AESCHYLUS

Prospero:

2009-10-29T12:08:00.000-07:00

Our revels now are ended. These our actors,
As I foretold you, were all spirits, and
Are melted into air, into thin air:
And like the baseless fabric of this vision,
The cloud-capp'd tow'rs, the gorgeous palaces,
The solemn temples, the great globe itself,
Yea, all which it inherit, shall dissolve,
And, like this insubstantial pageant faded,
Leave not a rack behind. We are such stuff
As dreams are made on; and our little life
Is rounded with a sleep.

Shakespeare

Annualized Rate of Return / Emerson

2009-10-29T11:19:00.000-07:00

The charts measuring the actual dollars or net worth accumulation over time is actually not a very good measure of success. The best way to accurately measure or track capital gains is to determine the actual annualized gains over time by individual funds and overall portfolio. This should be measured against the annualized gains of the index fund to fund and by portfolio to portfolio.

This can be done but it will be labor intense for historical data as I will have to determine all purchases and dividends over the past several years. Maybe I’ll just go back a couple years and go forward from there. Anyways it still takes time and I’m busy such that I will have to find time before the end of this year. Yes work and classes (continuing education for professional development in my field) as well as time for exercise keep me busy. Not to get too far off the subject but a wise man once said to me:

“It seems I never have enough time to do the things I want. That’s probably because life is never going to meet my expectations. Life is the one with expectations for me to meet.”

Then he closes the letter with:

“What lies behind us and what lies before us are tiny matters compared to what lies within us.” Emerson

Certainly for food for thought. So getting back to the point, relative comparison between indexed to actual annualized gains period over period is the most logical way to measure performance over time. Hopefully life will give me the time to do it. Actually I’ll probably have to make time.

Socioeconomic Class

2009-10-28T13:38:00.000-07:00

I don’t recall the exact data. However I recall reading an article stating something to the effect of the top 3% of the domestic population controlling something like 60% of the American wealth. The gist of the article was to point out that only a select few affluent people controlled the vast majority of the American wealth.

Although I don’t have the data to support my logic, I do know the information is available. I just don’t have the time to do the research for now. However I will keep this in mind for future postings and when I do run into such supportive data, I will be sure to post the reference material.

Again although I don’t have factual statistical data to back up my claim, I know I will find it later. Approximately 95% (again it's not so much the accuracy of the numbers but the gist of the idea) of the American population born into poverty or middle class will more or less live and die in the class from which they were born. What’s interesting is that 95% of the population from this class are optimistic and believe they will be the exception rather then the rule. The reality is that the odds are really stacked against them. There are certainly the 4% or 5% that in fact break out of the mid to low socioeconomic class from which they were born into but this is the exception rather then the rule.

How is lower socioeconomic class defined? It might be defined as little to no asset accumulation and living hand to mouth paycheck to pay check and in some cases off of government subsidies. They can also have a home with a mortgage and possibly a hundred thousand dollars in the bank. The point is at the end of the month, they have no income savings at all.

Middle class might be defined as earning decent wages possibility combined wages in excess of $100,000 for a family of 4 with a mortgage and some home equity built up. Although they earn higher wages with some home equity built up and possibly several hundred thousand dollars in the bank, they’re still generally living hand to mouth pay check to pay check at risk of losing a sizeable chunk of any assets they’ve accumulated in the event one or both working members of the family loose their job. They may or may not have any money for savings at the end of the month. And they’re just a short stones throw away from asset depletion.

The truly wealthy do no have to work and can live an opulent life style without having to worry about complete wealth depletion. These days that would probably mean at a minimum several million for the genuinely penny pinching frugal person and 10 million for qualifying as financially independent. The truly wealthy have in excess of 100 million or more and are not worried about working.

The point of this blog is can a working stiff be he white or blue collar from a low to mid socioeconomic class achieve some semblance of financial stability and security. Obviously financial independence as defined above is wealth in excess of $100 million. The bottom rung of the threshold for a small degree of financial security is approximately $3 to $4 million in liquid capital.

The question at the end of the days is is it possible for a working stiff such as myself from a low to mid socioeconomic class be capable of getting some degree of financial security. The reality is that the odds are stacked against me. I am clearly in the 95% category where I think I am the exception. Or maybe the only difference is that maybe I know the odds are stacked against me but that I’m willing to make an effort to see if I can somehow manage to achieve the 4% category stated above.

This blog is documentation of that journey.

I am staking my personal pride on this goal. If I succeed, kudos to me. If I fail, I am setting myself up for some pain and hurt to my personal pride and ego. Wish me luck.

World's Best Places to Retire

2009-10-21T12:34:00.001-07:00

Here's an article by MNS Money staff about an ideal location to retire.

US retirees looking for lives of comfort at bargain-basement prices might do well to look at a sunny, sophisticated city near the equator. The best place in the world to retire, according expatriate lifestyle magazine International Living, is sunny, cheap, cosmopolitan and 8,000 feet high in the Andes.

Cuenca, Ecuador's third-largest city, is a well-preserved colonial city of cobblestone streets and dramatic period architecture, with modern suburbs, shopping and all the comforts American retirees might expect. Yet they can live there -- and well -- for about $17,000 a year, the magazine says. (Visit Bing for a photo gallery of Cuenca.)

The editors cited Cuenca's intense greenery, year-round fruits and vegetables, inexpensive health care and some appealing benefits for retirees, including half-price airfares and big discounts on other expenses such as taxes, utilities and entertainment.

But it was the glorious weather and affordable real estate that sold Ron and Donna Carlson of Camas, Wash., who expect to move full time to Cuenca by the end of 2010.

"We bought a 4,000-square-foot penthouse apartment in Cuenca with fantastic views and all the amenities we could want," Ron Carlson says. "We paid far less for it than we would have elsewhere. And we have the world's best weather."

Cuenca is almost on the equator but at 8,000 feet elevation. "The weather is perfect year round," said Kent Zimmerman, a U.S. expat who lives in Cuenca. "There are flowers everywhere, green grass and rushing rivers. The elevation sounds high (it's about the same as Aspen, Colo.), but studies continually show how healthy it is for you. It's so energizing, you feel 10 years younger." (Check the current weather in Cuenca.)

Here is International Living's monthly budget for a couple in Cuenca:

Expense	Cost
Rental of a luxury two-bedroom apartment	$500
Utilities (including phone, Internet and cable television)	$150
Maid (twice a week)	$60
Groceries	$275
Maintenance and fuel for one car	$140
Clothing	$70
Entertainment (two people dining out eight times a month)	$200
Health care (four doctor visits per year for two people, divided by 12 months)	$20
Total	$1,415

It seems the cost of living is fairly low. I have a coworker from Ecuador who has been to Cuenca. He confirmed the low cost of living and real estate was correct. He stated that breakfast, lunch, and dinner cost him approximately $5.00 total. However this figure may be 5 to 10 years old. Also he stated that law enforcement is very tight and that the crime rate is very low due to stringent law enforcement policies. He believes the strict enforcement of the law stems from the local populace knowing they're local economy depends on foreigners from all over the world coming to retire in Cuenca and they want to ensure that no one disturbs the peace.

I've always been intrigued by the idea of traveling and living in foreign places all over the world. Unlike the article above, I would not want to tie up my capital and stay in one location for retirement. I have always had an adventurous spirit and tended to be a bit of a wonderer. It's been in my blood until now, I can't deny it, and I don't see it changing anytime soon. It is who I am. I would much prefer to live there for about a year renting a simple cheap apartment. Based on estimated cost provided, I believe $300 per month would be more then adequate. It would provide ample time to see all the sights, meet interesting people, and learn about the regional history, culture , and heritage. One year would be enough time to really get to know the place. After that, I would move on to another country and repeat the same process. The regional sights, sounds, palettes, smells, customs, tradition, language, and experiences would all be another new and exciting learning experience. So this is one approach.

Although one can't help but wonder if a person could keep oneself preoccupied and content with a sense of purpose in life without working. I can certainly be content living on $17,000 a year without having to skimp on life's amenities. The question is could I find a sense of purpose and fulfillment in some worthwhile pursuit in semi-retirement? On this question, I believe I can. Although I can't really identify exactly what that would be, given the time and the situation to ponder, I'm certain I can find a meaningful purpose that makes life worth living.

To dream of a day when I can pursue that passion which I love and would gladly do it for free yet get paid for it as an afterthought rather then feeling the crushing burden of having to earn a day's wages, that is the crux of self actualization. That is the essence of having a meaningful purpose driven life. Some have it. Most don't.

Personal Musings

2009-10-19T12:22:00.000-07:00

Well, now that my investment strategy has been posted, it's kinda like watching grass grow. I will track and post monthly updates on the status of the investment accounts.

Other than that, postings will cover whatever comes to mind really. Some will be focused on personal finance, musings, humor, poetry, and just things.

Robert Frost

2009-10-19T12:00:00.000-07:00

Robert Frost (1874–1963). Mountain Interval. 1920.

1. The Road Not Taken

TWO roads diverged in a yellow wood,

And sorry I could not travel both

And be one traveler, long I stood

And looked down one as far as I could

To where it bent in the undergrowth;

Then took the other, as just as fair,

And having perhaps the better claim,

Because it was grassy and wanted wear;

Though as for that the passing there

Had worn them really about the same,

And both that morning equally lay

In leaves no step had trodden black.

Oh, I kept the first for another day!

Yet knowing how way leads on to way,

I doubted if I should ever come back.

I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood, and I—

I took the one less traveled by,

And that has made all the difference.

Personal Financial Goals

2009-10-18T19:41:00.000-07:00

I stated in an earlier post that I would post my financial goals and objectives. The combination of objectives, goals, and strategy is the foundation upon which to build a financially secure future. The process of wealth accumulation takes time and as such life goes on and should be taken into consideration. Another aspect to consider in this pursuit is emotional IQ. Sometimes life has a way of wearing people down or taking mysterious twists and turns. Financial accumulation should be based on a solid foundation of emotional stability and security. So anyways, here it is:

As it relates to my financial goals:

Financial Objectives:

Be able to retire early, care for the family, travel, and enjoy the finer amenities of life while maintaining a modest but comfortable standard of living.

Financial Goals:

In the year 2012 three years from now have $500,000 in home equity and $1 million in liquid equity investments.
In the year 2017 eight years from now have a home paid for free and clear of any encumbrances and $2.5 million in liquid equities.
In the year 2019 then years from now have a home paid for free and clear of any encumbrances, $4 million in liquid equities, and go into semi retirement.

Financial Strategy:

Continue to work, save, and invest in the equities market via a proven and well-diversified asset allocation model.
Continue to maintain the rental home for an additional 5 years.
Maximize both 403(b) and 401(k) company sponsored contribution benefit plans.
Invest $25,000 minimum annually and rebalance the portfolio at this time.
Continue with military reserve program until attainment of terminal rank and maximize points for retirement.
Be budget conscience and frugal for the next three years until attainment of 1^st phase of financial goal.

Personal Maxims:

Establish a sense of personal spiritual inner peace and awareness. Acknowledge God’s presence ever mindful of all his many blessings in this life and beyond.
Maintain a healthy emotional awareness of self and others by being considerate and empathic to other peoples plight. We are all God’s creatures.
Lead an active, meaningful, and purpose driven life to achieve a sense of accomplishment and contribution to the larger community.
Maintain a healthy life style through nutritious diet and physical exercise.
Be grateful for all of life’s goodness and revel in the moment.

2010 The Best Year to Die?

2009-10-18T18:41:00.000-07:00

As pointed out by By Jeff Schnepper, MSN Money, the federal estates tax is reduced to zero in 2010.

My kids had just sat me down and given me the bad news: I was going to die. They couldn't tell me what was going to do me in. But I was clearly a goner.

The only thing they could guarantee was the year: 2010. Anytime during the year was OK with them. And they would be financially, if not emotionally, devastated if I was still around Jan. 1, 2011.

Not that they don't care for me. "It's not personal, Dad," my son Josh said. "It's just business -- good tax planning."

The amount of assets that escaped federal estate taxation increased from $675,000 in 2001 to $3.5 million in 2009. That's in addition to anything left to a spouse. Rates dropped from a maximum of 55% in 2001 to a maximum of 45% this year.

The best part was scheduled for 2010. The then-Republican-controlled Congress decided that the heirs of anybody who died during 2010 would pay zero in estate tax!

But on Jan. 1, 2011, the estate tax exclusion reverts back to $1 million, and the maximum rate climbs back to 55%.

Strange. It’s a good thing we have our accountants and attorneys to do our taxes and estate planning. I think we'd be lost without them. The tax legislations that are passed from year to year continues to evolve and grow while taking mysterious twists and turns until you can’t see the forest through the trees. I suppose there may be some logic in the eyes of the legislatures who passed the it. But I for one am certainly mystified by it.

Roth & No Taxes!

2009-10-18T18:15:00.000-07:00

Here’s an article by Michael Rubin, About.com, about 2009 Roth IRA Income Limits:

While you can receive unlimited income and still be eligible to contribute to a regular IRA, the same is not true of a Roth IRA. For the year 2009, married individuals who file jointly can contribute $5,000 ($6,000 if 50 or older) to a Roth IRA if their modified adjusted gross income (MAGI) is below $166,000. If their MAGI is between $166,000 and $176,000, then they can contribute some amount less than their full limit. If their income exceeds $176,000, they are not eligible to contribute to a Roth IRA for 2009. In 2008, this phase-out range is $159,000 to $169,000.

For single individuals, this Roth IRA phase-out limit is lower: $105,000 to $101,000 and $116,000.

The beauty of Roth IRA is that although the initial contribution is after tax dollars there is no capital gains tax on future profits. We’ve all heard the quote about two certainties in life being death and taxes. Well it appears there is an exception to this rule.

The idea that we can defer capital gains taxes is quite an incentive. First I need to figure out the difference between AGI and MAGI. Assuming I qualify, I would certainly intend to take advantage of it. In past years, I’ve written this off as I assumed my MAGI exceeded limitations. However, I think I will check with the CPA this year just to be sure.

2009 Sept LT Graph

2009-10-16T12:19:00.000-07:00

I spent the past few days plowing through the spreadsheets, charts, and graphs from 2007. It's a little more polished and refined for posting. So here is a snap shot of how the portfolio has performed the past couple years. It's been a difficult journey to say the least.

One of the keys to my strategy is to continue to purchase equities in the 403(b) and 401(k) monthly through thick and thin. This is easily accomplished through the company sponsored program and adhered to like clock work.

As for the $25,000 plus dividends, this transaction is conducted once per year. Ideally it should be rebalance at the time of purchase and roughly at about the same time period each year. Although I try to adhere to the timing principle, I'm not as constant as I should be.

Another factor to consider is that the strategy with the $25,000 after tax dollars is what I would consider the minimum. There may be years where I put in less but more then make up for the difference in the following year. Some years I may put in significantly more then the minimum. Over the long haul, my intent is to outperform the minimum goals I've set in the criteria.

Long Term Strategy

2009-10-16T11:41:00.000-07:00

As I was reviewing my previous postings and my historical files, I realized that sometime in 2007 I had created a realistic long term target growth projection going out 7 years. The projections are based on actual year end balance in 2005. Assumptions were as follows:

1. Equities annual growth rate of 12%.

2. Real estate annual appreciation rate of 6%.

3. Annual contributions of $16,000 in each of 403(b) and 401(k).

4. After tax annual contributions of $25,000 into the brokerage account.

Assuming the above criteria is applied to 2005 year end balance, I should accumulate approximately $1.5 million by the end of 2012.

So that's my plan and I'm sticking to it. Obviously 2008 was a lean year with a double knockout in real estate and equities. However 2009 seems to have recovered some ground and we'll see at the end of 2012 how all this pans out. With a little luck, I expect to be fairly close.

2009 is as of Sept.

Financial Goal 2010

2009-10-12T12:33:00.000-07:00

Upon reviewing my own post, it appears that I set a goal in early 2006 of reaching $1.5 million by 2010. That means I have about a year and 3 months left to attain that goal. Looking back now, I may have had some lofty goals. Depending on how the market pans out over the next year, I will be luck to hit $1.1 if that. However given where I started and where I'm at now relative to the precipitous drop in the stock market, it all seems relative.

I think it's important to clearly define specific goals and objectives. Once this is defined then, a detailed strategic plan on exactly how to achieve the objectives goals should be planned out. For the most part it appears I did that in 2006. The only problem is that I may have been a tad overly optimistic in some of my projections. But as stated in the original post, I may or may not exceed the original goal but that at a minimum I would be in the ball park. Well I believe this will hold true at the end of 2010. In a separate posting, I will redefine my goals and objectives over the next 5 years and detail the specific strategy.

Asset Allocation

2009-10-12T10:11:00.000-07:00

This is the asset allocation model for the brokerage account I locked into in the 1st quarter of 2007. Now all I do is rebalance this once a year. The time between the end of 2008 and the beginning of 2009 was very difficult. The portfolio went down by 50%. Before the market bottomed out in 2008, I believe the high was around $550,000 and it went down to just above $250,000. By adding about $90,000 around mid 2009, I was able to significantly lower the dollar cost average per share. The combination of capitalized tax deferral, annual rebalancing, and 12 year time horizon should help this portfolio pay off in spades in due time.

September 2009

2009-10-11T10:45:00.000-07:00

Some time back on Feb 07, I decided to utilize DFA funds for my brokerage portfolio. That means that I now pay a advisory funding fee of .75% just to access to the funds. The fee takes a toll but the more I research the strategy the more I'm convinced that I'm on the right path.

Brokerage: $513,000

403(b): $116,000

401(k): $ 49,000

Real Estate: $200,000

Total N/W $878,000

It's been a painful past couple years but the portfolio seems to be recuperating.

Life Goes On

2009-10-10T13:16:00.000-07:00

Fast forward to Oct 2009, and I'm back. Life goes on. I will be updating my investment performance shortly. 2006 seemed like many years ago and then it feels like it was just yesterday.

NEW BEGINNING

2006-06-04T02:10:00.000-07:00

Today was my last day of activation in the military. I took the 4 hour drive home from Iowa back to Chicago with all my trash. I plan on taking the month of June off of work and will return to my civilian job in July. It's nice to be done with this and moving on. I will still be doing my reserve commitment of one weekend per month but it's good to be done with active duty.

My wife and I will be traveling to Northern California next week for a few days to meet family and friends. Other then that I don't have anything specific planned. I may take a motorcycle trip around Lake Michigan. It may be a solitary ride, which is great for personal reflection, or I may have a friend who is interested in doing the ride with me. The ride would consist of traveling through small towns and stopping by various interesting taverns for a beer here and there. It's a way of meeting some interesting people along the way.

Last week my 1stSgt and I took a motorcycle trip between Dubuque, Galena, and Elizabeth City Illinois on Hwy 20. For any motorcycle enthusiast, this is a great stretch of road for motorcycling. It seems May is prime time as all the green foliage is full bloom and the weather is very accommodating.

From Elizabeth City we took Hwy 84 South to Savanna, Illinois and stopped by the Iron Horse Saloon. It has an interesting motorcycle museum as well as some interesting patrons. One of the locals offered his phone number in case we needed any mechanical help with our motorcycle. He stated that he had all the tools needed to fix any mechanical problems and that he would offer his tools or his assistance at no cost with the exception of installing a new motor. He seemed rather genuine in his generosity.

We then stopped by Poopys just down the road from Iron Horse and had another round. An interesting place where motorcycle riders hang out to have a beer and chat with other motorcycle enthusiast. They also have a motorcycle accessories retail store with the full line of motorcycle clothing and things. All in all, it was an interesting place.

From there we drove down to Davenport, Iowa to look for Players club. I believe this is one of those girly club bars. However after reasonable effort to find this place, we were unable to find it and decided to call it a day and drove back to the reserve center. I think we put in approximately 360 miles that day. It was great.

RANDOM RAMBLINGS II

2006-05-16T19:06:00.000-07:00

Wow. Another week. Time is flying by. I drove home to Chicago last Friday and came back to the reserve unit in Iowa on Monday night. I spent part of the weekend working on exhaust modifications for my motorcycle. I cut the original stock muffler and installed some glass packs with a 4” x 36” chromed truck stack. It made it sound like a loud rumbling V8 engine block. The noise level was too loud for comfort so I started work in installing a section of the original baffle into the end of the truck stack. That should quite things down to a comfortable level. I haven’t quite finished installing the baffles yet. I should be able to finish it this coming weekend. It’s a beauty of a bike.

I also cooked dinner for my wife on Sunday. I took some left over chicken breast cut it up into medium 1/2” cubes and created a chicken casserole. The recipe was not exactly but somewhat similar to the recipe on the back label of Campbell’s Cream of Mushroom condensed soup. Some chicken, onions, broccoli, mushrooms, rice, squash, sour cream, milk, can of cream of mushroom soup, with generous amounts of mozzarella and parmesan cheese. The casserole dish came out quite nicely. For salad we had spinach greens mixed with cucumbers, tomatoes, pecans, squash, and raisins. The dressing was a mixture of soy sauce, sesame oil, vinegar, and a touch of sugar.

For wine we had “Stonehaven” chardonnay 2004 vintage. It was bottled in South Eastern Australia. It was crisp with fruity vanilla overtones and slightly buttery in taste. Actually it tasted better the following day after it had a chance to oxidize, scrub off some of its sharp edges, and smooth out the taste a bit. It was a candle light dinner with good wine, my fine cooking (you go Apollo), and great jazz / blues background music. With so much time apart, we certainly seem to appreciate and value our time together.

On the drive back from Chicago to Iowa, there is a stretch of road Hwy 20 between Rockford and Dubuque Illinois that is very scenic. On this particular Monday evening between 6:00 pm and 8:00 pm, it was drizzly and partially sunny. With all the recent rain, the fields and rolling hills were covered in lush green foliage. The combination of this scenery combined with little to no cars on the road gave me a sense of feeling secluded, islolated, and all alone on the road. For some reason a sense of serene peace and calm seems to come over me during these lonely isolated drives when there are no other cars around and the scenery is gorgeous. I enjoyed the drive.

Last week a peer and I went to a cigar connoisseur establishment for a drink. We struck up a conversion with a local patron who offered to provide us a round of golf after learning that we recently came back from Iraq. We took him up on his offer and we will be golfing tomorrow morning. It is one of the better golf courses around this area so we are looking forward to this game. I just hope the rain will give us a break tomorrow morning. Another great day to look forward to. On Friday, I will be heading back home for another extended weekend returning on Monday evening. Then the following weekend will be another extended weekend for Memorial Day Weekend. Now if I can just hit the ball straight instead of the next fairway and play golf instead of being a hacker, I’ll be all set. Why is golf such a love hate emotional game? I love this game. I can’t stand it. Damn that ball!! Or is it my swing!! Anybody seen my ball? Now I know what they mean by mood swings. Wish me luck.

RANDOM RAMBLINGS

2006-05-10T00:35:00.000-07:00

Wow. Time has really slipped by on me this time. It's already been a week since my last post. Work has kept me fairly busy. I wish I could talk about some the challenges and interesting aspects of my work, but it's too close for comfort on disclosing some degree of my anonymity. Needless to say it's been interesting, busy, and fun. (Can work be fun? I suppose it is what we can make of it to some degree.) There are days when I feel like a bird and others when I feel like a statue. But most days I feel blessed.

This past weekend I did finally reinvest some IRA funds and established limit purchase orders for 10 stocks at $2,000 each. I will post my holdings in my IRA in the near future. As for rebalancing my ATA holdings, I'm afraid I've not really had time to get into the details of rebalancing the portfolio. Hopefully as I get some time, I will be able to get around to this sooner then later.

Tonight a peer and I had a good time going out to local bars and chatting it up amongst ourselves and the local establishment patrons. It's always good to be able to go out occasionally have a few brews and forget about the pressures of the daily grind. The hotel is in the downtown area and there are more then a dozen pubs, taverns, cigar, and other mature establishments to visit as time permits. When one of the patrons found out we were back from Iraq, he bought us a round of drinks and offered to take us golfing. Well I suppose we will take him up on that offer sometime next week. We need to keep our priorities straight and golfing definitely tops the list of things to do.

My motorcycle has glass pack mufflers with an inverse exhaust flow. Unfortunately the inverse flow results in the exhaust noise or sound being a bit too loud for my comfort. As such, I took the mufflers in for repair to reverse the exhaust flow to the correct direction in an effort to muffle or quiet down the noise hopefully by a couple of notches. Next week anyone in our unit with a motorcycle will ride their bike to work and we will have a motorcycle riding day. I also took the weekend to clean up the bike in preparation for the ride. The Honda Valkyrie is affectionately known as a fire breathing dragon lady. It is definitely a beast. It will rip, snort, and howl like a screaming banshee. The combination of pleasant extended rides through scenic routes and the occasional adrenaline fix is intoxicating.

Fortunately I've had time to work out each morning Monday through Friday. A typical morning consists of a 3-mile run, some pull-ups, setups, and some weight lifting. It definitely feels good to be in good physical condition. The daily fix of endorphins helps enhance the taste palettes for fine wine and good food.

Also I finally submitted my taxes for last year. Fortunately we get an automatic extension for filing taxes due to our service in Iraq. However as war zone earnings are non-taxable, I do expect to get some amount of tax refund. So it's not really in my interest to delay tax filings anymore then is necessary. Hopefully it will be done by the end of this week.

STRATEGIC INVESTING

2006-05-03T15:26:00.000-07:00

I can’t believe it’s already Wednesday May 3rd. It feels like I just wrote the last post yesterday.

On the topic of my investment strategy, I left out one of the most critical reasons for using index funds. If a picture is worth a thousands words, then the following graphic depiction of the risk return continuum is worth it’s weight in gold. (I don't know how much a chart weighs but in this case let's just assume it weights mega tons. lol.)

The picture is on ifa.com and the graph is figure 10-17. The concept is a little difficult to understand and I am not fully prepared to go into in depth detail regarding the concepts. However I will try to provide a brief over view.

Assume for a moment we are covering a historical period between Jan 1955 to Dec 2004. This is a period of 50 years. Now assume that we are taking the average annual gains over a 10-year period. The first ten year average annual period is from Jan 1955 to Dec 1964. The second 10 year average annual period is from Feb 1955 to Jan 1965. The third 10-year average annual period is from Mar 1955 to Feb 1965 and so on. If we take this 10-year average period over 50 years from Jan 1955 to Dec 2004, we will have a total of 481 10-year average annual return periods and the average annual gains is 13.86% per year. This is depicted in Figure 10-16.

Now if we look at Figure 10-17, it has the “Standard Deviation of Average Annualized Returns (%)” on the x-axis. This is the standard deviation and it is nothing more then a measure of risk. The y-axis is the “Average of Annualized Rolling Period Returns (%)”. This is nothing more then average annualized gains for the average of one year and up to a rolling 12-year period as depicted on the graph.

Again on Figure 10-17, if you track the yellow dot portfolio 90, the average annualized gain for year 1 is 14.46% with 17.01% risk. The average annualized gain for year 5 is 13.47% and the risk is now 5.98%. Then the average annualized gain for year 10 is 13.86% and the risk is now 4.04%. The beauty of this chart is that in year 12 the projected average annualized gains based on historical trends over 50 years is 13.96% with only 3.68% standard deviation risk.

Again the beauty of this is that it is based on historical scientific evidence, and it shows that based on a given portfolio mix the average annual gains will average out over the years and the associated standard deviation risk reduces year over year.

SHAZAM!!! Just for sake of clarity, the information presented on this web site is not feel good foo-foo stuff. It is not based on mindless whimsical emotions or gut instinct. It is derived from solid scientific evidence based on 50 years of historical data. This concept would not work for stocks or mutual funds for that matter. However in this case, it works when we are talking about indices and it covers the entire market.

The beauty is that once you have established the model portfolio that fits your risk tolerance and the portfolio maintains its weight allocation, the associated risk diminishes each year as depicted on Figure 10-17. O-M-G what a concept.

Unfortunately my current portfolio is in a state of flux in that it is not where I want it to be. I need to ratchet up my overall portfolio risk exposure. The problem is that one of the constraints of the risk reduction concept mentioned above is that the weight allocation needs to remain constant over the years. As my portfolio is not quite where I want it to be, it is somewhat in a state of flux. The solution is to get my portfolio where I want it to be and then burn off several years to reduce my risk exposure.

When most people talk about investing, the primary theme is annual gains or returns. In reality, the measure of risk is more important and should be considered first before taking into account annual returns and developing an appropriate portfolio based on personal risk tolerance.

The IFA.com 12 step program is in fact making a sales pitch for DFA products. However it is caulk full of valuable information. I read the entire 12-step process and formulated my strategy without using DFA funds. For the serious investor, I would encourage you to read the entire 12-step process in detail like a text book. Upon completion, you can easily filter out and separate the chafe from gold nuggets of information. There are no short cuts. To understand the theoretical scientific concepts in this 12-step process, I cannot not over estimate its importance in formulating an effective strategy.

Paul Merriman’s information is secondary to the information provided in IFA.com. Paul provides sound logic and sample portfolios. However the IFA 12 steps are the backbone or meat & potatoes of strategic investing and Paul provides some good recommendations.

Makingourway inquired with some pointed questions.

1. how did you decide your asset allocation strategy? You seem to be headed toward Paul Merriman's approach - who is he? Can you tell us about him? What do you like about his approach?

My asset allocation strategy was derived from IFA.com’s 12-step program and read Paul Merriman’s book “Live It Up Without Out Living Our Money”. I have links to Paul on my blog regarding his book and his information. The reason I like his approach is simply that it is in line with my investment philosophy thereby providing a comfort level that I can live with. The 12-step program is based on sold scientific evidence. The wealth of solid valuable information in regards to investing information is truly amazing. I have no ties or association of any kind to these sources.

2. On a monthly basis you discuss investment return goals - what is the basis of these returns? They are quite a bit higher than the broad averages for equities (lumping all of them together). How are you arriving at these targets? Are they wants or expectations?

I am simply targeting an annualized rate of 12% for my 401k’s and 16% for the IRA and after tax accounts (ATA). It’s oversimplified but it’s 12% divided by 12 which gives me my 1% target for the 401k, and 16 divided by 12 which gives me 1.33% per month for the IRA and ATA accounts.

As for my target being want or expectations, I suppose it can be both. But I am targeting my portfolio more towards achieving and or exceeding the 16% annual gains so I suppose it is more of an expectations. I know my risk and expectations are high and I’m fully prepared to have some down years at first. Once I get the right allocation and I get about 5 years under by belt, as mentioned above, I expect to average consistent above average gains.

3. Rebalancing? How often do you plan to rebalance? What is your strategy / plan here?

Once I achieve my desired portfolio, I will rebalance once a year and my plan is to maintain my original weight asset allocation.

4. You talk about dollar cost averaging in your post - are you currently doing it?

Yes the 401k is dollar cost averaged on a bi monthly basis was a contribution is made bi monthly. As for the after tax brokerage account, I will normally transfer $50,000 once a year as a part of my annual reallocation and invest it accordingly.

This is kind of a long post but I hope it helps. I have attached my current portfolio. I am targeting 50% in international funds and as you can see I’m not quite there yet. My biggest problem has been finding international mid and small cap funds.

Another issue is that I want to minimize tax repercussions as I reallocate my portfolio this year. I will need to spend some time to develop one that most closely emulates Paul Merriman’s All Equity portfolio.

AFTER TAX INVESTMENT STRATEGY

2006-05-01T21:51:00.000-07:00

Here is a quick recap on my after tax brokerage account strategy. I used index funds for many reasons. I’m not sure if I can do it justice and capture all the reasons on why I prefer index funds. Here is a partial list.

1. Assuming I hold index funds long term, over 20 years, it is in effect tax deferred, as I am not selling any shares or capital gains until close to retirement.
2. Assuming proper allocation amongst capitalization, value, and international, the overall risk of diversified index funds is far less then individual stock holdings.
3. Risk diversification is somewhat based on the concept that peaks and valleys amongst various index funds cancel each other out to some degree and minimize valuation swings. In a perfect world, the peaks and valleys would cancel each other out perfectly and the annualized capital gains would grow in a straight linear fashion. Obviously this is not realistic but the intent is to get as close to linear annual growth as possible. This is the basis for minimizing risk as much as feasibly possible and maximizing growth.
4. I’m a firm believer in the random walk theory in the stock market. The price of stocks is unpredictable and much more information sensitive to daily events and news over index funds.
5. I don’t have time to study or analyze stocks. There are professional fund managers who are highly educated and analyze stocks for a living and can’t beat the indexes over the long term. I barely have time to keep up with this blog.
6. Of the hundreds of mutual funds being marketed daily, only 5% of the funds may outperform the market over a 10-year period. The primary problem is that there is no historical trend or scientific methods of determining which 5% of the funds will out perform the market. Once the fund peaks and is touted as beating the market over a ten year period, everybody and their dogs will throw money into the fund at its peak only to see it dwindle over the next decade.
7. There is scientific proof of the market risk premium over fixed interest bearing securities. There is also scientific proof of the market asset allocation risk premium over the market risk premium.
8. There is no risk of asset allocation creep in index funds as opposed to fund-managed mutual funds.
9. Market timing is impractical and dollar cost averaging is more practical.
10. Generally the fees on index funds are more competitive then mutual funds.
11. As various index funds surge and stall, a portion of the highflying funds can be sold to purchase low priced index funds. It’s kind of tantamount to selling high and buying low.
12. The international markets are catching on to capitalism and global competition.
13. The general human nature of capitalistic greed, desire, and urge to make money in the market will perpetuate the capital markets in perpetuity and the productivity gains of market efficiency will be captured through index funds.
14. The advent of computer technology and global communications has made access to capital markets more readily available to more people then at any time in the past. Likewise the advent of computer technology has made the markets more efficient at capturing and adjusting to market conditions and productivity gains more so than at anytime in history. The results are generally a more efficient market and hopefully continued capital appreciation.

Obviously there are no guarantees. Geopolitical global stability is critical to any market success. Terrorism and war of any kind will have negative ripple affects through out the global economic markets. No amount of diversification or asset allocation will help in this regard. However the mitigated risk is still better with index funds over most individual stocks.

If I had access to DFA funds without incurring investment advisory fees, I would utilize the Paul Merriman recommended for DFA funds. However at 1%, the advisory fee can be over $5,000 a year. The actual gains may more then cover the advisory fee cost. But then again, it may not. On an earlier post, I created an Apollo Portfolio and considered using ishares and other index funds to try to emulate the DFA Portfolio. However as I struggle with how best to reallocate my portfolio this month, I may just consider going with Paul Merriman’s All Equity Portfolio. I’m still giving this more thought.

OK. Well, as for some of my posting not always be money related, guilty as charged. Once an investment strategy is implemented, it’s kinda like watching the grass grow. There's really not much to do other then watch it once a month and maybe reallocate once a year. So in the interim I will try to keep things interesting and talk about other things. What ever comes to mind really.

I’m not really into chasing 5% interest bearing accounts. If I’m in the 30% tax bracket, I will net 3.5% out of a 5% interest bearing account after taxes. Assuming the historical inflation is approximately 3%, I’m left with .5% realized gain in additional purchasing power. Seems kinda like treading water.

Below are the portfolio’s I mentioned above. Makingourway if you read this post, I hope this helps. You kind of inquired about my strategy and this is it. Currently I am leaning towards reallocating completely with Merriman’s All Equity Model Portfolio.

April 2006

2006-05-01T18:02:00.000-07:00

Wow! April was a good month. Assuming a targeted annual return of 12% for the 401k and 16% for the IRA and after tax brokerage account, the targeted monthly gains should be roughly 1% for the 401k and 1.35% for the IRA and after tax account. Well the actual gain for the 401k was 7.6% and 6.3% & 3.2% for the IRA and after tax account respectively. Again the 7.6% for the 401k is really due to a timing misalignment. The year to date numbers will be more accurate for this account.

The Capital Gains chart tracks the cumulative gains on a year to date basis. Based on tracking two months of gains the targeted gains for the 401k, IRA, and after tax account (ATA) should be 2%, 2.7%, and 2.7% respectively. The actual year to date (YTD) gains for the 401k, IRA, and ATA are 8.2%, 8.7%, and 6.4% respectively. Wow!!!

Based on YTD target monthly cash savings of about $5,700 and combined targeted monthly capital gains of 1% for the 401k and 1.35% for both the IRA and ATA accounts, the targeted total net worth should be around $492,000. However after subtracting $10,000 for landscaping and other expenditures this month, the total net worth is approximately $510,000 as shown on the Equity Positions chart.

Well it’s been a good couple of months but I also understand that two months is negligible in the bigger scheme of tracking 5 years worth or more of capital gains. However given that my starting balance was $470,000, the total increase in net worth is about $40,000 so far. I would be remiss if I stated that I wasn’t less then pleased with the results of the initial couple months.

QUALITY TIME

2006-04-30T22:15:00.000-07:00

This is the picture of the landscaping after it is completed. Yesterday’s picture was not complete. We added the rocks and changed the spiral arborvitae to a topiary. It seems to provide much more balance and again we are pleased with the results. The bedrock really seems to add to the overall ambience of an ideal picture perfect front yard landscaping. The combination of holly, perennials, hostas, topiary, burning bush, and (I can’t remember the name of the last plant) may seem a little sparse now. However it is considered the baby planting stage and as such after several years the plants will bloom into adulthood and in effect fill out the garden bed. It just takes a little time.

Today we bought some premium rib eye steaks from the local grocery store Jewel Osco. The quality of these store purchased lean steaks is far better then Ruth’s Chris, Magnum’s, Steak & Ale, Cheesecake Factory, or any other high end steak house and at a far lower cost then eating out. Although we have a BBQ grill on the back deck, I prefer to cook the steak on a regular frying pan and sear the steak to seal in the juices. A tender medium rare pink cooked and seasoned to perfection is the ultimate in home cooked meals. We also cooked some sautéed mushrooms and onions, baked potato, and asparagus. For salad we had a mixture of baby leaf lettuce, baby tomatoes, cucumbers, chives, and other mixed vegetables with a concoction of soy sauce, vinaigrette, sesame oil, and other spices for a perfectly seasoned salad. For dessert, we had a brownie, banana, and vanilla ice cream concoction topped with butterscotch sundae topping. Oh, I forgot to mention we also had Ravenswood red Zin with dinner and crystal clear jazz and blues filling in as background music on our Bose 35 home entertainment system. It was a near perfect evening for two love birds trying to make up for lost time.

Well this is really yesterday’s posting as I got side tracked mid writing this post. Also it was raining today and I was not able to get a picture of the mods to the landscaping. However I will get a picture posted next weekend when I get back home. The addition of the topiary and stones really made a difference.

LANDSCAPING

2006-04-28T13:46:00.000-07:00

Well the verdict is in on my front yard landscaping. The professionally built retaining wall looks just that, a retaining wall that has the look, feel, and aesthetic of being built by a professional landscaper. The combination of tilling, sowing, and reseeding the front yard along with the new retaining wall, turned out great. We are very pleased with the results. It really enhances the front view of the house and makes it look almost like a new and different house. For anyone considering the building of a retaining wall for their house, I would recommend not skimping on the cost and using the best contractor you can find. I’ve seen retaining walls built by non-professionals and by professionals. In each case, the results were reflective of their cost and talents. I wish I had the foresight of having a before and after picture. It is a world of difference. I just hope the grass will grow in really nicely.

PRCGX MICRO CAP FUND

2006-04-28T13:44:00.000-07:00

One of my mutual fund holdings is PRCGX a micro cap fund by Perritt Capital Management. I’ve had it for approximately one year now and it has increased by about 28%. Not bad. I looked up the historical average annual rates of return and this is how it falls out.

1 Year 20%
3 Year 31%
5 Year 22%
10 Year 15%
Inception 11.6%

This fund would encompass a portion of the domestic small cap weight of my index portfolio. Actually come to think of it, the annual return on my better index performers this past year was as follows.

Emerging Markets EEM 58%
Japan Index Fund EWJ 48%
Mid Cap Domestic 26%
Small Cap Fund Domestic IJS 29%

All the other index funds this past year have had average returns all positive and none negative. I was planning on doing a portfolio reallocation this month in an effort to align the after tax brokerage account more closely with my Apollo Model Portfolio presented in an earlier post. I always seem to get a slight sense of dread and apathy each time I reallocate brokerage holdings. I suppose it’s an irrational fear of making a bad decision and seeing the portfolio value drop. I’ll get over it and get around to reallocating sometime soon.

Ciao,

SPENDING SPREE

2006-04-24T08:37:00.004-07:00

My postings as well as my financial updates are delayed due to the inconvenience of not having my computer. It is still in for repair and I expect to get it back sometime this week. It’s amazing how reliant I’ve become on instant internet connectivity. I almost feel like I’ve lost a part of my limb or something important and near and dear to me.

OK. My current situation is that I will continue to work on the weekdays at the reserve center in Iowa until the end of the one-year activation period. Sine I was activated at the beginning of June of last year, I will continue to work in Iowa until the end of May of this year. Yes, I do drive back to Chicago on Fridays and drive back to Iowa on Sunday late afternoon. After my activation is complete, I will be returning to my civilian occupation and no more driving 4 hours each way on the weekends.

As I do most of my investment research at home in the evenings or weekends, I have not had an opportunity to reinvest the proceeds in my IRA account. I currently still have $28,000 to reinvest and it appears that some of the other stocks are close to hitting their sell price. Hopefully I will get my computer back this week and I can get it updated.

When I look at the brokerage account tracking various index funds, it appears to be doing well. I will provide an update in the beginning of May for end of April results. Tracking the 52-week high price of the index funds, it seems the funds are tracking at the 52-week high price as of late and it appears to be continuing to push the envelope to new levels of 52-week high price. From my perspective, it has the appearance of a mini bull market. Who knows how long it will last.

This past weekend my wife and I kinda went on an unplanned spending spree. We decided to get a new dishwasher because it is dilapidated from old age. The plastic coating on the wire rack wore off causing the metal rack to rust and turn everything inside rustic red. As for the mattress, it was causing me excessive back pain apparently from a pressure point on the middle of my back. I had no back pain sleeping in cheap shoddy disposable mattresses in Iraq or the hotel mattress in Iowa. When I slept at home the weekend before last, I woke up at 3:00 am in the morning with a near crippling back pain. That’s when I decided to get a new mattress. My wife suggested that we get a cheap and shoddy near disposable mattress since it was so good for my back. Well, I suppose she has a point. We compromised and got a middle of the road mattress vice a top of the line therapeutic foam mattress. All told the damage was about $500 for the dishwasher and $1,000 for the new mattress.

As for landscaping the front yard we decided to go with the high-end landscaper. I saw the landscaping done by the contractor and there is no doubt about the quality of his work. The neighbor’s yard that he worked on was definitely top notch. He will till and sow the entire front yard with seeded grass and build a 2 feet tall retaining wall in front of the house wall. It will be planted with various low maintenance green shrubs, holly’s, arborvitae spirals, and other green things. The total cost will be about $6,000. I know it sounds like a lot but it definitely adds value by helping to sell the house when the time comes. I don’t know that it will increase the value of the sales price by $6,000 but it should recoup some of the cost.

On Friday, we had dinner at home and had a bottle of Chalone Chardonnay. The vintage was 2004 and it was not buttery or anything near what I recall from 1994. I was disappointed but it was still good have some wine with a home cooked meal. For Saturday, we enjoyed a night out at Finley’s restaurant. It was good food with good wine in a pleasant atmosphere.

On Sunday we went to Trader Joe’s and picked up some cheap bottles of Zinfandel and Cabernet Sauvignon. The Raven’s Wood zin was about $10 and the other bottles of zin and cab was about $6 each. Relative to its price, the cheap wine is not bad considering the price.

Have a great week.

IOWA

2006-04-20T17:22:00.000-07:00

I been out of sorts due to my computer being in for repair. I turned it in for repair about 5 days ago and they estimated about a 10 day turnaround. So I suppose I will not have access to my laptop for another week or so.

I drove back to Iowa late Monday afternoon. Looks like I will spend the weekdays here in Iowa and commute back to Chicago on the weekends for about another month. We had time off from Thrusday of last week when we returned home until Monday this past week to spend time with our family. It was a great extended weekend.

On Sunday the spouse and I finally went to Todai. The food was great. As usual I stuffed myself like a glutton and rolled out of the establishment. It's a good thing I maintain my work out routine. The work week consisted of my usual run, situps, and pushups. Raw tuna and oysters has got to be the best. The taste and texture is similar to a medium rare filet migon cooked to perfection and melting in your mouth. Of course there is all the other variety of sushi, shashimi, bul-gogi, kim-chee, and udon.

I finally got a cost estimate on landscaping the front yard. The estimates ranged from a low of $2,000 to over $5,000.(Ouch!!!) As the front yard currently looks like a torn up war zone, I have to do something. Should I settle for the medicore $2,000 job or the near pristine $5,000 job? Any tips would be appreciated. I know the $5,000 job will be pristine because I saw a neighbors yard that was recently landscaped by the contractor. The work was great. There was no doubt about the quality of work and I actually knocked on the neighbors door to get the name and number of the contractor who did the job. Thus the premium cost.

Last night I spent some time and had a few beers with some of the reserve unit co-workers. It was a good time talking about our recent experiences in Iraq. It's actually good that we can talk about our experiences as no one else would understand our feelings without being there with us.

I will be driving back to Chicago late tomorrow afternoon.

I'm at a public libriary and it appears as thoug I'm out of time. I just got a 5 minute warning.

Ciao

CULVERS

2006-04-15T21:13:00.000-07:00

Today is one of those quintessential carefree, lazy, non-work days we all long for from time to time. I slept in late and got up around 8:00 am. The sun was shining and it was a glorious morning. I went for a quick 3 mile run and did some push ups and sit ups. After breakfast, I cleaned up the yard, driveway, and walkway around the house.

I set up an appointment with a landscaping contractor to get a cost estimate for landscaping. We’ll probably plant 5 or 6 columnar evergreen type trees on the border of our neighbors and our yard. They are good neighbors and its nothing personal against them but I’m sure we would all enjoy some privacy between our yards. The front yard will have a retaining wall extending about 5 to 6 feet from the front of our house to the front yard with some ornamental evergreen type trees. Both the back yard trees and front yard retaining wall garden will have red volcanic type rocks covering the ground. I have no penchant for yard work and what little time I have off or available on the weekends I would rather spend pursuing some sort of hobby, vice, entertainment, or relaxing. Some people seem to enjoy yard work and find it a relaxing way to spend the weekend. I am definitely not one of those persons. Obviously there is no such thing as a maintenance free yard. However it is my intent to eventually get both the front and back yard as close to a picture perfect scene out of a Home & Garden magazine while trying to keep it as maintenance free as possible.

While waiting for the contractor, I fixed the bathroom toilet. Apparently the gasket on the water feed stem inside the tank was leaking water causing a nonstop hissing sound. As the house as well as the toilet is 40 years old, I had a hard time finding repair parts. First I went to Home Depot and pickup up the wrong part. Then I returned the part back to Home Depot for a credit and went to Menards. Again the wrong part. (Uugh!!!) I returned the part to Menards for a credit and then went to a local Ace Hardware store. (Yippee!!!) I finally got the right part and fixed the toilet.

Well the contractor never showed up. I guess we won’t be using him anytime soon. That’s ok as we have a better contractor scheduled to stop by on Monday morning.

I dropped my Powerbook G4 off at the local Apple store to get the latch fixed. At first they wanted to charge me $600 to replace the entire casing. It seems the only way to fix the latch is to replace the entire outer casing. When I bulked at the high cost and asked to see the manger, the manager was kind enough to offer to fix the problem for free. He stated that they would offer to fix the latch without cost because I just came back from Iraq. When they questioned me about how it broke, I stated that it broke on my return trip somewhere between Iraq and home. Well OK. I didn’t argue the point as I was just happy to get it fixed.

Then my wife and I went shopping and bought some clothes. We went to a local factory outlet and I got a couple of Polo t-shirts, one shorts, a solid twill shirt, and a light jacket. My wife got a couple of slacks and shirts for work. In all I think we spend just a tad over $200.

After shopping we went to Culvers for a butter burger, fries, and cheese curds. Wow!! Obviously not fine dining, but I had such a craving for Culvers butter burger and it was finally satiated today. I’m not sure what it is about Culvers butter burgers but it’s definitely a notch above the run of the mill burgers such as Burger King, Wendy’s, or Carl’s Junior. I didn’t mention Micky D’s as it doesn’t merit mention. Honestly if you order a Big Mac it reminds me of the old Wendy’s commercial, “where’s the beef”. Actually Carl’s Jr. burger is a close 2nd. But I’ve always enjoyed Culvers butter burgers the most. Some of you may not have heard of Culvers butter burgers. But honestly if you get a chance you should try it. I don’t want to over hype it so it’s not a gourmet burger but it’s a close second for fast food.

After dinner at Culvers, we came back home and capped off the night with a couple of beers. Ahhh. What a day. Not exactly the most productive day but some days are just not meant to be productive. A restful lazy day every now and then is good for the spirit and soul. Today was one of those days. Seems I’ve gone from purgatory to almost heaven. (Yes!!!)

A day after I made the TODAI entry, I realized I misspelled “desert” with “dessert”. Oh well. I think most of you understood what I meant. I try to do spell checks and proof read my posting before they are posted but sometimes a few of them will get away from me.

CHICAGO

2006-04-13T22:35:00.000-07:00

The unit finally flew into Iowa at midnight last night our final destination. The airport was filled with families anxiously awaiting our arrival. The reunion between service members returning from Iraq and their loved ones after 10 months of separation was emotional and cathartic. The airport lobby was filled with hugs, kisses, and tears of happiness as they reunited with their spouses, new born babies, and children. My wife was there along with all the other family members and it was joyous moment to hug her again.

As we have several days off before returning to work, we drove home to Chicago. So I’m finally home and I have some home maintenance and landscaping work to get done as soon as possible. The toilet on the main floor is broken (easy fix), need to find a local tree farm to get several tall skinny evergreen trees for the back yard on the border of our neighbors yard, and build a short retaining wall for the front yard landscaping project. I suspect it will take about a $5,000 hit on the combination of using a contractor for landscaping the front yard and planting evergreen trees in the back yard. (Ouch!!!) Such is the hardship of owning an older home I suppose.

Somehow the latch on my PowerBook G4 lap to broke during my travels home. I will need to get that fixed. My experience with the local Apple store is that they are not cheap. I might try to fix it myself. Obviously I will need to purchase the part but I might be able to save on labor. Problem is that I don’t know if I can purchase an internal latch component. Guess I’ll find out tomorrow.

I will also need to get my motorcycle out of storage and get it serviced for the summer. That means a change of motor oil, transfer gear oil, and purging of the old gas. Then a quick ride to get a feel for the wheels between my legs. (Yes!!!)

TODAI

2006-04-11T22:54:00.000-07:00

San Jacinto peak 10,840 feet above sea level. The temperature variance between Palm Springs and San Jacinto peak can be as much as 30 to 40 degrees difference on any given day. There is a cable tram going from the base of the mountain to the top of San Jacinto with spectacular views. The circular floor in the tram actually rotates so that that you make several rotations on your way up to the top. It is quite a contrast from the scrappy dry dessert landscape at the base of the mountain to the pristine lush green foliage, trees, and vegetation at the top. It is a beautiful place with wildlife, hiking trails, and camping sites.

Well, we will finally make the final leg of our trip to our reserve center in Iowa where we originally started our activation journey. Once there, we will take a few days off to spend time with our family and loved ones. In total we have been away from our family for approximately 10.5 months. It will be nice to just be able to stretch out at home and relax without a care in the world.

Several of my stocks in the IRA account have already hit the recommended sell price provided by the Prudent Speculator. Out of the current $138,000 balance $28,000 is sitting in cash waiting to be reinvested. An initial investment of approximately $15,000 has yielded tax deferred capital gains of about 13,000 in one year to the current cash balance of $28,000. I’ve been too busy as of late but as soon as I get an opportunity, I will review the current buy list from the Prudent Speculator and buy additional stocks.

Although not necessarily fine dining, one thing I look forward to is eating at Todai. It is a Japanese all you can ear seafood buffet. The quality of their food is mediocre but the variety and selection is great. I’m not Japanese but I do have an affinity for Japanese food. Sha-shi-mi, raw oysters on the half shell, sushi, shrimp, and various other delicacies makes for one heck of a meal. Given I am fit and trim for my age, there have been numerous time when I would gorge myself into a glutton and roll out of the restaurant from being over stuffed. Kinda like a cow eating alphalfa. (Apparently I don’t know how to spell this word. I don’t have a dictionary handy and my Word spell check doesn’t seem to know the word any better then I do. But I think you know what I’m referring to. Cow’s will eat alphalfa non-stop until their stomach literally explodes from eating too much.) Well, OK, I don’t eat quite that much but it sure feels like it sometimes.

SOCAL

2006-04-11T00:43:00.000-07:00

We’ve been in socal for about 5 days now and I’ve already spent about $134.50 so far.

Day 1 $20.00 Dinner and beer
Day 2 $12.00 3 meals
Day 3 $16.00 2 meals and cook out with beer
Day 4 $30.00 Golfing
$11.00 Gloves for golfing
$11.00 2 meals
$12.00 Sundry – Oreo cookies, bag of chips, quart of milk, & Gatorade
Day 5 $22.50 3 meals & beer
Total $134.50

After spending $0.00 dollars a day in Iraq, I feel like I’m spending a fortune. After a busy day working on administrative issues for our last leg home, I was unable to play another round of golf today. For dinner, I had pizza $8.61 (large pepperoni pizza) and a quart of beer $2.35 in my room.

Tomorrow I have more administrative details to work on. Looks like I will be busy another day and unable to golf. The only good part is saving the $30.00 I would have spent for golfing.

ALMOST HOME

2006-04-10T00:33:00.000-07:00

We finally got to a southern California military base a few days ago. The first day was mostly recuperation from jet lag. I had 3 beers some taco and a hot dog on that first day. After being dry for 7 months, that was enough to make me light headed whereupon I mossied to my room and promptly slept like a baby. The next couple days were spent turning in combat gear and cleaning weapons.

The reserve unit is actually located in Iowa. So we are still on standby waiting for the next leg of our journey home to Iowa. We will finish out the unit activation there whereupon everyone will return home and back to their civilian jobs. I will finish out the few months of activation in Iowa and then return home to Chicago and go back to my civilian job.

As we are currently in a hold pattern again for the next leg or our journey home, several of us decided to go golfing today. We played 18 holes in perfect weather and had our fill of beer on the course. I believe my swing and score got better through out the day as I drank more beer. Except for the part where I hit a tree trunk 10 yards in front of me and it bounced right back to where I was standing.(darn!!!) It was a joy to be outdoors, relax, drink beer, and play a round of golf without worrying about a bomb coming down on the top of our heads.

Last night, the senior enlisted and officers had a cook out in a picnic area next to our billeting area. We had steak, beans, potato, mushroom, chips, and copious amounts of beer and mixed drinks. Mostly it was beer with some mixed drinks. A good time was had by all. I was impressed by the level of maturity, camaraderie, and professionalism maintained by all after returning from a lengthy deployment. The steak was great but after about 6 beers I was done.

As tomorrow is another down day, I will probably go golfing again. I may take an axe with me and chop down the tree that blocked my shot today.(Yes!!!)

PURGATORY III

2006-04-02T10:17:00.000-07:00

Purgatory has a USO center that has several large screen TV’s each showing various comedy or action movies in the comfort of reclining chairs and air-conditioned environment. They also have several computers for internet access and serve free drinks. (The non-alcoholic type I might add.) Anyways, I’m sitting in a comfortable cozy reclining chair with my laptop watching Mission Impossible 2 and writing this blog. The plot is a little lame but it’s just background show at this point. Other then a keen desire to reunite with my better half, I feel relaxed and carefree with very little on my mind that is of any significance. It’s kind of nice to have these carefree moments of relaxation. At least in short increments, I guess purgatory isn’t so bad after all. Between working out, reading, blogging, sleeping, resting, watching movies, eating, and analyzing investments I’ve been pretty content. The food isn’t exactly gourmet quality but at least it’s free and provides energy. Kinda like refueling at a gas station. It’s not the best but given the circumstances it’ll do.

After getting home of the many things I look forward too, one of them is riding my motorcycle. Several years ago, I had a Harley Fatboy. It was new with all the bells and whistles, counter balancing cams, Screamin Eagle ignition coil, Screamin Eagle slip on exhaust, detachable windshield, and other accoutrements. It was 1450cc’s of raw power and fun. However extreme vibration at anything over 70 mph was uncomfortable. Also I was unable to take fast sweeping curves without scraping the floor board and throwing up sparks like a welding machine.

So after 2 years, I sold it and got a Honda Valkyrie. Ooh la la. It is a comfortable cruiser with a horizontal opposed 6 cylinder and ample power. To scream down an open stretch of road going at 130 mph provides a visceral adrenalin fix that apparently I crave from time to time. I don’t quite know how to describe it other then I feel rejuvenated and alive combined with a sense of thrill and living on the edge.

EMERGING MARKETS

2006-04-02T04:02:00.000-07:00

This photo is taken from the Sears Tower. The tall back building in the distant is the John Hancock Tower. The 100th floor has the Signature Room restaurant and lounge. The view from there at night is amazing. The menu and drinks are a little pricy as patrons are paying for the view more so then the meal or drinks.

What is Emerging Markets index? To invest in emerging markets index and use it as a tool in an effective equity portfolio, an equity investor should know what they’re investing in not much different from selecting a promising stock. Morgan Stanley Capital International tracks and provides this index for the investment community.

As stated in a MSCI web site, “MSCI constructs global equity benchmark indices that contribute to the investment process by serving as relevant and accurate performance benchmarks and effective research tools, and as the basis for various investment vehicles. As such, the MSCI Equity Indices are designed to fulfill the investment needs of a wide variety of global institutional market participants.”

Although designed primarily for the institutional markets, it can be effectively utilized by the individual investor. The definition of Emerging Markets Index as provided by MSCI is, “a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of May 2005 the MSCI Emerging Markets Index consisted of the following 26 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela.”

iShares provides an ETF that tracks the Emerging Markets Index as provided by MSCI. The historical returns can be seen on the iShares web site. It is loaded with lots of good information regarding the types of stocks and asset holding by country. It’s generally a good way to diversify risk globally with the added benefit of leveraged returns.

Both MSCE and iShares can also provide information on EAFE (Europe, Australia, and Far East). As opposed to “emerging markets”, EAFE covers a broad spectrum of “developed markets.” This covers a different spectrum of countries that are considered more developed then emerging markets.

As defined by MSCE, EAFE is, “a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada. As of May 2005 the MSCI EAFE Index consisted of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.” For my portfolio, I prefer EAFE over MSCI world index as I already have exposure to United States. One of the primary differences between EAFE and World Index is that EAFE does not have United States in its index. As I already have significant exposure to the United States, I don’t need it and I prefer to track international and domestic separately as is established in my portfolio.

PURGATORY II / ADAM & EVE

2006-04-02T03:52:00.000-07:00

The majority of unit movements are conducted at night. As such, my sleep pattern or the lack thereof has been in fits and starts this past week. I finally got a full 8 hours sleep last night and I feel refreshed this morning. I have attached a picture of purgatory for your viewing pleasure (lol). As I’ve stated before, it’s not exactly paradise. It consists mostly of dirt, sand, grime, and more dust, dirt, sand, and grime and not a hint of green foliage in sight. Anyway, I’m thankful that our tour is over and on our journey home. Given our situation, purgatory is not such a bad place in relative terms.

Yesterday morning I ran 3 miles, did abs and stretches for 30 minutes, lifted weights for 1 hour, cleaned up, showered, and had lunch at the dining facility. After lunch, I had a cup of java from the Green Bean coffee house and read the Economist and National Geographic magazine cover to cover and bloged later in the day. It’s a way of burning time.

National Geographic had a fascinating article about the genetic history of mankind. Based on genetic markers, scientists estimate that humans originated approximately 150,000 years ago from a specific female and male origin. If I understood correctly, all of humanity originated from this one female or mother of all humans from somewhere in the Africa sub-continent. In effect, they are saying that we are all brothers and sisters from the same family. They are currently conducting a genographic project where individuals can submit a genetic swab to get generalized information regarding the migratory paths of their deep ancestry. It all sounds intriguing and interesting. I may order the swab kit to learn more about human ancestry and migratory paths.

2006 MARCH POSITIONS

2006-04-01T00:48:00.000-08:00

I think I’m getting wrapped around the axel in semantics. The last position posting in March should have stated month ending February rather then March. This is corrected and I now show the month end numbers for each month. For example the beginning of April is the end of March on the equity position and capital gains charts.

Our goal is 12% annual gains for our 401k. This means approximately 1% gains per month. Our gain for the month of March is .6%. Less then the 1% monthly gain we are targeting. However the spreadsheet is automatically setup to account for $20,000 annually or $1,667 monthly. As my wife’s 401k contribution is every two weeks there will be some timing errors on a month to month basis as is the case in this month. However on an annual basis it should track just fine. Initial impression is that it is tracking at about the expected 1% monthly rate.

As for the IRA, the target annual gain is 16% annually or 1.3% monthly. It was $125k last month and at 1.3% it should have been around $127k this month. However it jumped up to $135k this month. This is about an 8% gain in one month. Several of the stocks hit its target price early, and I currently have capital gains sitting waiting to get reinvested again. (Tax deferred) As I’ve not really had time to analyze additional value stocks to purchase, I will get around to analyzing and buying additional stock later this month. Keep in mind that I am highly leveraged and I do expect to have some down months in the future.

The brokerage account is also targeted at 16% annually or 1.3% monthly. February was at $245k and at 1.3% it should be around $248k in March. However it also had a good month and went up to $255k for about a 4.1% monthly gain. Again I expect this to balance out towards years end.

All told my equity net worth in February was $470k and is now $500k for month ending March. This is from a combination of savings and unrealized capital gains. Obviously I’m happy with these numbers but as this is a highly leveraged portfolio I also want to maintain my perspective and not loose sight of the year end performance return numbers. I fully expect to have some down months but still expect to have a nice gain at year end.

PURGATORY

2006-03-31T23:11:00.000-08:00

Well, we convoyed from our base camp and met the rest of our personnel at a central staging location located in the Al Anbar province of Iraq. The convoy was about a 4 hour ride and fortunately we didn’t encounter any improvised explosive devices (IED’s). Once we assemble in our staging area, we started flying out in multiple waves on a C130 transport plane to our commercial transportation port base camp. Unfortunately we are stuck here for about a week. If there is a purgatory, I think I found it. It’s definitely not paradise but it’s not like we’re working or in any kind of pressure cooker environment either. We just kind of sit around watch the weather and eat kinda like a cow. Of course we’re all antsy to get back to our family and loved ones but it’s the nature of business in the service. All things in due time.

HOMEWARD BOUND

2006-03-28T06:14:00.000-08:00

We’ve been rather busy the last few days in preparation for receiving our replacement unit. Our time here is almost up and we should start our journey home soon. The journey home is not an easy one. It consists of taking convoys to several locations to pick up troops at camps spread through out Iraq. Once the unit assembles, we will take a military cargo airplane hop to a location where we can charter a commercial plane. The details of which cannot be explained, as it is an operational security risk. The whole process can take a week to ten days. Needless to say my entries during the next week to ten days will be sporadic.

With the unit turnover complete, we have a few days to rest, pack, and relax before we start on our long awaited journey home. Today feels like a heavy burden has been lifted off my shoulders. I will spend the next few days running, lifting weights, writing emails, blogging, playing volleyball, sleeping (extra sleep), reading, relaxing, and packing. My spirits are lifted at the anticipation of heading home. (Wahoo)

SOCIAL SECURITY CHANGE OR STATUS QUO

2006-03-24T14:33:00.000-08:00

Seems social security can be a sensitive topic for some people. We keep hearing about the need to reform social security or that it will be bankrupt sometime in the near future. Depending on which numbers are used the so called bankruptcy can occur be before or after my life time. Speaking for myself, I have contributed quite a bit into social security in my life time and I would like to get what I’m entitled to based on current benefit entitlements. As it is, the benefits payout is regressive in that the more you contribute the less you receive in benefits as a percentage of total payout to contribution. Fortunately or unfortunately, I have maxed out social security payments for many years. Another words I’ve paid in the full $6,500 or what ever the full contribution is for social security.

There is currently talk of reducing entitlements even more for the certain age groups and additional regressivity for those who contribute the most. I would prefer they leave my current benefit entitlements alone and possibly consider providing self investing accounts for the younger generation that has not contributed significantly into social security.

I get an annual personal social security report that tells me how much I contributed and how much I can expect to retire on. All things being equal and assuming I continue to contribute until age 60, my monthly social security retirement is approximately $2,600 a month starting at age 63. I think that’s in future dollar value.

Any suggestions or ideas on how to address social security?

RESPLENDANT SEA BREEZ

2006-03-24T13:49:00.000-08:00

It’s the summer of 1997 and my soul mate and I decide to take a road trip up highway one from San Francisco to Fort Bragg. Again with crystal clear blue skies and 70 degrees, it was perfect weather for top down driving. We meandered our way through the Golden Gate Bridge through various wooded national recreational forest and eventually to highway 1. The highway hugs the costal water line of the Pacific Ocean. The way highway 1 curves, turns, and twists through undulating roads makes it a perfect road course for superb handling roadsters. We had our sunglasses on looking cool with the sea breeze tussling our hair and soaking in the endless spectacular costal waterways. Whipping the roadster through the costal highway and soaking in the sun and fun was a form of mental relaxation and meditation. My thoughts were a thousand miles away in a state of nirvana stupor.

Somewhere north of the Bay Area we passed a nudist colony beach. I don’t know what my wife was expecting to see but I know what I was hoping to see.(lol) We tried to stop by and take a peek for good measure but the beach appeared mostly vacant. As such we weren’t nude so we went on about our journey. Half way to Fort Bragg Robert Cray came on the hi-fi radio with one of his popular songs. (Can’t remember the name of the song – something about bringing coffee to his bed) Nonetheless it was a great song. It was the first time I ever heard the song but it was so good that I connected to it like a duck to water. That was the first time I heard Robert Cray, and I bought his CD the following week. The combination of the endless waterway scenery, deep blue ocean, Robert Cray, soaking in the sun, perfect temperature, weather, and tossing a fun roadster with my soul mate next to me was seventh heaven. The journey itself was better then arriving at our destination at Fort Bragg. Ahh yes. Life is good. Such a journey.

FIDUCIARY RESPONSIBILITY - ARE YOU TAXED FAIRLY?

2006-03-24T12:00:00.000-08:00

Given what you pay in federal taxes each year do you feel like your paying too much in taxes, fairly, or not enough? Also how do you rate the federal government in fiduciary responsibility on a scale of 1 to 5? (One being frugal well planned budgetary constraint and five being pork barrel, wasteful, and excessive government spending.)

Based on 2006 Federal Tax Rate, we are in the 28% tax bracket. However social security and medicare tacks on approximately another 7% for a total of 35%. Of course after 401k deductions, itemized deductions, personal exemptions, and charitable contributions, the total taxes paid are somewhat less then 35%. As I don’t have last years filings available to me in Iraq, I would be curious to see what actual percentage I paid in federal and social security taxes relative to my taxable income. I know that social security is capped at $95,000 (somewhere around there) but it still adds up. The 401k is not deductible for social security.

Assuming I had no income other then long term realized capital gains of $50,000, is this taxable against social security?

INDEX PERFORMANCE CHARTS

2006-03-23T14:20:00.000-08:00

Index Annualized
$INX S&P 500 Ind 15%
IVW S&P 500 Growth 13%
IJS Small Cap Value 30%
EFA EAFE 31%
EPP Pac – Jap 33%
EEM Emerging Markets 60%

The chart is the actual performance of the index funds identified above as presented by Market Watch. The annualized rates are approximate estimates of annualized rates of return for each respective index fund. Of keen interest here is that the small cap value IJS and two international funds EFA and EPP, the original capital would have almost doubled in 3 years. EEM emerging markets is up almost 200% in 3 years.

Alternatively the S&P 500 index increased an anemic 50% in the same 3 years and the S&P 500 Growth increased an unimpressive 30% over the same period. Obviously the international markets will not continue to outperform the US market. The key to asset allocation is to distribute a portfolio amongst the various asset classes both domestic and international, value, growth, large cap and small cap. This diversification will help increase the odds that when some international index funds falter some domestic index funds will prevail. As one index falters and goes down another one will prevail and go up. When the global markets are in a downward trend the portfolio will also reflect and decrease across the board. However, when the global markets are collectively expanding, again the portfolio will expand and reflect such increase across the board.

Generally it’s easy to include these index funds in a portfolio as it is included in mine. However the difficulty is in allocating a weight or percentage for each index and sticking to it without emotional intervention. For example if one fund is doing exceptionally well, it may be difficult to part with it knowing that the right thing to do is to sell the excess to rebalance the funds. The other extreme is not want to invest in a poor performing fund because it’s not going anywhere or even going down. Either way the critical factor is to maintain the established weight allocation for all funds in the portfolio.

CIAO

2006-03-23T14:18:00.000-08:00

As a newbie stumbling around, I want to thank Financial Freedumb for the courtesy of sharing his net worth tracker with me in the index column. It was convenient, easy to use, and much appreciated. Now if I can just figure out how to remove the dash line between the bars I’ll be all set. Also want to thank Madame X at My Open Wallet and Investing The Middle Way for being accommodating to a newbie and for insightful blog sites. Your support is appreciated. If I missed anyone, it was an oversight and I will make amends next time.

WINE CONNOISSEUR

2006-03-22T19:19:00.000-08:00

When we were in our early 30’s and living in Northern California, our occasional weekend getaway was to Amador County Shenandoah Valley vineyards. It is situated on the foothills of the Sierras. On a beautiful crystal clear spring day and approximately 70 degrees, we would drive around visiting all the vineyards in a topless Mazda Miata. At that time the wine tasting and vineyard tours were free. The scenery on the foothills of the Sierras with lush green foliage, rolling meadows, and grapevines in ever changing scenery for as far as the eye can see was resplendent and amazing. We actually learned quite a bit about wine tasting. The acidic soil and regional weather pattern results in the local area producing some of the finest red zinfandels with a touch of tannin flavors. The combination of driving a convertible in perfect weather, soaking in the fabulous near tropical scenery, feeling ever so slightly tipsy from the great wine tasting, and Kenny G belting away in a hi-fi was a surreal experience. My wife and I both had our sun glasses on looking cool and living life at its finest.

Some of my favorites are red zinfandel and sangiovese from Amador County. The nice folks pouring the wine tried to help me pronounce sangiovese correctly. It has kind of an Italian roll and inclinating pitch to pronounce it correctly. They tried in vane and I think I mangled it. I know I did. Sorry.

From Napa Valley, I like cabernet sauvignon and merlot. Chardonnay is known for its buttery flavor characteristics. However there is one Chalone chardonnay from Monterey County that is beyond buttery and out of this world. Now certain vintages or years are better then others. I can’t recall which vintage I tasted, but it was marbled buttery. The taste was so amazing that I think it left a permanent scar on my mind of the perfect chardonnay. I’ve had many a chardonnays, but for some odd reason, I haven’t tried Chalone since that original bottle. I guess it’s on my to-do list as soon as I get home. Actually, I have looked for it before and have had difficulty finding it.

BEST PERFORMING ETFs PAST 3 YEARS

2006-03-22T05:21:00.000-08:00

A fire engine red Honda, Valkyrie with skull and flames embedded into the paint scheme. I have a black one but the paint scheme is nothing like this one. Horizontally opposed 6 with approximately 100 bhp and 100 lb-ft of torque, 6 carbs, 5 speed, shaft drive, rockin machine. It's loads of fun.

These are the best performing ETFs in the past 3 years as listed by MSN Money. If we knew 3 years ago what we know now about these top performing ETFs, our respective portfolio would be up by about 85%. Not a bad way to make money. Obviously hindsight is 20/20. We had no way of knowing then as we have no way of knowing now what the outcome will be 3 years hence. Based on the recent 3 year history, is now a good time to load up on these ETS’s in the hopes that it will have similar results in another 3 years? This would be a little too speculative for me.

One of the key concepts of effective asset allocation is to benchmark and maintain the target weight allocation for each asset class or index fund. This provides a relative index mark in relation to the overall portfolio. If my portfolio has a 20% weight allocation for small cap value index fund and it shrinks down to 15% of the total portfolio, then I will want to buy additional shares to bring it back up to 20% of my total portfolio. If the same index fund goes up to 30% of the portfolio, I can sell some off and redistribute the proceeds to other index funds to balance it back to 20% or I can purchase additional index funds other then the small cap value to ensure it adjusts to the 20% target.

The general idea is that each of the respective index funds in a portfolio will surge at various, alternate, and random events and time. Granted when the global markets are down, the portfolio will reflect as such. The intent is to maintain weight allocation amongst funds in the total portfolio. When the portfolio is out of the target balance during this time, the idea is to sell the high ETFs and purchase the low ETFs. The expectation is that the low value ETF will surge and rebound sometime later at which time it would be sold to purchase other low ETFs. If enough capital is on hand, the surging funds does not need to be sold and liquid capital can be used to purchase additional index to balance out the portfolio to it’s target weight. The key is in maintaining weight allocation within the portfolio.

Based on my model portfolio presented on a previous entry, I’m not quite there yet. But I will work on it over time. I prefer to watch the grass grow and not rush into things too quickly. One of the things I haven’t quite figured out is why DFA’s recommended portfolio does not include mid caps. It appears that I’m a little heavy in mid caps but it’s performed well over recent years. Well, I still have some time to consider how I will reallocate my portfolio this April.

RANDOM BABBLE

2006-03-20T18:40:00.000-08:00

Well it’s another sleepless night. It’s currently 3:00 in the morning and I’ll watch the sunrise again. Looks like the picture download worked today.

So, I’m thinking to myself why did I join the service? Initially it started with trying to get a college education. I was separated from my family at the age of 12 and attended a non-profit boarding school in Texas. Pretty much alone after high school, I had to work and make my own means to subsist and find a way to attend college. Scraping by from pay check to pay check, I decided to look for a second job to save money for college. Well as it was, the classifieds in the local newspaper had an advertisement “great part time job for college students”. Yep!! Just what the doctor ordered. That’s me. I called them up only to find out that it was the military reserves. What? Me? Military reserves??? The thought had never crossed my mind. I didn’t even know what the reserves did. They said that I would attend boot camp and special schools for 6 months after which time I would return home, attend drill one weekend per month, and start college. The benefits were the G.I. bill for school, monthly drill pay, and a $2,000 sign on bonus. Wait! Did you say $2,000 sign on bonus? Where’s the dotted line? I’m rich now. Wahoo!! Where’s my money?

Well, fast forward 6 months and 4 years later. With some military experience in the reserves and a college degree, I decide to apply for active duty commissioning. During active duty, I also get an opportunity to pursue a post graduate degree again on the militaries dime. Fast forward another 4 years and I now have an undergraduate degree, post graduate degree, and 4 years of leadership experience managing personnel under sometimes unique situations. Apparently this tagged me as a JMO (Junior Military Officer) and this provided a bridge to transition into “Corporate America”. Let’s see!! Let’s think about this a minute. I can do the corporate America thing and get better pay, have a better work environment, have a home life, and continue with the monthly reserve thing. Well that’s a tough choice. It was time to move forward again.

In effect, the military provided me an education and an opportunity. It’s a blend of mixed emotions where I feel a sense of a debt of gratitude, patriotism, and pride in service of our country. For a young person who started with nothing, it provided a stepping stone to integrate into a productive fabric of the American society. I may not always agree with the Presidents foreign policies but I do feel a sense of obligation to serve my country.

It has now been close to 20 years of reserve military service in all. After leaving active duty and working for corporate America, I continued with the reserve service. Being activated and serving in Iraq has its moments. There are challenging times where the combination of the daily grind, the clash of ego’s, jockeying for position, and risk of getting killed takes it toll. There are momentary triumphs of elation and occasional moments of utter despair. The camaraderie and kinship developed through working in close quarters and looking out for each other is rewarding. There is a bond of brotherhood that develops and will last a life time. Although challenging and difficult, this is the moment to cherish the here and now. All too soon, there will be a time when I will look back and fondly remember all the good memories of heroism, momentary triumphs, selfless acts, and overcoming insurmountable difficulties with people of character. The momentary lapses of despair will fade with the passing of time only to be replaced with all the good memories.

So why did I join the service? Well after 20 years of reserve service, I can retire now and collect a retirement pension starting at age 60. If my calculations are right, it should be roughly $3,600 a month in future value. That would be a little under 20 years from now. It should be enough to put some food on the table anyways.

EXPERIENCED

2006-03-19T10:37:00.000-08:00

For some reason I can't seem to load any pictures for 3 days now. Will try again later.

I’ve noticed several blog sites mentioning the benefits of pfblogs.org over pfblogs.com on several occasions. It appears that pfblogs.org and pfblogs.com does the same thing except that pfblogs.org is ad free. The format is very convenient for reviewing all the latest blogs related to personal finance, real estate, and investing. It also has a handy index column on the right with a rather extensive list of who’s who on personal finance blogs. Apparently it’s a very efficient way to view blogs by posting rather then trying to visit all the blogs one at a time. After a few tries, the blogs become familiar and the bloggers can focus on sites with similar interests.

Being the newbie, I followed the instructions and emailed a request asking to be added as a new member. The following day, I checked my email and received the following return email “Delivery to the following recipient failed permanently:” Humph!! What happened!! I thought about it a couple days and search the web site in vain thinking that it was the wrong email address. Well I wasn’t generating much traffic on my blog site as it was off the beaten path. So a couple days later I tried to email again. Same thing happened again, “Delivery to the following recipient failed permanently:” After burning a few brain cells it finally dawned on me, maybe I should remove the “-remove-“, from the email address. (No Duh - Do you think?)(lol) Well sometimes the best way to learn is from experience.

FREE RESEARCH WEBSITES

2006-03-18T22:20:00.000-08:00

Can't seem to load any pictures today.

Morningstar has a site that I found useful for finding different styles of index funds. One page Morningstar ETF Analysis Reports has a list of 106 different styles of index funds based on small, medium, large and value, blend, growth asset allocation matrix. Initially I signed up for free access thinking I could get full access to all the reports. Apparently not, they try to hook you into signing up for premium service after signing up for the free login. I decided not to sign up for the premium at this time as it seems I can get nickel and dimed to death from various premium website services. However, I still fine some of the free information useful for general research.

Another website that I find particularly useful and is actually a free tool to use is ETF Comparison at Smartmoney.com. Here you can put in multiple ETF tickler symbols and download the information into a spreadsheet. Actually this is a powerful tool and I use it frequently to analyze various different types of index funds. I just hope they continue to offer it for free.

Smartmoney.com has the free ETF comparison with premium mutual fund comparison. On the flip side Morningstar.com as a free fund comparison and premium ETF comparison. So if I need to check on ETFs, I’ll go to Smartmoney.com and use their free service, and if I need to check on mutual funds, I’ll use Morningstar.com. However the Morningstar mutual fund comparison is pretty lame. There is very little in the way of useful information. It’s just as well because I’m not into mutual funds anyways. As for Smartmoney’s free ETF comparison, it is packed with very useful information. If I ever decide to sign up for premium service in the future, I would definitely go with Smartmoney.

The information that I find particularly useful from the free Smartmoney ETF comparison report is the expense ratio, annualized YTD-1yr-3yr-5yr performance, standard deviation, and pretty much everything else on the report.

If anyone knows of a free resource with access to meaningful information for stock, funds, or ETF, that information would be greatly appreciated.

At one point or another, I have used various brokerage firms such as Fidelity, Price Waterhouse, Ameritrade, and American Express. Generally I am appalled at the type of useless information they provide. Their investment brochures will tout the value of their services and access to research information as a benefit to subscribing to their brokerage. My general experience has been that I am disappointed at the lack of key information that I’m looking for as an investor. They have nice charts, graphs, financials, and some ratios available. It’s pretty much what I call raw data. I don’t have time to analyze and process the raw data for key indicators. The example of ETF comparison from Smartmoney is far more valuable information of key indicators then any I can find from any of the brokerage accounts mentioned above. It only adds to the speculation that investment firms along with the periodicals they advertise on are in the business of encouraging people to churn stock transactions.

BEST STOCKS TO BUY FOR 2006

2006-03-18T22:02:00.000-08:00

I find it ironic when I see stocks on national television networks, periodicals, major public websites (MSN, Yahoo), and other media being touted as the next big thing. As if to insinuate that it has great potential and that we should seriously consider getting into the stock now while the timing is right or we will miss out on a great opportunity. My general gut feel is that any stock being touted on a national syndication automatically has a premium built into the stock from general exposure and is overpriced. For every stock being syndicated there are a million think wannabe astute investors (myself included) who will want to believe that the particular stock has good long term potential. They are only exposed to those stocks being made visible to them through national syndications. For each stock being touted on national syndications, there are probably hundreds of other unknown unrecognized stocks with better value, growth potential, and solid financials that are in general better investments. These are the stocks that have no hype built into the stock price. Assuming they have great fundamentals and are fairly priced, if later they gain national notoriety for the first time, the P/E ratio or stock price premium will soar because everybody and their dog will be ready and willing to jump on to the next big thing. Not to be too hard on analyst or people who promote or tout the next big stock, but they’re just doing their job and looking for their next pay check just like the rest of us. I wouldn’t take them too seriously. Just some food for thought.

WHAT COLOR IS YOUR INCOME?

2006-03-16T20:58:00.000-08:00

Financial Freedom breached an interesting topic recently. His topic “Why Is Income Such a Big Secret?” hit a cord with me and others apparently. He does seem to hit a point in that it is a sensitive area and most bloggers are hesitant to share such information for personal reasons. Likewise, I feel timid about divulging my income also. But what the heck. Anonymous or unanonymous here it goes. If Madame X and others can be candid and feel comfortable about posting their income, then so can I. Kinda feel like I’m about to expose my manhood and jump in the pool nekid.(lol) My base pay is around $100,000 with 25% annual bonus. Since I’ve been with the company, we’ve always managed to hit our full bonus. So I’ve been earning about $125,000 the past several years. I also earn a little over $20,000 annually as a reservist and my wife earns a little over $50,000 a year. Our combined income is approximately $195,000. Hey, is there a draft in here?(lol)

We have no car payments or debt other then our mortgage payment of $2000 monthly. If we factor in $2,000 for living expenses, our total monthly cash outflows is $4,000 or $48,000 per year. After social security (8%) and taxes (30% I’m not an accountant & too lazy to look it up), our annual disposable income is around $120,900. Hypothetically, you do the math, we should be able to save approximately $72,900 a year. But realistically we can probably save $60,000 a year.

There are some caveat’s to consider. One is that we worked our way up to this income level over the years. Another is that I’m embarrassed to admit that I have not been frugal and our house is filled all the latest gadgets and gizmos you can think of. And lastly there are on going projects such as home improvements and landscaping to be done. After I get back home this summer, I will be planting tall evergreen trees on the border of our yard and our neighbor’s yard for added privacy and relandscaping the front yard as it was ripped apart last year from replacing a broken sewer line. Ahh the joys of home ownership. Constant maintenance. The financial advisors promoting home ownership never seem to mention that. Oh and if you already seen my track record of car purchases, that would be another reason why we haven’t saved more. Why do I seem defensive?(lol)

HOW MUCH IS YOUR AUTO INSURANCE?

2006-03-16T16:14:00.000-08:00

A country palace in Iraq. There is a vast body of water in the middle of Iraq. I’m not sure where the water comes from as there is very little rain fall in any given year. The water provides sustenance for the locals and water for stock and agriculture.

I guess that depends on insurance company, location, model, year, age, driving record, and number of vehicles you have. Seems a little daunting and complicated. I’ve always wondered how actuaries came up with insurance premium costs. With modern day computing, I suppose they can input any number of variables and come up with some sort of statistical probability of having to pay for some odd accidents and the associated premiums to cover said costs.

We have a 2000 BMW 530i with about 40,000 miles and a 2003 Lexus RS 300 AWD with about 20,000 miles. As for driving record, I had a 1991 Honda Accord stolen in 1995. All four doors, trunk, hood, seats, stereo, tires, and valuables were gone. The shell of the vehicle frame was sitting on top of cinder blocks. The insurance company covered it. Then I totaled my 1997 Mazda Miata in 1998 and the insurance company covered that also. I don’t suppose they were too happy about it. The front end of the car looked like an accordion out of the comics. Other then that, I have not had a speeding ticket since 1998 or possibly earlier. I can’t seem to recall when I got my last speeding ticket. I suppose that’s good because at one time in my life I collected mine and everybody else’s speeding tickets. It was my gesture of goodwill to society. Colleting other peoples speeding tickets out of my generosity. Or so it seemed.(lol) Oh and my wife got into a fender bender two years ago and the insurance company covered the cost of fixing our car. She rear ended another car in slow moving traffic. Apparently she was sleepy, and fortunately no one was hurt. (Tsk-tsk) Miraculously (our experience has shown that we don’t garner too may favors) the others persons car was not damaged at all and they made no claims. Again our insurance company pulled through and covered the cost of fixing our car after the $500 deductible. So it’s not like we have a stellar track record. Since the insurance company is still covering us, I suppose statically we’ve had our share of mishaps and the insurance company is counting on collecting premiums in perpetuity without any additional incidents.(lol) Well that being said, we pay $448 every six months for full coverage. That comes out to about $75 monthly. All things considering, it seems reasonable. I’d be curious to know what others are experiencing with auto insurance. Our auto insurance carrier is USAA and quite frankly, we’ve been happy with them.

After some consternation regarding portfolio reallocation on the brokerage account, I’ve pretty much decided to go with my own portfolio and slowly metamorphasize into my target portfolio over time. However I plan on dumping the 3 mutual funds and picking up additional international large and small cap value. Now I feel better.

Today I realized that I misspelled “fascination” on my profile. Horror of horrors. How can that be? Actually I’ve never been a good speller to begin with. It’s corrected. Looks like everyone was kind enough to dismiss it and not call it to my attention. (idiot can’t spell) (lol)

CONUNDRUM

2006-03-14T22:57:00.000-08:00

I’m a firm believer in asset allocation, diversification, and global investment strategies. The primary objective being to maximize annual gains, minimize risk, and diversify such that the peaks and valleys of various asset classes and international assets cancel each other out as much as possible. Obviously this is not a perfect world and given current market conditions there will be some degree of variation. Variation can be thought of as risk and standard deviation is generally a measure of risk. The standard deviation from Merriman’s DFA portfolio fund is approximately 12%. Given these conditions and the current market conditions, I am struggling to decide if I will go with DFA Funds or continue to model my own portfolio.

In general I am keen on Paul Merriman’s recommended DFA portfolio due to the quality of its funds. If I had my druthers, I would model my portfolio after his recommendations. However, I can’t seem to shake off the 1% advisory fee. Each DFA fund has its own maintenance fee in addition to the annual advisory fee. If I put $300,000 into DFA funds, I would be paying $250 a month in advisory fees in perpetuity. As the value of the fund goes up say $500,000 sometime in the near future, the advisory fee would then be $417 per month or $5,000 per year. That's about the equivalent of a monthly car payment again in perpetuity. Yikees!!!

As of this writing, I am befuddled, in a quandary, and tormented by this conundrum. Should I or shouldn’t I?

My current propensity is to continue to use my own portfolio model although I am not happy with its current allocation. Currently it is too highly leveraged towards domestic large cap somewhere in the middle of growth and value. It is light on the small cap side and heavy on the Japanese index. I got into the Japanese index thinking they would rebound in the near future as they appeared to be crawling out of a 15 years recession. However I did not realize just how heavily EAFE (Europe-Australia-Far East) was weighted towards the Japanese index until after I purchased it. I think I may be weighted too heavily in the Japanese index. Other then reallocating on the above mention concerns, I am short on international large and small cap value. This can be resolved by adding Lazard International Small and Tocqueville International for foreign small value and Vanguard International Value and Fidelity Spartan International for foreign large value from Merriman’s model portfolio. Based in these adjustments, I have my revised portfolio model.

Although I will be readjusting my portfolio allocation in April, I will not make a dramatic change to emulate my proposed portfolio above. Although market timing is difficult and generally not recommended, I believe large cap growth stocks are due for a run. As such, I will not make any immediate dramatic changes to my existing portfolio. Who knows how long the projected growth run will last. It may be 2 years to 6 years or somewhere in between. Some market analysts are predicting a market run similar to 1994 to 1999. If so I will ride out the surge and slowly converge to value as timing and opportunities permit.

2006 IRA MARCH

2006-03-13T07:51:00.000-08:00

For my IRA account, I use an investment advisory service called “The Prudent Speculator”. It is an investment advisory service that focuses on selecting value stocks based on key financial ratios and indicators such as a low P/E ratio, low debt ratio, and high cash flow. I have utilized their services for approximately one year now as of this writing. http://www.thepurdentspeculator.com/. My experience with them during this time frame has been positive. They appear to be selective and pick good quality value stocks projected to rebound nicely over a 5 year period. Typically they will provide a list of approximately 50+ stocks depending on availability of value stocks and provide an entry and exit price. They promote value and diversification for their philosophical investment approach and provide a monthly newsletter with tid bits of good information. Here is some additional food for thought and my experiences with them:

1. They do not have any mutual funds and are not a mutual fund company. It appears they are strictly focused on selecting good quality value stocks. For me that’s a good indicator as they are not preoccupied with managing a mutual fund. They do track portfolios as historical indicators but I don’t believe it is a mutual fund.

2. They are fee based and make their money from customers who subscribe to their services. I do not know if they have a revenue stream other then their service oriented customer base.

3. Since I trade in an IRA account, I can trade, buy, and sell at whim without any interim tax implications. That’s a great thing.

4. I have a comfort level with this particular advisory service because their overall investment philosophical approach closely emulates my investment approach.

5. I wish I would have know about this back in 2002.

6. They provide a meaningful monthly news letter with pertinent information. I find it refreshing when they publish complaints from select customers complaining that they’re not happy with the service because the value stocks do not double within one year. The advisory service will kindly remind people that they are not selecting stocks based on speculative nature but rather quality value stocks based on projected reasonable return expectations over a 5 year period.

7. A key concept in addition to value is diversification. In theory based on a hypothetical selection of 100 stocks selected, a small percentage may go belly up. However the stocks that rebound and recuperate will more then off set any potential losses. I would not want to pick one or two stocks to test the waters as that is not diversification. My best approach would be to scoop up a bucket full of stocks in one dip.

8. Reality is not every year will be an up year. However the general trend or idea is that the up years will off set any off years similar to the market indices.

9. Of the approximately 50 stocks that I started with a year ago, several have already exceeded the recommended sell price, and I already have short term capital gains reinvested.

10. This approach to investing does require some time and effort on my part to track, monitor, and transact as necessary. However I do not spend any time analyzing or evaluating the stocks. It requires minimal time maybe 2 to 3 hours per week if that.

As one year is relatively short, I will need a few more years to see how it really works out but I am optimistic based on current experience and value strategies.

BLOG CURIOUS

2006-03-12T12:22:00.000-08:00

Another day in Iraq. Early morning convoy operations finishing up a nights work and preparing to get some much needed rest.

As I am a newbie to the blog thing, it's been interesting visiting various other blog sites. It seems there are quite a few blog sites related to tracking net worth and planning expenditures for effective savings. Seems I can learn a thing or two myself. It's great to see people taking control of their finances regardless of their income and stage in life. Good for you.

I have heard of bloggers occasionally having problems of loosing some of their historical posts. Does anyone know of a way to create a copy of back up of historical posting? I tried to copy and paste from the edit post, but apparently it does not allow me to copy.

Regarding the posting of a disclaimer, some blogs seem to have disclaimers while others do not. Any tid bits of advise or information regarding the posting or not posting a disclaimer would be appreciated.

Lastly I noticed some blogs have a "Networth IQ" tracker and others have a horizontal bar in the index column. Does anyone have a preference as to which is more user friendly or effective?

CAN'T WAIT TILL APRIL

2006-03-11T08:19:00.000-08:00

Serving overseas in Iraq and being separated from family and loved ones certainly has it's moments. However the one good thing, if you can call anything good out here, is the day to day living expenses. I incur no cost of fuel, food, cleaners, entertainment, and cell phone expenses. As for living accommodations, there is no net gain or loss as we still pay our monthly mortgage expenses. My total living expense in February was a whooping $20. Yep. I spent $5.00 a week for hair cuts in February and nothing else. I don't drive to work, no fuel, the laundry is provided for free, all meals are provided, and billeting is provided. Granted the working conditions can be a little hazardous, I won't go into that for fear of pushing my luck. Not exactly like going to work in my home town and we'll leave it at that.

I recall going on a business trip last April. All passengers boarded the plane and the front door of the airplane was shut as it was preparing for departure. The stewardess then announced over the intercom that the plane was booked over capacity and that the Smith family would need to deboard the plane. Another stewardess was nice enough to open the front door again to let the family depart. The Smith's family mother, father, and 3 kids between the ages of 7 and 12 caused quite a commotion as they opened the overhead bins to gather their baggage and things and started trudging for the front door. Granted they were seated in aisle 7 and 8 by the time they got to the front door, the stewardess announced over the intercom "April Fools". All the passenger were obviously humored by the whole situation. Based on the fathers red faced reaction, the kids confusion, and the mothers beaming smiling face. It was immediately apparent that the mother put the stewardess up to this and that the father and kids had no clue. The stewardess then announced that the wife had in fact put her up to this. The husband appeared to take the situation with good humor. It was an endearing scene and nice to see a loving supporting family. The wife was somewhat gushy and the man was, well, somewhat of a man. The whole situation was definitely humorous and nice. It's not quite April and it's a little early but for some reason this scene poped up in my mind. So it's one of those early April Fools stories.

Actually I just realized why I had April on my mind. Due to opsec reasons, I can't post when we're heading home. But we are on a seven month deployment and I've been out here six months now. I guess that would explain it. woh-hooo. I can't wait for April.

AFTER TAX PORTFOLIO

2006-03-10T03:56:00.000-08:00

OK. Now on to the good stuff. There are four basic elements to my investment strategy. It is composed of cash savings, 401k, IRA, and after tax brokerage accounts. We'll cover the after tax brokerage account first as I believe it to be the meat and potatoes of real investing.

I recently read a book "Index Funds - The 12 Step Program for Active Investors" by Mark T. Hebner. Actually it was available on a web site by Index Fund Advisors, Inc on the following link http://www.ifa.com/. I read this a few months ago and found it to have some real pertinent facts for the serious investor. Some good stuff.

Another good read is "Living It Up Without Outliving Your Money". The subject matter is closely associated with Mark T. Hebner's index fund concepts mentioned above.

So here is my latest after tax index fund portfolio. My investment position is relatively aggressive. It is composed of all equity and no fixed instruments. The portfolio mix and asset allocation is not exactly where I want it to be so far. I will rebalance the portfolio sometime in April as that will be my long term capital gains marks for some of the funds. Addiinformationormaton regarding ishares is available on http://ishares.com.

In general, I subscribe to global asset allocation, diversification, and index funds. My philosophical views on investing closely emulate the concepts mentioned by the above books. Especially for after tax brokerage accounts due to it's tax benefit implications. We'll see later that I take a different approach with IRA's specifically due to tax implications. I suppose I could write a dissertation on the benefits of diversely allocated index funds. However all that information is available on the above mentioned books and it would be redundant to repeat it's contents here. However here are some shared thoughts on index funds.

1. I don't have time to analyze and evaluate stocks. Fund managers devote their entire life to analyzing and selecting what they would consider selective stocks with high returns potential. Yet over time most index funds will out perform most mutual funds within like asset allocation.

2. As for diversification, the index funds represents all stocks within it's category. It's about as diversified as you can get.

3. With stocks, generally I will want to know at what price to purchase and sell before actually purchasing the stock. With index funds timing is not as critical. I'm not as concerned with sell price because I'm in it for the long haul. This is in accordance with the random walk theory.

4. For me the icing on the cake is taxes. Assuming I'm in it for the long haul, which I am, the index funds in effect are tax deferred similar to IRA's until I'm ready to sell. Granted I will have occasional buy and sell for rebalancing or reallocation plus internal transactions generated by the fund, the overall tax consequence is minimal. Assuming some funds grow faster then others, I can supplement the slow growing funds with monthly savings or I can sell some portion of the fast growing funds and purchase the slow growth funds to maintain allocation continuity. Bottom line is that as long as I hold for the long haul, I am in affect deferring taxes. If I make 20% gains in less then a year and I'm in the 30% tax bracket, then my realized gains after taxes is only 14%. For the long term, I continue to build on the 20% unrealized capital gain and later get taxed at the 15% long term capital gain rate. I understand some will say that you can hold stocks for the long haul also. Well, I suppose you can but look at GM today. The point is single stocks are more unpredictable.

5. Given our current market conditions, I would be perfectly content to achieve 20% annual gains. However the high targeted gain comes at a price. The price being risk. Risk is the inherent volatility of equity markets. For the same return we can have highly unproportional risk or minimal risk given a targeted rate of return. So the question is how can one minimize the peaks and valleys of risk. The risk is minimized by allocating equity amongst different capitalizations. For example large, mid, and small capitalization further broken out by value and growth. The last item is to ensure adequate international equity.

Just as a note, I have no affiliations with any organizations of any type referenced in this blog.

Oh, the Porsche!! It's just eye candy. Screeeeeeeeeeeeeeecccccccccchhh!!. No Really. I'm just looking. No harm, no foul. Right!!!

MARCH POSITIONS 2006

2006-03-09T19:49:00.000-08:00

Thanks to Madame X, I think I finally got the gist of cut, paste, and add. It took a few tries and more then a few minutes, but such is life at times.

Below is an equity chart that will track the projected goal against actual monthly gains. According to this chart, I should be in the neighborhood of $570,000 by the end of this year in December. This will be posted monthly to see how the equity is building.

The second chart tracks capital gains by percentage. As the selection of fund choices are limited in the 401k accounts, I have projected an estimated annual growth rate of about 12%. As for the IRA and after tax brokerage account, the selection of investment tools are unlimited, and as such I am using 16% as the projected annual growth rate. As this is a partial year starting in March the total projected gains for the 401k and IRA/brokerage accounts are about 9% and 12% respectively. However each month annualized is at the 12% and 16% rate.

The column bars are the projected increase in capital and the square, diamond, and circle shapes will start tracking performance starting in April.

MUSINGS

2006-03-09T04:15:00.000-08:00

I posted “My Open Wallet” as a link. It’s full of good information on effective budgeting. And for good reason.

Following is a list of vehicles I’ve owned in my life time.

1981 Ford LTD – Used 1975
1983 Chevy Malibu – Used 1979 – LTD had a cracked motor block.
1985 Ford XLT F-150 – New – Dad bought for me for college. He stopped payments a year later and I couldn’t afford it. Sold it for Isuzu.
1986 Isuzu Impulse – Used 1980 – Great car.
1988 Chrysler Laser Turbo – Used 1985 – Terrible car. 20/20 hindsight.
1990 Pontiac 6000 - Used1987 2nd - Traded Laser. Leaking sun roof.
1991 Honda Accord 1991 – New 2nd car for new wife.
1995 Olds Delta 88 LS Supercharged – New – Honda was stolen. Wake up call.
1996 Mazda Miata – New – Traded my Pontiac for Miata. Pontiac at end of useful life and I wanted to try a sports. A fascination of mine.
1997 Mazda Miata – New – Highway accident wrecked 1st Miata. Replaced with another new Miata.
1999 Infinite I-30 – New – Traded Miata for sedan. Why? Raucous noise and handling of sports car got old. What can I say?
2000 Ford XLT F-250 Extended Cab 4x4 – New – Traded Infinite for pickup. Had no need for a truck in the first place. 300 bhp 6.8 liter v10 with 12 miles to the gallon.
2000 BMW 530i – New – Traded Olds for new car.
2003 Lexus RS 300 – New – Traded Ford for SUV for wife.

Did I just hear a vinyl LP record screeching?? Sad but true!! I know. Tsk-tsk!! Pathetic. I’m bad. Well, I’m not proud of myself and I have 20/20 hindsight remorse. But I am working on it and we ("we" = "I" as wife is penny wise and budget conscience) have no plans to change cars anytime soon. Plan on staying with these cars for a while longer. Yea, I was in the dog house for a while after the last car. Don’t worry honey, we’re good.

So I think “My Open Wallet” will come in handy. Whenever I get the itch for a another new car, I can always go to Madame X and bring myself back to reality.

OK. Can anyone help me. I need to paste a graph onto the blog site. Any pointers, directions, or how to’s would be much appreciated. I have some graphs that will track my progress over time that I would like to post.

ROAD MAP TO NEW HORIZONS

2006-03-08T07:28:00.000-08:00

Initially my objective was to achieve a million dollars in total net worth. However based on the last Foundation entry, it looks like I inadvertently changed the goal to a million in liquid capital plus a home fully paid off. So, I guess my strategy will adjust accordingly.
Now that we have a foundation to build on, here is the road map.

The current liquid capital between 401k, IRA, and after tax brokerage is $460,000. The question now is how to grow this value to $1.2 million. The pay off balance on the mortgage in 2010 will be approximately $200,000. Based on running the numbers, it looks like we will need to save approximately $60,000 per year and achieve an annual return of approximately 15%. It seems like a stretch but doable. My wife and I will each contribute $20,000 into our respective 401k. That accounts for $40,000 and the remaining $20,000 will be saved in after tax dollars. Aside from our daily living expenses such as food and utilities our only debt is our monthly mortgage payment.

Apparently our timing was good in that the mortgage rate a whopping 3.75%. We haggled for it by playing off several mortgage companies against one other. (tsk-tsk) It’s a 5 year balloon mortgage due in 2007. With 20% down and no PMI, our monthly payment including interest and taxes is a reasonable $1,700. However our actually payment is $2,000 for good measure and apply the extra payment against our principle. After a few corporate relocations, we quickly realized the benefit of short term balloon mortgages. It also appears that corporate relocation service companies like Cendant offers competitive interest rates based on company relocation and credit history risk.

As for the required annual rate of return, we estimate that we need approximately 15% annual rate of return. This goal may seem a little aggressive and we freely admit that it is. Also the risk viability associated with this aggressive position may alter the timing of reaching our stated goal. In a bull market, we may reach our stated goal sooner. On the other hand if the market timing is off, it may take us a little longer to achieve our stated goal. Either way, we’re good with it and have the associated understanding of the market combined with our strategy and market timing.

This may have been a mouth full but a brief recap:

1. Start with an initial liquid capital investment of $460,000.
2. Save a approximately $60,000 annually in liquid capital for the next 5 years.
3. Target an annual return rate of about 15% annually on all liquid capital investments.
4. The capital investment strategy will be spelled out in detail later.
5. End result is attainment of our stated goal of 1 million in liquid capital plus our home paid off in the allotted time frame.
6. Estimated home value at end of 2010 $500,000. ($350,000 purchase + $40,000 home improvement + 8% estimated annual appreciation) Based on our current neighborhood I believe this is a conservative estimate.

Based on this estimate, our combined net worth should be $1.5 million at the end of 2010. If we reach our stated objective great. If not, at least we will be close and its just a matter of timing after that point.

FOUNDATION

2006-03-08T01:24:00.000-08:00

The first two postings and kinda felt like I jumped in feet first on the deep end of the pool. I'm gonna regroup and refocus on specific goals here. I think I may have miscalculated some numbers below.

Goal:
Have one million dollars in liquid equity capital and have the home paid off by the end of year 2010. (Dec 31st, 2010)

Scope:

The liquid equity capital will be a combination of 401k, IRA, and after tax brokerage investments.
Real estate will be based on purchase price without any appreciation factored in. Any benefit of capital appreciation will be factored if and when I sell the house.
Although I have no debt other then the home mortgage, I will not factor in personal things, vehicles, computers, electronics, or any other miscellaneous items. The intent is to keep things simple and straight forward without getting wrapped around the details.
This is an intermediate goal or a stepping stone for additional capital growth in the future. I will elaborate further on the retirement savings goal as soon as I get a more detailed plan. 5 years is a long time in my book. Who know what's in the works 10 or 20 years from now. For now 5 years is an achieveable goal.

OK. This is a start.

SLEEPLESS IN IRAQ

2006-03-07T15:02:00.000-08:00

Can't sleep. It's 2 am in the morning and I'll probably see the sun rise this morning.

I've been in Iraq for approximately seven months and should be heading home soon. The summers are a blistering 130 degrees. Thankfully I managed to time my stay here during the cooler period. Currently it's a pleasant 80 degrees on most days.

As for my general investment strategy, I'm not looking to take high risk or speculate. I'm not willing to bet the ranch on some hope of willing a lottery. My intent is to minimize risk and balance that against maximizing potential annual gains. Some might say "no risk no gain". True. But there is prudent risk and there is flagrant risk. Through asset allocation and diversification, I hope to reduce the peaks and valleys for stable growth. There will always be peaks and valleys but it does not need to be extreme. The concept of stable growth and maximum gains is what I'm targeting. Also minimizing tax should be part of the overall objective.

BRAVE NEW WORLD

2006-03-06T07:59:00.000-08:00

First a disclaimer.

The primary intent of this blog is to share my experiences and learn from others the basic fundamentals of successful investing. I make no claims to be an expert or an advisor of any kind. This site is mainly to share ideas and possibly learn some interesting aspects of basic investing from other people's experiences. Any ideas used or otherwise from this blog will be done at one's own peril. This site is for the exchange of ideas not investment advise.

OK - That being said, I believe we can move on to more interesting things.

The current starting point for networth is as follows:

Cash $ 45,000
After Tax Brokerage $250,000
401k $ 40,000
IRA $125,000
Liquid Capital $460,000

Home Value $350,000
Mortgage Balance $250,000
Home Equity $100,000

Total Networth $560,000

1. The home value is coservative in that it is the actual purchase price less the actual mortgage balance. Propery value appreciation is not factored in. Although there is no other debt and the cars are fully paid, I did not include it to keep things simple and conservative.

2. My startegy is pretty simple. The IRA will buy and sell value stocks recommended by an investment advisory service "The Prudent Speculator" via a brokerage account. There are no capital gains tax so I can trade at will and not worry about taxes. I will go into more detail about value based strategy later.

3. The after tax brokerage strategy is to use index funds spread out across large, mid, small, and micro cap growth and value, emerging markets, international, international value, and some real estate. Again, I will go into the details later in the blog. As long as I don't sell in effect I am deferring taxes until such time as I decide to sell. If I decide to hold on for twenty years unitl retirement, in effect, I have deferred payment of taxes until I sell some shares. Granted there will be some incremental captial gains taxes incurred from internal fund transactions. However it is minimal with little overall impact on most index funds. This concept is primarily based on capital asset allocation.

4. The 401k stragegy is similar to the index fund. I invest in idex like funds and minimize transactions. About the only time transactions are conducted are to rebalance for equal distribution amongst funds.

5. My strategy is to save and invest approximately $36,000 each year until the end of 2010.

6. The projected return on invested capital is a conservative 12% annual rate of return. Obviously there are no guarentees. However all liquid capital is invested in equities and no bonds or fixed interest bearing notes.

In basic terms, I have a starting balance of about $460,000 and plan on saving $36,000 per year over the next 5 years and expect to average approximately 12% annual return per year. Assuming this criteria, I should have approximately $1.25 million in equity by the end of year 2010. The $250,000 will pay of the home and then some and I will still have $1 million left in liquid capital.

Well that's a start. I will have additional information later in the blog.