My Wealth Journey

While at lunch with coworkers, we were discussing how much should you contribute to a 401k plan? The answer is to contribute at least whatever amount the company will match. So if your company will match up to 4% of your annual salary that you put into your 401k, then you are throwing away money by not putting at least 4% into your 401k plan.

Everyone’s answers will be different as far as how much more to contribute. If you have a lot of disposable income and are in the higher tax bracket, sometimes putting the IRS max contribution will help save you on taxes. Even if you aren’t in the higher tax bracket, putting money into the 401k will reduce your taxable income. However, I don’t recommend people who live close to paycheck to paycheck or don’t have at least 6 month’s worth of living expenses, which includes mortgage payments in their bank account, to contribute anymore than what the company will match.

Any money that you put into the 401k is tax deferred, meaning you pay taxes when you withdrawl. Some people believe taxes will be higher than they are now in the future and choose to just the tax now or put the money into their roth 401k account which is not tax deferred. If you think your tax bracket will be lower when you retire/withdrawl, then put as much as you can into your 401k account.

401k 2007 Contribution Limits

• $15500 for those under 50 years of age
• $15500 plus $5000 additional catch up contribution for those over 50 years of age

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On March 29th, I talked about how you can make money off the Iran/UK situation by investing in energy stocks. Well, I was partly right as most energy stocks have gained 3-5% since. However, I was wrong in my prediction of oil dropping $5 when Iran gives in. I did take my own advice and picked up some SU and VLO and will be taking some off the table today. Can’t get too greedy. The ETF (VDE) is a good ETF to get into if you don’t want the risk of investing in just one or two energy related stock. I still believe we are due for a small pull back in the energy sector so if you are buying, don’t go all in at this point.

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The tension between Iran and the UK has increased the price of oil the past few days to over 66 bucks a barrel. A quick way to make some money is to buy in the energy sector such as Suncor (SU) or VLO.  Some believe that if Iran refuses to release the soldiers, and UK and the UN or the US attacks Iran, we could definitely see oil jump to close to $100 a barrel! Then again, if Iran gives in, we can see oil drop by $5 a barrel easily. To me, there is more upside than downside risk, so I’ve put money on a few energy stocks. Even if they go down a bit, I’m still bullish on energy.

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Over 18 months ago, I put $1,000 down in deposit to hold my spot in line to purchase a condo in Park City at the Westgate Lodge. I never really intended to buy anything because you would have to come up with over 50% of the purchase price to cashflow. I didn’t want to count on appreciation like I did for a few of my other properties. The sales event came and gone. I don’t recall the exact prices, but I do remember 1 or 2 bedroom condo going for as much as $700,000. I kept on getting flyers, emails, phone calls from the sales agents regarding the condos.

Fast forward 18 months, I get another email with the subject, “Westgate: Studios Unexpectedly Available!” Please! Unexpected? They probably have been available all this time.

I haven’t been following the Park City real estate market, but the point is, don’t buy into any marketing gimmick any real estate agent tries to sell to you no matter how sincere they may seem. They don’t get paid unless you buy.

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As I was driving to work this morning, I heard an interest ad that I’ve heard a few times before from the NAR. The radio ad was talking about how it is a buyer’s market, lots of homes to choose from, blah blah, and said every market is different.

My question to the NAR, when is it not a good time to buy or is it always a good time to buy? They seem to always come up with some spin to convince people that it is a good time to buy. I was just reading in the paper the other day about some protesters in Orange County who felt they were talked into buying a new home because the sales agent told them the prices will not be reduced in later phrases over a year ago. Something tells me that the builders will continue to reduce prices and homeowners who purchased homes in the past will not be happy.

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This is why you should carefully screen your tenants, especially for Section 8.

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I got back my tax return for my personal and corporation from my CPA and I’m getting money back this year instead of owing money! To be fair, I made more money from my affiliate marketing in 2005 than 2006 but I also was able to take advantage of my rental properties’ depreciation and added money to my SEP IRA to reduce my taxes I would have to pay. The CPA charged $600 for the corporate return and $250 for my personal.

For those of you who don’t have real estate holdings, see if you can pick up something that cashflows to take advantage of depreciation and build up equity. Finding properties that cashflow will be tough unless you head to the midwest and put down 5-20% on a property. Again, don’t buy a property solely for tax depreciation but if the deal makes sense, and can get a good deal, a rental property is great come tax time. Obviously, be careful about buying homes in warzones and areas you wouldn’t feel comfortable living in unless you feel you can handle it. My holdings are all out of state so I try to avoid those area. There are people who make a ton of money buying in warzones but I don’t think I have the heart for it.

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I have a gambling nature. Not the kind that likes to go to the casino and just gamble away thousands of dollars but I love taking chances when it comes to money. Last week I shorted AKAM at the wrong time and ended up losing about $1,200 in a few days. Note to self, never short something when just about everyone and their mom are bullish on the stock.

On Tuesday, I decided to short New Century (NEW) and made back around $700 today when the stock just plunged. I do realize this isn’t a bright idea but I only do this with less than 10% of my SEP IRA.  Losing any amount of money hurts… I just bought a bit of money to my SEP IRA and bought some shares of a healthcare ETF (VHT)  at $57.30 so that I won’t try to do anymore stupid gambling with my money.

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The subprime market has officially imploded. Fremont General has physically closed its doors in their Orange County offices while looking for a buyer for their subprime lending unit. New Century is facing possibly criminal charges. Stocks of Fremont, New Century, Novastar, Countrywide and other subprime lenders have dropped like the world coming to an end. New Century went from a little over $30 to $15 to under $5 in less than a month.

Most experts saw this coming. Heck, it doesn’t take an expert to see this coming. It is only common sense to realize that someone making $30,000 a year can’t afford to pay for a $600,000 home. Even at $90,000, a mortgage for a $600,000 home will be tough.

I don’t think we have seen the worse yet as there will be certainly borrowers  with good credit will stretched the truth in their loan application in order to afford a $800,000 home.

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Wow, last night, China’s Shanghai’s Composite Index dropped by over 9% because of valuation concern. I unfortunately held a small position in FXI and CHL. This drop just reminds you that some foreign markets can be volatile and to be properly diversified. Oil also dropped because of the perception that China’s demand for oil will be decreased because of possibly slowing in the economy due to possible action taken by their government to curb inflation.

I think this is a healthy correction and still see China’s market heading higher over the next few years.

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