Archive for the ‘investing’ Category

Company Match in Investment Plans at Work

Tuesday, January 19th, 2010

Back to my semi-Saturday series of “investing fro complete and utter idiots (and dummies too)” which is my tongue-in-cheek attempt to understand the super-complex world of investment and then explain it to others like me who have no background in the subject.  I’m going to go ultra-basic today, and tackle the idea of a company match in your investment plan at work.

First up, I don’t have any investment plan at my work.  LOL It would be sweet if I did, but the boss lets us students do homework on the clock when business is slow, so I guess I can’t complain.  I did mention a 401(k) or SEPP-type plan to my boss, and he got a deer in the headlights look on his face.  I guess that isn’t a common question to hear from a minimum wage employee.

Now, if y’all have an investing plan at work, especially one that offers matching funds: GO FOR IT!  Unless it is the difference between your budget being in the black or in the red, take full advantage of it!

It really doesn’t matter if your company’s 401(k) is in a good or bad plan if you stop and think about it.  Your company is offering to match your contribution and automatically give you an immediate return on your money.  The sweetest matching plan is 100% up to a certain percentage of your contribution, and that is automatically doubling your investment money.

Hubby, Money, and Investing

Tuesday, May 27th, 2008

Yes, I’ve been quiet recently.  A little over a week ago I had a very eye-opening money talk with hubby that really threw me for a loop.  Where to begin …?

It all started with a discussion about the economic “stimulus” payment that came in half of what we expected (granted, I hadn’t bothered to run the numbers through one of the website calculators out there).  So instead of having $900 or $1200 to play with, we only got $600.  I shouldn’t fuss, since we are in the ZERO % tax bracket.  Hubby has asked for $150 of it, and I agreed, figuring he had some anniversary plans he was keeping secret.

Well, after the anniversary evening out, hubby asked if he could write the check for the money market/big emergency fund deposit for only $400 instead of $450 … Yes, it was “only” $50 but I thought I was being generous by letting him have one quarter of the “stimulus” to begin with!  I of course wanted to stuff all but $50 of it into the big emergency fund.

It was time for another Big Money Discussion, with capital letters.  I learned he feels “poor” because he doesn’t have as much spending money as he did before he went to Korea (and before I started budgeting).  He learned (?) I have a deep psychological need to have a big honkin’ emeergency fund for security, as the expenses section of the budget keeps growing due to gasoline and food price increases combined with concerns about upcoming tuition bills.  So far, so good …

Then I made the remark I wanted to hurry up, tighten the belt, and get that big emergency fund funded so I could move on to investing.  Hubby said he didn’t like investing … he preferred to keep his money in his checking account, or maybe a money market account at best.

GASP!!  CHOKE!!!  cough, sputter … !!!!!  Insert mental image of me banging my head against the desk!  After making quite a few shocked noises, I asked him how he could say that …??!?

This is a basic synopsis of several conversations over the past week and a half: Hubby doesn’t understand investing.  It’s a huge blow to my ego as a PF blogger that I can write things here on my blog … but can’t seem to explain why investing is a smart thing to my own husband.  Hubby says this “investing idea” seems to be losing money, not making money so he’d rather just earn interest in a regular savings account, checking account, or a money market account.

“Ok, so just TEACH him about why investing is the best idea…”

That would work IF he was inclined to learn.  Hubby feels he has his hands full with negotiating with re-up and studying for the promotion board, and I can almost SEE him tune out when I get started on the subject.  His eyes either become unfocused or begin to wander about.

The best I’ve gotten from him in the time since he uttered that jaw-dropping sentence is “You take care of it … I don’t want to see it or bother with it.  Just like my TSP.”  Considering what the markets have been doing over the past year, I am extremely grateful the TSP only mails out annual statements.

So now I am thinking hard about how I can sneak little tiny microbits of investing info into our everyday conversations, since hubby is not inclined to sit down for an hour or longer crash course on what little I know about the subject.  The problem is Hubby is every bit as stubborn as I am … but y’all probably figured that out months ago LOL  He’d have to be, to marry me.

It sounds like hubby’s leave has been approved, so we will be heading down to Florida to spend a little time with my in-laws in less than two weeks.  Perhaps I can get a little help from them.  If not, there is still the 12 hour drive to get there and back … when he will be a “captive audience” so to speak!  Wish me luck on this endeavor.  I’ll probably need it.

Stagflation is HERE

Wednesday, April 30th, 2008

Y’all have heard me gripe and grumble about the Fed cutting interest rates, with my main concern being inflation or even worse stagflation.  Break out the polyester leisure suits and disco albums (yes, vinyl LPs), because it looks pretty official to me: Stagflation has returned to the U.S.

Short definition of stagflation

Stagnant economic growth or recession coupled with higher level of inflation.

The president is currently denying that we are in a recession right now (Wow, he not only looks like his father but now he sounds like him as well!).  Technically, he is right when you apply the classic textbook definition of recession, which is two quarters of economic contraction.  The official government numbers say we haven’t had actual economic contraction, but the anemic “growth” of 0.4% and 0.6% would put snails to shame.  Basically, the economy is moving about as fast as swamp water … stagnant, in short.

Inflation numbers DO lie

Now for the other half of stagflation, which is inflation (prices inflate like a balloon).  The “normal” government numbers show an annualized inflation for the past month of 4%, but then they get downright sneaky and strip out food and energy prices for some (male bovine excrement) figure they call the “core inflation” figure.  I’ve made several snarky remarks about how Ben Bernake must not eat or drive to think the core inflation number is anywhere near realistic.

Doing a little digging around on the web I have discovered the government has changed how they figure inflation several times, and each change they make doctors up the numbers to make things sound much rosier than they are.  Sit down and hang on to your hats, because here is a graphical representation of MY budget reality versus the government’s rose-colored glasses:

inflation numbers real and imaginary

(original article and image source here)

That’s a huge difference in figurings!  And when you take into consideration food and gasoline, that top line reflects how I had to adjust my budget for April … and how I’ll be working the numbers again for May.

Stagnant Economy + Inflation = STAGFLATION

There you have it folks, stagflation is back … I am not at all happy about having seen this coming either.  Supposedly the members of the FOMC are old enough and educated enough to have seen the signs of this economic catastrophe sooner and clearer than I could have!  Yet they have been on an interest rate cutting spree reminiscient of those 70s slasher horror films in hopes of keeping the Wall Street markets happy and every consumer in America spending like before (at unsustainable levels).

This could have been avoided.  Energy costs, especially oil, are priced in dollars and the dollar has fallen with just about every rate cut.  Even OPEC says the price of oil wouldn’t be nearly as high if the dollar was strongerThis round of stagflation is on Ben Bernake and seven others in the FOMC - excluding inflation hawk Richard Fisher of the Dallas Fed and recently Charles Plosser of the Philly Fed.

I’ll do some rooting around and asking the older generations how to survive stagflation and report here when I come up with something good.  In fact, I’ll make it my post-finals project, hopefully starting tonight.  Until then, turn on the 1970s classic rock radio station to get into the mood … the angrier the better.

Raiding Retirement - A Huge No-No

Saturday, April 26th, 2008

In my post on How to Pay For College, I referenced a CNN/Money article that encouraged parents to raid their retirement to pay their childrens’ tuition bills.  Becca left a comment on that post:

… Where I disagree is the comment in the article about “raiding the IRAs”. That should never ever be done. No one will give you a loan to retire. …

Since I have picked up quite a few new subscribers in the past couple months, it occurred to me not everyone is familiar with my opinion on raiding retirement.  I take a hardline attitude on this: DON’T DO IT!!!  Leave your retirement funds alone!

Don’t raid retirement to pay down debt (even as much as I love the idea of y’all getting out of debt!).  Definitely don’t raid retirement for your kids’ college.  And, by all that’s holy, don’t raid your retirement funds for something material!

When I say “raid retirement” I am not only talking about making withdrawals … I am also talking about those loans against your retirement funds as well.  After finals are finally over, I’ll do some research on those stupid ideas like 401(k) loans and the even dumber idea of a debit card for your 401(k)/403(b)/whatever account just to get the hard and nasty numbers.  Stay tuned for the ugly truth behind all the hype ;)

If you are still thinking about raiding your retirement funds by withdrawal or loan, you need look no further than the U.S. government for a shining (?) example of why this is a Bad Idea.  Back in the 1980s, Congress had the “brilliant” idea of raiding the Social Security trust fund to help cover the budget.  Twenty years later, quite a few (but not enough) government officials are now saying it has never been paid back and Social Security faces possible insolvency.  We have the largest demographic group starting to retire … and a bunch of unpaid IOUs in the account.  It’s the government’s equivalent of taking a loan against our retirement.

Unlike Congress, you cannot borrow however much you want whenever you want with the expectation that someone else will pick up the tab for you (although some people seem to act as if they can).  Let’s face it, if that strategy doesn’t work for Congress, it will be disasterous for YOU.

I can think of only two instances where I would raid my retirement funds, and that would be my option of absolute last resort: as a last-ditch effort to prevent a bankruptcy or as the last option to pay for life-saving emergency medical careI would go back into debt before tapping my retirement funds, and long-time readers will tell you that is saying a LOT.  Let me repeat that for effect:


I hope I have been quite clear on that point.  So, unless your “retirement plan” is to move in with your children and grandchildren and be a burden in your old age, STAY OUT OF YOUR RETIREMENT FUNDS!

Choosing an Investing Guy (or Gal)

Saturday, April 12th, 2008

Keeping with my semi-Saturday “investing for idiots” theme (that isn’t as regular as I would like) I had the idea over the week: How does the newbie investor go about finding an investment guy (or gal)?  What should the beginner investor look for? 

First thing, no matter what your level of investing education (or lack thereof) and no matter what your self-perceived intelligence level may be, you simply must remember this:  You are not a mushroom.  Do not allow any investment broker or advisor treat you like one!  For those not familiar with the mushroom analogy, it means to keep someone in the dark and feed them nothing but (manure).

Second thing, find someone who genuinely wants to help you learn about how investing works.  My Edward Jones guy spent well over an hour with me the first time, and declared he feels an informed investor is a better investor for everyone involved.  Of course, I started the session off by declaring I didn’t know much and I consider it his job to help me learn.

Third thing is to make sure your investment person understands s/he has TWO ears and only ONE mouth for a reason.  Your investing person must listen to you!  Along with the standard survey packet that all new investing clients fill out, my guy asked me what my financial plans were during the first session.  I laid out where I was on the Dave Ramsey baby steps (which he was familiar with) and what I estimated my time frame for completing the steps … and also where I was intending to go against the steps.  I don’t remember him interrupting me even once, and noticed he wrote down things on my survey.  Simply put, he listened.

You really don’t want an investment person who sounds like a salesman.  My investing guy does work on commission, but he has never tried to push any product on me.  He asked me what I am familiar with, what I am comfortable with, and if I had any specific funds in mind that he could provide more information on.  If he wants to introduce me to a fund family or specific fund, he gives me information on it and lets me do my own research on MorningStar, then lets me think about things.  There should never be any pressure to jump into an investment immediately!  The investing markets won’t disappear overnight or over the weekend.

Finally, the most important thing to remember about choosing an investment broker-advisor-whatever is that your investing person work for you.  Interview potential investing people just as if you are hiring them as a personal employee, because in essence that is what you are doing (regardless of whether they are fee only or on commission).  If you don’t feel comfortable with a person you’ve just interviewed, go down the street because there are always more to interview.  If you aren’t comfortable with your investing person that you currently have, you can always fire him/her and hire another.

Regardless of how new you are, or how intimidated you feel by investing, the basic fact remains: It is YOUR money.  It is YOUR future.  It is YOUR decisions and opinions that count.  Ultimately, it is YOUR choice whom you will hire to help with your investing.

Did I leave anything out?  Have you had any bad experiences with former investing advisors or brokers?  Have you had any exceptionally great experiences with your investing person?

Idiots Guide: Stagflation for Dummies

Saturday, March 22nd, 2008

I’m going to tackle the daunting task of explaining stagflation today, not only because it is in the news quite a bit recently, but also because it can really mess with the beginning investor.  First, the definition courtesy of wikipedia:

a period of inflation combined with stagnation (that is, slow economic growth and rising unemployment, possibly including recession) … First, stagflation can occur when an economy is slowed by an unfavorable supply shock, such as an increase in the price of oil in an oil importing country … Second, both stagnation (recession) and inflation can be caused by inappropriate macroeconomic policies …

OK, enough with the economic jargon, let’s break this puppy down into terms the normal person can understand.  Since stagflation is most commonly associated with the 70s here in America, start up some appropriate background music LOL like disco or funk or classic rock.

  • Stagnation:  This is pretty easy to get a handle on.  It means the economy isn’t moving forward.  Another common term popping up in the news today is recession.  The stock market will look BLAH and the unemployment rate will increase.  At the very end of the 70s and very beginning of the 80s, the unemployment rate hit over 10% which is at least double what we have now.
  • Inflation: Where the price of normal every day necessary items like food and gasoline increase sharply; that is, they inflate like a ballooon.  Inflation in the 70s was spurred by the two Oil Shocks here in America (1973 and 1979).
  • Inappropriate macroeconomic policies: Translation of this one is the central banks fumble the economic football.  Umm, gee, haven’t I (and others) been accusing the Fed of this one recently?  Granted, I am just an overeducated pizza delivery driver with a blog and a lot of opinion LOL but I am starting to see real economists and TWO of the ten voting memebers at the Fed saying this.

I found this interesting little tidbit buried deeper in the wikipedia page:

The way this plays out is that after supply shock occurs, the economy will first try to maintain momentum - That is, consumers and businesses will begin paying higher prices in order to maintain their current level of demand. The central bank may exacerbate this by increasing the money supply in an effort to combat a recession. For example, by lowering interest rates. The increased money supply props up the demand for goods and services when it would normally drop during a recession.

So, with a basic stripped down definition and a lot of opinion, do I think we are headed for stagflation?  I sure hope not!  If we bring back stagflation, people may start wearing those hideous polyester leisure suits and playing disco again!  Ewwww! 

Not only that, but stagflation helped keep the stock markets stagnant for a decent portion of the 70s, to the point that people were saying equity investing was dead.  Of course, the ones who stayed in the stock markets made out like bandits when it recovered by the mid-80s.

The problem I see is the Fed slashing the interest rates is sounding way too much like the wikipedia version of “how to bungle inflation and stagflation.”  I sincerely hope things don’t get to the point where it can’t be fixed, because my parents hated the 70s and early 80s for the economic misery and their vitriolic opinions about Richard Nixon, Gerald Ford, and Jimmy Carter could peel paint off the walls.  Just about every Baby Boomer I’ve met has the same low opinion of those three presidents and that time period.  Which reminds me, most Baby Boomers’ retirement funds would be hard-pressed to survive another round of stagflation.

OK, stagflation survivors: here’s your chance to weigh in, correct this Gen X “kid” or just give your predition from those who have seen it before.  Are we heading into another round of stagflation?

Fireworks on Wall Street

Monday, March 17th, 2008

I had something in mind to blog about this morning … until I went to look at this morning’s headlines.  Wow.  Major fireworks going off over the past 24  hours on Wall Street!  The really big news is the terrific implosion of a big Wall St firm Bear Stearns, and how JP Morgan scooped them up for an unbelievably low price.  The amazing part of this story is some folks (experts or analysts) are wondering if they paid too much per share for Bear Stearns, even though it was less than 4% of BS’s closing price from Friday.

Maybe fireworks is the wrong word.  This reminds me of when I saw the cluster bomb go off in Iraq: pretty to see from afar, but you definitely don’t want to be anywhere near it

I really feel for the employees of Bear Stearns.  Not only do some of them face the prospect of losing their jobs in this takeover, but their retirement is worth next to nothing compared to last week.  The news says most of the individual shareholders of the company are its employees.

Which brings me to the one thing I said I knew about investing back in January when I started this journey to understand such a complex subject: single stocks are bad as a retirement plan.  A lot of people think that if they have a good secure job, then taking retirement benefits in their company is just as safe as their jobs.  Bear Stearns employees probably have something to say about that this morning.

I really hope my mom is paying attention to this ugly situation.  Over the summer, she showed me her retirement info, and she has over 90% of it in her company’s stock and options.  If CVS Caremark goes belly-up or even declines sharply, my mom’s retirement will be severely and adversely affected.  She won’t listen to me about moving her 401(k) into funds either.

My heart really does go out to all the Bear Stearns employees who got caught too close to the cluster bomb that went off in the past week.  I hope JP Morgan deals with them fairly.  I am sure they are all screaming at the top of their lungs right now:

Single stocks are a bad idea for a retirement plan!

Lifecycle Funds in the Thrift Savings Plan

Saturday, March 15th, 2008

For this week’s post in my Saturday series “Investing for complete and utter idiots and dummies” (and people intimidated by investing) I’m going to revisit the federal Thrift Savings Plan (TSP) which is the US government’s version of a 401(k).  In the spotlight are the “Lifecycle” funds, or the L Funds.  I didn’t cover these very well back in January when I did my overview of the TSP, so I thought it might be a good idea to line these babies up and look under the hood of each one since there are actually five different L funds.  I’ll list these from “most conservative allocation” to “least conservative allocation” (and yes, liz, I understand the G fund is not really conservative when you factor in inflation concerns!)

L-Income Fund:  This is the only L Fund that doesn’t actually change it’s percentage allocations, and is supposed to be for people who are already withdrawing their retirement money.  The allocation is broken down into:

  • G Fund: 74%
  • F Fund: 6%
  • C Fund: 12%
  • S Fund: 3%
  • I Fund: 5%

L-2010 Fund: The L-2010 fund is designed for people who will start withdrawing their money between 2008 and 2014, and the allocation changes quarterly.  The linked page is pretty cool, as it has a flash show that you can see exactly how the funds allocation has changed quarter by quarter since its inception, and how it will be changed in the future!  Once it reaches the same allocation as the L-Income fund it is rolled into the L-Income.  Here is the allocation as of January 2008 (it will change again in April 2008)

  • G Fund: 58.5%
  • F Fund: 6.5%
  • C Fund: 19.5%
  • S Fund: 5.5%
  • I Fund: 10%

L-2020 Fund:  This fund is listed for people who plan to withdraw their money between 2015 and 2024, and changes quarterly.  January 2008 percentages are:

  • G Fund: 31%
  • F Fund: 7.75%
  • C Fund: 32.25%
  • S Fund: 11%
  • I Fund: 18%

L-2030 Fund:  This fund is for people who plan to withdraw money starting between 2025 and 2034, is adjusted quarterly, and is right now allocated as:

  • G Fund: 18.75%
  • F Fund: 8.75%
  • C Fund: 37%
  • S Fund: 15%
  • I Fund: 20.5%

L-2040 Fund: The “furthest out” target retirement date, for people who plan to withdraw their money after 2035.  This one is also adjusted quarterly … hmmm, I see a pattern here.  Here’s the breakdown of allocation for January 2008:

  • G Fund: 7.75%
  • F Fund: 9.75%
  • C Fund: 41%
  • S Fund: 17.5%
  • I Fund: 24%

Overall, the L Funds are designed to be the only fund in your TSP account if you do not feel comfortable allocating your own portfolio.  These funds are not designed to be mixed with others, but I know some folks do.  Hence, I have given these funds the nickname “Lazy” instead of Lifecycle. 

These funds are a little too “conservative” in their target dates for my tastes right now, given rising gasoline and food prices.  But hey, I am just learning these things myself.  If I were to put hubby’s TSP into any of these funds, I would hit the L-2040 since we are both in our 30s right now. 

If you are retiring before 2035, I would say to at least go one decade past what your true target retirement is (i.e. if you plan to retire in 2016 I would go with the L-2030 instead of the L-2020).  My reasoning is simple: the government never plans on people living as long as they actually do, and you may need the fund much longer than the government’s statistics think you will.  But, take any and all investing opinions from me with a grain of salt ;)