Archives for October 2008

Discover More: 0% APR Balance Transfer Fee Cap Ends October 31st

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It looks like the credit crunch continues to trickle down to everything financial, including tightening up in the credit card industry. I have it on good authority that the $75 balance transfer fee cap on the Discover More card will end on October 31st. (Update: Yes, the cap is now gone.)

Why care? The Discover More Card – No Balance Transfer Fee* is just about the last credit card with a 0% APR balance transfer for 12 months, as well as a $75 balance transfer fee cap. This is important because you may have noticed that nearly all other 0% APR cards have an uncapped 3% fee. So if you transferred $10,000, the fee would be $300. On a $20,000 balance, that would be $600!. The cap saves you lots of money, and these offers have only gotten more scarce with time.

Even though I don’t carry a balance, I have used this card to make some extra money off credit card arbitrage.

Getting Your Money
You can usually request a balance transfer to be sent directly to a card with a balance on it. (Or you could send it to a Citibank card without a balance on it, and request a refund check.) However, a reader wrote in last week to say that you can also call them up afterward and request a balance transfer check to be sent to you directly from Discover.

If you’ve been thinking about applying but putting it off, now would be the time to do it! According a Discover CSR, if you apply now to lock in the offer, you have until February to request your balance transfer. (Update: There is now no cap.)

Got Enough To Retire? Frugal Spenders Just Might

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In a CNN Money article titled “Got enough to retire? Think again”, I actually found the opposite.

The main point of the article is that you may need to replace a lot more than just 70-80% of your pre-retirement income after you stop working.
Here’s the chart of average replacement rates from an Aon study:

However, I am agreeing with the authors of Spend Til The End on this one – using replacement rates and averages for this sort of thing is dangerous. One should always look at their own unique situation. It’s you, isn’t it? For example, I don’t see why a household earning $100k or even $500k a year can’t get by on spending $40k per year, especially if their mortgage is paid off.

But after looking at the chart some more, something else caught my eye.

Let’s just say that your spending in retirement requires income of $40,000 per year. This is the same as assumed for a household earning $50,000 pre-retirement according to the study. Even though we earn more than that, I know that we can easily run on $40k per year outside of housing costs.

The graphic suggest that 50% of that, or $25,000 per year, will be covered by Social Security. That only leaves $15,000 per year to be covered by your pension or investment portfolio. Assuming no pension and a 4% withdrawal rate, that means you would need a nest egg of $375,000 in today’s dollars. That is much less than the multi-million dollar figures usually being thrown around.

Now, how much would you need to save to get that $375k? If you save $5,000 inflation-adjusted dollars per year, and they earn a 4% annual real (above inflation) return, every year for 35 years – you’d end up with a little over $380,000. In essence, you’d just have to max out your Roth IRA each year and call it a day. (The contribution limit is $5,000 this year, but the cap rises with inflation.)

Of course, this is all rough numbers and you’ll still have to work until the full Social Security retirement age. Most young people like myself are skeptical of Social Security, but I have come to believe that SS will be with us for a long time – it is just too critical a piece of the retirement puzzle for much of America. And hey, the solution to any underfunding – as always – is simple: tax the high-income earners more!

ShareBuilder Offers: 2 Free Real-Time Trades, $50 New Customer Bonus

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Apparently ShareBuilder brokerage had some hiccups during the last few weeks, so like Zecco with their unlimited free trades in October, they threw out bonuses. A reader indicated that he was offered 20 automatic trades. Check your e-mails.

Existing Customers: 2 Free Real-Time Trades
I myself was offered 2 free “real-time” market trades. I don’t know for sure if this is transferable (update: looks like it is), but I did get a promo code so please try it:

1. Log in to Sharebuilder, and then click on the Promotions tab.

2. Enter (expired). If it works, you should see a confirmation, and get an e-mail that says “We have just credited your ShareBuilder Account with 2 free Real-time Trade credits. Your credit(s) will expire on 01/31/2009.”

Usually it costs $9.95 for a real-time trade, so this is useful if you need to sell a small position. As for me, I have been holding on to some old shares of EEM and BRKB for a while now from previous bonuses… but I think it’s time to let them go.

New Customers: Try ShareBuilder with a $50 Opening Bonus
You can get a $50 bonus for opening a new account and placing one trade.

1. Go to Sharebuilder, and click on “Get started today”.

2. When applying, be sure to check the box “I’m responding to a promotion”. Use (expired).


You must open a new ShareBuilder Account and purchase at least one security to receive this offer. Please note the $50 credit will post to your account approximately 4 weeks after the first transaction executes.

3. You can try out Sharebuilder as you like, but if you don’t like it there are a couple ways to simply exit with your bonus.

  1. Instant Gratification: Open with $5. Buy $1 of stock and pay $4 for commission. Wait for your bonus and cash out if applicable. Let the $1 in stock just languish there.
  2. Delayed Gratification: Open with $50. Buy $46 of a stock or ETF you like and pay $4 for commission. Get the $50 (or more), and treat it like you just got free stock. Let the dividends reinvest automatically, and just sit back for a decade or two while it grows.

The reason for this is that you can only sell with a real-time trade that costs $9.95. However, if the first bonus above does work, then you can theoretically sell your stock for free and withdraw that as well…

You can still get $50 for trying out TradeKing brokerage as well. Extended until 11/30/08

1,000 Free Delta SkyMiles Offer + More

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Delta LogoYou can get 1,000 Delta SkyMiles for enrolling in ThanksAgain for free by October 31st. Again, good for generating some recent account activity. ThanksAgain looks like a shopping “milesback” portal but for local merchants, tracked by linking up your existing credit card. You’ll need your SkyMiles number.

$300 off a flight with the Delta Gold AMEX card
If you haven’t already done so – The Delta Gold SkyMiles American Express Card is currently offering 30,000 bonus miles after making $500 in purchases in the first three months. The annual fee is waived for the first year as well, usually $95. Just cancel it before the first year is up if you don’t get the proper value.

In addition, a new update is that Gold card lets you participate in Delta’s Pay for Miles program, which allows you to directly use miles even if you don’t want to bother with booking an award ticket. For example, 10,000 miles is good for $100 off any Delta flight. Therefore, as long as you fly Delta, this 30,000 miles bonus is guaranteed to be worth at least $300 cash.

*You can add additional users with no Social Security number required, and you can just have them sent to your house and hide them away. I usually just add my parents.

Invest In A Flu Shot

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I don’t know if I have the flu or not, but I still feel awful. If you qualify, I’d say it is a wise investment that I shouldn’t have put off. Ironically, since I have a fever I shouldn’t get a flu shot. *sniff*

Here is a flu shot finder, or contact your insurance carrier.

Weekend Reading: Diary From The Great Depression

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Not enough doom and gloom in your diet? The Big Money shares the diary of Benjamin Roth, who was a lawyer during the Great Depression. Via the Consumerist. Here’s an excerpt:

June 5, 1931. Immediately after the 1929 crash the speculators rushed in to buy “bargains” but were badly mistaken because the market kept going down and down even tho’ industrial leaders kept on assuring the people that everything was fine and the worst was over. At the present time the newspapers are urging people to buy these “bargains” but opinion is much divided as to whether or not the bottom has been reached.

Investments in real estate and mortgages fared almost as badly as stocks. Since 1929 foreclosure by the banks has been the order of the day. Day after day real estate can be bought for the price of the first mortgage and there are no bidders except the bank which holds the first mortgage. In this way the banks are becoming the holders of huge quantities of real estate.

Although Slate is a respected name, for some reason I am still skeptical of these diaries. Where did they find this diary? Why has it never been published before if Roth died in 1978? I’m sure people would have been interested back in 1987. Did people write using “quotes” back in 1931? The parallels are almost too close and the writing seems nicely edited.

But, taking it at face value, reading it definitely does provide some food for thought. For example, are stocks really a bargain now? It may not be wise to bail out completely from stocks, but it may not be wise to overly load up on them either. Everyone is trying to predict the bottom, but we might have to be prepared to wait for a while. Gee, it turns out that predicting the short-term movements of the market has always proven to be a weak point for the “experts”!!

Chase Freedom Rewards Card – 5% Back On Popular Spending Categories

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My Favorite Cheap Eats In Portland, Oregon

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This post is part of WiseBread’s Best Cheap Eats group writing project. I chose to write about Portland, Oregon, because I recently left and I miss these spots! What’s cheap? I’m saying under $10 for breakfast/lunch, and under $15 for dinner. This gives me more interesting options, because when I eat out I like to have things that I can’t make myself.

All of these are no more than a 10-minute drive from downtown Portland, and many are clustered around close-in Southeast Portland where I used to reside. You can either interpret this as either (1) I am lazy and only eat near where I live, or (2) I only live near where there is lots of good cheap food nearby. 🙂

Zell’s An American Cafe – Breakfast
No website (Yelp) / 1300 SE Morrison St / (503) 239-0196

It’s a chilly weekend morning and your friends want to get breakfast. When you arrive, there’s already a line, so you go to the waiting coffee pot outside and pour yourself a mug while you wait and talk (will be added to your bill later, free refills continue inside). If you feel creative, there is a big bucket of street chalk that you can use on the sidewalk. How Portland is this?

After you get inside, you pick up the menu and peruse the huge list of specials on the wall. You consider getting one of their famous Bloody Mary’s but remember this is a frugal visit so you lay off. As you wait to order, the friendly waitperson drops off complimentary scones that are still warm from the oven. You add some softened butter and homemade jelly that’s already on the table.

What to choose? Good bets are their creative omelettes… maybe Greek this time? Or fresh mushrooms? Perhaps German pancakes with a pear-ginger topping. Maybe splurge on a side of chicken-apple sausages.

New Taste of India – Indian – Lunch
Website / 340 SW 5th Ave & 1810, SW 4th / (503) 888-0489

Although this is a lunch cart, it is my favorite Indian restaurant in Portland at any price. Two locations, I usually go to the one by the Portland State University campus. They have a daily $5 lunch special: rice, naan, and 3 different entrees (meat or vegetarian) that is always popular. So much food, I can never finish it. I prefer ordering off the North Indian menu, but each dish is well under $10. I still dream about their Chicken Khorma…

Apizza Scholls – Pizza – Dinner
Website / 4741 SE Hawthorne Blvd. / (503) 233-1286

My vote for best pizza in Portland. This is where pizza purists go when they want pie that you might have found in New York City’s Little Italy in 1905. Charred, crispy, thin crust and high quality toppings only. This ain’t Pizza Hut. In fact, you can only get 3 toppings max, and only one can be a meat. My pick is the Apizza Amore – classic Margherita plus capicollo.

The dough is handmade once every day, and when it runs out, it runs out. Could be 9pm, could be 7pm. So go early or risk being disappointed. A (16″? 18″?) pizza runs about $20-$25, which can satisfy 3 medium appetites, or 2 larger ones. They have a nice beer selection too, but the pizza is so good I’m happy with tap water.

The Italian Joint – Italian – Dinner
No website (Yelp) / 3145 SE Hawthorne Blvd / (503) 234-3004

A tiny neighborhood restaurant, this place will never win any foodie awards and is not fancy at all, but it has a great charm to it. The pastas are simple and solid. If you arrive before 6pm, they have a happy hour menu where the pastas are really cheap (less than $7). My favorite is actually their clams with white wine sauce and bread though. You can also get a large carafe of decent house wine to share for only $9, which contains at least 4 glasses worth. Filled with regulars and and wine that’s as cheap as soda, it feels very European.

Saburo’s Sushi House – Japanese – Dinner
Website / 1667 SE Bybee Blvd. / (503) 236-4237

Sushi as cheap eats? Stay with me. Saburo’s is also small, unpretentious, and usually packed. However, the fish is good and their portions are huge. Two pieces of nigiri here have literally the same amount of fish as four pieces at any other Japanese restaurant. Rolls are ginormous as well.

I love the underappreciated saba (mackerel), and at only $2.50 for two mega-pieces, it rocks. Salmon or tuna is $3.50. You can get 8 pieces of California roll for only $3.25. Don’t like sushi? A full combo dinner with miso soup, rice, pickles, gyoza dumplings, tempura, and teriyaki chicken is only $11.

Any Portlanders out there?

P2P Lending Update: Prosper, Lending Club, Zopa, Loanio

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There have been a lot of comings and goings in the person-to-person social lending arena, so here are some updates and opinions as a casual observer sprinkled in.

Prosper Steps Away
The first and biggest (by total outstanding loans) P2P lender, Prosper, recently shut down to lenders while pursuing registration with the SEC to allow folks to buy and sell existing loans:

Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. If you’re an existing lender, your current lender agreements will be unaffected; your existing loans will continue to be serviced; you’ll be able to track and monitor your loans; and you’ll be able to withdraw funds from your Prosper account.

If you’re a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process. If you’re a borrower seeking a loan, you will still be able to create a new loan listing, which we will endeavor to fulfill through alternative sources.

Personally, I think having a liquid secondary market for these loans is a great idea in the long run. I always disliked the idea of making a 3-year loan that could be repaid by the borrower early, but not sold early. As a point of reference, Lending Club took around 6 months to complete the SEC registration.

More posts: Review Part 1, Review Part 2, Default rates, Scary graph

Lending Club Returns
After going through their own quiet period, Lending Club is now accepting new lender registrations again, as well as allowing existing lenders to bid on loans. But now, you can also buy and sell existing loans now on partner site FOLIOfn. It costs you a 1% fee to sell your loan, in addition to any possible gain/loss in the open market.

Right now, it would seem that Lending Club is the best game in town. For lenders, the loan performance stats seem to be better on average than Prosper, with much lower default rates so far, although there is still definitely risk these days. For potential borrowers like credit card consolidators, you can try them first to see what rate you can get. When you apply, you get an overall credit rating which determines your interest rate.

More posts: Lending Club Review

Zopa US Quits Pretending
Even at first glance, I thought Zopa US was a credit union in disguise. Well, right before Halloween, Zopa takes off the mask and reveals that… hey! We are a credit union. Now “lenders” are directed to buy a certificate of deposit at a credit union, and borrowers are offered a credit union loan from USA Federal CU.

It was (and still is) a shame that Zopa could not bring their UK model here due to legal issues. Hire some better lobbyists!

Loanio Arrives
A new competitor arrives to stir things up as well. Loanio is now open for business. Their model is pretty similar to Prosper, in that you bid on specific loans and the interest rates adjust downwards like a reverse auction. They have a referral program as well, and new lenders can earn a $25 bonus:

Every time you refer a new borrower who gets a loan, you’ll earn $50.00 and for every new lender referred, you and the new lender will receive $25.00!

Here is my referral link. I opened a new account last week. You must deposit $100 to start, but can withdraw it later. However, you must fund a loan ($50 minimum bid) to get the $25 bonus.

First impressions? Reminds me of Prosper, but the site design could be better, and it loads slowly. I’m also having trouble finding a loan to fund. If you see a good one that’s nearly funded, let me know!

New PineCone Research Signup Link (Paid Surveys)

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PineCone Research remains one of the better paying and reliable survey companies, with a payout of $3 for each 15-20 minute survey. The hardest part is getting accepted, as they only accept applications intermittently.

Thanks to reader Tom, here is the most recent application link at Pinecone. (It probably won’t last long.) Looks open to all ages and sexes. Only one person per household can sign up.

I’ve already shared my thoughts on Pinecone and paid surveys in general here. I call them Bored Money – not terribly efficient but you sometimes get to try some neat things. Here’s a quick list of other paid survey sites:

The three that I have been most active with besides Pinecone are NFO MySurvey, e-Rewards, and SurveySavvy. I like it them because they continue to give me the most paid survey opportunities, even if I only pick and choose which ones I want to do. I’ve gotten multiple checks and/or rewards from all of them.

Joining e-Rewards is usually indirect, I get offers to join from my airline miles newsletters from time to time. Not sure if they still work, but you can try these two links for Continental and Northwest airlines (must have frequent flier account number).

There are several other sites with which others have reported varying levels of success: American Consumer Opinion, Greenfield Online, Harris Poll Online, Lightspeed Panel, or SurveySpot.

Updates: Top Savings Account and CD Interest Rates

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Given the recent drop in Fed interest rates, here is a quick update on the rates being paid on online savings accounts:

HSBC Advance lowered its rate to 3.00% APY.

Capital One 360 also recently lowered its rate to 0.75% APY. ($25 bonus) However, they do have a new 12-month CD at 0.40% APY.

FNBO Direct holds steady at 3.50% APY dropped today to 0.85% APY. (FNBO Direct review)

Emigrant Direct is still at 3.00% APY, but if you have more than $1,000 there, you should move your money to DollarSavingsDirect at 4.00% APY instead. They are both under the same parent Emigrant Bank, and so your deposits are insured together for FDIC purposes. The only real difference is that DollarSavings requires a $1,000 balance to earn the 4%.

I was really annoyed at this until I figured out that there is actually no minimum balance requirement at DollarSavingsDirect, your interest rate just drops to 1.0% APY if you go below. No fees or penalties. Thus, I can still open an account and move my money there while the rate is good, and still be able to move it out if the rate drops. Okay, so I’m still kind of annoyed. They are saying “we think you’re too lazy to move your money, but new customers get 4% APY”.

EverBank’s Yield Pledge savings account has an intro rate of 4.65% APY for the first 3 months, and then 3.51% APY afterwards. Not bad, considering even the non-special rate is very competitive, as it “pledges” to stay amongst the top 5% of competitive banks. There is a minimum balance requirement of $1,500 to avoid fees.

Corus Bank has what looks like the top 12-month CD rate at at 4.60% APY if you open with $10,000+.

Exploring Consumption Smoothing: An Alternative Path To Retirement Planning

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I just finished reading the book Spend ‘Til the End: The Revolutionary Guide to Raising Your Living Standard–Today and When You Retire by Burns and Kotlikoff. One of the main themes of the book is consumption smoothing, which is an economic theory where the primary goal of financial planning is to avoid abrupt changes in one’s standard of living.

This can actually be a very controversial goal, because it may ask you to borrow money or even stop saving at times, in order to maintain a constant standard of living. Here is an illustration of this idea taken from the website for ESPlanner, which is a financial planning software package made by Kotlikoff.

Note that consumption smoothing can be very different from what other traditional methods propose. For example, one traditional goal is to replace 75-100% of your current income in retirement. Another generic rule of thumb (which they call “rules of dumb”) might be to simply save 10-15% of your annual income. The authors argue that these one-size-fits-all approaches can greatly overestimate or underestimate the amount of saving one’s family needs to do, leading to the dreaded “standard of living disruption”:

As far as they are concerned, both scenarios are equally bad. Undersavers might die broke. Oversavers are misers and compared to the mentally insane.

Replacement Rates Are Stupid, But Is Smoothing Better?
Now, I would agree that those 5-minute retirement calculators like Fidelity’s MyPlan Calculator or T. Rowe Price’s Retirement Income Calculator can be really off.

For example, Fidelity’s calculator assumes I will need 85% of my pre-retirement income in retirement. But what if my kids are grown up and we’ve already paid for college tuition? What if our house is paid off? What if it isn’t? All these things change what income we need. Look at us – I’ve already calculated that our total non-housing expenses are around $30,000 year – this is less than 15% of our current combined income. An 85% replacement rate would inflate our nest egg target by millions of dollars!!

So yes, inflexible replacement rates are stupid, but I don’t know if consumption smoothing is that much better. I would use ESPlanner, but it costs $200. It is plugged so much in the book that I feel like book buyers should have gotten a free 30-day trial at least to play with it. But I’m betting that even with the smoothing approach, the software will simply say something like “you can maintain a maximum spending standard of $80,000 every year.” Still much more than I need to spend to be content.

I would rather have each household try to estimate their own spending needs from the ground up, and not just spend what some software program tells you to spend. What makes you happy? What are your priorities? What is enough? Then, find a way to create that income.

Predicting The Future
Here’s the problem with all these future calculators. Any time you extrapolate 30 years into the future, any slight change in inputs can throw things way off. Let’s say you think your investments will average 8% returns annually. What happens if it’s only 6%? You estimate inflation at 3%. What if it’s 4%? What if you are 60% stocks/40% bonds, nearing retirement, and your stocks drop 40% in less than a year (*ahem*)? Finally – what about jobs? People switch jobs, careers, geographic locations. Income isn’t so predictable either.

With all this uncertainty, having a calculator tell me I can spend $68,644.55 this year and every year after that just doesn’t seem right.

I don’t know about you, but I see running out of money as a lot worse than ending up with too much. Accordingly, I simply view retirement (financial independence, whatever) as a goal to be reached as soon as possible, while still enjoying life along the way.

Positive Consumption Slope?
Just a thought, but I don’t know if I would want a constant standard of living anyway. I would rather having a slowly improving standard of living, so that life is (supposedly) getting a little better as I go.

Still, consumption smoothing is an neat concept, and the book goes on to extend it into a number of other interesting examples. More to come…