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Subject: persfin-digest V4 #101
Date: Wed, 12 Nov 1997 19:11:17 -0500 (EST)
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persfin-digest Wednesday, November 12 1997 Volume 04 : Number 101
IN THIS ISSUE:
ADVERTISEMENT: MCI CONNECT FOR CC:MAIL
Credit Cards w/Frequent Flyer on any airline?
re: ?mortgage loan thoughts?
Re: Prepay mortgage 1, mortgage 2, or 401(k) loan (or not at all)?
Employee Payment for Project at Fixed Price Legal?
How to minimize car expenses over the long run?
Index (Mutual) Fund vs SPDR's vs WEB's?
Mutual Funds in a Rapidly Declining Market?
Information on Closed End Funds on Internet?
Convertible Bonds?
Re: Mortgage Prepay Calculator + eMail Stock Quotes+ Debt Paydown
Re: Mortgage Prepay Calculator?
Re: Roth IRA Question
Beat the Dow Spreadsheet?
child's investment
Roth IRA Conversions
Credit Card Perks?
Re: Money Market?
Re: Roth IRA and a personal note - MAKE A WILL!
Re: Roth IRA Conversions
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Date: Wed, 12 Nov 1997 18:43:15 -0500 (EST)
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Date: Wed, 12 Nov 1997 18:45:36 -0500 (EST)
From: Scott Barnett <sab@crisp.net>
Subject: Credit Cards w/Frequent Flyer on any airline?
I remember a few months back a discussion about a credit card that
allows you to accrue frequent flyer miles on any airline you want.
Does anybody have info on this card? Thanks.
- --
Scott Barnett
sab@crisp.net
------------------------------
Date: Wed, 12 Nov 1997 18:47:57 -0500 (EST)
From: "L. Chen" <am302@FreeNet.Buffalo.EDU>
Subject: re: ?mortgage loan thoughts?
> I am getting a 125% loan on my home in order to clear the vast
> majority of consumer debt. Lord willing, I will be cold turkey on
> plastic.
>
> I think my house underappraised but I can see how they reached the
> figures. ...
I am just curious. The "125% loan" refers to 125% of the purchase price? or
125% of appraised value?
If 125% of purchase price, what is the appraised value?
Is the loan greater than the appraised value? If yes, what is the basis for
the lender to approve such a loan? Is part of the loan for improvement to the
home?
Lily Chen
am302@freenet.buffalo.edu
------------------------------
Date: Wed, 12 Nov 1997 18:48:39 -0500 (EST)
From: "L. Chen" <am302@FreeNet.Buffalo.EDU>
Subject: Re: Prepay mortgage 1, mortgage 2, or 401(k) loan (or not at all)?
> I'd like some feedback on which of 3 options would be the best to pre-pay,
> assuming I'm going to pre-pay. Then, I can decide whether I should pre-pay,
> versus investing the $$s elsewhere. (I know that I should put the max into
> 401(k), IRA, etc., first.)
>
> I have a $200K mortgage which is split into 2 parts
>
> a) $182K (80%) at 7.75%, 30-year fixed -- tax deductible
> b) $18K (10%) at 7.75%, 10-year fixed (to avoid PMI) -- tax deductible
>
> If I was going to pre-pay on of these which would be a better option, or
> are they exactly equivalent? My gut-instinct is that it is better to
> pre-pay the 10-year loan, since a 30-year loan at the same rate is cheaper.
It is "cheaper" only in the sense that a 30-yr loan should cost more than a
10-yr loan. However, it is not relevant in this decision.
> Alternately, the principal on the 10-year is already being "pre-paid" faster,
> than the 30-year.
Since both (a) and (b) have the same rate, I believe it is more beneficial, in
terms of cashflow, to pay down loan (b) because, on a relative basis, you
would have a higher reduction in loan payment. [The amortization rate is
higher for 10-yr self liquidating loan than a 30-yr one.]
But see my comment below.
> Finally, I have a loan on my 401(k) for $11K (had to really stretch:-).
>
> c) 401(k) loan for $11K at 6.5% for 8 years (NOT tax-deductible).
>
> All 3 loans (a), (b) and (c), have been in effect for 3 years, so
> their maturity dates are (a) 2025, (b) 2005, and (c) 2003. Also,
> (c) needs to be paid off in full, rather than a part at a time. I
> have also heard the in 401(k) loans, you are "paying the interest
> to yourself" so it doesn't matter, but that seems a fallacy -- however,
> at 6.5% interest, it seems a pretty good deal.
> [................................]
You didn't mention the amount of prepayment that you are considering. If it
is at least $11K, I would pre-pay the 401(k) loan. The 6.5 % interest on the
loan means that portion of your investment in the 401(k) is earning only 6.5%.
which you could do better by investing it in something else. Effectively, it
is a higher-cost loan than 7.75%
Also, how are you planning to repay the 401(k) loan in 2003? I don't believe
those loans can be extended -- as opposed to mortgages, which you can
refinance.
Lily Chen
am302@freenet.buffalo.edu
------------------------------
Date: Wed, 12 Nov 1997 18:49:53 -0500 (EST)
From: koyn <koyn@fastrans.net>
Subject: Employee Payment for Project at Fixed Price Legal?
Is it legal for an employer to ask an employee who is normally paid by the
hour to complete a project at a fixed price to the employer based on
employee's own estimate? This shifts the risk of time/cost overruns to
the employee, and it seems to me that this may be outside the definition
of an employee and possibly illegal. I am aware that this type of working
relationship is often used between an independent contractor and a client
and is legal in that context, but is it legal in an employment context
between employer and employee? If it is legal, under what types of
situations or rules would it be subject to? If it is illegal, a reference
to what part of the law prohibiting it would be appreciated.
Thanks in advance for any information.
------------------------------
Date: Wed, 12 Nov 1997 18:51:03 -0500 (EST)
From: koyn <koyn@fastrans.net>
Subject: How to minimize car expenses over the long run?
I am looking for a car and my goal is to minimize my average annual
expenses to keep a car, including depreciation, and maintenance costs,
while at the same time not incurring excessive hassles with an unreliable
car. I may consider a new car to be kept a long time, so I know its
maintenance history and maintain it well. Or I might consider a used car
not more than few years old to take the sting off the initial
depreciation. In making this decision, I must consider that I am not
mechanically inclined and do not wish to repair my own car. A number of
questions come to mind. I would appreciate it if you could email me if
you have any thoughts about one or more of these questions.
If considering a new car
1) Would it be better to get a cheap car, like a Geo Metro, or would such
cars have higher maintenance and repair costs than a mid-line cars such as
a Ford Taurus?
2) Which models are known for their low cost of acquistion and low cost of
upkeep/high reliability? How long can such cars be expected to last
(miles) under good maintenance, before they get to the point of breaking
down several times a year or get expensive to maintain?
3) I would be interested in hearing your experiences with your car(s).
If considering a used car
4) What are your thoughts on the best source(s) to get a used car from,
considering the following issues
-Source of cars/likely past usage and care.
-I heard that many dealers may roll back the odometer.
5) Your thoughts on whether purchasing New cars slightly less often versus
purchasing Used cars slightly more often would best minimize car expenses
while at the same time maintaining reasonable reliability.
Please state whether information came from a study or investigation, or is
merely an opinion. Thanks in advance for any information and opinions.
Thanks in advance for any information or advice.
------------------------------
Date: Wed, 12 Nov 1997 18:53:15 -0500 (EST)
From: koyn <koyn@fastrans.net>
Subject: Index (Mutual) Fund vs SPDR's vs WEB's?
It seems that these types of securities are all very similar in nature, in
that they invest in stock market indexes. I am familiar at a basic level
what these securities are, but I have some questions about their
application in an investment portfolio. When might one want to use an
index mutual fund vs a SPDR or an international index fund vs a WEB? What
are the advantages and disadvantages of each? What are the special risks
or rewards of each of these that the others may not have?
Thanks for any information.
------------------------------
Date: Wed, 12 Nov 1997 18:54:02 -0500 (EST)
From: koyn <koyn@fastrans.net>
Subject: Mutual Funds in a Rapidly Declining Market?
Suppose we have a situation where the stock market is crashing with panic
widespread two days in a row and a large number (say half) of share
holders redeem their mutual fund shares the first day of the decline.
What would happen if the mutual fund was not able to sell enough stocks to
raise the cash before market close that day? Would there be a delay for
fund share holders to receive their money? Would the fund have to sell
more shares the next day (at even lower prices) and pay the shareholders
who redeemed the prior day based on the prior day's NAV? It seems that in
this situation, that fund shareholders who hold on through the drop may be
hit especially hard (harder than the drop of the market itself), but I
wonder if this is really true. Consider this (small) example:
Beginning of day one:
Fund holdings
Stock A 10 shares at $10.00
Stock B 10 shares at $20.00
Two fund share holders (each holding half the fund)
Shareholder 1 with 10 shares in the fund
Shareholder 2 also with 10 shares in the fund
NAV $15.00
Market begins dropping with a drop of say 30% for the day.
Shareholder 1 panics and redeems all his fund shares just before the
cutoff time for mutual funds, after having seen the plunge begin, while
shareholder 2 holds tight.
Suppose the fund is unable to complete the sales due to heavy volume and
circuit breakers.
At the end of the day, the fund has
Stock A 10 shares at $7.00
Stock B 5 shares at $14.00
5 shares sold for $70.00
NAV $10.50
Day two
The fund makes sales to raise $105.00 (10 shares x previous day NAV) but
the market is dropping so quickly that more than half the shares of Stock
A must be sold to raise the $35.00 needed, since Stock A further plunged
to $5.00. (Assume that Stock B was also continuing to drop and the fund
manager wanted to sell shares of Stock A.) It seems that the fund holder
who hung on, would not only be effected by the drop in the market, but
would be further effected by the sales to cash out the panic seller, as
the fund would have left 3 shares of Stock A, and 5 shares of stock B,
which is less than half the original holdings measured in shares. How do
mutual funds deal with this sort of problem to ensure fairness to the
remaining share holders?
------------------------------
Date: Wed, 12 Nov 1997 18:55:05 -0500 (EST)
From: koyn <koyn@fastrans.net>
Subject: Information on Closed End Funds on Internet?
I am looking for sources of information on closed end funds that my help
me find funds of interest. I would like to be able to find all closed end
funds that invest in a region, sector, or with a particular investment
style and be able to find those that have a good long term track record
that are currently selling at a discount. Where might I find such
information on the internet?
Thanks in advance for any information.
------------------------------
Date: Wed, 12 Nov 1997 18:55:56 -0500 (EST)
From: koyn <koyn@fastrans.net>
Subject: Convertible Bonds?
I understand that convertible bonds are bonds that may be exchanged for
stock, and would therefore have some of the properties of bonds and some
of the properties of stocks. How do the risks/rewards of these
investments differ from ordinary bonds and common stocks? How would these
investments likely behave when the stock and bond markets are moving in
opposite directions such as stocks going up, bonds going down or stocks
going down, bonds going up? How heavily might they impacted in a stock
market crash, if the bond market holds steady?
Thanks for any information.
------------------------------
Date: Wed, 12 Nov 1997 18:57:17 -0500 (EST)
From: Stephan <stephan@mail.org>
Subject: Re: Mortgage Prepay Calculator + eMail Stock Quotes+ Debt Paydown
Ken and others asked:
>...Part of a financial software package (eg. Quicken)?
Quicken Delux has both Mortgage savings calculator and free on-line
stock updates and email alerts as well as a debt paydown program
(Lloyd!)
"DebtDr" is also available as a freeware addin to lesser versions of
Quicken, available from Filepile.
Stephan
(p.s. I still wouldn't pre-pay a mortgage; just MHO )
- --
Useful Links for Business and Personal Success
Visit http://members.tripod.com/~RoundWorld
------------------------------
Date: Wed, 12 Nov 1997 18:58:20 -0500 (EST)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Mortgage Prepay Calculator?
>Personally I would NEVER prepay a mortgage with the alternitives being
>so attractive. I am much happier putting money into investments that
>will grow much bigger over the long haul. Then I can cut a check and pay
Assuming the market doesn't get croaked, of course. The historical
market return is right around 10% per year, and that's certainly not
guaranteed. If one has (say) a 7.75% mortgage, you are earning a
guaranteed 7.75% on what you put against principal (though one needs
to analyze both of these on an after-tax basis).
I just get very worried when I see people making 30 year plans based
on what the stock market has done for the last 5 years, let alone what
it's done for the last 2 years.
Rich Carreiro
rlcarr@animato.pn.com
------------------------------
Date: Wed, 12 Nov 1997 18:59:01 -0500 (EST)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Roth IRA Question
[Disclaimer: this is my opinion, not advice. I am not a professional.]
>The question is? I have non-deductible IRA in several mutual funds.
>Can you covert these IRAs to ROTH IRA without having to pay any taxes?
No. The way it works is this. Let V be the total value of ALL your
IRA accounts. Let N be the total amount of all non-deductible
contributions made to all your IRA accounts. Let D be the amount of
money you want to convert to a Roth (note that for tax purposes it is
irrelevant which IRA accounts D comes from). Then:
Non-taxable part of conversion = D * (N/V)
Taxable part of conversion = D - D * (N/V) = D * (1 - N/V)
>Or do you pay taxes on the gains? If you pay taxes on the gains only
You will pay taxes on the taxable part as calculated above. You will
pay the same taxes regardless of which IRA accounts the $D comes from.
Rich Carreiro
rlcarr@animato.pn.com
------------------------------
Date: Wed, 12 Nov 1997 18:59:55 -0500 (EST)
From: achillesk@juno.com
Subject: Beat the Dow Spreadsheet?
Does anyone know where I can get a spreadsheet that does all the
calculations for the "Beat the Dow" system? I know its not hard to do
it manually but at one time I had a spreadsheet that made it very easy.
Please also send replies to my email as I'n not always on here.
Thanks.
achillek@juno.com
------------------------------
Date: Wed, 12 Nov 1997 19:01:34 -0500 (EST)
From: jab@hale.yerkes.uchicago.edu (judy bausch)
Subject: child's investment
My late husband's great grandson (soon to be 10) has decided he wants to
have a share of stock for his birthday, preferably Lego (probably not a
public company) or some Power and Light utility! Where he got this idea I
have no idea, but I am happy to encourage him on the road to investing (I
wish I had started at age 10!). I would like to get him started but don't
want to cough up $1000 for the Stein-Roe mutual fund for kids, nor do I
want to commit the monthly investment ($50.00) - if I do it for one, I have
to do it for all and that's a lot of $50.00 every month, and I am still
investing for my own retirement (my husband was quite a bit older than I -
that is why at age 54 I have 13 year old great grandchildren).
To make a long story even longer, I know there has been discussion about
this in the past - how to buy one or two shares of stock that would get a
kid interested in the stock market.
------------------------------
Date: Wed, 12 Nov 1997 19:02:38 -0500 (EST)
From: bigelowr@ix.netcom.com
Subject: Roth IRA Conversions
In several responses, you have indicated that in 1998 there is a $100,000
AGI "bar" on penalty-free IRA / Roth IRA conversions. My understanding
(also previously confirmed in this digest) was that the $100,000 AGI
limit pertained only to the 4 year averaging of taxable income relating
to these conversions. In fact, anyone could convert (1998 and beyond)
penalty free, but the 4 year tax averaging was limited to 1998 and to
those under the AGI limit.
I do agree there stills seems to be some dilemna regarding how to
estimate the precise AGI limit if you are close to the max (i.e., mutual
fund distributions, year end bonuses, etc.).
I appreciate any clarification you can provide. Thanks.
------------------------------
Date: Wed, 12 Nov 1997 19:03:18 -0500 (EST)
From: mtkel@gate.net
Subject: Credit Card Perks?
Does anyone know of any good credit cards with PERKS? By this I mean 5%
rebate earnings such as the GM card. I currently have a GM card and max
out my rebate earnings about halfway through the year. I figure I might
as well use a different card if I can earn extra perks. I don't care
too much about interest rates since I pay the balance off each month.
Thanks in advance for any suggestions?
Michael Kellerman
mtkel@gate.net
------------------------------
Date: Wed, 12 Nov 1997 19:04:18 -0500 (EST)
From: Steven Miale <miale@kesmai.com>
Subject: Re: Money Market?
>From: David Meyers <dmeyers@panix.com>
>Subject: Re: Money Market ?
>
>You can definately do better than Schwab's MMF that you
>listed, but to do so, you probably have to deal with some
>minor restrictions, like a limited number of checks
>or a minimum check. Also be careful about those funds
>which are enhancing their current yield by _termporarily_
>waiving all or a portion of the fund's expenses.
Amen to THIS. Use the "E-Fund" (www.efund.com) as my MMF. They
had one of the highest interest rates in the industry, and also
had free checking, ATM access, etc., and were waiving a fee
of circa .5%. Last month, I received a notice saying that not
only were they going to stop waiving the fee, but that the fee
was being raised to about 1.5% (!!), and were stopping some of the
nicer features of the E-Fund, basically without notice.
Keep in mind they also realized that this was too high and wanted
to merge it with another MMF under their management to keep costs
at a reasonable level.
I would suggest Vanguard, simply because their costs are low and
_stay low_.
Steve
------------------------------
Date: Wed, 12 Nov 1997 19:06:12 -0500 (EST)
From: Jeff Morgan <Morgajs@parsec.com>
Subject: Re: Roth IRA and a personal note - MAKE A WILL!
Thanks to all for the replies re my question on a Roth IRA.
I haven't been able to respond sooner because I've been out of
state due to my Father's sudden death.
I'd like to ask each of you, longtime persfiners and new folks alike,
to do a few things soon: make a will. If you have minor children,
provide for guardianship. Make a list of assets, with locations.
If possible, set aside enough money to cover final expenses in
an account with a signatory, or prepay burial expenses yourself.
Let your executor(s) know in advance where to find the documents
they'll need.
If you've ever been in the position of executor, I'm sure you'll
agree and have more ideas. These things help.
Thanks,
Jeff
- --
Jeff Morgan - morgajs@parsec.com
------------------------------
Date: Wed, 12 Nov 1997 19:08:39 -0500 (EST)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Roth IRA Conversions
>In several responses, you have indicated that in 1998 there is a
>$100,000 AGI "bar" on penalty-free IRA / Roth IRA conversions.
Actually, I have said that there is a bar on *ANY* IRA/Roth IRA
(i.e. not just penalty free) conversions if your AGI is over $100K
(not counting the amount of the conversion itself).
I have seen this bar mentioned in many publications, in a wonderful
guide to TRA97 on Arthur Andersen's web site, and by pros I respect
greatly in misc.taxes.moderated.
Most reliably, one can go to a site that has the text of TRA97 on-line
and get ultimate confirmation there.
Rich Carreiro
rlcarr@animato.pn.com
(Editor's Comment: Vern Jacobs, CPA, a Persfin-Digest subscriber and
contributor, has assembled an excellent Web site on the TRA, including
suggestions for tax savings. You can reach his site from my site at:
http://www.tiac.net/users/ikrakow/pagerefs.html
Take the Taxes link and look for "Tax Reform Act of 1997". Hope this
helps.
Ira)
------------------------------
End of persfin-digest V4 #101
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