OCT 18
2008

Let's say you have some cash in the bank and want to chase higher interest rates. While your money is being transferred between banks, you won't be earning any interest.

I derived this formula that takes into account the lost interest and tells you how many days you'll have to have your money in the new bank before you start making more money versus leaving it in your old bank:

days = (transfer time in days) * (old rate)/(new rate - old rate)

So, for example, if you're currently getting 2.67% and want to know if it makes sense to move your money to a bank offering 3.5%, and the transfer takes 10 days:

10*2.67/(3.5 - 2.67) = 32 days

So that's 32 days the money has to be in your new bank (on top of the 10 days transfer time) before it'll be worth the hassle.

OCT 10
2008

I saw this over on bogleheads.org: Notes from the Diehards VII Reunion. Current thoughts and advice from Jack Bogle, the guy that started the Vanguard Group.

SEP 21
2008

I used to link to an excellent article from GetRichSlowly.org on Renting vs. Buying: The Realities of Home-Ownership. But they asked me to remove the link. It's too bad because it was a good article! I have never heard of anybody asking somebody to remove a link in this situation, but it isn't worth the hassle so I just removed it.

AUG 16
2007

A Random Walk Down Wall Street ***** : Let's face it, investing books are not exactly page turners and you definitely don't want to read one when you're sleepy. Nevertheless, this is a must-read for anybody interested in maximizing their investments over the long haul (20+ years). Which should be everybody!

The book pretty much fortifies the investing axioms that I have been following for the past several years, but presents a ton of data to back up the claims, which are:

• The ability to consistently beat the market average is rare.
• The only way to get higher returns is to take higher risks.
• Diversification smooths out the volatility inherent in risky investments.
• The semi-strong efficient market hypothesis is the most credible of all the market theories.
• Your life stage defines your risk tolerance (with younger people able to handle more risk).

For persons under 40, the book recommends the following portfolio:

• 5% cash. Or cash equivalent, interest bearing (of course).
• 20% bonds. Three-quarters comprised of zero coupon treasury or no-load bond funds. The rest inflation-protected (TIPS). Put in tax exempt account if possible, otherwise try and use tax-exempt funds.
• 65% stocks. Two-thirds comprised of total stock market (Wilshire 5000), the rest international and emerging markets.
• 10% real estate. No-load REIT fund.

For persons between 40 and 50, it's basically the same as above, but move 10 percent from stocks to bonds.

JUN 20
2007

While visiting with my relatives in Canada last month, my aunt turned me onto a book from her investing club entitled Get Rich With Options. Despite the unfortunate used-car-salesman-esque title, it was a surprisingly good read.

Here are the book's take-aways so you can get rich and profit. Of course, the usual investing disclaimers apply. If you go broke following this advice, don't blame me. If, on the other hand, you get rich... you can buy me lunch.

'''Sell slightly out-of-the-money covered calls on your long stock positions.''' This is the one that most people already know about. The vast majority of calls expire without being assigned, so most likely you will get to pocket the premium. If your stock does get called away, then you at least got to sell your stock for a decent price.

'''Buy deep-in-the-money calls instead of buying a long position in a stock.''' The call will track the stock's market value, which translates into a higher ROI if the stock rises and less risk if the stock drops.

'''Sell slightly out-of-the-money naked puts on a stock that you want to own.''' You don't care if the put gets executed (you were going to buy the stock anyway). And you get to pocket the premium and get the stock at a slightly lower price. Probably the only time it's safe to sell a naked put. Unfortunately, many brokers (including mine) do not allow selling of puts.

'''Option credit spreads.''' This one is not as straight forward as the other three. It requires a lot more research. With a bull put spread, you are assuming the stock will trend up, so you sell one put with a high strike price and buy another put with a lower strike price. With a bear call spread, you are assuming the stock will trend down, so you sell a call with a low strike price and buy another call with a higher strike price. In either case, the strategy is to limit your profit or loss and take advantage of the decay of time value. Investopedia elaborates.

JAN 22
2006
I saw something interesting on the Suze Orman show last night: She recommended against contributing to your 401k, beyond what is required to guarantee any employer matching. She based her opinion on the following points:
• Taxes are at an all-time historical low right now.
• A 401k only helps you if your taxes will be lower in the future than they are today.
• The government is spending money like crazy and running up the debt.
• Taxes will have to go up at some point to pay off all of this debt.

Thus, her conclusion was that taxes are most likely lower now than they will be in the future, thus the 401k is not a good idea.

When she first said "don't do the 401k" , I thought she was crazy, but she has me wondering now. I need to ponder this a bit. In particular, I'm interested in the impact of state taxes (i.e., I live in a state with tax now, but may live in a state with no tax in the future) and also the effects of taxation on dividends and capital gains (paid outside the 401k, not paid inside).