JLP’s Weekly Roundup

The Many Versions of Monopoly

Full Service vs. Discount Brokers

A review of Fred Brock’s Health Care on Less Than You Think

The Good, Bad and The Ugly of Credit Cards

How to Set Goals You Can Achieve

Resolutions and Goal Setting

10 Common Investor Mistakes

The Pitfalls of Debit Cards

Help for HSAs

Get Your Butt Out of Debt!

The Best Brokerage Firm for Bonds

Beware of the AMT

Michael and I share an appreciation of Calvin and Hobbes

Ah… remember college? 5 Ways Andy Will Save Money During Winter Break

Why NCN Blogs

Kira experiments with Advertising on Her Blog

Will we see The Dow at 16,000?

A question I have always had: Why Don’t We Learn About Money in School?

Amanda has the Fa La La La Blahs

What Kind of Millionaire Do You Want To Be?

The January issue of Money has a section about reaching various goals. They (Money Magazine) took a poll to find out what sorts of goals people had set for themselves. One of those goals was “…to become a millionaire.” In that section, they have a little chart that shows how much you need to save each month based on your current age in order to become a millionaire by age 60. Their graphic looks something like this (I added the “20” column and a 12% and 10% ROR category):

The problem with this is that they are ignoring inflation. If inflation runs at modest 3% per year, \$1,000,000 will only be worth \$543,794 in 20 years and only \$295,712 if you go out 40 years. So, although you will be able to call yourself a “millionaire,” you will only have the purchasing power of half a millionaire.

What kind of millionaire do you want to be? A millionaire in name only or a millionaire in purchasing power? If you want to be a millionaire in purchasing power, you’re going to have to save more money. How much more? Let’s see.

I took Money’s numbers and adjusted them to reflect inflation. For illustrative purposes, I put together three graphics to reflect three different levels of inflation: 3%, 3.5%, and 4%.

With 3% Inflation…

With 3.5% Inflation…

With 4% Inflation…

As you can see, the numbers are quite a bit different from the numbers Money gives us. If you are currently 40 and you want to be a true millionaire by age 60, you will need to save \$3,066 per month (or \$1,368 more per month than Money’s example), assuming an 8% return and a 3% inflation rate. It’s not nearly as much if you can get a higher rate of return. HOWEVER, trying to get a higher rate of return includes taking on more risk and there’s also no guarantee that you’ll get that return.

So, what’s a person to do? Start saving, and start saving now. Don’t put it off. If you are in your 20s and are reading this post, thank God that you are young enough to have time on your side. Don’t waste it. The sooner you start saving, the less you have to save.

35 Most Outrageous Fees (From Money Magazine)

The January 2007 issue of Money has a really good piece on the 35 Most Outrageous Fees (sorry no link yet). What I found funny was that I could only find 33 “outrageous fees” listed. Their list (along with my thoughts on most of them):

BANKING & CREDIT

Over-Limit Fee – Charge too much or withdraw too much and you get socked with a fee.
Foreign-Currency Fee – Fees charged for using banking services while you’re overseas.
ATM Fee – Fees for using other banks’ ATM machines.
Late Fee – Fees charged when your credit card payment is late.
Same-Day Payment Fee – A “convenience fee” charged when you need to make a same-day payment.
Balance-Transfer Fee – Fees charged for switching credit cards
Bad-Deposit Fee – Fees charged when a check you deposit into your account bounces. This is a crappy fee.
Monthly Service Fee – Fees charged on checking accounts that are below a certain balance.
Biweekly Payment Fee – This is the cream of the crop. This fee is charged when you set up your mortgage payment to be paid twice per month.

REAL ESTATE

Junk Closing Costs – Don’t get me started on these fees. These are fees like “processing fees,” “document preparation fees,” and other such silly-sounding fees. I hate ’em.
Title Insurance – According to the MortgageProfessor, “title insurance is protection against loss arising from problems connected to the title to your property. Before you purchased your home, it may have gone through several ownership changes, and the land on which it stands went through many more. There may be a weak link at any point in that chain that could emerge to cause trouble. For example, someone along the way may have forged a signature in transferring title. Or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.

MISCELLANEOUS

Phone Surcharges

Carrier Cost Recovery Fee
AT&T’s Tax-Related Surcharge
Property Tax Surcharge
Activation Fee – Associated with wireless plans. These fees are usually around \$35.
Penalty to End Your Contract Early – End your contract early and you’ll get charged \$175 – \$200 (according to Money).

Stores

TRAVEL-RELATED

Car Rentals

Insurance – Insurance you pay when you rent a car. Some states make it mandatory and therefore it is built into the rental cost.
Excise Taxes – Taxes charged to visitors to help municipalities build new stadiums.

Airlines

Paper Ticket – Paper airline tickets are a thing of the past. If you still want one, you have to pay for it.
Talking to a Person – Want to talk to a real person instead of taking care of everything on the internet, and you’ll pay.
Changing Your Flight – It is what it is.
Reserving An Aisle Seat – Want a special seat? You’ll have to pay for it.
Overpacking – Don’t surpass the 50-pounds-per bag limit. Stupid, stupid fee.

Hotels

Internet Connection Fee – I haven’t run across this fee but that’s not to say that hotels aren’t charging it.
Resort Fee – Fees charged for use of the pool or exercise room.
Automatic Gratuities – No need to explain. A forced tip isn’t really a tip is it?
Package DeliveryFees – Fee charged by hotels to accept a package on your behalf.
Mini-Bar Restocking – HOLY COW! This fee is charged in addition to the prices you pay for the stuff you eat.

INVESTMENTS

Mutual Funds

Excessive Annual Fees – 1.25% per year for an index fund? That’s right! Some mutual fund families charge that much for an index fund. Go with Vanguard!

Annuities

Variable Annuity Expenses – These fees can easily reach 3% per year. OUCH!

Brokers

Transfer Fee – All brokerage firms charge a fee when you transfer your money away from them. I hate this fee.

529 Plans

Annual Expenses – According to Money, the best plans charge as little as .5% per year, while other plans charge as much as 2% per year. Shop around.

Did Money miss any? What fees are there that you can think of that are outrageous?

Stocks for 2007 (According to Fortune, Kiplinger’s and Smart Money)

Each December Fortune, Kiplinger’s and Smart Money publish their stock picks for the upcoming year. Here’s a look at what they picked for 2007 along with current prices):

NOTE: I am NOT RECOMMENDING any of these stocks. I’m just providing the information.

 Fortune COMPANY TICKER CURRENTPRICE AIG AIG \$72.02 Altria MO \$85.72 ConocoPhillips COP \$72.92 Diamond Offshore DO \$81.55 General Dynamics GD \$74.62 Joy Global JOYG \$48.52 Microsoft MSFT \$30.12 J.P. Morgan Chase JPM \$48.30 RadioShack RSH \$16.77 SouthwestAirlines LUV \$15.46 Kiplinger’s COMPANY TICKER CURRENTPRICE 3M MMM \$79.03 AIG AIG \$72.02 Annaly Capital Management NLY \$14.06 Arch Coal ACI \$31.67 AT&T T \$34.98 Cisco Systems CSCO \$27.51 Johnson & Johnson JNJ \$66.47 Textron TXT \$94.67 Smart Money COMPANY TICKER CURRENTPRICE Dow Chemical DOW \$40.42 Rohm & Haas ROH \$51.07 Yahoo! YHOO \$25.65 Amazon.com AMZN \$40.03 St. Paul Travelers STA \$53.94 Hartford Financial Services HIG \$92.25 Diageo DEO (ADR) \$77.72 Anheuser-Busch BUD \$48.01 Goldman Sachs GS \$201.89 Lehman Brothers LEH \$77.92 China Mobile CHL (ADR) \$40.40 Coca-Cola Hellenic Bottling CCH (ADR) \$39.42

There’s the list. You’ll have to read the magazines in order to find out WHY they like these particular stocks (Fortune’s is here).

Oh, and in case you were wondering, here’s how the magazines’ portfolios performed in 2006:

Fortune – 25.7% (The Portfolio: Phelps Dodge – 81.8%; Archer Daniels Midland – 48.9%; Hewlett-Packard – 34.5%; Altria – 21.1%; Berkshire Hathaway – 19.1%; Kinder Morgan – 15.3%; Norfolk Southern – 14.4%; Washington Mutual – 10.9%; Eli Lilly – 5.4%; and Citigroup – 5.2%) Returns were calculated for 12/06/2005 – 12/01/2006.

Kiplinger’s – N/A I couldn’t find the return numbers for last year’s portfolio (if there was a portfolio).

Smart Money – 8.6% (The Portfolio: Bank of America – 25.0%; UBS – 37.7%; Amgen – (8.0%); Gilead Sciences – 33.3%; HCA – 0.8%; UnitedHealth Group – (18.9); General Electric – 5.65; Tyco International – 7.3%; ConocoPhillips – (0.7%); Devon Energy – 23.2%; Nokia – 17.4%; and Qualcomm (18.9%))

How Much Is Christmas Going to Cost You?

If you charge this year’s Christmas, how much will it cost you? Take a look at the graphic below, which assumes total charges of \$1,500 on a card with a 12% APR. According to my numbers, if you pay 11 payments of \$135, and one payment of \$113, you can pay it all off in 12 months. You will end up paying \$98 in interest.

The problem with this is that unless you are budgeting (saving) for next year’s Christmas, you’ll have to pull out your credit card and start the process all over again. See how easily this can become a cycle? So how do you get out of this cycle? Well, you could…

1. Pay off the credit card and save for next year’s Christmas simultaneously, provided you have enough cash flow to do both.

2. Pay off the credit card and pare back on next year’s Christmas so that you can eventually pay cash for Christmas.

For a lot of people, option 2 is the only reasonable way to go. The problem is: how do you cut back on your Christmas spending? I think the easiest thing to do is to create a Christmas budget. A budget will help reign in spending on all the extra stuff that we seem to buy. If you look at your budget and see that you are still going to spend too much, perhaps you could talk with your extended family and tell them about your goal to pay cash for Christmas. They might agree to a less expensive gift exchange or even skip the gift exchange for a year. Of course, they won’t know unless you have a conversation with them.

The advantage of paying for Christmas with cash through a budget is that you can purchase gifts throughout the year if you choose. So, if you know someone wants something in particular and you see that item on sale in June, you can pay cash for it then and save it for Christmas. A budget gives you piece of mind because you know what you can afford to spend.

Try it! It works.

Oh, and if you ONLY pay the minimum payment each month, you’ll still owe over \$1,300 in 12 months (at 12% APR):

So, please pay more than the minimum payment each month!

Now, tell me… What are you doing that works?