Category Archives for Invest & Retire

Carnival of Passive Investing Site Now Ready!

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Great news everyone! After polishing off some final details, I am pleased to announce that The Carnival of Passive Investing’s official site is now finished, and can be accessed at the link below! If you have a second, drop me a comment in the comment window to let me know what you think of the look!

www.CarnivalofPassiveInvesting.com/

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Also, if you have missed the first and second editions of the Carnival of Passive Investing, you can read up on the great articles featured at the links below.

#1 – Hittin’ The Open Road Edition
# 2 – Jim Cramer Rants Edition

***Photo courtesy of Photo courtesy of http://library.virtualnorfolk.org/public_documents/0222BF6D-000F8513.0/books.jpg

Carnival of Financial Planning #172- Stories of Past Lottery Winners – February 12, 2011

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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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Welcome to the February 12, 2011 Edition #172 of the Carnival of Financial Planning!

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

This edition is arranged by subject heading, so that you can browse efficiently.

Enjoy!

The Skilled Investor, Editor

Budgeting and Economics

MoneyNing presents 6 Ways to Avoid the Temptation to Eat Out posted at Money Ning, saying, “Do you always want to eat out? Here’s how to avoid always spending too much on food.”

The Skilled Investor presents How to Save More posted at Personal Financial Strategy, saying, “Budgeting and self-control in consumption is far more important than clever investing. Expenditure control and budgeting works, while “clever” investing usually is counter-productive.”

Moneyedup presents Save Up For College By Earning Extra Money posted at MoneyedUP, saying, “Whether you plan to foot the entire bill, or whether you plan to just help out in some specific areas, chances are that you will need to save up some money to help pay for kids’ college”

Financial Planning

N.W. Journey presents Understanding Your Financial Values posted at Networth Journey, saying, “Your 
financial values affect how you spend your money.”

Michael Pruser presents Is CNN’s List of Least Evil Banks Accurate? posted at The Dough Roller, saying, “CNN recently released a list of the least evil banks but that title is pretty inaccurate.”

Michael presents More Responsibilities With Less Pay posted at Consumerism Commentary, saying, “Seems backwards but with the tough job world out there, many employees re finding this idea a reality.”

Frank Knight presents Strategic Asset Allocation posted at Best Personal Financial Planning Software, saying, “When you are already there and invested in an asset class, you are following a passive asset allocation strategy. Tactical asset allocation strategy advocates suggest that you can anticipate the crowd, but flow-of-funds studies show that almost all tactical asset allocation fund flows are late money flows that chase performance after valuations have already moved.”

Jessica presents 401(k) Rollovers posted at MomVesting, saying, “When both of the original accounts were denied rollover, so Christa had to investigate the 401(k) rules to determine their best strategy. Take a look at what they found.”

Larry Russell presents No Load Mutual Funds posted at Best Index Mutual Funds, saying, “Superior past performance has simply not been shown to be a reliable predictor of superior future performance. However, low costs can lead you to the best mutual funds.”

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Financing a Home

Mike @ Green Panda presents First House Related Expenses posted at Green Panda Treehouse, saying, “Costs for your new home that you should expect.”

Financing Education

Jim Yih presents Investment strategies for Registered Education Savings Plans (RESPs) posted at Retire Happy Blog, saying, “With an RRSP, you might have money in an RRSP from the day you start working to the day you die. That could be 50 or more years. With the RESP, the timelines are much shorter – typically 15 to 25 years at the higher end.”

Income

FMF presents Free Money Finance: 25 Toughest Interview Questions of 2010 posted at Free Money Finance, saying, “When you interview, you should be prepared for almost any question. This post lists some of the more “out there” questions you might get.”

MoneyNing presents What Would You Do with a Million Dollars? posted at Money Ning, saying, “I know what I would do with a million dollars. How about you?”

FMF presents Six Tips for Job Hunting in Secret posted at Free Money Finance, saying, “How to job hunt when you don’t want anyone to know that you’re doing it.”

The Financial Blogger presents TFB Monthly Income Report posted at The Financial Blogger, saying, “My full income report.”

FMF presents How to Decline a Job Offer without Burning a Bridge posted at Free Money Finance, saying, “How to say “no thanks” to a job offer and still keep a solid relationship.”

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Past Lottery Winner Story # 2

William “Bud” Post won $16.2 million in the Pennsylvania lottery in 1988 but now lives on his Social Security. “I wish it never happened. It was totally a nightmare,” says Post.

A former girlfriend successfully sued him for a share of his winnings. It wasn’t his only lawsuit. A brother was arrested for hiring a hit man to kill him, hoping to inherit a share of the winnings. Other siblings pestered him until he agreed to invest in a car business and a restaurant in Sarasota, Fla., – two ventures that brought no money back and further strained his relationship with his siblings. Post even spent time in jail for firing a gun over the head of a bill collector. Within a year, he was $1 million in debt.

Post admitted he was both careless and foolish, trying to please his family. He eventually declared bankruptcy. Now he lives quietly on $450 a month and food stamps. “I’m tired, I’m over 65 years old, and I just had a serious operation for a heart aneurysm. Lotteries don’t mean (anything) to me,” said Post. He died on Jan 15 of respiratory failure. (Story from http://www.oddee.com/item_95629.aspx)

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Investing

Arjun Rudra presents How To Adapt Your Investing Approach To Changing Market Cycles With Eden Rahim, Portfolio Manager at Jov Investment Inc. posted at Investing Thesis, saying, “Highlighting the importance of adapting your investing approach to changing market cycles with Eden Rahim, Portfolio Manager at Jov Investment Inc.”

Dividends4Life presents 28 Dividend Stocks Acting Like a Money Machine posted at Dividends Value, saying, “Readers of this space know that the primary focus of my investing efforts is to build an ever-increasing income stream by investing in dividend growth securities. This means that often, I will choose a lower yielding security with better dividend growth prospects over a higher yielding security. As one that values diversity, I also invest in some high yield securities.”

Money Beagle presents When Investing, Do You Invest In What You Use? posted at Money Beagle.

Intelligent Speculator presents Top 100 Dividend Stocks – February 2011 posted at Intelligent Speculator, saying, “The top dividend stocks for you guys to check out.”

DGB presents ScotiaBank BNS Dividend Stock Analysis posted at The Dividend Guy Blog, saying, “A look at this popular stock.”

Alexander presents Choosing Dividend Stocks: Company History posted at Dividend Stocks, saying, “When you are choosing dividends so that you can begin building an income stream, it is important to consider your options and choose carefully.”

The Skilled Investor presents Stock Market Timing posted at Personal Investment Management, saying, “Always stay invested to earn risk premiums. You must have your money invested and at risk to get risk premium returns. Jumping out and in or “timing the markets” doesn’t work.”

Barb Friedberg presents IS IT TIME TO SELL? posted at Barbara Friedberg Personal Finance, saying, “Learn how following the crowd can cost you!”

Arjun Rudra presents On A Quest To Turn $3000 Into $100000 With Trader Mark Li, DMS posted at Investing Thesis, saying, “An interview with equity and currency trader Mark Li who is attempting to turn Turn $3000 Into $100000.”

Tom @ Canadian Finance Blog presents The Five Big Benefits of Valuation-Informed Indexing posted at The Canadian Finance Blog, saying, “Valuation-Informed Indexing provides more wealth for 102 of the 110 rolling 30-year periods, challenging the theory of buy and hold investing.”

Ryan @ CML presents Investing Lessons From Warren Buffett posted at Cash Money Life, saying, “Warren Buffett is one of the world’s greatest investors. Find out some of his best investing tips in this article.”

Frank Vertin presents Best Index Funds posted at Index Mutual Funds, saying, “Top ten no-load index funds that track the Standard and Poors 500 composite index in terms of lowest costs.

Ryan @ MFN presents Understanding Tax Exempt Contributions and Withdrawals to the TSP posted at The Military Wallet, saying, “The Thrift Savings Plan (Govt. version of a 401k) allows military members to make tax exempt contributions when they are deployed to tax free combat zones.”

Hussein Sumar presents How to Examine a Mutual Fund’s Portfolio Turnover posted at Best Mutual Funds, saying, “Portfolio turnover is a great way to measure the investment quality of a mutual fund because a higher turnover means increased costs of trading, which is paid for by investors’ money and not the fund manager’s salary.”

Patty Pedersen presents Best Oil ETFs: Looking Beyond Energy Select SPDR XLE posted at AlphaProfit MoneyMatters – Investing Blog, saying, “Energy Select Sector SPDR ETF wins the contest among oil ETFs when it comes to popularity. This ETF however wasn’t the best performing ETF in this category in 2010. This article analyzes different energy ETFs and explains why energy service and natural gas ETFs have the potential to be top performers in 2011.”

Tomas Escent presents Stock Trader Automation posted at Nerds on Wall Street

Dave@50plusfinance presents Is the Facebook Bubble Coming? posted at 50 Plus Finance, saying, “Social Networking is a bubble like email was a bubble. It’s a core technology that changes the way we communicate. But investors get carried away and drive valuations way up till the day comes where it’s as common as email and the legs are kicked out from underneath it, and the the stock plummets. It’s like the dawn of AOL, a high flier, that got it’s wings clipped when one day it was only one of many email and data portals.”

Intelligent Speculator presents One more reason why AOL (AOL) will succeed where Yahoo (YHOO) will fail posted at Intelligent Speculator, saying, “Why we believe in AOL.”

DGB presents What Happened In the Dividend World in 2010 and What is Coming In 2011 posted at The 
Dividend Guy Blog, saying, “Our look at the world of dividends.”


The Financial Blogger presents How To Trade ETFs Using A Moving Average posted at Experiments in Finance, saying, “A look at how to perform this skilled investment.”

Frank Knight presents Muni Bond Retirement Software, posted at Best Financial Planning Software, saying, “Municipal bond investments and your state and federal marginal income tax rates: Some investors hold municipal bonds in an attempt to reduce their tax burden. This article discusses the relationships between tax-exempt municipal bonds, bond market returns, marginal tax rates, and investment asset tax location.”

Dividends4Life presents 16 Dividend Stocks Growing Future Yield posted at Dividends Value, saying, “Yield does not come without a price, usually in the form of added risk and/or complexity. Ultimately, dividend growth investors realize that long-term and sustainable high-yield investments are grown over time. This is accomplished by purchasing high-quality dividend investments with a reasonable yield and a long history of growing their dividends, and waiting for the yield on cost to grow.”

Mike Piper presents Investing Life Insurance Proceeds posted at The Oblivious Investor, saying, “How would you invest a portfolio if you were expecting to need to withdraw from it for potentially 50 years or more?”

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Managing Debt

FMF presents There is No Good Debt posted at Free Money Finance, saying, “Borrower beware — there is no such thing as good debt!!!”

Jeff Weber presents Tips For Paying Off A Balance Transfer Before Your 0% APR Ends posted at Smart Balance Transfers, saying, “When managing credit card debt with balance transfers, it is vitally important to develop a plan that will get you out of debt before the interest rate increases.”

Jeff Rose, CFP presents Why Wielding a Credit Card is the Best way to Approach Credit Restoration posted at Jeff Rose, saying, “For those people looking to rebuild their credit standing, the answer is, perhaps surprisingly, use of a credit card.”

Tom @ Canadian Finance Blog presents New Cardholders Bear The Brunt of Fees posted at The Canadian Finance Blog, saying, “Cardholders with new credit card accounts paid average monthly fees of $15 and that this average decreased by 75% during the first four years.”

Jeffrey Weber presents Who Can and Can’t Benefit from the Citi Platinum Card posted at Smart Balance Transfers, saying, “The Citi Platinum Mastercard can be a useful tool in reducing debt, as it offers long 0% balance transfer periods and charges low fees.”

Silicon Valley Blogger presents Earn Points with the ThankYou Rewards Program from Citi posted at The Digerati Life, saying, “Tips on earning rewards via a popular rewards card program.”

Miscellaneous

Jeff Rose, CFP presents IRA Gifts to Charities – New Rules and How They Affect You posted at Jeff Rose, saying, “IRA gifts can be a great benefit to charities as well as the individual giving the gift. Here are some new rules you need to be aware and how they affect you.”

Consumer Boomer presents Social Security Survivor Benefits posted at Consumer Boomer, saying, “This article will help you find out if you are eligible for Social Security survivor benefits and what those benefits are.”

Mike Piper presents Protecting Your Private Files posted at The Oblivious Investor, saying, “How can you keep your sensitive documents (scanned tax returns, for instance) both backed up and protected in the event of computer theft?”

Pasadena Financial Planner presents Vanguard Index Funds posted at Top Mutual Funds, saying, “Compares Vanguard’s actively managed mutual funds and Vanguard’s passively managed index mutual funds. Vanguard investors should read and understand this study.

Joe Plemon presents How The Number One Personal Finance Principle Affects Two Diverse Families posted at Personal Finance By The Book, saying, “The stories of these two families illustrate that very little income is not an excuse to break this principle and that much income is not a guarantee that one will keep it.”

Ryan @ CML presents Should You Incorporate Your Small Business? posted at Cash Money Life, saying, “Incorporating your small business can be a great way to protect yourself by separating your personal and business interests.”

Jim Wilkerson presents Choose Mature Noload Mutual Funds posted at Best No Load Funds, saying, “Very young stock and bond mutual funds are more likely to put you into the position of being an experimental guinea pig of mutual fund companies and the ETF industry.”

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Past Lottery Winner Story # 4

Missourian Janite Lee won $18 million in 1993. Lee was generous to a variety of causes, giving to politics, education and the community. But according to published reports, eight years after winning, Lee had filed for bankruptcy with only $700 left in two bank accounts and no cash on hand. (Story from http://articles.moneycentral.msn.com/SavingandDebt/ SaveMoney/8lotteryWinnersWhoLostTheirMillions.aspx)

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Retirement Planning

Jeff Rose, CFP presents Is a 401k Enough For Retirement? posted at Jeff Rose, saying, “A 401k may not be enough for you to retire successfully. Find out what other options you may have.”

Joe Plemon presents Should You Borrow From Your 401(k)? posted at Personal Finance By The Book, saying, “Yes, you CAN borrow from your 401k, but SHOULD you?”

Walter W. Fouse presents Top 10 Large Cap Funds posted at Best Mutual Fund, saying, “This table of low cost top 10 S&P 500 mutual funds has been organized with the lowest cost index fund first. Nevertheless, each of these S & P 500 index funds is among the least costly on the market.”

Larry Russell presents Roth IRA Calculator posted at Retirement Planning Tools, saying, “Trying to decide about a traditional IRA to Roth IRA conversion without first having a comprehensive lifetime financial plan in place makes absolutely no sense. Without such a plan, you cannot figure out whether or not you are likely to achieve the tax savings in retirement that would warrant paying higher taxes now.”

Jim Yih presents What is Your Net Worth? posted at Retire Happy Blog, saying, “Your net worth is equal to all of your assets less all of your liabilities. It can be complicated depending on what you consider an asset and what you consider a liability.”

Sun presents Retirement Income Funds: Generate Steady Income in Retirement posted at The Sun’s Financial Diary.

Frank Knight presents Roth Conversion Retirement Planning Software posted at My Financial Freedom Plan, saying, “Whether to invest in a Roth IRA or Roth 401k versus their traditional retirement account alternatives is one of the most complex personal financial decisions. Roth accounts do not make sense financially for most people. They are a good deal, for a minority, but you need to do the analysis.

Jessica Bosari presents You Don’t Have to be Rich to Get Rich – Building Wealth from the Ground Up | billeater.com posted at Billeater, saying, “Building wealth despite a small income.”

Risk Management and Insurance

June Tree presents Comparing Whole Life Insurance vs Term Life Insurance posted at The Digerati Life, saying, “I compare term life vs whole life insurance.”

PT presents When to Drop Full Coverage Auto Insurance posted at Prime Time Money, saying, “Do you know if it’s worth it to continue your full coverage auto insurance? This article from PT Money will help you decide if you’re paying too much.”

Jules Wells presents Investment Risk Questionnaire Investment Software, posted at Financial Answers saying, “There is a way for you to get a much better assessment of your risk tolerance than you would from a simple conservative versus aggressive financial industry investor questionnaire.”

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Past Lottery Winner Story # 5

“Winning the lottery isn’t always what it’s cracked up to be,” says Evelyn Adams, who won the New Jersey lottery not just once, but twice (1985, 1986), to the tune of $5.4 million. Today the money is all gone and Adams lives in a trailer.

“I won the American dream but I lost it, too. It was a very hard fall. It’s called rock bottom,” says Adams.

“Everybody wanted my money. Everybody had their hand out. I never learned one simple word in the English language — ‘No.’ I wish I had the chance to do it all over again. I’d be much smarter about it now,” says Adams, who also lost money at the slot machines in Atlantic City.

“I was a big-time gambler,” admits Adams. “I didn’t drop a million dollars, but it was a lot of money. I made mistakes, some I regret, some I don’t. I’m human. I can’t go back now so I just go forward, one step at a time.”(Story from http://articles.moneycentral.msn .com/SavingandDebt/ SaveMoney/8lotteryWinnersWhoLostTheirMillions.aspx)

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Taxes

Miranda presents Are You Still Getting a Tax Refund? posted at Money Ning, saying, “Maybe planning for a tax refund isn’t the best idea. Think what you could be doing with the money if you had it all year.”

Madison DuPaix presents 5 Helpful Android and iPhone Tax Apps posted at My Dollar Plan, saying, “Filing your taxes is getting easier and easier – check out these cool apps for Android phones & the iPhone.”

Tommy John presents Ready for Tax Season? Learn the 3 Key Steps to Avoiding the Ire of the IRS | 2010 Taxes posted at 2010Taxes, saying, “These three tips can help you to avoid being audit this tax season.”

Craig/FFB presents Love and Taxes – Tax Filing Date Changed to February 14 For Some Tax Filers posted at Free From Broke, saying, “For some who file one of three particular IRS claims on their taxes, the first day to file your taxes is delayed. See if this affects you.”

Financial Freedom presents IRA Contributions Retirement Tool, posted at Financial Freedom, saying, “The Roth tax optimization puzzle for asset conversions, as well as for annual Roth contributions during working years, is one of the most complex decisions that the ridiculously complex US taxation and retirement planning system forces upon individuals.”

Ryan @ MFN presents Is The Military Homeowner’s Assistance Program Taxable? posted at The 


Ken presents 2009 Tax Benefits Extended in 2010 posted at Spruce Up Your Finances, saying, “The American Recovery Reinvestment Act has provided a lot of expanded benefits in tax year 2009. Some of those benefits have expired. Find out the ones that has been extended when filing your 2010 tax returns”

Mike @ Green Panda presents Taxes – Preparing for the Season posted at Green Panda Treehouse, saying, “How you can get ready for tax season.”

Well – that concludes this edition. 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 on the Carnival’s blog carnival index page.

***Photo courtesy of http://blog.lib.umn.edu/biomdoc/access_services/planning.jpeg

Fidelity – Up To Their Usual Tricks Again!

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As the title of this post suggests, Fidelity has once again failed to impress me and further failed to pull my business away from Vanguard.

Background

As most of you all know, I am a loyal and proud Vanguard index fund investing fan. You can view my current holdings in my investment strategy and periodic portfolio updates.

Back in August of 2010, I completed an in-depth, head-to-head analysis comparing Vanguard against Fidelity. From the analysis, we found that not only was Vanguard’s website easier to use/navigate, but their index fund expense ratios were lower than Fidelity’s corresponding funds 70% of the time.

New Occurrence 


Yesterday, I received a “promotional” offer from Fidelity in the mail, although I would hardly call it promotional.


The offer would give me a $100 Apple Gift Card if I opened up a new Fidelity account, with the following SMALL restrictions…

• Minimum balance must be $50,000.
• The account must be a non-mutual fund (see update below, 20-Dec-2011) brokerage account.
• The account CANNOT be a retirement account.
• Account must be open for at least 9 months.

All I can say about this offer is WOW!

• First of all, Fidelity is encouraging me to participate in active stock picking, a form of investing that fails to beat the market when 70% of professionals partake in the activity.
• Update on 20-Dec-2011 –   I wrote this post a while ago, so I either didn’t notice it then or they have since changed their policy about what they include in brokerage accounts. However, right now on Fidelity’s website, it says that you can purchase no-fee Fidelity mutual funds and ETFs with a brokerage account. This is definitely positive news!
• Secondly, why did they make the minimum balance so high? If I am not a current Fidelity user, do they really think that offering me $100 will make me transfer $50,000 of my savings over to them? NO! 
• Third, why can it not be a retirement account? Don’t they want to encourage people to save for retirement and get tax-deferred compounding of interest?
• And finally, Fidelity has spent $0.44 for the postage, along with however much the graphics/mailer costs to print, on a promotion that did not work. This just proliferates their need to charge higher expense ratios/fees than Vanguard.

How about you all? Do you use Vanguard or Fidelity? Which do you prefer?

Share your experiences by commenting below!


***Photo courtesy of http://northeastsigns.com/id1.html

Valuation-Informed Indexing – The Coming Revolution in Our Understanding of How Stock Investing Works

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Today’s guest post comes to us from Rob Bennett. Rob created the first retirement calculator that contains an adjustment for the valuation level that applies on the day the retirement begins. His bio is here.

I recommend Valuation-Informed Indexing, an investing strategy in which the investor goes with one stock allocation at times of moderate prices (perhaps 60 percent), a higher stock allocation at times of low prices (perhaps 90 percent), and a lower stock allocation at times of high prices (perhaps 30 percent). This strategy permits investors to obtain far higher returns at greatly diminished risk. Investor heaven!

Wade Pfau, Associate Professor of Economics at the National Graduate Institute for Policy Studies in Tokyo, Japan, has posted preliminary research showing that “Valuation-Informed Indexing provides more wealth [than Buy-and-Hold] for 102 of the 110 rolling 30-year periods” in the historical record. The purpose of this Guest Blog Entry is to answer the obvious question: Given how simple and powerful this concept is, how is it that it has remained undiscovered until now?

The overall story is a highly encouraging one. All signs are that we stand today on the threshold of the greatest advance in our understanding of how stock investing works in history.

It was in the 1960s that academics began studying investing in a systematic way. The first big advance was achieved by University of Chicago Economist Eugene Fama. Fama discovered that short-term timing (changing your stock allocation with the expectation of seeing a benefit for doing so in a year or two) never works. The second big advance was achieved by Yale University Professor Robert Shiller. Shiller discovered that long-term timing (changing your stock allocation in response to big price swings with the understanding that you may not see a benefit for doing so for as long as 10 years) always works.

Had we discovered both things at the same time, we would all be Valuation-Informed Indexers today. It makes zero sense to stay at the same stock allocation at all times if the value proposition for stocks is a wildly variable thing. A regression analysis of the historical stock-return data shows that the most likely annualized 10-year return in 1982 was 15 percent real while the same number in 2000 was a negative 1 percent real. There is obviously no single stock allocation that makes sense for any investor in both sets of circumstances.

The reason why we got on the wrong track is that Shiller’s research was not available at the time the Buy-and-Hold concept was being developed. Fama’s research showed that short-term timing does not work. He of course wanted to offer an explanation for that finding. It is the explanation that was put forward (not the research findings themselves — which have stood up to scrutiny for many years) that caused all the trouble.

Fama’s explanation was that the market is “efficient.” This means that investors collectively take into consideration all factors bearing on what stock prices should be. That is indeed one plausible explanation for why short-term timing does not work. If the stock price is always set properly, all price changes are caused by unforeseen economic developments. No investor, no matter how smart, can gain an edge by predicting things that cannot be predicted.

While Fama’s explanation is a plausible one, it is not the only plausible one. Another perfectly good explanation of why short-term timing doesn’t work comes at things from an opposite perspective.

What if the process by which stock prices are set is almost entirely inefficient? What if the primary driver is investor emotion and economic developments have little to do with it (except to the extent to which they set off emotional reactions)? It’s not possible for any investor, no matter how smart, to predict the direction of investor emotion, an inherently irrational phenomenon.

Fortunately, there is way to test which explanation is the right one.

If Fama’s explanation is right, overvaluation is a meaningless concept. An efficient market is a properly priced market. But Shiller’s research shows that valuations predict long-term returns. Overvaluation and undervaluation are both meaningful concepts. Market prices are not set rationally in response to economic developments but through the influence of irrational investor mood swings.

But wait. The market must be efficient in the long term. The very purpose of a market is to set prices properly. If the market were never at least largely efficient, it would collapse. So what we have is a market that is highly inefficient in the short term and highly efficient in the long term.

This changes everything.

If the market is efficient both in the short-term and in the long-term, Buy-and-Hold is the perfect strategy. The only way to capture the high returns of stocks is to be heavily invested in them and, since there is no way to predict returns, the only thing to do is to remain heavily invested in stocks at all times.

However, if the market is inefficient in the short term and efficient in the long term, Buy-and-Hold is the worst of all possible strategies. If the market is always in the process of moving in the direction of efficiency, long-term returns are highly predictable. The last thing you want to do is to maintain a high stock allocation when the market is insanely overpriced and in the process of returning to fair value prices.

We now have the advantage of both the wonderful insights of Fama and of the wonderful insights of Shiller. We need to combine them into a model for understanding for the first time how stock investing really works. The strategy that combines both insights is Valuation-Informed Indexing. Valuation-Informed Indexers disdain short-term timing but always practice long-term timing as needed to keep their risk profiles roughly constant.

If this economic crisis brings on the questioning of Buy-and-Hold that launches a national debate on the true realities of stock investing, we may someday look back at it as the best thing that ever happened to us. Imagine that!

How about you all? Have you ever tried Valuation-Informed Index Fund investing? What’s your take on how it will work out? 


Share your experiences by commenting below!


***Photo courtesy of http://farm1.static.flickr.com/105/310847464_bcfbde894a.jpg

Carnival of Passive Investing # 2 – Jim Cramer Rants Edition – January 31, 2011

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Tax Carnival # 80 – Tax Horror Stories Edition

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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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Welcome everyone to the Carnival of Taxes! That’s right, the blog article festival where we party like it’s 1040…Form 1040 that is!

The purpose of the Carnival of Taxes is to serve as a continuing compendium of tax-related postings, ranging from tax news to commentary on taxes (and the politics and politicos who create them) to filing tips and tax-saving strategies.

I hope you enjoy the money stories and the tax horror stories spread throughout, and stop by to say “hi” again on my non-carnival days as well.

Editor’s Top 3 Picks

1. 39 year veteran tax professional, Robert D. Flach, presents What to Give Your Tax Preparer posted at THE WANDERING TAX PRO. In this very well-written, detailed piece, Robert explains what is necessary to give and not to give your tax professional when preparing your taxes. Read and learn!

2. MoneyNing presents Tax Time: Do I Have to Report that Income? posted at Money Ning. So, you’ve started a little home business, but the money is only dribbling in. When do you have to start putting that income on your tax forms for the IRS? Find out here!

3. Jeff Rose, CFP presents Flexible Spending Accounts (FSA) Changes for 2011 posted at Jeff Rose. In this post, Jeff takes us through the ins-and-outs of the changes for FSA accounts for this new year. I’ve read a lot of these “FSA Changes” posts this past month, but this one has some new details that I hadn’t read yet! Enjoy!

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Tax Horror Story # 1

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Listed below are the rest of the great tax article submission for this edition (listed in order of 1st to last submitted):

Daniel presents Federal and State Estimated Quarterly Tax Payments are Due! posted at Sweating The Big Stuff.

Mike Piper presents Income Tax 101: Tax Brackets and Withholding posted at Oblivious Investor.

FreeFromBroke presents TurboTax Online Tax Software 2010 Review posted at Free From Broke.

Trent Green presents How Social Security and Medicare Payroll (or FICA) Taxes Work posted at Money for Regular People.

Miranda presents Tax Planning 2011: Things to Think About This Year posted at Personal Dividends.

Pinyo presents 2010 Tax Tables, IRS Federal Income Tax Rates And Tax Brackets posted at Moolanomy Personal Finance.

Andy presents 2010 Income Tax Brackets posted at moneywalks.

Money Thinker presents Watching for Common Tax Errors posted at Money Thinking.

Jim Yih presents Tax Smart Investing posted at Retire Happy Blog.

Jason presents Common Tax Deductions Reminder for Filing Your Personal Income Taxes posted at One Money Design.

Control your Cash presents Read this and watch your taxes fall posted at Control Your Cash: Making Money Make Sense.

RC presents IRS to Start Accepting Itemized and Delayed Filer’s Tax Returns on February 14th posted at Think Your Way to Wealth.

Craig Ford presents The Best TurboTax Discounts | Save 35% Off posted at Money Help For Christians.

CreditCardGuru presents Can You Pay Taxes With Credit Card? posted at Credit Card Forum Blog.

FMF presents The Return on Your Social Security Taxes posted at Free Money Finance.

Kay presents Tax refund debit card pilot program raises Congressional questions posted at Don’t Mess With Taxes.

I was fined by the IRS for missing a payment for my home based business while I was ill. I appealed with the help of my accountant and tax attorney. After a long winded process, I received a notice, by registered mail, to say my appeal had been rejected. The same day, there was a knock at my door and a man in an expensive looking suit flashed some ID and said he was from the IRS to collect a payment. He was inside before I had chance to object. He showed me a copy of the notice I had received and said he would like a check. Fortunately I had kept the money aside in a money market account so I could pay. Once he had the check he was much more pleasant. I asked if this was normal practice and he said that he almost always collects payments in this manner due to the “transient” nature of business owners in Southern California.

—About.com Reader

Michael presents Social Security Contribution Limits ? 2011 posted at The Dough Roller.

Madison DuPaix presents 6 Free E-File Options posted at My Dollar Plan.

PT presents Ideas for Your Social Security Tax Break posted at PT Money.

Ann Douglas presents Tax Advantages of First Time Home Buyers Explained posted at DoorFly.com.

Also, if you are interested in hosting an upcoming edition of the Carnival of Taxes, you can read the hosting requirements and submit your request at the following link.

***Photo courtesy of http://media.photobucket.com/image/taxes/mmatters/taxes.jpg

Vanguard Review – Our 2nd Ever Guest Post Today at Investor Junkie

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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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On several previous occasions at My Personal Finance Journey, I have posted about my experiences with Vanguard’s investing services.

A couple of these previous posts included a comparison of Vanguard vs. Fidelity as well as a detailed description of which Vanguard mutual funds I employ in my investment strategy.

Continuing in the spirit of sharing my experiences with Vanguard as well as my continued blogging goal for 2011 to do more guest posting, I wanted to share the link to My Personal Finance Journey’s 2nd ever guest post on another site – a general review of Vanguard posted at Investor Junkie.

You can view the complete post by clicking the link below!


Vanguard Review – InvestorJunkie.com

Take a look at the review and post a comment about your experiences with Vanguard!


***Photo courtesy of http://images.writeitsideways.com/wp-content/uploads/2010/11/cc_magnifying_glass.jpg

How You Can Get A FREE Book – Index Funds – The 12-Step Program for Active Investors

So, who out there likes free books? Or better yet – who out there likes hardcover, new, full-color, 400 page beautiful books on passive investing?! Everyone, right?!

Well, today, I’ll share with you a little tip on how to get a copy of Mark T. Hebner’s book, Index Funds: The 12-Step Program for Active Investors, for FREE.

In fact, my free copy just arrived in the mail yesterday following this same process! There’s not even a charge for shipping/handling.

Here’s how you can get your free copy:

• Call Index Fund Advisors at 888-643-3133.
• Tell the person that answers that you were recently listening to an Index Fund Advisor’s Podcast that mentioned you could get a free copy of Mark Hebner’s book. Optional: you can listen to the podcast by clicking the following link – Index Fund Advisors Podcasts Page.
• Next, tell them your address, and they will ship you your free book! It’s that easy!

Enjoy!

***Photo courtesy of http://ecx.images-amazon.com/images/I/51JlU725RBL._SL500_AA300_.jpg

What Would Your Daily Routine Be Like If You Were Rich?

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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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Recently, during the extremely uncomfortable 10 hour plane trip from Dallas Fort-Worth to Santiago, Chile, I decided to pass a little of the time by recording ideas for blog topics from the different thoughts floating around in my head.

One topic in particular peaked my interest, and I wanted to share it with you all today!

The question/topic? Just what would your daily schedule be like if you were either rich or had enough money to retire early (and not have to worry about money for the rest of my life)?

For me, while I would definitely at first, want to sort of “enjoy the moment and live it up” by doing some traveling around the world, a routine I could see myself settling in to would be as follows:

• 8 AM – Wake up, have a cup of freshly ground coffee.
• 9 AM – Go help out at the Society for the Prevention of Cruelty to Animals (SPCA) by walking the doggies or go for a trail run.
• 10 AM – 4 PM – Go to a job I enjoy where I can contribute to advancing human health. Either that or help out with a charitable organization that contributes to advancing human health.
• 4 PM – 6 PM – Work on my personal finance blog. 
• Once per week  – Teach a night class about Finance at a community college or to high school students.
• 6 PM – bedtime – Have a glass of fresh Virginia wine with dinner!

Yep! I think that schedule would be quite nice!

How about you all? What would your daily routine be like?! 


Share your thoughts by commenting below!


***Photo courtesy of http://baseballsnatcher.mlblogs.com/What%20would%20you%20do.jpg

My Current Financial Goals – Short Term, Mid-term, and Long Term

Happy New Year Everyone! It is that time again. That’s right – time to update my financial goals for 2011.

I do this once every year as part of my goal to create what author David Bach calls a Purpose Focused Financial Plan. The goal of this system is to employ money in your life in a way that matches your life values and dreams. It is a very cool idea!

You can read more about my journey to create this system at the following links – Creating a Purposed Focused Financial Plan & My Personal Finance Journey’s Investment Strategy.