Delaying My Tax Filing

You heard me right, MoneyMan hasn't even attempted to do his taxes yet. But, as some of you may have heard, and as some of you procrastinators may be happy to hear, there is a reason to wait to file your taxes later this year.

The gist of the story is that many brokerage firms have been requesting filing extensions and plan to be sending out restated 1099 forms due to some late changes in the tax laws last year. This would require you to refile your taxes if you used any information in the original forms they sent out.

So if you haven't opened your W-2 envelope, pulled out your calculator, sharpened your pencil, bought your tax software, or done any of the other fun things associated with tax season, breathe easy.

I'm not looking forward to my taxes this year. I always prefer to do them myself because they help me to understand how the decisions I make during the year impact my tax bill, and they help me to plan some tax strategies for the following year.

One example of this is when I noticed last year on my state and city tax forms that I could deduct any interest I received on US Government securities, such as treasury bonds. I told myself I would have some income to put on that line this year (as long as the rates made sense), and as a result I started putting more of my savings into Treasury bills, which have actually been yielding more than my ING Direct savings account this year, in addition to having the favorable tax status.

So anyway, I recommend doing your taxes yourself, but I also recommend that you wait until the middle/end of March if you will be reporting any 1099 income that might be in danger of a restatement.

Stock Market Decline

So the big news in the markets was the decline today. Let's recap the pain:

• The DJIA closed down 416.02 points, or 3.6%, to finish the day at 12,216.24
• This was the worst point decline since the index fell 684.81 points, or 7.3% on Sept. 17, the first trading day after the September 11th attacks
• This was the worst percentage decline since the Dow fell 3.6% March 24, 2003, not long after the beginning of the Iraq war
• The NASDAQ was down 96.99 points, or 3.86%
• The S&P 500 was down 50.33 points, or 3.47%
• The drop seems to have been sparked by a 9% overnight drop in the Chinese stock market that spooked people before trading opened in the US

I thought it was interesting to read that a computer glitch was partly responsible for some of the market decline. Apparently the DJIA wasn't being calculated correctly during the day due to heavy trading volume, and when they switched to a backup computer to do the calculation, the result was an immediate 200 point drop in the index, which no doubt spooked investors even further.

For those of you who missed it, I wrote about how my unofficial market barometer was pointing towards a correction a month or so ago, but this is not an "I told you so" post. I am still an agnostic on the near term movements of the market. I don't know if today's trading signals a major correction is in the works, or if it is a great buying opportunity. I can tell you that I'm glad that my 401(k) rollover didn't go into effect yet, because I will most likely be buying into my funds at lower prices sometime next week.

Anyway, I'm happy when prices go down, and if your investment outlook is 10 years long, I think you should be happy too.

If you do pick individual stocks, now might be a good time to have a watch list of stocks that you will buy if they become undervalued. Allthough, I think it will take a lot more than a day like today to create some real buying opportunities.

In other words, don't worry unless you're retired and in the process of selling your investments.

Identity Theft on Blogger!

I recently found another MoneyMan on blogger! Actually his blog is pretty good and by no means do I think any one person could own the rights to use the name "MoneyMan."

Anyway, he's a TV/radio personality and all I am is a regular old person. Check it out and let me know what you think.

Save Money By Doing It Yourself

I have a few contractors in my family and I have spent some time working with them on different projects... new bathrooms, decks, roofs, kitchens, flooring, moulding, tiling, doors, closets, aluminum siding, painting etc... From doing these things, I got a general feel for how they are done and also a general feel for how much things cost.

If you can do some of the more basic home repairs by yourself, you can save a ton of money over the long run, and you can also get the feeling of satisfaction you get when you complete a job.

One example I have is plumbing. I know many people who are clueless about the basic workings of a toilet, or how to clear a clogged drain. In most cases, you can solve a basic clogged drain with a plunger. In some cases, it involves some tools such as an auger.

If you're interested in learning how your household plumbing works, a book I highly recommend is Complete Plumbing (Stanley Complete Projects Made Easy). I have found this book extremely useful because it is filled with full color photos, demonstrations of how things work, and details on how to do particular projects such as installing a new sink, redoing a bathroom and yes, even unclogging a drain.

Once you start thinking you have to leave everything to "experts" and realize these kinds of things are things that almost anybody can learn, I think you'll find yourself saving a lot of money. There are books available on almost every topic you can imagine. Get out there and learn!

(Of course if you don't have the time or if the jobs are particularly sensitive, involving building codes and major work, you will have to at the very least consult a licensed practitioner.)

Taking Things Apart

Gratuitous link: I'm extremely curious by nature, and I spend a lot of my non-finance time making things, fixing things, and in general, taking things apart. Needless to say I was happy to stumble upon a site called TakeItApart.net the other day.

Basically, each blog entry on the site involves a few photos of the site owners or someone else taking apart some kind of device- electronic or otherwise. They don't just take the cover off either. They separate virtually every component right down to the circuitboard.

I usually take a few quick shots with my digital camera when I take something apart, in case I forget where the pieces go when I want to put it back together. This is a whole site full of pictures like that.

Anyway, if you're curious about this sort of thing, it's at least worth a look.

Starting Up A Roth IRA

A friend of mine who is 24 years old and still only a couple years out of college recently made an excellent decision to open up a Roth IRA at TDAmeritrade.

He'd read a bunch articles describing Roth IRAs (rothira.com), he looked at the tradeoffs between investing in traditional vs. Roth IRAs, he asked me some questions about where I thought social security was going to be when he retired in 2047 (don't count on anything, I told him) and most importantly, he found a bunch of retirement savings calculators through Google and saw how much his savings could grow over time if he started today.

He funded his account with $500 (it still counts as a 2006 contribution since he's doing it early in 2007), and the next question he had was: what the hell do I do now? He logged onto TDAmeritrade's site, but being an investment newbie, he had no idea what any of the words meant, and no idea where to go from there.

So I gave him some advice that I would give to anyone in his situation.

First of all, I told him that his money was currently sitting in a money market fund at TD Ameritrade, so even though it isn't earning him much, he can take his time figuring out where to go from there and not feel like he has cash rotting idly away.

He asked me if he could put it in an investment that was guaranteed not to lose any value. I told him he could find something similar to that, but that nothing could ever really have such a guarantee attached to it.

I also told him that, given his 40 year time horizon, he could afford to take on more risk and most likely earn much higher returns over the long run. I recommended he use his $500 to buy shares of an Index Fund, particularly, an S&P 500 Index Fund and even more particularly, the Vanguard S&P 500 Index Fund. I felt that an individual stock would be too risky for him, since neither of us have been following individual stocks lately, and I felt that an actively-managed mutual fund would more likely than not underperform the S&P 500 over the next 40 years, and charge him high fees in addition to all of that.

Before I suggested he log on and make the trade, I asked him another question: are you planning to put any more money in soon? He said he would be able to put another $500-1000 in sometime over the next couple of weeks. As a result, I recommended he wait until he put that next deposit in, then buy the fund shares using a single trade. TDAmeritrade charges $10 for Internet equity trades, and given the relatively modest sum he was talking about, it was worth saving the extra transaction fee.

So that's where he's going to go. Over the next few years, I think he is going to educate himself a lot more about investing, and I'm going to recommend he add some other asset classes to his Roth IRA portfolio, in particular small-cap funds (I am a big fan of Dimensional Fund Advisors index funds in this category) and international funds. I am going to recommend he set target weights, stick to these over time, and strive to keep costs down wherever possible.

When he gets more steady employment (he currently works without benefits), I'm going to recommend that he participate in his employer's 401(k) program, if it gets offered to him, and that he do this via automatic deductions from his paycheck.

I'm also going to give him my copy of The Motley Fool Investment Guide : How The Fool Beats Wall Streets Wise Men And How You Can Too, which is an easy read investment primer. If it interests him, I have a library full of books he can use to explore from there.

The most important point I wanted to get across to him was that investing isn't some kind of black magic. It is something anybody can learn, and, given the right set of expectations (that stocks will perform better than the alternatives over the long run, offering returns somewhere in the neighborhood of 10% per year), it is something anybody can excel at.

Michael Lewis on Private Equity vs. Mutual Funds

I caught a Michael Lewis (author of the fantastic book "Liar's Poker," which introduced many a young fellow to the world of Wall Street) opinion piece on my Bloomberg terminal today and I felt it was worth passing along. You can read it here.

His basic premise is that there are some investments that rich people can make, i.e. private equity investments, that the middle class cannot. He further argues that the rich make 20% annual returns off of their private equity investments while the middle class are happy with their mediocre mutual fund returns.

I have only had one recent brush with private equity, and that came when Yankee Candle (NYSE:YCC), a company whose stock I owned, was bought out by a private equity firm. I had a lot of questions as to whether or not that transaction was on the up-and-up, but I'll save those for another blog entry.

I don't think this is as big a deal as he makes it out to be. Private equity returns run in cycles just like every other asset class. Yes, you have to have a lot of money to invest in PE funds in most cases, but this is an investor protection, not a scam designed to make money for the rich. Private companies don't have to provide the kinds of disclosure public companies do, and as a result I think they make for riskier investments. If you're rich and you lose your $1m investment, chances are you can shrug it off. If $1m is your entire net worth and you lose it, chances are you are not going to be able to recoup the losses.

Has anyone else had any experience investing in private equity funds and care to shed some light on the subject?