AskDong

I want take a moment all of this blog to mourn Kurt Vonnegut’s death.  If I were better read I would’ve read many of his books.  Instead I’ve only read a few.   In high school, my English class read Welcome to the Monkey House, a collection of his short stories.  I remember no other assignment from high school as well or as fondly.   The stories spoke to me in high school and continue to speak to me today.  Vonnegut’s cultural commentary often represented by the absurd seem even clearer now as I enter the full thrust of early middle life.   The world is poorer place for his passing.

I’m starting to reach Rich Dad, Poor Dad by Robert Kyosaki.  Not because I think I need to, but because I know I have a negative bias against it from many of the reviews I’ve come across it.  The book doesn’t quite jive with my world view at least from what I’ve come across.   However I don’t want to have an opinion on a book I haven’t read.  If I’m going to have an opinion – I should at least read the book.   I don’t want to be like Joe Morgan and Moneyball.

I often find people citing the Millionaire Next Door as a counter argument against the Rich Dad, Poor Dad.  I have read the Millionaire Next Door, and overall think it’s pretty good.   The book is interesting and somewhat useful but hardly astounding.   However the book I imagine might serve as good contrast and background for my analysis of Rich Dad, Poor Dad.  I know I also harbor some negative bias towwards the Millionaire Next Door is due to my left leaning tendencies (especially when it comes to intergenerational wealth transfer and distribution – think of me Warren Buffet super super super super super super super lite – I’m about 11 decimal places short in my net worth of the B Man)  as indicated by my earlier rant on taxes.  The Millionaire Next Door sometimes betrayed a “conservative” politic that wasn’t necessarily supported by points the book made.  A minor quibble given the major premise of the book I wholeheartedly support.  

Once I finish Rich Dad, Poor Dad, I’ll post a review and try to structure it in contrast to the Millionaire Next Door.   My guess I’ll find faults with both books, and at same time support many of the points each book makes.  From what I know there is some overlap espcially when it comes to small business owners.

Every couple years, I make an attempt at consolidation because I have a bad habit of opening accounts.  Currently I have:

• 2 Checking Accounts
• 2 Taxable Brokerage Accounts
• 2 IRA accounts
• 2 Online Savings Accounts
• 2 401Ks

I have pretty much two of everything.  I consolidated and the proceeded to open more accounts. Having opened all these accounts, I have a bit of buyers remorse.

A couple years ago I had a similar problem with too many accounts, and took steps to consolidate.  I trimmed down to 1 bank account (I had three as a result of being a sucker for opening deposit promotions), 1 brokerage account at the same brokerage I held my IRA account.  At the time I didn’t have an online savings account, and was still at my old employer so I only had one 401K.   I also consolidated my credit cards and closed the younger accounts from the same issuer.

I’m pretty much back where I started, but unlike last time I’m not convinced that I want fewer accounts.

Checking Accounts - I still want easy/free ATM access that Bank of America provides, but have no desire to make them my primary bank.  My Citibank account is so far superior.  The attached high interest savings, and line of credit allows me to maximize my money efficiency.  But alas Citibank only has two branches in Boston that I know of.

Brokerage Account - My plan remains follow though with Benjamin Graham’s advice to keep my speculatin’ money separate from my investin’ money.   Howver it hasn’t worked so far.  My speculatin’ account has lain fallow because I don’t really do all that much what I’d consider speculating.   I’m inclined to buy and hold, and as a result haven’t really brought anything I would put in the speculative account.   Though I’m sure there are many readers who would disagree.

IRA Accounts - Not much I can do about that since I shouldn’t be mixing different types of IRA dollars in the same IRA account.

Online Savings Account -  I should try to consolidate but I probably won’t.  The only reason I keep the ING account around is because it has more convenient CD options.  For anyone who’s ever tried to open an HSBC account, they know how much of pain in the ass it is to open an account.  I attempted to open a CD but after beginning the process and the thought of going through that process again and again as CDs matured made me give up.   It might be possible that once you’ve done it once you’re set.  If anyone knows – please chime in.   Opening a CD with ING directly from your savings account is a piece of cake.  For that reason I’m willing to trade a few basis point for convenience being able to buy CDs on ING.

401k  - This I’m actually simplifying.  I’m moving the money from my old 401k account into my current one.  Some people advise using a rollover IRA, but the choices in my current 401k are decent, I would hate to open another type of IRA for yet another purpose.   The amount I’m rolling over is trivial enough that opening a separate account wouldn’t make that much sense.

Having multiple accounts makes the management of my finances messier, but ultimately I’m willing to pay that price for the flexibility I want.    Some people I know swear by simplification, and others don’t seem much to care.  I think I fall somewhere in the middle.  I have thought of at least consolidating my brokerage account under one broker (put the IRAs and the Speculation Account under the umbrella of my primary broker).  The only reason I haven’t done so is a bit irrational as I feel like it’s putting all my eggs in one basket.  Though if I were really that paranoid, you’d think I would stuff money into my mattress (and maybe I do…).    However from a reporting standpoint it would make my life easier.  I’m getting tired of maintaing all my own reports.

What’s your stance on multiple accounts?

This topic has been well covered by other personal finance blogs. This post is less about how to perform a credit card arbitrage, but more about evaluating such an arbitrage.

Let me first come clean, I don’t do any credit card arbitrage anymore for a couple reasons.

1. Too much hassle for what I deemed it worth
2. Trying to improve my credit ahead of potentially as I prepare for a home purchase

Those two things aside, I did use a few different balance transfer offers during a 3 year period as way a paying down some of my Home Equity Line (HELOC). People tend to use balance transfer offers as way of paying down higher interest debt as I did or as way of investing the funds from the balance transfer into high interest savings account like HSBC. In either case you earn a spread between the borrowed amount and either the interest avoided or the interest gained.

Let’s take a look at my past situation, the HELOC given that it’s more complicated calculation given both the tax issues, different amortization periods of the HELOC and the credit card balance transfer. I think as always it’s also important to consider after tax rates. Tax effects only come into play when comparing different tax advantaged or disadvantaged accounts as the case may be. In this case HELOC interest is tax deductible while the payments made to credit card are not (of course with a 0% card that’s a moot point).

* Numbers In Table Above Represent Rough Calculation, actual numbers will differ depending on compounding period, and payment schedules. 

Credit Card Balances
The required minimum payment went up in 2005. Credit cards used to commonly charge 2% of balance or some nominal dollar amount. Now minimum payments must cover interest, late fess, and at least 1% of the outstanding balance. From personal experience that minimum payment seems higher than that. For instance on my Universal card had amortization schedule of 4 years but that was a balance transfer at 1.9% for the life of the balance instead of temporary 0% offer.  The minimum payments are important to keep in mind because even though you might be making money, the minimum payments in comparison the minimum payment for the HELOC might be too large from a cash flow perspective.   If you’re just putting the money into savings account this is not an issue as you can just withdraw money from the savings account to meet the credit card payments.

As I said, I don’t play the balance transfer game anymore. I was never one to actively play it, but another reason is just because good offers don’t come my way anymore. I believe credit card companies are reluctant to offer 0% with the higher prevailing interest rates.  In addition the offers that have been delivered to me have all come with strings attached. The most prevalent is a balance transfer fee of 3% which is a drag on earnings.  The Discover offers (and I’m sure others) have come with a stipulation that a purchase must be made on the card every month to keep the 0% teaser rate in place.  Of course the teaser rate doesn’t apply to purchases.  While it’s possible to just buy a pack a gum a month to guarantee that rate, it seems like too much planning and too much work.  I’m at heart kind of lazy and ultimately balance transfers are too much work for me to keep up with.   While I’ve never triggered the higher rates via a late payment or anything like that, I’m not willing at this point to take on that operational risk to make 3.5% (though you could argue it’s a infinitely leveraged and therefore like a infinite return).

If you don’t want to learn more about balance transfers, I refer you to some articles from members of my blogroll.

• 2millionblog
• Blueprint For Financial Prosperity

I’m sure Mr.Credit Card has a thing or two to say about the actual cards as well.

Next up is Real Estate Investing.   This potential topic can be a doozy,  so I might split it up into a couple posts.  Given that I have neither written it nor am a real estate shark, I’m not sure.  I have one rental - my old condo which I moved out of last year.

I realize I haven’t updated people on the status of my IRA account as I originally intended. I had meant to do it every month. I didn’t do it for March. I have no excuse other than the fact that I forgot. Anyhow below is how my IRA holding have fared since the last/first update. I’m down 3.7% mostly due to my holdings in AHM.

The value of my IRAs also reflect the deposit I made for tax year 2007.  In addition to making a deposit, I made two stock purchases and my holding in KKD were called away by an call option I sold earlier.  I aquired more AHM as it plunged further down due to the ripple effect from sub-prime.  Of course I didn’t purchase at the bottom, just on the way down.  I believe AHM has been unfairly maligned by the taint of subprime, and in addition I decided to purchase as I saw insiders making purchases.  It bottomed around 19, and then roared back up to below what I purchased it :(. I also purchased WM (Washingto Mutual). On the surface, it looks like I’ve exposed myself heavily to the mortgage market. Well with respect to my IRA, I have.  One reason is my effort to bias my tax sheltered accounts toward dividend paying stocks.  REITs such as AHM are ideal candidates as they do not qualify for the lower dividend tax rate.  My view is generally longer term, and feel that both AHM and WM represent solid companies that have good long term growth prospects that are hopefully just temporarily discounted by the current economic conditions surrounding the mortgage markets.  I’m confident that I probably haven’t timed it all that well, but what can I do? Timing isn’t my specialty.

Addition: Right after I wrote this, AHM proceeded to tumble 18% on a profit warning.   Pretty much the same thing happened when I last updated my IRA for my blog.  Maybe I need to stop writing about it.  Oh well.