Have you ever thought about it? I never faced such a question before until last week Lazy Man at Lazy Man and Money brought it to a group of bloggers as the question for the weekly Money Question series (here are Part II, Part III, and Part IV). The exact question look like this:

Where is the single best place to invest a $50K after-tax windfall now? Assume the following: you don’t need the money for at least 10 years, you’ve already max out 401k and Roth IRAs. Pretend that the windfall came under a couple conditions… 1) You can only invest it in one area. 2) If your investment doesn’t make 6% a year you lose it all.

Since 6% annual return isn’t a rate that requires some extraordinary effort to achieve, I can play the money fairly safe.

Right now, I don’t have any big plan (like owning my own business) in my mind, but if I could get a windfall of $50,000 or even $100,000, then I will use the money as part of the down payment to get a bigger house. Now that we have two children, our three-bedroom townhouse is kind of small. Though they can still share a room for a while (we have two daughters), we will have to buy a bigger one at some point and the extra money can definitely help. We’d love to get a single house with basement so the children can have space to play. Also, both my wife and I like to play table tennis a lot. We could setup a table in the basement for ourselves and that’s like dreams come true.

Will I get 6% return from the house? I don’t know for sure. But I think the fast growing population (there are projections that the US population will add more than 40 million in the next decade) will give the housing market the support it needs for sustainable growth.

I know that I am supposed to make only one investment, but if there’s any money left after we buy the house, I plan to invest it for the future. Actually, I already have a target and that’s Vanguard Total Stock Market Fund (VTI). I don’t mind to invest in a lump sum as it’s almost impossible that the market will be down in the next 20 or 30 years. Thus, if the money is available, making a lump sum investment is the best choice for the long term. Also, since the fund covers the entire US stock market, I will get the maximum diversification with a single fund, which is also very cheap.

It’s not a very exciting plan, but I feel I can get a healthy growth with it. If I really want to try my luck with something dramatic, then I can make an one time investment into an international funds such as iShares MSCI EAFE Index (EFA) or Vanguard FTSE All-World Ex-US ETF (VEU).

a

Money Question: What Would I Do with a $50,000 Windfall?

---
Check Out These Related Articles:

• Posts I Enjoyed Last Week
• More on Money Question
• Trouble With Greenfield Online
• Around the PF Blogosphere: June 8, 2007
• We Don’t Fight over Money

What are your investing strategies and how have you decided to allocate your money? What does your portfolio look like?

I have discussed several times in the past about my portfolio, the most recent one was in April after I sold my shares of CSVFX and bought some VBR, as part of my monthly net worth update. I try not to talk too often because asset allocation of my investment is not something that needs to be reviewed every month. If I make any change, it will be in the form of rebalancing and will only happen once or twice at most a year. To answer this week’s question, I pulled out all the numbers from my taxable investment accounts and made a list of what I own and how they are doing so far.

Allocation

First, the asset allocation of the mutual funds and ETFs (I didn’t include any individual stocks here because otherwise it will skew the allocation):

And the valuation of this portfolio looks like this:

I used to have more than 50% in large-cap, but the percentage shrank after the latest change. Using Morningstar’s instant X-ray, I found that the cost of owning this portfolio:

• Average expense ratio: 0.80%
• Expense ratio of similarly weighted hypothetical portfolio: 1.15%

The second item is the average cost of a hypothetical portfolio with the similar weights in each asset. Frankly, I am quite happy that I didn’t pay more than 1% in expenses for the funds I own.

Holdings

The following are the top 10 holdings:

1. Dodge & Cox International Fund (DODFX): 12.37%
2. Dodge & Cox Stock Fund (DODGX): 10.58%
3. CGM Focus Fund (CGMFX): 9.65%
4. Buffalo Small Cap Fund (BUSFX): 8.79%
5. PowerShares Golden Dragon Halter USX China (PGJ): 8.67%
6. Oakmark Equity & Income Fund (OAKBX): 8.00%
7. T. Row Price Small Cap Value Fund (PRSVX): 6.90%
8. PowerShares Water Resources (PHO): 6.31%
9. Tocqueville Gold Fund (TGLDX): 5.95%
10. PowerShares High Yield Dividend Achievers (PEY): 5.89%

In addition to mutual funds and ETFs, I also own some individual stocks:

• Bank of America (BAC)
• Altria (MO)
• Microsoft (MSFT)
• Nortel (NT)
• Procter & Gamble (PG)
• Progress Energy (PGN)
• Xinhua Finance Media (XFML)
• China GrenTech (GRRF)
• China Life Insurance (LFC)
• Taiwan Semiconductor (TSM)

Performance

I use Quicken to track my investments, but I don’t feel the performance (return) numbers it shows are accurate. So I can only give the best and worst performers so far in my investments.

Top 3 gainers in mutual funds:

1. Dodge & Cox International Fund
2. Dodge & Cox Stock Fund
3. Tocqueville Gold Fund

Top 3 gainers in stocks:

1. China Life Insurance
2. PowerShares Golden Dragon Halter USX China
3. Taiwan Semiconductor

And 3 biggest losers:

1. China GrenTech
2. Nortel
3. Bank of America

Summary

I recently adjusted my mutual fund holdings a little bit to shift a little more toward small and mid-caps. Right now the weights on large-cap and mid/small-cap are about the same at 45%. I prefer small-cap funds over large-cap funds because historical performance shows small-cap generally outperforms large-cap, not just in the short term. In addition, I am also a big fan of international equity funds, especially China funds. My investments in foreign fund are mainly in Dodge & Cox International Fund and have almost doubled in value since I started investing in it in 2003. Also, I feel lucky that I started investing in gold (Tocqueville Gold Fund) in early 2002 when the gold price as a little above $300 per ounce. Now it’s about $670 an ounce.

I don’t have any bond fund in taxable accounts, though I buy I-bonds every month (I-bonds account about 5% in total investments). I feel that at my age, I can be a little aggressive with stocks. I do, however, have bonds in my IRA account.

What I plan to do next are: 1) possibly switch from PowerShares ETFs to Vanguard ETFs; 2) consider international REIT investments; and 3) take a look at emerging market/foreign bonds.

a

What are My Investments?

---
Check Out These Related Articles:

• June 2007 Score Card — Part II: Passive Incomes
• Investment Objective: Income or Growth?
• Good Day Today
• Is the Small-Cap Party Over?
• Did You Feel the Pain?

How do you (or how would you) handle financial disagreements (and/or disconnects) between you and your spouse (or partner)?

My wife and I could fight (actually, it’s more like argue) over many small things, but there was almost no dispute over money. Generally, I feel that arguing over money (how the money should be managed or what to buy or not to buy) is not worth it. It’s not a competition between spouses. If one is better in our area than the other, then he/she should get involved in that area and have more says.

Between my wife and me, we share everything: we have one joint checking account and we are co-owners of all of savings and investment accounts. We really don’t have a lot of disagreements on financial issues. It’s not that she agrees with me on everything from the investment choice I made to the credit card I applied to. She just has no interest in the day-to-day management of the money. While I enjoy the financial authority, it also concerns me because she basically has no idea what to do with money (not including spending them of course ).

If there’s any difference, then mostly it’s on what to buy or not to buy, but neither of us is a big spender. In our house, I am usually the one that initiate the conversation. When I tell her that I want to buy something, sometimes she would pause then asks me

“Do you think we need it?”

After I tell her why I think we need it, she will give me her reason how she feels differently and at the end, she will say

“If you think we need it, then buy it.”

If she sounds hesitant, it usually means she has reservations and that makes me think again whether the purchase is really necessary and many times, if the item isn’t urgently needed, the purchase will be put off or if I can find a better deal, I will discuss with her again later.

I won’t call this a 30-day or 15-day waiting period or anything like that, but it has worked very well for us. Neither of us insists on “I have to have this” and we always consult each other before making big purchase and, at the same time, we also try to be supportive in the “If you like it, then buy it” way so it won’t become an issue between us. With this approach, we are able to avoid any serious dispute on purchase decisions and, at the same time, without being over-spending.

a

We Don’t Fight over Money

---
Check Out These Related Articles:

• Weekend Linkage - March 16, 2008
• Around the PF Blogosphere: April 6, 2007
• Posts I Enjoyed Last Week
• Still Don’t Have a TMX Elmo for Your Kids? Here’s Your (Last) Chance to Get One
• Around the PF Blogosphere: May 15, 2007

Is there such thing as saving too much money in an emergency fund? What’s the best place to keep the money you do save so it still earns you something while just sitting there?

There are lots of discussions on why an emergency fund is the foundation of personal finance. Before starting investing your money in the stock markets, you should have a safety net to protect your assets. As for how much is enough for an emergency fund, a commonly accepted standard is that you should have no less than three months’ worth of money to cover your daily expenses, including all your obligations such as mortgage, loan, and insurance, etc. The total amount then is your average monthly spending multiplied by number of months you need to go through the uncertain period.

Now back to the question: Can one save too much in an emergency fund? My answer to this question is: Yes, that’s possible. The problem isn’t really that one saves too much money, but rather the money treated specially as emergency fund could be too much. Since an emergency fund is the money that you set aside for unexpected events, the money should be held in places like bank checking account, savings account, CD, or short-term Treasury bills that are easily accessible. This means you can’t use your emergency fund to make long-term commitment such as investing in stock markets. Historically, however, stocks provide much higher return than other investment vehicles. Thus, one can risk of losing money by putting too much in short-term investments than letting the money participate in stock markets. In my opinion, 3-month is the minimum, 6-month is adequate, 12+-month isn’t really necessary.

That being said, like any other personal finance issues, how to create an emergency fund (or whether or not to create one) is very personal. There’s no formula to tell you how much is enough and it also depends on what you consider as an emergency. For us, the biggest worry is loss of jobs, but that’s hardly considered as a true emergency. If we lose our jobs today, there will still be foods on the table tomorrow. Our emergency money is to prepare for the situation in which it will take several months before we can find a new job.

In answering this week’s money question, here’s what I do with our emergency fund:

1. Checking account

I put around $5,000 in the Bank of America checking account that we can withdraw immediately. These money is used to cover our living expenses and the account is account is refurnished twice a month from our salaries. I couldn’t imagine any situation that requires thousands of dollars right away, thus it doesn’t make sense to have more than necessary in a checking account that earns nothing. If all the sudden I need to pay a big bill, I assume in most cases I can charge with my credit card. As long as I can pay with credit cards, I am not worried about the cash in the checking account.

2. Online savings account

After all monthly bills are paid off, any excessive fund will be shifted to high yield online savings banks (here’s how we set our savings on autopilot). Since my use of online banks is very simple, I don’t care too much the extra features. As long as the fund is FDIC insured, the bank supports ACH transfer and pays out nicely, I am willing to use it. There are many online banks now pay 5+% APY for your money. If you are looking for big names, Citibank (4.50% APY), HSBC (5.05% APY), ING Direct (4.50% APY, Affiliate link), GMAC Bank (5.10% APY), and Emigrant Direct (5.05% APY, Affiliate link) are possible choices. Some small players offer higher rates, such as Amtrust Direct ( 5.36% APY), UFB Direct (5.31% APY), and IGoBanking (5.30% APY) with low minimum deposit requirement, and they can also provide excellent customer service.

3. Treasury bills

This is my favorite for short-term investment that generates decent returns. Currently 4-week T-bill pays 4.924% APR, which is equivalent to 5.04% annual yield. However, since interests from T-bill investments are exempted from state and local income taxes, your actually yield will be higher (here’s a formula to calculate your equivalent yield). For example, for NJ residents, I will have to get more than 5.38% APY from a bank to beat the T-bill yield. From what I can see, there two drawbacks of investing in T-bill. First, T-bill rates change every week, so you don’t know in advance what you will get for your next investment (a couple of weeks ago you could earn 5.36% APY). Second, you money will be tied up for four weeks, but I think that’s a small price to pay for a better return (here’s how to invest in T-bills).

Several other bloggers have weighed in on this issue with their own opinions. You can find all the discussions by following this and this link. Ben also provided a nice summary that covers everything you want to know about emergency fund.

To get an idea on how much people think is appropriate for an emergency fund, I just created a new poll, How Much Is Your Emergency Fund?, that you can cast your vote from the right sidebar.

Featured Information

To apply credit card look for visa cards as they offer low interest rates. May it be personal loans or homeowner loan uk you can find loans on competitive interests if you shop around. bad credit mortgage can be a problem if you can not afford high house notes. To save money for your mortgage try investment banking to raise capital. Especially with credit card merchant account you have more ways to invest online.

a

Where I Put Our Emergency Money

---
Check Out These Related Articles:

• Around the PF Blogosphere: April 4, 2007
• Morningstar: How to Set Up an Emergency Fund
• Previous Poll Results
• Posts I Enjoyed This Week
• April 29th Links to Links

I have received multiple pre-approval letters from chase for a business credit card. 3% cash back at home improvement centers, 3% cash back at restaurants, 3% cash back at Staples and such. Being a new home owner the lure of 3% cash back at home depot and Lowe’s where I spend most of my time as too much to resist. The problem is, I’m not a business owner. So I could shred the pre-approval letters but after about the third one I went and applied and received my card … Now my wife is all worried that we are going to get in trouble. Should I be concerned?

Personally, I don’t know how to answer this question because I don’t own any business and never had a business card. A quick search didn’t get me anything except what I found from Chase website as terms of their business card:

By becoming a Visa Business Card cardmember, you agree that the card is being used only for business purposes and that the card is being issued to a public or private company including a sole proprietor or employees or contractors of an organization.

Does this imply that I shouldn’t use the card if the expenses have nothing to do with any business? If so, what would be the consequences if I use the card for non-business related spending like what the reader did? Can I continue to use the card or have to cancel it? Please leave your comments if you have similar experience to help the reader out.

a

Reader Question: Is it OK to Get a Business Credit Card when I Don’t Own a Business?

---
Check Out These Related Articles:

• Posts I Enjoyed Last Week
• Get $10 for Paying Your Mobile Phone Bill with AMEX TrueEarnings Card
• More on Money Question
• Posts I Enjoyed Last Week
• Time to Put the New Card into Business

Savvy Steward said: “One option is to either apply it to her mortgage so that she will be debt free sooner, or if she already has the house paid off, invest the money into a facelift/project for the house.” Moom suggested that “Taking the question at face value - this money isn’t needed now but assuming the mother doesn’t have anything in long-term self controlled assets - I would open a Roth IRA and invest in one of those target funds for 2025 or so.” And TFB recommended: “If $1,100 is all Mom has, there’s a much bigger issue than what happens to this $1,100. If Mom has other money and she already has a good investment plan in place, just blend it in. If Mom has other money but doesn’t have a good plan, she needs a good overall plan first.” Krugergold even came up with a money flow chart on where the money should go.

While these suggestions can all be applied to the situation in question, they are based on some kind of assumptions as the question itself is very short without much detailed information. That prompted me to go back to the reader and she indeed provided more on the “big picture”:

… this $1100 that she has is all she has. She had about $700 in the bank. Which is why I didn’t want her to use that $1100 but wanted it to stay there for emergencies. She is really bad off. She doesn’t have great credit, nothing stashed and no real assets. I think I have more assets than she does. So I just wanted to let you know that. I’m thinking if everyone knew this is all she had they would probably suggest she leaves it for an emergency and start off with an IRA contributing the max… See, this is why I was so reluctant about helping her because she is just in a hole as far as retirement but I am determined to help her. But she has to want to stick with it….

Now that we know the whole story, do you have a better suggestion for the reader?

a

More on Money Question

---
Check Out These Related Articles:

• Money Question: What Would I Do with a $50,000 Windfall?
• Trouble With Greenfield Online
• Around the PF Blogosphere: June 8, 2007
• We Don’t Fight over Money
• Weekend Reading: Aspects of Investor Psychology (Part II)

Money Question: My mom is 50 years old and she has $1,100 in her ING account. What would be the best choice for her? She probably won’t need the money in the next 20 years.

I circulate this question to a group of blogging friends, asking for their opinions. After some discussion, we decided that instead of giving answers separately, we can collect everybody’s thoughts on this issue and put together a What’s Your Money Question? series to not only get bloggers involved , but readers as well. Although none of us is a financial professional, we all have passions in finance. With everybody’s unique background and experience, the inputs collectively can be more helpful than one person’s view. After all, blogging is all about interactivities between bloggers and readers.

The following are my friends’ takes on this issue.

SVB from The Digerati Life:

I’ll advice mother to place her $1,100 in the total stock market as represented by the ETF: VTI (Vanguard Total Index). I have 3 reasons and assumptions for recommending this approach:

1. mother is 50, so I assume that she has a reasonably sized net worth built up through the years and has no debt
2. the amount of $1,100 is fairly small and possibly represents a small portion of her assets to be fairly negligible so she could assume some risk with it
3. mother won’t touch it for 20 years so that’s enough time to keep something in VTI, which allows for a position in the stock market with reasonable risk

Lazy Man from Lazy Man and Money:

I’m going to make the assumption that she has an emergency fund. I’m also going to assume that your mother has no debt. That out of the way, if I had $1100 extra dollars, I’d open up a brokerage account and buy stock symbol VTI - Vanguard’s Total Market Index. This invests in diverse array of companies, which over 20 years, should average a 9-10% return on the money. At that point, the money should be worth around $6,700. I’d make this contribution in a Roth IRA account and she won’t have to pay taxes when she withdraws the money - a nice bonus.

What’s the best brokerage? You’ll want something with minimal commissions. I like TD Ameritrade myself as I’ve used it for a long time. If I were to start from scratch now, I’d give Zecco.com a try. They provide commission-free trades, which will save you a couple of dollars. (However,) Zecco.com is a bad idea if she chooses the Roth IRA plan - they charge a $30 fee for IRA accounts. She’d be better off in TD Ameritrade in that circumstance.

Henry from Binary Dollar:

This is tricky as we don’t know what’s meant by “she doesn’t need it for the next 20 years.” Is her retirement account already fat? Does she have an emergency fund?

If she doesn’t need it and doesn’t have an emergency fund setup, then put that into a money market account for a rainy day. Since she’s getting older, the inevitable medical expenses are going to start creeping in so that emergency fund is very important to her well being. These are things that people might not think about when they say they “don’t need the money anytime soon.”

As always, consult a financial adviser before making your decision.

Ben from Money Smart Life:

If she doesn’t already have some type of long term care insurance she might want to look into buying a policy. However, keep in mind long term care is not for everyone. Check out this longer term care article for more information.

Golbguru from Money, Matter, and More Musings:

1. “She probably won’t need the money for the next 20 years” is just a perception … and you have to take into account that she *may* need it anytime after her retirement. (Unless she has some other reserves that she would use for the next 20 years, in which case $1,100 will be a comparatively very small amount and nothing much to worry about). So from a practical point of view choose something that will be *easily* made liquid around 10 years from now
2. Now, let’s look at some numbers for this 10 year time frame; $1100 is not a big amount. It follows that returns won’t be very big either. At 5% APY (current savings rate and 10 year CD average rate), that amount will grow to about $1800, and at 10% APY (average stock market return - optimistic) it will grow to about $2800. Although, the percentage increase is a lot, in terms of absolute terms, it’s not very significant. Plus, there will be some taxes and fees that will eat into the returns.
3. Who manages her finances? I am asking this because, I don’t expect all 50 year olds to know how the modern stock transactions take place. You would probably want her to keep the money where she can easily access it without too much trouble (or ask someone else to access it without too much trouble). Putting the money in the stock market is certainly a profitable proposition…but you should think about how feasible it is for your mother to make use of that investment. Personally, I feel stock markets are for people who understand it; there are a lot of pitfalls for rookies.
4. Considering the factors above, I think the money is right now in an OK place. However, you (her son/daughter) may want to provide some leverage and increase the amount and think about buying some kind of a fixed-income annuity for her.

And my answer: Since her mother won’t be using the money for the next 20 years at least, then the money can definitely be invested. In this case, a target fund may be a better choice since the fund requires little management from her mom if she doesn’t have the time and knowledge to do the job herself. As for which target year to choose, I think 2025 or 2030 may be a better choice because she started quite late and a late target date can give her more exposures to stocks for better returns. Of course as time goes by, she can always move the money to a more conservative investments. As to what to invest, Vanguard offers some great funds, however most of them require at least $3,000 to begin with, making Vanguard an impossible choice. With, for example, T. Rowe Price or Fidelity, the minimum initial investment is waived when using an automatic investment plan. I checked both TRP Retirement 2025 and 2025 and Fidelity Freedom 2025 and 2030 and it seems that TRP is a better choice in both costs and returns. However, TRP has a $10 annual fee for asset less than $5000 and Fidelity has minimum $200 monthly investment even with their automatic plan. Thus, I think TRP is better than Fidelity in this case.

Now I am asking readers to join the discussion: If you were asked the same question, what would you recommend? Or do you have a money question that you’d like to hear some independent opinions? If so, please leave a comment or email me the question. The next edition of What’s Your Money Question? will be held at Money Smart Life.

a

Money Question: Where to Put the Money?

---
Check Out These Related Articles:

• More on Money Question
• Money Question: What Would I Do with a $50,000 Windfall?
• We Don’t Fight over Money
• Around the PF Blogosphere: June 8, 2007
• Posts I Enjoyed Last Week