Just Bought Some I-Bonds

Jim at Bargaineering has a great post explaining why now is a good time to buy some Series I Bonds. It reminded me I hadn't bought any bonds in several years, and hadn't even checked how much interest I'd earned in quite a long time. So I went through the lengthy log-in process at Treasury Direct (it's set up to be extremely secure, with various access codes and security questions required), and was pleased to see I had over $140 more interest than I had the last time I checked, and I also moved $5,000 out of a couple of savings accounts to purchase additional bonds, bringing my purchases up to $8,000 in online-only bonds, and a $1,000 paper bond sitting in my fireproof box at home. The total value of these is currently $10,196.80 with the interest I've earned. I think I may start buying these a bit more aggressively, as I'm sitting on too much cash earning almost zero interest. I now have bonds that are old enough to redeem without penalty, so I could access the money if I needed it. Earning over 3%, and even more for the next few months, is very attractive right now!
If you haven't bought bonds before, check out TreasuryDirect.gov for more info.

Searching for Higher Interest Rates?

Check out this link from My Money Blog. Jonathan gives some great ideas on where to park your cash in order to earn somewhat less than abysmal interest rates!

I've been meaning to do some investigations on this front myself. I've built up a fair amount of cash again and so far, I've just been moving it into my FNBO Direct account, which is earning 1.5%. But I still have smaller amounts that are earning .02%-.06%, which is just appalling. It's less appalling than having lost 20% in the stock market, though!

Wow. This is a Must-Read.

Here's how the story begins (all emphasis mine):

If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.

So, the author starts a new family with a second wife, and buys too much house-- his budget is stretched to cover alimony payments so he gets a no-doc mortgage. Then his credit cards get maxed out, not just because he and his wife are spending a lot, but because his overdraft protection hits his credit card with a minimum $100 charge every time he's overdrawn! Before you know it, he's broke:

I felt foolish, ashamed and angry as I confessed to Bob. Why had I been trying to live a lifestyle that I couldn’t afford? Why had I tried to keep up the image of a conventional suburban family man, when nothing about my situation was conventional? How could I have glossed over the fact that we had been spending about $3,000 more than we were earning, month after month after month? How could a person who wrote about economics for a living fall into the kind of credit-card trap that consumer groups had warned about for years?

But guess what, it gets worse. Bob the mortgage guy helps him "solve" his money problems by consolidating his debt into a new, even bigger adjustable rate mortgage that could potentially hit rates of 11.5%:

The paperwork was so confusing that I was never exactly sure who was paying what. I hazily understood that I was paying most of the fees, one way or another, but I couldn’t figure out how, and I couldn’t see any better alternatives. After it was all over, I figured we had paid about $5,800 in fees to Bob’s mortgage company and the settlement company, on top of the sales commission that came out in higher interest rates every month.

I won't spoil the rest of the story for you-- it's a long article, but read it all!

My Personal Credit Crisis, by Edmund L. Andrews. The web article is a preview from the 5/17 New York Times Magazine.

Bummer.

It was to be expected, I suppose: my FNBO Direct online savings account, which I opened several months ago at 5.05%, just had its rate slashed to 4.30%. I have about $11,104 in this account, so I guess this will cost me somewhere around $83 this year-- assuming the rate stays at 4.30% and doesn't drop even further. Not the end of the world, but still... bummer.
I haven't written too much about all this economic turmoil, but it's certainly snowballing into a bigger and bigger topic of conversation. Last night I was at the Trader Joe's wine shop and noticed that they seemed to be raising some prices, which the cashier confirmed when I asked him about it. Someone else in line chimed in that "given current stock market conditions, that's just cruel."
I overheard a conversation somewhere else where someone said she had sold some of her international mutual funds yesterday, since she was too aggressively invested for her age and wanted to cut her losses since she thought things would only get worse. My international funds seemed to be up a little when I checked earlier this morning, so who knows if she was right! I myself am just sitting tight and not changing any investments around right now. And repeating silently to myself "30 years to retirement, 30 years to retirement..."

October Net Worth

Ok, time to do the monthly numbers again. Quicken tells me that my net worth on Oct. 31st was $365,383, an increase of 2.6%. This is excitingly close to my year-end goal, however, it's a bit suspect as when I was looking at it the other day, my 401k showed a higher balance in the net worth report than it did in another screen. Anyway, for now, I'll take it. It makes me feel a little better given how much lower it is today after the recent stock market slump.
A commenter asked me to explain the composition of my net worth in more detail, so here is the full scoop:

Cash & Bank Accounts:

• Cash $37
• Chase CD 6 mo. to 3/08 $3,034 @ 3.92%
• Chase Checking $160 @ negligible interest rate
• Chase Roth IRA CD 48 month to 4/09 $3,020 @ 4.16%
• Chase Roth IRA CD 60 month to 2/09 $2,627 @ 3.25%
• Chase Savings $3,400 @ 0.8%
• E*Trade 2-Yr CD to 10/08 $5,899 @ interest rate 4.75%?? hard to tell, for some reason E*Trade is making it very difficult to see what my actual interest rate is! But it must be in that range given what my recent quarterly interest payment was (see Rule 17 about doing the math).
• E*Trade Money Market $5,001 @ 2.5%. I will leave this here for a couple of months, probably, but I plan to close this account soon and invest the money elsewhere. This may result in my being charge a higher fee per trade in my E*Trade brokerage account, but I hardly ever do any trades, so no great loss.
• FNBO Direct Savings $11,000 @ 5.05%
• Laundry Quarters $7

Investments:

• E*Trade $18,142 Return on this portfolio was 11.7% in 2006
• E*Trade Roth IRA $24,813 Return on this portfolio was 7.69% in 2006
• 401k $202,314 Return on this portfolio was 11.5% in 2006
• Treasury Direct & Bonds $4,482 This is all I-bonds, rates 3.63-4.18%

Other:

• Credit card balance -$2,646
• Home Equity $84,059

So that means about 60% of my total net worth is in stocks & mutual funds earning 7-11% last year, 17% of my net worth is earning in the 3-5% range or less, and 23% is home equity. If you look at it just in terms of my investable assets, about 77% is in stocks and mutual funds, and 23% is in cash/CDs/bonds, etc. At my age, I suppose I could nudge myself a little further into risky investments like stocks, but not too much further. I like knowing that I have secure, steady investments balancing things out-- but I do need to make sure I pay attention when my CDs mature to make sure I get the best rates available, and also watch my bank accounts to make sure I am maximizing my interest there too. I did some work on that this month, by opening the FNBO Direct account with money I'd had in the E*Trade money market account.