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Author Archives: Team Dinks

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How Often Should You Review Your Investments?

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Hi All,

Welcome to a new week!

Today’s posting is on how often one should review ones’ personal finance situation.

The answer is: there aren’t really any set rules. But, here are some thoughts.

1) It makes sense to review when economic conditions change drastically. For example, during last year’s stock market troubles, it would have been sensible to review any mutual funds, ETFs or individual stocks you held to determine if they were materially adversely affected by the downturn.

Similarly, if you are holding bonds, you might consider keeping an eye on the yield curve. The yield curve is basically a graph showing the amount of interest paid (yield) of bonds of the same quality over time (see the graph below). When the curve gets inverted (e.g. if long term rates are lower) then that’s a signal that you might want to think about reevaluating any long term bond holdings you have. Some people also think the inverted yield curve is a signal for upcoming economic recessions.


2) If your personal situation changes drastically you might reevaluate. For example, if you lose your job, you could to think about moving more of your assets into cash. Another thing you should start concentrating on is living frugally and saving money on anything you can. Or, if you are having children you might think about reallocating more funds to income producing assets. If one member of your family leaves the labor force to take care of the children, you’ll need extra money. Basically, when your life circumstances change, review your financial picture.

3) Quarterly review. If you want a more hands on approach to your bucks, consider reviewing your net worth quarterly. This will give you a chance to tally everything up to see if your goals are being addressed. By reviewing your net worth, you’ll also get a chance to investigate your overall wealth picture. This is key because you’ll see what investments aren’t working vs. what is making you money. Doing this quarterly is a good idea because you won’t get overwhelmed with keeping the books, and you rectify any problems in a timely manner. You want to make sure you are building wealth as much as possible, but you don’t want to spend hour and hours on this every week.

Quickly summarized, consider reviewing your financial situation when:

1) The economy changes drastically.
2) You experience significant personal change.
3) If you want more oversight, consider a quarterly review.

Happy Investing!

Best,

James

August Net Worth: Up 14% from April

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Hi All,

Finally, some good personal finance news! This morning we sat down added up our net worth. In a nutshell, we’ve increased our bottom line from $313,000 to $358,000. This is a growth of 14% in three months. We are glad we have been able to build our wealth as we have!

This is exciting news! Its especially gratifying after last years stock market and real estate declines. It also means that we’ve started to make up for some of the lost ground. Since we are focusing on our goal of achieving $4,000,000 in net worth by retirement, this is welcome progress!

Okay, so what caused the gain?

In a word: stocks.

All of our stock holdings are up – nearly 57% of our networth is in stocks. US equity markets have been on a tear since last year, which has impacted the prices of our mutual funds and individual securities. No complaints there.

Alternative assets. We’ve continued to buy savings bonds, bits of gold and silver. This has contributed somewhat to the bottom line, but nowhere near as much as stocks.

Real estate. Real estate prices are flat locally in DC. We’ve continued to chip away at the mortgage on our apartment, but flattening prices mean the bottom line hasn’t really been driven by real estate prices.

Blogging. Blogging has become a side business for us – there is a whole commercial and trade aspects that goes on behind the scenes. To make a long story short, the $600 plus bucks a month of extra blogging money helps to increase the amount of cash available for investing.

Here is the nitty gritty, by category.

Bonds and Asset Allocation

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Hi All,

Earlier this week we talked about asset allocation and risk.

According to asset allocation theory, the greater the mix of investments you have, the less risk you run. One way a lot of people reduce their portfolio risk is by adding bonds to their investment holdings.

Proponents of asset allocation argue that its not simply enough to buy a couple of random bonds and call it good. One should to split ones bond holdings between securities with different maturity periods. Specifically, bonds should include short, intermediate and long term maturity periods. The reason for this is that by breaking up your allocation you’ll be covered if economic conditions or bond prices change.

Since the median American family has a net worth of something like $120,000 and about 4% of this is bonds, you probably don’t have a whole lot of money to directly invest in a diversified portfolio of fixed income assets. So, you’ll probably be interested in getting into some diversified bonds funds to spread your holding periods around.

Here are some good places to think about starting:

For short term bonds:

Vanguard Short-Term Tax-Exempt Fund Investor Shares (VWSTX)
Vanguard Short-Term Treasury Fund Investor Shares (VFISX)

For intermediate term bonds:

American Century Ginnie Mae Inv (BGNMX)
Dodge and Cox Income Fund (DODIX)

For long term bonds:

Vanguard Long-Term Tax-Exempt Fund Investor Shares (VWLTX)
PIMCO High Yield (PHDAX)

Since most of these have minimum investment amounts of around $3,000, you may be wondering which type of bond fund to buy if you can’t afford to buy more than one. When push comes to shove, short term bond funds have better protection against interest rate fluctuations. They also work well as a spot to stash your money that gives you a higher interest rate than a money market fund. If you don’t have a lot of money, the extra liquidity of the short term fund might help if you need fast cash. Bonds can help you retain your wealth while at the same time building your wealth.

Regarding the quality of these products, Vanguard and Dodge and Cox are generally well regarded. PIMCO is one of the largest fund companies around, but we haven’t owned their products and can’t vouch for them. PIMCO’s high yield fund is also more expensive than Vanguard’s products. Expenses aside, it does make good sense to spread your investments around. Hopefully this will help get your started.

Picking up the Tab: Who Pays?

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So we’ve all likely had experience around picking up the tab at restaurants. This can particularly be a bit touchy on first dates or at the beginning of relationships.

Everyone has different opinions, but this is my take on the matter.

I’m traditionalist in thinking that it is appropriate for the guy to pay on the first date. That would hold unless the woman asked the man out on the date, in which case it would be appropriate for the woman to offer and the man to accept.

I believe that the best way to deal with the tab is to take turns rather than splitting it. This makes the entire relationship more generous and less stingy. Not to mention less awkward.

So, how is it that you offer to pay the tab?

Gentlemen, the easiest way to do so, is to simply take the check and pay for it. If the woman protests, then say, don’t worry, I’ve got it. Ladies, this is when you should say thank you. If there isn’t an appropriate time to say thank you while paying, then do so as you leave the restaurant.

If there is protest from the other person, the next best thing to say is, I’ve got it this time, if you insist, it can be your treat next time. This both shows class in paying for the first date, but also shows that you’d like to go out another time. Plus, you automatically set up the system of trading times to pay.

WHAT NOT TO DO:

So tonight I was actually out with some intern types in DC, when one asked for our female advice. He was getting together with a high school crush that he hadn’t seen since. He was texting with her to set things up and wanted to know how to broach the subject of paying. I gave him some of the advice above.

He was originally going to write back something like, you pick the place, don’t worry, I’m paying and I don’t expect anything in return.

Guys, never, ever, use that as a line. It is guaranteed to fall flat on the floor.

If any of our readers have tips on what works or doesn’t, or opinions who should pay, we’d love to hear.

Happy Dating,

Miel

Wealth On Autopilot & Internet Notables

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Hi All,

Its Thursday. I’ve mostly been thinking about criminological theory for the past three days, so our wealth building has pretty much been on autopilot. Here are some brief highlights of what we’ve been doing to improve the bottom line:

1) Purchased an additional blog. We’ve seen strong revenue and traffic growth here at the DINKs, so we’re looking to get some more real estate. We’ll probably follow up on this after the end of the year. The site is debtfreelivingblog.com. Its crap now but we can probably develop it into something good and build some wealth through it.

2) Continued to buy precious metals and savings bonds. This stuff is like crack, I can’t seem to stop buying savings bonds. Seriously, its becoming like a weird compulsion. I’ve even been raiding our change jar to raise enough money to get the minimum of $25 for a series EE bond.

3) Funded Miel’s schwab account. We’ve been dumping the extra money from our blogging activities and Miel’s salary into her investment account at Schwab. We’ll have about $1,400 when a couple of deposits clear. Any thoughts on what to put into it?

Oh yes, just as an aside, 98% of whats online is utter crapola. However, I wanted to draw your attention to a couple of websites about money that are actually pretty good.

1) You might want to check out Andy Jolls’ http://www.videocreditscore.com/. The website name isn’t all that appealing, but there are a number of very good and very short videos on understanding your credit score. It’s worth a visit if you are shopping for a loan and want to get a handle on your FICO.

2) Check out LivingoffDividends.com. The guy who runs the website is a california business student named Nirav. He’s mad busy and doesn’t have a lot of time to blog, which is a shame because he’s made more than $15,000 this year in passive income. Passive like – he doesn’t actually go to a job and work for it – passive. Its happens because he’s got a strong web presence.

Hope all is well. And don’t forget to do something to improve yourself financially today!

Best,

James

Deadbeats At Prosper.com

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Hi All,

I got this email yesterday. Its from the peer to peer lending company prosper.com. Basically, the company is saying that the number of deadbeats on their website is increasing. I’m posting this as a bit of a consumer advisory.

If you are interested in getting into person to person lending, be aware that prosper is experiencing a high level of defaults. It might not be the best way to go if you don’t have a lot of extra money to lend out. You’ll need to plan accordingly.

——————————————————————————
Dear James,

At Prosper, we strive to make investing as easy, sound, and yes—fun—as possible.

In the past year, we have seen an increase in the number of borrowers that have entered into what we call “Primary Collections,” or accounts that are delinquent 31 – 121 days. We believe that the current economic environment, the worst in decades, is a significant contributing factor.

Regardless, we consider any delinquent payment to be unacceptable.

While the percent of accounts in arrears has declined recently (it appears to have peaked around year-end 2008), Prosper would like you to know that we take every delinquency very seriously. Along with raising the credit requirements of our first-time borrowers we’ve created the Prosper Rating system to better identify and quantify risk for lenders.

Although delinquencies are a part of being a lender, there are steps you can take to reduce the impact of a borrower delinquency such as diversifying your portfolio and adequately pricing for risk. To help, we are starting a series of blog posts covering this subject. You can read the first entry here.

Whether you’re a first-time or experienced investor, we think you’ll find this information useful. Please consider checking it out now.

Sincerely,
Prosper

Should I Separate My Checking and Savings Accounts?

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YES!!!

Its important to separate your checking and savings accounts.

Why?

Two reasons. First, you should be putting your emergency fund into a separate savings or money market account. This is important because you need a safe place to stash your reserves where it won’t get raided to pay for daily expenses.

Second, if you are doing anything entrepreneurial, you’ll need to account for the income and expenses of your business endeavors. Having separate checking and savings accounts is an important facilitator of this processes. The worst thing that can happen when you are trying to make money and build wealth through a side business (or full time business) is not having everything in order if you were to be audited.

Thanks,

James

Possible Fraud in Silver ETFs

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Hi All,

Since we’ve blogged about owning silver before, it’s only responsible that be mentioned.

Evidently there have been accounting anomalies with iShares SLV and London-based ETF Securities (SLVR) exchange traded funds.

These anomalies were identified by an investigative team working with Zerohedge.com. After catching wind that there were possible problems with these funds, Zerohedge obtained the inventory lists of these ETFs and subjected them to a statistical analysis. The results of Zerohedges’ analysis indicated the number of duplicate entries in the inventory lists of these funds was statistically far more than what would expect due to chance alone. Their conclusion is that two factors were possibly operating: fraud or poor bookkeeping. Either way, avoid these funds if you want to create wealth.

In either case, investors in these funds should be forewarned.

Here is the paper. Get it while its hot. Controversial documents like this have a habit of being quickly taken down.

Best,

James

It all Adds Up

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We all know that interest rates are in the tank these days, but it still adds up. We put away our emergency cash of $5,000 about a year ago and I just noticed that we’ve passed the $100 mark for interest earned.

This year on our combined accounts we’ve earned $300, it might not be much, but it beats a traditional 0% checking account and allows us to build wealth faster.

It might not be much, but we’ll take what we can.

Cheers,

Miel

Asset Allocation: Aggressive Vs. Conservative

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Hi All,

Okay. So, this posting is following on the topic of asset allocation. At this point I am assuming that you’ve figured out how much risk you are willing to take and are curious about how you should be allocating your money.

Well, here are some breakdowns of what a reasonable asset allocation is. These numbers should be taken as a starting place. They aren’t optimal for everyone. They’re just a good blueprint that you can have a discussion about.

A) For Aggressive Investors
– These will usually be persons who are in younger, have good careers and are living within their means.

Fixed Income: 0 to 15%
Equities: 60 to 80%
Alternatives: 15 to 35%

B) For Conservative Investors
– Conservative investors are often seniors, persons who have limited sources of income or are in poor health. It also includes persons who don’t like or who can’t afford a lot of portfolio risk.

Fixed Income: 35 to 55%
Equities: 20 to 40%
Alternatives: 15 to 35%

C) For Moderate Investors
– Moderate investors are typically persons who are neither conservative nor agressive investors. Usually moderate investors are persons with a new family or those in young middle age (e.g. persons in their late 30s to late 40s).

Fixed Income: 15 to 35%
Equities: 40 to 60%
Alternatives: 15 to 35%

For more on asset allocation consider checking the Wikipedia entry. Its got a discussion of relevant scientific research on this topic. This is important as a lot of popular literature on asset allocation tends to be somewhat muddled.

Best,

James

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