TFB's Stumbles: Week Ending 2008-02-29
I have thought about whether I should do weekly links to interesting articles on my blog. On one hand I'd like to share with you what I found. On the other hand, it's not easy to gather the links and compile them into a new post. That's until blogger JLP at AllFinancialMatters introduced me to StumbleUpon. StumbleUpon provides a web browser plugin that allows me to discover and rate web pages. When I see an interesting article, I put it into StumbleUpon and write down my thoughts right then and there. On Friday, I can go back to it and round up all the articles I noted during the week and put them into a blog post more easily.
If you also use StumbleUpon, I invite you to add me as a friend. My user name there is TheFinanceBuff. Whether you use StumbleUpon or not, if you'd like to read what I stumbled in a news reader, you can subscribe to a separate RSS feed TFB's Stumbles. Not all my stumbles will make to the posts on Fridays.
Now, here are some of the interesting articles and web sites I found this week:
What a Recession Feels Like
I rented from Netflix the documentary Roger & Me by Michael Moore. This is the first film by Michael Moore which made his name. Whether or not you agree with Michael Moore's liberal point of view, the film offered a good reminder of what a recession feels like.
In case you haven't seen it (the film was out nearly 20 years ago in 1989), it's about the impact of General Motors' closing of several auto assembly plants in Flint, Michigan. Michael Moore, a native of Flint, wanted to bring then GM chairman Roger Smith to Flint and show him the devastation of 30,000 laid off GM workers. The film showed how his repeated efforts failed to get Smith to come to Flint and how the workers and the town coped with the event.
Oh boy it's depressing. Workers got laid off. They got evicted from their apartments when they couldn't pay their rent. They took up other odd jobs. Even fast food restaurants wouldn't hire former GM workers because they were not good enough at working in fast food. The wife of a laid off worker became an Amway saleswoman doing "color reading" for her customers. She later confessed in great horror that she had read herself into the wrong color! The scene of a former worker raising rabbits for a living and killing and skinning one on camera for meat and fur is absolutely shocking. I cringed and closed my eyes. Don't let your kids watch that scene.
Restricted Stock Units (RSU) Sales and Tax Reporting
RSU stands for Restricted Stock Units. It's the new form of stock-based compensation that has gained popularity after the employers are required to expense employee stock options. The biggest difference between RSUs and employee stock options is that RSUs are taxed at the time of vesting while stock options are usually taxed at the time of option exercise. The employer is required to withhold taxes as soon as the RSUs become vested.
In a previous post, Restricted Stock Units (RSU) Tax Withholding Choices, I wrote about what I chose among the three tax withholding choices — same day sale, sell to cover, and cash transfer — and why. This time I'm writing about how to account for taxes on the tax return, especially if you use tax software like TurboTax or TaxCut.
I'm going to use this simple example:
Closing Oldest Credit Card Did Not Hurt My Credit Scores
I wrote about canceling my oldest credit card in July last year. At that time, I said:
"I don't see myself borrowing any money in the foreseeable future. The rate on my mortgage is fixed. I don't think there is any chance for refinancing unless we have another recession."
TurboTax and TaxCut 2007 Compared Side By Side
Because I'm switching from TaxCut to TurboTax this year, I have a unique opportunity to compare the two desktop tax software side by side.
The two products being compared are TaxCut Premium 2007 Federal + State and TurboTax Deluxe 2007 Federal + State, both for Windows. Both let you prepare the federal return plus one state return. Both do not include eFile. I tested using the same data on two different days a week apart. My tax return isn't overly complex but it does include a good number of elements. I have
- salary on W-2
- self-employment income (for my $150 ad revenue from this blog)
- interests, both taxable and tax-exempt
- investments: dividends, both qualified and non-qualified; short-term and long-term capital gains distributions; sales with short-term losses; foreign tax credit; capital loss carryover
- non-qualified stock options exercise and ESPP non-qualified dispositions
- mortgage interests
- property taxes
- charity donations
- IRA contributions
- Alternative Minimum Tax (AMT)
Book Review: Unconventional Success
Today I'm reviewing the book Unconventional Success by David Swensen.
David Swensen is the celebrated Chief Investment Officer of Yale University. By allocating a large percentage of Yale's endowment to unconventional assets like private equity funds, absolute return hedge funds and real assets, Mr. Swensen got the Yale Endowment an average return of 18% per year for the last 10 years, which everybody else envies. When I first got the book from the library, I thought the book was about how he did it at Yale. But it's not. The unconventional success he refers to in the title of the book is rather conventional — invest in a diversified allocation of stock index funds and treasury bonds through investor-friendly outfits.
So the title is a misnomer. There is nothing unconventional about investing in index funds. We already know that from many other books, like John Bogle's The Little Book of Common Sense Investing and Burton Malkiel's The Random Walk Guide To Investing. While it gives advice on asset class selection, Swensen's book gives no guidance on asset allocation, which is often said to be the most important decision one makes in investing. The book showed one generic 70/30 model portfolio without going into details who should adopt an allocation like that. Is it for young people just starting out or people who already retired? The book doesn't say. It says you have to personalize it but it doesn't tell you how.
Free Soda Refills for Life?
I was at a McDonald's the other day. I saw a sign like this by the soda machine:
"Free refills are on the same visit only. Please do not bring in an empty cup for refills."
How To Avoid Overdraft/NSF Fees
There is a long discussion on Wesabe Groups about overdraft fees. Some banks call it NSF which stands for Non-Sufficient Funds. In case you don't know, banks apply the debits in a way that maximizes the number of instances of overdraft. They sort the debits on a given day by the amount and apply them in descending order, the largest first, the smallest last. If a large debit produces an overdraft, each subsequent smaller debit on the same day also generates an overdraft. Because the banks charge some customers one overdraft fee for each overdraft occurrence, the more overdrafts, the more fees.
This post is not about whether such practice is fair or how sneaky banks are. You can read about that from the Wesabe Groups discussion and from the articles linked in it. I'm writing about how to avoid the overdraft/NSF fees.
There are basically three ways to avoid overdraft fees:
TurboTax Deluxe 2007 Free Download
[Update on Feb. 9, 2008]: Intuit took down the link. No more free downloads.
I saw this on FatWallet and I thought I should pass this along. You can download a free copy of TurboTax Deluxe 2007 for Windows or Mac on Intuit's website. Here is how:
- Follow this link (link removed, no longer working).
- Click on the Downloads tab on the top.
- Click on Buy Now under the Deluxe version.
- Follow the screen prompts. They ask you to register with your e-mail address, name and address, but you don't have to give out your real personal info.
Restricted Stock Units (RSU) Tax Withholding Choices
Ever since the companies are required to expense employee stock options, more companies started to grant the employees Restricted Stock Units (RSUs) instead of stock options. The first batch of RSUs I received will vest shortly. Unlike non-qualified stock options which are taxed at the time of option exercise, RSUs are taxed at the time of vesting. Our stock plan administrator has asked me to choose how I want to pay for the tax withholding when my RSUs vest. I have 3 choices:
1. Same Day Sale. This is the simplest. On the vesting date, I sell everything. After subtracting for tax withholding, I end up with net cash.
2. Sell to Cover. If I choose this option, they will sell just enough shares to cover the tax withholding. I keep the remaining shares and I can sell them myself whenever I want to.
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