August 14, 2007 - by J2R
We had a rough last week in July and things are looking bumpy in August as well.
But instead of being down and pessimistic about it, I’m actually excited to be able to purchase some really good stocks at a good price.
Are we at the bottom yet? Don’t know. The market can drop some more.
If you try to time the market, you’re going to lose. If you try to guess what the market will do in the next few weeks, you’re going to lose.
If you believe that the Market will do what it does best, then all you have to do is make sure you get a good price for your stocks. Don’t worry about getting the best price, because most likely, you won’t.
If you trust the Market, then you can trust that it will give you a solid return IN THE LONG RUN.
This is what the market is providing you right now. Might not be the lowest price you’ll pay, but as long as you think it is a good price, then you should go for it.
I’ve already put almost all the cash I had available in the market. My emergency fund is down to 5k again because I’m really impatient. Bad idea, huh? So another thing I decided to do this month is to start a CD ladder. ING Direct is giving 5.35% on a 12 months CD. That’s pretty good rate for a CD. This way I know I’ll have some emergency fund saved up. I hate losing money, and if I redeem these CDs ahead of time, I’ll be paying fees.
Posted in Finances, Retirement Progress, Retirement Progress 
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August 13, 2007 - by J2R
Submitted posts to 2 Carnivals this week:
Carnival of Family Life, hosted at Colloquium, where you find great articles about family, life, stuff in general. Good place to take your mind off $$$$$$$$. Always remember that life isn’t just about how much money you have in your bank. It’s also about who do you have around you.
And the Carnival of Personal Finance, hosted at one of my favorite blogs, My Open Wallet.
Posted in Carnivals, Finances No Comments »
August 11, 2007 - by J2R
A few months ago I met a couple from my distant home country (and town). They had good jobs back home (both in the IT industry) and had a good life, but their company was acquired and they lost their jobs, making them decide (after a few frustrating years trying to get back on their feet) to come to the US. Now he’s valet parking and she’s a nanny.
This is a classic scenario with some immigrants. Due to several factors, including language and culture barriers, a lot of immigrants don’t have the same options available as American-born citizens have. I’m not talking about illegal immigrants. These generally have it the opposite way. They come from a hard life and find a much better life here, even if they are scrubbing toilets.
My family legally moved to the US about a decade ago. My parents owned a small business and had a really good life back home, with a small penthouse, driving good cars and financially comfortable. Not really rich (upper medium class), but we had it good. However, the violence in my home town kept them sleepless at night (my sister was turning into a teenager), so they decided to move to the US hoping to finally be able to sleep at night and also give us a better education. They are doing OK here. They’re not starving or struggling, but they’re definitely not as well as they were. My dad’s 65 and he has to wake up at 5 am almost daily to go to work.
But I digress. The point I wanted to talk about in this post was about a dangerous psychological factor: the Invincibility Complex. It’s a psychological symptom that some of us are born with (the cocky ones) and a lot of us develop when we are on the top, with things going really well in our lives. We get comfortable, we feel invincible and we think that things will only get better. But things do change, like they changed for the couple I met and for my parents.
Despite all the news regarding a depression and the inevitable Bear Market, I still think the economy is doing quite well. Several Personal Finance bloggers I follow have posted about promotions, raises or fat bonuses in the past months. With things going quite well, it’s easy to develop this complex and start thinking that the road ahead of us will be rosy with only some small bumps here and there. We feel good about our lives, our income, our jobs and our future. We get a raise and expect similar raises in the following years. We get a fat bonus, and expect similar or fatter bonuses in the future. It’s totally understandable. We know our value. We know we have talent and do a good job. We feel safe and invincible, and there lies the danger.
How is this complex dangerous?
People get big promotions and right away they want to update their lifestyle accordingly. Recently promoted people almost always immediately update their lifestyles. I know people that got new cars or new houses a couple of weeks within a big promotion. The problem is when we suddenly learn that we’re not invincible anymore. It’s like asking to take a bullet in your chest thinking you’re bullet proof, just to realize that you’re not Superman. But then, it’s just too late (OK, that was a stupid analogy, but you get my point).
Anything can happen. The economy can tank, we can have another terrorist attack or online advertisers might finally realize that paying for clicks and impressions isn’t really worth it (and paying for conversions to be the real deal). We might think it’s not likely to happen, but it’s possible that we might find ourselves in a tough spot.
Take for example this article in a blog I recently found, Dr Housing Bubble, about how a couple making $130,000 still lost their home to foreclosure.
They were on the top. They drove a Mercedes and a Lexus, had a nice home and had $3k of monthly disposable income. Things were going well for them and they felt invincible. But things changed, and they lost their home.
How to deal with this Dangerous Complex?
It’s actually not that hard. Just don’t take things for granted.
Especially your job and your current income. I know you deserve your current salary and probably even a higher one. I know you you deserve your Lead position, your Manager or Director Job. But if anything happens and you find yourself looking for a new job, your new boss might not have the same opinion as your current one and you might have to settle for a much lower paying position.
Keep yourself up to date on what the average salary is in your industry NOT your specific position. That is, if you’re in IT, look at average IT salaries and not at average salaries for your position/experience. Then budget your expenses (at least the critical ones, such as your mortgage and health care) so that you could live on this salary (industry average) instead of your current one.
Also, if you’re married and have two incomes, try to budget your critical expenses so that you can live on just one of the incomes. If you’re the only breadwinner, then it’s going to be crucial to have an emergency fund and an insurance.
I’m not asking you to live as a hobo, but to budget your essential needs so that you can cover them if you temporarily find yourself with a much lower income than you are used to. You don’t have to totally sacrifice your lifestyle for fear of something happening. Just be prepared.
Let’s illustrate this:
Say you’re a Software Developer with several years of experience. You might be in a lead position and making a tad over 6 figures ($105k). Now let’s assume that the average salary for a Software Developer in your city is $85k. What I’m asking you to do, is to budget the essential for your family survival, such as your mortgage and your health care, in a way that they could be covered with a $85k income. Personally, I would try to cap them around 35% of your salary.
You can still enjoy a better lifestyle given your high salary. Go buy new cars. Go dine out in fancy restaurants. Go get premium cable services. Go buy 2 iPhones. Remember to keep contributing to your retirement nest egg. But as long as your critical expenses are budgeted accordingly, if anything would happen to your income, you should be able to easily cut all those expenses and your family would still be able to survive while the economy improves or while you find a better job.
Another important thing is to NOT be ashamed. It’s hard for us to admit defeat or that we’re not doing a good job supporting our family, but if you find yourself in a tough spot, DO NOT be ashamed. If you have to sell your brand new Beemer and drive a used Toyota Tercel, DO IT. Don’t be ashamed to use public transportation or to take your family out to Dennys instead of Sizzler.
If the couple in the example above would’ve sold their luxurious cars and cut a lot of their expenses, it is possible that they might have kept their house.
Posted in Finances, Lifestyle 5 Comments »
August 10, 2007 - by J2R
I tried, but couldn’t resist. The market has been tumbling these past days and I couldn’t resist, but jump in.
I sold one of my old positions (since 2002) that wasn’t really performing that well and I wasn’t seeing a bright future for it (Nortel - NT).
I used that money and added some more fresh money and opened positions on BRLGX (a mutual fund), JNJ and DUK (these two are new in my new strategy - income investments).
After my second son was born a few weeks ago, I decided to take a more conservative approach, so I started moving towards more mutual funds oriented and more income investments stocks (high dividends).
Johnson and Johnson is a proven company that I shouldn’t have to worry much about it. Duke Energy was a tip I found in a newsletter I subscribe to.
A couple more stocks in my radar: SFI, PEP, PBR and NTGR (this last one is a growth stock and not a dividend one like the first 3). The plan is to have between 5 to 10 income stocks and slowly put money in them over time until I retire.
All these dividend stocks were setup to automatically reinvest dividends, and that’s the magic of income investing. When the market is down, you will actually acquire more stocks with these dividends.
Another thing I decided to do was to invest in CDs. I just can’t get myself to leave the money in the savings account, so I started a CD ladder. Every month I’ll put purchase a 12 mo CD at ING Direct (5.35%). That was the only way I found to get myself to build my emergency fund (which is down to 1 month again).
Posted in Finances, Investment 2 Comments »
August 10, 2007 - by J2R
My second son was born a few weeks ago, so I’ve been spending a lot time taking care of my oldest. He just turned 2, and you’re probably familiar with the “Terrible Twos” expression.
Needless to say, sometimes he drives me nuts and I lose my temper and raise my voice with him. A couple of times during these chaotic weeks I’ve wondered why I had kids.
Last night, my son fell down the stairs. I wasn’t able to do anything but watch and yell because there were some people between us. My heart stopped for those few seconds while watching him roll down those steps.
My wife was in tears and I hugged him regretting having yelled at him that same night because of one of his tantrums.
Now, before you judge me, I’m generally quite calm and don’t raise my voice, but these past weeks have been really rough on me.
We naturally tend to take things for granted and that’s why so many of us regret not telling our loved ones (parents, grandparents, siblings, etc) how much we love them before anything suddenly happens to them and we don’t have the chance to tell them anymore.
I wonder why we need to go through terrorizing moments to remember how much we love people and that it’s generally not worth fighting over small stuff.
Posted in Family, Finances 3 Comments »
August 8, 2007 - by J2R
Found a great blog today. It’s very local, so it might not interest you that much, but it has great info about mortgages, the housing bubble and foreclosures.
I liked this article on how a couple making $130k/yr was still able to lose their home.
If you live in SoCal, or if you’re interested in buying a home in a metro area, you check this blog. The same problems we’re experiencing in SoCal are also applicable to other major metro areas.
Posted in Lifestyle, Real State No Comments »
August 6, 2007 - by J2R
Looks like those 2 new credit cards did hurt my score quite a bit.
It’s down to 742 from last month. I was hoping these 2 new cards would help my score a bit by increasing my credit line, but the limits I got in these cards were not that high ($7k for my Toys R Us Chase Card and $5k for my Sam’s Club Discovery Card).
But not to worry. The only thing you really have to care about is which FICO score tier you fall into and not the actual score.
These tiers vary depending on the lending company. Some would consider anything above 700 and 719 really good and anything above 720, excellent, while others would consider 700-759 a really good score and anything above 760, excellent.
The important thing for me is that I keep the score above 720 and ideally 760, but given my relatively short length of credit history, the second tier is a really good one to be in, and most likely a lot of lenders would actually consider it the best tier.
What factors lower your credit score:
- You opened your first credit account 9 years and 11 months ago.
This may not include accounts you closed more than 7 years ago.
- You currently owe $2,414 on your revolving account(s).
- You applied for credit 2 time(s) in the past 6 months, as recorded in this credit report.
What factors raise your credit score:
- You have never missed a payment, and no negative public records are listed on your report.
- On average, the credit limit or loan amount of your credit accounts is $42,451.
- You have 10 revolving account(s) listed in your credit report.
Posted in FICO Progress, Finances, Retirement Progress No Comments »
August 3, 2007 - by J2R
I went through an exercise of researching some mutual funds and building a “Target Portfolio”.
Why go through this exercise? My current investments are way too risky. Over 50% of my mutual funds are international funds. And that’s not including some ETFs and ADRs I have. So I decided to build a more balanced portfolio.
It will probably take me a few years to achieve this balance, since I don’t plan in selling my DGNTX and RISIX assets.
I currently hold VFINX and VGTSX, but will replace them with VTSMX and DODFX.
Posted in Finances, Investment No Comments »
August 2, 2007 - by J2R
To be honest, I can’t remember the reason I bought FSDAX. It’s a mutual fund focused in Defense. I guess with the war going on and rumors of invading Syria or Iran, I thought it could do well.
Anyways, this week I decided to let it go and switched the funds to DODFX, another international mutual fund.
I’m going to have to rebalance my portfolio really soon, because over 50% of my mutual funds are invested in international based funds.
Posted in Finances, Investment No Comments »
August 2, 2007 - by J2R
It’s frustrating how I put almost $2k every month into my mortgage, but the principal only goes down $500.
The good part is that I was able to make a significant dent in my car loans this month. Can’t wait to see these loans paid off and out of my life.
Posted in Debt Progress, Finances, Retirement Progress No Comments »
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