Sometimes Dream Remains A Dream

A reader's question to Trent at Simple Dollar sparked a heated debate and it resonates with me deeply too.

Kathy, also from DC area, questioned whether she should move to some place less crowded and expensive than DC area where she is miserable, someplace that is affordable and closer to nature.

I have a similar yearnings from time to time, when I am tired from a long train ride after a long day at work (really, I shouldn't complain, riding metro for 40 minutes is nothing compared to some people's hour or two long commute, in the car, no less!), when I feel overwhelmed with all the hectic life in city, when I feel burdened with a big mortgage, or when I lose touch with my friends because they are spread all over the country due to job relocation.

We have debated moving to NC quite a few times, attracted to its affordable housing, nice weather and close proximity to his sister/parents. But we decided not too. P's job market is pretty narrow. Working where he is now is the best for his career and skill. There simply isn't anything better. And he loves his job.


I am a CPA, so I can pretty much get job anywhere.

With him working for the Fed, we will get a pension and medical insurance at retirement (at least until the gov changes its policy) when he turns 57, clocking 30 years working for the government. Medical insurance is critical for retirees. A recent Fidelity report claimed that average retiree will spend at least 200,000 in the future for medical care. I have seen a lot of federal employees enjoying a comfortable retirement because of both benefits without having to save a million dollar for retirement.

I am an immigrant, easy air traffic to China is very important to me. And I feel so much blended in in DC. There are immigrants every where. In rural area, that is not the case. P is from West Virginia, when we go in for visit, I have never seen a black person. And in those places, it is so hard for transplant to feel a part of the community. I never felt so trapped in my life when we visit his parent, never felt so alone. With my yellow skin and black eyes, they are nice to me, but I don't feel I belong there. I can't wait to get out.

Of course it is beautiful in WV. Lush green lawn and super cheap housing, life is laid back and church is above all. It is just not for me.

Where we live, in MD, right at metro stop, we are close to everything. We can walk to school, bus stop, park, bike path, library, a coop grocery store, restaurants, gym and swimming pool. Neighbors help each other, and kids run around at dawn on sidewalks. It is a great community with a lot of activities such as craft shows, parades and my favorite-yard sales! School is the best in the county. And policy/fire department is around the corner. I feel very safe. And this is where we belong. I can't describe the joy I have every time I heard neighbors mowing the yard. The noise feels me with so much pride in our community, I am grateful for everything I have.

Maybe when we retire, we will go someplace warmer and cheaper, but right now, I can't imagine calling home anywhere else but here.

Fear of Losing It All

Right now we have about half a million of investment portfolio in stocks/bonds. That includes our 401k/TSP, IRAs and taxable accounts. Four years ago, when we first talked about marriage and combining finances, we had a total $80,000. So in four years, we grew our investment six times. Of course the strong stock market performance since 2003 helped tremendously. And we save like crazy too. Besides, before we bought this new house this summer, our 15 year coop unit mortgage payment plus HOA fee totaled $1100. We are really lucky indeed.

From now on, things probably won't be this good. We have a much higher mortgage payment and with bigger house, comes bigger maintenance expenses too. We still will save quite a bit after bills, but it just won't match what we had before.

I am OK with that. And I still feel comfortable with our finances.

The problem is I start to get anxious about investing in stock market. It is hard for me to describe it, but now that we have built up some substantial (to me) portfolio values, I am just so afraid to lose it all or anything in that case. I can't imagine myself going back to the old days and starting all over again if something catastrophic happens in the stock market and we lose all of it.

I have tasted the wonder of wealth, and I am terrified of letting it go.

I don't know whether it is natural or not, or I am just a born tightwad. It seems like the more I have, the more I want to, desperately, hold on to everything.

This is not a good thing, I realize. I have to learn to manage risk and look at the stock market from a historical view. The chances of losing it all is slim, if I watch it carefully and protect profit/capital. I need to find a balance between reaching for high return and capital preservation. After all, higher return means higher risk. I need to find a comfort level that will let me grow investment at a nice pace and also limit downside risk. It is easier said than done. I have to temper my greed to reach for the highest yield possible. I need to be satisfied with what I have. If I go over our portfolio and see that all investments in there are reasonable and I have a valid purpose for having it, then I think I should step back and let market force and proper allocation do its work.

With inflation getting higher, I know I need to participate in the stock market to grow my capital. If I have multimillion dollars, I can afford to be conservative. But I don't, so I have to take SOME risk to achieve growth, how much risk is the key.

Stocks and Taxes

I bought some shares in VWO, PBW, DBA and GLD today, as well some more FICDX. All of the above purchases are for hedges against falling dollars which is well under way. Experts say that the best way to hedge against falling dollar is to have more foreign equity and commodities. So I bought quite a bit of those type of assets lately. Now my foreign equity is over 50% of all equity positions. And I have 20% in cash. I think I will monitor all my investments very closely from now on. Any sign of market weakness reappears, I won't hesitate to sell. That is why I try to use ETFs instead of funds because I can sell faster. I don't think we are out of the woods yet with the real estate market and credit crunch. Actually, I think houses in my neighborhood still sell, although they take a little longer and I haven't seen any drastic price cut. They are not growing, but not declining either. Just stay even I guess. So I think that is a good sign.

I also went to IRS website to calculate our withholding for 2007 so that we won't come up short. It happened to us last year and we actually had to pay a little penalty too. That drives me crazy! I don't think we are paying a lot of taxes with 401K, FSA and now a bigger house. So hopefully, next year we will pay even less with a full years' bigger property tax bill and higher mortgage interests payment. I try to minimize taxable capital gains, but I won't let that dictate my investment strategy entirely. When I need to take profit and protect gains, I won't hesitate about taxes too much.

Lots of Changes

I made quite a few changes in our Wellsfargo brokerage account the last couple of days with more to come tomorrow and next week. I sold out Charles Schwab Health Care fund in anticipating of opening a similar fund in our new T.R.Price brokerage. There is a very neat tool on Bloomberg that when you type in a fund/ETF ticker, it will list all the performance data for similar funds in the same category so that you can see how it compares to other funds. When I typed in SWHFX, you can see that T.R.Price's health care funds so far has outperformed the Schwab fund in both long and short term periods. So I gladly sold it, netting a gain of about $1000.

And I use the proceeds from the sale to buy Fidelity South East Asia fund today. I sold Matthew China last week because I think it is just too narrowly focused on one country although this fund is on fire lately. I want more broad coverage. So in addition to my recent buy of Matthews Asia Pacific Equity Income fund, Fidelity South East Asia is my other Asia play. I will most likely buy Matthew Asia Tech tomorrow.

I have been under weighted in Tech for a long time. Come to think of it, I have never been heavy in Tech because I never felt comfortable investing in it (I am not a tech person and gadgets just doesn't interest me). In the 90s and early 2000, I don't have money to play the stock market and the plunge of 2001-2002 really didn't affect me much.

So in order to further the theme of diversification, I will buy some tech tomorrow with two funds. Even after the planned purchase, I am still quite light in Tech compared to S&P 500 weighting. I plan to study more later to see whether I need to put more in, so far, what I have is good for now.

The latest Kiplinger magazine got me really interested in alternative/clean energy plays as well. So I also plan to buy GAAEX tomorrow, not a lot, just several thousand dollars to get my feet wet and get a feel for the sector before I invest more.

Slow and cautious is my theme now:)

Open A New Brokerage Account

I opened a new brokerage account with T.R.Price. I just like their funds too much, especially Health Care, New Asia and Media/Telecoms. That is the three funds I have my eyes on to be invested in the next month or two to enjoy the Christmas rally (I think/hope:)).

I have debated about it for a long time since we have Wellsfargo for the main brokerage account. But I heard that T.R.Price's is pretty strict on enforcing the frequent trading rules for brokerage accounts not with them. They will often ban investors from other brokerage accounts with one little bit of trading, with or without good reason.

In order to avoid that and still enjoy the superb performance of their funds, I have to open an account with them. Now I try to find ETFs to replace funds gradually because it is just so much more convenient and faster with ETFs. But with international investments, I still prefer to have experienced managers to oversea the investment instead of just plain index.

New Lawn Mower

Works like a charm. Seriously, I was watching P mowing the yard yesterday afternoon by the window. He was pushing the mower, listening to the ipod, a silly grin on his face. I felt so happy seeing him enjoying the time. Mowing the yard will no longer be a miserable experience for both of us. He told me" You can't sell the house now!". I don't mind spending money to make our life better, as long as it is a sensible investment. There are a long of ways to save money without sacrificing our life and happiness.

I truly wish the manufacturers can make the push reel mower is a little easier to use. We want to support the environment. But we also need balance in our life.

Sold!

The push reel mower that is. J emailed me yesterday afternoon inquiring about its availability. I wasn't available at that time. I was being tortured at dentist's office. So I checked my mail at around 6pm and voila, this wonderful email. He preferred to come pick it up last night or today, since P was out doing his part time tutoring gig, and I don't want to deal with a dark shed, I emailed J back suggesting we meet today after work and gave him P's cellphone.

J called P insisting to come last night, willing to wait until 9pm after P got off tutoring. P of course wasn't going to say no.

So J came at 9pm, P showed him how to use it. 15 minutes later, it is gone to a better home. We are enormously relieved! At least we can recoup some of the costs back and I am glad someone can put it to a better use.

See, like I said, I just need to have faith and time. Eventually, someone will come.

Selling Push Reel Lawn Mower

When we first moved into our new house, we bought a push reel lawn mower. It is the type that has a blade and two wheels. That is it. No gas, no messy oil, no tripping on electric lines, and no loud noise. We are trying to be environmental friendly.

Everyone told us that we were making a huge mistake. One friend predicted that we would buy a new gas mower in three months.

She was right.

We, or specifically P, did try really hard several times to mow the yard with it. It just took too long, two hours at least, and the yard didn't even look pretty afterwards. He was very frustrated, the blister didn't help either.

We gave up. I was so tired of his complaining and dark mood every time he got ready to mow. I dreaded talking to him because I know that would most likely led to a big fight later. And it did, without fail. This is not the life I want. I'd rather spend extra money to get a new gas mower so that we can move on and focus on more important and enjoyable things.

So we bought a new gas mower from Home Depot after doing a bit of Internet research, reading reviews and consulting Consumer Report. It costs us $270.

If it still doesn't work out, I just have to sell the house with the big yard and get an apartment. American dream be da*ned.

We posted an ad on Craigslist to sell the push reel mower. So far, several interested inquires, but only one agreed to come yesterday to look at it. That was yesterday. But today, we still have the mower. She didn't even show up!

I don't know about people. But if I make a promise to other people, and I change my mind later, I'd at least email or call the person so that they don't wait for me to show up, giving them false hope. We even tell other potential buyers that we have an interested party, giving her the first priority.

That is just not right. Nothing wrong with changing your mind, and I am fine if you don't want to buy it, but at least have the decency to let me know you are not coming so that somebody else can have a chance. I think the person is very selfish.

I will keep my faith and keep posting. I know someday, maybe sooner, maybe longer, but everything will find a right owner. It just needs time.

Freezer? No!

We saw a really good deal on freezer couple weeks ago on Lowe's website. And since we have been talking about getting a freezer after we move into a big house, I got very excited. It was on sale and I have a 10% coupon, with free delivery, the total net cost will be about $400 for a frost free freezer.

To save gas, we called the store first to see whether they have any in stock. They did and the price listed on the website was right.

It was $400, I kept telling myself, it is not chump change. It is a big commitment. Are we really going to save money on food budget with a freezer?

Being a nut, I opened an excel spreadsheet, and started to calculate. First, if we keep the freezer for 10 years, the annual usage cost would be 40, $3.33 a month plus minimum electricity usage of $5, that would be $8.33 at least for a month.

Second, we calculate what kind of food we can buy on sale to freeze, such as fish, bread, milk, meat, mixed veggie. We don't eat much and it is a very big freezer, if it is stocked up to the full, it will take us months, if not years to finish all the food. I don't know about you, but for me, meat and other stuff do have expiration dates even in a freezer. I was told that meat can be safely stored in a freezer for up to 3 months, after that, it will lose its taste and texture.

If we buy 20 breads on sale for 89c each, 10c cheaper than regular price, that is only $2 dollar savings which will lasts us 4-5 month. Now that is not enough to recoup the monthly freezer costs.

So after much debate, we decided not to get a freezer now. If we have an expanded family, yes, for two of us, what we have is plenty!

Filters and Others

Before, we bought this house, I never realize how much money a person can spend on maintaining a big house.

So far, two month we moved in, we already spent hundreds on electrician, handyman, this and that other misc small items. And I didn't know that filters can cost 15-20 each!

Slickdeals has a good deal on 3M filter rebate, basically, you can get one filter for free after the rebate. Our new house uses 1250 filter which is a high quality type filter perfect for a person with allergy which we both are and I think it costs about 19.99. And there is also another coupon for the same product at target.

Since we need to buy a new filter soon, I think we will use both coupon and rebate to get free products! And we still have one more Lowes coupon left which expires this month, so we will definitely stock up on filters!

You Are Very Lucky

I was told by my boss yesterday. And I admit, yes, we are indeed.

End of April, we sold our house in one week for our asking price (although we did price it AGGRESSIVELY) and we bought our new house without much glitch, getting a great interest rate of 5.75% (half a point) and no closing costs with Pentagon FCU. Closing was painless and everyone was happy.

I can't imagine things will be the same if we are selling and buying house now. Rates will be higher, loan requirements will be higher and it will probably take longer to sell, forcing us to carry two mortgages at the same time and squeezing our cash flow.

I know if we have to, we can go through the difficult time, albeit a little poorer. But I'd rather not, of course.

Sometimes, being lucky really is a big boost in personal finance.

Asset Allocation and Correlation

Recent market turmoil taught me one lesson. That is the markets are not as diversified as you think. Conventional teaching tells us that if you have REIT, international, domestic, bond and emerging market holdings in your portfolio, you are well diversified. Yes, you may be diversified, but it doesn't mean your portfolio will be protected when volatility strikes. In view of recent market turbulence, it seems to me, from monitoring my portfolio, that all asset classes are down, there is no place to hide. The only people who made money are people who hold large amounts of cash or short the market.

There is a PDF report posted on Fundalarm.com in the last few days that is titled "Emphasizing Low-Correlated Assets: The Volatility of Correlation". It is an eye opening article. Followed are the executive summary:

* In the asset allocation process, some assets often are used together even though diversification benefits have been very low. For example, the correlations of the S&P 500 to large growth, mid-blend to mid-growth, small-blend to small growth, and large value to mid-value, have been very strong.
* Several assets often are neglected in the asset allocation decision, even though their diversification benefits have been very high. Natural resources, global bonds, and long-short, for example, stand out as having consistently low correlation to all the other assets in this study.
* The asset allocation decision should emphasize low-correlated assets that satisfy return objectives.

From what I understand after reading this article, it means that even though a portfolio has all the asset classes such as large growth, large blend, large value, mid cap growth, mid cap value, mid cap blend, small cap growth, small cap value, small cap blend, it really doesn't help to reduce the volatility because their correlation to S&P 500 is too strong, which means, when the market goes down, everyone is sinking. Instead, we should use REIT, long-short, natural resources and EM to reduce volatility because these assets are not closely correlated to S&P500.

This article makes perfect sense to me. I have long wondered whether I should start to learn how to short the market. But I know it is a dangerous game, as dangerous as using margin. But it does give me some protection if market goes down. To remedy this situation, I found two long-short funds that have shown great return in recent market turmoil managed by experienced manager. I bought $10,000 of Wintergreen fund in our Wellsfargo brokerage account and another $10,000 of Utopia Growth in P's Roth IRA in Fidelity since this fund is NTF (non transaction fee) there. I am so glad I didn't close his Fidelity account and transfer to Wellsfargo. It pays to diversify in brokerage account too:)

And I bought more US Global Natural Resources fund too in my 401K Rollover account. Both of these transactions haven't put our asset allocation in both natural resources and long-short funds up to the maximum but through DCA, I think I will be there slowly until end of the year. At that time, I will reevaluate again to see what our shortfall will be.

It took me this whole week to make a decision and allocate money around. But I am very happy I read the report and learn a very valuable lesson.

Long Time No Post!

Sorry, guys,

I know it has been a loooooooooooooooong while since I blogged. But I have been sidetracked with work and the new house. But no worry, I am back.

We moved into the new house on July 4th weekend, men, I hate moving. I swear, no more moving for a long time, if I can help it!

And we just hired a new accountant who reports to me! She doesn't have much experience in accounting so I have to spent most of the last five weeks training her on our software. I learn one thing: I don't have patience! I hope She will forgive me for that, but when I am busy with work, I don't like being bothered:) But I think things are looking up, she is getting better every day, and I will get my life back!

I know things will be better every day and I am looking forward to it!