Law School Discussion

Home Ownership and Wealth Building

pikey

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Re: Home Ownership and Wealth Building
« Reply #570 on: May 21, 2007, 10:52:35 AM »
Oh and Moni, what would it take in trade for you to be my financial adviser?  Throw something out there. :)

Sewing skills!  You know I don't have any.  I already have a pair of pants with the hem out on one leg.  My mom tried to tell me that I should hem it myself and looked at her like she's crazy.  I can't practice on my good work pants!  :D

Done and done.  You'll be whiz.

Is it bad if I meant sew for me, not help me learn?  :-[  :P

No, but what're you gonna do when I'm not around? :D

Hire somebody?  Both my mom and bf think I should learn, but to be honest I don't think I'm that good with my hands (insert cheesy off color joke here). 

Edit: but if anybody can teach me, you can, so I may submit yet!

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Re: Home Ownership and Wealth Building
« Reply #571 on: May 21, 2007, 10:59:32 AM »
hey >:(.  what do I get?   

pikey

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Re: Home Ownership and Wealth Building
« Reply #572 on: May 21, 2007, 11:02:19 AM »
hey >:(.  what do I get?   

undying gratitude?  :D

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Re: Home Ownership and Wealth Building
« Reply #573 on: May 21, 2007, 11:36:46 AM »
hey >:(.  what do I get?   

undying gratitude?  :D

Pretty much. :)  I can pester Cahow locally, so it's different.  :D

et tu brute?  geographic discrimination!

Three lenders sweeten student loan discounts

By Kathy Chu, USA TODAY
With the student loan industry under scrutiny, at least three lenders are sweetening their discounts on loans, potentially cutting costs for millions of students.
The lenders — Sallie Mae (SLM), Nelnet (NNI) and College Loan Corp. — say they've decided to make their loans more enticing because of fierce competition in the industry. Yet the discounts come just as regulators are questioning whether students and alumni have been paying higher loan rates because of cozy deals in which some colleges received cash and trips to steer students to certain lenders.

"As the public turns its eye to the student loan market, the lenders are trying to appear competitive," says Luke Swarthout, a consumer advocate at the U.S. Public Interest Research Group.

Alarmed that lenders have been increasingly profiting as students fall deeper in debt, Congress has also been weighing whether to cut its subsidies for federally backed loans. Lenders are likely sweetening discounts "to stave off (subsidy) cuts," says Mark Kantrowitz of FinAid, a financial aid website. "They're making the argument, 'We're doing more now, so do you want to risk' " those discounts?

Lenders warn that lower federal subsidies would shrink their profits, eroding their ability to offer discounts. "There's no doubt a subsidy cut … is going to mean higher-cost loans to students," says Tom Joyce, a spokesman for Sallie Mae.

In the past, Sallie Mae offered a discount of a quarter percentage point on its Stafford federal loans. But in July, it will offer a reduction of a half percentage point on new Stafford loans for students who arrange for automatic payments. And, for the first time, it will offer a discount of a half percentage point for those who take out private loans, which aren't federally guaranteed. To get the discount, these borrowers, too, would have to enroll in automatic bill payment.

Nelnet will offer a rate cut of 1 full point, starting in July, on new Stafford loans if payments are debited from a bank account, up from a quarter-point discount currently. These discounts might lead more borrowers to debit their payments electronically; only 7% to 13% of them do so now, Kantrowitz says.

Meanwhile, for loans that are consolidated in 2007, College Loan is offering a 1-point rate cut after 48 consecutive on-time payments; that's on top of an existing cash rebate of up to 2% of principal after nine on-time payments in a row.

More-generous loan terms can help individual lenders gain an edge over rivals at a time when colleges are rethinking their "preferred lender" lists, says Fritz Elmendorf of the Consumer Bankers Association.

Kantrowitz says he expects other lenders to follow suit because investigators are looking into the lenders' policies and Congress is considering cutting subsidies.

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Re: Home Ownership and Wealth Building
« Reply #574 on: May 23, 2007, 09:32:04 AM »
Financial Planning for the Not-Yet-Rich
Industry Targets More Services at Long-Ignored Demographic
Of People in Their 20s and 30s; 'We're Behind the Eight Ball'
By JEFF D. OPDYKE

Financial planners are beginning to pay closer attention to people in their 20s and 30s, a group that has long received the brushoff from the financial-services industry because of its lack of wealth.

 
Tom and Donna Dietrick, a young couple in Mt. Lebanon, Pa., got professional advice to help sort out a host of financial decisions.
Many people in this age group, launching careers and starting families, are looking for a wide range of financial advice. Among other things, they need help investing in their first 401(k) plans, saving for a house, understanding insurance needs and managing debt and budgets.

And lately, they're finding a financial industry increasingly willing to help. Though the bulk of the industry's efforts remain focused on the baby boomers and retirees with the fattest wallets, planning firms and some brokerage houses are beginning to provide services aimed squarely at a younger demographic. These clients are younger than the relatively established middle-age set traditionally targeted by the firms. But a growing number of planners recognize the possibilities of taking on clients who they suspect will work or inherit their way into larger wealth in coming years.

Marta and Jake Kagan -- she's 35 and a marketing manager, he's 32 and a physician still in residency -- knew they needed help when they began a hunt last year for their first house. The Boston couple has student loans to pay off, two children to provide for and live in a place "where we can't buy a starter home for under $500,000," says Ms. Kagan. "We feel like we're behind the eight ball relative to where our parents were."

Four months ago, they hired Stacy Francis, a 32-year-old New York planner, largely because "I want someone closer to my age, closer to our realities," Ms. Kagan says. Ms. Francis, a fee-only planner, provided the Kagans a year-by-year plan. "It's a conservative, clear view that looks at our future more broadly so that we can see how to get from point A to point B. We've decided to wait before we look for a house."

For the most part, people like the Kagans are largely underserved by the financial industry. Research by the Financial Planning Association, an umbrella group for planners, shows that just 11% of the industry's client base is under the age of 40, though that same research also indicates that people approaching 40 are the most eager for financial advice.

Jennifer Cray, a planner in Menlo Park, Calif., says demand from younger clients is so great that she now turns away potential business because she's already loaded with people in this age group. Ms. Francis has begun hosting seminars for younger clients, who now account for half of her business. And in Dallas, Kalita Blessing, a planner with Quest Capital Management, says a quarter of her business is now young people because "so many parents are gifting financial plans to their kids." Those parents recognize that their offspring often have large debts from school loans, likely won't have pensions to rely on, and could face a sharply altered Social Security system at retirement.

Tom and Donna Dietrick, a Mount Lebanon, Pa., couple, went looking for a planner last year to help wade through the abundance of investment and savings options that boomers never had when they were younger -- everything from online savings accounts to Roth IRAs and 529 college savings plans. Mr. Dietrick, a 38-year-old worker at US Airways Group Inc., says he and his wife "got to a point where we said we've got to find someone who can help us prioritize because there are so many options and philosophies on what's best to do."

The Dietricks hired Pittsburgh planner Bob Nusbaum, with whom they spent five or six hours over several sessions. Mr. Nusbaum rearranged their portfolio and helped them begin looking toward retirement, their life-insurance needs and their kids' education. "We don't have an enormous amount to invest, and we just want to know it's doing its best," Mr. Dietrick says. The planner "even looked at our budget and told us we're not spending enough on leisure."

The best time for young people to consider hiring a financial professional "is when you land your first real job," says Barbara Roper, director of investor protection for the Consumer Federation of America. "At that point, you have a variety of financial issues to consider, such as your 401(k) plan and your benefits," and a financial plan will set you on an appropriate course, she says.

For savers with modest assets, Ms. Roper says, a fee-only planner is generally the best match. These planners only sell their time, at a cost of between $100 and roughly $250 an hour, depending on where they're based geographically. Because they don't pitch products tied to a particular company, "it minimizes the potential conflicts," she says.

 
To find local planners, consumers should ask friends, family and colleagues if they can recommend someone they trust. Several Web sites, including the National Association of Personal Financial Advisors (napfa.org5), the Financial Planning Association (fpanet.org6) and the Garrett Planning Network (garrettplanningnetwork.com7), which emphasizes planners who charge by the hour, offer locator services to help find planners in your area. Planners with a CFP designation, for certified financial planner, have passed a comprehensive exam that typically requires multiple years of study.

Jennifer Billock, a 36-year-old San Francisco grad-school student, says she and her husband, Jim, have worked with several different professionals -- from big brokerage firms to various financial planners -- and "all we ever got were computerized asset allocations that cost $400 to $1,500," she says. "We don't have much money, so it seemed irrelevant."

The couple then went looking for a financial pro "who is objective, and would do more than just portfolio planning," Ms. Billock says. After a three-month search they found Ms. Cray in Menlo Park, a fee-only planner who charges $240 an hour, or a retainer of between $290 and $490 a month for unlimited access.

"She went through all this insurance stuff I never thought of, and helped with our cash-flow analysis. When we were setting up a 529 plan for our daughter, she told us the firm's expert was just finishing new research and to wait a bit for the analysis. So she's not giving us canned answers."

Some young people want a hand on their money. Tim Leidig, a 28-year-old applications analyst in York, Pa., says he seeks advice from Mr. Nusbaum, the Pittsburgh planner, on everything from where to invest his 401(k) plan to whether he should pay off his student loans quickly or use that money for other financial needs. But then Mr. Leidig tracks down specific investment options and makes his own decisions.

"I feel like I'm getting totally independent advice," Mr. Leidig says. "And I remain in charge of my assets."

Some savers want not just planning, but money-management services, as well. That adds extra charges, either through commissions or an annual fee based on a percentage of the assets under management, usually up to 1% or 1.5%. If you're a buy-and-hold type of investor, paying commissions for money-management services can make the most sense, because these can work out to be less than continually paying an annual management fee when your portfolio doesn't change.


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Re: Home Ownership and Wealth Building
« Reply #575 on: May 23, 2007, 09:35:44 AM »
What to Do with $2,500:
Advice for Young Investors
After a few years in the workforce we may find ourselves with a little extra cash. Maybe it's a delightfully large tax refund or an apartment deposit you finally got back, but it's the first significant sum of money you've had that doesn't need to be spent paying back loans or furnishing an empty apartment. For the first time, you want to save or invest that money, instead of spoiling yourself with a spray-on-tan.

I spoke with five financial advisers about what a young investor should do with a small windfall: $2,500. I created a profile of a twentysomething novice investor who doesn't have debts and is diligently paying into a 401(k). Investor X doesn't necessarily want to lock up this money until retirement. He or she may want to buy a house, fund a year off or have something socked away in case of a car crash or other emergency.

After each planner made a recommendation, I asked for numbers on the performance of their picks from the beginning of 2002 until this May. (See chart.)

 QUICK TAKE: WHAT THE ADVISERS TOLD ME

 
Set up a Roth IRA: Charles Buck, a financial planner in Woodbury, Minn.
Put some money aside in a CD: Richard Rosso, Houston-based Charles Schwab financial consultant
Be Aggressive: Kathy Hankard, financial planner in Verona, Wis.
ETFs, ETFs, ETFs: Kim Arthur, San Francisco, investment adviser
Take the bond route: Christine Fahlund, senior financial planner at T. Rowe Price in Baltimore.Set up a Roth IRA
Charles Buck, a financial planner in Woodbury, Minn., recommends that you set up a Roth IRA, as he did for his 27-year-old son. The nifty thing about the Roth is that we don't have to pay taxes when we finally withdraw the money after age 59 ˝. We don't get a tax refund now on our contributions, but it's likely that we'll enter a higher tax bracket by retirement and will thus save the difference in taxes. In special cases, like when buying a home for the first time, all of the money in a Roth IRA can be tapped pre-retirement without penalties. We can also withdraw our contributions -- but not returns -- early without penalties. Keep in mind Roths are only for singles who make less than $110k or marrieds who make less than $160k.

Mr. Buck advises that the twentysomething investor's Roth IRA include shares in a diversified mutual fund targeted for retirement withdrawal in 2045. "Target-date funds are good for young people," he says: "Pick a fund, forget about it and it takes care of itself." Mr. Buck's fund pick is the T. Rowe Price Retirement 2045 Fund1. It charges a fee of 0.76%. T.Rowe Price has reported returns of 17.01% from the fund's inception on May 31, 2005 to April 30, 2007.

Put Something Aside First
Richard Rosso, a Charles Schwab financial planner in Houston, recommends setting your $2,500 aside in an emergency reserve for six months of living expenses. "Keep $1,000 in a CD that matures in 6 months, $1,000 in another that matures in 12 months, and put $500 in a savings account in case you need to change your tires or replace an air conditioner," he says. (For more info on CDs, see WSJ.com's savings center2 from Bankrate.com)

If you already have a reserve, Mr. Rosso says you should use the money for living expenses and increase your salary deferral to your 401(k) to benefit from employers' matching contributions.

 "If all this is done," says Mr. Rosso, "I would contribute to the Roth IRA…invest in a way that's fully diversified." The mutual fund Mr. Rosso recommends is the Schwab Total Stock Market Index Fund, which contains a large amount of U.S. stocks and charges a fee of 0.53%. Schwab reports a five-year annualized return of 7.43% for the fund. Setting up a Roth or traditional IRA through the brokerage's Web site is free. The other large financial services firms I mention in this column also offer free Roth IRA enrollment.

ETFs, ETFs, ETFs
For the young person who is eager to learn about securities and actively manage his or her own portfolio, exchange-traded funds are an option. An ETF tracks an individual stock index such as the S&P 500 or a specific asset class such as real estate, currencies or gold. Unlike mutual funds, ETFs trade on a stock exchange or in an electronic market. Expenses tend to be lower, and ETFs that track a multitude of securities may not be as much of a gamble as an individual stock.

Kim Arthur, an investment adviser in San Francisco, doesn't invest on behalf of people with less than $1 million dollars, but if he were your mom's best friend he might tell you, over lunch, that you should build a diversified ETF portfolio and rebalance it every year. His firm, Main Management, only manages ETF portfolios. He likes their transparency, tax efficiency and low expenses. The goal: "10%-type returns with lower volatility than the stock market."

The blend Mr. Arthur recommends, and calls "all asset lite," contains five different ETFs weighted at different percentages. For stocks: 30% Vanguard Total Market and 30% State Street Developed and Emerging Market. For bonds: 20% iShares 3-7 year Treasury. For commodities and real estate: 10% PowerShares DB G10 Currency Harvest Fund and 10% State Street International REIT. "It's diversification at a low price," he says, "there are over 2,000 stocks in this blend." Though many of these ETFs didn't exist five years ago, Mr. Arthur calculates that based on their underlying indexes, an investment of $2,500 would have returned an annual average of 12.91% between 2002 and now.

The expenses of an ETF are twofold: Those charged by the fund -- an average of 0.29% for all of Mr. Arthur's recommendations -- and broker trading fees. At TradeKing.com5, for example, you will pay $4.95 per trade. Re-balancing your portfolio back to the original asset weightings every year will cost $25. Mr. Arthur says these ETFs have a lot of assets and thus won't suddenly shut down, as some ETFs with lower net assets have recently done. (Read more about ETFs here6.)

Be Aggressive
If you expect to sell your shares ten years from now to purchase a house or pay a smidgen of your graduate-school tuition, financial planner Kathy Hankard says you want to be pretty aggressive and should invest in a mutual fund that is comprised mostly of stocks, with some short-term bonds. "You don't want to risk not making enough money and inflation eroding the value," says Ms. Hankard, whose firm is based in Verona, Wis.

She suggests the Vanguard Star Fund, for its low fees: 0.35%. It is the only fund that Vanguard offers for investors with less than $3,000. Made up of 11 mutual funds, the "fund of funds" invests 62% in stocks, 25% in bonds, and 13% in short-term bonds. Vanguard's Fran Kinniry, a principal of investment counseling and research, says it's good for investors with a five-20 year horizon, and gives broad diversification. Vanguard lists the fund's annualized five-year return as 8.26%.

The risks of stocks are serious – you can lose your money -- and should be considered whenever a mutual fund is heavily weighted in stocks. Intermediate government bonds, a more conservative option, will yield negative returns extremely rarely, but they will not likely return more than 8% per year, according to charts going back to 1966 by Morningstar Inc. High-yield bonds, on the other hand, are loans to companies that might default and never return your cash -- but if they do, your return will be a percentage that's typically higher than that of government bonds. The Merrill Lynch High Yield Master II Index, a benchmark, has average five-year returns of 10.36%.

Take the Bond Route
One planner recommended bonds for young people who don't know how their financial needs will flesh out.

"So many things are going to change in your twenties that it's possible you're going to need some of this money," says Christine Fahlund, a senior financial planner at T. Rowe Price in Baltimore. When Ms. Fahlund's son inherited some money and stashed it away in a conservative money market account, she thought that was correct. "You don't want to be in stocks with this money, and you have a lot of issues on your mind right now." Ms. Fahlund remembers telling him, "you might use it next year." She recommends using $2,000 of your $2,500 on a mutual fund that's heavy in bonds, the T. Rowe Price Spectrum Income Fund (with fees of 0.70%), and putting the other $500 in a conservative money market fund, her company's Prime Reserve fund (0.60% fees).

T. Rowe reports a five-year annualized return of 8.16% for the Spectrum fund and 2.21% for the Prime Reserve fund.

When many of us get a bit of extra cash, we consult a list to choose between a new laptop or a trip to some hot place with scuba diving. Perhaps we shy away from saving or investing because we're intimidated. Don't be.



How'd They Do?
If we'd invested $2,500 in 2002 in the funds recommended by the planners, what would have happened? After each planner made a recommendation, I asked them to tally up the returns for that fund from January 1, 2002 to May 1, 2007. During that same time period cumulative total returns on the S&P 500 were 41.9%. (A note: Since many of the ETFs Kim Arthur recommends did not exist in 2002, we were unable to perform this exercise on his picks.) --E.M.

Fund  Expenses  Ending Balance  % Return 
Vanguard Star Fund  $77.80  $3,862  54.48% 
T. Rowe Price Spectrum Fund  $156  $3,791  51.63% 
T. Rowe Price Prime Reserve  $92  $2,804  12.14% 
Schwab Total Stock Market Index Fund  $77.68  $3,771.50  50.86% 
  URL for this article:
http://online.wsj.com/article/SB117983986061710772.html

 

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Re: Home Ownership and Wealth Building
« Reply #576 on: June 15, 2007, 12:13:35 PM »
Curious, how many folk here have started IRAs (tax sheltered individual retirement accounts)?  After getting a bit more info about it this spring, I've been converted.  If you have one, where did you start it and why?

pikey

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Re: Home Ownership and Wealth Building
« Reply #577 on: June 15, 2007, 12:24:11 PM »
Curious, how many folk here have started IRAs? After getting a bit more info about it this spring, I've been converted.  If you have one, where did you start it and why?

I don't have an IRA but I have a retirement account/pension.  I've been contributing since I started working and have also received a 5% contribution from the bank.  It just vested (I think this week), which means that I can't touch it until I retire.  It's mandatory (by Bermuda law) so I really don't have a choice!

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Re: Home Ownership and Wealth Building
« Reply #578 on: June 15, 2007, 12:35:40 PM »
Curious, how many folk here have started IRAs? After getting a bit more info about it this spring, I've been converted.  If you have one, where did you start it and why?

I don't have an IRA but I have a retirement account/pension.  I've been contributing since I started working and have also received a 5% contribution from the bank.  It just vested (I think this week), which means that I can't touch it until I retire.  It's mandatory (by Bermuda law) so I really don't have a choice!

a well functioning social security system?

Re: Home Ownership and Wealth Building
« Reply #579 on: June 15, 2007, 12:39:05 PM »
TIAA CREF.. DCPS kicked it off but I've kept it going..

Curious, how many folk here have started IRAs? After getting a bit more info about it this spring, I've been converted.  If you have one, where did you start it and why?