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Archives for January 2014

Fox News Does Not Call This Class Warfare, But You Should

By Frugaling 2 Comments

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Related article: Too Poor To Protest: How Income Inequality Silences Your Voice

Class Warfare Police Protests Picture
Republican National Convention, MN – Photo: Darin Barry/flickr (CC-2.0)

Personal finance: Where individual responsibility and systemic intervention were supposed to meet

In the 1920s, Hazel Kyrk, a researcher at the University of Chicago, looked at a concept called, “home economics” (Hira). This was a brand new area of study that emphasized the personal responsibility of individual and family money management. Through education, it was found that people would make smarter financial decisions.

Eventually, “home economics” became “personal finance.” This slight variation in names likely contributed to a rise in the personal culpability of one’s financial decisions. If you were given the proper education, tools, and were of reasonable intelligence, personal finance could help you budget, plan for the future, save for your dream home, and retire at a reasonable age.

Personal finance sets a standard of individual responsibility that is admirable, necessary, and vital to a motivated economy. Unfortunately, this framework is too simplistic to accurately appreciate our current, complex markets (e.g., credit default swaps, derivatives, zero-interest loans, and bundled home mortgages). We now live in an economy that besmirches and vilifies those who are struggling to make ends meet.

Fox News’ definitions for personal finance and class warfare

Fox News Income Inequality and Class Warfare Image
Photo: Fox News’ Coverage of “Entitlement Nation.”

In endless loop after loop of tragic soundbites, Fox News has made it their goal to unsolicitedly define personal finance for the American people. Those who could not move up income ladders were at fault for not trying hard enough. Those who were fired, took unemployment benefits, and found themselves without a job for extended periods were at fault for not hustling enough. Those without college degrees, barely making minimum wage, were never supposed to make a living wage. Even worse than these myths that persecuted the majority of earners, was a rhetoric regarding “class warfare.”

Fox News suggested that those who protested against big banks, stood for tax reform, and filled the streets looking for change (i.e., Occupy Wall Street protests) were simply looking for handouts from the government. By their standards, these lazy, narcissistic Millennials hadn’t paid their dues – they weren’t worthy of their protest. Suddenly, reasonable financial reforms, argued via peaceful protest, were seen as class warfare – a scourge that nobody should stand for.

The irony is that every bit of evidence points to wholescale, systematic actions that defeat the lower and middle class, effectively preventing them from being able to properly engage in personal finance. Many of the wealthiest 1% of this nation are engaging in a ruthless political battle to protect more of the financial pie. With record high income inequality, police action on peaceful protests, big bailouts for bankers, and a cycle of self-victimization, this is the real class warfare.

Police, the War on Drugs, protests, and more!

As a nascent resident assistant, I grew to love my on-campus, university police. The police were a friendly bunch that helped immensely when physical assaults, verbal abuse, and when serious health complications arose. But a couple pivotal moments also occurred during this time that tempered my admiration for police: First, I was contributing to the wholesale punishment of minor drug offenses (e.g., calling out students that were smoking marijuana in the halls, which would eventually become legal in my state). Second, YouTube and various media outlets showed vicious beatings and law enforcement abuses of students protesting inequality. In both instances, people were punished severely for minor offenses or mere inconveniences to established populations.

Alan Diaz Photograph Elian Gonzalez Affair Wikipedia
Photo: Alan Diaz/AP Wikipedia

Increasing emphasis surrounding the “War on Drugs” led to the Rise of the Warrior Cop. Essentially, officials pumped billions of dollars to feed and encourage the prosecution of low-level drug offenders. By arresting and taking out these small-time criminals, enforcement agencies received more kickbacks from the federal government. Special Weapons and Tactics (SWAT) teams became a popular “necessity” for any working police force, as no-knock raids became a popular highlight of service.

A police SWAT team raided the home of the mayor in the Prince George’s County town of Berwyn Heights on Tuesday, shooting and killing his two dogs, after he brought in a 32-pound package of marijuana that had been delivered to his doorstep, police said. (Washington Post)

Only after SWAT teams broke through the door of this mayor’s home, killing both dogs, and holding the family at gunpoint, did they realize this was the wrong house. While never admitting fault, the police eventually declared that the mayor was innocent, and that the package of marijuana was part of a larger ring of smugglers – not associated at all with Mayor Calvo.

This may be but an example of the excessive use of force on innocent people, but there’s an epidemic of these tactics. In Berkeley, California, during the Occupy Wall Street protests, students gathered peacefully. They were arguing for financial reform and serious change. The administration and on-campus police forces grew tired of the campsites and wanted to forcibly remove them from the lawns. Arm-in-arm, the students stood firmly against the police force’s new interdiction. But despite their peaceable assembly, the police dragged, beat, and slammed the weaponless professors and students.

Big-time bailouts, bonuses for bankers

In 2007, a massive financial crisis tanked pensions, bankrupted banks, and sent the world economy into a massive recession. Behemoth banks like Lehman Brothers shuddered their staff and went belly up. Bear Stearns, despite being rabidly recommended by stock guru, Jim Cramer, became a single digit stock before being swallowed up by a competitor.

Each news report was worse than the last, and there didn’t seem to be an end in sight. Wall Street and Main Street seemed to conjoin at this time of economic disfunction. Everyone needed to work together to bring back our economy. People were encouraged to keep spending, traveling, and consuming.

As wages stayed stagnant for lower and middle class employees, upper income salaries continued to climb at astronomic amounts. Seemingly, the more those wages increased, the more unemployment statistics increased. The correlation was undoubtable, and money was getting sucked up by a select few.

The worst trickery came in the form of “too big to fail” economics. Banks had metastasized beyond healthy size. To let major banks fail would’ve led to full-scale economic ruin. Insurance policies, pension plans, and much more would disappear because of one company, AIG, alone. The federal government stepped in to “save” the big banks, handing them a poorly recorded ledger that held the keys to tiny interest rates and flexible return dates. The banks would be able to keep lending!

The success of bailouts was met with financial reward for the highest echelons within the banking world. Despite the monies intention, to keep lending to those in need, executives received record salaries and bonuses directly from taxpayers’ wallets. The rich asked for a handout – demanded it – and got it. But the lower and middle income classes didn’t financially improve and benefit from the major bailouts; rather, stagnation continued. Nevermind Fox’s “Entitlement Nation” segment, this was “Entitled Elite Nation.” Where was Main Street’s bailout?

Mr. Blankfein goes to Washington

Goldman Sachs CEO Lloyd Blankfein CSPAN Picture
Photo: Senate Hearing with CEO Goldman Sachs, Lloyd Blankfein

The Wolf of Wall Street catalogs the grift and greed of former swindler, Jordan Belfort. In a classic pump, dump, and commission system, Belfort made millions by ripping off people that didn’t know much about investing. There’s a scene in the movie that shows the staff of the corrupt investment firm admitting no wrongdoing, because they simply “could not remember” or “recall”… well, anything.

As I sat through this part, I laughed aloud – this was exactly what Lloyd Blankfein, CEO of Goldman Sachs, and his boys did in broad daylight to Washington politicians. Fueled by a large cadre of layers, Goldman’s staff admitting nothing, forgot everything, and looked shocked by the allegations of wrongdoing. Rather than be chastised and censured, the executives were treated like princes – geniuses of business.

This kind relationship between business interests and politicians has long been present, but has progressively declined in recent years. With the painful introduction of corporate and wealthy interests paying for elections via Citizen’s United, lobbying power has grown to epic proportions. It’s far more easy for moneyed powers to meet and arrange times with Congressmen and the Executive Branch.

Billions of dollars are being spent yearly on Washington-based lobbyists, and they’re warring against lower and middle class values (by in large). The Citizen’s United court ruling may have suggested the corporations were people, too, but they sure don’t show it. From the Keystone XL pipeline to financial deregulation to tax holidays to reduced capital gains taxes, the wealthy are having their say while the majority miss out.

The narcissism of self-victimization and cycle of class warfare

Income Inequality in America Wikipedia Chart Class Warfare
Income Inequality in America. Photo: Wikipedia

Brilliantly, maniacally, Fox News jettisoned a perverted phrase into the ether and attempted shut up those who were suffering under crushing income inequality. Class warfare was stolen and misappropriated by the richest for the richest. Critique, protest, and concern was met with this singular phrase: class warfare.

To villainize those with modest means when they ask for help and hope during record-breaking, inequal times (see Inequality for All) is a horrific moral atrocity. The surprising amount of people that believe that the American Dream is alive and well are sorely mistaken.

In a way, there’s an egoistic, narcissistic self-victimization and cycle that the most affluent who lobby against reforms are propagating. The message encourages you to pity the rich, as their lifestyle is under attack. Class warfare is a tragic thing to be a recipient of, but that misses the request and reality. People are arguing for modest reforms, not a hatred of the wealthiest 1%.

Reforms that must occur to address record income inequality and sinking social mobility

To, in turn, villainize the rich defeats the purpose and point of this article. Wealth is not inherently bad, and should be encouraged to some extent. Wealth creation and capability adds to a vibrant entrepreneurial foundation that is at the heart of the American Dream. This is not a country that should squash this zeal for industry, but real reforms must still occur.

Regulations, income tax reforms, capital gains tax increases, and massive funding for educational programs may be a lot to ask, but we need these things to continue to prosper as a nation. Right now, staggering income inequality is holding us back from reducing our massive deficit and debt (from individuals to our entire country).

Sensible solutions may be found in “The Buffett Rule,” which asserts that the capital gains taxes are out of date for the amount of wealth that’s held in stocks. The idea was started by Buffett, when he pointed out that it made no sense how his secretary paid around 30% income tax, while he skated by at around 15%. One of the richest men ever was arguing for modesty at a time of great immodesty. The bill and proposal would’ve only affected the wealthiest 0.3%. Even this was struck down by the “do-nothing” Congress.

Fox News and corrupt elite misappropriated and annexed the term, class warfare. But they don’t deserve the phrase – it’s not theirs. Not since 1928, have we seen such blatant inequality. Attempts at peaceful protest are being beaten down by riot and SWAT police, and hampered by economic hardship of the masses that makes them “Too poor to protest.” The largest bailout packages ever were delivered to the Wall Street elite, and Main Street sat back and suffered – there wasn’t a handout to the average Joe. The worst, most disgusting portion surrounds the self-victimization of the Fox News elite – whining like they are under attack from their cathedrals of drivel.

As Russell Brand suggests, perhaps it’s time for a reevaluation of our political system. Money has destroyed politics and those who care to serve the majority. Individual voices are drowned by the moneyed powers. We are living in a political dystopia. The only question that remains: What will we do about it?

Filed Under: Social Justice Tagged With: bailouts, bankers, Bernie Sanders, class warfare, Congress, Equality, Goldman Sachs, Income Inequality, Inequality for all, lobby, lobbying, movements, Occupy Wall Street, police, protests, Russell Brand, The Buffett Rule, Washington

Best Brokers For Commission-Free ETFs

By Frugaling

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New York Stock Exchange NYSE Broker ETFs
Photo: Wikipedia/Library of Congress

Little funds, big investments

Despite great strides to make the market more friendly to those with lesser funds, it is frequently stacked against the little player. Before I was in debt, I had a paltry sum money to invest. Wanting to avoid the hassle of reporting tax gains and losses from stock trades, I decided to open a Roth IRA. There was only about $1,000 in my initial deposit.

The commissions from my initial broker made trading cost-prohibitive. Every trade was about 1% of my total account value (~$10). If I wanted to realize gains on one share of a $100 stock, I needed to wait for it to climb 20 points (ten for purchase and ten for sale). With $1,000, it becomes very difficult to invest diversely and smartly. This was a recipe for disaster, until I found commission-free ETFs.

The advantages of commission-free ETFs

For me, as a small player in the market with scarce time for research in individual stocks, it’s important to save money in trading fees and pick more diverse index funds. Mutual funds are great as a diversification strategy, but often require a sizeable sum to start. That’s where commission-free ETFs come into the picture. 

In 2008, ETFs became a popular way to purchase managed (someone controls what the index is invested in) funds on the open market with live pricing; unlike mutual funds, which NAV prices update only once a day. They’re easy to trade right on the traditional exchanges, and instantly diversify your portfolio, while giving you the choice in a variety of broad-market sectors.

As the popularity rose, brokers took a keen interest in attracting new customers by offering free trades in certain ETFs. There are serious considerations to make before investing in any of these commission-free ETFs. Despite the diversification, these investments still have sizable risk and still require some research. That being said, commission-free ETFs can be a tremendous way to begin investing, diversifying your holdings, and saving money.

The Top 3 Commission-Free ETF Brokers

1. TD Ameritrade

TD Ameritrade offers 101 options and some of the biggest names are included: iShares, PowerShares, SPDR, and Vanguard. The list is a collection of Morningstar reviewed and recommended ETFs and most of them have small expense ratios (especially Vanguard ETFs). Account minimums and flexible investment options make TD Ameritrade a solid trading platform. Accounts include free CNBC TV, as well.

2. Vanguard

Expense ratios at Vanguard have always been notoriously low. They pride themselves on being affordable and smart for the average investor. This fairness easily makes Vanguard a great option for commission-free ETFs. Their group of about 45 ETFs are all free to trade within a Vanguard account. The only reason this doesn’t rank higher on the broker list is because TD Ameritrade accounts already have access to most of these funds.

ETrade Investment Platform Broker Deal - 60 Days Free Trading!3. E*Trade

E*Trade is the stalwart of online brokers. They’ve been around since the beginning. This broker offers about 90 commission-free ETFs from DB-X, Global-X, and WisdomTree. The largest concern with E*Trade is that these funds tend to have larger expense ratios. E*Trade offers an incredible mobile trade platform and terrific customer service. Opening a new account is easy to do.

Important considerations before you invest

Despite this great convenience and ease, here are three concerns to watch out for:

  1. Some ETFs are traded sparingly. This liquidity problem may lead to great differences between bid/ask prices, and a trade that isn’t in your favor. Consider the volume traded each day in the ETF you hope to invest in.
  2. Commission-free ETFs aren’t a good way to daytrade, as some companies (i.e., TD Ameritrade and E*Trade) charge an exit fee for ETFs held less than 30 days.
  3. Beware of exploitative expense ratios. ETFs, like any other fund, charge a commission for the privilege of diversification and sometimes  active management. These fees may add up over the long-term (See E*Trade as an example).

Have you ever invested in commission-free ETFs? What’s been your experience? Need some help further understanding ETFs? Read this book.

Filed Under: Make Money, Save Money Tagged With: Ameritrade, broker, charles schwab, CNBC TV, commission-free, etf, etrade, Free, Freebies, TD, Vanguard

Paying Off Student Loans? Don’t Forget This $2500 Deduction!

By Frugaling 1 Comment

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1098-E Tax Form Student Loan Interest Paid
Click to Enlarge – Form 1098-E

As a student and recipient of student loans, I’ve been collecting huge sums of debt. Before I started Frugaling.org, I had amassed about $37k between car, credit, and financial aid. Thankfully, that recipe for disaster was turned around when I began writing about my new, frugal life.

Student loan interest is deductible!

I saved and made more money than ever in 2013. Despite being a full-time graduate student (at around 60 hours per week), I started making enough money to pay back my student loans. By the end of 2013, I paid off $1,785.46 of interest (just interest) owed on my student loans.

The IRS and tax code stipulates that a recipient of student loans is granted up to $2,500 in deductions from the payment of student loan interest. Again, this is only the interest that has been gained on the loans – not the principal that was originally lent. Moreover, if you make over $75k ($155k if married) in adjusted gross income (AGI), you do not qualify for this deduction. You can find out whether you qualify for the deduction here.

Golden Ticket Charlie Tax Write Off Deduction 1098-E

The use and importance of Form 1098-E

Every year that you are paying student loans, you end up contributing a certain amount in interest. In return you will receive a little golden ticket (Form 1098-E) that allows you to deduct some income tax. All you have to do is enter the corresponding boxes on a program like TurboTax and you’ll magically see a sizeable refund add up.

Pair a nice deduction with Amazon’s TurboTax bonus of 10% on this year’s refund, and you’ll be flush with cash come return season!

Here’s a link to this year’s official IRS Form 1098-E.

Filed Under: Loans Tagged With: 1098-e, debt, Form, irs, Student Loans, tax, tax forms, taxation, Turbotax

Why I Bought One Share Of Google (GOOG)

By Frugaling 15 Comments

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Google Logo

The smart portfolio is a diversified portfolio

Investing is a tough business. Most people tend to float around with average gains of the stock market – influenced by the leading indicators – because they buy mutual funds and exchange traded funds (ETFs). Those that buck the greater system, choose individual stocks, and don’t diversify their portfolios run the risk of losing it all – making it a game of chance.

Previously, I wrote about how you must have a certain amount of money in an investment account before you can make smart decisions. When you only have about $1000, as I do, there’s little that can be invested well; plus, the trading fees eat up any minor gains (or increase losses). Nowhere is the trite cliche of “it takes money to make money” more vital than the stock market.

Take a risk, play it straight, or go with what I know?

Because of the financial situation I’m in, I do not really have the privilege of a well-diversified and balanced portfolio. Moreover, I wish I could take it out and pay off $1000 in student loans (that are receiving active interest at 6.8%). But the money is caught up in an IRA with painful tax and growth implications if I withdraw it now. It’s easier to put this money to good use in the market.

I was invested in a lot of tiny ETF positions in my Vanguard Roth IRA, in an abysmal attempt to diversify. Mostly, it was working. The money was slowly adding up, but I found moral complications in some of the holdings within these ETFs. I honestly didn’t agree with some of the companies business decisions, and I felt complicit in supporting these practices.

That left me sort of in the lurch. Where should I make the most of my money with a company I support? One company stood out in my mind because I agreed with their business practices and supported their vision. Also, as a tech geek, I felt like I could conceptualize the mission.

Cr-48 Chromebook Google FreeHello, Google. I own you.

The only company that made sense to me was Google. Trading around $1050 per share, this was an expensive stock (~30x EPS). Investors were suggesting that this was a growth stock that’d be going places beyond search advertising revenue. But I had recommended the GOOG monster to someone a little while back, and completely missed a rise from $800. Something told me the run wasn’t done.

On December 4th, 2013, I purchased one share at $1051.37. Now, my entire portfolio was condensed into one bet, share. I cannot recommend this investment technique from a risk perspective, but I felt like I understood the mood around this company and its leadership.

As a nerd of the highest order, I naturally paid attention to Google products, developments, and releases – no matter if I could afford them. Back in college, I was even given a free Chromebook (the Cr-48) from Google for testing purposes. More than any company before, Google made sense to me, and I used a ton of their products. So, I pulled the trigger.

What I learned from the decision

This was a risky decision; mind you, one that paid off. The Google share has risen about $100 over my original purchase price and investors continue to be optimistic about the growth. The company is on track to deliver driverless cars in 3 to 5 years, researching how to make people live longer, and investing heavily via Google Ventures (which just helped swallow up Nest).

Have you ever considered investing in Google? What stops you if you haven’t?

Filed Under: Make Money Tagged With: diversify, ETFs, GOOG, Google, money, Stock Market, stocks, Student Loans

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