Money Links (April 6, 2008)

CNBC feels your pain.

Doug Kass turns bullish? It must have been April Fools Day.

My Post How My Investment Strategy Has Changed Over 12 Years was included in this week's Carnival of Personal Finance #146.

This week's Carnival of Everything Finance #16 included my post
Will the Bear Market Last Until 2014?.

Bible Money Matters hosted Money Hacks Carnival #6 which included my post How I Sold My Home in a Slow Real Estate Market.

How Not to Pay off Debt

I don’t like debt. I’m currently debt free except for my mortgage and I hope to be completely debt free in five years. I paid off debt by downsizing and spending less. There are plenty of good ways to pay off debt but there are also dumb ways to pay off debt.

Avoid 401(k) withdrawals. If you take money out of your 401(k) then you will pay fees. You will pay taxes on your withdrawal plus a 10% penalty. Ouch!

Don’t borrow against your 401(k). When you borrow money from your own 401(k), you usually must pay back the money with interest over five years. This sounds like a good idea because you are paying yourself the interest. There are a few drawbacks. If you leave your current employer for any reason, you will probably have to pay the loan back immediately or face the fees of an early withdrawal. The money you withdraw will also no longer be appreciating in value so you lose the impact of compounding interest. The money used to repay your loan is also not tax sheltered. A primary advantage of a 401(k) is the tax shelter. When you repay your 401(k) loan, those payments are made with after-tax dollars. Then when you take withdrawals at retirement, you pay taxes again.

Don’t borrow against your home. Don’t use a home equity loan or home equity line of credit (HELOC) to pay off debt. Your home is used as collateral with these loans. If you aren’t able to pay back your loan then the lender can force you to sell your home.

Unfortunately, these are common strategies people use to get out of debt. I personally know several people who have used these tactics. I am writing this article today to hopefully persuade others from making the same mistake.

Money Links (March 30, 2008)

Do you need help reading your credit report?

Have you read the Idiot's Guide to Improving Your Credit Score?

Do you think the U.S. economy is heading towards a perfect financial storm?

New plan would give the Fed greater power. Is this a good thing?

Great advice if you are buying a house.

Dow 20,000 within a year? I'm not counting on it.

This week's Carnival of Personal Finance #145 hosted by Million Dollar Journey included my post Don't Chase Investment Performance.

Antishay Ventenne hosted Money Hacks Carnival #5 which included my post
Good or Bad: The Federal Reserve Rate Cuts Will Impact You.

Will the Bear Market Last Until 2014?

Check out this insightful interview dated December 10, 2007 with Russell Napier, author of Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms. The interview takes several minutes but it is well worth the listen.

Napier studied the four historic market bottoms of the 20th century with major lows created in 1921, 1932, 1949, and 1982. He defines these market bottoms by declines in market valuations. He also comments on the market tops and suggests we reached a market top in 2000 and a new long-term bear could last until 2014. Napier states that there are plenty of great trading opportunities during these long-term bears but they are not “buy and hold” markets. I tend to agree.

Napier’s research is amazing as he read 70,000 Wall Street Journal articles two months prior and two months after each of these bear market bottoms. Based on his research, what sort of headlines should we expect to see before we declare a new market bottom? Napier expects to see plenty of these sort of headlines:

Disgruntlement with the Federal Reserve
Pressure for a new monetary system
Lots of discussion why you should never buy equities
Talk of a possible bond collapse
Dangers of holding your money in a bank
Talk of deflation
Questions about the long-term future of America

In my opinion, we are starting to see some of these headlines but I agree with Napier that we have a ways to go before we hit bottom. If the Fed hadn’t stepped in and bailed out the market over the past 6 months, we might be seeing more of these headlines. In my opinion, the Fed is just prolonging the agony. You may not agree with my opinion. Regardless, Napier’s research is certainly interesting.