What Percentage Of Your Portfolio Should Be In Stocks?

Posted on March 7, 2007 // 26 Comments

One of the basic ways to adjust the risk and return characteristics of your investment portfolio is to decide what percentage to hold in stocks and bonds. This is another one of those hard questions for which there is no single best answer for everyone. You must take into account risk acceptance and time horizon amongst other factors.

An old rule of thumb is that your stock allocation percentage should be 100 minus your age. That is, a 30-year old should have 70% stocks/30% bonds, and a 70-year old should have 30% stocks/70% bonds. This was not just taken out of thin air, and has a basis from historical returns. As you near retirement, you want to have more bonds as that reduces overall volatility. More recently, others have altered this to a more aggressive “110-age” or even “120-age”.

Members of the Diehards investment forum recently performed a informal survey of member’s asset allocations versus their age, and here are the results:

Credit: Diehards Form

As you can see, there is definitely a lot of scatter in the data. However, if you made a linear fit, it roughly corresponds to a formula of stock percentage = 112.5 – age.

This made me curious – what about all those Target Retirement Funds? Their job is to decide an asset allocation that works for as many people as possible based on their retirement date. If I assume that people retire at 65 years old, here is what the asset allocation versus age looks like for three of the more popular fund families: Vanguard, Fidelity, and T. Rowe Price:

Target Retirement Fund Asset Allocation vs. Age

As you can see, the funds are actually pretty aggressive. (I covered previously how T. Rowe Price is more aggressive than Vanguard.) If one did force linear fits for all three fund families, it would correspond roughly to stock percentage of 119 – age. However, they don’t really adjust linearly with time. If I use a 2nd order curve fit instead, I can make a little tool that estimates their stock percentages for any age:

Input Your Age: Years
Percentage in Stocks
Vanguard Model:   %
Fidelity Model:   %
T. Rowe Price Model:   %
120 – Age:   %
113 – Age:   %

None of this is investment advice, it’s just an observation of what’s out there. Next, I’ll try to find some historical return and standard deviation numbers for another view of how to answer this question. What do you think of all this?

Filed Under: Investing, Retirement, Tools & Calculators //

Certain Yodlee Versions Don’t Show Passwords

Posted on February 25, 2007 // 12 Comments

Yodlee MoneyCenter is an account aggregation service that logs into your online accounts automatically in order to track your financial balances and transactions. It’s also a great way to see all your rewards points. While Yodlee is available for free directly, they make their money by licensing their software to financial institutions. Thus, you may know it instead as HSBC EasyView, Fidelity FullView, Wachovia OneStop, or Bank of America My Portfolio.

I’ve discussed in the past why I use Yodlee to track my accounts, despite the potential security concerns. One of the major worries was that if someone got a hold of your Yodlee password, they could then get access to all your other passwords. But I just noticed that at least for the Bank of America and HSBC versions, they have disabled the ability to see your individual account passwords. They are still viewable in the Yodlee direct version.

I like the hidden passwords, and now use BofA My Portfolio exclusively. It is slightly more inconvenient for those that use the service as a password reminder service, but I think it makes things significantly more secure. It is much easier for a hacker to gain access into a single user’s account by phishing or spyware than to break into to a bank’s central database. Still not perfectly secure, but I thought I’d give people a heads up.

Filed Under: Tools & Calculators //

IRS Calculator To Help Determine Sales Tax Deduction

Posted on February 1, 2007 // 1 Comment

If you itemize deductions and live in a state with sales tax, give the IRS Sales Tax Deduction Calculator a spin.

Taxpayers who itemize deductions on Schedule A of the Form 1040 in 2006 have the option of deducting the amount of state and local sales taxes paid instead of deducting their state and local income taxes paid. Taxpayers cannot take a deduction for both sales and income taxes.

Residents of states with no income tax should definitely look into this. If you have made some large purchases this past year, it may also be worth the effort to dig up those receipts. Via Consumerist.

Filed Under: Taxes, Tools & Calculators //

Calculate Your Exact 2006/2007 Portfolio Rate Of Return

Posted on January 19, 2007 // 13 Comments

I sensed that people weren’t quite satisfied with my Rate of Return Estimation Calculator. After wasting lots of time trying to program the internal-rate-of-return (IRR) function myself, I realized I could simply embed an online spreadsheet. Ain’t technology grand?

The spreadsheets below will do all the exact calculations for you. I made one for 2006 and one for calculating your ongoing year-to-date and annualized returns in 2007. You will need to supply the date and amount of all deposits and withdrawals in your accounts. If you reinvested dividends then those can be ignored and rolled into the return.

Calculate Your 2006 Portfolio Return

[Read more…]

Filed Under: Investing, Tools & Calculators //

True Cost of Holiday Shopping Calculator

Posted on November 23, 2006 // 22 Comments

Can you hear that sound? Sleigh bells a-jingling? Carol singers? No, it’s credit cards a-swiping as part of what is now officially BUY BUY BUY season.

Here’s a psychological trick that I use to temper my “self-gifting” urges. It’s based on the fact that every dollar that you save now will be worth much more in the future. However, it can be hard to forgo short-term pleasure for long-term gain. Use the calculator below to see how much of your own “future money” you’re actually spending your disposable income on.

Step 1: Pick Your Purchase:




Name Your Own Impulse Buy Price

Step 2: Pick your estimated annual return (default is 6%):
4%     6%     8%
Step 3: Pick your time horizon (default is 30 years):
10 years    20 years    30 years    40 years
Assuming a 3% inflation rate, the inflation-adjusted TrueCost™ of your impulse buy in years is:   

That’s the power of compounding. A $450 sweater? $1,000 MP3 Player? $7,000 Flatscreen TV? Maybe you’d think twice about how badly you want it. This is not to say Starbucks or the occasional splurge is never worth it. (Just writing this gave me an urge for a Peppermint Latte.) Perhaps it is. But I hope that this calculator can provide a different perspective while you are barraged by retailers to buy stuff you really don’t need. Now just imagine if you invested that money instead…

Filed Under: Frugal Living, Tools & Calculators //

Big List of Free Budgeting Tools and Software

Posted on November 13, 2006 // 60 Comments

More than a month ago, I wrote a post about tracking your spending for a month. I tried to think of the best way to budget, but I don’t think there is anything that works for everyone.

Everyone knows about MS Money and Quicken, so instead I’ve decided to compile a resource of free budgeting tools so that people can try them out on their own. Try a few. Get some ideas. Make your own. The important thing is to find something that works for you.

Here they are in no particular order:

  • Mint – Free, and now owned by Intuit (the Quicken folks). Tracks your spending and categorizes it automatically. Getting very popular.
  • SimpleD – An “open source Windows application designed for personal or household financial management.” The screenshots actually look pretty slick.
  • AceMoney Lite – Freeware version of an offline personal finance management program. It even downloads stock quotes from the internet. Thanks Ken.
  • PearBudget – An Excel spreadsheet that has definitely had a lot of time put into it. It’s a bit busy, but I still like it.
  • Microsoft Office Accounting Express 2007 – Seems targeted at business, so this may be overkill for home budgets. But amazingly it’s free!
  • Yodlee MoneyCenter – Initially just an account aggregator, Yodlee now offers spending categories which can be used to help you budget. (Why I use Yodlee for account aggregation.)
  • Stackbacks – The “Stackbacks Automated Budget System” is more of a budgeting setup guide than a tool, but hey, download the .pdf and read away.
  • Buddi – An open-source personal finance and budgeting program, which will run on any machine with Java installed. Thanks Gerard.
  • Budget On Web – Also more biz-oriented, it is a “free online system that integrates project management with contacts management and financial tools.” Free up to 5mb of storage, that is. But that sounds like plenty for personal needs.
  • Mo.neytrack.in – A “free online webapp that allows you to track all your expenses and income.”
  • Grisbi – Another offline open-source personal finance app.
  • MySpendingPlan – A free online budgeting software system that works on the ?”envelope” system. (Somewhat dated overview here.)
  • PHPFIN – An open-source personal finance management program. It seems like you have to install it on your own server?
  • GnuCash – “Personal and small-business financial-accounting software, freely licensed under the GNU GPL and available for GNU/Linux, *BSD, Solaris and Mac OS X.” Does OFX and QIF imports.
  • Budget Master – A free personal budgeting program that offers charts and visual reports.

I haven’t had the chance to look through all of these, but if you go to SourceForge and search for “budget”, you get a variety of programs. Some look interesting and some haven’t been updated in a while.

Unnamed “Homegrown” Spreadsheets

Some of these I have on my computer, but I can’t remember where I got them from. Either it was downloaded somewhere where it was openly available, or someone e-mailed it to me and said it was okay to distribute. I do not take credit for any of them.

  • Spreadsheet #1 – Very simple budgeting spreadsheet. Nothing fancy.
  • Spreadsheet #2 – by a Neil Rothman – A bit more advanced with pull down menus and better layout. (Updated 2012)
  • Spreadsheet #3 – Not sure who made this, but according to the file properties it was by “Anne, Edward & Frank Robinson”.
  • Spreadsheet #4 – Another simplistic spreadsheet, author unknown.
  • Spreadsheet #5 – Submitted by user Tony B. Instructions on use are included.
  • Within Your Means – Via LeisureGuy, it looks like pretty polished.

This list is will be updated as I find more. If I missed anything or you have your own spreadsheet to share, leave a comment or shoot me a message with it attached.

Filed Under: Budgeting, Tools & Calculators //

When Should You Redeem I Savings Bonds? A Calculator

Posted on November 7, 2006 // 17 Comments

As predicted in October, the new inflation portion of I-Bonds is 3.12% and the new fixed rate is 1.4%, for a total of 4.52%. This is still lower than what is available via Treasury Bills and online savings accounts, so those of us with older Savings Bonds should really think about cashing them in. But when is the best time to do it? Here how I try to figure it out, and a quick calculator that does it for you.

Should you redeem?
But first, let’s make sure you want to redeem. I-Bonds have several tax-advantages:

  • Interest is exempt from state and local income taxes (although so is T-Bill/T-Bond interest)
  • Interest can be tax-free for certain educational expenses
  • You can choose when to pay taxes on it with cash basis reporting (and thus possibly delay until when you are in a lower tax bracket)

[Read more…]

Filed Under: Savings Bonds, Tools & Calculators //

Paycheck Tax Withholding Calculator

Posted on October 19, 2006 // 10 Comments

It’s open enrollment season again, which means it’s time to decide on your benefits and spending account contributions. PayCheckCity has a variety of tools for simulating what your take-home pay would be if you added disability insurance, increased your FSA amount, and so on.

It can also be a good time to check your paystubs and see if you want to make any other changes. Maybe you want to increase your cashflow, or see if you can afford to put more away in your 401k. You can also check if you’ve already paid as much taxes so far this year as you did last year. If so, you could underwithold taxes on purpose and stick the difference in an interest-bearing account to make a few extra bucks. You can then wait until April 15th to pay up what you owe without penalty. Uncle Sam makes millions every year on people who overwithold their taxes – why not flip the tables? Hint: If you want to stop withholding as much, you can put up to 10 allowances on your W-4 without IRS notification. You can put as many allowances as you want, but I wouldn’t go totally nuts.

Thanks to Mapgirl’s Fiscal Challenge for the PayCheckCity link.

Filed Under: Taxes, Tools & Calculators //

Google Maps + Craigslist = Fun Real Estate Browsing Tool

Posted on September 9, 2006 // 3 Comments

What do you get when you combine the real estate listings on Craigslist and cross-reference them on Google Maps? HousingMaps.com. Only for major metro areas, but it’s still a neat tool.

Craigslist seems to have much more extensive listings for rentals than houses for sale, but more and more real estate agents are putting some of their listings to join the For Sale By Owner crowd. A friend of mine just bought a FSBO house off of Craigslist, and I’m told he got a good deal. Mostly it’s just another way to waste time browsing properties I can’t afford, but who knows, you may get lucky too.

Filed Under: Real Estate, Tools & Calculators //

Why I Use Yodlee Account Aggregation

Posted on August 3, 2006 // 53 Comments

Yodlee LogoAs I’ve mentioned before, I use Yodlee, an account aggregation service, to track all my numerous accounts on a daily basis. You give them all the logins and passwords of your individual financial accounts, and it logs into all the sites for you. In the end you have a real-time view of all your balances and recent transactions, all neatly on one page.

Of course, many people are rightfully afraid that this leads to one point of access. If somehow Yodlee is hacked, they get all your information instead of just that of one bank. This is true, but I look at it a little differently because I have a lot of accounts.
[Read more…]

Filed Under: Tools & Calculators //

28-Day Treasury Bill APY Calculator

Posted on May 9, 2006 // 16 Comments

calc.jpgIn my previous post on Calculating and Comparing Treasury Bill Returns, it was pointed out that my APY calculation was incorrect because the way T-Bills work, you can’t actually reinvest all the interest into the next T-Bill. That is true, but what you can do is set your T-Bill to fund and deposit via another interest-bearing account like Capital One Consumer Bank, Emigrant Direct, or HSBC Direct. This way, you can still invest in consecutive 28-day T-Bills, and anything not rolled over to the next T-Bill is still earning decent interest.

But, we still want to compare APYs! So, what was needed was a calculator that would take all this into account. So here it is:

28-Day T-Bill APY Calculator:

28-Day T-Bill Investment Rate:
%
Bank Interest Rate (APR) [Convert APY to APR]:
%

Principal invested per $1,000 par value: $.

T-Bill interest earned: $
Bank interest earned on excess interest: $
The approximate total APY is: %

 

Example
Let’s do an example. Let’s take the most recent T-Bill results for a $1,000 28-day T-Bill and say you set it to reinvest every 28 days. The investment rate is 4.655%. Now, let’s say you fund via Emigrant Direct, currently at 4.50% APY. Using the APY to APR calculator3 and the fact that ED compounds daily, we get an APR of 4.401%.

We input these values above. It spits out that for each $1,000 T-Bill you buy, you’ll pay $996.43. Actually, you’ll pay $996.44, but that’s due to rounding errors2. No big deal.

So when you buy a 28-day T-Bill, $996.44 will be taken out of your Emigrant on the next Thursday after the auction you participate in.

28 days later on another Thursday, your ED account will get a deposit of $1,000 and also a withdrawal of $996.44. $3.56 cents is left behind and earns interest at Emigrant. 28 later again, the same thing happens. Another $3.56 is left behind. This continues for a year and 13 T-Bills5 mature in that 364 days. At the end of this theoretical1 year, you’ll get approximately ($46.38 from T-Bill + $0.95 from Emigrant =) $47.33 in interest from your $996.44 initial investment. That’s an approxmiate APY of 4.75%.

It’s not perfect, but it’s something more accurate than investment rate that you can now use to compare with other online bank APYs. Note that this is pretty close to the APY that would be calculated assuming full interest reinvestment – 4.76%.

Finally, this does not take into account the tax benefits of T-Bills for those that are in states that charge state or local income taxes.

Assumptions and Caveats
1) The calculator assumes that the current T-Bill rate is extended out for an entire year. This cannot happen in real life as the rate is determined by auction every week. We are just extrapolating to find APY for comparison purposes. Banks change rates throughout the year as well.
2) There are plenty of round-off errors since I am allowing you to input the investment rate, which is already rounded off.
3) I again note that I am asking for the APR of the savings account you will be using, not APY. Hence, my APY to APR Calculator.
4) I am assuming that the bank interest compounds every 28 days for simplicity. Some banks compound daily, some compound monthly. It really doesn’t matter that much.
5) In actuality, there are 13.0357 (28×13= 364) T-Bills.

Filed Under: Tools & Calculators, Treasury Bills and Bonds //

APY to APR Calculator For Bank Interest

Posted on May 8, 2006 // 23 Comments

These days you usually get APY (annual percentage yield) from banks, but there are some times when you want the APR (annual percentage rate), which does not take into the compounding of interest as it is earned. For some reason I could not find an APY to APR calculator online, so… I made one myself. Here are the definitions that the calculator is based on:

APR = PeriodicRate x Periods in a Year

APY = (1 + PeriodicRate)^(Periods in a Year) – 1

[Read more…]

Filed Under: Banking, Tools & Calculators //
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