Moolanomy

Money Hacks Carnival #39

Pinyo — Thu, 20 Nov 2008 03:25:15 +0000

Looks like another another miscue in the Carnival Land. Sorry the carnival didn’t go out as planned this morning at the host site, so here’s an emergency edition of the Money Hacks Carnival #39. Before I begin, just want to say thank you to everyone for your participation.

Photo by Meagen via Flickr

Credit and Debt

Five Ways to Help You Quickly Eliminate Credit Card Debt posted at CreditShout.
Should You Pay a Debt Consolidation Company? posted at Military Finance Network.
0% Credit Cards: No Interest Purchases & Balance Transfers Offers posted at Blueprint for Financial Prosperity.
Annual Credit Report posted at Identity Theft Awareness.
Reward Cards and Your Financial Lifestyle, Part Three posted at Ask Mr Credit Card’s Blog.
0% Credit Cards: No Interest on Purchases for up to 12 Months posted at fivecentnickel.com.
How to Get 18% Cash Back With the Discover More Card posted at Credit Card Addict.
The Difference Between Good Debt and Bad Debt posted at Rich Leverage.
Some Helpful Tips To Not Abuse Your Credit Card posted at Money Help And Tips.

Economy

Bank of England cuts base rate by 1.5%. But who will it help? posted at >Business Easy.
Obama’s “Revitalize the Economy” Agenda posted at Everything Finance.
Obama and Bush Talk About Second Economic Stimulus Check posted at Prime Time Money.
How Circuit City Failed in its Saving Efforts posted at Online Savings Blog.
USPS to Increase Shipping Costs Next Year posted at The Sun’s Financial Diary.
Surprising (and Promising) Aspects of the Financial Crisis posted at The Personal Financier.
Bush Gets It Right: Intervention Not a “Cure-all” posted at PennyJobs.com.
How YOUR Saving Advice Caused The Financial Crisis posted at The Shark Investor.

Frugality

Reduce, Reuse, Recycle and How it Helped with My Personal Finance posted at Personal Finance Blog by Money Ning.
Prevent Auto Theft & Home Burglary with Affordable Anti Theft Devices posted at FIRE Finance.
Best Coupon Websites posted at More4kids Family — Great list of coupon sites.
How To Build Wealth By Saving Money Without Sacrificing Your Livelihood posted at MyWifeQuitHerJob.com.
Coupon Cliff Notes posted at Artofthecoupon.com.
10 Painless Ways to Escape Being Squeezed by Your Plastic posted at Timeless Lessons.
Save money when eating out posted at Christian Financial Help.
Fun and Cheap Travel Games for Kids posted at Sound Money Matters.
One Minute How-To - How To Avoid Junk Fees posted at George L Smyth.
Save Money Through Plant Propagation posted at Passive Family Income.
Save on Heat - Simple Solar Heater posted at Cheapo Groovo.
How To Save Money On Groceries posted at Penny Pinching.
1000 Miles Bike Commuting Celebration posted at My Family’s Money.
Layaway—Boon or Burden? posted at Wisdom From Wenchypoo’s Mental Wastebasket.
Shake a Stick at Unnecessary Gym Expenses posted at 15 Minutes to Riches!.
Cut Your Living Expenses in Half! posted at Higher Education and Career Blog.
Money: What Steps I Have Taken to Save It posted at LimitlessUnits.com.
AT&T iPhone Users Now Get Free Wifi Access at Hotspots posted at Credit Withdrawal.
Why Do We Like Deals, Bargains and Freebies? posted at Deals.

Income

Passive Residual Income Monthly Report posted at My Work at Home Mom Blog — Slow economy didn’t slow this stay at home mom one bit…good job!
Does Passive Income Really Exist? posted at Four Pillars
Why Alternative Income Streams Are Part of My Long Term Plans posted at Cash Money Life.
CD Ladder Savings posted at Money Blue Book.
Pimping out your place for the Presidential Inauguration! posted at Budgets are Sexy.
Rate Chasing with High Yield Savings Accounts posted at My Dollar Plan.
Get an Online Savings Account posted at Financial Planning.
High Yield Savings Account Interest Rates: Changes Ahead? posted at The Digerati Life.

Investing

Two Winning Bank Stocks posted at Dividends4Life.
Earnings Per Share (EPS) posted at Investing School.
Trading on the news? posted at Intelligent Speculator.
Financial Planning 101: What To Do with Sudden or Unexpected Cash? posted at Steadfast Finances.
Our Nasty Economy Doesn’t Justify Decreasing Your 401(k) Contribution posted at Personal Finance Analyst.

Real Estate

What I Learned from Almost Buying a House posted at Free Money Finance.
Beating the System: Getting Exclusive Deals and Networking to Success posted at Small Business Blog.
Hope for Homeowners Act of 2008 ?What’s At Stake? posted at New Homes Section Blog.
Discover The Secret To Making A “Perfect” Home Buying Offer posted at Tallahassee Real Estate Blog.
Accepting a down payment posted at LivingAlmostLarge.
20 Real Estate Investing Tips to Becoming a More Profitable Real Estate Investor posted at Two Wise Acres.

Other

10 Reasons Why I Want You to Be Financially Independent posted at Happiness is Better.
No Gift Cards, Please! posted at Save and Conquer.
Emergency Funds for Tricky Paychecks posted at Dollar Frugal.
43 Folders, Google Calendar, and Early Deadline Reminders posted at Uncommon Cents.
Charitable Giving: How To Make Your Charity Donations Count For More posted at The Smarter Wallet.
Finding Happiness in a Simple, Debt-Free Life posted at Happy to be at Home.
7 Ways to Simplify Your Finances posted at Where You Are Now.
Thinking Of Starting A Business? The Top 10 Tips posted at The Lives and Times…of Anthony McCune.
100 Everyday Habits for Your Health and Wealth posted at Medical Coding Training Online.

Thank you everyone for your participation. Next week, the carnival will be hosted at Steadfast Finances .

Related Posts:

Five Things You Don’t Want to Hear From Your Financial Planner

Jeff Rose — Wed, 19 Nov 2008 11:00:23 +0000

This is a guest article by Jeff Rose of Good Financial Cents.

Retirement is just around the corner. You think you’ve saved enough; but with the recent market drop, you are just not sure. Your retirement accounts have taken drastic blows and now you’re in doubt if you will ever retire. You decide it’s time to sit down with a Certified Financial Planner^TM to see if you are still on track for a successful retirement. Here are the 5 things that you don’t want to hear:

1. You Will Have To Work Longer.

Unfortunately, this might be the reality of many hopeful “soon to be” retirees. If you have taken a substantial hit in your portfolio, and you hadn’t saved enough to fund your retirement needs, this may be a sad truth that you have to face.

With the rising cost of health care and increasing cost of goods, your nest egg may be depleted where your employment income is the only thing keeping your savings account from dwindling down even further. By working longer, it will allow you to do # 2…

2. You Need To Save More.

If retiring is not happening next week and you still have a few more working years ahead of you, now is the time to sock away as much as you possibly can afford. What that might mean is eating out less, maybe putting off a vacation here or there, or not remodeling the living room that drastically needs it. All those extra savings will either go to funding retirement vehicles, which are your 401(k)’s or IRAs, or just putting it in your emergency/savings account.

3. You Will Have To Live On Less.

Many retirees, or soon to be retirees, assume that there lifestyle will remain the same once retirement comes. In fact, 6 out of 10 workers believe that their standard of living will not change when they reach retirement. Many of them fail to plan for longevity; meaning that they don’t have a good sense of how much they actually will need for their actual time in their retirement years.

This is a wake-up call to most when realizing that their retirement assets and Social Security, or any pensions, are not sufficient to cover their month to month expenses during retirement. Coming up with a budget and figuring a safe amount to withdraw off your investments to make up the gap between Social Security and/or pensions is a must if you want your nest egg to last you throughout all your retirement years.

4. You Need To Take More Risk.

Many times I have seen retirees that once they hit retirement, they shift their whole retirement portfolio from the stock market into 100% bonds and/or CDs/money market. If your retirement portfolio never has a chance to grow or appreciate, the portfolio will most likely be eroded away by inflation. Cost of living is constantly rising with no end in sight. A retiree must have a portion of their portfolio in the market to battle inflation, or that hard earned dollar today will have far less purchasing power in the years to come.

5. You Have To Work Longer.

Sorry to bring this up again, but this is usually the one thing that people don’t want to hear. By this point you have put in several years at your employer and retirement is so close you can taste it. Unfortunately, the reality is that you just haven’t saved enough. Or maybe you thought you did, but what the market has giveth has now taketh away. Whatever the reason, your daydreams of sipping Pina Coladas on the beach are just that: daydreams, while you are still sitting at your office desk staring out your window wondering what you could have done differently.

Much of this could have been avoided if you had taken the time to meet with a financial planner in advance. Often time, people put off planning for retirement until it’s too late. A study showed that 43 percent of workers who did a retirement needs analysis did in fact make changes to their retirement portfolios. The most common change: Save More.

When reviewing portfolios, I often see subtle changes that could have been made years ago that would have made a huge difference today. The lesson learned is: Don’t procrastinate. Review your financial situation annually to make sure you are on track. That way when you do meet with your financial planner regarding the possibility of retirement, you instead hear, “Congratulations, you are now ready to retire.” Doesn’t that sound better?

Related Posts:

Find Financial News And Articles With Tip’d, PF Buzz, And More

Pinyo — Tue, 18 Nov 2008 03:36:52 +0000

Originally, I was simply going to announce the official launch of Tip’d (a community for financial news, ideas, and tips), but then I got the idea to write about a few more sites that I found useful for finding financial news and articles. So here they are, 8 sites to find financial news and articles.

1. PF Buzz

PF Buzz is a social bookmarking site is focused on all things financial. On the home page, you can find user submitted articles that have been voted up a few times to ensure that only the best stuff made it to the front page. However, the upcoming buzz section is also worth visiting.

In addition to the social bookmarking, the site also offers:

Random Buzz — this allows you to surf among submitted articles quickly,
Buzz Planet — this features financial articles from the partner blogs
Personal Finance Forums — this allows you to discuss financial topics with other users

2. Tip’d

Tip’d is similar to PF Buzz but with broader topics and wider audience. In fact, it’s officially launching today — congratulation to Mu Saleem. Some key features include:

Topple button
Private messaging
Users have 3 min’s to edit story after submission
2 new categories created (business and entrepreneurship)
Tip It button now has its own server, which means it won’t slow down anything
Published stories are straight HTML followed links, not redirects

3. Feed The Bull

Feed the Bull is another social bookmarking site but it’s much more focused on the Stock Market and investing matters. Additionally, the site features a Top Site feature where you can find related blogs and web sites. Lastly, the site also offers a tool section where you can find the toolbar and \stock ticker widget.

4. BizzLo

Bizzlo.com is another social bookmarking site for business and investing. It allows investors to submit stories and investment ideas, comment on public filings or form groups based on particular investment styles. Users have instant access to analysis on lesser known stocks, Contrarian investment styles, or international investment ideas.

5. PFBlogs.org

PFBlogs.org is the grand daddy of personal finance blog aggregators. Here you can find the latest articles from over 1,000 blogs. In addition to the main aggregator, you can find articles by category and popularity:

6. PopTop Ranks (Personal Finance)

PopTop Ranks (Personal Finance) is a unique top site that ranks financial blogs by the number of subscribers. In addition, you could see the latest blog post along with each entry.

PopTop Ranks also offers a drill down tool that shows you the subscriber historical data, Google PageRank, Alexa Rank, Technorati Rank, and Technorati Authority.

7. Alltop Personal Finance

Alltop Personal Finance is a magazine rack style portal that displays the last 5 headlines from top financial blogs and web sites.

Moreover, Alltop offers a cool Alltop widget that you can use on your site or blog. There is a widget for every topic. All you need to do is select the topic, configure the widget, copy a snippet of HTML code, and place the code your site or blog.

8. Streetread

Streetread is a financial news browser. It automatically aggregates the latest headlines from over 20 of the leading finance sites on the web, as well as all of the stocks you choose to follow, and all within a single-page, easy to use, auto-loading interface.

In addition to the web sites above, I also want to mention two blogs: MSN Smart Spending and WSJ The Wallet. Both of these mainstream blogs do a terrific job of regularly linking to other great personal finance blogs and articles.

Did I miss anything? If you know of any other financial sites that act as a gateway to other financial sites and blog, please feel free to share with us using the comment form below.

Related Posts:

Recession Proof Your Job - 4 Ways To Avoid The Pink Slip

Donny Gamble — Mon, 17 Nov 2008 11:00:32 +0000

This is a guest article by Donny Gamble of Invesmint.

Your worries about job loss are not misplaced. So far roughly 1.2 million U.S. workers have lost their jobs because of the global economic recession. No doubt, more pink slips are coming. Here are 4 things you could do to avoid being a pink slip recipient.

Photo by snofla via flickr

1. Be Prepared.

Start thinking about what you would do if worse comes to worse. This means tracking your money (see Don’t push the panic button (yet)). It also means cutting expenses (for some ideas see Painless ways to cut expenses and save for retirement and Financially Strapped? Ways to put more money in your pocket).

2. Be An Expert.

Make sure you know your job inside and out. Learn as much about your boss’s job and as much about everyone’s job in your department as you can. The more valuable you are the more your company needs you.

3. Be There.

If you’re a telecommuter, rev up your face time in the office. If people don’t see you, they’ll be apt to question why they need you. Do you rush out at the end of the day? If so, slow down, check with your boss and other teammates before you leave work to see what you can do to help them out. Come in earlier so that you’ll have more time to get things done, but also so that people can see you working.

4. Be A Morale Booster.

Loosing a job is doubly traumatic during a recession. Don’t add to the damper by talking about your troubles or spreading bad news. Look for ways that you can be supportive without being everyone’s problem catcher. Can you organize a brown bag lunch hour where people watch classic movies? What about a lunch walk? Or bring your dog to work day?

One thing to keep in mind: The U.S. has experienced 13 economic recessions. Each time we’ve bounced backed. We’ll do it again.

Related Posts:

Is Now The Right Time To Invest?

Pinyo — Sat, 15 Nov 2008 18:58:38 +0000

The DOW is down at 8,000 level from its peak at 14,000 level. The daily ups and downs is so extreme that the index can move over 100 points in just a few minutes. This can make any investor — new or experienced — nervous and doubtful.

Should I get out of the stock market?
Should I get back in?, or
Should I invest in something else entirely?

Recently, Nicole (a reader) asked “I would just like to know if right now is a good time to buy long term investments because the market is low right now?” in my article about pitfalls that you must watch out for when investing in mutual funds.

My answer is very simple, anytime is the right time to invest if you have the right long-term investment strategy in place. Personally, I don’t believe in finding the hottest investment and plow my money into it. Sure you could win big, but you could also win big by gambling or playing lottery too — but you know their returns on investment (or lack thereof).

What’s the investment strategy that makes anytime the right time to invest?

1. Diversification

The decision between picking a handful of the “best” investments and diversification is a personal one. For me, I believe in the latter. I am more comfortable with a diversified investment portfolio than having a handful of potential winners. By having a diversified portfolio with low asset correlation, the chances are different asset classes will rise and fall in value at different rate. This basically lowers the risk of your overall portfolio and smooth out the performance level.

Take a look at my article Everything You Ever Wanted To Know About Asset Allocation for more information about diversification and asset allocation.

2. Regular Contribution

Second is to invest regularly into the investment portfolio. This is easily accomplished with 401k contributions, or you can set up an automatic investment plan for your other accounts. Similar to dollar cost averaging, regular contribution allows you to buy more shares when the prices are high and less when the prices are low.

For example, let’s assume Joe buy $100 of VFINX per month:

Date	Price	Shares
January	$127.02	0.7873
February	$122.89	0.8137
March	$121.75	0.8214
April	$127.67	0.7833
May	$129.31	0.7733
June	$117.83	0.8487
July	$116.85	0.8558
August	$118.54	0.8436
September	$107.37	0.9314
October	$89.34	1.1193
November	$80.70	1.2392

The key thing to notice here: Joe is buying more as the price goes down, and less as the price goes up. Here’s a visual illustration:

3. Redistribution

As I mentioned earlier, the pieces within the investment portfolio tend to grow at different rates. This gives you another opportunity to buy low and sell high my rebalancing your portfolio. Specifically, once your asset allocation becomes drastically different from your original allocation, you could rebalance your portfolio. Here’s another illustration:

In the example above, you are cashing out of bonds and other non-equity investments to buy more equity — i.e., large-cap, small-cap, and international.

This is easily accomplished with 401k, but a little trickier in other types of accounts.

I know that this lazy and steady approach to investing is not for everyone, but give it a try. You may find that it works better than you think.

Here are a few more articles from other bloggers:

Invest As Much As You Can Now, So You Will Have Options Later at Cash Money Life
How to Profit from a Stock Market Crash at The Dough Roller
An Expert Weighs In: Is Now The Time To Buy? at All Financial Matters
10 Signs Of A Stock Market Bottom at The Digerati Life

Related Posts:

Obama’s 401k Plan Is A Double-Edged Sword

Pinyo — Wed, 12 Nov 2008 16:50:57 +0000

Now that we know Obama is the next president, we can evaluate his proposal regarding 401k plan more closely. If you recall from my last article, I didn’t like his proposal that would allow people to early withdraw from their retirement funds — i.e., 401k and IRA — without penalty (McCain’s plan was even worse). I quoted The New York Times as follow:

Temporarily suspend mandatory annual withdrawals from Individual Retirement Accounts and 401(k)s. Current rules require investors to start selling stocks at age 70½. Exempt withdrawals made up to the required minimum amount from taxation. Allow savers to withdraw 15 percent, up to a maximum of $10,000, without paying a penalty as the law currently requires for withdrawals before age 59½. These withdrawals are subject to normal taxes.

However, I do like the idea of not forcing people to withdraw their money if they don’t need to. This will allow poor performing portfolio more time to recover and keep more money in the stock market.

Why I Don’t Like The Early Withdrawal Plan

There are many reasons why I don’t like the plan. First, the high opportunity cost that many people may not realize. Let’s say you are 30 years away from your retirement and you withdraw $10,000. At a 7% average annual growth, that $10,000 could grow to over $70,000. Sure, it’s nice to have the money now, but at what price?

Second, what does this really accomplish besides depleting our savings and future retirement fund? Is it (A) to help spur the economy, (B) to help homeowners pay their mortgages, (C) to help middle class face financial hardship? May be there are other reasons, please feel free to add yours below.

To Spur The Economy

If the hope is to spur the economy, then I don’t think it will work well. Let’s see, you withdraw $10,000 and spend the money. As a result, businesses do better due to influx of cash and the stock market may perform a little better. However, the huge outflow of money from retirement accounts will have the opposite effect. In this case, I think it’s a wash and doesn’t really do anything except making everyone poorer in the long run.

To Help Homeowners Pay Their Mortgages

If you are one of the homeowners who can’t afford your mortgage because you recently lost your job this may help you stay afloat for a few months. Hopefully, you’ll get a new job before the $10,000 runs out, but job is extremely hard to find in this economy. So it may or may not work out.

If you are one of the homeowners who can’t afford your mortgage because the teaser rate on your variable rate mortgage ended, then I don’t think $10,000 will help you for very long. Eventually, you’ll run out of money unless you can make up the difference in a few short months — i.e., by spending less or earning more money.

Here’s another article I wrote about saving your home from foreclosure. Some of these suggestions are quite drastic, but at least you are not trading your future for your home.

To Help Middle Class Face Financial Hardship

This is similar to the situation above. If you don’t have enough money to deal with living expenses, raiding your retirement funds is just a short-term solution that will hurt you in the long run. Again, spending less or earning more money is the proper solution.

Now that we are talking about saving money, here’s a huge list of money saving ideas that you can peruse.

Conclusion

I understand that this proposal is just one of many ways to help shore up the financial crisis and economic hardship faced by millions of Americans. Hopefully this will provide some financial relief, but this is the last thing you should consider. Don’t forget the long-term implications when you are raiding your retirement funds, and make sure that the money you take out really does help.

Here are a few tips on how to handle the slow economy:

Handling My Finances in a Slow Economy at Single Guy Money
Tips to Survive a Struggling Economy at Being Frugal
Living In A Down Economy - Determining Your Bare Bones Budget at I’ve Paid For This Twice Already…
5 Strategies to Survive An Economic Slowdown at Moolanomy
Smart Moves and Hedges in a Bad Economy at The Wisdom Journal

Related Posts:

Five Simple Steps To Stop Being A Victim

Pinyo — Tue, 11 Nov 2008 04:27:02 +0000

A while back, I wrote about victim mentality and how it could negatively impact you in many ways; including your financial health. Mostly, it was a story used to demonstrate a point, but it didn’t offer any specific solution besides telling you to focus on factors that you can control. In this article, I want to look at victim mentality a little closer and offer some specific ways to attack the problem.

Just a quick note…I said simple, not easy. It will take a lot of effort, especially if it’s your modus operandi.

1. Don’t Play The Blame Game

The most important step to stop being a victim is to avoid playing the blame game. When you’re finding yourself in a problem or a situation, don’t start to blame others or even yourself. That’s what victims do.

Seriously, how does placing blame help? Your goal is to solve the problem at hand, or to minimize the damage. Placing blame doesn’t help you achieve either goal. Yes, you may feel better or even feel a sense of closure when you blame someone or something. Unfortunately, the problem is still there.

Example: Here’s a situation that just happened to me. Yesterday, I got a $1,200 electricity bill — yes, ouch. I could’ve easily blamed it on the rising electricity costs, the economy, or other family members for not being conservative. For a victim, these justifications would have been enough to settle the problem without solving it.

2. Ask Why And Seek The Truth

The next step is to seek the truth, and I mean unbiasedly seek the truth. What just went wrong? Why did it happen? Ask a lot of “why” questions. Look for the cause and effect. Your goal is to look for the underlying factors that caused the problem. Again, don’t think about whom to blame.

Example: Following the situation above, I might list the following reasons:

Rising electricity cost
Poor insulation
Too many appliances
Not being conservative

3. Identify Control

Now that you know the reasons, let’s take a look and see if you can make a difference. Is it under control, or is it completely out of your hand. If it’s out of your hand, then acknowledge it, but don’t fret. In the end, it’s a waste of your time and energy to focus on things that are not under your control. On the other hand, if it’s under you control, then there’s an opportunity for improvement.

Example: Continuing with our example, I could say that the first factor “rising electricity cost” is not under my control, but I can certainly affect the other three factors.

4. Search For A Solution

If you can get through the first three steps, you are on your way to finding a solution to your problem. At this point, you should have a list of factors that caused the problem you’re facing. Now, it’s a matter of reviewing each factor objectively, do your research, and write out a solution, or solutions, that address each factor.

Example: Following the situation above, I might list the following reasons:

Poor insulation - Close windows and doors when using A/C. Close unused vents. Caulking.
Too many appliances - Turn off unused appliances. Use power strip to stop power drain.
Not being conservative - Discuss energy saving ideas with family members.

5. Take Action

Last but not least is to stop procrastinating and take action. It’s one thing to talk about solving a problem, it’s another to actually do it.

When you successfully work through problems without mentally becoming a victim you’ll gain confidence and power to break the cycle. Being a victim is the easy thing to do, but fixing the problem is the right thing.

Related Posts:

CD Ladder Explained

Pinyo — Fri, 07 Nov 2008 02:31:41 +0000

The recent stock market decline probably makes more than a few people realize that it’s wise to have a balance of growth and income investments as part of any portfolio. One of these income investments is Certificates of Deposit. It’s widely accessible and relatively simple in a sense that more people are familiar with CDs relative to stocks and bonds.

What Are Certificates of Deposit (CDs)?

CDs, or Certificates of Deposit, are similar to your typical savings accounts. You can purchase CDs at the same bank you have your savings account, and CDs accrue interest over time just like a savings account. The major difference is that you are committed to hold CDs for a specific amount of time, i.e., 3 months, 6 months, a year, 5 years, etc. In return, the bank guarantees the interest rate for the length of the term.

As such, CDs have some unique characteristics

Fixed rate – If you buy a CD that yields 4.0%, it will yield 4.0% for the duration of the CD. If the rate interest goes up or down, your CD remains unaffected.
Lack of liquidity – Since the term is fixed, you can’t cash out your CD early without incurring a penalty. This is why CDs usually pay higher yields than savings accounts and money market funds.

What Is A CD Ladder?

In general, CDs tend to pay higher interest rate on longer-term CDs. For example, a 5-year CD pays more than a 4-year CD, etc. However, it would be a bad move to plunk on your money on the longest term CD because of the illiquidity. This is where a CD ladder comes in.

A CD ladder is a mechanic that makes CD investing more liquid and acts as a hedge against interest rate volatility. For example, let’s assume that I have $10,000 to invest. Instead of buying $10,000 in a 5-year CD at 4% interest, you could do the following:

$2,000 in 1-year CD at 3.00%
$2,000 in 2-year CD at 3.25%
$2,000 in 3-year CD at 3.50%
$2,000 in 4-year CD at 3.75%
$2,000 in 5-year CD at 4.00%

Once your 1-year CD mature, you could invest the money in a 5-year CD (to mature in year 6) to take advantage of the higher rate. And likewise, once your 2-year CD matures on the second year, you could invest the money in another 5-year CD (to mature in year 7). This means that at any given time, you are at most 1 year away from accessing 20% of your money. Here’s an illustration of what I just said:

Moreover, we can even make the ladder more liquid by incorporating high-yield savings account into your CD ladder investment strategy.

Here’s a step-by-step guide on how to start a CD Ladder by Mrs. Micah.

A CD Ladder As A Hedge Against Interest Rate Fluctuation

Beside liquidity, another key advantage of investing in a CD ladder is its ability to hedge against interest rate changes. Using the above ladder as an example, if the interest rate is low today, your shortest term CD will expire in 1 year, allowing you to take advantage of rising interest rate. However, if the interest rate is high today, you have 4 CDs that are locking in the higher interest rate for 2, 3, 4, and 5 years, respectively.

Here are a few more articles about CD Ladder:

Build a CD Ladder at Cash Money Life
A CD Ladder Plan For Beginning Savers at Free From Broke
Create CD Ladders for Short Term Money Needs at My Dollar Plan

Related Posts:

Ask The Expert with Larry Swedroe, November 2008 Issue

Larry Swedroe — Tue, 04 Nov 2008 02:57:15 +0000

This is the 10th issue of the Ask The Expert column by Larry Swedroe. You can see Larry’s full biography and important disclaimer below. If you are interested in having your question answered by Larry, please send me an email via the contact page.

Now, let’s get to the questions and answers (please note that the emphases and links are mine).

+ + +

Question from Randy:

Hi Larry,

As you know, municipal bond funds have been hit hard by the current financial crisis and have put in new 52-week lows recently. I noticed however, that their prices are now heading back again. Their yields are very attractive. Do you believe there is renewed confidence that the government will help municipalities with capital, causing stability in the muni market, or do you feel that these are still too risky for investments at this time? Also, are insured tax-exempt funds safer, and if you feel muni bond funds are safe to go back into, what term (i.e., intermediate, long term) would you recommend?

Thank you,
Randy

First, while all municipal bonds have been hit by the flight to quality and liquidity, the safest bonds, the only kind I recommend, with AAA/AA underlying ratings, have held up reasonably well. And in last few days they have actually rallied quite a bit as the liquidity crisis starts to ease. And while there will likely be problems with some municipal bonds, it is highly unlikely that the highest grade bonds will default. Remember that they have taxing power that corporations do not. All of my personal fixed income assets are basically either in TIPS (in my tax advantaged accounts) or in AAA/AA munis (in my taxable accounts).

Second, while it may not be practical for most individuals, I prefer to buy individual bonds so that I control the credit risk. But for most, funds will be most appropriate to get the needed diversification and access to institutional pricing.

Third, right now munis represent, from a historical perspective, a tremendous buying opportunity (but again I would stick only to the highest investment grade bonds) as they typically trade at between 80-95% of Treasuries but now at well above 100% (in some cases as high as 125%). And if Obama wins as seems likely they should get even more attractive due to higher tax rates on the wealthy.

Fourth, the yield curve is fairly steep and historically speaking you have been rewarded for taking risk in such environments. A good rule of thumb I think is that you generally stick with intermediate bonds, though if getting about 15bp more per year you might want to consider going longer — keeping in mind you do take on more inflation risk (but at least you are getting compensated for it). If you do go longer, be sure that you can accept the incremental inflation risk.

My book, The Only Guide to a Winning Bond Strategy You’ll Ever Need, goes into a good amount of detail on most fixed income investments and does include a full chapter on municipal bonds and what I believe is the winning strategy.

I hope that is helpful

Best wishes
Larry Swedroe

Question from Anonymous:

Hello Larry,

Is there any reason why my complete bond portion of my portfolio cannot be in the Vanguard GNMA fund (VFIIX)? It has a nice yield and is near its lowest price, and its holdings are backed by the full faith and credit of the U.S. government.

Thank you very much.

As I discuss in my book, The Only Guide to a Winning Bond Strategy You’ll Ever Need, I don’t recommend any MBS (mortgage back securities). While the GNMA fund is low cost and has no credit risk you have no certainty of maturity. You get a small risk premium for taking the uncertainty of maturity risk and then you accept an I lose-I lose game. You lose if interest rates fall as homeowners refinance and then you get paid back sooner than expected and have to reinvest at lower rates and you lose if rates rise and you get stuck with a low interest rates for longer than you expected. And in both cases those risks can show up when your stocks are getting hit at the same time.

To me the preferred instrument by far, as recommended in the academic literature, is TIPS. Thus I would recommend you place your money in the Vanguard TIPS fund, or save the expense and just buy individual TIPS, perhaps a ladder. And right now yields are well above historical average levels. Currently I have about 85% of my tax deferred fixed income investments in TIPS and will go to 100% if real yields rise further. You have no credit risk and no inflation risk and you have a guaranteed real return now of close to 3%, tough to beat.

Best wishes
Larry Swedroe

+ + +

Past Issues of Ask The Expert

09/2008 - Ask The Expert with Larry Swedroe, September 2008 Issue
08/2008 - Ask The Expert with Larry Swedroe, August 2008 Issue
06/2008 - Ask The Expert with Larry Swedroe, June 2008 Issue
05/2008 - Ask The Expert with Larry Swedroe, May 2008 Issue
04/2008 - Ask The Expert with Larry Swedroe, April 2008 Issue
03/2008 - Ask The Expert with Larry Swedroe, March 2008 Issue
02/2008 - Ask The Expert with Larry Swedroe, February 2008 Issue
01/2008 - Ask The Expert with Larry Swedroe, January 2008 Issue
12/2007 - Ask The Expert with Larry Swedroe, December 2007 Issue

His Books

Disclaimer

Mr. Swedroe’s opinions and comments expressed are his own, and may not accurately reflect those of the firm, nor Moolanomy and its owner.
Not all questions will be answered
By submitting a question, you grant us the right to publish your question.
The answer is given based on the information provided in your question. Please seek professional assistance for more personalized advice.

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Related Posts:

October 2008 Site and Net Worth Review (-15.27%)

Pinyo — Mon, 03 Nov 2008 12:00:33 +0000

Before I begin my review, I’d like to remind you that tomorrow is Election Day — please exercise your right and VOTE! If you receive a flyer that tries to convince you “Republicans vote on the 4th and Democrats vote on the 5th”, please DO NOT believe it. We all vote on November 4th. I can’t believe that there are people that would try to undermine our democracy with such a lie.

Net Worth Review

If September was bad, October was dreadful. In addition to the -9.1% drop in September, the S&P 500 dropped another -16.9% in September — ouch. The index is actually below the 1000 mark, having dropped from 1166.36 to 968.75. According to NetworthIQ, my net worth dropped another -5.97%, and my net investable assets plunged -15.27%, or from 21.32% to 18.07% of $1 million goal.

Highlights

My house value dropped $8,500, or -1.46%, according to Zillow. Since I am not planning to sell my house, this doesn’t bother me. Actually it might work out in my favor because I am thinking about buying a second house — that is, if my career move works out.
My retirement investment dropped another -15.23%. Good thing I am a long way from retirement. I am not letting the recent events affect my retirement investing strategy; as such, I am making no adjustment to my 401k portfolio.
Some interesting changes on the peer-to-peer investment world.
- Lending Club allows lending again and actually give all of their lenders $25 bonus. They also added a new feature where lenders can sell and buy loans in their Note Trading Platform. This adds a new level of liquidity that makes Lending Club even better.
- On the other hand, Prosper no longer allows lending in their network. It appears that Prosper will be following Lending Club’s lead.

Alternative Income

Alternative income from my web businesses increased +48% thanks to last month traffic rush from MSN Smart Spending. This brings my projected alternative income against my total income (salary + alternative income) from 17.29% to 19.05% — beating the 17% goal by 2.05%.

Blog Review

October was not the a record month, but it was the second best month by most measures — it was the best search traffic month ever, thanks to searches for financial crisis and stimulus check.

Performance

Here are the key statistics for this month:

Subscribers increased +5% from 2,110 to 2,213
Search traffic increased +98% from 18,173 to 36,047
Visitors increased +7% from 52,971to 56,738
Page views increased -13% from 97,751 to 85,448

Top 10 Referrers

Thank you to all 806 web sites and blogs that sent visitors my way. Despite listing only the top 10, I do appreciate everyone’s help. Here are the top referrers this month:

* Indicates the winners of 125×125 banner ad spot.

Again, thank you to my readers and fellow bloggers for your support.

Related Posts:

Moolanomy

Money Hacks Carnival #39

Credit and Debt

Economy

Frugality

Income

Investing

Real Estate

Other

Five Things You Don’t Want to Hear From Your Financial Planner

1. You Will Have To Work Longer.

2. You Need To Save More.

3. You Will Have To Live On Less.

4. You Need To Take More Risk.

5. You Have To Work Longer.

Find Financial News And Articles With Tip’d, PF Buzz, And More

1. PF Buzz

2. Tip’d

3. Feed The Bull

4. BizzLo

5. PFBlogs.org

6. PopTop Ranks (Personal Finance)

7. Alltop Personal Finance

8. Streetread

Recession Proof Your Job - 4 Ways To Avoid The Pink Slip

1. Be Prepared.

2. Be An Expert.

3. Be There.

4. Be A Morale Booster.

Is Now The Right Time To Invest?

What’s the investment strategy that makes anytime the right time to invest?

1. Diversification

2. Regular Contribution

3. Redistribution

Here are a few more articles from other bloggers:

Obama’s 401k Plan Is A Double-Edged Sword

Why I Don’t Like The Early Withdrawal Plan

To Spur The Economy

To Help Homeowners Pay Their Mortgages

To Help Middle Class Face Financial Hardship

Conclusion

Here are a few tips on how to handle the slow economy:

Five Simple Steps To Stop Being A Victim

1. Don’t Play The Blame Game

2. Ask Why And Seek The Truth

3. Identify Control

4. Search For A Solution

5. Take Action

CD Ladder Explained

What Are Certificates of Deposit (CDs)?

What Is A CD Ladder?

A CD Ladder As A Hedge Against Interest Rate Fluctuation

Here are a few more articles about CD Ladder:

Ask The Expert with Larry Swedroe, November 2008 Issue

Question from Randy:

Question from Anonymous:

Past Issues of Ask The Expert

His Books

Disclaimer

October 2008 Site and Net Worth Review (-15.27%)

Net Worth Review

Highlights

Alternative Income

Blog Review

Performance

Top 5 Most Viewed Articles

Top 10 Referrers