Uncommon Cents

I’ve traditionally been an early Christmas shopper; my shopping is usually done by Thanksgiving. But for a variety of reasons, it’s not done yet this year. I’ve had a wildly hectic schedule recently, as well as spending time and energy looking for work, getting my podcasts out on a more regular schedule, and of course, getting this blog off the ground. But now that I’m a bit under two weeks from the holiday, I’m wondering if putting off shopping until later helps or hurts my bottom line.

Certainly there tend to be great deals during the Black Friday-Cyber monday period, and I missed out on those. For my kind of shopping, that’s not of much consequence, because about 70% of my shopping tends to be gift cards–partially because they’re so easy to give and some of the places that offer them (Longs and Costco) are places everyone I know shop.

One of the things I may have missed out on by waiting so long is getting those scarce items; my niece has her heart set on a Nintendo Wii, for instance, which isn’t exactly easy to find. It’s also far more difficult for me get much through mail order now, although some places will still ship quickly without much of a charge (The Apple Store online comes to mind). I did, however, already receive a package from Amazon that will be a gift for my lady friend. Both of those things could end up costing me more money.

By waiting, I’ve also incurred some potential additional costs, such as the time and gas used trying to find parking in crowded malls, as well as the emotional cost of dealing with a frenzied shopping mall about a week before Christmas. And due to the time factor I may have a very limited selection of gifts to purchase–or I may purchase eventual white elephants due to desperation.

On the other side of the aisle, one of the things I have gained is missing another credit card statement date, which means instead of having to come up with the cash to pay for some of this in January, I’ll have until February. That doesn’t really mean I’ve spent less, but it does mean I have more time to come up with the cash. I also learned that Discover was offering a 5% cash back bonus special in December on purchases at grocery stores and supermarkets–no, I am not buying milk for my friends, but I make a lot of gift card purchases at Safeway, so that could potentially give me some money back, effectively making a $50 Macy’s card cost me $45 out of pocket.

So, as a whole, what kind of holiday shopping season is it for me? I’m not yet sure. I’m pretty sure that it’ll cost me about the same as in past years; I may not be able to get that Wii my niece wants; I’ll still be able to get a thing or two from The Apple Store before the holiday hits; I’m glad I planned ahead for my Amazon purchase; and I think I’ll suffer some additional stress from not getting it done early enough. Probably about a draw, overall, considering both the money factor and the stress factor.

How are you doing with your holiday shopping compared to previous years, both in terms of dollars and stress?

One of the books in my online “Now Reading” collection is The Lazy Person’s Guide to Investing. As far as investing books go, it’s quite elementary and designed for folks who are pretty uninterested in investing, but I like it a lot, in large part for simplifying 401(k) fund choices for the millions of American workers who have that wonderful investment option.My favorite part of The Lazy Person’s Guide is the sample portfolios they give as examples. This helps to cover asset allocation as well as fund choice all in one simple step. The Couch Potato, the Coffeehouse, and other included portfolios help to give the reader options and models to follow. When I recently worked on reallocating my 403(b) portfolio, I reviewed some of the portfolios in this book. I didn’t take one of their models to use as my own, but I took ideas from several and came up with my new allocation:

50% Total Stock Market Index

25% International Fund [unfortunately, my 403(b) plan doesn't offer an index]

25% Total Bond Market Index

Before this, my allocation was approximately the same, but I owned about twenty funds. I took the opportunity to reduce the number of funds I owned, simplifying the portfolio (I am not an advocate of people tracking dozens of funds, but it’s quite possible to track three, at least occasionally) and making it very easy to make sure that the assets I want in domestic stocks are in domestic stocks, the assets I want in international stocks are in international stocks, and the assets I want in bonds are in bonds. Index funds also make this a very low cost, highly diversified, and extremely efficient proposition. The fact that this is all in a 403(b) means that there are no taxes to pay upon the reallocation, and in the case of my plan, no fees to pay either.

Are there flaws with this portfolio? I’m sure that everyone has their own opinion, but low costs, high levels of diversification, and market matching performance says that it ought to do fine in the long term. If I was in retirement I’d probably want something a bit more balanced; if I was a bit younger, I might (but then again, might not) want something with more stock market allocation. What do you have in your portfolio? I’ve shown you mine; will you show me yours?

Sorry for the unexpected outage. Having some issues with trying to set up DNS properly here (I need A and CNAME records for dummies, I swear)… hopefully we’ll be back up for awhile under the proper domain (although not really set up the way I want it) until I can find the time and expertise to actually work on it.

I’ve never been sure if this was proper use of the word, but I object to advertisers telling people that you’ll save money if you buy something. “Buy today, save 75%!” I don’t really think that’s actually saving.

A coworker of mine once perused Amazon and saw a watch that was on special. “Look! If I buy it today, I save 75%!”

“Well, do you need a watch?”

“No.”

“Do you have someone in mind to give it to as a gift?”

“No.”

“Would you resell it somewhere for a profit?”

“No.”

“Then guess what… save 100% by… not buying it!”

I’m not sure if she understood that or not, but I think that’s as eloquently as I can make the point. A sale, discount, special, or whatever may help you spend less money; it doesn’t actually help you save money. Saving money means putting it somewhere you won’t spend it where it will hopefully earn a few bucks worth of interest or dividends or capital gains. Yes, there are many, many times when some kind of sale can be a huge financial help, especially if it’s an item you’re going to need anyway–a Costco coupon for toilet paper is immensely helpful–but there may be times when you’re tempted to buy something you don’t need (and maybe don’t actually want!) just because it’s “too good of a deal to pass up.”

Saving money doesn’t involve spending it; rather the opposite. It involves finding ways to not spend money, especially on items that you either don’t need or can do without by substituting something that costs less; it involves discipline and learning to do without instant gratification. It’s not easy, and often requires remembering your goals and long term wishes. Many times I don’t live up to my own expectations in this area, but I try to think long term and figure out creative ways to meet my needs without spending more money than I need to.

Are there times you actually save by spending? Am I missing something here? Please let me know!

Well, you not me. Just got a RSS widget up; sorry for the delay. Got a few more issues with the site I’m hoping to correct this weekend…

No question about it, the stock mutual fund, particularly the low cost index fund as pioneered by Vanguard, has been revolutionary for the small investor. Combined with the 401(k) and equivalent retirement plans, the mutual fund has placed a very powerful tool in the hands of investors; its low cost and diversification make it an ideal primary investment vehicle for a wide range of investors.

Individual stocks, on the other hand, have become less popular; I have yet to see a 401(k), 403(b), or 457 plan offer an opportunity to purchase stocks in individual companies, and even when given an opportunity to purchase individual funds (say in an Individual Retirement Account or a taxable brokerage account), many are more likely to buy mutual funds or their sister exchange traded funds than they are individual stocks. Why?

The appeal of diversification and its associated lower risk tends to attract investors to mutual funds rather than individual stocks; it’s very difficult for the individual investor to buy all 500 companies in the S&P 500 but very easy for them to buy one mutual fund that tracks the index, and all five hundred companies are less likely to fail than one individual stock is to plunge a large percent.

Still, I believe there is a place in an investor’s portfolio for individual stocks. They can be had at very low cost through a discount broker or sometimes directly through the company. Some pay healthy dividends; others have a long track record of skyrocketing performance. Aside from that, it’s sometimes just plain fun to have shares in a company and to vote on stockholder issues.

How to pick stocks is a subject for future blog posts; there are tombs written on that very subject. I pick stocks of companies I know that make products I like and buy and have a history of being financially successful; others will buy stocks only in companies that meet their moral and ethical standards; still others use some kind of mechanical formula to tell them which stocks to buy.

One caveat on individual stocks; despite their appeal–and I do find them appealing in many ways–the truth is that diversification is critically important in any portfolio. So while I do own a handful of individual company stocks, the value of that handful is less than 10% of my total portfolio, and no individual stocks is more than 3% (I would say that I’d be willing to have that one stock grow to 4 or 5% but no more than that). So my bet is hedged in a diversified portfolio–my largest individual stock is about 4% of what I hold in the Vanguard Total Stock Market Index Fund, with even more diversification into the bond and international markets on top of that. My point is simply this: like credit cards, individual stocks are not evil, just another tool that can be used, wisely or unwisely, to grow your money.

The fifth and the twentieth of each month are paydays for many people (my part-time job pays me on those days), so every fifth and twentieth of the month I’ll put together a few links of interest in the personal finance online world:

One of my favorite personal finance blogs is Get Rich Slowly; today J.D. talks about the issue of being too popular of a blog! I can only hope for that problem.

Blueprint for Financial Prosperity looks at 7 Responsible Ways to Spend Your Holiday Bonus (as well as 7 Irresponsible and Fun Ways). Pick your poison.

Nickel of Five Cent Nickel discusses year end money moves to help to improve your financial situation. Great way to end the year before starting on those 2008 goals.

Speaking of goals, No Credit Needed looks back at his 2007 goal (which, unfortunately, isn’t met) and discusses how it’s not quite as bad as it seems on paper.

Finally, Money $ Liberty looks at the psychology behind 0% interest rates and how they might not work as well for you as you might imagine.

There’s your payday for December 5, 2007.

As I stated in an earlier post, I don’t think that credit cards in and of themselves are horrible things. Rather, I think that the folks who use credit cards have to make choices as to how to use them–sometimes to their advantage and sometimes not. That said, there are some ways to really use your credit cards to your advantage.

First off… get cards with no annual fee! Fortunately most annual fees have gone away, or will with enough protest (try calling the 800 number on the back of the card to say that you don’t wish to pay the annual fee and are considering dropping the card and see if they’ll drop it; if they don’t drop the fee, then seriously consider following through). The last few cards that still hold on to annual fees, aside from those targeted at people with poor credit, seem to be airline milage cards and some American Express cards. I currently, with a caveat, have an American Express card with a fee… but the caveat is that the “fee” is my Costco membership fee, which I would be paying every year anyway–and every year since I’ve had that card, the Costco rebate amount that I get in February has been in excess of that membership fee (a bit over $50 here in Hawai’i).

Secondly, and even more importantly, pay your bill on time every month and in full. This tends to be the biggest single issue with credit cards; if they are not paid off in full every month, the large amounts of interest paid can easily outstrip the principle that’s owed. In addition, late fees have become a profit center for the credit card companies; some of these fees are in excess of $30! Don’t pay any more to the credit card companies than you already owe. Given my previous blog on the possibility (I am not convinced, although I will concede that it is quite possible) that folks who use credit cards spend more money than those who use cash, you may want some method of monitoring your spending (whether it’s “just” will power or some other way of preventing excessive spending).
Once those two primary things are dealt with… it’s time to use your cards to your advantage.

1) Check on your card’s benefits. Not the rewards program–you probably know all about that one–but the benefits. For instance, many credit cards offer free auto rental insurance if you rent a car, so you can turn down the overpriced insurance that Alamo offers you. This is a benefit that’s quite well known, but there are often other benefits that are not so well known. Price protection. Extended warranties. Air travel insurance. Check your card’s benefits to take advantage of these. My Amazon.com Visa has offered extended warranties for years; their program was less expensive per year than AppleCare for my iPod and allowed longer coverage (four years vs. two), and I got three replacement iPods over the last few years using that program.

2) Watch your card’s billing periods and use them to your advantage. For instance, my Discover Card bill is due on the 16th, and a new statement is generated on the 17th. The bill that ships on the 17th of December is due on the 16th of January. I will often wait until the 17th or 18th of the month to buy something, missing the statement until the following month. That means that something I buy on December 18th doesn’t actually get paid for with cash until February 16th; nearly two months to either come up with the money (hopefully not) or let the money gain a bit of interest in a money market account (hopefully so).

3) Maximize your reward programs. My Discover card typically pays 1% cash back most of the time, but it’s currently paying 5% back on supermarket purchases and restaurants. My Amazon.com Visa gives 1% toward an Amazon.com gift certificate on most purchases but 3% on Amazon.com purchases. Discover also has agreements with online vendors to offer increased rewards if the purchase is routed through Discover.com’s special site. One of my current favorites is buying gift cards at my local supermarket for places like iTunes and Macy’s–for 5% cash back. I’m also considering getting gift cards for the supermarket at 5% cash back–it’s like saving 5% off the bat somewhere I know I’m going to be shopping.

There you have some ways to manage your credit card use and maximize your benefits. Do you have any tricks to making the most out of these much maligned financial tools? Let us know!

Yes, November was a rough month for the stock market (I tried to think of other adjectives to use but it just was the one that fit the best). In that month, the total stock market index (not the Dow Jones Industrial Average, not the Standard & Poors 500, not the NASDAQ, but the Dow Jones Wilshire 5000, which tracks the total stock market index) dipped 4.725%. For me, personally, my main retirement account, which is comprised of a total stock market index fund, a total bond market index fund, and an international stock fund, ended the month down 3.485%, just a slight bit better.

These kind of figures are often enough to shake up those investors who take the short view–those who follow the stock market very closely and make decisions on whether to buy or sell based on what happens day to day. And who wants their retirement portfolios to fall in value?

There are, however, many problems with taking the short view. We’ll look at lots of these in coming entries, but for now, let’s just look at the issues with making the short view the predominant view in how you look at your investments.

If instead of looking at that one month loss, I look at my one year performance, that same portfolio gained 9.5%; over three years, it also gained, averaging 11.9% per year; and over five years, it also gained, averaging 13% per year. The total stock market index has a one, three, and five year performance of 5.8%, 9.7%, and 13.8% over that same period of time.

The point to be made is this: one month does not make a portfolio, and neither does one year. It takes several years to truly gauge a portfolio’s performance, and to make changes based on the short view can truly hurt in the long view. In the long view, there are rough months, but this is just one month out of a long string of them–over 5 years, one bad month is less than 2% of the time elapsed. I’m likely to have lots of months better than this one in 5 years, and even though I may have a few rough months as well, history tells me it’s much more likely I’ll have more smooth ones than rough ones.

Did the recent rough month in the stock market make you consider ditching some of your holdings? If so, the short view impacted you; the question is if it impacted you enough to cause you to sell. For me, the short view bothered me, but I decided a long time ago I’d be sitting tight for awhile, so that’s what I did and that’s what I’ll continue to do for quite a bit longer.

What’s your short view and your long view?

Not a blog post, but just a note that after some trials and tribulations, we’re officially up! Unfortunately I lost the (few) comments that one of my testers made. Oh well.