The Nasdaq hit an all time high yesterday, ending the day at 5,056. The previous record dated back to March 10th 2000, when the index was at 5,048. As you can guess, the previous record was set shortly before the dotcom crash that sent the Nasdaq down nearly 4,000 points to 1,114 in 2002.

The S&P 500 set an intraday high yesterday, but closed just a few points shy of a new record.

Looking at the Dow, we find an equally bubbly story…

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The low in 2009 was 6,626. Today we’re at 18,058. That’s an insane roller coaster that has been climbing aggressively for the last six years.

THIS BUBBLES GOING TO POP! 

But guess what. You should probably keep investing in the market anyways. In fact, this is the exact way the market is supposed to work. Although there are peaks and valleys, the market trend has always been in an upwards direction. ALWAYS.

Sure, we have a recession (or depression) every decade or two, but these occasions are always followed by a lengthy period of gains. For every two to four years of losses, we average five to ten years of gains.

The market highs are getting higher, which means the lows get higher too when the crash finally comes. It’s a beautiful thing.

WHY you BUY in a bubble. 

In June 2013, I wrote a post titled I might take out a $30,000 401k loan just to piss some of you off. I was thinking of borrowing from my 401k and one of the primary draws was that the market was trading at all time highs (the Dow was at 15,000 for the first time ever). Why wouldn’t I want to lock in the sexy appreciation I had earned?

Fortunately, I was too chicken to take out the loan. Thank goodness considering the market has shot up another 20% since that post.

No one can time the pop.  

The problem isn’t with identifying when the market might be in a bubble. It arguably is right now.

Problems come when you try and preempt the bubble’s pop. You could sell today thinking things are crazy overvalued, only to find out this gravy train goes on for another three years before there is a correction.

This is why I need to constantly remind myself that I should think about my investments like I think about my marriage.

To have and to hold from this day forward. 

In sickness and in health. 

In good times and bad times. 

For richer or poorer. 

Until death does us part.

I will contribute to my investment accounts. 

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Five Twenty Nein

April 22, 2015 · 25 comments

Baby Ninja decided to stop being a fetus ten months ago when he graced us with his presence last June. The second he breached the birth canal he forced Girl Ninja and I to start thinking about his future. The numbers 5-2-9 were no longer a sequence of three random numbers, but one of many ways Girl Ninja and I could begin saving for Baby Ninja’s future.

Apparently there is a good chance this human of mine could one day decide to go to college. Kinda like his mom and dad decided to do.

Oh crap. 

It was easy when I went to college. I just asked my parents to pay for part of it. My college to give me scholarship money. And the bank to loan me money. Easy peasy.

But now, here I am, 18 years away from potentially having the roles reversed.

Girl Ninja and I had to ask ourselves a question most parents do…

Should we start saving for college for our children? 

A few of the most popular ways to do this are:

Educational savings account- a tax free way to invest money for your child’s future education expenses. Could be used for K-12 as well.

529 Plan- similar to the ESA, has higher contribution limits, and no income phase out

Get Account- Washington’s 529 plan that guarantees your investment will keep pace with tuition increases. Basically you lock in today’s college prices for your child. Imagine if your annual tuition payments today were only $2,000 or so like they were 18 years ago. 

I’m sure there are many other options I am not aware of, but I don’t care to research or learn about them for one simple reason.

Girl Ninja and I have decided we aren’t going to save for Baby Ninja’s college. GASP!

That makes us like the worst parents in the world, right?

We came to this conclusion after considering the following things:

I’m a tuition bubble believer. 

The tuition increases we’ve seen over the last decade are unsustainable. If tuition continues to inflate 7% or more a year for the next 18 years, college will be so expensive that only the countries richest will be able to afford it. This bubble, like all bubbles, will eventually burst.

I’m not saying Baby Ninja’s tuition wont be more than it is today, but it will either be so expensive it would make no sense for him to go to school. Or, as I expect, the bubble pops at some point during the course of his youth, and future tuition increases are more in line with inflation (3%-4% per year).

The internet is a beautiful thing.

The internet literally makes life cheaper. Amazon forces retailers like Best Buy and Target to be more competitive in their pricing. I also expect the internets ability to provide access to information at little cost to have a dramatic effect on college costs over the next decade or so. Online schooling is still a relatively new thing, but twenty years from now, it will be so normal that brick and mortar universities will be forced to rethink their costs. Why would I go to University of Washington and pay exhorbinant fees, when (insert other college’s name here) is offering online courses for a fraction of the cost.

I expect this will also happen with real estate commissions. You hear that real estate agents. Your days (probably more like years) are numbered. Why should Agent X get a $3,000 paycheck on the sale of a $100,000 property, when Agent Y would make $30,000 on the sale of a $1,000,000 property. The work load is the same in either case. Fee for service will become the industry standard. Unfortunately, it’s gonna take a while before this shift happens.

Americans want their cake and to eat it to.

Much like the Affordable Health Care act has brought health insurance to the majority of Americans. I expect over the course of my lifetime politicians will socialize education. We recently saw Obama state community college should be “as free and universal as high school”. Expect the government to reform education.

What if Baby Ninja doesn’t want to go to college. 

Much like withdrawing early from a retirement plan, if your child decides not to go to college, you will be penalized for withdrawing your investments from a 529 plan for things other than education expenses. This isn’t a huge issue for me, but is still a concern.

Baby Ninja can pay for his own darn school.

I graduated college with $28,000 of student loan debt. That was above the national average for my graduation year. While being in debt was not a ton of fun, it taught me to appreciate money more and the importance of managing it. I don’t want Baby Ninja to grow up with a sense of entitlement. Maybe we will have so much money in the future we can pay for four years of Ivy league education for him. Or perhaps we will have a series of unfortunate events that will hinder our ability to help him financially. Either way, I want him to grow up knowing that nothing in this world comes free.

I’m happy to forfeit the college savings plans’ tax breaks.

At the end of the day, I just want options. I feel like the college savings plans are too specific and limited for me to commit a significant amount of money towards them each year. Instead, Girl Ninja and I plan to save for Baby Ninja’s college through general wealth building practices.

As you know, we have a taxable investment account. This is where we have been putting all of our discretionary income. As we grow this account, via contributions and investment appreciation, we should have enough money available to pay Baby Ninja’s tuition bills when they come due. What the taxable investment account lacks in tax savings, it makes up for in flexibility.

So there you have it. These are the reasons Girl Ninja and I have no sense of urgency in starting to save specifically for Baby Ninja’s college expenses.  Will he go to college? Probably. Will we have the financial capacity to help him? Probably. Is the 529 appealing to me? Probably not.

What say you? 

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Personal finance, well really life in general, is often about the next move. You go from elementary, to middle, to high school, and then to college. You finish college and get a job, only to find yourself looking for a new job after a couple of years.

My entire personal finance journey has always been about the next move.

First it was getting a job so I could earn money.

Then I used my new income to start paying down $28,000 in student loan debt.

Once my debt was paid off, I focused on saving for a down payment so we could buy a house. When we reached $100,000 in our savings account, we bought a house.

This year, Girl Ninja and I have turned our focus to contributing more significantly to our taxable investment account, in addition to maxing out my 401k ($18,000) and Roth IRA ($5,500).

Even though we are in the wealth building phase (heavily investing as opposed to paying down debt or saving for a house) of our personal finance journey, I still don’t really feel like I know what our next move is.

Am I investing simply for the sake of investing? 

Shouldn’t I have a plan, stated goal, or purpose for this wealth I’m trying to create? I need a next move if I want to stay focused.

I need something to look forward to.

But what? Here are a few of the things that sound appealing, but I’m not quite sure are for me…

Early retirement.

We could build up our retirement and taxable accounts to such a great number (probably around $1.5 million) so I can retire a decade before I’m supposed to. That’s cool and all. But I honestly don’t think I would quit my job even if I was financially able to. The pay is too good. The work life balance is second to none. And I legitimately enjoy my job. It’s weird, I know.

Buy an investment property

I quite enjoy the the idea of putting down $70,000 or so down on a $350,000 house, renting it out for $2,000/month, and letting someone else pay off my mortgage for me, not to mention watch my asset appreciate over the years.

That said, I also quite enjoy not having to be a landlord, property manager, or maintenance man. Nor do I necessarily want to tie up even more money in another illiquid asset.

Save for our next home

Girl Ninja and I bought a cute/modest 1930’s craftsman in the greater Seattle area. We spent $350,000 for our house, even though we were approved to spend nearly $600,000 by our lender. We’ve been in our house for just shy of two years and we love our community more and more every day. That said, we also realize that 10 years from now, when multiple children are in the picture, we might want a house that meets different needs.

If we are going to upgrade in house five or ten years from now, we could start saving today to make the more expensive house less of a financial burden.

?????????????

No. Seriously. What else could be my next move? I honestly can’t think of another “next move”.

This is where you might be able to help me by sharing what YOUR NEXT MOVE is.

– Are you working towards paying down debt?

– Or are you saving to start your own business?

– Have you drank the early retirement kool-aid and you’re saving 50%+ or your pay? 

Maybe one of your “next moves” will inspire me and become my next move!

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***I want to make things clear that I am writing a review of my refinancing process and am IN NO WAY being compensated for this post, nor is AmeriSave even aware that I have a blog. I figure with low interest rates, refinancing might be worth considering for some of you, and it might be helpful to see what my process has been like.***

Seventy-Seven days ago I wrote about my decision to refinance our mortgage. When we bought our house, we locked in at 4.125% and have a PITI (principle, interest, taxes and insurance) payment of $1,689 each month. In January, I noticed rates were considerably lower and figured it was time to wet my feet in the world of refinancing.

I contacted a handful of lenders (my current lender included) and got a few quotes. After some number crunching and phone calls with various companies, I settled on AmeriSave, an online lender out of Georgia. I’d never heard of the company before, and odds are you haven’t either.

I read some reviews, and as expected there were a lot of positive remarks and a lot of negative ones about the company. It seemed that people with generally good credit and a decent income had good things to say.

Why refinance? 

When it comes to refinancing one must not be so narrow-minded, that the only number you worry about is the interest rate on the loan. The far more valuable number to determine whether or not you should refinance is the break even period. That is to say, how long will you have to live in your house to make the refinance worth it.

I could have gotten a 30 year fixed rate of 3.25%, but that would have cost $12,000 in points and fees, meaning I wouldn’t break even for over a decade. I don’t know if I’ll still be in this house ten years from now so it would be silly to take this deal.

If I was going to refinance I wanted my break even point to be 12 months or less.

I locked in my rate with AmeriSave at 3.75% and they are covering all of my closing costs thanks to a massive lender credit. That means my break even point is zero months. Or in other words, I come out ahead starting the very first month!

How dope is that!

Again, I could have taken a better rate with Amerisave, say 3.5%, but I would have had to bring money to closing and had a break even point at like 3 years.

The big benefit to having a zero month break even point is that if rates drop even further over the coming months, there is nothing stopping me from refinancing again.

My new lower rate will save me $100/month, every month, for the next thirty years. LOVE IT! 

What do you need to refinance? 

I have had to provide a ton of documents to AmeriSave (via online uploading) for review by their underwriters. Things like…

  • Three years of Tax returns
  • Three years of W-2’s
  • Three years of Business tax returns
  • Four months of checking account statements
  • Three months of pay stubs
  • Proof of homeowners insurance
  • One month of savings account statements
  • About 30 pages of loan application paperwork

Fortunately for me, I have all of this information neatly compiled on my computer and it wasn’t too much of a headache rounding up the required documents. I’d estimate I’ve spent about four hours total compiling the correct documents and reading through the paperwork and good faith estimate.

How has the refinance process been? 

Going with an online lender I wasn’t expecting things to go super smooth. I’ve read a lot of horror stories online, and my refinance hasn’t been without issue.

I was told that my rate was good for 45 days from the day I locked. Here we are on day seventy-seven. Things are moving at a snails pace. I get them what they need within a few hours or a day of it being requested, but it can be two or three weeks before I get any updates.

That said, my loan processor has been pretty responsive and if I reach out he gives me assurance that, although things are slow, my loan is progressing. He has extended my rate lock twice now at no cost, which is crucial.

I received word yesterday that my loan was finally approved by underwriting and that they are hoping to schedule closing later this week.

Would I use an online lender again? 

You bet your sweet bottom I would. At the end of the day I care mostly about the cost of the loan and the interest rate I can get. The online lenders blew the brick and mortar banks out of the water. I called a few mortgage broker friends of mine and none of them could compete. I called my current lender to see if they would fight to keep my business, they couldn’t.

The process is not fast, that’s for sure (my original mortgage with a brick and mortar was approved by underwriting in 8 days), but I don’t care about speed. I care about money saved, and from my experience online is the way to go. 

  1. Would you ever use an online lender? 
  2. Have you refinanced? If so, had any horror stories? 
  3. If your rate is above 4%, why aren’t you refinancing right now? 

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How much does child care cost?

April 7, 2015

Girl Ninja and I just got back from a glorious 10 day San Diego / Palm Desert vacation. I ate many a California Burritos (9 total), Baby Ninja ate a gratuitous amount of sand at the beach, and Girl Ninja consumed her body weight in Starbucks. We spent time with old friends, visited our Alma Mater’s […]

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Sorry I’m on vacation

March 31, 2015

Probably won’t have new content up until next week since the fam and I are in San Diego for Spring Break. 

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Things every high school senior should know about college.

March 24, 2015

I’ve been mentoring the same group of high school boys for four years. They are seniors now, and most of them are in the midst of receiving their college acceptance/rejection letters in the mail. At one of my recent Bible studies I asked the guys if they would be interested in doing a “college prep” […]

36 comments Read the full article →