I'm going to try Prosper.com

While I wait for $1000 to transfer into my Prosper account, I started looking at what types of borrowers I would consider. Prosper's new Porfolio feature seems pretty nice -- a packaged up ball of debt that I can purchase. Sounds familiar? It should. That's exactly what got us into this Subprime mess in the first place. So I'm going to be very conservative with this for the time being.

Here are my lending rules:
AA or A credit
Less than 30% DTI (debt to income ratio)
Less than $10000 loan request
Exclude automatic funding
0 Now Delinquent
0 Delinquencies last 7 years
0 Public Records last 10 years
0 Public Records last 12 months
0 - 4 Credit Inquiries last 6 months

This search netted me 36 listings at 10:15am. A few are set to expire today, so I won't be able to bid on them. I'm going try playing with the Portfolio method. What I'm hoping is that once my funds clear, I can contribute 4% equally across 25 listings. It'll probably earn very little since I'm not touching any risky credit borrowers, but I'm hoping that it earns more than a 3-year CD.

Lump sum vs dollar cost averaging

Since I chose to roll over my IRA into a stock trading account in January, I opted to buy a little at a time. This fortunately saved me from a massive drop during January and February. I suppose it simply depends on the timing.

Mymoneyblog.com had some interesting viewpoints on this. I had around $150,000 rolled into my IRA account. Here's my exception to the rule.

Beginning January 03, 2008, the S&P 500 ended at 1447.16. That's when I started purchasing stock in small bites. Throughout January, as the S&P 500 slid down to 1350 on January 22, I continued to add to my positions, averaging my initial costs down. So my IRA has a +4.44% gain year-to-date while the S&P 500 is currently sitting at -10.03% year-to-date. My previous blog entry was higher, but it got hit hard on Friday.

I'm curious though, if there is any software that can track my stock purchases versus an equal dollar cost of the S&P 500 for each of my stock transactions. Because as it stands, I believe most tracking software compares your portfolio against the S&P 500 as a single transaction from the start date of comparison, though there may have been multiple periods between where you may have purchased stock. That way I'd be more fair, because there are certainly some dips in the S&P 500 down to the 1273 and 1276 on separate days this year that would have come out to be gains as well.

Don't time the market with your retirement

At the end of December 2007, I completed the paperwork to roll over my former employer's 401k into a Scottrade IRA. The transfer completed in the first week of January and I started gradually buying up stock. The markets tanked in January, and my portfolio simply kept bleeding away as I continued to catch the falling knives.

A friend decided to move a chunk of his 401k into a cash fund, because he didn't want to lose money. In doing this, I felt he was trying to time the market. I referred him to various articles explaining the reasoning of staying in the market versus cash. But it was already done, and there was a 60-day waiting period before he could move the cash back into a mutual fund.

While I consider myself a long-term-buy-and-hold investor, I've also been fairly risky with my investments. I know I have a 30+ year time horizon for my retirement portfolio to grow, so I'm pretty heavily overweight on growth stocks and am prepared to ride the roller-coaster of volatility. My friend on the other hand probably had less tolerance for market volatility. His answer to me was "Nobody ever complained about not losing money."

So while my stocks jittered and juked up and down in January and February, my friend maintained a stabler portfolio. In the beginning of March I reminded him that his 60-day waiting period is probably over, and that he should be moving his cash back in. He missed the big rally that started on March 18. My IRA clawed its way out of -10% all the way up to +8% today, all in the span of 5 trading days.

His remark strikes me still, because while surely he didn't lose money, he lost the opportunity to make money. This is where risk aversion can have a detrimental effect on retirement returns. For my time horizon of 30+ years I am eager to see how my growth weighted stocks will perform. Hopefully, they're not all subprime, right?

Zecco review March 2008

Zecco.com is having sporadic issues today. I intermittently get Service Unavailable errors. I did put in a couple orders, which you can follow on my Cake Financial portfolio.

I recently rolled over my Scottrade account to Zecco. My Sharebuilder account is in progress, as I didn't have the required $50 in cash to process the account transfer fee. Scottrade didn't charge me anything to transfer to Zecco. It's a little dumb, since Sharebuilder sells off all partial shares before transferring, and now my cash balance is almost $200, which would have covered the account transfer fee.

The main reason I was drawn to Zecco is of course the $0 commissions for up to 10 stock trades a month. After that, it's $4.50/trade which is still a damn good deal. However, their website has a lot to be desired. Their ACH checking account transfer page is lame -- doesn't match their site aesthetics at all. This probably has to do with their interface to Penson Financial -- the securities firm behind Zecco.

In this volatile market, Zecco allows me to buy "nibble" positions -- small trades at $100 or $200 at a time, without having to worry about the commission cost, which would definitely add up over time.

For an ACH transfer from my checking account, $5,000 got posted to Zecco within 2 business days. For an ACH transfer of $10,000 and above however, I have to wait 5-7 business days.

Zecco does allow dividend reinvestment, but you must submit the request in writing to their customer service explicitly stating which ticket symbol you wish to reinvest. Zecco does not do partial shares, so you'll have a cash remainder after.

For each trade I've made, however, Penson Financial sends me paper mail of the transaction. I'm not sure how to turn that off. I'll be contacting customer service. Customer service normally takes around 2 days to respond to e-mail. When I called them, the wait time was around 10 minutes.

For the stocks that transferred from Scottrade, Zecco shows them as having a $0 basis, which of course is wrong. I didn't really expect that to transfer, but somehow Cake Financial downloaded the transactions from Zecco and still maintained the original basis. Neat.

I still use my Scottrade account for the Realtime ticker applet, as Zecco charges a fee for that functionality. I would recommend Zecco to any buy-and-hold investor who wants to slowly get into stocks. While Sharebuilder offers the same "nibble" methodology, Zecco is completely free for 10 trades/month if your account is worth $2500 or more.

What would I do differently?

When my parents introduced me to mutual funds with a Roth IRA, I thought the idea of dividend reinvesting was so novel! I did nothing and yet my fund kept growing and growing with more and more shares. I continued this practice, except in a normal taxable account. This is one thing I wish I did differently.

I keep having to pay taxes each year on my mutual funds that I have outside of a 401k or IRA account. In the future I plan to segregate all dividend-paying stocks and mutual funds into my 401k or IRA accounts, and hold stocks in both retirement and taxable accounts. Of course, I wasn't as patient an investor nor as wise as I am today, so if I had been in more stocks back in 1999, I probably would have gotten trashed during the dotcom bust and left the stock market forever discouraged.

I probably should have bought a home back in 2003, when the interest rates were among the lowest ever, and a townhome in Santa Clara still cost $400,000. I would have gotten a 30 year fixed mortgage, and I would be diligently paying it down to this day. With my rent now at $2500/month, I think I'd be paying the same for my mortgage today. It's difficult to say how that would have affected my thinking, as I have switched jobs twice in the past 5 years, to higher position and salary. Perhaps I might have been more conservative and less likely to look for jobs while I had a mortgage.

Also, there are now very inexpensive online brokerages that let you nibble on small stock purchases with low commissions like Sharebuilder, Tradeking, Zecco. These brokerages offer much lower commissions than Datek (now Ameritrade), E*Trade, Ameritrade back in the early 2000 years. I have Scottrade and Zecco accounts, as well as direct accounts with several mutual funds.

I use the Scottrade account for their free real-time java applet, and Zecco for their free 10 trades / month. Since I'm investing for the long term, I want to just buy and hold for at least a year. Sometimes I sell losing stock at the end of the year for capital loss deductions on my tax return, and then buy it after 31 days to prevent a wash sale.

Spending Awareness

Check my credit card balances online multiple times weekly
Check my banking savings/checking multiple times weekly
This is something where Microsoft Money or Quicken could probably help, because logging into multiple credit card web sites can get tedious. With finance software, it would aggregate all that information into one application.

I managed to catch credit card fraud within a day with this method. Someone had used my Visa card number for some transactions in Mexico. I called up my bank and explained the situation. They had me come in person to the bank to verify photocopies of the receipts, and I signed in front of a notary with the statement being that I was not the person making said charges on my credit card.

All in all, it was a positive experience. I went and got a credit report next month to ensure my bank reported things were still okay with me.

Checking my balances on a weekly basis also keeps me appraised of how much I've charged on my credit cards, and ensuring I have enough money in my checking account to pay for my charges. That way I can pay my credit cards in full each month.

Pay my credit cards in full each month ONLINE automatically
I first got a credit card in college. Thankfully, my parents had instilled in me a fear of overspending, so I didn't go overboard. However I was late in paying some months, simply because I was lazy and procrastinated a lot, putting off having to actually write a check, lick the envelope and lick the stamp. Yes, back then we had to lick the stamp! Those late payments must have cost me hundreds of dollars in fees and interest payments.

I was lucky to have parents there to bail me out back then, and to dispense some harsh words of wisdom as well. So, now that I'm online basically every day, I schedule my credit card payments automatically by linking my bank account to it -- like a direct-deposit in reverse.

Obtain a free credit report every 4 months
Annualcreditreport.com lets you get 1 free credit report from each of the three agencies per year. Just get it from one reporting agency every 4 months, and you don't have to pay anything. I've still gone and bought a combined 3-in-1 credit report once a year, just to be sure though.

Financial Awareness
Awareness of your current financial condition makes me feel like I'm on top of things, in control, and empowered to reach my goals. What are my goals? I really don't have anything written down yet. I will soon.

Cutting costs

Tallying a list of my recurring monthly costs...January 2008 - March 2008

• Cell Phone Family Plan: $125/month
• High Speed Broadband Internet: $125/month
• Utilities: $100/month
• Public Transportation and commuting: $175/month
• Cable TV: $0/month - antennaweb.org - hulu.com
• Eating out and Entertainment: $400++/month
• Netflix: $22/month
  
• Rent: $2500/month
  

Living in San Francisco can be quite expensive. I see an opportunity to lower our rent by looking for a cheaper place, and to eat out less. We don't have a home phone, so our cell phones are our lifeline. The broadband internet package could be a slower package, but I really love my internet.

Taking the time to actually write down and list my expenses really is eye-opening. We're lazy and like to eat out a lot -- and not fast food either. Neither I nor my wife cook much. So how can we motivate ourselves to eat at home more often? Tallying up our meal costs will surely be eye-opening to her as well, but still $400 doesn't seem that expensive. I should probably restart Microsoft Money and put our credit cards into there so we can actually get some charts on our spending habits.

Portfolio tracking

Cake Financial is a site I stumbled upon recently. It loads the transaction history from various online brokerages (you give them your brokerage login/password) and plots your aggregate performance. I'm not entirely sure whether it keeps track of your sold position performance -- I hope it does.

You can also follow other people on the site, and compare performance with one another. You can get notifications when people you're following make trades -- which stock they traded. Actual stock prices aren't listed in the notifications nor do you see actual dollar amounts within other people's portfolios. If you look at my Cake banner on the right, you'll just see my allocation percentages.

I've used Microsoft Money and Yahoo Finance to keep track of my investments, but was never satisfied. Cake Financial doesn't leave me satisfied either -- there are still a lot of bugs they need to fix. Like my Zecco trades always seem to be listed from the future settlement date, and each time Cake refreshes account data, it thinks I've gone ahead and traded the stock repeatedly.

Cake doesn't know how to handle short positions, nor options at this time. Perhaps at a later date...

What software or websites do you use to track your portfolio?

Second thoughts

Back in 1999, I had just started a new job, and got to choose from a bunch of mutual funds for my 401k. This was the first time I had to decide on my own my financial destiny. I couldn't understand all these prospectuses in front of me, but I was a gambler, so I chose whatever funds had recently had the highest percentage of all-time growth.

Sure, past performance not indicative of future returns, whatever. But I was smart. So I chose the highest-performing funds for my 401k anyway. Looking back, of course that wasn't the wisest decision. It broke even again near the end of 2005.

But I think I've learned something from that experience. Here's what I learned: Past performance is not indicative of future returns.

In the beginning

With all the blogs out there today, how is mine different? Honestly, it probably isn't. But perhaps I might come up with some brilliant crap once in a while. Who knows? Just like the stock market, you should just stay in the game and hope the highs outweigh the lows in the long run.