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Quarterly Goals Review 2009 Q4

December 12th, 2009 at 07:49 pm

Quarterly Goals Review 2009 Q4
Items marked ? are ones I hope to finish before the end of December.
Items marked X* are finished, but occurred later than the designated quarter.

Q1 Goals 2009
[X*] Call will and trust lawyers friends have recommended, pick one.
[X] Fully fund 401(k): $4,125 per quarter
[X] 10% of DH's income to ESPP, to be added to his investment account
[X] Do taxes with TurboTax
[ ] Fund 2008 IRAs -- approx $10k
[X] Transfer money to SEP-IRA -- $19k
[X*] Review 529 funding, establish goal.
[ ] Review current portfolio and write down why we own each fund.
[ ] Create format for quarterly investment review
[?] Recalculate TPG (target portfolio goal) and TSG (annual target savings goal) for retirement

Q2 Goals 2009
[X*] Have initial appointment with will and trust laywer.
[X] Fully fund 401(k): $4,125 per quarter
[X] 10% of DH's income to ESPP, to be added to his investment account
[ ] Schedule annual review with stockbroker.
[ ] Perform quarterly investment review
[X] Pay fed and state 2008 taxes due
[X] Pay 2009 Q2 estimated taxes

Q3 Goals 2009
[X* ] Move house and investments into trust.
[X] Fully fund 401(k): $4,125 per quarter
[X] 10% of DH's income to ESPP.
[ ] Perform quarterly investment review
[X] Pay 2009 Q3 estimated taxes

Q4 Goals 2009
[X] Will and trust complete.
[X] Fully fund 401(k): $4,125 per quarter
[X] 10% of DH's income to ESPP, to be added to his investment account
[?] Perform quarterly investment review
[?] Review estimated tax payments in light of reduced income.

2009 Goals for the whole year
[X] Update will and trust
[X] Save 20% of our income -- 15% to retirement, 5% to investing
[X] Fully fund 401(k): $16,500
[X] 10% of DH's income to ESPP, to be added to his investment account
[ ] Traditional IRA contribution: $10k
[?] SEP-IRA contribution: 20% of contracting income
[?] Move $10k into 529 plan.
[ ] Meet TSG (annual target savings goal) of TBD
[ ] Follow up on stockbroker recommendations.

The biggest accomplishment for the year was getting our will and trust done. The house has been moved into it, but I still need to fill out the paperwork to move our investment accounts in. I also need update the beneficiaries on the retirement accounts to add the girls.

I took a quick look at our numbers for 2009 taxes. TurboTax is estimating about $31k will be owed, so we may be looking at a big refund even if I don't send in the Q4 estimated tax payment -- depends on the capital gains, I guess. (Our income is down at least $30k from last year due to maternity leave and smaller bonuses.)

It looks like our wages will come in at $161k. No idea yet how much investment income to expect -- maybe $6k dividends and $10k capital gains? We'll contribute about $16.5k to 401k and about $8.6k to SEP-IRA, so that's 15.5% of salary to retirement. Our money market fund that holds our emergency fund went up by $14k from DH selling his ESPP shares, so I guess we can say we saved 8% in addition to retirement.

I have not yet moved any money into DS's 529 plan. I'm waiting for the girls' social security numbers to arrive to open 529 plans for them. My dad generously set up DS's fund with $20k when he was born. He has not yet mentioned doing anything for the girls. While I can't imagine that he wouldn't treat all the grandkids equally, it's a bit awkward to ask him about it.

I still haven't figured out what I want to do for a quarterly investment review, beyond adding up the accounts to get our current net worth. There are so many funds and the total is substantial -- I get kind of paralyzed when I sit down to look at it. So the investment side is where I tend to fall down on the plan.

The twins have arrived!

November 26th, 2009 at 10:11 am

Our twins were born by c-section just over a week ago.

Baby girl A was born at 2:10pm, 6 lb 0 oz, 19.3 in
Baby girl B was born at 2:11pm, 5 lb 3 oz, 18.9 in

Not sure what to call them here -- DDa and DDb? DTa and DTb (for dear twin)?

We had a harrowing couple of weeks. DS came down with a severe case of pneumonia and was hospitalized a week before my scheduled c-section date. (The doctor recommended a repeat section for twins, and baby B was breech until the last minute anyway.) He ended up having surgery to insert a chest tube the day before my delivery. I was heartbroken to not be able to stay by his side for the rest of the week.

DH came with me to a different hospital for the birth. Afterward DH and my mother alternated 24 hour shifts with DS, then visited me for a few hours, then went home to sleep. My dad offered to pay for a nurse, so we hired a post-partum doula to stay with me for 12 hours each night in the hospital. She was wonderful, and Dad has offered to keep having her come to our house a few nights a week so we can catch up on our sleep.

DS and I ended up being discharged on the same day. The girls are healthy and DS is steadily regaining his strength. Our little family has so much to be thankful for today!

Happy Thanksgiving!

Quarterly Goals Review 2009 Q3

September 21st, 2009 at 12:03 pm

Quarterly Goals Review 2009 Q3
I wrote up this list of Goals for 2009 in February. Looks like I forgot to do my quarterly goals review in March and June! Now that it's September, let's see how we're doing. Items marked X* are finished, but occurred later than the designated quarter.

Q1 Goals 2009
[X*] Call will and trust lawyers friends have recommended, pick one.
[X] Fully fund 401(k): $4,125 per quarter
[X] 10% of DH's income to ESPP, to be added to his investment account
[X] Do taxes with TurboTax
[ ] Fund 2008 IRAs -- approx $10k
[X] Transfer money to SEP-IRA -- $19k
[X*] Review 529 funding, establish goal.
[ ] Review current portfolio and write down why we own each fund.
[ ] Create format for quarterly investment review
[ ] Recalculate TPG (target portfolio goal) and TSG (annual target savings goal) for retirement

Q2 Goals 2009
[X*] Have initial appointment with will and trust laywer.
[X] Fully fund 401(k): $4,125 per quarter
[X] 10% of DH's income to ESPP, to be added to his investment account
[ ] Schedule annual review with stockbroker.
[ ] Perform quarterly investment review
[X] Pay fed and state 2008 taxes due
[X] Pay 2009 Q2 estimated taxes

Q3 Goals 2009
[ ] Move house and investments into trust.
[X] Fully fund 401(k): $4,125 per quarter
[X] 10% of DH's income to ESPP.
[ ] Perform quarterly investment review
[X] Pay 2009 Q3 estimated taxes

Q4 Goals 2009
[ ] Will and trust complete.
[ ] Fully fund 401(k): $4,125 per quarter
[ ] 10% of DH's income to ESPP, to be added to his investment account
[ ] Perform quarterly investment review
[ ] Review estimated tax payments in light of reduced income.

2009 Goals for the whole year -- items marked * are on track.
[*] Update will and trust
[ ] Save 20% of our income -- 15% to retirement, 5% to investing
[*] Fully fund 401(k): $16,500
[*] 10% of DH's income to ESPP, to be added to his investment account
[ ] Traditional IRA contribution: $10k
[*] SEP-IRA contribution: 20% of contracting income
[ ] Move $10k into 529 plan.
[ ] Meet TSG (annual target savings goal) of TBD
[ ] Follow up on stockbroker recommendations.

With the twins coming, I will stop working on Oct 2. We will still contribute to DH's ESPP, but not all the funds from the sale of the shares will go into his stock-trading account -- we will need some of that money to replace my income while I am a SAHM.
Since our annual income will also be significantly lower than last year (DH got large bonuses in 2008, and the company probably won't give much out this year), we'll need to re-estimate our 4th quarter tax payment to avoid having a large refund.

I've decided I want to add $10k to DS's 529 plan.

It's a control thing...

September 20th, 2009 at 04:07 am

I try to download all our transactions and update our YNAB budget twice a month. I'm not rigorous about it by any means and sometimes do it just once a month. Just by luck, I happened to update it on Friday, and discovered a fraudulent charge that occurred on Thursday -- $255.42 for RYANAIR. I had no idea what that company was, and neither did DH, so I called the credit card company to ask. Turns out it's a British airline, so we've cancelled the card and are waiting for the replacement. Now DH thinks I'm brilliant for catching it so quickly. Smile

I do all of the bill paying and financial tracking for our family. I also try to track our investments (outside of DH's stock trading account) but still don't have the confidence to make any major moves. I mentioned what a PITA it is to close the credit card, becuase there are several items that automatically get billed to it, and I have to make sure to remember what they all are and get them changed when we get the new card. DH offered that he should help out more to "take the burden off you". Shudder. I can't think of anything worse than each of us trying to do part of the financial housekeeping. We'd be stepping all over each other, and neither would have the full picture of what was going on with the bills.

Then DH said well maybe he could take it over entirely. Double shudder. It's not that I don't trust him. The bills would all get paid and we'd be fine financially. He just wouldn't do it MY way. There would be no budget, it would all be his intuition based on the current checking and savings account balance. I would have no idea where all the money is going every month. We have a running joke that every time we go to make a major purchase (new car, kitchen remodel, etc.) I have a minor panic attack and have to go triple-run the numbers to make sure we can really afford it. He just looks at the account balances and has been right every time. I'm not sure that he would do any long-term planning, looking at 401k and 529 and so forth. He's had $20k in his stock trading account for many months now, and wants to add more, but hasn't researched any stock or made any trades in a long time.

And the paper clutter...he tends to open the mail and just leave it piled on the counter, envelopes and junk flyers included. I immediately throw the excess into recycling and place the billing statements into an accordian folder. (Well, to be honest, I do have a "to file" pile of bills that sits ON TOP of the accordion folder...)

I have to admit, I have a bit of a control streak in my nature. I can't stand the idea of not being the one to manage the money. I get that DH feels out of touch with our finances, and have promised to sit down and go over everything with him -- all the accounts, passwords, automatic billing, etc. I've tried to get him to sit down with me and go over the budget every two weeks after I update it, but I can never seem to catch him when he's in the mood to look at it, so I don't know when it will actually happen. But hand over the financial duties entirely? No way...

We do have the management of investments split. I manage the money in my IRA's and taxable investment account, and DS's 529 account (a gift from my dad). He manages the money in his 401k, IRA's, ESPP/stock option account, and a stock trading account. We have a joint money market that holds our emergency fund and joint checking and savings accouts. My investment accounts are worth about twice of his because I started my 401k earlier and contributed more, and bought a house before we married that almost doubled in value. His 401k should eventually catch up to my IRA's due to the years that I am either not working or am working part-time. He's chosen more specialized funds in his IRAs (emerging markets, Asia, etc.)to balance out the more conservative/mainstream mutual funds that I have in my accounts.

Finally got the wills started!

September 12th, 2009 at 07:35 am

When I started my blog 2.5 years ago, one of the first goals I listed was to get our wills updated. Talk about procrastination! We finally met with a lawyer yesterday, and should have everything signed in a month. I had set up a will and trust before we married, and DH had never set anything up. At one point I bought Quicken Will & Trust and we went through the whole program, but didn't actually sign anything. I later saw some details about A&B trusts either here or somewhere else online that made me realize that it was likely I was making some mistakes that would have big tax consequences.

The lawyer was recommended by a friend, and charged $2,000 to do both wills, a living trust, power of attorney, and healthcare directive.

I learned a few interesting things from meeting with the lawyer. The current tax law that doesn't tax estates under $3.5M is due to expire after 2010, and is likely to go back to taxing estates over $1M. Since our net worth is right at $1M I hadn't worried about it. It turns out that any insurance payouts are included in your estate, and the full value of your home is taxed, not just the balance after the mortgage is paid. This brings our estate up to $2.6M!

If we hadn't done anything and both DH and I were killed in a car crash, roughly $600k of our estate would go to taxes! With the trust he is setting up, that will go down to about $200k. It's funny, I don't get too upset at the idea that when my parents pass away the government will take some of my inheritance, but when looking at my assets, it feels like they're planning to take food out of my minor chilren's mouths!

There's another quirk about life insurance that I need to look into further. Apparently if you have individual term life insurance there is a way to shelter it within the "B" part of a trust so it won't be taxed. Group life insurance that you get through your employer can't be sheltered this way. DH gets $400k from his employer, and then we each have $500k of "group term life" from IEEE (a professional organization for engineers.) The rates we're getting for the IEEE insurance are really cheap, something like $150 every six months for $1M in coverage. But I think it may be the same type as what an employer offers. It may make sense to pay more for individual term insurance that can then be sheltered and reduce the tax burden of the estate.

Earning interest on cash

August 29th, 2009 at 08:29 am

After tracking our spending for August, I took a glance at the various accounts we have at E*Trade. We sure have a lot sitting in cash, and getting lousy interest rates:

Money Market: $33k @ .4%
DH investment: $20k @ .4%
Savings: $17k @ .8%
Checking: $ 7k @ .4%

I like having everything in one place so I want to stay with E*Trade, but I think it's time to look at some better options for how we are holding the cash.

The money market holds our emergency fund ($19k) and the proceeds from a recent sale of ESPP stock and stock options ($14k). I'm thinking perhaps we should move the emergency fund into CD's -- it's only to be touched in a major emergency like a job loss.

DH has his own account for stock trading. He just hasn't been active lately and is letting it sit in cash. That's fine, his choice. I just wonder if there are more money market options where it could sit and earn more interest until he spots a stock he wants to buy...

The savings account currently holds money for the following:
* $4k money accruing for the semi-annual bills (property tax, insurance, etc.)
* $4k money accruing for estimated tax payments
* $3k reserve to cover minor emergencies (car repair, home repair, medical deductibles)
* $6k short-term savings (Christmas, birthdays, vacation fund, etc.)

The balance in the savings account has fluctuated between $7k - $33k in the last year. I don't want to tie it up in anything where I have to remember to transfer balances around when big bills come due...

The checking is of course just a holding place for all our monthly spending. Paychecks come in, a portion gets sent to savings, and the rest flows out to pay bills. Any interest earned here is just a bonus.

Just checked the E*Trade CD rates -- not very promising:
Term Length 3-month 6-month 1-year 1.5-year 2-year 3-year 5-year
3 month: 0.15%
6 month: 0.20%
1.0 year: 0.45%
1.5 year: 0.55%
2.0 year: 0.65%
3.0 year: 0.75%
5.0 year: 1.40%

Any suggestions?

Passing on a sweet house

August 15th, 2009 at 06:27 am

I love our current location. DH works 5 minutes away, and we're in a little sweet spot that is a reverse commute from most areas of the city. We're on a canyon, and get breezes that come in from the ocean keep our house cool enough that we almost never run the A/C. The beach is a 10 minute drive, and my mother lives one street away, making free babysitting readily available.

The only real downside is the school district. I've been told our elementary school is ok, but to avoid the middle and high schools. The district is very large and does have a lottery to transfer to other schools within the district, so I'll be looking into that.

With DS here and the twins coming, and my working from home, I'd really like to have one more bedroom. We have 4 bedrooms, 1900 sq ft, so it won't be crowded or anything, but my ideal would be to have one more room.

Anyway, a house went on sale two doors down from my mother. I hadn't seen that floor plan in our subdivision, so I went through the open house out of curiosity. It would be perfect for us! Well, other than the school district and convincing my DH to live two doors away from his mother-in-law!

The house had all the things on my wish-we-had list: 2300 sq ft, 4 bedrooms + separate office, separate spots for kitchen and dining room tables, small pool in the backyard with safety fencing, grass area with a swingset, room for a vegetable garden, and a hillside where you could plant a bunch of fruit trees. For this area it has a really big lot, and the front yard had been landscaped with low-water plants.

It was listed for $890k. Our house would probably sell for $600k, so the difference would put this house out of reach. Plus I'm planning on taking a year or two off once the twins are born. So it's not the right time. But if this house had come on the market when the twins were 5 and I was working again and we'd won the school district lottery...a girl can dream!

Great return on ESPP

August 4th, 2009 at 03:06 am

DH invests 12% of his salary into the company employee stock purchase plan (ESPP). Every six months, the plan purchases shares. My understanding is that they look at the market prices on the first and last day of the plan period, and then take an additional 15% off the lesser price.

The latest period closed on 7/31, and was one of the best periods we've seen. The ESPP purchase price was $29.99, and the current market price is $46.97. This period, DH put in $7827, and if he sells now will realize a gain of $4432. 56%return for a six month investment!

Of course this isn't typical, but in general we can count on a 15% return, although there is always the risk with stocks that a very sharp downturn could turn it into a loss in the few days between purchase and when the shares reach our account.

The one wrinkle is taxes. We could hold it for two years, and then only have to pay long-term capital gains tax. Since it's a high-tech stock, this is kind of a risky move. If we sell it within a year, we'll pay income tax on the 15% discount, and short-term captial gains on the rest.

It does make it a little more complicated when we go down to one income, since I need that $1300/mo to make our budget work. If we sell immediately, I'll set aside $7800 and treat it for budget purposes like $1300/mo income. If we don't sell immediately, I'll "borrow" the money from the emergency fund and repay it when we sell.

DH and I need to talk about what do do with the $4400 gain. After setting aside some for taxes, the rest could either go into his stock-trading account, or into our vacation fund. He wants to take a big trip (possibly a Mediterranean cruise) when we turn 40 next year, but I don't currently have funds allocated toward that, nor room in the budget to save the amount we'd need.

Other good news -- with the stock market recovery, our net worth just topped 1 million again.

Not impressed with the farmer's markets

August 3rd, 2009 at 12:18 am

A new farmer's market recently started on Tuesday afternoons near my son's preschool, and I decided to check it out. I was not impressed to say the least. First of all, half of the market wasn't even food -- just junky impulse purchase stuff, tupperware, etc. The next quarter was food booths -- gyros, crepes, etc. Only the last quarter had actual produce, and it didn't appear to me to be much cheaper than the supermarket, nor was the quality noticibly better. I picked up some tomatoes, but they certainly didn't match the home-grown taste I was hoping for.

This is the 4th farmers market I've checked out, and they all seem pretty much the same. Maybe I live just too deep in surburbia to get really good quality stuff at a market.

Adjusting the budget for twins

July 29th, 2009 at 06:08 am

The twins are due in November, and I'm planning to quit working Oct 1, so I've been looking over our budget to figure out where to cut back. I think we need to cut about $675 per month to make it work. Here are some numbers based on averages for Jan-Jun this year.

DH pay after taxes $7900
401(k) $1318

Needs Accruing (Total $875):
Car Ins $560 Jun/Dec $93.00
Car Regis. $440 May $40.00
HOA $105 quarterly $35.00
Home Ins. $770 Apr $66.00
IEEE dues. $180 Nov $15.00
Life Ins $150 Mar/Aug $25.00
Property Tax $3600 Nov/Mar $600

Needs/Contracts Monthly (Total $3250):
Cable TV $45.00
Cell Phone $77.00
Electric & Gas $146.32
Gas Car $180.62
Groceries $488.94
Home Security $28.99
Mortgage $1,990.00
Phone/DSL $84.61
Water $210.00

Vacation (Total $200):
In-laws overseas $0.00
Relatives USA $100.00
USA travel $100.00

Wants Goals (Total $150):
Charity $600/yr $50.00
Christmas Gifts $100.00
Big Purchases TBD

Wants Montly (Total $2800):
BevMo $43.65
Cash $237.00
Cleaning $200.00
Dining $278.64
Home Depot $200.97
Kid stuff $173.60
Misc $663.22
Netflix $25.95
Preschool $380.00
Target $318.03
Trader Joe's $200.00
DH Clothing/haircut $50.00
Zetta Clothing/haircut $50.00

Total Income $7900
Total Savings $1300 (16%)
Total Needs $4125 (52%)
Total Wants $3150 (40%)
Shortfall $675

This doesn't account for the two extra paychecks (DH is paid biweekly) because it's easier to just stash the extra than to try and spread that income out over several months. We'll probably set it aside for the next trip to visit the in-laws overseas. I'm also assuming DH's withholding is correct and my pay until Oct will cover the estimated taxes for 2009 -- if not, they will come out of the emergency fund and get repaid when we get the refund.

Under Needs, the first place to cut is Groceries -- almost $500 for 3 people is crazy, I think there must be a lot of impulse purchases there (and produce that goes bad and is thrown away). I place Trader Joe's under Wants -- that's our fun food like favorite cereals, wine, good cheese. I hate to cut that out, but it's another $200.

Phone/DSL breaks down as follows:

Internet: $25
Local measured rate: $13
Plan + calls to Australia: $47

The need for a landline is driven by calling DH's parents in Australia. The local service is nice to have in case cell phone towers are down due to wildfires or earthquake. We could add international to our cell phones for $4 + taxes + $0.23/minute. Our current service is $7 + taxes + $0.09/minute. Last month we used 234 minutes. We use skype occasionally, but would actually rather talk on a phone than do the video calls. I should look into calling cards...

Most of the cuts need to come from Wants. I'm going to do my best to cut elsewhere so I can keep the cleaning lady! From our experience when DS was born, I know that Dining and Home Depot will go down on their own (no time to eat out or work in the garden), and that Target is likely to go up due to diapers and formula (I breast fed as much as I could produce but still had to supplement.) We're not going to do cloth diapers with twins, so don't even go there! Smile

Kid Stuff is clothing/haircuts for DS, fun classes (music, swimming, etc), toys, and small misc baby items (extra bib, pacifier, saftey latch etc).

The areas that always get me are Misc and Target. It's the impulse purchases that I really have to watch. $20 here and there really adds up. Our fun money also gets lumped into Misc -- a model rocket here, a massage there. Then there are those one-off but necessary purchases -- stamps, TurboTax filing fees, over-the-counter medicine, annual fee on a brokerage account. I wonder if splitting out these catagories would help us stick to them???

The other place this budget falls down is that I haven't set aside anything for Big Purchases. An example would be where we just spent $600 for a patio set. I should set aside a set amount and let it build up so that we have it available when we are wanting the next big item.

I guess I just really have to move from a tracking mode to a true budgeting mode. Set limits on the discretionary spending and stick to them.

Planning for twins

July 4th, 2009 at 08:41 am

We had the 18 week level 2 ultrasound this week, and I'm excited to announce that the babies are both girls! It was extremely cool to see the babies' hearts -- you could clearly see all four chambers and watch the valves moving as the heart pumped. They took measurements of all kinds of organs and bones, and so far everything looks healthy.

I'm really getting into the planning mode, both financially and otherwise. My due date is Nov 28, but on average twins come 3-4 weeks early so it will likely be early November. When I gave my boss the news, he was very complimentary about my work and said he was willing to hold my positon for 6 months or so. (I'm a software contractor for a tiny consulting firm, so there is no legal obligation to do so.) I've decided to take at least a year off, maybe more. I stayed home full time for 2 years after DS was born. I think I've made a good impression in the last two years and have an excellent chance of being rehired by him when I'm ready. I set a drop-dead date of quitting work by Oct 1 so that I won't have to work during the most uncomfortable part of the pregnancy, although I hope to start cutting back on hours sometime in September. With twins it's quite common to go on bedrest at some point, so plans could change at any time. While I could do my work while lying on the couch, it's not the most comfortable position for typing.

I woke up early this morning and wanted to do some budgeting, but can't get started until DH wakes up. Darn online paystubs! DH has gotten a small pay raise since the last time he printed one out for me, so I don't have the numbers I need to work with. Paycheckcity.com never seems to come out with the right numbers, but if he logs on to his work website they have a similar program that will calculate how your paycheck will change if you change your withholding and deductions.

It's going to be tough to figure out how much to change the W-4. We're paying estimated taxes this year, but I'll have at least 3 months less income, and we'll get deductions for two more children. DH's work gave large bonuses last year, but there will be none this year, so his income will be less as well. I have no idea what the dividends and capital gains will be like this year since the market is down -- it the past it's been as high as $30k, but for 2008 it was only $12k. Maybe I should consider asking an accountant to help us figure it out.

We have a four bedroom house, so in theory each kid could have his or her own room, but I'm strangely reluctant to turn the office into a bedroom. The wall adjoining the upstairs hallway is almost all windows -- french doors plus a third oversize window -- so it is very open and light. If it were a bedroom I'd have to cover them with blinds and it would feel much more closed up there. The closet isn't framed, and my desk currently sits in that space. I figure the twins can definitely share a room for the first couple of years, but eventually we're going to want a larger house.

The twins future room is currently a guest room with a queen bed. While the office is 10x10 and the bed could certainly fit in there, I think it would feel very crowded with the bookshelves, desk, printer, and other office stuff. (We don't have a basement, so storing the bed is not really an option.) Currently I'm thinking of keeping the queen bed in the twins room, but putting it flush against a corner. I need to take some measurements to see if two cribs will fit. DS didn't really play in his room until he was almost 3, so they won't need space for anything other than sleeping for awhile. Maybe the office can double as a playroom eventually.

To complicate matters, my inlaws will likely come visit from overseas for 3-4 weeks at Christmas, so I can't set up the twins room until after their visit. I'm planning on using a pack-n-play in our room for the first couple of months, plus temporarily putting a crib in the office for naps.

A local moms club organizes a swap meet twice a year to buy and sell used baby stuff. It's huge -- there are probably at least 100 stalls, and a couple thousand people attend. For about $150, I picked up a Pali crib with mattress (they run about $500 new), 2 bouncy seats, 2 swings, a baby bjorn, and enough baby toys, maternity clothes, and baby clothes to fill 3 grocery bags. I friend who has twins gave me her double nursing pillow and 3 HUGE tubs of maternity clothes that have been passed among her friends. A neighbor has offered a jumperoo and first pick of anything she is thinking of giving to goodwill. I joined a twins club, and someone was offering a free double snap-n-go stroller. So I've already saved a ton of money on equipment. I still need to get: 1 snap-n-go carseat, a pack-n-play with bassinet, and a double jogger. I may buy the pack-n-play new so that I can get the exact size that I want, and I'll get the jogger off Craig's List. I have my heart set on a Phil and Teds -- I've seen them used for about $300.

Although my fried was very generous with the maternity clothes, a lot of them don't fit or are very faded and stretched. Lots of size small, where I'm currently taking a medium and will need large (or even XL!) by the end. So I've splurged at the local Motherhood store and picked up a bunch of tops that have bright colors and patterns and fabric that feels really good. I stuck to sale items ($10-$20) except for one top, and even picked up a maternity jacket for only $10. I've probably spent about $250 altogether.

Many people on the twins forum I've joined recommend getting a night nanny once or twice a week because it is so tough the first few months. My mom lives about 5 minutes away. I'm extremely luck that she is so close, and is young and active and doesn't have to work. In the first few months, she's planning to come over every morning to help with the babies. She might even stay overnight sometimes so I can get more sleep. Night nannies run $25/hr in my area, so if we can avoid that expense it will be a huge savings!

I found a preschool that I like that offers an afternoon session, so I have switched DS there. At 3.5 years, he's ready to spend more time playing with other kids instead of with a nanny, so he's going half days five days a week. If I go on bedrest we can add mornings, too. They're very flexible with the scheduling. We'll just have to see how much preschool we can afford when I stop working, and how much time is right for him when the new babies are here.

Happy News

May 30th, 2009 at 09:21 am

I've been on pins and needles waiting until it was safe to share my news -- we're expecting twins! They are due in November.

I've made some comments in the past about how we dearly wanted another child but were having difficulties. We were fortunate to be able to affort a few cycles of IVF. DH's company provides really good health benefits, and even the high-risk OB/GYN is in-network.

Due to my age (38) and having twins we had a level 2 ultrasound at 13 weeks. I'll have another around 18 weeks and will find out the genders. It's amazing how good the latest ultrasounds are now. You could clearly see all the vertebrae in the spine, fingers. The babies are moving like crazy (we could even see one swallowing), although I can't feel it yet. The babies are definitely fraternal (separate placentas).

We'll have to make some big adjustments in spending since I plan to stay home for 6-12 months or possibly even longer. I'm considering whether to reduce DH's 401(k) contribution just for that time. Hopefully we will be eligible for ROTH IRA again. Luckily we won't need a new car since two car seats and a booster will fit in my backseat. We'll eventually need to move to a better school district, since 3 kids in private school would be too much. Lots of changes coming...

My brother's thoughts on mutual funds

April 19th, 2009 at 05:25 am

My brother was here for a visit this week, and we had an interesting conversation about mutual funds. My dad used to be a stock broker, and now works for a mutual fund company that sells actively managed funds that carry a load. Of course he believes that you're getting the value of research that you're paying for with the load and management fees. My brother got both an engineering degree and an MBA. He now works in marketing, but because of his degree has more background in finance than I do.

Anyway, when my dad left his former company, there was a big going-away dinner that my brother attended. He said that it hit him that all these guys at the dinner, who were full-service brokers, are really just salesmen. They don't have a finance degree or tons of training in portfolio analysis. The advice they give is basically fed to them by the parent company.

My brother has had more interest than me in actively investing. He got burned on penny stocks early on, then a couple of years ago he looked at his individual stock-picking efforts and decided he was better off in mutual funds. After the recent market crash, my brother said he took a look at the actively managed funds he owned that were from the company my dad works for. In his opinion, they fared just as badly as the rest of the market, and did not see a large upside during the boom years. He has since unloaded most of his actively managed fund and moved the money to low-cost index funds.

While I question his judgement in getting out at the bottom, and I have no idea how big his portfolio is or which funds he used to own, it was interesting to know he had changed his strategy to one I hear many people here using.

2008 Taxes

April 18th, 2009 at 12:03 pm

I finished the taxes a couple of weeks ago, but only now am getting around to blogging the results.

Gross Income: $244k
Adjusted Gross Income: $229k
Taxable Income: $157k
Total Federal Tax: $44k
Payments: $38k
Federal Tax due: $6k
Effective Federal Tax Rate: 13.94%

State Taxable income: $180k
Total State Tax: $11.6k
Payments: $12k
State Tax refund: $397
Effective State Tax Rate: 9.3%

We paid 110% of last years tax and so did not have a penality. California is holding on to refunds this year so I showed them by applying the refund to my 2009 estimated tax payments.

The difference between gross income and adjusted gross income came from self-employment tax adjustment ($5k) and IRA-SEP contribution ($14.5k). I'm not sure how it figures into the numbers on the W-2, but DH also contributed $15.5k to his 401k.

Income was as follows:
DH salary: $120k
DH bonus: $20k
DH ESPP sales: $5k
DH stock options sales: $6k
My business income: $77k
Dividends: $9k
Capital Gains: $4k
Interest: $500

DH did same-day sales on his employee stock purchase plan and stock options, so they were taxed as income. With the stock market so crazy it seemed better to take a profit immediately instead of holding the stock for a year. We paid more taxes, but didn't run the risk of losing money on the stock.

Here are our deductions:
Medical expenses: $15.7k
State income taxes: $14k
Property taxes: $6.6k
Mortgage interest: $19.6k
Charity: $500
Total Deductions: $56k

Self-employment tax was $11k.
We got hit with AMT this year -- $2k.

We recaptured $9.5k from AMT carryover, and have $9.5k credit left to carryover to next year. (In 2000 I had to pay $40k in AMT due to selling some stock options and holding the stock, and I've been slowly recapturing the credit ever since. Looks like next year or so I may finally finish recapturing it.)

For next year, to avoid penalities we have to pay $38k. DH's withholding is going to be about $13k, so our federal estimate taxes will be $6,300 per quarter.

Our state estimated taxes are $12.8k. DH's withholding comes to $4,875. I'm not sure why the payments are different amounts, but Turbo Tax said our state quarterly payments will be $2000, $2400, $1600, and $1600.

It's hard to predict what the actual 2009 taxes will be. DH's company gave big bonuses last year instead of pay raises. This year pay is frozen and there are no bonuses, so that's at least $20k less in income. My income is likely to be $5k less because we're taking a 3 week vacation. It's likely the stock options will be underwater, so no income there. It's completely unpredictable what dividends and capital gains will be. We won't have the medical deduction next year. AMT recapture will be somewhere between $5-$10k. Our taxes have gotten too complicated to get a good estimate from online calculators -- I never know what's going to happen until I run the final numbers through Turbo Tax.

Financial Fire Drill

March 3rd, 2009 at 01:30 am

There are rumors that there may be layoffs at DH's employer in 3 months time. We don't think he is likely to be affected because he is in an engineering group designing a core product -- the support staff and less central projects are likely to get hit first. But it seems a good exercise to do a financial fire drill to see what steps we would take if he did get laid off. I estimate in this market it would take DH 6-12 months to find a new job in his field. CA has extended unemployment benefits to 10 months.

Unfortunately I lost the last two years of budget data due to the death of my old laptop, so I have to use my memory and our January spending (rather than an average over many months) as a starting point.

Unemployment benefits: $1,800
My gross income: $5,600 (20 hr/wk)
40% set aside for my taxes: $1,870
My takehome (after taxes): $3,730
Total Income: $5,530

Childcare: $1200
Monthly Needs: $3500
Monthly Accruing: $830
CORBA or health insurance: $600 (estimate)
Needs Total: $6,130

Monthly Needs includes: car loan, cell phone, electricity/natural gas, auto gas, groceries, home security fee, mortgage, phone/dsl, water, and cable TV. (Yes, I know cable is not a need, but we won't cut it unless our situation gets truly desparate, so this is where it lives in the budget.)

Monthly Accruing includes: car insurance, car registration, HOA fees, home insurance, life insurance, property tax

I'm going to assume the layoff happens after we've paid our 2008 taxes and made 2008 IRA contributions, and so subtract those from our current cash. I also subtracted the money already accrued for property tax, etc., because it will be spent as those bills come due.

Cash Available
Checking/Savings: $17,000
Emergency Fund: $14,000
DH Investment Account: $23,000
Total Cash: $54,000

So with no changes, if we both lost our jobs, our cash will cover almost 9 months of purely needs spending. If only DH loses his job, my takehome is $2400 short of our needs. If I increase to 34 hr/wk, my income can cover the needs without digging into our cash reserves.

Realistically, our wants won't go to 0 so let's take a look at what we're currently spending and an estimate of what we might initially reduce it to.
Monthly Wants current/reduced
Christmas savings: $100 reduce to $50
Vacation fund: $700 to $0
Cash: $200 to $100
Cleaning: $180 to $180
Dining: $300 to $100
Home Depot: $100 to $50
Kid Stuff: $150 to $50
Misc: $600 to $200
Netflix: $25 to $25
Preschool: $165 to $165
Trader Joes: $150 to $0
Clothing/Haircuts: $300 to $100
Total wants: $2970 reduced to $1020

So it would take an extra 6 hours of work per week for me to meet a greatly tightned wants budget. Even though DH could theoretically do the childcare and cleaning while he's looking for a job, I wouldn't cancel these immediately. The cleaning lady really needs this job, and DH would need distraction-free time to search for a new one. The babysitter is pregnant, due in July, so it would make sense to just not replace her at that time.

So here's the plan if DH gets laid off:

Immediately: Increase my work to 30 hr/wk, ask manager if I can increase to 40 hr/wk. DH begins looking for job locally. Tighten wants spending as outlined above.

3 months: don't replace babysitter, consider letting cleaning lady go. Tighten wants spending further.

6 months: recalculate estimated taxes for the year, set aside less.

9 months: DH starts looking at jobs in other cities.

Quarterly 2009 Goals

February 22nd, 2009 at 07:50 am

I decided to reformat my 2009 goals list to make it quarterly. Hopefully this will motivate me to check it quarterly, instead of waiting until the end of the year. Smile

Q1 Goals 2009
[ ] Call will and trust lawyers friends have recommended, pick one.
[ ] Fully fund 401(k): $4,125 per quarter
[ ] 10% of DH's income to ESPP, to be added to his investment account
[ ] Do taxes with TurboTax
[ ] Fund 2008 IRAs -- approx $10k
[ ] Transfer money to SEP-IRA -- approx $15k
[ ] Review 529 funding, establish goal.
[ ] Review current portfolio and write down why we own each fund.
[ ] Create format for quarterly investment review
[ ] Recalculate TPG (target portfolio goal) and TSG (annual target savings goal) for retirement

Q2 Goals 2009
[ ] Have initial appointment with will and trust laywer.
[ ] Fully fund 401(k): $4,125 per quarter
[ ] 10% of DH's income to ESPP, to be added to his investment account
[ ] Schedule annual review with stockbroker.
[ ] Perform quarterly investment review
[ ] Pay fed and state 2008 taxes due
[ ] Pay 2009 estimated taxes

Q3 Goals 2009
[ ] Move house and investments into trust.
[ ] Fully fund 401(k): $4,125 per quarter
[ ] 10% of DH's income to ESPP, to be added to his investment account
[ ] Perform quarterly investment review

Q4 Goals 2009
[ ] Will and trust complete.
[ ] Fully fund 401(k): $4,125 per quarter
[ ] 10% of DH's income to ESPP, to be added to his investment account
[ ] Perform quarterly investment review

2009 Goals for the whole year
[ ] Update will and trust
[ ] Save 20% of our income -- 15% to retirement, 5% to investing
[ ] Fully fund 401(k): $16,500
[ ] 10% of DH's income to ESPP, to be added to his investment account
[ ] Traditional IRA contribution: $10k
[ ] SEP-IRA contribution: 20% of contracting income
[ ] Move TBD into 529 plan.
[ ] Meet TSG (annual target savings goal) of TBD
[ ] Follow up on stockbroker recommendations.

Computer blues

February 22nd, 2009 at 07:28 am

How annoying! I woke up early this morning, and decided it would be a good time to try and do my quarterly review on our investments while DH and DS are still asleep. Wouldn't you know it, my brokerage's system is down for maintanence and I can't get into my account. Grrrr. Plus on etrade, my husband signed us up for these special password keys to make the account more secure. You enter your regular password and then the number that appears on this little gadget -- it changes every minute or so. I had it out the other day as I was updating our budget, and now I can't find it. So I can't get into etrade, either.

With the death of our laptop, I lost my budget and all of the spreadsheets I had created to track our investments. Fortunately all our pictures had been backet up to CD so we didn't lose those. I considered taking the hard drive to a recovery place, but it was going to be $99 for the first hour just to look at it. I quizzed the person there to find out what they did, and it sounded like that it was rare for a disk to be a simple $99 job, more common was several hundred dollars. My spreadsheets aren't worth that much to me, I'll just have to recreate them. I did put the hard drive into an enclosure and can hear it spinning, but Vista is not recognizing it so it's likely got some dammage. For a software engineer, I really hate this kind of computer maintenance and repair stuff.

DOW down to 7500

February 18th, 2009 at 07:17 am

My dad, a former stockbroker who now works for a mutual fund company, called me yesterday afternoon. He said the DOW was down to 7500 and he wanted to add $1,000 to my son's 529 account. He asked me to go ahead and make the purchase and he would send me a check. Thanks, Dad!

It's funny that he's always preached dollar cost averaging, but now he calls me up when the DOW has a big dip and tells me to "buy low". I can't figure him out.

I guess procrastination is once again in my favor. When the stock market had its big fall in October, to 8500, I had $14k sitting in cash within my various IRAs. I invested $10k, and thought I'd wait a month or so with the remainder to see if we got another dip. Then I promptly forgot about it. So now I've got $4k still sitting there and I think I'll invest. Who knows, with the bad economy the DOW could go even lower but I'm not going to wait.

It pains me to realize I still don't have a plan in place to know WHICH fund I want to buy. Guess I'll call my dad again and see which one he recommends.

If only we had our taxes done. I set aside 40% of my consulting income with evey paycheck for taxes. I ran through a quick online calculator and it looks like our effective federal tax rate is going to be about 20%, and we'll only owe a couple thousand this year. So I may have as much as $10k available to put in our IRAs. (We don't qualify for ROTH.) It would've been nice to invest it now, while the DOW is low, but I guess if the DOW goes lower it will be nice to have money to invest then.

Squirt bottle blues

February 16th, 2009 at 12:08 pm

I haven't blogged in quite a while. My 3 year old son LOVES to clean, and I let him have a squirt bottle of this Pledge stuff that is supposed to be safe for wood, glass, stainless steel, and electronics. So no worries about what he might be squirting, right? WRONG! Usually I keep an eye on him whenever he has the squirt bottle, but it got left out by mistake, and he drenched our computer when I wasn't looking, completely shorting it out and destroying it. I thought the hard drive could be salvaged, but I just plugged it in to an enclosure and wasn't able to access it.

Luckily the client I'm currently working for provided me with a laptop for that job, so my work hasn't been interrupted.

I called a few repair places, but it would be $100 just to diagnose, and $250-$300 to replace the motherboard, so we decided to just buy a new laptop instead. I'm going to take the hard drive to a repair shop to see if they can recover any of our files. I'm pretty good about backing pictures up to CD, but not very diligent about backing the other files up.

A look back at 2008 goals

December 30th, 2008 at 10:16 pm

I decided to look back at my 2008 goals and see how I did. (Hmmmm...sounds like I need to involve DH more so that in 2009 it will be "our" goals and the review will be how "we" did!) Although I know our gross income for the year, I won't really know our net income until after we do the taxes. (My part-time income is about double of last year, and DH got a big bonus, but our investment income should be less, so it's hard to estimate what will happen.)

Goals for 2008

Overall Goals
[?] Needs/Wants/Savings at 50/30/20%
[ ] Target Portfolio Goal $4.3 million
[X] Target Annual Savings $13,200

Using my best guess at our take-home, our needs were 40%, and our savings 21%. Portfolio is currently about $500k, and net worth $840k. If we can get 3 doublings, we'll meet the portfolio goal and retire by the time DS finishes college.

[X] DH's 401k at 10% (12% stretch goal)
[?] Max out IRAs ($10k)
[?] Non-retirement contribution $3k
[ ] Net worth increase by $40k
[ ] Portfolio return of 12%

We maxed out the 401k. The IRA and taxable savings will depend on the tax bill -- I have $19k set aside, so anything left over will go into the IRA's first. (We don't qualify for ROTH.)

As for increasing the net worth by $40k and getting a portfolio return of 12%, all I can say is: HA HA HA HA HA HA HA!

Short-Term Goals:
[X] Taxes due ($10k)
[ ] Will and Trust ($2000)
[X] Overseas airfare to visit family ($4500)

We got a deal on the airfare -- only $2600! I actually saved $5000 over the course of the year, and moved the extra into another vacation fund.

To Do List:
[X] update W-4 (federal and state)
[ ] update wills and trust
[X] invest IRA rollover money
[X] review life and disability insurance
[ ] earthquake/disaster box
[ ] move $40k from taxable account to 529 plan

Gotta get those wills updated -- I've been procrastinating for 3 years now. 529 plan is currently about $22k (given to DS from my dad), I just need to figure out how much top-up will be needed to completely cover college costs.

Our loan details weren't what I thought

November 29th, 2008 at 08:02 am

I decided to take the time to go back and look up the details on our 10-1 ARM. Turns out I was wrong about a few key points, like how much the interest rate could adjust initially and each year thereafter.

For my future reference in plugging into loan calculators:
inital loan amount: $414,000
initial rate: 5.125%
initial payment: $2254.18
term: 360 months
first payment due: 10/1/03
first rate change: 10/1/13
maturity: 9/1/33
index: one-year treasury
margin: 2.75% added to index
adjustment period: 1 year
max rate at first change: 10.125%
min rate at first change: index + 2.75
max change thereafter: 2%
max rate cap: 10.125%

So it's extremely imporatant that I watch the interest rates as we get close to 2013 -- I had no idea it could jump to 10.125 at the first adjustment, and I really thought the max change was 1% per year, not 2%. Still, until we make a decision about whether to stay in this house or move to a better school district, I don't think we should refinance.

Considering re-financing

November 28th, 2008 at 09:33 am

My neighbor is a real estate agent, and a few days ago he emailed a bunch of his friends and clients to say that interest rates had just taken the biggest single-day drop he'd ever seen, and he thought it possible that conforming loans (< $418k) might briefly go below 5%.

It sounded interesting, so I contacted the mortgage broker he recommended. She said that currently a 30-year fixed is 5.375, with closing costs of $2k-$3k. She asked me at what rate we would be interested in refinancing.

We are 5.5 years into an ARM loan that is fixed at 5.125 for 10 years, and then can only adjust 1% max per year. My first instinct was to go ahead and lock in at 5.375. Then I decided to play around with some mortgage calculators:

Payment calculator:

Loan comparison:

It turns out that at a fixed rate of 5.375, we'd pay an extra $5,500 over the next 4.5 years (plus $3k for closing costs), and then it would take another 3 years before we'd be better off than leaving the $3k in a savings account earning 3%. (I assumed the adjustable rate stayed at 6.125). So it doesn't seem worth doing right now.

Of course, the story might be different if interest rates spike sharply 5 years from now, so that we ended up paying 6.125, then 7.125, then 8.125, etc.

I haven't played with this ARM calculator much yet, because I need to look up some of the details like which index we're using:

Advance ARM calculator:

The worst I could do with the calculator was raise the index by .5 per month. Here's how the payments might go up in that case:
Jun 2012: $2,254.18 (5.125%)
Jun 2013: $2,412.80 (5.946%)
Jun 2014: $2,605.85 (6.946%)
Jun 2015: $2,798.56 (7.946%)
Jun 2016: $2,990.05 (8.946%)
Jun 2017: $3,179.47 (9.946%)
Jun 2018: $3,212.48 (10.125%)

The worst case in 2018 looks scary, but I feel pretty comfortable sticking with the current loan through 2014. There's a chance we might decided to move to a better school district between now and then.

If a fixed-rate loan went down to 4.75, on the other hand, we'd break even after 2 years, and it would be worth it to refinance.

Here's another ARM vs fixed calculator:

Current Asset Allocation

November 22nd, 2008 at 06:51 am

I took advantage of Morningstar's open house to try out the portfolio tools and x-ray. It will take me just as long to manually enter it in instant-x ray (which is free) each time so I'm not going to pay $160/yr for the premium membership.

Here's our current allocation according to x-ray:
U.S. Stock: 34%
Foreign stock: 46%
Bonds: 9%
Cash: 10%
Other: 1%

Here's the target I came up with:
stock: 75%
bond: 10%
cash: 5%
real estate: 5%
commodity: 5%

So I'm not too far off. I've decided I'm only going to rebalance my portfolio if it strays more than 10% from my target, and not at all when the market is going crazy like right now. Instead of selling stock to invest in REIT and commodity, I'm going to direct new investments in that direction. I have $9k in cash in the investment accounts right now (which is only about 2% of the portfolio) -- so I'll start shopping around for a REIT. The rest of the cash is from mutual fund managers deciding to hold cash. I figure I'm paying for them to use their judgement on that, so I won't argue with them.

The style allocation for the stock matched very closely with the Wileshire 5000.
value blend growth
large-cap 26.5 27 23
mid-cap 5 4 9.5
small-cap 1.5 1.5 2

The international stock has a large-ish bet on Asia:
US & Canada: 45%
Europe: 26%
Japan: 3%
Latin America: 5%
Asia & Australia: 16%
Other: 5%

My average mutual fund expense ratio is 0.69%, which I was pleased to see.

Goals for 2009

November 18th, 2008 at 06:14 am

Starting to think about my goals for 2009:
[ ] Update will and trust.
[ ] Save 20% of our income -- 15% to retirement, 5% to investing
[ ] Fully fund 401(k): $16,500
[ ] Traditional IRA contribution: TBD
[ ] SEP-IRA contribution: TBD.
[ ] 10% of DH's income to ESPP, to be added to his investment account
[ ] Invest $5-$10k in a REIT fund.
[ ] Move TBD into 529 plan.
[ ] Review current portfolio and write down why we own each fund.
[ ] Meet TSG (target savings goal) of TBD
[ ] Investment return >= TSG
[ ] Have annual review with stockbroker. Follow up on recommendations.

I like the way Merch was very specific and quarterly about his goals, and would like to convert my list to his format.

Will and trust: DH doesn't have a will, my will still names the wrong person as guardian, my trust (which I set up instead of doing a pre-nup) needs to be converted into a joint or AB trust, and our house needs to be moved into the trust.

SEP-IRA: To take advantage of the tax break, I currently sell shares in my taxable account and contribute to the SEP-IRA. It's really just moving existing money around rather than investing new money.

ESPP: Buying stock through the employee stock purchase plan is a guaranteed 15% return on the money -- you get the stock for 15% less than the market price on the purchase date. In some ways the ESPP is an extra emergency fund for us because if DH were to get laid off we get the current balance back immediately. DH usually sells the stock immediately. In 2008 we used the money for some big one-time purchases. My goal for 2009 is that this year the cash will go into the stock-trading account that he is free to invest as he pleases. (This account is our solution to our big disagreements about investing philosophy and strategy.)

529 plan: My father set up a 529 for my son when he was born. The intial investment was $20,000, and he has added $1,000 every year on his birthday. (Thanks, Dad!!!) I just need to figure out how much I should add so that it will fully fund my son's education.

Booknotes: Morningstar Guide to Mutual Funds

November 18th, 2008 at 05:16 am

When I read a good financial book, I like to take notes for my future reference and for the benefit of others here who might be inspired to go read it. You can see my past entries by clicking on the Booknotes catagory.

I actually read The Morningstar Guide to Mutual Funds several months ago, and just came across my notes -- so the details may be a little rusty. It was well-written, but I find I have a mental block when it comes to reading about investing (very odd considering I'm a bookworm who averages about a book a week.) It took me several libary renewals to get through this one.

This book is the first one I've read that really focuses on the process of how to choose a particular fund, as opposed to generalities of what mutual funds are, and for that I highly recommend it. It explains how to use the information available on Morningstar's website to choose funds.

Questions to ask yourself to check whether you thorougly understand a fund:
* What does the fund own (style, catagory sector)
* How has the fund performed? (3,5,10 year returns, calendar year return, average annualized return, after-tax return)
* How risky has the fund been? (standard deviation, top 10 concentration, Morningstar risk rating)
* Who runs the fund? (fund manager's history)
* What is the fund family like?
* What does the fund cost? (loads, expense ratio)

Know what a fund owns:
* Understand the style box -- this tells you if the fund invests in small, medium, or large companies, and also whether it buys stocks because they are "on sale" (value - a good price compared to history for that stock) or are expected to increase in price quickly (growth) or a combination (blend).
* Check the sector weightings. This tells you how much the fund is investing in different kinds of companies -- say banking, industrial, or high tech
* Check the number of holdings (more stocks = less risk)
* Check the turnover rate (lower is better). If the fund buys and sells a lot, trading fees will decrease the return.

Performance -- things to look at when comparing funds:
* Annualized return
* After-tax return
* Compare the fund's return to the right benchmark

* large cap: S&P 500
* small cap: Russell 5000
* foreign: MSCI EAFE
* taxable bond: Lehman Brothers Aggregate Bond

* Also compare the fund's return to the Morningstar index for corresponding style box
* Look at the long-term history -- the 3, 5, and 10 year returns
* Note how long the manager has been with the fund -- good historical results may have come from a previous manager
* Look at the calendary year returns -- this will tell you if one exceptionally good year is making the other long term results look better than is warranted.

Analyze the Fund's Risk:
* Add up the % invested in the top ten holdings -- how concentrated is the fund in these stocks?
* Style risk: Large-value is the least risky, small-growth has the most risk
* Past volatility: look at the worst calendar year. If it happened again, would you be willing to ride it out or would you feel compelled to sell?
* Standard deviation: this tells how much the fund has varied from the 3 year average. 68% of the time, your return will be within 1 standard deviation. Lower is better (means the fund is more consistent). Compare a fund's standard deviation to the standard deviation of the index.
* Morningstar's risk rating:
* low: least risky 10% of funds
* below-average: next 22.5%
* average: the middle 35% in terms of risk
* above-average: next 22.5%
* high: most risky 10% of funds

Evaluating the Fund Manager
* Look for 10 years experience as an analyst or portfolio manager, with at least 5 of these years as a portfolio manager
* Seek ones who spent their early years at a high-quality firm like Fidelity or American Funds
* Management changes -- consider selling if the management changes and the fund is from a small family has just a handful of fund, or if the fund is the only good one in that family, or if the catagory is small or emerging markets

Analyze Costs
* Growth, small-cap, and international funds will have higher expense ratios because they require the fund to do more research.
* Look for funds charging < 1.25%
* Compare the fund's expense ratio to the following averages:
* large-value: 1.41
* large-blend: 1.24
* large-growth: 1.5
* mid-value: 1.43
* mid-blend: 1.40
* mid-growth: 1.60
* small-value: 1.51
* small-blend: 1.53
* small-growth: 1.64
* Foreign (Europe, Japan, and World): 1.75
* Foreign (emerging markets): 2.19
* Sector funds: 1.72

Portfolio Mix
* Main asset classes are stock, bond, and cash. Some consider foreign, emerging markets, and REITs as separate classes.
* Diversity among the main classes is the most important.
* Diversity among the sub classes (style box, foreign) is useful but not as crucial.

Where to invest money for your short-term goals (plan to use the money in 1-5 years)
* Money-market
* Ultra-short bond funds (bond maturities < 6 months)

Where to invest money for your medium-term goals (plan to use the money in 5-10 years)
* 25% in short-term bond or cash
* 75% in stock funds -- either large-blend or balanced funds
* Shift the money into bonds as you get closer to the goal

Where to invest for long term goals
* I seem to be missing notes for this

Structuring your Portfolio
* Your foundation should be made of a core of funds, comprising 50-80% of your assets. Recommend large-cap domestic fund for the foundation
* Small cap should be < 20% of your portfolio
* Consider having some foreign funds in developed markets (ie Europe and Japan)
* Risk diminishes significantly by owning at least 3 funds
* Above 7-10 funds, risk doesn't diminish
* Watch out for overlap if you own multiple large-cap funds
* Four-corners strategy: invest in large-value, large-growth, small-value, and small-growth
* Check total exposure to each catagory sector -- no more than 30% in any one sector

Write down why you bought each investment.

Understanding the investment strategy of your fund:
Value Styles:
* relative-value: choose stocks that are cheap compared to benchmark such as historical price ratios, industry, or overall market. American Funds Washington Mutual is recommended for this strategy
* absolute-value: figure out what a company is worth, and buy when the stock price is less than that amount. Manager studies the company's assets, balance sheet, and growth patterns. Be prepared to wait out long dry spells.

Growth Styles:
[indent]* earnings driven or "momentum": focus on identifying accelerating earnings. This style has a price risk -- the price of a stock may plunge on bad news. These funds tend to have significant short-term drops.
* revenue-driven: buy stocks that have strong revenues
* GARP (growth at a reasonable price): strike a balance between strong earnings and good value. Fidelity Magellan is a recommended example

I think there may be one or two chapters at the end that I didn't cover...

Dad's (lack of) advice on investing

November 16th, 2008 at 08:11 am

I have mentioned before that my dad used to be a stockbroker with a full-service brokerage, and now works for a mutual fund company. You'd think I would've gotten a great education in investing from him, but I find I'm having to go out and read books to educate myself like everone else.

In the past when I've asked him to teach me about investing, I'd get a 5 minute lesson that involved comparing this year's year-to-date (or was it 1-year?)return to the 10 year average for that fund. Once he sent me a book by Jane Bryant Quinn that defined bonds and mutual funds but didn't explain how to pick a particular fund.

Recently I asked him about asset allocation and he said he doesn't believe in rebalancing -- it was just a way for authors to sell books and advisors to look like they're doing something.

Dad doesn't believe in index funds -- he once told me that their popularity had driven up the price too much. And of course he believes that you're getting the value of research by buying loaded mutual funds.

I once asked him at what point would I have saved enough for retirement and could enjoy the present a little more. "Save every penny you can," was his answer.

To be fair, Dad always did tell me which funds to pick in my 401k, and will periodically tell me that a particular fund at his company is "on sale" compared to its historical price. He explained the basic concept of a mutual fund and dollar cost averaging when I was in high school.

Despite all this, Dad did pass along some core bits of advice that have made a big difference in getting where I am today:
* live below your means
* save as much as you can
* start your 401k the day you are eligible
* max out your 401k
* long-term owners do better than long-term loaners (ie stocks outperform bonds and bank accounts in the long run)
* don't put all your eggs in one basket
* start investing in your 20's
* send $50 or $100 to a mutual fund every month(unfortunately I didn't keep following this one)
* mutual funds (at least the ones in his company) will on average go up 3 out of 4 years, and lose money 1 out of 4 years.
* don't buy the most expensive house on the block

Choosing my asset allocation goal

November 16th, 2008 at 08:00 am

From the short quizzes in the Perfect Portfolio book, I was rated to have a moderate risk tolerance (3 on a scale of 1-5), and a moderately aggressive risk profile (2 on a scale of 1-5). I think the risk tolerance quizzes actually tend to underestimate my true tolerance -- I didn't bat an eye when my portfolio dropped $200k in the recent downturn.

So I've decided that a growth allocation is my goal. Here's the starting point that the book recommends:
Goal: Growth
stock: 60%
bond: 20%
cash: 10%
real estate: 5%
commodity: 5%

Given my age, I think that's far too much in bonds and cash. It was a hard sell to convince me that bonds are necessary at all, but The Intelligent Asset Allocator made a really good case for holding 10% in bonds. One thing that I'm never sure about is whether to count our checking, savings, and emergency fund in the cash portion or not. I plan to exclude it just to make the calculations easier (so I can just put the funds in x-ray and ignore the other accounts.)

Here's what I think I'll aim for:
My target:
stock: 75%
bond: 10%
cash: 5%
real estate: 5%
commodity: 5%

I've been interested in adding a REIT at some point, and based on the book's advice I think I'll do it within my SEP-IRA.

The book had very little advice about how to allocate the stocks within the catagories (small, mid, large cap; value, growth, blend), so I still need to make some decisions in that area. I think it's possible we may be entering a decade with little growth, so I will lean toward mutual funds that generate dividends.

I'll come back and edit this post later with my actual current allocation once I run the numbers through x-ray.

Booknotes: Perfect Portfolio

November 15th, 2008 at 06:05 pm

When I read a good book on investing, I sometimes like to take notes and record them here on my blog -- both for my future reference and for others here who might be interested.

Today's book is The Standard & Poor's Guide to the Perfect Portfolio: 5 Steps to Allocate Your Assets and Ensure a Lifetime of Wealth by Michael Kaye. It focuses mainly on how to decide upon the right asset allocation for you. You need to understand the basics about stocks, mutual funds, and bonds before reading this book.

The three main asset classes are equities (ie stocks and mutual funds), bonds, and cash (ie bank account, money market, CD, etc.). Real estate and commodities can also be considered asset classes.
Suggested Asset allocations -- adjust these to suit your own risk tolerance and other factors discussed in the book(age, marital status, investing experience, dependents, and affluence).

Goal: Capital Preservation
stock: 0%
bond: 25%
cash: 75%
real estate: 0%
commodity: 0%

Goal: Income
stock: 25%
bond: 45%
cash: 20%
real estate: 10%
commodity: 0%

Goal: Growth & Income:
stock: 45%
bond: 30%
cash: 20%
real estate: 5%
commodity: 0%

Goal: Growth
stock: 60%
bond: 20%
cash: 10%
real estate: 5%
commodity: 5%

Goal: Aggressive Growth
stock: 85%
bond: 0%
cash: 0%
real estate: 5%
commodity: 10%
Universal Rules for your portfolio
* No more than 75% of your portfolio in any one asset class.
* At least 5% in cash instruments
* At least 5% in international equities
* Have exposure to at least three asset classes.
* No more than 10% in any one stock
* At least 25% in stocks
* At least 10% in bonds
* Consider rebalancing if an asset class moves at least 5% from your target, but do not rebalance more than once a year.
For the best tax treatment here are the best places to hold different kinds of investments:
Taxable Account:
* Index mutual funds
* Index ETF
* Municipal bonds
* Individual stocks (held > 1 yr)
* Tax-managed mutual funds
* International funds
* Cash instruments

Tax deferred and tax free accounts:
* Actively managed mutual funds
* High-yield junk bonds
* Stocks held < 1 yr
* Corporate bonds
Impact of the Economy
Historically, different strategies have worked best in the following economic conditions:

Low Interest Rates
* stocks & bonds perform better than real estate and commodities
* mory risky stocks and bonds are the best performers

High Interest Rates (nominal > 8%)
* conservative investments perform best
* equity: staples, pharmaceuticals
* bonds: short-term
* cash: money markets

Rising Interest Rates
* increase short-term bond & money market
* equity: staples, pharmaceuticals

Falling Interest Rates
* stocks & bonds
* equity: banking, home building
* long-term bonds
* CD's

High Inflation
* stocks, bonds, and cash all do poorly -- but of these stocks fare best
* real estate and commodies do well
* international equities
* money market best for cash

Low Inflation
* stocks, bonds, cash do better than real estate and commodity
* more aggresive stocks do well -- technology, consumer discretionary
* longer term bonds

Growing Economy
* more aggressive investments

* staples, pharmaceuticals, utilities
* lower maturity, high quality bonds
* real estate does poorly

Compare your investments against benchmarks:
* equity -- S&P 500
* small cap equity -- S&P 600 Small Cap Index
* bonds -- Lehman Aggregate
* cash -- Citigroup 3 month T-bill index
* commodities -- S&P-Goldman Sachs Commodities Index

Other notes:
In taxable accounts, don't rebalance by selling -- instead redirect new money to a different asset class.

small-cap mutual funds tend to generate larger tax bills than large-caps due to companies growing out of the small-cap classification and the stocks being sold.

REITs are one way to hold real estate. Two main kinds:
* equity REIT owns rental properties
* mortgage REIT owns mortgages

I fall in the "Middle Career" phase of life. Recommendations:
* life insurance important
* fund retirement
* fund 529
* have will & guardian in place
* 6 months expenses for emergency fund
* tax-advantaged -- slightly more conservative than early career
* taxable accounts -- slightly more aggressive than early caeer
* focus on investments with low expenses, low taxes

Where is my career going?

November 8th, 2008 at 07:49 am

Nearly 4 years ago I was recruited to a job that exactly matched my career ambitions -- team lead/manager of a small group of software engineers. One month later I got pregnant. It was a happy surprise -- we'd be dealing with infertility for 3 years and just didn't know how or when we would become parents. For many months the question on my mind was, "Should I give up this great career opportunity to fully enjoy my baby?"

3 years ago, having a blast being a SAHM to my little munchkin, my question was, "How long can I stay out?"

1.5 years ago, feeling a little restless and in need of some intellectual activity, the question became, "Will I be able to get back in when I want to?"

And now while working in an ideal situation -- 20-25 hr/wk from home -- the question changes to, "Where is my career going?"

The conflict I feel comes down to time vs type of work. My preference is to work 20-25 hr/wk now, perhaps increasing to 30-35 hr/wk when my son starts kindergarten. The president of the contracting firm I am with has been amazing -- in addition to 4 full-time engineers, he's taken on 3 women with small children who want to work part-time as well as a part-time guy who is moonlighting, and has been very willing to tailor the assignments to the number of hours we want to work. He is building the firm, and as long as he continues to bring in projects there will probably be work for me.

The work itself is ok, but not exactly what I dream of doing. It's writing software -- designing, coding, testing -lots of software engineers are perfectly happy doing just that. Clients bring us in when there is small project they don't have enough staff to handle on their own, or if they need some help bringing up Linux on new hardware. So far it's been mostly telecommunications equipment, some military applications, and some medical equipment. I'm learning a lot of Linux, which is great for the resume. If I'm doing implementation, my dream would be working on a project that has special meaning -- for instance creating communication assistance devices for autistic kids.

In my heart I would prefer to get away from programming. I'd love to be either a systems engineer who designs the architecture for the whole product, or to go back into team/project management and organize the efforts of 10-12 people to make the product come together. The road to those jobs is to rejoin the corporate world and work 50-60 hour weeks.

At some point, perhaps when my son starts kindergarten, I plan to put my resume out to some headhunters and advertise myself as looking for a job-share. Surely there is another woman out there facing the same delima that I am...

No longer a millionaire :(

November 8th, 2008 at 06:43 am

It's no surprise that all of our investment accounts have been hit hard by the recent stock market plunge. This morning I decided to bite the bullet and see how bad the fallout was. It turns out I'm no longer a millionaire -- net worth is down to $840k. All things considered, I can't complain -- it was just fun to call myself a millionaire while it lasted. I am confident the stock market will recover over the next few years and we will be in good shape for retirement 20 years from now. I guess my new goal can be to reach $1M net worth again by the age of 40. Smile

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