Step3 Prophet

Buy low and sell high

This is my first real recession. I was an adult and mildly cognizant of the crazy times that happened in the investment world around the turn of the century, but I had no money and no stake in the game.

I started investing in August of 2002. For those of you keeping score, this is when the market did it's last reversal, going from the long slide down after the tech crash to the housing boom of the last five years. This was not due to my talent at reading the market, but dumb luck that I happened to run into some money at that particular time and wanted to start saving for my future. I bought $3000 worth of Vanguard's S&P 500 index, which is the minimum buy in, for about $78 a share. Since then every stock purchase has cost me more than the last one. Actually, since I dollar cost average, each monthly purchase has got me less for the money. I should have bought an IRA then but I really didn't know much about investing. Live and learn.

Since October of 2007, the market has lost about 20%. Even after such a huge loss, I'm only now getting close to my cost basis for most of my mutual funds. [Cost basis is essentially the average price per share]. It looks bad on paper, but when you think about what this really means, things look much brighter indeed. I'm buying the same dollar amount of several mutual funds (I've diversified to 3 different funds in 2 accounts) that I was this time last year, but I'm getting them for 2006 prices. If you're like me and have a long way to retirement, then this is probably the best thing that could happen. If this recent down turn means you will be suffering a lower quality of life in the near future, that means you need to diversify into safer investments.

Buy low and sell high. Sounds simple right? It's the number one rule of investing, and probably the most violated rule as well. It continues to astound me that at things get worse in the market, more people want to sell out of their stocks! The only sane reason is that you need the money right away. If you do not need the money to live off of, then you are selling at a loss. You may be kicking yourself for not selling prior to this point, because looking back in time that is the obvious decision, but when you are looking at things real time is is not so simple. If you sell out now you will most likely miss the turn around as well.

The market will drop until prudent investors think the discounts are too great to pass up, and them will shoot screaming upwards as the large professional money managers jump back in, passing the individual by. The only way to take advantage of the up turn is to remain in stocks and keep investing. For some reason people don't kick themselves nearly as hard when they miss the big up swings as the down swings.

0% APR arbitrage part 7

This is the Seventh in a series of posts on my experiences with credit card arbitrage. See others here: Part 1,Part 2 ,Part 3, Part 4, Part 5, Part 6, Part 7

My convenience checks to my own checking account cleared yesterday. So now I have a fat stack of cash sitting in my checking account. I would like to move it all at once to my HSBC account because at the moment they are offering a 3.5% interest rate on savings, but I ran afoul of USAA's outside transfer limit of $5000 per day. This was kinda of silly because I was pushing from USAA to HSBC, so USAA "knew" I had the cash. Regardless, I'll have to do the transfer in 3 steps over 3 days. That will be something to consider when it comes time to pay off the full credit balance as well. Judging by how difficult it was to convert the credit line to cash, I think when it comes time to pay it off I'll get a new card with 0% APR and just do a balance transfer to that card instead.

Aerogarden Tomato 12th week update

It's an even week, so I've feed and watered the plants, as well as done a little trimming. Many of the lower branches have leaves shriveling up and turning brown. I did some more trimming on the lower areas, and a little bit of trimming at the top to make sure the branches don't grow into the light bulbs. All in all, the tomatoes are coming along nicely. I decided to try and make a salsa verde with some of the tomatoes and some tomatillos I got at the store. If this is my last post then you know the results : )

 Above: Middle right tomatoes. Sacrificed for Salsa Verde.

Above: Upper right corner of garden.

What if question

I was cruising the finance blog buzz on pfbuzz.com when I came across this question from BudgetsAreSexy:

“Would you rather have $500k now (no taxes, fees, etc) OR would you rather get 1 million ten years from now (no fees again)?”

I knew almost immediately what my answer would be. Mel was sitting/knitting next to me and had some thoughts on the subject as well.

Step3: "I would take the $500K now."

Mel: "I would have to agree there.  I mean, would the million dollars that you get in 10 years be equivalent to the million dollars of today?  Probably not.  And, according to a geezer who sits next to me at work, if you were to take a 20 year old and have them invest from the time they were 20 till they were 30 years old (and then stopped investing entirely), they would make a much bigger wad by retirement than someone who started investing from 30-40 years old.  Let's say they retire at 65... The dude who invested from 20-30 would have had his cash sitting longer in investments and accrued more interest than the 30-40 year old investor.  But, ya know, this is just one geezer's opinion.  Eh, but he's a geezer engineer, and they seem pretty on the ball.  Anyway... yes... I'm stealing Step3's limelight..."

Step3: "Wow, that's quite a response.... My line of thinking was a little bit simpler. What I really want from this whole finance thing is the freedom to do whatever I want. The $500K is no chump change, and having control of it now would be better in my opinion than getting a million 10 years from now. Mel brings up some good points, but her example is really an oranges to apples comparison. That adage is used to coax the young and poor to set aside money early."

Mel: "Agreed. And, I should have elaborated on my first statement earlier that "a million dollars 10 years from now does not equal a million dollars today".  I am pretty sure everyone got the inference regarding inflation, yadda yadda... And yes, the work geezers do their best to scare us whippersnappers into putting away cash... the thing I am scared of is: I was around for my coworker's daughter's birth.  I don't want to be around when she gets married! :) (Well, at work, anyway).  And yes, I also agree with the notion that having cash now to control as you see fit is "a fun thing to do"."

Step3: "From a purely investment perspective, and disregarding inflation, you would need to earn about an 8% annual return on the $500,000, which is very reasonable considering the stock markets average rate of return. But it is also more risky. Plus taxes on capitol gains if you were to take all of the money out at the 10 year point would be steep."

Mel: "This was interesting - I watched him do a simple calculation on interest earned over 10 years.  Averaging it out as 8% a year,  if you took the $500k now, you would end up at roughly $999,500...$500 off the mark of the $1M.  Ah, he is grasping for the keyboard..."

Step3: " I ran the inflation adjusted scenario. Interstingly enough, after 10 years, assuming 4% inflation and 8% rate of return, your final real value is almost exactly the same. Taxes would make the difference on your capitol gains. However, I'd still take the 500K now for the reasons stated above. Maybe it's just nerves about my upcoming change of job three years from now."

Mel:  "Word. Didn't you say you were going to mooch off of my emasculatingly larger salary? ;)"

Step3: "Step 1: Respond to ad on craiglist. Step 2: Marry Sugar Momma.
Step 3: Profit. "

Bank of New York Mellon Data Loss

Yesterday I got a letter in the mail from BNY mellon stating that my personal information was involved in a loss of data that occurred in February 27th, 2008. This was a surprise to me, since I do no business directly with BNY Mellon. From their website is this statement:

    "In late February, one of ten boxes of back-up data storage tapes was discovered missing from a third-party archiving vendor responsible for transporting the tapes to an off-site storage facility from BNY Mellon Shareowner Services' facility in New Jersey. BNY Mellon Shareowner Services serves as a stock transfer agent and stock plan administrator for public companies. The tapes included shareowner and plan participant account information, such as name, mailing address, Social Security number, and transaction activity."

At first I thought this might be a scam of some sort, but digging around on the internet allowed me to pretty much confirm that this is a real bank and a data loss did occur. Trying to find my connection to it is a little more tricky. My investment accounts are:

Zecco, who goes through Penson Worldwide.
TSP, who goes through Barclays Global Investors
Vanguard, I don't think they have any intermediaries
Sharebuilder, who now has ING, but may have had an affiliation at the time. But I can't really find any connections between BNY Mellon and sharebuilder with google searches or their website.

The BNY Mellon website goes on to state: "The forensic investigation initially identified approximately 270,000 individuals and 409 institutions with data on the tapes. The Company worked closely with its institutional clients to notify these individuals, which was completed by early April. The continuing forensic investigation also identified approximately four million additional individuals and 293 additional institutions with data on the tapes."

Four million people affected. Thats > 1% of the United States population. To see the full info go to the website here.

The letter offered 24 months of free credit monitoring by Experian through there Triple Alert program, as well as $25,000 fraud protection insurance. I could write more about that, but I've Been Mugged did a good review of the service looking from the outside in. I agree with him on most of the points he makes. Interestingly, One of his commentators is in the same boat I am and did sign up for the offer. I made a comment as well.

Free credit monitoring would be nice, but at the same time I'm not sure I'm even getting my moneys worth then because of hassles the Triple Alert program may entail. I'm consider one of the more advance credit monitoring services, especially since I'm becoming more involved with credit cards and debt. Identity theft can be a scary thing.

0% APR arbitrage part 6

This is the sixth in a series of posts on my experiences with credit card arbitrage. See others here: Part 1,Part 2 ,Part 3, Part 4, Part 5, Part 6, Part 7

I called USAA today. This was an ordeal in itself. I've had trouble getting a hold of them after 6pm, despite their website clearly stating that they have customer service reps available to 8pm, all continental time zones. I'd previously emailed them and complained of this, so when I couldn't get a hold of anyone tonight I went back and looked at their reply. That message contained a different phone number to try, and so I used it and got in touch with their web site support service. I was talking to a person, so that was progress there. She made a comment that leads me to believe that it was my phone number that prevented me from contacting a service rep initially. I have a Dallas cell phone area code, even though I'm living in Seattle. Since it's past 8pm in Texas, thats probably why I couldn't get through.

I finally got in touch with credit card rep. I asked how long my offer was still good for and if there were any limits on convenience checks. She said the offer was good from the date of the application, which is kinda of lame because you can't use your credit until you activate the card, and that wasn't until 10 days later. That still gives me about 4 weeks to make the most of this offer.

Interestingly, when I told her of my plan to post the check to my own checking account, she said this was a good idea. Since the convenience checks are essentially the same as cash, you don't have the same legal recourses that you would if you had problems with a bank check. So tomorrow I'm going drop two checks in a postal drop box, which conveniently gets rid of something that is the same a cash just lying around my house. I don't really like putting something like this in my mail box where anyone could pick it up, so thats why I'm putting it in the post drop outside a bank near where I live. More to come. 

0% APR part 5

This is the fifth in a series of posts on my experiences with credit card arbitrage. See others here: Part 1,Part 2 ,Part 3, Part 4, Part 5, Part 6, Part 7

The finance charge that I got was related to the cash advance after all. To ensure that I minimized the damage, I executed Plan B from post 4, which was to pay back all the money that was borrowed. I was reluctant to do this because it dips into my emergency cash fund, but keeping the $2500 cash advance at 7% interest would be devastating to the small returns I'm expecting from this venture. I really should have verified that the cash advances were or were not covered before I payed off my car loan, but live and learn. Since a credit card company will apply any payments made to the lowest APRs first, paying everything back was the only way to avoid future finance charges. Actaully, I still expect some future finance charges because I carried the balance for a few weeks while checks were clearing.

So as of right now, I'm back at square one. Zero credit card and loan debt, but not very much money in savings either. My plan of action now is to call USAA tomorrow, verify how long the fee waiver and 0 APR is still good for on convenience checks, and if there is enough time remaining, send in two checks to myself for a total of $15000. I'm thinking two check would be easier because any amount over $10000 draws attention. I should still have plenty of time since the offer was for 60 days, and I applied on May 18th. If I execute this plan, I may still have to pay a minimal finance charge on the finance charges that I accrued on the money I paid off. This should be only on the order of a dollar a month.

Weekend Update

This weekend I went camping overnight at San Juan Island. It's right on the U.S. / Canadian border, and the only way to get there is to take a ferry or by plane. It's part of a group of large islands in the Strait of Juan de Fuca.

Getting there was an ordeal in itself. I got home from work at 8:30 am on Saturday, and quickly threw my stuff together to catch the 9am ferry to Seattle. As I packed, I searched everywhere and couldn't find my cell phone, which is a critical piece of gear if you are going to a strange new location. I remembered that it was in my shorts, and that Mel had done laundry on Thursday night. Sure enough, I eventually found it in the dryer. Miraculously, it still works. I know for a fact it was on when it went in the washer, because I always leave my phone on. The keypad is a little flaky now, especially the "end" button, but it still seems to be usable.

I finally caught the 10 o'clock ferry to Seatle, and Mel picked me up with my back pack and sleeping bag, and we proceeded to spend the next hour in traffic. The main freeway was backed up going north, so we took a side route, which was also backed up due to an accident. But eventually we got out of traffic and made it up north to Anacortes just in time to catch the next sailing  to  Friday harbor, the only town on  San Juan island.  Thankfully this was an express ferry, which means that it was only an hour and five minutes to get there.

Once on the island, our friend who had organized the trip and got there on Friday picked us up at the ferry terminal (we had parked at Anacortes and walked on because it was cheaper and easier). We had just enough time to get to the camp site and set up our tent before it was time to go on a whale watching tour.

The whale watching tour was quite impressive. We defiantly got our moneys worth on this one. We saw a bald eagle in tree on the shore, cormorant nesting, harbor seals sunning themselves and swimming about, a minke whale( its quite rare to spot these), and the star attraction, the Orca whale. Over the course of an hour and a half we saw over 20 whales, some as close as 50 yards away. They were blowing and splashing and jumping out of the water, all to the back drop of the sun setting over the strait. To the south across the strait was the Olympic mountain range in all its glory, with the setting sun reflected across the snow capped peaks, and to the north was San Juan island and several pods of whales frolicking. There are three pods of whales that inhabit the Washington area, and they come to the straits for the salmon runs. We where lucky enough to go at a time when all 3 pods were together. Out on the water with us was a scientific observation team and  another tour boat. The other tour boat was so crowed with people that when the whales appeared, the whole boat listed to starboard with people looking over the rails. (Special thanks to livingwilderness on Flickr for the pic).

We had dinner in Friday Harbor, and packed up the next morning and caught the 1045 ferry back to Anacortes. I hope to go there again for a little while longer. Maybe next time I'll do the kayaking tour.

Aerogarden Tomato 11th week update

This week saw an abundance of tomatoes start coming in. There are over a dozen in various stages of growth. All of them are a green that matches the stems, but the earliest ones are almost as big as cherries. They have yet to turn red though.

This week I added water, but no food pellets. I also raised the roof to it's maximum extent( I have an Aerogarden original) and trimmed the branches around the base. The lowest branches are starting to fall off, I guess due to lack of light and to nutrients going to support fruit production. Trimming these now allows better access to the base area to clear out dead leaves and branches that fall. At this rate some of the tomatoes should be ready to harvest next week!

Married Finances

I'm not married yet, so this post is mostly writing out my @#$, but here is the way I envision married finances ( luckily my SO agrees, in theory). When you set-up house and share everything, there is also a tendency to merge the finances. I think it is a bad idea to do a 100% merge. The ideal setup would be 3 accounts, 1 for each person and 1 joint account for shared expenses like housing, bills, groceries etc.

The individual accounts allow each person to retain control over discretionary purchases without getting in their SO's way. For instance, if you want to buy her flowers for a special occasion, you can make the purchase without her being tipped off, and without worrying that she wrote a check or made a debit against that account and didn't tell you ( or him. This blog is non-discriminatory against queers).  This method involves trust in your partner ( which hopefully you have), and while it complicates the overall financial picture, it simplifies each person's small discretionary purchases. If you're both earning income, your paychecks would go to your own accounts and then you would set up an automatic transfer to the joint account.

The joint account, as mentioned above, holds your joint expenses. How much money should you transfer to the joint account? The sum of your monthly bills and maybe a little extra for unexpected situations. How much should each person transfer? Assuming you both earn income, it should be a fair percentage of the total expenses. For example, if you make $4000 a month, and she makes $2000 a month, and your expenses are $2000 total then expenses are 1/3 of your total income, therefore, you each contribute 1/3 of your salary. He transfers $1330 to the joint account, and she transfers $670, so that your total is $2000 and all your expenses are covered. To be fair, the women could totally emasculate you by making the larger income.

If one person doesn't earn income, it's a little more complex. The non-earner should still have some discretionary income available to them, so if you don't mind getting an "allowance" then the system still works. 

Some other advantages of separate accounts: if something happens to one of your accounts ( like my little unplanned expense a few months ago) you have 2 other back ups. Also, if you happen to get divorced, you can more easily separate your finances. I'm sure there are others, but I don't have time right now. I'm interested to hear from the married readers out there on what they think.