Think Your Way to Wealth » Investing

November 2009 to May 2010 I Bond Rates- 3.36% Total, Fixed Rate 0.30%

RC — Tue, 24 Nov 2009 03:29:40 +0000

After a 6 month period (May 2009 to November 2009) where I bonds effectively earned a 0% rate of return for the period, the increase in the CPI-U from negative (deflationary) to positive (inflationary) pushed I bonds back into positive yield territory.

November 2008- I Bond Earnings Rate 3.36%, Fixed Rate 0.30%

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 3.36% earnings rate for I bonds bought from November 2009 through April 2010 will apply for their first six months after issue. The earnings rate combines a 0.30% fixed rate of return with the 3.06% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period.

Here’s how the composite rate for I bonds issued November 2009 – April 2010 was set:

Fixed rate = 0.30%
Semiannual inflation rate = 1.53%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = 0.0030 + (2 x 0.0153) + ( 0.0030 x 0.0153)]
Composite rate = [ 0.0030 + 0.0306 + 0.0000459]
Composite rate = 0.0336459]
Composite rate = 0.0336
Composite rate = 3.36%

Since I bonds are tax-deferred, they can be an useful option to diversify your tax liabilities as part of your overall asset allocation plan. As I have mentioned before, I bonds are also tax free if used for education, so they can be part of your education savings plan as well.

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Get $25 Free From Lending Club Plus a Chance to Win $2500

RC — Thu, 10 Sep 2009 03:07:09 +0000

In the next few weeks one lucky winner will become Lending Club’s 25,000th registered investor. To celebrate this milestone, the 25,000th registered investor will receive $2,500 cash.

In order to receive $25 free to invest at Lending Club, type in this “Referred by” code when registering: rcthinkwealth. You will get $25 free to try out Lending Club, as well as have a chance to win $2500 if you are the 25,000th investor.

The winner will be announced on the Lending Club blog after October 1^st. For contest details visit the Lending Club Terms & Conditions page.

What is Lending Club ?

Lending Club is a Peer to Peer Lending site, also known as person to person lending or social lending. People can either lend or borrow money, without using a financial institution, such as a bank. The advantages are that a borrower can usually get a better rate than they would from a conventional loan through a financial institution, but at the same time, a lender can get much better returns that they would through normal investment channels such as a savings account. For example, Lending Club investors currently receive an average annualized return of 9.64%. The rate of return depends on the risk level (credit score of borrower, etc), as one would expect. However, borrowers must still qualify for the loans, and must have a minimum FICO score of 660, along with meeting other criteria. For more information, see Lending Club’s FAQ page.

As with any investment, there are risks, but receiving $25 free to try out investing with Lending Club seems like a no-brainer to me. In fact, I signed up for Lending Club a few weeks ago with a $25 bonus, and funded a loan with it. Unfortunately, I missed out on the chance to become the 25,000th investor, but you still have chance to win. I am going to discuss my experiences with Lending Club more in the near future.

For your $25 free to try out lending Club, use referral code: rcthinkwealth

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Get 20 Free Stock Trades When You Sign Up With Zecco

RC — Wed, 02 Sep 2009 10:58:04 +0000

Zecco Trading, an online discount stock brokerage, is offering 20 free trades for new customers opening an account by Sunday, September 13th, 2009. (Trades are normally only $4.50, or free if you have an account balance of $25,000 or more or make 20 trades or more per month.)

Unlike a lot of other free trade offers, you have 90 days to use your 20 free online stock trades from Zecco.

Be sure to use the promotion code “bonus1″ when signing up. Be sure to use all lowercase or the code won’t work.

Special terms and conditions:

New Zecco Trading accounts must be opened and approved by Sunday, September 13th, 2009.
The 20 free stock trades will be granted on or before September 16th, 2009. The free trades will expire 90 days after the date they are granted.
Offer not eligible to existing Zecco Trading customers.
Limit one bonus per household.

Join Zecco Trading and get 20 free trades with bonus code “bonus1″

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I Bonds to Earn 0.0% From May to October, 2009

RC — Sun, 03 May 2009 23:07:59 +0000

Based on a drop in the CPI-U, or Consumer Price Index for Urban Consumers, I Bonds issued between May 1, 2009 and October 31, 2009, will earn an effective earnings rate of 0.0%.

The earnings rate combines a 0.10% fixed rate of return with the -5.56% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). When the inflation rate is less than zero, a bond’s earnings rate is less than its fixed rate (but the earnings rate is never less than zero). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period. The CPI-U decreased from 218.783 to 212.709 from September 2008 through March 2009, a six-month change of -2.78%.

This is bad news for investors who have been turning to inflation protected investments, but should be probably looked at as a short term situation. Don’t forget, I bonds issued in the last 6 month period earned an effective annualized rate of 5.64%, so even getting 0% for the next 6 months would give you 2.82% for 12 months, had you purchased them in the beginning of November of 2008.

Due to the weakened economy, some consumer prices have dropped, especially in energy, such as oil, natural gas, and gasoline. While the risk of deflation is still around, with all of the money that has been pumped into the economy recently, I would not expect a drop when the rates are adjusted in 6 months, I would expect it to be an increase. I think most people expect to see some amount of inflation in the coming months, although I guess you never know.

So although you may earn zero percent the next 6 months on an I bond, your average over the next year could still be positive, and could even be 2% + (this is speculation, of course) depending on what the rate changes to 6 months from now.

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Is Buy and Hold Investing Dead or Just Misunderstood?

RC — Tue, 28 Apr 2009 11:46:51 +0000

Buy and Hold Investing has taken a beating in the press over the last year or so. What was once a very popular method for investing in the stock market has been maligned, mocked, and even cursed in the news media, and some investors have given up hope that it actually even works. Hindsight is always 20/20 though.

Is Buy and Hold Dead?

I don’t think that investing in the stock market for long periods of time is a bad proposition, I think it still has merit and is probably the way to go. But you have to realize that Buy and Hold does not mean Buy, Hold, and forget about it. There are very few investments that don’t require you to pay attention to them. The stock market is certainly not one of them.

Buy and hold means you are invested for the long haul, and are not jumping in and out of the market based on short term trends or trying to make quick profits. It does not mean you cannot re-allocate your portfolio, or diversify it properly by changing your asset allocation, and it does not mean you have to stick with under performing mutual funds, such as in your 401k, for example.

One of the problems is that we can get caught up in things when times are good, and follow the crowd, so to speak.

Remember the tech bubble in the late 90’s? Everyone wanted to talk about the latest “hot” stock they had a tip on and picked up for a few dollars, which they were sure would become the next Microsoft. Why? Because everyone thought the tech bubble would just keep on rising, and never burst. Instead of taking profits and being happy, a lot of people got greedy.

The same thing happened in the real estate market, for some people. Some speculators thought they could buy a house, slap a coat of paint on it, and “flip” it for a profit a few months later, not thinking that at some point prices were going to come back down to earth.

It is hard to do, but one of the most successful investors of our time follows this advice:

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
– Warren Buffett

And his mentor said the following regarding balancing of your investment assets:

This means the investor would switch some of his stocks into bonds on significant rises of the market level, and vice-versa when the market declines.- Benjamin Graham

The buy and hold philosophy can still work, and you don’t need to get involved with trading individual stocks or funds on a regular basis, by keeping the following in mind:

Pay attention to your asset allocation- Does your asset allocation reflect your risk tolerance and when you plan on retiring?
Re-balance after significant rises or declines in the market or your investments- Do you re-balance your portfolio regularly?
Keep an eye out for under performing funds- Are you holding on just for the sake of holding on? Selling something because it is not performing well does not mean you are not in it for the long haul, it just means you are smart! (It doesn’t mean changing funds or investments every few months, though.)
Stay diversified- Are you diversified? Buy and Hold doesn’t mean buy only stocks. Consider bonds, real estate, and other commodities or asset classes to keep your nest egg diversified.
Avoid the hot stocks, don’t follow the crowds- Do a little research, and treat “hot stock tips” like they are worth what you paid for them

Remember: Buy and Hold does not mean buy and do nothing!

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How’s My 401k in the Current Market?- I’m Not Really Sure!

RC — Wed, 17 Dec 2008 01:50:33 +0000

It has been several months since the last time I looked at my 401k plan. In fact, I believe the last time I checked my 401k was when Single Guy over at Single Guy Money asked his readers how much they had lost in their investment accounts. That was back on July 17th. I think my 401k accounts were down about 12-15% then, I know they are down a lot more since then, although I could not tell you exactly what that number is.

Why haven’t I looked at my 401k account since then?

Well, after the bottom fell out in September and October, I really wasn’t that interested in how much money I LOST in my retirement accounts. I was not going to pull it out of stocks and into bonds or a money market account, as my asset allocation is heavy on stocks due to the length of time I have before retirement; that did not seem like a good thing to do. Since I did not want to participate in “panic selling”, I just have not had the urge to see what the damage really was. Is this foolish? I don’t think so, and in fact, if I had more money to invest, I would probably increase my 401k contributions.

Am I afraid to look? Not really. Most of my 401k is in funds that track the major indices, like the S&P 500, or even the total stock market-although they are not actually index funds. So I have a pretty good idea of what my losses probably are.

My plan is to take a look in January, although I may do it before then, when my company match from this year goes in, and re-balance my 401k by placing my new contributions and the company match in the fund or fund type that needs to be increased.

Have you been obsessing over your 401k balance? Have you been checking it regularly over these last few months? Or have you stopped worrying about it? Should I be checking it more closely? What do you think?

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November 2008 I Bond Rate- 5.64% Total, 0.70% Fixed

RC — Tue, 04 Nov 2008 04:56:09 +0000

Because November 1st fell on a weekend, we’ve had to wait until today, November 3rd, to get the new I bond rates for the next 6 months.

November 2008- I Bond Earnings Rate 5.64%, Fixed Rate 0.70%

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 5.64% earnings rate for I bonds bought from November 2008 through April 2009 will apply for their first six months after issue. The earnings rate combines a 0.70% fixed rate of return with the 4.92% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period. The CPI-U increased from 213.528 to 218.783 from March through September 2008,
a six-month increase of 2.46%.

Here’s how the composite rate for I bonds issued Nov 2008 – Apr. 2009 was set:

Fixed rate = 0.70%
Semiannual inflation rate = 2.46%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0070 + (2 x 0.0246) + (0.0070 x 0.0246)]
Composite rate = [0.0070 + 0.0492 + 0.0001722]
Composite rate = [0.0563722]
Composite rate = 0.0564
Composite rate = 5.64%

Check out my article on I bonds if you are trying to decide if I bonds are a good option for you.

Some of the positive features of I bonds include:

I bonds are currently returning 5.64%, a pretty good rate considering ING, for example, is returning 2.75%
The interest on I bonds can be taxed deferred, meaning they do not have to be reported on a yearly basis (as savings account interest would be)
The interest from I bonds are tax free if used for education.

Things to consider:

I bonds must be held 1 year (really 11 months if you buy at the end of the month)
If you cash I bonds in before 5 years time, you give up 3 months interest as a penalty
Only the fixed portion is guaranteed-the inflation indexed portion is variable and changes every 6 months-and theoretically could go to 0%.

Thoughts on November 2008 rate:

The rise in the fixed portion from 0.0% in April 2008 to 0.7% is a better deal than last April, but with the fed lowering interest rates again recently, it is hard to say if inflation will stay up or will start to decrease, lowering the overall rate. They do look more attractive than in April, and if the rate stayed at 5.64% for a year (although it would change in April 2009) and you cashed in after 1 year and payed the 3 month penalty, you would still be looking at a 4.23% return, which is not too bad compared to high interest savings accounts, most of which offer around 3% +/- these days.

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Asset Allocation and Your Age- Finding the Proper Allocation that Makes You Comfortable and Reduces Risk With Your Retirement Investments

RC — Thu, 30 Oct 2008 11:19:10 +0000

One of the unfortunate byproducts of the current stock market meltdown, is the fact that many people are going to have to delay their retirement by a few years, if not more. When times are good, and the stock market is increasing at 8% to 12% per year, it is very difficult for people to pull money out of the stock market and put it in safer investments.

Even though I am in my mid-thirties, I have experienced two periods of time in my working life where I have had co-workers or acquaintances tell me they were going to have to defer retirement for a few years due to heavy losses sustained in their retirement accounts, both after the tech crash and subsequent effects of 9/11, and the current stock market crash.

An equally unfortunate part of the equation is that many people getting close to retirement age these days are now pulling ALL of their retirement investments out of the stock market, and may never be able to make up the difference.

So how do you avoid this scenario?

The answer is asset allocation.

Asset allocation is how you have your investments proportioned in each investment category. For example, you could invest in stocks, bonds, real estate, and commodities (gold, oil, etc.), leave your money in cash, or even invest in foreign currency. Most of the categories can be broken down further, such as large cap stocks, small cap stocks, etc. Also, you can invest in some categories, such as commodities or even real estate by either buying certain companies that are part of that industry (i.e., stocks), or exchange traded funds that invest in a particular commodity (such as gold or oil), or even a real estate investment trust (REIT) for real estate. For the sake of simplicity, and because it is frequently the only investment outside of a home, let’s just look at retirement accounts an focus on stocks vs. bonds vs. cash-keeping in mind that some stocks could be a gold ETF or a REIT for real estate. The goal of asset allocation is to reduce volatility and limit the potential downside of loses to one class of asset. By the same token, however, the upside (or potential for gains) can be reduced if one asset class sees large gains.

There are two components of asset allocation that you need to examine:
1.) Your asset allocation vs. age, or when you want to retire.
2.) How often you rebalance your portfolio, or changing your asset allocation.

Asset allocation vs. age

There is an old rule of thumb, that the amount of investments you keep in stocks (vs. bonds or cash) should be 100 minus your age. For example, if you were 40 years old, the amount of money you keep in stocks would be 100-40 = 60%. While this may have seemed conservative a year or two ago, there are many, many people who would have loved to have this type of allocation over the last year. I would surmise that this could be adjusted somewhat based on your own personal risk tolerance, as well. But even if you were 20 years old, it would still mean that you would have 20% of your retirement funds in bonds or cash, such as a money market fund. Benjamin Graham (Warren Buffett’s mentor) recommended at least 25% in each category, and suggested that a 50/50 split might be appropriate.

Rebalancing Your Portfolio- Re-allocation of Assets

At some interval, whether it is every 6 months or every year, you should rebalance your portfolio back to the asset allocation you determined was right for you. You should also take into account your age, or how soon you want to retire. The closer you get to retirement, the “less risky” your overall portfolio should be.

Why?
Because this is how you lock in stock market gains, and limit losses. Going back to Warren Buffet’s mentor, he recommends a simpler way-

A good case can be made for a consistent 50-50 (stocks vs. bonds) division here, with adjustments for changes in the market level. This means the investor would switch some of his stocks into bonds on significant rises of the market level, and vice-versa when the market declines.

I do not see this as market timing-it is not based on what the stock market or your investments are going to do, but what they have already done-there is a key difference there.

By properly allocating your retirement assets to your age or retirement, as well as your risk tolerance, and rebalancing on a regular basis, you can limit the volatility in your retirement accounts and approach retirement age without worrying about a massive drop in the stock market putting your retirement plans on hold.

Are your retirement accounts allocated across different investment types? Do you rebalance on a regular basis?

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Free Stock Trades During the Month of October from Zecco

RC — Sun, 19 Oct 2008 03:59:23 +0000

Zecco.com is offering free trades for all accounts for the month of October, so if you are interested in dipping your toes either back in to the stock market or want to start investing for the first time you can do so now with no trading fees for the rest of the month. Zecco has always been a low-cost discount online brokerage, they normally offer 10 free trades a month if your balance is above $2500, and only $4.50 for more than 10 trades, or if your account is below $2500. But for the rest of the month of October, all trades are free, regardless of the account balance.

Is Now a Good Time to Get Back in the Stock Market?

It could be. The Oracle of Omaha, Warren Buffett, has decreed that it is time to buy stocks again and is in the process of putting all of his personal holdings into U.S. stocks, according to an editorial piece in the Wall Street Journal on Friday. As I have mentioned before, his motto is “Be greedy when others are fearful and be fearful when others are greedy” and, feeling that there is panic in the stock market, he is following his own philosophy here. Does that mean he is calling the bottom? I don’t think so, he just believes the stock market in general is currently being sold at a discount, and is looking to take advantage of the opportunity.

Of course, a great way to begin investing is with index funds, which can be purchased through Zecco in the form of ETF’s. If you are looking for individual stocks, do your research, and consider companies with solid fundamentals, such quality dividend paying stocks, etc. that could be available at a good price right now.

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Is it a Smart Move to INCREASE Your 401k Contributions Now?

RC — Wed, 08 Oct 2008 11:28:29 +0000

If you work somewhere in corporate America (or most places really) one of the most popular topics of conversation besides the huge slides and wild swings in the stock market has been variations of the following questions:

Should I stop contributing to my 401k?

Should I lower my 401k contributions?

Should I move my money out of stocks and into bonds or a money market fund?

One of the most popular articles on my site right now is Should I Stop Contributing to my 401k to Pay off Debt?, and most people are reaching it by searching for “Should I stop contributing to my 401k”

There is an obvious reason for these question and ones like them. People are afraid. No one likes to lose money, even if it is only on paper. If you are only a few years from retirement (around 10 years or less), you do have some valid questions, but hopefully you portfolio is diversified based on the time frame of when you will need to draw from your retirement fund. If not, now might not be a great time to move things. But you could start putting all of your new contributions into safer investments, to balance things out.

What if you are 20, 30 or 40 years from retirement?

Now might be a great time to INCREASE your 401k contribution

It’s true.

One person I know told me they were going to do this, and I think they are brilliant. This is the question people with a long retirement horizon should be asking, not if they should stop or decrease contributions. With so many years before retirement, a little foresight could pay off big. And it sure beats the heck out of all the pessimism going around.

If you know anyone who lived during or right after the depression (but I am not implying this is the same), what do you think their answer would be if you asked them if they wished they had invested right after the stock market crash or even a few years later?

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
– Warren Buffett

What are your thoughts on this? Should those with long time horizons be looking at this as an opportunity of a lifetime?

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Learning from the Stock Market’s Volatile Performance This Week

RC — Fri, 19 Sep 2008 11:44:49 +0000

The headlines at the end of the day Monday read:

Wall Street Sees Worst Day in 7 Years

That was followed by a 120+ point rise on Tuesday, and then a 400+ point drop on Wednesday. Ouch! Several people in my office were talking about taking all of there money out of stocks in their 401k and putting it into bonds or a money market account. And then….

And at the end of the day Thursday?

US Stock Market Rallies Most in Six Years

Now, I am certainly not predicting a rally here, as I have mentioned previously that I cannot predict the stock market ups and downs. No one can. Not you. Not me. Not the so-called “experts”. Haven’t some of the companies that employ these “experts” been going bankrupt lately?

While things don’t look too good right now when it comes to the underlying economics of this country, I don’t know how much further it is going to go down, or if and when it will start to climb steadily again. But what do the pros do in the midst of all this economic turmoil? They go shopping. In Warren Buffett’s case, they go shopping for other companies.

But what can regular people like you and me do?

Don’t stop contributing to your 401k.

Be smart with your money and spending.

Find ways to increase your cash flow.

Eliminate Credit Card Debt.

Above all, don’t panic! I do know, that if I had moved all of my money from stocks to a money market account in my 401k yesterday, I would feel much worse today than I do now. And since I don’t plan on retiring for at least 25 years (maybe more), I am likely better off not trying to time the market. It would be nice if the stock market went up gradually and slowly over the years, without any wild swings. People would feel a lot better. Unfortunately, it does not work that way.

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Warren Buffett’s Secrets- 10 Ways to Get Rich

RC — Sun, 07 Sep 2008 14:06:34 +0000

This week’s parade magazine has a profile of Warren Buffett, and lists his approach to money and investing with 10 ways to get rich. Regular readers know I am a big fan of Warren Buffett and his mentor Benjamin Graham, both for the amount of wealth he has amassed, but even more so for his humble attitude and philanthropic efforts. Most of them are self explanatory, but it never hurts to read the way the world’s richest man got to be where he is.

1. Reinvest your profits -don’t be tempted to spend your profits, instead keep them invested and making money for you.

2. Be willing to be different-Don’t always follow the crowd. Have you ever noticed how most investors follow the herd, so to speak?

3. Never suck your thumb -Don’t sit around waiting, or you will certainly lose out.

4. Spell out the deal before you start -Know what you are getting into and the terms of the agreement are.

5. Watch small expenses-How you deal with small expenses probably influences how you deal with large ones as well.

6. Limit what you borrow-While some borrowing in this day and age is almost inevitable, limiting what you borrow is always good advice.

7. Be persistent -If you know you are doing the right thing and will be successful, keep at it. Don’t be willing to give up easily.

8. Know when to quit -Sometimes, it does pay to cut and run. Throwing good money after bad can hurt your bottom line.

9. Assess the risks -Know what you are getting into, and what the possible outcomes (positive and negative) are before you start.

10. Know what success really means -What are your goals? Most people find that just “being rich” isn’t really a goal at all.

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