Lesson from the Recession: Keep Your Job
In The Right Lessons and The Wrong Lessons, I said the right lessons from the recession and the bear market are "so simple they don't need any further explanation." A reader Mark suggested that I shouldn't be so dismissive.
"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.
Mortgage Refinance and Option Pricing
Being a blogger with a contact form, I often receive PR outreach messages. They want me to write about what they are trying to promote. I ignore most of those. Once in a while, I get something worth reading.
Andrew Kalotay Associates is a fixed income analytics and debt management advisory services company in New York. They sent me a special report they wrote for Mortgage Bankers Association, the industry trade group.
A Financial Analysis of Consumer Mortgage Decisions, Andrew J. Kalotay and Qi Fu
What Makes Investing Hard?
I wrote a few weeks ago Investing Is Simple.
"You come up with an asset allocation, open some accounts, pick a few index funds, and you are done. Once in a while you see if anything is out of whack and you redirect your new money to wherever is lagging. It's not complicated at all."
If investing is that simple, then why in the world are there so many talks about investing? There are many books, professional journals, newspapers, magazines, TV shows, radio programs, and now blogs about investing. The Bogleheads investing forum I participate in (user name "tfb") has more than 560,000 posts. If investing is simple, what can't possibly be exhausted in 560,000 posts?
Rollover IRA to Solo 401k
It looks like the Roth IRA conversion rule changes will stick, at least for 2010. There are only three months until the end of 2009. Congress is busy with something else. I don't think they will repeal the current law before the end of the year.
In preparation for converting my non-deductible IRA contributions to Roth IRA in 2010, I'm rolling over the pre-tax portion of my traditional IRA to my solo 401k. I set up the solo 401k last year primarily for this purpose — to provide a harbor for my pre-tax IRA money so I won't get taxed proportionally on my Roth conversion. After the rollover, I should have only one small IRA, consisting of my non-deductible contributions plus or minus market fluctuations from now until I convert in January 2010.
I have my solo 401k with Fidelity. When I called them about the rollover procedures, to my surprise, the rep actually discouraged me from doing so. To his credit, he made valid points. He knew what he was talking about. Fidelity trained them well.
Sold PIMCO Foreign Bond Fund
I sold my entire position in PIMCO Foreign Bond Fund (Unhedged) Institutional (PFUIX). According to its prospectus, this fund invests in
"… Fixed Income Instruments that are economically tied to foreign (non-U.S.) countries, … which may be represented by forwards or derivatives such as options, future contracts or swap agreements."
I bought this fund in late 2004. At the time, there were a lot of talks about the "twin deficits" of United States (budget deficit and trade deficit) and how they would weaken the U.S. dollar. A foreign bond fund protects against a weakening dollar.
Chase Blueprint: Suggested Payment Calculator
By way of a post on the Payments Views blog, The Era of Responsible Credit Card Borrowing Begins Today, I heard that Chase recently launched a new Blueprint service for their credit cards.
In a nutshell, Blueprint is a fancy suggested payment calculator. For customers who carry a balance, Blueprint lets them set up some rules and helps them calculate how much they should pay based on those rules.
In an ideal world, nobody carries a balance on their credit cards and everybody always pays in full. Because we are not in an ideal world, Blueprint has its place.
Financial Times Business Book of the Year 2009 Shortlists
Every year, Financial Times newspaper gives out a Business Book of the Year award. It's officially known as the Financial Times and Goldman Sachs Business Book of Year Award. Last year's winner was When Markets Collide by Mohamed El-Erian of PIMCO.
The shortlist of candidates for the 2009 award includes:
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Animal Spirits by George Akerlof and Robert Shiller, economics professors at Berkeley and Yale, about how human psychology affects macroeconomics. |
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Good Value by Stephen Green, CEO of HSBC, about money and morality. |
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Imagining India by Nandan Nilekani, co-chairman of InfoSys, a large IT outsourcing company in India, about India and globalization. |
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In Fed We Trust by David Wessel about the recent financial crisis. |
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Lords of Finance by Liaquat Ahamed, an investment manager, about the Great Depression. |
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The Match King by Frank Partnoy about a fraud in 1920s. |
Investing Is Simple
I haven't written much about investing lately, because investing is simple and I think I pretty much covered everything already. You come up with an asset allocation, open some accounts, pick a few index funds, and you are done. Once in a while you see if anything is out of whack and you redirect your new money to wherever is lagging. It's not complicated at all.
Fellow blogger Mike Piper apparently agrees. He wrote a small book called Investing Made Simple. He's making the PDF available as a free download until October 1. [Free PDF download is no longer available.]
Table of Contents » Read more …
The Right Lessons and The Wrong Lessons
It's the one year anniversary of the fall of Lehman Brothers. The media marked that event as the start date of the financial crisis. Several financial podcasts I listen to all ran features on "lessons from the financial crisis." I'm more interested in the lessons at a personal level, not so much at the macroeconomic level because there's nothing I can do about macroeconomics.
After the dot com debacle, people learned it's bad to speculate in stocks, but they also learned they can't lose money in real estate. We all know how that lesson worked out. Today, after another crisis, people are learning more lessons. Will all of them be the right lessons?
Sell at the first sign of trouble. An acquaintance told me she moved all her stock funds into money market in early 2008 because she got nervous from the news of mortgage writedowns. That move was brilliant. It saved her tens of thousands of dollars. She dodged the proverbial freight train. I'm sure she will take that to heart — "when you see trouble, sell." Is it the right lesson? I'm not so sure.
Feel-Good Retirement Savings Initiatives
Over the Labor Day weekend, the Obama administration announced some new retirement savings initiatives that are supposed to help Americans save money for their retirement. Although they are all well intentioned, I doubt they will have a material impact on the overall picture of retirement savings in America. I call them feel-good measures because the new initiatives merely clarify existing laws and regulations. Let's look at them one by one.
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.
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