I’m not an investing expert but I think I am a relatively seasoned amateur investor in that I’ve seen a lot of things and can draw up conclusions based on that experience (of an amateur investor) that may be helpful for anyone who is searching for what to do after a drop like yesterday. The largest drop since the day after the NYSE opened after 9/11/2001 occurred yesterday in which every major American stock index fell and so you may be wondering what it is you, amateur investor, should do. If the markets recover from yesterday, it won’t be such a bad thing to have a little bit of a correction, but if this is a slide that indicates the start of a recession, Greenspan made comments about a recession over the weekend which didn’t help matters; this may be an excellent buying opportunity.

1. Don’t sell anything (yet).
Don’t let emotions cloud your judgement, let this all shake out before making any decisions one way or another. I haven’t touched any of my funds because I want to wait to see how things play out before making any decisions. If you own individual stocks, their fundamentals haven’t changed (the market’s realization of broad market fundmentals haven’t really changed either, it’s just some panic, profit taking, and other activity going on trying to take advantage of the situation) so don’t go into massive sell-off mode. The market could rebound or it could tank, you can’t reliably guess which way so you might as well not guess.

2. Analyze your asset allocation
If you don’t like doing nothing, consider looking at your allocations. Since stocks took a hit and bonds rose, you may want to take a look at your asset allocation and perhaps readjust in the coming weeks as things shake out. This may have been a wakeup call that your allocation is stock heavy; did the big drop give you the shakes? Maybe you have too much for how much risk you can handle.

3. Load up on discount stocks
If you liked a stock on Monday, you probably like it more now because it’s much cheaper. Every stock I own fell yesterday and if I had a spare nickel in my Roth IRA, I would’ve bought some more of the stocks I held because there was a sale yesterday! (see that silver lining?) Take Disney for example, a stock I own that has been a high flier, you may have wanted to buy some but thought that the 30% runup the last year or so made it too pricey for you. Well, yesterday Mr. Market declared a 1 day sale of nearly 4% off on shares of Disney - go buy some!

4. Consider putting in a little more into that 401K
Are you contributing the minimum into your 401K? Consider loading up a few more percentage points and getting your money into the market after a discount and then ratcheting it back a little bit after the market recovers. It does smell a little like micromanaging your 401K, I agree, but if you can spare a few bucks it’s certainly a better time (than two days ago) to give your 401K a tiny boost when you know your dollars will go farther.

None of this is financial advice, it’s just the thoughts of a 26 year old amateur investor who has experienced a few market falls, this one hardly even registers when you compared it to the doozy felt in 2001 (tech bubble, 9/11). Anyone else have any helpful tips on how to react? I’d be particular interested to hear from folks who have been investing longer than I have and have seen bigger corrections in both the stock market and other markets.

If you have any high school kids, you probably have paid particular attention to news articles that talk about the rapidly increasing price of college these past few years. At many private schools, the price of a single year of college is over $30,000, which puts a four year degree at around $120,000 per child. Those are scary scary numbers for anyone who ever plans on having kids who will want to go to college but the College Board, a not-for-profit membership association that tries to connect students with colleges, puts these into perspective - which will probably take a heavy weight off some people’s backs and something I thought worth writing about because the big boys won’t (it’s not as exciting to dispel myths as it is to perpetuate them).

College Is Too Expensive - The average lifetime earn of a college graduate is a million bucks more than someone who is just a high school grad and the statistic doesn’t take into account whether you went to a public or a private school. The average yearly cost of a 4-year public school is only $5,836. Six grand is a lot more palatable than thirty and within the reach of more folks than thirty.

Not Enough Financial Aid Around - Over $134 billion was handed out in financial aid and while the amount in grants (free money) may have decreased, but its been replaced with low-interest loans, college grants, and other grants. Personally, I received about $10k a year in grants from the school and an extra $8k in Stafford Loans.

If I Apply for a Loan, I Have to Take It - This is actually a misconception a lot of people have about any loan, just because you apply for a loan doesn’t mean you have to accept it! Most people who apply for a loan will accept it but sometimes you just want to see what sort of rate you’ll get and that rate plays an important role in your decision, so if you get a rate that’s not favorable you can always walk away. Think about if I wanted to lend you $10, you don’t have to take it. (if you had to take it, then they could just say you have a loan for 20398420398423% interest…)

There are more myths in the article so give it a look see.

Source: College Board

I wrote about how we’ve been lucky to experience a period of exceptionally low tax rates, likely helping the prosperity we’ve experience because people have more money to spend, in the past when I took a look at the historical top marginal tax rate a few weeks ago. Well, yesterday Pat Regnier did the same in a piece called the Great Tax Hike in which he argues that we’re likely going to see an increase in our taxes as we try to figure out how we’re going to deal with the Social Security shortfall, increased spending on Medicare, servicing the national debt, and a host of other issues. Now, the big twist, which I mentioned in my Devil’s Advocate post against Roth IRAs, is that some of these tax hikes could come by way of a consumption tax, an added tax on the things you buy, and so the Roth IRA wouldn’t protect you against that.

So, what does this mean? Since none of us can see the future, we should all diversify your retirement asset tax profile to make sure we aren’t caught going one way or the other.

I was talking to Nickel the other day and we got to talking about retirement saving after 401Ks and Roth IRAs. Hopefully, at some point in your life, you will reach a point where you’ve maxed out your 401K ($15,500 for 2007) and you’ve maxed out your Roth IRA (or you’re no longer eligible because you’re past the phase out) - what should you be doing in terms of savings for the future?

Now, if you don’t have a home, then I say the easy answer is that you should save for a down payment for a home (and perhaps pull back your 401K and Roth contributions). If you have kids or plan on having kids, consider one of the education plans. But what if those easy answers aren’t there (either you’ve maxed those out or you’re not eligible)… what should you save for?

And should you even save? Are you saving too much (very possible!)? Please share your thoughts!

If you own a home, every few years the state or county will come by and guess how much your house is worth and they will likely be very generous with that guess. While this high estimate will make you feel good about the state of your home and of the housing market, you will quickly lose that feeling once they send you the bill for your real estate taxes! This is where it pays to understand that you can contest your home’s tax assessment and that it’s a relatively painless process that could have a quick resolution if you’re lucky. I think it always pays to contest that home value assessment (unless you just bought your house, then your home’s value is assessed at the sale price and there’s no way you can get that lowered) because sometimes you can get lucky and just get it readjusted downward.

My friend Tony was telling me the other day how he just got reassessed and his house value was jacked up (almost unreasonably), so he went through the process of collecting recent sales, comparables, and all the other documents you need to fight the crazy high adjustment (the same things that home appraisers look at). When the time came for him to fight his case, he was all prepared and psyched up for a long drawn out battle, but his assessor just agreed that her initial guesstimate was too high and she’d lower the appraisal! All it took was one phone call!

Tony also noted that the softening housing market could be a benefit for homeowners not looking to sell because you can argue that your home is less valuable than it really is because of the housing market. If comparable sales are now lower, use those as examples of how your house lost value. If you can get over the idea that your home is less valuable (at least on paper), you can save yourself some serious cash in terms of real estate taxes.

I recently received another email related to debt that I’m wholly unqualified to answer so I’m posing this up to everyone who reads in hopes that you will be able to help this person out. The last time I did this there was a lot of supportive comments and I hope this time maybe you could give more suggestions if there are any out there. Without any experience with massive credit card debt myself, I just didn’t feel qualified to speak on the subject and dispense any sort of advice.

Hi Jim,

I came across a link to your site on bloggingawaydebt.com several days ago. I read and appreciated the referenced article. I knew I had some debt to deal with but since reading your article, things have become more urgent. Of course now I can’t find the link to the article on your site I read originally, but I’m reading plenty of your articles and decided to contact you. Below is my story. I would really appreciate any information you can pass to me.

My situation is a little unusual as it’s not new debt or current debt. I have no credit cards and haven’t for quite some time. I had a company that failed and suddenly found myself without income and unable to make credit card payments. I kept looking for work, but only found temp or very part-time work with not enough to support myself on, living with relatives, etc. My creditors finally gave up on me, particularly when I commented they were eventually going to cause me to have to file bankruptcy (NO, I don’t want to do that!).

Fast forward several years. I began working one almost full-time job, retail, almost two years ago. I was working two part-time jobs beginning a year ago and finally moved out on my own March 2006. In October 2006 one of the part-time jobs became full-time and I’m still working one additional day at the original retail job. I’m living in a rented home I pay only $550/month, but I still have utilities and other living expenses, repaying a personal loan from a friend for a car, car insurance, etc., so I can get to work. I’m also paying off a student loan and paying $25/month to the IRS for 2005 taxes I couldn’t afford to pay at filing time, because some of my 2005 income I was 1099ed.

Still with me? A couple days ago I got a letter from my largest creditor. I haven’t responded yet. I’m looking at what I’m making (netting approximately $1330/month) and what I owe them $13,000+ and I don’t see any way I can offer them a large enough monthly payment to make them want to settle with me. BUT, I owe a total of almost $40,000 (yes, I had excellent credit at one time) and I know it’s only a matter of time before those other creditors come knocking on my door. I don’t know what to do. I’m so overwhelmed and stressed over this. I thought maybe I could find a free debt counseling service somewhere, perhaps a senior service as I’m 58, but I don’t know where to look, and really, what can they advise me? I’m so afraid I’m going to have my wages garnished and lose my job and then where will I be? I won’t even be able to support myself. I’m trying so hard not to become a burden on society, but I’m just at the end of my rope. Do you have any suggestions or resources for me?

ps: On reading the comments to article Paying Off A Debt in Collections, I noticed the last comment by Ralph (comment 17) mentioned a judgment and then a collections company Asset Acceptance. This is the same company that is contacting me. So, it’s a collection on a judgment? I suppose that changes things. *sigh*

One very good trend I’m noticing is that most of the people who do email me have turned things around and are just looking to make things right, which is great. Again, if you have any tips, please do share… collection agencies are horrible horrible creatures (there’s got to be a better way to make a living than by harassing other people).

From the department of Google hacks, Nickel writes about how you can get free long distance phone calls courtesy of Google Maps - pretty sweet except I only have a cell phone and every minute counts, in-bound and out-bound.

MBH has a two part review of Debt Is Slavery and in part 2, MBH asks Is money really not that important to you? On the debt front, JLP saw a commercial for a combo loan and wonders if you would really want to be taking out a 30 year car loan (which is the effect of rolling the debts into a combo). They’re really getting clever about getting people to pay more interest these days!

An obligatory tax related article, FMF writes about five audit red flags, some of which are kind of ridiculous but they make sense because they were probably abused in the past. And, from the department of fun fun weekend personal finance reading, Flexo brings some money advice from celebrities (none are really A-List celebs but I didn’t really think you’d see Tom Cruise telling people to save for a rainy day). And lastly but not leastly, from the department of fun fun weekend non-personal finance reading, Nick’s wrote a useful get fat guide to gorging at buffets.

During a three or four month period last year, approximately 20% of my friends at my old employer, including myself, left the company in search of greener pastures. Some left entirely because of compensation, others left for job growth opportunities (that is to say, more compensation in the future), and others left simply because their job was boring and they had no opportunities for change. Either way, the question of compensation was always in the mix because, let’s face it, we all want to make more money than we do now, no matter how much we make now. If you made a million dollars a year, you’d want a million and a half. If you made ten million, you’d want fifteen million or even twenty. If you made twenty? Well, you’d want a hundred.

So, what’s a greater incentive to work hard, money or the potential for more money?

And, as a corollary, if you are paid more, does that make you work harder?

I saw this article about Suze Orman in which she admits she has about a million dollars in the stock market and has that much in there because she doesn’t care if she loses it all (she said that estimates that she was worth approximately $25M were “pretty close”).

She says she has about a million dollars in the stock exchange, because if she loses it all “I don’t personally care.”

Ignore the first three paragraph, they’re just gossip drivel where they mention that she has a female life partner and has never been with a man (as if that has any bearing on her credibility when it comes to personal finance advice, I have a female life partner, I’ve never been with a man, and you all still read my blog), but the last paragraph shows how ridiculous she is.

I don’t really like Suze Orman because of her abrasive attitude, some like the “tell it like it is” attitude but I think she’s taking a page out of Judge Judy’s playbook (I’d rip my eyes out before I’d watch an episode of her show, not that I’m a fan of courtroom shows like that anyway…) to make her name. Either way, would and should you go to someone for advice if they were recklessly investing in the stock market because they wouldn’t “personally care” if they lost it all?

I usually save Devil’s Advocate posts for more big time personal finance advice but with the recent spat of 0% balance arbitrage posts (of which I’ve wrote several), I felt that I should write a post arguing the potentials risks of 0% balance transfer arbitraging because you don’t see many of these out there. For those who aren’t familiar with the practice, basically you apply for a bunch of credit cards with 0% balance transfer offers, request a balance transfer check, and deposit it in a high yield savings account - pocketing the interest.

Here are some reasons why you shouldn’t do 0% balance transfers:

Universal Default = Death
Universal default is the keywords you should look for in your credit card agreement (don’t bother looking, I guarantee its in there) and what it means is that if you miss a payment, any payment on any account, you could see your 0% balance transfer offer interest rate spike up to rates as high as 30%. So if you miss a cell phone payment or a water bill payment or anything anywhere, you could see your 0% rate disappear.

Oh, and if your card does two cycle billing, you could get creamed the last two months as your 0% balance disappears but the “two cycle” math keeps it on the books. It’s a ridiculous thing but it does happen. No one has ever complained of this, I don’t have a card with two-cycle billing, so I’m not 100% sure this is true but it should be.

Your Credit Score Will Plummet
When you apply for credit cards, the bank will do a hard pull inquiry of your credit history to assess your credit worthiness. As you accumulate more and more of these inquiries, your credit score will fall lower and lower. As you request balance transfers from these new lines of credit, your credit utilization will increase tremendously and your credit score will fall lower and lower. Plus, when you pay off these debts, your credit score isn’t going to recover immediately - it takes a little while before you get back to normal. So, if you’re planning on any big purchases, this drop in your credit score will likely result in loans with a higher interest rate that will make your interest earnings look meaningless.

The Payoff Is Miniscule
Let’s say you get $10,000 in debt at 0%, you put it in a 5% high yield bank account, that means at the end of the year you’ll get about $500 for your trouble. Now, take out a fat chunk for taxes and you’re really talking about very very little (at 25%, you only keep $375, or $31.25 per month). Is that really worth all the trouble of setting up an automatic bill pay (or paying it manually) every month, double checking when the offer expires so you pay it off, and then sending a big payment?

Anyone else have any good reasons why you shouldn’t be doing 0% balance transfers just to make a few extra bucks?