Saturday, April 30, 2011

Triple Coupons Today and Tomorrow @ Pathmark, Waldbaums

Go clip some coupons and go shopping... Now through Sunday, Pathmark and Waldbaums is tripling all manufacturer's coupons up to and including $1 value, even those that say not to double.  With deals like that, you can be your own "Extreme Couponing" superstar.  I'm referring to the TV show, for those out of the loop.

Catch? max 10 coupons can be tripled per checkout, so you may have to go back on line more than once or request that items be rung up separately. I'll likely go have my own Extreme Couponing adventure and blog about it afterward and report how I did.

Have $20,000? What to do With it

A friend asked me today, "I have $20,000, what should I do with it?  How do I invest it?  Should I buy a CD with it?  Should I save it in a liquid savings account toward a future down payment that may or may not come and don't know what time frame I'm looking at?  Should I put it into a Roth IRA? What should I do with the $20K burning a hole in my pocket?

The answer is, that all depends on your personal goals, needs and future plans - the reality is, it's important to try to have some kind of insight into one's personal time frame for different life events.  Of course all that can change after a few too many cocktails at the bar, and you or your company for the evening decide to head to the airport for a shotgun wedding in Vegas.  Fantasy aside, most people can really predict and steer events and have a decent amount of control over what life events happen when - at least for items such as buying a new home or car or going to grad school, etc.

In my friend's situation who posed the above question, likely the best bet, since they don't have really anything aside that $20,000 in savings, is it should be placed into a CD of a one year duration.  I'd be certain that it's in a CD that can be withdrawn at any time if need be, with a relatively low penalty for withdrawing the funds early - i.e. lose one month's interest if withdrawn early.  That way if an opportunity arises and the funds are needed, it's not that big a deal to withdraw the funds.

Investing in a Roth IRA is also a good bet; here's a good article that explains the penalties for withdrawing before age 59 1/2:  It's also a good way to store your money until you're ready to buy a home, though potentially more risky if you invest in stocks and the stocks go down when you're needing to tap into the funds.  This is the route that I'd most likely personally take, in part because I'm a high risk taker and am comfortable taking higher risks than most.

The safest plain vanilla approach is to simply keep it in the bank and do nothing with the money.  I really don't see the benefits of doing nothing, for no one gets anywhere in life sticking with the status quo in general.

Thursday, April 28, 2011

Using Credit Cards The Smart Way-Credit Card Arbitrage and Other Issues

I have met so many people who are afraid of credit cards - even millionaires.  Let's begin with the obvious - if you can't afford it, don't buy it!  I feel like I may have stolen a Suzie Orman common sense piece of advice there, and although the goal of my blogging here is certainly not to stoop to her level of simplicity of issues covered here, I felt compelled to cover that fundamental.

I personally think that it is in every individual's best interest to understand and take advantage of credit cards.  They're a great tool to "keep more of your paycheck" if used in a responsible and advantageous manner.

Here are things to keep in mind:

  1. Don't just rely upon the standard car rental insurance included with the card... I always use AmEx's premium insurance these days...  I recommend that the same be done for trip interruption insurance.
  2. Remember that most cards double the warranty on a product to two years from one year; stop buying extended warranties at Best Buy, Staples etc.  The employees that sell those warranties make commission, and trust me, the stores aren't just breaking even selling those policies in general; they're making a killing on something you're already covered for by your credit card.
  3. Foreign transaction fees: When you purchase something overseas, your credit card will often charge you a foreign transaction fee to handle the foreign exchange process for you. In fact, part of that fee is imposed by Visa and MasterCard itself, so any Visa and MasterCard that charges you less than 1% is actually eating the fee. Capital One and Discover are the only two companies that do not charge a foreign transaction fee; Capital One actually pays the fee for you and Discover, since it’s not on the Visa or MasterCard network, just doesn’t charge for it. As I wrote in the other article, if you want to pick between the two then I’d go with Capital One because Discover isn’t as widely accepted overseas (Capital One cards are Visa or MC).
  4. Here's a great outline of credit card arbitrage that I recommend reading and doing only if you fully understand the pro's and con's:   I personally don't do this, but have thought about doing it, and know many that do do this regularly.  Something to ponder.
  5. Use your credit card for every single purchase, including small-dollar items such as food and gas. Then pay off the entire balance each month when due. If you spend $1,500 a month on your card, with a 1 percent cash back reward, you will earn $15 per month (more if you convert those points to airline miles). Plus, the money you would normally use to pay your expenses will earn a small amount of interest each month just by sitting in your checking account (if you do not have an interest rate on your checking account, consider opening one that does).  See my google search blog post for how to find such an account.
  6. If you have department store card such as a Macy's or Dillard's card and it offers a better rewards system than your regular credit card, use it when making department store purchases. Doing so may result in gift cards and exclusive coupons.  I'll often use my Macy's card at the register, then pay it off.
  7. Set up auto-pay for credit cards - it'll help you ensure you maximize the interest earned on the money while it's in the bank, and make sure your bills are paid on time to avoid late penalties and interest charges.
  8. Stop using debit cards instead of credit cards - for the reason stated in #7, use credit, not debit cards.  For those who are afraid they'll overspend using a credit card, and thus use a debit card - see my first disclaimer that you shouldn't spend more than you have - keep a book with you at all times and record your transactions if necessary to ensure you're staying within budget - the best rule is, if you don't need it, don't buy it.  That'll keep you within budget if you stick to this plan
  9. Take advantage of credit card offers - Discover sent me an offer of $150 extra savings if I spend $1,000 a month for the next five months using their card.  If I were to spend that much anyway each month, then why not take advantage of the offer?  $150 isn't a whole lot, but better to have it than not.
  10. Find the best card for YOUR situation.  There's a gazillion cards out there on the market; each person's spending categories, needs, carry a balance/no balance, points vs. cash back, and personal preference.  The AmEx Business Platinum Card, Discover More Cashback Card, and UPromise Mastercard are my personal credit card staples.  
    1. I also highly recommend the credit cards from the Pentagon Federal Credit Union - read this on how to join: and this for an overview of their credit card offerings:  Their AmEx is used by me only to buy airline tickets for 5% back; their Platinum Rewards card is great for gasoline purchases.
  11. Don't carry a balance from month to month - pay your bill in full each month.
  12. If you do currently carry a balance, make every effort to pay it off ASAP, assuming you're not being slick and taking advantage of a 0% intro APR.  
    1. Consider shopping around for a line of credit or a balance transfer offer with another credit card to pay off higher interest rate credit cards, or other lower interest financing methods.  
    2. Always pay off debt with the highest interest rates first, as a general rule - unless you're purposely carrying something like student loans from my prior blog post, where you're purposely in debt.
    3. Don't just stockpile cash in the bank earning 1% or less if you are paying 20% in interest on a credit card, just because you like to keep cash reserves in the bank for a rainy day - in most situations, that's penny wise, pound foolish!
    4. In the meantime, call your credit card company and ask for a lower rate if you're carrying a balance.
Feel free to post questions on the blog for me to answer in more detail.

Exchange Traded Funds (ETF's) vs. Mutual Funds

If you're aware of your surroundings and walk around Manhattan, you likely have noticed advertisements for Exchange Traded Funds (ETF's).  SPDR and iShares being the two brands of ETFs that market themselves the most.  Keep an eye out tomorrow and you'll likely see an advertisement for one of them. 

ETFs are baskets of stocks in a variety of broad market, sector or capitalization categories, similar to mutual funds.
Some of the reasons why most consider ETFs superior to Mutual Funds:
  • More cost-effective because of lower operating and transaction costs.
  • More liquid and flexible than funds; they can be traded anytime during the market day like stocks.
  • More tax-efficient because they typically have very low distribution rates.
  • Often have better performance than index funds because they are more efficient.
  • Offer investors a more liquid and efficient way to access hot overseas markets like Brazil, Russia, India and China, in part because they can be traded throughout the day, helping to ensure that the investment can be disposed of mid-day, instead of at the day's end pricing.
As suggested above, the goal of them is to offer investing opportunities similar to mutual funds but at a lower cost, passing savings to the investor.  Mutual funds tend to have higher costs and quite frankly, I really don't see any inherent value in them anymore relative to ETF's.  I personally have stopped investing in mutual funds as a general rule and instead stick with ETFs these days.

The below article from Forbes gives a great overview of points to consider:

Investment Strategies
The Smart Trader's Guide to ETFs
William Baldwin, 05.09.11, 6:00 PM ET
Exchange-traded funds are one glorious success story, having gone from nothing to $1 trillion in assets in 18 years. The best of them beat the classic Vanguard mutual funds in the cost game.
But you have to know what you're doing. If you are sloppy with selection or execution you will fritter away the ETF cost advantage. Here are three rules for cost-conscious ETF investors.
Compare expenses. Consider the two big emerging-market funds, from Vanguard and iShares. "Emerging," by the way, is shorthand for "where property laws are sketchy." These funds invest in China, Russia and Brazil. Between them they sit on $90 billion. In Vanguard's case the ETF is attached to an old-fashioned mutual fund with the same portfolio.
Vanguard and iShares have slightly different collections of stocks, so one might do a point or two better than the other in any year. But that, to me, is an inconsequential fact for two reasons. There's no way to predict the outcome, and, in any event, these performance differences tend to even out over time.
The more important difference is in the expense ratios. Vanguard peels off 22 basis points for its portfolio work. That's $22 a year on a $10,000 investment. BlackRock's iShares wants 69 basis points. Over 30 years that difference of half a percentage point compounds to 13%.
If your $10,000 earns 9% a year before expenses, the tiny cost difference will balloon into a difference of $16,000 in your pocket in 2041. Alongside this, the free pass your broker did or didn't give you on the $9 trading commission doesn't really matter.
Never buy an expensive fund unless there is compelling evidence that it is likely to outperform the cheap alternative. In this match, Vanguard MSCI Emerging Markets (VWO, 49) is the winner.
Be careful with market orders. A market order gets executed at whatever price is needed to complete the deal. In hyperactive stocks like the ETFs that State Street has for the S&P 500 and gold, market orders do no harm. You can get several thousand shares without disturbing the price.
But if you have a hankering for the FaithShares Baptist Values fund, which moves 200 shares on a busy day, a market order for 2,000 shares is a bad idea. It's an invitation for the marketmaker on the other side of the trade to reach into your pocketbook and help himself.

If you are interested in an ETF whose volume is less than a million shares a day, put in a limit order. You offer to pay, let us say, $30 a share and not a penny more.
Gary Gastineau, author of a textbook on ETFs, recommends a "marketable limit order." If a stock is quoted at $29.95 bid, $30 ask, and you really want it, your limit order for 2,000 would be at the ask price.
You might or might not tease out all the shares you are looking for. You might get 800 and have to return the next day for more. But that is better than putting in a market order that gives you 200 shares at $30 and the other 1,800 at $31.
Don't let orders sit around. When you put in a buy at 10 a.m. and then walk away from your desk, you become a patsy for professional traders. In effect, you are giving these guys a free put option, says Gastineau. He knows all about this. His first textbook was on option theory.
Say that an ETF is quoted at $29.95 bid, $30.05 ask. You bid for 2,000 at $30, beating the previous bid by a nickel. Your position at the head of the buying line may not last for long. A sharpie with a split-second computer can elbow you aside with a bid at $30.001. He grabs the first 2,000 shares that come along.
If this is a stock that jumps around a lot, it could end the day at $29 or at $31. If it goes up, the high-frequency trader pockets a $1,998 gain. If it crashes, he unloads his position on you. He's out $2, and you're out $2,000.
Solution: If you are interested in a thinly traded stock, put in your bid, then yank it an hour later if a buttinsky quote pops up on your screen. Wait at least a day before returning.
If you don't want to spend your afternoons trying to outsmart marketmakers, stick to heavily traded ETFs with low expense ratios.
For big-company stocks SPDR S&P 500 (SPY, 132) is the obvious choice. Its annual fee is nine basis points. For a broader mix, with 3,400 stocks, buy Vanguard Total Stock Market (VTI, 68), at seven basis points. Another option is the Schwab U.S. Broad Market ETF (SCHB, 31), which owns 1,500 stocks and will cost you six basis points.

Wednesday, April 27, 2011

Go To Medical or Dental School for Free (Nearly) I received a request to talk about this topic for tonight from a friend who's currently in med school.  It's a bit of an elaboration on a prior post.  So what's the trick to pay nearly nothing for medical or dental school?  Borrow money from the federal government's student loan programs (no private loans!).  Then upon graduation do the following three things:

1) Consolidate all student loans into the Federal Direct Loan Program
2) Select the Income Based Repayment payment method
3) Go get a job working for a VA Hospital or some other government or non-profit entity and make 120 payments while under their employ until you are eligible for the rest of your loans to be forgiven by the government.

Now people will say, but doesn't the government pay a lot less than you'd make otherwise?  And the answer is quite possibly yes.  But factor in items such as not having to pay for health insurance, double social security and medicare taxes, paying for an office, the student loans that you won't have to pay as much back on, better hours, and even the potential ability to start to establish a home office perhaps, and suddenly the difference in salary starts to disappear.  Don't forget also, after 10 yrs of doing what I described above, there's nothing stopping you from leaving government or non-profit employment to work wherever; or concurrently work a second job for someone else while also working for government (assuming you don't have a conflict of interest or are barred from external employment for some positions). 

Income Based Repayment:

Loan Forgiveness for Working in Gov't: and

Health Profession Loans: and

The image below shows that under the assumption that you make $200,000 a year and have $300,000 in debt, you'd still be eligible for income based repayment!  Your estimated monthly payment would be only $2,295 per month!  You'd pay a total of $275,400 back over 10 years, and remaining payments after that would be forgiven.  This assumes a single person with no one else in their household. If you take into account the deduction of student interest from your income taxes, and inflation over 10 years, it's as if you're paying perhaps 40% of the $275,400, or roughly $110,000.

Compare that with any of the other repayment plans, and you will realize that Income Based Repayment for nearly anyone with federal student loans is the best route to follow, unless you have a very low dollar amount of student loans, or they're not consolidatable under the Federal Direct Program guidelines.  See screen shot below for comparison of other student loan payment options.  Also note that you must use Income Based Repayment to be eligible for loan forgiveness after 10 yrs.

Hit Control + to zoom in to see the screen shots below more clearly or View, and then Zoom menu in your browser.