04.19.07
Posted in Finance at 8:41 pm by Valentine
This op-ed piece in the Trenton Times by the founder of the “National Black Chamber of Commerce” suggests that those hoping to buy homes in the future are the ultimate victims, blaming the problem on “borrowers who knowingly took out mortgages with terms that were above their means”. He advises, “State and federal legislators and regulators must intervene on behalf of renters, savers and aspiring homeowners. Intervention in this case means enforcing the laws already on the books that are meant to prevent fraud and exploitative and predatory lending.”
Comment: Enforcing laws is good…
Another exceptionally unsympathetic take. Read the rest of this entry »
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04.18.07
Posted in Finance at 5:13 pm by Valentine
I’m still trying to assimilate the details of the “subprime crisis“. From the borrower’s perspective, a mortgage is pretty simple. You borrow money and promise to pay it back with interest. Break that promise and the lender takes your home. Adjustable rate mortgages are in theory only slightly more complicated — you get a lower initial rate, but take a chance that the rate will increase.
Here’s where it starts to smell fishy:
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04.15.07
Posted in Finance, Mathematics at 7:01 pm by Valentine
Logarithms are one of the most universally hated/feared topics in high school mathematics. The notation is arcane, their properties are confusing, and few teachers (let alone students) will even attempt to estimate them without a calculator. Unfortunately they are indispensable for asking one very useful investment question: “Assuming exponential growth of R% per year, how long will it take for $X to grow into $Y?”
Luckily, there is a simple rule of thumb that you can calculate using pencil and paper. At a growth rate of R% per year, it takes approximately 72/R years for an investment to double. Investing at a 4% rate of return? Your money will double in approximately 72/4 or 18 years. Wait 36 years and it will redouble (think Backgammon or Bridge) to *four* times the initial investment — thus the power of starting your retirement savings early.
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04.14.07
Posted in Finance at 4:02 pm by Valentine
This video really puts it in perspective. The ride of your life?
http://www.speculativebubble.com/videos/real-estate-roller-coaster.php
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04.12.07
Posted in Finance at 12:15 pm by Valentine
Newspapers love to report that the sky is falling, part of what one writer refers to as the “Fear-Industrial Complex“. Jaded by this bombardment of negativity, our first inclination might be to dismiss the concerns raised in this recent Globe article. But is that wise? Would your retirement plan survive stagflation? How confident can you be that it will not return?
We work hard, earn our money, raise our children, and hope to eventually retire to a life of relative comfort — if not abundance. But how do you even begin to plan for something 25 years down the road? Any of the major financial service companies will be glad to “help”, but “trust us, we’re here for you” is exactly the advice that led to the subprime mortgage scandal. An independent financial planner is a much better bet, but even they must begin from some basic assumptions. I worry that in some cases these assumptions may be wildly optimistic.
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04.06.07
Posted in Finance at 6:47 pm by Valentine
[New link: see here for expert advice on Roth IRAs, 401k’s, and tax diversification.]
Wakefield was on his game this afternoon. The offense was unspeakably awful! Perhaps a late arrival in Texas? Or a hangover after the Dice-K victory party? Regardless, it wasn’t pretty #1-#9. At times like these, I escape from the dismal reality of Red Sox fandom to more cheerful thoughts like death,war, and taxes.
Speaking of which, Tax Day and the deadline to fund your 2006 IRA is right around the corner. Since the Roth IRA was first introduced in 1998, there have been literally thousands of columns written on this alternative. Some of them are very informative. Some of them obfuscate the issues. Some of them are simply WRONG. Now I’m a math teacher, not a CPA. But even a math teacher can correctly calculate the value of a $4000 income tax deduction to somebody in the 25% bracket! (That should be $1000, not $2333, for those of you who are neither CPAs nor math teachers.) Remembering that I’m not a CPA, I am aware of three major structural differences between a Roth IRA and a traditional IRA: Read the rest of this entry »
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