Monday, March 23, 2009

Moving Day: Update your links!

Well, my friends, the time has come. I've moved my site from blogger (where you're currently reading this message), to a Wordpress blog hosted by Dreamhost. If want to keep reading all my thoughts on money and life, please bookmark my new site.

It's been a pleasure sharing my thoughts with everyone; I hope to see you on my new blog!

Sunday, March 22, 2009

PF Spotlight - Mrs. Micah: Finance for a Freelance Life

Welcome back, my friends, to the feature that never ends. I'm so glad you could attend, come inside, come inside. There behind the glass stands a great PF blog, be careful as you pass, move along, move along.

Yup, I was feeling a bit odd as I wrote this, but I'm serious about my comments. The blogger of the week is Mrs. Micah, who writes the eponymous blog subtitled Finance for a Freelance Life. On top of all the great advice she dispenses in her blog, she also has helped me through the Money Blog Network, for which I am quite grateful. Some of the good columns she has written in the past few weeks include:

Do You Need to Carry a Balance to Get a Credit Score?
- Mrs. Micah answers one of the most common misconceptions regarding credit cards. The short version is no, you can get a good credit score even if you pay off the balance in full each month. And it's a good thing, too, as I have managed to get a great credit score (over 770, if you are interested) without ever paying interest to my credit company. (I take pride in being a 'freeloader' in this fashion.)

$7500 HomeBuyer Credit: What Should I Do With It? - Another question, this time looking for suggestions of what to do with the seventy-five hundred dollar credit being offered to first time homebuyers. The ideas are pretty common personal finance fare, covering debt repayment, savings for emergencies, and especially fitting for a homebuying refund, paying down some mortgage debt. All are good ideas for any 'found money', and well worth repeating.

Know the Fees on Your Unemployment Debit Card - An entry written in response to a CNN article about fees associated with unemployment debit cards in Pennsylvania. Being a Pennsylvanian receiving unemployment, I felt I should rectify some of the points that were made and clarify the fees that are assessed. I also noted that getting your funds direct deposited can save you from being nickeled and dimed as you collect your unemployment money. I might have to write more on this subject, as there seems to be much confusion at a time when many people are starting to rely on unemployment benefits.

P2P Lending is Not Like High-Interest Savings - Mrs. Micah provides some reasons why you shouldn't rely on peer to peer lending, in something like Lending Club, as a place to store your emergency funds or other money that can't be lost. The illiquidity and potential risk to your principle with investments like Lending Club make it ill-suited for savings. Better choices are high-interest online savings accounts like ING, HSBC, and SmartyPig.

Saturday, March 21, 2009

Weekly Update: Battlestar Galactica Edition

The big news this week, at least for those of us with a geeky bent, is the series finale of Battlestar Galactica. It was an excellent series, not just in the science fiction genre, but as a broader drama, touching upon and exploring some of the deeper issues facing our society. It's a rare series that can be so emotional enveloping, but this series succeeded. The fact that it had semi-regular spaceship fights and some cute robot girls was just an added bonus.

Just two things that bothered me: first, the ending. I'm not going to spoil it for you, but cripes was that a convoluted way to wrap things up. To say nothing about raising more questions than it actually answered...

Second, apparently there's going to be a two hour 'event' in the fall, looking at some of the events from the series from the perspective of the Cylons (the race of evil robots, if you've never caught either the original series or this current remake). While this is a good thing (I'm not going to complain about more Galactica), it does make me think: is it really a season finale if they're already planning more stories (even if just as a two-hour movie)? These are the questions that haunt my mind (which tells you quite a lot about said mind).

On that geeky note, onto the finances:


PNC (Checking Account) $ 1329 +$1144
Susquehanna (CD) $ 2542 +$0
ING Direct (Checking) $ 55 -$50
ING Direct (Savings) $ 1338 -$1668
ING Direct (Orange CD) $ 1016 +$0
HSBC Direct (Savings) $ 23 +$0
Smarty Pig (Savings) $ 948 +$248
Vanguard (Money Market) $ 901 -$400

Total Savings $ 8152 -$726


Vanguard (Roth IRA) $ 6654 +$1128
- Small Cap Index (NAESX) $ 3326 +$167
- High Dividend Yield (VHDYX) $ 2796 +$429
- Foreign Total Market (VGTSX) $ 532 +$532

Share builder (ETFs) $ 2771 +$61
- Total US Market (TMW) $ 905 +$10
- Extended Market (VXF) $ 756 +$11
- Total Foreign (VEU) $ 550 +$24
- Small Cap Value (VBR) $ 256 +$7
- Emerging Markets (VWO) $ 304 +$9

Total Investments $ 9425 +$1189

Total Assets $ 17,577 +$463


MasterCard (JCPenney) ($ 28 ) +$107
American Express ($ 652) +$1260

Student Loans ($ 11,874) -$8

Total Debts ($ 12,554) +$1359

Net Worth $ 5023 +$1822

Not bad, I'd say. A combination of getting my tax refund deposited (over $1300) and some investment gains allowed me to get some substantial increases in my net worth. I paid off my credit cards; a neutral issue as far as net worth, but it was nice to eliminate the debt.

I am in the process of opening a Foreign market fund with Vanguard for my retirement account; on April 2nd, the Susquehanna CD will be cashed out and transferred into my VGTSX fund (which is why I was able to open that Vanguard fund without meeting the $3000 minimum, in case anyone was curious).

All in all, pretty solid week.

Friday, March 20, 2009

The Bright Side of the Economy for Youth

(Welcome to my fiftieth published post! It's been a fairly short, but still wild ride. Hopefully, I can keep posting, entertaining and informing you. In honor of this celebration, I've tried to find some good news to blog about, not an easy task in the current economic climate. I think I've succeeded, at least for those of us in Generation Y.)

If you're young and still working, you should be upbeat, if not cheering, about the current economic down turn. (Just don't do it too near anyone over the age of fifty or so, or they might come after you with torches and pitchforks.)

Just in case you feel I'm alone in thinking this, note that Liz Weston of MSN Money has noted that those of us who are under 35 should be saying hurray to the meltdown. Now, there are some of us under 35 who have gotten caught in the crossfire of the economic meltdown and are currently un(der)employed. But even for us, there are advantages to this crisis; it's been lowering the prices of stocks, for one.

Why is this a good thing? Well, if you're young enough to have multiple decades of work ahead of you (a fun thought, I know, but stay with me), being able to buy stocks on the cheap with your earnings will be advantageous later, when the stock market recovers. Don't believe me? Let's take a look at a real example.

Let's say you wanted to invest in the Vanguard 500 Index Fund (VFINX), the first index fund, and one of the most popular, to boot. If you had invested $3,000 in VFINX on March 19, 2008 to open the 500 Index, you would have paid $120.06 per share and bought 24.988 shares. If you invested that same amount yesterday, March 19, 2009, then your $3,000 would have purchased 41.305 shares at $72.63. A one year difference, but the same amount of money now buys about 60% more shares of the Index Fund.

Think of it as a buy one, get one half off sale; right now, you can buy more shares of the exact same funds that were available a year or two ago at much higher prices. Add in decades of time for the market to recover, and you have a perfect set up for building up financial assets at fire sale prices for years to come.

This isn't an attempt to encourage market timing; I don't know when the economy will recover. We might have months or even years of more financial pain before things get better, or we might already be starting to recover. We'll only know further on down the road, when looking back at the current time frame. It's much better to keep investing, and simply take advantage of the current decline in the market.

In any case, the long-term results for stock investments all but ensure that time and willingness to take some risk will pay off eventually. If you're a member of Generation Y, you are experiencing one of the best set of circumstances you and I will likely see grow our money over time, taking advantage of lower prices now to benefit as the economy recovers and stock prices begin to rise again. So, yes, if you're young and investing regularly, now's a time to celebrate!

Just... not in front of your parents.

Thursday, March 19, 2009

Thoughtful Thursday: Financial Advice for High Schoolers

Woo Hoo! Good news everybody, I've had my first guest post published today. My Life ROI published a post I wrote, How to get Ahead of the Game, during his out of country vacation. It's simply some advice for current high school students that I wish someone had told me ten years ago.

Of course, there are other financial columns out there that I didn't write. They might not be as clever, witty, or entertaining as what you're used to here, but they are still worth reading. Some of the more thought-provoking pieces I've read this week:

New Study on Emergency Fund Importance
- Flexo on Consumerism Commentary was one of several commentators to note the recent study by the Consumer Federation of American. The primary conclusion of the study? That having an emergency fund leads to greater mental security. This is an excellent lesson to be reinforced, and does have an impact on how you should rank your financial priorities, in this case, favoring putting savings aside for a rainy day over paying down debts without a cushion, for example.

Protect Your Home from Bumping and Bump Keys - Clever Dude has posted a video taken from a local news channel about burgulars 'bumping' keys in locks to force open doors. An interesting video, and something to think about when shopping for locks. You have to stay ahead of the bad guys in the home security arms race.

Learning to Love Generics - Stephanie makes the point that genericfood stuffs will save you money and tend to be just as delicious as brand names. She also teases us with some delicious looking cookies but refuses to share them. Boo!

20 Free Online Finance Courses - A listing of different online sources of information from Generation X Finance. I'll admit, I don't usually follow this blog, but I'm always looking for more good sources of information. Which means this is a doubly useful post, letting me know about plenty good financial information online, as well as cluing me in to another good blogger.

Moving Day!

I have some good news to share with you all; I'm going to be moving! Well, my blog is, anyway.

Yes, after reading up on blogging tips and advice at the Money Blog Network, I've decided to get my own domain and make a more serious effort at blogging as a serious endeavor. I've already set up the weblog at, and as soon as I get things up and running (probably this weekend, as I'm making a concerted effort to have this switch-over complete by Monday), you'll have a brand-new Amateur Financier site to read and enjoy!

I'm letting all of my loyal readers (or at least, the two people currently following me on RSS feeds) know about this change-over to express a couple of concerns. First, to paraphrase Doctor McCoy from Star Trek, I'm a biochemist, not a webmaster. There might be some quirks and other problems in the transfer that prevent me from doing a seamless transition from Blogger to Wordpress (hosted on Dreamhost, for those who want all the gritty details), and I just want to give you all fair warning.

Second, I'm not sure how this move will affect those of you following me using RSS feeds. I hope that the transfer options on Wordpress will allow me to adjust everything from my end, so that you can continue to receive my words of wisdom on a daily basis. But to ensure uninterrupted bulletins from my blog, you might need to update your feeds. (And if you are linking to my blog elsewhere, I ask you to please adjust your links when the new blog is up and running.)

Third, this move is part of a larger effort on my part to make this blog more relevant and interesting to you, my readers (and, I won't deny, more profitable to me). So, please, if you have any advice or suggestions, on issues from the appearance of the blog to the specific subjects I should cover, let me know. This is a good time for making changes to my blog, and any feedback I can get will be given all due consideration.

Finally, thank you to everyone who is watching me; I hope that I can continue to entertain and inform through my writing.

Wednesday, March 18, 2009

Great Debate: Bonds vs. Bond Funds

Ladies and Gentlemen, financial fight enthusiasts of all ages, welcome to tonight's event. We are moments away from our main event, a bout that will go down in history and settle one of the great debates in finance once and for all, the argument over whether buying individual bonds or bond mutual funds is the best way to get some bond exposure.

As you are well aware, this grudge match has gotten especially dirty, since both the fighters fill the bond part of your asset allocation. This means they're government or corporate debt, and pay out higher interest rates than most stocks. They also tend to be more stable in price than stocks; they don't drop as far in value, but they also don't rise as fast. Finally, there's more protection if the company or government goes bankrupt than you have with stocks. But that's where the similarities end.

Wait, wait, the fighters are entering the ring. They're circling each other, eyeing each other up. And individuals bonds make the first move, pummeling bond funds with all their advantages:

Fixed Interest Rates: The biggest advantage of individual bonds is that the interest rates they offer stay the same for the life of the bond. (Unless it's called or the company defaults; although those are fairly rare events, especially with high quality bonds.) If you lock in a high interest rate for a long-term bond, you can enjoy high dividend payments for years, decades even.

Return of principal: When the bond's term is up, you're guaranteed to get back your principal. The amount for which you can sell the bonds before they reach maturity can vary, but the underlying principal will be returned at maturity (again, barring defaults). With bond funds, the amount of principal will move up and down as the share prices change.

Oh, bond funds have been taking a beating! But wait, here they come, bringing out all the pluses that come with funds:

Easy Diversification: The biggest advantage of bond funds is the ability to own hundreds, if not thousands of bonds with one investment. The natural diversification of funds lowers the cost to add bonds to your portfolio, as well as decrease the risk should any of the bonds in the fund default.

It's one heck of a struggle out there! And here come the ref, making a ruling on the mat. And it's a tie! Depending on the situation it seems that either individual bonds or funds could be a good choice for the fixed income portion of your portfolio.

There are a few caveats, though; the higher the risk of default, the more advantageous it is to opt for bond mutual funds. If you decide to dabble in junk bonds, for example, you'll end up much better financially by using a high-yield bond fund. The large number of bonds held by the fund will insulate you from much of the risk of default, allowing you to profit from the higher yield of these bonds without gambling on your portfolio.

On the other end of the risk spectrum, if you're looking to invest in Treasuries (US government bonds), you would do best by buying directly from the Treasury. There's essentially no default risk, the bonds are never called, and you can avoid the fees that mutual funds charge by buying Treasuries yourself.

For high grade corporate bonds, which have a moderate amount of risk, you could go either way. If you have the money to create a diverse portfolio and like the characteristics of individual bonds, go ahead with the bonds; if not, bond mutual funds will do fine.

Oh, ladies and gentlemen, that was certainly a thrilling debate. I think we've all gained a little more knowledge about bonds and bond funds.

Tuesday, March 17, 2009

Investing 101: Bonds

(This is the second in a regular series where I attempt to explain some common investments and other financial terms. Enjoy the knowledge and sharing.)

Q: So, what exactly are bonds?

A: Simply put, bonds are IOUs. When companies, governments, or even individuals (remember Bowie bonds?) need money, they can sell bonds, allowing them to raise capital and pay it back later.

Q: Why would I want to lend money to people I don't even know?

A: Well, unlike loans you make to family members or friends, when you purchase a bond, you'll gain additional money. If you hold onto your bond, you'll receive regular payments (called dividends), usually twice each year. When the bond matures (that is, when the duration of the loan is over), you'll receive your money back.

Q: Sounds pretty good to me! How can I lose?

A: There are a few drawbacks to bond investing, unfortunately. They tend to yield less than investments in stocks; if we look at the returns between 1926 and 2007, we see an average return on bond investments of 5.5% compared to 10.4% for stock investments. And unlike certain qualified stock dividends, bond dividends are taxed at your normal income rate.

Plus, there is always the risk that the company or other bond issuing agency could default.

Q: Wait, what? What's this about default?

A: Well, yeah. If your bond issuers go bankrupt, they may not be able to repay their creditors (which, if you own bonds, will include you). You will be somewhat better off than stock holders (as they are considered part owners, when the company goes under, they lose all their investment), but you might only get a small portion of your investment back, if any. You can avoid this situation, or at least minimize the possibility, if you stick to highly rated, 'investment grade' bonds.

Q: Bond ratings, you say?

A: Yes, there are agencies that review the companies, governments, and agencies that issue bonds, including Moody's, Standard & Poor's, and Fitch. They classify bonds according to the risk of default, from AAA (or Aaa), the rock-solid, safe as can be issuers, all the way down to D, already in default. Sticking with the bonds rated at least BBB (the fourth highest rank, the lowest investment grade ranking) will all but eliminate the chance of default.

(A caveat, though: many of the mortgage backed securities and their derivatives were ranked AAA by the rating agencies. A high ranking shouldn't be the end of your research into the bond issuers in which you intend to invest.)

Q: So, if I stick with high rated bonds, there's no worries?

A: No, sorry, you're not out of the woods yet. Bond yields are determined by the prevailing interest rates. When rates are high, bond issuers have to pay more to get investors (since the investors have many other options that will give them good return on their money). When rates are low (as they are now), you won't get a high return from bonds. If you buy bonds when interest rates are low and then the rates rise, the amount the bonds can be sold for will decrease.

Even if you manage to buy the bonds when they're yielding a high return, there's the possibility that the bond will be called. In these cases, the bond issuer will pay back your principal early, essentially ending your dividend payments and forcing you to find somewhere else to invest.

Q: Arrgh, with all these drawbacks, why would anyone invest in bonds?

A: There are several reasons to invest in bonds. First, bonds are still very safe investments. The risk of default on investment grade bonds is under 2% (and AAA ranked bonds default about 0.1%), meaning that over 98% of investment grade bonds make it to maturity (or are called ahead of time) without incident.

Bonds also tend to be much more stable investments than stocks. Look back at the comparison of stock and bond portfolios; the worst loss an all-bond portfolio suffered was a loss of 8% in one year, compared to a worst-case result of losing 43% in all stocks. Adding bonds to your portfolio will diversify your holdings, help to smooth out your investment returns and make your portfolio more stable.

If you're looking for current income, bonds are one of the best sources. The dividend rate you get from bonds usually exceeds what you can get from stocks. In addition, it's difficult for companies to cut bond dividends without recalling the bonds, so your income stream is safer when investing in bonds than when investing in stocks.

Q: Alright, I'm sold. How do I buy bonds?

A: Well, you can buy bonds directly, from a site like PIMCO or FINRA. (Or US Government Treasuries at the Treasury website) Bonds do tend to be rather pricey, however, frequently selling for $1,000 (or more) each. This makes it tough to build a diverse portfolio as a relatively small investor; most investment advisors recommend between $25,000 and $50,000 to get started in bond investing.

For most investors, getting a diverse portfolio of bonds, enough to ensure that a possible default or two won't upset your investment plans, the best bet is a bond mutual fund. There are a variety of bond mutual funds available, from companies like Vanguard, Fidelity, and T. Rowe Price. These fund give you exposure to bonds, but are much more diverse.

For a more complete comparison of bonds and bond funds, you'll just have to wait until tomorrow...

Q: Awww, do I have to?

Yes, yes you do. But have a good time until then!

Monday, March 16, 2009

Jim Cramer vs. Jon Stewart

If you are a fan of The Daily Show with Jon Stewart, you are probably aware that for most of this week, there's been something of a war or words between Jon Stewart and Jim Cramer (the host of Mad Money and author of numerous investing books). And if you aren't watching The Daily Show, why not? It's excellent satire, and like all good satire, holds up a mirror to our culture.

It started last week, when Jon Stewart had a segment featuring some of the mistakes made by CNBC in their marketing predictions. Jim Cramer, as one of the major stars of CNBC was featured quite a bit (along with Rick Santelli, whose cancellation prompted the clips being aired), particularly with regard to his recomendations to buy Bear Stearns.

Jim Cramer responded that clips were taken out of context, leading to yet another Daily Show clip collection showing that although Jim Cramer was correct about that particular clip, he had recommended buying it recently. (If you take nothing else from this blog entry, take the knowledge that The Daily Show is very good at finding embarassing film clips).

Finally, things came to a head in Thursday's episode of The Daily Show. Jon and Jim went head to head, and from my perspective, Jon Stewart came out ahead. Here's a few thoughts I had as I watched all this (I happen to be a huge Daily Show fan, going back all the way to when Craig Kilborn was the host). Some thoughts that have occurred to me as I re-watched the clips and considered Jim Cramer's reactions:

1) The financial media has made many, many mistakes, and it's nice to see someone call them on it. I'd love to see Jon Stewart interview the CEOs of the banks, hedge funds, and investment companies, and see what he'd do with them. He is easily one of the best interviewers I've ever seen, and when he's on the top of his game (as he was on Thursday), he is a sight to behold.

2) Jim Cramer has managed to bump up my opinion of him as a result this interview. He didn't really hold his own, but the simple fact that he was willing to subject himself to this scrutiny and potential recrimination speaks well of his personality and openness.

3) If I recall correctly, court jesters were considered to have a special place in the medieval court. They were the only ones were able to insult the king, and in that way, speak truth to power. It seems that we live in times where only the jesters in the news media (The Daily Show, the Colbert Report, The Onion) are willing to point out the utter absurdity of our financial system. And kudos to them; I just wish we could get more people like Jon Stewart out there, looking out for us.

So, go ahead and watch the Daily Show interview; it really is an excellent example of a populist rebuttal to recent financial events. Plus it has more than a few jokes!

Sunday, March 15, 2009

PF Spotlight: Get Rich Slowly

If you follow financial blogs, even casually, there's a good chance you've read, seen references to, encountered quotations from, or at least heard about Get Rich Slowly. J.D. is one of (if not THE) most famous and trusted personal finance bloggers around, and he consistently writes interesting, thought provoking pieces.

I'll be honest, I haven't been reading Get Rich Slowly long, and most definitely haven't had the opportunity to go back through his rather impressive archives, but what I have read is interesting, informative, and helpful. A few of his more recent articles:

Finding a Good Job in a Bad Economy - A reader named Jill writes in to ask whether she should stay in her secure, but not particularly desirable, current job, or take a temporary job with lower pay in her field of choice. I'm honestly not sure what I would recommend to her; it comes down to whether she values safety or job satisfaction more (and how much of each she would get with either choice). On a side note, I do wish I was facing the choice between a full-time, permanent job I didn't quite care for and a temp job offer (or possibly offers) in my chosen field. At the moment, either one would be a great improvement on my situation.

Some Thoughts on the Return of Traditional Skills - J.D. notes the recent up tick in interest in traditional skills, like gardening, home maintenance and sewing. I haven't noticed quite as much of an increase, myself (in suburban Pennsylvania, it seemed that most people were do it your-selfers with regards to yard and house work for as long as I can remember). But I can certainly see how, when the economic climate is so shaky, that people would want to be as independent as possible; I've been trying to find more time to learn about home maintenance, myself.

25 Useful Financial Rules of Thumb - Just about every one sentence bit of financial advice I've ever heard is listed here, from 'Pay yourself first' to 'Your mortgage should cost no more than twice your annual income' (although, I've heard as high 2.5X elsewhere). Some of the rules I actually disagree with (the 100-(your age) rule as a good guide to how much money to have in stocks, for example), but all are at least worth knowing, so you can form your own opinions.

How do Marginal Tax Rates Work
- A good explanation of how marginal tax rates work. I'm not going to try to explain the concept in one paragraph, especially as J.D.'s already done an excellent job. Some of the conversations that resulted are worth reading, if only to see the diversity of opinions that exist with regard to tax policy.