When you buy stock, your money becomes imaginary. You don't have it anymore--you have, instead, a share of stock, which you will eventually sell at a market rate later. It's like any other investment object, really, except less tangible. The asset is the stock, not the money.
To that end, I think I should start thinking of my investments, for the time being, not as an ever-declining balance, but as an ever-increasing number of shares of stock. It will help me to see the real truth of the "you're buying stock on sale!" argument and remind me that I am still making progress, even if the balance is dropping, dropping, dropping.
To that end, I have the following shares:
401(k)
Fidelity Freedom 2050 Fund: 317.15 shares
Fidelity Total Stock Market Index Fund: 29.06 shares
Roth IRA
Vanguard 2050 Target Fund: 358.31 shares
Yep, that's it! But with the market down, I'll be buying more shares for every contribution to these accounts, so when it comes back up, I'll see bigger gains. This is just a reminder to myself to hang in there.
Tuesday, March 11, 2008
Rethinking a Recession Portfolio
Tuesday, January 15, 2008
The Economy, Stupid: Or, Further Thoughts on the House of Cards
I got a couple of comments on my previous post reacting to what they saw as a knee-jerk anti-corporatism. The term "hegemon," I think, triggered some of this; honestly, look it up. I consider myself sort of an agnostic on this issue, a four on the one-to-ten scale of "Visceral Response to Corporations," where 1 is "They are the fat-cat horsemen of the apocalypse spreading disease over lands far and wide out of malice and spite!" and 10 is "They are at the vanguard of the march of progress to liberate us from our cave-dwellings out of the goodness of their hearts!"
I do think there is something unhuman (not inhuman, quite) about corporations. They take on an identity apart from the people whose aggregated labor they represent (hence our legal treatment of corporations--limited liability, corporate "rights," &c.--they are both de facto and de jure entities unto themselves). I think also that given the scale and scope at which they currently function, we treat them less like human forces and more like implacable forces of nature, like hurricanes or governments. The lack of transparency disturbs me. The something else disturbs me, the part of them that is not people and seems more self-propagating than beholden to human interests. We do not need Coca-Cola; how is it that Coca-Cola convinces us that we do? And why?
Truly, though, people need jobs and corporations provide them. People want soft drinks and toothbrushes and arcane financial advice and corporations provide them.
But as Moom, an honest-to-God economics professor, so helpfully explained, there really is this question of "how far can this go?" Others have mention that population growth fuels economic growth. But population growth, too, is limited by the intersection of natural resources and human technology (i.e., how much we have in the way of natural resources and how far we can stretch it), and it looks, some days, like we are beginning to approach that endpoint. Now, we're resourceful creatures, and so I wouldn't be super-surprised if indeed we now set ourselves to the business of stretching our stretched natural resources further than ever they have stretched before, but doesn't it seem logical that at some point, there is terminus? At some point, population growth must, for everyone's sake, flatline? And as Meg said, just imagine what would happen if we all scaled back, immediately, synchronically, and drastically. Imagine if everyone suddenly decided (realized?) that Coca-Cola is full of vile high-fructose corn syrup, tastes like cough syrup, and rots your teeth. Imagine if everyone suddenly decided that their old sheets are good enough, that their old car is good enough, that the store brand is basically the same, that Gucci is tainted with Tom Ford's disgustingness, that they don't really want any more DVDs after all. Imagine what would happen if no one bought things they didn't need, either because they'd decided that they couldn't afford to or because they'd decided they no longer wanted to. Imagine what would happen. I can't even imagine it, quite. We rely on all those people spending all that money. We need them. So how can it be that we both depend, desperately, on their continuing to spend every penny to which they have access and chastise them for their profligacy? All of the guilt and shame and finger-wagging--why and wherefore? We need those people.
I know that I sound more and more like a crazy person as I struggle to explain this, and please do believe that I know that I don't really know what I'm talking about, that I am not waving my arms in the air for the head of Ben Bernanke or putting on a stocking cap to raise my tiny fists like antennas to heaven against the WTO. I lack a certain vocabulary here, and I would like to find some relevant information. I am not necessarily even saying I am right. I am saying I have a hunch here, that I wonder about the way it all works, the power it has to shape our lives.
Monday, January 14, 2008
House of Cards
I have this amorphic, nascent idea about the stock market--about how maybe it's not a perpetual-motion growth-machine, about what might happen if we all did choose to live our lives differently, about how maybe it has a terminal velocity, about how maybe the whole idea that the stock market doesn't have anywhere to go but up so we have to invest lest we be left behind is spin, that maybe the whole thing is a house of cards that dupes us into funding the dominance of corporate interests over human ones.
But that's probably dumb. It probably makes me an apocalypse conspiracy theorist, one of those infomercial guys going, "Buy gold!" Truthfully, as long as you're doing what most other people are doing, you'll never be worse off than most people, so I'm not too worried on a day-to-day basis.
I do worry, but I don't have the right vocabulary to express exactly what it is that I'm worried about. I worry that maybe it's unethical to fund these companies that are the new hegemons and maybe there's nothing I can do about that, or maybe I only think there's nothing I can do about it and that's what keeps me forking over money into shares of companies whose names I don't even know. You used to buy stock in a company because you believed in that company--you liked the way they did business, you thought their products were good. Now we buy stock in companies because someone says other people think they're good.
I heard a theory that we all follow the lives of celebrities to simulate the effect of a smaller community where everyone knows the same people--so we still know the same people, it's just that we don't actually know them. It feels connected.
I never took an economics class, and now I kind of regret that.
Thursday, October 04, 2007
"Mad Money"
J.D. posted yesterday about his experiments in individual stock-picking. His conclusion? He's getting out.
But his description of his experience made me want to try it. Just in that same kind of small-time way, with a small amount of money I could afford to lose--what I've heard Jim Kramer calls "mad money." I just think it would be an interestingly direct way to dip my toes into the stock market. And I think it would be fun.
Right now, though, I don't have $1,000 to lose. Maybe once I get my Freedom Fund all nicely stocked up. Or maybe I could play around with a smaller amount of money. Say, $500. Yeah, I think $500 might be a good place to start.
I still don't have $500 I'm willing to lose, though. This may be something I'll consider adding to next year's financial goals, but the difficulty would be saving for this chunk of money. It might feel kind of futile, given that I'm going to be speculating with it. So it might be better to devote some windfall money to this.
But not until my savings goals are met.
Thursday, August 16, 2007
Stay Down, Lads! Go For the Burn!
Is it callous of me to not particularly mind if there is a correction in stock prices? I've certainly got a long horizon on my investments, and a chance to buy at low prices for awhile and then hold on for forty-odd years seems like a good opportunity, not a doomsday scenario. Presumably, most people close to retirement have conservative enough portfolios that this isn't hitting them particularly hard, so what, exactly, are we worried about? The fortunes of forty-five-year-old hedge fund investors? The idea of a Great Depression redux? Some sort of end-of-American-economic-dominance thing? Is it that we have somehow attached the trajectory of the graph line on the Dow to our sense of our own futures?
Perhaps this is just simple lack of understanding, but I can't quite wrap my head around the downside here for young investors.
(Points if you know where the title comes from.)
Friday, August 10, 2007
No News Is Good News
So, all I heard on NPR this morning was about how the stock market has tanked lately, is currently tanking, and will continue to tank in the predictable future. I think it's interesting that I care about this, and that it means something to me--K, toweling off, told me that when people used to talk about "stock market crashes" when he was a kid, he pictured a literal crash, like, someone crashing their car into a machine vital to the success of the national economy and breaking it, and I was thinking about how people talk about things without really having a sense of what they mean sometimes, especially as kids. You know "stock market loses a whole bunch of money" is a thing that people talk about, but you don't really know what that is, or why it matters, or have any stake in it at all. But you talk about it anyway, because it's a thing that people talk about.
It can still be that way as an adult, and I'm not discounting the influence of What People Talk About, but it was interesting this morning to feel like I sort of understood what was going on and why it matters, that it means something to me, it affects my life and my behavior and my plans. I kind of don't want to check the balances on my retirement accounts, but I know that I'll just keep plugging along, investing dutifully through my 401(k) and letting my Roth ride out the storm, which will pass, certainly, by the time I am seventy years old and ready to retire from whatever it is that I've ended up doing with my life.
Thursday, May 31, 2007
Retirement Milestone!
My 401(k) contribution for this month just hit my Fidelity account, which brings my retirement investments solidly over $10,000. For some reason, that feels like a big deal.
If I just left this $10,500 in my retirement accounts for 48 years without touching it or adding to it ('til I'm 71) and earned an ROI of 9%, I'd have $672,000! Granted, inflation would have eaten away a substantial portion of that money's buying power, but nevertheless--that's not chump change.
Not that I'd consider halting my investment, though--full speed ahead!
Wednesday, April 18, 2007
When Target Funds Miss Their Mark
This article from CNN Money, When Target Funds Miss Their Mark, piqued my interest, but really just comes down to two caveats about target funds:
1) Cost ratios can be high, and
2) The structure of the fund can obscure your view of your holdings.
I've yet to see a really substantial argument against target funds (per se, rather than a general "funds with high costs are bad, and some target funds have high costs" kind of argument) for young, single investors. My own slight hesitation about target funds, I think, came from a sense that investing should be complicated, like the stock market won't make me money unless I have to sweat and strain and read Kiplinger's. I'm delighted to be done with that idea, and very pleased with my target funds, both of which have rebounded from the late-February hiccup nicely. My Vanguard fund (their 2050 target) has returned about 4.7% for the year to date.
Thursday, March 01, 2007
Stock-Market Lemonade
My buy order at Vanguard went through yesterday. I got $1,000 worth of shares at $22.66/share, which is cheaper than all but the first price at which I bought Vanguard's 2050 target fund. The impact isn't too big--over 40 years, the difference between buying at $22.66 and $22.77 (the highest price at which I've bought) won't be much--but still, it offers some sort of psychological boost, a feeling of maybe making lemonade after having been given lemons.
Tuesday, February 27, 2007
Ouch: Experiencing Volatility
So, like pretty much everyone else's (I started hearing "the stock market is crashing" conversations in the office hallways around 3:30), my investments took a pretty substantial hit today. My Roth went from about $7,190 this morning to exactly $6,970.90 as of this second. That is, as of right now, I've lost money in the stock market—only about $30, but nevertheless: there's less money in that account right now than I initially put into it. My 401(k) took less of a hit (in absolute terms—it actually lost about the same percentage, which hovers slightly above 3%), and is only about $2 below my contribution levels, but that freaks me out less because it's not all my money (that is, I put in something like $162; it's currently at $320, so I'm still winning, pretty much).
That's scary. That's an obvious thing to say, "it's scary to lose money," but it's also, you know, true. I totally knew, intellectually, that this happens, but it'd never actually happened yet (in my lengthy two months of being invested in stocks). It's not my favorite part of investing, so far.
So, what does one do with volatility? Obviously, you can't panic and liquidate your investment—that's dumb, and it makes permanent a loss that almost definitely wouldn't be if you left the money in there (penalties aside). Actually, I just placed an order with Vanguard to invest the final $1,000 to max out my 2007 contributions (that money had been sitting in my travel fund—I'll just start saving to there, instead of to the Roth, after I make my $1,000 Mini-E goal). Given that the price of Vanguard 2050 is currently lower than it was when I first bought it, I figure it's a pretty good deal. Nevertheless, that might be dumb, too—I think there's something about this visceral-experience-of-volatility thing that seems to demand action, demand not just change but change with a theory behind it, something that offers the illusion of control. That's pretty much what I gave in to, I guess, even though it might turn out to be a good move. This CNN Money article, "Survive a Market Drop—And Make it Work for You" could cut either way on my decision—it notes both that "people who pay close attention to news updates actually earn lower returns than people who seldom follow the news" (my guess would be because they tend to make impulsive decisions like this) and that "a down market can be a great time to buy solid investments at bargain prices."
Since after this, my Roth will be maxed out for 2007, I can't do this "it's low—buy!" thing again, and I'll just have to take the next ten months' worth of volatility with a long-term investor's world-weary shrug. And I can do that—because, like I said earlier, what other options are there? Sell? Not likely. But it is stressful, in a real way—that's my lesson for today, and I think it's a valuable one.
Tuesday, January 30, 2007
No Dollar Cost Averaging For Me, Thanks! (And Here's Why)
As I mentioned, my parents wrote me a lump-sum check for the money they're contributing to my life. I've already transfered 1/3 of that sum to my ING "travel" subaccount. It only remains to send the remaining 2/3 over to my Roth at Vanguard. But how to do it? In a big chunk or in regular smaller chunks?
For those of you new to investing: investing a big (or big-ish) chunk of money in smaller, regular increments is called "dollar-cost averaging." The idea is that by investing regularly, you guard yourself against the risks of buying anything at its peak and avoid the temptation to try to time the market.
To my mind, there are two major points against dollar-cost averaging:
1. Convenience
I can schedule automatic transfers from my checking account to the Roth--that's not a particularly big deal. But where would I hold the money that hasn't yet been transfered? No way I'm going to keep that money in my checking account, earning no interest while I wait to transfer it. I could, then, transfer it over to ING and let it earn 4.5% until I move it into the Roth--but that requires a lot more work: remembering to beat my scheduled transfer by several business days and transfering money from ING to Bank of America and waiting for the automatic ACH from Vanguard to hit. Irritating. One ACH transfer from my checking account to my Roth? Way easier.
2. Rate of return
Check out Google's three-month and six-month graphs of the target fund in which my Roth is fully vested. Look at the y-axis points (price) at which it crosses the x-axis unit marks (months). Each one is higher than the last: there is no point at which each month has brought net depreciation, which means each successive month, my regular investment would buy fewer shares. This is a graphic depiction of the points made by several recent posts and articles about the downsides of dollar-cost averaging, including this comprehensive but somewhat dense one and this convincing one from MSN Money. Even taking into consideration that my non-invested money would be earning 4.5%, it seems lump-sum investing beats dollar-cost averaging over 60% of the time. That article also points out that the times that dollar-cost averaging wins out are in periods spanning a major crash.
Both are important factors for me, and both point towards lump-sum investing as the way to go. That's what I'll be doing: initiating a transfer for the full amount from my checking to my Roth, and waiting for it to grow.
Tuesday, January 09, 2007
Opening A Roth IRA at Vanguard
Asset allocation comes up again.
I just took a shot at opening my Roth at Vanguard. The problem I encountered: apparently, each fund has a minimum investment of at least $3,000. That means, if you're only investing $3,000, you can only invest in one fund. That pretty much locks me into a target fund.
When I tried selecting four different funds to do a basic asset allocation, the bottom of the screen read:
Your minimum investment, based on the type of account and the funds selected, is $12,000.
How can the minimum contribution be three times the maximum contribution? Does this mean if I want to put, say, 10% in bonds, I have to wait until 10% is $3,000 (that is, until the balance of the account is $30,000) to do my own asset allocation? Can that possibly be right?
There's also this little note, which provides some clarification: Vanguard charges an annual $10 fee for each fund within an IRA that has a balance of less than $5,000. Not the total investment. Each fund.
This is a little disappointing.
On the other hand, Vanguard's 2050 target fund has an expense ration of %0.21, which is not to be sneezed at. So I can do the target fund, or I can take my IRA elsewhere.
Friday, January 05, 2007
We Have 401(k) Liftoff!
Today I set myself on track to achieve one of my financial goals for 2007: earning the full employer match in my 401(k). I enrolled in the company plan to have 7% of my paycheck deducted, and my first deduction should come out of next Thursday's paycheck.
My fund purchases were, I'll admit, kind of random. The Fidelity Freedom 2045, which would be my preferred target fund, hasn't been added to my company's portfolio yet, and given that that was what I'd planned to select, I didn't really know what to do. I ended up putting 50% in Fidelity Freedom 2035 (the longest-range target fund available for the moment), 25% in a total market index fund, and 25% in an aggressive growth fund. The plan manager regaled me with a story of losing "lots of money" in an aggressive growth allocation--"but it's your choice." She also told me that Fidelity Freedom 2045 should be added within the month, so I can just redo the allocation as soon as it is. Perhaps I should consider learning about asset allocation? I'll add it to the list.
Thursday, January 04, 2007
401(k) Contributions: Anecdotal Evidence
Just back from lunch with a brigade of other assistants, where an informal poll was taken on 401(k) contributions. Three of the five eligible (I only just became eligible and am enrolling, but I'm not counting myself as one of the five for purposes of this anecdote) are contributing. These three are all women. The two who are eligible but not contributing are men, and have been at the company longer than all but one of the contributors.
I asked one why he wasn't contributing. His first response: "Because I'm stupid." His second, joined by Non-Contributor #2, was a bunch of sarcasm about not living past 30.
I can't really tell you what this means, if it means anything, but it is curious, as an anecdote. I don't mean to be judgy or moralistic. I don't think they're bad for not contributing; I don't even think they're stupid, really. I know at least one of them comes from a pretty wealthy family, and it's certainly possible that the other one does as well. I just wonder about why individual people make the choices they make about their money.
Wednesday, January 03, 2007
Mini-E: Challenging Conventional Wisdom on the Emergency Fund
Personal finance bloggers are nearly unanimous on one thing: everyone needs an emergency fund.
They differ on the amount, but the most commonly cited figure is 3-6 months' expenses. The largest figure I've seen is a full year's expenses. The smallest is usually Dave Ramsey's "baby step" figure of $1000. The most commonly cited reason for using an emergency fund is car repairs. Even more than car repairs, advocates of the emergency fund have to contend with the specter of medical urgency--it happens less, but it costs more.
Now let's consider my situation, and the situations of others my age. No one depends on me and I don't have a car. I'm young, healthy, and employable. And here's one that is unlikely to be true for all but the most recent graduates: my parents could and would cover any serious medical costs that might come up for me in the immediate future and exceed the capacity of my insurance. (Reasoning more likely to be widely applicable: I am only responsible for my own medical costs--no children at risk of appendicitis or bike-related concussion to worry about, and I have pretty good health insurance through work.)
I budget for irregular expenses on an ongoing basis, so seasonal clothing purchases and holiday gifts come out of "buckets" of money designated for those particular purchases. I also budget $30 per paycheck for "unexpected expenses." For me, those are things like, "the bookstore I love is going out of business and I want to pick up some memorabilia on clearance," or, "for once in my life, I want to write an actual, physical letter, so I'll need some stamps" or, "on a whim, I decided to get my healed-over nose piercing redone," or, "I caved and took a taxi home even after I had zero dollars in my taxi budget line." Mostly, though, I don't use it, and it piles up. I'm thinking about instituting a rollover rule so that anytime it hits $200 I push $100 into savings, but in general, this little mini-mini-E fund works for me: it allows me the budgetary flex that is the primary purpose of the E-fund.
Given my particular circumstances, there are only a few scenarios in which I can see an emergency fund being absolutely essential:
1) An unplanned pregnancy. Being able to pay for my own abortion without stress about money would minimize trauma and let me decide whom to tell.
2) Someone I love (and who lives far away) needs me urgently, or I need her/him urgently, requiring that I pay for a plane ticket and other travel expenses.
3) Someone I love needs money urgently and has no other means of getting it.
4) My boyfriend and I break up before the end of our lease and in moving out I incur moving costs in some way I haven't previously considered.
If I lost my job? I'd move back in with my parents, or I'd scrape up $150 for the plane ticket back to [the small city where I went to college and where the cost of living is next-to-nothing] and stay with friends for awhile, or I'd get a waitressing job right quick, or I'd pick up some freelance copyediting work. I'd eat rice and beans and I'd deal.
So for me, I'm okay prioritizing contributing to my Roth over contributing to an emergency fund, to the point that what I had thought might be an emergency fund is actually going to be the seed money with which I open my Roth at Vanguard. I have a $1,000 CD earning next-to-nothing that I wouldn't mind breaking early if it came to that. I can sleep just fine without $5,000 in the bank.
My point is that just as it does for these bloggers, for me, it makes sense to look at my own life, both financial and otherwise, when considering how much cash I need to keep in reserve. Instead of following a rule of thumb, I can create a solution tailored to my situation that allows me to pursue my goals.
Monday, December 11, 2006
Fortune's 10 Rules For Building Wealth
CNN Money features "Fortune's 10 Rules for Building Wealth." I'll review them here, and see how I measure up.
1. Start early.
Check. I currently contribute about 12% of my net income to a high-yield savings account. When I become eligible for my company 401(k), I'll begin contributing to that too (see below).
2. Use your 401(k).
Not yet. I don't become eligible for my company's plan until January, but you can bet I'll be asking for the signup information before we close for Christmas and New Year's. I'll be contributing enough to get the full match ($1,500/year).
3. Keep it [your asset allocation] simple.
Well, right now it's a little too simple, but that's the plan. I'll probably lean heavily on target retirement funds, at least for the time being. Anything else is too intimidating.
4. Don't try to beat the market.
Pursuant to #3, um, no fear.
5. Don't chase trends.
See #4.
6. Make saving automatic.
Actually, I have to confess that my transfers from checking to savings aren't automated, yet, though of course I make them religiously. One reason I haven't wanted to automate is because my current savings allotments aren't permanent. Once I open my Roth and my 401(k), hopefully in January, I'll get a better idea of what's going on. My biggest financial New Year's resolution, after setting up the aforementioned accounts, will be automation.
7. Go heavy on stocks.
See #3.
8. Hold down fees.
I'll be opening my Roth at Vanguard, so no worries there.
9. Ditch credit card debt.
I pay off my bill online after each charge. Credit card debt isn't going to happen.
10. Defer taxes
Not so much applicable to me, insofar as I lack any investment accounts.
In sum, a pretty good set of goals for someone beginning to manage their own financial life, and a nicely-formulated simple set of guidelines to which I can aspire. Also, a neat diagnosis that tells me that the things I'm doing I'm doing pretty well, but there are things I need to be doing that I'm not, yet. I'm working on it!
Monday, November 27, 2006
401k
In January, I'll become eligible for my employer's 401k plan. The match is dollar-for-dollar, up to $1,500. That's about 6.5% of my salary, but much less than that of more senior employees' (which gives me pause, somehow, given that my company is employee-owned).
I think, then, that instead of contributing $100 per pay period, I will contribute enough to get the full match (about $60 per pay period) and divert the rest into a Roth IRA. This means that before January I will need to find a place to open a Roth and set up automatic contributions, lest I derail my savings-allocation plans. I hadn't thought I'd be opening a Roth until after I hit my ING savings goal, so this will require a whole new bunch of research.
It's amazing to me the extent to which what I (we?) don't know is the pragmatic elements of finance. It is very easy to realize that saving is good, and almost as easy to discern one's options for savings vehicles. It is, however, almost impossible to find out how to open a Roth, say. Really what I want is a step-by-step set of instructions, along the lines of:
Step One: Consider X, Y, and Z when choosing which company to use for your Roth [even the concept of a Roth being with a specific firm is a little hazy]. Here are the major options: A, B, and C.
Step Two: Go to www.whateverwebsite.com.
Step Two: Click "Open a Roth IRA."
Step Three: This is the information you will need to provide.
Step Four: Set up automatic transfers.
Step Five: Here is how you maintain your account, that is, what you should keep your eye on and how you should conduct business with your chosen company.
Because this is the part that I do not for the life of me know how to do. Any and all pragmatic instructions are very much welcome; in their absence, I will begin my usual internet-combing.
