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…

Overall score: 6 out of 10

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…

The first is from The Happy Rock, who talks about getting out of debt and all the happy things that go along with being debt free. I can really relate to the “less stress” comment. Although I literally have nearly 100 times more debt from my mortgage and student loans, I kind of stress about my credit card debt, probably because I know that the mortgage and student loans are the good debt, while the credit card debt is just from “other” purchases and is bad debt. This is a nice connection to the post from Queercents, who talks about the different between good and bad debt. I’m trying to reduce the credit card debt, but it’s like a yo-yo diet: it goes up and down, usually within a range of almost being debt free to very stress inducing.

Everyday Finance talks about a gasoline boycott chain e-mail. I have also received a chain e-mail stating to not buy gasoline from a particular company or on a particular day to “punish” the company or lower the price of gas. Dan does a good job of explaining why this is not a good idea. Essentially, we are just transferring the purchase of gas to another day or another company, so the net effect is no different. What would really make a change is to reduce our overall consumption of gas and oil products. This is the only way to reduce the price of oil.

Shadox over at Money and Such has a good discussion of the fear of investing and how it relates to risk.  I have spoke previously about risk as it relates to investment types and the risk tolerance of the investor.  While our discussion overlaps, Shadox takes it to a more personal level, specifically talking about how an individual may become a little more comfortable about investing in equities (as opposed to someone like me that has jumped into stocks without looking back…).

Finally, the Digerati Life talks about the investment strategies of some of the more popular financial bloggers here and here.  It’s always interesting to see how others are investing.  One thing I noticed was that most of the people were invested in funds rather than individual stocks, some ETFs, and a couple mostly into index funds.  I don’t have enough at this point to invest in so many different funds, but it’s always good to get different ideas before I do.

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…

Overall Score: 6 out of 10.

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.

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…

Overall score: 7 out of 10.