Thursday, March 31, 2011

2011 Goals - April Update

(1) Max out 401k(s) - $9,804 (30%)(goal is $33,000)
(2) Max out IRA(s) - $7,000 (70%)(goal is $10,000, my IRA is now maxed out for 2011)
(3) Add to e/r fund - $2,800 (28%)(goal is $10,000)
(4) Pay down mortgage - $1245 (25%)(goal is $5,000)
(5) House projects - $0 (goal is $5,000)
Total - $20,849 (33%)

We are about $4000 ahead on our goals, mostly due to Mr. Sam's bonus which bumped us up on the 401k and the IRA goals.

Saturday, March 26, 2011


My bank, in addition to others, has recently cancelled its debit card rewards program. There is some speculation that the debit programs are being done away with in response to the recent legislation that would limit swipe fees.

Now, I don't use my debit card to rack up points, but rather it is how we manage and track our day to day spending (since we don't use credit cards and cash is too hard to track). But, since we've been "earning" points for years and since the program is expiring or changing, I decided to cash out the as many points as I could.

In redeeming points, cash awards (credits to our checking account) have the lowest point to reward ratio, but I went with cash vs. the other choices. I looked at the travel rewards, since we have a few upcoming trips, and I reviewed the gift cards and prepaid cards since the point to reward ratio is better. In the end, since our travel is already, generally, booked and paid for and since the gift cards can expire or be lost, I went with cash.

Thursday, March 24, 2011

Business Travel

Lately, I've done quite a bit of travel for work, which includes expenses for things like flights, hotel rooms, gas, business dinners, conference rooms, etc.

My company uses a travel service and to the extent I can give them enough advance notice they will book, and pre-pay, flights and hotel rooms. But, all other expenses fall to the individual employee and I'm not provided with a company credit card. Additionally, to the extent I'm booking something last minute I have to put it on my own credit card.

I'm not happy about this situation, I don't normally use my credit card except when we book personal travel and then I pay it off immediately. As a result, I don't normally have a credit card bill to pay so it is not part of my normal bill paying routine and I ended up being late on the payment, by one day, this past month and incurred a $20 charge. Moreover, the whole reimbursement, deposit of reimbursement check (since it is delivered as a hard copy check), payment of the credit card bill is time consuming and more so depending on number of reimbursements within a month. I've decided it basically takes a half hour of my time for each reimbursement and being short on time I'm not happy about adding this to my weekend errands.

I don't know what the solutions is for this problem or if there is a solution.

Friday, March 18, 2011

Dave Ramsey's investment assumptions

I am a fan of Dave Ramsey for the following reasons. He helped motivated us to pay off our unsecured debt (we used his snowball method to pay off $55,500 in unsecured debt in 12 and 1/2 months). I generally agree with him that personal finances is 80% emotion. I think his plan is easy to understand and fully support the idea and the practice of living a debt free life. Freedom from debt is freedom.

I catch Dave's show now and again on my way home from work. Recently he was talking about investing, why he preaches investing in the stock market and he touched on his assumption, which he relies on again and again in his books and on his show, that the stock market returns 12%. I've never believed the 12% number, and it has always been one of those things about Dave that I've thought undermined his overall message.

I thought, while listening to the show, that Dave was going to cling to the 12% number, but he recognized that people have challenged him on that number and as a result he ran his scenario using 8% and 10% returns as well.

This week when reading Dave's monthly newsletter, he again addressed the 12% return assumption. His newsletter sets forth where he gets his numbers from and based on my own independent research he is right. The S&P 500 from 1926 to December 31, 2010 returned, on average, 11.95% (not adjusted for inflation). And he is right that the S&P 500 during 1991-2010 returned, on average, 11.04% (again not adjusted for inflation).

But, most individual investors only obtain about 50% of the average returns. Which I think is why many other gurus and experts often suggest only assuming a 6% return when running the numbers in a retirement calculator. Why the discrepancy between average and individual return? Individual investors are very bad at timing the market. We, in general, pull our money out of the market when it goes down and put it back in when the market is going up. Said another way, we buy high and sell low.

So how do we combat this problem?

While I agree with Dave that 80% of personal finances is emotion, when it comes to investing emotion may be the problem. When faced with a volatile market you can do nothing. Doing nothing can be your plan. I speak from experience, in 2008 and 2009, we did not sell our 401k or IRA investments. And it was hard to watch our numbers go down, down, down, but it is important to remember that loss (and profit) is not locked in until you sell. We had enough time to wait it out, so we did nothing and almost all of our pre-2008 investments have fully recovered and gained.

Have a plan when you buy. This is something we are working on. When you buy a particular product, have a plan for when you will sell. Do you revisit the product every 5 years, every 10 years, depending on your age. Or do you revisit the product after the investment has doubled or tripled in value? Or do you do both? When we bought stock in 2009 the market was low, so since then, some of our investments have doubled and tripled in value. As such, we are looking at these investments and evaluating whether it makes sense to sell or to hold.

Have a global plan. If you are diversified, if you re-allocate your assets each year, you shouldn't have to sell in a down market.

Think before you trade. In general, the more an individual investor trades the worse their returns (over time). This truism means that Mr. Sam's trading experiment is eventually going to lose money.

Thursday, March 17, 2011

Disaster Investing

Mr. Sam has been watching Toyota, thinking about investing in it because the stock is down due to the disaster in Japan. While it makes sense to invest when the market is down, which I did last week, it feels wrong (to me) to be making investment decisions based on other people's pain and death.

I just don't know how I feel about it, yet I know that the big boys, including the investment advisers of some of the mutual funds that I am already invested in, are making these very same moves. If it is okay for Wall Street, pension fund managers, mutual fund managers and the boys with the high speed computers to make these moves, is it okay for the individual investor?

Wednesday, March 16, 2011

2011 Goals - Mid - March Update

(1) Max out 401k(s) - $6,901 (21%)(goal is $33,000)
(2) Max out IRA(s) - $6,000 (60%)(goal is $10,000, my IRA is now maxed out for 2011)
(3) Add to e/r fund - $2,400 (24%)(goal is $10,000)
(4) Pay down mortgage - $830 (17%)(goal is $5,000)
(5) House projects - $0 (goal is $5,000)

Total - $16,131 (26%)

With bump forward, due to Mr. Sam's bonus monies, we are about $2800 ahead of schedule.

Tuesday, March 15, 2011

One Down

Mr. Sam received a bonus, always good news. As a result, my 2011 IRA is now maxed out, so one goal down, many to go. We've also put $1500 of the bonus monies towards Mr. Sam's 2011 IRA. A portion of the bonus, since its pay-roll money also went to his 401k.

Friday, March 11, 2011

Market Moves

Because the market is down, I made some limit orders today for my 2011 IRA monies. I'm not trying to "time" the market, but rather since my IRA money was sitting in cash I decided that today was a better day to enter some orders.

We use our IRA money to invest in individual stocks and I use the Fidelity research tools to start my research. If you've got a Fidelity account, click on research, then click on stocks, then click on preset expert strategies. From that list, you can pick the strategy that matches your goals and personality. I'm a bargain hunter, so my favorite strategy is "bottom fishing." From the bottom fishing list of picks, I then use the research tools from Fidelity or I'm also fan of Morningstar and Google Finance.

After I've made my selection, I normally buy my stocks via a limit order that is good until I cancel it. A limit order can only be filled when the stock reaches a certain price. So, today I put a limit order in for a stock that was $14.56 at close yesterday. I'm already looking at a bargain stock so my limit order is normally just below the trending price for that particular stock. So, my limit order was at $13.75. Good until cancel means that limit order will sit until its filled, meaning the stock drops to $13.75 ,or it just sits as an open order and I can come back and cancel it later.

Disclaimer - I'm not a financial advisor or expert, this post is simply a description of my pattern and practice and it may not work for you.

Tuesday, March 8, 2011

2001 Goals - March Update

(1) Max out 401k(s) - $6,269 (9%)(goal is $33,000)
(2) Max out IRA(s) - $4,500 (45%)(goal is $10,000)
(3) Add to e/r fund - $2,000 (20%)(goal is $10,000)
(4) Pay down mortgage - $830 (17%)(goal is $5,000)
(5) House projects - $0 (goal is $5,000)

Total - $13,599 (22%)

Slightly ahead on our goals (by about $1400).