Author Archive
How Can I Help You in 2012
Posted on: January 3, 2012
A few days ago I got a call from someone who needs financial help. He is a typical middle class person, making a middle class wage, and has not saved a lot of money.
How Can I Help?
In the past, I would have gently turned him away: “Sir, my practice has a limited capacity of serving only 50 clients. To make the most of it, I only work with doctors and small business owners who have at least $500k in investable assets or a combined household income of $400k and above.”
Maybe it’s because of my newborn son’s sickness, but I did not say no this time. I took him through the discovery process to find out where he was financially, what he wanted to achieve, and how he planed to get there.
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10. How to Tell If Your Financial Advisor is a Crook
9. Why asset class diversification is superior?
8. The 2011 estate tax changes
7. Recession and stock market performance
6. Bill Gates: 11 Things You Don’t Learn in School
5. Variable annuity fees you don’t know you are paying
4. 2011 year end tax-planning tips for individuals
2. Profit from Harry Dent’s prediction? think again!
1. Bonus depreciation: Congress wants businesses to invest in 2011
Also see Top 10 last month.
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Today is the last trading day of 2011. The S&P 500 closed at 1257, exactly the same close as in 2010! So, if your goal is wealth preservation, the market just did it for you.
Or did it?
From January to April, the market staged a four-month rally of 8.5% to peak at 1364 on April 29. For the next six months, it collapsed nearly 20% to bottom at 1098 on Oct. 3. Then, it staged a late rally to close the year at 1257.
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- In: Life
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Last Monday, we took our newborn son to hospital for an MRI. He was found to have a lipoma corpus callosum, a very rare congenital tumor in the middle of his left and right brains.
Our pastor Lon Solomon has a daughter with brain damage. If it comes to that, we have an example to follow. Here is what he shared in Esquire magazine:
Jill was born perfectly normal. At three months she started having seizures, and they got worse. Eventually she lost the ability to speak. She’s probably had five thousand grand mals or more, and has serious brain injury. She’s sixteen now, and nonverbal. It took nine years, but finally the doctors figured out that she had mitochondrial disease. The mitochondria are the parts of your cells that produce energy, and hers don’t work right. Her brain doesn’t get enough energy. She used to have six or eight seizures a day. Once, she had nineteen. We never slept through the night.
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Credit: behaviorgap.com
In my previous article, “The perils of chasing hot fund managers,” I showed that the average investor in a mutual fund run by “star” manager Bill Miller would be better off buying and holding an S&P 500 index fund.
There is only one problem. Most index fund investors are not immune to the buy high and sell low tendency, as illustrated by the table below. Between 1991 and 2005, the Vanguard S&P 500 Index Fund (VFINX) returned an annualized 11.51%, but the average VFINX investor only earned a return of 7.96% during the same period.
| 1991 to 2005 annualized | |
| VFINX fund return | 11.51% |
|
VFINX investor return |
7.96% |
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This week, a business woman came to my office for a second opinion financial review.
She explained why she came to see me: she bought a permanent life insurance policy because her financial advisor told her it is a great investment. She has been paying $3000 a month for that, and so far she has put in roughly $80k. Recently, she needed some cash and called to redeem the policy. Much to her surprise, the surrender value is only $1,300. She became suspicious of everything in her portfolio and wanted me to examine it for her.
It took me only five minutes to figure out that her financial advisor is screwing her, no punt intended.
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Bill Miller’s Legg Mason Value Trust
On November 17, Bill Miller announced that he would step down as manager of Legg Mason Capital Management Value Trust (LMVTX).
From 1991 to 2005, under Miller’s stewardship the fund outperformed the S&P 500 index for an astounding 15 straight years. Since then, the fund has underperformed the index in all but one year, and by a significant margin.
So what’s the problem? The problem is many investors bought the fund only after Miller had become a mutual fund rock star, just in time for his hot streak to end. They missed much of his upward ride, but were fully onboard when the fund went down the toilet. See the table below. Read the rest of this entry »
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10. America’s top financial advisors: how they are made?
8. The 2011 estate tax changes
7. Why asset class diversification is superior?
6. Recession and stock market performance
5. Variable annuity fees you don’t know you are paying
3. 2011 year end tax-planning tips for individuals
2. Bonus depreciation: Congress wants businesses to invest in 2011
1. Profit from Harry Dent’s prediction? think again!
Also see Top 10 last month.
Get informed about wealth building, sign up for The Investment Scientist newsletter
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Why I Am Most Thankful
Posted on: November 30, 2011
- In: Charitable | Life
- Leave a Comment
At 2:24pm on 11/5/2011, my second son Caden arrived in the world. Upon seeing his face, my heart sank since there appeared to be a tiny piece of flesh dangling from his nose.
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Buying My Primary Residence
Posted on: November 29, 2011
- In: Real Estate
- 1 Comment
Less than a week after we were done with settlement on a rental home purchase, we bought a house for our primary residence. The decision process for our primary residence purchase was vastly different from that of the rental property. For one, I didn’t use cap rate to evaluate the primary residence. Instead, we followed these five decision steps.
1. School district
My two sons will grow up in this house, so the right school district was of the utmost importance. My wife did thorough research, and she declared Whitman to be the best school district in the whole state of Maryland, followed closely by Churchill. The first is in Bethesda, the second is in Potomac. These two areas happen to be the most expensive areas in Maryland.
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What It Takes to Be a Landlord
Posted on: November 28, 2011
Owning a rental property as investment may sound attractive to a lot of people who are sick and tired of the volatile stock market. However, owning a rental property is like owning a business. Do you know what it takes to be a landlord? Listen to Paula Pant talks about it.
Podcast: Becoming a landlord
Table of contents
[00:00] Introduction from Tom Dziubek
[00:36] Interview with Paula Pant
– [00:54] Owning rental properties
– [01:51] Analyzing a property’s profitability
– [03:04] Expenses involved
– [04:08] Things to look for in a property
– [05:19] Renting to professionals
Read the rest of this entry »
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The Perils of Market Timing
Posted on: November 18, 2011
[Guest post by Tom Warburton] Market timing is alluring, but, you have to be right twice – when to get out and when to get back in – over and over. We have NEVER found evidence of anyone successfully practicing this tactic over a statistically significant period of time.
Market timers get out hoping they have ‘called a market top’ – OR – get in hoping they have ‘called a market bottom’. But then the agonizing work begins because market timers not only have to be right on When To Get Out Of Their Seat but also When To Get Back In Their Seat. It is this second decision that is so terribly difficult. When markets move up, or down, they do so VERY quickly.
Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.
History Demonstrates That If Investors Miss The Best Market Days
Their Long-Term Returns Are Dramatically Reduced.
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Staying in Your Seat
Posted on: November 18, 2011
[Guest post by Tom Warburton] Who could forget the recent World’s Series? Man, was that sixth game otherworldly or what!
The day after the sixth game a buddy wandered in – remorseful that he, while watching the Cards vs Rangers, had gotten up out of his seat to go out in his backyard with his dogs (to do who knows what) only to return to his seat and discover that he had missed the walk-off Home Run by Freese – arguably the climactic play of the season!
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Making Charitable Donations
Posted on: November 12, 2011
My second child was born with a minor deformity in his nose. He looks like he has a cleft nostril.
When I first saw that, my heart sank like a rock. I began to imagine that if he grew up like that, the ridicule and rejection he would have to endure. I also worried that it might be a symptom of a major sickness. What about his nose, mouth, and brain? Are they normal?
Suddenly, I could empathize with parents who had a cleft lip baby. I knew how they felt, except that their emotions are probably 100 times more intense than mine.
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For folks who think we got a great deal on our investment property, they have to balance that with the hassles we were put through. All in life is fair; there is a reason why these houses are sold cheap.
A short sale is like a tripartite dance between the buyer, the short seller, and the bank that holds the title, and that’s not counting the buyer’s mortgage lender. Any one of these can trip up the others, and the deal will fall through.
Here is the list of 10 troubles we went through:
1. The seller was willing to sell at $170,000, and he said the bank had pre-approved the price. Once we accepted the price, the bank (Bank of America) reneged. It would not release the title unless the price was $180,000. After a few weeks of negotiation, we split the difference – $175,000.
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Buying an Investment Property
Posted on: November 9, 2011
Invest in a house
In December of last year, a real estate agent who is a close friend brought our attention to a townhouse in short sale. The townhouse is in the fastest growing neighborhood inMaryland. It is within walking distance of the town center and a short drive away from an interstate highway.
The seller bought the townhouse for $350k five years ago, and he was now asking only $170k.
I did a quick search on Zillow and found out that similar townhouses in that area are renting for about $1,700 per month. I did another search on the county planning board and found that a new hospital is being planned nearby. Then, I went with my wife to check out the place, and it was in relatively good condition. We decided to buy it on the spot.
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