Going COBRA

Recently a friend of mine and I were sipping iced chai’s at a cute little café a few blocks from my house, and I was talking about how I wasn’t sure what to do with the one month gap I’ll have between leaving my current company and starting school, when she interrupted with:
“So are you going to go COBRA?”
Not sure if this was some kind of freaky code name for backpacking through South America, I paused.
“Huh?”
As it turns out, her mind instantly went to my one-month gap in health care. COBRA is an acronym which stands for Consolidated Omnibus Budget Reconciliation Act, which is the federal law that allows employees to continue coverage in a group health plan after quitting. Provided I’m still insured the day before I quit, I can extend my coverage up to 18 months after I leave. Good thing I’ll only need it for a month as I’m preparing myself for extreme sticker shock.

But since I am young, single and healthy, I may look at short term individual health insurance too, just to compare. Employers can charge the entire premium (so what I paid, PLUS what they paid), as well as an extra 2% for administrative costs.

I’m only paying $47 a month now, but I’m not sure how much my company is paying in my stead?

Life Insurance as an Investment Vehicle

While I was recently enjoying my GoogleReader batch of the latest pf blog updates, I had a realization that I don’t think I’ve read much of anything on life insurance. I have a 90 Life insurance policy with Northwestern Mutual – it’s whole insurance, which means that it provides coverage similar to term life insurance (you pay premiums to receive a death benefit), but it can also be used as an investment vehicle. The benefit is that it produces guaranteed cash value – right now the cash value is around $607 but I’m hoping that by the time I’m paying for my kid’s college or starting my own company, it will be a great resource of guaranteed funds when I need it, not dependent on performance of mutual funds or stock portfolios or anything else. Everything sounds good, and I like that I have something planned for that mid-term savings horizon, but I do wonder how I should compare that to just investing with e-trade. Perhaps I could make my money work harder, but I don’t know if I’ll be disciplined enough to invest for twenty-five years out, in just a regular account. Thoughts?

What Does Henry Kravis Want? & What Can the WSJ Do for You?

Since grad school interviews are around the corner, I know I need to get back into reading the Wall Street Journal everyday again. A one-year subscription came with my GMAT course last year, and I loved it. Now I’m going to have to shell out $89 for the print subscription. If anyone else has faced a similar challenge of keeping up with business news and forcing yourself to stretch your interest and knowledge to a different level – what are good resources? Sometimes I find that checking an online website everyday is too easy to skip. A physical paper works for me. But if there are other blog type offerings that could accomplish the same thing, I’d love to be turned onto them!

Part of the reason I started this blog in the first place was to learn more about managing money and the investing world, so once I break down, I’m going to try to post commentary here on articles I think are good at helping the uninitiated absorb these issues. Starting with a NYT article yesterday: “What does Henry Kravis Want?” on the initial public offering of the private equity firm KKR. I liked it because it was a story, and recognized the businesses involved as such – entities run by real people, executives with varying motivations. I finally better understood what exactly a “leveraged buyout” looks like, and it made the drama of company control vs. steady financing seem more real. Happy Reading… (and imagining your life as one of these private equity big wigs, hobnobbing at the Olympics and above Central Park views, as I found myself daydreaming).

Financial Definitions: Funds = FUN.

Considering that I’m headed to business school in the next few years, I feel I should be doing the baseline self-education to figure out the finance and investment-related lingo that I’m frankly less interested in studying, but want to be able to navigate as a student and investor someday. This is a post I admit to being self-conscious about since half my graduated classmates have jobs at hedge funds and i-banks and have far more sophisticated knowledge than I, lowly bookish English major. These definitions below start broad and go specific.

exchange-traded-funds: investment vehicles traded like stocks, a fund is roughly the net value of all the assets included in the fund; most funds track to a certain index, like the S&P500
actively-managed exchange-traded-funds: in this type of fund, an investor can actively manage the assets within it, they can focus on market inefficiencies, and try to find the value assets versus passively tracking to an index in which the fund would likely be holding a mix of growth and value stocks
mutual funds / open-end funds: a collective investment of assets, equity funds are the most common type; in the US they are open end funds, which means they can issue and redeem shares at any time; most of these funds are actively managed
closed-end funds: collective investment with only a limited number of shares
hedge funds: a private, largely unregulated pool of capital; charges both a performance fee and a management fee; I’m not going to pretend to understand why yet, but because of exemptions that don’t apply to mutual or other funds, hedge funds can typically invest in more complicated, risky investments than a public fund can (like short selling, futures, swaps and other forms of leverage)

Financial Definitions: (Sort of) Current Events Edition

I’m a little late on the game with this one, so this is admittedly more for myself, but I wanted to sort through some of the terms that are helping me not glaze over at most headlines these days…Embarrassed to admit I didn't know the meaning of these terms BEFORE they became passe in the mouths of CNN anchors...

Core Inflation: a measure of inflation that excludes certain items that face volatile price movements (right now that would be energy/oil and food prices)
Headline Inflation: a measure of total inflation – it’s all in there, so might not be as accurate a figure of long-term inflation, although the WSJ’s Real Time Economics blog begs to differ and elsewhere the paper notes Bernanke’s increasing swap with core inflation
Fixed Rate Mortgage: locks in one rate for a fixed period of time (usually 30 years)
Adjustable Rate Mortgage: locks in a rate for a shorter period of time (usually 3 to 5 years), when the rate will adjust
“Securitization” of Loans: A lender groups together a package of various individual loans and sells them to another investor; All the risk is still there, but less transparent
“Subprime” Borrower: a borrower with a riskier profile

Financial Dictionary: Glide Path

In reading more of the business sections and financial literature, I’m continually disappointed by the amount of assumed knowledge in the writing. To be expected, probably, but I want to start making the effort to learn more of the vocabulary, as well as the principles behind good investments. Starting with:

Glide path (n.): the rate at which retirement funds change their asset allocations (mix between stocks and fixed) over time
In a sentence: Much of the controversy over target-date retirement funds is due to the lack of consensus around the correct glide path for these funds, and what the right percentage of equity one should have on the day of one’s retirement.
Further reading: Examining the Glide Path Methodology for Target Date Maturity Funds