Uncommon Cents

I’ve set a bunch of goals for myself athletically in 2010, mostly around organized runs and bike rides I want to do. But, as I mentioned not long ago, two of them are not just events I’ve done before, they’re way out of my usual, live on this wonderful, beautiful island box:

Livestrong Challenge Philadelphia 10K run and Century ride.

Yes, that’s correct: Philadelphia, Pennsylvania.

This is not a trip I can just make, of course–like everything else in life, it needs to be paid for. And I need to figure out how to do this frugally as well as in a way that it’s a memorable experience.

The way I figure it, here are the expenses:

Airfare. There’s no reasonable way for me to get to Philadelphia except by flying. Even if it’s not to Philadelphia itself, I have to get -somewhere- on the continent where I can drive to or take a train to the event.

Housing. Similarly, I’ll need somewhere to sleep. The hostel I stayed at during my one and only previous trip to Philadelphia is apparently about 10 miles from the start of the Challenge, so that’s a possibility. It was quite nice (historically nice too, like going back in time) and very reasonably priced too, but not really near too many things (I got lost on a walk to the store too). And whether this is an option for me to stay is going to depend on our next item.

Ground transportation. While ten miles is not insurmountable (and since I’ll have a bike is in fact well within cycling distance), if I’m going to do a century, I really don’t want to ride there 10 miles at the start and 10 miles back at the end of it (and I suspect those are beeline, not on the road, distances). And if I’m going to do the 10K running, I even more so don’t want to have to walk there before the event. Philadelphia is not known for cheap taxis either.

Shipping. I have to get my Bianchi there somehow. Taking a bicycle on a plane is a pretty expensive proposition. So is shipping it through the usual channels (Federal Express, United Parcel Service, even the postal service). I’ll have to investigate this as well.

Basics. And no matter what, I’ll need to eat.

I’ll be running a total on this to figure out what I need to give up in order to make this trip happen. What those things will be I don’t know yet, but I know I’ll be having to make quite a few sacrifices in order to make this goal a reality.

Welcome to our September 20, 2009 Link Payday! As the seasons change over, in this episode we will once again look at some of the best personal finance blog posts from all over the Internet in the past few weeks:

One of my favorite bloggers and Twitterers, Mrs. Micah discovers there are No More Paper Paychecks at Walmart. As the nation’s largest employer this is a huge step–there are lots of positives and some negatives, and her opinion seems to be this is a move for the best.

A post on Get Rich Slowly asks Should You Buy it? It also gives a flowchart to help people evaluate potential purchases. If you’re someone who likes flowcharts (some days I do, but not all that often), this might help you.

The Online Savings Blog asks Should You Keep Multiple Investment Accounts? It’s an interesting question. I have several, but they’re that way because they have to be–my 403(b) is separate from my Roth IRA is separate from my traditional IRA is separate from my taxable brokerage account–although I guess I could combine that and my Sharebuilder account. But one of their points is that there are some advantages to having multiple accounts. Definitely worth a read.

Beks at Blogging Away Debt discusses Stretching to New Goals. As a guy who is constantly finding new challenges, I’m interested in learning about the goals others are interested in. One of hers right now: learning to swim.

Finally, Lynnae over at Being Frugal shares Lessons From a Little Forced Frugality where she (re)learns what’s really important in light of a check that was bounced to her.

And that’s your September 20, 2009 Link Payday!

One of my buddies on Twitter asked, paraphrased:

“What do you think about doing an HEI DRIP for my less than one year old baby?”

I love it when parents start thinking about the future of their child early.

Now, I do not advise parents to save for their child’s future education over their own retirement–that might sound harsh, but if the kids want to go to college (and I am all for that), they can, last resort, work through it take out loans, going to a state college to try to keep expenses down, or even a junior college (what in Hawai’i we call a community college) if needed, but you cannot borrow for retirement.

That said, let’s first consider this proposal of going with a single stock dividend reinvestment program (a DRIP)–unfortunately, we don’t have as much information about this situation as we’d like–versus other possibilities.

Putting all your money–whether it’s for a particular purpose like college (which I’m assuming is what is the driver behind this question) or retirement, or just for your own savings–into one stock is the opposite of diversification, and greatly increases your risk. Remember when I was discussing all of the different items in my portfolio, and how I took care to say that a particular stock or fund made up a certain percentage of my portfolio? That’s because I try to avoid having a high level of concentration of my money in a single stock (if it is, however, a diversified fund–like an index fund–then having a high level of concentration in the fund is fine). I try to have no more than 4-5 percent of my total portfolio into a single stock.

Putting that aside, the idea of a DRIP is in general a great one. Instead of getting paid the dividend in cash, more of the stock that paid the dividend is bought. Additionally, dividends have received preferential tax treatment for a few years (which is the key phrase here), adding to the attraction of dividend paying stocks. Unfortunately, as economic times have gotten tougher, many companies have cut their dividends, and if the reduced rate at which qualified dividends are taxed goes away, dividend paying stocks (and therefore DRIPs) will also become less attractive.

Let’s also remember that while many companies offer DRIPs, often brokerage houses let you reinvest dividends just as if you were involved in an “official” DRIP–call it an artificial DRIP. Firstrade and Sharebuilder, where I have brokerage accounts, both allow this.

Of course, if this stock is being bought in a sheltered account of some kind, the tax consideration changes. Since I believe the stock would be purchased for educational purposes, let’s consider the two best ways to save for education, the Coverdell Education Savings Accounts (ESA) and the 529. I do not know of a 529 plan in which individual stocks can be purchased; apparently there are some low cost Coverdells which are essentially brokerage accounts. If this stock is indeed being purchased for this purpose, I’d suggest using one of these Coverdell brokerage accounts with low costs (and I am very outside my area of expertise here, so consider checking out Saving for College on the Web).

In principle, if one wanted to buy an individual stock and create a DRIP program for their child’s educational future, I would suggest instead of HEI (which we will cover soon), the purchaser open a Coverdell ESA with one of the discount brokerages (E*Trade, Scottrade, TD Ameritrade, and Schwab all appear to offer these accounts) and instead go with an Exchange Traded Fund of a broad stock market index such as Vanguard Total Stock Market Exchange Traded Fund (VTI), where despite having just one holding you have the diversification of the entire stock market.

All of that said, let’s take a quick look at HEI:

HEICO Corporation (whom I had never heard of prior to researching this question) is apparently a company involved in electronics, defense, and aerospace. It is quite high tech. It pays a tiny dividend (12 cents a share, or .30%) but its performance has trounced the S&P 500 since it went public in 1992.

In other words, this stock has done well over time–extremely well–and if you got in early you’d be flying right now. There’s not much reason to think it won’t continue to do well. But that said, it’s still just one stock, and you still run the risk of it underperforming the market.

If it were me and I just wanted a single stock to run with, I would have to say to go with VTI and set up the account to reinvest the (larger than provided by HEI) dividends. HEI may make a great addition to that, but I cannot recommend putting all of your investing eggs into a single stock when you can easily get the diversification of the entire market in a single share of an ETF.

Welcome to your Link Payday for July 20, 2009–vacation edition! Yes, I am traveling over the next week, but you won’t miss me since I’ll still have posts showing up daily. In the meantime, please check out some of my picks for best of the personal finance blogosphere over the last few weeks:

The Frugal Duchess celebrates her 51st by coming up with 51 Frugal Goals for a Birthday Weekend. Hauoli Lahanau to you!

Trent at The Simple Dollar discusses what to do after reaching a huge goal when he considers To Close or Not to Close a Paid-Off Credit Card? In my case, I wouldn’t close it, but many people lack the self control to do that successfully.

My buddy Ron over at The Wisdom Journal goes old school on us–correctly–when he contemplates Could There Actually be a Shortcut to the Top? The answer, of course, is no–there are no overnight successes.

The Online Savings Blog preaches one of the most important parts of investing by Keeping the Market in Perspective. Yes, we’ve had a great few months, but we’ve not had the best ten years before that; then again, we’ve had much success when you go back even farther!

Finally, David over at My Two Dollars gives us a new way to cut spending by having us ask ourselves How Many Hours Do You Work to Pay For Your Stuff? Interestingly, I’ve been doing this for awhile and I do find that it helps me keep things in perspective.

And that’s your July 20, 2009 Link Payday!

Welcome to our on-time-for-once edition of the Link Payday. This day after United States Independence Day, we take a look at some of the best posts on personal finance blogs of the last few weeks:

This is a conversation that comes up fairly often: how much or what to give for a wedding gift? Lynnae over at Being Frugal asks the readers the question in You Tell Me: Favorite Frugal Wedding Gift. This is a tough one to tackle and opinions seem to vary wildly, so thanks for taking it on!

Blogging Away Debt tackles a close to home subject (everyone in this state is affected, either directly or through a friend or family, by the crunch here which is possibly leading to furloughs or layoffs) when she talks about Understanding Government Spending… Since she’s a government employee herself, she has a view that’s right in the midst of this controversy.

Ron at The Wisdom Journal might be talking to me when he says Having Too Many Goals is Like Having None. Yes, I have a lot of goals, but I’m hoping they’re not too many; I do, however, run out of energy and not get everything done the way I want them too. I’ll have to consider that a bit.

Spilling Buckets tells us 10 Things I Wish I Knew as a First Time Homebuyer. Considering that they just purchased their home, I think they’re far ahead of the game; after all, I wish I knew a lot of things as a first time fill-in-the-blank only months or years later!

And finally, David over at My Two Dollars tells us How to Fix a Mistake On Your Credit Report. I‘m hoping I can finally get one of the bureaus (after years of trying) to fix a mistake on mine (they think I lived somewhere in California–I’ve never lived off this island!).

And that’s your Link Payday for July 5, 2009!

I often have discussions who want high returns with no risk, which is kind of like wanting to lose weight by sitting on the couch watching a 24 marathon while eating Krispy Kreme donuts and drinking Pepsi Throwback.

On the other hand, I sometimes talk to people who have no idea what they’re invested in because they turned over control of their portfolio to an advisor, and start questioning when they end up with huge capital gains to pay tax on, but not much growth–if any–in their portfolios. On examination, their advisors have filled their taxable portfolios with actively managed mutual funds that spun off capital gains with significant tax implications if not in sheltered accounts–which they weren’t.

And if I had a third hand, I could use it to hold the discussions I’ve had with folks who bought some fund or stock that they knew nothing about, but was recommended by a friend, financial advisor, or article they read.

Here are some tried-and-trued ways to manage your risk:

Decide how much risk you can actually tolerate: one of the positives of the recent market downturn was that it gave investors a chance to see how they really tolerated risk. It’s one thing to say you’re okay with seeing your assets cut in half, but it’s another to actually experience it. If you really can’t tolerate risk at all, consider getting out of the stock market altogether and put your money in high quality government bonds or FDIC or equivalent backed certificates of deposit–but understand that you’re guaranteeing that your rate of return will be rather low.

Diversify, diversify, diversify: Notice that when I’ve been discussing my portfolio as of late, I’ve been discussing not just mutual funds, but a few index funds–funds that are basically the entire stock market or the entire bond market. It’s owning a little of everything rather than a lot of one thing. While the recent stock market downturn shows that it is indeed possible that the entire market will sink at the same time, it’s a lot less likely than if you owned just one stock or one sector of the market. Conversely, if you own individual stocks, limit how much you put in that stock to at most four or five percent of your total portfolio. That may be difficult if your 401(k) match is in company stock, but going heavily into a single stock is a big risk–just think how you’d have done if your entire portfolio was in Enron or Worldcom a few years back, or Fannie Mae or Freddie Mac just recently.

Allocate your assets depending on your time horizon: At my age, hoping to retire from my current job in under 10 years but having a “normal” retirement age about 25 years from now, I’m more than happy to have 75% of my portfolio in the stock market, split 50% domestic and 25% international, with the remaining 25% in high quality bonds. If I was a bit younger, say in my 20s (well, okay, a lot younger), I’d be comfortable with having 90% of my money in stocks. On the other hand, if I was in my mid 50s, I’d be closer to 65% in stocks, and in retirement, I’d be more likely to be at 50%. If I was in my 80s, maybe just 35% in stocks.

Invest regularly: As I have stated before, statistically, dollar cost averaging doesn’t really work the way people think it does. However, what does work is putting money away regularly. Don’t stop investing; have a plan that takes everything above into account and stick to it. I know people who stopped investing late last year when the market started falling–now that we’ve had a couple of months of gains, those people have clearly lost out on some recouping of their dollars.

If you’re going to invest and do well, risk is part of the deal. There are many things that you can do to try to manage your risk and it’s important to have an understanding of how much risk you’re willing to take. Consider some of these tried and trued methods of dealing with investment risk over time.

If you recall, March 2009 was the first month in a long time with significant gains. As I’ve been discussing on the blog recently, those gains continued through April.

The Vanguard Total Stock Market Index (VTSMX) ended the month with another gain, this time of 8.80%. The T. Rowe Price International Discovery Fund (PRIDX) did even better, with an increase of value of 12.09%. And finally, the bond portion of the portfolio did fine as well: the Vanguard Total Bond Market Index (VBMFX) was down a cent, or .09%; the Vanguard GNMA Fund (VFIIX) was also down a cent, again, a microscopic .09%, but both continuing to pay their fine dividend yields of 4.65% and 4.71% respectively.

This marks our second straight month of significant gains in the portfolio! Again, let’s not get too high when these happen, and keep perspective on the fact that the S&P 500 is still down for the year, but things look much, much better right now than they did in February.

We’ll continue checking in with our portfolio as time goes on, but the last two months have been outstanding!

For the first time in awhile, the stock market was in rally mode for the large part of a month. How well did it do? We can see by looking at parts of my model portfolio.

The Vanguard Total Stock Market Index (VTSMX) ended the month up (yes, up!) 13.43% for the month in stark contrast to what we’ve been seeing recently. The T. Rowe Price International Discovery Fund was also up in the double digits, this time scoring an 11.63% gain. Finally, the bond portion of our portfolio, the Vanguard Total Bond Market Index Fund (up .007%) and the Vanguard GNMA Fund (up .012%) inched up slightly while providing dividend yields of 4.72% and 4.81% respectively.

So, finally, after months of losses, the markets are going up. Will this last? Hard to say it will with the slew of awful economic news coming out, but I’ll enjoy it while it lasts.

Recently a friend of mine wanted assistance with her budget. Despite a decent income she was living very much paycheck-to-paycheck and felt she was in danger of falling behind. She stated that she had already gone through a budget and had cut out buying lunch every work day as well as buying snacks from the vending machine. She no longer was hitting Starbucks every day off for a latte. So instead of looking at her budget, we looked at her receipts.

$1300 for tires for her car

“But these things are necessary!” was what she exclaimed when confronted about them. And maybe they are–kind of. The car tires I can believe (she drives an Acura and Acura is pretty specific when it comes down to what kinds of tires to install); the rest I can’t.

While some of us who advocate frugality–and I’m one of them–stress looking at ways to cut everyday expenses, it’s not the only thing. If you have occasional expenses that are large, look at them closely too! These might be even harder to reduce, because they’re so rare. But it’s necessary to look at all of your expenditures in your budget, particularly if you’ve done a lot to reduce your costs and you find you’re still broke.

Don’t just sweat the small stuff; sweat the big stuff too! At least when it comes to your money.

Last month our model portfolio–and the rest of the market–kept going down. February, I was hoping, would be better, but sadly, it was not better.

The Vanguard Total Stock Market Index Fund (VTSMX) continued its freefall, this month down another 10.45%! The T. Rowe Price International Discovery Fund (PRIDX) was also down, although it did a bit better at 7.60%. The Vanguard Total Bond Market Index Fund (VBMFX) was also down, a meager 0.79%, while paying a yield around 4.71% (which is what really counts for a bond fund), and the Vanguard GNMA Fund (VFIIX) was actually up–just a cent–which is a microscopic 0.09%, but still paying an even better 4.86% yield.

All told, like the market as a whole, the portfolio continued to slide in February. How much farther will it go? I hope not much, but only time will tell–this is quite a bear market, but since I’m a buy-and-hold-while-investing-regularly kinda guy, we’ll keep going with the bulls and bears, up and down.