TO HELL AND BACK
It started when my Compaq screen died in my hotel room in mid sentence. All else was working fine, but hard to do much when you can’t see the screen. Solution: plug into an external monitor . . . but not so easy to carry one around. Eventually got back to home base and made the switch-for-real, finally, to my IBM Thinkpad. But, but, but . . . well, it seems AOL 5.0 won’t work with Windows XP. You get a message giving you only two more sessions before it simply will not work until you upgrade to AOL 8.0. But I can’t upgrade because my address file is too big and the upgrade installation always crashes. So I have to use 8.0, but I can’t use 8.0. I will spare you the hours on hold. Suffice it to say that if you right-click any program icon in XP and select the Compatibility tab, it lets you run that program as if you were still using Windows 98 whenever you launch it. So AOL thinks I’m still using Windows 98. (I know, I know.)
If you have yesterday’s PARADE sitting around with your Sunday paper someplace, you can see my little jab at excessive CEO pay. It’s not on PARADE’s website, but there’s a place to sign up if YOU want to be on PARADE’s cover next year . . . and a quick ‘salary game’ that’s actually kind of fun to play. (I thought I had it aced but lost big time.)
WHAT TO DO, WHAT TO DO
Joe F: ‘Since reading your books, I have erased all my delinquent credit card debt (I only have three cards now with no more than about $150 combined debt at any one time). I still have student loans (about $25,000 which I just consolidated to 3%). I saved up $6000 in an emergency fund by moving back with parents in September. Now that you have a little background, the simple question: Should I just continue to pay off my student loans? Or do I take half of the saved nest egg and deposit it into to an IRA? Or do I take that half and start investing? (I was looking at index funds and spiders, no stocks just yet.)
☞ Do put $3000 into a Roth IRA for 2002 (you have until April 15) and then again for 2003 (any time between now and 4/15/04) . . . assuming you have some 2002 and 2003 ‘earned income’ that will allow you to do this.
I think the market still has considerable risk, but less, obviously, than when it was much higher. At worst, you start buying index funds or spiders for your Roth IRA now and buy more next year even cheaper. If you keep putting $3,000 a year into a Roth IRA all your life, you should do fine. I don’t see a lot of point in rushing to pay off a 3% student loan.
(“Investing” is not a separate choice from contributing to a Roth IRA; a Roth IRA is just a way to shield your investment returns from ever being subject to federal – and, in many states, local – income tax.)
As for emergencies . . . well, just work harder and plan to fall back on your folks. They’ll be thrilled. And actually, you can withdraw money you’ve put into a Roth IRA at any time without penalty (you just can’t withdraw its growth) … so in an emergency, if you really had to, you would still have a $6,000 emergency fund, unless you had lost a chunk of it in a falling market.
Virtually anyone who qualifies for a Roth IRA (with income under $95,000-$110,000 single, $150,000-$160,000 joint) should take full advantage of this nifty tax shelter.
WHAT BILL GROSS THINKS
Alan Atwood: ‘Until I came across your references and links to Bill Gross and PIMCO, I’d never really heard of him. Since reading about him here I have made it a point to keep up with what Mr. Gross has to say each month. His accuracy has been uncanny when compared to many others who like to hold themselves out to be gurus of the markets. But it’s what he just posted to the PIMCO March 2003 Investment Outlook that I want to talk about.
‘A month or so ago I had what amounts to a small internet ‘war’ with someone who holds himself out to be a ‘guru.’ (Last October he told us that the Dow would be at 11,000 in March 2003 and that his models were basically never wrong.) This ‘guru’ was advising people to get on board with the ‘rule the world’ plans of the Bush administration because the only thing that mattered was profits. If ‘shock and awe’ means bombs rain down on civilians in Baghdad, well, that’s too bad. It’s still a profit opportunity and besides, if he were to speak out about the moral aspects of war, he’d alientate some of his subscribers . . . they’d cancel and he’d lose some bucks.
‘Now comes Bill Gross today.’