Reader Mailbag: Camping on My Mind

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Stock broker help
2. Handling large private party transactions
3. Building a cottage
4. Is deferrment a good idea?
5. Unrealistic investing advice
6. Staying motivated while self-employed
7. Will housing market ever improve?
8. Putting away 10% for retirement
9. Co-owning cars
10. Recommended reading

Camping is a big part of our summer activities. We’ve camped twice this summer (once in a state park, once on private land) and intend to camp again late this summer (probably again in a state park).

Every single bit of it is fun. Our particular favorite part, though, is building the campfire and preparing food over it, often using a seasoned cast iron Dutch oven. We can make soups and stews in it, of course, but you can also make things like cake in it.

Q1: Stock broker help
I’m going to be opening a stock trading account in the near future and was wondering which one you recommended. There are so many to choose from it’s kind of confusing to make a decision.

– Brian

It depends heavily on what your needs are and how many tools you want the broker to provide for you. Generally, what I’ve seen is that the better the tools and service is for online stock trading, the higher the price is per trade.

In other words, if you’re a low-frequency trader (meaning you buy or sell once a month or so), you’re probably better off going for a high-service high-price brokerage like TD Ameritrade or E*TRADE. They’re expensive compared to the competition, but they handle problems very well, make everything really easy to do, and offer lots of tools.

On the other hand, if you’re a higher-frequency trader (meaning you’re going to buy or sell multiple times a week), you’re probably better off using a system that might be a bit less user friendly but will save you significant money per trade. If you’re going that route, I’d recommend Zecco or Scottrade. This is not to say that such sites are poor, but that in my experience their tools and interface lag the others a bit and their customer service occasionally lags, too. They make up for it with lower prices per trade.

Q2: Handling large private party transactions
I am planning on selling my car in the next few months and I am unsure how to deal with a several-thousand dollar private-party transaction. I am wary of just accepting a check and signing over the title to a stranger (with no idea of whether there is money in the account), and I don’t really want a giant wad of cash. Should I have some sort of contract drawn up for the ownership transfer stating that the car is sold as is? I have never bought or sold a car before (this car was a graduation present years ago) and have no clue what I am doing. Any advice would be greatly appreciated.

– Maria

This almost exactly describes the situation we were in when we purchased our Honda Pilot off of Craigslist. We needed to make a similarly large private party transaction.

What we did is we executed the transaction at the bank of the buyer. We drew up an agreement that specified the exact exchange that was to take place (a bill of sale), then the notary public at that bank notarized the bill of sale and provided us both with copies. We also handled the title transfer there as well.

I would probably follow something similar to this arrangement. I would conduct the actual sale at your bank so that the cash can either be electronically transmitted or the buyer could bring the payment to the bank. At the same time, I would author a bill of sale describing the transaction in as much detail as possible (total payment, buyer, seller, VIN of vehicle, etc.) and, while both parties are present, have the bill signed by both parties and notarized by a notary public. Contact your bank to find out which branches should be able to offer this service.

Q3: Building a cottage
My wife and I own our home, have paid off our debt, and both contribute to our employer retirement plans 6% and 8% with 6% matching on each. We each fund a Roth IRA for $5000 each year. Our combined salary is about $55,000 and we mostly live off my half and save hers. Problem is we now have about $45,000 just sitting in a money market account earning .450% We have thought about building a small cottage in our back yard and renting that but don’t really want to take out a loan for this. Definitely want to keep about $12,000 in there for our emergency fund. Wondering if you have any suggestions.

– Josh

If you’d like to build a cottage, then that should be your goal. I would attempt to get an estimate on the cost of building the cottage that you want and use that as a baseline for your savings goal.

Since you want to keep $12,000 as an emergency fund, you currently have about $33,000 saved toward the cottage. When you have your estimate, you’ll be able to figure out pretty quickly how long it will take you to save up to that point.

If that goal is less than two or three years out (which I’m guessing it will be), I would just leave it in a savings account (or perhaps buy a certificate of deposit for the short term to get a slight interest boost). The risks inherent in investing in things that might give you a return spike also open the door to the possibility of a loss on that money. You might not have to wait as long – or you might have to wait longer. The volatility in the stock market (and other markets) over that time frame is quite large and unpredictable.

Q4: Is deferrment a good idea?
I graduated out of college with $20,00 worth of student loans, $18,500 of which are subsidized. I also got a private loan from my bank for $10,000. I commissioned into the Air Force out of college, and my plan had been to pay all my loans back within 3 years. However, I just found out that as military active duty member, I can defer my student loans for a maximum of 36 months. During this deferment period my subsidized loans, i.e. the bulk of my loans, would remain interest free. I want to do the deferment to pay back the $10,000 bank loan without having to have paid too much interest on it and then refocus all of my attention on my student loans. Do you think this is a good idea or is there something I am overlooking?

– Rachel

I think this makes complete sense. It maximizes your cash flow each month (since you only have one debt to deal with over the next three years) without causing you to accrue more interest, and it actually saves you some interest because you’re able to hammer on that one remaining private loan by itself, making it go away that much faster.

If I were you, actually, I’d probably defer that loan for the full thirty six months. I’d pay off the other loan, then start saving every nickel and dime I could in a savings account. The day that loan became available, I’d make a huge payment on it, knocking off a large chunk of the balance (or maybe all of it) on day one (and using a bit of savings account interest to help even more).

That’s probably the fastest route to paying off your loans.

Q5: Unrealistic investing advice
Here’s a thought a struck me as I was reading through yet another respectable “how to retire wealthy” type book. These books all seem fine up until the point where they tell you to save regularly for a number of years and just get an 8-10% rate of return. Right, easiest thing in the world. In the current day and age 8-10% is really not so trivial to achieve. Whats your take on this?

– Barry

I agree completely. Most of the time, stock market quotes like that are reflective of the time in which they were written. If you’re writing during a time when the stock market has steamrolled for several years (say, 2007), you’re probably going to be very optimistic about the long term future of stocks.

I tend to trust the words of people who make their living with stocks and have been successful over the long haul. Warren Buffett, for example, estimates that 7% is a good long-term estimate for domestic stock market returns, so that’s the number I often use.

Values higher than that might happen over some time periods, but they’re unrealistic as an assumption for the future. Use something lower.

Q6: Staying motivated while self-employed
When you’re working at home, how do you keep yourself from just doing things like taking care of household tasks when you should be working? What keeps you focused and motivated in such a distracting environment?

– Linda

One of the upstairs bedrooms in our house has been converted into my “office.” When I go in there, I close the door (usually) and I basically forget that the rest of the house is even there.

I’m lucky in that I can focus really well on a task at hand. It is fairly easy for me to get in a “zone,” where all that matters is the writing and I basically lose track of time.

If this were not the case, I would consider having a small office somewhere outside the home that was solely devoted to work. On the rare occasions when there are too many distractions at home to write (like when my wife is home, all of our kids are home, and one of our kids has some friends over), I’ll just go to the library.

Q7: Will housing market ever improve?
My family is like most everyone right now; watching the equity in our house drop every month. We are fortunate to be “above water” on our mortgage but honestly our house no longer suits our growing family and needs some improving, such as new carpeting and painting, if we were to try to sell it. Should we do the improvements and take a bigger hit if it will help us sell the house or live in a house that we don’t like and is inconvenient for us until the housing market improves? Do YOU think it will ever improve?

– Rachel

Your question sounds like you’ve already made up your mind to move, so I’ll not address that part.

Instead, I’ll say that I do think the housing market will improve, but it won’t be immediate. The housing market is still correcting right now. Part of the problem is that too many houses were built by overzealous home builders, so it’s going to remain a buyer’s market for quite a while. Prices only go up when demand exceeds supply and there is simply a glut of supply right now.

When will that supply dry up? It’s just going to take a while. Either some homes will have to be removed from the market (by destroying marginal homes or some other means) or prices will have to drop enough that people who couldn’t previously afford homes now can afford homes. The very low rates on fixed rate mortgages are helping with that at the moment, as I know a few people who are getting into houses right now that would have never been able to (realistically) a few years ago.

If you’re wanting to sell soon, I’d probably ask a few realtors in your area how much more you’d realistically be able to get with the improvements you’re talking about and whether that would make it sell faster or slower. If it creates a better situation for you, do it; otherwise, skip it. It depends on what the market wants.

Q8: Putting away 10% for retirement
I work at a state university and am a part of my state’s Public Employees retirement savings plan. 10% of my paycheck goes into PERS then I have another 9% that is split between a Roth IRA and a 403(b). So I tell myself that I am saving 19% of my income for retirement. But then I think if I were still working for a private employer, I would only be savings about 9% because I would not mentally count the FICA deduction (since the future direction is questionable). What is you opinion, am I saving 19% of my income for retirement or only 9%?

– Maggie

You are absolutely saving 19% of your income for retirement. That 10% you’re putting into that PERS plan certainly will provide you income in retirement. The challenge is figuring out how much it will help.

How much it will help depends heavily on how your PERS is arranged. While I’m not familiar with how all PERS plans operate, most of them seem to essentially be pension plans, where you’re paid some steady amount upon retirement that’s influenced by number of years of service and other factors.

If I were you, I’d use the estimate calculators and see how much your PERS plan will provide for you in retirement. If you don’t feel as though that plus Social Security plus the return on your other retirement investments will be enough, then increase it. Otherwise, I think you’re doing very well for retirement.

Q9: Co-owning cars
A coworker of my girlfriend’s advised her that we could both save on car insurance if we assigned each other joint ownership of our respective vehicles and retained only one auto-policy. Have you ever heard of this? I haven’t found anything online so far, so I’m a little suspicious. That being said, do you see any risks to this strategy other than the obvious stuff that would come about from either of us being untrustworthy and taking advantage of the changes to title?

– Mike

It’s not suspicious. You’d simply be bundling car insurance policies, which usually earns you a reduced rate from insurance carriers.

The only concern I would have from this is the issue you mentioned – concerns about the car titles. With both of your names on the title, you’re going to wind up with a pretty nasty disagreement if you guys decide to separate at some point in the future. It’s usually a bad idea to financially entangle yourself with someone without knowing for sure that there’s a long term future with that person.

Really, it comes back to your relationship. Where is it honestly heading? This is something worth talking over together.

Q10: Recommended reading
I know you’re a voracious reader. What’s the best book(s) you’ve read so far in 2011?

– Emily

The best fiction I’ve read this year so far was easily my re-read of the four books (so far) in the Song of Ice and Fire series, starting with A Game of Thrones. I re-read them in anticipation of both the miniseries and the fifth book in the series, and re-reading them reminded me of how much I enjoyed them and how much I enjoy well-written fantasy.

The best nonfiction I’ve read this year so far was Colonel Roosevelt by Edmund Morris, the third part of a trilogy of biographies focusing on the life of Teddy Roosevelt. This volume focuses on his life after leaving office in 1909, including his third party run for the presidency in 1912, the assassination attempt on his life, and his later exploration of the Amazon with his son. All three volumes in this series were great. I’m almost sad to see the series finished up.

I read voraciously, so I’d fully expect these choices to be different if I were to revisit them in December.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.