Friday, October 31, 2008
I recently learned that Dollar Savings Direct is offering a 4.0% APY with a $1,000 minimum balance.
Dollar Savings Direct is the online banking division of Emigrant Bank. In a time where banks are dropping like flies, I checked the soundness of Emigrant Bank and found that it was either rated 2-stars or 3-stars.
Not the resounding endorsement that I was hoping for, but it appears that the bank is stable and capitalized well enough for me to try it out. And hey, since I'm depositing less than $250,000, my money will be FDIC insured.
I expect completing the whole process will likely take about a couple of weeks since I've opted to mail in my initial deposit of $1,000. In order to do so, I'll have to transfer money from my ING account (about 3 business days), snail mail my check (about 2 business days) and probably another 2 business days for processing. Pretty ironic that setting up an online bank account takes longer than opening an account at a bricks-and-mortar institution. :-P
On a related topic, this article provides tips on how to speed up money transfers with online banks.
Anyhow, have a Happy Halloween everyone!!
Wednesday, October 29, 2008
My company is organizationally top heavy, so the elimination of certain people in upper management did not come as a surprise. What surprised me, though, was who survived the reorganization. The VP to whom my department will now report, has had serious problems with employee retention over the past few years. Her reputation is that she is tough and smart, but that she's also quick to anger and eager to point fingers. Although I'm not looking forward to this change, I also believe that I owe it to the new VP to give her a chance.
My immediate supervisor got demoted to a desk job. He's extremely angry and bitter about this turn of event because until this morning, he thought his middle-management job was safe. Instead, the woman who he thought was going to be demoted kept her job and he was transferred to a completely different division.
The worst part of this reorganization is that I'll now be reporting to a friend with whom I've had a flirtatious (but non romantic) relationship. This creates some awkwardness that I hope we can overcome. Thank goodness I never sh&t where I ate. (Remember folks: Never sh!t where you eat!)
A fellow blogger said it best:
Survived a layoff? Hooray! You didn’t just keep your job, you’ve won 3-jobs-in-1! You are awarded the added work of Laid-Off Loretta and Given-the-Heave-Ho Gary.
To help you handle the longer days and heavier workload, instead of overtime, which is morally repugnant because it involves time-and-a-half pay, Crystal Meth will be made available to you at market price.
Staying afloat is not an option. You must be more productive than before. Here's a helpful tip from management: to find your motivation, always keep in mind that a second round of layoffs is being planned.
Congratulations on still being employed! Now it’s onward to bigger things such as nervous breakdowns and heart attacks. You’ve earned it.
I was told yesterday that my company intends to sublease our office space. Once a sublessee is found, my company tentatively plans for us to work from home. I think most people would be ecstatic with this arrangement, but I am a bit ambivalent.
Initially, although the exact date is unknown, this transition is expected to take place some time in June '09. I suspect that at that time, the company will have another round of layoffs. So, there's no guarantee that I'll be employed beyond that.
Secondly, even if I am asked to work from home, I currently live in a 1 BR apartment. I presently don't have space to do work at home. If I upgraded to a 2 BR apartment, I would have to pay an additional $350 - $400 each month in rent.
The good news is, I can probably afford this increase in my rent since I'm expecting to pay off my car loan in June '09. The bad news is, I was planning to roll over my monthly car payments into my monthly credit card payments. I'm very disappointed that half of that would now be eaten up by increased rent payments. :-(
Finally, I'm tired of this rolling layoffs. I realize no job is safe, but with my current job, a layoff is not a matter of if, but when. This ongoing uncertainty is wearing me down and my motivation to work hard is at an all-time low. I don't mean to sound ungrateful, but as much as this recent news was good, it also has its drawbacks.
Tuesday, October 28, 2008
Part of the reason why I survived is because home office decided to close other offices. (This was completely unexpected.) It's horrible to think that someone else's job loss saved mine. As if this economy isn't depressing enough...
I have VERY mixed feelings about this and I'm really confused right now. Thank heavens for beer. And vodka. And ice cream.
Monday, October 27, 2008
Que sera, sera... what will be, will be...
Just so you know, it was tough for me not to gamble. I LOVE to gamble. I love the electrifying atmosphere of the casino. I love the electronic sounds of slot machines. I love the sound of poker chips clacking together. I love faking out my poker competition by pretending to be a shy, novice player. (My cover is usually blown when I start trash-talking after winning a pot. Note to Self: Must learn to maintain poker face!) :-P
In addition to the casino, I've been sidelined in the stock market. I haven't invested in the stock market separately from my 401k and my ESOP since my priority right now is to bolster my emergency fund. But I'm DYING to divert some of the my savings into the stock market right now.
Now keep in mind, I've given up on investing in individual stocks. (Exception: I continue to invest in my company stock but only because my employer matches 30% for every dollar I invest.) As a non-professional market trader, I don't have time to valuate stocks by monitoring its fundamentals like P/E ratio, PEG ratio, ROI, ROE, cashflow, etc. I've instead decided a while back that I'm better off investing in a basket of diversified index funds.
If there's anything I've learned in this financial crisis, it's that my 401k alone is an insufficient means to prepare for retirement. One of the reasons is because my 401k doesn't have very good selection of funds. So I'd like to diversify my investments a bit more in my Roth IRA or in my investment account.
For example, I'd really like to diversify my portfolio by investing in:
The problem, though, is that as John Maynard Keynes once said: "The market can stay irrational longer than you can stay solvent." With a meager emergency fund, can I afford to take the risk? Unfortunately not. So I'm going to sit this prime buying opportunity out right now. And it's KILLING ME!
I need to keep reminding myself that cost is not a primary reason to buy anything, including stocks and homes. Cost is an element of affordability. If I can't afford it, it really doesn't matter if something is sold at a serious discount, right?
Sunday, October 26, 2008
Well, I got my Access Card over the weekend and purchased my first $25 I-Series Savings Bond. :-D
I know it's not much, but since I can't redeem it for 5 years without being penalized, I can't afford to tie up too much of my cash. But I'm thinking that if I do this monthly, it'll eventually add up to something significant... eventually.
Friday, October 24, 2008
Anyhoo, I'm out of town today on a business trip so I don't have much time to write.
Off the topic here, but is anyone burned out with non-stop election coverage? Someone sent me this video that I thought was hilarious! Enjoy and have a great weekend.
Thursday, October 23, 2008
MJ has also lost weight over the years and I don’t expect him to live that much longer. So I’ve created a “pet fund” that I intend to use to cover the cost of his euthanasia as well as his cremation. As morbid as that may sound, I created the fund so that I don’t make the same money mistake I made with my other cat, CC.
About a couple of years ago, CC’s rear legs suddenly became paralyzed as a result of a saddle embolism. Although the chances were slim, I held out hope that CC will somehow make a miraculous full recovery.
I initially told the veterinarian that “money was no object” and immediately authorized $3,000 on my credit card for treatment. The vet called me around noon to give me the prognosis and asked whether I wanted to euthanize CC. I asked him to continue whatever treatment he felt appropriate.
Little did I know that $3,000 would not even cover a night’s stay at the specialty hospital. That evening, a hospital staffer called me and requested another $3,000 pre-authorization on my credit card. After agonizing the entire evening, I finally decided to euthanize CC at 11:00 p.m. At the time, I didn’t want to admit that CC’s life hung on my ability (or inability) to pay for her ongoing care and treatment.
Not that I don’t value MJ’s life, but if he becomes seriously ill, I don't plan to authorize any money on my credit card for his hospitalization. Firstly, because I can’t afford it. And secondly, I am not certain that treatment is the most humane thing to do at his age. Note that I mentioned “serious illness”, like cancer or an embolism. If MJ can be treated relatively easily and quickly (e.g. infection, simple bone fracture, etc.), I’ll seek treatment.
I’m sure when the time comes, I won’t be as cold and calm as I type this now. But I’ve been mentally repeating to myself that euthanizing MJ because I can’t afford to pay for expensive medical treatments is not only financially responsible but humane as well.
(P.S. Sorry for the downer post!)
Wednesday, October 22, 2008
I attended a timeshare presentation for Marriott's Newport Coast Villas Timeshare last year. I saw an ad that offered a 2 night, 3 day stay at Marriott's Newport Beach hotel for $50. The offer also included a $50 gift certificate to the Fashion Island mall at Newport Beach and a $50 gift certificate to the hotel's steakhouse. Several of my friends convinced me to do it by saying they always attend timeshare presentations to get freebies.
Truth be told, I attended the timeshare presentation with NO intention of buying a timeshare. I also lied about whether I owned my own home (which apparently is a pre-requisite to participating in the offer.) I also knew that I could resist all the high-pressure sales tactics since my current job requires me to say "no" during negotiations all the time.
As expected, I breezed through the presentation and the subsequent sales pitch. I lied through my teeth about how I was in the market to buy a timeshare and that Marriott and Westin timeshares were in serious contention. Once I got out of the presentation unscathed, my sister and I spent several days in the lovely "OC" for merely $50 + tax + fees.
But now, after receiving the card, I suddenly felt guilty that I selfishly wasted a fellow human being's time so that I can earn some freebies. I realize that this is all part of the game, but I am now seeing that I had falsely raised someone's hope and expectation for a sale. The sales rep makes a living by selling timeshares and I shouldn't have participated in the deception solely to get a free hotel room.
Does anyone else feel this way? Or do you feel justified getting freebies from timeshare presentations even if you have zero intention to buy?
Tuesday, October 21, 2008
Ohhhhh...cr&p. I'm below the median and this means I'll have difficulty obtaining loans during this credit crisis. Not that this really matters since I don't intend to take on any more debt than I already have. But it still sucks to know my credit score is below 50% of everyone else.
Rather than getting depressed, I'm going to relish a bit of schadenfreude during this credit crisis.
def: Satisfaction or pleasure felt at someone else's misfortune.
[Origin: 1890–95; G, equiv. to Schaden harm + Freude joy]
My credit is better than AIG's. None of my debts have interest rates over 6%. AIG, on the other hand, is going to pay 11.5% interest on the $85 billion bridge loan it obtained from the federal government.
I don't feel guilty about this schadenfreude because AIG insured derivative contracts without having adequate reserves to cover the potential default on those securities. Who cares whether they were required by law to have those reserves in place for these securities? AIG's primary business is in insurance so they should have known the importance of having adequate reserves to cover potential future claims. Otherwise, they were taking on extreme risk at the expense of equity owners and now, taxpayers, and they knew it. Shame on them.
Just like me, media mogul billionaire, Sumner Redstone, recently had to sell some company stocks to "pay down debt". The difference, though, is that I sold my company stocks on the upswing. Redstone, had to dump $400 million of nonvoting B shares in Viacom and CBS when shares were trading at a fraction of what they were a year ago. If Restone is unable to renegotiate his company's debt, he may be forced to sell additional shares.
Normally I wouldn't relish the misfortune of others, but Sumner Redstone isn't a likeable or sympathetic person. This is a guy who promotes his own daughter, Shari Redstone, to president of National Amusements and vice-chairwoman of CBS/Viacom, only to publicly disparage her to Forbes magazine. No wonder he's estranged from his son as well. Since this guy's been known to brag about his financial acumen, he can eat some humble-pie now and then.
Escape Brooklyn found this gem of an article, Laid Off Bankers Having Trouble Getting Laid. An excerpt:
One of the most trying aspects for [the laid off bankers]... was the loss of “perceived prestige” with women. “A lot of my dude friends when they meet a girl in a bar, they’ve stopped talking for once about what they do,” [the interviewee] said. “If you tell a girl you work at an investment bank, that gets you a sympathetic pat on the back. That’s not the response you’re looking for.”
Ahahahahhahahahha! What's the matter, dudes? Pity-sex not good enough for you? HA!
Hmmmmm... I thought all this schadenfreude would make me feel better. But not so much. I'm feeling a bit dirty. :-(
Monday, October 20, 2008
It wasn't an extravagant outing since my buffet dinner got comp'd by my high-roller friend. (It always helps to be friends with a platinum cardholding member of the casino's frequent gambler club.) :-D
At the buffet, one thing that struck me was how deprivation made me really appreciate the things I took for granted in the past. Before I resolved to live on a budget, I never thought twice about eating at expensive restauarants on credit. I'm craving steak? I'm going to have a surf-n-turf at Morton's or Ruth's Chris Steakhouse! I'm craving sushi? I'm going to Nobu's, and heck, I'm going to treat my friends because I can! (I guess this explains why I'm currently $13,000 in credit card debt. Sigh.)
Alas, those days are over. Don't get me wrong -- I'm not ruing my former lifestyle. Far from it. Truth be told, I'm actually happier now that I'm living within my means and watching my debt go down while my savings increase, albeit at a snail's pace. (A recent poll also shows that people who plan for their financial future tend to be happier. I'm no exception.)
But I admit that I battle my food cravings on a daily basis to stay within my spartan food budget. In order to stick to my budget, I don't eat sushi or beef anymore. (Taco Bell burritos don't count as beef, by the way.) I also don't eat out much either. (Again, Taco Bell doesn't count.)
At the buffet, I loaded up on all-you-can-eat crab legs, roast beef, mashed potatoes, Chinese food, sushi and crepe. (I know it sounds like a weird combination of food but in my defense, I had to try everything.) The quality of the food was good, but not excellent (since it is a buffet after all). But boooooy, I didn't care. Was it delicious!! (I think it was especially delicious because it was free.)
Since it's been a while since I'd eaten so extravantly, I savored every bite and morsel. And perhaps this may be the best thing about making sacrifices to live within one's means -- I've learned that I can appreciate life's modest indulgences rather than seeking endlessly for the next, higher level of consumption. It's pretty ironic, funny and cool that I've discovered this nugget of wisdom at a casino buffet, a symbol of excessive consumption.
Saturday, October 18, 2008
Thank you to all who have participated in my To Beer or Not to Beer poll.
The vote is in: By a margin of 2 to 1, the people have voted their approval of buying beer with recycling proceeds. Pheeewwwwww. (Truth be told, I was hoping for this outcome. Heh heh.)
I also want to thank the people who've taken time out of their busy lives to leave thoughtful comments. It's interesting that all of the commentators have voted "yes" to buying beer. (I love my audience!) They suggested that although savings are important, it is also important to enjoy some small indulgences here and there. I couldn't agree more.
So there you have it. I shall redeem my recycling voucher today to buy myself a six-pack at Trader Joe's. :-D
But to also honor the wishes of the proponents of snowflaking, I will make every effort this month to save an extra $10.
Friday, October 17, 2008
My friend SA is aware of my budget, and offers to buy me things when we go out together. I’m sure SA means well, but her gesture always makes me feel, well, poor and cheap.
SA and I discuss financial issues often (including the need to "tighten our belts") but we deal with money differently. I have a budget and I stick to it. If I go over my budget, I have to make do with whatever I have until the next month rolls along. If I have any left over money, I put it into my savings account towards my emergency fund or I earmark it for anticipated future expenses (e.g. gifts, car maintenance, etc.) I don’t raid my un-earmarked savings to buy frivolous stuff.
SA, on the other hand, claims she’s tightened her belt, yet still buys premium hair care products, shops at Nordstrom, gets regular manicure/pedicures, etc. She recently told me that she just bought a 50-inch LCD HDTV that she bought with a 1-year, 0% store credit. (Mind you, she already has a 42-inch plasma TV.) She says she has money in savings and will pay it off in once the 0% period ends. I wondered, but did not ask, whether she’s raiding her emergency fund to pay for it or whether she’s going to save during the course of the year to pay for it.
I try not to criticize my friend’s spending. I also try not to portray myself as some financial saint because, well, a responsible woman doesn’t rack up $13k in credit card bill, does she? It’s just that it seems I’m often out of sync with my friends as to what we’re willing (or able) to spend for entertainment and non-necessities.
I have a nagging feeling that SA considers me a self-righteous cheapskate since I don't buy unnecessary stuff and I don't share her enthusiasm about her purchases.
But there is a distinct difference between cheapness and frugality isn't there?
Do other people have problems with self-restraint being misperceived as cheapness and/or self-righteousness?
Thursday, October 16, 2008
Why Buy Bonds?
Investing in bond funds is safer than investing in stocks but this recent stock market crash made me sufficiently concerned that bond funds alone are an insufficient means of providing income as well as capital preservation in retirement.
Suze Orman's book, The Road to Wealth, defines a bond as
[A] debt security, or IOU, issued by a corporation or government agency in exchange for the money you lend it. In most instances, bond issuers agree to repay their loans by a specific date and to make regular interest payments to you until that date. ... With most bonds, the issuer must give you your investment money back, at face value, on the maturity date of the bond.
[A] mutual fund that is made up entirely of bonds. Bond funds come in all shapes and sizes, just as bonds do, but the interest rate on a bond fund is not fixed, as it most often is on a single bond. Bond funds pay income every month, however, and investors like knowing they can rely on that check. ... Bond funds do not have a maturity date. ... Because bond funds don't have maturity dates, you can't be sure how much of your original investment you will get back when you sell your shares.
My bond fund (PTRAX) in my 401k demonstrates this perfectly. PTRAX (PIMCO Total Return/Intermediate-Term Bond Fund) pays dividends regularly, but as of October 18, my cost basis for the fund is $15,848.59 but the current value (including the reinvested dividend) is only $15,107.25 (or, -$741.34, or -4.68%). (Of course, the loss in this bond fund is nothing compared to the losses in my equity funds!)
Why Savings Bonds?
My recent attempt to invest in a short-term California muni-bond was thwarted by the minimum purchase amount. My Scottrade account also has a prohibitive minimum amount of $5,000-$10,000 (and $1,000 increments thereafter) to purchase various bonds.
Sigh... what's a small (and I mean small) investor like me to do?
According to CNN Money's site, U.S. Treasurys are the safest, most liquid investments on the planet next to cash. Per Suze Orman, the U.S. Treasury's Series I Bonds are perfect for non-retirement account money:
- that you want to keep safe and sound,
- don't need current income from, and
- will not need to withdraw for at least 5 years.
Many talking heads on CNBC are flappin' their gums about a deflationary economy. But I'm betting that we're headed more towards a '70s-style stagflation. But what do I know? Notwithstanding my bachelor's degree in Economics, I clearly can't read economic tea-leaves (and I still have quite a ways to go to fully fund my emergency fund), so my preference is to only invest a small amount.
The beauty of Series I bonds is that you can purchase the bonds electronically in $25 denominations at TreasuryDirect's website.
Another advantage of the Series I bonds is that the interest on the bonds are tax-deferred until I redeem the bond. Even when I do redeem the bond, I will only have to pay federal tax (all I-bonds are exempt from state income tax, with some exceptions).
For those with little ones, interest earnings on the I-bonds may be excluded from Federal income tax when used to finance education.
The drawback of I-bonds is that I can't redeem the bonds for at least 6 months and I will get penalized with 3 months' interest if I redeem in less than 5 years.
I've been living one pay raise behind this year. Rather than increasing my discretionary spending by the amount of my raise, I've been funneling my raise (approx. $30/paycheck) into my savings. I'll just start investing $25/month in the Series I bond instead.
This will give me some inflation protected income in the future. Perhaps I can use some of the proceeds from the I-bonds as a down payment for my first house. :-D
Wednesday, October 15, 2008
Frugal Chick snowflakes her Pinecone survey payments. According to Frugal Chick:
Pinecone is a very reputable survey site that is a bit elusive. They usually pay $3 a survey, and I tend to get one every couple of weeks or so. You can't simply sign up on their site--you have to search for a banner or happen to chance upon one and then qualify once you've clicked on it. Keep your eyes peeled if you like doing surveys for a bit of extra cash!
I just registered through a link at this site and I'm keeping my fingers crossed that I will be accepted. (It's very possible that I may be rejected since I didn't register through a random banner.)
[Note: It's also very possible that this link may not be valid. But since the url appears to be Pinecone's and the registration does not ask for sensitive information such as Social Security number, I rolled the dice that it is legitimate.]
Jonathan at My Money Blog reviewed his experience as a Pinecone participant here. Jonathan's tips include: (1) be truthful in your registration and (2) be prompt in taking the surveys.
Now I realize $3 every other week isn't much, but I guess that's the philosophy behind snowflaking -- each snowflake is small but if you accumulate enough, you'll get a snowball.
I just recently got my car washed for $6.99 with a coupon and I wonder whether I shouldn't have. This March 23, 2008 Los Angeles Times article still haunts me.
The Times' investigation found:
Hand carwashes – automotive beauty shops patronized by tens of thousands of Southern California motorists every day – often brazenly violate basic labor and immigration laws with little risk of penalty.
Half or more of carwash owners flout the minimum-wage law, estimated David Dorame, the longtime lead investigator for low-wage industries at California’s Division of Labor Standards Enforcement.
From Santa Monica to Westwood to Koreatown, many workers said they received only tips for some or all of their shifts. Labor division inspectors estimated that about 10% to 20% of car dryers are not paid by owners.
“Tips only” is a requirement for some new workers until owners are satisfied that they can properly dry a car, laborers said. Their take is typically $10 to $30 a day.
In the same article, an owner of a legally operated car wash complained that operators typically run on 8% to 10% profit margin making it very difficult to compete with illegal operators. Even with fines, illegal operators save thousands of dollars by breaking labor laws.
The owner of the legal carwash has this advice for customers: Shun carwashes that offer a complete cleaning, inside and out, for as little as $5.
When it comes to carwashes, my frugality competes with my desire to have workers be paid minimum wage (regardless of the worker's immigration status). I wonder whether the owner of my carwash is able to offer such a cut-rate price by stiffing his laborers? (The carwash normally charges $11 without a coupon. But I am assuming that most of the patrons use a coupon since it is issued pretty regularly in the Penny Saver.)
I guess I could have asked the workers, "Are you being paid minimum wage?", but I chickened out. Also, as the article indicates, many of these workers do not want to discuss their wages for fear of retribution.
I justified my most recent trip with the fact that I tipped generously (i.e., $2 to the vacuum guys and $8 to the dryer = $10 total). (According to this tipping etiquette website, I'm only required to tip about $2-3 for my car.)
But this doesn't change the fact that if the owner is indeed underpaying its laborers, I've just helped keep an illegal operation afloat. (Of course, if the employees are paid minimum wage, I'm working myself into a tizzy for no reason.)
Also, patronizing a more expensive car wash does not guarantee that laborers are paid minimum wage either.
I want to do the right thing but I also don't want to pay more than I need to for a clean car. I just wish there was an easier way to balance my competing needs.
Tuesday, October 14, 2008
Many PF bloggers throw this kind of extra income into their "snowflake" jar. I wondered whether I should start snowflaking my recycling proceeds?
Since it's an election year, I've decided to let my readers decide! (Please cast your vote on the sidebar.)
Query: Should I buy beer with my most recent recycling proceeds?
Like the official voter information guide we get in the mail, I've decided to provide a Pro and Con argument for this vote.
A YES vote means I get to enjoy an occasional ice cold beer. I used to drink a bottle a day, but I've cut out beer from my regular budget. For the past 6 months, I've only bought beer from my recycling proceeds. The last six-pack of beer I bought was in August and I still have 3 bottles left. A "yes" vote will promote mental relief and happiness (albeit very briefly).
A NO vote means I will put most recent recycling proceeds into my savings. I don't have enough money in my emergency fund to last me more than 3-4 months. I have over $120,000 in debt and I may be laid off next week. Beer is an extravagance I cannot afford right now. A "no" vote is a vote for fiscal responsibility.
I haven't cashed my recycling voucher so I won't be tempted to spend it before the vote is closed. Viva democracy!
Monday, October 13, 2008
Now, lest you think California is a hobo-state, I'm proud to discover that my magnificent (but broke) home state is offering a $4 billion Revenue Anticipation Note sale between October 16 and October 23. California may not need the $7 billion loan after all! (Okay, so California is doing what we normally do when we're broke -- selling stuff on Craig's List before hitting up mom and dad for a "loan".)
You should really hear Governor Schwarzenegger's radio ad. Who would have thought that when the Terminator said, "Aahll bee baack," it was to hock muni bonds on radio?? This is so awesome!! (Or, is it the sign of the Apocalypse? You be the judge.)
I was intrigued, so I checked out Buy California Bonds' website. The details on the website are very scant so I called a bond broker. There appears to be a couple of insurmountable obstacles (for me) to purchase the California bond:
- I can only purchase the bond through approved brokerage firms, none with whom I currently have an account.
- According to a representative I spoke with at Charles Schwab (an approved brokerage firm), he wasn't sure, but believed that I could only purchase the bond in increments of $5,000. This is a bummer since the coupon rate is 5% and the maturity date is June '09. (Please note my disclaimer on the sidebar. I am not warrantying the accuracy of this info!)
Oh well. Atleast I tried, right?
Friday, October 10, 2008
Whether we're in a recession or depression is really irrelevant when:
- I'm about to be laid off,
- my 401k is now down 35% from the end of last year and quickly cascading towards nothing,
- I only have about 4 months of emergency fund saved up (including my investment account and ESOP), and
- I'm up to my eyeballs in debt.
When I started writing this post, I was going to question all the relentless cheerleading going on right now by many financial writers who encourage people to stay in stocks despite the cascading market crash, like Liz Pulliam Weston of MSN Money and Brett Arends of WSJ. The advice is rooted in historical data that supports how those who pull out of the stock market during a severe downturn never get back in time to benefit from the rebound.
But as we all know, historical performance doesn't necessarily guarantee future performance. (I even state that in my disclaimer.) What if this market crash is different than before? What if our free market system, our banking system and stock market is irreparably damaged? What if the global community no longer considers the U.S. a safe haven of investments and stop investing in our economy?
I was curled up in a fetal position sucking my thumb until suddenly I just said, "F#(@ it. If I lose it all, I lose it all."
Once I said this to myself, I felt much better. Of course, I have the benefit of knowing I have decades to make up for such a catastrophic loss. But this is a key step to overcoming my fear, particularly my fear of making a mistake. This reminded me of FDR's seminal speech: the only thing I have to fear is fear itself.
A Wall Street Journal article writes:
During the Great Depression, an entire generation became convinced that owning stocks was dangerous.
Depression-level stock phobia might be making a comeback. Will you suffer from it or conquer it?
First and foremost, Americans are afraid. ... As finance professor Meir Statman of Santa Clara University says, "Fear increases pessimism."
[I]t is hard not to be bullish. As an intelligent investor, you must always ask: What is my edge? What information or skill do I possess that the people on the other side of the trade don't? In normal times, that is a high hurdle. Today, however, you need only two things in order to have an automatic edge: cash and courage.
For people who have the courage but not cash (like me, he he), the article recommends rebalancing my investment portfolio by selling a little of anything that's gone up and buying more of whatever's gone down. Since that's already part of my plan, I'll remain on course.
The Wall Street Journal article points out: if you were among the courageous few who bought and held stocks during and after the Depression, you earned spectacular returns.
To be frankly honest, I'm not looking for "spectacular returns". I'll be happy with returns that beat inflation by the time I retire. :-D
Regardless of what the market does today, I wish you all an excellent weekend.
Thursday, October 9, 2008
This reminded me of my feeble attempt to short the S&P 500 (in a very, very, VERY small way) between 2006-2008. It wasn't pretty.
(Note: Before you read on, please note my disclaimer on the sidebar.)
Why I Attempted to Short the Market
In 2006, I witnessed my SPDR S&P500 ETF (ticker: SPY) that I purchased in October 2001 go up, up and up. I was initially bummed that I didn't buy more between 2001-2003 when it was significantly cheaper.
Eventually, I became worried because I started seeing parallels and similarities (albeit superficial) with existing market conditions and conditions that led to the Great Depression: a President adverse to economic regulations (then Hoover, now Bush), yawning trade gaps, a seemingly endless stock-market boom, cheap money, and over-expansion of credit (then farms, now housing).
The ProFunds family of exchange-traded funds created a bunch of inverse ETFs that target individual economic sectors and broader categories in both the U.S. and abroad. ProShares Ultra Short S&P500 ETF (ticker: SDS) is designed to go up 2% for every 1% the S&P 500 average goes down.
In November 2006, I purchased 3 shares of SDS at $60.50/share (total ACB: $191.49 including $9.99 trading fee). I limited my investment to $200 since I was wary of the concept of “shorting”. I also couldn’t afford more. (He he.)
After I purchased SDS, I watched its value plummet all the way to $48.40/share in October 2007. At the time, I was prepared to lose it all and was relieved I only experimented with $200. But as you are all painfully aware, the market turned in October 2007 and the value of SDS started climbing.
I knew after trading fees were taken into consideration, my break-even price was $67.16/share. For reasons none other than wanting to make a small profit, I placed a limit order of $75/share.
Early 2008, SDS hit a little over $71/share (i.e., above my “break even” selling price) twice, but started going down again. I thought I missed my opportunity to break even and set my target price to $71/ share and later to $70/share.
I guess although I worried about a market crash, I never believed a serious one would materialize. And in my defense, clearly none of the so-called experts on CNBC did either. (Oh... how hindsight is 20-20....)
On 7/7/08, I sold SDS for $70/share.
SDS closed at $97.21/share yesterday. Gaaaaaaaa!!!!
What was my net profit on my $200 investment over a 21-month period?
$8.67 in dividends and a net sale of $8.52 for a net profit of $17.19 (or an equivalent return of 5% APY).
Lessons I’ve Learned
I think what I'll do now is to take use the proceeds of my SDS sale and plunk it into SPY. Theoretically, when I turn a profit on SPY, I can use the proceeds to purchase SDS in the future. Or am I being too simplistic here? :-D
Wednesday, October 8, 2008
I know I have time on my side so I shouldn't panic. I also know if I dwell on these things, I'm going to drive myself crazy. So, for the sake of my sanity, I've decided to take a break from looking at my 401k/investment account statements for a while.
But why is it that I have this masochistic desire to look at them anyways? I'm just as stupid as the horror movie character who hears a strange noise and goes searching for the source!
Warning: Scene from Return of The Living Dead. This clip has graphic scenes and strong language.
I'm also considering not watching CNBC anymore despite the fact that I'm addicted to it, especially Fast Money. Giving up CNBC is going to be tough, though, since I have a mad crush on Dylan Ratigan. (Blush.)
Finally, as part of my sanity-preservation effort, I've decided to look for some (any) good news. Here's my list:
- The variable interest rate on my private student loans went down from 5.336% to 4.518%, reducing the monthly minimum payment from $504.91 to $488.85.
Since I'm not strictly following Dave Ramsey's snowball method with respect to my credit card, I'll continue to pay my private student loans $505/month. The fact that I'll be paying more than the minimum on my dreadful student loans makes me happy.
- This article points out that for the first time since January 1998, consumers paid off more debt than they took on. I certainly fall into that statistic. As the article points out, paying off debts means households will have healthier finances. (Not to be a Negative Nellie here, but is this reduction due to the fact that many people are no longer qualifying for loans?) Regardless, the fact that my savings is going up and my debt is going down makes me happy. Now only if my net worth will go up....
- My Citibank Ultimate Savings Account's interest rate recently went up from 2.25% to 3.5%. Woo hoo!
If anyone else has some silver lining from this economy to share, I can really use some right now!
Tuesday, October 7, 2008
Last week, I went out with DV and he suggested we do this every week. When I told him about my financial situation, he said he said he’ll be happy to pay for these outings since he wants to see me more often.
I want to stress that there’s nothing romantic going on between us and our relationship is purely platonic. (He has never made any sexual or romantic overtures. He’s also married and substantially older, and I certainly have no desire to become romantically involved with this gentleman.)
I declined DV’s offer. I told him about my friend, KM, for whom I had previously always bought meals, due to her financial hardships. KM gradually became so accustomed to this arrangement that she expected it all the time. I started to resent KM although I’m partly responsible for making her into a moocher.
DV responded that he knows I'm not a moocher so he'll be happy to pay for more frequent wine bar outings.
There has to be a better option than not seeing my friend to save money or letting the financially better off person always pay. I'm just not sure what the other option is...
Monday, October 6, 2008
Up until now, I haven't lost any of my contributions. But now that it's fallen below my total contribution amount, I'm feeling a little bit queasy in my stomach.
In my prior post, I discussed the reasoning behind my current 401k target allocations which are:
|Investment Fund (Classification)||Target %|
|DODFX (Int'l Multi-Cap Value)||20%|
|DODGX (US Large-Cap Value)||20%|
|BTIIX (S&P500 Index)||20%|
|NBGEX (Small-Cap Blend)||20%|
|PTRAX (Intermediate Term Bond)||15%|
|MLTXX (US Treasury Fund)||5%|
Based upon my target allocation, I should have 80% in equity funds, 15% in bond funds and 5% in Treasury funds.
But now, my allocations look like:
I'm going to reiterate that I'm not going to do anything other than to realign my investments to match my target allocations at the end of the year, if necessary.
But here's where I need to do a serious gut check: I am anticipating a long-term (i.e., 10-year to 20-year) stagnation or worse, a downward trend in the market. The current market crisis is caused by over-leveraging and excessive risk-taking by both individuals and businesses. When access to easy money gets cut off, the ability to invest also declines. The recent passage of the $700 billion
In this Los Angeles Times article, Harry Holzer, a labor economist at Georgetown University and a fellow at the Urban Institute commented, "[T]here's a good chance this [recession] will be more severe than [in 1990 and 2000, which lasted 8 months], because the last two were not accompanied by the widespread financial crisis that we have now."
This Marketwatch article validates my worries as well. The article argues that the Investment Rate measures the demands for investments over long-term cycles and thus forecasts future market cycles.
The article states:
[I]f demand is increasing over extended periods of time, over the course of many years, we could rationally assume that the market and the economy will fare well. In fact, this has been the case since 1981. Every year, between 1981 and 2007 the demand for investments increased annually. More people had money to invest, and reason to invest it at the same time. During that upward sloping cycle in the Investment Rate market declines and economic downturns were short lived, buy-and-hold strategies worked extremely well for passive investors, and buying the dips made sense religiously. This was true during every major down cycle, including the "crash" of 1987.
However, at the end of 2007 the upward sloping cycle which began in 1981 came to an end. A new era began at the end of 2007, an era representing diminishing demand for investments going forward. The Investment Rate identified this in 2002, when it was first offered to the public.
The declines that began at the end of 2007 relate directly to the Great Depression and the Stagflation period of the 1970s because, in all three instances, overall demand for investments on a consumer level was shrinking. The average duration of a major down cycle is 11 years.
The third major down period in history has only just begun.
I am wondering: If this is true, can I really stick to my current plan over the course of 10+ years of diminishing returns? I realize that this is how fortunes are made. In the famous words of Warren Buffet: "Be greedy when people are fearful and be fearful when people are greedy."
During this time, though, I wonder what kind of psychological toll this will take on me?
Sunday, October 5, 2008
Growing up in So. Cal., my parents used to complain that Disney NEVER offered discounts or coupons like other amusement parks such as Magic Mountain or Knott's Berry Farm. I guess with the downturn in the economy, Disney is willing to forgo a 1-day admission ticket for the likelihood that the guest will buy souvenirs and concession stand food.
To qualify, visitors to Disney's parks have to show I.D. and proof of birth date. You can register online in advance.
Saturday, October 4, 2008
I Pick Up Pennies is totally correct when she says that the decision to place ads is personal. She commented that she doesn't let her contents get influenced by what she think advertisers will go for. As a reader of her blog, I completely agree.
I know that many PF bloggers have integrity and are dedicated to their craft. PF bloggers take pride in their work and it shows. I never meant to imply that advertisements on blogs automatically affect the bloggers' opinions. But in re-reading my prior post, it does appear that I did indeed make that stupid (albeit inadvertent) assertion.
To anyone I have offended, please accept my heartfelt apologies.
I'm awarding myself a Foot In Mouth award.
Friday, October 3, 2008
But I've reconsidered this decision after I read how fellow bloggers Money Beagle and Evgren just recently opened their new ING accounts. I don't know if these bloggers received a referral bonus from someone else, but in the event they didn't, I regret I didn't let them know about this.
I've had my ING account for a couple of years and I love it. It's my primary savings account and it is very user friendly. I strongly endorse the service and product so I doubt there's any conflict for me to blog about this referral bonus. (But in the spirit of full disclosure, I want to point out that if you open an ING account with a minimum initial deposit of $250 and a referral, I get a $10 bonus as well.)
If you're interested, please leave a comment with your email address and I will have a referral sent to you.
- Serious past delinquencies
- Bad payment history
- Accounts with balances.
What's helping my scores are:
- Bills paid on time recently (for the past 4 years, 11 months)
- Long account history
- Low credit usage (Considering I owe $12,743 on one credit card, this doesn't sound right. But who am I to complain?)
I checked my FICO score back in December '07, so none of this is news to me. My score at the time was 699.
I admit I was a wee bit disappointed that my score didn't improve to 720 by now. But perhaps this goal was a bit too ambitious.
Regardless, this confirms that I'm doing things right. My continued efforts plus the passage of time will improve my score more.
My new goal is to improve my FICO score to 725+, which will bump me up to the "Very Good" credit risk category. Happy Friday, y'all!
Thursday, October 2, 2008
About 7 years ago, my father got laid off. Fortunately, he was 65 so he already qualified for Medicare and Social Security. However, this left my mother uninsured and my father could not care less. With my insistence, my older sister, my parents and I agreed to split my mother’s private health insurance premium equally 3-ways. The deal required me to “front” my parents’ share and they would reimburse me.
Initially, the premiums weren’t that bad. But by 2006, the premium cost nearly $600/month, which meant I was fronting approx. $400/month (including my parents’ share) plus $80/month for my parents’ cable bill. (Another long story short: I previously offered to pay $40/month for my parents' cable bill after my dad, in a dementia-episode, declared he was no longer going to pay for cable TV. I offered to do this in lieu of giving them birthday/mother's day/father's day/Christmas gifts .)
In late 2006, my parents stopped reimbursing me. When I asked for reimbursement, my mother asked that I continue to cover their share for a while until the currency market improved. (My father receives a pension from a foreign company in that country’s currency.) She also mentioned they were having difficulty making ends meet because of the currency market fluctuations.
What was I supposed to do? Stop paying my mom’s health insurance? No. I stopped paying the cable bill. (Okay, I admit this was really passive-aggressive.) My parents took over the cable bill via automatic credit card payments but neglected to change the mailing address.
By early 2007, my parents owed me $1,000 and I was digging myself deeper and deeper into debt trying to make MY ends meet. (At the time, I only had $233 in my savings!)
Eventually, my sister intervened and convinced my parents to reimburse me immediately regardless of currency market conditions. My parents paid me back in full, but this incident left a bitter aftertaste. (FYI: My mom now qualifies for Medicare. Yeay! No more health care premium payments for me!)
Going back to the most recent incident, I called my mother and asked why she hadn’t paid for the cable service and she said, “We never got a bill!” (Grrrrrrr.) I then inquired why her credit card wasn’t charged and she said she cancelled the automatic bill pay service because it cost an extra $7/month, which didn’t sound right. When I told my mother the outstanding amount was $199.73, my mother asked that I cover the amount and promised she would reimburse me. This request made my blood boil because my parents don’t ever seem to take responsibility for their finances.
I immediately called the cable company and requested a change in the billing address. I inquired about the purported $7/month charge and was advised that they don’t charge for recurring credit card payments. I then set up an online account so that my parents (read: I) can access their bills online.
Surely enough, their bills do not reflect an additional $7/month charge for the automatic bill pay service. But my mother insists the charges appear on her credit card bill.
In the end, I paid the $199.73. I told my mother that since I intended to give my mom and dad $100/each for their birthdays in October, they should consider this their birthday gifts. My mother gratefully accepted.
I really don’t want to bother further with this incident but I do wonder why my parents were charged $7/month on their credit cards. Should I investigate further or should I ignore it and just let my parents handle it themselves (which they probably won’t)? I really, really, really want to put this behind me, though.
Wednesday, October 1, 2008
Now, on to the debacle that is my personal finance!
|Starting Debt||Last Month||This Month||Difference|
Nothing really new to report here. I've been following my snowball debt reduction plan religiously. However, I recently decided to tweak how I repay my credit card. I hope that with the new repayment method, I will be able to pay down my principal faster.
No, I haven't taken up stripping or selling drugs to explain the $4k+ increase in my savings. As I explained in my prior post, my company stock suddenly surged 50% above my cost basis last week. Not wanting to lose this opportunity, I sold 14 shares of my stock. I've earmarked $400 to pay for capital gains tax and I've put $4,000 into my emergency fund. The other increase of $199 is from my scrimping and saving. :-D
This gives me some breathing room in advance of the lay off notice that is expected to come in the next 2 weeks.
There is nothing more frustrating than to see my net worth plummet SOLELY due to market fluctuations. (I guess I can sympathize with Hank Greenberg who lost 95% of his total assets when AIG was bailed out. NOT!)
At the risk of sounding like a broken record, the only return I am seeing is from the money I've paid towards my debts.
Right now, my 401k kind of reminds me of blowing into a punctured balloon. The harder I try, the more I hyperventilate.
Sigh... For once I'd like my net worth to reach positive territory for a sustained period of time...
Anyhoo, the breakdown of my net worth can be seen here.