Via YouTube.
It seems the card companies are not happy. Today I saw a big drop of stocks of American Express (NYSE: AXP), Capital One (NYSE: COF). Are the golden days of credit card industry over? We shall see.
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Category: 401k and Personal Finance
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Leaving the Citi
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I mean the Citi Bank checking account. A few years ago I opened Citi Checking account online, mainly to take advantage of a $150 offer (if I do direct deposit) or keep balance at certain level (which is $1,500). A few months ago, I switched job, and in the process did not set up the direct deposit for Citi. Citi did not access the monthly charge initially until May 7, they put up $9.50 monthly service charge. Since I no longer need the account, and there is no Citi bank branch here in St. Louis, I went ahead, called the custmer representative (who is in India), and closed the account.
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Is 401k a scam?
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As millions of American workers saw their 401k became 201k since last year, this 401k thing suddenly becomes a hot topic. CBS 60 minutes did an excellent report on this topic.
My thoughts
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(Update 23Apr09) It seems Obama administration is going to make credit card more consumer friendly (marketWatch). So are they going to socialize the credit card: I mean, you and me (i.e., honest guys) pay the credit cards on time each month, will bail out the deadbeats, after we bailed out the Wall Street ??? We know the credit card companies (the wall street) are not charities. This thing looks more like dumber and dumber.
(Original) Yesterday I mentioned credit card when talking about recurring revenue. Credit card is the live blood of our consumer society. Like commerical paper for business, we (consumers) use (more precisely borrow from) credit card for our daily purchases. At the end of each billing period, we either pay off the whole balance or pay the minimum payment (not recommended from personal finance perspective, but so many people do this nowadays. The customers who carry balance (and pay >10% interest) also contribute the profit of credit card companies. But it appears now credit card companies started to upset their best customrers, amid the credit crisis.
Business
American Express (NYSE: AXP) and Citibank (NYSE: C) pay customer to go away
JP Morgan Chase (NYSE: JPM) charged monthly fee to customers, then gave refund under pressure from NY AG Cuomo (CNN Money story).
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They are all in stock funds.
Old 401k (Hewitt): down 11.8%
Rollover IRA (Vanguard): down 11.78%
New 401k (Vanguard): up 133.97% (this is due to new contribution, I started new 401k in Nov 08, so there is an easy comparison here)
Noticed my portfolio balance in Vanguard is about even compared to the end of 2007, when I started the Rollover IRA. Consider this is after I made signigicant new 401k contribution since Nov 2008. So much for long term investing concept. I need to rethink how to better managing my retirement account.
S&P is down about 11.7% in this quarter.
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My 401k strategy
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New 401k in Vanguard
Two weeks into working for new employer, today I am able to make my 401k selections from Vanguard. Sweet! It only took me a few minutes to make my choices:
(30%) S&P 500 index fund (VFINX)
(30%) Winsor II (VWNFX)
(40%) International value (VTRIX)
If there is one thing I learned from the recent market drop, that is: DO NOT chase the short term gains, pursue the long term gains instead. Along these lines, I pass over all the sexy names such as Dodge Cox (which lost quite a bit because of Fannie/AIG), Goldman. I am stay with good old Vanguard.
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Happened to see this from CBS evening news today. The story is titled “Credit Crunch Takes New Face”, and it talks about the credit card crunch for average consumer.
“The average American has nine credit cards and owes more than $16,000, not including mortgages…This decade, real wages went up 4 percent while credit card debt jumped more than 75 percent.”
Savings rate
I also saw this from NBR at PBS, regarding the savings rate:
US: 1%
France and Germany: around 12-13%
Japan: 20%
China: 24%
Gas price
Happened to see the regular unlead gas is $2.29 per gallon at Shell station today. Time to get SUV again?
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NOT TO DO list first
1) Watch CNBC and other financial news and got confused, and worse got panic. Same goes to checking your brokerage acct or 401k acct every day;
2) Try to be the hero: pick up “cheap” financials, commodities, technology stocks simply because you think they are “cheap” compared to 2 weeks ago (without any own research);
3) Sold all the stock fund postions in 401k, and put it to cash. The chance is you will not be able to buy them back at the bottom;
4) Put the Greenbacks under your mattress 🙂
Things to do
1) Have some emergency cash and credit line (credit card and HELOC if possible);
2) Do the homework: reading words of Buffett and Munger (my list here). Find some quality name we can understand (or model using Munger’s word). I am thinking AMZN, RIMM now, not buying just watching. When the dust settles, and I have some free money, I will buy them at bargain price;
3) Continue to contribute to 401k, IRA: depends on your risk tolerance, put it in bond or stock funds you have trust in management.
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I think I found the root cause of this whole financial crisis, just like the Wall Street investment banks, hedge funds, AIG (NYSE:AIG), Washington Mutual (NYSE:WM), the problem is American home buyers/consumers are overly leveraged. Note I used the word home buyers, not owners, because theoritically the banks (oh, to be precise, the Chinese, the Japanse…) owned the mortgages, most American buyers put very little downpayment. This problem is not isolated to the home mortgages, it has been extended to the auto loans and cosumer credit too. So I would not be surprised to see if those two things blow up in the near future.
This also bring an interesting question, related to the current heated debate on the bailout bill: Paulson (aka King Henry) does not want any string attached to his bailout plan, arguing that wihtout bailout the credit market will collapse and we will be all worse off; Democrats argues that we need to bailout the home owners (oh buyers, or speculators) too at the same time we bailout the wall street.
The bottom line is: we are both overly leveraged. While I saw the Lehman Brothers has 40:1 asset/equity ratio, what’s the American consumers leverage ratio? I remember more than 7 years ago I bought a car with zero downpayment, that’s an infinite leverage ratio. Seriously speaking, I think the old rule 3:1 for buying a house should still apply: in others words, people should buy a house about 3 times gross income. OK, I am talking about the solvency measurement here.
The aftermath of bailout
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This year I have used all the three appoaches to communicate with IRS for my (our joint) federal income tax matter. Things have been mostly resolved now. But looking back I think I could use the IRS local office more often. Each appoach has its pros and cons, here are my takes on each appoach.
Mail
Probablly the slowest. But it is also prudent. By “prudent” I mean it usually takes couple rounds of back and forth to get things right, I learned the mistakes along the way, but eventually I got it right and they got it right too. One needs a lot of patience though as I suspect IRS service centers are swamped by the stimulus checks this year.
Phone
I heard it very difficult to dial in. Luckily I got handfree headset so I tried: one failure, one success. I was just querying one thing, and they gave me an answer.
Local office
Here is the list. Basically the representatives can provides lots of services: