Bit and Pieces

One interesting tidbit from Forbes magazine about credit card companies.  (I think Forbes is the best business magazine around.  They champion free enterprise but go after shifty practices…and they name names.

Seems the banks that brought us the sub-prime mess are trying to make up those losses by getting tough on credit card borrowers.  Forbes put it this way, “Bank of America told thousands of its cardholders in recent weeks--even those with good payment histories--that they faced a rate hike from 9% to as high as 28% if they didn't pay off their balances at the old rate and stop using their cards. The bank, the largest credit card issuer, since its 2006 acquisition of MBNA, says it's all part of its "periodic" review of customer credit risk.”

You may think the key here is the rate hike from 9% to 28%.  Actually the key is the “periodic review of customer credit risk.”  I have known many bankers in my life and liked some of them so I won’t badmouth them.  I’ll let Mark Twain do that.  Mark said that a banker is someone who will give you his umbrella when it’s not raining. 

Put another way--because the banks are losing their shirts the cry has come down from executive row to conduct credit reviews and whack anybody that is out of line.  And it ain’t just Bank of America.  Watch out for Chase and Citibank and everybody else.  Make it go away by reading the fine print, avoid ‘deals’, and pay off the credit cards.  If you don’t owe them anything, they can’t do anything to you. 

On the investment front—There is a financial radio talk show host in this area that is beating his chest declaring he took his customers out of the market before the recent decline.  Great, more power to him.  But getting out of the market is only half the equation.  The other half being when do you get back in?  Nobody rings a bell.  Timing the market is tough, if not flat out impossible.  If you are still accumulating assets in your retirement accounts on a regular basis, stay in because you are picking up cheap shares when the market goes down.  If you don’t like the market at all, get out and stay out.  But remember that the market has averaged about an 11% gain per year versus 6% for bonds versus 3% for cash over the last 100 years--a pretty good track record.

Here is another reason for not cashing out of your IRA retirement accounts.  If you are under the age of 59 and a half, you will pay ordinary income taxes on the money cashed out plus a 10% penalty.  Ouch.  Don’t cash out but do review your portfolio and adjust your asset allocation if not to your liking.  Do this on a regular basis, like annually, not just when the market is a bit volatile. 

Finally from an article in US News and World report on the five things to do to sell a house in a slow market—

Number 1-Make necessary repairs to the house.  (Not exactly rocket science here.)

Number 2-Price to the current market.  In other words, if the market is down, don’t expect to get what you might have gotten last year.

Number 3-Be flexible.  Keep the house clean and be ready to get out of the house at a moment’s notice if a potential buyer wants to get in.

Number 4-Don’t ignore a low-ball offer.  I would say don’t ignore any offer but be careful with the counteroffer.

Number 5-Know your agent.

Having sold a house last year, Number 5 is the most important.  We interviewed three agents.  Number One was a rookie that valued the house at $275,000.  Number two was a 20-year veteran who valued it at $295,000.  The third valued the house at $350,000 and we sold the house in five weeks for $342,500.  The third realtor has been in the business for ten years and was the top producer in the county for five years.  Winners are winners for a reason. 

Comments

[kitty]

" But remember that the market has averaged about an 11% gain per year versus 6% for bonds versus 3% for cash over the last 100 years--a pretty good track record. "

One thing to keep in mind here is that average return is not the same as compound annual return.

Here is an example: the market gains 20% one year and loses 10% the next. Your average return is 10%, yet you haven't made any money at all. You compound annual return is 0%.

As it happens the compound annual return for the 100 years up to December 31st, 2008 is 9.61%. This is not too bad, but most of us don't have 100 years, only in 20-35 years while we are investing. These numbers may be different depending on when you are retiring. Also, keep in mind that you invest in different times, so while some of your money are invested for 30 years before you retire, some are invested for only 10 years or less. So, if you look at this calculator: http://www.moneychimp.com/features/market_cagr.htm and look at compound annual return number for the past 30, 20, and 10 years leading up to December 31st, 2008, you'll see that the money you had invested for 30 years had annualized (real compound annual return) of 10.88%, for 20 years - 8.81% and for the last 10 years - .96%. The money invested after that would've lost value. Your real return on all of your money would depend on how much money you invested during each period.

BTW - I do believe in markets, but one shouldn't forget that there is always risk. Also, more often than not I've seen blogs that cited 11% "average" return and then went on to calculate how much money you'd have now if you invested $X 20 years ago and had this return compounded. These posts totally ignore the fact that getting 11% every year wouldn't produce the same return as if you get gains one year and losses the next.

[Jerry]

We were selling our house last year and the market was just beginning to tank in our area. We took it off shortly and decided to rent but we did all that you suggested in hopes that it would lead to a buyer. Unfortunately, there's no insurance. You do all you can and hope for the best.
Jerry
www.leads4insurance.com