How Far Would You Go to Seek Employment?

Did anyone catch 60 Minutes this past weekend? They ran the following story called The 99ers:

This particular story focused on San Jose, California. While watching it, I couldn’t help but wonder why these people don’t leave the area. I’m not trying to be judgmental because I definitely would not want to go through what they are going through. But, at the same time, the question still lingered. Some of them have been taking unemployment for 99 weeks (over two years!). What would have happened to these people had the government not extended unemployment benefits?

Is the economy so bad across the nation that there aren’t other places people can go to find work? I don’t know…I’m asking. I’m sure if unemployment is concentrated in one area, it might be tough to sell a home. I’m sure people feel trapped. There’s nothing worse than a feeling of helplessness.


OT: My Random Experiences as a Parent (and funny things my kids have said)

My wife and I have three kids. The oldest is a freshman in high school. The next oldest is in 8th grade. The youngest is in 1st grade. It’s pretty wild having the youngest one so much younger than the oldest two. For seven years our family consisted of two boys spaced about 17 months apart. Our youngest son was the “baby” all those years until his little sister came along and ruined all that. Now our family feels like we have two oldest (since the boys are so close in age) and a baby.

Anyway, I have a weird sense of humor. Things just pop into my head. I think most of them are funny (you may not). Here are some of those things:

• I told my three kids that I would love two of them and it was up to them to decide which two it was. Let the competition begin.

• When our oldest son was around 4 years old, he was sitting at the table, eating breakfast one day. He spotted a bird in the tree in the backyard and said, “Look at that bird with the red hair. He’s banging on the tree with his lips.”

• Once when our oldest was about to start Kindergarten, my family was asking him questions. They asked if he was ready to go to school. His answer: “We don’t need to be teached.”

• A couple of years ago, the water main busted and our water from the faucet was brownish. Later that night when I was putting the kids to bed, I asked the boys if they had touched any of the brown water. They said yes. I acted alarmed and said hastily, “OH MAN! GET UP NOW! I HAVE TO TAKE YOU TO THE HOSPITAL!” (I was joking of course.)

• Overall, my daughter is much more loving than her brothers. The usual bedtime routine is for my wife to read to our daughter, say a prayer, and tuck her in. Recently, my wife and my daughter have been praying for the kids in her yearbook. One night when I prayed with my daughter, she took out her yearbook, found her place, got her pen, and started putting little checkmarks by each kids’ name that she was going to pray for that night. Her prayer went something like this:

“Dear God, please be with [naming each kid on her list]. Please protect them. Help them to be nice. Help them to love you and you love them back. Jesus’ name, Amen.”

• One time at the grocery store, my daughter grabbed a bunch of boxes of Jello Pudding and asked, “Can we get these? They’re only fifty-ten!”

• YESTERDAY, my wife and I took our daughter to a dance store to get her some new tights. While there, my daughter fell in love with this white cover-up that looks like a fancy sweat jacket. She wanted it badly. I looked at the price tag. THIRTY-FIVE DOLLARS! I said no. My wife agreed. My daughter threw a fit. She said, “WHY CAN’T I GET EVERYTHING I WANT? WHY DOES EVERYTHING COST SO MUCH?” Welcome to the real world, my dear.

• A couple of years ago, my oldest son wanted some Abercrombie jeans. My wife and I agreed to pay as much as a pair of Levis cost and if he wanted to get the Abercrombie jeans, he would have to pay the difference. He agreed. We went to the store and he got his jeans. I think HIS portion was around $35. When we got home, our oldest son was telling our youngest son that he should go get himself some Abercrombie jeans. When my youngest son found out how much of his own money he would have to spend, he told his brother, “NO WAY! I’m not spending that much of my own money on jeans. I’ll take the Levis. You’re crazy!” Funny how two kids from the same family can be so different.

• To me, the most frustrating thing about parenting is the feeling that you never do anything right. I don’t know how many times I have told my wife, “Sometimes, I think God gave me children just so I can mess them up.” I might have used more colorful language. It’s when I hear them interact with their elders either in person or on the phone that gives me a sense of hope.

• One time my youngest son and I were walking into Target just as a man was walking out, pushing a basket with a 3 or 4-year old girl who was throwing an absolute tantrum. She was screaming and slamming the basket really hard. My son looked at me and said, “That’s just not right.” He evidently had forgotten the times he was punished for such behavior and was not happy with the punishment.

• Finally, if you’re not yet a parent and you see a kid acting up in public, don’t ever say, “My kid will never act like that…” Those words WILL ALWAYS come back to bite you in the butt. Trust me on this one.

Paying for the Deficit with Taxes…

I know we keep talking about this stuff but it’s important.

I read this article this afternoon: Key Tax Breaks at Risk as Panel Looks at Cuts.

The biggie on the table is the mortgage interest deduction. That’s not all:

…in addition to the mortgage-interest deductions, are child tax credits and the ability of employees to pay their portion of their health-insurance tab with pretax dollars. Commission officials are expected to look at preserving these breaks but at a lower level, according to people familiar with the matter.

The officials are also looking at potential cuts to defense spending and a freeze on domestic discretionary spending.

Ending the mortgage interest deduction would personally hurt us. Maybe they can grandfather in those of us who already have mortgages since they gave $8,000 credits to first time homebuyers earlier this year.

This portion of the article was telling:

…officials have found there aren’t any easy ways to balance the budget, and they are expected to steer clear of more polarizing issues like Medicare, Medicaid, Social Security and a broad rewrite of the tax code in their short-term recommendations. The panel could still make long-term recommendations to change these issues, but they would be less concrete.

Once again, we duck the really large issues and stick with patchwork solutions. We are not going to rein in the deficit through taxes alone.

Annoying BlackBerry Torch Calendar Crash (‘Uncaught Exception’)

I upgraded to the BlackBerry Torch 9800 on Friday. For the most part, I love this phone (except for the fact that BlackBerry decided not to supply a belt holster with the phone). It’s definitely a better phone than the Bold 9000 I was using. It has one very annoying glitch, though. When I open the calendar, if I click on the icon to view the month, the phone freezes up. The only way I can get it unfreeze is to power it down and back up again. Then, as soon as it’s powered up, I get the following error message:

Uncaught exception: Application net_rim_bb_calendar_app(285) is not responding; process terminated

What’s annoying is I’m not the only one experiencing this issue. This phone has been on the market for around two months and this issue still isn’t resolved. What’s up with that? I even updated my software but the glitch is still there. I searched BlackBerry’s support page and found nothing.

I guess I’ll have to head over to the AT&T store.

Dollar Cost Averaging Over the Last 19 Years (The Importance of Rebalancing)

This is a continuation of yesterday’s post.

I ran the numbers under the following two scenarios:

• $500 per month with no rebalancing.

• $500 per month with annual rebalancing.

Here are what the numbers look like:

I have to say that this one surprised me until I considered everything that has happened over the last 19 years. So much of portfolio returns are due to timing. The equity portion of the portfolio grew nicely throughout the 90s but cratered with the bursting of the internet/tech bubble in the early 2000s and then again in 2007 and 2008.

So there you have it. Bonds beat stocks in this scenario so bonds are better, right? Not so fast. Take a look at the next graphic, which is like the first graphic only this time, the portfolio is rebalanced back to the original allocation at the end of each year.

Rebalancing was the difference maker. The sweet spot seems to be around a 50/50 split between stocks and bonds. Rebalancing is important because it adds a sense of discipline to the portfolio in that investors are selling appreciated assets and buying more of assets that have decreased in value. This was particularly important over the last 19 years due to the way the stock market behaved.

It’s important to note that we shouldn’t focus too much attention on a two asset portfolio. This was more of an exercise in seeing how stocks and bonds work together.

What does the future hold? Well, that’s anybody’s guess. If we have inflation (as many economists are expecting), U.S. bonds will not do well. If we don’t get our economy back under control, stocks won’t perform well either.

That’s why at this point in the game, I’m thinking a prudent portfolio is something like Craig Israelsen’s 7Twelve portfolio, which invests in 7 different asset classes via 12 different funds/ETFs. For those who are interested, I interviewed Dr. Israelsen recently.

Question of the Day (Stolen from Vanguard’s Facebook Page)

Today’s Question of the Day comes from Vanguard’s facebook page:

How often do you check your portfolio?

A. Monthly
B. Annually
C. Whenever the market drops
D. Never

My response:

E. Whenever I think about it but NEVER after a huge market drop. I went something like six months before. I figured there was no point. I wasn’t going to change anything so there was no reason to get upset over the balance. When I finally did get around to checking it, I was pleasantly surprised.

So, what’s your response?

Stocks and Bonds Over the Last 19 Years

I have been looking for monthly total return history for bonds but haven’t had a lot of luck (unless I want to fork over some serious money). I asked Craig Israelsen and he was able to provide me with monthly bond returns going back to 1991. I’m still looking for monthly returns going back to 1926. If any of you can help me out, I would appreciate it.


I took the monthly total returns for the Barclays Aggregate Bond Index and combined them with the total returns for the S&P 500 Index and ran some numbers. I started with 100% in stocks and ran the numbers for the nineteen year period (1991-2009). Then, I re-ran the numbers, adjusting the allocations by 5% (you can see this in the following graphic). The results are here:

What I found interesting was the how adding bonds didn’t reduce the performance of the portfolio but did reduce the volatility. Granted, this is a very short-term look at returns. It was also a period in time that saw stocks get hammered in the early 2000’s and again in 2008. BUT…that’s the purpose of ASSET ALLOCATION!

From this study, it seems that the sweet spot was a portfolio of 85/15 stocks/bonds or 80/20 stocks/bonds. The ending values are nearly identical to the ending value of the 100% stock portfolio but weren’t nearly as volatile based on monthly standard deviation.

We’re not done looking at this. Tomorrow I’ll look at the same portfolio from a dollar-cost averaging point of view. The results are pretty interesting.