Easy Change

 In recent weeks my circumstances have changed with my retirement account and the bulk of my retirement savings is in a self-directed rollover IRA. I am able now to look and invest more broadly. This has caused me to be more and more interested in mutual fund alternatives like ETFs.  ETFs are Exchange-Traded Funds which are a newer investment vehicle that are traded on the open market during the day with most mainstream brokerages and you're able to know the going price during the day instead of waiting for the close of market to have the mutual funds be priced. Also, whereas traditional mutual funds often have a fee in order to get in, many of the ETFs have no load and also very low expenses.  Impact to the Market I've followed Consuelo Mack WealthTrack for some time. This week's guest is a longtime expert in the industry and while he previously has favored mutual funds, in particular index funds, he now believes that their days are numbered.  Indeed, Morningstar ...

 In the book A Random Walk Down Wall Street  author Burton Malkiel argues that the stock market is, as the title suggests, a random walk. In the book, which is cited and echoed by famous industry titans like Jack Bogle of Vanguard fame, it: 1. Makes little sense to think that you can beat the market. Indeed, on average you'll lose money when picking stocks. 2. In looking at when to invest and cash out of stocks, if you try to time the market you'll inevitably do worse.  This advice really stuck with me and I still believe this to be the case. But in the current environment, as many smart people do, I do find myself asking myself if it is different this time. Much of this is due to the performance of "broad market" indices. Diversification is the idea that by spreading your investment over many companies, you lower the volatility. You might have less upside, but you also have less downside risk. In the end, you're hoping the market as a whole does well, more than a...

Selling your house sucks. At least that is my view after seeing my parents struggle in various situations to sell their house. I work with someone who is very smart. He doesn't believe in real estate personally because he has also come to the same conclusion independently -- selling your home sucks. And in short, I agree with him now. That said, they need to sell. Why? Many baby boomers are in a similar situation where for many many years, they paid their bills dutifully and then continued to pay and live a nice lifestyle until they realized at the end of their working years that there was not all that much money available to handle things that needed to be paid for, particularly if they stopped working. Social Security to the Rescue? So, we'll just bank on social security? Not a great plan in my option. So at this point, we're back to more traditional methods of handling your retirement. Trading up in houses over and over and paying off an expensive house with h...

So, if you've already figured out what to do with your savings, and you're aware that you should pay yourself first. But the question is what to do when things get busy and you're already on automatic with your money? Even the best plans need some occasional changes and tweaking. So, make sure that you're taking the opportunity to revamp your freedom fund and expense estimates each year. I find that the best time to do that is tax time. This year, I reduced my additional increase from 3.0% to 2.0%. Inflation seems to be in check and fortunately, things seem to not be expected to change in the near term. So, I determined that I needed to save approximately an additional thousand dollars in my freedom fund in order to stay current. Then I did something similar for my emergency fund (or e-fund as some like to call it). Once those two were satisfied, I had to decide what to do with any additional funds that I might have available. One option that many like to use is to fini...

It has been a very long time since I last updated and I've accumulated some stories that I can share about the past few months in my next several posts. I hope that they will be found to be useful and interesting. After a very long period of time, the economy has come back. It seems now, although there are some small shifts day to day and week to week, that the stock market has found some sort of steady point. Of course, there are many that think that this could all change and that there is still a chance of a double bottom. All of this is really a side show in my opinion. What matters most to people is what is happening in their own personal financial life. That is, what is the most important thing in each person's life that keeps them from being happy. For many right now, it is a combination of a lack of a good-paying job and/or an overabundance of expenses. This past six months has been quite good; expenses remain low and the debt snowball continues as I am working toward pa...

Since this question was asked over at No Credit Needed, I figured I'd take a crack at it. Please note, I am not a financial advisor and I don't play one on T.V. -- any advice/ideas that are presented here is solely the opinion of the author. Please do your own research/consult your own accountant/financial adviser before making any decisions based on this information. NCN asks: "Should I invest my retirement funds in ETFs, Mutual Funds, Bonds, or Individual Stocks? Depending on your answer, what should the proper "mix" be?" In general, I would rule out Individual Stocks for a retirement fund. Retirement funds in general are long-term. And most of the time, if you are getting a stock, it is because you are thinking it will go up over the short or medium term. So buying individual stocks seems a little wierd to me for retirement planning. So, that limits it back to ETFs, Mutual Funds, and Bonds. Again, I would avoid individual bonds and instead focus on a bond...

As I generally keep a pretty good eye on my retirement, I find it interesting now to see all of the stuff that is going on in terms of the markets. People acknowledge that the markets are doing much better than the economy. Last night I watched a news report that showed that the increase from 12k to 13k for the dow has only taken the last 7 months whereas the previous increase of 1k took 7 years. Now granted, I will give you the fact that compounding helps, but the power of compounding (in the short-run) for 11k is not all that different than 12k. So that is not the whole answer. Should I be discounting? What I am considering is actually padding my retirement spreadsheet by adjusting my retirement account figures down by 5% in order to "buffer" for the coming storm. Frankly, I am glad that the market is seeing all time highs, but I think in that sometime in the next 30 years there is going to be some kind of correction for this kind of growth. It's just a little too much...

Not long ago I was riding the commuter train home from work. And while I was on the train I remember someone discussing their retirement account that had about 70k in it. This seemed amazing, if not impossible since I knew that I was only able to contribute a mere fraction of that. I felt discouraged as I went home. All of this despite the fact that this was a guy that was at least 10 years older than I was. But here I was thinking that I should have much much more in my account and that there was no way for someone like me to achieve this. If you're looking for a great ending, stop now. There isn't one. I don't have that kind of money....yet. But I have learned to let go of this fear, this resentment toward people with nice and fat net worths. It seems all too easy for people to give up or become resentful against the rich since they think, hey, I can't even do that if I wanted to. Laura Rowley takes this attitude on with an amazing column on Yahoo Finance this week. h...

So I will admit it. I am a little scared. Since the open enrollment for changing and updating our 401k contributions just happened at work, I decided to go up another point. I made the change online yesterday but it is a little scary. I did some quick math and I can afford it but I will definitely be tight when it comes to pocket money. However, there is an upside!. If I am able to keep myself at this percentage, I did some calculating that with normal pay increases and compounding it could increase my nest egg by a couple of hundred thousand bucks in retirement. Thats no small change. So I am hopeful. Of course, there are tons of variables in the equation, but I never really thought that I would be able to increase my deduction three percentage points in less than a 18 months. It has been the result of careful money management and being very diligent. Now lets just see if I can make it work :)

Retirement planning is a tricky business, and I guess when it comes right down to it, I should trust the experts. But when I do these online retirement planners and calculators, I cannot help but feel annoyed. The latest one I tried out was a basic one on the fidelity website and according to them, I will have somewhere between 700k and 1.5 million when I retire, even though I need about 2.5 million (according to them). But the flaw with most calculators, this one included, is that you don't understand enough of how they got to their conclusions. The scary part for me is that I have done some basic calculations and I have found that I will more than handle the amount of money that will be needed. My conservative calculations put my likely retirement somewhere around 1.7 million for just my 401k and then 150K for my roth. And all of this is not including real-estate or potential social security. And all of these are conservative calculations where I only intend to increase my con...

I like to watch the Suze Orman show. I know some people don't like her, but most of what she says makes sense to me. Anyway, she started a show that I saw this weekend with one of the most clear explanations of why it is good to own your own home that I have seen in a long time. She gave the following example. If you plan to live in your home for the rest of your life, then it generally makes sense to own it outright. In the later years of a mortgage, the tax deduction is much smaller than at the beginning of the mortgage. However, the payment amount stays the same. In a scenario that you retire early, and then find yourself still paying a mortgage, you will have to ensure your retirement savings are enough to nut each and every month. She gave as an example a 200K mortgage over 30 years that had been paid down for 20 years to a principal of 100K. This would be a 1200/month mortgage payment. And with some estimating at a reasonable return of 5% on retirement savings, you would hav...

One of my favorite msn articles talks about the importance of saving early for retirement. The article focuses on starting early so that you can get to 1 million dollars. However, one of the major points of this is that you should be tackling asset allocation with the same aggression that you tackle saving early. The article underscores this point. The article explains that large cap us stocks grew at about 10.7%. However, it contrasts this growth with a later statement: " If you invested in small company stocks, whose long-term annual return clocks in at 12.5 percent annually, you could have much more money." It puts this figure at about 2.4 million. The importance of asset allocation cannot be denied, especially when compounding is considered. Sure, small caps (those stocks which have less value in the stock market) are risky and volitile. The volitility comes from lots of different factors Mutual funds of large caps seem safer and therefore more desirable. However, when ...

After a bit of thinking, I was concerned that there was going to be some sort of conflict when I had the question cross my mind about someone -- they are likely going to be getting a significant contribution from employer-side with regard to SEP this year. However, they also contribute to a ROTH IRA individually, but the question/concern was: will the high employer-contribution actually reduce the allowed contribution to the individual's ROTH IRA account? Thank goodness for the internet. Since after reviewing the correct publications on the IRS website, it is clear. http://www.irs.gov/publications/p590/ch02.html -- this states: " If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRA...

To me, its all about retirement. Retiring well, retiring earlier. These are my two goals when it comes to money. And the only way I've been able to work toward that goal is by working on both sides of the expenses/income equation. Reducing expenses comes in the form of paying off debts and scaling back spending and avoiding -- and I mean avoiding like the plague -- any type of installment/interest-based debt. Income generation is either finding ways to make more money in the same amount of time or finding more jobs or income sources. Staying in a budget is the best way to keep track of these changes and ensure that the equation is balanced favorably. Ideally, I'd like to see that I am spending only 75% of my income and saving 25%. That would get me to retirement fast. I'm not sure if that will ever happen; its a lofty goal. Improving The System The system for doing all of these things is my budgetting spreadsheet. I am obsessed with it. That is not a joke or an understateme...

One of my major goals for this year was to take all of the information that I had gathered and get my budgetting spreadsheet updated with all of my personal information. The way that I keep myself in check with money is by using a budget. And the way I stick to the budget is by using a simple excel spreadsheet that I created that has my own personal layout that suits me. It also serves to make sure I get my bills paid on time and keep my accounts balanced. New improvements for the 2007 spreadsheet include bill categorization. During 2006, I had all of the bills itemized which is fine and I will continue to do, but I found that I was really interested in keeping the money in categories -- but probably not the ones you are thinking of -- categories of expenses. For me, there are just three categories: recurring, debt, savings. Recurring expenses or (inescapable expenses) as I like to call them refer to expenses that happen every month and generally cannot be avoided. The sum of these ex...

So I checked into my Fidelity 401k account this morning and I am noticing new tabs and things that I haven't really looked at before. Of course, one of my biggest regrets is that I didn't start saving for my retirement earlier and with a higher deduction from my check. But that's water under the bridge and all I can do now is try to catch up. So I was checking out the Fidelity site and just seeing what is there and available. And I noticed that one of the things that was there was a quick checkup type thing that you can do. A Simple Calculator The nice thing about the fidelity calculator for retirement is that it lets you see a "monte-carlo" type simulation so that you can figure out how much you will have on the upside and the downside, rather than just giving you a flat average like most plans do. Personally, I am on track to meet my own personal goals, but if I were to rely on fidelity, I would be in way over my head. Inflation Runs Amok Quite simply, inflation...

So I've started using NetWorthIQ to track combined net worth. And I like the simplicity of the system but the problem is that there are these categories, that I really like, but it really creates a feeling of "keeping up with the joneses". I click on people who live near me, have the same level of income or type of job and then I find that I am painfully behind them. What does this do other than make me upset and feel "less-than"? Bollox. Anyway, now I am in the process of figuring out what is going to work for me and keep me involved over the long haul. That is my main concern now. I've been able to keep track of the financial stuff via an excel spreadsheet and I think that it is really nice but I don't feel the need to get too much more involved than that. I think that I will never really get to the point that I really need to get into quicken or ms money. It just seems like more work than is necessary for me. Bottom Line: total net worth increased ab...

Whenever you think of the talk, you think of safe sex right? The birds and the bees? Well, when it comes to personal finance and talking to your parents, the talk is when you talk about how they plan to handle the difficult stuff like what to do when they retire and all of that. Yesterday, I gave my mom a call and she was not busy and thought it would be a good idea for me to come over and we would talk about "money stuff". So, when I got over there I was totally impressed. Without even asking, she had written out exactly what her income and expenses were. She had a paystub to show me what she is currently contributing to savings and retirement accounts and was quite at-ease about the whole thing. This made me very happy and comfortable because I know that despite some of the debt hurdles and other issues she is facing, there is a reasonable plan to deal with them. We talked about how she would handle her debt and also discussed a couple of small steps for her to do. Next tim...

Paying off my debt is the first step though. I work hard. I think that most people would say the same thing about themselves. However, in this hustle and bustle of 403Bs, Roth IRAs, defunct pension funds and Medicare worries, we often lose sight of what retirement is all about and why these financial issues are so important. Recently, I had a nice, long vacation. Eleven days to be exact. And during that time I did some relaxing, some chores, and overall just enjoyed myself. This was what I would expect out of my retirement and what I am saving for. But I realized that many people are not in that position in their retirement. They are having to choose between their heart medicine and a decent dinner. This is not meant to scare anyone. However, the simple fact is that in our retirement we will likely be earning less than we do now. The worst shock of retirement for many people is realizing that the day they retire they will only have about 1/3 or 1/2 of the monthly income that they used ...