When I started blogging, I have always thought that I’m “young” and energetic. But a reader while in college addressed me as “Sir” as if I’m so much older. Come on, about 10 years ago, I was still in grad school. I didn’t feel that I have grown out of the school years at that time.

And just a couple of days, I asked my dad NOT to come to airport to pick me up for my upcoming trip to go back home. I needed to remind my dad that I’m almost 40, and he is almost 70, and I’m not a kid anymore. Time flew by so quickly.

I still remember when my dad was 40. He appeared to me as “old”, since I was a little kid. I wonder how my own kids look at me now. I even have white hairs that can’t be hidden anymore.

The same story goes for personal finance. I really thought that I was young and capable of taking bigger risk. After 2008 stock market debacle, suddenly I realized that I’m not as young as I thought. What I have lost from peak to bottom, I could have never recovered that by decades of saving until retirement. In reality, if I assume that one could accumulate savings from the age of 28 to 58 for thirty years, I have already used up about one third of the time. Doesn’t that sound a little bit scary?

That’s why it’s always better to start saving as soon as one can. If you save for consecutive 30 years, you multiply and compound your savings for 30 years. But saving for 40 years will be at least better by 33%=40/30-1. Now, if you only save for 20 years, you will be worse off by 50%=30/20-1. But if you could only manage to save for 10 years, well, I sincerely wish that God will bring you some good fortune. Or alternatively, you can always go out and buy a personal finance book, 99% of which is always overly optimistic. These authors always play games with “stock market return” percentage from 5% to 12%, and then tell you that by math of compounding (if stock markets consistently returns 10+%), you will just become magically rich and retire.

Is that really so? Maybe it works for this generation of baby boomers, since they’ve got all the entitlement programs supported by all the younger generations which are bigger in numbers. When a population graph looks like a pyramid, with few people retiring, and many youth working, it always work by the Ponzi scheme principle. But most of other generation won’t be so lucky, especially we are already over-burdened by trillions of fiscal deficit.

Am I too pessimistic? No, I’m advising you to take actions NOW! When you don’t let time (and money) work for you, then time will just go against you. And the only way to break the spell is to take actions now. Whether you’re on a job, or out of jobs, take actions for yourselves. Don’t just sit there, and lament what has transpired. If you don’t do something, your situation is not going to change for you. Plan for the worst, but try your best and hope for the better. Even if nothing happens, at the end of everyday, if you have tried your best in everything, whether it’s saving money, doing your job, or finding your next job, you can always tell yourself and God, that you’ve got a grade of A+ today for the 105% effort that you’ve put in. And therefore, there is absolutely no regret. That is how can a great man and a great task (saving for retirement) get accomplished, one day at a time, even when there may be a long stretch of apparently zero progress.

That was how I learned my first hard lesson in money.

Ever wonder how much you could get in food stamp?

The other day when my family ate at the Boston Market, a lady pushing her toddler in a stroller came in to beg for food. She went around in the entire restaurant, begging for money and chicken. I insisted on not giving her any cash, but I will buy a meal for her. Before I had a chance to order while waiting in line, she had got what she wanted: some chicken from one of the tables, and then she left without my order. I felt a little sad for her, because she must be ordered by her husband to come out and beg for chicken. Yeah, she didn’t really want any other food, but only chicken (and cash of course). But because of her assertiveness of being an unashamedly beggar, it was a bit hard to feel lots of compassion towards her. A beggar picking her own food?! I can’t help but recall another incidence where an old man in a grocery store commanding me to pay his bill, and convinced the cashier that I would pay his bill. No, I told the cashier! He didn’t even ask me nicely. Instead it was commanding with entitlement, as if I and/or the society owed him something.

Anyway, so I found this site where it will estimate the amount of food stamp that you will receive: http://www.snap-step1.usda.gov/fns/. Assuming zero income and no assets, a family of four can receive $588 a month, to my surprise. That’s about $5 per meal per person, for 3 meals a day. Without counting any dine-outs, I can say for sure that whenever my wife cooks, my family probably seldom exceed $5 per meal per person, and obviously breakfast is probably $1 or less. There is really no way that you can go hungry with $588 of food stamp per month.

Of course, I reckon that one still needs to pay the rent, utility, and transportation costs. Regardless, the welfare system in United States is not that bad. I guess I don’t need to worry about people going hungry at least in this country, thank God.

Because the collision was so minor with barely visible mark on his bumper, I was going to settle with him with some small amount of cash. But this guy apparently wants to scam me for a lot more, by claiming that his bumper is tilting now due to collision (yeah right, tilting by 0.0001 inch). We exchanged insurance information like usual. At the end, he asked me for my personal phone number, possibly wanting to settle with me later. Because of his bogus claim, I was afraid to deal with him personally. I asked him to call my insurance company directly.

My reason for wanting to settling outside of my insurance initially was that I didn’t want to have my insurance premium increase. However, after calling up my insurance company (now GEICO which matched and beat Ameriprise through Costco), I found out that actually for any paid-out claims less than $750, there won’t be any change in my current $730 annual premium. I also checked some online quotes from Ameriprise, and an incident of claim less than $1000 didn’t change my insurance rate ($900) either.

I guess that the premium increase will probably be different for each individual. But without this incident, I would never find out that actually there is some “allowance of minor incidences” in the insuring industry. I still remember my brother’s car incident caused the insurance annual premium increase by about $1000, which last for several years. However, that was during his adolescence years, and it was more than 10 years ago. Insurance companies are more competitive now.

I have always paid my car insurance, thinking it’s money thrown away. And I actually settled a similar collision once to maintain my “perfect driving record”. I guess the correct way of using my insurance should have been always letting insurance company do their job.

Here are some of the things that I thought you may want to know:
1. Bob Hoye continued to call for a upward march towards March, and that gold shares have bottomed.
2. There is a backwardation in gold for 2 days, first ever in history. Think about it for a second. Why on Earth do you want not to cash in your gold/silver if you can get 2% more (annualized return) in the next 1 or 2 months? If this happens consistently/persistently, I think the only good answer would be that holders are not sure whether they can get them in 2 months.
3. For those who have spent time reading thru my last link on Armstrong, here is some of my thoughts.

1. He played a lot with numbers, which doesn’t have much ground in physics. But it actually got me interested in more decodings of it. As I have always said long time ago that I don’t believe in 3.14159 * 1000, because 1000 is not very meaningful in physics, yet 1000 is the third power of 10. 10 means nothing in physics also. But I just found out where 10 can be fit in. When you walk around the unit circle (with a radius of 1) by 10 divisions (36 degree = 360 / 10), that is the only way to get an Y or X-axis projection of the walked arc to be the length exactly equals to (the inverse of golden ratio)=~0.618. I’m using golden ratio as 1.618, but 0.618 is much more commonly known in the Elliot waves or fractal analysis of financial prices. An X or Y-axis projection in physics usually mean a realization of the physical phenomenon. Most mathematical or physical waves including sines and cosines are projections from unit circle.
   I know 99.9% of you are not interested in this, but 10 and 12 are the two most important numbers in Chinese astrology, which creates the famous 60=10*12 year cycle. And of course, 12 is present in Armstrong’s cycle work, as the two complementary private/public cycle of 6. Along the same thought, I did find a number very close to 12 from the golden ratio also. It’s the golden angle which in radians is about 2.399963, from which you can get pi divided by the square of golden ratio is approximately 1.2=12/10. I don’t see any physical meaning for 1.2, except for the fact that 2.399963 is simply way too close to 2.4. That would be a prediction error of 0.0015% if that is actually how 12 is derived.
2. Armstrong’s computer had a conversational interface. That is beyond most of the published reports of techonology in his time. However, it is not impossible. Here is a company which created such conversational system in about 6 years. The other extremely important factor to consider is that a conversational computer system is highly dependent on the scope of vocabulary words. With a limited (financial) vocabulary, such systems could easily be created.

….
It’s the post Bretton-Woods system that was responsible for globalizing inflation and markets and for generating a gigantic worldwide dollar bubble…

Ironically in these past 35 years, we have benefited from this very flawed system. Because the world accepted dollars as if they were gold, we only had to counterfeit more dollars, spend them overseas (indirectly encouraging our jobs to go overseas as well) and enjoy unearned prosperity….

But it was never destined to last, and now we have to pay the piper. Our huge foreign debt must be paid or liquidated. Our entitlements are coming due just as the world has become more reluctant to hold dollars. The consequence of that decision is price inflation in this country – and that’s what we are witnessing today. Already price inflation overseas is even higher than here at home as a consequence of foreign central bank’s willingness to monetize our debt.

Printing dollars over long periods of time may not immediately push prices up – yet in time it always does. Now we’re seeing catch-up for past inflating of the monetary supply. As bad as it is today with $4 a gallon gasoline, this is just the beginning….

I tried to explain the global inflation in my previous post on global economy in a nutshell, but I think Ron Paul did a MUCH BETTER job than I could have explained. It is such a pity that we have one of the best presidential candidates around, and yet the mass media pooh pooh on him all the time. It is so sad for American public, not being able to recognize the leader of their time. “Obama for change” sounds great. But changes cannot be just verbal. The United States seriously need changes. I’m not sure that it can be provided by Obama.

Regards,

Frugal

When I first started this blog, I never thought that there may be quite some ambivalence triggered among readers and other personal finance bloggers alike. After all, you can’t buy much with one million dollar these days, especially in the high-priced housing area in California. Besides I have always felt personally that the amount of money is just a number on the paper. Any other number such as 500K or 200K is just as good as 1 million. I have never attached any importance to such numbers. Choosing the title as “My 1st Million At 33″ was simply a marketing whiz, but definitely not a boastful gesture which has never entered my mind.

The other subtlety that few people have noticed in the title is that it stated “My 1st Million At 33″ instead of “My 1st Million By 33″. I used “at” because I know so well that money comes and goes, and I don’t want to misrepresent myself as saying something untruthful. Certainly, I could have lost enough to let my net worth go below 1 million. Furthermore, the word “at” reflects my attitude on life. Life to me is about a journey of how we live daily, rather than a series of goals that one has to reach for. Every day in life, we shall strive our best. Do not waste your time to dwell in the past glory nor sorrow. Do not waste your time on futile worries or day dream about future extravagance or success. TAKE ACTION TODAY to improve your current and future life.

Changing the title to “My 1st Million At 33 – yes, you can do it too”, fully reflects my original and continual purpose of blogging on this site. Yes, I have always believed in the best of everyone. I have always believed in everyone’s potential to go far and beyond, and I have never doubted that any of the visitors coming to this site can achieve further financial success (if not already) than I can. Yes, you can do it too. In fact, you can do better.

Having said that, a financial success is not easy by all means. Achieving any kinds of success requires lots of hard work, perseverance, and some luck. I only hope to inspire the younger generation, or older alike. Yes, it is possible. And yes, given enough time, you can do it too. Even if you doubt it, I won’t doubt you.

Have a long term plan. Start daily inching forward. And whether you can reach 100K or 1000K, or several millions, it doesn’t matter that much. What matters is that you’ve gained more financial independence for yourself throughout years of efforts, instead of staying at the same old comfort zone and do nothing about your own personal finance.

(From Nike, ) Just do it.

It’s not a bad price, even though Kelly’s Blue Book showed a higher price of some $3000. These days, it’s hard to sell any car, whether it’s new or used. Car sales are way down.

I have advertised my car at craiglist which is a great advertising resources. Got a lot of email inquiry, but much less actual physical visiting. It appears that there are many people who wanted to get a car for close to nothing.

Here are some tips that I’ve gathered around for selling used cards:
1. Price competitively. There is a good demand for cars priced from $1500 to $3000. That also means that you probably won’t get any top dollars if you are planning to sell your new car just after 2 or 3 years.

2. Washed, waxed, and detailed. Appearance matters. Remove all junks.

3. Keep a good records of maintenance.

4. Smog your car, and sell it in 90 days (at least in California). A car that has passed the smog, or guarantee to be smog-free, gives the buyer a peace of mind. A report from mechanics is pretty good too.

5. Advertise your car in every way possible. Choose the venues where people are looking for bargains. You know, for people buying an used car, they are obviously bargain hunters. You should think like a bargain hunter, and put your ads where people will look at.

6. Yes, you should add in your price that it’s NEGOTIABLE. OBO, or best offer is good too.

7. Make all of your buyers to come to see your car with prepared CASH, and have all of them come on the same day, preferably one after another. This way you have a little upperhand in price negotiation. Yeah, you can definitely tell your buyer that if you don’t buy it now, it could go to the next buyer.

So now I end up with just 2 cars. My insurance only went down by about $150 annually. I guess they figured that I could have only driven so much. I still have a camry that I drive. I’m contemplating when I should sell it and get a tiny commuting car, such as Smart from Mercedes, which gives some 60 miles per gallon. Don’t you wonder why car manufacturers don’t make cars like Lego blocks, so that you can drive just half of the 4-seat car, when you’re commuting, or even add another 2-seat to get to 6+ seats whenever needed. Wouldn’t that be extremely energy-efficient? Just a thought.

When I was in a break room last week, reading newspaper on this, one of my colleague asked me about what is the count on the casualties. I literally couldn’t talk to him because I felt so sad for these people. He sensed my sorrow, but a couple of minutes later, he said, “See the problem is that if you want to donate, it’s the fat cats who are going to get most of your donated money.” I didn’t know what to reply, but I wanted to say to him, “so I should be doing nothing for these unfortunate people?”

I have donated $1500 to Tzu-Chi for the two causes. I have been searching around internet, and the only good charities for this seem to be mercy corp, and red cross in HongKong, and Tzu-Chi. Tzu-Chi was founded by a Buddhist’s monk, and the organization has a very long good record on charitable deeds around the world. I have also checked out Tzu-Chi’s report at charity navigator, and 96+% of the money will go towards the actual people in need. It’s less than what I would like to see (98+%), but at least it’s not less than 90%.

Come back tomorrow if you will. I’m going into my trading pits now.

Just thought that I should share my thoughts here:

If a ship (economy) goes down that quickly right after the captain took the lifeboat, isn’t the captain at fault in any ways (if not in all ways)?

A man who single-handedly created two biggest bubbles keep saying that he doesn’t know how to tell a bubble from a boom. So who is supposed to know more about economics other than Fed chairman?? So many wiser people before the bubbles burst have warned about tech and housing bubbles. But Greenspan denies even the possibility of recognizing a bubble from a boom. Go figure this man’s IQ. He is either too dumb, or too smart to lie to his low-IQ audience.

Greenspan keeps saying that property bubble was caused by a global glut of saving and global low interest rate. But he doesn’t remember that US economic policy has a big effect globally, and that if US interest rates are going so low (1%) AND so long (more than 1 years), it is very hard for other central bankers to keep both of their interest rates and foreign exchange rates unchanged. The only easy way to keep their economy relatively undisturbed is by following US economic policy (at least in the same trend). The result of a global property bubble only goes to show how much blame Greenspan was responsible for, rather than what he tries to do: confusing people with the results as the cause.

Frugal at 1stMillionAt33.com

Anyway, so I told my doctor that I do like 3 jobs everyday:
1. From about 5 or 6am to 8 or 9am, I trade and invest stocks. Read all kinds of financial news.
2. From about 8 or 9am to 6 or 7pm, I commute and work at a full-time job that pays the bill.
3. From 7pm to 10 or 11pm, it’s my short family time.
4. From 11pm to 12am or 2 am, I blog.

Most of the time I just get 4 to 6 hours of sleep. Six hours of sleep is just GREAT for me. I can’t remember when was the last time that I sleep for 8 hours.

My doctor’s advice to me:
1. REST more.
2. RELAX more.
3. Exercize more.
4. Eat out less (so that I don’t take in too much salts).

Yes, I’m certainly too young to have high blood pressure. Not sure what the solution is. I never run out of ideas, but I always run out of time. REST & RELAX? Those are precious commodities to me.

I am going to start on number 3 first. I’m already doing number 4, because everyday I’m usually so busy at work, that I bring my own lunch, and finish my lunch on my desk within 10 minutes. When most people is out there enjoying their lunch, I’m watching my stocks, or multi-tasking through my work to speed up the progress, or usually both. I often do 3 things all at once anyway. So no big deal there.

I bought a blood pressure measuring device. After a few times, I stopped using it. It just doesn’t tell me the answer that I want to hear. It’s always high and never low. Isn’t that bad?

Boy, I need a good vacation.

I wonder how shareholders will receive this. Oh, and it’s in your S&P500 ETFs too.

Here is what westwest888 sent me:

It’s not a news story; it’s something I witnessed personally. Freddie Mac lost $2B last quarter and plans to lose another $2B next quarter on $9B in revenue (20% losses). To celebrate, they threw a decadent holiday party at the Ritz Carlton in exclusive McLean, VA. They had a laser printer that printed pictures on chocolate lollipops for the kids, hors d’oeuvres, entertainment. You’d think it was the Goldman Sachs partners dinner. Alas, it was a Government Sponsored Enterprise pissing away money right before they’re going to need a taxpayer bailout.

The biggest problem that I have with charities is that their CEO is paid way too much. Many are paid north of $150K up to $200K. Some are even paid more than $300K to $500K. Charity Navigator did a study on 2007 CEO compensation study for charities. The average salary is $145,270. The charity may say whatever they want, but the fact is non-profit also means no-profit. A CEO (or superintendent for a school district) for non-profit organizations is after all very different from a for-profit organization. There is no gross margin or pricing issues for products. The only effect from a better paid CEO and/or less efficiently organization is that the target that they serve ends up with less money. Taking money out of what poor people would receive is much easier than taking money out from a competitive and capitalistic marketplace of products.

I’m sure the salary is justified for some of the CEO, but I don’t have time to sift through all the details. Furthermore, when I need to justify for why I’m not spending my $2000 on my wife for jewelries or on my kids for more fancy toys, I must really spend my charity money for a VERY GOOD purpose. Every year, I easily donate more cash to charity than my total spending on jewelries for my wife and toys for my kids. But my wife understands that charity donation is spent for good purposes. Departing from your own cash is difficult certainly, but it is just part of the process needed to learn the truth about how every human being is part of the God’s family.

If you can know a charity that is involved with children and/or hunger (the causes that my wife and I are most interested in), and that 95% of the money goes to non-admin and non-advertisement activities, and the CEO’s salary is about $100K or less, please let me know. I would really appreciate it. Many thanks.

Initially, when I tried to make my first donation, and found out that it is not tax-deductible, I really hesitated, especially knowing that Ron Paul may simply not make it to the final race. But then, I still went ahead.

Then I made my second donation doubling my amount of financial support. Then I spent about $27 for this hat (including shipping), expensive by my frugal nature. Then at the morning assembly of my kid’s school, I finally understood why I’m doing what I’m doing. It’s the pledge to the flag:

I pledge Allegiance to the flag
of the United States of America
and to the Republic for which it stands,
one nation under God, indivisible,
with Liberty and Justice for all.

Yes, I truly believe that Ron Paul will bring a better future for this country. And I love this country where I was not born, but lived for the last 15 years with all of my heart. And I am going to show it, not just by money, but also by voting in Republican primary, and in the daily actions of my life.

So even if Ron Paul will not make it to the 2008 presidential ballot, so be it. But I’m not going to be apathetic about the whole thing.

Rather, I’m going to stand up and fight for a better future for USA. Fight for the soldiers to come back home. Fight for the middle class people who may suffer from the yet-to-come inflation. FIGHT.

Yes, Ron Paul (and I) may lose with great possibility. But at least, deep down in my heart, I know I’ve tried my best in my own way to help this country go back to the right track.

Will you join me to love this country, even if you don’t agree to support the same candidate?

Here is some latest YouTube video on Ron Paul if you’re interested.

A few years ago, maybe about 8 years ago, I remember that it was a good time to buy into life insurance. But that was in the past. What do I mean by “good time”? At that time, financial communities have a very unrealistic view on forward-going inflation rate which seemed to be low all the time, while the expected gain on financial investment (bonds & equities) seemed to be high. Furthermore, life insurance companies were in the more competition phase. Most of the things were in favor to insurance buyers. But things have changed, and some have made the turning point, especially inflation rate (& its expectation). Nowadays, it’s harder to find a policy that lock you into a lower fixed premium for a more extended period of time than before. If you have friends who bought insurance policy earlier, you could ask them what they are paying. I don’t think you can get the same deal anymore.

That brings the question of the pricing structure of life insurance. What are you paying for exactly? Life insurance if it’s term-only, is essentially a bet against yourself. It’s like buying put option against your stock holdings. It’s an insurance, that can potentially smooth out your finances when things go terribly wrong. If you lock into a policy with a fixed higher premium for a given number of years, the higher premium simply reflects how insurance company factors in the expectation of returns and inflation rate for that period. If you buy the whole life insurance or any other insurance with cash value, it is like buying a term life insurance plus a pension plan investment. Pension plan can also grow tax-free. Insurance however has the added advantage of totally tax-free for the pay-out.

I assume that once two products are combined into one, it becomes much easier for the salesman or the company to muddle with all the numbers and keep more for himself, and keep less for you. I’m sure you’ve heard the pitch from insurance agent such as “the policy will pay for itself after some years”. This is true, but it’s paying for itself because you paid for it. If you like forced saving, you can definitely consider such plans. But consider pension or annuity investment too.

However, all of above products have a characteristics of nice stable return, but FIXED. In other words, they are like bond-like investment for the people who don’t know much about how to invest in stock markets. For the long time readers on this blog, they should know very well that I would only recommend bond-like investment for people who simply have extra money to lose. Inflation going forward should be heightened. Any fixed payout is likely not going to serve your need. Therefore, I would suggest that unless there are other compelling reasons, it may be better to just buy a term life insurance and invest the extra dollars in the stock market for the long term.

There are still many different issues around life insurance. And others may disagree strongly with my outlook on inflation. However, I have tried to give you one opinion from my investing angle into life insurances. The correct answer is highly dependent on individual circumstances. And there are always some people who should have bought certain life insurance, and some who shouldn’t have. Unfortunately, it’s always after-thought. You should try to decide for yourself what you and your family need.

As with most of our accounts, I almost always open them in my wife’s name only, simply for additional financial security for my wife’s benefit. Because we also opened a brokerage account, we also had to disclose our total and liquid net worth as part of the standard questions for application process. I did not sense anything since I was busy calming my young toddler outside of the bank half of the time. But my wife later told me that she didn’t feel the due respect from the banker, and when she asked for a candy from the banker for calming the child, the female banker told her that “NO, it will only make the kid more hyper.”

I never heard any banker instructing clients on how to treat their children. I certainly think that it was simply not appropriate nor respectful. But I can see that it is just another example of competition among the same sex. Yeah, my wife doesn’t know many of the financial terminologies or the in and out of the the brokerage accounts because she spent most of her time taking care of our kids. So she must have asked several stupid questions. But what does it matter?

Certainly the people of same sex, especially for those who are closer in age, tend to have more competition whether consciously or sub-consciously. People will compete in all kinds of things, whether it’s personal appearance, cars, money, even kids’ school grades, or just social and financial status in general. But if you spend more time on actually doing things to improve yourself, rather than spending time on non-constructive activities, everything will come out much better.

I have always believed in simply competing against oneself, and never bothered about much of the office talk on cars, promotions, or anything related to other people’s money. I believe in everyone’s inherently innate value, and it is simply not right to compare people on an absolute basis.

Despite on whatever I believe in, the fact is that for most people, opposite sex attracts, while same sex competes. I guess next time, I shall use a male banker instead for my wife’s account.

Why did I choose this car? I have been extremely busy at work, so I simply relied on my friends’ advice for the choice of car. In fact, I only spent part of the last 3 days shopping for the car. Because my friend told me that both Toyota and Honda have a promotion going on, with manufacturer rebating the dealer about $2000 if a sale is made before the end of September, dealers have more rooms to go down in price. And with Honda, you can easily request price quotes via internet at the honda.com website. So it made the price comparison much easier. At the end, my friend was able to solicit 3 different quotes all within $100 of each other. With the housing market slowdown, the inventory at dealers is definitely significant. Price concession is certainly easier, especially for 2007 models.

Certainly car prices have been going down after adjusting by inflation. I’ve paid almost the same amount for my old camry, some 10 to 15 years ago. And now I’m paying about the same price for a minivan. The power of technology brings deflation, and improves life quality. Relative to housing price, cars are getting quite insignificant these days.

P.S. I will adjust my net worth by the amount that I’ve spent on the new car through a period of a month or two. I will be putting a value of $0 for my cars, since I consider that is money spent already.

It’s hilarious, but probably not so funny for the people who are affected.

Of course, for all the Wallstreet genius, they thought they could pass off the hot potatoes in time, but I guess not.

I’m the youngest among all, because I’m the book-smart guy who took the same classes with them, while at a younger age. In fact, half of my friends is older than me for this very reason since high school and college days. Being younger in your friends has the advantage of seeing things farther ahead at your age, while being out-of-touch most of the time except academics.

Among my college friends, one guy is 12 years older than me, but I always know him to be very smart. He is the street-smart type, and never paid much attention to class work. When he went to college with me, he only wanted to get a degree, but not really learn anything from it, only because he was so much older and his focus was not in academics anymore. Despite his lack of (interest in) book-smartness, I often relies on his advice (even now) for his street-smartness.

And by the measure of his financial success, he is far and beyond on what I may be able to achieve. Before the age of 45, he already made enough money and has retired for 4 years. Now he is back in (a different) business, aiming to bring a company to IPO, with two billion dollar revenue in a couple of years. Amazing, isn’t it?

This is not to say that book-smart is useless (at least, I’m a positive example of this category). Rather, being book-smart gets you to the basics, but it does not end there. However, if you hope to being street-smart and out-smart most people, you should stop hoping and take actions. No success can be built upon day-dreaming without doing your homeworks. One of the quality of success is that it is relatively infrequent or rare. And for obvious reasons, a rare event cannot happen without someone working hard to make it happen.

Whichever type you are, you should work hard. But know that statistically, being booksmart gets you to above-average lifestyle more easily, while only few percentage of the people being streetsmart goes far and beyond. So if I were making the plan for my children (or myself), I would always ask them to acquire the basics first before “going for the extra bonus”.

Two officials at leading Communist Party bodies have given interviews in recent days warning – for the first time – that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

click here for full text from telegraph.co.uk.

For the best interests of global economy, I think a gradual devaluation of $US is the best. However, US keeps wanting to revalue Reminbi at a much faster rate. I don’t know how much these Congress man think, but revaluation of Reminbi is equivalent to increase inflation in the US. Increasing inflation means US needs to keep higher interest rate. And higher interest rates mean less economic growth and lower stock prices.

I personally think that what China is doing with Reminbi is smart. Although most likely the policy is more beneficial to Chinese, the fate of Chinese and American are really tied together in this global economy. Making your creditors mad most likely won’t do you any good.

Again the spectre of heightened inflation is there again from the threat of China, adding onto a long list of reasons of why inflation in the US will go higher for the forseeable future. So whatever you invest in, make sure it can be inflation-proof somewhat. Otherwise, whether it’s an energy-driven inflation (due to peak oil or emerging world demands), or monetizing the heavy US debt and all the social programs, or an inflation driven by US dollar devaluation, or the need for higher inflation to reduce the absolute magnitude of collapsing housing price from Shiller’s housing price curve, or inflation caused by decreasing agricultural labor or any other minimum wage jobs due to increased immigration enforcement, etc. I think you get the picture.

Inflation does nothing to the people without savings, since they don’t have any savings to be depreciated. Inflation usually makes the rich even richer because they are always positioned at the front of inflation curve, whether it’s their assets or their salary. But for the people in the middle class as a whole, they tend to get poorer because the wealth is transfered to the rich people or foreign countries. Make sure you are not one of them.

Any other suggestion? Is it too much or too little? I guess it’s all relative (to whatever you want to compare to).

This friend of mine comes from a middle class family without much wealth. He even had to support and pay the tuition for his younger brother through college (he and his brother opted the cheaper universities in Texas). He was in some serious credit card debt, but he has paid off all of his debt several years ago. Now together with his future wife, he would probably be earning a higher combined household income than I do.

Way to go, my best friend. Another great example of building wealth from nothing.

He has refused to take any gift from me by not giving me his mailing address. But I was able to get hold of his work address. It’s going to be tricky to coerce him to take up my gift. Maybe I could ask him to help out my website here a little, so that he can feel as not taking a gift.

Best regards.

Frugal

And my grocery bills have gone up too. Same with my homeowner association fee, utility bills, etc. Now don’t you wish you could invest your money in eggs or milk or gasoline? Save yourself for paying some 20% to 40% on the capital gain taxes. Government makes things more expensive through printing more money and inflation. And then they are guaranteed to take away a substantial tax bite out of your gain before adjusting for inflation. I only wish that the capital gain taxes are computed after adjusting for inflation.

Unfortunately, the food inflation wave is just starting. Due to the push for ethanol, corn demand/supply went up, and corn acreage went up. All other agricultural products have less plant acreage. Plus that bees are dying dramatically in great number and unable to pollinate for fruits. Also with corns being the primary animal feeds, prices for pork & cattle & chicken are all going up. Haven’t you noticed that the price of a burger is about 10% to 20% more?

I think bond yields will eventually head even higher in the next 3 years. That is going to be very bad for housing market (and therefore not so great for stock market too). Yak!

• Domestic automakers’ staunch opposition to higher mileage standards was very much part of their falling behind foreign competition, notably Toyota, in making vehicles that people actually want.
• By churning out gas guzzlers they contribute to the rise in gasoline prices, thus hitting my pocket book directly.
  And now they have the gall to ask me to preserve their jobs? Or is it the gold-plated health plans they really want to keep? Haven’t they learned anything now that Daimler had to pay Cerberus to take Chrysler off their hands?

It is often said that in a democracy, sensible policies can be derailed despite their aggregate benefit, because the small minority who stands to lose are vocal in opposition while the great majority to whom the benefit is real but diffuse, falls silent. Well, this blogger refuses to be silent.

Raising automobile fuel efficiency is the simplest and most cost-effective way to lower energy prices. If you agree with that, let your congressmen know that you support higher gas mileages. Ask them to say no to the UAW.

Here is the stock chart of NTBK (NetBank) of about 10 years:

I hope the person who bought at $80 has cut his losses long time ago. The stock chart is kind of telling the story of internet & internet banking. It was very hot initially. But as brick & mortar banks caught up and got into internet banking and free online payment, there is only shrinking business and profit margins for NetBank. The similar thing is happening in various industries, transforming the way businesses are done. For the people who made it earlier and made it big, it can be really big. But for every one of the success stories, there will be hundreds of untold failures.

As for the consumers, there will only be benefits. Increased competitions always resulted in lower price. For banking, it’s better interest rates and less fees. I think similar thing will eventually happen to mortgage and real estate business too. 6% real estate commission will one day be history (if not already). One to three thousand dollars of profit per loan processed will be history too. The “Walmart” in those businesses will eventually take up the majority of the business, and squeeze out mom & pop shops. Instead of resisting changes, a better option may be adopting the changes.

So how do you think government can keep this forever stamp program going in case when the postage has gone up a lot? Easy. Just tax more and funnel the money into the US postal service. Either way, someone will need to pay for the cost of mail delivery. If you are not paying for it because of your “capital gain” from the forever stamps, the taxpayers will pay for it.

In any case, this forever stamp is certainly a good idea. Time saved from buying and pasting those 2 cent stamps can finally be put into productive use for other matters. But wait, I still have a whole bunch of 39 cent stamps and even some 37 cent stamps that need to be used.

In case you wonder (and I actually asked this at the postal office), the forever stamps can also be used at the face value of 41 cents even though it doesn’t say 41 cents on it. That’s how I usually used up my old stamps by putting several first class stamps for international mails.

The founders of this company are one of the best dream team in an IC start-up. All three of them have different expertise, covering the entire scope of analog circuitry, system design and verification, digital circuitry, and software among all three. Such a team is really hard to come by in such a small group of people. I have never doubted their future success.

My friend invited me to join their company several years ago. Assuming that I could get a stake of 0.4% in the early stage, that will be $480K at this time. I expect this small company to be on a high-growth curve, so a doubling of their stock price is probably given. Assuming a double in price, $480K can easily become a million dollar. But I guess I’m quite spoiled by the working culture in the USA which is quite humane. My future prospect at my current company is in no comparison to joining this start-up. But I certainly don’t need to work until 11pm or later everyday for some 4 or 5 years straight.

Am I upset with the lost chance of earning a potential million dollar at this start-up? I guess not so much. Life is about making choices. Family time is important to me. Enough money to pay for kids’ college and sufficient buffering into retirement are my personal financial goals. Although I have never done a preliminary calculation, those goals most likely are within my reach (as long as I have a job that continues to pay my current expenses before the actual retirement). In fact, my friend probably has lost his chance of being able to have family & children at an earlier age. How about having a kid in college when you’re 60? You really cannot have it all.

If you are single, willing to constantly work long hours, and is a native or speaks the particular foreign language, I think it’s not too late to join this company. You will not reach a million in the first year, but in ten years, I think that is probably very likely.

P.S. I was not in the founders’ circle. If I had the chance to become a founder, I probably would seriously consider the venture.

Full copyright reserved
Written by “Frugal” at My 1st Million At 33.com in the period of 10/28/95 – 11/20/95

P.S. I guess now you can tell your romantic lover that you are reading something “useful” now. By the way, it doesn’t rhyme but this is the best that I can do.

Since the money inside a 529 plan grows tax-free, is there a break-even point, beyond which it’s more advantageous to invest in a 529 plan than in a regular taxable account even after paying penalty.

I showed that the tax advantage of 529 plans are indeed sufficient to overcome the plan costs and given time would overcome the adverse tax treatment and penalties for nonqualified withdrawals, albeit after 30 years or more in most instances. In addition, it should be understood that higher current tax bracket and lower fees will tilt things more towards 529 plans, while tax-efficient investments in taxable accounts will tilt things the other way.

Dimensional Fund Advisors (DFA)
For reasons that will soon become apparent, we enrolled in West Virginia’s Smart529 Select plan last year. We did this before the birth of our daughter to take advantage of my state’s recent tax law change to allow a deduction for contribution to an out-of-state plan. One key reason for selecting the particular plan was its use of DFA funds.

DFA funds are backed by research done by Nobel laureates in economics. I first learned of them via Paul Merriman and Index Fund Advisors (IFA). They are probably the best index fund managers, only Vanguard comes close. Altruist Financial Advisors has a great comparison chart that I think every do-it-yourself asset allocators should study. Unfortunately, there is a catch. DFA funds are only available through financial advisors who normally charge a fee for assets under management. If you are lucky enough to have a million dollar portfolio, consider Evanson Asset Management who charges a flat $2000 fee, or 0.2%, which is among the lowest that I’m aware of. A more realistic choice for me personally is IFA, which caters to account sizes of $100k and up. Their fee is 0.9% for the lowest tier.

In comparison, West Virginia’s Smart529 Select plan that gets you into DFA funds at an annual expense rate of 0.55% must be considered a bargain. I ran the same calculation as before but the 529 plan now enjoys a 0.35% advantage in fees in addition to the tax savings. The results are quite different.

Now the 15% future bracket beats the (hypothetical) 10% future LT cap gain rate in only three years! It beats the 5% rate in 10 years. Even the 25% future bracket beats the corresponding 15% rate in 13 years! The DFA funds may be more tax efficient than I supposed, but the extra advisor expense makes the 529 plan very appealing.

Qualified Educational Expenses
Even though the examples I have given so far have shown 529 plans to have the potential to be a stand along retirement savings vehicle, they are best used as intended, that is, for qualified education expenses. IRS defines these expenses as

… the tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution (defined in the next column). They also include the reasonable costs of room and board for a designated beneficiary who is at least a half-time student.

When used for qualified educational expenses, the 529 plan is almost as good as a Roth IRA: there is an extra plan expense, off-set in part by possible state tax deductions. Many people plan on taking college courses in early retirement. As a matter of fact, numerous college towns around the country consistently rank as the best retirement destinations, so the 529 plan will come in handy then.

When the qualified education expense is reduced by a scholarship or fellowship, the earnings are taxable, but not subject to the 10% penalty. In this situation, the 529 plan acts like a non-deductible IRA. Unlike retirement plans, losses in the 529 plans are deductible, but subject to the 2% of AGI limit on Schedule A.

Rollover and Transfer of Designated Beneficiary
The 529 plan owns much of its flexibility to the freedom to rollover the plan or change the designated beneficiary to a family member of the old beneficiary. For this purpose, a “family member” is defined as

1. Child or descendant of a child.
2. Brother, sister, stepbrother, or stepsister.
3. Father or mother or ancestor of either.
4. Stepfather or stepmother.
5. Son or daughter of a brother or sister.
6. Brother or sister of father or mother.
7. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
8. The spouse of any individual listed above.
9. First cousin.

This is a far-reaching list, especially since multiple rollover/re-designation of beneficiary is possible (limited to one per 12 months in some cases). Assets within a plan can be used to pay for the education of your children and the excess amount can be left to the generation after. It is certainly possible for one to pay for the education of a family member out of the 529 plan for a return payment as a way to sidestep the ordinary income tax and 10% penalty. These possibilities make the 529 plan an excellent multi-generational planning tool.

One point of note: many financial planners advocate the grandparents (of the student) be the owner of the 529 plan because the assets of the parents count against the student in many formulas used to calculate financial aid. For the same reason, it’s usually not a good idea for the student to be the owner of the 529 plan. With proper planning, gift tax for skip-generation contributions should not represent a problem.

Implications for Investment Choices within the 529 Plan
I’m currently the beneficiary of the newly-opened 529 plan. The intention is, of course, to switch over to my daughter later. I have all the money in the most aggressive (all equity) option. Chances are the money will be there for a while.

Most 529 plans feature age-based portfolios which are similar to target retirement funds that increase the fixed income portion as the target date approaches. The rational is that return expectations should be sacrificed for shielding from untimely market declines. One cannot argue with that logic if the 529 plan is established to pay for the education of a single beneficiary. However, when the 529 plan is viewed as a multi-generational planning tool, its time horizon is easily 20-30 years longer, so that the investments can be left in the most aggressive option, where the expected return is the highest, for much longer.

To compensate for the extra volatility, I will increase my contributions slightly (perhaps10-20%) above originally planned. This will likely result in an account value exceeding the educational expenses for one person down the road, but as I have demonstrated above, this is not a bad thing after all.

I originally planned for a 2-part series; however, one reader raised an interesting question of comparison to a variable annuity. I’ll try to address that in part 3 along with the asset protection feature of 529 plans.

I would like to take this chance to express my sincere gratitude for all fellow bloggers who have helped me along, and all the readers and visitors who have helped 1stMillionAt33.com to come so far. Special thanks to my partner ML at investmiddleway.com, Frugal Duchess , Binary Dollar, and 2Million who have helped contributing some articles during my vacation, and James West who is a investing pro, contributing regularly on this site.

1stM@33.com would be an “island” in this internet “sea” without all the fellow bloggers and all of you readers. This site continues to exist because of all of your emotional and readership support, and it would be literally NOTHING without all of you. Many thanks again for visiting and supporting my site.

Here is some site statistics for the past 9 months and 22 days since April 7th of my first post How to Budget (yup, the first dollar of your million would start from budgeting).

There are 373 posts and 1480 comments, and I’ve deleted 938 spam comments. Visitors on the average read 2.7 pages per visit.

Here is the traffics growth chart of 1stM@33:

• Contributions are not deductible on federal returns; however, many states provide a deduction for contribution to in-state plans. Certain states even have deductions for contribution to out-of-state plans.
• Although the state income tax deduction has an upper limit (e.g., for contributions up to $12,000), there is no overall contribution limit that I’m aware of. [You should consult a tax advisor here. This IRS publication states that the amount of contribution cannot be more than the qualified education expenses of the beneficiary, but I’m not sure how it is enforced. Most plans have an account limit of $2-300,000 per beneficiary.]
• Inside the plan, money grows tax free. Qualified withdrawals for education purposes are not taxed.
• Nonqualified withdrawals, however, have the earnings taxed as ordinary income with a 10% penalty levied.

This last point is what I want to address today. Two blog entries at MyPocketChange and RetireEarly started exploring this question:

Since the money inside a 529 plan grows tax-free, is there a break-even point, beyond which it’s more advantageous to invest in a 529 plan than in a regular taxable account even after paying the penalty?

Essentially, the interlocutor is asking whether the 529 plan can function as a stand alone retirement savings plan without contribution limits. This can be calculated quite easily if we make certain assumptions about the rate of return, current and future tax bracket, etc. But to gain a better understanding, let me rephrase the requirement into two separate conditions.

A. In each given year, the advantage of tax-free compounding must out-weigh the extra expenses for the 529 plan, viz.

R₅₂₉ – ER₅₂₉ > R_taxable – ER_taxable – TR_taxable

Where R is the return; ER is the expense ratio; and TR is the tax expense for the taxable account. If this condition fails to hold, then compounding will only make things worse.

The current tax expense, TR_taxable, is given by,

TR = D * STportion * STrate + D * LTportion * LTrate

Where D is the distribution rate; STportion and LTportion are the fraction of D that are short term gains or long term gains and dividends; STrate and LTrate are the current applicable short and long term marginal tax rates. D also includes any gains realized for rebalancing.

Assuming the 529 plan has a wide enough choice such that R₅₂₉ and R_taxable are equal, you can tilt things in 529 plan’s favor by choosing a plan with low fees, choosing investments with high distribution rates and be in a high current income bracket.

B. The second condition is that you have to wait long enough for the money in the 529 plans to grow enough to offset the tax penalty.

P₅₂₉ (1 – MR₅₂₉) > P_taxable (1 – MR_taxable)

Where P is the portfolio value; MR₅₂₉ is 10% + future bracket; MR_taxable is the future long term cap gain rate. Again for things to be in 529 plan’s favor, you have to wait long enough and withdraw the money when your future tax bracket is as low as possible; or to be more exact, when the differential between MR₅₂₉ and MR_taxable is as small as possible.

Putting the numbers together
Since no one can predict future tax law changes, an exact analysis is not possible. For example, it’s highly debatable whether the current low capital gains and dividend tax rates will be extended after they sun-set in 2010. The best we can do is to take the current tax rates and make reasonable projections into the future. My assumptions are as follows:

Portfolio annual return: 10% (As you’ll see later, I suggest investing with the most aggressive option. At any rate, it matters little when the returns of the 529 plan and the taxable plan are equal.)
Taxable plan fee: 0% (No extra fee besides the intrinsic mutual fund expenses.)
529 plan fee: 0.60% (e.g. the Nebraska program)
Current marginal tax rate: 31% (federal + state)
Current long term capital gains rate: 15% (ignoring any state tax liability here)
Early withdrawal penalty: 10%

Distributions and gains realized for rebalancing as a percent of the portfolio: 6%
- Of which are long term capital gains or dividends: 75%
- Of which are short term capital gains: 25%
TR_taxable: 1.14% (This is the amount of annual taxes to be paid from the taxable account. Since this is greater than the 0.6% expense rate of the 529 plan, condition A is satisfied. Given time the 529 plan will overcome the extra tax burden at liquidation.)

The output is in the table below. For each dollar invested in year 0, I computed the after tax (and penalty) liquidation value of the accounts as a function of the respective future tax rates and number of years invested. Some rows were hidden to make the table smaller.

It can be seen that a LT cap gain of 5% is pretty tough to beat. Even at a low marginal rate of 10% (+10% penalty), it takes 33 years for the 529 plan to catch up ($15.712 vs. $15.695). However, if the future LT cap gain rate goes back to 10%, the break-even occurs after year 20. Still a very long time but doable. The difficulty of the task grows if your future brackets are higher. It will take 36 years for the 15% future income bracket to break-even with a 10% LT cap gain. And if you are fortunate enough to be in the 25% income bracket in retirement, it will take a long, long time (54 years to be exact), to exceed the corresponding 15% LT cap gain.

At this point, you’re probably thinking, “Why bother!” Indeed, 401(k), Roth IRA or the traditional IRA, even the non-deductible kind are much better ways to save for retirement. It is only after those have been maxed out, does the 529 plan emerge as a potential alternative. As described so far, it’s applicable to only a very small segment of the population with high disposable income or a lump sum to invest early on.

If the story ends here, this would not have been a useful exercise. Fortunately, there is much more, both in terms of the 529 vs. taxable plan comparisons and ways of utilizing the 529 for qualified educational expenses thus avoiding the 10% penalty. Please stay tuned for Part 2!

For the year 2006, my total commissions paid to brokerage house is 0.1% of the stock asset value on 12/31/06. I think it’s quite good, considering that almost 23% of that were due to buying Canadian stocks at Scottrade (cost $20 extra, besides the regular $7) and a couple of selling covered calls that I did. By the way, on the covered call that I did, it was in the money call so my stocks got called away. But boy, it got called away in 3 different pieces, resulting extra charges than I was expecting.

Obviously, 0.1% is still some amount of money. I could have bought several low-end digital cameras. My own target is NOT to exceed 0.5%, so in fact, I’m doing quite well in respect to my target.

So how much did you spend trading? Don’t burn a hole in your own pocket by over-trading. But don’t hinder your trading by the trading costs either.

In fact, I’m looking forward to some even lower cost trading platforms. When the trading is close to free, there is a distinct advantage that you can free yourself on limiting the number of transactions that you want to do, and therefore improve your trading somewhat (or so I believe). This is especially helpful when you want to phase into the market gradually, and/or trying to catch the top/bottom of the markets.

There are quite a few instances where I only have a limited amount of capital allocated for a certain stock/sector, and I would like to split my transactions into 2 or even 3 separate transactions because I was not so sure about the timing. However, because of the amount of capital that I’ve allocated, it wouldn’t make much sense to split the entire transaction into pieces.

Maybe I will try Zecco like ML at some point too. In fact, I’m waiting for Bank of America to offer their free online trading service in California in the spring of 2007.

Back in the days of Roman Empire, the coin compositions were changed to manage the inflation too. More and more cheap metals (copper/zinc/etc) were added into gold & silver coins as time goes on. However, legally they would tender the same amount. People then would hoard/hold onto the more precious original coins, and the bad money drivers out the circulation of good money. Of course, prices of things wouldn’t cost the same as before in terms of the “bad” coins. Inflation ensued, and contributed to the demise of the empire.

“Once upon a time” the one ounce American Gold Eagle is worth only “Fifty Dollar” which is engraved onto it, and the one ounce Silver Eagle is worth only “One Dollar”. Now gold costs about $630, while silver costs almost $14, a monetary depreciation of more than 13 times. If you’re 100 years old, you won’t be wondering why those stupid numbers of “Fifty” & “One” are engraved on those gold/silver coins.

I guess that we will be getting new nickels and pennies pretty soon. I hope that they won’t disappear altogether, or become made of plastics one day.

This is a holiday season, and a perfect time for me to divulge an investing secret that I don’t like to share with too many people. Only the ardent followers of my site will get to read it.

Do you know why I bought gold back in 2002 for $305? Was I really that smart, and forsaw the future gold price? NO. Absolutely not. I didn’t know that much about gold, but I remembered and followed the advice of the smartest financial wizard that I ever know of. It’s a lot more important to follow the smartest people than being smart.

Maybe some of you know the name of this guy. I may be writing more about him, but I won’t be spelling his name correctly so that Google Search won’t find my post. There is too many ugly things going behind the scenes that I don’t want to get myself into trouble either.

He is the ONLY person that I know of who has successfully predicted stock market crashes at least twice (and maybe more), 1987 US and 1990s Japan. His prediction came months earlier, and the date was probably down to within a couple of weeks if not days.

So what did this guy say in 1999? Gold’s bottom at about $250, and any price below will be the DEAL of the CENTURY. If I recalled correctly, he also correctly stated in 1999 that gold has PREMATURELY made a false bottom in 1999. It turned out to be a double bottom made in 1999/2001.

I waited for “the deal of century” to appear but it never did, and I couldn’t affirm whether gold had successfully bottomed because his numbers were so right on target. After it rose above to $300, I realized that the tide has already turned, and I bought in. I kept investing in gold, without realizing the alternative unfolding of his prophetic words: tangible assets will keep going up towards 2007. And that was real estate. In fact, Fed successfully diverted the monetary tide much more into real estate than other tangible commodities. Obviously, I was looking for the usual real estate slowdown after a stock market crash. But of course, history only rhymes, but never repeats.

When I read his articles before he went into jail in 2000, one of the article he talked about economic forecasting which is really fascinating. He compared quantum mechanics physics with classical mechanics physics, and how economics seemed to be so unpredictable. But through his studies, he has found that economics is more like classical mechanics. Once a motion is set forth, it is hard to turn it around. Basically, long term economics forecasting IS predictable and forces of the economics were often seeded YEARS earlier.

He made such an impression on me that I wish I remembered every word he said. Unfortunately, this guy was jailed in early 2000, and has been jailed because of contempt of the court (he cannot surrender the “cheated” money to court because all of his assets are confiscated and all of his managed accounts have been conmingled and most likely stolen by a guilty bank). He was jailed for almost 7 years now, and has NOT been given a trial at all. His trial if there is ever one got postponed and postponed and postponed, and in the meantime during these 7 years he simply kept waiting for a fair trial. And this is happening in USA, the land of “free” and “brave”? Just this year, finally he, an old man, admitted guilty by force and still without a trial.

I wish I’m lying, but I’m not. This reads almost like another fabled story. Unfortunately it is true, and so true for this poor and great economist. Both US and Chinese government had tried to obtain his economic forecasting model without success. So he was jailed for “good” probably in the opinion of USA. His predictions on financial markets were too accurate and too scary to the power of authorities. This is like what’s happening in “Enemy of the State” movie.

In his economic models, he also forecasted that there will be an international debt market crisis (and you know which currency, right?) In his economic models, there is a period of pi or 3.14159 *1000 = 3141 days. He said it’s a magical nature number. I fully agree, but having a minor in physics from college, I cannot concur that 1000 is a magic number. I don’t buy his theory of pi * 1000 at all, because I cannot explain how 1000 is a natural number in nature. However, for whatever reasons, 3141 days seems to be the magical period for economics through his studies.

He models within every 3141 days for 3 peaks, with the centered peak being the highest. However, only by collecting ALL international money flow and data from financial markets, and then run through his artificial intelligent computer model will you get the type of asset that will peak or bottom.

Do you know when is the next MAJOR peaking date? It’s Feb 25, 2007. And that has been the major reason that I have stayed put for my precious metal positions in the face of 2006 April’s Hindenberg’s Omen. And the reason is that I believed that the peak in 2007 may be even higher. But of course, I was aware that I didn’t know which asset class/index will be peaking in 2007. After the correction in precious metals in June/July, it started to become clear to me that actually the more likely candidate for peaking is the general stock market. I started to call to PUT money into the general stock market repeatedly through the fall season (well, if you were reading my advice back then). And so many analysts have called a stock market correction since its rise. But I know/believe that the MAJOR stock market correction will not come most likely until late Feb of 2007.

YES, it will be a TOP, and it is still not top YET.

I didn’t know whether it will be a peak date for real estate, or precious metal, or stock market. But I knew that the peak of real estate is either 2007, or summer of 2006 as predicted by UCLA professor Sornette. Certainly, real estate is out of picture. And certainly precious metals are too late to rise up to a NEW record high in my opinion. So, it has to be the STOCK market. And you bet that I will sell for sure. And sorry, I may or may not remind you. An investing secret that is too well-known will simply not work for sure. In fact, I know that there are (at least 2) investing professionals out there well aware of this mystical PI date.

Forget about 4-year election cycle, or 8-year cycles. I believe this 8.6 year cycle is more accurate than anything else. 1987 stock market crash fell on the EXACT PI date if I recall correctly.

If you want, you can google this guy. His full name is gnortsmra nitram spelled backwards. Again, don’t put his name in my comment section. I will delete them, since google also pick up words in the comments. It’s a little hard to google things out on him. You may need to add other relevant words, or else you won’t get the right things come up. After 7 long years, it’s becoming exceedingly difficult to find his written articles from the past.

And currently since precious metals will not peak in 2007, I believe that they will have more bull runs after that.

By the way, it may not be a game over for stocks. I tentatively believe that 2009, the next significant date in his model, will be more important peak date in terms of absolute price (but maybe not in relative price to gold).

I would pay more than $1000 for his research if it’s available. But now I’m kind of on my own, reading thousands of articles every year (about 15+ article a day), while watching various markets and observing closely where the money is flowing. After several years of investing in gold, I have become convinced many of the arguments made by gold bugs and peak oil people. I don’t know whether there will be an international debt market crisis as once predicted by this guy, but I can definitely conjure up ways and reasons of how it could happen, especially through peak oil theory.

People like to be optimistic about future, and take a more linear view on things rather than understanding cycles. But between peak oil and global warming, I would really much prefer peak oil. Truly, peak oil will save the Earth, despite the potential economic havoc that it could cause. More on this later, until next time….

1. Carnival of Frugality #53
2. Festival of Stocks #15
3. Carnival of Personal Finance #79
4. Carnival of Investing #53

Yeah! Shame on me! Although I submitted to various carnivals, I have been simply too busy AND lazy to write up this regular post week after week. Initially (actually just 6 months ago), I didn’t bother to write this, since I derived most of my site traffics from carnival participation. But I guess there is probably some amount of traffics that I can share back with the carnival hosts now. Hopefully by doing this, I can add a little to the vibrancy of the online money/finance blogging.

Anyway, I will try to do this in the future week after week. And if I don’t forget to do that, PLEASE ping & pinch me. I truly owe all of the weekly great hospitable carnival hosts this post.

However, one really positive point about that home is that at the next door lives my nice friend from Church. It would have made baby-sitting so easily between the two families that I think my wife’s childcare burden will be reduced by at least some 25%. I keep thinking whether this positive would outweigh the negative.

I called the listing agent myself again this Thursday to check on the status. I thought the home must have been sold. Surprisingly, I heard the exact same story again:

There are two offers on the house. You should make your offer in the next couple of days before the bank approves those loan terms.

Not sure what’s the real story behind. But my agent certainly have delivered the words from listing agent verbatim. Looks like it was probably a trap.

After some research, I also found out that the price of my own residence has fallen further, now by some 10% from the very peak. I will update my net worth at the end of year to reflect this change (although I have assumed a more conservative price when calculating my net worth). In my own community, the homes that are sold or still active have gone through an incredible number of days on market (DOM):

• The active ones have DOM of 160, 125, 21, 50, 97, 84.
• The ones that have recently sold had DOM of 43, 131, 65, 59, 176, 17, 13, 31.

This housing market is getting REALLY slow. If I made a non-contigent offer on the home, I probably will have DOM of 150+ with either the similar pricing or lower.

I keep thinking to myself that maybe next summer I will have a lot more choices when more homes will come to the market. The slow housing market is making any house move to be difficult.

Many thanks to all who have responded last time. Your inputs gave me more angles on the issues. Waiting now should be to my advantage. And I can’t really spend $600K in just 1 week.

Do you know what it feels like when the night comes and you do not have a place to stay, and a bed to sleep on? A sense of anxiety due to indefinite non-belonging in this world? Unless you become a homeless, you may not know what it is like….

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If you have read a little about me, you would know that I have gone through a difficult period through my graduate studies. The first year of my master’s degree I was fortunate to earn a scholarship and did not pay anything. I also had very good monthly living stipends. I guessed I took everything for granted. So Life decided to teach me what the meaning of money to me. After lots of ordeals, I ended up going for a second master’s degree, which was at a private prestigious but very expensive school. I had never planned for this. But I was very fortunate that my parents were able to support me financially for a second degree which I (or rather my parents) had to pay everything. Since this was my second master degree, I was extremely determined that I wanted to finish the degree as soon as I could, and didn’t want to spend one extra dime of my parents’ money. Certainly, I did not expect that I would almost literally fulfill my determination.

In the last two quarters of my second master’s degree, my strong desires for learning led me to undertake a curricula that were extremely demanding. In the back of my mind, I knew that this was probably going to be my last chance in school, learning. So I kind of did the “impossible mission”, took on several tough classes, a couple of which was said to require a full 40 hours every week to complete the class project.

How was this “impossible mission”? On the average, I probably slept just 4 hours a day for probably 4 consecutive months. Too bad that there is only 24 hours a day. I really did not sleep by the schedule of 24 hours. My “day” was more like 30 hours or so. Quite often, I would go non-sleeping for 20 hours, sometimes 28 or even 36 hours. And then I would sleep for 4 to 8 hours. Sometimes, I would sleep on the “bed” made by aligning 4 chairs in the computer lab. Sometimes, I simply passed out sitting in the chair. I watched sunrise in the morning about every week in the lab. Others in the computer lab maybe went home at midnight at 12am, while I went back at 12pm noon after working through 12 additional hours.

But I guess the “impossible mission” was a little bit too much. In my last quarter, I couldn’t complete my class project before the final date which was supposedly my graduation date. The reason that I couldn’t complete the project was mainly due to my two other partners on the same class project, with whom I had to make up what they didn’t do. Anyway, my partner requested an extension, granted by my professor. But it was beyond my summer graduation date.

I knew the project was very close to completion, but I had no ways of predicting how much longer it would take. The lease term for my dormitory was up. And you know what, I was determined that I’m not going to spend one extra dime of my parents’ money for my second master’s degree. So I decided that I would not renew the lease for the summer. I was living in the computer lab anyway most of the time.

I didn’t tell anyone, not my partners, nor my parents. I guessed I was just too proud and too shy to ask any favors from others. I was just going to make it. Because of the granted extension, my partners no longer worked through the night (they just did it a couple of times, and couldn’t take it anymore). So came the the day that my lease was up. I loaded up all of my belongings into the car. Moving, except that I didn’t have a place to move to. Then, came the night….

I parked my car at someplace remote on campus. The night was really chilly even though it was summer. I let a small opening in my car window so that airflow was not blocked. And I just put on extra clothing, and tried to sleep. I was really homeless, but I was so glad that at least I had a car. I was a little anxious indeed, since I didn’t know how many more nights I needed to spent in my car.

The sky was clear with all the shining stars, and the parking lot is totally empty. Everyone had gone home, a term that I had taken for granted without thinking. Reflecting over my plight through my graduate studies, the physical demand on my body and mind in that last year was not much, compared to all the emotional soul-wrenching experiences in the previous year at my first master’s degree program. Soon, my weariness took over me. I was soundly asleep.

After another homeless night, my friends found out and insisted that I stayed over in one of the friends’ apartment. I shyly accepted their offer. I took a shower after two days (it was not the first time. When you don’t sleep every 24 hours, you don’t take shower every 24 hours either.) My friend had a fullsize bed, and he insisted that I slept on the bed with him. It felt a little weird, but it was probably just an issue for 30 seconds. I fell asleep very soon, and I finally slept on a bed for 8 straight hours, which I never got to do in the last 4 months. It was very refreshing, waking up with your brain not in a sleepy muddy state.

With my friends’ blessing, the next day after, I finished my project, got approved by my professor, and wrapped up all the graduation paperwork, and was ready on my way to head back to my brothers’ place 800 miles away. I got an A in that class, but grades were no longer an issue to me. I bid farewell to my friends who were my classmates, thanking them for their support through my difficult days. They still had another quarter to go. Most people in that master’s degree planned for an extra fall quarter. But I just didn’t want to spend my parents’ money more than it was necessary.
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One of my most favorite movies is Pay It Forward. Patch Adams and A Civil Action are my most favorites too. In Pay It Forward, the kid named Trevor, invited Jerry, a homeless person, to stay in his house, and getting back on right track. I don’t know anybody who has invited a stranger to stay in home, nor do I recommend you doing that. But still, everytime I see a sign of homeless held up by a poor person, I cannot stop and think about all the what if I do this and that, and what should I do this and that. And then I would think about this movie. If everyone can be like Trevor, being altruistic just for a few more moments, our world can be transformed into Heaven in no time.

My website is about money, or more specifically how to make and retain more money. But at the end of the day, let us remember that it is just money, and money is definitely not everything. In this Thanksgiving season, let us all remember to thank the people that we should have, and be grateful for whatever big or small things we receive from the world. And give a helping hand to friends or strangers, and give with a true heart. Homeless people don’t just need physical shelters. They need some carings too. They are our fellow human beings.

• The plan can be withdrawn to pay for many education related expenses at most institutions. The child is not locked into a certain school or even schools in a certain state.
• The benefactor of the plan can be switched to an immediate family member.
• The gains are exempt from federal taxes.
• The amount of contribution is practically unlimited.
• Some states offer tax deductions on contributions from state taxes.

This last point is an important one. Although most states have a 529 savings plan, they are not created equal. Some has limited fund options while charging high management fees in addition to mutual fund expenses. While I reside in Pennsylvania, the two state plans that I like the most are from Nebraska and West Virginia.

The Nebraska plan features a wide variety of funds from Vanguard, American Century, Fidelity, State Street, Goldman Sachs, and PIMCO. The program charges a management fee of 0.60%. With Vanguard in the mix you know the underlying fund expenses will be low: only 0.09-0.37% in age based portfolios.

The Smart529 Select plan from West Virginia features funds from uber indexer Dimensional Fund Advisors that are normally accessible only through advisors. The plan changes a management fee of 0.55% with the underlying fund expenses from 0.20-0.50%.

Back to the point on state income tax deductions: More than half of states provide deductions — generally ranging from $2,000 to $12,000 — on state income-tax returns for 529 contributions. However, previously they are only available when contributing to the 529 plans administered by the state of residency. This year, however, Pennsylvania, Maine and Kansas have approved tax deductions for contributing to other state’s 529 plans. Gov. Rendell of Pennsylvania won re-election handily with 60% of the vote. I’m sure this middle-class friendly tax break didn’t hurt.

Given the flexibility of being able to switch plan beneficiaries and the ability to shop for the best plan, I’m considering starting a plan with myself as the beneficiary this year and switching to my daughter later. This way, I can take advantage of the tax break next April. In fact, this move is available to all the expecting parents out there. There is no free lunch of course, if the funds are not withdrawn for qualified education purposes, a 10% penalty is levied in addition to regular income tax on the gains. State income tax deductions may also have to be disgorged. So this is not an unlimited tax shelter. But still, even if having children is only a future possibility, if you have plans to go back to school, starting a 529 plan early is still a nice way to make tax-free gains now and jump-start college savings for your kids down the line.

In the end, this move by Pennsylvania and others will not only benefit residents for those states, but also, by increasing competition, force all 529 plans to improve as well. So there, Gov. Rendell, well done!

Resources
I did most of my research at SavingForCollege.com.

List of 5 best 529 plans from MSN Money.

What kind of emergency you may need more cash than usual? I believe that one should cover accidents, medical and death situations by car, medical, and life insurances. If you have disability insurance, that is even better. Please do remember that the social security tax that you pay covers part of your disability and life insurance needs. But one is still left with one of the most dire and common cause for the need of emergency cash fund: unemployment.

Obviously, when you plan for your emergency need for unemployment, you don’t need include any of the cash drain from income tax bites, since you won’t have any income. I think it’s OKAY to keep cash + bank CD to be just 1 to 2 months of your living expenses excluding income taxes. But you should probably have about 9 months to even 2 years of total liquid asset to prepare your emergency needs. You can count some 100% of your bond, and 50% value of any stocks/mutual funds that are NOT directly related to the sector your job is in. I’m using 100% of the bond value, because I assume that in the situation where you lose your job due to economic reasons, economy should be in a deflationary recession, which is usually good for bond investment. I’m using 50% for your stocks, because I because counting all potential losses and capital gain taxes, 50% is probably a good conservative number. You can substitute with any other percentage number for your stocks, but you should only include stocks that you are willing to sell at all cost. Preferably, you should not include any stocks in your absolute core holdings.

In summary, I will set a goal to have a liquidity of 9 months to 2 years (depending on your comfort level), instead of some 3 to 6 months of emergency “cash” fund. Having lots of spare cash is a convenience that you pay for in terms of loss in the potential investment return and/or paying down towards your mortgage. One should be more flexible in managing the money by NOT sticking to absolute cash.

Here is the advice from the traditional way of looking at emergency cash. There are a couple of good advice, but it further shows that one should consider total liquidity instead of just cash.