1999-2000: Lesson of Investment

"Those who cannot remember the past are condemned to repeat it".
-George Santayana (1863 - 1952), The Life of Reason, Volume 1, 1905

Some of our readers have pointed out that our postings are getting heavily
inclined to reporting on Exchange Traded Funds (ETFs).

Yes. We like ETFs and Mutual funds because we always follow these
important basic steps of investing (applicable to our target readers who
are NOT millionnaires - we always emphasize on NOT):

(i) Know who you are and what you are. Remember most probably
nothing can dramatically change your personal finance if you donot
deserve it. In 1999-2000 so many people earned so much from
"unwarranted exuberance" of stocks but starting from March'2000 they
lost much more than that simply because they did not deserve that
money.
Depending on who and what you are, determine how much risk you can
afford. If you are not a good swimmer, donot jump into the sea on a
tornado night. If you are NOT a millionaire, do not throw your 5000 $
to that nanotechnology stock which, experts are saying, would boom like
another Microsoft within 2 years. Be stingy and frugal while investing -
nothing wrong in it! In May of 2004 we observed with amusement that
some of our friends were driving 7 miles to get gas for their SUVs from
Costco (which charges a few cents less per gallon), while their investments
in stocks like Infosys, Commerce One and JDS Uniphase were plunging
by thousands of dollars each hour!

... As John Bogle (Vanguard's founder) once said, "We all are too smart
for our own good".

Oh God! We spent too much of time on item (i) itself. Next two rules are
short:

ii) Diversify your investment and donot run too much after the most
lucrative one.

(iii) Invest regularly in a broader market and try to keep your
investment cost low. Dollar-cost averaging is a very powerful investment.
So we like Funds. So, hardly ever we purchase individual stocks.

ETF for Socially Responsible Companies: KLD

Being Socially Responsible while investing in stocks gives you a good
feeling and it may matter a lot to you if you are averse to industries
such as tobacco, defense and energy. However, the reality is that if
you take those industries out of your portfolio, your investment may
suffer from high risk of less diversification. Also, recently these funds
lagged the market because they are usually underweight in the energy
sector, which has posted strong gains with oil prices rising dramatically.
Also, these funds never utilized the tobacco company Altria's (MO)
recent gain and regular dividend. But money may not be everything in
investment and some people argue that socially responsible companies,
by their nature, are usually solid investments and in long term they
really pay off.

Two of the respected index funds in this area are: Vanguard Calvert
Social Index Fund (VCSIX) and the TIAA-CREF Social Choice (TCSCX).
In late January, Barclays Global Investors launched the iShares KLD
Select Social Index Fund KLD , the first socially responsible ETF.

As a comparison, KLD's expense ratio is 0.50 percent of assets, while both
these Mutual funds have fees of 0.25 percent and 0.27 percent. Also,
unlike no-load mutual funds, ETF investors must pay broker commissions
to buy and sell shares. This is somewhat disadvantageous if you plan to
dollar-cost average.

Best Mutual Fund Managers

Many people believe that a rating of the fund managers should be the
true criteria of a fund's investment worthiness not just its own
performance. ]After all Managers are what funds are. Managers switch
from one fund to another and so the news of a good reliable manager
joining a dismally-performing fund should be a great news to follow for
that fund.

Next March we will get to know who will be recipients of the prestigious
Standard &Poor's/BusinessWeek Excellence in Fund Management
Awards for 2005 (Both S&P and BusinessWeek are units of The
McGraw-Hill Companies (MHP) ).

S&P/Business Week selects the recipients by these criteria (i) Funds must
have at least $100 million in assets (ii) the minimum investment must be
less than $26,000 (iii) the fund manager must have been at the helm
of the portfolio for five years (iv) all funds must be open to new investors.

After selecting funds with these criteria, S&P's analytists evaluate how
each fund performed as compared to others in its peer groups. They pay
careful attention to the consistency of performance over one-, three-, and
five-year periods. Expenses, turnover, and the type of stocks used in the
portfolio also go under repeated reviews. Next, the analysts conduct
one-on-one interviews with managers, questioning on important issues of
investment philosophy and style. Well... it's a long process ... for ordinary
investors like us we can only thank S&P and Business Week that they do
this and finally we get to know some names to rely on ...

Last year's best managers were:
Rudolph-Riad Younes , Julius Baer International Equity (BJBIX)
John Calamos Sr./Nick Calamos, Calamos Growth & Income (CVTRX)
Daniel Boone III, Calvert Social Investment Equity (CSIEX)
(Team Managed), Dodge & Cox Balanced (DODBX)
(Team Managed), Growth Fund of America (AGTHX)
Bill Miller/ Nancy Dennin , Legg Mason Value Trust (LMVTX)
Dan Fuss, Managers Bond (MGFIX)
Barach, Gundlach, Horton, TCW Galileo Total Return Bond (TGLMX)
William Fries, Thornburg Value A (TVAFX)

PowerShares ETF for High Yield : PEY

Last Thursday we talked about picking stocks that increase dividend
yield regularly as a good way of investment.

Here we introduce a new Exchange Traded Fund (ETF) that is based
on exactly that principle: PEY, PowerShares High Yield Equity Dividend
Achievers Portfolio. PEY seeks investment results that, before expenses,
generally correspond to the price and yield performance of the Mergent
Dividend Achievers 50 Index. The Index is comprised of the 50 highest
yielding companies with at least 10 years of consecutive dividend increases.

The Wheaton, Illinois-based PowerShares is rather a new player in ETF
world. After this latest launch, they have just four ETFs, though there are
plans for several launches in 2005.

Last Friday PEY closed at 14.84 a share. You need to pay the usual
commission to your broker for buying or selling any ETF. We recommend
a low cost brokerage like Scottrade.com (7$ for market or limit order) for
ETF trading to keep your cost lower especially if you follow the wise path
of investing in ETF/Mutual Funds at regular interval and take advantage
of dollar-cost averaging.

New ETF for Clean Energy Sector: PBW

We discussed yesterday that socially responsible funds recently
lagged the broader index mainly because of their aversion to the
Energy sector which boomed in recent months with rising oil prices.

Today we introduce a new Exchange Traded Fund (ETF) that might
try to reap some benefits of being in the Energy sector while keeping
your social responsibility intact: PBW

PBW is based on an index of publicly traded energy companies that
focus on environmentally friendly sources of energy and technologies
and is set to begin trading on the American Stock Exchange on March
3 (tentative date). The index contains 37 companies that use greener
and renewable energy alternatives such as wind, solar and hydrogen
fuel cells.

The ETF, which will be managed by PowerShares Capital Management,
will track the WilderHill Clean Energy Index, a benchmark calculated
by the Amex.
------------------------------------------------------------------------
A Book: Since we are discussing 'Energy' in last 2 days, let us recommend
a book on this topic to you, which we liked very much:
"Out of Gas: The End of The Age of Oil" - David Goodstein
(2004 W.W. Norton & Co., NY)
-------------------------------------------------------------------------

Improve your FICO score. What is FICO?

Some facts about FICO score:

FICO credit scoring system was developed by Fair, Isaac and Co.

It ranges in between 350 to 850. More the better. The score
tells lenders how likely you are to pay a credit obligation or repay
a loan on time. If you have higher scores, you are likely to get
lower interest rates in mortgages and sometimes even in credit
cards and you'll be more in a position to demand some favors from
your creditors.

The following criteria (in order of importance) determines your
score:
- Payment History
- Amount currently owed
- Length of credit history (established in USA)
- New credit (newly opened accounts lower your score)
- Types of accounts in Use (whether your mix of credit accounts,
i.e. mortgages, installment loans(like car loan) and credit cards,
is a healthy one. Having too many of one type goes against you.

Companies Which Increase Their Dividend

Companies that increase its dividend rate regularly may become
good candidates for your investment, in case you wish to buy
individual stocks. You may also look for them in the list of the
constituents of an ETF or mutual fund and take your decision.

Very recently a number of large capital stocks have hiked
their dividend yield. Here is a list of some of those:

[All values for Quarterly dividend per share]
Aetna's (AET) dividend doubled as a result of a 2-for-1 stock split,
from 4c to 8c cents post-split (0.08% annual yield).
Allergen (AGN) raised to 10c (0.54% annual yield)
Black & Decker's (BDK) to 28c (1.34%).
Colgate-Palmolive (CL) to 29c (2.15%)
Liberty Corp. (LC) declared a special $4-a-share dividend.
Occidental Petroleum (OXY) to 31c (1.86%)
Tribune (TRB) doubled its dividend to 18c (1.72% annual yield).
United Technologies (UTX) to 44c ( 1.7% annual yield)
UPS (UPS) to 33c (1.67%)
Wendy's International (WEN) to 13.5c (1.39%)

Teach Concepts of Finance and Savings to Kids

Many of us ignore the importance of teaching ideas and concepts
of personal finance to our kids but it is a crucial part of their
development and growing up as a responsible individual.

If they cannot manage their personal savings and planning for
their future, just a good education may land them on a good job
but they may fail to utilize that advantage of having a good job.

There is no hurry, of course.
But you may slowly start ... probably as they enter Middle School.
The following websites may assist you in your endeavor:
www.KidsBank.com,
www.moonjar.com,
www.RichKidSmartKid.com

Home Equity Line: The Unemployment Insurance

As we were discussing yesterday ...
the average home price in many parts of USA skyrocketted
in recent years. This means that your ability to take a higher
loan from that equity has increased to a level never seen by
your parents or grandparents.

Our advice is: Utilize that ability but never use that ability to
spend. So, open or keep open a home equity line of credit
(which may come out to be from anything to even $100000
for average homeowners) in a mortgage bank. But try not to
use it or try to keep the balance zero. There could be an annual
fee - you may even avoid that by selecting a fee-free fund.

There are some costs for opening an account and the annual
fee could be below 100$. But why are we advising you to spend
even that for a loan that you'll not utilize?

We see that the job market is not growing as expected. Our
parents used to keep 2 or 3 months' salary as an emergency fund
for any gap of employment that they might have to go through.
Nowadays ... job-market experts suggest that we should be
ready for about 6 months to a full year of unemployment!

If such an emergency comes, the above costs may come out to
be cheap premium for an effective "unemployment insurance"
which no company on the earth ever offered. So, use your home
equity line of credit as an emergency fund only.

Home Equity Loan: The Temptation

Mortgage companies are trying to arouse your temptation to
take a loan on the equity you have built on your home whose
value (if you are in places like L.A. or Boston) skyrocketted in
recent years and just spend it through a vacation in Hawaii or
having a new car or whatever ....
Sometimes it almost seems that all that will come free.

Fed will continue to increase the interest rate throughout the
year and, remember, unlike 30 year or 15 year mortgages,
home equity loan is usually tied up with that rate.

So, if you spend that equity, after a few months you may feel
much more pain than the pain of not having a new car or that
dream vacation in Hawaii.

Be sure. Having peaceful mind and a daily normal life with
your family or with your hobbies could also be enjoyed as a
great vacation that you can afford in easier ways.

GOOG: We told you to avoid!

In our posting on last Monday (click on the item in sidebar)
we advised you to avoid Google if you are a small investor.
At that time it was trading at around $205 - already off
from its all-time high of 216 set on 2nd Feb.
Last Friday the stock closed at $187.40 - a big 9% fall
from Monday's level or 13% from its peak.

It may or may not go up again but you are loosing your
sleep if you are a small investor and entered at that level.

We feel our target readers (who are NOT millionaires)
must avoid such volatility to get better sleep at night and
enjoy time with family - after all, that's why you earn money.

Retirement: Roth and Traditional IRA

Our opinion is simple:
If you are in low tax bracket, put your retirement money
in a Roth IRA.
If you are in high tax bracket put your money in Traditional
IRA.

Roth IRA has no current tax advantage. You contribute to your
account through your taxed dollars but when you'll withdraw
after you reach 59 and 1/2 years of age or otherwise (for special
reasons like first home buy etc. See the propectus of your account)
you'll not pay any tax. That is what we like ... no headache!

With Traditional IRA contribution you can defer your tax
payment until you withdraw. So, if you are in high tax bracket,
it may seem better for you to pay that later [ One important
consideration is that at that time you'll also pay tax on your
gain - which Roth Account holders will not have to].

One last Fact: Remember this year the limit of contribution
has been increased to 4000$. Last year it was $3000.

We feel Roth IRA is a very good retirement vehicle and you must
try to maximize your contribution every year.

Float CD !

No! By Float CD we do not mean those new music CDs that you may be crazy for!

We are merely trying to give advice to you ... if you have lot of cash (may
be from a home sale, or may be in a retirement account) and you do not
wish to put this into any amount of risk for quite sometime ... then this
idea of float Deposit may be good for you.

Our readers were advised lately that it is better not to purchase CDs for a
time-period of more than 6 months. The reason is simple: Fed will continue
to increase the interest rate in coming months and so CD rates will also
follow that and so it's better not to block your money with current rate
which may turn out to be too low within a few months.

Float CD deposits, on the other hand, are tied to the Federal Fund Rate
(FFR). The interest rate is not fixed and .. As Federal rate increases so
does the rate for your deposit.

One Foreign Bank here in New York is offering that - probably targetting
either rich or retired (or both!) investors. The bank is State Bank of India
(New York Branch) www.statebank.com/cd.asp It's FDIC insured and the
current rate is 1.75% above the FFR (2.5%), OR, 4.25% for 3 year deposit.
Minimum is 100 thousand (We told you it's not for everyone!).

We'll search for more such good offers and let you know.

Carly Quits HP!

Carly Fiorina
quitted her position of ChairMAN & CEO of HP Today.
The share price of HP is rising ...

ETF: A good way to start investment

John Bogle (Vanguard's founder) once said,
"We are too smart for our own good."
and we always remember that line while investing.

We do not usually recommend investing in individual stocks.
We want to avoid risk - be that "Google" or "Cisco".
Some days we may ... but not today...

We feel that continuous investment for a long time in some
good low-cost Mutual Funds always gives returns in a great way.

And we also like ETF (Exchange Traded Fund)s.

Disadvantage: Broker commission to be paid for every installment
of your investment which could be absent in a
well-chosen Mutual Fund.
[Tip: You can choose a broker like www.Scottrade.com which
has only $7 for "market" or "limit" orders]

Advantage: It can be bought and sold at anytime of the day
and with much less initial investment.

You may know and research more about ETFs in
"ishares.com", "etfconnect.com", "vanguard.com".

It is good to buy some in Energy sector, International sector
and Health-Care sector (the last ones are quite cheap nowadays
after the great fall of Merck and Pfizer).
Specific Names for today ?:
XLE (for energy sector), XLF( Finance),
PPH (US Health-care), IXJ (Global Health-care)

Any other ETF in these sectors would also be good enough.

Yes. We own those in our retirement portfolios because with
these ETFs, we believe, we can sleep well in coming nights ...

Upromise: Have you started it?

Upromise is a good way to save money for the college fund of
your kids little by little as you go around shopping and dining
in restaurants.

... Well, perhaps you know it already because you saw their
stickers on Grocery store aisles but did not take the trouble
yet.

I think it's a very good way to start saving for college funds.
So, just register your credit cards and grocery store cards
by logging in www.upromise.com and before you realize,
you'll see cash getting piled up ... especially if your spouse
spends a lot.. or you like dining out.

Also, try to rope in your friends, bachelor brothers, grandma
grandpa by asking them to register their cards ....

So many companies ...
starting from Exxon Mobile to PepBoys, SBC to Staples ...
... pennies get counted ...
... may be slowly but we all know pennies make millions ....

.. And anything that helps a good education for your kids is
worth doing.

GOOG: There's always the next beautiful girl!

If you are planning to jump into Google stock, just avoid it
... if you are a small investor!

As analysts are saying, GOOG may reach even 300$ from
the current level of 200-210$ and of course it could be true
and of course some people will profit.

But if you are a small investor, do not take that risk. Google
has a Price-to-Earning ratio of about 137 and it's a number
that raises lot of expectation on Google.

Google is a great company but nothing is certain in this
economy. Search Engine is a great business but you can
not be sure who will dominate the scene in next 5 years
[Read this article in MIT's magazine "Technology Review"
January 2005 issue" "Google is God: But for how long?"]

So, the bottomline is throw your money into risk if you
have enough money and you do not mind loosing
that part of your investment.

I know you are thinking that you are missing this excellent
ride of Google. But there'll always be such stocks in future.
First be ready and confident about your bank balance and then
you'll go for such risks.

Do not run too much after a beautiful girl. Because there'll
always be the next one.

3.0% in Savings Account!

The Emigrant-Direct bank is beating "IngDirect"-'s 2.35% by huge 0.65%.

I think it's the best deal in USA and bankrate.com is not telling about it.

Their webpage:
http://www.emigrant-direct.com

Just like in "Ing-direct" bank - No minimum needed.
3.0% in Savings is much better than many CD rates (upto 1 year terms)

CD investment in Feb'05

Federal reserve is supposed to increase overnight interest rate
more in coming months. So, it's not the right time to invest in
long term CDs and block your money.

Invest in 3-months or 6-months CD and reinvest after that
with better interest rate.

For knowing best rates you may visit http://www.bankrate.com
but usually the following two banks have the best rates for that
time-scale:

http://www.indymac.com (2.65% APR for 3 months and 3.10% for 6 months)
or
http://www.imperialcapitalbank.com (3.06% APR for 6 months)

GLD : Time to accumulate

The ETF for trading Gold (Symbol: GLD) has gone down about
7-8% from its peak. It must go down a little bit more but we
cannot be too sure.

If you have cash, start buying in installments of about 1000$
so that you can dollar-cost average.

In these days of uncertainties about US economy and paltry
numbers for new job creation, you will certainly benefit
from investing in Gold.

Only point is: Don't put your all cash at one time.
Rather spread your investment in time.

Cheers!

What Will We Post?

We'll post tips and information on managing your money.
This will be useful only to people who are NOT millionaires
and have limited income but have a dream of running a
smooth financial life with proper planning.

Depending on your income and size of your family, how
much should you save and invest? Should you invest in
stock or in CDs?

So, check us from time to time and surely you'll benefit.