Index funds vs. actively managed funds

I was recently reviewing my retirement portfolio costs and noted how much lower the costs are on my index funds.  More than 60% of my mutual funds are in index funds.  My actively managed funds include the Vanguard 2025 Target and 2035 Target funds which also include index funds even though the funds themselves are considered to be actively managed.  My average cost is .21% which is lower than the industry average of 1.27%.  That means my returns are 1% higher just because of the low fees.  That difference adds up over time.   For example, if I were to calculate the future value of my $90,000 in retirement assets in 25 years using 8% it comes out to $231,208.  However, if I get a 1% higher return the value in 25 years is $291,120, almost $60,000 more!  The scenario assumes that I don’t add anymore money to the original $90,000 balance.  Increasing my savings would of course make the difference even higher.

I am not going to get into the whole argument over which is better indexed or actively managed.  I feel comfortable with where my money is invested and that is all that matters.  If I were to visit a  financial planner I would probably hear that I have a lot of overlap in my funds.  Specifically, I own various amounts of Vanguard Mid-Cap Index in my IRA, Roth IRA, and my 401k.  I plan to get some financial advice next year once my Vanguard fund total exceeds $100,000 which makes me eligible for a reduced cost ($250) financial plan that they normally charge $1,000 for.

Getting near the holidays again

It is hard to believe that Thanksgiving is in just a few weeks.  This year I am going out of the country for an exciting Thanksgiving with my girlfriend.  It has been 3 years since I have spent Thanksgiving with my family.  My mother died when I was a teenager and my father is currently married to someone MUCH younger than he is.  As much as I love my dad…it is tough to spend time with him.  He lives about 400 miles away.  I will make a trip to see him near Christmas but I have not decided on the details yet.  I may try to save money and drive but with $3 gas I don’t know how much money I would end up saving.  Getting my father a gift has always been a challenge.  He is most happy with a Best Buy gift card so he can shop for himself.  One year I donated money to Toys for Tots in their names and he actually got mad at me about it.  I could not believe it. After all he grew up in a working class family during the depression and joined the military at 17 to have a chance to make it in the world.  He did not even graduate from high school but then again many people joined the military before high school graduation during WW II.  So anyway you would think he would want to donate to kids who don’t have much.   Out of spite I may do another donation in their names. 

Possible interest rate cuts

It looks like interest rates are coming down again.  That is a good thing for people looking to buy a home but it is a bad thing for people with money in bank accounts.  I may take another $500 and put it in a 6 month CD just to lock up a better interest rate.  It is not a lot of money but it is something and because I feel I have so little I want to earn as much as I can on what I have.  Last month when the federal reserve cut interest rates by .5%, my ING Direct savings account interest was decreased by .2% to 4.3%.  I was able to start a 6 month CD with $1,500 and lock it in at 5.15%. 

Free Sample of Facial Moisturizer

I try to take advantage of free samples whenever I can.  I found this one today.  Free Garnier Nutritioniste  sample.  I usually use an Oil of Olay product but I am willing to try something new. 

Banking decision

A while back I was contemplating moving my banking business to WAMU.  I have not yet done so.  One reason is that WAMU does not have nearly as many ATMs near me.  The irony of this is that one of the regular ATMs that I use is near a WAMU.  Unfortunately, that is the only WAMU ATM nearby.   I have also figured out how to download into Quicken without incurring a charge from Wachovia.  I cannot wait to see my bank statement next month to verify this.   Wachovia is not my only banking relationship.  In fact most of my meager savings is at ING Direct due to their much higher interest rates.  I think I will stay with the status quo for now and not switch banks. 

Lunch money

Yesterday, in the spirit of being collegial I went to lunch with my coworkers and ended up spending $4.73 on a grilled cheese sandwich, a pickle and a fountain drink.  Not a lot of bang for the buck in my opinion.  I am trying to go out with them once a week and brown bag it the other days.  I already have to pay $5 per day to park.  I do participate in my company’s pre-tax transportation program so that I do get a tax benefit which takes away some of the ouch factor.   I have written about this before and I do wish my coworkers would eat in.  Either they have a lot more money than I do or they are not trying to save like I am.   How much does the average lunch cost I wonder. 

Federal Tax Withholding

I am one of those people who would rather get a nice refund back at the end of the year.  Many people will say that you are only giving an interest-free loan to the government if you get a large refund.  To me it is a forced means of savings.  I expect to get about $5,000 back from my federal tax refund and another $1,000 back from my state refund.  The vast majority of that money is earmarked to payoff my credit cards balance which now sits at $5,880 at 0% interest and will be closer to $5,000 when I get my tax refunds.  Anything leftover will go into my emergency savings or even my Roth IRA.   I am considering changing my withholding for 2008 so that I can increase my 401k investments.   I thought that I would be able to max out my 401k withholding this year but with the monthly credit card payment I just have not been able to.   I cannot wait to get my hands on that money.  

Smart purchases

My vacuum cleaner started giving me trouble a few months ago.  Basically, the hose would get all clogged up and then it would lose suction.  I could take the hose apart and clean it out with a wire clothes hanger but that gets old really quickly.  Yesterday, I went to both Target and Bed, Bath, and Beyond to search for a new vacuum.  I did try to purchase one online but the shipping charges were too high.  Anyway, I purchased a Dirt Devil Reaction vacuum with my 20% off BB and B coupon and then went back to Target and purchased a Dirt Devil Vision carpet cleaner that had been marked down to $69.98 from $100.  I was a little concerned that the carpet cleaner was too cheap to do a good job but I was very pleasantly surprised.  Both the vacuum and the cleaner exceeded my expectations.  I feel like it was $200 well spent and now my house is so much cleaner The vacuum was a planned purchase but the cleaner was an impulse buy.  I do feel good about it though because I got it on sale and it did a reat job. 

Not sticking to the grocery list

Today I did my weekly grocery shopping trip and bought a few items that were not on my list.  THe effect of that was that I spent almost $6 more than my weekly budget of $60.  To be fair the additional items that I bought were food items that I needed and I did miscalculate how much I thought I was spending.  In my head I keep a rounded running tally of my total less the tax.  If an item cost $1.23 I round down to $1 and I round up to $2 for items costing $1.59.  Keeping a running total in my head keeps me from having to use a calculator on my shopping trips.  I also forgot to take my coupons with me but I don’t think I bought anything that I had a coupon for.  I do try to take advantage of store specials whenever I can. 

Discover Card at 0%

Early this morning I awoke in a panic worried that I had not made two transactions on my 0% balance on my Discover card this billing cycle.  UGH!!!  Fortunately, I still have more than a week to make the transactions otherwise I will lose my 0% interest rate.  The rate was the only reason I applied for the card.  I have had it since late January 2007 and have saved a lot of money in  interest with it.  I have also earned a $20 rebate which I promptly put towards my balance.  I have been able to pay off approximately 25% of my original balance in part to not having to pay any interest on the balance.  I will need to stay on top of the two transactions per month stipulation though.  I plan to pay this card off with my federal tax return early next year and that will be the end of my 17 plus years of continuing credit card debt.  It is strange to think that ever since I got my first credit card 17 years ago I have always carried some type of revolving balance on my cards.  I have never paid them all off completely.  Something has always come up.  Maybe I just never made it a priority.