Tuesday, January 31, 2017

The real cost of buying that 65" TV

My wife posing at the Jersey shore.

Earlier this morning, I've sold a mutual fund that I held for 15 long years-- Laudus International MarketMasters Fund™ (ticker symbol SWOIX). As the name suggests, the fund invests in shares of companies outside the United States. It falls under Morningstar's "Foreign Large Growth" category because the fund manager's focus is on the stocks' long-term growth prospects as opposed to their valuation.

I bought the shares in 2002 for $1,699. I no longer have a copy of the trade confirmation because 15 years is obviously a very long time, but I do remember the exact amount. This is because it was one of my first mutual fund purchases outside a company-sponsored 401K retirement plan. I had to roll-over a measly balance of about $5,000 to a traditional IRA account. I then split the amount evenly to buy shares of 3 mutual funds for $1,699 each.

I finally decided to sell the fund in favor of another because of the following reasons:
  • 15 year average annual return of 7.75% is boring
  • gross expense ratio of 1.59% is relatively high even for an international fund, and
  • I decided to switch to a more value-focused ETF fund.

What's interesting is that the shares are now worth a cool $8,580. This is in spite of the fact that I never actively bought additional shares of the fund-- I stopped contributing to my traditional IRA in favor of a ROTH IRA.

The number of shares that I own grew over the years from about 150 to 396 shares when I sold it. Thanks to automatic dividend reinvestment!


That said, you're probably wondering what on earth does the selling of my mutual fund have anything to do with buying a 65" TV ??

Nothing really... so go ahead, buy that $1,699.99 TV on Best Buy.

But I hope this post gave you an idea how much the purchase will really cost you in the long run.



Saturday, January 14, 2017

Why you should save for your kids' college education

One of the financial concerns of every couple is saving for their kid's college education. Some end up making excuses why they shouldn't, among them:
  • You cannot borrow for retirement, but you can borrow for college.
  • It promotes responsibility-- they'll work harder academically.
  • I don't have much money left after expenses.
Should parents save for college? You're going to hear a strong opinion from me...

My kids playing with the next door neighbor when they were younger.

Top excuses parents make

"You cannot borrow for retirement, but you can borrow for college."

It's true that you should prioritize your retirement; the kids can always borrow. But do you really want your kids to get into debt??? I don't and I'll do my darn best to help them pay for their education. Don't be selfish.

Assuming that you're debt free (besides the house), you should contribute the bulk of your savings into your retirement account AND still make an effort to save some for college. I'm not saying that you should be responsible for 100% of the costs but at least make some effort.

Times are different, the cost of education is getting higher than ever. Your kids will need as much help from you as possible. You brought them into this world, so you bear some responsibility in making sure that they have a bright future.

"It promotes responsibility-- they'll work harder academically."

Children learn from their parents. They are an extension of their parents by their words, thoughts, and actions. How then can not saving for college promote responsibility??

In fact, it might have the opposite effect-- it can promote your irresponsibility.

Would they work harder academically if they're paying for it themselves? Probably yes. Does this mean that they'll perform better than when you're paying for it? No.

By saving for college, you instill in them the responsibility to do the same for your grandchildren and the generations to come.

"I don't have much money left after expenses."

Unfortunately, the people who make these excuses are the same people who overspend on things like cars, vacations, and mindless home renovations.

In most cases, all you need to do is to tighten your budget. There are countless of ways you can save extra money:

driving a cheaper car, changing your own oil,  shopping for cheaper insurance, avoiding junk food, brown-bagging your lunch, getting rid of the cable, buying food in bulk, taking advantage of coupons, avoiding overdraft fees, not paying ATM fees, not buying extended warranties, buying refurbish electronics, skipping the latest model, mowing your own lawn... whew!

Either that or get a second job.

You should and you should start before they're born!

The problem is that parents start saving 2 or 3 years before their children go to college when time is not on their side.

Just like your retirement savings, the earlier you start, the more time your investment will grow. This is especially true if the funds are invested in stocks.

In my case, I started a 529 account for each of my kids as soon my wife told me that she's pregnant. As a result, we now have over $100,000 saved for my 2 children.

The results speak for themselves.

Savings for Madeline (8 years before college)

Savings for Marco (11 years before college)