How Bear Markets Can Help Grow Savings

Bear Markets Do Wonders for Retirement reports that people who begin investing during bear markets get better returns than those that begin investing during bull markets. Those that start investing in bear markets benefit from being able to buy at low prices at the beginning. The early investments then rise significantly when the next bull market occurs. In fact, those that began investing during bear markets do about twice as well as those that started during bull markets.

Thus, people who don't need the money for many years are in a great position to benefit by contributing to their retirement savings now. In our family, our five year old daughter is in the best position to benefit from this bear market, since both my spouse and I are retired. However, for her, we are focusing on her college account instead of retirement savings. Thus, in spite of market losses in the past year, we continue contributing to college savings accounts and kept them invested in stocks. Hopefully, we will benefit from this disciplined savings and investing, when she attends college 13 years from now.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial, investing or saving advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Dollar Cost Averaging Helps Retirement Plans Recover

Surprise! That 401(k) Account Is Looking Good by Karen Blumenthal reports that the median 401K account at Vanguard Group is up 7% versus two years ago, when the market was at an all time high. The article further notes that the gains are due primarily to people continuing to invest as the market was falling, since the subsequent market advance has given those contributions significant gains. However, those that stopped adding to their accounts were still showing significant losses, especially if they were heavily invested in stocks.

This result is consistent with the experience of the author of Free Money Finance, who had recovered from the market decline and was within 5% of his all time net worth high. On the other hand, since becoming early retirees in October, 2007, our investment accounts are still down about 30% versus the 2007 peak, since we stopped contributing, been withdrawing 4% a year and used another 7% to pay off our mortgage.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial, investment or retirement advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Links To Carnivals From October 20 to 26, 2009

Here are the links to the Carnivals in which My Wealth Builder participated from October 20 to October 26, 2009:

Festival of Frugality #200

Money Hacks Carnival #87

Carnival of Financial Planning #112

Carnival of Twenty-Something Finances

For some interesting articles from the blogosphere, check out these Carnivals and give the hosts some recognition for their hard work.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or economic advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

My Concern about Government Run Health Insurance

When evaluating an individual or organization, I believe past performance is often a good indicator of the expected results in the future. Hence, when the government claims they will give everyone better health care at a lower cost, I look to see how government has performed in other areas for which they have responsibility.

Let's take a look at Medicare. If the government can give everyone better health care at a lower cost, they should have already been able to deliver that result in Medicare. Medicare is already a single payer option run by the government, which is similar to some of the proposals being made. Hmm...I haven't seen anybody hold up Medicare as a model of universal health care that is better and more cost effective. I wonder why not :-)

A recent example is the first time home buyer's credit, which expires on November 30, 2009. An article in Yahoo! news reports that the eligibility for 100,000 out of 1.5 million that have claimed the credit is being questioned. For example, 580 people under the age of 18 claimed the tax credit, with the youngest being 4 years old. Also, 74,000 people appeared to have prior ownership of a home, excluding them as a first time home buyer.

My favorite example is the income tax system the government has created. Every year, I am amazed at the wasted effort and time the tax system creates. The complexity of my tax return seems to increase every year, many times for things that may have little impact on taxes owed or my refund. I wouldn't want my health insurance claims to have the same complexity in the future.

Also, it is estimated that there is a $350 billion tax gap (i.e. the difference between taxes owed and taxes paid) annually on about $2.2 trillion dollars collected net of refunds. That is about a 15% loss on an annual basis.

While I haven't exhausted all possibilities, the performance of the government in the above examples do not give me confidence they can provide a better, more effective, and less costly health care system. If the government could deliver what they claim for health care, why have they demonstrated the capability in other programs for which they have responsibility? To me, this is a case where past performance likely predicts future results.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial, policy or health insurance advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

The Ages of Being Carded

When I was a teenager, I couldn't wait to be older. At 16 I could drive, at 18 I could drink, and at 21 I was considered an adult everywhere. Even though I was an adult, I was still carded for many years because of my youthful appearance. I was 30 the last time I was carded and found it a little annoying.

Nowadays, I wish someone would flatter me and ask for my ID :-) I never get carded anymore, even at places that claim to card everyone. When I go through the grocery self checkout lines, the attendant authorizes my wine purchase after barely looking at me. The same is true whenever I go to a bar or nightclub, the bouncer waves me in with barely a glance.

However, I am definitely not looking forward to the next phase of being carded again, the Senior Citizen Discount. Although I have retired, I am still many years away from qualifying age for the discount. I am not psychologically ready to be a "Senior," especially since we have a five year old daughter. For now, I guess I should just be happy that I am at an age of no longer being carded :-)

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Our Daughter Aces her First Test and Places in a Competition

Our five year old daughter took her very first test in a Chinese class. I very proud to report that she received a grade of 100%. In addition, she placed second in a poem reciting contest. This was particularly exciting since neither of us speak or read Mandarin, while many of the other parents are native speakers.

In the week preceding the test, I remarked that the grade would determine her college options in the future and that passing was very important :-) Of course I wasn't serious, but my spouse and daughter did work hard studying for the test and practicing for the poem recital. Here are the elements that led to our daughter's success.

Preparation - In the week prior to the test, the teacher reviewed the material and provided a sample test for the children to practice. My spouse and our daughter spent three sessions reviewing and taking the practice test. As it turned out, the teacher used the same test at the practice test. Since my daughter has a very good memory, she answered all the questions, which were written Chinese, correctly.

For the poem, we used one that she had learned in an earlier class and practiced several times so that she remembered all the lines.

Desire - The teacher opened the poem recital contest by saying there would be a prize for the top three students. The prize was a spinning light, which is our daughter's favorite toy. Her eyes lit up immediately and she said, " I want to win one."

Execution - In the past, our daughter would sometimes shy away from speaking up in a group. However, this time she eagerly volunteered to do her poem. She stood in front of about 25 people (about 15 students and 10 parents) and recited her poem in a clearly and slowly with a voice that everyone could hear.

While the test was graded by the teacher, the poem recital was graded by the parents on a scale of 0 to 100. Our daughter received an average score of 95, which was just slightly below the first place child at 97 and just ahead of third place at 94. She was so excited to win second place and get a prize. I'm hoping this taste of success will cause her to want more and lead to developing the skills and habits to consistently be successful.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or parenting advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

The Benefit of not Including Bonuses in our Budget

When I was working, we lived only on my base salary, even though I received bonuses and stock options during my the last 10 years of employment. For budgeting purposes, we considered my bonuses and stock option grants windfalls, since I wasn't guaranteed to get one every year. The benefit of doing this was as follows:

Lived well below our means. Just before retiring, we were saving 20% of my before tax salary. Thus, we never needed the bonus to cover expenses. Since my bonus was typically 10-25% of salary, we were living significantly below means, at about 60% of my income on average.

We treated the stock options in a similar manner. While working, I never exercised any options.

Accelerated savings growth. By saving my bonus, we were contributing the equivalent of 40% of my base salary to our retirement savings every year. Also, since we didn't exercise any stock options, the value of the options was equal to 6X my base salary when I retired.

Prepared us for early retirement. Since we were only living on 80% of my base salary, we required less funds in retirement than many of my peers, who had grown accustomed to living on both their bonus and stock options. For us, living more frugally while working was worth the benefit of retiring 10 to 15 years earlier than my peers.

I was fortunate that our company was able to pay a bonus for every year that I was eligible. However, since we never counted on getting a bonus, the payment was put into our saving account when it was received. Another benefit of saving the bonus was that it helped to make it through this recession, since our expenses were lower and our savings were high than if we had spent the money.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Links To Carnivals From October 13 to 19, 2009

Here are the links to the Carnivals in which My Wealth Builder participated from October 13 to October 19, 2009:

Carnival of Personal Finance #226

Money Hacks Carnival #86

Carnival of Financial Planning #111

Festival of Stocks #163

Carnival of Personal Finance #227

For some interesting articles from the blogosphere, check out these Carnivals and give the hosts some recognition for their hard work.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or economic advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Dow 10,000 3.0 - What's Next?

After the Dow crossed 10,000 this week, the big question is where next . . . up, down or sideways? First, let me say that I really don't know. I feel like I've been wrong 90% of the time since this financial crisis started in 2008. However, I am happy to share my opinion.

Here are the three scenarios:

1. Dow 10,000 is a peak. Many experts expect a correction soon, because the market indices have risen too far and too fast. After all, the market bottomed on March 9, 2009 and the Dow is up 52.7% as of October, 16, 2009. In addition, these experts believe the stock market has advance far ahead of the economic recovery, meaning there will soon be disappointments with the corporate earnings. Some even expect the market to go below the March, 2009 lows.



2. Dow 10,000 is the center point. Since the economy is expected the to recover slowly, the stock market could oscillate around the 10,000 mark for years. This would similar to the 70s, when the Dow traded close to 1000, but not crossing it permanently until the 80s.
   
   In this type of market, investors in individual stocks will have a better chance of investment gains than those that invest in index funds.



3. Dow 10,000 becomes a springboard. In this one, investors begin believing in the economy again, and worry about missing out on stock market gains. 10,000 becomes the new floor for the index and stock continue to advance, leading to the second bull market of this century.
   
   Unfortunately, this scenario will likely lead to another bubble and subsequent crash.

At this point, I think Scenario 3 is the most likely, and we are continuing to invest in individual stocks that I believe will benefit from an economic recovery. The worst case, I believe, will be Scenario 2, where the economy and the stock market is choppy for the next few years. In this case, I also believe certain individual stocks will benefit. However, it will be a market where trading may be a better strategy than buy and hold.

For more on Strategies and Plans check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

How some Early Retirees are doing in this Recession

Retired by Fifty - Where are they now? by Liz Pulliam Weston is a follow-up story on five couples that had retired before 50 in the past couple years. Three couples had retired from corporate jobs, lived off investments and kept working part time. One couple sold their businesses and lived on the investment income and part time work. One couple had government jobs, with one retiring after 20 years with a pension and one quitting after 14 years, both to start their own businesses.

The three couples who retired from corporate jobs seemed to have best weathered the recession. They continue to live off their investments and get supplemental income from their part time jobs. So far none have had to undo early retirement. However, one person is considering that it may be necessary to return to a corporate job.

The couple, who sold three restaurants, has started a new restaurant because their investment income wasn't sufficient to cover their expenses. However, the new restaurant is only open 4 hours per night and is much less effort than the three full time restaurants they previously owned.

Finally, the couple with the government jobs appears to be doing well living on the wife's pension, the husband's part time consulting job, while the wife continues to explore retirement career options.

For all these couples, early retirement didn't go the way they had planned. However, while the financial crisis of 2008 has been challenging, it seems to me that these early retirees have stayed retired through having enough saved, living within their means, and having the ability to work part time for supplemental income.

For more on Reaping the Rewards, check back every Friday Saturday Sunday for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC