An unexpected 25% surge in personal thefts and a 4% increase in burglaries are recorded in the first set of official quarterly crime figures since the economic recession took hold.

A worrying rise in what the Home Office calls “stealth and snatch thefts” is accompanied by a 5% increase in robberies at knifepoint, according to the police-recorded crime figures published today comparing October to December 2008 with the same period in 2007.

The figures show a 16% drop in gun crime and a fall in the number of people stabbed to death from 59 to 52 over the same period. They record that the increase in robberies at knifepoint occurred within the context of an overall 2% fall in the total number of street robberies.

Overall there was a 4% drop in offences recorded by the police. The British Crime Survey, which is based on a survey of 40,000 people’s experience of crime, shows that the volume of all types of offences , including violent crime, remained broadly stable during 2008.

The figures contain the first confirmation of Home Office projections that the economic recession and rise in unemployment are likely to be accompanied by an increase in some types of crime, particularly involving theft of property and burglary. The 4% rise in burglary, including domestic burglary, last winter comes on top of a similar increase between July and September and marks the end of a sustained 55% decline in burglary since the mid-1990s.

Home Office statisticians said the 25% rise in personal thefts reported by the British Crime Survey was statistically significant but it was too early to say whether it indicated a change in recent trends. They pointed out that it was not reflected in the police crime figures or other BCS categories of personal acquisitive crime.

The Association of Police Authorities described it as a “worrying development” that would be closely monitored so that any correlation with the economic downturn could be established and action taken.

The Home Office minister Vernon Coaker said: “We know that we are facing some new challenges now and are focusing our experience and knowledge to tackle these head-on.” He said ministers were already working with police, charities, DIY stores and insurers to target repeat burglars and help people secure their homes.

NEW YORK (Fortune) — Banks are socking away funds for future loan losses at a record clip. But at the sickliest institutions, problem loans are rising even faster.

On Monday, Bank of America (BAC, Fortune 500) became the latest big bank to report a stronger-than-expected quarterly profit, posting net income of $4.2 billion, or 44 cents a share. Analysts had expected a profit of just 4 cents a share.

Like its rivals Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500), Charlotte-based BofA pointed to strong fixed-income trading results and a big rise in earnings from its mortgage business.

BofA managed to post the big profit even as it set aside more than $6 billion to cover future loan losses. The bank’s loan loss reserve now stands at $30 billion — double its year-ago level.
BofA expects more borrowers will fall behind on payments or default on their loans as job losses deepen and the economy struggles through its worst recession in decades.

“We understand that we continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment,” CEO Ken Lewis said in a statement Monday morning.

Yet as much money as BofA is putting away, both it and Citi — the two big banks that have received multiple infusions of federal aid over the past year — are reporting sharp rises in problem loans, particularly on their big credit card portfolios. BofA posted a $1.8 billion loss in its global cards business in the latest quarter.

These high credit costs could weigh on the banks’ earnings for many quarters — and perhaps even affect the regulatory stress tests whose results are due to be revealed in coming weeks.
Not keeping pace

While BofA has doubled its loan loss reserve, nonperforming assets — loans that are no longer producing income as borrowers fall behind on payments — have more than tripled, reflecting the weakening economy and the acquisition of troubled Countrywide and Merrill Lynch.

Online brokerages are companies that allow you to set up an investment account with them and buy and sell investments.  The purpose of setting up one of these accounts is for someone who is a “do-it-yourself” investor and can buy investments without the help of an advisor.  An investor can have an advisor and still do some investing in a discount brokerage account.   Don’t be afraid to tell the advisor about your investments so they can include them in your asset allocation.  If they make  a big stink about it then find a new advisor!

What kind of investor has an online brokerage account?

There are many different types of investors.   Some investors do everything on their own without any help from anyone.  Other investors refuse to do anything for themselves and want a financial advisor to do everything for them. These are examples of investors extremes - there are a lot of successful investors who are somewhere in between.  Many people will use a financial advisor for some of their accounts but not all - others might use a fee-only advisor for general advice and suggestions and then will carry out the ideas on their own at an online brokerage.  Regardless of what type of investor you might be - it’s important to at least know about the option of doing it yourself.

What do you do with an online brokerage account?

The basic steps with an online account are:

• Set up the account at a discount brokerage such as TradeKing or Zecco.
• Fund the account with some money or with investments from another brokerage.
• Start making purchases in the new account.  This will be accomplished online.

When it comes to financial planning - buying the actual investments is pretty far down the priority list - there are many other steps to accomplish first such as figuring out your financial goals, investment time horizon and asset allocation.

Photo credit

Most investors own bonds via mutual funds or a target retirement fund.  Bonds are thought of as a very safe investment compared to stocks because their principal amount doesn’t change.  If you buy a $5,000, 10 year bond paying 6%, then in 10 years you will get your $5,000 back plus interest.    Seems safe enough but what happens if you sell the bond before the term is up?

Bond prices if interest rates rise

What if inflation has taken hold of the economy and interest rates have gone up?  What if after 5 years the new government 5 year bonds are paying 10%?  Can you still get $5,000 for your 6% bond?  Not likely - a new investor with the choice between a new 5 year bond paying 10% and your 5 year (remaining years) bond paying only 6% will undoubtedly choose to buy the higher interest government bond.

The only way that investor is going to consider your 6% bond is if you lower (or discount) the value of the bond so that the combination of capital gain and interest payments will equal the 10% interest payments which are currently available on new bonds.

Please note that all calculations are approximations.  I’m also ignoring inflation which is also an important factor.

Since the existing interest payments on your bond are 6% then the investor will need to discount the value of your bond to give him 4% increase per year.  If he buys your bond for $4110 and then redeems it after 5 years for the principal amount of $5,000 then this will give him the remaining 4% return.  This would only be true if interest rates remain at 10% for new bonds.  In actual fact most people would assume they probably wouldn’t.

The opposite effect is observed if interest rates decrease since bond values will increase.

Does this effect hold true for all bonds?

The rule of thumb is that when valuing a bond - the more time until maturity - the more the value of the bond will be affected (good or bad) by current market interest rates.  A bond that is going to mature in a year or two will not change much in value if interest rates change.  A bond that has a long time before maturity will have large value changes if interest rates change.

The consumer price index is a measure of the average price of various goods and services consumed by households in America.  It is intended to represent the spending by the average city-dwelling American on a typical basket of goods and services.

The CPI is similar to a stock market index in that the actual number doesn’t mean much - it’s the change over time that is worth looking at.  For example if the CPI increases from 1,000 to 1,030 in one year then an economist might use that data to conclude that inflation was probably about 3% over that time period.

How is the CPI measured?

The CPI index is measured by doing surveys of families in America conducted by the United States Department of Labor (Bureau of Labor Statistics).  Participants in the surveys track their spending over a specific time period - this provides the “basket of goods and services” used to measure the CPI.  The actual prices of these goods and services are measured on a monthly basis by the Bureau of Labor Statistics to calculate any changes in the CPI.

Here are the 8 major groups of consumer goods which make up the CPI:

• Food and Beverage
• Housing
• Apparel
• Transportation
• Medical Care
• Recreation
• Education and communication
• Other goods and services

Why does it matter?

The CPI index is used for several very important reasons:

• An indicator of the national inflation rate.
• Determines increases of pensions such as Social Security.

With respect to investing and financial planning - inflation is a critical component of the planning process.  In order to try to estimate how much money you need in retirement as well as determine how much money your investments will provide at that time - a good inflation estimate much be used.  This will be explored further in upcoming posts.

Photo Credit to bettybl.

In a previous post, the “market” order was discussed - if you haven’t done so, please read that post first.

If you want to buy an ETF (exchange traded fund) or a stock online,  it is important to learn about market orders and limit orders.  One of the potential problems with a “market” order is that you don’t have any control of the price.  If the ETF or stock you are trading is thinly traded, then you might get a poor price.

Limit order

A “limit order” takes care of this problem - basically you enter the trade like you would a “market” order but you also enter a “limit” which is the maximum price you are willing to accept.

Buy order limit example

If you want to buy a stock and the last trade was for $50, you might enter an order for 100 shares with a limit of $51.  This ensures that the highest price you will pay for the shares will be $51.  This doesn’t mean you are bidding $51 - the order is still considered a ‘market’ order with a limit so you will get the current price which will hopefully be less than $51.

Sell order limit example

If you want to sell an ETF and the last trade was for $60, you might enter an order for 50 shares with a limit of $59.  The sell limit is the opposite of the buy limit - you are instructing the brokerage to get the best price possible for the shares but don’t accept a price below $59.

No guarantee order will be filled

If you enter a buy “market” order then it is very likely that the order will get filled as long as there is someone else selling the same shares at that time.  If you use a limit - then it is possible the order will never get filled.

Photo by Noodlz55

If you want to buy an ETF (exchange traded fund) or a stock online,  it is important to learn about market orders.  Unlike mutual funds, ETFs change their price throughout the day so you have to “trade” ETFs and place an order which will get the best price available at that time.

Market order

This is the default order “type” when you place an order with a brokerage.  If you place an order to buy  an ETF - the order will go onto the electronic “trading floor” and will be matched up with some other investor who is selling the same ETF.  The market order gives no control over the price.

Market order example

You decide to buy 100 shares of VTI (Vanguard Total Stock Market ETF).  It is currently trading for $37.  If you place the order as “market” then the electronic trader will match up your ‘buy’ order with some other “sell” order at a similar price and the transaction will be completed.  This works very well for ETFs that have a high trading volume since there are always lot of buy and sell orders so your price should be pretty close to the last quote.

The problem is if you buy a ETF that doesn’t have a lot of trading volume (also known as “thinly traded”), it might be difficult to complete the trade.  Even though the last quote might be $40, it’s possible to end up with a price that is much higher if that is the only trade available.

It is also possible to enter trade orders after hours when the stock exchanges are closed.  I would recommend you don’t do this - however, if you do then please use a “limit” order which will be discussed in the next post.

The taxable status of an investment account refers to the whether any income earned in the account is taxable at the time of earning.  For example if you have a 401k (non-taxable) and your investment earns an interest payment or dividend payment then there will be no taxes paid on that payment.  On the other hand if you have a taxable account such as a cash account at a brokerage then any earnings (such as a dividend) will be taxable in the year it is received.

Where does “tax-deferred” fit in?

One important thing to remember about non-taxable accounts is that they might be tax-deferred accounts.  This means that there are no taxes to be paid on any earnings as long as they stay in the account.  There will be taxes paid on the withdrawal.  Going back to our 401k example - no taxes will be paid on investments inside the account but all withdrawals amounts are considered income.  A Roth IRA on the other hand is a non-taxable account and there also no taxes paid on withdrawals.

Why does this matter?

The taxation of investment accounts is important for the following reasons:

1. Tax filing - you need to make sure you are declaring investment income only if applicable.
2. Investment selection - some investments are more tax-efficient (have less tax to pay) than others.  Assuming you have both taxable and non-taxable investment accounts, the more tax-efficient investments should be in the taxable accounts and vice-versa.

How about some examples?

Taxable accounts:

• Any kind of cash, open or individual account where you can purchase investment.
• Bank account - ie high interest savings account.

Non-taxable accounts:

• Any kind of retirement account such as 401k or IRA.