Inauguration 2009: To Go Or Not To Go?
Monday, January 5, 2009
We're just back from a weekend in the DC area, where the buzz inside and outside the beltway is all about inauguration day, January 20. Enthusiastic locals we spoke to are still on the fence whether enduring the crowds for hours on end in potentially frigid temperatures is worth being part of the historic day, or if Obama's inauguration is better seen from the comfort of one's couch. Logistics is one huge issue. Expect monumental log jams, human and vehicular; bridge and road closings, Metrorail subway tickets may need to be purchased in advance; our friends are considering sleepovers at offices close in to the parade route. Do you bring the kids to stand on the sidewalks for, say, 8 hours then face a long wait to get home, knowing the only glimpse you're likely to get of our new prez will be on a TV monitor?
Of course security will be tight all around - no strollers, umbrellas, coolers or backpacks allowed.
You'll have to really enjoy being close to complete strangers vying for personal space: estimates are 2 - 4 million people attending, surpassing all records. With those numbers, it's predicted even the cell phone service will be jammed. And if you're thinking of going now, you'll have to find a crash pad, since all hotel rooms in the area have been sold out for months.
So, Baristaville, are you DC-bound to experience history-in-the-making, first hand? Find Inauguration Day tips here, and here.
Posted by Annette Batson on January 5, 2009 8:48 AM
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Monday, January 5, 2009
Friday, January 2, 2009
What Warren Buffett Thinks About ETFs
Exchange-traded funds have exploded in popularity in recent years, ushering in exponential growth in assets and hundreds of new ETFs to the market. ETFs were touted for their several advantages over traditional index mutual funds, including the flexibility to trade throughout the day, the ability to sell short and buy on margin, and the allure of greater tax efficiencies and generally lower fees. Thus, the debate began over whether ETFs might supplant traditional index mutual funds.
by Amanda B. Kish
Published on December 31, 2008 - 0 comments
Opinions have come from both sides of the debate. But one voice often carries extra weight, as he's probably the most famous investor in the world.
Buffett weighs in
Last year, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) chairman Warren Buffett suggested that traditional index mutual funds were more appropriate for most investors, in part because there is less pressure to engage in frequent trading. He feels that with ETFs, investors may face pressure from their brokers, who stand to make money from any trading activity.
Now, anytime an investment guru makes a pronouncement, I always hesitate a bit. I think the worst thing you can do in life, and in investing, is to assume that the superstars always get it right. Just because he's Warren Buffett doesn't mean everyone should blindly nod and agree with him. Fools always need to put their own critical-thinking hats on before coming to their own conclusions. However, I think in this case, Buffett is absolutely right.
I have no inherent problem with ETFs -- they were no doubt created in response to an unfulfilled market demand. I think ETFs on their own merits are terrific investments and can provide investors with access to segments of the market that are essential to success. A broad-based ETF like Diamonds (NYSE: DIA), which gives exposure to Dow industrials stocks like Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC), Caterpillar (NYSE: CAT), and Boeing (NYSE: BA), makes sense for many investors.
However, the problem arises with how investors actually use some ETFs. Just because these funds can be traded at every minute of the trading day, that doesn't mean you should actually be doing it that often. If buying an ETF leads you to try to be a market timer, then you are fighting a losing battle, my friend. It's been proved many times that individual investors are poor market timers and are much more likely to make the wrong calls than they are to time the market correctly.
Theory vs. real life
But what about those other purported advantages of ETFs, namely tax efficiency and lower fees? Shouldn't those translate into a slight performance advantage over traditional index funds? Well, some research from Morningstar and The Wall Street Journal last year showed that when it comes to real-life returns, ETFs actually performed worse than index mutual funds.
Morningstar looked at several of the biggest and most popular index funds and ETFs in several different categories and found that, almost across the board, the biggest, lowest-cost index funds, such as those offered by Fidelity and Vanguard, outperformed the corresponding ETFs. In fact, the index funds outperformed in 34 of the 40 time periods studied, including all of the one-year, three-year, and 10-year after-tax categories. And this study didn't even take into consideration the commissions ETF investors incurred each time they trade their shares, which means that frequent traders may very likely be digging themselves into a greater hole compared with holders of traditional index funds.
The bottom line
Does this mean that ETFs are not all they're cracked up to be? Well, yes and no. Exchange-traded funds can absolutely serve a purpose in the portfolios of many investors. And given their low costs, they can outperform many traditional actively managed mutual funds.
But when it comes to real-world applications, broad-based ETF returns have lagged low-cost index mutual funds. Admittedly, they don't lag by a wide margin, but even that little bit can add up over time.
If there is a strategic reason for you to own an ETF, by all means do so. But don't assume that just because ETFs are all the rage right now, you're missing out by not owning any. After all, if Warren Buffett thinks that most investors would be better served by sticking to low-fee index mutual funds, maybe we should listen.
Copyright © 2008 Universal Press Syndicate.
( filed under: People | Top Story )
Write to author: Amanda B. Kish
by Amanda B. Kish
Published on December 31, 2008 - 0 comments
Opinions have come from both sides of the debate. But one voice often carries extra weight, as he's probably the most famous investor in the world.
Buffett weighs in
Last year, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) chairman Warren Buffett suggested that traditional index mutual funds were more appropriate for most investors, in part because there is less pressure to engage in frequent trading. He feels that with ETFs, investors may face pressure from their brokers, who stand to make money from any trading activity.
Now, anytime an investment guru makes a pronouncement, I always hesitate a bit. I think the worst thing you can do in life, and in investing, is to assume that the superstars always get it right. Just because he's Warren Buffett doesn't mean everyone should blindly nod and agree with him. Fools always need to put their own critical-thinking hats on before coming to their own conclusions. However, I think in this case, Buffett is absolutely right.
I have no inherent problem with ETFs -- they were no doubt created in response to an unfulfilled market demand. I think ETFs on their own merits are terrific investments and can provide investors with access to segments of the market that are essential to success. A broad-based ETF like Diamonds (NYSE: DIA), which gives exposure to Dow industrials stocks like Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC), Caterpillar (NYSE: CAT), and Boeing (NYSE: BA), makes sense for many investors.
However, the problem arises with how investors actually use some ETFs. Just because these funds can be traded at every minute of the trading day, that doesn't mean you should actually be doing it that often. If buying an ETF leads you to try to be a market timer, then you are fighting a losing battle, my friend. It's been proved many times that individual investors are poor market timers and are much more likely to make the wrong calls than they are to time the market correctly.
Theory vs. real life
But what about those other purported advantages of ETFs, namely tax efficiency and lower fees? Shouldn't those translate into a slight performance advantage over traditional index funds? Well, some research from Morningstar and The Wall Street Journal last year showed that when it comes to real-life returns, ETFs actually performed worse than index mutual funds.
Morningstar looked at several of the biggest and most popular index funds and ETFs in several different categories and found that, almost across the board, the biggest, lowest-cost index funds, such as those offered by Fidelity and Vanguard, outperformed the corresponding ETFs. In fact, the index funds outperformed in 34 of the 40 time periods studied, including all of the one-year, three-year, and 10-year after-tax categories. And this study didn't even take into consideration the commissions ETF investors incurred each time they trade their shares, which means that frequent traders may very likely be digging themselves into a greater hole compared with holders of traditional index funds.
The bottom line
Does this mean that ETFs are not all they're cracked up to be? Well, yes and no. Exchange-traded funds can absolutely serve a purpose in the portfolios of many investors. And given their low costs, they can outperform many traditional actively managed mutual funds.
But when it comes to real-world applications, broad-based ETF returns have lagged low-cost index mutual funds. Admittedly, they don't lag by a wide margin, but even that little bit can add up over time.
If there is a strategic reason for you to own an ETF, by all means do so. But don't assume that just because ETFs are all the rage right now, you're missing out by not owning any. After all, if Warren Buffett thinks that most investors would be better served by sticking to low-fee index mutual funds, maybe we should listen.
Copyright © 2008 Universal Press Syndicate.
( filed under: People | Top Story )
Write to author: Amanda B. Kish
Be Smart With Your Money In These Difficult Times
This year, take control of your finances
Start off 2009 by committing to saving money and building a better budget
By Sharon Epperson
CNBC personal finance correspondent
Kick-start your finances
Jan. 2: Getting finances in order is one of the top New Year's resolutions. CNBC’s Sharon Epperson talks to TODAY’s Amy Robach about ways to start the new year financially strong.
Today show
10 wonders of winter
Is every snowflake unique? Can the groundhog predict spring? The wonderland of science this season
10 tips to keep money in your wallet
Readers share money resolutions for ’09
Feeling broke? 10 ways to save Christmas
Make memories, save money: 10 DIY gifts
Technotica with Helen A.S. Popkin
Evolution demands more Facebook drunkfail
‘Hack Me Elmo’ for the holidays
Here's your Web allowance. Don't use it on porn
By Sharon Epperson
CNBC personal finance correspondent
TODAY
updated 54 minutes ago
Many Americans may have little hope that the New Year will ring in positive change for their personal finances. They know they'll be riding out a recession that some economists believe could last at least until next winter. But there are some signs of hope. Financial security is still possible for most.
You may not be able to print more money, like the federal government, in order to get out of your financial troubles. To make ends meet, you need to take ownership of your financial situation and create your own stimulus plan. Your No. 1 New Year's resolution should be to get your money straight. Here's how to do it:
Track your cash flow
Nearly 40 million adults keep little or no track of where their hard-earned dollars are headed, according to a study by the National Foundation for Credit Counseling Financial Literacy Survey.
The first step in getting on the right financial track is to always know where your money goes. Make a promise to yourself that you will write down every penny you spend for 30 days. That's not a long time — just do from now until the end of January.
Go to the National Foundation for Financial Education's Web site www.smartaboutmoney.org and download the Tracking Your Expenses worksheet to help you monitor your spending.
You may be amazed at what you are spending and figure out that you need to make some serious adjustments.
Build a budget
As you're tracking your spending, you can put those expenditures into different categories and start to build a budget. Putting yourself on a budget doesn't mean you can't enjoy life. It just may mean you need to take some time to stretch out some purchases. Immediate gratification often leads to spending beyond your means. Ultimately your goal should be to live on last month's income so that you're not living paycheck to paycheck — or worse yet, living on credit — to maintain your lifestyle. Make sure every dollar that comes in has a "job" — it should go to covering some expense, debt or be earmarked for savings.
To build a budget or "spending plan," start with living expenses then debt repayment. There's another great worksheet on creating a spending plan at www.smartaboutmoney.org .
Ideally, you'll have some money left over after itemizing all of your expenses and debt obligations and that extra cash will go to savings. More likely though, you have more expenses than money to pay them. Don't worry, though. Just make sure you can pay your basic living expenses. We'll tackle the debt issue next.
Stop digging that debt hole
High-interest credit card debt and high balances can be a toxic combination. Do not add new debt to old. Put away the plastic. Cut up those cards or at least stick them in the back of your desk drawer. Do not use them, no exceptions.
If the balance on any card is more than 30 percent of the credit limit, pay down that debt first. Creditors consider you a risk if you use too much of your available credit and can then lower your credit limit and raise your interest rate, making it harder to pay back to the money you owe.
Then, start paying off the debt that has the highest interest rate, and next highest and so on. Once the debt is paid off, don't start spending the "extra" money you now have. You couldn't spend it before, so don't start now. Put that "minimum balance" or "monthly debt payment" toward savings.
Save for today and tomorrow
You need a life jacket when the financial turmoil gets to be too much. Your retirement account has dwindled and your house isn't worth as much as you paid for it. But at least you have enough cash on hand to ride out the storm — if your car breaks down, the hot-water tank goes bust, or you lose your job. You do have a rainy-day fund, don't you?
If not, your savings for today needs to start today. Have 10 percent of your paycheck directly deposited into a high-interest savings account. HSBC Direct offers a 3 percent rate right now. You want to start by having at least one month's income socked away, then build up to three to six months, depending on whether you feel your job is secure and if you have dependents. Trying to figure out how to save that 10 percent? You may need to reduce your spending. Cutting out the credit cards will help.
You also need to save for tomorrow. Contribute to your company's retirement plan. That 401(k) or 403(b) plan is tax-deferred savings, and that kind of savings is hard to beat even in a down market. Put in at least enough money to get a matching contribution from your employer, if one is offered. You don't want to miss out on that free money. But remember, if you have no cash savings, building up that rainy-day fund should be your first savings goal.
Having a strategy to get more cash on hand for an emergency or unexpected expense is your own economic stimulus plan. Sure, a check from the government would be great, too. But you don't want to have to wait around for that. Take control and create your own stimulus package now.
Contribute more to your retirement fund
You don't need to invest all of your money in stock mutual funds if that's too risky for you. But your company's retirement plan is the best tax-deferred savings you'll find. You lower your income tax burden while saving money. And the limits go up this year: For 401(k)/403(b)/457 plans, you can contribute up to $16,500 (age 50 and older, add a $5,000 catch-up contribution). Traditional IRAs also offer tax-deferred savings and while you pay tax on the money you put into a Roth, you can take it out tax-free at age 59 1/2. Here are the new limits: For IRA/Roth IRA, you can contribute $5,500 (age 50 and older, add a $1,000 catch-up contribution).
At the end of all this, the extra cash should be used to:
1) pay down debt
2) build cash reserve
3) contribute to retirement savings. Split the extra sum and put a third toward each. That way you're striving for all of these goals at the same time.
Refinance before rates rise
Mortgage rates are at historic lows. The 30-year rate was at 5.14 percent last week, which means the cost of borrowing is in your favor. If you can qualify, you may want to consider refinancing. The savings can be substantial. Take, for example, a $400,000, 6.25 percent loan that equates to a monthly payment of $2,463. Refinance that loan at 5.5 percent and the monthly payment becomes $2,216 (assuming $2,000 in closing costs). That equates to a savings of $247 a month, or nearly $3,000 a year ($2,964). Calculate your potential savings at http://www.hsh.com/usnrcalc.html . Make sure you put that savings directly in your emergency fund or put it toward your retirement savings.
I don't really want to tell people to file for bankruptcy. It's a last resort for folks who really have let their finances get way out of control in relationship to their income. A bankruptcy lawyer can help make the determination as to whether the consumer will be able to get a complete or substantial discharge of debts and at the same time keep their home and vehicle. Bankruptcy is usually a better option than going with a debt settlement company, since many are just out to take your money. But the best first step is to talk to a certified credit counselor, and you can find one through the National Foundation for Credit Counseling at debtadvice.org.
Start off 2009 by committing to saving money and building a better budget
By Sharon Epperson
CNBC personal finance correspondent
Kick-start your finances
Jan. 2: Getting finances in order is one of the top New Year's resolutions. CNBC’s Sharon Epperson talks to TODAY’s Amy Robach about ways to start the new year financially strong.
Today show
10 wonders of winter
Is every snowflake unique? Can the groundhog predict spring? The wonderland of science this season
10 tips to keep money in your wallet
Readers share money resolutions for ’09
Feeling broke? 10 ways to save Christmas
Make memories, save money: 10 DIY gifts
Technotica with Helen A.S. Popkin
Evolution demands more Facebook drunkfail
‘Hack Me Elmo’ for the holidays
Here's your Web allowance. Don't use it on porn
By Sharon Epperson
CNBC personal finance correspondent
TODAY
updated 54 minutes ago
Many Americans may have little hope that the New Year will ring in positive change for their personal finances. They know they'll be riding out a recession that some economists believe could last at least until next winter. But there are some signs of hope. Financial security is still possible for most.
You may not be able to print more money, like the federal government, in order to get out of your financial troubles. To make ends meet, you need to take ownership of your financial situation and create your own stimulus plan. Your No. 1 New Year's resolution should be to get your money straight. Here's how to do it:
Track your cash flow
Nearly 40 million adults keep little or no track of where their hard-earned dollars are headed, according to a study by the National Foundation for Credit Counseling Financial Literacy Survey.
The first step in getting on the right financial track is to always know where your money goes. Make a promise to yourself that you will write down every penny you spend for 30 days. That's not a long time — just do from now until the end of January.
Go to the National Foundation for Financial Education's Web site www.smartaboutmoney.org and download the Tracking Your Expenses worksheet to help you monitor your spending.
You may be amazed at what you are spending and figure out that you need to make some serious adjustments.
Build a budget
As you're tracking your spending, you can put those expenditures into different categories and start to build a budget. Putting yourself on a budget doesn't mean you can't enjoy life. It just may mean you need to take some time to stretch out some purchases. Immediate gratification often leads to spending beyond your means. Ultimately your goal should be to live on last month's income so that you're not living paycheck to paycheck — or worse yet, living on credit — to maintain your lifestyle. Make sure every dollar that comes in has a "job" — it should go to covering some expense, debt or be earmarked for savings.
To build a budget or "spending plan," start with living expenses then debt repayment. There's another great worksheet on creating a spending plan at www.smartaboutmoney.org .
Ideally, you'll have some money left over after itemizing all of your expenses and debt obligations and that extra cash will go to savings. More likely though, you have more expenses than money to pay them. Don't worry, though. Just make sure you can pay your basic living expenses. We'll tackle the debt issue next.
Stop digging that debt hole
High-interest credit card debt and high balances can be a toxic combination. Do not add new debt to old. Put away the plastic. Cut up those cards or at least stick them in the back of your desk drawer. Do not use them, no exceptions.
If the balance on any card is more than 30 percent of the credit limit, pay down that debt first. Creditors consider you a risk if you use too much of your available credit and can then lower your credit limit and raise your interest rate, making it harder to pay back to the money you owe.
Then, start paying off the debt that has the highest interest rate, and next highest and so on. Once the debt is paid off, don't start spending the "extra" money you now have. You couldn't spend it before, so don't start now. Put that "minimum balance" or "monthly debt payment" toward savings.
Save for today and tomorrow
You need a life jacket when the financial turmoil gets to be too much. Your retirement account has dwindled and your house isn't worth as much as you paid for it. But at least you have enough cash on hand to ride out the storm — if your car breaks down, the hot-water tank goes bust, or you lose your job. You do have a rainy-day fund, don't you?
If not, your savings for today needs to start today. Have 10 percent of your paycheck directly deposited into a high-interest savings account. HSBC Direct offers a 3 percent rate right now. You want to start by having at least one month's income socked away, then build up to three to six months, depending on whether you feel your job is secure and if you have dependents. Trying to figure out how to save that 10 percent? You may need to reduce your spending. Cutting out the credit cards will help.
You also need to save for tomorrow. Contribute to your company's retirement plan. That 401(k) or 403(b) plan is tax-deferred savings, and that kind of savings is hard to beat even in a down market. Put in at least enough money to get a matching contribution from your employer, if one is offered. You don't want to miss out on that free money. But remember, if you have no cash savings, building up that rainy-day fund should be your first savings goal.
Having a strategy to get more cash on hand for an emergency or unexpected expense is your own economic stimulus plan. Sure, a check from the government would be great, too. But you don't want to have to wait around for that. Take control and create your own stimulus package now.
Contribute more to your retirement fund
You don't need to invest all of your money in stock mutual funds if that's too risky for you. But your company's retirement plan is the best tax-deferred savings you'll find. You lower your income tax burden while saving money. And the limits go up this year: For 401(k)/403(b)/457 plans, you can contribute up to $16,500 (age 50 and older, add a $5,000 catch-up contribution). Traditional IRAs also offer tax-deferred savings and while you pay tax on the money you put into a Roth, you can take it out tax-free at age 59 1/2. Here are the new limits: For IRA/Roth IRA, you can contribute $5,500 (age 50 and older, add a $1,000 catch-up contribution).
At the end of all this, the extra cash should be used to:
1) pay down debt
2) build cash reserve
3) contribute to retirement savings. Split the extra sum and put a third toward each. That way you're striving for all of these goals at the same time.
Refinance before rates rise
Mortgage rates are at historic lows. The 30-year rate was at 5.14 percent last week, which means the cost of borrowing is in your favor. If you can qualify, you may want to consider refinancing. The savings can be substantial. Take, for example, a $400,000, 6.25 percent loan that equates to a monthly payment of $2,463. Refinance that loan at 5.5 percent and the monthly payment becomes $2,216 (assuming $2,000 in closing costs). That equates to a savings of $247 a month, or nearly $3,000 a year ($2,964). Calculate your potential savings at http://www.hsh.com/usnrcalc.html . Make sure you put that savings directly in your emergency fund or put it toward your retirement savings.
I don't really want to tell people to file for bankruptcy. It's a last resort for folks who really have let their finances get way out of control in relationship to their income. A bankruptcy lawyer can help make the determination as to whether the consumer will be able to get a complete or substantial discharge of debts and at the same time keep their home and vehicle. Bankruptcy is usually a better option than going with a debt settlement company, since many are just out to take your money. But the best first step is to talk to a certified credit counselor, and you can find one through the National Foundation for Credit Counseling at debtadvice.org.
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