What About Europe?

It's old news that Europe has been having serious economic problems. How has this affected my investment strategy? The short answer is that it has not affected it at all. My investment strategy is not dependent on economic events. What has already happened is already reflected in stock prices. Current fears about what might happen also is already reflected in stock prices. Since I can't invest in the past, bad things that have already happened and have pushed stock prices lower have no impact on my investment strategy. Since I can't forecast the future (no one can), I have no special insight into what bad things may or may not happen, so I don't invest based on widely known information that causes many to fear that bad things will happen in the future (also already reflected in lower stock prices). This doesn't mean that I haven't made any changes in my portfolio as a result of the economic turmoil in Europe, concerns about slowing growth in China, etc. So what have I done and why?

PenFed Credit Card Deal

Hopefully you don’t have any high-interest-rate credit card debt that you don’t pay off every month, but if you do, you might be interested in the balance transfer deal currently being offered by PenFed Credit Union on all of its credit cards. There is no transfer fee, and you pay 4.99% APR for the life of the balances transferred by June 30, 2012. This seems better to me than the typical balance transfer deal where you pay a fee of 3% to 5% on the balance transferred, and then pay 0% on the balance for a limited time (typically one year, but perhaps up to 18 months).

One Goal, One Portfolio

“In which mutual funds should I invest in my new IRA?” This is typical of one type of question we get a lot on the Investing Help subforum of the  Bogleheads investment forum. The answer is: “we can’t advise you until you tell us about all of your investment accounts” (e.g., IRA, 401k, 403b, individual, etc.). This is because the decision to hold an investment in one account should not be made in isolation; it should be based on all investments related to a particular goal; e.g., retirement. It may make sense to design separate portfolios for separate goals, for example college expenses, a house down payment, and retirement, but there should be one portfolio for each investment goal, regardless of the number of accounts used. A portfolio is simply the collection of investments designated for a particular investment goal.

INOVA Slashes CD Rates--No Longer Competitive

INOVA Federal Credit Union has slashed the rates on their 5-year and 6-year CDs. They no longer are competitive with PenFed's 5-year and 7-year CDs. So for holding periods of three years or more, the PenFed 7-year now is the way to go. For shorter holding periods, the Ally 5-year CD paying 1.69% (APY) still is the winner. As always, you may be able to find a similar or better deal at a local credit union, and you may find comparable rates from other banks or credit unions at DepositAccounts.com. Congrats to those of you who got in on the good deal while it lasted.

Science or Sales?

Investors can be placed into one of two categories: those who base their investment decisions on the massive amount of academic research that has been done over the last 60 years (science), or those who base their investment decisions on the marketing machine of the ginormous financial industry (sales). Which category are you in? Which category of investors do you think is likely to do better in the long run?

Back to Basics

For some time I’ve been posting about specific topics like CDs, I Bonds, Reward Checking accounts, Vanguard Target Retirement and LifeStrategy funds, etc. I’ve decided that it’s time to review the basics. If you want to read another perspective on the basics of investing, a good resource is the Bogleheads Investment Philosophy. Watch the video version of it if you learn better by watching and listening to someone speak. For fun, I am  writing this without referring to those resources. Let’s see how many points we agree on (feel free to check). Here we go …

Why Vanguard?

It has occurred to me that I might sound like a Vanguard shill or salesman to those of you who do not have experience with a number of mutual fund and brokerage companies, including Vanguard. I assure you that I receive no benefit of any kind in recommending Vanguard funds, other than the satisfaction of seeing my friends and family benefiting from using the best mutual fund company on the planet (there I go again!). So, what is so special about Vanguard?

Vanguard LifeStrategy Funds

In previous posts I've recommended Vanguard Target Retirement funds (minimum investment $1,000) as a way to own a broadly-diversified, low-cost portfolio using a single mutual fund. Vanguard offers another group of all-in-one funds that are worth considering: the Vanguard LifeStrategy Funds. The main difference is that the LifeStrategy funds maintain a constant asset allocation (ratio of stocks to bonds), whereas the Target Retirement funds gradually reduce the stock/bond ratio as you approach retirement. Also, the minimum investment in a LifeStrategy fund is $3,000.

Blog Problem

I had a problem with my blog. A post I had published disappeared, and an old post was emailed to subscribers. Apologies to subscribers about receiving the old post; hopefully it did not hurt to be reminded that paying down high-interest debt is a good investment.

Although more than half of the post I had written had disappeared from the draft version, a kind member of the Google Blogger forum informed me that the blog post was "cached", and provided a link to the cached version, so I was able to retrieve the full post, and did not have to rewrite it. It has since been posted (Vanguard LifeStrategy Funds).

Wedding Costs: 1974 vs. Today

In 1974 when I got married, my in-laws offered to spend $2,000 on the wedding or give us the cash. That seemed generous to me. Being the poor, frugal hippie-types, we took the cash (but due to the generosity and love of family and friends still had a wonderful wedding). My older daughters are at the age at which a wedding could be on the horizon. This got me to wondering how much a $2,000 wedding in 1974 would cost in 2012. Considering only general inflation, this is easy to calculate.

Bogleheads

I spend a lot of time participating in the Bogleheads investment forum, and recently also contributing to the Bogleheads Wiki (a collection of articles on investing and other personal finance topics). So, what are Bogleheads? Here is a description straight from this page on the Bogleheads website:

Bogleheads, a term intended to honor Vanguard founder and investor advocate John Bogle, are investing enthusiasts who participate in the Bogleheads Forum. The forum's regular posters discuss financial news and theory, while also helping less experienced investors develop their portfolios. There are nearly 26,000 registered Bogleheads Forum users who normally make between 500 and 1,000 posts each day.

INOVA Drops Rates on 6-Year CDs

Update: INOVA has slashed its rates, so their 5-year and 6-year CDs no longer are competitive with the PenFed CU 5-year and 7-year CDs.

My shortest blog post ever ... INOVA credit union recently dropped the rates on their 6-year CDs. They now match the rates on their 5-year CDs, so now I would go for the 5-year CDs unless you think rates are going to stay this low for more than five years. Here are the current rates (APY):

• Taxable 5/6-Year CDs: 2.10%
• Taxable 5/6-Year step up CDs: 2.00%
• IRA 5/6-Year CDs: 2.20%
• IRA 5/6-Year step up CDs: 2.10%

The rates are still competitive with the PenFed CU 5-year CD at 2.00% APY, and the Ally Bank 5-year CD at 1.74% APY. The PenFed CU 7-year CD is a better deal if you hold for at least about four years. The break even point with the Ally 5-year CD (if doing an early withdrawal) is about two years. The step-up option still is a nice sweetener. See my recent posts for more details on the INOVA CDs.

Reward Checking Accounts

I've mentioned Reward Checking Accounts in previous posts, but I think the subject deserves a post of its own. I think a reward checking account could be the best place to stash your short-term savings, up to $10,000 to $20,000--if you are OK with the monthly requirements to get the high interest rate. If you don't meet the requirements in a particular month, you will get a much lower interest rate for that month. Read on for details.

INOVA 6-Year CD: An Update

Update: INOVA has slashed its rates, so their 5-year and 6-year CDs no longer are competitive with the PenFed CU 5-year and 7-year CDs.

I discussed the INOVA Federal Credit Union 6-Year CD in my last post. In this post I share the conclusion of the process of transferring money from my existing IRAs into my new INOVA IRA, provide some contact information, and answer a few more questions about INOVA.

INOVA 6-Year CD

Update: INOVA has slashed its rates, so their 5-year and 6-year CDs no longer are competitive with the PenFed CU 5-year and 7-year CDs. There is no longer a reason to read this post other than for some general background on why to consider CDs; e.g., the Why I Am Doing This section.

I’ve run across another CD I like: the INOVA Credit Union 6-Year CD. It pays about 2.50% APY, and the early withdrawal penalty (EWP) is only six months of interest. I am transferring funds currently held in IRA money market accounts (paying almost no interest) at Vanguard and Fidelity into IRA CDs at INOVA CU. Following are more details on the features of the CD, comparison to other CDs I like, an explanation of why I am doing this, and a description of my experiences in opening the account and transferring the money into the CDs at INOVA. This is a long post, but hopefully you’ll appreciate the details.

I Bond and CD Update: February 2012

There have been some significant changes to I Bonds since my original I Bond post in May 2011 and my I Bond update in June 2011, and CD rates have continued to fall since my previous CD posts. Following is a summary of the I Bond changes, and my latest recommendations for how you might use I Bonds and CDs in your investment portfolio. If not mentioned here, the information in my previous I Bond and CD articles still applies, so refer to those for more details.