Plonkee of Plonkee Money fame is hosting this week's Carnival of Personal Finance. My own post about How to Improve Your Company's 401K is included in the Carnival and the following posts caught my eye:
Bripblap wrote a post saying that automatic / opt-out 401K enrollment is not a good idea. I vigorously disagree, but the article is very well written. My company recently adopted automatic enrollment. Many people that do not enroll in their company's plan, simply neglect to do so out of laziness or lack of understanding. For those, destitution in their old age is too big of a punishment for those "crimes".
Brian, over at Financial Dominance, has a post about ROI criteria in selecting an MBA program. Spoken like a true MBA. Personally, I got my MBA from a top rated University of California school, and I have nothing but good things to say about the program. While part-time MBA programs may show a better ROI, as the article claims, students are missing out on several important aspects of the program, including the unique full time MBA experience, and some recruitment options. If you are going to get an MBA, I certainly recommend the full time program.
John at Queer Cents asks whether you would disrupt your life to take care of your elderly parents. My response to that question is: "HELL, YES!" Are you kidding me? These are the people that gave me life and disrupted their own life to raise me. What kind of person would I be if I let them down in their hour of need? I truly hope that I raise my kids well enough that they will one day decide to take care of me and my wife if, god forbid, we need their assistance.
Finally, Amy at Saving Advice says that lifestyle inflation can creep up on you. Well, some types of lifestyle inflation are negative, however, I have recently written a post about why lifestyle inflation is a good thing. May your lifestyle forever inflate, in a sustainable fashion...
Another carnival I am participating in this week is the Carnival of Money Stories over at The Dough Roller. Check it out. The format is a little clunky, but the content is good.
The new Festival of Frugality is up at Frugal Babe. Frugal Babe sends good wishes and health to our Kitty. Finally, the Carnival of Wealth Building Ideas is up at Business Management Life, with my article titled Stock Market Summer Sale. Enjoy.
Tuesday, July 31, 2007
Monday, July 30, 2007
New Poll - Are You Happy with Your Company's 401K?
I have decided to solicit some information from my readers in the form of brief polls that I will post periodically. The first of these polls is a simple one:
Are you happy with your company's 401K plan?
Please cast your vote. The poll is located in the top left column of this blog.
Are you happy with your company's 401K plan?
Please cast your vote. The poll is located in the top left column of this blog.
SEC Fines? Double Whammy for Investors
Do you know how some companies betray shareholder trust by doing such things as back-dating options, such as in these cases involving Brocade Communications and Mercury Interactive? Well, one of the ways in which the SEC routinely responds to such violations is by imposing fines on the companies involved. That's a really absurd response.
Let's analyze the situation for a second. In securities fraud involving investors, such as options back-dating, insider trading and so forth, the primary victims of the crime are shareholders. Who else could it be? If you didn't own the stock at the time of the crime, and don't own it now, you really couldn't care less about any fraudulent transactions involving the stock. So, if we can all agree that shareholders are the true victims of such crimes, let's take this logic one step further.
The owners of a company are its shareholders. When the SEC imposes a fine on a company, the payment of this fine decreases the assets of the company, and therefore its value. If the value of the company declines, so does the value of its stock, which is owned by the shareholders. The result is that in retaliation for a crime the company committed against its shareholders, the SEC punishes those shareholders by decreasing the value of the stock they own. Hmmm... that does not sound like a very equitable form of justice to me. This is basically the equivalent of fining a robbery victim for the crime of getting robbed. If anybody can make a coherent argument against this line of reasoning, I'm listening.
So, what am I saying? Should the SEC let offending companies off the hook? Yes and no. In cases where the injured party are the shareholders, such as the cases I discussed above, I see absolutely no sense in punishing the victim. There are many other cases where the shareholders should rightfully pay for the crimes of the company. For example: patent infringement cases, environmental violations, price fixing etc. The common denominator to all of these is that the shareholders are the potential beneficiaries of such violations, which in fact may increase the value of their stock at the expense of others. In such cases, shareholders should suffer the wrath of the SEC since it is their responsibility to make sure that the management they hire to run their company does so in accordance with the law.
Still, your basic sense of justice may be telling you that somebody must take the blame and suffer the consequences for options back-dating, insider trading and the like. I absolutely agree. The ones that must pay for these sins are the people that actually perpetrated them. Let's face it, it is not the company that back-dated some options, it's an individual, probably an executive, who is responsible for this. That person should stand trial and pay the consequences for his actions. Making shareholders pay for crimes committed against them makes absolutely no sense.
Let's analyze the situation for a second. In securities fraud involving investors, such as options back-dating, insider trading and so forth, the primary victims of the crime are shareholders. Who else could it be? If you didn't own the stock at the time of the crime, and don't own it now, you really couldn't care less about any fraudulent transactions involving the stock. So, if we can all agree that shareholders are the true victims of such crimes, let's take this logic one step further.
The owners of a company are its shareholders. When the SEC imposes a fine on a company, the payment of this fine decreases the assets of the company, and therefore its value. If the value of the company declines, so does the value of its stock, which is owned by the shareholders. The result is that in retaliation for a crime the company committed against its shareholders, the SEC punishes those shareholders by decreasing the value of the stock they own. Hmmm... that does not sound like a very equitable form of justice to me. This is basically the equivalent of fining a robbery victim for the crime of getting robbed. If anybody can make a coherent argument against this line of reasoning, I'm listening.
So, what am I saying? Should the SEC let offending companies off the hook? Yes and no. In cases where the injured party are the shareholders, such as the cases I discussed above, I see absolutely no sense in punishing the victim. There are many other cases where the shareholders should rightfully pay for the crimes of the company. For example: patent infringement cases, environmental violations, price fixing etc. The common denominator to all of these is that the shareholders are the potential beneficiaries of such violations, which in fact may increase the value of their stock at the expense of others. In such cases, shareholders should suffer the wrath of the SEC since it is their responsibility to make sure that the management they hire to run their company does so in accordance with the law.
Still, your basic sense of justice may be telling you that somebody must take the blame and suffer the consequences for options back-dating, insider trading and the like. I absolutely agree. The ones that must pay for these sins are the people that actually perpetrated them. Let's face it, it is not the company that back-dated some options, it's an individual, probably an executive, who is responsible for this. That person should stand trial and pay the consequences for his actions. Making shareholders pay for crimes committed against them makes absolutely no sense.
Sunday, July 29, 2007
Things I Don't Skimp On
Generally speaking, my wife and I try to lead modest lives and not to waste our money on stuff. We would rather save and invest our extra income than drive a fancy car or buy expensive clothing. Nevertheless there are a number of things that we don't skimp on:
1. Our Kids - our oldest will be turning 5 this week. We will hold his birthday party at a local kids' gym. The party itself will cost a couple of hundreds of dollars and we are also buying him a Nintendo Wii as a present (if I can find one. Apparently, all the stores in our area are out). All in all we'll probably be spending about $500 on the party and the present.
2. Our Vacations - we don't go on many vacations, but when we do, I have no intention of counting pennies. It's not that we'll stay at the fanciest hotels, but we'll stay somewhere nice, eat at good restaurants and get a few souvenirs.
3. Our Home Entertainment - with three kids you don't get to go out much. With that in mind, we pay a pretty penny for our cable and Internet packages, we subscribe to Netflix and we own a high-end Plasma TV. Next month I hope to also improve our sound system.
I guess what I am trying to say is that personal finance is all about making the right trade-offs, and by right I mean right for you. In my case, I am content with driving a dinged up Geo Prizm 1997, if I can spend some money on my next ski weekend.
As long as we are saving enough for our major life goals, such as retirement and education for our kids, I don't feel bad spending some money on the things that really give us pleasure.
1. Our Kids - our oldest will be turning 5 this week. We will hold his birthday party at a local kids' gym. The party itself will cost a couple of hundreds of dollars and we are also buying him a Nintendo Wii as a present (if I can find one. Apparently, all the stores in our area are out). All in all we'll probably be spending about $500 on the party and the present.
2. Our Vacations - we don't go on many vacations, but when we do, I have no intention of counting pennies. It's not that we'll stay at the fanciest hotels, but we'll stay somewhere nice, eat at good restaurants and get a few souvenirs.
3. Our Home Entertainment - with three kids you don't get to go out much. With that in mind, we pay a pretty penny for our cable and Internet packages, we subscribe to Netflix and we own a high-end Plasma TV. Next month I hope to also improve our sound system.
I guess what I am trying to say is that personal finance is all about making the right trade-offs, and by right I mean right for you. In my case, I am content with driving a dinged up Geo Prizm 1997, if I can spend some money on my next ski weekend.
As long as we are saving enough for our major life goals, such as retirement and education for our kids, I don't feel bad spending some money on the things that really give us pleasure.
Friday, July 27, 2007
Stock Market Summer Sale
Something excellent happened on the stock market yesterday. It went way down. The Dow by over 300 points; the NASDAQ by almost 50; and the S&P by 35. This is all good news. Wondering if I lost my mind? Well, not quite yet. It's all a question of whether you are a long term net buyer or net seller of stocks. Since my wife and I are in our mid-thirties, we are probably going to buy much more stock than we currently own, before we need to realize our investments to fund our retirement. This means that short term stock price declines are ultimately a good thing for us.
The curious thing is that most people view a stock market decline as a bad thing, regardless of their personal financial situation. I am not quite sure why this is the case. I mean, if Macy's or Target holds a sale, they advertise it and people stand in line to be the first in the store. If stocks go on sale, people head for the exits. Can you imagine NASDAQ advertising a summer sale? That would be a pretty lame commercial, but how are the two cases different? In both cases you get a discount today for something that would have cost you more yesterday. That's cause for enthusiasm. Well, it's cause for enthusiasm if you have a long investment horizon.
Nevertheless, I will admit that a few back-to-back days of "stock market sale" can be a little unnerving. Hey, I'm not made of stone.
The curious thing is that most people view a stock market decline as a bad thing, regardless of their personal financial situation. I am not quite sure why this is the case. I mean, if Macy's or Target holds a sale, they advertise it and people stand in line to be the first in the store. If stocks go on sale, people head for the exits. Can you imagine NASDAQ advertising a summer sale? That would be a pretty lame commercial, but how are the two cases different? In both cases you get a discount today for something that would have cost you more yesterday. That's cause for enthusiasm. Well, it's cause for enthusiasm if you have a long investment horizon.
Nevertheless, I will admit that a few back-to-back days of "stock market sale" can be a little unnerving. Hey, I'm not made of stone.
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