Part II: Disaster in the Bathroom

As of Monday, the leak in the wall was found and repaired. The plumbing company my HOA uses sent two different plumbers onsite to fix the drainage pipe from the kitchen of a unit two floors up and one unit over. Absolutely nothing was going down the drainpipe and all of it was going out the hole and down the walls for 4 floors. EEK.

What does this mean? This means my HOA’s insurance policy for the entire building can pony up the entire cost of the problem, or else split it with the unit directly above mine. And they can cover the moisture abatement problem that I can tell is an issue from the yucky smell in my apartment.

I have decided that someone is going to pay me the $1450 claim amount written up by my claims adjuster. Either way, the damage to my ceiling is the worst of any unit that I have heard so far.

All I am waiting for now is a full written estimate from the contractor I would like to use. I did ask the handyman belonging to the landlady upstairs who came in and also did a repair estimate. He gave me a ballpark $6-7K for the entire job and a repair cost close to that of my claims adjuster, but I got a shady feeling from him for two reasons. 1. He didn’t really want to commit himself to a paper estimate of any kind. BAD. 2. He was pretty reticent. I wasn’t sure if he was really listening to what I was saying about my desire to balance value with decor. This is my permanent home and I would like it to be nicer than your basic cut-rate rental unit. But maybe one day, I will rent it out.

I asked a friend of mine about a bathroom remodel he did and the cost. He gave me a figure in line with with the handyman’s verbal quote. Too bad it’s all more than I want to spend. But alas, I don’t get a choice here. It means that I need to adjust my budget and expectations.

SIGH. Where to find $6-7K?

Job Of The Week

Bear is looking for summer associates.

Taxes--Higher In The Future?

Not sure I buy all this but an interesting article on politics and taxes (or tax increases) as a result of the election cycle.

THE BASIC RULE REMAINS--BE IN THE MARKET OVER TIME AND YOU WILL GET RICH.

A Capital Gainsay

11/12/2007

Story Highlights

• Media headlines are already warning of higher tax rates after the 2008 elections.



• It’s far too early to know what the outcome of the elections will be, or what the incoming administration’s agenda will be.



• There’s currently little benefit to trying to maneuver around potentially higher capital gains rates.

________________________________________________________

Though our political pals have already been campaigning for, seemingly, an eternity, we’re now entering the official campaign season. Hoorah! And the most popular agenda item, after ensuring the survival of blood-thirsty, man-eating Arctic carnivores, seems to be whether to extend or end the “Bush tax cuts.”

The market doesn’t care if the president’s Democrat or Republican, and we don’t either. At MarketMinder, we’re vigorously politically agnostic, preferring no political action to any political agenda—left, right, or center. But should the Dems sweep the White House and Congress in 2009, are tax hikes guaranteed? And does that mean you should sell now to take advantage of today’s lower capital gains rates? No and no.

First, the Dems are by no means guaranteed the White House. It’s way too early to handicap the race. Recall Howard Dean seemed unstoppable before his barbaric yawp in Iowa. A million things could happen between now and November ‘08. Governors Romney or Richardson could make a surge. A major candidate could drop out of the race. Senator McCain could seize the lead from Mayor Giuliani, switch parties, and convince Stephen Colbert to be his running mate. Senator Obama could be discovered to have been Hillary Clinton’s commodities broker! Voters could realize Hillary Clinton is Hillary Clinton!

If that provides no comfort, consider this: Would it shock you if the next president is a Democrat, and would it shock you if he or she raised the capital gains rate? Did you answer “no” to both? The next president won’t take office for 13 months, yet we’re already seeing headlines like these:

Wall Street Braces for Higher Tax Rates
By Jeanne Sahadi, CNNMoney.com
http://money.cnn.com/2007/11/07/pf/taxes/investment_rate_change_effect/index.htm?postversion=2007110815

The market doesn’t move on what’s widely expected—it moves on economic fundamentals that are unexpected. By the time President Whoever enacts their stupid tax agenda, the market will have had a very long time to price in the ill effects. That doesn’t mean we think tax hikes are no big deal—it means you needn’t worry about what pretty much everyone is already worried about. There’s not much market moving power in the wholly expected.

But let’s suppose you know exactly who’ll win and exactly what’s in their black little heart—raising the capital gains rates to 25%. Or higher! What can you do with that information?

Some might say, “Sell! Sell! Sell!” to take advantage of today’s lower capital gains rate. Fine . . . then what? Sit with your proceeds in cash? Even assuming a tax hike, equities have a far superior long-term average than bonds or cash. Selling now to avoid a higher rate later isn’t cutting off your nose to spite your face—it’s full frontal lobotomy!

Another straw man might say, “Well, I’ll sell now to pay the lower rate, then reinvest. That’d be smart, right?” Nope—if you assume stocks generally rise over time (as we do), the best place for your dough usually is in stocks. Trying to time the market, no matter what your reason, is fraught with peril.

Plus, it’s not guaranteed you’d be better off by gaming the lower rate now. The magic of compounding means it’s generally better to leave money working in the market for as long as possible. Why pay taxes now if you don’t have to? Yes, your rate might be higher later, but it’s a higher rate on conceivably a much bigger pool of assets—meaning if you give the market time, you can still end up with more, net-of-taxes, than if you do a tax hokey-pokey now. Isn’t the goal to end up with more money? We’re not fond of handing our money to the government either, but we wouldn’t purposely deprive ourselves of greater returns just to make a point. We’re principled, but we’re not crazy.

We can’t know how the elections will turn out, and there’s no telling what the incoming administration’s tax policy will be. Anything can happen—we can even envision a situation where a Democratic sweep of both Congress and the White House still wouldn’t yield higher taxes! Given those uncertainties, and the undeniable benefit of compounding interest, the best course of action is to deny the government tax revenue today in return for the likelihood of greater returns for yourself in the future. It’s the American way.

Bah, oh well

So we went to take a look at this house.. and I must say, I was a little taken aback. While I was fully prepared for the cracked kitchen tile and lumpy, painted-over siding, I was not prepared for the several joists in the basement holding up the central floor beam, nor for the fact that all the floors are sloped and a little spongy. Least of all was I prepared for the ladder made of 2x4's that is the method for getting into the attic (which is actually finished quite nicely and is, by the reports of Boyfriend, the nicest room in the house - I was too scared to go up the ladder since it leaned backwards somewhat.)

So just from our initial trip 'round the house, we decided this was not for us. I had been prepared to put $30,000 into this house, but not $60,000 or $70,000 - especially with the damp basement and potential house-sliding-into-one-corner problems. I had been under the impression that the house had been a rental for a few years, but apparently it had been rented out for TWENTY - and it really looks it. There are lots of repairs (like the 2x4 ladder) that look like a cheap, quick, not-particularly-durable solution to a problem. The roof similarly looked like it had been put on by an amateur with cheap materials - it wasn't evenly spaced, and we found part of a shingle on the ground. It's too bad because the backyard was pretty great for this area (yes, you really can buy a house on 1/50th of an acre) and it might be a nice house, if I had $70k. The real deal breaker though were the upstairs bedrooms, which are all quite small, and only one has a normal sized closet. One had a closet literally ten inches deep, and the third had no closet at all. So I backed away from this house - maybe in another few years. :)

So now I'm looking at places to rent, since I do want a bigger place. I found a place that looks great on paper, but I want to talk to the landlord and see what experience they have since I get the impression it's just some guy who owns a house and felt like renting it out. From the county auditor's site, I found that it sold in 2005 (presumably to this guy or someone he works for) for $228,000 - and you can do the math that the rent of $1200 is not going to cover that mortgage. So who knows what the deal is there. I also have my eye on a few other nice places, so hopefully they don't get rented out before I make the final call! My lease is up August 15th so that's a bit early for around here (most things are Sept to Sept) so I'm hoping to get someplace for August 1st, so we have two weeks to move.

In other news, CashDuck is quite busy now and I have added another person to my crew. :) At this point she's mostly helping me catch up on tasks that have been long neglected, and taking only a little workload off of me and my other crew member. Ah, such is business.. it grows faster than I can manage to hire people to take work off me. But things are going quite well. My wonderful ducklings raised $350 for breast cancer research with this month's promotion so I'm pretty pleased with that too! I am pretty much ducking when I am not eating, sleeping, or at work though. Yesterday, I took an hour to relax, which I am not good at, and watched some TV.

In other news, I fear that between my work and CashDuck and attempting to have a real life, I do not have time to administer the Under 30 Honor Roll and I'm not doing it proper justice. So for any fellow Honor Roll members, if you are interested in taking over the Honor Roll and making it the best it can be, drop me an email.

Pluses and minuses

Plus: I got my $50 National City gift card in the mail today - it was a Sharebuilder bonus for signing up through my National City account that I have for CashDuck. So that's pretty cool. Sharebuilder bonuses are awesome. (I invested my $6 in an S&P 500 index fund. It is now worth $6.14. How savvy am I?)

Minus: I got two W-2's that I had forgotten about - one for Pearson, which was a test-grading job that I had for about a month in April-ish ($988) and one for Kaplan, where I worked for exactly three days during the July-ish period when I decided I needed a second job and then decided that I really wanted to go home after work ($81). So that's about $200 more in taxes to pay since neither had much withheld. And it also makes me wonder where the thousand dollars went??

Plus: I finally am able to see information about Electric Orange, the new ING checking account, and I am ALL over that. They have a payment feature where you can send someone an email, they put in their banking info, and voila they get money! This is so cool I can't even begin to describe. Plus about 3% interest on the money you have sitting around in the account. I am so opening one for CashDuck!!

EDIT: I originally wasn't happy about this feature because you had to know their account info - but the description made it sound like you didn't have to anymore. On further investigation, it's the same. So I guess that makes this a neutral?

Minus: I went to Target on Sunday with a pocketful of coupons, spent $91 and walked out without remembering to actually hand over the coupons to the Target lady (about $10 worth.)

Plus: I got a prescription filled and actually had one of the free-gift-card-with-prescription coupons (which I did use) from Target, so I got a $10 gift card from that.

Plus: I get my first paycheck from my new job on Wednesday - and $500 of it is going into my 403(b). So, from my calculations, about $1340 will actually be deposited between my employer's contributions and my voluntary and involuntary contributions. Which is about as much money as I use to live on and pay bills other than debt. So I think that's pretty cool. If all goes as planned I may have to raise my goals of how much retirement money I want to save by 30! =)

California--A Nice Place To Visit But I Wouldn't Want To Live There

Went out to the Bay Area for my niece's wedding. Great trip, had fun, glad to be home given the price of houses and a wee bit of overcrowding. Seems that I am not the only one glad to be out as outlined in this article at MarketMinder.com. Enjoy--if you can.

California Hates the Poor

10/5/2007 |

California hates the poor. At least the Golden State certainly seems to act that way, given the way it treats its lower-income residents.

But wait—isn’t California known as one of the most socially progressive states, spending billions of dollars on social programs and public assistance for low-income residents each year? Indeed! Yet Californian legislators uphold a policy choking off precious dollars that could go to residents needing it most. That wacky policy is the Golden State’s tax structure.

California boasts the most punitive state income tax system in the entire Union. (Not so fast New Jersey, Hawaii, Iowa, and Oregon! Though you’re all nearly as bad.) With so much wealth in the state, you might not feel much immediate sympathy for those paying the lion’s share of the state taxes. After all, California’s got Hollywood movie stars, celebutants, and Dot-Com-mega-billionaires! Make them pay! Folks tend to forget California has millions of souls—the vast majority are Average Joes.

Let’s examine the current tax structure. California income taxes kick in at a modest 1% rate for annual income up to $6,622. Not too bad—$6,622 seems a small amount to hit up for income tax, but 1% isn’t that much. But, California’s highest tax bracket of 9.3% (the highest in the nation) begins at the affluent, wallet-busting, Bentley-driving sum of $43,468.

I’ll repeat that. California imposes the nation’s highest state income tax level of 9.3% on residents earning more than $43,468. Some perspective: In 2004, the US Census reported California’s median income was $51,185—higher than America’s median income of $44,648. Translation: If you’re “middle class,” California wants 9.3% of your income. It’s a shakedown for your lunch money.

Meanwhile, nearby states Washington, Nevada, and Texas charge no state income tax at all. Arizona starts its highest tax bracket at $150,000 where residents pay 4.57%—less than half California’s top rate. It’s hardly surprising these states are some of America’s fastest growing states. In 2006, Arizona’s and Nevada’s populations swelled over 4 times faster than California’s.

If you’re a Californian with a nice retirement savings, where would you retire? California wants a hefty portion of your retirement income every year, whereas nearby Washington and Nevada want none. Add to the equation the far lower cost of living in those states, and relocating seems like a no brainer. So, folks leave and California ends up with none of their income, property, or sales tax revenue.

Those poor souls remaining in California end up with less money to fund public schools, build new roads, pay for social programs and so on. All thanks to politicians ignoring fundamental economic principles and placing too heavy a burden on its working residents and businesses.

When a state places too heavy a tax burden on its citizens or businesses, the government stifles consumer spending, business investment, and actually ends up collecting far less tax revenue. A government can maximize its tax revenue at an optimal point. Tax too much and folks don’t see much of a reason to get out of bed in the morning. Mrs. Entrepreneur fails to see the upside in launching her cutting-edge new business idea. Less business activity means less tax revenue. The Laffer Curve (shown here http://upload.wikimedia.org/wikipedia/commons/4/47/Laffer_Curve.png) demonstrates the concept.

If prohibitive taxation makes a difference between US states, one could also apply the concept to countries. When a nation imposes high hurdles for new business development and wealth creation, the prospect of strong economic growth becomes increasingly remote. Conversely, if a country slashes corporate tax rates to spur economic activity, all other factors remaining constant, that’s bullish for growth.

Take Ireland for example. The Emerald Isle slashed its corporate tax rate to 12.5%—one of the lowest rates in the developed world.

Selected Corporate Tax Rates by Country

Ireland 12.5%
Netherlands 25.5%
United Kingdom 30.0%
China 33.0%
Belgium 33.9%
France 34.4%
Germany 38.6%
USA 39.5%
Japan 39.5%

Much to the chagrin of France and other EU heavyweights, economic growth in Ireland is soaring! After all, entrepreneurs and existing businesses only need two very simple elements to justify a venture: profit and human capital. Ireland has an educated, English-speaking work force and a corporate tax rate low enough to entice entrepreneurs from around the globe. Ireland will likely attract business activity, people, and tax revenue other countries will miss out on. It shouldn’t be much surprise, then, that Irish GDP growth is expected to more than double the EU’s average. Erin go bragh!

Eastern Bloc countries are also joining the low-tax party. Estonia, Latvia, Russia, Ukraine, Slovakia, Romania, Georgia, and Macedonia all successfully introduced low flat tax structures in recent years. These moves now pressure Western European countries to either become more competitive with their business climates or face a hemorrhaging economic growth towards their neighbors with cheap labor and more welcoming tax structures.

With one of the largest gross domestic products in the world, one could only dream of the economic boom resulting from slashed California tax rates (not to mention falling federal tax rates). With the Irelands and Nevadas out there, Uncle Sam and the Golden State better act fast. Their poor depend on it.

Start planning for your final expenses now

I know this post topic is kind of morbid, but this issue is very important. Recently, Mr. Dimes and his family had to bury his grandmother, who died suddenly but not unexpectedly right around Christmas. She had a modest funeral and burial, and her final expenses clocked in around $8,000. My mother-in-law fronted the money and will eventually be reimbursed when the estate has been settled, as the grandmother did have some real estate and other assets which could be sold to cover the expenses. Not everyone is so lucky, though.
I recently had a client whose mother died unexpectedly who was requesting over $16,000 in funeral assistance. Her mother owned no property, had no life insurance, and had done nothing to prepare for her final expenses in advance. While the client has siblings, neither individually nor collectively can they afford the costs of the burial. Their mother desired to be buried in the family plot in an area where real estate is very pricey and the burial costs are over half the cost of the funeral. I had to help a grieving client find an alternative to the burial she wanted in order to have something she could afford. This was not a particularly fun experience. Please, for the love of your survivors, do not do this to them. Plan for your final expenses now and let your family members know where they can find any information about plots, policies, final wishes, etc. Deaths are difficult enough without creating financial stress and trauma for a grieving family.

Here are a few ways to ease the financial burden on your survivors:

• Consider prepayment of funeral expenses: If you know where you want to be placed upon your death, consider buying a plot in advance, and make sure your survivors know where it is. You can also prepay for the funeral, casket, and other mortuary services rather than requiring your relatives to front the expenses at the time of your death.
• Have a life insurance policy specifically for funeral expenses: Both my client's mother and my husband's grandmother had small ($10K-$25K) whole life insurance policies to pay for their funeral expenses, but for one reason or another had let them lapse and when they died, there was no money. If, however, you make sure that you (or someone else) is paying on them and don't let the policies lapse, they can be sufficient to cover burial and funeral costs.
  
• Consider less expensive methods of body disposal: Burials are getting to be insanely expensive, and so are funeral plots. Cremation, on the other hand, is a more frugal alternative to standard burial, and is less harmful to the environment. Some people don't like the idea of cremation for religious or other reasons, but it definitely costs less. It also has the added benefit of allowing for portability of remains; for example, if you want to be buried a great distance away from where you died, ashes are much easier to transport than an intact corpse.
  
• Have a specific set of assets designated for funeral expenses: This would definitely require either a will or a joint account with a person most likely to survive you, but it could solve the problem of a family member having to front expenses and then wait for reimbursement. If you create an account specifically for funeral expenses, then a family member or the executor of your estate should be able to access those funds in order to pay for your funeral. If you're going to do this, you might as well make your wishes known as well as what should be done with any money that remains, in order to keep your relatives from donating your body to science and then flying off to Cancun with your funeral money.
  

While not fun, death is an inevitable (and expensive) part of life, and you can help your family tremendously by making provisions for what to do when it happens.

Hit It Where They Ain't

The stock market likes to go against conventional wisdom. This article from Marketminder.com explains why the 'experts' are most often wrong in their predictions.

Groundhog Day 2008

12/18/2007

The close of each year stirs an instinctual phenomenon in the professional finance world. Like premature Punxsutawney Phils, investment institutions scramble forth from the warmth of their Bloomberg machines to forecast the climate of the upcoming calendar year.

This barrage of forecasts each year end is explained by behaviorism’s theory of order preference – an insistence on certain things in a certain order for little purpose other than societal convention. Why not forecast every 24 months instead of 12? Or each April instead of December?

In truth, a calendar year’s end means little to stocks. Markets go on—milestones like months and years are delineations of the mind and little more. But still, most investors engage in the prognostic ritual each December. In the next weeks you’ll hear many big-name gurus squawk (or should that be squeak?) their forecasts.

Of course, forecasting is a necessary thing for successful investing. If you don’t have some idea about where markets are headed, then beating the market is significantly tougher (if not near impossible.)

Most forecasters—even the gurus—fall wide of the mark. That’s because the factors driving most forecasts are usually derived from widely available information, are already broadly known, and therefore priced into the market. If there’s one thing we know is true, it’s that you have to know something others don’t to beat the market.

Still, paying close attention to what the gurus forecast is important. Why? Because a lot of folks look at them! So that means what they’re predicting becomes widely known—the antithesis of information that can beat the markets. So you’ve got to know what others are pricing in today to even have a shot at beating the market later.

As always, we advise critical thinking on these matters and to eschew herd behavior. After all, it’s been proven time and again that most stock market gurus with verifiable track records are wrong more than they’re right—making them about on par with good ol’ Punxsutawney Phil, who’s shadow detection technique of discerning spring’s arrival is right well less than 50% of the time.

Opportunity for free financial education

A hot tip from Veteran Military Wife, the mastermind behind Life Lessons of a Military Wife. Dave Ramsey, the well-known financial program radio host and purveyor of the Debt Snowball method, is offering his Financial Peace University program FREE to all veterans. The promotion is running from now until the close of business on Wednesday. This program is a 13-week course, and normally costs $100, but due to this promotional offer, he is giving it away for free to eligible vets. For more information, see Veteran Wife's post about the offer. You will not find any mention of this offer on Ramsey's website, as he only mentioned it over the air. For the proper enrollment procedure and to find out if you are eligible, see the above-linked post for details.

A Ridiculous Yielder for the Everyday Finance Self-Directed IRA Portfolio

I had some extra liquid cash from dividends paid in the self-directed IRA account and came across some info on Alesco Financial Inc. (AFN). It's an REIT that has been hammered pretty hard from around 10 a year ago to close to 3 today. Upon the announcement of its quarterly dividend, the stock has started to rebound and I jumped on board. Essentially, given the decline in the share price, the market had priced in a massive cut in the dividend, but that has not been the case.


The dividend had been steady at $0.31 per share for some time and the assumption given the share price decline was that the dividend would be cut substantially or altogether. Fortunately, the dividend has been announced as $0.25 payable April 10 to shareholders of record March 20.
The stock is close to $3, so this represents around a 30% yield. Obviously, this isn't sustainable, so either the share price will rise substantially or the dividend will be cut further to bring the long term yield to something around 10-15%, which is commensurate with the highest yielding sustained price stocks.

I've posted in the past that one has to be skeptical of such high yields, so you need to do your own research on this one. The big driver for me was this recent announcement of the dividend, solidifying management's view of the near term ability to continue to deliver cash back to shareholders.

I took a look at their financials. In the recent quarters, the revenue's been increasing steadily, but cash is declining. Accounts payable has blipped up a bit, but long term debt has declined. There are some offsets you may want to investigate further. In my case, I just threw a few hundred bucks at it, knowing I'm assured at least a dividend payment in the next couple weeks, which of course will buck the stock following ex-dividend, but if this housing/CDO situation turns around and the stock holds on, I could be holding a massive capital gainer with a 30% return on initial investment from dividends along the way.

www.everydayfinance.blogspot.com

Slow To Wake, But Deadly When Woken: Muni Clients

Footnoted.org points out that Wachovia appears to be the focus of some of the same attentions that seem to have attached to Bear Stearns with respect to the municipal bond markets. They point to an article in The Bond Buyer ("The Daily Newspaper of Public Finance") with more details, including the proposition that there is a joint IRS, SEC, Justice Department investigation underway in addition to the number of civil suits already flowing around.

It is looking to be a difficult year for Wall Street (is Wachovia "Wall Street"?) all around.

Trying to slip through the cracks at Wachovia [Footnoted.org]

Third Suit Names Wachovia [Bond Buyer]

Hope you weren't counting on that extra half-percent raise

... cuz you aren't going to get it, at least not for awhile.
Remember the National Defense Authorization Act, which President Bush vetoed a couple of months ago, with the 3.5% military pay raise? Well, our pandering and inept congresspeople were unable to revise the bill such that it would be passed before the start of the new year, so military personnel will have to settle for a 3.0% raise across the board. However, plans are "in the works" to assure that "the half-percent raise will be applied to military pay retroactive to January first, 2008," but I wouldn't count on seeing it for a couple of months, at least. Luckily, for most families, this amounts to a difference of $20 or less per month; however, it's hard to plan a budget when something as basic as base pay hasn't even been established. Keep this in mind next time you go to the polls.

It's Almost Time for the Stimulus Package...What to do with your refund

Although I don't think the timing was right nor can the state of the U.S. budget deficit and ever-weakening dollar justify the stimulus package recently passed, the checks will be cut shortly nonetheless. Aside from the tax refunds most people receive around this time of year, there will be additional checks coming that you probably weren't counting on.

At a high level, if you haven't already calculated how much additional cash you have coming to you, here are some high points:

For Single File Taxpayers, under $75K, this applies in full; over $87K income, no refund.

• If you earned more than $3,000 and paid taxes, you get $600.
• For each child you have, you get an additional $300.

For Dual Filing Taxpayers: Under $150K, this applies in full; over $174K, no refund.

• If you earned more than $3,000 and paid taxes, you get $1,200.
• For each child you have, you get an additional $300.

Therefore, for a typical family of four making say, $100K per year, that's an $1,800 check. So, what to do with this new found cash?

Invest it:

Well, this site is primarily dedicated to investing, so you can probably guess what I plan on doing. However, I don't think I'll be adding anything to my traditional trading account, but rather investing in my childrens' college savings funds as outlined next.

Start a new college savings account for your child - 529 or ESA:

I initially started the children off with an ESA given the lower fees, but by now, the 529 plans have really come around. You can also invest much more in the 529 plans. So, I'll likely add half to each kid's ESA right away and later in the year when I exceed the annual $2,000 limit, I'll be starting up a 529 for each. I've done some research and the Utah plan appears to be the best; will update more later on why (notice it doesn't have a huge participation because it is not advisor-affiliated so there's no financial incentive for financial advisers to recommend it).

Leave it in an emergency fund:

Given the jobs outlook and the current recessionary environment, anything can happen. Perhaps it's prudent for some to just leave this unexpected funding in a liquid account.

Pay Down High Interest Debt:

If you are paying 20% + interest on credit cards, payday loans, whatever it may be, immediately, pay down that debt. There's no investor in their right mind that would turn down a risk-free 20% return on investment.

Make an additional pre-payment on your mortgage, shortening the life of your mortgage:

There's a been a lot of hype lately on paying down your mortgage early. I will be doing a post shortly on a newfangled "system" that's being sold that I've found to be unnecessarily and frankly, a waste of time and money. For some, the peace of mind that comes with paying down a mortgage early is worth it. Most economic opinions do not favor pre-paying a mortgage. If you're in a 6% interest rate and deducting your mortgage interest at a 25% tax rate, you're paying down close to a 4.5% rate of interest and forgoing the opportunity to invest at a long term rate of 8%. Perhaps this is taxable, but then you're at 6% post tax, which exceeds 4.5 OR you can invest in an IRA and the equation changes altogether depending on various factors.

Donate it to charity:

Some people say, "I would do more of this if I had the extra money to spare". I'm one of them. We have a couple charities we participate in each year, but I haven't reached a point yet where I feel that I'm making a sustainable investment in something tangible. I was really burned on what happened with all the money I donated to Red Cross following 9/11 and now just stick to the American Cancer Society and local interests (fire dept, etc). However, maybe this is an opportunity for you to start giving if it isn't something you've done before.

Spend it on a vacation you didn't have planned:

Hey, it wasn't in the budget and you don't need it. Why not be a patriotic American and plough this money back into the economy like the politicians are requesting? When you're on your death bed, it's doubtful you'll look back and say, "I'm glad I skipped that vacation and saved some extra money back in 2008". These are tough decisions, but it's a good decision to have to make - to consume money you didn't intend on.

Buy a new widescreen television:

Well, all your neighbors have it and you don't. What will they think? These days, the prices of electronics are dropping and you can have a pretty impressive set for under the $1,800 for a family of four that will last for years. Why now?

What will you be doing with your additional refund? Vote at the poll on the left or leave your comments here!

www.everydayfinance.blogspot.com

Yay!

TIAA-CREF found my thousand dollars. All is well again.

I'm more heavily thinking about sinking most of my salary into the retirement plan.. I am going to pay SO MUCH in taxes this year that I am trying to stick as much of it into tax-sheltered accounts as possible. (Still filling the Roth though, since I can't retroactively fill it five years from now when I am in a lower tax bracket.)

Life is just chugging along. I am really incredibly busy with CashDuck.. and of course I am not making it any easier for myself by advertising so much and getting lots of new users, and working on new site doodads. :)

Loving it...

Hello from Houston! This plane ticket was seriously the best $250 I ever spent. It's 85 degrees, sunny and I'm hanging by the saltwater pool. My cousins introduce me to gorgeous Houston spring weather and poolside margaritas, I introduce them to homemade Irish car bombs (Guiness + Baily's - the most politically incorrect shot you can buy) in honor of St. Patty's day.

Though I miss my annual pub crawl in coordinated kelly green, I'm loving my little Houston getaway. I should definitely do this more often...

Prosper.com Lending Investment Returns

It's been several weeks since I've provided an update on my investment returns from Prosper.com. There have been some developments like loan payoffs, some late payments coming into compliance, and some late payments getting...later.

At a high level, here are the current statistics:

Loans: Active loans: 84

Principal loaned: $5,006.67

Avg. interest rate: 14.93%

Now, don't be deceived by the high average interest rate. There are late loans to consider of course, most of which have a decent likelihood of ultimately defaulting. As of now, there are 6 loans late at least 1 month or more. How does this translate into an overall annualized return? That's a complex question given the rolling loan initiation and varying degrees of payment at the time you write off a loan as "defaulted". In order to accommodate for this paradox, there are entire sites dedicated to tracking, trending and calculating returns for all active users in the Prosper.com community. Eric's Credit Community is viewed as a leading site for this purpose. According to Eric's CC, my adjusted annualized return (which considers the assumed current and future defaults subtracted from the starting average loan rate) is 8.25%.

http://www.ericscc.com/lenders/dpritch15

So, the takeaway here is that there will be defaults; don't kid yourself. However, if you select a cohort of high yielding loans and maintain a single digit default rate, you can achieve non-market-correlated returns in line with the long term returns of the U.S. stock market. I started investing in Prosper.com close to a year ago. During that time period, the S&P has declined 5% and the Nasdaq 7%. So, if you're frustrated with the returns of late and the impending recession that's likely to impede progress any time soon, you should strongly consider Prosper.com as an investment class. I've posted prolifically about the system. Check out the attached link for all details or sign up now for a $25 signup bonus which expires within the next couple months.

http://everydayfinance.blogspot.com/2007/12/prospercom-model-of-financial.html

www.everydayfinance.blogspot.com

How To Make A Million--The Easy Way

Stealing articles again because I have a lot to do--1,500 miles to go in a UHaul takes your mind off money. And you should take your mind off money too by making investing a habit, not a gamble. See below--pretty dry but makes a lot of sense. An article called Taking A Gamble On Ignorance by Kebin Bailey, an Aussie.

A FRIEND of mine recently told me with great confidence that investing in shares was gambling.

I took offence and assured him that if you use a scientific approach you can wash out most of the speculative risk and be left with ownership of good quality businesses that produce good earnings year after year.

His opinion about the market is not unique -- and is borne out of an ignorance of the evidence that backs up sound portfolio theory.

He has only experienced the hype of stock tips and timing calls of when to get in and when to get out of the market. In a word, his only experience of shares was speculating.

Empirical research has shown that stock selection and market timing techniques contribute virtually nothing to the total return of a broadly based investment portfolio over time and in many cases detract from the overall portfolio performance.

Research conducted by Brinson, Hood and Beebower in several well documented studies showed that over 94 per cent of the long-term return of broadly based investment portfolios were attributable to the asset allocation decision.

Only the remaining 6 per cent was attributable to stock picking and market timing.

However, stock picking and market timing (sometimes called tactical asset allocation) are the very areas that generate the bulk of the revenue for the investment industry.

Many shareholders have failed to match the market return, despite taking far greater concentration risk by picking a relatively small number of shares that they think will be winners.

They tend to blame their broker for poor stock selection without realising the futility of the exercise in the first place.

Most of us rarely compare the total performance of our portfolio relative to the market as a whole and we are often unaware of our poor relative performance.

Some of us are like the gambler who only remembers the wins at the track but conveniently forgets the losers. During a rising or "bull" market when a "rising tide lifts all ships", share clubs spring up and there is a sense that investment is easy and fun.

Interest begins to flag when losses start to accumulate during a prolonged downturn. Nothing substantial is learned about the nature of investment markets and a belief is usually formed that share investment is speculative and dangerous.

The famous author Benjamin Graham used a precise formula to differentiate between investment and speculation. His description has stood the test of time.

"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."

Often, the unsuspecting public is led into purchases that they think are investments when they are in effect, speculations.

The evidence of how to achieve better results is available but ignored by the majority of participants in the advice industry for commercial reasons.

Prior to the advent of the computer, work was already being done on the efficiency of markets.

Some of this research dates back to the work of French mathematician Louis Bachelier, who presented his dissertation in 1900 on "The Theory of Speculation" for his degree of Doctor of Mathematical Sciences at the Sorbonne in Paris.

In this paper he stated that "the mathematical expectation of the speculator is zero." He described this condition as a "fair game".

Bachelier arrived at his conclusion because "it seems that the market, the aggregate of speculators, at a given instant can believe in neither a market rise nor a market fall, since, for each quoted price, there are as many buyers as sellers."

The logic is irrefutable: "Clearly, the price considered most likely by the market is the true current price: if the market judged otherwise, it would quote not this price, but another price higher or lower."

Over time, of course, prices will move in either direction, when the market as a group changes its mind about "what the price considered most likely" is going to be.

My friend who thought investing was about second guessing the market should read Bachelier. He should ignore short term fluctuations, diversify as broadly as possible and focus on the long-term dividend producing potential of every purchase.

And you should read Category 12--All You Need To Know

Wednesday, April 9, 2008

Poll: Consumer Lending

Would you do this? Watch the video, then take the poll. I think it's really interesting, but doesn't seem very credible.