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More on Traditional IRAs Versus Roth IRAs

So, the question remains as to which is better: a traditional IRA or a Roth IRA. The former gives you a tax break this year and tax-deferred earnings, but taxes you at withdrawal. The latter doesn't give you anything now (you contribute with post-tax money) but earnings are tax free. The correct answer seems to depend on a couple factors: 1) your specific situation and 2) what tax rates will be in the future. It's likely that point #1 can be of some help, but we're all merely guessing at point #2. The general thinking is that tax rates as a whole will likely be higher when we all retire, but that we'll also be in lower tax brackets then too (since we'll earn less.)

So with everything clear as mud, I thought I'd post two (somewhat) different viewpoints on the issue that were listed as comments to my post titled Retirement Smackdown: Which is Better -- Traditional IRA or Roth IRA? First, here's a comment favoring the traditional IRA:

The vast majority of people will be in lower tax brackets at retirement so would do better with a Traditional. They are, however, the ones that likely aren't saving anyway, so those that are saving may well prefer a Roth.

This (at least the first part) is what my line of thinking has been recently as well. But then, we had this comment:

One more thing to add. The assumption that your income tax rate will be lower in retirement is really faulty. I am a CPA so let me show why.

1 - Incomes tax rates are at historic lows right now

2 - Things people don't consider in retirement that I see with my clients all the time - you will likely be single (widowed or divorced) much of retirement, which today would mean if you had 1/2 the income you had as married you'd still be in the same tax bracket. You brush up against the next higher tax bracket a LOT sooner when you are single. That's unique to today since the marriage penalty was removed though, and will probably be back soon enough. Hard to explain, but makes a difference for now, maybe not for the long-term.

More importantly, in retirement you expect to make a lot less money, but you also lose most of your tax deductions. Just because your income is lower does not mean your taxable income is lower... Most of my six-figure working clients with families are in the 15% tax bracket these days while most my $50k/year retiree clients (most who are divorced or widowed) are in the 25% bracket. The difference is simply the amount of tax deductions.

So the real answer is still somewhat unclear. Could it be that they are equally good based on the fact that we can't accurately predict taxes?

For some additional thoughts on this topic, see these links:

• Roth IRA Versus 401k -- Which is Better?

• How to Maximize Your Retirement Savings

• Save a Little Bit a Day and Become Rich

Six Easy Steps to Lower Your Cooling Bills

Here's a piece courtesy of ARA Content on how to lower your cooling bills this summer:

With hot summer weather just around the corner, now is the time to give your home a “check-up.” Here are six tips from the Comfort Institute to make sure your air conditioning bills don’t blow your cool!

1. Have your duct system tested for air leaks. Many assume that windows and doors are the major cause of a home’s energy wasting air leaks. But according to recent research by the Department of Energy (DOE), gaps, joints and disconnections in the typical home’s duct system are much more significant. The DOE states that the typical duct system loses 25 to 40 percent of the energy put out by the central heat pump or air conditioner. Authorities recommend having an AC contractor test for leaks and then seal them with a brushed on fiber-reinforced elastomeric sealant. Duct tape usually dries out and fails. It turns out duct tape is great for many things, but sealing ducts isn’t one of them!

2. Ask your AC contractor to perform an Infiltrometer “blower door” test. The blower door is a computerized instrument originally invented by the Department of Energy. It pinpoints where your home’s worst air leaks are, such as duct leaks, and also measures how leaky the overall house is. Many homes have significant air leaks into the attic: hot dusty air often gets drawn in through recessed can lights and pulled down stairs. New sealing products are available to fix these significant leaks. Many AC contractors offer an Infiltrometer test as part of a “Whole House Health & Comfort Checkup” that also checks insulation levels and overall duct performance.

3. Close your fireplace damper. Did you remember to close it last time you used the fireplace? Shut it now or waste precious cool air all summer long!

4. Replace your air conditioner or heat pump air filter. Most systems need this done every month to ensure safe and efficient operation. Keep forgetting to do it? Ask your AC contractor for information on an extended surface area whole-house air filter that only needs to be replaced once a year. It also does a far better job of keeping your equipment and the air in your home clean.

5. Have your air conditioner cleaned and tuned. A pre-season tune-up is a great investment. It reduces the chances of breakdowns in the middle of summer and more than pays for itself through more energy efficient operation. Make sure the AC contractor cleans both the indoor and outdoor heat transfer coils, and checks refrigerant gas charge by measuring “superheat” or “subcooling.”

6. Consider replacing your old air conditioner or heat pump. Just like a car, central cooling equipment doesn’t last forever. Is your system more than 12 years old? Planning to stay in your home more than a few years? Many authorities recommend replacing it before it fails permanently. A new system improves comfort, is more dependable and creates less air pollution. New units are up to twice as energy efficient, which saves money on your monthly electric bills.

However, government and utility research has found that more than 90 percent of newly installed high efficiency systems have energy wasting mistakes. Do some homework before talking to contractors. For more information, visit and . Print out the free Comfort Institute reports “Tips and Secrets To Buying A New Heating and Cooling System” and “How To Identify a Good Heating and Cooling Contractor.”

How Much is Your Time Worth?

More and more these days, I'm basing financial decisions on TIME as well as money. In the "olden days," we'd drive all the way across town to save a dime (my wife still does this sometimes) but now I usually give it the time test before I decide to buy. Consider the following situation:

I'm at a store and thinking of buying a $20 item. I KNOW it's $2 cheaper at another place but that's a 15-minute drive away. What do I do?

I buy it at the first place -- $2 is not enough to account for the time and effort associated with going to the second store (much less the gas cost these days.)

But let's change the scenario a bit. What if the place it's $2 cheaper at is in the same mall -- just at the other end? For me, this would be a toss-up. For my wife, she'd go for the cheaper price.

Let's change it again. Let's say that you're considering buying a $500 item, but it's $50 cheaper (still the same percentage savings) across town (15 minutes away.) Is it worth the drive? I'd say it was.

So I guess it's the relationship between the absolute dollar amount saved and the time/effort expended to get it that's the deciding factor for me.

What about you? How do you make the time/money trade-off? Do you have any examples you could share with the rest of us?

Why You Need a Budget

A couple weeks or so ago I held a giveaway where commenters listed their top reasons we all need a budget. Since then, I named the winners. Because very few of you probably read all 37 entries, I thought it was appropriate to share the winning comments since there are some great reasons why we all need a budget. First, we'll start with the grand prize winner, Scott:

You need a budget because building wealth is not possible without self-discipline.

A budget is an essential tool for setting goals; establishing reasonable boundaries that are necessary for meeting those goals; and measuring your performance and holding you accountable to those boundaries. If you lose ground, a budget will alert you to this fact, and you can adjust your budget to compensate. If you exceed your goals, a budget gives you some freedom to enjoy any excess you are blessed with.

A budget is an essential tool for exercising financial self-discipline!

And now for the five runners-up (in alphabetical order). From Arme L:

In life, we have to plan for many things to succeed. To pass an exam, we study. To win in a game, we practice. To be financially stable, we need a budget. Even corporations and our government need a budget to function.

Budgeting helps us manage limited resources (our money) to fulfill our unlimited wants (our demands).

Everyone has wants, so we all need a Budget!

Did he just mention "budget" and "government" in the same sentence? How'd he win? ;-)

Here's what Ben submitted:

Budgets are a pact between your current self and your future self on how you plan on living your life.

Ohhhh. A little philosophical there, huh? I like it!

Next, here's Blaine:

Without a budget, you will find it very difficult to save for your future or to fully enjoy your present. Budgeting allows you to make sure that you are spending less than you earn, and it also allows you to spend money without having to worry about whether or not the expense is going to interfere with your future. If you set money aside for frivolous expenses, then you can fritter that away on anything you want without being kept up at night. You will still have a nice nest egg when you are ready to change careers or retire.

Here's what Charles had to say:

I spend too much time away from my family and put in too much hard work earning money to allow it to simply walk out the door without a prioritized, assigned purpose.

And finally, Jana weighed in with this:

You Need a Budget because without it you end up with all the latest DVDs, books and designer clothes looking cool for the year. Your kitchen is stocked with more equipment than the best seafood restaurant in town. You are well known to all the hostesses at the 5 star restaurants and your new car has all the newest gadgets and the most beautiful paint job in the world. And as you sit in your amazing Martha Stewart decorated home, surrounded by all the coolest things; it's hard to see them when the lights are shut off. It's hard to appreciate them when they are being hauled away by the IRS. And one day, when you are stuck in the county assisted living facility; parked under a tree for 8 hours in the 100+ degree heat, you can reflect on why you have no money left to help with your bills you can say, well, I wanted the see Shrek in HD! BLAH!

VERY FUNNY!

And finally, as if you already haven't heard enough about budgets, here are some thoughts from me:

• Know and Control Your Spending

• Why do Millionaires have Budgets?

• Three Ways to Track Your Spending

• Pretend It's Not a Budget: How to Create a 'Spending Plan' You Can Stick To

• Five Keys to Developing a Successful Budget

Four Gas Saving Myths

I've written a TON about saving money on gas (if you don't believe me, see Saving Money on Gas, Part 1 and Saving Money on Gas, Part 2), but here's a piece that de-bunks some of the (supposedly) . I'll list the tip, what they (CNN Money) say about it, and my take on the situation. Here goes:

• Tip: There have been additives, special magnets and even a pill that has promised to improve a car's fuel efficiency by as much as 30 percent in some cases.

• CNN Money: Consumer Reports and the government's Environmental Protection Agency, have tested dozens of these products finding that none of them offer any significant improvement in fuel economy.

My take: I'm with them -- I'll pass on the money-saving gimmicks.

• Tip: Leaving your windows rolled down creates an aerodynamic drag on your car, cutting down on fuel efficiency. And there's the notion that the fastest way to drain your gas tank is by running your air conditioning.

• CNN Money: In two separate studies conducted in 2005, the automotive Web site Edmunds.com and Consumer Reports compared the fuel economy of both a sedan and an SUV at highway speeds with and without air conditioning and how open windows affected gas usage. What they found was no significant difference in fuel economy in either sedan or SUV under either condition.

My take: I seem to recall seeing a study that said at city speeds (below 40 mph or so), it was better to have windows open but at highway speed it didn't matter. But for me, I go with the AC no matter what. There's no need saving a few cents if you're miserable in the heat.

• Tip: Some drivers insist the best time to buy gasoline is on a Wednesday, when pump prices have cooled from the weekend run-up when oil companies typically raise prices.

• CNN Money: That's true to a point, says Tom Kloza, chief oil analyst at the Oil Price Information Service. Gas prices tend to be higher on the weekend, but there's no ideal day of the week to purchase your gas.

My take: I've filled up the last two Fridays and I KNOW they charge more on the weekends. Ouch! I'm looking at filling up Monday through Wednesday from now on.

• Tip: It's probably a myth that goes back to the days when cars were equipped with carburetors, but many drivers believe that starting up and turning off your car repeatedly is a fast way to drain your gas tank.

• CNN Money: But because of modern fuel-injection technology, drivers actually save gas by turning off their engine than letting their car needlessly idle, says Consumer Reports' Paul.

My take: So what am I to do with this -- turn off my car at every stop light?

Alltribes Carnivals This Week

Here are the carnivals Alltribes is in this week and my posts that were included:

• - Why Smart People are No Better Off Financially

• - The Most Cost Effective Ways to Stay in Shape

• - American Express Blue Cash Card Named Among Top Cards by Money Magazine

Stop by these carnivals to read some great posts!

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Alltribes is brought to you by (note: all revenue from this site is given to charity) .

Don't Co-Sign a Loan Unless You're Ready to Pay It

Here's something so basic that I really shouldn't have to say it. And then again, some people are still having trouble with it. Here's bottom-line advice from Money Central on :

Let me just say this: If asked to co-sign for anyone -- a friend, a child, even your mother -- the best answer is "no" unless you are currently prepared to take on the debt for yourself.

Translation: when you co-sign a loan, you say you are willing to pay off the loan in case the borrower can't. Oh yeah, and it's binding. It's just like you are taking out the loan yourself except someone else is paying for it. For now at least. But at a moment's notice, you may be the one paying for it.

My rule is to NEVER co-sign for a loan. I either say "no," offer to give the person part of the money, or look for an alternative solution (for instance, you can buy you child a car and they can pay you back -- like I did with my dad.)

Anyone out there had a co-signing loan nightmare or heard of one? Please share it with the rest of us.

What It Takes to Get Rich

We've previously discussed that intelligence is linked to income, but not to wealth and, as a result, have asked, "Well, what then is linked to wealth?" Fortunately, Yahoo has some thoughts on . Here's what Ohio State economics professor Jay Zagorsky suggests are the factors that help determine how wealthy you'll become in life:

"Staying married, not getting divorced, thinking about savings."

Hmmmmmm. Even I can handle this. ;-)

The article gives some additional insights into why smarter people don't end up wealthier -- even though they make more money on average:

We would reasonably assume, then, that smarter people would end up wealthier. But that was not suggested by the study. Instead, people with higher IQs and incomes tended to spend more, maxing out credit cards and paying bills late. At the end of the day, those with lower IQs often had a greater net worth.

And finally, a little encouragement for those who aren't as bright:

Here's my favorite Zagorsky conclusion: "Intelligence is not a factor for explaining wealth. Those with low intelligence should not believe they are handicapped, and those with high intelligence should not believe they have an advantage."

The next time you're thinking you're not smart enough to do well at investing, think again. Think of those Nobel Prize winners who lost a lot running Long Term Capital Management -- which also cost their creditors hundreds of millions of dollars. Meanwhile, many simple folks -- bus drivers, teachers, and the like -- are quietly amassing fortunes by saving and investing.

No, it's doesn't take a genius to accumulate wealth. I (and many of my financial tips) are proof of this. ;-)

All it takes to become wealthy is following a few simple principles like those outlined in these pieces:

• How to Get Rich in Three Easy Steps

• The 10 Best Money Moves You Can Make

• The Top Five Steps to Grow Your Net Worth

Is the Worst of the Housing Slump Over?

As you may know, we're house shopping so I'm really keeping in touch with the real estate market in our area (just in the beginning phases now, but I'm ramping up quickly). The latest reports nationally show that the market continues to decline, but it appears that . First, the bad news from CNN Money:

U.S. home prices fell for their third straight quarter, according to an industry report released Tuesday. The median price of a single-family home fell 1.8 percent to $212,300 for the three months ended March 31, compared with the first quarter of 2006, according to the National Association of Realtors (NAR). It was the third consecutive quarter of decline, and prices are now down 6.5 percent from their peak of $227,100 in 2006.

The first-quarter drop follows an overall 2.7 percent slump in the fourth quarter of 2006, which was the biggest year-over-year drop on record.

But there's a silver lining in those clouds:

NAR President Pat V. Combs said in a statement that the flattening in home prices is encouraging.

"It appears the worst of the price correction is behind us," she said. "More stable home prices and declining mortgage interest rates are increasing buying power, which should encourage potential buyers who've been on the sidelines."

NAR's senior economist, Lawrence Yun, also took an optimistic view of the report. "Essentially, we see that the existing-home market is stabilizing in a broad cyclical trough and moving in the right direction," he said in a statement.

Yet it's not all rosy:

The trade group is still predicting a recovery during the second half of this year but overall, it has forecast that prices will end 2007 down, the first time prices fell over a full calendar year since NAR began compiling records in 1967.

So maybe the worst is over -- but that doesn't mean prices won't keep declining (even if they do so at low levels.)

And in my neck of the woods, things are much worse off. The national average was off 1.8% and yet my city was down 3.1%.

I guess I still have some time before I can buy at rock-bottom prices.

More Companies Others Promote for Free

Last week I wrote Companies I Promote for Free, a piece that detailed a set of companies that I love, talk about, and recommend all the time. A couple other members of the MoneyBlogNetwork posted their lists of companies as well, so I thought I'd pass their thoughts on to you. See and for the specifics.

Tips for Saving Money When Shopping a Warehouse Club Store

Consumer Reports ended its May article comparing Costco versus Sam's Club by listing some . Here's a summary of what they suggested:

• Make a list and stick to it.

• Know how to identify super-bargains. At Costco, “.97” at the end of a price generally indicates discontinued or slow-moving products. At Sam’s, a “C” at the end of the item number denotes a canceled item.

• Compare the club’s unit prices to those at your supermarket for heavily discounted staples. Supermarkets might be less expensive.

• For big-ticket items, compare the club price to that of other retailers by going to sites such as PriceGrabber.com or BizRate.

• Consider splitting large buys with friends. Otherwise, don’t buy in bulk perishables or medications with a short shelf life (check the expiration dates). You’ll end up tossing a lot away.

• Try unfamiliar products judiciously.

• Pay with cash; it’s a reality check on how much you’re spending.

• Shop on weekdays, preferably when the store opens or in midafternoon. That’s when crowds tend to be lighter.

Here's my take on each of these (as a frequent Costco shopper):

1. Of course. Making a list and sticking to it is saving money when shopping 101. Good luck actually sticking to the list in a club store. We did it. Once.

2. I'll combine my comments on 2 and 3 above by saying that you need to know the retail and sale prices of your household basics (as well as how often they go on sale and if they have coupons.) You can then compare these as you shop at the warehouse clubs on a per size (ounce, pound, etc.) basis. There are two ways to do this: 1) Via memory. This is my wife's method and it can become frustrating as I stand there waiting for her to recall the size and price on a bottle of ketchup at our local grocery store. 2) Write it down. A price book is a wonderful thing -- no memory is required. I wish we had one, but alas, I am prohibited from making suggestions when it comes to our grocery shopping habits. ;-)

3. Covered above.

4. Yes, shop around, especially for big items. (For instance, like I did with car tires.)

5. We've split purchases with friends on occasion, but generally it seems like too much of a hassle to coordinate.

6. Yes, yes, yes! We've learned the hard way not to take a risk on something we know nothing about that comes in a jumbo size! And even on items you know you like, ask if you really need that many of them. (I still have several boxes of staples I bought years ago at Sam's Club.)

7. Nope. I prefer to pay with my Amex card since it earns me money.

8. We shop on Saturdays around 11 am. The crowds aren't that bad yet, but the samples start to come out. You can have an entire meal for free by tasting all the samples (but be warned, you'll end up buying several of them.)

Creating Financial Harmony in Marriage

The following piece is courtesy of and gives their thoughts on creating financial harmony in marriage:

No married couple wants a scandal, even if it is just financial in nature. Money problems can ruin the love affair with your spouse. The work of blending two lives in harmony requires certain basic commitments. Many families today are financially troubled. Most of these are in denial. The rest of them are looking for a quick fix. Even a financial planner can't help unless the couple is willing to make five simple commitments. You can always choose to find something to fight about. But if you are serious about removing the financial obstacles in your love life, you should commit to the following money management rules.

First, take the time to provide open accounting to your spouse. Most financial arguments are not about how to spend your money but about how money was actually spent. Just like every publicly traded company is required to give a public accounting of its finances, couples should do the same. In the public sector, it's considered a scandal when a corporation fails to provide its financial information in a timely fashion. The same rules should apply at home. Financial accountability, openness, and honesty are essential in marriage.

Next, make saving money savings your first priority. Pay yourself first. Couples should agree on a savings rate and should prioritize their savings above all other budget categories. Savings should be automated and protected from impulse spending habits.

I've come to believe that savings should even be prioritized above debt reduction. I've found that couples that are in debt cannot seem to get out of debt because they are using what should be going into savings. They are servicing to service their debt rather than adjusting their lifestyle so that they are spending less than they make.

Set a limit on what you can spend without first getting the approval of your spouse. Each spouse must sign off on spending that might be a budget buster. If you are young or your finances are in trouble, the amount should be fairly low. As you get more experience and your finances are in harmony, you can raise the amount. Any purchases above that amount should require the agreement of both spouses.

In the same way, any purchases beyond what was budgeted should require the agreement of both spouses as to which budget category is going to be reduced in order to make up the difference. If your spouse asks you to wait before making the purchase, lean toward waiting graciously. Ask what you would do if you did not have the money at all. Then, do that instead. Delaying a large purchase even by a month can significantly increase your financial health.

Set rules for the acceptable use of credit. In my experience, the easy use of credit cards ruins much financial harmony. It is better when the use of credit cards is limited to only certain required budget items. Using a credit card for groceries or gasoline may be harmless. But when credit cards are used for clothes or eating out, optional spending is unnecessarily inflated.

There are several advantages to using credit cards. But each of these advantages becomes powerful disadvantages for a family struggling to make ends meet. Credit allows couples to avoid asking the tough question about what they would do if they did not have the money. Credit makes spending easy and simplifies check-writing. These advantages are as helpful as giving an alcoholic a place to sleep in the back of the bar.

Either spouse should be able to veto the use of credit cards entirely. Only if both parties agree to the use of credit cards, should they be allowed - and then only within certain guidelines.

Credit should only be used for specific required monthly categories, and then only by the spouse who is less apt to make extra purchases on impulse. If you are struggling with your finances, stop using credit cards entirely.

Agree together that ignorance will not be used as an excuse. Both parties must be willing to learn. Just like a good love life, finances cannot be handled well by just one party. Many problems stem as much from ignorance and abdication by one party than spending by the other. If you don't have the time or the interest to be involved in the family's finances, then you may be the problem. Ask for help and start learning.

How to Clean Out a Dead Parent's House

Ok, that's a bit of a strange title, but it's the best I could come up with.

A few years ago, my wife's father passed away and we helped (with several other relatives) clean out his home. It was an interesting experience for sure -- seeing a lifetime of stuff that had been accumulated. I had responsibility for the garage, so I had mostly tools, screws, and the like to go through. He was an organized guy, but still he had a TON of what I could only deem as junk. It was a tedious process.

In this piece from MoneyCentral, they list several tips on . There are several good tips in the article, and I'd like to highlight a few of them. Let's start on what to do from a financial perspective:

Getting a handle on your parent's financial life is the priority. To keep the homeowners policy in force, ask the insurance company to change the name of the insured to the estate; that way, you ensure that property-damage and liability coverage stay in force. Continue to pay the mortgage (if any) and utility bills. As soon as possible, change the locks on the house -- you never know who might have a key.

Scout through the house for wallets, checkbooks, financial statements, information about safety-deposit boxes, birth certificates, insurance policies, stock certificates and so on. Did Dad write a will, and do you know where it is? Jeanne K. Smith, a professional organizer in Palo Alto, Calif., says that many seniors don't keep all their paperwork together and may have filed it in unexpected places. Keep any keys you find in one location so that they can eventually be matched to the proper locks.

My wife's father had a will and named his lawyer as executor. Things ran fairly smoothly on the financial end as a result. But we still had to clean out the house. Here are some tips for what to do during this process:

• For each item, decide whether to keep it, donate it, sell it or trash it.

• If you and your siblings get hung up on the 20% of things with emotional or monetary value, professional organizer Barry Izsak recommends that you set them aside and focus on the 80% no one cares about: the Tupperware and lawn tools.

• Look everywhere and in everything. Poitras found $1,100 in cash in a boot. When Izsak closed his parents' home, he gave a piano bench full of music to a neighbor, who returned the $50,000 life-insurance policy he found among the sheaves. Smith has found diamond rings in Band-Aid boxes and stock certificates in folders behind kitchen curtains.

• Get an appraisal. If you have doubts about an item's value, hire a personal-property appraiser. Miller knows of a case in which $30,000 worth of 17th-century Japanese prints ended up at the dump.

The one tip that stood out to me was to look everywhere. I know my parents have stored money in socks in the past (a place I would never think of looking), so I will certainly use this tip if I ever have to clean out their home.

There are several other great tips, so check out the article if this situation applies to you.

BTW, I plan to keep less and less stuff as I get older so my kids don't have to sort through as much stuff. We'll see how that plan goes. ;-)

Retail Smackdown: Costco Versus Sam's Club

In May's issue, Consumer Reports wrote about . As a past shopper at Sam's and a current fan of Costco, I was interested in seeing what this trusted source of consumer information had to recommend.

If you're like me and just want the bottom line (which on is better?), you can head straight to the . The highlights:

The result: The deals are great day in and day out from both, but there are differences that can guide people’s choice if they haven’t joined, or lead them to switch clubs.

CR’s findings — based on data from reader surveys, expert interviews, its own shopping at both clubs, and price comparisons with competitors — revealed several pros and cons for both clubs. Among them: Readers gave higher overall scores to Costco for groceries, electronics, small appliances and eyeglasses. Sam’s Club’s return policies for electronics are rated more generous; at Sam’s customers have six months to return a computer and can return anything else anytime. At Costco, customers have 90 days to return most electronics and can return anything else anytime.

“Both have strengths and weaknesses, but the bottom line with a warehouse club is that they can be worthwhile even if you’re not necessarily buying for a business or a large family,” said Tod Marks, Senior Editor at Consumer Reports. “The beauty of shopping at the clubs is not having to wait for a sale, because everything is sold at really good prices every day, unlike your local supermarket, where only specific items are on sale.”

Ok, so the answer is "it depends." What a cop-out. But I guess it's a fair answer. Maybe.

Personally, I LOVE Costco. For details on why, see some of these posts:

• Health and Beauty Aids: Walmart versus Costco, Kirkland Brand versus Equate Brand -- Which is the Best Deal?

• Costco versus Walmart, Round 2

• Smoothie Product Face-Off: Dunkin' Donuts versus Costco

• Money Saving Tip: Excellent Presents from Costco

• Why Costco Is All Pumped Up

• Great Buy at Costco

In addition, I'm not too impressed with Sam's Club's attempts at marketing. So I guess you know who I'd list as the winner, huh?

But to be fair, I went to Google and entered "Costco vs. Sam's Club" and selected the first five articles (not videos or forums) I found on the subject. Here's a summary of them:

• - The bottom-line verdict here is that Sam's Club gets a definite thumbs down for wasting your time and hiring employees who seem totally clueless about how to make things go faster, whereas Costco gets an enthusiastic thumbs up for having intelligent employees and a highly efficient checkout process that gets you in and out of the store in no time. From now on, you can guess where I'll be going when I need to buy something from a members-only discount warehouse retailer.

• - Costco's performance is far superior to that of Sam's Club. Costco's stores generate more than 50% more annual sales on average than Sam's Club stores, and its comps usually outpace its
  peer's. How does Costco do it? By matching Sam's Club on price, while offering far superior customer service.

• - "I'm a big admirer of Wal-Mart, but I admire Costco more," says Charles Munger, Warren Buffett's longtime business partner at Berkshire Hathaway (BRKB) and a Costco board member. "Virtually none of the sins of modern capitalism are at Costco."

• - Costco is known for putting employee and customer interests first. It picks up much of the cost for employee health plans. And to the benefit of customers, it doesn't sell goods at more than 14% above the price it paid for them. While such efforts are popular, shareholders end up paying a price, says Tryka, in the form of lower profit margins. "Management is focused on consumers and employees to the detriment of shareholders. To me, why would I want to buy a stock like that?"

• - Comparing Sam's Club to Costco is like comparing Wal-Mart to Target. Sam's club is located in areas where customers HAVE to budget shop and Costco tends to be located in wealthier suburbs, where customers have the luxury of choosing to budget shop. One offers less selection and better quality, while the other offers more selection and a little less quality. One is the biggest seller of fine wines and the other is part of the company that is the biggest seller of well, everything. From a budget fashion perspective, Costco is obviously the better store offering major discounts on big name brands like Calvin jeans for $22.99 and a great no questions asked return policy. Even its own house brand Kirkland, has clothing like men's dress shirts that are comparable in quality to major department store brands like Marshall's Fields and Nordstrom, with one exception- the Costco brand shirts cost 50% less. However, what attracts budget shoppers like myself to the store is that Costco caps their markups at 14% over the price they paid for an item- significantly less than department stores (up to 50%) and yep, even less than Sam's Club/Wal-Mart.

It appears to me that there's a clear winner here, but I'll let you decide. It's now up to you -- which is your favorite between Costco and Sam's Club?

What's the Best Way to Calculate Net Worth?

On How's Your Net Worth Stack Up? we've had a mini-discussion that I wanted to bring out in the open for all of us to comment on. It deals with the way net worth is calculated. Currently, I know of two primary ways financial publications, websites, news organizations, authors, etc. calculate net worth. The first is the old-fashioned way:

Net Worth = Assets - Liabilities

The second, which seems to be more popular (quoted more often), is as follows:

Net Worth = Assets - Liabilities - Value of Primary Residence

The theory with calculation #2 is that your home is a place to live and is an illiquid asset that would be the last thing you'd ever part with in case of financial disaster. It provides you a benefit (a place to stay), but isn't part of the true reflection of what you're "able to get your hands on" financially. (By the way, some calculations also take out the value of cars and expensive personal property.) Here's one reader's take on this calculation:

I think the reason some people shy away from including housing in their net worth is to avoid the illusion of being wealthy. Many people in my area are "house rich", with almost no other savings or investments.

On the other hand, your house certainly is an asset. If you had to, you could sell it and get access to the equity. Besides, not to count it seems to distort your true financial situation. Consider this reader's comment:

For what it's worth, I think it's crazy not to count residence in net worth. Is a person with 100k in assets that also has 150k equity in a 250k house in the same financial position as one who owns 100k in assets and rents? I think not.

Maybe the solution is to do both. Another comment:

Personaly, I calculate it both with and without. The one with the home is true net worth, while the other gives be a better idea of liquidity and overall investment performance.

Personally, I calculate my net worth including the value of my house. But I also know that it's not a liquid asset that I could convert to cash quickly if I needed to. That said, I kind of like the idea of calculating it both ways as the reader above suggests.

So, what do you think? Which is better? (If one is.) Which do you use and why?

For more thoughts on net worth, see these posts:

• The Top Five Steps to Grow Your Net Worth

• Five Principles to Increasing Your Net Worth

• Net Worth Explained

You Still Need a Will

Hi. It's me again. And, yes, I'm talking about wills again. After writing about giving up smoking, this is my favorite "public service" topic.

I was reminder to post about it by this piece on MSNBC which said . The details:

“Everyone needs some kind of plan,” says Laurie Siebert, CPA and a certified financial planner with Valley National Advisers, Inc. in Bethlehem, Pa. “Yet, estate planning tends to be the elephant sitting in the room that many people seem determined to ignore,” she adds.

According to a recent survey conducted by the online legal document service provider LegalZoom.com, 70.2 percent of Americans lack a last will and testament. Even worse, survey respondents who were parents with minor children were the least likely to have prepared a will. The most commonly cited reasons: Disagreement or indecision over naming the children’s legal guardians.

Yikes! 70% don't have a will -- and parents with young kids are the worst of the lot?! Double yikes! (Which reminds me -- I still need to update our will.) For those with kids and no will, you're playing with fire:

Unfortunately, not making such decisions still has consequences. “If you don’t decide, the state will. However, the results will likely be undesirable for everyone,” says Siebert.

And even young people -- some who think they probably don't need a will -- do need one:

“As soon as you start a career, you are likely to have assets such as a 401(k), IRA, or even an employer-paid insurance policy,” observes Joseph Corriero, a director in online marketing for Merrill Lynch in Hopewell, N.J.  All require thought and decisions regarding beneficiary designations. They also require periodic review to ensure the listed beneficiaries are still those who should be named and their information is current.

And finally, here's a great way to talk to your parents about the fact that they need a will:

Siebert suggests one way adult children can have this conversation with their parents is to begin by asking advice: "Now that I’m working and have a 401(k) and have a baby on the way — how did you and Dad decide who your guardians and beneficiaries would be when you were my age?"  Or they could ask: "If something were to happen to you Dad, how would Mom be taken care of?"

Nice. ;-)

So, what are you waiting for -- go out and get a will!!

In addition, I'd be interested in hearing your thoughts. Do you have a will? Why or why not? If you have one, is it current?

More on How Much a Stay-at-Home Mom is Worth

In How Much Is a Stay-at-Home Mom Worth?, I suggested that a stay-at-home mom's value could be determined by the amount of life insurance she has on herself. But while I was looking around the blogosphere recently, I noticed that others had various takes on the issue. Here's a sampling of what I found:

• - I sat next to a nice woman on my flight back from California a few weeks ago.  We got to chatting, and she asked what my wife did, and I said that she works at home.  Her reply was: “You know she works harder than you do, right?”  My response: “Absolutely!  No question!”

• - Claudia Goldin, a professor of economics at Harvard, dismissed the survey as “silly.” “The calculation isn’t for what anyone would pay an individual,” Prof. Goldin said. “Nor is it for exactly what the individual does. It is for what the person claims they are doing during a long day—CEO, psychologist, etc. And what exactly is the salary for the CEO of a business that shows no profits and sells no services or goods? I think it is probably zero…”

• - Typical of us, isn’t it—trying to quantify the physical value of a role that is better measured spiritually?

• - I was watching the morning news with my husband and heard that my stay at home status is worth a lot of money.  I couldn't believe my ears.  Finally some researchers decided to look into how much a stay at home mom is worth.  I was very surprised when I saw how much my paycheck should be for the year. Oh well, I can dream.  I still love what I do with or without pay.

• - My wife and I had our annual argument last night about who has the harder job. I am a high pressure lawyer and she is a stay at home mom. I thought I would win hands down. She came armed with some statistics, however.

So, anyone else want to jump in with a comment?

Happy Memorial Day

Just wanted to say Happy Memorial Day to everyone (it's a holiday where we remember the service and sacrifice of our veterans and enlisted men and women for those of you outside of the United States). Like most others in the U.S., I'm taking the day off -- I'll be back tomorrow.

Thank you to all our veterans, enlisted personnel, and their families. Words are inadequate to express our great appreciation for your service.

My Take on Tithing Versus Giving Generously

A couple weeks ago we got the discussion down to two main thoughts Christians have on giving -- tithing and giving generously. In that post all we did was define the two ideas. But in this one, I'm going to give you my thoughts on each of them. Here's my take on the situation:

1. Personally, I'm a tither. I've documented my reasons time and again, so there's no need to go over them.

2. I can see the "give generously" point of view, and actually I'm ok with it under the following circumstance: that a person who gives generously gives at least 10% of their income away. If someone says they don't believe in tithing but gives 15% of their income away, I think that's fine. Essentially, though we disagree on the methods, we agree on giving in general and I'm good with that. Why? Because their main argument is that Jesus freed us from the Old Testament law and gave us a greater covenant and a greater call to action. As such, a "greater" call in the area of giving would be to give over 10% if not substantially more. If this is how they live out their interpretation that tithing is not for today, then I think that's fine.

3. What I'm not good with is someone who believes in "giving generously" or "giving by the Spirit" and uses this as an excuse to give God a pittance of their income. Yes, they'll rationalize how they have bills and even 2% is generous for them, but I'm not buying it. I think they are simply greedy and doing what they want to with "their" money (if you want to see an example of a person with nothing who gave generously, look at the widow who gave a mite.) I won't list the verses on what God thinks of greed or what happens when you rob God (at least not in this post) but I think those verses are fairly familiar to anyone who's read a Bible more than once.

4. What about someone who believes in "giving generously" and gives 9% of his income? Is he still "wrong?" Tithers would say "yes" while generous givers would say "that's for God to decide." In the end, it really is between the person and God -- we're never going to settle it here on earth. Personally, I wouldn't give only 9% (in fact, I wouldn't only give 10% either) and I think that someone who does is cheating God out of what's His.

Ok, have at it in the comments. I'll brace myself for the reaction. ;-)

More on Saving on Car Insurance by Keeping Your Credit Score High

In both Save on Car Insurance by Having a Good Credit Score and Why Even Dave Ramsey Needs to Consider His Credit Score I noted the relationship between having a good credit score and saving a boatload on your car insurance. Then in June's issue of Kiplinger magazine I saw it again -- this time with a specific example listed. Here it is:

When Nick Scarafile received his policy-renewal notice last December, his premium had dropped 26% -- and he hadn't changed his cars or his coverage.

Scarafile's insurer, New York Central Mutual, had started to take a much closer look at the driving records and credit histories of its policyholders. Because he has an excellent credit rating, Scarafile ended up with "the most significant decrease" he'd ever seen.

26% savings year after year isn't a bad deal. It's just one reason you need to keep your credit score high.

For more savings tips, see 301 Saving Money Posts -- Hundreds of Ideas on How to Save Money.

Posts of the Week -- May 25

Here is a list of my favorite posts this week:

• Retirement Smackdown: Which is Better -- Traditional IRA or Roth IRA?

• Why Smart People are No Better Off Financially

• Donate to Charity with a Credit Card

• Buying a Foreclosed Property

• Companies I Promote for Free

If you're a regular reader of Alltribes and enjoy the content here, would you do me a favor and tell three (or four) friends? I sure would appreciate it! And if you're not a regular reader, what are you waiting for? You can subscribe easily to Alltribes by using .

Have a great weekend!
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Alltribes is brought to you by (note: all revenue from this site is given to charity): - I recommend it because my readers like it.

Posts of the Week -- May 25

Here is a list of my favorite posts this week:

• Retirement Smackdown: Which is Better -- Traditional IRA or Roth IRA?

• Why Smart People are No Better Off Financially

• Donate to Charity with a Credit Card

• Buying a Foreclosed Property

• Companies I Promote for Free

If you're a regular reader of Alltribes and enjoy the content here, would you do me a favor and tell three (or four) friends? I sure would appreciate it! And if you're not a regular reader, what are you waiting for? You can subscribe easily to Alltribes by using .

Have a great weekend!
--------------------------------------------------------

Alltribes is brought to you by (note: all revenue from this site is given to charity): - I recommend it because my readers like it.

One Year Ago This Week -- May 25

Here are some posts worth re-reading from one year ago this week:

• Alltribes Guide to Making More Money

• Career Guidance: Do's and Don'ts of Quitting Your Job

• Maximize Your Career Earnings: Get a Degree and Manage Your Career

• How to Make a Million Dollars in Ten Years, Part 1: Staying/Becoming Healthy Helps You Spend Less and Earn More

• Penny Pinching Your Way to Prosperity

• Debt in America: What's the True Cause?

• Guidelines for Picking a Financial Advisor

How to Save on Health Care Costs in Retirement

Here's a Yahoo interview with personal finance author and radio host Jennifer Openshaw where she lists some thoughts on (read down the page a bit). Her suggestions:

First, look for a group plan through a professional organization. There are a wide variety of member associations offering group health insurance to their constituents. If you're not a member of a professional organization, it may be worth it to join for those benefits.

Second, check your spouse's health insurance. Often, a spouse can start his or her own venture thanks to the health insurance the other spouse enjoys through an employer.

Also, don't forget COBRA. Federal laws require most employers to offer their employees access to COBRA for 18 months after leaving the job. The caution here is that COBRA only grants you access to the group policies -- you are still required to pay the full premiums. Those COBRA premiums may be more than what you'd pay on the individual market.

Finally, health savings accounts, or HSAs, are a new tax-friendly vehicle aimed at encouraging people to save for their own health-care costs. You invest pretax money in a health savings account and all the money you take out of that account -- including your untaxed contributions and any gains you earn on those savings -- comes out tax-free as long as you spend the money on health-care costs.

Yep, we've only seen the beginning of the "how to save money on health care during retirement" money saving suggestions. This thing is going to keep growing for the foreseeable future. Think this might be part of the answer?

For more thoughts on retirement and health care, see Healthcare Costs Forcing Baby Boomers into Bankruptcy and The Biggest Financial Issue in Retirement: Healthcare.

And for some extra ways to save on health care costs (and all other costs as well), see 301 Saving Money Posts -- Hundreds of Ideas on How to Save Money.

Presidential Hopefuls are Loaded

Here's an interesting piece I found on CNN that gives details into the . These reports were released by the Federal Election Commission (though several candidates received extensions including Hillary Rodham Clinton, Mitt Romney, John McCain and Tommy Thompson and Jim Gilmore.) I'll cover them one-by-one.

Here's the scoop on Rudy Giuliani:

Republican presidential candidate Rudy Giuliani reported a whopping $16.1 million in earned income over the past 16 months, most of it in speaking fees, according to financial documents filed Wednesday. He typically charged $100,000 per speaking engagement and as much as $200,000 on occasion. He reported $13 million to $45 million in assets.

Holy cow! $100k for a speech? Not a bad gig if you can get it.

Now for John Edwards:

Democratic hopeful John Edwards reported earned income of $1.25 million, the biggest single source of which was a hedge fund that employed him part time. He and his wife, Elizabeth, reported $29.5 million in assets, including millions invested in the hedge fund -- the Fortress Investment Group. Edwards received about $395,000 in paid speeches -- most of them at colleges -- and was paid $40,000 salary for work at the University of North Carolina Center on Poverty, Work and Opportunity. Edwards also received $333,334 in royalties for his book "Home: The Blueprints of Our Lives." The money was donated to charity.

I found this particularly interesting:

Edwards, who has made fighting poverty a signature element of his campaign, said his work for a fund that generally caters to the wealthiest of investors was designed to educate him about the way financial markets operate. Fortress paid Edwards $479,512 for his consulting services.

He doesn't know how financial markets work and he wants to be president? Either this guy is not qualified to run the economy or he's lying and just wants to make some big bucks (which I'm not against, by the way, but for goodness sake, please be upfront about it.)

Next is Barak Obama:

Sen. Barack Obama's report showed a surge of interest in his writings as he drew closer to a presidential bid, earning more than a half-million dollars in 2006 in royalties for one book and an advance for another. The Illinois Democrat received $572,490 for the books -- his best-selling memoir, "Dreams of My Father" and "The Audacity of Hope," an account of his political journey. Obama and his wife, Michelle, reported assets ranging from $457,000 to $1.14 million -- far more modest than most of the other leading presidential candidates.

Obviously, Obama is younger than most, if not all the rest, so he's got some time to up his net worth -- and making $572k for a couple books is a great way to juice up his holdings. He's still above average in net worth, but is much closer to most of us than the rest of the gang.

Finally, we have Bill Richardson:

New Mexico Gov. Bill Richardson, a Democratic presidential candidate who has called for a dramatic reduction in the use of fossil fuels, reported holding $250,000 to $500,000 in stock options from Valero Energy Corp. for serving on the company's board of directors from March 2001 to June 2002. Richardson also held $100,000 to $250,000 in Valero common stock.

Not much here -- other than his investments don't necessarily hold with his personal convictions. That's not totally a bad thing though as his money isn't likely making a difference in their stock price etc., so I'd give him a pass on this (though the media wants to make a big deal out of it.)

I can't wait to see the incomes/net worths of Hillary Rodham Clinton and John McCain. Should be some juicy stuff there!

Help a Reader: What to Do with $42k in Cash?

Here's an email I received recently:

I have been reading your site for a while now and wanted your opinion. I have about 42k in cash, I have been putting it away for a while. I have calculated until Dec 2009, with the same savings rate and interest payments from HSBC to amass about 102k. My 5 year ARM will adjust in Jan 2010 from the current 4.75%. I was thinking of dumping all the cash into my mortgage to basically pay it off. I know you’re an index fund advocate, so would the 2.5 years be a long enough time to keep a portion of the cash, say 35k, in a couple Vanguard funds, VFINX and VDMIX?

Other info: I’m 30 and single with no dependents. I have been fully funding a Roth IRA since 2004. I put 20% of my pay into 401k, not quite meeting the federal limit, but my company only allows 20% max. My company matches 5% dollar-for-dollar.

I told him 1) 2.5 years was not long enough to put money in a stock fund and 2) that I'd post this and let you all comment on it. Have at it -- give him your best advice.

A Simple Way to Cut Costs and Improve Your Investment Return

Here's a valuable comment left on my post titled All Index Funds Are Not Created Equal:

Vanguard is by far the best, in my personal opinion.

I have been recommending them to my friends. Many of them took up on it, but most have made a crucial mistake.

Instead of buying Vanguard funds directly from Vanguard, they are buying them through their own brokers. These brokerage firms are charging (excessive) fees on top of the fees that Vanguard charges.

Getting out of that mistake is costly as well, as some of my friends find out. They charge a lot just to sell those funds.

Buy Vanguard, but make sure you buy index funds from Vanguard directly.

I don't understand why anyone would buy Vanguard funds through their broker -- Vanguard makes it so easy and cheap to buy them directly. Maybe convenience? Not wanting to open another account? Whatever the reason, it's probably not worth the cost when you compare buying directly versus through a broker. Remember, those costs result in lower returns which in turn compound throughout the years. Just compare an 8% return to an 8.5% return for 30 years and you'll see what I mean.

For more thoughts on this topic, see these posts:

• Costs Matter If You Want to Maximize Investment Returns

• Why It Matters Which Index Fund You Own and How You Buy It

• How to Invest Using Only Index Funds

Star Money Articles for the Week of May 21

Here are interesting posts and news this week from the MoneyBlogNetwork and beyond:   

• Blueprint for Financial Prosperity suggests we

• Consumerism Commentary continues to tell us .

• AllFinancialMatters asks .

• MightyBargainHunter .

• Five Cent Nickel compares .

• Money Smart Life tells us .

• Money, Matter, and More Musings has .

• The Digerati Life lists .

• The Sun’s Financial Diary reviews .

• Generation X Finance does a review of .

• Lazy Man and Money .

• Binary Dollar suggests you .

• Consumerist highlights the fact that .

Enjoy!

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Alltribes is brought to you by (note: all revenue from this site is given to charity) - I recommend it because it made me almost $500 last year.

There are Almost 1 Million Accidental Millionaires in the US

Earlier this week I talked about how millionaires are much more common than I would have thought they are. But then I saw this piece from Yahoo that talks about (see a bit down the page) -- people who are millionaires on paper but not because they saved and invested but because their house has appreciated under them to make them more wealthy. The article is an interview with personal finance author and radio host Jennifer Openshaw and here's what she has to say on the subject:

Many Americans have been trapped into thinking they're wealthy because of all the equity in their homes. Well, chances are you're not even close to being rich because that money won't do you a bit of good if you're living in the house. You're actually what I call an "Accidental Millionaire."

I guess this is why some people exclude the value of a primary residence when they calculate their net worth. Personally, I count it in my net worth, but I also realize that the amount invested in my house is very illiquid and not something I can count on to help fund my retirement (unless I use a reverse mortgage or downsize in retirement.)

So, how many accidental millionaires are there?

Well, consider this:

• SmartMoney says, "One in 12 U.S. households already has at least $1 million tucked away in home equity and other assets." (June issue, page 49) In 2006, . This means the number of U.S. millionaire households including the value of the primary residence is 9.17 million.

• MSNBC says there are — excluding the family home.

• Given these two numbers, there are 870,000 accidental millionaire households.

Looked at another way, 9.5% of SmartMoney's "millionaires" are accidental millionaires.

American Express Blue Cash Card Named Among Top Cards by Money Magazine

Money magazine's June issue names the Blue Cash from American Express credit card as the top card for people who are "big spenders." The translation of this is: if you charge a lot, this card can make you a ton of money.

The review talks about the lower level of rewards on the card being modest (which is why I asked for ideas recently on how to get to the top level faster) but then raves about the card once the top level is reached. It says:

On spending above that [above $6,500], things get pretty appealing: You'll receive a fat 5% on the purchases specified above [supermarkets, drugstores, and gas stations], and a still-decent 1.5% on all other transactions. And since AmEx likes people riding high on the hog, there's no cap on the rebate no matter how much you spend.

As many of you know, I use and LOVE this card (last year it made me almost $500 after making me $330 the year before.) This year, I'm going for $700!!!!! ;-)

For more thoughts on the Blue Cash from American Express credit card, see these links:

• Why I Use Blue Cash from American Express

• More Reasons to Love Blue Cash from American Express

• The Best Credit Card for Making You Money

Timing is Important When Asking for a Raise

I had a reader ask the following question on my post titled Ask for a Raise:

I wish these suggestions and tips would take into account the timing. Would you still ask for a raise even though the company is in the midst of a big project in which both the boss and myself is involved? We are so busy right now and I feel that asking for a raise at this time sounds a little bit selfish. Thoughts?

Here was my response:

Yes, timing certainly can make a difference. Here are some of my thoughts on the issue:

First of all, you have to be sure you deserve the raise -- that your current salary is below or near the market value for the position and you are a strong performer (and that strong performance can be documented.)

If you meet the first criteria, now you have to consider the impact of timing. Here are the issues associated with it that I'd consider:

1. How long will the project last? If it's a month or so, I'd wait. If it's a two-year project, then I would not. You need to use your judgment.

2. How important is your role in the project and how important is the project to the company? If the answer to both of these is "very" and you think there's a good chance that the project will be a big financial benefit for the company, then I'd consider waiting (if the completion is not too far off.) You may be able to get a bigger raise by doing so -- coming on the tail of a very successful project.

3. Consider the boss's frame of mind. Is the project so overwhelming that one more issue will break the camel's back? If so, it will probably pay to wait.

In the end, you need to find a balance between your needs, the needs of the company, and the practical issues associated with timing. Every situation, person, company, etc. is different, so you'll need to use your best judgment before proceeding.

Good luck.

Any thoughts from others on this? Did I miss anything?

Key to Wealth: Common Sense

Here's a comment to my post titled Intelligence is Linked to Income, but Not to Wealth that I agree with and wanted to share with you all:

I think common sense should never be underestimated. It is a huge factor as is taking the time to find the most economical ways to save money and the most profitable ways to increase savings. Never pay someone else to do what you can do yourself; that includes handling your finances.

Yep, couldn't have said it better myself. Common sense (along with discipline) goes a long way to making people wealthy.

The Most Cost Effective Ways to Stay in Shape

Money magazine had an interesting page in its June issue that compared the cost of various forms of exercise with the calories that those activities burned. They then got a "calories per dollar" number and compared the various exercises to get (as they call it) the "best burn for the buck." Here's their list:

• Running -- 1,100 calories per dollar
• In-line Skating -- 625 calories per dollar
• Kayaking -- 350 calories per dollar
• Swimming -- 240 calories per dollar
• Cycling -- 176 calories per dollar
• Golf -- 30 calories per dollar

Now a lot of assumptions go into these calculations, so check out the article (page 23) for details. But it's a fairly accurate analysis in my opinion.

That said, I do have a few thoughts on this:

1. The best exercise is an exercise that you'll do consistently. Some people like running, some skating, some swimming and so on. As long as you do something, that's DRAMATICALLY a better deal financially than doing nothing. (Why? Because you're protecting your most valuable financial asset -- you/your earning ability.)

2. Personally, I'm a cyclist and my bike has saved my life. Yep, it's a relatively expensive form of exercise but it's one I enjoy and one I'll do. In addition, people can generally cycle later in life and it's less stress on the body since there's not pounding going on (like there is in running.)

3. Who says that calories are the most important measure? I measure heart rate during exercising (I have a heart rate monitor) as well as take my resting heart rate once a month or so. Last time I took it my resting heart rate was 46 beats per minute.

4. In almost any comparison (whether it's energy expended or cost per energy), running will win. It's cheap to do and will get your body working hard in no time.

5. For me, running is boring and too hard on my body. Skating requires too much coordination.  Kayaking is too inconvenient (no water easily accessible.) Swimming is ok -- I'm thinking of adding it this winter as part of my cross-training program. Golf? Is this really an exercise? I guess all the walking would be worth a good amount, but most of the people I know use carts.

So, what's your favorite exercise activity? How do you think it would rate on Money's list?

Alltribes Carnivals This Week

Here are the carnivals Alltribes is in this week and my posts that were included:

• (last week) - 18 Ways to Save on a Small Income

• - The Greatest Enemy of a Good Investment Plan

• - Where Would You Cut Your Household Budget First?

Stop by these carnivals to read some great posts!

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Alltribes is brought to you by (note: all revenue from this site is given to charity) .

Nobel Prize Winner Recommends Index Funds

Money magazine's June issue has an , the man who won the Nobel Prize for his pioneering theory on the interplay between investment risk and return (basically, the more the potential return, the more risk -- I know, seems simple, but it's a tad more complicated than that. Then again, I may enter the rule of 72 into the Nobel Prize competition myself next year.) ;-)

Anyway, they got around to the subject of index funds and he had something to say that I just HAD to share with you all (I'm sure you can guess what it is.)

But before we get to that, let's follow the line of questioning. It started with him saying:

If you want more return, you have to take more risk of doing badly in bad times. You can't just say, "Let's go for a really hot stock." That doesn't guarantee a higher return.

So they ask him what does guarantee a higher return to which he responds:

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

Oh, yeah. You can see where this is heading now!!!!!!!!

So Money says/asks:

You can easily do that through a simple, cheap index mutual fund. Why doesn't everyone invest that way?

Holy cow -- these people are reading my mind!!!!

He responds:

Hope springs eternal. We all tend to think either that we're above average or that we can pick other people [to manage our money] who are above average. That's what makes markets -- when one person thinks he knows more than somebody else, information is exchanged and a new stock price is set. And those of us who put our money in index funds say, "Thank you very much." We get to free-ride on other people's convictions.

Not much more I can add here. Just another post that demonstrates why I like index funds.

If you'd like to see more articles on this issue, check out these links:

• Why Index Funds Deliver Such Great Returns

• The Two Reasons Index Funds Perform So Well

• All Index Funds Are Not Created Equal

• Another Expert Endorses Index Funds

What Sellers are Doing to Sell Houses in a Bad Market

I'm seeing article after article on buying and selling houses now that I'm house shopping (and I'm saving many of them to be sure I follow the tips.) In the May 21 issue of BusinessWeek magazine, they gave several interesting facts dealing with sellers offering incentives to get their houses sold. Here are a few of the comments from the piece that stood out to me:

• The latest trend is cash enticements to the tune of tens of thousands of dollars.

• The incentives, which don't figure into the national home-price data reported by industry groups, may be masking a steeper downturn.

• Buyers often find a subsidy more appealing than a lower price, since it means they don't have to put up as much cash.

• Sellers offer to pay a year's worth of association fees, annual property taxes, or closing costs.

They also don't say it outright, but they imply that some people are selling the houses with the furniture included.

We're looking at this from two sides -- what will we get when we buy and what will we need to offer when we sell. The buying side is still TBD, but as far as selling goes, we'll be starting with a reasonable price on the house (something many people have yet to come to grips with -- they think their houses are worth way more than market price) and then cover the basics -- a little painting, some flowers in the front, clean the house from top to bottom, and so on. If that doesn't work, we'll see. ;-)

Anyone out there seeing anything really extreme? (Like buy a house and get a car as part of the deal.) I'm sure there are some very interesting stories out there.

Your Greatest Asset: You

In June's issue of Money magazine they comment that your greatest financial asset is you. I say it a bit differently as I believe that your career is your greatest financial asset. But we're really saying the same thing: your earning power is the greatest financial asset you have. Lose it, and your finances will soon become a wreck (unless you're really wealthy or have great insurance.)

Money deals with the relationship between health and wealth in depth in the June issue and I'll be commenting on several of their pieces over the next few days. For today, here are three sentences from their editor that summarizes their thoughts:

Boomers who developed health problems built wealth at less than half the rate of their healthy peers. Want to double the size of your portfolio? Exercise, cut out fats and don't smoke.

A few thoughts on this from me:

1. I've detailed what exercising has done for me and I'll keep at it as long as I can.

2. Here are similar lists on how to live longer and how to extend your life.

3. Good review here: your health is more important than money.

4. In addition to your body, you want to keep your mind sharp.

5. Here's a suggestion that saves you money, makes you money and keeps you in shape.

6. Cutting out those vices will improve your health AND save you money.

Companies I Promote for Free

We all have them -- companies that we love. We love their products, services, stores, and the like. We tell others about them and spread good news about them in exchange for nothing (other than they allow us to buy stuff from them and make the experience pleasing.) I thought I'd share with you my short list of companies I promote/tell people about simply because I love what they do:

• -- I've used them for years and have never been disappointed in them. Great customer service and low costs. I wish they were an advertiser here at Alltribes, but I'm too small for them. ;-)

• -- Great prices and a pleasant shopping experience. Plus, I love their easy online photo store. Simple to order pictures and make our annual picture calendars. Also has a great return policy.

• -- If it's good enough for Tiger and Michael, it's good enough for me. (My wife is rolling her eyes at this one.) ;-)

• -- Great place to stay -- affordable and decent breakfasts and (usually) good workout rooms. Plus they have a 100% satisfaction guarantee (which I've used a few times -- they do back it up with action.)

• -- Love my Forester. I'd add Toyota to this list too. Have had a few of them and they've always performed well.

There's my list -- what's yours? Share your favorite companies with us all in the comments below.

Retirement Nightmare: We Aren't Saving Enough

I recently ran into this piece on Yahoo titled . It contrasts the perceptions of retiring today with the realities of retiring (in the piece, I think they've actually mixed up some of the perceptions and realities, so take note in you read the piece.) They cover several retirement-related issues, but one of them stood out to me in particular -- how much we're saving for retirement. Here's the situation:

Without a pension plan to rely upon, workers must increasingly save for their own retirement. That means stashing a lot of money into accounts like IRAs and 401(k) plans, which offer tax breaks for saving.

But here's what is happening:

Almost half of workers saving for retirement report that they have less than $25,000 saved or invested for retirement. (That doesn't include home equity or the value of any pension benefits that may or may not be coming their way.) Less than half of us have attempted to calculate how much we'll need in retirement.

Anyone surprised here? I'm not.

What's my suggestion for those not yet saving for retirement (or those that think they may be saving too little?) Set your retirement number (here's how I set my retirement number) and start saving now to get yourself to your goal. The sooner you get started, the sooner compounding can start working for you to grow your retirement nest egg.

For more thoughts on planning and saving for retirement, see these links:

• How to Maximize Your Retirement Savings

• Don't Plan on Working Longer to Make Up for Small Retirement Savings

• Americans Deluded about Retirement Prospects

• Healthcare Costs Forcing Baby Boomers into Bankruptcy

Improve Your Investing Return with Vanguard Admiral Shares

I've stated before that costs matter if you want to maximize investment returns -- and :

Invest using Vanguard Admiral shares.

Here are the details on Admiral shares:

One important element of our strategy is Admiral Shares—a lower-cost class of shares available for more than 60 of our funds. Their expense ratios are 18% to 50% lower than those of our standard Investor Shares, which adds up to substantial annual savings—especially when you compare the expense ratios of Admiral Shares to those of competing mutual funds. Greater savings means more money invested and working for you in your account—an advantage that can compound over time.

Sounds nice, huh? Who wouldn't want to take advantage of these, right? Well, there are some criteria that you have to meet. Specifically, the following:

• You have $100,000 or more invested in a single Vanguard fund account, or
  
• You've owned at least one Vanguard fund for at least ten years, the fund currently has a balance of $50,000 or more, and you're registered for online account access.

And if you think this isn't worth the effort, consider the following:

• Vanguard Index 500 expense ratio with normal shares: 0.18%

• Vanguard Index 500 expense ratio with Admiral shares: 0.09%

• If you have $50,000 invested for 30 years and earn 9% before expenses on your investment, this difference will mean over $14,000.

Of course the savings is more if you're investing additional money (above the $50k) or for a longer period of time, but you get the point -- saving even a small amount on a big number adds up to some great savings/additional earnings.

Savings Smackdown: Which is Better -- Pre-Paying a Mortgage or Saving for Retirement?

I've gone on record quite a few times saying that I'm in favor of people paying off their mortgages. That's what I did personally, it's worked for me, and that's why I recommend it. In addition, I've seen numerous people who have decided not to pay off their mortgage and "invest" instead blow it by spending the extra money instead of investing it. Come to think of it, I've NEVER seen anyone successfully do it. So, while in theory it may be better to invest extra money versus paying off a mortgage (I'm not saying it is or isn't at this point), the practicality of the issue tilts in favor of the mortgage pre-payment option.

That said, I recommend several other financial moves that take priority over paying off your mortgage. Like what, you may ask? Like contributing to your 401k to get the full employer match, paying off your credit cards, and paying off any other debt that has a higher interest rate than your mortgage. After these, paying off your mortgage is a viable option.

But which is better even at this point -- ? Well, a new study attempted to answer this question and they came to this conclusion:

Although mortgage rate, income tax brackets, and 401(k) contribution limits varied among households, in about 40 percent of the cases putting the money in a retirement fund beat paying the mortgage off early, the study found.

Said another way, the pre-payment option was better in 60% of the cases.

But the results aren't totally clear. Consider the following:

Amromin says the study probably underestimates the number of households that would benefit from switching a mortgage prepayment into a tax-deferred retirement account, because the researchers made a number of conservative assumptions:

• They assumed investors didn't get a 401(k) match from their employers. In reality, more than 90 percent of plans managed by Vanguard, one of the largest 401(k) administrators, offer a match.

• They presumed the investor would put the money into a low-risk investment -- Treasury bonds or highly rated mortgage-backed securities. Someone investing in equities would likely do better: Between 1926 and 2003, stocks returned an average of 10.5 percent a year on investment, while government bonds averaged 5.45 percent, according to Ibbotson Associates.

• They assumed individuals had a constant income tax rate over time. But retirees often slip in a lower tax bracket, making 401(k) contributions during peak earning years even more valuable. According to Federal Reserve data, 41 percent of households are in the top tax bracket before retirement, while only 18 percent are after retirement.

• The researchers excluded state tax obligations, which would also make the tax-advantaged features of the 401(k) more worthwhile during peak earning years. Currently, 43 states impose an income tax.

In the scenario I propose, item #1 wouldn't apply since I recommend contributing to get the full match before pre-paying a mortgage. But the other three are good points -- and are ones that likely make the saving/investing option a much better option financially for most people as long as they can actually do it (in other words, as long as they can save the money versus just spending it.) It's all good in theory, but from what I've seen it's not executed well practically. I'm not sure I could do it (and keep up with it) and I'm pretty disciplined. Maybe if I made the savings automatic there would be no way to mess this up.

And then there's the "touchy-feely" benefit of feeling better because your house is paid off. This is not a big issue for me (though I must admit that not having a payment every month is great) but is huge for some people.

So which is better? Well, if you have the discipline to save/invest the money you would be using to pay off the mortgage, it's likely that saving/investing is the better option. But if you're more the "average" person out there managing your money, I still believe it's a better option to pre-pay your mortgage.

Buying a Foreclosed Property

As most of you know, we're currently house shopping. A few days ago we looked at a house that had been foreclosed upon by a bank. The owners had trashed the place (broken out light fixtures, driven through the yard, smashed a couple windows, etc.) as they moved out, but the place was decent. With a little work, it would be very nice. And depending on the price the bank will sell it at, it could be a steal. We'll see -- we still have a lot of looking to do.

As you might imagine, . The details from CNN Money:

Business, according to Webb, is jumping; it grew 20 percent during the first quarter of 2007, usually a slow period for the company, compared with the fourth quarter of 2006. He anticipates even better times for the next year or two.

I bet. We're at the beginning of this whole real estate mess (where people have over-extended themselves to buy houses they can't really afford -- taking out risky loans in the process) and there are going to be a lot more foreclosures before we see a slowdown.

I'm not sure if there's any "baggage" associated with a foreclosed home or not (maybe some of you can tell me if there is or isn't.) I'm assuming as long as the title is clear (which we'd check) and the house is sound (which we'd have inspected), then the buyer would be ok. And, of course, we could be really ok if we got a great deal. Consider this:

But most of the houses do sell for less, and about 15 percent of time "shockingly" so, said Williams.

I'm looking to be in that 15%. ;-)

Any pros or cons associated with buying a foreclosed property that I should know of? I know that I have regular readers who are more experienced in real estate than I am. Please pass along any knowledge you have to the rest of us.

Millionaires are Much More Common than I Thought

I just read SmartMoney's June issue with the main cover story being about people who are worth $5 million or more (the net worth I said I'd need to have to consider myself rich) -- what they're like, how they became wealthy, etc.) I'll be sharing my thoughts on the piece over the next few days, but before I got into it, I wanted to highlight this tidbit I found on the editor's page:

In the past 10 years, the number of U.S. households with net worth over a million dollars has nearly doubled; it works out to an astounding one in 12.

Wow. That's a huge percentage of people who count as millionaires. They don't say for sure but I'm guessing these numbers include home values in the calculations (which some people do not count in their net worth figures), but still, it's much larger than I would have guessed. And if one in 12 is a millionaire and net worths as a whole are so low, many, many, many people have very, very, very low net worths.

Finally, I have to reiterate that $1 Million isn't what it used to be (but it's still more than most people have.) ;-)

For more on millionaires, see these posts:

• How to Become a Millionaire

• Facts about Millionaires: Most Make a Bundle, Went to College, and Are Married

• Facts about Millionaires: Most Become Wealthy from Their Jobs

Donate to Charity with a Credit Card

In How to Get to the Top Tier of American Express Blue Cash Quickly I asked if readers had any ideas how I could quickly get to the second tier (and higher earning rate) quickly on my Blue Cash from American Express card. (Last year the card earned me almost $500 and I want to make even more this year.) I have almost all of the responses covered so far, but this one was an interesting thought:

If you were planning to give money to a charity see whether you can donate by credit card.

I do have charitable gifts each year and they add up to a decent amount -- currently I've been using my gifts to help reorganize my portfolio and save on taxes. But once this is done, I could give my gifts via credit card and get to the second tier much faster. But I have a concern doing this -- doesn't the charity get dinged for the 1-2% processing fee charged by the credit card companies? If so, I don't think it's worth it for me to charge a contribution -- it penalizes the charity simply so I can earn more money on my card. Seems counter-productive to me.

Anyone know anything about this issue and if the charity takes a hit if people give via credit card?

Why Smart People are No Better Off Financially

When I wrote Intelligence is Linked to Income, but Not to Wealth last week I linked to an article that gave us some facts about wealth, intelligence, and income, but didn't really give us any of the reasons why there was a relationship between intelligence and income but not intelligence and wealth. But Laura Rowley has some thoughts on why this happens. In , she details several of the key issues associated with this information.

I'll take them one-by-one with commentary after each point. We'll start with the relationship between income and intelligence:

Zagorsky found that each point increase in IQ test scores raised income by between $234 and $616 per year. Thus someone with an IQ of 120, ranking in the top 10 percent of IQ distribution, would make $4,680 to $12,320 more than someone with an average score of 100.

So, the smarter you are (on average), the more you make. This seems to make sense -- at least in theory those extra brains are useful to more people, businesses, etc. and thus worth more. But, as we all know, income is not the same as net worth. And someone who makes a boatload of money and spends a boatload $1 is going backwards financially.

And this is exactly what is happening:

But their superior minds and salaries didn't give them greater net worth -- or shield them from financial woes. Among people with an IQ of 120 or above, more than 6 percent maxed out credit cards; almost 12 percent missed a payment in the past five years; and 9 percent declared bankruptcy.

So smart people make more on average but they also spend more on average, so they're no better off than those who earn less.

Which begs the question: what are the key factors that make someone wealthy regardless of their income? Rowley suggests a few theories on how people with average IQ scores end up rich:

• They make their own rules.
• They get knocked down, but they get up again.
• They succeed through social intelligence.
• They may take more risks, and consequently reap more rewards.

My personal theory is that they simply "do the basics." You know, the simple but effective steps that anyone can take to become wealthy. Now why some people can do these and others don't (or can't) is anyone's guess. Most likely, it is tied to self-control, but no one wants to hear that explanation.

Rowley takes a stab at this issue with a few theories on why people with high IQ scores end up struggling financially:

• Sometimes a really bright person develops a gigantic sense of entitlement.
• They think they'll find "the big idea" that others overlook.
• They may run with a fast crowd and live beyond their means.

Bingo! They live beyond their means. In other words, they can't control their spending or they don't have enough self-control.

Isn't that what I just said? ;-)

For more posts that shed some additional light on this issue, see these links:

• How to Get Rich in Three Easy Steps

• My Best Financial Advice: Spend Less than You Earn

• Poverty to Prosperity

Winners in My You Need a Budget Pro Giveaway (Everyone's a Winner!)

Well, the You Need a Budget Pro Giveaway has come to an end. If you recall, readers were asked to give their #1 reason a person needs a budget. I was then to select a winner and five runners-up. But early on I saw that it was going to be tough to pick a winner, so I solicited some more judges. In addition to me, here's who helped select the winners in this competition:

• Jesse, the owner of
• Sun from
• Lazy Man from
• Golbguru from

Thanks to these judges for helping out.

And now, for the winners.

The top winner receives a copy of You Need a Budget Pro and that award goes to:

• Scott -- comment posted May 16 at 7:31 AM

The five runners-up each get a $10 off coupon to You Need a Budget Pro. The winners are:

• Blaine -- comment posted May 16 at 10:01 AM
• ArmeL -- comment posted May 16 at 12:57 PM
• Jana -- comment posted May 17 at 1:06 PM
• Ben -- comment posted May 18 at 10:50 PM
• Charles -- comment posted May 16 at 9:36 AM

And, here's what's really cool -- Jesse has agreed to give EVERY participant a $5 off coupon on a purchase of You Need a Budget Pro. It's certainly nice of him to do this.

If you're a winner, here's what you need to do to claim your prize:

1. Send me an email (As previously stated, I will not be chasing down the winners) with the name you used to comment on the contest and your prize (free copy, $10 coupon, or $5 coupon.)

2. I'll then forward your email on to Jesse.

3. He'll get back to you and tell you how to claim your prize.

4. If we don't hear from you within a week, we'll give your prize to someone else.

Congrats to all -- and thanks for some great comments!

Two Ways to Save a Ton on Gas

Here's a piece from MSNBC that lists . It's an interesting piece because it's MSNBC's response to "so how would you lower gas prices?" questions from readers after MSNBC bashed the idea of a one-day boycott of gas. Instead, MSNBC says that the only way to really decrease gas prices is to decrease consumption -- and they have a couple ideas designed to do just this. Their suggestions:

Simple Step No. 1: Stop driving like a jerk. You punch the accelerator the minute the light changes and cruise at top speed until the last possible moment before hitting the brakes hard at the stop sign. Aside from annoying other drivers on the road, you’re wasting a lot of gasoline. How much is a lot? According to fueleconomy.gov, you can save from 5 to 33 percent. The folks at Edmunds.com, a car buying Web site, tested the idea, running a 50-mile course with four different driving styles from “aggressive” to “moderate.” Average fuel savings: 31 percent.

Simple Step No. 2: Slow down. Look, we’re not talking about crawling along in the right lane backing up traffic. We’re talking about staying within the posted speed limit — or even a little over it. If your car has a tachometer, try keeping it as low as possible in the highest gear. That’s where you get the best mileage. According to fueleconomy.gov, your gas mileage drops off sharply once you blow past 60 mph. By cutting your speed you can save 7 to 23 percent, depending on how heavy-footed your usually driving style.

Hmmmm. Are they talkin' to ME? ;-)

Seriously, I'm not a gas-it-and-go sort of guy, so #1 really won't help me out. However, I have been known to go faster that the speed limit on occasion -- especially on those 9 1/2-hour drives back to Iowa (that I now make in 8 1/2 hours.) This could save me a little, I know, but for me I'd gladly pay a bit extra to save an hour.

All this said, gas prices are starting to even get to me. I filled up my small SUV and paid $40 the other night. Ouch! Thank goodness my wife drives a Toyota Corolla. It gets something like 40 mpg. I guess we've got it set up so my car gets us through the snow and hers saves us some money on gas. ;-)

Why Would People Give Up Easy Money?

Here's a fact I found in Kiplinger's June issue that I found perplexing:

One-third of all taxpayers failed to claim the credit for the telephone excise on their 2006 returns.

The magazine goes on to say that people can file an amended return to get the savings if they like, but what's the point at this late date? It's not the savings was $1,000 or anything. Still, it's not like $30 to $60 is nothing either.

So what's driving this? Ignorance? Haste? Lack of caring about $30? Everyone seems to want to make extra money, then a large group passes up freebies like this. Makes no sense to me.

I'd be interested in hearing you're thoughts.

Retirement Smackdown: Which is Better -- Traditional IRA or Roth IRA?

I believe (from what I've read) that it's "traditional wisdom," "common sense," or a "best practice" (whatever you want to call it) for most people to fund a Roth IRA over a traditional IRA. At least that's what I seem to see all over the place -- maybe I'm wrong, please tell me if I am. The reason I'm now questioning which is the better option is this piece from Yahoo that compares the and declares the former the winner. The details:

Although a tax-free retirement sounds good, saving taxes today sounds better. Using your 25 percent tax bracket as an example, in order to put $4,000 into a Roth IRA today, you would have to earn $5,333 and give the IRS $1,333 to keep the full $4,000 in your retirement account.

To put $4,000 into a traditional deductible IRA, you only need to part with $3,000 because, in a sense, the IRS is giving you $1,000. Remember that by contributing $4,000 to your IRA pretax, you are lowering your income by $4,000 for income tax purposes. So you're not paying 25 percent of that in taxes.

In both situations, you still have $4,000 in savings but it cost you $2,333 to get the Roth. It sounds like better business for the IRS than for you. By making the traditional deductible IRA, you're getting a 58 percent return on your investment of $4,000. It's better than the bank will return in the first several years. I may be double dipping in my calculation on the savings, as you're only really getting the 25 percent return when you make the deductible IRA, but the spread in taxes is still $2,333.

And then, of course, there's the issue of taxes when the money is withdrawn -- the Roth will have none while the traditional IRA will. But will the benefits here be enough to make up for $2,333 in savings compounded at 8% for 30 or 40 years? Seems like they wouldn't.

The article also says there are a lot of variables to consider that could skew this decision one way or the other. The #1 issue is what tax rates will be in the future. In addition, the investor can convert a traditional IRA to a Roth IRA at some point.

So, what's your take on this? Is there one answer to "which is better" that's USUALLY correct (I know there won't be one that's always correct.) I'm really interested in your thoughts on this one.

A Short History of Wall Street

Here's an interesting piece courtesy of which gives a short history of Wall Street:

Last month I was in New York City for the weekend. Although our hotel was in Times Square, we had a chance to visit Wall Street while we were there. Wall Street is a testament of the spirit and vitality of free markets.

The Dutch first settled lower Manhattan in the 1600's. They purchased the entire island from the Indian tribe living there are the time. Property boundaries were divided by plank fences. The stockade's fence was strengthened into a twelve foot wall out of fear of the Indian tribes who did not leave the island.

A major thoroughfare in front of the wall developed connecting the east and west sides of lower Manhattan. This passageway continued to be called Wall Street even after the British tore down the wall in 1699.

Wall Street continued to serve as the site of trade and commerce during the 1700's. City Hall, a church and many merchant's shops and warehouses were located along this street. Federal Hall was built on Wall Street where George Washington was inaugurated as our first President.

In 1792, two dozen of New York City's leading merchants met secretly and negotiated an agreement to eliminate the power of the auctioneers in order to gain better control over trading fees. Their agreement restricted them to trading securities only among themselves and did not allow participation in any other auctions. Their agreement was called the Buttonwood Agreement, named after their traditional meeting place, a buttonwood tree at the end of Wall Street.

The first American Stock Exchange was started in Philadelphia in 1790. In 1817, the New York merchant group visited the Philadelphia exchange and after returning established the New York Stock Exchange.

Initially, the New York Stock Exchange simply rented a room on Wall Street. But by 1903, the exchange completed its current building at a cost of $4 million. It boasts 72-foot high ceilings and the current beautiful marble façade.

In 1817 a seat on the exchange cost only $25 dollars. Recently, a seat on the exchange sold for $4 million dollars.

Even by 1886, daily share volume passed one million shares. In 1929, volume passed ten million shares. It did not pass a hundred million shares until 1982 and reached one billion shares in 1997. Just this year, daily share volume passed four billion shares.

In 1889 the Customer's Afternoon Letter changed its name to The Wall Street Journal after the street of the exchange.

Although all trading could be done remotely by computer, members of the New York Stock Exchange still perform significant work on the floor of the exchange.

One of the best known symbols of the exchange is Arturo Di Modica's “Charging Bull” sculpture. Arturo Di Modica designed and created the sculpture after the 1987 stock market crash at his own expense. He dropped the seven thousand pound statue in front of the New York Stock Exchange in December of 1989.

The police impounded the illegal sculpture, but the public loved it. It was reinstalled in Bowling Green where it is the most photographed piece of art in the city. Di Modica, however, still owns the copyright to the statue. In 2006, he sued Wal-Mart and other companies for selling replicas of his statue.

As the owner of the statue, Di Modica wants to protect that value of what he owns. Investors are no different.

Wall Street has bee around for over two hundred years, but only recently has Main Street been so fully invested. With today's exchange traded funds, a few hundred dollars can buy fractional shares in most of the publicly traded companies in America

And when people have significant assets invested in the success of corporate America it changes their political views. Fewer are the angry mobs with torches and pitchforks clamoring for regulation and wanting to destroy immoral profits.

Replacing them is an investor class who is more strongly committed to free markets and free trade. While this movement is slow, the rise of the investor class logically follows the rise of the middle class. And just as the middle class brings about a political freedom and stability, so an investor class brings about economic freedom and stability.

With such a large percentage of Main Street rooting for Wall Street, its future should be as bright as its history.