A comparison between a Roth IRA, Traditional IRA, 401(k), and Roth 401(k) are outlined. Tax ramifications and contribution differences are stated. Where to put your retirement money, the importance of saving early and often for optimal growth, and the often omitted benefits of Roth accounts. This post combined with the investing primer provide a good starting point to get an understanding of how to devise a retirement plan and invest one's assets for the long haul.

Real Estate Investment Trusts (REITs) are examined broadly, but especially as to their appeal in retirement accounts.

Which accounts (taxable or tax-advantaged) to place various investments to minimize one's tax burden is outlined.  Various research reports and hypothetical growth scenarios are outlined and analyzed.  Conclusions as to the importance of asset location over various time frames are drawn

Note: This post serves as an organizational tool for easier navigation of the site and is subject to change upon the completion of new applicable posts.

Investing Strategies


A post detailing the basics of the best methods and practices for the typical investor over the long-term. Read this post if you want an overview of my investing philosophy for the majority of individuals. The only seven mutual funds you will ever need to own, asset allocation, re-balancing, and more.

Simple to implement passive low-cost index investing portfolios as devised by some of the greatest investing minds. Performance, asset allocation, and placement of funds for optimal tax efficiency are discussed.

Which accounts to place various investments to minimize one's tax burden is outlined.  Various research reports and hypothetical growth scenarios are outlined and analyzed.  Conclusions as to the importance of asset location over various time frames are drawn.  While asset allocation, security selection, and fees may be of the utmost importance, asset location is frequently overlooked even though its consequences can be substantial.

The Fama and French Three Factor Model is introduced to help explain the benefit of small-cap and value asset classes.  These advantages are assessed from an expected return and diversification standpoint, and recommend weightings of these classes are presented.   Data are shown that strongly support the conclusion that while small-value is more volatile and risky, individual investors more than make up for this based on historical returns.

Why investors should seek out stocks with reliable dividend payouts and reasonable yields. The power of compounding and long-term performance of dividend paying stocks.


The pros and cons of mutual funds and ETFs from a cost, performance, and investing style standpoint. Conditions as to when it makes sense to invest in mutual funds over ETFs and vice versa.

Important criteria to examine when picking an individual stock are explored in this post. Dividend yield, growth, and fundamental valuation techniques are discussed among other criteria.

With interest rates extraordinarily low (and remaining low in the foreseeable future), alternatives to savings accounts are examined for the portion of one's portfolio not dedicated to long-term growth, but not part of one's emergency fund. Specifically, the appeal of municipal bonds and muni bond funds are detailed.


A common strategy of finding companies with solid balance sheets and discounted stock prices is explored. Specifically, how to set up screens to find such stocks that meet Benjamin Graham's NCAV criteria, tools to use to evaluate such companies, and inherent risks involved with utilizing this strategy.

Harry Browne's Permanent Portfolio - which is designed to increase purchasing power over any economic cycle by dividing its assets into four equal part of gold, stocks, bonds, and cash - is explored. Applicable mutual funds and ETFs are explicitly outlined, while the historical returns of each asset class as well as the overall strategy's returns are relayed and analyzed.

A book review that also outlines an investing strategy applicable to those with the requisite time and knowledge base. Dividing the portfolio into various segments (foundation, rotational, and opportunistic) based on objective and growth prospects as well as how to invest each portion is examined. The appropriate allocation of such aforementioned segments, comparisons to a more passive investing approach, and diversification of strategies is investigated.

Sy Harding's market timing strategy, the Seasonal Timing Strategy (STS), is back-tested and contrasted with buy-and-hold. A performance analysis is conducted over bull and bear markets (over an 18-year period) as well as year-by-year fluctuations. Conclusions as to the efficacy and feasibility of such a strategy are drawn.

Popular market timing strategies commonly employ exponential moving averages.  One such simple strategy utilizing long-term 50-, 100-, and 200-day EMAs is back-tested with a $10,000 investment in the S&P 500 commencing in 1993.  A performance analysis is laid out in addition to year-by-year results and volatility measures. Determinations of the reliability and future ramifications of this strategy are outlined.

A common sector rotation strategy using Fidelity's Select Mutual Funds is back-tested and contrasted with buy-and-hold as to its performance and inherent risk factors and volatility.

Note: This post serves as an organizational tool for easier navigation of the site and is subject to change upon the completion of new applicable posts.

Where to Invest Short Term Funds

With interest rates extraordinarily low (and staying low in the foreseeable future), savings accounts and CDs currently offer paltry returns. According to, the average MMA/Savings APY is currently 1.167%, while a 6-month CD averages 1.294%. My savings account, which used to pay out a 5% APY in 2007, is down to 1.25%.

Is there any better place to stash your savings?

Experts agree that individuals should have 6-months living expenses saved in a highly liquid form (checking, savings, money market) in case of emergencies (job loss, medical, etc.). In the current economic and job climate, most planners have increased your necessary emergency savings to 9- to 12-months of your living expenses. Walter Updegrave, Money Magazine senior editor, concludes:
Nothing would please me more than to lead you on an excellent adventure during which you could earn much loftier gains on your ten grand than it's getting now in traditional secure savings vehicles like money-market funds, savings accounts and CDs. But I would be misleading you if I told you that I, or anyone else, could pull off such feat. [...] As bad as it may feel to have your everyday savings earning a paltry 1% to 2% in a bank money-market account or short-term CD, it's a lot better than watching the value of your savings plummet because you bought investments that simply weren't designed to hold their value over the short term.

I certainly agree with that assessment, but if you're willing to endure a bit more risk for a portion of your assets, but not enough risk to invest in stocks or stock funds, I think there are some viable alternatives. Still, the largest portion of your liquid emergency fund should remain in checking/savings/money market. For the best rates around the nation and near you, check out the Bank Deals blog. He outlines a weekly summary and rates, highlighting the highest APYs in the nation as seen in this post. At these levels, it's probably not worth considerable effort to chase rates as they change frequently and finding an additional 0.25% isn't worth several hours of your time if it makes banking more difficult in the future. However, if it's an easy transition, then I'd encourage moving your money to an alternative institution.

I am following his advice and have most of my emergency stash in savings and checking. But there is a segment of my portfolio that while I'm not comfortable considering it as part of my long-term growth portfolio (i.e. heavily skewed towards equities), I am okay with taking on a bit more risk to slightly augment my yields. For this, I have turned to federal tax-exempt municipal bonds (muni bonds).

Vanguard has several federal tax-exempt muni bond funds to choose from. In addition, it offers certain funds that are even exempt from state taxes, depending on your state. Typically, shorter-term maturities are lower risk and lower reward, while long-term muni bond funds offer more risk and potential for reward. For example, Vanguard Short-Term Tax Exempt's (VWSTX) best 3-month return in the last five years was 2.07%, while its worst 3-month return was -0.49%. On the other hand, Vanguard Long-Term Tax Exempt's (VWLTX) highest 3-month return was 10.26% and its worst loss was -7.15%. Although these figures may seem high to some observers, Vanguard 500 (VFINX) has figures of +25.85% and -29.64%, respectively. Thus, as you can see, compared to equities, muni bonds (as well as all types of bonds) are less risky (see this chart for a more graphical representation), although still not as safe as a savings account. I cannot emphasize that enough. If you think it's guaranteed to make money, you are wrong. For me, though, this added risk is acceptable for my objectives.

I find tax-free yields especially attractive in this current climate, but one could just as easily consider bond funds that aren't exempt are compare the yields. Let's compare Vanguard Intermediate-Term Tax Exempt (VWITX) with Vanguard Intermediate-Term Bond Index Fund (VBIIX). The figure below compares performance information on these funds without taking tax ramifications into account:
(Click to enlarge)
Note that the muni bond is actually less risky and volatile than the bond index (as evidenced by the betas of 1.46 vs. 0.88 over the last 10 years and the magnitude of the best and worth 3-month returns). With the caveat that the muni bond fund is actually slightly less risky and ignoring the difference in potential performance for now, let's strictly look at yields and see what would be a better deal. VWITX is currently yielding 3.93%, which is exempt from federal taxes (although state taxes still apply), while VBIIX is yielding 4.55%. Assuming that you're in the 25% tax bracket, that 3.93% tax free yield is actually equivalent to 5.24%! That is, the muni bond fund's yield is actually higher when considering the tax ramifications and if you thought both funds would remain stagnant, VWITX would be the better choice by a fairly significant margin. You can calculate it yourself given different tax brackets using the taxable-equivalent yield calculator found here. You're not going to find 5.24% in any savings account or CD rate, that's for sure. Not even close. Although clearly they aren't equivalent investments.

Since I wanted an investment with the potential for better returns than my current 1.25% APY from my savings account, I have slowly but surely placed money into an intermediate-term municipal bond fund. I started the process in January and the return since then has been nearly 9%. I feel confident that my returns will outperform that of a traditional savings/MMA account. However, I cannot over-emphasize that they aren't equivalent from a liquidity or risk standpoint. The increased risk and reduced liquidity were negative facets that I was willing to take on for the potential for slightly better returns, but every individual must assess his or her own situation on its own. It might not be the proper choice for you and your situation. Or it might make more sense for you to invest in more traditional bonds depending on various factors, but most notably your tax bracket.

I left making this point for the end, but it is quite important. You should never invest in something you don't understand, so if you have no idea what municipal bonds are, don't invest in them. For a primer on municipal bonds and what they are, read this article: "The Basics Of Municipal Bonds."

In the end, there aren't many great places to place your short-term money for reasonable growth. After placing the vast majority of your emergency fund in savings/checking/MMAs, for some individuals it might make sense to check out municipal bonds and muni bond funds. For me, it certainly did.

Some Credit Cards do not Report Your Credit Limit to the Bureaus

Credit cards typically report various information to the three credit bureaus (Experian, TransUnion, and Equifax). The three main figures that a credit card reports are your payment history, your current balance, and your credit limit. Each contribute to your FICO Score, which is key in determining if lenders loan you money and what interest rate they charge you. The higher your score, the lower the risk you are deemed and more likely to get a better deal.

Payment history (on-time payments, long-term reliability) is approximately 35%, length of credit history is 15% (firms like to see you've established a pattern over a long period of time; for this reason, don't cancel your oldest credit card unless you really have to), inquiries are 10% (excessive applications for credit in the last year makes it appear that you're taking on more debt than you can handle), mix of credit is 10% (more favorable to have different kinds of accounts), and finally your utilization or debt is 15%, which uses your credit limit to calculate.

I recently received my credit report and much to my chagrin, one of my credit cards reported my high limit and credit limit as $0, even though my credit limit is far greater than that. This affects the credit utilization, which is calculated simply by dividing your combined credit balances by the total credit limit. You want it to be as low as possible, with the highest FICO scorers having a utilization below 10%. For example, say somebody has two credit cards: one with a $5,000 limit and the other with a $10,000 limit. For the card with a $5,000 limit, they have a $1,000 unpaid balance while the $10,000 limit card has a $2,500 balance. Assuming both cards report their credit limits, this person's credit utilization would be about 23% ($3,500/$15,000). However, if your $10,000 limit card reports the credit limit (and high limit) as zero, your utilization shoots up to 70% (!) for no fault of your own. You should always strive to be below 35%.

I'm honestly not exactly clear as to what the advantage is for the company to not report your limits - I believe it has to do with a competitive advantage and making it more difficult for other companies to get your business. To me, it is incredibly annoying and should be illegal, but it's not.

Apparently, there a wide variety of credit cards that don't report credit limits. Instead, some of them report your high balance as your credit limit. That is, the highest balance you have ever had on that card effectively becomes your credit limit for credit reporting/scoring purposes. If you had a large purchase one month, but typically only charge a few hundred dollars, then this might not be a huge difference for you. On the other hand, if your spending is consistent on the card and your balance and high limit are close, then it might be an annoyance. Reportedly, American Express Charge Cards report your high limit instead.

Others, including mine, still leave the high limit as $0. All else being equal (rewards, APY, etc.), I'd avoid such credit cards. This is my oldest credit card though, so I'm keeping it open to enhance my credit length. For your information, it's the Citi AAdvantage MasterCard. Frequently, no pre-set spending limit cards also don't report your credit limit as well as Capital One cards.

In the end, this isn't something I looked into when choosing a credit card, but it might be something you want to consider. For me, I barely use that particular card so it won't make a huge difference, but it still would be nice to lower my utilization percentage. Just my annoyance of the day.

Note that this is the first post unrelated to investing and more in the personal finance realm. Future posts may also be in this category as this blog is broadening in its scope.

The Power of Dividends

Two good articles in today's Wall Street Journal: "Stock Dividends Make a Difference" and "Hedge Funds Gain in July but Underperform Stocks." With these topics in mind, I think now is a good time to explore the power of dividends over the long-term and why you should seek out companies that have been reliable in paying dividends over time. A future post will explore hedge fund performance.

Basic Premise

The power of compounding reinvested dividends over a long period of time is nothing short of miraculous. Think about it. Let's say you invested $10,000 in a stock with a 5% dividend yield paid out annually. After a year, you'll have $10,500 assuming no change in stock price and you'll earn 5% on $10,500 instead of just the original 10k the next year. That may not sound like a huge difference, but over the course of time, this continual building upon itself really adds up.

After 20 years, assuming the stock price hasn't gone up (or down) one penny, you'd have a staggering $26,532.98! An increase of 165% and that's not including any capital appreciation in the stock price. Essentially, reinvesting dividends is like an automatic money-making machine that never stops even if the stock doesn't go up one penny!

Real-Life Examples

Consider these real-life examples to further illustrate this point.
  • Johnson & Johnson (JNJ) - If you had invested $10,000 in JNJ back in 1975, you'd have approximately $752,750 today (a 7,427.5% increase). Your 129 shares you purchased in 1975 would have turned into 12,500 shares after splits and dividends.
  • General Electric (GE) - Even though it's been battered tremendously in the past year, if you had invested $10,000 in GE in 1975, you'd have about a cool $1.49 million today. Your 259 shares purchased in 1975 would have turned into 38,461 shares.
  • Coca-Cola (KO) - To illustrate this point even clearer, let's shorten the timeframe tremendously and choose a stock that hasn't performed nearly as well. Coca-Cola is down nearly 20% in the past 10 years. But if you had invested $10,000 in KO in 1999, you would have now approximately $12,400, for an increase of 24%. Your 167 shares would now be about 210 shares. Not nearly as impressive as the other examples, but the stock has performed poorly and we cut the timeframe in half. And KO's dividend yield isn't earth shattering either at 3.2% currently. It's just been reliably paid, and that reliability pays off.
I could have illustrated this point with many other companies including Pepsico (PEP), Proctor & Gamble (PG), Colgate-Palmolive (CL), and many more. The point is that they all pay reliable dividends. Not only do the dividends themselves pay handsomely and build upon themselves over time, but dividend-paying stocks have outpeformed non-dividend paying stocks historically even when completely ignoring the dividends.

Capital Appreciation vs. Dividends

Frequently, it is posited that equities have gained an average of 10.3% a year since 1920. Well, the majority of this increase is because of payments in the form of dividends. As you can see in the graph below, for large cap companies from 1980-2004, capital appreciation has only accounted for about 25% of the return on investment, while dividends account for approximately 75%. This fact is lost on many investors seeking to maximize their returns over a long period of time. Looking at it another way, over a 20-year period, capital appreciation has returned 381.9% for the S&P 500, while reinvesting dividends in the S&P 500 on top of the capital appreciation has resulted in a 905.1% increase in your investments.

Not only that, but before even taking dividends into account, the capital appreciation of dividend-paying stocks have outperformed non-dividend paying stocks since 1970 as the graph below illustrates.

(Click to enlarge)
When choosing what stocks to invest it, check out the dividend payout ratio and confirm it's been consistent. A great site to look at is They will give a star rating based on how many consecutive years the company has increased its dividends as well as key statistics such as the dividend payout ratio, dividend ex-date, pay date, current yield, 5-year average yield, availability of reinvestment plans, consecutive dividends paid, and much more. It also gives basic fundamentals such as P/E, share price, EPS, etc.


In the end, choosing dependable large-cap reliable dividend payers may seem like a boring strategy to some individuals. Trading in highly volatile tech small-caps without dividends may appear to be the only way to go for investors seeking the possibilities of tremendous returns. However, the evidence clearly indicates that these "boring" companies have the capacity for astronomical returns over the long-run. Dividend reinvestment and seeking out companies with reliable and reasonable dividend yields is one of only a few key strategies all long-term investors should adhere to if they want to preserve and gain capital for the future.
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