How do your money habits compare to the Jones's?

There's a site in beta that allows you to compare your spending (and soon, saving) habits with the proverbial Jones's. It's called Bundle.com. That's more interesting than it may sound at first, as you can slice the data any which way — by geography, age group, income, type of household...you name it. You can even see which business end up with the most of your hard earned money.

It's quite interesting to see the story Bundle tells via its data. But it also comes with a warning label. When I reviewed Mint.com (membership required) I said the following:

The second "Trends" section is what they call "SpendSpace." Here you can choose a category and a geographical location and see how your spending compares to others across the country. You can even compare your spending by merchant.

Caution #7: This is one of the most interesting, addictive, and useless features in Mint. Why should I care if I spent less on "Hair" than someone in Cleveland? Or more at Old Navy than your average Alaskan? I shouldn't. It's not going to change my spending decisions one cent. Nevertheless, like much of the Web, it's a fascinating time waster.

This type of reporting is more-or-less the point of Bundle. Yes, there are other features like "Discoveries" which is a blog aggregate, and a spending quiz that groups you into a "spendtype." But the primary reason to visit Bundle is to, as the site says, "... see how people like you spend and save money...".

I'm not sure how actionable the data is (though it probably has its uses). But it's certainly interesting, and a little bit addictive. So consider yourself warned.

Posted by Matthew at 4:42 PM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): christian financial, money saving tips, savings, spending

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Keep your money fund or dump it?

It's no secret that interest rates for money market funds are scraping bottom. Even the top recommendation in our current money rates table (subscription required) is paying a scant 0.30%. Vanguard Prime, one of the best-known and most popular MMFs available, is yielding a barely noticeable 0.05%.

So is it time to abandon the money-fund ship and move your savings elsewhere?

Russel Kinnel, editor of Morningstar's FundInvestor newsletter (and director of the company's mutual fund research), is advising MMF investors to hang on rather than bailing on MMFs and moving to short-term or ultrashort bond funds.

We're still wary of ultrashort funds [following the implosion of several such funds in 2007 and 2008]. Short-term bond funds can work if some losses in the short run are acceptable — for example, if you are parking money between investments, plan to hold for a year or two, or just want a conservative bond holding in your long-term asset-allocation scheme....

But for other uses, such as emergencies or upcoming big-ticket expenditures, I'd stay with money market funds. Think about what will happen when interest rates start to rise. Bond funds will initially lose money because their superlow-yielding bonds will be discounted in the face of new higher-paying bonds. On the other hand, money market funds will quickly start to have higher yields, yet they won't lose money when rates go back up.

Kinnel concedes that MMFs aren't exciting, "but money market funds are there to serve in an emergency. Insurance always costs you money, and that's how I'd look at money markets."

Another practical matter is simply: Is it worth the trouble to switch? A Los Angeles Times story (titled, "Look, Ma, Nearly No Yield") quotes Peter Crane, head of money-fund research firm Crane Data: "My general rule is, if you're not going to make $100 more [in interest] by switching, don't bother."

Although 2009 was the toughest year on record for money funds, the MMFs recommended by SMI outperformed the overall field (for the 12th year in a row). Details are available for SMI web members in our February Level 2 article.

Posted by Joseph at 4:56 PM | Comments (0) | TrackBack
Category(s): Mutual Funds
Tag(s): christian financial, christian investing, investing principles, money market funds, mutual funds, savings

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"Yesterday's winners, tomorrow's losers"

In an article on passive vs. active approaches to mutual-fund investing, the Wall Street Journal quotes Vanguard founder (and passive indexing guru) John Bogle on what is perhaps the biggest challenge facing active investors: "Yesterday's winners," said Bogle, "are far more likely to be tomorrow's losers."

In other words, many actively managed funds are loaded up with stocks that did well in the past (that's why managers bought them) but that are in the process of becoming underperformers. Active managers are constantly playing a game of "move ahead, then fall behind" — which generates expenses, but not much to show in terms of actual profits in comparison with low-cost indexing.

Two observations: 1) Bogle is right — this is the general case with active management; 2) Nonetheless, many actively managed funds have runs of outperformance that can stretch for many months (even years in rare cases).

Identifying these outperforming funds and investing in them until their success begins to falter is the essence of our Upgrading strategy. Upgrading isn't perfect, but that's okay. There is no perfect strategy. What Upgrading has been able to do is generate annual returns that have strongly outperformed indexing in recent years (although not every year; as noted in our just-released February issue, indexing eclipsed Upgrading ever-so-slightly in 2009).

We're all for indexing for those investors who want to follow that approach — and we're thankful that Mr. Bogle's Vanguard firm offers a terrific mix of index funds that we use for our Just-the-Basics indexing strategy. But we're also glad that Upgrading offers a way to meet the "yesterday's winners, tomorrow's losers" challenge and (usually) come out ahead.

Posted by Matthew at 11:52 AM | Comments (0) | TrackBack
Category(s): SMI Model Portfolios
Tag(s): christian financial, christian investing, investing principles, stock market, upgrading

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House ≠ Happiness

I recently read Stop Acting Rich...and Start Living Like a Real Millionaire, the latest book by Thomas Stanley, author of the 90's best-seller The Millionaire Next Door. There was one specific part that jumped out as something to share here.

First, let me point out an underlying truth, that hopefully most SMI readers will immediately recognize: there's a lot more to true happiness than incomes, spending habits, and such. Without Jesus, the rest isn't worth anything, whether a person thinks they are "happy" or not.

With that said, though, it's important to also point out that Christians are not immune to the correlations between money usage and happiness. So don't be too quick to discount the way you handle money as a strong influence on the degree of happiness you feel. The great news in this regard is it's the way you carry out your stewardship duties (my choice of wording) that is found to be predictive of happiness in study after study, not the absolute level of wealth or income you possess.

Back to Stanley's book. Throughout it he illustrates the contrast in spending habits between two groups: those with high incomes but low net-worth (big earners but big spenders), versus those with high net-worth who may or may not also have high incomes.

In his chapter on housing, Stanley goes into some detail about the degree of happiness these groups (and some subsets within those groups) report. Most happiness studies find that factors such as health, loving families, and enjoyable jobs are the most important ingredients to overall happiness. But in his studies, even when these other factors were present, there was still a noticeable split in happiness among the high-income group.

Stanley explains:

Much of their dissatisfaction is found in certain choices the have made. Two key choices are neighborhood and house. Both of these elements influence consumption patterns. What if you earn $200,000 a year but spend like neighbors who earn $300,000? You are likely living above your means. As my surveys and studies have found, those who live above their means tend to be dissatisfied with their lives. Conversely, those who live below their means are significantly more likely to report that they are happy.

He goes on to develop the point that the price of the home is only the beginning. When you live in a more expensive neighborhood, the cost of everything seems to creep up, if for no other reason than the spending habits of your neighbors tend to pull yours upward. Few are immune to that tug (and those who are probably are less likely to buy into the more expensive neighborhood in the first place!).

Stanley is hitting on a theme here that we've mentioned before in this blog, namely that absolute income is not as good a predictor of happiness as relative income. To illustrate this simply, someone making $100,000 is statistically more likely to report they are happy if they live in a neighborhood where most of the neighbors make $75,000. In fact, it's quite likely that person could make more money, say $150,000, and wind up reporting they are less happy — if they live in a neighborhood where most of the neighbors make $200,000.

In case you're tempted to think you would be happy in any of those scenarios, given the high incomes I'm talking about, guess again. The same pattern holds whether you cut all the numbers in the prior paragraph in half or double them.

Stanley has this advice for those caught in this trap, or possibly inching towards it without even realizing what they're about to do:

How can these Smiths [those with relatively lower incomes than their neighbors] find happiness? Get out of Jonesville [i.e., neighborhoods with houses that are a struggle for them to afford]! This is an especially urgent message now with real estate prices plummeting and some tempted to grab a so-called bargain in or around an exclusive neighborhood. Never forget that that nice house in the prestigious community will cost you considerably more than the price of the mortgage, real estate taxes and insurance.

Your ego may take a bit of a bruising by admitting that you don't have the income to live among the glittering, but bruises fade with time, and it's almost guaranteed that your satisfaction with life will increase once you are no longer fighting to keep up with those who can simply run faster.

Posted by Mark at 2:13 PM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): christian financial, family finances, mortgage

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Where has all the money gone?

Citing stats from the Investment Company Institute, USA Today reports that investors withdrew a net $490 billion from money market funds during the first 10 months of 2009. Most of went — where?

If you guessed "into stock funds," you're wrong. Nearly two-thirds of the money went into bond funds.

Normally, investors chase after stocks during periods of red-hot returns, and this year has produced rip-snorting returns for many stock funds. The average stock fund has soared 27.4% this year, according to Lipper, which tracks the funds. And 36 funds have soared 100% or more in 2009.... But investors aren't chasing hot returns.

Instead, they're "chasing" the perceived safety of bonds. Plus a significant number of investors apparently are cashing out and using the money for "non-investing" purposes.

"More money is flowing out of money funds than is going into bond funds — something that's only happened twice in 26 years," says Vincent Deluard, strategist at TrimTabs.com, which tracks fund flows. "It shows how deep the recession is: They may be taking money out to pay the bills or the mortgage."

Unfortunately, the story doesn't break down — for the dollars going into bonds — just how that money is being spread among funds of different average durations. Given current low rates, short- and intermediate-term funds would seem to be the safest bond funds to be holding now. People buying into funds with long durations may be setting themselves up for a major disappointment.

Bond prices typically rally when interest rates fall and tumble when interest rates rise. The yield on the bellwether 10-year Treasury note is just 3.54%. "If rates rise, that would be bad," Deluard says.

Indeed, as we warned in the January issue of SMI, the "potential for rising inflation to hurt bond values by pushing interest rates higher is one of the more important big-picture ideas for investors to be mindful of going into the next decade."

For more on this, read Mark's recent article, Re-Evaluating the "Safe" Part of Your Portfolio.

The Wall Street Journal has also taken note of the heavy inflow into bond funds, speculating that the shift from stocks to bonds is influenced by the fact that "[b]aby boomers...are bulking up on bond funds as they approach retirement."

In November, only three of the 20 best-selling funds were diversified U.S.-stock funds (one index mutual fund, two index ETFs).

Posted by Joseph at 2:27 PM | Comments (0) | TrackBack
Category(s): Current Market Events
Tag(s): bonds, investing principles, stock market

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The Ghost of Christmas Budgets Future

By now you've worn it, played with it, smelled it, ate it, listened to it, watched it, cut with it, mixed in it, served on it (or in my case, because I didn't really know what to ask for, broke something on purpose and then Mighty Puttied it), or some combination of the above. Some of you have already returned it for whatever it was you really wanted.

But my question is this, "How'd your budget do? Does it need a little Mighty Putty of its own, or did it hold up pretty well?" Or perhaps a better question is, "What, if anything, will you do differently next year?"

As for me, next year I'll do a better job of looking at sites like dealnews.com (slogan: "Where every day is Black Friday") before I go out shopping. But I have to say, using these online saving tips paid off, especially Bing Cashback (UPDATE: Bing Cashback has made some changes and not for the better.).

I'll also continue to use cell phone apps like have ShopSavvy which kept me from overpaying on more than one occasion. With ShopSavvy, you simply take a picture of a product bar code with your phone's camera, and within a few seconds you're shown a list of the best local and internet prices for that item.

And perhaps next year, I'll focus our September-November shopping on the non-toy presents. According to Dan de Grandpre, founder and chief executive of dealnews, the best time to buy toys is at least two weeks after Black Friday (or about two weeks before Christmas) when retailers, such as Toys 'R' Us, Wal-Mart and Amazon.com, slash prices to clear out unsold inventory.

I'm also going to push for drawing names on my wife's side of the family. It's so much more enjoyable (and quite a bit less expensive) to worry about buying gifts only for one or two people. Plus, they get better presents 'cause we can afford a little bit more.

The downside is if you draw you-know-who's name (a.k.a. MrOrMrsImpossibleToBuyFor - because they either don't like anything or they're just going to take it back, or they're taking it back because they don't like anything), you're up a creek for a bigger present.

But all and all, if we keep to the same intentional and pro-active strategy next year, will we let our budget scare us? Not a ghost of a chance.

Posted by Matthew at 8:11 AM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): budget, family finances, money saving tips

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