The occasional obligatory investment post

Some personal finance bloggers write excellent, deeply incisive posts about investing in stocks. I'm not one of them.

I've been investing since 1996 via mutual funds plus a few ill-chosen tech stocks that I bought during the tech boom in 1998 or 1999 and keep around to remind me of what happens to most people who speculate. The vast majority of my investments are in funds that I buy through my 401(k), but I also have both IRA and taxable mutual funds.

I didn't study business for my master's degrees, but I had the opportunity to take enough business school courses to convince me of a few basic rules of investing:

1. By the time information hits the press, it's already been factored into stock price.
2. Don't invest money you can't afford to lose. In other words, your investments should match your risk profile: If you can't stand the prospect of losing a big chunk of change, leave the stock market alone.
3. Churning your investments through frequent buying and selling is a good way to rack up transaction fees as well as risk missing huge growth opportunities.
4. Be careful when engaging professional advisors. Their self-interest may not be the same as yours.

My 401(k) portfolio consists of a mix of large, medium, small, international, and mixed stock/bond funds. Outside of my 401(k), I have a mix of funds that also fall into the same categories (approximately half are actively managed and the other half are index funds), including one actively managed stinker that has been both very, very good and very, very bad to me. I'm keeping an eye on that one with a mind to pull the plug on it when I rebalance my portfolio in December.

I took a lot of time off of investing outside of my 401(k) and IRA while I was aggressively paying down the mortgage, and then I took most of last year off as well because I wanted to build up my cash position in the face of a shaky job situation. I took a lot of flak for that approach from friends and family who insisted that I was missing out on huuuuuuuuge market gains in favor of paying off a low-interest debt and stocking up too much cash. As it turned out, my return on investment from paying off the mortgage was higher than my market return would have been during that period. In addition, I have enough cash now to sleep at night in the face of more layoffs, and I really can't put a price on that peace of mind.

Going forward, now that the mortgage and emergency fund goals are fully taken care of, I'm going back to swim with the sharks. I already funded my IRA for the year, so most of my post-401(k) savings money for the remainder of 2010 is going to shore up my assets in the taxable funds department using the dollar cost averaging approach. Dollar cost averaging is simple: Twice a month, I'm dumping money into my funds without trying to time the market.

Dollar cost averaging is historically touted as the best way to balance out risk related to market volatility because it results in buying more shares when the price is low and fewer when the price is high. I'm not fully convinced it works as described because of an argument made in a variety of sources, including this article, which notes that if the market continues trending up over time, dollar cost averaging actually works out to being more expensive than lump sum investing.

So, why would I do it if it costs more?

Look up at rule #1: By the time I know about something that will impact stock prices, it's already been factored into the price. If I buy or sell reactively based on what I read in the news and without knowing in detail what's in my mutual funds and what's going through my mutual fund managers' heads, I'm making gut-level decisions based on no real knowledge, and according to rule #3, that's likely to cost me money.

In short, I don't have the knowledge or resources to make fully informed investment decisions, so dollar cost averaging helps protect me from costly mistakes.

Do you believe in dollar cost averaging? Why or why not? If not, what does your personal investment strategy look like?

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Flying under the financial radar

CNN posted an interesting article today on hiding debt from friends and family. According to the article, hiding debt is a betrayl so serious that it ranks right up there with infidelity.

Having been through the infidelity thing with my ex-husband, I find that a very strong statement. It's also one I happen to agree with. Aside from being a habitual liar and cheater (which I didn't realize for far too long), I knew from the beginning that my ex-husband had very bad financial habits. I didn't know for sure, but I think his credit back home (United Kingdom) was probably pretty tarnished. As much as I hate how parental keeping a sharp eye on the finances made me feel, if I hadn't done it I think I probably would have been in the same boat as some of the innocent spouses portrayed in the article.

The article touches on a couple of different horror stories of family wronged by financial betrayl, wrapping up with a recap of PF blogger DebtKid (who, incidentally, posted a not very surprising but nevertheless interesting reaction to Thomas Stanley's book, Stop Acting Rich).

Have you ever been betrayed by a family member's debt? Ever betrayed someone else with your own debt? What, if anything, do you do to protect yourself and/or your family from someone else's spending issues?

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Please cast your vote for Frugal Zeitgeist in the Best Kept Secret category of the Plutus Awards!

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Does anyone watch Hoarders?

I don't have television, but I watched the whole first season online. What an eye-opening experience! I knew both cognitively and from some personal experience that there are troubled people who are unable to throw things away (two of my neighbors in my prior apartment building had this problem, and apparently my current building took legal action against one person with the same issue on the grounds that it's a fire hazard), but I'd never really seen it up close.

I'm a neatnik, something of a minimalist, and I hate clutter with a passion. Part of the reason I'm so militant about it is that my home is really small (under 600 square feet). Beyond that, I view keeping my home presentable and everything in good working order as maintaining not only my own quality of life but also maximizing the home's value in case I need to sell it one day. Having a nice home isn't central to my financial well-being, but it definitely has a supporting role.

Property value aside, I think clutter is problematic for any number of reasons: It's easy to misplace checks, bills, or money, and that's costly. Having to rebuy things because the originals can't be found can be expensive. Not feeling like people can come over is stressful and isolating. Not being able to do necessary home maintenance because of a mess is detrimental to property value. I could keep going, but you get the idea. I'm sure there are a lot of people who have clutter and can function normally, but I'm not one of them.

The situations in Hoarders go far beyond mere clutter, though. The houses featured range from simply having too much stuff to move around comfortably to very serious health, hygiene, and well-being issues. At first, I was mildly impressed with how the program addressed the problem: The people living in these houses were treated respectfully during the cleanup, empowered to make decisions about what was to be kept or tossed, and provided with six months of professional organizing or psychological treatment after the end of the program.

After the second season of Hoarders started, I watched a few episodes. Midway through the third, I turned it off and never went back. I'm not sure if the program changed or whether something shifted in my own attitudes and mindset, but I felt that the program had become exploitative. It seemed as though the people in the second season were mentally ill, and that the hoarding was just one facet of a much larger problem. The condition of the homes also seemed to be much more extreme, and to me that made the show's two-day cleanup deadline absurd: If you're practically dooming people to failure before they start, then what's the point of starting? It seemed to me to be putting unnecessary stress on people who are too fragile to handle it. All in all, it's just too much of a sideshow and I don't have any desire to watch it again.

If you've seen Hoarders, what do you think of it? What role does your home (and its condition) play in your overall financial picture?

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Please cast your vote for Frugal Zeitgeist in the Best Kept Secret category of the Plutus Awards!

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A surprise in my inbox

. . . and no, it wasn't a metaphorical flaming bag. Flexo from Consumerism Commentary reached out to tell me about something called The Plutus Awards, a competition designed to honor the best of the personal finance blogosphere.

To my very great surprise, Flexo went on to mention that not only did someone nominate this blog for an award, it also made the short list in the Best Kept Secret category.

Voting for the winner in all categories takes place on Wednesday, 24 February 2010. I'd be much obliged if you'd stop by the Plutus Awards website and show your support.

In the meantime, here's the obligatory finalist badge to gaze at:

Thank you very much to whoever nominated me. I'm deeply honored and really do appreciate the support!

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Spring can't spring soon enough

While I was out West last weekend, an unusually temperate bout of weather brought the daffodils and crocuses out. I took a couple of days off right before coming back to New York, so Mom and I spent a decent amount of time in the sunshine while it was at its peak. One of the first things I did when I got back to New York (where it's also nice, but significantly cooler) was fire up my PC and start looking at West Coast real estate pr0n.

Every year at the cusp of spring, I start itching to pack up and move somewhere where I can have flowers and a vegetable garden. Part of it is a desire to reconnect with my roots, but I think the primary driver is that I just want to be outside and breathing in something other than city fumes. As enticing as the fantasy is, however, the reality is that I don't have much experience doing real gardening, and all that's come out of indoor gardening is that my houseplants hate me. I haven't been motivated to do much to help my two spindly pothos thrive other than water them (when I remember) and install grow-lights, and that's a pretty good indicator to me that taking care of a real garden would get old very, very quickly.

Nevetheless, I still feel like right now I could walk out of New York and never look back.

I'm tempted to deal with this by going to Crate and Barrel, but I know I'd walk out with two tons of stuff that would end up being nothing but expensive clutter. I've found that a better antitode for feeling like this is to pick up some fresh flowers (something I've promised myself I'll do more often this year). Then I'll set aside some time this weekend to get busy with spring cleaning and decluttering, and schedule a dinner party.

In the meantime, I'll keep on devouring my Western home and garden magazines, and spending time on one of my new favorite sites, a blog run by simple liver and occasional commenter Chiot's Run. If you like organic gardening and beautiful pictures, you'll definitely enjoy it.

Does the changing season affect your mood? If so, what do you do to cope?

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Watching the next act unfold

The act I'm talking about is the CARD Act, signed into law in 2009 and scheduled to take effect on Monday. Key provisions of the act include:

--The end of double cycle billing
--45 days notice before raising interest rates
--Restrictions on over-limit fees
--Billing statement mailing at least 21 days before the bill is due
--Mandatory disclosure of how long it will take to pay off the bill if only minimum payments are made

(You can see a full summary of the changes here.)

Sounds great, right? On the whole, I think it is. I'm a huge advocate of personal responsibility, but given the extent to which consumer debt is a problem in the US economy, I think requiring credit card issuers to provide advance notification of billing dates and rate changes is fair, along with spelling out how long repayment at minimum payment will take. Also, I think double cycle building is a completely reprehensible practice and I'm glad to see the end of it.

Now, the downside of credit reform:

With its heavy stance against punitive interest and fees for less than perfect credit management, the CARD Act is hitting card issuers in the bottom line, and you can bet your bippy that these costs will get passed right onto card users. According to CNN, card issuers have already started assessing new or increased fees for everything from purchases outside the United States (2% for the Discover card), or balance transfers (an increase of 2% for JP Morgan Chase, among others). The CARD Act doesn't place any restrictions on the types of fees card issuers can assess, so card users can expect to see other new fees in the very near future. Credit card rewards programs like my beloved 1% cash back and free coffee on my two cards are likely to be heavily curtailed, if not eliminated altogether.

On a slightly happier note, at least from my perspective, consumer credit is likely to become much tighter, both because of restrictions on marketing practices (i.e., many fewer opportunities to hawk credit cards on college campuses), and because of less willingness to take risks on consumers who might not be able to repay. Based on the fact that consumer debt is such an issue in the US, I simply don't think easy access to credit is a good thing. Even if it means giving up my cash back or free coffee, I think the CARD Act is overwhelmingly a good thing.

If you live in the US, do you think you'll be affected either positively or negatively by the CARD Act? If you live outside the US, what sort of credit reform do you want to see in your country, if any?

Sunday, 21 February: Yup, the free coffee reward is gone. When I came got back to New York, there was a letter waiting to inform me that it ends on 30 March. It was wonderful while it lasted.

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Using the right tool for the job

Longtime readers will probably know that I track my spending the lazy way: I put everything possible on a credit card and check my usage and balance nearly every day. I've never carried a credit card balance, and possibly because of that, I don't feel that using a credit card makes me more prone to spending than I would be if I only used cash. In fact, I think it works almost in reverse for me: I don't like carrying cash both because I'm concerned about losing it, and because I think having cash on hand makes me more prone to nickel and dime purchases that add up over time than I am when I actually need to sign my name to a purchase.

According to MSN money, most credit card users carry a balance, and that's a strong indication that what works for me doesn't work for most people. That's by no means a bad thing: There is no single tool to manage spending that will work equally well for everyone. Research by the Associated Press indicates that the use of debit cards skyrocketed in the US in the last quarter of calendar year 2009, reflecting a growing shift towards consumers being willing to spend only money they've already saved.

With the use of debit cards on the rise, it's important to be aware of how the rules of using debit cards differ from credit cards. Whereas the loss or theft of a credit card will result in no more than $50 in total liability before the card is reported missing, debit cards by definition take cash straight out of a card holder's checking account. While many banks also honor the $50 liability limit with debit cards, this limit is voluntary. If your bank isn't one that honors the voluntary $50 liability limit, a lost or stolen debit card has the potential to cost you much more than that. As a result, it's important for debit card users to understand the liability for which they will be accountable if the the card is lost or stolen.

Another aspect of debit cards that is important to understand is that gas stations, hotels, and car rental agencies normally block a card in advance for the estimate cost of a transaction that might not be completed for some time, such as a hotel stay. The amounts blocked can vary widely depending on the type of transaction and merchant. There is no legal requirement to warn consumers in advance about the amount being blocked, and that can result in overdrafts as consumers continue to use their debit cards. In order to avoid problems resulting from blocks, it's every debit card user's resposibility to both understand the issuing bank's policy on blocking, and confirm at the point of sale whether blocking takes place during a transaction, how much the block will be for, and how long it will last.

One way to reduce the risk of liability or overdrafts when using debit cards is to consider prepaid debit cards. Prepaid debit cards (which are also known as reloadable debit cards or reloadable prepaid cards) are like regular debit cards in that cash must be loaded onto the card before it can be used. Unlike reguar debit cards, prepaid debit cards are not tied to a bank account, which usually (though not always) makes it impossible for card users to spend more than their card balances. In addition, prepaid debit cards can be useful in a variety of situations, such as paying bills without a bank account and without resorting to more expensive check cashing services, or by teaching teenagers to manage card-based spending without putting Mom and Dad's credit or bank balances on the line. Convenience does come at a cost, though: It's important to be aware that both activating and reloading a prepaid debit card can trigger usage fees, so users of prepaid debit cards should make sure that they fully understand the issuer's terms and conditions up front.

Do you spend differently depending on whether you're using a credit card, a debit card, or cash? If so, how?

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Be my frugal valentine

I'm spending Valentine's Day this year hanging out with my mom on the West Coast. Her birthday falls close to Valentine's Day, so we're celebrating the big 8-4 later in the week. It was time to come back and look in on her anyway, and I sure haven't been sorry about missing the snow in New York.

SO and I are not really into Valentine's Day on the grounds that it's a manufactured holiday that exists to make people spend money. This year, however, after a really awful six months, we decided to use it to celebrate and reaffirm our relationship. Since I was already planning to be away, we rescheduled Valentine's Day for a couple of weeks from now. I think this was a good decision for us for a couple of reasons:

First, finding a place to go out for dinner on the actual day is a fairly stupid endeavor. Everywhere is packed and it's stressful rather than relaxing. (Cooking to celebrate doesn't really grab either of us right now, since that's what we do all the time these days. We've only been out for dinner twice in the last six months, so we'd definitely enjoy going out more.)

Second, traditional Valentine's Day gifts like flowers and chocolate are at a premium before Valentine's Day, but they'll be on sale for half price from tomorrow. Who doesn't like half price?

I'm really looking forward to celebrating Valentine's Day on our own terms and without paying a premium to do it. SO is an avid gardener, so I came up with a gift that will keep on giving: Instead of flowers, he's getting three different kinds of bulbs that will bloom this summer and hopefully for many summers to come.

Did you celebrate Valentine's Day this year? If so, how did you celebrate and how much did budget factor into your celebration?

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Rooting through the mailbag

Remember Lulubelle?

Lulubelle is a reader who wrote in seeking feedback and advice from readers on buying a home. You can read her backstory here.

Lulubelle sent the most incredibly gracious update yesterday, and she agreed to let me share it with all of you. Without further ado, here it is:

Hi FZ -

Not sure if you remember me...I sent you my budget last June and you
asked readers to help me buy a house. Some positive comments from
that posting and some...well, not exactly negative, but certainly
discouraging...nevertheless, I am closing on a house within the next
month. The total price is not more than 3 times my income, so I am
able to keep my savings intact, save $$ each month, possibly pay down
the mortgage faster, get the $8k tax credit next year and use the
money from my IRA for the downpayment (almost 10%), plus the seller is
paying all of the closing costs. All in all, a great deal for me. :)

On another note, my fiance will be moving in after we're married and
his income is more than mine, so if the worst case happens and we have
to live on one income (even for a year) he can cover all of the costs
until I find employment. :)

I am really grateful for your advice, your reader's advice and your
blog. It really helped me drill down what is important and what is
not...essentially I qualified for a $200k mortgage and to be a slave
to a mortgage just does not sound all that appealing to me...I'd
rather own the house than have the house own me. :)

Thanks again!!!

Keep up the great work with your blog! :)

Happy 2010!

I'd rather own the house than have the house own me.

Isn't that brilliant? I don't think I've ever heard it said better.

Thank you so much for the update and kind words, Lulubelle. I just love happy endings!

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Shelling out for the Stupid Tax again

I haven't whacked myself with the Stupid Tax in some time, but I managed to rack up two separate instances last week. They were:

1. I lost a brand-new monthly Metrocard. Value: $89

This one HURT!!!

My transit costs are taken out of my paycheck pre-tax, and I don't adjust the deduction for times when I'm away and don't buy monthly passes. As a result, I had a nice little balance accrued in my transit account, more than enough to cover the loss. Even so, I kicked myself over this one for days. I can think of a lot of things I'd rather do with $89 than throw it in the recycling (which is what I probably did).

The second one was less of a financial hit, but I give it additional merit points for sheer stupidity:

2. I threw an unopened bottle of wine down the compactor shaft. Cost: $7.49

I really have no excuse for this one. I was headed out to a dinner party and both hands were full: In my left hand, I had my recycling. In my right hand, I had my handbag, a trash bag, and a bag with the wine. I set down the recycling in the recyling closet with my left hand and used that hand to open the chute. I was very careful not to throw my handbag down the chute with the trash, but clearly not careful enough: Right after the trash left my hand, I realized the wine had as well.

(I would hate to see building staff get injured by the glass, so I left very contrite notes of confession and apology for the super and porter.)

Have you had any Stupid Tax incidents recently?

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2010 goals

They're over a month late but they're finally here! In my own defense, I had a pretty good reason for being late. I had a series of job interviews a while ago and I nearly had an offer, but the job opening was put on hold until the end of the fiscal year. It's intensely aggravating, but the message I'm getting from the recruiter is that I'm still in play for this one once it opens up again (and they do expect it to re-open). Until then, I need to keep looking and also make the best of things where I am now, especially knowing that we're not done with layoffs yet.

So without further ado, here's what I'm looking to accomplish in 2010.

Financial
Max out Roth 401(k)
Action plan: Ongoing payroll deductions

Max out IRA
Action plan: Fund IRA with after-tax savings.

Convert most of traditional IRA to Roth IRA
Action plan: Fund IRA first and then do a rollover with the account holder.

Save $63,000
Sharp-eyed readers who have been around for a while will note that this is less than my 2009 goal of $65,000. I dropped it for three reasons: First, I didn't get a pay raise last year, and I'm not expecting to necessarily get one this year. Second, my prescription costs shot up significantly for 2010. Third, I'm planning to have a little more fun this year.

Action plan: Max out 401(k) and IRA, and save an additional $41,500 after tax.

Maintain elite status on my preferred airline
Action plan: Log 25,000 flight miles this year. As long as the cost differential isn't huge, the upgrades and free baggage in this dismal flight environment are well worth sticking to a single airline.

Upgrade appliances before they break
Action plan: My washer and dryer are on their last legs and I'll be surprised if they make it through the year, so I have some research and advance financial planning to do! I will also most likely need to replace my coffeemaker and iron. Recommendations are always appreciated.

Health and Fitness
Stay within 5 pounds of goal weight
Action plan: Keep running and doing yoga, and keep sugar consumption under control.

Qualify for the 2012 Boston Marathon
Action plan: I need to run a marathon in under 3:50 once the 2012 qualifying season opens. (I may run one other, but the qualifying one is the only one that matters to me.)

Continue increasing flexibility
Action plan: Commit to yoga classes or home practice three times per week.

Moderate sugar intake
Action plan: After a year of being almost entirely sugar-free, the cravings are coming back. I'd like to leave room for an occasional treat, emphasis on occasional. For me, I think occasional means once or twice a month. The usual exclusions (fruit and alcohol) apply.

Sleep more
Action plan: Keep my coffee consumption at no more than six cups a day (don't laugh, for me this is limited) and get to sleep no later than 10:30 p.m. for at least four days of the work week.

Home
Maintain good organizational habits
Action plan: Deep cleaning twice a year, regular cleaning once a week or so, and monthly decluttering sweeps.

Professional Development
Get a new job
Action plan: Networking is by far the most effective way I've found to find opportunities and that's kind of a challenge area for me, so I'll work at leveraging both professional and personal relationships.

Improve presentation skills
Action plan: I'm an active member of a speechmaking organization, and I'd like to complete ten speeches by the end of the calendar year.

Maintain professional certifications
Action plan: I have a certain number of credit hours of training and self-study to complete to stay on track for my next renewal cycle, and I plan to complete those accordingly.

Personal Development
Write more
Action plan: Continue blogging, but explore other forms of written expression

Read with focus
Action plan: I'm not sure if this is an age thing or related to the way the internet has negatively impacted my attention span (I assure you, it has), but I need to redevelop the ability to read in depth and with focus. I'm operationalizing this in 2010 by reading books, magazines, and the New York Times for at least three hours a week without competing distractions like music or eating.

Do more and donate more for charity
Action plan: I organize a holiday food drive every year, and I plan to continue doing that. I also plan to contribute more to charity than I did last year.

Relationships
Improve communication and harmony with my S.O.
Action plan: This has been a tough year for us. We realize that we need to improve how we communicate, so we are both trying to adopt active listening techniques more often. I also absolutely need to overcome having a short fuse and misdirected aggravation when I'm stressed out.

Write letters more often
Action plan: I have several overseas friends with whom I communicate primarily via snail mail. I don't write as often as I should, so I'm aiming to send between one and two letters to each throughout the course of the year. (I'm not always writing in English, so this is a little more challenging/less pathetic of a goal than it looks.)

Entertain at home once a quarter
Action plan: I love having people over, and I don't do it as often as I'd like. I think a dinner party every three months sounds both reasonable and fun.

Travel
Take two trips, just for fun
Action plan: My friends and I want to do a repeat of our San Francisco trip last year. I'd like to do one more in addition to that, but I haven't figured out where yet.

Fun and self-love
This is kind of an artsy-fartsy category that I'm having difficulty defining in terms of specific goals. The background is that I'm told by a number of friends that I am pretty hard on myself in terms of not being self-indulgent at all if it costs money. For that reason, I'm giving myself blanket approval to do a little spending just because I want to. That could include buying things like flowers, nice bath salts, or Philharmonic or opera tickets once in a while, or just taking a day off from work and doing nothing. I hate leaving this one so undefined, but that's the best I've got right now. If I can nail it down more specifically at mid-year, I will.

How do these goals look to you? Are there any similarities to yours?

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Looks like the tide might be turning

My SO is having a good week:

1. He became a US citizen.

2. He got a third callback for the job he really wants. He's going in next week.

An inside source who knows the interviewers and hiring manager talked to them. Apparently, the third callback is to present a formal offer.

I hate saying yippee prematurely, but. . .

YIPPEE!!!

Will respond to comments and catch up on things this weekend. Thanks for your patience in the meantime.

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