Intra-Family Loans: Tap That Family Bank

September 27, 2012 By Leave a Comment

via dsearls on Flickr

I have a friend who has student loans. Lots of them. At the same time his parents are struggling to find decent investments. Within a multigenerational family, you invariably see one generation trying to grow and preserve wealth, while another generation is looking to borrow money for major expenditures. In the current interest rate environment, it is quite likely that both parties will be frustrated. That’s because with current rates they can expect to:

  • Pay 7.5% on student loans
  • Pay 3.5% on mortgages
  • Earn 1.5% on 5 year CDs

To preserve wealth within a family unit, it makes a lot of sense for family members to lend to each other. While my friend is paying 7.5% on his loans, his parents are watching the purchasing power of their money erode. The interest they are earning does not even keep up with inflation.

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Martha Stewart Insider Trading Case: A Peek Into her Portfolio

September 15, 2012 By Leave a Comment

Wall Street, David Paul Ohmer on Flickr

In October 2004 Martha Stewart was sentenced to five months in prison for insider trading. Martha Stewart had sold $229,513 worth of ImClone shares based on inside information given to her by her broker Peter Bacanovic. Executives at ImClone had learned that the company’s new cancer drug Erbitux had not gotten FDA approval. Bacanovic knew that that the founder and CEO of the company, Samuel Waksal, and his family members planned to dump shares in the stock, and suggested that Stewart sell before insiders liquidated their stakes.

One little known fact about Martha Stewart is that she started her career as a stockbroker. Before she was known as the expert on home decor, she was licensed by NASD, a national securities association, and she worked on Wall Street from 1968 to 1973. This certainly did not help her case, as her past experience should have made her even more keenly aware of the regulations against insider trading. Ironically, in June 2002, Stewart was elected to the New York Stock Exchange board of directors, a position she was forced to resign from only a couple of months later in October 2002.

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A Brief History of the Credit Card Nation

September 7, 2012 By Leave a Comment

Credit Card Pile, sovietmole on Flickr

In 1950 Frank McNamara and his partner Ralph Schneider shared a meal at Major’s Cabin Grill. When time came to pay the bill instead of using cash, Mr. McNamara produced a small, rectangular, cardboard card. That payment was the first ever use of a multipurpose charge card.

The two partners had conceived the idea for the charge card in that very same restaurant some months prior. The card that Mr. McNamara used was the first Diners Club charge card, and this pivotal dinner in the history of the credit card is referred to as the first supper of credit. By 1951 membership in the Diners Club reached forty two thousand, and by 1959 it hit one million.

Prior to the Diners Club card, many department stores provided shoppers with charge accounts. However, consumers were required to open a separate account in each store. Diners club unified the participating businesses into one network. It charged businesses a fee and in return assumed credit risk as well as the costs of operations and financing.

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How do Different Property Investments Stack Up?

August 20, 2012 By Leave a Comment

Trump Tower, Bernt Rostad on Flickr

When most individuals contemplate investing in real estate, the analysis is focused around purchasing an apartment as an investment property. Non professional investors like apartments because they feel familiar. After all, most have lived in an apartment at some point in their lives. Many also have friends or family members who have purchased apartments as investment properties, some sharing success stories.

In reality, apartments are just one of the many available property investments. If you have decided that you want to add real estate to your portfolio, carefully consider the characteristics of different property types before you make the jump. Also, don’t forget that you have the option of investing in real estate directly or through a real estate fund.

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Series I Bonds: Your Safe and Inflation Protected Investments

August 6, 2012 By Leave a Comment

$100 Paper Series I Bond, treasurydirect.gov

Last week NPR’s All Things Considered ran a story called Americans Divided on Historically Low Interest Rates. In that segment the host spoke to Julie Sawitky, a home owner who is unable to refinance her mortgage despite an excellent credit score. That’s because even though rock bottom rates are available in the market, banks won’t extend those rates to homeowners like Julie who are underwater. To add to the frustration, Julie is earning next to nothing in interest and is frustrated to see her retirement savings eroded by inflation.

In the same segment, NPR interviewed a personal finance columnist, Matthew Amster-Burton, to get his recommendations on where people should park their money in the current rate environment. Matthew reminded the audience that although not everyone can get the lowest rates as borrowers, everyone can get the highest rates available in the market as savers. To get safe and inflation protected returns, Matthew recommended Series I Savings Bonds.

In this post, we will dissect the characteristics of this investment and cover the different ways I Bonds can be purchased.

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Are Cognitive Biases Wreaking Havoc on Your Bank Account?

August 1, 2012 By Leave a Comment

Dierk Schaefer on Flickr

As humans we all suffer from cognitive biases, which are just deviations from logical thinking. Some of these cognitive biases occur because our minds were developed to deal with a simpler world, where most of the information we needed was in front of us. Quick thinking based on experience, rather than complicated calculation of probability was rewarded.

However, these flaws in reason, which may have been irrelevant or even advantageous in our monkey days, are now setting us back in our financial goals. Read through this list of cognitive biases, and see if you recognize any of these patterns in your own behavior.

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