Capital One has been a major player in the credit-card arena. They expanded into the retail-banking space by acquiring three regional banks — Hibernia, North Fork and Chevy Chase Bank. They became one of the ten largest banks in the nation based on deposits after acquiring ING Direct.
ING Direct was one of the most popular online savings banks among financially savvy consumers. When Capital One bought them in early 2012, the accounts transitioned and were re-branded to form the new Capital One 360. The Orange Savings account became 360 Savings and the Electric Orange Checking took on the name of 360 Checking. I have had an ING Direct account for almost a decade at this point, so when I heard the news that my ING Direct accounts would now be Capital One accounts, my first reaction was apprehension. I was not sure whether the features and benefits that made me stay with ING for that long would last. Now that the transition is complete, the major change amounted to a change in color from orange to red. The products and benefits have stayed the same or become better in some cases.
Currently, Capital One 360 offers three savings products — 360 Savings, Certificates of Deposit (CDs), and the Kids Savings account.
This is traditionally the most popular high-yield savings account. It is advertised as a “no fee, no minimum, no catches” account. The rates have been competitive and, as of this writing, rank among the top few in the nation. (You can see Captial One 360’s latest rates in the table below.) One of the highlights of this account for me is the mobile/computer deposit option using their CheckMate feature. Deposits can also be made by linking to other banks, setting up a direct deposit or, the old fashioned way, by mailing a check.
I am a big fan of targeted savings accounts. 360 Savings makes it much easier to accomplish this by letting you open up to 25 accounts and giving nicknames to each of them. You can have one account for each of your goals.
Certificates of Deposit
For those who want to lock rates, Capital One 360 offers a suite of certificate of deposit products with terms ranging from six to 60 months. You can choose to have the interest paid to you either annually, monthly or at the end of the term. Interest on CDs is accrued daily and compounded monthly. Like most CD products, there is an early-withdrawal penalty. If your CD term is 12 months or less, the penalty is three months of interest; for CDs longer than 12 months, the penalty is six months of interest. This means if you have a one-year CD and you break the CD after one month, you still pay three months of interest, so you would lose some of your principal.
Kids Savings account
The Kids Savings account works pretty much the same way as the regular 360 Savings. All the features of the 360 Savings are available for this account as well. The added advantage to this type of account is your kids can have access to those accounts. They are given their own login so they can check their balance, download statements and change basic information (account nickname, PIN, and saver ID). They cannot move the money, however. That requires the help of an adult.
Capital One 360 also offers two checking products — 360 Checking and Teen Checking (Money account).
360 Checking is a fee-free checking account with no minimums. You can send money to family and friends and pay bills using their Person2Person payment feature. With the ATM card, you can access more than 40,000 Allpoint and Capital One ATMs. Deposits can also be made via the CheckMate feature, direct deposits, bank-to-bank transfers or by mailing a check.
MONEY (Teen Checking)
Similar to the Kids Savings account, this account is a checking account for your teenage kids. You and your teen can manage the account and keep track of the spending. Teenagers can do pretty much anything with this account as with a regular checking account except transfer money out of the account.
Capital One 360 also offers various business accounts, home loans, investing and retirement products.
Deposit accounts are federally insured up to $250,000 per depositor with FDIC Certificate #4297 of Capital One, N.A. Whenever I needed help, I found the customer service to be good. I was always able to talk to a real person without waiting for long. The website is also very user friendly. Overall, Capital One 360 is a strong competitor in the online-banking arena.
Nelson Mandela is one of the few individuals who single-handedly changed the course of human history in a profound way. Unlike other famous leaders, such as Genghis Khan, Hitler or Napoleon, he altered the course of our nation (I’m South African) by eschewing all the traditional political weapons of mass destruction: revolt, violence and revenge. Instead, as depicted in the movie Invictus, he achieved his goals by peaceful means, earning him the Nobel Peace Prize in the process.
I was en route from South Africa when I saw the news on the monitors at a transit airport. The remaining flights gave me ample time to reflect on the lessons we mere mortals can learn from this great leader. There are several:
1. Know your goal
Nelson Mandela had a goal, clearly defined and understood by everyone: a nation where everyone is able to have a say in its leadership. Everything he said and did, he said and did in pursuit of that goal.
You need to have a financial goal, something more than making payments, hanging on to your job, getting more goodies, or just surviving the holiday shopping season. It has to be simple and easy to understand. If it looks unachievable, that’s okay. As Mr. Mandela’s life shows, you never know what can happen if your life is set on a single, easy-to-understand goal. If you don’t have a clear goal, well, you won’t reach it.
2. Pay the price
Nelson Mandela paid dearly: He spent more than 25 years in prison. If you look at most people with noteworthy accomplishments, you’ll usually find several sacrifices along the way. Warren Buffett is famous for his frugal lifestyle early on in his life. Today he wears expensive suits and uses private jets to get around — why buy a jet when you can buy a company with an entire fleet of private jets? But in his early days, he was frugal to the point of penury, because he measured every spending decision against the yield that expenditure would bring if he invested it.
To achieve your financial goals, you will have to make multiple sacrifices.
3. Focus on the future
If ever someone had reason to dwell on injustices done to him (and his people) in the past, it was Nelson Mandela. However, he understood that little is achieved when you allow your past to dictate your actions. He set his goal for the future, and he made his every decision to get him closer to that goal. The future is all that matters to achieve success.
Same with you and your money. The past is the past and there’s little you can do about it. And it’s usually not a predictor of the future. Your key to success lies in judging every decision only on what it can do for your future. If you think you waited too long to start saving, forget about the past. The question is which holds the better future: saving now, or continuing to not save? What you save starting now might be less than it would have been if you started 90 years ago, but it’s guaranteed to be more than if you did nothing.
4. Utilize opportunities
When Nelson Mandela was in prison, his opportunities were few, as you can imagine. Yet he furthered his legal studies and became knowledgeable about constitutional law. In the unlikely event he would be freed, he needed to be prepared for the next challenge — figuring out a better way for his country to live.
You may feel you have few opportunities where you are today. And the opportunities that presently exist may entail sacrifice. Your company may offer reimbursement for furthering your studies, for example. That’s an opportunity to increase your human capital and your worth in future jobs. But it will take time away from going to movies, socializing with friends and leisurely vacations. You might even have to give up football or shopping for a few years.
But the goal is worth it. If you seek out the opportunities in your neck of the woods and pounce on them, you may find yourself in a much better place a few years from now and therefore be able to achieve those goals of yours.
5. Be pragmatic
Nelson Mandela was not a communist by conviction; but when it turned out that those were the only people who supported his cause and were willing to help him reach his goal, he made the pragmatic decision to align himself with an unpopular group of people. However, he did it without compromising his principles and in a way that helped him get to a place he could not get himself.
In your job, you may have a boss you despise or a 401(k) retirement plan with many flaws. A 401(k) plan is a way to save money with help from Uncle Sam and (usually) your employer. You will reach your goal by maximizing those plans, even if you’re not planning to retire there.
6. Tune out the noise
Mr. Mandela was accused of many things and characterized in ways which would have discouraged any of us. Even his own supporters at times called him lame and useless, and they labeled his non-violent preference outmoded and ineffective. Yet he stayed his course: he knew his goal, unflinchingly paid the price, focused on the future and pragmatically seized every opportunity available to him. If he had paid attention to his critics, it’s almost certain the world would not be celebrating his achievements this week because there wouldn’t be any to celebrate.
Likewise, you will face noise as you pursue your goals. Your coworkers may call you a brown-noser, your spouse may resent the time you spend on training, those ads in the mail and on television will always be there to distract you, and God knows how many banks will try to ensnare you in debt.
Your goal may not be to win a Nobel prize or change the world. But you are the one who determines your future. You will reach your goals only if you tune out the noise and stay the course. Along the way you’re guaranteed to wonder if it’s all worth it; Nelson Mandela undoubtedly did too. Success, though, only comes to those who know their goals and single-mindedly do whatever is necessary to get there.
American Express is a brand that is almost synonymous with credit cards, but in recent years they have also built a sizable base of deposit customers. By offering very competitive online savings rates, American Express Bank has grown its deposits from $7.2 billion to $26.5 billion in just five years.
American Express Bank is part of a new generation of banks that has focused its customer service efforts online to avoid the expense associated with building and maintaining an extensive branch system. This cost advantage is one reason the bank can offer higher interest rates to its customers, fueling the massive growth in deposits.
Most prominent among its financial services product line-up, the online savings account at American Express Bank features competitive interest rates, sometimes at more than ten times the national average savings account rate. Deposits can be made by electronically linking other bank accounts, by direct deposit, or by check — making regular saving all the more convenient. There is no minimum deposit amount, so deposits of all sizes can easily reap the advantage of strong interest rates.
Certificates of deposit
For those interested in certificates of deposit, American Express Bank offers a full suite of CDs with above-average interest rates. The rates for CDs represent a strong choice for short-term depositors in particular; but rates for six months, one year, 18 months right on up to five years are available and are designed to be competitive as well. American Express Bank’s certificates of deposit offer depositors the flexibility they need along with the better interest rate options they want.
The customer service experience online is user-friendly. Yields on savings accounts are prominently displayed, and links to product and procedural information are clearly laid out. In addition, both the savings account and CD pages feature a savings calculator, a tool which allows the user to enter a deposit amount and a time frame, and see how much interest an account of that size would earn over the specified period. This is useful for turning interest rates into more concrete dollars-and-cents terms.
Besides product information, the American Express website also provides access to account information for current customers. Additionally, there is a 24-hour customer service telephone number for people who prefer to get information that way.
Consumers are often asked to pay extra for better service. Online banking is the rare exception where customers generally can get both convenience and better financial terms. That convenience extends to being able to readily compare interest rates and other attributes of banking products, and customers making such a comparison are likely to find that American Express Bank is one of the best institutions to consider.
It may be old age creeping on, but I seem to increasingly find my financial advice advocating moderation — a balance between two more extreme courses of action. The following are several examples:
- Personal budgeting. I’ve been known to be an obsessive planner, but I don’t actually have a household budget. I take more of a big-picture approach — I only make a certain amount of money available in my checking account, and I keep my spending within that limit. If I started to bump up against that limit, perhaps I’d have to get out a sharp pencil and decide which expenses could stay or go, but I think working within a strict limit has forced me to summarily dismiss the idea of expenditures that would conflict with that limit. This has worked out to be a good saving strategy. After all, when people budget, they tend to come up with a list of things they need or want and then figure out how much they will spend on them. That approach seems to presuppose that you will get all those things. If you start with a limit that forces the rest of your income into savings, you may have to make do with a shorter list of expenditures, but you’ll have a larger savings account in the long run.
- Bargain hunting. I focus my bargain hunting on big-ticket items and on recurring expenses, because these are the things that will make the biggest difference. I do not spend as much energy hunting nickel-and-dime bargains. Just after college, when I was very poor, I remember walking an extra mile to go to a store where macaroni and cheese was 6 cents cheaper than at a nearer store. However, I think one of the rewards for earning a better living these days is being able to relax about shopping tactics that yield minor rewards.
- Tax strategy. My accountant gets a little grumpy about the fact that I don’t track my business expenses in detail. The reason? I know those expenses don’t add up to much. I think if I tracked everything throughout the year, I might save $25 or so in taxes. I will gladly pay that $25 in order not to have to keep a painstaking log. I certainly take my bigger deductions and avoid unnecessary tax liabilities, but my idea of moderation is drawing the line at things that just are not worth the time.
- Asset allocation. One school of thought is that asset allocation should be set based on your investment goals, and that you shouldn’t deviate from that policy allocation lest you be out of the market — or too heavily in the market — at the wrong time. At the opposite extreme, market-timers claim to be able to enhance returns by avoiding bear markets, but this approach can easily have the effect of magnifying risk rather than return. I believe that there is room for varying asset allocation according to market circumstances, but you should have parameters — say a 20- or 30-percent range — within which those allocations are maintained.
- Fiscal politics. I still laugh about the Laffer curve — not the idea itself, but the way it tends to be misapplied. Anti-tax advocates like to talk about the part of the curve that demonstrates how tax revenues will actually increase as tax rates are lowered, because there will be greater earning incentives and more money staying in the economy. What they don’t tend to mention is that there is a point where this process reverses, and lower tax rates start to yield lower revenues. After all, a zero percent tax rate would yield zero revenues. The tricky part is finding where the optimal tax rate is. Unlike some European leaders, I’m quite sure that optimal rate is below 50 percent; but also unlike anti-tax advocates, I’m guessing that the optimal rate is closer to 50 percent than it is to zero.
Probably the only area of finance where I don’t represent the middle ground is with regard to debt. Whether it is the government or individuals, the routine increase of indebtedness over time is a dangerously unsustainable habit. Unfortunately, the marketing of credit cards and loans is big business, and the Federal Reserve has actively sanctioned increased borrowing by lowering interest rates.
The result? Earlier this year, total consumer credit passed the $3 trillion mark for the first time ever. You have to wonder how many people who criticize our huge government deficits — which are certainly outrageous — have out-of-control credit card balances and other debts themselves.
So, a reasonable and moderate viewpoint would be that personal debt is okay as long as you can meet your payments. However, when you see how that attitude has mushroomed into $3 trillion in consumer debt, perhaps it’s time for individuals to take a less tolerant approach to their own borrowing.
Was Charles Dickens particularly ingenious when he came up with the legendary character Ebenezer Scrooge? Was Dr. Seuss at his creative best when he unveiled the Grinch? Did director Frank Capra and the others involved in assembling the classic film “It’s a Wonderful Life” experience a lightning bolt of inspiration when they dreamed up old man Potter, that conniving rotter?
The answer to all three questions is “no,” topped by a holiday bow, emblazoned in wrappings of green and red and tied up with a festive ribbon.
No, to create all these immortal, household-name miserly holiday villains, all Dickens, Seuss, Capra and his writers had to do was be inspired by a breed of real people whose greatest joy is embarking on cash grabs through devious means.
This type appears annually around this time of year to appeal for holiday season and end-of-year charitable donations for the organizations they represent.
Folks from coast to coast, touched by emotional appeals at a time of holiday giving, dig deep in their pockets for donations to help less fortunate people, fund disaster relief, care for sick and injured animals and cure childhood cancer.
The only problem with these heart-tugging requests is the charitable organizations being touted are as fictional as the village of Pottersville. In many cases, they sound like real charitable organizations known to everyone. But they are in reality the creations of people intent not on assisting the less fortunate, but on lining their own pockets with as many free greenbacks as they can hoist.
Says Daniel Borochoff, president of Chicago-based CharityWatch, which rates and evaluates charities to help folks make more informed gifting decisions: “Just about anyone can set up a charity, implement a website and send out letters and solicitations that pull at the heartstrings. Some are quite expert at this. Many of them simply look at this as a business decision.”
Like most of us, you may see the holidays as a time of giving and want to assist less fortunate people with your charitable dollars. But as the description above suggests, if you want to make sure your gifts go to organizations that really help people, animals and causes, you must to do your homework.
After all, you research the best credit cards and best savings accounts. Why wouldn’t you also research the most efficient charities?
The fact so many fraudulent charity organizations exist is only part of the reason to do your due diligence before taking out your checkbook. Another is that a large percentage of donations to even some of the better-known legitimate charities wind up going not to those who can benefit, but to fundraising organizations and administrative staff that rake in the donations.
As Borochoff told me recently, big-hearted donors are often swayed by emotion and give to bad charities. That helps these organizations vacuum up billions of dollars, in turn giving rise to even more suspect charities. Still, it’s not easy for a donor to effectively investigate charities on her own. For instance, the financial reporting of a questionable charity may be handled in a way that makes it seem the charity is operating efficiently and puts donations to good use. But even though the organization is following generally accepted accounting principles, donations aren’t going to people in need.
Happily, CharityWatch, Glen Rock, N.J.-based Charity Navigator and Washington, D.C.-based GuideStar can help ensure worthy groups get donors’ gifts this season, and scam charities — deservedly — get lumps of coal.
Proactive, not reactive
The first and most important thing you can do to help make sure your cash gifts are put to good use is to stop being reactive, and start being proactive. “One of the big things is telemarketing appeals for charitable donations,” says Sandra Miniutti, vice president of marketing for Charity Navigator.
“We tell people to simply hang up the phone. Even if there is a legitimate charity behind that call, they’re employing a for-profit telemarketing firm, and that firm may be taking 80, 90 or even 95 percent of your contribution.
“We’re trying to get donors to do is be proactive, not reactive. If you are proactive, you are less likely to be entrapped in a scam.”
(There’s another emerging reason to avoid telemarketing appeals, and that is “spoofing” technology, in which software is used by scammers to display the name of a legitimate charity on your caller ID as a way of stealing your cash.)
Miniutti advises flipping the process upside down. Instead of reacting to charities seeking your donations, proactively seek great charities doing the work you wish to support, whether they’re improving the environment, helping needy kids, paying for pets’ medical care or working to cure diseases.
At www.charitynavigator.org, you can search for charities and quickly determine how they rate on a zero- to four-star rating scale, Miniutti says.
At www.charitywatch.org, you can find top-rated charities in 36 different categories, including cancer, animals and the environment. And, Borochoff says, “In every major crisis we will post information about the best ways of helping people in that crisis.”
Finally, www.guidestar.org gathers and disseminates information about every single IRS-registered non-profit organization.
By doing your part, you can aid a much larger effort. “The number of charities is increasing, [and] the level of donations is not keeping pace,” Miniutti says. “So it’s critical we invest our donations into the charities that are high performing, so they’re not starved out of existence.”
That’s a sentiment even the Grinch would find hard to debate.
All of us, I’m sure, are busy shopping and planning for gifts for all the people we care about. In the process, we don’t want to end up in a situation where we are happy for just one month and but are left paying December’s credit card bill throughout the next year. So here is my list of money-saving tips for the holidays. A lot of us have smart phones and there is an app for pretty much everything. With a little planning you can save money, reduce stress and have a fun-filled holiday.
- Make a budget and stick to it: If you have already made a holiday budget and been saving for it throughout the year, excellent! If not, make a budget now and include everything.
- Make a gift plan: Create a gift plan with the list of all recipients and ideas for gifts. If you don’t have ideas, write down their interests, which might lead you to find something. Include a maximum dollar amount. As with everything these days, there are many apps for creating and tracking a gift list. Pick one with good reviews and update it as you shop so that you won’t lose track of it.
- Give gifts only for the kids in the family.
- Comparison shop: Know prices before you get out of the house. If you have to go on a “pre-shopping” trip, so be it. Don’t buy anything on this pre-shopping trip. Just note down the prices for all the gifts in your list and go home and check the prices online along with how much it costs for shipping. This will give you a better idea of the price range and the best place to buy. There are several websites that allow you to track the price for the items on your list. I use Camel Camel Camel to track Amazon prices. Don’t forget to get points either using your credit card or using an app like Checkpoints that offers points for just checking in.
- Look for deals and sales: If you are buying online, Google [store name + "coupon"]. You will end up with some coupons. Even if it is just for free shipping, you are saving money. Shop on Free Shipping Days to get any minimum purchases to get free shipping. Make use of the holiday events like the BabysRUs first Christmas to score some free stuff for yourself or to gift.
- Buy in bulk: For commonly used items like holiday treats or baking supplies, try to buy in bulk along with a neighbor, family or a friend.
- Homemade gifts: Instead of buying gifts, make your own.
- Don’t be afraid to re-gift: This is a very personal decision. If you feel comfortable with the idea and you have a perfectly good gift that is just not for you, consider gifting it to someone who will make use of it. Save all your receipts in one place in case you have to return something. Apps like OneReceipt or Shoeboxed can help you keep your receipts organized.
- Give time: Give your time instead of money or a gift.
- Get a part time job: If you can spare some time, consider getting a part-time job in a department store. You could make some money for the holidays and also make use of the employee discounts for all your gifts.
- Wrapping paper: Instead of buying wrapping paper, make your own with your kid’s artwork.
- Make ornaments: Similar to wrapping paper, instead of buying expensive ornaments, make ornaments from your kid’s artwork or with some meaningful photos.
- Food drives: Instead of office gift exchanges, suggest a food drive where you can bring canned and non-perishable food for the local food bank. This won’t save much money, but at least you are not stuck with buying a lame gift for a coworker you don’t even know very well.
- Pot luck: For parties (whether you are attending or hosting) suggest pot luck instead of just one person doing all the cooking and cleaning. It can save serious time and money.
- Pick your parties: Attend the parties that are more meaningful to you and skip the ones from an acquaintance or coworker you don’t know well.
- Plan your vacations: Traveling a day earlier or later can save a lot of money.
- Skimp on outdoor lighting: Consider going light with the lighting. You can also use LED lights. They have significantly lower energy consumption so you won’t get stuck with a humongous power bill in January. You could also change regular bulbs to colored ones to add a festive effect and leave it at that.
- Don’t replicate your parents: This is one of the mistakes I make, not with just holidays, but in general. I forget that it took my parents probably 50 years to collect all the stuff they have. I am just starting out, so there is no need to have it all the first time.
- Buy throughout the year: It is not possible to do this for this year, but the best time to shop for Christmas is the week after Christmas when everything Christmas-related goes on clearance. Stock up on stuff that won’t get spoiled — decorations, ornaments, gift wrapping and even gifts.
- Buy gift cards using the holiday deals and give yourself a gift too: Holidays are a great time to buy gift cards at a discount. I stock up on gift cards for my own use the following year during this time.
What are your favorite money-saving tips? Do you have a weakness or do you always plan well?
This post comes from Lindsay Meredith at our partner site Quizzle.com
The holiday shopping season will be in full swing before you know it, and, if you’re like many Americans, you’ll be making your special purchases with a credit card. After all, credit cards are a safe and convenient way to shop, plus they off special protections on the stuff you buy, like extended warranties and insurance.
What could go wrong?
Actually, a lot. Credit cards might be one of the most popular ways to shop, but for many people they represent an opportunity to get into serious financial trouble. It’s important to be careful with plastic, especially during the holidays, when many of us let our guards down and throw fiscal caution to the wind.
This year, be sure to keep your credit – and sanity – in check by avoiding these ten credit card pitfalls:
1. Piling On Debt
Not only will charging too much on your cards result in seriously expensive interest charges, it will also hurt your credit score. Thirty percent of your score is determined by how much debt you’re carrying, so make sure you control your spending this holiday season – or your spending will end up controlling you.
2. Forgetting About The Bills
The holiday season is often busy and rushed, but it’s important to remember to pay your credit card bills on time. This is because the largest portion of your credit score – 35% – is derived from your history with paying your bills on time. This means it’s critical to make paying your holiday bills on time a priority.
3. Falling For Credit Card Gimmicks
At this time of year, many credit card companies offer “teasers” to try to get new business. These gimmicks often take the form of interest-free periods or special rewards, are meant to capitalize on our propensity to overspend at this time of year. Don’t fall for it! The last thing you need is to end up stuck with an extra card to keep track of that you don’t want or need.
4. Making Minimum Payments
Making minimum payments on your credit cards in order to conserve cash for other holiday expenses might seem like a great idea, but it will end up costing you. Not only will you end up paying through the nose in interest, you’ll also probably end up building up debt that will be hard to shake. Never pay just minimums, not matter how tempting it might seem.
5. Opening Too Many New Cards
Opening a new store credit card might save you a bundle on your first purchase, but just be careful not to open too many retail cards. This will make it harder for you to keep track of your spending, and will also cause your credit score to drop, so be careful to keep your new credit inquiries to a minimum.
6. Maxing Out Your Cards
Maxing out a credit card is a sure-fire way to kill your credit score, and it’s also an easy way to end up with a big bill you can’t pay. Be sure to avoid exceeding 30% of your available credit, and pay off your balances as soon as you can.
7. Not Tracking Your Spending
One of the great things about shopping with credit cards is that it’s easy to track your spending online – however, a lot of people get into trouble because they neglect this simple step. Be sure to keep a close watch on how many purchases you’re putting on the card, and if your spending starts to get out of control, reel it in fast!
8. Giving Your Card To Someone Else To Use
It might seem convenient to give your credit card to a friend or family member and ask them to pick up a few things for you, but this move could get you into trouble. After all, it’s hard to know exactly what they’ll buy, and there’s always the possibility they could get out of control. No matter how busy you are, don’t send someone else out to do errands with your credit card – you could come to regret it.
9. Saving Your Card Info On Too Many Sites
Online shopping has made it really easy for us to pick up our favorite products without having to leave the house – in fact, it’s almost too easy. Avoid saving your credit card information on too many sites – you’re opening the door to overspending in the future.
10. Not Taking Advantage Of Credit Card Rewards
Many credit card companies offer special rewards on a rotating basis, and some of the most generous deals come at the holiday season. Be sure to check in with your credit card company to see what they’re offering, and shop accordingly – you could end up saving some serious cash!
Shopping for the holidays doesn’t have to be a drag on your finances if you avoid the ten credit card pitfalls described above – consider them an insurance policy on your holiday cheer!
More stories from Quizzle:
A Long Life
Nobody knows for sure exactly when Black Friday began as an American tradition. Know-it-all site TIFO (Today I Found Out) credits the Macy’s Thanksgiving Day Parade as something the retailer did to draw shoppers to its store almost a century ago. However, the parade was (and still is) on Thanksgiving Day, when the store was closed, rather than the day after. So the parades couldn’t have been the draw for shoppers (who didn’t all have cars like today back in the 1920’s). Rather, according to the Wikipedia article on Black Friday, the parades marked the generally agreed upon date after which the advertising extravaganzas for Christmas shopping would commence.
The advertising, therefore, could have been what drove the shoppers to stores for holiday gift shopping — that, and the fact that many employers give their employees the day after Thanksgiving off. It’s easy to imagine the rest of the story:
There’s your imaginary average American family, stuffed to the gills with the traditional three F’s: food, family and football. The weather outside, while not totally frightful yet, is not picnic material anymore, either. Over a late breakfast (despite the food overload experienced the day before, we gotta eat again) everyone dives into the newspaper. Well, the reporters had the previous day off too, so there wasn’t too much news in the paper (funny how that works).
What the paper lacked in news, however, it made up for with scads and scads of holiday ads. So there you are, comfortably stuffed (again) with nothing to do and nowhere to go. No rocket science is required to predict the rest of the story. With more affluence, increasing automobile ownership and the rise of the mall, the day after Thanksgiving became the perfect day for holiday shopping and decorating.
And so it was that shopping on the day after Thanksgiving became a more popular pastime in the years of growing post-WWII affluence. Most retail stores were still downtown back then, and the growing crowds wreaked havoc on a city’s increasingly burdened downtown streets and infrastructure. It’s no surprise, probably, that Philadelphia is where Black Friday got its name. After all, it is the only city famous for booing Santa Claus.
Lest we be hard on the fine folks from Philly, it had to be a nightmare dealing with the increasing crush of humanity. When you have a big event like a football game, you have to deal with big crowds. But that’s different: it’s a discrete event in a single location, with infrastructure set up to handle the sudden large flow of people when the game is over. That crush usually lasts for no more than about an hour, and everybody is headed in the same basic direction. Aimless shoppers, who come and go in random patterns for a whole day, had to be a nightmare to deal with in cities not set up for sudden spikes in traffic.
Somewhere along the way, and nobody knows exactly when, shopping on Black Friday metamorphosed from a more leisurely post-turkey pastime to a more intense and aggressive exercise. Back in the early days, retailers could draw shoppers by simply announcing a wonderful cornucopia of newly invented goodies to stuff in Christmas stockings. As retail competition grew, though, stores had to make their offerings more and more compelling to draw shoppers to their stores. And so the Black Friday sales were born. They may have worked in the beginning, but nothing is easier for a store owner to do than match the sale prices of competitors. Again, the story is predictable. Just like the arms race of the era after World War II, retailers embarked on a Black Friday sale/discounting race.
The stakes grew when holiday shopping began to account for a greater and greater proportion of retailers’ total revenues for the year. (What does that say about our nation? We spend more on gifts than everything else. If we stopped giving holiday gifts, it would cause an economic shock far greater than the Great Recession just ended.)
In days gone past, Sears, Roebuck was the world’s largest retailer, built on offering variety and quality. In time, though, the nation became more bottom-line oriented and Walmart overtook it by focusing on discounts. No surprise, then, that it’s Walmart who set the standard for the terms of Black Friday sales: deep discounts, valid for just a few hours.
Until 2008, the first full year of the Great Recession. That’s the year one of their temporary maintenance workers got trampled to death in New York. You remember how it happened: Shoppers were so hell-bent on getting those discounts (“limited to quantities on hand”) that they refused to even step aside to allow helpers to get to the hapless victim. The nation was shocked at what it had become, because many asked themselves: What would I have done?
And so it is that Walmart, again, is taking the lead to move us away from that (now scary) tradition of celebrating the day after Thanksgiving by trampling each other to death in pursuit of a few pennies in savings. The arms race moved to opening earlier and earlier to avoid those deadly crushes, until opening hours backed into Thanksgiving Day itself. And now Walmart has moved its Black Friday discounts to a week before Thanksgiving. Other retailers, unwilling to be left behind in this new arms race, have decided to follow suit.
That move to commence Black Friday deals way before Black Friday itself has raised the question in many quarters: Are we seeing the end of Black Friday as we know it? In a recent article, Experian Marketing Services explored the possibility in depth, and that has been taken up by Time magazine and other mainstream media outlets. More consumers are looking for deals earlier, and savvy retailers like Amazon and Walmart are responding quickly to catch the early worms, forcing other retailers to follow their lead.
Indeed, it seems that Black Friday, as we know it, will eventually go the way of the hula hoop and 8-track. As the L.A. Times points out in this article, social change rarely happens overnight. But it does seem inevitable.
Main reason: The internet, not just as a retail channel, is now the place to get information on prices at brick and mortar stores. Websites like The Black Friday have sprung up to allow consumers to search out the best deals ahead of time, and that has put even more of a premium on moving the start date of awesome deals up, just to stay ahead of the competition (who, by the way, also scans these sites).
What will the nation do now the day after Thanksgiving? Work on figuring out its finances to avoid getting crushed in the next recession?
What will you do Friday?
This hard-charging stock market — up more than 23 percent for the first ten months of 2013 — has me regularly cautioning about the riskiness of what may be inflated prices. I think it’s an important message under the circumstances, but it’s hardly the last word about financial risk.
While the devastating impact of stocks falling from a great height is an obvious risk, there are other forms of financial risk which may be more subtle, but in the long run can be equally as damaging. The following are examples of financial risk which have nothing to do with a sudden drop in asset prices:
People who keep their money in savings accounts or Treasury bills are often referred to as conservative investors because their actions reflect a strong aversion to the risk of losing money. And yet, recent years have highlighted that too heavy a reliance on short-term, interest-bearing instruments can expose you to a very severe form of risk.
At the end of 1980, 1-year T-bills were yielding 14.88 percent, meaning they would pay $14,880 in interest annually on a $100,000 investment. Within just five years, though, that yield had been cut nearly in half, to 7.68 percent. This would reduce the annual income production of a $100,000 investment to $7,680, and the worst was yet to come.
Today, 1-year T-bills yield just 0.12 percent. That would produce a paltry $120 in annual income on a $100,000 investment. Now, suppose you had been investing in T-bills since 1980, living off the income and rolling over the principal. As a result, you would have seen your annual income cut from $14,880 to $120. You wouldn’t have lost a dime of principal, but I think you’d feel as though you’d definitely been exposed to a damaging form of risk. That’s interest-rate risk.
Anyone who lived through the 1970s and ’80s probably has some memories of what inflation risk is like, but recent decades may have made people more complacent. That’s just when inflation risk can strike.
Since 1989, inflation has grown at a compound annual rate of just 2.71 percent, so it hasn’t really been a problem. Similarly, from 1939 through 1969, inflation averaged just 3.29 percent a year, so it wasn’t a frequent concern. However, for 20 years immediately after that, from 1969 through 1989, inflation averaged 6.28 percent a year. In short, it can flare up when it seems to have been long dormant.
Those percentages may not adequately illustrate the difference these inflation rates can make, so consider this: At a 2.71 percent annual inflation rate, it will take about 26 years for the purchasing power of your money to be cut in half; a 6.28 percent inflation rate will cut your purchasing power in half in less than 12 years.
I’ve seen people take career risk in two forms. One is when someone’s career seems to be sailing along, and all of a sudden they get the carpet pulled out from under them. They lose a job, perhaps for reasons beyond their control such as a change in management or problems with their employer’s business. Suddenly, 20 or 30 years into a career, people in this situation find they can’t come close to replacing their former level of income.
The other form of career risk starts a bit earlier in a person’s career — usually to confident people who experience success early on. They take on expenses they can’t quite afford — a big mortgage, payments on a fancy car, etc. — on the assumption that continued success will bring them higher and higher levels of income as the years go on. Unfortunately, the economy just hasn’t been that generous in recent years, so these people find themselves trapped in an unsustainable lifestyle.
Everyone is at risk of career setbacks or disappointments, so never let your spending get ahead of your income. Also, keep your network of contacts and your job skills fresh. You never know when you might need them.
This could be the last risk you ever face — and it may seem counterintuitive until you experience it. This is the risk of living too long.
Retirement plans often fail to adequately prepare for today’s longer lifespans, let alone the fact that roughly half the population will exceed the average life expectancy. Plan to make your retirement spending as sustainable as possible, even beyond your expected lifespan, so you won’t be caught short.
Some people describe themselves as risktakers, and some as risk averse, but the truth is that we all take on some form of financial risk. We simply get some degree of choice regarding which risks to take. What you perceive as risk depends on your experience, and on your current situation. These perceptions can be instructive to others, so please share with us what you see as your greatest financial risk these days.
I was listening to my favorite personal finance radio show one recent Sunday morning, when the program host uttered a prediction that virtually knocked me out of my chair. The affable star of the show, who helms one of the nation’s best-known and most successful financial advisories, clued listeners in on his conviction the Dow Jones Industrial Average would hit 150,000 by year 2030.
And if not 150,000, he predicted, it would at the least stand at 100,000 by then.
After reaching for a dose of smelling salts and regaining hold of my seat, I started processing this information. A Dow at 100,000 at least? That would make a boatload of people, quite possibly myself included, tons of cash.
I launched a search for comparable predictions, and discovered that in recent years there’s been no lack of forecasts the Dow would touch that nice round six-figure sum in the course of many of our lifetimes. Of course, they were matched by a like number of pronouncements that the prediction is sheer folly.
I don’t imagine anyone will be surprised to learn that many forecasts of Dow 100,000 were made by people who stood to gain by convincing people to invest in the stock market. Nor would any be jolted by the realization many Dow 100K naysayers are folks proud to proclaim they have every penny in cash.
Considering the Dow, as I write this, is struggling to climb above the 16,000 threshold, a prediction of 100,000 takes a certain willingness to be ridiculed. But those advancing the theory argue that their claims are backed not by pipe dreams but by careful study and solid theory. Let’s probe a few trends that could bring us face to face with this majestic milestone in the next two or three decades.
Game-changing advancements like 3-D printing, the Internet of Things, wearable computers and other Sci-Fi-like inventions are likely to speed the pace of techno-change. For instance, no one knows what will happen when 3-D printing, via which almost any object can be manufactured by printing it, replaces assembly lines. But many are quite sure it will make lots of companies and people billions.
Here in the United States, we’ve been beholden to the Middle East oil producers for generations. But with the comparatively recent discoveries of bountiful sources of oil right here on the North American continent, and new technologies to siphon it from the ground, those days are coming to an end almost as fast as one can say “OPEC rest in peace.” If there’s anyone who believes energy independence will be bad for the U.S. economy, I can’t recall hearing from them.
James Glassman and Kevin Hassett, authors of the book Dow 36,000, argue that stocks have long been undervalued, and that price-earnings ratios underestimate the power of good stocks to generate cash. Other folks assert the emergence of the BRIC countries Brazil, Russia, India and China will make more people consumers of American-made goods and services. Still others advance the TINA argument. There Is No Alternative, they say, that can currently make you the kind of money the stock market can.
Going out on a limb
I can imagine the blowback over my even bringing up predictions of the 100-thou Dow. “Oh, c’mon,” I can hear the doubters say. “You can’t believe that crap!”
Not that anyone cares what I think, but I’m about to throw caution to the wind, go out on a limb and boldly dare to deliver my own prediction. Will the Dow rise to six figures in the next 17 — or even 25 — years? Here is my fearless forecast.
Duh, I dunno.
But my own experience as a stock market investor may incline me to lean one way over the other. See, back in April 1987, I gathered up just about everything I could afford to invest, which in those days amounted to $20,300, and timidly invested all of it in a diverse grouping of mutual funds.
Six months later, on Monday, October 19, 1987, which came to be known as Black Monday (Black Tuesday in Australia and New Zealand, due to time differences), stock markets around the world imploded and jettisoned between 20 and 25 percent of their value in one single, horrible day. Well, I thought, there goes my life savings. I guess I just have to start all over.
I didn’t think there was much left of my $20,300, so I didn’t rush out of the market. And lo and behold, before I knew it, the market ricocheted back. And not that long after, I’d recouped my losses and earned some nice gains to boot. So I kept on dollar-cost-averaging into stocks for, let’s see, the next 26 years.
Here’s the thing. Where did the Dow stand at the end of Black Monday, 1987? Was it at 12,000, 13,000 or maybe 10,000? The answer is none of the above. At the end of that trading day, the Dow had fallen to 1,739. You can look it up.
Today, the Dow is 9.06 times what it was then. Apply that same multiple to today’s number, and you have a Dow at 142,713. Of course, that’s not to say that what’s past will be repeated in the future. But nevertheless, just as I intend to keep seeking the best savings accounts and best credit cards, I intend to continue to keep cash in the stock market, and to invest more into the market.
The one thing I can predict with absolute certainty is that lots of people will call me a fool for staying in the market as the Dow nears 17,000. How can I be so sure? They’re the same people who said that when it was 1,739.
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