Personal Finance

A debt debate (calling R48 ;-))

chipmunk — Thu, 17 Sep 2009 16:47:50 GMT

As most folks here realize by now, my position is that debt is almost always a bad thing. The only exception I can think of is buying a home. I agree with Dave Ramsey that you should, at the very most, borrow 80% of its value (20% down) on a 15-year, fixed-rate conventional mortgage where the payment is no more than 1/4 of your monthly net income.

Even then, I think it is better to save and pay cash for a home (also paying cash for college). Yes, this is weird, I know. It can be done if you have no debt. You can also invest like you never have if you have no payments. In other words, no payments means you have control over you income, which is your most powerful wealth building tool.

I consider the use of cash to be a new concept for the 21st century. Clearly, the debt paradigm of the 20th century didn't work.

If I understand R48's position, it is better to borrow money at a low interest rate ('leverage') and invest it to 'make the spread,' assuming, of course, that you can actually make more return than the interest rate.

As we all know from the tech bubble of the 1990s and the real estate bubble of the 2000's, this strategy failed, since most folks were too highly leveraged. Few people who leverage their money incorporate risk into the equation. Here's a simple example:

Suppose someone were to borrow $100K on their home at 5% to invest in Oakmark Equity & Income (OAKBX) (a popular balanced fund) at an expected return of, say, 8%. A no-brainer, right? Well, wrong. As we have all witnessed, a debt bubble can burst at any time. In other words, this person forgot to mathematically factor in risk. That $100K a year ago is now looking a lot like $97.7K, if my math is right. So, there was a loss. Most other funds suffered substantially higher losses that still have not recovered. I suggest some simple equation like this to mathematically factor in risk:

Expected Rate of Return = Return - % Leverage x Return

Example (assuming 1/2 of investment was not paying off a 5% mortgage):

Expected Rate of Return = 8% - 50% x 8% = 4%

So, it is better in this case to pay off the 5% mortgage rather than invest in a fund (half of which is the mortgage) that has historically yielded 8%.

I'll check back later, but it would be great if R48 were to respond. This conversation is suggested based on our disagreement in the 'Inheritance' thread in the Vanguard forum.

Dan

Future of housing as America ages and retires

PlantTheSeeds — Thu, 19 Nov 2009 16:57:03 GMT

This is an outgrowth of a conversation with R48 on debt. I have seen several articles that talk about America aging and retiring especially for the baby boomer generation.

Housing stock, composition (single family, rooms, condo), location (sunbelt), type (green).

I see several emerging and current drivers

- Downsizing (empty nesters)

- Fewer families needing homes, fewer kids

- Commuting becoming less of the driver

- Senior communities

- Away or towards city centers??

i would like to hear about your thoughts about how you view housing demand shifting over the next decade or longer. How should young couples think about the purchase decision as this unfolds and becomes clearer.

IRA Required Minimum Distributions (RMDs)

snray — Sat, 14 Nov 2009 02:52:41 GMT

I begin taking RMDs in 2010 and have been considering how to do this. Conventional wisdom says to take the distribution on Dec 31 of each year. However, this implies a monotonically increasing value of your IRAs during the year. We have not had this type of savings appreciation for many years.

So, I am thinking about taking my RMDs on a monthly basis. Simply divide my required annual distribution by 12 and take this amount each month. This is sort of reverse DCAing. In view of the volatility of the markets these days this approach to RMDs may help even out the wide swings in IRA value.

Anyone else doing this? Anyone thought about monthly distributions from your IRA? You can also do quarterly distributions. Any studies on optimal RMD strategy? How do you retirees taking RMDs now do it? Suggestons welcome.

Sam

Investing downpayment for New Home

PlantTheSeeds — Wed, 18 Nov 2009 20:02:36 GMT

My wife and I have been debating how to deal with a pot of money (40K) that is designated for a home purchase next year.

We currently have 2 condos (live in one, trying to rent the other), the money is from a home equity line tied to the second. The second loan is reseting to 1 year arm in September based on July 1 year Libor.

We are planning to sell the condo we live in starting Jan and buy a home in the burbs to house the little guy.

We will clear some money from the sale based on our selling price (a little hazy right now) and will add this money and some money from family to make the downpayment (anticipating 20%, hoping for 15%) but it is tight based on current prices (that could come down).

The money is currently earning 2% pretax in my savings account. We are currently at 3.5% pretax in the HELOC we withdrew this from but that rate resets monthly.

I am debating putting some or all of this money into Intermediate Muni Bond. My wife is leery about this. I am concerned about the time it will take to sell our place and buy a new one, seemed like a fair bit of cash to leave unemployed.

Please let us know your thoughts, advice and experience.

Edward Jones Fees

searchforfund — Wed, 18 Nov 2009 21:55:18 GMT

When class A mutual funds are moved into an account at Edward Jones and later liquidated, does Edward Jones charge a sales fee for that transaction?

One million to invest

zoobie — Tue, 10 Nov 2009 03:25:39 GMT

the scenario 48 yrs old,,,,2 young children,,,,personal yearly overhead/budget 50,000,,,,want to retire in 2 yrs,,,,one million to invest,,,believe that stocks and bonds are overvalued,,,money markets arent paying,,,one million,factoring even mild inflation ,would only last about 15 yrs,,,,,,suggestions please

Help with 80 year old mother's estate...legal question?

francophile — Mon, 16 Nov 2009 21:01:08 GMT

Hello,

I am beginning to help my 80 year old mother manage her investments and plan a future living transition from her condo to a life lease apartment then possibly to assisted living within that same facility and finally to a nursing home if required. She does not have alot of retirement assets but does own her $200,000 (+-) condo mortgage free. Her health is generally good but mobility is becoming more difficult.

Her desire is to be able to have her retirement funds last and to protect the value of her condo to be split between her four children. She is wondering if there is any way for her to deed the property to her children and protect it from seizure if she should run out of retirement assets. None of her children are looking for or expecting any sort of inheritance but she wants to explore this possiblity. We would simply like for her to be able to live the rest of her life comfortably.

Relevant Info:

Retirement assets: $280,000.00

Liabilities $00.00

Real Estate $200,000.00

Resides in Wisconsin

If anyone has any thoughts on the legality or likelihood of being able to protect her home as an asset it would be appreciated. Even links to sites that deal with this sort of info for seniors would be great.

Regards,

wvdthree

Starting a Roth IRA

awstauffer — Mon, 16 Nov 2009 19:45:19 GMT

I have a few questions for any takers. My wife and I come Jan 1, 2010 will be opening Roth IRA's. We have our 4-6 month emergency fund placed in a money market account at the moment. We also have $5000 we are wanting to start our Roths with.

My first question is do we take the $5000 and fund one Roth or split it to fund two Roths?

Second question is since I will be handling our investments and not paying a FA. What company do most of you lean towards having the better options for a Roth?

Third question, knowing we do not have a whole lot to invest being $5000 what are the types of funds I should be looking to invest our money in. We will have an avg. of $300 per month to add to the Roths this coming year.

Lastly, is there any certain books I should look into to broaden my knowledge on this subject?

I thank everyone in advance. Btw My wife and I are 27yrs old if that is any help.

Adam

Help selecting a Financial Advisor

spendispencer — Mon, 26 Oct 2009 03:06:37 GMT

Hi,

I was not sure what category to post this under but my family is in the process of looking for a financial adviser and we are finding it to be a very frustrating process. I really do not see how to differentiate the good from the bad.

I came up with a list of questions to ask but the potential advisors all have similar answers. Also, I am afraid that the performance figures that we receive are not truly indicative of what they've done as it would be all too easy for them to share the performance of their top performing clients. I have been interviewing advisers from Barrons and other publications "top advisers lists" in my area but I have been wholly unimpressed so far.

In short, I was wondering if someone would share with me how they went about getting/finding their financial adviser. Everything on the web just says check their credentials and then ask them a varying but very similar 10 questions. I personally have not seen this yield very effective results. Also, any ideas on how to actually locate Who to interview would be very welcome.

Also, I thought it might help to clarify that we are in between the very High Net Worth and Ultra High Net Worth categories. The only reason I even mention this is that I think this alters the method of investment i.e. indivually managed accounts rather than mutual funds.

Thank you all very much in advance. I am looking forward to alleviating the stress of having my entire families estate planning in my hands.

Homebuyer's credit extended

chipmunk — Fri, 13 Nov 2009 13:05:43 GMT

President Obama has signed into law legislation extending the $8,000 first-time home buyer tax credit beyond its scheduled November 30 expiration and creating a new, $6,500 credit for longtime homeowners who buy a new home. With thousands of dollars at stake, it’s not surprising that potential home buyers have lots of questions. We have the answers.

- FAQs on the New Home Buyer Tax Credits, by Kevin McCormally, November 9, 2009, Kiplinger

Dan

Health Savings Account & Supplemental Insurance

g-man — Thu, 12 Nov 2009 23:24:43 GMT

My insurance will become a high deductable plan next year. My company is offering a hsa through BOA. Aside from two funds within the plan, the account choices are expensive. Does anyone have a hsa with good fund choices & low fees?

Also, I am considering supplementing my employer insurance coverage additional coverage. The name of the plan is Essential health, underwritten by National fire Insurance Company. The plan will reimburse me up to 60% of prescription prices & offer discounts to providers in the network. Anyone heard of this plan?

Thanks,

Greg

How to start investing?

Ken1981 — Tue, 10 Nov 2009 17:07:48 GMT

Hi,

Let's say you earn $24,000 annually and you got about $350 extra each month to invest or save and you're 28, living single.

How do you start investing?

Save some of that $350 in the bank and the rest into mutual funds?

Thanks for sharing your advice :-)

Time running out on homebuyer's credit

chipmunk — Thu, 08 Oct 2009 19:18:26 GMT

"Most house hunters spend months juggling numbers like mortgage rates, list prices and broker fees. Here’s another figure they should keep in mind: 68. That’s the number of days left to snag the $8,000 federal tax credit for first-time home buyers.

"The credit expires on Nov. 30 – a deadline that’s putting pressure on would-be homeowners trying to take advantage of a real-estate market on the mend."

- How to Nail Down $8,000 Tax Credit on New Home, by Lisa Scherzer, Smartmoney, September 24, 2009

401k s. personal investing

paindoc — Sat, 07 Nov 2009 00:34:40 GMT

Hi all,

Hoping to get some advice.

I'm a young doctor who is starting to make some money (Gross: 300k) and thus finally have focused on learning the basics of investing. This website is great!!

I was wondering what people would do in my situation:

I have a 401k through work with an employee match which I have contributed to the IRS max this year. I have also started personal investments: Passive, diverse, with Low E/R.

After a closer look at my 401k I realized it is full of options with E/R between 1.2-1.55% (YUCK!!) Yes even the indexes are 0.9-1.2!!

Do you guys think I should limit my 401k contributions to the employer limit max only and use the rest of the money for my own investment philosophy OR should I continue to max out the IRS limit beyond the employer match (continue to pay E/R of 1.2-1.55) and use the rest of the money I save as peronal investments??

Basically, is the pretax advantage of my 401k outweigh the high E/R in my 401k beyond the employer match??

Appreciate any advice in advance!!

Requesting advice on Info that is more Canada-centric

adamokhai — Fri, 06 Nov 2009 16:17:17 GMT

Í'd be very thankful for suggestions on :

- newsletters that deal w/content from the perspective of a Canadian resident tax payer;

- any suggestions on who/which might be the optimal online brokerages for a resident of Canada

I find much useful material on the web, but have seen little that is written FOR Cdn residents.

Thank you for any ideas, hints, leads. Al the best,

Adam

Best credit card for a new LLC

JANET0422 — Fri, 06 Nov 2009 14:35:55 GMT

Hubby is starting a small business, a LLC. I'm looking into getting him a credit card for his business expenses. Should this card be in his name or his company's name? Also, I'm looking a cards with rewards. Are the rewards a business asset or his personally? Any recommendations?

What investment company would be the best for a 403b and why?

Schmidtler — Tue, 27 Nov 2007 19:42:59 GMT

I can only invest via the use of a 403b. What company should be used if I could pick one and why? I want to send some good info to the business mananger of my school district.

Thanks,

Schmidt

Taxes and debt

rdssmort — Sun, 01 Nov 2009 12:22:36 GMT

I will be able to get 50% of my pension in 2010...I also have about 100,000 in debt...should I use some of the pension to pay debt off and rollover the rest to an IRA? I will continue to work and my wages will not go down. If I do decide to do this, how can I reduce my taxes for the 2010 year. I am 55 so will not have to pay the 10% because I will be leaving my current job for another one. Thanks

Credit Cards and Automatic Renewals

DaveLee — Sat, 12 Sep 2009 21:57:25 GMT

I have recently run into something that looks to me like a "mass behavior change" across a diverse set of businesses (related to renewals and recurring charges).

It seems that suddenly pretty much every business that has any kind of subscription or recurring charge element, is now automatically charging my on file credit card without my (knowing) authorization. By coincidence my credit card acct. number has changed recently, so none of these happened, but..

1) The WSJ (which I had to expressly renew last year) tried to renew my subscription. I usually open up a new account because it is cheaper.

2) I occasionally go into 'research mode' for a few months and will sign up for a premium Morningstar account for a short time. Somehow MStar was able to transfer this recurring charge to the new account number (I have never had this happen before - you always had to go authorize that yourself if your acct. number changed).

3) AAA (of all things), an organization that I have been manually renewing for at least 20 years is suddenly trying to do it 'for me'

4) Golf Magazine - same deal (although this one didn't surprise me much)

This seemed to have started in the past 3 months. I have talked to my credit card company and they didn't have any insight into the apparent "mass behavior change", although they did have the helpful suggestion of changing account numbers periodically (they will do this at no charge).

Has anyone else noticed this? I guess that I'll start writing a lot more checks, but I find this to be moderately disturbing/irritation.

dave

What resources to fund HSA with?

g-man — Thu, 29 Oct 2009 22:29:26 GMT

It is open enrollment time and my company will fund our HSAs w/$1,300. I plan to contribute $1680 via payroll deductions. The plan will also allow a one-time contribution from an IRA. I have an emergency fund w/$10,000 and I have a roth IRA w/$18,000. The max annual amount to fund the hsa is $6,200(co. contribution not included).

1. My roth account has almost doubled in the past yr. I was originally invested in the Vanguard Precious Metals fund, 10% of overall portfolio, I moved the gains form this fund to the total bond fund (about $8K). Should I pull about $3500 from the bond fund & deposit it into the hsa?

2. Should I just pull the previously mentioned amount from the e-fund?

Thanks,

Greg

4.1% Annual Yield

Jeff15 — Thu, 17 Sep 2009 18:03:58 GMT

The cash portion of my portfolio is currently invested in typical Online savings accounts & CD's. I have a Group Universal Life Policy that has a cash component that offers a 4.1% annual yield - maximum $25,000 per year. The interest rate is fixed once a year and has been at this rate for the last couple of years. The money is also tax deferred. I have access to the money but it's a 2 week turnaround which is acceptable to me. My only concern is that it is not FDIC insured but backed by Prudential.

Does this seem too risky?

Top tax rate in 2010 and beyond???

Montalvo — Sat, 03 Oct 2009 22:07:27 GMT

I'm going to capitalize on the (maybe) one-time opportunity in 2010 for converting some traditional IRA funds to Roth without the $100K MAGI cap. But in trying to assess the optimal amount to convert, I have to make some guesses on what the top tax rate will be for 2010, 2011 and 2012 (taxes on the funds converted in 2010 can be deferred to 2011 and 2012).

Anyone know where I could find a reasonable guess on what those rates will be? I know that a broke Federal government (and even broker CA govt.) will mean that top tax rates will rise and "soak the rich" will become the political slogan du jour. But how high are folks in the know expecting those rates to go in the next three years?

What to Look For in a Financial Planner.

swightman — Fri, 16 Oct 2009 20:04:36 GMT

What to Look For in a Financial Planner.

Tuesday, October 13, 2009

Steven Wightman, CFP®

Fee only means more than one way to pay.
Should you select a financial planner based upon the fee structure alone? Fee-only can mean a retainer, a per-hour fee, and assets under management ("AUM") or any combination of the above. Fee-only is distinct from fee-based which means an advisor can take fees from all of the above plus commissions and trailers (commissions from products sold in years past). I advocate fee-only because it greatly reduces the potential for conflict of interest by steering clients away from commission-based products to products that do the same job, but at far lower consumer costs. I personally use an hourly fee for the short term when developing a financial plan, for example, and a flat retainer fee for ongoing annual services. This way all of the planning work is paid for equally and is not biased by a payment scheme. This is opposite investment services paid for by an alternate AUM arrangement which may get the lion's share of the attention at the expense of neglecting other valuable services such as refinancing a home, or retirement planning.

An argument of having a fiduciary on your side:
What's more important than fee structure? I think it's to focus on a professional fiduciary relationship. That means, in the simplest terms, that the financial planner employs all of his or her skills, knowledge, experiences and training to walk in the client's shoes and make the best possible decisions by always putting the client interests before his or her own in every decision affecting the client's financial well being. It also means disclosing every single instance where any shortcoming exists between fiduciary standards and actual circumstances or actions. You won't find this standard offered in the vast majority of services offered by so called "financial advisors". Then, what would you look for?

Consumers can look for the CERTIFIED FINANCIAL PLANNER, or CFP (R) mark of a professional financial planner as a minimum standard of whom to consider for financial planning services. The consumer can at least rest assured that such a planner has already met and continues to follow, the fiduciary standard. Focus on fiduciary means putting all clients first and foremost - always. Had that been the industry-wide standard in 2008, which among other things, forces financial planners to fully disclose risks, can you honestly convince yourself that we'd be in the global financial nightmare today? Not likely: A fiduciary has the responsibility to steer all clients clear of inappropriate investing. With rare exceptions, the polymorphic, smoky derivative markets that sparked the financial tailspin in 2008 would have been fallen in that category and they would have been considered far too risky for most client portfolios. In sum, the consistent practice of the fiduciary standard would mean no Madoffs, no morasses, and no more messes. Fiduciary means the client is always first, not the pockets of the financial servicer.
It sounds like another world, and yes, it truly could be if consumers just focused on fiduciary - and of course, fees.

Full Disclosure: Steven Wightman is a NAPFA Registered fee-only financial planner who occasionally writes for the NAPFA ADVISOR, the member's magazine.

Life settlement bonds

chipmunk — Tue, 13 Oct 2009 01:15:16 GMT

Check out Wall Street's latest idea: life settlement bonds.

Here is a good article on the subject:

"Wall Street is developing a product that packages life-insurance policies into investable bonds, and the plan already is generating controversy, according to a media report Sunday."

- 'Life settlements' bonds could be Wall Street's next big act, MarketWatch, September 9, 2009

Dan

U.S. retirement system: a failed experiment?

chipmunk — Wed, 30 Sep 2009 17:40:55 GMT

The retirement-savings system in the U.S. is "a failed experiment," said Teresa Ghilarducci, the Bernard Schwartz professor of economic policy at the New School for Social Research in New York.

The U.S. system is "headed for a serious train wreck," said John Bogle, the founder and former chief executive of the Vanguard Group, in testimony to a House committee hearing on retirement security in February.

Separately, Ghilarducci and Bogle have called for substantial changes to the current system, but even those who like what we've got now say it needs improving -- and certainly demands better financial education be offered to savers.

- Retirement? Good luck with that, by MarketWatch

Here are a few interesting statistics, according to EBRI (emphasis added):

67% of workers have a defined contribution plan, up from 26% in 1988
31% of workers participate in traditional pensions, down from 57% in 1988
Social Security replaces about 57% of lower-income workers' pre-retirement wages, about 43% of medium-income earnings and 35% of higher-income earnings (replacement rate of 70% - 75% necessary to maintain standard of living)

Dan