Invest

My Money Blog:

Shopping for my recent mortgage loan was a pain. It shouldn’t be this hard! I had hope for Zillow, but a recent quote request for my same loan only got two offers from lenders, both of which weren’t very good. Ah well. Until it gets better, here’s how I would go about things if I could go back and do it again.

The Primary Goal
The most common pitfall with mortgages is the classic bait-and-switch. They lure you in with a rock-bottom rate and low closing costs… until signing day when your final HUD-1 statement looks completely different. Fees get changed, and by then is really hard to back out. Good Faith Estimates are not legally binding, and there is no real penalty for lying on them. In addition, interest rates change every day. If they don’t list their rates publicly, how do you know if the next day you’re still getting their “best” rate? “Oops, rates went up!”

I think the best thing to do is to be prepared, so that when you are ready you can go out and obtain some firm rate quotes, and lock it in. I would not sleep well until I had a loan commitment from the lender, an agreement on closing costs, and a signed rate-lock letter.

I. Prep Work

Learn about mortgages. Many people rely on their mortgage broker to tell them what kind of mortgage to get. This is nice, if you have a honest, unbiased broker. This is also how people got…

My Money Blog:

Since we just made our IRA contributions for 2007 recently and had made a few mutual fund exchanges, I figured this was a good time to post another portfolio snapshot. Since we have so many different accounts now, I changed the presentation layout a bit to clean things up.

Retirement Portfolio

Asset Class / Fund
$
%

Broad US Stock Market
$38,836
32%

VTSMX - Vanguard Total Stock Market Index Fund

DISFX - Diversified Stock Index Institutional Fund

DODGX - Dodge & Cox Stock Fund

US Small-Cap Value
$10,480
9%

VISVX - Vanguard Small Cap Value Index Fund

Real Estate (REITs)
$10,017
9%

VGSIX - Vanguard REIT Index Fund

Broad International Developed
$29,925
26%

FSIIX - Fidelity Spartan International Index Fund

VDMIX - Vanguard Developed Markets Index Fund

International Emerging Markets
$10,198
9%

VEIEX - Vanguard Emerging Markets Stock Index Fund

Bonds - Short-Term
$8,989
8%

VFISX - Vanguard Short-Term Treasury Fund

Bonds - Inflation-Indexed
$8,260
7%

VIPSX - Vanguard Inflation-Protected Securities Fund

Total
$116,705

Contribution Details
Through the end of 2007, we maxed out the salary contributions of both of our 401k/403b plans and put in $15,500 each. We didn’t qualify for a Roth IRA contribution in 2007, but after exploring the options of a non-deductible contribution to a Traditional IRA, we decided to go for it and put in $4,000 each in early April. For 2008, my wife has contributed about $5,000 so far to her 403b and is on track to max out again.…

My Money Blog:

The strategy of Buy & Hold Investing has a lot of followers (including me), and one of it’s touted benefits is that it is a simple way to invest. In the case of passive investors, it primarily involves picking and maintaining an asset allocation plan for the next 10-50 years of your life. No need to monitor stock prices or decipher financial statements. However, “simple” and “easy to execute” aren’t the same thing. For example, “spend less than you earn” is simple. “Always save for a rainy day” is simple. But how many people actually do this?

So why don’t I think it will be easy?
The picture above is the cover of the August 1979 issue of BusinessWeek magazine. In case you can’t make it out, the picture is of a stock certificate folded into a paper airplane that has crashed, surrounded by many other crumpled airplanes. (No Photoshop back then…)

The title of the cover story is “The death of equities: How inflation is destroying the stock market.” I haven’t been able to find the full text of the article noted, but I did find some snippets at TheFiendBear. He notes that the article “was published at a time when the Dow was languishing at 875 and had been trading in a see-saw fashion ever since topping out 6 1/2 years earlier in January of 1973. Inflation was a persistent nag on the economy and the Federal Reserve and US fiscal policies were held in low regard.“

Sound familiar?…

make it! Finance and Investment Blog:

In Australia, approximately 50% of all home loans are now written through mortgage brokers. Their rise since the early part of this decade has been nothing short of staggering. In the United States, almost 70% of all home loans are written by mortgage intermediaries (i.e. brokers), and it appears they are set to become just as entrenched here in Australia - we are not far behind!

I have major doubts surrounding the mortgage broking industry. Their mission statements go something along the lines of “we’re here to find the right loan for you at the best possible rate”. It is a clear contradiction that those who are remunerated by the lenders are going to offer you the best deals they have available, for a number of reasons:

Commissions vary widely. They generally sit in the 0.5 to 0.8% range at the time of loan settlement (i.e. the up-front commission). Trailing commissions, which are paid annually as a percentage of the outstanding loan balance, usually hover around the 0.3% mark but vary somewhat. There is obviously a financial incentive for the broker to sell you the loan which pays the highest commission, independent of whether it is actually suitable for you, or necessarily the best deal.

The “panel of lenders” a broker has available to them always omits lenders which do not pay broker commissions. These are often the source of the best deals, as they do not have to factor broker commissions into their overall interest rates…