Saturday, February 28, 2009

A Household Divided: Annual 401K Results of Both My Wife and I

My wife and I are Thrift Savings Plan (TSP) participants. TSP is the Department of Defense's (DoD) version of a 401k. This week both of us received our annual TSP statements.

My wife gets very agitated whenever she knows that i'm buying and selling investment products. She is a staunch advocate for buy and hold. I believe in buy and hold only in its application to our household Dividend Reinvestment Plans (DRIPs).

Unfortunately for my wife, her buy and hold philosophy didn't result in stellar TSP account performance. For 2008, my wife lost 12.06% in her TSP. During 2008, her portfolio investments were:

- 68% in government bonds (TSP G-Fund)
- 10% in the S&P 500 (TSP C-Fund)
- 9% in small cap stocks (TSP S-Fund)
- 13% in international stocks (TSP I-Fund)

During 2008 my TSP account lost 1.47%. This pales in comparison to those that decided to keep their TSP purely in the G-Fund. Had I decided to do this, I would have had a positive return of 3.77%. During 2008, I bounced back and forth between government bonds and equities. At one point, I had as much as 12% of my TSP invested in equities. I finished the year with 100% of my TSP in government bonds.

My TSP investment plans for 2009 are as follows:

(1.) If the DOW hits 6500: 97% government bonds (G-Fund), 1% international (I-Fund), 1% S&P 500 (C-Fund) and 1% small cap stocks (S-Fund)

(2.) If DOW hits 5000: 34% G-Fund, 22% I-Fund, 22% C-Fund, 22% S-Fund

(3.) If the Dow hits 3500-4100: 1% G-Fund, 33% I-Fund, 33% C-Fund, 33% S-Fund

In reality, I will slowly transition to the above investment allocations as/if the DOW falls vice waiting for it to exactly hit the points in detailed in 1, 2 and 3 above. Additionally, i'll slowly increase my TSP contribution rate from 1% of base pay (what it is now) to 15-40% of pay as/if the DOW falls. I typically elect for 100% contribution to the G-Fund (government bonds) and reallocate between investment options depending on where the stock market indicies are, value wise.

My wife will continue with her 5% of pay contribution with 4% employer matching. Her contribution allocations will remain 25% G-Fund and 25% in each of the I, C and S Funds. This contribution allocation should steadily increase her position in equities over the long haul.

Some of my readers may staunchly disagree with my household's small contribution rates of 1 and 5 percent of our pay to TSP. We are contributing this small amount because we have made the decision to pay off one of our three investment properties within the next 12 months. Today, we owe $43k on the property. We will continually need to plow most of our free cash into this house to meet our goal.

Tuesday, February 24, 2009

Great Depression Cooking (Inexpensive / Cheap Meals Courtesy of 93 Year Old Great Grandmother)

I stumbled upon Clara's Great Depression cooking video titled "Poor Man's Meal" at the blog "Nine Circles of Debt." I loved the video and went to YouTube to watch more of them.

Clara's YouTube description is: "93 year old cook and great grandmother, Clara, recounts her childhood during the Great Depression as she prepares meals from the era. Learn how to make simple yet delicious dishes while listening to stories from the Great Depression." Pasta and potatoes are the two most common ingredients in her recipes.

Here are several of Clara's videos from YouTube

Peppers and Eggs

Cooked Bread (Panecotto)

Poor Man's Meal

Egg Drop Soup

Pasta and Peas

Friday, February 20, 2009

Dividend Reinvestment Plan (DRIP) Stock Screen

I'm a fan of Morningstar investment services. I frequently use it to justify when I invest in my current DRIPs. Here's my latest DRIP screen...

(1.) Dividend Reinvestment Plan (DRIP) Offered = Yes
(2.) Dividend Yield >= 2.2
(3.) Morningstar Economic Moat = Wide
(4.) Free Cash Flow - 1 Year > 0
(5.) Fair Value Uncertainty <= Low
(6.) Price / Fair Value <= 0.84
(7.) PEG Ratio <= 1.64
(8.) Return on Assets % - Trailing 12 Months >= 9.63
(9.) Net Profit Margin % - Year 1 >= 9.63

This screen gives me:
(1.) 3M Company (MMM)
(2.) Coca-Cola Company (KO)
(3.) Colgate-Palmolive Company (CL)
(4.) ExxonMobil Corporation (XOM)
(5.) Johnson & Johnson (JNJ)
(6.) Microsoft (MSFT)
(7.) Novartis AG (NVS)
(8.) PepsiCo, Inc (PEP)

I then went to TheMoneyPaper's website to screen stocks to determine if each DRIP offers direct investing or reoccurring investing for $1 or less per purchasing transaction. Here's the ones left over:

(1.) 3M Company (MMM)
(2.) ExxonMobil Corporation (XOM)
(3.) Johnson & Johnson (JNJ)
(4.) Novartis (NVS)
(5.) PepsicCo (PEP)

The ticker symbols link to The MoneyPaper's prospectus for each corresponding DRIP. TheMoneyPaper is generally my favorite starting point for purchasing DRIPS. I typically look at the prospectus for the "Agent Name." I then go to the Agent's website to see if it allows for the DRIP setup at a cost lower than TheMoneyPaper. If so, good. If not, then I determine how many DRIPS I want to buy. If it's a significant number, then I typically subscribe to a one year plan with TheMoneyPaper. This costs money up front but saves money on each DRIP setup.

At this point, I have what I consider too many DRIPS. I have 24 different DRIPS. The only reason that I have grown not to like having so many DRIPS is because I always move every three or so years with the military. It's a bit annoying doing so many address changes.

Of the final list, I already have DRIPS in ExxonMobil, Johnson & Johnson and 3M. I would personally avoid Novartis only because I already have a diversified Drug/Medical related company. I am considering starting a DRIP in PepsiCo.

Friday, February 13, 2009

My Plan for Prosperity in 2009 (Courtesy of U.S. Government $787 Billion Stimulus Plan)

Knowing that our Government has our best interests at heart, I plan on following the Government model of borrowing money and then spending it, hoping that my household would be prosperous for years to come. Sense a little sarcasm?

Spending borrowed money and hoping for prosperity is what the $787 billion stimulus plan will do. Stimulus is a bad word choice to describe the bill. The plan, in total, is just plain stupid. Take for instance the $30 million being sent to Nancy Pelosi's district to help the Salt Marsh Mouse!

There are fundamental problems with the government spending their way to prosperity. First off, they are mortgaging your future and the futures of generations to come. The U.S. government will invariably be forced to raise taxes and print substantially more money. My readers can hedge against the latter by investing in commodities (like precious metals). You can also hedge by buying government I-Bonds if their fixed interest rate component hits 3%. This might very well happen come May 1, 2009, if deflationary forces continue through the end of April. If you are able to get a 3% fixed rate, you'll get to keep it for up to 30 years. This fixed rate is added to a variable consumer price index based rate to give you a total rate. A 3% fixed I-Bond interest rate is great during inflationary times since the variable rate adds directly to the variable CPI based rate and may lead to a net interest rate in the 7 to 9 percent range. A 3% fixed rate was most recently available between 1998 and 2001. People with I-Bonds from this period of time are collecting between 7.92 and 8.52 percent right now!!!

Investing in the stock market right now is not necessarily a good means to beat inflation but may likely ensure the "deflation" of your own investment accounts. The current problem with the stock market is that the government is tampering far to much with markets. Government policies are migrating from capitalism and sound weighting in contract law to a form of pseudo socialism. This is confusing investors on top of the already ongoing compression of corporate earnings.

Our nation has long term problems with entitlement programs. The current $787 billion "stimulus" plan continues the growth of government and compounds expectations and reliance on entitlement programs. In outlying years the government faces a deficit of roughly $45 trillion due to current entitlement programs alone.

Do not be confused by people quoting Economists as being in favor of the $787 billion stimulus plan. Economists in favor of this plan are picking between the lesser of two evils. There is also a popular saying that Economists can make data reflect whatever policy is desired. The fundamental reason for anybody to refer to Economist support of the stimulus plan resides in the formula for determining our Nation's Gross Domestic Product (GDP). The basic formula reads as follows:

Y = C + I + E + G



C = Consumer Spending

I = Investment made by industry

E = Excess of Exports over Imports

G = Government Spending

Our nation's GDP has been going down since consumers are spending less; corporations are experiencing a reduction in earnings, leading to lower industry investments; and our nation continues to be a net importer (thus no excess of exports over inports). This leaves "G" or government spending. For this stimulus plan to be effective (in the short term), government spending must grow faster than decreases in "C," "I" and "E" in the formula above. Even if government spending increases now, it will invariably decrease in the future since the U.S. cannot afford to continually spend at this rate. Additionally, the government does not ever do things efficiently. Our government's spending now may likely result in higher taxes later which will impede "C," "I" and "E" related investments.

With exception to hard work, education and timely investments, you generally induce prosperity through policy. Paralleling this to the U.S. government, one can eliminate the "timely investment" option since our government does not have surplus funds for investment. In terms of hard work, the government is measured by its legislation. I prefer to think that the $787 billion "stimulus" plan doesn't create any long term jobs with exception to growing a number of government agencies. This growth of government agencies only adds further to our nations deficits in outlying years. Hence, the government gets a grade of "F" from me for this legislation.

I rant so infrequently, but I believe it's important to share this view. Of the two largest political parties, I have aligned myself most frequently with Democrats. Unfortunately, this stimulus plan diminishes my confidence in the party. Congress would win my favor if they focused on deficit neutral policies to improve the economy.

By the way, I just received the book "When Giants Fall" in the mail. I've read about 1/5 of the book today. There are a lot of parallels between this timely book by Michael Panzner and our deteriorating economy. I'll review the book in a later post.

My Last Lending Club Bid - Borrowers Loan Request is Still Open for Bidding By Others

Lending Club is a peer to peer lending network. It's a good place to dabble in small lending to make an interest rate well above certificates of deposit. My biggest tip is to not get greedy and go for the biggest interest rate loans.

Here's the last loan request I bid on at Lending Club. It's a retired Army E-8 (Master Sergent) who now works civil service as a GS-12 in the civil service. His military pension is safe and his civil service job is safe. Also, the borrower makes a reference about going to Iraq each year. Civil service contractors in Iraq have what is typically the safest jobs available.

Bid at own risk.

If you don't have a Lending Club account, you can set one up via this below button.

Need Money? Join Lending Club!

10 Places to Look When Scrounging for Change

Here's a good article from the website No Credit Needed. Excluding his mentioning of couch cushions, the author details a number of overlooked places for finding spare change.

No Credit Needed Link

Saturday, February 07, 2009

Link Love (Military FN, Fund My Mutual Fund, DINK Finance, Master Your Card, The Digerati Life, My Open Wallet, Money Crashers, Dividends4Life)

Some good posts from writers on my blogroll.

Military Finance Network, "Don't Get a Refund Anticipation Loan." Link.

Fund My Mutual Fund, "Macy's (M) Cuts Another 7000." A few comments about Macy's followed by a lot of insightful comments about the economy. Link.

Dual Income No Kids, "Reacting to the Changing Credit Card Environment." Link.

Master Your Card, "Are You Among the Sandwich Generation?" Link.

The Digerati Life, "Valentine's Day Gift Ideas: Use EBates, Get Cash Back." Link.

My Open Wallet, "Dieting for Dollars," Link & "The Comeback Calculator." Link. NY Times calculator you can use to determine how long it will take your 401k to return to its prior peak value.

Money Crashers, "10 Websites That Help You Earn Extra Money." Link.

Dividends4Life, "Do As I Say, Not As I Do." Great Cartoon. Link.

Thursday, February 05, 2009


Here is the cockpit - air traffic controller recording for US Airways Flight 1549's ditching in the Hudson river.

Capt Sullenberger described his demeanor as "calm on the outside, turmoil on the inside."

As an aside, the air traffic controller heard in the recording has 10 years of experience.

What does all this have to do with personal finance? Well, a lot. Your earnings are based off of job performance and demonstrated skills. He gets an A+ in both of these and the world knows it. He appears to be an understated man who just believes he was doing his job. I don't think he feels a sense of entitlement from all of his publicity. Because of all of this, he can write his own ticket. I don't think he will ever have to worry about job security in the future.

Monday, February 02, 2009

Modifications to my Dividend Reinvestment Plans

I just stopped my automatic monthly investments in Exxon Mobil (XOM) and increased my position in Johnson & Johnson (JNJ) by 15%.

JNJ's trading price is significantly lower than my entry points over the last year or two and it is continuing to grow. It has a 3.2% dividend yield. Finally, many of its products are household staples that are continually being purchased as consumers downsize their discretionary spending.

I stopped my monthly investments in XOM in part because believe to some extent the Morningstar analysis. Morningstar does not show it to be a compelling buy at its current price point.

I started to buy Walmart shares (WMT) in my corresponding DRIP but noticed that there was a $1 auto-invest fee. Screw that. I don't want to pay fees for my DRIPs. I regret setting up my DRIP in Walmart.

Finally, I have active automatic investment plans in 3M (MMM) and Dow Chemical (DOW).