Index fund vs. actively managed fund

I was recently reviewing my retirement portfolio costs and noted how much lower the costs are on my index funds. More than 60% of my mutual funds are in index funds. My actively managed funds include the Vanguard 2025 Target and 2035 Target funds which also include index funds even though the funds themselves are considered to be actively managed. My average cost is .21% which is lower than the industry average of 1.27%. That means my returns are 1% higher just because of the low fees. That difference adds up over time. For example, if I were to calculate the future value of my $90,000 in retirement assets in 25 years using 8% it comes out to $231,208. However, if I get a 1% higher return the value in 25 years is $291,120, almost $60,000 more! The scenario assumes that I don’t add anymore money to the original $90,000 balance. Increasing my savings would of course make the difference even higher.
I am not going to get into the whole argument over which is better indexed or actively managed. I feel comfortable with where my money is invested and that is all that matters. If I were to visit a financial planner I would probably hear that I have a lot of overlap in my funds. Specifically, I own various amounts of Vanguard Mid-Cap Index in my IRA, Roth IRA, and my 401k. I plan to get some financial advice next year once my Vanguard fund total exceeds $100,000 which makes me eligible for a reduced cost ($250) financial plan that they normally charge $1,000 for.

Getting near the holidays again

It is hard to believe that Thanksgiving is in just a few weeks. This year I am going out of the country for an exciting Thanksgiving with my girlfriend. It has been 3 years since I have spent Thanksgiving with my family. My mother died when I was a teenager and my father is currently married to someone MUCH younger than he is. As much as I love my dad…it is tough to spend time with him. He lives about 400 miles away. I will make a trip to see him near Christmas but I have not decided on the details yet. I may try to save money and drive but with $3 gas I don’t know how much money I would end up saving. Getting my father a gift has always been a challenge. He is most happy with a Best Buy gift card so he can shop for himself. One year I donated money to Toys for Tots in their names and he actually got mad at me about it. I could not believe it. After all he grew up in a working class family during the depression and joined the military at 17 to have a chance to make it in the world. He did not even graduate from high school but then again many people joined the military before high school graduation during WW II. So anyway you would think he would want to donate to kids who don’t have much. Out of spite I may do another donation in their names.

Possible interest rate cuts

It looks like interest rates are coming down again. That is a good thing for people looking to buy a home but it is a bad thing for people with money in bank accounts. I may take another $500 and put it in a 6 month CD just to lock up a better interest rate. It is not a lot of money but it is something and because I feel I have so little I want to earn as much as I can on what I have. Last month when the federal reserve cut interest rates by .5%, my ING Direct savings account interest was decreased by .2% to 4.3%. I was able to start a 6 month CD with $1,500 and lock it in at 5.15%.

Free sample of facial moisturizer

I try to take advantage of free samples whenever I can. I found this one today. Free Garnier Nutritioniste sample. I usually use an Oil of Olay product but I am willing to try something new.

Banking decision

A while back I was contemplating moving my banking business to WAMU. I have not yet done so. One reason is that WAMU does not have nearly as many ATMs near me. The irony of this is that one of the regular ATMs that I use is near a WAMU. Unfortunately, that is the only WAMU ATM nearby. I have also figured out how to download into Quicken without incurring a charge from Wachovia. I cannot wait to see my bank statement next month to verify this. Wachovia is not my only banking relationship. In fact most of my meager savings is at ING Direct due to their much higher interest rates. I think I will stay with the status quo for now and not switch banks.

Lunch money

Yesterday, in the spirit of being collegial I went to lunch with my coworkers and ended up spending $4.73 on a grilled cheese sandwich, a pickle and a fountain drink. Not a lot of bang for the buck in my opinion. I am trying to go out with them once a week and brown bag it the other days. I already have to pay $5 per day to park. I do participate in my company’s pre-tax transportation program so that I do get a tax benefit which takes away some of the ouch factor. I have written about this before and I do wish my coworkers would eat in. Either they have a lot more money than I do or they are not trying to save like I am. How much does the average lunch cost I wonder.

Federal tax withholding

I am one of those people who would rather get a nice refund back at the end of the year. Many people will say that you are only giving an interest-free loan to the government if you get a large refund. To me it is a forced means of savings. I expect to get about $5,000 back from my federal tax refund and another $1,000 back from my state refund. The vast majority of that money is earmarked to payoff my credit cards balance which now sits at $5,880 at 0% interest and will be closer to $5,000 when I get my tax refunds. Anything leftover will go into my emergency savings or even my Roth IRA. I am considering changing my withholding for 2008 so that I can increase my 401k investments. I thought that I would be able to max out my 401k withholding this year but with the monthly credit card payment I just have not been able to. I cannot wait to get my hands on that money.

Smart purchases

My vacuum cleaner started giving me trouble a few months ago. Basically, the hose would get all clogged up and then it would lose suction. I could take the hose apart and clean it out with a wire clothes hanger but that gets old really quickly. Yesterday, I went to both Target and Bed, Bath, and Beyond to search for a new vacuum. I did try to purchase one online but the shipping charges were too high. Anyway, I purchased a Dirt Devil Reaction vacuum with my 20% off BB and B coupon and then went back to Target and purchased a Dirt Devil Vision carpet cleaner that had been marked down to $69.98 from $100. I was a little concerned that the carpet cleaner was too cheap to do a good job but I was very pleasantly surprised. Both the vacuum and the cleaner exceeded my expectations. I feel like it was $200 well spent and now my house is so much cleaner The vacuum was a planned purchase but the cleaner was an impulse buy. I do feel good about it though because I got it on sale and it did a reat job.

Not sticking to the grocery list!

Today I did my weekly grocery shopping trip and bought a few items that were not on my list. THe effect of that was that I spent almost $6 more than my weekly budget of $60. To be fair the additional items that I bought were food items that I needed and I did miscalculate how much I thought I was spending. In my head I keep a rounded running tally of my total less the tax. If an item cost $1.23 I round down to $1 and I round up to $2 for items costing $1.59. Keeping a running total in my head keeps me from having to use a calculator on my shopping trips. I also forgot to take my coupons with me but I don’t think I bought anything that I had a coupon for. I do try to take advantage of store specials whenever I can.

Discover Card at 0%

Early this morning I awoke in a panic worried that I had not made two transactions on my 0% balance on my Discover card this billing cycle. UGH!!! Fortunately, I still have more than a week to make the transactions otherwise I will lose my 0% interest rate. The rate was the only reason I applied for the card. I have had it since late January 2007 and have saved a lot of money in interest with it. I have also earned a $20 rebate which I promptly put towards my balance. I have been able to pay off approximately 25% of my original balance in part to not having to pay any interest on the balance. I will need to stay on top of the two transactions per month stipulation though. I plan to pay this card off with my federal tax return early next year and that will be the end of my 17 plus years of continuing credit card debt. It is strange to think that ever since I got my first credit card 17 years ago I have always carried some type of revolving balance on my cards. I have never paid them all off completely. Something has always come up. Maybe I just never made it a priority.

Glad I am not trying to sell my home

I found an article in USA Today which does not bode well for those who need to sell their homes. It looks like the housing downturn will last longer than previously anticipated and the drop in home prices is here for a while. I feel bad for many of the folks who have gotten sucked up in the subprime mortgage mess but many of them new that they were getting in over thier heads when they got the mortgage. I really feel bad for the folks who are seeing their equity erode because of the increases in foreclosures in their neightborhoods. These are the real victims of this.

Improving my credit score Part 2

Yesterday I took the plunge and checked my credit score. I was curious and could not wait. Much to my surprise, the 3 major credit reporting agencies, Equifax, TransUnion, and Experian have changed their credit score model to use the "Vantage Score". This change will make all three credit reporting agencies more consistent. The scores can range from 501 to 990. Basically you will also have a letter grade associated with your score as follows:
A - 901-990
B- 801-900
C- 701-800
D - 601-700
F - 501-600
My score was an 895 so now my goal is to increase it to over 901 so that I will be an "A" credit risk. The factors that go into computing the credt score have not changed...only the scale has changed.

Improving my credit score

October 15, 2007
I have decided to try to improve my credit score from the mid 700s to closer to 800 or even over 800. The factors below are the main influences on my score:
Payment History (35%)
Amounts I Owe (30%)
Length of My Credit History (15%)
Types of Credit Used (10%)
Your New Credit (10%)
#1 I have always paid my bills on time so there is no way that I can improve on #1. I need to continue to always pay on time.
#2 I can however improve the amouonts I owe just by paying down my debt. Specifically, all of my credit card debt except for my Amex debt which I pay off every month, is on one card and I am currently using 60% of that card’s credit limit. I do have other cards with a total of $35,000 of credit limit that zero is owed on. I think that the 60% use is having more of a negative effect than the positive effect from owing zero on the other two cards. After next March I will owe nothing on my credit cards so that will help that factor.
#3 My credit goes back more than 15 years so that is a good thing. Also, there is nothing I can specifically do to help improve that.
#4 I have a mixture of installment and revolving debt which is good. My car, student loan and mortgage are installment debts and my credit cards are revolving so that is good also.
#5 I have applied for new credit within the last 12 months 3 times. Once to refinance my mortgage, once to get a zero balance credit card offer, and once by accident when I clicked on the “Bill Me Later” option on a website. UGH! I will not be applying for any more credit because this is the one areas that I can most improve upon.
Anyway, I plan to check my score every 3 months for the next year. I will check it again before the end of 2007 to see if there has been any improvement.

Paycheck calculator

I have discovered PaycheckCity.com a great website to calculate what my paycheck will look like based on various scenarios. It has been helpful with calculating what my net pay would be with different 401k contributions. This site is also helpful in calculating net pay when I get a bonus or change my withholding amounts.

Charitable donations

This is the time of year I usually make my charitable donations. I regularly donate $1,000 a year to the United Way as well as a few smaller donations to other causes such as public radio, animal organizations and needy children. I always wish I could donate more to the causes that are special to me but I don’t have a lot left over each month so I do what I can. I am fortunate that I can itemize so I can take advantage of the tax write off for charitable donations. I wonder what the average person like me donates to non-religious causes

2007 net worth goal achieved

I am happy to report that I have achieved at least for now my 2007 net worth goal of $100,000. As of today my net worth is $100,483. Of course maintaining a net worth over $100,000 at this point is pretty dependent on the stock market not taking a dive in the foreseeable future. My new 2007 net worth goal is $105,000. It is a stretch goal but I think it is possible. Of course, $100,000 is not a lot of money in the scheme of things and I have a lot a catching up to do. If my income stays the same and even grows a little each year I should be able to start increasing my net worth by $30k to $35k each year.

Lunch coupon

A few weeks ago I signed up for a free Chik-fil-a sandwich coupon and it came in the mail yesterday. I just checked the coupon website and unfortunately the link is no longer active ( I was going to try to get another coupon). Anyway, I am going to eat lunch at Chik-fil-a today on the house :) I am very good about redeeming rebates and sending away for coupons like that. If it is something that I would normally buy then it only makes sense. Currently I am awaiting the receipt of a $15 rebate for buying 6 bottles of wine. The 6 bottles cost me about $35 so the rebate is a substantial savings. Many people feel that rebates and coupons are not worth the time but if you are diligent about them they can be a really $$$ saver. When I moved into my townhouse last year I painted some of the walls and the paint I used was about $20 per gallon. I bought my paint when there was a $5 rebate so I got about $25 in rebates back. Running a Quicken report for rebates shows that I have received $1,526 in rebates in the past 13 years. Not too bad.

Insurance quotes and credit inquiries

Recently I requested a car insurance quote from GEICO just to see how competitive their rates were. As it turned out, my current insurer, State Farm, has a much better rate for me. I have two speeding tickets in the last 5 years but my monthly insurance is still very reasonable. I have been with them for 17 years so that may be a factor. Anyway, this morning I received an email from GEICO telling me that my rate quote may have been higher due to my credit score. Below is an excerpt of the email. I checked my score in August and it was about 750.
”Since we may have been able to offer you a lower rate had the report been more favorable, we treat our decision as an adverse action under the Fair Credit Reporting Act. You have the right to obtain a free copy of a consumer report from the reporting agency listed above, provided your request is made within 60 days of receiving this notice.
The specific information provided by Trans Union that may have influenced our decision is:
-Insufficient length of credit history (-)-Too many recent credit checks (-)”
Apparently this type of credit check is a “soft” credit check and it will not effect my credit score. My recent credit checks includes applying for a refinance mortgage in October 2006, applying for a Discover card to take advantage of a 0% offer in January 2007, and accidentally hitting the “Bill Me Later” logo and not realizing what that entailed in August 2007. How many inquiries in a 12 month period are considered to be okay?

Switching banks from Wachovia to WAMU?

For the past several months I have been mulling over switching from Wachovia to Washington Mutual Bank. The primary reason for my switch would be the rates on savings accounts. I don’t keep very much in my Wachovia savings as I am accumulating my emergency savings in my ING Direct account. Would I save more in my regular savings if I earned more on the money? Probably. If I were to open up an Online Savings account I would earn 5% APY on my money. This is a much better deal than going into the bricks and mortar bank and opening an account to earn .25% savings. On the downside, WAMU does not have nearly as many ATMs in my city and that could end up costing me in fees. On the upside, I will not be charged for direct downloads into Quicken. I have started downloading directly from Wachovia’s site so that I will not be charged but it is not as convenient. I will make my decision by the end of the year.

Pets

I have two elderly cats aged 13 and 15. According to my Quicken records I have spent $15,644 on them since 1994. The last few years have been the most expensive for me. In fact since 1/1/2004 I have spent $9,579. I know you cannot put a price on your pets as they are “family” but boy have they been costly. The expenses relate to vet bills and boarding mostly. One of my cats has been diagnosed with diabetes this year. His insulin cost about $110 every two months. Anyway, these sweet animals have really put a dent in my savings. It is not like they have cancer and I am springing for expensive cancer treatments. The health related expenses they have are purely maintainance in nature. I do love them but when they die…they will not be replaced.