Then the housing market stalled. ARMs reset. People were in rough shape. Those who overextended learned something the prudent have always understood, as much as your home is a great place, it’s not an investment.

Value of Homes Appreciate with Inflation Rate

There’s a great analysis of home appreciation versus inflation that concludes that home prices don’t appreciate faster than inflation. Michael Bluejay takes a look at historical data provided by the U.S. Census, the NAR, and the Case-Schiller index, so it’s not a guess… it’s based on hard data.

One big insight that I think many other analyses miss is the increase in the average size of a home. When you look strictly at census data, new homes increased in value an average of 5.4% a year, compared to 4.4% annual inflation over that same period (1963-2008). However, when you consider that the size of a home increased from 983 square feet to 2349 square feet, you’ll see that we’re simply buying bigger sized houses!

An investment has to beat inflation, not match it, because otherwise you’re taking a risk for no reason.

No Improvement Is Profitable

Every year, Remodeling magazine does a survey on the best home value renovations. No matter which year you look at, there is never a remodeling job that ends up being profitable. In 2007 and 2008, the best home value renovation was adding a deck and that topped out at 85.4% and 81.8%, respectively.

So as your home ages and needs major repair work, you’re immediately taking a loss on that “investment.” Our home was 25 years old when we bought it, in the last three years we’ve replaced all the windows and replaced the roof at a total cost of $12,000.

Carrying Costs

When people talk about how they bought their house for X dollars and sold it for Y dollars, they rarely talk about the interest and property taxes they’ve paid as they owned the house. It’s very exciting to hear about a home that has double or even tripled in value (or more!), but property taxes and interest are annual expenses that often get ignored when looking at the headline numbers.

Even when you account for the tax benefits, the costs can be substantial. The national average effective property tax rate (2000 census data) was 1.1127% and the national average value of a home is $158,934, so you could expect to pay $1,768 a year in property taxes. Slice off 25% for income taxes and it’s still $1,326 a year. It’s not an inconsequential amount to pay each and every year.

Transaction Fees

If you want an investment, buy a stock. You can get into and out of a stock for free at Zecco, for $2.95 at OptionsHouse, and for $4.95 at TradeKing. Want to buy or sell a house? Be prepared to fork over 4-6% of the sales price as a commission to the real estate agents involved. Can you imagine paying 4-6% of each stock transaction? No one would ever do it.

Not only are the transaction fees high, the market is illiquid. Buying or selling a home can take a long time. With a stock, you can expect it to be gone within minutes in a marketplace that has many participants. You sold it at the best price possible the moment you sold it. With a home, you can’t be sure. If you have only one buyer or you are the only buyer, you don’t know if you have good price because it was determined in an open marketplace.

Summary

There are many benefits to owning a home and I’m a huge fan of it, but don’t justify buying a home by thinking its home is an investment. It’s not.

It is, however, a place to live, a place to make your own, and a place to make yours. It’s a place to put down roots, a place to raise a family, and a place to grow old in. It’s a place to call your own, it’s just not an investment. It’s a home.

(Photo: orvaratli)

Your Home Is Not An Investment from personal finance blog Bargaineering.com.

Credit Karma is 100% free and they give you a TransUnion credit score using TransUnion data. It’s not technically a FICO score but it’s free and good enough for the reasons I give for monitoring your score all the time. You will have to provide sensitive personal information, since they will be accessing your actual TransUnion credit report, but you’ll never need to pull out your credit card.

MyFICO is run by Fair Isaac Corporation, the creator of the FICO score, and it costs money, about $9 a month. You get an Equifax FICO score every week, among other services. I don’t think it’s important to get an official FICO score all the time if you can get a credit score from one of the three credit bureaus (Experian, Equifax, TransUnion).

This is part one of a two part Devil’s Advocate, Angel’s Advocate article in which I argue both sides of an issue. This is the Devil’s Advocate post, here is the Angel’s Advocate post arguing why monitoring your credit score all the time is a bad idea.

Faux Identity Theft Protection

The number one reason to monitor your credit score all the time is that it will alert you to any changes in your credit report, because it will impact your score. If someone opens a new line of credit in your name, your score will go down. Since you’re familiar with what you are doing, changes in your score will alert you and you know to immediately investigate the cause of the change.

Learn Good Behaviors

Much like how biofeedback can be harness in the medical field, this is credit-feedback. We all know that applying for lines of credit will reduce your credit score because of hard inquiries, but until we become accustomed to seeing our score on a regular basis and watching it change, that cause and effect rule doesn’t stick out in our mind.

It’s also positive reinforcement of good behaviors, such as paying down or paying off your credit cards and being responsible with our management of credit. Your score will improve as you continue to manage your credit wisely and seeing that reflected in a score on a regular basis can be very empowernig.

Overchecking Beats Underchecking

Having an interest in your credit score and your financial fitness is always better than having little or no interest. As long as your checking doesn’t border on obsessive-compulsive, which turns it into a totally different issue, I think that checking all the time doesn’t hurt you one bit. Any inquiry you make won’t ever count against you with respect to your score so check away.

As you would expect, since this is a Devil’s Advocate post, I don’t check our credit scores “all the time.” I check once a month to look for anything unusual and then don’t worry about it.

Monitor Your Credit Score All The Time from personal finance blog Bargaineering.com.

It’s not like that in life. In life, you don’t always have to be the best. In this Devil’s Advocate post, I talk about how in personal finance, you don’t have to always get the best offer, sometimes good enough is good enough.

I think that, as Americans, we’ve become conditioned to try to be the best, try to get the best returns on our investments, and try to get the best deal on something. There’s nothing wrong with wanting and trying to get the best you can, in fact you’re doing yourself a disservice if you don’t at least try. However, you shouldn’t let your pursuit of the best investment prevent you from acting. You must avoid paralysis because you’ll be left behind.

The Best Investment Returns

The funny thing about making money is that the truly successful people ignore the glitz and the glamor and focus on the fundamentals. The proverb about the tortoise and the hare rings true. Think about the recent explosion in popularity with poker. People fall in love with the idea of working on their own, on living in casinos where you can get free drinks and flashy lights, on making tons of money sitting around player cards. What people don’t see is how much of a grind it is. You might hit a payday or two in your life but poker is strictly about probabilities and pot odds, to be successful you have to do a lot of math and make smart bets.

Investing for most people is the same way. It’s about doing a lot of analysis and picking your spots, you won’t get rich over night and it’s better if you don’t try to get the best investment returns possible. You don’t need rock star returns on your investments, you simply need pretty good returns year in and year out. Over the course of decades, your investments will grow and grow.

The Second-Best Deal

I recently bought Frontline for our new beagle Toby and opted to buy the slightly more expensive 6-month package, instead of the 12 month package. The price difference? Only a few dollars. I didn’t get the best possible deal because I didn’t want to have to store an extra six months of a drug that I knew I wouldn’t be using for six months! The premium I paid to avoid the storage was a few dollars I could’ve saved but I knew I wasn’t going to use that Frontline for a long period of time. I didn’t get the best deal I could’ve because who knows what I could’ve done with the Frontline while I stored it somewhere. I could’ve lost it, I could’ve stepped on it and broke the package, I could’ve done a lot of things in six months.

Pursuit of Perfection

Finally, you don’t have to be the best at something, or even good at something, to start doing it. The great achievements in life are the ones where we must work the hardest. Very few people can just up and run a marathon, that’s why it’s considered a tremendous achievement. Some achievements are never mastered, like golf, and the joy is in constantly trying to improve your performance. And some skills can’t be measured quantitatively and there is never a “best,” like playing an instrument.

In life, it’s about the pursuit of perfection, not about perfection itself.

You Don’t Have To Be The Best from personal finance blog Bargaineering.com.

The laws of supply and demand are in your favor because no one else is buying, which means the people who are will be getting incredible deals if they are willing to negotiate and put in the time. No one is spending their money, they’re saving… which means banks won’t be giving you great interest rates because they don’t have to, they have too much money! That’s only the beginning…

Negotiate Deals

The time to buy is when others are panicking. When you have the benefit of time, you control all the power in periods of economic uncertainty. I’m not talking about the stock market, I’m talking about everything. If you wanted a house, now is the time to buy because interest rates are low and home prices are low. If you wanted to make improvements to your house, start talking to contractors because business is slow and they will be willing to cut deals just to stay in business. If you wanted a car, dealerships will offer great incentives because they need to boost their sales numbers. Even if it’s something as simple as an appliance, you can negotiate the price down and get an energy savings tax credit! Don’t buy things you don’t need because they’re a deal, that’s reckless, buy things you need and negotiate it down to the bone.

Interest Rates Are Low

The federal funds target rate “range” is 0.00% to 0.25%, which means the government doesn’t want you to save, they want you to spend! The federal funds target rate is the target rate the Fed wants banks to lend to other banks on an overnight basis (to meet capital requirements). They achieve this rate by expanding or restricting the amount of money available. If a bank can borrow money from another bank for 0% – 0.25%, what incentive do they have to pay you anything for your savings? Almost none. The end result is that you get almost no interest from your savings. In other words, the government doesn’t want you to save your money, they want you to spend it and help boost the economy! And let’s be honest, unless you start spending, the government will only get worse in how it pumps more money into the system.

Spectre of Inflation

The government is pretty savvy, they know you’ll get upset if they raise the taxes without giving you a very very good reason. Fortunately they have another weapon, printing presses. When the government pumps more money into the money supply, the value of your dollars decreases. The government has made trillions of dollars in promises to financial institutions, automakers, and many other smaller profile parties through its actions the last few months and it will have to fund them somehow. Part of it will be funded by borrowing, but some of it will come through increasing the supply of money. Inflation won’t be an issue while we’re in a recession, but it’ll be a beast of a problem whenever we’re no longer scared of the recession.

Reward Entrepreneurs

The United States was built on the shoulders of entrepreneurs, reward them by giving them your business. Don’t overpay for things because you feel badly about their financial situation, that’s not necessary, but spend your money at the places you like and the business you enjoy dealing with. They won’t close a sale unless it makes financial sense to them but they do need sales. Giving them business will give them additional capital to work with and, if they’re doing well in the downturn, expand and add more available jobs to the system. I firmly believe, Devil’s Advocate or not, that the way out of this mess is through business growth spurred on by something, whether its consumer confidence and increased spending or a stimulus package that improves our infrastructure, it will be led by businesses and entrepreneurs.

Don’t Save Your Money from personal finance blog Bargaineering.com.

Americans are one of the most charitable groups in the world, having donating $306 billion in 2007 according to the Philanthropy Journal, an increase of 3.9% over the year before. While the donation amounts in 2008, a period of economic uncertainty, are not yet known, chances are Americans will still be sending hundreds of billions to philanthropic organizations… so in the face of that, I present to you four reasons why you shouldn’t donate money to charity.

You Already Donate

Whether you know it or not, you already donate to a lot of charities. When you pay your taxes, you’re subsidizing the operations of every single non-profit organization in the United States because they don’t have to pay taxes. When organizations receive subsidies or “investments” from the government in the form of grants, you’re more directly donating to philanthropic organizations. In the case of philanthropies that support individuals based on income (homeless shelters, soup kitchens, etc.), you are already supporting the individuals because your taxes go towards the welfare and food stamp system. It may be more efficient to donate directly to a local homeless shelter or local food bank, but you already donate to them and the people they help through your taxes.

Teach A Man To Fish

The old maxim of teaching a man to fish has and always will be true. “Give a man a fish, he eats for a day. Teach a man to fish and he eats for a lifetime.” Homeless shelters and food kitchens are wonderful if they are simply helping people get back on their feet, but far too many residents end up staying much longer than they would if the assistance weren’t so easy to come by. Withholding support to an organization trying to do good and making their lives much harder isn’t necessarily the best approach to effect this type of change, but it is an approach.

Administrative Overhead

All philanthropic organizations have administrator overhead costs to pay for. Many philanthropic organizations also have fundraising costs to pay for. When you donate your funds, a part of that goes to the administrative and fundraising costs – not the underlying cause. This is most true with your taxes, a donation you are already making! While you can check Charity Navigator to see the administrative overhead of almost any charity. The American Cancer Society spends 9.6% of its revenue on administrative expenses and another 21.8% on raising more money. Thirty cents out of every dollar you donate won’t go towards anything cancer-related.

Money Is Too Easy

It’s very easy to donate money to an organization, it’s much harder to donate your time by volunteering. When you volunteer, you have a much greater impact because you’ll probably volunteer as somewhere local. Those local organizations don’t get nearly as many monetary donations as the national organizations because they don’t spend as much on publicity! Also, many local charities, such as Habitat for Humanity, get a much larger benefit out of volunteers than they do from monetary donations. Finally, donating your time is a truly philanthropic act because you don’t get a tax deduction for your time. (The only exception to this is if you can otherwise make a boatload of cash during the time you would spend volunteering, then you probably should earn the money and donate that!)

I really struggled with this Devil’s Advocate post, probably more so than any other post, as my fellow Tweeters can attest to. In my tweeting about it, most of the responses that came back had to do with arguments against donating to a particular charity, rather than arguments against donating to charities at all! Ultimately though, I think the argument against donating to charities is pretty thin and comes down to personal preference. I don’t think you’re a bad person if you don’t donate (you may not have the means, you may not support any causes that have philanthropic supporters, etc.) just as I don’t think you’re automatically a saint for donating, it’s a personal choice that each must make on their own.

(Photo: mindfulone)

Don’t Donate Money To Charity from personal finance blog Bargaineering.com.

Almost every personal finance guru will tell you that it rarely makes sense to buy a timeshare. They often cite scary fine print, travel inflexibility, and difficulty in selling the timeshare. These are legitimate concerns for some timeshare owners, but not all. Back before I was heavily into personal finance, I considered a timeshare. And my girlfriend (now my wife) on a trip to Aruba actually bought one. Was it a bad decision? I don’t think so. Why? Well here are a few details that make our purchase seem “worth it.”

Four Reasons Why Timeshares Rock!

• The numbers work out – I’ve run the numbers over ten times to be sure. If we took the money and put it in some safer investments earning 5-7%, we would be able to afford the same accommodations that we have now. No more, no less. The last time that we used our timeshare, I asked how much we could sell it back to Marriott for and it was more than what we paid for it four years ago, even after Marriott’s cut. Marriott has a similar unit listed at a price that, if were to sell ours, represents a 15% compounded annual gain on our original investment in 2004.
• We have plenty of time to go away – My wife gets six weeks of vacation from her military job. I work from home. We know we are going to be using this vacation.
• It forces us to take a vacation – Sometimes people get in a “work, work, work” mode and that’s simply not healthy. By having a timeshare, we are “forced” to take a vacation each year, which is enough of an excuse to get us planning and out the door. And if you’re a work junkie, consider this: You’ll be more productive when you get back after a week of fun in the sun.
• It drives us to see the world – If you asked me two years ago if I ever wanted to go Thailand, I would have said it wasn’t in my list of top ten vacation spots. However, last year, as luck would have it, we had an opportunity to visit Thailand in an affordable way and we took it. Travel to Thailand was down and we were given an opportunity we didn’t want to pass up. We traded half of our timeshare (we have two rooms) for a suite fit for an emperor. One memorable experience my wife and I will never forget was Yambo, a baby elephant, playing with his log like a child with a new Wii.

These reasons make owning a timeshare right for us. However, that’s doesn’t mean you should run out and buy a timeshare right this second. Like any purchase, a little research and a few smart buying decisions goes a long way.

Timeshare Buying Tips

• Buy on the Resale Market – You can usually save 30% or more by looking for timeshares on sites like Ebay or Red Week. Buying directly from the builder means you’re paying for all the marketing and freebies they’re offering people just to listen to their pitch. It’s estimated that 50% of the price of a timeshare goes to cover marketing costs. This is the one big mistake that we made.
• Pick a Property with Staying Power – You want to pick a name that’s going to be around. We didn’t think Marriott was going bankrupt any time soon so we trusted the brand name. In this economy, you can never tell, but we had more confidence in Marriott, since it’s a widely recognized brand, over some other lesser known companies.
• Choose a Deeded Timeshare Property – We own the Marriott timeshare for life. We can pass it on to our kids and their kids’ kids. There are some timeshares that are only “right to use” and expire after a set number of years. We like the fact that we own property in Aruba. Many people would argue that real estate ownership is an investment.
• Pick One with Flexible Weeks – Some timeshares are for specific weeks of the year and only that week. If you buy week 42 and you can’t go on that week, you have to trade it, sell it, or lose it. With the Marriott timeshare, we can choose any week within a 6 month window and that flexibility is crucial. We pick when we go, not Marriott or some contract.
• Buy Now If You Can – The economy is in the dumps. People should be looking to dump them because they simply can’t afford to go on vacation or pay the yearly maintenance fees. This gives you a ton of negotiating power. Use it.

What do you think of timeshares? Good value or a waste of money and time?

(Photo: VideoVik)

Timeshares Are Good Investments from personal finance blog Bargaineering.com.

The financial services and investment community has made investing in the stock market as a means of security your financial future a part of conventional wisdom. They lobbied the government and worked to package it together with fancy tax advantaged accounts so that the deal is sweeter. The government is in cahoots because the more wealth that is created, the more tax revenue is collected. Everyone has a very good incentive to perpetuate this idea… they all get paid when you listen to their advice.

It’s About Cash Flow

The point of saving your money in a retirement account is so that you can generate a passive source of income when you’ve stopped working. That part is crucial for retirement, no argument there, but that doesn’t mean the only way to achieve that goal is to save in defined contributions plans like a 401(k) or IRA. There are plenty of other options out there.

One prime example, invest in dividend yielding stocks and funds. Anything you get paid out from a 401(k) is taxed at your marginal tax rate. Dividends are taxed at a special rate that is always lower than your marginal tax rate. If you’re in the 25% tax bracket, you’re taxed a mere 15% on dividends – much cheaper!

You can build cash flow the old fashioned American way, by starting a business. It’s risky but it’s also risky to give your money to a suit (or a computer) taking 1-2% off the top in the hopes that he (or she or it) makes you enough money to retire on. At least with a business, you hold destiny in your hands.

Other Investment Options

Piggybacking off the idea of building your business is the fact that all those retirement plans make it very easy to invest in the stock market and very difficult to invest in anything else. If you want to invest in rare wines, whisky, art, postage stamps or baseball cards (basically anything cool), you’ll have to open a self-directed IRA. Standard IRAs won’t let you invest in anything that doesn’t go through a broker (hmmmmmmm…). While it’s possible, it’s really difficult.

Also, once you put that money in the tax-deferred world, it’s really really hard to get it out without paying a penalty. Unqualified distributions from your 401(k) are taxed at your marginal tax rate plus a 10% penalty – ouch. Need some money to start a new business venture? Either start having bake sales or be prepared to eat the 10% penalty.

Stock Market Is A Ponzi Scheme

I wasn’t the one who said it, Dave Pollard did over four years ago and Mark Cuban thinks the stock market is for suckers. I’m not saying that it’s true just because someone writes it on the internet, but read those two articles and you’ll come away with an appreciation for this point of view.

Flame away!

401(k)’s and IRA’s Are For Suckers from personal finance blog Bargaineering.com.

Failure isn’t good, but it’s not always bad.

Learn From Your Mistakes

There’s an often told story about IBM CEO Tom Watson that really drives this point home. It’s said that in the 1960s, he called an executive to his office after the executive’s venture lost the firm $10 million. Watson asked the executive why he thought he was being called into the office. The executive assumed he was being fired. Watson’s response? “Fired? Hell, I spent $10 million educating you. I just want to be sure you learned the right lessons.”

There is only one place where failure is the end – that’s on a battlefield during a time of war. Everywhere else, thankfully, failure is merely an opportunity to learn from your mistakes and try again. No where else is this more evident than in the lessons of love. Little boys show their admiration for little girls by calling them names, pulling their hair, and throwing gum at them. Clearly this does not work. As little boys grow and mature, they quickly learn that girls like to talk, walk on the beach, and do all sorts of other boring things with their loved ones. Imagine a man who never “failed” as a child and start calling women names, pulling their hair, and throwing gum? I think you see my point.

With Risk Comes Reward

You can’t hit home runs unless you swing for the fences. Many a ball player have made very nice careers for themselves playing role positions and getting on base however they can, but not many last as you can always find someone faster and stronger to do that. If you want to hit home runs and get your jersey on the best seller list, you’re going to have to go hard after something and take some risks.

With risk comes reward and a higher probability of failure. In the IBM story, that failure cost $10 million in the 1960s. However, think of all the ventures IBM did succeed in launching and how much those could’ve cost had they failed. You place your bets with the best information you have, you work your tail off to try to get them to work, and whatever happens happens. You do what you can but sometimes circumstances are beyond your control. Don’t let those circumstances and don’t let the fear of the unknown stop you from doing anything. Don’t let fear make your decisions.

Don’t Be Afraid of Failure

In movies, characters say “failure is not an option!” In life, failure isn’t necessarily an “option” but it’s a potential result. Sometimes it’s not the worst result though! Failure today is better than a long drawn out failure that prevents you from focusing on something else. Think about stock investments for a minute, how many losers are you holding right now? Studies show that people hold onto losers far longer than they should and every dollar trapped in a losing position in one that can’t be invested in a potential winner. I’m not saying you should go out and sell all your losses and go elsewhere, but some of those are losers that will never recover. Anyone holding onto shares of Amazon from the dot com boom? Chances are Amazon won’t get back there for a long long time.

Failing quickly, and learning from that failure, is better than failing for a protracted period of time. Sometimes there is still hope and dragging things out will put you in a better position to succeed, but sometimes it’s stubbornness and fear of failure that drives you to continue down a failed path. Be able to differentiate the two.

Fear of failure prevents many people from pursuing the things they want out of life, don’t let it dominate you.

(Photo: pbo31)

Failure Is Good from personal finance blog Bargaineering.com.

Socialize & Network

Lunch is one of the best ways to efficiently spend time socializing with your co-workers without sacrificing any productivity. While you can certainly chat over your morning coffee or tea, nothing beats a solid half hour (or hour or more!) of spirited discussion over some sandwiches. Also, while you’re off-site eating lunch, you and your co-workers can drop your guard a little as there’s a smaller chance one of the big wigs is going to wander on by as you discuss the latest presidential debate or the recent bailout bill failure.

Socializing with your co-workers is crucial in today’s working environment. Your demeanor and how well you get along with other people is just as important as the skills you bring to the table. A really qualified worker isn’t going to get the job if he’s difficult to work with and get along with. By networking with your coworkers, you may find yourself being asked to join teams you otherwise wouldn’t have even heard of.

Get Up & Move Around

Sitting at your computer all day isn’t great for you. Have you ever heard of thrombophlebitis?

Thrombo means “clot.” Phlebitis is inflammation of a vein. Thrombophlebitis (throm-bo-fluh-BI-tis) occurs when a blood clot causes inflammation in one or more of your veins, typically in your legs. On rare occasions, thrombophlebitis (often shortened to phlebitis) can affect veins in your arms.

The affected vein may be near the surface of your skin (superficial thrombophlebitis) or deep within a muscle (deep vein thrombosis, or DVT). A clot in a deep vein increases your risk of serious health problems, including a dislodged clot traveling to your lungs and blocking an artery (pulmonary embolism)

In other words, it’s a blood clot in one of your veins that, when dislodged, could go to your heart and give you a heart attack. It happens when you have a prolonged period of inactivity, such as when you’re sitting on a long airplane flight, and experts advise that you take little walks on the plane so that you don’t develop these things in your legs.

You probably don’t sit on a plane much differently than you do at your desk, huh?

You Need A Break

One of the great lessons I learned at college was that it didn’t matter how much time you spent on a project, it was whether or not you could complete it by the deadline. In learning that lesson, I learned the corollary which was you shouldn’t put long continuous hours on a project because you had diminishing returns. The fifth straight hour you spend on a project is never going to be better than your first and your fifteenth hour is going to be far worse than your fifth. After a certain point, you get better returns by simply taking a break (or a nap) and restarting the clock.

Work is the same exact way. You will be far more effective if you take a mid-day break to chat with your friends than if you work straight through. Heck, you don’t even need to go out to lunch, just take a walk around the office (literally around the building, if you can, not just through the hallways) and mull over the problem in your head. Studies have shown that light physical activity stimulates the mind!

There you have it, three entirely legitimate reasons why bringing in your lunch is a horrible horrible idea. Plus, think of the economy, it needs your lunch money more than you do.

(Photo wwny)

Don’t Bring In Your Lunch from personal finance blog Bargaineering.com.

How about the housing boom? That was, in part, fueled by smart people figuring out they could collateralize garbage loans into safer loans so they could get their money out and lend some more. Boom, now the Feds have to assume control over Freddie Mac and Fannie Mae in order to calm the entire financial system and prevent a full-blown catastrophe.

Stock market and financial experts are like professional blackjack players. Sure, you can tweak the odds a little in your favor, but no one can see the future.

Use All Available Information

When people tell you not to “time the market,” they often mean that you should just buy slow and steady without any regard to what’s happening on the news. If you bought into an S&P 500 index fund anytime in the last few months, you had a stake in Freddie Mac and Fannie Mae (both of which were delisted last week because their market cap fell under the requirements). You bought into two companies (or “government sponsored entities”) that were in the middle of a housing crisis that we are basically chin deep in. There was talk that the companies would be taken over by the government, a move that would render their common stock shares worthless. If you bought into that index fund on a schedule, you bought into what appeared to be a sinking ship.

Experts would say to ignore that market news and just buy along as usual. I say that, in general, that should be the case but you have to use your brain here. We’re not in a scenario where some parts of the economy are doing well and others aren’t, we’re in a scenario where consumer spending is slowing and there are significant headwinds in the financial markets. Why not just take a break?

It’s Not The Only Game In Town

The stock market is one of the easiest ways to invest your money but it’s not the only way. You can take your money and invest it into a small business. You can go another easy route and buy some commodities like precious medals. You can buy art or horses or real estate. You could invest it in driving around to garage sales and looking for underpriced gems you can sell on eBay. The stock market isn’t the only thing you can invest in, consider other options. The more creative you get, the greater the potential gains.

Regular Contributions = Regular Commissions

There is one thing for certain every time you make a trade, the broker is going to take a cut. Whether it’s a load on a mutual fund, administrative fees, or a straight up commission – brokers make money on the action. When you make an investment decision, your choice might win or it might lose; brokers are fortunate, they always win. If people stop making contributions and stop buying stocks, brokers earn fewer commissions. Financial experts have a vested interest in telling you stay the course and that things will turn around (and they will, it’s just a matter of when).

Rule #1: Don’t Lose Money

At the end of the day, remember that rule #1 is that you shouldn’t lose money. Money that you don’t put into the stock market is money that you cannot lose. Put it into a high yield savings account (WaMu has a 5% APY 12-month CD No more! It’s now like 4% for 8 months.) so you don’t let inflation erode your purchasing power but staying on the sideline guarantees you don’t lose money. You may not earn a ton but you’re not going to lose a penny.

Timing the market is risky, but it’s certainly not as risky as blindly following “expert” advice.

(Photo: thecaucas, dsevilla)

Time The Stock Market! from personal finance blog Bargaineering.com.

I humbly disagree.

You Don’t Actually Know

The only problem with that bit of advice is that, as human beings, we tend to have too high an opinion of our own intelligence and abilities. In other words, you think you “know” but you probably don’t actually know as much as you think you do, or as well as you think you do.

I was studying computer science at Carnegie Mellon University during the tech boom of the late nineties and (very) early 2000s. I saw all these technology companies offering great services and saw that there was a very bright future in technology. I saw that the future of commerce was online so I believed that companies like Amazon.com and Buy.com and Overstock.com would be the future powerhouses (none have reached they tech bubble peaks, but all are doing relatively well… though Overstock’s CEO keeps complaining about the shorts). The only problem is that while I knew basic computer science theories, I didn’t actually know much about technology companies and the business world. I thought I knew, but I didn’t.

Too Many Eggs In One Basket

Another reason this bit of advice is dangerous is because it depends localized knowledge and, more specifically, often knowledge of an industry you’re working in. That’s dangerous for the very same reasons why people often recommend that you don’t invest your 401(k) money in company stock. When you invest your 401(k) in your own company, you run the risk of being hit with a double whammy if a market downturn affects your company. You don’t want your long term retirement assets pegged to your job, right? While the reverse may still hold true, if things go well then they go doubly well for you, it’s a risk that simply isn’t worth it in the opinion of most financial advisers.

Diversify Everywhere

Let’s say that you really do know an industry inside and out, that’s still only one industry. While Lynch’s advice wasn’t that you should put 100% of your investments into any one thing, it could be misunderstood. If you’re supposed to invest in what you know, shouldn’t you invest it all in at least that industry? Or that one country? I live in the United States, I “know” the United States, does that mean I should invest in domestic markets only? Probably not.

Even Those Who Know, Don’t

In reading Full of Bull, I saw how weak industry analysts were at predicting the trends in the industries they were covering. They spend their entire days analyzing industries, far more than what you would do if you worked in that industry, yet they were unable to pick the winners from the losers with any consistency. While part of the reason was because they had to play the marketing game, the reality is that the market is more of a random walk than an orderly march. Even those who devote their entire careers to tracking specific industries aren’t good at picking the winners.

I know I took a good statement and twisted every which way but I think it’s valid. Don’t invest with what you know, invest in fund who are led by people who know a lot and who invest in a lot of things. Or buy an index fund.

Don’t Invest In What You Know from personal finance blog Bargaineering.com.

Going to a public university gives you a better shot at success than a private university. You don’t have to go to a private university to succeed. In fact, going to a private university gives you no advantage over a public university. To take it to an extreme, going to a private university puts you at a disadvantage in life because you are paying significantly more for your education, thus saddling you with debt obligations, with no benefit.

Student Loan Debt

The average cost of a single year (this includes tuition, room & board, etc.) at a 4 year private college is $24,044 and the average cost of a year at a 4 year public college is $13,589 according to the College Board. Is private school truly worth the extra $10,455 a year?

It’s worth it if you can show that a graduate of a private university can earn significantly and consistently more than someone from a public university. I’ve never seen such a study or a report, likely because there’s no way to prove it. To claim a higher chance of success at a private school is like claiming that reading to a child when they’re young will improve their cognitive abilities. There may be a correlation but there’s no proof of causation. (This is a topic touched on in Freakonomics)

Greater Sense of Camaraderie

A school with a competitive sports program creates more school pride than a school without a competitive sports program. By leaps and bounds, public colleges have far superior sports programs than private colleges. Carnegie Mellon University, my alma mater and top notch private university, had no notable sports programs and I felt no strong attachment to the school. (I greatly respect my professors and peers and the education the school provided but in all other areas they were lacking) My friends from schools with better sports programs, public or private, often feel a much greater bond with their alma maters as a result of a strong sports program. Ever meet someone who went to Penn State? Or Ohio State? Or Texas? You know what I mean.

Easier To Network

Business is all about your network. If you’re an engineer working on a design, you probably don’t think that your network is all that important. Well, what happens when you need a part ordered? Or a drawing drafted? Or something to get through shipping? You could wait in the queue or you can tap your personal network to get your job done faster. The same is true in any industry at any level.

A significant reason why students want to attend Harvard is because of the networking opportunities. However, is the network worth the expense? Is that network that much better than the one you’ll build elsewhere? While you could make a case for Harvard, I doubt you could make the same case for every other private university in the country (or even 5% of them). You can build just as strong a network at a public university as you can at a private one.

The opportunities to build a network (and a larger one) are more plentiful at public universities because there are so many more students there! You may argue that you’re limited more by the physics of meeting people than the total number of students, I would agree. However, the pool of potential candidate “friends” is much larger so you’re more likely to meet networkable people.

More Alumni

Again, playing on the numbers, the alumni network is far greater at public schools than at private schools. If a public school graduates 5,000 students a year and a private school graduates only 1,000, then the public school will have five times the number of alumni (duh!). More alumni, and more passionate alumni, means the chances you run into an alum is much higher. I haven’t run into many (as in less than ten) Carnegie Mellon alumni, that I didn’t know beforehand, in my professional experience in the last six years.

Public schools are private schools are close enough such that it makes little sense to pay the private school premium. You walk into any company and there will be graduates from both private and public schools. The titles and salaries are not correlated with the issuer of the degree as much as it is correlated to the ability of the employee. The dumbest and most well-connected fool with a degree from Harvard isn’t going to cut it compared to a sharp mind from any public school.

Save the money and go public.

Don’t Go To A Private University from personal finance blog Bargaineering.com.

The average cost of a year at a private four-year college institution in 2007-2008 was $23,712. The cost of a year at a public four-year college institution was $6,185. Both were increases of over 6% from the prior year and don’t even include room and board! [CollegeBoard.com]

Bottom line (a surprise to no one): College is expensive.

With the college costs soaring, parents are increasingly feeling the pressure to borrow money against their homes (if they can) or raiding nest eggs in order to help their children get the best education available. Children are our future, not some numbers on a statement, so it’s natural that parents feel that “parenting instinct” kick in when it comes to their needs. However, sacrificing your retirement or taking on more debt to help pay for your children’s education is a financial mistake.

It’s Not About Love, Sacrifice, Devotion

Before we get into the financial reasons you shouldn’t take on debt for your children, let me be clear that this has nothing to do with whether you love your kids, whether you’re willing to sacrifice more on their behalf, or whether you’re good parents. It’s strictly a financial thing. Michael Jackson has all the money in the world and he was dangling his kid off a balcony, that dude is a terrible parent. I have no doubt you love and care deeply for your children, otherwise you probably wouldn’t be interested in this article, but this involves thinking with your head and not with your heart.

They Have Time, You Don’t

Even though student loans may be increasingly difficult to get, they are still available and should be your first choice when it comes to taking on debt for education. Your children will have decades upon decades of working years that can pay off that debt, the same can’t be said for you. By putting the debt burden on their shoulders, you can enjoy a peaceful retirement while they can handle the responsibilities of managing that debt. (plus, they may be eligible for one of these education loan forgiveness programs)

Also, your retirement savings should be left for your retirement. This is a maxim that applies whether you’re considering buying a new house, a new car, or a new education for your children. Retirement assets are for retirement. Let your children take out Perkins’ and Stafford loans, let them take out private loans, let them take on the burden of debt to pay for their own education – your retirement shouldn’t even be in the discussion.

Student Loan Tax Deductions

When your child takes out a student loan and begins paying it back, they can get a student loan tax deduction for the interest payments. If you pay for their education or take out a loan yourself, you may or may not be eligible for that tax deduction. Letting them take out the debt makes it that much more affordable. Of course, if you were to fund the education with a home equity loan, you would be able to deduct those interest payments but that’s less than optimal. Also, because it’s not a student loan, you lose the favorable interest rates that many student loans receive.

Improves Credit & Responsibility

Establishing a credit history and improving your score is always a struggle for a young professional. It’s the classic chicken vs. egg scenario where credit cards won’t approve you without a history and how you can’t build a history without debt. Student loan debt is a great way to establish and build a solid credit history. It’s a revolving debt and one that you’ll likely be paying for quite some time, so it gives you ample time to prove you’re a responsible creditor capable of making your payments on-time. It’s also usually a low interest loan, low relative to credit cards and other consumer debts, with a favorable tax deduction so you aren’t paying out the nose for this “feature.” While it’s always better to be debt free, if given a choice you’d always want student loan debt to be the one you’re carrying.

Those are three solid reasons why you shouldn’t raid the nest egg and let your children pay their own way. If you’re set on helping your children pay for college, consider opening an education investment fund like a 529 plan or a Coverdell ESA rather than pilfering the 401(k).

Don’t Pay Your Children’s College Education from personal finance blog Bargaineering.com.

However, Americans aren’t stupid. We didn’t save our money to launch the Revolutionary War to escape taxation without representation, we just did it. Heck, we spend so much that our savings rate is negative, beat that!

Here are only a few good reasons why we shouldn’t save.

Inflation Isn’t 3%

“Core inflation,” what the government uses to figure out inflation for a variety of inflation-pegged measures, doesn’t include food and energy. That sounds reasonable in theory, we shouldn’t peg an important number to something that fluctuates so much, but it fails miserably in practice. Food and energy prices have skyrocketed in the last year, yet CPI is still within “reasonable” limits.

Your money is worth less and less each day. Gasoline is at $4 a gallon now. Has your salary increased accordingly? If so, your employer is wonderfully pragmatic. If not, then you’ve experienced an erosion in your money’s purchasing power. That’s economic-speak for you have less money. While we’re not talking crazy Argentina inflation numbers, inflation is still there. Imagine if every night someone went into your bank account and took out a penny or two. How does that make you feel? Now imagine if it’s a ghost and there’s nothing you can do about it… except spend it. If you spend it, they can’t take it.

Retirement May Never Happen

Saving for retirement? Very admirable, but retirement may never happen. I’m not being morbid and saying you might be hit by a bus (seriously, just look both ways before crossing, like Sesame Street says), I’m merely positing the idea that you’ll hate retirement.

You may never want to retire, sit at home, play golf, watch soaps, or buy an RV and travel the United States. You may want to continue working, continue challenging yourself and achieving, and this amazing retirement, that you’re saving for and putting on a pedestal, may never happen. Tim Ferriss, author of the Four Hour Work Week, suggests mini-retirements rather than saving for this monster retirement at the end.

Enjoy When Young

The younger you are, the fewer responsibilities you have. If you’re single with no kids, take advantage of that flexibility and spend your money on the things you can enjoy today. If you’re married with no kids, go on more vacations. If you’re married with kids, it’s game over (just kidding!).

I’ve had numerous friends travel the world and living life (Roberto, Jack, Mark) and they’re under thirty. They’re taking mini-retirements. They’re all very smart individuals who can take a few months off and still find a job on the back end. They’re spending now, rather than later, and enjoying life to the fullest.

Why would you want to do this when you’re 60? Now is the time to do it.

Bequeathing Large Sums to Children = Mistake

Warren Buffett is donating most of his personal fortune to numerous philanthropic organizations, most notably the Bill and Melinda Gates Foundation. “There’s no reason why future generations of little Buffetts should command society just because they came from the right womb. Where’s the justice in that?” – his words, not mine. If you want some proof or justification for his words, look at Paris Hilton.

I say skip the bequeathing of money to your children. They will grow up and have the opportunity to earn their own money and learn the value of a dollar through hard work. Don’t save for them. Instead, spend it on yourself or spend it on supporting good causes like Buffett did.

Saving is for suckers, don’t be a suck.

Don’t Save Your Money from personal finance blog Bargaineering.com.

Tax Brackets & Marriage Penalty

The marriage penalty is the cute name given to the fact that the tax brackets for married filing jointly isn’t double that of single filers. That is to say, all things being equal, you will pay more as a couple than you would if you were just dating. This is a throwback to an age where one person worked, one person didn’t. In the case of only one income, doubling the brackets gave married couples a significant advantage tax-wise. Now, with two incomes, it’s become a liability.

Your Money, Your Choice

One of the great things about being single is that you are the master of your financial domain. If you wanted to spend $200 on a new purse or a pair of Nikes, you didn’t have to answer to anyone, you didn’t have the consult with anyone, you just did it. If you’re a saver and he/she is a spender, you had conflict. If you’re a spender and he/she is a saver, you had conflict. When it’s just you, there is no conflict. No one chastises you, you don’t chastise anyone, there’s no headache in a couple of one. You are the master of your financial domain.

Alimony Is Tax Deductible!

Did you know that alimony is tax deductible? That’s right, the government loves alimony so much that they will let you deduct it as an adjustment to your income whether you itemize or claim the standard deduction. You can’t deduct donations when you claim the standard deduction, but alimony is okay! First it’s the marriage penalty, then it’s alimony being tax deductible… if this isn’t a government incentive to get divorced, I don’t know what is!

I leave you with this:
A wise man once asked, “Do you know why divorce is so expensive?”
The answer? “Because it’s worth it!”

Save Money, Get A Divorce! from personal finance blog Bargaineering.com.