The brain activity of a shopper

So what happens in your brain when you decide to buy that $75 shirt that you can't live without, or that seemingly worthless and gadgety tuna fish drainer? (I love this thing now). This NYT article talks all about it, and it's worth reading.

The Voices in My Head Say ‘Buy It!’ Why Argue?
by John Tierney

Luckily, I avoided most of that holiday-shopping bug by buying all my gifts on the internet. That and I'm not yet gainfully employed might have something to do with it.

On the subject of shopping, I noticed an abundance of gift cards this holiday season. Who really derives utility from the gift cards, givers or receivers? Do you remember the person who gave you the gift card when you use it? Hopefully you do, but the more popular they become, the less likely you'll remember who gave what gift card; which moves you right back to remembering those people who just gave you cash (and how appreciative you are for that).

Consumer Reports estimates that 19 percent of the people who received a gift card in 2005 never used it. Want to know the term for that, it's gift-card breakage. Want to know where I read that? As usual, the NYT: The Gift-Card Economy

The only way I've been able to take advantage of the gift-card craze is to use the promotions offered by many restaurants. Chili's is a good example. Walk in and buy a $25 gift card, get a free $5 gift card, then just sit down and spend all 30.

The last part of this post was inspired by the fact that I've lost a Loews Hardware gift card and I actually need to go there. I'm tired of looking for it, it's a good thing they still take cash.

That regular savings account you hold on to... It's worthless.

Most of the posts I've made (especially the ETF nonsense below) is fairly technical, and it has been for me. One day I figure a few people (mostly those I know) will read this Blog and I'm sure they'd rather read something they can act on.

I'll discuss money market savings accounts. You see the adverts, you hear about them all over the place, but have you looked into one? Online Money Market Savings accounts are here to stay. These vehicles have pretty much replaced the money market mutual fund as an intelligent place to store your cash. Why keep your money in a regular account making 0.5% interest when you can be making 5.0% risk free and FDIC insured. You're basically just donating money to your bank, and that's kind of you. The online banks can offer these higher rates because they pay much less overhead and they focus on this niche market in banking.

They (those responsible financial planner types) recommend keeping at least 2 months of income on-hand (in cash) for rainy day expenses. Say you make 60k annually, that's 10K set back in cash (we'll disregard taxes), many people still keep this type of money in regular savings accounts. At previously mentioned rates, you are losing $450 a year.

There are only a handful of big names in the internet Money Market Savings game. I'd recommend GMAC or HSBC. Lately, GMAC has always had the better rate by a hair and their customer service is very responsive (The rate is 5.1% APY at the time of this post). It's easy to open an account online and they will send you a packet of info. So long as you have $500 in the account at all times there will be no fees or penalties. It's easy.

Now to make it easier. I enjoy online banking, there is no need to have all these papers and checks flying around everywhere; I get my statements online and try to pay everything online. It is easy to set up these internet MMAs to link to your banking account online and have the ability to transfer funds back-and-forth between the two. It's just like sending a check, but online; much like online bills are paid. Some bank sites, like Bank of America, allow you to import your other accounts and even credit card balances from outside B o A and manage or view all your finances in one spot. Convenient.

There's my two cents on savings accounts, and here's my advice. Every working person should have one of these Money Market Savings accounts. And no person should have that ordinary low paying savings account, period.

HSAs or Health Savings Accounts

Here is a video I stumbled across on thestreet.com. Talks about these Health Savings Accounts, which appear to be deductible accounts that act much like an IRA in the way it saves you tax money, but you can withdraw from the account to cover health expenses along the way. These can only be used with high deductible health insurance plans. Switching to a more economically efficient (higher deductible) plan will most likely save you money, and by funding this vehicle it insures you set back money for that rainy day when you need money for health care. That makes it good for both your current finances and your retirement aspirations.

I think there will be an HSA in this family soon, so i'll put up more findings and details when I figure it out. For now, just watch the video.

http://www.thestreet.com/_tscs/newsanalysis/smallbiz/10331652.html

(click on video version there at the bottom)

More ETF news, and Ben Stein's retirement picks

With talk about ETFs, I want to share Ben Stein's article. Just b/c I enjoy his retirement advice.

The article: http://finance.yahoo.com/columnist/article/yourlife/19423

His recommended portfolio.

30%	VTI	Total Market Fund
25%	EFA	Foreign Industrial Powers (the Dollar will decline)
10%	EEM	Emerging Markets
10%	ICF	REITs
10%	IWN	Small Caps
15%		Cash

Note. He mentions that the EFA investment should only be made to that extent if you have a long investment time line.

My thoughts on ETFs

I am wary of EEM and would chose a different route into the emerging markets. Also, I'm not really sure I want approximately 10% exposure to Russia in the emerging market sector of my portfolio. I would choose a different combination of more focused ETFs like Brazil MSCI Index (EWZ) Latin America 40 Index (ILF) and BLDRS Asia 50 ADR Inex (ADRA) I want to look for more exposure to India as well, haven't found that vehicle yet.

I think (especially for long term) that there is need for energy to be more heavily represented. I don't see us developing alternative fuels any time soon. Plus energy stocks appear to be at a relative S-T low. Look at iShares S&P Global Energy (IXC). It is well diversified globally, hey it's oil.

Lastly, I haven't researched this to it's fullest yet, but there is another way into the S&P 500 investment that I want to examine. As you may know, the most popular funds tracking the S&P are based on market capitalization (share price X number of shares). So, those equities with the largest market caps are more heavily represented in the index. Another vehicle, the S&P Equal Weight Fund (RSP), equally weights the 500 stocks represented to prevent your money from being sucked into the fad of the moment, be it hot or cold stocks. This can help or hurt you, but since its inception in about 4 years ago it has outperformed the conventional S&P by about 30%. We'll see how it does in the future. I might just split my S&P exposure down the middle, with half in the conventional and half in RSP. As I said, I'm not sure about this one yet, but it is worth looking at this concept in your investing.

Richard Dreyfuss Captures The Audience

I like this, because it is entirely bi-partisan in its approach. We miss that in today's politics. (This is an old note from Nov '06 I'm posting it here now)

I was thinking about paraphrasing Mr. Dreyfuss' speech here, but he does it better. And we have youtube...


http://www.youtube.com/watch?v=K4GLrFkfVS4&mode=related&search=


It's about why we need to give children the tools to look at a society's actions. Or rather, we need to teach civics again.

Investing with ETFs (Bank of America Deals, and Vanguard warning)

For all of you that are taking an active part in your investment strategy, well done.

To all those that have Bank of America. They offer $0 equity trades (with a few qualifiers), but this allows for an interesting investment opportunity. ETFs. Or Exchange Traded Funds. I don't have the energy to get into how they actually function, but they are like equity versions of most mutual funds that are traded. In other words the are bought and sold on a per share basis like stocks. ETFs often track an index, such as SPY and the S&P 500. This allows for a few neat tax benefits because you control when the capital gains are realized from sale. Furthermore, tracking an index (an index fund) lowers the turnover rate (all that buying and selling by fund managers) which presents some unique tax savings. The good thing about 30 free $0 trades per month from B of A is that you can construct your portfolio entirely of ETFs, and not worry about paying brokerage fees. Let's hope this isn't just a short term promotional gimmick.

A notice concerning Vanguard ETFs. Vanguard is the 800 lb gorilla of Funds. Known for low fees (pretty much always). Apparently they have tied their ETFs to their normal funds which presents a potential tax liability. Click here to get the explanation from my source. They have the some of the lowest fees in the business of ETFs as well, but this tax liability could present a problem that people don't usually count on. The article mentions that this is perhaps why Barclays (iShares) still has the majority of the market, despite slightly higher fees.

Keep this in mind when considering which ETF to invest in. As in the case below, we have Barclay's and Vanguard's investments.
iShares MSCI Emerg Mkts Index (EEM) = .7% expense ratio
Vanguard Emerging Markets Stock ETF (VWO) = .3% expense ratio
If you put in $10,000 that's $40 per year in additional fees to iShares.

Now how does this relate to the tax paid at years end, if it so happens that investors at Vanguard sell off shares and force a tax on the ETF investors? I'll discuss this later.