Money in the Bank - What are your Best Options for Gaining Interest with your Money

Congratulations on making savings a priority!? Now that you have some money in the bank, it is time to figure out what kind of account will yield you the best benefits.? Do not leave your money sitting in checking where it does not accrue interest; this practice does nothing for you, and will not help you grow you money.? In fact, leaving your money in a checking account may actually tempt you to spend more than you intend, so watch out for your funds!

A basic savings account is a better option than your savings account, yielding you a small interest payment each month with little or no minimum balance required in the account.? If you need your money to be highly mobile and available at all times, then this is the perfect account for you, particularly if you tend to maintain a low balance at this point.?

If you have managed to save a few thousand dollars, on the other hand, a money market account might be the best thing for you.? This account has a much higher interest rate than a traditional savings account, but also has a much higher minimum balance, often of several thousand dollars.? If you feel comfortable having a few thousand dollars dedicated to the account at a time, then this might be the perfect option for you.? If you can’t afford not to have instant access to that money, however, you might want to stick to a more traditional savings account.?

If you really don’t mind having your money tied up for a long time, though, you can spend your money on a CD, which stands for Certificate of Deposit.? A CD is a special kind of account, which usually has an even higher rate of return than a money market account, but which ties the full balance up completely.? When you put your money into a CD, you commit the money for a certain amount of time.? You cannot deposit or withdraw to or from that account, and the money that you earn on it is often applied less frequently, sometimes annually.? This kind of account yields higher interest payments, but usually have a large penalty if you withdraw your money before the term is up.? If you can afford to have your money set aside for long periods of time, then a CD might be a good option for long term savings.?

OK how dorky am I...

I got all excited because Boyfriend asked me if I would do his taxes. Normally he mails his things home to his father, who has an accountant do them. Which is really silly, because Boyfriend has exactly one W-2 and an interest statement. It took us about half an hour, at least ten minutes of which was consumed by such activities as trying to get TaxCut to open in a browser (doesn't work in Linux or Firefox) and printing out the sheet he has to sign and mail in because he doesn't know his AGI from last year (which is what TaxCut asks you for to prove your identity.) We then went to the Ohio e-file site and filed that - hells no I would not let him pay thirty bucks to let TaxCut do it! He's getting a couple hundred back which is pretty nice. I have also been telling several other people that I will help them do their taxes, because I just don't see the point in paying a couple hundred for someone at a tax place to do what will take us and the programs in Free File half an hour. And maybe some chips. I do like chips.

I won't file my own until April, although they are done, so I can hang onto the money a little longer.. plus TaxCut still does not have the Ohio form that assesses me a penalty for underpayment. (I probably should have looked into this earlier, since the estimated tax payment deadline was Jan. 15th and I could have made that and saved some bucks. But, since I have no idea what they are going to charge me, I might actually earn more in interest than I will pay in penalty.)

Welcome back!

I gather that some new visitors are discovering the site, or maybe just some old friends are bellying up to the bar again. Regardless, welcome! It's an absolute pleasure to have you here.

Let me recommend a few ways to catch up on what's been going on with me.

1. Look up in the upper left-hand corner. See that search button? That will shift through all 300+ posts that I've accumulated here during the past four years (FOUR YEARS! Ridiculous, I know). I recommend searching for a random word or topic and seeing what comes up. (Like bridesmaid or ocean or friends or cat.) It's a really fun way to explore the craziness that's been my life since I started the blog.
   
2. I started tagging my posts into categories, which you can find on the left if you scroll down the page (ok, really far down). I haven't been able to do all the posts, but there are a lot of good topics to reflect on.
3. I've also kept every single post on the archive, so if you want to follow my journey chronologically, start at the oldest post and work your way up.
   

While I'm leaps and bounds ahead of where I started, I still have a lot to learn. And you all have so much to teach me! So from the bottom of my heart, thanks for joining me and supporting me for all these years. I'll keep posting if you'll keep reading. You guys are my inspiration.

PS-- I would like to give a special shout out to all my new friends in Toluca, IL... I'll see you on Labor Day for the Bocce Tournament! And another to my 22 readers in Belgium. I don't know how on earth you found me but I hope to one day come visit!

Head above water

This month has been a particularly crazy one for CashDuck, hence the long silence. But I am doing pretty well with it all, though it does mean I don't sleep quite as much as I'd like. Or blog, or clean the house, or feed the cat. (Sorry, cat.) Recent thoughts:

Taxes - Ouch. I paid about $4,600 between federal, state, and local (plus I paid some 2007 estimated taxes for local). H&R Block decided that I should pay a penalty for underpayment of estimated taxes - however yesterday I got a letter from the IRS (which did cause some consternation when I saw it) in which they stated that I didn't actually need to pay the penalty and they were going to send it back to me. Awesome! Albeit in 30 to 60 days. Still essentially free money. I signed up for the federal estimated tax payment website, and am waiting for my packet on that, and attempted to sign up for the state program but it is rather confusing so I need to sit down and try to figure that out. Local taxes, I just fill out a little coupon and mail that in with a check, there doesn't seem to be an online method. If the state and federal systems weren't so massive that I'm afraid that a paper check would get lost, I'd do it there too as it's simple, but unfortunately doesn't leave much of a record.

Housing - I am really getting the itch to get a bigger place. Our current apartment runs $695 per month plus electric/gas which is another ~$115, so it's pretty easy for me to swing. This is a two bedroom apartment and currently Boyfriend has the small bedroom (it's pretty small) as his office, and I have the remaining space in the large bedroom that isn't actually taken up by the bed. I would really like to have my own room though (especially since then I could take a larger home office deduction if I had a whole room instead of a 5x8 area) and I really need more storage space for all the duck stuff. Second, I would really like a backyard that is fenced in and that dogs haven't been pooping in so I can take my guinea pigs outside. I used to do that all the time when we first moved here but then our second year here several dogs moved into the neighboring apartments and their owners allow them to crap right off the pathway, so I can't let my guinea pigs eat that grass for fear of getting an infection. So some space outside that I can absolutely know dogs haven't crapped on would be great. Third, we need more storage space - we had a great big closet that fit everything, but then (although this is both good and bad) our landlord put a washer and dryer in it. Plus, I am storing most of the unpacked CashDuck duck stuff on a giant shelving unit which is oh-so-lovely right in our living room. So I am really thinking about moving, but have to weigh more room and nicer space against paying at least $400 more per month for what I want. I found a nice place that's a block away, but despite the fact that I walked by this morning and the rent sign is still up, the landlord said it had been rented already. So I've emailed about another place that's a little farther from where I live now, but closer to where I work, but is available in May (and our lease here is not up till August). It won't be a tragedy if we have to stay here a little longer, and then maybe our current landlord will have something that I want available, since we really like our landlord. But I am just getting a little frustrated with how crowded our house is - the rooms are all pretty small or full of furniture.

Savings - I have successfully put Plan Not Living On My Actual Salary into effect. I will get paid $338 on Monday, split 80/20 between the bills bank account and the fun stuff bank account. I already sent off the rent check from my ING checking account (hopefully it will get there on time as I forgot to do it till yesterday so it won't go out till Monday) and transferred some extra money into my bills account. I also didn't get around to making my normal $500 Roth deposit in March so I will put in $1000 in a couple of days for March and April, and my 403(b) will get the $2500 from my salary, plus my regular nonnegotiable contributions, so I am pretty excited about this massive influx. I will also probably put some more money into the Fidelity SEP IRA that I set up - I put $4600 in during early March sometime, of which only $1000 was for this tax year, so I should really put some more in. Part of the logic of not living on my salary is that pretty much one way or another there is not any way for me to get out of paying self-employment tax on my CashDuck earnings, and how much I can save of that is limited to 25% of profit, so I might as well sock away as much as I can with my 403(b) and then put away whatever I can in the SEP afterwards. Also because I can continue sending in money for 2007 to the SEP until Apri 2008, but I can't do so for the 403(b). If I continue not living on my salary for the rest of the year, I'll nearly max out the 403(b) and 457.

MBA - I've been thinking about what kind of advanced ed I should get (as I have intended to get something or other all along) and I'm really leaning towards getting an MBA. The university where I work has a really great part time MBA program which you can get done in as little as two or as many as five years, and is very flexible, and all the classes are at night. The thing that worries me though is whether I will really have the time to do it with both working full time and doing CashDuck. I finally broke down and got someone to help me with CashDuck, but I would really need more help or more time to be able to do this. So the options there are, hire someone else to help me, or go to 32 hours or less per week at my full time job. Option 1, I don't know how helpful that would be because there is so much that would be really hard to spin off, and would require a lot more sophisticated of a structure in order to keep all of the gears running together. The person who helps me now is doing tasks that can be done anytime and don't really intersect with other operations, so it doesn't matter that I don't keep tabs on her. I have a few other things that could be spun off that are similar, but she doesn't have unlimited time or unlimited space for duck prizes at her apartment. :) Option 2 might be the way to go but I think I will wait until I have been there long enough that I am too valuable for them to say "no" to me going 80% (since it would then be 80% of me or 0% of me.)

In the back of my mind there is also option 3 which is to get a different, less demanding or less than full time job, because where I work now seems pretty dysfunctional and unless things improve I might leave too. I do like the work but the management stinks. Everybody keeps asking me why I haven't quit my job to work CashDuck, but the short answer is that I would become very neurotic working at home and having nothing else to think about. Plus I need the psychological security of having that income (even if I'm not living off it) and I wouldn't feel safe quitting my job without having large, large sums of money stashed away. Third, I'm young enough that having that kind of gap in my resume might be disastrous later on. ("You were in research and quit to run a website and now you want to do research again?") So I don't feel it's wise. I mentioned this to Boyfriend the other day and he told me that he would think I was nuts if I quit my job to run CashDuck, for pretty much the reasons I outlined above, but mostly the neuroticism.

A parting thought.. Anybody else notice that ING put in a total deposits amount at the bottom, that shows how much money you have among all of your accounts? I find this to be dangerous as I am practically a compulsive saver now, and I am going to be very unhappy to see that number go down when I have to pay CashDuck estimated taxes soon (since I park CashDuck tax money and general savings money at ING), but I do like seeing that nice big number (though more than half of it is CashDuck's money anyway.)

I will try to keep to a once weekly blog update as I feel very squeezed for time right now - if you saw my house (and desk) you would understand.

Will we really be able to retire?

This morning I logged onto Vanguard to look at my husband's Roth IRA as well as my own, and was in for a surprise. Since October 31, my Roth account has lost $1100 in value. My husband's Roth, invested in an entirely different fund, has lost $2300 in the same four weeks! OMG! We should withdraw all the funds and put them into cash or something more secure, shouldn't we, rather than risk losing any more?

Are you kidding me?

My husband and I are 25 years old, and by law, with a couple of exceptions, cannot enjoy the fruits of our retirement accounts for another 34 years. Surely the markets will have rebounded by then. Heck, they may rebound by Christmas, which would keep us from regaining our losses if we pulled out. Another important tidbit I failed to add is that despite my $1100 dive, I'm still up about 13% for the year. So my gain wasn't 28% or whatever. Big deal. I'm still not going to sniff at anything over 6%. My husband's funds have gained as well, though not as much as mine have (his are a lot more volatile and have been dippier this year). We haven't lost any of our initial investment, but isn't that a risk you take when lending money?

There are two lessons to be learned here. First one is don't panic. The market fluctuates, your investments can go up or down, and if you realize that you won't act irrationally and sell off before a big rally. The second lesson is not to follow your retirement accounts too closely (provided you're at least several years away from retirement). Vanguard, for example, sends a quarterly statement. When you're more than 20 years away from retirement, glancing over your funds every three months is about all the monitoring they need.

Hot Momentum Stocks

SOL Remains HOT after my post titled SOL is ‘En Fuego’

SOL - 27.80, ReneSola Ltd. was up 6.76% Monday on volume 325% larger than the average. I told you last week that this was one momentum stock you should not ignore. It's now up almost 30% in three days after my Thursday morning post. It was up 15% last Wednesday, one day prior to me highlighting the stock which is why I will repeat that stocks in motion typically stay in motion (simple physics - right).

5/14/08:

Renesola Ltd (SOL), $21.67, is on fire over the past several weeks since its IPO debut in January. Volume has been exploding as the stock is up almost 200% since it’s low in late March. I have been watching the stock as it has crossed dozens of nightly screens but decided not to post it to the blog until now.

If you want momentum, SOL is currently providing it. The stock was up more than 15% today on volume 409% larger than the average. At least 11 accumulations days have occurred over the past month as the stock started to log new all-time highs.

A couple more HOT momentum stocks:

VISN – 22.53, VisionChina Media Inc. has also been tearing up my nightly screens but it slipped past any and all ideal entry points for me as a trend trader. It is now in the hands of the day traders with a year-to-date gain of 146%, a 148% gain over the past three months and a 42% gain over the past month.

CSUN – 13.06, China Sunergy Co. is now up more than 47.74% over the past month but is still down 20% from my original 2008 post of $16.15 on January 4, 2008 (however, I did state: Ideal Entry: $12.00). The three month gain is 80.93% with a peak of 97% - I timed this one wrong but saw the trending potential back at the turn of the year. Patience – a must in this business. CSUN did reverse Monday - the first red flag in May.

1/4/08:

China Sunergy (CSUN) is part of a booming solar industry that includes stocks such as the ones listed below; all head lined by FSLR, a stock that is up more than 700% over the past year or so.

FSLR - $265.87

STP - $88.22

SOLF – $36.95

YGE - $38.02 (another stock I am looking to add)

One last word: watch the daily action because the summer months are coming - sell off time (hint, hint). Have all stops set and always look for red flags! Enjoy the momentum while it lasts but NEVER let a solid gain slip away.

Someday I hope to be this guy, without the beer

Click if the image is unclear.

This is from PVP Online, a comic that I like to read. This character won a whole lot of money in the lottery and now spends his days drinking beer and playing video games with his friends.

But seriously, I have been thinking (not in a morbid way) about where I would leave my retirement money when I don't need it anymore. One thing I think would make a big impact on people's lives is to dispose of it to a foundation associated with the hospital I work at. This foundation generally pays for things like cab fares and hotel stays and other little things that are important to getting your cancer treated just like the doctors and nurses are - after all, if you can't afford to get there and you have no place to stay, life is going to be a lot more difficult. I know there are a lot of foundations that support research - and seeing as how I am in research, I certainly appreciate it - but the best drugs in the world will not find you a sitter for your kids while you are in the hospital, or drive you here from two hours away when your car is broken down.

Cold Weather, You're Out

Dear Chicago:

I don't know what I did to piss you off, but I'm writing to let you know that I've absolutely had it with your attitude. I WILL NOT, no matter how cold, snowy or downright nasty you get, WILL NOT wear my down parka another minute until at least October. I refuse! You may have gotten the best of me this winter by jacking up my heating bills to over $200 each month, leaving permanent salt stains on all my clothes and shoes and halting my driving lessons with your "ice storms," but mark my words, frienemy, your frosty days are numbered.

Watch out Chicago. Because as soon as your cold snap ends, I will be out on your town with a vengance.

Regards,
Nicole

How Much Is Enough To Retire? Finally Some Reasonable Answers

When I see something I like, I steal it. Or at least borrow it. The financial world is full of worthless calculators. Here is something by Jon Clements of the Wall Street Journal that makes sense.

It's halftime. What's the score?

Today, I turn 45. (Don't feel bad; only my mother ever remembers.) By my reckoning, that puts me halfway through my working career and hence halfway to retirement.

How big a nest egg should a 45-year-old have? Here's a look at who faces a midlife financial crisis -- and who might be able to retire early.

Taking stock. Start with the accompanying table, which shows what percentage of pre-tax income you need to sock away over the next two decades, depending on how much you currently have saved.

Suppose you have a $240,000 portfolio, equal to three times your $80,000 annual income. To retire in comfort, you ought to save a manageable 12% of income every year for the next 20 years, calculates Charles Farrell, a financial adviser with Denver's Northstar Investment Advisors.

That savings rate -- which would include any employer contribution to your 401(k) -- will give you a retirement stash equal to 12 times income at age 65, or $960,000 in today's dollars. If you then use a 5% initial annual withdrawal rate, your savings will kick off $48,000, or 60% of your old salary. Add in Social Security and you might be hauling in a respectable 80% of pre-retirement income.

All this assumes you can clock an after-inflation investment return of five percentage points a year during the next two decades. To hit that target, keep a healthy sum in stocks and a tight lid on investment costs. (If you don't have precisely 20 years to retirement and want a sense of whether you're on track, try the retirement planner at www.dinkytown.com.)

Quitting early. What if you have savings of four or even five times income? As you can see from the table, amassing enough for retirement should be a breeze. In fact, if you have savings of five times income today and you never saved another dime, you would hit 12 times income at age 63.

But if you have already amassed a hefty nest egg at 45, you're probably a diligent saver, and you might look to retire early. Let's say you salt away 20% a year.

At that rate, if your portfolio today is equal to four times income, you will hit 12 times income at age 59, Mr. Farrell calculates. Similarly, if you currently have five times income saved, you should be set by age 56.

True, that means retiring before you're eligible for Social Security. But if you are a diligent saver used to living on a small portion of your income, that shouldn't be a big sacrifice.

Catching up. On the other hand, maybe you haven't been so thrifty. As the table indicates, the annual savings rate required to amass 12 times income by age 65 is 20% if you currently have two times income saved -- and a whopping 27% if your nest egg today is merely equal to your annual income.

Can't do it? Instead, you could scale back your retirement goals, delay retirement or both. Suppose you have savings equal to twice your income. If you sock away 12% of income per year, you could retire at age 69 with 12 times income.

Alternatively, you could call it quits with 10 times income at age 66. Again, imagine you earn $80,000 a year. If you retire with 10 times income, or $800,000, and use a 5% withdrawal rate, you will have $40,000 a year from your portfolio, equal to 50% of your old salary.

Meanwhile, if you have a nest egg of just one times income and you can't see cranking up your savings rate to 20% or more, you will likely have to curtail your spending fairly sharply in retirement, unless you work well past 65. For instance, to retire with 10 times income, you would need to salt away 12% of your pretax income every year until age 71.

One warning: All of the above presumes your income rises at the inflation rate between now and retirement. What if your income rises much faster? Ironically, that could make it tougher to retire.

"Let's say you get a big raise at age 50," Mr. Farrell says. "It's probably not feasible to replicate that lifestyle in retirement. The majority of that money should probably be committed to additional savings." If you do that, your nest egg will grow faster, and you won't have to throttle back your spending quite so much when you retire.

Copyrighted, Dow Jones & Company

Simply College Answers Our Student Loan Q's

While I typically spend my weekends dining, drinking and catching up with friends at social functions, I spent much of this weekend at the Kellogg School of Management's
Women's Leadership Workshop in Evanston, Ill. Kellogg is one of the world's top business schools, and I was honored to be a participant. The session featured valuable classroom workshops on negotiations, interviewing techniques, values-based leadership and relationship dynamics for leaders.

I'm going to reflect on those themes and share learnings from the workshop in coming days, so look for more on that. In the meantime, I noticed that many of the women attending the session were grappling with the issue of funding and student loans. Serendipitously, I had already been working on a story about college loans with the good folks at Simply College, a company that specializes in simplifying financial aid for those applying to college and graduate school.

Since the job market's looking pretty glum these days, and the news about student loans has been drab as well, I posed some questions about loans to Rene Bolti, Vice President of Simply College, and an educator with 17 years’ experience creating and administering programs and services for elementary, secondary and higher education. I hope you find her answers helpful.

Here's the Q&A...

1. In layman’s terms, what’s changed in student loans over the past six to twelve months?
Probably the most significant change is a new trend toward eliminating loans from financial aid packages of students below certain income levels. As a result, students at many top-name colleges may find themselves being awarded grants (which don’t need to be repaid) instead of loans.

But, the vast majority of students attend colleges that still include loans in the financial aid equation, so unless you are accepted at one of the top-tier, no-loan colleges, you’re likely to have to grapple with the question of student loan debt.

Although some lenders are exiting the student loan market, there are still many education loans available through a variety of lenders, including federal loans. In fact, the maximum annual limit on federal loans and grants for undergraduate and graduate students has recently increased, making the loans go further toward paying for a year of school.

2. What are three things I should know about college loans today?
1) There are many different types of college loans.

- Federal Stafford loans are available to students who complete a Free Application for Federal Student Aid (FAFSA).

- A family’s financial situation determines whether a student qualifies for subsidized or unsubsidized Stafford loans. (In subsidized loans, the government pays the interest while you’re in school; in unsubsidized loans, you’re responsible for the interest that accrues while you’re in school.)

- Federal PLUS loans are a low-cost option available for parents of students.

- Private loans, made directly by banks or specialized lenders, which tend to be the most expensive option, are available to students and parents to fill any gaps that remain once financial aid has been awarded.

2) Not all education loans are taken in the name of the student; some are student loans, some are parent loans, some need to be co-signed by the student and a credit-worthy adult.

3) Private education loans need to be researched for terms of repayment, length of repayment, total cost over the life of the loan, special qualifying characteristics (like minimum grade point average), and whether all terms and special offers (like interest reduction based on a certain number of on-time payments) are guaranteed for the life of the loan.

3. Can’t parents help their kids navigate the process?
The financial aid process is complex and overwhelming, even for parents who are college-educated and highly motivated. It is a multi-step process requiring attention to timing and detail, with many significant decisions compressed into a very short period of time. To minimize the anxiety and stress inherent in the process, it is beneficial for parents and students to work together, using trusted resources, to be sure they pay attention to each critical component.

Our program, Simply CollegeTM offers a step-by-step workbook/organizer, “Financial Aid Simplified”, to guide students and parents through the entire financial aid process beginning as early as January of junior year in high school, including researching scholarships and loans, completing required forms, comparing financial aid award offers, building a “college life” budget, and more. Go to www.simply-college.com to view video segments that accompany each tab of the workbook.

4. Is the financial aid process different for grad students?
The financial aid process for graduate students typically includes the FAFSA (to make federal loans accessible), but also may include looking for fellowships, assistantships and private loans. FinAid.org has a page dedicated to information for graduate students, including information on specialized loans.

5. Are working professionals at a disadvantage when it comes to loans?
While it is true that income will determine eligibility for certain loans and grants,
working professionals might consider financing their graduate degree through a combination of: employer tuition reimbursement, fellowships, grants, loans.

If you research the possibilities, you’re likely to be able to put together a package that meets your needs. In addition to discussing all possible funding sources with your selected university’s financial aid office, be sure to discuss assistantship and fellowship opportunities with your selected department.

If you are currently employed, talk to your human resources department about tuition reimbursement options (even if you’re unsure whether your employer has a tuition reimbursement program). As mentioned above, finaid.org is a good source of information and fastweb.com has loads of scholarship opportunities, including some for graduate students.

6. If I’d like to quit working and go to school full-time, using student loans, what special considerations might I have to take?
Giving up a salary and returning to the classroom full time will mean making some adjustments to your current lifestyle as student loans are unlikely to equal your salary. Each person needs to weigh personal responsibilities, career aspirations and financial goals when considering full time graduate study and how best to finance it. Here are some specific questions you should ask.

- Is there an alternate source of support available while you’re in school, like a spouse or parent? Even if it’s a loan from a family member, the terms of repayment and amount of the loan would likely be more favorable than any formal education loan.

- Is it possible to work part-time to cover basic living expenses while in school?

- Will a post graduate-degree job in your field draw a salary sufficient to afford and justify educational loan payments?

- Do you already have employment prospects that will be enhanced by a graduate degree?

- If you need to take an educational loan, how soon will you be expected to begin repayment?

# # #

To read some of my personal thoughts and other research on college loans and education, click here and here and here.

Good luck with your applications!

Hope you weren't counting on that extra half-percent raise

... cuz you aren't going to get it, at least not for awhile.
Remember the National Defense Authorization Act, which President Bush vetoed a couple of months ago, with the 3.5% military pay raise? Well, our pandering and inept congresspeople were unable to revise the bill such that it would be passed before the start of the new year, so military personnel will have to settle for a 3.0% raise across the board. However, plans are "in the works" to assure that "the half-percent raise will be applied to military pay retroactive to January first, 2008," but I wouldn't count on seeing it for a couple of months, at least. Luckily, for most families, this amounts to a difference of $20 or less per month; however, it's hard to plan a budget when something as basic as base pay hasn't even been established. Keep this in mind next time you go to the polls.

Reader questions answered: Saving for a Condo

Random reader question time!

Today's super fab question comes from fellow Chicagoan Aideen, who asks:

"I love you website! I am 26 and a former NYer who moved to the windy city. I try to budget and am doing an okay job of it. Do you have any posts on the best ways to save for buying a condo or house. Is socking away money in a savings account the best way or should I invest the money. i'd love to know what other people do."

That's a great question, Aideen. And since I am in the same boat as you, I'm probably not the best person to answer your question. But I am totally curious, so I asked someone who's a little more credentialed on finance - Eric Brotman, CFP, CLU, MSFS, and president of Brotman Financial Group, Inc. - to help us out. Here's what he said:

A: "Where to save for a first home is largely dependant on the amount of time it will take someone to put together the amount needed for a down payment and closing costs.

Normally, the best option is in a money market account, as they tend to pay a higher rate of interest than a traditional savings account. There are several good online options, including ING Direct and HSBC. (Budgeting Babe note: This is what I'm doing, and I'm at Emigrant Direct.)

Another option is a certificate of deposit, with one caveat. The CD must either have no penalty for accessing the funds before maturity, or a maturity date must be selected which is in advance of the anticipated home purchase.

Investing the money for a first home is only a reasonable idea if the time-horizon is at least two years out, and if that is the case, a moderate allocation portfolio with low transaction expenses would make the most sense. First-time home buyers can also access their Roth IRA for up to $10,000 towards the purchase. Checking with a CPA or tax advisor to see if someone is eligible for a Roth IRA is a good first step. It will provide tax-favored growth while the savings/investments are being accumulated, but not everyone is eligible."

Eric Brotman is President of Brotman Financial Group, Inc., an independent financial planning firm specializing in wealth creation, preservation, and distribution. Mr. Brotman began his financial planning practice in Baltimore in 1994, and founded Brotman Financial Group in 2003. He provides investment, retirement, estate, insurance, and business planning for professionals, executives, and business owners. Mr. Brotman's clients benefit from his technical expertise, extraordinary client service, and a knowledgeable team of insurance and investment specialists.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

As a side note, Aideen, I was tracking with Eric's answer until he threw out the term "moderate allocation portfolio." I looked online and determined he means that if you choose to invest in a mutual fund or group of stocks, pick one that's not too high risk. You don't want to lose your downpayment fund when you're three years away from buying a house! (If you like this moderate risk option, a lot of people on my site have said that Vanguard is a good place to start investing because it has really low transaction fees.)

I got kind of lost during the Roth IRA part, so I appreciated that he mentioned seeing a professional. I heard that borrowing against yourself is pretty common, but I wasn't sure it was recommended by financial professionals. I'm sure peeps will write in the comments about it. If you have an answer, let us know! I'll also go back to Eric and ask him if that's risky or recommended if you're eligible.

Now is the time for the twiddling of thumbs

It seems like the days right before the 15th, when I get the bulk of the money and can start making payouts and transferring money and ordering cards, are longer than other days. The 15th is always a busy day for me - all the cards get ordered, and all the checks are written. So I'm looking forward to that.

Unfortunately, the other thing that goes on just before payouts are reversals - usually though if I don't feel that the member did anything wrong, I don't reverse the member's credit. So far this month I have gotten at least 10 Foreclosusre.com reversals and 4 Advertising Web Service reversals, and lots of CallWave signups were put "under review".. hopefully there won't be too many more reversals, but the bulk happen between now and the 14th, when the invoice is finalized.

Should I get a paying job or not?

We've been living here for about two months now, and I've had a couple of job interviews but haven't heard back from them, and at this point I am wondering if I should even bother with trying to get paid employment. It may not be worth the hassle. It might. If I get hired with either the company I interviewed with two weeks ago or the tax preparation firm I worked with in Virginia (surprisingly, employment is NOT as portable as they'd have you believe), I'll take the position, but I'm trying to decide if I should even try for more.

Reasons I should get a job:

• Boredom! I have quite a bit of free time on my hands, and while I am engaged in volunteer activities, I could easily handle a part-time job and not sacrifice any family time or fail to accomplish any of my regular errands.
• The gap in my working resume is only getting longer with every day I fail to work. Same thing with my salary history.
  
• A supplemental source of income would provide Mr. Dimes and me with greater ability to fatten up our short-term and long-term savings (and a matched 401k would be totally awesome if I could get it). We've got the three-month emergency fund taken care of, but a car-replacement fund or home down-payment fund would be great to get started on.
• My student loans, which I have earnestly been paying off with my income, are now starting to become my husband's responsibility with no earnings coming into the household from my efforts. Even earning $200/month would enable me to fully cover the loan payments.

Reasons not to get a job:

• Potential lack of flexibility. I am doing hundreds of practicum hours for my AFC certification, and a full-time job would cut off my ability to do those at the pace needed to complete them on time. A part-time job is ideal, and what I'm looking for, but even some part-time schedules are unworkable with my volunteer commitment.
  
• Interference with family planning: Mr. Dimes and I are thinking about starting a family within the next year or two. It would be difficult if I were to start a job and then immediately get pregnant, as I have no plans to work after giving birth.
• Possible relocation. As I mentioned a few posts ago, we might be relocating onto base housing. Currently we live about 20 miles away from the base. If I had a job close to where we currently live, it would be just as far from our new residence as his workplace is from our current one. In that case, we'd just be trading commutes. My car gets better gas mileage than his does, but do I want to drive so far every day for supplemental income?
• Allegedly, there is a lot of nepotism in this area for jobs. I've heard that a lot of people get passed over due to internal hiring decisions or choosing friends or acquaintances instead of the most qualified applicants. While this wouldn't keep me from applying for jobs in general, it would probably cause me to throw in the towel sooner than if I weren't thinking the process was rigged.
  

So I'm not sure. I guess another thing to keep in mind is that Christmas is coming, and a new job might keep me from being able to go and visit family in December, though I'm not sure that's necessarily a bad thing. ;-) We'll see what happens.

Getting online discounts and coupon codes

Whenever you buy anything online, it’s always a good idea to do a quick search for coupons or discount codes. You can often easily find 10% off, 20% off, and free shipping. Many times the values are even higher than that.

With many purchases or just large ones, these discounts can add up quickly. Whenever you are checking out and see a box for a promo code, it's always prudent to take a quick look for some codes before submitting the form.

You can find some great discounts with Adobe coupons. (Although university students can get very cheap education packages from their campus bookstores) If you need to get a copy of Photoshop, Dreamweaver, Illustrator, Acrobat, or any of Adobe's other products, then you should check it out

You can get discounts with Kohls coupons or Macys coupons. This could save you a chunk of change, versus shopping at their department stores. And if you wanted, you could even go take a look at the items in the brick and mortar stores beforehand.

Hopefully you will be able to find some great bargains and codes that will save you money today and down the road.

This post has been sponsored by ‘Coupons for Everyone’.

Should we move into base housing?

When Mr. Dimes and I moved to California, we put our names on the base housing list at our command. We were told the wait time would likely be from three to five months, depending on who else moved in or opted out. Well, we hadn't given it a lot of thought but after a few weeks here we're trying to decide whether or not we should move when the time comes. It's a complicated decision, with a lot of pros and cons. Here are some of the factors that matter:
Pros:

• A dramatically reduced commute. Right now my husband is driving 40 miles per day in a round trip commute, much of it along dubious roads. Moving to base would reduce the round trip to about ten miles. This would reduce his gasoline expenditure considerably and also reduce his risk of being on the road during periods of dense fog, driving rain, or blinding dust storms.
  
• Monthly rent and utility expenses would be at the exact level of BAH. Currently we're paying less out of pocket for rent, but water, electric, and gas bring the total above our BAH. Living in base housing would provide a cap, which will be helpful during the high energy use summer months.
  
• We would probably use the commissary more. Right now, with the commissary being 20 miles away and open limited hours, my husband tends to run to a local grocery store which is a lot more expensive than the commissary would be. I try and use the commissary, but the savings don't necessarily offset the gas and time expense of going there.
  
• We would be living in an actual house instead of an apartment, and I'm pretty sure it's not going to be a duplex. They recently renovated/rebuilt all the housing on the base, so it's in pretty good shape, not your standard prefab double-wide layout. It is also probably bigger than our current accommodations. Also there is more freedom to do your own repairs and not be accountable to a landlord.
  

Cons:

• We just moved! Moving again is going to be a hassle, even if we don't have to pay for it out of pocket. However, it won't be as major of an upheaval as when we moved here from VA. I can probably haul a lot of my own stuff (like my kitchenwares) which would save mover time and effort as well as unpacking hassle. We'll also have to forward mail again, cancel/move utilities, update insurance and drivers licenses as well as addresses on everything else, which we just did six weeks ago.
  
• The financial consequences of breaking our lease will be moderate. After reading the lease agreement, the consequence will be one month's rent (the time between notification and move out) plus a $1000 early termination fee. We'd also have to pay for any damages (there are NONE) and a carpet cleaning. Total consequences would probably be as high as $2000-2500, though theoretically we'll recoup that within a year in gasoline and housing cost savings.
  
• While my husband's gasoline costs will drop, mine will most likely rise, as I'll be the one with a longer commute. However, if I work as a tax preparer, that will only be on a seasonal, part-time basis. Also, unless we switch churches, it'll still be a 40 mile round trip every Sunday.
  
• We'll have to deal with lawn care. Most of the yard is maintained by the base, but a section of it is the service member's responsibility. We've never had to deal with a yard before.
• Less quiet. The base is noisy. Much noisier than where we currently live. I'm used to it somewhat, but it's been a nice break from the racket. I'll be sad to hear all the noise again.
• Less diversity. When you live on a base, everyone else who lives on the base is military. Everyone goes through pretty much the same thing, and tales of people being all up in your business are commonplace, though I'm not sure how true they are.
  

So we're torn. Luckily we haven't gotten a solid offer yet, but we're trying to figure out what to do if we do.

Everyday Finance Portfolio Update and Market Commentary March 24, 2008

Given the recent market turmoil and some time since a portfolio update, I thought I'd share the latest holdings, trades and outlook on the market:

The most notable recent trades were the plunge into the financials last Monday with the leveraged 2X Financial Sector ETF UYG. I can't take credit for stellar performance this year, but in this case, I called the bottom spot on (here). On Monday 3/17, I recorded the following transaction for a 1 week 35% return:

3/17, Bought 100 UYG @ 26.069

Today, Sold 33 UYG @ 35.0206



I'm still holding the remainder with the thought that the Financials are undergoing a sustained recovery, but this is a rather bold statement, so I took 1/3 off the top.

Elsewhere in the portfolio, I sold the gold ETF GLD and bought the 2X leveraged ETF DGP. I believe gold's going to hit 1200 before it hits 800 per ounce. The dollar has staged some temporary strength, but I don't think it's going much higher given further cuts and a long way to go to true stability in the economy.

On a bit of a whim, I bought Sirius Satellite when I caught wind of the merger announcement with XM. I'm kicking myself for this one. It's been a year that this routine, logical merger should have been approved and the action was awaiting finalization. I should have bought in months ago, but following a random conversation in the office about the news, I bought in at $3.19 per share and in after hours, it's at $3.26 for a nominal gain as of now. I envision as the relief sets in and terms and conditions are fully recognized (along with requisite regulatory approval), the shares move up from here, not down.

Below is a full snapshot of the trading portfolio:

BIDU

CHL

DGP

FMCN

GOOG

KTII

SIRI

SU

TKC

UYG

VIP

To highlight a few notables...

• Baidu.com was up 15% today. I think BIDU has been overly punished during this downturn in Chinese stocks, as it is the leader in an increbible market with real earnings.
• I'd sold off about half of the holdings in FMCN and CHL, both Chinese stocks, after runups of over 150% each. Unfortunately, the remaining half of each position has declined significantly this year. I'm holding both through the Olympics this year in anticipation of strong demand for both advertising with FMCN and continued growth in cellular service with CHL.
• A stock I've been especially pleased with is the little-known K-Tron (KTII). It has held up quite well in this downturn and is virtually recession-proof. Full background here.
• I also expect to see the other emerging market telecom stocks VIP (Russia) and TKC (Turkey).

www.everydayfinance.blogspot.com

2008 Maryland Sheep and Wool Festival

I am a yarn junkie. I can admit this. I can also admit that I have restraint. It’s become abundantly clear to me that I have too much yarn. Showing my apartment to a new friend always makes me hesitate, not because I’m a mess, but because they will see my plastic storage tubs. The see-through ones have crafty supplies, i.e. lots and lots of yarn. Heck the opaque ones do too, crammed in with some rock climbing gear.

This year I made a promise to a new friend of mine (the girlfriend of an old friend) that I would take her to shop for special yarn for some projects. She had never been to the Maryland Sheep and Wool Festival before. It’s the largest in the US. Most of the hardcore yarn junkies I know attend on Saturday, but I had a prior commitment. Sunday was the best day for me. It would be less crazy and most of the good stuff will have been gone, thus limiting temptation. (Oh but there is always something, isn’t there?) It was a pretty great day for bringing us closer as friends.

As a multi-year attendee, I’m much more selective about what I buy and what intrigues me. I like to catch up a bit on yarn news and gossip. I was sad, yet glad, to hear that Jolene is the new proprietess at Cloverhill Yarns in Baltimore. It was one of the first places to pique my interest in handspinning. The previous owner was an older woman and I was glad to hear she sold to Jolene so she could retire. Good for her! Isn’t retirement what we’re all about?

The thing that tempted me most was a hand-carved ebony distaff for $45. A long-time vendor was going out of business for retirement and selling off all his wares. I was mighty, mighty tempted, but I hardly need such a lovely item. Gorgeous though it was. I simply do not use a drop spindle very much anymore so the distaff would basically be a really pretty stick, too valuable to use to bop someone on the head.

The last thing notable about this year was noticing a new yarn called 1855 Yarn from New Jersey. It came in pretty colors and handspun. I like to keep my eye out for new stuff, otherwise, I could go to MDSW every other year while I cut back on my craft spending.

And that was that. No really. I didn’t buy any yarn or fiber material whatsoever.

I spent nothing but money for gas and for lunch. I make a point of getting pit lamb BBQ at sheep and wool events because I don’t cook lamb at home. Round trip was about 1/4 tank and lunch was $10. I packed my own can of Coke for my morning caffeine kick.

I just wanted to add a post since I’ve been blogging about my yarn festival trips since I started this blog. I wouldn’t have wanted to skip it.

Part III: Disaster In The Bathroom

Since the ceiling needs repair, I figure I should do the entire bathroom. I thought maybe it would cost $5K, but after talking with a few people, I need to budget closer to $7K. I suppose this is a very salient lesson that everyone needs an emergency fund. Say 3-6 months of take home pay, which of course would cover the repairs. Unfortunately, my emergency fund has only about $1.5K in it.

In desperation for cash, I looked at all my options here. I have credit available on my HELOC and on my credit cards. I have a few CD’s expiring, which I was going to liquidate anyway to pay down debt. But since there is an emergency here and now, I’m going to use them to fund the repair.

With construction, you usually have to pay a deposit of some sort to get the work started. In my case, the earliest construction can start is in another week. The work will take approximately 10 days, taking me to early May.

In looking at my cash flow and available credit, I decided, rather sadly that I cannot attend my friend’s wedding in Boston this month. There’s just no way I can find a hotel room under $200 a night anywhere near the festivities or near the hotel where my best friend and her husband are staying. I’m looking at $1000 for just hotel and rental car alone at a time where I need the $1000 for something else.

I have balance transfer checks coming to my house all the time for a promotional rate less than 2% APR. Unfortunately, these BT’s have a fee. A friend asked me if that fee was capped out but reading the fine print, I couldn’t find any mention of a cap. I called the customer service line and asked about a cap. However the representative said he couldn’t change the BT fee. Instead he offered to change the rate from 1.9% to 1% APR after looking at my sterling payment record. It’s the best he could do, but I’ll take it.

Now the trick here is that I’m sitting on $5K borrowed for 1% APR. Do I pay off my 11.99% APR credit card balance of $4K only to ring them up further as the construction work progresses, or do I hold onto this wad of cash and wait to pay it out to the contractor? (It’s going into an account that doesn’t bear interest so there’s no arbitrage going on here and there isn’t enough time to move it around and take advantage of that sort of thing unless I’m paying off the credit card.)

The last $2K I need, I figure can come from liquidating all of my savings accounts and my next two paychecks. The problem now is that I’ve shot my 2008 debt reduction goals to pieces.

I’ve been sighing a lot this week. Life. It’s what happens to you. Dealing with it can suck, but I look forward to having a shiny new bathroom with better lighting in the shower and for the mirror when I put on make up.

Luckily for you, this week, several PF bloggers have Emergency Fund posts.

Five Cent Nickel: On building an emergency fund

Get Rich Slowly: Learning to love his emergency fund

Plonkee: On why they’re no fun

Start planning for your final expenses now

I know this post topic is kind of morbid, but this issue is very important. Recently, Mr. Dimes and his family had to bury his grandmother, who died suddenly but not unexpectedly right around Christmas. She had a modest funeral and burial, and her final expenses clocked in around $8,000. My mother-in-law fronted the money and will eventually be reimbursed when the estate has been settled, as the grandmother did have some real estate and other assets which could be sold to cover the expenses. Not everyone is so lucky, though.
I recently had a client whose mother died unexpectedly who was requesting over $16,000 in funeral assistance. Her mother owned no property, had no life insurance, and had done nothing to prepare for her final expenses in advance. While the client has siblings, neither individually nor collectively can they afford the costs of the burial. Their mother desired to be buried in the family plot in an area where real estate is very pricey and the burial costs are over half the cost of the funeral. I had to help a grieving client find an alternative to the burial she wanted in order to have something she could afford. This was not a particularly fun experience. Please, for the love of your survivors, do not do this to them. Plan for your final expenses now and let your family members know where they can find any information about plots, policies, final wishes, etc. Deaths are difficult enough without creating financial stress and trauma for a grieving family.

Here are a few ways to ease the financial burden on your survivors:

• Consider prepayment of funeral expenses: If you know where you want to be placed upon your death, consider buying a plot in advance, and make sure your survivors know where it is. You can also prepay for the funeral, casket, and other mortuary services rather than requiring your relatives to front the expenses at the time of your death.
• Have a life insurance policy specifically for funeral expenses: Both my client's mother and my husband's grandmother had small ($10K-$25K) whole life insurance policies to pay for their funeral expenses, but for one reason or another had let them lapse and when they died, there was no money. If, however, you make sure that you (or someone else) is paying on them and don't let the policies lapse, they can be sufficient to cover burial and funeral costs.
  
• Consider less expensive methods of body disposal: Burials are getting to be insanely expensive, and so are funeral plots. Cremation, on the other hand, is a more frugal alternative to standard burial, and is less harmful to the environment. Some people don't like the idea of cremation for religious or other reasons, but it definitely costs less. It also has the added benefit of allowing for portability of remains; for example, if you want to be buried a great distance away from where you died, ashes are much easier to transport than an intact corpse.
  
• Have a specific set of assets designated for funeral expenses: This would definitely require either a will or a joint account with a person most likely to survive you, but it could solve the problem of a family member having to front expenses and then wait for reimbursement. If you create an account specifically for funeral expenses, then a family member or the executor of your estate should be able to access those funds in order to pay for your funeral. If you're going to do this, you might as well make your wishes known as well as what should be done with any money that remains, in order to keep your relatives from donating your body to science and then flying off to Cancun with your funeral money.
  

While not fun, death is an inevitable (and expensive) part of life, and you can help your family tremendously by making provisions for what to do when it happens.

Fattening Myself Up: Jaleo

We had a visitor this weekend so we took her to the Library of Congress’ re-opened exhibit areas and then to Jaleo for tapas dinner on Saturday night. Then we went back to Napa 1015 for the totally awesome brunch Sunday morning. (Where they recognized me and boyfriend from a few weeks ago. Gratefully there were a lot more people there for brunch and I also got a friend to go there for dinner last week for her birthday and she said it was amazing. But I digress.)

Jaleo is by far the best place in DC I’ve been for tapas. La Tasca doesn’t even compare. And fortunately, Jaleo is in several locations around DC.

The food ranges from the very traditional Patatas Bravas, roasted potatoes with aioli and tomato sauce, to funkier stuff like artichoke hearts with grapefruit slices and olives. OMG was dinner delicious I am salivating just recalling the dinner.

We got 9 dishes total, 2 desserts, a glass of sherry and a bottle of wine. Damage was about $135 + tip. Dishes ranged in price from about $6-10 each and the wine was a Rioja for $34. This was dinner for 3 and way too much food, but we wanted to impress our guest and give her a lot of options for her first taste of Spanish food.

I got the artichoke hearts with grapefruit and olives, wild mushroom rice (basically a risotto), and cannelones with foiegras and pork. Boyfriend got Chorizo in crispy potato pastry, chicken croquettes, brussel sprouts with grapes, apples and apricots, there was mashed potato in cabbage leaf with goat cheese (’Trinxat’), sauteed cauliflower and Patatas Bravas.

Dessert was the warm chocolate birthday cake with with bergamot flavoring and yummy vanilla ice cream and Basque cake with semolina cream, cinnamon-vanilla sauce & ice milk, and a very nice sherry for the guest. Dessert was amazing. I highly recommend the chocolate cake if you go soon. It’s a seasonal special.

In retrospect, 9 dishes was too much for the three of us. Jaleo has huge portions. 2-3 is usually enough for a person. But I’ve been places where 3-4 is more the norm. (Thirsty Bear in San Francisco comes to mind, but I also remember their fish cheeks and beef with rosemary dishes. Yes. That good.)

They also have a wine shop near their Crystal City location. CRAP. I wish I knew this before. boyfriend and I had a really amazing wine there before that just knocked our socks off. But now I can’t remember what it was, else I would buy a case of it tomorrow. A rioja. Of course. What else would you have with tapas?

House Flipping In The Real World-Part 7-Doing The Numbers

As they say at NPR, when we do the numbers we find that, well, it depends on how you do the numbers. Analysis is in the eye of the beholder. Just ask any finance guy told to justify the corporate jet. I prefer, with a few twists, to do the cash in, cash out method so here goes.

The HUD asking price was $39,900. I got it for $27,000 after some long negotiations. Dealing with HUD is tricky so a realtor that specializes in this is important. HUD picks the realtor and the realtor cannot opine on a bid but they will do so in code. "They may have an issue with this" means too low. "Perhaps in the ballpark" means you got it. Anyway, as I said before, you make money when you buy the house, not when you sell it.

Here are the cash flows (Sorry about the numbers going all over the place, programming ignorance):

Money out

Purchase Price $27,000

Maintenance/Repair 3,400

Property Taxes 3 Years 3,600

Insurance 600

Freddy and Celia Closing Costs 3,500

Foreclosure Legal Fees 750

Back Taxes and Penalties 3,000

Patricia Sale Closing Costs 500

Total Out 42,350

Money In

Rent $16,275

Freddy/Celia Mortgage Payments 7,920

Patricia Sale Proceeds 49,000

Total In 73,195

ROI = Cash In minus Cash Out divided by Cash Out=$73,195-$42,350=$30,845 divided by $42,350=72.8%. Not too shabby, at first glance. I held the property for 4.5 years so the annual return is 72.8% divided by 4.5 years equals 16.2%.

At this point, any analyst out there worth anything should be shouting "Wrong, wrong." And they would be right. You can't divide 72.8% by 4.5 years because it ignores the time value of money and a few other things but that's my story and I'm sticking to it.

There is a more glaring error. There is no expense in there for me but let's not quibble.

Let's do look at what is in there--The cost to renovate the house was only $3,400 because I did most of the work myself. It was a controllable variable. Uncontrollable variables are property taxes and penalties ($7,600), insurance ($600), closing costs ($4,000) and legal fees ($750). Actually, closing costs can be reduced significantly by avoiding real estate agents as I did with Patricia but it ain't a done deal yet so an agent still may be necessary.

What ate up a large amount of cash was FEES and you cannot avoid them but most people forget about them. If you invest in real estate, don't forget them.

BUT we still haven't come up with the most GLARING error in the analysis. The Donald and Co. would say "Don't do it this way. Use OTHER PEOPLE'S MONEY." Let's try that. You put 20% down and borrow the rest for repairs and everything else at 10%. So that is $5,400 for the downpayment and $15,350 for everything else and 4.5 years of interest payments=$31,899 plus the interest not paid you for the downpayment but let's not split hairs. Income of $73,195 minus expenses of $31,899 generates a return of $41,296 divided by $31,899 for a return of 129%, or an annual return of 29% doing it my way.

Not bad. In fact, great. The Donald is vindicated except for the fact that OPM is based on the assumption the OP are either idiots or charities because...

Who is going to lend you this money? Not HUD. Oh, there may be a government program out there that will lend you the money but I don't know about it and I wouldn't qualify. Maybe you would but I doubt it. Will a bank lend it? Lend $31,899 for a property worth currently, maybe $27,000? Remember OPM assumes you can borrow just about everything. I don't think so. Maybe Mom and Dad will lend it. Give it a try. Or private individuals may lend it but they will charge a lot more interest and take a lot more of the profits.

Please feel free to take a whack at the analysis or come up with a better one. I'm going to send this to a friend that is much better at finance than me so we will see what he has to say. For now my head is spinning and I probably made some major mistake BUT no matter how you do it you will come up with the same conclusion--yes, you can make money in real estate but it isn't as easy or painless as the guys on TV would have you believe.

Just Be Glad You Are Not In The Newspaper Business

Very early in my career, like at the beginning, I had a boss who was not the happiest guy on the planet. He had about an hour and half commute by train each way which for me explained everything but so did a lot of other people but they seemed kind of normal. Not Dick, he was miserable.

Then one day he wasn't. Everyone noticed but put it down to exception. Until it happened again the next day and the next and the next. What was going on? As the junior guy with the most to lose, I was selected to ask about the reformation.

I did. Dick's answer--"I quit reading the newspapers."

Here is an article with a lot of references to newspaper articles which you may want to read but you should probably ignore if you want to be a successful investor.

Flaming Kamikaze Squirrels! (And Other Anomalies)

10/19/2007

Story Highlights:

• A true, prolonged bear market can’t be forewarned or foreordained by the mass media.
• This week’s market volatility is perfectly normal, not a specter of ghosts past—stocks remain a great value for investors

Discounting an anomaly is impossible. What are the odds a squirrel catches fire and ignites a car? Like zero, right? Whoops…it happened!

Flaming Squirrel Ignites Car in Bayonne
By N. Clark Judd, Hudson County Now
http://www.nj.com/hudsoncountynow/index.ssf/2007/10/flaming_squirrel_ignites_car_i.html

Flaming squirrels are uncommon…but fiery car-igniting squirrels are downright anomalies! As a car owner, there really is no way to protect against such an event, is there? (Do most car insurance policies cover flaming squirrels, or is that just geckos? If so, does that fall under “acts of god,” “collision,” “arson/vandalism,” or what?) We’ve written on the nature of market anomalies before:

Obsessing Over Black Swans (5/1/2007)
http://www.marketminder.com/commentary/commentarypage.aspx?articleID={798DE358-09EF-4BE6-B75C-AA673CB282E3}&sectionID=commentarydaily

On the 20th anniversary of Black October, today’s market drop (S&P 500 shed 2.6%) has some folks wondering if it’s déjà vu all over again. But this is no new bear market and no downside market anomaly. This is barely a bump in the road.

Why? Many reasons. An important one is Black Monday took just about everyone by surprise. It’s extremely difficult to have a true market crash everyone expects because that expectation will be baked in to stock prices a priori.

A true crash today would not come as a surprise—too many folks are worrying about it:

Crash and Quivers a Lesson, Not Guide
By Annette Sampson, Sydney Morning Herald
http://www.smh.com.au/news/business/crash-and-quivers-a-lesson-not-guide/2007/10/19/1192301043459.html

Watching for the Next Black Monday
Bryant Park Project, NPR.org
http://www.npr.org/templates/story/story.php?storyId=15436281

20 Years Later, Could Markets Crash Again?
By John Waggoner and Adam Shell, USA Today
http://www.abcnews.go.com/Business/PersonalFinance/story?id=3750809&page=1

Paint it Black
Economist.com
http://www.economist.com/finance/displaystory.cfm?story_id=9993586

As a matter of fact, the so-called ills frightening today’s markets are the oldest of this bull market!

Wall Street Walloped
By Alexandra Twin, CNNMoney.com
http://money.cnn.com/2007/10/19/markets/markets_0405/index.htm?postversion=2007101916

We quote: “Stocks slump, with Dow down 300 points on credit and housing sector woes, earnings fears, record-high oil prices, slide in dollar, questions about the Federal Reserve.” Not a new worry among them! That’s great evidence this is mere short-term investor psychology.

On Monday we gave our thoughts on why twenty years later a new Black Monday is highly unlikely:

Ghost of October Past (10/15/2007)
http://www.marketminder.com/commentary/CommentaryPage.aspx?articleID={3D4C6163-2B00-498C-8B3A-2481840C0DF0}

Keep in mind, the week’s market drop is not even the largest one week drop of the year. This is still well within the confines of normal market volatility.

Don’t fret stocks too much—their prospects for the immediate future are still stellar. This was just a rough week. But if you require further solace, here’s some sense about 1987 and today:

The Truth About the Crash of 1987
Donald Luskin, Poorandstupid.com
http://www.poorandstupid.com/2007_10_14_chronArchive.asp

Have a great weekend…and watch out for those kamikaze squirrels.