Yowza, the Stock Market!

Normally I'm a very hands-off investor. I go for long periods without paying much attention while my various holdings drift up and down in value-- hopefully, mostly up! But in the last year or so, I've been putting more cash into the market, and paying a bit more attention. This is largely because I've had more cash to invest-- my own savings and the proceeds from selling my condo, and more recently, my mother's trusts.
I continue to mostly invest in a mix mutual funds, some just index funds and some with other mixes of assets-- nothing really sector-specialized, just some bond funds and others that are supposed to maximize dividend income. Then I have a few stocks that I've bought a few shares of here and there.

The last couple of days have been one of those times where I can't really sit by and ignore what's going on. I've been checking the S&P 500 multiple times throughout the day. As mentioned in the posts about my mom, I now have to worry that she'll think I'm mis-managing her money if the markets go down, and they've gone down a LOT in the past few days! I can handle seeing my own net worth plunge by $60,000 or more in the space of a few days, but that's nothing compared to dealing with my mother! :)
For my own investments, I'm trying to be strategic and cool-headed, so as Monday's big plunge was happening, I moved $25,000 into my E*Trade account so I'd be ready to act if it seemed like I could take advantage of buying low. At the end of the day, I thought things were down enough that it made sense to do some bargain-hunting, so I invested all the $25k. Tuesday morning, the markets opened higher and I was feeling like a genius! But as the day progressed on Tuesday, I began to wish that I'd waited another day as the markets ended up closing down even further. Oh well! Maybe not so genius after all...

I still try to keep an eye on the long term. I didn't sell off anything after the 2008 crash and my investments mostly recovered. I've had some things do very well in the last few years. But it's a bit depressing to see those gains wiped out again, and I do wonder what's in store for the next few years. A lot of people are saying stocks are generally over-valued, and I'm pretty exposed to that through a lot of my mutual funds. But interestingly, my individual stock picks don't seem particularly over-valued, at least not after Tuesday's close. I have shares in Ford, Bristol-Myers Squibb, Kroger, Xerox and KKR. The P/E ratios on these are mostly pretty reasonable-- all under 15 except Kroger at 18 and BMY at 54! BMY is up 113% from when I bought it in 2011, so I'm thinking I may sell it now. Kroger is up 197% from when I bought it so it's tempting to sell that one too. Whenever I've bought individual stocks, I've tried to find things that had a low P/E ratio and projected earnings that would suggest the price could rise-- that approach has worked well for me. Xerox was bought based on advice from a friend, the one time I've ever acted on that sort of stock tip-- that approach definitely did not work for me! Xerox has been down pretty much ever since.
I also like it when stocks pay dividends-- I figured out that I've reinvested almost $30,000 worth of dividends on my main E*Trade portfolio over the years. KKR is something I just purchased this week because the P/E ratio was very low and dividend quite high. I've never invested in a private equity company, or any sort of financial services company-- my other stock picking rule having been that I choose companies whose businesses seem more tangible and familiar to me. My most detailed knowledge of KKR has been from reading Barbarians at the Gate-- a fascinating book which I highly recommend, though it's not exactly flattering to KKR. So this pick goes a little against my grain but these private equity guys always seem to be raking it in like bandits, and I'm willing to try to ride along a bit!

Here's the current holdings in my main E*Trade portfolio if you want to follow along... this doesn't include a smaller Roth IRA portfolio or my 401K.

Symbol	Qty
BMY	30
BRLIX	3,082.075
BRSIX	605.537
BVEFX	277.961
F	300
ICENX	875.547
KKR	200
KR	200
NOSIX	383.203
PFODX	602.65
PGNDX	674.272
POMIX	427.673
PONDX	1,000.777
PRGTX	361.533
RYTRX	326.781
SFLNX	2,268.278
SFSNX	601.965
TINRX	604.23
TRVLX	137.817
VDIGX	437.085
VEIEX	396.939
VNYTX	787.866
VWELX	1,155.685
VWINX	1,129.674
XRX	75

More on Being a Trustee

Ok, so we left off with the big package of legal documents arriving for me to sign.
First, there was the irrevocable trust document. This spelled out that my mother was putting $350,000 in this trust and waiving all rights and title to the principal forever. It names me as trustee, and talks about various ways I’m allowed to make decisions about investing the money. It says I have to distribute net income quarterly to my mother, and provide a full accounting of the trust’s transactions annually. There’s also a lot of stuff about how a the trustee can be changed later if necessary, and what happens if I die, etc. It names my sister and me as the beneficiaries and that the principal will be paid to us equally after my mother’s death.
Then there’s the revocable trust. This money still belongs to my mother during her lifetime, but I am the trustee managing it. My sister and I are the beneficiaries after she dies. This trust is just to simplify things and avoid probate when my mother dies. But it’s also a very good thing to have a trustee in control so that my mother can’t just spend all the money without consulting someone else. This may become awkward in the future if my mother wants to spend money and I don’t think she should.
The final documents in the package were my mother’s last will and testament, and a durable power of attorney authorizing me to act as her agent. The will will cover any property of hers that is not held in the name of the revocable trust. If those assets are less than $25,000, then it goes through a “simple probate” process that is easier than for a larger estate. So we’re supposed to keep my mother’s assets under her own name at less than $25,000 but of course she had last minute cold feet about putting the full amount she’d intended into the revocable trust, so she actually has more like $40,000 in her own account— or at least she did when this all happened. Who knows how much of it she’s spent by now! I keep reminding her that the revocable trust funds can be paid out to her any time but she still doesn’t want to transfer her extra cash. I asked a couple of times then decided to let it go for a while as she seemed to be starting to think I was being morbid about it!
The final item in the package was two checks from my mother’s account, one for $350,000 made out to the irrevocable trust (“The [Madame X’s Mom] Irrevocable Trust of 2015”) and one for $100,000 made out to the revocable trust “The [Madame X’s Mom] Trust of 2015.”

The irrevocable trust has its own tax ID number, which the lawyer also sent to me a few days later. Once I had that, I went to the bank to set up checking accounts for each trust. It took about an hour and a half to do all the set-up paperwork at the bank— they had to fax the documents to their legal department to make sure everything was in order, in addition to all the usual account paperwork.  But once that irrevocable trust check was deposited, it started the clock ticking for Medicaid’s 5-year look-back period, in the event that my mother ever needs to apply for it.

After the checks cleared and I’d received new checkbooks in the name of each trust, I opened a Vanguard account for each trust. I picked a variety of mutual funds, including some that have the goal of maximizing dividend income. I did put some of the money in funds that seek growth and have higher levels of risk, but I steered away from the riskiest ones, and also put some money into lower-risk bond funds. I do want to make the principal grow, but I also want to make sure the investments generate some income for my mom. I am a little worried about how the first few months will go— it’s unfortunate that the stock market has taken some plunges exactly after I invested this money, so my returns are somewhat negative so far. I personally am a pretty calm investor— I always try to look at the long term and not panic during down times, but I’m worried about how this will appear to my mom and anyone else whom she might tell. If I say “ok, mom, I took $450,000 of your money and invested it, and all I have to show is a $5,000 loss after 6 months,” she may just think I don’t know what I’m doing, regardless of whether I point out that the entire market is down, and that any other financial advisor would have been likely to have similar results. I am kind of wishing I’d weighted the portfolio even more towards the bond funds vs. the others, given that the stock market was at historic highs when I was putting all this money in. Perhaps that is what a professional advisor would have counseled… but perhaps not, and I have to keep reminding myself, and my mom if necessary, that we’re still ahead by a percentage point or two just by not having to pay someone else’s fees to manage the money.

There will be more to talk about in the coming months, as I figure out whether and when to distribute income to my mother, how to deal with tax issues for the trust, and other questions. I’ll keep you posted!

2012 Income and Expenses

2012 was a great year in terms of income-- I hit another new high:

Salary $106,244
Bonus $18,239
Employer contributions to my 401K $8,119
Dividends $15,977
Realized Gain (from a fund change made in 401k) $11,347
Blogging income $4,402
Gifts received $100
Interest $208
Tax refunds $2,516
Total Income $167,152

Almost all the dividends and realized gains were reinvested, and sometimes I don't really even consider these "real" income. But I love seeing my money work for me-- that is over $35,000 worth of income made not from labor but from my own savings and 401K participation.

The other income I had this year was $10,000 in rent from the tenants in my apartment, but for this year, I am kind of looking at it as a defrayal of my housing expenses. I'll start breaking this out differently next year, as I'll be reclassifying some of my expenses as business expenses for an investment property rather than personal household expenses.

Now for expenses:

Bank Charge	$77
Charity	$1,153
Clothing	$3,062
Dining / Groceries	$11,296
Education	$458
Entertainment	$1,364
Gifts Given	$2,266
Gym	$2,249
Household	$1,792
Housing (net)	$11,974
Income taxes	$34,639
Medical	$1,714
Miscellaneous	$3,434
Newspapers and Magazines	$404
Travel	$8,421
Utilities Internet Access	$360
Utilities Telephone	$953

A few notes:

• Charity refers to my personal contributions. I also plan to donate all the blogging income from this site.
• Dining-- about $8500 of this is for stuff shared with Sweetie. (I have to admit that we have been indulging in fancier wines than we used to! We buy it by the mixed case and usually 1 or 2 of the bottles is a special treat, i.e. something in the $16-35 range, compared to the $9-12 range for the rest. But at least in restaurants, we tend to stay with whatever's cheapest.) The rest is mostly for my own breakfasts and lunches.
• Entertainment was pretty high this year, due to buying more tickets for concerts and theater, including a rather expensive one to see Madonna at Yankee Stadium
• Gym-- this covers a membership renewal for 2 years
• Household is mainly laundry and dry-cleaning, plus a new armchair for the apartment Sweetie and I now share
• Housing-- as noted above, I pulled together my housing expenses such as condo charges, property tax, mortgage interest, rent I pay to Sweetie, and gas and electric charges for my condo, and then subtracted the rent I receive from tenants to arrive at a net housing cost for the year. This does not include about $10,000 in mortgage principal I've paid off, as I view that as a transfer from my cash net worth to home equity.
• Miscellaneous included a new iPhone and a lot of art supplies, plus haircuts and all the usual little personal items
• Travel includes daily commuting, some family visits, and a 2-week summer vacation in Europe.

Total expenses for the year came to $85,616. This is also an all-time high. I think the new iPhone, big vacation, 2-year gym expense and new chair account for a lot of that, plus trying to take better advantage of all the culture NYC has to offer.

Net savings were $81,536, of which $10,125 is the transfer to home equity for paying off mortgage principal. This is NOT an all-time high, but it's second only to the year when I received a $25,000 inheritance, so I'm not going to beat myself up about it. I saved about $5000 more than I did last year,
and about $9000 more than I did in 2010 if you back out the inheritance.

As always, I could easily have cut back on expenses and saved more, and I always have these thoughts about how much sooner I could retire if I did, and whether I'll wish I had saved more when there's another economic crisis... but at the end of the day, I am comfortable enough with my savings and net worth so far to allow myself some luxuries. I feel very, very lucky and thankful for the good fortune that has come my way.