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Monthly Archives: March 2007

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Our Income Producing Stocks

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A reader emailed us to inquire which income stocks we held. So, to show you how much money we get from our stock dividends, which income isues we have and how many shares we hold, a handy table of our income portfolio is below:

The main point is we are getting around $680 dollars per month from our 7 income stocks. There are a couple of things to keep in mind when you read. First, only the energy trusts pay on a monthly basis. The others pay quarterly. Because of this monthly numbers are just averages, we don’t actually get that much per month. Second, we are running the risk that these companies will cut their payout levels. Some people don’t want to invest in energy trusts because of this concern.

Finally, we have shares in growth stocks also. For example we own shares in Exxon Mobil, the Archer-Daniels Midland Corporation, Marriott Hotels and Resorts, Blockbuster and Denny’s. We are holding onto these shares because we believe they will go up in value, not because they produce income.

Hope this helps. Please feel free to leave a comment if there any good income stocks you would recommend we check out.

Best,

James

The State of My Budget

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So, sometimes we blog about finance or current events. Other times we blog about personal matters. This posting deals with my limited budget and how I’m investing despite having little money.

I’m currently pulling in about $1,850 before taxes. This is primarily from two sources of income; my assistantship at the University and dividends from our stock market investments. The university pays about $1,200 per month, and our stocks are paying about $650 per month. This totals to $1,850.

In order to feed our ravenous mortgage, my university pay of $1,200 goes straight into an ING account my wife Miel uses to pay bills. The stock dividends of $650 covers my miscellaneous costs like clothing, food, the power bill and my cell phone. Since I don’t have expensive tastes, usually there is $50 – $120 left at the end of the month.

Fifty to one twenty isn’t a lot. So, I’ve been thinking about ways to invest small amounts of money. This month, I put $50 into prosper.com. Prosper is good for small amounts because the transaction costs are only 1% and you can make a 20% or better return. Since my wife and I set the goal of maxing out our retirement, I put $75 into my Sharebuilder ROTH IRA. Sharebuilder charges $4 per trade, so it also has low transaction costs. When my trade goes through on April 6th, I should be the proud of owner of $71 worth of Johnson Controls (JCI).

Best,

James

The Battle for the Soul of Capitalism

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I’m snowed under with work at the University today, but I wanted to let our readers know about an interesting recent speech by John Bogle. In case you don’t know who John Bogle is, he is the founder of the Vanguard Group and is widely regarded as one of the grandfathers of index fund investing.

Bogle is still an active commentator on business and the state of capitalism in America. I’ve read some of his work. Bogle has the remarkable quality of being a clear communicator and an innovative thinker. Given his role in starting the index fund industry, I take his views seriously.

Most recently, Bogle has criticized the nature of America’s capitalist system. According to John, the correct disposition of money and labor is the soul of a functional capitalist system. Unfortunately, this soul has become corrupted. That is to say, American capitalism has shifted from an ownership society to a managerial society. Under a managerial society the fruits of business go to the managers of the business and NOT to the owners of the business. His evidence for this is the extreme and improper compensation paid to corporate CEOs and the failure of mutual funds to produce reliable long term returns.

Bogles’ speech is a terrific indictment of the mutual fund industry. I recommend you check it out.

Best,

James

You owe $78! Do not pass go, do not collect $200!

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Ack! This is one of the moments when you watch money go down the drain and dream of all the things you could do with that money if it wasn’t for stupid fees. It’s a detailed error, but the bottom line is that I made an error in my financial juggling that cost me $78 in fees! At first I was sure that it was the banks fault, but when I looked in to the detail it was clearly an error on my part. That certainly doesn’t make it any easier to be stuck with the charge. I’m normally the queen at defeating charges but that is much harder to do when it is clearly my fault.

At least the completely unrelated charge for a $3,500 ticket for Air France was dropped in less than five minutes. It looks like I’ll be stuck with the $78 charge and use this as an example of why it is important to manage finances well. Don’t let it happen to you!

Ugh!

Miel

Price Fixing Case Before Court, DINKS Weigh In

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Commenting on the news is something that we DINKS do only somewhat frequently. There is however a case coming before the U.S. Supreme Court which us of potential great importance to all consumers, and therefore merits some comment.

The case is being brought before the court is an appeal being filed by Leegin Creative Leather Products. Leegin Leather is a high end consumer clothing retailer in California. Back in 2002, Leegin was selling their handbags to a company in Dallas called Kay’s Closet. Kays started selling Leegin’s purses at a 20% discount, so Leegin cut them off. As a result, Kays business dropped by half. Kay’s Purses sued and won a judgement of $3 million. Leegin appealed all the way to the supreme court.

At issue is Leegins ability to punish a business partner for charging less than the suggested retail price. Kay’s says this is illegal price fixing, but Leegin says its necessary to compete with larger retailers (Info here and here).

So thats the issue.

Where do the DINKS stand on this? Well, I can’t speak for my wife Miel, but as near as I can tell, the only reason this issue has gone to the Supreme Court is that the law on minimum pricing and retail vs. wholesaler agreements isn’t well established. All legalese aside, I think Leegin’s actions are defacto price fixing, pure and simple. Price fixing is bad for the economy for obvious reasons that don’t need to be repeated here. Furthermore, price fixing is un-American. Its contrary to the best interests of consumers and contradicts many American values such as fair play and free markets.

Best,

James

The DINKS Watch List

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My wife and I have set the goal this year of maxing out our IRAs, so we’ve been talking a bit about what stock we might want to consider buying in our retirement accounts. Accordingly, we wanted to comment on two stocks were considering. We’re not endorsing either of these yet, but we did want share our thoughts with our readers.

Best Buy Inc. (BBY) – Best buy is a consumer retail chain. They operate a number of “big box” stores and sell goods like electronic gadgets, televisions, appliances, etc. There are a couple of Best Buys in the DC area, so we’ve had a chance to test their “retail experience” for ourselves. Generally speaking, the stores are full, but have awful customer service. The on-line interface and prices are a bit better.

Best Buy’s financials are mixed. For example, the company’s stock has split a number of times, but most of these were in the 80s and 90s. Also, cash flow has increased as have the corporation’s net assets, but a lot of this is due to “fluffy accounting” like increases in goodwill. Finally, the dividend has increased somewhat, but its still pretty small at .40 cents per share. That said, we’ll be keeping an eye on the stock for potential lower price.

The Coca-Cola corporation (KO). Coke is the second stock we’re looking at. Coke is a classic American icon. We initially got turned on to the company because Warren Buffet was touting the stock a while back. Also, we drink a pretty good amount of coke (a 2 liter bottle is about right if you need to stay up all night studying). So it seems like the stock has both the “smart money” and the “main street” appeal.

Coke does have some downsides. For example, the company’s price is off its 1998 high of $100.00. Its income is slightly up over the past few years, but cash flow has been negative, due to stock buybacks, borrowing and dividend payments. As a result, Coke’s corporate value hasn’t increased much. An additional downside is Coke’s relatively low dividend payment. It yields $1.36 or 2.8% at its current price of $48.

Right now, Coke has the edge over Best Buy, but we’ll keep you updated on which stocks we finally decide to purchase.

Best,

James

Wealth Building Through Real Estate

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In the past, we’ve written about the luck we’ve had real estate investing. Today’s posting is along the same lines. Last week, I read about an interesting procedure in Adriane Berg’s Your Wealth Building Years for accruing real estate. Basically Berg says some simple steps will help you build real estate wealth*.

They are:

1) Buy an investment property.

2) Hold the thing until you have 20 percent equity (either by mortgage pay down or principal appreciation).

3) Take out a loan against the equity.

4) Invest the loan proceeds in another piece of real estate.

5) The cash flow after taxes from both properties must cover all expenses.

6) Repeat steps 1 through 5 as frequently as it is profitable.

There are a couple of ideas Berg should be considered when doing this: 1) The importance of a taxes and 2) whether a property manager should be used.

For my part, this seems like a good plan. The major rub is pricing and cash flow. For example, its not sensible to purchase income producing property if rent won’t cover expenses. My wife and I currently have an investment apartment in DC. With the 5 year run-up in prices, we’d be cash flow negative if we bought another place in Washington with 20% down.

So in short, Berg’s plan will probably work, but it requires some effort and critical thinking.

Best,

James

Berg, A. (1986) Your Wealth Building Years. pp. 151-152.

Teaching Children About Money

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A while ago, a good old friend of mine told me his parents hadn’t saved much for their retirement. I was shocked to hear that, because having grown up around his family, they were always a very responsible, loving and well organized.

My sense is my friend’s situation may be farely typical. Many parents don’t bother to actively discuss financial issues with their children. This is really a shame. Sometimes if adults don’t make a concerned effort to teach their children good financial habits, then children may learn the hard way after leaving the home or, whats worse, they could model their parents bad behaviors.

So, if you’ve got children, you might consider reading the latest story from Newsweek. Its a discussion of five basic financial concepts to teach your kids. Its an interesting and quick read, so feel free to check it out.

Best,

James

Networth – What is included

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This post is actually in response to a comment that was left on our post “The DINKs Wealth, What’s Working & What’s Not”. I felt that it brought up some good decision points in terms of what is included in net worth.

The basic question was why we include furniture as part of our net worth.

The argument against including furniture in net worth was that even if we sold our furniture we would presumably have to purchase more furniture. I’d like to point out that if you sell your house, presumably you would buy another house. This is the same for cars and most other household items like this. Thus, I would argue that furniture is no different in terms of a depreciating item that might be included in net worth.

It is also true that there is a great deal of flexibility in what net worth items might be replaced or not replaced. For instance, when I moved from Oregon I sold both my car and all of my belongings. I did make a profit on these and I didn’t buy a new car or furniture when arriving in DC. I also have a bicycle listed in my net worth, but if I sold it I likely wouldn’t buy another one.

People often make lifestyle changes that result in a net worth item fluctuating in home it might affect your bottom line. For instance, a couple might choose to move to a smaller or less expensive place and get a larger chunk of change for selling their home than a couple who choose to move to a larger and more expensive place. The same goes for making the choice to live without a car.

Another interesting thing to consider are the items that are included in net worth, but actually do damage to your bottom line. For instance, a car is counted as an asset, but you likely pay more to maintain it and finance the credit than the car is actually worth. The same goes for a TV. You might include this in your net worth, but by having a TV you are likely paying a cable bill that actually makes having the TV a liability. We have neither a car nor a TV, thus these aren’t included in our net worth, but this actually impacts our net worth in a positive way over the long run since we aren’t flushing money into these items.

Food for thought in sorting out your net worth.

Enjoy your day!

Miel

The DINKs Wealth, What’s Working & What’s Not

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Today’s posting contains the details of our March networth. While we bloggers are a well meaning bunch, we often don’t include enough critical analysis of what’s really working to build wealth. So, I wanted to put this information up to give you a sense of whats helping our growth and what’s hindering it.

First off, I’ll list whats not working for the DINKs.

1) Student Loan Debt: You’ll see in picture below that we’ve got about $52,000 in student loan debt. Some of this is costs due to my wife Miel, some is due to my education expenses. My loans are reverse amortizing, and the interest rate on a big chunk of Miel’s loans is variable. At least some of Miel’s is still subsidized by the gov, so they are paying her interest for the next year or so. At the same time we’re obliged to spend a portion of our income to pay the interest on the loans. That’s not helping us build wealth.

2) Buying Savings Bonds and Precious Metals: In the past, we’ve put small amounts in savings bonds and precious metals. The savings bonds don’t pay a great deal, 3-7% over the past few years. Since we only buy small amounts of gold and silver, we also aren’t earning a great deal in appreciation. In the future, we might be better served by thinking about putting this money into prosper.com, or stocks.

Okay, now to discuss what is working.

1) Real Estate: Both our primary residence and our investment property have continued to increase in value because the market in DC seems to have bucked the national trend of softening prices. While real estate can be a pain, the increase in value has added substantially to our bottom line.

2) Stocks: We are off our Hansens induced high of $100,000 back in 2006, but shifting about $80,000 of our stock funds to income producing securities appears to be paying off. In conjunction with my getting a better job at the university, we have basically eliminated the need to borrow to cover my portion of the mortgage and household expenses. For us, this means some modest degree of success.

Our March net worth details are below.

Best,

James

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