Thursday, June 7, 2007

Markets Head South

We haven't seen market declines like this since February. As I noted recently, interest rates are rising. This has pushed treasuries up to 5%, and as a result will or has already pushed up rates on everything else that is based off of treasuries (mortgages, car loans, personal loans etc...).

In theory, this makes people sit back and say to themselves "Self, the stock market has been going gangbusters for a while, maybe that guaranteed 5% yield is a good deal for now. I'm going to sell my stocks and buy me a bond instead."

Should you do this with your 401(k)?

My answer is no. If you have at least 5-10 years before you retire, you have a long term outlook and you should own some stocks. If you have only 5-10 years, you shouldnt be heavily weighted in stocks, but I don't see the current weakness as a reason to sell.

If you have like 30 years before you retire (like me), just keep your contributions pouring in. You won't regret it as your money compounds over the next 30 years.

Stock prices and bond yields both currently reflect a ton of optimism. A bit of pessimism every now and then is a healthy thing.

Wednesday, June 6, 2007

Tips for Buying a Car

I read this a while back, but it was one of the best pieces of investigative journalism I've ever read so I feel the need to pass it along to you. If you have a few moments, I suggest you read this before buying your next car.

It's called "Confessions of a Car Salesman," and was written by a guy who went undercover as a car salesman in order to report back to


Tuesday, June 5, 2007

Finance Bloggers - Stop Whining about Financial Education/Literacy

Ok, occasionally I go off on a rant about hackneyed posts I see popping up again and again on financial blogs. I even created a "PF Blog Rants" tag for the explicit purpose of letting me vent. See this post on boring financial advice to get an idea of the kinds of things I hate, yet see repeated over and over again.

I need to add something else to this list. I need to add it now.

Financial Education.

Financial Education.

Financial Education.

Financial Literacy.

Teaching financial literacy in school.

Think I've repeated that enough? It doesn't compare to the number of times I've seen this theme repeated by two bit hack financial bloggers. Honestly these people write about finance, but they know practically nothing about the subject. They just repeat what they've read in three or four popular books (Rich Dad/Poor Dad, The Millionaire Mind and all of that other trash), they link to ideas put forth by other people and they agree with them. They have never had an original thought in their lives.

Yes, I don't post very frequently. Mea culpa. But at the very least, I try to be original. I try to avoid linking to something and saying it is a good idea. I try to avoid repeating all of the BORING FINANCIAL ADVICE we have been seeing everywhere for years. I try to assume that you can read these books on your own.

So anyway, sorry to go off on a rant, but to give you a concrete example (and you know how I hate calling out other bloggers), take a look at this post and this post by a financial blogger who shall remain nameless :)

Teaching financial literacy in schools is not your idea. Robert Kyosaki has been writing about this for years. So has everybody else. Unless you want to bore me, stop writing about it. Frankly, I'm sick of it.

Please, stop.

I feel the need to add another disclaimer here. It's not like I dislike any of the bloggers I call out here. In fact, I would need to actually read their blog in order to go off on a rant about it, so you can be sure I've read their blog if I mention them here. And if I've read their blog, that means there are some things on their blog that I've liked. However, there are also some things that drive me crazy, and I have no qualms about writing about them. If that makes me the Simon Cowell of the blog world, so be it.

Mortgage Rates Are Rising - How Will This Affect Home Prices?

Check this out... back in 2002, the yield on the 10 year treasury was about 3.5%. Mortgage rates, which are based off of that rate, were in the neighborhood of 4.6%.

So your monthly payment if you took out a $200,000 mortgage in 2002 would have been something like $1025.29 per month.

Fast forward to today. The yield on the 10 year treasury is about 5% ( and rising. Mortgage rates are about 6.1%. Your monthly payment for the same $200,000 mortgage would be $1,211.99 per month. $187 dollars more per month purely in interest. Thats $2,240 more every year, or $67,212 dollars over the life of the mortgage, just because of the change in interest rates.

Can you see why so many people bought so many houses back in 2002? The monthly payments were pretty darn cheap.

It's impossible to predict where rates will go but it is easier to see them going higher rather than lower over the next couple years. Rates are another factor that affects demand for buying houses.

As many of you know, I'm hoping to buy a house within the next few years. I'm also hoping that increases in interest rates hopefully lead to more housing price reductions, because fewer people will be able to afford those higher monthly payments.