Mon, October 20, 2008
Since this week is National Protect Your Identity Week, I’ve decided to post a couple of articles that are largely drawn from a newsletter that I wrote a while ago. The threat of identity theft is real, although as I have noted before, ID theft rates don’t seem to be increasing. Even so, if you aren’t taking precautions to avoid identity theft, you make yourself an easy target. Fraud-related theft tends to increase in times of economic crisis, so it’s wise to be cautious.
The National Foundation for Credit Counseling is spearheading National Protect Your Identity Week; you may want to check out their Protect Your ID site, which has a number of useful resources on this topic.
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Wed, October 15, 2008
Today, the FFS Blog is participating in Blog Action Day 2008. Along with over eight thousand 9,700 other bloggers, my topic today is poverty.
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Tue, October 14, 2008
This is a question that most people will face sooner or later, since labor statistics indicate that the average person entering the workforce will change jobs at least seven times. What follows is a short discussion of some of the key considerations that should be kept in mind as you evaluate this question. This summary is not personalized financial advice; remember that there will be tax and/or other financial consequences depending on what you decide to do.
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Sat, October 11, 2008
I had no idea when I began this web log in April that I'd be writing an average of four posts a week. But activity in the financial markets has been extraordinary this year; in addition to the educational posts that I had planned to write, I've written many more posts related to current events than I'd envisioned. There are a number of posts I hope to write in the near future: more on hedge funds, life insurance, charitable giving, the cost of college, buying versus renting, retirement - when I can find the time.
I definitely wasn't planning to write my 100th post right after the biggest down week in the history of the S&P 500 and the DJIA. The turmoil in the markets caused an extraordinary increase in my site traffic. According to Quantcast.com, my average monthly traffic is at 2,300 2,500 people per month and still climbing. I'm not assuming that it will stay that high after the markets calm down, but it will be interesting to see what happens next!
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Fri, October 10, 2008
Until now, it hasn’t been entirely clear how much damage will result from the Lehman bankruptcy. An auction taking place today will be an important step in assessing which financial institutions stand to take a hit.
Today’s auction involves a type of security that many people know little about or have only heard of recently: credit default swaps.
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Wed, October 08, 2008
Today's WSJ notes that Fidelity, Vanguard, and T. Rowe Price Group have signed up for the Treasury Dept's guaranty fund for money market funds that were held prior to September 19th. Now all the major mutual fund families with large money market funds appear to be participating in the fund (Charles Schwab is also on the list).
Investors wondering about their accounts should check their fund's web site; participating funds seem to be announcing their participation fairly prominently. You may also want to confirm that the specific fund that you own is covered; for example, Schwab's U.S. Dollar Liquid Assets Fund is not included because it's not a U.S.-based money fund.
The guaranty fund will be in effect for at least three months and the Treasury dept. has the option to extend the coverage for a year. I decided to add this post because the blog is still getting a lot of traffic from people with questions about whether their mutual funds or money market funds are insured, and this information might be helpful to them. People with questions might also want to try the Treasury's FAQ page on the money-market guaranty fund.
See a related post here: How Can I Tell If My Money Market Fund Is Safe?
Postscript added 3-3-09: The current termination date for the money market fund guaranty program is April 30, 2009. The Secretary of the Treasury may extend the program to September 18, 2009. Read the full article
Tue, October 07, 2008
A recent survey finds that households that have put into place a comprehensive financial plan tend to experience greater confidence during times of market uncertainty than those that don’t. These households also are more likely to be actively pursuing behavior that enhances the likelihood of financial success. Read the full article
Mon, October 06, 2008
For the last couple of years, Fidelity Investments has surveyed parents of children under the age of 18 about their plans for future college expenses. The most recent survey of about 3,000 parents looks at anticipated college costs and family resources available to pay for college. This year's survey found that 62 percent are counting on student loans to help cover the cost of their children's college education.
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Thu, October 02, 2008
Dimensional Financial Advisors is a passive-investment-oriented investment firm closely associated with Eugene Fama, 2003 Economics Nobel Laureate and father of the efficient market hypothesis. Today they sent me a link to a very nice presentation by their vice president, Weston Wellington.
The presentation, “Is It Different This Time?” runs about 18 minutes long and puts the present stock market gyrations into a historical perspective by reviewing some of the “bear markets” of the last 50 years. It’s not overly jargon-filled and should be pretty accessible.
The present market downturn reflects concerns about the non-availability of credit, the extent and duration of the housing market downturn, and the fact that we are probably in a recession. But in the end, if you’re investing for the long term, the question you must to ask is whether you think the economy is going to completely collapse. If not, you should hang on, assuming you’re holding a diversified portfolio that fits your tolerance for risk.
The presentation is marked for general use, so I don’t think I’m breaking any rules by sharing it.
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Thu, October 02, 2008
Having discussed why having an emergency fund is a good idea and how big an emergency fund needs to be, I’d now like to talk about investments suitable for an emergency fund. Read the full article
Wed, October 01, 2008
Congress voted down the Troubled Assets Relief Program ("TARP") legislation, much to the chagrin of the financial markets. At the moment, the markets continue to be in distress, despite a "dead cat bounce" in stocks today. What should you be doing in terms of your household finances? Read the full article
Sat, September 27, 2008
Unless you live in Lake Wobegon, it hasn't been a quiet month:
- Fannie Mae and Freddie Mac are in federal conservatorship
- Merrill Lynch is now part of Bank of America
- Lehman Brothers Holdings filed for Chapter 11; its assets have been purchased by Barclay's PLC
- The two investment banking giants left standing, Goldman Sachs and Morgan Stanley, have been converted to bank holding companies
- AIG has received an infusion $85 of billion from the Federal Reserve in return for a 79.9% ownership position
- Washington Mutual became the 13th bank failure of the year (and the largest bank failure in U.S. history); the bank's assets have been sold to J.P. Morgan Chase
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Thu, September 25, 2008
I've added Credit Slips to my list of great blog links.
The Credit Slips blog is run by seven academics who specialize in debt issues; the blog also fields quite an array of guest authors. Credit Slips has been particularly interesting lately as its writers have weighed in on the bank bailout plan currently under debate. The blog covers all things credit-related, include legislation under consideration, bankruptcy, credit reporting, medical debt, student loans, etc. I'm finding it very interesting reading.
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Wed, September 24, 2008
I don't write many blog-centric posts, but I've noticed something interesting in the past week. Last Monday, as the wizards of Wall Street blinked and the markets went crazy, traffic to the FFS Blog jumped by 4 or 5x. I assumed it was a one-day event, but as you can see from the attached Quantcast graph, traffic on the site has remained higher than normal.
A number of people got here by Googling phrases like, "are mutual funds insured," "are brokerage firms insured," and the like. The traffic hasn't dropped back to where it was, suggesting that there are still a lot of folks anxious about the safety of the financial markets. I hope the information here is helpful to you.
If any of my readers have questions that you'd like me to tackle in the blog, please drop a note to FFSBlog "at" FFSCambridge.com (I've avoided using the "at" sign to thwart spammers, but you know to substitute an @ for that). I can't promise to post on every idea I get – this isn't my day job, after all – but I'll seriously consider anything that comes in. Be patient, though.
A final note: readers who would like to get a once-a-week summary of my posts may do so using the new FeedBlitz widget on the upper left-hand side of the blog.
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Mon, September 22, 2008
The Subprime mortgage mess and its aftermath were partly the result of risks not being priced appropriately. Interest rates for risky mortgages and bonds should have been much higher given the level of risk involved. As financial markets still recover from the aftermath of risk being underestimated, there is a good chance that there are now areas where risk is being overestimated. This week’s issue of Barron’s has two interesting suggestions in this regard. Read the full article
Mon, September 22, 2008
The financial markets seem to be taking a breather after last week's roller-coaster rides. We're all digesting the latest news of short-selling restrictions and a $700 Billion stabilization plan for mortgage-related debt. But now is also a good time to step back and think more broadly. Read the full article
Fri, September 19, 2008
Web-based e-mail accounts like Yahoo and GMail provide a lot of convenience, but apparently with convenience comes risk. Prior to the news of the hacking of Sarah Palin's Yahoo account, I had assumed that this kind of thing required a phishing attack, but now I know better. Tech sites have been speculating about how her account was accessed and it's been noted that the "lost password" protocols for Yahoo are not hard to beat. A hacker might be able to guess well enough to gain access to your account.
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Fri, September 19, 2008
This Monday, something very unusual happened: a money market fund began trading its shares at 97 cents, instead of a dollar.
Reserve Primary Money Fund (RPFXX) was forced to write down three quarters of a billion dollars of Lehman Brothers debt as a consequence of the Lehman bankruptcy. Even though the debt may eventually be partially paid through the bankruptcy process, as a current obligation the debt has no value. Thus the fund’s share value had to drop, forcing the fund to “break the buck.” On Monday and Tuesday, investors in the fund pulled out $27 billion in response.
FT Alphaville reports that one of Putnam Investments’ institutional money market funds has decided to close and liquidate itself, not because it needs to “break the buck” now, but because of concern that a future run on the fund might force a fire sale of its assets.
Money market funds are normally thought of as stable places to put cash, but even money market funds are not guaranteed not to lose money. How can you judge how safe your money market funds are?
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Tue, September 16, 2008
As residents of Houston and Galveston grapple with the aftermath of Hurricane Ike, it strikes me that every year, some part of the US must deal with a natural disaster. Hurricanes in the Gulf and southeastern states, wildfires and earthquakes in California, and flooding in the Midwest often leave lasting consequences for those living in the affected areas.
Although such events happen relatively infrequently in New England, the region is hardly immune from the possibility of a serious natural disaster. Being prepared for a disaster should be an important part of every household's risk management strategy. Read the full article
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