After a successful trial run that boosted home sales and brought buyers back to the table, the government has extended the $8,000 first-time home buyers tax credit through June 2010.
 
Now it’s not just first-timers who are benefiting — the president also signed off on a new $6,500 tax credit for existing homeowners who purchase a new primary residence.
 
Combined, the dueling tax credits may help spur even greater growth in the housing market, real estate experts say.

The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules,” Gibran Nicholas, chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers, told CNN after the bill’s passage.

In particular, the new “move-up” tax credit may reach a wider audience of willing buyers. Those who have owned their current home for at least five straight years in the previous eight years and meet a few other key criteria are eligible for the new “move-up” tax credit.
 
While it’s a catchy nickname, the “move-up” designation might be a bit misleading for consumers — home buyers don’t actually need to purchase a bigger or more expensive property.
 
Buyers must also have an adjusted household income of $125,000 or less if filing singly and of $225,000 or less if filing jointly. The “move-up” credit is already in effect, and thousands of homeowners are expected to take advantage in the coming months.
 
Here are a few other key parts of the new “move-up” credit:

• The home purchase price cannot exceed $800,000.
• You must live primarily in the new purchase. Buyers aren’t required to sell their existing home, so many should consider renting the space. Investments and second homes do not qualify.
• Buyers aren’t locked into purchasing single-family dwellings. Acceptable types include condos, manufactured homes and even house boats.
• Those who purchase a “move-up” home in 2009 can claim the credit on their 2009 tax returns or file an amended 2008 return. The purchase must be before Jan. 1.
• There are more fraud-prevention measures in place than for the previous program, so be prepared to have your finances scrutinized.
• Military members deployed on duty outside the United States have until July 1, 2011, to close on a property, provided they were deployed outside the U.S. for at least 90 days between Dec 31, 2008 – May 1, 2010.

Editor’s Note: Stay tuned, because more on this topic is coming tomorrow.

This guest post was written by Brandon Laughridge of Mortgage Loan Place. MLP specializes in educating consumers about the requirements for FHA loans and on home mortgage loans in general.

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Whether we like it or not, having a credit card is essential to a consumer like salt is to food. Many experts tell you that over usage is bad, but life just sucks without it.

But what about those interest rates? With credit easing a little bit and the economy strengthening, the once dependable method of lowering interest rates is working again. Here, we outline the steps to lower the interest rates on your credit cards so you can substantially lower your monthly payments each and every month.

Step 1: Collect All Credit Card Offers That You Receive In The Mail

You should be getting at least one of these every couple of weeks in the mail. Many of these offers give you teaser rates for 0% for 6 months or 0% on your first balance transfer…or something similar.

Step 2: Choose One Of The Offers

After sorting through each offer, choose the one that you feel you can easily talk with the credit card representative about. Make sure that it is about something with a 0% rate. This is important because it is your “negotiation leverage.”

Step 3: Call Your Credit Card Company and Ask For A Decrease By Following This Script

Once you have decided on the offer you feel comfortable speaking with the customer service representative about over the phone, just give them a call. Ask to speak with a representative by saying “operator” over and over again (sometimes, repeated press “0″ also works) until the automated system understands you would like to speak to a physical person on the other end.

When you get the representative on the other end you can follow this script as your guide:

Operator: “Hello _____(Your name) what can I help you with today?”

You: “I am calling you to see what my current interest rate is.”

Operator: “Your interest rate that we have on file is ____%”

You: “That seems kind of high, I have an offer that I received in the mail today from ___________ (competitor) and I am thinking about switching my debt to that card to take advantage of the offer they have on the table…but wanted to call to see if I could get an interest rate decrease from you since I have been a loyal customer to ___________(Your companies card) for ______ years. Is there any way you could help me get a rate decrease?”

(Stay silent)

Operator: “Well let me see what I can do for you today Mr./Ms. ________ (Your Name)

You: “Thank you”

Operator: “Well you are in luck I am able to decrease your rate from _____% to _____% does that work with you?”

At this point you are jumping up and down because you just saved yourself thousands of dollars in fees and are well on your way to financial freedom.

*Special Notes + Scenarios*

If the representative doesn’t give you a rate decrease…

Ask to speak to their manager and start the script from the top.

If the manager still doesn’t help you…

Hang up and call up again, as you will eventually get a new customer service agent that would be more willing to help you.

When this process works for one of your cards, proceed to call the others and do the same thing!

Trust me on this that by going through this process once every 6 months, you can decrease your monthly payments on your cards significantly. Let me hear a “Yay” for total credit card domination and further financial freedom!

In the comments below, only if you feel comfortable, take some time to share with everyone your experience in doing this for your cards, and if you feel bold enough, share how much your rates decreased!

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Shall we start making more money?

When I set out to write this post, I was going to talk about different ways to make more money but why talk general when I can take a more focused approach and share with you what people do online specifically? I live and breath the Internet these days, so when I ask you to take some time to make more money, I’m thinking about some of these as suggestions.

Blog/Website/Content

I need to start here, because doing this led me to take the leap away from the 9-5. I won’t bore you with the details, because you already know what to do – Throw up a website, write great content, market it, rinse and repeat.

The great thing about these informational websites is that most people can start without expectations and expenses. The lack of pressure frees them to just let their instincts and passion guide them.

On the other hand, the lack of pressure may be a bad thing, as you might not be committed to this side income project. To make matters worst, it is not as easy as everyone has you believe. Know that the vast majority of people who are even remotely successful spent a ton of hours tweaking, learning and building their website. I often tell people that these websites work much like a real world magazine so think about it this way. You can easily slap a few pages of stuff together, call it a magazine and start selling. With some luck, you may even make a few bucks. If however, you want to truly make a comfortable living with your magazine, you better spend time learning how distribution, publishing, and content creation works. This is because even if you don’t do anything yourself, knowing what is involved helps you avoid overpaying your contractors.

Online Stores

Now let’s talk about a more interesting idea. Have you always wanted to sell something but have no intention of renting retail space, modeling your store and then dealing with all the foot traffic, not to mention the dusting and cleanup? If so, consider an online store. The great thing about the online version is that you can spend as much money (or as little as you want), and everything about it can change on a dime (design, payment flow, expansion, contraction among others).

Warning though. You still have to deal with customer support, inventory of your products etc. You also need to always remember that this is a business you are building, so don’t take this lightly just because it’s done online and you never see a physical location.

Online Store Front Redirecting Traffic

Third up on the list is a less popular idea that I’ve seen cleverly implemented. Why worry about payment, customer service, category and inventory when someone else will take care of it for you? With the complexity of software these days, merchants are able to track and distribute commissions to anyone who can send them targeted traffic that ends up buying their products. Some clever entrepreneurs decided that they will just setup an online store front that looks exactly like an online store and redirect everything to a particular merchant. No customer service questions ever again.

Of course, this is an overly simplified version of what goes on, but you get the idea. These people spend a lot of time marketing their online facades. After all, what keeps them separated from the actual store is clever marketing and value add along the sales funnel.

Sell an eBook, or Actually, Anything

You see a ton of these self-made products being sold online these days, and even see a few products promising to teach you how to sell these products. Through the online medium, ANYONE can start selling anything. Be it an ebook, a published book, consulting services or even t-shirts, many people are making money because they are able to reach virtually anyone in the world.

There’s only one important point to remember, and it’s crucial to your success. Forget your product. Yup, I said it. Sure, you absolutely need a good product to be successful long term, but the key to your success is the marketing behind it. Sales won’t happen even if you are giving away a car for everyone that reads your $5 ebook unless people know about it.

Spend at least as much time marketing the product than creating it.

Charge a Subscription Service

Better yet, charge a subscription for your online service. And if you don’t think you can do it, here are three examples of what I have seen that should suggest to you that anyone can do this.

1. The Tax Expert – I love this one, because it’s so simple. Daily videos answering reader questions every single day. Ideas are coming from the customers, and people stay subscribed because they want to learn more about taxes. The videos are 5-10 minutes, and she only charges $10 a month.
2. Paid Newsletters – Remember the website content idea we spoke about? Many people charge for it, billed monthly. I’ve seen a ton on investing, but others for restaurant owners and garden lovers as well. The starting cost is practically nil, and people will eventually know about it if it’s worth subscribing, so give this one a thought!
3. Classes – If you are good at explaining a concept people want to learn about, you can probably start an online class and charge for it. Sure, there are the usuals like math tutors and maybe even digital camera classes. But how about magic tricks?

It Shouldn’t Stop Here

Even if you are successful with any one of these, the worst thing you can do is stop there. Most people never do this, but no one is stopping you from combining any (or all) of the above into a huge online empire. Just like you wouldn’t say no to selling soft drinks if you are a fast food company, you should never say no to selling your own products in an online store.

And if you are smart like McDonalds, you can even start selling coffee too. Now, who would’ve thought of that?

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In many ways, insurance is a lot like a game. The goal? Trying to get a payment for a claim since you have been paying insurance for that very purpose: Protection against large expenses due to unforeseen events. However, opposing you is the insurance company, which will be on the look out for red flags and indications that fraud may be at work. What you say to your insurance agent can mean a delayed claim — or even one that ends up denied. If you want to come out on top and be the winner, here are four things to avoid saying to your insurance agent:

1. “Flooded”

It is important to realize that most standard homeowner’s policies do not cover floods. You have to purchase separate coverage to protect against flood damage to your home. So, using “flooded” as a description of what your bathroom looks like, thanks to a burst pipe immediately gets your claim flagged. As far as the insurance company is concerned, a flood is something that happens when weather is involved or the nearby pond overflows. And that is not covered by your homeowner’s policy. So before you frantically call and mention that you’ve got a “flooded” room, consider your word choice. If you have a burst pipe or some other water-related problem that is covered by your homeowners insurance, mention that. “My water main burst” is all the description you need.

2. “Whiplash”

One of the biggest red flags when it comes to auto insurance is the word “whiplash.” Fraudulent claims related to this neck condition are quite numerous and costly for insurers. If you say you have whiplash, then it is possible that your claim will be flagged. While it may not necessarily be denied, it could be delayed for a rather inconvenient amount of time. Realize that whiplash is, in fact, a specific medical term for a particular condition. Unless your doctor has actually diagnosed you with whiplash, describe your condition as “neck pain.”

3. “Send a check”

The theory behind an insurance company paying a claim is that you will use the money to fix a problem. With health insurance, it is pretty straightforward: For the most part, the insurer is billed by the health care provider and pays the bill directly. However, for homeowner’s insurance, and some auto insurance, you might get a check that’s meant to defray the cost of repairs. Note though, that you don’t want to actually say the words “send a check” to your insurance agent. That could be an indication that you are not interested in getting your car’s dent repaired or your leaky roof fixed. Insurance companies don’t always check up on you, but if you seem fixated on getting a check, your claim may be red-flagged for further investigation, delaying the needed funds.

4. “Experimental”

Understand that most health insurance policies do not cover true experimental procedures. If you tell your insurance agent that a treatment is investigative in nature, you may be denied coverage. It is also important to realize that when a health care provider says that s/he will experiment with a treatment, it doesn’t necessarily mean that the treatment itself is experimental in nature. Find out from your doctor whether or not the treatment has been shown to be reasonably effective, and whether the doctor sees it as medically necessary. Get the word from your doctor before classing something as “experimental.”

What This All Means

The words you use are really important, and what you say to your insurer, especially in an official statement, can come back to haunt you. When speaking with your agent about a claim, make sure that you stick to known facts. If you don’t know something, you need to say: “I don’t know.” Don’t guess. And don’t lie. Try to avoid speculating on causes of the problem. Your insurance agent doesn’t need a detailed history of why you think that pipe burst. Just say that it did, and point to your documentation of the damage, or refer the agent to the documentation from the claim representative. You should also ask for a copy of the statement your agent takes, or a transcript of any recording. This way, you can go through and check for inaccuracies or other problems.

It’s ultimately up to you to make sure that your insurance claim starts off on the right track. Knowing what will red flag your claim can help you avoid potential pitfalls.

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While researching on these 0% balance transfer credit cards the other day, I accidentally found out that many people actually search for 0% balance transfer for life credit cards. My first reaction was “come on, really? There’s no way anyone in the right mind would offer this.”

But the curious side of me took over and decided to take a look. Sure enough, Chase offered select customers 0% balance transfer for life in 2003. It came with rules though. You must pay the minimum balance every single month, and you must make a minimum of two purchases every billing cycle. Failure to do so and your rate will rocket back up to normal levels.

But Wait, There’s More!

If that’s not enough, there’s more. Not only are new purchases mandatory, they aren’t included in the 0% interest rate deal. And to add insult to injury, any payments you make first goes to the balance transfer amount. Result? A guarantee plan to pay high interest without really knowing!

For Those Looking for 0% Balance Transfer Credit Cards

While this page is about whether 0% balance transfer credit cards for life can exists, many people are coming here looking for any type of 0% balance transfer credit cards. If this is you, these two options are perhaps the most popular ones out there.

Citi Platinum Select MasterCard

• 0% APR on Balance Transfers for 6 Months
• Rate on Purchases are also 0%
• No Annual Fee
• $0 Liability on Unauthorized Purchases

Click Here to Apply for the Citi Platinum Select MasterCard

Discover More Card

• 0% APR Balance Transfer for 6 Months
• 5% Cash Back Bonus in Categories like Travel, Home Improvement, Department Stores and Gas
• 5% to 20% Cash Back If You Buy Through Their Exclusive Online Store
• Up to 1% Unlimited Cash Back on All Other Purchases

Click Here to Apply for the Discover More Card
Bonus – Discover is giving away a free $50 for making $599 in purchases during the first three months. Make sure you apply through this special offer link.

Both of these 0% balance transfer cards come with an initial one time fee. Make sure you do the calculation to make sure that you are actually saving yourself money before you make the transfer.

A Friend’s Take on These 0% Balance Transfer Credit Cards for Life

I told my friend about this, and he seemed to have quite an opinion on the topic. Best of all, he generously offered to write up a short piece about his view. I encourage you to read what he has to say about the idea of these 0% balance transfer for life offers.

Since many of the perks for creditors don’t actually involve charging you interest on that debt you transfer, it is theoretically possible that we will see 0% balance transfer credit cards for life. If creditors believe that they can entice customers to transfer their balances and then become moneymaking customers, creditors may resort to offering this seemingly generous promotional rate in order to attract a customer.

Generally, their motivation would be to get you to switch to them by transferring a balance, and then either use the card for a purchase or default on some term. This way, they could win by getting a new customer with this great promotional rate, and still end up making money off of you in the long run. Either way, they will make money because if a 0% balance transfer for life offer existed, they’d surely charge a fee to transfer that balance.

Of course, the idea of a 0% balance transfer for life card is far off in the distance now, given everything we’ve been through. In the credit-crunch that exists in late 2009, going into 2010, even regular 0% balance transfer promotional offers seem to have dried up. Gone are the days when balance transfer offers came with fees capped at $100, or 12-month terms. These days, even people with perfect credit usually can only qualify for a six-month balance transfer offer, and then must pay an uncapped 3% fee for the privilege.

Furthermore, new credit card laws going into effect in 2010 may forever put an end to the idea of a 0% balance transfer for life offer. These new laws mandate that payments must be applied to higher interest rate balances first, potentially eliminating one major source of money for creditors: the purchases made on a balance transfer card. Other consumer protections, such as longer grace periods for late payments and limited interest rate hikes, may also make it less advantageous for creditors to offer promotional rates to consumers. When this law goes into effect, that may be the death of any 0% balance transfer offer, let alone one for life.

If you are one of those thousands of people searching for 0% balance transfer for life offers, it’s probably better to take some time to make more money instead.

The age old advice will always hold true – When something is too good to be true, it probably is. But I’m curious now. Were you offered these back in 2003? If you did, are the terms still the same? And for those that never got the chance to accept, would you do so if you are offered that chase credit card I mentioned?

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Men and their egos…

Now there’s proof. Men aren’t better at investing, but they certainly believe that to be the case.

Scottrade recently did a survey (link below) and found that when it comes to investing, men and women are practically the same. Although women rate their investing skills far lower, their recent portfolio performance show otherwise. The majority of women investors (59 percent) consider themselves at a “beginner” skill level, compared to only 35 percent of men. Most men (56 percent) describe themselves as “intermediate.” However, the survey shows that recent portfolio performance closed any perceived gender gap. The number of men’s vs. women’s portfolios that stayed the same or increased in value in the last 12 months is exactly the same – 48 percent.

• Scottrade’s Survey of Men and Women Investing – Perception vs Reality

This post is in part dedicated to Steve, who got into a dispute with his wife after posing the question that’s highlighted in How to Get My Wife to Invest.

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Cruising has become an immensely popular way to get away and see a little bit of somewhere new. Cruises provide food, lodging and entertainment all in one place while taking you out into the ocean; a perfect vacation if it weren’t for the price. Luckily, there are some easy ways to cut your costs if you plan ahead and know what to look for.

Book Early

If you book before the season really begins, you will get better prices. The cruise lines want to make sure that their boats are at least partially filled, and will offer discounts to those who book early. Although you can get discounted rates once the cruising season has begun, they are usually not as good as those offered early.

Avoid Airfare Packages

The worst package you can get is one that combines airfare and the cruise itsel because rarely do you get anything close to a good flight fare. It is common to get multiple connections on your flight, and the times are rarely convenient. Since your cruise won’t wait for you no matter when you arrive, pick your own flights, arrive in plenty of time, and save the premium.

Take Advantage of the Shoulder Season

Shoulder season refers to the weeks immediately before or after the high season in cruising circles. You are still going to experience wonderful weather and sights, but you avoid the huge crowds that accumulate at favored destinations and you get some killer discounts.

Room to Breathe

Unless there is something seriously wrong with you, the amount of time you spend in your room is minimal. Basically, the room is the place you leave your clothes and retire to at the end of a day of swimming, playing and socializing. There is simply no reason to spend extra money for a larger room. Get an inside room, since there is a premium for a view, and pick the smallest room you consider reasonable, then get out on deck and enjoy yourself.

Bust the Bus

Tour companies at your destinations work out deals with the cruise company to provide day trips to various locations. Not only do these options usually cost more, they are quite likely to take you right to their selected gift shop to purchase mass produced junk while they get a kick back. Walk a couple of blocks away from the dock and find local transportation instead.

Many locations now have set fares posted by taxi stands. If you go anywhere else, negotiate up front for a price and don’t pay until you arrive at your destination. Just remember, the ship won’t wait for you and it can be very expensive to try and catch the boat, either on the water or at the next stop, so plan to be back with plenty of time to spare.

Additional Advice

Drinks are rarely included in your price and they can add up quickly. If your cruise line offers a “soda sticker” and you drink soda often, take advantage of the deal. In fact, bring along your own cup, because it is bound to be larger then anything they offer. If you prefer wine and liquor, consider bringing some of your own along. A corking fee is still cheaper than purchasing from the ship and the wine will be better. Budget yourself, and use cash if you must to stay within your limits.

Cruising can be lots of fun and with a little caution your cruise won’t result in months of debt. Remember, cruises are fun but not everything on board is included. Stay alert and don’t spend a bundle because of ignorance.

Every Saturday, I will take one article from the How to Save Money on Everything ebook and share it. If you like what you see, and want the articles all at once for free. Subscribe to the weekly frugal newsletter.

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I love rules. In fact, the more restrictive the guidelines, the better.

It’s not that I like someone telling me no. But I just love trying to find a way around restrictions. Every time someone tells me how I’m not supposed to be able to do that, I always respond with “please tell me which rules I’ve broken”.

This time though, I don’t think I’ve just stretched a rule of the personal finance world, because I actually broke one. Not only did I buy a cup of latte, I kept buying them for the past few weeks.

Am I screwed?

I’m not sure how you would answer, but I have a sneaky suspicion that I won’t be. Yes, there are those who saved millions with an below average salary, but for everyone of those people, there are thousands more who reached their millions through a much higher income. While savings is important, generating income is still critical.

So the question you should be asking is – how do you earn more money?

This time, I won’t be giving you any suggestions (I bet you were expecting a few of the usuals right?) because you should be the one thinking about this. You don’t need someone telling you want to do, just like rules exists to be interpreted and adapted to YOUR liking. You have your unique situation, and it’s uber important for YOU to figure things out. What should you do? You should answer that yourself.

Oh and while we are at it, here are a few reasons why coffee daily will never amount to a million dollars.

• Returns – In order to get over a million dollars with your coffee fund, you have to drink a coffee costing $5 every day for 42 years, plus invest that amount and receive a 10% interest rate. Is 10% per year, every year actually realistic?
• It’s $3, not $5 – I forgot to mention that my latte cost $2.45, not $5. Opps. I just cut my latte retirement fund in half.
• Taxes – Most investments requires you to pay taxes along the way, which SEVERELY cuts into the outcome.
• Every day, Really? – Does anyone seriously have the discipline to go out and buy a cup of coffee every day for 40+ years? A few lost days per month and you aren’t getting that million.
• If you don’t get coffee, you will probably get something else – There were times when I seriously stressed myself out because I kept trying to keep myself from buying a cup of coffee. With the added tension, I bet I ate more, and wanted to buy other things just a bit more too. In one pocket and out the other.
• Go Make Some Money – Hey, a cup of coffee is $2.45. Try to find something that will make you $3 a day instead. I guarantee that you will be happier, and you can keep the extra.

Here’s a suggestion – Add this to your To-Do list tonight. “I will find three ways to increase my income”.

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My wife used to compliment me whenever I communicated in Mandarin. She doesn’t anymore.

Not that there’s anything wrong with that though, because I couldn’t speak it back then and I could now carry a decent conversion using the language. In a short few years, she got used to hearing me speak in Mandarin (or at least my version of it).

It’s interesting isn’t it – How our perception changes our reaction to the same facts. Me being able to learn a language I wasn’t born with should be remarkable. Yet, at some point or another, everyone who knows me will get used to it.

I was thinking just now whether there’s an amount of wealth we could deem it enough to live off of. A million dollars? Ten? If I ask you now, you could probably give me a number, but would you still think it’s enough by the time you actually have that much money?

My Own Story

Then, I remembered my own perception of money and how it changed over the years. Back when I was a kid, I remember getting $40 a month and asking my mom why I had to do all those chores and homework assignments while my grandfather just seemed to sign a few pieces of paper and get $4,000 a month. In reality, I had no idea how much money my grandfather made but $4,000 just sounded like an incredibly high number and appropriate for me to pose the question.

Then when I got out of college, I was making a couple thousand dollars a month. I was the happiest person. I was spending and there didn’t seem like much I couldn’t really buy. As I got older, the amount on my paycheck grew, but I never got HAPPIER because of it. I got used to the increases. I expected it.

Everyone around me was the same. No matter how much wealth they’ve amassed, they shrugged it off as if none of it mattered. You would think that it’s appropriate for many of them to celebrate, but they have already set their sights on the next goal. If they thought $1 million was enough, only $5 million would do now.

Our Mind Evolves

Our expectations change constantly, so how could we possibly be content with what we have? $50k a year might be your annual income goal when you were in college, but you’re already thinking about $60k or $70k by the time you are making $48,000 a year. When you make $90k, you probably wanted $120k.

The answer is actually quite simple. Set concrete goals (write them down if you have to), then celebrate whenever you reach them. This is extremely straightforward, but it works. Make a conscious effort to stop raising the bar until you reach each one.

Question for You

Did you set yourself a financial goal but already made another one by the time you were close to reaching the first? If so, slow down my friend. Give yourself time to be happy by stopping to smell the roses. Otherwise, you might unknowingly drive over all those beautiful gardens as you zoom past everything.

You don’t want to look back at your life and see a big pile of smoke.

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If you watch the news you have probably heard a lot about dollar depreciation these last few months. As part of the economic stimulus package, the Federal Reserve has had to keep interest rates at historic lows (thereby making the “price” of dollars very cheap) while borrowing enormous quantities of money from foreign and domestic lenders. These actions have weakened the dollar against several foreign currencies.

As a savvy investor, you should be worried about the decline of the dollar, because this directly hurts the value of your paycheck. However, like everything else in life, economic trends have two sides to them. In our case, dollar depreciation can actually be your opportunity to invest in other currencies. Even if you’re not particularly concerned about the recent decline, investing in foreign currency will help you to diversify your portfolio, which is always a good idea.

The most important thing to remember is that investing in a foreign currency must never be considered in isolation, so mind its impact on your entire portfolio. For example, let’s say you have $20,000 in U.S. investments and you read an article that is very positive on Brazil. Should you go ahead and invest $5000 in Brazil? If you do, you will have 20% of your overall investments in only one country. Ask yourself if you want that much exposure, especially since the Brazilian stock market is known to be quite volatile.

If however, you are still interested after careful consideration of your own investing portfolio, here are a few suggestions to gain exposure.

1. Stock of Companies with Multinational Operations – Many big American companies derive a huge portion of their revenues from abroad. This means that when foreign currencies do well versus the dollar, the profits and stock prices of such companies get a boost. Examples of such companies are Coca Cola, Microsoft, IBM, Pfizer, McDonalds etc.
2. Foreign Currency ETFs – These trade just like stocks on American stock exchanges and are backed by baskets of foreign currencies. In other words, owning a Euro ETF is like owning a money market account in Europe. CurrencyShares have a wide range of ETFs that provide exposure to different currencies. Another example is the SPDR Barclays Capital International Treasury Bond ETF. Make sure to check an ETF’s liquidity and trading commissions before buying it.
3. Foreign Bond Funds – These mutual funds invest in bonds issued by foreign governments, i.e. they receive interest payments from foreign governments in foreign currency. As the foreign currency strengthens, the value of the interest payments converted into dollars goes up. Examples of such funds are Templeton Global Bond Fund and Aberdeen Global Income fund. Do watch out for high management fees and other costs before you purchase any mutual fund.
4. Foreign CDs and Savings Accounts – Some American banks (notably Everbank) offer CDs denominated in foreign currencies. These CDs offer a higher rate of interest than dollar-denominated CDs, but carry the risk of exchange rate fluctuation, i.e. you may get back fewer dollars than you put into the CD if the dollar strengthens instead of weakening against the foreign currency. Currently, the 1-year Everbank WorldCurrency Australian Dollar CD offers 3.5% whereas the most competitive 1-year US CDs offer less than 2%. Unfortunately there is a high minimum amount you need to invest to open a WorldCurrency CD (around $10,000). Also note that all Everbank CDs are FDIC insured. So even though it does not protect against currency fluctuation risk, you are protected in the case that the bank becomes insolvent.

It is important to make sure that all foreign currency investments match your ability to take on risk. Go with reputable institutions and read the fine print on all your investments before you sign the dotted line.

I’d love to hear of any other ideas you may have about investing in foreign currencies, or any questions about the logistics of investing in the above.

This is a post from Ritu Agrawal, who learned a whole lot about the technical side of investing at JPMorgan Chase. Read more about her at her bio page.

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