of its representatives to act.
Monday, September 29, 2008
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
Sunday, September 28, 2008
Money Smart Life has an article about how to use your last few days in an old job to improve your chances for success over the longhaul - solicit truthful feedback from your colleagues. This is an excellent idea and one that I will suggest to my wife as she gets ready to leave her current position (more about that in a future post).
Pinyo of Moolanomy fame offered a succinct and well written article explaining what short selling is, and why people do it. This topic is very timely given the turmoil in the financial markets and the recent restrictions that the SEC placed on short selling financial institutions' stock.
Jeremy of GenX finance posted about the risk of compounding your investment losses by investing less in a down market. He is right on the money, but my take is that if your losses are not allowing you to get a good night's sleep, investing more is probably not the right strategy for you. Always invest using a strategy you can live with, even in down times. BTW, Jeremy was also featured in Business Week's print edition this week, in an article titled "Where the Pros are Putting their Own Money". You know who else is featured in the same article? Prof. Jeremy Siegel of the Wharton School of Business and Prof. Harry Markowitz, a Nobel Laureate. You know you are doing something right when you are mentioned in the same list as those big guns. Good going dude!
Free from Broke boils down this whole personal finance thing into a single equation: spending > earning = debt (I think it should say "broke" instead). Somebody's got to put that on a t-shirt and give it to the American public at large... many people in this country still think the equation works like this: spending > earning = leverage + higher lifestyle. And it does, for a short amount of time, before the manure hits the rotating wind making machine...
Also, check out the Carnival of Financial Planning and the Carnival of Personal Finance, in both of which I participated this week.
Saturday, September 27, 2008
Friday, September 26, 2008
By the way, adding pictures to your blog is much easier when you are walking around with an iPhone. I love that machine.
Wednesday, September 24, 2008
Tuesday, September 23, 2008
Monday, September 22, 2008
The Federal Reserve has a unique power. It is the only entity that can create money out of nothing. In fact, regulating the amount of money in circulation is one of its main policy tools. If it finds that it needs to lend money to banks in trouble, in its capacity as lender of last resort, the central bank can simply lend money where none existed previously. All it needs to do is note in its books that there is now more money in existence...
Sunday, September 21, 2008
First, a new PF blog that I stumbled across: The Smarter Wallet is focused on consumer tips and tools such as Tips for Buying a Used Car. Welcome to the neighborhood guys.
The PF bloggosphere this week was filled with calming advice in the midst of the financial hurricane that we are going through. Debt Difier at The Happy Rock, advised investors to not panic, reminding me of the famous line from the Hitchhiker's Guide to the Galaxy and managing to sound very calm and collected himself. While the Digerati Life had a post about how to protect your portfolio in market turbulence.
Million Dollar Journey wrote a post about a topic that many dual income professionals are deliberating when they have kids: find day-care for the little ones or step out of the work force. We went through the same thought process, and decided, like Frugal Trader, that the day care option was the right one for us. As I previously wrote, there is a substantial price to pay for becoming a stay at home parent, and this choice is not right for everyone. Frugal Trader's article is a response to a reader's comment basically accusing him of being a bad parent for contemplating day care. To be honest I found that specific comment to be offensive - I don't have a lot of respect for people who tell other others how they should live their lives. Along with religion, stupidity, greed and ignorance, telling other folks how to live their lives is one of the main causes of trouble in our world. Live and let live.
Fire Finance offered an inspiring account of a couple that was able to retire early and how they currently live their lives. Seriously... that post got me thinking.
Another couple of interesting articles coming from traditional news sources this week: Kiplinger published an article saying that Americans are under exposed to international equity. And the NY Times published a story saying that the worst is yet to come... I must say that I feel the same way myself.
Finally, my article about Free Software that saves money AND reduces CO2 emissions was included in this week's Festival of Frugality which was ably hosted by Living Almost Large. Good deal.
Friday, September 19, 2008
The scary thing about what we are witnessing is that the bad news seems to get progressively worse with each passing day. The trouble is no longer confined to the investment banks. Bond insurers are also falling prey to the crisis. If AIG can go under, pretty much any financial institution can follow suit. Earlier this week even money market funds proved that there is no such thing as a safe haven in the midst of the financial hurricane - some of these traditionally ultra safe investments declined in value, and "broke the buck", and a few others have imposed a 7 day waiting period on withdrawals.
Considering everything that is going on, I am amazed that the stock market has held up so well so far. By all rights we should be facing precipitous declines in asset prices at this point, but what we have seen so far is mild, considering that the financial sector is de-leveraging at alarming speeds.
Although some have been speaking against him, it is my opinion that Treasury Secretary Paulson (as well as Fed Chairman Bernanke) has executed impeccably and has taken all possible steps to restore stability and confidence to the market. Only time will tell if he is ultimately successful at averting the worst effects of the storm, but he is certainly doing a fine job trying. Until recently, I did not completely appreciate the full magnitude and scope of the problems we were facing, and even repeatedly wrote against sub-prime bail-outs on this blog. However, at some point, you have to stop thinking about economic policy and principles, and start making sure that the economy does not spiral out of control. I think this man knows exactly what he's doing. If bail-outs are necessary to prevent a complete melt-down, then so be it.
One final word. This post suggests that things are dire and that I expect further declines in the stock market and beyond. I think that's a likely scenario. However, as far as our investment strategy is concerned, I am maintaining strict discipline. This month, just like every other, on the 15th, I made our monthly investment in the stock market. Though the market was tanking sharply that day, I did not change our plan. Fear and greed are the two enemies of rational investors. Keep your head attached and continue to think long term. I have not sold any of our positions, nor do I intend to. This does not mean that I am comfortable with the economic craziness around us. I am as scared and as nervous as the next guy, but I don't intend to let my feelings govern my long term strategy.
Here's hoping for better economic times.
Wednesday, September 17, 2008
The story goes like this: a colleague's uncle was diagnosed with terminal cancer. Bad enough for you? Well, it's not even close to the end of the story. The uncle has been in treatment for a few years and has now maxed out on his lifetime medical insurance cap. As far as the insurance company is concerned, from this point forward he is on his own. Bad enough for you? Hold on, we're not quite done. To get medical care he now needs to go on Medicaid, but to do this, he basically needs to declare bankruptcy and exhaust all his savings.
So let's summarize. You have medical insurance. You are diagnosed with a terminal illness. You receive medical care until you reach your insurance lifetime cap, at which point you find yourself without health insurance. Your only prospect of receiving medical treatment (which has no hope of saving your life anyway, but which might extend it and relieve your suffering) is to declare bankruptcy, thus insuring that your spouse and kids are destitute once you have departed from this world.
Now that's what I call the worst case scenario. This is also something that I would refer to as a complete and utter failure of our society. How is it that we, as a nation, the richest country in the world, allow someone and his family to be so completely and utterly devastated by the tides of fate with absolutely nothing that he can do about it and with no fault of his own?
This is clearly an example of a major market failure. This is where Congress needs to step in and draw the line. Americans should, at the very least, have state sponsored catastrophic health care coverage that will prevent such things from happening. The current state of affairs is simply not acceptable. Health reform now!
Here is someone else who has a similar opinion.
Tuesday, September 16, 2008
Once again - this is clearly one of those times when regulation is needed to prevent such intentional misleading of the public. Companies should be required to state in bold letters on the packaging every time they make a change to the quantity of product sold. Where is the FTC when you need them?
Monday, September 15, 2008
Sunday, September 14, 2008
"Witnesses and contemporary news accounts say Ms. Palin asked the librarian about removing books from the shelves. The McCain-Palin presidential campaign says Ms. Palin never advocated censorship.
But in 1995, Ms. Palin, then a city councilwoman, told colleagues that she had noticed the book “Daddy’s Roommate” on the shelves and that it did not belong there, according to Ms. Chase and Mr. Stein. Ms. Chase read the book, which helps children understand homosexuality, and said it was inoffensive; she suggested that Ms. Palin read it.
“Sarah said she didn’t need to read that stuff,” Ms. Chase said. “It was disturbing that someone would be willing to remove a book from the library and she didn’t even read it.”
“I’m still proud of Sarah,” she added, “but she scares the bejeebers out of me.”
Friday, September 12, 2008
"Is renting a waste of money?" - Absolutely not. Renting is often a more lucrative form of investment than owning a house.
"Does a hybrid [car] make sense?" - that depends. How much do you drive? You can use this calculator to figure it out for yourself.
"Wife makes more money" - good for you! Now you have more money to save, invest and spend. Enjoy!
"I make more money than my husband" - Are you the wife of the guy from the previous question?
"$10,000 and a year to invest, what to do?" - with a 12 month investment horizon, I would just go with a high yield money market account or CD.
"Am I going to make money in Fidelity mutual funds this year?" - let me gaze into the future for a sec... the spirits... they are saying... "MAYBE!"
"American express late payment, what to do?" - fight it, dude. Of course your chances of success depend on the exact circumstances of your case.
"Average cost to raise twins, calculator" - I don't have a calculator for you, but I do have twins, and all I can tell you is to get ready for some serious money drainage.
"Blowing off a headhunter" - why would you want to do that? Work with headhunters. If you don't want the job, suggest a different candidate. You never know when you would want to take advantage of their services.
"Can I leave a law firm job after one week and not cause damage to my career?" - Absolutely. In fact, if you just joined a new firm it is very much OK to leave, professionally, if you don't feel the position is working for you. In the long run, it will be good for you and will be good for your firm.
"Can I opt out of my company's 401k plan?" - yes you can. However, if you opt-out, make sure you have another plan for saving for retirement. If your employer matches 401k contributions, opting out is probably a very bad idea.
"Can you get a work out with Wii boxing?" - you better believe it!
"Cost to raise a child in the US" - I got data galore for you. Check it.
"Do we get taxed on work related expenses?" - no, we don't, thank god. In fact, if I am not mistaken you can deduct unreimbursed business expenses on your return.
"Does cashing in your 401k hurt your credit?" - nope, but it does hurt your chances of a decent retirement... don't cash in your 401k unless you absolutely have to or if you have actually retired. By the way, rolling over a 401k is not the same thing as cashing it.
"How can I put my IRA in a high yield CD?" - well, there are CD IRAs out there. They just happen to be the worst retirement vehicle ever invented, unless you are just about ready to retire - and even so, I seriously doubt this is a good strategy.
"How much do index funds overlap?" - that depends on what the underlying index is. If index funds track the same index they almost certainly overlap to a very large degree. Some index funds can be totally divergent since they track completely different indexes. Check each prospectus to be certain.
"How much should I pay my stay at home wife?" - dude, you have bigger problems than trying to figure out how much to "pay your wife". Your wife doesn't work for you.
"How to bail out financial institutions?" - boy, I hope that this question was not asked by Treasury Secretary Henry Paulson... well, actually, financial institutions fail (like other businesses) when their liquid assets are not sufficient to cover their immediate obligations. Bailing out a financial institution typically involves either giving it a nice cash infusion or taking control of some of its liabilities.
"How to find my 401k money?" - If you lost track of your old 401(k) money, a good place to start looking for it is to contact your old employer.
"How to make money as a pediatrician?" - hmmmm. Maybe you can take care of some sick kids and charge people for it?
"Labor unions - good or bad" - both, I guess. Good for protecting basic workers rights and ensuring people receive a decent wage for their work. Bad any time they do things that make life difficult for everyone else.
"Stupid advice" - I can see why you got to my blog. I am also mildly insulted.
"What not to waste money on?" - things you don't need. See the previous question.
Wednesday, September 10, 2008
Monday, September 08, 2008
Friday, September 05, 2008
First up, how can one even over contribute? Plan administrators typically ensure that employees cannot over contribute, by stopping all excessive contributions. However, they can only do this if they are aware that you are over contributing. If, for example, you switched jobs mid-year, there is no way for administrators to know the amount that you already contributed to your 401(k) before you joined your new employer. In fact, my wife and I each ran into an over contribution situation in exactly this way.
So, how do you avoid this over contribution situation?
(i) Calculate Your Limit - if you contributed to more than one plan during the year, deduct your earlier contributions from the maximum allowed contribution to determine how much you can still contribute. Once you have this number, divide it by the number of pay-checks remaining in the year and make sure that your contributions do not exceed this number.
(ii) Mind Income Changes - if your contributions are set as a percentage of your income, and you receive a raise before the end of the year, be sure to adjust your contributions to account for this increase to avoid over-contribution.
(iii) Pay Attention to Bonuses - if you are lucky enough to receive an unscheduled bonus, be sure to check if 401(k) contributions have been deducted from your bonus, and adjust your contributions accordingly.
What to do if you over contribute? Contact your payroll representative as soon you discover the error. Your 401(k) plan will issue you a refund check, which will be taxed at your normal income level. In some cases, if you discover the error after the end of the tax year for which contributions were made, you may also receive income that will be attributable to the following tax year. It's a hassle best avoided. Trust me. Last year, after switching jobs in the middle of the year, my wife unintentionally over-contributed to her 401(k). We only discovered the error in February when doing our taxes, the error took until early April to correct, and the changes will also impact our 2008 tax return. As I said, best avoid this hassle if you can.
By the way, if you are interested in improving your company's 401(k) plan, you may also be interested in this previous post.
Thursday, September 04, 2008
1. Cash is King - Cliche, but true. The biggest problem with cards that give you airline miles is that... you get airline miles. This is a very specific benefit that can only be used for one thing: going somewhere. Cash back cards, on the other hand give you an open ended benefit. Last time I checked cash was usable for buying airline tickets (as well as a few other items). Get your cash, buy your ticket or buy diapers, if you are so inclined.
2. I Got Enough Miles - I travel a lot on business, and I have plenty of miles. Over 300,000 on United and over 150,000 on Continental... I never, ever get a chance to use them. Well, actually, I do use my miles for magazine subscriptions and I did use some miles last year to buy that nifty robot of ours. BUT - I got so many miles already, what would I do with more?
My colleague on the other hand, says that he ran the numbers and cash back or airline miles were basically a wash from a total value perspective. He says that the fact he gets miles forces him to take a vacation with his family - one that is free of charge. To quote him: "if we got cash, we would use it to pay for our groceries. Since we get airline miles we feel good about taking a vacation".
I say: to each his own. Personally, I don't need to play mind games with myself and I prefer the flexibility of having more money in my bank account. If we want to take a vacation, we'll take it. We don't really need an extra incentive.
Tuesday, September 02, 2008
Here is how the article defines balance billing:
"As health-care costs continue to soar, millions of confused consumers are paying medical bills they don't actually owe. Typically this occurs when an insurance plan covers less than what a doctor, hospital, or lab service wants to be paid. The health-care provider demands the balance from the patient. Uncertain and fearing the calls of a debt collector, the patient pays up."
According to the article, this practice is illegal in 45 states... including in California, in which we happen to live. And check out this quote:
Wow. I bet we're in that category - 1.76 million folks in California alone! I can think of at least one suspicious incident in which we received a large bill for an emergency room visit with one of our sons. This bills was sent to us after the insurance company already paid it's share. Talk about ignorance. I didn't even know that this was an issue. We simply paid our medical bills when we got them in the mail, assuming that this was simply the thing to do. It appears that we may have been taken for a ride, at least on some of these bills... we will have to go back and check.
"National statistics aren't available, but there's little doubt that many consumers unwittingly fall victim to balance billing. The California Association of Health Plans, a trade group in Sacramento, estimates that 1.76 million policyholders in that state received such bills in the past two years, totaling $528 million. The group found that 56% paid the bills. "Patients think they owe this money, and it causes tremendous stress and anxiety for people," says Cindy Ehnes, director of the California Managed Health Care Dept."
So, what should you do if you get one of these bills in the mail? To be honest, I am not quite sure, however it seems that a good place to start might be to contact your insurer when you get demands for payments from medical service providers and try to obtain more information. Clearly, some of these bills are justified, such in cases where the insurance clearly states that it will only cover a portion of the bill. However, knowing which demand is legitimate and when you are being shaken down for cash seems to be the challenge.
Also check out this video segment by CBS on the same topic. for more advice.
Monday, September 01, 2008
1. Frugal Zeitgeist - one of my oldest neighbors, Frugal started her blog about the same time I started Money and Such. She is a smart professional who recently finished paying off her mortgage. She writes with intelligence, humor and style. Definitely worth a read.
2. The Finance Buff - is an excellent read for smart and sophisticated articles. He is a fellow MBA and likes... finance. I'm a regular on his site.
3. The Div Guy - invests in dividend bearing stocks and has been on my blog roll forever. He's also been known to comment on Money and Such, when there's something worth saying. We differ in our investment styles, but he's got good things to say.
4. The Digerati Life - definitely one of my favorites, not least because we both live in Silicon Valley. I am a regular reader and peanut gallery commenter on this one. In fact, I actually made his top commenter list for August.
5. Cash Money Life - another of my favorites, who has been on my blog roll for a long time. Patrick is very consistent, producing a new, high quality post virtually every day. Pretty impressive.
Thank you all for being good neighbors and for producing such great content.