Earlier in the week, my desk was starting to look like that of the crazy cat woman down the street. Stuff absolutely everywhere! Mainly piles of papers that needed a home or needed to find the shredder. I finally got around to doing some spring cleaning and did some research on what papers I needed to keep, and what I could get rid of. What I discovered was very helpful, so I thought I would use this post to pass this information along to the fine readers of Uncommon Cents.

~ Tax Related Documents - According to IRS.gov, you should keep tax returns, receipts, cancelled checks, and any tax related documents for 7 years. The IRS has 3 years from when you filed to audit you if they suspect you “messed up” but it was in good faith. This number goes up to 6 years if they suspect you under reported your income by $25,000 or more.

~ Credit Card Statements - Keep them for 45 days if not tax related, 7 years if any purchase on your statement is tax related. This is when it becomes handy to have a separate credit card for business expenses if you are a business owner.

~ Bank Statements - According to BankRate.com, experts say not to shred these until 1 year has passed.

~ General Bills/Receipts - BankRate.com suggests 1 year for general bills. For big tickets items, keep receipts longer than 1 year for warranty reasons or in case of fire or theft.

~ Paycheck Stubs - Keep paycheck stubs for 1 year. Once your W-2 arrives, make sure it matches your pay stubs before you shred them.

I hope this information helps you out when you go to organize and file that stack of paperwork sitting in your home or office. In keeping with this theme, here are some online coupons for stores that sell office supplies, organizational products, and filing cabinets that can help you save some money.

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What does making things last mean? It means using your vehicle until it dies (but smartly maintaining it in the meantime!). It means mending holes in clothing or converting long pants into stay at home shorts; it means using Shoe Goo for small holes in your shoes or issues with your soles. Making things last means that if the coaxial connector on the television comes off with a cable problem, use a spare VCR as a tuner with the auxiliary inputs instead of buying a new TV. It means sharpening a dull knife rather than buying a new one and riding the same bicycle for a few years rather than getting a new one each season.

I was looking at my collection of cycling clothes this past week–I’ve gotten three new bicycle jerseys in the last year, the first ones I’ve gotten in more than a decade, and I also ordered two new pairs of cycling shorts. I realized that at least two of the jerseys that I use on a semi-regular basis are at least twenty years old, and one or two of the others are at least ten. Granted, I had a several year hiatus from cycling, but those are old clothes no matter what. They don’t look the best, but I’m not a cycling fashion plate, so I’ll keep using them until they’re worn out.

Last year, after several bouts of Shoe Goo, I retired my cycling shoes; both sides had the glue holding the soles on fail and were glued back on, but the leather also started failing, so it was clearly time. I got replacements after my 100 mile ride last year, which I’m hoping can last me as long–fifteen years! I believe I paid about $35 for the shoes when I got them. A bit over $2 a year is a great price to pay for athletic shoes.

Nothing can last forever, but doing whatever is possible to keep your equipment working, whether it’s clothing or a car, certainly can help your pocketbook. The lost art of making things last that is one of the pillars of frugality.

Recalling my previous articles in this series, my three portfolio fund consists of the Vanguard Total Stock Market Index Fund (VTSMX), the Vanguard Total Bond Market Index Fund (VBMFX), and the T. Rowe Price International Discovery Fund (PRIDX), with VTSMX making up the majority (approximately 50%) of the portfolio and the remaining being split about equally between VBMFX and PRIDX.

VTSMX started the month at $31.86 a share (as of the close of business March 31, 2008); it ended April at $33.46. That’s a gain of over 5% for the month. VBMFX started the month at $10.22 a share and ended at $10.18, a loss in net asset value of just .3% (yes, three tenths of a percent) but continues to put out monthly dividends, including one of almost four cents that month. Finally, PRIDX began the month at $43.96 and ended it at $45.28, a gain of a hair over 3%.

Hopefully, we’re over the funk that the markets have been in the last few months and we’ll continue to see gains in the months to come–and as much as I’d like to say, “big gains,” I try not to, because booms tend to be followed by busts–which is really what I don’t want. So instead of a boom, in keeping with our April theme, let’s hope for a bloom–like a rose.

It would be easy to put together this portfolio with three no load index funds, and in many cases that would be the thing to do. However, it’s often difficult for the beginning investor to do that because funds often have minimum investments in the thousands of dollars. Instead, since this Roth IRA will be opened with a discount broker, we’ll use a great alternative: exchange traded funds, also known as ETFs.

ETFs are mutual funds that trade like stocks. ETFs have very low expense ratios and low barriers to entry versus mutual funds that require minimum investments often in the thousands of dollars. We discussed one ETF not long ago when we talked about how to get the performance of the entire S&P 500 in a single share of an ETF; we’ll look at three others to make this portfolio happen. To meet this asset allocation, I would suggest using the Vanguard Total Stock Market ETF (VTI) for domestic stocks, Vanguard Total Bond Market ETF (BND) for domestic bonds, and Vanguard FTSE All-World ETF (VEU) for international stocks.

After figuring out how many shares would make up each allocation, one will realize that it’s about impossible to get the allocation perfect in real terms, leaving a little bit of cash in the account to pay for those $6.95 trading fees. Also remember that these pay dividends and you likely want to reinvest (buy more shares of the fund that paid the dividend). You may also want to consider rebalancing the asset allocation once a year or so.

So, there we have it. In three low cost ETFs with low barriers to entry, we have diversification, asset allocation, and market matching performance with low costs and tremendous tax advantages for Chris to start her retirement account. A simple portfolio that’s poised to pay big dividends over the next thirty or so years while Chris works toward retirement. Good luck!

Research has shown that the majority of risk reduction from diversification occurs with a portfolio of approximately 25-30 stocks. Further diversification can reduce risk even more but with diminishing effectiveness. It is difficult for an individual investor, particularly one who is just starting out, to diversify by buying many different individual stocks. Fortunately, today, an investor can easily diversify by buying a mutual fund or exchange traded fund.

Besides diversifying within the domestic stock market, it’s also quite possible for an investor to diversify in international stocks and in bonds, also by purchasing appropriate mutual funds or exchange traded funds. As we complete our Total Stock Makeover II mini series, we will look at three different funds which give diversification within the domestic and international stock markets as well as the high quality bond market.

Asset allocation is a sometimes controversial topic; basically it’s how much of your portfolio is dedicated to how much of a particular type of asset. This means at a very basic level that a certain amount of your portfolio is in stock and a certain amount in bonds; it also could mean a further breakdown of a class of asset–for instance, between international stock and domestic stock. Asset allocation is important for reasons we’ve discussed before; it can certainly help you to smooth out the volatility in the stock market, for instance, when it’s volatile by having a high percentage of your portfolio in bonds. It also gives you a certain amount of exposure to various types of markets, which is important because we never know which markets are going to perform well from year to year. Some years, the domestic stock market will return a tremendous amount and bonds next to nothing; other years the bond market will grow by leaps and bounds and the international stock market will be negative. Because of these unpredictable rates of growth in various markets and the incredible difficulty in timing the market, the best answer in my opinion is to be exposed to different markets at all times. For Chris, given her age, I would suggest my standard portfolio of 50% domestic stock, 25% international stock, and 25% high quality domestic bonds. If she finds this too volatile for her taste, she can consider reducing the exposure in both stock categories and increasing it in bonds, perhaps 40% domestic stock, 20% international stock, and 40% high quality domestic bonds.

Diversification is a subject we will cover in depth soon in a Working Backwards piece, but in general diversification means to own a little of a lot of things. Imagine I told you you could have 500 shares of stock and had to choose between 500 shares of a stock in a single company and one share in each of 500 companies. If you choose the former and the company does well, you’ve made out like a bandit; if it doesn’t do very well, you’ve lost a whole lot. If you choose a latter, it doesn’t matter much if one company fails; you have 499 others to bank on. Diversification is another way to manage your risk.

Fortunately, you don’t have to buy 500 individual stocks to be diversified; you can simply buy a single mutual fund or a single share of an exchange traded fund to get a lot of diversification in your portfolio.

In our next look at building Chris a winning retirement portfolio, we will decide exactly which funds to go with for her Roth IRA. Stay tuned!

Chris is a 36 year old single administrative assistant with no unsecured debt other than her vehicle. She has set aside $5,000 and wants to start investing. When asked what her goal is, she says, “I guess retirement.” She states she has minimal risk tolerance and was counseled about the risks of not just market trends and net asset valuation but inflation.

For her purposes with this lump sum of money, Chris would seem to be best served by a Roth IRA. She meets the income qualifications and already has a 403(b) plan which she contributes to; she has way more than the five year minimum before she’d withdraw from the Roth, and the amount of money she has saved up is perfect for the Roth IRA. It’s too late to contribute for 2007, but well early in the year for a 2008 contribution.

Where to start a Roth IRA? There are many, many choices; I would recommend a discount broker with online access. Firstrade is what I use and generally recommend, but there are lots of other choices like Scottrade, E*Trade, and TD Ameritrade. Unfortunately, while I highly recommend Vanguard funds, it’s hard for me to recommend them as an IRA choice because they have some fees that seem to be worse for the small individual investor starting out than the discount brokers.

What to buy with the Roth IRA? That’ll be in our next segment! Remember, though, that we’ve discussed asset allocation, costs, taxes, and diversification to the hilt over the last few months; with a Roth IRA, we’ve already addressed taxes and with Firstrade’s low fees we’ve already addressed costs. Next time we’ll look at asset allocation and diversification. We’ll get Chris on the road to retirement in a very simple way!

Do you have any summer vacation plans yet? After all, we are all not lucky enough to live in paradise like our faithful guide here at Uncommon Cents! (Sorry Ryan, I couldn’t resist!) With that in mind, I wanted to share a few tips and travel coupons so you can score the best travel deal possible this summer.

~ Negotiate - When quoted an airfare, hotel, or rental car rate, always ask if there is a lower rate, an AAA rate, or an unadvertised special. You can almost always get them to lower their rate or give you a free upgrade if you push hard enough.

~ Book Far In Advance - This is the best way to insure a good deal. Lock in your vacation plans before airline seats fill up, and before you get hit with more fuel surcharges.

~ Stay Midweek if Possible - If you have the flexibility, try to book your vacation plans for a mid-week stay. Hotel rates are generally much lower on weekdays than on weekends.

~ Consider a Vacation Package - When using an online travel service, consider bundling airfare, hotel, and rental car as it can significantly lower the overall price. This especially works when booking extra nights in a hotel. Be sure to first price everything individually to make sure you are getting a good deal.

Also, don’t forget to check out some of the great travel deals that can be found online right now. Here are a few of the more popular travel deals on my Web site right now:

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