Saturday, June 30, 2007

Anyone Have $10,000 to Spare?

Next week is the beginning of the World Series of Poker main event.

Its a dream of mine to someday play in this. Yes, I would probably be knoecked out in the first day or two and lose my entire $10K entry fee, but you only live once, and $10K seems cheap for the fulfillment of a life's dream.


Friday, June 29, 2007

The Non-Financial Costs of Weddings

A lot has already been written about how extravangent and over-the top weddings have become cost-wise, but there are other, less obvious costs to weddings.

Because they have become such big, important affairs with a bevy of unwritten etiquette rules which many guests and family members are unfamiliar with, they can cause tremendous arguments and social rifts between family members and friends.

Family Strain
My parents and I had a lot of incredibly nasty fights over their attempts to insert things and people into the ceremonies who my wife and I did not want. One of my family members did something embarrassing and awful at the reception when they thought they were being sweet.

Lost Friends
From a friendship standpoint: One of my good friends promised he would come, but never showed up (which still cost us the $300+ with the caterer and others). I called him when I got back from my honeymoon and left a voicemail, but I never heard from him again.

So the final cost: strained relations with many family members, and one really close friend lost. The high expense of the wedding made the ceremony's perfection all the more important, and also aggrevated the harm caused by people's etiquette blunders.

Should You Be Fleeing the Country?

If you are young, lazy and desperate to retire young, you are pretty much consigned to a life of hard financial sacrifice, number obsessing, soulless work drudgery, and mandatory mutton-chomping. Unless . . . .you flee the country.

Fleeing the country for your retirement has many advantages:

  1. Taxes- A U.S. Citizen living abroad does not have to pay taxes on his first $84,000, assuming he meets the other criteria. If you plan on making more, you could voluntary give up your citizenship if you want to avoid double taxation.

  2. Nicer Weather- Sunny, beautiful and lovely, sure beats cloudy, polluted, and depressing. Studies show that the levels of sunshine can have a positive effect on your level of happiness.

  3. Cheaper Standard of Living- Depending on where and how you live you could live a lot cheaper. Housing, food, and other staples can be had for a lot cheaper.

  4. Retire Earlier- With all of the money saved from taxes and cheaper housing and food, there is no reason you can't retire earlier. If you could comfortably retire on $40K a year you could easily retire once you'd saved $750K. You could write Fidelity to tell them to go bleep themselves for telling you you need $5 Million.

  5. Comparable Services- Depending on where you retire you might be able to get comparable schools, hospitals, etc. Or you could use your extra money to pay for private services.

I'm not saying you definitely should flee the country, but given the advantages, I'm surprised more personal finance bloggers don't consider the option.

Thursday, June 28, 2007

Time to Raid the Emergency Fund

I have located my first ever stock that I would like to invest in (if you don't count the time my dad let me buy one share of General Mills when I was 10 because I liked their cereal). I read the Morningstar reports, the Standard & Poors reports, and the company's 20-F (the foreign equivalent of a 10K), and even logged into the motley fool forums to get a feeling of what people thought.

I've opened up a Zecco account, but now I have to fund it.

I will probably raid the emergency fund assuming I can figure out a way to set up a Zecco to FNBO Direct transfer. Lets hope our beat-up old car holds out for a couple of months.

Should You Try to Time the Market?

I recently found this post arguing against the Buffett style "buy and hold" investor. Citing to a book by Ben Stein, the post argues that the whole "no one can time the market" advice is an oversimplification, and that by working the numbers you can avoid predictable decreases and cash in on predictable upswings.

Specifically, buy whenever the following valuation ratios fall below their 15-year moving averages: price-earnings, dividend-yield, price-book, price-cash flow, and price-sales.

It strikes me that the two are not mutually exclusive. A value investor like Buffett takes the value of the stock at the time of purchase into account when he buys it, thus in a way he is timing the market.

When to Sell

The difference comes down to whether to sell or not when the stock becomes overvalued. Buffett's advice is usually reported as "sell rarely, if ever," but this does not seem like a prudent course for the ordinary investor.

Unlike Buffett, I can't run the companies I am buying into so as to ensure high returns on my investment. If my stocks become overvalued there is little I can do to maximize my return except sell and invest elsewhere. Of course, I might miss out if the company's long run growth remains stellar, but there is nothing preventing me from buying back into the company once it becomes less overvalued.

The buy and holders have a legitimate point, however, when they emphasize not overreacting to short term swings in the stock price and selling like a panicked feline. I am going to try not to panic at the first downswing.

Wednesday, June 27, 2007

Are Women Better Personal Finance Bloggers?

Having read a lot of personal finance blogs lately, I've noticed that some blogs written by women are more interesting than the vast multitudes of pf blogs. What I find "interesting" are blogs which are entertaining, unique, and which address different scenarios not already addressed by every single blogger. I should also note that this post is obviously guilty of over-generalization.

Here's my reasons why I think women make more interesting bloggers:

  1. Personal Narrative-They write in a more personal narrative, rather than as an omniscient drone capable of frugalling their life away.

  2. They have interesting problems- Blogs like Make Love Not Debt and others blog about their experiences with debt, the need to spend money on things as well as family and job-related problems that you just don't see from the omniescent frugaloid drones. Make Love Not Debt had a discussion about an Asian mother's expectations to be supported which was truly unique and interesting.

  3. They are more fearless- Women tend to post on topics men might not be able to get away with. I know there are a number of posts I have hesitated to make due to my wife's ability to smack me upside the head.

  4. Men tend to focus on the objective "right" way to do things- Blogs like this are a dime-a-dozen full of the drone narrative about what the right thing to do in every situation is. This tends to cause an echo chamber of monotonous redundancy.

  5. Women have more interesting blog layouts- Men, including this blog, tend to have unimaginative layouts (mea culpa).

Amongst the male bloggers, I tend to find bloggers who have "fatal flaws" like incredibly laziness, poor earning capacity, heavy debt-load to be more interesting reads than the omniscient frugaloid drones.

Of course the omniscient frugaloid drones are probably more helpful in providing insightful and intelligent saving and investing advice, but its hard to provide such advice if your readership is already asleep.

What do you guys think?

I Need To Learn Faster

The NY Times has an article reviewing the new Apple IPhone, and it's clear that it will be truly revolutionary: a combined cellphone, video IPod, web browser, email terminal, camera and status symbol. All of these functions will be performed at the highest echelons of quality and style.

Before the success of the I-Phone was as manifestly obvious as it is now, Apple's stock price appropriately quadrupled over the last year, meaning that much (if not all) of the new sales and market share represented by the IPhone is already reflected in the stock price.

Before I start investing I am going to need to find a way to learn about companies faster, before their successes become front page news.

It may not be possible to outsmart the market, but it certainly is possible to be outsmarted by it. To avoid that happening, I need to be able to get as much information and knowlege about companies before it becomes manifestly, front-page, obvious.

The most obvious place to do that, the internet, seems to be the most unreliable. In order to weed through the sea of BS, I will need to have a lot of general and background knowledge on stock investing and on the business of the companies I invest in.
Hopefully then I will be able to spot the next I-Phone before it becomes obvious to everyone.

Tuesday, June 26, 2007

Are 0% Transfers Dead?

The Wall Street Journal had an article the other day on 0% credit card transfers, i.e. transferring money from credit cards offering 0% interest rates and profiting off of the interest (also called credit card arbitrage).
This practice was well known in the personal finance community, and several pf bloggers had great posts about how to exploit it.

The problem is that credit card arbitrage is becoming a victim of its own success; the Wall Street Journal articles and other publicity it is garnering is causing banks to take some protections, which if they become widespread might well kill the practice.

I'm pretty disappointed. I was hesitant to get involved with credit card arbitrage because of the risks to my credit score, but lately I've started to think that the damage wouldn't be permanent and it might be worth the thousand dollars of interest a year. It appears that I have waited too long.

Get Rich Slick's blog has announced that he will be abandoning credit card arbitrage and instead will be pursuing other arbitrage opportunities. I am not sure what that means, but if I figure it out, I'll be sure to share it!

Retire Young or Die?

According to this internet site I found, the average person who works until age 65, dies 18 months after retiring, while the person retiring at age 50 lives to be 86 years old. For those contemplating working another few years before retiring, realize you are losing two years of your life for each year you work beyond age 55."

I am not sure if this unbelievable claim is true or not and in fact the website itself states that the data is old, but the principle might still be true, and it is all the more reason to retire as young as I possibly can.

I can't think of anything more depressing than the thought of working all of your life until you hit 65, never relaxing and enjoying your freedom, and then promptly dying 18 months later.

I intend to live a life of freedom.

Monday, June 25, 2007

Maximizing Every Cent

Too many people have their money floundering around earning them no interest at all.

To maximize every cent I can, to try to break through the ceiling, I keep my cash holdings in the two best places I know.

1. Schwab Investor Checking Account
I no longer have a brick & mortar bank, instead all of my checking goes through my internet checking account with Charles Schwab. Here are the highlights:
  • 4.25% interest on my money (highest I have seen- beats ING hands down)
  • ATM reimbursement- unlimited reimbursement of ATM fees, I can use any ATM I want, and it will reimburse me the fees.
  • No minimums, no requirements (they do force you to sign up for a brokerage account-but you don't even have to put any money in it)
  • Online bill pay and also appears to have a yodlee option.
  • Free paper checks- I write the slackers in my life checks for the money I owe them, they don't cash them, I earn 4.25% on their laziness.
  • Direct Deposit

Downsides: You have to mail checks in to them. This kind of sucks, but I rarely get a paper check anymore, so its not awful.

2. FNBO Direct

They have a 6% interest rate through September, which makes them a great place for my short-term emergency fund. I haven't see anything better than this rate (except in shady banks) After September, I will reevaluate to see if my emergency fund should be moved elsewhere.

Paying Back Family Loans

My mom lent my wife and I $5K to help with the down payment for our home. She didn't draw up any kind of documents, discuss any interest, or even bring up when I should repay her.

She certainly isn't hard up for money. The disparity between me and my parents does a good job of showing the age-wealth gap in this country (more on this later) My parents have basically 20 times my net worth and even in their late 60's are making more than me in income.

Yet despite the ultra-foolhardiness of paying my mom back sooner rather than later, that is what I plan on doing.

Here's my reasons why:

  1. She's my mom: I feel bad not paying her back her money.

  2. I owe them a lot more than $5K- My parents raised me to be the person I am today, none of what I hope to achieve in my life would be possible without them. Additionally, they paid a lot of my college and grad school

  3. Being your own man- Sometimes I think the reason why a generation of my friends in their late 20's have never really grown up is that they are still financially or otherwise tied to their parents (this has a lot to do with the Age-wealth gap and the high costs of college). Even after they turned 18 (the magical adulthood number) they were still financially and socially tethered to their parents for support. Its time for me to finally cut the cord.

  4. It pays to engender good will- While I intend to set out on my own and do it without their help, in life it never pays to burn any bridges you might need later on (this is why I never do the "screw you boss, I'm leaving" speech when I quit a job). Who knows what the future will bring and what kind of help I might need?

Sunday, June 24, 2007

Dogs or Cats? Vote for Your Favorite!

Growing up, I've always had cats, but recently I'm starting to wish my wife and I could get a dog (no not the one in the pic)

What's your view?

Saturday, June 23, 2007

How Long Will The Housing Downturn Last?

Americans are unrealistically overconfident about how long the housing downturn will last with most thinking that their homes will continue to rise in value.

There are a bunch of factors which weigh against the housing market rebounding.

  1. Houses have appreciated to ridiculously high levels over the last couple of years, while real wages for the middle class have held stagnant, so that houses have become grossly unaffordable.
  2. Mortgage rates, while not at historic highs, are much higher than they were during the housing run-up, which was partly fueled by the availability of cheap loans.
  3. The collapse of the subprime mortgage market. It's become harder for people with poor credit to obtain financing.
  4. Age-Wealth Gap- twenty somethings, already saddled with student loan debt, are having a tough time affording houses. There is a vast age-wealth gap in this country between boomers and twenty somethings. This means that twenty somethings don't have the financial resources to buy their boomer parents' houses.
Housing insiders predict that this current downturn will last two years. All housing is local, and certainly the US population is still rising, but we aren't going to see a national turn around until some of these factors start changing. Its very possible that prices will start to gradually rise at reasonable appreciation levels once mortgage rates fall some more.

That said: it could be an excellent time to own a rental property, as a generation of Americans who can't afford to own homes have to live somewhere.

Friday, June 22, 2007

Have You Ever Made It A Double Feature?

So, every now and again, the wife and I sneak into another movie, and watch two movies in a row.

The last time we did it, we saw the god-awful movie The Ex, which I am supremely happy we did not pay money for.

I realize that it is completely immoral to "make it a double", but with the movie theatre charging me $8 for popcorn and a drink and $20 for 2 tickets, its very hard for me to shed a tear for the harm suffered to the movie industry's ability to gouge me out of another $20 for the privilege of seeing an awful Zack Braff movie.

Would you Ever Make it a Double?

Are You Too Frugal?

Sometimes I read these bloggers who reccomend things like preparing your own detergent or drinking nothing but tap water, and it just make me wonder: Is It Worth It?

Don't Punish Yourself

Here's how I figure it: Being frugal but still being happy requires that you don't sacrifice on enjoyment and desires.

You can still be happy, even while you are frugal, if you eliminate those desires which are unnecessary for your happiness. Do you really need the big screen tv, the expensive car, the huge house, all of these keeping-up-with-the-Jones' items to be happy?

Eliminate Unneccessary Desires

One thing that helps me eliminate these desires is thinking about why people want them.

On this note, the economist Thorstein Veblen, writing more than a hundred years ago, had some brilliant insight which really pierces the illusions upon which our consumerist society is built.

In his book, The Theory of the Leisure Class, he wrote that our modern consumerist viewpoint is really an attempt by people to try to seperate themselves into higher classes. The highest class is the so called Leisure Class, those people who are so rich and important that they can afford to do basically nothing productive for themselves or society.

The Leisure Class spends money in an attempt to show that they are so rich and powerful that they do not need to spend money on anything useful and can afford to simply waste their money. For instance, the rich spent gob-loads of money on silver utensils, even though steel utensils in fact work better. A modern day example would be the fashion industry: rich, important people spend tons of money buying clothes which are far less useful than regular clothes, and then proceed to wear them once.

Looking at my own desires: I identify a lot of them which are built upon the need for others to recognize me as a success (for instance a car that can park itself) and these desires seem silly, now that I realize they are just an attempt for me to demonstrate that I am so statusful that I can afford to waste my money on useless crap.

What's Left Is What Makes You Happy

So, I do my best to eliminate those desires which are based on some insecure need to validate myself to others by showing that I too can waste my money, and I'm left with those (usually cheaper) things which really do make me happy. My wife, my friends, my activities and hobbies, and of course my beloved Tivo. I don't intend to get rid of these things, no matter how expensive, because My Happiness is Worth It.

Thursday, June 21, 2007

Should You Be Making Non-Deductible Contributions to an IRA?

Crazy talk, you say? Maybe Not....

If you are above a certain income ($103K for joint income) you are not allowed to claim any tax deduction for contributions made to an IRA. Similarly, if you are above $166K for joint income, you can not make contributions into a Roth IRA.....

But, tax loophole time! Starting in 2010, you can convert your IRA into a Roth IRA, no matter what your income is! You would normally have to pay taxes on the amount of money in your IRA which you claimed a tax deduction for....

But not if you didn't receive a tax deduction for that money!

This means that if you are above the limits for a Roth IRA eligibility, you can sneak in, by making a bunch of crazy non-deductible IRA contributions from 2007-2010, and then converting your IRA balance into a Roth at no charge.

Risks: Congress could always change the laws. Disclaimer: Verify this w/ tax professional to make sure I am right.

How Much Money Till You Have FU Money?

FU Money is basically the amount of money you need so that you wouldn't need assistance or employment from anyone, though the Urban Dictionary defines it slightly differently.

For me the number is currently $1.2 million. If someone slapped $1.2 million on my lap I would never need to work again, and could live rather well off of an inflation-adjusted 5.5% return ($66K). I might still work if there was something I wanted to do, but with $1.2 million, I chuck the alarm clock into the trash.

How much money do you guys need before you have FU Money?

Wednesday, June 20, 2007

5 Problems With Prosper

Would you loan to this listing?

So a friend of mine was very involved with Prosper, and has wanted me to get involved. Here are 5 reasons why I will not be.

1) Higher Default Rate Than Average - borrowers tend to come to Prosper when they can't get funded elsewhere. Additionally, there are other moral hazard problems, for instance some borrowers take the money lended to them as charity, with no intention of paying it back. The result is borrowers on Prosper have a higher default rate than the average person with a similar credit rating.

2) Taxes- Loan interest is not taxed at the long-term capital gains rate, and is instead taxed at your marginal rate. This can make a huge difference in your after-tax return. Additionally, Prosper delays in declaring loans in defaults, which hurts your ability to offset those losses on your income.

3) Poor Customer Service- Prosper has taken some steps to address problems, but if you read the message boards, their are certain problems, like group leaders who are gaming the system, which remain unresolved.

4) More Serious Lenders than Borrowers- A year or two ago, lenders would lend to anyone, based on their story. Having gotten burned on that approach, lenders are increasingly wising up and are pre-limiting their lending to borrowers meeting certain financial criteria. This creates a glut in lenders for the good listings with a resultant driving down of interest rates and returns.

5. State Credit Laws- Some states cap interest rates in an attempt to stop usury, but all they accomplish is that they make certain highly risky people, unloanable, since borrowers cannot charge an interest rate that properly reflects the risks involved.

How to Learn About Investing (For Free)

A half year ago, I couldn't tell a P/E ratio from a PE class. I am not even close to being ready to start investing in individual stocks, but I think one of my strengths is my ability to realize this and start the process of teaching myself how to invest.

Here are the Steps I have taken thus far:
1) Books- I've read the Motley Fool's Investment Guide as well as another Fool book, which wasn't as good. Other books I have read: A Random Walk Down Wall Street, Kiplinger's Guide to Investing, some Cramer books as well as some others which I wouldn't reccomend to my worst enemy (Someone's Rich Dad apparently never taught his son how to write in clear English). I checked these all out from the library.

2. Warren Buffett's annual letters to Berkshire shareholders. Everyone reccomends these as a great way to learn how to invest. I've only read 2 thus far, I am going to try to read as many as I can.

3. Stock Investing Blogs & Websites: I try to read Marketwatch, the WSJ, Motley Fool Online. and a couple of blogs every day. One Million to My Name has a great blog for stock investing where he runs through his successes and failures on a regular basis and you get the benefit of his experience.

4. Morningstar Classroom: This is huge, Morningstar has an online free classroom, where you can teach yourself about every major investment topic, and afterwards you take tests to test your knowlege. If you get enough points from the tests you qualify for premium trial membership.

5. My local library's website: I can access Standard & Poors' stock reports as well as Morningstar's stock reports online through my library's website (with my library card number)

6. Fantasy Stock Portfolio: There is no subsitute for experience. I have several fantasy portfolios, where I am learning from my successes and failures. For instance, acting on a "hot tip" from a blog, I converted 10% of my fantasy portfolio into MEDX, a biotech I knew almost nothing about. It promptly dropped 10%. Lesson learned: there is no such thing as insider or pseudo insider information, and there is no subsitute for doing my own due diligence.

Tuesday, June 19, 2007

Investing: What Not To Do

So, as I have mentioned, I am a definite newbie when it comes to investing, however, having spent a lot of time researching and learning over the last year, I've come to some definite conclusions as to what I should not do, when I begin investing in a couple of months.

1. Giving Up or Hiring Financial "Advisors": I have a friend at work who has $75K in his checking account and is too busy and/or clueless about what to do with that money so he just lets it sit there. Obviously for him, a financial advisor would be a step up from the status quo. For the rest of us, however, the high fees they charge (which is before any fees you also have to pay from mutual funds and investment products), make these "professionals" easily beaten by do-it-yourselvers with the patience, time, and willingness to learn about investment. I have no interest in paying someone 1% of my total assets every year to "manage my money," by failing to beat the S&P.

2. Fee-Heavy Investments: I similarly have no interest in investing in other fee-heavy investments: front or back loaded mutual funds, overly high expense ratioed mutual funds, insurance annuities, or overly expensive brokers to hold my hand while they overcharge me (cough cough Charles Schwab). The internet age means none of these products are needed.

3. Individual Bonds: I have no real time to learn about the complicated and subpar-performing bond market. Long-term Bonds are usually highly risky (though lesser returning than equities) while short-term bonds pay peanuts. To paraphrase Warren Buffett the only good day to invest in bonds is on a day that doesn't end in the letter "y." While I may invest in a few bond mutual funds (like an indexed fund) to hedge against a stock market downturn, I have no intention of overdoing it.

4. Investing Too Conservatively: The key to good investing is assessing risks and determining which paths present the best opportunity, given the risks, to achieve maximum rewards. Keeping a 12 month emergency fund or paying down your mortgage is not a reasonable assessment of the risks presented by investment. Passing up reasonably risky investments is a far too fearful strategy to achieve investment success, and is guaranteed only to lead to subpar returns and high opportunity costs.

5. Not Taking Advantage of Tax-Favored Investments- IRAs, 401Ks, etc.: These offer massive tax benefits, which work out to be free money (especially if you have an employer matched 401K), and turning them down is a huge mistake. My NYC friend, despite my advice that he do so, has failed to create & contribute to a Roth IRA. If he had done so for the last two years (contributed $8K) that $8K (assuming a 10% return) would have returned about $256K in 36 years (when he turned 62). If he is taxed at a 28% federal rate and a 6% state rate, then that Roth would have saved him around $87,040 in taxes.

Making My NYC Friend Cry

So, one thing about me, I'm a sucker for online financial calculators, and CNN Money just unveiled a new one that helps track cost of living disparities.

One of my friends is currently living in Manhattan, and having gone through a similar grad school experience as me, will be working in NYC after he graduates. He basically will be doing the same thing as me, only he will be getting paid 15% more than me to do it.

I don't know how realistic this calculator is, but according to it, I am making 15% more than him when you factor in the ridiculous expenses that constitute Manhattan. This will no doubt be aggravated by the extreme conspicuous consumption that makes up the NYC outlook on life.

Calculators like this make me wonder whether I should just pack up and move to Morgantown, WV, or analagous areas.

Monday, June 18, 2007

When Good Debt Goes Bad...

So right now, my wife and I are trying to pay off some "bad" debt, before we start rapidly accumulating post-tax investment capital. What's interesting is that the tax deductibility of the debt makes a HUGE difference in whether debt is good or bad....

Here's a run-down of our debt:
1. Mortgage debt, 30 year fixed rate at 5.75%, this works out to an after-tax return of around 4%. Bloggers and "financial gurus" who tell you to pay down your mortgage at these interest rates are fools. We could earn a better rate of return on a treasury bond (almost), plus the mortgage allows us to enjoy a great return on the leveraged appreciation of the house.
2. Ultra-low interest federal student loans- Always be suspicious if someone tells you they need to borrow money to pay down federal student loans, as these are usually ultra-low interest rates, but are one of the few loans which survive bankruptcy.
3. Second Mortgage at 8%- While this is pretty high, it is tax deductible, so it is lower than the long-run return on the market, though many would jump at the chance to earn a guaranteed 8%. I will probably split my money between the market and paying this loan down.
4. Private Student Loans at 7.035%. The thing to note here is that because of taxes these student loans are actually higher than the second mortgage. The non-deductible 7.035% is equivalent to a market return of 11.5%. A guaranteed no-brainer.

Sunday, June 17, 2007

Bonds? What are they good for?

So I was reading this great Ben Stein article, and he mentioned that he has no bond holdings in his portfolio. Instead he has 20% of his money in cash, i.e. money market funds, CDs, etc.

I read somewhere that there has never been a 10 year period where the average return on bonds has been better than the average return on stocks. This seems to imply that if you are investing for 10 years down the line or more (as I am), you should not own bonds.

Right now I have no bonds in my portfolio, but as I start investing outside of my 401K, I am torn between the feeling that I need to diversify in case stocks tank, and by my concern that I would be sinking my long term rate of return. I am not sure what investment vehicles out there are better positioned as a hedge against a falling stock market.

My plan right now is to invest around 10% of my portfolio in tax-free municipal bonds, which make sense given my temporary high income tax bracket. The question I have is:
Is this small risk hedge worth the drag on my total rate of return?

Saturday, June 16, 2007

Wealth First . . . then Emergency Fund

So the accepted conventional wisdom is that you should have a 3-6 month emergency fund readily available, either in cash equivalents like a high-interest internet savings account, money market account, or in a rolling CD ladder. In fact, Trent, the world's most prolific personal finance blogger, reccomends you have a 12 month emergency fund.

I have a 1 1/2 month emergency fund. which I only have because 1) my beat up 15 year old car is on its last legs and 2) I may have some big medical bills coming up to pay for.

If you want to retire early, you need to focus on building wealth first, and having an emergency fund second.

Investing in a 5% money market account would cause you to double your money in 14.21 years, but investing that money in the market at the historic 10.5% return will double your money in less than 7 years or half as much time. Every little bit of money you can put into equities and higher returning investments makes a big difference (especially if you factored in the fact that emergency funds are taxed at the short term rate, while stocks are taxed at the long-term capital gains rate).

But what about having enough money to avoid using bad credit sources?

No question if it is a choice between incurring high interest credit card debt and having an emergency fund, you should go with the emergency fund, but I don't think the choice is that simple.

With less cash on hand, you are less tempted to spend extravagently, because you are literally working without a net. Additionally, there are other sources you could draw upon in the event of an actual emergency: you could sell your stocks (no reason I couldnt do this while using my 1 month emergency fund), or you could take out a HELOC (tax deductible) or a 0% credit card transfer, or borrow money from a relative.

The point is to get as much money, earning as much as possible, as soon as possible, so you can break through the ceiling.

Friday, June 15, 2007

Will the Internet Kill the Real Estate Agent? Let's Hope So

I bought a house a couple of months ago, and as part of that process I used a buyer's agent. My buyer's agent basically drove me around to various houses which I had selected, helped me draw up an offer and supervised the contract process. For all of this, she got 3% of the sales price of the home (around $12K for probably around 40 hours work or $300/hour).

Considering the main thing she did was taxi me around to homes and open them with her little key, this seems like an exorbitant waste of money, especially since my wife and I found the house that we bought at an open house, without our real estate agent even being there.

In addition to these jobs, she also 1) showed me a couple of houses which were completely outside of what my wife and I told her we were interested in - but, surprise! they were her listings (so she would have gotten a 6% commission if they sold) and 2) pressured myself and my wife into raising our offer price, preying on our fears that we would lose the house we really liked and 3) pressured my wife and I into using her mortgage officer and home inspector.

My experience does a good job of showing some of the problem with buyer's side real estate agents:
1) Their incentives are completely misaligned with the buyers interests. They make less money from getting a good deal for their clients on the price of the house. They make more money from trying to get their client's to accept one of their listings. They build up relationships with settlement companies, bank officers, home inspectors- who all tow their line and toss them business/commissions in return.
2) They make a ton of money for doing very little. There is nothing that a buyer's side real estate agent does that can't be replicated by more legwork from the buyers and by more legwork from the closing company and associated real estate lawyers. I basically paid $300 an hour for use of the real estate agent's key.
3) They have a racket set up in commissions to protect their ability to profit exorbitantly- If I didn't use a buyer's agent, I would still have to pay 6% of the house commissions- only it would wholly go to the seller's agent. This is ridiculous, and was the reason I used a real estate agent: there wasn't an easy way for me to recoup that 3% commission.

Fortunately for the consumer, the competition of the internet is beginning to offer alternatives which should break down this racket. Internet sites like now compete to offer you the lowest commissions through recouping some of their 3% commissions back to the price of the house sale.

Once again the internet will revolutionize a business where a bunch of fatcats are getting paid a whole lot to do very little. Viva La Revolucion!

Thursday, June 14, 2007

Breaking Through The Ceiling

In examining my retirement goals, and running the numbers, one thing strikes me as really interesting.

The larger the amount of your money invested in the market, the easier it is to rapidly accumulate wealth through compounding and interest rates.

If you invested $6K a year into your 401K, and earned an average of 10% on it, it would take you 15.4 years to earn your first $200K, yet it would take you only another 6 years after that to earn your next $200K.

The lesson from this is striking: If you can find a way to break through the difficulty of accumulating that first $200K, you can set yourself up to the point where your ability to rapidly accumulate wealth benefits exponentially.

This is what I am trying to do: I am trying to find every possible way I can to accumulate "investing fodder" to break through that ceiling. From saving money to bouncing my money around internet savings accounts. Right now, my wife and I have $57K in the market (entirely in 401Ks), my goal is to try to increase that to $200K in the next couple of years.

About Me

I am a 27 year old man, who is pretty much defined by my incredible laziness. I hope to rack up a ton of money, in any way I can, as fast as I can, with the purpose being to retire as young as possible and to stop having to work.

My parents raised me to think that working would be great if I could find a job I really loved. So, I worked really hard, I got into good schools, I opened up a world of possibilities for myself. I didn't pay attention to money.

I have discovered this is complete BS: As long as I have to continue to get up in the morning and be obligated to go somewhere and do something, I am not free.

The purpose of my journey is Freedom.

That said, however, I am extremely cautious by nature, and am hesitant to take unreasonable risks to achieve financial freedom. I am not willing to "bet it all on black." I plan on taking aggressive, but risk-assesed steps to achieve my goals.