NinjaPigeon - My Flight to Financial Independence

Tuesday, August 30, 2005

Asset Juggling

Long entry since I have done a lot with finance these last two weeks.

I opened my Scottrade account with a 1k investment recently. I haven’t actually bought any stock yet, since I’m still not that certain what I want to get.

I did try a limit order just to see how it worked. Put in a limit for $2.45 on an internet stock, but it didn’t trigger that day. I had marked it Good Till Cancel, but decided to cancel as the stock just wasn’t a strong pick. After canceling it occurred to me that I wasn’t sure if the $7 fee would apply since I hadn’t actually purchased any stock. I got a message saying that management would approve the cancellation or something similar. However, since this was my first attempted trade, and I don’t have any pattern of trying to score cancels all the time, I think I’ll be okay. So far there are no charges against the account.

Okay, so for a while I had also been content to keep paying on my student loans as normal. However, last week I was going through The Box and noticed that the interest rate on my smaller student loan had jumped to 6.5%. Since I always pay them online, I never look at the paper bill, and hadn’t realized that the loan wasn’t a fixed rate. After looking through a few more bills, I found one that showed it was now at 7%! Those sneaky guys… So, I decided that since I’d already paid off my credit cards, it was time to put an end to these bad debts (read: debts with variable rates).

So, I pulled $3.2k out of my ING and cut a check to Citibank. This will only pay off one of my three student loans, although the other two are at a fixed 3.65%, which with the inflation rate and the current rate of return on CDs and such, makes sense to leave alone. The disappointing part about paying down that loan is that I lose a large chunk out of my liquid savings just to cut out a $50 bill each month. Though, to be realistic, my net worth doesn’t change, simply my cash on hand. And it was way too conservative for my age anyway. Hopefully the check to Citibank clears in the next few days.

Also last week, after paying off the credit card and the variable rate student loan, I decided I should follow some of the good advice I’ve read and heard about my large cash reserves. In other words, I decided I needed to start investing more. The first and obvious choice was a Roth IRA. The reasons I went with Roth rather than a traditional are because 1) I’m close to the cap for tax deferred savings already through my 401k, 2) I wanted to reduce my current cash value and not just future cash value, 3) I wanted to be able to get to my money if I lost my job, and 4) I didn’t want to miss the 2005 Roth contribution like I did the 2004.

So, I knew I wanted a Roth, but wasn’t sure where to get one. Thanks to some helpful entries from MyMoneyBlog, I decided that Vanguard would be a good choice since my 401k is already through Fidelity. The next step was funding it. Calculating the 4k per year contribution, and dividing it by the 26 paychecks I receive per year, I realized I need to contribute about $150 per check to reach the cap.

Since I want to get into the habit of setting aside this payment each paycheck next year, I decided to go ahead and start now. Given that there are 9 pay periods left before the end of the year, and that on Jan 1 I need to start planning for my 2006 contributions, I decided to fund my Roth with $2.65k from my savings. I transferred that from ING and then opened the new account online with Vanguard. Total time from application to funding was about a week.

The Vanguard signup process was pretty easy, and I picked the fund with the 2045 retirement target. Although I would like to return in 2035 or maybe 2040, I wanted a more aggressive fund, hence the choice of the 2045 one. The asset allocation on that fund seems to be a good fit for my age and goals.

As for the interface for the site, it’s very comparable to the Fidelity one in terms of ease of use. The only thing I couldn’t figure out was how to add new funds as needed, and a 5 min phone call to their support line solved that. So far, I’m very pleased based on the signup process, the speed of opening an account, and the prompt and courteous support.

I also decided that my savings account with Wachovia wasn’t doing much for me. I want to have liquid money, but I honestly haven’t touched that account for almost a year. So the pathetic .15% interest just isn’t worth it. I was originally planning on moving it to ING, but realized my cash reserves are already more than sufficient. Instead, I’ve decided to open a 12mo CD with the money.

Ideally, my goal is to have a $1k CD maturing every 1-2 months. I am not ready to try CD laddering, as I don’t want to tie my money up for more than a year at a time right now, so this is a nice solution to get good rates and stay somewhat liquid. So, I checked out the list of top 12mo CDs on and narrowed down my choice to either Ascencia or GMAC. As GMAC was a better name and Ascencia wanted me to mail in the application, I tried GMAC first.

GMAC had a really easy and quick signup process online. However, for some reason they denied my application. I called to ask why and was informed it was because my phone number didn’t have an area code matching my address, nor was it able to be reverse looked up. I told the lady that I had provided my parents’ number because I did not have a land line and only a cell. The response was that I would need to mail a copy of my cell phone bill in for verification. That seems fairly ridiculous to me. I’m trying to GIVE them my money for a year and they require me to have a phone number they can reverse lookup? They already have my driver’s license number, social security number, and can verify my address against my credit report. What is the point? So I cancelled my app. Good thing too, as they don’t lock rates and dropped from 4.35 to 4.21 an hour later.

So, I’m back to looking at Ascencia. Although they require me to mail in an application with lots of documentation, they have a good rating on, they have higher interest rates (4.40) and they give a 20 day lock in period for the rate. So, Tuesday morning at work, I’m gonna go ahead and complete their application.

I also heard back from Emigrant Direct this week. My application was successful and I only need to wait on the paperwork to arrive in the mail with my account information. Once it arrives I’m gonna transfer all the money from ING over and take advantage of the higher rate. I’m gonna keep ING open though and use it for taxes and short term savings.


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