Updated on 05.18.07

Money Magazine – June 2007

Trent Hamm

Money Magazine logoThe June 2007 issue of Money Magazine arrived in my mailbox several days ago, but I didn’t have time to even glance at it as we were in the middle of house hunting. Last night, I had the opportunity to sit down with the latest issue – here were the top ten things I found of interest to me.

Do a home inventory. If you own any appliances or other items, you should have an extremely thorough home inventory, including makes, models, serial numbers, and so on. Even as a renter, I’ve done a very detailed inventory and I store a copy off-site – when I own a home and have a lot of appliances and furniture, I’ll probably be neurotic. (p. 24)

The Ford Fusion and Mercury Milan are basically identical except for the logo. Why pay $800 more for the Mercury? A similar dichotomy occurs between the Ford Taurus and the Mercury Sable. Don’t buy the more expensive version. (p. 26)

If your parents are getting older, have a heart-to-heart with them about their finances. Make sure they’re in good financial shape, make sure their estate is planned, and make sure they’re not slipping up and making big financial errors. Just sit down with them and talk. (p. 36)

Have a conversation with your spouse about spending. There’s a semi-humorous guide to this serious topic, but the fundamental points are really solid: be willing to compromise, be willing to give up some of your own spending, and make lists together of the things you’re willing to cut out. (p. 43)

The Citi Driver’s Edge Platinum Select MasterCard rocks. I’ve talked about this card a time or two, but Money points it out again. If you drive much to work (and I commute more than ten miles each way every weekday), the benefits on this card can really add up. I think there’s a good chance that I will move to this card as my primary card after we make the house move. (p. 46)

Compare your investment portfolio to a standard index fund portfolio. If your returns aren’t beating comparable funds from Vanguard, why are you sticking with your current mutual funds? The same goes for individual stocks that you’ve held for a while – if they’re not matching a standard index fund, what are you doing? Broad-based index funds make a great benchmark. (p. 47)

Most money market funds are not FDIC insured, so if the companies default, you get nothing. You can get as high as 6.2% or so in a money market account, but they’re often invested in bonds that are shaky investments. This article gives an example of a money market account that is invested in Ford bonds with a pretty poor bond rating because Ford is in such a precarious financial position. If Ford implodes, then the money in that account is gone for good. (p. 66)

How can you get an 18% (or so) return with no risk on a $5,000 investment? Pay off your credit card debt. If you carry forward credit card debt while also investing in other things, you’re inexplicably choosing to lose money. (p. 78)

Don’t lend money to family or friends. 43% of family loans aren’t repaid and 68% of people who give loans to family members or friends wind up regretting it. Just avoid the bad feelings and adopt a no-loan policy. (p. 102 and 104)

Quote of the month:

The only way to be assured of higher expected return is to own the entire market portfolio.

– Bill Sharpe, Nobel Prize winner in economics (p. 107)

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  1. Tim says:

    given that we move alot, we take a video of all our stuff and have a running list of serial numbers for high value items. we copy the video onto a dvd and store in safety deposit box. a video helps you remember and shows actual documentation.

  2. Rick says:

    Regarding the “investment” by paying off one’s credit card debt, I actually have a Chase credit card that is fixed at 5.9%. I don’t carry a balance, but if I did, I would definitely use this one. In fact, it’s almost low enough to carry a balance and invest the difference at a higher rate.

  3. Getzly says:

    #2: A better question is why pay for a Ford or Mercury?

  4. Hmm interesting post. Maybe I should do this with my subscription to Kiplinger’s

  5. Jim Lippard says:

    “Most mutual market funds are not FDIC insured …”

    Did you mean “money market funds”?

    Is there a case of a money market fund that has ever lost principal? I know there are cases of some that *would* have lost money, but the companies providing them covered the losses to avoid loss of consumer confidence.

    As of last year, Money magazine was still saying that no investor had ever lost principal in a money market fund.

  6. Trent Hamm Trent says:

    Thanks for catching the typo, Jim. They seemed extremely peevish on the Ford money market at least. I don’t know about the long-term history of them, but I do know as an individual I would be really scared to buy bonds in a company like Ford right now and that’s effectively what the account is buying.

  7. HamiHarri says:

    I can vouch for the not lending money to family and friends. Does the “I’ll get the next dinner” count as lending? Unless it is clearly someone’s treat – pay your own breakfast/dinner/lunch bills!!! And a $20 breakfast bill doesn’t compare to a $200 dinner bill!!! Do I sound bitter?

  8. Viva says:

    Is the home inventory for insurance reasons?

    I rent and it’s never occurred to me to find out what the serial numbers of the appliances are–but they belong to the landlords, not me. And I don’t have insurance.

  9. Dan says:

    Most money market funds are very safe. Fund managers will move heaven and earth to avoid “breaking the buck” and causing a loss of investor principle. As far as I can find, there has only instance of this happening, and it was an institutional fund which became ensnared in derivative holdings (http://biz.yahoo.com/edu/bi/ir_bi2.ir.html).

    Of course, if you go out and put all your money into junk-grade corporate bonds issued by one company (Ford in this case, apparently), you’re obviously exposing yourself to high levels of risk. Consequently, when looking for a safe investment, money market funds such as those available through Vanguard (VMMXX, etc), which own a range of high-quality credit, are a much more reasonable choice.

  10. MossySF says:

    Trent, you should re-read the money market article and analyze carefully. MMFs (Funds) and MMAs (Accounts) are totally different things. MMFs are mutual funds and must follow SEC rules for that class of investment. MMA is an arbitrary label any bank/company can call their accounts.

    SEC rules say MMF holdings must be in the top two credit tiers and cannot exceed 90-days in maturity. Hence, they do not hold shakey bonds because it’s against the law. Googling up Ford + Money Market, MMFs have been excluding from buying Ford bonds since 2001.

    This is the reason why Ford offers their own direct “money market account”. I can only guess the contents of the article but from looking at the quoted 6.2% number (which is way higher than any real MMF), I will say Money magazine is talking about Ford’s specific MMA implementation — not MMFs in general.

    The highest retail taxable compound yield MMF is Vanguard at 5.24%. 80% of holdings are backed in some way by the US Government (FDIC CDs, US Treasuries, etc). The remaining 20% is in

  11. MossySF says:

    (previous comment cutoff due to < char)

    The remaining 20% is in <90-day commercial paper/short term bonds with credit ratings of 30% AAA, 65% AA, 5% A.

    The real bang is the various tax exempt options. A CA resident in the 35%/9.3% tax bracket would get an pre-tax equivalent compound yield of 6.77% even though the payout is only 3.77%. 100% holdings for this MMF are rated *ABOVE* AAA (these are ultra-short-term AA/AAA bonds with added default insurance).

  12. Leslie M-B says:

    All good information. Thanks!

    Except I would add: Don’t buy a Mercury Sable ever. Our experience: four transmissions before 40,000 miles. :)

  13. Robert says:

    When ‘lending’ money to friends or family, I go by this rule:

    “Don’t lend money that you would not be willing to GIVE the person.”

  14. Judith says:

    Robert’s rule [Don’t loan money you would not be willing to GIVE]is a very good one, and one we have used in my family more than once. That way, you are pleasantly surprised if the “gift” gets paid back.
    Also, about the Fusion/Milan thing: we did get a Milan recently because the price for the 5 program cars on the lot, 4 Fusions and a Milan, was the same — and the Milan had many more safety features, better seats, somewhat lower mileage, etc. IMHO, program cars are the way to go.

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