Although I’ve achieved this goal a lot later in the program than I’d like, I managed to max out both my wife and I’s Roth IRA’s for 2009… in the nick of time.

With a kid romping around and daycare chewing up the extra cash, it will be much more difficult to fund all $10,000 for 2010, but I’m gonna try.

What bugs me now is that I’ve got money sitting on the sidelines.  It bugs me because I want it to be working for me, but I’m not sure where to put it to work.  I’m still overweight in a few stocks that I’m paring out of gradually, which is where a bulk of the idle money is coming from.

I’m still thinking interest rates are going to be on the rise, along with taxes…

Another subject I’d rather not think about now.

So I’ve set a goal to contribute the maximum amount possible to Roth IRA’s for both my wife and I, totaling $10,000 a year.

Well, I’m happy to say that I’ve completed half of that goal, and my Wife’s Roth IRA is maxed out for 2009, and I only have another $1,500 to go for my own account.

For the most part, the money has been sitting in the account waiting for action, and with this tumultuous market it’s tough to say where it should be put to work.  The first few trading days of October have me a bit miffed, and I’m wondering if the downward slide in the market will continue.

The next few days will be very telling.

I’ve always been under the impression that USAA was an insurance company, even though I’ve been bombarded with literature that says otherwise.  I hold my car insurance, primary residence insurance, and now even my rental property insurance is held with USAA, as they’ve been the low-cost provider for all of those.

Yesterday though, I noticed a coworker paid his lunch bill with a USAA branded credit card, and further discussion revealed that he does all of his banking with USAA as well.

Naturally, one would question how you deposit a check to a bank with no physical presence.  And why would you want to incur ATM fees while being forced to use a competitors ATM?  And how do they stack up to my existing bank, Bank of America?

Scan your deposits in… from home.

I’ve noticed over the past several years that the only reason I go to Bank of America is to deposit checks, and make the occasional cash withdrawal.  Honestly, I can’t remember the last time I set foot in the bank itself.  So naturally, I had to wonder how one would go about making a deposit to a purely online bank that is more convenient than driving down the street.  The answer lies in my desktop scanner.

With USAA’s Deposit@Home system, you simply log in to your account and scan in the check to be deposited using your own scanner.  The deposit is immediately credited to your account, and you simply void the check after completing the deposit.

Pretty cool if you ask me.

ATM fees are reimbursed.

Assuming a USAA banking customer would have to absorb the ATM fees of a local bank, since USAA doesn’t have a system of their own ATM’s would only be partially correct.  Yes, you’ll incur some ATM fees, but those fees are actually reimbursed by USAA for the first 10 ATM withdrawals per month, up to a total of $15.   So you can use the most convenient ATM without worrying about the $2.00 transaction fee you’re slapped with.

Some other perks?

USAA offers free checks, interest for checking accounts, credit and debit card rewards programs (with no annual fee), free online bill pay, and no monthly service fees.  They also offer a host of savings options, certificate of deposit (CD) options, and some cool banking options for kids (like a prepaid cash card with parental control).

So where’s the drawback?

At this point the only drawback I’ve found is that they don’t have a physical presence, which should be obvious.  But this one drawback does mean that you won’t have access to a safety deposit box with USAA banking.

Currently, we receive a free safety deposit box at Bank of America since we have a number of accounts with them.  Switching to USAA exclusively would eliminate that option, and we’d need to pay for a safety deposit box.

Beyond that, the issue of convenience has been solved.

I’ll investigate further, but I like what I see.

If this latest economic slump has taught us anything, it’s that you damn well better be conservative with money you’re going to need in the future.  That means money you’re saving for a house, a car, your kids college, and in many cases retirement, better not be rolling in the stock market.

It’s along those lines that I’ve decided not to create a 529 college savings plan for my son.  I can’t afford it.

It’s not that I can’t afford the fees or the up front costs, for those are a drop in the bucket compared to what college will cost in 18 years.  It’s that I can’t afford to have his college fund washed away in a market that can’t be trusted.

I value his education too much, and while he doesn’t know it now, he will value it too.

I was very fortunate that my parents could afford to send me to college (in-state worked out just fine, thank you) and graduated with no debt.  I was fortunate to marry a girl that had the same benefit, and even more lucky that we are able to stay that way (minus a home loan).  So it’s with that experience that I try to create the same for my kid(s).

Wrapping that opportunity into the market is something I’ve declined to do.  For those who have trusted their investment strategy to handle their kids future in this economic environment are now fretting about it.  For those with kids graduating from high school, there’s more than fretting going on.

Some data to back up my position:

There are over 3,500 options for college plans out there, and 93% of them fell in value over the last 12 months.  Nearly 1,100 fell by 40% or more.

The way that some states have handled portfolios leaves one to believe that they can’t be trusted to manage your money (shocker, I know).

Last April, Oregon doubled the stock exposure in its “1-3 Years to College” portfolio to 40%. In 2004, an in-college student in Rhode Island’s aggressive age-based portfolio would have had 40% stocks, 31% bonds and 29% cash. By 2008, the equivalent was 40% stocks (including real estate), 55% bonds and a measly 5% cash.

Other plans took too much risk all along. In Utah, college enrollees could have 65% in stocks. Several states, including Maine and New Mexico, offered 529 portfolios with no allocation to cash for students over the age of 18. Even after North Carolina finally scaled back its risk earlier this month, a college sophomore can still have 43% in stocks, real estate and junk bonds.

Says Mercer Bullard, a securities-law professor at the University of Mississippi: “In some states, the asset allocation for the 16- to 18-year-olds looks as if it was designed by the 5-year-olds.” -Source

You see, many 529 plans are designed like many date-based retirement plans are: the older your kid, the more conservative the portfolio.  But that’s not the way many have been run, and unless you pay attention to where your money is, you wouldn’t have the slightest idea your portfolio is wilting.

Conservative Alternatives

Too many people got caught up in unrealistic returns from the market, and thought that it’s the only place to invest.  They’re paying the price now,  and a 3% return on a guaranteed CD looks pretty attractive.

Ditch the “get-rich-quick” mentality, and set up a structured CD ladder, or if you’re willing to ditch the guarantee, go with tax-exempt savings bonds.

The same goes for retirement.  If you are set to retire, you have absolutely no business having more than 10-20% of your money in stocks.

Based on the number of hands our government has in the free market “trying to do the right thing”, can you trust your kids future to government manipulation?  I think not.

Heck you can’t even trust them with your own.

Yesterday I called up AT&T and asked them to disconnect my second phone line that was a dedicated fax line.  Over the past year I think I’ve sent one fax, and naturally that can’t justify the $26 per month cost to maintain the line.

I’m not at a point where I’m trying to cut expenses, but it’s as good a time as any since no ones job is really secure.

So I disconnected the fax line, but left my main phone line intact.  For some reason I like having the old copper, twisted pair line running to the house.

Some people have gone strictly wireless, and for good reason.  But I like the ability to give out my home phone number on applications and when filling out forms that “require” a phone number.  It’s much easier to let the answering machine screen my calls than get bugged in the middle of the day by my credit card company with the latest and greatest offer for its best customers.

One good outcome of disconnecting my fax line was that the customer service representative at AT&T was able ot convert my main phone line to a more basic program that cost $4 less per month, but gave me features I didn’t have; namely caller ID and call waiting.

To be honest, I could care less about caller ID and call waiting.  I’ve never had either of them in my life, and considering how much we use the land line, I probably won’t get much value out of them.  I will however get the $4 per month value out of the new program, and that part I like.

So I’m still wired, and not willing to give up the “old style” land line, but I’m also not spending money on service I don’t use.

What are you doing to save money these days?

Dollar Savings Direct has dropped their online interest rate to 3.20% from 3.5%, and I suspect the trend will continue.

Dollar Savings, a spin off from Emigrant Bank much like Emigrant Direct, is still an online leader for interest rates, but for those of us who are trying to maximize the insured return on cash, it is frustrating to watch the interest rate continue to dwindle away.

Needless to say, I’ve been disappointed with the direction the interest rate is going on my Emigrant Direct account.  Not that I don’t understand why is going down, I’m just disappointed every time I see it drop another quarter point.  With last weeks drop from 2.75% to 2.5%, I figured I better start looking for alternatives.

I didn’t have to look far.  DollarSavingsDirect.com is another offshoot of Emigrant Bank, much like EmigrantDirect.com.  However, the rate at Dollar Savings Direct is a bit healthier at 4% (although I expect it too to start dropping).

I have a feeling this spinoff is an effort by Emigrant Bank to attract new customers without having to pay existing customers a higher interest rate, although there is nothing keeping you from transferring all your funds from Emigrant Direct to Dollar Savings Direct.

The website template looks the same, the interface is the same, the application process is the same… the only difference is that at Dollar Savings Direct there is a minimum balance requirement of $1,000 compared to no minimum at Emigrant Direct.

I’m not one to jump in the deep end without testing the water temperature first, so I’ve opened an account and deposited the minimum amount required to see how the process pans out.

If all looks good, I’ll start making Dollar Savings Direct the place to stash cash.

I finally went out and started my Christmas shopping yesterday, and before I even made my way to the checkout line in Kohls I had found I came down with the funk.  You know, that feeling that on some level even larger than one man can comprehend, there’s something wrong with Christmas?

I have a feeling that the state of our country’s economic affairs has somehow infiltrated my emotional side, as hard as I try not to let it.

At some point in time while in that store I took a step outside the box.  I just sat there and watched what people picked up for others for Christmas, what they talked about, the expressions on their face.

I’ve found that I’ve become very pragmatic about what I give others for Christmas.  If you don’t have a list of what you want for Christmas, you probably won’t get much from me.  I’m not about trying to pick out something for someone else, hoping they will use it.  Chances are, they’ll pack it away in the basement only to collect dust.

I’ve thought about giving consumables (not edibles) this year like toothpaste, toothbrushes, toilet paper, etc. You know, stuff people can actually use and then throw away, spit out, or flush.  It takes up space only for a limited amount of time, and then goes away.

I’m also an anti-clutter type of guy (just ask my old college roommate, MJ).  If it doesn’t have a spot for storage, or if it never gets used, it must go. Trash, Goodwill, garage sale…  I don’t care, but it ain’t staying here.  There are very few tangible items I’m emotionally attached to, and I have no problems making donations to the local landfill.  In fact, I actually look forward to Thursdays… (trash day).

Anyway, while standing in Kohls, I noticed that the majority of stuff people were carrying around (besides clothing) was junk.  You know, the gimmicky cocoa frother who’s only purpose in life is to put a head on your cup of hot chocolate. I’ve got a wire whisk (actually two) that will do the same job and take up less space.  It also does eggs, jello, pudding, cake mix… a true multi-purpose tool that costs less that $3.

What about the smoothie maker which is really nothing but a blender with a tap in the bottom. Can you not make smoothies in a regular blender?

The thing I watched most people carry around was a giant insulated mitten with the head of an ice scrapper attached at the end.  $17.99 for that bad-boy.  I guess a pair of gloves that you can even use when your windshield isn’t icy and a $1.99 truckstop-version scraper just won’t due these days.

Just let me sulk, I’ll be alright.

It seems the spirit of giving has morphed into “giving for the sake of giving’.  And the opportunities started popping up two weeks before Halloween (soon Christmas will be a year round holiday).  Three months worth of Christmas music on the radio, and I’m burned out three days before the actual event.

In an age where we’re strapped for money, or so the media seems to indicate (I don’t know who to trust any more), it seems like Americans are still spending money on crap.

Perhaps I’ll just stick to sending out Christmas cards.

Does anyone else have a case of the Christmas funk?

P.S. If you get a Christmas card from me this year, I expect you to have thrown it away by February 1st next year.  I’ll send you another one next year, I promise.

Last week I made my final contribution to my Roth IRA for 2008. So we’ve contributed all we can to both my wife and I’s personal retirement accounts.  This is on top of our individual company sponsored retirement plans.

I’m happy to say that we’ve managed to fulfill this goal about 6 months early this year, which gives us time to start saving for next years $10,000+ contribution limits.

(Starting in 2009, the Roth IRA contribution limits will be indexed to inflation.)

So now I have to figure out where to stash the money for the next six months.  I’m leaning towards the Emigrant Direct account, since they increased the APY to 3%.

Today I noticed that the Emigrant Direct online savings rate is now an even 3%. So it appears that rates may be on the rebound for those of us who are stashing cash away for a rainy day.

Last week I started increasing my position in the Reserve Yield Plus Fund (RYPQX: web, prospectus, fact sheet, Y!).  Two weeks ago I finally started buying in to the fund, which is a no-load fund and does not impose the typical $9.99 transaction fee from Ameritrade.  At the beginning of this month, I received the distribution for those shares, pro-rated for the previous month.

The distribution totaled $0.09 for 250 shares held over 3 trading days in the month of May.  Doing the math, this translates into about a 4.4% return on my money annually.

So now that I know how the system works, I’ll continue to put my extra money into the fund to beef up our savings.

I’ll leave the $20,000+ in the Emigrant Direct account, as it’s a bit more liquid than RYPQX.  Remember, if you need the money out of RYPQX, it trades like a mutual fund.  This means that you’ll have to wait till 4pm for the transaction to take place, plus an additional 3 days for the money to settle in the account.  Add to that the transaction time to get the money from the brokerage to your local bank, and you’ll looking at about 7 days before you have your hands on the money.

In comparison, the Emigrant Direct account moves money back and forth in about 2 days.

Yesterday I received the 2008 economic stimulus check, and despite what the government would like me to do with it, this baby’s going straight to the bank.

If anything it will help offset the cost of next years tax obligation.

As expected, Emigrant Direct has followed suit on lowering interest rates for its online American Dream Savings Account to 4.30%.  I can’t say that I didn’t see this coming, but the dropping rates are driving me to start maneuvering money back into the stock market.

I’m starting to rethink my goal of having $50,000 in the account to generate some secure passive income.  While it’s still a good goal to have, the money I have allocated for that account may work harder elsewhere, like in high yield ETF’s.

I’ve already got the mandatory 6 months worth of expenses stored up in savings, and am now strategizing on how to put my money to work.

What do you think? Is Emigrant Direct still a good place to store savings?

Emigrant Direct has preempted any fed rate cut Bernanke could throw at us. Within the last couple of days, Emigrant bank has cut their online savings rate to 4.55%. Still better than I can get at Bank of America, but it’s making online savings accounts look less appetizing when compared to Canadian Royalty Trusts.

Sure, the money is guaranteed at Emigrant, so it’s still a great place to stash emergency funds, but the dropping rate could offset some of the risk in investing in stocks.

Question for the day: At what percentage rate do you quit stashing free cash in the savings account and contribute it to a online trading account?

The last I checked, RYPQX was still paying just shy of a 5% return.

It was only a matter of time I suppose. Emigrant Direct dropped their rate to 4.65%, down from 4.75%. To be honest, it wasn’t nearly as large of a cut as I was expecting considering how much the Fed has dropped rates lately.

Emigrant Direct’s rate is still higher than the best Bank of America has offered me, so the decision on where to stash my emergency fund cash is really a no-brainer.

I decided I needed a new savings goal. I mean cash, cold hard cash.

I already contribute the allowable amount to both my wife and I’s Roth IRA, and we both get the full matching contribution to our employers retirement plans. The problem is, that money is slated to be used in 30 years or more.

Some people call this an emergency fund. I already have one of those too.

I’m looking for a non-committed cash reserve. Something that will make me a solid 4-5% return in an Emigrant Direct account, and that will provide some completely passive “luxury” money, or “Mad Money” as my wife calls it.

So how much do I want? Ideally, I’d like to have an extra couple hundred bucks a month that I can not feel guilty about spending. As such, I’d need about $50,000 in an online savings account making 4.5% or so to return that figure monthly. So that’s the goal.

$50,000 in cash in the Emigrant Direct account that will just sit there. It will generate about $200 per month passively, that I won’t feel guilty about spending.

So there you have it. There it is. In the right hand column is the measure of how close I am to this goal. I figure it might take me another year or so to get there from my current $19,000 mark, but I think it will be worth it.

Anyone else have a “Mad Money” fund?

I read a post by Robert Frank at The Wealth Report blog hosted by The Wall Street Journal Online today that left me scratching my head.

It might be my engineering background that had me thumbing my nose at the post, but generally it’s my propensity to question what they’re not telling you that really had me intrigued.

The author noted that as evidenced in the book “The Millionaire Next Door,” it’s those who pinch their pennies, drive old pickup trucks and make conservative investments that end up getting ahead in the financial game.

The author goes on to say that this philosophy is contrary to his experience in observing the wealthy. He says that it’s those who are willing to take more risk that end up with all the money, meaning multi-millions of dollars.

The author goes on to quote a Barclay’s report, stating:

Today, Barclays Wealth released a report along with the Economist Intelligence Unit that found 60% of individuals with investible assets of $1 million or more said “a high appetite for risk has been an important influence in their wealth creation.” That compares with 36% of those surveyed with assets under $1 million. -Source

From this, Frank drew the conclusion that those who wage lofty bets end up with all the dough.

I think there are two things to remember here:

1. Risk is relative. Bill Gates can invest $1 million in the startup down the street, lose it all and not feel too bad about the deal. His quality of life hasn’t changed much. I, on the other hand, would go back to eating Ramen Noodles every night like I did in college… while I worked off the $1 million loan from Bill Gates.

2. For every person that bet the farm and made millions, there are at least 5 who bet the farm and winded up eating Ramen every night.

3. As a general observation, we tend to highlight the successful entrepreneurs, and brush off the failures. Much like the weight loss commercials: Here are 5 people that tried our program and lost 100 lbs… and boy don’t they look great. Never mind the hundreds of others who gained 30 lbs and dropped out…

So what is your definition of “Risk”?

In general, I don’t think we can talk about risk without using a sliding scale. Appetite for risk is based on a number of different variables, and it’s rare that you can take two success stories and compare them without someone making an apples to oranges analogy.

And then there’s luck…

Now. Back to finding the next buy-it and forget-it stock that’s going to make me millions!

I got a statement in the mail today from Bank of America indicating I have made too many withdrawals from a money market account.

I am allowed 6 transfers out of the account, of which only three may be made by check, draft, or CheckCard. Evidently, when I set up my Emigrant Direct account, the account verification process made two individual withdrawals to remove the verification deposits from the account.

So now I will get dinged $10 for each additional withdrawal I make from the account.

The way I see it, Bank of America doesn’t pay enough interest to keep money with them, let alone let them charge me for removing my money from their accounts.

So the plan is to convert the money market account to a regular checking account, their 0.5% interest be damned!

My money will work harder for me in the Emigrant Direct account anyway.

Bank of America is good for their online bill payment feature, but little else. After looking through the Sunday financial section of the newspaper, I found that Bank of America had the lowest money market interest rates in the area, and the highest loan and mortgage rates in the area as well.

I guess they don’t need my money that bad!

Yesterday I contributed $2,000 to both my wife and I’s Roth IRA (for a total of $4,000).  I’m trying to get back in the habit of contributing to the retirement funds before we run out of time each year.

But as always, that money had to come from somewhere, and we ended up dipping into the car savings fund, bringing us back to a total of $18,200 in savings earmarked towards a car.

Of course, we don’t need a car just yet, and if old faithful rolls over anytime soon, we can just finance the difference and pay it off quickly…

I am still in the process of researching online high-interest savings accounts in which to put emergency funds.

Coincidentally I got an offer through the mail from GE Money yesterday, offering 5.05% annual percentage yield, FDIC insurance comfort up to $100,000 and no fees or startup costs.

But wait! There’s a catch!

You only garner the 5.05% on balances of $15,000 or more. Under $15k, there is a rate scale which is much less attractive. For balances between $4k and $14,999, you only earn 4.5%. For balances under $4,000, you only earn 1.75%.

While this still beats out a conventional brick and mortar savings account, it still doesn’t stand up to the Emigrant Direct offer of 5.05% on ANY balance.

If you’re interested in taking a look at the GE Money offer, go to https://www.gemoneysavings.com/offers/ and enter the promotional code: DBL027.

After all, if you’re looking for a place to stash $15,000 or more, this could be a good parking spot.