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August 2005

Any investment account at a brokerage usually has an associated cash account in which proceeds from sales and dividends are deposited, usually in the form of a money market fund. According to this free Wall Street Journal article, investment banks are purposely moving investors’ cash funds into accounts that earn less than typical money market funds. This, of course, allows the banks to make more money off your account.

The good news is that there are options. Many brokerages allow you to request better accounts for holding cash. For example, the default option at E*Trade is to keep your cash in a deposit account earning 0.40% interest. They do, however, offer tax-exempt money market funds yielding up to 1.57%. That rate may not compete with the likes of Capital One 360 and Emigrant Direct after taxes (I haven’t done any calculations), but it is certainly a more favorable option than the default sweep account offered.

Free Credit Reports Now Available!

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The rest of the country was given this benefit at varying times earlier this year, but it finally has come to the east coast. I was going to wait until September 1, the official “release date,” but as MyMoneyBlog noted, the floodgates have opened a few days early.

I’m talking of course about free credit reports. Everyone in the United States is now entitled to one free credit report each year, from each of the three consumer credit reporting companies, Equifax, Experian and Transunion.

I plan on getting one every four months in order to get a more accurate picture of how my credit report changes throughout the year.

By the way, if you want your credit score, you are going to have to pay. (You might want to try the free MyFICO Credit Score Estimator but I can’t vouch for its accuracy. The website tells me my credit score is between 720 and 770. Who knows?)

The credit report itself, without your score, is free, and it is very important to check yours once in a while to ensure all information is correct. A report with incorrect negative items can cost you thousands of dollars if you were, for example, to apply for a mortgage and get a less favorable rate than you should due to a lower credit rating.

I chose Experian as the provider my first credit report; they were the first listed of the three companies. The process took about two minutes during which I needed to answer a few personal questions in order to verify my identity. My 16-page report was immediately generated. Luckilly, there is no incorrect information on the report, but I do have two “potentially negative items” back from my days of financial irresponsibility (or absent-mindedness).

And in case you are wondering, viewing your own credit report does not affect your credit score.

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CNN Money is featuring an article discussing derivative investments, in particular, investments designed for the small investor to hedge his or her bets. HedgeStreet is a company that lets people speculate on economic events, such as gas prices hitting $3.00 by a certain date. This hedge, for instance, might be good for someone with a long commute and would like to neutralize the effect of spending more on gas.

In order to invest in the derivatives offered by particular investment company, the investor needs only $100 to open an account, and any trades are limited to $10. The company calls these small items “hedgelets.” At HedgeStreet, the contracts available are based on economic events.

Regarding the gas price event hedgelet, I think it would make more sense to invest directly in oil companies rather than betting on economic events. It seems that oil profits will rise as gas prices go up, but there may be a larger chance of missing any specific price target, in which case the investor would lose all money invested.

If you believe the people who sell these investments, derivatives are poised for growth among regular investors. Others warn that most people who trade don’t understand the drivers of economic events, and those who don’t shouldn’t place bets. Trading online makes it easier for the uninformed to participate. “… Investors who trade online may mistake readily available information on the Internet for knowledge, which can fuel overconfidence and speculation.”

I’m in the mood for some calculations. I paid $2.47 per gallon for gasoline last night. What will it cost me to drive to work this year, assuming $2.50 is the average I’ll pay?

I drive 80 miles to and from work (combined) each day. To make the calculation easy, let’s say each year I work 5 days a week 50 weeks a year. The total work-related miles driven in a year is 20,000.

A full tank of gas, if I ran the car (Honda Civic LX) all the way to an empty tank, will get me 375-400 miles at the very most. (Of course, I fill up well before I completely run out, but that shouldn’t matter for the calculation.) My gas tank fits 13.2 gallons of gasoline. Using the more realistic estimate of 375 miles per tank (400 would be stretching it), that’s 28.4 miles per gallon.

20,000 miles at 28.4 miles per gallon is a little over 700 gallons of gasoline a year. At the average price of $2.50 per gallon, that’s $1,750 spent this year on work-related driving.

Despite the relatively high cost of gasoline, AAA thinks people will still travel for Labor Day, and most of the world still pays more than we do in the United States.

Update: Frank over at Hello, Dollar! responded to this article with his own including tips for saving a few bucks including checking the tires, emptying the tunk, slowing down, driving sensibly, and using the air conditioner sparingly. These are good tips; in fact over this past weekend I cleaned out my entire car and inflated the tires to their optimal pressure.

Here are some more tips:
* Combine errands so you don’t have to go out as much, especially if it would mean going back and forth into “town,” similar to where I live.

* Buy the lowest grade fuel that your car will handle. Some people swear their car won’t run if they don’t buy super. It’s possible, but it’s probably worth it to test the theory if the decision was made based on someone else’s experience.

* Get a cash back credit card that rewards you for your gasoline purchases. The Citibank Dividend Platinum Select card has no fees and 5% cash back on purchases at gasoline station among other things.

* Keep your engine tuned with regular check-ups from a reputable mechanic. (But don’t waste money on dealership maintenance like I did earlier this year.)

Stupid Investment of the Week

by Luke Landes

On MarketWatch, Chuck Jaffe presents his Stupid Investment of the Week. In this case, it is the STAR Trader Workshop. If workshops like these have superfans, I am the farthest from one. Luckilly, Chuck lost only time and not money by attending an introductory workshop. This seminar, as advertised on television infomercials, is supposed to […]

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Vacation In Total

by Luke Landes

So, how much did I spend on my vacation to Williamsburg, Virginia? Let’s take a look.

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McMansions and McBacklash

by Luke Landes

Backlash is growing against McMansions, especially in communities where there isn’t enough room for them, according to Les Christie from CNN. Personally, I’d rather have a smaller house on a larger lot than a larger house on a smaller lot. According to this article, in 1950 the average new house was 963 square feet and […]

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No Tips, Service Charge Instead

by Luke Landes

A fancy restaurant in New York City is eliminating tips and opting for a mandatory service charge of 20 percent of the bill. The restaurant has a noble mission. The cooks are struggling at minimum-wage jobs while waiters, also minimum-wage workers, retain all the benefits of the tips. However, I’m not sure that this is […]

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Competitive Online Bank Accounts

by Luke Landes

For those who read this blog — or, for that matter, any blog dealing with personal finance — there are no suprises in this article from CNN Money, Online savings accounts duke it out. The article discusses ING Direct and its newer rivals in the higher-interest online-only savings bank scene, Emigrant Direct and HSBC. An […]

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Carnival of Personal Finance #8

by Luke Landes

Welcome to this week’s Carnival of Personal Finance (basic introduction, schedule) and welcome to Consumerism Commentary (about, best of) to any new readers! This is the eighth installment of the Carnival. In this issue: Designer Pets. Free Money Finance discovers the latest craze for dog owners, crossing poodles with other breeds, giving us wonderful breednames […]

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