A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Thursday, March 31, 2005

Net Worth Statement - Part II

Yesterday, I began a new series called "Financial Planning Basics" and started with a post about the net worth statement. Today, I'll take the net worth statement a little further and show some various transactions and their effect on the net worth statement. While studying these examples, keep in mind the net worth equation:

Assets = Liabilities + Net Worth

Example One

Withdraw $5,000 from your savings account to pay for a vacation:

Assets = Liabilities + Net Worth

-$5,000 = No Change + -$5,000

Example Two

Withdraw $2,000 from savings to purchase a $2,000 personal computer:

To reflect the withdrawal from savings:

-$2,000 = No Change + No Change

To reflect the purchase of the computer (considered an asset):

+$2,000 = No Change + No Change

Example Three

Withdraw $5,000 from savings and charge $2,000 to your credit card to pay for a new dining room suite:

To reflect the withdrawal from savings and the additional liability on your credit card:

-$5,000 = +$2,000 + No Change

To reflect the addition of the dining room suite to asset-side of the equation:

+$7,000 = No Change + No Change

Those are a few examples to study. With my next post, we'll dive a little deeper into net worth statements.
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Wednesday, March 30, 2005

Notice to my Blog Readers

I'm currently doing some updating and site maintenance so please bear with me.

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ING Direct vx. Emigrant Direct

It looks like Emigrant Direct's American Dream Savings Account (current APR 3.25%)is a better deal than ING Direct's Orange Savings Account (current APR 2.80%).
ING must be thinking that their current account holders won't leave them. I remember back when ING first started offering the Orange Savings Account. Back then the APR was something over 5.00% . Of course, rates were a lot higher back then. Anyway, they made a huge push into gathering assets and they did so by offering some of the highest rates around. They could do this because they were internet-based and had no bricks and mortar to deal with.

Now competition has entered into the picture. ING's closest competitor is probably Emigrant Direct. Emigrant has built a pretty good business by offering higher rates than the competition. I first heard about Emigrant through blogs. In fact, Emigrant probably has bloggers to thank for their booming business.

It will be interesting to see how ING responds to Emigrant's surging business. My guess is that if they start losing significant assets, ING will be forced to raise their payout. Time will tell.
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Financial Planning Basics - The Net Worth Statement

Financial planners typically use two financial statements to get a handle on a person's current financial status. Those statements are: the net worth statement (also called the statement of financial position) and the cash flow statement (also called a budget). Today, I'll discuss the net worth statement.
Most people are familiar with following equation:

Assets = Liabilities + Net Worth

Looking at the above equation, you can see that as long as a person's assets are greater than their liabilities, they have a POSITIVE net worth. For example, say that all you have is a house that is worth $100,000 with $70,000 still owed on the mortgage. Assuming that you have no other assets or liabilities, your net worth equation would look like this:

$100,000 = $70,000 + $30,000

So, in this really simple example, your net worth is $30,000 since the house is worth $100,000 and you only owe $70,000. Now, what happens if you make a payment? (Once again, I'm really simplifying this example but the theory is still the same). Let's say you make a $1,000 payment, of which 100% goes directly towards paying off the mortgage. How does this affect your net worth?

$100,000 = $69,000 + $31,000

Since the value of the asset side (the house is still worth $100,000) doesn't change, the other side of the equation must adjust to reflect the payment. Since we are assuming that 100% of the $1,000 payment went towards the mortgage, the liabilities decreased to $69,000, which means the net worth portion had to increase to $31,000 to balance out the equation.

With my next post, I'll show some more example of different transactions and their effect on the net worth statement.
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Tuesday, March 29, 2005

Investment Manager Outlook Poll

UPDATE: Here's a link to the poll

According to the quarterly Investment Manager Outlook Poll, to be released today (last quarter's poll can be read here), tells us that mutual fund managers are bullish on large cap growth stocks and bearish on interest-sensitive investments like Treasury bonds.
Here are some numbers:

Of the survey of 97 institutional money managers:

84% are bearish on Treasurys
75% are bearish on corporate bonds
73% are bearish on junk bonds (high-yield debt)
53% are bearish on Real Estate Investment Trusts (REITs)

Finally, 65% of the managers are bullish on the pharmaceutical sector.

Interesting stuff. This just shows the importance of having a diversified portfolio.
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I Wish to Thank...

A little humor discussing the fact that AllThingsFinancial just passed it's 6,000th hit!
I want to thank my wife for putting up with all my blog talk.

I want to thank my mom for believing in me. I remember her telling me when I was a kid that I would someday have a blog that got over 6,000 hits. What forsight she had.

I want to thank my readers. Without readers I'd be in trouble.
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Monday, March 28, 2005

Welcome to Visitors from the PFBlog Network

If you are visiting AllThingsFinancial via the PFBlog Network, welcome! Although some of the posts are the same as those listed on the PFBlog Network, there are many, many others that are only posted on this blog. Please feel free to browse my archives, as there are lots of articles that may be of interest to you.

Also, please feel free to add this site to your Bloglines (or other RSS reader) account by clicking on the Feedburner icon on the left sidebar.

Finally, if you like what you see, please tell your friends about this site.

Thanks and happy browsing!

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The Future for Investors - Part 2

The whole premise of Jeremy Siegel's latest book The Future for Investors is that investors can achieve a better rate of return over the long run by concentrating on the stocks of companies that have been around a while instead of newer, more exciting companies.
The reason for this is that people tend to be too optimistic and pay too much for the stocks of newer companies, putting expectations on them that most cannot fulfill. Siegel said that through his research he found that the companies that did the best for investors were the companies that grew their earnings faster than the market expected.

I'll dedicate the next several posts to discussing this topic. Stay tuned.
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Morning Comments

I just wanted everyone to know about a special section that is in today's Wall Street Journal called "Your Money Matters" There are quite a few stories regarding saving for college. Anyway, today's issue would be worth the $1.00!

I had a glitch in my spreadsheet this weekend. That's why I didn't publish the updated numbers for the model portfolios. I'll try to get them updated later today.
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Sunday, March 27, 2005

AllThingsFinancial Now a Part of the PFBlog Network

MM over at PFBlog contacted me a couple of months ago and told me about a plan that he had to start a personal finance blog network and asked me if I'd be interested in adding content to his site. I of course said "AH... YEAH!"

For those interested, you can check out AllThings2 on the PFBlog Network.

The network serves two purposes:

1. It gives PFBlog additional content

2. It gives AllThingsFinancial another whole new set of eyeballs!

Anyway, I look forward to a long-term relationship with the PFBlog Network
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Saturday, March 26, 2005

Mutual Funds Expenses on the Rise?

Believe it or not, mutual fund fees actually dropped a small amount last year. According to Morningstar Principia, the average expense ratio for actively managed domestic equity funds was 1.52 percent for 2004 compared to 1.55 percent for the previous year.

Will the trend continue? Not bloody likely! Why? According to Robert Casey's article in the April, 2005 issue of Bloomberg Wealth Manager (sorry, there is no link), there are reasons why this is not a trend.

1. 2004 saw a lot of consolidation. Smaller mutual funds, which are usually associated with higher fees, were either closed down or merged into larger funds resulting in lower average fees for the industry as a whole. Consolidation won't go on forever.

2. 2004 saw Eliot Spitzer on a rampage. No fund in their right mind would attempt to raise fees while Spitzer is on the loose. Once he has moved on to attempt the governorship of New York mutual fund companies can start thinking about raising fees again.

3. Although Spitzer has been after fund companies for excessive fees and "market timing," the results will mean more oversight, which will mean more expenses. Funny how it all works out isn't it? Who knows, we may have been better off if things would have just stayed the way they were.

So, investors can expect mutual fund fees to increase in the next few years. Maybe investors should be looking to index funds as a better option to actively managed funds?
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Friday, March 25, 2005


Although I try to guard my main email address, somehow some jerk got it and is now sending me all kinds of spam. I have to say that spam has to be the biggest waste of time for all involved. I have NEVER purchased a product or service as the result of spam and I NEVER will.
Somebody must be buying stuff as a result from spam or we wouldn't have spam. Right?

So, here's my plead to all my readers:

1. IGNORE spam.
2. Don't open the emails.
3. Don't click on any links.
4. Don't try to "unsubscribe" because they will then know that it is a working email address.
5. Just simply delete it and forget it.

Any other suggestions are welcome. Also, I haven't tried any of the spam-filtering software programs. If any of my readers have had experiences with the software programs, please let us know your thoughts.
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Thursday, March 24, 2005

Are Financial Planners Needed?

Some of the comments I received on one of my other posts asked me why I wanted to pursue a Certificate in Financial Planning. He said that CFPs are not experts in anything in particular and that maybe I would be better off if I pursued a more specific designation like a CLU (Chartered Life Underwriter) or CPA.

So, what is the purpose of the financial planner? Why should people want to consider working with one? In my opinion, it has much less to do with the designation and much more to do with the way the business is conducted.

A financial planner is a generalist. Their job is to help people write financial plans and then help them implement those plans. It is the financial planner's responsibility to recognize the areas that they are not experts in and refer that business to a qualified expert. If the planner refuses to do this, they are doing the client a major disservice and are opening themselves up to a potential lawsuit.

I like to think of the financial planner as the conductor of a financial orchestra. Although each of the experts know their particular part of plan the way the members of an orchestra each know their instruments, it is the conductor or financial planner that brings them all together to make the project complete.

Does that make sense? I'll post later today about my plan for achieving my CFP designation by March of 2006.
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The NASD is Rethinking Its Policy on Annuity Sales Practices

The NASD is looking to crack down on sales contests that are used by brokerage and insurance firms to promote annuity sales. I think this is a good thing. The problem I have with sales contests is that most of the time the customer is unaware of the contests, which can lead to sales of unsuitable products.

For those who are interested, I wrote a post related to this topic. You can check it out here.
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Wealth Management Camp for Rich Kids

I saw this in the Wall Street Journal and thought I'd share it. Apparently there is a whole new industry in educating wealthy kids. Families pay as much as $15,000 per child (or up to $150,000 per family) to have their kids educated in all the major aspects of wealth management.

According to the article, there are over 430,000 families with net worths of $10,000,000 (yes, that's 10 MILLION), which is driving the demand for wealth management education. One company, IFF, is actually opening offices all over the country. Their Praxis (Latin for "practice") program is a two year program aimed at kids aged 18 to 35 and costs between $12,000 and $15,000 per year, per person. The program is designed for families worth $50 million or more.

It'll be a while before my family will qualify for that!
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Wednesday, March 23, 2005

The Wealthy Blogger

Here's an interesting blog called the Wealthy Blogger I found last night. I think it is their aspiration to become Wealthy Bloggers (I don't think they are there yet!). Anyway, check it out.
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Tuesday, March 22, 2005

Thanks to

I'm BAAAAAACK! I had a nice Spring Break weekend with my family and now it is time to get back to work.

I noticed that AllThingsFinancial was selected as the "Website of the Week" by I appreciate being selected and I also appreciate their kind words. As is my custom, I have added a link to their site on my side bar. Please feel free to check them out. While you're at it, check out my other links too.

I also started reading The Future for Investors by Jeremy Siegel. I'm only a few pages into it so I really can't give you a feel for it other than it looks like it is going to be a very good book. I'll post my thoughts on it as I progress through it.

Also, starting in the next few days I'm going to start posting my thoughts regarding the Certified Financial Planner program that I am enrolled in. My original goal was to sit for the certification this coming November. However, I think March 2006 is probably more realistic. Anyway, my goal is to give my readers an idea of what it is like to study to become a CFP.

That's all for now.
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Saturday, March 19, 2005

Spring Break

I just wanted to let all my readers know that I am taking a few days off to be with my family during Spring Break. I should be back to posting on Tuesday (the 22nd). If you are new to this site, please feel free to check out the Archives section. Also, please feel free to either leave me a comment or email me with a question and I'll get to it as soon as I can.

Have a good rest of the weekend!

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Thursday, March 17, 2005

Tipping Guidelines

My friend, Jonathan, over at the MyMoney blog has written a post offering tipping guidelines. I appreciate his efforts. Nothing is worse than to be in a situation and not know what to do. This is especially true if it is a business situation.

There are some pretty good reference books out there that can help you figure out protocol. Here's a few that I like:

The Etiquette Advantage in Business by Peggy Post and Peter Post

Gentlemanners, a set of three books by John Bridges and Bryan Curtis

Essential Manners for Men, by Peter Post - I really like this book.

And for those with kids:

The Gift of Good Manners by Peggy Post and Cindy Post Senning, ED.D.

The Guide to Good Manners for Kids by Peggy Post and Cindy Post Senning, ED.D. - a book written for kids.

These are just a few "manners" books that I have in my library. I especially recommend the two books for kids. I think one of the most important things we can give our kids is a proper respect for manners.
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Chase and Bank One Privacy Policy

The other day I posted about the importance of reading your credit card privacy agreements. Today I was filing some papers and I came across the privacy agreement for my Chase account. Chase offers two choices when it comes to information sharing:

Choice #1.

You may tell us not to share information about you with non-financial companies outside of our family of companies. Even if you do tell us not to share, if you have authorized us to share information in connection with a particular product or service, we will continue to share information about you in connection with that product or service. For example, you might have a credit card with one of our airline, retail or university partners that offers rewards programs.

Choice #2.

You may tell us not to share the following information about you within our family of companies:
  • Information from your applications to be used to determine your eligibility, such as your income.
  • Information from credit reports, such as your credit history.
  • Information from sources used to verify information you provide us, such as outstanding loans or employment history.

Even if you do tell us not to share, we may share other types of information within our family. For example, we may share name and address, information about transactions or balances with us, as well as survey results.

I may be wrong but this is kind of like saying, "Go ahead and make your choice but we will continue to do whatever we want."

Anyway, I thought that was interesting.

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Wednesday, March 16, 2005

Can You Have Too Many Choices in a 401(k)?

According to Barry Schwartz, author of The Paradox of Choice: Why More is Less, the answer is yes. He claims that too many choices (of anything) only confuses people and either causes them to do the wrong thing or nothing at all.

One of his solutions to get people to invest in their 401(k) plan is to make a default option. In other words, sign people up in the 401(k) automatically and make them opt out if they choose. His other solution is to allow the trustee of the retirement plan to manage employer accounts. The employer simply tells the trustee the employees' ages and the trustee does the rest. I'm not so sure I like that idea. That sounds like a lawsuit waiting to happen.

I'm not so sure I'm for limiting choices either. Sure, there may be those who won't do a thing when faced with a lot of choices. But, who's to say they would do something with less choices? Maybe I'm wrong, but that's my opinion. I think financial planners need to do a better job of marketing how they help people make better decisions with their money.
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The Finance Professor

This is a pretty cool blog authored by an assistant finance professor named Jim Mahar. It is worth bookmarking or subscribing to.
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Annuities Inside a 401(k)?

It seems Metlife and Prudential Financial and some other insurance companies are designing annuity products that go inside a 401(k) plan. These are deferred annuities that will pay an income stream to the 401(k) owner once they retire (which is similar to a pension plan).

I don't have a problem with this as long as they keep the fees low and waive the surrender charges. Just make sure you read the fine print.
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PBS to Begin Airing Financial-Education Series

This is a good thing! I and pretty much all the other personal finance bloggers out there have been talking about this for a while. With changes to Social Security being discussed, it is time that we start educating our young people about personal finance.

The series will be called MoneyTrack and will begin airing next month. The series is being funded through the Investor Protection Trust.

Anyway, I think it is about time PBS start spending our tax dollars wisely!
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Tuesday, March 15, 2005

Read the Fine Print on Your Credit Card Agreements

I know, I know, you hear this all the time. But, this time, it is actually beneficial to read the fine print on your credit card's privacy policy. Why? Because, according to Money magazine, they might contain useful information like who's looking at your account and what you can do to stop it.

One other thing I learned from the little article is that banks are allowed to share your personal information with "affiliated companies." What does "affiliated" mean? I'm not exactly sure. Money says that you should scan your privacy statements and zero in on the word "affiliates." That's probably not a bad idea. I know I'm going to spend some time reading my statements.

Oh, and if I find out any interesting tidbits while reading mine, I'll share them.
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OT: You Know it is 2005 When...

This has nothing to do with personal finance but a friend of mine sent this to me and I thought I'd share it. I thought it was pretty funny.


1. You accidentally enter your password on the microwave.

2. You haven't played solitaire with real cards in years.

3. You have a list of 15 phone numbers to reach your family of four.

4. You e-mail the person who works at the desk next to you.

5. Your reason for not staying in touch with friends and family isthat they don't have e-mail addresses.

6. You go home after a long day at work, you still answer the phonein a business manner.

7. You make phone calls from home, you accidentally dial "9" to get an outside line.

8. You've sat at the same desk for four years and worked for three different companies.

10. You learn about your redundancy on the 11 o'clock news.

11. Your boss doesn't have the ability to do your job.

12. You pull up in your own driveway and use your cell phone to seeif anyone is home to help you carry in the groceries.

13. Every commercial on television has a web site at the bottom of the screen.

14. Leaving the house without your cell phone, which you didn't havethe first 20 or 30 (or 60) years of your life, is now a cause for panic and you turn around to go and get it.

15. You get up in the morning and go on line before getting your coffee.

16. You start tilting your head sideways to smile. :)

17. You're reading this and nodding and laughing.

18. Even worse, you know exactly to whom you are going to forward this message.

19. You are too busy to notice there was no #9 on this list.

20. You actually scrolled back up to check that there wasn't a #9 on this list.
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Money-Market Resource

Earlier, I posted an article about Money-Market funds. Here's a cool website dealing with Money-Market funds. It is called iMoneynet. I'll add a link to it from my side bar.
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Where's a Good Place to put Your Savings?

The Federal Reserve has raised interest rates six times in the last year. If your bank is anything like my bank, they aren't paying you a high enough interest rate. So, what can you do? Why not check out some of these links.

None of these are recommendations on my part. I'm just trying to put out some useful information. Please do your own research BEFORE you send them your money. Also, if you have had an experience (good or bad) with any of these places, please leave a comment.

Here we go:
      Bank Money-Market Accounts
Virtual Bank 2.60% $100
Cosmopolitan B&T 2.51% 100
First Bank of Oak Park 2.51% 100
Park National Bank 2.51% 100
Pullman Bank 2.51% 100
Taxable Money-Market Funds
PayPal Money Market Fund 2.41% 1
Scudder Money Market Series Premium S 2.22% 2,500
Transamerica Premier Cash Res. Inv. 2.21% 1,000
TIAA-CREF Money Market Fund 2.15% 2,500
Vanguard Prime Money Market Fund 2.13% 3,000
Tax-Exempt Money Market Funds
Alpine Municipal Money Market Fund Inv. 1.89% 2,500
Vanguard Tax-Exempt Money Market Fund 1.75% 3,000
Strong Tax-Free Money Fund 1.61% 2,500
Fidelity Municipal Money Market Fund 1.47% 5,000
USAA Tax Exempt Money Market Fund 1.45% 3,000

Some of these funds may have sales loads. Be sure and thoroughly read the fine print before you send them your money.
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Why Johnny Can't Save for Retirement

I saw this article in Fortune and just had to put a link to it. It is about how people look at money. Anyway, it is well worth the read.
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New Blog Link

I added Sharp Money to my blog links. Sharp Money is another personal finance blog with some pretty good writing. Be sure and check it out and bookmark and add it to your Bloglines account.
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Monday, March 14, 2005

Money Magazine - April 2005 Issue

One of the perks (or curses, depending on how you look at it) of being a financial planner is that I get lots of magazines thrown at me. I have never subscribed to Money before because I always thought it was a lightweight when it came to personal finance. Well, after reading the first two issues of my subscription, I gotta say my opinion has changed!

The April issue in particular is brand new. They did a complete revamp of the magazine. A person could almost read it cover-to-cover because it has that much good stuff! (no, I'm not getting paid to say this!). Anyway, if you haven't checked out Money lately, give it a shot.
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How to Calculate Personal Rate of Return When Dollar-Cost Averaging

Let's say you are in the accumulation phase and are dollar-cost-averaging into a mutual fund. You get your mutual fund statement at the end of the year and it tells you that the fund returned X amount that year. Was that YOUR actual return? Most likely not. Why? Because you invested at different times during the year. The mutual fund's reported rate of return is based on the assumption that you invested on January 1st and held it until December 31.

So, what is a Personal Rate of Return? It is the ACTUAL rate of return that you receive.

How do you calculate it? There are a number of ways. I'll show you a way that I learned about. I must warn you, this is a pretty involved method for calculating personal ROR (also known as a time-weighted ROR). Also, some of you will notice that there are shortcuts that can be taken in some of the steps. I'm going to go the long way around so that hopefully everyone can understand this.


For this example, we will say that you started on January 1, 2004 with zero dollars in your account. We will assume that you set up your account for automatic investments of $100 to be made on the last day of each month. For this example, we will use Vanguard's S&P 500 Index Fund (VFNIX).

Step 1. Calculate the number of shares purchased for each time period.

Here are the monthly closing prices and number of shares purchased for VFNIX:

              Purchase      Shares
Price Purchased
01/31/2004 104.54 0.95657165
02/29/2004 105.98 0.94357426
03/31/2004 104.01 0.96144601
04/30/2004 102.37 0.97684869
05/31/2004 103.76 0.96376253
06/30/2004 105.41 0.9486766
07/31/2004 101.92 0.9811617
08/31/2004 102.31 0.97742156
09/30/2004 102.99 0.97096806
10/31/2004 104.55 0.95648015
11/30/2004 108.78 0.91928663
12/31/2004 111.64 0.8957363

Step 2. Figure out a running total for each purchase. This step is pretty involved.

                              Shares   Price   Total
1/31/2004 Initial Purchase 0.9566 104.54 $100
2/29/2004 Purchase 0.9436 105.98 $100
Previous Balance 0.9566 105.98 $101
Total 1.9001
3/31/2004 Purchase 0.9614 104.01 $100
Previous Balance 1.9001 104.01 $198
Total 2.8616
4/30/2004 Purchase 0.9768 102.37 $100
Previous Balance 2.8616 102.37 $293
Total 3.8384
5/31/2004 Purchase 0.9638 103.76 $100
Previous Balance 3.8384 103.76 $398
Total 4.8022
6/30/2004 Purchase 0.9487 105.41 $100
Previous Balance 4.8022 105.41 $506
Total 5.7509
7/31/2004 Purchase 0.9812 101.92 $100
Previous Balance 5.7509 101.92 $586
Total 6.7320
8/31/2004 Purchase 0.9774 102.31 $100
Previous Balance 6.7320 102.31 $689
Total 7.7095
9/30/2004 Purchase 0.9710 102.99 $100
Previous Balance 7.7095 102.99 $794
Total 8.6804
10/31/2004 Purchase 0.9565 104.55 $100
Previous Balance 8.6804 104.55 $908
Total 9.6369
11/30/2004 Purchase 0.9193 108.78 $100
Previous Balance 9.6369 108.78 $1,048
Total 10.5562
12/31/2004 Purchase 0.8957 111.64 $100
Previous Balance 10.5562 111.64 $1,178
Total 11.4519 $1,278

Step 3. Calculate the individual returns for each time period.

To do this, you simply use this formula:

[(This month's closing balance - Current month's purchase)/Previous month's balance]-1

For the month of February, the numbers would like this (I rounded the numbers for simplicity's sake):

[(201 - 100)/100]-1

You would repeat this process for March - December. Here's what your numbers should look like not rounded:

Feb     0.013775
March -0.01859
April -0.01577
May 0.013578
June 0.015902
July -0.03311
Aug 0.003827
Sept 0.006646
Oct 0.015147
Nov 0.040459
Dec 0.026292

Step 4. Calculate the Personal Rate of Return

Here's the formula for this step:

{[(1 + Feb Rate) X (1 + March Rate) X ...]-1} X 100

It should look like this:

{[(1 + 0.013775) X (1 + (-0.01859)) X (1 + (-0.01577)) X ...]-1} X 100

Your final answer should look like this:

{[1.067917] - 1} X 100
.067917 X 100

WHEW! That's a lot of work to find out that your personal rate of return for this example is 6.8%! Now you know why a stockbroker doesn't furnish this information!

If you are interested, send me an email and I'll send you a copy of the Excel file I used to calculate this example.
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Friday, March 11, 2005

Net Worth of U.S. Households Hits $48.53 Trillion

According to the Federal Reserve's Flow of Funds report, net worth rose 4.2% in the fourth quarter of 2004, which was up about $2 trillion from the previous quarter.

Household net worth is a measure of total assets, such as the value of homes and pensions, minus total liabilities, such as mortgages and credit-card debt. The same report also showed that U.S. household debt grew at an annual rate of 9.4% in the fourth quarter, which was down from a 11.5% rate in the previous quarter.

Click on the link to read the actual report.
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OT: Bottled Water for Your Pet?

I saw this in today's Wall Street Journal and had to post it simply for it's ridiculousness! Pets in the U. S. get treated better than people in other countries!
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Thursday, March 10, 2005

The Price of Oil

My friend, Jack, has another interesting post. This time it is about oil.

Apparently, the demand for oil usually grows in line with the world wide GDP. Lately, it has been growing TWICE that fast! Anyway, I don't want to post the whole article, so here is a link.
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Thanks to Seeking Alpha

David Jackson at the Seeking Alpha blog has added AllThingsFinancial to list of personal finance blogs. I appreciate the link. If you haven't checked out Seeking Alpha yet, I would highly recommend you give it a look. I really like his exchange-traded funds resource page.
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Identity Theft

I saw this article on the Houston Chronicle website and thought it was worth sharing. The author, Shannon Buggs, makes some good points about protecting yourself from identity theft.

One point she makes that is shared by lots of people, including myself, is to check your credit at least once a year. Here are some links to three credit bureaus:




Be careful out there!
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Resource for Widows

I found this website and thought I'd share it with my readers. I hope it is one that you won't ever need, but here it is just in case.
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Does Wall Street Need an Ethics Code?

Today's Wall Street Journal raised this question (subscription required). I think it is a good idea but I wonder what actual difference it will make. I mean, do we really need an ethics code to tell an investment banker that it is wrong to profit on confidential client information? Would an ethics code have prevented the 90's scandals?

So far, supporters of some kind of code are: Citigroup, Credit Suisse Group's Credit Suisse First Boston, Goldman Sachs Group, J.P. Morgan Chase, Lehman Brothers Holdings, Merrill Lynch and Morgan Stanley. I'm sure more companies will feel the pressure and join this group. Let's just hope that whatever they come up with will make a difference. I'm skeptical.
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Wednesday, March 09, 2005

Medicaid and Ethical Behavior

I just read an article in the latest issue of Wealth Manager by Nancy Rowland about a financial planner who has a son with cerebal palsy and is legally blind. Anyway, the article goes on to show how this financial planner set up a special trust so that her son would qualify for Medicaid should something happen to her and her husband.

To qualify for Medicaid, a disabled person can have no more than $2,000 in assets. This means that most people would have to spend all of their own resources BEFORE they could apply for Medicaid. A way around this is to set up a special needs trust, which then allows the assets to supplement Medicaid.

Although this is legal, I don't think it is ethical. I'm curious to know what my readers think.
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Tuesday, March 08, 2005

Portfolio Update

I know I said last Friday that I was going to start posting some portfolio information so that my readers could follow their performance. Well, I'm still working on it. I hope to have the models in a postable (is that a word?) form by later today.

Because I am a financial planner and I have to get paid for something, I will not post the actual securities. Instead, I will post more general information like overall portfolio performance. I will post three different portfolios: Under 50, 50 +, and Retirement. Yes, there are lots of other types of portfolios that can be modeled, I just don't have time to post them all.

Oh, I found another pretty cool blog by a woman named Caitlin. She has a blog called Clutter to Cash. I'm always a bit reluctant to post a link to a brand new blog because I don't know if they will continue to post new material to keep their blog fresh. But, I also want to be supportive of the personal finance blog community because I think it is very important. That's why I have so many blog links (even if some of them won't link back). Oh well, such is life.
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Monday, March 07, 2005

My Thoughts on the Bubble

I graduated from college with a finance degree in 1996. All those years in college, we were taught how to value companies. We looked at the standard stuff like balance sheets, income statements, price-earnings ratios, working capital, and all the other gauges of performance.

I went to work for PaineWebber in March of 1997. The market was really starting to heat up and people were starting to go nuts for anything that had to do with the internet. Day-trading was becoming a big deal, giving people too much confidence in their stock-picking abilities. I started to feel that maybe I wasted my time in college!

I knew we were heading for trouble when the "analysts" on CNBC started talking about a company's price-to-sales ratios. Of course they used to P/S ratios because most of the companies they talked about had no EARNINGS. I was literally scratching my head wondering how all this could be going on.

I never purchased an internet stock. Was I tempted? Sure! It was hard not to be tempted when people were seemingly making money hand over fist. It didn't really seem to matter what they bought either, so long as it was something related to the internet. But, I refused to buy into the hype and just kept on investing through my wife's 401(k).

In January 2001, my wife's 401(k) changed managers and I started keeping track of the performance. From the date of the changeover to the new plan, it took nearly 4 years before we were back in the black from the market crash. We are only back in the black because of dollar-cost averaging.

So, what did I learn from all this?

1. Don't go for hype. Before you start investing in something, make sure you are not buying due to hype. Hype leads to emotional decisions, which are a DISASTER when investing.

2. Remember history. When a market returns 30% one year, remember that it's historical average is 10%. Therefore, you can't expect it to continue returning 30%. Everything comes back to the average (the technical term is reversion to the mean). The ride back to the mean can be very painful.

3. Forget about how well your best friend's boss is doing. You aren't in a competition for the best returns. Instead, you are investing to meet a goal like retirement, which can easily be met with a more modest 8-12% long-term average rate of return.

4. Don't lose heart!

Well, those are my thoughts on the Bubble. Take them for what they are worth.
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Five Year Anniversary of the NASDAQ Peak

It is hard to believe that the NASDAQ peaked five years ago. March 10 will mark the anniversary. Just to give you an idea of how overvalued it really was, it is still down 59% from that peak!

I remember thinking back then that the market was insane. Of course all my friends thought I was an idiot. Oh well, such is life. I'm sure it won't be the last time that my friends think that.

For those who are interested in reliving the pain, check out this pretty cool site:

Greatest Market Crashes
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Sunday, March 06, 2005

Nintendo DS

We bought our boys each a Nintendo DS today. I must say, they are pretty cool. I like the messaging system. It is like a fancy walkie talkie. I wish they would have had that kind of stuff back when I was a kid. Instead, I had to play with Hot Wheels and Atari.
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Friday, March 04, 2005

Changes Coming to AllThingsFinancial

I have decided to add a portfolio feature to AllThingsFinancial. I'll work on it this weekend and try to have it up and running by Monday. With the portfolio feature, my readers will be able to track it's performance.
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Thursday, March 03, 2005

Oil at $80 Per Barrel?

I bet the oil-producing nations would love that!

This quote in the article bugged me: "...Shehab-Eldin said it was in the interest of OPEC and other countries not to see "big and surprising spikes in oil prices, but a gradual balance."" What exactly does that mean?

Bottom line: I'm not selling our Chevron stock anytime soon!
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Mutual Funds

There's a pretty good article called The Beauty of Mutual Funds over the Blueprint for Financial Prosperity blog.

This seems to be a relatively new blog but looks like it has a lot to offer. I'll add it to my blog links.
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Congrats to my Fellow Bloggers

Today's Fiscally Fit column in the Wall Street Journal talked about personal finance blogs. The blogs featured were:

The Budgeting Babe
PF Blog
Neville's Blog
My Money Blog
The Savvy Saver Blog

Normally, I would be jealous of the fact that my lovely little blog wasn't mentioned. But, once I read the article I realized that my blog didn't really fit the defitinion of what she (Terri Cullen) was looking for. In her article, she talked about how these bloggers put personal information up on their blog. So far, I have not been that bold.

Oh well, maybe next time. I'm just happy for my fellow bloggers. I figure any publicity for personal finance blogs is a good thing.

For those interested, PF Blog has a link to the article that is good for seven days.
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Wednesday, March 02, 2005

Another Useful Exchange-Traded Fund (ETF) Site

Yahoo Finance has a pretty cool ETF site called ETF 101. Check it out!
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New Bankruptcy Bill Being Pushed

I saw this in the Wall Street Journal. Apparently, there is a new bill being pushed in the Senate to make it harder for people to walk away from their debts. The new bill would limit the use of Chapter 7 bankruptcy, which basically wipes out credit card bills or unsecured loans. The article states that currently, 70% of all individual bankruptcies are of the Chapter 7 variety.

Under the new bill, people with the means to pay off their debts would be required to file Chapter 13 bankruptcy, which allows the court to set up a partial repayment program. The new bill would not affect those who have incomes below their state's median income.

Overall, I think this is a good thing.
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Questions to Ask Your Broker Before You Buy a Load Fund

1. How much are you getting paid for this? How much am I being charged for this? This is a fair question. If the broker is on the up and up, he or she will tell you with no hesitation. If they hem and haw and act offended by your questions, find another broker. It's that simple.

2. How does this compare with industry averages? Once again, this a fair question. Make sure they tell you the average for the asset class you are purchasing. In one of my previous posts I talked about an article that was in the Wall Street Journal regarding mutual fund fees. It might help if you read it.

3. Is my purchase of this fund helping you win a trip or prize? Yes, mutual fund companies sponsor trips and prizes for brokers who put the most money with a particular company. I think this is a HUGE conflict of interest when this information is not shared with the customer. If this question causes your broker's face to turn red, find another broker!

4. Does your firm have a special relationship with this mutual fund family? Some brokerage firms enter into special arrangements with mutual fund companies, allowing the brokerage firm to earn extra money from the arrangement. Once again, this information is usually not passed on to the customer. Therefore, you have to ask.

It is much better to ask these questions before you invest your money than after the fact. It pays to know the right questions to ask.
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Tuesday, March 01, 2005

How Does an A-Share Mutual Fund Work?

We'll call this Financial Basics.

An A-Share mutual fund (also known as a front-load mutual fund) is a term used to describe a mutual fund in which a percentage is taken from the money to be invested BEFORE the money is invested. Huh? Well, it works like this:

You have $10,000 to invest. You go to a brokerage firm like Merrill Lynch or someplace that is "full service." You give them the $10,000 to put in an A-Share mutual fund. The average front-load runs around 5.75%. So, $575 will be taken from your $10,000 investment and the remainder of $9,425 will go to work for you in the mutual fund. Now, each year the mutual fund will charge you management expenses which can range from .60% to 1.5% (some are higher, some are lower). Of this expense, .25% goes to the broker in the form of a trail.

Does this make load-funds bad? Not necessarily. There are some pretty reputable companies out there that charge loads. American Funds is one such company. Although they charge a front-load of 5.75% on their A share class, they manage to keep annual expenses low.

Next time I'll talk about different share classes and what they mean.
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Trusts & IRAs - Part 2

Again, another EXCITING title!

When thinking about trusts, it is important to remember that they are not for everyone. As Ed Slott says, "Their main purpose is post-death control." And, even if you set up a trust, it must be set up properly in order to insure that your beneficiaries can stretch their IRAs.

In his book, Ed Slott lists five reasons why a person might want to set up a trust:

1. Your IRA beneficiary is a minor child
2. Your IRA beneficiary is disabled or incompetent
3. Your IRA beneficiary will need help managing the stretch IRA
4. You want to make sure your estate taxes are paid
5. Second marriages

It is very important to know that if you want your beneficiaries to be able to stretch your IRA, the trust must be set up properly. Therefore, it is important that the trust qualifies as a "look-through" trust, allowing the individual beneficiaries to qualify as designated beneficiaries for IRA distribution purposes. What is a look-through trust? For IRA purposes, a look-through trust meets the following criteria:

1. The trust must be a valid trust under state law
2. The trust must be irrevocable at death
3. The beneficiaries of the trust must be identifiable
4. The required trust documentation has been provided to the plan administrator no later than Ocotber 31 of the year after the IRA owner's death.

In a future post, I'll explain the different types of trusts for IRA purposes. Meanwhile, I suggest you read Ed Slott's Parlay Your IRA Into a Family Fortune.

And now for the lovely DISCLAIMER Be sure and consult your CPA or Tax Attorney BEFORE you set up a trust. I am not a tax attorney.
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Added Another Link - 403(b) Wise

I have known about this website for a while but forgot about it. Anyway, for all you out there who currently have a 403(b) plan, this site is for you.

Also, in addition to that site, the author also has a blog. Check it out at The Meridian.
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Thanks for the Mention, Neville!

My friend, Neville, at Neville's Blog wrote another article for the Daily Texan about the importance of saving money while in college. He asked me for some information and published a few quotes by me. I appreciate the mention! For those interested, you can read the article here.
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IRS Publication 590

I thought I'd post a link to the IRS Publication 590. There is some very useful information regarding IRAs. Bookmark it and save it for future reference.
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