What would you want to do?

I was reading a blog this evening that asked the question, "Do you like your job? If you left your job, what would you want to do?"

The blogger was asking the question because of the rising unemployment situation combined with the frustration many people feel in a thankless, dead-end job. Many of the respondents dreamed of leaving their jobs to start their own businesses. One of the bloggers mentioned paying off his mortgage so he could leave his job and focus on boarding horses using some land he recently purchased. Another person who works full-time as a wholesale auto parts distributor mentioned ramping up sales of a niche product he developed on the side.

I can honestly say I like my government job quite a bit. That doesn't mean I like it every day, but it's rewarding on most days. My work helps retirees get the retirement benefits their employers promised them, even when those employers end up liquidating. And because I work in the federal government, I can have a very reasonable work-life balance.

However, I work as a financial analyst. If I went out into the private sector, I'm not sure how much job security there would really be. Many things a financial analyst can do could be outsourced to India. I noticed on the blog mentioned above that many accountants are having their work outsourced.

That's part of the reason I like financial planning. You meet your clients one-on-one and develop plans for them so they can achieve their goals with as little risk as possible. You build a relationship with your clients and keep their best interests in mind. And you don't need to worry about outsourcing.

Do you want to leave your job and do whatever your heart desires? That's where I come in. My job is to help you find a way to make that goal a reality. And sometimes you might already know what it will take to get you there, but you just need someone to take care of the number-crunching and follow-up to make sure you stay on track. I can do that too. And if you somehow get off track, I can help you find ways to get back on the right path.

Stock market outlook is improving

It looks like the outcome of the bank stress tests isn't damaging the market, and while there continues to be an ongoing debate regarding whether banks should have been bailed out in the first place, it's clear that the Obama administration will not allow large banks to fail. That places a floor under the financial sector in the stock market, and allows investors to gather confidence about the overall economy.

You'll see a lot of articles and hear a lot of pundits say "we're not out of the woods yet". And that's true in terms of unemployment, bankruptcies, and commercial investment. But these indicators usually are at their worst after the bottom is reached in the stock market. And the stock market low we reached in early March really does look like the bottom now. Two months ago, the market wasn't sure how bad the economy was going to get. Now there are some positive indicators, such as rising consumer confidence and a stabilization of the service sector, that suggest we're "getting off the steep part of the roller coaster".

And although few people are anticipating a robust recovery, the market is breathing a sigh of relief that we're not continuing to fall into the abyss. And that's good enough for me to recommmend increasing your allocation in the stock market back to higher levels commensurate with your risk tolerance and your time horizon.

Save Your Retirement for $99

The reason why I started this blog is that I have a mission to make financial planning affordable for those who cannot afford your typical financial planner. My "Save Your Retirement for $99" offer is affordable, and can literally save thousands, or even hundreds of thousands of dollars for my potential clients.

I guarantee you that virtually no other financial planner will sit down with you knowing he/she will only get a $99 fee for helping you get your financial house in order.

So how does it work? Actually it's very simple. The $99 offer is a one-time, one-hour session where we talk about your financial goals and discuss how your savings measure up against some of your goals. It's intended to figure out if you are on the right track to achieving your goals or if there are some significant changes you need to make to better achieve them.

Now obviously, there is only so much that can be discussed in one hour, so we will cover the "big stuff" --- when you want to retire, how much you have saved, how much savings you are accumulating while working, and what you are investing in. If there is time, we can also discuss other goals you are trying to achieve before retirement (saving for a child's college education, buying a second home, etc.).

I also want to stress that by having this session, it does not result in the creation of a formal financial plan, which would take several more sessions and several more hours of work on my part. The $99 session is mostly intended to help you avoid any major financial mistakes, which will help you get the most bang for your buck.

For example, how many heart-wrenching stories have you heard about 60-year-olds who were only a few years from retirement but lost 50% or more of their savings? When I hear these stories, I'm convinced that these people did not have the slightest idea how much risk they were taking with their investments. A one-hour session would have largely solved that problem. It doesn't take a mathematician to figure out that spending $99 to save possibly hundreds of thousands of dollars is a good deal. In "financial speak", the return on investment could be off the charts!

So please contact me if you want to take advantage of this offer. If you contact me through the blog, we can have a one-hour session over the phone if you are not in the Columbia, MD area. If you are in the area, I can visit you for this session. I am sure you will not be disappointed, as the knowledge and savings you will gain from this session will surely outweigh the $99 you spend.

P.S.: If you wish to e-mail me, click on the "View my complete profile" link on the right side of the page, and then click the "e-mail" link within my profile.

Don't believe what the banks are saying

I'm just going to make this a quick post.

Much of the good news coming from the banks over the last few days is a one-time boost from relieving mark-to-market rules and abnormal gains from trading activities. It doesn't mean that consumers are miraculously starting to pay all of their mortgage payments and credit card bills on time. As an example, chargeoffs at Bank of America swelled to over $13 billion this quarter.

Also, keep in mind that once the stress test results are released, the federal government may consider converting its preferred stock in the banks over to common stock. This relieves the banks from making interest payments on the preferred stock, but will end up diluting the common stock. This means that if you bought stock in these banks, it will soon be diluted if the bank is using TARP funds and doesn't expect to pay those funds back soon.

If you happened to buy banking stocks in late February or early March, I would recommend selling at least 50% of your holdings because those stocks have probably doubled in price, and it will be very hard for those prices to be maintained as the trading profits from the first quarter are not likely to be repeated.

April 15 - a day that will live in infamy...

Today it's the last day to file tax returns with our good friends at the IRS. Yippee! Nothing says happiness like paying taxes, right?

I used TurboTax to generate my federal and state tax returns. I've been using TurboTax for about 5 years now and I love it. Before TurboTax, I would write up everything by hand and use my calculator for determining my short and long-term capital gains (or losses). Now I just plug everything in and away I go.

I was talking to my day care provider the other day, and she said that she drops off everything with her accountant about 1-2 weeks before April 15. She claims that her accountant is "worth every penny" because he figures out deductions that she wouldn't figure out herself.

I'm a bit skeptical about that. I don't see why TurboTax wouldn't pick up on possible deductions she could take. She has a business but it's a day care business and she's the sole proprietor. It's not like she has several employees working for her with all the complications that come along with hiring personnel. And TurboTax is quite thorough at going through the tax benefits of having a home office and figuring out deductions for car mileage, supplies, and everything else that goes along with taking care of kids.

I'm surprised how many people would rather have their accountant do their taxes than spend a few hours doing it themselves. And if you use HRBlock, do NOT take a refund acceleration loan --- it's a short-term loan that charges an exorbitant interest rate for people who can't wait just 2 lousy weeks to get their refund checks. Just wait.

Is it FINALLY a good time to buy a home?

In last Thursday's edition of the Wall Street Journal, Brett Arends makes the case that it might be a good time to buy a home:

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So let me play devil's advocate and consider the positive case for buying a home right now.
The key factor: Interest rates.

If you can borrow at 4.5% or 5% over 30 years, many purchases start to look appealing. Especially if we get a hefty dose of inflation down the line.

If that happens, your monthly payments will be low and you'd get to repay the principal over time with devalued dollars. That's a double win.

Inflation isn't guaranteed: The bond markets are only predicting about 1.4% inflation over the next 10 years, and BCA Research recently reminded clients that deflation, or falling prices, remains a danger. Unemployment is still rising and recent wages actually fell.

Yet if you had to bet from here, you'd bet on inflation in due course. The government is running massive deficits and has the printing presses at full throttle. That's the classic recipe.

And inflation is the debtors' friend -- which is why it is surely going to prove the politically expedient way out of this mess.

Anyone purchasing hard assets like real estate, with a 5% fixed rate loan, ought to make good money if that happens.

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First of all, I want to mention that I am a frequent reader of Brett Arends' series of "R.O.I." articles. I think he offers decent advice with a touch of skepticism, and much of his advice is grounded in common sense.

For the first time in many, many years, I tend to agree with Brett's argument that buying a home is a fairly good deal right now. If we focus on Brett's inflation argument, I believe we will see a significant rise in inflation in the next 3-5 years. For 2009 and 2010, I think we will see very low inflation or even deflation over this period, but once the economy recovers, the huge budget deficits will add trillions of dollars to the national debt and likely devalue the dollar. This means U.S. citizens will have to pay more for imported goods (a weaker U.S. currency relative to foreign currency makes foreign goods more expensive) and those who have fixed-rate debt will do better than those who have variable-rate debt (because inflation typically shows up along with rising interest rates).

Another excerpt from the article:

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When it comes to the house prices, it's true they may not have fallen as far as you might expect.
A recent analysis in the Financial Analysts Journal ("When Will Housing Recover?") suggested prices nationwide still weren't cheap by historical standards in relation to household incomes.
Homes were much cheaper, say, as recently as the 1970s.

Furthermore: the bigger the bubble, the bigger the bust. Considering how sharply home prices climbed from 2002 to 2006, one might expect real estate to end up really, really cheap before bottoming out. And you wouldn't expect a quick rebound either. Japan still hasn't recovered from 1989.

But if you are thinking of buying a home, here's the more positive news: While overall market averages may not be as cheap as you might have expected, you can probably ignore them.
There are plenty of deals taking place far below the official average levels. The indices are masking a huge disparity in prices.

Even the National Association of Realtors concedes distressed sales – including foreclosures and short sales – are closing about 20% below "normal" market rates. (Never mind how to define "normal").

Aggressive buyers are finding some simply terrific deals. And they're paying with cheap debt, too.

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Mr. Arends is saying that maybe we haven't quite reached the bottom on average, but there are probably some neighborhoods out there that have reached the bottom. I believe this is especially true for lower-income housing which had the biggest rise and fall in housing prices. Much of the low-income housing became a speculator's paradise during the boom years, and many of these homes became detached from the incomes that people would normally make in these neighborhoods. Now that we are a couple years into the bust period, these houses have declined the most on a percentage basis. Middle- and upper-income housing also rose significantly during the boom years and have come down during the bust, but not as large an amount on a percentage basis as low-income housing. You can see this in areas like Manassas, VA and Woodbridge, VA, where housing prices have plummeted but sales are way up compared to last year. This likely means that housing prices in these areas don't have much further to fall.

My advice?

• If you are going to buy a house to live in it, the first priority is to make sure that the house and the neighborhood are acceptable to you if you need to live there for 5-10 years. In other words, your home isn't just an investment --- it's also the place where you are schmoozing with neighbors and raising a family. If you end up in a negative equity situation, you want to make sure that you don't feel "stuck".
• Get a fixed-rate mortgage with monthly payments that you can currently afford. Note that affording a mortgage is much different than qualifying for a mortgage. Just because some broker says you qualify for a mortgage doesn't mean you can afford it. You have to look at your own income and your own budget, and determine the size of monthly payment that makes sense for you. Use one of the many free mortgage calculators on the web to determine your monthly payment. Do NOT get a variable-rate mortgage in this environment --- rates are at historic lows (actually they are artificially low because the Federal Reserve is buying treasury bonds to knock down mortgage rates) and a variable-rate mortgage will almost certainly go up over the next few years.
• If you are a first-time home buyer or have not owned a home in the last 3 years, you can get up to a $8,000 tax credit (there are price and income limitations which I will cover in my next post). Unlike the tax credit from last year, this credit does not have to be repaid. This credit, along with artificially low mortgage rates, provide a significant incentive especially for first-time home buyers to own a home.

A couple caveats:

• Note that I said you want to be comfortable living in a place for 5-10 years if you end up underwater on your mortgage. This is because I'm not predicting the bottom of the real estate market here. In many areas of California, Florida, and some of the other bubble states like Nevada and Arizona, the real estate boom was so massive that I believe many of the house prices in these areas still have further to fall. In fact, in some of these areas, I would not recommend buying a home now because the real estate market was so corrupt over the last several years that some areas won't recover for quite some time.
• If mortgage rates increase significantly over the next few years, this will end up holding down house prices. For every 1% rise in the mortgage rate, the price of a house needs to decline about 10% to keep the same monthly payment. At some point, the artificial subsidy on mortgage rates will end (supposedly next year, but who knows for sure?) and rates will better reflect the current market.

Note that I'm writing from the Baltimore-Washington corridor in Maryland, and I believe this area is more solid for buying a home, but if prices fall a little bit more after you buy, make sure you buy in a place where you would enjoy living at a price you can afford. Buy with a reasonable down payment and keep paying down that principal, and eventually you should have a decent equity cushion.

To buy and hold, or not to buy and hold?

Yesterday there was an article in the Wall Street Journal titled More Investors Say Bye-Bye to Buy and Hold. The following is an excerpt from that article:

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"For much of the past decade, Kenneth Kimmons of Bedford, Texas, was a buy-and-hold investor. He regularly socked away money in mutual funds across his 401(k) plans, individual retirement accounts and a brokerage account.

But after watching his investments fall by about 50% last year, he started trading individual stocks and options full-time last fall. He generally buys stocks at the start of the trading day -- lately, it's been bank stocks -- and sells them a few hours later. "I just got tired of putting money away and losing it," says the 31-year-old. He says he's doubled his money since he started trading full-time.

The ups and downs of the market are prompting more retail investors to abandon buy-and-hold strategies in favor of opportunistic trading. Some want more control over their money, so they are fleeing funds and advisers -- not to mention the feelings of helplessness raised by recent months' losses. Some are attempting to recoup their losses, while others are stepping back into the markets after a recent string of stock gains and better-than-expected economic news.

Most financial advisers still believe investors should stay the course, pointing out that frequent trading can incur fees, erode returns and result in higher tax bills. But many individuals have lost faith in the long-term growth of their investments and are trying to make money off the market's volatility."

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I have read on a couple websites that the last several months have been some of the best months for trading that anyone can remember. I can also understand why many people have lost faith in long-term investment growth and are trying a different approach.

However, one needs to remember that these are extraordinary times in the markets. Eventually the volatility will subside and the stock market will reenter another period of reasonable growth. Daytrading the stock market is not a viable long-term strategy for pursuing your financial goals.

I suspect some of those who are daytrading are trying to make up for their losses in the past six months. It's a bit desperate and it's not too different than gambling at a casino, because most people who daytrade actually lose money after taking into account the commissions and fees. And for the fortunate ones that actually make some money, doing your taxes isn't exactly a picnic either.

However, I also don't believe financial advisers should just blindly tell their clients to "stay the course". These advisers were saying this over and over in the last few months of 2008, and look where their clients are now. In most cases, their clients would have been much better off by selling their stock holdings earlier. I doubt these advisers really understood what was happening in the marketplace.

In my opinion, I think it's okay to make occasional trades, but only on very sporadic occasions based on market events or company announcements. Early last year, surveys of economists suggested that the economy was either in a recession or on the verge of a recession, yet the stock market had barely moved from its 2007 peak. In these cases, I think it makes sense to reduce allocation of the most sensitive holdings to market events, or buy options that protect investors on the downside without the need to sell the underlying stock holdings. Your adviser should understand the macroeconomic forces that help move the market, because this understanding will help protect your personal assets while keeping your long-range goals in mind.