Long time, no blog

Yeah, I know. Work has been bad, then I went on vacation for a week, and now work is bad again. Meh.

This past week, however, I made a little time to take advantage of a new benefit offered by my employer. Our 401(k) plan administrator has a financial planning service, and we can now contact them for free financial planning advice.

I like to think that my financial plan is pretty robust, but I'm always interested to hear what the professionals think, as long as I don't have to pay for it. I called the contact number on Wednesday, had a ten-minute chat with a planner, and set up a follow-up appointment.

I met with the planner again on Friday, and so far I'm underwhelmed. He seemed pretty vague, and it took a couple of tries to tell him that I'm focused on retirement. He didn't ask any of the important questions (e.g. my age, when I want to retire, anything about my financial profile), but instead told me that he would send me a questionnaire to fill out.

Okay, fine. It seems he could have told me that on our initial call instead of during the hour I had blocked off for the appointment, but no matter.

The questionnaire had some good stuff in it: lots of questions about current income, current retirement assets, current taxable assets and what percentage of these assets are designated for retirement. It also contained questions about overall asset allocation, along with a really good section for repeating and non-repeating extraordinary expenses. (I put down a future bathroom gut reno plus six trips West to see my family every year.)

The questionnaire was also missing a great deal of what I consider critical information for understanding an individual's full financial position. There were no questions about monthly burn rate, which I think is important in identifying how much money one has to invest on an ongoing basis. There weren't any questions at all about home ownership or whether home ownership is something the client even wants. Most importantly, there were no questions about debt. How can a financial planner help someone figure out a plan to invest for retirement without knowing anything about consumer debt, medical debt, student loans, mortgages or any of the other common financial sinkholes out there?

In an effort to be helpful, when I sent back my completed questionnaire I mentioned that I was surprised not to see these questions. I also threw out some high-level information about how I'd answer questions like that: maxing out retirement plans, no debt other than mortgage, mortgage due to be paid off in 2008, and why I have a traditional IRA in addition to a Roth. (I mentioned the fact that income restrictions for the Roth will be eliminated in 2010 and that I'm planning on doing a conversion to the Roth as soon as those restrictions are gone.)

I have a feeling that the planner will find my comments more annoying than helpful, but there you have it. I have an appointment with him to discuss the questionnaire and get his input on my financial plan on Monday. I'll post a follow-up assessment detailing the planner's input and whether I find it any more helpful than our conversations have been so far. If there are any financial planners reading this, I'd be really interested to hear what you think.

In other news not quite worthy of its own post, the falling US dollar has pushed the Canadian dollar to close to parity, and for me that's a very good thing. I have a small savings account up there, mostly the result of a very minor inheritance from my Danish-Canadian grandfather. The exchange rate was 65 cents to the dollar when the money came to me and I was only seven years old, so my parents decided I could just as well leave it where it was. I've channeled it into one renewable GIC after another for many years. (A Guaranteed Investment Certificate is the equivalent of a Certificate of Deposit, and it's pretty much the only investment option open to non-residents.) Thirty-one years later, the exchange rate surpassed 90 cents to the dollar and I decided to cut bait. I cashed out at 94 cents to the dollar on Friday. It's just enough to max out my IRA for 2008, which is something of a relief to my very tight budget. More importantly, knowing how lousy Royal Bank of Canada is and how stinky the IRS has been in the past about Canadian interest, it felt like the right thing to do.

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Up and down and all around

Last week was kind of a sickening ride for the stock market, right?

Today's 286-point rally doesn't come close to making up for the 900-point drop from last week, but it's a start. On the whole, I'm not worried about the market's future. Here's why:

1. The real estate bubble has blown
This happened with tech stocks, remember? In the runup in the technology sector before 2000, it looked as though the market was never going to drop again. Well, we all know how that turned out. I have a few stocks that are still underwater - as well they should be, since I was speculating when I bought them. Real estate speculation has worked out the same way. The drop we're experiencing now is led by the shaky housing sector as well as by a tidal wave of foreclosures brought about by looking at piles of shit and calling it roses. What I'm referring to here is the widespread banking practice of not checking borrowers' qualifications too carefully, coupled with selling viciously structured ARM's and other horrible, horrible mortgage vehicles to the subprime mortgage market. The foreclosure tide hasn't turned yet, either: there are a great many ARM's out there whose teaser fixed rates are about to get very, very ugly once the adjustable rate component kicks in. Don't expect the level of foreclosures to get any better for another year or two.

The good part of all this, though, is that the market is adjusting. Banks have clamped down on lending and are now doing the due diligence they should have been doing all along. As a result, new mortgages are going to be a safer bet than existing ones. For the fortunate people who sat out the market run-up, this is your buying opportunity. In other words, some unsustainable upward pressure has eased, and now the market's starting to heal.

2. The dollar is weak
Mind you, I don't necessarily think that's a good thing on the whole. The dollar's strength has traditionally been considered an indicator of a sound economy, and a weaker dollar means that we're going to feel the pinch a lot more when buying imported goods. The fact that the dollar's so weak at the moment can work to the economy's advantage at the moment, though. Foreign goods are now more expensive than they used to be, and that's a strong motivating factor for keeping consumer dollars at home by buying US-made products. A cheaper dollar means that American-made goods start looking more attractive to overseas buyers as well, and that can help boost job growth.

3. We're still in positive growth territory for the year
Yup. Even without factoring in today's growth, the major indexes (DJIA, S&P 500, NASDAQ) are still 1.4% to 2.25% in the black for the year. Unless you bought in at or near the peak and sold last week while the market was in free fall, you didn't actually lose any money that wasn't on paper.

It's not all cheery news by a long shot. It's too early to tell whether today's rally is a true recovery based on the market internalizing the ongoing real estate implosion; it could just be a dead cat bounce. In the bigger picture, we'll be paying for the follies of the current administration for decades to come, and that's going to hurt the country's future economic prospects. The labor force still isn't competitive enough against the up-and-coming economies that are at least as well educated and hungry for advancement. In short, I think economic shakiness is going to continue, and the ongoing reverberations of the real estate collapse will contribute to comparatively tough times ahead for the middle and lower classes.

Last week was gross, but it wasn't a harbinger of imminent disaster. If you're in it for the long term, it just means that it's time to stop checking your portfolio for a while and ride this one out.

It'll be over before you know it.

PS. Thanks and appreciation to TheIssue.com for adding this blog to their blogroll and featuring one of my posts on their home page. If you haven't heard of this one before, it's a very intelligent publication (not sure why they declared interest in the Frugal Zeitgeist, but there's no accounting for taste), staffed by dedicated volunteers who are always on the lookout for new voices to add to the public discourse. It's going onto my blogroll and I hope you put it onto yours as well.

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