It's the weekend, time to go out to eat. Whether you are just looking to escape the daily grind of cooking and doing dishes or you are looking to spend some quality time with that special someone, why not enjoy some good food and Save Money at the same time. Usually the food is good but it is the bill that causes indigestion. We are constantly looking for ways to save money and recently have discovered Restaurant.com as a way of reducing our dining out bill and trying some new restaurants.

In previous blog entries we have mentioned the Entertainment Book as being one of our favorite ways to save money at restaurants and it is still our favorite, but Restaurant.com also has some nice features. Wheras with the Entertainment Book your coupons are predefined when you buy the book, with Restaurant.com you actually go online before you are ready to dine out and see what specials are available in your area. You basically buy a discount certificate up front and then redeem your savings when you go the restaurant. Most of the savings are for a set dollar amount, for example, you may buy a $25 dining certificate for only $10. Restaurant.com guarantees that the certificate will be accepted by the restaurant.
Although it is a bit of a hassle to have to go online and look for savings, this is offset by the fact that the participating restaurants tend to lean toward the nicer establishments and different restaurants may be offering different "deals" depending on the season. Also, once registered, special deals are offered to you and you can purchase dining certificates to be used as gifts. So next time you are planning to dine out, go online first to Restaurant.com and look for some savings. We plan on going to a nice Italian restaurant and getting $25 in savings this weekend!

Posted by Mike - Editor at 10:54 AM | Permalink

ProFunds announced today the launch of the first country-specific mutual fund for investors who believe the Japanese markets are ready to drop. Called the UltraShort Japan ProFund, the funds objective is to gain twice as much on a percentage basis as any decline on the U.S. traded, dollar-based Nikkei 225 futures contract on a daily basis.

In English this means you would consider owning this fund if you thought the Japanese stock market was at a top and ready to start dropping or if you just wanted to hedge your existing Japanese "long" positions against a market decline. In addition, since the fund is targeting a 2-1 percentage return, this means they are leveraging the portfolio. We would suggest that this is not a fund for novices but rather experienced investors who have a strong feeling about Japanese equities.
ProFunds has earned a reputation for being innovative and in particular designing funds for the "active" investor. ProFunds, unlike most mutual fund families, offers more lenient switching flexibilty between their more than fifty mutual funds. This new "short" fund is a natural offset to their existing Japanese "long" fund, the ProFund Ultra Japan Fund. According to Morningstar, this past year the Ultra Japan Fund was the top performer among all U.S. funds with a gain of over 115%.
As usual, we recommend that investors consult with their Financial Advisors before investing in any particular mutual fund or investment strategy.

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The stock market volatility of the past few years has been painful to endure, but that pain can teach some valuable lessons about the stock market:

• The market tends to revert to the mean. There is a tendency for the stock market, when it has an extended period of above- or below-average returns, to revert back to the average return. Thus, following an extended period of above-average returns in the 1990s, the stock market experienced a significant downturn, helping to bring the averages back in line.

• Don’t chase performance. Investors often move out of sectors that are not performing well, investing that money in investments that are currently high performers. But the market is cyclical and often those high performers are poised to underperform, while the sectors just sold are ready to outperform. A classic example is technology stocks in early 2000. Many investors rushed to purchase technology stocks just as they reached their peak and were headed for a long slide down. Rather than trying to guess which sector is going to outperform, make sure your portfolio is broadly diversified across a range of investment sectors.

• Avoid strategies designed to “get rich quick” in the stock market. The stock market is a place for investment, not speculation. When your expectations are too high, you have a tendency to chase after high-risk investments. Your goal should be to earn reasonable returns over the long term, investing in high-quality stocks.

• Don’t avoid selling a stock because you have a loss. When selling a stock with a loss, an investor has to admit that he/she made a mistake, which is psychologically difficult to do. When evaluating your stock investments, objectively review the future prospects of each one, making decisions to hold or sell on that basis rather than on whether the stock has a gain or loss.

• Make sure an investment will add diversification benefits to your portfolio. Diversification helps reduce the volatility in your portfolio, since various investments will respond differently to economic events and market factors. Yet it’s common for investors to keep adding investments that are similar in nature. This does not add much in the way of diversification, while making the portfolio more difficult to monitor.

• Check your portfolio’s performance periodically. While everyone likes to think their portfolio is beating the market averages, many investors simply don’t know for sure. So thoroughly analyze your portfolio’s performance periodically. Compare your actual return to the return you targeted when setting up your investment program. If you aren’t achieving your targeted return, you risk not achieving your financial goals. Now honestly assess how well your portfolio is performing. Are major changes needed to get it back in shape?

• No one knows where the market is headed. No one has shown a consistent ability to predict where the market is headed in the future. So don’t pay attention to either gloomy or optimistic predictions. Instead, approach investing with a formal plan so you can make informed decisions with confidence.

Posted by Mike - Editor at 10:09 AM | Permalink

Paying for a college education is no small task, with the average annual cost of a four-year public college at $15,566 and of a four-year private college at $31,916 for the 2005-06 school year (Source: Trends in College Pricing, 2005). You may not want to count on financial aid, especially since approximately 47% of all financial aid awards are loans (Source: Trends in Student Aid, 2005). Even if you have been diligent about saving and qualify for some financial aid, you may need student loans to get through college. In fact, the typical college student who borrows to finance a bachelor's degree from a public college graduates with $15,500 of student loans (Source: Trends in Student Aid, 2005).

While student loans may be a necessity to get through college, make sure to keep them under control so they don't become financially overwhelming. If your child is struggling to pay off student loans, he/she won't have funds available for things like buying a home or saving for retirement. Consider the following tips to help your child with student loans:

• Make sure your child keeps track of all student loans. Often, students borrow from a number of lenders, taking small amounts out over time. If the student doesn't keep track of these loans, he/she may be surprised by how much debt has accumulated.

• Translate those outstanding balances into a monthly payment. The real problem with loans, of course, is that they have to be repaid. Student loans must typically be repaid within 10 years after graduation. While you won't know the interest rate until graduation, assume an interest rate of 8%. For every $1,000 of student loans, the monthly payment will be $12 if paid over 10 years at 8% interest. A student with the average loan balance of $15,500 can expect to pay $186 per month to repay student loans.

• Encourage your child to pay off all debts as soon as possible. While student loans are likely to be your child's largest debts, they may also be the cheapest. From July 1, 2005 until June 30, 2006, the interest rate for Stafford student loans is 5.3% and for PLUS loans is 6.1%. If your child has other debts with higher interest rates, such as credit card debt or an auto loan, suggest paying off those loans first.

• Look for ways to lower the cost of those student loans. Student loan borrowers have a one-time opportunity to consolidate all student loans and lock in an interest rate for the loan's term. Students who are just graduating have a six-month grace period before repayment must begin. However, if those loans are consolidated during that period, the interest rate will be discounted by .6%. Allowing the lender to automatically deduct the loan payment from a bank account will often result in an interest rate break of .25%. Make every payment on time for four or five years, and the lender will often reduce the interest rate by 1% for the remainder of the loan's term.

ManagingMoney.com's Loans & Credit Center features industry leaders in the areas of Student Loans to assist you and your child with their student loan needs.

• Remind your child that up to $2,500 of education loan interest can be deducted on his/her income tax return as an above-the-line deduction, with income phaseouts of $50,000-$65,000 for single taxpayers and $100,000-$130,000 for married taxpayers filing jointly.

• Suggest your child put off upgrading his/her lifestyle or buying a home until all debts are paid off. This is a lesson that will benefit your child for a lifetime. Learning to live within one's means and purchasing items only when they can be afforded are two of the soundest financial principles your child can learn.

Posted by Mike - Editor at 8:00 PM | Permalink

Emigrant Bank, sponsor of the popular EmigrantDirect American Dream Savings Account^TM raised their interest rate today to 4.50%.

EmigrantDirect's interest rate has been showing a steady increase as it continues to follow the lead of INGDirect which last raised their rate in mid-January. Both Emigrant and ING are listed as two of our Favorites in our Banking Center. The question on everyone's mind these days is whether interest rates are going to continue to rise or have they topped out now? Especially with a new Fed Chairman in office, Ben Bernanke, predicting the tea leaves is more difficult. ManagingMoney.com is hearing from our sources that rates are likely to continue to rise till around the third quarter, with Bernanke instituting probably two more Fed rate hikes based on a strong global economy. We would expect that to be about it. Bill Gross, a famous bond manager with Pimco, then expects rates to start to drop as the Fed reacts to their possibly current overly aggressive policy. Just last month we had an inverted yield curve which historically has been a decent predictor of recessions, a further indication that rates may start dropping later in the year as the economy cools. However, why not enjoy the high rates from Emigrant now while you can!

Posted by Mike - Editor at 7:45 AM | Permalink

How earnings are taxed on investments depends on whether the investments are held in a taxable or tax-deferred retirement account.

Earnings in tax-deferred retirement vehicles, such as 401(k) plans and traditional individual retirement accounts (IRAs), grow tax deferred until withdrawn. When the funds are withdrawn, all income is taxed at ordinary income tax rates, even income attributable to long-term capital gains and dividend income.

In taxable accounts, the long-term capital gains tax rate is 15% (5% for taxpayers in the 10% or 15% tax bracket), while short-term capital gains are taxed at ordinary income tax rates (10%, 15%, 25%, 28%, 33%, and 35%). Dividend income received by individual taxpayers from a domestic or qualified foreign corporation is now taxed at the same rate as long-term capital gains.

Thus, the difference between the maximum ordinary income tax rate (35%) and the rate on long-term capital gains and dividend income (15%) is now 20%. This is a significant difference that could impact your decisions regarding how to invest your retirement savings. Thus, consider the following strategies:

• Stocks that generate dividend income may best be held in taxable accounts. While you will have to pay income taxes as the dividend income is received rather than deferring taxes, you will only pay tax of 15%. If the stocks are held in a tax-deferred account, you will pay ordinary income taxes on the dividend income when withdrawn.

• Consider holding growth stocks in your taxable account. Again, any long-term capital gains are taxed at 15%. If the stocks are held in a tax-deferred account, ordinary income taxes will be paid on the long-term gains when the funds are withdrawn. However, if your holding period is long enough, the deferral of taxes over many years may more than offset the higher tax rate.

• Investments generating ordinary income, such as bonds, should be considered for your tax-deferred account. Since ordinary income taxes will be paid whether the investment is held in a taxable or tax-deferred account, you delay the payment of those taxes by holding the investment in a tax-deferred account.

• Reductions in the long-term capital gains and dividend income tax rates will reduce your tax bill in your taxable account, but you shouldn’t stop contributing to your 401(k) plan or traditional deductible IRA. Contributions to those accounts are made from pretax dollars. Money invested in a taxable account is made with after-tax funds, so you’ll only be investing 65 or 75 cents instead of the dollar that would be going into your 401(k) plan or IRA. That difference makes a tax-deferred account tough to beat over the long term.

Posted by Mike - Editor at 8:54 AM | Permalink

When your children were young, your primary concern was probably how to provide for them in the event you and your spouse died. Even though they may now be grown, your children are probably still the center of your estate plan. Just because they are adults doesn’t mean that you have to leave their entire inheritance to them outright. Consider these factors first:

• Do you want to distribute your estate gradually? If substantial assets are involved, you may want to set up trusts to distribute your assets gradually, such as in thirds when each child reaches age 25, 30, and 35. You can always give the trustee power to make early distributions for items like to pay for college, to start a business, or to purchase a home.

• Have you selected a trustee carefully? If trusts are involved, you want a trustee who is impartial and will deal fairly with all your children. Think twice before naming one of your children as trustee. With one sibling in a position to decide what happens to another sibling’s inheritance, this can cause disagreements between siblings.

• Have you thought about the consequences of a child divorcing? You probably don’t want some of your assets distributed to an ex-daughter-in-law or ex-son-in-law, so special provisions may need to be added to trusts.

• Have you considered how assets will be distributed among children? Perhaps one child is better off financially than your other children. Do you divide your estate equally or give less to the financially well-off child? Children often feel a right to an equal share of their parents’ estate, even if they have a substantial estate of their own. If you decide to make unequal distributions, be sure to explain why.

• Do you need to make special distributions to even out inheritances? Perhaps you have paid all college costs for some children, while other children have not attended college yet. You may want to ensure that all children receive a college education, and then distribute the rest of your estate equally among your children.

• Should you coordinate your estate plan with your children’s estate plans? If your children have substantial estates of their own, it may not make sense to leave additional assets to them. They may prefer those assets go directly to their children, helping to minimize family estate taxes.

Visit ManagingMoney.com's Legal Center to obtain your Legal forms such as Living Trusts, Small Estate Forms, and more.

Posted by Mike - Editor at 10:08 AM | Permalink

Most long-term financial goals require saving — perhaps for retirement, a child’s college education, or a down payment on a home. Thus, most people focus on saving, not realizing that debt can be a major obstacle to pursuing those financial goals. You may have little left over for saving if debt payments are consuming a significant portion of your income. Or your debt could cost more than you are earning on your investments.

If debt is getting in the way of pursuing your long-term financial goals, consider these strategies:

Mortgages

While a mortgage will typically be your largest debt, it is viewed as “good” debt, since it is used to finance an appreciating asset. It is also likely to be your lowest cost debt. Not only will the interest rate typically be lower than other debt, mortgage interest is usually tax deductible. You will typically not want to pay down your mortgage until all your other debts have been paid in full. However, there are still strategies you can use to lower your mortgage’s cost:

• Evaluate refinancing options. While short-term interest rates have increased significantly in recent months, mortgage interest rates have not fluctuated much. If interest rates have decreased since you obtained your mortgage, even by just 1/2%, take a look at refinancing options. If your credit score has improved dramatically since you obtained your mortgage, you may be able to negotiate a lower interest rate. Also, if your original loan was a jumbo loan (over $359,650 in 2005) and is now under that amount, you may qualify for a lower rate.

ManagingMoney.com's Loans & Credit Center offers mortgage refinancing options for those people with Good Credit, Average Credit, or Poor Credit. Also, while you are at the Loans & Credit Center you can also obtain your credit score.

• Eliminate Private Mortgage Insurance (PMI). If your down payment was less than 20% of your home’s purchase price, you are probably paying for PMI, which typically runs between .25% and 1.25% of your total mortgage amount. Once your home equity exceeds 20%, you don’t have to purchase PMI. Your lender will track when your equity exceeds 20% based on your original purchase price, but increasing home values may get you past that threshold sooner. However, you will probably need an independent appraisal before your lender will cancel the PMI. While this may cost a few hundred dollars, you may eliminate several years of PMI costs.

• Determine whether to pay down your mortgage debt. The after-tax cost of mortgage debt is typically fairly low. However, if your income exceeds $145,950 ($72,975 for married taxpayers filing separately) in 2005, your itemized deductions are reduced by up to 80%. Thus, those with high incomes may find that mortgage interest does not provide much tax benefit. Individuals approaching retirement age may want to pay down their mortgage debt so they can enter retirement debt free. In all cases, however, you should compare your after-tax cost of mortgage debt to the after-tax return earned on investments before deciding whether to pay down your mortgage. If you decide to accelerate payments, make sure your lender allows additional principal payments without penalty.

Credit Card Debt

It’s difficult to find anything good to say about credit card debt. Interest rates are typically high and the interest is not tax deductible. If you only make the minimum payments on the balance, it can take years to pay off the debt. Your goal should be to pay off, as quickly as possible, all credit card debt. Some strategies to consider include:

• Put your credit cards away until all your balances are paid in full. If you are really committed to paying down those balances, you don’t want to add to the problem by continuing to increase the balance.

• Pay the balances in order of most expensive to least expensive. Make a list of all your credit card balances and the interest rates charged on each. Add up your minimum payments and then determine how much more you can budget to help pay down those debts. Use these additional funds to pay off the debt with the highest nondeductible interest rate. Once that debt is paid in full, start paying the debt with the next highest interest rate, continuing until all the balances are paid.

• Look for a lower interest rate credit card. You may find an offer that contains a teaser rate, which can go as low as 0%, that is only available for a limited time. You can transfer balances from your high interest rate cards to the lower rate card and then pay off the balance as aggressively as possible. Before getting the new card, make sure to review all details. The low rate may only apply to new purchases or to transferred balances. You’re looking for a card that will apply the low rate to transferred balances. Also check if there are any balance transfer fees. Once the teaser rate is over, either find another low rate card or call the company to request a lower rate on that card.

Consider ManagingMoney.com's Credit Card Center where you can choose from 18 different categories of credit cards. Each card includes a Detailed Review and a Ranking System to help you in your selection.

• Consider using a home-equity loan to pay off your consumer debts. Home-equity loans typically carry lower interest rates than other consumer debt, and as long as the balance does not exceed $100,000, interest paid on home-equity loans is deductible on your tax return as an itemized deduction. Keep in mind that you are taking equity out of your home when you do this. This may be a good trade-off if you use the funds to reduce higher cost debt. However, if you just run your credit card balances up again, you will still have the consumer debt plus less equity in your home.

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