About Time…

So I get back from my trip, and then I have an unexpected stay in my neighborhood hospital. That’s kind of a buzz-kill and it definitely keeps you tied up for a while…
Anyway, I’m back.

So I was in a taxi on my foreign trip (you know the kind of taxi ride I’m talking about - where the driver feels that signs, stoplights, and other cars are merely…”suggestions” of where he should or should not go) and in between points of near-death, my brother asks me what the conversion rate is for the dollar (you see, there was a moment for finance on my trip). I tell him what the rate is and then say that the dollar has been falling, so that it buys less where we were than it did even a few weeks ago. He then asks why, and for a moment I think: “What do I tell him? Comparative advantage, relative strength of the economies, interest rates, the trade and/or budget deficit, the over-supply of the dollar, China…?” Finally I just looked at him and said “It’s complicated.”

I’ve been doing a little research on the CPI and some of the arguments of why it is not necessarily the best indicator of inflation and some of the problems with the statistics, so for the next few days, I’ll have a little discussion…

International Moose

Sorry it’s been a little slow around here, but I’ve been out of the country on vacation.  Gimme a couple of days to get over the jet-lag catch up on everything…

Austin Burger Tour: Top Notch

Top Notch is one of the old time Austin institution burger places. The place has been around for several decades and was featured in “Dazed and Confused,” or at least that’s what my co-workers tell me (and according to the IMDB, so I guess it’s true). You can either go inside, or order out at the drive-up menus, “Sonic” style. The inside is small, and you may have to wait for a table at peak times, although the last time I was there for lunch it didn’t seem that crowded. The burgers are good; cooked on a flame grill, you get that back-yard grill taste. However, they are a little inconsistent. The first time I was there, the burger was way too greasy. There was a little puddle of grease from the burger which was kind of unappetizing. However, after coaxing by a co-worker who is a big proponent of Top Notch, I went back and had a much better burger, although it was still slightly too greasy. Later trips proved the same, although I’m wary that I’ll have a bad burger again. The fries are good, a little on the thin side, which I like.

Overall score: 6 out of 10

“Enhanced” Index Funds?

Over at Fidelity, where I have my IRA and Roth accounts, I received an e-mail touting their new “enhanced” index funds. Hmmmm, “enhanced.” I understand the concept of an index fund, which is managed to track a particular benchmark or index. The benefit of an index fund is that management is minimized; all the fund manager has to do is follow the index. This has the benefit of reducing fund expenses, and the majority of index funds often outperform actively managed funds. However, the fund’s return is often slightly below the return of the index, due to the expenses.

So, what’s up with this “enhanced” index fund? Fidelity says:

The funds’ managers use computer models to sift through the universe of stocks and rank them based on predicted performance. The results are then optimized to construct a portfolio that is comprised of the highest ranking stocks, but resembles the benchmark index in terms of sector/industry weights and other risk-related factors. What you are left with is a fund that seeks to out-perform the index while matching the risk, yield and other characteristics of a comparable index fund.

Uh…isn’t that an actively managed fund?  Am I missing something? Sure they use the index as a foundation, but then they apply subjective criteria to the stocks that comprise the index. The criteria may be based on objective factors, but choosing which criteria to apply and their application itself is subjective. Fidelity says that their range of return is greater when compared to the index. For example, a standard index fund, according to Fidelity, will return between -0.2% to -1.2% when compared to the index benchmark, while the enhanced index fund will return between +3.2% to -1.5%.  Fidelity does acknowledge that the enhanced fund has more risk than a plain vanilla index fund, but that the expected excess return more than offsets the risk.  I guess the expectation is that the return of the enhanced fund will generally beat the index due to the active management “enhanced indexing.”

I’m a fan of indexing, but will wait and see how these funds perform.  In any case, like most other Fidelity index funds, the minimum investment is $10,000, and I don’t have that much in my IRA and Roth accounts yet, so I cant invest anyway.  But that doesn’t mean I won’t keep my eyes on them…

Trolling the Blogoverse: 5/23/07 Edition

The latest Carnival of Personal Finance is up at FIRE Finance. I just wanted to comment on a few posts…

10K!!!

I mentioned earlier that I didn’t know about the 401(k) where I work until a little less than two years ago. (Yes, I know…everyone should know about these kind of things…) When I found out, I immediately signed up, but only started by putting in 5% of my salary. After a few months, it didn’t look like enough, because let’s face it, 5% isn’t that much. So I upped the contribution to 7%. Still not working for me. 10%? Uh…no. Now I’m up to 12%. I’m comfortable where I am now, but will probably increase that in the future. My funds returned over 18% last year, and I am looking at 10% return year-to-date, so I’ve got that going for me.

Well, with the recent run-up in the markets, I finally broke $10,000 in my 401(k)!  About time!  When I started out, it seemed that my balance was increasing soooo slowly, but now I’m at five figures.  Sure, most of the increase is due to my contributions, but after a few years, the investment growth will really start to add up (I hope).  Anyway, it’s a milestone that I wasn’t even thinking about when I started because it seemed so far away, but now I’m there.  Let’s see how long it takes to get to 25k…

Austin Burger Tour: Mike’s Pub

Mike’s Pub is an interesting little place located in the parking garage behind the Stephen F. Austin Intercontinental Hotel on Congress and 7th. The place is pretty small, the ceiling is low, and…oh yeah, they serve burgers. I’m not sure how long it’s been there, but it’s a quirky place that fits in well in Austin. It’s pretty good greasy-spoon type fare, however the negatives detract from the overall experience. Let’s start with the burger: pretty good, a little greasy, and there is a fixin’s bar so that you can accessorize your burger the way you like it.  The bad: First, the place is tiny, so seating is limited, and it’s pretty popular, so it gets crowded fast.  Second, they charge for refills.  Who charges for refills?  Third, they don’t take credit cards, but there is a little ATM type machine at the counter where you get a receipt for money and use to pay for the meal, and there is a charge to do this.  Basically, this is a good little place, but I don’t go out of my way to go there.

Overall Score: 6 out of 10.

Investment Choices…

So, what to do with my money? Here’s the breakdown for my 401(k): 35% international, 35% small-cap, 15% mid-cap, 15% large-cap. Like I said before, I have 30+ years until retirement, so I can afford a little risk right now, which is why I’m overweighted in international and small-cap. However, I’m limited to the options in the plan.

My IRA and Roth accounts at Fidelity are heavily weighted towards large-cap (~70%), with the rest in international. About 40% of this is in Fidelity’s US Equity Index, a nice S&P 500 index. But the rest…

I’m a fan of index funds, although I have only a small portion of my total investments in them (it’s not my fault my 401(k) doesn’t offer them). Warren Buffet is a fan of index funds. Free Money Finance is all over index funds. What’s so great about index funds? Two thing: 1) low costs, and 2) more importantly, most actively managed funds do worse compared to their index benchmarks. And they offer instant, broad diversification (as long as the underlying index is broad and diversified). Ok, so that’s three good things.

The problem I have is that the index fund choice is limited at Fidelity, where I currently have my money. Although the choices are pretty good, the minimum investment amount for most of the index funds is $10,000, which I do not have yet. So, either I wait and build up my balances, taking advantage of actively managed funds, or go to Vanguard, where the minimum balance amounts are much lower ($3000), although this would mean having different accounts in different financial institutions. Since my actively managed, large-cap fund is doing pretty well, I think I’ll stick with that, although I will still research to keep my options open.

Thought Experiment on Peak Oil

There’s an interesting “experiment” going on over at World Without Oil. Essentially, the idea is that peak oil has arrived, we’ve passed the inflection point, global oil production is declining, and prices are going through the roof.

The idea behind peak oil, if you are not familiar with the idea, is that eventually global oil production will peak, supplies will decline, and in the US, as the world’s largest oil consumer, there will be…problems. Please like The Oil Drum and Peak Oil (clever name) have links to stories and commentary. The theory was first described in 1956, when a Shell engineer named Dr. Marion King Hubbert predicted that US oil production would peak in the late 1960’s to early 1970’s, so people kind of took notice when this event did in fact happen in 1970. Applied to global oil production, current estimates of peak oil production range from, oh…now (or that we’ve already passed the peak point of oil production) to several decades out into the future. New discoveries of oil has pushed the peak out to sometime in the future, but the problem is that all estimates, even the most optimistic, predict that there will be a peak, and oil production will eventually decline, so that’s kind of a problem…

The thought of how declining oil production would affect the world is what the experiment at World Without Oil is about. Other bloggers took the idea, and posted descriptions of the effects of the oil shock; how they were affected, realistic “news” stories of local, national, and international economic and political effects, as well as videos and audios. Here’s a good description of the problem caused by declining oil production:

The issue is not one of “running out” so much as it is not having enough to keep our economy running. In this regard, the ramifications of Peak Oil for our civilization are similar to the ramifications of dehydration for the human body. The human body is 70 percent water. The body of a 200 pound man thus holds 140 pounds of water. Because water is so crucial to everything the human body does, the man doesn’t need to lose all 140 pounds of water weight before collapsing due to dehydration. A loss of as little as 10-15 pounds of water may be enough to kill him.

In a similar sense, an oil-based economy such as ours doesn’t need to deplete its entire reserve of oil before it begins to collapse. A shortfall between demand and supply as little as 10-15 percent is enough to wholly shatter an oil-dependent economy and reduce its citizenry to poverty.

I got this from Life After the Oil Crash, which, as you can guess, takes an “end of the world” approach to peak oil, although it is a good place to kind of get the idea about the concept (just be sure to take it with a few grains of salt).

Anyway, it’s interesting to see how people think the situation would play out…

Austin Burger Tour: Texas Chili Parlor

The Texas Chili Parlor is a little hole in the wall on Guadalupe that is famous for, well, its chili. And the chili is good; I like the black bean and Elgin sausage chili, but have not yet tried the XXX chili. However, we’re here to talk about the burgers. And the burgers are good, too. The burgers are a little thicker than places like Crown and Anchor or Fran’s, but not a thick as Casino el Camino (although I have not seen a place with a burger as thick as Casino yet). The burgers are not too juicy, but not dry either. I guess it’s the “Goldilocks” burger: just right. Another good thing is that the Parlor is very consistent. While this place is not at the top of my list, I have never had a bad burger there, and it has a prominent position in my restaurant rotation. It also doesn’t hurt that it’s conveniently located one block east of the Capitol and between downtown and the UT campus.One thing: they don’t serve fries.  That’s a minor annoyance for me, but they do serve fritos, which is acceptable.  Atmosphere wise, the place is pretty small and dark. They have the old-timey signs and license plates on the walls. Service is pretty good, although not as consistent as the burgers.

Overall score: 7 out of 10.