Jon Bon’s Money

Here are my Goals for 2008:

$5000 in 401k: 104% Completed

$3000 in Savings: 20% Completed

$5000 in Roth IRA: 60% Completed

$2000 in HSA: 23% Completed

So for 2008 I understated my 401k goal. This is probably because I have to do absolutely nothing in order to complete this goal, everything is automatically taken out of my paycheck.

I overstated my Health Savings Account, mainly because every so often I spend some of the balance. So I might reach my goal of putting 2000 in the account, but the ending balance will be much less.

For my Roth I am just waiting until the markets stabilize before maxing that out for the year.

Savings of course is the hardest to reach. When I build up a nice amount I either dump into my Roth, or need to spend some of it for whatever reason.

My 2008 goals for the most part were ambitious, but not unreachable.

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Need I say more?

            In high school there was a young man, let’s call him Jon. He drove a not so nice car though out high school, but what he really wanted was a 1997 Honda Civic. They were the coolest thing going. They were affordable, decently fast, had a sporty look, and were a great high school car. Now Jon did not have much income in high school, and would have had trouble buying a 10-15 thousand dollar car on his own. The costs were just not feasible at the time, but he wanted a car just the same.

            Jon Graduated high school and went on to college, where having a nice car, or even any car at all was a huge luxury, and could be easily done without. Jon realized that if he had spent all his money on a car in high school, and making payment though college that it would have been a foolish mistake. The car would be been four years older, it would start to break down, and he would have had trouble paying for it.

            After College Jon did not even want a 2006 civic, let alone a 1997 model. If Jon had bought the 1997 civic odds are he probably would still be driving it.  He realized that often short term wants should be put off to meet a longer term goal that is a lot more profitable. Driving a junker in high school and college was the best thing for Jon.

            That is how I feel about condos. Yeah I could afford one, and you can usually get a newer one in the area that you want to live in, but it’s a condo. Condo’s work for single young people with out pets, who don’t need a garage, and don’t mind that you will never get any appreciation on it beyond the rate of inflation. I feel the only reason I would buy a condo is because it is new. In 5 years or so I go to sell, its 5 years older and not as nice. Am I going to show lots of appreciation for my no-so-new condo? I would say no, especially with new condo complex’s being perpetually built just down the street…. So yes I want a house with a yard, and no condo fees. A condo would be a short sighted fix for me, when a house would be a much smarter longer term goal.

So I wait….

 This week my old man called me to let me know that he had invested around $1300 for me in a Roth IRA. He said it was from back when I was 1st making income at McDonald’s when I was 15. Now I love my dad, but he is a horrible investor. He should only stick with mutual funds, and what his adviser (his brother in law) tells him to do. The two stocks that he hand picked and invested heavily in, both went bankrupt. 

Also the man has too many accounts and loses track of what he owns. Enter one Charles Schwab Roth IRA. He called me to let me know that I was $1300 richer, which I was happy to hear. There are two main points about Roth IRA’s that I would like to make. 

First they are awesome, you pay tax on the money before you invest it, and that makes your withdrawals tax free. My Roth IRA with the Vanguard Group, and the 401k with my job are my main avenues to making it to a net worth of $1 million by age 40. The even better news is that the balance counts towards contributions from years back when I was in high-school. So for the 2008 calendar year I can still make the full $5000 contribution rather then $3700. 

Secondly you have to have a Roth IRA. “Not I will open one soon” or “I can’t afford it right now”,  if you know what they are, and you don’t have one punch yourself in the head right now. I am not going to beat a dead horse, because everyone writes about this but this is the best way to save for retirement. You have no excuse for not having a Roth or a 401k investment vehicle. 

Nothing in life is a “sure thing,” but opening and fully funding a Roth in your twenty’s has to be the fastest and safest way to reaching the $1 million mark.

Gold recently hit $950 an ounce which is great because I own GLD. GLD is the stock ticker symbol that allows you to own gold with out actually having to worry about the transportation and security of owning actual gold coins. GLD trades at roughly 1/10 of an ounce of gold. That way it allows you to buy smaller amounts rather then buying 10 coins at a time which is usually the minimum.  

    Now why gold you ask? Gold does not do anything, it only holds value, and pays no interest. At least hold cash and get the bank to pay you money. True gold goes not earn interest, but have you heard the phrase “A dollar does not buy what it used to.” Surely you can remember a time when gas was $1 a gallon and a $20 was a lot of cash to have in your wallet. 

       Today we all know that gas costs more dollars and $20 will hardly get you a round of drinks at the bar anymore. The reason for this of course is inflation. The Treasury Department controls the amount of money in the economy, and the cash pipeline can be turned on and off with relative ease. This is not true for gold. The government is able, and often does print lots of dollars to do such things as head of the recession and the infamous credit crunch. The entire world, let alone the U.S. government would have a very hard time mining enough gold to devalue it anything beyond a marginal amount. 

       This friend is why I own gold rather the US government currency. I am not a doomsayer, or government hater, I just think the dollar is weak and will only get weaker to pay our future obligations, things such as Social Security. Because the government is either unwilling or unable to change SS when the baby boomers start to draw from the fund, it will just print dollars to give to them. All the while those dollars will be worth
less and less. 

       Gold is a great long term asset to own as an investment. With the weakness of today’s dollar, and the up coming election it might even make a good shorter term investment. With inflation creeping up to 5% and fears of a recession will continue to drive up the price of gold. With that printing press running at full tilt printer paper with Ben Franklin’s face on it, I only see the price of gold increasing.

Currently I am mad at the Federal Reserve aka “the fed” because they are costing me money, and I will tell you why.

 The fed has two very important jobs: to keep the US economy growing, and to keep inflation low.  The fed does this through two ways: open market operations, and controlling the federal funds rate.  The fed controls the money supply and does that through raising and lowering of the federal funds rate. The fed has been lowering the rate in attempts to increase the money supply, stimulate the economy, and hold of that recession we have been hearing about. The fed rate currently stands at 3%. That means that banks can borrow money from the fed and only have to pay 3% interest.

This costs me money. The reason for this is that the banks can get “cheap money” from the fed. As a result they are not as reliant on the deposits of private citizens to conduct loans, pay its people etc. So my savings account (Emigrant Direct) has been cutting my interest rate to closely mirror the cuts by the fed.

When I opened the account at 4.97% it now stands at 3.5%. The problem is that I am too scared of the markets to put the money anywhere else and will just have to deal………..