What are My Investments and How are They Doing So Far?

It’s the middle of the year and it’s time for a mid-year investment portfolio checkup.

I have talked about my investments many times in the past and shared with everybody what I was investing as well as performance of my portfolios. The last time when I got into details of my investments was May 2007 , more than one year ago.

That was then. In the past year, we all know what happened in the stock market and if you read my monthly net worth update, then you pretty much have an idea how my investments were doing lately. The theme is: Down. Not a a little bit, but a lot . Despite big drops in stocks, I haven’t made any dramatic change since the current crisis began a year ago. At the end of last year when I was evaluating my IRA investment, the only change I made at that time was moving some money from bond (invested in VIPSX) to stock (invested in VTSMX). And that was it, no change in my taxable mutual fund investments.

Last week, The Money Writers decided to roll out our first group write project by sharing with readers our portfolios and returns of our investments so far this year. The goal is to share our investment ideas and, hopefully,

Holdings

After cutting a couple of overlapped funds last year, I trimmed the number of mutual funds I own down to 10, which I think is an appropriate number. I don’t want to be a fund collector, but want to have exposures in the asset classes that I consider as essential: Large-cap, mid-cap, small-cap, foreign equities, precious metal, and real estate. As of July 1, my holdings, and their respective shares in the portfolio, are

1. CGM Focus Fund (CGMFX): 23.95%
2. Dodge & Cox International Fund (DODFX): 15.04%
3. Oakmark Equity & Income Fund (OAKBX): 11.16%
4. Dodge & Cox Stock Fund (DODGX): 10.82%
5. Buffalo Small Cap Fund (BUSFX): 9.19%
6. T. Row Price Small Cap Value Fund (PRSVX): 8.85%
7. Tocqueville Gold Fund (TGLDX): 7.31%
8. T. Row Price New Era (PRNEX): 7.24%
9. Alpine Dynamic Dividend (ADVDX): 4.07%
10. Third Avenue Real Estate (TAREX): 2.36%

In May 2007, CGMFX was under 10% of my overall holdings and DODFX was the largest piece. Now, the market value of CGMFX, which has been benefiting from the surging prices of commodities, especially oil, is nearly a quarter of my holdings. The biggest disappointment here is DODGX, which is my core investment in large-cap domestic stocks. Given the track record of Dodge & Cox, it’s really frustrating to see DODGX struggle, lagging its peers in performance recently. However, I still have faith in D&C.

You may have noticed that I don’t have any bond funds in my taxable account. Right, I don’t own bond fund because 1) I don’t think I need a bond fund; 2) I am buying I-Bond every month.

Asset Allocation

The asset allocation of the above investments look like the following chart.

Comparing to 14 months ago, the asset allocation is almost identical between now and then, which U.S. stocks down a little bit. On the other hand, I am pretty happy with the nearly 40% invested in foreign stocks (not only from DODFX, which is my core foreign investment, but also from CGMFX and ADVDX), which is quite large. The reason is that I believe foreign stocks present more growth opportunities than domestic stocks (though there are also associated risks), especially when U.S. stocks are struggling. Given that the U.S. GDP is only about a quarter of the world overall GDP (Wikipedia), 40% in foreign stocks isn’t too large to me.

Valuation

The biggest change in valuation is the nearly 20% increase in large-cap, which is largely due to the increasing share of CGMFX, a large-cap blend fund. At the same time, small-cap (PRSVX and BUFSX) dropped significantly. Small-cap stocks had a pretty good run since the beginning of this decade, but the party may be over because small companies could face more difficulties in obtaining credits amid turmoil in the financial market.

Individual Stocks

In addition to mutual funds, I also hold a bunch of invididual stocks/ETFs in my taxable account. Some of the largest holdings are:

• Altria (MO)
• BlackStone (BX)
• China Life Insurance (LFC)
• E-House (EJ)
• Phillip Morris International (PM)
• PowerShares Golden Dragon Halter USX China (PGJ)
• PowerShares Water Resources (PHO)
• PowerShare International Dividend Achiever (PID)
• ValueClick (VLCK)
• Visa (V)

I also have a few small stocks that I consider as speculative plays such as those in my Zecco play-money account. Though I have no plan to hold those stocks for long, I wasn’t able to make quick money out of those short-term investment either

Performance

Now it’s the hard part.

When I updated our net worth last month, I mentioned that it has lost 6.53% on paper. However, the losses in my investments YTD were skewed because I have been adding new money to, for example, mutual funds in taxable accounts as well as 401(k) and IRA accounts. Excluding all the new money, I am deep in red so far this year. Here’s how the real picture look like:

• Cash: +1.16%
• Stocks: -22.82% :(
• Mutual funds: -3.43%
• Retirement: -11.05% :(

The overall return is about -12.2% at the end of June, which matches pretty well the return of the S&P 500 in the first six months of 2008.

How Are The Money Writers Doing?

Curious about how the rest of The Money Writers are doing? Then take a look yourself:

• Brip Blap: -9.85%
  
• The Digerati Life: -7.3%
• Generation X Finance: -13.32%
• Lazy Man and Money: -7.22%
• Million Dollar Journey: -1.32%
• Money Smart Life: Really BAD
• My Dollar Plan: -7.8%

Sadly, nobody is above the water this year.

How’s your portfolio doing so far?

Related posts:

1. What are My Investments?
2. Tax Consequences of Our Taxable Investments for 2006
3. Making the Case of Having Alternative Investments in Portfolio
4. The Best Investments in IRA Accounts
5. Our Investments in DODFX

Update: 2007 Passive Income

When I posted our total passive income in 2007 in the middle of the month, one item missing from the calculation was interests earned from our purchases of 4-week T-bills in the first half of the year. Though I can go through all the transactions and figure out myself how much I have made, it would be very time consuming. So I instead decided to wait for the 1099.

Yesterday, the tax form arrived and it shows in 2007 we earned $441.45 in interests from investing in 4-week T-bills. That puts our total passive income last year at $18,245.80.

Sure, the money is good, but we will certainly take a hit at tax time. The *good* news is most of the distributions qualify a lower, 15% tax rate as they are either qualified dividends, or long term capital gains. From my rough estimate, we will have to pay about $3,500 extra taxes for all the passive incomes in 2007.

I don’t mind paying taxes because that means I have made money. Giving the money I earned back, however, is a totally different feeling.

Related posts:

1. 2006 Passive Income Update
2. Year-to-Date Net Worth Change by Category and Passive Income Update
3. 2007 Passive Income Summary
4. Year-to-Date Passive Income
5. Generating Passive Income with Dividend-Paying ETFs and Stocks

2007 Passive Income Summary

One of the objectives we have is to generate incomes, dividends and capital gains, from our investments and hope one day these what I called passive incomes will replace the major part of our salaries before tapping into savings in our tax deferred accounts. In 2007, we continued to make progress in growing this part of our investments.

Our passive incomes consist of three parts:

• Dividends from mutual funds, stocks, and ETFs;
• Capital gains from mutual funds;
• Interests from savings and Treasury bills.

Except Treasury bills, all the year-end mutual fund statements were in last week, so I tallied the numbers up last night and I am very happy to see that the result from last year exceeded my expectations. In 2007, our passive incomes from the above three sources are listed in the following table.

In addition, we have several other stocks that paid dividends in 2007, including BAC, PG, and PGN. However, since we only have a very small number of shares in those stocks, contributions from these investments are too small and, thus, not included in the calculation.

Passive incomes from three different categories, mutual funds, stocks/ETFs, and savings are:

• Mutual fund dividends and capital gains: $12,122.08
• Stock and ETF dividends: $1,818.6
• Savings interests: $3,863.67

The total passive income of 2007 is $17,804.35, up 75.75% from one year ago, when we generated $10,130.32. At the end of 2007, we have $363,776.75 in taxable investment and savings accounts, up $110,943.89 from December 2006. Of those gains, passive income made up about 16% of the net change in taxable investments in 2007.

As we continue to add new money regularly into our taxable investments, especially, into mutual funds, distributions will also grow. At the end of 2008, I hope the total passive income from taxable accounts could reach $30,000. That represents an annual growth rate of about 70%.

Related posts:

1. 2006 Passive Income Update
2. Update: 2007 Passive Income
3. Year-to-Date Net Worth Change by Category and Passive Income Update
4. Year-to-Date Passive Income
5. June 2007 Score Card — Part II: Passive Incomes

2007 Year End Review (III): Performance and Asset Allocation

This is the third part of our Year End Review, in which I have so far gone through financial moves we made in 2007 and how what we have done affected our net worth, which includes both new money and price appreciation of our existing investments. The latter is the subject of this part of the review.

Stocks and ETFs

I bought several stocks last year as mentioned in the first part of this review. Overall, it was a mixed bag when it comes to performance of our stock/ETF investments. Of our 19 holdings, 10 had positive returns while 9 were in the negative territory. Interestingly, all the top gainers were related to China, with E-House Holdings (EJ) leading the way with a gain of 72%, followed by PowerShares China ETF (PGJ) with 68.4%. The last two months of 2007, however, weren’t particularly pretty for Chinese stocks. My favorite, China Life Insurance (LFC) surrendered a big chuck of its gain to end 2007 with more than 50% increase in value.

On the other hand, there were not short of big losers, such as Xinhua Finance Media (XFML), which dropped more than 53% since its IPO and Nortel Networks (NT), a stock that I don’t even want to talk about. I did manage to unload some shares of these two stocks last year when the prices were much higher than where they are right now. Should have sold them all.

We also have two Chinese stocks traded on Hong Kong Stock Exchange, Industrial and Commercial Bank of China (1398.HK) and Alibaba.com (1688.HK), which returned 15.25% and -28.73%, respectively.

Mutual funds

For quite a while, Dodge & Cox International Fund (DODFX) was my top mutual fund performer, getting big returns and doubling our investments faster than other funds. That, however, is not the case in 2007, the year featuring near $100 oil.

The biggest gainer in 2007 among mutual funds we invested in was CGM Focus Fund (CGMFX), which returned nearly 80% over the past twelve months. Another fund, T. R. Price New Era (PRNEX), which also invests heavily in oil related companies, came at second with 40.7%. I am surprised that despite the 31% return of gold, our investments in Tocqueville Gold Fund (TGLDX) only rose a moderate 12.4%. Probably I should have bought gold ETFs to get exactly the same return. That said, the only gold coin I bought in March did appreciate nicely

Among disappointments, our biggest decliner is, not surprisingly, Third Avenue Real Estate (TAREX), which lost more than 8%. Actually, the loss wasn’t that bad compared to another real estate fund in our IRA account. In addition, small-cap funds performed poorly last year after leading large-cap stock funds for years. Two of our small-cap funds, Buffalo Small-cap (BUFSX) and T. R. Price Small-Cap Value (PRSVX) both down slightly for the year. Then, there’s Dodge & Cox Stock Fund (DODGX), which also had a bad year in 2007, gaining a miserable 0.1%

The asset allocation of our mutual fund investments is shown in the following chart. As of December 31, 2007, we have 67% in large-cap, 17% in mid-cap, and 17% in small-cap. This allocation is skewed a little because I didn’t take any ETF into consideration. Last year when I bought Vanguard Small-Cap ETF (VBR), the goal was to boost the small-cap part of our taxable investments.

IRA accounts

Unlike funds in our taxable accounts which are all actively managed, we took the index approach in our IRA accounts, with 3 out of 9 funds being Vanguard index funds. Again, other than small-cap and real estate funds, the performance of our IRA accounts in 2007 was fine.

Another difference is that we have no specific bond fund in our taxable account, but bonds are a rather significant portion in our IRA accounts. At the end of last year, more than 22% of our IRA assets are in bonds. The high bond allocation mainly came from three components: Vanguard Inflation Protected Securities (VIPSX), Interm-Term Bond (VBIIX), and D&C Balanced Fund (DODBX). For the equity part, we had 62% in large-cap, 19% in mid-cap, and 19% in small-cap.

Though the bond funds have performed quite well in 2007, I am thinking of rebalancing the portfolio to increase the exposure to international stocks, which is currently at only 13%. I would like that it goes up to about 20% and that will be done by shifting money from bond funds to International Stock (VGTSX)

Related posts:

1. 2006 Year-End Review II: Performance
2. March 2007 Score Card — Part II: Asset Allocation
3. How to Keep More — The Tax Factor in Your Asset Allocation
4. September 2006 Score Card — Part IV: Asset Allocation
5. August 2006 Score Card — Part III: Asset Allocation

2007 Year End Review (II): Net Worth

This is the second part of my 2007 Year End Reviews. In the first part, I took a look at the financial moves we made last year. Now I want to see how what we did put where we are in the new year.

December 2007 update

Our net worth saw second consecutive monthly decline in December after a disappointing November. For the month, our net worth went from $614,716 a month early to $608,122, losing $6,594, or 0.88%. The absolute dollar amount is not that significant percentage wise, the trend, however, is what concerns me to a degree. For the past two months, our wealth on paper shrank by more than $51,000 after reaching the peak at the end of October.

The breakdown of what we have at the end of December is as follows:

• Credit card balance: The overall credit card balance was reduced by $1,073, or 5.54%, last month to a total of $18,294, of which $16,000 are from 0% APR balance transfer.
• Cash: Our cash in various bank accounts reduced by $1,945, or 2.96%, to $63,701 compared to the balance at the end of November.
• Taxable accounts: The loss in our taxable investment account contributed to most of the net worth decline in the past month as the stock markets continued to struggle. Our taxable investments dropped $6,069, or 1.97%, to $302,075.
• Retirement accounts: The overall market value of our retirement accounts was almost flat last month, losing $294, or about 0.13%, to a total of $234,895.
• 529 plans: Our daughters’ 529 plans continued to do well with another positive gain, though mostly due to the $600 net contribution. For the month, the overall market value added $507, or 4.18%, to $12,798.
• Bonds: The least exciting part of our investments gained $138, or 1.08%, to end 2007 at a total of $12,946, though $100 of the gain came from new I-bond purchase.

2007 summary

The past twelve months minus two were great, though the retreat of the overall stock market started in the summer. Nonetheless, 2007 still shaped up as a good year in growing our net worth. When 2006 began, we had $458,992 in the following categories:

• Credit card balance: -$11,661
• Cash: $36,484
• Taxable accounts: $218,348
• Retirement accounts: $186,819
• 529 plans: $5,738
• Bonds: $23,264

Looking at where we are right now, the biggest gain in the past year came from our taxable investments, which is more than 56% of the net increase of $149,129, or 32.49%, in 2007. During the same time, our retirement accounts added $48,076, with nearly 60% of that gain coming from our own contributions to the IRA and 401(k) accounts.

As for our taxable investments, we put about $10,500 new money into our mutual funds, mostly through automatic purchases every month. The total deposits to our brokerage accounts at Scottrade, Zecco, Firstrade, and Sharebuilder in 2007 was around $28,000. Going forward, I will try not to add too much new money into our brokerage accounts to buy stocks. Instead, using proceeds from selling old stocks to fund new purchases would be a better option, especially with commission-free brokers such as Zecco. Subtracting the total of $38,500 new money, the gain from price appreciation and distributions in 2007 was about $45,200. That’s equivalent to an annual gain of more than 20% from our taxable investments.

The net increase of the assets of 529 plans in 2007 was about $7,000, of which about $6,300 were from our own contributions. Since more of the investments in 529 plans are in balanced index funds, I don’t expect any extraordinary gains in this part. A steady growth is much more important.

Growth since 2003

We started to track our nest eggs since 2003, when we had $201,422 under our names. In the past five years, we have made steady progress in growing our wealth, thanks to the generally up markets which helped grow our assets significantly in the last two years.

In the next part of the Year End Reviews, I will update our asset allocations and summarize the returns of the stocks and mutual funds we invested in.

Related posts:

1. 2006 Year-End Review III: Net Worth
2. Year-to-Date Net Worth Change by Category and Passive Income Update
3. 2006 Year-End Review I: Financial Moves
4. 2006 Year-End Review II: Performance
5. 2007 Year End Review (III): Performance and Asset Allocation

2007 Year End Review (I): Financial Moves

As we are approaching the finial day of 2007, I feel it’s time to look back and examine what we have done in the last year that could affect us financially, both in the short- and long-term, as I did at the end of 2006. Since we didn’t make any official goals when 2007 began, this review won’t be about what we have achieved and what we have missed.

In the first part of this year-end review, I summarize the financial moves we made in 2007.

Mutual funds

Our mutual fund investments in 2007 are almost identical to our holdings in 2006. We didn’t make any new purchase as I feel what we have now is sufficient to build a well diversified portfolio (I will take about our investments in details in a later part). However, we did liquidate one fund (CSVFX) early this year after determining it didn’t add more diversification or exposure than what we already have. In addition, we also exchanged one fund (TREMX) in our T. R. Price account to another (PRNEX), making DODFX our core international fund. Through out the year, we have made regular purchases of all 10 funds we currently own. Though in the past I have somehow demonstrated that dollar-cost averaging may not be the best investment strategy, we continue to implement it in this turbulent market.

Stocks

There were many ins and outs in our stock investments last year, Though I am no longer active in trading stocks. New purchases in 2007 mainly came from investing in Chinese IPO stocks, such as EJ, XFML, CSUN, and GA, plus several non-Chinese stocks MO, BX, VLCK, and SWHC. So far, however, most of the new purchases are nothing but disappointing and some of the Chinese stocks were hit pretty hard in the last couple of months. Could 2008 still be the year to invest in China? Not so, according to some who have predicted a collapse after the game, but I am not buying that. In 2007, I eliminated several stocks, such as MSFT and GRRF, and exchange-traded funds (ETF) including PFM and PEY as they too have been lackluster. One addition in the ETF area is VBR. Most of our stock investments were made through one-time purchases. The only exceptions are QQQQ, BAC and PGN, which were bought on monthly automatic investment plans with no or little fees.

Bonds

We took a break from 4-week T-bill investments in the second half of 2007 after the once my favorite short-term investment vehicle’s yield lagged returns of most high-yield online savings accounts we are using. Though interest rates of those banks kept falling after three consecutive rate cuts, T-bills won’t get into the mix any time soon for us. That said, we did maintain our monthly purchase of $100 I-bond, which is our only bond investment in regular accounts.

401(k)s

Our 2007 401(k) contributions fell short of maximum, mainly on my part. When I started my new job in June, I was hoping to get a better job soon so I didn’t participate in the new employer’s 401(k) plan. That change, however, never happened and I didn’t contribute since then. So I only had the first 5 months of while my wife maxed out her 401(k). Since it looks like I won’t be changing job soon, my contribution will start in 2008.

IRAs

Comparing to 401(k)s, we did much better with our IRA accounts in 2007 as our contributions were automatically made on a quarterly basis. Since 2002 when we opened our IRAs, we have contributed to the maximum each and every year. In 2008, the annual contribution limit will go up to $5,000 and we will take advantage of the higher limit to save a little more

529 plans

We got a 529 plan at Ohio College Advantage for our second daughter shortly after she was born. Now we have 529 plans for both our children and are add $300 every month to each account, making the total monthly contribution to $600. For us, as long as it doesn’t become a burden that we can no longer handle, we want to support our children’s future education as much as possible.

New online savings accounts

In 2007, we opened two new online savings accounts at FNBO Direct and IGoBanking, while at the same time, our accounts at Emigrant Direct and Virtual Bank were closed. So the number of bank accounts remained the same as in 2006 though I thought about simplifying our finance a little bit. Among those accounts we are currently using, I think IGoBanking could be closed, maybe ING Direct as well. The thought of getting a new account with better rate was put on hold after the latest rate reduction made the difference between rates from existing banks and the ones I want gets less significant.

New brokerage accounts

While I am *lucky* in keeping the same number of bank accounts in 2007, the number of brokerage accounts went up a little. In 2007, we got four new brokerage accounts at Zecco, E-Trade, TradeKing, and OptionsXpress. Among them, Zecco, TradeKing and E-Trade Global Trading were opened for trading and OptionsXpress was just for the $100 bonus. Meanwhile, two brokerage accounts, ShareBuilder and Firstrade were closed when I wanted to reduce the cost of trading. The two were replaced by Zecco and TradeKing, respectively. Right now, Scottrade remains my primary brokerage account.

New credit cards

Three new credit cards, Citi PremierPass, Driver’s Edge and Chase Freedom, were opened under my name in the past year, all for taking advantage of their 0% APR balance transfer offer. In addition, I also received $200 bonus from Chase Freedom card and $15,000 ThankYou points from Citi PremierPass, though they were not the main purpose. I will continues to look out for good promotions to make some free money, but good deals are rare these days. Two cards, Citi Dividend Rewards and Discover Miles, were closed in 2007.

0% balance transfers

Playing the balance transfer game remains one of my favorites to earn free money. In 2007, I borrowed money at 0% APR from new and existing cards and deposited the money into online bank when FNBO Direct was offering 6.00+% promotional rate. At the peak, I had about $100,000 borrowed from three cards and currently still have about $16,000. However, as interest rate falling and banks impose 3% transfer fees, easy money may have already been made.

New auto & home insurance

We switched to Ameriprise in January 2007 from Liberty Mutual after with the latter for two years. The change saved us about $300 annually on our insurance bill.

In the second part of this Year End Review, I will take a look at how our net worth has changed since January 1, 2007.

Related posts:

1. 2006 Year-End Review I: Financial Moves
2. 2007 Year End Review (II): Net Worth
3. MSN Money: Year-end Tax Moves
4. 2006 Year-End Review III: Net Worth
5. 2007 Year End Review (III): Performance and Asset Allocation

Pay Ourselves First: The Way We Save and Invest

After I posted our latest score card update last week, MoneyNing asked me if I can share how we accumulated our net worth and the source of the growth, whether it’s from our salaries or investments.

Actually, I have touched this topic quite often in the past (for example, when we reached the half-million mark). For someone who has read this Diary for a while, it should be quite clear the way we save and invest. If you are new, then this post will be a summary of what I have wrote in the past, with some new additions.

Cost Basis vs Gain

As of June 30th, more than 30% of our net worth (excluding cash and bonds) is from investment gains. Looking at the market values, that’s about $160K from price appreciations, a gain of nearly 50%. The rests are from our own investments plus some employer matches of our 401(k) contributions. We didn’t start investing till 2001 and since then have been making regular contributions, in both taxable accounts and retirements. On average, we put more than $50,000 into various investment accounts every year.

I feel that our savings rate is quite high (about 40%). The reason for having such a high rate is we always put saving and investing ahead of spending.

Saving

I have a rather large saving and investing system which consists of more than a dozen bank and brokerage accounts. However, despite the complexity (I am working to simplify it), the system has worked quite well for us because almost all the transactions are done automatically, from the time our paychecks hit the bank. We basically put our saving and investing on autopilot so we don’t forget to transfer money from checking account to high-yield savings accounts (the accounts for our emergency funds) and purchase mutual fund shares every month. That makes our live much easier.

Investing

Since I started to track our net worth in 2003, the value has more than doubled in the past four years, with a big part coming from, as I mentioned above, gains (at least on paper). We benefit from starting early and being consistent. Though I have proved with my own study before that dollar-cost averaging may not be the best investment strategy when it comes to returns, that’s what we are using to invest in mutual funds. Sometimes return is not the only goal. I believe that being disciplined in investing is much more important than trying to find the perfect investments or waiting for the right time to enter into the markets.

I have seen some discussions on whether one should pay off high interest rate credit card debt or start investing even in debt. While it makes a lot of sense to target the debt that charges some 18% interest rate first, I feel that investing should never be delayed even when one is deep in debt. For the long term, even $50 invested today will make a big difference 30 or 40 years later. So why don’t spare $50 and invest it while battling the debt?

As for our investments, all our taxable mutual funds are actively managed funds, not index funds suggested by many experts for reasons such as the high initial investments for most of Vanguard index funds. Amazingly, these funds have been doing very well without costing me too much to own as compared to index funds, at least till now. Of course, the comparison is based on past performance and there’s no guarantee the future will be the same as the history. On the other hand, we do use Vanguard funds in our IRA accounts.

In addition to mutual funds, I also buy quite a lot individual stocks. In fact, the market value of stocks we hold is about 60% bigger than the size of mutual funds, largely due to one single stock, China Life Insurance (LFC), which accounts nearly half of the total value. I used to do a lot of tradings, in hoping to make some quick money. But now I tend to hold each one I bought for much longer time.

Another thing I have done that I think helped us is I am not afraid of buying new issues, particularly mutual funds and ETFs, even though they don’t have any tracking record or a very short one. For example, I first bought Dodge & Cox International Fund (DODFX) in June 2003 when the fund had been around for less than 2 years and invested in PowerShares China ETF (PGJ) and Water ETF (PHO) only a few months after the funds were launched. So far they are among my best performers. I also invested quite early in some hot areas such as gold and real state, both in 2002 and having solid returns.

So far, we have some successes in investing, also suffered some losses for bad decisions. However, we have committed ourselves to investing, no matter it’s an up market or down market.

Related posts:

1. “How to Invest When You’re Young”
2. Invest Like Bill Miller
3. A Better Way to Invest in 401(k) and Get Better Return?
4. How to Invest in 4-Week T-Bills: The Complete Process
5. iShares 529 Plan: Save for College with ETFs

Should We Simplify Our Finance?

Some how I started to feel that we need to make some overhaul of our finance to make it more efficient and easier to manage, though we haven’t reached the point that things are out of hands yet. Partly because that getting a credit card, opening a bank account, and buying a stock are so easy these days (usually takes only a few clicks and several minutes of time), we have accumulated a significant number of accounts over years and the number is likely to get even bigger if we don’t take steps to reduce it now. Then it will become a headache.

I don’t know if anybody else has the same problem as we do, but I am sure we are not unique. Here’s what we have now under our names (most of them are joint accounts except the credit cards).

Bank accounts

I am not a 100% rate-chaser, but I notice a bank that offers significant higher rate with low minimum, I tend to go for it. After all I want to get the most of my money.

• One checking account:
  • Bank of America: Our direct deposit account (used to be Summit Bank, then Fleet Bank, than BoA)
• Five online savings accounts:
  • IGoBanking: My latest and primary savings account
  • HSBC: Mainly for Treasury Direct purchases
  • Emigrant Direct: Almost empty
  • ING Direct: My first and, for a while only, online bank account, but now almost empty
  • Virtual Bank: Almost empty

What I want to get rid of: I am sure I will ever use Virtual Bank again, but for others, I think I will keep them for now in case anyone decides to hike their rates so I can move money around.

Brokerage accounts

I used to have only one brokerage account with Scottrade, but services they offer aren’t that great (no dividend reinvestment for stocks and for once, they don’t even have electronic fund transfer) and their commission isn’t the lowest. Then I opened several accounts with other brokers and each seems to have its own feature.

• Four regular brokerage accounts:
  • Scottrade: Primary broker. I could do all my business with them if they offer free dividend reinvestment
  • Firstrade: For investing stocks that pay dividend
  • ShareBuilder: Opened to get their bonus ($155 in total)
  • QQQDirect: Only for purchasing QQQQ, which charges zero commission
• Two DRIP accounts:
  • One with Computershares
  • One with P&G
• Four retirement accounts:
  • 401(K) account at Fidelity
  • Roth IRA accounts at Scottrade and Vanguard
  • Traditional IRA accounts at Scottrade and Vanguard
• One Treasury account:
  • TreasuryDirect: For investing in I-bonds and T-bills

What I want to get rid of: ShareBuilder can go as I don’t really like the idea of investing on the every Tuesday, plus I don’t trade that much any more. I prefer to trade whenever I feel it’s the right time and with a larger amount instead of $100 or $50 a month with $4 commission.

Mutual fund accounts

All my mutual funds are purchased directly from the fund companies to avoid any unnecessary fees. That means every time I want to invest in a new fund, I have to open an account with the fund company.

• Eight mutual fund accounts: Eleven mutual funds are held at eight mutual fund companies with eight separate accounts.

What I want to get rid of: I have been considering to sell my shares in CGMFX for a while, but didn’t take any action. What I like is its rate of returns (highest YTD return among my mutual funds) and what I hate is its high turover ratio (thus large capital gain distributions).

Credit card accounts

When there’s a new card offer with big incentives ($100+ sign up bonus and 0% APR for balance transfer), I want to have it (two new this year already), even it means I will abandon the card after the initial period if the card doesn’t have any other values. That, however, doesn’t mean I will close the account. In fact, I don’t usual close an account because I have no use of it. On the other hand, the large number of credit cards doesn’t seem to affect my credit score that much.

• One MBNA account: Active
• Two Bank of America accounts: Non-active, one for 0% balance transfer
• Two Discover accounts: Non-active, one for 0% balance transfer
• Three Citi accounts: One active and one for 0% balance transfer
• Three Two American Express accounts: One active
• Four store accounts: Non-active
• Five Chase accounts: Two active

What I want to get rid of: Among the newest accounts (Chase Freedom, Citi PremierPass, and Discover Miles), I can close the Discover Miles card after the 0% balance transfer promotion ends in June. For the other two, I am using Chase Freedom now for the 3% rebates on groceries and gas and will keep Citi PremierPass as a travel card.

Even with the changes I plan to make, we still own a large number of accounts. When I look at them, I feel my life could be a little easier if I cut the number by half (though I haven’t missed any payment so far). The difficult part is to figure out which one to cut. They all seem to have some use, big or small.

What should I do?

*Photo from Purdue.edu

Related posts:

1. Got First Issue Of Kiplinger’s Personal Finance
2. Guest Post at Generation X Finance
3. Check Out the Latest Carnival of Personal Finance
4. Check out This Week’s Carnival of Personal Finance
5. My First Carnival of Personal Finance Participation

My Best

Early last week, FMF at Free Money Finance announced his own version of “March Madness,” competition of best posts from personal finance bloggers. I thought it’s a great idea to get a chance to read what other bloggers consider their best articles. Also since I have been writing on this Dairy for 6 months, it’s time to look back and see if this Diary has provided any values to the general audience.

If I am asked which one among the 423 posts I have written in the past six months is the best, I will have to say that I really like Dollar-Cost-Averaging: For Higher Return or for Lower Risk? and So How Bad is Dollar-Cost-Averaging? My Own Study of VFINX from 1988 - 2007. The reason is quite simple: I have heard a lot talks on dollar-cost-averaging and read many papers/books on this topic, but it’s more convincing when I use real data and do the calculation myself instead of taking whatever other people said as is. Also I like them because I spent quite some time doing research when writing them, even though they are not popular.

Speaking of popularity, if you Google electric orange, brokerage firms review, or t-bill rate, you will likely to find your way to this Diary. My posts are on top of the search returns, if not the first one on the list.

“electric orange“: Electric Orange — ING’s Paperless Checking Account

“brokerage firms review“: Discount Brokerage Firms: A Review of Scottrade, Firstrade, ShareBuilder, and QQQDirect

“t-bill rate“: T-Bill Investment Rate: Is it APR or APY? And What Is Your Taxable Equivalent Yield?

Related posts:

1. ING Electric Orange Checking Offers Cash Backs In June and July
2. Pay Ourselves First: The Way We Save and Invest
3. Reviews
4. March Madness, Carnival of Celebrities, and $20 Amazon Gift Certificate for a Survey
5. 2006 Year-End Review I: Financial Moves

2006 Year-End Review III: Net Worth

This is the third part of my year-end review. In the first two segments of this review series, I looked our own contributions in 2006 and how a good market helped us in growing our net worth. Now it's time to see how we did exactly.

We started 2006 with a net worth of $294,299 in the following categories:

• Credit card debt: $5,069.44
• Cash: $29,061.08
• Taxable: $133,389.08
• Retirement: $126,404.71
• 529 plans: $1,506.86
• Bonds: $9,006.74

and we closed the year with $458,992 (details can be found here). The year-to-year net change is $164,693, or a gain of nearly 56%. Contributers to the net change include:

• New money: $87,608
• Market value change: $58,825
• Dividends, capital gains, and interests: $16,759
• Free money: $1,500

Percentage wise, each contributer accounts for

Since we are still in the accumulation stage, it didn't surprise me that more than half of our net worth change in 2006 came from our own contributions. This trend should continue as long as both of us work and keep our regular investments. Our assets appreciated nearly 20% over the past year, thanks to the double-digit gain of the broad market. In this category, we were slight ahead of the market. However, since this is unrealized gain (the value change is only on paper), what 2007 will bring us is up to the market conditions. About 10% of 2006 net worth change were due to realized gains (which I call passive income, such as dividend payouts, capital gains, and interests. Among them, about $7,406, or about 44%, are from assets held in taxable accounts, meaning that we are responsible for the taxes of these gains. As we continue to add shares, this part should grow over time and we hope one day the passive income will become a major contributer.

Though I started to track what our nest egg in 2004, monthly change data were only available since I launched this Diary with a regular update of our net worth. The following chart shows the steady growth of our net worth in 2006.

The four-year history of our net worth from January 1, 2004 to January 1, 2007 is shown in the next plot.

The small increase from 2004 to 2005 was mainly due to the $50,000 downpayment when we purchased our current house in 2004. Other than that, we only made a few big purchases in the past two years: $3,000 car downpayment in 2005, $2,400 for a big screen TV in 2005, about $1,200 for a home theater system in early 2006, and a trip to China in the summer of 2006 for about $3,500. For 2007, there is no big spending planed so far. We may want to buy a bigger house as we are expecting our second child. And the new addition of the family will increase our day-to-day spendings as well. Hopefully, we can still keep our saving rate around 40%.

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Related posts:

1. 2007 Year End Review (II): Net Worth
2. 2006 Year-End Review II: Performance
3. Year-to-Date Net Worth Change by Category and Passive Income Update
4. 2007 Year End Review (III): Performance and Asset Allocation
5. 2007 Year End Review (I): Financial Moves

2006 Year-End Review II: Performance

This is the second part of our 2006 year-end review. In the first part, we looked at what we have done in 2006 in order to grow our nest egg. The main contributer to our net worth is our regular contributions to all accounts. In fact, we totally added about $87,608 new money into our investments, including taxable accounts, 401(k) plans, IRAs, and 519 plans. To get a decent growth, our contribution alone may not be enough. We also need some help from the markets. 2006 has proven to be a good year for investors as the Dow was up more than 16%, the NASDAQ increased 11.48%,  and S&P 500 gained 13.62%. So how those components in our portfolios did in 2006?

Mutual funds

In general, it has been a good year for mutual funds as all the funds I own posted double digits gains. Among the 12 funds hold in taxable account, 8 of them beat their respective bench marks. The top three gainers are: TGLDX (gold), TREMX (international), and TAREX (real estate), while the bottom three are: OAKBX (large blend), BUFSX (small growth), and CSVFX (large blend). 

Symbol	2006 return	+/- Bench mark
ADVDX	22.57%	+6.78 (S&P 500 TR)
BUFSX	13.95%	-1.84 (S&P 500 TR)
CGMFX	14.95%	-0.84 (S&P 500 TR)
CSVFX	14.58%	-1.21 (S&P 500 TR)
DODGX	18.53%	+2.74 (S&P 500 TR)
DODFX	28.01%	+1.67 (MSCI EAFE)
OAKBX	10.82%	-1.26 (Dow)
PRSVX	16.24%	+0.45 (S&P)
PRNEX	17.00%	+1.21 (S&P 500 TR)
TREMX	34.74%	+8.40 (MSCI EAFE)
TAREX	30.16%	+14.37 (S&P 500 TR)
TGLDX	39.24%	+12.90 (MSCI EAFE)

A notable change in performance in the past year is the lagging of small-cap funds. I own several of them across different accounts (BUFSX, BRSIX, VISVX, FSCRX, FCPVX, RSSGX) and they all underperformed S&P 500 except VISVX. For the year, Russell 2000 index, which tracks small-cap companies with a median market cap of 654 million, had a return of 16.94%, while S&P 600 small-cap index gained 14.29%. Small-cap funds have been outperformed large-caps for several years and, as the economy enters the moderate growth stage, some experts predict it's large-cap's turn. Is it time to make a shift?

IRAs

Unlike funds in our taxable account which are all actively managed, 6 out of 10 funds in our IRA accounts are Vanguard funds. The reason to go with low-cost index funds in the IRA accounts is that we know these funds will be held for long time (though we may make some adjustments) and for long-term, the costs will have much more significant impact on what we will keep than, say, a 5-year period (here's a comparison of my funds with their Vanguard counterparts in fees and performance).

People say when the stocks are good, bonds suffer and vice versa. At least 2006 proved this is true as the two bond funds (VBIIX and VIPSX) in our IRAs barely changed. Of course, we didn't really expect any spectacular returns from bonds and they are more for diversifications. Inflation protected securities (VIPSX) had some good time in early 2000s and have been sluggish in the past two years. In a recent Morningstar article, the author still suggested a place for inflation protected securities in your portfolio to get some protection against inflation.

401(k)s

Since our 401(k)s are managed by Fidelity, we have many Fidelity funds in our portfolios. Due to the limited fund selections, diversification in 401(k) accounts are not as easy and straightforward as in taxable or IRA accounts. As the number shows, most of our funds trailed the bench marks in 2006, though my wife's 401(k) had an annual return of 17.3% last year (some funds are not shown as they don't have a ticker symbol) and mine gained 12.5%.

I haven't done the annual rebalance on 401(k) yet and am planing to complete the task this month.  

Stocks

In the past year, I purchased some new stocks/ETFs as I mentioned in the first part of this review and didn't add any new money to most of my stock holdings (except QQQQ, BAC, PEY, PFM, and PGN). The reasons I make continuous commitments to these stocks are: 1) they are all dividend-pay stocks/ETFs (except QQQQ), and 2) I have very small positions with them (except PEY). Dollar-cost-averaging (DCA) is my way to build the size as I don't pay commissions when buy three of them: QQQQ, BAC, and PGN. 

Looking at the return of LFC in 2006 alone should give anyone a pretty good idea of what's the average return of my stock portfolio (though I don't have that number). 295%, that's right! 295%. When everybody was excited when Google, which returned only about 9% in 2006, surpassed $500 in late November, I was just happy to have LFC. In addition, China related stocks/EFTs continued to deliver superior performance as PGJ increased nearly 50% in the past twelve months (click here for more choices on China). The worst performer in 2006 is, again, Nortel, though the stock has seen some nice bounce since the reverse split on December 1st. 

Of course, since I do DCA for almost all the mutual funds, the real returns I got are different from the above numbers which assume only one investment made on January 1st, 2006. In the last part of this year-end review, I will take a look at how our net worth has changed in 2006 due to both our contributions and returns from the markets. 

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Related posts:

1. 2007 Year End Review (III): Performance and Asset Allocation
2. 2007 Year End Review (II): Net Worth
3. 2007 Year End Review (I): Financial Moves
4. 2006 Year-End Review I: Financial Moves
5. 2006 Year-End Review III: Net Worth

2006 Year-End Review I: Financial Moves

As 2006 is winding down, it's time to look back and examine what we did, how we did this year and where we will be when 2007 begins.

In the first part of this year-end review, I summarize the moves we made in 2006 that affected us financially.

Mutual fund investments

In 2006, we continued our regular investments in 12 mutual funds we currently hold. In total, we added $15,000 new money into our accounts. In the first quarter of 2006, I sold three funds (HABDX, NISVX, and WAAEX) that I didn't make regular purchase and bought a new one (ADVDX), mainly for its high dividend yield (currently at 12.17%). I hope one day it will provide us with more passive income. 

Stock investments

We totally invested $17,704 in our stock portfolio. Major part of the money went to new purchases (PSI, PHO, PFM, GRRF, QQQ, BAC, PG, and PGN), through either brokerage firms (Scottrade, ShareBuiler, QQQDidrect, and Firstrade) or DRIP program (ComputerShares). A small portion went to recurring purchases of QQQQ, BAC, PG, and PGN at $50 a month and PEY and PFM at $100 per month. Unlike mutual funds, I don't want to make regular purchase of stocks due to cost concerns. For those I do make monthly investments, they are all dividend-paying equities (except QQQQ). 

Bond investments

After selling HABDX, I no longer hold any bond fund in my taxable accounts. However, I continued monthly purchase of $100 I-Bond which is exempted from federal and local taxes. In addition, I started to buy 4-week T-Bill every week (except October) back in May and now the T-Bill counts half of our bond investments. In 2006, we added $13,200 new money into the bond investments.

401(k) contributions

The total contributions to our 401(k) plans in 2006 are $30,104, including $6,417 employer matches, though both my wife and I didn't max out the $15,000 allowed maximum. In 2007, we probably will increase the percentages a little to get close to the maximum $15,500 contribution limit. After all, today's $3,000 will make a difference 20 or 30 years later.

IRA contributions

I am very happy with this part as we contributed $8,000 into our Roth IRA accounts in 2006, though we have until April 14th, 2007 to do so. Actually, we have been contributing the maximum amount since we opened our accounts in 2002. Next year, the limit will go up to $5,000 and we will continue our quarterly investment into our accounts.

529 contributions

In addition to adding $100 every month into each of the three 529 plans (Vanguard, Fidelity, and T. R. Price), the cash backs we earned from Citi Upromise credit card and Fidelity 529 Rewards card were also automatically invested in to the plans. In 2006, our own contributions are $3,600. 

Term life insurance

In February, both my wife and I bought a 30-year $500K term life insurance policy from Matlife. We have life insurances with our employers and the new policies are for our daughters' future should anything happens to us. The total annual premium is $754.

Additional mortgage payments

In 2006, we made $4,800 additional mortgage payment ($400 each month). Our 5-year 4.75% ARM is almost three years old and we want to get the most out of this low rate. Next year, we probably will buy a bigger house if the conditions are right.

New auto & home insurance

We are currently using Liberty Mutual with annual premium for both cars and home at $1,751. After some comparisons, I decided to switch to Ameriprise which gave us a better rate ($1,539 annual premium).

New IRA custodian

Back in October, we started the process of moving parts of IRAs from Scottrade to Vanguard since Scottrade charges $2 transaction fees for each purchase. This was supposed to be a routine, at least for Vanguard, but it turned to be a process that full of troubles. Now nearly three months after the initiations, we still don't know when Vanguard will finish the transfer of my wife account.

New online savings account

I opened a Virtual Bank savings account back in March when they offered a better rate. But that was then. Now almost all our savings are with EmigrantDirect and HSBC. I am considering open another account which gives me a higher rate, however, haven't decided which one yet.

New credit cards

We opened two new credit cards in 2006: Fidelity 529 Rewards MasterCard and Discover Miles card, with combined credit line of $14,500. We now use the Fidelity card every day for their 2% cash backs. The Discover card was for 0% balance transfer only (of course, I got the 10,000 mile bonus).

0% balance transfers

I just love them. In 2006, I took a total of six 0% balance transfer offers, five of them from Chase (five months, $75 transfer fees) and one from Discover (ten months, $0 fee). The combined balance from all these offers were about $75,000. Currently, only the Discover offer is still valid. I probably will take some more next year, either through new cards or existing ones (from Chase).

Others

In summer 2006, I started selling stuff on Amazon.com and have sold $1,164 of stuff so far, not too bad considering the effort I put into it. Most of the stuff I sold were bought from places like Buy.com and TigerDirect.com. In addition, I also took some time (quite some) taking online surveys and made $432 in total. I love to get a few bucks here and there :D.

Finally, I started this Diary in September and it has become my biggest hobby. Though the Diary is taking me a lot of time every day, I really enjoy it. And, of course, thanks everybody who stop by, read my story and comment on it. 

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*Photo from TimesSquareNYC.org 

Related posts:

1. 2007 Year End Review (I): Financial Moves
2. 2007 Year End Review (II): Net Worth
3. MSN Money: Year-end Tax Moves
4. 2007 Year End Review (III): Performance and Asset Allocation
5. 2006 Year-End Review II: Performance