Who enjoys making 0.15% on your savings account?  Raise your hand…..

Didn’t think so.

Interest rates have been low for quite some time (too long for many), and finding the highest interest rate for your savings accounts is a must.

One viable option is the online bank Ally. If you’re looking for a competitive rate online, then you might want to check Ally out.

Here’s a review of Ally bank why they might be the best online bank for you.

Quick History and Terms

Ally bank is a product of what used to be GMAC bank. Whenever GM went through their PR nightmare, GMAC made the smart decision to rebrand and hence Ally was born.

ALLY bank is offering some of the highest yield accounts available that are also backed by the FDIC. Being backed by the FDIC simply insures up to $250,000 of your money by the Federal Government in case of an emergency. You can receive much more than $250,000 worth of coverage by opening an account with a death benefit to your spouse, or by opening an account for your child. With these extra accounts added, you can achieve total coverage of around 1.5 million depending upon your family structure.

Opening Your Account With Ally

Opening an ALLY bank account is similar in process to any typical bank, except for the precautions they will take because of no actual face to face contact. The one major difference is the use of your FICO score, other banks will check your FICO score as well, but ALLY could possibly deny you based upon your FICO score where other banks may take more variables into consideration. After opening your initial account whether it is savings or checking, it’s relatively simple to open another account simply using your login name and password.

Different Investment Tools

Ally bank offers a variety of options for your money to be invested in:

Ally Bank Review Conclusion

Overall, ALLY bank is a convenient option that offers competitive rates with no minimum balance, as well as being backed by the FDIC so you know that your money is safe. Beware that they will measure you based upon your FICO score when opening an account, as well as your initial deposit may take slightly longer than a local bank because of the processing time needed.

Most likely you will also be sending out of state checks to ALLY, so do not be surprised if it does take a couple of days longer for your check to show up on your statement. There customer service is easily accessible with 24 hour access via online as well as through telephone. I do not personally have an ALLY account but called their help line and was pleased to have no wait time associated with all of my attempts.

Have you opened an account with ALLY Bank?  If so, please share your experience.

The million  $5 billion dollar question of the week,

“How do I buy shares of Facebook’s IPO?”

I’ve literally have had a dozen people ask me how they can get in on the action. Ironically, none of the questions came from Facebook (random thought).

For those that want to know how to buy Facebook IPO, this video is for you:

Spoiler alert: The answer is probably not what you want to hear.

Wouldn’t it be nice to have someone else pay for the flight to your next vacation destination?

(And even better: what if that free flight was on the best airline in the country?)

You’ll get just that if you open up a Southwest Airlines Rapid Rewards® Plus Credit Card.

It might seem to be too good to be true. A credit card company will pay for a round trip flight for you? What’s the catch? (Yes, there is a very small catch. We’ll get to that in just a second.) But the bottom line is you actually can get a free flight on Southwest Airlines after you first use your Chase Southwest Airlines Rapid Rewards Plus Credit Card.

For the travel buffs (or business travelers) out there, this is a great travel rewards card.

How Does the Bonus Flight Points Work?

After you apply for the credit card and activate your account, you will qualify for the bonus points after your first purchase on the card. After that first swipe you’ll get 25,000 points applied to your account which is enough to claim two one-way flights that would normally cost you $208 each way. Those two flights will eat up 24,960 of those bonus points.

It’s really that simple.

But a free flight isn’t the only reward you will get. There are other great perks, too.

Earn Points for Your Spending

On top of the bonus points for your free roundtrip flight, you’ll also earn points for all of your spending on the card. Any spending with Southwest Airlines or Southwest’s Rapid Rewards hotel and car rental partners will generate 2 points per every $1 of spending.

Additionally all of your other spending will earn 1 point per every $1 that you charge to the card.

Better Than 2% Rewards

It is really difficult to find a great rewards card that will pay out more than 2% in rewards. At first glance the Southwest Airlines Rapid Rewards® Plus Credit Card looks like a standard 2% travel rewards card because of the 2 points for every dollar spent.

However, when you run the math the rewards are significantly better if all of your points come from traveling with Southwest.

Let’s check the math. You need 24,960 points to get two one-way tickets that cost $208 per flight. That’s $416 in rewards for 24,960. To earn those 24,960 points you could spend $24,960 on non-Southwest purchases (where your rewards would equate to 1.67%) or you could spend $12,480 on Southwest flights and Rapid Reward partners. If you do this your total reward jumps to 3.33% making this one of the best travel cards available.

3.33% rewards are great, but there’s one more trick to truly maximizing your rewards that leads to your more free flights, faster.

What is Southwest Airlines’ Rapid Rewards Program?

Here’s how you truly maximize the impact of this credit card. Not only will Chase credit you with points for your spending, but Southwest’s Rapid Rewards program rewards you for your flights on top of the points you get for using your Southwest Airlines Rapid Rewards® Plus Credit Card. The number of Rapid Rewards points depends on the type of flight you select:

• 12 points per dollar on Business Select flights
• 10 points per dollar on Anytime flights
• 6 points per dollar on Wanna Get Away flights

You would get this points by just being a Rapid Rewards member and booking a flight with Southwest. It has nothing to do with using this credit card. But when you combine the two, the rewards really start to pile up!

This means booking two of Southwest’s least expensive Wanna Get Away one-way flights for $200 each way will generate 400 points on your Chase card and 1,200 points directly with Southwest’s Rapid Rewards program. The 400 points on your Chase credit card equals an extra 33% in reward points over using any other credit card. The rewards can really add up by just taking a few flights and using your Chase credit card.

What’s the Catch?

There’s got to be some horrible catch that makes this great travel rewards credit card useless, right?

Not really. The Southwest Airlines Rapid Rewards® Plus Credit Card does have an annual fee of $69. That’s a bummer, but on every anniversary date of having the card you will be awarded 3,000 points. You could turn those 3,000 points into a $50 Wanna Get Away fare, so the card is only going to cost you $19 per year. When you can rack up as many free flights and Rapid Reward points that seems like a small price to pay for the rewards.

Also, hopefully this is clear, but you should only get this card if you have access to Southwest Airlines near your city. If you have to drive 6 hours to get to an airport that Southwest services, then this probably isn’t the best travel rewards card for you.

The only other catch is that of any other rewards credit card. If you get the card, make purchases, and then don’t pay them off in full before interest charges hit you, then you’ve made a mistake. Travel reward credit cards are only for those who can handle paying off their balance every month. If you essentially treat your credit card like a debit card instead of a free line of access to as much money as you want, you’ll be fine.

Apply for a Southwest Airlines Rapid Rewards® Plus Credit Card and earn a free flight today!

The holiday season is already behind us but that doesn’t mean you still can’t give the perfect gift.

In the financial world, the term gift has a whole new meaning as it pertains to estate planning. Many investors look to “gift” a portion of their estate to prevent having to pay a hefty estate tax down the road.

If you want the bottom line about the gifting tax here it is: If you make gifts to friends or family that is large enough, there is the possibility that you may owe the federal government some tax money.

Of course, you probably want more information about the current regulations of the federal gift tax. Keep reading and I’ll share a few of the major points for 2012 and beyond. Sorry if this isn’t as exciting as the Nutcracker.

First, and perhaps foremost for some, is the fact that you, as the giver, are not going to be taxed (unless you exceed the gift tax exemption). It is the recipients who will have to pay taxes. For taxes to figure into the equation at all, you will have to have given away in excess of $1 million in cash or other assets over the course of your life.

Plus, if you have a spouse they have their own separate exemption for the same amount. What this means is that most people will never have worry about the federal gift tax at all. (Currently $139,ooo up from $136,000 for 2011 tax year)

The gift tax also includes the annual gift tax exclusion. This exclusion allows you to gift up to $13,000 during a calendar year – without counting against that $1 million lifetime limit. Currently, the figure remains the same now for 2010 and there is every indication that this exclusion will remain the same for 2012. If you exceed $13,000 the difference is applied to your lifetime exemption.

Gift Splitting

Another important point is the capabilities of gift splitting. If the husband and wife are both living and one child (for example), the husband can gift $13,000 to the child and the wife can gift $13,000 to the same child and not affect your lifetime income limit. One other important point regarding gift splitting is that for it to work, each spouse must consent to splitting of the gift. This is done with the appropriate form which I’ll discuss next.

IRS Form 709 – Gift Tax Return

Another question that I get is: what paperwork do you have to file with the IRS if you do gift? The good news is that if you don’t exceed the $13,000 annual gifting amount, no paperwork is needed – how sweet is that! The two instances that do require the IRS Form 709 are:

You gave your spouse an interest in property that will be ended by some future event.

You can read more about the IRS Form 709 in IRS Publication 950.

Another regulation concerns the federal estate tax exemption.

This provision allows you to leave up to $3.5 million that is free of federal estate taxes. As with the lifetime federal gift tax exemption, if you have a spouse they are allowed a separate exemption. There are indications that this figure will change much for 2011. Additionally, any gifts that you make during your life will decrease your taxable estate. Those gifts that exceed the yearly exclusion will lower your estate tax exemption. The point here is that if you make annual gifts that fall within the constraints of the exclusion, you can actually reduce your taxable estate without suffering negative repercussions.
Gifting and 529 Plans

There a special provision in the federal gift tax guidelines that address 529 plan contributions. These are college saving plans that can be used by a future student to pay tuition and other educational expenses. The rule allows you to give lump sums as gifts that are then spread over a certain period of time (typically 5 years). This can be done without affecting the lifetime gift tax exemption or the estate tax exemption.

Gifts Can Be Tax Exempt

You will also find a listing of instances where your gifts can be considered tax-exempt. This means you can offer unlimited gifts in these areas without worrying about the gift tax or the estate tax. They include gifts given to spouses (assuming U.S. citizenship), to cover another person’s medical expenses, and someone else’s tuition expenses if paid directly to the college or university (some exceptions may apply).
There are also stipulations for filing a gift tax return.

This applies if you make a taxable gift that exceeds the annual exclusion rate. You would then be required a Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return. You are required to fill it out even if you don’t owe taxes because of the $1 million exemption. There are certain filing rules based on your marital status and any gifts you want to claim on a return. Spouses will have to file their own returns, though some may choose to split gifts on the separate returns.

Gifting Deadline

If you’re planning on gifting assets held at a brokerage firm, I strongly suggest you check their policies regarding gifting certain securities. While you have until the end of the year to technically give the gift, certain firms may have sooner deadlines. Here’s an example of what you might see:

With the process and the desire for clients to complete gifting by year-end, Brokerage XYZ must receive client signed instructions in good order no later than December 17, 20xx, to ensure that the gifting of shares takes place and settles in the desired account. Any requests received on or after December 20, 2010, will be processed on a best efforts basis.

Gifting Strategy Right For You?

If you are considering gifting as part of your estate planning, I strongly encourage you to meet with a qualified estate planning attorney. Recently, I had a client that questions on gifting (more advanced case) and I placed a call to a local attorney. I was dumbfounded on how so many of the rules that I was familiar with had changed. Lesson learned: it pays to have someone on your side who knows what’s going on. Don’t go at it alone.

photo credit: wcn247

Wicked Left Hook

People who know me know I’m not a very violent guy.

I’ve never been in a fist fight in my entire life, I very seldom ever yell (except when the St. Louis Cardinals would blow a four run lead in the bottom of the ninth), and I cover my face with a pillow when there’s a confrontation on the TV (go ahead and laugh…my wife does, too).

In short, my personality type is one that is constantly smiling, and can be easily labeled as “Joe Cool”.

But, like any human being, there are some occurrences that get me really fired up. One of the biggest things that gets me fired up?  Financial advisors that lie, steal, and cheat.

These are the people in my industry that give financial planning a bad name (Madoff anyone?),  and unfortunately they’re everywhere. I’ve been in the business for almost 10 years, and I’ve had countless run-ins with these types of advisors and despite my laid back personality, I would like nothing more than to punch them in the face, seriously.

I’ll share some financial advisor horror stories that other clients have shared with me, the lessons learned, and let’s just see if you would want to pull a Rocky Balboa on their face, too.

Disclaimer:  No Financial Advisors were actually harmed during the writing of this post.

1 The “12%” Advisor

A few years ago, I was competing for a client’s business. I was one of two other advisors who were being interviewed, and I gave my traditional spiel. It turns out that one of the guys I was up against had guaranteed to the potential client that he could make 12% in the stock market.

Now, keep in mind that this was not before 2008, and even if it was, it wouldn’t matter. The advisor was using basic mutual funds and still had the audacity to claim to my client that he could would net him a guaranteed 12% return.

I was in shock.

Luckily, the potential client saw right through the smoke and mirrors and didn’t choose him, and chose me instead.

Lesson learned: If you ever come across any type of advisor that guarantees you any rate of return, and isn’t quoting you a fixed annuity, a CD, or some type of insured bond – don’t fall for it. It’s too good to be true. Get out of their office fast.

2 The “Surrender Charge Conversation is Optional” Advisor

I once had a person come to me who was very disgruntled with their current financial advisor. They had lost more money than they’d wanted to and really didn’t understand what they had. When I had a chance to take a look at their mutual fund portfolio, I noticed that all they had were B-Share mutual funds.

For those of you that don’t know, B-Shares, for the most part, are now non-existent. Although I can’t be certain why, my hunch is that they aren’t around anymore because too many advisors abused.  If they could still sell them, the advisor could make a handsome commission, and the client would never know.

Now, it’s not the commission on the B-Share that makes them so bad, it’s the fact that most of them had a six to seven year surrender period. That means if you buy the fund, you’re going to have to hold it for at least six or seven years before you can liquidate it without a penalty.

The client in my office had no idea what a B-Share was, and most importantly had no idea that she had a surrender charge attached to it.  So here she is – stuck in investments that had lost more money for her than she had wanted, and she can’t do anything about it because if she did sell it, she’d have to pay a surrender charge on top of her losses.  Talk about a slap in the face.

Lesson learned: Read all the fine print and make sure you understand if your investment product has any type of surrender charge attached to it.

3 The “Telling the Truth is Optional” Advisor

Another time I had a client who was retiring, and we were in the process of rolling over his 401(k) and pension. In our conversations, I had learned that he had purchased a fixed annuity at his local bank a couple years prior. Since they wanted to consolidate all of their investments, they were more than comfortable transferring everything to me – but I knew that they had just taken out the fixed annuity a couple years prior.

My inclination was that there was probably some type of surrender charge attached to it. I inquired about this to the client, and they were under the impression that there was not a surrender charge, and that they could take their money; principal and interest, and walk away at any time.

Why did they believe that, you ask? Because that’s what the advisor had told them. The advisor had told them they could take out the investment, take their guaranteed interest at any time, and walk away with everything without penalty.

Now, once I heard that, as much as I wanted to believe them, I knew something sounded fishy. I had them call the bank and talk to the advisor to clarify how it actually worked. As it turns out, it wasn’t that way at all.

Yes, they could walk away with the principal, but all the interest that they accrued would be forfeited, and in their case, it was approximately $7,000 that they’d be leaving on the table. Obviously, we weren’t about to give up a big chunk of money just for the sake of consolidating, so we left it as-is to revisit when the surrender period expired- which was four years away!

Lesson learned: Just because the advisor tells you something doesn’t necessarily mean it’s true. If something sounds too good to be true, ask for it in writing.

4 The “I Like to Churn”Advisor

And no, we’re not talking about churning butter. I was talking with another potential client who was considering switching advisors and although they lived in a small town in the Midwest, they had somehow started doing business with an advisor out of New York.

They had been with this person for several years, and had a hunch that things weren’t all what they seemed. They thought perhaps the advisor was selling funds and buying other funds just for the sake of earning a commission, and since I was the guy they were considering hiring, they were interested for me to take a look.

After reviewing their account statements and the trade confirmations, it was quickly and easily obvious that was what was being done. Sure enough, the advisor was selling A-Shares; another type of mutual fund, and turning right around and buying other B-Shares, sometimes it was the exact same fund. It made no sense other than the fact that the advisor made a commission on each of those trades.

Lesson learned: If you are using an advisor on a commission-based relationship, be on the lookout for an influx of unusual trade confirmations. If you see a lot of activity, it might be worth inquiring about.

5 The “I Can Use Anything, I Just Happen to Use My Own Company’s Mutual Fund”Advisor

I had just met with some folks that had recently moved in-state from the East coast. They were referred to me because they were unhappy with the advisor that they’d been with. The advisor had worked for one of those big insurance companies that also have their own proprietary mutual funds.

The advisor had always made the claim to them that he could use any type of investments that he wanted. What I found funny about that statement was when you actually looked at their account holdings, over 80% of all their investments were with that company’s mutual funds; their own proprietary product.

What was even more a bunch of crap, was the actual funds themselves were horrible. Their track records were bad, their fees were high, and their performance resembled that of a 16-year-old trying to make it in the NFL; it just wasn’t cutting it.

Lesson learned: If you’re using an advisor that works for a big company, be on the lookout if they always recommend their own company’s funds.

6 The “I Know You’re 80 and Should be in a CD, But Let’s Put You in a Risky Investment” Advisor

This is the type of advisor that deserves more than just a punch; maybe an eye gouge, a knee to the groin, or maybe even a “people’s elbow” from The Rock.

I had a client whose mother was doing business with another advisor a couple towns over. The daughter had a funny feeling about the advisor, so she urged her mom to transfer to me.

When her mom brought in her account statements, I couldn’t believe what I saw. I had asked the daughter and the mother what the intent of their investments was and both agreed that safety of principal was a major concern. The mom had living expenses to meet, and she was going to need to cash in some of the investments in the not-too-distant future.

When I hear an 80-year-old widow tell me that she’s worried about her principal, and she needs access to the money in a short amount of time, immediately I’m thinking CDs, money market, or savings account.

Well, not this advisor. No, this advisor put most of her money into different preferred stocks, and long term bonds.

One of the preferred stocks had a maturity date of 2040. Now, for those of you that don’t understand how preferred stocks work, they resemble a hybrid of a stock and a bond, so they can fluctuate like a stock, and pay interest like a bond.

Well, the time when the mother needed the money, interest rates were fluctuating and in just a few months time span she saw a 30% drop in principal on those preferred stocks.  When she needed to cash out those investments to generate some cash, she was taking a huge loss in principal. Sure, her investments were paying a very high dividend at the time but that was of little comfort after taking such a huge hit on her money.

Lesson learned: If you think you need to access the money in your investments short term, don’t let an advisor con you into buying anything other than a CD.

7 The “My Products Don’t Have Fees” Advisor

This is the kind of guy that I don’t actually want to punch in the face, I’d rather just have a good chuckle with him. One time, I was competing with another advisor who was offering a fixed annuity as their only investment solution. They were a pure insurance agent, and apparently that was all he could offer.

When the client chose me as their advisor over the insurance agent, they were not happy, to say the least, and they were so disappointed in my client’s decision that they were compelled to tell them (in a condescending tone)  that their products had no fees, whereas mine did, and that they (my clients) were making a horrible decision.

No fees, huh? Well, yes, if you buy a fixed annuity that guaranteed you 3%, you do get 3%. For someone to use the argument that their products have no fees is ridiculous. There’s a fee for everything; there is no such thing as a free lunch.

Lesson learned: If your advisor tells you that their products have no fees, I would suggest you first prevent yourself from bursting in laughter.  Then kindly remove yourself and sprint out of their office.

Have you ever had a bad experience with a financial advisor that you wanted to punch in the face? Break out your boxing gloves and share in the comments below.

Potato, potahto. Tomato, tomahto. Fee Only Vs. Fee Based. The same difference, right?

Not quite.

If you’ve ever interviewed or hired a financial advisor, chances are you you have no idea how you are paying them. Advisors can get paid way in many different ways.

Mainstream media loves the “fee only” advisor. No conflict of interest, no commissions, certainty of what you are paying.

But then you have the “fee-based” advisor. The fee-based advisor earns a fee, but then can also earn a commission. Say what? Yes, it’s all together confusing and that’s why I attempt to explain it here:

Definition of Fee-Only Vs. Fee-based Advisors

If you’re looking for a true fee-only advisor, then check out this article about NAPFA which is an association of true fee-only financial advisors.

Another good resource is an article on Moolanomy.com where they interview me on the difference between a fee-only vs. fee based advisor. Miranda did a good job explaining the differences (much better than I can. )

And finally, you can read about PT’s experience of meeting with a fee-only financial planner. PT (Phil Taylor) does an awesome job giving you a play by play of meeting with a fee-only planner. You almost feel like you are in the meeting with him.

What Type of Advisor am I?

I thought that you would never ask….:)

Well, here’s how it can get even more confusing. When I first started the blog, I still held my Series 7 license so I was definitely “fee-based”.

Last year, I dropped my Series 7 and I could have been considered a “fee-only” advisor, but have chose to continue to refer to myself as fee-based.

Why? Even though I can longer earn a commission off the sale of a security (stock, bond, mutual fund, variable annuity, etc), I have kept my Illinois life insurance license open. That means I can still earn a commission off of an insurance product (term insurance, whole life, fixed annuity, etc). Even though I haven’t sold any since the transition, I’m a big believer in insurance so my assumption is that one day I will use it.

So keep that in mind when interviewing advisors. Even though they don’t have a Series 7, they can still potentially earn a commission off selling you an insurance product.

Have you met with a fee-based or fee-only financial advisor? What was your experience?

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

Each day my inbox gets flooded with hundreds of emails.

Offer this, buy this, accept my guest post this. Ugh!

I’ve been working more diligently to check my email only a few times per day, but there’s one email in particular that I’m glad that I noticed.

About a year or so ago, I signed up for a free service called Credit Sesame.  Credit Sesame is an online site that specializes in informing their customers of their credit score changes or any possibilities that they can maybe save money on refinancing a home or any of their debt.

Since it was free, I thought what the heck, I’ll try it out.  Once you sign up, they occasionally email you when they feel that there is an opportunity that you can benefit from.

Please note, their emails are very infrequent, so don’t worry about getting flooded with hundreds of offers.

Refinance Again?  Yeah Right!

We recently built a new home and locked in a 30-year rate at 5%, which at the time we were tickled with.  Not even nine months later, rates dropped and we refinanced to a twenty-year mortgage at 4.25%.  Never in my life would I ever think that I would refinance again.

Earlier part of last year, the stock market started to teeter, which it seems like it’s been doing every day here lately, and once again, rates started to fluctuate.

I kept meaning to call my mortgage broker to ask him about rates, but it always seemed like something got in the way.  Then one day I received one of those handy emails from Credit Sesame that said,

“Based on your situation, it may be possible for you to refinance and save hundreds dollars”.

That email is all I needed to prompt me to call my banker.

Best email I've received in a long time

Also note, Credit Sesame can also get you plugged in with various lending institutions if you don’t have a trusted banker to go to.

Calling the Banker

After reading the email, I immediately, and I mean literally immediately, called my banker to find out if it was really a possibility for us to refinance again.

It didn’t take him long to get back to me to inform me that we could lock in a fifteen-year mortgage at 3.375%.  Doing some quick calculations, factoring in closing costs, it was a no-brainer.  The extra couple hundred bucks a month wouldn’t hurt us and the idea of having our house paid off before our oldest son graduated high school was very, very enticing and that’s what we did.

Can it get even more exciting than that?  It can…..

Being the numbers freak that I am, I had to plug the numbers into a mortgage calculator to see how much in interest we would be saving.

The magic number was $70,185.17.

Over $70,000 from getting an email from my friends at Credit Sesame.   I heart them. 

I know Credit Sesame can do many other things for many other people, but for me, I’m thankful for signing up and getting informed about refinancing.  If you’re like me and you need a friendly reminder every once in a while.

Who doesn’t like the idea of getting cash back on your normal every day spending?

No special miles that need to be redeemed on the 15 non-blackout dates on the airline. No special branded points that can only be used in a special credit card company online “mall”.

Just straight cash back — essentially a pure discount on your spending — in categories that you use every single month. That sounds like a win to me.

Why I Love My AMEX Blue Cash Card

The American Express Blue Cash credit card in my wallet is well worn. I’ve had the credit card for over 5 years and have used it regularly since then. I have a backup Visa credit card I use just in case the merchant doesn’t accept AMEX, but my go-to card is the Blue Cash card. (Granted, the version of the card I have has a slightly different rewards program, but the current program is still great for the average person.) With all of the different credit card options available why would I continue to use the Blue Cash card?

Cash Back on Everyday Spending

Some credit cards are focused on business travelers that fly, eat out, or stay in hotels a lot. What about the average person with the average commute that buys an average amount of groceries? It is easy to feel like there is no card just for your situation.

That’s the beautiful thing about the Blue Cash Everyday(SM) from American Express.

You get:

• 3% cash back on your spending at grocery stores
• 2% cash back on your spending at gas stations and department stores
• 1% cash back on everything else

Through this simple rewards plan and my normal spending I’ve generated hundreds of dollars in absolutely free cash back. Buying groceries for the family leads to a bigger cash back reward. No first class flights required. (Also, the card has no annual fee so you won’t end up paying to earn cash back because that rarely makes sense.)

Why Cash Back Is The Best Credit Card Reward

When you want to be rewarded for your credit card spending there is a wide array of reward programs you can pick from:

• cash back
• airline miles
• hotel stays
• points to be redeemed

Only one of these reward programs can be used in any way you please. Pure cash back. You can spend pure cash back to buy airline tickets or hotel stays. Or you might need it to build up your emergency fund or to buy groceries.

The same can’t be said of the other programs. To use airline miles you have to need to fly somewhere. And when you fly there you are likely going to be spending some money — bag fees, eating out, or other vacation costs. You can’t redeem hotel points for your electric bill or savings account.

Cash back programs give you a check or statement credit straight to you. And you can spend it how you see fit.

What’s not to like about that?

The Dangers of Cash Back Credit Card Use

Spending on credit cards isn’t something that someone overwhelmed with debt should do. Throwing good money after bad won’t result in a win.

Here are some of the dangers of spending on credit cards, including cash back credit cards:

• You can spend more than you intended.
• You can end up paying interest and fees.
• You can spend just to get cash back.

As real as these risks are they can easily be avoided by sticking to your budget, setting up automatic payments, and using your credit card like a debit card. The card is just a piece of plastic. If you only spend money on your credit card that you had budgeted for whatever you’re spending money on, you’ll be fine (and get free cash back, too).

You’ve been investing in your 401k for quite some time and are probably still clueless in where your money is going.  (Don’t worry…you’re not alone)

But you’re thankful that they offer these “target date” or “life cycle” funds that make investing in your 401k so easy.

What are target date funds? You know… the funds where all you have to do is choose the year you plan on retiring and voila – you’re all set.

Winner, winner, chicken dinner…..how easy is that?

Here’s the BIG problem.  Target date funds, although easy, can sometimes eat away at your returns.

Or stated just a bit more bluntly– They suck!

*You know I hate Target Date Mutual Funds when I take the time to record a video.

Target date funds were created to take away the hassle of having to research the mutual funds in your 401k and build and construct your own portfolio. But in my experience, taking the time to do the research and, essentially, build your own target date funds in your 401k, is a much better option.  It’s this “a la carte” approach that can potentially give you much higher returns over your working life.

 What Makes Target Date Funds so Bad?

First, let’s understand how they work.   Most often these funds are created by a specific mutual fund company.   Then that mutual fund company will take 12-18 of their mutual funds and create this diversified portfolio on your behalf.  As you age towards your “target date” of retirement, the 12-18 funds will start shifting to something more conservative (movi.ng from less stocks to more bonds)

Sounds like win-win, right? You would think.  Here’s the problem….

When you start breaking down the individual mutual fund options inside these target date funds, you start to uncover that there are some or several of these funds that are just plum horrible.

 What I’ve Seen With Target Date Funds

Over the years, I’ve seen countless target date mutual funds that my clients have brought in and thus far, I haven’t seen one that I’ve been impressed with.

Recently, I had three different clients bring in their 401(k)’s, all of which having target date funds.

The common theme was…..you guessed it…. they suck.

Show Me Some Examples

Here’s some examples of three clients’ 401(k)’s where we compared the target date portfolio and looked at their ten-year returns, we adjusted that for inflation, and see how that compared with the new portfolio.

Now, keep in mind, the new portfolio consisted of the mutual fund options that were available to them in their 401k.

See, whenever you have a 401k, the target date fund is usually the easiest option, and sometimes your default option, but you typically have the ability to go in and create your own portfolio.  Most people don’t because they simply just don’t know and don’t feel comfortable doing it.

I can’t blame people for not feeling comfortable or qualified to do so.  I’m hoping by showing you some numbers below that you’ll at least consider it.   Let’s take a look…..

Sample Client One

With each client we kept the ratio of stocks and bonds relatively the same.   As you can see,  the first portfolio netted a 3.61% more return over a 10 year period.  3.61%!  Remember, we are just using other mutual funds that are already in the 401k.

For the super analytical people, I had to include other factors as beta, standard deviation and alpha.  If you don’t know that means, it’s OK.   You don’t need to.   What you may be more interested in dollars.

What does 3.61% really mean over the long term? Well, let’s just say… A LOT. As you can see below, in 5 years on a $100,000 portfolio, it’s over $22,000. Wow! And as you can see it only gets bigger and BIGGER….

Those numbers don’t really reflect what happens in a 401k. If you have a 401k, then most likely you’re adding to it on per paycheck basis.

Using the same returns, I wanted to demonstrate if you were adding $5,000 per year into it. As you can see the 20 year number is a $295,000 difference. Okay, that deserves a special call out……

Still think you’re target date fund is good enough for your retirement?

Sample Client Two

You can go through the rest of the examples and see more of the same. What’s the recurring theme? You guessed it. Target date funds suck.

Sample Client Three

Different Client. Different 401k. Different target date mutual funds. Same sucky results….

Portfolio	10Yr Return	Adjusted for Inflation Assumed(3.4%)	10Yr Beta
Target Date Portfolio	5.55%	2.08%	.98
New Portfolio	7.78%	4.26%	.89
Difference	+2.23%	+2.18%	-.09

Managing Your Own 401k

Now, I understand that most people don’t know what the heck they’re looking at in their 401k, so it’s hard for them to do their own research, but that’s where a financial planner comes into play.

Find an advisor that knows that they’re doing and have them construct you an optimized 401k  portfolio.  Even if you have to pay that person $1000 to help with your 401k, that $1000 is nothing, especially when you look at the numbers above.

401k Review Service

Since I realize people need help with their 401k, it only made sense to include that as a part of my practice.   Don’t worry, it’s not $1000.  If you need help with your 401k, check out my 401k review service.

Think you’ll be able to retire early with gobs and gobs and money?   Well, you might……if you actually save.

In case you missed that…..YOU HAVE TO SAVE!

For some reason, people tend to miss that.    The couple in this video missed it completely.

Hence, my Financial Rant…..