Leverage = The Enemy

This whole financial crisis is the result of only one problem really. Too much leverage in the system. People borrowed money on the assumption it would always be available and they could delay paying it back indefinitely. That is never true. My advice to the extent you can follow it is to reduce leverage as quickly as possible over your lifetime. Pay down your house if you can. Pay down those student loans. Never carry a balance on your credit card. Don't have a car loan. Only buy what you can afford. I have always followed these rules, but I must admit on the house I did wonder if I was doing the right thing by paying down as much as I could (not fully there yet). The government does incentivize me to NOT do that by making the interest tax deductible. But, it is still the right thing to do. Even now, when you can borrow as cheap as ever and house prices are no longer absurd, I would still advise paying it down. The piece of mind of owning your home is worth it (or at least I hope it is) and once you have paid it off you can build wealth with a safety net under you.

Responsible Homeowers: Your Bailout Has Arrived

Mortgage rates have never been so low (5% 30 Yr. Fixed or Better). If you are one of the millions of responsible Americans with good credit scores who are able to pay their mortgages and still have jobs, your bailout has finally arrived in the form of record low mortgage rates. If you are paying anything over 5.75% and plan to stay in your house for several years it is definitely time to refinance with a fixed rate mortgage to lock in these cheap rates. Check out Bankrate.com to find someone offering a low rate in your state. You can also use their refinance calculator to determine if refinancing is a good deal for you.

CostCo Convert!

After a very serious hiatus, the Armchair Fiduciary is back in the saddle. I have been kept quite busy by these crazy markets and more importantly a beautiful little girl who had colic (over now, thank goodness!). Let me just say if you have the miracle cure for colic you can be a gazillionaire because the shell shocked parents of babies with colic would buy with reckless abandon. Anyway, while I was away I "discovered" Costco. We had previously been Sam's Club shoppers, but Costco after inspection is far better. I love their gas... its super cheap (I haven't found cheaper around me) and it seems they have it with their stores more consistently than Sam's. Also, they sent us about $1000 worth of coupons of which my wife found more than $50 we will definitely use. That alone pays for our membership. By the way, if you review their financials you will find that their profit basically adds up to their membership fees which means they really charge the bare minimum they can get away with on their merchandise. If they didn't charge a memberhship fee they would lose money, isn't that nuts? Bottom-line, I really think there is no better deal than Costco and I've been converted.

Update from the Sleepless Armchair Fiduciary

Well, my wife had our baby on August 15th. I have to say being a dad is the coolest thing in the world. Of course, it comes with its fair share of challenges too (like six hours of crying last night). In any case, I will probably continue to be rather preoccupied with the new baby and staying awake at work as opposed to the blog. Rest assured that I will return with more posts as things settle down and I learn relevant personal finance lessons. In the meantime I have received a number of request to review 401k options after people read the Generic Guide to Investing a 401k. I am happy to help in any way I can, keep the questions coming...

Update from the recently absent Armchair Fiduciary

Sorry folks, but I have been quite busy preparing for the arrival of our new bundle of joy and generally settling in to our new house. These crazy markets have also kept the new job busy. In any case, it is already clear to me that the arrival of our daughter will limit the frequency of my posting. I have shared a lot of what I have to share in the last year or so, so from now on it will likely just be incremental stuff. In other news, our house in Denver closes tomorrow. We managed to get it under contract in a mere 7 days and after quite a wrangling period over the inspection (I mean who really expects a 1906 house to be like new construction? Seriously!). Ulitmately, we are selling for about 5% less than our asking price. We bought the place in 2003 and did a ton of work to it. All in we will make a modest profit despite selling in the worst housing downturn in years. It is also a good time to have some extra cash flowing in so I can average down on my recent purchase of mutual funds which is under-water for now. I intend to wait for the next major sell-off in the market before putting some money to work as I beleive this rally will not last for more than a month or two. I think there will be a chance to average in at the lows again in the fall.

Getting More Fully Invested

Remember that cash I kept on the sidelines when I bought some mutual funds a few weeks ago? Well, I was able to put some of it to work last week then the market followed Lehman into the toilet mid-week. I bought more of both JARFX and MINDX. At this point I am fairly fully invested (at least until I sell my house). I just think cash and bond yields are too low given the completely obvious presence of inflation if you have filled up your car or gone to the grocery store lately. I would rather own almost entirely stocks at this point in time. I also believe that the U.S. market has at least begun to discount the recession we are about to experience. Stocks usually start to bounce before the economic data does. The election of Barrack Obama will probably not be well recieved by the market (I think he is likely to win) and could set us up for another more leg down in fall. Nonetheless, I think he will surround himself with smart people and will avoid being a "tax and spend" liberal, but ought to rather be a "tax and balance the budget" liberal. Furthermore, I think the fed funds rate at 2% ought to stimulate the economy by early 2009. Overall, while it may not be a straight line up, with a long-term view I think now is a good time to own stocks as they are one of the few ways to fight off inflation's devastating effects on your wealth.

When Facebook Doesn't Cut It: The Case for Attending Reunions

Facebook is a great tool for staying in touch with old friends. With its help I have learned when my friends got married, changed jobs, moved, had a baby, or just got a little too drunk last weekend. However, there is no substitute for hearing the story about those drunken escapades from the horses mouth or meeting someone's new spouse. For some things the difference between Facebook and seeing someone in person is akin to the difference between playing Guitar Hero and actually playing the guitar. I for one can annihilate Slash in Guitar Hero, but on the real guitar the only thing getting annihilated would be my audience's ears.

In any case, I decided Facebook wasn't cutting it for me and went to my five year college reunion this weekend. I ended up being absolutely stunned at the efficiency of the event. I saw my four roommates who live in Michigan, Ontario, New York, and Washington D.C. One of my friends was in from Shanghai. I saw friends that I hadn't seen or spoken to since graduation and I even got to spend time talking with some people that I didn't know that well when I was in school. From a financial perspective (how else would I think about it?) the experience of my college reunion was extremely cost efficient. The whole weekend ended up costing me about $1,000 including a flight and lodging. It would have cost many multiples of that to see all those people in any other setting. More importantly I reconnected with lots of people that I care deeply about and had a great time doing it. The next time you get an invite to a high school or college reunion, I highly recommend going. Once you get there you will be very glad you did (and your wallet will be too because the alternative is quite costly).