Your Take 

Your Take: Drop the Penny & Nickel?

It currently costs more to make a penny and a nickel than they’re actually worth. So that begs, the question, should we really be expending resources arguing about how to reconstitute the coins (switching to cheaper metals) or should we just drop the coins all together?

What’s funny is that the fact that the coins are worth more for their metals than they are in stores isn’t even a big deal. There’s so much fiat money floating around that the Mint could always just print just a few more hundred dollar bills to compensate and the public would have no idea (other than inflation would tick a micro-fraction higher, but they play with that number anyway). The bigger issue is that we, as tax-payers, are paying for coins that many wouldn’t even pick up on the street!

What’s your take? Retire the penny and the nickel? Keep the little guys because we need something to stick in our piggy banks?

 The Home 

Hard Credit Checks Cost ~6 Points of Your Credit Score

My friend recently purchased a home and had to go through the rigamarole of apply and then re-apply for a mortgage. As it turns out, in the time between his first check and his second check, he had one hard pull on his report (the first check) and his score had fallen approximately 6 points. His girlfriend had the same first check plus an additional credit card inquiry, so two hard requests, and her score fell approximately 11 points. This is pretty consistent with the numbers I’d read online.

Here it is in his words:

If you are interested, [redacted] and I had to have our score[s] re-checked for our mortgage because it had been more than 120 days for us. According to our loan guy, mine [credit score] dropped ~6 points and [redacted]‘s dropped ~11 points. This is consistent with numbers I’ve heard in the past about hard check[s] since I had one more hard check on my record (the previous mortgage credit check) and [redacted] had two (the previous mortgage check and one credit card check). So, roughly each check is ~6 points.

I’ve also heard that all mortgage related inquiries in a 30 day period are lumped together as one check, since everyone assumes you will be requesting quotes from multiple sources. These figures are consistent with that.

 Investing, Retirement 

Two Become One: An Easier Way To Combine Accounts

Late last month I wrote about how my wife and I were going to consolidate our Vanguard accounts by transferring the assets in her individual mutual fund account into my individual mutual fund account. As it turns out, there is an even better way to do this and I was surprised the original Vanguard CSR didn’t mention it (I don’t blame him as I did ask him three different questions and this was the third and least significant one).

The easiest way to do this was for me to open a Joint mutual fund account with both of our names on it, something you can do entirely online, then call up Vanguard and request that they transfer the assets from my wife’s individual account and my individual account into that joint account. By doing it on the phone, with all the verbal verification of our individual security data, we could skip a trip to a bank to get a signature guarantee. (I manage to always miss the branch managers or go to banks that don’t have a manager able to do a signature guarantee – I still haven’t changed the accounts for my TreasuryDirect account!)

This was all kicked off when I called up Vanguard to confirm I filled out their Asset Transfer form correctly. The form, while not too complicated, was a little confusing because it had two places for signature guarantees, lots of optional information, and I’m easily confused and befuddled. When I called them up, the CSR just asked if I preferred it if she did the transaction for me. Ha, of course I preferred it. 🙂

The phone conversation took fifteen minutes, which included a lot of explanation, and the conversion/consolidation process took approximately five business days; our accounts are now finally consolidated!


Sallie Mae Reporting Error Lowers Equifax Credit Scores

Oops Sallie Mae Dropped My Equifax Credit ScoreIf you have a student loan from Sallie Mae and recently opted for graduated or extended repayment plans, Sallie Mae probably reported your recent loan payment as a partial payment to Equifax and they marked it as delinquent. If all that happened, your Equifax credit score, one of the most important numbers of your adult life, took a big hit as a result of that reporting error (or “glitch,” as they would say) by Sallie Mae. Sallie Mae, based out of Reston, Virginia, happens to be the largest student lender in the United States and this mistake has caused a significant drop in credit scores, as many as a hundred points!

(Click to continue reading…)

 Frugal Living 

BFP Garden Project: $29 Kick-off

My wife and are planning on putting together a small little garden of potted plants that have had success with in the past. Our deck doesn’t get a tremendous amount of sun because of enormous trees behind our property but it gets enough that we’ve had pretty good success growing tomato and peppers in the past. This year, we’ve decided to give the garden project another go and document our progress.

This past weekend, we visited our local farmers market and picked up $29 worth of plants and potting soil and anticipate that will be the extent of our expenses besides water. Due to prior garden projects, we have a sufficient number of planters as well as some fertilizer, so we should be set in those departments.

BFP Garden Project: $29 of Garden Loot!

For $29 we were able to pick up:

  • Cayenne Pepper (2)
  • Eggplant (2)
  • Thai Basil (1)
  • Hot Pepper – Kung Poa (1)
  • Sweet Basil (1)
  • Orange Bell Pepper (2)
  • Patio Tomato (1)
  • Oregano (1)
  • Super Steak Tomato (6)
  • Green Sweet Bell Pepper (6)
  • Roma Tomato (6)
  • 40 lbs. Country Boy Potting Soil

As they grow, we’ll compare them to the grocery store prices and see if the whole garden process is “worth it.” My hypothesis is that the financials will come close and the real value is in being able to say you’re somewhat self-sustainable (and gardening is fun!).

Right now, tomatoes on the vine are going at $2.79 a pound, orange bell peppers were $2+ a pound (by far the most expensive of the bell peppers), and green bell peppers were under $2 a pound. While I don’t see us getting ten pounds of tomatoes, they’re certainly the most valuable of the vegetables we purchased.


Understanding Investment Risk Types

Risk is a word that gets thrown around often, especially when referring to the stock market. Experts talk of the dangers of investing in the market and the dangers of not investing in the market. They talk about how you need to take on an acceptable level of risk for your tolerance and how you need to mitigate your desire for fantastic returns by taking on a reasonable level of risk. Risk sounds so risky! So, what are all of these risks and how can you mitigate them? That’s what I sought to finally understand and this is what I learned.

There are a lot of fancy names for risk but the bottom line is that understanding them gives you a better chance are being able to mitigate their effects. You can’t fully reduce risk but through proper diversification, you can reduce their effects on your total portfolio so there isn’t one silver bullet that can take you down.

First, let’s talk about the differences between systematic and unsystematic risk. Systematic risk also known as undiversifiable risk refers to risk that affects an entire market or market category, such as market risk. Short of investing abroad or hedging your bets, you can’t get away from market risk. Unsystematic risk is also known as specific risk and refers to events that affect a small number of stocks, such as the risk of a strike or poor management decisions. You can reduce unsystematic risk by properly diversifying your holdings.

Market Risk

Market risk refers to the risk you take on as a result of investing in a particular market, in my case it would be the United States. Market risk refers to the idea that if the overall market falls, perhaps in response to Fed actions on interest rates, rising costs of oil, etc., then your investment may slide along with every other stock.

To mitigate market risk, you have to diversify your holdings such that you’re not entirely committed to one particular market. An easy example is to diversify your holdings through the purchase of ADRs or emerging/developing/international stocks. In mitigating domestic market risk, you introduce several other risks such as the foreign country’s market risk (known as country risk) and currency risk (impact of the change in exchange rate between the dollar and the foreign currency). However, since you’re diversified, the effect of each of those risks is lowered.

Inflation Risk

Inflation risk refers to the risk you take by not investing your money, stock market brokers love this risk :). Inflation, which most rules of thumb peg at around 3-4% a year, erodes the purchasing power of your money every single year. If you don’t get 3-4% annual returns on your dollar, you’re effectively losing that money each and every year.

You mitigate inflation risk by investing your funds, but this naturally introduces a whole hosts of other risks. The only difference here is that inflation risk is a near certainty – inflation doesn’t roll the dice to see if she’ll erode your money this year, she always takes it. 🙂

Manager Risk

Manager risk, or management risk, refers specifically to the risk that your mutual fund, or the company you’ve invested in, will suffer as a result of ineffective, poor, or under-performing management. It essentially points to the fact that the company or fund may be sound but the management made bad decisions that cause the stock price or fund price to suffer.

This is difficult to mitigate outside of diversifying your assets because you often won’t see anything that could clue you in. Oftentimes, managers simply make bad decisions or bad bets and it’s nothing intentional. You don’t see many Enrons and, even if you did, there are no obvious signals warning you that something is foul. Simply do your research and be confident that the manager of the fund you’re interested in has a long, strong and solid history of performance.

A close relative of manager risk is active risk, which refers to the risk associated with a manager of a mutual fund trying to beat his or her benchmark. Active refers to actively trading, or active mutual fund (vs. passive index mutual fund), and it’s been shown that the more active the fund, the more divergent it will be with respect to returns vs. its benchmark. Sometimes you beat the benchmark, sometimes you don’t, that’s active risk.

All Other Risks

There are plenty of other risks out there with fancy names like Political Risk (effect of political instability or changes in a foreign country), Liquidity Risk (lack of demand for your investment might make it difficult to sell), Reinvestment Risk (you can’t reinvest your funds at the same rate, or at all), etc. but I felt that those big ones were the only ones worth focusing on at this point. There are a lot of risk terms out there that can get as specific or as general as you could ever possibly want, but understanding market, inflation, and manager risk is usually sufficient for most purposes.


Discover Business: $100 Cashback Bonus Promotion

Discover® Business CardThis promotion has ended, you can look at this list of the best credit card offers to find additional sign up bonuses.

Discover Business is running a promotion where you can get $100 bonus cashback after $1000 in purchases within the first three months. Discover Business was the card I decided was the best business card because it offered a 0% APY on balance transfers and purchases for 12 months, had no annual fee (rare in a business credit card), and now with this $100 cashback promotion offer… it’s certainly worth considering if you run a business.

Some other notable features of the card:

  • 0% introductory APR on purchases and balance transfers,
  • 5% cashback bonus on office supplies,
  • 2% cashback bonus on gas purchases,
  • 1% cashback on everything else.

So, who can apply for a business card? Anyone can apply, simply enter your social security number as the TIN. The beautiful thing about the United States is that anyone can be a business as a sole proprietorship and there are no additional tax implications or forms to fill out for the sole proprietorship business entity. This means that anyone can take advantage of this business card offer even if you don’t have a business.

If this card isn’t your thing but you are still interested in the best cash back credit cards, I invite you to click that link and check out the hottest offers available.

 Investing, Reviews 

Review: Beating the Market by Gerald Appel, Marvin Appel

Beating the Market by Gerald and Marvin AppelWhen I was first approached to review the book titled Beating the Market, 3 Months at a Time, I thought I was looking at one of those “invest in this hot new sector, you’ll be rich in three months.” Then I saw that the publisher was Financial Times Press and that allayed my concerns some more, FT Press isn’t going to put out some day-trading, hawkerish type book and, this is something I learned later, neither of the authors are your BS snake-oil salesmen types.

The book isn’t about day-trading, though Gerald Appel is well known for his technical analysis and marketing timing (Gerald Appel created the Moving Average Convergence / Divergence technical indicator), but about active investing and how it can yield higher returns than “buy and hold” strategies. By active investing, they mean that you can use their strategy to review your portfolio once ever three months (rather than the often advised once a year rebalancing act). So, through active investing and a one hour review every three months, you can beat the market with their proven investing plan. That’s the promise they’re making.

Basic Investing Education

Beating the Market begins by educating the reader on how to put together an investment portfolio, what your goals should be, how you should approach it, and is generally a good primer on investing in general. For example, it’s important to note that you want to get a rate of return greater than the risk-free investments you have available to you. I could put my funds in an E*Trade Online Savings account and get 3.15% risk-free, so my investments have to beat that. (usually the benchmark is money market funds and 90-day T-bills) Another goal is to manage the risk of your investments, something individual investors are notoriously bad at. Emerging markets are always hot and can return big double digit returns, but they can also lose big doubt digits… are you getting enough return for the risk you’re taking?

It Gets Complicated, Quickly

After the eight page primer on putting together a winning investment portfolio, the books slices right into diversification and risk management. I don’t want to recap the entire book but the topics it covers run the gamut from discussing ETFs and emerging markets, to the purpose of bonds in your portfolio, to special bond market investments, and end with discussions of retirement, planning for the political impacts, and an appendix chock full of resources. There is even a chapter called the Definitive Portfolio in which they build out a well diversified example portfolio with a mix of two types of bonds, two types of ETFs, and one overseas component.

The Investing Plan

So what’s this plan I spoke of earlier? The plan is the whole book. By understanding all the pieces of your portfolio (including risks, investment profiles, and all the nitty gritty described in each chapter) and how diversification works to reduce your risk, you can actively participate in the management of your portfolio without having to pay a manager 1-2% of your investments. That’s what active means in their plan, not day trading.

There’s a lot of information in this book and it’s definitely one I will be reading more closely over the next few weeks. There are discussions about high yield “junk” bonds and about the international markets that I glossed over, two things I know very little about, so if you have it at the library or bookstore (I tend to borrow all my books from the library) I wholeheartedly recommend that you pick it up.

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