For the Best List of CD and Savings Account Rates Bankrate is No Longer the Winner

I have been a big user of Bankrate to find high paying savings accounts and CDs, but no more. A couple of days ago I found Bank Deals. I like the site better than Bankrate for a number of reasons. First, it appears to be more comprehensive than Bankrate -- it even includes local credit unions. Second, there appears to be no axe to grind. On Bankrate some banks pay to be listed while Bank Deals generates his revenue through adsense ads, clearly marked sponsored links, and donations. The next time you are looking for a new savings account or CD I highly recommend you check out Bank Deals.

Glasses Are Expensive! Trying a Cheaper Alternative.

Well it's time for me to go see the eye doctor again and I scheduled my appointment yesterday. I am confident that my prescription has changed since my last visit, so that means I'll be needing new lenses. Since I only have one pair of glasses, I figured I had better go ahead and get another pair as a backup. However, the thought of paying $350+ for a new pair of glasses was terrifying me. I decided to do some research on cheap eyeglasses available on the Internet when I stumbled on Glassyeyes, a fantastic site all about buying glasses on the Internet complete with reviews of popular sites. I also found the Eyeglass People who will gladly take my old glasses and put new lenses in them for less than I would pay at the retail store. I am going to try both buying a new pair and lenses online and see how it goes. I will report back about my experience, but this looks to be one of the bigger money savers I have come across.

Should I Stick With Countrywide Savingslink?

Countrywide Financial is clearly a company in trouble, and why shouldn't they be? They are the nation's largest mortgage originator and we are in the midst of one of the biggest housing declines since the great depression according to Wells Fargo CEO John Stumpf. However, Countrywide also offers the best savings rate of anybody out there with their FDIC insured Savingslink account. I can't exactly afford to lose my savings, but a 5.3% APY is pretty darn good so what should I do about it?

First, determine how much FDIC insurance your account has. This is easy to do by using the calculator available here. The general rule is that each person on the account is insured at up to $100k per institution. So if a husband and wife have a joint account they are insured up to $200k at that institution. My advice is never to put more than the insured limit with any one institution.

Next, think about how willing you are to have your money locked up. If this is money that you could need at the drop of a hat you need to keep it with an institution you are confident with. For me, Countrywide doesn't qualify right now. I think there is at least a 5% chance they could go bankrupt. Wells Fargo on the other hand is as safe as they come (but their savings rates are a lot lower). So the way I view Countrywide right now is that as long as I am below the FDIC insurance limit and as long as I know I don't need the money there tomorrow, it is ok to capture their 5.3% APY. Why am I not 100% confident that the FDIC insured money will be available at the drop of a hat? Because I think if this housing debacle gets really bad and Countrywide and Washington Mutual, and a couple other large banks go under I think it may take the FDIC a little while to sort out their payments. To be fair when Netbank went under the FDIC insured funds were avaiable the next day through ING who bought the accounts, but nonetheless I prefer to be modestly paranoid.

Best of Armchair Fiduciary 2007

According to Google Analytics which I use to monitor traffic on Armchair Fiduciary for free here are the most read posts of 2007 (so far):

1) Wells Fargo PMA, the best financial combo package around? (146 views)

2) Should I Pay Down My House Early If I Can? (130 views)

3) How to Invest Your 401k: A Generic Guide. (115 views)

4) Got Loose Change? Thinking of Going to Coinstar? Forget about it. Save yourself 9%. (110 views)

5) 8 Random Facts About Arcmahir Fiduciary (103 views)


Thanks for making 2007 a great year and don't hesitate to suggest posts you'd like to see in 2008 in the comments!

Should I Loan Money to a Friend?

There is no easy answer to this question. In general, the Armchair Fiduciary's opinion is that you should not, especially if this is an emergency loan to keep someone afloat. Instead suggest to your friend that they go to http://www.prosper.com/ and try to get a loan there. Prosper is a neat site where anybody can borrow or lend. The reason I would not make an "emergency" loan is simple. If your friend needs such a loan they have not managed their finances well so far and you should not expect that to change overnight. Indeed, all that is likely to end up happening is that you will lose your money and the friendship will suffer as a result. If they go to Prosper, the market will set a price that is fair for their loan and then deal with collecting on the loan (instead of you). You should not feel guilty saying "No," to an emergeny request like this, especially when you offer a helpful solution like Prosper instead. Indeed, your friend has overstepped his bounds in this request and saying no is merely restoring balance to your relationship and making sure the friendship will remain intact in the future.

The one time I might conisder making a loan to a friend is if they have a very well thought out pre-planned business venture. Even in this case be sure there is a legal document verifying the amount of the loan, the terms, and the length of the loan. Many budding entreprenuers have needed capital to get started and I view this as a legitmate request. Be sure to see the business plan laid out on paper and use common sense; don't support a venture you don't think will work.

Have a different opinion? Hit me in the comments.

Black Friday and Cyber Monday Mean Only One Thing: It's Time for the Holiday Budget!

Well, its that time of year again. It's time to rush out to the stores (or click that mouse) and buy $400 laptops, $600 LCD TVs, and $100 GPS devices. Of course, those are money losing propositions for the stores (and sleep losing for you if you were one of the people standing in line at 4 AM), but the stores are counting on the increased foot traffic from everybody else who oversleeps and misses those deals to more than make up the difference. In order to not fall victim to the stores around the holidays it is critical that you go in with a clear battle plan: a holiday budget.

The concept of the holiday budget is pretty simple. Start with a total over-arching amount you are willing to spend on gifts. Set out a list of people that you need to buy for. Preferably ask those people for a list of what they would like. Match their lists to your list and budget. Presto! You have achieved holiday budget feng shui. The key here is having a plan and not just window shopping your way through your list as you will inevitably: a) spend more than you think b) buy someone two presents, and/or c) forget someone you should have remembered. If you have a plan and stick to it you will not have any of these problems.

Once you are done with this year's shopping remember how much you spent in aggregate. Then save that number divided by 12 each month next year to build up your "holiday buffer" so you don't have a nasty surprise around the holidays. It's a little like the elves building toys in Santa's workshop all year long. If they tried to build the toys of all those girls and boys in the last month of the year they would never get it all done. They have to build them a little at a time all year long. You too should save a little each month to build up that holiday shopping buffer. The exact wrong thing to do is rack up a big credit card bill at the end of the year and then spend many months and additional dollars paying it off. Trust me, your kids, family, and friends don't want you to be in that situation and neither do you. Plan ahead and avoid that trap. Credit card debt is bad debt, avoid it at all costs especially around the holidays. Your holiday budget and (next year) your holiday buffer should help you avoid the kind of credit card debt that will inspire Santa to put coal in your stocking.

Be Thankful for No Recession in 2007: Get Prepared for One in 2008 (and hope it doesn't happen!)

Well, this week millions of American families will sit down to a feast of turkey, stuffing, cranberries, etc. It has been another prosperous year for the US economy so far, so those tables should be full. GDP grew at a seasonally adjusted annual rate of 0.6%, 3.8%, and 3.9% in Q1, Q2, and Q3 respectively. However, some economists are worried about the outlook for 2008. Indeed, an article in the Economist this week suggests a number of reasons we might get one in 2008 including: falling housing prices, tighter lending standards, higher debt loads, higher fuel costs, and slowing job growth. For the uninitiated a recession is typically defined by two or more quarters of shrinking GDP. During a recession you tend to see a decrease in consumption and an increase in unemployment.

What could a recession mean for you in 2008? Could it mean widespread corporate layoffs that might include you? Could it mean a terrible stock market that hurts the value of your portfolio? Could it mean you won't get that raise you are counting on? It could mean any of these things. So, with even a modest risk of recession, it makes sense to start getting prepared now. Between tryptophan induced naps and football kick-offs this weekend take some time to think about how your finances would weather a recession. Do you leave yourself some buffer so you don't need to live paycheck to paycheck? Do you have 3-6 months salary saved in a money market or treasury account? If you lost your job and had to take a lower paying one could you and/or your family get by for a year? If the answer to any of these questions is "No," it may be time to pass on another helping of pumpkin pie and get out a piece of paper. Write down some goals that will help you get to "yes" on all of the questions above. Doing this should be simple, write down how much you can start saving every week by cutting down on some of your discretionary spend. Cut out enough discretionary spend to get yourself to "yes" over the next 12 months. Post the plan somewhere where you will see it daily and stick to it. Once you do this you can rest assured that your 2008 Thanksgiving feast will be just as good this year's, recession or not.

Roomba: A gadget that's worth it!

I'll admit it, my wife and I have a Roomba and we love it. We got it as a wedding present from my brothers. Normally, I would never go out and spend $300 on a gimmicky gadget like the Roomba, but now that we have one we will never go back. This thing is awesome! It can be scheduled to run by itself while we are away at work. It sucks up pretty much anything a normal vacuum would including cat hair which is a big problem in our house. There is nothing like coming home from work to a vacuumed house.

That's not to say that its perfect. Occasionally our Roomba fails to detect the stairs and makes a suicide dive. Nonetheless, this is one tough cookie, once you put him back together again he is ready to go. One time he did stop working so we sent him back. iRobot had great customer service and sent us a whole new Roomba in no time. The Roomba also occasionally misses corners due to his round shape.

For all his imperfections the Roomba still does an awesome job cleaning our house and I would recommend the product to anyone. Has anyone tried the Scooba or the Looj? Leave a comment to let me know if they are just as good as the Roomba. Meanwhile, I'll continue to wait for the Lawnba.

Multiple Appliance Discounts: Not Necessarily a Good Deal!

Well my wife and I went to the Home Depot today to buy some appliances for our kitchen remodel project. Besides melting my credit card, I learned that there are some discounts that just aren't worth getting. For instance, GE was offering up to $300 off on the purchase of multiple appliances. We wanted a GE dishwasher, but to get the discount we had to buy a GE range or a refrigerator. Unfortunately, my wife already had her heart set on a Jenn Air range due to a few of its features. That left a refrigerator. However, the price difference between the GE and the LG we had looked at before coming to the store for the price and features we wanted was nearly $1000. Needless to say, we actually saved more money by mixing and matching then falling for the trap of upgrading to an expensive GE with more features than we wanted or needed.

A Word of Advice on Chinese Mutual Funds/ETFs: Sell Some.

I generally avoid investing advice on this blog since I get paid to worry about those kind of decisions full time and it would be a conflict of interest with my employer to discuss individual equities here. However, I am going to make some comments on China today. What appears to be going on in their local A Share market is a classic market bubble. There are many Chinese investing for the first time and they do not know the risks associated with it, hence they are bidding prices ever higher. As far as they are concerned stock prices only go up. Also, there is no short selling in the Chinese A Share market so it seems like it is easier for inefficiency to creep into the system. Sure China is one of the fastest growing economies in the world, but that doesn't mean it should carry a P/E of greater than 70 as a market.

The hard thing about bubbles is predicting their end. I don't think anyone is particularly good at doing this. However, what you can do is choose not to participate once things get too frothy. Indeed if you have some China mutual funds (US investors can't own the stocks directly) or ETFs that are hold a significant amount of A shares it might be time to cash out some of those gains. I'd recommend selling down enough so that after taxes you have recouped all of your original investment. If you want to speculate a little longer with some of your remaining gains, that's your prerogative because calling a bubble's end is hard to do and they always seem to go on a little longer than anyone expects. While things economically are looking great for China at least through the Olympics in summer 2008, how long their market can continue to sprint depends on how long people are willing to pay any price for stocks. Rest assured that at some point there will be a big pullback (we indeed may be starting to see it now) and it will spook people and remind them that risk is associated with reward and then the Chinese market will come down just like technology shares did in 2000 and more recently like home building shares have done over the last couple of years. Those that have protected their principal will be glad and those who continued to speculate (or worse, put a boatload more money in because their returns had been so good) as the bubble intensified will lose a big part of their investment.

I'm not alone in this sentiment. Even Warren Buffett said people should be cautious with China.

Review of Mint On-line Personal Finance Tool: The Vault is About Half Full.

Mint is a great concept. Create an account. Enter a few usernames and passwords. See your whole financial world from one control panel. While getting started is easy and the concept is great, the product could definitely use some refinement.

First, let me focus on the positives:

1. The product is easy top use, it took me about 10 minutes to get up and running.
2. They offer support for a wide range of financial institutions. I was able to link accounts from Wells Fargo, Discover, AmEx, Chase, Countrywide, and Emigrant Direct with relative ease.
3. I like that they make recommendations to save you money.
4. Finally, diving up your spending categories so you can see how much you spend in each category is a great tool that I typically have to wait to see once a year with my credit card statement.
   

For anyone who doesn't check all of their accounts regularly, Mint is a good tool to get started and I would recommend trying it. Even if one does check his accounts regularly he might like to try Mint, though it might not be quite as in depth as one might like. For a 10 minute investment, it is at least worth checking out for anyone if you ask me.

Now let me focus on some of the negatives:

1. Where are the brokerage accounts? I couldn't link my Wells Fargo or Fidelity accounts. Ideally Mint should expand to support brokerage/retirement accounts to so I can monitor my whole personal finance life/net worth from one window.
2. Some of the money saving suggestions don't make sense. For instance, Mint said I could save $1200 per year by switching to Verizon FiOS. Unfortunately, despite having my zip code, Mint failed to realize that FiOS isn't available where I live. All this recommendation ended up doing was waste my time and make me jealous of all those people who have Fios.
3. Finally, I wish their categorization algorithm was better. For instance, in my checking account I have regular electronic payments to Xcel, a rather large publicly traded utility. There is no reason Mint shouldn't have a list of large utilities and automatically categorize regular checking activity as a Utility expense instead of requiring the user to categorize it manually. Both the frequency and the name of the company are dead giveaways. The same goes for Mountain Parks Electric, or Denver Water. The algorithm that categorizes spending should be smart enough to categorize these as utilities instead of not categorized.

So the bottom-line here is that Mint is a great alpha stage on-line personal finance tool. It has a long way to go before it replaces your budget or Microsoft Money or Quicken. I hope they eventually get there, because what they have is a great start. Now they just need to focus on expanding the functionality and improving some of the algorithms driving the savings and categorization suggestions.

Don't Be a Finance Pig: Be Sure Your Spouse is Financially Literate Too!

The quest for life insurance once again has the Armchair Fiduciary thinking about his own mortality. Perhaps the most important thing you can do for your spouse besides leaving him/her on stable financial footing is leaving him/her the knowledge to stay that way. If you are like the Armchair Fiduciary there is a clear division of labor in your house between finance and many various other tasks. While your significant other may not do the financial houskeeping very often s/he does have to know how. S/he should be aware of all financial accounts, insurance, bills, and debts you have and how to access and or pay them. Furthermore, s/he should have some basic understanding of the time value of money, the power of compound interest, and common sense rules like: "If it sounds too good to be true; it probably is." With these basic elements and your well laid financial plans, your spouse should be fine even if you face an untimely death. So take some time this weekend and bring your better half up to speed on some basic personal finance.

Tired of Paper Annual Reports and Proxies? Go Online.

If you are like me, you are tired of having your mailbox filled up during the beginning of the year with proxies and very thick annual reports. Save your mailbox and save the companies you invest in some money by signing up for your proxies online. To do this, first call your broker and see if they can do it for you. If they can't then go to the websites of the companies you own directly and sign up for online proxy voting. Here are links to the sign-up (or investor relations contact if I couldn't find an electronic delivery sign-up) page for the twenty most widely held U.S. stocks just to save you some time:

ALU
BAC
C
CMCSA
CSCO
CVX
DIS
GE
IAR
INTC
IBM
JPM
JNJ
MSFT
PFE
PG
T
TWX
VZ
XOM

Should I Pay Down My House Early If I Can?

Assume you just inherited a bundle of capital from your long lost uncle and you could pay off your house today; should you do it? I don't think there is really a right answer to this question, but what I will do here is walk you through how I think about it.

First, what is the current rate you are paying on your mortgage ? Take this rate and then multiply by 1-your tax rate. This should be your after tax cost of debt. So let's say you have a fixed mortgage at 6%. If you are in the 25% tax bracket then your after tax cost of debt should be 6% * (1-25%) or 4.5%. You need to have a safe investment that has a better after tax return than to justify not paying off your house.

Next, consider your investment options. I would look only at nearly risk free investments. For instance 10 year treasury bonds trade at 4.58%. Multiply this by (1-25%) to find your after tax return which would be 3.43%. Based on this analysis you are better off paying your house off than putting money into 10-year treasuries because you get an after-tax risk free return of 4.5% by doing it. Likewise, it looks like most CDs don't have enough of a yield today to suggest that you shouldn't pay off your house.

But what about putting the money in the stock market? After all doesn't it return 8% or so on average? In general the answer is yes, but the reason that you get an 8% return instead of 4.5% from treasury bonds is that there is more risk associated with this decision. In general if you were to just invest the money and pay off the house later you should be better off in the long run. However as a conservative Armchair Fiduciary, I feel like doing this would be taking too much risk. You can always pay off the house and then take what you would have been paying in monthly payments on the mortgage and invest it in the market. This may lead to somewhat less long-term wealth on average, but it is the much less risky option in my opinion. Better safe then sorry in my opinion. Got a better idea? Leave a comment.

Scalable Professions: Big rewards for the same amount of work

I recently read an interesting book called The Black Swan by Nassim Nicholas Taleb. Most of the book centers around the concept of fat tails. It is a bit of a dive into philosophy as well, which in my humble opinion made it tedious in parts. Overall though, it is a great read if you have some spare time. One part that was particularly interesting was a discussion about "scalable professions." Scalable professions are the ones that have big upside for the same amount of work no matter how many zeros start to follow the first $.

As I was browsing the Forbes 400 this weekend John Arnold struck me as the quintessential example of someone with a scalable career. At 33, he was the youngest member of the Forbes 400 this year. He has parlayed some good success in his Enron days and $8 million that came with it into a rather large fortune of $1.5 bil; greater than the GDP of Sierra Leone (population ~6 mil). John is an energy trader and his profession is highly scalable since it would require roughly the same amount of work to run a $100k portfolio as he would to run his $3 billion Centaurus Energy portfolio.

Non-scalable professions include dentists, doctors, and pretty much any profession where the rewards are directly tied to the time you put in. Taleb points out that it is the existence of scalable professions that has led to such a lopsided distribution of wealth in the world. It really does make one wonder. What happens when no one wants to be a doctor, or a lawyer, or a teacher because they could use their time and effort to get into more scalable careers? I don't have any profound answers as to what should be done about wealth distribution worldwide (though Jeffrey Sachs does) or how we keep people motivated to enter necessary but non-scalable professions, but if you do feel free to leave them in the comments. If you have some time read The Black Swan and spend a few minutes thinking about it.

Brain Candy for Economics/Finance Geeks: The Economist

One of my favorite publications is the Economist. I think it is better than the New Yorker, New York Times, Wall Street Journal, or Financial Times. While it isn't cheap at about $100 per year if you get a good subscription deal, I do think it is money well spent.

The top five reasons I like the Economist are:

1. Global coverage. Unlike most US-based publications the Economist reminds me every weekend that we live in a big world with many countries and points of view. George W. Bush would have been well served if someone forced him to read the Economist each week since he has been in office. Or, at the very least, he might not make so many mistakes when giving speeches.
2. A focus on the big picture instead of the day to day (a benefit of being a weekly publication).
3. A balanced mix of poltical and business coverage. I generally hate politics, but these guys usually put an interesting financial spin on what is going on.
4. The Science & Technology and Books & Arts sections which help keep me from being a total economics/finance dullard.
5. The Big Mac Index. Gotta know how much it costs to kill yourself in nearly 50 countries.

So if you are intrigued pop over to their subscription page and sign up for the free 6 week trial they are running right now. You won't be sorry. (Note: Armchair Fiduciary gets no personal financial benefit from you signing up for the 6 week trial; this link is merely provided as a service to my readers.)

Life Insurance: Do You Need It? What Kind? and How Much?

Life insurance is one of the more unpleasant things in life to think about. No one wants to imagine being hit by a bus. However, these risks are a reality and you should view life insurance as "income protection" insurance in the event of an untimely death.

When do I need it?
For most people the time to start thinking about life insurance should be about the same time they start thinking about having kids. After all, if you are single or newly married to a spouse with significant earnings potential of his or her own, no one is likely to miss your income too much if it suddenly goes away. However, when there are little mouths to feed, that's a different story. With lots of expenses including food, housing, healthcare, and education there are lots of things that little ones couldn't cover if you weren't around. The time to buy life insurance is when you are trying to concieve.

What kind?
Generally the only kind of life insurance that makes sense if you are trying to insure your income is term life. Term life provides a fixed payout in the event of your death for a fixed fee per month or year for a fixed period of time (i.e. 30 years). When the 30 years is up you have no insurance anymore. If you have been socking away money into your retirement account this should still leave you with a healthy nestegg if you have a problem after the term insurance expires or at least that is the goal. Most other kinds of life insurance (like whole, or return of premium term) are more akin to investment vehicles and while they may make sense for some people, they generally don't if you are young and just trying to protect your family. These other products can sometimes offer coverage until you die regardless of how long it takes.

How much?
I'm still trying to figure this one out. I have heard a general industry rule that says you should by 6-10x your annual income. The way I am thinking about it today is how much income does each person bring to the family today? Are we living comfortably off that income (or will we be when the munchkins arrive)? If so, then you should generally look to buy a policy that could provide that level of income from day one assuming conservative investment returns. So if you make $75k per year and you are getting a 30 year policy you want a policy that will assuming very conservative investment returns like 5% be able to produce $75k income per year (with some room for inflation at maybe 3%) for 30 years from investment gains and principal reduction. If you manage to live beyond day one of the policy that's a good thing and you will be more than covered, but if you don't at least your family will be taken care of. In the example above the amount required would be $1.65 mil in coverage, that's significantly more than the rule of thumb, but my assumptions are probably a bit hyper conservative. I have included the spreadsheets I used here in openoffice and excel formats. Just click on the format type to download. Once you know how much insurance you need, go get quotes on some policies at IntelliQuote.com.

Get Your Grocery Bag Rebate!

The Armchair Fiduciary spent the last week in Ireland on vacation. One thing that is abundantantly clear is that the Emerald Isles are green in more than one way. The landscape is, of course, incredibly green after what appears to have been a summer full of nothing but rain according to Irish radio stations. However, what is also clear is that this is a country full of recyclers. There are blue and red and green bins everywhere to recycle pretty much everything. Indeed, on a trip to the grocery store I discovered that they don't even offer grocery bags. You are supposed to bring your own. If you do want a bag you have to pay for it (I think it is a government levied tax). Now my hat isn't totally off to the Irish. I'm not entirely sure this policy is having the ideal effect because it seems like everyone makes 1,000 trips to the grocery store per week with only one bag in hand. What they are saving environmentally by using less plastic bags they are probably spending in gas for all those trips.


However, this got me thinking. Indeed bags probably do cost grocery stores a lot of money. In the U.S. how simple would it be for a grocery store to offer you a rebate to bring your own bags (the 10 a typical once per week U.S. shopper has)? The rebate could even be slightly less than the cost of the bags so it would be win-win for the store and the customer. Well the green geniuses at Whole Foods have already thought of this. If you bring your own bags to Whole Foods they will give you a 5 cent per bag rebate. Why doesn't every grocery store in the U.S. do this? This is a no-brainer. Write your local grocery store (if you can't afford only Whole Foods) and lets start saving some money and the environment people!

Why I Use a Credit Monitoring Tool

I am not exactly sure if credit monitoring services are worth the money, but with nearly 10 million cases of identity theft annually I think there is some evidence to support a certain degree of paranoia. I have chosen a middle of the road approach to credit monitoring. I pay for an annual service that pulls my TransUnion report weekly and looks for changes. It is MyFico.com's Identity Theft Security Deluxe. It costs about $50 per year.

There are more expensive services that pull from all three agencies weekly, but at $100+ per year I just think they cost too much. My rationale is simply this: should someone open a new account in my name, it will likely show up at all three agencies. I want to comfort of a weekly check-up, but I don't want to pay a fortune. Identity Theft Security Deluxe seems to provide a nice balance.

The super low-budget approach to credit monitoring is to go to annualcreditreport.com once per year and pull a FREE credit report from Equifax, Experian, and TransUnion the three credit agencies. Just look them over and make sure all the accounts on there are actually yours. I do this once a year to make sure that nothing unusual has shown up at Experian or Equifax and not at TransUnion. The problem with doing only this is that if identity theft occurs the month after you check, eleven months might go by before you know that there is a problem.

I view a credit monitoring service as a necessary evil. I don't really want to pay $50 per year, but I figure it is worth the insurance policy because it will ultimately save me a lot of time and money if I catch fraudulent account activity after one week or month instead of after one year.

Online Bill Pay: 5 Reasons You Should Use It

I am a huge fan of online bill pay. I get it free as part of my Wells Fargo PMA account. However, the vast majority of online bank accounts offer free online bill pay.

Here are my 5 favorite reasons for using online bill pay:

1. It is a huge time saver. It actually takes me less time to enter a new payee than to write a single check. For payees I already have entered I can pay a bill in about 5 seconds.
2. It keeps me organized. I can get many of my bills directly through billpay. That keeps me from having stacks of paper around the house. Furthermore, I can look up my prior payments without having to find a check book.
3. It is a green activity. How many trees are lost to paper bills each month?
4. It is more secure than you would think. I have been paying bills online for about 6 years now without a single security problem.
5. It is a modest money saver. I send probably 10 bills per month. With postage at 41 cents that's $4.10 a month I am saving in postage.

If you have been holding off on online bill pay do yourself a favor and sign up today! If I left out any of your favorite reasons for using online bill pay be sure to leave them in the comments.

Time for a New Kitchen! How Much of the Cost Should I Recoup?

After a couple of years of delaying, my wife and I are finally having our kitchen remodelled. We also plan to add an additional bathroom to our upstairs (which will bring our total to 2.5 baths a much more family-friendly number than 1.5). Part of how we decided on these remodels is that we think we will get most of the money we put into them back out when we sell the house. Just how much we'll get back is subject to a bit of debate. According to Remodeling Online we should get about 75%-85% of the cost of the projects back when we sell our house. Meanwhile HomeGain.com suggests that a minor kitchen/bath update can actually return 147% of your investment, though it looks like they just mean slapping on a coat of paint and doing some caulking which I would consider standard maintenance. HGTV suggests that minor bathroom and kitchen remodels recoup almost 100% of their cost. I'm not exactly sure which source is right, but I think we win regardless because we plan to live in our house for several more years and actually enjoy the upgrades.

American Express Cardholder? Hurry Up and Vote in the Members Project

American Express is doing a really cool charity contest called Members Project. The way it works is simple. Am Ex members suggest projects that they think can help the world and then they collectively vote on them. Each Am Ex member who signs up and votes represents $1 that Am Ex will give to the winning project up to $5 million. I voted for DonorsChoose.org, a great charity that allows donors to choose specific projects to fund for kids at schools submitted by their teachers. You too can vote for this great project by registering at http://www.membersproject.com/ and choosing the project that says "Teachers Ask. You Choose. Students Learn." Outside of the great cash back features of my Am Ex Blue card I am proud to be giving something back to the world for spending 30 seconds to register at the site and vote. Hopefully you all will do the same! Be sure to hurry though as voting on the final 5 projects ends on August 7th, 2007. Also please Digg this post to help spread the word!

Want to make your most special date of the year affordable? Don't forget lastminute.com

Until a few weeks ago I had never heard of lastminute.com. However, upon further inspection, this is one cool site with lots of good deals. The premise of the site is simple, when hotels and airlines still have available rooms or empty seats headed into a particular day and or weekend they do a lot better selling them for something than leaving those rooms or seats empty. Lastminute.com is dedicated to making that inventory available to you.

I think it could be the ultimate spur of the moment, show stopper, add some spice to any relationship kind of date. Here's the idea. The next time things are feeling stale set aside a particular weekend for a lastminute.com excursion. Just tell your significant other you have a plan for that weekend and to stay free. Then when Friday rolls around go browse the site and find the cheapest deal that tickles your fancy. For instance, this weekend airfare and a hotel in Boston is less than $200 per person. This bit of spontaneity is sure to appreciated by your significant other and will probably be one of the coolest dates you do all year at a significant discount to retail price.

I Found a Wallet Today and Wells Fargo Wouldn't Help Me Get It Back to the Owner: What Gives?

So today I woke up and went outside (bed head fully intact) to pick up my newspaper. However, when I stepped onto my front lawn I noticed a wallet lying open there. I looked around and didn't see anybody so I went ahead and picked it up. Knowing how frantic I would be if I lost my wallet, I began looking for some way to get in touch with the owner.

Inside the wallet was some cash, a driver's license, a social security card, a Wells Fargo check card, a Saks employee ID, some various store credit cards, and the business cards of the boys Jane Doe met out at the bar last night.

Attempt #1 to return said wallet: I pop onto the Internet and go to whitepages.com. Enter Jane Doe's name. Not listed. Failure.

Attempt #2 to return said wallet: I jump in my car and drive the 10 blocks to the address on the license. I get to the apartment and look at the mail boxes. Jone Doe's box (#1) is blank. All the others have names. I ring the button for apartment #1. No answer. Damn. Failure.

Attempt #3 to return said wallet: I call Wells Fargo and explain the situation. I also explain that I understand they are not likely to be able to give me any information about Jane Doe. I ask may I please leave my contact information with you and can you call and give it to Jane Doe? No we don't do that sir, that is not our policy. Grrrr. Failure.

Attempt #4 to return said wallet: I go online and look up Saks. Thankfully there is only one in my city. I call Saks and ask for Jane Doe. I get connected to the cosmetics department:

Is Jane Doe there?
No she's not in today may I help you?
Well I have her wallet. Can someone call her with my contact information?
Sure let me take that down...

Needless to say 10 minutes later Jane Doe called and got her wallet back. It turns out she lived in an apartment next door and she lost it while chasing her dog through my yard. But what if she didn't work at Saks? Would I have had to give it to the police so it could sit in the lost and found forever? Would she have had to cancel all of her credit cards and get a new license and social security card?

It's all possible because Wells Fargo, which is a bank I am satisfied customer of, has a dumb policy in this regard. Here's just a tiny suggestion. If you want to build loyalty and have customers for life, help them get their wallet back if they lose it. That is if someone calls in and says, "I found a wallet will you please pass my contact information on to your customer?" For heaven's sake do it. I promise if I lost my wallet and you helped me get it back I would be a customer for life. This doesn't just go for Wells Fargo, all you credit card companies out there should be listening.

Eating Out: If You Must Do It Look for Lunch Loyalty Cards

We all have heard about 1,000 times that one big way to save money is to eat out less. However, part of the social culture of my workplace is a short walk outside to grab a sandwich or salad for lunch each day. Nevermind the fact that lunch is the 20 minutes per day that I get away from my PC and actually get a chance to stretch my legs and see daylight. Needless to say this is one "latte factor" I'm not giving up anytime soon.

While paying $8 a day for lunch isn't a great way to save money, if you find yourself in my situation you can at least try to find ways to lessen the damage. One of those ways are lunch loyalty cards. I have found that several chains including Paradise Bakery, Panda Express, and Chick-fil-A offer them and all kinds of local restaurants also offer them where I live. The typical scheme is get 10 lunch punches and get one lunch free, which equates to a healthy 9% off your total lunch bill if you are persistent about it. So the next time you stop by your favorite lunch spot, ask if they have a lunch loyalty program and/or punch card. Any other ideas? Please share them in the comments.

8 Random Facts About Armchair Fiduciary

Super Saver at My Wealth Builder has tagged me in a new blog project. This project calls for sharing 8 personal facts about myself, then tagging 8 other bloggers to do the same. Here are the rules , which were passed to me:

• Each player must post these rules first.
• Each player starts with eight random facts/habits about themselves.
• People who are tagged need to write on their own blog about their eight things and post these rules.
• At the end of your blog, you need to choose eight people to get tagged and list their names.
• Don’t forget to leave them a comment telling them they’re tagged, and to read your blog.

So without further adieu, 8 random facts about Armchair Fiduciary:

1. In addition to all things finance I like to run marathons (I have run 4 including Boston) and downhill ski.
2. Despite writing a comprehensive guide to investing a 401k, I contribute exactly $0 to a 401k.
3. The only reason I contribute $0 to my 401k is because my current employer doesn't offer one (otherwise I would max it out).
4. I have 3 cats.
5. My cats were cheap early on; $100 for two of them at the shelter and one of them my wife and I rescued from the street.
6. One of my cats had a bad kidney and that got really expensive in a hurry. I need all my money saver tips to make up for that $4000 surgery.
7. I still love my $4000 cat.
8. I drive a used Subaru WRX. It has comprehensive insurance.

Now it's my turn to tag. I tag:

Boston Gal

Personal Finance Guru

Prince Muddy Paws

Cool Cat Teacher (cats are cool, teachers are cooler)

Tom Roper

The IvyGate Summer Editors (Yes, Ivy League kids are idiots too)

Greg Hill (when he starts skiing again)

Subaru Maniac

Home Buying Series Part V: Should you get a HELOC?

Now that you have found a house you can afford and decided on a mortgage, your mortgage broker may ask you if you would like a Home Equity Line of Credit (HELOC). If you are just buying this house for the first time (with 20% down as suggested earlier in this series), I would advise saying, "No thanks."

However, if you have been in your home for several years, have significant equity in the home, and find yourself in a couple of situations I would consider a HELOC. First, if you plan on investing in something that will pay for itself (new insulation for instance) over a long period of time a HELOC could make some sense as it would allow you to start reaping the benefits now. Note: there are very few investments you will make in your house that have this kind of return. Second, if you find yourself with significant credit card debt and the HELOC is offering a much lower interest rate it may make sense to use the HELOC to pay off those cards at a lower rate. Finally, if you need a new roof and you don't have any cash to fix it a HELOC might be your only good option.

HELOCs are basically just ARMs but they generally float right away. They are a fixed line of credit that you can draw on a little at a time, pay back, and then draw again up to your maximum like a credit card. You can choose to only pay interest on them for a certain period of time (typically 5 to 10 years) and then they begin charging principal too. The interest on HELOCs is generally tax deductible up to $100k. In my opinion HELOCs are generally to be avoided, though you can see a couple cases above where I might consider making an exception.

Home equity loans are another, possibly better option, but they are usually just a lump sum. You can't draw on them, then pay them off, then draw again. The good thing about home equity loans is that you can get them in a fixed interest rate (basically this type is just a second fixed mortgage). If you are using some of your home equity to invest in your home for a one time project (like the insulation mentioned above) a home equity loan with a fixed payment might be the way to go so you avoid monthly payments that bounce around.

The big risk with both of these options is that they provide you with the opportunity to overextend yourself and risk losing your home. If for some reason you can't pay your HELOC or home equity loan, you have a good chance of ending up in foreclosure since both products involve a lien on your house. I'd advise avoiding both products altogether unless you have a compelling need to use them.

Home Buying Series Part IV: Avoiding Junk Fees on Your Mortgage

When you go to get a loan your mortgage broker should give you a good faith estimate before you agree to go with them for the loan. This estimate tells you your rate and lists a number of other fees. What many people don't know is that many of these fees are highly negotiable. The fees usually don't represent anything specific but actually cover your mortgage broker's overhead. Especially if you are already agreeing to paying any "points" you should definitely not pay much more in the way of junk fees.

Here is a list of common expenses on the good faith estimate that are widely viewed as "junk fees":

• Processing Fee
• Underwriting Fee
• Document Prep Fee
• Settlement Fee
• Bank Inspection Fee
• Lenders Inspection Fee
• Application Fee

"Real" fees typically include title fees, government recording fees, an appraisal fee (you should get a copy of the 3rd party appraisal).

Now it should be made known that you probably cannot get all junk fees to go away, but when you are comparing lenders don't look at the amount of the different fees, just sum them up and view the total junk fees as a point of comparison. See if you can negotiate these total junk fees down, it doesn't matter which specific ones go away. You will likely get some song and dance about how they do have to process your application, etc. but don't budge. Junk fees are a direct cost to you and the lower they go the better off you are. Play two lenders off each other on the junk fees and get them way down especially if they are offering essentially the same interest rate.

Home Buying Series Part III: How Much House Can You Afford?

How much house can I afford? It seems too many home buyers forgot to ask that question before they got caught up in the buying bonanza of the last few years. That's why foreclosure rates are spiking. A lot of people fell in love with a house and then asked their lender how they could afford it. During a period of incredibly loose credit lenders were happy to oblige and put people in houses they couldn't afford using low or no doc loans, interest only loans, neg am loans, and little or nothing down.

How Not to Become a Statistic

There are generally three criteria for getting a conventional loan without mortgage insurance:
1) You have to make a 20% down payment on your house
2) Your monthly mortgage payment (including interest, principal, taxes, and insurance) can't be more than 28% of your gross income.
3) Your total expense obligations (i.e. your mortgage + all other debt payments) can't be more than 36% of your gross income.

It turns out if you stick to these rules you are much less likely to end up in foreclosure than someone who strays from them. For instance, if you look at the most recent Mortgage Banker's Association survey you can see that subprime and FHA borrowers (who typically have bad credit and make minimal down payments) have much higher delinquency rates (around 13%) than those with conventional mortgages (less than 3%). Now this is probably not an entirely fair example because subprime borrowers usually have bad credit to begin with so they are probably more likely as individuals to default on their mortgage anyway, but general idea is correct. Prime borrowers could afford their mortgages and subprime borrowers generally could not which is why 13% of them are delinquent.

Many people will tell you that you don't need a 20% down payment on your house. I disagree for three reasons. First, if you can save the 20% down payment, you probably have the financial discipline to make your mortgage payment. Second, that 20% provides you a cushion from an unusually soft housing market (which is what we are currently in). If you only put 5% down and then the value of your house declines by 10% you will actually owe the mortgage company money if you decided to sell right then. Real estate prices rarely fall by 20% so you should almost never run into this problem if you put 20% down. Finally, if you put down less than 20% you need to pay for mortgage insurance (typically adds 0.5% to your interest rate) which is a totally ridiculous thing to do in my opinion if you have every intention of paying your mortgage.

To get an idea of how much house you can afford, I recommend trying this mortgage calculator from CNN Money. It will tell you how much house you can afford based on your income, debt, and the interest rate you think you can get on a loan. It conforms to the 28% mortgage payment rule and the 36% total debt service rules. It also assumes you will put down 20% and avoid paying mortgage insurance as a result. For a quick view of what interest rate you might expect to pay visit Bankrate and look at the rate on the 30 year fixed mortgage.

Finally, to learn a lot more about mortgages visit The Mortgage Professor. His site is so in depth you might find yourself drowning a bit, but you will find the answer to almost any question there.

As always the Armchair Fiduciary is happy to field your quesitons. Email me at armchairfiduciary_at_gmail.com.

Home Buying Series Part II: An Introduction to Mortgages

Now that you used Zillow to help you find a good home at a good price it's time to think about how you will finance that home. That's where a mortgage comes in. At its most basic level, a mortgage is a loan from a financial instituion to you which has your house as collateral. In laymen's terms, the bank has a claim on your house and if you don't pay them their interest, they'll take the house as payment instead (i.e. foreclose).

Fixed Mortgages

Fixed mortgages are mortgages that are at a fixed rate interest rate over the life of the loan. For a 30-year fixed mortgage both interest and principal will be amortized (i.e. spread out) over 30 years so at the end of year 30 you will owe $0 to the bank and own your home outright. A 15-year fixed mortgage will result in a zero balance at the end of year 15. Typically the shorter the duration of the mortgage the lower the interest rate you'll have to pay, but the higher your monthly payment will be (because your principal is amortized over a shorter period of time). Fixed mortgages give you the security of stable payments over the life of your loan, but usually carry slightly higher rates to begin with than ARMs. If you plan on staying in your house for over 7 years, I'd advise sticking with a fixed rate mortgage.

Adjustable Rate Mortgages (ARMs)

ARMs are loans that start out at a fixed rate for a certain period of time and then begin to adjust every so often (usually once per year). Usually there is a particular interest rate to which the ARM is tied which in ARM lingo is called an index. As the index goes up, so the rate on your ARM goes up. Common ARM indexes include: COFI, MTA, CODI, Prime Rate, and LIBOR.

Most ARMs come with a period cap and a lifetime cap. The period cap is the maximum amount your rate can adjust up in any given period. For many annually adjusting ARMs this is around 2%. This means if you start out paying 5% then the most your ARM can adjust to is 7% after its first adjustment period and 9% after the second, etc. A lifetime cap represents the maximum amount your interest rate can go up over the course of the loan. For many ARMs this is 6%. So if you start out at 5% with a 6% lifetime cap, the most you can ever pay is 11% (which is a lot especially compared to the 5% teaser rate).

You may have seen 3/1 ARMs and 5/1 ARMs. These are loans that start out fixed at the low teaser rate for the same number of years as the first digit (i.e. 3 years or 5 years). The second digit represents how often the ARM adjusts after the fixed period, these loans adjust once per year as is typical.

So by now you have probably figured out that ARMs can be pretty complicated. If you plan on living in a house for only 5 years, then a 5/1 ARM can probably save you money because you will pay a low rate for the first 5 years and then sell the house (and pay off your loan in full) so you won't be paying when the chance for higher rates hits. Other than that, taking out an ARM is a gamble on interest rates which very few people can predict accurately. Generally, I would advise against ARMs unless you plan on paying off your loan in full before the ARM adjusts.

As a side note, if you need to use an ARM to afford a house, you are buying a house that is beyond your means! Do NOT do it as you are likely to end up in financial trouble by the time your ARM floats. You can always move to a bigger house later, but recovering from bankruptcy is much harder to do (i.e. takes 7 years at least). If you need an ARM to afford your house, do the right thing and find a smaller house that you can afford with a fixed rate mortgage. My next post will walk you through how much house you can afford.

Loans to Avoid: IO and Neg Am

There are also a couple of loans worth outright avoiding for the average individual. These include IO (Interest Only) loans and Neg Am (Negative Amortization) loans. These are loans that are for the most part designed to get people who can't afford a certain house into that house. They are very risky and will usually end in financial ruin for the homeowner. Indeed many financial instutions that were pushing these types of loans recently went bust when the homeowners who had these loans defaulted on them. Unless you REALLY know what you are doing these types of loans are to be avoided at all costs.

Home Buying Series Part I: How to get prices for any house even Mark Cuban's!

Knowledge is power in all things financial. The guy with more and better information usually wins when it comes to money. That is why when it comes to buying a house having a reliable source of independent pricing data is very important. That's where Zillow comes in. Zillow aggregates a bunch of sales data and uses algorithms to arrive at estimates of homes' values which they call Zestimates. Now the algorithms aren't 100% perfect and there may need to be some corrections, but the Zestimates should be in the ballpark for any average house. To get comps you used to have to call a realtor, Zillow lets you look at this data from the comfort of your own home.



For instance let's say Mark Cuban got sick of living and Dallas and was going to sell his home. You pull past 5424 Deloache Ave. and see a big sign out front that says, "For Sale by Owner." Knowing that you must have this house, you rush home and punch the address into Zillow. Here is what you get:

Now you know Mark's house is worth approximately $13.5 million. Thanks to Zillow you can avoid the mistake of insulting Mark by offering him only $10 million for his humble abode and having him slam the door in your face. Instead, you can step in with your $13.5 million "fair value" offer and see what Mark has to say. However, if history is any guide, Mark's not a seller unless he gets a big return (e.g. Broadcast.com) so you had better offer $20 million just to be safe.

As a side note, I have nothing against Mark Cuban and I hope he doesn't mind this post (I am sure there's a small chance he'll be on IceRocket reading it). I don't know him personally and I found his address via the Dallas Central Appraisal District. I enjoy his blog. While I don't agree with everything he does or says, I do think his views on the Internet and the future of video are pretty thought provoking. I don't care about the Mavs or the NBA so I don't really have a view on his antics in that arena. In the fiduciary category Mark has obviously been a great steward of his own capital. A lot of guys drank the kool-aid during the tech bubble. He, on the other hand, made his money and then got diversified. He held on to a lot more of his dot.com fortune than most people as a result. He gets an Armchair Fiduciary gold star for that.

Armchair Fiduciary's Home Buying Series

Per my wife's suggestion I am going to do a number of posts over the next few weeks related to buying a house especially aimed at first-time buyers.

Topics I will cover include:

• Finding good price data
• An introduction to the various types of mortgages
• How to clean junk fees out of your "good faith" mortgage estimate
• Determining how much house you can afford
• What are HELOCs and should you get one

Visit the Armchair Fiduciary frequently over the next few weeks for all this and more!

Mistakes to Avoid When Renting a Car

I was out of town this weekend and consequently had to rent a car. There are basically only 3 rules you need to know in when you rent a car.

1) Never take the rental company's insurance policy unless you don't have a car of your own with auto insurance. The rental company's insurance is generally a $25-$40 per day rip off because your insurance already covers rental cars. If you don't have your own car and insurance you should definitely buy theirs (better overpriced insurance than none at all).

2) Never take the "fuel option" which involves paying modestly expensive prices for a full tank of gas and then being allowed to bring the car in empty. There is very little chance you drive the car back into the rental place on fumes and, unless you do, you are giving the rental company free gas. You are generally much better off topping the car of on your way back to the rental place and returning it "full." Unless you are always pressed for time you will come out ahead filling up yourself.

3) Be sure to report any problems with the car before you leave or you may be held responsible for the damage. This is especially true if you are a "frequent renter" (e.g. Hertz #1 Club) and don't need to check in at the desk. I one time drove a terribly smokey smelling car for a whole weekend because I didn't bother to complain about it before I left; it just wasn't worth it.

Happy driving!

Is your car worth less than $5,000? Consider canning your comprehensive insurance.

Chances are if you are as frugal as the Armchair Fiduciary at some point you will end up driving a car worth less than $5,000. If you find yourself in this position, it might be time to cancel your comprehensive insurance and save yourself a few hundred dollars annually. In case you don't know comprehensive insurance is one of two types of car insurance. Comprehensive car insurance covers non-accident related damages such as hail, vandalism, and theft. Collision insurance is the other kind of insurance and it covers damage to property and people (i.e. medical bills) as a result of an accident. It is generally required by law in the United States.

Before delving too deeply into why one would cancel comprehensive insurance, let's understand the basic concept of insurance. Insurance companies sell policies to individuals to protect them from adverse events. The insurance company, a little like a casino, doesn't mind losing once in a while because they use statistics and the law of large numbers to predict what their losses will be and then they price their policies such that the house will win over the long term.
Individuals buy insurance because they are risk averse (and in the case of auto insurance because they are often required to by law). Risk aversion means that you don't like big negative surprises. For instance, if there is a 1/100th chance that you will lose $99 and there is a 99% chance that you will make $1 the expected value of the situation to you is $0. A risk neutral individual should not care about the outcome because their expected value is $0. A risk averse person might be willing to pay slightly more than $1.00 for insurance to protect against the $99 potential loss. This guarantees a return of slightly less than $0, but also avoids the off chance of a big loss. This may seem irrational at first but lets consider a slightly different situation where the loss is $99,000,000 and there is a a 1/100,000,000th chance of that outcome but the gain is still $1.00 the rest of the time. In this scenario giving up a few pennies might seem like a more rational decision than risking a huge fortune even if the chances of losing it are remote. When the pain of losing a lot of money is a lot more than the benefit of a higher expected value, that is risk aversion.

While insurance companies can spread their risks over thousands of customers, an individual customer only gets one shot and they therefore have a reason to be risk averse, nobody wants to be the one out of 100,000,000 and lose everything just because they are unlucky. Buying insurance helps you avoid “becoming a statistic,” but the insurance company will charge you something for the privilege.

So by now you may understand why getting rid of comprehensive on a cheaper old car may make sense. You can increase your expected return because the insurance company is going to charge you a little more for comprehensive insurance than is statistically fair so that they can make a profit. If losing your car would not bother you that much and you can afford taking a $5,000 risk then you should cancel your comprehensive insurance and just carry the collision/liability insurance required by law. This should yield you several hundred dollars of savings per year and improve your expected value while exposing you to the remote risk of a $5,000 loss if your car was totaled due to vandalism, hail, etc.

High Gas Prices Got You Down? Fight Back With Some Web Intelligence!

Memorial Day weekend is considered the start of "summer driving season" for most families. Whether its road trips across the country, travelling baseball league, or just a couple of extra picnic drives chances are we will be on the road a little more than usual this time of year. Unfortunately, the ever efficient market for gasoline knows this too and prices have crept up in anticipation of our summer time drives.

However, with the advent of the Internet, you can fight back against really high prices at the pump. Visit www.GasPriceWatch.com and see where the cheapest prices in your neighborhood are. Be sure not to drive further out of your way than you are likely to save, but don't be afraid to drive a mile or two to save $0.02-$0.10 per gallon. Over the course of the summer it will add up! Other sites that list gas prices include www.gasbuddy.com and MSN Autos, but I think Gas Price Watch is the easiest to use and combines great search functionality with a nice Google Map.

Getting a Loan? Be Sure to Maximize Your Credit Score First.

At some point in your life you will probably need to get a loan for a house or (hopefully not) a car. When it comes time to do this, the first thing you will want to do is maximize your credit score (e.g. FICO score) in order to minimize your interest rates and/or assure that you qualify for the loan. There are two categories of things you can do to maximize your score: 1) preventative maintenance and 2) close in priming.

Preventative maintenance on your credit score is a general way of life and should be done all the time. The key things you should be doing to make sure you have a high score are:

1. Always pay your bills on time, always. Missed payments kill your score and last a long time.
2. If you have a short credit history and decide you don't need an old credit card anymore (especially your oldest) shred the card but don't close the account. The longer your credit history is, the better your score is likely to be.
3. Don't take out significantly more credit than you need. That means not getting suckered into tons and tons of store credit cards just for a free promo. Four or five credit cards is probably fine (especially if you just kept a couple old accounts open to lengthen your history but don't use them), twenty is not a good idea.
4. Make sure your credit report is accurate. Go to http://www.annualcreditreport.com/ to get your free annual credit report and be sure everything is right. With all the fraud out there today, I definitely recommend doing this once per year.

Close in priming should consist of a couple of things:

1. Pay off your credit card bill the week before your statement closes for a couple of months before you need a big loan. Even if you pay off your card balance in full each month the prior month's balance shows up as money you owe on your credit line. Because credit card companies look at your total debt to your total credit line (called utilization) as a major factor in your score, paying off your card in advance so your balance is very low when you go to request credit will help your score.
2. Don't open a bunch of new cards or accounts before you go to get your big loan. Many recent credit inquiries make you look "credit hungry" and lower your FICO score.

Save a Bundle on Your Family Vacation: Rent Directly from Property Owners

With gas prices north of $3.00 and the dollar going straight down, whether you travel at home or abroad chances are your vacation is going to be a little more expensive this year than last. Wouldn't it be nice to save a little on accommodations? Well, instead of heading to that Holiday Inn or Marriott, stop by some of the sites listed below and rent a condo or vacation home directly from the owner. In many cases the prices listed are highly negotiable since the owner's usual alternative to having you rent is to have the place go empty, so don't be afraid to ask for an even better rate than what is posted.

http://www.homeaway.com/
85,000 vacation homes are listed here. They also recently bought VRBO.com and integrate listings from several sites.

http://www.vrbo.com/
The original Vacation Rental By Owner site with over 75,000 vacation homes listed.

http://www.cyberrentals.com/
Another VRBO-type site with 39,000 and a homeaway affiliate.

http://www.greatrentals.com/
A site very similar to VRBO, but with only 29,000 listings. Also a homeaway affiliate.

Wells Fargo PMA, the best financial combo package around?

Wells Fargo has a great combination account called a PMA account. As long as you carry $25,000 in balances in your checking, brokerage, and credit card accounts with Wells Fargo, you qualify for PMA status. You merely need to call them up and "switch" to a PMA, though none of your account numbers will change.

With the PMA account you get:

• No service fees on your checking account, including foreign ATM fees (you still have to pay the other companies' ATM fees unless you follow my advice in this previous post).
• No charge for online bill pay, which I have found to be a HUGE time saver.
• Premium interest rates on your checking account (but still not as good as the online money market accounts mentioned in this previous post).
• 100 free stock or mutual fund trades per year.
• Free enrollement in the rewards program for Wells Fargo credit cards (offers 1% cash back and is a good backup to the cards suggested in this previous post).

As far as I have seen, this is one of the best all-in-one brokerage/checking setups you can find anywhere. If you are "paying" for checking and have a brokerage account with $25,000 in it you should definitely consider switching to the Wells Fargo PMA account today. If you find a better all-in-one account please let me know in the comments.

Going Skiing in Colorado Next Season (Winter '08)? Buy Your Pass Now and Save!

A little known secret among Colorado ski resorts is that they offer the best prices for season ski passes in the spring right after the old ski season is over. Often for someone who is coming for even as short a time as spring break the following season these passes can be economical. For instance, right now you can buy a season pass to Winter Park at passwagon.com for $349. Lift ticket prices at the window are $79 during peak season so if you plan on skiing 5 days or more at Winter Park this year the season passes are your best deal. Passwagon also sells passes to Copper Mountain and Steamboat as well as combination season passes.

Vail, Beaver Creek, Breckenridge, Keystone, and Heavenly are also offering the best season pass prices of the year right now, but you have to buy them in Colorado because it is called a Colorado Pass. Otherwise you need to wait until fall to purchase a season pass to these resorts.

Aspen and Snowmass do not appear to have their season passes on sale yet.

If you are going to one of the resorts that offers these discounted season passes, don't delay because many of these "best prices" will be gone by June.

Best Cash Back Credit Cards

Credit cards are generally considered "bad debt" because the interest rates they charge are so high. However, if you pay them off each month (and therefore pay no interest) they can deliver some great perks free. My personal favorite perk is cash back because it is 100% flexible; you are not locked in to any one airline or store like most rewards cards.

Without further adieu here is a list of my favorite cash back credit cards as well as some details about them:

First Place: American Express Blue Cash

• No Annual Fee
• When you spend from $1-$6500 1.0% cash back on everyday purchases (gas, grocery, drugstore) and 0.5% cash back on everything else.
• When you spend $6500+ 5.0% cash back on everyday purchases (see above) and 1.5% cash back on everything else.
• Cash is credited to your account once per year.
• No limit to how much you can earn.

Second Place: Chase Freedom Cash Visa

• No Annual Fee.
• Earn 1% cash back on all purchases.Earn an additional 2% cash back on purchases at Gas Stations, Grocery Stores, and Quick Service Restaurants on the first $600 per billing cycle. After $600 you just earn 1% on the purchases from there.
• If you save $50 you can redeem for $50. If you save $200 you can redeem for $250.
• No limit on how much you can earn.

Third Place: Discover More Card

• No Annual Fee
• $0-$1500 0.25% cash back on all purchases
• $1500-$3000 0.5% cash back on all purchases
• $3000+ 1.0% cash back on all purchases
• You can sometimes increase your award significantly by redeeming for retailer gift certificates. For example, right now you can double your rewards at Carnival Cruise Lines, Hyatt Hotels, Sharper Image, and more. There are nearly 70 partners that will increase your reward if you redeem with them. See the full list here.
• In 4 different categories per year you get 5% cash back typically up to $500 or $1000 in purchases ($25-$50 rebate). Past categories include restaurants one quarter, airfare another, online shopping another.
• Redeem your award anytime you have $20 in rewards.
• No limit to how much you can earn.

To see how these compare I am going to assume you spend $1500 per month on your credit card. Of that $500 is for gas and/or groceries. I will also assume that once per year you spend $500 on the Discover 5% cash back items. The rebate curves are below:

As you can see if you spend much less than $1500 per month then the Chase Visa is your best bet. If you spend much more than $1500 then the American Express Blue Cash becomes the better card. At around $1500 per month you roughly break even (Am Ex is better outright, but Chase is $15 ahead when you include the $250 they will give you for $200 in rewards credit). Note that Discover is far behind, but if you use some of their double reward options they can catch up fast.

Happy shopping!

Reduce Shoe-leather Costs: Go See Your Cobbler!

Economists often talk about shoe-leather costs associated with carrying decreasing amounts of cash to stave off inflation. While they use this as a catch all category for the costs associated with increased trips to the bank, the Armchair Fiduciary suggests you start thinking about these costs literally regardless of inflation.

Did you know that most leather dress shoes can be resoled for about 1/2 the cost of a new pair or less? So can boots. What about Birkenstocks? They can be resoled for 1/4 of their cost. So the next time you are thinking about throwing out your shoes take a look at them. If the tops are fine but the soles are worn, jump on Google and type in "shoe repair" and the city you live in. Most likely, Google will list a cobbler that can refinish your shoes and save you a couple hundred dollars per year!

Taxes are Due Monday: What are the Best Filing Options This Late in the Game?

Taxes are due Monday and if you are lucky you have already filed them. If you are one of the millions of procrastinators waiting to do your taxes this weekend then the Armchair Fiduciary is here to help. At this point your best bet has become online software. What kind of software you will need likely depends on how complicated your return is.

For simple returns (e.g. a W-2, some bank interest, a mortgage, and a couple of mutual funds) I would look at Tax Act Deluxe which includes free phone support and state tax returns for only $15.95. It will be able to get the job done fairly quickly and painlessly at a great price.

For more complicated returns (e.g. you are self-employed, have a partnership or two, a mortgage, a brokerage account with some trades, and some charitable deductions) you probably want to step it up to TurboTax Premier ($75 + $35 for state taxes) or TurboTax Home & Business ($100 if you need to file schedule C + $35 for state taxes).

I personally face the mess of multiple W-2s, a small business my wife runs, multiple properties with mortgages including one rental, and multiple partnerships. While TurboTax could probably get the job done for me, I chose to go to a professional so he can help me minimize my tax bill and walk me through my first audit, which will undoubtedly happen sooner or later. The price is expensive (up to $1000), but I am pretty confident my accountant saved me at least that much this year. When it comes to taxes and getting good advice about how to be sure you don't pay a penny more than required by law, I feel like this is money well spent. If you do choose to go the in-person route, I would be sure to go to a good private CPA and NOT to H&R Block or Liberty Tax or any of those other chain shops, as chances are they will just be using software similar in functionality to the software mentioned above and charge you more. Chances are a good private accountant won't take you on this late in the game, so use one of the packages above for this year and starting looking for a good accountant next week.

Buying a New Car? Think Again. Used is a Better Value.

I have never owned a new car. I hope I never will. Why? Simply put new cars depreciate too quickly to be a good value. The Saab Weblog has a good example of a typical new car depreciation curve. You will notice that in year one that the depreciation curve is VERY steep. While I like the smell of a new car, the smell of burning dollars more than negates new leather in my opinion.

When I shop for a car I typically try to find one that is 3-4 years old and being sold by a private buyer. The reason to avoid dealers is pretty simple: they mark cars up a lot. A simple look at the difference between private party and dealer prices on the Kelley Blue Book should illustrate this point. While some people feel it is worth the extra money to get a super clean car and have a throat to choke if there is a problem a week or two into driving the vehicle, I think you can still do better with private parties if you take the proper precautions. Cars.com is a great place to start your search for a private party vehicle.

When dealing with a private party I suggest doing the following things: First, pull a Carfax report on the vehicle. Make sure the title is clean (i.e. not a salvage title) and that the car has not been in any major accidents. If there is a problem with either of these things I would move on to the next car; there are plenty of them out there! Second, I would be sure to ask the owners why they are selling the car. If the answer sounds fishy, I would walk away. Third, ask the owners for their mantenance records and how they cared for the car. If they can't produce records or tell you how often the oil was changed or the car was serviced, I'd look elsewhere. If all these things check out, chances are you will come out ok with the car (I have so far).

Should I finance a car? Generally, I'd say the answer is no. Auto loans fall into a category I'd call "bad debt" where the interest is not tax deductible (in most cases) and the item you purchased depreciates. "Good debt" includes mortgages for a home or loans for education -- look for more on these in other posts. Chances are if the only way you can afford a car is to finance it, you shouldn't be buying a car that is so expensive. Whenver you take a loan the finance company tries to extract a fair rate of return from the money they lend to you. That drives up the cost of owning your car. Generally, I would say the same rules apply for leasing. In most cases you will want to avoid it.

So the next time you are in the market for a "new" set of wheels be sure to remember the smell of burning money is stronger than the smell of a new car and buy used with cash.

Bereavement Fares: Better than Full Fare, but Using Miles Might be a Better Alternative

It will happen to you at some point (as it did to me recently); you'll get that call you have been dreading for a while to let you know that a loved one who was terminally ill passed away. While shopping around is the last thing you will want to do at a time like this, remember you have two options for that last minute airfare: the bereavement fare or using miles.

To get the bereavement fare you will need to call the airline and have the name of your loved one, the name and address of the funeral home, and the contact information for the funeral home. With all of this handy, the airline will likely give you 50% off full fare, but this can still be quite expensive as full fare tends to be a lot (in my case about $1000 per ticket).

If your bereavement fare seems steep, another option that might make a lot of sense is using frequent flier miles. While some airlines (like United) charge a small additional fee for "close-in" booking, miles still are probably going to be your most cost-effective option and one you might forget to think of during a time of grief. Don't forget about them!

How to Invest Your 401k: A Generic Guide.

So you finally got a job with a 401k. The only problem is: what on earth are all these choices and what am are you supposed to do with them? The Armchair Fiduciary will try to answer that question for you in this brief guide to investing your 401k.

There are some ground rules. First, this guide assumes you are 40 or younger (i.e. you have a long time horizon before you need the money). Second, as is mentioned in my profile, I am not a professional financial planner. What is offered here is merely advice on how I personally would invest my 401k. You should follow this advice at your own risk. So without further adieu let's get on to the guide.

1) How Much Should One Contribute?

This is probably the first decision you will make. The simple answer is you should contribute as much as you can afford up to the maximum allowable contribution ($15,500 in 2007, $16,000 in 2008). I would put 401k investment when you are young only behind food and shelter for your family in terms of priorities.

Why? First, Social Security should be in dire straights by the time people who are young today retire. If it still exists as it does today the taxes will have to go way up (which won't be popular). If the benefits are changed it will be hard to predict what those changes might be and how they will affect your payout. The bottom-line is that the conservative approach is to assume Social Security will not be there (even though it probably will be in some shape or form). Second, savings in a 401k are tax deferred meaning that you pay income tax on the money as you withdraw it instead of when it goes in. You get to capture compound interest tax free until you withdraw money at the end. The time value of money makes this a valuable feature. There has been some debate in the popular press about whether 401ks are a good deal because current tax rates on capital gains in normal taxable accounts are 15% for long-term gains while income taxes run in the 20%+ range for most of us. I simply don't believe that long-term capital gains can stay as low as they are forever so I think over time these thing should roughly equal out (i.e. capital gains should return to the 20%+ zone by the time we retire). Even excluding that, if you ever sell any assets in your taxable account to switch into a different investment Uncle Sam takes 15% of whatever gains you have. In a 401k you can change your mind on investments without tax penalties because you only pay out taxes when you withdraw from the account. Third, many employers match a percentage of your 401k contribution. Passing on this is a little akin to volunteering to take a pay cut. Finally, I like 401ks because there are tax penalties for early withdrawals (before age 59.5). This may seem counter intuitive, but with a taxable account the money is too easy for most of us to get at. The 401k plan, because it comes with strings attached, enforces discipline and generally makes us think twice about stealing from our retirement cookie jar.

2) How Should I Split My Money Between Stocks (a.k.a. equities) and Bonds?

Generally while you are young I would encourage investing most of your 401k in equities. In fact, I personally would put the whole thing in equities. The reason is simple. Over the long-term because equities are riskier they produce higher returns. The whole point of the retirement account is to fend off inflation and then some and equities have a strong history of doing that. While US Treasury bonds are widely viewed as a "risk-free" bet, you "pay" for taking less risk by getting lower returns. Because you aren't going to touch your 401k for 20+ years you can afford to weather a few down years in the stock market. Plus, if the market tanks you are going to continue contributing to your 401k so you will buy stocks while they are "cheap". Now portfolio theorists will say I am guiding you off the capital markets line which maximizes risk adjusted return (i.e. get the maximum return for a given level of volatility). My answer to them is that on average you will want a higher level of equities if you have a long time horizon and that an average investor is unlikely to successfully calculate the optimal mix of asset allocation.

3) So How Should I Invest my Equity Portfolio?

a) To Index or Not to Index?

While I am a firm believer that there are some money managers out there that can beat the market with stock selection, I am not a firm believer that the average 401k will offer you access to many (if any) of those managers. If the plan offers index funds you should most likely go with those. If not, then you should try to find funds with low expense ratios, good long term returns, and total assets of less than $5 billion. This information can usually be found easily on Yahoo Finance. Just go to "symbol lookup," punch in the name of your fund, and then look at the "profile" and "performance" pages. You want a fund that on the profile page has net assets less than $5 billion (fund managers have a hard time outperforming if they manage too many assets in my opinion) and an expense ratio at or below the category average. On the "performance" page you want a fund that has a longer term history of beating their benchmark and peer group. If the "diff" category is a positive number that means the fund beat its peers in the category or benchmark.

b) International vs. Domestic Equities?

I think the most important decision you are going to make is the mix between US and foreign equities. I personally would divide my account into about 50% US equities and 30% developed foreign equities and 20% emerging market equities. Developed nations include most of the EU and Japan a complete list can be found here. The other 20% should go into emerging markets like China, India, Latin America, Eastern Europe, etc. A list can be found here. The reason I think you want a lot of foreign assets is simple. I am pretty confident that the balance of economic power in the world is shifting. 20-30 years from now I think China, India, Russia and others will likely have a bigger role in the global financial system than they do today. That's why I want to encourage people to invest abroad as well as in the US. I think some of the best investment opportunities in the next few decades will be abroad. Furthermore, US equities only account for about 1/2 of the world market capitalization. Owning more than 50% US equities is a bet that US equities will outperform the rest of the world and that is a bet that I don't want to actively make. Why not underweight the US? First, I think the US will hold its own during this time of economic change. Second, if you are US citizen you are going to consume your retirement in US dollars. It makes sense to have a large portion of dollar denominated assets since those are what you will need when you retire. If you had all international securities you would also be making a bet that other countries currencies appreciate against the dollar. I'm no currency expert so a 50/50 mix of dollars and foreign denominated assets makes some sense to me so you have some protection no matter what currencies do.

c) Small, Mid, or Large Cap Stocks?

I would try to get a roughly equal mix of all three of these. That means if you are looking at indexes you want something that is either a total market index (e.g. Russell 3000) or you want to own 1/3 in indexes that mimic the Russell 2000 (small cap), 1/3 in the Russell midcap (mid cap), and 1/3 in the S&P 500 (large cap). When you are making international investments you are unlikely to be able to choose an index based on market cap size. I put the mix of domestic versus international above the market cap mix in this guide because I think it is more important. If you don't have cap choices internationally in your plan I wouldn't be surprised. If this is the case don't worry about it. Just invest internationally anyway.

d) Growth vs. Value?

Growth investors try to find stocks that have great growth prospects, but tend to be a little more expensive on various financial metrics. Value investors try to find stocks that are undervalued even if the company doesn't have great growth prospects. Both strategies can work well at different times. Some academic studies have shown that value strategies tend to work better over long periods of time than growth strategies. I'd generally do a mix of about 33% growth and 66% value. I think this is one of the least important decisions you will make when allocating your 401k. You should only care about value versus growth if you don't have an index fund option to invest in.

4) Should I ever borrow from my 401k?
No! That's not what it is there for. There are exceptions- if you have a medical emergency or something and the choice is borrow from your 401k or use credit cards then you should tap into the 401k, but for the most part your 401k is OFF LIMITS!

5) I left my job, what should I do with my 401k?
In most cases you should roll it over into a traditional IRA because they offer you a lot more choices than 401k plans and are still tax deferred. Be sure to do a trustee to trustee transfer to avoid tax problems when you do the roll over.

6) Help, I am still confused!
If you are still confused or find that this information is too generic for your needs or you are over 40, don't hesitate to email me and ask more specific questions. I'm happy to look at your specific plan options and tell you what I would do. If you email a really good question be forewarned that I might turn it into a post though I will keep you 100% anonymous. Note: if this post hits the front page Digg or something it might take me a long time to respond. I do promise to try to respond to each email even if it takes a while.