Credit Card Debt
I have no actual consumer debt. In the past, I have been taking money from credit cards at 0% APR and immediately placing it into high-yield savings accounts or similar safe investments that earn 5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how I make money off of credit cards this way. However, given the current lack of no fee 0% APR credit card offers, I haven’t been as active with this recently.

Retirement and Brokerage accounts
The value of our passively-managed portfolio bounced back by about 10% compared to last month. There were no new contributions. As noted, we did manage to max out both of our 401(k)s this year, and plan on making 2008 IRA contributions by the April deadline.

Cash Savings and Emergency Funds
Our emergency fund balance is nearly at 12 months of our total monthly expenses. So theoretically both my wife and I could be laid off and we would be okay for 12 months without having to sell any longer-term investments. I am very happy with this cash cushion.

Where is it? I suppose you could say I “actively manage” my cash, putting it in various places to maximize yield while maintaining the highest possible safety. For example, I have some in a previous WT Direct promo at over 6% annualized interest, some in Series I Savings Bonds at over 6%, and a chunk at a WaMu 12-month CD paying 5% APY with about 10 months remaining.

Compare this to the piddly 0.14% for 90-day T-Bills and 0.43% on 1-year Treasuries! If you didn’t get in on any or all of these, keep reading or subscribe to updates for new deals as they come up.

Home Equity
I continue to estimate our home value using internet tools, starting with the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. This left me with $584,516. Then, I shave off 5% to be conservative and subtract 6% for expected real estate agent commissions (11% total) to reach my final estimate. Fortunately, we bought as prices were falling already, and the area where we live has not been hit nearly as bad as other major metropolitan areas.

Looking ahead, I am working on new goals for 2009, and also better metrics for measuring our financial progress. You can see our previous net worth updates here.

Find more in General | 1/6 | 2 Comments »

Larry Swedroe, principal of an asset management company and investment book author, also posted his Lessons That 2008 Taught Us In 2008 on SeekingAlpha. It was a nice compilation that covered a variety of topics from active management to Madoff to your “Plan B”.

Here are some excerpts of a few lessons involving investing and your portfolio:

Don’t forget that companies that managed money themselves were often the victims this year!

Lesson 1: Neither investment banks nor other active managers (including hedge funds) can protect investors from bear markets. [...]

If their money managers could protect you, why did firms like Lehman Brothers and Bear Stearns go belly up and Merrill Lynch have to be rescued by Bank of America? It is in the best interest of these firms to manage their risks well. Yet, they have clearly demonstrated that they cannot. As evidence of their lack of ability to forecast events consider that in 2008 Lehman spent $751 million buying back its own stock at an average price of $49.60 and Merrill Lynch spent $5.27 billion buying back its stock in 2007 at an average price of $84.88.(2)

Lots of other historically renowned and recommended active managers had a bad year as well.

Lesson 6: One of the more persistent myths is that active managers can protect you from bear markets. In 2008, the hardest hit sector was financial stocks. Financials comprise a significant portion of the asset class of value stocks. As benchmarks for the active managers we can use the Vanguard Small Value Index Fund that lost 32.1 percent and the Vanguard (Large) Value Fund that lost 36.0 percent.

The following is a list of the returns of some of the actively managed mutual funds with superstar value managers, four of whom were named by Morningstar in June 2008 as their recommendations to run value superstars, their recommendations (those are noted with *): Legg Mason Value Trust lost 55.1 percent; *Dodge & Cox lost 44.3 percent; Dreman Concentrated Value lost 49.5 percent; *Weitz Value lost 40.7 percent; *Schneider Value lost 55.0 percent; and *Columbia Value and Restructuring lost 47.6 percent.

Of course, some actively managed value funds beat those benchmarks. However, how would you have known ahead of time which ones they would be?

Some did guess this would happen. But was it luck or skill?

Lesson 9: There is a great likelihood that each time there is a crisis, some guru will have forecasted it with amazing accuracy. But that ignores two important facts. The first problem is that even blind squirrels occasionally will find acorns. In other words, there are tens of thousands of gurus making forecasts all the time.

Find more in Investing | 1/6 | 2 Comments »

Vacation is over, bring on 2009! Time for a quick look back. Instead of accounting for all my various cashflows, I decided to first review how the individual mutual funds in my investment portfolio did during 2008. (Data taken from Morningstar.) Here are the numbers along with the breakdown by asset class:

Just about every asset class related to equities was in the toilet, especially emerging markets. The bonds held their ground overall. I had a relatively aggressive mix of 85% stocks and 15% bonds, with an overall weighted return of -33.2%.

As a reference, the total return of the Vanguard S&P 500 Index Fund (VFINX) was -37% while the Vanguard Total Bond Market Index Fund (VBMFX) was up 5.1%. The Vanguard Target Retirement 2045 Fund (what I used to own) had a 34.6% drop.

Did I hold too much in stocks? I don’t think so. I’m only 30 years old right now, and if I’m lucky I’ll have potentially another 55 years in the market.

On the other hand, I do think that some retirees and near-retirees held too much stocks. “You need at least 60% in stocks at all time?” *Cringe*. Take the Vanguard Target Retirement Income Fund (VTINX), which is an all-in-one fund with an “asset allocation strategy designed for investors currently in retirement.” For 2008 it dropped only 10.9% with an asset allocation of 5% cash, 30% stocks, and 65% bonds. This is probably more appropriate for people in the withdrawal stage - something to sleep well with!

So, I am stuck trying to resolve two somewhat conflicting feelings. The volatility didn’t really worry me that much this year, and am happy to take some risk right now. But I also know that I don’t want to take risk later. I may need to shift my asset allocation towards more bonds faster than 1% per year, especially if I am going to retire early.

Find more in Investing | 1/4 | 27 Comments »

Few more quick reminders:

• The WTDirect $250 Winter Bonus offer ends 12/31.
• The MyCorporation Free Corporation/LLC Filing Service offer ends 12/31 has been extended to January 2009.
• The California 529 $50 Gift Card offer ends 12/31.

Find more in Deals & Offers | 12/30 | 7 Comments »

Always the procrastinator, I finally sold some shares of my punished mutual funds and ETFs in order to do some tax-loss harvesting. There are only two days left in 2008!

What is Tax-Loss Harvesting?
The main idea of this tactic is to legally pay less taxes by taking advantage of the fact that losses are taxed at potentially different percentages than gains are.

The IRS lets you claim a deduction for investment losses against your ordinary income, up to $3,000 each year. (If your net capital loss is more than this limit, you can carry the loss forward to later years.) For example, if you lose $3,000 on an investment, and you realize that capital loss by selling the stock or fund that incurred the loss without realizing any capital gains in the same year, you can claim a $3,000 deduction on your income tax return. This means you won’t have to pay income tax of up to 35% on $3,000 of your income that you would’ve had to pay otherwise.

On the other hand, a realized capital gain of $3,000 which you held for at least a year would only be taxed at a maximum of 15%. Therefore, although losses are still undesirable, if we plan on holding the investment for at least another year, we should “harvest” all the losses we can get.

Expanded Example

Taken and edited slightly from a older post:

Scenario #1: You are in the 28% tax bracket. Say this year you bought $10,000 of IVV, an ETF that tracks the S&P 500. In 2006 it drops to $9,000, and in 2007 it rebounds to $11,000 and you sell. You’d have a long-term gain of $1,000 from your original $10k, so you pay 15% in taxes ($150), and end up with $10,850 in your pocket. Net gain of $850.

Scenario #2: Same 28% tax bracket, same start period. You buy $10,000 of IVV, and in a year (2006) you sell at $9,000, and the very same day you buy IWB, an ETF that tracks the Russell 1000 Index, but is very similar (but not identical) to the S&P 500. Since it tracks very closely, your $9,000 of IWB in 2006 will also rise back to $11,000 in 2007. After a year and a day, you sell your IWB for $11,000.

Now in 2006, you had a capital loss of $1,000 from your IVV. So you deduct $1,000 from your ordinary income taxed at 28% and save $280 in taxes. That’s $280 in your pocket. Then, in 2007 you realized a long term capital gain of $2,000. You pay your 15% tax ($300) and you end up with $11,000 - $300 = $10,700. Add in your $280 from the last year, and you end up with $10,980.

This time, even though you had basically the same level of market risk, you obtained a net gain of $980.

Substantially Identical?
Note that you must do this with similar, but not “substantially identical” investments. For example, you can’t buy IVV back again right after selling it and try this. That would be called a ‘wash sale‘ by the IRS.

Find more in Investing, Taxes | 12/30 | 9 Comments »

The $100 bonus promotion from the Discover Business Card is going away on December 31st. You can earn a $100 Cashback Bonus when you make $1000 in purchases within 3 months after your account is opened.

In addition, there is 0% APR on purchases for 12 months, so there is no hurry to pay the whole balance off right away. Just keep in your bank account earning interest. Finally, you can get 5% back on office supplies, 2% on gas, up to 1% on all other purchases.

As with all these business cards, individuals can apply as sole proprietors by simply using their name as the business name. You just need to put your Social Security number as requested, and leave the Federal Tax ID blank for this application (it will use your SSN). More details here. More $100 bonuses listed here.

Find more in General | 12/29 | 4 Comments »

Okay, found one more freebie. Humana is offering a free copy of the 72-page book Retirement For Dummies by mail when you sign up for their REAL community. You must be of age 50+ to qualify. It looks like this book was specially made for Humana, as I couldn’t find it on Amazon. Via FW.

Find more in Deals & Offers | 12/29 | 4 Comments »

TripAdvisor is offering two free luggage tags. What a sneaky way to get my real info! The form automatically signs you up as a member of the website, but looks like that’s all. Use a spam e-mail if desired.

Although there is the occasional fake glowing review from management or unreasonable whines from uptight travelers, I do always check TripAdvisor for hotel reviews. There are some pretty bad ones out there. Check out the reviews for this awful hotel with camping cots for beds in London and this bedbug-ridden place in New York City.

Find more in Deals & Offers, Travel | 12/29 | 3 Comments »

Intuit is offering their Quickbooks Cash Register Plus Software for free instantly via download. This is the 2009 version, which is selling for $239 on Amazon. As the name suggests, this software turns your laptop into a cash register, accepts credit card payments, and syncs with Quickbooks very easily. No hardware is included.

I decided to take one just in case. You just checkout for $0 and you receive a license key and a download link. No credit card required. It says the offer expired 12/15/08 but everything appears to still work. Via SD.

Not a business? Don’t forget that you can also get personal finance management software Quicken Online for free as well to track your household expenses.

Find more in Deals & Offers | 12/29 | 2 Comments »

Time to pay the price for being healthy, and try to use up the rest of the balance in my Flexible Spending Account. First up, here is my list of usual suspects:

Starter Checklist of FSA-Elgible Items

• Advance refill of prescriptions
• Eye exams
• Contact lenses and lens solution
• Pain killers
• Cold and flu medicines
• First aid supplies for emergency kits
• Condoms and other birth control items
• Ear plugs
• Acne medication

Big Lists, More Ideas
The most authoritative resource is probably this list of eligible medical deductions from the IRS. Then there are some nicely organized lists from health insurers like Aetna or third-party FSA administrators like Conexis.

You can also search for inspiration at the special FSA-eligible sections of Drugstore.com, CVS, and Walgreens.

Finally, check the final date allowed on your specific plan. If yours is like mine and ends on 12/31, make sure that you have a receipt dated in 2008. Certain plans may allow you to spend your money up until March of next year. This may give you more time to line up a doctor’s appointment and get some care you’ve been putting off.

When will they fix this broken system? For one, if you are desperate you can always buy some junk, fax in the receipts, and then return the items. Unethical and illegal? You bet. But why are we forced to estimate our unpredictable expenses in a use-it or lose-it format?

Find more in Frugal Living, Taxes | 12/24 | 33 Comments »

We added a new member to our family today, of the four-legged and fuzzy variety. Her name is Pumpkin, and she was placed in our home by a dog rescue group.

Getting a rescue is kind of stressful. You put your name on lists. You get a call that dogs need a home. You have to sit down, talk it over, and decide whether to say yes. Do you have the time? The money? Then, you still don’t know if you’ll get the dog. People volunteer ahead of you. People drop out. You get a phone call asking if you are still available? You ponder again. You say yes, but you still can’t be sure until you actually pick them up. (To be fair, I’m sure it’s much more stressful for the animals.)

To top it all off, you don’t know much about the history of the dog and any health and/or behavioral problems. She’s intact, so we will try to take advantage of the discounted spay and neuter services that many humane societies offer. As for Pumpkin, we don’t know much about her history, but from what we were told she was one of 20 dogs someone used to run a puppy mill in their house. We assume that she’s been stuck in a cage much of her life, as she is over 2 years old and is not potty-trained nor leash-trained. She’s a bit skittish, but I can already see her coming around. I don’t have any eloquent words, so read these instead.

This will of course affect our finances, but we’ll take it as it comes and I already know I’ll be getting a huge increase in the quality of my life. Dogs seem to take love and multiply it! Hey, at least our holiday gifts to each other are taken care of already. Let’s hope the house-training goes by quickly…

(Guess why her name is Pumpkin…)

Find more in Family | 12/23 | 42 Comments »

Given the recent drop in the Fed Funds rate to nearly zero, bank have been adjusting their interest rates accordingly. Now that the dust has settled a bit, I suppose it is time to see what rates we can get now for our FDIC-insured cash. It may be a good idea to lock in some CDs based on your time horizon, and/or if you are willing to give up the liquidity.

Liquid Savings Accounts

• DollarSavingsDirect remains the top overall rate, holding steady at 4.0% APY for now, although it could change at any time. See my quickie review here.
• The Everbank Yield Pledge Money Market Account is offering 4.00% for 3 months guaranteed as long as you open by 12/31/08. (Balances up to $50,000.) See my review of the application process here. 4% for 3 months is actually better than any other banks’ top 3-month CD rate, while still allowing withdrawals.
• If you signed up for the WT Direct $250 bonus, just a reminder that today (12/22) now December 31st is the last day to initiate your transfer. So you still have time, and it works out to be a good deal for a couple months of commitment.

Shorter Term (1-2 Year) Certificates of Deposit

• FNBO Direct is offering a 9-month CD at 3.75% APY, a 1-Year CD at 4.0% APY, and a 2-Year CD at 4.26% APY. These are all very competitive for their respective lengths. The FNBO Direct liquid savings account (my review) also holds steady at 3.25% APY.

Longer Term (3+ Year) Certificates of Deposit

• Pentagon Federal Credit Union is offering 3-year, 4-year, and 5-year CDs at 4.75% APY. If you aren’t a member, you can join the NMFA for a one-time fee of $20.
• WaMu actually has a 5-year CD at 5% APY. Not bad if your mortgage is under 5%. Their liquid savings account continues to drop steadily (as we were afraid of) and is now only paying 1.50% APY.

Find more in Banking, Deals & Offers | 12/22 | 20 Comments »

The Citi PremierPass cards are rewards cards that are targeted towards people who like to travel, especially those who fly on a variety of airlines and business travelers. There is a standard version with no annual fee and the Elite version with a $75 annual fee.

Sign-up Bonus and ThankYou Points
The Citi PremierPass card is offering 10,000 bonus ThankYou points bonus after spending $300 within 3 months. The Citi PremierPass Elite Card offering 20,000 bonus ThankYou points after spending $600 within 3 months.

10,000 ThankYou points can be redeemed for $100 in gift cards to a variety of places like Overstock, Macy’s, Sears, or Gap. In addition if you used the fixed flight redemption option, you can convert 20,000 ThankYou points for any domestic coach flight up to $400 in value with no black-out dates. I’ve redeemed for a flight before and if it’s on Expedia.com, you can have it. So if you get the Elite card bonus, you are basically getting a free flight.

Unique Rewards Program
Most of us are familiar with credit cards linked to a specific airline. But with the PremierPass Elite card, you can earn 1 ThankYou point for every mile you fly, on any airline. Perfect for work travel. In addition, you can earn 1 point for every miles flown on any tickets purchased with your card, even friends and family. You also get 1 points for each dollar spent on anything (with double points on everyday purchases at supermarkets and gas stations). This is in addition to the usual carrier-specific miles you’d usually earn.

So let’s say you buy a $300 cross-country flight on Delta Airlines for yourself or a friend that travels 2,500 miles on the card. You’d get 300 ThankYou points for the purchase, 2,500 Delta miles, and 2,500 ThankYou points for flying. On a Delta-branded credit card like the Delta SkyMiles American Express, you’d only get 300 miles for the purchases and the standard 2,500 miles.

You can even get free unlimited companion travel on eligible fares - “Get Complimentary companion travel when you use the Citi PremierPass - Elite Level to purchase a round trip Coach Class excursion fare ticket for $299 or more in the continental United States and Hawaii.” I’m skeptical as to what “excursion fare” means, though.

The standard card works similarly, but you only get 1 point per 3 miles flown, no double points on everyday purchases, and no companion tickets.

In the end, for frequent fliers the PremierPass Elite card is worth looking at. If you are not as frequent and just want the $100 in gift cards, go for the no annual fee version.

Find more in Credit Cards, Deals & Offers | 12/20 | 19 Comments »

Planning a trip to Park City, Utah? I am for a conference coming up, and I found a promotion where you can get a free lift ticket to any Park City ski resort on the day that your arrive. You’ll need to bring your boarding pass and fill out a voucher form online. Looks like I need to book a flight that arrives early!

You will need to bring the completed, required redemption voucher, along with your same-day boarding pass and out of state photo I.D., to the resort ticket window, to receive your same-day lift ticket. Quick START offer valid: Respective resort opening - 12/24/08, 1/4/09 - 2/13/09, and 3/29/09 – 4/12/09.

Other than that, the lift tickets seem pretty pricey. $85 during peak season? Ouch. I found some potential discounted tickets at Liftopia and Canyon Sports. Any other tips for skiing on the cheap at Park City? I also need to figure out how much Delta Airlines charges to check in ski bags nowadays.

Find more in Deals & Offers | 12/20 | 11 Comments »

With the rate drop yesterday, mortgage rates are at amazing lows. People in the office are bragging about locking in 4.50% mortgage rates with no points, or 4.25% with 1 point. While I haven’t done a lot of in-depth research on this topic, I would agree that right now is a good time to explore your options. (Especially if you have a good credit score and a loan-to-value ratio below 90%.) My favorite source for helpful mortgage info remains the Mortgage Professor.

Breakeven Calculators
The main cost of a mortgage refinance are the points and settlement costs (appraisal, etc.). The primary benefit (when you aren’t trying to pull cash out) is a lower monthly payment. This way, you can find a break-even point after which you save money with the refinance, say 20 months. Obviously, you’ll want to be confident that you’ll be holding the loan longer than that. Here are two breakeven calculators: one and two.

If you want instant savings or are just short on cash, you can attempt to find a “no cost” refinance, where you get a rate with negative points that actually cover your upfront costs. Even better, to avoid funny business later, find a lender that actually guarantees that they will cover all settlement costs. However, your rate might not be the best.

After reading up on some articles on the Professor’s website, here seems to be a possible action plan:

1. Check with competitors first to get an idea of what combination of rates and closing costs you can get. Try an Upfront mortgage broker or lender.
2. Armed with this information, call your loan servicing company and ask about your remaining loan balance. Casually ask what could be done with the current low rates. If needed, use your rates collected previously to let them know you’re shopping around and make them go one better. Your existing lender may have more flexibility in waiving and/or reducing fees.
3. Ask for a loan modification if your lender has not sold the loan, and are servicing it themselves (see below).

My Refinance Attempt

I am in the least common situation, where I got my loan through a community bank who did not sell the loan. They are both the lender and servicing agent. Thus, they are very interested in keeping my loan and not losing it to a refinance. After talking to them, the refinance route was not looking too good, and so they offered me a rate reduction instead. I got to keep my same loan with the same remaining term length, but the rate would be reduced from 5.625% down to 5.125% for a $500 fee. Neither of us has to pay for an appraisal, title insurance, document fees, recording fees, or another mortgage broker commission.

After running the numbers, I would be saving $150 per month, which would give me a break-even period of only 4 months! The catch: I had to lock today to get it guaranteed, and I could not lock again for 30 days. I decided to not to be greedy and locked it in (at no cost). I should get the paperwork tomorrow. If I have a $150 lower monthly payment for the next 29 years, that’s a potential savings of $50,000! ($150 x 12 x 29, but less if you calculate back to present value…)

It’s almost too good to be true, considering I don’t have to try and go through the hassle of a refi. In fact, since I paid points to lower my mortgage rate initially, I thought my chances for a profitable refinance were slim to none. Now, I still have to look at the fine print, so this is not a done deal.

Again, I am not an expert on this stuff. But given the weird situation we have right now, if you have a mortgage professional that you trust, you might want to give them a call. This one phone call today saved me tens of thousands of dollars. I just read a newspaper article that they have gotten more loan requests in the last two weeks than they have had in the last 11 months! So while they are busy again, they are less likely to take your business for granted.

Good luck, and share your success stories below! Oh, and if you missed it before, you can read about our (long) first-time home-buying experience here.

Find more in Real Estate | 12/18 | 43 Comments »