Myths and truths about retirement

Yes, Yes, it is >40 years off for us, but it's worth considering the myths vs. the reality of planning for retirement. Many of these same myths spill over into the rest of our financial planning.

CNN Money article.

http://tinyurl.com/2tqptz

Sobering perspective on debt

Last week I watched a documentary entitled Maxed Out. There's a good book by the film maker that's pretty good too. It's a little on the long side, but well worth the time.

Mini Challenge - Debt Payment Plan

Hello all,

Most people here have some sort of debt (student loans, credit card, etc.) that we owe. We want to pay off debt, but that would take money that we could use for other things (such as saving for a rainy day/down payment on something fund, investing in stocks or bonds, or for enjoyment/doing stuff now that we have income coming in), thus creating competing priorities for our money.

The challenge - planning out how and when you will repay debts you owe. Will you pay the minimum on your debts and stretch out payments, or is paying off all of your debts your highest priority? Some factors to consider:

With respect to debts
1. What is the interest rate (cost) on your debt?
2. What, if any, are the tax advantages of your debt? (student loan interest is tax deductible for the most part).
3. What is the psychological burden of carrying the debt, if any? What relief would you feel, if any, if your debt were to be paid off?

With respect to other uses?
1. What is the return on investment of the other uses of your money?
2. How much more comfortable would you feel if you had a larger rainy day or downpayment fund?
3. What are the tax advantages of other investments or locations for your money?
4. Is there something that you want to do now that you have money coming in? Do these uses (and the benefit/enjoyment to you) outweigh paying down debts or using the money for other investments?

All of these are just thoughts to consider.

For your convenience, there are online calculators to use to figure out how long your debt repayment would take.

http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp is one of these calculators. There are numerous others, both for debts and investments.

Please post a reply if you accept this challenge.

Good luck!

Some Goodies!!!!

New at stocks? Not sure where to look? Try "ShareBuilder.com". I checked out the site myself. It's pretty cool.



Don't want to let your hard earned dollars gather dust in a traditional bank account? Is your savings account just not earning you enough to keep up with the inflation monster? Try saving your money in ING:Direct. Right now the interest is 5.15% compared to the paltry numbers that US Bank, Wells Fargo, WaMu, and other traditional banks offer.

Meeting Minutes 8.20.07

Alrighty folks! This is the very first meeting that the minutes are posted on the blog. They will be posted immediately after every meeting hence forth. Members should take advantage of this public viewing, especially if a meeting is missed. It also would not be a bad idea for those who missed the meeting to add their thoughts as well.

Due to alot of people just not being in town, July was a "dark" month (no meeting). As a result, there was definitely no shortage of things to talk about in this meeting.
__________________________________________________________

Attendees: Tye, Phyllis, Katy, Mable

Meeting Commenced: 8:05 pm

1. Brief Introductions

2. Book Discussion

Quick Ratings (may be expanded upon in respective follow-up blogs):
Tye: "Learn to Earn" by Peter Lynch ; ***** 2/5 stars
Phyllis: "In Spite of the Gods" by Edward Rice ***** 1/5 stars
Katy: "Rich Dad; Poor Dad" by Robert Kiyosaki ***** 3/5 stars
Mable: "Everything Leadership" by ***** ?/5 stars

3. What have we done to get closer to our goals???

4. Which of the three is the most important (choose one, and tell us why)???

a) Increased Cash Flow
b) Increased Reserves (Savings, 401k, investment portfolio, etc)
c) Decreased Personal Debt (credit, school loans, car payment, etc.)

4. "Walk our Talk"... Do Something! Participate in an event or activity that is pertinent in what we discuss at out monthly meetings. By the end of the year, try to engage yourself in something meaningful at least once.

5. Assignment: Everyone needs to participate in blogging for this one. Propose a mini-challenge to be achieved or completed by the end of the year. Post that challenge on the blog. Someone may or may not accept your challenge. You are also to accept another person'd challenge of your choice. Try to pick one that will stretch you a tiny bit out of your comfort zone.

6. Blogging Responsibilities: Meeting minutes, more views, higher participation

7. Proposed September 2007 Meeting: 9.17.07 Hosted by Phyllis


Meeting Adjourned: 9:15 pm

Thank you Tye for hosting this meeting!
_____________________________________________________________

Book Reviews - August 2007

Hello everyone,

In what is hopefully the first in a series, I am posting a book review on select books that I have read in the past month. My self-education goal is to read at least one book related to investment/money/finance (IMF book) and one book on something else. I will put up my take on the book as well as a link to the Amazon profile (so you can see more reviews, get details, etc.)

IMF Book

Basic Economics: a citizen's guide to the economy by Thomas Sowell, 3rd edition - 2007

Most introductory books on Economics are aimed for a classroom, and contain many formal equations, curves, phenomena names, etc. Besides being rather boring, many of these texts also paint a somewhat unrealistic picture of economics by sparsely covering the implications of governmental (and to a lesser extent, private) regulations, taxes, fees, and policies on market dynamics. Sowell's book is good in that it does a great job of qualitatively describing economic phenomena while providing an ample number of examples of past events and their impacts on the economic system. The examples serve as a good history lesson for current events (such as the collapse of the housing bubble and credit crunch) and for future trends (public debt, globalization, etc.).

Sowell brings a lassiez-faire, free market bias to this book, but, fortunately for most readers, it should become clear where this bias is apparent and to consider it appropriately. The conservative bias, however, is not my biggest problem with Sowell's book. My biggest disagreement (and disappointment) comes with his all too brief examination of externalities.

Overall, Basic Economics is a great book on the basics of our economic system. I would highly recommend it for those who want to develop a better broad understanding of economics. This book is available both at the UCI (3rd edition) and the OC Public (1st and 2nd editions) libraries.

Amazon.com description and reviews of Basic Economics.


Other Book

Supreme Discomfort: The Divided Soul of Clarence Thomas by Kevn Merida and Michael A. Fletcher - 2007

Amazon.com description and reviews

This is a very well written biography on the most enigmatic and controversial member of an enigmatic (and often controversial) government body. Merida and Fletcher and trace Thomas' personal and ideological journey from a small, backwater Georgia town to the highest court. They try to examine the origin of the traits that, to his supporters, make Thomas courageous and, to his detractors, make him a hypocrite. In doing so, the authors' exam the forces that contribute to the most conservative jurisprudence on the Supreme Court; a tenure that has lasted a decade and a half, and which could last another 25-30 years.

I enjoyed reading this book very much as it is one of the best written books that I have read lately. Even if you don't follow government or politics very much, this story is intriguing.

That's my reading for this month.

Ray

And another thought...

Tye and I (Phyllis) were toying with the idea of investing in one potential "Big One" as a joint group venture. I also spoke briefly about it with Ray. I don't know how possible this is, but I would like to see about investing in the company Katy and I currently work for. They are not currently public yet, and the potential for growth on our inital investment is sky high.

I would like to talk about that at next meeting, segueing into "active investing".

Also, since this July month is a period in which many people are going to be out and about all over the place. The original quartet (Tye, Ray, Katy, Phyllis) have concluded that we should not host a monthly meeting for July, but instead, check in via blog space, and record our thoughts, and what we've individually done for "homework" and "field work".

I have been reading this one book in particular "In Spite of the Gods". It's written by a British national, who is married to an Indian spouse, and they currently reside in India. The author talks about paradox of India's "great leap forward", and the mysticism that seems to have been forced upon India by the West. Also, it delves into great detail about the corrupted politics of India (especially the northern region), and how it played a part in how India is today. I just started reading it, but I am already enthralled with it. When I continue on with it, I will definitely update my thoughts on it!

Thoughts on the Housing Market - part I (not sure if additional parts will follow)

Hi everyone,

I know that home ownership is an eventual goal of most of the members of this group. Right now, house prices are coming down, but they are still really, really high here in SoCal. Many analysts suspect that the "housing bubble" is bursting, but there is much speculation as to how much prices will decline, and when the rebound will begin. During this past week (when I have gotten sick of writing TA training workshops), I took some time to investigate news and views on the bubble. I will start with listing some sites that I have viewed (along with a brief one liner about the site). These sites are primarily blogs run by individuals who have distilled down current news, views, and trends into a more manageable form. All of the sites are definitely bearish about the housing market, but I believe that they do a better job of supporting their claims with hard data and arguing their philosophical points better. I will close by making a few observations of my own.

Professor's Piggington's Econo-Almanac for the landed poor - This would be like any of the numerous other housing blogs that I encountered, except for that there is a nice box on the top with a link to four articles that serve as a primer. Data focus is primarily on San Diego. This blog is also seems to be the most objective of the three that I am listing and less opinion filled than the other two.

Patrick - This links to a section with 3 consecutive pages detailing arguments for the author's position, reasons why the housing bulls want to promote their views, and counterarguments to many of the bulls' arguments. This site's arguments are in more of a bulleted form.

Irvine Housing blog - a traditional blog (no primer section), but really well written in my view. Focuses a little more on the psychology of bull markets. I've linked to three particularly good, specific articles that I found.

Houses should not be a commodity
Southern California's cultural pathology
Financially conservative home financing

Now for my bit.

One of the most common arguments that these sites use to argue for a bubble is the large discrepancy between the cost of owning a recently bought home and the cost of renting. I agree with this, and argue that the cost of renting is a true measure of the supply and demand of housing in a particular area. Factors such as the availability of nearby expansion land, location land monopolies, desirability of a location, and the local economy are reflected in the costs of renting. These factors explain why rents in most areas of California are more than the majority of the country and why renting in Irvine is more expensive than renting in Santa Ana, Compton or Yucca Valley. They do not explain why renting is cheaper than even an interest-only mortgage.

I agree with many of the authors that cheap, easy credit and shrewd marketing has pushed house prices to where they are today. I also agree with the prediction that homeowner financial difficulties and rising interest rates will drastically increase the cost of non-traditional mortgages, thus reducing number of prospective homeowners.

Therefore, I would agree with the more bearish speculation of a significant (>30%) and sustained (> 5 years) housing slump.

While there are some advantages to homeownership that would price it at a premium over renting (stability of costs, tax deductibility of mortgage interest, potential of special access to equity in retirement (reverse mortgages) and special legal protection of housing assets in some states), I do not see these justifying housing prices that are significantly above the cost of renting (especially when the liabilities of housing - repair, homeowners' associations, and relative lack of flexibility are included).

So what does this mean for us.

1. It means that, if homeownership is a goal, we should start setting aside money for a down payment so that we don't have to take on additional expenses with a non-traditional mortgage.

2. It means that we should view homes as a living expense to be compared with renting (with the attendant benefits and liabilities of each option). In particular, I agree with most of what the blogger Patrick says about homeownership.

"While a house is almost always a poor investment, it is a safe time to buy a house for enjoyment when:

• a 30-year mortgage + tax + insurance + maintenance is less than 30% of your gross pay and
• the loss from interest, tax, insurance, and maintenance is less than rent on an equivalent place and
• you plan on staying put for 10 years or more"

I would disagree with Patrick about having total expenses of buying less than renting. I would say approximately the same would be a good guideline (there are some minor homeowner benefits that would justify a small premium, but they aren't nearly as significant as the media, real-estate cabal, and politicians make them seem). I would wholeheartedly agree with the 30% rule (as this is the traditional definition of affordable housing) and with the 10 years rule (having witnessed aunts and uncles go through the hassle of selling a house less than three years after buying it).

Finally, I would recommend taking the time and effort to ensure that you are making a wise purchase based on fundamental factors instead of emotion. Think of it as pre-purchasing a necessary expense. Don't think of it as "investing in a home" as the real-estate agents would have you believe it.

I know this is a long post, but what are your thoughts?

Okay, after much tinkering...

I finally got this blog to look somewhat functional.

I can always use suggestions and critiques though. Don't mind "Robert Kiyosaki" thing on the side. I don't know why that feature is so wonky, but it's not letting me show the one video of choice that I had in mind. So I'll just post it in the body of this post.

I think it's rather good, for as messed up as the quality is. There were some key lessons to take away from what he said.

With that said, does anybody remember the "assignment" from last month? We were all supposed to think about a *name* for the group. My first idea is fairly unoriginal-- "Young Investors Club". I think we need something nice and catchy... or not. It all depends on what y'all want. And we need a "mission statement" or "group philosophy" too. So like I said, just think about it. If you got some ideas (no matter how lame you think it is) post a comment. It will be appreciated by everybody.

Also, I would like to get the agenda set before the weekend. Does anybody have recommendations or preferences on what we discuss? Post a comment!

For this next meeting, we will have two confirmed absences (Ray Anderson & Neeta Bijour) both of them will be out of state for a few weeks attending graduate seminars. We wish them safe travels! Anyone else who knows ahead of time that they won't make to this meeting, or if you will be bringing a buddy along, please post it. ;-)

In the coming days, I will be testing things out on this blog to see how they look and work. I also would like to figure out how to send notifyers to everyone's email whenever a new post goes up.

If you have any questions, or comments you don't want to post publicly, shoot me an email at NoxiousByProxy@yahoo.com


P.S. I really want this blog to be enjoyed as much as possible by all, so if you have an idea of how to improve it, just let me know! :-)

Good Night!