Planning Ahead for Retirement Expenses

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The following is a guest post. Enjoy! 

There are some things that are never too early to think about, retirement being a good example. Retirement can be a difficult time if you don’t plan ahead. There is usually a lot to think about; in short, whatever age you’re at, there’s always something you can do to plan ahead or look into. Several things to think about specifically include understanding your budget, looking into retirement homes, and looking for any potential offers and benefits.

How about you all? What steps are you taking at this point in your life to prepare for retirement?

Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

• Being fairly young (at the current age of 27 years old), I’m not yet to the point of thinking about the specifics of where I’ll live during retirement, etc.
• The main thing I’m focusing on right now is aggressively saving money in a three-legged stool mixture of tax-free, tax-deferred, and after-tax accounts to not only ensure I have enough money in retirement, but I will be able to draw on my savings in a tax-efficient manner.

***Photo courtesy of http://farm3.staticflickr.com/2551/4088699532_a154e1bfbf_o.jpg

Should You Incorporate Gold / Precious Metals in to Your Asset Allocation?

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About a year ago, I spent a good bit of time analyzing the Permanent Portfolio concept created by Harry Browne in the 1980’s, both in a post on my own site and also a guest post for Flexo on Consumerism Commentary.

If you’re not familiar with the Permanent Portfolio that Harry Browne popularized in his book, Fail Safe Investing, it is a passively managed asset allocation strategy constructed by components in such a way that at least one component is favored by any of the possible broad economic movements. The Portfolio components are as follows: 25% in stocks, which do well in times of prosperity, 25% in gold, which does well in times of inflation, 25% in bonds, which increase in price during times of deflation, 25% in cash, which does well in times of tight money/recession when interest rates rise.

For the most part, I have covered 3 out of 4 of the Permanent Portfolio components pretty completely on my site. However, the one remaining (and fairly fascinating) component that I haven’t really dissected all that much is the gold / precious metals component.  

As such, the purpose of today’s post will be to examine the in’s and out’s of how to decide if adding a gold / precious metals mutual fund to your asset allocation is appropriate.

Let’s get started!

What Does the Literature Say? – Adding Gold / Precious Metals to Your Portfolio

As is my tradition here when I analyze asset allocation, I always like to provide a summary of what the asset allocation experts think before launching in to my own investigation. As such, listed below is a summary of the opinions of several of my favorite asset allocation authors on whether or not the gold/precious metals asset class should be added to investors’ portfolios.

Indeed, one of the things that makes precious metals so fascinating is the amount of disagreement and controversy that exists between experts as to whether it is a worthwhile investment.

• Larry Swedroe (probably my favorite investing author I have found to date)
• In his newer 2010 book, The Only Guide You’ll Ever Need for the Right Financial Plan, Larry recommends that investors NOT hold gold/precious metals because 
• 1) It has very high volatility, 
• 2) May or may NOT deliver returns that compensate for the increased volatility, and 
• 3) May or may NOT hedge against inflation effectively.
• Burton Malkiel
• In his famous and amazing book (2003 edition), A Random Walk Down Wall Street, Malkiel mentions that he used to be very negative about holding gold as an investment, but since 2002, has changed his mind slightly. 
• He believes that gold/precious metals should not make up a huge portion of one’s asset allocation, but that a small amount (5% or less) can help diversify a portfolio.
• William Bernstein (my 2nd favorite investing author I have found to date)
• In his 2002 book, The Four Pillars of Investing, Bernstein recommends that even though precious metals have had extremely low long term returns and are extremely volatile, they should be included in small amount (2-3% or less) in one’s portfolio, provided that the investor is comfortable with them. 
• This is due to the fact that they are 1) almost perfectly uncorrelated with other asset classes, 2) will be profitable during high inflation, and 3) the high volatility will allow for a rebalancing benefit. 
• This perspective was approximately echoed in his 2001 book, The Intelligent Asset Allocator, as well.
• Rick Ferri
• In his 2006 book, All About Asset Allocation, Rick recommends that investors AVOID gold/precious metal funds because even though they have low correlations with other asset classes, they also have very low returns, causing it to not be worth the volatility.

So, as we might have expected, there is a lot of disagreement among the experts about whether it’s worth it for investors to hold precious metals. In fact, we have a 1/2 split among the authors above. Awesome!

However, there is ALWAYS agreement about 3 things – precious metals are..

• 1) Volatile and feature low correlation with other asset classes, 
• 2) Not likely to produce good returns, and most importantly,
• 3) Should ONLY be invested in by investors that are comfortable sticking with them for long periods of time. And if this criteria is met, precious metals should only constitute 3% or less of an investor’s portfolio.

Gold and Precious Metals in a 1-Component Portfolio, 1972-2011

As usual, the first thing that I like to look at when analyzing an asset class for portfolio design is how it has performed by itself over a fairly long time period.

To do this, I again utilized the Boglehead.org forums Simba back testing data to analyze the performance of a $10,000 initial investment in gold and precious metals from 1972-2011 (data for precious metals is only available back to 1985, so I used gold as stand-in proxy for precious metals during the 1972-1984 time period).

The results of the back test can be seen on the graph below for the 1972-2011 time period, where the green line and purple lines represent gold and precious metals, respectively. I also modeled the same $10,000 initial investment in the Total US Stock Market Index (blue line) and Short-Term Treasuries (red line) during the same time period.

Looking at this graph, there are several interesting observations that can be made:

• Gold and especially precious metals have performed extremely strongly over the past 40 years! 
• Just take a look at the (purple) precious metals plot. That asset class has outperformed the US stock market by a huge margin during the past 40 years.
• Of course, this is likely the whole reason why there has been so much “buzz” swirling in the investment community about gold and precious metals over the past few years. 
• However, this is also fairly alarming/concerning to me because the long-term analyses from nearly every author mentioned above came to the conclusion that precious metals do not actually deliver high / good returns.
• This graph also very nicely shows how volatile precious metals can be! 
• For example, in 2008, precious metals lost 56% of its value, whereas the total US stock market only decreased 37%. Now that’s what I call one volatile asset class, eh?!

Shown below are the detailed return numbers from 1972-2011 that go along with the 1-component graph/analysis above. As expected from what was reported in the literature, both the gold and precious metals asset classes displayed much higher standard deviations of annual returns than the overall stock market (in fact, between 1.5-2x more!).

Along with the high standard deviation, I also wanted to point out two other things that this data shows us. First, as was hinted to by the performance graph above, precious metals have delivered higher overall average returns than the US stock market between 1972-2011 (green highlighted cell above). However, the asset class was NOT very efficient at all at giving this high return, featuring the low ratio of return to risk of 0.42.

In plain English, this means that precious metals did not compensate investors as efficiently as the total stock market (or other higher risk/higher return emerging market / small cap value portfolio components often used to increase returns shown in the table below) for the amount of risk they shouldered.

Gold and Precious Metals in a 1-Component Portfolio, 1972-2002

To me, the results from the analysis above examining the 1972-2011 time period were quite surprising (and also made me a little skeptical).

During my research of the Permanent Portfolio, I encountered many warnings stating that investors should be skeptical of the superior recent performance of the Permanent Portfolio because long term bonds and gold/precious metals had performed at higher-than-historical levels of the past 10 years.

Taking this warning in to consideration, I decided to re-run my back testing analysis, starting with the year 1972, but chopping off the last 10 years or so from 2002-onward (please note that 2002 was the year in the graph above when the precious metals class really “took off” and started to outperform the overall stock market).

The table below displays the back testing return data results from the “shortened” 30 year period from 1972-2002. As can be clearly seen (red highlighted cells), the superior performance of gold and precious metals over the total US stock market sort of breaks down when the “Lost Decade for Investors” is excluded. In fact, precious metal average returns are about on par with the almost-risk-free Short-Term Treasuries, but feature 6x more risk. Regarding the return/risk ratio, precious metals are even less efficient in this 30 year period (only about half the efficiency of the total US stock market).

Correlations of Annual Returns – Gold / Precious Metals vs. Other Asset Classes

One of the few things that asset allocation experts definitely agree on regarding precious metals is that one benefit they do offer is a diversification benefit because of low correlation with other asset classes.

To provide some concrete numbers to this statement, I generated the correlation coefficient matrix below for the annual return data of gold, precious metals, short-term treasuries, and the total US stock market.

As you can see in the table above, the literature sure wasn’t lying when they said that there is a correlation benefit!

For example, precious metals only move in the same direction as….

• The total US stock market 24% of the time, and
• Short-Term Treasuries -19% of the time, meaning that they move in opposite directions!

Conclusions from 1-Component Portfolio Analysis of Precious Metals and Gold

Overall, the 1-component portfolio analysis above shows us that gold/precious metals..

• 1) Should technically provide us with a diversification benefit in our portfolio due to the favorable (low correlations), and 
• 2) Should not be counted on to compensate us with sufficient returns to pay us for the large volatility they require us to shoulder.

Does Incorporating Precious Metals / Gold in to a Diversified Portfolio of Stocks and Bonds Improve Performance?

While examining the precious metals and gold asset classes in the isolation of 1-component portfolio is fairly interesting and provides some level of insight in what we can expect, it has not enabled us to draw a concrete conclusion as to whether adding this risky asset to our portfolio is worthwhile.

To try to find an answer, we need to look at how precious metals would perform if/when incorporated as part of a diversified portfolio.

To do this, I modeled a portfolio utilizing a set fixed income asset allocation of 30% (in short-term treasuries), and then filled the rest of the portfolio with a mix of precious metals (0-50% of the total portfolio value) and the total US stock market index asset classes.

The results of this analysis can be observed nicely on the graph below of average annual return (y-axis) vs. standard deviation/risk (x-axis). There are two plots – one for the 1972-2011 time period (blue line) and one for the 1972-2002 time period (red line).

Let’s start at the bottom of the plots, where the first point represents a portfolio containing 0% precious metals. As we add 0-20% allocations of precious metals, we see something “magic” happen – portfolio risk decreases, but portfolio return increases! Nice, right?! So, adding precious metals over the past 40 years definitely would have increased portfolio performance!

If you dig through the detailed numbers, you see that the maximum efficiency (highest ratio of return to risk) occurs around an 18% portfolio allocation to precious metals.

Surprisingly enough, the ~18% allocation level to precious metals was found to be the most efficient level for both time periods, despite the lower performance of precious metals when the analysis was stopped at 2002. It is also fairly interesting to note that this level almost aligns with the Permanent Portfolio allocation to precious metals, which was 25%! Crazy uh?

Reality Check – Is it “Worth It” to Add Precious Metals / Gold to Your Portfolio in a Small Amount?

In the section above, we see that there is clearly a significant benefit to adding a large amount of precious metals to your portfolio over the past 40 years.

However, there is a problem with this – one that I mentioned was stopping me from adopting the Permanent Portfolio fully. The problem is that holding the optimal ~20% allocation to precious metals would cause most, if not all, investors to have tracking error in their portfolio (in other words, lose discipline to their set strategy and change their allocation). 

Because of this, I am going to say that unfortunately, the level that was found to be mathematically optimal in the modeling above does not work in the real world.

Having established this belief, the questions then become, 1) “If it is clear that adding precious metals to a portfolio improves performance, how much is a realistic amount to add? 2) And, with this realistic amount, is the increase in performance worth the trouble of holding this sometimes “pesky” asset class?”

Let’s explore the first question – how much of an allocation to precious metals is realistic. For me, given the varying opinions about precious metals among experts in the literature and the fact that it isn’t a very efficient and/or reliable asset class, I would say that 3% is a good maximum allocation I would be able to give to precious metals.

Having established this realistic allocation level, we can then explore how much, if any, benefit the small addition would give us in a diversified portfolio.

To do, this we need to dig in to the precise return numbers utilized in building the risk/return curves in the previous section, specifically focusing on the less than 5% precious metals allocation. The two tables below show the resulting data from this analysis, one table for the 1972-2011 period and the other for the 1972-2002 period.

If we look at the 1972-2011 period, we see that the “mathematically” optimal precious metals allocation of 20% gives us an extra 1.2% annual return on average. However, if we utilize the more “realistic” precious metals allocation of 3%, we only receive an extra 0.18% return each year. If we equate this increase in annual return to ending portfolio value, we would have 9.4% more money at the end of the 40 year period by holding 3% of our portfolio in precious metals.

If we examine the 30 year period ending in 2002, the case for holding a small amount of precious metals becomes somewhat less compelling. When we move from having no precious metals to a paltry 3% allocation in precious metals, we only receive 0.11% more in per year average return. If we again equate this increase in annual return to ending portfolio value, we would have 5.3% more money at the end of the 40 year period by holding 3% of our portfolio in precious metals.

So, by having a realistically small amount of 3% of our portfolio allocation in precious metals, we can increase our portfolio’s ending value by 5-10% over a 40 year period.

The question I ask myself is, “Is this relatively small increase in ending value that we receive by adding a precious metals to our portfolio worth the risk of the tracking error that might be introduced to my portfolio by the addition?”

Conclusion – For me (and for likely the majority of investors), I am going to say that precious metals / gold are not worth adding to your portfolio because it is more likely that holding precious metals will cause you to change your strategy before realizing the tiny benefit that holding precious metals might give you. 

Furthermore, if I wanted to increase returns, I could likely just increase my allocation to an asset with a more trusting risk/return profile, such as emerging markets and/or small cap value stocks.

If you’re interested in viewing all of my calculations from this investigation, click here to view the Google Docs Spreadsheet.

Fedex, UPS, or USPS – Which is the Best Option for Mailing Packages?

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If you’re like me, you’re probably all too familiar with THE FEELING.

You know – the feeling where you hurry over to your local post office during your lunch break or on your way home, just wanting to mail a small little package to someone. As you enter the building, BOOM, you see it; the post office line is so long that it is curled around the room and itching to push out of the door. The only option is to either a) wait in line for 30 minutes and deal with the huffing and puffing of the upset folks in line and the benevolent underpaid/overworked postal workers or b) come back later. Which do you choose?

Generally, I tend to just stomach the wait in line and mail off my package as opposed to coming back. At the very least, I get an interesting lesson in human behavior, right?!

However, during a recent family visit to my sister’s new condo in Raleigh, North Carolina, she mentioned that she now prefers to do all of her mailing by skipping the local post office (USPS) and using a UPS store instead.

I thought this was a fascinating idea. Whenever I have gone to Fedex or UPS stores, there is almost never any wait, and even though I sometimes get confused about which form to fill out, things seem to go pretty quickly. You can even use some of their packaging supplies at the store for free!

As such, the purpose of today’s post is to put some details to the comparison of the three big players in today’s package-shipping market, Fedex, UPS (United Parcel Service), and the USPS (United States Postal Service), in an effort to determine which is the best option. 

Let’s get started!

Comparison of the Companies and Business Models

First, I think it’s useful to take a brief look at how these 3 key companies that dominate the shipping industry are structured.

On one hand, Fedex and UPS are both publicly-traded for-profit companies. UPS (ticker symbol also = UPS) is a monster, with just under 400,000 employees, a market capitalization of $79 billion, 2012 year revenue of $53 billion, and has been profitable every year for the past 10 years. Fedex (ticker symbol FDX) is a little smaller, with only around 150,000 employees, a market cap of $30 billion, 2012 year revenue of $43 billion, and also has been profitable in each of the past 10 years. The stocks of each of these companies has averaged about a 5% increase per year for the past 10 years as well, so a pretty respectable performance.

Then, on the other hand, you have the USPS, which seems to be struggling more and more with each passing year. The USPS is an independent agency of the US Federal Government, created by the US Constitution. They have a very large employee workforce of 574,000 workers. The USPS received subsidies from taxpayer dollars up until 1980, and has been struggling ever since 2006 when Congress passed the Postal Accountability and Enhancement act and also since the use of email has drastically reduced the amount of first-class mailings around the country. One severe hindrance to how efficient the USPS can operate is that it is legally obligated to maintain enough manpower to serve everyone, meaning that even though there may be no mail to pick up, it must spend time and man-hours keeping up the same routes year-in and year-out.

Comparison of Package Mailing Rates and Delivery Speed – Larger / Heavier Items

Having gotten a feel for the way each of these three companies/agencies are structured, the next thing to investigate is the price-points they charge for mailing packages.

To give a basis for comparison, we’ll assume that I am wanting to mail a 15 lb package containing X-mas gifts from my parents’ house in Arkansas to my home here in Virginia. The package (no declared value or other value-added services) will be in a non-branded box of which the dimensions will be 24 inches long, 12 inches wide, and 8 inches tall. 

Listed below are the pricing results I found from the Fedex, UPS, and USPS websites for the shipment: (I am showing 2 prices, one for dropping off at a Fedex/UPS/USPS location, and one for having them pick up the package from my parents’ home. I also highlighted in bold the shipping level I would select for each carrier for this specific package)

• Fedex
• First Overnight – $176 / $180
• Priority Overnight – $141 / $146 
• Standard Overnight – $130 / $135
• 2Day A.M – $72 / $77
• 2Day – $63 / $68
• Express Saver 3 Day – $44 / $49
• Home Delivery 3 Day – $18 / $21

• UPS
• Next Day Air Early AM – $175 / $184
• Next Day Air – $141 / $150
• Next Day Air Saver – $130 / $140
• 2nd Day Air – $63 / $73
• 3 Day Select – $44 / $54
• Ground 3 Day – $20 / $30

• USPS
• With the USPS, we will assume there is no extra charge for picking up the package at my parents’ home, since the postal worker already comes by there and can just pick it up on his or her normal route. 
• However, there is a significant reduction in price when we pay/print shipping online vs at a Post Office. Therefore, I’ve listed both of these prices below (Post Office price first / Online Price second):
• Express Mail (overnight-2 days, 2 days guaranteed) – $92 / $60
• Priority Mail (2-3 days) – $35 / $30
• Standard Post (~7 days) – $25 (cannot print online)
• Media Mail (~7 days, must contain media) – $8.67 (cannot print online)

Comparison of Package Mailing Rates and Delivery Speed – Smaller / Lighter Items

Having seen that the conclusions that several of these other comparison posts came to was pretty much the exact opposite of what I found, I figured I should run a second analysis using different parameters to see if USPS could emerge as a less-bad option.

This time, we’ll assume that I am wanting to mail a 1 lb package containing X-mas gifts from my aunt’s house near Los Angeles, CA to my home here in Virginia. The package (no declared value or other value-added services) will be in a non-branded box of which the dimensions will be 14 inches long, 12 inches wide, and 3 inches tall. 

Listed below are the pricing results I found from the Fedex, UPS, and USPS websites for the shipment: (As before, I am showing 2 prices, one for dropping off at a Fedex/UPS/USPS location, and one for having them pick up the package from my parents’ home. I also highlighted in bold the shipping level I would select for each carrier for this specific package)

• Fedex
• First Overnight – $123 / $127
• Priority Overnight – $88 / $93 
• Standard Overnight – $80 / $84
• 2Day A.M – $48 / $52
• 2Day – $42 / $46
• Express Saver 3 Day – $32 / $36
• Home Delivery 4 Day – $9 / $9

• UPS
• Next Day Air Early AM – $125 / $135
• Next Day Air – $92 / $102
• Next Day Air Saver – $83 / $93
• 2nd Day Air – $45 / $55
• 3 Day Select – $35 / $45
• Ground 4 Day – $14 / $24

• USPS
• With the USPS, we will assume there is no extra charge for picking up the package at my parents’ home, since the postal worker already comes by there and can just pick it up on his or her normal route. 
• However, there is a significant reduction in price when we pay/print shipping online vs at a Post Office. Therefore, I’ve listed both of these prices below (Post Office price first / Online Price second):
• Express Mail (overnight-2 days, 2 days guaranteed) – $36 / $28
• Priority Mail (2-3 days) – $7 / $7
• Standard Post (~7 days) – $7 (cannot print online)
• Media Mail (~7 days, must contain media) – $3 (cannot print online)

Comparison of Locations / Accessibility / Waiting Time for Mailing Packages

Having established that the pricing and delivery speed levels of the three carriers, we now need to explore whether or not UPS and Fedex are on par in terms of accessibility with the USPS (which we know is EVERYWHERE, per their legal obligation).

From a qualitative standpoint, I am thinking that there are likely MORE Fedex and UPS locations than Post Offices, since about every medium-to-large sized city I have lived in has had multiple UPS and Fedex locations, especially since Fedex merged with Kinko’s and operates out of Kinko’s locations as well. However, this is just my gut-feeling. Below are some actual numbers:

• Currently, there are around 9,000 manned Fedex drop-off locations globally and 36,300 Fedex drop boxes. 
• In the UPS world, there seem to be many more stores, with about 4,400 UPS stores in the US alone.

So, I think it’s safe to say that if you live in an area with more than 20-20k people, you will undoubtedly have access to a UPS or Fedex store close by. 

And, not only will it likely be cheaper/quicker to ship a package from there, but in my experience, there is almost never a line of more than 1-2 people at UPS / Fedex.

However, what if you live in a less-populated area, say a city that only has a population of 2-3k? In that case, it’s probably worth at least checking to see if there are any Fedex or UPS locations close by. But, I wouldn’t place much hope on it, judging from the results of the search I’ve done using the Fedex / UPS store locator tools in rural Arkansas and rural Virginia.

Therefore, if you live in a small town, you should take advantage of the fact that every town has a USPS Post Office and just do your mailing from there. You likely will not have the long waits that people in larger cities have to mess around with too!

Conclusions and My Personal Path Forward

After looking at the various considerations from this post comparing cost, delivery speed, accessibility, and ease of usage, the following conclusions can be made regarding Fedex vs. UPS vs. the USPS:

• UPS and Fedex have much more efficient business models, as we would expect for for-profit companies. However, the advantage that the USPS does have is a very extensive reach to serve basically everyone in the USA (even rural communities).
• For heavier items (using non-branded, non-media items / packaging) greater than 2 lbs, Fedex seems to be the cheapest and fastest option, and also offers very good rates for coming to pick the item up at your home.
• For lighter items (using non-branded packaging) less than 1-2 lbs, USPS seems to be the cheapest option, but is also quite slow compared to the other carriers. 
• If you live in a medium-to-largely populated area, you should have no trouble finding a UPS or Fedex store close by to your home/business.
• If you live in a rural area or small town, you likely will not have access to UPS / Fedex and instead, should just use your local USPS Post Office.

My Personal Path Forward – For me, since I am very close by both a Fedex and UPS store, I have no trouble with the accessibility issue. Therefore, it really all comes down to cost and ease of use.

Since Fedex is cheaper for heavier items and pretty close in pricing for lighter items compared to the USPS, I believe I will start using Fedex for all of my routine package mailing (where I can’t use media mail or just stick some stamps on an envelope and put it in my mailbox), since the waiting time is much less at Fedex.

How about you all? Do you normally mail packages using UPS, Fedex, the USPS, or another carrier?

How would you rate their service?

Share your experiences by commenting below!

***Photo courtesy of http://farm4.staticflickr.com/3009/2959726971_50fb4726f5_z.jpg?zz=1

What Component Mix Should Make Up Your International Equity Allocation?

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Click here to enter my free $50.53 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is April 30th, 2013.

Several days ago, I shared an investigation on 1) the reasons/benefits of incorporating the international equity asset class in to your asset allocation and 2) the approximate optimal level in which to make the addition.

Essentially, the analysis of the ~40 year period between 1972-2011 revealed that holding 30% of your equity position in international stocks provides the highest return/risk ratio. This aligned very nicely with the advice from the literature saying that the optimal level is between 30-40% of your total equity allocation.

Having decided upon our optimal overall international equity allocation target, the question (that I want to investigate in today’s post) then becomes, “What type(s) of specific international funds or international sub-asset classes should make up this international equity allocation?”

Let’s take a look at answering this question, shall we?

What are Your Options for Components to Build Your International Equity Allocation?

The first step in trying to seek out an appropriate answer to this question is to figure out what international equity options are available to us in the first place.

For me, I personally like to keep the bulk of my investments in Vanguard index mutual funds. If we visit Vanguard’s mutual fund website and narrow the selection to International Index Funds, the following equity choices are displayed:

• Developed Markets Index, Ticker Symbol VDMIX
• Emerging Markets Stock Index, Ticker Symbol VEIEX
• European Stock Index, Ticker Symbol VEURX
• FTSE All-World ex-US Index, Ticker Symbol VFWIX
• FTSE All-World ex-US Small-Cap Index , Ticker Symbol VFSVX
• Pacific Stock Index, Ticker Symbol VPACX
• Total International Stock Index, Ticker Symbol VGTSX
• Total World Stock Index, Ticker Symbol VTWSX

At first glance, the list above looks a little bit overwhelming. So many choices to pick from, right?!

Dissecting through this list of options a little more, I decided to rule out the total world stock index fund because it invests in US companies, which we are trying to get away from by investing internationally.

The next confusing aspect we have on this list is that we have a total international stock index fund and an FTSE all-world ex-US index fund. A common question that people ask is, “What makes these two international funds different?” It’s very reasonable to ask this question because at first glance, they appear to be the same type of non-US equity index fund. In general, one can assume that the total international index fund is the better choice because 1) it has a lower expense ratio and 2) is more broadly diversified because it includes not only large and mid (like the FTSE fund), but also small-cap international stocks as well.

Having removed these two funds for the reasons mentioned above from our list, let’s proceed…

WHAT DO THE BOOKS SAY? – INTERNATIONAL EQUITY Components / Breakdown

Conclusions from the literature – From the books written by the four authors above (some of the best on asset allocation I have found to date), it’s obvious that there is not consistent agreement as to the optimal international equity allocation split. 

However, for me, one clear conclusion is that I need to be careful with how much emerging markets equity I load in to my portfolio (keeping in mind the 10% of equity limit mentioned by Larry Swedroe perhaps), since this is clearly an asset class that can be quite volatile. In addition, there seems to be a a trend that the experts like to invest in region-specific index funds instead of just owning a fund that represents everything. This could be an important thing to investigate.

Which International Equity Components Recommended in the Literature Are Possible?

Since I like to invest with Vanguard (and they unfortunately do not have all of the mutual funds in the world), I am limited to the index funds that they offer. In this case, Vanguard does not currently offer an international large-cap value or small-cap value index fund. Therefore, we can scratch those international asset categories off of our list for consideration.

So, that leaves us with the remaining Vanguard funds shown below. In order to move forward, the next thing we need to figure out is what each of these funds invests in/represents. To this end, I’ve listed the allocation of each fund below as well.

• Developed Markets Index, Ticker Symbol VDMIX (Intl Dev)
• 64% Europe, 36% Pacific. 
• Developed foreign markets in Europe and the Pacific only.
• Emerging Markets Stock Index, Ticker Symbol VEIEX (EM)
• Emerging markets only around the entire world (100%).
• European Stock Index, Ticker Symbol VEURX (Europe)
• 100% Europe developed markets (no emerging markets).
• FTSE All-World ex-US Small-Cap Index , Ticker Symbol VFSVX (Intl Small) (has the highest expense ratio (0.45%) of any Vanguard index fund I could find, so this is a pricey one to hold!).
• Small-cap companies only around the world, both emerging and developed markets. 
• 22% emerging markets, 39% Europe, 25% Pacific, 14% North America, 0.3% Middle East.
• Pacific Stock Index, Ticker Symbol VPACX (Pacific)
• 99% Pacific developed markets (mostly consisting of Japan and Australia), 0.7% Pacific emerging markets.
• Total International Stock Index, Ticker Symbol VGTSX (Total Intl)
• Represents the market weightings of the entire ex-US world, both developed and emerging markets, in the percentages shown below.
• 19% emerging markets, 44% Europe, 29% Pacific, 0.4% Middle East, 7.7% North America.

Having listed out this information, I then was curious to see what type of performance these 6 asset classes have had over the past 40 years or so. To do this, I again used the 1972-2011 data from Simba’s backtesting spreadsheet from the Bogleheads.org forums.

The average annual return, standard deviation of annual returns, and return/standard deviation ratios are shown in the table below for each asset class. In the table below, I have also listed the data for the Total US Stock Market Index (MKT-TSM) for comparison as well.

There are several interesting findings from this table above.

• We see that the emerging market and international small-cap asset classes provided a MUCH MUCH MUCH higher average return than the other asset classes, as we might expect, given the significant increase in risk associated with these asset classes.
• The return/standard deviation ratio for the emerging markets and international small-cap asset classes is on par with that delivered by the total US stock market, so those asset classes provide some nice opportunity for increasing returns, provided that one can stomach the increased risk.
• The Pacific equity asset class provided the least-efficient ratio of return/risk.

Question # 1 – Is it Worthwhile to Hold Individual Region-Specific Developed Market Index Funds?

After looking at the return data above for 1972-2011 and also reviewing what is in the literature, I still was left questioning whether or not it is actually beneficially to hold region-specific developed market funds (so for Europe and the Pacific area). Or, would I be about as well off if I simplified it all and purchased just one fund that represents everything?

In his book mentioned in the literature section above, Rick Ferri provides a wonderful argument for why it is in fact better for investors to hold index funds of individual developed market regions (Europe and Pacific) vs one that represents the entire class. The reason for this he describes is that the weight of the various regions can vary GREATLY  depending on the market conditions around the world. For example, over the past 40 years, the majority stake of the developed market index has swung 3 times between the Pacific and European regions. He suggests that instead of depending on a total market fund, which is subject to these fluctuations, it is more efficient for an individual to hold a consistent equal weighting of developed market equity in Pacific and European regional index funds.

To test out Rick’s hypothesis, I back tested the performance of two portfolios over the past ~40 years, one consisting of 100% the International Developed Market Index Fund, and another carrying a constant 50/50 split between the Pacific and Europe regions (the regions that make up the Developed Market Index Fund). The results are shown in the graph below.

As you can clearly see, the 50/50 split portfolio (blue line) between Pacific and European regions outperformed the 100% international developed portfolio by a good margin over the time period analyzed.

The table below shows the exact average annual return and standard deviation (risk) data from this analysis. As you can see in the table, the 50/50 portfolio provides a more efficient (higher) ratio of return/standard deviation, indicating the there is in fact a benefit to investing in region-specific index funds.

Conclusion/Answer to Question # 1 – Yes, it does seem to be worthwhile to invest in region-specific index funds (in a 50/50 ratio in Pacific and European index funds) to gain developed market equity representation.

Even though this split does not give us exposure to Canada, we’ll ignore this deficiency for the time being and continue on with the investigation…

Side note: I’m not sure why, but there’s just something that I don’t personally favor with the idea of investing in a region-specific index fund versus a total international market fund. It seems like investing in just two regions would somehow exclude some areas of the world…However, more on this preference later! 

Question # 2 – Should Emerging Markets and/or International Small-Cap Index Funds Be Incorporated?

From the investigation above, we now know how to assemble the developed market mix of our international equity portfolio using the Pacific and European regional index funds.

However, what do we do with the more volatile and higher-returning international small-cap and emerging market asset classes? Do we add them to our portfolio? And if so, how does it work incorporating them in with general developed market equities?

In order to seek out some sort of answers for these questions, I back tested an international equity portfolio consisting of 25% Europe, 25% Pacific, and then varying amounts of Emerging Markets and International Small-Cap equities to complete the portfolio (time period was again 1972-2011). The average return and standard deviation results can be seen in the table below:

What we can observe in this table is a little bit surprising. When we add increasing amounts of the international small cap asset class, the volatility does decrease, but it does so slower than the accompanying decrease in return. What this means is that adding international small cap equity does NOT make our portfolio significantly more efficient.

Because of this finding and the fact that the International Small-Cap Equity Index Fund carries such a high expense ratio, I do not think it is worthwhile to add to my portfolio at this time.

However, this data does clearly dictate the the inclusion of emerging markets is quite important!

Conclusion/Answer to Question # 2 – Including emerging market equity seems to be very significant in increasing returns and efficiency of an international equity portfolio. The addition of international small-cap equity seems much less important / potentially not worth the cost of owning that asset class.

Having answered this, let’s explore the action of including emerging markets a little further.

Question # 3 – Does the Incorporation/Balance of Emerging Markets Control International Equity Portfolio Construction?

Because of the dominating effect that the inclusion of emerging market equities had over international small-cap equities in the investigation in the previous section, I then hypothesized the following:

Hypothesis/Question: If I incorporate a significant level of emerging market stocks in to my international equity allocation, will the dominating effect make it less important to worry about buying region-specific funds (something against my personal preference)?

Essentially, what I’m thinking is that if I just incorporate emerging market equity in to my international stock portfolio, I could just simplify everything and complete my international portfolio with a total international stock index fund. This type of fund would also provide coverage of Canada as well, which is also a plus!

To see if I could validate my hypothesis, I back tested the 3 international equity portfolios described in the bullets below during the common time period of 1972-2011. For my emerging markets allocation, I used the optimal 50% emerging market level found in the Question # 2 section above and filled the remainder of the portfolio with developed, region-specific, or total international market funds. The performance results can be seen on the graph below:

• Green Line – Portfolio consisting of 25% Pacific, 25% Europe, and 50% emerging markets.
• Blue Line – Portfolio consisting of 50% international developed equity and 50% emerging markets. 
• Red Line – Portfolio consisting of 50% total international market equity index and 50% emerging markets.

The graph above reveals something fairly intriguing. In fact, what we see is that the green and red lines are essentially overlapped, indicating that there isn’t much difference between holding half of your international equities allocation in a total international fund vs. investing in separate Pacific and European region-specific funds. However, you do get a significantly less efficient portfolio if you were to use a developed market index fund over a total international fund.

To add some definite numbers to the performance seen in the graph above, I assembled the return data in the table below:

Looking at this data provides us with some form of an answer to Question # 3 –

• The amount of emerging market equity essentially drives the performance/returns of an international equity portfolio. 
• There is not much difference between using a total international index fund vs. Pacific and European region-specific to gain representation for the developed international markets.

Putting it All Together – Defining What Split You Should Maintain Between International Developed and Emerging Markets

To recap, so far, we have essentially seen that the most important decision to make when investing in international equities is to define a mix you’re comfortable with between emerging and developed markets. How exactly you decide to represent the developed markets carries less of an overall effect.

So, what is the optimal % that emerging market stocks should represent in your international equity portfolio? 

It’s an intriguing question. Let’s take a look!

In order to put in to context everything that has been covered in this post and the post from several days ago that investigated the optimal overall international equity allocation to carry, I modeled various portfolios consisting of 30% short-term treasuries and 70% equity from 1972-2011. The equity portion of the portfolios consisted of a constant split of 70% total US stock market and 30% international equities. Finally, inside the international equity sub-allocation, I modeled the average annual returns and volatility (standard deviation) that would have resulted using increasing amount of emerging market stocks, ranging from 0-100% of the international equity sub-allocation. The total international market index was used to fill the remainder of the international equity portfolio.

The results of this investigation can be seen in the return/risk graph below (each point represents an additional emerging market allocation of 10%). Let’s start on the left side of this graph, where we have no emerging market stocks. As we might expect from the risk/return trade off, we obtain increasing amounts of return as we add increasing amount of emerging market stocks.

To go along with this, it’s also beneficial to examine the real numbers that were used to construct the above graph. This data can be seen in the table below.

In my opinion, the two most important and useful columns of this table are the last two – the one showing the average return / standard deviation ratio and the one showing the slope of the return/risk curve. 

What we see when we examine the return / risk ratio column is that the portfolio that is numerically the most the efficient is the one whose international equity allocation consists entirely (100%) of emerging market stocks. However, in portfolio construction, the most efficient allocation is useful unless an investor can actually stick with it for a very long time.

Because of this, the short/easy answer to the question of how much emerging market exposure to carry is basically, buy as much as you can sleep well at night holding.

However, a more practical answer to this question can also be obtained by examining the last column of the table, showing the slope of the return / risk curve. Essentially, what this column is showing us is how much increase in return we get per unit increase in risk. Because of how the slope is calculated, a HIGHER slope number is better for us as investors.

Keeping this in mind, we see on the table that the slope of the return curve is highest between the range of 0-20% emerging markets (as a % of international equity holdings). What this means is that we definitely want to have around 20% emerging markets in our international equity portfolio to take advantage of this benefit.

When we add more emerging market stocks (between 30-50%), the slope is pretty much constant, albeit less than it was between 0-20%. When you add emerging markets to above the 50% level, there is another significant decrease in the curve’s slope. 

So, my overall takeaway from this analysis is that we want to take advantage of the slope of the risk return curve by holding a minimum of 20% and a maximum of 50% of our international equity position in emerging market stocks. Aside from the mathematics of this, I think that going above 50% emerging markets might cause tracking error for most investors.

If you’re interested in checking out all of the detailed calculations/numbers I used for the back testing in this post, click here to visit the Google Docs Spreadsheet.

CONCLUSIONS, MY CURRENT INTERNATIONAL Equity Mix, AND PATH FORWARD

So, after going through all of this investigation comparing varying mixtures of international equity asset classes, what’s the overall verdict? Well, I think it can be summed up in a couple of key-points:

• Figuring out which specific components to use to build your international equity portfolio can produce quite a headache because of the varying opinions among experts in the literature, confusing terminology in figuring out what assets international mutual funds hold, and common lack of low-cost options to normal investors.
• It is more efficient to gain exposure to international developed markets by investing in region-specific Pacific and European index funds vs. simply holding a developed market index fund that represents everything.
• However, the incorporation of the emerging market asset class is much more significant as far as driving portfolio behavior than the decision of whether or not to use region-specific developed market funds.
• By examining the behavior of incorporating emerging market equities in a complete 70/30 equity-fixed income portfolio, we see that investors should take on as much emerging market exposure as they can (within their international equity allocation of course!) without incurring tracking error. 
• However, the most significant contributions to increasing portfolio return while only marginally increasing risk occur by having 20-50% of your international equity allocation in emerging stocks.

How about you all? What type of component mix do you have in your international equity portfolio allocation?

Are there any potential changes you are thinking of making any time soon?

Share your experiences by commenting below!

5 Steps To Owning Your First Home

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Click here to enter my free $50.53 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is April 30th, 2013.

The following is a guest post. Enjoy! 

Can you afford it?

Research, research, research

The all important home loan

Buying the home

Moving in

How about you all? If you have purchased a home before, what is one thing that you figured out after the fact that you wish you had done at the beginning of the home buying process?

Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

• Looking back on my experience purchasing a condo, I think the most important step in the process was figuring out the finances, as that is really what drives the whole process.
• It’s important to be pre-approved for a home loan (not pre-qualified) that is sufficiently low enough to allow you to meet your long term savings goals while paying back your home loan.

***Photo courtesy of http://www.flickr.com/photos/stevendepolo/3608960341/sizes/o/in/photostream/

Carnival of Financial Planning B – April 19th, 2013 – Thinking of Boston Edition

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Click here to enter my free $50.53 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is April 30th, 2013.

Welcome to the April 19th, 2013 “B” Edition of the Carnival of Financial Planning! 

The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. The focus is on efficient and sustainable personal financial planning practices that can lead to lifetime financial security. 

If you’re wondering what the B edition means/stands for, what happened was that the carnival was getting so many submissions each week, that the organizer decided it would be more meaningful and easier to access if the submissions were split in to 2 groups, each being featured on a separate site each week. And this week, we’re hosting the second of the 2 groups!

By now, I’m sure everyone is well aware of the horrific events that have happened in Boston over the past week, starting with the bombs going off at the finish line at the Boston Marathon. This event hit home pretty hard for my fiance and I since we are both runners and have often attended large races such as this one. I have often been in the crowd near the finish line cheering runners coming in (such as when my fiance did the New York City Marathon in 2011), so it could have easily been me or someone that I know well that was hurt in an event like this. If you find yourself feeling down in light of this event, just watch a video of the finish line at any marathon across the country. You will be able to see true inspiration and human spirit. Our thoughts are with you Boston!  

Anyhow, enough of my rambling about recent events for now. Let’s get on with the Carnival. This edition is arranged by subject heading, so that you can browse efficiently.

Enjoy!

BUDGETING AND ECONOMICS

Brock Kernin @ Clever Dude writes What The XBox Taught My Son About Personal Finance – My son wanted to buy an Xbox, and ended up learning some important financial lessons and skills.

Philip @ PT Money writes 25 Insanely Easy Ways to Manage Your Money and Get Back on Top – These 25 ideas for managing your money are really simple and anyone could implement them. Doing just a few of these tasks could help you regain financial control.

Robert @ Kids Ain’t Cheap writes Coupon Tips and Tricks – Coupons are a godsend for financially strapped families. Whether you need to save on groceries, clothes, home decor or entertainment, there is a coupon to meet your needs.

JC @ Passive Income Pursuit writes 2013 Goals – 1st Quarter Update – Goal setting is great, but you must analyze them to see how you did. I take a look back at my several goals for this year to see how the 1st quarter of 2013 treated me. I’m very happy with several of the goals, but there’s still plenty to work on.

CAREER AND INCOME

Glen @ Monster Piggy Bank @ Monster Piggy Bank writes Time is Money – What are you Sacrificing for Money? – What are you sacrificing for money? Is it Time? Or perhaps physical or mental health? It is a question that I think many people don’t bother to ask themselves, as they don’t feel that they are sacrificing anything.

Daniel @ Sweating the Big Stuff writes The Average Age of First-Time Home Buyers – In 2009, the most recent available data, the average age of home buyers was 31 according to one study and 34 according to another. But what is normal?

Amanda L Grossman @ Frugal Confessions writes 5 Money Saving Tips for Savvy Shoppers – This is a guest post by Mike Collins, who is obsessed with building sustainable streams of income online and achieving financial freedom so he can live life… Read his 5 money saving tips!

Jon Haver @ Pay My Student Loans writes Government Pays Your Education – The US government is prepared to support the educational goals of veterans seeking higher education. A wide variety of programs offer partial-to-full financial aid for advanced degrees. You may find yourself eligible for more than one type of education benefit, allowing you to choose the one that suits you best.

DEBT AND CREDIT

John @ Fearless Men writes Be In the Know About Credit Cards Before They Own You – According to Forbes (March, 2012) the average credit card debt for indebted households was $14,517, and for all households was $6,772. That is a daunting statistic to have to face, and it’s a reality that many people live with every day. If you have a credit card it’s important that you take careful steps to avoid any of the pitfalls that can trap you in debt and keep you there almost indefinitely.

krantcents @ KrantCents writes How to Use Credit Cards Responsibly – Too many people have credit card debt! As of December, 2011, according to Capital One there was $801 billion total U.S. revolving debt. 98% is credit card debt! The total U.S. consumer debt is $2.5 trillion as of December 2011. The average credit card debt per household with credit card debt is $15,799.

Matt @ Living in Financial Excellence writes Strategic Planning for the Everyday Family – We started working on our strategic financial plan. We recognized that this should include more than just a few financial goals and targets. We wanted to take some time and plan our family’s future. Financial planning is just a small piece of the overall picture.

INVESTING AND SAVING

John S @ Frugal Rules writes Online Brokerages I Use: Scottrade Review – There are many outlets for your choosing if you want to invest in the stock market. They all have their features that set them apart. Find the one that fits your needs for overall investing as well as investing for your retirement needs.

Roger the Amateur Financier @ The Amateur Financier writes First Quarter 2013 Resolution Progress (and 4 Tips to Resolution Success) – It’s been more than three months since the start of the new year, more than a quarter of the way through 2013.

Darwin @ Darwin’s Money writes 5 Reasons Why Bitcoins are the Dumbest Investment Ever – Bitcoin is dominating the headlines, but consider these 5 reasons why it’s a horrible investment.

Mike @ Personal Finance Journey writes House swap vs couch surfing – a frugal vacation! – Simple out of the box ideas to having a frugal vacation and saving money with accommodation. How do you save money when traveling?

MR @ Money Reasons writes Investing Is Like A Skill Based Game – I describe how investing is like a game and that you should realize that losing is part of winning.

Mike @ The Financial Blogger writes Q2 Net Worth Update: The Plan is Finally Working! +2.20% – How are things working out with my finances?

Jester @ The Ultimate Juggle writes Will Our Kids Have Wealth Building Opportunities Like We Had? – Are there less wealth building opportunities for kids in the future? I think this is a possibility and explain why I think so.

Kyle @ The Penny Hoarder writes Get Paid to Eat Dog Food – The next time you’re feeding Fido or Fluffy, you might want to consider taking a taste of their food yourself. If the thought of doing so repulses you, you might not be a candidate for the next great pet food tester. However, if you’re feeling a bit more adventurous and are considering having that bite!

Michael @ Financial Ramblings writes Putting a Cap on Retirement Accounts? – The federal government is considering capping the balances in your tax-advantaged retirement accounts. This article provides more detail on exactly what they’re talking about.

Crystal @ Budgeting in the Fun Stuff writes We Finally Did Our Taxes – Sheesh! – We didn’t make as much in 2012, but we paid about the same amount in taxes anyway thanks to having to pay the self-employment taxes on everything. YUCK!

IMB @ Investing Money writes Should You Invest Money Now? – The right timing often plays a serious role in good investing. It’s important to ask yourself – is now the time to invest money? Read here for good tips.

Tushar @ Start Investing Money writes The Benefits of Locking Up Your Money for Longer – We all know how important it is to manage our money in the best possible way. Ideally this means building up an emergency fund to cover three months’ worth of outgoings in case we should need it, and then maximizing the rest of the available cash we have.

Lauren @ L Bee and the Money Tree writes When Money Is No Object…. – I re-watched the film -Pretty Woman- over the weekend, and was surprised- I had forgotten how awesome that movie is! Anyway, in the movie the Richard Gere character takes Julia Roberts shopping and he tells the clerk at the store that he’s going to spend -an obscene amount of money-!

Kevin @ 20smoney.com writes Last Minute Car Rentals-Your Questions Answered – You might have been told that booking your car hire in advance will guarantee you the best options and the best rate, and this is true.

William Cowie @ Bite the Bullet Investing writes Fear of Investing: Watcha Gonna Do? – Many people shy away from investing, because they’re afraid of losing money. Yet they already have the skill to avoid the fear of the unknown. This post shows how to unlock that.

RISK MANAGEMENT AND INSURANCE

Jason Hull @ Hull Financial Planning writes The Day After the Initial Diagnosis: MS and Financial Planning – After you receive the initial diagnosis of multiple sclerosis or another long-term degenerative disease, it’s tempting to throw in the towel and panic. Here’s a set of steps you need to take to prepare yourself for your new situation.

Sam @ Simplefinancialfreedom writes At What Age Should You Get Term Life Insurance? – When it comes to taking out life insurance, age should not make any difference in overall terms because life insurance is a way to protect yourself and your

REAL ESTATE AND PROPERTY

Mr. Frenzy @ Frenzied Finances writes Spring Cleaning: Getting Rid of Spending Habits – Everyone has bad habits that serve as personal weaknesses. Now that it’s Spring, read these five tips to learn how to get rid of your bad spending habits.

RETIREMENT AND TAXATION

Mr.CBB @ Canadian Budget Binder writes Life, Money and Retirement-Skype Doesn’t Reach Heaven – Sometimes we need to ask ourselves why we work so hard for all the money we make and whether we are spending our time wisely. Pouring your life into one basket risks leaving behind potential memories that you might not be able to go back and get. Take time to evaluate your life, your priorities and your future

Kevin @ Passiveincometoretire writes Hidden 401(k) Fees Eating Away At Your Retirement Savings – Read how 9 in 10 Americans vastly underestimate their average total 401(k) fees they are paying over the course of their lifetime.

Michael Kitces @ Nerd’s Eye View writes Strategies For Existing Variable Annuities With GLWB Or GMIB Riders – While today’s variable annuities continue to get more expensive, many existing contracts with retirement income riders actually represent a great value… as a result, even if you wouldn’t buy an annuity in today’s marketplace, it may be a poor decision to get rid of an existing one without proper due diligence first!

That concludes this edition. A big thanks to everyone for participating! Please submit your blog article to the next edition of Carnival of Financial Planning using our carnival submission form. Past posts and future hosts can be found by clicking here.

***Photo courtesy of https://upload.wikimedia.org/wikipedia/commons/b/be/Boston_marathon_mile_25_gatorade_volunteer_050418.jpg

Using The Internet To Save On Housing

The following is a post by our featured writer Gary Parkinson. Enjoy! 

The latest US housing news is that the market has turned a corner after years of struggling during and following the recession.  If you are a first time home-buyer or looking to refinance, today’s market offers plenty of opportunities for you to secure an affordable mortgage plan.

Unless you have $500,000 put away in a special savings account, you will require a mortgage to buy or refinance your home.  But for years, the mortgage application process was considered tedious at best, particularly as web development made it easy to acquire information within minutes.  As time went on, retailers started selling products online, which shoppers could browse and purchase from the comfort of their own home.

The online shopping concept worked well for retail products, and is now a process that you can use to acquire a mortgage as well.  You can compare low mortgage rates from some of the leading firms across the country, and select a plan that addresses your unique financial needs.

The online comparison experience revolutionizes the mortgage application process by making it more convenient for you as a home buyer.  The traditional application process required you to take time out of your day to visit a bank or a mortgage broker, and participate in a back and forth negotiation over the terms and rates.  But as time goes on and advancements are made in technology, traditions become outdated and largely forgotten.

In addition to saving time, you will in all likelihood save money because you have access to all viable mortgage providers in one convenient spot.  In some cases, banks or brokers dictate what they feel is a fair and affordable mortgage plan.  By shopping online, you put the control firmly in your hands, and can select the best option without pressure from another party.

The housing market went on quite a roller coaster ride over the last few years, but you can definitely put the current conditions to good use with some helpful tools.  The Internet is a powerful tool that helps make life more convenient – it’s about time that home buying is made more convenient too.

How about you all? If you have taken out a mortgage to purchase a home or investment property, how did you approach the process? Did you use a bank, a mortgage broker, or an online resource? 

Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

• Even if you end up utilizing a regular bank or mortgage broker to secure a mortgage, I think it is valuable to use online resources at the very least to do some comparison shopping to make sure your financial representative at the bank or brokerage is in fact giving you a competitive deal!

***Photo courtesy of http://pixabay.com/get/10c96fd7ac86cff867c2/1366488229/house-48815_1280.png

“The Joneses” Are Broke

The following is the first post by MPFJ staff writer, Catherine Alford. Cat is a freelance personal finance writer who blogs at www.BudgetBlonde.com. Enjoy and welcome her to the MPFJ family! 

We all know that family. They seem perfect. Both parents have great jobs. Their kids are doing well in school. They drive expensive cars. The mom carries a designer bag. The dad plays golf every weekend at the country club. It seems like they always have a housekeeper or a gardener helping to keep their home looking pristine. Essentially, it seems like they have it all.

Remind Yourself of Your Successes

Realize You’re On Your Own Journey

Understand That Worrying About Them Wastes Energy

***Photo courtesy of http://farm5.staticflickr.com/4078/4873936727_e939fe30be_o.jpg

Birthday Freebies: Get Cool Stuff Just for Being Born!

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Click here to enter my free $50.53 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is April 30th, 2013.

How about you all? What cool birthday freebies have you come across? 

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/dn1975/8465037269/

What Steps Are Required to Set Up a Charitable Organization / Non-Profit?

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Click here to enter my free $50.53 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is April 30th, 2013.

The following is a guest post. Enjoy! 

Can Your Organization Become A Charity?

The Business Of Charity

Charity Commission, Are You Necessary?

Choosing Your Trustees

How about you all? Have you ever set up or know any one that has gone through the steps of officially creating a non-profit/charity?

Was it harder or easier than you would expect?

Share your experiences by commenting below!

***Photo courtesy of http://upload.wikimedia.org/wikipedia/commons/f/f7/Contract_signing.jpg