‘Must Read’ Category Archives


What is Impulse Buying

by admin in Must Read, Shopping

Impulse buying happens when we buy something that we didn’t intend to buy. Malls, grocery stores, street fairs and other places of shopping can trigger impulse buying. It sneaks up on you unexpectedly like in my story below.

It was Halloween and my husband I were walking at the mall and enjoying all the sights around us. Suddenly, I heard a noise behind me and someone put a small square piece of what appeared a warm gel pad in my hand. “Here try it” – he said. It was a cold day and the heat was wonderful. Curious I looked back and followed him to his cart. They were selling Heat in a Click heating pads in various sizes. I got interested in a shoulder and neck heating pad. I often have stiff shoulders and this pad felt like heaven. After a short negotiation on the price I bought it for $35. Another salesperson offered that I try a TENS massager. You place two pads on your shoulders and they create a sensation of massage using an electric pulse. It is similar to what a chiropractor or a physical therapist will use in their office. I do have a problem with my neck and shoulders so they hit a home run with me. The salesman showed me a website with a price around $300 for the unit and offered to give it to me for a discounted price of $220. I told him I can pay $160 and we made a deal. My husband and I happily continued our walk at the mall.

That evening I came home and decided to look for these products on the internet. I found that I can buy a comparable TENS massager for $100-$120 and the shoulder pad for about $20. I paid $195 for both items and they were available for $120-$140 on the internet. Ouch! Needless to say I wasn’t happy anymore.

This was a classic example for impulse buying. At that moment, I bought something that I didn’t intend to buy acting on my emotions. There is a certain high associated with this kind of purchase that makes us happy. The desire for instant gratification can be very strong. It also puts in jeopardy our budget, our saving goals and ultimately our desired lifestyle.

Thankfully, this shopping experience is not typical for me but as this example shows I am not immune to it. In many cases from my experience there is salesperson involved who is very personable and able to establish a quick rapport with you. He or she appears so nice that it is difficult to say no. An effective way to overcome the desire to buy is to take some time out to think about the purchase. It will give you the opportunity to reassess your need for it and also time to educate yourself about a reasonable price for this item. My husband and I walked away from many timeshare and other sales presentations using this technique.

I am happiest when I get a great deal on a product I need. Usually that involves deciding on what you need in advance, doing a comparison shopping and having a budget. I don’t know if one can completely avoid impulse buying but minimizing it can go a long way toward achieving your financial goals and desired lifestyle.


Surviving the Stock Market Crash in 2008

by admin in Must Read, Stock Market

In January 2008, we went away for a week for a family vacation. During the week we were out, the market took a nose dive and the S&P 500 index dropped more than 5%. I didn’t like it at all!

That weekly slide got me thinking about how much down side I can really take and how would I feel if the stock market was down 10%, 20% or even more. In other words, I started thinking about my risk tolerance in the event markets go down.

Some financial advisors recommend subtracting your age from 100 to determine the percentage of your exposure to stocks. For example, if you are 30 years old and subtract your age from 100 then you should have 70% of your investments in stocks. That is all well and good until you are actually faced with a loss. Your age is a good starting point for determining your asset allocation. Additional factors to consider include your future earnings potential, how easy it is to replace the amount that is lost and when do you need the money. In general, if you expect to make more money in the future and don’t need the money for a very long time, you can take a higher risk and invest more in stocks.

To get a better understanding of your risk tolerance, you can take a look at the table below. It shows the amount of Loss based on the % of your money in stocks for total available assets of $100,000 and a market drop of 30%.

When further examining my risk tolerance, I realized I was very uncomfortable loosing more than 6%-10% of my total assets. My whole asset allocation had to be revised. I sold most of my stock funds and moved the money to safer investments.

Later in the fall of 2008, the market had a crash of over 30% in what is known one of the most painful market crashes in recent history. I lost 30%-40% in my mutual funds like everyone else. But because my overall investment in the stock market was adjusted to my risk tolerance I didn’t loose more than I was comfortable loosing. It still hurt but was manageable.


Lost Decade for the Stock Market

by admin in Must Read, Stock Market

The S&P 500 Index is a weighted index based on 500 large-cap US companies and is frequently used to measure stock market performance.

In 2000, I decided to invest $20,000 in the Vanguard S&P 500 Index mutual fund with approximately 10 year horizon. It seemed like a reasonable approach. Many financial experts recommended using the index funds versus the actively managed funds. Vanguard is known for its low expenses fees. Really, it seemed I can’t go wrong here.

Fast forward to January, 2010. After two severe market corrections in 2002 and 2008, I sold my shares in the Vanguard S&P 500 Index fund at a loss of $2,767. This was painful! What went wrong?

In one of her shows, Suze Orman mentioned that we are currently in a secular Bear Market that started in the year 2000. That is when I learned that there are secular Bear and Bull stock market cycles. In the 80s and the 90’s we were in a great Bull market that lasted 18 years. In a secular Bull market, the general stock market tends to go up. In a secular Bear market, the general stock market tends to go down. You can find year by year summary of secular Bear and Bull markets at http://www.crestmontresearch.com/docs/Stock-Secular-Chart.pdf. The previous secular bear market lasted 16 years. The current secular market started in 2000 and is projected to last at least another 5 years.

My lesson learned is that while frequently recommended Buy and Hold strategy worked well in the secular Bull market in the 80’s and 90’s, it is not as simple during the secular Bear market that we are currently in. Certainly, it didn’t work for my 10 year investment. In hindsight, I would have been better putting that money in a 5 year CD. I believe now that more active management is needed during the secular bear market. It does require more effort and more education but is a possible option.


How to Double the Interest on Savings

by admin in Must Read, Savings

In the past few years, the interest rates on money market and savings accounts have been dismal to say the least. My Vanguard Prime Money Market fund that once provided one of the best yields is currently only paying around 0.06%. The saving rates at the local banks are not much better.

With this in mind, I was on a mission to find the best saving rate. My first stop was checking the best rate comparison online sites like www.bankrate.com. After looking at the rates on these sites, it became obvious that online savings accounts were the way to go. You can find Online Savings accounts or Online Money Market accounts paying around 1%. This was certainly better than the 0.06% in my Vanguard Prime Money Market fund. But it was still not high enough.

Can I do better?

Next, I started looking at available CD rates. The 1 year CDs, 2 year CDs and 5 year CDs. The highest rates of around 2.4% were offered for the 5 year CD. It was higher than the 1% but you had to commit to 5 years. This didn’t look like a good option since at the moment the interest rates are very low and there is an expectation that they will go up in the future.

Further research revealed another possibility that gives you the higher rate of approximately 2.4% without the 5 year commitment. I have learned that Ally bank offers only 60 day interest penalty on their CD products (as per the information on their website https://www.ally.com/bank/high-yield-cd/#tabs=faqs). That means that you can sign up for a 5 year CD, get 2.39% APY (as of 3/6/11) and have the ability to withdraw your money when interest rates go up with only a small penalty. For example, if you withdraw your money after 1 year, your APY will be 2%, which is still higher than the current 1 year CD annual yields offered around 1.20-1.30%.

Sometimes, you can have your cake and eat it too. Bye, bye Vanguard Money Market. I am now a happy customer of Ally bank.