Do expertise, experience, and education (the 3 E’s) actually help you make extra money when it comes to investing?

Mark Kritzman of MIT just completed a  20-year study of mutual fund managers from 1/1/89 – 1/31/09.  Despite their 7 –figure salaries, their research staffs, their MBAs and PhDs,  only 3% of these fund managers were able to beat the S&P 500 index over this period.

When one simply buys all the companies in an index like the S & P 500, rather than analyzing which companies to buy, one earns higher returns virtually all the time.

Yes, there’s the possibility of reaching the top 3% if you happen to be lucky enough to pick the right manager.  But if you give up the desire to be in the top 3%, you can virtually guarantee that you will out-perform the average professional.   And then, of course, there’s the peace-of-mind and ease that comes with letting go of anxiety and stress around finances.  That’s a priceless benefit.

Not only does doing (practically) nothing (as in the S & P 500 index) make you more money, but my  Rainbow Portfolio™ takes the S &P  to an even higher level.  This is because the ultra-diversification of the 14 asset categories makes you even more money and lowers your risk.  Check it out in my book.  Or call Abacus for more information:   1-866-558-2372.

Dangers of Canceling Unused Credit Cards

There’s been quite a bit written about the dangers of credit cards and how if used irresponsibly they can wreak havoc on an individual’s financial well-being. Financial experts agree that if you’re going to use a credit card that you exercise caution. For those struggling with uncontrolled debt, experts have been recommending for years that simply canceling your cards, in particular your unused credit cards, is the best way to go. The reality is that there are both drawbacks as well as benefits when canceling a credit card, but most people are totally unaware of the potential pitfalls when closing these accounts. When closing any credit card account, you have to be mindful of a few things. If you are an individual who has struggled with spiraling credit card debt because of irresponsible use, closing those unused credit card accounts might just seem too obvious. The bottom line is this: if you’re out of control and you do not have enough self- control to stop using the cards, call your card issuer and cancel the account right away. No matter what anyone else tells you about keeping those accounts active, if you can’t stop using them and you continue to pile on more debt, your headed for deeper trouble.

But for those that do not have an out of control credit card debt problem, the dilemma with closing an unused credit card account is that it might actually end up hurting your credit score in a number of different ways. There are several factors that FICO uses to determine your FICO score, which is their proprietary measure of your credit-worthiness:

1. Your Payment History (35%)
2. Amounts that You Owe (30%)
3. Length of Your Credit History (15%)
4. New Credit (10%)
5. Types of Credit Used (10%)

The “amounts that you owe” accounts for 30% of your FICO score and is a measure of your so-called credit utilization ratio. How can closing an account affect your credit score you might ask? Say, for example, you have two cards, each with $4,000 credit limits for a total of $8,000 in available credit. You have a card balance of $1,500 on one of the cards, giving you approximately 17% credit utilization. If you closed that unused card, your total available credit would drop down to $4,000 total and your credit utilization ratio would suddenly jump up to around 38%. This could drastically affect your credit score in some cases. Admittedly, this will only temporarily affect you so long as you were to pay down that outstanding balance. Nevertheless, it can still affect your credit score negatively.

Also, the “length of your credit history” accounts for 15% of your credit history and closing one of those unused cards with a long credit history can also hurt your credit score.

Here’s the bottom line: as long as you keep your card balances at zero, you can close those unused accounts and you will probably not be affected at all, assuming of course that you do not carry a balance and remain vigilant about keeping those card balances paid off. If you do occasionally carry a card balance, closing one of those unused accounts can drastically affect your credit score, depending on how much of your credit that you’re using at any one time.

There’s at least one situation in which you should avoid closing any of those old accounts though. If you plan on taking out any type of major loan in the next year to 18 months (such as a mortgage or a car loan), you’d be advised not to close any of those old accounts. You don’t want to take a chance on dinging your credit score when it matters the most.

This is a guest contribution from Steve Sildon, Senior Editor for CreditCardAssist.com. Steve contributes frequently to the personal finance blogosphere, providing expertise, tips and advice on a variety of credit-related topics.

As the stock market tumbles, relationship woes soar. According to numerous studies, money is the number one cause of divorce in the U.S.

Now more than ever, couples are facing a huge challenge:  How to keep their marriages and relationships healthy in an ailing economy. Financial stress saps couples of intimacy and trust. Many lack the skills and the willingness to talk openly about such a sensitive and difficult subject.

Spencer Sherman has created a unique method for couples to achieve “Financial Intimacy” and begin the process of talking about money openly and without blame and shame. His simple techniques allow couples to realize the true value of their partner, and achieve calm through the ups and downs of their balance sheet. Learning to eliminate secrets, lies, and overspending are just a few ways couples are able to get back on track, increase intimacy, and make their relationship recession-proof.

Sherman helps couples to share their financial histories, including their earliest memories.  He calls this Getting Naked with Your Finances.  Sherman has discovered that money, far more than sex, is the last taboo.  But great riches await those who can shine a light into their dark financial corners and share openly with their partners.  Once their histories are known, couples can articulate their financial values and goals and start working together as a team to build their financial future.  An empty bank account can be the impetus to do this intimacy-enhancing work.  But the result is surely a strong nest egg and a stronger marriage.

Spencer is the author of The Cure For Money Madness (Broadway Books ‘09 ), a guide to overcoming the distorted childhood perceptions of money which poison relationships, impede intimacy, and interfere with our making money and enjoying the money we have. Spencer teaches Financial Intimacy and Freedom Workshops for couples.  He is the CEO of Abacus Wealth Partners.   www.abacuswealth.com

Spencer is available for interviews, speaking engagements, and workshops worldwide. www.curemoneymadness.com

Until the financial crisis that started last fall, no one questioned the  value and importance of owning a home. But when so many people  defaulted on their mortgages, people began to see that renting is a
viable and, in some cases, preferable option.

Many of us grew up with the adage: “Renting is just throwing money down the drain.” Well, the subprime crisis has ended that delusion, and besides, it’s never been true that everyone should own a home even if they can afford one.

In boom times or in bust times, who shouldn’t own a home?

Anyone who doesn’t have a firm intention to live in the house for at least seven years.

Anyone who needs flexibility. For example, if you don’t want to limit your income potential, or want to keep your income options flexible, owning a house keeps you in one area, but the more lucrative jobs may be elsewhere.

Anyone whose marriage isn’t stable. Self-explanatory!

Anyone whose life is changing. For example, if you’re about to have your first child or about to be an empty nester, your world will change dramatically. Keep your options open while you’re in transition.

Anyone who’s arriving in a new neighborhood, job or a city should rent first before buying. In six months, you may be pining for the neighborhood your friends live in, but if you’ve bought, it’s too late. If your boss is a tyrant, renting allows you to relocate and start over—quickly.

Anyone who is disciplined enough to save money on his/her own should not buy. Most people need the forced savings of home ownership. But if you don’t, save on your own and keep your investments diversified in a mutual fund portfolio.

Anyone who must put all of their assets into a house. Putting all your eggs into one basket is never a good idea. Diversifying your assets is essential to keeping your portfolio healthy and balanced.

Anyone who doesn’t want the stress of home maintenance or doesn’t have the cash reserves for unexpected home repair/maintenance costs. Yes, roofs really do need to be replaced. Termites really can destroy your house. And paying for these services can put you into debt fast.

Anyone who prefers to use their surplus cash flow for travel, five-star restaurants or other expensive items instead of costly home repairs and improvements.

Anyone who isn’t willing to look at the numbers and rationally decide whether renting or buying makes more financial sense. Lots of people are impulse home buyers. They fall in love with that cute cul-de-sac or the master bath Jacuzzi or the sunlight pouring into the kitchen. It has to make emotional and financial sense to make a purchase this big. When looking at the numbers, include and compare everything: property taxes, utilities, short- and long-term maintenance, landscaping, insurance and commuting costs.