Assorted Links and the Tuesday 10
The Accidental Slumlord
A writer whose lives in Massachusetts buys a two-unit rental property in Pocatello, Idaho for $62,750 during the housing boom. Read what happens when he actually visits his house and deals with his tenants.
OptionsHouse Brokerage - $2.95 Stock Trades
Another new discount online brokerage with cheap trades, but actually won #1 in Trade Experience in recent Barron’s Broker Survey, beating out E-Trade. Offers flat-rate pricing at $2.95 for stock trades regardless of number of shares, and $9.95 flat for options (no per-contract fee). $1,000 to open, $100 balance needed to trade. Anyone try them?
New research sheds light on the habits of successful savers
Includes a lot of expected characteristics, but worth a skim to see how you compare.
AMC Theatres A.M. Cinema
“A.M.Cinema, a new program providing early-morning guests the opportunity to see first-run movies at the best ticket price of the day. The program invites moviegoers to visit their local AMC theatre before noon Fridays, Saturdays, Sundays and holidays to enjoy ticket prices of $4, $5 or $6 depending on the theatre and market.”
F*** my job, Selling Everything!
Found in the Best of Craigslist section. Have you ever had the urge to simply sell everything you own, cash out your investments, quit your job, and just travel the world until the money runs out? This guy did.
Credit Bailout: Issuers Slashing Card Balances
People are haggling directly with credit card companies to lower their amount owed. However, the articles neglects to go into detail about the impact on credit scores. I suspect that there will still be significant damage to your credit if you “settle” in this way.
Tuesday 10: Good stuff from other personal finance blogs
- How much do people spend on clothes by Jim at FreeBy50
- Emotional Barriers to Negotiating and Haggling by Flexo at Consumerism Commentary
- My IRA asset allocation at GreenPandaTreehouse
- Things You Own End Up Owning You by David at MyTwoDollars
- On Spending Consciously by Patrick at Cash Money Life
- Pay attention to your money by Single Ma at Fabulous Financials
- Retired at 31: An Early Retirement Story by FrugalTrader at Million Dollar Journey
- Tax Deductible Mortgages in Canada by Mr. Cheap at FourPillars
- Mid Year Financial Checkup by Madison at MyDollarPlan
- Fun Fund Sell-o-Meter by J at BudgetsAreSexy
A Life Without Debt: Simple Credit Reports
It takes my neighbor hours to pay all her bills while being debt free keeps me from that onerous chore, saving me valuable time. The same neighbor taught me about another time saving aspect of being debt free. This neighbor requested her free credit report from AnnualCreditReport. I had mentioned it to her some time [...]TransUnion codes
myFICO Promotional Codes
I am not a big fan of purchasing credit scores. I can understand why a lender would pay to get a calculation of your likelihood of defaulting on your loan, but if it’s based on our data, why do we have to pay just to see it? Even if I am declined for a loan, I can only see my report, not the numerical score that supposedly defines my financial life.
There are plenty of “fake” credit scores out there, but there is no way to get your real FICO scores anywhere but myFico.com. If you must order your score, use the promotional code CPPSAVINGS to get 20% off all credit report and monitoring services orders. It’s the best coupon I found that worked:
Whenever you do buy a score, I would recommend trying to correlate your score and the current information on your report. Then you can start to learn beyond the generic rules they spit out, and see how changes really affect your score. I’ve applied for 12 credit cards and canceled 5 with almost no affect to my scores - despite all the “rules” - only to have a huge balance on my mom’s credit card (with me as authorized user) show up and drop it by 30 points.
An possibly cheaper alternative is to sign up for a free 30-day trial of Scorewatch, which includes two free Equifax scores and reports. Just remember to cancel as soon as you decide you don’t need it anymore.
* Experian no longer allows Fair Isaac to sell FICO scores to consumers at all (even though lenders still buy and use them). But they’ll happily charge you money for their own attempt at a credit score.
A Bad Argument Of Why Buy-And-Hold Is Bad Advice
A regular reader Don sent me a post entitled Long Term Buy And Hold Is Still Bad Advice. Okay, fine, everyone and their mom has been telling me this recently. But I read it, and it was such a bad analysis that I had to rebut it here. I think Mish writes a lot of useful and thought-provoking stuff on his popular blog, but he really missed a big error here.
First, a recap of the post. Basically, a guy called “TC” has the idea of comparing S&P 500 returns vs. that of 6-month CDs. I’ll ignore the fact that this has been done many times already. But wait! He comes up with a startling conclusion. For long periods of time, the S&P 500 has actually lagged or been about equal to the returns of safe and steady 6-month CDs. (!!!) His graph:
Keeping my parents in mind, you’re probably wondering how someone did by simply investing in 6 month CDs. The answer is for any holding period of less than 25 years, a stock market investor who made regular and equal contributions has actually underperformed a CD investor! Yes, you read that right for time periods of 1 – 20 years a CD investor outperformed the stock market by 1.6 to 20.1 annual percentage points.
Additionally, if one extends the time window to 50 years (clearly “long term”) CDs again have outperformed the stock market by 0.3 annual percentage points. Even when one extends out the time period to the full 59+ years (the start of the S&P 500 index); the stock market has outperformed short-term CDs by a mere 0.2 annual percentage points – not much of an equity premium.
Wow, this is a shocker. I need to call my broker! Oh wait, there’s a little fine print.
TC is ignoring dividends
Let’s bold that. The analysis and data above completely ignores the dividend return of the S&P 500. This is like buying an investment property and ignoring the rent payments coming in. What? There are checks coming in every month from the tenants? Nah, let’s not cash those.
Let’s take a look at the historical dividend yield of the S&P 500, courtesy of Bespoke Investments:
For the periods compared above, the a true owner of the S&P 500 has earned 2-6% annually from dividends alone, with a long-term average of 3-4%. Now, if you add another 3-4% to the analysis above, you see again the long-term equity premium. Instead of 8% vs. 8%, it’d be more like 12% vs. 8%. That’s an enormous difference.
(I also wonder where TC got his/her data for historical 6-month CD rates. Are these averages, since every bank offers vastly different rates, and doesn’t report them to a central bureau? Usually studies like this use 6-month US Treasury Bill rates instead, as the data is reliable and widely-accepted.)
Massive Conflict of Interest?
Another argument given as to why buy-and-hold is bad is because there is a conflict of interest between investment advisors and their clients, as they have a “vested interest in keeping clients 100% invested 100% of the time, even if they know it is wrong.”
Actually, brokers get paid the more you trade than anything else. They earn money based on total assets, but a huge chunk is from commissions. This means convincing you to buy stocks when they’re hot (tech stocks)…. and then sell them (cash!)… and then buy others (mortgage-backed securites)…. and then sell them (cash!)… and then buy new ones (??).
True buy-and-hold means very little trading. At Vanguard, I buy-and-hold(-and rebalance) for a total cost of about 0.20% of assets annually. That’s $20 a year per $10,000 invested. Guess what the average expense ratio of a money market fund is? According to Lipper Inc., it was 0.60% at the end of 2007. Even the Vanguard Prime Money Market fund (VMMXX) has an expense ratio of 0.28%. The S&P 500 fund (VFINX) charges 0.18%. Vanguard actually gets less money from me if I hold cash instead of stocks.
More Arguments Against Buy-And-Hold
There are many more things I hate about articles chronicling the death of buy-and-hold, all of which I won’t go into here. But I want to say this. Bonds have outperformed Stocks in various time periods, including recently. This has happened before, even if people ignored it. This is why investors need to have a balance of both stocks and bonds/cash, not just 100% one or the other. If you needed the money soon, then you should have been at the most 60/40 in stocks/bonds, if not even more conservative. In that case, your portfolio would have dropped about 15% over the last couple of years up until today, and you’d be worried but not broke.
If you use the correct numbers (ahem), stocks still have higher historical returns over extended periods, with many rocky patches. We balance this knowledge with the also-historically steadier but lower returns of bonds and cash. That’s really about it. As for the future, nobody knows, as much as they’d like to suggest they do. Some will be right in hindsight, and many will be wrong.
What Advertisers Fear Most
Last week I wrote about trying to find contentment by getting back to a simpler life, one freer from forms of mass entertainment and consumerism. There’s an additional benefit to this than just living a simpler, less hectic life. You are likely to find freedom from the pervasive advertising in our culture. The less advertising [...]VanguardAdvantage: All-In-One Checking Account At Vanguard?
I saw that Vanguard has a new account called the VanguardAdvantage account. On the surface, it looks great. In addition to having full brokerage features (buy individual stocks, ETFs, options, and even brokered CDs), you also get full checkwriting abilities, ATM access, and online billpay. Since I have most of my retirement assets there, this would be good tool for added convenience and simplicity.
But then I found the catch. You need to have $500,000 invested at Vanguard to even be eligible for the account. Even at $500,000-$999,999 in assets, you have to pay a $30 annual fee for the privilege of getting what is basically a checking account, and you must pay $4.95 per month for Online Billpay service. No ATM refunds either (free at PNC banks only).
Vanguard seems to have an overall policy of grudgingly offering services that their customers ask for, but only if the less-wealthy are willing to pay a premium. I feel like they don’t want to stray from their basic roots of low-cost mutual funds, or maybe they just don’t want the hassle, but their competitors are leaving them behind.
Checking account features. For example, I can get the brokerage + checkwriting combo for free at Fidelity or Schwab, with no minimum balance requirements and ATM rebates. I don’t know about Chuck, but Fidelity has as-good if not better customer service reps than Vanguard.
Commission costs. The Vanguard Brokerage Services (VBS) account still charges $25 for an online trade + a $30 annual fee if you have less than $100,000 invested. Contrast that with 100+ free trades annually at only $25,000 in assets at both Zecco and Wellstrade.
I guess I’ll have to wait until I have a million dollars to get free checking at Vanguard. Doesn’t that just sound odd?
Swap Meets
When was the last time you were invited to a swap meet? How many of us actually remember them? For those of you who are new to the ways of the frugalista, a swap meet (according to Yahoo’s Dictionary!)[ http://education.yahoo.com/reference/dictionary/entry/swap%20meet] is “An informal gathering for the barter or sale of used articles [...]8 Ways A Recession Can Benefit You In The Long Run
In the midst of a recession, it’s easy to feel like things will never get better. The news is filled with reports of layoffs and stock market declines, the atmosphere at work is somber, and talk about the economy even makes its way into the TV shows you watch to get away from it all. [...]Discover Miles Card: Rewards / Travel Credit Redemption Info
Well, looks like I’ve squeezed all the free money out of another credit card offer. This time it is the Miles Card by Discover. It used to have a good 12-month no-fee 0% balance transfer offer, but has recently added a balance transfer fee. However, it does offer 0% on purchases for 6 months.
In addition, this card still offers a sign-up bonus of 12,000 Miles. You get 1,000 Miles each month you make a purchase for 12 months. A mindless way to get the points is to sign the card up for automatic billing of your cell phone bill (or similar bill).
Discover Miles Redemption Options
However, the Miles you earn with this card are not affiliated with any airline. So what’s one of these special Miles worth? The wording is very vague, and not until you already have the card do you get the details. So here they are…
The most efficient way to redeem is for travel credit. You can redeem 10,000 Miles for a $100 cash credit towards any travel purchase (airfare, hotel, car rental, cruise) from any vendor or website. Now that I’ve actually done the redemption with my Hotwire purchase, I am happy to report that it was hassle-free.
You simply charge the purchase to your card, and request the credit online. The system automatically checks that you have a travel purchase, and approves the request. In a few business days the $100 shows up in your account:
Other redemption options
The alternatives are not that great. If you travel at all, I would wait and go with the travel credit.
- Gift cards. 7,000 Miles gets you $50 gift card at stores such as Macy’s, Gap, or Shell gas stations. You can also redeem 4,000 miles for a $25 gift card.
- Cash. 5,000 Miles gets you $25 deposited into your bank account.
Double Miles & Other Promos
For most purchases, you get 1 Mile per dollar spent. The default feature of the card is that you get 2 Miles per dollar on the first $3,000 in travel and restaurant purchases each year. There is also a rotating category each month. For example, you get double miles on up to $500 in purchases at gas stations throughout June and July.
Even with the double miles here and there, this is not a top rewards card. However, you can still extract $100+ out of it with no annual fee, plus you get 0% interest for 6 months.
Here are additional credit cards with sign-up bonuses of $100 or more.
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