I'm not a fan of any credit cards. But, some are worse than others. You see, some cards use what's called two-cycle billing. Two-cycle billing means that the average daily balance is calculated on a two-month cycle rather than the 30-day cycle used by most credit card companies.
My big beef with two-cycle billing is that credit card holders are paying interest on money that they've already paid off. Here's a really good article called How Finance Charges are Calculated on Credit Cards that I found on the University of Kentucky College of Agriculture website. This article is definitely worth checking out.
One other thing to remember is that some charge interest DAILY. So, if you have carried a balance on your card for more than a month and you get a statement that says you owe $500 and you want to pay it off, you have to call the company and find out what your finance charges are BEFORE you send in your payment. If you just write a check for $500 and send it in, you will get another statement with a new balance on it for the amount of interest you owe.
So, how do I know all this? EXPERIENCE!
Just make sure you read ALL the small print BEFORE you sign up.
Until next time...
Sunday, 16 January 2005
Saturday, 15 January 2005
The Barron's Challenge
Attention College Students! I saw this in Barron's today:
Students and teachers at accredited two- and four-year undergraduate U.S. colleges and universities and accredited graduate schools can participate in Barron's online investing/trading contest. Registration takes place through a link at www.barrons.com. Students and teachers compete in separate groups.
Dang! I wish I was in college!
Students and teachers at accredited two- and four-year undergraduate U.S. colleges and universities and accredited graduate schools can participate in Barron's online investing/trading contest. Registration takes place through a link at www.barrons.com. Students and teachers compete in separate groups.
Dang! I wish I was in college!
Magazine Portfolios
You probably see them all the time. You know, you're standing in line at the grocery store and you see Money, Kiplinger's, or Smart Money with the following cover stories or something similar: "Eight Stocks to Buy NOW!" or "The Ten Hottest Mutual Funds to Buy NOW!"
I always wonder just how well these magazine portfolios perform. So, I'm going to start keeping track and I'm going to post the results from time-to-time (as I have the time) on this site.
I'll start posting the results in the next day or two. Check back and see how they do.
Until next time...
I always wonder just how well these magazine portfolios perform. So, I'm going to start keeping track and I'm going to post the results from time-to-time (as I have the time) on this site.
I'll start posting the results in the next day or two. Check back and see how they do.
Until next time...
Thursday, 13 January 2005
Social Security
Is there a more controversial topic these days?
I'm thirty-five and a capable investor. I'm not worried about not getting Social Security. In fact, I'm not planning on it. I'd prefer to do as much preparation for retirement on my own as I can and not worry about what the government is or is not going to do.
But, surely there is a way to fix this system. I have a few ideas that I'd like to share. Some are pretty obvious and others are quite drastic. Here we go:
1. Either cut future benefits or increase the qualifying age for receiving benefits.
2. Start educating people about the importance of saving for retirement. Start public service announcements discussing retirement planning. In other words, make people feel guilty if they aren't saving for retirement. Saving for retirement must be a priority for everyone.
3. Allow people to receive a tax break if they donate their Social Security payments back to the system. There are a lot of retirees who receive Social Security payments and don't really need them.
4. Turn Social Security into a sort of Medicaid program for retirees and only give benefits to those who qualify. Going this route would pave the way for a reduction in Social Security taxes. I would much rather manage my own money than have the government do it for me.
5. The most drastic of all: MAKE people save for their retirement. Deduct 10% from their earnings and make them invest it for retirement. If people are too stupid to do it for themselves, then perhaps someone must do it for them.
I would like to hear what you think. Either send me a comment or an email.
Until next time...
I'm thirty-five and a capable investor. I'm not worried about not getting Social Security. In fact, I'm not planning on it. I'd prefer to do as much preparation for retirement on my own as I can and not worry about what the government is or is not going to do.
But, surely there is a way to fix this system. I have a few ideas that I'd like to share. Some are pretty obvious and others are quite drastic. Here we go:
1. Either cut future benefits or increase the qualifying age for receiving benefits.
2. Start educating people about the importance of saving for retirement. Start public service announcements discussing retirement planning. In other words, make people feel guilty if they aren't saving for retirement. Saving for retirement must be a priority for everyone.
3. Allow people to receive a tax break if they donate their Social Security payments back to the system. There are a lot of retirees who receive Social Security payments and don't really need them.
4. Turn Social Security into a sort of Medicaid program for retirees and only give benefits to those who qualify. Going this route would pave the way for a reduction in Social Security taxes. I would much rather manage my own money than have the government do it for me.
5. The most drastic of all: MAKE people save for their retirement. Deduct 10% from their earnings and make them invest it for retirement. If people are too stupid to do it for themselves, then perhaps someone must do it for them.
I would like to hear what you think. Either send me a comment or an email.
Until next time...
Monday, 10 January 2005
A Twist on Index Investing
I'm a spreadsheet kind of guy. In the spirit of spreadsheet madness, I did a little study using the Dow Jones Total Market Index from 1992 - 2004. The purpose of the study was to see if there was a way to index and still beat the index. Huh?
Before I get into the nitty gritty it is important to know a little about the Dow Jones Total Market Index (from now on I'll simply call it the DJTMI). The DJTMI is a market-weighted index, meaning larger companies (based on market value) make up a greater percentage of the index than do smaller companies. This is not unlike other indexes like the Standard & Poor's 500 Index. But, the cool thing about the DJTMI is that it is composed of the following ten sector indexes:
Basic Materials
Consumer, Cyclical
Consumer, Noncyclical
Energy
Financial
Healthcare
Industrial
Technology
Telecom
Utilities
For my study I put together a portfolio putting equal dollar amounts in each of the ten sector funds and rebalanced them at the end of each year. Here are my results:
NOTE: I used Geometric Average instead of the simple arithemetic average because it is a more accurate measure of return. Just trust me on this! Also, I used the index returns for my calculations because the corresponding Exchange Traded Funds have not been around long enough. So, that means actual returns would have been less due to brokerage fees and Exchange Traded Fund expenses. Even so, this strategy would have still outperformed the DJTMI in 2004.
So, if you want to increase your returns but still want to index, consider this method. For those interested in learning more, send me an email using the link following this post. I'll send you an Excel 2003 Spreadsheet of my study.
Until next time...
Before I get into the nitty gritty it is important to know a little about the Dow Jones Total Market Index (from now on I'll simply call it the DJTMI). The DJTMI is a market-weighted index, meaning larger companies (based on market value) make up a greater percentage of the index than do smaller companies. This is not unlike other indexes like the Standard & Poor's 500 Index. But, the cool thing about the DJTMI is that it is composed of the following ten sector indexes:
Basic Materials
Consumer, Cyclical
Consumer, Noncyclical
Energy
Financial
Healthcare
Industrial
Technology
Telecom
Utilities
For my study I put together a portfolio putting equal dollar amounts in each of the ten sector funds and rebalanced them at the end of each year. Here are my results:
DJTMI
Rebalanced
Annually DJTMI
1992 9.30% 8.74%
1993 10.97% 9.78%
1994 1.54% 0.21%
1995 36.14% 36.62%
1996 18.77% 22.08%
1997 30.01% 31.75%
1998 23.19% 24.90%
1999 18.30% 22.72%
2000 1.63% -9.23%
2001 -10.27% -11.95%
2002 -17.81% -22.08%
2003 26.03% 28.44%
2004 12.53% 10.16%
Average 12.33% 11.70%
Geometric Average 11.28% 10.24%
NOTE: I used Geometric Average instead of the simple arithemetic average because it is a more accurate measure of return. Just trust me on this! Also, I used the index returns for my calculations because the corresponding Exchange Traded Funds have not been around long enough. So, that means actual returns would have been less due to brokerage fees and Exchange Traded Fund expenses. Even so, this strategy would have still outperformed the DJTMI in 2004.
So, if you want to increase your returns but still want to index, consider this method. For those interested in learning more, send me an email using the link following this post. I'll send you an Excel 2003 Spreadsheet of my study.
Until next time...
Wednesday, 5 January 2005
Do the Math BEFORE Refinancing a Mortgage!
I got an offer in the mail from a mortgage company in the Dallas area. Here's what it said:
"You now have the opportunity to refinance at "NO-COST" to a rate that is at or below 5.875% A.P.R. We will pay our closing costs because we are paid a percentage of the new loan from the new investor."
Since the offered APR was about 2% lower than the rate we are currently paying, I decided to check it out. We still owe about $80,000 on our original 30 year mortgage and another $11,800 on a home equity loan. My goal was to roll both of those loans together at a lower interest rate and therefore reduce our monthly payments.
I talked with a salesperson who was very eager to get my business. She sent me a packet with a Good Faith Estimate. Basically, their "NO-COST" line was a load of hooey. I just about fell out of my chair when I looked at all the costs associated with this loan (I'm just talking about the section entitled "Items Payable in Connection with Loan" on the Good Faith Estimate). They pretty much had a fee for everything. The fees were listed as follows:
Just that portion alone was nearly $1,200 more than we paid with our original loan 5 years ago. And, all these fees were being rolled into the new loan, meaning I was going to be financing these expenses over 30 years. And, to top it off, I wasn't getting the 5.875% APR they stated in the letter.
By the time all the fees and reserves were calculated, the amount being financed was $101,300 and I was starting over with another 30 year mortgage! Needless to say, I didn't go for this mortgage.
That brings me to the point of this post: DO THE MATH BEFORE YOU REFINANCE! I'm afraid too many people don't take the time to really understand what they are getting into. Most people look at one number: the monthly payment. However, just because the monthly payment is lower does not mean it's a good deal.
Until next time...
"You now have the opportunity to refinance at "NO-COST" to a rate that is at or below 5.875% A.P.R. We will pay our closing costs because we are paid a percentage of the new loan from the new investor."
Since the offered APR was about 2% lower than the rate we are currently paying, I decided to check it out. We still owe about $80,000 on our original 30 year mortgage and another $11,800 on a home equity loan. My goal was to roll both of those loans together at a lower interest rate and therefore reduce our monthly payments.
I talked with a salesperson who was very eager to get my business. She sent me a packet with a Good Faith Estimate. Basically, their "NO-COST" line was a load of hooey. I just about fell out of my chair when I looked at all the costs associated with this loan (I'm just talking about the section entitled "Items Payable in Connection with Loan" on the Good Faith Estimate). They pretty much had a fee for everything. The fees were listed as follows:
Loan Origination Fee Due Lender $1,013.00
Credit Report $12.05
Tax Service Fee $70.00
Processing Fee $495.00
Underwriting Fee $575.00
Loan Warehouse (what the heck is this?) $150.00
Courier $25.00
Flood Certificate $13.50
Grand Total $2,353.55Just that portion alone was nearly $1,200 more than we paid with our original loan 5 years ago. And, all these fees were being rolled into the new loan, meaning I was going to be financing these expenses over 30 years. And, to top it off, I wasn't getting the 5.875% APR they stated in the letter.
By the time all the fees and reserves were calculated, the amount being financed was $101,300 and I was starting over with another 30 year mortgage! Needless to say, I didn't go for this mortgage.
That brings me to the point of this post: DO THE MATH BEFORE YOU REFINANCE! I'm afraid too many people don't take the time to really understand what they are getting into. Most people look at one number: the monthly payment. However, just because the monthly payment is lower does not mean it's a good deal.
Until next time...
Tuesday, 4 January 2005
Check Out That Charity BEFORE You Give!
With efforts to help the tsunami victims, it is important to check out the charity before you make a donation. There were three websites mentioned in today's (Tuesday, January 4th) Wall Street Journal. Those sites are:
Charitywatch.org
CharityNavigator.org
Guidstar.org
So, before you make a donation, you might want to give these sites a look.
Until next time,...
Charitywatch.org
CharityNavigator.org
Guidstar.org
So, before you make a donation, you might want to give these sites a look.
Until next time,...
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