Fortune: Home Price Faces 16% Correction In Five Years
With the sudden realization that the housing boom is officially over, our interest is shifted to where the bottom is. To that end, Fortune Magazine released an in-depth analysis on how housing price in 54 major cities will likely evolve in the next five years. Fortune's analytical framework assumes that the ratio of rental cost and home price will return to a historic norm, and the journey to a normalized price/rent ratio will involve a correction of current home price, in conjunction with gradual rental increase over time.
The conclusion: on average, the nation's home price is over-valued by 28%, and for it to return to the norm in five years, we should expect 16% price correction, in addition to 12% increase in rental cost.
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Exchange Traded Notes: A Potential Rule-Breaker?
Both SmartMoney and Kiplinger's Personal Finance recently shed light on a completely new genre of investment vehicle available to the general investors: Exchange-Traded Notes (ETN).
iPath ETN, created and marketed by Barclays Bank, PLC, is very similar to ETF, or Exchange-Traded Funds (also pioneered by Barclays), which can be traded like a stock throughout the day, but also mimics the returns of a benchmark index. However, ETN comes with an important tax advantage over ETFs and mutual funds -- it is not required to distribute dividends and capital gains every year, making it possible for investors to avoid paying tax on such distributions, and having more money at work until the final redemption.
Now here is the caveat: in order to achieve these tax benefits, ETNs are structured as unsecured, unsubordinated debt securities issued by Barclays Bank PLC, with returns linked to a pre-defined benchmark index, minus fees. In other words, the value ETNs are secured by the credibility of Barclays instead of a pool of underlying investments.
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How to Get 8% Annual Return with Zero Risk
What if I tell you there is a risk-free investment that is backed by the full faith and credit of the U.S. Government, will guarantee you an annual return of 8%, and is open to every taxpayer?
And this investment is made available by an unlikely source: IRS.
Yes, you didn't read it wrong. It is from the famous/infamous Internal Revenue Service.
I only learned this from my finally-arrived-after-10-month-delay tax return check for my 2005 federal tax return. (Long story short, my tax advisor can only file my 2005 tax return in January 2007 in order to satisfy certain requirements for foreign-earned income classification. And then my check got lost and we have to file a request using IRS Form 3911 to trace the check. IRS finally issued a replacement check last month.) To my surprise, the amount on the check is $408 higher than what we asked for the in the original return.
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Revealing Details of a 401(k) Plan
Every year, each 401(k) Plan Administrator is required by law to disclose summary financial information of 401(k) plan to plan participants. I was reading the Microsoft 2006 Summary Annual Report today and some numbers are quite revealing.
Here is the original text from the report:
"Benefits under the plan are provided by Fidelity Management Trust Company. Plan expenses were $174,588,997. These expenses included $0 in administrative expenses and $174,588,997 in benefits paid to participants and beneficiaries, and $0 in other expenses. A total of 58,263 persons were participants in or beneficiaries of the plan at the end of the plan year, although not all of these persons had yet earned the right to receive benefits.
The value of plan assets, after subtracting liabilities of the plan, was $4,430,511,055 as of December 31, 2006, compared to $3,522,951,171 as of January 1, 2006. During the plan year the plan experienced an increase in its net assets of $907,557,884. The increase includes unrealized appreciation of depreciation in the value of plan assets; that is, the difference between the value of the plan's assets at the end of the year and the value of the assets at the beginning of the year or the cost of assets acquired during the year. The plan has a total income of $1,071,286,136 including employer contributions of $128,814,606, participant contributions of $428,090,550, realized gains of $0 from the sale of assets, earnings from investments of $213,077,272, and unrealized appreciation of $301,303,708."
If the above numbers are boring, below are some interesting revelations from quick calculation:
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Portfolio Update - October 2007 (Up 3.08%)
SUMMARY
October is another winning month for my portfolio. My portfolio appreciated another 3.08%, which handsomely beat my benchmark by over 60 basis points. The result is attributable to a couple of winning stock positions (APOL and BRK.B especially) and better mutual fund performance vs benchmark, slightly offset by the loss in my financial stock plays.
So far this year, our portfolio returned 13.7%, compared to 12.3% return from our 50-35-15 benchmark and 11.3% return from the 45-30-25 benchmark.
Outside of the self-managed portion of my portfolio, it is worth mentioning that the value of my employee stock option account more than doubled in October, thanks to terrific quarterly results and upbeat guidance. Including the stock option account, my portfolio is worth over a million dollars for the first time!
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Monthly Update - October 2007 ($909,656, +76,911)
One month after we breached the $800s mark of our quest for net worth accumulation, we are now in the new domain of the $900s. Our bottom-line is happily lifted by a blow-out quarter from my employer and the ensuing multi-year highs of its stock, together with significant gains from my self-managed portfolio.
At $909,656, we have out-delivered our annual net worth growth goal of $230,000 by over $48,000, and we did this two months ahead of time.
While we fully understand that the stock market may turn in opposite directions overnight, we are really happy about where we are and what we accomplished. We look forward to exciting planning process for 2008 to bring our net worth up another notch.
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