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  1. Get Rich Slowly turns 10! Celebrating our first decade

    Posted 15 Apr 2016

    This article is by J.D. Roth. Posted Image

    My name is J.D. Roth. Ten years ago today, I started a little blog about money. This blog, in fact.

    When I started Get Rich Slowly, I had no idea what it would become. Just a year earlier, I had summarized all the best advice from the personal-finance books I’d been reading into a single article for my personal site. It’s when I first began to recognize that all the books had a common thread:

    “There’s no reliable way to get rich quickly …
    … but there is a way to get rich slowly.”

    That post proved popular. But a year later, I was still searching for a way to earn money on the side to help me dig out of debt. I decided that maybe I could earn a few bucks by writing about saving and investing. I actually thought mine would be the first personal-finance blog on the Internet! (Ha — little did I know! There were already dozens — dozens! — of other money blogs out there.)

    On April 15, 2006, I launched Get Rich Slowly.

    The early years at Get Rich Slowly (2006 to 2008)
    Get Rich Slowly was successful from the start. For whatever reason, the stuff I wrote resonated with readers. They shared the site with their friends and family. Within a few months, I had several thousand readers. Within a year, that number was closer to 20,000. I was shocked. And grateful.

    Those early days of GRS were a hell of a lot of fun. I was figuring this money stuff out in real time, and writing about my successes (and, yes, my failures) as they happened. I did some stupid, stupid stuff — but as time went on, I got a lot better at managing my money.

    Needless to say, writing about smart money management every day — for 1,000 days — produces a lot of articles! But when we looked, we found that certain articles stood out as particularly popular — I think because they were particularly helpful. Anyway, here are some highlights from the first three years of the site:

    In praise of the debt snowball

    • September 28, 2006
    • When I started Get Rich Slowly, I had over $35,000 in consumer debt. I lived paycheck to paycheck on a salary of over $50,000 per year. Basically, I was your typical American consumer. To get out of debt, I used Dave Ramsey’s version of the debt snowball. A lot of folks want to complain that using this method is based on bad math, but so what? If math were the issue, I wouldn’t have been in debt — and neither would many other people. The debt snowball works, and that’s why I love it.

    Are index funds the best investment?</p>
    • January 24, 2007
    • At first, I was a bad investor. In fact, I was a gambler, not an investor. I took chances on random stocks in the hopes they’d shoot through the roof. Reading and writing about money quickly taught me that pros like Warren Buffett (and many more) actually endorse a simple investment strategy for average folks like you and me. For us, putting our savings into indexed mutual funds is the most reliable long-term investment. This article was when I started catching a clue about index funds.

    Which online high-yield savings account and money market account is best?</p>
    • March 21, 2007
    • As I started learning smart money habits, I realized it was dumb for me to leave my money in a big national bank that paid me no interest. But where should I save my money instead? To find out, I polled GRS readers. Whoa! Who knew this simple question would create such a huge response? Readers left over 1700 comments with suggestions about where to get the most bang for my buck.

    Free at last! Saying good-bye to 20 years of debt</p>
    • December 3, 2007
    • It took a lot of time and effort, but my new habits finally paid off. Three years after starting my quest, I wrote a check for the last of my consumer debt. From here, I could start building future wealth instead of repaying past folly.

    A real millionaire next door</p>
    • May 13, 2008
    • I used to live next door to an old guy named John. John was a retired shop teacher who had managed to build big wealth on a small salary. Now, in his 70s, he spent part of the year working on farms in New Zealand, part of the year on an Alaskan fishing boat, and part of the year puttering around his home in Portland. Later, I decided to interview him about what led to his financial success.

    You can’t always get what you want</p>
    • November 24, 2008
    • Notes from a conversation with my cousin: It’s okay to have something in your life that you hate. And it’s okay to have something you want. It’s natural. The problem is that once you get that thing, you’re just going to hate something else, you’re just going to want something more. It’s not want that’s the problem, but the habit of constantly satisfying wants.
    So much happened in my life during these years, both good and bad. It seems odd to summarize that entire period in just six posts, but I don’t want to overwhelm you. (If you want to read more, check out the archives.)

    Posted Image</p>
    The philosophical years at Get Rich Slowly (2009 to 2012)
    While the early, heady years of GRS were care-free and fun, running the site eventually became work. A lot of work. Plus, all sorts of stuff was going on behind the scenes in my personal life. My best friend committed suicide. I was unhappy in my marriage. I struggled with my weight. It was all too much.

    In early 2009, I decided to listen to the offers from people who wanted to buy Get Rich Slowly. Shortly after the site’s third anniversary, I agreed to sell it.

    When I sold, I became financially independent. (I was already on a path toward financial independence — or “FI,” as we say — but the sale helped me leap ahead several years.) My plan was simply to walk away and be done with writing about money. Turns out, I couldn’t bring myself to do that.

    You see, I love the GRS community. I didn’t want to leave. I wanted to continue answering emails, sharing reader questions and stories, and documenting what I was learning about money. Instead of walking away, I stuck around for another three years as editor and primary writer.

    During that time, we brought in other writers to help me manage the workload. I was always amazed at how each new voice added another dimension to the site. And our content changed in yet another way because I was becoming much more philosophical about money at this time.

    I had always stressed the importance of psychology; but as my financial philosophy matured, I became even more convinced that smart money management was all about mindset, not math. The math is easy. It’s the emotional stuff that’s tough. Some of the best articles from this era of GRS really get to the heart of these issues, and I hope that what I learned will be helpful to others, too. They still mean a lot to me. Here they are:

    The razor’s edge: Lessons in true wealth

    • January 18, 2009
    • This is perhaps the most important article I ever wrote for Get Rich Slowly, although most people would never know it. In early 2009, my best friend took his own life. It had a profound impact on me. Here I wrote about what I learned from Sparky’s life — and his death.
    How to negotiate your salary</p>
    • May 6, 2009
    • I don’t think people spend enough time looking for ways to boost their income. Learning how to negotiate your salary is one of the best ways to improve your financial well-being.

    Understanding the federal budget and The truth about taxes</p>
    • August 24, 2009
    • We cannot have informed discussions about taxes and government spending if we don’t have the baseline information. Because my own education on this subject was weak, and because I wanted GRS readers to be informed, I spent 12 hours researching a variety of tax topics. These two articles record my attempts to provide that baseline information.

    The paradox of choice and the dangers of perfection</p>
    • October 22, 2009
    • While it’s true that some choice is a good thing, too much is not. It’s easy to pick the best option from a pool of three, but it’s difficult to find the perfect choice in a pool of 30. “Perfect” is a moving target. It’s better to make a solid decision today than a perfect decision next week.

    The rewards of frugality and thrift (or why we scrimp and save)</p>
    • June 29, 2010
    • I write about thrift and frugality a lot, but it’s only because I recognize their value in helping me obtain my goals.

    Action not words: The difference between talkers and doers</p>
    • August 30, 2010
    • If there’s something you want to be or do, the best way to become that thing is to actually take steps toward it, to move in that direction. Don’t just talk about it, but do something. It doesn’t have to be a big thing. Just take a small step in the right direction every single day.

    Earning, spending, and saving: The building blocks of personal finance</p>
    • April 4, 2011
    • This article shares a subtle re-structuring in the way I view personal finance. Subtle, but important.

    America’s love-hate relationship with wealth</p>
    • November 14, 2011
    • While writing about money, I’ve noticed that people in general (and Americans in particular) have a complex love-hate relationship with wealth. People want to be rich — but they’re suspicious of those who already are. Why is that? How can we learn to be happy for the financial success of others?

    A place of my own</p>
    • January 16, 2012
    • The toughest blog post I’ve ever had to write: After months of hinting at things, I revealed that my wife and I were getting a divorce, and that I’d moved into an apartment of my own. This post explored some of the implications of that decision. (For the record: Kris and I continue to maintain our friendship.)

    In recent years at Get Rich Slowly…
    Eventually, after three years of lingering at GRS, I reached the point where I was willing to cut the cord. I gradually reduced my involvement until I was ready to walk away. I eased myself out of the site and into the life I’d been hoping to pursue.

    Consequently, I haven’t spent much time around GRS during the past four years — but I do pop in from time to time. I’m happy to see that it’s still doing so well, even in my absence. As I gave up the reins, gratefully others were ready to take up the mantle. There have been plenty of shining examples to celebrate from the past four years as well:

    How to handle people who undermine your success

    • January 6, 2012 – by April Dykman
    • April was always one of my favorite writers here at GRS. I loved learning from her progress. Here she shared some thoughts on how to handle haters in your life. As you work toward a better financial future, you will encounter people who think your choices are foolish. April — and the commenters — have some tips for coping with the criticism.

    The power of personal transformation: Change yourself, change the world</p>
    • July 16, 2012
    • In July 2012, I spoke at World Domination Summit. This is the written version of that speech, which was all about overcoming fear, finding focus, and taking action. I argued that by finding the courage to change what’s wrong in your own life, you’ll not only improve yourself, but improve the world around you. (This material has become the psychological core of my financial philosophy.)

    Romanticizing poverty and learning financial independence </p>
    • January 3, 2013 – by Kristin Wong
    • Kristin is another great GRS writer. In this piece, she talks about different perceptions of wealth and poverty — and how those perceptions influence our choices. Her articles always led to great discussions.

    All you need to know about saving for retirement</p>
    • May 15, 2013 – Robert Brokamp
    • Robert is another terrific contributor to GRS. The best part? He’s an expert on this stuff! He’s contributed many great articles over the years, but I particularly like this crash course in retirement savings. If you’re wondering where to start, start here.

    You are the boss of you: How to find success with money and life</p>
    • August 1, 2013
    • I’ve always said that nobody cares more about your money than you do. But I’ve come to realize that nobody cares more about you than you do. The key to success — in every area of life — is to understand that you control your own destiny. If you want to be successful with money and life, you must act as your own boss.

    What are savings for?</p>
    • November 21, 2013
    • After admitting that I spend a lot on travel, some readers were worried that I’d “relapsed” and was in danger of falling into debt. In this article, I argued that money is a tool. It’s not an end in and of itself. Once you have it, there’s no sense hoarding it. It ought to be spent to help you achieve your goals and dreams.
    Last year, staff writer William Cowie contributed a very unique series of articles explaining his theory of economic cycles. I found these fascinating. So fascinating, in fact, that I subscribed to his email list at His four-part series included:

    Thoughtful reading!

    Happy Thanksgiving</p>
    • November 26, 2015 – William Cowie
    • This is a great article that emphasizes success is about more than money. It’s a reminder that although Get Rich Slowly is fundamentally a site about finance, in the end money is only a tool. It shouldn’t be our primary focus, but something we use to help us achieve the things that are most important to us. Love it!

    29 Ways to build your emergency fund out of thin air</p>
    • January 18, 2016 – Donna Freedman
    • Donna has contributed a lot of great articles to GRS over the years. I liked this one, which provides tons of tips for boosting your saving rate. Saving more isn’t just for building an emergency fund; it’s also important for digging out of debt and, eventually, pursuing goals like homeownership and financial independence. A great article. (If you like Donna’s stuff, be sure to check out her very own money blog.)
    </p> Although I haven’t written much for GRS since 2012, I continue to dabble in personal finance. For instance, I spent four years writing the monthly “Your Money” column for Entrepreneur magazine. I also wrote articles for the Time magazine website. In 2014, I created the year-long Get Rich Slowly course. Last fall, I launched a new blog about how to achieve and sustain financial independence: Money Boss.

    GRS: The next generation
    What does the future hold for Get Rich Slowly? It’s my hope, of course, that Get Rich Slowly will continue to grow and prosper for another decade — and beyond! I’m proud of this site and the impact it’s had. It’s humbling to realize that a little blog I started on a whim has been able to help hundreds of people (or thousands, or hundreds of thousands!) dig out of debt and build savings.

    Though I don’t have insight into the inner workings of the site anymore, I know for a fact that the folks who own the site are committed to helping readers do what’s best with their money. And I appreciate that. So I firmly believe it will continue to thrive.

    As for me, I’ve un-retired. I’m resigned to the fact that I was born to be a money writer. I could never have predicted this career, but it seems to be the perfect mesh of my talents and interests. As long as I can continue to help people, I’ll continue to write. I enjoy it.

    And I hope to contribute at Get Rich Slowly every now and then. In fact, I’m currently working on another article for GRS that advocates saving half your income — yes, really! — so stay tuned for that. And the rest of my money writing will appear at Money Boss. While both GRS and Money Boss are about personal finance, in essence, they’re two sides of a coin: Get Rich Slowly is about mastering the basics of personal finance; Money Boss is for folks who are ready to go beyond the basics.

    Remember my old model that had “three stages” of personal finance? Well, I’ve expanded that to six (or seven) stages, and now most of my writing is geared toward helping people reach those latter stages.

    Posted Image

    In the meantime, Kim and I are on the back half of our RV trip across the United States. I’m writing this from Nashville, Tennessee. Soon we’ll move on to Kentucky and Missouri and Oklahoma. We’ll work our way back to Alabama before exploring Louisiana and then spending the entire month of June in Texas. By October, we should be back home in Portland. As we travel, we’re taking time to meet with long-time readers. So if you’re interested to grab a cup of coffee or an ice-cold beer, be sure to drop me a line!

    Until next time, my friends: Live long and prosper!

    <h2 style="text-align: center;">Thanks to J.D. …</h2> [Editorial note: Join the celebration on our Facebook page or Twitter.

    • #GRSTurns10 -- Tweet your thanks or congratulations
    • #HowIGetRichSlowly -- Add your best personal finance tip
    And thanks for your loyal readership!!!]

    From the Get Rich Slowly team:
    “Special thanks to you, J.D.! We love helping others master their finances and reach financial independence — and appreciate the opportunity to work with you in the effort!”

    (And super grateful to all the contributors, too — you’re the best!)

    From Kristin Wong:
    “GRS was the first money blog I followed regularly, and that’s because it’s such an engaging mix of practical advice and great writing. I’m so glad I started reading, and I’m honored to have been a contributor, too.

    “A big thanks to J.D., my fellow contributors, and the readers. You’ve all shared your stories and your perspectives, and not only were they interesting to read, they also helped improve my own finances. I thank you, and so does my bank account.”

    From William Cowie:
    “To JD Roth: The world is a better place because you are in it! Thanks for the honesty and wisdom! We are all better off for it!”

    From Lisa Aberle:
    “GRS was the first personal finance blog I found, and the one I’ve read the longest. When I started reading in 2007 or 2008, my financial life was chaotic – I needed help! JD’s honesty and authenticity drew me in from the beginning. And following along with his journey was so inspiring as I got my own finances under control.

    “Happy 10th, GRS! And thanks, JD!”

    Posted Image
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  2. Where to save your emergency fund

    Posted 30 Mar 2016

    This article is by GRS contributor William Cowie. Life is full of little bumps … like how our furnace went out at the onset of last season’s most severe cold snap. It’s bad enough that an emergency like that seems to happen at the most inopportune time, but what’s worse is the $6,000 bill that accompanies it. Where do you get $6,000 quickly when you need it?

    If you’ve set money aside for a rainy day, you’ll be less likely to go into debt — or to tap your retirement funds — when the bill comes. But recently, I heard Suze Orman advocate using your Roth Individual Retirement Arrangement (Roth IRA) as your emergency fund in a public television fundraiser broadcast.

    Like many here at Get Rich Slowly, she is a big fan of emergency funds. However, the concept of using your Roth IRA as the primary vehicle for your emergency fund is something we have never addressed.

    Posted ImageThe purpose of an emergency fund
    We might all agree that the purpose of a well-funded emergency fund is to help you meet unexpected events without going into debt, but the question of how much to save is a topic of endless discussion … and virtually no agreement. Some say three months’ worth of expenses; Ms. Orman recommends 12. Whichever amount you feel is sufficient, it usually is not trivial.

    And neither is the amount you want to set aside for your retirement. It’s easy to see where the temptation may arise to combine the two, as Ms. Orman (and others) recommend. But should you?

    Should you use a Roth IRA as an emergency fund?
    There are a number of reasons why using your Roth IRA as a vehicle for your emergency fund is a bad idea:

    1. Penalties. Think twice if you read a blog that glibly states that you don’t incur a penalty when you withdraw from your Roth IRA for an emergency. That’s wrong.

    It may sound true in theory that the actual contributions you withdraw are not penalized. However, you’re rarely able to pull that off in practice.

    • Example: Let’s say you’ve contributed $40,000 to your Roth over the years, and it’s earned another $10,000, bringing the total in your IRA to $50,000. Now, let’s say your furnace went out and you want to withdraw $6,000. You say, “Hey, I’ve put in way more than that, so the $6,000 I’m taking out is only from my contributions — I don’t need to touch any of the earnings.”
    Not so fast.

    The IRS and tax people call the money you put in (your contributions) “basis.” In other words, you say that you’re only withdrawing basis for your emergency — but the IRS doesn’t see it that way. When you take out the $6,000, they look at your IRA at the time and say 20 percent of the total ($10,000) is earnings and 80 percent (the original $40,000) is basis. Whenever you make a withdrawal, they deem 80 percent of the withdrawal to be basis and the other 20 percent as earnings.

    You don’t get to determine what is basis and what is earnings; they do. And they will penalize you on the portion of your withdrawal they consider to be earnings. So while, in theory, it may be true that you won’t be penalized on your basis which you withdraw, it rarely works out that way in practice.

    The topic of penalties on early withdrawals is complex and you will definitely need to see a tax professional to know if using your Roth IRA as an emergency fund makes sense. As a rough guess, though, that won’t be true in more than about 10 percent of all cases. For the final word on the rules and intricacies of Roth IRA withdrawals, please consult the definitive IRS source.

    Don’t just accept it when bloggers make glib statements like “tax-free in /tax-free out.”

    2. The time guillotine. You can only contribute $5,500 a year to all your IRAs combined (Roth and traditional). It’s $6,500 if you are 50 years of age or older. Once every year’s deadline passes, the guillotine comes down on that year’s contribution and you can never make it up afterward. As we pointed out in The extraordinary power of compound interest, the key to success when investing for your retirement is to start early, and so it is vital to contribute as much as you can as early as you can to get those contributions on the other side of the guillotine — and to keep it there so your money can keep compounding.

    When you make a withdrawal from your Roth IRA to fund an emergency, you have only 60 days to replenish it. After that, the guillotine comes down on that amount and you cannot put it back. If you are able to replenish your Roth IRA withdrawal in less than 60 days, of course, this is not an issue. But if you can, why not simply use the replenishment for the emergency in the first place?

    3. Economic cycle. Everyone knows that while most Roth IRA investments grow in the long run (like index funds do), they always fall victim to the downdrafts which the economy experiences every seven to 10 years. What if you needed access to your emergency fund at a time when your Roth IRA investments were at a low? You’d be forced to sell your investments at a loss.

    Some advocates of using your Roth IRA as an emergency fund counter that you should keep that part of your IRA in a money market fund to guard against a loss like that. But why? The return on those accounts is minuscule and you would be hard-pressed to discern a difference between tax-advantaged and not. You might as well keep that money in a regular account without any attempt to gain a tax advantage. Remember, you can only contribute $5,500 a year to your IRA. Why use part of that for something with no return? Far better to utilize that entire amount for investments which grow over the long term.

    4. Psychology. One of the keys to success in investing for retirement is to forget about it. Put the money in before you consider spending it, in other words. Withdrawing money from your retirement fund is a slippery slope: Once you start, it becomes very hard to stop.

    5. Liquidity. When an emergency strikes, you need to get access to your money fast. Few Roth IRA accounts will return your money within 24 hours — which isn’t helpful in an emergency, to say the least.

    It seems like it would be a better idea to find another vehicle for your emergency fund.

    Where to save your emergency fund
    The first attribute of a good emergency fund is liquidity — as in, you need to get at these funds within a few hours. The second attribute is safety, meaning it can’t be tied up in an asset that could fluctuate in the short run, causing it to be under water when you need to make that quick withdrawal. There are a few alternatives which pass the liquidity and safety tests:

    1. Your mattress. It may not be politically correct to say this these days, but few options beat your mattress for liquidity. Another reason to keep at least a couple of hundred dollars in cash somewhere in your home? When a disaster strikes and power goes out, you may find that the stores and other places you could ordinarily process debit or credit cards — and/or your friendly ATM — may be out of power (or out of cash).

    2. Savings account. In my opinion, the lowly savings account is by far the best place to store most of your emergency fund. The deposits held in an ordinary online savings account are protected against bank failure by the FDIC, and you can get quick access to your money whenever you need it. Most online savings accounts allow you to transfer the money to the account backing your debit or credit card, so you can usually pay for what you need within minutes.

    3. Certificates of Deposit (CDs). A CD usually pays more than a savings account. Granted, you still need a microscope these days to tell if you earned any interest — but every little bit helps, as my wife likes to point out. For higher liquidity, no-penalty CDs are available, or you can ladder your conventional CDs to greatly increase liquidity. And, of course, CDs are protected by the FDIC too.

    4. Prepaid credit or debit card. This is handy, especially for travel emergencies. If your first stop after an emergency is a hospital, you don’t have time to access savings accounts and things like that. Having a prepaid card handy will often take care of your immediate needs, giving you time to mobilize your second and third lines of defense.

    Your best emergency fund strategy
    The downside of the four suggestions above is they pay no interest, or close to nothing. When you look at the gamut of emergencies against which the fund is meant to protect, you find that, as the amounts increase, the probability you’ll need that entire amount decreases. For instance, if you lose your job, you’re not going to need all 12 months of your emergency fund right away.

    The longer you tie your money up, the more you get in terms of interest. That being the case, you might want to consider various layers of funds for your emergency fund money:

    • A few hundred dollars in cash for really quick access in case of a power emergency
    • A few hundred dollars on a prepaid card
    • A bigger chunk in an online savings account or no-penalty certificate of deposit.
    • A chunk in conventional CDs, laddered for staggered maturities.
    Which proportions should go into each account will depend on your situation and the emergencies for which you are preparing. In addition, take into account that interest rates are expected to rise in the coming years.

    Keep in mind that your Roth IRA will always remain in the background as a final if-it-comes-to-that source of money for seriously big emergencies. However, as regards using your Roth IRA to house the bulk of your emergency funds, the downsides seem to outweigh any pluses.

    Any consideration of the use of a tax-advantaged vehicle like a Roth IRA is likely to be more complex than you might think, especially because Congress keeps changing the rules. What you read two years ago is probably out of date in some respect. But regardless, if you must consider using your Roth IRA as an emergency fund, it’s best to consult a tax professional.

    The far better route is to use simple, easy-to-use and easy-to-understand financial products like an online savings account, a CD, or both.

    What are your thoughts? Do you use your Roth IRA as an emergency fund? How do you accommodate for the potential that you might have to sell at a loss? Is it ever a good idea to think of your Roth IRA as your emergency fund?

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  3. Plan a better vacation with a credit card offer

    Posted 23 Mar 2016

    This article is by editor Linda Vergon. The Starwood Preferred Guest® Credit Card from American Express has a limited-time offer (available until March 30, 2016) that could help you plan a bigger, better summer vacation if you act quickly. This card was recently given a 2016 CardRating’s Editor’s Choice award as one of the best travel credit cards available. ( is one of our partner sites.)

    Turn regular purchases into vacation perks
    New cardholders that make $3,000 in purchases within the first 3 months of account opening receive 35,000 bonus Starpoints®. The advantage here is the prospect of redeeming points for travel benefits – like free stays with no blackout dates at over 1,200 Starwood Hotels. For example, you can get eight free nights at a Category 2 Hotel like the Sheraton Pretoria Hotel in Australia from this bonus offer alone. Note: See also How to Choose a Credit Card for tips on finding the right credit card for you. Our partner site also has articles to help you find the right card be it a cash back credit card or balance transfer credit card. Their Credit Card Comparison Table also allows you to easily search dozens of current credit card offers.

    In fact, this is the biggest point promotion they’ve ever made. But the Starwood Preferred Guest® Credit Card from American Express has been popular among seasoned travelers because “Starwood’s Starpoints® are a higher value than the one-cent-per-point industry average” according to CardRatings’ review of the card. In addition, there are no foreign transaction fees on international purchases. You’ll need to hurry to get this card, though. Here are the particulars:

    <h2 style="text-align: center;">Starwood Preferred Guest® Credit Card Offer</h2>
    • Get 35,000 bonus points when you make $3,000 in purchases in the first three months. Offer ends 3/30/2016.
    • Earn up to 5 points for every dollar you spend at Starwood Hotels
    • Earn 1 point on all other purchases
    • 0% introductory annual fee for the first year, then it’s $95
    • No foreign transaction fee on international purchases
    • Other perks include unlimited complimentary Boingo WiFi when you enroll, free in-room premium Internet access, and access to discounts and presale tickets for live events

    Other travel rewards cards
    If you’re not tied to the Starwood Hotel properties, you might consider the Chase Sapphire Preferred® Card to stretch your vacation budget. Its introductory offer features 50,000 points when you spend $4,000 in the first three months after you open the account. That’s equal to $625 toward airfare or hotels when you redeem through Chase Ultimate Rewards ®.

    With the BankAmericard Travel Rewards® Credit Card, you can get 20,000 points after spending only $1,000 within the first 90 days of account opening – and there is no annual fee ever. Plus, they have a special 0% introductory rate on purchases for 12 billing cycles.

    Why these promotions?
    Promotions like these reflect a higher level of competition amongst credit card companies. When American Express and Costco decided to part ways, for example, it must have stung. But it also seems to have renewed their interest in competing for your business. Of course, these offers only make sense if you can pay off what you charge every month, so take advantage of the opportunity if it fits your financial goals and ability. We just wanted you to know.

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  4. Is an annuity a good investment?

    Posted 21 Mar 2016

    If you have ever met with a financial adviser about investments, chances are he or she may have proposed annuities as a good way for you to go. However, when you scan the blogosphere for posts about investing, you hardly ever read about annuities. You read about index funds, mutual funds, stocks and real estate and now and then about bonds … but hardly ever anything about annuities.

    Should you consider annuities?

    What is an annuity?
    With an annuity you turn a lump sum investment (usually $5,000 or more) into a steady stream of cash flow back to you. What sets most annuities apart from the more traditional investments is most of them will pay you that cash as long as you live.

    That is an important distinction. When you invest in an index fund and you retire, you have a finite amount of money to draw from. You have to decide how much to draw every month or quarter to live from. If you draw too fast, you will run out of money; if you draw too little, you will have money left over at the end. None of us know how long we will live and, therefore, we can never know exactly how much to draw.

    An annuity typically solves that problem — the annuity provider assumes the risk. If you live long, they will lose money on your transaction and, if you pass away early, they will gain. They use actuarial tables to guide them in that risk. It should come as no surprise, then, that most annuity issuers are life insurance companies.

    Types of annuities
    There are two types of annuities, and within each there are two more subdivisions. You can picture it in the following matrix:

    Posted Image

    Deferred annuities begin paying you after some period to which you and the provider both agree. For instance, if you receive a $20,000 inheritance when you are 25, you can specify that the annuity be deferred for 30 years. You agree to begin receiving payments when you are 55 years old.

    Immediate annuities begin paying you right away. Taking the same example, an immediate annuity will begin paying you a monthly sum right away from the $20,000 with which you buy it. (Naturally, it follows that the longer you defer the annuity, the higher those payments will be.)

    Fixed annuities will pay you a fixed amount every month, quarter or year (depending on which period you select). The amount will never go up or down, even if the economy, stock market, real estate market or interest rates go to that hot place in a hand basket.

    Variable annuities will pay you an amount which will depend on the economy, the stock market, the bond market and the real estate market. If those variables do well, a variable annuity will pay you more than the fixed annuity of same initial value and term would pay. However, if those things do take the trip to the hot place, your cash flow will suffer.

    Benefits of annuities
    1. Risk transfer. Probably the biggest benefit from annuities is that the risk of running out of money is transferred from yourself to the insurer. You may get less of a return than when you invest for yourself, but at least you know you will get it until you die.

    2. Risk reduction. Some annuities offer you a guaranteed minimum return. If the markets tank, you are protected. The flip side of that equation, of course, is that your upside is limited. People who are extremely risk-averse usually are prepared to take lower yields in return for the peace of mind when headlines are screaming about the next financial collapse.

    3. Taxation. Most annuities accrue their earnings or interest “behind the tax curtain,” i.e., without incurring any income taxes. When you withdraw such annuities, however, you will pay ordinary income taxes on the increase, and you forfeit any capital gains taxation from which you may have benefited.

    4. No limits. Unlike retirement funds — like a Roth IRA or 401(k) fund — there is no limit to how much you can invest in annuities. This benefits people who either make lots of money or who want to catch up on their retirement investing. If you make good money and you hit your contribution limits for your 401(k) and IRA funds, an annuity allows you to keep investing for the future while locking in the benefit on the gains on those investments.

    5. Protection from creditors. If you have a reasonable net worth and make your living in a profession with a high risk of lawsuits, such as a medical doctor, it is nice to know that your annuities are protected in several states from any claims. Therefore, buying annuities can be a good strategy to protect your assets to ensure that your retirement funds remain safe for your old age.

    Drawbacks of annuities
    1. Low yield. Because most annuities include an insurance risk, the actual returns earned on such an investment will be smaller than you can earn if you invested for yourself in things like index funds, property, etc.

    2. Illiquidity. Deposits into annuity contracts are typically locked up for a period of time, known as the surrender period. These surrender periods can last anywhere from two to more than 10 years, depending on the particular product. Surrender fees are typically steep, starting out at 10 percent or more, although the penalty typically declines annually over the surrender period.

    3. Fees. The high fees of managed mutual funds has driven the growth of index funds; but fees for annuities are even higher, making it one of the most criticized aspects of annuities. The annuities typically pushed by brokers and investment advisers carry commissions around 10 percent. If you invest, say $50,000, $5,000 will be taken right off the top and given to the person who sold the contract. That leaves only $45,000 of your money to earn a return. In addition, many states have what is known as a state premium tax, which is also taken right off your initial investment.

    4. Redundancy. Investing IRA money into an annuity to get the tax benefit (as some are advised to do) is a waste, because everything accruing in an IRA is already sheltered from income taxes.

    5. Shady tactics. In a way not unlike the timeshare industry, annuity sales practices have attracted a lot of criticism. Most people buying annuities don’t fully understand their options. Many are afraid of investing in general and are drawn to the promise of someone else handling their investing for them. The result is that many contracts are written to benefit the seller, while leaving the buyer with much less than they could have gotten from other, simpler, investments like normal index funds. After all, the only things insurance companies can invest in are the very same things individuals can: stocks, bonds and real estate.

    Not all annuity sellers are shysters and not all contracts are detrimental to their buyers. Unfortunately, though, there are enough such cases to cause buyers to do their homework … the very thing they wanted to avoid having to do in the first place.

    6. Inheritance taxes. For example, let us say you have invested, say, $50,000 in index funds through your IRA (Roth or traditional). When you die, that investment is worth, say $150,000. Your heirs will receive an inheritance valued at $150,000 (called the basis). If they turn around and sell it right away for $150,000, they will owe no income taxes, because that investment cost them $150,000 (the basis).

    However, if you invested the same $50,000 in an annuity, which is also worth $150,000 at the time of your death, your heirs are deemed to have received something worth $50,000. If they sell it the same way as the index fund, the $100,000 gain will be taxed as ordinary income. There is, as they say, no step up in basis, as with normal investments.

    The details may vary depending on your situation, but the principle of no step-up in basis remains pretty consistent in annuities.

    The math behind the investment
    Say you have $50,000 to invest and you want to wait 20 years before you begin to draw against it. It’s simple math to figure our more or less what that will be worth if you invest your funds in a simple, low-cost index fund. The insurance company will effectively do the same. (Index funds generally are the best-earning stock investments out there, so they will earn that or less.) Let’s be conservative and assume a 7 percent average return on that investment. The insurance company will take about 1.5 percent annually in fees, and that will leave you with 5.5 percent. Why do it their way?

    As a straight-up investment, annuities rarely make sense. It is only when you add in the insurance protection (which isn’t free) that it makes sense. It comes down to the value you place on that insurance.

    Should you buy annuities?
    As noted above, annuities generally earn less than simple investing but can be effective to reduce risk. As a general rule, annuities make sense for people with high incomes and high exposure to capital loss, as well as to people who are sufficiently risk-averse to accept returns below what is achievable through a normal, diversified investing portfolio.

    They do not make sense as a simple retirement investment, because you can achieve the tax deferral benefit within your IRA and/or 401(k) retirement plans. (The only exception to this is if you are about to exceed the maximum 401(k) and IRA contributions.)

    They also rarely make sense for seniors over 60, because other investment options with higher payouts are available to them. For example, municipal bonds yield more attractive payouts with no reduction in principal.

    Everyone’s situation is unique and, therefore, all of what I’ve mentioned above is given only as a general guideline. If you have a lump sum to invest, pay the money to consult an adviser who does not sell annuities.

    What are your thoughts about the risks and benefits of annuities? Is an annuity a good investment from your perspective?

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  5. In search of low-risk investments – 11 things to know about bonds

    Posted 2 Mar 2016

    This article is by GRS contributor William Cowie. Posted Image

    Chances are you have never purchased a bond … and probably never will. Same with me. I simply don’t have the capital to commit over $100,000 to purchase the typical bond. But I do believe there are reasons to learn about bonds nonetheless, even if it’s an investment you don’t think you’ll ever make. Never say “never,” right? Well, the fact is…

    • You may already be invested in bonds.

      Whether directly or indirectly, you may already be invested in bonds through your retirement plan, mutual fund or even an annuity. In that case, knowing how the bond market works can help you make better, more informed decisions about your financial future instead of blindly trusting that someone else will put your interests ahead of their own.

    • You need to diversify.

      The need to diversify is a basic concept that virtually everyone learns as they start investing. Certainly, any experienced investor will confirm that diversification is one of the main considerations for long-term investing success. But if you’re already invested in stocks or stock index funds and want to diversify, what do you diversify into? Generally speaking, the number one investment alternative is bonds.

    • You need to manage risk and preserve your capital.

      Everyone knows the stock market can be risky. If you understand the bond market, it can give you close to a risk-free investment. Of course, the return from low-risk investments is lower; but if low risk is what you are looking for, the bond market is pretty close to the only place you can get it.

    • It’s a mistake to think the bond market is insignificant.
      If you watch the evening news, it’s easy to conclude that the stock market is the most important investment market out there. Wrong. Globally, the bond market is more than twice the size of the stock market.

      Moreover, most paid investment professionals regard the bond market as the foundation of all securities investments, not the stock market. When the bond market sneezes, the world’s economy catches a cold. From my perspective, not understanding the most significant investment market is tantamount to flying blind.

    11 things to know about bonds
    Bonds have a few attributes which, on their own, may seem obvious and even irrelevant. However, when you put them together, you begin to understand why the wealthiest individuals and financial powerhouses prefer bonds over equities (stocks).

    • A bond is a debt instrument.

      Cities, counties, school boards, corporations and governments use bonds to borrow money. Issuing bonds allows them to borrow from thousands of investors instead of a single bank.

    • A bond is repaid.

      Whereas stocks last forever (or at least until the company is taken over or goes under), bonds have a finite life. As with all loans, bonds get repaid. Some bonds get repaid five years from their date of issue, some within 20 years, and some after 50 or even a hundred years. Investing $100,000 and getting all $100,000 back is a major attraction to any investor – and it also helps explain why large investors love bonds.

    • A bond is repaid on its maturity date.

      The date a bond gets repaid is known as its maturity date. For example, Apple issued bonds in 2015 as a way to take on debt so they didn’t have to repatriate the billions of dollars in cash they keep overseas. They issued $2 billion worth of bonds with a term of 30 years, which means they will repay the $2 billion in February of 2035. They also issued some 5-year bonds which will be repaid in February of 2020. The amount that is repaid to the bond holder at maturity is known as the “face value.”

    • A bond does not grow.

      With so much attention focused on growth in the stock market, many individuals do a double take when they hear the largest investment category in the world is guaranteed not to have any growth. But it’s true: In 2035, Apple will repay all the holders of those $2 billion in bonds exactly $2 billion.
    Why in the world, then, do investors flock to bonds? The first reason is the low risk mentioned above. The second reason is…

    • A bond pays cash interest.
      Many stocks never pay a dividend. Warren Buffett’s company, Berkshire Hathaway, is famous for never having paid a cent in dividends. It may come as a bit of a surprise to those just starting to invest, but most of the world’s seasoned investors will only invest in something that gives them a cash income on a regular basis. (Mr. Buffett, for example, will only invest in businesses which provide a generous quarterly cash flow.)

      The investment yielding regular cash flow more than almost any other is bonds. Bonds usually yield a check in the mail for interest every quarter. The rate of interest (commonly called “the coupon rate”) is fixed at the time the bond is issued.

    • A bond can be liquidated before it matures.

      If you own a group of those Apple bonds which mature in 2035 and you need to raise some cash due to unforeseen circumstances, you have an out. There is a bond market, as active as the stock market, where bonds change hands every day. If you still get and read a newspaper, you will see bond listings right alongside the various stock market listings.

    • The market price of a bond can fluctuate.
      One of the attributes that sets the bond market apart from the stock market is how the pricing works. Corporations grow and their profits grow; and over the long term, that is what causes individual stock prices to grow and make the stock market as a whole grow too.

      But as I mentioned above, bonds don’t grow. However, the market values of bonds do go up and down. The primary cause of those bond-price movements is interest rates. The explanation is too long to include here, but there is an inverse relationship of interest rates to bond values.
    <h2 style="text-align: center;">The inverse relationship of interest rates to bond values</h2>
    • When interest rates go up, bond values go down.
    • When interest rates go down, bond values go up.

    • A bond has a dual liquidation value.
      This is one of the most unique features of a bond as an investment: It has two possible liquidation values. If you hold the bond until it matures, you will get back the full face value of the bond. However, if you sell it on the open market, you may get either more or less than the maturity value.

      In times of dropping interest rates, you generally make a profit on the sale of a bond prior to its maturity. However, when interest rates rise, you are likely to lose money when you sell a bond. (This is why the big-money investors watch the Federal Reserve Board’s interest rate moves like a hawk.)

    • A bond is rated for risk.
      One of the main reason investors love bonds is the exposure to risk is generally low. But as also noted above, bonds often have long lives and, as we all know, things change as time passes. Sometimes risk shifts as a result of those changes.

      For example, the clothing manufacturer Liz Claiborne was a hot brand a decade or two ago. The company was quite sound and profitable. They issued bonds back then; but fashions changed, causing the company to fall on hard times. Enter the risk watchdogs: the ratings agencies.

      Risk is such an issue in the minds of bond investors that an entire industry (started by the now-well-known pair, Mr. Standard and Mr. Poor) sprung up to calculate and publish the risk for pretty much every bond that is traded on the open market. With such complete information available to investors, if a company wants to raise money by issuing bonds, they would be dead in the water without a rating.

      Usually, investors will not touch unrated bonds. And so, as Liz Claiborne’s financial condition began to deteriorate, the ratings agencies began to question the company’s ability to repay those bonds and began to downgrade their bonds. When that happens, investors want a higher return to compensate for the higher risk.

    • A bond issuer can default on a bond.

      The greatest risk on a bond is a default. Even though the percentage of all issues outstanding which default is minuscule, defaults do happen. However, because the ratings agencies monitor issuers’ ability to repay, investors have plenty of time to sell those bonds with minor losses. By the time a default actually occurs, the only investors left are those who relish the high risk.

    • There is a fail-safe in the event of default.

      Does the word “default” conjure up images of losing all your money? Think again. When the City of Detroit famously defaulted on its bonds in 2013, bond holders did not lose everything. In fact, most didn’t lose a penny because the bonds were insured. (That’s right. You can insure bonds, but not stocks.) Others got wind of Detroit’s deterioration a long time ago and sold their bonds when the losses were still minor. In practice, therefore, defaults are not nearly the catastrophe the popular press likes to paint.

    The big picture on low-risk investments
    Even though nothing is totally risk-free, bonds usually offer the lowest level of investment risk. Of all the bonds you can buy in the world, United States government bonds are generally considered the safest. The U.S. has never defaulted on any of its bonds before. Granted, the future is not always the same as the past, but upon what else can you make a determination?

    Therefore, the rate the U.S. pays on its bonds is generally considered the risk-free rate of return. Any other investment you make, because it carries a higher risk, has to offer investors a higher rate of return. In other words, the U.S. bond interest rate is the floor in terms of the overall investment market. Which is just one more reason you, like all other investors, need to have a basic understanding of the bond market, the cornerstone of the overall investment market.

    If you’ve never invested in a bond, would you consider diversifying with them? If you have invested in bonds, did it present any issues? What are the benefits/downsides as you see it?

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