Holy, um, Cow!

It has been a while since I wrote. For a reason. The financial turmoil we've all been reading about in the papers came home to roost, so to speak, right here. I got laid off in late October and have been marshaling resources/networking/job hunting like a crazy man. Nothing focuses the brain like huge debt on the one hand and no job or income stream on the other. So here we are.

The good thing is I don't have to explain to potential employers why I'm knocking on their doors. The other good thing is that I have had a bit of a jump on the thousands of others who were more recently let go. And the other good thing is that I am past the anger and bitterness that always infects one's mind after being told basically, "it's not you, it's me," which means that because these financial institutions could not manage their households properly suckers like me get played. But I'm over that. I swear.

Meanwhile the news is that the execs that are left at my place are gallivanting around spending untold amounts of government bailout money and paying bonuses high enough to support me and every other employee who was laid off recently for years at the company. Makes no sense to me. And it seems un-American. I thought we looked out for each other. I thought we acted as a team. OK, enough of that. I've got to focus my mind and move forward. This is the greatest opportunity I've ever had. To go out and find something that will allow me to take a step forward personally and professionally. And heck, if it's in Hawaii, all the better.

I have to go to the doctor's office today before my health insurance gets cancelled. Yeah, this is fun.

knuckles

Back a few months ago we shifted our retirement investments from bonds and cash equivalents back to stocks, but mixing the mix a little more than we had before. Previously we were concentrated in international stocks, but for this shift we moved to roughly equal shares in bonds, big caps, small caps and international funds. And then the market kept sinking. I feel good that we avoided at least part of the downward trend, but in the last two months our stocks have sunk about 7%, which is hard to watch - white knuckles gripping the keyboard straining not to panic trade and lock in losses. As my dad always said, it's not a loss until you sell. So we're going to wait it out. We've got time.

Since the downturn in equities we've been more aggressively allocating our contributions in an effort to lower our overall cost for the shares we've bought. That's a long term strategy, and I feel both hopeful and anxious about it.

Now for a little theory (or whatever you'd like to call amateur financial market thinking). Starting with the presumption that the markets will generally increase in value/price over the long term (and we all pretty much must believe this if we've invested in the markets for long term savings), downward trends present what I would call a positioning opportunity.

Stocks to me have two basic attributes - price and quantity. Maybe this is merely a convenient way to rationalize my way through a downturn, but looking at my account statements I see value and number of shares for each of the funds we own. When the prices are rising, the number of shares stays relatively level because our contributions buy fewer shares. When the prices go down the number of shares increases faster because our contributions buy more shares.

Next thing I consider is time. That is, time to withdraw. We have time (we think) to the tune of 30 years, 35, maximum. So a downturn is actually beneficial to us over the longer term. Buying more "position" will allow us to increase our net by the time we are withdrawing, assuming that the downturn doesn't last forever and eventually stocks continue a generally upward trend.

So now I'm focused on position. What has lost the most value recently, how can I maximize my exposure to those sectors so that over the longer term I might benefit from a bounce back.

And if I'm wrong? Well,then so are many others, and we'll have bigger problems. I'm good with that...the risk, I mean, not any eventual "bigger problems."

One down...

Five to go! April 15, 2008 saw the full and complete payoff of my first student loan! Big party!

Now back to work. I still have about $130,000 in student loans as a result of grad school, but we have a plan. We pay extra to the principal of the highest interest rate loan, then roll over that payment plus the minimum payment from the loan just paid off, into the next one.

Line em up, knock em down.

2007

So I just learned how to do a chart in Excel, and I charted our "net worth" over 2007. Yowza! we went from about $40,000 in total net worth in January 2007 to over $93,000 at 1/1/2008, which we wrote down to $75,000 because of the possibly sinking value of our house. The house value estimate is all funny money anyway - the only loss or gain occurs if we sell or cash out, I guess.

At any rate, the point of this post was to talk progress this year. We went down a little bit from January to March, then April, which in this case was not the cruelest month, saw our net worth zoom from just over $75,000 to almost 88,000 by May 1. That has to be the largest one month gain, with the possible exception of December 1, 2007 - January 1, 2008, where we saw a $20,000 plus gain.

In this case, I think a confluence of events conspired to give us the boost: our tax return was about $4,000, the stock market rebounded just as I shifted from a bonds dominated portfolio in our 401k to 80/20 stock mix with a slight emphasis on internatial funds. That has worked out well...so far...

Overall, good news. I'm working on a private business that will at least be an interesting diversion, and at best make us a little side cabbage. It's fun - involves history and architecture and New York, a city that is rich in lots of ways.

Good night blog.

surfacing....

Twins...born. sleep...none. work...lots. love...lots. fun...yes. tired...you bet. all's well. we love it!

2008 Work Out

The year end is a natural time to think about financial progress, goals, and ideas going forward. I do not consider myself very educated about all this, but just tracking balances on a monthly basis has me thinking about what might be helpful to track going forward. Right now, we track liquid assets (cash and stocks), illiquid assets (IRA's and 401k's), hard assets (cars and home); as well as debt (credit card, student loan, mortgage, and cars); add all that together and get our "net worth." We leave out things like pensions, accrued vacation time, children's assets, and liabilities such as tax liability and our dog (in general).

So, what do we want to know? And what would give us the most realistic and true outlook going forward? I would like to know whether we're on track to retire with $2.5 million, and how long that would take at this pace. I would also like to know whether we can afford to buy a big television set, which I really can not readily discern from this tracking. Metaphorically, I see that we are currently mapping the road as we go, but I'd like to see beyond the horizon to see when we'll get "there" and would like to see whether we have time to explore a few side roads along the way. Neither is clear to me at the moment.

Within our current system, I've been trying to think about how best to reflect our net worth, particularly because the vast majority of our net worth is tied to our home's value, which is likely in flux these days thanks to bubbles bursting, credit crunches, hysterical press articles, and all the rest. I thought about taking mortgage and home value out of the consideration altogether, but that seems unsatisfying, particularly since we make progress against the mortgage principal every time we make a payment. Perhaps I should take a small write down, and return our home value back to what we actually paid for the house? I had appreciated it some (but not much, considering the years we've owned the asset), and maybe should just take out that presumed appreciation, barring some appraisal or other solid information we could point to. Then again, we have made some improvements to the house, like adding a room, refinishing the floors, painting the entire interior, and upgrading the bathroom. I could consider the capital improvements we've made to the value, could split the difference, or could disregard them altogether.

Because there is so much uncertainty, I think that taking the house value back to what we paid makes sense, but then again, we added an entire room by finishing the attic off, so maybe I'll include the amount we paid for that work to the value, to reflect all of the work we've put into it. That amount is probably 2/3 of the total amount we've spent on improvements, that may be a decent approximation, and that's basically all I'm shooting for.

OK, that makes sense. I'll take the value back to what we actually paid (387,000) and add the amount we paid to have the attic finished off (about 10,000), which still will hit our total net worth by about 15,000, but that's OK, this is all theoretical anyway, unless and until we have to sell.

See, that's the beauty of NOT being Morgan, Merrill, et al. We get to continue to make it up...

Writedown - is what's good enough for Citi good for us?

So, should we take a write down on the value of our house? I'm talking about the value we ascribe to our house as we keep track of our net worth. This is a totally esoteric debate since we're not planning on selling anytime soon. We may, however refinance the house in a couple of years, so maybe it would benefit us to take a very conservative view, if for nothing else, it would keep us pleasantly surprised when the refi happens.

Does it matter? We haven't jacked up the estimated value of our house since we bought 3 years ago, only going up about 7% over the purchase price a year ago, and have not touched the estimate since. Housing prices have gone down some around here, but not a ton, and it is not the case that there are tons of house sitting on the market - a few, yes, but not strings of for sale signs along any blocks so far.

A more reality based thought is that if we look to our "net worth" estimate as a barometer for how much debt we think we can take on, then we should probably take a write down. If we resist debt at all costs, then it probably does not matter whether we take a write down on our books. Probably what we should do is make a calculation on our spreadsheet that eliminates the consideration of both our mortgage debt and our home value estimate. That way we can see whether and how we're progressing against our other outstanding debt, which is almost all student loan debt.

That sounds like a plan...

Ch ch ch ch changes

We've got more kids on the way. As in twins - due soon, and it will bring our grand total to 4. Who has four kids? We will! And we're all fired up about it.

This does cause some concern among the adults, though. Questions like: where will we all sleep? Will we sleep? (likely not, for a while) should we get some help? (definitely) Can we afford this? (definitely not!) So we made a list. A long list with everything we needed to do: house renovations, buying stuff, getting ready, finding someone to come help us! We're knocking down the 'to do's' and we're just about ready. We have an au pair coming in a couple of months, I got a new job for more dough, and I've made a spreadsheet estimating how much everything is going to cost.

It's going to cost a lot. Think luxury minivan. Think trip around the world. Think new boat. But hopefully we'll be OK. I think we will, what with the new job and the (relatively) new organize our finances mantra. I think we will.

'night.