Two months into the game, I’m surprised to see that I’m currently in first place. My virtual portfolio is up 3%. I made two purchases, both profitable (so far), one for a US stock ETF, another for an international stock ETF. Right now I’m 50% in stocks, 50% in cash.

Most participants have not made a single trade yet. Maybe they are waiting for that double-dip. If you’d like to join the game now, the game is still on. You haven’t missed much.

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• I Bonds: Hold Or Sell?
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"It’s hard to believe someone would steal money from a person looking for a job. But unfortunately, no matter how bad the situation, scammers see opportunity. Many people looking for work have been ripped off by scam artists who promise a job, access to special job listings, interviews, or a way to make a big income working from home – that is, if they just pay a fee or turn over their credit or debit card information. In the end, they’re left with no job…and some are robbed of hundreds of dollars."

I trust none of you will fall for such scams. I’m just doing my duty in spreading the words. For more info on job scams, please visit ftc.gov/jobscams.

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Software picked, likely related articles at The Finance Buff:

• Personal Finance Education from the Federal Government
• Gems from Carnival of Personal Finance #85
• Book Review: The New Coffeehouse Investor

[Links to Amazon.com are affiliate links. Amazon will pay me 4% to 6.5% of the purchase price if you make a purchase within 24 hours.]

Anderson says with the lower cost of inventory and distribution, businesses can successfully sell a large number of niche products in small quantity and still make a good profit, because the small quantities across so many items add up to a huge volume collectively.

Come to think of it, my blog is a member of the long tail. If we see financial media as the market, Wall Street Journal, New York Times Business section, CNNMoney, and various mainstream media are in the head. This blog is way out there in the tail.

Even if we narrow down to personal finance blogs, there are much more popular blogs such as Get Rich Slowly, The Simple Dollar and the like in the head, with my little blog still on the far right in the long tail.

That’s perfectly OK with me. The spirit of a long tail supplier is not to be everything to everyone. For this reason, I want to thank all of you who decide to read my blog. Among so many choices, you chose to read my blog. You must have seen value in what I write. Thank you for your encouragement.

Lately I noticed some mainstream media blogs listed my blog in their blogroll together with some much more popular destinations.

NY Times Bucks blog:

Money Magazine’s More Money blog:

To be listed in these blogrolls is quite something. I would say every other blog in the lists is at least ten times more popular than mine. Consider The Consumerist. It’s published by a subsidiary of Consumers Union, the publisher of Consumer Reports magazine. It has a team of no less than six editors. My small blog is not in the same league. Yet the NY Times and Money magazine blog editors plucked me out of the long tail and placed my blog next to The Consumerist.

Both Bucks and More Money are pretty good. I say this not because they link to me. I have been reading both of them before I noticed their link to me. Journalists are professional writers. They write really well. They also have sources they can lean on. When the constraint of fitting into newspaper word count and publishing schedule is removed, I think they produce a much better product.

To make sure that I continue to serve my constituents well, I do my third annual reader satisfaction survey. There are only eight questions. Please kindly give me two minutes of your time and let me know how I’m doing and what I can do better. Readers gave me good feedback in my two previous surveys. I incorporated their feedback into my blog. This time, I’m giving out one $25 iTunes gift card to the reader who gives me the most helpful suggestions.

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Software picked, likely related articles at The Finance Buff:

• Book Review: The Smartest Investment Book You’ll Ever Read
• More On Missing The 10 Best Days
• Invisible Hand Kills Hybrid Car Sales

On Tuesday I mentioned the story about laid-off employees burning through their severance and turning down job offers. On Wednesday I read this article about people stopping using 529 plans because of market losses:

More Parents Are Becoming 529 Dropouts

[Link goes to Google. WSJ will display full article if you come from a link through Google.]

"in the wake of last year’s market collapse and some high-profile fund blowups, some investors — and financial advisers — are paring back their reliance on 529 plans and in some cases are considering alternatives."

The article goes on to say people are investing in muni bonds, real estate, and fixed indexed annuities outside of the 529 plans instead.

To which I have to say "It’s not 529’s fault!" A few weeks back, there was an article on Times magazine about how 401k plan is bad and should be abolished. I didn’t have time to comment on it back then. Now I just want to say "It’s not 401k’s fault!"

A 529 plan or a 401k plan is a container. Whether you make money or lose money depends on what you put in them. A plan is not an investment. When our mainstream media don’t make this basic difference clear, no wonder the public is confused.

I also wonder if people came up with the ideas for muni bonds, real estate, and fixed indexed annuities on their own, or they were sold by some financial advisers. I suspect it’s the latter.

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Software picked, likely related articles at The Finance Buff:

• Carnival of Personal Finance #119
• Price Matching Policy and Time Limit
• Payday Loans, Anybody?

Life on Severance: Comfort, Then Crisis

* Link goes to Google. WSJ will display full article if you come from a link through Google.

It tells us stories about how some people coped with unemployment while on severance pay. The subjects in the article spent just like before, burning through their severance. They also turned down job offers because they didn’t like the job description.

Let me know what you think.

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Software picked, likely related articles at The Finance Buff:

• It’s Not 529’s (Or 401k’s) Fault
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I’ve never had a financial advisor. I’m guessing the percentage of the population who have a financial advisor isn’t that high. If they all say people should check with their financial advisor, why don’t most people have one?

1. Too many sharks. For those who have a financial advisor, I’m guessing again that most are not working with a fee-only advisor who acts as a fiduciary and only gives advice in the best interest of the client.

There are many salesmen and saleswomen out there selling expensive products to unsuspecting clients. Advisors who work in bank branches and "full service" brokerage firms are notorious for this. Ameriprise advisors don’t have a good reputation either. When people can’t tell an unbiased advisor from a salesman/woman, they are afraid of getting burned. They end up not using an advisor at all.

2. Too expensive. If people are not paying the advisor through expensive products, a fee-only advisor can still be expensive.

Some will take you only if you let them manage your investments and pay them 1% of your assets. Some won’t take you at all if you don’t have at least a six-figure minimum asset level. 1% on $100k is $1,000 a year. 1% on $500k is $5,000 a year. And that’s just for investment. There’s much more to financial advice than just investment.

3. Easy to DIY. If you set your mind on it, it’s not that hard to learn about these financial planning topics, although the same can be said of almost anything: plumbing, exercising, lawn care, you name it.

You can educate yourself by reading books, newspapers, magazines, and now blogs, listening to radio programs, and watching TV and video. You can Google or get on Internet forums and message boards and get all kinds of information.

You have the same problem with not being able to separate the good from the bad if you don’t know much about the subject to begin with. You still have to be able to apply what you read or heard to your own situation. By definition the books, radio and TV programs, blogs and Internet forums can only be generic. Thus the "check with your own financial advisor" CYA disclaimer.

For the most part, people are on their own. If news media reports are representative of what’s happening in the real world, people on average are not doing a very good job at managing their finances. I would think we will be better off if we can get unbiased advice at an affordable price. The price paid for doing it right will be recovered many times over by avoiding costly mistakes. Still, given that there are many sharks out there and even good advice can be expensive, DIY seems to be the only viable alternative.

How much should unbiased financial advice cost? Suppose I convince you that you can trust me for giving you good quality, unbiased, individualized financial advice. What do you think should be a fair price?

Let’s get specific. Suppose a couple want to save for college for a child. They want to know which account type (UGMA, Coverdell, 529, Savings Bonds, Roth IRA, regular taxable, etc.) they should use, which provider, and which investment options they should choose. What do you think they should pay? $0 because people can just Google? $5? $25? $100? $200? $500?

If you have a trusted advisor to whom you can ask unlimited number of questions and get advice whenever you need it, how much should it cost? $0? $10 a month? $20 a month? $50? $100? $200? $500?

I ask these questions not just as a hypothetical. I’m willing to help others with their personal finance questions. If I start giving individualized advice though, I’ll have to become a licensed advisor and maybe get a CFP. I don’t necessarily have to make much money from it (my full-time job covers my living expenses), but I do want to at least cover my cost of regulatory compliance and liability insurance. However, if people are not willing to pay much for such advice, obviously there’s no point of getting licensed and certified and paying the associated costs.

So do you think there is an under-served market for unbiased financial advice? I can think of some friends and family members who can use some advice if it doesn’t cost an arm and a leg.

Usually an under-served market exists when there is a big gap between what customers are willing to pay and what it costs to produce what they want. I suspect that’s the case in the financial advice market.

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Congratulations, Austin!

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Software picked, likely related articles at The Finance Buff:

• No related posts

“If you tell him/her it’s so simple that he should be ashamed of himself for failing to grasp your full meaning, then your are negating that investors desire to learn – in effect saying ‘do it because I said so.’”

After thinking about it for a little longer, I agree with Mark. So I decided to write  down what exactly I learned personally from the recession. These will serve as notes to myself in the future. I apologize if the lessons look so obvious. I hope there is enough personal flavor to make them more interesting.

The first lesson I learned: Keep Your Job.

After the recession, I come to realize how important it is to keep my job. My employer had a RIF in 4th quarter 2008. Fortunately I survived. The company didn’t pay a year-end bonus like it used to. Nor did it give a “merit increase” to anybody in 2009. I expect my 2009 income to be 10% less than what I earned in 2008.

A 10% pay cut is nothing compared to losing a job. This blog would get more interesting with my unemployment stories, but it wouldn’t be fun for me. I have an emergency fund. I prefer not to use it. I don’t want to find out how unemployment insurance works in my state.

I want to make sure I add enough value to my employer so they would keep employing me. I used to goof off sometimes during working hours and post on forums, tweet, or reply to comments on my blog. I’m weaning off from such activities. I installed a Firefox browser plugin called LeechBlock. It’s a voluntary Internet filtering program. You tell it which sites to block between which hours on which days and it will block them.

It’s fun to post on forums, tweet, and reply to comments on my blog. I get some thank-you’s from time to time, but those won’t pay the bills. Although I get some money from ads on this blog, the ad dollars are far too small relative to what I earn from my job.

I’m aware that some successful bloggers can earn over $200,000 a year from their blogs, I don’t think I will ever get there. I’m a very shy person. I’m not good at self-promotion or networking. I take a “if there’s value, people will see it” approach (or is it “if you build it, they will come”?).

In late 2008, I was asked to contribute a chapter to the book The Bogleheads’ Guide to Retirement Planning. This book got published recently (I’m still waiting for my copy). It turned out that among some 20 contributing authors, I’m the only one under a pseudonym. Of course I would love to see my contribution recognized by my real name, but I don’t want to jeopardize my job in any way, now or in the future.

Not knowing what lies in the future, I decided to keep my non-work related activities from my future employers. I don’t think it makes any difference to readers of the book or this blog what my real name is.

For the foreseeable future, I will earn my living from my job. I’d like to keep my job and grow my employability. If you see that I post on the blog or forums less frequently, please excuse me. Keeping my job is really important to me.

[This post contains a link to Amazon.com. Amazon.com will pay a commission of 4% - 6.5% to me if you make a purchase within 24 hours after you click on the link.]

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• Recession and Wii
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The shortlist of candidates for the 2009 award includes:

	Animal Spirits by George Akerlof and Robert Shiller, economics professors at Berkeley and Yale, about how human psychology affects macroeconomics.
	Good Value by Stephen Green, CEO of HSBC, about money and morality.
	Imagining India by Nandan Nilekani, co-chairman of InfoSys, a large IT outsourcing company in India, about India and globalization.
	In Fed We Trust by David Wessel about the recent financial crisis.
	Lords of Finance by Liaquat Ahamed, an investment manager, about the Great Depression.
	The Match King by Frank Partnoy about a fraud in 1920s.

I haven’t read any of these books yet. A few of them sound interesting.

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• Financial Times One-Year Subscription for 2,000 Frequent Flyer Miles
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1. Sample language for 401k plan auto-enrollment. The IRS gave employers some sample language for adding auto-enrollment to their 401k or SIMPLE IRA plans. The IRS also made it clear it’s legal to automatically increase the employees’ contribution percentages.

Half of the workforce does not have a retirement savings plan at work. Auto-enrollment can’t help if you don’t have a plan to begin with. For the other half, the employers will still have to take the trouble to add auto-enrollment. After that, auto-enrollment usually only covers new employees. Employers very rarely re-auto-enroll existing employees if they are not already enrolled. So we are only talking about a low single digit percent of the workforce here.

Changing somebody’s paycheck is always tricky. According to a recent study by Vanguard, only 20% of the plans have auto-enrollment at the end of 2008. Of the plans that have auto-enrollment, the typical default contribution percentage is 3% of pay. 3% is better than 0%, but it is still far too low.

2. Buy I Bonds with tax refunds. The IRS will add a checkbox to the tax form and upsell taxpayers on purchasing I Bonds with their tax refunds, in the same way airlines sell seat upgrades and travel insurance.

If the taxpayer wanted I Bonds for their tax refund, they can always buy the bonds themselves after they get the refund. The checkbox on the tax return just makes it a little easier. However, the I Bonds bought with tax refund are still subject to the same $5,000 per year per person paper bond purchase limit. They still can’t be sold until after 12 months. Some people are due for a surprise.

3. Contribute unused vacation to 401k plan. When you leave your job and you have unused PTO hours, you can turn them into 401k contributions instead of getting paid in cash.

Once again, you have to have a 401k plan to begin with. Then your employer will have to amend the plan and allow it. Finally, the contributions from unused PTO hours still count toward your annual contribution limit unless the employer eliminates the cash-out option and automatically shoves the unused PTO hours to the 401k plan. I can’t see many employers will choose to do that.

This might help some people who won’t have a 401k plan in their next job and don’t need the money when they leave their current job. Again, we are talking about a small percentage of people here.

4. New Special Tax Notice about rollovers. The IRS published two new model tax notices for 401k plan distributions when people leave their jobs.

The new notices make rollover sound like the default option and downplay the cash-out option. I don’t know if people actually read the notice in their paperwork. It’s all nice and well if people read it. I’d also like to know if people who cash out their 401k plan now didn’t know about the rollover option or they knew it and still chose to cash out. If it’s the latter, the new tax notices won’t do any good.

I would much like to see our government stop dancing on the edges and put forward some real reform. I realize the real reform has come from the legislature. Maybe President Obama can push for it after he’s done with health care.

How about unleashing that "public option" called the TSP? Let companies who don’t have their own plan subscribe to the TSP. That will cover half of the workforce in one fell swoop. Let employees choose between the employer’s plan and the TSP. Give some real competition to the high cost plans.

How about liberating the market-based solutions called the IRA? Increase the IRA contribution limit and let people choose between the IRA and their 401k plan. Allow rollovers to an IRA at any time.

What about the company match? If the employer makes the match immediately vested, the match can follow to the TSP or the IRA. If the employer wants to impose a vesting schedule, the match can stay in the employer plan. It’s not that hard.

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