Are Your Friend’s Investments Performing Better Than Yours?

Are your investments doing better or worse than your friends? Maybe you don’t want to know.

Comparing Investment Returns
There are two money savvy guys at work that I like to talk business and investing with. I discovered yesterday they had a bet on who between the two of them would reach $1 million first. I also found out that both of them were out-performing me in our 401k plan. One guy, Scott, had a 20% return over the last 3 years, the other one, Dan, a 15% return. I went home and logged on to find out that my 401k had a 3 year return of 12%.

Investment Strategies
Of course the next day I asked for more detail on the investment strategy they’d been following. Scott had dumped all his 401k money into our company stock a few years ago and rode it as the stock price climbed. Now he’s out of the company stock, back into index funds.

Our 401k plan has pretty decent options, with about 30 different funds to choose from. Dan had taken advantage of some of the high performing international funds we have available, investing heavily in those for the last several years.

Investing Risk
My work friends have outperformed me because they were willing to take more investing risks. As you can see from the breakdown of my 401k plan below, I don’t hold any company stock and only 19% in international stocks:

22% – Vanguard Total Bond Index
59% – Vanguard Institutional Index
7% – Dodge & Cox International Stock
12% – American Century International Growth

My investment elections are based on the best options for diversification across the funds in our 401k, 403b, & IRAs. If I would have invested in our company stock or heavily in international funds I could have matched their returns but that level of risk doesn’t fit with my allocation & diversification plan.

Hearing their returns makes me wonder if my allocations are too conservative for a 29 year old with a long time frame. On the other hand, I don’t want to go around chasing performance. I hopefully learned my lesson about that during the dot com bust.

Do you share your investment performance with friends, family, and co-workers? If so, does it tend to make you more conservative or more risky in your investments?

Top 5 Reasons You’ll Never Go Broke Again!

Here’s a collection of top money tips that will have you living on easy street, or at least keep you out of the poor house. Thanks to Problogger for inspiring all of these top 5 lists:

As you may know after reading this site for a while, I’m very interested in the aspects of starting and running a small business. Here are a few top five small business lists:

And of course, what good is all the money you make if you can’t enjoy it? Here are two good articles on vacationing and enjoying life:

Kindler, Gentler Credit Cards? Credit Card Reform Long Overdue

Credit card companies are going to ratchet down their money grubbing under the pressure of recent political scrutiny according to the June edition of Kiplinger Personal Finance.

  • No more double-cycle billing for JPMorgan Chase
  • Citi won’t arbitrarily raise its rates and fees
  • No more universal default for Citi
  • Bank of America relaxes time period on lower rate adjustments
  • Discover offers credit card interest rebates

Two other tactics that might be on the chopping block are those unsolicited convenience checks you get every day in the mail and the practice of credit card companies applying payments to lowest interest rate first.

Credit Carelessness
I’m not always for government intervention but in this case I think it was overdue. The credit card companies weren’t regulating their own behavior. They were so caught up in making money that they were using any tactic they could to gain customers. We need to start addressing the massive debt crisis created by a lack of responsibility on the part of credit card companies and consumers. Hopefully these changes are just the first of many by the credit card industry.
Debt Deadbeats
Of course consumers need to make changes as well. According to the credit card industry I’m a credit card deadbeat since I pay my balance in full every month. Maybe I should start a club called the Debt Deadbeats. Are you a member of the club, or do you carry a balance on your credit card? If you want to join the club as a founding member just let me know. What would our motto be?

Why Your Mom is the Engine of Growth in the Global Economy

Without your mom and my mom, the global economy would fall apart. Here are the top five reasons why mothers are vital to the growth of our economy:

Moms Influence Spending Decisions
Running a household means spending money. Over the course of her busy life, a mother will purchase many different products or services for her family. Even in families where the dad has the final say about how money is spent, moms have considerable influence on this decision, often more influence than the dad would like to admit.

Moms Teach Us About Money
How many times did your mom warn you about blowing your allowance all at once? Of course We’d do it anyways but eventually we’d realize that she was right. The example that mom’s set and the money lessons they teach stick with us the rest of our lives.

Moms Earn an Income
Many modern day moms have two jobs; being a mom plus a day job. The increase in the number of working mothers over the past few decades has probably added millions of dollars of value into our economy. The more money moms earn, the more taxes they pay and the more products their family can consume.

Moms Raise the Future Workforce
As an employer who are you looking to hire? Probably someone with the qualities that a mother would teach: be honest & friendly, work hard, be patient & polite, play nice. The qualities that moms instill in their children help determine the makeup & productivity of the future global workforce. If only the Enron executives had listened to their mothers……

Moms Inspire Gift Giving
Birthdays, Christmas, Valentine’s Day, & Mother’s Day are only some of the occasions that families spend millions of dollars to express their appreciation and love with gifts for their moms. What would the earnings of Hallmark cards, flower shops, and even Best Buy look like if moms weren’t around to inspire us to buy gifts?

Thanks mom for carrying the global economy on your back and raising me at the same time :) Being a mom’s not an easy job but you did a great job!

This article is part of ProBloggers Top 5 Reasons group writing project. I invite the other participants in the project to celebrate Mother’s Day this week and honor motherhood with a top five list about their mom.

Festival of Frugality – 31 Ways You Can Be Frugal

Welcome to the source of all things frugal, otherwise known as the Festival of Frugality! This week’s edition will take a minimalist approach, a simple list of 31 ways you can strive for frugality:

  1. Throw Cheap Parties
  2. Save Money on Preschool
  3. Stick With Simple Toys
  4. Free Kids Classes
  5. Save Money on Food
  6. Dine Out for Less
  7. Eat Cheap but Healthy
  8. Avoid Debt
  9. Know Your Loan Officer
  10. Get a Free Credit Report
  11. Avoid Credit Mistakes
  12. Avoid Credit Card Fees
  13. Travel With Friends
  14. Cut Your Energy Bill
  15. Live Below Your Means
  16. Don’t Play the Lottery
  17. Find Other Frugalistas
  18. Get Free Stuff
  19. Don’t Go on Dates
  20. Have a Free Wedding
  21. Stay True to Frugality
  22. Hire a Student
  23. Calculate Hours Per Purchase
  24. Obsess About Saving
  25. Know What You Want
  26. Share a Car
  27. Buy Discounted “Damaged Goods”
  28. Save Time on Spam
  29. Go Dumpster Diving
  30. Shop Smart at Costco
  31. Don’t Indulge

Thanks for stopping by and being frugal! Here are a few more frugal tips from the last few months on Money Smart Life that might save you some money:

You can sign up for daily updates of more personal finance tips like these; you can even have them delivered to your email inbox. Be sure to submit your tips on saving money to next week’s festival of frugality hosted at Millionster. Thanks for reading!

Will Algorithmic Trading Change the Way We Invest?

Stock prices often move up or down when news comes out that effects a company or an industry. How would you like to be able to take advantage of stock price changes based on news such as quarterly earnings reports, industry events, political changes, or management shake-ups?

A product from Reuters called NewsScope offers stock traders this capability. Reuters recently enhanced their NewsScope product and put out a press release summarizing its capabilities:

“Reuters system will read news articles and score how positive or negative they are. The system will enable customers to analyse news across thousands of companies, far more quickly than can be done by humans. This will enable trading machines to react to market moving news in milliseconds.”

NewsScope will actually perform automated stock trades based on positive or negative news about a company or industry. The press release goes on to explain a little on how the system works:

“It works by assigning numerical “sentiment scores” to words or phrases which are then processed to give an overall positive, neutral or negative score to the company in the news article. These scores can be added together to calculate the prevailing sentiment for a company, a sector, an index – or even to assess global market sentiment.”

Since the high cost of the service will limit it to large investors the technology isn’t really available to mainstream traders. However, the way technology evolves perhaps one day average Joe day traders will have access to similar services. The whole concept goes against what I’ve been taught about a buy and hold investment strategy.

If a company is a good long term investment in the morning, it should still be a good long term stock after the earnings reports come out in the afternoon. I don’t know how this could affect the volatility and stability of the stock market but in my opinion a service like this in the hands of average investors would unfortunately shift the emphasis from long term investing to frantic day trading. What do you think?

Should Businesses Allow Employees to Work from Home?

You can tell from our manager’s email below my department’s stance on tele-commuting:

“Since I have received some questions concerning the email below, I wanted to clear up any misunderstandings concerning the reference to working from home. Scott was out of the office ill on Wednesday and he took this as a sick day. While he may have elected to participate in a conference call or to perform work while at home, we do not expect nor plan for anyone to work from home in lieu of coming in to the office to perform their work.”

We do have VPN access from home but as the email alludes to, it is so we can perform extra work after hours, not work from home instead of coming into the office.

It’s interesting because my company also has offices in California and many people there tele-commute, especially on Fridays. However, here in the Midwest there is a strict no working from home policy. I think the people on the West Coast have more leeway due to higher gas prices and horrible traffic.

I think the ability to tele-commute one or two days a week would raise employee morale/job satisfaction and wouldn’t hamper our productivity but the rules say no go.

Does your employer allow you to work from home? If so, what part of the country and what industry are you in? If you work from home, do you find yourself being less productive at home than at work?

Personal Finance Week in Review – No Air Conditioning Edition

How much does a new air conditioning unit cost? We just made the unpleasant discovery this morning that our central air isn’t working so I’m assuming the worst, thousands of dollars to get it fixed. I’ll have someone come look at it first thing on Monday; hopefully the wallet damage won’t be too bad. I guess that’s what emergency funds are for. Here are some personal finance articles of note for the week.

Lazy Man is steadily increasing his alternative income stream.

Blueprint for Financial Prosperity features a guest writer who has their personal finance house in order and asks what’s the next money step? I left a comment suggesting he look into starting his own business.

Money, Matter, & More talks about couples that do, or don’t share financial knowledge. I handle all of our finances, I really should sit down with my wife and give her a primer.

The enterprising Mighty Bargain Hunter is making money by selling magazines on eBay.

Sun announces that he’s reached the half million mark. Here’s the comment I left on his post. Congrats Sun! From nothing to half a million in 10 years, what a great example of the opportunities available in this country. Of course it takes determination, smart decisions, and hard work but it’s nice to know the sky’s the limit.

Get Rich Slowly published a Collection of Financial Literacy Resources. This is a great collection of personal finance information from JD and a few other personal finance sites that is a good primer for anyone wanting to learn more about money.

Advanced Personal Finance points out another way the credit bureaus are using consumer’s personal information to make money off us.

KMull looks at the pros and cons of Bank of America’s Keep the Change program and the ONE Card from American Express.

Have a great Sunday!

Why You Should Become a Personal Finance Blogger

Writing about personal finance will definitely help you learn about money. Lazy Man lists ten ways personal finance blogging has helped him with money. Here are thirteen lucky reasons, in no particular order, that you should become a personal finance blogger:

  1. You can answer your friends questions at work about their 401k investments.
  2. You can win financial “discussions” with your spouse.
  3. You know what the news guy means when he says the DOW and NASDAQ are up.
  4. You can hold your own when people discuss stocks at cocktail hour.
  5. You will have the best rewards credit card there is.
  6. You won’t fall for the car salesman’s tactics next time you buy a car.
  7. An emergency fund will actually be something you starting contributing to instead of just reading about.
  8. You still won’t read all the fine print on financial forms but you’ll have an idea what they say.
  9. You’ll learn enough about saving and investing that you can explain the concepts to your friends, family, and random people you meet on the bus.
  10. If you practice what you preach you’ll have a better financial plan and more financial security than before you wrote about money.
  11. You’ll make extra money by selling advertising on your website.
  12. You will meet cool people all across the country who also like to talk/write about money.
  13. A Google search for “personal finance blogs” only returns 124K hits. The world needs more personal finance writers, there just aren’t enough!

Lazy Online Banking

This week’s reader question comes from Binary Dollar. He is covering the question of what to look for in an online bank account. My contribution wasn’t as thorough as some of the other answers because I setup our online bank account more on a whim than as a result of exhaustive research.

ING Direct
We keep our emergency fund in an ING Direct account. I wasn’t very scientific about the way I chose to go with ING over the other alternatives. A friend at work had a coupon that gave a $50 bonus for opening an account with ING Direct. I was sick of the 2% interest we were getting in our money market several years ago so I opened an account with ING Direct and moved the money over there.

Status Quo for Now
It seems to me that the biggest differentiator between different online savings accounts is the interest rate they offer. I considered moving the money from ING Direct several times to different accounts but the small rate difference wasn’t worth the time and hassle in my opinion. Our finances are pretty much automated as far as direct deposit, online bill pay, and automatic investments so I don’t like to mess with it unless I stand to save or make a good sum of money. For now I’m happy with ING Direct but I am going to look into 4-week T-bills and tax exempt money market funds that Sun and SVB suggest.

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