As I was shifting through my junk mails this evening (hey – I look at every credit card junk mails out there), I noticed one from Terminix.

It came in a nice postcard like foldable brochure. On the front page, this was what it said:

IT’S NOT TOO LATE TO PROTECT (MY ADDRESS) FROM TERMITES

It then went on to describe what a great company it was, how they are different from other pest control companies. They even tried to “educate” me on termites. What did I learn?

1. Termites infest 4 million homes in the US each year (can’t really verify)

2. Annually, they cause $5 billion in property damage (again, can’t verify)

3. On average, damage repairs cost $3,000. And home insurance does not cover it.

4. Termites will infest homes made of wood, stucco and even brick (as if we did not kow this)..

Then off course, came the

CALL US FOR A NO-OBLIGATION TERMITE INSPECTION!

And they laid out all their plans and offers, discounts etc. But then came a really annoying and in my opinion deceptive statement. Right on the last page was probably the most deceptive and false statement :

According to our experts, homes in the (my zip code) area are 5 times more likely to suffer a termite infestation that the average home nationwide!

This has to be utter bullshit! I live in the North East and there are other areas with warner weather and moisture. I bet they replace the zip code and address when they mail this out. It is very slick but simply laughable and irritatingly deceptive. I’m not against trying to make a sale, but when a false (and dare I say) fraudulent statement is made, it gets on my nerves.

Has anyone else got a junk mail from Terminix? I would like to hear if “your zip code” is 5 times more susceptible to termites!

I have long wanted to consistently review and write about other bloggers who blog about credit and/or personal finance. I started with a review on Blogging Away Debt by Tricia a while ago. But I somehow got stalled in between maintaining this site, writing my blog post etc.

Well, I have to admit that I am in the middle of a slight writer’s blog at the moment. So rather than veg out in front of the computer and watching stupidvideos.com, I’ve decided to write another review of a pf blogger. Bear in mind, this is not a paid review. I don’t get anything out of this, not money, or any links (not now anyways!).

During the last few weeks, as I went through the end of the week routine of listing carnivals that I was involved in, posts that I liked, one of the blogs that I always found myself mentioning was The Digerati Life. In every carnival that I participated in, somehow Digerait’s post always seem to catch my attention. The writer from the Digerati Life is Silicon Valley Blogger. I later found out that SVB was a she!.

Perhaps that was the secret to her great post, a different perspective from the usual male pf and investing bloggers. But there were many other female bloggers around that did not excite me with their blogs! So surely gender has nothing to do with this. But what makes me like her blog so much? Trying to answer this question is tougher than I thought. So I finally took an hour or two to read her post and do some soul searching. Here is my take on what makes me check out the digerati life everyday.

SVB is interesting

And I mean interesting. How many post on “How to play the 0% balance transfer arbitrage?” or “Make sure you max out your company’s 401K plan” type post have we seen? Let’s be frank, I’ve certainly been guilty of this. You will rarely find such post on from SVB. Instead, many of her post are about topics you would never dreamed about – like her latest post :

5 Money and Currency Facts Your Banker Never Told You

13 Worst URLs Ever

Her Blog has Great Pictures

One of the things that bring her blog alive is her pictures. Lots of lovely pictures. This point is best illustrated by her post about the most valuable easter eggs. How that post actually made it into the festival of frugality sure beats me!

She is Smart Too (or at least I think she is)

Well, I think she is not only smart, but does not act like she knows everything. I know she is smart when she talks about investing in reits in her portfolio, increasing her international equity exposure.

She backs up her post with FACTS

Too many of us write very general posts. Very often, we try to inject a 5 ways you can blah blah blah type title to our post. Very SVB is guilty about that too. But many of her post has very interesting facts that make them very credible and interesting. Take the example of The true cost of a car ownership where she literally breaks down the cost of a repair.

She lets us into her life

One of the things that make blogs interesting is that bloggers talk about their lifes. Along the way came a new breed of bloggers that just blogged for the sake of making money on their blogs. SVB has retained the true tradition of bloggers in that she shares her life with her readers. And what an interesting life she has had. She shares her thoughts about her emotions while her husband sets up his second business venture. She even reveals her foolish money mistakes she has made. She also reveals her portfolio and asset allocation.

She writes a lot

This perhaps what makes this such an interesting blog. Not only is SVB writing about personal finance, but also about life, real estate, careers, tech stuff and even online internet marketing. She also participates in lots of carnivals – check out the list of carnivals she participated in recently!. This has simply inspired me to write more (and better as well). SVB, I hope to meet you in more carnivals as well!

I think I’ve rambled enough

Well, I can go on and on, but I think you get the point. At the risk of making this too linkcestious, I shall end this review soon. But seriously, this is one blog you should check out and dare I say bookmark. Whenever I’m at the digerati life, I either come away learning something, laughing and I have a great time just reading what SVB has to say. I can tell that she enjoys life and I’m sure life is interesting and fun for her. You get that sense and feeling when you are reading her blog. And I think that really sums up my thoughts about why I like this blog so much. There is emotion in it and you as a reader will feel it and get to know SVB (even though we still don’t know her real name!)

Despite all the good things I have said, I have not put her on my rss reader or my yahoo! What? I thought you liked her blog Mr Credit Card? Yes, I do. But you see, everyday, I read about 6 to 7 blogs (including problogger.net and shoemoney.com which SVB reads as well!). The funny thing is that when rss readers and feedblitz first came about, I suscribed to every blog and put them on my rss feed. Then the novelty wore off and I get too many feeds and emails. Instead what I do these days is simply type in the URL of my favourite blogs everyday and check it out. Yes, I type in www.thedigeratilife.com into my firefox browser everyday is see what’s happening over there.

But perhaps the best compliment I can give SVB is really how she has inspired me to write better. Before I write a post these days, I try to ask myself if I had already seen a similar post on another pf blog? How can I write better? Is this topic really interesting? How can I connect with my readers? How would SVB have written this? If you aspire to write better and connect with your readers, you will learn a lot simply by heading over to The Digerati Life.

In our lifes, we are constantly marketed by insurance companies with all sorts of insurance. In the credit card world which I am acutely familiar with, I always get the “upsell” speech from telephone customer service asking me to enroll for a small “fee” in travel accident insurance. I get mails from the water company asking me to insurance in case the pipes burst. The truth is, we should self insure, as much as possible, small items and deductibles. However, the are several events that we should always insure against – life (obviously – especially if you are the sole breadwinner), auto insurance, health insurance.

One area which is often neglected is disability insurance and long term care insurance. I came across two incidents recently that made me realize the importance of both of these insurance.

I got to know someone who was in between jobs as his company got taken over. Hence, he had no disability insurance. Then, the unthinkable happened. This gentleman suffered a stroke. He had a successful operation and is now recovering. Though he had health insurance, he has no disability insurance. Hence, though his hospital costs are mostly covered, he will not get any monthly pay check for a while. Doctors say he may take as long as two years to get back into the workforce. In the meantime, his family has to pay for speech therapy and other therapy to get him back to his old self.

The second incident was about a person I knew who was in his forties. He was as strong as an ox and very active. However, a car accident resulted in some serious injuries (will not get into the details). But he needed to be in a nursing home for quite a bit (ten months to be precise). He could stay at home, but he needed help. Unfortunately for him, he had no long term care insurance. He had to dig into his emergency fund and part of his retirement savings. Fortunately, there is no 10% penalty when you withdraw funds from your qualified retirement plans for emergency medical payments.

These two incidents led me to reassess my “risk management” of my financial life. Though I had adequate life insurance, medical insurance, I was not too sure of my companies disability insurance coverage. I had to check. But I know many people, especially those of 1099 and self employed people who have no disability coverage.

Long term care insurance is another topic we ‘immortals’ think we will never need until we are in the 60s. The truth is that a major illness can strike at any time, which requires a lengthy stay at a nursing home or if you stay at home, you will require nursing help.

Yet, by not having insurance against these possible events, we are taking massive financial risks. All the retirement planning, automatic savings, the best asset allocation, the best funds and best returns will count for nothing if you have to invade your retirement savings before you actually retire. So before you worry about how your portfolio is doing, do the following :

1. Check if you already have disability insurance.

2. Even if you do, check the policy and see if you have enough coverage.

3. Seriously consider getting a long term care insurance even if you are “young” (ie in your forties). You do not need to be old to need long terms care. The problem many people have is that long term care can be more expensive than say disability insurance. Policies can range from $1000 to $4000 a year.

Look, doctors malpractive insurance, we all have auto insurance, fire insurance, home insurance and life insurance. Why? Because in the event that one of these happens, the cost is very high and we simply cannot accept that risk. Well, the same goes for disability and long term care insurance. If you do not have these, consider getting these insurance as part of your financial hedging strategy.

Lots of debate in the investment world centers around the idea of whether indexing is superior to active management. However, the truth, like most things in life is a clear black or white situation. The are benefits to both styles of investing. Rather than argue for or against either one, the most sophisticated money managers in the world (endowment funds, defined benefit pension plans) all use a combination of both strategies. If the people managing these funds use a combination of both active and passive investment strategies, then why is the mainstream media (including pf blogges) wasting our time arguing about this. Rather, let’s take a look a the pros and cons of both investment methods.

The case for indexing

Transparency – Index funds are easy to understand and are transparent. They

Tax Efficient – Because of the low turnover, indexing is more tax efficient.

Low Cost – Pretty Self Explanatory.

No style drift – If you invest in a value ETF or Index Fund, you can be assured that you are 100% invested in a value fund (subject to the definition of value). Contrast this in the late 90s when every value fund had “growth stocks” in them or they risked more underperformance!

Many (but not all) actively managed funds underperformed their respective indexes

Below is a table shown by Vanguard that shows the performance of funds outperformed by their respective indexes.

While indexes outperform many funds, there are certain sectors where active managers have a tougher time beating their respective index. You can see that in the value space, the MSCI value index outperformed more active managers than in blend or growth sectors.

But is this the case for just using indexes in your portfolio. Certainly not. The reason is because the best managers beat in the indexes in certain years while indexes will outperform in other years.

Advantages of Actively Managed Funds

There are Managers who consistently outperforms their Index

This one needs little explanation. In fact, in the world of instituitional investing, only managers who consistently outperform their index will even be considered by instituitional money. Many of these managers have funds that are unfortunately not available to ‘retail investors’ like us. Hence, you see the statistics that the vast majority of managers underform the broad index. In the instituitional world, only managers that outperform their indexes (style index) stay in the game. The truth is that there are many managers who consistently outperform their bench marks.

Allows Superior Risk Adjusted Returns

Studies have shown that a portfolio with identical returns with the S&P500, but with lower risk (ie volatility) will massively outperform the S&P over long periods. This is because during bear markets, portfolios with lower volatility preserve your capital better and hence coming out of a bear market, you are already ahead. An index fund does not allow the opportunity for you to seek better “risk adjusted” returns. You essentially accept market risk.

Exploit anormalies

One of indexing’s main flaw is that if every indexes, then large cap stock tends to get more overvalued. This was certainly what happened in the late 90s. Hence investing indices could result in having ‘overvalued securities’. In fact, studies have shown that overvaluation of securities persist simply because they are included in the indexes. When these securities are removed from the index, valuation returns to ‘industry average’.

Below is a study done by Vanguard on the relative performance of an all index, active managed funds and a passive combination of both active and index funds.

Analysis of Performance of Active, Index and Combination Portfolios

An analysis was done with seven possible portfolio combinations from 1981 to 2005. The total market index consisted of the Wilshire 500 index. There were three active portfolios (call them A, B, C) which were complied by Lipper with the following characteristics. The active portfolios were well diversified combinations of Lipper fund category averages in proportions that approximated the market capitalizations for the broad market. Next, we had a passive 50/50 combinations of the index with each active portfolio.

Results

Let’s see what happens when we use an all index portfolio, active portfolios and a passive 50/50 mix of both active and passive portfolios.

As you can see, a passive combination of active and index portfolio will not gave the best or worst performance in any period. But over a long period, it gives you the equivalent performance of either an all index or all actively managed account but it smoothes out the ride and lowers your volitility.

We can see now that it is pointless to argue over the merits of either strategy over the other. Both have their pros and cons. Combining them in your portfolio is something perhaps we should all consider.

But the proof that both index and active managers have a place in your portfolio can be found in what the largest pension plans are invested in. Below are two articles that will prove this point. The first one highlights the Top 200 Funds with Defined Benefit Indexed Assets. Also check out the growth of index securities among Defined Benefit Plans. These are taken from Pensions and Investments website, the premier website for news on latest news on pension plans and the money management industry.

I hope this post will highlight the fact that there are both pros and cons to index and active management. However, the mainstream media and many pf bloggers tend to favor one against another. The truth is that the smartest and largest money managers in the world utilize both active and passive index strategies. It’s about time we learn from asset allocators rather than listening to “mainstream media”.

Welcome to the Mother’s Day Edition of the Carnival of Debt Reduction. Today, you will not get any sales pitch on things to for Mother’s Day. But rather, we will pay tribute to good old Mama’s advice on money and life and for once, I will use pink in my post (tell me if it goes with my light blue!). I will always remember Mama’s advice given to me throughout the years. Personally, here are a few snippets of what my mom personally told me :

1. Always have your own bank account (this was actually what she told her daughter-in-law Mrs Credit Card!)

2. You do not have to ever support me when I’m old, but don’t you dare borrow money from me!

3. Always save…save…save.

4. If you ever lend money to your friends, do not expect to get a single cent back.

Well, today’s carnival will contain some age old Mama’s advice. So, pay attention and stay tuned.

There is no free lunch. If it’s too good to be true, something smells fishy

Search Light Crusade post resonated with me the most – Mortgage Loan Advertisements : Horrible and Getting Worse. I cannot agree more with this post. Worse of all, these ads appear on mainstream internet like Yahoo. Check out Yahoo and see if you cannot find the following ad : Mortgage rates fall again – $145,000 for $499 a month!

Me : Mommy, I heard that our principal will be leaving at the end of the year.
Mama : Well, uncle Harry works for the school commisioner. Let’s call him to find out what is going on !

Free Money Finance post on The Mortgage Mess : In the Eyes of An Account Executive will really make you angry at what is going on in the mortgage industry. This is an insider account of what is really going on in the subprime mortgage lending world. I recently attended a Dan Kennedy/Glazer meetup group. These folks are famous for their direct marketing. During the session I attended, there was this mortgage broker (who must have been about 25 years old) who stood up and presented on how he was using direct marketing tactics (newsletters etc) to get sub-prime clients. He makes about $15,000 per loan approval!

When Mama found out I was dating, she always asked me the following :

Who is she?
What is her name?
What is her major in school?
Can I see her picture?
Where does she live?

Uhhh!! I used to hate those questions! But when it comes to major decisions and purchases in life, you can never ask too many questions. Is Debt Management Plan Right For You? from BB Consumer Education contains 17 questions you should ask before you think about enrolling in a Debt Management Plan. The title should be 17 Questions To Ask Before You Enroll in a DMP. These are very good points though and anyone in this situation should definitely check this out.

When I was 13 years old, I asked Mama to get me the latest BMX ‘Diamond Black’ bike. Why do you need it? Just use your old bike!

PF Advice wrote about the 10 Reasons Why He ditched His Car. Let me guess – totally eliminate your auto loan debt? But seriously, this is a nice post. And you know it is nice when a comment is as long as the post! If you could really do without a car, you will definitely save a bundle from not paying any auto loans.

Mama says : First, you write your daily allowance on the right column. Then you add your expenses on the left. Then you subtract the left column from the right column. The difference is what you saved

Aside from teaching me about budgeting, Mama also taught me how to fry an egg, tie my shoe laces and many other stuff. She would approve of the next post. 5 Steps to Debt Management is a summary of steps that My Credit Score has developed to help you manage your debt.

How to Get Out of Debt Fast by Kennubo is a very brief summary of steps you can take to get out of debt. This post could use a little more detail and elaboration though.

Never owe anybody money or they control your lives

How I plan to help my children avoid the credit trap documents the steps No Credit Needed Blog is taking following Mama’s advice on teaching your kids about money. Unlike, most who believe their kids have to learn the value of money and figure things out themselves, No Credit Needed is thinking about helping their kids more generously to prevent them from getting into debt.

Finished your homework? Well, don’t just do nothing, find something useful to do!

Mama would never allow me to waste my time doing silly things. Even when I’m done with my homework, she’ll find something useful for me to do. Your Credit Cards are paid off. Now What? is a thought provoking question posed by Tricia from Blogging Away Debt. What do you do when you have eliminated your credit card debt. Listen to what Mama says : Don’t just do nothing, find another debt to eliminate (student loan? Mortgage?). Well, the answer I would say is to give yourself a pat on your back and then move on to reduce your other debt as soon as possible. Keep going and before you know it, you’ll be in financial nirvana. Find out what Tricia thinks.

Mama will always love you no matter what

My Two Dollars plays Dr Phil this week with this personal development type essay for those in debt – Having Debt Does Not Make You a Bad Person. If you have negative self image about yourself, then perhaps this Dr Phil type article will inject some postitive energy in you.

Mom Screams : Why did you have 3 lollipops? Have some self control !

Control Your Spending from John Place Online is a short satire of a woman he knows that has her spending out of control. Spending is not the only thing that people have no self control on. We sometimes spend too much time on the computer, TV etc. But when you actually spend too much money, your finances will suffer. Do not make the same mistakes as the person in the following post.

Confessions of a Compulsive Shopper from Newly Frugal is a true account of a shopperholic. Please read this account carefully. If you are like what this, then you’d better do something about it.

Momma said : Son, You’re a smart and a good boy. Don’t let anyone tell you otherwise.

Prosperity and Abundance is Your Birth Right from Abundant Lifestyle is certainly not about debt reduction. But I guess if you do not think enough about prosperity, then you may find your debt reduction efforts pretty tough mentally. I totally agree with this post. Too often, all we talk about and advice those in debt to focus around saving, budgeting etc, which are all good things. But that is only half the equation. Program your mindset to accept abundance is the other often neglected half.

Mama says : Son, I want you to form good habits. When you get up, change, brush your teeth, put your school bag at the front of the door. Before you do to bed, brush you teeth, prepare your clothes for tomorrow and read your book.

7 Habits of Highly Effective Managers from Edith Yeung is certainly not about debt reduction. But if you follow these habits, you probably would not be in debt anyway.

Mama says learn from other peoples’ mistakes. Don’t make the same mistakes again

Blunt Money has written a series of post on common financial mistakes. Common Financial Mistakes – Part Eight highlights a couple of interesting points.

Mama says : When I say be home by midnight, it means I want you in the house by MIDNIGHT! Not a minute or second later! In life, never be late for anything – meetings, paying your bills, ANYTHING.

Mama would be very unhappy with Frugal Law Student’s very late submission of his Book Review of Generation Debt. The post was submitted at 9:53pm EST. Fortunately for him, his FICO score will not be affected. But be warned. Never be late for your court hearings.

All right, that’s it for this week’s carnival. Happy Mothers’ Day to all pf bloggers who are Mommys.

My son is now involved in spring baseball. His team is the Cubs. Recently, we had to take a team and individual photo session. I found out that Sports Legend Photography was the company taking the baseball pictures for every team. Choosing the type of “package” you want is a real test of frugality. Here are the choices available.

Player Pack (Package A) – The player pack cost $30.00. It consist of a Composite Memory Plate and 16 Trading Cards. According to the brochure, it was a $42 value and you save $12!

Sports Pack (Package B) – This package consist of a large memory plate and four wallet photos. At $15.00, this was the cheapest package.

Best Buy Pack (Package C) – For $35.00, you get a memory mate, eight mini wallet photos, four wallet photos, two individual photos, one photo magnet and one bag tag.

Pro Pack (Package D) – The Pro Pack came with a large memory plate, eight trading cards, two individual photos, eight wallet photos and two micro magnets. The cost was $45.00 – $57 value save $12!!

Plague Pack (Package E) – This is the mother of all packages. You get one team with individual walnut plague, eight trading cards, two individual photos, one ID pack which consists of two ID-cards, three zipper tags, two key tags, one bookmark and one door hanger). You also get one photo magnet. The cost is $55 (but off course it is a $64.00 value and you save $12.00).

Individual Pack (Package F) – The individual pack consist of one collector’s pack (one photo, four wallet with text and graphics – whatever this is), two individual’s phots and one photo magnet. This one cost $20.00 ($28.00 value – you save $8.00!).

Which did I choose?

Well, at first Mrs Credit Card wanted to just get the Individual Pack. When I got to the photo session, I asked them which was the most popular ones. It turns out that the Sports Pack (the cheapest) and the Player Pack ($30.00) was the most popular. The Player Pack was popular because of the trading cards.

I asked a few parents what they were getting. A couple said they were just getting the cheapest. One commented that their wife filled it out and they got the most expensive ones! I decided to get the Player Pack because I thought my son would love the trading cards. I got the Player Pack not because my son wanted it. Frankly speaking, he did not really give a toss about it. It was just me!

It made me realize that many times for our kids, we things that we either want them to have (cos we did not have it when we were kids) or because we think they would like to have it. What ends up happening is that we spend more on things that they will either not remember or will probably lose them!

I’m certainly guilty of this. Are you? Share your views on this. Which package would you have got?

Left and Middle – Individual and Team Photo, Right – Memory Mate

Well, I’m very embarrassed to say that I was late for my last comcast payment. It is one of the few bills that I have not put on auto payment. The usual thing happened where I did not get the monthly bill (or misplaced it) and ended up forgetting to pay it.

Well, an “urgent” mail came today from the Comcast billing department. This was what was written in the letter :

As of 4/25/07, our records indicate that your account has a past due balance of $126.12. Your last payment of $81.15 was received on 03/06. We understand that in the rush of our daily lives we sometimes overlook our bills (very polite to start).

……….If you wish to resume service with us after your account has been terminated, you will be required to pay the full amount due and will be subject to installation charges. You may be assigned a new Digital Voice number. (well, I guess if this happened, you should switch to Vonage instead!).

Well, I went into my online bank account and paid the bill (which was a genuine late payment). What bothered me was that Comcast (or even credit card companies) do not bother to tell you that you are late just after you missed payment (like a week after). Instead, they tell into after a month or so after stiffing you with a finance charge!

The language in this letter almost made it look as though you are better off with a credit card late payment than a Comcast late payment! At least with a credit card late payment, you are only charged finance charges and a late charge (possible interest rate increase). But you are normally given 60 days before any thing nasty (like reporting to credit bureaus) takes place. With comcast, you lose your cable TV! But thankfully, Verizon TV provides a viable alternative!