Marketplace

I-Bonds

Question; I have been a long term investor in I-Bonds especially when inflation is strong since it is inflation adjusted. But just when inflation and market choppiness should push citizens to start saving more the treasury department cut the upper limit of yearly contributions to $5000 from $30000..... Do you have any idea why they would do this now? It seem counterintuitive if they are trying to help people protect their principle in an inflationary period. Thanks! Maximia, Portland, OR

Answer: I think it's a terrible move. Here's the breakdown: Savers can now buy a total of $20,000 in U.S. savings bonds. That's $5,000 each of Series EE (the traditional savings bond) and Series I savings bonds (the inflation-indexed security you mentioned) online and another $5,000 each in paper. In sharp contrast, before the turn of the year individual savers could sock away a total of $120,000 in U.S. savings bonds.

The shift is even more significant than these dollar figures suggest. The change makes it that much harder for individual investors to hedge a substantial portion of their savings against the ravages of inflation over time. Yet many finance scholars advocate that inflation-indexed bonds should be the foundation of a long-term retirement portfolio. The big attraction for individuals of the inflation-indexed savings bonds is that savings compound tax deferred until the bonds are cashed in a 30 year period. Plus, you don't pay any commission to buy and sell savings bonds.

As you found out, the Treasury has consistently denied its message is "save less." Treasury says it's trying to redefine the program toward the small investor. That may be. Still, the timing is odd. At a time when inflation is picking up, the government sees fit to reduce the attractiveness of one of the safest inflation hedges around. The only theory that makes sense to me is that Treasury and the Administration would prefer to swell the commissions and profits of Wall Street than sell a terrific inflation hedge for individual investors. Too bad.

05/01/08 by Chris Farrell

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Mortgage Accelerator Programs?

Question: My husband & I are both retired. We have parent loans for our 3 children's college expenses. We have a $20,000 home equity loan but no other debt. Recently we were approached by a friend to look into u1stfinancial as a way of paying them off sooner and decreasing interest. Do you have any information or advice regarding this company? Carol, Pine City, NY

Answer: We've been getting a lot of questions about United First Financial and its Money Merge Account. Full disclosure: I'm not a fan of the product.

Here's how the company describes the money merge account on its website.

The Money Merge Account system is a powerful tool that enables homeowners to pay off a 30-year mortgage in as little as one-third of the time, without refinancing their existing mortgage or increasing minimum required monthly payments. The system incorporates the homeowners' checking and savings accounts with an advanced line of credit (ALOC), then helps to strategically and incrementally position their money where it provides much more financial benefit than "sitting stagnant" in a standard checking or savings account until it is otherwise needed. Complex financial details programmed into the Money Merge Account software help to better educate the homeowners and assist in some of the greatest time and interest savings possible.

Got that? There are a number of comparable products on the market. The bells and whistles may differ, but it looks like the basic idea is the same. You set up a special home equity line of credit off the value of your home (which is getting harder to do and more expensive these days, thanks to the credit crunch. As I understand it, you could use a personal line of credit or a credit card, but the latter at least sets off all kinds of alarm bells.) When you get your paycheck it goes into the line of credit, decreasing your mortgage balance and, after paying your bills from the account, the remaining money keeps your mortgage balance down. The software costs for $3500 for the Money Merge Account, and other programs also charge for their software.

Carol, as I mentioned above, I'm not a fan. In essence, I think these programs boil down to a complicated and expensive way to keep a household to a very tight budget. If that's what you want to do there are other, cheaper ways to map out and maintain a frugal lifestyle. Perhaps more important, I worry about homeowners pouring so much of their discretionary income into their home. It's nice to own your home free and clear, but it's also important to build up a well-diversified portfolio with a well-funded emergency cushion.

And if it makes sense for you to pay off your mortgage early, well, you can do it on your own without paying for special software. Just make extra payments to pay down principal. A classic approach is to make an extra monthly payment a year. By writing 13 monthly mortgage checks instead of 12 you'll pay off that loan faster. Just be sure to tell the bank in writing to put that extra payment toward principal. Last, Carol, these mortgage loan accelerator programs seem to violate a time-honored financial motto: Keep It Simple.

05/02/08 by Chris Farrell

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Questions answered on air for May 3-4

On this week's Marketplace Money, Chris and Tess answer questions about freeing up assets to purchase an online business, buying foreign real estate, paying Social Security taxes while self-employed and financing options for study abroad.

Listen to this week's segment

Continue reading "Questions answered on air for May 3-4" »

by Jeffrey Long

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Cash or Loan?

Question: Hi, I have to replace my roof (sooner then later). Should I pay cash from a money market savings account, or take out a loan? Thank you, please get back to me rather sooner then later :) Gabriele, St. Paul, MN.

Answer: This is really a money management question. The baseline answer is pay for the home improvement with cash from savings. This way, you don't take on any debt. Plus, the interest rate you're getting on your savings is probably a paltry sum anyway.

However, there may be some good financial reasons for you to hoard savings right now. If that's the case, then by all means take out a loan. The best loan is probably a home equity loan. It's ideal for a lump sum payment such as a new roof, and you're preserving the value of your home. The rate of interest is fixed, which makes it easy to plan. You could take out a home equity line of credit, but the interest rate is variable. It's a loan option best tapped for projects that are done in batches or over a long period of time.

05/05/08 by Chris Farrell

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Roth vs Pay Down Debt

Question: I'm 26 years old, and have no credit card debt, no car loans, no student loans. I max out my 401(k), and have a six-month emergency fund. Pretty good, right? But I also have a mortgage and a $40,000 second mortgage (which is structured as a home equity line of credit).

Over the past year, I've saved up about $5,000. My question is, should I put this money into paying off the home equity line of credit, or should I start a Roth IRA? I know the Roth IRA has higher returns over the long-term, but in my gut, I REALLY want to knock off that home equity line of credit. What should I do with the $5,000. Seattle, WA

Answer: First of all, I admire your financial acumen. I know that I was nowhere near as financially savvy as you are at your age. You're saving for retirement. You have a nice emergency stash. And no debt other than your mortgage and home equity line of credit. It's great.

If I were you, I would pay attention to your instincts: Go ahead and tackle that home equity line of credit. It's a smart move.

05/06/08 by Chris Farrell

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Early Retirement and Health Insurance

Question: My husband and I are planning on retiring at age 50 (we have approx 13 years left)...meaning we hope to quit our 8-5 corporate jobs and find something more fun perhaps working part time at the local greenhouse or golf course. Many articles in magazines or stories on talk shows focus on how much to save but no one ever discusses healthcare options for those of us who want to retire early and will be without Medicare until age 65. We suspect healthcare will take a chunk of change but don't know how much or even where to find individual coverage. Can you please provide some guidance. Peggy, Minneapolis, MN.

Answer: You're right that the deal-breaker to early retirement is usually health insurance. It's expensive. Early retirement is probably out of the question for two groups of people: those who can't afford to absorb expensive annual health-insurance costs until Medicare kicks in at age 65 and anyone with a serious medical condition, such as diabetes or heart disease, that makes it next-to-impossible to get decent coverage.

Assuming you don't fall into those two categories, you should shop around and learn everything you can about deductibles, co-pays, networks, out-of-network costs, and other nuances of health-insurance policies.

I'd look into high-deductible plans. Basically, the higher the deductible, the lower the premium. The most popular high-deductible plans are those with preferred provider organizations that give price breaks for staying within a network. Still, coverage can range from bare-bones (read cheaper) to reasonably comprehensive (read expensive).

Better yet, consider a health savings account. You use these tax-advantaged savings plans in conjunction with a high-deductible policy. For a family in 2008, the catastrophic insurance policy has a minimum deductible of $2,200 and an out-of-pocket limit of $11,200. The maximum a family can contribute into the tax-sheltered account is $5,800. HSA contributions are made with pretax dollars, and any unused money in the savings account is rolled over for future use. Withdrawals are tax-free so long as the money goes toward qualified medical expenses.

You could also check out professional associations, trade groups, and even chambers of commerce offer group health plans to members, but they will probably be more expensive than an HSA or a high-deductible plan.

05/07/08 by Chris Farrell

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Payment Plan?

Question: I'm a grad student on a very tight budget. I worked for a few years before coming back to grad school, and unwisely brought some credit card debt back to school with me. I've been shopping for a new credit card to roll that high interest balance to a new account that would hopefully be 0% interest for the first year. I believe I could make a much bigger dent in the debt with zero APR.

Yesterday, my credit card company called and suggested a payoff plan. They want to direct-withdrawal money from my checking account each month, and they claim they will give me 0% interest on a 5 year pay off. Is this some sort of gimmick? What kind of questions should I ask to make sure it's legitimate? thanks! Josh. Boulder, CO

Answer: This is a new one for me. I hadn't heard of a credit card company doing this before (and I plan on checking it out some more). I wonder if this offer reflects a shift in tactics, moving from raising customer rates to working with them on a payment plan?

For the moment, let's assume everything is on the up-and-up. I would have two questions. First, is there a fee attached to the program? Secondly, and more importantly, you can do this on your own without locking your self into the credit card company's program. After all, you say you are on a tight budget, and I would imagine every once in awhile you might have to pull back from paying off the credit card debt. It's a good idea to put yourself on a payment schedule, but I would do it on my own, which is remarkably easy in an era of online banking and automatic transfers. But I would stay in control. I'd worry about giving up financial flexibility.

05/08/08 by Chris Farrell

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Questions answered on air for May 10-11

On this week's Marketplace Money, Chris and Tess talk about all kinds of investments: annuities, SIPC, Coverdale IRAs and auction-rate securities.

Listen to this week's segment

Continue reading "Questions answered on air for May 10-11" »

05/09/08 by Jeffrey Long

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Reading Suggestions

Question: I'm a 33 yrs old stay-at-mom and I also work freelance a couple of hrs per week. I have 2 kids under 5 yrs old. My husband is a research scientist who works at the university. We are a household in the $100,000+ bracket. I would like to educate myself on financial planning. We don't have college funds for our kids or retirement accounts for us. We don't own a house but it's in our future plans to buy one. My husband has some stock options from his work as well as mutual funds. What book do you recommend I read to educate myself and start making the right decisions on our financial planning? Thank you in advance for your response. Maria. Santa Barbara, CA

Answer: I love books, so this is always a fun question to answer. For people in circumstances like yours, I'd recommend two very good and practical books that deserve a place on any bookshelf. The first is "The Random Walk Guide to Investing: Ten Rules for Financial Success." It's by Burton Malkiel, a finance professor at Princeton University and author of the personal finance classic, "A Random Walk Down Wall Street". The latter is a wonderful read, but it's also a commitment as Malkiel translates the key concepts of modern portfolio theory (many of them highly abstract and quantitative) into everyday language. What I like about his Ten Rules for Financial Success is that it's extremely accessible and covers all the basics well. It's a real gem of a book.

My other suggestion is Smart and Simple Financial Strategies for Busy People, by Jane Bryant Quinn. Frankly, you can't go wrong paying attention to what the Queen of Money has to say. The title says it all, and she delivers it with wit and wisdom.

05/12/08 by Chris Farrell

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HSAs

Question: My employer is switching from a high-deductible health insurance plan to a traditional plan. I have accumulated enough in my HSA to be able to invest it in Wells Fargo mutual funds, which my employer provides along with the insurance. But with the switch I will no longer be able to add to the funds, and Wells Fargo will begin to charge me an account fee every month. What can I do with my HSA money? Andy, Ankeny, IA.

Answer: You're in a good financial situation. With your Health Savings Account (HSA), the contributions were made with pretax dollars. Withdrawals are tax-free as long as the money goes toward qualified medical expenses, which include everything from acupuncture to organ transplants to quit-smoking programs.

Your account remains tax sheltered. The only restriction is that you can't make new contributions. But you can always tap the account to pay for qualified medical bills that aren't covered by insurance. Better yet, if you don't need the money, it will compound in the account over time. You can then make tax-free withdrawals to help defray medical expenses in retirement. After all, Medicare pays for at most half the average retiree's health bill now, and most forecasts say that percentage will shrink.

One other point: As the sums in HSAs grow, more and more people are interested in managing the HSA for long-term growth. Instead of keeping the money parked in a low-risk bank money-market account, as is typical, some of that money is finding its way to equity mutual funds for the long haul. You could keep the money in the mutual fund accounts you have with the Wells Fargo managed HSA or you could roll it into another financial institution, too. (There can be restrictions, so check out the rules with your plan.)

05/13/08 by Chris Farrell

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CDs?

I want to apologize. I am in the communications capital of the world--New York City--but I had all kinds of problems hooking into the Internet, at the hotel and elsewhere. So, here is a belated post from a weary road warrior.

Question: We always hear that Americans aren't saving enough. I currently have a sizable amount invested in two CD's earning 4.9% interest. These CD's will come due in June and I notice the current rates at the bank are from 2.5 to 3.2% for terms less than 2 years. With inflation running well above 3%, what incentive do I have for putting these funds back into a CD where they will tread water at best or more likely lose value? I am also invested in stocks, but wonder what should I do with the money from the CD's? Buy more stock, bonds, utilities, or head for Las Vegas? Frank, Kingsport, TN

Answer: Well, at least heading to Las Vegas would be fun.

You're absolutely right: Savers aren't getting paid much interest for their money these days. Still, the big question is how do you look at this money? Is it an anchor, part of your overall safety net? To put it somewhat differently, how much risk are you willing to take with the money?

If it's an anchor, then I would keep the investment money safe, perhaps in a shorter-term CD or a conservatively run money market mutual fund. Yes, you won't make much interest, but you won't lose much--if at all--to inflation. The money will be there if you need it in an emergency or if an opportunity comes along. You could take a bit more risk and go into a low-fee broad-based high-quality short-term bond fund.

The other options you mentioned are riskier. Stocks are riskier than CDs. It all depends on what role you see this money playing in your overall portfolio.

05/15/08 by Chris Farrell

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Points?

Okay, I've learned the hard way that I can't stay in a hotel without a good Internet connection just to save a few bucks, It isn't worth the time and aggravation. Anyway, since I couldn't post yesterday, here's an extra one for today.

Question: How do I see whether it's a better deal for us to refinance, say, at 5.8% with closing costs of, say $5,000 or to go with an offer with no closing costs but at 6.5%? It has to do with time to recoup the closing cost expense and time we plan to be in the home...? Are there amortization schedules (is that what you call them?) that can be run to show me the comparisons? Thanks much for any help! Johan, Ocoee, FL

Answer: Yes, there are a number of calculators on the web. For instance, you can go to www.dinkytown.net. In its mortgage calculation section there is a "mortgage points calculator." This way you can weigh the trade-offs. In general, the big advantage of a no-points mortgage is that it's cheaper if you end up refinancing at a lower rate within a reasonable period of time (or end up moving within a few years). The advantage of paying a point or two is that you buy down the interest rate, which can pay off over the long run. The mortgage calculators will give you concrete numbers to work with.

by Chris Farrell

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Questions answered on air for May 17-18

On this week's Marketplace Money, Chris and Scott talk about a sorority's collection agency threat, dissolving an LLC, timeshares and digging up an investment firm's past.

Listen to this week's segment

Continue reading "Questions answered on air for May 17-18" »

05/16/08 by Jeffrey Long

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Immediate Annuity

Question: I am turning 70 in June and retiring as of July 1. I will be taking monthly disbursements from my IRA. I still have a balanced portfolio ranging from income producing to growth and income. My financial planner is recommending that I convert some of my IRA into annuities to protect my investment and to have a steady monthly income. Is this a wise move? Margaret, Fargo ND

Answer: I don't know the specifics, but in general I am a fan of buying a measure of financial safety and financial comfort with an immediate annuity. You get a predictable monthly income (or quarterly or annual depending on the chosen payout option) on the investment for the rest of your life. An immediate annuity can offer financial security and piece of mind. It's good advice.

There are a number of factors to consider. You should only do business with a highly rated insurance company, or an immediate annuity sold through a well-known mutual fund company. You want to work with a company with a blue chip balance sheet. You'll need to shop around since your stream of income depends on how much you invest, your age, the interest rate, and other factors.

Inflation is another critical factor. After all, what's one of the biggest risks you face with your savings? It's inflation. If you want another source of information, you could check out the website www.analyzenow.com. It offers a number of home-brewed financial planning programs that I like. One of them helps you tell whether it makes sense to buy an immediate annuity or keep managing your investment yourself.

by Chris Farrell

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Mortage Paydown and Baby Boomer Retirement

Question: I am 55 years old, earn $62,000/year and I have a mortgage on my condo slated to pay off in six years (2014). My current mortgage balance is about $35,000 @ 5.25% APR. I have an account with a major brokerage house with a current value of approximately $54,000 and could sell some securities to pay off the balance on the mortgage now. (I have a 403B and an IRA in addition to the stocks I refer to above for my retirement.) I am wondering if the market might be in for a real bust as us baby boomers begin to retire. Should I pay off my mortgage now by some of selling my stock, and forfeit my mortgage interest tax deduction? I enjoy listening to your program. I am a member of my local NPR affiliate, WUOM, 91.7 Ann Arbor, MI. All the best, Mark

Answer: There is a popular idea that consistently pops up. Call it Malthus Visits Wall Street. Simply put, the notion is that there are too many baby boomers, and they will overtax the economy's resources. Home prices adjusted for inflation will fall for a long time with hordes of elderly home sellers and not enough young home buyers. When they retire and draw down their private pensions, the massive asset sale will depress stock and bond values, leaving boomers with less money in their golden years.

I don't think that investors should fear the march of time. For one thing, an aging population in a computer-dominated economy is working longer than previous generations. Far more important is the move toward market economies around the world. The spread of private property rights and openness to the world economy is encouraging vast amounts of capital to flow across borders. By the time boomers need to sell, markets will be far more international. Baby boomers will sell their stocks and bonds into a global economy full of Indian, Chinese, Brazilian, and other foreign investors.

When it comes to real estate, the picture is a bit more complicated. We're going through a tough downward cycle after the decade-long boom. But the market will eventually stabilize. Overall, I expect housing will remain an appreciating asset. However, here is one wrinkle to think about. I wouldn't be surprised if a surprising number of aging boomers decided to downsize. The demand for smaller homes could soar (since first time homebuyers will compete for the same properties) while the demand for McMansion type homes will lag. Overall, housing should be a healthy asset, but smaller homes could enjoy stronger demand than bigger ones (with the exception of the true luxury market).

For most people, I think it's important to be debt free in retirement (i.e. no mortgage). But it's also critical to enter your golden years with a well-diversified portfolio. There's nothing wrong with paying off your mortgage early. But you shouldn't feel that you have to. You have a good rate, and time is on your side.

05/19/08 by Chris Farrell

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Co-sign for Law School?

Question: I am 58 years old, a self-supporting teacher, and anxious about my retirement savings. My son at the age of 29 has decided to go to law school, and asked if I would co-sign $14,000 of his student loan package. The thought of having my name attached to a debt of any kind is distressing. Am I being unreasonable?... And what about the immediate liability? Does the $14,000 go on my credit report until it's paid? Are there any liabilities to my credit, just for being a co-signer? Thanks for your advice. This is a heart-rending situation. I don't think I can say no, but the thought of being a co-signer at my age makes me VERY nervous! Carolyn. Carlsbad, CA.

Answer: I understand the desire to help out your son financially. But I would not co-sign the loan. You're right to worry that the risk is too great, especially with retirement looming. Put it this way: I assume your son has done the calculations that a law degree will pay off over time in higher earnings and better career prospects. Assuming that is the case, the debt burden is well worth taking. Time is on his side, and he should absorb the risk of something going wrong. You shouldn't be on the hook financially.

To be sure, one advantage of you cosigning the loan is that he will probably get a better rate on the loan. Again, it's really a question of whether the investment in a law degree will pay for itself. You could always make a small private loan to him on your home to help him out with an understanding that he'll pay you back later on.

05/20/08 by Chris Farrell

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Retirement Savings vs. Life Insurance

Question: I'm 56 and my wife and I together make around $80k and both contribute to our company matched 401Ks. I plan to retire at age 70. My insurance agent is suggesting I stop contributing to my 401K and instead buy a "Permanent Life" policy of $250k which he says will pay out better than if I stayed in the 401K (the company matches 50 cents on the dollar up to 6%)by spending down what I already have and spending down the dividends in the insurance policy. Is this possible? Is buying Permanent Life Insurance considered a good investment? Dennis, Silverthorne, CO.

Answer: I have a very simple point of view toward questions like this: When a company matches half of your contribution into a retirement savings plan you are outperforming over the long-haul Warren Buffett, George Soros, William Gross, and any other legendary investor of the past half-century. Why would you give up such a superior investment track record?

Financial planners disagree on many things, such as the cost and benefits of actively managed investment funds versus passively managed index funds. But most if not all would agree with me that everyone should take full advantage of their retirement savings plan at work--as well as IRA, Roth-IRA, SEP-IRA, or comparable products if you qualify--before even considering putting money into a cash-value life insurance product. Cash value life insurance, such as whole life, universal life, and variable life is not a retirement plan.

I'd stick with your 401(k).

That said, you should evaluate your need for permanent life insurance as a distinct financial planning question. For instance, at your age do you still need life insurance? If so, how much? Does your company offer a group policy? Is it enough, and if it isn't, how much more insurance do you need? Compared to permament life insurance, would it be better for you to invest the potential life insurance premiums in a low-cost tax-efficient taxable account, such as in the S&P 500--or not? These are the kinds of questions I'd pursue before buying a policy.

05/21/08 by Chris Farrell

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I-Bonds

Question: The 5/12/08 question posed on your blog asking about the new 0.00 fixed rate on I- Bonds has not been answered. As an 83 year old whose nest egg is fast shrinking, this is an important question.... Irma, Berkeley, CA

Answer: I'm stunned that the fixed rate on the I-bond is now 0%. I don't get it. In light of the 0% fixed rate and the move to drastically limit how much savings individuals can put into savings bonds it's hard not to believe that the Treasury is on a campaign to make I-bonds a less attractive investment. My suspicion is that Treasury would prefer individuals invest through Wall Street firms rather than through the U.S. government.

The rate on an I-bond is determined by two things. First, the fixed rate that lasts until maturity, and the variable rate that is based on the rate of inflation over the previous six months. So, these bonds still offer a hedge against inflation. Taken altogether, the yield on I-bonds bought between May and October (when the rate sets again in November) is 4.8%, at an annualized rate.

Like all traditional inflation hedges at the moment--including commodities, real estate and Treasury Inflation Protected Securities or TIPs--I-bonds are not especially attractive. If you already own I-bonds, I would keep them. If you need some protection against inflation and don't have any, then go ahead and consider adding a few I-bonds. Still, it won't be an attractive investment unless inflation spirals sharply higher. In other words, I-bonds are nothing more than a hedge against an upward spiral in the Consumer Price Index.

05/22/08 by Chris Farrell

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Opt-Out

Question: Chris: These days all of us receive so much unsolicited mail in our mail boxes, that it is a real headache. It is even more so, with the prescreened credit offers, because we are obliged to shred those papers with our names on it, or else someone will steal our identities. I found this web site that allows you to opt out.

www.dmachoice.org/MPS/proto1.php

What is the catch? Is there a downside to opting out? Thanks, P., Pittsburgh, PA.

Answer: The only downside I can imagine is that you might miss a good deal or an attractive offer. For most people, that's a small price to pay for cutting down on unsolicited offers in the mail and telemarketing calls.

The Direct Marketing Association (DMA), a trade association, allows you to opt out of direct mail marketing solicitations for 5 years. You can register online at www.the-dma.org/consumers/offmailinglist.html. (This is the website you mentioned in your email.)

There's more. The federal government has created a National Do Not Call Registry. It's a free service for reducing telemarketing calls. To sign up go to www.donotcall.gov. Or you can call 1-888-382-1222. You will stay on the list for 5 years, and then you can renew again.

The four credit reporting bureaus (yes, sad to say, there are four of them now) offer an opt-out service, too. Equifax, Experian, Innovis, and TransUnion--the four horsemen of the credit reporting business--have a website with the details at www.optoutprescreen.com. The toll-free number is 1-888-5-OPTOUT. It's a bit disconcerting to realize that you will be asked to provide some very private information, including your home phone, Social Security number, and date of birth.

Last, you can get more details about preserving at least a shred of privacy in the Internet Age at the Federal Trade Commission, at www.ftc.gov.

05/23/08 by Chris Farrell

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Consumer Prices

Question: i understand that fuel and food prices are not included in the government inflation figures but are included in the consumer spending figures. why? Tommy. Waynesboro, GA

Answer: Energy and food are included in the Consumer Price index. The CPI tracks the average price level in the U.S. Government statisticians pick a representative basket of goods and services that mirrors the spending pattern of the typical household.

The reason you would think otherwise is that many economists strip out energy and food prices to highlight the so-called "core" rate of inflation or core-CPI. (The Bureau of Labor Statistics does it for you when they come out with the monthly CPI figures, too.) Energy and food prices are very volatile, and by taking them out of the equation economists can see better what is happening to prices in the rest of the economy. For instance, despite dramatic increases in food and energy prices it has been tough for many companies to charge consumers higher prices. That lack of pricing power largely reflects and intensely competitive global economy.

Still, when it comes to the strain on our everyday wallets the overall CPI captures what we are experiencing better than the core rate of inflation.

05/27/08 by Chris Farrell

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A Wedding and a Mortgage

Question: Hi Marketplace, I've got a couple good things going for me right now. I just got a new job that pays a lot more than my old one, and I'm about to get married. Instead of having a regular registry for pots and pans, we're asking our guests for donations towards our "Mortgage Fund" to try to put a down payment on a place to live. Now, we're not quite ready to get a house...but we're thinking within the next year or so we'd start looking (pending, of course, what the market does).

My question is this: what's the best way to "park" our money for a year while we wait to buy a house? Is there a "Mortgage-specific" type of savings account that might yield a better return than a CD? Thanks for your time, Iseri, Chicago, IL

Answer: Congratulations on all the good things happening to you. I wonder if your idea is a sign of the times? A lesson of the housing boom and subsequent bust is that first-time homebuyers should buy themselves a margin of safety by putting in a greater downpayment than was necessary during the go-go years. It's an intriguing idea.

Yields are razor thin these days. But I wouldn't reach for yield with this "home" money. (For a harsh lesson on the cost of reaching for yield just look at the busted auction rate market. The stuff was marketing as safe, but higher yielding short-term debt, and now investors can't get their money out.). I would stick with a brand-name money market mutual fund with very low fees and no charges for putting the initial investment in and adding sums later into the fund. I would pick a conservative money market mutual fund option, one that invests heavily in U.S. Treasury bills, short-term federal agency debt, and blue-chop commercial paper.

Good luck.

05/28/08 by Chris Farrell

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Free Credit Score?

Question: Hello Chris, I thoroughly enjoy your segments, keep up the great work.

I tried to get my free credit score at the sight that you referred to but it only provides a "report" from each company who then want to sell you access to your own score?

I still have never seen this magic number for myself or my wife.... Do you know of any way to get my actual credit score for free? It seems like this should be info that is available to each of us with out a for fee subscription but i am not finding it. Any help here? Cheers Joe. Talkeetna, AK

Answer: Thanks to a breaking story on May 30th, I need to change my answer to this question. Here's the top of the LA Times story:

More than 160 million Americans would be able to learn their all-important credit scores at no charge -- and with no strings attached -- under a settlement by credit reporting giant TransUnion Corp. of a long-running class-action lawsuit.

The agreement would entitle consumers to at least six months of a TransUnion monitoring service, giving them access to the latest information in their credit reports as well as their current scores at any time.

The service also would notify consumers by e-mail of significant changes to their files, including reports of late payments or accounts opened in their names. The latter information could help thwart attempted identity theft.

Of course, it's only for 6 months and at the moment it only includes one of the credit reporting bureaus. My guess is that this deal is a precursor to making credit scores more easily--and cheaply--available to the average consumers.

Answer: You can't get your credit score for free. It's annoying. These days, it's easy to get a free "credit report". Check out how at www.annualcreditreport.com.

But you have to pay for that all important "credit score"--the number that largely determines your interest rate on a loan. Even when I see ads promoting a "free" credit score it turns out you first need to buy a long-term contract. Now, I don't consider that "free" by any commonsense definition of the world.

05/29/08 by Chris Farrell

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Initial Public Offering

Question: I have reason to believe the company I work for is going public. If that happens I think the logical business maneuver would be to outsource everything possible and, most likely, that would leave my job directly in the line of fire. It is a fairly good gig and I don't want to go elsewhere however I also don't want to wait around until they request my departure. Are there public records that are filed with the SEC that I would have access to so that I may research their intent to go public and if yes how would I accomplish this? Thanks, Alan, Mt. Airy, GA

Answer: There's rumor. There are private meeting. But a company's decision to sell stock to the public becomes official when it files with the Securities & Exchange Commission. In most cases, your company will file a prospectus that includes all the revenue and earnings information about the business, its management and directors, disclose the competitive risks it faces in the marketplace, and describe any other information that will allow potential investors to evaluate the company. It can also file additional information. You can find any filing by the company at the SEC's electronic database, EDGAR. All public companies--foreign and domestic--are required to make their registration statements, periodic reports, and other official forms available to investors electronically through EDGAR. You can access EDGAR and learn how it works at www.sec.gov.

05/30/08 by Chris Farrell

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