Tuesday, October 21, 2008

2009 Retirement Plan Contribution Limits

The IRS has announced the retirement plan limitations for 2009.

2009 Contribution Limits
401k - $16,500
Roth IRA - $5,000 if Modified Adjusted Gross Income below $105,000 ($166,000 if married filing jointly)

2008 Contribution Limits
401K - $15,500
Roth IRA - $5,000 if Modified Adjusted Gross Income below $101,000 ($159,000 if married filing jointly)

Saturday, October 11, 2008

Stock Market Snapshot as of Oct 10, 2008

"Markets in free fall" was a common headline this past week.
The S&P 500 is now down about 40% since October 2007.
It is difficult to stay on the sideline and not go bottom fishing.
Once the panic selling will be over, once everyone who must capitulate will have done so, then the short sellers will start covering, the buyers will start buying, and the bottom will be in. Until then I will try to wait patiently on the sideline.





Sunday, October 5, 2008

My Equifax FICO Score

Earlier this week I read this post at My Money Blog and took the opportunity to check my Fico score for free. Ever since I learned about FICO a few years back, I have been doing the following:
-I do not close my credit cards (especially the oldest ones)
-I do not open any new credit cards (I currently have 4 which is plenty)
-I use my credit cards on a regular basis (especially the ones with rewards)
-I always pay off the full balance every month (I spend less than what I make)
-once a year I request a small credit limit increase on the credit card issuer's website

Saturday, September 13, 2008

How Much House Can I Afford (Revisited)

Having sold my condominium, I am revisiting a calculator to find out how much house I now can afford (previous amount was $281,000).

My new inputs are:



And the results are:



I am now limited by the front end ratio of 28%. The total mortgage amount comes at $242,000 at 5.5%, and the total house value at $322,000.

Friday, September 12, 2008

New Limitations on a Popular Tax Benefit

The Housing and Economic Recovery Act of 2008 was passed to help homeowners on the brink of foreclosure keep their home. But there is a lot more in the bill than just that.

To help offset its cost, the Housing and Economic Recovery Act of 2008 has put some new limitations on the exclusion of gain from sale of principal residence. The 2 out of 5 years rule is still in place (so are the $250K/$500K limits), but a home seller will no longer be able to exclude the portion of the gain for the periods the property is not used as the primary residence after Jan 1, 2009. There will be 3 exceptions: -the period between the last date the property was used as the primary residence and the sale date -the periods the home seller was serving on qualified official extended duty (up to 10 years) -the periods of temporary absence due to change of employment or health conditions (up to 2 years).

Extract of The Housing and Economic Recovery Act of 2008

SEC. 3092. GAIN FROM SALE OF PRINCIPAL RESIDENCE ALLOCATED TO NONQUALIFIED USE NOT EXCLUDED FROM INCOME. (a) IN GENERAL.—Subsection (b) of section 121 of the Internal Revenue Code of 1986 (relating to limitations) is amended by adding at the end the following new paragraph: ‘‘(4) EXCLUSION OF GAIN ALLOCATED TO NONQUALIFIED USE.— ‘‘(A) IN GENERAL.—Subsection (a) shall not apply to so much of the gain from the sale or exchange of property as is allocated to periods of nonqualified use. ‘‘(B) GAIN ALLOCATED TO PERIODS OF NONQUALIFIED USE.—For purposes of subparagraph (A), gain shall be allocated to periods of nonqualified use based on the ratio which— ‘‘(i) the aggregate periods of nonqualified use during the period such property was owned by the taxpayer, bears to ‘‘(ii) the period such property was owned by the taxpayer. ‘‘(C) PERIOD OF NONQUALIFIED USE.—For purposes of this paragraph— ‘‘(i) IN GENERAL.—The term ‘period of nonqualified use’ means any period (other than the portion of any period preceding January 1, 2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer’s spouse or former spouse. ‘‘(ii) EXCEPTIONS.—The term ‘period of nonqualified use’ does not include— ‘‘(I) any portion of the 5-year period described in subsection (a) which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer’s spouse, ‘‘(II) any period (not to exceed an aggregate period of 10 years) during which the taxpayer or the taxpayer’s spouse is serving on qualified official extended duty (as defined in subsection (d)(9)(C)) described in clause (i), (ii), or (iii) of subsection (d)(9)(A), and ‘‘(III) any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the Secretary. ‘‘(D) COORDINATION WITH RECOGNITION OF GAIN ATTRIBUTABLE TO DEPRECIATION.—For purposes of this paragraph— ‘‘(i) subparagraph (A) shall be applied after the application of subsection (d)(6), and ‘‘(ii) subparagraph (B) shall be applied without regard to any gain to which subsection (d)(6) applies.’’. (b) EFFECTIVE DATE.—The amendment made by this section shall apply to sales and exchanges after December 31, 2008.

Extract of IRS section 121. Exclusion of gain from sale of principal residence (as of Jan 2, 2006)

(a) Exclusion Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more. (b) Limitations (1) In general The amount of gain excluded from gross income under subsection (a) with respect to any sale or exchange shall not exceed $250,000. (2) Special rules for joint returns In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property— (A) $500,000 Limitation for certain joint returns Paragraph (1) shall be applied by substituting “$500,000” for “$250,000” if— (i) either spouse meets the ownership requirements of subsection (a) with respect to such property; (ii) both spouses meet the use requirements of subsection (a) with respect to such property; and (iii) neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3). (B) Other joint returns If such spouses do not meet the requirements of subparagraph (A), the limitation under paragraph (1) shall be the sum of the limitations under paragraph (1) to which each spouse would be entitled if such spouses had not been married. For purposes of the preceding sentence, each spouse shall be treated as owning the property during the period that either spouse owned the property. (3) Application to only 1 sale or exchange every 2 years (A) In general Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 2-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer to which subsection (a) applied. (B) Pre-May 7, 1997, sales not taken into account Subparagraph (A) shall be applied without regard to any sale or exchange before May 7, 1997

Saturday, June 28, 2008

Market Sectors of Interest

Below is a list of market sector indexes of interest with a link to their chart and components:

XOI Chart Components Amex Oil Index
OSX Chart Components Philadelphia Oil Services Index
XNG Chart Components Amex Natural Gas Index
STQ Chart Components SIG Steel Producer Index
XAU Chart Components Philadelphia Gold and Silver Index
HUI Chart Components Amex Gold BUGS Index

Saturday, June 14, 2008

Yahoo!Finance: Coupons are Hot Again

A sign of tough times in America: Yahoo!Finance headlines an article on coupon clipping. At least the shopper on the picture hasn't lost her smile, yet.

Saturday, June 7, 2008

Stock Market Snapshot as of Jun 08, 2008

Of the 3 markets that I trade, the S&P 500 is the first one to get a new trendline as it makes a lower low. The 200-ema has been acting somewhat as resistance. This chart looks very bearish to me.


The Nasdaq 100 just broke its trendline. But this chart is still fairly bullish, with the 50-ema just above the 200-ema.


The trendline is still intact for the Russell 2000. But for how long?


We could be at the start of a new correction in the markets after the decent rally that we have experienced since mid-March. As always, time will tell.

Sunday, January 13, 2008

Stock Market Snapshot as of Jan 13, 2008

After a retracement in December that touched the trendline, the S&P 500 has restarted its downtrend, making a lower low on Jan 8th. The 50-ema has now moved below the 200-ema.


The Nasdaq 100 has been showing a lot of weakness in the beginning of 2008. The 50-ema is still above the 200-ema, but both have turned south.


The Russell 2000 has also made a lower low. It is still the weakest of the bunch.

Friday, January 11, 2008

My 401k Asset Allocation for 2008


As you can see, I am keeping it simple. I have rebalanced my portfolio and picked 4 new funds in the new platform that have performed well in the past 10 years (or since inception).

This asset allocation is 25% international, 25% large cap, 25% mid cap and 25% small cap.

This is a highly aggressive portfolio which will suffer significant drawdowns in a market downtrend, but also should easily outperform the S&P500 in a market uptrend. Since I am dollar-cost averaging into these funds and do not plan on touching any of this money for at least 20 years, a market downtrend only means I am buying more shares for the same amount of money. What matters is that 20 years from now, the market is higher than where it is now.

Saturday, January 5, 2008

How Much House Can I Afford?

Fannie Mae provides future home buyers a calculator to help them estimates how much house they can afford to purchase. I took the calculator for a test drive. Here are my entries:



I then click on Calculate and voila!...



…and what the hell? Either this calculator is broken or I just found the reason for the current housing market crisis.

According to this calculator, and assuming a 6% interest rate, I can afford to purchase a $335,000 house which after down payment and closing costs would leave me nearly $4,000 in the red?? Why is this calculator telling me to bring $84,000 to the closing when I told the calculator I only have $80,000? Not to mention that my total debt-to-income ratio would rise to 50% (new monthly payment $2,450 + current debt payment $800 divided by monthly gross income $6,500).

According to this Yahoo How-to guide the standard requirements for conventional mortgages as established by Fannie Mae are the 28% and 36% debt-to-income ratios. Monthly mortgage payments, interests, property taxes and insurance cannot exceed 28% of the buyer’s monthly gross income. This is called the front-end ratio. Total monthly debt payments (housing, credit card payments, car payments, etc) cannot exceed 36% of the buyer’s monthly gross income. This is called the back-end ratio. I was not able to find any confirmation of those debt-to-income ratios on Fannie Mae’s website.

For a second opinion, I turned to the Yahoo calculator How Much Home can I Afford? I plugged in the same information and here are the results:



Now this makes a lot more sense. According to this calculator, the maximum house I can afford is around $281,000 (assuming a 6% interest rate). I am currently capped by the 36% debt-to-income ratio (my total monthly debt payments). I would have to either reduce my debt payment obligations or increase my gross income in order to afford more house.

I am contemplating buying a cosmetic fixer upper, preferably a real estate owned one, in a desirable neighborhood where home prices are typically in the $350k-$400k range. I am staking the market for the right opportunity to show up.

Friday, January 4, 2008

My Investment Portfolio Return for 2007

The brokerage account, rollover IRA and Roth IRA consist of stocks and ETFs. These accounts are actively traded. The 401k, the Janus account and the 529 plan consist of buy-and-hold mutual funds.

Returns include all dividends, capital gains and interests on cash balances (before taxes). The brokerage and Janus accounts are the only taxable accounts.

In 2007, the S&P500 was up 5.49% including dividends (3.53% before dividends).

The Janus account consists of just 2 mutual funds, the Contrarian and the Overseas. Needless to say I am very pleased with the 24% return.

On the other hand, I am disappointed by the performance of my 401k. My company decided in November to move the 401k to a new platform with a set of different mutual funds. Let’s hope for better results in 2008.

Wednesday, January 2, 2008

My Net Worth Update for 2007 and Goals for 2008

Back in December 2005, I gave myself the goal of increasing my net worth to $1M in 7 years. I figured I needed a 20.4% yearly increase of my net worth over the next 7 years to reach that goal. Now that 2 years have gone by, it is time for a little update.

In 2006, my net worth increased only 9.5%, leaving me short of my December 2006 goal by $29,700. That was not the best way to start.

In 2007, my net worth has increased a whopping 26% ($78,000). It means that I am catching up, but I am still short of my initial December 2007 goal by $18,700. Most of the increase came from a higher savings rate thanks to a substantial pay raise. I also managed a decent but not extraordinary 10.4% return (including dividends) on my investments.

My net worth in December 2005 was $273,200. My year-end net worth goals are:


Goal

Actual


Dec-06

$328,800

$299,100

Missed by $29,700

Dec-07

$395,800

$377,100

Missed by $18,700

Dec-08

$476,400



Dec-09

$573,400



Dec-10

$690,200



Dec-11

$830,800



Dec-12

$1,000,000





I feel that tracking my progress towards my goal is helping me tremendously. I have become more focused, especially in regards to managing my stock market investments.

The goal for 2008 is a net worth of $476,400 by December 31st. That is another 26% ($99,300) increase from where I am now. I find it difficult to be very optimistic about 2008 outlook. I will have to rely more on stock market returns and less on straight income to grow my net worth. There is currently a lot of fear and indecision regarding where the economy is heading. I guess it is one more reason to be cautious and stay focused.

To a fun and prosperous 2008 !