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Monthly Archives: May 2009

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Buying Antique & Jewelry Repairs

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Today we have lessons about jewelry purchases. How where you buy can be as important as what you buy. Read on for a tale of a wedding ring.

So back when we got married, nearly three years ago, we debated about what type of rings to buy; particularly for me, as James was pretty easy going in a standard band. I love art deco jewelry, so we played around with trying to find something that was antique.

For us this solved several things, in that antique pieces have the style I love plus often the affordability as well. Some might say that they are less conflict ridden as well, but given colonialist practices I wouldn’t go so far as to believe that.

Buying just about anything is cheaper in Oregon than it is in Washington, DC. Plus there is no sales tax. It’s a great way to save money on purchases. We were headed back to Oregon just two weeks before our wedding, so we did a fair bit of research on this end, not finding anything we liked. We found one antique place in Portland and then had a back up plan of a couple of rings that I liked at a jeweler who could get anything ordered or customized within the short time frame, in case we didn’t find something antique that we liked.

So off we went to Oregon to buy rings and get married!

We went to Gilt Jewelry to see what we could find. We found a wonderful piece that we both liked a lot, and at a reasonable price. I’d have to find the receipts for sure, but I believe that it was for sale for about $1,700 and the appraisal said that it was worth $3k. Platinum art deco with nearly a karat center stone and more than a karat combined weight with the baguette diamonds. We fell in love with it and bought it.
Just after the official honeymoon was over, one month after our wedding, we discovered one morning at brunch that my side diamond had fallen out. It turned out that the ring had been repaired faultily at one point, with yellow gold on a platinum setting that you could see ever so slightly if you looked up close.

We tried to look to insurance, but apparently they had somehow messed up our paperwork and the ring wasn’t covered.

So I called Gilt, just to let them know and complain a bit. In the end they said to just send the ring back and they would fix it at no charge.

Now, nearly three years later, I was back in Portland after the Congo and happened to have my ring checked. They noticed several cracks in the platinum band that I had noticed but ignored previously after the initial issues with the ring. But, they said that if it wasn’t repaired it would eventually fall apart.

Since I was in town, I went back to Gilt to see what they could do. In the end they recast the entire ring in platinum at no charge to me. They were extremely professional and friendly about it all.

Now it is even more gorgeous than it was to begin with!

I’d have to say that this is a lesson for us in many ways. First, is to pay attention to the warranties and repair policies for any jewelry you might purchase, including new and antique pieces. You don’t want to lose the value and wealth that the jewelry represents. Second, don’t be shy to come back, even some time later.

In the end the shop has gained my utmost respect and appreciation. I will recommend the place to friends and family without hesitation.

Happy Memorial!

Miel

DINKs 5+ Year Goals

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So we started thinking this morning of what we wanted our long term goals to be. After discussing for a bit, we decided to go back to our five years goals that were created about four years ago. It has been awhile since we had looked at this, and clearly things had changed quite a bit.

This reminded us right off that bat that we should look at our long term goals more often than we have been. I think the main factor that made it easier to look in the short term has been the unknown about the potential of having kids. Now that we are a bit more certain that we will consider having them in a couple of years that makes things more definitive.

Another thing that we learned is that last time around, while we were good at stating general goals, but we didn’t make them very definable. Plus, as our plans had changed, we had reached all of the earlier goals and the later goals had changed course.

For example, we had earlier been interested in saving for a round the world trip and then moving back to Portland, Oregon. With the economy and our careers where they are it looks like we’ll be staying in DC for longer than originally anticipated.

So the process for making our goals went something like this: we started out with our goals for 2009, plugged in the basics of what we are saving already, estimated when James would finish his Ph.D., considered what we wanted our various larger goals to be, and then filled it in according to a five and a half year time line.

The 5+ timeline comes from being so close in the fifth year to reaching our first million that we wanted to stretch it out a bit to see it on paper.

An interesting thing to note is that if we had used the same process detailed above, the last time we set our longer term goals, we would have well and truly blown our goals out of the water. Even having largely rely on one income we’ve managed to save considerably more than we would have imagined four years ago. So with that in mind we are hoping to surprise ourselves.

Major Goals
1) James finish Ph.D.
2) Save for house upgrade (2 bedroom +)
3) Save for kid fund
4) Save for another investment property
5) Reach $1,000,000 net worth by 40

Here are the details for our 5 year timeline:
2009
1) Pay off Miel Student Loans – $39k
2) Max out 401(k) $15,500 – Miel
3) Miel matching retirement – $6,375
4) Max out 2008 & 2009 IRAs – $5k each ($20k)
5) $17k towards investments ($5k stocks, $7k municipal bonds, $5k stocks)
6) $2,500 pay down towards residential
7) $360,000 target net worth end of 2009

2010
1) James Graduate & Get a Job – October 1st 2010
2) Max out 401(k) $15,500 – Miel
3) Miel matching retirement – $6,500
4) Max out 2010 IRAs – $5k each ($10k)
5) Pay off James Student Loans – $10k
6) $20k toward strategic savings – housing upgrade savings
7) $5,000 pay down towards residential
8) $427,000 target net worth end of 2010

2011
1) Max out 401(k) $15,500 – Miel
2) Max out 401(k) $15,500 – James
3) Miel matching retirement – $6,500
4) James matching retirement – $6,000
5) Max out 2010 IRAs – $5k each ($10k)
6) James student loans – $10k
7) $5,500 pay down towards residential
8) $20k toward strategic savings – housing upgrade savings
9) Save James Salary ($75k gross – $25k after 401k & s loans) – housing upgrade savings
10) $540,000 target net worth end of 2011

2012
1) Max out 401(k) $15,500 – Miel
2) Max out 401(k) $15,500 – James
3) Miel matching retirement – $6,500
4) James matching retirement – $6,000
5) Max out 2010 IRAs – $5k each ($10k)
6) $6,500 pay down towards residential
7) $20k toward housing upgrade
8) Save James Salary ($75k gross – $35k after 401k)
a. $20k towards kid fund
b. $15k towards investment property
9) $655,000 target net worth 2012

2013
1) Max out 401(k) $15,500 – Miel
2) Max out 401(k) $15,500 – James
3) Miel matching retirement – $6,500
4) James matching retirement – $6,000
5) Max out 2010 IRAs – $5k each ($10k)
6) $7,500 pay down towards residential
7) $30k towards investment property
8) $746,000 target net worth 2013

2014
1) Max out 401(k) $15,500 – Miel
2) Max out 401(k) $15,500 – James
3) Miel matching retirement – $6,500
4) James matching retirement – $6,000
5) Max out 2010 IRAs – $5k each ($10k)
6) $8,500 pay down towards residential
7) $30k towards strategic goal
8) $838,000 target net worth

2015
1) Max out 401(k) $15,500 – Miel
2) Max out 401(k) $15,500 – James
3) Miel matching retirement – $6,500
4) James matching retirement – $6,000
5) Max out 2010 IRAs – $5k each ($10k)
6) $8,500 pay down towards residential
7) $30k towards strategic goal
8) $930,000 target net worth

2016
1) Max out 401(k) $15,500 – Miel
2) Max out 401(k) $15,500 – James
3) Miel matching retirement – $6,500
4) James matching retirement – $6,000
5) Max out 2010 IRAs – $5k each ($10k)
6) $8,500 pay down towards residential
7) $30k towards strategic goal
8) $1,022,000 target net worth

Timeline
1) James finishes Ph.D. October 1st 2010 (ideally this will be a bit earlier but it gives for wiggle room)
2) 2012 saved for house upgrade and kid fund
3) 2013 move and have kid
4) 2013 saved for and bought investment property
5) 2014 continue to stretch ourselves and reach our goals
6) 2015 continue to stretch ourselves and reach our goals
7) 2016 reach the $1,000,000 net worth mark

Assumption
1) Assumes investment returns to keep up with inflation, but doesn’t calculate potential growth
2) Assumes we’d still be able to save what we are annually now
3) Assumes that we would be able to pocket most of James’ salary for the first two years
4) Assumes that there would be a large drop in savings after an upgrade in housing and having a kid
5) Conservative estimates of James’ salary
6) Doesn’t include salary increases

Given these assumption we think that these estimates are actually quite reasonable and achievable, if not even on the low side. Knowing our past history of wanting to push the envelop in terms of challenging ourselves, we wouldn’t be surprised to surpass these.

This would particularly happen if James’ salary was higher than anticipated or if there were any real growth in our portfolio. Either way we should be able to make the million dollar mark before Miel reaches 40, and with any luck, before James is 40 as well. As long as we concentrate on building our wealth, we should be fine.

We’ll continue to assess this and mark down as we’ve managed to achieve various indicators in our goals.

Happy Savings,

Miel&James

Citizens National Bank, R.I.P.

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Well, it looks like its a twofer Friday. Yet another bank has failed. This time, the FDIC indicates that Citizens National Bank in Illinois has gone under and has been taken over by Morton Community Bank.

I won’t bother to post the press release. If you want the details, you can find them here.
Best,
James

Strategic Capital Bank, R.I.P.

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Okay folks, another bank has bit the dust. This time its in Illinois. – See the press release below.

We’ve been getting these releases for a while. I’ve noticed that the FDIC tends to send them out on Friday afternoons. I think they are trying to minimize the impact of the bank failures on the news cycle. This is probably a good idea, as there is already enough bad news these days.

——————————————————————————————

Press Release

Midland States Bank, Effingham, Illinois, Assumes All of the Deposits of Strategic Capital Bank, Champaign , Illinois

FOR IMMEDIATE RELEASE
May 22. 2009
Media Contact:
David Barr (202) 898-6992
Cell: (703) 622-4790
E-mail: dbarr@fdic.gov

Strategic Capital Bank, Champaign, Illinois, was closed today by the Illinois Department of Financial and Professional Regulation, Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Midland States Bank, Effingham, Illinois, to assume all of the deposits of Strategic Capital Bank.

Due to the Memorial Day holiday weekend, the office of Strategic Capital Bank will reopen on Tuesday, May 26, 2009, as a branch of Midland States Bank. Depositors of Strategic Capital Bank will automatically become depositors of Midland States Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until Midland States Bank can fully integrate the deposit records of Strategic Capital Bank.

Over the weekend, depositors of Strategic Capital Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of May 13, 2009, Strategic Capital Bank had total assets of $537 million and total deposits of approximately $471 million. In addition to assuming all of the deposits of the failed bank, Midland States Bank agreed to purchase approximately $536 million of assets. The FDIC will retain the remaining assets for later disposition.

Cramer Beats the S&P 500?

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Hi All,

Since you read personal finance blogs you probably watch Jim Cramer’s Mad Money.

Well, a couple of finance professors at Northeastern University sat down and analyzed Cramer’s picks. They concluded that acting on Cramer’s recommendations yielded an over 12% return between 2005 and 2007. This beat the S&P 500’s annualized 7.35% and the Russel 2000’s growth and value index annualized returns of 8.76% and 9.39%, respectively.

The story is all over the media and will undoubtedly increase Cramer’s audience and influence.

However, I wouldn’t accept the Northeastern University analysis without a big grain of salt. In 2007 Kramerwatch.org compared Cramer’s picks to a random coin flip algorithm, called “Leonard the Wonder Money”. They found that Cramer and the Monkey did about the same (1). Also, more damaging, Cramer was wrong about the disastrous bank decline last year. He is on record as having recommended both Wachovia and Bear Sterns before those institutions collapsed (1). In short, Cramer’s record has been spotty, despite what the latest analysis says. You might want to think twice about putting your faith in him when wealth building is your goal.

Click here for the Northeastern University paper.

Happy Friday.

James

Pay Off Car Loan With HELOC?

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Hi All,

So I got a ride home with a friend the other day. Since he knew that I’m a bit of a finance buff, we started talking about his car loan – and ways to pay it off quickly.

Well, one way to pay off a car loan is by transferring it to a Home Equity Line of Credit (HELOC). There are some advantages and disadvantages of doing this.

1) HELOCs are cheaper. Right now the average national rate on a HELOC is 5.74%, where as the average rate on a 48 month car loan is 7.95%. So, all things being equal, you’d save about 2% on your interest costs at current rates.

2) HELOCs have a bit more flexibility. Car loans usually have terms of three to seven years. On the other hand, HELOCs allow you to pay back the terms of the loan over 10 to 15 years. This means that you’d have more flexibility with your payments if you went with a HELOC.

3) HELOCs are tax deductible. If you itemize on your taxes, you can deduct the interest you pay on the HELOC. On the other hand, car loans generally are not deductible. Of course, this is only going to help if you itemize. If you take the standard deduction, then it won’t matter.

Some downsides:

1) Debt. Taking on more debt is always a problem. Its depressing and it cuts into your cash flow. Generally speaking it probably makes the most sense to aggressively pay off the expensive car debt rather than applying for a HELOC to refinance it, even if the HELOC is less expensive and more flexible.

2) Decreased home equity. Real estate prices are declining, and adding the car loan to your line of credit can decrease the amount of equity available in your home. This could be a problem if you need to sell your house unexpectedly. You could become “underwater” on your mortgage if the home value decreases to the point that you owe more on your first mortgage and your HELOC than your property is worth.

Live frugally and build wealth is the best ways to pay down debt! Happy debt reduction!

Best,

James

Letter from a Dodge Dealer

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Taken from American Thinker. The Chrysler Fallout is having real effects.

My name is George C. Joseph. I am the sole owner of Sunshine Dodge-Isuzu, a family owned and operated business in Melbourne, Florida. My family bought and paid for this automobile franchise 35 years ago in 1974. I am the second generation to manage this business.

We currently employ 50+ people and before the economic slowdown we employed over 70 local people. We are active in the community and the local chamber of commerce. We deal with several dozen local vendors on a day to day basis and many more during a month. All depend on our business for part of their livelihood. We are financially strong with great respect in the market place and community. We have strong local presence and stability.

I work every day the store is open, nine to ten hours a day. I know most of our customers and all our employees. Sunshine Dodge is my life.

On Thursday, May 14, 2009 I was notified that my Dodge franchise, that we purchased, will be taken away from my family on June 9, 2009 without compensation and given to another dealer at no cost to them. My new vehicle inventory consists of 125 vehicles with a financed balance of 3 million dollars. This inventory becomes impossible to sell with no factory incentives beyond June 9, 2009. Without the Dodge franchise we can no longer sell a new Dodge as “new,” nor will we be able to do any warranty service work. Additionally, my Dodge parts inventory, (approximately $300,000.) is virtually worthless without the ability to perform warranty service. There is no offer from Chrysler to buy back the vehicles or parts inventory.

Our facility was recently totally renovated at Chrysler’s insistence, incurring a multi-million dollar debt in the form of a mortgage at Sun Trust Bank.

HOW IN THE UNITED STATES OF AMERICA CAN THIS HAPPEN?

THIS IS A PRIVATE BUSINESS NOT A GOVERNMENT ENTITY

This is beyond imagination! My business is being stolen from me through NO FAULT OF OUR OWN. We did NOTHING wrong.

This atrocity will most likely force my family into bankruptcy. This will also cause our 50+ employees to be unemployed. How will they provide for their families? This is a total economic disaster.

HOW CAN THIS HAPPEN IN A FREE MARKET ECONOMY IN THE UNITED STATES OF AMERICA?

I beseech your help, and look forward to your reply. Thank you.

Sincerely,

George C. Joseph
President & Owner
Sunshine Dodge-Isuzu

DINKS Buy Inflation Linked Bonds

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Hi All,

Just a quick update. Today I pulled the trigger and bought about $3,300 of Vanguards Inflation Protected Securities Fund (VIPSX). Essentially VIPSX is Vanguard’s mutual fund that invests in inflation protected bonds. The fund holds about 20 billion in US treasury and agency products. Of these, the fund’s policy is to maintain 80% in inflation linked issues.

Its very conservative. Nearly 98% of the fund is invested in Treasury and US federal agency bonds at an average yield of 2.1%.

So, why would someone in their mid thirties invest in such an ultra-conservative fund? According to standard models, 30 somethings should be taking more risk. So why something so conservative. Well, several reasons:

1) Possible Future Inflation: It’s foolish to make predictions about the future, but persons interested in building wealth are at least obligated to try. Inflation is generally caused by the supply of money increasing faster than economic growth rates. All forecasts say that job losses will continue until the end of the year (Fed Res). These same forecasts also say that next year will likely be sluggish. Similarly, interest rates will probably remain low to stimulate the economy. So, this looks like a good combination for at least some inflation in the future. With this cash I’m not necesarily trying to build wealth as much as preserve it.

Also, the notion that some modest inflation is a good way out for the Federal deficit is coming into intellectual vogue (Bloomberg). That kind of thinking makes me want to run for the hills.

2) Diversification: Most of our money is in stocks and real estate (here). If there is anything the last nine months should have taught investors – its the importance of diversity. So, some bond holdings would help to spread things around a bit.

3) Capital protection: There has been a massive flight to less risky assets over the past few months, especially among high net worth investors (CG). Since VIPSX is invested in treasury bonds, its significantly less risky than other types of funds.

In contrast, the overall S&P 500 lost 40% last year. Since economics tends to run in cycles, it seems that the chances of losing money this year in the overall market are good. Who wants to run that kind of risk?

Good luck investing all. As always, please don’t hesitate to leave a comment or drop us a note!

-James

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