Mental Accounting: Is A Dollar Always A Dollar?

In economics, there is a concept called fungibility. A good is fungible if one example of the good is indistinguishable from another example of the same good. A common example is money. A dollar is a dollar, no matter where it came from, where it is located, or what you plan on buying with it. And so it should be treated as such… supposedly. The problem is humans do something called mental accounting, which violates this principle and leads to often-confusing decisions.

A popular example happens while gambling. Let’s say you go to Vegas. You hate the slots, but mindlessly drop a quarter into a slot machine while waiting for a friend and win $300 on your first pull. Are you more less likely to keep gambling? Most people are likely to keep on playing as long as they are playing with “house money”. Once they lose that $300, they’ll stop. But really, that quick $300 is no different than if you had to work 10 hours of overtime to get it. Why do people spend money more easily if it came without much effort? “Easy come, easy go”?

An academic paper by Dr. Thaler titled “Mental Accounting Matters” [pdf] explores this concept further and tries to categorize the types of mental accounting that we do. It was a very intriguing read; here are just a few examples:

Relative Value
Consider these two hypothetical scenarios:

1. You are at Best Buy buying a new TV. It costs $860 there, but another store 15 minutes away has the same model for $850. Do you bother driving to the other store to get the savings?
2. You are at Office Max buying a calculator. It cost $20 there, but another store 15 minutes away has it for half-off ($10). Do you drive to the other store now?

If presented separately, significantly more people will go out of their way for the calculator than the TV. But both involve saving $10 with the same action. The only difference is that $10 is only ~1% of $860, but is 50% of $20.

The same thing happens at the movie theater. A medium drink costs $4, a large costs $4.50, and a Super Jumbo drink costs $4.75. You might as well go for the $4.75 drink, right?

Advance Purchases
Here’s a quiz from another study:
Read the rest of this entry…

Posted in Frugal Living, Investing | 43 Comments »

Can I Really Withdraw My Roth IRA Contributions At Any Time Without Tax Or Penalty?

This is a follow-up to my recent post Roth IRA Contribution vs. Emergency Fund Savings, where I suggested that people should just fund their Roth IRAs first over an Emergency Fund. Basically, this is because anyone can withdraw their Roth IRA contributions at any time, without penalty. (Not earnings, just contributions.) Put in $4,000, and you can take out $4,000 later - be it one day later, one week later, or one decade later. But some concerns were raised about the validity of that assumption, so I wanted to iron that out here using the IRA Bible, aka IRS Publication 590.

First, we head to the Roth IRA section, specifically the subsection called Are Distributions Taxable?. Here, the first sentence states:

You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s)

Sounds pretty clear, but let’s keep delving in to clarify this point. The next section talks about qualified distributions, like those made after you turn 59½, which are definitely not taxable. We are given this decision flowchart (Figure 2-1), and… whoops, we don’t even pass the first box. Taking out your contribution within the first 5 years is not a qualified withdrawal.

Busted? Not quite. Not all unqualified withdrawals are taxable. Going to How Do You Figure the Taxable Part?, we are directed to Worksheet 2-3, titled “Figuring the Taxable Part of a Distribution (Other Than a Qualified Distribution) From a Roth IRA”. This worksheet is totally confusing, but if you run through it, you will see that in the end you subtract out line 12 - “the total of all your contributions to all of your Roth IRAs”. So, although it is an unqualified distribution, taking out your contributions is not taxable.

What about the 10% penalty? Couldn’t that be separate? In the section on the penalties Additional Tax on Early Distributions, we see this:

Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions.

Since this unqualified distribution is not taxable, there is no penalty to worry about. We are totally in the clear. Whew!

How Do I Make A Withdrawal?
If you are under 59½, you usually need to make a specific request to your broker. In addition, you’ll need to fill out IRS Form 8606 when tax time rolls around. Here is the info from my Vanguard account:

You can request a withdrawal from your IRA online, over the phone, or by mail. You can have a check sent to you, have the proceeds deposited directly to your bank account, or transferred to a nonretirement Vanguard account.

Posted in Investing, Retirement | 47 Comments »

What Percentage of My Income Should I Contribute To A 401k Plan?

Actually, a better question is what percentage of your income should you contribute to all types of retirement plans? But the 401(k) plan is one of those cases when you have to choose something to start out with, and many people just never get around to changing it again. Too much, and your cashflow will get tight and uncomfortable. Too little, and you’re not taking full advantage of the tax benefits.

Start With The Match
As everybody says, matching contributions from your employer will probably offer the best return-on-investment you’ll ever get. Most companies have a cap after which the match stops, and my guess is that most people contribute up to that cap and then forget about it. Certainly, this number provides a floor, but most of us will have to chip in some more to accumulate a happy nest egg. (I’ve never heard of a match above 6% of pay, although I’m sure some exist.)

Take Into Account Other Accounts Like Roth IRA
The reason people like Roth IRAs is that if you think your tax situation now will be about the same as in retirement, the Roth IRA has a lot of extra advantages like the ability to make early withdrawals for a variety of reasons, as well the ability to never make any withdrawals and leave it to your heirs still compounding away. However, if you have a Roth 401(k) the difference gets a lot slimmer, you may just go with which one offers you better investment choices. Either way, it’s good to consider the whole picture.

Taken all together, I would say 10% would be good place to start unless you have a pension or other sources of retirement income lined up. But that’s just me… what do you think?

Each 1% More Can Make A Big Difference
On top of that 10%, it’s interesting to see how much difference nudging it up another 1% can do. I used this Increase 401k Contribution Calculator from Wachovia and ran some numbers. Assuming you make $50,000 gross annually, you’re 35, you retire at 65, 8% annual return, and a 25% income tax bracket, here’s what happens if you increase your contribution percentage by 1% (unmatched):

Not too bad for giving up just $31 per month; if you’re younger the payoff is even better. (Almost good enough to bump up your contributions by 1% today?) Still, start taking enough $31s out and it’ll start to hurt.

Give Until It Hurts?
To find the nice balance, there are a couple of ways to do it:

1. Analyze your finances, estimate a percentage, and just adjust from there. (More work.)
2. Start at match %, and keep increasing the % until it starts to hurt.
3. Start at a high amount (20%? 25%?), and keep decreasing it until your take-home pay is a manageable amount.

Each person probably has a different preference. But again, we go back to the real-life aspect - Will you remember to change your percentages later? Life gets busy, and each month you just keep forgetting and forgetting… In that case perhaps the third option is best, assuming you have some cushion to pay with.

Posted in Investing, Retirement | 50 Comments »

DonorsChoose pfblogs.org Financial Literacy Challenge

DonorsChoose.org is another way the internet is making giving back more transparent and easy to do. (Learn about Kiva and ModestNeeds as well.) On the site, teachers submit project proposals for materials or experiences that they feel will benefit their students, and donors can choose which specific project to fund.

Proposals range from “Magical Math Centers” ($200) to “Big Book Bonanza” ($320), to “Cooking Across the Curriculum” ($1,100). Any individual can search such proposals by areas of interest, learn about classroom needs, and choose to fund the project(s) they find most compelling. In completing a project, donors receive a feedback package of student photos and thank-you notes, and a teacher impact letter.

In proper ‘finance geek’ fashion, blogger OneBigMortarBoard has formed a special Topical Challenge that focuses on projects that promote financial literacy amongst kids. Sounds like a good idea to me! I also like the idea of funding local schools, or even schools that you went to.

If you are looking for another direction for your charitable money, definitely check it out.

Posted in Giving Back | 7 Comments »

Roth IRA Contribution vs. Emergency Fund Savings

Earlier this week I explored how the performance of money invested in a 401(k) should compare to a regular brokerage account. This brought to mind a different debate:

If you had to choose between contributing $4,000 to a Roth IRA or keeping/putting it towards your Emergency Fund, which would should you choose? We’re assuming you don’t have the funds to do both. Many people put Emergency Fund near the top of their priority lists, just below taking advantage of any “free money” 401(k) match, but above all other retirement accounts. This is because you don’t want to have to dip into retirement accounts and face stiff penalties, or otherwise be faced with other forms of high interest debt like credit cards or personal loans if you need money urgently.

However, the annual $4,000 Roth IRA contribution limit is a “use it or lose it” proposition. You can’t put nothing in this year, and then $8,000 the next. Once April 15th rolls around, you’ve missed out on potential tax advantages that may extend several decades (even to your heirs). This may be mitigated somewhat if you also have a Roth 401(k) or other similar account available.

I used to be in the Emergency Fund First camp, but now I think I’ve changed my mind, mainly thanks to commenter Jbo. Here’s my reasoning. Let’s say you go ahead an contribute $4,000 to a Roth IRA but leave it invested in something safe like a money market fund. Many banks also allow you to open IRA accounts holding certificates of deposit. Now, there are basically two possible resulting scenarios after you do this:

You end up needing the money
No problem, you can always withdraw your Roth IRA contributions without any penalty. Just take out what you need (up to $4,000), and leave the rest in the account. Since it’s in a safe investment it won’t have decreased in value due to stock market volatility. You’ll still lose the tax advantages on any withdrawals, but you’d have missed out anyways.

You don’t need the money
More likely than not, you won’t need all the money, and hopefully within a year or so your emergency fund will be replenished from other sources. Now, you can start really taking advantage of the Roth IRA’s tax benefits and move to riskier investments.

Using the same assumptions as before, a $4,000 post-tax Roth IRA contribution would theoretically end up being worth $40,251 after 30 years. If the $4,000 was placed in a taxable account, you’d only end up with $32,834. Even if you assume inflation will run 3% a year, that’s still $3,000 more in today’s dollars that you made on your initial contribution of only $4,000 by putting it in a Roth.

Am I missing anything? It would seem like putting money in the Roth IRA is a pretty safe bet. The downside is very small, and the upside is very high. One key thing to remember is to keep the Roth IRA money in a safe investment while you are treating it as a emergency fund, as stocks have been known to drop as much as 40% in one year. You don’t want to be having to sell your stocks to get cash after that happens!

Posted in Retirement | 48 Comments »

Framework For Thinking Through Personal Finance

(Warning: The following post is very stream-of-consciousness and written on very little sleep.)

While doodling today (I doodle a lot) I started thinking about money and how it such an overwhelming issue at times. I read so much advice from so many different directions, my head starts to spin. I ended up drawing this:

Basically, the idea is that if you want more money, you should focus in on one of these three areas:

Spend Less
Either through buying less goods and services, or by finding a lower price for the same goods and services, one can spend less money each month. Much of this is psychological, as most of what we buy are “wants” and not “needs”. Long-time habits and deeply ingrained notions may need to be broken. Priorities need to be consciously decided. However, there comes a point where it is simply not possible to spend any less.

Invest Better
With the money that is saved, one would want to make it grow as much as possible. Here, I am focusing more on passive investments like stocks, mutual funds, bonds, or gold. There are many competing theories as to whether skill is a factor in picking stocks. Personally, I believe that the markets are mainly efficient, and that “beating the market” is exceedingly unlikely. All that can be done is to maximize your risk/reward ratio. Therefore, there is also a maximum value on how “well” we can invest.

Earn More
This is done via work, either through being an employee, or starting your own business and becoming the employer. Ways to advance in your career include more education, better interpersonal skills, or otherwise achieving positive results and getting promoted. Other more individual ventures include real estate investing, building a business with employees, or creative works that produce “passive income”. These come with additional risk of losing money, but also offer added upside.

Priorities and Diminishing Returns
I feel that the first two, Spending Less, and Investing Better, should be the first to be addressed. If very little attention has been paid to these two areas, a lot of progress can be made. Of course, it can probably be a lifelong process to make sure these things continue to be taken care of. Lots of energy can be spent trying to optimize both (!). However, at some point, I think there will be diminishing returns. When you start considering about whether you should flush the toilet every time you use it in order to save water, perhaps it’s time to focus on other things. Similarly, there is only so much I can make from maximizing bank interest and picking a optimum asset allocation. Of course, if you reach a happy place already, you don’t even need to Earn More.

In a way, I think Spending Less and Investing Better are appropriately located at the base of the triangle. After building a good foundation, you can start taking some risks in the Earning More area. I think for most people this is the hardest part. It can be very hard to increase one’s salary if they feel they are stuck in their current career. Maybe they are comfortable already. Taking classes, switching jobs, it can be very stressful. On the other hand, it is also the one with limitless boundaries.

I know I already discuss these things on a daily basis, but I think it can also be good to methodically examine one’s progress in each of these areas every so often.

Posted in Career, Frugal Living, Investing | 29 Comments »

Update: My Bank Account Setup To Maximize Interest

Back in April I shared my personal bank account setup which I felt offered the best balance of convenience, liquidity, and interest paid out for my geographic location and tax situation:

Basically, I used my Washington Mutual Free Checking / 5% APY Savings (see review) account combo as my core account, but kept most of my money in T-Bills for the higher yield and state income tax exemption. Since then, a couple of things have changed…

First, the rates on 28-day Treasury Bills started to drop significantly, making their tax-equivalent return unattractive. They remain so today, as even the 6-month T-Bill rates are unexciting. In May, FNBO Direct (review) came on the scene and offered 6% APY until 9/28. So as my T-Bills matured I gradually moved them into FNBO.

Then 3 weeks ago, the Fed Funds rate was cut for the first time in years, which caused many banks to adjust the interest rates paid out on high-yield savings accounts. FNBO dropped their rate to 5.05% APY, barely above the 5% of Washington Mutual. I have been waiting for the dust to finally settle since, and I think it has since the speculation is now about what will happen during the next Fed meeting at the end of October.

Through all this, the WaMu (online-only) savings account has stayed constant at 5% APY. I’m surprised! I must say though, I’ve been enjoying this sort of “Core and Explore” setup for bank accounts. Most of my day-to-day activities like online billpay, checkwriting, deposits, ATM withdrawals, even getting money orders - they can stay stable and familiar with WaMu. I can also keep a nice chunk of money within quick reach, but still earning 5%. Then I get to rate-chase online with the rest of my temporary $100,000 cash hoard. So I think I’ll keep this way as long as I can:

So what is the Bank du Jour? Well I just mailed in my check and signature form for Everbank’s FreeNet checking account last week, but it hasn’t been cashed yet. I like that the 6.01% APY is guaranteed for 3 months, and my Rate Chaser Calculator says the move should clear me at least another $100 over those few months. It may not be as lucrative for smaller balances, but to each their own.

Posted in Banking | 52 Comments »

Morningstar’s Stewardship Rating: Better Than Those Annoying Stars!

A couple weeks ago I wrote about characteristics of good actively managed mutual funds, which talked about finding managers who have most aligned their interests with their investors.

I just discovered that there is also something similar called the Morningstar Stewardship Rating, which grades funds on “intangibles like corporate culture, board quality, manager incentives, fees and regulatory history.” In fact, many of the themes are almost identical. Here are more details of each component, taken from press releases and the official methodology:

Corporate Culture. Is the fund company focused on investing or gathering assets? Does the fund company foster a thoughtful, repeatable investment process?

Board Quality. Does the board consistently act in shareholders? best interest? Do the independent directors have meaningful investments in the fund? Is the board led by an independent chairman, and are 75% of the directors independent?

Fees. Morningstar now assesses funds solely on their current expense ratios and how those fees compare to their peers, and no longer considers the trend in fees.

Manager Incentives. Does the manager have a significant investment in the fund(s) he or she oversees? Do the compensation plans reward long-term performance or simply emphasize asset growth?

Regulatory Issues. Funds do not receive points toward their overall Stewardship Grade for simply following the law, and firms with poor regulatory histories will lose points.

Unfortunately, to actually get the exact grades of any specific fund, you have to subscribe to the Morningstar site at over $100 a year. Blah. But here is one useful tidbit:

Management companies with one or more funds at the top of the class include, in alphabetical order, Clipper, Columbia Acorn, Davis, Diamond Hill, Dodge & Cox, FPA Paramount, Longleaf Partners, Oakmark, Pennsylvania Mutual, Royce, Selected American, T. Rowe Price and the Vanguard Group.

I would much rather use this Stewardship rating to help assess active funds than the more popular (and separate) Morningstar “Star” Ratings, as that system continues to overweight recent past performance and offers questionable predictive abilities.

Posted in Investing | 8 Comments »

How Much Better Is Your 401k Than A Regular Taxable Brokerage Account?

Everybody loves 401k plans for their tax advantages. But exactly how good are they, really? What if your 401k only offers limited, more expensive options than you can find from a regular brokerage account? I wanted to explore this using some estimated numbers, just to see how it works out. I know my assumptions won’t fit everyone, but people can adjust them to be closer to their own situation.

Assumptions

1. Start with a $10,000 pre-tax contribution for each
2. Both plans have the same imaginary investments for 30 years
3. Annual return on those investments is 8%, broken down into 6% from capital gains, and 2% in qualified dividends. This is to approximate the amount of dividends currently being paid on stocks in general.
4. 28% ordinary tax bracket both now and upon withdrawal in retirement
5. 15% tax bracket for long-term capital gains and qualified dividends
6. Any company matching is ignored, as everyone should contribute up to the match.

401k Calculations
The calculations for the final value of the 401(k) are relatively simple. You start with $10,000, it grows at 8% annually without any tax consequences for 30 years, and then upon withdrawal it is taxed at ordinary income tax rates. With our assumptions, the math would look like this:
Read the rest of this entry…

Posted in Investing, Retirement | 32 Comments »

Treating Marriage As A Business Relationship

Since it’s Friday, here’s another lighter post on relationships and money. Below is a highly amusing posting on Craigslist that I found via the Bogleheads Forum. Be sure to read it along with the accompanying reply below.

Advice for woman seeking $500k+ earning man

What am I doing wrong?

Okay, I’m tired of beating around the bush. I’m a beautiful (spectacularly beautiful) 25 year old girl. I’m articulate and classy. I’m not from New York. I’m looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don’t think I’m overreaching at all.

Are there any guys who make 500K or more on this board? Any wives? Could you send me some tips? I dated a business man who makes average around 200 - 250. But that’s where I seem to hit a roadblock. 250,000 won’t get me to central park west. I know a woman in my yoga class who was married to an investment banker and lives in Tribeca, and she’s not as pretty as I am, nor is she a great genius. So what is she doing right? How do I get to her level?

Here are my questions specifically:

Read the rest of this entry…

Posted in Funny | 79 Comments »

Fidelity Self-Employed 401k Account Review

I’ve mentioned several times I have a Self-Employed 401k account. It’s a somewhat unique thing, so here’s a little bit more about it.

What’s a Self-Employed 401(k) and who’s eligible?
A Self-Employed 401(k) is a tax-advantaged 401(k) retirement account that is available to self-employed individuals or business owners with no employees other than a spouse, including sole proprietors, partnerships, corporations, and S-corporations. It is also referred to as an Individual 401(k) or a Solo 401(k). You can even get them in Traditional or Roth versions.

For more details, see these other posts:

• Solo 401k vs. SEP-IRA Basics
• Finding a Good Self-Employed 401k Administrator

I chose a Solo 401k over other options like SEP-IRA due to the increased contribution limits for those with relatively low self-employed incomes. I ended up picking Fidelity Investments as my plan administrator, and here are my experiences after using it for the last year:

Application Process
It’s been a while, so I don’t have a rundown of dates or anything, but I remember the application being a bit long, but very straightforward. You can either print the forms out online, or have them mail you a nicely bound copy. I mailed it in, they set it up, and I had my own Solo 401k. No hassles.

Account Fees
There were no setup fees, no maintenance fees, no minimum balance requirements, no annual fees. I only thing I’ve ever paid is for the expense ratios in the mutual funds I bought. As you’ll see below, that’s barely added up to $20 so far!

Read the rest of this entry…

Posted in Investing, Retirement, Self-Employment | 48 Comments »

Tips On How To Cancel A Credit Card… Profitably!

You may have already heard from me and other articles that canceling a credit card does not help your credit score. But sometimes, you just have to do it. For example, you may have an annual fee or some ongoing customer service nightmare.

What’s happens to my credit score if I cancel? While it won’t help my credit score, it likely also won’t hurt it very much either. As explored previously, the two factors that matter are credit limit utilization and average age of accounts. As long as this card doesn’t comprise a huge chunk of your total available credit limits, it shouldn’t affect your utilization ratio very much. In my case, this AmEx Gold card is a charge card and doesn’t even have a credit limit, so it won’t matter at all. As for the average age of accounts - your account is already opened! Closing it won’t make it any older.

Still want to cancel? Here are some tips to keep in mind:

#1 Consider simply switching to another type of card with better features or annual fees.
If the reason for closing the card is to avoid paying an annual fee, perhaps try to simply convert the card to another style offered by the same issuer. For example, I could ask to be transferred to the AmEx SimplyCash Business Card (also has some nice rewards) which has no annual fee. They might say yes, they might say no, but it’s worth a try.

Another idea for Frequent Flier Mileage cardholders is to switch to the non-fee version. For example, the more heavily-pushed Citi Platinum American Airlines Card has an annual fee of $50, but the lesser-known Citi Bronze American Airlines Card has no annual fee (albeit with less rewards). So instead of canceling your platinum card, you could just convert it to a less valuable metal but still be able to earn a few quick miles when needed.

#2 Combine the credit limits with another existing credit card.
Similar to above, you can simply try to “move” your credit limit from the card you want to cancel onto another existing card you want to keep (within the same issuer.) This way, you can get rid of one card while keeping your nice credit limit and maintaining your credit score.

#3 Go fishing for some financial encouragement to stay
When you call to cancel, you will usually be transferred to a special person trained to handle cancellations. This may also be referred to as the “Retention”, “Loyalty”, or “Member Relations” department. The primary goal of this person is to keep you a customer, using whatever means at their disposal.

Accordingly, your goal here is to find out what they have to offer you. First of all, be nice! Help them to help you. Instead of asking sternly to cancel, you might say something like “I am thinking of canceling because my interest rate is too high.” This would encourage the rep to offer you a lower interest rate. For my situation, I might say something like “I don’t like this card enough to pay $125 next year, it seems a bit steep”. Ideally, this would lead to something like a $100 credit to stay, another annual fee waiver, or some other financial incentive. They may have a variety of things in their goodie bag, and it may change from time-to-time due to quotas or whatever.

I usually call early, usually as soon as I get the sign-up bonus and I know there are no other redeeming features. For example, I have been offered a $25 gift card to stay another 3 months by Discover. After that time period passes, I can call again.

#4 Sometimes you’ll just get lucky
One time while canceling another American Express credit card, I just didn’t like what they had to offer and simply canceled. To my surprise, I got a pro-rated refund of the remaining part of my waived annual fee with my final statement! Out of the $90 fee which I didn’t have to pay, I got a $63 credit. The only takeaway here is that if you really want to cancel, just go ahead and do it. If I had waited until the last moment, my prorated annual fee would have been just a few dollars.

Posted in Credit Cards | 33 Comments »

Choosing Between Limited 401(k) Investment Options

Many of us are faced with the dilemma of putting money into a 401k due to the tax-advantages, but only being presented with limited investment options. Personally, up until now to have 401k’s all run by the giant Fidelity, but this time around we were faced with smaller company. I’ve never heard of them before, so I’ll just call them “In House” funds.

Here’s how I systematically picked out the best funds from my menu of choices. It follows my investment belief that the best long-term performance can be gained with primarily passive, low-cost, and asset-allocated portfolios.

As a preface, I should say that I treat all my accounts as one - 401ks, 403bs, Traditional IRAs, Roth IRAs, SEP-IRAs, and any taxable accounts meant for retirement. Even between my wife and I, all of it is taken together. I then try to make them follow the asset allocation I chose.

I’m not a financial professional, so don’t take this as financial advice, ya hear? It’s just what I did:

1) Make a list of each mutual fund, including the name, the asset class it represents, any front-end or back-end loads, and the net annual expense ratio. You may need to read the prospectus for each fund, or at least grab the ticker symbol and use the quote from Morningstar.com to determine these values. Here’s my list, luckily all of them were no-load funds:

2) Throw out any asset classes that aren’t included in your chosen asset allocation. For example, I am not interested in any stable value/money market funds, or any Small Cap Growth funds for my retirement portfolio right now.

Read the rest of this entry…

Posted in Investing, Retirement | 26 Comments »

October 2007 Financial Status / Net Worth Update

About My Credit Card Debt
If you’re a newer reader, you may have some concerns about my high levels of credit card debt. I’m actually borrowing money for free at 0% interest, putting it in high yield savings accounts that earn me 5% interest or more, and keeping the difference as profit. Along with other things, this helps me earn extra side income of thousands of dollars a year. Recently I put up a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why, although I have the ability to pay the balances off, I choose not to.

Commentary

Retirement and Brokerage accounts. Last month’s update was right before the drop in the Fed Funds rate, which resulted in another big jump in our account values this time around. In addition, I made a large $10,000 contribution to my Self-Employed 401k at Fidelity.

I’m glad to get our retirement contributions back on track since we haven’t done very much in that department this year. I still have to figure out how much more I want contribute this year, as I do have a some flexibility with the account due to the ability to add profit-sharing contributions. Another thing on my mind is whether to contribute to a Non-deductible IRA this year.

Cash Savings. This actually didn’t go up as much, due to the big contribution to our 401k.

Quick summary. Our non-retirement funds went up slightly to $85,605, which puts us at almost 86% of our mid-term goal of $100,000 towards a house downpayment. Total net cash is at $79,707 (+$1,475 from last month). Take a look back at our previous net worth updates here.

Posted in Goals | 40 Comments »

Zecco Trading Changes Free Stocks Trades Offer

Zecco Trading has just changed their pricing for new accounts from 40 free trades/month to 10 trades/month, and there is a new requirement that you must have $2,500 in account equity (cash + value of stocks). If you have less than $2,500, then trades cost $4.50. However, existing customers and anyone who applied before 10/1 will keep the old pricing until the beginning of 2008. After that, everyone will be at 10 free trades/month.

Instead of paying for free trades you may not use, we’re investing that money in the tools and functionality that you will. Over the coming months you can expect:

* Significant investments in the number of service representatives and training.
* Addition of 3 and 4 legged options strategies so you can trade butterflies, condors, and more.
* Release of a sophisticated options analytics platform.
* Access to ZeccoShare, the ground-breaking investor social network at zecco.com.

Zecco is still the cheapest place for my “fun money” account and 10 trades is enough for me, although I’ll have to add some more money into my account in a couple of months to reach $2,500. If you already have an account, log into your trading account for more info; there is also a new offer FAQ. If you are researching Zecco, be sure to check out my Zecco Review (two parts) for some tips to maximize your account. Thanks to Wes for the tip.

Posted in Deals & Offers, Investing | 14 Comments »