Money Magazine – February 2007

Money Magazine logoMy subscription to Money Magazine started with the February 2007 issue; I was quite happy to see it in my mailbox, even though it ups my magazine subscription list to eight (The New Yorker, The Atlantic, Harper’s, The Economist, Money Magazine, Wired, Discover, and Consumer Reports). Money Magazine is almost always an entertaining read with lots of little tidbits, and this issue was no exception: a rational and low-hype review of mutual funds, a good discussion of pharmaceutical stocks, a really nice article on small home improvement projects, and the usual collection of family profiles that review real-world personal finance situations.

As usual, I attacked the issue with a highlighter in hand, marking up anything that I want to think about later. Here are the ten most interesting points (from my perspective) that I dug out of the issue:

Health care stocks are potentially undervalued. Two things stuck out here: the S&P Healthcare index is undervalued (in terms of P/E ratio) compared to the average of the last ten years, and health care spending is going to boom in the coming years as the boomers get old.

Installing stone tile in the entryway creates a great first impression for your home – and can thus increase the value. This is a simple enough task that even I can do it, and stone-tiled entryways do look nice. I just didn’t make the connection to an increase in property value.

Exchange rates with South America are much better than with Europe. In other words, if you’re desiring an international trip this year, Buenos Aires is much cheaper than Paris.

For exchanging gifts with your significant other, agree on an annual cap so you don’t spend too much money on silly gifts. This would be a great idea – if I could get my wife to agree to it. She’d probably think I was trying to get out of gift-giving occasions.

If you have a Roth 401(k) available to you, take advantage of it when you’re young. When you’re young, you’re in a lower tax bracket, so you can effectively put less pre-tax money into a Roth 401(k) now (because it’s taxed less) than you will be able to later on in life (when you’re being taxed more). If you reach a salary that you think is higher than your retirement salary, put money in a regular pre-tax 401(k) instead.

If I were to invest in a managed mutual fund, the Vanguard Windsor II looks impressive. I had a lot of fun looking through their mutual fund listing and finding some interesting ones, like this one. It has only a 0.35% expense ratio and beats the S&P 500 both over one year and five years. Too bad it costs $10,000 to get in the front door, so I’ll mark it down as a “someday.”

If you get a windfall, don’t invest it all in something risky. View it as a core of a potential nest egg and invest most of it in a similar fashion to your retirement money. That way, when things inevitably happen, you have money stowed away for the long run.

Are material goods really “abundance” or not? There’s a lengthy article that basically revolves around that question. Are we better off than our grandparents were at our age? We have much more impressive goodies and bigger homes, but does this stuff equate to a better life? I’m not convinced of it, considering the increased job riskiness that workers today face.

For my semi-traditional gift of a box of chocolate to my wife on Valentine’s Day, I might want to consider getting the Harry and David Grand Collection instead of the usual Godiva box. It’s a better deal and supposedly has better chocolate – Godiva has been going downhill lately, so I’ve been looking for another option.

Quote of the month, from Acorn Fund’s Ralph Wagner:

Being disciplined, being honest, having a set of rules and following them no matter what, thinking long term, controlling your emotions – these are all useful. But only so useful and only in part of life. You don’t want to treat your wife or your kids like an investment.

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5 thoughts on “Money Magazine – February 2007

  1. Steve says:

    Since your blog’s about money, you should consider doing this Money magazine “Ten Most Important…” recap each month. It’d be a neat feature.

    Keep up the great work!

    Steve
    http://www.youheardithere.com

  2. Jim Lippard says:

    I was just in Buenos Aires last week (and had great summer weather)–it’s not just the exchange rate, it’s that most travel-related expenses themselves are much less expensive in South America than in Europe. In particular, eating out in Buenos Aires is quite inexpensive for very high quality meals. And even if you stay in a top-of-the-line hotel and eat in restaurants in touristy areas, the prices are still significantly less than the European equivalents.

  3. phil says:

    Are healthcare stocks undervalued because there is some chance that we’ll be moving to a single-payer healthcare system?

    The Canadians pay much less per capita on healthcare, yet they are healthier.

    Also, some of corporate America is starting to push for a single-payer system: about $1500 of the price of a GM car comes from employee healthcare payments. Our current healthcare system is starting to look like a competitive disadvantage.

  4. Man on a Mission says:

    I soured on Money magazine a few issues ago when they advised an elderly widow to reverse mortgage her home for living expenses. It wasn’t Money magazine’s advice, but the advice from some financial planner reviewing her case for the magazine. I think reverse mortgages are a rip off and would rather not have seen them recommend one.

    Regardless, I still get the subscription and have found better recommendations since then…maybe it was just a down month for them!

  5. Michelle says:

    Hi. I hope you don’t hate these really ‘simple’ questions but here goes. I bought a copy of Money magazine thinking I should open up a Roth Ira for retirement-I’m 34. Ok, so I did. I opened up the Vanguard Target Retirement 2035 with $4,000 and plan to max it out each year for as long as I am able (per the rules) Ok, so then I’m reading about buying stock (in the magazine) and I want to do this. I want to stick with Vanguard (comfort zone) and buy the minimum of $3,000 in Vanguard 500 Index (VFINX) or Total International Stock Index (VGTSX) The problem is that once I ‘buy’ this stock, I really don’t understand what to do with it? Do I designate it as an IRA or just a general fund? I’m looking for retirement savings. Also, how do I get it out years from now? Will I have to pay taxes or penalties? I am a very novice investor and I would really appreciate your help. I have no 401-K, just my Roth IRA at Vanguard. Thanks! Michelle

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