August 26, 2008

Company Stock in a 401k

Smart Money magazine has an article this month about employee investments in company stock within a 401k plan.

The article cites that although the numbers have improved, employees on average are still investing way too much in their own company's stock. Although no specific numbers on individual investment percentages were given, the article states that 10% of companies still match 401k contributions with their own stock.

With all the lessons in the past (think Enron, Worldcom, etc.) and some recent examples (Bear Sterns, Lehman) I am not sure why some employees continue to invest heavily in their own company stock. The article states that no more then 5% of the total balance should be invested in the companies stock. I agree with this number.

If you work at one of the 10% of companies who matches with company stock, my advice would be to sell the match as soon as possible and reinvest in a more diversified portfolio. Some plans may let you sell immediately while others may have time restrictions. If there are time restrictions, periodically remember to go into the account and sell the stock.

On a personal note, I currently have <1% class="blsp-spelling-error" id="SPELLING_ERROR_2">MMPF's accounts combined) in my companies stock. Although the Company is strong and continues to release solid numbers, I do not want a significant exposure of one stock in my retirement plans.

August 25, 2008

We all know that airline ticket prices can fluctuate significantly from day to day. I can remember a few times while planning a vacation that I would be quoted a price for a ticket and the next day the price changed.

Yapta was created to help individuals with this issue. On Yapta, individuals can search flights, track flights and instantly notify you when the price drops. But one of the best features by far is that once you book the flight, Yapta will continue to track the price of the ticket and if the price drops, will help you rebook at the lower price. And all this is free.

I have not used this service yet since the past couple of flights I have booked have been with airline miles. But on the surface, this seems like a great service. The site claims that over $66 million dollars have been saved since May 2007 with an average savings of $227 per ticket.

Couple observations -

  • Most airlines charge a rebooking fee to cancel and rebook your flight. Yapta does consider the rebooking fee when considering a price drop
  • Most major domestic and international airlines are included in their tracking feature. Most domestic airlines are included in the rebooking feature while most international airlines are not. One notable exception for both is Southwest.

This is definitely a site I plan to use in the future.

August 24, 2008

WisdomTree Currency ETFs

Another way to diversify your investment portfolio is through currencies other then the US dollar. These investments could help to offset some of the impact of the declining purchasing power of the dollar around the world.

Historically it has been difficult to invest directly in foreign currencies within a brokerage account. However recently, there has been numerous ETF offerings that now allow investors to purchase foreign currencies indirectly.

The WisdomTree line of currency ETFs not only offer exposure to foreign currencies, but also offer income generation through periodic dividends.

From WisdomTree's website -

The WisdomTree Dreyfus Currency Income Funds are exchange-traded funds (ETFs) that invest either in non-U.S. money market securities, or in a combination of U.S. money market instruments and instruments that are designed to provide
exposure to non-U.S. money market securities or rates. They seek to offer
investors current income reflective of foreign money market rates available to
U.S. investors, as well as exposure to changes in the value of a specified
currency relative to the U.S. dollar.

It is important to note that unlike traditional US money market funds that seek to maintain the $1 NAV, the WisdomTree ETFs NAV will fluctuate depending on a variety of factors.

WisdomTree currently offers the following 7 ETFs -
  • WisdomTree Dreyfus Euro Fund (EU)
  • WisdomTree Dreyfus Japanese Yen Fund (JYF)
  • WisdomTree Dreyfus Brazilian Real Fund (BZF)
  • WisdomTree Dreyfus Chinese Yuan Fund (CYB)
  • WisdomTree Dreyfus Indian Rupee Fund (ICN)
  • WisdomTree Dreyfus New Zealand Dollar Fund (BNZ)
  • WisdomTree Dreyfus South African Rand Fund (SZR)

The Euro and Yen funds plan on paying dividends quarterly while the other funds plan on paying dividends annually.

August 23, 2008

Another sign of the times. I came across a new site ( that allows members to track their individual MPG per vehicle.
After you sign up for an account, you input all your vehicle information. Then after each fill up, you enter your odometer reading, gallons and price per gallon. The site then automatically calculates and tracks your MPG. Now don't get me wrong, I know this is something that can easily be calculated and tracked using Excel. But if this is something you're into tracking, this site makes it a whole lot easier.
The site does have some other features such as tips, forums and the ability to compare your car to other members with the same vehicle. I haven't spent a lot of time on the site, but thought I'd mention it for readers who might find it useful.

August 22, 2008

Are you escrowing your RE tax bill?

One of the easiest ways that homeowners can save an additional $150+ annually is to remit their own real estate tax bills to their towns rather then escrowing the payment. Let's walk through some of the numbers.

Our 2008/2009 tax bill is $12,144. Although the mortgage holder will pay interest on any escrowed funds, it is pathetically low. In fact, it is almost zero, so for rounding purposes, let's call it zero. If you take the same balance and invest it in any online bank (ING Direct is currently offering 3%) you earn about $364 for the year.

Let's say your real estate taxes are $4,000. At 3% you still save about $120 per year. Not bad for a simple phone call to the bank.

Shortly after we purchased our home in 2007, we called the bank and asked if we could stop escrowing our real estate tax bill. Without any pushback, the bank agreed and our escrow balance was refunded to us and the monthly payment reduced. It was really that easy.

The one caveat is that you need excellent credit in order for the bank to allow this. If your credit score is low, don't expect them to agree.

August 21, 2008

Other Liabilities Detail

On my most recent Net Worth post, I reported $6,080 of "other liabilities". These balances mainly consist of accruals for large expenses throughout the year. The accruals are tracked to avoid significant swings during the year for vacations, heating oil bills and real estate taxes. Let's explore these in more detail -

Real Estate Taxes ($1,012)
We do not escrow our real estate taxes since we can obtain a better interest rate keeping it in our own savings. Our annual tax bill is $12,144 (I know, it is painful to see the number. For those who live in other parts of the country, the Northeast is out of control when it comes to real estate taxes). I accrue $1,012 monthly and pay the bill twice a year (January and July).

Vacation ($1,553)
We estimate our annual vacation cost to be $3,000 and therefore accrue $250 / month. The balance is usually drawn down during the summer.

Heating Oil ($757)
This estimate will change annually depending on where heating oil prices are. My estimate for this year is $4 / gallon. We use about 1,200 gallons a year which brings our total expense to $4,800 or $400 per month.

Christmas ($700)
We estimate Christmas expenses at $1,200 or $100 / month. The balance is cleared in December.

Allowances ($2,058)
I will dedicate an entire post to this topic in the future. This balance is for Mr. and Mrs. MMPF monthly allowances that can be spent on anything. Currently $200 / month for each of us.

There's the detail. These balances will fluctuate monthly based on additional accruals and payments from the accounts. I like using these accounts throughout the year to track large expenses, rather then taking big hits in the month the bills are due.

August 20, 2008

Consumer squeeze...

Last week, Yahoo Finance posted an article about expected FY2009 raises. More specifically, the article highlighted how more and more companies are implementing policies where high performers receive much higher raises then average or lower performers. My employer has had this type of policy for years.

The following table is from article (courtesy of Yahoo Finance) -

While the average is around 3.8%, the article states that the range from high performers to low performers is 5.6% to 0.6%. The purpose of this post is not to discuss the "pay for performance" model, but to discuss the expected average FY2009 raise versus current inflation.

Last week, the BLS released the most recent CPI numbers which showed an annual inflation rate of around 5.6%. Some experts even suggest that the BLS inflation numbers are artificially low. For argument's sake, let's assume the BLS numbers are accurate. This means that is real terms, the average employee will be about 2% less well off in FY2009 as they were in FY2008 (assuming the above numbers are correct and inflation holds steady at these levels).

Talk about consumers being squeezed... Not the type of news that is needed given the state of the housing market and spill over into equities.