31 January 2006

Liveblogging the State of the Union Address

Why? Why not? I'm watching the streaming video feed from the WaPo while our main TV is occupied by Mrs. Random.

9:10 Bush takes the podium, applause gavel.
9:11 Bush just winked at Cindy Sheehan, his secret Ace.
9:12 Bush predicts afterlife reunion of MLK jr. and his late widow.
9:13 Mrs. Random is now watching the broadcast. Unfortunately, the WaPo feed is two seconds ahead.
9:13:30 Spoke too soon, SATC is back on.
9:16 Terrrrrrists drink
9:17 122 "democracies" in the world today. Does that count China?
9:17:30 More than half of the people of the world live in democratic places. I guess not.
9:18 Terrrrrrists drink
9:18:30 Weapons of Mass Murder no drink!
9:19 "We love our freedom, and we will fight to keep it" applause The WaPo feed can't keep up with the crowd shots. I can't tell who else is there, other than Laura's bright pink outfit.
9:20 "We will never surrender to evil" applause
9:21 Did I mention Iraq yet?
9:22 "We are winning" applause, and half the room on its feet (guess which half)
9:26 War poetry
9:27 Standing applause for the family of a fallen soldier. Both sides of the room standing for this.
9:28 US supports democratic reform across the broader Middle East.
9:30 Nukyular (x2) chug
9:31 We respect Iran?
9:32 Poverty causes Terrrrrrrism? Uh oh. This excuses the Terrrrrrists, doesn't it?
9:33 Reauthorize the Patriot Act! (woot!)
9:34 Bush is reminding people that spying on Terrrrrrists overseas is legal and required. The Dems don't seem too happy about this one.
9:36 Reject isolation. Asks for bi-partisan support. And the Dems stand up! So, why didn't the Patriot Act get properly renewed?
9:38 This economy could not function without immigrants.
9:39 Economy depends on growth.
9:40 Remember those tax cuts? 4 years of growth.
9:41 Urges Congress to make the tax cuts permanent. How 'bout rolling back the AMT, while you're at it...
9:42 140 poorly performing programs to be cut. $14 billion in savings. Deficit cut in half by 2009.
9:42 Earmarking reform depends on the line-item veto? Why not just have a responsible Congress instead. Where's the legislation for that?
9:43 The Dems seem pleased that they stopped Social Security reform. Good for them. I guess none of them have kids who might someday want to retire.
9:44 Need open and secure borders.
9:45 Need a temporary worker program that rejects amnesty.
9:46 Affordable healthcare (raucous applause).
9:47 I guess Bush doesn't read blogs if he thinks the latest healthcare payout is a good plan
9:48 Invest in clean coal, wind and solar, and Nukyular energy.
9:49 Yay, more ethanol. ADM will be happy.
9:50 End the dependence on Middle Eastern oil (no plan to prevent oil from remaining a global commodity).
9:51 More R&D money for nanotech and other buzzword technologies (any of that for stem cell research?)
9:52 No applause for the mention of the No Child Left Behind act? What's wrong with this crowd?
9:53 We've become a more hopeful country.
9:54 "A life of personal responsibility" It looks like Gens X and Y are rejecting the Boomers. Perhaps we won't pay for their retirement, either.
9:56 I've really discovered the edges of performance of my 6 year old laptop. No more links in this post...
9:57 I think I may have also detected the edges of my attention span.
10:00 Nap time over. Is he selling homesites in a floodplain? I must have heard that wrong.
10:02 Yup, his lips keep moving, but I stopped listening 5 minutes ago. Damn you, SATC.
10:03 "May God Bless America!" And we're done.

Next up, my Governor, Tim Kaine.

Savings rate lowest since 1933

This can't be good. With so many people borrowing to maintain their lifestyle, banks are the real winners. Perhaps this will be the year they break out.

Foreclosures in MA at a 12 year high

This is a story from yesterday's Boston Globe. With interest rates going up, people who used ARMs to buy near the crest of housing prices in Boston are getting hit with mortgage payments they can't afford.

Well, duh! If you can't afford the house, WTF are you doing buying in this market? It's a renter's market right now. This is the money quote from the article:

"When prices are skyrocketing, you have the option" of selling the house for a gain or refinancing, said Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University.

''In an economy where price appreciation is more modest or doesn't exist, what option do you have left?" he said. ''Sadly, one of those options is foreclosure."

That's right. If housing prices don't "skyrocket" each year, what choice DO you have BUT foreclosure.

Of course, another option is to buy a house you can afford, with a fixed rate mortgage. ARMs require you to fortell the future. Either your house has to be worth a LOT more in future, or interest rates have to remain constant. Neither is guaranteed, of course.

But the inability to live within their means is not the fault of the people who overextended themselves when they bought their houses. They're victims of the economy!

End of month savings report

I stated that one of my goals was to save 30% of our pre-tax income. Here is how we did:
Not so bad, 24.57% saved this month. That included less than one percent of "paydown", which I define as additional payments towards long-term, interest bearing debt. (Note that this does not include credit cards, which get paid off each month, or other obligated payments, such as mortgages or student loans. Only additional principal beyond the norm is counted).

Last month, the savings rate was 28.8%, but that included a large extra car payment (last one!), which skewed the trend. Without that paydown, the savings rate was only 20.5%, which was the number I was working with when I came up with my 30% goal.

So, it's a good start. If I hadn't read 2Million's post and started thinking about debt paydown and savings, it would seem even more impressive.

30 January 2006

Valentine's Sliders

This article makes me wish there was a White Castle closer than New Jersey. A road-trip to Columbus, OH, would not be out of the question, but I'd have to tie it into a larger trip. Lot's of fun roads in that direction, though.

I don't know how frugal going to White Castle really is. Even when you pay 7 cents or so for a slider, it all adds up.

29 January 2006

Pajama-clad investors

Here's an inspiring article from Forbes. The trick is to remember that the goal should be investing, not trading. Wealth accumulation, not additional income. After all, income is taxed, wealth that is not held in the form of real-estate (or cars, in backwards places like MA and parts of VA) is not.

Government debt and the Future

I came across this article a while ago, and bookmarked it expecting to have a lot to say. Better just to post it, I s'pose. One interesting quote (not the whole point of the article):
It's a cold world these young people are facing. Then again, it always was. Let's not forget the ancient sage advice against trying to lavish our heirs with luxuries. ``The finest inheritance you can give to a child is to allow it to make its own way, completely on its own feet,'' said the dancer Isadora Duncan.
This is warning against "weakening the weak", which is discussed at great length in The Millionaire Next Door, one of the books that inspired me to start this blog.

ROV attacked by octopus

This article is pretty funny, and only partly because it was written by someone with no background in science. It wasn't a "submarine" that the octopus tried to eat (or mate with), it was a Remotely Operated Vehicle (ROV). A tethered, underwater robot. Submarines, even mini-subs, carry people.

At least this article on the same incident calls an ROV an ROV, mostly.

Finally, this version of the story seems the most correctly written. However, they still get the details of the ROV wrong. The ROV is actually a Seaeye Falcon, made by Seaeye Marine, not Suboceanic Sciences, the operator during the incident. The Suboceanic website even points this out:
SubOceanic Sciences operates a Seaeye Falcon.
So what's the moral here? 3 versions of a remarkably simple story get simple terminology wrong. Sure, it's nitpicky, and the humor of the story is the real point. But, what does that say about articles written about economic topics, or tax law, or Social Security reform. The same liberal arts majors are writing these stories, too. Can they be bothered to spend 10 minutes with Google to check their stories? A lot more rides on opinions about the AMT legislation or pork barrel spending than on octopi.


I'm a big fan of Dr. Pepper. I've been to the Dr. Pepper museum in Waco, TX. I've stocked my vending machine with Diet Cherry Vanilla Dr. Pepper. And I got the manamana song stuck in my head thanks to their recent commercial (click Media Gallery, then on the first of the TV links).

What I didn't know, until a friend sent me this link, was the original source of the song. It's even funnier in context.

China Marketing 101

This list of 12 facts about the confucian customer is an interesting read. Most interesting is this:
11. Chinese people squirrel away 40 percent of their income, despite making, on average, less than a tenth of U.S. per capita income. The Chinese believe the fickle hand of fate can turn against them at any time. And there’s virtually no safety net.
The savings rate in the U.S. is at an all-time low. Perhaps even negative, depending on who you believe. I really like this graph to show that point, which also reflects the housing bubble, which is the only thing that is increasing net worth for the vast majority of Americans (from The Big Picture):

So, why do the Chinese save so much, and Americans so little? Could it have something to do with our perceived safety net? Well I for one am not counting on the government to tax the next two generations to pay for my retirement. The Chinese are well ahead of us in terms of personal financial independence. Even my 30% fantasy savings goal won't keep up with their remarkable average.

28 January 2006

Costco Sharebuilder Incentive

I came across this post on Budget Living in Orange County. Costco Exective members are eligible for an $85- kickback when joining Sharebuilder. However, there are some hoops to jump through.

First, go to the Sharebuilder Costco page. Note that it's only a $55- kickback. But don't despair. Click on the Special wallet offer. The bonus shows $85- for Executive members, and $65- for other members. Plus a 25% or 10% rebate of scheduled transaction fees. This expires 4/2/06. You have to click through to this page, I can't just post the direct link. In fact, you may have to start on the main Costco page, and click through from there.

There are a few stocks that I'd like to aquire over time. However, the transaction fee structure of brokerage trading encourages making all or nothing trades. I can't, say, accumulate more shares of Exelon one or two at a time (or fractional shares of Google, not that I'd want to). Sharebuilder fixes that. So, I'll sign up, and post again after I've given it a try.

UPDATE: I'm all signed up. It was a lot easier than sigining up for Ameritrade (20 minutes vs. 3 hours), and no paperwork to mail in. It was easier than even ING Direct!

27 January 2006

NPR Marketplace, Live from China

I only caught a little of the original broadcast, but this series from a few weeks ago was worth a full listen according to one of my coworkers. Who knew there was more to NPR than Palestinians and Car Talk?

It turns out Marketplace is a pretty good website for an alternate perspective on financial issues. Thinking about joining a credit union? Here's a quick, one sided report with no stated conclusion, just like their news!

Bad feedback for $3 eBay sale leads woman to new career in phone sex

I much preferred the Fark headline (the title of this post) for this article, conservatively titled Online CD purchase brought her harassment. However, the real issue is identity theft, and eBay was only involved in the target aquisition, not the means of the theft. Still, it's an interesting cautionary tale of the dangers of interacting with people online. And for some reason, eBay seems to attract some strange people.

Take this sad example. A woman and her daughter are found dead 26.2 miles from Boston. The husband is a "person of interest" who had recently begun scamming people on eBay.

So, if you use eBay, be careful out there. The odds are probably about as low as being a victim of road rage, but I predict that eBay rage will become a widely reported problem, even if there is no real trend.

Student Loan Debts

This article is quite astounding. Basically it's a slow news day in Seattle, so a reporter interviewed some near middle-aged people with crippling student loan debts. The best example of debt is a couple with $350K in debt from becoming acupuncturists. Huh? How long could that possibly take?

The best example of raw stupidity, however, is a woman who spent $110,000 to get a Master's degree in non-profits leadership. She already worked in the field. I know that Seattle University, where she got the piece of paper, is not a non-profit.

I'm sorry, but I gotta be harsh here. Staying in school past your expiration date can be one of the dumbest things you can do. First, it delays having a "real job", meaning that you're missing out on income-producing years. Second, who really profits from a Master's of Basketweaving? Only the school. Getting a graduate degree should show a return measured by an increase in your income, or at least your income earning potential.

So, if you're already independently wealthy, go ahead and go back to school to pursue a passion. Otherwise, there are only three reasons to go to grad school: 1. It is paid for by a fellowship, TA position, etc. (a great reason to be an engineer, you can get paid to go to grad school), 2. It is paid for by your current job (just look out for retention commitments), 3. It is an entry requirement for a high-income profession (i.e. MD, JD, etc. Acupuncturist apparently doesn't count).

Thanks to Everybody Loves Your Money for the link.

25 January 2006

Is debt paydown "savings"?

Depending on who you ask, paying down debt can count as savings. So, for example, principle paid on a mortgage could be considered "savings", since you're adding net worth every time you pay down your debts. The only real problem I have with that is when determining the difference between obligations and voluntary debt paydown.

Clearly, if you are carrying credit card debt month to month, that should be your highest priority debt to pay off (except for certain types of gambling debt, I s'pose). Say you have $10K in CC debt, which you plan to pay off in 20 months. You pay off all new charges, the interest in the balance, and put in an extra $500- per month to pay off the principle. Is that really savings? Perhaps, but only that $500-. Not the interest, and not the new charges. If you had no CC debt, paying off your monthly balance certainly couldn't count as savings. If it did, there'd be a savings incentive to spend MORE each month.

So, I'd say that "savings" can only be counted if it meets a few criteria. First, it has to go to pay down principle. Interest, monthly charges, and obligated minimum payments can't count.

Second, for mortgage payments for example, the part that counts as "savings" has to be beyond what the mortgage requires. If you have a 30 year mortgage, likely you're paying off about $1-150 in principle per $100K loan at the beginning of the loan. This will increase over the course of the loan, but initially it's mostly interest. You're still required to pay that principle, so it can't count as savings. The only "savings" that could be counted would be additional payments to principle made that are not required by the loan. Remember, if you make one additional principle payment each year equal to your total monthly payment, a 30 year mortgage will be paid off in 22 years. That's quite a savings over the length of the loan.

Finally, debt paydown has to be a benefit over time. Paying off your monthly credit card charges helps you today. You incur no interest on that debt. Paying down long term debt acts just like money in a savings account. It avoids interest charges over a long period of time, which is the same, to you, as earning interest in your ING account.

So, when I made my New Year's resolutions to save 30% of pre-tax income, I wasn't thinking about counting debt paydown. I won't start now, but I will track it. Perhaps I'll see some interesting trends.

Please leave a comment if you have an opinion one way or the other. Is debt paydown "savings"? Thanks!

UPDATE: Here's the post that started me thinking about this topic. Next week I'll have my end of the month financial figures up. I'll be sure to track debt paydown as savings separately.

I'm a Ferrari 360 Modena, apparently.

Not the first choice of most PF bloggers. The Miata was another possible outcome, but not the Pontiac Solstice, or even the newly announced Pontiac Solstice GXP.

Take the Which Sports Car Are You? quiz yourself at tomorrowland.

At least I'm not a Mazda RX-8. Bleech...

20 January 2006

Credit Cards and Cash Back

I can't imagine any PF bloggers supporting carrying credit card debt from month to month. Still, if you pay off the charges every month, thereby incurring no interest charges, there's no harm, right? Don't tell that to ncnblog.
I am glad you pay off your balances, but people spend MORE with credit cards than they do with cash. (Be HONEST, and think about how YOU are with your credit card!)
He may be right. Even if you pay off the balance every month, the credit card may encourage additional spending. I wish I could find the quote, but I've seen/read that using a credit card for most purchases increases monthly spending by 30% or so.
I am glad you were going to buy these things anyway... But, are you being totally real with yourself? On occasion, don't you purchase items with the thought in the back of your mind... "Well, I don't really need this, but I will get some cash back, and I might use it..."? Ladies, go check your closet for that purse or pair of shoes you charged, and think of how you justified the purchase... Guys, go out to your shop and look at that tool or gadget that you just had to have. If you did not have a credit card, would you have purchased those items...? BE HONEST.
Okay, I've fallen into this trap. You should see all the shoes I have in my closet. Kidding. But I do have a lot of tools in the garage.

However, I would counter with a few observations. There are certain purchases that are unavoidable. Groceries and gas are the most obvious. There's not much I can do about how much gas I need in a month. And the more frugal I get about not eating out, the MORE I end up spending on groceries. So, why not take advantage of cash back if your credit card offers it? If I can get a 5% discount for using my Discover card at Giant, why wouldn't I. How is that any different than the kickback I get from FatWallet?

Also when used properly, credit cards can be a great way to track spending. All of my accounts are linked through MS Money, including and especially my credit cards. This has proven to be a great way of keeping track of what gets spent on what. After seeing the trends develop for a few months, I don't know how I ever got by without Money.

So, I'll have to disagree with ncnblog overall on this issue. I still think the benefits of credit cards outweigh the drawbacks. But be careful with them.

Joint bank accounts

The Young Professionals Financial Blog asked the question: After getting married, do you and your spouse combine all of your bank accounts?. My wife and I did. Actually, we've had a joint account since we were dating. It came in quite handy as we put each other through college. We've never believed in "mad money" independent accounts.

Recently, we've set up our "own" savings accounts, ING Direct for me, HSBC for her, and I've set up another checking account through a credit union for use as an investment money source. However, all of these accounts are joint. They are "mine" or "hers" only in the sense that the direct deposits come from only one of our paychecks.

So, having joint accounts has worked for us. But that may be a function of our relationship. My wife and I have been together for most of our adult lives. The reasons listed in this CNN Money article never applied to us.


It's no secret that I hate wicker. There is no wicker in my house. However, my mom has no such hangup.

She was shopping at Lowes today, looking for towel racks. There were a few items on the clearance rack that she was interested in, but not enough for a complete set. Apparantly they are somewhat wickery in appearance (I guess the ends have that wicker texture, but must still be metal, right?) She asked one of the employees if she could get the mates off of the store display. The employee gave her the entire display, for free.

So, it always pays to ask. Be frugal, and look for those deals. Even if they're wicker. I'm just glad the towel racks aren't going in my house.

Preview of China

I was fortunate to have a genuine Chinese experience last night. I suspect it was related to the catered deli food I had for lunch on Thursday. I came down with a very bad case of food poisoning. Apparantly this is a pretty common experience in China. I can't wait.

19 January 2006

ING Direct

I consider ING Direct (and HSBC, for that matter) to be great savings tools, but certainly not investing tools. Money allocated to ING directly from my paycheck is not missed, nor do I have to worry about transferring it over. And even at 3.80%, ING beats most brick and mortar bank savings accounts by a factor of 3 or 4.

Then I saw this.
While the 4.75% rate is only good for 87 days, it's still a great incentive. I found ING Direct to be a lot more user friendly than HSBC for most things. That's a big benefit when setting up a parent, for example.

And, the referral bonus still applies. So if anyone would like a free $25- bonus with your new account, please email me, j.arthur.random gmail.com

Full disclosure: I get a $10- referral bonus with any new accounts set up through one of my referrals.

Fuller disclosure: HSBC currently gives a 4.25% APY. My wife prefers the HSBC features, though it is a less visually pleasing website.

Over the hump

Thanks to holidays, credit card billing cycles, and planets aligning, a LOT of unavoidable stuff got charged to the credit cards last month. In addition to the regular living expenses, two holidays and a minor emergency all got charged at the same time. Combined with some aggressive saving, we were able to just squeak by. But we're over the hump. We didn't have to pull reserves from the ING savings account, and we didn't have to carry a balance on the cards.

So what sounds like bad news is actually great news. Between the plane tickets, presents, and Mrs. Random's "accidental" computer failure, we nearly tripled what had become our new monthly average. If we can maintain our previous average spending, we can greatly increase our savings rate.

At mid month, we've "saved" 13.3% of our average monthly income for the coming year ("saving" is considered to be placing money into ING or HSBC, or using it for a long-term investment). We're on track to save 23.7% by the time the remaining two paychecks come in. That beat's last month's 20.6%, and is well on the way to the 30% goal, which was New Year's Resolution #3.

15 January 2006


The Pats managed to give the game away. Both of my teams are now out of the playoffs.

Fortunately, my wife found this blonde joke to cheer me up. I feel much better now.

14 January 2006

Halftime report

I'm surfing during the Patriots game. I figured they had a great chance to win. They still do, but it's not looking so good.

Of course, if bogus pass interference calls and crazy fumbles benefit the Patriots in the second half, we'll be doing pretty well.

Update: What the hell are they doing? It's now 23-6. The game is over. The pass interference call doesn't matter if you give up 3 fumbles and a 99 yard interception return.


Last evening, cued by a scene in the movie we were watching, I lamented that we hadn't had a good thunderstorm in a while. My wife pointed out that it was winter, after all.

Early this morning, a loud thunderclap woke me up. I guess I got what I wanted. Perhaps I should have asked for something else.

Last evening's movie was Shower, or Xizao by it's Chinese title. I'll give it an Okay. It was a lot more entertaining than Shanghai Triad, but it certainly wasn't the "winning comedy" that the Entertainment Weekly quote whore had made it out to be on the box. And like every single Chinese movie I've seen, somone dies. The fact that only one person dies is quite remarkable. Usually everyone does.

Interestingly, Shower is the second highest rated DVD returned from a search for "Shower" at Amazon. First is Infant Massage Lessons for Dads.

12 January 2006

Worst tale of avoiding the stupid tax

The post below is probably one of the best jobs I've done with avoiding the stupid tax. Now I'll relate a time when I wish I had just paid it.

My wife and I (she was my girlfriend at the time) were shopping for food at City Shitty Foods in Central Square, Cambridge. This was early 1996, the '90s recession had ended, but Central Square, between Harvard and MIT, had yet to be gentrified. After walking the 8 blocks between the store and our dorm, we realized that we had been charged for a can of tuna that was not in our grocery bag.

The tuna cost one dollar. We were poor college students. You know what happened next.

I walked back to Shitty Foods, and got my can of tuna. The transaction took 5 minutes, plus about 20 minutes travel time. But, I avoided the stupid tax. In retrospect, one dollar back then was probably worth more than ten dollars are today. Probably a lot more.

Avoiding the "stupid tax"

Everyone's paid the stupid tax at one time or another. You're at fast-food restaurant, or a supermarket, or a gas station, and there's an error on the bill. You could get it corrected, but you figure your time is worth more than the buck or so you would save by attempting to explain the error to the cashier and/or talking to the manager.

I narrowly avoid the stupid tax today, and it really paid off. I was at Giant buying some groceries. I noticed that Campbell's select soup was giving $1.00 off instant coupons with a four can purchase. On top of that, one flavor, and only one flavor, was on sale, buy one get one free. So I picked up four cans of Veggie Medley soup (my wife likes it). Normal price, 2.69.

I check out, and lots of stuff rings up as on sale with my Giant card (actually the smallest discount card I carry, the size of two postage stamps, smaller even than my CVS card). Only the soup does not. I don't press the issue with the cashier. It's not her fault, and I think I know what would happen. I'd hold up the line for 5 minutes while someone checks for the ad on the shelf, and confirms it's validity. Best case, I save $5- on the soup. So I let it slide, thinking I may get taken off at the end of the transaction.

Since I had noticed the coupon announcement, I keep my eye on the instant coupon dispenser. A $1- coupon prints out, and I'm able to apply it instantly. Not bad. After paying, I check the receipt, and there's no mention of the BOGOF deal. I think about it for a second, and decide to pursue it, since I'm passing by the customer service counter on the way out anyway.

I almost didn't. I almost paid the stupid tax, but I sucked it up. I walked back with the rep to show him the ad, which clearly stated BOGOF on the cans I bought. It also stated "expires 7-Jan" (it was the 12th). The rep states "that's my fault, not yours". In the end, not only do I get two cans refunded, but I get the other ones free. I walk out of there having been paid $1- for removing four cans of soup from their shelves. Not bad.

In the future, I'll probably keep paying the stupid tax. It happens at McDonald's from time to time. But not at Giant. Kudos to them for having great customer service.

10 January 2006

Whiny Twentysomethings

This article on Slate is a true gem. Read the whole thing. The last two paragraphs are the best parts. Not only are twentysomethings whiny, they're making money being whiny. Whatever works, I guess.

09 January 2006

Pensions? Ha!

I don't usually read the NY Times, but I was looking for another article and happened across this. It deserves a Fi$king.

Basically, "rich" companies are freezing pension programs before they become a huge liability. This seems perfectly reasonable to me. The government already did this, in 1984, converting from CSRS to FERS. Many failed industries have been bailed out by the government of their guaranteed pensions. So what's wrong with a little prevention?

Pension advocates said they were dismayed that rich and powerful companies like I.B.M. and Verizon would abandon traditional pensions.

"With Verizon, we're talking about a company at the top of its game," said Karen Friedman, director of policy studies for the Pension Rights Center, an advocacy group in Washington. "They have a huge profit. Their C.E.O. has given himself a huge compensation package. And then they're saying, 'In order to compete, sorry, we have to freeze the pensions.' If companies freeze the pensions, what are employees left with?"

Employees are left with the assests they've been able to accumulate for themselves. I expect to retire solely on my own savings. 401(k), TSP (the gov't's version of a 401(k)), and other investments.
Like I.B.M., Verizon said it would replace its frozen pension plan with a 401(k) plan, also known as a defined-contribution plan. This means the sponsoring employer creates individual savings accounts for workers, withholds money from their paychecks for them to contribute, and sometimes matches some portion of the contributions. But the participating employees are responsible for choosing an investment strategy. Traditional pensions are backed by a government guarantee; defined-contribution plans are not.
Exactly. Traditional pensions are backed by the government. So when todays hot companies fail in the future, the American tax payer pays for all those IBM and Verizon employees to retire. After all, unless people are forced to save, they won't. So, as a taxpayer, I have nothing but good things to say about defined contribution plans. But, I'm a big believer in personal responsibility vs. government handouts.

Only a year ago, when I.B.M. decided to close its pension plan to new employees, it said it was "still committed to defined-benefit pensions."

But now the company has given its imprimatur to the exodus from traditional pensions. Its pension fund, the third largest behind General Motors and General Electric, is a pace-setter. Industry surveys suggest that more big, healthy companies will do what I.B.M. did this year and next.

Big, HEALTHY companies? I know what the author means, that I.B.M. will lead the way for other big, healthy companies wishing to freeze their pension plans. But the slippery slope argument is especially appropriate for GM. GM isn't healthy. Their pension, labor concessions, and lack of innovation are killing the company. Except for a recent bounce, GM stock has been sliding down a slippery slope all year.

"There's a little bit of a herd mentality," said Syl Schieber, director of research for Watson Wyatt Worldwide, a large consulting firm that surveyed the nation's 1,000 largest companies and reported a sharp increase in the number of pension freezes in 2004 and 2005. The thinking grows out of boardroom relationships, he said, where leaders of large companies compare notes and discuss strategy.

Another factor appears to be impatience with long-running efforts by Congress to tighten the pension rules, Mr. Schieber said. Congress has been struggling for three years with the problem of how to make sure companies measure their pension promises accurately - a key to making sure they set aside enough money to make good. But it is likely to be costly for some companies to reserve enough money to meet the new rules, and they - and some unions - have lobbied hard to keep the existing rules intact, or even to weaken them. So far, consensus has eluded the lawmakers.

"If Congress will not do its job and clarify the regulatory environment, then I think more and more companies will come to the conclusion that, given everything else that they've got to face, this just isn't the way to go," Mr. Schieber said of the traditional pension route.

It's remarkable to find this content in a times article. Here we have a quote stating that labor unions are hurting progress AND that companies are taking a free-market approach to solving problems ahead of Congress.

For many workers, the movement away from traditional pensions is going to be difficult. Already there are signs that people are retiring later, or taking other jobs to support themselves in old age. Participation in a pension plan is involuntary, but most 401(k) plans let employees decide whether to contribute any money - or none at all. Research shows that many people fail to put money into their retirement accounts, or invest it poorly once it is there.

Here's the big problem. I'm willing to concede that a lot of people won't plan for the future, and won't have what they need to get by. However, isn't it better to get out of the way of those who are willing to help themselves, rather than have to step in at the last minute, and at great expense, to bail out a failed pension?

He found that if the man turned 65 in 2000 he would have enough 401(k) savings to buy an annuity that paid 134 percent of his pre-retirement income. But if he turned 65 in 2003, his 401(k) savings would only buy an annuity rich enough to replace 57 percent of his pre-retirement income.

This man never heard of the Lifecycle fund, or it's mutual fund cousins. And who buys annuities anyway?

Finally, this comment:

When a company switches from a pension plan to a 401(k) plan, the transition is hardest on the older workers. That is because they lose their final years in the pension plan - often the years when they would have built up the biggest part of their benefit. They then start from zero in the new retirement plan.

That's not even what they're doing! When the feds switched from CSRS to FERS, there was a hiring date cutoff. People hired after 1 January 1984 were covered by FERS. Those hired before could elect to switch to FERS, or be covered under CSRS. They didn't "start from zero". The next paragraphs in the article refute this very line.

Jack VanDerhei, an actuary who is a fellow at the Employee Benefit Research Institute, offered a hypothetical example. If a man joins a firm at 40, works 15 years, and is making $80,000 a year by age 55, he might expect to have built up a pension worth $16,305 a year by that time, Mr. VanDerhei said. If he keeps on working under the same pension plan, that benefit will have increased to $27,175 a year when he retires at 65.

But if instead when the man turns 55 his company freezes the pension plan and sets up a 401(k) plan, the man will get just the $16,305 a year, plus whatever he is able to amass in the 401(k). It will take both discipline and investment skill to reach the equivalent of the old pension payments in just ten years, Mr. VanDerhei said.

I'm sorry. If you're making $80,000 a year, and you can't save up enough to buy $27175 - $16305 = $10870 worth of annual income, than you're living well beyond your means, and even the $27175 figure would be far too little to live off of. Drawing only 5% of the investment, $10870 represents an investment worth only $217400. No small sum, but not insurmountable by any means. And, the hypothetical retiree had better be decreasing his annual spending to close in on whatever he'll be making in retirement, or else he'll be in for a huge shock. $80K - 35% taxes - $35K living expenses leaves $17K per year to invest to try to reach that $217K. And that's assuming no other investments, savings, equity, or property.

I don't want to be in that position, ever. So I'm saving now. I'm not counting on my meager pension (FERS employees still get one), or on Social Security. Only my own investments. I suspect that by the time I retire, I will no longer be in the minority when I think this way.

Online brokerage

So Etrade pissed us off. We'd had stocks sitting there for years. Recently, they decided to be a trading based online brokerage, as opposed to investment based. We were charged a $40- fee per quarter that we didn't effect a trade. That's all well and good. Unfortunately, they were emailing this information into the void. I didn't realize until we had been charged for three or four service fees. Needless to say, I was a bit annoyed.

So, I read a few reviews online, and decided that for what I wanted to do, Ameritrade would be the best choice. 15 free trades to get started, cheap trades after that, and zero or minimal fees. I opened an account (lots more paperwork than it seems like), and initiated a brokerage transfer from Etrade to Ameritrade.

I just called to check, and even though the transfer is taking longer than I expected, and the check I wrote them to cover the difference hasn't arrived yet (I swear, it's in the mail), my free trades are safe. The promotion said I'd have 30 days to fund my account, but since the brokerage transfer was initiated in time, it doesn't have to complete in time.

So, I should be ready to start investing again. Just in time for a 4 1/2 year market peak.

Home equity loan is official

The paperwork went through, and the money is now in my credit union account. The 4.9% APR certainly beats the 7.25% my HELOC had gotten up to, and the 6% of some of my student loans. In a few days, once the checks clear (I was able to pay off a few debts online tonight), I'll have to update my NetworthIQ again. There won't be a change in the total, but the distribution will be quite different.

08 January 2006

NFL Playoffs roundup

I picked all four winners this week, but my score prediction needs a lot of work. Check back next Friday for next weekend's predictions.

07 January 2006

Wild card updates and Sunday predictions

I picked both of the winners today (it helps that they are my two teams in general. I spent half the day wearing a Fred Smoot Redskins jersey, and the other half my Vinatieri jersey).

My call for the Redskins game was pretty close. Tampa Bay did score 10 points, while Washington scored 17 vs. my predicted 13. For the Pats game, however, I was WAY off. Thanks to some spectacular defense, the Jaguars were blown out in a way I could never duplicate in Madden '06. That's good. Now I just hope the Steelers win tomorrow so the Pats will face them next week, instead of the Colts.

I play-tested Sunday's NFC wildcard game, but I didn't have time for the AFC (I spent the day cleaning the house since we had company). So my prediction for a Carolina win is based on hard science (Freehy even missed two short field goals while I was playing the Giants), but the Steelers game is based on nothing in particular. My calls for tomorrow:

Carolina, 24 @ NY Giants, 13
Pittsburgh, 17 14 @ Cincinnati, 14 13

I reserve the right to correct the call on the Pittsburgh game anytime before the coin flip. Perhaps I'll have a free moment to myself tomorrow.

Update: After playing through both games, I've updated my predictions. I expect a very defensive game, with the Steelers edging out the Bengals. My Madden games were 0-20 as the Bengals, and 21-0 as the Steelers. VERY close.

I'll second that

A throw-away comment on Free Money Finance (not the point of the post) is great advice. Look into Credit Unions! Back in Boston, I had a great credit union. Free ATMs all over Massachusetts. The best feature was the online billpayer service. It was $4- a month, but the website was easy to use, so it was worth it.

Since moving to DC, we've done most of our banking at a major regional bank (they key features were the free online billpay, and lots of local branches). On a whim, I put $25- into a credit union over a year ago. I made $0.36 in interest over that time. Since ING Direct did FAR better, I never considered putting any more money in that account.

That was until I happened to see their rates for equity loans. I managed to get a 5 year home equity loan with a fixed rate of 4.9%. That was much better than the company that holds my HELOC, better than my bank, and better than all the other credit unions I looked at. The application was a breeze, customer service is excellent, I'm quite happy.

So check out those credit unions. Some of them can be real gems.

06 January 2006

NetworthIQ update

The bad news is that I had to update my NetworthIQ down a bit, thanks to my house being worth $10K less than I thought. The good news is that the new value is based on a professional assessment. The better news is that the assessment is part of a fixed rate, 4.9%, 5 year home equity loan. It will be used to pay off our adjustable HELOC (currently 7%), our remaining car loan (only 3.5%, actually, but having the title has other intangible benefits), and some marginally higher rate student loans.

At our current rate of paying down long-term, non-mortgage debt, we should have the equity loan paid off in less than two years. I expect our net worth to be growing steadily each month between now and September. After that, whether it maintains it's current growth or skyrockets depends on my success in finding a job in China.

Serenity review

My wife and I watched Serenity last night. Like the show, I'll give it a pretty good. I think a few corners were cut for budget (forgivable), and a few more to broaden audience appeal (also forgivable, at least the movie got made). My big non-spoiler complaints with the movie were the slightly unimaginative final shootout/fight sequence, and some uncharacteristic behavior from the main characters, especially River and Mal.

However, as hollywood movies go, it was quite good. Certain parts were great. But, as with the show, I think a greater opportunity was missed (Of course, with the show, a HUGE opportunity was missed, by Fox, but that's another story).

Also, kudos to Amazon for the quick shipping. Free super-saver shipping only took 5 days. Perhaps there's a glut of warehouse employees and mailmen after the Christmas rush.

05 January 2006

Saturday Wild Card Madden '06 predictions

I play the games so the pros don't have too.

Using a highly scientific formula, I've determined that the Redskins will advance on Saturday, beating the Buccaneers. I played both sides of the game, with 3 minute quarters, at Tampa Bay. I let Madden pick the plays on offense and defense (unless they were truly boneheaded, like a QB kneel when the clock wasn't running, for example).

The only change I made to either team was to sub in Brunell at QB (Madden went with Ramsey). Good thing, too. Playing as the Bucs, I was able to intercept Ramsey 4 times, including twice in three straight plays (I turned the ball over on an interception on the in-between play). My final scores were 0 to 10 as the Bucs, and 20 to 7 as the Redskins.

So, my picks for Saturday are:

Washington 13 @ Tampa Bay 10
Jacksonville 20 @ New England 23

Stay tuned for predictions for Sundays games.

04 January 2006

Perhaps they're missing the point

I'll agree that money doesn't buy happiness. In fact, it can make you miserable. But I disagree with this article by Paul B. Farrell of Foxnews.com.
Accept the fact that you're just one of 287 million Americans (out of 295 million) who will never retire as a millionaire. Accept that and you'll be a lot happier. A healthy, spirited blend of gratitude and acceptance is the single most effective retirement strategy for any American.
That's crap. If everyone just accepted losing, everyone would be a loser. It gets better:
Although many admitted they weren't saving enough for retirement, and half said they hadn't even calculated how much they need for retirement, about two-thirds believe they will have "enough" to retire. That's acceptance, folks.
Is "enough" enough? Enough to live comfortably, and independently? To enjoy the freedoms of wealth and security?
Materialism is not in fact the way most Americans live ... or want to live. That's a myth, a fleeting New Year's resolution that's just a big fat tipsy ego talking. It'll just leave you with a big hangover and a lifetime of frustration. Stick with what really counts, gratitude and acceptance of what you already have.
I'm all for acceptance of what you already have. Put another way, it's called making do with what you already have, or frugality and thrift. But working with a goal in mind of becoming a millionaire is NOT materialism. Having money does not mean spending it wildly. The goal can be freedom from debt, freedom from dependence, or even freedom from materialism. Becoming wealthy and living like a materialistic asshole are two completely separate things.

Also in the article, Paul quotes an unnamed AARP study:
In other words, a grand total of 93% score themselves "average happy" or better. Only 6% were unhappy. That's a pretty high score in any game, folks!
Are happiness and wealth linked? I don't know. The AARP study (which is not linked to directly) seems to state that the vast majority of retirees are happy. Good for them. Of course they are. They have a guaranteed paycheck every month. If they've adjusted to living within their means, there's no reason not to be happy.
In spite of the highly touted entrepreneurial spirit that's made America great, most of us just are not driven to do all it takes to become millionaires; we "just want to be comfortable and secure."
And that social security paycheck is security. In the real world however, the only retirement anyone under 40 can count on is whatever they put away themselves. So, assuming ambitiously drawing off 10% a year, a million dollars generates only $100K of income per year. Could you survive on that? Sure, and quite well if you strive to be debt free. But a million dollars won't be enough by the time I retire.

For true independence, both from working and from government handouts, many millions of dollars of savings will be required, as well as a debt-free lifestyle unencumbered by expensive hobbies. Lets do the math:

Comfortable income today = $100K (I live in Fairfax county, VA, and this number would be a stretch. It would only be "comfortable" with no debts). Since 1982, the CPI has nearly doubled. So by the time I'm 50 in 2027, I'll expect a comfortable income to be $200K, and potentially a LOT more. The CPI also doubled from 1970 to 1981, so a comfortable income may be $400K in 2027. Now, also say 5% is a reasonable draw down percentage (which is in fact VERY optimistic), leaving of the investment profits to grow to beat inflation. I'll need at least FOUR million dollars by 2027 if I hope to retire that year.

So Paul is wrong. It is unfair to the future taxpayers of this country, and to the next generation in general, to assume that living comfortably is acceptable. Becoming a millionaire isn't just a pipe dream, it's a pre-requisite for independent living.

03 January 2006

Madden '06 NFL playoff prediction

My wife's family chipped in and got me a copy of Madden '06 for Christmas. It was quite unexpected, but highly desired. Kudos to my wife for listening to my hints, and conspiring with her family to get me what I really wanted.

As with Madden '05, the Patriots are the dominant team in the game (by the stats). I've played a bunch of games as the Pats and was undefeated for a while. I even beat the Colts, handily, at Indy. I only mention this because they are the likely opponent for the winner of the Pats/Jags game. I also mention this because it took me THREE tries to beat the Jaguars. They had superb pass protection. In my first game I was intercepted 4 times! I finally beat them by going to the run.

Now I haven't publicly predicted a Patriots loss since the 2002 Superbowl, and I'm not about to start now. But I think it's going to be a very close game on Saturday night. My call: Jaguars 20, Patriots 23.

BTW, the Pats lost last week to Miami, 28 to 26. In Madden '06, with Doug Flutie subbed in at QB the entire game, I was able to beat Miami 23 to 6 (and was 10 seconds away from a shutout). Does this really mean much? No, especially since I couldn't figure out to make Flutie dropkick an extra point. But I may want to revise my prediction. But, you know what I always say...

02 January 2006

Splitting of the Middle Class?

This post from Boston Gal's Open Wallet contains a choice quote from an actual "economist":

Economist Mark Zandi said he sees two classes emerging in Boston and nationally: One earns above the region's median family income, about $75,000 in the Boston area, and lives in comfort, with job security, stock holdings, and little debt. The other half earns below the median, has far less job security, and worries about credit card debt and student loans.

''This reinforces the view that the folks who are doing well are doing very well, and the folks who aren't doing well aren't doing very well at all," said Zandi, chief economist for Moody's Economy.com. ''The middle class is bifurcating. It's becoming two classes."
This is from an actual Boston Globe article. While it's quite shocking that half of families in the Boston area make less than the area's median income, it appears that the "problem" may be taking care of itself. After years of expansion, people are leaving the Boston area in droves. housing prices have peaked, and those who aren't yet millionaires are looking at cheaper places to live to start or continue their lives.

I think Zandi is wrong. There may be a split in the middle class, but it has nothing do to with where people fall relative to the local median income. The split exists between people who conciously try to save money and live within their means, traditional middle-class values, and those who do not. It's entirely possible that $75K is not enough for a family to live off of in the Boston area (although my wife and I pulled it off for $40K one year when we were both grad students, on top of owning a townhouse). But the option always exists to MOVE.

If you can get ahead where you are by getting a better job and living within your means, great, do it. If you can't move to someplace you can. My wife and I moved to DC for just that reason. And we're moving to China in 10 months partly because DC is becoming too expensive as well.

So, perhaps the real split in the middle class can be measured by the flexibility of those willing to improve their lives, vs. the inflexibility of those unwilling to take risks to greatly improve their overall wealth and happiness.

First lost weekend of the new year

Since it's still a holiday (my wife and I have the day off), we decided to do to things. First, put off all New Year's resolutions until tomorrow. Second, watch Firefly, which was one of my Christmas presents. Not much productive got done, but Firefly was a pretty good show, though a bit derivative of others (I prefer the sci-fi/gangster combo of Cowboy Bebop more, but my wife prefered Firefly). Now all that remains is to pick up a copy of Serenity.

Actually, I didn't put off all my resolutions until tomorrow. Today's link may count as number 2.