Category: Money Matters

Since the weather outside is frightful today and Mrs. SNH is out traveling the States, I thought it was about time to get onto a financial post.

I am sure many of you are out there looking at your 401k and pondering how the US markets have lost about 12% since the beginning of the year and some funds losing much more if you happen to be in sectors like Tech. I am sure that the conflict in Ukraine and rapid inflation have something to do with it. How are you combating it?

I have put into place a policy of holding cash in my IRA until the markets start looking better. I am not pulling out of any investments that I have made since this has a fairly frequent history of happening and I am holding long positions. By holding “dry powder” in my portfolio, when a really solid opportunity comes around, I will have the cash to make a really good move.

For example, the real estate group “O” has lost 9% which is better performer than the S&P 500 index yet retains excellent value, returning dividends through the downturn just as it always has since 1994. I am using bellwether stocks such as O to gauge the right investment time to deploy cash when the market turns around and sentiment grows again.

These are key tools I am using to maximize my market moves to reduce losses in the down market.

For folks with a longer time horizon like myself:

• Keep a clear watch on overall markets
• Don’t pull investments just because you are frustrated. Those returning dividends in a drip cycle offer you the opportunity to lower your cost basis through the drip.
• If you do decide to place money into an investment, be hard nosed about which companies your are putting into. When we are in a bull market, everybody makes money. When we enter into corrections and depressions, analysis is king. Follow the advice from Ben Graham, Warren Buffet, and relative newcomers like Brian Preston who find true value in their investments and offer rock solid advice.

For folks with a shorter time horizon (those in or near retirement):

• Measure the impacts on your income
• Evaluate your market risk with a financial advisor
• Based your expected needs, form a plan to get through the hard times
• Look into alternative moves to reduce expenses or bring the income gap and keep your capital working.
  1. Rent out a spare room
  2. Move in with in-laws (if that is appropriate)
  3. Reduce services such as Cable TV. Antennas are fantastic for basic tv, and a low cost subscription on a roku work really nicely for media consumption.
  4. Garden – yeah, that one reduces your inflationary effect from rising food prices as well as gives you some great fresh air and exercise.
  5. Make your travel plans more local so your planned trips don’t cost as much.
  6. Plan your trips out during the day to maximize your gas cost
  7. Eat a bit more at home

I hope this helps ease some fears out there. Remember, rough times are ahead, but we can overcome them!

Work smarter, not harder!

Mr. SNH.

With the New Year upon us, it is a great time to review your financial plans. Some great areas to look at are:

• Budget
• Investments
• Retirement Accounts
• Services you want or Services you can cancel
• Cash flow predictions
• Take the Frugalwoods Challenge (https://www.frugalwoods.com/2021/01/01/the-uber-frugal-month-starts-today-and-you-can-still-sign-up/)

My new year will start out by dedicating a deposit to a new high yield savings account and funneling part of that deposit into a taxable investment account. The reason I am adding a taxable account to our plan is to fill in the gap between short term savings and long term retirement goals. This middle-stage bucket of funds will allow some growth and allow us to use some of the dividends that we receive. A key difference between my taxable account and my “tax advantaged” accounts are as follows:

• Taxable account will require me to pay taxes on realized gains and losses each year.
• Taxable account will not be penalized if I choose to use those funds since they are structured in a way that allows me to take profits at any time.
• I usually DRIP funds into my retirement account, but the taxable account will not use DRIP since we may choose to funnel those dividends into other opportunities or spend them for some entertainment.
• Will open me up to funds that I would ordinarily avoid in my Roth. For example, I can now invest in Muni CEF’s if they appear attractive and get to take advantage of the tax free nature of these funds. This would be a great post down the road. Hmm!!!
• The Taxable account will allow us to make gains above inflation for big ticket items like a new roof, solar or future car purchase. That new Toyota Hybrid Sienna and Subaru Ascent look mighty fine! For now, we will continue to drive ours into the ground. Grandpa SNH recently bought a Honda CRV will all of the bells and whistles and seems to be very happy with it.

I may also look at sending back our TV box since our Roku provides the same functionality with our cable subscription. Doing so would save about $90 a year. At the end of the year, we may also decide to remove cable altogether and go back to antenna services since we seem to watch a relatively small number of channels and programs. We were cord cutters for a long time in Georgia and decided to trial cable again in Florida to see if there was a large benefit. I don’t currently think we get a good ROI for the service. Again, it is up to evaluation after a full year cycle with it.

Have a happy new year! Don’t forget to review your New Years financial plan. Keep building and growing.

Mr. SNH

I was doing some thinking about how managing your debt puts you ahead financially. We often talk about the smarter ways to invest money and different strategies therein. Managing your debt side payments can often be a bigger upside than your investments in terms of total benefit. This is because what you might be paying in interest is greater than your investment savings on the same value.

In this example, lets examine the case where you are given $5000 through a windfall. How do you use it effectively to give you the most benefit?

You have the following options in front of you.

1) Pay into your credit card that sits at 19.2% and you owe $5000 on it. Your minimum payment is $100 per month.

2) Pay into your medical debt of which you owe $9000.

3) Add to your taxable investment account of which is heavily invested in “tax exempt” funds with a nice MUNI CEF at 5%.

Analysis:

1) Over the lifetime of your credit card, to pay back the 5k you owe on it with minimum payments, you would be forking over a cool $20,313. So, for that 5k debt making the minimums, it ended up costing you $15,313.

2) A lot of folks end up with medical debt that has no interest accrued on the account. If it does have interest, it is often very low. So with this debt, we could say that you would ultimately pay between 9 and 15k. Max cost here for the debt side is around 6k, but it might also be nothing and varies by local laws. Some states have a maximum rate that can be charged for medical debt.

3) Assuming the 5% payout rate for the MUNI CEF, it would take you 29 years assuming a flat rate with a drip to get you to that 20k mark ($20,580.68).

For my money, I would go off with paying the credit card debt as it has the highest benefit and allows you to get cash positive quicker in the overall picture. I am personally on a track where I double my credit card payment to push it down as fast as I can. The high cost of taking loans and credit cards is a lesson we could all use and one that I am painfully too aware.

Mr. SNH.