Credit Card Debt Reduction

When you hear a credit card balance reduction ad, two points will probably never be mentioned about credit card use.

One: you pay income tax on any amount of debt you have reduced. Therefore, cutting that balance is not as simple as it may appear. Reduce your balance by $4,000 and it’s as if you had a taxable gain.

Two: you have hurt your credit standing by resorting to such debt reduction. This may not bother you at first, but it may eventually cost you.

Another point: How many folks who have so much credit card debt, that they have to resort to drastic measures, are actually permanently getting out of debt?

You can be sure their spending habits will be getting them into the same situation again in a few years.

12b-1 Mutual Fund Fees

Most funds no longer charge 12b-1 mutual fund fees but they are still around. These were originally permitted by the SEC to allow marketing to new investors.

These actually represent a small sales load that adds up over the years. The 12b-1 charges originally were used to pay fees for the distribution of funds by brokers. But they still persist even when brokers are not involved, but are ostensibly used for sales and marketing.

My suggestion: Avoid mutual funds that charge them. Those fees become significant deductions from your accumulated holdings over the years.

High Frequency Trading

Small investors benefit from a reduction in trading costs, High-frequency trading helps, despite much of the notoriety it’s getting in the media. Among costs are the bid-ask spread.

A wide spread means the fund must pay significantly more to acquire a stock than it could sell it for.

High- frequency trading has reduced this cost by narrowing spreads, Generally, wide spreads are seen as inefficient, with buyers and sellers having difficulty agreeing on an accurate price. Narrow spreads mean the market is working better.

Another transaction cost arises from the fact that a fund's huge trades can drive prices up or down by tipping the balance of supply and demand. High-frequency trading has helped reduce "market-impact" cost by making it easier to break big trades into many little ones while transacting them very quickly,

Trading costs from spreads and market impact have been cut in half over the past decade, From 0.5% of the trade amount for big company stocks to 0.25%. For small stocks, trading costs have dropped from 1% to 0.5%. In addition, high-frequency trading helps bring out hidden liquidity.

The positives seem to outweigh the purported negatives

Don’t Overdo Credit Card Balance Transfers

Should you get offers from credit card companies to transfer your current outstanding balance to another card because of lower charges, you may be easily tempted. Especially if you have good credit, and those offers are frequently in the mail.

But remember, you may be hurting your credit score, should you take the bait.

When you make lots of credit card transfers it appears you may be applying for fresh credit.That tends to hurt your credit card score.

Investing Overseas With the Dollar

Investing overseas is done for investment diversification. The investor wants the benefits of growth opportunities that are to be gained globally. Perhaps those prospects appear to be better than those domestically.

Remember, currency moves are always involved. Will the dollar be getting stronger or weaker? If the dollar gets weaker, as is currently the case, such investments become more valuable as translated currency works in favor of the U.S. investor. (Travel overseas becomes more expensive.)

However, should the dollar get stronger, the reverse is true. Investments become less valuable as translated currency works against the interests of the U.S. investor.

Maxing Out Your Credit Card

It may be necessary to take down the maximum amount of credit your credit card permits, but it does not help your credit score. Therefore, do so only in an emergency. It’s nice to know that your credit permits you a certain liberty, but don’t take extreme spending binges.

Of course, if you don’t use your card at all, or only occasionally, you may be dropped or the maximum available credit may be reduced.

That’s because credit card companies are getting more sensitive about account activity. Despite public misinformation, credit card companies are not doing well. They have written off lots of bad debt. So, use credit cards intelligently.

Managed Mutual Funds or Indexes

Don’t bother looking for the best mutual fund managers. You will be wasting your time. Experience and research show that the “best” in any year are achieved mostly by chance.

In any category of mutual funds, only a small percentage of active managers beat the performance of indexes or unmanaged funds. Furthermore, those who distinguish themselves in any one year, generally cannot repeat their performance the next, or on any consistent basis.

A very isolated few managers can outperform indexes over the years, and if they do, it’s pure luck.. ( See the Earl J Weinreb NewsHole® comments.)