Moolanomy Personal Finance

Kwedit: Training Wheels For A Real World Debt Ridden Lifestyle?

Mike Bowman — Wed, 17 Mar 2010 15:00:53 +0000

Back in the 80s I walked to the YMCA with my weekly video game allowance of two quarters. That bought me one game of Asteroid and one game of Pac-man. Any idea what the difference is between Pac-man in the 80s and FooPets today? You had to pay cash up front in order to play Pac-man. Now, thanks to Kwedit, you can play games online with a credit line!

A recent article by Randall Stross, “Buy Now, Pay Later (Maybe With Your Allowance)” details the growing use of a virtual credit line offered through Kwedit, a company that is facilitating the exchange of money for virtual goods used in online gaming.

Children, over the age of 13, can buy virtual goods, through their Kwedit account, and choose to pay later. The arguments promoting the “virtues of virtual” are surely coming soon. Why? While there is currently no real life penalty for not paying your Kwedit debts you are still required to pay with a debit or credit card or real cash via your local 7-11 store. If you don’t your virtual Kwedit credit score could be low thus warning other sellers of virtual goods not to sell to you. Sounds like real life, right?

Training Wheels for a Real World Debt Ridden Lifestyle

As we all mature there are pathways that form in our brains. Stimuli such as nicotine, alcohol, and sugar have a pathway burning effect. From there we can become addicted to the sensations we receive from those stimuli. So do particular emotions that are associated with stimuli. An example could be the euphoric feeling I get from the pride my dad shows in me when I win a foot race. That pathway in my brain feels satisfied when my dad expresses pride in me. Since this particular “father’s pride” pathway screams for satisfaction I push myself even harder to win more races.

Has anyone considered this process of using virtual credit to be the equivalent of training wheels on a real world debt ridden lifestyle? This ties instant gratification to fun entertainment with no exertion, save clicking a button, on the child’s part! The child then forms a pathway that says “Using credit is easy. By using it I get immediate access to more fun. There is no “real” penalty if I don’t pay.”

Children are not animals. However, their minds can be conditioned and I am reminded of the story about the experiment Ivan Pavlov conducted on dogs. When they saw him coming with the food bowls they would drool in anticipation. Pavlov began ringing a bell every time the food was brought. The dogs quickly associated the bell ringing with receiving food. Soon, Pavlov noted the dogs were drooling at the sound of the bell even when no food was present. They were now conditioned to associate one sensation with a particular stimulus.

Can the same be true with easy virtual credit? Is it possible that the gratifying sensation you get from immediate entertainment by going into virtual debt is transferable into the real world?

Relishing the Old Days

Are there no other forms of entertainment or recreation for our children? These kids aren’t outside throwing or catching a ball, running around bases, or operating a lemonade stand?

The most unbelievable part of this is that Stross goes on to state that our country, currently in economic hardship, spent over $1 billion on “virtual goods” in 2009 with it expected to increase to $1.6 billion in 2010! For anyone interested in turning their money into real assets versus pretend puppy food please see my related articles.

For now I will relish the rare occasions when I see a 13 year old entrepreneur shoveling walks, selling cookies, delivering papers, or washing cars. There is a kid who will be putting experience on a resume, street smarts in her brain, and something called “cash” in her pocket.

What Is Cash Flow And How To Improve It

Pinyo — Tue, 16 Mar 2010 15:00:08 +0000

I believe that cash flow is one of the most powerful concepts in personal finance. People tends to know how they feel about their personal finance — e.g., whether they are comfortable or are struggling. Unfortunately, not too many people truly understand cash flow and how important it is to your finances. When you understand the concept of cash flow and know how to improve it, you give yourself tremendous flexibility and open yourself to a lot of opportunities.

What is cash flow?

Cash flow is basically your income minus your expenses. If your income is about the same as your expenses, you’re living paycheck to paycheck. If your income is higher, you’re in a good shape. And if your income is lower, you’re accumulating debt. Very simple isn’t it?

And here is the beautiful part. Once you understand the basic components — income and expenses — you can begin to take concrete actions to improve your finances. And you can break down the problem even further by looking at reducing individual expenses and improving your income.

How to improve your cash flow

Reduce your expenses

The best and easiest way to improve your cash flow is by cutting your expenses; especially ones that are recurring month-to-month. The biggest bang for your buck is your mortgage, if you have one. Take a look at today’s best mortgage rates and see if it makes sense for you to refinance. Refinancing alone could free up several hundred dollars that you could use for other financial endeavors.

In general, expense reduction is easier if you are keeping a budget. If you don’t have one, you should start tracking your expenses and start a budget. The key to success in expense reduction is doing all the little things that add up and trying to take one small step at a time. Don’t try to reduce your expenses by 50% — it will never happen. Challenge yourself to cut $50 a month or a $100 a month. Once you accomplish that, go for another $50, and so forth.

To help you get started, here are some ideas on how to save money — actually, about a thousand ideas.

Increase your income

The other side of the equation is improving your income. This is harder than cutting your expenses, but there are things that you could do — even little things like moving your money to a high interest savings account helps you to earn more. Again, it’s all the little things that add up.

What about other income ideas? You can basically break them down into a few categories:

Earn more from your job — i.e., ask for a raise, get a promotion, work overtime, etc.
Earn more outside of your job. Here are a few additional income ideas for you to mull over.
Make your money work harder – i.e., investing in the stock market, real estate investing, and other alternative investments, etc.

What to do with your free cash

So you’ve improved your cash flow, what should you do with the extra cash? Here are a few ideas:

Pay down your debt — e.g., eliminate credit card debt, car loan, student loan, etc. As you do this, you’ll free up even more cash because you no longer have to pay all the finance charges and monthly payments.
Invest your money. Again, make your money work for you and continue to improve your cash flow.
Give. If you are in a position to give, charitable donation is also a great way to use your money.

I hope you enjoy this article, and more importantly, got a few ideas out of it that you can use to improve your finances.

Best Places to Purchase Textbooks for Students

Tom Tessin — Mon, 15 Mar 2010 15:00:34 +0000

As a college student, we all know how expensive it is to buy just about anything in our daily lives. From our daily meals, to our clothing, how the heck are we supposed to afford all of this? With student loan and credit card debt reaching an all time high per student, I wanted to give you college students some pointers that you can use, in order to save on your textbooks. Honestly, you can use this strategy on just about any purchase.

Photo by Here In Van Nuys via Flickr

Get your ISBN / Textbook title

Since you want to purchase the right book, it’s absolutely essential that you grab the ISBN. You don’t want to solely rely on the title, because you’re soon going to find out that there will be many volumes, and editions that can throw you off. You will most likely get your textbook title the first week of class, or if some professors are on top of their game, you can get it a few weeks before. It never hurts to e-mail them for this information.

#1 – Start with the library

Right when you get the textbook title, you’re gold. Rush to your local library, especially the college one first. You’ll be amazed at how many textbooks they have in their collection. This is a great way to get it for nothing. All you will need to do is keep checking it out, when you want to re-new it. I’ve done this for about 15-20% of my books. Again, the key here is to make sure that you get to the library before anyone else, because a lot of people know about this.

#2 – Rent it!

The textbook rental market is a new thing in this decade, but many students seem to enjoy it. You can rent out the book for X amount of time, and return it once your semester is up. There are some good deals, and there are also some bad ones as well. For example, my Math book would have cost me $72 used on Amazon, but I could rent it for the quarter for only $26 on Chegg. Places like Chegg.com, and others are a great place to start to see what you can rent your particular book for.

#3 – Buy used

eBay isn’t really going to be a goldmine for textbooks, since students only buy at particular points in the season. Instead, you’re going to want to check out websites such as Amazon.com, as well as Half.com. When you search for your book, you can notice that they have a used section. The used books are always 50-70% off. There’s nothing wrong with used books. On occasion, you may find some tear marks, as well as highlighter marks, but any good seller will tell you exactly what’s wrong with it.

#4 – If in doubt – try the bookstore

I absolutely hate the college bookstore. They are just absolutely insane when it comes to pricing their books. I can find the books that they sell for almost 80% off online. The reason that I say that you should try the bookstore is because you can find used books there as well. Sometimes they are a deal, while other times they aren’t. It’s all going to depend on the book, college, and the pricing.

#5 – Sell in the end

If you do decide to purchase your books, and you don’t want them at the end of your semester, try selling your used textbooks on Amazon or Half. You will most likely get 80% of your money back. I would only do this though if you’re not going to need the book for reference in the future.

With a little effort, and work, it’s really not that hard to save on your textbook purchases. The Internet is a great thing, and take it to your advantage. By implementing these tips, I can almost guarantee you that you can save over 50%! Good luck!

Does Investment Portfolio Diversification Still Work?

Craig Ford (Staff Writer) — Fri, 12 Mar 2010 15:00:41 +0000

A common lesson from a children’s story book has become one of the guiding principles for investing: “Don’t put all your eggs in one basket.” But lately, I’ve come across a few articles where people are questioning the wisdom of diversification. Today, we are going to ask the question – could you make more money investing if you did not diversify?

But, first here’s a quick definition of diversification: “to spread out your investments amongst different types of funds”.

Photo via Wikimedia Commons

The Theoretical Answer

Theoretically, you can make more money (investing or otherwise) if you do not diversify. Let’s say, for example, there are three mutual funds.

Fund #1 increases 15% over the year.
Fund #2 increases 20% over the year.
Fund #3 increases 10% over the year.

Theoretically, you would make more money IF all of your money was in fund number #2 instead of a third in each fund. Having a third in each fund would only yield a 15% return, while fund #2 yielded a 20% return.

Diversification and Risk

So, why should you diversify your investment portfolio? But that’s a big IF, and in real life, we also have to deal with WHEN.

One thing every new investor must know is that risk and reward have an inseparable relationship. You cannot get one without the other. In other words, if you want to increase your return, you must be willing to increase your risk. Conversely, if you want less risk, you will need to sacrifice your potential for gains.

I believe this one investing lesson could save investors millions of dollars annually. Those who seek to get rich quick by investing in something with unrealistic gains usually end up losing everything.

Two Reasons Why You Should Diversify Your Investments

The long term results are better

The turtle still wins. Anyone who makes a big killing off a single stock will rarely walk away unscathed. They will often reenter the market with another gamble and eventually the risk will catch up.

Take the slow, steady, and diversified approach. It is better to slowly get to a million dollars than risk everything to get to ten million.

Emotional security

Not being diversified can be emotionally wearing. When you are diversified, there is probably something going up when everything else is going down. At least there is something holding its ground better than others.

Diversification has a built in ‘plan B’ in case you were wrong.

Sometimes, emotional security is more valuable than financial gain.

The Danger of Going All In: Investing Without Diversification

When I was a kid, I used to love to play the game Stock Ticker (yes, yes, I still love it). In the game, the market is controlled by the roll of the dice. The dice dictate which shares will decrease in value and which will increase in value. If a share drops below the zero line, you lose everything.

The game really doesn’t have an ending, so we usually just say we are going to total up the value of your shares in x # of minutes.

The winner of the game is almost always the person who will sell all of their other shares and buy all the cheapest share. If in those last rounds that share goes up, you have significantly increased your value. If, however, it goes down, you will lose everything.

The person who risks everything in Stock Ticker either finishes first or last.

Going all in on an investment means you risk everything. I’m sure there is someone who has made a lot of money by investing everything in one stock. There are probably thousands of people like that. They went against conventional wisdom and the payoff was huge.

That’s why investors today think they can do it, too.

However, we also need to realize that for every success story, there are 10 people who lost everything by going all in on a stock they just knew was going to succeed.

The risk of investing without diversification is too much.

What do you think…does investment portfolio diversification still work?

How to File a Federal Tax Extension

Miranda Marquit (Staff Writer) — Thu, 11 Mar 2010 15:00:45 +0000

April 15 looms on the horizon. There may be any number of reasons that you are not prepared to file a tax return, from not having your dividend statements back, to waiting to get a home buyer tax credit, to straightforward procrastination. No matter your reasons, you can actually file for an extension. Any taxpayer is eligible to get a six month extension for filing a tax return. You have to file for the extension by April 15, and then you will have until October 15 to get your documentation together and file your actual return.

Photo by alancleaver_2000 via Flickr

Filing an extension is a good idea if you don’t think you’ll be able to get your return together by April 15. The penalty for a “failure to file” can be quite hefty. As long as you file your extension paperwork — it’s only on page! — by April 15, you can avoid this penalty.

You still have to pay what you owe by April 15!

Be warned, though, that filing for an extension doesn’t get you another six months to actually pay your taxes. You are required to estimate how much you owe, and submit payment by April 15. The IRS starts charging interest from April 16, so it’s a good idea to pay something. Any tax refund you are entitled to will, as you might have guessed, be mailed to you after you file your return in October.

Filing Your Tax Extension

It is fairly easy to file a tax extension these days. You just need to fill out Form 4868.

If you use tax preparation software, like Tax Cut or TurboTax, it’s easy to file your tax extension. These programs have the appropriate forms, and the ability to allow you to send in the form electronically, or print out your completed form and then mail it in. If you have a professional prepare your taxes, he or she can usually file your tax extension electronically on your behalf.

Even without tax preparation software, you can still file your Form 4868 electronically using the fillable forms from the IRS. Just fill in your form online, and then submit it using approved methods directly from the IRS web site. In many cases, it is free to file your federal tax extension, and it only takes a few minutes.

If you are more old school, it is possible to file for a tax extension using paper methods. Many post offices, community government buildings and libraries offer tax form packets, and you can pick them up for free. Additionally, you can download Form 4868 and then fill it out and mail it in. You can also obtain the proper form by calling 1-800-TAX-FORM (829-3676).

The nice thing about filing a tax extension is that it doesn’t prevent you from filing your return electronically. In six months, when you are ready to file your tax return, you can do so over the Internet. This is a definite step above filing an amended return, which can only be done via paper. This can cause delays in processing and receiving your refund. With an electronically filed extension and return, you will get your refund — if you have one coming — faster.

Once your tax extension is filed, the clock is ticking until October 15. If you have been procrastinating, now is the time to get into gear and start doing what you can to get your documentation together.

11 Money Saving Tips for Parents with Babies

Craig Ford (Staff Writer) — Tue, 09 Mar 2010 15:00:45 +0000

When it comes to money saving ideas, some people go way out of their way to save a dime while others casually use products that cost hundreds of dollars. For example, is it worth drying a piece of Saran wrap? Some folks (mostly from a previous generation) would put the wrap on the window to dry just to save a few cents. Because most people overspend on babies, I collected some money saving tips for parents with babies to share with you.

The thing is that some of these ideas are genius, and others are simply a waste of time. For the frugal minded parents, many of these will be genius ideas. For the rest, they’ll probably sound like a complete waste of time. Which is right? I’ll let you decide.

At the end of the day, what is most important is that both the husband and wife agree that the effort is worth the reward. Otherwise, you’ll end up with some more marriage and money problems.

Photo by gabi_menashe via Flickr.

11 Money Saving Ideas For Babies

1. Cloth diapers instead of disposables

Yes, it is nasty. My counterparts in North America have told me there are ways to avoid the whole hand in the toilet thing, but we do it the old fashioned way. Fortunately, you can become numb to the nastiness.

My vote: Disposables are for wimps. Cloth is worth the savings.

2. Breast Feeding instead of Formula

Hey, I’m not going to say a lot about this one because I know this topic deals with a lot more than just money. There are discussions about health and the mother’s schedule that I really don’t want to get into. But, in term of cost savings, this is one of the best ways to save a lot of money.

My vote: Why buy what God has already given?

3. Laundry basket instead of a bassinet

My daughter slept for about two weeks in a laundry basket. Fortunately, we didn’t buy a bassinet — there was a bassinet in part of our Pack N Play. However, if someone were going to buy an actual bassinet, I’d say just use a laundry basket.

My vote: Surely kids could survive a few week/months in a laundry basket — go for it.

4. DIY baby wipes

You can make your own inexpensive wipes by soaking small paper napkins or double-ply toilet tissue in a shallow bowl of baby oil. Once the oil is absorbed, put it in a Ziploc bag or plastic container. We actually make our own wipes, mostly because they are sometimes hard to find and often expensive. We just cut strips of cloth and keep them moist with water.

My vote: The idea of making your own wipes doesn’t seem like the most effective money saving idea. I’d use store bought wipes combined with the ‘strategy’ in #5.

5. Use toilet paper instead of (in addition to) wipes.

I think round one cleaning should be done with regular toilet paper. To get a thorough clean, finish up with a wipe.

My vote: If it’s good enough for me, it’s good enough for them.

6. Use tape to mend cloth diaper covers/plastic pants.

We’ve never done this. The covers we find in town are about $2, so there is not much point in repairing them. If we had more expensive covers I wouldn’t be surprised if one of my kiddos had to crawl around patched with tape.

My vote: Use the tape and then put shorts on the kid. No one will ever know.

7. During the first few months, dress kids in the opposite gender clothes.

If you were smart, you would have bought gender neutral clothes the first time around. However, the question is, would you put a pink onesie on a one month old baby boy? I think we ran out of clothes once and that was all that was left for my son. It had been a long time since I cried as a grown man.

My vote: Please don’t ever make me look at my son in pink again. In life or death situations that is fine, but not a good game plan. Buy gender neutral the first time around.

8. DIY diaper cream.

You can crush an antacid tablet (like Tums) and mix it with petroleum jelly to make your own diaper cream. Here’s one of those jobs I don’t think is worth the time. We actually have a ton of diaper cream around our house so the idea of becoming a scientist and experimenting with diaper creams doesn’t sound appealing.

My vote: Squeeze and go. Leave the diaper cream to the professionals.

9. Make your own baby food.

Did it. My wife would cook up some vegetables, puree the food, put them in ice trays and freeze it. All we would need to do is pull out a cube and melt it for a meal. But, that was then. I guess having three kids 4 and under doesn’t leave my wife with a lot of time to puree food for the baby. Sorry, baby #3 you’re going to be a Gerber baby.

My vote: A healthy alternative, but a lot of work. Tough call.

10. A simple diaper pail with lid instead of high tech diaper pail

Diaper pails can get expensive. Deodorizers. Replacement bags. Plus the actual cost of the diaper pail. We opted with a pail that had a flip top lid and a small compartment for a deodorizer. I think it was about $10. Anyways, we love it because we used it for disposable diapers and then cloth when we made the switch. Sometimes we just stick some old Bounce pads into the deodorizer compartment.

My vote: Simple and cheap — a frugal idea worth trying. Give me a diaper pail that doesn’t require instructions.

11. Use an old T-shirt as a bib for baby.

Never done this one.

My vote: Seems like a good idea to me.

Now, I’ll let you decide if these ideas are frugal or cheap? Do you have any other money saving tips for parents of young kids?

File a Tax Extension Instead of an Amended Return

Miranda Marquit (Staff Writer) — Mon, 08 Mar 2010 15:00:21 +0000

As April 15 inches closer, many are beginning to get their tax documents together and prepare to file their tax returns. However, there are many who don’t have all their tax documents by the requisite time, or who want a little extra time to make some savvy tax moves for their 2009 returns. In such cases, it can be tempting to file anyway, and then file an amended return later. This may not be the best choice, though. Instead, consider filing for an extension.

Photo by blmurch via Flickr

Advantages of a tax return filing extension

Anyone can file for an extension of six months on their tax return, meaning that you have until October 15 to file your tax return. You still have to make an estimated payment, though, by April 15 on what you think you will ultimately owe. If you don’t, the IRS will start charging you interest, and if you underpay by more than 10%, there are additional penalties. Even with this, though, there are advantages to filing for an extension.

An extension can be filed easily — and electronically. All you need to do is submit Form 4868 (it’s only a page long) by April 15. When it comes time to file your return, you can do that electronically as well. However, when you file an amended return, it has to be done on paper. Your paper amended return takes longer to process, and is more likely to be audited than an extension. Instead of filing your return with missing documents, and then amending later, it is usually easier to get an extension. Then you have plenty of time to work on your complicated tax return, and get all the necessary documents together.

Who can benefit from filing an extension

Those who are most likely to benefit from an extension are those who want to take advantage of special tax credits and deductions. Those taking advantage of the home buyer tax credit can actually apply purchases made this year to their 2009 taxes. So, if you have a contract by May 1, and you close before July 1, you can put your credit toward your 2009 tax liability — if you would rather do that than put it on your 2010 taxes.

Another way to take advantage of the extension is for those who are converting to a Roth IRA, and want to use the option to reverse their conversions by October 15. It can also be helpful for those who are opening traditional IRA and want to take the deduction on 2009 taxes. And, of course, if you haven’t got your dividend statements or K-1 forms in time to include in a return by April 15, filing an extension can simplify matters.

You do need to be careful, though, if you are involved with offshore accounts. Those with signature power have to file a special form by June 30. There is no filing extension attached to this, since its a non-IRS Treasury form.

If you have a complex tax return, or if you are planning on taking advantage of moves that can reduce you 2009 tax liability, you might be better off to file for an extension while you consider your tax checklist. (Just remember that you still have to pay your taxes by April 15.) It doesn’t take much time, and a tax professional can help you decide if its a good idea in your specific situation.

How to Get In Shape and Save Money

Griff Hanning — Thu, 04 Mar 2010 15:00:28 +0000

Tired of spending money on things you don’t use or get very little results out of? I’m referring to your gym membership. Don’t get me wrong, I’m a big fan of gyms and love going to them, but when they cost an average of $33 per person per month, it comes down to a combined $792 for my wife and I to attend — and I gladly say, “No, thanks.”

If you are like me, you consider your physical health something that is important and worth taking care of. Staying fit and healthy is the best way to keep from getting sick or simply becoming unhappy with yourself. But why pay a fortune in order to do it?

Photo by Ernst Moeksis via Flickr

Last year, my wife and I ditched our gym membership and spent a total of $50 on a few different products to help us stay in shape (We love creative money saving tips!). There are plenty of things you can do in order to accomplish this, but here are my suggestions.

At Home Workout Videos

My wife loves the new Jillian Michaels videos. Jillian is hardcore! (If you are unfamiliar with who I am talking about, she is one of the trainers on the show “The Biggest Loser”). There are different workouts that you can choose from. If my wife only has thirty minutes, then she will do three 10-minute workouts, but if she has a whole hour, she will do all six.

This is nice because of the flexibility. It also cuts down on the amount of time and fuel driving to and from a gym. The Jillian videos are only about $10 each and can be found at any store like Walmart or Target.

Where else can you find great workout videos? Try Youtube.com. There’s an array of free selections on Youtube. They may be little teasers to try and sell you something else, but hey, just stick with the free stuff. Find videos you like the most and save them to your browser to pull up later.

Get an Iron Gym Set

I’m not talking about a big workout stations with weights and pulleys that costs a few thousand dollars, I’m talking about a simple tool that only cost $30 — the Iron Gym. You have probably seen them in commercials or late-night infomercials. They are the contraptions that hang on any interior door frame and allow you to do pull-ups for your back and biceps, and leg lifts to work your stomach muscles. You can also easily remove it and put it on the ground to do push-ups on.

Whoever invented the Iron Gym deserves a metal, in my opinion. It has helped me stay in shape and save hundreds of dollars in the process. It’s a thing of beauty.

Run outside

I don’t care how cold it is, you can bundle up and make it around the block just fine! Running outside is super healthy and much more fun than going around and around inside a building.

Use things around your house

So, let’s say that it really is too cold to go outside. Use things like stairs and chairs to get a good workout.

You can run up and down the stairs and feel pretty exhausted after about ten times. To motivate my wife to push herself, she will empty a bowl of candy at the bottom of the stairs. Then, every trip down she will grab a piece and bring it back up to put in in the bowl. This ensures that she will not quit until all of the candy is put back in place. Figure out what motivates you to run stairs and you’ll probably find it to be one of the best workouts you have ever experienced.

You can also use chairs for doing dips. Sometimes I set two chairs side by side with about 18 inches in between them. Then I set one hand on each chair, prop my feet up on another chair, and dip up and down in between them. This works the chest and triceps really well.

Schedule your workouts

You will see a lot more progress when you schedule your workouts and set goals before hand. Keep a calendar or chart to track how you are doing. This is extremely helpful.

If you are fine with paying $792 to get in shape and stay healthy, that’s fine by me. But if you are more inclined to spending $50 and putting the other $742 into your savings or your retirement fund, I’d highly recommend it.

Good luck getting in shape for less!

How to Make Money Short Selling Stocks

Stephan P. Klien — Wed, 03 Mar 2010 15:00:18 +0000

Short selling is a strategy used to profit from stocks that are overvalued. As a short seller, you would borrow — remember, borrow, and not buy — the stock of a company that you think is overvalued and will fall in the near future. You then sell the borrowed stock in the market and wait for the price of the stock to fall to a level, which you think is the fair value of the stock. If the price falls to the level you expected, you buy back the stock from the market and return the borrowed shares to the broker. The difference between the selling price and the price at which you buy back the stock is your profit, less the fee charged by your broker to lend you the stock. So, you have profited from a stock without actually owning it.

How Exactly Does Short Selling Work?

As an example, you think that a certain company’s stock, which is currently trading at $20, is overvalued. You expect the price to drop in the next 3 months. The next thing you do is, call your broker and borrow 100 shares of that company and sell it in the market. The proceeds of the sale, $2,000, are credited to your trading account with your broker. Now, you wait for the price to drop to a level where you can make the maximum profit.

For example, the price of the company’s stock falls to $15 after two months. You think that the price will not fall below this level, you buy the stock back, which is also known as covering your position. You pay $1,500 in the market to buy back 100 shares of the company and return it to your broker. There it is! You have made a profit of $500, minus the fee charged by the broker to lend you the stock, without actually owning the stock.

You can borrow the stock for as long as you want, but this is not advisable for two reasons; you will have to pay a higher cost for borrowing, and since you do not own the stock, the broker may ask for it back any time, which will force you to cover your position sooner than you wanted. So, unless you are sure that price will fall to a level where you can profit in a short period, do not go short. Additionally, you are also not entitled to receive any dividend payments made in the period you short the stock, since you are not the owner of the stock.

Short Selling Risks

The major risk you face as a short seller is if the price of the stock does not fall to the level where you can profit from it for a long time, or if the price increases. Take the previous example where you expect the price to drop in 3 months. However, the price level increases to $25 after 3 months. Now, if your broker asks you to return the borrowed stock, you will make a loss of $500.

Remember, the profits from short selling are limited, as the price of a stock cannot fall below zero. However, you can make unlimited losses on your position because there is no limit to which the price of a stock can rise. So, you need to be completely convinced that the stock is overvalued, and that the price will fall within a short period of time.

Best CD Rates (Certificate of Deposit Rates), March 2010

Pinyo — Tue, 02 Mar 2010 15:30:28 +0000

The following is a list of the nationally available highest yields 12-month CD rates. In general, certificates of deposit (CDs) are great investments because your principal is protected by FDIC insurance and your interest rates are guaranteed. Moreover, you can use CD Ladder to make your CD savings more flexible and effective. You can open certificates of deposit at your local bank, but with a little more effort you can secure the best rates through online banks.

As of 3/17/2010, the highest yield CDs are:

Bank	Rate (APY)	Min Deposit	Details
Discover Bank CD	1.60%	$2,500	Choose terms from 6 months (1.00% APY) to 24 months (2.15% APY).
Ally Bank High-Yield CDs	1.55%	$0	Open with $0, No monthly fees, Daily compounded interest for maximum earnings, Automatic renewal at maturity, Ability to withdraw and receive earned interest as income — just let us know before the CD maturity date or by ten days after. Ten-Day Best Rate Guarantee to new and renewing CDs.
EverBank Yield Pledge Certificates of Deposit	1.49%	$1,500	Choose terms from 3 months (0.75% APY) to 5 years (3.37% APY), Low minimum of $1,500 to open your CD
Citibank CDs	0.80%	$500

Bank Rates Search Tool

Additionally, you can use the following bank rates tool from MoneyRates.com to find the right banking product for your need.

Alternative Savings And Investment Options

In addition to high yield savings accounts, there are other alternatives that may work for you.

Lending Club (average 9.65% APY*)

Lending Club is a social lending network where you can invest in individual loans with as little as $25. The specific interest rate depends on the quality of loan you are investing in. Currently, the average return on investment is 9.65% APY. To learn more about peer lending, please read Introduction to Peer-to-Peer Lending.

* IMPORTANT: Please note that there are special risks associated with social lending.

Please review information associated with each offer before you sign up. Rates and conditions change constantly and I have reported what I believe to be the most accurate information at the time the article was updated.

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Best CD Rates (Certificate of Deposit Rates), March 2010

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Lending Club (average 9.65% APY*)

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