Monday, March 31, 2008

3/31/08 Stock Purchase Update - Google and Apple Still Underperforming

With the market decline of early 2008, the stock purchase updates have not been as fun to write. However, I am going to remain disciplined and do a weekly update until I sell the positions from the portfolios. The original portfolio was based on a 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) and a January, 2008 stock pick update of Apple (AAPL), Research in Motion (RIMM), Intuitive Surgical (ISRG), Priceline (PCLN), Core Labs (CLB), and Google (GOOG). The total portfolio has improved to slight gain of 4.1%, due primarily to the Potash, Intuitive Surgical and Priceline. While Apple has recovered slightly, Google continues to remain disappointingly flat. Here's the current status of the stocks in the portfolio:

My Wealth Builder 10/15/07 Buy List
Stock [purchase date]SharesPurchase Price

Current Price 3/28/08

Potash (POT) [6/7/07]50

$71.59

$160.57

Southern Copper* (PCU) [11/13/07]40

$108.24

sold 2/19/08 @ 109.05

CNH Global NV** (CNH) [11/13/07]50

$55.22

$51.47

BHP Billiton*** (BHP) [11/27/07]50

$71.54

sold 2/19/08 @ $73.98


*On 1/18/2008, the system gave a sell signal for PCU.
**On 2/1/2008, the system gave a sell signal for CNH.
***On 2/15/2008, the system gave a sell signal for BHP.
I will try to sell CNH during an upcoming market rally, hopefully above the purchase price.


My Wealth Builder January, 2008 Buy List

Stock [purchase date]
SharesPurchase Price

Current Price 3/28/08

Apple** (AAPL) [1/17/08]25

$160.93

$143.01

Research in Motion (RIMM) [1/17/08]25

$88.71

sold 2/22/08 @ 103.23

Intuitive Surgical (ISRG) [1/18/08]20

$261.81

$322.71

Priceline (PCLN) [1/18/08]25

$92.33

$121.99

Core Labs* (CLB) [1/25/08]25

$116.25

sold 2/19/08 @ $121.67

Google** (GOOG) [1/25/08]20

$582.66

$438.08

Google** (GOOG) [2/1/08]10

$521.27

$438.08

Google** (GOOG) [2/26/08]10

$457.44

$438.08


*On 2/8/2008, the system gave a sell signal for CLB.
** On 3/7/2008, the system gave a sell signal for AAPL and GOOG.
I will try to sell AAPL in an upcoming rally. I plan to hold GOOG since it is part of my core holdings.

The market appears to still be at a near term bottom. As of the close on 3/28/08, the Dow, Nasdaq and S&P 500 indices were respectively down 7.36%, 14.75%, and 10.53% year to date, still up from lows of 9.37%, 16.58% and 11.86% in my 3/17/08 Stock Purchase Update.

I continue to believe that the probability of a recession in 2008 is relatively high, if we are not already in one. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in early 2008 has already caused the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008 with many short term rallies and declines. At this time, I plan to sell CNH, AAPL into a near term rally and continue to hold the balance of the portfolio. I do not plan to add any more to the amounts that I have already invested in the above tables.

Full disclosure: I own all the stocks mentioned in this post that are not indicated as sold.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Sunday, March 30, 2008

Personal Finance Simplification - Brokerage Account Consolidation

During March, 2008, I am working towards consolidating our bank, credit card and brokerage accounts. On the last two Sundays, I shared our progress on reducing bank accounts and credit card accounts. This past week I have been working primarily on reducing our brokerage accounts. Our goal is to get to and maintain two brokerage, one for our managed accounts and one for personal accounts. Historically, we have used two discount brokers, TD Waterhouse and Charles Schwab most recently. Three years ago, we added a full service brokerage account due to our choice for a financial advisor.

Here is a summary of the remaining accounts, my analysis, and the decision:

  • Brokerage of my financial advisor - I have not specified the firm since I am loyal to the advisor and the team has changed firms in the past two years. I chose this advisor team because of their investment strategy and they discount their managed account fees. I am charged 1.25% of assets, which is comparable to many managed mutual fund accounts, but much higher than low cost index funds. However, the team provides a number of additional services, including retirement income planning, retirement account advice (e.g. Roth IRA conversions) and asset allocation. In addition, I have a personal account in which they only charge me transaction fee of $5 for a trade.


  • Charles Schwab - This brokerage is the grandfather of discount brokerages. I first opened an account with them because they were among the lowest fees ($29.99 per trade), had excellent customer service, and were innovative (e.g. no transaction fee mutual funds). Recently, I have found Schwab less competitive, particularly in the areas of low cost fees and innovation. Schwab seems to be the most expensive of the discount brokers at $12.99 per trade and their services for investor research are not as broad. I still consider their customer service to be best in class.


  • TD Ameritrade - In 2006, TD Ameritrade completed the acquisition of TD Waterhouse and became TD Ameritrade. Until the merger, I would have rated TD Waterhouse lower in cost at $9.99 per trade, good in research tools and very good, but not excellent, customer service. In 2007, I noticed that TD Ameritrade has been significantly upgrading the research capabilities for investors. Most recently, TD Ameritrade added a platform called Strategy Desk, which allows me to do due complex stock screens and technical analysis. Also, they provide excellent telephone support for using this tool.

  • I will continue to stay with our financial advisor team for the managed accounts. I consider the fees to be reasonable, the advice to be very good, and the service to be excellent. In addition, the team works with a number of retirees from my company and has a good understanding of the company and its stock.

    I have decided to keep TD Ameritrade as our discount online brokerage. Although I rate Charles Schwab's customer service higher, I chose TD Ameritrade for the lower commission cost ($9.99 vs. $12.99) and the wider range of research tools, especially Strategy Desk. Based on recent experience, I believe that TD Ameritrade will also be increasing the number of free educational seminars for investors. For reference, I have not tried or evaluated other discount online brokers, including the ones that offer free trades. While I know I can get even lower commissions, I prefer having a good balance of trading costs and service, which I feel TD Ameritrade provides.

    In April, I will begin the transfer funds from Charles Schwab to TD Ameritrade and finalize the transition over the next few months.

    For more on New Beginnings, check back every Sunday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Saturday, March 29, 2008

    The Science Of Addiction

    The Science of Golf Addiction by John Paul Newport in The Wall Street Journal shares some information on the what is addiction and its causes. It seems anything that is rewarding can be addictive. What creates addiction is the mechanism of intermittent reinforcement, where rewards are randomly related to the actions taken. As a result, rewards occur unpredictably, creating higher releases of pleasure inducing dopamine in the brain than when rewards occur predictably.

    The article informs us that, "The social scientist B.F. Skinner discovered the power of intermittent reinforcement about 75 years ago, using pigeons. He set up a simple system whereby one set of birds was rewarded with food every time they pecked at a bar. Once the food was discontinued, they learned pretty quickly to stop pecking. With a different set of pigeons, the food was dispensed at intermittent intervals in response to the pecks. Those birds hammered away at the bar with extra ardor and, when the food was withdrawn altogether, it took much longer for the pecking to stop."

    While I'm not addicted to golf, I wonder sometimes if I am "addicted" to watching the stock market:-) This chart from Crestmont Research shows that the stock market has a slightly higher percentage of up days than down days, recently at about 55% up days to 45% down days. However, I never know in advance which days will be up. Occasionally, big up days or a series of up days occur, which cause me to even watch the market more, especially if I own one of the stocks with an upward trend:-)

    Intellectually, I know that I should just invest in low cost diversified equity index funds and accept the overall return of the market. However, I still enjoy buying individual stocks with a small portion of my savings and getting the occasional thrill when the purchased stock goes up significantl in one day or over a year:-)

    For more on Reflections and Musings, check back every Saturday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Friday, March 28, 2008

    Early Retirement Stories

    Early retirement is a concept that seems to have many different definitions. Of course, everyone agrees that the entire household choosing not to work and living off savings is early retirement. I've also seen the following early retirement definitions: leaving a corporate job and starting a business, reducing hours worked or only one spouse working. Specifically, some people think of early retirement as leaving their day jobs and starting their own business. Other people consider working less hours in their own business early retirement. Finally, some people think of it on a individual level, i.e. one spouse retires (or quits working) while the other continues working.

    Here are some stories about the different types of early retirement. Can You Afford An Extreme Early Retirement by Bankrate.com shares stories about couples without kids who retired in their thirties and forties. Their approach was to save a lot while working and spend a little while retired, with yearly expenses ranging from under $10,000 to $24000 per year. Extreme early retirement experiences, also by Bankrate.com, shares stories about range of people, including families with children, one spouse retiring, reducing to part time work and selling one's business. Retired by 50: Real Life Stories on MSN.com has two stories about a families with children that retired early. In one case, the family significantly cut expenses and moved to a lower cost of living region. In the other case, the family quit their jobs and "retired" to a franchise business. The last story was about a couple that worked in their own businesses and then sold them to retire.

    Overall, I was pleased to read about people in many different situations retiring early. (Sometimes it seems that couples with no kids or successful business owners are the predominant types retiring early:-) Also, while each early retirement had different specifics, there seemed to be some consistent themes:
  • Make retiring early an explicit goal. Then plan to do it.
  • Save a lot, early and often. In some cases, the early retirees saved up to 50% of their income.

  • Make choices to reduce expenses. Many early retirees chose to reduce or eliminate "normal" expenses such as new cars, cable television, or eating out. Some even chose to move to lower cost of living areas.

  • Say "no" to debt. These early retirees typically had no debt or only a home mortgage.

  • For more on Reaping the Rewards Reflections , check back every Friday for a new segment.

    This is not financial or retirement advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Thursday, March 27, 2008

    Better Stock Market Returns For The Future?

    Stocks Tarnished By 'Lost Decade' in The Wall Street Journal shares a dismal record by the S&P 500. During the past 10 years the S&P 500 has only achieved a total return of 1.3% a year. The return was -0.37% a year for the past nine years and -1.4% a year for the past 8 years. Given this performance, should investing in the stock market still be a good method to build and maintain wealth?

    To answer this question, I looked to the historical rolling 10 year returns for the S&P 500. Bespoke Investment Group did an great summary of this information going back to 1900. They provided an excellent graph of the data and noted, "As shown, periods where returns were lower occurred in 1914, 1921, 1932, 1938, 1974 and 1977. We also highlight years where returns peaked -- 1929, 1959, 1992 and 2000. While the returns could easily get worse, periods that have been this bad have not lasted longer than 4 years (1937-1941) before they've started to get better." In addition, the lows appear to be double bottoms (e.g. 1914/21, 1932/38, and 1974/77) that were followed a steep rise in returns for about two decades.

    In spite the current uncertainty, I believe data shows that the market will be much higher a decade from now. If history is an indicator of the future, the market's return to higher gains is likely close and not farther than four to five years away. Given this scenario, it makes sense to have part of one's savings in the stock market, at every age. In our case, we will continue to put long term funds (i.e. not needed for 10 years) for my parents, ourselves and our child in the stock market. For us, that means keeping IRAs, college savings accounts, and 401Ks invested in the stock market. That way our long term savings will participate in the historically higher returns of the stock market.

    For more on Crossing Generations, check back every Thursday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Wednesday, March 26, 2008

    Three Events That Can Cause Wealth Destruction

    Building wealth is often a long process, easily taking several decades to achieve one's goal. The destruction of wealth can happen much faster, through poor judgement, or bad risk management. However, there are sometimes uncontrollable events that can also lead to wealth destruction. Here are three types of events that have potential to cause wealth destruction:
  • Death - This is not surprising, especially if the person is the only or major earner in the household. Having the household income reduced by over 50% can become a major issue, especially if there is significant debt. However, death can sometimes be an issue even if it happens to the secondary wage earner.

    Here is what we did to protect against death being a financial issue. While I was working, we had sufficient term life insurance on me to pay off our debt, which was only our home mortgage. In addition, I purchased survivor income insurance, which would cover the different between Social Security survivor benefits and my take home pay. Fortunately, we never needed to use the survivor income or life insurance benefits.


  • Disability - Not being able to work due to medical reasons can be another wealth destruction event. Many people may not have enough funds to cover the 90 days before Social Security disability benefits take effect. In addition, Social Security disability benefits will not cover all lost income.

    Our solution was to carry disability insurance while I was working. Now that I retired in my forties, we do not carry additional disability insurance, since sickness won't reduce our income. However, both of us carry long term care insurance our health situation requires nursing home care.


  • Divorce - Wealth can sometimes be cut in half through divorce. In many cases, retirement account contributions and property obtained while married will be split equally in a divorce. I saw several colleagues have their retirement accounts and marital assets cut in half when a divorce happened. How divorce hits your 401k at MSN.com summarizes how this event can affect your retirement account.

    There is no monetary insurance against this type event. Good judgement is the main defense, i.e. marry the right person the first time:-)
  • For the first two events of death and disability, proper insurance may help protect one's wealth. For divorce, there are not many solutions, except for not getting divorced :-)

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Tuesday, March 25, 2008

    Don't Forget To Include Non-Wage Income When Doing A Tax Return

    Everyone remembers to use wage income (W-2s) for filing a federal income tax return. As wealth grows, one will often receive income from other sources that are often reported on a 1099 form. People sometimes forget about 1099 income because they "didn't get to spend it," as in the case of CD interest or reinvested mutual fund dividends. However, the IRS considers 1099 income taxable and expects it to be reported when filing a tax return.

    Here are some of the 1099s I've seen and the type income reported on a them:

    1099-B - This is form income from a brokerage account. It includes interest, dividends and sales of stock. Often, the form does not include information on the original cost of the sold stock. For reference, it is important for the taxpayer to have the price paid for the stock. Otherwise, the IRS considers all the proceeds from a stock sale taxable.

    1099 -C - This is for income due to the cancellation of debt. That's right, if a bank, credit card company or individual forgives debt, it is considered income for the debtor. Exceptions to being taxable include if the forgiven debt can be considered a "gift" (from an individual) or if the debt forgiven is less than the insolvency of the debtor.

    1099-INT - This is for interest received from bank, CD, and money market accounts.

    1099-DIV - This is for dividends received from stock that is owned directly, i.e. where the shares are listed in one's name.

    1099-G - Typically used for unemployment income or state/local tax refunds. Yes, unemployment income is taxable. State/local tax refunds may be taxable if one used itemized deductions for the previous year's tax return.

    1099-MISC - This is used for non-employee compensation. Essentially, one is being paid as a contractor. The taxable amount can be reduced by deducting expenses (e.g. supplies) to do the work, resulting in net taxable income. Also, one will need to pay self-employment taxes (social security and medicare) for the net income from a 1099-MISC.

    1099-R - This is for income from a retirement account, usually a pension, IRA or 401k. Retirees and people who take early distributions will receive this 1099. Unfortunately, early distributions also result in 10% penalty, over what is owed for taxes.

    This is not a complete list of 1099s and the types of income. For a more comprehensive list of 1099 forms and associated income, see the IRS Guide to Information Returns. Remember, in the absence of additional information, the IRS considers all income reported on a 1099 taxable. For 1099-B, C and MISC, the income may be reduced with the appropriate information, resulting in a net taxable income that is less than the reported amount.

    For more on Ideas You Can Use , check back every Tuesday for a new segment.

    This is not financial or tax advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Monday, March 24, 2008

    3/24/08 Stock Purchase Update - Perhaps A Short Term Bottom

    With the market decline of early 2008, the stock purchase updates have not been as fun to write. However, I am going to remain disciplined and do a weekly update until I sell the positions from the portfolios. Currently, the portfolio is based on a 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) and a January, 2008 stock pick update of Apple (AAPL), Research in Motion (RIMM), Intuitive Surgical (ISRG), Priceline (PCLN), Core Labs (CLB), and Google (GOOG). The total portfolio now has a slight gain of 1.1%, due primarily to the Potash, Intuitive Surgical and Priceline. Google and Apple continue to under perform. Here's the current status of the stocks in the portfolio:

    My Wealth Builder 10/15/07 Buy List
    Stock [purchase date]SharesPurchase Price

    Current Price 3/21/08

    Potash (POT) [6/7/07]50

    $71.59

    $144.26

    Southern Copper* (PCU) [11/13/07]40

    $108.24

    sold 2/19/08 @ 109.05

    CNH Global NV** (CNH) [11/13/07]50

    $55.22

    $48.32

    BHP Billiton*** (BHP) [11/27/07]50

    $71.54

    sold 2/19/08 @ $73.98


    *On 1/18/2008, the system gave a sell signal for PCU.
    **On 2/1/2008, the system gave a sell signal for CNH.
    ***On 2/15/2008, the system gave a sell signal for BHP.
    I will try to sell CNH during an upcoming market rally, hopefully above the purchase price.


    My Wealth Builder January, 2008 Buy List

    Stock [purchase date]
    SharesPurchase Price

    Current Price 3/21/08

    Apple** (AAPL) [1/17/08]25

    $160.93

    $133.27

    Research in Motion (RIMM) [1/17/08]25

    $88.71

    sold 2/22/08 @ 103.23

    Intuitive Surgical (ISRG) [1/18/08]20

    $261.81

    $300.69

    Priceline (PCLN) [1/18/08]25

    $92.33

    $118.63

    Core Labs* (CLB) [1/25/08]25

    $116.25

    sold 2/19/08 @ $121.67

    Google** (GOOG) [1/25/08]20

    $582.66

    $433.55

    Google** (GOOG) [2/1/08]10

    $521.27

    $433.55

    Google** (GOOG) [2/26/08]10

    $457.44

    $433.55


    *On 2/8/2008, the system gave a sell signal for CLB.
    ** On 3/7/2008, the system gave a sell signal for AAPL and GOOG.
    I will try to sell AAPL in an upcoming rally. I plan to hold GOOG since it is part of my core holdings.

    The market appears to have hit a near term bottom again. As of the close on 3/14/08, the Dow, Nasdaq and S&P 500 indices were respectively down 6.26%, 14.86%, and 10.81% year to date, up from last weeks lows of 9.37%, 16.58% and 11.86% in my 3/17/08 Stock Purchase Update.

    I continue to believe that the probability of a recession in 2008 is relatively high, if we are not already in one. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in early 2008 has already caused the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008 with many short term rallies and declines. At this time, I plan to sell CNH, AAPL into a near term rally and continue to hold the balance of the portfolio. I do not plan to add any more to the amounts that I have already invested in the above tables.

    Full disclosure: I own all the stocks mentioned in this post that are not indicated as sold.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Tax Carnival #33 - Deduction Tips, Rebates, and Tax Planning

    Welcome to 33rd edition of Carnival of Taxes. First, I would like thank Kay Bell at Don't Mess With Taxes for allowing me to host this esteemed Carnival. Second, I would like thank the authors who submitted articles during the busy tax filing season and the holiday weekend. For your reading pleasure, here are the tax related submissions for this week's Carnival.

    Tax Tips

    Kevin presents Claiming Pizza Delivery Mileage On Your 2007 Taxes posted at Pizza Delivery Stories. Kevin's tip is also worth considering if any employer doesn't reimburse one for business use of a car. However, remember to keep written documentation of the mileage, since the IRS may request this information to validate any deductions.

    Speaking of mileage, Nickel reminds us not to forget the volunteer miles driven for qualified charities in Uncommon Charitable Tax Deductions posted at fivecentnickel.com. Other tips include charitable deductions for uniforms and appreciated property.

    For those who are still deciding on tax preparation software, FMF presents Review: TaxCut posted at Free Money Finance. Although it was only briefly mentioned, the Deduction Pro feature may help identify opportunities that weren't previously considered.

    Tax Rebates

    Phil presents The Top 6 Reasons Why the Tax Rebate Won't Stimulate the Economy posted at Phil for Humanity, sharing "the reasons why the Economic Stimulus Act of 2008 and tax rebates will not stimulate the American economy out of this recession." While it may not impact the economy, Dan Meyer notes that the rebate has already stimulated a number of con artists in A Surfeit of Stimulus Scams posted at Tick Marks.

    In case you're wondering when YOUR rebate will arrive, the two submissions below provide the answer. Raymond presents Economic Stimulus Payment Schedule posted at Money Blue Book showing it will be based on one's social security number. Kay Bell, at Don't Mess With Taxes, tells us the Rebate delivery schedule is announced , and advises taxpayers to "schedule your rebate shopping plans now! The IRS has announced the checks' delivery schedule."

    However, Penelope Pince cautions Don't Spend that Tax Rebate Just Yet posted at Our Fourpence Worth, sharing, "a few suggestions based on an article by Liz Pulliam Weston about one of this year's popular tax topics, the very anticipated tax rebate."

    Tax Planning

    Getting married? Don't forget to think about one's tax situation. Diane Dean points out the options at Filing as Married on your W-4 posted at Need IRS Help?.

    David Gross share how he achieved paying zero federal income tax in Money Magazine tells its readers how to pay zero taxes posted at The Picket Line. Money Magazine even featured the unconventional method he used, advising against taking the same approach due to an "ascetic lifestyle" one might need to follow.

    Tax Process

    Wenchypoo presents Update: The FairTax Crafter Finally Answers Me posted at Wisdom From Wenchypoo's Mental Wastebasket, which shares her displeasure with the response she received from Congressman John Linder, co-author of the The FairTax Book, on her questions about the FairTax.

    Ever wonder what happens when people don't file for their refunds? Beckie provides the answer in Unclaimed Refunds posted at A Tax Consultant for All Seasons. When moving, it's also probably a good idea to send a change of address form to the IRS, if one expects a refund :-)

    Finally, our tax withholding system has caused some people to focus on big refunds versus lower tax liability. Here is Why I Don't Like A Big Tax Refund posted at My Wealth Builder.

    This concludes this edition of the Tax Carnival. The April 7, 2008 Tax Carnival will return to its home at Don't Mess With Taxes and submissions can be made via this blogcarnival form.

    This is not financial or tax advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Sunday, March 23, 2008

    Personal Finance Simplification - Credit Card Consolidation

    During March, 2008, I am working towards consolidating our bank, credit card and brokerage accounts. Last week, I shared our progress on reducing bank accounts. This past week I have been working primarily on reducing our credit card accounts. Our goal is to get to and maintain two cards, one for each of us. For reference, we use our credit cards for convenience. We pay off the balance each month.

    Over the past year, we have already been consolidating credit card accounts. We've already eliminated new cards from our bank, stores or brokerages. Here is a summary of the remaining accounts, my analysis, and the decision:

  • Visa - This is my wife's credit card and is a platinum card with additional benefits such as reward points, rental car insurance, and extended warranty insurance.


  • Discover - This is also a platinum card, which I have had quite a while. Discover is the original cash back card, although the levels are relatively low, initially at 1/2% and up to 1%, with monthly specials at 5% for certain purchases. It also has additional benefits such as rental car insurance.


  • American Express - In 2005, I applied for a True Earnings card through Costco since American Express is the only credit card they accept. The card provides cash back at 3% for gasoline and restaurants, 2% for travel and 1% for everything else. The annual fee is waived as long as I am a Costco member.

  • To maintain credit ratings for both of us, we want to each person be the primary account holder for one credit card. Since the Discover and American Express cards are both in my name, the elimination choice was mine to make.

    I decided to keep the American Express card. While Discover was a Platinum card, it did not have any benefits above the Platinum Visa card. Also in my experience, Discover is not accepted outside of the U.S. While the American Express card does not have Platinum benefits, it does have better cash back rewards, and can be used at Costco. Once I receive the Discover cash back payment, I will cancel my Discover account. In addition, we won't add a new credit card, unless we plan to cancel an existing one.

    For more on New Beginnings, check back every Sunday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Saturday, March 22, 2008

    Why I Don't Like A Big Tax Refund

    In 2007, the IRS issued 110.8 million refunds equal to $280.4 billion, or an average of $2530 per refund. Through February 22, 2008, the IRS reported that the average tax refund is at $2708 for 46.9 million returns filed.

    In my discussions with people that have large refunds, they like it because they feel it is an effective way to save. If the money had not been withheld by the IRS, it would have been spent. Thus, a refund is a great windfall. Occasionally, I ask, "Would you be interested in reducing your withholding and getting an extra money each month, or do you prefer to get a large refund?" The answer is 100%, " I prefer getting a large refund."

    While tax withholding may be an effective way to force saving, it not an effective way to manage money. First, the IRS does not pay interest. If people had the amount over withheld deposited each month to a savings account and earned 4%, it would add up to $5.2 billion of interest payments. For reference, this amount is greater than the profits of 19 of the Fortune 50 companies in 2007. Second, people lose the use of their own money from a month to over a year. They need to wait until the following year to get a refund from the previous tax year. In some cases, these people pay finance charges for a loan against their own tax refund. Getting a big tax refund is like lending a lot of money to someone for free.

    My preference is to owe a little bit when filing my tax return. That way I benefit from having my money to use before sending it to the government on April 15th.

    For more on Reflections and Musings, check back every Saturday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Friday, March 21, 2008

    Rewards and Challenges of Early Retirement

    Since retiring in my forties in October, 2007, I have had no regrets. It has been great experience with both rewards and challenges. Here's what I've experienced over the past five and half months.

    Rewards

  • Excellent time flexibility. When I was working, it required extra effort to make sure I could attend the family events. Even with that effort, business travel or other commitments sometimes had priority. Now family events receive top priority, from pre-school teacher conferences to family vacations. As a result, I have maximum availability for our child's activities. I won't miss seeing our three year old grow up. From going to school to our regular games, I wonder if she sees me too much:-)


  • No daily commute. I do not miss driving 45 minutes twice a day trip for work. I do not miss traffic backups due to weather. I do not miss waking up at 5:30 AM to get to work. A side benefit is that my gasoline bill has been reduced by half.


  • Flexibility to experiment in depth. From exploring new work to new hobbies, retirement offers great flexibility to try and learn. I done part time work in a job with some elements of my dream job and learned I absolutely love to work directly with the end customers of a business. I'm testing a business idea on the Internet and may take some golf lessons.

  • Challenges

  • Managing income. A regular paycheck is one of the great benefits of working. No need to worry about from where the money is coming. Since we don't have a pension or receive Social Security, we need to consciously manage our investments to have sufficient income each month.


  • Being overly available. Retirees seem to get a higher proportion of volunteer requests, since it is assumed they have more discretionary time. While I do not spend time working, I don't feel I have more discretionary time to offer. A similar challenge was being overly flexible for part time work. In the interest of being a good employee, I offered to work any time on any day. Next year, I will restrict the hours to only those that I would like work.


  • Not being defined by work. A job, career or title can be part of how a person is viewed by others, especially when meeting for the first time. People are often surprised when I say I've retired. Many friends and former colleagues expect that I will be announcing a new job or career any day.

  • Even with the current economic issues, I am still glad I retired last year. I fully agree with the old saying, "No one ever said on their death bed that they had wished they had worked more."

    For more on Reaping the Rewards, check back every Friday for a new segment.

    This is not financial or retirement advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Thursday, March 20, 2008

    The Expense Of Higher Education

    After a discussion with a neighbor on our cost of attending college, I looked back into my records and found that the cost of attending my alma mater has increased 7.4 times since my freshman year, at approximately a 6.5% annual growth. This means our three year old's freshman year cost will equal about 2.4 times today's tuition, room, board and fees, or about $113,000 in 2022. This is about 25% higher than I had estimated in a previous post about saving for college costs.

    Our current 529 plans contributions should cover about half of the costs. Currently, I hope to have the other half equally split among summer jobs, school jobs, grants, and loans. Hopefully, this plan will enable our daughter to graduate with a minimum amount of student loans.

    For more on Crossing Generations, check back every Thursday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Wednesday, March 19, 2008

    Reviewing Our Risk

    "I have a million dollars in the stock market, because if I lose a million dollars, I don’t personally care." Suze Orman

    Unlike Suze, I can't afford to lose a million dollars :-) Therefore, I like to give due consideration to my investments. Not only do I think about the potential gains, but I also think about the potential losses. This approach has theoretically kept me from scoring big wins (e.g. tech gains in the 90s), but, more often than not, it has probably kept me from experiencing big losses. The following three risks help me remember to consider potential losses:

  • Downside Risk. I feel it is good practice to consider the potential downside of any investment I make. For me 20% is a reasonable downside possibility. If a greater loss is possible, I try to avoid the investment. Of course, one never knows the true possibility until it happens. However, it's easy to check the historical results to learn what to avoid. I've had several stocks lose between 50 to 100%, permanently. These were typically stocks of turnaround companies or "unproven" companies with a potentially great idea. I've learned to avoid these types of investments. While I may miss a future 100 fold gain, I am likely avoid many more significant losses :-)

    In the short term, I think the downside risk of most stocks is very high and, therefore, am not making any new stock purchases.


  • Concentration Risk. It's been said that wealth is built through concentration and preserved through diversification. Concentration is how Warren Buffet, Bill Gates and Michael Dell amassed their wealth. However, concentration can be a two edged sword, leading to wealth destruction as was the case for Enron employees and, perhaps now, Bear Stearns employees, who were heavily invested in their company's stock.

    In my case, the company from which I retired also invested our retirement accounts primarily in company stock. While working there, I had limited diversification choices and chose to put some fund in a money market account. When I retired, 44% of our total savings were in company stock. My plan was to diversify the funds in the company retirement account by selling some stock through a covered call strategy. Unfortunately, the market drop in late 2007 and early 2008 caused the stock to fall below the call strike prices. At this time, my company stock is 45% of our total savings.

    This post is a good reminder that our original diversification plan didn't execute as planned over the last few months. Over the rest of 2008, I'd like to reduce the amount of company stock to 33% of our savings. While 33% is still high, it will be a good start.


  • Perfect Storm Risk. The current U.S. economic crisis is what I would call perfect storm risk. The combination of low interest rates and collateralized debt obligations led to a housing bubble which burst and caused the subprime mortgage and foreclosure crisis. That in turn has caused the failure or imminent demise of some mortgage companies, bond insurers and investment banks. Any one of the events by themselves would have been easily survivable. However, the combination of all these events have made the economic situation very challenging.

    My main concern at this point are the municipal bonds that I purchased in 2005. While these were all insured, Aaa bonds when purchased, the insurance companies and the municipality default risk is now higher due to the credit crisis. Fortunately, the bonds are only 4% of our investments began maturing at the end of 2007, with 85% maturing by 2010.

  • While I was comfortable with our investment situation six months ago, I am now more concerned with each of the risk areas due to the current economic situation. We have addressed the downside risk and the perfect storm risk by not making any new equity or bond investments. However, we will need to implement a new plan to reduce our allocation in company stock.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Tuesday, March 18, 2008

    Market Recovery?

    Market experts see signs that the bottom may be near shares the perspective of several economists and strategists that the market bottom is likely in the second quarter of 2008. In addition, the Fed intervention in the Bear Stearns liquidity crisis and today's 0.75% Fed funds interest rate cut has given stock market investors some confidence, based on the 420 point gain in the Dow.

    I think I am still going to wait before putting any additional funds in the market and will continue holding current investments. If I do sell any positions, I will keep the proceeds in cash. At this point, I think the market and economy is still on an overall downward trend with occasional rebounds like today's 420 point bounce. Here are my reasons for being skeptical the bottom is near:

    1. The market rebounds have not been sustainable. While each Fed intervention has helped slow or reverse the market decline, the impact has been relatively short lived and requires a bigger action for each successive intervention. As this chart shows, Fed actions have been not changed the direction of the market.

      In addition, based on the new highs/new lows data, I believe today's rally was more due to short covering than investors jumping back into the market.


    2. More or bigger issues are still to come. The credit crisis will continue to be wider and deeper than expected. What appeared to be only a mortgage and foreclosure issue quickly grew to be a crisis for businesses. First it was only mortgage companies (e.g Countrywide and Thornburg), then came the bond insurers (e.g. Ambac and MBIA) and now an investment bank, Bear Stearns. I wouldn't be surprised if there is a bank or municipal bond crisis before the bottom happens.



    3. There is still not enough fear. The Bear Stearns collapse is being positioned as an isolated incident and the Goldman Sachs and Lehman Brothers earnings reports have given people more confidence the issues won't spread. Yesterday, someone told me that equities seemed cheap and his plan was to use a home equity loan to invest in the stock market. Overall, there seems to be concern, but a belief that the government will save us.

    In 2002, I learned the pain of continuing to buy during a market downturn. Two of my lessons were: 1) Cheap stocks can get cheaper and 2) Some stocks will never recover. While I did buy some stock in January and February, I will not purchase any additional equities until the market has clearly achieved a turn around. We will continue maintain our investments with our financial advisor, avoiding the issue of "buying high and selling low." Finally, while I still have not identified any candidates, I will continue to look for opportunities to short stocks during the next rally.

    For more on Ideas You Can Use, check back every Tuesday for a new segment.

    Photo Credit: Wikimedia Commons

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Monday, March 17, 2008

    3/17/08 Stock Purchase Update - More Sell Signals

    With the market decline of early 2008, the stock purchase updates have not been as fun to write. However, I am going to remain disciplined and do a weekly update until I sell the positions from the portfolios. Currently, the portfolio is based on a 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) and a January, 2008 stock pick update of Apple (AAPL), Research in Motion (RIMM), Intuitive Surgical (ISRG), Priceline (PCLN), Core Labs (CLB), and Google (GOOG). The total portfolio is now has a slight gain of 2.3%. All the positions were up last week. On 3/7/08, the system gave a sell signal for Apple and Google. Here's the current status of the stocks in the portfolio:

    My Wealth Builder 10/15/07 Buy List
    Stock [purchase date]SharesPurchase Price

    Current Price 3/14/08

    Potash (POT) [6/7/07]50

    $71.59

    $160.49

    Southern Copper* (PCU) [11/13/07]40

    $108.24

    sold 2/19/08 @ 109.05

    CNH Global NV** (CNH) [11/13/07]50

    $55.22

    $51.57

    BHP Billiton*** (BHP) [11/27/07]50

    $71.54

    sold 2/19/08 @ $73.98


    *On 1/18/2008, the system gave a sell signal for PCU.
    **On 2/1/2008, the system gave a sell signal for CNH.
    ***On 2/15/2008, the system gave a sell signal for BHP.
    I will try to sell CNH during an upcoming market rally, hopefully above the purchase price.


    My Wealth Builder January, 2008 Buy List

    Stock [purchase date
    SharesPurchase Price

    Current Price 3/14/08

    Apple** (AAPL) [1/17/08]25

    $160.93

    $126.25

    Research in Motion (RIMM) [1/17/08]25

    $88.71

    sold 2/22/08 @ 103.23

    Intuitive Surgical (ISRG) [1/18/08]20

    $261.81

    $283.07

    Priceline (PCLN) [1/18/08]25

    $92.33

    $117.63

    Core Labs* (CLB) [1/25/08]25

    $116.25

    sold 2/19/08 @ $121.67

    Google** (GOOG) [1/25/08]20

    $582.66

    $437.92

    Google** (GOOG) [2/1/08]10

    $521.27

    $437.92

    Google** (GOOG) [2/26/08]10

    $457.44

    $437.92


    *On 2/8/2008, the system gave a sell signal for CLB.
    ** On 3/7/2008, the system gave a sell signal for AAPL and GOOG.
    I will try to sell AAPL in an upcoming rally. I plan to hold GOOG since it is part of my core holdings.

    The market has gone below the January, 2008 bottom. As of the close on 3/14/08, the Dow, Nasdaq and S&P 500 indices were respectively down 9.37%, 16.58%, and 11.86% year to date, below January end of week lows of 8%, 12.3% and 9.4% in my 1/25/08 Stock Purchase Update.

    I continue to believe that the probability of a recession in 2008 is relatively high, if we are not already in one. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in early 2008 has already caused the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008. At this time, I plan to sell CNH, AAPL and continue to hold the balance of the portfolio. I do not plan to add any more to the amounts that I have already invested in the above tables.

    Full disclosure: I own all the stocks mentioned in this post that are not indicated as sold.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Sunday, March 16, 2008

    Personal Finance Simplification - Bank Account Consolidation

    During March, 2008, I will be working towards consolidating our bank, credit card and brokerage accounts. This past week I have been working primarily on reducing our bank accounts. Here is a summary of the accounts, my analysis, and the decisions:
  • Regional bank 1. I have been using this bank or its predecessors for over 20 years. We have our joint checking and joint savings account at this bank. In the past year, I had added two checking accounts for some business ventures I was investigating.

    We have a good relationship with this bank. In addition, our joint checking account entitles us to a lot of services at no charge - e.g. traveler's checks, domestic and international ATM withdrawals, and notary services.

    We will keep the joint checking and savings account and close out the other accounts, when the minimum time has passed to avoid closing fees.


  • Regional bank 2. I opened this bank account when I started my part time seasonal work. I thought is would be a good idea to have a separate account for direct deposit. Also, this bank handled the internal banking for the company from which I retired and they provided a $75 bonus to open a new account.

    As it turns out, having another account for my part time job wasn't a good idea. It created additional paperwork, with no additional benefits over my current bank. In a couple months, when there is no longer a penalty, I will close out this account.


  • Internet bank. Last year, I opened an account with ING Direct for the higher interest and a $25 bonus. My experience with ING Direct was very good. However, while the interest rate was good, I found it was not worth the effort of making periodic transfers and managing another account. In addition, it didn't have some of the services that Regional Bank 1 provided.

    I closed the ING Direct account last week.


  • Overseas bank. I still have our Japanese bank account from our overseas assignment. I kept it because I believed that the dollar would depreciate against the yen, and was waiting for that event before transferring the money back to the US. In the past week, the dollar just hit a 12 -1/2 year low versus the yen.

    I will be closing out this account in the next month.

  • After the next couple months, I expect to have just two bank accounts, one checking and one saving, with Regional Bank 1. This should significantly reduce the amount of paperwork from our banks.

    For more on New Beginnings, check back every Sunday for the next segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Saturday, March 15, 2008

    Information - Acquisition Versus Analysis

    Why We're Powerless To Resist Grazing On Endless Web Data by Lee Gomes of The Wall Street Journal shares the findings of Dr. Irving Biederman. In his research, Dr. Biederman found that "new and richly interpretable information triggers a chemical reaction that makes us feel good, which in turn causes us to seek out even more of it." Dr. Biederman's findings could explain why the Internet has such appeal. Our brains are hardwired to want new information and the Internet is an abundant source that is easy to access.

    This story resonated with me since I see myself falling into the trap of information acquisition over information analysis. Information acquisition makes my brain feel good. Watching the stock market via the Internet is fun, entertaining and makes for good stories. I love checking the stock market status constantly throughout day. On the other hand, information analysis can make my brain feel tired. Sorting through data, converting information to knowledge and then taking action for complex projects is hard work.

    A personal challenge is to get the right balance of acquisition versus analysis. Right now I am skewed towards information acquisition in a couple of my focus areas. For my dream job, I think I need to invest more time in information analysis. For my stock investments, I think I need to reduce the time spent on information acquisition. Intuitively, I knew I needed to make these changes. Why We're Powerless To Resist Grazing On Endless Web Data helped me to better understand why I may be resisting the change:-)

    For more on Reflections and Musings, check back every Saturday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Friday, March 14, 2008

    Renaming Early Retirement

    Smart Money recently held a contest to rename "retirement." In my experience, the term retirement generally connotes an ending rather than a beginning. Although, the Smart Money chose "Life 2.0" as the replacement for "retirement," their term doesn't quite work for me.

    At this point, I think of life in three parts defined by the primary activity of the segment- Learning, Earning and Enjoying. Of course, no phase is exclusively one activity and each phase contains a bit of all three activities. Here's how I would define the phases:

    Learning - Birth to 27. This is the phase that includes formal education and socialization. During this phase, one acquires knowledge and develops skill needed for the earning phase. Of course, there is time and effort invested in recreational activities and may be some time spent working.

    Earning - 16 to 65. This is the phase where people spend the most their time working to earn money to support themselves and their family. During this phase people also save for future retirement.

    Enjoying - 50 to death. This is the phase where people leave regular employment, typically living on a pension, Social Security or other retirement savings. During this phase, people can enjoy doing their preferred activities, provided they have good health and sufficient retirement income.

    For me, early retirement could appropriately be called an Earning phase sabbatical, with a high likelihood of transitioning to the Enjoying phase. During the sabbatical, I will attempt to find or create my dream job, since I do have a passion for making a difference in these jobs. If the dream job ideas should fail, I will be happy to move into the Enjoying phase full time.

    For more on Reaping the Rewards, check back every Friday for a new segment.

    This is not financial or retirement advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Thursday, March 13, 2008

    Front Page Of The Newspaper Test

    "Don't do anything you wouldn't want to have on the front page of the New York Times." ~ New York Times Rule

    The headlines of this week reminded me of the famous New York Times rule I had heard a long time ago. To me, the rule always seemed like a reasonable test on the appropriateness of an action or activity. If I would be embarassed to have the public read about what I did, then I probably shouldn't do it.

    I wonder what may be the defining tests for future generations. I don't expect the New York Times to be as big a factor when my daughter becomes an adult. Social networking sites may be a much bigger force in the future, resulting in the rule becoming, "don't do anything you wouldn't want an employer to see on My Space or Facebook."

    In either case, it's probably best to remember a quote from Benjamin Franklin, “It takes many good deeds to build a good reputation, and only one bad one to lose it.”

    For more on Crossing Generations, check back every Thursday for a new segment.

    This is not financial, political or ethics advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Wednesday, March 12, 2008

    Fed Actions Will Only Delay The Inevitable

    When we are no longer able to change a situation, we are challenged to change ourselves. ~Victor Frankl

    I must admit that I am impressed with Dr. Ben Bernanke's and the Fed's creativity in addressing the current economic issues. They are using a larger set of tools than the changing the Fed funds rate. First, in August, 2007, the Fed lowered the Fed discount rate, a largely symbolic move to give investors confidence. Yesterday, the Fed announced the would lend up to $200 billion of treasuries in exchange for mortgage backed debt to increase liquidity and help credit markets. In each case, the Fed appears to be addressing a specific economic challenge, instead of using just fed fund interest rate cuts to address all economic issues. However, I believe the Fed actions are only delaying the inevitable.

    As a result, I expect the stock market will continue to be in a downward trend for most of 2008. Of course, I wish the stock market would quickly resume its upward trend of the past five years:-) While the Fed moves have provided some confidence, the stock market rebounds have been relatively short lived. Thus, it seems to me that a recession is inevitable, if we aren't already in one. Despite the gallant Fed interventions, I believe revising our financial plans to protect our savings against a recession has been the right approach. The last plan element that I am still working is identifying individual stocks to short. I hope to have to have several possible candidates chosen in the next couple weeks to short during the next rally.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Tuesday, March 11, 2008

    Avoid Tax Rebate Scams

    If you're in a rush to get a tax rebate, beware of con artists posing as IRS or Social Security officials. Scam artists target tax rebate checks shares how these impostors contact people via phone or e-mail requesting personal financial information (e.g. bank accounts, Social Security numbers) in order to expedite direct deposit of a tax rebate payment. The article notes, "For the record, the IRS will never ask for bank account or similar information over the phone or Internet."

    For further, information see the IRS webpage on e-mail and telephone scams. The article reinforces that the "IRS does not contact taxpayers by phone to verify bank account information" and the "IRS does not send unsolicited, tax-account related e-mails to taxpayers." One can report suspicious e-mails and phone calls to IRS at phishing@irs.gov, using instructions from How to Protect Yourself from Suspicious E-Mails or Phishing Schemes.

    For more on Ideas You Can Use, check back every Tuesday for a new segment.

    This is not financial or tax advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Monday, March 10, 2008

    3/10/08 Stock Purchase Update - Google Continues To Fall

    With the market decline of early 2008, the stock purchase updates have not been as fun to write. However, I am going to remain disciplined and do a weekly update until I sell the positions from the portfolios. Currently, the portfolio is based on a 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) and a January, 2008 stock pick update of Apple (AAPL), Research in Motion (RIMM), Intuitive Surgical (ISRG), Priceline (PCLN), Core Labs (CLB), and Google (GOOG). The total portfolio is now flat. GOOG continued to decline significantly this week and is down 42% from its high of $747.25 I will continue to try to sell CNH. Here's the current status of the stocks in the portfolio:


    My Wealth Builder 10/15/07 Buy List
    Stock [purchase date]SharesPurchase Price

    Current Price 3/7/08

    Potash (POT) [6/7/07]50

    $71.59

    $155.34

    Southern Copper* (PCU) [11/13/07]40

    $108.24

    sold 2/19/08 @ 109.05

    CNH Global NV** (CNH) [11/13/07]50

    $55.22

    $49.18

    BHP Billiton*** (BHP) [11/27/07]50

    $71.54

    sold 2/19/08 @ $73.98



    *On 1/18/2008, the system gave a sell signal for PCU.
    **On 2/1/2008, the system gave a sell signal for CNH.
    ***On 2/15/2008, the system gave a sell signal for BHP.
    I will try to sell CNH during an upcoming market rally, hopefully above the purchase price.


    My Wealth Builder January, 2008 Buy List

    Stock [purchase date]
    SharesPurchase Price

    Current Price 3/7/08

    Apple (AAPL) [1/17/08]25

    $160.93

    $122.25

    Research in Motion (RIMM) [1/17/08]25

    $88.71

    sold 2/22/08 @ 103.23

    Intuitive Surgical (ISRG) [1/18/08]20

    $261.81

    $264.75

    Priceline (PCLN) [1/18/08]25

    $92.33

    $116.92

    Core Labs* (CLB) [1/25/08]25

    $116.25

    sold 2/19/08 @ $121.67

    Google (GOOG) [1/25/08]20

    $582.66

    $433.35

    Google (GOOG) [2/1/08]10

    $521.27

    $433.35

    Google (GOOG) [2/26/08]10

    $457.44

    $433.35




    *On 2/8/2008, the system gave a sell signal for CLB.

    The market activity is testing the short term bottom. As of the close on 3/7/08, the Dow, Nasdaq and S&P 500 indices were respectively down 9.86%, 16.58%, and 11.54% year to date, below previous end of week lows of 8%, 12.3% and 9.4% in my 1/25/08 Stock Purchase Update.

    I continue to believe that the probability of a recession in 2008 is relatively high. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in early 2008 has already caused the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008. At this time, I plan to sell CNH and continue to hold the balance of the portfolio. I do not plan to add any more to the amounts that I have already invested in the above tables.

    Full disclosure: I own all the stocks mentioned in this post that are not indicated as sold.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Sunday, March 09, 2008

    March Is Consolidation Month

    After writing the post Account Proliferation or Consolidation?, I've decided to make March the month to re-consolidate the companies who handle our financial business. Our goal will be one bank , two brokerages and two credit cards.

    Banks. We currently have two active accounts at different banks, our joint account and one I opened for direct deposit for my part time job. Unfortunately, since writingAccount Proliferation or Consolidation?, I realized I had forgotten about two dormant accounts, an Internet account and a left over account in Japan from my assignment there. My current plan is to close out all accounts except our joint checking and savings account at the place I have been banking for over 20 years.

    Credit Cards. We currently have three credit cards, one in my spouse's name and two in my name, Discover and American Express. Our goal is to have one account in each persons name for the purpose of personal credit rating scores. Thus, one of mine will have to go.

    Brokerages. We currently work with three brokerages, of which two are discount brokers, Charles Schwab and TD Ameritrade. The other is the brokerage of my financial advisor. For risk management reasons, we like to split our money between two brokerages, in case one has significant financial issues. At this point, we will likely eliminate one of the discount brokers. In addition, we will also get to a single type of account (e.g. IRA or Roth IRA) per person.

    In the remaining three Sundays of March, 2008, I will write about our analysis and final decision in each area. Our guiding principle will be "Simple is good." Hopefully, this consolidation will significantly reduce our financial record keeping.

    For more on New Beginnings, check back every Sunday for another segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Saturday, March 08, 2008

    2008 Could Be A Very Bad Year For My Long Investments

    "Things are going to get a lot worse before they get worse." Lily Tomlin

    First of all, let me say this is my opinion, based on my experience investing over the past 20 years. I could be very wrong :-) I hope I am wrong, since I own a house, am invested in the stock market, and recently retired early. However, here's why I think I need to plan for a bad year, economically speaking.

    Everything looks pretty bleak. It's tough to think of any recent good news. Job growth -none. Oil and gasoline prices - none. GDP - none. Stock market - none. Real estate - none. Municipal bonds - none. Mortgage defaults - none. Bush administration - maybe, yes. Edward Lazear, who is Bush's top economic advisor, recently said, "I'm still not saying that there's a recession," but says economic growth could be negative in the current quarter. Global markets - some, yes, but many are weakening.

    More bad news keeps coming. First, there were sub prime mortgages. Next came CDOs, mortgage company failures, financial institution write downs, rogue traders, and bond insurer troubles. Now people who can afford to pay their mortgages are choosing to walk away. Unfortunately, I believe the next few months will bring more bad news.

    In December, 2007, I wrote about Protecting Our Savings Against A Recession. We have implemented the first two approaches and part of the third approach. This month I will be putting in place the rest of the third approach by shorting select stocks.

    It has been a while since I've shorted stocks. The last time was in 2004, with mixed results. In today's market, many stocks have already declined significantly. The challenge will be to find stocks which still may decline in the upcoming months. However, if I am correct that 2008 will be a negative year for the stock market, I expect I will find a number of stocks appropriate for shorting.

    For more on Reflections and Musings, check back every for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Friday, March 07, 2008

    Why We Will Spend More During Retirement

    Our initial retirement spending target was slightly higher than our pre-retirement spending. In a February, 2007 retirement spending analysis, we thought a slightly higher number was a good estimate since we didn't expect much change in our spending habits, except for higher health insurance premiums. After five months of retired life, I now expect that we will spend more in retirement. Here are the reasons:


  • Entertainment. Of course, there is the usual reason of more travel. However, there are also local attractions such as memberships at museums, the arts, amusement parks (for our daughter:-), and regional parks. In addition, we are taking the opportunity to eat out for entertainment more often.


  • Pay to have things done. This ranges from for household maintenance to eating out. While working, we had already begun to outsource our lawn cutting, shirt pressing and car maintenance. In retirement, we continue to hire services to cut our lawn and maintain our car. As we get older, we will initially pay to have more of the yard and exterior house work (e.g. gutter cleaning) done by others. At this point, we still do the majority of minor interior house maintenance (e.g. faucet leaks or caulking) for which I expect we will pay service companies to do in the future.


  • Personal growth and development. I expect that we will spend more on enrichment learning through courses, lessons, or experiences. Some topics may include: cooking, golf, nature, health and fitness. In addition, we will be investing in growthful experiences for our three year old daughter.

  • Currently, most of these items are discretionary, meaning that we can reduce spending if necessary. However, over the long term, I expect these areas will become regular spending items during retirement. Otherwise, retirement wouldn't be as enjoyable:-)

    For more on Reaping the Rewards Reflections, check back every Friday for a new segment.

    This is not financial or retirement advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Thursday, March 06, 2008

    Account Proliferation Or Consolidation?

    Having multiple bank, credit card, dividend reinvestment, mutual fund , or stock brokerage accounts does have benefits. Generally, different banks and credit cards offer better interest rates at various times. In addition, multiple dividend reinvestment or brokerage accounts can reduce the cost of investing. The upside is that multiple accounts can help improve one's financial situation if managed well. The downside is the maintenance that comes with multiple accounts, specifically the handling of paperwork which needs to be done on a monthly or yearly basis. In addition, many financial accounts require reconciliation when doing one's taxes.

    Consolidation simplifies the maintenance work by reducing the number of accounts that require one's involvement. The fewer accounts one has, the fewer statements one has to handle, either monthly or for filing taxes. However, one may miss out on getting the best financial deal by not using multiple providers.

    During my twenties and thirties, I enjoyed opening new accounts to get the best deals. I would have bank accounts at multiple banks to get better CD rates, even if the difference was only 0.1%. I had up to three brokerage accounts since each one had better costs or service in different investment areas. I would carry multiple credit cards since there were great new account deals. It was fun to create a few extra few dollar through this process.

    However, as we've gotten older, I began to appreciate the benefits of consolidating accounts, even at the expense of getting the best deal. Our first consolidation was to purchase mutual funds and CDs via our brokerage accounts. Doing so gave us access to the excellent funds and rates with the convenience of only one account statement. We also consciously reduced to one credit card for each person. At one point, we had consolidated to one bank, two brokerages and two credit cards to handle all of our financial transactions. This seemed like a reasonable number minimum accounts to protect against an institution failure and a credit rating for each spouse.

    For a couple of reasons, we are currently one above our desired minimum in each account area. However, it still makes sense to keep consolidating and we continue working towards the desired minimum number of accounts. It will likely take a couple years in order to minimize the fees of closing accounts.

    For more on Crossing Generations, check back every Thursday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Wednesday, March 05, 2008

    How Our Emergency Fund Helped Us Retire Early

    Building and maintaining savings for emergency needs has always been part of our wealth building plans. Having a financial cushion has provided a sense of financial security, because there was a safety net upon which we could depend. Luckily, we never had an emergency need while we were earning a wage income. As a result, our savings for emergency needs helped us achieve early retirement in our forties.

    Why you need $500 in the bank by Liz Pullian Weston of MSN.com shares how to get started with $500 in an emergency funds. The article concludes with some examples of what constitutes an emergency and what doesn't. "Essentially, it's an event that puts your livelihood or your family's safety at risk. The television dying, for example, is not an emergency. The furnace dying is."

    Here were some of the guidelines we used for our emergency fund:


    1. Limit using unexpected use to true emergencies. We only considered one or two events true emergencies. They were job loss or catastrophic medical expenses. Fortunately, neither of these ever happened to us while we were working.


    2. Keep the majority of funds in cash or cash equivalents. For us, it would have been disastrous to have emergency funds invested in the stock market and then need to use them when the market is down. An emergency is bad enough. Needing to sell when the market is down makes the emergency even worse.


    3. Emergency funds shouldn't replace insurance coverage or saving for routine large expenses. To me, emergency funds should be in addition to and not instead of major medical, auto, home and liability insurance. Also, I would consider large purchases (e.g. car, furniture, electronics), car repair, and major home repair (e.g. roof, furnace, or air conditioning) to be planned expenses and therefore, not a reason to use emergency funds.

      The Chief Family Officer writes how she created and infrequent bills savings account because they were using emergency funds to pay for "routine" large bills. Before getting married, I used to co-mingle emergency and big expense (e.g. car, real estate tax) funds and reconcile the amounts periodically. In the last couple years, we created a separate big expense fund, for items such as home repair, car purchase and insurance premiums.
    We have always made regular contributions to our savings, both for emergency needs and retirement. Since we were fortunate not to have any true emergencies, our emergency fund was never used. Eventually, the unused emergency savings became part of the funds we used to enable retirement in our forties.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Tuesday, March 04, 2008

    Another Reason I Don't Like Gift Cards

    I have never been a fan of gift cards. While touted to be as good as cash, I never thought they were. First, gift cards are limited to being used at one store or group of stores. Second, the products that I need to buy may not be offered by the store. Third, gift cards are high maintenance, needing to be managed and tracked on their own.

    Now I have a fourth reason for not liking gift cards. Bankruptcy makes gift cards worthless describes how The Sharper Image has temporarily stopped honoring its gift cards since it filed for Chapter 11 bankruptcy last month. It has been estimated that The Sharper Image has issued as much as $25 million of gift cards. Worst yet, the gift card holders may never get their money back, since they are considered unsecured debt holders, who often get little or no money from a bankrupt company.

    Right now, we have about five gift cards from three major retailers and two local restaurants, mostly due to rewards programs in which we participate. While I don't expect any of the establishments to go out of business soon, I will make an effort to "enjoy" the cards in the next few months:-)

    For more on Ideas You Can Use, check back every Tuesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Links to Carnivals from March 3, 2008

    Here are links to Carnivals form March 3, 2008, in which My Wealth Builder participated:

    Carnival of Family Life

    Carnival of Personal Finance #142

    Festival of Stocks #78

    For some excellent articles from the blogosphere, check out these great Carnivals.

    In addition, this month Free Money Finance is hosting his annual March Madness Tournament for PF bloggers. The winner will receive a prize of $500 dollars donated to the charity of his choice. My Wealth Builder's submissions were included in Games 17 and 20 of this bracket .

    This is not financial or family advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Monday, March 03, 2008

    3/3/08 Stock Purchase Update - Tempted To Bail Out In This Ugly Market

    With the market decline of early 2008, the stock purchase updates have not been as fun to write. However, I am going to remain disciplined and do a weekly update until I sell the positions from the portfolios. Currently, the portfolio is based on a 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) and a January, 2008 stock pick update of Apple (AAPL), Research in Motion (RIMM), Intuitive Surgical (ISRG), Priceline (PCLN), Core Labs (CLB), and Google (GOOG). The total portfolio has a gain of 4.4% due primarily to the strength of Potash. Unfortunately, GOOG and PCLN declined significantly this week. I made an additional purchase of GOOG while it was declining. I will continue to try to sell CNH. Here's the current status of the stocks in the portfolio:


    My Wealth Builder 10/15/07 Buy List
    Stock [purchase date]SharesPurchase Price

    Current Price 2/29/08

    Potash (POT) [6/7/07]50

    $71.59

    $158.90

    Southern Copper* (PCU) [11/13/07]40

    $108.24

    sold 2/19/08 @ 109.05

    CNH Global NV** (CNH) [11/13/07]50

    $55.22

    $51.50

    BHP Billiton*** (BHP) [11/27/07]50

    $71.54

    sold 2/19/08 @ $73.98



    *On 1/18/2008, the system gave a sell signal for PCU.
    **On 2/1/2008, the system gave a sell signal for CNH.
    ***On 2/15/2008, the system gave a sell signal for BHP.
    I will try to sell CNH during an upcoming market rally, hopefully above the purchase price.


    My Wealth Builder January, 2008 Buy List

    Stock [purchase date
    SharesPurchase Price

    Current Price 2/29/08

    Apple (AAPL) [1/17/08]25

    $160.93

    $125.02

    Research in Motion (RIMM) [1/17/08]25

    $88.71

    sold 2/22/08 @ 103.23

    Intuitive Surgical (ISRG) [1/18/08]20

    $261.81

    $281.92

    Priceline (PCLN) [1/18/08]25

    $92.33

    $114.02

    Core Labs* (CLB) [1/25/08]25

    $116.25

    sold 2/19/08 @ $121.67

    Google (GOOG) [1/25/08]20

    $582.66

    $471.18

    Google (GOOG) [2/1/08]10

    $521.27

    $471.18

    Google (GOOG) [2/26/08]10

    $457.44

    $471.18




    *On 2/8/2008, the system gave a sell signal for CLB.

    The market activity is testing the short term bottom. As of the close on 2/29/08, the Dow, Nasdaq and S&P 500 indices were respectively down 7.11%, 14.36%, and 9.05% year to date, near or just past previous lows of 2008.

    I continue to believe that the probability of a recession in 2008 is relatively high. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in early 2008 may cause the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008. At this time, I plan to sell CNH and continue to hold the balance of the portfolio. If the market goes down this week, I may also sell ISRG and PCLN. I do not plan to add any more to the amounts that I have already invested in the above tables.

    Full disclosure: I own all the stocks mentioned in this post that are not indicated as sold.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC