Liquid Assets

15 years ago

If you had purchased $1,000 of shares in Delta Airlines one year ago, you will have $49 today.

If you had purchased $1,000 of shares in AIG one year ago, you will have $33 today.

If you had purchaed $1,000 of shares in Lehman Brothers one year ago, you will have $0.00 today.

But, if you had purchased $1,000 worth of beer one year ago, drank all the beer, then turned in the aluminum cans for recycling refund, you will have received $214.00.

Based on the above, the best current investment plan is to drink a lot of beer & recycle. It is called the 401(Keg).

/tricia

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Comments (4)

partst
15 years ago
So TriciaÂÂ.

How long do you think it will take to recoup the $Âs lost in our 401Keg this last few day? Retirement in 610 days and counting. My gut feeling is we may not live long enough to recoup it all. I crunched the numbers and we will be fine without it but it sure would have been nice to have it lurking in the background if we ever needed it.

I took some cans down today and got $21.75 so maybe I better learn to like beer.LOL How bad do you think itÂs going to be for the next five or so years?

Claudia
beanthere_dunthat
15 years ago
LOL! That's our problem: we don't drink enough beer!
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Here goes with my financial advice. I believe it's simpler than it sounds and just requires you to get your interest rates from all of your accounts in order to make your choices. First suggestion: do as celticmoon suggests and fix that $515K first mortgage immediately! As I'm sure you're aware, the fixed variable rates of now are worse than a year or two ago, but much better than the 12-19% that they were in the past. In my opinion, fix it now and pay for any closing costs out of your savings, which is presumably earning the worst interest rate. Speaking of....what savings rate is your $15K earning? If it's less than 9% (almost a sure bet), and you have liquidatable cash in assets (which you say you do) to cover an emergency fund, then using that cash to invest in your house is giving you a 9% rate of return in your house investment, which is far better than the 3-4% of a typical savings account. If you choose not to do that, then I present my second suggestion (which I still think you should consider, w/ or w/o the $15K in the equation) DH and I just went through a similar process, although with one house, and we paid off a motorcycle and a timeshare (each at ~9%), rather than CC debt. This plan mirrors our own, with different dollar amounts: Roll both HELOCs into one and LOCK your rate up now. In my opinion, it's only going to go up. You should be able to get a much better rate with a higher consolidation balance (we got 7.5% by consolidating our two loans along with our original HELOC). 65K + 30K = 95K = 11.9% of the first house or 19% of the second house. If you keep your loan:value ratio below 20%, you'll get a better deal on rates. You may even ben required to keep it below 20%; I'm not sure. Keep thinking about that. The next option is to add the 25K of CC debt into the HELOC figure, for a total of 65K + 30K + 25K = 120K = 15% of the first house. Close that loan and pay off the CC debt immediately. You're now transferring the 8.9% of wasted CC interest into an investment into your house, in addition to the tax writeoff. The last think to consider is to stick with the 95K HELOC option and pay off the CC bill with your assets. Are any of your stock or mutual funds giving you returns better than 9%? If so, then keep them where they are and do the 120K HELOC option. If they're earning less than 9%, then I refer you back to the concept of my second paragraph. If you take your mutual fund money that is earning less than 9% and pay down your worst mortgage/HELOC/CC rate with that, you're making a huge investment in your house. Now, if you want to sit on your stocks, that's understandable. I hope that my advice not confusing, and that it's helpful to you. Lindsay
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sprout26
15 years ago
OK, when reading the title I thought to myself, does diet Pepsi count? Thinking this was something serious from our banking woman. Closer to the truth than I thought!
Now I'm wondering why I put it all in the recyling instead of turning it in myself...oh yeah, cuz otherwise it would be clogging up the garage! (like the glass that DH grumbles about)
triciae
Original Author
15 years ago
Claudia,

I think we're going to see an extended period of deleveraging...not just a few companies but society as a whole (including Europe). Without leverage, our economy is unable to grow at the pace we've become accustomed to. They'll be fewer jobs, fewer opportunities for promotions, fewer small business start-ups, fewer young people attending college, and of course our "assets" will be deflated, as well.

Hmmmm, that sounds harsh. Maybe, I'm just jaded & synical at the moment but I really do believe this is not an ordinary contraction. Even with the significant contributions we each made, I think Ben/Henry Capital is insufficiently funded to attain their goals. While the House was babbling back/forth tossing blame the flames spread quite a ways down the slope filled with highly flammable undergrowth. A lot of damage was done to the entire country in the past ten days. That 159,000 loss of jobs in September is just the beginning. For instance, Citi has a 3.5:1 leverage compared to DH's institution of .8:1. The deleveraging is going to be painful, for all of us. Many people I've spoken with over the past couple weeks don't seem to grasp the counterparty entanglement that means the AIG failure will affect them in more ways than their 401(k)s, etc. The good news is that I think we'll not see runaway inflation any time soon & I expect Uncle Ben to lower rates by month's end. Of course, for those who rely on income from CDs, etc. that will just add to the pain.

This is a different animal than the S&L bust. My largest hope for Ben/Henry Capital is that they will be able to contain the fire without giving up too much ground....build a firewall that keeps the fire from spreading too far down the hill & into our living rooms. We'll know a lot on Monday morning. It's not cash, per se, that's the problem...the problem is trust. If passage of the Bill doesn't quickly restore trust we're in trouble. Watch LIBOR...the Dow is too volitile & not a good guage of progress. If Ben/Henry Capital is successful then I believe we'll see light in 3-5 years. Without artificial propping it's very difficult to see recovery in any amount of time less than 5 years. Eventually, a new market leader will emerge (maybe, renewable energy...just a guess) & we'll be off & running again. That's how capitalism works. In the meantime, it's the dregs. :(

On that happy note, I'm off to central NH for a very fun day...I'll post about it with pictures either tomorrow or Monday! I've been saving change in a jar for 16 years for this day!!!

/tricia

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