I am actually surprised that I am absolutely sane and not a single bit bothered during this equity meltdown recently. Why? I attribute this to a couple of things.

1. I Know My Risk Profile - I hired an advisor and did a series of questionaires to find my risk my risk profile. I found out that I am not a super aggressive investors. I was a moderate investor.

2. My portfolio allocation is consistent with my risk profile - Because I knew my risk profile, my asset allocation is aligned with my risk profile. I have about 60% invested in stocks, 35% in bonds and 5% in cash (emergency funds and everyday funds).

3. I am diversified - My stock portfolio has large, mid, small cap and international stocks. It has both growth and value components. And yes, I have reits too. The bond portfolio has government bonds, mortgages, corporate bonds, high yield bonds and international bonds.

4. My portfolio is automatically rebalanced - My money is invested in a managed account. The asset allocation in my portfolio is pretty much fixed and it rebalanced automatically. Therefore, there is no need for any decision to buy now? or get out of the market? I just simply put money in every month.

There are other things that help me keep my sanity as well.

5. I do not have any credit card debt - It really feels good not to have any credit card debt. I plan to stay debt free.

6. I have bought a house I can afford - We bought our house 2 years ago probably at the top of the market. But we can afford the monthly payments and we do not intend to sell it. We took a boring 30 year conventional loan.

7. My income source does not really depend on the stock market - No, I am no mortgage broker or real estate agent (but it will not be revealed). But it helps that it has nothing to do with the housing market. I also have a couple of other income streams which is really helpful.

Having said all this, things were never like this not so long ago. I used to invested on my own. I bought my own stocks. I did my own research. But I underformed during the early 2000s. Worst of all, I realized that if I was really that good, I should be owning a hedge fund and making loads of money (hey - some hedge fund managers take home 9 figures a year). I realize that if I’m not earning top dollars investing, then I should really leave it to the people who are good and making that much themselves!

FInal thoughts - Knowing your risk profile, having an asset allocation that is consistent with your risk profile and having automatic rebalancing will really take the emotions away when markets are volatile. Here are some post from the bloggesphere about the recent market moves and their asset allocation. Some have got it right, while I feel a couple still have a way to go.

For example, Free Money Finance writes a post about articles telling why it’s a great time to invest now. Well, as I (and many) have said, if you have a plan, then market timing should never be an issue. Lazy Man and Money writes a short blurp on why it is the right time to buy stocks. Frankly speaking, trying to time the market is just a waste of time IMO.

The simple dollar advised a reader to get out of an investment when you are nervous. Once again, the reason this situation arises is because the investor did not know the reason for the investment and the portfolio is not automatically rebalanced. Rather than giving that advice, i would have asked the reader why she got in the investment in the first place? Because if you got into an investment (not trade) for the right reason, this situation should have never arosed.

Jim from bargaineering liquidated his 2050 retirement fund. He says the funds is not long term nor was he panicking. But then he went on to talk about how the climate is awful for investing right now!?

There are some pf bloggers who have laid out how they have their asset allocation done (which is great). SVB from The Digerati Life highlighted recently how she rebalanced her portfolio. A few pf bloggers have also revealed their asset allocation to SVB recently. She posted them on this post about how some pf bloggers are invested. I think these bloggers get it and have a sound asset allocation strategy.

This week’s carnivals

Carnival of Personal Finance 113

100th Carnival of Debt Reduction

Carnival of Money Stories - this was actually last week. I was the host this week.

Posts I liked

Getting Rid of Debt Without Worrying About the Latte Factor is one post that really jives with me. David Bach used this as an example of frugal living. But unfortunately, this has been taken out of context in many other examples. Calculations have been made on how much you save over your lifetime if you do not watch TV! I guess you can do calculations on how much you can save over your lifetime by doing your own laundry! Golbguru is right - focus on your big ticket expenses.

Mistakes for New Parents to Avoid - Baby Expenses resonated with me because we have three kids. I certainly could have saved more money if I had followed the advice here.

After reading the post A Doctor who is $327,000 in debt! , I just wondered whether it is ever worth it to get into so much debt to fulfill your ambition?

SVB has also written an interesting post on the Falling US Dollar. Watch out for more post on this - cos when everyone starts talking about it, the dollar will probably rebound!

The mortgages on the first four homes I owned were all provided by local institutions, Pasadena Federal Savings, Idaho First National Bank, Winnetka Bank and Trust, and Security Pacific Bank.  The underwriting was done by a career employee of the institution who met with you, reviewed your job and income, and approved your loan.

This was in the days before the development of the Secondary Market where banks sold loans to outfits like FannieMae, FreddieMac, or Wall Street. The banks kept the loans so they obviously had a real vested interest in only doing good loans.  It was also before credit reports so the loan officer's job was, in large part, sizing you up as an individual and ascertaining if you would be a good customer for the bank.  I will call this Character Based Lending, meaning the decision to lend you the money was based, in large part, on the Loan officer's assessment of your character.

In the late 1980s’s and early 1990’s FannieMae, FreddieMac, and Wall Street firms really took over the mortgage business. If you have not read Michael Lewis’s book LIAR’S POKER, you really ought to.  The banks were there and some of the S&Ls were still left, not many, and they originated loans and sold them back East. Of course, there was no way anyone back there could meet you and assess your character. 

What this caused was a transition to Asset Based Lending.  The plain truth is that an asset based lender looks long and hard at the collateral you are providing to them as security for your loan. They know that, ultimately, that while they want you to make the payments, and they know that most people will make payments, they will end up owning some of the homes.  We used to kid about the old Home Savings, saying that if they held a mirror under your nose and could detect a sign of life, they'd do your loan, the one caveat being that they had to like your home.

Truthfully, that's actually not a bad way of lending.  If people have equity in their homes, they will work hard to protect it. And if you are in a market where values go up substantially year after year, people have more and more equity to protect and the default rate stays real low.

But in the last few years with the rise of sub-prime lending – what I call junk lending – there was no basis for doing loans. Oh, they started out talking about "under-served" markets and minority borrowers. Honestly, I think that there were a lot of employees in those lenders who really thought that they were helping people who never would have had a shot at owning a home without them.

They also threw out most of the rules. Bad credit? We don't care: No paycheck stubs or W-2s?  We don't care. No down payment?  We don't care.

They plain truth is that those people at the lenders who were making obscene profits on their customers and the Wall Street companies that were making so much money throwing them at their customers, got hooked on the volume! What they were doing was Volume Based Lending that had little to do with loan quality. It had to do with how much money they were making. As someone once said about these guys: If you want a friend on Wall Street, get a dog.

What happens next?  Hard to tell, but what our industry kindly calls "non-traditional" mortgages are going to be very hard to get for a while. The market for full documentation, good credit, lower LTV loans is alive and well, but for the rest, someone is going to have to find a new formula.  Stay tuned.

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

You know a story has become big news when the comedians start jumping on the bandwagon. The Daily Show and The Colbert Report have both done an excellent job explaining and satirizing the recent suprime mortgage crisis. And now The Onion, America's leading satirical newspaper, has joined up too.

Their most recent Statshot is "How are we Paying Off Our Subprime Mortgages?"

It's funny, because (sadly) it's so true. Happy Friday!

Cardholders of American Express’s Platinum Charge Card now can use the American Airlines Club Lounge at airports if they are an American Express Platinum Card holder and if they have bought an american airlines ticket.

If your spouse or children are travelling with you, they can also access the lounge. Alternatively, you can also bring two companion travellers with you.

Presently, cardholders of American Express Platinum Card have access to Continental Airlines Presidents Club, Delta Crown Room Club®, and Northwest Airlines WorldClubs. This is a welcome addition to the airport lounge perks.

P.S - To get the American Platinum Card, you first have to get the American Express® Preferred Rewards Gold Card. Or better still, you can get the Business Gold Rewards Card from OPEN^SM the small business team and get 25,000 bonus points (enough for a free roundtrip domestic ticket) and get discounts at OPENSAVINGS merchants. (Note : you do not need to have a business to get the business card. You’ll simply be treated as a sole proprietor).

One of the most important credit score factors is your credit card debt-to-credit limit ratio (aka debt utilization ratio). Keeping your credit card balances below 10% of your credit limit can do wonders for your credit score. Inversely, having higher balances can really hurt your credit scores.

Here's a few key points to consider about debt utilization (watch out, it's about to get geeky):

• The ratio of total credit card debts to total credit limits is most crucial for your score. For example, if you used $4,500 in debt across 4 cards and had a total credit limit of $15,000, you would have a 30% debt-to-limit ratio.
• Keeping this ratio low, ideally below 10%, will help earn you the most credit score value in this category.
• Your credit card debts are calculated from the "statement balance." So you could be receiving credit debt damage even if you pay your credit card bill in full each month.

There are three ways you can improve in this category:

1. If you are carrying large debts, pay them off. A $5,000 credit card debt from your vacation in April could be bringing down your credit score today. Paying off credit card debts is good for your credit score and your budget.
2. Control your credit card spending. Try to never charge more than 10% of your credit limit on your credit cards. For a $10,000 limit, this is $1,000. If you do charge over this line, you might want to pay it down before your credit card goes to "statement."
3. Increase your credit limits. This is where the "15 seconds" comes in. I  went online today to increase a credit limit I have with American Express card. The online form only asked for my requested increase amount and my monthly income. One quick click, and I had nearly doubled my credit limit for that card. My good customer record made this process a snap. Not all requests are this easy though, check to make sure the credit card issuer will not pull your credit with a hard inquiry before you request a credit limit increase.
4. Bonus tip - Avoid closing unused credit cards.  The unused credit limit acts as "insurance" and will help to keep your overall debt utilization lower than if you closed the account.

By increasing your credit limit, you make it harder to go over that 10% threshold and damage your credit score. Once my new higher credit limit is reported to the credit bureaus (within a few weeks), my score could show a big increase from the debt-to-limit drop.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com moderator.

Back-to-school season is ramping up. Along with sales on school supplies and new clothes, are your kids armed with money management skills?

According to a recent Visa study, they're not likely learning about credit at school or at home. Only 5% of adults reported learning about money management in elementary or high school. At the same time, less than half (48%) reported that they learned about money management from their parents.  So how are people learning about money management? 41% said they were self taught or learned the hard way.

Before sending your kids back to school, here are a few quick lessons you can give them to learn about money management and credit:

1. Saving is Important. This is a lesson a lot of people could stand to learn. Teach your kids about saving by paying them "interest" when they save up their allowance for a big purchase. You can use the analogy of a penny doubled every day being worth more than $1 million to teach them about compounding interest.

2. Working can be Rewarding. The ol' lemonade stand, babysitting or summer lawn mowing job really sets a foundation for understanding income, capital, taxes, business, etc.  Encourage your kids to set up a summer business or job.

3. Credit Cards, ATM Cards and Checks...Oh My. Do your kids the know the difference between these payment options? A quick lesson at the grocery store check-out counter can help teach your kids about how to use money responsibly. Make some kid-friendly paper checks that your kids can use when playing "shop."

4. Paying Bills Late Has Consequences. Make sure your kids know just how important it is to always pay your bills on time. Involve them in your bill payment and talk to them about the lasting credit damage that can come with a late payment.

5. Older Kids: Credit Cards are Not Free Money. If you can get your kids through high school and college without massive credit card debt, you've done an excellent job! Teach your older kids about how credit card interest rates are calculated, how minimum payments work and how you need to send in payments on time.

Remember, your own financial example is the best lesson your kids will learn. If you make smart financial decisions (keeping your debt low, controlling your spending, saving & earning good credit), your kids are likely to make the same healthy choices when they are older.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com editor

Welcome to the carnival of money stories. Since this is a carnival about YOUR MONEY STORIES, we shall have it in a “show and tell’ format - yes, just like when you were little kids. Your teacher is Moi!

First, a few housekeeping matters : I turned down many submissions because they were not stories. Andy (founder of this carnival) told me to pick only money stories and I quite agree as this is a carnival for money stories. There were many good post I turned down because they were more like “how to” or “descriptive” post which should be posted to the carnival of personal finance.

Directions : To get the most out of this carnival, just imagine have your kids around (if you are a parent) and read the post through the eyes of a child.

Teacher : Alright children, it’s show and tell time. Let’s all form a circle. (After 5 minutes when everything is settled). OK - who wants to go first today? Happy Rock. Alright Happy Rock, come up here and do your show and tell.

Happy Rock : This is box of the copy of Microsoft Money my Daddy bought for me. This is a game for you to see where your money goes. It’s really fun. You can see where your money is coming from and where you spent it. But last week, I changed computers and my money was gone…he he..so I had to Recover from Microsoft Money Server Upgrade.

Teacher : My Wealth Builder, you are next. What do you have for us today?

My Wealth Builder : This is my daddy’s toolbox. Inside, there are hammers, drills and many things. We live in a very old house and this year, my daddy says we are going to do lots of work on our house. Then it will be very beautiful. My daddy decided not to hire any one to do this. Daddy and Mommy are going to do all the work by themselves. This is a book on how to Do it yourself basics and save money.

Teacher : SVB, your next. What will you show us today?

SVB : This is my daddy’s and mommy’s money statement. Daddy and Mommy are always talking about money to me. Last night, they told me How they are rebalancing their asset allocation. I said to my daddy : “but daddy, I do not know what you are talking about?”. And my daddy said : ” Honey, diversifying your portfolio is like having many toys. On some days, you play with your dolls, on other days, you may want to play with your trains. If you only had one toy, what happens when you want to play with something else?”.

Teacher : Thank very much SVB - you are very smart. Now, who is next? How about you Queer Cents.

Queer Cents : This is a cell phone. This phone has a video camera. I use it to take pictures. Yesterday, Mommy and I were at a restaurant and we heard two ladies talking next to us. One of them was asking for Help for an astonishing bad money decision. Mommy says never to listen to what other people say, but they were talking so loud. So I took a picture with the cell phone.

Teacher : You have to be careful Queer Cents. Some people are not happy about having their pictures taken. OK - Money Ning, I see you have something quite heavy to show us.

Money Ning : This is a weighing machine. When you stand on it, it tells you how heavy you are. I am very light. But my daddy and mommy are quite heavy. My daddy and mommy always tell me to exercise and eat well. Daddy says it is very important to be fit and slim. He is worried that his employer might start charging me money for being fat. He makes me do exercise everyday.

Teacher : Well, Money Ning, you look healthy and fit. Now Money and Such, what is this you have here?

Money and Such : This is a for house sale sign. When you want to sell your house, you stick this in your garden. My mommy is a real estate agent. She says before you put your house on sale, you need to know what is your house worth?. Mommy sells lots of houses. But this year, she is not selling many.

Teacher : I see. Millionaire Mommy Next Door, what do you have for us?

Millionaire Mommy Next Door : This is a notebook. Mommy gives me some money every week to buy some food. She makes me write down how much I spend, how much I got and she wants me to have money left at the end of the week. She always tells me that Evaluation is critical to your success. She give me two dollars every day. So I have ten dollars every week. Two times five is ten. I save about five dollars every week. I use to buy candy sometimes.

Teacher : Thank you very much. Financial Dominance, what is it you have there?

Financial Dominance : This is a chinese fan. When you are hot, you just move it and you will feel a breeze. We also have fans at home. Mommy says that using fans can Dramatically cut your cooling cost. My house has fans on top. You just turn on the switch and it moves and it is so cool.

Teacher : Very cool indeed. It’s your turn next Fire Finance. What do you have for us?

Fire Finance : This is a credit card. Actually it is my daddy’s old credit card. It looks like a phone card. Daddy says that when I am older, he will teach me all about credit cards, money and grown up stuff. Yesterday, daddy was telling me about Lies about Credit Card Debt on TV. He said never believe everything on TV or what you read.

Teacher : Free Money Finance, what is it you have in your hands?

Free Money Finance : This is a disney ticket. Daddy and Mommy took our family to Disneyland during summer. We really had a great time. I had lots of fun. Daddy says he did not have to spend too much money because he got lots of Disney money saving tips. We sat in so many rides. I like the “It’s a small world after all”, and the “lion king” ride.

Teacher : You must have had a wonderful vacation. Finance is Personal, why are you holding your lunch box?

Finance is Personal : This is my lunch box for show and tell. Mommy says I have to bring my lunch box to school everyday except friday when it is pizza day. She says she will let me buy my own food two times a week when I am in second grade. My mommy makes really good food for my lunch box. She really knows How to bring your lunch to work without ruining your taste buds. I wish I was in third grade now, so I can buy lunch everyday.

Teacher : Time will fly very fast. Dough Roller, is that a newspaper?

Dough Roller : This is Barron’s newspaper. Daddy is teaching me about money and how to make more money. Last wee, he taught me how to pick your first mutual fund. He says when I am 20, I will know more about money than all my friends.

Teacher : Uh…well…I guess it is never too young to learn. Edith Yeung, what are those envelops you have?

Edith Yeing : These are my daddy’s bank statement (realistically this will never happen!). My daddy was teaching me how to manage and maintain your bank account. But I still do not know what he is talking about. So I just went to play with my toys!

Teacher : That alright Edith, you are still young. Unclaimed Money, it’s your turn next.

Unclaimed Money : This is a calendar. It tells you the month and the day. Mommy says that you can save money by changing your shopping day. She says different things in supermarkets cost cheaper on some days. So my mommy goes to the supermarket EVERYDAY!

Teacher : Thank you. Stephanie, you’re next.

Stephanie : This is a shoe that Mommy bought for me at the church consignment shopping and garage sales. Mommy spent the day looking for things for me. All the stuff was very cheap. Some of the money Mommy spent went to the church. I love shopping with Mommy.

Teacher : Finally….Money Smart Life, what is that in your hands?

Money Smart Life : This is a picture of a man with no name. Last saturday, daddy sat down with this man he did not know and talked to him for a very long time. Daddy always told me not to talk to strangers and he was talking to strangers himself. I kept asking to buy me an ice cream, but he kept talking and talking. The man told my daddy how money can change a life.

Teacher : Thank you very children. You all did very well for your show and tell. It’s time for recess and lunch. So let all line up to go to the cafeteria.