Recently, I had a guest post over at Five Cent Nickel on Credit Card Processing Fee. This post got a lot of great comments and there was a good discussion on cash v. credit on purchases.
Be sure to check out the post.
Month: July 2009
Interesting Reads: 11th July 2009
Matthew Goldstein is fast becoming one of my favorite financial columnists. He seems quite sensible and in the short time that I have read his column, I have hardly seen him follow the herd.
His ideas are fresh, and writing — clear and insightful.
Here is my favorite post from him this past week:
On to the other links from the blogosphere this week:
Paradox of Thrift for Real @ Paul Krugman
Still skpetical about banks @ Baseline Scenario
Eric Jackson on the best corporate boards @ The Reformed Broker
Earn $150 cash bonus with a WTDirect Bank Account @ The Digerati Life
30 year mortgage vs 15 year mortgage @ Dough Roller
Why a single trading strategy is insanity @ Options for Rookies
When setting up a budget, don’t overdo it @ Vilkri
Incremental Simplification of your finances @ Bargaineering
What to do when money conflicts with ethics @ Money Ning
My Adventure on Bling St. @ The Incidental Economist
If you’re in debt @ Funny about Money
Carnivals
Money Hacks Carnival @Personal Finance Playbook
Carnival of Money Stories @ My Journey to Millions
Money Hacks Carnival @ Blogging Banks
PEG Ratio
Price Earning Growth Ratio takes the concept of Price / Earning Ratio (P/E Ratio) and adds in the element of Growth in it.
The P/E Ratio is calculated by dividing Price of the Share with its Earning Per Share. So, if Google has a market price of 423.30 and an EPS of 13.68, its P/E Multiple will be: 424.84 / 13.68 = 31.06.
To calculate the Price Earning Growth Ratio or PEG Ratio, you need to take the P/E Ratio and divide it by the growth in the EPS. You can take an estimate of future earnings growth or an average of the past earnings growth. Â There is no hard and fast rule of which growth rate you should take. But, I think it’s best to be conservative and take the one which is the least growth rate you could find.
Suppose, for Google you find that this growth rate is 15%, your PEG Ratio will be: 31.06 / 15 = 2.07.
The conventional wisdom is that a PEG of greater than 1 indicates an overvalued company, and less than 1 indicates an undervalued company. There is really no good way of finding out what growth number you should take. You could go to Yahoo Finance and look at the analyst estimates or look at what the company does, and see what different growth numbers result in.
This is an easy metric to calculate, but because it depends on future projections, you should be a little wary of how you use it.
Here are a couple of useful articles about PEG Ratio. The first one explains the positives of the PEG Ratio and the second one explains the negatives.
I think it is a ratio, along with many others, and should be looked in conjunction with other numbers like free cash-flow, debt – equity, dividend payout etc. It’s a good thing to be aware of, but not something that you should completely rely on.
MIRAE Asset Short Term Bond Fund – Mutual Fund NFO
MIRAE Asset Short Term Bond Fund: Type of Scheme
This is an open ended bond fund, and will hold a diversified portfolio of actively managed debt and money market funds. The underlying index is the CRISIL Short Term Bond Fund Index, and the fund’s performance should be benchmarked against this index.
The CRISIL Short Term Bond Fund Index (STBEX) returned 9.79% in the one year period from April 2008 – March 2009.
Now, I know that a lot of people equate bonds and debt to “risk free”, and shares or equity to “risky”, so let’s get this one thing out of the way first.
This is not a risk free investment and there is no guarantee of returns. Let me repeat that once more, there is no guarantee of returns if you invest in this scheme, just like there is no guarantee in other equity mutual funds. It is not the same as opening a fixed deposit in the State Bank of India.
You can think of it as less risky, but not risk free. The reason is that such funds allow you to diversify and reduce your exposure to equities.
For example, the underlying index of this fund returned 9.79% for the financial year 2008 – 09. In the same period, Nifty gave returns of – 38.87%.
Now, let’s take a look at where the MIRAE Asset Short Term bond fund will invest.
The fund will invest at least 20% of its assets in money market instruments and debt instruments, which have a remaining maturity of less than 182 days (about six months). Such investments are considered low risk.
The remaining funds (up to 80% of assets) will be invested in money market instruments and debt instruments, which have a remaining maturity of greater than 182 days.
To detail it out a bit further, the fund will invest in:
- Securitized debt
- Derivatives
- Foreign Securities
- Treasury Bills
- Commercial Paper
- Term Money
- Certificate of Deposit
- Government Securities with unexpired maturity of one year or less
- Debt Obligations of the governments, public, private companies and financial institutions (among others).
Opening and Closing Dates of MIRAE Asset Short Term Bond Fund
The MIRAE NFO opened on 23rd June 2009 and is going to close on 22nd July. After that; the scheme will reopen on 12th August 2009, for you to sell units, if you already bought them, and repurchase, if you don’t already have them, and are now interested.
Entry and Exit Loads of MIRAE NFO
The entry load is NIL.
There is an exit load of 0.25%, if you sell within 90 days of allotment.
The AMC estimates that the cost of running the fund (expense ratio) will be 2.25% of the weekly / daily average net assets for the regular plan and 2.10% for the institutional plan.
Minimum Investment for MIRAE NFO
The minimum amount that you can invest in the MIRAE NFO is Rs.5,000.
Scheme Types
There are Dividend and Growth types of this scheme. The dividend can be paid out monthly or quarterly (based on the surplus and discretion of the fund manager, no guarantees). There is also an option of reinvesting the dividend back in the scheme or reinvesting the dividend in other scheme of the mutual fund.
If you don’t specify which option you want, by default, you will get the growth option.
You can also get into a Systematic Investment Plan (SIP) for this MIRAE Asset plan.
Further Information
Here are links to the website of the fund and its key information memorandum.
How will you say no to me?
Last week, I asked you, if you’d lend me money, and the overwhelming response was Absolutely Not. (If you haven’t read that post, click here)
Mark and Dividend Tree came back with a loud thundering NO. Ancella and Tip Guy said they will lend me some money, and Mayank had another credit card scheme for me. Not one person gave me a loving embrace and told me that they would lend me every last penny they had.
The interesting part is that this question was based on a friend’s real life situation.
When he was approached for a loan, he was sure that he is not going to loan out any money. The chances of repayment looked bleak, and what with the recession and everything, he figured he might need the money himself.
Yet, in the end, he ended up loaning out about half the sum.
Why – because he couldn’t say no. That’s it, plain and simple, he couldn’t say no. He may need the money, he doesn’t think it is going to come back to him, but he couldn’t say no.
That’s a problem a lot of us face; we just can’t bring ourselves to say no. If you Google up “how to say no” – you will find 184 million helpful responses.
Google will even suggest that you search for the more relevant – “how to say no without feeling guilty” (because that’s what you are really looking for) and once you do that, it will present you with slightly less than a million results.
All this makes me think that there are a lot of people who are troubled by the prospect of saying no. And also, that a lot of people have faced such situations and have devised their own ways to deal with it.
By now, I am sure you know what the question of the day is, but I have to ask, so here goes:
How will you say no to me?
Will you be direct and tell me that you are not going to lend me money because I don’t stand a chance to repay you? Or will you be tactful and not so direct, and present me with a credible excuse for not lending?
Photo Credit: Nathangibbs
Indian Budget
The Indian budget was announced yesterday and looking at the sharp fall in the stock market, you would think that it was a total disaster.
The market fell because a lot of expectations were built up leading to the budget, and bold reforms were expected from the Congress, which didn’t deliver.
By now, all of you know about the 6.8% deficit number, lack of concrete measures, small reduction in personal income taxes, no disinvestment etc. etc.
So, I will not repeat that, and instead take a shot at analyzing the rationale of the budget and talk about the one number that’s been talked on more than any other — the 6.8% fiscal deficit.
But first: a little recessionary economics.
During recessions, private spending goes down, which means that people like you and I spend less than what we did in the boom. (I am sure all of us have noticed this in our personal life).
Now, remember, the money you spend is someone else’s income, so if you are not going to go to that restaurant every Saturday night, its earnings will go down.
If their earnings go down, they will have to lay-off some of their staff, and then those people will not be able to watch movies every Sunday night, and the theatre’s income will go down.
This is where the government comes in. If you and I are not going to spend money, then someone else has to do it, and that someone is the government.
Back to the budget
The most prominent number that has been floating around since yesterday is the fiscal deficit of 6.8% of GDP.
What this means is that the government has decided that this is the time for it to carry out spending and stimulus measures like never before.
Clearly, the government doesn’t think the economy is going to revive on its own any time soon. The global economy is still weak and there is not going to be much by way of export growth or private investment.
There are a couple of things that have been done in the budget to counter this.
The first one is the direct act of continuing tax incentives and sops to export oriented units, whether it is IT or Textiles.
The second and bigger measure is boosting infrastructure and rural spending. This may come across as a populist measure (and to some extent it is), but it is also a measure to boost domestic demand.
It is a step to reduce the dependency of GDP growth from exports and orient it more internally. In fact, one of the key factors because of which India remains relatively insulated from the global recession is that exports don’t form the majority of India’s GDP.
This is a step which extends that “decoupling” and aims to boost the GDP growth, despite the global recession.
And of course, we all welcome any improvement in infrastructure that we can get.
So far, we have seen only one side of the equation. The fun side and the spending side, but someone’s got to look at the difficult side too.
If you are a spoilsport, you may ask, where is the money going to come for all this spending?
The Finance Minister didn’t talk about disinvestment and he gave you a small tax break, so, where is the money for the spending going to come from?
Why, he will borrow of course.
The government has been borrowing heavily over the last couple of years and will continue to do it on top of the (already) huge public debt.
This is a risk and the willingness of the government to take this risk shows that it doesn’t believe that the private sector or exports can deliver the 9% growth the FM so badly wants.
But, all this debt has to be paid back, and for that, it is imperative that India has a few 9%plus growth years soon (and that too, without any stimulus spending).
If that doesn’t happen, all this spending will backfire. The deficit will soon become difficult to manage and it will trigger inflation and other problems like rupee or even sovereign devaluation.
Will all this pay off? No one knows for sure, but my opinion is that spending is the right thing to do at this time.
There will be plenty of time to save later and bring the deficit under control when the economy rebounds; this is not the right time to worry about deficits (It has always struck me odd, how a nation of savers can be so profligate collectively). Countries around the world are propping up their economies by passing stimulus packages and India has also joined that bandwagon. It is the right step, given the severity of this recession.
Dont Worry Dilbert
This is so funny, I couldn’t resist posting it here (although its from yesterday)
iShares Bond ETF List
After a gold ETF list, oil ETF list, silver ETF list and an India ETF list, next in line was a bond ETF list. But, there are just too many bond ETF options, and I thought I’d take them by the sponsor – one by one.
This is a list of iShares Bond ETF and is really a collection of the ETFs they offer. I plan to create a comprehensive list of all bond ETFs, and this will be a building block for that bigger list.
A word of caution about ETFs, just like you would be watchful in anything financial such as Business Insurance or Mortgage Home plans; bond ETFs too require careful research on things like investment objectives, risk factors, & the charges and expenses prior to investing.
The following is a list of iShares bond ETFs which you can use to get an idea:
Barclays 1 to 3 Yr. Credit Bond Fund (CSJ) seeks outcomes matching the price & yield performance, prior to expense and fees, of investment grade credit sector of US bond market as explained by Barclays Capital 1 to 3 Yr. US Credit Index.
Barclays 1 to 3 Yr. Treasury Bond Fund (SHY) looks to approximate the total rate of return that match the price & yield performance, prior to expense and fees, of the short term sector of the US Treasury market as explained by Barclays Capital 1 to 3 Yr. US Treasury Index.
Barclays 10 to 20 Yr. Treasury Bond Fund (TLH) looks for outcomes matching the yield performance and price, prior to expense and fees, of the long term sector of the US Treasury market as explained by Barclays Capital 10 to 20 Yr. US Treasury Index.
Barclays 20 plus Yr. Treasury Bond Fund (TLT) looks to approximate the total rate of return of the long term sector of US Treasury market as explained by Barclays Capital US 20 plus Yr. Treasury Bond Index.
Barclays 3 to 7 Yr. Treasury Bond Fund (IEI) looks for outcomes matching the yield performance and price, prior to expense and fees of the intermediate sector of US Treasury market as explained by Barclays Capital 3 to 7 Yr. US Treasury Index.
Barclays 7 to 10 Yr. Treasury Bond Fund (IEF) seeks to approximate the total rate of return of the intermediate term sector of US Treasury market as explained by Barclays Capital 7 to 10 Yr. US Treasury Index.
Barclays Agency Bond Fund (AGZ) looks for investment outcomes matching the yield performance and price prior to expense and fees, of the agency sector of US govt. bond market as explained by Barclays Capital US Agency Index.
Barclays Aggregate Bond Fund (AGG) looks for investment outcomes matching the yield performance and price, prior to expense and fees, of the total US investment grade bond market as explained by Barclays Capital US Aggregate Index.
Barclays Credit Bond Fund (CFT) seeks outcomes matching the yield performance and price prior to expense and fees, of investment grade credit sector of the US bond market as explained by Barclays Capital US Credit Index.
Barclays Govt. /Credit Bond Fund (GBF) looks for investment outcomes matching the yield performance and price, prior to expense and fees, of the US govt. and investment grade US corporate securities of US bond market as explained by Barclays Capital US Govt./Credit Index.
Barclays Intermediate Credit Bond Fund (CIU) seeks results matching the yield performance and price prior to expense and fees, of the investment grade credit sector of US bond market as explained by Barclays Capital US Intermediate Credit Bond Index.
Barclays Intermediate GVI or Govt. /Credit Bond Fund (GVI) looks for investment outcomes matching the yield performance and price, prior to expenses and fees, of the investment grade credit sector of the US bond market and the total US Treasury market as explained by Barclays Capital Intermediate US Govt./Credit Index.
Barclays MBS Bond Fund (MBB) seeks investment outcomes that matching the yield performance and price, prior to expense and fees, of the investment grade agency mortgage backed securities sector of US as explained by Barclays Capital US MBS Index.
Barclays SHV or Short Treasury Bond Fund (SHV) looks for investment outcomes that matching yield performance and price, previous to expenses and fees, of the short term sector of US Treasury market as explained by Barclays Capital Short US Treasury Index.
Barclays TIPS or Treasury Inflation Protected Securities Fund (TIP) looks for outcomes matching yield performance and price, previous to expenses and fees, of the inflation protected segment of US Treasury market as explained by Barclays Capital US Treasury Inflation Protected Securities or TIPS Index.
Other links you might be interested in:
- Inverse ETFs
- Penny stocks
- Personal Loan Information,
- Credit card tips
- Do Not Use a Leveraged ETF for Hedging
Photo Credit: mharrsch
Economy and Your Finances Carnival July 5
Venice Carnival Masks by Crystian Cruz
Welcome to the July 5, 2009 edition of the carnival. I hope you are having a good Sunday and enjoy the entries to this carnival.
Debt Freedom Fighter presents How to Create a Money Management Plan posted at Discover Debt Freedom!.
CreditCardAssist.com presents Responsibilities of a Primary Account Holder posted at Credit Card Assist.
kathryn presents Major Banks? Debt Relief Hotlines Revealed! posted at Out of Debt Christian, saying, “To help you make your loans more affordable, we tracked down the direct contact information for the loan modification departments at major U.S. banks”
stephen todd presents Ways To Make Money At Home posted at Make Money Today.
Chris McClelland presents Life settlement scams could lead to another subprime fiasco. posted at Lucrative Investing.
Tushar Mathur presents Can’t Control the Markets? Try controlling the Costs posted at Everything Finance, saying, “As 2008 proved, the financial markets are prone to unpredictable periods of turbulence. That can make investing feel a bit like a roller-coaster ride. The disappointing results that many mutual funds posted in 2008 and at the outset of 2009 may have left you feeling concerned over your financial future. You’re not alone.”
Billeater presents Stop Dragging Your Feet: Get Out of Debt Now posted at Billeater.
Leave Debt Behind presents 3 Sure Fire Ways to Raise Your Credit Score posted at Leave Debt Behind.
Ben presents Start a Side Business in the Lazy Days of Summer posted at Money Smart Life.
MatthewPaulson presents How to Cancel Your PMI Insurance posted at Fine-Tuned Finances.
Savings Toolbox presents A Six Step Plan for Shopping for Life Insurance posted at Savings Toolbox.
Debt
David presents Shop Online With a Disposable Credit Card posted at Credit Card Offers IQ, saying, “Discover has launched a service to secure your online shopping.”
Mr Credit Card presents Credit Card Traps..And Benefits posted at Ask Mr Credit Card.
SpendOnLife.com presents How Can I Raise My Credit Score? posted at SpendOnLife, saying, “In response to so many questions from our readers about how to raise their credit scores, we posted the 5 best ways to improve your credit score.”
Four Pillars presents Balance Transfer Credit Cards – What Are They And Why You Might Want To Get One posted at Quest For Four Pillars, saying, “Some benefits and drawbacks of zero percent balance transfer credit cards.”
Economics
TIE presents Pre-Theater Dinner Auctions posted at The Incidental Economist
Zach Scheidt presents Employment Numbers Decline – Economic Green Shoots in Question posted at ZachStocks, saying, “Employment numbers drop as economic green shoots are called into question. Nonfarm payrolls decline by nearly a half million – banking and retail sectors could experience the brunt of the decline.”
Len Penzo presents 18 Things You Didn’t Know About The Federal Reserve System posted at Len Penzo . Com.
Investments
Dorian Wales presents How Should Households Invest? Sharing My Asset Allocation posted at The Personal Financier, saying, “Investing without an asset allocation in mind is more likely gambling than actual investing”
ABC presents Should I Invest In Dividend Stocks (and what are they?) posted at ABCs of Investing, saying, “An explanation of dividend stocks and why you might want to invest in them.”
Diane Steward presents 25 Essential Investing Cheat sheets posted at ETFdb.
Puneet Kapoor presents THE ART OF SELECTION – PART 2 posted at KuberKhana -Indian Stock Fundamental Analysis, saying, “Prudent stock picking.”
The Investor presents Cash and bonds are different investments posted at Monevator.com, saying, “Make sure you understand the key differences between these two core asset classes…”
nickel presents Index Mutual Funds vs. Exchange Traded Funds (ETFs) posted at fivecentnickel.com.
Zach Scheidt presents Apollo Group Earnings Eclipse $1 bil Last Quarter posted at ZachStocks, saying, “Apollo Group Earnings have pushed for profit education stocks higher as investors celebrate a strong quarter. But many competing stocks have high valuations and are vulnerable to a decline in coming quarters.”
Rohit presents How Warren Buffet gets better deals than you? (And how you can do it too) posted at eMoneyLog, saying, “Warren Buffet always gets better deals, I try to analyze the reasons why.”
TIP Guy presents NIFTY Expected Returns for Different Trading Time Scales posted at The Income Portfolio, saying, “If an individual is interested in trading, the emplirical numbers I presented here can be used as a guide to put certain level of expectations. It helps you understand your risk-return scenarios. It helps you quantify the “riskâ€.”
Personal Finance
BankMan presents Top high yield savings account rates posted at High Yield Savings Accounts, saying, “The top high yield savings accounts offer customers a good way to earn interest on their savings while their money is in the bank.”
Darwin presents How to Hedge Gas Prices and Put Money Back in your Pocket posted at Darwin’s Finance, saying, “With gas prices rising at the pump this summer, this article lists 8 different ways to hedge your energy prices, including natural gas.”
ChristianPF presents Tips for Protection against Identity Theft posted at Money in the Bible | Christian Personal Finance Blog, saying, “Everyone should be doing these basic things to protect against identity theft”
Patrick @ Military Money presents Disabled Veterans to Receive $250 Stimulus Checks posted at Military Finance Network, saying, “Information about who receives the $250 economic recovery check (or stimulus check), including retirees, social security recipients, railroad retirees, and disabled veterans.”
Patrick @ Cash Money Life presents FREE Online Money Management Tools posted at Cash Money Life, saying, “Here are the best FREE online money management tools, including Mint, Quicken Online, Yodlee, and others.”
The Dough Roller presents Best 0% Balance Transfer Credit Card posted at The Dough Roller, saying, “0% Balance transfers, as opposed to cash advances, offer a great way to save money by consolidating high interest debt. This article describes what balance transfer offers are and how best to use them.”
Lazy Man and Money presents Save Money on Groceries posted at Lazy Man and Money.
MoneyNing presents Side Hustle, Self Employed, Entrepreneurship posted at Money Ning, saying, “There’s really not many overnight success. Work hard and take it one step at a time!”
Four Pillars presents Benefits Of An Online High Interest Savings Account posted at Quest For Four Pillars, saying, “Analyzing some of the benefits of getting a good rate for an online high interest savings account.”
The Dough Roller presents 0% Credit Cards–A Massive List of No Interest Credit Card Offers posted at The Dough Roller, saying, “A comprehensive list of credit cards that offer either 0% balance transfers, 0% on purchases, or both.”
Abigail Perry presents Spending: Frustration and irrational guilt posted at i pick up pennies, saying, “Most of us firmly believe that a small treat is the best way to keep ourselves from feeling deprived, since that can lead to financial binges. But those of us with overactive guilt complexes spend time and energy obsessing about even the smallest purchase. We’ve got to learn that it’s okay to spend on ourselves, so long as it’s in moderation.”
Steve Faber presents Which are the Cheapest Cars to Insure for Teenagers posted at Cheap Car Insurance.
Michael Schindler presents Start Establishing Your Credit Today posted at Your Personal Finance Source.
Steven Chang presents The Truth About Money – Money Blog – Money Making Tips and Money Management posted at Money Making Tips and Money Management
Ben Dinsmore presents Should You Pre-Buy Your Heating Oil This Year? posted at Trees Full of Money, saying, “I already pre-paid for my home heating oil this year, this article explains my reasoning.”
ChristianPF presents Tiny house living – could you live in 100 sq. feet? posted at Money in the Bible | Christian Personal Finance Blog, saying, “Some people are moving into houses as small as 65 square feet! See how they do it…”
That concludes this edition. Submit your blog article to the next edition of the carnival using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.
Interesting Reads 4th of July
Happy 4th of July everyone. I hope all of you are enjoying a nice holiday and are away from your computers and laptops. But, if you are in the mood to read, here are a few good stories I found this week:
The crazy story of Hernan Arzibu @ Felix Salmon (IMO this one is a must read)
The case for and against Keynes and Spending  @Weakonomics
Neutralizing risk when trading options @ Options for Rookies
Not settling for mediocrity @ Moneyning
Our family budget contained too many unnecessary expenses @ Vilkri
Is the economic downturn over @ Silicon Valley Blogger
Reading Krugman @ TIE
Statistics and Baseball for Beginners @ Baselinescenario
Carnivals
Carnival of Investing Strategies Returns at the Penny Daily