Well. I went ahead and did it again. Despite the rate on US savings bonds being so low, I raided the change jar and cleaned out the corners of wallet and picked up another $25.00 Series EE savings bond.
Seriously, from a financial standpoint, buying these bonds makes NO sense. Their rate is under 1%. So on an investment of $25, the return is pennies a year. Plus, the Feds seem hell bent on racking up the national debt beyond any reasonable expectation of repayment, so there is a good chance that inflation will decimate the return on this asset class. It’s not a good way to build wealth.
That said, I can’t get enough of them. I LOVE buying savings bonds. Series I, Series EE, small amounts of bonds, big amounts of bonds, I just can’t get enough. It’s an emotional thing. The prospect of having something in my mail other than bills is great, as is the fact that you get something physical to represent your investment. It’s tangible and satisfying. I love watching the paper stack of bonds pile up. The whole process makes me happy.
In honor of the 60s when savings bonds used to be cool, here is video starring Elizabeth Montgomery – she was a 60s sexpot who was in the popular tv show Bewitched. For all the guys out there, you’ll be able to appreciate the themes the promoters were going for…Christmas, freedom, investing and hotness!!!
Are you a frugal moogle? Do you want to show the world your frugal stuff? We thought this looked like a fun opportunity to share with our readers. If you become a big reality TV star, we’d love a shout out to us DINKs. :-)
Los Angeles, CA (Sept. 9, 2009) – Are you the queen of the coupons? Are you obsessed with finding the best deal? Do you get a rush from getting a better deal than your neighbor? Are you in competition with your best friend and tend to brag about your cost cutting talents?
The Grocery Game and a major Los Angeles based television production company are seeking bargain hunters with big personalities for a new TV show. Casting producers are looking for people who are obsessed with living and entertaining well, but on the most frugal budget possible. We are looking for entertaining people with magnetic personalities who viewers will love to watch and, most of all, are driven by hunting out the best bargains from TheGroceryGame.com and TeriToday.com.
The Grocery Game has been asked to help find those people who are willing to share their compulsion of hunting down the best deal and for entertaining on a dime.
If you or someone you know would like to submit for this unscripted TV show please email the following info to BryanStinsonCasting@gmail.com!
Name: Two Pictures: City Located Phone: Email: Describe your family: Besides TheGroceryGame.com or Teritoday.com, list any organizations, groups, memberships, or websites that you use for your bargain hunting.
Please submit brief bio on how far you go to get the best deals. Also tell us how competitive you are and if any of your friends share your same passion!
Please do not make any inquires regarding the above to Customer Service at TheGroceryGame.com or TeriToday.com.
How do couples split up the task of managing finances? James and Miel recently tweeted about this topic and it got me thinking. In many ways, managing your money is no different than any other task, whether it be mowing the lawn or doing the dishes; it’s just another responsibility that needs to be split up between the members of the family. But at the same time, there is an element of doing the family finances that distinguishes it from the other household tasks.
With my wife and I, managing the finances is a task that falls on both of us, but in different ways. I am the one who does most of the “work” – i.e. the one who likes generating fancy reports with Quicken – but my wife is involved at every step. Most of my investments outside of our 401(k)s were made before we were engaged and hadn’t integrated our finances yet, so I made those decisions independently; but when it comes to budgeting and planning for the future, it’s an ongoing conversation between the two of us.
When I sat down to analyze how we as a married couple discussed financial matters, it really dawned on me that the dynamic that we’ve created is a reflection of our individual personalities. My wife is more emotional, whereas I am more analytical. But at the same time, my wife likes hard deadlines (when are we going to do this, what sort of timeline are we looking at, etc…) and I’m more of a let’s-cross-that-bridge-when-we-get-there type of a guy.
I prepare for the future (i.e. automatic deposits into savings and investment accounts, weekly budget monitoring, etc…) without specifically planning for the future (i.e. we’ll have this much in this account by this time, allowing us to do this, etc…).
Conversely, my wife is less concerned about how the sausage is made so to speak, and more focused on where our current plan of action is taking us. This has lead to a push/pull relationship when it comes to discussing finances, as we both approach this issue from two almost opposite sides.
However, the more I think about it, the more I like how our personalities shape our discussions on money. She forces me to keep tangible long term goals in mind and I in turn force her to consider the realities of our daily financial situation, and give her more perspective on the steps we need to take to reach our personal and financial goals. Our skills and personality complement each other in a way that I personally feel has benefited us greatly.
A lot of financial experts are more than willing to tell you how you as a couple should run your household finances, telling you what you should and shouldn’t do. And that’s all fine and great, and there are a lot of excellent suggestions out there that should be utilized that will allow you to build your wealth together. But at the end of the day, the two of you, as a couple, need to do what works best for you, whatever the system may be.
The only suggestion that I would stress would be to communicate with your partner; let them know your goals and get to know theirs. When my wife and I started talking about our approaches to money, it really allowed us to work more efficiently towards our goals, and hopefully has put us in a better position to achieve them. We still have work to do; I still need to come up with more tangible goals (and timelines for those goals) and my wife needs to work to understand the day to day a little bit better, but hopefully as our marriage matures we’ll improve in our respective areas.
Readers: How do you approach finances with your spouse/significant other?
Miel called buying Nokia! In a world continually shrinking by the power of technology, mobile phones are arguably the front runner for driving change and offer investors a great chance to create wealth.
The Economist this week (see magazine I’m holding) has dedicated a special report to The Power of Mobile Money, about telecoms in emerging markets.
My first international trip was in 1993 as an exchange student to Finland for a year (explaining my love for the homeland of Nokia). At the time Finland had the highest usage of mobile phones in the world, and America would have been seen as an emerging market for cell phone usage.
In the early 90s, Americans like myself were still asking, what would I do with a cell phone anyway? Now what was once seen as a luxury item has now become a tool of global development. Along with that, the prices have dropped, from a basic model going for about $250 in 1997 to $20 today. Developing countries were also early adopters of text messaging, picking up the habit well before Americans took on the craze.
As much as mobile phones are now normative and “land lines” are virtually non-existent in many parts of the world – that demand just keeps on booming. For example, in the last year alone, India has seen a 52% increase from the previous year, and 32% in Africa.
Most common in the developing world, in addition to widespread use of mobile phone users overall, is the use of village mobile phone operators. This basically means that one, or several, people will purchase mobile phones and credit and then rent these out to users as was commonly the case with landlines previously. When I was a Peace Corps Volunteer in Ghana I had to travel minimum of an hour to reach a phone and then call from a similar phone shop, but with landlines back then.
Mobile banking (though not technically considered banking for regulatory reasons) is also on the rise. Since this is a new phenomenon for many people in developed nations, I’ll give this a bit more of an explanation.
Mobile banking works like this. Say you want to send money from the city to your family back in the country. You could spend time and money to go deliver them money, or you could give the money to a bus driver or the like, but that has some inherent risks. Now one can by a card with credit, call the local village phone operator or shopkeeper, read out the code on the card. The credit will be applied to the “bankers’ phone and they can then distribute the funds to your family.
According to forecasts, mobile-broadband subscribers will out pace and steeply overtake the more traditional use of fixed-broadband users by 2011.
Now mobile phones are simply a way of the world, and most particularly in the developing world. Given Nokia’s dominance in this market, I figured this would be a got place to put a bit of my money.
A recent survey conducted by CareerBuilder.com seems to indicate that 61% of American workers are living paycheck to paycheck, a figured that has increased each of the last three years. Granted that a survey done by CareerBuilder is not on par with studies done by a government institution such as the Bureau of Labor Statistics, but all the same, that is a staggering figure (at least I was staggered).
Even more crazy is the results showing that nearly a third of people making over $100,000 a year live paycheck to paycheck. I didn’t see anything that indicated that these values were adjusted for single vs dual income homes, or adults with dependents, or adjusted for cost of living, but still.
A troubling result of this trend indicated by CareerBuilder is the number of people either cutting back on 401(k) contributions, or even taking money out of their accounts. Obviously this is not the ideal situation, but we all know people who have done this. The tax implications are huge, plus the fact that you’re losing out on all future profits from the investments that you’re cashing out make it a potentially disastrous decision. It feels a little bit like robbing Peter to pay Paul. You can catch up, but it isn’t easy. Most likely those gains you would have had are gone and aren’t coming back. But sometimes you have no choice.
The advice given in the article is pretty boilerplate (keep a budget, boost your income, talk to your employer). However, that doesn’t mean that it’s worthless. Managing finances is an on-going task, and sometimes it’s useful to be reminded of what we need to do to stay on track.
I’ve been very blessed in my life to not have to live paycheck to paycheck. Since moving out on my own after college, there has been a few close calls however. I moved out here with just enough money to cover my security deposits and a couple bills. I wasn’t making much at my first job, but it wasn’t a big deal. Until the fuel pump on my car broke. All of a sudden I have one massive bill that needs to be paid off and I’m barely a month into my first job out of college. My finances were razor thin for a couple months as I worked to build my bank account back to a comfortable level. And although I did bounce one check (very embarrassing) it wasn’t long before I was able to get back on my feet and make everything ok (and I’m very fortunate to have people in my life that I could have turned to if I wasn’t able to turn things around).
I can’t make a comparison between that situation and those people who live paycheck to paycheck continuously. But for a brief moment, I did understand what it was like to look at a bank statement and see that there’s only $30 bucks in there and it needs to last until the next pay period. The stress was intense for me in just that short period of time; I can’t imagine doing it month after month, stressing over every bill, every paycheck; worried about where the next unexpected bill is going to come from.
So what can be done about it? There are the obvious answers everyone gives: cut down on your expenses, move to a cheaper area, find a better paying job, etc… But sometimes there isn’t anything that can be done to reverse a bad situation like that, especially with the unemployment rating flirting at around 10%. If you have the ability to, though, live frugal and use the savings to build wealth for the even “tougher” times that could come our way.
Readers: Have any of you experienced the paycheck to paycheck life? How did you cope with the stress? What was/is your plan for digging yourself out?
Our posts have been educational recently. This one has more of a practical bent. Here are four things we’re doing to build and create wealth. You can do all of them are relatively painless and can be implemented without a whole lot of time commitment.
1) Selling Blog Links. As you’ve probably gathered by now, this blog is a moneymaking venture for us DINKs. One of the ways we make money blogging is by selling links on this blog to finance related companies who are looking to improve their search rankings. Well, we decided to start selling link on Miel’s travel blog as well. We don’t anticipate much more than 5 or 10 bucks a month, but that’s way better than nothing. Her blog is here. Of course, you need a blog to do this, but you if you are up for it it can be a great money making opportunity. Miel updates hers once per month, so there isn’t a ton of effort put into it.
2) Moved some cash from savings into bonds. We had $500 bucks sitting in a savings account. While savings accounts are great for liquidity and convenience, interest rates are absolutely the pits these days. So, I moved the funds over to our brokerage accounts and bought a batch of General Electric Baby Bonds. These are essentially bonds that have been “cut” to act like preferred stock. The upside is they only cost $25 – hence the term “baby bond”. They also yield 6.68% and being bonds are safer than stocks. If you’re interested, the ticker symbol for these little babies is GEA. Another bonus is they trade like a stock, so they aren’t complicated to buy.
3) Buying stock. Speaking of stock, we’ve set the goal of saving up $4,200 to invest by the end of the year. We have $2,600 hundred banked right now. We are considering taking the positions in the following companies:
1) Centurytel, Inc.
2) Nokia Corp.
3) Exxon Mobil Corp.
4) Ruddick Corp.
Right now we are favoring Ruddick Corporation. They own the popular brand of Harris Teeter grocery stores. The company is profitable, pays a modest dividend (1.78%) and we’ve found their stores to be clean, well stocked and generally offering fresh and high quality food. The downside is Ruddick has a pretty high debt to assets ratio, so we’ll have to do some analysis before we commit to buying.
If you want to get into stocks and don’t have a lot of money, try going here, here and here.
4) Misc. As always we’re still maxing out our 401ks, buying savings bonds and silver bullion! You can purchase these sorts of assets for a minimum of $25. They’re great if you’re broke.
Hope some of this helps. If you are doing anything you feel is particularly helpful in building wealth, please don’t hesitate to drop us a note. I for one, will read them with great interest.
Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body – the producers and consumers themselves.
The topic of different stock classes, subclasses, qualifications and the like is very complicated topic, but it’s good to know the difference between the two basic classes (especially considering many companies offered a preferred stock purchase program as an employment benefit).
There are two main classes of stock out there, common and preferred, each with its own set of benefits and detriments. Most people are familiar with common stock, whereas preferred stock are subject to its own subset of regulations and carries with it its own subset of benefits, rights, and obligations.
Common Stock
Common stock is what most people are referring to when they talk about buying or selling stock. Purchasing a share of common stock affords the holder a share of the ownership of that company, complete with voting rights when the Board of Directors is to be elected and when certain corporate policies are up for a vote.
Readers: Have any of you voted in a corporate election are shareholders? I usually get a few ballots every year that I fill out (most firms have online voting as well). My vote is certainly statistically insignificant, but it’s one of the few rights you have as a voting share owner, and it’s best to exercise that right.
In addition to the value appreciation of the share, common stock holders can also earn money on their investment through dividends, although there are different dividend payout rules for the holders of common stock than there are for the holders of preferred stock, most notably the fact that dividend payments aren’t guaranteed to holders of common stock.
Common stock is considered a more volatile investment vehicle (as compared to bonds, savings accounts and stuffing your cash in a mattress, that is) but it remains one of the most popular, and colloquially when someone tells you that they bought stock, it is common stock that they are most often referring to.
Preferred Stock
Preferred stock is a different animal than common stock, with certain benefits and rights that make it attractive. The terms of the issuance of a share of preferred stock is spelled out in a document called the “Certificate of Designation”. Those terms are negotiated between the corporation and the shareholders and in reality can encompass any sort of right imaginable.
Most Certificate of Designations, however, cover the same basic set of rights. One of those basic rights is the right to preferential payout treatment during liquidation. This means that in the event that a company is forced to liquidate their assets, preferred stock holders have a higher priority of access to those assets than common stock holders.
Another right that is commonly afforded preferred stock holders is the preferential treatment in the payment of dividends. Often those dividend payments are deferred, but any dividend payment not made is set aside and accumulated until the payout is made.
Preferred stock holders usually have no voting rights (unless explicitly agreed upon in the Certificate of Designation) but the other rights that they are afforded offset the loss in voting privileges. Again, the rights associated with a share of preferred stock are negotiable and vary from corporation to corporation.
Differing Benefits
The main point to remember is both give you ownership of a company and give you the opportunity of wealth creation. Although very similar, common stock and preferred stock offer the shareholder a variety of different benefits.
Common stock is mostly used for capital appreciation, dividend payment and company control (the right to vote at shareholder meetings).
Preferred stock can also be used for capital appreciation and dividend payment.
Preferred stock owners are more likely to receive company assets during a bankruptcy than you would be if you own common stock and your dividend payments are guaranteed.
Preferred stocks have a rate of return closer to a corporate bond than common stock (as such, they are less volatile), and are often used as a more conservative, fixed-income investment.
Income earned on preferred stock is taxed at the same rate as income, which can mean higher taxes paid on those preferred stock dividend payments.
Readers: Do any readers hold any preferred stock, and if you do, what are your thoughts?
With the recession a full year underway, how is it that places like DC can remain largely untouched?
The scene here in terms of real estate feels a bit surreal. DC homes for sale are simply off the hook.
Back several months ago we happened upon a couple of open houses one weekend and we were a bit surprised to see that prices really didn’t seem to have gone down, in fact overall they may have gone up. Real estate agents that we chatted with mentioned the multiple bids that were dominating the real estate market in DC. I took some stock in all of this, but I was still largely skeptical.
Now several months later my observations of the real estate market continue to confound me. To speak in practicalities, I’ll give a few examples:
First I have a colleague who is purchasing a first home with her husband and quickly figured out that they had to be ready to pounce, as they were out bid or maneuvered on the first three or four bids they put in on places. By the time they made an offer on the place that they are closing on next week, she wasn’t willing to get too attached to the place in case things didn’t pan out.
My second example is another colleague who is purchasing a first home with her husband and they are looking for a foreclosed place to get something within their range. They have toured many houses in DC and have seen the horrors of everything from what can go badly with inexperienced flipping of houses to foreclosures gone wrong as the tenant leaves a parting gift of flooding an entire floor to show their resentment.
Lastly we have a good friend who is finally ready to buy a place on her own and she still can’t find what she wants within her price range. Thus the search continues in hopes of finding something right out there.
This weekend we went around on open houses to five places (some with multiple listings) in the Dupont area of DC, so all are in a good location. To paint a clear picture of what was seen, here we have the stats:
$450k – 1 bedroom basement apartment (low light, not renovated, bad layout – what is going is on here people?)
$500k – 2 bedroom (this is really a master suite, as the second bedroom couldn’t actually fit a bed into it), completely dark, must enter from an alleyway.
Townhouse renovated into four larger apartments (nicely done in many ways but huge wasted space and odd layouts for with functionality). For two bedrooms, prices ranged between $784k and $848k with condo fees between $336 and $423. This makes the building, quite ugly from the outside, worth $3.1 Million.
Townhouse renovated into four apartments (gorgeous in every way). Prices ranged from $600k for the basement to $1.5 Million for the two level penthouse that was custom made by the owner. This makes the entire townhouse, pictured above, worth over $3.3 Million!
Another was a townhouse broken into three apartments, but sold as a multi-unit building rather than as individual condos. This was by far and away the most reasonable at $1.3 Million for the 3.5 story plus basement. Part of the “bargain” here was that it wasn’t entirely renovated, but still in good shape.
I imagine most readers will read those numbers and wonder if there is something wrong with this picture. We’d certainly have to agree. Looking further at a quick listing search last night we had our suspicions further confirmed that real estate prices are still crazy in this town. It’s tough to find a good deal and save money when trying to buy a house in this area.
One change with the recession is that on the townhouse pictured above. While it went on the market on Wednesday of last week and had all but the basement sold by Thursday, they accepted five offers for each place but did not accept escalation clauses. I think this was really wise and reasonable for the agent, as while there might have been great demand for the units, it would be unrealistic to price things at higher than the already outrageous costs.
So what is happening with DC? There are a couple of things.
1) Unemployment is still relatively low for the country, with many having more safe and secure jobs such as the good ol’ gov.
2) Space is limited – the District simply has finite space when it comes to all of the advantages of living within the diamond.
3) Quality and luxury can also often be the case. Townhouses such as those that we were looking at have longevity and aren’t the same as new build construction. They’ve also been done, like the last example, to impeccable standards. This obviously drives the price further up.
Readers: We’d love to hear how things are in your area. If you have any info on your local markets and how they compare, we would love to hear.
A previously little known financial instrument has made a lot of news lately, as it has become the poster child for those calling on Congress to impose stricter regulations on the kinds of exotic financial structures that contributed to our recent economic collapse. Those financial instruments are of course “derivatives”, a term most people are used to hearing a lot about, but perhaps not something that is well understood by the individual investor.
A derivative is a umbrella term that covers a variety of investment assets. As its name implies, a derivative is a financial structure whose value is dependent on an underlying good or equity. The asset from which the derivative is derived is called the underlying asset.
The most common and basic example of a derivative is a futures contract, where an agreement is made to exchange a commodity at a specified point in time in the future for a market-determined price. A derivative can be based off of anything; from the price of corn to the S&P 500 Index. In addition to futures contracts, common derivative classes are options and swaps.
An option is a contract that allows the holder to buy or sell an asset at a future date. The price at which the sale takes place – referred to as the “strike price” – is set at the time in which the contract is entered. Also set at the time at which the contract is set is the maturity date, a point of time in the future when the contract expires. At any point of time after the contract is initiated but before the maturity date is met, the owner may call in the option, and the transaction contractually must take place.
A swap is a similar maneuver, where two parties agree to exchange cash flows (referred to as “legs”) before a specified maturity date. Again, the swap has a tie-in to an underlying asset. For example, the most common types of swaps are interest rate, currently and commodity swaps. As you can see with both options and swaps, the contracts are tied back in to an underlying asset that determines its value. One of the more controversial derivatives are referred to as complex derivatives, where the derivative is made up of a mixture of options, swaps or futures.
Essentially, derivatives can be thought of as the buying and trading of risk. On one hand, derivatives can be used as a hedging mechanism. In the most common example, a company that drills for oil enters into a futures contract with a company that refines the oil. In this example, both parties are assuming risk and transferring risk. The risk is in the price of oil. Obviously the oil driller wants to sell their oil at the highest price possible, but they are risking the chance the oil prices could drop by the time their product gets to market. Conversely, the oil refiner wants to pay as little as possible for the oil, but they are risking an increase in the price of oil by the time they are able to purchase. By entering in a futures contract that specifies a price at which the oil will sell, each is hedging their risk that the worse case scenario for each will happen.
However, it is clear that one party will benefit, while the other will be hurt (i.e. the market value of the oil will mostly likely be either higher or lower than the price specified in the contract). With that being the case, derivatives are generally considered zero-sum investments, and the benefit and detriment of the contract is equally balanced between each party, and thus the energy sector as a whole (in this example) is not hurt or helped by the end result seen by either party.
On the other hand, derivatives can be considered a speculation mechanism. As is often the case with options, a buyer may enter into a contract betting that the other party is wrong about the direction in which the underlying asset’s value is heading. In those instances, the buyer is assuming a great amount of risk (the option could reach its maturation date without being exercised and become worthless) but if they bet correctly, the payout could be significant. This high risk/high reward structure makes options very enticing to certain individual investors.
But this behavior can hardly be qualified as true investing. It is more like gambling, and should taken very seriously, as the level of risk is high, and the resulting losses can be significant. This fact has prompted Warren Buffet to say the following about derivatives: “derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
Derivatives are very complex investment vehicles, and I’ve only given a very high level overview of them here. A lot of research has been devoted to them; in fact a Nobel Prize was even awarded to an economist whose work focused on how to price derivatives. When I first started investing, I was encouraged to use options (which I never did), as the person advising me had fallen in love with the high potential profits. However, the associated risk is quite significant, and should be understood before partaking in such an investment.
