Example 30 year mortgage rates (from myfico.com – see site for current rate estimates). We have posted twice on this previously – August 2007 – May 2007. Since then rates have decreased on 30 year fixed mortgages but jumbo rates have increased significantly.
| FICO score | APR May 2007 | APR Feb 2008 – regular | APR Feb 2008 – jumbo | payment/mo May 2007 | payment/mo Feb 2008 – regular | payment/mo Feb 2008 – jumbo |
|---|---|---|---|---|---|---|
| 760-850 | 5.86% | 5.53% | 6.61% | $2,362 | $2,278 | $4,476 |
| 700-759 | 6.08% | 5.75% | 6.83% | $2,419 | $2,525 | $4,579 |
| 660-699 | 6.37% | 6.04% | 7.12% | $2,493 | $2,335 | $4,713 |
| 620-659 | 7.18% | 6.85% | 7.93% | $2,709 | $2,620 | $4,373 |
| 580-619 | 8.82% | 9.22% | 9.40% | $3,167 | $3,282 | $5,834 |
| 500-579 | 9.68% | 10.20% | 10.37% | $3,416 | $3,568 | $6,336 |
Amounts shown for borrowing $400,000 and rates as of Feb 18th (and May 2007). Jumbo payments are based on $700,000. Previously I could see the assumptions on the site which were (but I see no details on the calculated amounts as of Feb 2008): For scores above 620, the APRs above assume a mortgage with 1.0 points and 80% Loan-to-Value Ratio. For scores below 620, these APRs assume a mortgage with 0 points and 60 to 80% Loan-to-Value Ratio.
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The use of sneaky fees by service companies is growing
In early February, United Airlines began to charge customers $25 for an extra bag. Some rental car companies charge an airport concession fee if the lot is conveniently located near the airport. A hotel in Las Vegas now bills customers for any item they take out of the minibar for more than 60 seconds, even if it is not consumed. Some bank gift cards lose part of their value if not used by a certain date.
…
banks collect up to a 3 percent processing fee for third-party credit transactions. Most of that 3 percent is called the “interchange fee.” That fee has outraged merchants in continental Europe, where credit card use is sparse and consumers are accustomed to debit cards. In December the European Commission won a case against Mastercard that requires it to eliminate interchange fees within the next six months.
As I have mentioned before the problems of bad practices by financial companies and the unfortunate truth that they force you to be on guard against them tricking you and taking your money. The Curious Cat credit card tips page provides advice on how not to get tricked by credit card companies into paying big fees along with some other tips.
It a shame financial companies don’t seem to believe in providing an honest service and making a profit as part of provide good value. Instead you have to watch them with the belief they will take you money if they can trick you (through hidden fees, misleading ads…). And it is sad other companies are expanding such anti-customer methods to other markets.
Related: Credit Card Currency Conversion Costs – Bad Practice: .05% Interest – Customer Hostility from Discover Card – Challenge Those Credit Fees
Options are a tool that investors can use within their portfolio in various ways. They can be used to speculate and they can be used to provide a bit of extra income (with the cost of potentially losing big gains). Mainly they are for more sophisticated investors. Form the Curious Cat Investing Glossary – Stock Options:
For example, if you own 100 shares of Cisco you could sell a covered call option giving someone the right to buy your shares at a specific price by a certain date. So, for example, they pay you $200 for the right to buy you 100 shares at $1 more than it is selling at right now anytime in the next 2 months. They might chose to do so, in order to leverage their investment as it only cost them $200 to benefit from the rise of 100 shares of Cisco. Of course, if it doesn’t go up in 2 months you benefit because you get to keep the cash and your stock.
Selling covered call options allows the investor to earn a bit of extra money but they will lose out if the stock shoots up as then the investor that bought the option can buy your shares at the agreed to price even if it now is $5 a share more. Read more on options including naked puts, naked calls…
Employees may receive options to buy company stock at a Company’s stock at a set price for several years in the future. In general, those options cannot be traded on the market (the employee must keep them or exercise them – pay the strike price to purchase the stock). Why are options such a nice perk if you must pay the strike price? Because they are often good for years and the strike price is set at today’s price (though this doesn’t have to be the case). On the whole stocks go up over time so most of the time the stock will increase in value over the years and the options to buy it at the price several years ago is very valuable. For startup companies, there is often a high likelihood of going out of business in which case the options are worthless, but if the company is successful the options can be worth a great deal.
Related: Hedging an investment – Books on Speculation with Investment – Google to Let Workers Sell Options Online
The Dow Jones Industrial Average is a widely followed stock market measure of 30 stocks. I think the S&P 500 is a better measure to pay attention to, but the DJIA continues to be used and it has some historical interest. Today 2 stocks (Altria and Honeywell) were removed and two new stocks we added (Bank of America and Chevron). They were the two largest cap USA based companies (other than Berkshire Hathaway, Warren Buffett’s company) not in the DJIA. Bank of America has a market capitalization of $186 billion and Chevron’s is $165 billion. Google’s market cap is $160 billion.
I mentioned before I would replace GM with Toyota (though that might violate one of their traditions). I also would have added Google, with this update, rather than Bank of America (Citigroup, JPMorgan Chase, American Express and AIG are all financial industry companies and GE has huge financing components also).
The current DJIA stocks:
| Stock | Market Capitalization | Year Added |
|---|---|---|
| Exxon (XOM) | $438 Billion | 1928 |
| GE | 337 | 1896 |
| Microsoft | 260 | 1999 |
| AT&T (T) | 217 | 1999 |
| Proctor & Gamble (PG) | 200 | 1932 |
| Walmart (WMT) | 195 | 1997 |
| Bank of America (BAC) | 186 | 2007 |
| Johnson & Johnson (JNJ) | 178 | 1997 |
| Chevron (CVX) | 165 | 2007 |
| Pfizer (PFE) | 150 | 2004 |
| JPMorgan Chase (JPM) | 145 | 1991 |
| IBM | 145 | 1979 |
My friend, Sean Stickle and his wife, Jill Foster, were featured in a Washington Post article today on finances of couples: I Do, but You Don’t:
…
In January 2006, they had an epiphany. Despite having declared saving for retirement as their priority, they spent $11,000 on restaurant meals the previous year. “We were living a contradiction,” Foster said. Foster became even more of a strict financial manager. She started using Quicken to keep track of all their expenditures. She made sure 12 percent of their income went toward retirement. She cut their restaurant budget to $1,500 a year.
Related: I Want My Coffee – Backyard Wildlife-Raptor – Retirement Savings Survey Results – Get Your Own Science Art – Malcolm Gladwell and Synchronicity
Data from the Commonwealth fund report, Toward Higher-Performance Health Systems: Adults’ Health Care Experiences in Seven Countries, 2007:
| Australia | Canada | Germany | Netherlands | New Zealand | UK | USA | |
| National health spending – Percent of GDP | 9.5% | 9.8% | 10.7% | 9.2% | 9.0% | 8.3% | 16.0% |
| Percent uninsured | 0 | 0 | <1 | <2 | 0 | 0 | 16 |
| Last time you were sick or needed care, how quickly could you get an appointment to see a doctor? | |||||||
| Same day | 42 | 22 | 55 | 49 | 53 | 41 | 30 |
| Next day | 20 | 14 | 10 | 21 | 22 | 17 | 19 |
| 2-5 days | 26 | 26 | 10 | 17 | 17 | 26 | 25 |
| 6 or more days | 10 | 30 | 20 | 5 | 4 | 12 | 20 |
| Overall health system views | |||||||
| Only minor changes needed, system works well | 24 | 26 | 20 | 42 | 26 | 26 | 16 |
| Fundamental changes needed | 55 | 60 | 51 | 49 | 56 | 57 | 48 |
| Rebuild completely | 18 | 12 | 28 | 9 | 17 | 15 | 34 |
Related: Measuring the Health of Nations – USA Paying More for Health Care – Traveling for Health Care – resources for improvement health system performance
One of the most important financial moves you can make is to start investing for your retirement early. This post is directed at those in the USA (but you can adjust the ideas for your particular situation). Retirement accounts with tax free growth, tax deferred growth and/or even tax deductible contributions can add to the benefits of such an investment. And matching by your company can give you an immediate return or 100% or 50% or some other amount. With 100% matching if you invest $2,000 your company adds $2,000 to your retirement account. For 50% they would add $1,000 in the event you added $2,000.
In other posts I will cover some of the other details involved but some people can be confused just by what investment options to chose. Normally you will have a limited choice of mutual funds. Hopefully you will have a good family of funds to choose from such as Vanguard, TIAA-CREF, American, Franklin-Templeton, T.Rowe Price etc.). If so, the most important thing is really just to get started adding money. The details of how you allocate the investment is secondary to that.
So once you have made the decision to save for your retirement what allocation makes sense? Well diversification is a valuable strategy. Some options you will likely have include S&P 500 index fund, Russel 5000 (total market index – or some such), small cap growth, international stocks, money market fund, bond fund and perhaps international bonds, short term bonds, specialty funds (health care, natural resources) long term bonds, real estate trusts…
Just to get a simple idea of what might make sense when you are starting out and under 40 and don’t have other substantial assets in any of these areas (large mutual fund holdings, your own house, investment real estate…) this is an allocation I think is reasonable (but don’t take my word for it go read what other say and then make your own decisions):
25% Total stock market index (~Wilshire 5000)
25% international stocks
20% small cap stocks
10% real estate
10% high quality short term bonds in a Euros, Yen…
10% short term bonds (or money market)
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Jimmy Rodgers is one of the most successful investors ever. He and George Soros were partners during the amazing run with Quantum Fund (up over 4000% in 10 years) and he has been successful since. This interview provides his current thoughts – ‘It’s going to be much worse’
Rogers looks at the Fed’s willingness to add liquidity to an already inflationary environment and sees the history of the 1970s repeating itself. Does that mean stagflation? “It is a real danger and, in fact, a probability.”
One smart investor, no matter how smart, will have many wrong guesses about the future. Still he is someone worth listening to.
Related: Investment Biker – Charge It to My Kids – Buffett’s 2007 Letter to Shareholders
Why you don’t need an extended warranty, Consumer Reports:
– Some repairs are covered by the standard manufacturer warranty that comes with the product
– Products seldom break within the extended-warranty window–after the standard warranty has expired but within the typical two to three years of purchase–our data show.
– When electronics and appliances do break, the repairs, on average, cost about the same as an extended warranty.
Related: Save Money on AV Cables – Shop Around for Drugs – Real Free Credit Report
I originally setup the 10 stocks for 10 years portfolio in April of 2005. With Microsoft’s move to buy Yahoo I have sold Yahoo and replaced it with Danaher, a stock I have been considering for this portfolio from the start. I have also sold some Templeton Dragon Fund since the last update, as I indicated I would. Unfortunately, Petro China just missed reaching the price I had set to sell a portion of the position before falling dramatically (the gain at the last update was 298% now it is “only” 132%).
The performance since the last update has not been good but that isn’t much of a concern to me. The long term prospects remain very good for this portfolio, I believe. At this time the stocks in the sleep well portfolio in order of returns -
| Stock | Current Return | % of sleep well portfolio now | % of the portfolio if I were buying today | |
|---|---|---|---|---|
| Google – GOOG | 137% | 16% | 14% | |
| PetroChina – PTR | 132% | 8% | 8% | |
| Amazon – AMZN | 106% | 7% | 6% | |
| Templeton Dragon Fund – TDF | 85% | 10% | 10% | |
| Toyota – TM | 44% | 10% | 10% | |
| Templeton Emerging Market Fund – EMF | 39% | 3.5% | 4% | |
| Cisco – CSCO | 32% | 6.5% | 8% | |
| Tesco – TSCDY | 9% | 0% | 10% | |
| Danaher – DHR | -4% | 4.5% | 8% | |
| Intel – INTC | -4% | 4% | 6% | |
| Pfizer – PFE | -11% | 6% | 8% | |
| Dell | -40% | 6% | 6% |
The Yahoo position was closed at an 11% loss. It was the second of the original 10 stocks to be effectively removed due to changes in ownership. At this point I am most positive on Google, Petro China, Toyota, Templeton Dragon Fund and Tesco. I am wary of Dell – they seem to be moving in the wrong direction, but I am willing to give them longer to improve.
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