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The Most Important Presidential Election of Our Times

2008-10-06T21:03:00.000-07:00

Joe Biden did have one correct thing to say in his October 2, 2008 vice presidential debate with Sarah Palin: that this is the most important presidential election of our times. But rather than drawing the conclusion that this is the time for Barack Obama in the White House, I instead draw the conclusion that it is imperative for the future of our nation that we elect John McCain on November 4.

The single most important political issue of our time is the war on terror; specifically the war on radical Islamic extremism. The enemy in this war will not surrender peacefully on a battleship, and will not see the error of their ways through reason. Islamic extremists are breeding an intergenerational, ideological, and religious hatred of the United States of America, a hatred which is self-propagating and which cannot be defeated by conventional tactics of diplomacy and political pressure.

The democrats, led by Barack Obama, have made it their campaign platform to pursue an immediate withdrawal of American troops from Iraq. Pulling out of Iraq at this juncture would be a disaster of gigantic proportions, since it would bolster Islamic extremists’ perception of America as an entity that can be defeated and brought down. Our terrorist enemies are not easily identifiable with uniforms and military equipment; they masquerade as ordinary people until the opportunity to strike, whether for weeks or months or years or decades. America simply cannot afford to take for granted that the terrorism problem has been solved. It is true that it has been seven years since 9/11 and that we have been successful thus far in keeping the war on terror from occurring right here on American soil; and how easily America forgets that it is the policies of a Republican president which have kept the war on terror overseas instead of on Main Street, USA. In my opinion, the choice between John McCain and Barack Obama in November is very clear. Either we elect John McCain with our eyes open to the real possibility that Islamic extremism will be the number one issue of the 21st Century, or we elect Barack Obama and run the risk of discovering this brute-force fact about the 21st Century on the receiving end of another 9/11 attack at the hand of the terrorists to whom he would so willingly wave a white flag of surrender. America ought to be the shining light on a hill to the rest of the world, not a nation that tucks tail and runs away in the face of blatant evil.

And although the recent economic crisis has stolen some of the thunder away from the war on terror, Americans need to keep things in proper perspective. The economy is important, no doubt, but the war on radical Islamic extremism will not die out in a generation and will seek us out if we do not seek and destroy it first. My grandfather always told me that carpet bombing is the only way to win a war. With terrorism we do not have the luxury of knowing our enemy face-to-face on a battlefield, so it is not that simple with this enemy; but the principle is the same. Unless we wipe terrorism off the face of the globe, the world will know no peace.

On the subject of the economy, the democratic formula of taxing the wealthy to pay for social programs amounts to blatant wealth redistribution. We cannot sustain a viable American economy by placing a tax burden on those who provide jobs and capital to grow the economy. This will result in more American jobs being sent overseas and an increased dependence on the global economy for our own economic well-being. America must sustain a vibrant economy within its own borders as much as possible, and Republican economics make this possible.

And finally on the subject of energy, you can be assured that the time has truly come to seek out alternative energy sources when even the Republicans are calling for alternative energy. We are too dependent upon foreign oil, and every year we are sending hundreds of billions of dollars overseas to countries that don’t like us very much, except for the money we send, and that are potentially happy to feed this money to terrorists. It is both an economic issue and a national security issue. We absolutely must get off of foreign energy dependence, which means seeking out new energy sources such as natural gas, solar, and wind power. But in the meantime we are sitting on large reserves of offshore oil and oil in Alaska that we can use to bide our time as we seek out these new sources of energy. The Republican energy policy will get us off of foreign oil dependence while giving us the economic stimulus and wiggle room to seek out the next generation of energy supply in our own backyards.

I very seldom write opinion pieces, folks, since I trust the common sense and good judgment of my fellow citizens to make discerning judgments themselves. But in this case, I believe there is simply too much at stake for me not to be outspoken about the seriousness of this 2008 presidential election. Barack Obama’s plans spell risk and disaster for the American national security, the American economy, and the American future. I do not doubt Barack Obama’s good intentions, but I do question his wisdom and his policies.

John McCain, on the other hand, knows firsthand what it means to be an American, having been on the receiving end of non-American values during his time as a prisoner of war. John McCain knows that we must preserve the special and God-given things we have in this country, no matter what the cost. War is ugly, but evil must be defeated head-on, and we cannot wait and hope that the terrorists will change their minds about us if we just leave them alone for a while and talk to them gently. Make no mistake about it, there will be a war on terror for decades to come, and if anyone thinks otherwise they are simply deluding themselves. We as Americans must persevere and trust that our virtues and our freedoms are given to us by our creator, but they can be taken away by foolish men who show weakness in the face of our greatest national struggle. And if not by those men themselves, then by those who mean to destroy us. Americans, I think, simply do not grasp what it means to say that our enemy does not just hate us, they want us dead and they want our great country destroyed unto the dust. And they will cowardly die in suicidal attempts to take as many Americans with them as they can. My fellow Americans, John McCain knows what it means to lay his life on the line for his country, and in these most dangerous times I want that steady hand of conviction as my president.

God forbid that another tragedy like 9/11 ever happens to America again, but we cannot forget that to the terrorists 9/11 was just the beginning. They will not simply pacify themselves, and they will remain resolute in their hatred of our way of life; and so we likewise must be firm to oppose them, remembering the generations of blood that have been shed already for the preservation of American liberty and American ideals. My grandfather fought for this county, as did my step-father and my father-in-law, and they each saw more evil than I ever care to see. But evil is out there, whether or not we choose to see it or choose to think about it. We cannot abandon this country to those who would turn a blind eye, whether out of good intentions or ill, to the very real dangers that our country faces. History has given us the choice between John McCain and Barack Obama. Make a good choice.

The Meteoric Rise of Sarah Palin: Predicting Election Results with Google Trends

2008-09-07T01:52:00.001-07:00

The meteoric rise of Alaska governor Sarah Palin as the Republican Vice Presidential nominee in the 2008 U.S. general election has caused a great deal of excitement amongst American voters. With this in mind, it has occurred to me that the recent Google Trend search statistics for the candidates' names might provide an interesting barometer to gauge the outcome of the election in November. So without further ado, here are my findings:

The above chart (clickable) shows that Governor Palin significantly outpaced any of the other candidates (Barack Obama, John McCain, and Joe Biden) in the number of Google searches for their respective names. The message is absolutely clear, Sarah Palin will win the presidential election for John McCain. Google may not be omniscient, but neither does it lie: Sarah Palin is not just the topic du jour; she is our next Vice President and is the most popular person to hit the political arena since Washington and Lincoln.

Retirement Portfolio Update: 5-2-08

2008-05-02T23:14:00.000-07:00

Grand Total = $7482.84

Roth IRA:

EFA (Euro-Asia Index ETF): 13.4492 @ $76.48 = $1028.59
IWM (Russell 2000 Index ETF): 12.6549 @ $72.52 = $917.73
SPY (S&P 500 SPDR Index ETF): 5.4482 @ $141.51 = $770.97
Sharebuilder Money Market Fund = $0.88

Taxable Investment Account:

AAV (Advantage Energy Income Fund): 9.218 @ $11.69 = $107.76
C (Citigroup): 20.00 @ $26.39 = $527.80

University 403(b):

UC Pathway 2040 Mutual Fund: 157.849 @ $13.03 = $2056.32

University DCP:

UC Pathway 2040 Mutual Fund: 79.559 @ $13.03 = $1036.43

CalSTRS:

Cash Balance Program: $1036.36

Associated Content Top 1000

2008-05-01T22:59:00.000-07:00

I, Zachary Fruhling am officially a "Top 1000" content producer on Associated Content (see Zachary Fruhling's Content Producer Page). Woo hoo! While I am unsure of the exact criterion used to determine the Top 1000 content producers, I have a hunch that it is either total number of articles submitted or total page views. I have recently become re-excited about Associated Content as a means to passive income, seeing as how my residual performance payment income is out-pacing my investment dividends.

By no means have I given up on long-term investing as a means to financial security, but I have reaffirmed my commitment to produce content for Associated Content on a regular basis to supplement and grow my passive income.

For those who are unfamiliar with Associated Content, AC is a company that will pay their writers anywhere from $3.00 to $20.00 for short to medium length articles on a variety of topics, including product and restaurant reviews, local news, how-to articles, etc. In addition to an up-front payment, Associated Content also pays residuals based on the total number of continuing page views generated by your content.

Most of the articles I have written for AC are simple product or restaurant reviews, and how-to articles on a number of areas within my expertise. Here is a list of my top ten Associated Content articles, so you can get an idea of the type of articles that AC regularly pays for:

1) How to Whiten Your Teeth Cheaply with Hydrogen Peroxide as a Mouthwash (6063 Page Views)

2) How to Make a Lemon Battery (3505 Page Views)

3) How to Write with a Fountain Pen (3403 Page Views)

4) How to Improve Your Handwriting (3268 Page Views)

5) Lindemans Framboise Raspberry Lambic Beer is a Delicious Alternative to Traditional Beer (3223 Page Views)

6) Top Fin 10 Gallon Goldfish Aquarium Starter Kit (2990 Page Views)

7) Why Buy an iPhone When You Could Have $11,553? (2471 Page Views)

8) Mother's Circus Animal Cookies Are Fun and Delicious (1884 Page Views)

9) Splenda Vs. Sweet'N Low (1777 Page Views)

10) TetraFin Goldfish Flakes: How to Feed Goldfish Properly (1653 Page Views)

As you can see, the topic of each of these articles is narrowly focused but fills a specific niche that someone is likely to be searching for. None of these articles took more than 15 minutes or so to write, but I am receiving money from each of them each month, deposited directly into my Paypal account. If you have not yet given Associated Content a try, and if you write quickly with quality, then Associated Content may be a good way to generate and supplement your passive income.

You can click here to join Associated Content and start earning some money for your writing. You will not likely get rich by writing for Associated Content, but the passive residual income is worth the effort.

Dividend Update for 4-30-08

2008-04-30T11:27:00.000-07:00

It has been a while since I posted an update of my dividend/distribution payments; so without further ado, here is a list of my dividend payments through today, 4-30-08, since my becoming an investor in January of 2007:

Roth IRA Dividends:

iShares MSCI EAFE Index ETF (EFA):

01/04/08: ($18.02)

iShares Russell 2000 Index ETF (IWM):

03/29/07: ($0.64)
07/05/07: ($0.86)
10/01/07: ($1.58)
01/03/08: ($2.18)
03/28/08: ($1.07)

S&P 500 Index "Spiders" ETF (SPY):

04/30/07: ($1.27)
07/31/07: ($1.62)
10/31/07: ($3.22)
01/31/08: ($3.49)
04/31/08: ($3.48)

PowerShares High Yield Dividend Achievers ETF (PEY):

04/30/07: ($1.11)
05/31/07: ($1.38)
06/29/07: ($1.39)
07/31/07: ($1.82)
08/31/07: ($1.82)
09/31/07: ($2.29)
10/31/07: ($2.25)
11/30/07: ($2.27)
12/31/07: ($5.25)

Money Market Fund:

02/21/07: ($0.47)
03/21/07: ($0.53)
04/23/07: ($0.64)
05/21/07: ($0.26)
07/23/07: ($0.36)
08/21/07: ($0.37)
09/21/07: ($0.26)
10/22/07: ($0.12)
11/21/07: ($0.34)
12/21/07: ($0.24)
01/31/08: ($0.06)
02/29/08: ($0.16)
03/31/08: ($0.29)

Taxable Account Dividends:

Advantage Energy Income Fund (AAV):

03/19/07: ($0.87)
04/18/07: ($0.91)
05/17/07: ($0.94)
06/19/07: ($0.99)
07/19/07: ($1.01)
08/17/07: ($0.99)
09/19/07: ($1.05)
11/19/07: ($1.12)
12/19/07: ($1.10)
01/17/08: ($0.88)
02/20/08: ($0.92)
03/19/08: ($0.93)
04/17/08: ($0.91)

Money Market Fund:

02/21/07: ($0.35)
03/21/07: ($1.55)
04/23/07: ($3.25)
05/21/07: ($4.62)
06/21/07: ($2.68)
03/31/08: ($0.06)

I Saved $160 in Bank of America Overdraft Fees

2008-04-24T21:32:00.000-07:00

This morning I managed to negotiate my way out of paying $160 in overdraft bank fees. I had been running a little lower on cash in my checking account this week than I thought, and I managed to overdraw my account with several small charges. So today I called up Bank of America (NYSE: BAC) and requested that my excessive overdraft fees be removed. I had nearly $200 in overdraft fees due to multiple small debit charges, and it seemed to me that $200 in fees was excessive for such small debits. While Bank of America would not remove all the charges, the customer service representative on the phone generously offered to remove $160 worth of fees without any significant prodding on my part.

I have a somewhat mediocre opinion of Bank America as a whole, but I was especially pleased with the way I was treated on the phone today. And the lesson to you readers should be clear. Bank fees and charges that seem to be set in stone are actually quite negotiable, since financial institutions absolutely do not want to lose you as a customer. Do not lie down and let yourself be charged up the wazoo by your bank. In all likelihood a simple telephone call is all it will take to get those overdraft charges (or even credit card late fees) eliminated.

Job Experience and Training

2008-04-21T13:11:00.000-07:00

A quick survey of any corporate job board will establish that the vast majority of available positions require several years of experience for the candidate to be considered for the job. While there is the age old conundrum of how exactly one is supposed to get experience if all the available jobs already require experience, my own view is that this trend is a sign of the negative state of the American economy.

In simpler and more prosperous times, companies could afford to pay for their employees' training. However, it is cheaper for a company to hold out for someone who already has the requisite skills for the job in question than to spend money to train someone on the job due to training's status as non-productive (i.e. non-revenue-producing) payroll hours.

But in today's questionable economy, such on the job training is as passé as employee pension plans. The net result is that today's job-seeker has an increased personal responsibility to provide his or her own training and to acquire the skills needed to fill whatever narrow niche the desired job satisfies in the overall corporate jigsaw puzzle.

Do you have any experience with this experience trend in the corporate world? Please share your experiences (no pun intended) and thoughts in the comments section.

The Three Stages of Investing

2008-04-18T10:04:00.000-07:00

There are three basic steps or stages to investing. Any sound investment decision will go through all three stages, and skipping any of these steps will jeopardize the effectiveness of your investment decision. Being aware of these stages can help you analyze your own investment process and what, if anything, may be holding you back from having the financial security you desire.

Stage 1: Curiosity

The Curiosity Stage is when you first encounter an investment that you might be interested in; when it first shows up on your radar, so to speak. Many investments don't make it past this stage due to the inherent filtering process we go through when we encounter something new. "Do I take this seriously, or do I move on?"

The fact that we go through this screening process seems obvious at first. But if you are not aware of the implicit assumptions and prejudices you have that can influence your own personal screening process, then you may be blind to certain benefits or drawbacks to the investments that make it past your radar.

Stage 2: Research

The Research Stage is when you take the investments that make it through your initial curiosity screening and subject them to further investigation. What criteria you use at the Research Stage will depend upon what your overall investment plan is, but the important thing at this stage is to make sure that you have a sound financial plan and are applying your criteria as objectively as possible.

Stage 3: Action

All the planning in the world is moot if the planning does not result in action. It is not enough to have a financial plan that you never put into practice. Sadly, however, many people become gun-shy and never take any action on the plan they put together at stage 2.

People often forget that good long-term investing involves taking on a degree of risk, since that risk is usually minimized over the long-term and since the increased risk will yield greater long-term returns on good investments. Do not let any subjective phobia or fear of loss interfere with your ability to implement a plan that you know to be in your best interest.

If you know that you have a good financial plan, take whatever steps are necessary to put that plan into action and make it a reality. No one can take this action for you; you must be proactive about your own financial decisions.

Starbucks Versus McDonald's: The Postmodern McMocha?

2008-04-16T09:39:00.000-07:00

I just read an article on Time about a coffee war that is brewing between Starbucks (NASDAQ: SBUX) and McDonald's (NYSE: MCD). Apparently McDonald's is hoping to cash in on the $4/cup coffee craze and is going to be putting espresso machines inside nearly 15,000 of its locations.

Now as someone with a Germanic temperament, I tend to like neat categories and rigid structures. I am inclined to think that most businesses should stick to what they are best at and stick to their reason for being. When I think of McDonald's I don't think of premium coffee. McDonald's is a Big Mac, McDonald's is a Quarter Pounder, McDonald's is french fries, but McDonald's is not espresso. The clientele is the wrong crowd, or maybe the right crowd in the wrong mindset, but I'm sure that the great espresso experiment will go over like a lead balloon.

There is something in today's postmodern culture that encourages this mixing and blending of things that are best kept separate. Whether it is the blending of different business spheres in a postmodern "fusion" (think Asian-Fusion cuisine), or whether it is the trend toward interdisciplinary research in higher education, traditional boundary lines are being abandoned in favor of this postmodern mix.

Jean-Francois Lyotard considered this to be an indication of the erosion of the legitimacy principles behind traditional concepts of knowledge, ethics, and even business practices. It used to be that we had grand narratives of progress and liberation to guide us as a society, all of which were reciprocally reinforced by the traditional boundaries in our concepts and categories.

With the decline in our faith, as a society, in these traditional concepts, novelty for its own sake has become the modus operandi for business and research. As Lyotard says in his Postmodern Condition, "They have at their disposal no metalanguage or metanarrative in which to formulate the final goal and correct use of [their] machinery. But they do have brainstorming to improve its performance."

What better summary could there be of the current economic, governmental, and academic state of affairs? Espresso at Starbucks was undoubtedly dreamed up inside of a corporate board room or a customer focus group, with novelty as its primary motivator. Yes it is true that novelty motivates investors and hence affects a company's stock value, but I yearn for the days when a company could be a sound investment just by doing what it does, and that alone, and doing it very well.

Inevitably what will occur is that McDonald's will introduce its new espresso service, it will become a fad, and then there will be a call for a return to McDonald's core elements. This has occurred every time McDonald's has attempted to stray from its original formula (McDonald's salads anyone?). The return to McDonald's basics will itself be presented as a type of novelty, which can be touted to shareholders as a form of corporate carrot-waving.

I think it is fair to say that we can already kiss the McDonald's McMocha goodbye, although not before millions of dollars are spent in advertising and planning this espresso adventure. It's a good indication of these postmodern times and just how fragile, shadowy, and contingent our economy has become.

Things You Don't Understand

2008-04-15T10:47:00.000-07:00

Seth Godin has challenged his readers to make a list of things they don't understand. After all, as Socrates said, being wise means knowing what you don't know (or knowing that you know nothing, but I'm not that pessimistic). Here is my list, although I do have some thoughts on each of these:

How to start a business with no capital
How to finish a Ph.D. dissertation
How to design a ham radio from scratch
Why God allows suffering in the world
Why self-serving jerks are the ones that get ahead
Why people still talk about buying gold at $1000 per ounce
How anyone affords a house in Santa Cruz
What happened to quality television like family sitcoms and Star Trek
Why people like Jim Cramer

There are, of course, many other things I don't understand fully. But that will be enough for now. How about you? What things don't you understand, financially or otherwise? Post your list or link below for all to see.

Perception and Reality in Investing

2008-04-14T11:10:00.000-07:00

It goes without saying that our senses and perceptions can sometimes deceive us. We have all seen how a pencil can look bent while propped inside a glass of water or how a cleverly designed optical illusion (such as the rotating circles illusion below, found at http://www.richrock.com/illusion.html) can create the appearance of motion when there is none.

The same dichotomy between perception and reality is present in the world of investing. Sometimes an investment, such as the recent Bear Stearns (NYSE: BSC) fiasco, can seem to be sound while the reality is that there are major problems below the surface. By contrast, sometimes there are no surface indications that an investment will take off in the future, and some lucky soul will make a fortune from it.

With this veil of perception surrounding our investments, how can one be certain that one is making the right choice in one's investments?

One answer to this question would be to have a healthy dose of financial skepticism. Learning not to trust your initial perceptions about what investments would be sound, and hence expecting there to be some hidden factors behind the scenes, will lead to greater prudence in one's investing habits. One should not be too skeptical, however, since excessive skepticism will prevent one from taking any action and turning one's investing plan into a reality. But a healthy dose of skepticism is appropriate, since if something looks too good to be true, it probably is.

Another answer would be to do adequate research before jumping in to an investment. This research can be simple or complex depending on the nature of the investments you are pursuing. If you are investing in an individual stock, such as my recent purchase of 20 shares of Citigroup (NYSE: C), then you ought to familiarize oneself with the ins and outs of that company's financial situation. Investing in index funds is much simpler and requires far less research, but one should still take the time to research a financial plan that one can implement in one's individual situation. Adequate research and planning can make the difference between retiring rich and trading your capital into oblivion.

In conclusion, do not be too quick to trust your financial perceptions. Unless those perceptions are grounded in reality and in adequate research and planning, one's perceptions are just as likely to be incorrect as to be correct. Don't let your investments, and your financial future, be made of smoke and mirrors, but use prudence and wisdom to keep yourself on the straight and narrow.

The Market Goes Down and I Get Rich

2008-04-13T11:24:00.000-07:00

The stock market had yet another slight downturn over the past couple of days. But my portfolio went up in value by nearly $200. What is the secret of gaining money when the market goes down? Regular Contributions!

Last week I made an additional $200 contribution to my Roth IRA account. So while the market downturn caused my portfolio to decrease slightly, the net effect of the contribution was that my portfolio was up by just under $200.

One of the simplest strategies for ensuring that your portfolio retains its value in times of economic unrest is to keep on contributing to your accounts even when the market is taking a nosedive. This takes a certain amount of faith on the part of the investor. But if one is confident (as I am) that any market downturn will eventually be corrected in the future, then not only will your account ride the stock market waves a little better, but you will also have significantly more money when the market does go up from buying your security shares at a lower price.

A friend of mine observed a while back that my account seems to weather the storms a little better than others and does not seem to suffer any heavy losses. Making regular contributions to my account is probably the single most important factor in keeping my account at an ever-increasing value. So if you find yourself getting squeamish about investing during hard economic times, check that attitude and make use of the downturn to buy low and sell high (in the long-term).

As my retirement accounts increase in value, my ability to prevent a negative dip in my accounts' net value will be hindered by increasingly wide fluctuations. But the beauty of regular contributions is that the high points in the cycle will be increasingly higher and higher as I continue to make contributions through the ebbs and flows of the stock market.

Top Five Unreasonable Stock Picks

2008-04-08T19:46:00.000-07:00

I spend a fair amount of time in this blog advocating the benefits of long-term investing with index funds (click here to see how I set up my own Roth IRA with Index ETFs). For a change I thought I would offer up a list of my unreasonable and irrational stock picks; companies that I wish I was bold enough to throw some venture capital at to see what would happen:

1) DRDGOLD Limited (NASDAQ: DROOY): I have always had a fascination with precious metals and with gold mining. DRDGOLD is a company that engages in the exploration, extraction, and mining of various gold reserves in South Africa. Despite many setbacks, this company supposedly has access to rather extensive gold reserves that are ripe for the mining. This is obviously a shaky investment at best, but one I would throw some money at if I had venture capital to burn.

2) Crystallex International Corp. (AMEX: KRY): Crystallex is in the same boat as DRDGOLD as far as I am concerned. It is another example of my unhealthy interest in mining and precious metals. Crystallex is sitting on a large gold reserve in Venezuela, but the company is held back from mining operations by political forces in that country. For the last several years, Crystallex's stock price has fluctuated with the impending news of permission to mine the Las Cristinas location in Venezuela, which is constantly being blocked by Venezuelan President Hugo Chavez.

3) Atari, Inc. (NASDAQ: ATAR): As a child of the 80s I grew up playing the Atari 2600. As an adult I would love to own a piece of my childhood by owning some Atari stock. Atari, however, seems to be polishing the brass on the titanic and struggling to stay afloat in the sea of high-tech video game systems such as XBOX 360, Playstation 3, and Nintendo Wii. Until Atari breathes its last, though, I would still like to have this one in my portfolio just for its retro-coolness.

4) Motorola, Inc. (NYSE: MOT): I love communications technology. And while Motorola is not the technology leader that it used to be, it is still a healthy company and one that I consider to be emblematic of the 20th century ideal of technological progress. I have owned countless Motorola products over the years, and it would be just plain fun to own a piece of this communications giant.

5) Berkshire Hathaway Inc. "A Shares" (NYSE: BRK.A): My inclusion of Berkshire Hathaway on this list of irrational stock picks has absolutely nothing to do with the viability of Berkshire Hathaway itself. It rather has everything to do with the share price alone. What is not to love about a company that trades at well over $100,000 per share (for the A shares, at least, and quite a bit less for the B shares)? Were I wealthy beyond wealthy, I would have to own at least one share of Berkshire Hathaway for sheer bragging rights that I own a share of this coveted security.

So there you have it, folks: my top five unreasonable stock picks. If you would like to take a look at some of the stocks I consider to be most promising, then take a look at my other list of Top Five Individual Stocks.

And while I include these lists on SeeMeGetRich.com mainly for fun, I am overall an advocate of long-term index fund investing, and I do not advocate throwing your investment capital around as willy-nilly or as casually as these stock pick lists might indicate. Be smart with your money, invest it in long-term index funds, and then when you have more money than you know what to do with, feel free to engage in this type of reckless speculative investing. Stock picking may be fine for Warren Buffett, but stock picking can be disastrous for the everyman.

Investing As Entrepreneurship

2008-04-08T18:34:00.000-07:00

The drudgery and stress of seeking a traditional career path has me increasingly interested in entrepreneurship and business ownership. While I have several business ideas on the table, it has occurred to me that as an investor I am already an entrepreneur.

Investing in the stock market gives the investor part-ownership of his or her investments and entitles the bearer of the investments to a share of the profits of those business investments in the form of dividends or appreciation of the value of the investments themselves.

While I do not yet have the startup capital necessary to buy or to start a business outright, traditional investing can be viewed as a form of entrepreneurship itself. One might never make the transition from investing to business ownership, or one might use investing as a means to generate the capital necessary to own one's own company. In either case, one's investments are analogous to the "money machine" of a traditional business.

Remember that the whole point of business is to generate profit by making more money than one spends to run the business. Stock market investing serves the same purpose and can be pursued on a much smaller scale than business investing.

So if you, too, would like to consider yourself an entrepreneur but lack the financial means to invest in a business, take the plunge instead into stock market investing. You can put your money to work for you generating more capital that you could use for your retirement or to make the transition to small business ownership someday.

Don't get stick in the mindset that you have to be rich already to become an entrepreneur. By putting your money to work for you, you already show yourself to be smarter with your money than 90% of people out there who resign themselves to working for every dollar earned instead of pursuing passive income. If you are an investor you are already an entrepreneur!

Do You Know the Way to San Jose?

2008-04-03T10:41:00.000-07:00

My wife is in San Francisco this morning interviewing for a job as an admissions recruiter for the Academy of Art. She has been yearning to do something other than retail management for some time, and I have a hunch that she would like to do something more related to her field of study, Art History. She had her first-round interview with Human Resources and with the Admissions department yesterday, after which the Academy of Art immediately invited her back for a second-round interview today.

Should my wife take the job with the Academy of Art, we will be forced to move out of Santa Cruz, since the commute from Santa Cruz to San Francisco is unreasonable at best. We are giving serious thought to moving over the hill to San Jose if she gets the Academy of Art job. San Jose is still a bit of a commute to San Francisco, but the public transportation options make the commute more palatable.

I may have something in the works with RadioShack Corporation in San Jose as well, but the details are sketchy at this point so I will have to fill in the detail when I know a bit more. All I can say is that I am disappointed with the funding situation from my grad school department and with the general lack of available teaching positions at the local colleges. This is forcing me to seriously reconsider my career path and entertain the notion of taking a more stable corporate job instead of continuing to beat my brains out looking for enough teaching work to scrape by.

San Jose is not as appealing a place to live aesthetically, given that it is the heart of Silicon Valley and the technology industry. But the rent is cheaper, the commute would be better, and it is closer to my hometown, which means that I might actually get to see family once in a while. So all in all, I am excited about the idea of moving to San Jose. And thus may soon begin the "Great Apartment Hunt," round II.

Know-It-All: How Many Digits of Pi Do You Know?

2008-04-02T09:54:00.000-07:00

This morning I stumbled upon this funny, if crude, comic panel:

I think investing is like Pi in this strip. There is such a thing as knowing too much about investing, when knowing the basics will serve you just as well for most purposes. Some people really get a kick out of tweaking every last percentage point of gains from their retirement/investment portfolios. The extra percentage points can make a big difference in one's net worth at retirement, but the problem is that one is just as likely to foul things up by over-tinkering and come out with less than by leaving their portfolio alone.

Tried and true techniques like dollar-cost averaging (DCA) and index fund investing are good enough for the vast majority of "normal" investors for whom the habit of investing regularly is more important to cultivate than the ideal portfolio. Know-it-all investors (and financial advisers) can be downright rude and condescending to those who may know less about investing but who are cultivating proper and sound investing virtues.

Like any good philosophical debate, the debate about complicated investment portfolios will be an endless one. But also like most endless debates, the debate is entirely academic if there is no practical upshot to the debate. And the fact is that basic index fund investing and dollar-cost averaging are sufficient for most people to have the type of retirement they desire.

So how can one "Keep it simple, stupid" with investing? By saving and investing a percentage of your income on a regular basis. 10% is good, but 15% is better and 20% is better still. Put the money into broad market indexes like the S&P 500 Index (using passively managed ETFs or mutual funds) and keep it up over the course of your working lifetime. You will train yourself not to miss the money in the interim, and your money will grow substantially in the long-term.

If you fall in the "normal" investor category, then do not let the complexity of the know-it-all financial debates deter you from investing regularly. Yes, it can be very complex, but there is an elegant simplicity to the type of investing mentioned here. The single most important variable is your ability to develop, incorporate, and maintain the habit of taking a percentage of your money right off the top and putting it in your investment account. If you are successful in developing this habit, the rest of the details are like the digits of Pi after 3.14159.

Countdown to 401(k) Enrollment

2008-04-01T21:30:00.000-07:00

As I have noted in previous posts, one of the biggest financial mistakes I made when I was a young, working college student was to fail to enroll in the RadioShack [NYSE: RSH] 401(k) and the company stock purchase plan. Had someone just sat me down and made me sign the enrollment paperwork, I would have had a significant jump-start on my retirement savings by now.

Hindsight, of course, is 20-20, and there is no use crying over spilled milk. But in exactly two months I will have an opportunity to rectify this mistake of youth by once again being eligible for the RadioShack 401(k) plan.

While I am currently just a part-time employee at RadioShack to supplement my university income, the lack of adequate funding for advanced grad students at UCSC has me seriously considering making a major job switch to RadioShack store management, should I fail to receive funding for the next academic year.

While I am contemplating this (temporary?) potential fork in my career path, I fully intend to enroll in the RadioShack 401(k) plan as soon as I am eligible, come June 2nd. Regardless of whether RadioShack remains supplemental income or becomes my primary source of earnings while I finish my Ph.D., I plan to take advantage of the company matching to provide an additional stream of money into my retirement portfolio while I am there.

Death of a Chrysler LeBaron

2008-03-28T18:12:00.000-07:00

My grandfather's old Chrysler LeBaron died a cruel, horrible, and smoky death today. Since it was not accelerating past thirty five miles per hour or so, I limped it down to the service station first thing this morning to have its transmission checked out.

After several hours of waiting on pins and needles to hear the prognosis, I was informed by the mechanic that the LeBaron's "turbo" had failed and that about a dozen other things were in the process of going out, too. The mechanic politely informed me that it was absolutely not worth it to have the LeBaron fixed and that I should either sell it third party or donate it to charity.

As it turned out, the decision about what to do with the LeBaron was made for me on the drive home from the mechanic when the car began billowing smoke out of its tailpipe! So I pulled over as quickly and as safely as I could, since I didn't want my car to catch on fire, and I called a tow truck to drag my grandfather's car back home to await its ultimate fate.

(On an annoying/interesting side note, while I was trying to find a safe place to pull over, a cyclist riding near me screamed the following into my window at the top of her lungs, "You're killing me!" I presume she meant the billowing smoke and not my reaction to her annoying and presumptuous attitude. It was certainly emblematic of the Central Coast mindset to say the least. Rather than mind her own business and give me the benefit of the doubt, this lady felt obligated to propagate her world view, via her lungs, into my car. Rude is not quite the word. I can think of several more words, but nothing I would be particularly proud to post. Perhaps she needs a refresher course in John Rawls's theory of Mutual Disinterest.)

So I watched with romantic nostalgia as my grandfather's old car was towed home in a most undignified manner (see below). I realize a car is just a car, but it was something tangible that made me think of my WWII pilot grandfather every time I drove it. (He bought the car because the instrument panel reminded him of an airplane cockpit, he said.) So the presence of time is particularly poignant tonight as I mourn the LeBaron, but even more so as I mourn and remember my grandfather.

Here's the last ride of the great LeBaron:

The Seeds and the Soil: An Investment Parable

2008-03-27T22:20:00.000-07:00

I feel as though I am trapped inside a personal finance parable sometimes. Below are two real-life money conversations (paraphrased to protect the innocent) that I have had in the past couple of days.

The finance-guru sat down with his disciples:

Coworker Disciple: "I'll start investing when I'm more financially secure."

Finance Guru: "Investing is the way to get more financially secure, not something you do after the fact."

Programmer Disciple: "If I can just get a piece of the KPCB iFund Venture Capital Initiative, then I would be all set."

Finance Guru: "How much money did you spend on that iPhone, and why isn't it in a Roth IRA instead?"

Programmer Disciple: "What's an IRA?"

Simple messages, but I have a hunch they fell on deaf ears. The concepts are simple, but like all good ideas they must overcome some psychological resistance to break through to consciousness. The seed was planted, but like all seeds they will be fruitless if not combined with some genuine action on the part of the soil. Bad soil will yield no fruit.

See Jesus's parable of the sower and the seeds in Matthew chapter 13 for more on this. It is as true for investing as it is for the gospel:

That same day Jesus went out of the house and sat by the lake. Such large crowds gathered around him that he got into a boat and sat in it, while all the people stood on the shore. Then he told them many things in parables, saying: "A farmer went out to sow his seed. As he was scattering the seed, some fell along the path, and the birds came and ate it up. Some fell on rocky places, where it did not have much soil. It sprang up quickly, because the soil was shallow. But when the sun came up, the plants were scorched, and they withered because they had no root. Other seed fell among thorns, which grew up and choked the plants. Still other seed fell on good soil, where it produced a crop—a hundred, sixty or thirty times what was sown. He who has ears, let him hear." Matthew 13:1-9

If you fall in the bad soil category, consider yourself warned: Snap out of it, get your butt in gear, and start investing NOW! If you are worried about taking the first step, you should be following along with my series "Investing for the Absolute Beginner", and I will help get you started.

Have any of you heard any stupid money comments recently? If so, pass them along below.

Chrysler LeBaron Transmission Problems: Still a Bargain

2008-03-25T23:34:00.000-07:00

My 1989 Chrysler LeBaron Turbo, a hand-me-down, from my late grandfather by way of my mother, is having a serious transmission problem. This morning, my Chrysler LeBaron would not accelerate past 45 miles per hour, and it was making a loud whining sound whenever I was accelerating.

You might wonder why I am still driving the LeBaron when such a problem could very easily turn into a serious money drain. Well, I am partly very attached to the LeBaron because it was my grandfather's car. (I was with him when he bought the LeBaron. He paid it off with a check outright without financing. Smart man.) And partly I am convinced that a car payment is a gigantic waste of disposable income.

It is true that it will likely cost me a pretty penny to get the Chrysler LeBaron's transmission fixed (i.e. rebuilt or replaced). But when I think of all the money I could be spending every month for the payment on a newer car, I am actually rather glad that I can fix the problem by throwing a few hundred dollars at the LeBaron instead of having a hefty monthly payment.

Keeping up with the Joneses, by trying to have a slick and shiny new car, can be a disaster for your discretionary income, which means less to save and invest and less wealth when you retire.

I have a sneaking suspicion that when my grandfather's old LeBaron finally gives up the ghost, I will trot myself down to the used car lot and pick up another low-mileage old car that will get me there without sucking me dry and without leaving me with nothing to contribute to my retirement accounts.

So tomorrow I will proudly stride into the AAMCO transmission shop (after a conservative 25 MPH drive!) to get the LeBaron's transmission fixed. The LeBaron will probably elicit stares from younger, hipper customers, with newer cars and better paint. But I will hold my head high, secure that my grandfather's old LeBaron will be driving me all the way to the bank for years to come.

Portfolio Update: $300 of EFA

2008-03-25T23:02:00.000-07:00

Today was my "Investment Tuesday" at Sharebuilder.com, and I used $300 from my money market fund to purchase an additional 4.2111 shares of my international fund, the iShares MSCI Europe, Asia, and Far East Index ETF (NYSE: EFA). This brings my total number of EFA shares to 13.4492 shares and a total of $965.11 of EFA.

I have just updated my SeeMeGetRich.com Portfolio Page to reflect the new shares of EFA, so check out my portfolio's new totals.

A Look At Some Obscure Tea Stocks

2008-03-24T10:44:00.000-07:00

Tea is an important thing in my family. Tea at my grandparent's house was a daily occurrence when I was younger, and even now I am known as something of a teetotaler, or rather a "tea-totaler" (not really, but it sounds good). So today, as I sip my morning tea, I thought I would investigate some tea stocks. While tea is not the worldwide staple industry it once was, nonetheless there is still a thriving tea industry in many parts of the world such as India and Asia.

I wouldn't really consider investing in any of these stocks except for the sheer novelty of owning a piece of the world's most perfect beverage, tea. But if I had some extra money to throw around, I might very well enjoy getting some dividends back from all the tea I have consumed over the years! Many of the following stocks trade on foreign exchanges, such as the Bombay Stock Exchange in India, and there is not much information available. Here is a fairly random sample of some foreign tea stocks:

1) Dhunseri Tea & Industries Ltd. (BSE: 523736)
2) Warren Tea (BSE: 508494)
3) Jayshree Tea (BSE: 506520)
4) Diana Tea Co. (BSE: 530959)
5) Assam Company Limited (BSE: 500024)
6) Tata Tea Limited (BSE: 500800)
7) Ten Ren Tea Company (TPE: 1233)
8) Taiwan Tea Corporation (TPE: 2913)
9) Tanzania Tea Packers Limited (DAR: TTP)
10) Williamson Tea Kenya Ltd. (NBO: GWKL)
11) Ferntea Limited (COL: FERN)
12) Javo Beverage Company, Inc. (OTC: JAVO)
13) Unilever Tea Kenya Ltd. (NBO: UNLT)
14) Kakuzi Limited (NBO: KAZU)
15) Limuru Tea Company Limited (NBO: LIMR)

Those are some of the obscure tea stocks that I could find. Most of the familiar tea companies here in America are either subsidiaries of larger corporations (such as Lipton's being a subsidiary of Unilever). So if you are hell-bent on buying some tea stock, you will likely have to start trading on a foreign exchange or buy one of the more mundane domestic stocks such as Peet's Coffee & Tea, Inc. (NASDAQ: PEET).

Investing for the Absolute Beginner: Part III. Which Account Type?

2008-03-22T21:40:00.000-07:00

-Part 1- -Part2- -Part 3-

Now that I have covered the reasons to invest and reviewed the different types of investments, in this installment of "Investing for the Absolute Beginner" I will go over the various types of investment accounts in which to hold those investments. I will be covering the 401(k), the Traditional IRA, the Roth IRA, and the taxable account. Each of these account types has its own advantages and disadvantages, and they are not mutually exclusive insofar as they can be used in conjunction with one another for various tax benefits and purposes.

401(k):

What is it?

The 401(k) is your single most important investment vessel for building wealth through investing. A 401(k) is a retirement investment account set up by most corporations (and some smaller companies) to enable its employees to save and invest a percentage of their income for retirement. The distinguishing characteristic of a 401(k) versus other types of retirement accounts is that the contributions are pre-tax, the benefits of which I will discuss below.

Pros:

The pros of a 401(k) account are numerous. First, many companies will match your contributions dollar-for-dollar up to a certain percentage of your income. This is free money that you would be shooting yourself in the foot not to partake of. Over thirty or forty years, those matching contributions, when combined with the power of compounding, can significantly increase your wealth at retirement. You absolutely, positively, must contribute to a 401(k) if one is available to you through your employer.

Another advantage to a 401(k) is that the contributions are pre-tax, which lowers your taxable income for the IRS, which in turn lowers your annual tax responsibility. A lower tax bill means even more money to save and invest!

Cons:

The main drawback to the 401(k) is that the contributions are tax-deferred. This means that you ultimately will pay taxes on those contributions when you take distributions from your account after retirement. Basically you are being taxed on the money at retirement rather than at the time of income. One must be prepared to cover those taxes at retirement, but as long as one's contributions are adequate before retirement then the returns and the company matching more than make up for any loss here.

The other thing to keep in mind about the 401(k) is that there is an annual limit to the amount of money that may be contributed to a 401(k). The 2008 limit is set at $15,500, which means that if you wish to invest more than this you will have to use another account type to invest the difference. The government also allows an additional annual contribution of $5,000 for those who are age 50 or older and who are seeking to "catch-up" on their savings and investing before retirement.

Traditional IRA:

What is it?

"IRA" stands for Individual Retirement Account. There are two types of IRA's, the Traditional IRA and the Roth IRA. Both types of IRAs are designed for individuals to save an invest with significant tax incentives for the long-term. Since the IRA is not sponsored by a corporation there is no matching incentive, but the tax incentives for both types of IRAs make them attractive as a supplemental investment option, or as a primary retirement account if you are not eligible for a 401(k).

Pros:

The main advantage to a Traditional IRA is that the contributions to a Traditional IRA are tax-deductible. As in the case of a 401(k) this has the effect of potentially lowering your current tax bill. Qualified distributions upon retirement will be taxable as ordinary income, so basically with the traditional IRA one sees an immediate tax benefit while still being liable for taxes on the distributions down the road.

Cons:

With both types of IRAs, including the Traditional IRA, there are 10% withdrawal penalties if one takes early distributions from the IRA before the age of 59 ½. This means that the money invested in an IRA is not liquid, since a 10% penalty will do a good job of wiping out any gains that your account may have enjoyed to-date. So when one puts money into an IRA, one must intend to keep it there, locked away, until retirement. Early distributions basically defeat the purpose of retirement investing anyways, so this is not an issue for conscientious investors with the proper mindset.

Another potential disadvantage to the Traditional IRA is that there are mandatory distributions that begin at age 70 ½, with hefty penalties that apply if the distributions are not taken properly. This is a disadvantage to an IRA that is unique to the traditional IRA but not shared by the Roth IRA.

Roth IRA:

What is it?

A Roth IRA is analogous to a Traditional IRA insofar as it is still an "Individual Retirement Account" that carries certain tax advantages over a regular taxable investment account. The key difference is in the nature of the tax benefits. Unlike contributions to a Traditional IRA, contributions to a Roth IRA are post-tax dollars, which means that you do not get to deduct your contributions from your annual tax responsibility. However, a Roth IRA allows your money to grow tax-free and for you to take qualified distributions post-retirement without taxes.

Pros:

The advantages of the Roth IRA over the Traditional IRA should be clear: your money is allowed to grow and compound, and then you are allowed to take distributions from those gains without any taxes. And over the course of a lifetime, this can amount to a hefty amount of money for which you do not owe any federal taxes.

The Roth IRA does not require mandatory distributions, unlike a Traditional IRA, which gives you a greater control over your investments post-retirement.

While there are other tax advantages to the Roth IRA that are beyond the scope of this introductory article, it is the tax-free growth and withdrawals that make the Roth IRA the preferred type of IRA for the vast majority of retirement investors.

Cons:

The central disadvantage to the Roth IRA is the lack of a tax-break at the time of contributions. If one has a moderate income, then one's tax responsibility can take a sizable bite out of the disposable money that one has available to invest. For this reason, I hold that it is best to combine the Roth IRA with a 401(k) to "smooth out" one's tax responsibility over the course of his or her lifetime.

Another disadvantage to the Roth IRA and the Traditional IRA together is that the annual contribution limit for an IRA is currently set at $5,000 for the 2008 tax year ($6,000 if you are age 50 or over). This means that if you wish to invest more than $5,000 annually, you will either need to use a 401(k), which has a higher contribution limit, or use a taxable account without the tax benefits. The good news is that the annual contribution limit has steadily been increasing from year to year, so this may be less of a factor as the limit is raised periodically.

Taxable Investment Account:

What is it?

A taxable investment account is, as the name indicates, an account in which you may buy or sell investments, but on which one is required to pay federal taxes.

Pros:

The chief benefit to a taxable account is the liquidity of the investments. Investments can be bought and sold without concern for violating any age restrictions, unlike a 401(k) or an IRA. This makes a taxable account ideal for short to medium term investments that one is planning on utilizing before retirement.

Cons:

The negatives for a taxable account, as opposed to a retirement account, are as a result of the tax responsibilities of a taxable account. Since taxable accounts are not tax sheltered, one is required to pay taxes on dividends and on any capital gains that are made when one sells securities within a taxable account. This means that one must be mindful of one's tax responsibility when dabbling with buying and selling stocks or other investments (e.g. day-trading) within a taxable account.

The spoonful of sugar that makes the tax medicine go down, is that the capital gains taxes are significantly lower if one has held the investments for over one year before being sold. This encourages a healthy buy-and-hold strategy that I subscribe to, and allows one to enjoy the benefits of long-term stock market gains at a lower tax rate. My own advice here is that one should stick to individual stocks that one plans to hold for at least a year to enjoy the lower capital gains tax rate (such as the Citigroup [NYSE: C] shares that I bought last week).

Conclusion:

Now that you should have a basic understanding of each of the basic investment account types, I have a few closing remarks to make some sense out of all of this:

First of all, any savings and investing is better than none. It is probably better to do long-term investing badly than not at all. Do not have a fear of making a mistake, since the mistake is always fixable when you have had a chance to learn more about what is best for your unique situation. The most important thing is to develop the habit of saving and investing a portion of your income regularly and reliably. If you do this, you will see the benefits, no matter which account type you use!

Second, the 401(k) company matching is the most powerful element of all above to maximize your wealth before retirement. The sooner you start, the more time your money has to be matched and to compound. So if you are not currently enrolled in your company's 401(k), let me give you the same advice my uncle Mike (my retirement investing guru) gave me: Don't be dumb! 401(k) matching is free money that you would be just plain dumb not to take advantage of after knowing better! Enroll or start an account now!

Third, the order of operations ought to be that you should max out your 401(k) contributions to obtain the company match. Then any additional retirement savings is probably best served inside of a Roth IRA for the retirement tax benefits. Then if you wish to dabble in trading individual stocks, do it sparingly and make sure that you are keeping your retirement savings your top financial priority. Stock trading is fun, but retirement accounts are a more reliable way to ensure a sound financial future for yourself.

That about does it for installment three of "Investing for the Absolute Beginner". In part four I will be discussing the various options you have for how to choose a brokerage company (online or otherwise) and go about starting your first investment account, so be sure to check back for part four of the series. Until then, happy investing!

Here are the entries in this series:

-Part1- -Part 2- -Part 3-

Critique SeeMeGetRich.com

2008-03-21T21:54:00.001-07:00

As the readership of SeeMeGetRich.com increases, it is as important as ever to me that I serve the needs and interests of my readers. This is your chance to provide me with any feedback on SeeMeGetRich.com that you like. For example:

What types of articles and posts do you enjoy the most? How-to articles? Portfolio updates? What topics do you find most interesting or difficult?
What site design elements do you enjoy and what would you like to see added or improved upon on SeeMeGetRich.com?
What can I do as a personal finance / investment blogger to engage with you better on a personal level? (A blogger's life can be a lonely one when the questions/comments are not flowing!)
What questions do you have about retirement investing or personal finance? What do you know and what would you still like to learn?

You get the idea, now go to work! No comments are off-limits. No topic is taboo. Constructive criticism and ideas are best, but I'll man it up and take the bad with the good. We are all on this personal finance journey together, and two heads are better than one; so help me help you and make yourself and your ideas known.

I'm looking forward to getting to know you regular readers better, and if this is your first time to SeeMeGetRich.com, the same questions are open to you, so don't be shy. And if you have not taken a peruse through the SeeMeGetRich.com archives (see the menu bar at left), please lurk around the site for a while. Just don't forget to leave some open feedback here before you go and help me make this a better personal finance and investing community for you.

Guest Post: "Can You Profit from Credit Card Arbitrage?" by Linda Bustos

2008-03-21T12:39:00.000-07:00

Shortly after college graduation I had a modest line of credit debt that I used a low APR credit card balance transfer to pay down. After transfer fees, I really didn’t save that much money since the introductory period was only 3 months, but it felt good to wipe that credit line clean.

After the balance was paid off, I stopped using that card all together, as I have 2 other cards with longer histories. But from time to time, the low APR credit card company rings me up to ask for my business back. I usually disappoint them, telling them I never carry a balance and have no major purchases on the horizon.

I received such a call yesterday from my once-low APR card (now 14.99%), offering me 0.99% for one year on balance transfers. After the usual “I don’t carry balances, I don’t have major purchases coming up, I have a ton of savings in a high interest account, bla, bla, bla, bla…the caller suggested I borrow money and reinvest it – make money on the spread.

To be honest, I know a lot more about budgeting and using credit wisely than I do about investing. I’m a risk-averse person by nature – you might say I’m quite nervous about investing. So I replied that I’m not interested in investing, I have my safe little high interest savings account (3.75%) and with that, I’m happy.

But after ending the call I wondered, what if I took out a loan, transferred the balance to this 0.99% credit card, invested the money in my safe-and-highly-liquid high interest savings account, and turned a profit? Would it be worth it?

This is one form of “credit card arbitrage” – but it’s not as straightforward as I borrow $X at 0.99% and earn 3.75% therefore I’m 2.76% ahead. There are a few things you need to realize before taking the plunge.

Fees and Interest Charges

When you max out a higher interest rate credit card with a cash advance, you may pay a cash advance fee or higher-than-normal interest with no grace period. You will pay interest from the day you take your advance until the transfer is completed to your low interest card.

You likely will pay a 2-4% transfer fee on the amount of your balance transfer to your low APR card also which chips away at your profits.

Monthly Payments

Don’t forget your 0% APR card may still require a percentage of your transfer be paid each month, reducing your principal but nonetheless requiring timely payments. If you miss one, you could quickly find that low APR skyrocketing.

Taxes

Your interest earned in your savings account is taxable income, while interest charges are not tax deductible. Depending on your tax bracket, this could bring your profit margin to almost nothing after all other fees and charges are taken into account.

Impact on Your Credit Report

Every time you apply for a credit card, the credit lender will make an inquiry of your credit report. If you apply for a number of credit cards at once, that means more credit inquiries. And if you don’t already have a high interest savings account, that means more inquiries when you try to open one.

Your Debt to Credit Ratio

When you max out a credit card, you can dramatically increase your total debt used vs. your total available credit, making you a higher credit risk for any other loans you may need in the future. Higher interest rates on long term financing for cars and homes mean higher monthly payments for many years.

Doesn’t sound worth it in the long term for a couple hundred bucks over 1 year, does it? Personally, I’m just going to continue with my frugal lifestyle and consistent savings.

Still want to play the game? Here’s what you should know:

Look for balance transfer credit card offers with a long introductory period. Chances are if you shop around you’ll find a card with an intro period of 12 months as opposed to 3, 6 or 9 months, no transfer fee and no annual fee. If you have already used a balance transfer card and the
account is still open, call your credit card company and request another transfer with the condition it’s for 12 months. They just might give it to you.

Don’t you dare make any new purchases on balance transfer cards, not only will you be paying high interest on purchases (often with no grace period), your payments will also be applied to your lowest interest balance first, not your most recent purchases. So your new purchases will
accrue interest charges until your whole balance transfer is paid off. Oof!

Never miss a payment on any bill. If any of your credit agreements includes a “universal default clause,” your creditor has the right to bump up your interest rates. You could end up paying more interest on several loans. Because your savings interest is taxable income but your interest
charges are not tax deductible, this can really hurt.

About the guest author:

Linda Bustos is an editor for CreditorWeb, an information resource for credit cards and a credit card comparison.