Thursday, July 17, 2008

How safe is your money, and how to protect it

Yes massive bank failures are rare, but not unheard of. Here's what you need to know to shelter your money if it happens to you.

NEW YORK ( -- The chances are your bank is not going to shut down overnight.

But if you're at all worried about this in the wake of IndyMac's collapse, there are easy ways to eliminate your exposure today.

"This is the portion of your portfolio that's supposed to help you sleep at night not keep you awake," said Greg McBride, Senior financial analyst at

The FDIC, short for the Federal Deposit Insurance Corporation, fully insures individual accounts up to $100,000 per deposit per bank, and $250,000 for most retirement accounts.

The FDIC does not cover money invested in stocks, bonds, mutual funds, life-insurance policies, annuities or municipal securities.

"The bottom line is, if you are putting money into the bank you are purposely settling for a lower return on a no-risk investment," McBride said.

Therefore, "it doesn't make any sense to then expose yourself to the risk of a bank failure."
If your money is is in an account with less than $100,000 at a bank insured by the FDIC, you have nothing to worry about.

If you do have funds that aren't covered by the FDIC, then you have some exposure in the event of a bank failure that can - and should - easily be remedied.

How to protect yourself

Although about 95% of the $19 billion in deposits at IndyMac were insured, uninsured deposits account for 37% of the $7 trillion on deposit in the U.S. as of March 31, according to LaJuan Williams-Dickerson, a spokeswoman for the FDIC.

To calculate your personal exposure, Williams-Dickerson advises consumers to go to and click on the Electronic Deposit Insurance Estimator, also known as EDIE.

"Regardless of your bank's health you should look to protect all of your deposits," said McBride. You can do this by moving excess funds to another bank, or by opening separately titled accounts at the same bank.

Spread your funds out by opening accounts with different names, like a joint account with your spouse or named as trusts for your children. But beware: Saving one account under John Doe and another under John J. Doe won't cut it, McBride warned.

Another way to protect your money is to hold accounts under $100,000 at a few separate banks - not just different branches of the same bank.

If you're still worried about whether your money is protected, "talk to the bank about strategies to get additional FDIC insurance," advised James Chessen, chief economist of the American Bankers Association. The bank can help you reorganize your funds to get full coverage.

The odds are in your favor

"It's important to note that bank failures are rare and they are going to be rare in the future," Chessen said. "Ninety-nine percent of the banks out there are well capitalized."

The FDIC disclosed last month that it was closely watching 90 financial institutions on its "problem bank list." While that number is higher than it has been in the last few years, it is still relatively low, Williams-Dickerson said. In fact, there were 2,165 on the list in 1987. The FDIC does not publish the names of the trouble banks for fear of spurring a bank run.

To find out how safe your bank is, you can check out the Safe & Sound rating on, which provides a sense of the relative financial strength and stability of commercial banks, savings institutions and credit unions.An earlier version of this story reported that U.S. bank deposits totaled $13.4 trillion. The actual number of total U.S. deposits is $7.0 trillion.

Wednesday, July 16, 2008

Student Loans

Student Loans can be a real hinderance on some people before, during and after college. They are passing new laws to make loans more affordable and hopefully easier for people to live their lives after college with them. Here is some information and articles on them.

From Yahoo Finance
Student Loans: Repayment Doesn't Have to Be Painful
Anya Kamenetz

On July 1, Generation Debt got some good news: New rules came into effect making college and graduate school loan repayment much more affordable for a wide range of people.
The idea behind the rules, applauded by student advocates, is to make our higher education system more equitable by helping those who graduate, play by the rules, and meet their obligations to repay the cost of their education.Helping more qualified young people afford college is a public investment that should see a real return in terms of higher earnings -- and thus more taxes paid -- by members of this generation. And in the case of new programs that target teachers and other public servants, these young people will be filling vital roles in our economy. At a time when the cost of education, food, gas, and everything else continues to rise, it's important that students, families, and recent grads understand these programs and how to take advantage of them.

An Interest in Low Interest
The College Cost Reduction and Access Act (signed into law on September 27, 2007) lowered the cost of borrowing on all student loans. Starting on July 1, the fixed interest rate for new Stafford federal loans dropped from 6.8 percent to 6.0 percent. As a result, the average four-year college student starting school this fall will save a total of approximately $2,500 in interest. Under current law, rates will step down each year until they reach 3.4 percent.

If you have older Stafford loans with a variable rate (those taken out before July 1, 2006), the rate just dropped three percentage points, to 4.21 percent from 7.22%. That makes now a perfect time to consolidate and lock in that great rate. A consolidation loan means combining your student loans from each year into one sum with one monthly payment. If you graduated in May of this year, you can consolidate now and lock in an even better rate of just 3.6 percent. Do it this summer, because both the 4.2 percent and the 3.6 percent rate could go up in July 2009.
With the current turmoil in the credit markets, there aren't as many private lenders offering consolidation loans these days, much less the special perks and incentives that were popular in years past. The good news is that you can always get a consolidation loan directly from the government, through Calling All Public Service Graduates
If you work in a qualified public service job for at least 10 years -- and make your debt payments during that time -- the brand-new Public Service Loan Forgiveness program will forgive your remaining debt at the end of those 10 years.

If you are a current student and agree to teach for at least four years, you could be eligible for an additional program, the TEACH grant. This is a grant -- not a loan, so it doesn't have to be repaid -- of up to $4,000 a year.

Who qualifies? There are a lot of fields that qualify as public service under Public Service Loan Forgiveness. You can enroll in this expanded benefit program whether you're now a student or currently employed in an eligible field. This includes any job of 30 hours a week or more with a federal, state, local, or tribal government; the military; public schools and colleges; any post with a 501(c)(3) nonpartisan nonprofit; police officers and other public-safety workers; EMTs; childcare workers; librarians; those who work with the elderly and disabled; public health educators; doctors and nurses in a community clinic; and AmeriCorps workers.

On the other hand, only current college students are eligible for the TEACH grant program. Anyone, student or graduate, who works in public service and has student loans with payments that are scheduled to last longer than October 2017 can sign up for the Public Service Loan

Forgiveness Program.
What's the catch? Of course, these programs are designed for people who already have a strong interest in one of the above fields. The commitment is a long one: 10 years of your career for Public Service Loan Forgiveness and four years for the TEACH grant.

Also, your student loans must be with the federal direct loan program, not with a private lender such as Sallie Mae. In order to take advantage of the program, you can consolidate your loans into the Direct Loan program here.

Finally, there is a risk with any program like this that the laws or rules might change during the time you're paying back the loans. In the short term, the exact qualifications might change between now and November 1, when the Department of Education finalizes its rules. Help for

Those Drowning in Debt
Look out for another improvement to the loan program, coming next July 1. If you have high student loan debt relative to your income, a program called Income Based Repayment can help. It will allow you to repay your loans based on a sliding scale. So for a graduate earning $35,000 with $40,000 in loans, monthly payments would be capped at $242.50, compared to $460.32 under standard repayment. All remaining balances are forgiven after 25 years.

Here are links to some more information:
Go here and here for all the details on these new programs.

Monday, July 14, 2008


There is a lot going on in the market the past few months. A lot of people who have money invested in the market are seeing the value of the accounts dropping dramatically, 10-20%. Thats a real tough pill to swallow and I am sure plenty of people are getting very scared and pulling out of the market. That could be a good idea, so that you will not lose any more money, and if you switch to risk free money market maybe you can continue to make 3%.

If you do though sell out there are a few things you could be missing out on; Dollar Cost Averaging (The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high), in this case you can either keep investing money as the market goes down, or you can stop adding new funds, but have your dividends reinvest in the stock of the company that may be going down or at least not going up!

That can really make a big difference years down the line, if you don't have to live off of your dividends (some older, retired people may bank on those dividends coming quarterly to buy groceries or pay insurance bills) its a great way to keep investing. I mean think about it, say you own 25 shares of BAC, and every quarter you get paid out $16 in dividends, what are you going to do when a $16 check comes to your door? If it were me, I'd throw it in my checking account and spend it as I would any other money in the account, but really...what is $16 going to get you? Well, if you switch your investment to reinvest your dividends, that $16 will buy more shares of BAC every time it is paid. SO, for those of you that would have spent it, you would most likely have nothing to show for it, but those who had the dividends reinvested, you could have many more shares just a few years down the line, practically for free (all depends on how you look at it).

So, you can either bail out of the market and switch to risk free, or you can do as a Warren Buffett, Bruce Berkowitz and many other value investors would do, and buy when its low and sit on it for a long time as it comes back up.

Tuesday, July 8, 2008

Ben Stein - He's got some good input

This is an article from Yahoo! Finance, Ben Stein has some good, conservative ideas.

Don't Panic - Buy Index Funds and Real Estate

by Ben Stein

Now for some reassuring words. Of all of the columnists writing in this space, I suspect I am the oldest. This means I have seen the most economic fluctuations. This also means I am less terrified about them than younger heads.

Let me put this differently. I read recently in The Wall Street Journal that the stock market was at the time of that writing almost in " Bear Market Territory," which is to say, down roughly 20% or more from its high. This, said the author of the piece, shows that we are about to have very bad economic times. The author helpfully noted that the market has been down into "Bear Market Territory " some nine times since the mid-1960's. Without doubt, this author was trying to do his best, and to serve his readers.But here's a relevant addendum: yes, the market may have fallen 20% or more nine times since then. But there have only been five recessions since then.That is to say, the stock market predicts 10 out of five recessions. Not such a great record.
The truth is that while the economy is clearly slowing down we are not yet in a recession. There has so far not even been one quarter of negative economic growth, nor even a break-even quarter. We may well have one soon, but two in a row are required for the classic definition of a recession. And as I keep saying, if anyone can call anything a recession, the whole subject loses all intellectual or factual meaning. This too could happen-a real recession-but it has not happened yet.

There are still reasons for hope. Exports are phenomenally strong. Minerals and agriculture are strong. Medical is strong. The government sector is large and robust. Sadly, military must remain strong indefinitely.

The government is running an immense deficit, and this is stimulative. True, finance is in tatters, as is transportation, refining, and home building. These are large sectors. They may fall so much that they bring the economy into recession.

But think about this: somewhere out in the big wide world, there is voracious demand for minerals and commodities. That (along with speculation) explains their major price increases. It would be extremely rare for there to be a spectacular worldwide demand for commodities along with a serious fall in demand for other factors in an economy. That is, it would be rare for demand to be both rising and falling at the same time. It could happen, but it would be rare.
However, let's assume we do have a recession. I hope we don't, but we might. What do we do about it? What can we do about it? Just keep plugging along. Just keep buying broad indexes. Just keep a good chunk of liquid assets. None of us can control the economy. Thus, we just have to keep swimming in the roiled waters.As we cling to our life jackets, please remember this: no recession lasts forever. I can well recall so many times in the past when every single headline in The Wall Street Journal was about some record growth of sales or profits. Then time passes and every single headline is about horrible news. Then time passes and there is mixed news, and then it's all good news again.

Economies go through cycles. But the long-term trend is up, and people who buy broad indexes when the news is bad, if they live long enough, live to be happy about it.Besides, what alternative do you have? If you have money to invest, yes, keep some in cash. But cash loses its value in inflationary times. In fact, holding cash over long periods - beyond what you need for peace of mind - is a surefire way to make yourself unhappy. You will lose money on it over long periods as inflation nibbles at it.

The best bet usually is what has gone down the most, and that, for now, is real estate. I got a letter from a thoughtful reader saying he was going to wait until real estate had reached its all time low before he bought. But how will he know? And how rarely does he find a home he truly loves? Even when homebuyers buy at the top of the cycle, if they love their homes, and if they can hold on, they always end up delighted.Yes, there will be news saying housing will not recover THIS TIME. But in fact, except in really depressed areas, housing recovers EVERY TIME and goes on to pass its prior record. The real story of real estate, as my brilliant money manager friend, Phil DeMuth, says, is of failing to buy, not of staying away successfully.

The plain fact is that you don't know when real estate will be at bottom until it's too late. If you see a home you love, buy it now if you plan to be in it a long time. And know that the headline writers want to whip you up and make you crazy about the economy. They sell fear. Stay calm and stay well to do.