Friday, December 26, 2008

I Bonds or I Savings bonds vs. Certificates of Deposits

The other day I was wondering about long term investments , something with a horizon of 5-10 years and I came across I bonds or I saving bonds.
thanks to a friend who introduced to me these safe government protected investments.

According to "Bonds have a one year minimum hold time in which the bond can not be redeemed. Additionally, bonds are subject to a 3 month interest penalty if the bond is redeemed within 5 years of the issue date. Similar to other US Treasury Bonds, I Bonds continue to earn interest for 30 years. After that time, the matured bond is worth the face value plus the interest collected over that time."

The most logical comparison that arrives at one's mind is between a CD and an I-bond. How does an I bond differ from
a 5 year CD.
1. CD's rates are fixed for the entire duration of the term. I bonds are inflation protected and have 2 parts , one called the fixed rate which stays the same for the entire duration
of the bond and a variable value which is tied to the inflation core index
2. One can withdraw money from a CD even before one year with an associated penalty ofcourse but atleast its an option.
3. With most banks money withdrawn from a CD before maturity is subject to three to six months of interest. Money withdrawn
from an I bond after 1 year is subject to similar but not neccessarily same terms.
4. Current rate for an Ibond is 5.64 % which ofcourse can and will change in the next five years. CD has constant rates of maturity
5. CD is protected by FDIC values whereas Ibonds are backed by the government.
6. According to "The federal tax can even be waived if the bond is redeemed to pay for education costs." This definitely not the case with CDs.

I bonds rate are weighted more on the CPI or variable rate rather than the fixed part so one should typically not wait till fixed part is higher. Essentially these are inflation protected investments.

Interest accrued on I bonds is on the end of the month, so its advisable to invest towards the end of the month.

Please note that I have not compared I bonds to other available government bonds in this article. CDs are something that naturally occured to me and hence the

Is this a safe longterm investment in this recession season?

Sunday, December 21, 2008

The January effect: Lets discuss about the 2009 January effect

It is believed that in January, particularly during the first few week(s) has witnessed gains not seen during other months of the year. According to Wikipedia link for the January effect it is said that this may happen due to profit gains taken in the prior
year for tax purposes and investors put their money back in the market for re-investment.
To see if this really worked lets take a look at the past few years return for the NASDAQ index QQQQ.
In Jan 2008 we saw that QQQQ went down few percentage points. 2006, 2007 saw a modest gain , whereas 2005 saw some decline. 2004, 2003, 2001 and 2000 had some gains
whereas 2002 had a loss.

This result was based on the NASDAQ index. One might need to take into consideration other indexs or stocks (NYSE for example) particularly.
AS per this article it is said that small caps have had some
noticeable returns in January.
However one needs to be extremely cautious to trade small caps such many of them are not doing perform very well.

On the contrary if one could wait till January to sell the stocks the losses could be minimized. This is just another view of the same idea.

Other theories behind the January stock rise state that a lot of people might be getting some year end bonuses or some wait till the new year to start afresh. Cash strapped investors are seen selling just before big holidays -eg. Christmas to raise cash for gifts.

We will analyze the market towards the end of January 2009 .

What will happen in 2009? Will it show a January effect or have we seen a December effect already seen we are in the oversold region already? Please share your thoughts.

Sunday, November 9, 2008

Order of the rising sun

Slightly away from the topic of finance and business I am dedicating this blog entrt to my father - Ramesh Divekar.

Ramesh Divekar, has been awarded the "Order of the Rising Sun, Gold and Silver Rays" (Class V- Culture) in recognition of his outstanding contribution by His Imperial Excellency the Emperor of Japan .

The Order of the rising sun is the second most prestigious Japanese decoration after the Order of the Chrysanthemum.

You can find more information in the Order of Rising Sun WIKI

The official announcement was done on 3rd November, 2008 in Japan, (The cultural day of Japan ) in Tokyo and he will actually receive the award at the Consulate General of Japan, Mumbai , India on December 4, 2008 at a special function arranged in his honor by the Consul General.

Mr. Ramesh Divekar started his career to the land of the rising sun since the dawn of the 1960s , 1963 to be precise. You can find more information in Wikipedia's link .

Ramesh Divekar is the founder of

Saturday, October 18, 2008

India Rising!

Recently a friend of mine forwarded me this video recorded by PBS and termed "India Rising". You can view the video at PBS's website.

The video's main focus is a town Pune, a growing educational town situated 100 miles east of the main metropolitan of Mumbai in Western India.

India's GDP is on its boom in the last few years, recording 9.1% growth in the 2007-08 timeframe according to wikipedia.

The middle class can now afford a lot of commodity items that were taken as granted by rest of the world.

Indians now are shopping in malls for microwaves or refrigerators and also buying condos and driving comfortable automobiles.

To me the above change has already been in place for a few years, but its only recently that its started making news in mainstream America.

Express India's rising food prices article gives the views of President Bush on the same.

What do these economic needs of China and India mean to the rest of the world? There is only so much in the world and one argument is "Should we not share what we have?" Is this the price the rest of the world will have to pay when The World Is Flat?

One positive outcome as depicted in the video is that it encourages innovation by the rise in competition.


Thursday, October 9, 2008

Dollar cost averaging - Another view


In my earlier post about dollar cost averaging or long term investing during down markets I had written how it was beneficial to dollar cost average during a bear market.
This morning I was looking at another article on Investor Business Daily's newspaper. They had a small article on dollar cost averaging specifically for down markets or during markets with bearish trend. This article featured under their Myth Buster title titling "Averaging down can be a poison". The author takes an example of Lehman brother's stock and how one would have suffered major losses in such a condition and instead ask to dollar cost average in bullish markets.

My takes on this and comments are slightly different. My focus would be to dollar cost average on an index vs. a stock. Thus if any particular stock is burned then my risk of loosing all my money is certainly lessened.

The article took an example of AIG and explained how an investor would take ages to get back the fortune spent. I would have rather put money in the finance sector, probably in an ETF or a mutual fund.

Of-course buying during market correction is a better strategy but then who can identify a bottom and then a correction.

One strategy recommended which I might partially agree is too sell off if losses get steeper than 7-10%.

What do you think?

Tuesday, September 30, 2008

Energy saving tips for today's economy.courtesy Food Network

With the recent downturn in the economy and increase in gas and fuel price everyone is looking for money saving tips. These money saving tips could be energy saving tips or gas saving tips or even grocery saving tips. In my previous post I talked about a healthy and moderately priced dining out options in the rough economy and recommended Sweet Tomatoes.

Lets see some myths transform into energy saving tips.

Ever thought of cooking salmon in a dishwasher or cooking an egg over your car engine?
Recently while watching the Food Detective Show on Food Network TV I came across these crazy ideas or myths as you call it.
Ted Allen runs the show covering myths around food and drinks along with some not so usual energy or money saving ideas.

How to cook a salmon in a dishwasher:
1. Take an aluminum foil and then apply some olive oil at the bottom.
2. Lay your raw salmon on the oil and then apply some lime juice over the salmon.
3. Carefully cover it up with one more layer of aluminum and then wrap it up nicely so that soapy water does not get in.
4. Load it in your dishwasher with all those dirty dishes.
5. Start your dishwasher with the normal or full cycle.
6. Sit relax and enjoy! At the end of the cycle take out the covered foil and unwrap to see what happened to the salmon !
Food Network claims nicely cooked Salmon thanks to the heat that the dishwasher creates to properly sanitize the dishes.

Late for breakfast , got to get to work quickly? Take that egg break it up and carefully wrap in layers of aluminum foil layered with olive oil and open your car hood. Place it on an engine so that the aluminum bundle with the egg in it does not spill over parts of the engine. The car hood should hold your egg with all the aluminum is in place.

Drive to work , your egg's ready.

I have not tried any of these saving tips but thought these as being quite unusual and worth sharing.

What are your thoughts?

Sunday, September 28, 2008

Dining in today's economy

Image courtesy:

As most of us know Sweet Tomatoes is one of the famous salad chains in northern US.
"Sweet tomatoes", "Sweet Tomatoes coupon", searches are on an increase in today's economy. I made a quick google adword tool keyword search on Sweet Tomatoes. I saw the second most searched word for the keyword "Sweet Tomatoes Coupon".
Is this the result of people looking for cheap dining options?

If you are looking for a cheap option to dine out with the opportunity of eating healthy Sweet tomatoes is a great option. For around $7.5 for lunch along with a chance to get 10-15% off if you join their veggie club one gets a choice of plenty of fresh salads.

Feeling bored with eating the same salads? Sweet Tomatoes has been creative in creating an Asian week or a Mexican food week where customers get to taste some delicacy.

We recently got a chance to visit the Sweet Tomatoes Asian Week and we thoroughly enjoyed the Asian Ginger broth Soup.

Looking for some Sweet Tomatoes coupons? Type "Sweet Tomatoes coupons" or check out links like this.

If you have more of such ideas please feel to free by leaving a comment. Thank you.

Tuesday, September 23, 2008

Promote high traffic blog using StumbleUpon

Slightly shifting from my normal finance entries this note is about promoting a blog in general. Recently I came across Problogger's how to promote young blog and have started taking steps towards the same. The big catchaway to promote young blog to become a high traffic blog is to network on StumbleUpon. I have been a passive user of stumble upon.

Leaving the "Stumble Upon" issues aside I am starting the network on StumbleUpon to attract people with similar interests.

Sunday, September 7, 2008

Sane Investing in an Insane World - review

Recently I have been reading this book . Definitely some takes and some "non" takes from the book. Cramer goes over different stocks to be purchased at different times in the economy. Once an industry is picked , next is the choice between various companies within it.
Here are some guidelines that are outlined in the book for comparing stocks in an industry
1. P/E ratio, this seems to be the #1 principle.
2. Growth rate of a company: Online sites like or reuters or yahoo finance will list the rate the company is growing. This should be in sync with the growth rate.
3. Dividend comparison: Yield is the trick, Compare yield vs. the actual dollar amount of the yield.
4. Think outside the box: Real business world. Are there some take over or other orders lurking for the company?

5. How does the company perform vs. S&P 500. A bargain is a company with P/E lesser than the industry but has better sales and earnings faster. For example in the current market non cyclical stocks would normally outperform the other ones in the market.

As an example Coke vs. Pepsi comparison is listed at Seeking Alpha

More useful tips coming up in the upcoming blog(s).

Disclaimer : Author does not hold KO or PEP at the time of writing the blog and is provided as an example.

Saturday, August 23, 2008

Your money or your life

Recently glanced through this book, especially the section covering the crossover point which signifies "financial independence" after mymoneyblog wrote up an article on this. This point dictates the start of financial independence when your passive income (income generated not by working at a job or business) exceeds your expenses.

The author describes the crossover point by means of this simple figure.

Figure courtesy of the book : "Your Money or Your Life" and

The author uses the treasury note rate of return to calculate annual return of investment.

Consider the savings invested 60% in one year CDs and 40% in stocks will earn an interest/rate of return of around 4% and 6%(typically stocks should return more) to give an average of 5 % rate of return.

$100k will earn $5k per year or $416 per month before taxes. In reality it will take a long time before which the monthly investment come will touch the line of tip over of financial independence which is the expense line.

However I see that a few milestones could be derived from this discussion. Complete financial independence is the ultimate goal but there could be minor goals on the way. One common example is grocery or eat out bills. This I call as food independence as seen in this example.

There could be other milestones built on the same fundamental idea.

Essentially an individual would like to track the performance of passive investment making some intermediate goals along the path to the final goal.

The crossover in my mind is not a single point but a range. I will discuss that in a separate post.

Monday, July 28, 2008

What happens when the dollar shrinks ..

Especially when $1 = Indian Rs. 1

Over the past few months the dollar has been declining against the Euro. This spurred me to think of some discussions I had with friends a few years ago.

The talk was centered around immigration into the US and what makes an individual leave her or his country to go for better prospects in a developed country like USA.

There are various reasons why people move : better job prospects, lesser political tension, better infrastructure support and last but not the least is money driven by growing economy.

In his book "The World is Flat" Friedman talks about how jobs have moved from one country to another largely due to the growth and advancement in technology which link the developed and developing nations.

Today jobs are shifted overseas for getting the same done cheaply. What does one spot at the end of the tunnel?

Today the value of $1 is approximately Rupees 40 in Indian currency. Will a perfect flat world be considered when $1 = Rs 1 or 1 yuan or 1 pesos?

Rather than going into how this could happen lets consider if this does happen what kind of effect will it have. I surveyed a few Indian friends I have and most of them said that Indians would return back to their country since the whole purpose of them coming here was to make money and if thats no longer true then there is no incentive to stay.

That was an immediate reaction. If one thinks more about the same thing. If $1 would become Rs. 1 then will American businessmen see any point to outsource? Will that mean all centers or outsourced jobs would come back to the US?
What would that mean for the Indian economy? Will it fear to lose all these jobs or think of outsourcing them somewhere?

There are some that move to other countries to attain more freedom and just to run away from their home land if the lifestyle back home is not to their liking.

I also spoke to some of my Latin friends , one from Venezuela thought that the baby boomer generation might move back faster if that happens.

The general feeling I got was life after retirement is easier in one's home country.

These are my general thoughts thinking about the same. I will jot down more. I welcome a discussion here :)

Friday, July 4, 2008

The World is Flat or Spiky - free trade analysis

Further on the analysis of "The World is Flat " By Friedman.

On the aspect of "free trade" Friedman explains how outsourcing or globalization might be good for all countries. He sites an example of "free trade" between US and China , these two being the only countries of the world. This will create additional resources in the market. If US had 100 people and China had 1000 people then the total number will be 1100 peoplewhich was described as win-win situation for both countries.
If this does happen then certain low level jobs in the US will go to China and these people will need to bump themselves up in the vertical markets which means higher education.

As globalization of flattening continues the population in the developed countries will need to prove themselves by competing with someone thousand miles away. Education will be an important criteria and we might see an increase in the number of applications for colleges.

At the same time the people in these developed countries will now be made to think to ensure they serve the higher 1100 vs. 100 people market. That is a stimulant or an incentive for business ideas.
I still think low skilled people will need to worry if education or intelligence is not their piece of cake and surviving in the flat world might require them to move to other low level skilled jobs which cannot move to China.

This movement of jobs creates a stiff competition in the developed countries. Pay rises increase in software tech industry in India is cited as an example in the book. Will it ever grow to the level equivalent to the US? If that becomes a reality will outsourcing really stop?

At this point the question that comes to our mind is outsourcing done to save money or improve quality or both?

The World is Flat can be interpreted in a few different ways. What is the true example of the ideal flat World? Is it that each person is self sufficient in their own country? Does that mean that less people will now migrate to US from Asia or Latin America since now there is a state of equilibrium established? Yes, there could be temporary assignments if this "free trade" continues.
For that to happen the first thing is that money across the world also becomes flat. Will that world be called "Money is Flat" and we just trade in one currency?

Will it happen that capitalistic minds in one country fierce in competition in the other ?

In this article on "The World is Spiky" found at the author talks about the spikes in geographical concentrations of economic activities and notices the spikes at many. He also notes that innovation is concentrated in just a few countries in the world and argues that the World is Spiky. An example cited in the article is that people in urban areas of China makes 3 times more money than the same in the rural areas.

The above example cites a different angle of view for the same or similar idea of the flattening world.

The World is Flat - review

Recently I have been reading the book "World Is Flat" by Thomas Friedman. One good thing about the book has been it has brought alive a lot of interesting historical events which were stored in our grey matter somewhere. Since there are so many facts brought about in the book its hard to recollect all .. a blog to share might we worthwhile

I had some interesting take aways in the few chapters I read in the book.
Take the story of how Walmart grew and does business with its "Everyday low prices". One thing that Friedman points out intelligently in one of the chapters is how the society pays for the above in an indirect way. He takes an example of how Walmart insures its employees and makes a point in saying that the society indeed pays for the "everyday low prices" through tax money whereas Costco does do the opposite but thats what a citizen in many may demand.

Very interestingly Friedman has made some points alive like "income levels of people who shop at Walmart, Target or Costco"? Why is it that some people pay more to get the same thing at other place - is it because of convinience or simply a matter of principle?

More of the World is Flat to continue in my next writings....

Friday, May 16, 2008

Long term Investing during down markets

People are always looking for ways to make money. In a uptrend market no one wants to miss a boat and in a downturn is always about how can I recover the lost dollar.

Investing during down times could be hard especially around the pessimism that may surround the news. It's been said that more or most returns could be fetched by investing in a downturn.

Although past is not an indicative of the future lets take a look at examples of investing in some bear markets in the past and how investing during bear markets can have profits of its own.

The rule is start systematic investments(SIP) for every specific period in a bear period until the next positive trend or until the value at last instance is lesser than the current one.

Let us start with the oil crisis in 1973 which started around October 1973 which further led the downfall to the stock market. Assumption is that one started investing in the NASDAQ index back in June 1973 in a systematic investment plan until say September of 1974 . Between this period the NASDAQ went from 108.54 to around 59 with SIP of $100/month. For a period of 15 months this would mean an investment of $1500 with an average price of $84 for the index with roughly 17,85 shares.

Lets consider the same investment plan for investments into savings account at the same timeframe with an average of an savings interest rate from 10% to 6% (source ). This is effectively money wit 8% rate of return for a principal of $1500.

Lets first have an investment period of 5 years by which the NASDAQ index went up to around 130 which (not inflation adjusted) is an increase of roughly 54%. This money will now be taxed
Our initial investment now in the share market is worth around $2321 (which after tax will be $2115) whereas our money in the bank would have grown to around $2007 with the assumption that the tax bracket is 25% and the money is kept in an after tax account. The net (compounded interest) gain here is 33%.

This is money I consider good for a long term investment (5- 10 years) vs. a very long term (more than 10 years) investment.

Applying the same hypothesis to other bear markets in the past from 2001 - 2003 and the 1979 energy crisis yielded promising results. A larger bear market meant more time to stay put into the SIP but saw good yields thereafter.

There are some assumptions made in this theory: Investor is starting to invest in the fund at this point or does not already have an SIP in the same fund from an earlier time.

In my second article I will try to analyze if buying during a bull market is lucrative. Stay tuned and let me know your thoughts.

The bear market investing for longer term looks to be lucrative.

Sunday, April 27, 2008

Personal Inflation - whats yours?

According to the wikipedia the definition of Inflation is "a rise in the general level of prices over time. It may also refer to a rise in the prices of a specific set of goods or services. In either case, it is measured as the percentage rate of change of a price index."

Inflation (to a certain degree) in general is useful for the economy as it forces spending and re-investing in the hope that prices will increase in the near future and helps one to lock down a price.

Inflation is one buzzword that one may be hearing a lot these days. The CPI (Consumer Price Index) or COLI (cost of living index) are some of the measures of inflation. COLI gives an estimated comparison between two regions and is useful when moving jobs or to different cities. Attached link provides one such comparison. Another example is CNNMoney's site.

How would you compare the inflation affecting you? One quick measure is comparing the grocery and other bills you paid vs. the one paid this year. Well, it really depends, can compare how much house prices and other things went up as well.
In general a rule of thumb would be to compare how much things that you require everyday went up. That would give you a sense of the net affect to you. Then there are indices - virtual which went up by a certain amount only if you counted them. One such example is housing cost. If you are not shifting to another house then the house price increases or decreases will not affect you directly.

I found such personal inflation calculators online as well. Taking into account one's personalized inflation one needs to observe that re-investing or salary increases are growing at atleast the same or better rate otherwise you are making a loss. vs a visual profit.

The main factor in inflation at least in the US is gasoline. So much depends on it. Often you will find just a single person driving a car unless of course one is making use of the HOV lanes. Public transport being such a scarcity people are forced using their automobiles. The real question is when will people seriously consider using the public transport more seriously and make their local cities think greener !

Sunday, February 17, 2008

Bank of America - keep the change or eliminate the coins?

Over the last few years Bank of America has been publicizing its keep the change program . Essentially Bank of America rounds of what you pay to the nearest dollar. Thus if you buy a burger for $3.49 , Bank of America will round it to the next logical figure of $4. Bank of America will match the keep the change for the first three months and then match proportions for the same. Interesting program!
What amount do consumers pay tax on ? $3.49 or $4.0. Bank of America might make some
I had heard of a similar thing used in the movie "Office Space" where the IT Geeks rounded off every transaction to the nearest dollar amount and won themselves a fortune.
Whats so great about this? My guess is that this is meant for lazy people who do not transfer from Checking to Savings account immediately and loose the interest OR its good for people who do cash transactions and loose cash all the time.
According to the article about 25 million people do not have bank accounts .
In relation to my earlier post about coins been eliminated - could the above be one way of starting it OR do we not need it once we get rid of those pennies or nickels ?

Small denominations - should they be eliminated?

CBS 60 minutes last week talked about "Should we make cents". Here are some of the takeaways summarized

1. It takes approximately $134 million in cost to make $80 worth of pennies.
2. Pennies are made up of approximately 98% zinc the cost of which is spiraling over the last few years.
3. Its illegal to use these coins and resell them for the metal.
4. Kids used to collecting pennies or nickels will now have to search for something of greater value to start putting in their piggy bank.
5. Rounding off will cost Americans approximately $600 million a year.
6. Americans waste approximately 2.4 hrs a year counting pennies ! Is it a lot?

Some thoughts on the same:
Most of the things in US have a price tag of .99 , 9.99 or 99.99 are common examples. Will they get rounded off to the next digit ? If these are taxed items the taxes of these could be adjusted to rounded off to the next divisible by dime or 10 value !
This will be a one time inflationary hit that will be felt.
Some people have pointed out the 9/10 value thats commonly seen as gas stations. How do we account for that?

Most of the money is nowadays paid on credit or electronic media. So, that gives a lot of freedom on not producing pennies !

What do we do with our existing pennies or nickels if they are stopped ? Bring it to n exchange center where you get back the equivalent back and the change in electronic form?

OR last but not the least - make paper money for these small denominations?