Let’s say in a fictional world you have enough money and you are paid enough money that you can contribute the entire amount allotted for a 401k pre-tax contribution in one lump sum at the end of January. Then, let us also assume that your 401k appreciates 1% each month for an annual yield of 11.56% (it’s only 11 months because your January contribution comes at the end of the month), which is a close enough approximation of the S&P’s historical growth. Is it significantly beneficial for you to contribute it all at once or incrementally? ($1272.72 a month, which would put you 8 cents shy of $14k, but accurate enough…)

Well, I’ve wondered so I put it in Excel to see if it really mattered… and it does matter. Given those assumptions, the year end difference amounts to about $743. That $743, which doesn’t seem like a lot, accounts for over half the gain of the lump sum contribution and 4.81% of the value of the total lump sum contribution account. Below is a table:

(Difference refers to the difference in gains)

This is in the optimal case (market is rising, you buy in at the cheapest point with a front loaded 401k) with a lot of assumptions that don’t necessarily hold true. If the market drops, you would lose more in the front loaded 401k than if you contributed incrementally. This is also sort of an analysis of the “dollar cost averaging” concept where you enter a position incrementally. If you believe in dollar cost averaging then you would never consider a front loaded contribution into your 401k.

I don’t know anyone who really front-loads their 401k, none of my friends make enough for this to be even feasible, but it also appears that it would make a significant difference. So if you make enough or have faith in the market, try to contribute as much as you can as early as you can (why some people contribute to a Roth as soon as possible). If you want to go the way of dollar cost averaging, then keep doing it the old fashioned way, a little bit at a time.

If you’ve seen Mad Money, you know he has a lightning round where he just takes a ton of phone calls where it’s basically a free for all where he gives his buy/hold/sell advice (with brief reasoning and alternatives if he hates the stock) on the ticker. How is he doing it? They screen the calls of course so his screen probably pops up with some summary information but is he getting some “extra” help on those screens? It can’t be possible that he comes up with advice on fly does it? Let’s think about it a little bit…

I think he’s legit and here are the reasons why:
1) Sometimes he blows people off with basically no info (”I can’t say anything bad about…”). So you figure he doesn’t know about Company XYZ, he’ll figure out some clever and witty phrase and blow you off.
2) A lot of the advice he does give on some obscure stock is sector advice. He’s hot on energy but not on coal. Bring some obscure coal company, as someone did tonight, and he’ll tell you that coal sucks and sell the stock.
3) Always advises profit-taking, “ringing the register” if you will, regardless of the company. A woman mentioned a stock that had gained like 24% and he told her to take the cash! Who cares what the company does… take the cash!
4) When he does know the company, he gives legit advice.
5) He does pause from time to time, maybe a fraction of a second, and “appears” to think. I don’t see him faking thinking… seriously… why would he?
6) He talks quickly and does try to get as many calls as possible. If he was BSing, he’d probably waffle a little, kill some time, etc.

Remember, like every other pundit and every other show about stocks, you have to do your homework. So far, Cramer looks legit and I enjoy watching his show. It’s entertainment after all right?

Anyone ever call in and get on the air? I think the probability is low you called and happen to read my blog but if you did, please please please leave a comment!

Update: The other day, Jim Cramer commented on a company before a caller mentioned the company name. (5/4/05)

Welcome to the next installment of Tax Relief 101, where I find interesting and legitimate ways to relieve your tax burden. This time, we’re going to look at the retirement savings credit that I didn’t even know about until today. Basically if you make under $25,000 and contribute to a retirement account, the government is willing to give some of that money back to you as a tax credit today (as much as $1,000). It’s an incentive for low-income earners to put away money for their retirement.

The form you must file to get this is F8880, Credit for Qualified Retirement Savings Contribution. Essentially, the math is as follows:

‘04 Traditional/Roth IRA contributions
+ ‘04 retirement plan contributions
- distributions since 2001,
—————————————————-
or,
$2,000,
whichever is smaller.

Then, based on your salary, you divide that number by 2 [< $15k], 5 [$15k-$16.5k], or 10 [$16.5k-$22.5k] (a Bankrate article has the full table). That means the maximum credit you can get for this is $1,000.

What this allows you to do is if you’re one of the few folks earning the lower end of one of the brackets, just contribute some more to your employer’s retirement plan and push yourself down into a lower bracket. This will give you the benefit of reducing your taxable income and earning you the credit. The restrictions are what you’d expect: you cannot claim this if you’re a full-time student, younger than 18, or claimed as a dependent.

Finally, if you decide to claim this credit, you’ll need to file Form 1040 or Form 1040A, the 1040EZ isn’t allowed.

I hope you’ve found this tip helpful!

Have you seen the latest Bank of America offer of $100 (offer expired) for opening a checking account? How about Comcast willing to pay you $25 a month to trade in your dish (or one you just bought off Ebay) and get you as a subscriber? Companies try their hardest to get new customers and with the prevailing attitude that it’s cheaper to keep a customer than it is to get a new one, you can get out of almost any penalty or fee if you simply ask. Just ask.

I’ve missed a credit card payment before on several (three times maybe, over the course of seven years) where I thought I did a payment online or, even farther back, I just misplaced the envelope and forgot (out of sight, out of mind). Well, in each case I was obviously dinged with a $10 or a $20 finance charge. Just call up the credit card company and tell them that you simply forgot, you’re a good customer, and could they waive the penalty. If they decline, simply tell them, politely, that you’d like to stay a loyal customer but if the credit card company isn’t willing to waive a small fee then you’ll try to find someone more understanding. In most cases, a CSR (customer service representative) has the authority to waive minor fees. Just give them a good reason.

(Click to continue reading…)

Okay, first I watched Jim Cramer’s Mad Money show (and let you all know what I thought), which led me following his column on TheStreet.com about his 25 Rules of Investing. He has a new book too called Real Money: Sane Investing in an Insane World and as a bonus to readers he’s listing 25 rules on the site. I like his hard hitting, no BS attitude and I’ll give you my summary and impression of his self-proclaimed twenty five rules. Can 25 rules really capture every rule of investing? No, definitely not. But I want to read what this dude has to say…

Rule 1 – Pigs Get Slaughtered
How can you not like that title? This quote summarizes the entire rule: “Bulls make money, bears make money, pigs get slaughtered.” When the market goes up, people make money. When the market goes down, people make money. It’s when people get greedy that they get slaughtered. Making money is good but don’t get so greedy that you’re holding the bag when the bubble bursts.

Rule 2 – It’s OK to Pay the Taxes
This is a great, short post, about how you shouldn’t hold onto a stock just because you don’t want to pay short term capital gains. Some stocks are meant to be held short term and you buy them on that notion. “… no taxes are due when you sell at a loss.”

Rule 3 – Don’t Buy All at Once
Jim Cramer supports a concept known as “dollar-cost averaging” which has recently come under fire from various sources. This is one of those long debated concepts of buying over time and I don’t know what is right, honestly. If the stock goes down, you average out your price to get the lowest than if you had blown it all in one shot. If it goes up, you could’ve made more by purchasing it in one fell swoop. Cramer says it’s the way to go and honestly, there is probably not right answer. (like the little loophole I left myself in case someone does a mathematical analysis proving dollar cost averaging’s correct)

Rule 4 – Buy Damaged Stocks, Not Damaged Companies
Ever see someone readjust (ie. lower) profit expectations for the year or missing analyst estimates for a prior quarter and see their stock hammered? That’s a damaged stock. An accounting scandal cause the damage? That’s a damaged company. Take advantage of the overreaction, that’s what this rule means. I’m a huge fan of this rule and if you’ve seen Merck or Pfizer lately, you’d be a huge fan too if you were able to take advantage.

Rule 5 – Diversify to Control Risk
“If you control the downside, the upside will take care of itself.” Diversify across different sectors to manage risk. Don’t put all your eggs in one basket. This rule everyone pretty much understands.

Well that’s the first five. As of right now, 18 of the 25 rules have been written so you can check them out if you want to by visiting this page. Thus far nothing incredibly ground-breaking in terms of rules, nothing you probably haven’t heard before, but you probably got a kick, as I did, out of how he said it. Pigs get slaughtered is a great way to say “don’t be greedy,” don’t you agree? Disagree with some of these rules or how I feel about them? Let me know.

For the next five rules, read this article.

How many times did you see Gevalia and think Godiva? Yeah, I did that a whole bunch of times until I realized Gevalia is all about Kaffe (coffee!). Anyway, they have an offer out there for a 8-cup free coffeemaker, two 1/2-lbs. packages of coffee, and a stainless steel travel mug for five bucks. That’s it… five whole dollars for all that (shipping and handling are included). The freebies must be crap right? Actually, wrong… I tried out the trial program (easily cancelled right afterwards) and it went pretty good. Currently, the offer is for a 12-cup coffeemaker, 2 ceramic mugs, and a stainless steel scoop for $14.95 though I signed up for only the 8-cup coffeemaker and travel mug for $5.

Until I started working full time, I drank coffee sparingly because I didn’t really need to be totally awake in order to walk to class and fall back asleep. But after I started work, coffee became a staple of my morning routine. I didn’t make it at home because I didn’t have coffee or a coffeemaker but they had it at work so I drank it there. Then came the time I had to wake up early for a flight and found I seriously needed some coffee to make it through so this $5 coffeemaker, coffee and travel mug was right up my alley.

Signing up online was easier than stealing candy from a baby, within a few minutes my order was in. I had the cancellation number handy (1-800-438-2542) so whenever I received the package I could call to cancel. The order arrived a few days later in a huge but light package (the coffeemaker is big) that included everything I expected, no problems whatsoever.

Coffeemaker – The coffeemaker was a Gevalia branded percolator that is able to brew up to 8 cups of coffee, two would be enough for me. The coffeemaker is programmable by timer and brews great coffee in mere minutes. The only downside is that the little filter holder is a weird triangular shape I wasn’t used to seeing. A regular filter will fit fine in but it won’t be a snug fit, but it wasn’t a problem for me at all. The pitcher is sturdy enough and I’ve accidentally banged it lightly on the counter without any cracks. I’m not going to tempt fate by banging it really hard though.

Coffee – You pick the two half-pound packages you want and they come in a foil bag that folds down easily. I drink coffee infrequently at home so I throw them in the freezer where they stay just fine. You get a pretty solid selection of free coffees when you start.

Travel Mug – The mug is just like any other travel mug really. It’s not cheap or flimsy, as I would’ve expected, but it’s not anything really special either.

Overall Impression – Great deal for $5 if you don’t have a coffeemaker. You can can set the $5 coffeemaker on a timer; that alone is worth the $5. You aren’t getting crappy trial offer junk you’d expect at such a low price. I also haven’t been getting any junk mail from them (only once, to offer me the same deal again) so that’s a bonus. I hate it when I quit something and they constantly send offers to get me to join again. Gevalia didn’t do that, for which I’m thankful. If you do take advantage of this, remember, the cancellation number is 1-800-438-2542.

I forget what show I was watching, but it was one of those shows where you have all that Bloomberg ticker crap taking up 75% of the screen and little faces jibber jabbering in the leftover space, but the guy talked briefly about how your IRS 1040 (the full incarnation of the form everyone fills out for taxes) gives you subtle reminders of the things you should do to help plan your financial future. I didn’t watch the whole thing but I thought it’d be fun to go through each relevant line (yeah, I’m a sadist) and see how it could be used as a subtle yearly financial plan reminder.

Line 8a – Taxable Interest
Line 8b – Tax-exempt Interest
There are investment vehicles out there that are tax exempt at certain government levels. For example, an EE/E bond is exempt from State and local income taxes but not from federal taxes. This is a reminder that sometimes your most conservative assets may be better placed in a tax-exempt bond than in a savings account bearing 3.0%. Of course, you sacrifice flexibility but you should know tax-exempt investments are out there but you do keep Uncle Sam’s grubby little paws off your loot.

Line 13 – Capital gain or (loss)
This is something you can only capitalize on if you remember it before December 31st. If you have a loss and want to write it off, sell it to offset a gain you may have had. Just remember not to repurchase shares in the same company within 31 days or the “wash” rule will bite you (and you won’t be able to write off the loss). Did you buy shares of JDS Uniphase and got burned badly in the bubble? Yeah, me too, write it off now because they’re never going to break even for you.

Line 15a – IRA distributions
Line 25 – IRA deduction
Contribute to a Roth or any other type of IRA? These lines are a reminder that perhaps you should be planning for your retirement because Social Security won’t be enough to sustain a lavish retirement lifestyle! Retirement planning, especially for young workers, is critical because it is something that benefits with the passage of time. The more you sow now, the greater the benefits you will reap in the future. You want to be living in luxury when you’re retired, not a cardboard box. (You cannot deduct Roth contributions on your return, I just intended for that line to serve as a reminder to plan for retirement)

Line 33 – Penalty on early withdrawal of savings
Tsk tsk! That IRA or 401k isn’t a slush fund you can withdraw on to buy that shiny [whatever]. Let line 33 be a reminder that you will be penalized for mortgaging a portion of your retirement for gratification now. Alright, I’m just kidding about the severity but you should be readily dipping into your retirement for every thing. Sometimes it makes financial sense, but most (90%) of the time it’s a bad idea. (Example of good ideas? In times of hardship, dipping into the retirement savings may be unavoidable)

Line 49 – Education credits
The government will help you educate yourself, even if your employer will not. Learn about Hope Credit and Lifetime Learning Credits and see how you or your dependents may benefit from them.

Unless I’ve missed anything glaring, those 5 “lines” cover a lot of the basic financial planning advice given out these days. Consider all investment opportunities with respect to the tax advantages, plan for your future, don’t mess up your future by needlessly borrowing from it, and always educate yourself. I’m not saying that the dreaded tax form should be your financial advisor, a human being almost always beats a piece of paper, but it gives you a couple subtle reminders for things you may have forgotten or conveniently ignored. Take a look at your return and see if you’ve taken advantage of everything you could’ve.

Updated 9/19: Emigrant Direct’s interest rates are at an impressive 4.0%!

So about three weeks ago, like a week before they raised their rates to 3.25% (and before ING raised their rates to 2.80%), I decided I was going to open up an Emigrant Direct account so I could get the best interest rate possible by having the accounts opened already. I had heard about some confusion and difficulty with opening an account with Emigrant but for the great rates I was willing to brave it and have posted the following as a guide to make the process as painless as possible. So the oddesey begins with a click on the “Open Account” button…

The first thing you have to realize is when you first open an account, the information you receive about an account number, your chosen username and password, will not give you access to your account immediately. After the test deposits are deposited in and withdrawn from the externally linked account you specify, click on the link in the email they sent to verify the external account.

At this point I had messed up and omitted a digit from the end of my account number so I had to call in and change it. The email that they sent asked me to talk to a specific person (two people), who I then asked to talk to. One person was gone and the other didn’t want to answer the phone, which rang about thirty times before I was kicked back into the normal customer service pool again where a random CSR helped me. I wonder what the point in sending me to a specific person was if anyone could’ve helped me.

So now the external account was verified, I needed to wait a few days for a paper package in the mail with my account details. It was just a letter with my new account number and some “instructions.” Anyway, back to emigrantdirect.com I go and I click on View Account. Then… this is where there’s a little more confusion, I can’t login yet. I have to click on the “Sign Up” link located in the “New Customers” box underneath the login section. Once there I had to verify some information and I was finally in!

But I couldn’t transfer money from an external account yet! Just click on Message Center on the left sidebar, click on Contact Us, and send them an email with the following information (you can cut and paste the one I’ve included):

Hi,
I’d like the links to transfer money between my Emigrant
Direct account and the external linked account activated
please.

In a day or so there should be an External Transfers link for you to transfer money into the account and you are set! This should help you make the process, which takes around a week and a half overall, as painless and clear as possible. I hope you find this helpful and let me know if I missed something.

I saw that I was mentioned, pseudo anonymously, by Brian Stelter in his media blog called TVNewser in a post about Mad Money. I wanted to welcome those of you who reached my humble blog on personal finance and hope you come back often. I’ll now go enjoy my fifteen seconds of fame and await the remaining fourteen minutes and forty five seconds. Cheers!

Do you buy groceries? Have you seen the skyrocketing price of gasoline? This card gives you 5% cashback on both. It also gives you 1% on everything else, 30 free phone minutes a month, and a whole host of other random credit card protections that you probably don’t care about.

Everything I’m going to tell you in terms of benefits is available from their application page, but keep reading for my personal experiences with them.

The 5% for gasoline is clutch, especially with gas over $2 a gallon. With 5% you are getting over ten cents back, which pushes the price under $2 (my psychological break point). I used to get gas at Costco because it was about 5 cents cheaper than the closest Exxon, but after 10 cents off the Exxon gasoline is cheaper.

The cash-back process is a little strange. The max cash-back is $300 (boo!) and you have to specifically request your checks (why?) and they have to be greater than $50. The cap isn’t the strange part, it’s the specific requesting of your check that doesn’t make sense to me. Just do it automatically so you don’t have to pay someone to take my call. A little known fact is that you also get 5% back on “eligible AT&T consumer products and/or services.” I have an AT&T Wireless cell phone plan and hopefully this will cover it, otherwise I get the typical 1%.

The free minutes and the other telephone stuff is pretty useless because I have a cell phone so that’s not a good reason to get the card. There is also an free annual review of your purchases which breaks down the categories in which you spent your money. You probably should run a budget and use that as an accurate measure of your spending, not this free annual review.

Also, Citi is very aggressive in trying to keep people on the program. I threw out the $15 check (I regret it because $15 is more than the typical $3 for signing up) so I’ll have to wait until they send it out again. I called and asked but the only thing the CSR can offer is a “rebate check” where you purchase something, send in a receipt, then get a check… too much hassle.

As always, comments are great appreciated.