My Personal Finance Journey

All posts by Jacob A Irwin

Should You Get a Safety Deposit Box?

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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The following post is by MPFJ staff writer, Shondell of Call Me What You Want, Even Cheap. She blogs about her recent car loan and mortgage pay off and a whole bunch more. Check out her blog right here.
Everyone loves to have jewelry and valuables in their possession, even if only for the money they can bring in during times of a financial crisis. But, they can also be problematic if you own more than a handful. Keeping expensive jewelry at home is usually not a good idea as thieves, burglars, and even greedy visitors can steal them. You can also lose them in a fire, flood, and other natural disasters, and they could potentially not be covered by your insurance. The safest place to keep your jewelries and valuables is in a safety deposit box in a bank.

The safety deposit boxes in a bank are extremely strong; and they are vaulted and sealed for added security. They are safe from theft, burglary and robbery. They are also better protected from fire, flood, and other disasters than at home. However, they are not without faults; the chief being that they are not available to you 24/7.

 But first, let’s look at the pros and then go on to examine the cons:

The Pros of having safety a deposit box:

  • It is safe from thieves, burglars and robbers: Safety deposit boxes in banks are heavy, strong and sealed. They are kept inside well-guarded vaults deep inside the building. Thieves and burglars cannot get inside the vaults. Even armed robbers sometimes do not try to make their way into the vaults because they find the endeavor to be too risky.
  • It is safe from fire, flood and disasters: Since safety deposit boxes are kept in heavily fortified vaults deep inside the bank, they are usually safe from fire, flood and other disasters, whether natural or man made. Of course, nothing is completely secure from a really big disaster, such as a devastating earthquake or nuclear attack, but that rarely happens.
  • It is cost-effective: Banks usually charge between $15 and $25 per year for the smallest boxes and between $185 and $500 for the largest boxes. There are other sizes between these two sizes. Considering the value of your jewelries and how much you stand to lose if they are stolen, a safety deposit box is highly cost-effective.
  • You can use the box to store anything of value: A safety deposit box is not only for jewelry and ornaments. It is also for other valuables such as important documents, photographs and letters. In fact, you can store any personal effects you like in it for safekeeping as long as they fit inside the box.
  • Only you will have access to your box: No one except you or your agent or power-of-attorney will have access to it. In case of your death or disappearance, only your designated beneficiary will have access to it. This makes it safe from your own family and relatives. If you don’t trust your own family members, then it’s a good idea to keep your valuables in a safety deposit box.

The Cons of having a safety deposit box:

  • You do not have 24/7 access to your belongings: Since your safety deposit box is kept inside the vault of the bank and the bank doesn’t open 24/7, you will not have access to your belongings at any odd hour you need them. If you need your jewelry often and at a short notice, then it is impractical to keep them in a safety deposit box.
  • Your box can be frozen by the IRS: If you have been accused of any financial irregularities, the IRS may freeze your box until you have been cleared of the charges. The bank may also freeze your box if they suspect that you have gotten the contents in the box by unlawful means. They may also open it and examine its contents. During this period, you will not be able to access your box.
  • You must keep the key in a safe location: If you lose the key to your safety deposit box, the bank may charge you a very high fee for a replacement. Therefore, you must keep your key in a safe location at all times. This can be problematic if you often forget where you place things. You can leave it at the bank for safekeeping, but you will have to pay an extra charge for that.
  • The box has a limited size: You cannot store large items in the safety deposit box as it has a limited size. Generally, the box sizes range from 2″ x 5″ x 11″ (smallest) to 15″ x 22″ x 12″ (largest). Even the largest box is only large enough for jewelry and other small items. So they are not good for safekeeping large items.

How about you all? Do you have a safety deposit box, if you don’t mind sharing, what’s in yours? 

 Share your experiences by commenting below!

***Photo courtesy of Stuart Conner

What International Equity Asset Allocation Level Should You Use in Your Portfolio?

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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As you’ve probably noticed here lately, I have been doing a lot of analyses of my own personal finances and investing strategy. In the course of these analyses, I have been re-reviewing some of the books that helped me formulate my passive investing strategy several years ago.

One fascinating topic of analysis that I wanted to take a look at in today’s post is an answer to the following question – “What is the best international equity allocation level one should use in their portfolio?” Well – let’s investigate this further!

Why Bother Adding International Equity / Stocks to Your Portfolio in the First Place?

In my opinion, adding the international equity asset class is the 3rd most important decision one makes in putting together their investment portfolio (right after #1 – choosing passive investing over the loser’s game of active management and #2 – deciding your overall equity/fixed income asset allocation based on your personal risk tolerance and investing horizon).

So, why is the addition of international equity such an important step to constructing a portfolio?

Essentially, it all comes down to correlation and diversification. Since international equity, US domestic equity, and fixed income portfolio components all move up and down in different ways/magnitudes, you get a diversification benefit by including them in your portfolio.

In simpler terms, this means that by adding international stocks, you get a higher overall portfolio return at a lower volatility/risk level (sometimes called efficient frontier). This is perhaps the most exciting and interesting thing to me regarding portfolio construction!

WHAT DO THE BOOKS SAY? – Optimal International Equity allocation

Before I jump in to a long-winded investigation/discussion of my own, I generally like to share any relevant advice from people that are much more qualified than myself. Listed below is what I could find in the literature about deciding what sort of international equity allocation should be included in your portfolio:

Note: In everything that I read, the over-riding theme was that you should only pick an international equity allocation that you can live with. If you choose the most efficient allocation in the world but cannot stick with it in good times and bad, it defeats the entire purpose.

  • Larry Swedroe (probably my favorite investing author I have found to date)
    • In his newer 2010 book, The Only Guide You’ll Ever Need for the Right Financial Plan, Larry suggests that investors should allocate at least 30% and as much as 50% of their equity holdings to international stocks. He says that increasing up to 40% reduces portfolio volatility, but that people should not hold more than 50% because of tracking error between international and US domestic markets.
    • Similarly, in Larry’s very good 2001 book, What Wall-Street Doesn’t Want You to Know, this same sort of recommendation for carrying around 40% of your equity holdings in international equity is mentioned as producing the most efficient risk/return ratio. He also provides an example portfolio containing 30% equity holdings in international stocks. This same recommendation was also expressed in his 2011 book, Investment Mistakes Smart Investors Make and How to Avoid Them, and his previous book, The Only Guide to a Winning Investment Strategy You’ll Ever Need.
  • Burton Malkiel
    • In his famous and amazing book, A Random Walk Down Wall Street, Malkiel recommends an allocation of 33% (1/3) of equity holdings in international stocks for younger investors.
  • William Bernstein (my 2nd favorite investing author I have found to date)
    • In his 2002 book, The Four Pillars of Investing, Bernstein recommends keeping your international equity holdings to less than 50% of your total equity position. He then acknowledges that there is a good bit of disagreement in the “optimal” international allocation, but says that it is somewhere between 15-40% of an investor’s stock holdings. 
    • In his 2001 book, The Intelligent Asset Allocator, Bernstein examined the period from 1969 to 1998 and found that the most efficient risk/return point occurred around 30-40% international holdings as a percentage of total equity. 

Conclusion from the literature – From the books written by the three authors above (some of the best on asset allocation I have found to date), it seems that the optimal allocation for international equities is between 30-40% of total equity holdings, with 40% likely being the “most efficient” single point.

International Equity AS A 1-COMPONENT PORTFOLIO

Having taken a look at the advice given in the literature about the best levels in which to hold international equities in one’s asset allocation, I then wanted to do some of my own analysis and number crunching to see how things looked for myself over a time scale I could control.

To do this, I went to Yahoo Finance (the site where I always get my historical pricing data) and downloaded the historical price information for the 4 Vanguard mutual funds shown below:

Whenever I do these types of back-test analyses, I generally like to pick the longest time period I can get access to. In this case, the historical pricing data only went by 16.75 years, to 1996. Therefore, the time period I chose for the analysis was 1996-2013 (present).

First, I wanted to analyze the pure fluctuations/growth of the individual mutual funds (1-component portfolios) over the time period. To do this, I simulated the growth of a $10,000 initial investment in 1996 in each of these funds.

The graph below shows the overall results, where the blue line = Vanguard Total US Stock Market Index Fund, the red line = Vanguard Short-Term Bond Index Fund, the green line = Vanguard Total International Index Fund, and the light blue line = Vanguard Emerging Markets Index Fund.

To add some definite numbers to the performance of the 1-component portfolios shown in the chart above, I generated the table below, displaying year-to-year, month-to-month, and total return data for the 1996-2013 holding period.

The chart and table above shows us some interesting findings.

  • As we would definitely expect, all 3 of the stock funds are MUCH MUCH MUCH more volatile than the short-term bond index fund.
  • The total international equity fund performed pretty terribly during this 17 year time period, with the final portfolio position only equally that of the short-term bond fund. I’m sure this will greatly affect our analysis of the correct international equity to hold, likely introducing some severe recency bias for us to watch out for!
  • It appears that the most volatile portfolio was the emerging markets one, as we might expect.
  • It is also rather significant to see that the portfolio direction changes of the 3 stock portfolios are not always the same, thus giving us some likely diversification benefit by using a combination of international equity in our portfolio.

International equity IN A 3-COMPONENT PORTFOLIO — 1996-2013 (17 Years)

While examining the “personality” of an asset class in the isolation of a 1-component portfolio is interesting, an even more important thing to look at is how the fund will perform when mixed in as part of an investor’s real life asset allocation.

To investigate this activity, I simulated the growth of the same $10,000 initial investment from 1996-2013 (present) using a 70% equity / 30% fixed income overall asset allocation portfolio. The 30% fixed income portion consisted solely of the Vanguard Short-Term Bond Index Fund mentioned previously, while the 70% equity allocation was split up employing varying levels of international equity (Vanguard Total International Stock Index Fund) holdings, from 0-60% of total equity position, along with using the Vanguard Total US Stock Market Index Fund for the domestic equity allocation..

The return data for the growth of the $10,000 initial investment from 1996-2013 utilizing various levels of international equity can be seen in the table below:


In examining this table above, what we see is that the most efficient return-to-risk ratio is achieved when our portfolio’s equity position consists of only 10% international equity. This of course is due to the fact that the international equity markets performed terribly in the past 17 years compared to the US Market.

However, even though the average annual return decreases across the board as we increase our international equity exposure, we are getting the diversification benefit because the volatility/standard deviation is definitely decreasing as well.

Lastly, if we look at the far right column of the table above (the inverse of the return/risk curve slope), we see that the largest numbers occur between 10-30% international equity levels. What this means in plain English is that we get the largest decrease in volatility per unit decrease in return between 0-30% international equity. This is definitely the area where we would want to have been during this period. Having more international equity would have given us more decrease in return than decrease in risk.

Conclusion from 3-Component Portfolio, 1996-2013 Holding Period – From this specific analysis, we saw that the most efficient international equity allocation was a meager 10% of your total equity position, much less than the 40% being touted by the literature as being the most efficient point. However, we also saw that having any amount of international equity decreased volatility at the same time as decreasing return, with 10-30% international allocation featuring the greatest decrease in risk (being in this range wouldn’t be the most terrible thing ever!).

INTERNATIONAL EQUITY IN A 3-COMPONENT PORTFOLIO — 1972-2011 (~40 years)

Truthfully, I was a little shocked at the results above. 

 After all, a 10% international equity maximum efficiency is quite a bit than the 40% point that was found by the literature! This got me thinking that either a) the 17 year time period I used was not long enough to capture history in a representative way or b) my calculations are off.

 In order to investigate the situation further, I decided to expand the years of my analysis to the time period of 1972-2011, since these were the years covered by Simba’s return data spreadsheet from the Bogleheads forum.

 I then modeled the average annual returns during this ~40 year time period of the same 70/30 equity-fixed income allocation portfolio mentioned above at varying levels of international equity exposure (0-60%, as a % of the total equity position). In order to meld the analysis to the data available in the spreadsheet, the 3-components held in the portfolio were the Total US Stock Market (domestic equity position), Total International Market (international equity position), and the Short-Term Treasury Fund (fixed income position). 

 Shown below is a graph plotting the annual return (y-axis) vs. the risk/volatility/standard deviation (x-axis) at varying levels of international equity exposure, from 0-60% of the total equity holding position. Also pasted below is the table with the data that the graph was constructed from.




In my humble opinion, the graph and data shown above would fall in to what I would call the “beautiful” category. What I mean by this is that it is a textbook example of the magic of diversification and portfolio construction / asset allocation.

 Let’s walk through it. Start off at the bottom of the curve, which corresponds to a portfolio having an equity position consisting of 0% international stocks. As we increase the international equity to 10-30% (each point/plot on the graph represents 10% more international equity), we see something amazing – volatility decreases, but average return increases! Pretty sweet, right?!  

 In fact, the standard deviation of the portfolio does not start increasing back to what it was when we just had US domestic equity until an international equity allocation of 40%! In terms of the maximum return/risk ratio, this data indicates that the most efficient point is when international stocks = 30% of total equity holdings. However, it is also significant to note that if you can tolerate more risk, you would have obtained a higher return with an even greater (40-50%) international allocation level.


 If you’re interested in looking through all of the details/numbers of this analysis, you can access the Google Docs spreadsheet by clicking here.

 Conclusion from 3-Component Portfolio, 1972-2011 Holding Period – 30% international equity as a percentage of total equity holdings was found to be the most efficient in terms of highest return with lowest risk.

CONCLUSIONS, MY CURRENT International ALLOCATION, AND PATH FORWARD

So, after going through all of this investigation comparing varying levels of international equity, what’s the overall verdict? Well, I think it can be summed up in a couple of key-points:

  • The literature suggests that an “optimal” amount of international equity holdings is 30-40% of your portfolio’s total equity position. 40% is most often quoted as the most efficient single point.
  • My analysis of the 17 year, 1996-2013 holding period was confounded by international equities having returns of approximately 1/2 of US domestic equity. While all international equity allocations decreased both risk and return, an allocation between 10-30% international preserved return while decreasing risk the most efficiently.
  • Extending the analysis to the 40 year period from 1972-2011 revealed that 30% international equity as a percentage of total equity holdings was found to be the most efficient in terms of highest return with lowest risk.

    In the interest of putting a personal application to this topic, I wanted to share how this investigation applies to me. I currently use a 70/30 equity-fixed income asset allocation split in my portfolio. Of the equity position, 70% is dedicated to US Market, and 30% is International exposure. So, I’m luckily already aligned with what was found to be the most efficient from the 40 year analysis above. 

    Path Forward – For me personally, I think that I will simply continue on using my current international equity allocation of 30% for several reasons. First, it aligns well with what was found in the literature. Second (less importantly), it held it’s own during the more recent 17 year period when international equity under-performed  nicely reducing risk while not reducing return too much. Lastly (and maybe the most important of all), I feel like at 30% international equity, I will have very little tracking-error, meaning that I am very comfortable with that level and have no problems re-balancing it when it goes down.

    How about you all? What % of your portfolio’s total equity position is invested in international stocks/funds?

     Have the movements in the international markets ever caused you to be alarmed/change your strategy, or did you not have that much trouble keeping a long term focus?

     Share your experiences by commenting below!

    Reader Profile – Greg from ThriftGenuity

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    Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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    Click here to enter my free $50.53 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is April 30th, 2013.

    Today, in the ongoing Reader Profile Series, we’re getting to know reader and insightful commenter, Greg, from the site, ThriftGenuity. Let’s all give Greg a big round of applause and welcome for sharing his life with us and listen to his story. Enjoy!

    Also, if you’re interested in sharing your own financial story/journey with us in a reader profile of your own, just shoot me a quick email, and we can get the ball rolling!       

    1. PLEASE TELL EVERYONE A LITTLE BIT ABOUT YOURSELF (BACKGROUND, EDUCATION, FAMILY SITUATION, ETC).

    My name is Greg and I currently live in Richmond, VA and work in health insurance.  I am married, but no kids just yet.  Ironically (since I am in health insurance), my wife is a physician so we are focused on her finishing up her residency and joining a practice before expanding the family.


    My background – I grew up in the suburbs of Pittsburgh, PA (Go Steelers!).  I went to school at a small private university studying communications and marketing.  While getting established in my career, I moved around every couple of years for job opportunities and earned my MBA.  Now, I am a bit more settled in with my job and have expanded into other opportunities in my spare time, specifically teaching guitar lessons, refereeing soccer, and just started blogging.

    2. DESCRIBE YOUR CURRENT FINANCIAL SITUATION (WHO WORKS IN YOUR FAMILY, HOW YOUR INCOME IS, YOUR EXPENSES, ETC.).

    For my age, I am in a good place financially.  We spend only about half our take home pay and save the rest and we have put away a sizeable amount relative to our age.  We both work and once my wife joins a practice, we will see a significant increase in income.  Because we want to remain mobile for the next year as we decide where to live for the long term, we are basically keeping the bulk of our money liquid, so if we do move, we will have a nice down payment for the next house.  Also because of that, we are putting as much money as we can into our Roth accounts before getting to an income level where that is no longer an option.


    In addition to our mix of stocks and bonds, I am also very interested in real estate investing.  I was able to turn my first house into a rental property and am looking to expand, again, once we know where we will be living long-term.

    3. WHAT ARE THE CURRENT FINANCIAL CHALLENGES YOU ARE FACING (SAVING, PAYING OFF DEBT, STUDENT LOANS, MERGING FINANCES AFTER RECENTLY BEING MARRIED, ETC.)?

    Our primary financial challenge is my wife’s med school loans.  Once the subsidies run out, we will start paying down the principle very aggressively with a target of completion in 2 years.  The interest on that loan is fairly high, so it is a balancing act determining when and where to invest money elsewhere and if it will yield a better return that the interest on that loan.


    Other than a mortgage, we have no other debt, which I am very happy about.  The couple of years after the med school loan is paid off will be very exciting, because we don’t live a very extravagant lifestyle, so we should be able to really strategize our investments.

    4. WHAT ARE YOUR PLANS FOR THE FUTURE (RETIRE EARLY; BUILD YOUR CAREER, ETC.)?

    My plans for the near future are continue to progress within my career but also maintain a work/life balance.  I really enjoy the couple of side ventures that I have going on and will continue to focus on them.  Once kids are in the picture, I really want to make sure that I have time dedicated to spending with them.  As far as retirement, I definitely plan to retire early, but I am not yet ready to say at what age.  I don’t mean that in the sense of when I will be financially ready, but more from the standpoint of what else I want to do.  So my goal is by around 40 (10 years from now) to be financially independent so the career I have and any other ventures are all because I want to do them and not because I have to do them.


    5. WHAT’S YOUR BEST PIECE(S) OF FINANCIAL ADVICE AND/OR YOUR GENERAL PHILOSOPHY ON PERSONAL FINANCES?

    I think that all of the financial decision I’ve made to this point can be summed up in determining what value I am receiving for the money.  I think that if you always keep this in mind, it really keeps your feet on the ground and you can truly assess your wants and needs. 

    • Applied to college – is the tuition at X school providing me better opportunities than the tuition at Y school or is it just some perceived bragging rights?
    • Applied to a career – is what I’m doing adding value to my overall career and where I want to go? Am I being paid what I’m worth?
    • Applied to home or car – does this location or size add additional value, or is it just to show that I can?

     By asking these questions with large and small financial decisions coupled with your overall financial goals has served me well to this point and should continue to do so.   I will also add that you must educate yourself on the item at hand, or your evaluation of it will have less meaning.

    ***Photo courtesy of http://thriftgenuity.com/roedyblog/wp-content/uploads/2013/02/GR-e1361912788835.jpg

    Is Buying in Bulk Really Cheaper? Costco vs. Super Walmart

    The following post is by MPFJ staff writer Travis.  Travis is a customer blogger for Care One Debt Relief Services, and also appears weekly at Enemy of Debt.  Travis candidly shares his personal journey to pay off $109,000 of credit card debt and the tips he’s learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family.

    A few months ago, a Costco opened up near my home.  My wife and I checked it out as guests of some friends who had purchased a membership.  I was skeptical of even going, as I haven’t been a fan of buying in bulk for the following reasons:

    • Many times, the product isn’t any cheaper per unit, it’s just in a big package.
    • Buying in bulk can cause people to buy and consume more.
    • Bigger packages can mean waste because products expire or get stale before they’re used up.

    On the other hand, as we walked around the store,  I saw many great products.  I also saw products that we normally use in bulk sizes.  I remembered a comment on a different blog post about club store shopping that suggested making a monthly trip to the store,  purchasing items in bulk once a month, then filling in other things around it as needed from a “regular” grocery store.

    Before unleashing my checkbook on a Costco membership and products, I wanted to ensure that buying products at Costco that we actually use will save us money.  I spent time walking through both Costco and a Super Walmart, where we usually purchase the bulk of our groceries,  comparing prices to find out which of the products my family uses would be worth purchasing at Costco.

    The following is just a sample of the comparative data of commonly used products from both stores:

    Orville Redenbachers Smart Pop 94% fat free microwave popcorn:

    Costco:           $10.99 for 40 packages                  (27.5 cents per bag)

    Walmart:         $5.18 for 10 packages                    (51.8 cents per bag)

     

    Skippy Creamy Peanut Butter:

    Costco:           $10.99 for two 48oz jars                  (11.4 cents per ounce)

    Walmart:         $4.08 for a 28oz jar              (14.6 cents per ounce)

     

    Bounty Paper Towels:

    Costco:           $19.99 for 12 Jumbo Rolls             (23 cents per square foot)

    Walmart:         $  9.97 for   6 Super Rolls               (39 cents per square foot)

     

    Hamburger:

    Costco:           $14.95 for 5lbs of 88/12                  ($2.95 per pound)

    Walmart:         $  4.28 for one pound of 90/10      ($4.28 per pound)

     

    Soda:

    Costco:           $5.99 for a 24 pack                          ($5.99 per 24 pack)

    Walmart:         $6.48 for a 24 pack                          ($6.48 for a 24 pack)

     

    Red Grapes:

    Costco:           $9.92 for 4 pounds                          ($2.48 per pound)

    Walmart:         Varies                                                 ($2.48 per pound)

    I was surprised that almost every item that I checked was significantly cheaper when bought in bulk at Costco (negating one of my earlier points). 

    Products purchased by household will vary, but I didn’t find many products that I would have an expiration problem with.  For example, with the hamburger, I would separate it into five 1-pound packages, put into freezer bags, and freeze them.  I would have a concern about the peanut butter, as I’m not sure we would use that much peanut butter before the second jar would go bad.  This may be a good opportunity to split the cost with a neighbor, each taking one of the gigantic jars.

    I found that Costco carried many products that I normally cannot find at Walmart, such as a wide selection of non-frozen seafood.  However, I also found that  Costco did NOT carry some products that we use every week.  For example, the frozen pizza selection at Costco was horrible.  For that item alone, we would have to make a weekly trip to Walmart or some other store to pick up frozen pizza.

    While shopping at Costco looks to be able to save us quite a bit of money, the biggest obstacle will be coming up with the funds for what will likely be a large and quite expensive monthly shopping trip.

    How about you, readers, do you shop at Costco or another club store?  How often during the month do you shop there, and how do you budget for an expensive shopping trip?

    Share your experiences by commenting below!

    Is it Possible to Challenge a Fine from a Traffic Camera?

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    Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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    Click here to enter my free $50.53 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is April 30th, 2013.

     The following is a guest post. Enjoy! 

     
    If you pay even the slightest bit of attention to the news (or what information seems to pass as newsworthy these days), then you will surely have noticed the rather alarmingly prevalent trend which involves a high profile celebrity getting caught doing 90 down a quiet country road, yet receiving barely a lick of punishment, aside from the shame of being caught in the act.
     
    And if you are at all like us, you’ll feel pretty outraged about it too! They have absolute mountains of cash going spare, yet they don’t receive the same old speeding fines and driver’s license points that we do – why is that? 

    Mixed in with that outrage is probably a bit of jealousy as well: how come we can’t get out of a speeding ticket? Is this amazing feat even possible for the average Joe?
     
    The long and the short of it is simple – speeding cameras aren’t infallible. If you wake up one morning and notice the presence of a speeding ticket in your mailbox, don’t let it ruin your day! It might just be worth your time to try and challenge the decision. 
     
    Here’s some options you have if you want to challenge the ticket:


    Prevention Is the Best Cure

    Okay, so this might be too late for you this time, but it’s worth bearing in mind for next time – you probably won’t receive a speeding fine if you’re not caught speeding! The best thing is to never break the speed limit at all, but we understand: sometimes you’re running late for an important meeting or to pick the kids up from school, and speeding seems like the only option.
    In this case, try getting a Sat-Nav device, like a TomTom. Many of these will have in-built speed camera detection software, letting you know when one’s coming up. Some of them can even detect radar guns! Just be careful because these are in fact illegal in some areas.


     

    The Fortnight Favorite

    This is the easiest way of getting out of your ticket, and the favorite method employed by celebrity lawyer “Mr Loophole” Nick Freeman. Look at the date you were caught speeding, then check today’s date – it has to be issued within 14 days of the incident, so if those two weeks are up before you receive it, you’re off scot-free.
     
    Just write back to them and explain the situation; your ticket should be cancelled immediately.


     

    Plausible Deniability

    Another way of getting out of it is to claim that you’re unsure who was driving at the time. You need some decent reason why you’re not sure though, like moving house that day and having a number of family members driving the car back and forth on that stretch of road. You may have to go to court with this excuse, however, so get a speeding solicitor / lawyer on your side to try and avoid the fine.
     
     

    A Faulty Camera

    Do you think the speed camera was inaccurate? If so, this is worth a shot – request a calibration certificate of the one which caught you out. If the local authority cannot prove that it was properly maintained and was in good working order, your fine should be rescinded.

    How about you all? Have you ever been issued/sent a speeding ticket or other traffic violation from one of these automatic traffic cameras?

    If so, did you think about trying to appeal the decision?

     Share your experiences by commenting below!

    Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

    • Personally, I have never been issued a speeding or other traffic violation/fine from one of these un-manned traffic cameras, although I have heard about people that have been caught by one. In those cases, I don’t believe they ever really thought to appeal the decision.

    ***Photo courtesy of http://www.flickr.com/photos/wwworks/4426610518/sizes/l/in/photostream/

    Teach Your Kids about Money with Dave Ramsey’s Financial Peace University Junior

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    Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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    Dave Ramsey, children and money, cost of raising a child, education, personal finance education, kids and money

    Click here to enter my free $50.53 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is April 30th, 2013.

    The following post is by MPFJ staff writer, Melissa Batai. Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans, where she shares her family’s journey to healthier living and paying down debt.

    Dave Ramsey’s advice can be black and white.  In general, most listeners know what he will say when he answers a question.  

    Want to go back to school but don’t have the cash to pay for it?  He’ll advocate saving before going back to school or working full-time while in school so you don’t have to take out loans (or sometimes skipping college altogether).  

    Paying down debt but your wife is expecting or you’re potentially facing job loss?  Time to stock pile cash.

    Because his advice is black and white with often little consideration for personal circumstances, most people love him with a-passion. . .or hate him, also with a-passion.

    However you feel about him, though, his straight forward approach to money also means that he is an excellent financial teacher for children who often see things in black and white.

    Dave Ramsey’s Financial Peace Junior (FPU Jr.) is an excellent kit to teach your kids about money.


    About FPU Jr.

    This kit is advertised for kids 3 to 12 years of age, but I think it’s more suitable for kids ages 5 to 10 years old.  My son is 8, and he really enjoyed it.  My daughters are 4 and 2, and the youngest could care less. The 4 year old was interested but didn’t grasp many of the lessons.

    The kit includes:

    1.  Quick start guide to get you started
    2.  Parent guide to help you teach your kids step by step
    3.  Junior’s Activity Book with age appropriate activities and lessons
    4.  Give, Save and Spend envelopes
    5.  Calculator
    6.  Wet-erase chore chart with savings goal section
    7.  Wet-erase marker
    8.  Four crayons
    9.  Stickers
    10.  Preprinted chore labels
    11.  Battle of the Chores audio book
    12.  Link to an exclusive website with bonus materials
    13.  Five refrigerator magnets and a magnet frame

    How Are the Lessons Delivered?

    Kids listen to Junior’s Adventures CD audio set to hear the lessons.  In each of the 6 lessons, Junior learns a financial lesson.  For instance, when he goes to the carnival in lesson 2, he quickly spends all of his money and has no money to spend for the rest of the day.  However, one of his friends budgets out her money and gets to enjoy the entire day at the fair.

    After listening to the audio lesson, there are review questions, and kids can discuss the lesson with their parents.

    Junior’s Activity Book includes lessons about working, giving, saving, and spending.  There are also fun money related activities like mazes and word searches.  Children are encouraged to work with their parents to make a chore list and settle on how much each chore is worth.  The kit comes with a chore chart that kids can fill out.


    What Could Be Improved

    While my son loved the kit and routinely asked to spend time listening, I thought the kit could offer videos instead of just audio lessons.  For smaller kids, just listening instead of watching AND listening can be more than they are capable of. 


    Is This Kit Right for Your Kids?

    If you’re looking for a way to teach your kids how to be responsible with money, I highly recommend the Dave Ramsey’s Financial Peace Junior kit.  My son learned about budgeting his money, and I saw his newfound skills in action when we went on vacation, and he budgeted how much he could spend at each location we visited.

    If you have kids ages 5 to 10, this is an excellent way to teach them money skills.  The younger you can do so, the better.

    The kit is available on Dave Ramsey’s website or Amazon for around $20, which is a good investment considering this kit is a great first step toward teaching your kids about money.

    How about you all? What techniques and/or tools have you used to teach your children about money? 

    What are your thoughts in general about Dave Ramsey’s advice? Do you mostly agree or disagree with his messages? 

    Share your experiences by commenting below!

    ***Photo courtesy of Amazon.com

    How to Save Money on a Personal Injury Claim

    The following is a guest post. Enjoy!

    Would you believe that more than three million people suffer a personal injury every year? If this type of thing has happened to you, you truly aren’t the only one! In many cases, someone else is negligent, and you may have the right to claim compensation for your grievances.
    Don’t try to tackle personal injury law alone. Specialist professionals (often termed solicitors) will make your claim a straight-forward process and increase your chances of success. Many law firms will offer a free consultation so you don’t end up in court without a fighting chance.
     

    Choosing Your Solicitor

    There are many options available to you when looking for a lawyer. The most cost-effective is a ‘no win, no fee’ solicitor who has plenty of experience in your type of personal injury. 
     

    What Information Will Your Solicitor Need?

    To present a case strongly, you will need to give your solicitor as much evidence and detail about the accident as possible. He or she will need to know when the incident occurred and what happened on the day. Often, it’s beneficial to note down the events in a journal, while the accident is fresh in your mind. If there were any witnesses, your solicitor will need their contact details.  
    Hopefully, you visited a doctor about your personal injury, as your lawyer will require details about the physical and mental damage caused – include the medical diagnosis, as well as any treatment you were given. If you’re a member of a trade union, you may be able to secure free legal representation, saving you money.
    Record any loss of earnings you’ve incurred after the accident and include any other injury-related costs. Present all your insurance documents to your solicitor along with any other documents that can be used as evidence in the case.
     

    What Your Solicitor Can Do

    Now, your lawyer can tell you how likely your case is to succeed in court. Although it’s tricky to estimate compensation figures, your solicitor can give you a rough idea of what to expect.
    So you’re not kept in the dark, your lawyer will explain to you the legal process (if you choose to escalate your claim) and will discuss monetary matters. Ask your solicitor to draw up a summary of your meeting so you can leave with a clear document, detailing the points of discussion.
     

    Making Your Claim

    Your solicitor will now take over the reins. The defendant will receive a letter detailing why you have made a claim against them. You may be asked to undergo an independent medical examination. Accept this, as it only serves to strengthen your case.
    If the defendant accepts liability, they may offer you compensation right off the bat, and the process will be over before you know it with very little cost to yourself. If they deny any responsibility for your injury, you may wish to settle the matter in court. Personal injury compensation claims can be expensive for both parties, so you may find that the defendant would prefer to settle the matter without a presiding judge.
    It is to your advantage to consult your solicitor at every turn. Approaching your claim cautiously and wisely is the best way to save yourself money.

    How about you all? Have you ever filed a personal injury claim against someone else (or had one filed against you)? 

     If so, how did the process go? Did you end up having to take the case to court? 

     Share your experiences by commenting below!

    Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

    • Fortunately, I have never had to file any personal injury claims against anyone else (nor have I had one filed against me).
    • The closest I suppose I ever got was when I was in car accident at age 16. It wasn’t too bad of a wreck at all (just with minor damage to both cars), but the person that hit me claimed that it was all my fault. In the end, we had to take the case to court, and both of us were deemed 1/2 at fault. It sure was annoying to go through the process though!

    ***Photo courtesy of http://www.flickr.com/photos/armymedicine/6937977092/sizes/o/in/photostream/

    Which Short-Term Bond Mutual Fund Should You Use For Your Fixed Income Asset Allocation in Taxable and Tax-Sheltered Accounts?

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    As I discussed in a post last week where I analyzed intermediate- and long- vs. short-term bonds, I determined that the stability that short-term bond offered made them better suited for my personal investment needs. This was my conclusion in spite of the significant finding that intermediate-term bonds are in fact more efficient in terms of the risk-adjusted return provided.

    Having determined that short-term bond funds are best suited for my needs, the question then becomes, “What is the best specific type of short-term bond fund for my needs?”

     Seeking out an answer to this question will be the topic of today’s post. Let’s get started!

    What Short-Term Bond Mutual Fund Options are Available?

    Since my experience has shown that no one is able to consistently beat Vanguard when it comes to low-cost investing, I will focus my screening to the funds that Vanguard offers.

    A quick search through the Vanguard database reveals the following short-term maturity bond mutual funds on offer (all credit qualities shown):

    Since the purpose of my fixed income asset allocation is STABILITY, I am not interested in holding anything but the highest credit quality bonds. This restriction removes the Short-Term Investment Grade fund from the list of eligible options, leaving the 5 options shown below:

    A Look Inside the Short-Term Bond Fund Options

    In my experience, a highly valuable, yet often overlooked type of analysis is to simply read IN DETAIL about what a mutual fund actually holds. It’s so simple because this information is freely available from the fund provider’s website and/or fund prospectus, yet often, I’ve found investors (I am even guilty of this I admit) don’t take the time to really understand a mutual fund before investing in it.

    As such, listed below is a look inside each of the short-term bond fund options:

    • Limited-Term Tax-Exempt, Ticker Symbol VMLTX
      • Invests in short-term, high-credit quality (AA and AAA) municipal bonds with a maturity around 2+ years.
        • 90% municipal bonds
        • 8% cash
      • Average bond holdings maturity = 2.6 years. 
    • Short-Term Tax-Exempt, Ticker Symbol VWSTX
      • Invests in very short-term, high-credit quality (AA and AAA) municipal bonds with a maturity between 1-2 years.
        • 85% municipal bonds
        • 15% cash
      • Average bond holdings maturity = 1.3 years. 
    • Short-Term Bond Index, Ticker Symbol VBISX
      • Passively managed index fund that holds representative bonds in such a way that it tracks the Barclays US 1-5 year government/corporate bond index (short-term investment grade US bond market).
      • Average bond holdings maturity = 2.8 years. 
      • Invests in short-maturity U.S. Treasury, agency, and investment-grade corporate securities. Listed below are the major category percentages.
        • 62% Treasury
        • 8% US agency
        • 21% corporate bonds
        • 2% cash
        • 0.2% mortgage backed securities
        • 7% other government securities
    • Short-Term Federal, Ticker Symbol VSGBX
      • Fund that holds short-term bonds issued either directly by the government in the form of Treasury bills or by federal agencies. Listed below are the major category percentages.
        • 7.5% Treasury
        • 72% US agency
        • 10% mortgage backed securities
        • 11% cash
      • Average bond holdings maturity = 2.3 years.
    • Short-Term Treasury, Ticker Symbol VFISX
      • Fund that invests in almost exclusively (99.99%) short-term maturity Treasury Bills issued by the US government.
      • Average bond holdings maturity = 2.3 years. 
      • Has essentially zero credit risk since T-Bills are backed by full faith and credit of the US government.

    Just by reading through this information, there are a couple potential red flags (highlighted in red text above) in the structure of the Short-Term Federal and Short-Term Tax Exempt Funds that could make these unattractive to me.

    • With the Short-Term Tax Exempt Fund: 
      • The average maturity is only 1.3 years, which is a little shorter than I would like for someone with a long term investing focus like I have. 
      • In addition, the fund holds a fairly large position in cash (15%). This often can be a sign that the fund has to keep a lot of cash on hand to handle redemptions of investors pulling their money out. 
    • With the Short-Term Federal Fund:
      • The most significant issue, in my opinion, is the lack of exposure to US Treasury securities (only 7.5%). 
      • Instead, the fund is overweighted in US agency and mortgage-backed securities, which can cause an unnecessary increase in exposure to risk. 

    What Do the Experts Say About the Type of Short-Term Bonds to Use?

    Before I jump in to a long-winded investigation/discussion of my own, I generally like to share any relevant advice from people that are much more qualified than myself. Listed below is what I could find in the literature about which short-term bond fund(s) are recommended for the fixed income portion of an investor’s portfolio:
    • Larry Swedroe (probably my favorite investing author I have found to date)
      • In his newer 2010 book, The Only Guide You’ll Ever Need for the Right Financial Plan, Larry discusses how mortgage-backed securities should be avoided because they have asymmetric price risk because the mortgage (the collateral for the security) borrower has the right to prepay the mortgage at any time. 
      • Intriguingly, in Larry’s very good 2001 book, What Wall-Street Doesn’t Want You to Know, he states an investor should hold bonds 2-3 year maturity. Although he mentions that bond funds are technically not as efficient as holding the bonds directly, he does include the Vanguard Short-Term Bond Index Fund as a choice in one of his sample portfolios.
    • William Bernstein (my 2nd favorite investing author I have found to date)
      • In his 2002 book, The Four Pillars of Investing, Bernstein (like Swedroe) is not a big fan of holding a single short-term bond index fund for your fixed income asset allocation since purchasing US Treasury securities is technically more efficient. Instead, he recommends purchasing whatever US T-Bills you need directly from the Treasury, then investing the rest in the Vanguard Short-Term Corporate/Investment Grade, Vanguard TIPS, and Vanguard Limited-Term Tax Exempt Bond Funds. In general, he seems to recommend a fairly even split between the 4 main fixed income components. However, he does mention that there seems to be a good bit of flexibility here based on person preference.
      • This same line of thinking is echoed in Bernstein’s 2001 book, The Intelligent Asset Allocator as well.

    Short-Term Bond Fund Options as a 1-Component Portfolio

    Having taken a look at the advice given in the literature about which type of short-term bonds to hold in one’s fixed income allocation, I then wanted to do some of my own analysis and number crunching to see how things looked for myself over a time scale I could control.

    To do this, I went to Yahoo Finance (the site where I always get my historical pricing data) and downloaded the historical price information for the five Vanguard bond mutual funds investigated above.

    Whenever I do these types of back-test analyses, I generally like to pick the longest time period I can get access to. In this case, the historical pricing data only went by 16.75 years, to 1996. Therefore, the time period I chose for the analysis was 1996-2013 (present).

    First, I wanted to analyze the pure fluctuations/growth of the individual mutual funds (1-component portfolios) over the time period. To do this, I simulated the growth of a $10,000 initial investment in 1996 in each of these funds.

    The graph below shows the overall results, where the dark blue line = Vanguard Short-Term Treasury Fund, the red line = Vanguard Short-Term Bond Index Fund, the green line = Vanguard Short-Term Federal Fund, the purple line = Vanguard Short-Term Tax Exempt Fund, and the light blue line = Vanguard Limited-Term Tax Exempt Fund.



    Just by inspecting the graph above, there are a couple interesting observations that can be seen:

    • As expected, the tax-exempt municipal bond funds featured a lower return over the ~17 year holding period, since the returns are tax-free.
    • It is interesting to note that the performance of the Short-Term Treasury, Bond Index, and Federal Funds only really started to diverge in the past 5 years or so since the market downturn in 2008-2009. 
    The table below shows the corresponding return data for these 1-component portfolios over the 17 year holding period.
    For me, the most striking finding of the table above is the performance of the Short-Term Bond Index Fund in comparison to the other 3 nominal bond funds. The Short-Term Bond Index Fund features a higher total return and average annual return than the Short-Term Treasury/Federal Funds, but features a lower risk/volatility/standard deviation! Furthermore, the lowest month-to-month return during the holding period was only -2.46%, a figure quite close to the Short-Term Treasury Fund minimum return of -2.11%.
    Conclusion from 1-Component Portfolios – In looking at the 1-component portfolio data alone, it would seem to indicate that the Short-Term Bond Index Fund would be my best option.

    Short-Term Bond Fund Options in a 2-Component Portfolio

    While examining the “personality” of an asset class in the isolation of a 1-component portfolio is interesting, an even more important thing to look at is how the fund will perform when mixed in as part of an investor’s real life asset allocation.

    To investigate this activity, I simulated the growth of the same $10,000 initial investment from 1996-2013 (present) using a 70% Vanguard S&P500 Index Fund equity allocation and 30% fixed income allocation utilizing either of the 5 Vanguard Short-Term Bond Funds mentioned above.

    The growth of the $10,000 initial investment in the various 70/30 2-component equity/fixed income portfolios can be seen in the graph below, where the dark blue line = using the Vanguard Short-Term Treasury Fund, the red line = using the Vanguard Short-Term Bond Index Fund, the green line = using the Vanguard Short-Term Federal Fund, the purple line = using the Vanguard Short-Term Tax Exempt Fund, and the light blue line = using the Vanguard Limited-Term Tax Exempt Fund. For reference, I have also included the growth that would have occurred if the Vanguard S&P500 Index Fund was used by itself (100% equity, no fixed income – orange line).

    Although this graph is somewhat “pretty” to look at, I’m afraid it doesn’t tell us all that much, with the exception that incorporating the Vanguard Short-Term Treasury, Bond Index, and Federal Fund essentially results in the same performance over the time period utilizing a 70/30% equity/fixed income asset allocation.

    In this case, I think that looking at the return data during this 17 year time period provides a much more interesting perspective (shown in table below).

    Indeed, when we inspect the data in the table above, we see that there is really not that much of a difference between utilizing the three nominal (non tax-exempt) Vanguard bond funds for the fixed income portion of your portfolio. Essentially, this tells us that any of these choices would be fine, and that it is just up to personal preference.

    As expected from the 1-component analysis previously, utilizing the Short-Term Bond Index in a 70/30 asset allocation portfolio yields on marginally higher average annual return, but in fact gives the same overall return as using the Short-Term Federal Fund.

    It is also quite interesting to see that incorporating the Short-Term Federal Fund yields 1.3% decrease in risk/standard deviation, but only at the cost of a 0.26% decrease in average annual return. What this indicates is that the Short-Term Federal Fund is slightly less correlated with the returns of the S&P500 than the Short-Term Bond Index Fund. This possibly could stem from the fact that the Short Term Bond Index Fund holds 20% corporate bonds, which would likely be more highly correlated with the performance of corporate equity (i.e. the S&P500).

     Conclusion from 2-Component Portfolios – From the 2-component portfolio analysis above, we see that there is not a HUGE difference between utilizing any of the three nominal Vanguard bond funds for your fixed income allocation (decision would likely come down to personal preference). However, it was found that the most efficient tool at providing the highest risk-adjusted return was the Short-Term Federal Fund. 

    Note: If you want to view all of the details of the calculations I used for the 1 and 2 component portfolio back tests, click here to download a copy of the Google Docs Spreadsheet.

    Which Short-Term Bond Fund is Best for Taxable Accounts, Specifically?

    Thus far, I have somewhat ignored the use of tax-exempt bond funds because of their lower pre-tax returns compared to the 3 nominal bond funds. Indeed, for investors that are focusing on their tax-sheltered accounts, there is no reason to invest in tax-exempt bond funds. 

     However, the decision is not so simple for investors that are placing money in their after-tax accounts since you need to take in to consideration your current tax bracket.

    • The general advice given by books such as The Only Guide You’ll Ever Need for the Right Financial Plan is that it is better to hold tax-exempt over nominal bonds in taxable accounts for all investors that are not in the lowest (15% tax bracket). 

    While this is a good rule of thumb, let’s see how it stacks up with our numbers from the 1-component portfolio analysis above:

    • To do this, we’ll compare the average annual returns of the Short-Term Bond Index (nominal – subject to federal and state income taxes) and Limited-Term Tax Exempt Funds (exempt from federal but not state income taxes). 
      • The Limited-Term Tax Exempt Fund was chosen as the tax-exempt bond fund of choice since it is more efficient in a 2-component portfolio setting than the Short-Term Tax Exempt Fund. 
    • For the sake of simplicity, we will assume a constant 7% state income tax rate.
    • Short-Term Bond Index Fund:
      • Average pre-tax annual return = 4.96%.
      • – Minus 7% state income tax = 4.61%.
      • – Minus 15% federal income tax (my current tax bracket) = 3.92%.
        • For comparison reasons, if your federal tax bracket had been higher at 25%, the federal + state income tax adjusted return would = 3.46%.
    • Limited-Term Bond Index Fund:
      • Average pre-tax annual return = 3.78%.
      • – Minus 7% state income tax = 3.52%.

    As we can clearly see here, the general rule of thumb mentioned above was indeed correct. Taxable fixed income money should be invested in the Limited-Term Tax Exempt (Municipal) Bond Fund unless an investor (like I am) is in the lowest, 15% tax bracket.

    For investors like me with low income, I am better off investing in nominal bond funds in my taxable account (at least for the time being until my income goes up after graduate school).

    CONCLUSIONS, MY CURRENT Short-Term FIXED INCOME ALLOCATION, AND PATH FORWARD

    So, after going through all of this investigation comparing 5 short-term bond options, what’s the overall verdict? Well, I think it can be summed up in a couple lines:

    • Although the three nominal Vanguard Short-Term Bond Fund options are very similar in performance in a real life asset allocation setting, the Short-Term Bond Index Fund will likely provide a slightly higher long-term return (in addition to slightly higher risk) in a tax-sheltered environment, in accordance with the risk/return trade off principle. 
      • However, due to the similarities between the Short-Term Bond Index, Federal, and Treasury Funds, it really just comes down to investor preference about which one is best to hold.
    • In taxable accounts, unless you are in the lowest tax bracket (15%), you should hold the Limited-Term Tax Exempt Bond Fund.
    In the interest of putting a personal application to this topic, I wanted to share how this investigation applies to me. I currently use a 70/30 fixed income asset allocation split in my portfolio. Of the 30% fixed income total, 5% of the total portfolio is in the Vanguard TIPS Fund, 10% in cash, and 15% in the Vanguard Short-Term Bond Index Fund. 
    Path Forward – For me personally, since I am currently in the 15% tax bracket, it is better to hold nominal bonds vs. tax-exempt ones even in taxable accounts. So, no change is needed in that regard. 
    Regarding the decision about which nominal bond fund to hold, I would first toss out the Short-Term Federal Fund option because 1) I am not a big fan of mortgage-backed securities, and 2) I prefer to have a large weighting of my fixed income investments in US Treasuries. 
    This would leave me to decide between the Short-Term Bond Index and Treasury Fund. While either option would be acceptable, I will opt to stay with the Short-Term Bond Index Fund because 1) it has a nice weighting in US Treasuries, 2) gives me some exposure to the corporate bond market (hopefully allowing for some additional risk/return), 3) has minimal exposure to mortgage backed securities, and 4) is passively managed (which is generally a good thing in my book because it minimizes management risk).

    How about you all? Do you prefer to invest in US Treasury, US Agency, mortgage-backed, or corporate fixed income securities?

     Do you utilize tax-exempt bonds in your taxable account fixed income allocation?

     Share your experiences by commenting below!

    Guide to Student Loans That Everyone Should Know

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    Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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    The following is a guest post by Kevin Watts, the creator of the blog, Graduating from Debt. Enjoy!

    I was like millions of recent college graduates in heavy debt with very little hope. With the right attitude and discipline, I took control of my financial picture, and now I can say proudly that I am debt free. 

    Here below are some practical tips that helped me pay off my student loans:

     If you have just graduated from college, or you are in the process of repaying student loans, then these practical tips can help you maintain your loan debts under control. By being aware of your financial obligations, you will avoid incurring massive interest costs and extra fees for late payments. Moreover, it will be easier for you to keep all debt payments affordable while securing a good credit rating.

     Forget about stressing out on your loan payments, and check out these 5 relevant tips that will help you manage your debts while ensuring your financial stability:

    1. Keep track of your loans.

    It is important to be completely aware of your lenders, loan balance, and current repayment status for your loans. These relevant pieces of information will give you an idea about your existing options when it comes to loan forgiveness and repayment. If you are uncertain about these details, then the best thing to do is to inquire from your lender.

    By doing so, you will learn more about the status of your federal loans. Additionally, you may want to review your most current billing statement, as well as the original documents that you have signed. In case you are unable to locate these documents, you may consult your school for a backup of these records.

    2. Determine your loan’s grace period.

    You should understand that each loan has its own grace period, which pertains to the waiting time before you can make your initial payment. For Stafford federal loans, the grace period is typically six months, while it is zero months for Perkins federal loans. If you have an existing PLUS loan (federal), then the grace period depends on the date when the loan was issued.

    Regardless of the grace period for your student loans, make it a point to pay on time to avoid late charges. Moreover, you should never fail to inform your lender when you have changed your mailing address or contact details since all mails about your loans may be sent to an incorrect address, and this can cause you a huge problem. In fact, ignoring all bills can lead to a default, which can lead to severe and long-term consequences on your financial situation.

    3. Choose your preferred loan repayment option.

    When you have a federal loan that is already due, the payment will be based on the 10-year standard loan repayment scheme. For some people, the standard plan is barely reasonable, so they consider other repayment options that will be more practical for them. Furthermore, you may want to change the plan entirely when necessary.

    While extending the repayment period to up to 10 years may result to more affordable monthly fees, you are likely to pay more interest costs throughout the duration of your loan. Hence, you may choose another option, such as an income-based plan, that will cap the monthly payments at a percentage of your annual income. This repayment program will also forgive any debts that are remaining after the 25 years of loan payments.

    However, loan forgiveness may only be available when you have incurred at least 10 years of loan payments, as long as you are employed in a non-profit or public sector. It is also worth mentioning that private loans for students do not qualify for other deferments, forgiveness, forbearance programs, and payment plans available for federal loans.

    Nevertheless, private lenders may offer their clients a type of forbearance that comes with a fee. With this in mind, it is best to inquire from your lender, so you can learn more about your repayment options.

    4. Reduce your principal.

    If you decide to make a payment for your federal student loan, the amount covers any incurred late fees, interest costs, and the principal. When you have the means of paying more than the required monthly fee, you can massively reduce your principal while minimizing the interest costs of your loan.

    You may prepare a written request or notification to your lender, so you can make sure that the additional amount is applied immediately to your loan principal.Then, keep all paperwork for your records, and review them to ensure that the overpayment has reflected on your account.

    5. Pay off all loans that have the highest amount.

    In case you wish to pay off your loans before the due date, then you should consider settling the fees for the one with the most expensive interest rate. You should also begin paying off your private loans followed by your federal loans, since the former have higher rates and do not come with a flexible repayment scheme.

     With these practical tips, you can keep your debts in control while making sure that no loan remains unpaid during the designated repayment schedule.

    How about you all? What about student loans do you wish that you knew back when you were a student that you have learned “the hard way?”

    Did you take advantage of any of the tips mentioned above in this post during your student loan payoff?

     Share your experiences by commenting below!

    ***Photo courtesy of http://upload.wikimedia.org/wikipedia/commons/4/43/Cambrian_Student.jpg

    Getting Out Of Debt – Debt Consolidation vs Debt Management – Which is Better?

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    The following is a guest post by Jon Emge. Enjoy!
     
    When people are struggling with their debts, they can get bombarded with different solutions from different people and companies all with the same goal in mind, paying off the accounts and getting out of debt.  But, choosing the best option is an individual thing, and what works for one person may not work for another.
    While there are numerous ways to pay off your debts (and not pay them off such as in bankruptcy), two of the most popular ways of dealing with debt and getting out of debt are debt consolidation and debt management.

    Debt consolidation is really not getting out of debt, just transforming the debt from one form to another.

    In essence, debt consolidation is taking out a new loan to pay off the other loan(s) or credit cards you may have balances on.  You are still in debt, and still to the same level or amount, but by just having one (1) monthly payment for many people, it is easier to manage; and in most instances, that monthly payment is less then the sum of all the accounts included in the consolidation loan. 
    The reason why the monthly payment is less can be due to a lower interest rate, as credit cards have a high rate of interest, and also due to the term or time period of the payments.  The longer the repayment term, such as 48 months or 60 months, the lower the monthly payment.

     

    What are the downsides or negatives of a consolidation loan? 

    It may be difficult to qualify for the consolidation loan.  If you have a lot of debt, your credit score may not be in the highest range which means you may not be granted the consolidation loan.
    You are still in debt; you have just transformed the debt from many accounts to one single account.
    Unless you have stemmed the tide or reason why you have the credit card debt or accounts in the first place, just consolidating them doesn’t change the fact you could end up using the cards or credit lines again and finding yourself in more of a financial pickle barrel.
    If you happen to consolidate your debts with a home equity or HELOC loan or some other form of secured loan, then you enter into a different realm of debt.  You may have consolidated your unsecured loans and unsecured credit cards, but they are now secured debt, secured by your home.  Should you struggle to meet these repayments, your property and home could be at risk.

     

    So what about debt management? 

    There are many forms of debt management, some you can do on your own or DIY (do it yourself), and some with the help of professional advisors and outside organizations.
    Which type of debt management is best for you can depend on the level of your debt and if you are past due or in arrears with the accounts. If you are in arrears and seriously struggling, then seeking professional help may be the best course of action. The other end of that situation is you can meet the monthly repayments, but want to be done with the debt(s), just wanting out of debt.
    The first step is to stop debting!  Stop using the credit cards or lines of credit.
    Review or set-up a new household spending plan and see what money you have each month to work with that you can use to pay towards the debts/accounts.  Then, obviously paying that amount to the accounts choosing an account to concentrate on to pay it off at a quicker rate then just paying the minimum monthly payment.
    Think of your debts as a snow covered hill, and the money you pay as a snowball rolling down that hill. You pay a set amount each month towards the debts, then once one account is paid in full, you continue to pay that set amount using the extra form the paid off account towards another account.  Then as that account is paid off, you continue paying that set amount towards the remaining debts.
    Just like a snowball rolling down a hill that picks up speed and more snow, so well that set monthly payment and the accounts as they get paid in full.

     

    So which account should you concentrate on the pay off first?

    There are a variety of thoughts on this.  One being to choose the account with the highest interest rate, or to choose the account with the lowest rate as more of your extra payment will go to the principal balance.
    My advice has been just choose one.  It may even be the account with the lowest balance as then you can achieve some level of success early on which can lift your spirits and drive you onward.

    How about you all? What strategies have you used to pay off debt? Did you try debt consolidation or debt management programs, or did you simply bite the bullet and buckle down to pay off the debt?

    Share your experiences by commenting below!

    Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

    • In my experience, I have found that people looking to more aggressively pay off their debt often view debt management or debt consolidation programs as some “magic” cure or solution that will make it completely easier to get out of debt.
    • The truth is that if you can fix your spending behavior and can have some success getting your interest rates reduced, you can accomplish many of the things that these programs offer without the cost.
    • However, these solutions are always good to think about as a fall-back.

    ***Photo courtesy of http://upload.wikimedia.org/wikipedia/commons/1/1e/Women_in_Economic_Decision-making_Christine_Lagarde_(8414041294).jpg

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