by Richard Band | August 7, 2013 6:00 am
Times are tough, but the tough-minded are making the most of the times! Sure, you’ve constantly got to be on the alert for risks to your wealth — plunging markets, ever-changing laws and regulations, shady operators bent on fleecing you, etc.
But there’s a flip side. In a rough economy, honest providers of financial services are bending over backward to deliver extra value. If you’re a smart, careful consumer, you can find an abundance of deals that will stretch your dollar further.
Here are some of the best I’ve uncovered lately:
What’s this? Richard Band recommending credit cards? Well, yes — but not the way you might be thinking. I always pay off my card balances in full, every month, because credit card debt is hideously expensive. The national average interest rate is around 14%. Only the Mafia charges more — and at least the Godfather offers personal service, right up to your doorstep!
However, millions of Americans do carry credit card debt. For the rest of us, this is a blessing. Without realizing it, our neighbors are helping pay for the generous rewards programs that most card issuers now sponsor. Some programs hand you cash back; others award you “mileage” toward purchases of travel and other goods. In effect, you’re earning interest on money you never lent.
If it’s cold, hard cash you’re after, I recommend the Capital One (COF) Quicksilver Rewards Visa card. Cardholders receive 1.5% cash back on all purchases, plus a $100 bonus after spending $500 on purchases in the first three months. The cash back never expires, and can be redeemed in any amount at any time. There’s also no annual fee.
Frequent travelers might want to look into the American Express (AXP) Blue card. Again, there’s no annual fee. As long as you book your travel through AmEx’s agency, you’ll receive two points for every dollar you’ve spent. Caveats:
The discount brokerage business has changed dramatically in the past few years. Commissions have dropped, and now differ only in minor details among the largest firms. Virtually all discounters offer a broad suite of no-sales-load, no-transaction fee mutual funds. So how do you choose?
My answer might surprise you. Research. The quality of the stock research carried by discounters varies widely. Most firms — including Fidelity and Schwab among the biggies — scrimp on research. Yeah, of course, you can download piles of statistical reports from the broker’s website. Most of this stuff, though, is next to useless. It’s long on numbers and short (very short) on interpretation.
Good research takes a person, not a computer, to write it — and people are expensive. That’s why I favor the research offerings of both TD Ameritrade (AMTD) and Bank of America’s (BAC) discount arm, MerrillEdge. TDA gives you access to analyst reports from Credit Suisse (CS), one of the world’s leading investment banks, known for its in-depth research. As a TDA customer, I estimate I tap thousands of dollars’ worth of Credit Suisse reports every year. Meanwhile, I pay only a $6.95 commission for Internet-based stock trades — over 70% less than I used to pay a live broker 38 years ago!
MerrillEdge lets you unlock the riches of the vast Merrill Lynch research staff, while paying discount commissions. In fact, if you keep $25,000 or more on deposit with Bank of America, you can make up to 30 trades per month commission-free. I’ve found that the value of the Merrill Lynch research easily outweighs the low yields I earn on my Bank of America deposits. It’s a kind of bonus interest paid in kind — and tax-free at that.
I believe in only one kind of life insurance: term insurance. Pure protection. If you die while you’re paying premiums, your heirs collect the death benefit. If you live, the insurance company keeps what you paid. Simple. “Whole life” and its variants, with their investment side-accounts, carry built-in costs that make it difficult to earn a reasonable return on your money.
I generally recommend buying term with a level premium for 10 or even — if you’re age 30 or less — 20 years. That way, the insurance company has to eat any unexpected increases in its operating costs during the term of your policy. Also, do business only with financially sound insurers, preferably those rated double-A or higher by Moody’s or Standard & Poor’s.
My favorite source for cheap term these days is MetLife (MET). A 40-year-old male, nonsmoker, can buy $500,000 worth of coverage for just $35 per month, level for 10 years. For a female, the rate is even lower — $30 per month.
Get rid of your life insurance once your investment portfolio is big enough to support you and any dependents for the rest of your collective lives. I don’t maintain any life policies now. When my kids were in high school and college, however, I had enough coverage to meet 10 to 12 years of living expenses — and we always slept easy.
What’s the best money market out there? These days, it’s Barclays Bank Delaware, paying 0.90%. No minimum deposit and no set-up or maintenance fees.
You say 0.90% is peanuts? Well, it certainly is by historical standards. But remember, the government is paying nothing — just about absolute zero — on Treasury bills. Money market funds yield only a few pennies more. For your can’t-lose money, GE Capital Bank is a safe, sensible alternative.
There is no minimum to open an account, and the FDIC insurance is up to $250,000 per depositor ($500,000 for joint accounts).
I’m tempted to say, “None of the above.” Truth be told, I really prefer to cherry-pick the best mutual funds from a variety of families — because no fund group has a monopoly on performance, and some of the finest funds come from obscure organizations. By opening an account with a discount broker, you can gain access to hundreds, or even thousands, of funds — all tracked on a single statement.
Still, it’s clear that some families do a superior job of attracting and retaining talented managers. Among the no-load (no sales charge) groups, T. Rowe Price (TROW) stands out. According to the number-crunchers at Lipper, TROW has logged the best overall performance of any no-load family over the past 10 years.
Funds I consider ripe for buying now include Equity Income (PRFDX), High Yield (PRHYX), Short-Term Bond (PRWBX) and Spectrum Income (RPSIX). All four funds require a $2,500 initial minimum investment in a taxable account, or $1,000 in an IRA.
If you like, you can even wrap these funds into a T. Rowe Price discount brokerage account and trade individual securities alongside your mutual funds. However, I recommend this approach only if you’ve got a sizable portfolio ($100,000 or more). At that level, TROW charges just $9.95 for Web-based stock trades.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
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