Five Million Or Bust: Search Results

Lessons Learned from 2008

18 Dec 2008

As the year comes to a close, I can say this has been a real eye-opener of a year for me. Being in my mid 20's, this is the first year of negative returns I have had. Here are the top mistakes I made this year in terms of personal finance that I will not be making next year.

Ignoring Benefit of Dollar Cost Averaging for Roth IRA

I front loaded all of my Roth IRA contributions in the first two months of this year. I thought that the market was already as far as it would go and it was a good buy. Only time will tell whether or not those purchases were a good buy. Next year, dollar cost averaging is the way for me. I will purchase only no transaction fee mutual funds and will do them every month at the least. The actual time frame will depend on minimum transaction amount per fund.

Ignoring Budget

I had sufficient money and got careless. New budget already created and being monitored.

Ignoring Diversification in 401(k)

Presently, I think that my play this year in having at some point all of my money go into a defensive play in March was a good one. The fund remained steady while everything else declined. It somewhat fell in the last quarter of 2008, but I think overall it would have been more prudent to do some balancing throughout. I'm not committed to re-balancing yet but will be shortly.

Giving Into Heavily Beat Down Stock Prices

Just like Forest Gump always said, "I'm not a smart man." I bought the bad ones - E-Trade (ETFC) and even worse, Fannie Mae (FNM). Please Rinse and Repeat - Past performance (or price) does not indicate future performance (or price).

Peek-a-Boo!

Just because I have a nice website and tracking software doesn't mean I should be looking daily at performance percentages - it's not healthy and doesn't make my portfolio better off.

Next year may not be better, but I have been forewarned.

GE- please bring good things to my life!!!

3 Dec 2008

Bought some GE today at the same price it was 12 years ago. Got a nice 10.5% yield (they re-stated today that they were keeping their payouts for 2009 at the same levels as previously announced).

I partially did it because I think it'll go up, but also because I want to try to figure out this DRIP (divident reinvestment plan) enrollment process for a taxable account at E-Trade. I've easly signed up for quite a few differen't securities into the DRIP plans in my tax sheltered Roth IRA account, but failt to see the same ease of use in a general trading account.

The Pains of a Roth 401k

18 Oct 2008

What is the quickest way to ensure you don't get a big head about a raise or promotion? Couple that extra (hopefully deserved, you know who you are!) money with a switch from a traditional to Roth 401k. Not only will the increased salary increase your annual contribution if not already maxed out, but it would convert the extra money you earned, and probably more, to additional taxes you'd pay. This doesn't make sense for everyone by any means, but if you are worried that bringing home more money will just make you waste it and perhaps you've already maxed out your Roth IRA and Traditional 401k, this could be an option that works for you.

I will however point out, that something just feels weird if you couple less take home pay with a promotion as I have done. I 'know' I'm getting a better value, but surely don't feel it.

Turning $2,000 into $5,250,000 in 33 years

17 Oct 2008

With the battered economy, somewhat risky investments into possibly undervalued high dividend stocks could be the way to score big over time. One such stock - Allied Capital (ALD) is trading below 8 when it's 52 week high was near 30. If they kept up their current annual dividend, this would give it a yield of over 34%! Obviously there are a ton of risks here inherent to not only the market, but this stock specifically and a likelihood in my opinion that the dividend will be cut and then rebound.

There are many ways to calculate this, and if you do so, you notice that the slower the stock's price appreciates, the more money in the end you'll have as your dividend reinvestments are able to buy more shares up front.

The Math

I assumed purchasing 250 shares at price of 8 dollars per share (2k). I used the dividend yield of 32.5% - the assumed yield if the dividend remained the same next year. I assumed a 5 percent annual stock price increase and a 2 percent annual dividend yield increase. At the end of 33 cycles, this gives a little over $5.25 mil. Assuming you do this inside of a Roth vehicle such as an IRA, the dividends wouldn't be taxed.

This speculative play may be just what my portfolio and psyche needs! Even if it doesn't return my millions, it will deliver some hope (until the stock goes under).

Pentagon Federal Credit Union Review

10 Oct 2008

I have mentioned the Pentagon Federal Credit Union, or PenFed (or even PFCU), in an earlier post regarding it's Platinum Cash Rewards Visa Credit Card. While this is a great enough value in my opinion to warrant getting an account at PenFed, I thought a full review was in order. After all, I have been banking at Pentagon Federal for a decade and have given almost all their products a run through.

This rather thorough review is divided up into three sections:

Accessibility
Products
Summary

Disclaimer: This review is based on my personal experiences and observations and confers no recommendations upon any recipient of the information herein.

Accessibility

Overview - In general, PenFed is as accessible as any other banking institution except for the fact that you won't be able to go to a brick and mortar bank to deposit coins/checks - that needs to be done via the mail (but who really likes going to the bank anymore anyways?) They make it easy to transact with your money, and have been more than helpful on the phone even when compared to a bank teller in a brick and mortar bank. Visit their contact page for more information.

Joining - PenFed is a Credit Union and thus has requirements for membership. If you do not meet any of the free options (most military in nature), there is an affiliation with the National Military Family Association which is $20 to join for a year - making it easy for anyone to join (you don't have to renew your membership in NMFA to keep your PenFed affiliation).

Website - Their website is fairly simple to understand and use, while a little bit annoying at times, it is less so than the other banking sites I have used. You can do almost anything through their website from print and mail in a form (change in dependents for an account to a charge dispute for your credit card) as well as bypass paper forms and use their online application web-forms for opening a new account (auto loan, checking account). It is sometimes annoying to have to print out a form and mail it, but they almost always will offer to mail you forms as well as return envelopes upon request.

To log in, go directly to their main page. At the top left of the main page's content, you'll see a place to enter a user id. Features put it at par or above in function and ease of use with other major banking sites - online or brick and mortar. The biggest issues I have with the website is an obnoxiously placed ad for their own products between the top menu bar and the summary of your accounts, requiring you to scroll a bit to see all your accounts if you have more than 3 or 4. The other big annoyance is an unnecessary click to show Equity and other Line of Credit accounts on your main accounts page. Most of the time I log in only to pay my credit card or just check all balances - each of these uses of the website requires me to show my Credit Card. I see why they did it - they show you your banking (savings/checking accounts) without the credit and the retirement accounts to save server querying but it adds an extra click per session for me. This is compounded when I log in to view a statement, but they don't show up on my statements list unless I've elected to show credit cards on the home page for that session, resulting in me backtracking, showing the credit accounts, and then going back to statements. Aside from these slight delays, there is not much else that is problematic on the website.

Phone - This is where the impressiveness of PenFed really stands out. I'm a very needy consumer and, as such, make quite a few calls with requests for very specific information and special needs that I imagine most consumers don't spend the time on. Outside of one individual being quite unhelpful with a request about how the process of disputing a credit card charge worked (I think she was one of those people who can't answer a question without knowing ahead of time what the full reasoning for the question is), I have not been more impressed with a call center staff in any other relationship I am a part of where I am the consumer. They are always available to talk except I believe for Christmas and new years, and always either find the answer for you (almost always the case) or go and ask people who can. You almost never get moved around between departments (except in the event of specific questions asked to a loan agent or to their technical team about website suggestions should you need to provide them :)). Every once in a while you will be put on hold to wait for an agent, but those hold times have never been for me over 5 minutes and are the exception not the rule.

Mail - There is an increased need to communicate to PenFed via the mail since you cannot usually go into one of their branch locations due to their limited number. This is actually quite easy, and only throws up some concerns regarding mail deposits - specifically, what happens if I send a few checks to deposit and they get lost in the mail? Well this will happen to some, but hasn't happened to me. They have a recommendation to send it with a delivery receipt on it via USPS. I do not bother. Worst case scenario, you have to have the checks canceled and re-issued. I submit about three check deposits a year, so I don't really have an issue with this. However if I had to submit checks each week, this may be more of a concern. PenFed is very quick in depositing you the money, and will even make it immediately available (see below section about Home Deposits). They do have a few different addresses to mail different things to, but spell it all out on their contact page.

Automatic Teller Machines - This is actually what most people are concerned about with the non-traditional banking options that an institution like PenFed - How can I get cash when I need it without paying tons of fees? Well, let me tell or remind you that I do not pay banking feels and have never NEEDED to use someone else's ATM network with PenFed though have on less than a handful of occasions (i.e. Vegas). PenFed belongs to the largest national network of ATM Machines. Yep, I just said that PenFed has more ATM's out there than Bank of America! Search for yourself here. Around me, I have a local credit union, liquor store, two mall locations, a Target, and a Costco all within actual walking distance of my suburban apartment with surcharge-less ATM machines.

Products

New and Used Auto Loans - This was something I was nervous about when I went into it, but found that PenFed's process for acquiring loans was much more simple than I could have imagined. I went online, logged-in, put some information in a form (not having picked out the vehicle, I just asked for a lump sum for a new car), and was immediately approved. They sent me a check which I wrote out to the dealer and the loan was made. I paid off the loan faster than I had to, which I did without penalty (don't ever take a loan that doesn't let you pay it off early without a penalty!). I also got a very decent rate that I was not able to replicate at the time. When it came time to get my title deed back, they did so promptly without any work on my part - they contacted me. The only thing I would have changed in the entire process would be the fact that when you submit a loan request it doesn't lock you into the rate until they actually create the loan - in this case receive the check from the dealership. I understand the logic in this, but still do not think it is necessary.

Bill Pay - Bill Pay is free and simple for a list of a few thousand payees and about $5 a month for an unlimited number of payees including manually added in names/addresses. If you send out enough checks to make this worth the postage, then you're golden. I did not and never paid for the service, though must admit it is pretty slick.

Home Deposit Service - The most frustrating product by far I've dealt with is the Home Deposit Service, though I can see the benefits for many. This service allows you to type in the check information for checks you are mailing in, and gain access immediately to the funds. There are a good deal of rules regarding this, and a quite low limit (which can be increased if you call them, but was still lower than I'd like for the way I was using the service). I had a problem where I put the wrong stamp on some of my checks i mailed in, and thus, they didn't get to PenFed within the window of time I had. The immediately canceled my ability to use this service. Thinking that my checks have been lost, I wanted them to give me the information about the 6 checks I had sent them so I could have them re-issued. My frustration was pretty high with this process due to the fact that their IT/IS department runs the service and not the normally helpful group. I no longer use this service as they were contemptuous when I explained the situation.

Home Loans - While I have never acquired a home loan from PenFed, I have gone through the process/discussions with their mortgage brokers and found them to be a very helpful group. I was specifically inquiring about the differences in their loan acceptance practices/requirements for first home versus investment home loans. They were quite informative and if I were going through a program to acquire a home loan, they would be the first group I would look towards, even if they were up to a half a percentage point higher than others (though I don't think they are).

Credit Cards - I've had multiple credit cards at PenFed from their gold visa with a low APR to their 'best in class' rewards card the Visa Platinum Cash Rewards card. There is not a great deal that differentiates credit card providers from each other, though I have to say PenFed is absolutely on-top of their game with identifying fraudulent activity and stopping it. They aren't as annoying as my other cards have been, they are accurate when they find fraudulent charges. They are also no-pressure when it comes to owning the card - I pay it off ever month and have never had a problem with them. I absolutely despise it when a Credit Card company or broker will change my terms without my permission - i.e. increasing the limit on my card. I get my cards so that I am at 20 or so percent utilization on them. If you increase my limit, that changes and I may not look as favorably if I need another line of credit. I also hate it when a company will continue to look at my credit after I have a card with them - PenFed doesn't do that. Now if they could only remove any type of credit card solicitation in mailed statements, their website, and via phone due to the fact I already have the card - that'd be something!

Checking Accounts - PenFed checking accounts are pretty standard. They have a very low minimum, don't pay interest, and checks/debit cards and transactions/atm cards are free. I personally utilize a discount broker that pays a few percent on the amount in the checking account instead of the PenFed Checking account, but it is a very low fee/maintenance account that I would recommend to others.

Savings/Money Market Savings Accounts - Savings and Money Market Saving's Accounts are easily available (and your base Savings account is free and required for membership). I personally find better rates for storing my money than PenFed's Savings and MMSA accounts . Check our rates here.

Individual Retirement Accounts - Roth or Traditional IRA's are available from PenFed, though I do not suggest getting an IRA with PenFed as they do not have any convenient vehicles to invest through aside from Certificate's of Deposit.

Certificates of Deposit - Whether used on their own or as investment vehicles inside of a retirement account, the yields offered on PenFed'd CD's are comparable with other institutions but slightly below online banks trying to pull you in with high yield savings accounts and CD's. They offer 6 month, 1,2,3,4,5, and 7 year certificates with locked in rates. They are easy to acquire and the penalty for early redemption isn't that significant if you really needed to get your money (months/year's worth of paid interest).

Summary

The Pentagon Federal Credit Union (www.penfed.org) is a superior banking alternative due to its high quality customer service, higher ease of use than normal product offerings, and straightforward attitude concerning consumer/institutional relationship.

401k Basics

5 Oct 2008

If you were at a loss, as I was, about the basics of a 401k when you had the option of first starting one up, let this post be your guide. I make some recommendations in here, but take no responsibility for their 'soundness' - I am not a personal financial planner (but I am a good deal cheaper!).

How Much can I contribute?

For this year, assuming you are not old enough to make catch-up contributions, you can contribute $15,500 as employer contributions.

How much should I contribute?

This question is a bit more tricky. You have to manage how much you want to contribute versus your other goals. I can tell you I contribute a percentage of my salary that maxes out my contribution each year. If your company matches, I strongly suggest at least contributing as much as needed to completely attain their match. I would suggest that you also consider not contributing too much and not being able to maintain a cash reserve fund for emergencies. If you think you can deal with 10% (and believe me, you can!), I'd start with that and adjust based on your needs. In a future post, i'll get into more advanced logic for structuring dollars between 401k and IRA, but the point here is to start saving now and build your strategy progressively.

What about this roth versus traditional option?

This is a controversial topic. There are tax advantages today for contributing to a traditional 401k - it lowers your taxable income for the year by the amount you contribute. Roth has the tax advantage deferred. You pay tax on roth type contributions now, and in turn don't pay any taxes when you withdrawal the funds at retirement (which you do have to pay when you withdrawal from a traditional 401k). If you need cash now, or think that (and believe me it's anyone's guess) that you'll be in a lower tax bracket when you retire, then a traditional account makes sense. I personally contribute to both and here's why. When I retire, I want to pull some money each year from a traditional account and some from a roth. This should (I believe) allow me to claim a very low amount of taxable income for the year, as the traditional amount would be the only amount I have to pay taxes on. This should guarantee myself a lower tax bracken in the future regardless of governmental tax rate changes. I feel I've essentially mitigated the gamble of tax bracket changes by contributing to both.

Once I choose how much to put in, how do I determine what 'fund' the money should go in?

No one knows. General advice is to diversify and choose low fee/no load options. If you have no clue, you can always choose the fund with a date on it that corresponds to the year nearest your goal retirement date, as it will change the amount of risk as time goes on - less and less risky investments as retirement date nears.

There are many calculators out there. Run any of them and it's apparent that savings for a 401k as long as it doesn't financially put you in a position to take out credit card debt, makes great sense - especially starting early.

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