I am young, and I’m buying stocks on sale

A 777 point loss in Dow yesterday is enough to make anyone hyperventilate; especially since this is the first real financial downturn I’ve seen as an adult!

However, it’s times like these when the big picture- the ugly whole reality of the stock market crashing down- is so overwhelmingly scary that it is best not to fixate on the whole picture. Instead, focus on yourself and your own personal financial picture. This is how I’m coping.

So, here is a list of financial things I can control:

1. I can stop unnecessary spending.

2. I can shop around for purchases I need to make in order to get the best deal (like on car insurance).

3. I can rest knowing that all my cash is FDIC insured, because I have checked my accounts on the FDIC website (you can too, go here).

4. I can keep my short term dreams safely financed by having the money in extremely low risk accounts like CDs and high-yield savings accounts (Go ING!).

5. I can understand where my money has gone in the past, and where my cash needs to go in the future because I map my finances through Mint.

6. I can get a 7% return (without any risk!) by paying off my student loan.

7. I can curl up with a book about the history of Wall Street (currently reading: A Random Walk Down Wall Street) and have the intellectual reassurance that bear markets happen routinely and that they routinely bounce back.

Together these things keep me grounded and keep me from making rash decisions concerning my stock portfolio. It may do little to dampen the emotional distress of seeing my retirement portfolio dip 20%, but it can keep me muttering: I am young, and I’m buying stocks on sale (and I love a sale!). I am young, and I’m buying stocks on sale. I am young, and I’m buying stocks on sale. I am young…

Top Financial Expert Reveals Portfolio!

Kevin is very busy with answering the press’s questions. See there is a book coming out about his success as a financial guru, and he is sharing his portfolio with the world!

His Portfolio:
60% in Vanguard Total Stock Market Index
30% in Vanguard Total International Stock Index
10% in Vanguard Total Bond Market Index

With this portfolio he beat the S&P 500 by over three percentage points, and 95% of money managers to boot. Oh, by the way, he’s ten-years-old and started investing years ago- in the second grade!

I guess this is what happens when your dad is a certified financial planner, who is writing a book "How a 2nd grader beat Wall Street". On one hand it’s outlandish, but on the other- shouldn’t we all be so lucky? His father, Alan, says in an interview with Paul and Don on Sound Investing that since Kevin is a kid, he actually is better at following basic financial advice than most grown ups!

For example, his son doesn’t check his portfolio every day, he isn’t emotionally attached to his investments, and he doesn’t listen to the Jones brag about their new hot stock tips. He also understands that there are two basic rules of investing: 1) Don't put all your eggs in one basket 2) Don't play a loser's game (i.e. don’t pay a lot of fees).

These simplicistic, almost kindergarten-level lessons have enabled him to start a nest egg that will most surely grow into a comfortable college fund, first house fund, and retirement fund in the coming years. Anyone else think he’ll be replacing John Bogle?

If you’d like to listen to the whole interview on Sound Investing, you can download it here. Also, I’d recommend checking out the Marketwatch article that highlights his and other lazy portfolios performance.

How I saved $680 dollars this year!

I’m starting to take advantage of my newlywed status and I thought I’d start with my car insurance. Since my coverage is up in October anyways, I thought I’d shop for new coverage for both of us. It's one of those tips to save money that I always see in blogs, but I always think it is not really worth the time and effort. However, being unemployed means I have time to do things like this, so I did.

I have an old full size car and my hubby has a nice zippy commuter car. We both wanted Bodily Injury Liability of 25K person/50K accident, Property Damage Liability of 25K, Medical Payments of 1K, Uninsured motorist bodily injury of 25K person/50K accident, Comprehensive deductibles of $500, and he needed Collision for his car with a $1000 deductible (my car isn’t worth enough money to get Collision).

Boy that’s an ugly string of information- isn’t it?
Whew!
Well, after I typed that information into eight different carriers this is what we came up with:

Premiums for six months for both of us:

Progressive-$893.8
Esurance-$782.5
Geico-$737
State Farm-Couldn’t get the site to work, and after five tries I gave up.
All State-$1,038.99
AAA-$699
California Casualty-$862.5
21st Century-$741

I thought there would be a difference, but Oh-My-Gosh a $339.99 difference! Talk about a way to save money! That’s a savings of almost $680 for this upcoming year; all for about an hour worth of time in front of the computer. $680 an hour- now that’s a well-paying job!

I had no idea that this would be such a smart thing to check out! Have other people had similar experiences with their car insurance quotes?

Free Ice Cream!

The old adage is that you can’t get something for nothing…
… but well, this promotion is darn close to negating that phrase!

See Cold Stone Creamery is having their free scoop night TONIGHT!

Cold Stone has teamed up with the Make-A-Wish Foundation and is giving out free pre-made creations! The creations highlight their new ice cream flavors and any donations given go directly to make wishes for children with life threatening illness come true. This is a great cheap, fun activity of the week!

The hubby and I are going to stroll downtown and get some ice cream tonight- how romantic! We’ll probably donate a buck or so, but the whole evening will have low costs and high hedonic value. If that’s not a savvy plan- I don’t know what is!

http://www.coldstonecreamery.com/promotions.html

More Martha!

I had a lot of people read my blog about Blogging Rules that I saw on Martha. I wanted to update people who may not know that Martha Stewart has her own blog! I know, I know- it's not about personal finance. However, I like going there to get cheap craft activities and meal ideas. Reviewing these idea are a great way to have fun and save some money in tough economic times!

Responsibility First

To continue my series about people near (or in) retirement and their experiences with money; I interviewed ReggieMama- a self-employed mother of two grown boys.

Before she was ever a mother or an entrepreneur, she was a young nun teaching in New England. She made a bold move in her twenties to leave most of her family (and the convent) and moved to California with only $50 in her pocket. While she has been bold with her major life choices, none of them were influenced by greed. She emphasizes that personal responsibility coupled with a desire to care for her family has been the driving forces that have set her up for a comfortable retirement in the upcoming years.

SCS: When you were 26-years-old how did you view money?
ReggieMama: I didn’t give money much thought. I had enough for rent and other basics. At the time I was teaching and making next to no money, but I loved what I was doing so I was happy. I wouldn’t have turned down a lot of money, but I would never have based my profession on it.

SCS: When you were 26-years-old how did you view wealth?
ReggieMama: I never thought about wealth.

SCS: How do you think of money now?
ReggieMama: I think of money now as a colossal pain in the ass.

Oddly enough I’ve always earned a lot of money over the course of my career (I didn’t stay in teaching), but I think the reason is because I’ve enjoyed so many aspects of my work.

Raising a family forces a person to plan, save, invest, and worry about money. However, it has never meant more to me than providing for my family and it still doesn’t. As I near retirement age, it annoys me that I have to think about it even more, but it’s part of life, and we’ve never wanted to stick our kids with taking care of us or have them worried about us in our old age.

SCS: How do you think of wealth now?
ReggieMama: Real wealth has nothing to do with money. The pursuit of monetary wealth in this country has caused too many people to sacrifice their principles at the expense of others and it’s contributed to the financial mess we’re in now.

SCS: What events in your life shaped your current beliefs about personal finances?
ReggieMama: The families we grow up in play a part in shaping our beliefs about money, and I saw a lot of goofy things growing up that helped me recognize what’s important and what isn’t.

Taking care of others has always been important to me and that is only possible if we are taking responsibility for ourselves first.

171st Carnival of Personal Finance

Yesterday ushered in fall and with it came the 171st Carnival of Personal Finance hosted by Sound Money Matters. My blog highlighting blogging tips from Martha Stewart’s show was featured!

My other favorite blogs that were highlighted include:

Retiring at 29 by My Dollar Plan Not likely to happen to me, but still inspirational in an extremely jealous sort of way.

Love the simplicity on Free From Broke

Reitred at 47 has in interesting way of looking at products through price ratios

Cash on the barrelhead is another Mint lover like me!

Distilled Rose has dove into a place I’d like to once I get a job- being a lender at Prosper

Since I don’t have an investment advisor I saw Funny About Money’s post about emails with their adviser as oddly interesting.

JoshuaBest also praises ING in his Ladder approach to emergency accounts

Nip, Tuck, and Free Money

As we say here in SoCal- I’ve had some work done.

No, no knife work needed- all the work done was on this blog. Just a little refreshing lift- nothing major. I think it still has the same feel as the old blog, just a little spiffier!

The most noticeable change would be that I’ve gone to a three column format. This has allowed me to feature some links to ING Direct! I've been a customer of ING Direct for years, and I love sharing a good banking experience with my friends. Now, after I've told the world about my bad banking experience, I want to tell them about my favorite bank- ING Direct!

If you’ve been looking for a high yield savings account from an FDIC backed bank- my preferred bank is ING Direct. They make it incredibly easy to open and manage your accounts. Check out GetRichSlowly’s blog on the same topic . They have a high yield savings account (currently at 3%) called an Orange Savings account.

ING Direct is an especially good option if you currently have more than the FDIC limits ($100K in a personal account) in your bank and you're looking for a place to move your money in order to keep it safe from bankruptcy and takeovers. If you would like to join, simply follow the links below to open your account and get a little freebie for doing so!

Here’s the deal: If you’re a new customer and you open an account with at least $250, ING will deposit a $25 bonus in your new account and a $10 thank-you-bonus in my Orange Savings Account. Just click a link below to get started! (These links are only valid through 10/21/2008.)

Orange Savings Accounts:

Link 1

Link 2


*If these links don’t work- someone else got to them before you did! Just email me (chellyuop@hotmail.com) and I’ll send you a fresh link.


A quick background on the ING Orange Savings accounts:
Great rate - no minimum balance required.
No fees - all your money goes to work for you.
No changing banks - the Orange Savings Account is linked to your checking account.
24-hour access to your account - you're always ready for opportunities.
FDIC-insured - your money is safe and secure.

Hey... this seems familiar....

I was reading a great blog by GetRichSlowly yesterday which talked about how we are influenced by a large inescapable amount of advertising. When I taught a class in critical thinking, I spent a good deal of time on advertising.

Studies show that one exposure to a brand name product isn’t likely to produce a change in shopping behavior; repeated exposure makes us consumers more likely to recognize a product. Guess what happens when we see that product in a store? We tend to like it because we think it feels familiar and then we normally buy it.

While reading GetRichSlowly’s blog I was wondering how much marketing serum I’m drinking a day. I know TV is the biggest producer of advertising, but what I’m interested in is magazines. While I only subscribe to a few magazines, I had the insane curiosity to find out how much of what I’m subscribing to is ads.

So I went through a stack of recent magazines and I cut out the articles I was interested in. While I realize that this is only something a semi-crazy person would do, what I was left with was the amount of ads compared to the amount of articles. As the photo above shows, I’ve been reading probably 40% content and 60% ads! This is something that I pay to have come to my door every month!

What was funny was that my Money magazine had almost as many ads as my women's lifestyle magazines. Let me repeat that: my financial magazine had almost as many ads as the magazines I get that are explicitly devoted to shopping for clothes and home décor!

*Sigh*

I agree with GetRichSlowly. It’s impossible to cut out all advertising- heck, I’ve come to realize that I enjoy getting these stacks of advertisements in the mail every month! While all of his tips for resisting advertising on his blog are good (resist the urge and take back your brain), I’d like to add my own: When you are shopping think critically about what you are buying.

Being a critical thinker while shopping means that you truthfully ask yourself: What are my underlying reasons for wanting to buy this item? If you make shopping a mindless activity that you participate in, you’ll end up buying items that you don’t need. While you may not be able or willing to reduce your exposure to marketing; if you get into the habit of being an alert, savvy shopper it will save you money for years to come.

Martha + technology = a good thing!

Normally I read books to find information that I post on my blog, however lately I’ve been finding blogging fodder in the most unexpected places. First the Today Show and now Martha!

Martha Stewart’s daily show, Martha, ran a whole hour devoted to blogs! While the whole show was phenomenal, the part that I think even non-domestic types will find interesting was the segment with Perez Hilton’s top three blogging tips:

1. Find a Niche
Basically there are many personal finance blogs out there. If you’re thinking of starting your own PF blog try and make it different than everything else that is out there. I choose to focus on my educational pursuits and my local. Other people may focus on a different layout, reducing their debts, or saving for a big ticket item. Whatever it is be passionate about it and you’ll get fulfillment from it.

2. Be Prepared To Put In Long Hours
Research, editing, and publishing these are the least amount of work you will do. Most top bloggers spend even more time making connections and working on ads. Your blog is only whatever you are disciplined enough to put into it.

3. Don't Be Afraid to Network
Ask people for help or exposure (Honestly, I’ve been way to afraid to try this!). Make sure that you’re accessible to your readers and that you stay up on what is going on in the PF blogosphere.

While I think I’ve earned maybe a whole dollar from my website, I know that there are some PF bloggers out there that have figured out these tips in order to make it somewhat profitable for them. Whether you’re like me and just want to document an educational journey, or you want to go big-time with your blog- it never hurts to review blogging fundamentals.

*****

I was watching the last hour of the Today Show on Tuesday which typically is not intellectually stimulating. Hoda and Kathie Lee blaze through sound bites of numerous topics without giving much detail. Which is great for topics like: which rain coat to wear this season or look at Busch Garden’s wild animals (Hoda: Look at it’s tail. Kathie Lee: Uhhh… Ewww!).

So I didn’t have much hope for the upcoming financial segment with Carmen Wong Ulrich from CNBC’s On the Money. I was pleasantly surprised as she gave quick insightful advice to the viewer’s questions about bank safety. Check out her blog on the same topic.

Here are my favorite tools that she recommended:

To see if your money will still be there after your bank has failed use the FDIC’s calculator. We were completely covered, which we thought we would be, but it’s always nice to know since I live around the corner from IndyMac.

This tool tells you if FDIC will replace your money if your bank was to go under. To see if you’re about to deal with FDIC because your bank is teetering on the brink of disaster go to Bank Rate’s Safe and Sound Rating System. Keep in mind you are hoping to see that your banking institution will have a Safe & Sound CAEL rating of 1, 2, or 3 and a Bankrate Star Rating of 3, 4, or 5 stars (could they make that anymore confusing?).

Here are a sampling of some of our banking institutions and current ratings:

Vanguard- CAEL Rating: 1, BR Stars: *****
Washington Mutual Bank FSB- CAEL Rating: 2, BR Stars: ****
ING Bank- CAEL Rating: 3, BR Stars: ***

Wow- well that explains the cheery little email that I got from ING the other day. It was trying to reassure me, but all it did was perk up my antenna. I did a little research because frankly I thought WaMu would be in worse straights than ING. It turns out that ING is highly invested in Lehman Brothers' Inc (40 million Euros). While it doesn’t look like it’s going to fail anytime soon, it explains the PR email.

Never Going to Retire

For a man who never thought about money, it was confidence that built him monetary and emotional wealth. This is just how it is for Murphy*, who works out of his home in a small-business that he owns with his wife. When he’s not in his office, you’ll likely find him on a golf course with friends or entertaining his family. For him personal finances are not something to worry about, rather money is just the means of gaining true wealth- doing the things he loves most and being with those who he loves most. To continue my series interveiwing people in (or very near) retirement and their views on money I asked the following:

SCS: When you were 26-years-old how did you view money?
Murphy: You expect me to remember what I thought of money when I was 26? I can't remember anything from when I was 26- that's 40 years ago! I am old and have learned that the older I get the less I know and the less I remember.

I think that when I was 26 I didn't know my a@@ from a hole in the ground. Money didn't mean anything to me, other than the next pizza or chocolate-chip cookies.

SCS: When you were 26-years-old how did you view wealth?
Murphy: Wealth meant nothing to me.

I figured that some day I would figure out what I would do about money, and the wealth part never entered my thinking. I wasn't much of a thinker; I certainly was not a planner. Wealth was the last thing I would be thinking about.

SCS: How do you think of money now?
Murphy: When I apply myself I can make a lot of money, but the money does not mean anything to me.

Except I do like going to the Post Office to see if a check has arrived on time, and if I see an envelope with a window on it- I know it's a check. Then off I go to the bank with my business stamp and deposit slip, and enjoy handing a big check to the teller to deposit.

I think I now know why I enjoy Wells Fargo so much (Wells Fargo has been our business bank for 30 yrs). Whenever I bring a $20-30,000 check to deposit and hand it over to a teller they have to get it approved by the manager. I watch them look me up and down in my torn 49er t-shirt, unshaved, and my dirty Maui hat. Then I nod, they nod (they know me) and they know I am a success. It gives me pleasure to do that again and again.....kind of childish behavior, but, I go with it every time.

SCS: How do you think of wealth now?
Murphy: I guess with our pension plan (for 25 years), how we have saved, our home, and other stuff, I guess it means something to me.

When we met with our new stock broker, Tim Moore, he helped me see the retirement plan as the future. Honestly it doesn't mean that much to me, ‘cause I plan to keep on working ‘till I drop. I want to be the first 100-year-old recruiter!

Work, golf, and family..........that's the wealth thing for me.

SCS: What events in your life shaped your current beliefs about personal finances?
Murphy:
1) I have never spent a lot of money. If I had enough for a good hunk of chocolate, that was enough.
2) My father. I guess knowing how hard my dad worked and the sacrifices he made during the depression have had some influence on my thoughts about finances.
3) My wife. My wife has hammered me into the ground with how one does business, saves, takes care of the future with savings, mutual funds, etc. We are worth a lot of money, but it doesn't mean shit to me.

As a result I work hard, golf twice a week (keep my score in the low 70's), buy some golf balls once in a while ($15), green fees ($18-40), gas for the car (Prius), I pack my own lunch, a movie once in while, restaurants when I’m too lazy to cook (my wife is not a very good chef) - and that's all.

What I am trying to say is that neither money nor wealth has been a motivating factor in any way in my life. And still, I am proud of what I have accomplished, that I enjoy my work, my family, and friends.

I say, keep your eye on the real prize.........happiness, enjoy what you do, don't worry about $$$$, be fairly honest, have good friends, stay close to relatives and friends (always call 'em), and be generous to those who do not have much or have faced tragedy.

*Murphy is not his real name.

Child's Play Pays

To further look at retired people’s views on personal finance and to paint a balanced picture of how this family views personal finance, my next interview is with Teacher4Life’s husband- MustangMan (MM). MM is in his 50’s and a recent retiree. Like his wife, he shares the viewpoint that forethought and care with money can result in financial peace of mind. He emphasizes that they are not wealthy (for he perceives wealth more as a status rather than a state-of-mind). His prudent lessons from childhood have carried over into stable financial security for his retirement years.

SCS: When you were 26-years-old how did you view money?
MM: At 26, both my wife and I had jobs that allowed us to buy, recreate, and save within reason. I think we did better than a lot of other Dinks like us. We both came from families with 5 children and learned at an early age to be wise with what you had (waste not, want not). Money was necessary, but not craved.

SCS: When you were 26-years-old how did you view wealth?
MM: Financial wealth was something only a few people had and it wasn't us! Some people invented things, bought and sold land, buildings, stocks, etc. I didn't really think I would ever become wealthy in my lifetime. Both my wife and I had teaching jobs and didn't perceive that we would have several houses, personal jets, butlers, or maids.

SCS: How do you think of money now?
MM: Money now is something that comes in monthly retirement checks that for the time being serves us well. Our house is paid off and we have only 3 more car payments. An equity loan for various home renovations and a wedding is the only real outstanding loan that we have. Other investments such as stocks and tax shelters are there for emergencies and padding.

SCS: How do you think of wealth now?
MM: I now find myself (and wife) comfortably wealthy. We have both retired, we have money coming in that will support our conservative lifestyle- but yet allow us to travel, take short trips to the coast or mountains and pay what bills we have. Extremely wealthy we aren't. We don't own several houses, jets, butlers, maids or lots of cars. But what we have is relative financial security that should serve both of us for the rest of our lives.

SCS: What events in your life shaped your current beliefs about personal finances?
MM: When I was very young I was given a bank to save my money in. This was not a piggy bank, but a bank shaped like an old mailbox. You would open the little door and drop your change in just like a real mailbox. On the front of it was a chart showing you how much money you would have in one year depending on how much you put in every day. I was amazed at what one could amass with regular deposits. This lasting memory showed me that money should be governed with a goal in mind, having something for the future and not spending everything that you earn.

Proof is in the Prudence

I’m starting a new series where I’m interviewing people who are older- I mean- more experienced with personal finance. Specifically, people in (or very near) retirement and their views on money. I kick things off with an interview with Teacher4Life (T4L) who has recently semi-retired teaching in her 50’s. Overall, her views show that she is content with her past financial choices and that prudence can pay out as a comfortable middle-class life.

SCS: When you were 26-years-old how did you view money?
T4L: At 26 I was already married and we were living in our first house. We had borrowed money from my mother-in-law to make the down payment on it and to pay her back we used an "official" payment booklet. We budgeted, but we felt like we were living on easy street because we had two incomes. Both of us were already saving for retirement in a TSA*. We also put money into an "unexpected" expenses account for annual expenses like property taxes, car and house insurance, and anything else that might pop up.

* The 403(b) plan, often referred to as a tax-sheltered annuity (TSA), was created in 1958 specifically to give teachers and employees of other nonprofit organizations the opportunity to save money on a tax-deferred basis. It's like the 401(k) plans available to private-sector workers, but with fewer regulatory controls (WEA Trust)

SCS: When you were 26-years-old how did you view wealth?
T4L: Wealth – hmmm… I don't think I thought much about this. I knew that we were middle-class and were perfectly happy with that. We were "wealthy" in our happy home.

SCS: How do you think of money now?
T4L: We are reaping the benefits of our early good planning. We still try not to have two car payments at a time. Our car loans are always for the shortest amount of time which makes our payments higher, but the overall outlay is less. We still try to pay off the credit card each month. Being in semi-retirement is letting me ease into really being home and the money I make is going to our travel fund.

Our mortgage is paid though we are carrying an equity line. There is an automatic interest payment taken out of our checking account, but we make a minimum of $1,000 a month on the principal also. At the end of the month I just transfer any money left in that account over as extra principal payment.

I no longer have a budget!

SCS: How do you think of wealth now?
T4L: I feel we are wealthier now due to having a great house that we can afford to remodel as we like. Home ownership is wealth to me because it is security. We have physical proof of our working days. Also, though I still shop sales, I'm willing to spend more on good quality clothes and shoes. We can buy whatever we really want, but our wants are not outlandish. Part of our wealth is the fact that my husband is Mr. Fixit. We have always saved money because he can fix just about anything so we didn't have to pay a serviceman.
I think monetary wealth is being able to meet your wants and needs without accruing debt. Your assets should be much more than your debt.

SCS: What events in your life shaped your current beliefs about personal finances?
T4L: Education was always paramount in my family! Having a mother and grandmother who were college-educated helped drive me to go to college in an age when most women were stay-at-home mothers.

I always knew that I would be responsible for a good part of the costs of college due to being the third child in my family to be in college at the same time. Accepting responsibility by working part time and getting a state scholarship made me feel good about myself. I like being a responsible person and I think that carried over to personal finance. Reality has a way of developing responsibility. I also made a good choice when I married my husband.

The MSN effect

Wow- first of all I’d like to say that something completely floored me last night.

I checked my site meter for this blog and it was going crazy! I mean, a week ago I had four people visit my site. Four- and I’m fairly sure one of those people was my mother (Hi Mom!).

So the fact that the number of people visiting in the last few hours was double the number that had ever visited my blog was flat out amazing!

I found that everyone was being referred from a MSN Money blog written by Karen Datko!

Yeah!!!!

So today I wanted to feature my favorite blogs and articles written by Karen Datko to say thanks for being my best referrer!

My favorite (but I’m oh-so-biased)


OK, Ok- my real favorite- the one that I saw a l-o-n-g time ago and still remember

The resolution of her situation

More recent blogs:

Common shopping (and spending) stereotypes

I went through a similar thing when I learned the truth about Jamba Juice

En Garde!

I maybe an out-of-work academic (although I’m trying to stay in teaching), but I know faulty logic when I see it. Let me tell you, I saw it somewhere I didn’t expect to- on the 169th edition of Carnival of Personal Finance. Yup, Steadfast Finances rightfully called himself a black sheep as he tried to convince people that index funds are bad for your investment portfolio.

I love a good debate, when two people come with facts and logical arguments to discuss the finer points of an issue. I applaud BankerGirl for including a different point of view in her carnival; however, most of Steadfast Finances’ points aren’t well supported by the data.

The five supposed reasons Steadfast Finances thinks bloggers like index funds (and my responses):
1. Index funds are very easy to understand.

Once you’ve got a bit of financial knowledge under your belt, yes they are easy to understand.

2. They likely know little to nothing about the stock market.

Nope. I’d say most financial bloggers are financial bloggers because they are interested in finance. Besides professionals, I’ve found that most financial bloggers are serious about their hobby. I know I am. While I can’t say all financial bloggers understand the stock market, I think it’s safe to say most do.

3. They don’t want to recommend individual stocks or mutual funds for fear of reprisals.

Fear reprisals? No we don’t fear them. We know that most individual stocks are riskier than indexes. We're savvy, not fearful. Most individuals don’t have the capital or time to actively manage a balanced portfolio of individual stocks. Fear implies that people who prefer indexing are afraid of something. While no investor is Spock, indexers know that no one can predict the future earnings with complete accuracy, and indexers prefer methods that control risk to the point that makes emotional and intellectual sense.

4. It’s an easy answer to a difficult question because index funds require little to no research whatsoever.

Indexing still requires research. Every investor should know their portfolio. Does indexing take less time to research than a balanced portfolio full of actively traded stocks? Yes, of course it takes less time. That’s a good thing for an individual who doesn’t make finances a hobby or profession.

5. Everyone recommends them, so they feel safe passing along the same recommendation as the rest of the herd. So if the market tanks, they got fooled like everyone else and everyone likes to fit in.

First: Oouch! The tone here is harsh! Herd-mentality? Tanking-markets taking all indexers down! It’s hard to convince people that your point of view is better if you resort to animosity. Your audience in the Carnival of Personal Finance is varied- be aware that you just lost some audience by offending them.

Second: Good indexing requires a balanced portfolio. No one should be just in one index, because that negates the whole point of controlling risk. Every investor should research their options. No one should make financial decisions based on the current fad.


Next, Steadfast Finances makes an illustration to try and show that there are better options than the S&P 500. Using one fund, CGM Focus, he compares it to the last 10 years of the S&P 500. CGM Focus is a domestic large capital growth fund run by Capital Growth Mgt Ltd Partnership. On the surface it does look good. Top Morning Star ratings, acceptable expense ratio, and a return of 320% compared to 25% for the S&P 500 in the same time frame.

What Steadfast Finances didn’t say is that CGM is already regressing to the mean. It’s had a great first year yielding 71%, at three years it’s returning 38.5%, at five years 35%, and at 10 years 26%. It’s current year-to-date return is -5.12%.

While there is no way to know what it will be doing in another 10 years, statistical rules like regression to the mean, say the returns will go back to a more average amount. It may still be better than the S&P 500 index for a short while, but over a extended period of time it will probably make average returns. BTW over the life of the S&P 500 the return is around 7%, not the high 25% we’ve seen in these last ten good years (Jeremy Siegel in Farrell’s Right on the Money).

The problem with your argument is that you’re picking optimal times in the past to get into this fund. If someone had gotten in recently, they would be down and out of money. Very few funds can consistently beat the market in the long run. Without considering mutual fund expenses, only half out perform the market. Only 1 in 3 funds outperform the market when taking into account the fees (Zweig Your Money and Your Brain). That’s why it’s so hard for individual’s to make prudent picks, past performance doesn’t predict future success.

The Consumer Price Index increased at about 3% since 1914. The S&P 500 returned an average 7% return and that is after adjusting for inflation (Jeremy Siegel in Farrell’s Right on the Money). That’s not huge, but it will buy you gas and food. This is assuming you’re just in the S&P 500. Which, let’s be honest, isn’t the only index. You should have more variety than just the S&P 500 in your portfolio.

Steadfast Finances nicely illustrates a normal curve to show the variety you get when you index. He quotes “buying basic index funds - you get some good, some bad, but mostly average performing stocks.” This is a good thing! You’re getting average (7%) returns! This would be hard for individuals to do by picking individual stocks. Also, you’re getting a good rate of return without being extremely risky.


How do I make my money work harder? Steadfast Finances solutions and my responses:

1. Pick mutual funds with an excellent track record of out performing the S&P 500. Any website like Morningstar, Kiplinger’s, or blogs like mine will always cover the better performing mutual funds and exchange traded funds (ETFs).

The problem with this is that there are a lot of opinions of what is good. There are many professionals who are touting the next hot financial product. The problem for an individual investor is that there is a lot of noise out there. These financial gurus are passionately convinced that their way is the right way. It can be flat out confusing for a novice investor. Trying to find that 33% of mutual funds that outperform the market any one year means that 66% of funds picked won’t even get a 7% return.

2. Setup an account with a full service brokerage firm. These are more expensive, but like anything, you get what you pay for.

Since 1976 the Wiltshire 5000 index has done better than 2/3 of money managers (Meir Statman in Farrell’s Right on the Money). While you can’t control the future earnings of a specific fund, you can control your fees. Money managers take a cut of your money. Whether you do well or poorly, they will get their fees- with most of them not outperforming the larger index.

3. Hire a financial planner. If you are looking for more better than average returns, let him/her know your goals and it’s just that simple.

Hiring a financial planner is smart. Talk to someone for a fixed fee if you need advice for a specific issue. Or if you are petrified by making a financial decision on your own, hire a planner and start investing something. It will be better to start investing early, than to wait until retirement is right around the corner.

4. Ask for advice from a trusted colleague/friend with investment experience. I learned how to invest from a family friend, and it’s one of the best financial moves I ever made.

Good idea. However, don’t confuse this with acting on friend’s advice. Your cousin may say he’s made $20,000 in the energy sector, but he may not as forthcoming with his losses. Asking advice is fabulous! Acting on partial information isn’t.

5. Do it yourself and build your own mutual fund. There are many websites and blogs that cover mutual funds or individual stock research, so grab a few RSS feeds, do your own research, and away you go. Just make sure you know what you’re doing, and start small in the beginning.

Also wonderful advice! If you have time to make your own mutual fund this is a fun activity. Take a small percent of your overall portfolio and play! Don’t make your financial goals contingent on these- you could be taking on extraordinary risk.


In summary: I like his closing comments.

“I’m merely pointing out that you shouldn’t close off the possibility of
owning several traditional mutual funds or ETFs that have superior historical
returns. By allocating a certain percentage of your overall portfolio to
higher risk investments, your returns could potentially be far better than using
index funds only.” - Steadfast Finances

His title is misleading if his ending sentiments are honest. However, with a little updating to his supporting evidence, I think we could have a nice little debate on our hands!

This is the balanced advice I wish made up the bulk of this blog. I was so relieved to find out he isn’t a day-trader or exults only managed funds. We have a lot more in common than I initially thought. We both want people to be fiscally-literate and to seek professional help when they need it. We both want financial peace of mind for ourselves and others. We just have a small disagreement over the best way to do that.

In all honesty, we’re probably both right. There are circumstances where one school of thought is better than the other. There are some great mutual funds out there and they can be beneficial for some people (a lucky 33% of people).

However, in my humble opinion and those of many indexing advocates, there are many people who would be better off with balanced indexing. It’s great for individual investors who are educated about the stock market and in ways to control risk. It’s a nice way for people who want to manage their own money to do so and still have a life. These are people who want to do all of this for little cost and great peace of mind.

Top picks from the top picks

After a morning of more applications, I received a bunch of comments on my post: the 1950’s housewife. It turns out I was included in the Carnival of Personal Finance hosted by Banker Girl! Such a nice surprise- as I wasn’t sure how people would respond to that post.

Please check out all the entries including my favorites:

Not the Jet Set croons a financial lesson via a country song.

My Dad (my parent’s are my most frequent readers- Hi Mom and Dad!) would like Christian Finance's blog. This blogger is trying to convert a car to run on water. This is proving easier than walking on water, but still not an easy feat.

An ode for my husband (who so graciously backed me up in front of TheBigFatSexist): Beyond Paycheck to Paycheck writes how saving is like football- go 49ers!

A great list for those who are trying to save an extra buck was presented by Squakfox (sorry people- no fido, but please use condoms!).

Being in SoCal we can relate to Miss Thrifty’s home dreams.

No Debt Plan lays out ways to fight the fees (much like my husband did).

Frugal Fu has thoughts from the throne.

The Eeyore post

I have some to realize, that in some part, I started this blog to help get myself prepared financially for the day I would have my own salary coming in. Even though I have experience teaching psychology and good recommendations from students and colleagues, I’ve reached the disappointing point where I’ve realized I won’t be hired on to any local junior college for fall term.

Although I have prepared for the worst in terms of money, I’m now applying for my backup job- substitute teaching. It’s not something I relish, indeed I’ve put it off for months with my need to be spending time planning the wedding (which is true...) but now it’s time.

I knew it could take a while to break into the JC system, but somehow I had hoped it would be different for me. All the organizing in the world couldn’t stop the tidal wave of disappointment from washing over me.

Of course, all this organizing, planning, and researching is in part for the desperate times- to make them easier. However, it still is never easy when those times come.

Invested, in what?

I’ve just started John Bogle’s foreword of Benjamin Graham’s The Intelligent Investor, and already there is a part that has jumped out at me. John Bogle has been writing about the original book written in the 1940’s and some of the changes that have occurred since that time in the world of investing. This part caught my attention:

“Today, some 90 million Americans from all walks of life own shares of stock.
Even more astonishing, the lion’s share of those holdings is owned not directly
but indirectly through financial institutions- mutual funds, pension funds,
endowment funds, hedge funds, and the like…This institutionalization has left
the last-line investor in stocks a step removed from ownership, relying on his
managers to be faithful stewards….At the same time, as a trading mentality came
to dominate the market, a new rent-a-stock philosophy came to hold sway over the
former tried and true own-a-stock philosophy. Together, these two trends have
served to sharply dilute the role of the investor as a business owner.”

Here’s the crux of my issue: I don’t feel like a business owner.

I own a few individual stocks (that were aimed at teaching adolescent-me that Christmas gifts weren’t always fun and fuzzy), but the vast majority of my equities are in indexes. So technically, I’m a part-business owner of thousands of businesses.

While I am an investor that has a long time horizon and think frenzied day-trading is generally less fruitful than a lazy portfolio; I still don’t feel a connection to these stocks that I will probably own for 40+ years. I could call in and listen to the yearly owner’s meeting, yet I have no real sway. No ability to really affect policy, and no desire to do so.

I cognitively understand that a stock is a share of business that I am vested in. However, my heart has no connection to those businesses. I don’t care if, in the short run, these businesses cause my investments dip or rise, as long as they trend in an upward manner.

While I’ve read that you shouldn’t get too attached to your investments, is being detached good?

The 1950’s house wife

Yesterday, in my September update I alluded to the fact that many people gave us generous checks for our July marriage (Yeah!!!). The problem was that people tended to write the checks out to both of us. This, given that we just got married, seems appropriate.

However, we didn’t have a joint account in which to deposit checks written to a married couple. Uhggg- another account, we thought. So, we decided to add me to my husband’s free checking account which is at a nearby bank.

We sat down with a male associate, who I’ll call Mr. BankTellerMan, who took us through the process of changing a single account into a joint one. I was seated directly across from Mr. BankTellerMan and my husband sat to my left, farthest away from Mr. BankTellerMan. It took a minute or two, but Mr. BankTellerMan seemed to be talking only to my husband.

No, I thought, I’m imagining this.

Then came the phrase, “So now have your wife sign her name to add her as a secondary on the account.” Which was said- and I’m not joking here- directly to my husband!

Mr. BankTellerMan AKA big-fat-sexist!

Mr. BankTellerMan then started in on his sales pitch for the bank’s pathetically low “high” interest savings account. A rate which ING Direct could eat for breakfast and still be hungry. This whole pitch was delivered catty-corner across the table directed at my husband.

Not one nod, not one moment of eye contact from Mr. BankTellerMan to me, the 1950’s housewife.

I could have taken off my top and danced on the chair like Tom Cruise, and he wouldn’t have noticed.

Finally, I had to say something- I mean this was getting just plain awkward.

“So what is your current money-market rate?” I said, trying to be included in the conversation.
Mr. BankTellerMan looked caught off-guard. He looked at me in a manner that conveyed: the boobs can speak?

He bumbled, something to the effect that it changes everyday…blah, blah, blah.

This comment yielded no appreciable difference in Mr. BankTellerMan’s behavior.

The icing on the cake was when Mr. BankTellerMan’s sales pitch ended and my husband needed to make a decision about this "high" interest savings account.
My husband simply said, “My wife handles all the investments.”

The look on Mr. BankTellerMan’s face: priceless.

September Update

Well, it’s been a lucky-number-seven month for me!

My retirement portfolio is up and my money market accounts are doing well. We had some extra cash, so I got to make an additional payment on my student loan. All of which brought me that much closer to a solvent NetWorth balance.
I’m now only three digits in the red- whoo-hoo! (Small victories people, small victories….)

Also, as the last few wedding presents trickled in, we put the checks in our down payment fund bringing it to a whopping 11% of our goal. As I stated above, my MM are earning 3%, so my new car fund inched up to 24.1%, my ROTH IRA 58.4%, and my emergency fund to 18.7%.

Overall, for still not having a job- I feel incredibly blessed!

Good morning September!

After a nice Labor Day weekend at the in-laws, I’m back home and found a nice little email: I was accepted into the Carnival of Personal Finance hosted this week by That One Caveman!

It was quite the spread (I'm a kabab), with some of my favorites being:

Squawkfox

Value For Your Life

Financial Ramblings

Saving Advice