Conference nyoss1::market_investing

>    Suggestions of getting out of this rut?               

Win the Lottery?

Seriously, I know where you're coming from.  By the way, I think it will take
more than $2M to retire 25 years from now.  Of course, it depends on your
desired style of living.  I think I could live on very little, but my wife
doesn't quite agree...

I believe that the most important thing at this stage is to minimize debt.
Pay off your mortgage ASAP, even before making other "investments".  It will be
hard to make more money on an investment than you're paying in mortgage
interest.

After your mortgage is paid off you can think about college costs.  I would
try for a steady stream of contributions to a Mutual Fund or (Tax Free) Bonds
that mature about the time you'll need the money.  Don't put the money in
your kids' names otherwise it could work against you if and when you apply
for College financial assistance!

You might also want to talk to a "Financial Planner".  They do have some
good ideas sometimes.  There is also a huge rack of books at the (any) library
that might be interesting reading.

Good luck!  It *is* true that starting early is the best thing you can do.

-steve-

    
    	Welcome aboard the ship. 2 years ago I was living weak by weak and
    not putting much away towards retirement or college for my 2 boys. I've
    read many a books and one way that I found to help with my money
    matters is take the advice of "pay yourself first before anyone else".
    The 1st year I took 5% of every check my wife and I got and started to
    contribute to our 401k funds. This does require to tighten up the belt
    and give up some things but its well worth it. Last year with both of
    us getting raises we were able to take 10% off the top and invest in
    401k mutual funds. I think a couple can put up to $9200 per year into
    a pre-taxed 401k, 403b etc account and this is what my wife and I have
    committed to do and we will reach that goal this year providing we both
    continue to work. I ran a accumulate program thats on my wall at work 
    and it reminds me of the work I have to do but I can see that its a
    goal that can and will be reached. The #'s below are from the program 
    thats based on putting away $1000 per month for 25 years at a rate of
    return of 15%. 
    
    	There is a book out by Charles Givens that called "Wealth without
    risk" that has saved me lots of money and has given me ideas on how to
    make more money and keep it from Uncle Sam.
    
    	If you have a hobby that you enjoy I would strongly suggest turning
    that hobby into a small buissness and enjoy the MANY tax breaks.
    
    Good luck: We all need it these days... :-)
    $ run accumulate
    
    How much savings per month (nnn.n)? $1000
    Average rate of return expected (nn.n %)? 15
    For how many years?
    25
    FUNDS           FUNDS                              23      0000013D 
    0000073D
    
       Amount with interest
    Year    1  $    12900.00
    Year    2  $    27735.00
    Year    3  $    44795.25
    Year    4  $    64414.54
    Year    5  $    86976.72
    Year    6  $   112923.23
    Year    7  $   142761.72
    Year    8  $   177075.97
    Year    9  $   216537.36
    Year   10  $   261917.95
    Year   11  $   314105.63
    Year   12  $   374121.47
    Year   13  $   443139.69
    Year   14  $   522510.63
    Year   15  $   613787.19
    Year   16  $   718755.25
    Year   17  $   839468.50
    Year   18  $   978288.75
    Year   19  $  1137932.00
    Year   20  $  1321521.75
    Year   21  $  1532650.00
    Year   22  $  1775447.50
    Year   23  $  2054664.63
    Year   24  $  2375764.25
    Year   25  $  2745028.75

    Sorry about the typo's in .2 weak=week ane etc..

    
    I think it is great that you are concerned about planning for your
    children's college education as well as planning for your own retirement.
    
    I offer a partial solution to your dilemma -- save as much as you can
    for your children's college education but if you don't quite cover all
    of it, get your child to work at an early age and get them to save
    their money for school.
    
    Dennis
    

    o clamp down/stop new major spendings - cars, boats, expensive vacations,
      eating out etc. Make that your religion!
    o save like as if there is no tomorrow and put that in modereate to
      aggressive no load stock mutual funds
    o plan on paying off house in 15 yrs or less
    o don't try to improve std. of living in proportion to salary raises
    o contribute full allowable % to 401K (and may be espp if you
      discipline yourself to sell at the end of every period).
    o buy enough (5-10 times salary) life insurance (term)
    
    You have recognised the problem - great start! Don't feel discouraged.
    The good news is that over next 25+ years, your salary will atleast double
    or triple or more if you make the right moves by the time you retire. 
    The trick is not to get into new debt as mentioned in -.1 unless its 
    absolutely necessary. 
    
    Food is cheap in this country. Take care of the housing part (pay off
    mortgage, refinance etc.). If you can resist the 'optional' expenses,
    you won't have to worry about retirement. 
    
    I think you will do well! Never underestimate the power of compounding
    especially if you start early.
    
    - Rajesh_who_couldn't_resist_an_expensive_pool_table ;-)

    re: .2
    
    While I agree with you totally on the concept of "paying yourself
    first". I think 15% annual return is a little hard to maitain in the
    long run. I would think a more realistic number should be around
    10%-12% *average* auunal return. Do your calculations again, you'll see
    a significant difference for the "end-result". BTW, also don't forget
    about the 5% (average) annual inflation that is eating away your
    returns. With that inflation rate and 25 years from now, a dollar than
    is about $.30 today. So, I guess it pains a different picture for you
    now.   :-(
    
    Mike

John,

   You're not alone.

   Break the problem down into three parts:
     1. Income
     2. Outgo
     3. Investment performance
 
   Income:
   The wage freeze is no help, but it won't last forever (or you can
   look for greener pastures).  With three youngsters, moonlighting might
   not appeal to you, but if you have some special knowledge or skills
   you might try capitalizing on them (e.g., teaching a night course,
   or helping novice PC owners set up their systems).  Your boss might
   regard you more favorably if it becomes known that you are "expert"
   outside the company.  Longer term, furthering your own education is
   a good ticket to higher earnings.  Our company recognizes the value
   of education with its very generous assistance program; use it!

   Outgo:
   Don't live within your means; live *below* your means.
   We have to adjust lifestyle for the sake of the little ones.
   Some of the personal finance mags (Money,  Kiplinger's, etc.) have
   articles on finding ways to squeeze spending without too much pain.
   A few things to consider:

     - Most people tend to spend whatever they get in take-home
       pay.  If you siphon off $20 each week into the credit union,
       you probably won't miss it much, and at the end of a year
       you'll have an extra grand to sock away.  The U.S. savings
       bond deduction is another avenue (it's a little harder to raid
       the accumulated savings, and interest is exempt from state tax).

     - In the same vein, if you haven't already, sign up for the 401(k).
       Yes, this too will reduce your take-home pay, but not by the full
       amount of the weekly contribution: you won't pay fed and state
       taxes on the money until you and the pelicans are enjoying each
       other's company.  How much?  As much as you can afford, but not
       so much that the pinch will make you later throw in the towel.
       Got to let this thing build over the long haul.

     - Put away your credit cards and pay off any balances.
       Plastic gives the carrier a false sense of well-being
       and leads to unnecessary, even frivolous, purchases.
       I'm more reluctant to fork over a $50 bill than to sign
       an innocent looking three-part form that has the same
       financial consequence.

     - Go shopping with only as much money in your pocket as
       you need to buy the things you are going out for, and
       leave the ATM card at home.

     - Sign up for a higher auto insurance deductible.

     - Drive a cheaper car.

     - Take your lunch to work.  Skip the doughnuts in the
       cafeteria; rather, bring an apple from home.
       
     - Make fewer (and shorter) long distance phone calls;
       write letters instead.

     - Rent videos and skip going out to the movies.

     - Clip coupons.  My wife and I have a running contest to
       see who can save more off the grocery bill (buying the
       things we'd get anyway).

     - Use the local library instead of buying books in a store.
       The library has a far more interesting collection.  

     - Go for off- or end-of-season sales for things you
       *know* you'll need later.

     - Keep a detailed list of EVERY purchase for a month or two
       and compare this list against your budget.  You'll be
       surprised how writing it down deters (or at least delays)
       some purchases.

     - After food and shelter, taxes are our largest expense.
       Vote for candidates who've had real jobs and want fiscal
       responsibility, and vote out the lawyer-politicians who
       are ruining all of us with wasteful spending practices.


   Investing:

   There is plenty of advice in other notes on what to do with your
   nest egg, so I won't give any specifics except this:

   Whatever investment program you select (mutual funds, dividend
   reinvestment plans, bank CDs, etc.), stick with it!  Don't be
   tempted to switch gears by some cold-call boiler room broker selling
   out-of-the-money 30-day put options on the lira-dinar exchange rate.
   At age 35 you have plenty of time to provide for college and for
   retirement.  Let the magic of compounding work for you.


   Good luck.

   /JRH



p.s. O.K., I can't help myself:  I like the "Dogs of the Dow" approach
     to equity investing, where once a year you pick up equal dollar
     amounts of the top-ten yielding Dow Industrials, hold for a year,
     then roll over into the new top-ten.  There's a write-up in
     Barron's last November or December.  Couple this with dividend
     reinvestment programs and you've got the makings of a cute little
     self-directed, no-load mutual fund with a management cost of
     seventy-five cents (per issue price of WSJ) plus postage. The whole
     job takes about an hour once a year.  

p.p.s  I'm also fond of the ideas sketched out in Mark Skousen's
       "Scrooge Investing."  I can bring it in to work if you want
       a look at it (HLO2-3/F11).

Another suggestion I offer is that, if you have a PC or Mac computer at home,
you buy a copy of Quicken and start using it.  It is *amazing* how much
insight you can get by tracking your expenses (and investments) using Quicken.
I've only been doing it for a couple of years but can't imagine doing without
it now.

It takes a bit of setting up and loading in some historical data (at least back
to the beginning of the year) but that process itself helps focus and organize
your finances.  Once you have it set up, it only takes a few minutes a week
to keep it up-to-date.  And over time (years) it builds into a fantastic
database of information.  It also helps when tax-time comes along.

You might consider keeping a cash-expense tally-sheet hanging on the 'fridge
or on the inside door of a kitchen cabinet.  Write down date/reason/amount for
household expenses that you paid cash for (like gas/groceries, etc).  Non-cash
expenses (credit card, checks) are easy to keep track of because of the
monthly statements, but cash expenditures can be tricky.  Do you *really*
know where your cash goes?  Of course, you will probably still need a
"miscellaneous monthly expenses" entry to keep the Quicken database matching
reality, but this is a near-painless way to track your cash as accurately
as you care to.

-steve-

    Thanks for the excellent responses.  I personally believe in all your,
    suggestions, however, I have a wife who's full of energy and feels we
    should live our fullest (vacations, weekend get-aways, dinners out,
    presents...) while we're young and healthy.  I will print out your
    responses and show her that I'm not the only "party pooper".  I need a
    way to convince her of the seriousness of saving without destroying her
    lust for life.
    
    John          

re:                     <<< Note 737.9 by GRANPA::JHAGERTY >>>
                           -< Tell that to my wife >-

Ah yes, tricky business. I've had the most success with this by keeping
mine involved in the process of making ends meet. When the urge to splurge
is present the gentle question (sometimes repeated a few times) "How shall
we pay for this, dear?" is quite helpful. Her involvement in the budgeting
and managing process will ensure she has the objective information to make
an informed decision consistent with your previous committments and plans
for the future. If there is a consistent pattern of 'forgetting' or
'overlooking' the available information, then there may be some other
problem that is being played out through the family wallet.

Good luck!
Darryl

How often it seems to be spouse vs. spouse when it comes to saving vs spending.
But, in fact, is it not UNNATURAL to expect that both partners should have
exactly the same attitude!  Do you really know *why* you want to save?

I have given this some thought and have concluded that there are at least
three major factors involved in an individual's decision to save or spend:

First is "inflation".  "Spenders" behave as though inflation will be high.
"Savers" act as though it will be low (or even negative).

Your partner may believe that inflation will be moderately high.
If one believes that a dollar is going to be worth less next year
than it is today (high inflation), then it is WISE TO SPEND TODAY.  Buy
that TV for $1000 today because it might cost $2000 this time next year.
It is only wise to SAVE if inflation stays lower than the expected rate
of return on investments.  This is not guaranteed.  Many people have
been burned by investing and seeing their buying power diminish!  What do
*you* believe?  How about your partner?

You may believe that inflation will remain low - your partner may believe
(without even thinking about it) that it will be high.

The second factor is "mortality".  This is a factor that puts
greater value on an enjoyment today than tomorrow because, quite frankly,
there is a chance that you won't be able to enjoy it tomorrow (illness,
death, etc.)  Someone who believes that they only have one year left to live
will be much more prone to spend than save.  If you believe you'll live
'til you're 100, saving becomes more reasonable.  While you may not want to
think about it this way, it can sometimes explain the difference between the
spending/saving behaviors of partners.

You may believe that you'll live to 100.  Your partner may live more for today.

Third (somewhat related to "mortality") is the "value of enjoyment".  Even
assuming that inflation is low (the price of the TV won't change) and that
you are not worried about your mortality, there is the personal "value of
enjoyment".  For example, if you buy a TV today (rather than waiting a year),
you are buying a whole year's worth of "enjoyment".  How much is that worth to
you (in dollars)?  By deciding to invest the money for a year before buying
the TV, you are trading off the value of a year's worth of enjoyment for a
year's worth of investment income or interest.

You may place a lower value on a specific "enjoyment" than your partner does.  
Some people even put a greater value on "anticipation" than on "enjoyment".
These people have a *negative* factor when it comes to spending!  Often, this
is part of the individual's upbringing and (in some cases) religion.

There are still other factors than can be significant.  For example, if you
believe that you have a guaranteed steady (or even increasing) income stream,
then it is SAFE to spend today because you will be able to meet future
expenses with future income.  If your income stream is uncertain, then it
becomes safer to save (even in the face of high inflation) so that you can
meet future expenses with *current* income.  This can be a complicated
trade-off.  Given the way things are at Digital recently, I am sure than many
of our friends are cutting back on their spending (increasing their savings)
so that they'll have a bigger nest-egg just in case their income stream
becomes turbulent.  You and your partner may have different confidence levels
in your future income stream.

There is no "right or wrong" when it comes to setting these three factors.
Arguments can be made for both extremes.  Try to evaluate these specific
factors for both yourself and your partner to see if helps you better
understand each other.  Then, see if you can find a reasonable balance.

The bottom line is to realize that Money is the #1 topic of disagreement
between partners.  (You can probably guess #2.)  It all boils down to
differences in the factors that feed the equations of life.

-steve-

My understanding is that a lot of folks wait to save for retirement until after
the kids have finished college, and the mortgage is nearly paid off.  Some
people I know put one of the couple's paychecks away.  This does not allow you
to take advantage of compound interest, but it defers saving until a time when
you have better resources to save, better income and fewer expenses.

No matter what your differing opinions are, you should agree on the plan.

Elaine

    re .0
    If you're 35 and concerned about retirement and college costs with
    three small kids (4,2,1), perhaps the most financially responsible
    thing you could do now is get a vasectomy.  ;-) kb
      

Here's some quick numbers to think about:

If you save $200/month:

Years		8%	10%	12%	14%
------		-----	-----	-----	-----
13		54K	64k	75k	88k
20		118k	153k	199k	263k
30		300k	455k	705k	1.1million

think long term, start NOW, and stick with it.  Waiting until you pay off
your mortgage will kill your compound interest benefit that you have being
young.  Take for example the 30 years investment @12% which is 705k in the
chart.  If you wait just 5 years to start that investment, your 705k
will dwindle down to 379k, almost cutting in half your compound interest.
Einstein said it, the greatest invention is compound interest.  Thank 
goodness I started when I was 27.   I'm well on my way to 3-5 million...:^)

re          <<< Note 737.12 by CADSYS::RITCHIE "Gotta love log homes" >>>

>My understanding is that a lot of folks wait to save for retirement until after
>the kids have finished college, and the mortgage is nearly paid off.  Some
>people I know put one of the couple's paychecks away.  

right now, we do this: my paycheck is banked each week, all but $22.00 of
it.  we both contribute to 401(k) to the max value allowed by our employers.
i'm 28, she's 29...  

	BUT..

we have no kids, we have no mortgage.  we'll be having to deal with a mort.
starting in sept...  i took a 1/6 ARM that starts at 4 7/8, i figure we'll
pay the min for at least 4 yrs (worst case: 4 7/8 first year, 5 7/8 2nd,
6 7/8 3rd, etc) while DCA investing what we would have had to pay on a 30 yr
fixed @ 8 1/4%.  then, at the end of 4 yrs, take what i have and pay down
the mort.  when it adjusts, it re-amortorizies itself based on the new
princ - mort payments will go down considerably depending on the amount
we saved over 4 yrs.

at any rate, we're saving heavily and have been for 5+ yrs.  we drive older
cars (86 mustang, 87 nova) and don't live an expensive lifestyle, except for
an occasional nice vacation.  i do a lot of stuff myself and save tons doing
it: car repairs... i must save $1-2k /yr doing it _all_ myself (i finally
hadda break down and pay someone to fix the tranny because that was getting
over my head).  some of our friends, on the other hand, pay for everything.
mowing the lawn, fixing the car, this that and the other thing...

at first, it was a pain to convince my-then girl friend that we need to
follow a budget with specific savings goals.  i said, let's try it and if
it doesn't work, we'll change it.

- make a realistic budget and try it out.  make the budget together.

- after 2 months, revisit and see if you can tweak it more.

- set some savings goals - important to save something at the expense of
   cutting back on going out to dinner, etc.

- put a moritorium on buying new things, unless absolutely neccessary, until
   the cred. cards are paid off.

- cancel all cred. cards you don't need.  after we got our credit report from
   the mort. application, we cancelled 11 cred cards (95% my wife's... i just
   cancelled my VISA... we now have one VISA and nothing else other than a
   few dept. store cards).  8500.00 limit on the visa is MORE than i ever
   want to spend on that thing!


jc

    There are many good suggestions in the previous notes!  However, paying
    off your mortgage prematurely may not be in your best interst.  Until
    recently, mortgage rates were at twenty (20) year low).  Hopefully, you
    caught the wave and refinanced for 30 years at 7% (no points/no closing 
    of course!).  Although I do not know your personal situation, there are 
    two compelling reasons why you may not want reduce your mortgage debt.
    
    1.	Deductibility - Mortgage interest is one of the few tax deductions 
    	consumers are allowed to claim.  This can in some instances reduce 
    	your taxble income, thus dropping you into a lower tax bracket! 
    	The benefit of this is obvious! 
    
    2.	Increase investment cash flow - Although I do not advocate assuming 
    	mortgage debt in excess of your ability to make the payments; your 
    	situation may allow you to extract funds from your real estate for 
    	investing.  The following example will illustrate the benefits:
    
    	Example:
    
    	Lets assume that you are able to refinance (hopefully at a lower
    	rate) a piece of real estate and extract $50,000 of equity. 
    	Cummulative interest payments (your actual cost) for borrowing that
    	money at 8.00% for 30 years would be approximately $82,078. 
    	Further assume that you were disciplined and put the money to work for
    	you in an investment vehicle which on average returned a similar
    	interest rate of 8.00% compounded annually.   The future value of
    	that investment would be approximately $503,132.  Your "net worth" 
    	would increase by $421,054. 
    
    	If your in the 28% tax bracket, the actual cost of borrowing the
    	money is around 8.00%*(100-28)% which is equal to about 5.76%.
    
    At your age (35), you have a 30 year window of opportunity to make
    this kind of transaction work. 
    
    This will not work for everyone and should be discussed with a
    knowledgable financial planner.  Some other "rules of thumb" for
    finanical independence include:
    
    1.	Eliminate consumer debt - pay off credit cards, consumer, auto, and
    	school loans. (these are costly and are not tax deductable)
    
    2.	Housing debt should not exceed 24% of your gross take home pay! - 
    	Although financial institutes will allow for a greater "housing
    	debt to gross pay ratio; to live comfortably this ratio should not
    	exceed 24%.
     
    3.	Always refinance with "no points/no closing costs." - If the rate
    	drops a quarter point a month later, you can refinance again.
     
    Hope this provides helps.
    
    J.P. Carroll
                  

��    1.Deductibility - Mortgage interest is one of the few tax deductions 
��    	consumers are allowed to claim.  This can in some instances reduce 
��    	your taxble income, thus dropping you into a lower tax bracket! 
��    	The benefit of this is obvious! 

    This isn't so obvious to me.  Your 'tax bracket' affects only
    marginal income.  When you pay a dollar in mortgage interest,
    you might get up to $0.35 in tax reduction.  You've still
    lost the $0.65 to the lender.

    
    It seems that many people like to concentrate on cutting costs when it
    comes to having more money.  This is good and probably one of the
    simplest ways to have more money; however, sometimes, focusing on
    cost-cutting too much is not good (reminds me of a certain
    corporation).
    
    If you want to have more money, you also must concentrate on *making*
    more money.  For example, ensure that you are managing your career well
    -- e.g., continue to acquire the "right" education to make yourself more
    competitive/marketable, change jobs/companies when strategically sound
    (for example, when there is more money involved or more benefits, etc.). 
    You can also open up a small business in your home that you can do in
    your spare time (hopefully, something you enjoy and is profitable).
    
    I'm sure people can think of other ways to make more money.  My point
    is that you cannot neglect the income side when trying to increase the
    amount of money you have.  Expenses are important too -- but there is
    only so much you can cut.
    
    Dennis
    

    Maybe Hillary will disclose the secret for how she made a bundle in the
    very risky commodities market and we will all be out of this
    predicament. 
    
    Curt 
    (Who has one income, a 16 month old girl, a home mortgage, a home 
    improvement loan, and a car payment)

re: .16
	I tried to duplicate your example, but I couldn't get
the numbers to work.  Here's what I find:

Investing $50,000 at 8% for 30 years compounded annually
yields $503132.84.  But, this does not include paying the loan
back.

Investing $366.89 each month at 8% for 30 years compounded
annually yields $41,562.  This is less than the loan amount's
original value.

Investing $366.89 each month at 8% for 30 years compounded
quarterly yields $179137.03.  Compounding does pay off!

Pre-paying $100 during the first month of a 30 year mortgage
save about $1000 by the end of the mortgage.

Investing $100 at 8% for 30 years compounded annually yields
about $1000.

Pre-paying the mortgage is still a worthwhile investment.

-Austin W

I would like to get this note going again and my question is:

	What is a good place to hold the funds that I am accumulating to
	pay the tuition, fess, R&B, etc while my son is attending school?
	He is a senior in high school now and I will soon be transferring
	funds from a number of sources into a 'college' account.  Any
	recommendations on what kind of account this should be?  A
	money-market, a mutual fund, etc?

I expect that we will accumulate enough in the next year to be able to pay
most of his first 2-3 years needs, and will be adding more on a regular basis
(e.g. cash out ESPP each June and Dec., etc.)  We are looking at the private
schools with the tuition/room&board/fees in the $25K range, so there will be a
decent amount of money in the account - so if there is any way we can maximize
ANY income we can make from the college account, we would like to do so.

So, put your thinking caps on and give me your ideas!

THanks,
Rich