Tuesday, June 24, 2008

Down Payment Assistance Programs

Inspiration for this enter comes from Seeking Alpha and the Wall Street Journal

This is going to be a quick one. I'm not sure if any of you have heard about these "down payment assistance programs" or seen signs on the road for such a thing. I never understood why a not-for-profit agency would be willing to give out grants to people for a down payment. Nor did I ever understand how they could find sufficient donations to make it work. I was puzzled.

I am puzzled no longer!

Most of these down payment assistance programs are actually sponsored by home builders. While banks are no longer providing 0% down loans, this can be worked around.

Here it goes:
  1. Instead of marking down a $250,000 home 10%-15%, these home builders create a not for profit, "home buyers assistance program" and "donate" $7,500 to it.

  2. They put up signs saying, "First time home buyer? Down payment assistance available! Dial 1-888-555-5555"

  3. You call the number and they say that they're willing to give you $7,500 (3%) in assistance if you buy these homes from the builder.

  4. Builder gets the sale, and doesn't need to mark down the remaining homes in his subdivision, keeping the prices artificially high.

  5. Buyer who may not be able to afford the mortgage gets a government (tax-payer) sponsored loan from Fredie Mac or Fannie Mae because they put 3% down. These are still higher risk borrowers - they haven't proven they could save a dime!

  6. Tax payers foot the bill if the borrower defaults.

Religious Tolerance vs. Multiple Truths

The Boston Globe made a recent summary of the Pew Forum's study on Americans' religious beliefs and practices.

Among some highlights:

The United States is a nation of believers: most Americans say they believe in God, they pray, and they attend worship services regularly; they also believe in angels and demons, in heaven and hell, and in miracles.

But they also say, contradicting the teachings of many faiths, that truth comes in many forms. Large majorities of Americans say that many religions - not just their own - can lead to eternal life.

I find this to be really fascinating. I'm going to try to make a pitch here, and I hope you'll stick with me. It's not going to be on a particular flavor of faith, but trying to make a rational argument for absolute truth.

Something that is absolutely true is always correct, in all places, at all moments, under any condition.

Take for example, I reach into my pocket and pull out a dime. I close my hand around the dime and you can't see what the coin is anymore. If a friend of ours walks into the room and I tell him I have a penny in my closed hand, which he believes, it doesn't affect the fact that a dime, not a penny, is still in my hand. Our friend can sincerely believe it's a penny, but he would be sincerely wrong. Beliefs about things we can or can't see do not affect reality.

Take the theory that the sun and planets in our solar system rotate around the Earth. Until Copernicus came around, everyone sincerely believed this, but it didn't affect the fact that what everyone believed was wrong and it didn't change when people changed their mind about it. The paths of planets can't both be rotating around the earth and rotating around the sun at the same time, (unless of course the Earth and Sun were in the exact same location, which they are clearly not).

Now when it comes to faith, I think that it's critically important to realize that absolute truth still applies. Let's take Henry and Andy. Henry believes in Hinduism and Andy is an atheist. Henry believes in many gods, while Andy believes there is no such thing!

1 of 3 possibilities must exist here:

1. Henry is right and Andy is wrong.
2. Andy is right and Henry is wrong.
3. Andy and Henry are both wrong. (If there is only a single God, for instance, they would be both wrong.)

What is important for both Andy and Henry to acknowledge is that they can tolerate one another while acknowledging that their combined beliefs must fall into one of the above 3 categories. This shouldn't offend anyone, this is just reasoning 101.

When I see people believing in multiple truths, like the article alludes to, one just needs to shake their head. Not everyone can be right!

I'm going to leave this post like this for now. More to come later.

Monday, June 16, 2008

Re: Pink Ribbon

Again, I'll be replying to one of Jaime's posts, this one about fund raising.

For those of you who won't view Jaime's blog, she asks the question: What's with needing to go on a 3 day walk to raise money for breast cancer? Can't we just give money without the walking? Does the phrase, "No pain, no gain" really apply to finding a cure for cancer?

Frankly, at first glance I was like, "Jaime and I agree! Stop shutting down the cities for days, cut out all of the T-Shirts, posters and hydration stations and just fork all of the money over to the charity! Make it a lean, efficient system!"

On the surface, that's true, but the more I think about it, the more you need a big "event" to take place. The longer the fund raisers need to participate, the more they need to train in advance, the more social events they'll need to cancel and the more stuff they need to buy all equate to more people will hear about the fund raising event. The more people hear about what they're doing, the more money they'll raise. The more money they raise, the sooner they'll find a cure. (Right?)

Breast cancer is the number one killer of women. Er wait, actually it's #6, causing only 1/8th the number of deaths of heart disease, a not-nearly-as-sexy topic. (Gee, I wonder why?)

Interestingly, a big 3 day walk and all of the preparation behind it could actually reduce the risk of women getting heart disease. Unfortunately, exercise has a limited impact on actually reducing the likelihood of breast cancer. Perhaps these walks are actually killing two birds with one stone... I digress...

The point of the Susan B Komen Race for the Cure 3 day walk is to find a cure for a disease that not only kills over 40,000 women a year in the United States, but causes severe, deep-cutting emotional wounds in tens of thousands of women and also deeply affects the lives of their friends and families in very serious and lasting ways. Having energy and attention around something of this magnitude is certainly worthwhile.

Question 1: Does fund raising by the public make any noticeably impact on finding cures for diseases? Isn't there enough financial incentive in capitalistic countries for private companies to research? Does all of the money raised by not-for-profits through individuals even compare to what private, for-profit corporations are pouring into research? How about what governments are pouring into research? I don't know the answer to this one. Someone should do some research for their blog. I find this to be very interesting question.

Question 2: in the U.S. Let's say that all of the fund raising by all individuals in this country to all breast cancer non-profits amounted to 0.1% of the total amount of funds appropriated to breast cancer research by the U.S. government and private U.S. corporations. Would donating to these causes by individuals for fund raisers make sense? I believe the answer would be a resounding no. What if that number increased to 1%? 15%? 50%? That's where things become a little more gray. Ahh the beauty of ethics. I have enough readers who must have an opinion on this.


Monday, June 9, 2008

Thoughts on 401k for the Twenty-Somethings

So I know that some of you might not really care much about retirement at the ripe old age of 20 something, but I know that enough of you have some sort of 401k or own some quantity of stocks and haven't put much thought into which mutual funds you invest.

To be clear, I firmly believe that it's important for people to be putting SOMETHING away for retirement, no matter what they're age. I'm not saying that you need to squirrel away 25% of what you bring in, but the number needs to be above 0%.

Don't say that you can't afford it! There may be times where it is wiser to not put money in your 401k, like if you're saving for a major investment like a home, or need to pay off significant portions of debt, or are funding the education of yourself or a spouse and it will imply taking on less debt. However, if you aren't in any of those situations and "can't afford it" then I'm adamant that you need to adjust your present lifestyle to afford to retire.

I was speaking with a friend of mine that said he wasn't too worried about where he put his money. He's just putting most of his money in an S&P 500 Index and will let it ride for a while. It's pretty safe he figured.

For those of you who don't tune into CNBC every night, the S&P 500 is a index fund that has the 500 largest public traded (companies with stocks) put together. You'll see how this index performs pretty much every evening on the news and in the paper every morning, along with the Nasdaq and Dow Jones Industrial Average (DJIA). For decades it's been pretty safe and stable.

What is interesting is that up until about 10 years ago, a mutual fund trying to mirror the S&P 500 was a pretty safe place to just park your money. The returns were descent and you were well diversified among 500 large, stable companies.

However, for the past 10 years, the returns on the S&P 500 are pretty poor.

A graph here shows performance over the last 10 years: (Google)

As you can see, over the past 10 years, the S&P is only up 22% - that's only 2.05% per year. I can earn more than that with zero risk in a passive savings account. Bad news!

My point here isn't to give you specific mutual fund choices, but rather to encourage you to talk with someone who manages your mutual fund (if your company is large enough, they might have an adviser come in twice a year). Take some risks while your young and plant money in the mutual funds on your plan that have the best 10 year average return. Options to plant your money in target date mutual funds aren't too bad, but typically under-perform other funds.

If your company has any sort of a match, make sure you contribute at least that amount. Danaher matches 50 cents on the dollar up to 6% of your income. If I elect to contribute 6% of my income, Danaher will put the equivalent of 3% of my income in my 401k to match. That's a 50% return - try to find any sort of mutual fund that can do that.

I would only invest in your company's preferred stock purchase plan (buying stock of the company you work for) if it is among the best annual returning option on your list of investment choices. One reason for this is pretty simple - you're already vested in the company you work for. If your company falls on hard time, the company stock price might fall, and so might the axe on your job! Then you're out of money for retirement AND out of a job. That's a double whammy I could do without!

For instance, I have about 16% of my 401k in Danaher stock because it has been a well performing stock over the past 10 years. I would never have invested in Abbott, though I did work there for a period of time.

Interesting, I've read that having a minor short position in your company could be considered a hedge, but not really something I'm interested in doing.

It's also important to be internationally diversified. Again, you're already vested heavily in the country you work in. Not everything is revolving around the U.S. anymore. Major growth is going to be coming out of emerging markets, though purely emerging market funds have probably already had their run. Get a broadly diversified international mutual fund or two and plant significant funds there. You don't want to be parking your money in bonds when you're 20 something. They under-perform stocks and are only a good place to put your money on a sliding scale as you're nearing retirement because they're less volatile.

Anyway, that's a little slice on some thoughts for now. Enjoy!

I need to apologize....

Jenn and I split a 5 dollar foot long at Subway on Sunday night. Going down the list of ingredients, Jenn asked for tomatoes, to which the sandwich artist replied, "We're not serving tomatoes today."

Jenn sort of shrugged and as we were walking out asked, "Why do you think they're not serving tomatoes?"

I replied, "Either they're too lazy to cut up more (it was Sunday night) or they ran out."

Little did I know they were trying to keep me from getting salmonella.


Sorry subway guys. You aren't lazy or poorly Kan-Baning your inventory.

Friday, June 6, 2008

Dry Drowning?

Found this really wild article:

Boy Dies of Drowning After Walking Home from Pool

I couldn't believe it.

Most frightening comment in the article:

According to the latest figures, about 3,600 Americans died from drowning in 2005, said the US Centers for Disease Control and Prevention (CDC), including a small percentage that die up to 24 hours later because of water entering the respiratory system. A not insignificant number of the victims are children who died after having a bath.


Re: Living with the 'Rents

Jaime asks the question, "What's with all of the 20 somethings living with their parents?"

So, I did a Google search to see if I could figure that out.

Among the most interesting articles was referring to a book titled, "The Boomerang Generation." Though the article is from 2005, the statistics are very interesting:

Myth: College graduation marks the beginning of domestic and financial independence.

Fact: 63 percent of U.S. college students plan to live at home after graduation.

Myth: Boomerangers are always a financial burden on their families.

Fact: About 50% of Boomerangers contribute to household rent and expenses.

Myth: Living at home is a sign of failure.

Fact: 25% of the Boomerang population is attending a post-secondary institution, and 45% are working full time (Mitchell, 1998).

Myth: The return home is a temporary, one-time event.

Fact: Some families reported kids who boomeranged three or more times. Half of young adults return within 30 months, often with a spouse or child back in tow. (Snyder, 2000)

Myth: Parents are always unhappy with having to change their lifestyle.

Fact: 73% of parents (Mitchell and Gee, 1998) reported being "very satisfied"

Myth: The Boomeranger phenomenon will decrease over time.

Fact: As Generation Y reaches adulthood, there will be more 20- to 34-year-olds in 2010 than in 2000, increasing the number of Boomerangers (US Census Bureau).

Many people in their 20's are still living at home. The most common reasons apparently are unemployment and student debt. In just the past 10 years, the average amount of student debt has more than doubled:

Also, starting salaries vary significantly. Some college graduates earn twice as much right out of the gate. I can't expect the person earning on the bottom side of the scale with with $30,367 in student debt, a car payment and a 70 mile round trip commute in to be living by themselves. The numbers don't add up!

I guess the bigger question is - why the pressure to live on your own? Why throw away thousands of dollars in rent money when you could be paying off debt? I lived with my folks until I got engaged and it was among the smartest things I did. It definitely depends on your family life and if you can tolerate the lifestyle with your folks the second time around, but getting financially secure for a few years in your 20's isn't something I'm too worried about.

The person I am worried about is the never-really-employed 30 something still living with their parents. That's a whole different story!

Monday, June 2, 2008

Exploited Workers in Africa

I'm not usually one to just pass out a link and say, "See for Yourself"but one of the areas where I really sympathize is horrible working conditions and war in 3rd world countries to meet a global demand for stuff - in this case, gold:

Mining for Bling

The Democratic Republic of Congo has been fighting off attacks from insurgents and other government funded militias who create civil unrest and cause genocide within the country. Only recently has the United Nations been able to stabilize the country.
There, once "child soldiers" have now become child miners, paying a local mining fee to warlords and earning 25 cents profit each day mining. The children take liquid mercury (you know, the stuff that had Arlington Heights all abuzz a few years back because of a possible spill in the crawlspace of a suburban home) and mix it with mud to absorb gold they find. They handle this mercury with their bare hands.

All of this is because gold is:

1. Used as an international currency and
2. Highly desired by people to have shiny things to wear.

I won't even get into diamonds and the whole joke of the Kimberly Accord.

Though dated back in 1982 - very little has changed since this fascinating article written in The Atlantic, Ever Try to Sell a Diamond?

The bottom line is, you can't. Used Diamonds don't hold their value and their value doesn't increase beyond inflation, all being controlled by the diamond monopoly, aka De Beers. They paid a $295 million fee to settle their price fixing schemes back in January.

If you bought a diamond recently, you just missed the window to claim a 30% refund off your purchase price by settling at diamondclassaction.com