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Mar 132017

Robert Shiller — Bubbles and Busts

By |March 13th, 2017|Blog|1 Comment

One of my favorite economists has to be Robert Shiller.  This is a great talk he gave at the London School of Economics.  He’s famous for writing Irrational Exuberance, a treatise on bubbles, in 2000, calling the top of the stock market bubble.  He updated it in 2007, also effectively calling the top of the housing market.


I was particularly interested in his commentary on naive theories.  Such as, “the price of land will always go up”.  People go around saying “they aren’t making any more land”, as if that makes any difference.  Now there’s a seed of reasonableness to this, but in a market economy price is an important feedback mechanism.  It might be that on average the value of land in a desirable area will go up if population increases.  However, there are a number of important possibilities that screw up your assumptions:

  1. Population may start to decline.
  2. People may be willing to pay less for land because of a shift in preferences.
  3. The value of the land might not be the same as the price of the land.

It’s in this third point that there is the most potential for harm in my view. If the price of the land does not need to equal the value, we can certainly no longer say that the price of land can’t go down.

All-in-all it’s one of my favorite lectures and I’ve been particularly interested as stock prices have continued to advance on corporate earnings that have declined over the last two years.  The possibility of corporate tax reform could be making stocks intrinsically more valuable, but I’m not entirely convinced.  This is part of the problem with assuming that price is equal to value.  You can always find some reason to blame for any market move whatsoever.  If stock prices were crashing folks would just be saying it’s due to corporate uncertainty surrounding H-1B visas.

Financial news programs are particularly bad about this.  Every day financial pundits give some reason for the market’s behavior.  If it goes down, it was because of X.  If it goes up, it was because of Y.  I’m guilty of this myself from time to time.  For example, I thought two things before the election.  First, that Trump was more likely to lose the election than to win it (I still think that this was true), and second, that if Trump did win, there would be a substantial market crash.  I may have been wrong on the first count, but I was definitely wrong on the second count.

This is part of the reason that it is so hard to predict short term market behavior.  If I had a crystal ball to discover that Trump was going to win the election, I still would have lost money trading on the news.

This is why I think the best plan for 95% of people is to buy into the stock market, at reasonable valuations, and never sell unless you are planning on using the money.

You should really treat your stock market investment like your home.  If someone knocks on your door and makes you an offer to buy your home, you probably wouldn’t sell, after all, you could always sell later.  Only if they’re offering you something completely insane do you even consider it, or if you were planning on moving anyway.

Watch the whole thing though, there’s a lot to unpack there. If anyone knows where to get the slide deck, I’m dying to find it!

 

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Mar 72017

Personal Finance App: My Paribus Review

By |March 7th, 2017|Blog|Comments Off on Personal Finance App: My Paribus Review

personal finance app, paribus review, online saving app
For as long as modern retail culture has existed, stores have offered refunds for price drops or price discrepancies on purchased items. Previously, you would have had to monitor your purchases and the prices of the items and then ask for the money back yourself when one (or any) of the following happens: you see the price has dropped, you weren’t given the correct sale price or missed out on a coupon. Fear not, online shopping world, there’s an app for that. Enter: Paribus.

What is Paribus?

Available for both Android and iPhone users, Paribus is a price monitoring service that refunds users for price drops on recently made online purchases from participating retailers.

For example, if you’ve recently made a purchase on Target.com and the price on a particular item drops not long after you made said purchase, Paribus finds that price drop and refunds you the difference.

How does it work?

After signing up with your email address, it links to your various online shopping accounts and does its magical work from there. While you continue to shop like normal online, Paribus works on the back-end and finds and scans all incoming receipts on your email for price drops to make sure you receive the lowest price possible – even after you’ve paid for and received your items.

When it finds a price discrepancy, Paribus files a claim with the retailer on your behalf, validates your purchase using the info from your account, and requests the retailer refund you the difference. You receive an email from Paribus notifying you of this activity and another from the retailer stating they’ve refunded you the money via whatever account with which you paid.

While I haven’t had any recent qualifying purchases, the app provides a “news feed” of sorts that constantly updates with recent price drops they’ve found and “paid out.”

For example, in just a 30 second time period, Kohls, JCrew, and Target paid out various amounts for clothing and house ware items with a top payout for the day of $74.50 for a Kate Spade handbag from Nordstrom.

The pros, the cons, and all the things in between

  • It simplifies life: Paribus has a lot going for it. With nearly zero effort on your part, it saves you money (and time) while you continue to live your life as normal.
  • It’s very user-friendly: The app’s interface is easy to navigate with its attractive blue and white color scheme and simple icon displays that present the information contained in the app in a straight-forward manner. The sign-up process is simple, maintaining your account and using the app is even easier.
  • It only works with selected retailers: Currently, the app works with only certain retailers. However, the list of participating retailers is extensive and includes big names like GAP, Target, Crate & Barrel, Staples and Best Buy. The entire list can be found within the “refunds” icon in the app.
  • It sacrifices privacy: For people concerned with maintaining their privacy, however, Paribus strikes out. Not only are you giving them permission to link up to your various online shopping accounts, you’re also giving them access to your email – and permission to scan it on a regular basis. Additionally, while they contact retailers on your behalf, they contact them as you. While it isn’t a huge issue, some people may find this concerning.
  • It charges you 25% of each refund: It’s true. But how else would Paribus be profitable? For every refund or transaction, it charges you 25% of the amount given back to you. When you set up your account, you link a credit card with which it uses to collect the fees. Linking a credit card is optional, but if you choose not to, you will cease to receive future refunds, making the app null and void for you.

Paribus: An app worth trying

For the frequent online shopper who doesn’t mind sacrificing a bit of privacy for time and money savings, Paribus is an app worth trying. In today’s culture where life often moves faster than anyone would like, Paribus provides just one more way for people to save money without sacrificing their valuable time.

For those still concerned with privacy or security issues, but are still interested in the cost-saving feature, there is certainly a risk in using the app and allowing it access to so much personal information. However, for people who shop online, plenty of other online retailers and apps already have this information. Will another one make a difference? If you’re vigilant in monitoring your accounts and do your due diligence in verifying and checking all transactions to ensure there isn’t any funny business going on, the benefits far outweigh the “costs” of using Paribus.

Finally, if you want to sign up for Paribus please use this link. It will help us keep on keepin’ on. 🙂

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Mar 12017

5 Tips to Qualify for an Installment Loan

By |March 1st, 2017|Personal Finance Tips|1 Comment

 

how to qualify for an installment loan, types of loans, tips to qualify for an installment loan

An installment loan is one of two major types of loan. You borrow a fixed amount from a creditor and you make a series of payments every month until the amount is paid off. These loans are the majority what people get for autos, boats, and home loans. Before you can get a loan, you need to ensure that the lender trusts you, which is why they look for a few key things. If you have bad credit finding installment loans with a lender that will approve you will be harder.

Here are some tips for helping you qualify for an installment loan.

Get a Copy of Your Credit Report

Your credit score is what lenders will use to figure out your suitability for a loan. High credit scores lead to being able to borrow larger amounts and lower interest rates. If your score is too low they may very well decline your application entirely.

Find out your credit score and use it to make a decision as to whether you should apply for an installment loan or not. Sometimes it’s more profitable to build up your credit score prior to taking out a loan.

Your Employment Status Matters

Lenders want to lend to people who have stable careers. It’s true that some careers are more favorable, but it pales in comparison to your employment status. Those who haven’t had their jobs for long or who’re unemployed should refrain from borrowing unless they absolutely have to.

Remain in a job for six months before applying for a loan. This will increase your chances of getting a loan.

Match the Lender to the Credit Score

Some lenders have policies in place where they won’t lend to people who have a certain credit score. There are no databases for this, but as a general rule of thumb most major banks won’t approve major installment loans for anyone with a score of less than 700. Private lenders tend to settle around the 640 mark.

Remember that declined loan applications are also reported on your credit record, so refrain from applying and hoping. Find the lender that fits your score.

Look at Your Debt-to-Income Ratio

Sometimes a credit score that falls below par can be overlooked if you have a high income or something else that makes you an attractive prospect. Your debt-to-income ratio is one of those statistics. Most lenders, if you’re trying to take out a big loan, will ask you whether you have any other loans. They may even ask to see a recent bank statement as proof of your claims.

To increase your chances of qualifying, you should make sure your debt-to-income ratio is as low as possible. This means that you can have active loans, but they shouldn’t take up more than a few percentage points of your income. If you need help figuring this out there is a good calculator here.

If you already have a big loan, consider waiting until you’ve paid it down.

Offer a Security Deposit

Installment loans, particularly the big ones, represent a risk to the lender. Sometimes who you are and what you say isn’t enough to qualify. The average installment loan is an unsecured loan, so you haven’t lost all hope. Consider a form of security to get the loan instead.

This is most often done with things like mortgages and car loans. You put up a significant asset as a security deposit and if you don’t make the repayments, the lender has the legal right to repossess that asset.

The pawn shop, for example, is a common type of arrangement at the lower end of the scale. You get your item back when you pay off the amount due.

Last Word – Improve Your Credit Score

The number one way to make sure you qualify for that installment loan is to improve your credit score. Ensure that you do everything you can to get your credit score up, which means making repayments and regularly paying off small loans successfully.

 

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Feb 272017

Investment Scams: 6 Red Flags to Look out For

By |February 27th, 2017|Personal Finance Tips|2 Comments

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Have you noticed that lately when you shop for something on Amazon, that item has a habit of popping up on other websites? It’s as if Amazon has worked out a way of saying, “Oh hi, did you forget to buy this? Well, you can now. Just click.” In some instances, that might be helpful. It also is a clear demonstration of how the internet has a way of “following” what you’re up to.




What does this have to do with investing? As you start doing research into investments — as you should — you might begin to see all kinds of “invitations” popping up on web pages, email, Facebook and other social media accounts. You’re ready to make money, so these might be a good way to start. Before you dive in, you’ll want to consider these red flag warning signs about investing.

  1. High Return, No Risk

High return? Possible. No risk? Not likely. That makes for a nice headline to draw you in but has no basis in real investing. You’ll find investing in opportunities like mutual funds will often have three tiers of risk: low, moderate and high. The risk is always there. Anyone who tries to tell you otherwise just isn’t telling you the truth.

  1. Once-In-A-Lifetime

Did you hear the story about Apple co-founder Ronald Wayne? He sold his stake in the company back in 1976 for a paltry sum of $800. Had he tucked away those shares and sat on them, they would be worth around $63 billion. You actually might hear this story retold as a sales pitch. You can’t miss a “once-in-a-lifetime” opportunity, right?

Actually, you can. If the opportunity is so great, then the sales agent should be able to back it up with dependable facts and research. Ask for that and see what happens.

  1. Tax-Free Havens Offshore

Wouldn’t it be great to never pay taxes again? That’s not going to happen, especially with investment capitol. A broker might suggest setting up an offshore account to insure you won’t be paying taxes, but what happens if that investment tanks? Try getting your money back from one of those offshore brokerage firms. It’s not going to be easy. Of course, you won’t have to worry about paying taxes on money that has disappeared.

  1. Overly Slick Sales Materials

A website for a potential investment might be nicely produced. It will have lots of pictures — stock photos — of smiling people happy with their dividends. It will make bold proclamations about this opportunity. What it won’t have are a lot of tangible facts like providing contact information for the company you’re investing in. Upon closer inspection, you might discover spelling or grammar errors in the copy. Run, don’t walk, away from that “opportunity.”

  1. Unanswered Questions

When you go to buy a car and set up financing, there is a moment when the salesperson has to take the contract back to their manager to see what can be done. They never let you in on that conversation because they already know what can be done. They want you to pay a hefty finance charge. The same thing can happen with investments. You might ask questions only to get a, “Let me find out and get back to you” response.

There is no question you can ask that shouldn’t have an instant coherent response. If the agent is hemming and hawing, then you should invest elsewhere.

  1. Ground-Floor Investments

Getting in on the “ground floor” of a company can often be a huge benefit — see the Apple story above. However, there is also a lot of risk with an unproven entity. So many things can go wrong with a business start-up that it’s probably one of the riskiest investments you can make.

If you want to pursue that investment, then ask to speak to direct reps from the company. Don’t take the word of a broker that things are going to “go off the charts.” A company rep who is honest will tell you the challenges ahead. That is someone worth investing in.

All of this boils down to that wise adage, “If it looks too good to be true, then it probably is.” Words to live by.

Anum Yoon loves all things related to personal finance. She founded Current on Currency after realizing there wasn’t a personal finance blog that tailored posts for international students. Current on Currency has since expanded to become a millennial money blog, so follow her on Twitter @anumyoon to check out her updates.

 

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Feb 242017

Sunk Cost Fallacy Makes You A Terrible Investor

By |February 24th, 2017|Blog|7 Comments

What is the sunk cost fallacy? The idea that any money or time you already spent on a thing matters.  That money is gone.  That time is gone.  You shouldn’t let the time or money you spent on a bad idea keep you from throwing the bad idea away.  Preferably far away.

This comes up all the time.  People finish terrible movies because they spent $10 to buy the ticket, rather than walking out of the theater and enjoying the rest of their evening doing something more interesting.  This isn’t a very big deal with a movie, you lose, what, another hour or so?  However, the effect is significant and unfortunately seems to become stronger when the stakes get higher.

Like in Investing?

Yup, the sunk cost fallacy is all over the place in investing.  The major danger here comes from anchoring. No, this has nothing to do with newscasters.

Sunk-cost-2

When you initially buy a stock, people often get anchored to the price they paid for it (in investing parlance, your cost basis).  If the price then, gets cut in half, or doubles they think about the new stock price relative to what they paid for the stock. This is exactly wrong.

What you paid for a stock should not enter into your analysis.  It is a sunk cost. It might matter for your tax considerations, but if you own a company that is intrinsically worth $5 per share, that’s what it is worth.  The only factors in your decision making should be the intrinsic value of the shares, and the market price of the shares.

This seems obvious, but some of the earliest mistakes I made investing were related to this.  The first stock I ever invested really heavily in was Safeway.  They were making money hand over fist compared to the price of their shares, management was using that money to buy-back shares at a breakneck pace.  It didn’t take a genius to figure out that something good would happen.

still me

still me

Not being a genius, I bought a significant amount at $15 per share.  It went up a little bit, to $20 per share, and even though the company was still cheap relative to it’s intrinsic value, I sold, thinking I had made a great profit.

The nutty thing about this is that if I had discovered the opportunity a 3 months later I would have bought it at $20 per share, but I was so focused on what I paid for the stock that the higher market price got me excited to sell.

The stock proceeded to get bought out for $30+ shortly later.

There is another side to this too, I had a friend that bought Microsoft at roughly $35 a few years ago.  It proceeded to drop between $5 and $10, I don’t remember exactly how much.  It concerned him a great deal to be “losing money” on the trade.  It stayed low for a few months or a year, and then went back up to $35.  He was so excited once the stock was back at what he paid for it, that he sold immediately.

What he didn’t take into account was that Microsoft was then making even more money than when he originally bought the stock!  As of this writing Microsoft trades at $65, and has paid out a substantial amount in dividends as well.  (I make no recommendation about Microsoft).  Had my friend not been so focused on his sunk cost and instead focused on the business, he would have nearly doubled his money.

Dealing With It

This bias is extremely powerful and it’s hard not to feel that stocks that have gone up since you’ve bought them are somehow better than stocks that have gone down.  Unfortunately, when deciding what you should keep in your portfolio what you paid for a stock (outside of tax considerations) shouldn’t matter to you at all!  You should be only focused on whether the stock is more likely going to go up or down in the future not what it did in the past.

How do I deal with this?  Use a broker that hides your cost basis from you.  If you don’t remember what your cost basis is, it can help prevent you from making bad decisions because of your cost basis.  For this I like Loyal 3, but they have a very limited selection of stocks that they’ll trade.

Unfortunately the bottom line here is that this is dangerous knowledge.  Simply knowing it makes it more likely that you will do worse in the market.

 

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Feb 142017

Money Saving Tips for Moving

By |February 14th, 2017|General Personal Finance|2 Comments

moving out tips, saving money on moving, moving out advice

Whether you will be heading to the other side of town or moving across the country, moving can quickly become a major expense. There is no need to blow your moving budget if you are willing to spend time planning and preparing before you move. Two of the most important considerations are how you will move from one location to another and exactly what items you want to take with you.

Hire a Professional

Many people decide to move everything themselves to save money, but this isn’t always the best solution. The amount of household goods which need to be moved, the distance between homes, vehicles available, and the number of people who can be reliably counted on to provide assistance for packing and unloading often create a situation that costs more time and money to pull off successfully than initially anticipated.

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