Getting Away From the Debt Ceiling Crisis
I’m heading out to a place with no Internet or cell phone access whatsoever. It just so happens I will miss the debt ceiling drama.
I hope by the time I come back to civilization in a week it will be all over and we are back to business as usual. In case any chaos ensues like a flash crash, I’ve put in some limit buy orders. I don’t anticipate any of them actually being filled, but you never know. I may be surprised.
Taxes Will Go Up Does Not Mean Tax Rates Will Have to Go Up
Ever since I wrote The Case Against Roth 401(k), I have people telling me I’m out of my mind. They say taxes have to be higher in the future because of deficits, baby boomers retiring, higher health care costs, etc., etc.
I don’t necessarily disagree that taxes will be higher in the future. After all, the demographical trend of an aging population is clear. The entitlement programs have to be paid by taxes — the government can’t borrow an unlimited amount forever. There might be some trimming at the edges but cutting the programs dramatically is unrealistic.
However, taxes will go up does not mean that tax rates will have to go up. The decision point on Traditional vs Roth is about tax rates, not the total tax dollar amount.
Are Convertible Bonds and Preferred Stocks Good Investments?
A reader sent me this question about convertible securities mutual funds.
I would love to read your opinions on convertible securities mutual funds. This is a subject that seems to be ignored completely by personal finance bloggers. What I would like to know is
- How do these funds work and is there an interest rate risk with them?
- For asset allocation purposes should they be placed under bond or stock allocation?
- Pro and con arguments for their inclusion into one’s retirement account.
- Which investors find this kind of a mutual fund attractive? Vanguard’s VCVSX has net assets of $2.2 billion, so somebody does find this fund worthy of investing in.
Good questions. I will take a stab at them.
Living with Negative Real Interest Rates
Reader KD asked me to comment on the repercussion of interest rate on savings being lower than inflation because the Fed is holding the short-term interest rate close to zero.
It has been this way for several years now. The same thing happened in early 2000s when the Fed cut rates and held them too low for too long. It fueled the real estate bubble.
Vanguard’s Chief Economist Joe Davis posted a chart for the 3-month T-Bills yield after inflation since 1955 (green line).
Gang of Six Deficit Reduction Plan Summary
The Hill reported that bipartisan support is building for a deficit reduction plan created by a group of six Senators ("Gang of Six"). President Obama supports it. Some key Senators also support it. Maybe they will finally have a compromise.
National Journal posted an Executive Summary pdf. I read it. I’m OK with it. The key message is "don’t pick it apart." I’m sure every single item can be debated as good or bad, but as a whole package, I think it’s going the right direction.
Abolish the AMT. Broaden the tax base while lowering the marginal rates. Stop pretending that doctors’ fees under Medicare will be cut dramatically. All very good moves.
Mysterious Check In the Mail
I owed a friend some money for some shared expenses. I used Fidelity’s online bill payment service to pay him because he doesn’t have a PayPal account and I was too lazy to find an envelope and a stamp.
A few weeks passed and I still don’t see the check hitting my account. Fidelity uses CheckFree for online bill payment. For personal payees not set up to receive electronic payments, CheckFree issues a paper check to the payee. CheckFree debits my account only after that paper check clears.
I was worried that CheckFree didn’t issue the check as I instructed. When I saw my friend again, I asked him if he had received the check. He said he did receive a check but he wasn’t sure what it was. He was afraid it was a scam.
Backdoor to Paper Savings Bonds
Treasury department announced that they will discontinue selling paper savings bonds through banks and credit unions effective January 1, 2012.
Savers and investors, myself included, will lose a convenient purchase channel.
But they left open a small backdoor. If you really want paper savings bonds, either because you like them in paper form or because you want to buy beyond the $10,000/person limit, it’s still possible to get them after January 1, 2012. » Read more …
Banks Automatically Renew Matured CDs
I first heard this from Jonathan at My Money Blog about two years ago. Many banks automatically renew matured CDs to the same term. You only have a very short window — a few days — to stop that.
If you miss the window, you are subject to the early withdrawal penalty on the new CD. The early withdrawal penalty not only takes what you earn in the new term, but it can also eat into your principal.
Apparently this is still happening. Nathalie Martin at Credit Slips reports that a colleague of hers had a CD with Bank of America matured on April 23. She received a letter from B of A telling her that she had 7 calendar days after the maturity date to reverse the renewal. To do that, she also had to visit the branch.
Why Credit Score Is Not Free and Should Not Be Free
Last week I said the credit score purveyor do a very good marketing job in making something of a non-issue to most people seem like a big deal. The marketing creates artificial demand from people to buy their credit scores.
Actually their marketing is too good. It also created the demand from people to get their credit scores for free. When Ann Carrns at New York Times Bucks blog wrote about a bank selling credit score updates for $2.99 a month, she asked:
"But if the score is so important to customers, why not offer it free?"
User Fee for Public Library
Due to budget problems, the local public library system is asking me to pay a $80 annual fee if I want to continue my membership.
After the initial shock, I decided to pay the fee. Come to think of it, I don’t see anything wrong with library users paying a fee for using the library.
Public does not have to mean free. Public transportation is also largely funded by taxes, but riders still pay a fare when they use public transportation. Public libraries can be operated the same way: users pay an annual fee or a per-item fee when they use the library.
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