Creating Your Own Three Legged Stool for Retirement – How Much of Your Investments Should be in Tax-Deferred, Taxable, and Tax-Free Accounts?

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For the past few years since finishing college, I have been somewhat bad in regard that I have been aggressively, but blindly, saving for the future/retirement.

What I mean by this is that I have been so focused on the input of saving money for retirement that I forgot to consider how the output would be affected when I went to withdraw those funds.

However, the good news is that the past month, I have been doing a lot of analysis of my current investment allocation location, learning about the withdrawal treatment rules of the accounts in which my funds are in, as well as learning about new options available to me to improve location distribution of my assets.

Going along with this effort to learn more about optimized location distribution of my retirement investments, I recently read the book, The New Three-Legged Stool: A Tax-Efficient Approach to Retirement Planning, by CFP and retirement planning specialist, Rick Rodgers.

If this is the first time you are hearing about the NEW Three-Legged Stool for Retirement (the old Three-Legged Stool, which consisted of Social Security and Pensions is no longer relevant, so we’ll ignore that for now), it is a retirement planning concept that employs utilizing ALL three different types of investment accounts/locations (based on their tax treatment) shown below, in an effort to more efficiently prepare yourself financially for retirement:

• Leg # 1 -Tax-Deferred Accounts (IRA, SEP IRA, Traditional IRA, Rollover IRA, Traditional 401(k), Annuities)
• Leg # 2 – After Tax Accounts (taxable accounts – not tax-advantaged, including municipal bonds since income from that does increase your gross income, although that specific income is generally not taxed)
• Leg # 3 – Tax-Free Accounts (Roth IRA, Roth 401k, cash-value life insurance)

Rodgers introduces a concept called the R/D Factor as a way to take withdrawals from these different accounts during retirement in a tax-efficient manner. In a nutshell, he advises that an efficient way to fund your retirement is to:

• 1) Take income during retirement from your accounts in such a way that 1/2 of your total income each year is taxable, and the other 1/2 is non-taxable.
• 2) When you reach retirement, the ideal goal is to have money saved up equally in all three legs.

I really liked the idea behind this because in my experience, it’s always nice to have various options available to you when it comes to finances because you never know what the future will bring with tax law changes, etc.

However, one important question that was not expressly covered in the book is, “When you are saving for retirement, how much of your investments should be distributed in tax-free, after tax/taxable, and tax-deferred accounts, respectively?”

In searching around the Internet and reading through several of the investing strategy books I have accumulated the past few years, it seems that detailed guidance to this question is quite hard to find, although there was some good loose guidance on one Bogleheads thread I read based on other people’s asset distribution.

In an effort to seek out some sort of answer to this question, I emailed Rick Rodgers directly. Essentially, what he recommends for his clients varies on a person-to-person basis. However, the distribution decision is generally based on the person’s marginal tax bracket being at or above the 25% cutoff, or if it is lower. If you’re not sure about what the tax brackets look like based on taxable income levels (note this is different than gross income or Adjusted Gross Income), take a look at this really good page that Mike Piper over at Oblivious Investor put together – Tax Brackets 2013.

To give us a starting point, listed below are the base/lowest taxable incomes that would qualify someone to start having to pay 25% income taxes, split up based on filing status. If you can get your taxable income $1 below these amounts, you will be in the the 15% tax bracket, so a pretty nice decrease!

• Single – $36,251.
• Married filing jointly – $72,501
• Head of household – $48,601
• Married filing separately – $36,251

From here, let’s dig a little deeper to try to develop some real-life guidelines for how this rule of thumb would affect asset location distribution between the three “legs” discussed above:

Investment Distribution For People Who Are Already in the 15% or Lower Marginal Taxable Income Tax Bracket

The first possibility that we run in to in developing a set of working asset distribution guidelines is the case where someone is ABSOLUTELY certain that he or she will be in the 15% or lower marginal tax bracket.

To illustrate this situation with a few possible scenarios, this could be someone who files singly and only makes $35,000 per year in GROSS income, or if a young married couple was filing jointly and only one member of the family worked at a starting job out of college that earned $60,000 per year.

In this case, since you are in perhaps lowest tax bracket, you want to take advantage of the situation and pay taxes now instead of paying them during retirement. In Three-Legged Stool retirement language, you would want to emphasize tax-free and after-tax/taxable accounts.

To execute upon this strategy if I knew I was going to be in the 15% or lower tax bracket no matter what, I would take the following approach:

• Contribute to your 401k (preferably, a Roth 401k – be sure to ask your employer about this newer option!), but only enough to get the free money match offered by your employer. 
• Max out your tax-free Roth IRA each year.
• Invest an equivalent amount in after-tax/taxable accounts until you feel comfortable that you have enough to meet your pre-retirement needs.
• If you have a traditional 401k/IRA that you have been contributing to (perhaps too much even in the past), continue to look for opportunities (particularly when the stock market is low) to rollover your tax-deferred investments to a Roth 401k/IRA option that allows you to pay taxes on it now vs. in the future when you are at a higher tax bracket.
• Max out your Roth 401k. If your employer doesn’t offer a Roth 401k option, don’t invest further in your 401k. Invest in your taxable account instead.
• Continue investing in your taxable account.

On the opposite end of the spectrum from the group of folks discussed above, we need to develop some general guidelines for higher-income earners that, despite the introduction of any amount of deductions they can reasonable execute, cannot reduce their overall taxable income below the 25% tax bracket income limits.

In this case, since you are in a medium-to-high tax bracket, you want to take advantage of the situation by deferring the payment of taxes until later when you can give yourself a chance at being in a lower tax bracket. In Three-Legged Stool retirement language, you would want to max out tax-deferred accounts and only start contributing excess amounts to after-tax and tax-free accounts once your tax-deferral options have been satisfied.

To execute upon this strategy if I knew I was going to be in the 25% or higher tax bracket no matter what, I would take the following approach:

• Contribute to your traditional 401k up to the company matching level.
• Contribute to and max out your traditional (pre-tax) IRA.
• Invest an equivalent amount (as your annual IRA contribution) in after-tax/taxable accounts until you feel comfortable that you have enough to meet your pre-retirement needs.
• Specifically, I would investigate tax-advantaged non-retirement investments such as tax-exempt municipal bond funds.
• Continue funding and max out your traditional 401k.
• Continue investing your tax-free and taxable account options
• Possibly considering funding an annuity to further shelter short term earnings.
• Consider funding a Roth IRA in some years, or if you don’t qualify for a Roth IRA due to income restrictions, consider a backdoor Roth IRA conversion.

In between the two groups discussed above of higher income earners (definitely in the 25% tax bracket or above) and earners in the 10-15% tax bracket, we have a fascinating group that is sort of “on a fiscal fence.” What makes them special is that they are looking at a significant decrease in taxes if they can get to their taxable income decreased slightly (through tax deductions) to the realm of the 15% tax bracket.

In terms of the investment accounts we’re discussing here, I will estimate that being “within reach” of the 15% tax bracket is having a currently-estimated taxable income of $5,000-$10,000 more than the income limits described above for the break between tax brackets (so $36,251 + $5-10k for single filers and $72,501 + $5-10k for joint filers). 

In this case, since you are within striking distance of entering the lowest tax bracket, you want to take advantage of the situation reduce your taxable income so you qualify for the lower tax level! In Three-Legged Stool retirement language, you would want to first emphasize tax-deferred accounts until you enter the 15% tax bracket, then switch to focusing solely on tax-free and after-tax/taxable accounts for the rest of the year.

To execute upon this strategy if I knew I was within reach of the 15% tax bracket, I would take the following approach:

• Contribute my pre-tax 401k (NOT a Roth 401k) enough to get the free money match offered by your employer. 
• Continue contributing to a pre-tax 401k or traditional IRA until you have reduced your taxable income to qualify you for the 15% income tax bracket.
• Now that you’re paying very little in taxes, max out your tax-free Roth IRA each year.
• Invest an equivalent amount in after-tax/taxable accounts until you feel comfortable that you have enough to meet your pre-retirement needs.
• Max out your Roth 401k. If your employer doesn’t offer a Roth 401k option, don’t invest further in your 401k. Invest in your taxable account instead.
• Do not focus on rolling over your tax-deferred investments to a Roth 401k/IRA option that allows you to pay taxes on it now vs. in the future since this would increase your taxable income and push you back up in to the 25% tax bracket you just tried so hard to leave!!!
• Continue investing in your taxable account. 

There are No Set Distributions Percentage Guidelines Prior to Retirement

Don’t Forget the End Goal – At Retirement, Have a Balance Among All Three “Legs”

In an ideal world, investors would naturally pass through the different tax bracket stages discussed above as they progress in their career.

For example, a 22 year old that has just graduated from college and beginning their career will likely have a lower income. Thus, this person would focus their investing during their 20’s in tax-free Roth and after-tax accounts. Then, when they are older and their income has gone up, they will scale back their tax-free investing to focus on building their tax-deferred base, throwing their remaining savings in to taxable accounts. The goal of this flow is to allow the tax-free/taxable accounts to compound longer to give them a chance to naturally be on par with the tax-deferred asset base. In this way, you naturally achieve the target 1/3 / 1/3 / 1/3 split of your assets among the three account types by the time you hit retirement.

This is how the Three-Legged Stool approach would work in an ideal world.

However, in the real world, I don’t think it often happens that way. People make mistakes, perhaps investing too heavily in tax-deferred accounts (or not saving/investing any money at all because funds are tight and they are not wise with finances yet) in their early, low income days. Before you know it, you have been working for 10 years and are making over $100,000 per year. What happens then? Do you just forget about having any tax-free income during retirement because you missed your window at a lower tax bracket when you are younger to focus solely on tax-deferred investing?

Because mistakes are a part of life, there is likely to be a very unbalanced Three-Legged Stool if you aren’t proactive in monitoring your asset distribution levels. 

• To prevent this imbalance at retirement age, a prudent course of action (that I will likely take – read more about my personal path forward below) is to calculate your % distribution in tax-free, taxable, and tax-deferred accounts each time you assess your portfolio’s asset allocation levels for potential rebalancing.
• I’d also recommend adding a line item indicating your current marginal tax bracket to whatever mechanism you decide to use for tracking your % distribution. This will help direct the flow of new money that becomes available for you to save. 

Since there are no set % guidelines for what your specific distribution should look like prior to retirement, you will have to use some person discretion here. However, I honestly believe that people are intelligent, and simply by actively calculating your distribution each year or month, you will be able to gauge whether corrective actions need to be taken so that you gain a more ideal distribution for retirement.

To illustrate how this tracking/corrective action process would potentially work, let’s consider a fictional 40 year old man named Bob. In the early part of his career, Bob was not very fiscally responsible with saving money in a Roth IRA and/or taxable accounts to take advantage of his low tax bracket.

He now makes $150,000 per year, putting him above the 15% tax bracket. In calculating his investment distribution among the three Legs, he sees that he has the following breakdown of assets: 5% in tax-free accounts, 40% in after-tax accounts, and 55% in tax-deferred accounts. From the investment distribution rules set forth above for people above the 15% tax bracket, Bob should technically be focusing his current investing in tax-deferred accounts. However, since he has such an imbalance in that his tax-free accounts are so low compared to the others, he would want to sacrifice some current tax savings to execute a backdoor Roth IRA conversion contribution in order for him to have some tax-free income to tap during retirement.

Overall, just be sure to remember that you should be getting closer and closer to achieving a 1/3 balance between all three legs as you get within say 3-5 years or so of retirement age!

Don’t Sacrifice Access to Savings Before Retirement!

As I mentioned above and previous posts, regardless of if you’re in a high or low current tax bracket, you don’t want to go too crazy contributing to retirement accounts (where the money is locked up until you reach 59.5 years old) unless you feel comfortable you have enough money saved up in after-tax accounts first. This would be money that could be accessible if an emergency, planned expense, or other opportunity came up in the future.

In short, don’t underestimate the power of having accessible money when putting together your Three-Legged Stool.

My Personal Three-Legged Stool Distribution Percentages and Path Forward

Truthfully, I was quite surprised when I calculated these percentages since even though there is some imbalance, I have pretty good representation in all three Legs. However, as I suspected/mentioned in my post about blindly saving for retirement, it does appear that the tax-deferred (401k/rollover IRA) bucket is the largest percentage of the three.

Nevertheless, it is clear in looking at these percentages that I have some room to improve in building up the tax-free account while I am in graduate school and WELL inside the 15% tax bracket, as I shared in my 2012 taxes review post the other day where I calculated that I only paid 14.6% of my overall income total taxes last year.

In an attempt to figure out a path forward for me, let’s take a look at the action steps I listed out for folks in the 15% tax bracket above:

• Contribute to your 401k (preferably, a Roth 401k – be sure to ask your employer about this newer option!), but only enough to get the free money match offered by your employer. 
• Graduate students don’t get 401k’s, let alone employer matches, so we can scratch this off the list! 
• Max out your tax-free Roth IRA each year.
• I am well on the way to doing this. I should have this maxed out by the end of April 2013, so we can put a check mark next to this one! 
• Invest an equivalent amount in after-tax/taxable accounts until you feel comfortable that you have enough to meet your pre-retirement needs.
• Even though I have enough readily accessible, liquid money saved for my forecasted cash needs for the next 1-2 years, something tells me that it would be beneficial to build this up further to meet un-expected needs, such as a house downpayment, buying a car, etc.
• This additional savings would be a little further down the road than the extremely liquid funds I need to for example, pay my estimated taxes each year. However, I just need it to be available in the regard that it is not in a retirement account that is penalized for accessing if needed.
• Because of these considerations, I believe my path forward will be to start committing my saved money to my taxable/after-tax Vanguard mutual fund account (specifically, in a short-term bond index fund for liquidity) after I finish maxing out my Roth IRA for 2013. As far as an amount to save, I’ll be shooting for an equivalent amount as I invested in my Roth IRA for 2013, $5,500.
• If you have a traditional 401k/IRA that you have been contributing to (perhaps too much even in the past), continue to look for opportunities (particularly when the stock market is low) to rollover your tax-deferred investments to a Roth 401k/IRA option that allows you to pay taxes on it now vs. in the future when you are at a higher tax bracket.
• Since the market is rather high right now, I don’t think I will bother with doing a Roth conversion. 
• Max out your Roth 401k. If your employer doesn’t offer a Roth 401k option, don’t invest further in your 401k. Invest in your taxable account instead.
• In lieu of Roth conversions, if I have more money to save after my planned after-tax savings above, I will start contributing to my Individual Self-Employed Roth 401k that I have just now set up.
• Continue investing in your taxable account.
• N/a since I have a Roth 401k option. 

How about you all? Approximately what percentage of your investments are currently held in tax-free, after-tax, and tax-deferred accounts?

Do you think that you will be able to reach the 33% 3-way split target recommended by the time you reach retirement between the three Legs? 

Share your experiences by commenting below!

***Photo courtesy of http://upload.wikimedia.org/wikipedia/commons/0/09/Liberty_-_Stool_Thebes_-_1884.jpg

Keeping Your Sanity as the Housing Market Heats Up

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Do Your Due Diligence

Don’t Get Into a Bidding War

Consider Other Neighborhoods

 

Ugly Homes Need Love Too

Share your experiences by commenting below!

***Photo courtesy of http://www.sxc.hu/photo/1394960

Save Money On Your Next Car Purchase By Using Unconventional Methods

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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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Buying A Car Online

Buying A Car At Auction

Using Crowdfunding To Purchase A Car

Share your experiences by commenting below!

***Photo courtesy of https://commons.wikimedia.org/wiki/File:06-08_Chevrolet_Impala_SS.jpg

Surviving Your First Mortgage Application

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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 Magnitude of the Situation 

Review Your Credit Report 

Review Possible Loan Terms

Use Online Loan Calculators

How about you all? Were you scared, excited, or a little bit of both before applying for your first mortgage?

What steps did you take to prepare yourself for the home-buying process?

Share your experiences by commenting below!

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

• When I purchased my first home (my current condo) back in 2010, one of the most useful things I did to prepare myself for the process was to read several personal finance books, paying special attention to the sections regarding buying a home.
• By reading these books, I was able to know what questions to ask to make sure I was getting through the deal with the most chance for success.

***Photo courtesy of http://pixabay.com/get/223d8652af15a61c1e7b/1365049150/icon-41335_1920.png

$50.53 Giveaway – Community and Charity 10% Monthly Blog Income Give Back # 19 – April 2013 Edition

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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 10% give back giveaway fun rolls on for the month of April! 

In case you missed the first 18 editions of the 10% Blog Income Give Back, after doing some thinking at the beginning of October 2011 about what direction I want this blog to grow and evolve towards in the future, I decided that any income made from this blog would have more significance to me at a personal life values level if I knew that a portion were being given back to the following places:

• 1) The readers – Obviously, without you here to read my articles and interact with my ideas, there would be no blog in the first place (let alone blog income). As such, it is only fitting that you receive a portion of any blog income.
• 2) Charitable organizations – If you’ve read my blog before, you know that I’m a big believer in donating a portion of my money to charity. Each year, I donate between 5-10% of my income to the National Multiple Sclerosis Society as part of the Bike for MS fundraiser that I do. Beyond the good that is done by donating your money, getting used to contributing to charity is also a good practice to emulate the actions of affluent individuals (T. Harv Eker discusses this in his book, Secrets of the Millionaire Mind, which I would definitely recommend reading if you have a few hours).

Like last month, I’ve decided to use the RaffleCopter giveaway management tool to handle sign-up facilitation for the April giveaway, so simply go through the steps listed in the widget below to enter the running for the prize and accumulate entry points.

There is no limit to the amount of points you can earn. If you refer 10 subscribers – your name will have accumulated 170 entry points! Or, if you link to the giveaway more than once, you can accumulate those 10 entry points multiple times. You can also retweet the giveaway and/or share other My Personal Finance Journey articles via social media sites once per day. In the event of a tie, I will be using a random number generator to select the winner.

Important instructions: After you complete an entry method, make sure to click and fill out the “I Did This” or “Enter” button in the widget so that I have a record of your points.  

Remember, the deadline for entries will end at 11:59 PM, April 30th, 2013 (a little over 3 weeks from today – the start of the give back). Good luck to you all! Please contact me if you have any questions. After the deadline for entries passes, the winner (one with the most points accumulated) will be contacted via email to receive their prize.

***Photo courtesy of http://farm4.staticflickr.com/3538/3366568135_098cce59f2_o.jpg

What’s Your Spending Personality?

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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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Have I missed any of the major spending personalities? What would you say yours is?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/andrewarchy/2527200986/

Should Short-Term or Intermediate-Term Bonds Make Up Your Fixed Income Asset Allocation?

Learning about investing is an interesting process.

In 2009-2010, I really started learning about passive investing and asset allocation by reading several books by David Bach, William Bernstein, Burton Malkiel, Jeremy Siegel, and Larry Swedroe (side note – isn’t it interesting that someone can get a BS in Finance/Financial Investments, but get out of undergrad without actually knowing how to invest your own money without teaching yourself?!).

By reading these books, I was able to learn enough to put together my asset allocation, figure out which low-cost index mutual funds to buy to make it all work, and then execute/maintain my investing strategy for the past few years without any trouble.

However, as I continue to study investing, I have recently found myself reading through these same books or websites that I read several years ago, but this time, being able to pick a lot of smaller details that I might not have understood the first time through.

One of these small nuances is the decision about how to invest the bulk of your fixed income asset allocation – should the money be placed in short-term or intermediate-term bonds?

Why Not Consider Long Term Bonds?

As I mentioned in a post several months ago where I examined whether it would be wise to incorporate long term bonds in to my portfolio, the whole purpose of my fixed income allocation is to help stabilize my portfolio from the ups and downs that are caused by my equity holdings.

Unfortunately, long term bonds simply don’t do this the way I want. They have a risk/volatility/standard deviation that is on par with the movement of the S&P500 index. Clearly, this is not what I am looking for.

What do the Books Say? – Intermediate vs. Short-Term Bonds

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 between short and intermediate-term bonds for the fixed income portion of your 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 at a 60/40 asset allocation between equity and fixed income, Intermediate-Term Bonds give investors the highest Sharpe Ratio (or risk-adjusted return). However, as you increase the asset allocation to 80/20 equity/fixed income, Long-Term Bonds give investors the most efficient risk/return ratio. Quite an interesting finding!
  • Intriguingly, in Larry’s very good 2001 book, What Wall-Street Doesn’t Want You to Know, he states fairly globally that holding bonds with a longer maturity than 2-3 years causes a DECREASE in the Sharpe Ratio (decrease in the risk adjusted return). Clearly, this is different than what he stated in his 2010 book, and it is likely due to the fact that bond returns during the 2000’s were so good compared to stock returns. This same sort of recommendation for 2-3 year maturity bonds is given in the 2005 edition of his 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 isn’t very specific about the short-term vs. intermediate-term bond decision. However, in one location, he does recommend a sample portfolio consisting of the Total Bond Market Fund, which is an intermediate-term (overall) bond fund. 
• William Bernstein (my 2nd favorite investing author I have found to date)
  • In his 2002 book, The Four Pillars of Investing, Bernstein generally sticks to recommending short-term bonds. However, he does mention that you get “the most bang (return) for your buck (risk) at a maturity of 5 years,” meaning intermediate bonds are the most efficient. But, a few sentences later, he recommends keeping the maturity of your bonds between 1-5 years because the stock portion of your portfolio is where you want to take risks, not your bond portion. Since the average maturity of most intermediate-term bond funds are between 5-7 years, it would seem to reason that Bernstein is sticking to recommending short-term bonds.
  • In his 2001 book, The Intelligent Asset Allocator, Bernstein also acknowledges that 5 year Treasury Notes (Intermediate-Bonds) are the most efficient at in returns of return with the least amount of risk. However, he does not actually recommend using Intermediate-Bonds in any of his sample portfolios in the book. Instead, he only recommends short-term bonds.

Clearly, this is a substantial amount of ambiguity based on the recommendations from Bernstein, Swedroe, and Malkiel above.

However, from a conservative perspective, I think I will interpret this mixed-bag of advice as meaning that although intermediate-bonds may be more “efficient” from a mathematical perspective, at a practical applications angle, it is likely better for investors to hold short-term bonds to minimize risks (and leave risk to be taken with the equity portion of the portfolio).

Short-Term vs. Intermediate-Bonds as a 1-Component Portfolio

Having taken a look at the somewhat confusing advice given in the literature about whether to hold short-term or intermediate-bonds 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 two Vanguard bond mutual funds shown below:

• Vanguard Short-Term Treasury Fund, Ticker Symbol VFISX.
• Vanguard Intermediate-Term Treasury Fund, Ticker Symbol VFITX.

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 16.67 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 Short-Term Treasury Fund and the red line = Vanguard Intermediate-Term Treasury Fund. I have also included the growth that would have occurred if the same $10,000 was placed in the Vanguard Long-Term Treasury Fund (green line) and the Vanguard S&P500 Index Fund (purple line).

In general, the chart above shows us some interesting findings.

• Long-Term Treasury bonds have outperformed the equity markets over the past 17 years or so.
• The price volatility appears to be in increasing order of – short-term bonds < intermediate-term bonds < long-term bonds < S&P500 Index, as we would expect.
• Intermediate-Term Treasuries have significantly outperformed Short-Term Treasuries the past 17 years or so.

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.

If we specifically compare the Short-Term Treasury Fund to the Intermediate-Treasury Fund, we see the following things:

• Intermediate-Term Treasury Fund resulted in a 46.2% and 72.9% increase in average annual and total return, respectively, compared to Short-Term Treasuries. 
  • However, this increase in return only came at the cost of a 25.2% increase in standard deviation of annual return, indicating that the Intermediate-Term Treasury Fund is more efficient in terms of risk/return trade-off.
• Another noteworthy finding is what I found in terms of the minimum annual and monthly returns for the two funds.
  • What we find is that at the annual level (cells highlighted in blue above), the Short-Term and Intermediate-Term Treasury Funds have practically the same return minimum.
  • However, at the monthly return level (red text above), the Intermediate-Term Treasury Fund has a minimum return almost 4x more negative than the Short-Term Treasury Fund.
  • What this means is that even though the Intermediate-Term Fund might be more volatile in the shorter term, over a year, the volatility has tended to equal out over a year-long period.

Conclusion from 1-Component Portfolios – From this analysis, I think we can conclude that although the Intermediate-Term Bond Fund is more volatile at a monthly level, it is more efficient in terms of risk vs. return  than the Short-Term Bond Fund. 

Short-Term vs. Intermediate-Bonds 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 the Vanguard Short or Intermediate-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 blue line = using the Vanguard Short-Term Treasury Fund, red line = using the Vanguard Intermediate-Term Treasury Fund. For reference, I have also included the growth that would have occurred if the Vanguard Long-Term Treasury Fund (green line) was used for the 30% fixed income allocation and if the Vanguard S&P500 Index Fund was used by itself (100% equity, no fixed income – purple line).

As we might expect, utilizing the Long-Term Treasury Fund for the 30% fixed income portion of the portfolio results in higher performance than using the Short or Intermediate-Term Treasury Fund. Interestingly, it also results in out-performance of the 100% equity portfolio during the time period as well.

The table below shows the year-to-year total return data for the 1996-2013 holding period utilizing a 70/30 fixed income/equity allocation of the 2-component portfolios.

If we focus in on the cells highlighted in blue on the table, we see something rather intriguing. Moving from the use of the Short-Term to Intermediate-Term Treasury Fund as the fixed income portion of the portfolio results in a 10% increase in average annual return, but the exact same risk/standard deviation. By using the Intermediate-Term Fund, you also experience a less negative minimum annual return than the Short-Term Fund! This is quite amazing! It would seem that this is a “free lunch,” so to speak

Conclusion from 2-Component Portfolios – Clearly, the results in the table above would indicate that Intermediate-Term Bonds are without a doubt the most efficient at delivering the highest risk-adjusted return. 

However, there are a couple things that hold me back from being so enthusiastic about jumping on the Intermediate-Bond “wagon.”

• The first “red flag” that gives me pause is the seemingly smooth performance of including Long-Term Treasuries as the 30% fixed income portion of the 2-component portfolio above.
  • By including this highly volatile bond asset class, you get almost a 10% increase in average annual return at the cost of only a 4.5% increase in standard deviation.
  • These numbers seem to indicate that the Long-Term Treasury Bond, in this holding period and using this asset allocation, is actually the most efficient portfolio. 
  • This would seem to be in line with Larry Swedroe’s reports in his more recent 2010 book mentioned above.
  • However, as mentioned by the books in the late 1990’s and early 2000’s (a couple by the same author, Larry Swedroe) Long Term Bonds were NOT efficient in that their increased volatility is not adequately compensated by the increase in return. 
  • Because of this, I cannot help but think that this analysis is somewhat tainted by recency bias. What I mean is that due of the great performance of bonds during the 2000’s-present, holding intermediate/long maturity bonds looks “rosier” in this analysis than it actually is if you were to include a longer 20+ year period.
• My other reservation is in regards to the increase in monthly variations in performance of intermediate-term bonds compared to short-term bonds. I’ll discuss this more in the conclusions section below.

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.

Conclusions, My Current Fixed Income Allocation, and Path Forward

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

• An investor will be fine holding either short-term OR intermediate-term bonds (or even a mixture of both) as the bulk of their fixed income asset allocation.
  • There are pluses and minuses for each, and it really just comes down to personal preference and what volatility they want their fixed income holdings to have.
• However, I am comfortable concluding that as far as risk-adjusted return goes, intermediate-term bonds are the most efficient, and I believe they will continue to be going forward based on William Bernstein concluding the same thing in 2001 (prior to big run-up in bonds in recent years).

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 TIPS, 10% in cash, and 15% in short-term bonds.

Path Forward – For me personally, the case presented above isn’t strong enough for me to feel the need to swap my current strategy using short-term bonds in exchange for intermediate-term ones. This is due to the fact that I like the fact that my fixed-income portion of my portfolio is “rock solid,” meaning that it doesn’t vary much (for example, the minimum intermediate-term bond fund monthly return was almost an 8% decrease compared to only a 2% decrease for the short-term bond fund). This makes me feel better about focusing on taking risk and improving returns using the equity side of my allocation.

How about you all? What type of fixed income securities do you currently hold in your asset allocation?

What do you think regarding the decision between short-term or intermediate-term bonds? Which would/do you prefer?

Share your experiences by commenting below!

Deciphering the Cash-Back "Code" of the Chase BP Visa Pump Rewards Card

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I have been a pretty loyal Chase BP Visa Card holder for quite a while now (maybe since 2008 or so).

Back in the “good ole days,” the cash-back rewards program for the Chase BP Visa Card was very simple; you got 5% cash back for all purchases at BP gas stations (both gas and inside the store) and 1% cash back for purchases everywhere else.

About 1-2 years ago, they sullied this awesome, straight-forward, high-earning cash-back program by introducing “Cents-Per-Gallon Rebates.” Immediately, after looking at the new program’s structure, I figured it was some complicated way to save money by giving less cash back while maintaining enough complication to have most customers not bother switching to another card. I remember doing some quick calculations and thinking that I was earning about 2% cash back with the new rewards structure. However, I never really put pen to paper and calculated exactly what I was/am earning.

However, I recently signed up for a Bank AmericaCard Cash Rewards in order to spend $500 on it to earn the $100 sign up bonus. In signing up for this no annual fee card, I was very nicely surprised to find out that it offers card-holders 1% cash back on all purchases, but 2% cash back in grocery stores and 3% cash back at gas stations. 

So, now that I have this other card that boasts 3% cash back rewards, I figured I needed to seriously sit down to compare it to my BP Visa Card’s cash back program. After all, one serious pitfall of the Chase BP Visa is that I only get the enhanced benefits when I shop at one gas station, BP’s.

Decoding the BP Visa Pump Rewards Cash-Back Program

The way that Chase decided to word their cash back program for their BP Visa card is beyond confusing. Just take a look at the screenshot below from the Chase BP Visa site:

There are two levels of complexity to understanding the cash back benefits:

• You earn $0.15 of “Cents Per Gallon Rebates” (no – you don’t earn $0.15 immediately, just $0.15 in “Cents Per Gallon Rebates,” so sort of like imaginary Chase BP money) every time you spend $100 in purchases at BP gas stations. 
• To redeem your “Cents Per Gallon Rebates,” it is also very complicated.
• Option 1 – Redeem when you fill up at the pump –
• In other words, you get a per gallon discount of however many Cents Per Gallon Rebates you have accumulated on up to 20 gallons of fuel, only good for one fuel-up.
• Option 2 – Get a statement credit – 
• You can elect to be credited on your credit card at a level of $15 for every $1 you have accumulated in “Cents per Gallon Rebates.”  

When you read through the terms above, did you become confused?

I can’t blame you if you did! I wonder how many BP Visa card-holders actually take the time to go through these benefits to actually determine WHAT THE HECK CASH BACK % THEY ARE GETTING FOR THEIR MONEY IN PLAIN ENGLISH!?

Let’s take a look to see if we can determine a concise cash back % amount that Chase BP Visa holders are actually receiving these days when they redeem at the pump:

• For the sake simplicity, let’s assume that we purchase $100 worth of gas. We’ll also assume a level gas price per gallon of $3.50.
• By spending $100 in gas at BP, you accumulate $0.15 of Cents Per Gallon Rebates to your name.
• Since you’ve accumulated these Rebates, you now decide that you want to redeem them. You wait until your Toyota Camry is almost out of gas, and you head to the store to fill up with a ~12 gallon gas purchase.
• Since you’re utilizing your Rebates, the normal $3.50 per gallon rate gets reduced to $3.35 per gallon.
• 12 gal @ $3.50 per gal = $42.00
• 12 gal @ $3.35 per gal = $40.20
• So, using the Cents Per Gallon Rebate allowed you to save 4.3% of this specific gas purchase.
• At first glance, saving/getting 4.3% cash back sounds pretty good. However, what has not been accounted for in this calculation is the $100 in that you had to spend in order to get the $0.15 Cents Per Gallon Rebate in the first place.
• $100 worth of gas purchased previously to get earn the Rebates + $42 spent to purchase gas without applying Rebate = $142 total spent.
• $100 worth of gas purchased previously to get earn the Rebates + $40.20 spent to purchase gas WITH applying Rebate = $140.20 total spent.

So, in reality, when all is said and done, the new Chase BP Visa Pump Rewards only equates to ~1.3% cash back of your total purchases (if written in plain English) when you redeem your Rebates at the pump. And, as gas prices continue to increase, this would only become less and less! Clearly, this is not the same good deal that was once available in the 5% cash back days.

Let’s also briefly calculate the cash back % that we would get by redeeming our points through a credit card statement credit. In order to earn the required $1 in Cents Per Gallon Rebates required to qualify for a statement credit, you would need to spend $667 total at BP stations ($0.15 Cents Per Gallon Rebates earned per $100 spent x 6.67 to equal $1 in Cents Per Gallon Rebates x $100). If you’re like me and fill up about 2x per month, this would likely take you 7 months to build up enough Rebates to get a statement credit.

To calculate the overall cash back you receive for redeeming your Rebates online, the math would be $15 cash back / $667 total spent = 2.24% cash back, so almost 2x what you get from redeeming at the pump directly (however, it would take a lot longer to qualify to receive money).

Conclusions

Aside from the language being almost intentionally confusing, I am not all that happy to find out that a card I once loved is paying out such a low amount of cash back benefits. If I am redeeming at the pump (as I have been doing for the past 1-2 years) and only getting 1.3% cash back, I might as well have been using my Chase Freedom Visa Card where I get a global 1% cash back with all purchases! Furthermore, if I had been using my Chase Freedom Card, I could have gone to any gas station I fancied, instead of seeking out a BP.

Because of the facts we saw above with the real life cash back %’s of the Chase BP Visa Card being 1.3-2.2%, I think my path forward is quite clear. I will start using my Chase Freedom Visa Card for gas when the rotating categories for 5% cash back lands on gasoline purchases, and switch my main gas credit card to being the BankAmericaCard Cash Rewards Visa mentioned above, which offers 3% cash back for gas purchases at all times from any gas station brand (and features a low $25 minimum cash back redemption level + 10% bonus when I redeem directly in to my Bank of America checking account).

How about you all? Have you ever used the Chase BP Visa Card, or any other credit cards where the cash back benefits were worded in a very confusing way?

Share your experiences by commenting below!

The Carnival of Financial Camaraderie – March 30th, 2013 Edition!

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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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Happy Saturday.  Guess who’s hosting the Carnival of Financial Camaraderie this week? Yep, it’s me! 

If you’re new to the Carnival, its goal is to share some of the best articles around the web each week focusing on helping people improve their financial situations. Have fun reading all these great posts! 

First, let’s take a look at my top 4 editor’s picks that were submitted this past week:

Top 4 Editor’s Picks

1. BARBARA FRIEDBERG @ Barbara Friedberg Personal Finance writes WHAT TO DO NOW THAT THE MARKETS ARE PEAKING – Markets are at record levels. Stock and bond investing tips for the current market.

2. Daniel @ Sweating the Big Stuff writes High School Students Can’t Make Financial Decisions About College – High schools are not equipped to make financial decisions about college. Parents need to take active roles during this crucial decision making process.

3. Darwin @ Darwin’s Money writes Here’s Everything I’ve Done with my Money by NOT Having an Emergency Fund – The conventional wisdom is we all need to build an emergency fund of 6 months or more, right? WRONG. See all the great moves I’ve made with the money I DIDN’T have sitting in a bank.

4. Roger Wohlner @ The Chicago Financial Planner writes Am I on Track for Retirement? – Are you on track to a comfortable retirement? It is essential that Baby Boomers and others approaching retirement address this issue.

And, listed below are the best of the rest! Enjoy!

BUDGETING

Steven @ Canadian Personal Finance writes Five sure-fire signs that you need a new job – Here are five sure-fire signs that you’re in the wrong job – and that it’s a high-time you started looking for a new one.

Michelle @ Making Sense of Cents writes Case of Lifestyle Inflation – But I’m Not Upset – Whenever we make a financial decision, I’m not going to lie, I tend to think about how readers will perceive the decision and whether I will get yelled at. That’s not always bad though, because it just makes me triple think everything and make sure I’m happy with whatever decision that I do make!

Div Guy @ The Dividend Guy Blog writes All You Need To Know About Selling Your Stocks –

Martin @ Studenomics writes Do You Seriously Need to Be Convinced to Move Out? – Let’s finally move out!

Simon @ Camp Travel Adventure writes Learn How to Finance ALL your Travel Plans – We would all love to go travelling and not worry about money, here’s a few tips to help you get there

Marvin @ Brick By Brick Investing writes How Poker Made Me A Better Investor – A detailed comparison between the principles of poker and investing, particularly how they made me a better investor.

BUSINESS

Robert @ The College Investor writes How to Understand the Stock Market – If you are willing to learn, and make the most of the information out there, you too can understand the stock market.

Robert @ My Multiple Incomes writes How Much is Too Much? Entrepreneurship, Life, Finding Balance – I got a taste of building multiple income streams, and let me tell you, it tasted good. So good… And I knew I wanted more. MORE! I knew that this was a way to be free. So I started building, and I started developing my income streams.

Robert @ Entrepreneurship Life writes Does Your Business Have a Mobile Strategy? – With the emergence of smart phones and mobile commerce, it is important that your business takes steps to have a mobile friendly website.

Jason @ Live Real Now writes Make Extra Money, Part 6.5: Why I Do It The Way I Do It – Several people have asked me to explain why I use the plugins and settings I use. In this installment of the Make Extra Money series, I’m going to explain every choice I recommended last time.

Jester @ The Ultimate Juggle writes Life Decisions That Can Affect Your Finances – As a young family, my wife and I have learned that life can be quite busy. Trying to accomplish everything (school, work, side business, social life) at once can be overwhelming. This is why many people focus on their 9-to-5 jobs and go home to watch T.V. The stress is just too much to handle.

Mike @ Personal Finance Journey writes Striking it rich by being lucky or doing it hard? – Can wealth be created through luck? Hard work? Can you strike it rich?

CAREER & EDUCATION

JC @ Passive Income Pursuit writes A Long Term Plan to Continue Giving Back – Ever thought of a great way to give back and contribute in some way to the betterment of society? I cover my plan to use dividend growth investing to fund a scholarship in perpetuity.

Peter @ Bible Money Matters writes 4 Board Games that Can Help Teach Lessons about Personal Finance – A while ago I wrote on this site how having a family game night can be a great way to have some fun with the whole family, without spending a ton of money. But playing games doesn’t have to just be a way to have a little fun, if you play the right games it can be educational as well.

Nick @ A Young Pro writes Career Advice: Be An Entrepreneur – Take charge of your career. Learn how to think like an entrepreneur and apply that knowledge towards your career success.

KK @ Student Debt Survivor writes Want to Borrow $120k at Age 18? Sign on the Dotted Line – When was the last time you gave an 18 year old $120,000? If you had $120k saved would you give it to your 18 year old son or daughter and tell them to have a good time spending it? I sure wouldn’t. But strangely, that’s exactly what student loan companies offering when our kids when they enroll in college.

FINANCIAL ADVICE

Grayson @ Debt Roundup writes Who Do American’s Look To As A Financial Mentor? – As the US economy and the economies of the world sputter along, who can we look to as a financial mentor? Spending and consumption is out of control and we need help.

Arnel Ariate @ Money Soldiers writes Dealing with Debt After Losing Your Job – Learn how to be debt free. I made my final loan payment in February of 2013. It was two years, to the month, after I had lost my job. Now when I buy something, I appreciate it even more because it is a well-earned treat and not a wasteful indulgence.

Lance @ Money Life and More writes Best Credit Card Sign Up Bonuses – March 2013 – Sign up bonuses are one of the most lucrative ways to rack up credit card rewards quickly. There are currently some great credit card sign up bonus offers and I have used a couple of them myself. Basically you have to sign up for a credit card with a bonus and meet the various requirements within a time limit to get the bonus. There are no affiliate links in this post so you know these are some of the best deals out there.

MMD @ My Money Design writes Who is the Best IRA Provider When You Don’t Have Much Money to Open an Account? – Where can you find the best IRA provider without having to open an account with thousands of dollars? There are lots of good options to choose from ranging from safe to risky. This post will tell you where.

Glen @ Monster Piggy Bank @ Monster Piggy Bank writes How to Consolidate Debt – Learn about debt consolidation and how it could improve your finances

Jon @ Novel Investor writes How To File A Federal Tax Extension – If you won’t finish your tax return by the deadline, find out how to file for a federal tax extension online and get an extra six months.

FRUGALITY

Mr.CBB @ Canadian Budget Binder writes Let Your Coupons Expire and Save Money – In order to save money we need to stick to a plan and not spend more than we intended to do. Take the money you save from using coupons and put it towards debt, investments or something you want to save up for. There’s no shame in letting a coupon expire in order to stick to your grocery budget.

Pete @ Intelligent Speculator writes What Part of Your Income Are You Saving? – Are your savings where you want them to be?

Jacob L @ Cash Cow Couple writes 22 Things I Won’t Pay For – I think my ability to save money is a valuable asset. I also think that my friends and family would benefit from a little shot of Cash Cow frugality. So I’ve put together this list of things that I DO NOT spend money on.

Penny Thots @ Penny Thots writes How Meal Planning Is Saving Me 40 Percent on Groceries – We are now eating healthier than we have been in a couple years thanks to meal planning, and we have something that works with our schedules. But what surprised me was the savings.

Miss T. @ Prairie Eco Thrifter writes Go Ahead and Be a Cheap Date – Perhaps the general high-maintenance of dating is the very reason it falls off the side of our lives. What if dating your spouse was simple, straightforward and, well, flat-out cheap? Yeah, I know what you’re thinking, if it was like that, it’d probably happen more often, and that is precisely what I am hinting at. Think outside of the overused dinner-and-a-movie routine. I am guessing that in doing so, you’ll start to remember what it felt like to date.

Little House @ Little House in the Valley writes Micro-Unit Apartments in New York City – Manhattan’s mayor, Michael Bloomberg, is jumping in on the Little House action to create a building dedicated to 55 micro-unit apartments. Though the project is still in the design phase, the rent is expected to be affordable when compared to average rent in New York with some units using “restricted rent” (or percent of income) to determine the monthly rental price.

Lazy Man @ Lazy Man and Money writes The Money Start-Up: Development Decisions Lead to Big Savings (Part 2) – he key takeaway here is that is where it would once cost a lot of money to start-up a software company, today there are some fabulous tools out there that greatly reduce the financial barrier the entry. I don’t know if it is possible for me to overstate the impact they will likely have.

DPF @ Digital Personal Finance writes Free is Good – So Use Your Library! – As value seekers, many of us like to search for bargains or simply obtain things we need at a low price. Along those lines, the local library just might offer you great value for your time, considering it’s free! This post discusses why.

Paul Vachon @ The Frugal Toad writes 5 Frugal Ways to Celebrate – Looking forward to celebrating that birthday or special event with friends and family? Are you worried that your budget will make it difficult to plan a memorable celebration? By thinking out of the box and using items you already have, you can create lasting memories without breaking the bank.

harry campbell @ Your PF Pro writes Save Time and Money When Traveling Through Airports – Maybe I haven’t traveled in a while but when did airports become such a rip-off? Just this month, I’ve traveled over 7,000 miles on 3 round trips with another trip to Philadelphia scheduled for next week and everywhere I go I can’t believe how expensive things are.

INVESTING

Jason Hull @ Hull Financial Planning writes Stock Picking is No Better Than Sports Betting – This article examines how you could be fooled into thinking that you could pick horses or pick stocks and the psychological triggers behind this phenomenon

Michael @ Financial Ramblings writes Automatic Dividend Reinvestments – Do you reinvest your dividends? We don’t, at least not in our taxable account. And for good reason. Manually reinvesting dividends lets us really crank up the tax efficiency and simplify our record-keeping.

Crystal @ Married (with Debt) writes Fact or Fiction: Everything’s Old That’s New Again – There’s an old saying that everything’s old that’s new again. Does this hold true for your possessions?

Evan @ My Journey to Millions writes Another Reason I Hate My 401(k) – I have always had a pretty angry relationship with my 401(k). On the one hand, I get a match of 100% up to 6% of my salary provided by the generous boss-men (anyone know why this is very common?), on the other hand my fund choices are terribly expensive.

A Blinkin @ Funancials writes 2 Irrelevant Reasons To Buy And Sell Stocks – There are thousands of reasons why people should invest in stocks and thousands of reasons why people shouldn’t invest in stocks. But, 2 “reasons” that I have heard recently are actually irrelevant and should not determine whether or not you invest in stocks. If you want to buy, buy. If you want to sell, sell.

Jon the Saver @ Free Money Wisdom writes Three Reasons to Consider Investing in Silver – Here are three fantastic reasons to invest in silver if you are still waiting to make up your mind. Find what why everyone else is putting their money in this metal!

LaTisha @ Young Finances writes How To Qualify for a Mortgage as a Young Adult – Getting your credit in order, making an appointment with a lender, finding a home, and gathering your documents are all steps to buying your first home as a young adult.

Kevin @ Passiveincometoretire writes Why Real Estate is the Best Passive Earner – Real estate is one of those things that will continue to rise in prices as long as our population keeps on increasing. More people mean more requirements for space to live, which will naturally increase the prices of real estate for the foreseeable future.

Pauline @ Reach Financial Independence writes Why an early start makes all the difference – I started working early, saved hard and had time on my side. An early start can help you achieve a lot more than ignoring your finances for years.

Jon Haver @ Pay My Student Loans writes Investing made easy for Graduates – Investing money can be difficult for those who aren’t experienced with the process and don’t know who to turn to to get help. With the added stress of mortgages and taking out loans to pay for college, most people give in and go with the first investment company they come across without shopping around and seeing what other companies are offering. Most people run into problems because they don’t invest enough, diversify their investments, or allocate investments properly for a specific sit

John S @ Frugal Rules writes Is it Time to Get Out of the Stock Market? – There has been a lot of talk lately about the stock market with its “historic” highs and what investors should do. This is a great time to remember to stick to your investment plan and not give in to fear.

SAVING

Deacon @ Well Kept Wallet writes 3 Unique Ways to Save Money – Do you like saving money? Who doesn’t, right? There is no reason to pay more for something if you don’t have to. There are so many ways that you can save money whether it is coupons, discounts, promo codes, you name it. Here are three unique ways that I have found to save money.

Green Panda @ Green Panda Treehouse writes The Retire Early Movement Has Hit UFC – Early retirement has now hit the UFC world.

Thomas @ Journey Scout writes Don’t Spend the Earth on Hotels – We’re all feeling the pinch at the moment, but its vital you go on holiday just to keep your sanity. Well the least you can do is save on the hotel cost, its a start, and here’s how.

OTHER

FMF @ Free Money Finance writes Confusion with Precious Metal Pricing – I noticed there are a TON of commercials for gold and silver investing. After a while I started keeping track of the advertisements, wondering what the difference would be from one company to the next. Service? Shipping? Something else? I thought that pricing would be the same. Boy, was I mistaken. I decided to do an experiment.

Corey @ 20s Finances writes What’s the Average Easter Budget? – Millions of Americans will be celebrating Easter with their wallets doing a great deal of heavy lifting, but what’s the average Easter budget?

Ashley @ Money Talks Coaching writes I Wish Saving Money Was A Social Event – I bought something on Amazon the other day and when I was done checking out Amazon asked me if I would like to post on Facebook about my recent purchase.

SBB @ Simple Budget Blog writes What Type of Budgeter Are You? – Are you a improviser, a preparer, or a lingerer when it comes to budgets? Here are the pros and cons of each type of budgeter. Find out how you budget.

Tony @ We Only Do This Once writes 7 Ways to Avoid Using Credit – Credit cards have not been around for very long. Our close relatives managed to do just fine without them. We can do the same by living within our means, spending less than we earn, and not using credit.

Hank @ Money Q&A writes Trick Yourself Into Saving Money With These Seven Sneaky Ways – Saving money isn’t easy. Sometimes you have to trick yourself into saving money if you want to get it done. You have to take your brain out of the equation.

CT @ Cashtastrophe writes Why Infomercials Are the Best Things on TV – How to Avoid a Cashtastrophe – Save more, spend less, and live a good life

Michelle @ The Shop My Closet Project writes Planning a YOLO Summer for a fraction of the price – YOLO Summer means (You only live once)! Read how I’m going to make this happen for me this summer.

Steven @ MyDividendStocks writes Income from Perpetual Dividend Raisers – When you buy a stock in a company, you become a partial owner of its assets and profits. There are certain caveats to being a partial owner through a stock, but in general a stockholder is entitled to a share in the profits of a company. Dividends are one way in which a company management or board of directors can share the profits with the stockholders of a company.

krantcents @ KrantCents writes I am Wealthy, so What? – I was reading The Millionaire Next Door again and found out that I am wealthy! The authors offer a calculation to determine if you are wealthy, just multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten.

Amanda L Grossman @ Frugal Confessions writes 5 Frugal Activities for Springtime – Both the warmth and my sinuses have alerted me to the fact that spring has returned.

Kevin @ 20smoney.com writes College University Scholarship Search Engine – Free Money for Education. Use our Scholarship Search Engine to find a scholarship! The Top 5 Places to Find Great Scholarships We learned how to find

Crystal @ Budgeting in the Fun Stuff writes Free Stuff for Your Birthday – Woot! – I take the time to sign up for birthday freebies so that I can spend my birthday month being lavished with lovely perks and gifts from my favorite retailers

Kyle @ The Penny Hoarder writes The Secret to Making Money on YouTube – I have a confession to make: Somewhere between me typing the title of this post and actually typing the post itself, I became engrossed in a few funny animal videos on YouTube….and effectively lost those 5-10 minutes of my life. But boy, did I laugh–and I’m not the only one.

MR @ Money Reasons writes Retirement Rich But Life Poor? – Is it smarter to saving and invest in a regular brokerage account or save for retirement in vehicles that are not to be touched until many years later? Is it better to live now or live when you are old?

Maria @ The Money Principle writes Buying a car on a low budget – Buying a car doesn’t have to ‘break the bank’; you just need a bit of ingenuity, research and asking sound questions.

Don @ MoneySmartGuides writes Thinking About Changing Careers – Are you thinking about changing careers? The read my experience and history on this plan of attack.

Roger the Amateur Financier @ The Amateur Financier writes Book Review – Fired to Hired – Chances are, you’ve been unemployed (or underemployed) at some point in your life.

Suba @ Broke Professionals writes Does Good Customer Service Still Exist? – Good customer service isn’t a thing of the past: I’ve found three American companies that are doing an amazing job of helping their customers.

Ted Jenkin @ Your Smart Money Moves writes The Biggest Stock Option Mistake You Can Make – I worked for a Fortune 100 company for over 15 years.

Lauren @ L Bee and the Money Tree writes What it Means to Finish Something – It’s so inspiring when people accomplish their goals: losing weight, hitting a zero balance, or getting a promotion. Yet, what does it really mean when we finish something?

CAPI @ Creating a Passive Income writes Popular Ways of Earning Passive Income – So you’ve decided to set up a passive income! Now you need some ways to earn. Read on for five popular and effective ways and how they could work for you.

Wayne @ Young Family Finance writes Important Tips for Buying a Home – Looking into buying a new home for you or your family? There are important things you need to consider. Read on for the best tips.

Well, that wraps up this week’s edition. I hope you enjoyed the articles as much as I did! 

This carnival is hosted every second week by My University Money and you can submit articles at Blogger Carnivals or Blog Carnival HQ.

How To Save Money on Food

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The following article is by MPFJ staff writer, Miss T from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

I don’t know about you, but I find that food is one of the biggest items in my budget. Whether it’s the weekly grocery shopping, eating out, snacks for the kids on weekends or going to Farmer’s Markets, I always seem to be shelling out money for food! And, it seems to get more expensive every month. There has to be a way to save money in the pantry, I thought, so I did some research.

Financial experts are keen to tell us that eating out is expensive, and one great way to save money is to reduce or limit these occasions. We all know that take-out food is expensive, considering what you are getting, and so avoiding this type of food is also a way of saving. We are pretty health-conscious in our household, so there’s never been a lot of take-out or pre-prepared food consumed, but we do like to enjoy the occasional meal out as a family. We seek out reasonably-priced establishments that offer good quality food and we enjoy our dinner nights about twice a month. Apart from this, all our meals are prepared and cooked at home.

Cook at Home

So, most of these pantry money-saving tips are concerned with eating at home. I’ve found this to be the most cost-effective way of eating and certainly the best method for ensuring we eat healthy, nutritionally-balanced meals and snacks. So the first tip is this – cook at home most of the time and enjoy the money you’ll save as well as the pleasure of creating dishes in your own kitchen.

Of course, if you’re going to cook at home, you’re going to need to shop for basic ingredients. I found that buying the products to make a dish from scratch is so much cheaper than buying similar ready-made meals from the supermarket. Importantly, I like to know what my family is eating and making meals at home means I have control over what ingredients are used.

Buy Generic When Possible

I have learned that well-known brand name goods are not always better than generic brand goods. This especially applies to canned vegetables and fruits, pasta, flour and sugar. If they taste the same and look the same, why pay more for the brand-name? This is one of the most important ways I save money in the pantry. Do some comparisons for yourself and save.

Plan a Weekly Menu and Use it to Create/Stick to List While at the Supermarket

The best way to avoid over-spending on things you don’t need is to plan a weekly menu. We do this as a family so that everyone gets a say in what we eat and we plan at least one new dish each week. This means we don’t get bored with our food and we are experimenting with new tastes. Once you have the menu, you can write up a shopping list for the things you’ll need.

Going to the market with a list is a vital step in saving money. Buy what you need and stick to the list. This means that your list needs to include everything you will need and nothing you won’t. So, allow the time to make your list at home where you can check what supplies you have already in the pantry. I have a list of staples that are needed most weeks like toilet paper, washing powder, sugar, flour, pasta, rice, butter, cheese, bread etc. These are permanently on the list and then I add whatever else I need.

I have a rule when grocery shopping – I can only buy 10% of the total on items not on the list and these usually end up being regular items that are on special. This keeps my grocery budget in check while still allowing me to take advantage of store specials. This is another way of saving money in the pantry – take advantage of specials but only when it is an item you usually buy.

Buying in Bulk

Buying in bulk is a great way of saving money too, but be sure that you will be able to use the whole amount before it goes stale. Buying more than you can use fresh is just wasted money. The best bulk buys are those that have a long shelf life or are non-perishables. Bigger packages are often cheaper, per ounce, than smaller packets of the same product but the same rule applies – you must be able to use it all before it goes off.

Buying from Local Farmer’s Markets

We love to go to local (and sometimes, not so local) farmer’s markets to buy fresh produce. I love that I can talk to the farmer who grew the food and know that it has been freshly picked, dug, laid, or butchered. Most of our fresh produce comes from this type of outlet, which means we are eating in season when the produce is at its most nutritious and hasn’t traveled loads of food miles. Because it is so fresh, it lasts really well, several times longer than store-bought fruit and vegetables. This equates to excellent value for money because there is no waste.

Buy Boxes of Produce to Process Community Style with Friends and Neighbors

Another money-saving tactic I use with a group of friends and neighbors is to buy boxes of produce for processing. We might buy boxes of stone fruit and either bottle it or stew and freeze it. Tomatoes are dried, bottled, or made into sauce to provide a supply for months of home cooking. We get together to process the fresh produce and enjoy a wonderful community atmosphere.

Try Your Hand at Growing Your Own Food

Growing some of your own food is another way to save money on food. Even if you only have a small patio or balcony, you can still grow a few herbs or easy vegetables like spinach or tomatoes that don’t take up much room. We are also lucky enough to be able to keep a few hens, so we have fresh eggs for some of the year as well as the advantage of their rich manure to feed back to the garden.

Don’t Buy Items You Already Have!

You need to know exactly what is in your pantry at any given time to avoid wastage and double-buying. Invest in different sizes of plastic or glass containers that are all the same shape so that your pantry is easy to organize and you can see at a glance what you have and what is getting low. Most foods keep better in solid containers rather than in boxes or bags and so you will have less spoiled food as well.

Have a Once a Month ‘Eat from the Pantry Night’

Another great money-saving strategy that a friend of mine has introduced is a once a month ‘eat from the pantry’ night. Using her cooking knowledge and some creativity, she comes up with a meal that uses up items that have been in the pantry for a while. Some of these meals have become legendary! Another friend has taken this a step further; one week a month, she refuses to shop for food and will only use what she already has in her pantry or freezer. Think of how much money you would save if you only did supermarket shopping three weeks out of four!

Take Advantage of the Convenience and Cost Savings of Freezing Leftovers

Here’s a few final quick tips for saving money in your pantry – freeze leftovers for a quick snack or meal-for-one; preserve the abundance in season from your own garden; swap your produce with a friend or neighbor to increase variety; buy fresh produce in season when it is plentiful and cheaper and blanch and freeze for use out-of-season. 

Hopefully you will find some tips in this article that you can use yourself and help lower your food bills.

How about you all? How do you save money on food? 

Share your experiences by commenting below!

***Photo courtesy of http://prairieecothrifter.com/wp-content/uploads/2011/01/organic-food.jpg