Archives for January 2006

Traditional IRA to Roth IRA Conversion Revisited

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Almost exactly a year ago, I pondered whether to convert my Traditional IRA into a Roth IRA. I ended up not doing it right away after realizing that I might hit the ceiling that limits conversions to those with a modified adjusted gross income (MAGI) of $100,000 or less. The same ceiling applies for both a single person and a married couple’s combined income! And if you go the married filing separately route, you can’t convert your IRA at all. I never understand these marriage penalties.

Of course, then I quit my job in July so I should have just gone ahead and converted it. But then I thought, maybe we might even end up in the 15% tax bracket for 2006! That would really save on taxes. But it doesn’t look like it (which is a good thing of course.) So we’ll most likely convert this year. Some additional things I want to take into account are:
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Presidential Bank Raises Rates to 4.25% and 4.37% APY

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Perhaps inspired by Greenspan’s parting rate hike, the rate on the Presidential Internet Checking Plus (review) account has been raised to 4.25% APY and their Presidential Premier Savings (review) account is now at 4.37% APY. I consider my Prez account as my main checking due to their good rate (for a checking account) and flexibility, but their savings account has a $5,000 minimum. I was hoping they’d raise rates higher, especially on the savings end, but this is about what I expected.

25 Excuses For Not Saving For Retirement

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Not saving for retirement? Need a good excuse why? Not to worry – here are some 25 ideas for you, all for free!

1. I’m young, I need to enjoy life.
2. I’m too old, it’s too late for me.
3. I’m scared of money. It’s too complicated.
4. It’s all the credit card company’s fault.
5. Interest rates are still pretty low. Borrow now!
6. I don’t have enough time in the day.
7. I have to pay for my kid’s college.
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Carnavals D’argent

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HSBC Direct Now Paying… 4.80% APY Interest!

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

HSBC Direct is now paying 4.80% APY on their OnlineSavings accounts. It’s not updated on their front page, but it is shown on their Rates page. For those with accounts, check out my Rate Chaser Calculator if you are at a lower rate right now and are thinking of transferring money. Use the HSBC transfer schedule for reference. For those without, don’t miss the $25 HSBC Direct bonus.

Update: It’s only until 4/30.

Cashback Credit Cards – Hot or Not?

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Cash back credit cards are all the rave now, especially the 5% ones. Citibank has had their Dividend card giving 5% cash back for groceries, gas, and drugstores for years now. Chase then copied Citi with their own version. American Express and Discover now have ones with 5% off gas. But are they really that awesome?

I was catching up on some old Carnival reading and found this post on NoCreditNeeded about how cashback credit cards are crap. Granted, from the title of the blog you wouldn’t expect to hear praise for them, but there are some good points made. Of course, I disagree with some of them as well. Let’s hit each one:

People spend more with credit cards than with cash.
Overall, this is true. When McDonald’s started to allow people to use credit cards instead of paying cash, the average sale went from $4.75 to $7. I don’t know why this is true, but it is. On average.

Would I spend less if I carried cash instead? I can’t prove it, but I can honestly say no. If 1% cash back is going to make you rationalize spending more, then (1) you are really bad at math (1% of a $300 item you don’t need is just 3 bucks), and (2) yes, please shred your credit cards. As for myself, I’ve been using credit cards so long I don’t even think about it anymore.

The ‘protection’ by credit card companies is useless.
This may be a hassle for chargebacks, I’ve actually never had to do one. But, I have gotten my wallet lost or stolen twice. Cash lost: $200+ Credit Card money lost: $0. I got my recent fraudulent charge credited back to me with no issues at all.

Credit card companies are not stupid. They are around to make money.
100% Agree. They are there to make money. My friends use this one too. My reply is two words: loss leader.

Grocery stores are also not stupid and around to make money. You see the 99 cent gallon of milk? Or the $1.50 a pound chicken? If you walked in and only bought those two things and walked out, grocery stores would go bankrupt. But no. On the way to the milk, you see that cheese you like. Oh, and you’re out of peanut butter – why not try the new organic one? They are counting on you to make it up in the end.

Banks are also not stupid and like to make money. Capital One 360 used to let you open with $1 and walk away with $26. If everyone did this they’d be broke. (So they raised the minimum to $250. I guess this weeded out the people who couldn’t save $250 in the first place?) No, they want you to get nice and comfortable, and keep all your money there at 3% interest while they’re lending it out at 6%. Clever, eh?

Does this mean you shouldn’t shop at the grocery store or use banks?

The sad truth
The sad truth is that I know that the only reason that I can get money at 0% APR and make thousands of dollars off of it, is because my neighbor is going also do the deal, spend the money, and then want a nicer car and put off paying the balance when the promo period ends. Oops, nows he’s paying 18% APR. He’s also got the new ’06 BMW 330Ci. With the nice rims. And parks it right in front of my house. Bastard.

Therefore, my advice is the same as NCN – Be honest with yourself. But instead of a blanket statement, I would add that everyone is not the same. Some people should not have credit cards. As for me, I will continue enjoy the occasional cashback checks and free $100 bonuses now and then.

Frequently Asked Questions (FAQ)

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I’ve been getting a lot of the same questions regarding this site and my finances, so hopefully this helps clear up the confusion:

Why do you have so much cash?
We are saving up for a large house downpayment. While other investments like stocks and bonds may offer better long-term returns, they also carry more volatility. Given our time horizon of less than 2 years, we want to keep it safe while maximizing returns. Thus the focus on things like online savings accounts. Please also see the next question for the other reason why I have so much cash.
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Amerivest Feature Review and Comparison

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

As mentioned in my last post, Amerivest is Ameritrade’s new attempt to bringing a flat annual fee to discount investment planning, instead of commissions for each trade. First, they have some software ask you a few questions on your risk tolerance and investment amounts, which spits out one of 25 predetermined baskets of index ETFs. Each basket has what looks like 4-7 ETFs in the proportion to create the asset allocation that it decides you need. It then tells you how much you need to invest each month to reach your goal.

I used their online chat to find out more about the service:

» They don’t offer actual human advice. For example, you can’t tell them your situation details and have them customize your plan. You can alter the basket, but advise-wise the computer is all you get.

» If you send them monthly automatic cash transfers, they will invest your money each month across the ETFs in your chosen basket. Again, no trade commissions.

» The basket determined by the software available for free is what you would buy using their service, although you can modify it if you want. You can view my result, their most aggressive portfolio, here. In other words, it doesn’t automatically change with time as you get older, and it doesn’t seem to plan for taxes or fees.

» They do re-balance your portfolio automatically at the interval you choose, say annually, so your asset allocation does not shift too far away from its intended percentages.

» They do not automatically reinvest dividends. Dividends are invested during your periodic rebalancing.

So how much does this cost? Here’s is their rate chart:

One way to compare this to imagine if you wanted to dollar-cost-average into 5 different ETFs every month. With Amerivest, a $20,000 portfolio would cost $100 a year and a $100,000 portfolio would cost $350 a year. At Ameritrade’s usual brokerage pricing of $11 a trade, that’s 60 trades a year = $660 a year in commissions. And that doesn’t even include any trades you would have to do to rebalance your portfolio. Of course, at MB Trading those 60 trades would cost only $60 a year unless you were buying more than 100 shares at a time.

In the end, I think that this service is much closer to what companies like ShareBuilder, FolioFN, and BuyandHold provide rather than any real portfolio management. For example, Sharebuilder gives you 6 trades per month at only $12 a month, for a total of $144 a year regardless of your account balance. Similarly, they give you guidance on a suggested basket of ETFs with their PortfolioBuilder feature.

Finally, Amerivest’s extremely optimistic projections do smell a bit like a marketing ploy. And I don’t see why they have to charge more for a $50,000 portfolio vs. a $500,000 portfolio, as they aren’t actually doing anything more.

I’m Done Saving For Retirement… According to Amerivest

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Amerivest is Ameritrade’s new financial-advisor-in-a-box, which I’ll blog more about later. But first, I tried out their Simulator. I put in basically the same information that I used for my retirement nest-egg calculations – We want the equivalent income of $96,000 a year in retirement. Inflation is estimated at 3% annually. We’ll retire at age 60, and live for about another 30 years after that. I picked the most aggressive options for all the risk-tolerance questions. The answer? We need just a lump sum of $75,226.13 now to achieve our retirement goals. What?
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About This Site And Myself – Updated

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

(This page has moved here.)

Emigrant Direct Raises Rate to 4.25% APY

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

The rate wars continue! EmigrantDirect announced today that they raised their interest rates to 4.25% APY, matching HSBC Direct. For those with accounts, check out my Rate Chaser Calculator if you are at a lower rate right now and are thinking of transferring money. For those without, check out my $10-$20 EmigrantDirect Signup Bonus.

Dream Dinners – Make Your Own Take-Out?

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I was surfing Food Network last night and caught a show spotlighting a place called Dream Dinners. They provide you a kitchen, recipes, and pre-measured and chopped ingredients to prepare your own meals, which you then pack up, take home, and put in your freezer. When you’re hungry, you just stick it in the oven. Their menu changes monthly and looks pretty tasty and healthy.

I’ve been analyzing how much it actually costs to buy a meal from the grocery store and make it and it can get pretty expensive. 2 lbs. Chicken – $6. 4 tomatoes – $2. 2 green peppers – $1.25. 1 lemon – 50 cents. It all adds up! This place will sell you 12 dinners for about $200, with each dinner being 4-6 servings. They even let you split the meals in half, which works great for our two-person household. So that’s 24 dinners – about $8 for a meal for two. Not dirt cheap, but it’s better than McFastFood for sure. I’m intrigued – Anyone tried them?