Saturday, October 28, 2006

More Links for Early Retirement

Akaisha and Billy Kaderli are the couple that I mentioned in my previous post about early retirement. Akaisha has asked me to post a link to their favorite websites. Among the links that they have listed, the ones near the top of the page are the most useful for those considering early retirement. Toward the bottom page are links that are related to their travels, mostly in Southeast Asia.

Akaisha and Billy have recently been profiled in the October 2006 issue of Kiplinger's Personal Finance magazine. According to this article, the couple has been able to keep their expenses very low -- about $24,000 per year. They maintain a diversified portfolio of mostly stock index funds. And they withdraw only about 3% a year from this stash.

For people considering early retirement, a question that would be interesting to ask is do you think that you could live off $24,000 a year? Here in Silicon Valley, I would say that it would be very difficult to retire on that amount, without moving to a less expensive area. Interestingly, the couple used to live in California, but have now setup residence in Arizona.

I also wanted to acknowledge that fin_indie has mentioned pfstock on his Retiring Early blog. His post expands on the mine by describing the main boards on the Early Retirement Forum, which I mentioned before. He has promised to provide some more of his insights of what he has learned from "actively lurking" on the retirement forums.

Early Retirement Housing


Tuesday, October 24, 2006

Comparing Online Brokers

The main online brokerages that I use are TD Ameritrade and E*TRADE. I actually had both an original Waterhouse account and an original Ameritrade account before their merger. For all intents and purposes, however, TD Ameritrade is still really two separate brokerages. I will give my opinion of each broker.

Each account that I have has its pluses and minuses. I still prefer to use my original Waterhouse account for most trades. There are some features that Waterhouse still offers that Ameritrade does not. These are access to IPOs, and a better selection of cash sweep accounts. In fact, I got my recent shares in the Bare Escentuals IPO (Nasdaq: BARE) from Waterhouse. However, as far as I know, you can no longer apply for a new Waterhouse brokerage account.

I think that E*TRADE has a better website overall than either Ameritrade or Waterhouse. However, their customer service is not as good. The E*TRADE site doesn't have a tear away "snap ticker" like either Ameritrade or Waterhouse. This makes it harder to look at real time quotes from the main website. The E*TRADE website also provides access to IPOs, and has a decent streamer (for streaming real-time quotes).

Comparing Ameritrade to E*TRADE, I think that Ameritrade has a better streamer. One annoyance that I have found is that Ameritrade doesn't keep track of your capital gains and losses. They say that "the calculation of gains and losses the responsibility of the taxpayer, so TD AMERITRADE does not provide this information." The truth is that I don't rely on this information to calculate taxes, but it is nice to be able to see it to quickly gauge my gains for the year.

As far as commissions are concerned, Ameritrade and Waterhouse are generally a little bit cheaper than E*TRADE. However, I stopped paying attention to commissions when they dropped below $20 per trade. The difference of few dollars is not a big deal.

All three brokerages have access to research such as Standard & Poors (S&P) and Morningstar stock reports. I do use S&P stock reports extensively to do some of my initial research when selecting new stocks to buy.


Wednesday, October 18, 2006

Resources for Early Retirement

I think that many people can admit to fantasies of an early retirement. I know that I have had more than a few daydreams about the subject.

Over the years I have found a few really good resources (and many more really bad ones) to seek advice on early retirement. I think that the best resources are actual people who have retired early and are willing to share their thoughts.

I have found a few common themes among those who have retired early:
1) Living below your means (LBYM).
2) Maintaining a diversified investment portfolio on which to draw from.
3) Using a conservative 4% rule of thumb as a baseline for withdrawing from your retirement savings.

Since I am not retired (yet), I'll refer you to my sources for more information.
How to Retire Early and Live Well by Gillette Edmunds focuses on building a diversified portfolio on which to draw living expenses from.
Retire Early and Live the Life You Want Now by John F. Wasik is a very good all around reference on early retirement.
Cashing in on the American Dream by Paul Terhorst focuses on reducing expenses, and advocates selling your house, and moving to a less expensive residence, to finance an early retirement. Unfortunately this book is out of print, but might be available at some libraries.

The Retire Early Homepage is maintained by John P. Greaney, an engineer who retired at age 38. This site gives a lot of general information about early retirement. He strongly cautions against retiring too early when your savings aren't really enough to sustain you for the rest of your life. I think that some of his older material is of more practical use than the more recent entries.
Early Retirement Forum is a message board for those who have retired early, and those who intend to. There are various forum topics broken out by the stages of planning for an early retirement.
Retire Early Lifestyle is an inspirational website by a couple who retired in their 30s. They spend a lot of time traveling the world, and are able to keep their expenses amazingly low. They also have an e-book available on CD-ROM which I recently purchased.

One last note, on the Internet, you may come across the acronym FIRE which stands for Financial Independence Retire Early.

More Links for Early Retirement
Early Retirement Housing


Saturday, October 14, 2006

HELP! What is This?

I was recently searching for this blog through the usual search engines when I came upon this site and others like it. It appears to contain random snipets of text that I wrote for this blog, similar to what you would see in search engine results. However, no references are made to my blog and there are no links to my blog on that site. In fact, the entire site is completely unintelligible to me.

There are quite a few ads on that site and I've seen other ones like it when I was searching the Internet for other topics. I imagine that the Internet is littered with thousands of websites like these.

To be honest, I am a bit annoyed that someone else is making money on ads by reposting text that I wrote to their junk website. I'd like to ask if my fellow PF bloggers have encountered something similar. Is there anything that can be done to stop these sites from taking material that I wrote for their ads?


Wednesday, October 11, 2006

The San Francisco Money Show

Each fall, The Money Show is held at the San Francisco Marriott Hotel in the city's downtown. This a literal carnival of investing. Every year The Money Show brings in a large collection of speakers, most of whom have some sort of investing product or service to sell, who pitch their advice in 30-45 minute speaker sessions. Over the years, though, I have seen some notable speakers. The ones that I remember most vividly are Bambi Francisco of, James Jubak who is a commentator for MSN Money, and William J. O'Neil who is the founder of Investor's Business Daily.

The seminar sessions are broken out into many of the hotel's subterranean meeting rooms. The SF Marriott is a huge hotel with dozens of meeting rooms that can be re-sized for practically any group of speakers. It is well suited for conventions such as The Money Show. At any given time, several speakers will be talking about different topics. Many of the speakers do have something to say about important topics. I think that the speakers representing larger firms are often trying to share their knowledge with people. But having said that, there are a lot of speakers who are just giving a sales pitch and fishing for new business.

The exhibitors at The Money Show range from large mutual fund companies and brokerage houses to individual newsletter writers and penny stock promoters. All and all, one has to pick and choose which booths are worth stopping by for more than quick glance. If you linger too long at any one booth, you might find yourself in the middle of an unwanted sales pitch. There is no shortage of reading materials for the numerous offerings that the exhibitors have. This brings me to another reason I like going to The Money Show: freebies.

I can usually cart off a couple of bags worth of sample newsletters, magazines, pens, notepads, keychains, refrigerator magnets, mouse pads, and candies. Sometimes, I've been able to land a canvas tote bag, baseball cap, or a free T-shirt. My DW says that I'm a magnet for a free T-shirt offer. One time, I was lucky enough to get a copy of William J. O'Neil's book, 24 Essential Lessons for Investment Success. And occasionally, exhibitors will invite you for lunch or cocktails, but that usually involves listening to a sales presentation for the duration.

Oh, and did I mention that admission to The Money Show is free as well? My DW and I generally make a trek into the city for The Money Show event. Unfortunately, this year we are not going because they have decided to hold it on the weekdays only from October 16-18, 2006. I still have a regular job to hold down, so I will have to miss it. Maybe next year.


Friday, October 6, 2006

As a Rule of Thumb...

In an earlier post, I cautioned against putting too much weight into the usefulness of a rule of thumb. (See Wealth According to The Millionaire Next Door.) Let's build on my example, and take a single-income family (two people, no kids). Assume that one makes $80k/year, and they are both about 35 years-old. So according to the formula in The Millionaire Next Door, if they have over $560,000, they are PAWs (prodigious accumulators of wealth). For argument sake, suppose that they do have $560,000 in net worth, which would put them squarely in the PAW category.

Now, suppose the other partner decides to start a business, and their combined income increases by $60k to $140k. By the formula, they ought to now have $980,000 in net worth in order to stay in the PAW club. Well, they now fall $420k short of the mark. This sounds crazy, but the math proves it. Using this backwards logic, one could conclude that any activity that increases the income of the couple is a bad decision because it would change them from being PAWs (rich) to just plain average. Does this nonsense make sense to anybody?

Let's look at another example using two "rules of thumb." The first rule of thumb is that in order to have enough accumulated wealth to retire, one needs to be able to replace 80% of their current income in retirement through savings, IRAs, 401(k)s, and the like. The second rule of thumb is that one can expect to earn 4% on their accumulated savings in retirement (This is a conservative estimate that assures you won't run out of money after you quit working). Now suppose that an individual in his early 50s makes $100k per year. By the first formula, that person needs to be able to replace $80k per year in retirement. Using the second formula, the person has saved nearly $2,000,000. In the example, we assume a 4% interest rate: $2,000,000 X 4% = $80,000. So, he's all set!

Suppose, just months before early retirement, the boss comes by to acknowledge the great job he's been doing and offers a $10,000/year raise for his efforts. Let's run the numbers once again. A salary of $110,000/year X 80% = $88,000 that needs to be replaced in retirement. In order to guarantee this level of income, our friend needs to have saved $88,000 / 4% = $2,200,000. This is a full $200,000 MORE than he budgeted for.

That number, by the way, happens to be 20 times the amount of the raise. I can assure you that mathematically, a raise of any amount will require a 20X increase in savings based on these two "rules of thumb". So, the next time you are offered a raise, are you going to tell the boss, "No thanks, that will just push out my retirement date"? Of course not! Common sense alone tells you that you would be better off getting the raise, but a bunch of rules of thumb tell you that the raise will hurt you financially.

So, in summary, take a rule of thumb with a grain of salt.

Update: See also The Millionaire's Rule of Thumb.


Tuesday, October 3, 2006

Unprofitable and Unstable, NetBank Ousts its CEO

Only one day after I posted my findings about NetBank's financial condition, NetBank (Nasdaq: NTBK) has announced that it will be replacing its CEO. So long. Hasta la vista, baby! This post was a follow up to my original posting where I speculated that something fishy was going on at NetBank, and that a worst-case scenario would be that NetBank customers would need to recover their funds from the FDIC if NetBank becomes insolvent. However, I noted that while this is certainly possible, it is not the most likely case.

To my blog readers at NetBank: I am glad that you have finally decided to pay some attention to me; it is a pity that you didn't afford me such attention when I was just a NetBank customer.

All joking aside, I think that replacing NetBank's CEO is a bold first move toward righting the problems at NetBank. Clearly, NetBank has finally admitted that there are serious problems going on. This is a statement by the new CEO taken from today's press release:

[NetBank's] main objective over the next three to six months will be to stabilize the company's operating profile and return to profitability as quickly as possible.

Overall, I think this is good sign. I'll be watching to see how NetBank follows through.


Monday, October 2, 2006

More on NetBank

A previous post about my reasons for withdrawing my money from NetBank created a bit of a buzz among personal finance bloggers. Mostly, people wanted to know where I get my information about NetBank's financial condition from. I get it from NetBank (Nasdaq: NTBK) press releases and Securities and Exchange Commission (SEC) filings.

From NetBank's previous releases and other information available at their website, I can discern the following facts:
1) NetBank lost $11 million in the first quarter of 2006.
2) NetBank lost $31.4 million in the second quarter of 2006.
3) NetBank has stopped paying its shareholder dividend saying that they need "to protect the company's capital base and tangible book value from further erosion."
4) Most people know that money market interest rates at most banks have increased significantly in the past year. However, NetBank has not increased their MM rates since January 2006.

On September 25, NetBank filed a Form 8-K with the SEC. This covers their monthly financial data for the past year. This report shows that NetBank's deposits (assets) have been steadily declining over the last year. This means that people (like me) have been taking their money out of NetBank.

Regarding NetBank's dismal interest rates, I have copied this quote from the 8-K:

The online marketplace for deposits remains hypercompetitive. A number of providers continue to advertise money market rates in excess of the short-term FedFunds rate at 5.25%. Given the current overall rate environment, these rates are difficult to rationalize and likely not sustainable over the long-term. Since [NetBank] cannot invest deposits at such rates profitably, we have not matched them.

It stops a little bit short of saying that NetBank won't ever increase their interest rates. But it does look like NetBank is not even trying to compete with other online banks anymore. NetBank is currently paying a 2.9% APY on their money markets for existing customers. And they are pretty much admitting here that some of their competition is paying a lot more in interest.

The NetBank 8-K filing has already forecast that they will continue to lose money in the third quarter of 2006. They talk about selling off parts of the company that they are losing money on. Unfortunately, what is really lacking from the NetBank 8-K report is any type of good news.