Advice abounds about how everyone needs to have an emergency fund and the golden rule seems to be that you should be holding 6 months’ salary (or spending, if you are able to sock away quite a bit each month).  Living paycheck to paycheck and having no liquid assets at all is a recipe for disaster.  Conversely though, financial outcomes are harmed by over-conservative investment and saving strategies.  While there’s no rational argument for having no emergency fund whatsoever, I do question the conventional wisdom.

Is 6 Months Really Necessary for Emergency Fund?

Where did 6 months come from?  The most common reason cited is that it’s assumed that following job loss, there’s a reasonable chance of success in landing a new job with a similar compensation and benefits structure within about 6 months.  While the range is huge in actual outcomes, historically, this was the presumption.  Well, society’s changed.  We’re coming out of a serious recession and it’s completely plausible that we’ll continue to see 8-10% unemployment (the ones that are counted, leaving aside the underemployed and the discouraged workers that gave up) for years to come.  Chances are, if you’re making a hefty salary and you’re laid off, you actually WON’T find a new job any time soon with the same pay and benefits.  Why?  It’s not a tight labor market.

Let’s take a pharmaceutical sales rep making $120,000 per year with salary and bonus.  I can’t think of a major pharma that has not laid off thousands of sales reps within the past 2 years.  While you may get lucky and land a job for a vacant territory or transition into medical devices or something, the reality is you’re competing with thousands of other similarly qualified candidates who are storming the same employer for the same job opening.  With free markets being what they are, why would an employer off you $120,000 total comp when they could get top talent for say, $100,000 now with the job market in shambles?

That being said, you might say, “Well, maybe my emergency fund should be even larger, more like a year – so that even with a new lower paying job, I could subsidize the lower salary out of my fund and eventually grow back into my old salary”.  Valid argument.  My personal opinion though is, rather than assuming that if you’re laid off and making assumptions on timing/comp for a future role to match your prior, you’ve got to get real and recognize that you may never grow back into that old salary on an inflation adjusted basis.  i.e. that sales rep will someday make $150,000.  But that might be 12 years from now!  While TheLadders focuses solely on 6 Figure Salaries, it’s no guarantee all those competing peers aren’t already using it.

What I’m saying is you’ve gotta adjust your expectations on lifestyle and spending to a LOWER monthly rate rather than try to cover a gap in employment with emergency savings and assume that eventually everything will be OK.  Rather than focusing on “6 months”, perhaps it’s better to focus on how long you may be out of work completely, what your burn rate is currently, how much you could save instantaneously with aggressive action if you lost your job, and then come up with a reasonable dollar amount to set aside.  This amount may be more or less than 6 months, but it will undoubtedly not be EXACTLY 6 months.

This Sounds Complex. What Factors Should I Consider?

  • Let’s say you were making $10,000/month as that sales rep.  After taxes, 401k, health plan, etc., the net paycheck is more like $6,000/month.
  • Using very rough ballpark numbers, if you have a $2,000 mortgage and another $2,000 in other necessary spending like food, utilities, a car payment, etc., your actual NEEDS are $4,000 per month net.  Now, in reality, you may be spending that $6,000 each month across a year on investments, travel, HD television, satellite radio and 50 other things that if needed, could be cut.  With some discipline and lifestyle changes, plan to hunker down and live off $4,000 per month during this rough patch.
  • Working with a $4,000 baseline then, consider the fact that if you’re laid off, it’s highly likely that you’ll receive severance in a white collar or union job (if contractual provision exists).  If you’re not in one of those buckets, assume not then.  If you’re not receiving severance or it runs out quickly, there’s unemployment insurance.
  • Let’s say you move right to the unemployment bucket and you’re going to get a check for $1300 per month post taxes (yes, for some reason we tax unemployment checks even though it’s the taxpayers paying the unemployment itself.  Circular logic it seems).
  • Unemployment benefits keep getting extended as we saw this week and I don’t think any block of senators want to be responsible for shutting that down, so realistically, assume that you’ll land a new job before your benefits expire permanently.

So, your burn rate looks like the $4,000-$1,300 = $2,700 conservatively.

These Emergency Fund Targets are Unrealistic

If you had gone with that 6 months salary assumption, you would have stashed away $60,000.  Yes, that’s right, a typical middle class sales rep is expected to have $60,000 just sitting in a savings account earning 1.4% max?  This emergency fund would sustain you for 22.2 months assuming unemployment extensions continue!  While I said earlier that perhaps one shouldn’t assume they’ll land the same or higher salary right out of the gate, isn’t it a bit unreasonable to assume 2 years out of work completely?  The point here is that this generic 6 months salary guidance seems terribly conservative.  Perhaps that emergency fund should have been more like $20,000 which actually puts the coverage closer to “6 months out of work” as opposed to 6 months salary suggested.

Why is this so dangerous?

  • Idle money in a savings account is actually LOSING money to inflation.  Over a lifetime, losing a few thousand dollars per year to inflation really adds up.  The opportunity cost of not having that money invested more appropriately adds up to a six-figure loss in retirement easily.
  • Let’s get real.  Most Americans live up to or above their actual income.  So, how many 30 year old sales reps are going to have a home, a 401k and a savings account with $60,000 to boot just sitting idly by?  It’s probably unrealistic to expect that to be the norm, right or wrong.
  • What else could you do with the $40,000 difference? Perhaps that money would be better invested in a real estate rental investment or diverting $5,000 per year over the past several years into a Roth IRA.  Perhaps you don’t have your own home and you’re renting – that $40,000 would go a long way toward a down payment.  These are long-term benefits that are highly likely to yield better results than over-insuring job loss.

Look, life is about risks. You get in your car because you view the risk of auto fatality as low, but you take that risk every day.  We buy insurance for things IN CASE they happen, not because we EXPECT them to happen tomorrow.  By having too small an emergency fund, you run the risk of foreclosure, bankruptcy, divorce and all kinds of unimaginable outcomes if things really went south.  But by insuring yourself to the hilt and not accurately assessing LIKELY scenarios, you’re costing yourself hundreds of thousands of dollars in the future when you may have permanent job loss – retirement!

Personally, I do keep excess cash on hand – usually between $10,000 and $20,000.  We have enough to get by for a couple months if I were out of work and I’ve already completed the cost-cutting exercise to show we could chop over $1,000 in monthly spending overnight if necessary.  I also have a hedged trading account that I could liquidate regardless of market conditions.  Another option people forget about is a 401k loan.  While such loans shouldn’t be taken lightly, if the alternative is loss of home or worse, it’s a good temporary solution.  But when and if I feel (if I only had that problem all the time!) there’s an abundance of cash sitting in a low-yielding savings account, I always put it to work.  Anywhere is better than 1.4%.

What are Your Thoughts?  What Rule of Thumb Do You Follow?

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Weekend Reading – iPad Cometh Edition

by Darwin on March 12, 2010

With Apple’s stock at an all-time high on anticipation of blockbuster iPad sales with an estimated 20,000 units sold per hour on opening day today, it makes you wonder whether such a hot item is completely recession-proof.  People need that iPad!  It’s quite amazing, and I’m holding plenty of Apple stock (see Darwin’s Portfolio – The Full Monty).  But as far as buying one myself, I’m gonna have to wait it out.  I’ll wait. And watch. And see if I’d actually be able and willing to use one of these devices to its potential.  And then I’ll buy a second generation when they make it better.  Enough on Apple though, here are some great reads for the week with a couple new blogs I’m following as well as some usual suspects:

A new favorite blog I read is by “the Mish“.  With a title like this, how can you not read this article?
Hardball In New Jersey, No Balls In Virginia; Brass Balls In Las Vegas

The Dividend Guy shares essential tips for the struggling investor.

My Journey to Millions rightly points out that comparatively speaking, a Million Dollars IS a lot of money

Consumerism Commentary meanwhile, says I Might Need $3,000,000 To Retire: What’s Your Number?

Wealth Pilgrim shows us How To Teach Kids About Money

Len Penzo on the Deadbeat Generation

Simple Dollar on Convenience Foods: What They Really Cost

Steadfast Finances on Why it’s Important to Buy during the Doom & Gloom News

And check out this Yakazie Challenge where bloggers are teaming up to increase their Alexa rankings (see this week’s challenge). Impressive!

Stuff You Might Like from Yours Truly:

in Money:

Investing:

Carnivals that Featured My Content Recently:

Money Hacks

Money Stories

Fast Swings

Carnival of Personal Finance

Festival of Frugality

Festival of Frugality

Personal Finance

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Darwin’s Portfolio – The Full Monty

by Darwin on March 11, 2010

darwin-portfolio-mar2010

The Full Monty.  My trading portfolio in all its glory.

I used to update readers on my portfolio holdings and performance at Everyday Finance, but that blog was recently locked up in unceremonious fashion by the Blogger team at Google, so until that is resolved, there may be some cross-content over here at Darwin’s Finance.

Basically, I have various investment accounts including 529s/ESAs for the kids, a 401K, my own IRA mutual funds and self-directed and I have this traditional trading account.  I had posted last week on how I’ve been making double digit returns regardless of market direction by selling short leveraged ETF pairs simultaneously.  It’s really been working out spectacularly.  Feel free to revisit that article for the short portion of the portfolio.  I also have a decent sized Stock Option portion of my portfolio.  On the long end though, these are the stocks I own with a brief explanation of why I own them.

Baidu.come (BIDU) – Dubbed the Google of China, this stock has benefited of late from Google’s troubles in China, well, actually Google having a backbone and standing up to China’s recent hack attacks.  That being said, by owning both Google and Baidu, I’m confident that I’ll capture the net growth in China which is going to grow orders of magnitude during the next several years.  They’re both holders.

Apple (AAPL) – As you can see, Apple’s been up big since entry – well over 100%.  When everyone was running for the exits in early 2009, I loaded up on Apple with 100 shares.  It was a huge portion of my portfolio, but being a recent iPod enthusiast myself and seeing the euphoria over the iPhone versions to date, I became a believer.  Along the way, I sold some covered calls to collect income and I’ve since unloaded more than half the shares because the position was starting to comprise too large a portion of my overall portfolio.  It freed up some extra cash for other plays to diversify.  I’m not complaining though, with Apple breaking through new highs on news of their iPad launch date confirmed.

IMAX (IMAX) - When the Avatar buzz was building, I snatched up shares.  Then I Saw Avatar and became a believer.  IMAX 3-D is the future of movies in my opinion.  They’re able to garner massive premiums on tickets and any future action flick that wants to be an “it” movie for the season will be forced to launch in the IMAX format.  Shares were further bolstered this week by the wild success of Alice and Wonderland.  I’m just sayin’ wait for Clash of the Titans! (a childhood favorite being remade and launched next month in IMAX 3-D).

Chiplotle Grill (CMG) – This was a recent purchase.  From the Warren Buffet “buy what you know” playbook, after eating in one of these for the first time and having researched the stock without ever pulling the trigger, I was sold.  I looked at the chain, future growth, the arms-distance help from McDonald’s, the “health/natural” movement with food following movies like Food Inc. and general attitudes in America, I see huge potential for the franchise.

Green Mountain Coffee Roaster (GMCR)
– This is another one of those  “Buy what you know” stocks.  I started buying and drinking their flavored coffees over a year ago and I’m kicking myself for not buying shares sooner.  They’ve greatly outperformed the market and continue to rally on growth prospects.  People just love their coffee!

Google (GOOG) – Even though they wiped out my blog, Google’s incredible.  If Google stays in China, you want to own it.  If they don’t they’ll still do fine.  With print advertising dying a slow death and Google gaining market share consistently, they’re really running like a fine-tuned machine.  They have the best and the brightest engineers figuring out more and more ways to organize and monetize the world’s data.  This is one of those 21st century stocks everyone should own.

Pimco Muni Fund (PMF) – I bought this one when I wrote about the high yield muni ETFs and how you could get incredible 8% tax-free yields payed monthly and without interruption.  Well, a year later, I’m still collecting my tax-free dividends monthly.  I still think at current yields, PMF holds promise over the yields you can get even from the highest online savings rates.

Vimplecom (VIP) – This is a Russian telecom I’ve owned for some time.  At one point, it was up 100%, then down 50%.  It’s quite volatile, as is Russia.  I intend on holding as an emerging market play on Russia.

GDXJ (Gold Miner Junior ETF)
- While I’ve knocked the gold rush as hype in prior posts, I bought this ETF based on my presumption of continued dollar weakness and the fact that this ETF is levered to gold, as opposed to buying a gold ETF itself given tax differences in a bullion ETF vs. a company ETF.  You may have noticed I included the 2X gold ETFs in my long/short strategy I referred to earlier as well, so if gold takes off and that pair falls apart, the underlying GDXJ will offset any losses.  It’s up marginally so no complaints.

TYH – Ignore this one.  It’s part of one of those double-short ETF pairs trades but I opened the position with long stock and it didn’t reconcile my short stocks, so it’s stuck in this section of the ledger.

Goldman Sachs (GS) – Basically, of all the big banks, financials or whatever you want to call them post-TARP, Goldman was the standout winner.  They were solvent, they didn’t need TARP funds, they had incredible proprietary trading results and Warren Buffett was snatching up warrants.  However, as the political ire was directed toward Goldman for their role in the crisis and $700,000 bonuses projected, the stock has been under fire since.  It’s moved up a bit, but I did buy high.  I’m holding though, I still believe in them long term.

If you like ETFs over stocks, check out ETFBase where I just outlined the top 400%+ gainers over the prior year from the March lows.

What Are Your Favorite Stocks?

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I was shocked by the results of a recent survey outlining how almost half of Americans have virtually no savings, no retirement, nothing (Employee Benefit Research Institute’s annual Retirement Confidence Survey via CNN) .  Now, this excludes the value of real estate and pension promises, which is a major culprit I believe.  With the nanny state and bailout nation that’s been fostered stemming from the financial crisis, I’d be surprised if this situation improves in the near term.  How did we get here?

I recall a conversation with a family friend who’s nearing retirement.  He’s a public school teacher.  When talking about savings and retirement, he boasted,

“We’ve never saved a dollar.  Not one dollar.  Why would we?  We don’t have to.  I get my full pension when I retire”

So, that’s problematic from a few fronts.  First, it is case in point of unionized public sector workers living off the public largess which is simply untenable.  My wife’s a teacher by the way, so I don’t have anything against teachers.  But for firemen, police, teachers and the seemingly endless litany of other roles that are becoming increasingly dependent on the taxpayer to fund, there’s an expectation of full or near-complete salary pension payments for life.  With life expectancy increasing and healthcare becoming ever more expensive, it should be evident that this is not sustainable.  Now, I can’t blame workers themselves; I mean they worked a job for 25-30 years, they were made certain promises regarding their pensions, and they planned accordingly.

“But look at Greece”

We aren’t too far off.  We already have a few states on the verge of bankruptcy.  They need a bailout next, right?  And for the US as a whole, when you look at deficits as a % of GDP, the hopeless gap in revenues minus spending and debt service over the next several years and a massive shift from private sector employment to public sector employment (the private sector has to pay for the public sector [govt]), it would not be beyond the realm of possibilities that the US is going to need some “austerity measures” of their own sometime down the road.  This may include a reduction in promised pension benefits, a increased retirement age, higher taxes or other measures that shift the calculus of this family friend from “why would I bother saving” to “I’m really screwed and wish I saved some money and didn’t rely on the public teet for my retirement”.

Let’s get off public sector employees though.  We’re talking about 43% of working Americans in the survey.  I realize there’s a portion of the workforce in the survey that are young workers that perhaps haven’t started saving yet or haven’t yet breached $10,000…but 43% !?!  How does that happen?  I mean, a mildly liberal emergency funds should start at $10,000 for many families.  How do this many people not have either?  No savings, no retirement funding and no emergency fund?  This many people living paycheck to paycheck just blows my mind.

It’s automatic! Many jobs these days have automatic investment plan participation.  Studies have shown that when they’re opt out instead of opt-in, the participation rates are far higher.  For workers that perhaps aren’t with a large company with a retirement plan, there’s always been the traditional IRA which comes with a tax break under the threshold and good old cash/stocks in a traditional account.

The only thing I can say is if you’re not saving for retirement, you better start investing today, and if you think a government or corporate pension are going to take care of 100% of your retirement needs, you may want to think again.  Pensions can be cut. Benefits can be cut. Taxes can go up. Inflation can take off.  While there are ways to hedge energy costs, hedge currency crashes and dodge some bullets, if you don’t have enough money in retirement to begin with, these are minor band-aids for a major malady.

Do You Feel You’re On Track for a Reasonably Comfortable Retirement?

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tax-refund-hell

There are a select few articles that get republished year in and year out that start to become “gospel” in the personal finance world.  With tax time approaching, you’re going to see several writers and talking heads on television chastise you for the “free loan” you gave the US government this year if you’re receiving a tax refund.  With the average tax refund estimate at around $2700 from the 2009 tax year, that’s roughly $50 per week you could have had in your account instead of on the government’s coffers, right?

Let’s consider the realistic reasons you don’t go to Hell. Not the hypothetical, but the pragmatic.

  • Interest Rates are a Joke. This is the primary reason this “loan” issue is bunk.  With savings rates paying less than 1% for the most part, save for some top online savings rates you can find, how much are you really lending?  Note that inflation is virtually non-existent as well.  Conservatively, by “lending” $2,700 at 1.3%, you forgo a whopping $35 in interest.  I say conservatively because a) 1.3% is the top rate you’ll find virtually anywhere and b) because this assumes a 1 time payment made a full year back.  However, you’re making gradual $50 payments throughout an entire year, so that December payment for instance, earned a couple pennies only.  So, in reality, you’re losing out on LESS THAN $35 by getting a refund this year.  While you could cite last year’s stock market performance and how much you “could have made”, this isn’t a good proxy.  You won’t see massive returns like that again (save for following the next financial crisis) and by that logic, you could LOSE much more than just lending it to the government in a down year in the future (aren’t you happy you loaned the Feds money in 2008?).
  • Most Americans spend what they make – or more.  The tax refund is at least one autopilot program that virtually guarantees a few thousand dollars coming in at a set time each year.  Most people would simply spend the additional $50 each week instead of say, investing that exact amount.  This is reality over theory speaking, but sometimes, you’ve gotta recognize and accept human behavior over spreadsheets and assumptions.
  • Tax Refunds Act as a Special Savings Account – many people use the annual refund to pay for anything from this summer’s vacation to making a final investment into the prior year’s IRA allowance.  There are few mini-windfalls in life, but this is an annual one that lends some routine stability to a family budget.  Even an annual bonus isn’t guaranteed to those that were used to them in prior years.
  • Many Americans Don’t have an Emergency Fund – for those that don’t, an annual refund could be used to pay for an unforeseen medical emergency, help with monthly payments following a recent layoff, or pay for that water heater that just busted.  It may be the only time per year that one of these mini-windfalls ever comes around.
  • A Better Strategy for Funds Allocation – Many people don’t really have a good “plan” for what to do with $50 weekly.  Perhaps disciplined investors do set up that automatic monthly withdrawal into an investment account, but with a single 4-figure payment coming in once per year, there’s plenty of time to plan and think about how to best deploy that cash.  Perhaps with that money, you ‘ll want to make a high ROI investment in your house under the cash for caulkers plan that is just being finalized now.  Perhaps you’ll want to buy a few thousand dollars of shares in a particular stock which you can’t do with $50 generally (DRIP plans perhaps but they have their drawbacks).  Basically, with some time and planning and a one-time payment, many people will put that money to work better than ongoing micropayments weekly.
  • You May OWE Money! – Nobody ever gets it exactly right when toying with projected deductions, projected income and adjusting dependents.  Depending on how your year went, what the latest tax law changes were that you may have missed and how much you actually made, let’s say you end up owing $500 come April.  Is that where you want to be?  You had those extra $50 each week last year, but now you’ve gotta come up with an unplanned tax payment within a month!

So, there is something to be said for maximizing returns in the long-term, beating inflation and optimizing cash flow.  In the corporate world, cashflow management is gospel and accounts payable/accounts receivable should be optimized to squeeze every penny out of the timing of transactions.  However, you’ve also got to realistically assess what the impact would be to having no tax refund vs. a few thousand dollars each year.  Ask yourself (since most of you ARE getting a refund this year) – Do you wish you weren’t getting that refund and had the money weekly last year?  Or are you relieved and pleased that it’s coming?

If your annual refund is enormous, like over $10,000 each year, perhaps it’s worth reconsidering whether that’s too high and your money could be put to better use throughout the year.  If you carry revolving credit card debt and for whatever reason haven’t bounced that into a 0% balance transfer, perhaps the money could be better utilized paying down debt monthly (with requisite discipline).  But if it’s say, $1,500 or even the national average tax refund estimate at $2,700, perhaps for your given budget, you’re better off each year just leaving it alone.

I’m interested in your thoughts:

For 2009, Did You:                             Lend it         or     Leave it?

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Best of Money Carnival #41

Welcome to Darwin’s Finance. If your new to this evolutionary approach to money, feel free to peruse articles on either Personal Finance or Alternative Investments and please consider signing up for FREE Updates via RSS.
This week, I had the opportunity to host the Best of Money Carnival. What is this carnival business?  Basically, it’s a [...]

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How Does Society Value Additional Time for Your Dying Loved One?

There is an excellent article in this week’s BusinessWeek written by the widow of a man who fought a long and courageous battle with cancer.  What differentiated this article from other similar accounts is that the article stepped through a very detailed financial account of just how costly it is to sustain a terminal patient [...]

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Check Out These Interesting Financial Products and Deals

There are some neat new sites, services and deals out there that can either boost your bottom line with minimal effort or flat out provide entertainment value with no discernible benefit.  Here are a few in no particular order:
Blippy – Blippy is perhaps one of the strangest new services I’ve seen this year.  I have [...]

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401K Loan Rules – Taxes, Interest, Pros and Cons

401k Loan Rules allow for easy access to retirement funds, but is that a good thing?  Many employees are unaware that they can take a loan from their 401k account for basically any personal need with very little hassle.  There are clear negative attributes to this route, but some situations may warrant considering this option, [...]

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How do Stock Options Work? Trade Calls and Puts – Part 1

Since I routinely post about stock options trading, investing, hedging and income generation and get the occasional question, “How do Stock Options Work?” or “How to Trade Stock Options“, I figured I’d do a series on the various types of stock options strategies out there (they are numerous!) by starting with the most basic stock [...]

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Today’s Financial Priority: Get a Free Credit Score from myFICO

Routinely checking both your credit score and your credit report is increasingly important these days. Between identify theft and more rigorous credit assessments for everything from AT&T demanding a larger security deposit for high credit risks to what rate you’ll pay for a car loan, if you’re not checking both of these routinely, you’re [...]

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787 ETFs Listed – Every Exchange Traded Fund Known to Man

ETF List of over over 700 Exchange Traded Funds covering all sectors and strategies from emerging markets and commodities to leveraged and short ETFs.  This ETF ticker symbol list is updated routinely so be sure to bookmark and utilize as a permanent reference.
Symbol    Name
CGW    Claymore S&P Global Water Index ETF
UBD    Claymore U.S. Capital Markets Bond [...]

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Why I Passed on a 90% Pay Increase – What’s Your Price?

The other day, I was contacted by a headhunter (everyone calls themselves an “executive recruiter” these days even though I’m nowhere near an executive level position) with a very attractive proposition.  He had a position that was roughly aligned with my current role and prior experience with another large bio-pharma where the total compensation with [...]

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Review: Flex CD Offers High Yield if the Dollar Tanks Against BRIC Currencies

The Flex CD (MarketSafe BRIC) offered by Everbank is a unique financial innovation for this low interest rate environment with an ever weakening US Dollar in terms of foreign currencies.  Everbank offers a flex CD they refer to as the BRIC MarketSafe CD.  Basically, if the US Dollar strengthens against the currencies of the BRIC [...]

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$100 Signup Bonus at OptionsExpress Now!

There’s an impressive campaign going on now at optionsXpress whereby you can get a $100 signup bonus by simply opening a new account with a minimum of $500 by December 31, and make a minimum of 3 trades over the course of the following 12 months.
How’s a 20% ROI over a month or so sound?
Why [...]

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Do You Invest in Companies You Find to be Morally Repugnant?

Last week, I knew I had to fess up and admit I bought a newly launched Gold Juniors ETF which I was rather conflicted about, but too alluring to ignore based on my assessment.  While I don’t think gold’s lofty prices are supported by fundamentals and I’ve trashed its prospects compared to other investment vehicles [...]

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FICA Tax Rates 2009, 2010 – How They Work and Why They Matter

FICA Tax – What is it and why’s it matter?
Anyone that has inspected their paychecks for the myriad taxes and deductions from their paychecks has surely noticed the FICA Tax line on there. The Federal Insurance Contributions Act (FICA) tax is a federal tax on both employees and employers to fund Social Security [...]

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Will the ETF be Viewed as Another Financial Innovation Disaster?

Financial Innovation is usually both a blessing and a curse.  In the vast majority of circumstances, an idea borne of market efficiency, lower risk, lower costs and more utility to investors ends up in complete disaster.  Consider the following example.
Recent Financial Innovation Example – Derivatives and Securitized Debt
What started off as a great idea to [...]

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Weekend Reading: Tiger Woods “In the Rough” Edition

With the world obsessed over Tiger’s dilemma and the media frenzy that ensued, it’s just a reminder that even the best in the world can be brought down by bad behavior off the job.  The latest is that Tiger’s taking a “hiatus” from golf.  Meanwhile, US equities surpassed 2009 highs this week, Copenhagen continued unabated [...]

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Should the US Adopt a “Bonus Tax” Like Europe is Enacting?

I was rather dismayed but not surprised when I saw the news that the United Kingdom was enacting a “bonus tax” which is to be a one-time tax on bonuses of bankers in excess of $40,000.  As the circus spread its influence, France signaled that it will enact a similar policy and Germany’s chancellor referred [...]

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How I Saved 44% on my Comcast Bill-Chat Transcript ($1104 per Year)

The overriding theme of this post is to demonstrate that for ANY utility (Comcast Bill in my case) you pay where there is ANY competition in the area, you can likely employ some very simple techniques to achieve significant savings, leading to hundreds of dollars annually.  In this case, we have a pretty intense Comcast [...]

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Darwin’s Inverse Leveraged Short ETF Strategy – Incredible Results Outlined

The time has arrived to finally unveil Darwin’s Inverse Leveraged Short ETF Strategy.  If you’re wondering what it is and why it matters, in a nutshell, it has completely changed the face of trading for me – and it can for you too, if you have the access to the 2X or 3X Leveraged Funds [...]

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How Much Could You Reduce Your Budget if You Get Laid Off?

In this economy, even if you think your job is safe, you’ve gotta at least have in the back of your mind, “What are some immediate steps we could take to dramatically reduce our monthly expenditures in the event of a layoff?”.  While many companies offer severance for several months, there’s no guarantee that you’ll [...]

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Winners and Losers Under Obama’s New Tax Plan

Monday, the administration released their budget plan which was purported to reduce the tax burden on middle-class Americans.  There will be clear winners and losers under the plan, so here are the high points:
Winners

Making Work Pay tax credit—$400 for individuals, $800 for a couple filing jointly—through 2011.  This was already in place for 2009, 2010.
Middle [...]

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The REAL Reason Why the US Should Wait Generations Before Drilling

“Drill-baby-Drill” was the mantra of Sarah Palin’s speeches when she had all that momentum leading up to the dreaded Katie Couric interview where it became evident she was quite clueless in virtually every aspect of foreign policy, governance, finances and energy.  Alaska being well-known for little else brought drilling back to the national spotlight and [...]

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Weekend Reading – “There Will Be Blood” Edition

This week it was announced that New York Attorney General’s office is filing civil charges against the former CEO of Bank of America Ken Lewis, saying he misled investors about Merrill Lynch when it acquired the bank in late 2008.  Whether this is politically motivated or there is legal merit, it is evident [...]

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Easy Ways to Find the Best Finance Blogs

There are a few ways people like to keep track of their favorite personal finance and investing blogs.  There’s the old fashioned way of just bookmarking a site and visiting when time permits to check out the latest posts.  That’s very inefficient and sooo 2000.
Then, there’s the RSS and Twitter option.  I recommend following both [...]

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Is Paying Kids for Good Grades Wrong?

I watched an inspiring 60 Minutes episode on the Canada Harlem Children’s Zone project whereby several blocks of a blighted section of Harlem were transformed into a safe area spanning many blocks and the charter schools within were staffed and run completely differently than the NYC public schools.  The program employs very innovative techniques and [...]

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What Are The Odds?

This guest post comes from Michael, a contributing editor of the Dough Roller,a personal finance and investing blog, and Credit Card Offers IQ, a credit card review site.

I’m the type of guy that is always looking up to the sky after having something bad happen and wonder, “What are [...]

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Why Do We Demonize Outsourcing?

I read with interest a rather lengthy and angry comment chain on this recent post from Get Rich Slowly, one of my favorite blogs.  Essentially, a guest poster highlighted how she’s outsourced several things in her life that most of us do ourselves ranging from cooking to virtual assistants.  I can understand how most people [...]

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Mortgage Rates Dip Below Key 5% Level – How to Get Yours Even Lower

Mortgage rates dipped below the key 5% level for 30 year fixed rate mortgages again this week. While many had predicted that rates would rise by mid-2010, it’s looking as though they may stay low at least through the year. The government intervention and reluctance to raise rates given a near 10% unemployment [...]

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10 Highest Paying Degrees 2010 – Best Majors in Demand Now

The top 10 highest paying majors numbers are out from the National Association of Colleges and Employers and it’s a very interesting mix.  The top slots are all very similar to the highest paying majors from the 2009 salary survey with some minor annual increases.  The bottom of the list changed a bit.  What I [...]

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Your Wife’s a Gold-Digger – Is She Evil or Just a Forward Thinking Strategist?

The term gold-digger immediately elicits a pronounced response: revulsion.  A woman who latches onto a guy (usually; other scenarios apply of course) solely due to his existing or perceived future wealth.  Regardless of what she thinks of this man as a person, she has one focus – money.  Well, what about a “rational/moderate gold-digger”?
photo credit: [...]

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How Did Childhood Jobs Influence Your Current Financial Situation?

My wife and I were talking about teaching our kids about money the other day and she mentioned how entrepreneurial our 5 year old seems.  I haven’t really started to talk to the kids about money too much other than the piggybank 50/50 save/spend thing which will eventually become a bit more structured.  However, this [...]

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Bragging Rights – Have You Considered the Context?

I often hear people bragging about personal or company accomplishments with data.  Data is truth, right?  Well, it depends on how it’s presented – what the context is.  Here are some examples:

The CEO – I heard a CEO bragging on CNBC about a 60% return from the March lows so the company must be doing [...]

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Dear Wallet, We’re Both Too Fat to Continue this Relationship

You’ll find this to be one of the more insipid posts you’ll ever find here at Darwin’s Finance, but it deals with finance (at least tangentially) so I figured I’d share my experience in liberating myself from my wallet.  Due to one of the two phenomena: 1) my pants shrank or 2) I’m getting fatter, [...]

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What Does Financial Freedom Mean To You?

I hear the phrase “Financial Freedom” batted around like it’s goin’ outta style.  Scammy multi-level marketing outfits tout financial freedom, mutual fund and money management companies refer to it, magazine covers…it’s everywhere.  I guess Financial Freedom means a lot of things depending on who it is you’re asking.  The problem with advertising that phrase is [...]

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Double-Digit Returns in Any Market – Update 2

It’s been a month since I published Darwin’s Inverse Leveraged Short ETF Strategy and the results are astounding.  In short (no pun intended), since leveraged ETFs lose value over time due to the simple, yet deceptive properties of daily rebalancing, by shorting opposing leveraged ETF pairs simultaneously, in most markets (MOST), you make money by [...]

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Weekend Reading: I’m A Plutus Award Finalist Edition

I thought I’d dedicate this weekend reading edition to a shameless plea for votes in the Plutus Awards, as I was nominated for Best Investing Blog of 2009.  I spend so little time actually trying to promote myself vs. keeping up with posts, emails and life in general, that I figure I’d throw this one [...]

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Is it Wrong to Hedge Your Own Company’s Shares?

Last year I wrote a somewhat controversial article on how to sell call options against your underlying company stock option grants or restricted stock grants in order to hedge against a potential decline while forfeiting massive upside should the shares take off (see How Options Work if this is Greek to you).  The comments ranged [...]

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February In Review – The Good, The Bad and the Downright Ugly

Another month has come and gone.  I usually have nothing but positive achievements and gratitude to report in my monthly updates that I’d been doing from my other blog Everyday Finance, but this month took me back down to earth.  For one, Everyday Finance, my first blog, is not even active any more, as Google [...]

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