Andy wrote:

- quote -

P is Shiller's label for column B of his spreadsheet that contains the
composite price of the S&P. D is Shiller's label for column C giving
the annual dividends of the S&P. I have not read his book, but if you
shoot me an email, I'll send you my mods to his spreadsheet.

-Will

Will Trice wrote:
- quote -

Could you explain your calculations in more detail? It wasn't obvious
to me what P and D were and how you would use them to make the
calculations you did. I guess I need to get my hands on a copy of the
book.

Andy

Andy wrote:
- quote -

I adjusted the index value (P) for reinvested dividends (D) and then
calculated the geometric average over 30 year intervals.

-Will

Will Trice wrote:

- quote -

I downloaded the data set, but I am not sure what all the columns mean.
How did you calculate the 30 year average annual return from that set
of data?

Andy

Andy wrote:
- quote -

I've seen this assertion made several times in this group, and I've seen
it in the financial press as well. But is it true? While average P/E
ratios have climbed tremendously since the early eighties (when average
P/E ratios were near historical lows), the 30 year average return of the
S&P 500 was still running around 10% back then, *before* the run-up in
P/E ratios (see for example Robert Shiller's data at
www.irrationalexuberance.com/ie_data.xls - a reference that Beliavsky
used in a post some time ago).

" mean, should I also use the company that handles my 401k (Fidelity),
for my IRA or shop around like you suggest? I can choose how to invest

my 401k and I have chosen a more agressive mix. I am working on the
principle of keeping with one investment group for my needs -- this may

be wrong."

T rowe price, fidelity and Vanguard are all worthy custodians of IRAs.
Using one custodian is not a requirement. My 401k is with vanguard and
my IRA is with T rowe

"daben" <dabenpb[at]yahoo.com> wrote
- quote -

I reckon you already know this, but to make sure we're on the same page:
Always pay off the higher interest loans, first.

- quote -

Okay.

- quote -

The key word being "may." It may be right for your situation; your
expectation re future taxes; what vehicles your 401(k) offers; etc.

One can find a lot of reinforcement on the web for the priorititizing I
listed earlier, though. Try googling for something like {IRA 401(k) Roth
traditional investing} sometime.

- quote -

I would start another thread on this topic. Though for starters, from my
reading, things have become very competitive across the board, from large to
smaller brokerage etc. houses. Plus, if you find you don't like, say,
Fidelity, you can always move your IRA for a small fee (worst case). (Or it
might be no fee by law?)

I happen to have had an IRA account with Fidelity for something like two
decades now. I use one other brokerage house/bank/etc. If I had more energy,
I might shop around and open some more accounts, like maybe with Vanguard or
some of those discount online stock trading etc. companies. Fidelity's
customer reps are among the most polished, professional, intelligent, and
courteous customer reps I've ever encountered. But that's just my
experience.

- quote -

I haven't heard of this principle. I just try to always have at least two to
sort of play them off against each other for my varying financial needs.

- quote -

I wouldn't be shy about opening an online account with an institution with
whom you've never worked. The reports are good on these.

www.bankrate.com lists CD rates nationwide, by state, and highest yield, in
its CD section.

Various free online asset allocation tools are listed at
http://home.earthlink.net/~elle_navorski/id4.html. You might want to spend a
couple hours experimenting with these to get some idea of what to expect
from financial planners or perhaps to help you decide whether you need a
financial planner.

Anyway, sounds like you have lots to think about. It's a good thread of
posts (as is usally the case here). Good luck.

Hi

Thanks for the replies. To answer a few questions:

- quote -

Yes, I can pay off at anytime.

- quote -

I am trying to get the max contribution for the year to my 401k. I
started my job in August so I only have 4 months to get to the $14k
max. I am assuming that the 401k is the best place to do this due to
the tax break now. This may be wrong based on your list.

- quote -

I mean, should I also use the company that handles my 401k (Fidelity),
for my IRA or shop around like you suggest? I can choose how to invest
my 401k and I have chosen a more agressive mix. I am working on the
principle of keeping with one investment group for my needs -- this may
be wrong.

- quote -

I was looking into this but thought that CDs were such a low return
that it was not worth it -- at least at the financial institutions that
I am looking at.

- quote -

Yes, I have been thinking that this was probably a more prudent idea.
I feel that I am probably smart enough to figure out some aspects of
this eventually, but it may be far better to understand it and let an
expert handle the details.

thanks
ben

daben wrote:

- quote -

I suspect you are a lawyer (100K student loans, well paying job right
out of school, wife in law school). I think every well-rounded
attorney should understand the basics of financial planning because it
comes up so much in practice. Plus, as a lawyer, you should have the
ability to learn the fundamentals pretty easily. For these reasons I
think you should not hire a financial planner at this point and instead
educate yourself. Your investment of time now will pay off over your
lifetime, if only in making you a more intelligent consumer of advice
from financial planners.

As far as financial priorities I would recommend your first task should
be building up an emergency fund of somewhere between 3-6 months
expenses. Having a big pile of cash laying around really smoothes out
the big bumps in life and generally makes everything less stressful.
You can invest it in a ladder of CDs so that a CD worth one months
worth of expenses is maturing each month.

While you are saving up the emergency fund you can research Roths and
by the time your emergency fund is topped off you will probably know
exactly what to do with your extra income.

Andy

In article <1127081457.571502.90650[at]f14g2000cwb.googlegroups.com> ,
"daben" <dabenpb[at]yahoo.com> wrote:

- quote -

I propose that this is not a financial question, but rather,
a lifesytle question. 3% is cheap money. You can do better
investing. The question is if you are comfortable with debt.
If so, then go for it. If you are not comfortable with debt,
then pay them off and be done with it. In my case, debt
makes me physically ill and causes me to puke. As a result,
I am not big on having debt.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

"daben" <dabenpb[at]yahoo.com> wrote
snip
- quote -

(I don't know the implications of this without more research.)

- quote -

Do the terms of your car loan agreement permit you to pay it off early?

- quote -

Not sure I understand your reasoning for the 20%...

- quote -

As someone else put it recently (with some amendments by me), the general
rule is

1. Contribute to 401(k) up to matching.
2. Contribute to IRAs up to limit. Choose Roth or Traditional according to
your tax needs, though increasingly gurus say to choose Roth for its far
greater flexibility and suspicions that tax rates will be much higher when
you retire.
3. Resume contributions to 401(k), if one wants to take advantage of the
deferred taxes.

- quote -

What do you mean by "manage"? Can you research a bit and choose your own
allocation of investments? If so, open an IRA account with any big brokerage
or a bank that is competitive fee-wise and manage it yourself.

If you don't feel like you can get the knowledge you need quickly enough,
just store your IRA in a money market fund for the next several months, and
slowly buy mutual funds to come up with a diverse allocation.

Ask here or at misc.invest.mutual-funds for suggestions on how to shop for
mutual funds, once you've figured out a rough asset allocation.

"daben" <dabenpb[at]yahoo.com> wrote in message
news:1127184237.669112.201870[at]g14g2000cwa.googlegroups.com...

- quote -


With the kind of income in your future, plus that of your wife, you should
be looking for a financial planner with whom you can establish a long-term
relationship. Your financial situation will only become more complicated. Do
yourself a favor and begin the search for the kind of assistance you are
going to need.

Elizabeth Richardson

All

Thanks for the responses. I would like to clarify a little more and
answer some specifics to your questions.

Elle, in response to your questions:
1. The only (as far as I know) way(s) that my cc can change the
interest rate is if I default. I am not positive they can change it by
reevalutating my credit as some cc companies do -- If they did I assume
I could opt out. The fine print says life unless default.

2. I am watching my credit score and I am operating at about a cc debt
to credit ratio of about 40%.

3. Eventually a house, but we live in southern california and even with
low mortgage rates i don't really want to buy a house that inflated.
Car is about 5% and have 2 more years to pay.

All
As another data point, I am currently investing about 20% of my pay in
my 401k (my company matches 4% -- I am doing 20% to try to get the max
in this year since I started my job so late in the year). My question
is, after I max this out should I do Roth IRA for me and my spouse (she
is in law school with no income and I understand I can contribute for
her) or should I do other investments? I guess what I am asking is
opinions on ranking list of investments. I have looked into CDs but it
seems the rates are very low in the short term. I have also looked at
munis. Should I have my 401k firm manage the IRA and/or other
investments also?

thanks all for your help and i look forward to your input.

daben wrote:

- quote -

Are you sure that 3% rate on a credit card is fixed for life? I thought
credit cards were called revolving debt because they extend a new loan
to you each month and they can change the terms at any time. I would
read all of the fine print real carefully before making any decisions.

The 10% historical return you hear quoted for the stock market is an
interesting factoid, but its not much guidance for making financial
planning decisions. For one thing, that is an average over a much
longer time span than you will ever experience. Second, there have
been a few very long low performing periods over the years, and so its
perfectly possible to go 15-30 years and not see a 10% average annual
return. Third, a significant component of the historical average return
has arisen from average P/E ratios rising steadily over the last few
decades. While average P/E ratios may never decline back to old
averages, it is very unlikely that they will continue to climb like
they have been, so future returns will not have the benefit of steadily
rising P/E ratios to boost them up.

That being said, if you are absolutely sure that your loan rates can't
rise in the future then you could come out ahead, as others have
pointed out, by investing your spare cash in low risk things like CDs
and treasury bills.

Andy

I think it's a pretty good bet that short term certificates of deposit
(3-month to 2-year), for one, will average well over 3% in the coming years.
If you want to take this bet, then the rational answer is not to pay off
either loan. Instead, build a CD ladder, with rungs something like either
three or six months apart, and maximum maturity say two years or three
years. Add more to the ladder as time goes on, until all of its interest
pays off all your loans' interest, and then some.

Alternatively, emigrantdirect.com and hsbc.com, among others, offer high
interest money market rates right now. Stash at least some of your dough at
one of these online banks. I'm hearing pretty good things about these
accounts from people online. Both are paying over 3% interest right now. Use
the interest to pay off your debt.

Many 3-6 month CDs are likewise paying over 3% interest. Your bond ladder
would start with, say, four CDs: A 6-month, 12-month, 1.5 year, 2 year.
Every six months after this, you buy another 2-year CD.

Now if you simply don't like having debt because it's an emotional burden or
you hate dealing with all the paperwork, then pay off first the CC debt,
then the student loan.

Three caveats:

1.
I have read from a number of sources that credit card debt can be a little
tricky. Make sure you understand the terms. Can the credit card company ever
raise the interest rate on you? Of course if it does suddenly, you can
dissolve part of your ladder and pay all or part of it off.

2.
Are you worried about your credit score for, say, purposes of buying a house
sometime? If so, then ask how not paying off these debts affects your
prospects for a low-interest home mortgage.

3.
Do you have an emergency fund of six months to a year of living expenses set
aside? If not, definitely do not pay off this debt until you do. Is your car
fairly new? Do you plan to buy a house soon? Do you plan to have children
soon? All these are other things that should factor into your decision. Any
imminent financial burderns argue for not paying off these lovely low
interest debts.


"daben" <dabenpb[at]yahoo.com> wrote
- quote -


- quote -

my advice is to pay 2X and start investing. With investing the
toughest thing to do is START, second toughest thing is continuing the
investments when something else comes up. Establish the discipline of
saving NOW, and as debt is retired, I would add to the savings amount
whenever possible.

daben -

Your analysis of cost of capital and market returns is the correct one
based on what I know. After-tax effects are a factor to work into the
equation, and inflationary effects are usually beneficial to net
debtors, as well, but you probably have already worked those numbers.
Don't forget that the average 10% does not translate into "10% each
year". Flexibility is something to consider, and accountants sometimes
use the word "encumbrance" interchangeably with debt, but with rising
interest rates already better than 3.5% (e.g. "riskless" T-Bills), you
might at some point consider some diversification into such short-term
fixed income investments, a ready liquidity and flexibility to pay off
some debt if at some point that becomes advisable. Some other poster
with more data on credit history effects may comment on that subject,
effects on possible future mortgage, or other.

Other considerations are largely subjective. (Some people assign their
own subjective value to having no debt, or to owning their home
outright, and subjective feelings about risk are quite common though
not always rational.) Sounds to me like you got it right - just keep
your accounting up and running, and congrats on your job.

Hi All

I am typing for the second time since IE crashed and lost the detailed
version .

I have about $20k in cc debt for my wife and I at a fixed 3% for life.
I also have about $100k in consolidated, fixed at 3% student loan debt.
I have just graduated recently and gotten a high paying job so that I
can afford to pay these debts at about 5x the min.

My question is: Should I pay off the fixed rate debt quickly at 5x min
or should I pay it off slowly at 2x min (so that I make some progress)
and then invest the rest of the money?

My thinking is that the market is averaging at least 10% (historically)
and that would mean that I would make 7% on invested money.

Any comments?

thanks
daben