Writing Off 2008 Already

The new year has a rough start. Will it continue? Who knows but historically the beginning of the new year has little impact on what happens for the rest of the year as shown in the following article from Marketminder.com.

January Ineffect
1/7/2008

Story notes:

• January’s rough start has many investors invoking the old saying, “So goes January, goes the year.



• Statistically, this belief isn’t supported. History shows negative starts can be followed by positive years and vice versa.



• Market volatility is normal, no matter when it happens, and doesn’t mean a prolonged downturn is at hand.

_________________________________________________________________________

January has commenced with gray weather, record snows, fierce storms, already broken New Year’s resolutions (stupid leftover pumpkin pie), and the usual post-holiday gloom—not to mention a continuance of December’s volatility. Most major market indexes are negative so far this year, leading many investors to invoke the old saw “so goes January, goes the year.” Already, we’re seeing stories highlighting the long and widely held belief that a rough start to January portends trouble ahead.

The Stress Is Just Beginning
By Tomoeh Murakami Tse, Washington Post
http://www.washingtonpost.com/wp-dyn/content/article/2008/01/05/AR2008010500149.html

This article states, “If the first three trading days of the year are any indication, 2008 is bound to test the nerves of even the most poised investors.” Fair enough—volatility always “tests nerves.” Except the first three trading days are never an indication of what’s ahead. Not ever. Three days of any month, no matter the calendrical significance, tell you nothing. Investors wouldn’t make a stock forecast based on the Ides of March—there’s nothing about any one day or group of days’ returns that tells you anything about what to expect looking forward.

Statistically, this is easy to disprove by checking historical data to see what happened each January and the annual results. Throughout history, negative starts to January have been followed by all sorts of combinations of positive and negative returns. Positive start, negative January, positive year. Negative start, positive January, negative year. On and on. Looking at the six worst first 10 days for the S&P 500, you see US stocks ended positively four of those times—one year up a big 42%! Another up 26%! What does that tell you? Nothing—beyond stocks are positive more than negative. And the third best start ever ended the year down 15%. Not so great.

Fundamentally, this makes even less sense. What do a few days in January tell us about investor demand for securities? Markets don’t obey a calendar. There’s nothing magical about January’s start suggesting markets must suddenly begin “behaving” themselves. Markets are volatile. They can be volatile in January, July, on Tuesday, the day after the Fourth of July—pretty much any time. Markets don’t have neat steps-and-stairs increases, and if they did, you wouldn’t be happy with the return you got. If you want that kind of steady appreciation, you’re going to have to be satisfied with what you can get by buying US Treasuries and holding them to maturity (i.e., not much).

We call the market “The Great Humiliator” (TGH for short) around here for a reason. Its sole purpose is to humiliate as many people as it can for as long as it can for as much money as it can. Scaring investors out of superior long-term returns with a bumpy start to the year is one way the market robs otherwise rational people of their senses.

We remain confident the world is altogether too dour. Don’t let TGH humiliate you out of the market with a bumpy start to the year—that’s just what that filthy trickster wants

New Chair

I bought a chair. It’s used slightly. It was expensive, but it was a good deal for an ok price. It was $300, but I wish it had been cheaper. I’ve sat in a lot of chairs now. My tushie is tired. The one I really wanted was navy leather and cost $1000. It’s discontinued so it was never a temptation.

But since I’ve been looking for an armchair for the last four years, it’s what it is. It’s the chair I’ve got now.

I really wanted another chair so I could have a real sitting group in my apartment and entertain people. Right now your options are to sit side-by-side on my couch or sit in a hard kitchen chair. (No cushions.) For hours and hours of knitting, a real armchair/side chair is much better. And now I have one.

Goody!

Developing my legitimacy bit by bit

It pleases me to report that I have passed the first of two exams necessary for me to attain the certification of Accredited Financial Counselor, a designation awarded by the Association for Financial Counseling and Planning Education. Once I have completed a second exam (probably sometime in the spring), finished several hundred hours of practicum experience, subscribed to the Code of Ethics and paid the membership fee, I will be a blogger with a legitimate, real-life accreditation, and not merely an "internet professional"! How many other personal finance bloggers can say the same?

It was quite a test. Nothing at all compared to the CPA exams or the CFP nightmare, but it definitely required a lot of preparation to fully understand all concepts covered.

If you are eligible and interested, this program is a great opportunity for military spouses and survivors to get free education and certification in an important field. The certification would cost about $900 out of pocket otherwise. Applications are accepted in the spring sometime, usually in March. For more information on the program, click here.

Mutual fund frustrations

I have a mutual fund (within an IRA) that hasn't been doing very well. And by not doing very well, I mean it's doing worse in comparison to similar funds. Despite that, I wasn't panicking. I just had in mind that I would transfer it to a less-risky fund it when it came up a bit, which it seemed to be doing. So I began looking into what it would take to transfer it to some different funds.

Now this is an old account, that I had gotten back when I had no idea at all what I was doing. I'd bought it through a financial planner. So I contacted that planner to ask about putting part of it into some different funds instead. They didn't want to do that, and suggested I transfer it to a brokerage house instead. So I sat on it awhile, trying to figure out how to do that, and which broker to transfer it to. And the fund proceeded to lose almost 3% of its value while I fiddled around. Irritating? Yes. A good lesson? Yes.

What have I learned?

First, don't invest in something that you don't understand. While I did understand the concept of an IRA when I bought the fund, I didn't really know what made a good fund. I didn't know anything about risk, which is kind of important. I'm still not an expert at mutual funds by any means, but at least I now have a better idea of what to look for. I also didn't know anything about diversification, so all of my money was in one fund. Bad idea.

Second, I learned that you shouldn't invest with someone unless you fully understand their role. It's also good to look into their qualifications, level of experience, and to evaluate their performance from time to time.

Finally, I learned that I am very easily frustrated when it comes to not being able to do what I want to do. (Ok, so I knew that part already.) But what I realized is that those feelings were getting in the way of me making a rational decision. So I took a step back and thought more about what my original plan was, pre-frustration.

I also reminded myself that at least I have a better idea of both what to avoid and what to look for in the future.

Me And My SEP

So I just set up an SEP-IRA for myself, partially because then I can contribute for last year, and knock a good chunk off the taxes I owe, and because I came across this wonderful bit of logic from Five Cent Nickel:

As I noted above, you can contribute to your SEP-IRA as either the employer, the employee, or both. In the case of the latter, it counts against your annual IRA contribution limit, so it reduces the amount that you can contribute to a traditional or Roth IRA. But in the case of the former, there’s no effect on your annual IRA contribution limit. Thus, it seems that you can use employer contributions to your SEP-IRA as a way of legally exceeding the IRS contribution limits.

Brilliant!

See, an SEP can't be set up as a Roth, but you can still deduct it from your taxes, and you can contribute up to 25% of what your business makes each year. So I can contribute my money to either the SEP or into my workplace accounts, and it doesn't make any difference. This is attractive because depositing into my workplace accounts can't exactly be done when I have a bit of spare cash - I have to fill out a form and hope they process it before my next paycheck. ALSO, I could roll it over into a Roth whenever I pleased, and I'm not limited to waiting until I leave this job. So I could have my 403b, my 457b, my Roth IRA, AND my SEP IRA.. drool. (I'm definitely in the savings-is-addictive club.)

Pottery Barn credit card bonus

Whilst perusing the latest Pottery Barn catalog, I noted that the fine print of their credit card bonus program is actually pretty sweet. If you spend $750 during the six-month "program cycle" (which appears to be the first six months of the year, and the second six months) you get a $50 gift certificate to Pottery Barn. Plus, if you spend $100 in the first month, you get a 5% rebate certificate which you could use to make the gift cards go farther. If I spent $750 on my American Express card, I'd only earn $7.50 in gift certificates, so that seems like a good deal to me. To totally dork out, $100 in gift certificates just for spending $1500 with the card (and it doesn't stipulate anything about balances, so you could pay it off right away) gets you a 6.6% return on your money. If you don't want to shop at Pottery Barn, you could sell the gift certificates on eBay or get 70% of value without hassle at GiftCardBuyBack.com or a similar site. (Most of the time eBay'ed gift certificates will get at least 85-90% of value, but it's more time-consuming and you have to pay fees.) I'm probably going to do some credit card arbitraging once my current 0% deal expires and I pay it off, so I'll apply for this one too and get my free gift card.

Details: http://www.potterybarn.com/cust/ccsplash/cust.cfm?cmtype=fnav

June 2008 update

June was the best month ever as far as meeting my goals goes. I finally, FINALLY achieved my goal of spending $2000 or less in a month. My total expenses for the month were $1,861.97, and that includes $350 in medical-related expenses, plus clothes, a haircut, and eating out. Now I just need to figure out what was different about June, aside from it truly being an unusual month because I spent less than normal. Income was up too, which was a plus. I hope that both of these things continue in future months.

Net worth wise, things were good too. Assets were up, despite the stock market grumbles. My liabilities were down, because I put less on my AMEX and we finally started paying toward principal again on the house.

Here are the stats for June:

Assets: Up $1561.49

Liabilities: Down $829.94

Change in net worth over previous month: Up $2391.43