Archive for January, 2009

Person vs. people

Pay day was Friday, which that made Freedom Fund reach $28,500. I also went out to eat a couple of times because a friend was in town, but overall, I’m spending way less in the dining out department compared to a few months ago (which, granted, was the holiday season).

If I felt more secure about the job situation or the economic news wasn’t so doom and gloom all the time, I’d TOTALLY spend more. Totally. But like so many others, I am now watching every dollar.

Isn’t it funny how something that’s great for the individual (saving money) can be so bad for the economy if everyone starts doing it? Lack of consumer spending = lack of business spending = economic activity kaput.

In the long-run, all this saving will be great because it’ll turn into investments in the economy, but in the short-run?

It’s a painful adjustment.


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VERY. Very excited.

This Friday is pay day. I’m going to take that bad boy and dump it in my Freedom Fund so that if I am caught up in this imploding economy, my head won’t explode.

And as a note of my nerd-ism, I spent 40 minutes last night scrap-booking FINANCIAL NEWS in my personal journal.

That way, in 20 years, not only will I be able to recall the ups and downs of my relationship and the daily question of “how do I find a job I love?”, I will also be able to read, in exquisite detail, Fortune and WSJ coverage of this whole economic mess.

Nerd, I am.

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Tweet, tweet

Yes, I’ve succumbed. I have joined… Twitter!

You can follow my tweets here: http://twitter.com/wellheeledblog

I must confess, I don’t have a razzle-dazzle new phone that I can make updates from anywhere, but Twitter will be useful for short ramblings musings, in contrast to long(er) musings here. πŸ˜€

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I’m turning into my mother

I’ve realized that I spend WAY too much time idly surfing the web when I’m home – which is a little ridiculous, given that I spend all day staring at a computer at work.

So, like my mother did during my middle school and high school days, I’m imposing a Internet Time Limit on myself during weekday nights – 30 minutes (45 minutes MAX).

It’s time to use my evenings for more productive pursuits, such as, oh, I don’t know, studying for the GMAT.

Okay.. my time today is up!

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One reader, CD, left this comment on my previous post on the market:

Hey smart alec,

Stay away from stocks, funds, bonds, unlesss you know what you are doing. In the sense spending at least 20 hours/week on investing and constantly monitoring the markets.

Otherwise, this is not your ordinary market, and believe me it will suck your money out of your little purse, faster than you would think. )

Sell every freaking fund and put them into money market account, preferably a t-bill only.

Having said that if you still would like to go long and invest, here is my advice for you:

– Never ever buy a single stock, especially nowadays. It is simply too risky.

– Always be a trend investor on indexes. Think about what will happen in the next two to six months. For instance, bank stocks may go up a little due to more β€œfree” money thrown at them.

– Understand put/call options and how they work. How you can utilize them to set your selling and buying points.

– Understand the bond market. It is ten times larger than the stock market and usually a good indicator of the overall economy.

– Watch CNBC, Bloomberg, even Cramer. But never ever buy or sell based on their advice. They are always providing you what is already priced into the market and usually do not give you the full picture.

Good luck.

I disagreed with certain points of this comment, namely, that I would need to spend 20 hours a week monitoring the market before I put money in stocks or funds. However, CD’s words gave me a lot of food for thought… in that, do I really know what I’m doing?

I have an understanding of general macroeconomic conditions and the workings of stocks and bonds. I also have an academic knowledge of calls and puts, but I certainly don’t’ follow the market as closely as CD suggests, nor do I engage in call or put options.

So, given all of the above, am I ready to invest in this market?

I think so.

There are two types of investors that should do well:

  1. Investors who can sucessfully market-time over long periods of time (and there ARE those who can do this), or
  2. Investors who acknowledge that they do not have the skills to select high-performing stocks or funds consistently, over the long-term, and instead engage in a buy-and-hold / index strategy.

I think some of CD’s advice works for Investor Type #1. I, however, am Investor Type #2. I am a buy-and-holder. I DON’T have 20 hours a week to study the markets. And even if I did, I don’t think I can select the winners, year in, year out. This means that I am content with market returns.

So, I invest in index funds with very low expenses, and I intend to hold these funds for a VERY long time. My time horizon is 40+ years, so I think it IS okay (in fact, it might be beneficial) not to follow the market every single day (even though I do, though I never act on it). I don’t want to be an emotional investor.

This market has scared me, because I AM afraid that “this time it’s different,” that all the things we’ve learned from the past no longer holds true. This is my first real bear market, and it’s not fun watching my “little purse” shrink even further.

But to sell everything and put all my money into T-bills would be a reaction motivated by FEAR – and truth be told, I am just NOT that afraid right now. It might be naivete, or the lack of responsiblity for anyone but myself, but I’m feeling okay about the current market right now. (I probably won’t be if the Dow is still at 8,000 in ten years… but for now? I’m good).

And my purse might be little now, but I believe that with a diversified portfolio and consistent savings (and a couple pieces of cash-flow positive real estate holdings in the future), I will have a good chance of achieving my financial goals. I might be petite, but don’t be fooled – one day, I’m going to carry a big purse.

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Goal #1 accomplished. πŸ™‚

Now, for the really fun part… let’s see how fast and how far the $5K falls! Muahahahah <evil laughter>

Some questions for everyone out there:

(a) do you feel lucky that the stock market drop has made stocks so much cheaper, thereby making increasing the chances you’ll get a sizeable gain when you sell in a couple of decades? Or,

(b) are you scared off by volatility and have stopped investing in stocks (but have kept your stock holdings relatively constant)? Or,

(c) are you pulling out of the stock market faster than a bankrobber’s getaway car after the big heist? Or,

(d) are you like me, crossing your fingers and keeping the faith (scared but still investing)?

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I love you Trader Joe’s!

One of my greatest indulgences is smoked salmon. I always order the smoked salmon omelet at restaurants. It can get expensive, though, at $10-$12 per dish. Add on tax and tip and I’m at $15 per omelet brunch.

Well, tonight I made a salmon omelet (breakfast for dinner is the best). I used Trader Joe’s Wild Coho smoked salmon – so delicious. I’d heartily recommend this smoked salmon to anyone.

The cost of this omelet was a fraction of what I’d be charged at a restaurant.

2 eggs ($0.50, $3 for a dozen)
1 bell pepper ($1.20)
1 onion (free! It was given to me. I have no idea how long it sat in the fridge. But it looked okay…)
1 oz. smoked salmon ($1, $3.99 for 4 oz. package)
Total: $2.70

Result: my wallet, as well as my stomach, is full.

Oh, I’ve never really paid attention to this before, but groceries are sales tax-free! How great is that?

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Goal #7 for 2009

In December I listed my six (mostly financial) goals for 2009, but then I realized, I forgot about Freedom Fund! So here’s one more goal:

7. Increase my Freedom Fund by $5,000, from the 2008 year-end balance of $27,000 to $32,000

So, overall, I am aiming to save $15,000 this year – $5,000 each to Roth IRA, 401(k), and Freedom Fund. If I remain gainfully emloyed through all of 2009, I will have the opportunity to save more. We shall see…

The $5K Freedom Fund goal will be iffy if I go on a vacation AND if I lose my job. Maybe I will try extra hard to cut back on eating out costs to compensate…

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Some college friends and I have been planning a girls’s trip (~$1,000 per person) for 2009. After all, who knows if we’ll be able to do something similar in the future?

But the worsening economy and job market, combined with doubts about my own job security, made me hesitant to spend a substantial sum on a luxury item – a vacation. (By hesitant, I mean, a tiny voice inside my head is yelling “it’s ridiculous to spend $1K on fun when none of your peers who have been laid off can find a job!!”

On the other hand, I really want to go. I have saved up a healthy emergency fund. I don’t spend extravagantly. I’m only young once. Who knows how long before my friends and I are tied to family, children, graduate school, or other financial obligations? But maybe, all these reasons are just excuses for being dishonest about my financial situation.

Suze Orman has a show where she answers viewer’s questions on “can I afford [insert expense here]?” Most of the time, she says NO! That’s what I think she’d say if I ask her about the vacation.

I remember reading one of her books (forgot which one… she has so many!) where she highlights the perils of “financial dishonesty.” Basically, the story goes:

Joe X is laid off. He had already put a hefty deposit on an island vacation with his buddies. Instead of acknowledging his new financial reality (i.e. no job, no income) and forfeiting his deposit, Joe decided to go on vacation anyway by using his credit card.

When he came back, he found that a prospective employer had called him for an interview and that his house was flooded. If he had stayed home, he would’ve known about the interview and perhaps gotten a new job, and he would’ve noticed the water leak and prevented it from becoming a flood that destroyed his house.

Suze’s conclusion? Joe going on a vacation that he couldn’t afford = financial dishonesty = increased debt + continued unemployment + water-damaged home.

Obviously, Suze Orman is of the Financial-Karma-Is-A-B*TCH school of thought.

I mean, I really don’t want to end up like Joe X. So, though it pains me, the girls’ trip of 2009 will have to be downgraded. Instead of a $1,000/person on a cruise or Mexico, maybe we will settle for a $300/person long weekend in Vegas.

What do you think? Can I (or, should I) take a $1,000 vacation this year?

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Shares, not dollars

Shares, not dollars: this is my way mantra to cope with Mr. Market’s relentless assault on my retirement portfolio.

Looking at the value of my retirement holdings is an exercise in self-inflicted pain. I don’t plan to decrease my investments OR to adjust my overall fairly aggressive asset allocation, but that doesn’t mean I don’t grimace a little over a 30% drop in the value of my contributions.

But – if I just change my perspective a bit, and turn my focus from dollars to number of shares, this downturn has been great! I’m picking up shares at all kinds of discounts. At the beginning of 2008, $5,000 bought maybe ~170 shares in my funds. Now, $5,000 can buy ~240 shares. 170 vs. 240 = HUGE difference.

The expectation, of course, is that these shares will (over the long run) grow in value. Capitalism is the essential exercise in optimism – the optimism that things will keep getting better, that productivity will increase, that people will prosper. That’s why I buy into America (literally, I buy America – well, the U.S. market index, anyway).

Of course, shares can lose most -or all- of its value (exhibits A, B, and C). But I don’t hold any individual stocks. In addition to the U.S. market index, I hold an international index and a bond index.

So, if my shares become worthless, the world has probably gone to hell in a hand basket. At that point, retirement will be the least of my worries. I’ll probably be foraging for berries and hunting small rodents for sustenance.

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