As reported by New York Times, Fidelity is lowering its online stock trading commission to $7.95 in response to Charles Schwab's earlier move of cutting commission to $8.95.

In addition, Fidelity is upping the ante by aggressively competing in ETF trading as well. In fact, it is now offering free trades on 25 iShare Exchange-Traded Funds (ETFs) managed by BlackRock.

Those ETFs available for commission-free trade represents a wide spectrum of asset classes:

Yes, the past decade of 2000s didn't treat investors well. If you invested in the DJIA, you lost 9% for the decade. A S&P 500 investor lost 24%. And a NASDAQ investor lost 44%, thanks to the fact that we started the decade at the height of the dot com bubble.

All the above figures are absolute, un-annualized returns. That is, your original 10,000 dollar investment will end up at approximately $9,100, $7,600, and $5,600 respectively.

But how about losing at an annualized rate of 37% a year for 10 years?

That's what Frontier MicroCap (FEFPX) has managed to treat its investors. If your crystal ball had guided you to the fund back in 2000, every $10,000 of your original investment have become, well, 98 cents.

I waked up this morning, and was surprised to find my net worth dropped by over 40 grand overnight. Yes, the broad market was down, but not to this magnitude! Are we back to the Lehman Brothers days?

Then I realized what happened. January 21 was the date when the B shares of Berkshire Hathaway underwent a split of 50-for-1. My 12 shares of the conglomerate led by the Sage of Omaha is now 600 shares, and my personal accounting software was not smart enough to pick that up.

Stock split is technically a net-zero event, but as USA Today concluded, the split of one of the most expensive stock on the market makes it a tad easy to invest with the Oracle:

Even at $3,500, the typical individual investor probably couldn't buy many B shares of Berkshire. After the split, shares of Berkshire will be more accessible to investors with only a few hundred dollars to invest, says David Ikenberry, professor of finance at the University of Illinois.

Not to be overdone on stock price, Warren Buffett still keeps the A shares of Berkshire Hathaway intact. The A shares are trading hands at $108,850 apiece. Only if I can afford to keep one such six-figure A share in a diversified portfolio!

Our legislators in D.C. are determined to challenge everyone's intellectual capacity in handling ever-growing tax code every year. What will 2010 bring?

TurboTax maker Intuit compiled a good list of the new tax code that will govern our tax life in 2010 (and future years). Among the changes, the most important one for savers will be the Roth IRA conversion change (emphasis is mine):

Roth IRA Conversions

Starting in 2010, individuals with any amount of modified Adjusted Gross Income are free to switch a traditional IRA to a Roth IRA. Conversions are fully taxable at your regular tax rate. For conversions in 2010, taxpayers can spread the tax due over two years. Half the tax will be due in 2011, and the remaining half will be payable in 2012. Removing the limit on conversions effectively eliminates the income limit on contributions to Roth IRAs. A taxpayer with income too high to use a Roth will be able to contribute to a traditional IRA (which does not have income limits for contributions) and immediately convert to a Roth.

(This is the third installment of the employee stock option (ESOP) discussion. Please refer to Part 1 and Part 2 for the context of the discussion.)

As we concluded in Part 2, if you are considering to exercise your employee stock option (ESOP) today, it is always a better idea to adopt a write-a-call strategy to fully extract the remaining time value of your ESOP grant. In our hypothetical example, one can improve gross proceeds by over 10%.

In Part 2, we didn't explore the after-tax impact. The tax impact is tweaking the balance significantly, for the better.

Several key parameters to keep in mind:

1) Employee Stock Options is usually taxed as ordinary income when the employee exercises the option and chooses to receive cash proceeds.

2) When you trade option in the open market, the resultant profit or loss are treated as capital gains/losses. That is, short-term capital gains are taxed at ordinary income tax rate, while long-term capital gains will receive preferential treatment up to 20%. Any tax gain can be used to offset capital loss carry-over from prior tax years.

In my case, the gap between these two taxing mechanism is truly wide. For me, the marginal tax rate on ordinary income is about 40%. But in the case of capital gains, I, like many investors who were burnt hard in 2008, has a huge capital loss carry-over to lean to. Therefore, my next $100,000 capital gains will be tax-free. Also, if you implement the write-a-call strategy by writing a LEAP option (which usually spans more than a year), it will be taxed at long-term capital gain rate even if you don't have a capital loss carry-over base.

Mutual fund rating firm Morningstar is announcing the recipients of the coveted "Fund Managers of the Year" award for 2009:

Domestic Stock
Bruce Berkowitz of Fairholme Fund (FAIRX)
2009 Return/Percentile Rank: 39.0%/9th

International Stock
The Team at American Funds EuroPacific Growth (AEPGX) (Stephen Bepler, Mark Denning, Robert W. Lovelace, Carl Kawaja, Sung Lee, Nicholas Grace, Jonathan Knowles, and Jesper Lyckeus)
2009 Return/Percentile Rank: 39.1%/15th

Fixed-Income
The Team at Loomis Sayles Bond (LSBRX) (Dan Fuss, Kathleen Gaffney, Matthew Eagan, Elaine Stokes)
2009 Return/Percentile Rank: 36.8%/14th

This is the 23rd year that Morningstar issued this award, but a smart investor shouldn't just dive into these fund immediately. After all, if you look across the history of this award, rarely was there a manager who won the Fund Manager of the Year title more than once.

Yesterday I shared that I'm working on the financial problem to maximize return on my soon-to-expire employee stock options. An outright sale is an easy path to choose, but does it make the most economic sense?

One thing to note about stock option: it does not only bear value when the strike price is lower than the market price (in the case of "call" options, which is the case for all employee stock options), it bears time value too. For example, for stock option of the same strike price, the further the expiration date, the more value the option is.

So, if one determine the market price is right but the employee stock option grant still has some shelf life, one can sell the stock option (instead of exercise the stock option) in the open market. Technically, it means to write (or "sell to open") a call stock option position with strike price and expiration date similar to one's employee stock option grant.

To illustrate this in an example, let's use the same data set in my last post:

Stock Option Strike Price: $26.4375
Quantity: 2,222
Expiration Date: February 12, 2011
Price of Underlying Stock: about $31

As we calculated in the last post, the gross proceeds before tax will be ($31 - $26.4375) x 2,222 = $10,138.

One can look at the option table and find the January 2011 $27.5 Call LEAP option is trading hands at $5.20. (Standardized options are trading at specific intervals, so we take $27.5 as a strike price proxy.)

To implement the strategy, one can write 22 contracts of such option. This transaction means one will receive 2,200 x $5.20 = $11,440 upfront for selling the right to someone else to buy 2,200 shares of the underlying stock at $27.50 from the seller before January 2011.

So what's the difference? Below is the table that shows how this strategy will work.

Here comes the first financial challenge for the new decade: employee stock option. My employer has ceased to grant employee stock option (ESOP) since 2005, but I still have some stock options left from the old days, the most recent batch will expire in February 2011. With the underlying stock hitting all-time highs since the global financial crisis, it's good time to decide what to do about it.

The basic parameters:

Stock Option Strike Price: $26.4375
Quantity: 2,222
Expiration Date: February 12, 2011
Price of Underlying Stock: about $31

The first option is of course to cash it out now. At the current price of $31, my gross proceeds will be ($31 - $26.4375) x 2,222 = $10,138.

10 grand is still a good chunk of change, except for the fact that I'll be imposed a marginal tax rate of 45% thanks to the local tax system. So my net proceeds will be $10,138 x (1 - 40%) = $6,083.

It's an awful long hiatus since I last updated my monthly net worth tracker. Admittedly, I fell prey of the psychological denial when the market crashed in 2008. For quite some time, I avoided reading my brokerage account statement and refused to watch CNBC.

So I hunkered down. I wasn't in a very good mood to spend time refreshing this blog. And with the first-ever massive layoff announced by my employer, I also put significant more time to my job -- luckily it has been secure all the time and still yielding handsome cash flow.

Like many others, it's a great relief to me to see the gradual market recovery since this spring. While my confidence hasn’t been fully recovered, it is probably good time to recognize I made mistakes and re-embrace the responsibility to manage our money forward.

Fortunately, during the long lapse, I still keep track of all financial matters in Microsoft Money. So it's good time to take a look at what happened in the last three years:

At the turn of the decade, SmartMoney provided a sampler of the past decade's winners and losers in the domestic equity market.

Some winners:

Goldman Sachs
Price per share on Dec. 31, 1999: $94.19
Price at Dec. 28 close: $163.76 | Net gain: 73.9%

Caterpillar
Price per share on Dec. 31, 1999: $25.53
Price at Dec. 28 close: $58.26 | Net gain: 148%

Google
Price per share on Aug. 19, 2004, its initial public offering: $85.00
Price at Dec. 28 close: $619.89 | Net gain: 521%

Another three days and we will be officially walking into the decade of 2010s!

There are a lot to write about the decade of 2000-2009 -- or the "Aughts", if this is the right way to call it. In the mood of the holiday season, let me quickly summarizing what the last decade means to me:

Family

At the onset of 2000, I was single and wasn't not in any kind of relationship. Then, I was fortunate enough to meet my wife in 2000 in the same company, and we got married after knowing each other for less than a year. Today, we will soon be celebrating our 9 year anniversary. I am so lucky to have a wife that is supporting and devoting. And after that many years, we still love and trust each other like day one. What a magic!

And even our son is approaching eight. He is a bright kid and doing well in school. Unlike me who was more grown up in the mountains of books, our son is outgoing and developing interests in Taekwondo and swimming. I wouldn't have imagined that a child's smile can bring so much fun to our life.

Do you know why some small businesses refuse to take credit cards, and do you know why credit card companies can afford giving away 1% cash-back or even more when you swipe your card? Yes, your card issuers will charge any business you pay by credit card. But by how much?

The short answer: it varies. According to TrueCostofCredit.com:

- A standard card from Visa or Mastercard with no reward feature charges about 2.3-2.4% for big ticket purchases like airfare and electronics, and 1.5-1.6% for groceries.

- Visa and Mastercard rewards cards usually mean 0.3% higher charge for the merchants.

Fortune magazine just released its 2009 installment of "100 Best Companies to Work For". Here are the top ten companies.

1. NetApp
2. Edward Jones
3. Boston Consulting
4. Google
5. Wegmans
6. Cisco
7. Genentech
8. Methodist Hospital
9. Goldman Sachs
10. Nugget Market

And the link to the full list. (My employer is a distant 38th on the list, but at least it is still one of the 15 companies that pays 100% of employee health insurance premiums.

The cliché goes that there are only two things remain constant in this world: death and taxes. With this year's April 15 deadline approach, do you know some important tax law changes that might affect your individual income tax return?

Below is a concise compilation from CCH CompleteTax of what you need to know about your 2008 tax return:
 
Exemptions

• Personal exemption. This increased to $3,500 per person for 2008.

• AMT exemption. The AMT exemption increased for 2008 to $69,950 for joint filers and surviving spouses, $46,200 for single filers and $34,975 for married persons filing separate returns.

We continued to live below our means and save a huge portion of our income. But even though our portfolio is only mildly exposed to equity investments, we still took a hit from worst market performance in any January since 1928. As a result, our net worth retreated 1.4% and dipped below the $800k mark.

On the other hand, our mutual fund automatic investment plan is in its full throttle. $23,000 net purchase was made in the month, bringing our total investment exposure as a percentage of net worth by two points to 33.4%.

As a farewell bid to 2008, I compiled a full reconciliation table of the investment gains and losses in the unfortunate year of 2008.

Technical Notes:

- Purchase = Total money paid to acquire additional stock or mutual fund shares, including commission.
- Sale = Net proceeds from selling stock or mutual fund shares, after commission.
- Cash Dividends = Total dividends received from stock.
- Note on mutual fund dividends: since all mutual fund dividends are automatically reinvested, there is no cash flow transaction to record. Additional shares from reinvestment are reflected in the year-end Quantity column.

For a long time, I had been rather sporadic in managing my investments, picking up a fancy stock today, and jumping into another mutual fund the next day. Obviously the approach was proven wrong in 2008. So my new year's wish: more rigor in managing my financials. After all, although the financial crisis has wiped out a sizable fortune, I still need to count on building and growing my nest egg for a much aspired early retirement.

In the last few weeks, I have some rarely-find personal time to develop and implement my investment plan for 2009. I will take the next few posts to share my plan and solicit your feedback.

My plan starts with personal assessment of macroeconomic situation, a result of at least 30 hours of readings and analysis:

1. Asset Price

Assessment: Asset price is approaching reasonable levels.

Major stock markets have lost almost half of its peak value, and commodity price have tanked. By many measures, equity price is at very attractive level now. On the flip side, since we haven't seen the full impact on corporate earnings yet, it can be argued that the ordinary price metrics like P/E ratio may offer a false reading at the moment. All told, I come to believe that while no one can predict where the bottom is -- the claim that November is a long-term bottom is becoming weaker every day -- it can be said that asset price doesn't have much room to drop further.

Actions: Currently, 3/4 of my portfolio is on cash and that allocation certainly is not optimized for growth. I intend to start increase exposure to riskier assets. Also, I plan to enter into automatic investment plans to avoid being sidetracked during market swings.

Can you put a price tag on the White House? Of course, 1600 Pennsylvania Avenue will never be put to the market, but the online real estate site Zillow.com decides to make some timely noise now that the new First Family only needs to wait for another 10 days to move in. The estimate: $308,058,000.

Yes, if Uncle Sam is in a fire sale, the "55,000 square feet of indoor space, 132 total rooms, 35 bathrooms, 16 bedrooms, three kitchens and 18 acres of premium downtown Washington, DC land" will slightly help our budget deficit.

And more fun facts if we think alone this line:

- Were someone to take out a standard 30-year, fixed-rate mortgage on the White House today (assuming 20 percent down and a 6 percent rate), their monthly payment (including principal and interest) would be $1.48 million. Even with the Treasury Department's proposed 4.5% rate on 30-year mortgages, a monthly payment would still top $1.25 million.

My stock picking days are finally over, for now. Back in April 2003, I bought my first stock -- Pre Paid Legal Service (PPD). Over the six and half years since, I bought a total of 33 stocks. As late as May, I was sitting on almost quarter-a-million portfolio of individual stocks, including many financial stocks (AIG, BAC, JPM, LFG, MMC, WTM, just to name a few) -- what a good portfolio it was in a financial crisis :-)

And with the market testing new lows every other day, my portfolio was taking one nosedive after another. For a moment I was in denial, and hesitated to share the losing record, especially to a special reader of my blog -- my wife. Knowing that we won't touch on the investment portfolio for at least a decade, and stock market will surely recover in the long run, I felt it was not necessary to create a lot of anxiety under the same roof.

In retrospect, the biggest lesson I learned from loading more and more financial stocks between 2007 and 2008 is: I acted blindly. With 60-hour work weeks, I should have known that I cannot dedicate enough time to study each company and keep track of all developments. My corporate finance background should have helped me, but without a lot of time to study my portfolio holdings as much as I study the corporate P&L I'm managing, it is no surprise that I chose the wrong path.