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Monthly Archives: December 2008

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Should I Use A "Credit Repair Clinic"?

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No.

There are a couple of reasons to avoid credit repair clinics.
First, you don’t need them. If information on your credit file is inaccurate, you can easily challenge it yourself by writing a letter. Also, these companies typically advise you to pay your debts on the condition the negative information is removed from your file – but you don’t need a credit repair company to tell you that.

The second is industry sleaze. In some extreme cases, these companies resort to illegal or abusive tactics like identity fraud to help their clients. As a result, the Federal Trade Commission hates credit repair companies. In an interview with Bankrate.com the FTC’s Jodie Bernstein said they’d never come across a legitimate credit repair company.

So, if you can’t use a credit repair clinic, what should you do?

Well, bankrate.com has solid pointers for getting started. Also, the FTC has a good list of “Must Do Questions” if you really need help hiring a credit repair outfit. As an absolute last resort there is always bankruptcy.

Thanks,

James

Economic Meltdown Changes Investing Rules

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The economic meltdown appears to be changing the rules of how people should invest their money for retirement.    The New York Times has a really excellent article reevaluating some common conceptions about the safety of bond investing. 

From the Times: 

““We see a lot of retirees come in and they have a lot of their fixed-income investments in aggressive funds,” said Richard Rosso, a financial planner with Charles Schwab in Houston. “They have gotten seduced by the yield of the fund and didn’t look at how that yield was being derived.”

Instead, investors should anchor their portfolios with a fund, or combination of funds, that hold wide swaths of high-quality government-backed, corporate and mortgage-backed bonds — with short- to intermediate-term maturities, experts said.”

Click here for the rest of it. 

Best, 

James

Our Top Five Financial Tips

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At home, my bookshelf is next to the computer. I’m starting this posting and I’m looking at the books on my shelf. We must have dozens of personal finance titles, everything from the classics like The intelligent Investor to junk like Charles Givens piece Wealth Without Risk. There are also thousands of personal finance blogs available in the blogsphere and hundreds of firms who want to sell you investments. – sometimes difficult to know whats good advice and what isn’t.

So, drawing on my most favorite personal finance author Eric Tyson, I wanted to offer 5 points of advice that at a minimum, won’t steer you wrong:

1) Take Charge of Your Finances: – The longer you procrastinate the more you’ll disadvantage yourself. Don’t wait for a crisis to get your act together, just do it.

2) Save and Invest At Least 5 to 10 Percent of Your Income: The best thing to do here is save through a retirement savings account to reduce taxes.

3) Invest Your Long Term Money in Ownership Vehicles: The main reason for doing this is that stock or direct ownership of companies often have long term performance that beats bonds or bank accounts.

4) If You’re Married, Be Sure its a Partnership: Discuss your joint goals, issues and concerns. Be accepting of your other partners personality. Compromise and act as a team.

5) Own Your Home: Some people are able to gain more wealth by renting and carefully investing. But, in the long run, owning is more cost effective than renting. That said, its best not to buy unless you can stay in one area for a while.

Hope some of this helps!

Best,

James

Bank One Messes Up, Woman Arrested, IRS Sues

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I swear, the Tax Prof Blog comes up with the best stuff,

If you have a few spare moments, check out this story.

To make a long tale short, in 2002 Daniel and Brenda Standyk were interested in purchasing a used Geo Storm from a dealership in Kentucky. They bought a lemon and their car broke down seven miles from the dealership, so they cancelled payment on their check. Bank One mistakenly labeled the Standyk’s check as having “insufficient funds”. As a result Brenda was arrested, strip searched and humiliated.

The Standyks sued Bank One and got a settlement of $49,000 – which the IRS came after them for a cut in 2005.

Its all at the Tax Prof Blog, or you can read the court findings here.

Best,

James

Another Year of Housing Weakness

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Hi All,

Just saw this 12 minute video from 60 minutes. Basically, the story predicts another year of downturn for the housing market. Why? Well, credible analysis indicates that another class of questionable mortgages may implode in 2009. Specifically, Alt-A and option arms are projected to increase their default rates by as much as 9.6% into mid next year (1).

Why does this matter? Well, the current financial crisis was ignited when mortgage defaults outstripped bank cash reserves. In the event that loan default rates remain high, the financial sector will come under even more pressure. As a result, the rest of the economy will experience more stress.

Hat tip to Nirav at Living of Dividends for this one.

Best,

James

Madoff Fatigue

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Hi All, 

I know this is a bit of a macabe posting on the day before a major US holiday. However, I heard a story on NPR this morning saying that one of Madoff’s investors had committed suicide. 

Evidently investment fund manager Rene-Thierry Magon de la Villehuchet was found at his desk with slit wrists.  Its being reported that de la Villehuchet lost over a billion dollars in the Madoff scandal and was facing extreme shame over having referred several clients to Madoff (1).

Its sad and callous, but after weeks of hearing about Madoffs crimes, the death of one person and the loss of another billion dollars just doesn’t seem like that big of a deal.  

Best,

James 

Holiday Travel

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Currently being in Portland, Oregon puts holiday travel on my mind. For those of you not paying attention to the weather in the Pacific Northwest, Portland is in the midst of the worst snow storm in forty years.

While being frugal around the holidays helps to stretch the budget a bit further, there are times when it helps to not scrimp.

Public transportation is often a great alternative, but winter weather can create havoc on these systems. I was reminded of this the hard way. To avoid the bother of renting a car, since I had a return ride back to Portland, I opted to take public transport. I took the Amtrak bus from Portland to Eugene; this was 2.5 hours late. Had I decided to take the train it would have been about six hours late. Then I tried to take the Greyhound down further South to my parent’s place. When I discovered that this was running at least six hours late, with a snow storm coming in by then, I opted to borrow a car from a family member to make the trek down.

Chains. These are also a necessary evil. Keep in mind that if you buy from Les Schwab and don’t use the chains you can get a full cash refund in the spring. It is also best to buy these before the weather hits, to avoid lines and hassle. These days many cars don’t work well with chains, including my mother’s PT Cruiser. We managed to make it in safely without them but would have laid down the cash if it had been an option.

Winter Gear. It is also great to buy winter gear before something hits. I tried to buy traction devices for shoes from REI but they were selling them as fast as they could get them in!

Stocking Up. While generally I’m not much of an advocate for buying excess of immediate needs, having extra food and such when a storm hits is wonderful. We certainly won’t be starving through the holidays. It doesn’t look like we’ll be leaving the house for several days. You can try to save money on your food purchases, though, if you want to be frugal about stocking up.

Entertainment. In a snow storm like this at least most entertainment can be had for free. James’ brother skied from REI to the Amtrak on his trip down South (many hours delayed). Or you can go for the stand by of a snow ball fight, building a snow man or many other winter activities. My nephew, nearly three, has determined that all of these activities are much too cold and that he’d rather play games inside!

Hopefully you are safe and sound with your family this year!

Happy Holidays,

Miel

Stocks Tanking, Should You Sell?

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Hi All,

Well, if you were in the market during last months bloodletting and didn’t know if you should sell, you’ve probably found yourself wanting some guidelines for selling.  

Other than raw panic, here are some reasons to consider unloading a stock: 

1) You don’t know or understand the company.  When you have shares in a business, legally and properly you are a fractional owner.  This suggest you should have a good sense of the company’s business model and its profitability.  So, if the stock declines, it might be due to the market’s reaction, but it could also be due to deteriorating fundamentals.  In any event, if its due to declining fundamentals, consider selling. 

2) You don’t understand the market.  If you find that you’re scratching your head over the movements of the markets, consider investing in other assets.  Its entirely possible to become wealthy by starting a business, investing in bonds or owning a lot of real estate.  If you don’t understand the stock market, you are entirely justified in selling your stock. 

3) If you need the money.  Stock prices can be notoriously volatile in the short term.  If you need money in the next few months and have decided that selling stock is a good way to get the funds,  by all means unload your shares and move them into an money market account. 

4) You can do better elsewhere.  If you are on top of your investments and believe, based on your analysis of your holding and economic conditions, that you can get a better return in a different company or type of asset, sell your shares.  This is controversial because its market timing.  Many people argue that one should not try to time the market, or should remain diversified by investing in mutual funds and ETFs.  This is sound advice.  However, if you want to give yourself the maximum opportunity to get wealthy, you’ll need to have a degree of focus that mutual funds and ETFs don’t really provide – and you’ll have to actively manage your stocks – at least a little bit.  So, if you believe you can do better elsewhere, hit the sell button.

Thanks,

James

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