Archives For July 2010

A lot!

Last week when I was getting the oil changed in my wife’s car, this fairly young-looking guy pulls up in a fairly new BMW 740Li. I got to wondering how much it would cost a person to drive a car like that. If you’ve never priced the 740Li, you might be shocked that they run upwards of $80,000. To put that in perspective, my wife and I paid $89,000 for our 2,275 square foot house in 1999. I know it’s not a fair comparison due to inflation but it is the closest thing I have to make a comparison.

Anyway, I was poking around on BMW’s website last night and found a link for their leasing deal, which works out like this:

I’m not sure how the taxes part works, but I’m pretty sure that has to be paid up-front, which means a person leasing this particular BMW would have to put down over $13,000 to drive the car off the lot. They would then have a monthly lease payment of $909 for the next 36 months. At the end of 36 months, they can purchase the car for $44,791 or hand it back to the dealership and pay a $350 disposition fee and $.25 per mile over 30,000 miles and any other fees for excessive wear (as pointed out in the contract). If they hand it back to the dealership, they would have spent $45,383 over three years (or essentially $1,260 per month).

If they decide to go ahead and buy the car and finance it for 4 years at a 6% interest rate, their payment will be $1,051.92 (and that number doesn’t include taxes, which are mentioned on the BMW site).

What’s worse is my math doesn’t include maintenance, which I have heard is pretty expensive on a BMW.

I can’t imagine spending that much just so I could drive a BMW 740Li. The question I always think about when I see younger people driving these expensive cars is, “How much have you saved for your retirement?”

I just read a short article from Financial Advisor magazine about how the SEC voted unanomously to dump the 12b-1 fee. But, further into the article I read this (bold print mine):

the SEC proposes new rules to limit fund sales charges, improve transparency of fees for investors, encourage retail price competition, and revise fund director oversight duties.

Regarding fund sales charges, the SEC proposal would restrict ongoing sales charges and would allow funds to keep paying 0.25% per year from their assets for distribution as marketing and service fees to cover expenses such as advertising, sales compensation and services.

As I read it, they are just getting rid of the term “12b-1 fee.” I’m wondering what this means for all those funds that are STILL CHARGING 12b-1 fees on mutual funds that are closed (hence no new marketing needed). There’s a chapter in the book I mentioned a couple of weeks ago, Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship (Robert W. Kolb Series)*, that discusses this very topic. In a table on pages 60 and 61, there is a listing of 102 funds that charge 12b-1 fees on mutual funds that are closed to new investors. The reason mutual fund companies still charge these fees is because they bring in a lot of money. The table shows nearly $295 million in these fees.

I’m also curious about the rules to limit fund charges. How is that going to work and what is it going to look like?

I saw this article on the IBD website about the future of the Federal Income Tax. I’m not looking forward to this future:

“The lowest bracket for the personal income tax, for instance, moves up 50% — to 15% from 10%. The next lowest bracket—25%—will rise to 28%, and the old 28% bracket will be 31%. At the higher end, the 33% bracket is pushed to 36% and the 35% bracket becomes 39.6%.”

What does that mean, dollar-wise? Let’s take a look at a family with $50,000 in taxable income. Not adjusting the brackets for inflation but adjusting them for the new percentages, here is what how they might look from 2009 to 2011:

So this family is looking at paying $835 more just in this part of their income tax bill—and that’s not counting adjustments for child tax credits or other adjustments.

According to the article, the marriage penalty will also make a comeback. Capital gains taxes will go up to 20% (from the current 15% rate). Taxes on dividends will also go back up to a maximum of 39.6%.

There will also be a new 3.8% medicare tax on capital gains for those with incomes over $250,000 (married filing jointly—$200,000 for single filers).

Complicating all of this is the alternative minimum tax, which if it isn’t “fixed,” will trap 28 million families.

The estate tax will also make a comeback in 2010.

The article lists several other taxes too. Combine all these with state and local taxes, which are most likely to go up since states and municipalities are broke, and we’re looking a spending lots more in taxes.

Time to sock away the maximum you can into your 401(k) and Roth IRAs (no tax benefit up front but can help out years down the road during retirement).

I received a cool email this morning about a Kiplinger slide show illustrating how much $1 trillion will buy.

First off, let’s get an idea of how much a trillion dollars is as a number:


In other words, IT’S A LOT OF MONEY!

Back to the email…

It contained a list of what $1 trillion would buy:




• 40,816,326 NEW CARS



To see more and to learn about what criteria they used in arriving at their numbers, visit their slideshow. It’s pretty interesting (and pretty scary if you’re keeping up with our nation’s deficit issues).

Related: CNBC: What does $1 Trillion Look Like?

This is part 2 of my series on the S&P 500 Index. Today’s graphics show the rolling TOTAL RETURNS for 10, 20, and 30-years. I found these particular charts interesting to look at (maybe it’s my snazzy color choice?). The dates you see at the bottom of each chart, marks the end of the time period.

The 10-year chart is interesting in that the last time we had a negative performance over a 10-year period was all the way back at the end of the 1930s and into the 1940s. It would be interesting to see how national debt as a percentage of GDP matches up between the two eras. I’ll have to see what I can come up with on that.

As you can see from the other two charts, the total returns can vary dramatically but seem to follow a pattern. Once again, this time seems different in that we seem to have a lot more debt going forward than we did in times past.

Here’s to hoping that we aren’t in a prolonged slump.


Next up in this series will be these same numbers minus inflation…

I have a question for AFM readers:

What do you think about paying your kids to read certain books?

I’m torn on this issue.

Don’t get me wrong. My wife and I do not believe in paying kids to do school work (other than offering them a reward for getting straight As in school). The reading I’m talking about is extra reading. I’m talking about books like Think and Grow Rich, The Magic Ladder to Success, How to Win Friends and Influence People, and any other book on success or business. These are books that they wouldn’t normally pick up and read. So, I thought it might be interesting to give them a little incentive. They read the book, tell me about it, and if I think they read it, I’ll give them $10. As of right now, they’re both tearing through their first book. My youngest son actually told me that it makes sense and that it’s a good book.

My hope is that I’ll start them down a path of wanting to read something besides Harry Potter.

Thoughts? I’d love to hear what you guys think.



I posted this on Friday so many of you probably didn’t see it. Be sure and enter the giveaway for The College Solution. I’ll announce the winner later this week.

Also, PLEASE DONATE to Beth’s charity walk. You don’t have to give a lot but ANY AMOUNT will help. She’s still a long way from her goal.

Now, here is this week’s Ten for Tuesday:

1. Jean Chatzky’s Feel-Good Saving Tips. I do think making choices to save money empowers people by giving them a sense of control.

2. Ever lost your wallet? Here’s how to recover from it.

3. Single Ma talks about her plans now that her daughter’s about to head off for college. It’s hard to believe her daughter’s that old already. Seems like yesterday she was a freshman in high school. My oldest son will be a freshman this year. Now I feel old…

4. Speaking of college…Lynn O’Shaughnessy has 5 reasons why college students are studying less.

5. Continuing with the college theme…Penelope Wang asks: Are you borrowing too much for college? “…what’s often overlooked is the role of the parents and students who are determined to pay lofty prices for brand-name schools, even if it means going deeply and dangerously into debt.”

6. Nickel talks about his lending club experience.

7. 6 reasons to delay retirement.

8. Here are 8 business ideas you can start today. Pet sitting?…

9. Ron has 30 ways to save on a cruise. He left out sneaking in inside someone’s trunk. Do people still travel with trunks?

10. Jeremy has a new FREE e-book: Invest Like a Pro.