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.