Archive for June, 2008
Sunday, June 29th, 2008
Real-estate agents have been pushing the virtues of homeownership since homes were invented. Or since real-estate agents were invented, anyway. Paying a mortgage, they insist, is a can’t-miss investment (the tax breaks, the appreciation, the thrill of fixing your own roof!). Renting is for simpletons who don’t like keeping their own money.
But does owning a home really trump renting? With the economy stumbling, house prices falling, and credit tightening, many housing experts are questioning the conventional wisdom. “Over the last decade, it may have been true,” says W. Van Harlow, an economist at the Fidelity Research Institute. “Clearly, there are periods where [the housing market] will dominate. But give this market correction another 18 months, and it may not be true anymore.”
Not so hot. The housing boom produced endless stories of homeowners getting twice what they paid for their homes. But “prices don’t always go up,” says Jay Butler, director of realty studies at Arizona State University. Even a boomtown like Phoenix has seen median rates of appreciation climb only 4.6 percent a year since 1981. According to a Fidelity study published this year, the return on a dollar invested in real estate in 1963 barely beat that of a low-risk treasury bill.
When the housing market slumps—as it has every 10 or 15 years for the past several decades—homeownership becomes little more than renting, from a bank. Without appreciation, buying a $400,000 house—instead of renting the same property for, say, $2,000 a month—can turn into an expensive, potentially money-losing proposition. Assuming home prices come out of their death spiral (prices fell 4.5 percent in the third quarter compared with last year), they would still have to appreciate at 4 percent every year for a decade—even if rents climbed well above the rate of inflation—before a family would save more owning than renting. An $80,000 down payment could be invested instead in a mutual fund earning 8 percent, and housing comes with myriad other expenses, from maintenance to insurance to taxes, none of which build equity. Tax breaks do ease the pain. But with the average family staying in a house only six years, homeownership during a slump (especially in foreclosure pits like Las Vegas and Tampa, where prices have dropped more than 9 percent since last year) can look less and less like the American dream.
Renting, meanwhile, has its virtues. It’s cheaper in the short term, it offers maximum flexibility, and it pushes the headaches of maintenance and taxes onto landlords. It can also be a sound long-term investment. According to Fidelity, if renters save even $300 a month—the difference, say, between their rent and a monthly mortgage payment—that money, invested in stocks growing at only 4 percent, could add up to $114,000 in 20 years. (And that’s on top of earnings on a down payment that never had to be made.) “Over long horizons, if you reinvest the savings,” Harlow says, “you’re probably not going to find that much difference between renting and buying.” Saving hasn’t proved to be the national forte, of course. But with the bloom off the homeownership rose, it may have to be soon.
Posted in Generate income, Informational, Personal debt, education, purchases, success | No Comments »
Monday, June 23rd, 2008
From: http://www.mymoneyblog.com/
I’m always flattered when anyone (online or offline) asks me for investing advice, but at the same time I’m very cautious about giving it out. And it’s not just the usual *I’m not a financial professional* legal concerns, but the fact that it’s hard to give useful advice in a few paragraphs or a 5 minute chat. Over time, I’ve been refining my “amateur, informal financial advice over coffee” speech. My goal is to give specific ideas but to keep it simple. Let me know what you think.
1. Put your money in a Vanguard Target Retirement Fund. These mutual funds are an all-in-one basket of different low-cost index funds. You get some US stocks, some international stocks, and some bonds. The mix is automatically adjusted for you. No, they might not be perfect, but they are pretty darn good and very simple to hold. I have specifically have told my own mother to open an account at Vanguard. I withhold any theory talk about passive investing because this is when most people’s eyes seem to glaze over.
Just buy the fund with the date closest to when you want to start making withdrawals. All lifecycle or dated funds are not made the same. The ones in my 401k stink, and I don’t even like the Fidelity Freedom 20XX funds.
The Vanguard funds do have a $3,000 minimum initial investment. Until you have $3,000, just stick your money in an savings account paying decent interest and with an automatic deposit system. I know it sounds nice to “start investing with $100″ (and here are some ways to do that), but honestly, if you don’t have $3,000, your focus should be more on saving money by spending less/earning rather than investing at this point. There is no need to rush.
2. Read a good investing book
Websites and blogs are great, but it is still very hard to replace a good book. They tend to be professionally edited, better organized, cover all the bases, and are easy to refer back to. I think the following books are great and are definitely worth the $10-$20 cost:
If you’re not convinced (perfectly understandable), first borrow it from the local library and then buy a copy if you like it. Read as much as you can!
3. Hey, no skipping ahead. Please do #2.
My friends ask me for advice. I say to read a book. Months later, most of them (not all) haven’t read any books but still want advice. Yes, I know, this involves effort. (Gasp!) Please, spend a weekend doing something that will dramatically increase your net worth in the future. If you don’t, then at least if you did #1, you’ll be ahead of most investors who pay too much money chasing hot stock tips or pay other people to chase hot stock tips for them.
4. Pay someone to do it for you
If it’s been years and you still haven’t read a darn book and don’t plan to, go to NAPFA.org and find yourself a fee-only financial advisor that you click with. Pay that person to keep you on track. If they are fee-only they are less apt to be biased on what investments they recommend. But remember, the person who will care most about your money is still you.
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Tuesday, June 10th, 2008
Hidden social gems that may change your life forever…
1. The most important of all networking skills is listening. Instead of worrying about what you can talk about, think about what you can ask others to talk about. Simply ask people about themselves and listen respectfully and attentively to the answer. Too many people feel nobody ever listens to them, and if you provide both opportunity and audience you’ll be amazed at how easy the conversation becomes.
People love to talk about themselves, but remember that you are networking for a reason. If you are scouting for business, try to keep the conversation about business. Ask them about their business or their job or their company, and then mentally make notes that can help you decide whether to follow up with them later or not.
2. Small talk can lead to big talk. Sometimes we are so worried about breaking into conversation groups that we miss the first opportunity to meet people: the food table! While you’re in line for breakfast or other refreshments, start a conversation about the food. By the time you both reach the end of the line, you’ll be ready to join the general buzz.
3. Once you are in a group, small talk can also be useful in beginning a useful dialogue. Not sure what topics to introduce? Here’s a great tip: scan the newspaper before you go to the event. Find something intriguing, cute, funny or amazing (not controversial or horrifying) and if there’s a lull in the conversation just bring it up as something you read in the paper that morning. This is a great way to involve others and create a friendly environment. Relationships can blossom easily in such a setting.
4. Remember that networking can be one step in developing clients, but it is NOT a selling situation. There’s nothing worse than having someone back you into a corner at a networking event and try to sell you their services. Don’t be that person. Concentrate on making connections, and follow up later on those that look like good prospects for your services.
5. Please don’t waste your networking opportunities by spending time with people you see every day at work. I know this is tempting because it’s easy — but it’s not networking. The idea is to meet new people.
Most important, go to business or career networking events with an open mind and an intention to enjoy the event and the company. The rest will take care of itself. Happy Networking!
Posted in Informational, Inspirational | No Comments »
Monday, June 9th, 2008
Unemployment spike stirs stimulus talk
Democratic leaders in Congress call for new measures to spur economy and help unemployed.
NEW YORK (CNNMoney.com) — The dismal jobs report on Friday has prompted renewed calls for a second congressional effort to stimulate the economy.
The Labor Department reported that the unemployment rate jumped to 5.5% in May from 5% a month earlier. It was the biggest monthly increase in more than 20 years.
Democratic leaders on Capitol Hill said the report shows that Congress and the Bush administration need to do more to help workers and the unemployed.
“These brutal numbers underscore the wisdom of the Federal Reserve’s refusal to bow to pressure to hike interest rates. But monetary policy alone will not be enough to restore growth to our economy,” said House Financial Services Chairman Barney Frank in a statement. “Additional fiscal stimulus is necessary.”
Stimulus 2.0
An economic stimulus package passed in early February featured tax rebates that are now being sent to more than 130 million Americans. On Friday, the Treasury Department reported that so far it has sent out nearly 67 million stimulus payments worth approximately $57 billion.
But one measure tossed out of that bill is a key measure under consideration for a second stimulus effort: an extension of unemployment benefits.
Currently, federal payments to people out of work are usually capped at 26 weeks. Some Democrats want to add another 13 weeks plus an additional 13 weeks in states with high unemployment, defined as 6% or more.
To date, the White House has opposed extending unemployment benefits.
Critics of the proposal point to studies showing that extending benefits can result in longer periods of unemployment by encouraging people to stay out of work. Supporters counter that the duration of unemployment may be attributable to other factors, and that those who receive extended benefits often end up with jobs that have better pay and benefits.
A bill to extend benefits was passed by the House Ways and Means Committee earlier this year, but Congress has not advanced a broader stimulus proposal.
House Speaker Nancy Pelosi, D-Calif., vowed Friday to bring an unemployment bill to the House floor.
That does not preclude lawmakers pursuing other stimulus measures, including some that President Bush has opposed in recent months such as:
- Federal aid for state and local governments to help them counter a loss in property taxes as a result in the housing crisis
- Federal aid for state and local governments to help them buy up and rehabilitate foreclosed properties
- Federal aid for infrastructure spending to create jobs on repair projects.
On Friday, during a swearing-in ceremony for new Secretary of Housing and Urban Development Steve Preston, President Bush said the disappointing jobs report “is clearly a sign that is consistent with slow economic growth.”
He then reiterated his call on Congress to make permanent his tax cuts. “The last thing Americans need is a massive tax increase,” he said.
It’s unclear whether President Bush will continue to resist calls for more stimulus. Chief White House aide Ed Gillespie told reporters that the administration was not ruling out further action on the economy.
One Senate Republican - Olympia Snowe of Maine, a member of the Senate Finance Committee - publicly stated her support for extending unemployment benefits. “As our economy continues to struggle, now is the time for Congress to take immediate and definitive action to bolster job growth, protect America’s workforce and extend unemployment insurance benefits,” Snowe said in a statement.
Housing rescue in focus
But beyond traditional efforts such as extending benefits to ease Americans’ financial strain, the centerpiece of any stimulus bill should be focused on housing, said economist Lakshman Achuthan, managing director of the Economic Cycle Research Institute.
“In the midst of a mild recession with housing at the epicenter, it would make sense to have additional stimulus focused on trying to establish some sort of trough in the housing market,” Achuthan said.
One bill that supporters say could help do that is a measure passed by the House and by the Senate Banking Committee. That legislation would let the Federal Housing Administration insure $300 billion in new loans for at-risk borrowers if their lenders agree to write down loan balances below the appraised value of borrowers’ homes.
“We must enact this legislation quickly in order to bring some stability to the markets, help hardworking Americans who are on the brink of losing their homes, and contribute to turning this economy around,” said Banking Committee Chairman Christopher Dodd, D-Conn., in a statement Friday.
Lawmakers said in recent weeks they hoped to have the bill ready for President Bush’s signature by July 4, but the Senate has yet to schedule floor time for a debate and vote. There is still a chance, political observers say, that they could meet their self-imposed July 4 deadline.
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Monday, June 2nd, 2008
Speaking about cars with my cousin tonight, I feel I need to hip everyone to something. She has a “gas saving” car that I was sorta interested in. She mentioned that she’d let it go for what she owes on it. In my mind, I’m thinking $3k-$4k. She busts out with, she owes $8k on the car but it’s only worth $4k-$5k. I gave her a funny frown & Immediately she responded with, “I’ve learned from my mistake”.
Right then and there I wondered how many people I could help avoid “the mistake”. To put things into perspective, as soon as you drive off the lot with a brand new car you lose approximately 20% in value. So lets say you paid $20k for a brand new car… if you decide to sell it 1 month later, you’re basically selling it for $16K (or $4k below purchasing price).
FOR WHAT?… New car smell, warranty, or just the feeling of something brand new? Is any of that worth losing 20% as soon as you purchase it?
If you think about it, why not at least purchase the same year car used? Let someone else take the 20% loss while you have the perfectly fine warrantied car. My personal preference is to not buy anything within 2 years of the current year (maximizing my savings). That’s when the real bargains come in.
Truth is, most used cars bougt within the 2 year window are still under manuafacturer warranty. Also, you can purchase an extended warranty to ease your warranty worries. The $1k you’ll spend on an extended warranty is a massive amount of savings compared to the instant 20% loss you’ll get as soon as you drive off of the lot with something that continually depreciates in value.
So please take my information and make an informed decision when thinking about purchasing a car. Don’t make the mistake of buying new when you can buy slightly used for a helluva lot less.
Remember, the less we spend the more we have to pay down debt and become debt free. Let the snobs that have to impress someone take on the 20% loss of value.
I hope this helps someone from the “mistake”.
Posted in Generate income, Informational, Personal debt, purchases | No Comments »
