If it is about deciding what cereal box I should buy, what I decide has little consequence. But indecision when it comes to money matters can prove… well, expensive! Thankfully, some decisions aren’t that hard!

I’d like to invest in the stock market, but don’t know which stock to buy!

Is Coca Cola better than Pepsi? Is Apple better than Google? Why not invest in all of them? Why not invest in a fund that has beaten the stock market 9 times since 1999, a record that puts even the best hedge fund managers to shame?

VTI is one such fund that represents the entire US stock market and has an expense ratio of just 0.05%! (That’s not a typo!) Can’t get better than that! Investing doesn’t have to be complicated.

I’m tired of the constantly changing terms at my bank. I would like to switch. Which bank should I choose?

Let’s see… do you like free checks? Mobile check deposit? No minimum balance requirements? No monthly fees? A savings rate that is greater than the savings rates of the top 4 banks put together?

Yes? Then may I suggest Ally Bank? Great rates, good service and the freedom to use any ATM you choose without worrying about fees!

Can you recommend a good discount broker?

The first rule of investing is fees matter. Trading fees, maintenance fees, inactivity fees… you want a broker that keeps these to a minimum, has been around for a while and will be around when you retire. If I were to begin all over again, I’d start with TD Ameritrade.

Why this broker? They’ve done away with most junk fees other brokerages charge. But best of all, they offer 100 ETFs from reputable companies, including Vanguard, commission-free! For a beginner investor, that is an excellent deal.

What’s a no-hassle rewards card? I can’t seem to keep track the constantly changing rewards categories with my current card.

We’ve all been there! Considering we live in an almost cash-less society where the cost of doing business using a credit card is factored into almost every product or service, it makes sense to make a return on your expenses.

Of course there are different cards catering to different categories. Travel, shopping, gas and what not! But for everything else, rewards cards usually offer 1% cash back or less.

I don’t know your spending patterns, but If I were to recommend a good ‘catch-all’ card, I would recommend Priceline Visa. It offers 2% cashback equivalent on all purchases (and 5% on priceline.com deals). No categories to remember, no hassles. Not one of the big boys, but a good card to keep in your wallet.

ROTH or Traditional?

With Roth, you contribute after taxes, but you can withdraw funds tax-free when eligible to do so. With a Traditional IRA, you contributions are before taxes, but will be taxed at the time of withdrawal. There are other differences, but this is the most striking one.

If you think your tax rate will be more after retirement, it makes sense to contribute to a Roth. But if your tax rate will be less, or if you need to reduce your current taxable income, contributing to a Traditional IRA makes more sense.

Look, no one can predict the future or what the tax rate will be. Rather than investing on a whim, why not choose both?

Currently the contribution limit for Roth and Traditional is limited to $5,500 (6,500 if you are 50 or older) combined. You can contribute to both and adjust your split percentages as you get closer to retirement.

Mitigate risk due to uncertainty.

Fund choices in my 401K are terrible. Should I contribute?

First, find out if your company does a match, either partial or full, contribute up to the match. No matter how bad the fees are, depending upon the match, that’s a 50% or 100% return right there. Don’t throw away free money.

Next, see if you qualify to contribute to an IRA (Roth, Traditional, Spousal). If you still have money left, congratulations on being more successful than the average Joe! Now, put the remaining money back into your 401K. Despite the fees, 401Ks allows your money to grow tax-free and on the brighter side, when you leave the company you can always rollover your 401K to an IRA where you have the freedom to choose where to invest.

Retirement or College fund?

If you had to choose between the two, go with Retirement. Always. There will be tons of lenders willing to lend junior money for college and maybe he/she might even get a scholarship. Getting a loan without an income isn’t easy.

About the recommendations…
The products and services mentioned above are what I think are the best. If you think there are better options out there, I’d like to know!

Life is full of choices. But these money decisions are easy! is a post from Money Cone ^DISCLAIMER

Heck, at one point in my life, I pondered over this too!

If you can afford to set aside just $100 every month towards investing, the most common advice given is not to invest at all, but save up till you have a decent sum.

Actually, that is sound advice based on the simple fact that the average commission to trade today is about $7.

If you have to spend $7 for every $100 invested, that is a very high price to pay for the amount invested and realistically speaking, your chances of breaking even are very remote.

You really are better off putting that money in a savings account!

But in this post, I’m going prove conventional wisdom wrong and show you ways to invest even when you have very little to invest.

And kudos to you for even thinking about investing when you have very little to invest! You already have a head start!

STEP 1: Open an IRA instead of a regular brokerage account

The term IRA scares most newbies! But if you can open a regular brokerage account, you can open an IRA as well (IRAs do have income limits and other restrictions). The process is identical and takes the same amount of time. Every brokerage that allows you to open a regular account will also allow you to open an IRA.

The next question would be: Why?

Taxes, that’s why.

Let me share a personal story. A long time ago, I had the foresight to invest in a little fruit company, but did not have the foresight to buy into an IRA account. Now this little fruit company grew and grew and I saw my investment turn into a tidy sum. Now that I’m older and wiser, I think this money would be best served if put it in an index fund rather than being focussed on one company, but I can’t sell! If I sell I’ll be hit with a huge tax bill!

Now if I had bought these shares in an IRA account, I could’ve sold this stock anytime without having to pay any taxes! Dividends are not taxed either.

Learn from my mistakes.

STEP 2: Open an account in one of these brokerages

• You want a reputable brokerage that’ll be with you till your retirement
• You want a brokerage that won’t hit you with junk fees like annual maintenance fees and inactivity fees
• You want a brokerage that has a low barrier to entry
• And you want a brokerage that offers commission-free trading

Remember, switching brokers is an expensive, slow and a painful process. Get this right the first time.

1. TD Ameritrade

My first choice would be TD Ameritrade. This is a brokerage firm that’s been in the industry for over 35 years and should be there when you retire! Though their commissions are slightly higher than their competitors ($9.95), I still recommend them. I’ll tell you why in a moment.

Why do I recommend TD Ameritrade?

• Has been in the industry for 35 years now
• No account minimum required to open an account, no maintenance fees
• The most important reason for my recommendation is because TD Ameritrade offers over 100 ETFs commission-free. This is more than any of its competitors
• The ETFs themselves are from reputable firms like Vanguard, iShares, Powershares and SPDR
• Fee-less bank account with Bill Pay, free checks, ATM access with no fees. Whether you are a college student or an employed professional, this is a very useful feature. Never pay for checks or for using the ATM again!
• You also have the option to trade in stocks, bonds, CDs, options and even forex
• Excellent set of tools including the X-Ray tool from MorningStar which normally requires a subscription with MorningStar, but offered for free with TD Ameritrade
• You aslo have the option to trade via your Mobile phone

2. Charles Schwab

My second recommendation would be Charles Schwab. They’ve been in business longer than TD Ameritrade and have a very good reputation. They are fiercely competitive and of late, have been offering ETFs at rock bottom prices. This is good for you as an investor.

Why do I recommend Charles Schwab?

• Has been in the industry for 40 years now
• Their minimum to open an account is $1000, but is waived if you setup an automatic monthly transfer of $100 into your account
• Zero commissions on Schwab ETFs
• The cost of their ETFs are one of the lowest in the industry
• Good mix of stocks, bonds and international equities in their selection of ETFs
• Access to high yield checking account with free billpay, free worldwide ATM use, free checks and with no account minimums
• You also have the option to buy stocks, bonds, CDs and options
• Option to trade via your smartphone

3. Fidelity

Fidelity is older than Schwab or TD Ameritrade. They too offer a host of services like their competitors. This would be my third recommendation if you don’t like TD Ameritrade or Schwab for some reason.

Why do I recommned Fidelity?

• Has been in the industry for 66 years now
• Requires a $2500 minimum for IRAs or $200 recurring monthly deposits
• Zero trading fees if you invest in select iShares ETFs
• Selection of over 30 commission-free ETFs
• Like its competitors, Fidelity too offers cash management via Savings and Checking accounts with free bill pay, free checks and ATM reimbursements
• Trading fees lower than TD Ameritrade and Schwab at $7.95/trade
• Mobile Apps

Why I chose these three brokerage firms?

1. Reputation.
You need a broker that will be still there when you retire. If you go with smaller firms for the wrong reasons (60 day commission free trades, $200 deposit if you move your IRA etc), you are being shortsighted. TradeKing doesn’t exist anymore, Zecco reneged on its no-commission policy, OptionsHouse increased its commissions…

Would I trust my retirement money with them? No.

2. Low Costs.
As an investor, you have no control over returns, but you have a choice when it comes to how much you are willing to pay to purchase a security. Costs matter. A lot. All three firms I highlighted above offer reputable ETFs at a good price and no commissions. None of them have junk fees like annual account maintenance fees and account inactivity fees.

And that’s the reason I do not recommend E*Trade. They too provide commission-free ETFs, in fact 80 ETFs, more than what’s offered by Fidelity and Schwab put together, yet I can’t find a simple ETF that tracks the S&P 500. They too offer banking services, but you need an initial deposit of $100 and a $5000 balance requirement to avoid fees.

3. Feasibility.
I like Scottrade. I call them the last honest broker because they don’t charge one hidden fee that almost all other brokers charge including the three brokers I recommend in this post. A fee to transfer your account to another brokerage. If you simply want to try out a broker, I still recommend Scottrade. If you don’t like them you can move out without getting dinged with a fee.

They too used to offer commission-free ETFs. Used to. One fine day, they quietly shutdown their commission-free program. I would hate such disruptions in my retirement planning. Scottrade simply couldn’t attract enough investors to keep their commission-free program feasible.

Why not Vanguard?
Ok, so that begs the question why not simply go with Vanguard? They are a highly reputable firm, they are the pioneers of low cost funds, their funds are hugely popular and they too offer commission-free ETFs.

Here’s why. For an IRA, there is a $20 annual fee if you don’t have at least $10,000 in your account and $50,000 minimum in a regular account. Plus Vanguard does not provide banking services like the brokers I mentioned above.

STEP 3: Invest in low cost ETFs!

Ok, you’ve opened an IRA, decided on a broker but what should you invest in? First, don’t even think about investing in individual stocks. No-load mutual funds are good, but they usually have a minimum. Stick with commission-free ETFs.

Here’s what you do.

1. Select a total stock market fund and a total bond fund from your commission-free ETF list
2. Your age in bonds the rest in the stock ETF
3. Make sure you tell your broker to reinvest dividends
4. Dollar cost average and don’t try to time the market

Once you are comfortable with your new setup, you can always tweak your asset allocation. If you are young, you can go all stocks and zero bonds, or you can add emerging markets to your allocation, add REIT etc. For ideas, look at lazy portfolios. Be disciplined and stay the course. You will be rewarded.

Conclusion

I hope this research helps young but motivated investors. As Warren Buffett said, you are incredibly lucky to be born in a country where it is possible for individual investors to gain from the prosperity of the country. You are actually more luckier than Warren Buffett when he started out. Trading fees are the lowest it has ever been. You have access to information at your fingertips and available for free. Research shows that you don’t have to beat the market to make money. You can simply keep up with it, keep your costs low and enjoy a comfortable retirement.

Time is your friend. Combine that with patience and you will be amply rewarded.

Good luck!

How To Invest When You Have Very Little To Invest is a post from Money Cone ^DISCLAIMER

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A person who takes a contrary position or attitude

Contrarian is a term that is usually applied towards investing. That is, you buy when others are selling and sell when others are buying. You buck the trend by going against the popular market sentiment.

Warren Buffett became the third richest man on this planet by following this strategy. In this age when we are sending rovers to other planets and setting up a permanent base in space, Warren Buffett is currently obsessed with Railroads!

No this is not a cynical post about Buffett or even investing. This is about using the same philosophy in our everyday life. Does it pay to be a contrarian in everyday life?

My phone isn’t very smart.

I work in an industry where almost everyone carries a smartphone. Very useful in those long boring meetings when you can tune out life around you and check Facebook. I have a brick. It does not support data, but it does have my favorite game – Snake! But I can’t really play that game because there is no way to turn off that annoying beep each time I press a key. My phone isn’t very smart.

I’m forced to focus, no matter how long the meeting is. I can neither check nor update Facebook. But then I realized, I don’t have a Facebook account! Most of the time I’m connected either via my work PC or through my laptop at home. The only time I’m not connected is while driving to work, but then I reserve that time to listen to music and I wouldn’t use the phone anyway. Why do I need a smartphone?

Can I afford one? Of course! Do I have to have one? No. Instead, I use the money saved – about $2000 a year and apply it towards my mortgage as extra principal payments. My prepaid plan costs me $100 a year!

Chasing a customer away with breadsticks…

I was once offered free breadsticks along with my lunch order. I always order the same thing and don’t buy a drink but do tip and when owner of the pizzeria heard that I just had a baby and I’m on a single income, she somehow thought I was barely scrapping by! I felt very guilty eating those breadsticks.

No Honey Boo Boo for you!

When friends come over to our house, which is in a very affluent neighborhood, they gasp at our 32″ TV that has no cable! But for me, it doesn’t make sense to have cable. We don’t have time to watch TV with a hyperactive 3 year old and we don’t want him catching this habit. Neither of us are big sports fans so big screen TVs mean nothing to us. That’s a savings of about $700 a month. But it is not about the savings, it is about us. If it doesn’t make sense, cut it out. Doesn’t matter what others think. On the other hand, if they make PBS a cable-only channel, we would definitely consider cable!

I don’t pay $100 for an oil change!

No fancy car either. Definitely within our means, but again the purpose should be a genuine need, not a status symbol. The savings in gas, insurance and maintenance is a nice bonus.

Home work!

As a new homeowner, I wasn’t prepared for home maintenance. When the faucet started leaking, I decided I’ll fix it myself rather than hire a plumber. This time it wasn’t about the money or time, but pride! I’m an engineer, I build robots in my spare time, fixing a faucet shouldn’t take more than half an hour!

Took me 2 dirty, soaking wet days.

Since I didn’t have the right tools or even know what tools to have, had to make multiple trips to Home Depot, spent hours sawing rusted pipes, learnt about the utility of vinegar in removing rust, almost locked myself in the bathroom but at the end of day 2, emerged dirty but victorious with a shiny new faucet and brand new door knobs!

The next time we have a leaking faucet, I really wouldn’t take more than half-an-hour! 2 days was the price I had to pay for this education and it was worth every penn…second!

Looking back it was a fun experience and I’m glad I didn’t call the plumber! What am I going to do with all the money I saved! Nice problem to have!

Yard work. The typical response is your time is more valuable and you should pay someone else to do this. Yes it is if I’m doing something else that pays more than the $30 or so for the yard work! Not if you are sleeping or watching TV! The way I look at it, doing yard work is a good excuse for some fresh air and exercise.

Being contrarian can prove expensive

Contrarian doesn’t always equate to saving money. Sometimes you spend more, way more than you have to. When it comes to stuff for the house, I pay a premium. The faucet I bought was almost thrice the price of a regular faucet. Faucets are notorious for springing leaks and I don’t to deal with this very often. Quality versus lower cost.

A good vacuum cleaner is hard to come by. Most for us, last at the most, a year. I bought one that is 5 times what a regular vacuum costs! Not just based on the price, but for the 7 year warranty and based on the positive reviews. Hopefully I wouldn’t have to worry about this for the next 20 years!

The same goes for other fixtures as well. LED bulbs cost as much as 30 times a regular bulb. But they last a lot longer and consumes a fraction of energy and is good for the environment.

When we decided to purchase our house, I simply sent an email to our condescending agent and said ‘We’ll take it’! We had no pre-approval, we didn’t look like we could afford the house (I’m sure my phone was the culprit here!), and ‘We’ll take it’ is no way to let an award winning million dollar club agent know that you are interested!

We weren’t insulted, we were amused! We had no doubts in our minds about financing and hence didn’t bother with a pre-approval. Paid 20% cash to avoid PMI and bought the house.

We are no different than others, we just have a contrarian view of life. And being contrarian can save you money. Who knew!

photo

Does it pay to be a contrarian? is a post from Money Cone ^DISCLAIMER

This is one of those questions that does not have a straight answer, and depending on who you ask, you might get a different opinion. But most experts do tend to favor lump sum investing. After all, the sooner you invest your money, the greater your chances of a getting a good return.

I do trust expert opinions, but I’d like to verify them as well.

Two Roads Diverged In A Yellow Wood…

Lump Sum Joe and Risk Averse John, both came across a windfall – $13,568.42 to be exact. Both being sensible investors, decided to invest the money in a low cost index fund. Both chose VFINX that tracked the S&P 500.

But that’s where their investing approaches end.

Lump Sum Joe decided to go with the popular opinion and took an invest-and-forget approach by investing all of $13K at once.

…And Risk Averse John Took The One Less Travelled By

Risk Averse John, being well, risk-averse, decided to go against conventional wisdom and stagger his investments by buying one share of VFINX every month till the money ran out. Not exactly dollar cost averaging, but a similar approach to mitigate risk.

And That Had Made All The Difference.

Both started investing on Jan 1, 1999 and Risk Averse John’s money ran out on Dec 1, 2008. A span of exactly one decade.

• Lump Sum Joe received 114.27 shares of VFINX for his $13K in 1999 at $118.74/share
• Risk Averse John had 120 shares of VFINX at the end of 10 years when his 13K ran out

Contrary to what one would expect, Risk Averse John came out ahead of Lump Sum Joe, despite taking on lower risk.

So what happened? Were the experts wrong?

To understand this, we have to take a closer look at conventional wisdom. Why is lump sum investing normally considered better? Because of three factors. Time, which can smooth out market fluctuations, power of compounding, especially true if you use strategies like dividend reinvesting and finally, optimism. You invest hoping tomorrow will be better than today.

Joe and John started investing when times were good, really good. The country had a surplus, 9/11 hadn’t happened yet, the economy was thriving and people were looking forward to the new millenium with hope and optimism. Alan Greenspan, the then Fed chief called the mood irrational exuberance. It truly was if you were invested during that period. Traditional companies were changing their names to end in .com and such moves paid off by boosting stock prices! And hence the name ‘dotcom’ era.

But in a span of 10 years, things went very sour. Bush was elected. 9/11, two wars, unprecedented spending, dot com crash, real estate crash and finally it all culminated to one of the worst recessions in 2008. And that’s about the time Risk Averse John’s 13K ran out, when the market was at one of its lowest point.

In 10 years, the markets instead of gaining, had in fact gone down. The third ingredient – optimism was missing and Lump Sum Joe’s gamble didn’t pay off. Risk Averse John won.

Conclusion

No expert can predict future performance. For an individual investor, here’s what I recommend:

• Discipline. Have a plan, stick with it, no matter what
• Diversification. Investors who were all stocks during the lost decade saw their investments crushed as opposed to those who had a mix of Stocks and Bonds
• Asset Allocation: Spend your energy not in picking individual stocks, but in picking the right asset classes

With many apologies to Robert Frost for my twisted interpretation of his poem The Road Not Taken!

Lump Sum Investing or Dollar Cost Averaging? is a post from Money Cone ^DISCLAIMER

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Beating the market is all the rage these days (and has always been at Wall Street). Take the ad for any actively managed mutual fund, the benchmark is not whether the fund made money for you, but whether they beat the S&P 500! Of course, fund managers use sophisticated algorithms to try to beat the market and make up for the effort by charging hefty fees.

So if a fund is charging above average fees, common sense dictates its performance should be above average as well, right?

I want to highlight some of these super expensive funds that charge a pretty penny for their superior performance. For this little experiment, I’ve chosen 3 funds,

• that have at least been around for the past 12 years,
• are top performers in the large cap category and
• have high fees.

All 3 funds are compared against Vanguard’s S&P 500 fund VFINX, rather than the absolute index, for an apples-to-apples comparison.

1. Pacific Advisors Large Cap Value A (PAGTX)

Objective

The objective of PAGTX is long term capital appreciation. 80% of its assets are from the S&P 500 based on an actively managed, value based approach for long term capital appreciation.

Fees

This fund has an expense ratio that is more than twice the industry average at a whopping 3.05%. In addition, there is a front end load of 5.75%, which means you when you purchase this fund, you pay a one time fee of 5.75% of your investment. This is in addition to the recurring fee of 3.05% every year. What about 12b-1 fees? You bet! 0.24%. 12b-1 fees are ‘administrative fees’, fund companies charge.

A 10 year projection for a $10,000 investment in this fund comes to a whopping $5280 just in fees!

And to put that 3.05% expense ratio into perspective, consider this – the average annual return of the S&P 500 from 1999 – 2010 was -0.50% after adjusting for inflation!

Returns

So for this hefty premium, what does the investor get in return? From 1999-2010, this fund has managed to beat the S&P 500 just 4 times averaging a return of just 0.4% vs S&P (VFINX)’s 3.9%!

2. Performance Large Cap Equity B (PFEBX)

This fund managed by Douglas Ralston, seeks long capital appreciation and invests 80% of its assets in the largest of firms from the S&P 500.

Fees

PFEBX has an expense ratio of 2.01% higher than the industry average of 1.12%, a deferred sales load of 5%, i.e., you pay when you sell as opposed to a front end load where you pay when you buy. There is also a 12b-1 fee of 1%.

Returns

This fund has managed to beat the S&P 500 just 4 times from 1999-2010.

Its best return during that period was an 18.85% return in 2003 against VFINX’s 28.5%.

Note: This fund no longer exists (it did when I started preparing this post). This has been consolidated with Federated Funds as of September 21, 2012.

3. Sparrow Growth A (SGFFX)

Objective
This fund seeks long term capital appreciation based on a proprietary trading model developed by its advisors. SGFFX invests in both domestic and foreign securities and may invest upto 15% of its assets in investment grade fixed income funds.

Fees

This fund has an expense ratio of 2.28% and a front end load of 5.75%. 12-1b fees are capped at 0.50%. A 10 year expense projection per $10,000 comes to $3368 in fees.

Returns

This fund has managed to beat the S&P 500 6 times with an average return of 2.63% for the period 1999-2010.

It’s worst return was in 2008 when it lost 46.26% of its value (as opposed to S&P’s 37.02%).

This Stellar Fund Beat The Market 9 Times Since 1999!

Finally, I have this fund that has managed to beat the S&P 500 index 9 times since 1999 and has an annualized return of 8.45% since inception. This is also one of my favorite funds.

Objective, Fees & Returns

Here’s how this fund compares to the above three funds mentioned above.

The projected expense is no typo! That’s just $230 for 10 years and this fund beats the most expensive funds out there including the S&P 500 (3.93 vs 5.07) for the same period.

Would you like to know the fund manager and the fund’s objective? Actually both are irrelevant! This is a passive fund, no secret sauce to the returns, and the objective, well just to hold almost all the stocks in the market!

Yes, this is the total stock market index fund from Vanguard (VTSMX). This represents the entire stock market. Why pick and choose when you can own everything!

Go over that statistics once again. Better returns, negligible costs and best of all, simplicity. None of the funds comes even close to the returns posted by VTSMX.

When it comes to investing, you have no control over future performance, but you do have control over expenses. Pick funds with low fees. Fees matter.

So why do people chase expensive, actively managed funds when they could just choose a low cost index fund alternative?

Buffett said it best:

There seems to be some perverse human characteristic that likes to make easy things difficult.

Photo credit: Lisa Solonynko

The Fund That Beat The Market 9 Times Since 1999 is a post from Money Cone ^DISCLAIMER

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I could tell, my friend was concerned about not having enough saved up for his retirement. Yet, he was doing everything right – from contributing towards his 401K, to funding his IRA and best of all, he knew the merits of indexing.

But there was a problem. He didn’t share my enthusiasm when it came to investing or about personal finance in general. “I don’t want to constantly monitor my investments”! His words!

Not that he didn’t invest, he did, but his investing technique was… rather chaotic!

Unfortunately, he is not alone. Millions of Americans are just like him – investing without discipline. I would’ve suggested going to a financial advisor, but then finding a good one is like finding a good used car salesman! Loaded funds, recurring fees, conflict of interests… Might do him more harm than good.

What then? Books? He would rather spend his afternoons mowing his lawn than read a book!

I suggested the Five Minute Retirement Plan. Here’s why:

• It is free
• Literally takes five minutes
• Enter your contribution amount and age, get a full blown asset allocation spreadsheet scientifically computed
• Simply follow the allocation
• Sleep easy at night!

Asset allocation doesn’t stay constant. It varies with age. The older you get, the more conservative your portfolio should be. Five Minute Retirement Plan is an asset allocation tool based on Modern Portfolio Theory. (MPT’s creators won a Nobel prize for this theory!) This tool builds and recommends one out of twenty different portfolios based upon your age, risk tolerance and the amount of time the assets are held in your portfolio.

You can also see a projection of the portfolio growth, and the amount of money you can withdraw safely each year after retirement.

Why Do I Recommend This Tool?

No, I’m not getting paid for this review and that’s probably why this wonderful yet free tool remains unknown. It not only recommends an appropriate asset allocation but also suggest which funds to buy. And I have to say, the funds recommended are well chosen. Low cost funds with good liquidity.

All you have to do is simply follow the recommendation!

What’s the catch?

No limited trials, no credit card required, you don’t even have to register! The funds recommended are not affiliate links either. There is no catch, none I can see other than some Google ads.

There are many sites that offer the very same service for a pretty penny! But the Five Minute Retirement Plan truly offers an excellent service for free.

Walkthrough

You start out by entering your age, amount saved up for retirement and how much you can contribute each year.

The next screen shows the recommended asset allocation and a full year-by-year plan. You can adjust the allocation by indicating your risk tolerance. The allocation is adjusted accordingly.

Please take a moment to read the FAQ and the Methodology. It contains some very useful information on how and why the allocation was suggested.

My thoughts

Whether you are just starting out or a seasoned investor, this is a very useful site. What do you have to lose, give it a try!
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The Five Minute Retirement Plan is a post from Money Cone ^DISCLAIMER

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Melissa @ Mom’s Plans writes A Date with Finances Year Two – Last year, I declared a money week to deal with some financial issues I had been putting off. I thought it would be fun to see how I did with last year’s goals and set a few more.

Rick @ Invest In 2012 writes What It’s Like to Be a Trader – Have you ever wondered what it’s like to be a trader, not an investor? Here’s an example of Joe’s average day: huge investment positions, 4 hour nights, etc.

Squeezer @ Personal Finance Success writes What is passive income? – You may be asking yourself, “What exactly is passive income?” Passive income is income that is generated with you having to perform little to no work for it to be generated.

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krantcents @ KrantCents writes The 3 M’s of Success – The 3 M’s of Success is the thirteenth in a series of articles to help you reach your goal.

Peter @ Bible Money Matters writes Betterment.com Investing Website Video Review: Walkthrough of Account Setup and Investing Tools – One thing that attracted me to Betterment was the fact that they were so simple to use for the average investor, they are basically a set it and forget it type investing option where you can set your investing on auto-pilot and invest for the long term. You basically choose how much you want to invest in stocks, how much in bonds, and then you set your allocation. Over time if your percentages get out of whack Betterment will automatically re-balance your portfolio for you, with no need for you

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John @ Married (with Debt) writes Pay Off Debt Before Investing: Rule 9 – This is Rule 9 in my 10 Rules to Eliminate Debt and Change Your Life Should I pay off debt before investing? If you are asking this question, let me first say congratulations.

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Glen Craig @ Free From Broke writes What is FOREX Trading and is it Right for My Portfolio? – You hear about FOREX trading everywhere these days and the promises of making a killing. But what is FOREX Trading? How does it work? Read on to find out.

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J.P. @ Novel Investor writes Shorting A Stock: Profiting On The Way Down – Everyone and their brother wants the market to go up, not the short seller. Shorting a stock is not the popular choice, but there are profits in going against the crowd.

Thank you for your submissions!

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Best Rewards Cards To Maximize Your Cashback

I call this Return on Expenses.

For those who use a credit card for convenience and not for the interest rate, it makes sense to choose a card that maximizes rewards. 5% cash back on gas? That’s more than what the markets returned last year! Claim what’s rightfully yours!

If cash paying customers were offered a better deal, I would definitely go all cash! But credit card companies prohibit price discrimination in their terms and conditions.

Is it worth it?

Is this pursuit worth it? In order to find out, follow your expenses. What are the expenses that chip away that 2% or 3%, one expense at a time?

Here are some statistics for the year 2010 for an average family.

Money spent on Gas and Motor Oil: $2,132
Money spent on Restaurants: $2,505
Money spent on Groceries: $3,624
Money spent on Clothes: $1,700
Money spent on Drugs $410
Online Holiday Shopping $658

Those are some big numbers and all are almost always paid with a card. A 3% cash back would be nice.

One Card To Rule Them All?

I’ll cut to the chase. There isn’t one. But a combination of cards can get you close enough.

What Makes The Cut

Before I reveal the results of my research, a note on the criteria chosen to evaluate the cards:

• The card must have cash as rewards. Not points or miles.
• No annual fees, no matter how good the rewards are.
• No revolving categories. I can never remember them.
• No store cards. Too restricting.
• No expiration on the rewards. One less thing to remember.

The Cards Revealed..!

1. American Express Everyday Blue Card

Why This Card Was Chosen:

This card addresses 3 of the expense categories above – Gas, Apparel and Groceries. 3% on Supermarkets, 2% on Department stores, 2% on Gas.

And if you use this card for any other expenses, you still get 1% cash back. Not too bad! And of course no annual fees.

Other benefits:

• Damaged your brand new iPhone? No worries! If you bought it with your Everyday Blue Card, you are covered for up to 90 days!
• Is the salesman pressuring you to get extended warranty on that laptop? Why when you get it for free with this card?
• Did that store just refuse a return? Once again this card comes to the rescue!
• Some travel benefits too like theft, damage and collision coverage and travel insurance

2. Amazon Chase Visa Card

Why This Card Was Chosen:

This card covers some of the categories not addressed by the Amex card. 2% cash back on Restaurants and Drugstore purchases. In addition, 2% on gas and 1% on everything else, same as the Amex Blue card.

And best of all, it offers 3% cash back on purchases from Amazon! I do a lot of shopping online especially from Amazon so I might be a little biased here!

Note: This card is advertised as earning points for purchases, but you can redeem your points as cash back which is what I do.

Other benefits:

The Amazon Rewards Card I have has benefits similar to those of Amex Everyday card. But I can’t find them listed in either Chase or Amazon’s site. Please check with Chase or Amazon on additional benefits.

3. PenFed Platinum Cash Rewards Card

Why This Card Was Chosen:

PenFed Platinum Rewards card offers 5% cash back on gas which is better than the 2% offered by both Chase and Amex. There are other cards that offer 5% cash back on gas, but I chose this one since I already am a member of PenFed and the other cards don’t necessarily offer anything better than this card.

Other benefits:

• No Foreign transaction fee. If you use your credit card abroad, most cards charge you an additional surcharge as foreign transaction fee. Very useful if you travel abroad frequently.
• 0.25% on other purchases
• This card is from a Credit Union!

Summary of Cash Rewards

Honorable Mentions

Not everyone may share my aversion to annual fees or revolving categories. In my research I found two cards that offered generous rewards but did not meet all of my criteria above.

Blue Cash Preferred Card from American Express

For a $75 annual fee, you get 6% cash back at supermarkets, 3% cash back at gas stations and department stores, and 1% everywhere else. Depending upon your annual expenses, this might be worth considering. In addition, you get all the benefits of the American Express Blue Cash Everyday card mentioned above.

Chase Freedom Visa

If you have the discipline to remember revolving categories, you should consider this card! You’ll earn 5% cash back on up to $1,500 spent each quarter. From April-June, you’ll earn 5% on Grocery stores and Movie theaters, from July-September, you’ll earn 5% on Gas stations and Restaurants and from October-December, you’ll earn 5% on Hotels, Airlines, Best Buy and Kohl’s purchases.

You’ll also receive $100 bonus if you sign up for this card. To qualify and receive your bonus, you must make purchases totaling $500 or more during the first 3 months from account opening.

My Thoughts

A combination of these three cards will help maximize your rewards on your purchases. A 2% return on expenses is not too shabby. Limiting the number of credit cards you use also means less worries on id theft and curtails your temptation to sign up for more.

Finally, what if you do carry a balance? In that case, your best reward is to pay off your balance. None of these rewards match up to the 17% or 18% you pay every time you carry a balance.

What is your favorite rewards card?
PenFed Visa® Platinum Cash Rewards Card
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The downside is you have to calculate those expenses yourself based on the Tax preparation booklet Royalty trusts will send you during tax time. And based on those figures you’ll have to fill out a Schedule E (Form 1040).

If you own Royalty Trusts in a tax-deferred account, you can skip the tax preparation step and unlike MLPs, owning Royalty Trusts in your 401K or IRAs won’t trigger the dreaded UBTI. But if you happen to own them in a taxable account, be prepared to spend some time doing the tax math for each Royalty Trust you own.

Owning a Royalty Trust in a Taxable Account – What to Expect

If you own a Royalty Trust in a taxable account, come tax time, expect these in the mail:

• 1099-MISC Miscellaneous Income form
• Tax preparation booklet

You’ll get these even if you haven’t sold your units. 1099-Misc details the royalties you received for the tax year. The tax preparation booklet is required to calculate the net gain or loss on your distributions. You’ll get to reduce your tax liability on your royalties by reducing administrative expenses and depletion charges. Since the Royalty Trust doesn’t keep track of how many units each unit holder holds, you’ll have to do the calculations yourself.

Once you have the numbers, you should know where to enter them in TurboTax. And no, upgrading to TurboTax Premium is not going to make the task any easier! I hope the slideshow below will ease some of your pains! I’ve used BPT as an example, but the process is quite similar for other Royalty Trusts as well.

Handling Royalty Trusts In TurboTax

Start

Handling Royalty Trusts In TurboTax

Prepared using TurboTax Deluxe

1

In TurboTax, go to Federal Taxes.. Wages and Income and select Rentals and Royalties.

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Done!

As you can see, the process isn’t straightforward and can easily confuse someone entering RT data in TurboTax for the first time.

Royalty Trust FAQ

I never received the Tax Preparation booklet, what do I do?
If you did not receive the Tax Preparation booklet from your Royalty Trust, you can contact them to send you one or you could download the pdf from the Royalty Trust’s website. The tax preparation booklet will not contain any personal information (like your SSN).

Also remember, the booklet is sent to you by the Royalty Trust, not your broker.

I own Royalty Trusts in my IRA do I have to fill out Schedule E?
For tax-advantaged accounts, you don’t have to fill out Schedule E. The extra tax work is required only if you own them in a taxable account.

Are there online tools to do the Tax Preparation for Royalty Trusts?
All you need is a calculator! But some Royalty Trusts do provide online tools. All you have to do is fill out the number of units you held during the tax year and it’ll do the work for you. Check the Royalty Trust’s website.

Where can I learn more about Royalty Trusts?
Check out my previous article: Unconventional Income From Uncommon Stocks – Royalty Trusts

Recommended Reads:
How to handle MLP Schedule K-1s in TurboTax

Disclaimer: Not a recommendation to buy BPT. I’m not a tax consultant and the information presented is not intended as legal or tax advice. Consult a qualified tax tax professional before filing your tax return.

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Let me know how you like it!

Did You Know…

The word “internet” first appeared in the Washington Post on 9/26/1988 – Robert@DIY Investor

The average income of millionaire households is approximately $350,000 (~5x the national average) – Roshawn@Watson Inc

Contributions can be taken out of your ROTH at any time, there is a restriction on only the earnings – Sigma Swan Blog

Larry Swedroe visited (& commented on) this post! – Mark@My Own Advisor

The first ETF’s were introduced in 1993 - Money Infant

The retirement planning conventional wisdom of drawing 4% of your portfolio annually was based on the work of William Bengen – The Dividend Ninja

You have a chance to win an Amazon gift card and other goodies every month of this year – Joe@Retire By 40

There is a low cost alternative to doing your MBA! – Jeffrey @ Money Spruce

You can still contribute to an IRA even If you don’t earn an income but you’re married… – Sense To Save

Mike & Molly participated in SOPA boycott! – Mike & Molly

J. K. Rowling of Harry Potter fame is no longer in the Billionaire club according to Forbes. Because she gave away most of her wealth! - Hunter@Financially Consumed

Olive oil can be used to moisturize dry skin – Shilpan @ Street Smart Finance

The concept of “work hard now so I can play later” bothers Average Joe – The Free Financial Advisor

“Women always become more interested in a man after another woman begins talking to him” …hmm! – Financial Samurai @ The Untemplater

Kids CAN be taught about finance – Christa Palm @ MomVesting

“The average American spends $232 a month on dining out” - Aloysa @ My Broken Coin

IRA rollovers aren’t as stressful as it used to be – Buck Inspire

The choices you make might be due to hyperbolic discounting – Money Cactus

Your FICO score matters even to utility companies – World of Finance

Form 8949 is the new form to report capital gains including cost basis, starting this year (2011 tax year) – Sig Figure Investor

It is not a good idea to buy bonds now – Barb @ Barbara Friedburg PF

Soros Fund Management holds Amazon, Best Buy, Apple, Google and Wells Fargo, and…. Adecoagro! – 101Centavos

Alberta Producers Losing $18B a Year! – Mich@Beating The Index

Don’t Exercise Before Blood Tests – Kris @ Everyday Tips and Thoughts

Carnival Mentions

Carnival of Money Pros @ Money Reasons

The Carnival of Financial Camaraderie- Rain Man Edition @ 36 Months

Yakezie Carnival: Setting Your Clocks – 20 And Engaged

Canadian Finance Carnival 78, 79

Carnival of Money Pros: Daylight Savings Edition @ Sweating The Big Stuff

Totally Money Blog Carnival – Outrageous tax deduction edition – Wealth Informatics

Yakezie Carnival Dr Seuss The Lorax Edition – Miss WallStreet

Carnival of Financial Planning – Edition #226 @Personal Finance By The Book

Carnival of Retirement, 8th Edition – How We Want To Retire – Money Reasons

Yakezie Carnival – The Daytona 500 Edition – Not Made Of Money

Carnival Of Financial Camaraderie #22 – My University Money

Totally Money Blog Carnival #3! – Budgeting In The Fun Stuff

Carnival of Financial Planning – Edition #193 – July 15, 2011 – Money Beagle

Carnival of Financial Planning – Edition #224 – February 17, 2012 – Aaron Hung

Yakezie Carnival Mardi Gras Edition – Financial Success For Young Adults

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