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.

August 19, 2008 is a relatively new company in the world of personal finance. According to the website, the public beta was launched in September 2007 after two years of development.

Mint can be described as an all in one money management portal (although we'll see a bit later that they are not truly all in one yet). Think of Quicken or Microsoft Money without a lot of the clutter.

Mint was very easy to set up. They claim to be able to connect to nearly 6,500 financial institutions. I was easily able to set up my checking, brokerage, retirement and credit card accounts. Each time you log onto Mint, the system automatically downloads the most recent activity in the accounts.

The expense tracking is top of the line and in my option currently the best feature of Mint. Each expense is automatically assigned a category when it is downloaded (i.e. Mobil expenses go to gas, TGI Friday expenses go to restaurants). If you disagree with the category, you can easily change it and apply the change to all future purchases from that vendor.

Based on expense information, Mint automatically tracks expense trends by category and by month. For example, you can easily see how much you are spending on food per month over the past few months. Mint also allows you to set up monthly budgets and track against those budgets.

Mint also offers some additional features which I have not really taken advantage of. These include comparing your spending to others and their recommended products.

Where I would like Mint to expand their services is related to income and investments. There is not currently a lot of information on your entire income statement. They focus on expenses, but you never really see the entire picture of income and expenses by months. Also, there is currently no information on investments. The website states that the tool is being built, but there is not a lot of detail on what the tool will look like once launched. I believe the depth of this tool will be important to make them stand out from other personal finance software.

Overall Mint is a great tool for tracking expenses. It quickly allows you to track each of your transactions by category, examine the overall trends and set budgets. They still have some work to do in the other categories to make it the best personal finance software on the market.

August 18, 2008

Direxion Commodity Trends Strategy Fund (DXCTX)

As I have previously mentioned, I am always looking for ways to diversify my portfolio and hedge against downturns in the market. From time to time on this site, I will highlight some of the investment products I come across that may be used in your portfolio to help diversify.

In mid-June, Direxion launched a new fund called the "Direxion Commodity Trends Strategy Fund". The ticker is DXCTX. The fund invests in six commodity sectors including energy, industrial metals, precious metals, livestock, grains and softs.

From the Direxion website -

"The Commodity Trends Strategy Fund seeks daily investment results, before fees
and expenses, of the performance of the Standard and Poors Commodity Trends

"The Standard and Poors Commodity Trends Indicator is an investible long / short
strategy that offers exposure to 16 commodity markets (in six sectors) and will
hold them long or short, based on a seven month exponentially weighted moving
average. The long / short decision involves monitoring the price of the sectors
in relation to their respective seven month moving average price. The exception
to the model is the Energy sector which, due to geopolitical issues, economic
changes, and other factors uniquely related to the sector, is positioned either
long or neutral."

Energy and grains make up the largest component of the fund at 37% and 23%, respectively

The index has a 10 year average annual return of 12.3%.

The correlation of the fund versus the S&P 500 is -0.16 making it a great diversifying tool within a portfolio.

The fund can be purchased through Fidelity's network of no cost funds.

This post is not a recommendation one way or the other for the product, but is simply pointing out that it could be used as part of the commodities allocation within a portfolio for diversification.

August 17, 2008

Gas price decrease

I have seen a few articles over the past couple of days regarding the "significant" drop in gas prices over the past few weeks. Here is one of the articles from CNN.

Although a 35 cent drop in prices does help the consumer, we need to put a little prospective around this so called "significant" drop.

The following chart is courtesy of Gas Buddy and shows the national average of gas over the past one year.

As you can see, although the price has come down from the peak around $4.12 / gallon, we are still about a dollar higher then last years price of $2.74 (or about 35% higher).

So how much does the 35 cent drop save individuals? Assuming the average driver logs 15,000 miles per year and the average car gets about 22 MPG, the annual savings works out to about $238 or $20 per month.

Don't get me wrong, we'll take the 35 cents. If for nothing more then the physiological effect of lower prices (look at the consumer sentiment numbers released on Friday). But as you can see, we still need to come down significantly to add back substantial dollars.

August 16, 2008

Fidelity 130/30 Large Cap Fund (FOTTX)

I am a long term investor. I am not planning on using most of the money I have currently invested until at least 20 or 25 years. With that said, it is still difficult to watch your investments decrease by 20 or 30% during these normal bear markets. Although I am a long term investor, I am always looking for ways to hedge against some of the downturn.

Fidelity recently launched the Fidelity 130/30 Large Cap Fund. The ticker is FOTTX. For those who are not familiar with 130/30 funds, they are structured as follows. The fund shorts approximately 30% of the market. The fund uses the proceeds from the short positions to add positions on the long side, essentially taking the fund 130% long. Hence the 130/30.

These type of funds are supposed to protect your portfolio to some degree during a downturn since some of the positions are short. So let's see how FOTTX is doing versus the S&P 500 for the most recent bear market.

Overall I'd say not bad. As you can see, since the launch in April both funds have lost about 5%. The real story is related to the decrease to the lows in July. The S&P 500 was down as much as 12%, while FOTTX only lost around 6% at it's lows.
It's important to note that this is very short term performance. I'll post periodically about this fund versus the S&P 500.

August 15, 2008

Roth IRA conversion in a bear market

Good article over at Yahoo Finance related to the conversion of a traditional IRA to a Roth IRA during bear markets.

With the market down about 12% since January 1, there are probably thousands of people who converted from a traditional IRA to a Roth IRA this year, and have now lost value in their accounts. If you're a long term investor, no problem right? Wrong. The issue is that you now owe taxes on the converted amount, which is higher then the amount transferred. In some cases, this amount can be substantial.

For instance, let's say you converted $200,000 on January 1. The tax owed on this conversion (assuming you are in the 28% bracket) is $56,000. Now let's say that your account is only worth $176,000. You still owe tax on the $24,000 of lost value, or approximately $7,000.

Not so fast though. The article highlights a lessor known IRS rule called "recharacterization". Basically, recharacterization is a do over. It allows an individual to return the money to the traditional IRA and no tax is due. The individual can then convert back to the Roth IRA at a later date.

There are some date restrictions on this rule -

  • You have up to 6 months after the due date of your 2008 return to undo the conversion (October 15, 2009 for most individuals)
  • You must then wait until the following year or 30 days after the initial conversion (which ever is later) to reconvert

So should you recharacterize? Depends. The issue is related to where the market will be at year-end. If you recharacterize now, you need to wait until at least 1/1/2009 to reconvert. If the market climbs higher and ends above the January 1 level, then recharacterization does not make sense since you will end up owing more taxes. If however, the market decreases, recharacterization makes sense since less taxes are owed.

Bottom line is you have time to see where the market goes between now and year-end. If it continues to decline, hold off and recharacterize right at year-end and reconvert in 2009. If the market climbs and ends higher then where you originally converted, you don't need to do anything, since you will pay the least amount of taxes possible.

This area is a bit complex and you should ensure you consult with your accountant and attorney before completing any transactions.

August 14, 2008

Heating Oil Lock

Similar to many New Englanders, one of the largest monthly expenses we have during the winter is related to heating our home. We moved into our new home during the Spring of last year. Shortly after (around this time last year) we called around to a couple heating oil companies and locked in at a rate of $2.47 / gallon. Over the course of the year, we used about 1,200 gallons in total, a majority of which was used in the December - March time frame to heat the house. Total 2007/2008 season heating costs, about $3,000.

Fast forward to this year, prior to coming off the highs a couple weeks ago, heating oil at the retail level was actually selling for over $5 / gallon, or a 100% increase year over year. Heating oil is now selling for about $3.50 / gallon. You can see the chart of heating oil below and the steep sell off (NOTE: this chart if for heating oil futures, not heating oil at the retail level).

So what are the options?

  • Lock In - heating oil prices have fallen significantly over the past month. Historically, late summer is one of the best times to lock in your price for the upcoming year. The problem is that most oil dealers are refusing to lock prices this year due to the volatility of heating oil. If you can find one, this may be your best option. You'll know your price and not have to worry if prices start to rise again.
  • Hedge - this option would have not have been available to most Americans a few years ago. Thanks to the Heating Oil ETF (ticker symbol UHN), anyone with a brokerage account can hedge their own heating oil. UHN is designed to track heating oil futures (which in turn set the price of heating oil at the retail level). If heating oil increases, the UHN ETF will increase. If heating oil decreases, the UHN ETF will decrease. Using a simple example (hedging using UHN can become complex due to tax issues, etc.) let's say you want to lock in the price of heating oil today. You call your local heating oil company and they quote you a price of $3.50 / gallon. You ask if you can lock in that price for the next year and they say "sorry, that is today's price only". Now you have to hedge on your own. Based on this price, you know you will spend about $4,200 on heating oil over the next 12 months (1200 gallons times $3.50). You can hedge this cost by going out an purchasing $4,200 worth of UHN. UHN is currently trading at about $50 / share so you would need to purchase 84 shares. Once this is completed, you should be hedged. If retail heating oil increases you will need to pay more, but you have also made money on your ETF purchase which should offset the increase. The opposite is true if retail heating oil decreases. It is important to note that if this strategy is implemented, you are locked in. Any fall in oil prices will not benefit you. And remember, you need to sell the ETF at the same time you purchase home heating oil.
  • Assistance - this will vary state by state. In the Northeast, the states are setting aside significant amounts of funds to assist those who qualify with heating costs. If you think you qualify, this may be a good option to reduce the total amount you need to pay.
  • Gamble - are you feeling lucky? If you are, you may choose to do nothing and hope that oil prices continue to fall.

As for me, I am still debating the options. As you can see on the chart above, heating oil currently sits right on the 200 day moving average. If it continues lower, there could be another significant round of selling. I'm not a trader, but I will continue to watch this over the next couple of days.

I have personally budgeted for $4 / gallon oil which means I am accruing approximately $400 / month for the cost. Any price below that would be upside versus my expectations.

August 13, 2008

July 2008 Net Worth

July was a mixed month for us. Our short term net worth grew at an average pace of just over $2,700. This included two one time payments that were made this month for car taxes ($480) and a true up of our real estate taxes for the new fiscal year ($319).

Our long term net worth continued to suffer with the stock market declines. As our retirement savings grows, our long term monthly results depend heavily on the stock market returns. For the month, we lost $606 in our long term net worth. This is the second straight month of declines.

We'll have to see what August brings. I have not had three straight LT net worth declines since mid-2002.

All cash and checking account balances. Balances are kept to a minimum since accounts do not pay interest.

Emergency Fund:
This tracking account was recently added to separate my "emergency" balance and taxable brokerage balance. The emergency balance would currently cover 8 - 9 months of spending. However, we expect to purchase two new cars in the next couple of years. These purchases will be in cash (unless we can get VERY cheap financing). The cash will come from this account.

Taxable Brokerage:
Taxable investments in stocks and bonds. See the investments post each month for more information on this balance.

Other Receivable:
Balance includes other receivable items, such as payroll (since I am paid every two weeks rather then at month-end).

Retirement 401k balances. See the investments post each month for more information on this balance.

Two 2004 cars. Each are being straight line depreciated over 60 months.

Primary Residence:
Although most of the country is seeing an extended downturn in the housing market, there is minimal impact where we live. Although no grow, houses are continuing to sell right around the same price as they sold last year. We have no plans to sell our house in the near future. Therefore, we are increasing the value of the home $1,000 per month. This equals approximately 1.7% per year, well below the long term average gains of home prices.

Credit Cards:
I use a credit card for all of my purchases. The monthly balance gets paid in full each month so no interest is incurred.

Other Liabilities:
This category includes a variety of balances including real estate taxes, heating oil, vacation and Christmas. I'll dedicate a post in the future as to how these balances are used and why.

30 year fixed rate mortgage at 6.125%. I am paying an extra $276 in principal each month (which equals one extra payment per year).

Upcoming Events:

  • No significant events in August are planned
  • In September, Mrs. MMPF will receive her annual bonus. We are expecting approximately $7,500 pre tax. As part this, she will receive her annual merit increase which will most likely be in the 4 - 6% range.

August 12, 2008

Recommending a Site / Deal

One of the things I hope to accomplish on this website is to help educate people on the topics of personal finance and personal investing.

I read many websites daily and are always looking for new finance sites or deals. However, it is impossible to keep up with everything.

If you would like to recommend a site or spot a good deal, let me know. Send me an email at I will consider dedicating a post to the site or deal.

DISCLAIMER: My Money PF will never accept compensation for dedicating a post to a particular product, website or deal. No advertisements on this site will be disguised as blog entries. The purpose of the above recommendation will be to bring sites or deals to my readers attention and will not be considered paid advertising. If you recommend a site or deal, it is at my discretion to post negatively or positively about the site or deal.


The author of My Money PF is not a professional financial adviser and no text within this website should be considered financial advice. Any individual who makes financial decisions based solely on the information contained within does so at his or her own risk. Always consult a financial professional for all personal finance or investment decisions.

About Me

I'm a married thirtysomething living in the Northeastern United States. I currently work in finance at a Fortune 500 company. I have undergraduate and graduate degrees in both accounting and finance. I am also a CPA.

I have always been diligent about personal finance and investing. I purchased my first stock when I was 20 years old and have been monitoring my monthly net worth since 1999. I created this site to share my insights on personal finance and investing.

I hope you enjoy the site!