Buy and Hold is Dead.  So reads the headline across blogs, discussion boards, and print media.  Before you send your condolences, let’s take a closer look at the rationalization driving the obituary and whether or not it warrants acceptance.

First, we have to remember that Buy and Hold means different things to different people.  For some, it means buying a stock you like and never selling it.  For others it means buy and homework (a Cramerism) meaning buy a stock you like and hold it until the reasons you liked it have changed.  Still others concede that since they can’t beat the market, they’ll buy low cost index funds to match the market for as long as they hold them.

With market indexes hovering around 10 year lows, I suspect that many people who say that Buy and Hold is dead mean that this last definition of Buy and Hold is dead.  Of course, using that definition, Buy and Hold can never be dead because even with the terrible performance of late, index investors still achieved their goal of matching the market.  Even so, let’s look a little more closely.

Continue >>

I’ve been feeling so at odds with most of the recent coverage of the stock market but was having trouble clarifying my sentiment.  Associated Press writer Rachel Beck finally helped to put some of my thoughts into words when she asked Are stocks facing ‘Irrational Pessimism?’.

To me, that’s an excellent way to describe the current situation. Why is it that so many of us continue to repeat the mistakes of the past? The market is in dismal shape, but isn’t that exactly what we should be hoping for as investors?  Lower prices now means that our gains will be even greater when the recovery eventually comes.  I’m not asserting that we’ve reached a market bottom or that things won’t get a lot worse before they get better.  But I do feel strongly that we’ll look back on current prices and kick ourselves for not buying even more.  That’s why I’m continuing to invest as much as possible.  I said as much when Mrs Micah asked her readers How the Recession Had Changed Their Spending Habits.

Unfortunately, many investors are taking a different approach.  I’ve been reading about people who have recently shifted to gold or cash to ride out the storm.  The trouble with such an approach is that it assumes you’ll be able to get back in just as things start to improve.  Few, if any, average investors can repeatedly time the market successfully.  More likely, they’ll get back in after clear signs of improvement are visible.  By that time, many of the gains will already have been made and the process of buying high and selling low will have begun again.  No, if you want to take full advantage of a recovery, investments must be made before signs of improvement.  A quick test of whether you’ll be able to get back in at the right time is to ask yourself this: “Did you get out of the market at the right time?”  If you answered yes, then you’ve probably been in cash for a long time and likely already started to buy again.  If you answered no, you probably sold more recently and are going to join the recovery too late as well.  Instead of chasing performance by watching lagging indicators, consider positioning yourself ahead of the curve for a change.  For me, that means investing more and more as the market remains where it it or declines further.

A reader recently asked how the interest is calculated on Lending Club loans and what her return in dollars might be.

Here’s my answer:

Loans through Lending Club are amortized over 36 months to keep payments fixed.  The quoted rate is the yearly rate, so 1/12 the rate is applied to the outstanding principal each month.  To determine your return, you’ll need to calculate the monthly payment, take out the 1% payment service fee and multiple by 36 months.  I believe that estimated monthly payments are shown when you consider a loan, but if not, you can use the following formula in Microsoft Excel, Google Spreadsheets, or a similar program: =PMT(rate/12,36,-loan) where rate is the quoted rate as a decimal (13% would be 0.13) and loan is the amount that you loan.  For example, 10% interest on a $3000 loan would be represented as =PMT(0.10/12,36,-3000), which returns a monthly payment of $96.80.  Multiplying by .99 is what you would get each month after the 1% service fee is taken out.  So you would get $95.83 each month.  After 36 months, you will have received $3450.01 for a profit of $450.01.  That amount would be subject to taxes as interest income, so your after tax profit would be

Continue >>

Few things have as much impact over your personal finances as where you live. For most Americans, housing is their largest expense. Moving to an affordable market can do for your personal finances what years of frugal living in an expensive area cannot.

In her article To Cut Costs, Move to Small Town USA, Liz Pulliam Weston profiled a few families that made such a move and the dramatic personal finance gains that followed. One of those profiled is Rob Bennett, whose book Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work, is on my list of books to review for Richer by the Day. In his profile, Rob mentioned two things missing from his new small town, a movie theater and a bookstore. You might think that such amenities are a small price to pay for a lower cost of living, and you’d certainly be correct. I have another strategy to cut costs, but without such down sides.

Continue >>

Most of the advertisements reviewed on Richer by the Day are directly related to personal finance. Budweiser’s Swear Jar ad inspires further discussion, though it doesn’t directly deal with personal finance. In the ad, office workers, who are required to place 25 cents in a jar each time they swear, beginning swearing a lot when they hear the money will be used to buy Bud Light.

Watch the ad, sourced from YouTube. (The ad contains censored profanities)

Continue >>

I recently received a forwarded email that has been circling the net for quite some time. The premise of the email is that if you are ever forced to withdraw money from an ATM by a thief you could enter your PIN in reverse order to summon the police. While such an idea has repeatedly been proposed, it hasn’t actually made its way into ATMs.

You can imagine the value of such a system. It would have marginal added cost, would allow transactions to continue, and offer the hope of rescue for victims. The main drawbacks often cited are that:

Continue >>

My favorite personal finance and business sites that I found through stumbleupon last week are included below. These sites either had useful information, were informative, or simply entertaining.

For those unfamiliar with stumbleupon, it sends you to a random website that matches your interests. You can then give that site a thumbs up or down, to influence future suggestions, before moving on to the next site.

If you currently use stumbleupon, or once you give it a try, I’d appreciate a thumbs up if you like this blog.

On to the list:

Continue >>

All too often we look at things from their monthly cost instead of the larger, more important picture, of total cost. There were times when these were the same thing. Stores once offered payment plans on purchases that effectively amounted to the 0% interest offers of today, without the associated catches. Offers to accept $5 a month until you had paid the full cost of some mail order item graced page after page of newspapers and catalogs in the early 1900s. Once interest, or the potential for retroactive interest (as is often the case in today’s 0% offers), comes into play, the difference between monthly payment and total cost can be quite large.

Continue >>

My post discussing whether the penny should be eliminated reminded me of the other redheaded stepchild of US currency: The $2 Bill. You may not realize that $2 bills are still in circulation, but I have a friend on a mission to change that perception.

Every time his supply of $2 bills is depleted he goes to the bank and withdraws $100 worth. I didn’t realize that you could do this, but as I said $2 bills are still legal tender so it should be no surprise that banks still have them. My friend doesn’t waste his bills, he just uses them in place of other cash. Using them as a tip is ideal because then he doesn’t have to explain his rationale each time he uses them. He effectively places them blindly into circulation.

Continue >>

I finally got around to creating my blogroll, which is located on the sidebar below my category list. Rather than just add the blogroll, I thought I’d share my rationale behind adding each of these sites. There are a lot of other good sites out there, many of which I read. I’ll probably add more of them to my blogroll as time goes by, but the ones below mostly have specific reasons for being included.

Continue >>