Archives for January 2009

Suze Orman ‘Save Yourself Plan’ TD Ameritrade Offer

Posted on January 8, 2009 // 21 Comments

Updated: The SaveYourself Plan and partnership with TD Ameritrade appears to have ended.

Suze Orman is still offering her “Save Yourself Plan” in conjunction with TD Ameritrade, although the offer is not as good as it was before. Previously, you had to open a new account at TD Ameritrade and put in $50 per month for 12 consecutive months. The default FDIC-insured interest rate also started a 2.78% APY. You were effectively making over 35% interest annualized, albeit on a limited amount of money.

With the current offer, you must now deposit $100 a month for 12 consecutive months, and the FDIC-insured interest rate on cash is only 1%. This works out earning about a 16% annual interest rate. Still not bad, if you have never had an Ameritrade account. As compared to keeping your money in an online savings account at 3%, after a year you’ll be ahead by about $80 in extra interest.

Plus, once we receive your first deposit, you will receive free online access to Women & Money—the book that launched Suze’s Save Yourself movement. And that’s not all. You will receive emails of support and encouragement from Suze…

I wouldn’t trade there, though. Just take the bonus. For more value, here are the brokers that I would recommend for starting an IRA.

Filed Under: General //

Suze Orman’s 2009 Action Plan Book: Free Download

Posted on January 8, 2009 // 18 Comments

Suze Orman was on The Oprah Show today, and is promoting her new book Suze Orman’s 2009 Action Plan by offering as a free PDF on Oprah’s site. Here is the download link. Expires in a week on 1/15. Thanks to reader Anthony for the tip.

I haven’t read this one yet, but she also did this previously with her Women & Money book, which I did read and review.

Filed Under: Deals & Offers //

More Inactive Credit Cards Being Closed: Protect Your FICO Credit Score

Posted on January 7, 2009 // 58 Comments

If you haven’t heard already, several large credit card issuers (Chase, Washington Mutual, Citibank, Capital One, HSBC) are currently closing millions of consumers’ credit cards without prior warning due to inactivity. This is their legal right, but it can also negatively affect your credit score. Here’s why and some steps that you can do about it:

How Can Closed Credit Cards Affect My Credit Score?

FICO has previously revealed the following breakdown of factors considered in credit scoring. We can also read between the lines of the questions asked by the free FICO Score Estimator by myFICO.

altext

Capacity used. This simply means how much of your available credit you are using, sometimes referred to as utilization ratio. A lower ratio is better, either by lower balances or higher credit limits. If you’re maxed out on all your cards, obviously that’s not a good sign. Logically, closing credit cards means you have less available credit.

Length of credit history and past credit applications. To be specific, not the only length of your oldest line, but also the average age of all your accounts matters. In addition, you’ll have less need for new credit applications if you can keep your existing purchasing power.

Closed by creditor or consumer? A lesser concern is whether the account is marked as “closed by creditor” as opposed to “closed at consumer’s request”. Since FICO doesn’t release the details of their scoring algorithm, it is still debated whether this matters to the numeric score. Some credit repair experts say it does, others disagree. However, if someone does a manual review of your credit report, it can raise some questions as to why the account was closed by the lender.

How To Protect Your Credit Score

Okay, so we’ve established that just waiting for our inactive cards to be canceled can be bad. So what should we do about it? Here’s an action plan:

  1. Gather up or make a list of all your credit cards. I have mine in a spreadsheet – it is a pretty long list! Misplaced some? Grab your free report from the official AnnualCreditReport.com, which should list them all.
  2. Rank them according to importance to your credit score. From above, we see that credit cards with high limits and long histories are the best. Newer credit cards with low limits are least important.
  3. Start using the important ones! If you have a cell phone or cable bill, chances are that they accept credit cards. Not only that, but you can use multiple charges across multiple cards. I spent 20 minutes just charging $5-$10 to my Sprint bill across about 8 different cards to put some activity on them. Start from the most important card onwards.
  4. Consider canceling the rest. If you have a newer card with a low limit that you don’t ever plan on using again (just wanted the sign-up bonus?), it may actually help your score to simply cancel it. This way, it will also show as “closed by consumer”.

    Make sure that it has a zero balance first, otherwise you make be stuck with penalties or your credit limit will be lowered to your balance amount, jacking up your utilization percentage and hurting your score.

I was too late for two Chase accounts and one Washington Mutual account I mentioned before, but I ended up closing a few cards preemptively and put some activity on the rest. All in all, perhaps this worked out for the best. Don’t we all want less clutter for the new year? 🙂

Filed Under: Credit Cards //

January 2009 Financial Status / Net Worth Update

Posted on January 6, 2009 // 21 Comments
Net Worth Chart 2008

Credit Card Debt
I have no actual consumer debt. In the past, I have been taking money from credit cards at 0% APR and immediately placing it into high-yield savings accounts or similar safe investments that earn 5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how I make money off of credit cards this way. However, given the current lack of no fee 0% APR credit card offers, I haven’t been as active with this recently.

Retirement and Brokerage accounts
The value of our passively-managed portfolio bounced back by about 10% compared to last month. There were no new contributions. As noted, we did manage to max out both of our 401(k)s this year, and plan on making 2008 IRA contributions by the April deadline.

Cash Savings and Emergency Funds
Our emergency fund balance is nearly at 12 months of our total monthly expenses. So theoretically both my wife and I could be laid off and we would be okay for 12 months without having to sell any longer-term investments. I am very happy with this cash cushion.

Where is it? I suppose you could say I “actively manage” my cash, putting it in various places to maximize yield while maintaining the highest possible safety. For example, I have some in a previous WT Direct promo at over 6% annualized interest, some in Series I Savings Bonds at over 6%, and a chunk at a WaMu 12-month CD paying 5% APY with about 10 months remaining.

Compare this to the piddly 0.14% for 90-day T-Bills and 0.43% on 1-year Treasuries! If you didn’t get in on any or all of these, keep reading or subscribe to updates for new deals as they come up.

Home Equity
I continue to estimate our home value using internet tools, starting with the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. This left me with $584,516. Then, I shave off 5% to be conservative and subtract 6% for expected real estate agent commissions (11% total) to reach my final estimate. Fortunately, we bought as prices were falling already, and the area where we live has not been hit nearly as bad as other major metropolitan areas.

Looking ahead, I am working on new goals for 2009, and also better metrics for measuring our financial progress. You can see our previous net worth updates here.

Filed Under: Goals, Investing, Real Estate, Retirement //

More Lessons From The 2008 Financial Markets

Posted on January 6, 2009 // 4 Comments

Larry Swedroe, principal of an asset management company and investment book author, also posted his Lessons That 2008 Taught Us In 2008 on SeekingAlpha. It was a nice compilation that covered a variety of topics from active management to Madoff to your “Plan B”.

Here are some excerpts of a few lessons involving investing and your portfolio:

Don’t forget that companies that managed money themselves were often the victims this year!

Lesson 1: Neither investment banks nor other active managers (including hedge funds) can protect investors from bear markets. […]

If their money managers could protect you, why did firms like Lehman Brothers and Bear Stearns go belly up and Merrill Lynch have to be rescued by Bank of America? It is in the best interest of these firms to manage their risks well. Yet, they have clearly demonstrated that they cannot. As evidence of their lack of ability to forecast events consider that in 2008 Lehman spent $751 million buying back its own stock at an average price of $49.60 and Merrill Lynch spent $5.27 billion buying back its stock in 2007 at an average price of $84.88.(2)

Lots of other historically renowned and recommended active managers had a bad year as well.

Lesson 6: One of the more persistent myths is that active managers can protect you from bear markets. In 2008, the hardest hit sector was financial stocks. Financials comprise a significant portion of the asset class of value stocks. As benchmarks for the active managers we can use the Vanguard Small Value Index Fund that lost 32.1 percent and the Vanguard (Large) Value Fund that lost 36.0 percent.

The following is a list of the returns of some of the actively managed mutual funds with superstar value managers, four of whom were named by Morningstar in June 2008 as their recommendations to run value superstars, their recommendations (those are noted with *): Legg Mason Value Trust lost 55.1 percent; *Dodge & Cox lost 44.3 percent; Dreman Concentrated Value lost 49.5 percent; *Weitz Value lost 40.7 percent; *Schneider Value lost 55.0 percent; and *Columbia Value and Restructuring lost 47.6 percent.

Of course, some actively managed value funds beat those benchmarks. However, how would you have known ahead of time which ones they would be?

Some did guess this would happen. But was it luck or skill?

Lesson 9: There is a great likelihood that each time there is a crisis, some guru will have forecasted it with amazing accuracy. But that ignores two important facts. The first problem is that even blind squirrels occasionally will find acorns. In other words, there are tens of thousands of gurus making forecasts all the time.

Filed Under: Investing //

2008 Investment Portfolio Review: Numbers and Lessons

Posted on January 4, 2009 // 36 Comments

Vacation is over, bring on 2009! Time for a quick look back. Instead of accounting for all my various cashflows, I decided to first review how the individual mutual funds in my investment portfolio did during 2008. (Data taken from Morningstar.) Here are the numbers along with the breakdown by asset class:

 
Holding % Asset Class 2008 Total Return
34% Broad US Stock Market -37%
VTSMX – Vanguard Total Stock Market Index Fund
8.9% US Small-Cap Value -32.1%
VISVX – Vanguard Small Cap Value Index Fund
8.5% Real Estate (REITs) -37.1%
VGSIX – Vanguard REIT Index Fund
25.5% Broad International Developed -41.4%
FSIIX – Fidelity Spartan International Index Fund*
8.5% International Emerging Markets -52.8%
VEIEX – Vanguard Emerging Markets Stock Index Fund
3.8% Bonds – Short-Term +6.7%
VFISX – Vanguard Short-Term Treasury Fund
11.3% Bonds – Inflation-Indexed -2.9%
VIPSX – Vanguard Inflation-Protected Securities Fund
Total Portfolio Weighted Return -33.2%
 

Just about every asset class related to equities was in the toilet, especially emerging markets. The bonds held their ground overall. I had a relatively aggressive mix of 85% stocks and 15% bonds, with an overall weighted return of -33.2%.

As a reference, the total return of the Vanguard S&P 500 Index Fund (VFINX) was -37% while the Vanguard Total Bond Market Index Fund (VBMFX) was up 5.1%. The Vanguard Target Retirement 2045 Fund (what I used to own) had a 34.6% drop.

Did I hold too much in stocks? I don’t think so. I’m only 30 years old right now, and if I’m lucky I’ll have potentially another 55 years in the market.

On the other hand, I do think that some retirees and near-retirees held too much stocks. “You need at least 60% in stocks at all time?” *Cringe*. Take the Vanguard Target Retirement Income Fund (VTINX), which is an all-in-one fund with an “asset allocation strategy designed for investors currently in retirement.” For 2008 it dropped only 10.9% with an asset allocation of 5% cash, 30% stocks, and 65% bonds. This is probably more appropriate for people in the withdrawal stage – something to sleep well with!

So, I am stuck trying to resolve two somewhat conflicting feelings. The volatility didn’t really worry me that much this year, and am happy to take some risk right now. But I also know that I don’t want to take risk later. I may need to shift my asset allocation towards more bonds faster than 1% per year, especially if I am going to retire early.

Filed Under: Investing //
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