Home Ownership and Wealth Building

[A.]

I used to use MSN money.  Then I got lazy. It also didn't help that I couldn't synchronise my Bda bank accounts.  My current method is about as basic as you can get, an Excel spreadsheet.

I downloaded a trial of Money.  I'm liking it so far...an easy way to look at all of my finances in one place.  I'm curious to see what improvements the new version has.  Hopefully you can download check images.  Quicken offers that, but I'm not about to fork up that much money just to see check images and get the same features Money Deluxe offers.

[A.]

Finding Bargains Online
By Bill Tancer

If you've been asking yourself why you aren't rich or don't have more disposable income, perhaps the answer isn't about how much money you're making. Internet behavior appears to indicate that it may have more to do with how much you're saving.

The Web, with its wealth of information on almost any conceivable topic, has also become a resource for finding the best possible price on products ranging from high-end LCD televisions to cans of tuna. As pricing data becomes more prevalent on the net, Internet users get ever closer to perfect information. That information in turn reduces almost any consumer good to a commodity. Why wouldn't everyone search for the absolute lowest price on every purchase?

The visitors to sites that deal in bargains, deals and discussions on how to get the most from in-store rebates, sites such as FatWallet.com and slickdeals.net, reveal a very interesting statistic. These sites are not populated by lower-income Internet users that need to stretch their dollars to the max; it's actually the opposite. Visitors to these two sites hail from some of the wealthiest segments of Internet users. Of Fat Wallet users for example, 32% earn between $60,000 and $100,000 per year while 13.9% earn between $100,000 and $150,000. The same thing is happening at Ebates.com, a site that provides you money back for all purchases with affiliated retailers; over 23% of visitors to that site earn over $100,000 per year.

Comparison shopping engines show the same trend; their most popular visitor segments tend to be young wealthy urbanites, not the middle- to lower-income Internet users that could benefit the most from savings on high-consideration purchases.

Search term data provides more insight into where affluent users are looking for savings. Their searches (those containing "cheap," "discount," or "bargain") are dominated by travel-related terms such as "cheap airline tickets," "cheap hotels," "cheap cruises" and car rentals. Searches for electronics, autos and other expensive items are less likely to be preceded by a deal "qualifier." This focus on travel may be due to the fact that consumers expect the greatest room for price fluctuations when booking flights, hotels and rental cars.

So what sites are lower income Internet users visiting? Again, you might be a little surprised. Browsing the top shopping sites visited by Internet users in the lowest income groups include sites that trade in exotic cars, expensive apparel brands and high-end electronics. Perhaps these searches are aspirational. But what about what is considered by most to be a necessity today — a simple, basic cell phone?

One site that appears on the list is the Apple iPhone site. The iPhone, an amazing device in its own right, is also one of the most expensive cell phones on the market; its 8GB model topped the scales at $599 when the iPhone was released in June. Yet as of last week, the income segment with the highest percentage of visitors to the iPhone site was 18 to 24 years of age, earning less than $30,000 per year. Could Steve Jobs have been aware of that when he lowered the price of the 8GB iPhone to $399 on Wednesday? We can only guess. But in this case, he has certainly made more than a few bargain-hunters happy.

http://www.time.com/time/business/article/0,8599,1659437,00.html

[TinaTina]

How did they match users with incomes?

[A.]

Yeah they were trying to figure that out in the thread where I found the article.  They think they used a thread where they talked about HHI.

[A.]

I don't know if I buy the advice at the end:

How Many Stocks Should You Own?
by Jason Zweig
Thursday, September 13, 2007provided byCNNMoney.com

With the stock market as bouncy as a beat-up couch, you may be thinking it's time to focus on a small number of stocks that you know really well. What better way to keep returns up and risk down?

Conventional wisdom and new academic research certainly seem to suggest that this is the way to go. Many financial planners and brokers will tell you that a portfolio of as few as 12 stocks (and up to 30) will sufficiently diversify your holdings.

And three recent studies have found that individuals who own fewer stocks do better than those who own many.

However, as is often the case with conventional wisdom (and academic research), there's a lot more to the story. Fact is, if you build your portfolio entirely on the principle of "less is more," you're a lot more likely to end up with less than more. Here's why and what to do instead.

Those were the days

The idea that 12 to 30 stocks are all you need dates back at least to the 1960s, when academics, including Burton Malkiel, author of the classic "A Random Walk Down Wall Street," concluded that that's what it took to eliminate most of the risk from a portfolio. (They usually defined "risk" as the chance of suffering big swings away from the average market return.)

But back in the days of hula hoops and transistor radios, and before computer-generated trading became common, stocks didn't bounce around the way they do today. In 2001, Malkiel found that it took 50 stocks to get the risk reduction that 20 used to provide. Others estimate that true diversification requires hundreds of stocks.

The focus factor

Just recently, however, researchers studying the performance of individual investors have discovered something that, at first glance, seems electrifying: The more concentrated a portfolio is, the higher the returns. One study found that investors whose portfolios were dominated by one or two stocks outperformed the most diversified stock owners by 0.8 to 4.8 percentage points annually on average. That's a huge gap. And roughly 8 percent of the top performers had portfolios concentrated in a single stock.

So the heck with diversification, right?

Well, not exactly. First, the least-diversified investors frequently lagged the market; they just lagged by less than investors who held more stocks.

Second, because stock returns are so uneven, the "average" undiversified investor doesn't really exist. At any given point, there are something like 10,000 stocks in the United States. Most of them are mediocre, but a handful are what Bill Bernstein of Efficient Frontier Advisers dubs "superstocks," capable of delivering gargantuan returns for years. Think Microsoft in the '90s, when it returned 9,000 percent. (More often superstocks are lesser-known companies.)

Across a large group of people whose portfolios are mostly in one or two stocks, the lucky few with superstock portfolios will make the group's average return look great, even if the vast majority of individual members have lousy or middling results.

On the other hand, investors who spread their bets across dozens of stocks have only a slightly better chance at catching a superstock. And if they do land one, it won't have nearly as much impact on their portfolios, or on the group's average return.

So the real story is that you need a lot of stocks to be adequately diversified, and you need a concentrated portfolio to give yourself a shot at striking it rich. An unsolvable catch-22? Hardly. In fact, you can have it both ways by employing a straightforward, two-part strategy.

First, direct 90 percent of your U.S. equity allocation into a total stock market index fund that automatically gives you a stake in thousands of companies. That guarantees you a piece of every superstock that already exists or might emerge later - and, more important, it means you'll be adequately diversified and your investing costs will be at rock bottom.

Then pursue your search for the next Microsoft or Google by researching the daylights out of a very small number of companies and putting the remaining 10 percent of your portfolio into your one-to-three best ideas. This way you'll let yourself have a little fun. You will also minimize your risk and maximize your hope.

http://finance.yahoo.com/personal-finance/article/103494/How-Many-Stocks-Should-You-Own?

[pikey]

It's not horrible advice.  Just a variant of the old diversify, then use a little to play with.  I would expand my diversification to some intl indexes too, though.

[A.]

Yeah I agree; helps to reduce systematic risk.

[A.]

Another great American innovation that evidences our superiority: the FDIC.

----

September 15, 2007
Run on the bank

The jitters plaguing financial markets spread to the high street for the first time yesterday as thousands of panicking savers queued to withdraw millions of pounds from Northern Rock, Britain’s eighth-biggest bank.

The rush to pull out savings followed the revelation that Northern Rock had been forced to ask the Bank of England for a rescue injection of finance.

As crowds of customers demanded their money back, shares in Northern Rock slumped by 31 per cent after it alerted shareholders to its difficulties, wiping £900 million from its value. Shares in other financial institutions were also hit, with Alliance & Leicester down 7 per cent and the specialist lender Paragon Group down 17 per cent.

The Bank of England pledged to provide unspecified liquidity support to see Northern Rock through the turbulence while it worked on an orderly resolution to its problems. The bank is braced for a fresh surge of withdrawals from its 76 branches to-day and last night was planning to extend its opening hours.

Adam Applegarth, the chief executive, told The Times that he had ordered extra deliveries of cash in expectation of the deluge.

The nerves were exacerbated yesterday when Northern Rock’s computer system collapsed under the weight of online customers scrambling to transfer money out of the bank. Savers were blocked from seeing details of their accounts, including statements, when they tried to log in. A spokesman said accusations that the bank had shut down its system to prevent a drain on its finances were ridiculous.

Ministers, regulators and bankers tried to calm the panic by issuing reassuring statements that customers’ deposits were safe. The Financial Services Authority, which supervises banks, said that Northern Rock was solvent, exceeded its regulatory capital requirement and had a good-quality loan book.

Alistair Darling, the Chancellor, who authorised the rescue, said: “At the moment there is plenty of money in the system, the banks have got money . . . they are simply not lending in the short-term way that institutions like Northern Rock need.”

Sentiment soured further amid fresh evidence that house prices were starting to fall. Rightmove, the online property site, reported that asking prices slumped by 2.6 per cent last month. That followed a report by the Royal Institution of Chartered Surveyors showing the first fall in house prices in nearly two years.

Northern Rock customers fearing for their savings filled branches across the country, with some queues stretching down
the street. At one London branch, customers queued for more than an hour. Wil-liam Gough, 75, said he did not believe the bank’s assurances that his savings were safe. “They’re telling us not to worry, but we’ve heard it before, with Marconi,” he said, referring to the collapse of the telecoms firm in 2002.

Another saver, Gary Diamond, said: “I don’t want to be the mug left without my savings.”

Another customer, an elderly woman, said that she could not afford to take any chances. “It’s my life savings we’re talking about, my pension. I’ll have nothing left if they go under.”

A retired hotelier and his wife barricaded the Cheltenham branch manager in her office after being told that they could not withdraw £1 million savings without notice. The situation was resolved only when police officers arrived to calm the couple down.

The British Bankers’ Association said: “Everyone should calm down and refrain from making simplistic comments in a very complex area which just causes unnecessary worry and concern. Northern Rock is a sound and safe bank and there is absolutely no reason for either mortgage customers or savers to worry.” It is the first time that the “lender of last resort” facility has been used since the Bank of England set up the present system in 1998. Other banks, including Barclays, have called on the Bank of England for overnight funding in recent weeks, but using the lender-of-last-resort facility is regarded as a much more serious step.

Sources at the Bank emphasised that Northern Rock would pay a penal rate of interest on any borrowings and would have to lodge assets as security.

Many financial institutions have been hit by a sudden shortage of cash and other liquid assets as banks hoard money in anticipation of having to provide finance to complex investment vehicles. Triggered initally by defaults by poor Americans struggling to meet increased mortgage bills, the problem has spread.

Northern Rock has been hit particularly badly because it relies much more on funding from wholesale investors, who have been paralysed by the credit crunch, rather than ordinary depositors. But it also risks being accused of overaggressive lending after lifting new loans by 43 per cent in the first eight months of 2007.

Around 85 per cent, or £24.7 billion, of Northern Rock’s business comes through mortgage brokers. National Savings & Investments, the govern-ment-backed savings institution, said that it saw a 20 per cent jump in the number of inquiries yesterday, the majority from Northern Rock savers.

Northern Rock has around £24 billion of customer deposits, though some of the money is locked up for months in long-term accounts. It said yesterday that it still expected to make an underlying profit of £500-540 million this year.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2457009.ece

[pikey]

Another example of Republicans' welfare for big business:

The Wacky World of Student Loans
How banks rip off college students and the government.
By Michael Kinsley
Posted Saturday, Sept. 15, 2007, at 7:14 AM ET

If you know anything at all about the federal student loan program, you will not have been surprised by the scandal of recent months. The only amazing thing is that it has taken so long to arrive. Here's how the program works: Banks and other private companies lend money to students. The federal government pays part or all of the interest—currently 7 percent or 8 percent. The government also guarantees the loans.

What is wrong with this picture? Well, the government itself borrows the odd nickel to finance the national debt. This borrowing, obviously, is also guaranteed by the government. For that reason, it carries an interest rate of only 3 percent or 4 percent. If the government can borrow money at 3 percent or 4 percent, why should it be paying 7 percent or 8 percent for the privilege of guaranteeing loans to someone else? Wouldn't it make more sense for the government to loan out the money itself?

That is the $4 billion question (the approximate annual cost of the interest subsidy). And the answer is: Of course that would make more sense. It is what any levelheaded businessperson would do. And what is stopping the government from behaving like a levelheaded businessperson? Not those head-in-the-clouds Democrats. It's Republicans, who adopted the student loan "industry" in its infancy, like a stray cat, and have nurtured it and protected it ever since. There actually is a parallel student loan program that does use government funds. It was started in the early days of the Clinton administration. It costs less to operate, and it has not been tainted by scandal. But when the Republicans regained control of Congress in 1994, they pushed through a law forbidding the Education Department to encourage the use of this program. As a result, direct federal loans account for only 25 percent of all student loans.

There is plenty of other encouragement going on. New York Attorney General Andrew Cuomo has extracted fines of more than $1 million each from prestigious institutions like Columbia and Johns Hopkins—and, for that matter, nearly as prestigious institutions like Citibank, JP Morgan Chase, and Bank of America. It seems that kickbacks were being paid to university financial aid officers who delivered customers. Some of them even got stock in some of the more specialized, and dubious, student loan companies. When the government is giving away free money—which is what the program amounts to (and I mean giving it away to the banks, not to the students)—it's worth a good deal to get cut in on such a good deal.

When the student loan abuse story broke, fingers were pointed at the Education Department, which is supposed to supervise the program. The Government Accountability Office minced no words. It called on the department to "develop a protocol to determine the appropriate level of response for cases of non-compliance and assess the effectiveness of these actions to inform and improve this protocol." Wow. While the Education Department quaked in its boots over that one, Congress more usefully passed a bill substantially reforming the student loan program and cutting the subsidy to banks and other loan providers by 80 percent. President Bush, to his credit, will sign these reforms into law. In fact, he actually proposed some of them in his budget from February of this year. But this puts him at odds with his party.

The student loan "industry," as it is comically referred to in the newspapers, is an interesting case study in politics and business. To start, it is hardly an industry. There are no factories. The only things it "makes" are loans. Furthermore, it exists only because of a government program. Yet in the four decades since the federal government started it, the student loan business has evolved into a pretty good imitation of an industry, with trade associations, lobbyists, and support from politicians, mostly Republican. This "industry" is so dependent on the good will of politicians, in fact, that the reform bill alone may be enough to queer the deal in which its biggest player, Sallie Mae, is supposed to be bought by a private-equity firm for $25 billion. Even before taking over, the private-equity firm booted Sallie Mae's CEO on the explicit grounds that he did not have good relations with Democrats. To run this so-called company, in other words, you don't need to know how to make widgets or even how to make loans. You just need to know how to make nice. But don't feel too bad for this CEO who suddenly found his Rolodex obsolete: He made $40 million last year and will get millions more if the deal does go through.

But why do Republicans love student loans? Oh, in part the usual reasons: lobbyists and campaign contributions. There is almost sure to be at least one of these firms in your district—the local bank, if no one else. But there is more. Student loans are the clearest example of the common Republican confusion between free-market capitalism and business. Capitalism is an economic system that is held, with some justification, to be the best guarantor of prosperity. Business can be capitalism in action, or it can be something entirely different. There is very little about the student loan program that has anything to do with free-market capitalism. Yet whenever the student loan system comes under criticism, lobbyists, "industry" leaders, and supportive politicians haul out the same old clichés as if they were defending Adam Smith's famous pin factory itself.

During the recent reform bill debate in the House, for example, a Republican from Texas, Jeb Hensarling, declared that the very notion of reducing the subsidy to private companies was "all part of a Democratic tax-and-spend program." Rep. Virginia Foxx, Republican of North Carolina, declared that "we should call this the new Democratic welfare bill," because it was "taking away personal responsibility from people and giving them out and out payments for loans that they take out." This may be referring to a part of the bill that would forgive loans after many years for people who devote their lives to public service. Or it may just be nuts.

A so-called "analysis" by an industry expert, which (according to the Washington Post) circulated on Capitol Hill during the debate, worried that the big boys would survive, but the subsidy reductions "may leave smaller lenders unprofitable." Concern for "small lenders" was a common theme, as if a loan from a ma-and-pa bank, if such an institution exists, would be warmer and cuddlier than a loan from Citibank. Another common theme was that the subsidy cut was part of a covert Democratic effort to drive people into the direct federal loan program—or, as one lender CEO described it, the "one-size-fits-all direct loan program." This would be no bad thing, but it doesn't seem to have been the case. I'm not sure what "one size fits all" means here, but if it refers to the interest rate that students and their families have to pay, it's true that there is only one rate in the government program, compared with many in the private one—all of them higher, but maybe there are people for whom the variety is worth it.
Michael Kinsley is a columnist for Time and the founding editor of Slate.

Article URL: http://www.slate.com/id/2174000/

[A.]

Generation gap? About $200,000
The median net worth of people 55 to 64 has climbed to nearly $250,000, while it has dropped to about $50,000 for those in their late 30s

By Dennis Cauchon
USA TODAY

Prashant Tungare arrived in the USA in 1984 with a wife, a child and $500 in his pocket. Today, the India-born American citizen is a prosperous computer specialist at Wachovia Bank.

"I've lived the American dream," says Tungare, 55. He owns a 3,000-square-foot house in Charlotte and has enough money to retire, but he loves his job too much to quit.

Tungare is part of the wealthiest generation in American history — a group of 67 million people 55 and older who are so affluent that the gap between them and younger people increasingly is making the USA a nation of haves and haves-much-less.

The growing divide between the rich and poor in America is more generation gap than class conflict, according to a USA TODAY analysis of federal government data. The rich are getting richer, but what's received little attention is who these rich people are. Overwhelmingly, they're older folks.

Nearly all additional wealth created in the USA since 1989 has gone to people 55 and older, according to Federal Reserve data. Wealth has doubled since 1989 in households headed by older Americans.

Not so for younger Americans. Households headed by people in their 20s, 30s and 40s have barely kept up with inflation or have fallen behind since 1989. People 35 to 50 actually have lost wealth since 1989 after adjusting for inflation, Fed data show.

Older people have always been wealthier than younger ones. What's changed is the disparity between the generations. Old people have been racing ahead, helped by government retirement benefits. Young people are running in place, partly because they're delaying careers to get more education.

The growing gap between rich and poor has raised concerns about social justice, the fairness of the tax system and other issues. Congressional Democrats, Federal Reserve Chairman Ben Bernanke and President Bush have expressed concerns about economic inequality, although there is no consensus about what, if anything, should be done.

Much attention has focused on the multimillion-dollar paychecks of corporate chief executives and hedge fund managers, who've enjoyed windfalls at a time when the wages of ordinary workers have stagnated. But the graying of wealth and income may be the most important twist in the new inequality.

The implications are far-reaching and can turn conventional wisdom on its head. Social Security and Medicare increasingly are functioning as a transfer of money from less affluent young people to much wealthier older people.

Because the older generation hasn't set aside enough money to cover promised government benefits, young people will have to make up the difference or older people will face benefit cuts. The financial shortfalls of Social Security and Medicare over the next 75 years are so large — $340,000 per household — that they dwarf the wealth of every age group. This hidden debt will make it a challenge for young people to accumulate as much wealth late in life as their parents have.

In the USA, income typically peaks at age 57 and wealth tops out at 63, according to the Fed's Survey of Consumer Finance. Wealth describes a person's net worth — assets minus debts — and reflects a lifetime's accumulation of income, investments and inheritances. Income measures how much a person earned in a single year.

Inequality within age groups hasn't changed much. People in their 30s or 60s have roughly the same wealth distribution among themselves as in 1989. What's changed is inequality between age groups.

Older people are thriving in wealth and income. Younger people are not. How wealth and income have changed for two age groups, after adjusting for inflation:

•Ages 55-59: Median net worth — the middle point for all households — rose 97% over 15 years to $249,700 in 2004, the most recent year for which data is available. Median income rose 52%.

•Ages 35-39: Median household net worth fell 28% to $48,940. Median income fell 10%.

The increase in the wealth of older people tracks a sharp reduction in elderly poverty that began in the 1960s, when Medicare was introduced and Social Security benefits were improved.

The wealth gap between young and old is about to grow even more extreme. Baby boomers — 79 million people born from 1946 to 1964 — are entering their years of greatest wealth and maximum government benefits.

Today, the oldest baby boomer is 61. The youngest is 43. As tens of millions of people head into their years of peak wealth, inequality could soar until baby boomers pass on inheritances to their children or grandchildren.

The inequality debate has focused mostly on the super-rich, who have been getting super-richer. The top-earning 1% of taxpayers — those who make more than $310,000 annually — collected 17% of total income in 2005, up from 13% in 1989 and 8% in 1975, according to Internal Revenue Service data analyzed by economists Thomas Piketty at the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley.

IRS data don't include information on age, race and education. A USA TODAY analysis of Federal Reserve and Census data found that demographics — especially age — could be the most important and overlooked factor behind the widening gap.