Bidding Farewell to a Crappy Decade…

As it stands at the writing of this post, the S&P 500 Index returned -9.16 over this past decade (January 2000 – December 21, 2009). Here are a few interesting tidbits I gathered from the data:

• Of the 120 months of this past decade, 50 of them had negative returns.

• Of the 50 months with negative returns, the worst was October 2008’s -16.8%.

• The average monthly return over the decade was .03% (highly misleading–see the next point).

• The geometric average monthly return over the decade was -.08%.

• Of the 70 months with positive returns, the best was March 2000’s 9.78%.

• $10,000 invested on December 31, 1999, would be worth $9,083 at the time of this writing (hypothetical…does not include fees).

• The peak value of that $10,000 investment would have occurred in October 2007 at $11,992.

• Dollar-cost-averaging $83.33 per month ($10,000 total) over the decade would be worth $10,689 at the time of this writing (again, hypothetical as it does not include fees).

Even as bad as the past decade has been, it’s hard to be optimistic about the coming decade due to valuations. The S&P 500 Index currently has a P/E ratio of 85.93 and a dividend yield of 1.98%—not exactly bargain territory. Our only hope is that corporate earnings pick up and pick up fast.

OT: Check Out This Violinist

I couldn’t sleep last night so I grabbed my iPod and scrolled through until I found something interesting to listen to. I settled on Felix Mendelssohn’s Violin Concerto E minor, Op. 64 (classical music titles confuse me). This concerto has three parts. The last part, Allegro molto vivace is what I want you see. The version I have in my music collection is played by the London Philharmonic Orchestra, conducted by Charles Dutoit with Salvatore Accardo on violin. The version I found on the YouTube is Sarah Chang with the New York Philharmonic. This is awesome:

How About a Credit Card with a 79.9% APR?!?

Beth sent me a link to this story this morning:

Credit Card’s Newest Trick: 79.9 Percent Interest

Basically, this bank used to charge $256 per year in fees on a credit card with a $250 credit limit. The new credit card laws limit fees to 25% of the credit limit. So,…the bank is now charging a $75 annual fee and is jacking up the interest rate to 79.9% on a maximum credit line of $300.

There’s no way around it, 79.9% is an extremely high APR. I ran a few numbers with a spreadsheet assuming the following:

January 1, 2009 – Get the card and immediately charge $300.
February 25, 2009 (and every following month on the 25th) – Make payment of $20.

On the statement closing date of December 25, 2009, the card would still have a balance of $284 (and this doesn’t even include the $75 card fee!).

Now, if this person were able to afford to pay $30 per month, the ending balance would be $137.

All I can say is at least the credit line is capped at $300. At least people can’t go out and charge up several thousand dollar’s worth of stuff.

Also, since the card carries a higher APR and a smaller annual fee rather than the much larger annual fee, the interest charges can be avoided by not carrying a balance.

I’m just thankful I’m not in a predicament that would require me to pay off $300 over time.

Thanks, Beth for the link!

A Blessing From the Recession

I read this in the WSJ this morning:

Next spring, Fine Living Network, a cable channel created in 2002 at the height of America’s infatuation with affluent living, is slated to be phased out. In its place, Scripps Networks Interactive Inc. will launch the Cooking Channel.

Gone will be “I Want That!” celebrating diamond-encrusted sinks, and “Dream Drives,” showcasing America’s richest zip codes. Instead, viewers will see shows focusing on instructional cooking at home.

“It’s not so much [that we have] a different audience but an audience that’s acting different,” said John Lansing, president of Scripps Networks Interactive. “Their value system is shifting from aspiring to material wealth to aspiring to a life better lived.”

Now if they’d only do the same thing with Extreme Makeover – Home Edition!

Anyway, I welcome the ‘getting-back-to-basics’ lifestyle. Materialism brought to the masses is usually not a good thing because people start wanting things regardless of whether or not they can actually afford them. I think that’s what we saw with the housing crisis. Builders kept building bigger, fancier, more expensive houses and people kept having to stretch themselves a little further to be able to afford them.

Now I’m reading reports that builders are scaling back in their designs. They are cutting out square footage and taking out some of the amenities in order to make the homes more affordable.

Now if we could only start manufacturing more products here in the U.S.A…

Should You Convert to a Roth IRA in 2010?

I listened in on a Roth IRA Converstion conference call with a Charles Schwab representative this morning. offers a pretty nice resource for Roth IRAs.

In 15 days an opportunity will become available that will allow people at all income levels to convert a non-deductible IRA to a Roth IRA. Previously, that option was only available to those with modified AGIs of less than $100,000.

As the host of the conference call mentioned, there are definitely some things to think about before making the conversion:

1. Will you be in the same or higher tax bracket in the future when you begin making withdrawals? Of course none of us know what tax rates will be like in the future but I would have to say that they will be HIGHER. Factor in required minimum distributions (RMDs) from taxable plans (there are no RMDs with a Roth IRA) and you might be moved to a higher income tax bracket.

2. Do you have a long time-horizon? The longer the time horizon, the better. You have to factor in the opportunity cost of paying taxes now in order to receive tax-free income in the future.

3. Can you pay the tax on the conversion from sources outside the IRA? You’ll receive little benefit if you have to pull money out of the IRA to pay the income taxes on the conversion.

4. How will the conversion affect your AMT (if you’re subject to the AMT)? A good tax program like TurboTax or Tax Cut will help you walk through those scenarios.

5. Would you use the Roth as an opportunity to pass on assets to your heirs? If this is the case, then other issues may not be of importance to you.

One other thing that is significant about 2010 is that if you make the conversion in 2010, you’ll have the opportunity to have the conversion amount added to your income in equal amounts over the 2011 and 2012 tax years. For instance, say you convert an IRA to Roth IRA and the taxable amount is $50,000. You will be able to have $25,000 added to your income in 2011 and 2012. Of course, something to keep in mind is whether or not you’ll be in a higher tax bracket in those years and whether or not the conversion amount will throw you into a higher bracket.

Lot’s of stuff to consider.

If you have any questions, feel free to leave a comment. I’ll see if I can get the Schwab rep to answer them for you. In the meantime, check out Schwab’s Roth resource. Another helpful resource is IRS Publication 590 (PDF).

Obama and the ‘Fat Cat’ Bankers (Rant)

WARNING: This is a rant. If you’re an Obama supporter, you may not want to read this post. You have been warned.

President Obama on 60 Minutes:

“I did not run for office to be helping out a bunch of fat cat bankers on Wall Street,” Mr. Obama said in an interview on CBS’s “60 Minutes” program on Sunday.

“They’re still puzzled why is it that people are mad at the banks. Well, let’s see,” he said. “You guys are drawing down $10, $20 million bonuses after America went through the worst economic year that it’s gone through in — in decades, and you guys caused the problem. And we’ve got 10% unemployment.”*

And to think that people made fun of the way President Bush spoke…

Although bankers were a large part of the cause for the financial crisis, they DID NOT cause it by themselves as Obama implies. There’s plenty of blame to go around. The Fed kept rates too low for too long. The banks couldn’t have created all those products and lent so much money without the help of cheap money.

Also, the banks couldn’t have made so many loans without the help of people who stupidly bought more house than they could afford and lied on their applications.

Don’t get me wrong. I don’t think bankers have any right to take bonuses during a time when their banks are losing money. I don’t care if the bonuses were promised or not. But, at the same time, shouldn’t government officials be taking pay cuts too since the crisis happened under their watch?

There’s PLENTY of blame to go around and Obama’s only showing his ignorance to focus all his attention on ‘fat cat’ bankers. He also must think that Americans are stupid.

End of rant…

Source: Obama Slams ‘Fat Cat’ Bankers – WSJ

“Free” Larry Winget Webinar Tonight…

I hope everyone had a nice weekend. I just wanted to let you know that Larry Winget is hosting a “free” webinar tonight.

The reason the word free is in quotes is that Larry asks that if you attend the webinar and LIKE IT, that you preorder his book, “Your Kids Are Your Own Fault – A Guide for Raising Responsible, Productive Adults,” that will be out in January.

If you’re interested, visit here. If you’re interested in pre-ordering the book through my blog, you can click here.