Editor's Choice in Carnival of Personal Finance #98
Carnival of Personal of Finance #98 is up at We're in Debt. My submission Opt In or Opt Out: The Power of the Default Option earned the distinction of the Editor's Picks. Thank you King of Debt. This is the second time I received the honor of Editor's Picks or Post of the Week in Carnival of Personal Finance. The last time was What Happens When a Bank Goes Out of Business in the 88th edition in February. It's not a Pulitzer Prize or anything like that, but knowing that other people liked what I wrote is very encouraging. A big Thank You for carnival hosts and my readers!
Book Review: The Random Walk Guide to Investing
Today I'm reviewing the book The Random Walk Guide to Investing by Burton Malkiel.
Don't confuse this book with the classic book A Random Walk Down Wall Street by the same author. I also recommend the other book, but this one is much easier to read, while retaining the gist of the classic book. It comes as a small 200-page paperback, packed with pretty much all you need to know about investing. If you want to cut to the chase and read the bullet points, this book is for you. If you want to read the elaborate proof and explanations, and you don't mind the extra pages, go for the larger A Random Walk Down Wall Street.
Mr. Malkiel condensed everything about investing into three Basic Points and ten Rules. If you know these, you can invest your money and move on with your other life pursuits. Here's what Mr. Malkiel said when introducing the ten rules for financial success:
Vanguard or T. Rowe Price Funds: Actively Managed vs. Index Funds
Blogger pf at My Personal Finance Odyssey reviewed his investments in T. Rowe Price funds. He gathered last 5 years' performance numbers for the T. Rowe Price funds he invested in and the performance numbers for similar funds by Vanguard. His analysis showed that many T. Rowe Price funds had better returns than the comparable Vanguard funds.
"Amazingly, the T Rowe Price funds fared better than I thought. Although they clearly have higher expense ratios, I feel that is was often rewarded with superior returns."
Opt In or Opt Out: The Power of the Default Option
I read a great article on New York Times last week, Unnatural Selections. The author, Mr. Barry Schwartz is a professor of psychology at Swarthmore College. He wrote about the power of the default option.
People tend to stay with the default option presented to them because deviating from the default option requires making a decision. People are afraid of making a wrong decision, especially when they are unfamiliar with the subject. So they have the decision made for them by doing nothing.
You've got to read the article. The included cartoon is very funny. Barry Schwartz is the author of the book The Paradox of Choice: Why More Is Less. I placed a hold on his book from my public library. It should be an interesting read.
I-Bonds Rate Guess for May 1, 2007
The Bureau of Labor Statistics released Consumer Price Index data for March 2007 this morning. Now I can turn my pre-guess for I-Bonds Rate for May 1, 2007 into a real guess.
Over the 6-month period which will be used for determining the next inflation adjustment, the CPI rose by 1.21%. If the Treasury department keeps the current fixed rate unchanged at 1.4%, the composite rate for I-Bonds sold between May 1 and October 31, 2007 will be 3.84%. That rate is lower than what you can get from bank savings accounts, money market mutual funds and Treasury bills.
My guess is that the new fixed rate on May 1, 2007 will be unchanged. This will slightly narrow the gap between I-Bonds fixed rate and the real yield on 5-year TIPS. When the yield on 5-year TIPS rose last year, I-Bonds didn't follow. Now the TIPS yield is down a little bit, I-Bonds probably won't follow either.
Carnival of Personal Finance #96
Carnival of Personal Finance #96 is up at AllFinancialMatters. My entry in the carnival was Which Vanguard Money Market Fund? which includes a calculator for after-tax yield and tax equivalent yield on different money market (and bond) funds. The host JLP organized the posts in the carnival by topics. My entry and the Investing category fell to the bottom of the barrel. I hope it's not indicative of the host's opinion on the quality of that post. 
I'm glad to see these high quality posts by two bloggers new to me:
A Sub Prime Bail Out? Hell, No! at Money and Such — Agree 100%. A bail out encourages the wrong behavior.
Campaigning for a ROTH 401k at Broke Now, Rich Later — There is a good reason companies are slow in adding Roth 401(k) to their 401(k) plans. It creates a lot of confusion. When many employees don't even understand their regular 401(k), adding Roth will only create more analysis paralysis. Too many options often lead to doing nothing.
Carnival of Personal Finance #95
I finally finished reading Carnival of Personal Finance #95 at Accumulating Money. My entry in the carnival was Who Pays for Credit Card Rewards and Rebates? I also liked these other posts in the carnival:
Stop Blaming Your Credit Card! at Grad Money Matters — Take personal responsibility. In fact stop blaming anybody else for anything. Be an adult.
Year in Review: Anniversary No. 1 at The Weight of Money — Congratulations on great achievement in one year on paying off debt and saving for the future. Well done!
TurboTax Online Data Exposed
User stratton on the Bogleheads forum posted this news report from an NBC TV station in Washington, DC:
Glitch Gives Woman Access To Others' Turbo Tax Information
Apparently TurboTax Online had a security hole that allowed a user to pull up tax returns from other users with the same last name.
Which Vanguard Money Market Fund?
[Last updated on April 20, 2008. Special thanks to Ron Lieber and Ari Weinberg at FiLife for suggesting clarifications. Added info on Vanguard Federal Money Market Fund and Schwab AMT Tax-Free Money Market Funds.]
I mentioned in my simplifying finances post that I use a Vanguard money market fund instead of an online savings account for my short term savings. I use a Vanguard money market fund for simplicity and because it gives me a higher yield after tax. Vanguard offers 4 taxable money market funds and 6 tax exempt money market funds. Which one do you choose?
They are all good. The main difference among the 10 Vanguard money market funds is how the funds' income is taxed at the federal and state level. Which one will be slightly better than others for you depends on your federal and state marginal income tax brackets, whether you itemize state income tax deductions, whether you will pay the Alternative Minimum Tax (AMT), and the percentage of the fund's income derived from private activity bonds subject to the AMT.
TIPS Auction on April 12, 2007
The Treasury Department announced today (PDF) there will be an auction for 10-year, or more precisely, 9-year 9-month, Treasury Inflation Protected Securities (TIPS) notes on April 12, 2007. There will be another auction for 5-year TIPS on April 24, 2007. The announcement for the 5-year TIPS auction will come out two weeks from today on April 19. For more information about TIPS notes and how to buy them, see my previous post: TIPS: Inflation Linked Bonds.
The 9-year 9-month TIPS auction on 4/12/07 is a reopening of the 10-year TIPS notes auctioned in January. The notes carry a coupon rate of 2.375%. The current real (after inflation) yield on the market for 10-year TIPS is about 2.2%, down 0.25% since the last auction in January. The market yield for 5-year TIPS is down even more to 2.0%. I will take a pass on both auctions because I purchased twice the amount I would normally purchase in last October's auction for 5-year TIPS when the yield was about 2.7%. If the yield ever gets above 2.5% again, I will be interested; otherwise I will pass and keep rolling T-Bills.
If you are interested in either auction, you can use my TIPS pricing spreadsheet to estimate the final price.
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