Haggling a Better Price on Flights

It is widely known that paying the sticker price on a new or used car is for suckers. Haggling is the norm. Haggling can get you a better rate on your credit card, on your long distance rate and on your cable bill. Recently my wife and I got a 30% discount on our new mattress by haggling. The sad news is that we could probably have gotten an even lower price, darn it.

BUT, and I may be the only sucker left on the planet, I never realized that you could get a lower price on your flights by haggling with the airline over the phone. I am writing this post from South Carolina where I am currently on a business trip. Earlier this afternoon one of my colleagues needed to change his flight itinerary. After checking Orbitz and finding a price of $1,050 for a one way flight back to California, my other colleague suggested that he give United a call to check his options.

I was amazed when after a brief call with the customer service agent my colleague was able to get the same flight, with the same connections for $700. That's a 33% discount, just for making a call. My colleague that suggested this wildly successful tactic says that he successfully used it many times in the past. Granted, we are all Premiers and Premier Executives on United, and my friend told the United agent that a similar flight on Delta was much cheaper, but still... 33%? And here I am buying on Orbitz, Travelocity and Expedia for years and thinking I am getting the best deal.

My colleague also suggested that if calling the airline does not work, you should simply hang up the phone, dial again and try your luck with a different agent. According to my colleague, two or three calls usually do the trick...

The conclusion: no price is ever fixed. From now on I intend to start asking for a discount wherever I go. I am not quite sure this strategy will be successful at the local supermarket, but hey, I thought there was no chance to get a discount from United either.

Your House Can be a Bad Investment

Like it or not, your house is a bad investment. "Heresy!", you say. Maybe, but here are my reasons for making what many would consider an outrageous claim.

1. A House is a Large Undiversified Investment - most sane investors would shudder at the idea of investing 80% of the portfolio in a single stock, even if that stock is the bluest of blue chips. Yet many Americans have absolutely no qualms about not only investing all of their assets in a house, but also taking on large, often excessive amounts of debt. Many do so because they believe that their house is the best and safest investment available. Wrongo. If it's not yet clear, housing prices can and do go down. You may have seen this graphic from the NY Times, but I think it makes the point that investing in a house has not been a great strategy over the past century. You want to invest in real-estate? Diversify and buy a REIT index (NASDAQ: VGSIX).

2. A House is not a Liquid Investment - If a stock disappoints you, you sell it. The whole process takes you 30 seconds and costs a few dollars in fees. However, as many people around the country are currently finding out, selling a house can be a long, arduous and expensive process.

3. You Never Really Cash-Out of a House - if a stock has a nice run-up, you can easily realize your gains and walk away. If you live in your "investment" you never really cash-out, and so the higher value of your asset will not increase your standard of living. In fact, if you want to increase your standard of living by moving to a bigger, nicer place you will probably find that its price has also increased and more so than your own house (since the new house was more expensive to begin with). Conclusion: for most people house appreciation does not translate into real wealth.

Of course there are exceptions to this argument. For example, if you are willing to move to a smaller house, or you are willing to sell your house and rent, your house's price appreciation will translate into a real increase in your standard of living. Similarly, if you move from a high cost market, such as California or New-York, to a lower cost market, such as Texas, you can also gain from price appreciation. However, that is not the case for most people.

4. Opportunity Costs - many say that renting a house is like throwing away money. After all, at the end of the month you have nothing to show for your payment. This argument is false. By paying rent and not investing in brick and mortar you are able to take your investable assets (such as those you would have used for a down payment) and invest them in alternative investments, e.g. the stock market. Given that mortgage payments tend to be higher than rent, the opportunity cost of investing in a house is considerable and grows over time. Tax considerations may change this equation, especially for people in higher tax brackets whose mortgage deductions can translate to larger tax savings.

So, do my arguments mean that you should not buy a house? Far from it. A house is an investment, of sorts, but it is much more than an investment. It is a place to live and a place to call home. Humans are emotional animals and we need to be emotionally invested and attached to a physical location. My real point is that the cult of real-estate investment and home-ownership is over-zealously promoting itself. Sure, for many it makes financial and emotional sense to buy a home. For many others it would make more sense to invest their money elsewhere. Your house is your home, not an investment, and that's the right way to think about it.

Do You Do Your Own Taxes?

I don't. I hate tax season. It's not so much that I am worried about whether we will need to pay outstanding taxes, although this year there is a good chance we will find ourselves caught in the AMT net, it's more the hassle of it all. I am a fairly organized guy, and I have all of our financial records but there is always SOMETHING.

Last year for example, E*Trade sent us 3 separate 1099s. This year they sent us none, and it's only today that they finally posted a digital copy of our 1099 on the web. If it's not E*Trade it's something else, but there is always something. Somehow, I always get to the beginning of April before the whole tax situation is straightened out. On occasion, I have been known to stand in the huge line at the post office on April 15th. Seriously, I hate tax season.

Every year I consider doing our taxes myself. In the past we had some tax complexities that required a professional, and so for the past 8 years we have been using an accountant. These days the situation is pretty straight forward (minus the possible AMT fiasco) and I could probably handle the task myself. However, I will probably give our good ol' accountant a call.

The way I see it, I am a business professional. I deal with complex business issues, manage a team, own a budget. That's my specialty. I don't know nearly enough about taxes to make me feel like I am the best man for the job. Yes, I could save $300 but I could probably save that much money every year by cutting my own hair. Thankfully, so far I have chosen to go the more expensive route there too.

I guess it is a combination of apprehension, laziness and the comfort of knowing that I am paying someone else to keep me out of trouble that make me go back to the accountant every year. This year will doubtless be the same. But you know what? For $300, it's totally worth it.

Would love to hear from you on this issue. Am I being a wuss?

The Beauty of Cash Back

Yesterday I got a check for $87 from my credit card company. This was my cash back reward for using my CitiBank Dividend Platinum Select card. I just love to have the credit card company paying me for a change.

This card gives you 2% cash back on supermarket purchases, gas, utilities and the like, and 1% cash back on everything else. My wife and I both have one of these cards, and for the past two years we maxed out the rewards at $300 per card annually. That's a total of $600. Pretty nice for doing our grocery shopping. Payment is delivered via check in increments of $50 or more, upon request, at any time. As an added bonus, I use this card to pay my reimbursable business expenses, which adds a nice little kicker to those expense reimbursement checks.

Believe it or not, this card used to be even better until last year. It used to be that the card paid 5% on supermarket purchases...

We also carry an American Express Blue card, which has some cash back features, and no limit on the amount of the cash back you can earn. Unfortunately, that card only gives cash back once a year and then in the form of a credit to the account. I like checks better.

These cards work very well for us. Of course, we never carry a balance. Carrying a balance on these cards would be pretty expensive and not a very wise move.

Are You Diversified Enough?

The stock market has been jittery in recent days. If you are investing for the long term that should mean very little to you, but of course no one that has a sizable stake in the market can resist the temptation to check the daily stock quotes and fidget when a nice chuck-o-change disappears in a puff of smoke. Myself included.

It's days like these that remind us all of the importance of portfolio diversification. I remember well the days back in 2001 when I bought into the NASDAQ 100 ETF (NASDAQ: QQQQ) and considered myself well diversified. Well, I have learned the error of my wicked ways: the fact that you own an index or two does not mean that your portfolio is adequately diversified, especially if said index covers only one sector or industry.

Incidentally, my ill timed purchase into the QQQQ was at $67 per share, and came after the NASDAQ dropped from its fictitious 5,000 point level all the way to 2,700. I thought I was getting a bargain for sure...

The benefit of diversification comes from the fact that different assets and asset classes tend to not move in complete lock-step, i.e. when one stock goes up, another may go down, thus off-setting the gain or loss and reducing overall portfolio variability and risk. If you were in the market on Feb 27, 2007 you could not help but notice that virtually ALL stocks went down that day. So much for diversification? Nope. It turns out that it is not enough to be diversified across multiple stocks or even stock indexes. You also need to be diversified across asset classes. While stocks crashed down to earth on Feb 27th, bonds soared.

Stocks and bonds are not the only asset classes out there. For example real-estate and commodities are other asset classes into which one can diversify. These too do not move in tandem with the market. In fact, for much of recent history, investments in real-estate had little correlation with the over-all stock market. To see for yourself, compare the performance of the Vanguard REIT Index (VGSIX) to that of the S&P500 Index.

In addition to diversifying across asset classes, diversification across geographies is also key. Since U.S. equity markets tend to act in unison, investing in foreign markets can reduce risk even further.

Of course, there are some days when everything across the board, whether U.S. or international, whether gold or real-estate all come tumbling down. Those days are known by the technical term "really crappy days". These days are the exceptions that prove the rule: diversification is the corner-stone of every good portfolio.