My results from the second month of my Passive Versus Active Portfolio Experiment are now in.  They are as follows:

Month 2 Results

Passive: I had one transactions this month; a dividend reinvestment. My passive portfolio increased by a total of 10.32%. This gain includes the commission that would have been charged had I liquidated my position at the end of the month.  My dividend reinvestment is not subject to a commission.

Active: I had five transactions this month; 3 purchases and 2 sales. My active portfolio increased by a total of 1.91%. This gain includes commissions, including the one I would have been charged had I liquidated my third position at the end of the month.

Benchmark: During the same time period, the S&P 500 increased by 1.97%.  For the first time, one of my investment portfolios (active) failed to beat the benchmark for the month.  My passive portfolio significantly outperformed the benchmark this past month.

Overall Results to Date

After two months, my passive investments have taken the lead in profitability.  Both my passive and active investments have beaten the benchmark return of the S&P 500.

Passive Return to Date:  21.56%

Active Return to Date:   13.99%

Benchmark Return to Date:  10.69%

Continue >>

The Cash for Clunkers law is intended to jump start the auto industry by inspiring people to purchase new cars.  Touted secondary benefits include aiding consumers in new car purchases and various environmental benefits.  The program offers vouchers towards the purchase of a new car when an older, lower MPG car is traded-in.  The restrictions of the law make the program much less effective than it could have been and most consumers may be better off skipping the program entirely.

The voucher you receive would start at $3,500.  Your passenger car clunker must be at least 8 years old and have fuel efficiency at least 4 MPG worse than the new car.  If it’s 10 MPG worse, then you could get the larger voucher, worth $4,500.

If your car is at least 8 years old, congratulations.  Owning vehicles for a long time is a favorite technique of the frugally minded.  Driving a more fuel-efficient car sounds like a money savings potential as well.  So what’s the problem with the Cash for Clunkers program?

Continue >>

At different times in our lives we may be lacking in friends, money, or both. While money is certainly important, you may often find that a friend is much more valuable.

Friends can provide lasting support and help us to endure periods with less money. They may allow us to find happiness in life even though money can rarely do the same. A life flush with money without a friend to enjoy it with doesn’t seem all that desirable. To be rich and lonely seems like a pathetic existence.

What is a friendship worth? Consider the support a friend provides during a tough time. In that sense, you can put a price on the value of a friendship. What amount of money would it take to help you endure a situation alone, without the benefit of a comforting friend? Even in a desperate financial situation, such as a recent layoff, you’ll probably find that the value of a friend remains high. A $10,000 windfall may help you to get by for a few more months, but a friend could provide value for an entire lifetime.

You might conclude that the best situation would be to have friends and money. That certainly seems rational. Then you’d have the resources to do the things you’d like to do and people with which to do them. Unfortunately, that situation can be difficult to achieve. Assuming the alternative is to have one or the other, would you rather have close friends or lots of money?

Traditionally, investment clubs were used as a way to learn about the seemingly complex and complicated world of investing.  Though the internet and other educational resources have grown to fill this role, you may still find considerable value in joining an investment club.

Investment clubs are groups that meet regularly to discuss investment opportunities.  Members contribute money to the club so that investments can be made.  At each meeting, members may report on a company, review an investment book, host a guest speaker, or simply discuss different strategies.  In the beginning, basic investment concepts may be covered as well.  Particularly in the early stages, many investment clubs focus on member education.  For more information on investment clubs and general investing events in your area, visit the National Association of Investors Corp. (NAIC).

Investment clubs do much more than simply improve your financial literacy.  They allow you to

Continue >>

Look to nearly any personal finance blog or advice column and you’re likely to hear similar advice regarding investments.  It generally goes something like this: “Very few investors (and probably zero novices) can successfully time the market to get better returns.”  I myself have made the statement many times.  The concluding advice is to invest passively in low cost index funds and be satisfied to match the market, since the probable alternative of active investing is to under-perform the market.

Though I genuinely believe this prevailing wisdom, I wanted to ensure that it’s the case not for the average investor, but for me as an investor.  I’m not suggesting that I’m better or worse than average, but my performance is really the only one that matters to me and yours should be the only one that matters to you.

Setting Up The Experiment

I created and funded a new brokerage account for the sole purpose of comparing the two investment methods.  I intended to use half of my money passively and the other half actively.

Background Info

My passive investment would be a

Continue >>

For anyone who missed the announcement on their blog, Lending Club is hosting a free 30-minute online webinar this Thursday, June 11th.

The webinar is designed to show you

“How to Put Your Cash to Work with Lending Club. We’ll provide an overview of how Lending Club eliminates the high cost and complexity of traditional banks and offers investors the opportunity for returns that average over 9% annually.”

Space is Limited so register now

Date and Time:  Thursday, June 11, 2009   Noon PT/3:00pm ET

Location: Online

Before I begin, let me issue a little warning about this post.  What follows is a stream of consciousness type account of some of the things I’ve been thinking about lately regarding calculations for early retirement. I hope that this post generates a discussion rather than provides any answers on its own merits.  I make many assumptions below, but I hope to focus on the method of thinking rather than the merits of those assumptions themselves.  Now that that’s out of the way, let’s proceed:

First, Some Background

A general rule of thumb is that you need 25X your yearly expenses saved/invested to be able to retire.  I’ve discussed this previously in my post, Deciding Early When to Retire.  That number comes from the fact that withdrawing 4% historically allows your investments to last indefinitely.  Assuming the 25X number is correct, you might still be miscalculating your retirement needs.  It’s in this area that my latest calculations come into play.

The two main factors of influence are my mortgage and the fact that retirement investment accounts can’t be accessed until much later in life then I hope to retire.

Assume a 32-1/2 year old with expenses of $6000 a month including a new 30 year mortgage that is $3500.  Using the 25X calculation, you’d say that $1.8 Million is necessary for retirement.   If the inflation-adjusted equivalent was finally achieved in a 401K by age 45, however, retirement still wouldn’t be possible, since that money couldn’t be touched without penalty for many more years.

The Solution

To solve this problem, I’ve been considering retirement in two stages: the first part is

Continue >>

It seems as though many in the personal finance blogging community enjoying playing disc golf, and I am no exception.  I am blessed to live in one of the greatest small cities in the country for disc golfers, with many beautiful, free, and challenging courses.  In fact, the disc golf courses here helped my wife to sell me on the idea of relocating.

As I was playing last week, it crossed my mind that many of the lessons I’ve learned playing disc golf are highly applicable to personal finance.  Here are some that come to mind:

Until It’s in the Basket, The Hole Isn’t Done

It’s easy to lose focus on short putts, because they seem so easy.  What happens as a result?  Some easy birdies become pars and some sure pars become bogies.

Finance Implications: You can’t half-heartedly track your finances and assume everything will be OK, stop managing your investment as retirement nears, or count your profits before you sell a stock.  Losing focus before any of these tasks is fully complete could allow things to quickly get out of control.  In that sense, as the end of an effort approaches, we should focus on it even more intensely.

When Conditions Change, So Too Must Your Approach

I’ve played the same hole a hundred different ways based on the time of year, wind, how I’m feeling that day, or simply due to the fact that my capabilities change as I age.  A hole in one is so hard to repeat because even if we do everything the same internally, external forces are at work.  Understanding those factors, and modifying your approach, is essential to finding continued success.

Finance Implications: Managing your money in a bubble doesn’t make sense either.  You may choose to increase your emergency fund as unemployment rates fluctuate , invest more when market conditions are favorable, prepay your mortgage when alternative investments are less favorable, or reallocate your portfolio as you age.  There may be times when you cut your budget to the bone and others when a little luxury spending will be allowed in.  Learning to see that conditions have changed, and adapting your strategy for the new reality, will help to keep your finances on track.

Don’t use a Hydra on water holes

The Hydra is one of the few discs with the apparently desirable ability to float.  This makes it the perfect disc for holes with large water hazards, right?  Wrong!  Using a disc that floats

Continue >>

This is a guest post by Trisha Wagner, a freelance writer for DepositAccounts.com, where you can compare rates of checking accounts from dozens of banks in one place. Trisha writes regularly on the topics of personal finance and savings accounts.

If you have been paying attention to the news in recent weeks, you probably know that legislation to regulate the billing practices of credit card issuers is a hot topic. As more and more Americans struggle to keep afloat during the recession, this credit card reform at first seems like a win-win situation for everyone. Unfortunately that is not the case. In fact, the rules that are supposed to help consumers may inadvertently backfire making the situation worse for all credit card holders. Here are a few changes card holders can expect as a result of the credit card reform.

Someone has to pay

That someone will likely be card holders who have managed their accounts responsibly in the past. Consider the fact that in addition to limiting the ability of card issuers to charge whatever they please, banks are hemorrhaging money due to account holders defaulting on their payments. In an effort to recoup the money banks make on interest, fees and other penalties, it is likely they will turn their attention to people who are able to pay their balances.

It will be more difficult to get credit

Credit cards will no longer be handed out like candy at Halloween. Forget about fair or good credit, expect to see only those at the highest end of the credit score spectrum getting credit in the immediate future.

The return of annual fees

Continue >>

More on this topic (What's this?)

Beware the M2 Credit Card (Canadian Financial DIY, 5/25/10)

New Credit Card Minimum Payment Rules (Michael James on Money, 6/9/10)

Read more on Credit Cards at Wikinvest