Picking up Nickels

Wednesday, October 29, 2008

Cartoon: The latest diversification strategy

Good stuff by Robert Mankoff from the November 3, 2008 issue of the New Yorker:

Monday, October 27, 2008

Federal Reserve meeting this week: Not too late to lock in CD rates

I hate to sound like a broken record, but the FOMC is expected to announce another rate cut when they meet on October 28-29.

As the Fed lowers its target rate, it's a safe bet that liquid savings accounts will continue to trend down from the current 3% levels. However, there are still some good CD deals available that will guarantee you a better return on your cash. My current favorites continue to be the Penfed 5% APY CDs for terms of 3,4,5, and 7 years and the E-Loan CD deals for terms of 1 year or more, topping out at 5.25% APY for a 6 year certificate.

Please be aware that if you want to do one of these deals, be sure to act quickly because they could disappear at any time.

Thursday, October 16, 2008

September CPI-U numbers released: October 2008 I Bonds worth considering

The U.S. Bureau of Labor Statistics released the September 2008 Consumer Price Index (CPI-U) inflation data this morning, which decreased by 0.14% last month.

As I have mentioned before, now is one of the best times to consider purchasing I Bonds. The reason for this is that we now know what the rate of return for October 2008 I Bonds will be for both the first and second six month periods, which is important since I Bonds must be held for 12 months before they can be redeemed.

Using the CPI-U data from March 2008 (213.528) and September 2008 (218.783) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for October 2008 issue I Bonds:

That would mean these bonds would earn a rate of 4.84% (combined 0% fixed portion & 4.84% variable) for the first 6 months and 4.92% (combined 0% fixed & 4.92% variable) for the second 6 months. Even with an anemic 0% fixed rate portion, this is a competitive investment when compared to the 1 year CD @ 4.65% APY currently being offered by Corus Bank.

Based on that, October 2008 I Bonds are a reasonable buy at this time. Since I Bonds provide investors with a way to profit from past inflation (a known quantity), I believe that these bonds could provide an ultra safe investment with an attractive return for the next 18 months or so as the economy slows down. However, I don't believe that the current 0% fixed rate portion make this an attractive place to hold cash for the long term, so I would keep an eye on future rate changes as more attractive places to put this money will surely surface over time.

Sunday, October 12, 2008

October 2008 Financial Asset Roundup

Here are my current financial assets as of the market close on October 10th, 2008:

Asset September 2008 October 2008 Change
Checking 295 409 114
Money Market 21,306 21,514 208
Savings Bonds 14,851 14,899 48
Treasury Bills 0 0 0
CDs 105,183 107,639 2,456
Brokerage 106,937 88,753 -18,184
401k 87,639 63,201 -24,438
Roth IRA 28,964 21,127 -7,837
SEP IRA 172,301 131,142 -41,159
529 Savings 36,951 29,731 -7,220
Credit Card 0% Balance Transfers 0 0 0
Total Assets $574,427 $478,415 -$96,012 (-16.71%)

Ouch! The S&P 500 index has been at a receiving end of a major smackdown over the past ten days or so (down 28.16% since my last update!), and is now down to levels we haven't seen since 2003:

(chart courtesy of msn.com)

While fear and uncertainty has pretty much slammed the entire world, one of the few positives has been the corresponding fall in oil prices to below $80 per barrel, which could provide a little relief for pinched consumers of gasoline and home heating oil.

Moneywise, I plan on staying the course with the investments in my retirement accounts, just like I did after the tech bubble popped in 2000. I've advocated locking in CD rates now since rates are still attractive while banks are desperate for cash, but I am not confident that these rates will be around long. Following my own advice, I rolled my maturing E-LOAN 5.75% APY 2 year CD into a E-LOAN 5.25% APY 5 year CD.

One event of note to savers is the release of the September 2008 Consumer Price Index (CPI-U) inflation data on Thursday, October 16th, which will give us the rate of return for October 2008 issue I Bonds the next 12 month period. Even with a 0% premium over the rate of inflation, they could still be an attractive (and safe) place to put cash for the next year or so.

Wednesday, October 08, 2008

Fed emergency rate cut: lock in CD rates now!

The FOMC slashed the target funds rate today by 50 basis points to 1.5%, a level we haven't seen since September 2004. The impact that this latest cut will have on savings yields will not be good.

According to Federal Reserve data, the average rate for a 6 month CD was 1.74% in 2004 as the target funds rate was inflated 100 basis points from 1.25% to 2.25%. In contrast, the September 2008 average 6 month CD rate was 3.82% with a 2% target rate.

Basically, the seizing up of the credit markets has added a premium to CD rates offered by banks and credit unions as they try to get the capital that they need. I believe that this premium could disappear quickly if the government "rescue plan" works as intended. It certainly didn't take Washington Mutual long to drop rates once JPMorgan Chase came to the rescue.

So if you're looking for a safe place to stash some idle cash, now is the time to act. There are still some pretty good deals out there, but I would act quickly because they could disappear at any time. My current favorites are the Penfed 5% APY CDs for terms of 3,4,5, and 7 years and the E-Loan CD deals for terms of 1 year or more, topping out at 5.25% APY for terms of 5 and 6 years.

And as always, please be sure that your deposits on account are below FDIC and NCUA insurance coverage levels.

Thursday, October 02, 2008

Free FICO score from Equifax

Equifax is offering a free FICO score for the first 10,000 respondents (courtesy of slickdeals):

Limited time offer. First 10,000 responding receive a FREE FICO score! Yes, it's free. No credit card required. No obligation.

Check out equifax.com/freeficoscore for more info.