Friday, March 23, 2007

Risk versus Return: why stocks are less risky than bonds

This great article from the author of Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market talks about how bonds, over time, are actually riskier than stocks.

I have a few financial quirks. One is, whatever my college roommate does -- do the same thing. This was someone who saved money while paying for private school. This was someone who turned around and paid off $30,000 in student loans in 3 years. If she decides to invest, I invest. If she saves with PayPal, I save with PayPal. You get the picture.

The other thing is, whatever my parents do -- do the opposite. This is because my parents have perpetual bad luck with financial ventures of all kinds. They buy cars that blow up, die, depreciate madly, lose their paintjobs, etc. They currently own four cars between the two of them. They invest in stocks and the moment the stocks tank, they pull out their money and reinvest in bonds without waiting for their stocks to recover. My dad bought gold low and now that gold is high, he refuses to sell. The list goes on and on...

Anyway, my dad thinks bonds are the greatest thing since sliced bread. I have always thought bonds are a rip-off, and this confirms it. I love the risk of the stock market, to tell you the truth. And I especially love the fact that -- hey, I'm 31 years old! If my stocks tank, I have another 34 years to let them recover, or to remake that money, or whatever. I don't understand people in their 20s who are terrified of losing money in investments. Did you drink a latte this morning? You just threw $3 down the drain. Go to parties? Impulse shop? Drink alcohol? All these things cause you to lose money. So why the hell do you care if you lose a few hundred in stocks? I lost several thousand investing in a private college education, and I'm losing thousands more on interest from my student loans. The nice part about stocks (as well as the education, as it were) is that I actually stand to get money back. What could be more fabulous?

Here's the graphic. I love hard facts that go against people's general ideas. It makes me feel all warm and gooey inside. :) As you can see, treasury bonds and stocks carry the same risk of 6.9, but the rate of return on the stocks is 2.575 times higher than the rate of return on bonds. Inflation-protected bonds carry slighly less risk but the rate of return is even less than regular bonds and rate of return is 68% less than that of the stocks. Ouch!

I'll pick the stocks, thank you.

Monday, March 12, 2007

From credit cards to identity theft

From the Boston Globe (and thanks to BostonGal):

One day you're an average citizen, managing the monthly bills, doing the 9-to-5 thing. The next day you stop for gas, scrape away a silver circle on a card, and become a millionaire. Or you call a phone 10 states away and learn a stranger is claiming to be you. What's it like to always leave home without the plastic? Or dream about opening your own cafe -- and then actually doing it? Or take time off and refocus your priorities by listening to a lama? Meet five folks who've encountered financial situations the rest of us only fantasize -- or fret -- about.
My favorite story -- the man who won a million dollars and celebrated by ordering take-out.

Friday, March 9, 2007

March Money

Well, if you look to the sidebar to my networth, you can see it -- the line pointing down. Yes, I did our March financials and the prognosis is not good. Primarily this is because we spent $1500 on childcare for January and another $800 for February. There was some crossover as I went part-time before the end of February and so we still had to pay a lot but with reduced income. That resulted in a $2400 leap in my credit card bill, so that is my goal for this month -- to start paying that down. Otherwise our debt is slowly but surely retreating, and I hope that a few months of level-headed spending will have us on our way.

My life has been super stressful of late, mainly due to my job. I don't tend to write about work at all; even though this blog is anonymous, I am a little paranoid. Many people have lost their jobs for blogging about work! That being said, there was a personnel issue at work, and a fellow co-worker was accusing me of various things that were not true. I think it was a case of out-the-door-itis. By this I mean that, since I was nearly out the door, I was a convenient scapegoat for everything that went wrong or didn't get done. However, I said my piece and now I'm laying low and waiting for things to blow over. I think this is how it frequently happens, anyway -- there are good times and there are bad times, but things work out in the end.

Regardless, the stress meant I haven't posted much on this blog and so I'm ready to get started again. I am hoping we can get a better handle on our finances this year. The daycare situation really knocked us for a loop, but now that I am part-time I think we can get on track again. My oldest is going to school in the fall, too, and so long as we don't pay for private school I think it will be a relief not to have to pay for preschool or daycare anymore.

Here's to hoping for a better month in March.