Market Isn't Very Stable.....time to get to safety perhaps?

Ok, so the equity market is bouncing like a yo-yo....everyone waiting for this magic bullet called the federal bailout plan.

I am not sure if this is a good or bad thing....I mean in the long run. I just don't know...but it seems to me that owning a bunch of defaulted homes can't be a good thing.

I'm also thinking that all that money creation must be causing inflation....but I don't know.

I don't like the general idea of the government bailing out companies and home owners who many of which were involved with loans that were just no viable.....where was their common sense?

On the other hand, I don't like the idea of an economy falling out of control because of panic....and over-reaction. But our country is in a world of hurt, and under a mountain of debt. In general, the USA is "too big to fail"! (where have I heard that before)

My plan.....at the moment, my portfolio is roughly apportioned like this:
77% - BONDS (about 6 funds)
11% - Foreign Currency (Cash in Euro, Yuan, Aust $, Canada $, Swiss Franc)
1% - Gold
5% - Equities (two funds at my work 401K)
5% - CD Fund
1% - US$ Cash

I am thinking of dollar cost averaging out of the bond funds into cash....I'm just afraid that some of these "safe" funds have exposure to some more of the "safe" companies that seem to be falling all around us ever day. (yet to fall that is)

I think I might get out about 10% a week.....and at some point, start dollar cost averaging into TIPS or iBONDS......to the point where I have perhaps 40% of my total money in inflation protected government securities.

I might actually "play" with perhaps some of my money and put it in and out of a couple of bear funds.....but that is kind of like gambling.....and that isn't my style.

Bill Gross' Latest Discussion of the Economy Situation

Bill Gross of Pimco Inc. is one of the world's largest mutual fund managers, focusing mostly on bonds. Called "the nation's most prominent bond investor" by the New York Times^[1], he manages Pacific Investment Management's Total Return fund (the world's largest bond fund and fifth largest mutual fund) and several smaller ones

Bill Gross is a very enlightened speaker with a lot of insight into the investment market, and world economies.

But he isn't always the easiest person to listen too and understand....often seemingly speaking in "code".

But even with this, I find listening to him to be quite interesting and educational.

Surprised by a calculation and a few words on what money is to me

MY NET WORTH:
Last night I was facing down my two girl's college tuition bills and trying to figure out where exactly to take the money from.

I began my investigation by making a list of the various places we have money invested. (I'm a bit of a worry-wart, so I like to be pretty well diversified.)

So I made a list of both retirement and straight savings.....of money I have and money the girls have too.

My first observation was that I was surprised at the money we had saved. Well, not shocked....but it had grown to level that was slightly higher than I thought. Very close to a goal Cheryl and I had a while back......before the great stock market melt-down early this decade. But here it was, after losing about 25% back then. (and many lost much more.....but being a conservative investor, I don't chase risk....so I also don't make as much as I could either, but it's not about who dies with the most money anyways....right)

MOM AND DAD HELP THE GIRLS:
So after the pleasant net worth surprise, I also remembered some bonds that my mother and father had been buying for Kimberly and Kristen all those years.....earmarked for their education.

You see, over the years my mother bought them EE savings bonds with the idea that they would be used for their education. They were not very large denominations....mostly $25, $50 and a few $100.....but she would do that maybe twice a year...birthday and Christmas.

The idea was that it showed the girls that she was supporting our country and helping them save for college. (My parents were not at all wealthy, but were big into saving.....I believe they only had one credit card, from Sears, and that was just in case a home appliance failed and they needed to get one. They taught me to be a saver.....a cash buyer if you will)

Anyways.....over the years, these savings bonds added up....and over half of them have surpassed their face value. (ex: a $50 EE bond costs $25 to buy, but gets to $50 according to the rule of 72 "Doubling time" depending on the interest they pay....and they keep getting that interest for I think it is 30 years)

NOTE: To be fair....I always talk about my mother when I speak of money....she held the purse strings, but bothy my mom and dad were very good savers...and while my mom knew the value of a buck, I think my dad had a better handle on "the math" any how compound interest was your friend....if that makes sense.

My mother started this bond buying as soon as the girls were born. Kim has 31 bonds and Kristen 18. (It looks as though Kristen was short-changed, but she seems to have larger denomination bonds for some reason)

Kim currently has $12,767.56 and Kristen $10,346.66. (I knew my mother would NEVER have favored one over the other...and the totals show that.)

So why think of this at this point......Kimberly is a senior. This is her last year to use this money for school, and therefore get the interest tax-free. Kristen has three more years to user hers....and since she is planning to go on to a PhD, she has even more time.

WHAT IS MONEY FOR:
My parents were really the best......yes, I suppose I am biased, but I truly mean that. (yes, they were far from perfect....let me state that for the record...but who is anyways?)

My parents were product sof the great depression, and they started out very poor. Bother were not well educated, having dropped out of High School for different reasons (My mom to take care of her mother, and my father to go into the war) but they didn't have a hate or fear of money. (or education for that matter)

In fact, they really appreciated the value of both...and they also saw the negatives and pitfalls each offered too. To some, it doesn't seem as though money or education can have a negative side...but my parents felt that if you let money rule your life, you might never be happy.....and if you let education get you to think you were somehow better, superior or better than others.....you would suffer as well. (and not live up to your potential in terms of your value to society)

So they always taught me that money was a tool....a means, and in no way an end. We didn't work and save to amass money for power...or in any way for greed. If we saved, we did so for good, honest reasons.....and we saved money for a particular purpose.....not just for the sake of saving money.

Saving for a house was great.....we have to have a place to live, and owning a house brings a certain level of stability to life. Saving for education was great.....making ourselves better with knowledge would allow us to be more valuable to the world so we might be able to give back more. Saving money to help others in time of need was good as well.....to them it was ok for money to help with security......but not power and in no way was it the reason to save in and of itself. (saving for retirement was important to them because it allowed the parents to be self-sufficient and NOT become a burden on their kids.....who BTW, they felt had an obligation to help their parents.....so if the parents saved, they would be further helping their kids by NOT becoming a burden)

Bottom line is what my dad used to day all the time:

"Money doesn't make the world go around, but it sure greases the wheel."

It is important....it must be dealt with, perhaps even respected.....it is a tool, but it can not be the end in and of itself.

Oops...it makes sense to go back and read my own BLOG posts!

It never even occurs to me to go back and read my own BLOG for good ideas!

Well, I was looking back at postings from March and I found one reminding myself that the girls have some US Government Bonds that are in their name that they can get tax benefit from if they utilize them for education.

In fact, this is exactly why my mother gave them.....for college!

Now that Kim is a senior, she needs to spend them this year on school.....or pay taxes on them when she ultimately cashes them in. I will have to talk to our accountant (Terry Strout) and ask him how we have to document their use as being for education. (Can we cash them in and just dump the money into checking and then write checks of an equal or greater amount for education expenses....and how do they define those anyways?)

So I guess I've learned something by reading my own BLOG.......if others come out with even a small bit of insight, I suppose I am doing something good. (at least I would like to hope so)

Tax time, no tax free EE Bonds for me and I'm looking for high interest safe place to park savings money...

IT IS TAX TIME:
I never look forward to tax time. We have actually gotten money back more years than not over the last 10, but I still have the thought of wondering.

Well, I am at that point now. All my paperwork is in to my accountant, and he is crunching away. I never took care of taxes before, being the more natural job of my wife. (who actually went to school for accounting but hated it and never held an accounting position)


Well, so far the accountant has only asked for clarification or more detail on three items, which I feel is a real victory for me. I figured I would leave out all sorts of things in this.

The only thing I am pretty sure I have not passed on was the information on the value of the 1993 Dodge Dakota that I donated to the American Heart Association. It was old, and in an accident...so it isn't worth very much.....and they have not given me a receipt as of yet, so I will have to make up some sort of reasonable value I guess.


NO TAX BREAK FOR SAVINGS BOND HOLDERS WHO MAKE TOO MUCH:
My mother had bought me and my kids savings bonds for Christmas presents over the years. The idea is that they would be used to pay for education, and they would be tax-free for that purpose.

Well, this is the case for my daughters bonds, but the bonds in Cheryl and my name are another story. I might be able to transfer them to my daughter, but if I cash them in and pay for their education, I would be subject to the salary means test, and I would fail it!

The cap for married people is $124,700...but this year as a widower, I am considered single and my limit is now $78,100. I'm out of luck in either case!


LOOKING FOR SAFE HIGH RATE SAVINGS OR CD:
Well, I think I have decided to just take the money to my credit union, www.usalliance.org. They have a special 15 month CD paying 5.45% (5.60% APY) and since I am a member there already, it is an easy thing to set-up. I just have to go into the branch which is not all that close to home. (bummer)

But right now I am letting the money sit in a checking account and pull in NOTHING for interest....that is a stupid move!

Income Limits when using Savings Bonds for Education

My mother bought our daughters Savings Bonds so that they could be used for their education. The EE bonds were marketed as giving tax free interest if used for education.

Well, I went out to look at turning in some of our bonds, and I came across the limits needed to qualify for this tax free status.

Yup....it is a means test of income, and now that my wife has passed away, I am considered single and my means test level goes way down! (from $124,700 to $78,100)

Well....that pretty much makes my savings bonds 100% taxable.....not the savings my mother was hoping they would be. (I have included the verbiage on this taxable income limits from the SavingsBond.gov site below)

Luckily some of the bonds are in my daughters names, so I will look into turning some of those in. Each of them also have an I-Bond which is not getting very high interest, and after next month will be over 5 years old and this will allow it's sale without interest penalty. (and tax savings on interest when used for education)

Since they are both over 18 years old, the income limits are their own, and not that of their parents. At least we have a bit of tax savings out of these things.....otherwise, I am very disappointed. (I would be better off quitting my job for the next two years and taking advantage of all these tax situations as well as the FAFSA benefits of a low-income family.....but that would ruin my long-term retirement savings trajectory)

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Tax Year 2006 Income Limits

For single taxpayers, the tax exclusion begins to be reduced with a $63,100 modified adjusted gross income and is eliminated for adjusted gross incomes of $78,100 and above. For married taxpayers filing jointly, the tax exclusion begins to be reduced with a $94,700 modified adjusted gross income and is eliminated for adjusted gross incomes of $124,700 and above. Married couples must file jointly to be eligible for the exclusion.