Archives For December 2008

2008 Benchmark Index Returns

December 31, 2008

Okay, the markets closed about 30 minutes ago. Here’s a quick look at how some of the major U. S. market indexes performed for 2008. NOTE: These are not total returns. I’ll publish total returns as soon as they are available.

I don’t know about you but I’m happy to say goodbye to 2008!

I FINALLY got an iPod! My wife bought me the 160 GB iPod Classic. I LOVE IT!

Every CD I own has been ripped and stored on my music hard drive. I have spent some time over the last few days, going through my music library and loading up my iPod. I even purchased one of those cassette adapters so that I can play the iPod in the car. The sound quality isn’t perfect but it will do until I get an iPod-ready stereo.

The really cool thing:

NO MORE CDs IN THE CAR! I used to have 30 or so CDs sitting in my car at all times. Now, I have an iPod.

Anyway, I’m curious to know how many songs you have on your iPod. Naturally the number depends on the size of your iPod but I’d still like to know. So far, I have 8,907 songs (or files as there is a book included in those numbers). Nearly all of my files are ripped at the highest quality, which means they take up more room. But, according to my iPod, I have nearly 70 gigabytes of empty space left.

Here’s this week’s Ten for Tuesday. Enjoy!

1. From Charles Schwab comes the Personal Finance Calendar for 2009.

2. Brian Tracy’s short and sweet Guide to Time Management.

3. A TV cannot change your life.

4. The Digerati Life takes a look at how the Madoff fraud affects us.

5. How to Keep Your Job While Unemployment is on the Rise

6. Six Financial Milestones to Reach Before You Turn 30.

7. Buying TIPs on the Secondary Market (along with Part 2 and Part 3)

8. Meg details her first eBay experience as a seller.

9. Lazy Man maps out his 2009 blogging strategy. I need to work on the income-side of my blog.

10. The Gift of Time.

The three credit bureaus will begin using a new formula to calculate credit scores in 2009 – just as folks were starting to get the hang of what goes into the old formula. Transunion will roll out the new formula in January, Equifax in the Spring, and Experian is TBD as of yet.

The primary difference in the new formula (dubbed “FICO 08, as it was supposed to be rolled out in 2008) is that it is even more sensitive than the classic FICO as to how much of your available credit you’re using.

According to Yahoo! Finance columnist Liz Pulliam Weston, “if your credit card issuer slashes your credit limit — which is increasingly likely these days — you could see your scores plunge, regardless of whether you carry a balance.” Not. Good.

The new scoring formula also responds more negatively if consumers have few open, active accounts. So make sure to use your oldest cards at least quarterly in order to keep them active. And it might be worth opening another account if you only have one or two (this will raise your overall credit limit AND the number of accounts in good standing you have – as long as you keep them in good standing).

Another negative impact is that they are “materially limiting” the impact on your score if you are merely an authorized user on someone else’s account. So now new college grads – and spouses with limited credit in their own name – will not benefit substantially by adding their name to credit accounts of their parents’ and spouse’s.

OK, time for some good news. Collections items and even “mishaps” like charge-offs and repossessions won’t hurt you as much.

The new formula ignores small collection accounts in which the original debt was less than $100. This is a big victory for consumers and one I’ve advocated for years, because niggling little debts — created by unpaid library fines, forgotten parking tickets or a small medical bill that slipped through the insurance cracks — had an outsize impact on people’s scores.

Fair Isaac says the new version is less punishing to those who have had a serious credit setback, such as a charge-off or a repossession, as long as their other active credit accounts are all in good standing.

[Excerpt from Liz Pulliam Weston’s article, linked above.]

This sounds like nothing but bad news for consumers, except potentially for consumers with charge-offs and / or collections items.

More from Meg at The World of Wealth

Okay, here’s today’s question of the day:

How much of a stickler for details are you when your kids do a chore?

I ask this because I don’t know if I’m expecting too much of my kids.

Here’s the way things usually play out:

The boys are supposed to do their chores. They know what chores they are supposed to do—there are no surprises and yet I have to remind them. Anyway, they have been shown how to do the chore properly. However, they still try to do a 30-minute job in 5 minutes and then get all bent-out-of-shape when I point out all the stuff they missed or did half-ass.

So, to “solve” my problem, I wrote out step-by-step instructions on how to clean the bathroom. This way the expectations are fully explained, so there are no excuses. If this doesn’t seem to work, I’m going to turn it into a checklist that they have to check off as they complete the chore.

We’ll see if this works. I gotta do something different. I keep doing the same things over and over again but expect different results. Something’s gotta change!

Why is this important? Because there is a right and a wrong way to do things (the bathroom is either clean or it is not). I don’t think I’m being unreasonable in expecting them to do the job correctly. Maybe I’m at fault for not explaining my expectations clearly. Someday they will be working for an employer and knowing how to do the job right will be important.

Thoughts? Would you like me to post my step-by-step instructions?

As some of you may know, I became a landlord earlier this year. I now own two duplexes (4 units), one advantage of which is that it is very unlikely that all my tenants will be delinquint at once.

Unlikely, but not impossible of course.

So far this has worked out well. Earlier this year one tenant was 30 days late paying her $1,095 rent. Not that big a deal – the other 3 tenants were paying and I had no cash flow trouble while I waited for her to get caught up (which she eventually did).

Another tenant has taken to paying late on a regular basis. This I have been able to deal with because the other 3 have been paying on time. I’ve had no problems making the mortgage payment before I get that month’s rent in full (plus late fee of course).

They might each miss a payment now and then, and I’ll inevitably deal with vacancies, but having 4 units helps me sleep at night because even if one is vacant or delinquent, in theory I will have the other three paying tenants to support me.

Theory, as it turns out, works out much better on paper.

One of my tenants missed his November payment, as usual. I waited to be paid, which usually happened about 15 to 20 days late every month. Well, the 30th rolled around, and he called me – not to schedule a payment but to apologetically inform me that he couldn’t pay and that he was moving out instead (allegedly he was laid off).

Conveniently, he had arranged for a friend to take over the lease, which began in December. But I was still out November’s rent money (though the former tenant claims he will eventually pay me, which I’ll believe when I see it).

This is the kind of thing that would have been not that big of a deal except that his neighbor, my other tenant, didn’t pay for November either. Her husband got laid off, her ex-husband died unexpectedly, the grown kids all came to stay during the funeral, blah blah blah. She begged for time to make me right (and she always has), so I gave it to her.

That was November – two tenants out of four didn’t pay. OK, no big deal, I have reserves. At least my other duplex was doing great. Both tenants pay on time, every time.

Except for in December. This month I received only one rent check from Duplex 2. The other lady has still not returned my calls or invoices or emails, and it looks like I may have to begin the eviction process as she is 30 days late tomorrow.

Meanwhile I still haven’t received rent from the tenant with the laid off husband (though we are supposed to meet today so I can collect November AND December rent from her in person).

So in summary, I have 4 units. For the months of November and December I should have collected – but have not – an additional $800 for unit 1, $1,600 for unit 2, and $1,125 for unit 4.

My checking account should be $3,525 higher today than it is. UGH. And I had to scrape together almost all of my reserves to pay my property taxes before the year is out. HOPEfully when I meet with the lady from unit 2 today she will pay me the $1,600 in full that she owes for these last 2 months. That will help.

More on Meg’s landlord adventures at The World of Wealth

Boost Reserves or Buy Stocks?

December 26, 2008

Many people who save regularly are facing a similar dilemma in the wake of the 2008 market chaos as they look ahead to setting 2009 goals. Should I boost my cash reserves or should I buy stocks?

Cash is probably the right choice if you:

  • Need the money to spend in less than 7 years,
  • Aren’t sure about the stability of your company and/or job,
  • Have an income largely dependent on rental income, retail sales, or your own business, or
  • Don’t have any emergency fund or short term savings whatever.

Of course, there is never a BAD time to be boosting reserves; it’s hard to argue against such conservativism even in the best financial times. We all need to have money set aside in case we are temporarily disabled, lose our jobs, have a medical emergency, etc etc. Then there is that new car/TV/appliance/engagement ring we plan to buy in the next 5 years for which it is best to have cash to pay.

But it is also tempting to buy stocks in what appears to be a fantastic opportunity of a generation, especially if you:

  • Don’t need the money for 10+ years,
  • Have an income that is stable and/or easily replaceable,
  • Don’t have many obligations such as dependents or large fixed costs, and
  • Have an emergency fund that will get you through a few months in a pinch.
  • I for one am torn.

    The markets are down around 40% for the year. Buy Buy Buy! screams the greedy voice in my head. I realize that I’ve been known to try to “catch a falling knife” before by making a bad stock pick and buying more and more shares as it tanked to near-worthless territory. But this is different; this is the whole diversified market. What could be more advisable than boosting my 401k contribution and taking advantage of a market dip early in my formative saving years?

    So I did that; I suspended all other savings and boosted my 401k contribution to 20%. It has been exciting to see my contributions and balance rise a bit over the last couple of months. But at the same it has been disheartening to notice that my emergency fund has frozen. It just sits there, not getting any bigger like it used to every month – and it’s not that big to begin with. It would really only get me through 1.5 months of expenses if I got laid off.

    On the other hand I have credit and taxable investments and wealthy relatives who could help in a real emergency. And in a temporary pinch (like a tenant vacancy), I can always suspend my 401k contributions…

    But will I ever really know or notice the difference if I cut my 401k contributions back down to something reasonable and stock up on reserves this year instead? So I’ll end up with $568K instead of $600K in retirement funds one day down the line because of this choice. Does it really matter? Isn’t it more important to protect myself in the short term and make sure I have a comfortable cushion in case I can’t – or don’t want to – work in the foreseeable future (as opposed to my wholly unforeseeable retirement)? I mean it’s not like I’m not saving for retirement; I just really don’t have to go all in.

    I am one of those odd people who is half crazy conservative (i.e. I want to buy physical gold to barter with in case of financial Armageddon and I want to own raw land outright which I can farm in case of the Great Depression II, and I want all my other investments in inflation protected government insured securities) and half crazy aggressive (i.e. I want to load up on 100% stocks – especially international ones which have really tanked, and I want some commoddities exposure and to bet on oil, and I want to leverage up my balance sheet to buy lots of real estate that will boost my income down the road, and who really has a year’s worth of expenses sitting in cash??).

    I know that the reasonable thing to do is limit my 401k contributions to 10% and put the other 10% in cash. That’s probably the reasonable thing to do. But I think I am going to see how far the 20% in my 401k can take me before I start to feel any sort of crunch. How are you prioritizing your financial goals in the coming year?

    More from Meg at The World of Wealth