USAA Continues to Stay Strong, Safe, Profitable, and Growing During Financial Market’s Turmoil

October 24, 2008

It is no secret that United Services Automobile Association (USAA) is a large financial services company that many Servicemembers, veterans, and their families depend on for their money matters.  USAA provides its 6.7 million members with banking, investment, insurance, financial planning, and other financial products.  USAA continues to perform well during America’s current financial turmoil because of its financial strength, profitability, minimal debt, increasing net worth and assets, and high capitalization.  I continue to get questions from readers and my Soldiers about how USAA is doing during these crazy times.  Below is a list of the company’s highlights to ease your worried minds…

Insurance.  Standard & Poor’s, the world’s foremost source of financial ratings, affirmed its Insurer Financial Strength Ratings of AAA for USAA’s Property & Casualty Companies and Life Insurance Companies.  Standard & Poor’s provides credit ratings, indices, investment research, risk evaluation and data to the public about financial instruments.  USAA’s AAA rating is the highest of 21 possible ratings and indicates that the company’s insurance business is extremely strong. 

Unlike a lot of insurance sales people out there, USAA’s employees are paid only on salary, not on a commission basis.  Because of this, their focus is on providing only the products and services that the company’s members need and not selling you expensive products that are unnecessary.

Banking.  Bankrate.com evaluates the financial condition of banks around the country and assigns a 1-to-5 star rating with five stars representing its highest rating of sound banks.  Bankrate.com looks at several key banking categories when it ranks banks.  According to Bankrate.com, USAA rates a Star Composite Rating of 4 (grand total rating), an Earnings Rating of 4, an Asset Quality Rating of 5, a Capital Rating of 4, and a Liquidity Rating 5.  The bank’s capitalization stands as a protection against loss for banking customers, creditors, shareholders, and the Federal Deposit Insurance Corporation (FDIC).  USAA’s net worth has continued to grow this year and is well above its peers, and the bank’s capital exceeds federal requirements.

USAA has steadily increased its net worth which has more than doubled since 2000.  According to Bankrate.com USAA reported $31.5 billion in total assets as of June 30, 2008.  Their mortgage loans and deposits held by the institution, at that date, amounted to $13.2 billion and $27.3 billion, respectively. The company’s net worth, the difference between total thrift assets and liabilities, was determined to have been $2.78 billion, which was 8.83% of total assets.

You can view Bankrate.com’s entire Safe and Sound Report on USAA at their website.  Remember that the data in the report is through June 30th, 2008, the last day of available data.

A Different Kind of Company.  USAA is a member-owned association that is a crossbreed between a for-profit and non-profit organization.  The financial giant exists only to serve its members, not to meet earnings-per-share targets, and profits from the company are redistributed back to its policy holders.  USAA is a Fortune 500 company, one of the largest in America.  It is also a private company that is not publicly traded on a stock exchange.  This is a unique feature that allows the company to focus on its customers and their needs rather than pandering to stock analysts and institutional investors and obsessively focusing on meeting Wall Street expectations to the detriment of the company’s customers and stakeholders.

Disclaimer: I am a proud member of USAA and have been a customer for years.  I wholeheartedly recommend the company and their services to members of the military and their families.

If you enjoyed this posting, you might also like these:
1. USAA Reassures Investors and Banking Customers of Safety, Strength, and Liquidity
2. People Who View Investing as a Gamble Will Never Get Ahead
3. How Long Will It Take the Stock Market To Rebound?

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Know Your Rights Under the Servicemembers Civil Relief Act and Choose Companies Who Support the Military

October 22, 2008

The Servicemembers Civil Relief Act of 2003 (SCRA) provides members of the military with a lot of great protections while serving their country in a combat zone.  The SCRA protects Servicemembers from high interest rates, eviction, foreclosures, bankruptcy, lawsuits, etc. when called to active duty.  The law is especially helpful for Reserve and National Guard forces who may have taken a pay cut form their civilian jobs to defend the country.

While the law was especially designed for Reservists and National Guardsmen, I have seen many patriotic companies honor the spirit of the law for active duty members of the military too.  And, these are the companies that should be lauded for their commitments to our military.  The law states that interest rates on loans including mortgages and credit cards must be reduced to 6% annually while the Servicemembers are on active duty.  The lowering of the rate only applies to debt incurred before starting active duty service.

Because of that wording, I had a Soldier in my unit who had a bill consolidation loan with high interest rate from GE Financial, now called Genworth Financial after GE sold its financial services unit.  GE Financial refused to lower my Soldier’s interest rate to 6% because he has always been on active duty and the debts were incurred while working on active duty.

I tell you that story as a warning about the companies you do business with.  Citibank is the polar opposite from GE financial.  Citibank not only lowers interest rates, but they drop it all the way down to 0% while you are deployed.  Companies like Citibank should be applauded for their commitment to Solders while GE Financial should be avoided like the plague.

If you are currently deployed and have not contacted your creditors, have no fear.  You can fax or mail a copy of your deployment orders anytime and receive a credit for any interest over 6% that you may have overpaid.  It is back dated to the day that you deployed which is stated on your deployment orders.

Even though the economy is in a downturn and financial companies and banks are struggling it is great t see companies like Citibank who are committed to our nation’s military.

If you have specific questions about the Servicemembers Civil Relief Act you should contact your Judge Advocate General’s (JAG) office or legal assistance represtative for help.

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Kiplinger’s Top Ten List of Things Going Right in the US Economy

October 17, 2008

Kiplinger’s Personal Finance Magazine, my favorite money magazine, recently listed 10 things that are going right in the US economy.  With so much negative news about the economy, these ten points are a breath of fresh air.

1. Oil Prices Are Falling – Prices have declined by 50% in the last three months
2. A Tipping Point for the Auto Industry – Hybrids and deals on car lots abound
3. Interest Rates Are Low and Headed Lower – Rates are dropping on many types of loans
4. Homes Are More Affordable – Low home prices and a return to traditional lending standards like 20% down payment, good income, and good credit score
5. Your Bank Savings Have Never Been Safer – New FDIC limits protect up to $250,000 per account and money market fund prices guaranteed to stay at $1 per share
6. Stocks Are on Sale, and Many Bonds Offer Terrific Yields – P/E Ratios are extremely low. Great companies have been beaten up with the market despite great fundamentals
7. The Miracle of Technological Innovation Continues – $799 can now buy you a 42-inch, high-definition flat-panel TV at Best Buy that will knock your socks off and throw in another $200, and you can get a surround-sound system (hint, hint dear!)
8. Prosperity Reigns in the Heartland – This is turning into a good year for farmers
9. A New Tone and Direction in Washington – Sometimes change is good and hopefully change this winter will boost the economy no matter who wins
10. Shoppers Can Expect Great Gift Buys This Holiday Season – Great new toys are on sale early in an effort by stores to get holiday revenue despite a lagging economy. Kids across America are rejoicing!

SPECIAL NOTE: I was experimenting with a new poll on Military Money Might, and it did not go out on the RSS feed or show up clearly on the e-mail newsletter version. So, please take a minute and give your two cents about the economy through the poll on the blog posting right before this one on the website. Thanks….

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Using a Personal Escrow Account Instead of Buying an Automobile Extended Warranty

October 8, 2008

My wife and I face an expensive decision in a few months.  We must decide if buying the extended warranty for our car is worth the cost.  The bare minimum extended warranty to cover oil changes and normal yearly services will cost over $2,000.  We did the math and talked it over, and we are not going to buy the warranty.  We are going to use a personal escrow account instead to save for our future car repairs.

Most people are familiar with escrow accounts when they purchase a home.  Usually, your property tax and insurance premiums are wrapped up into your mortgage payments.  When you pay your mortgage, your mortgage company sets aside a portion of your payment in an escrow account for your yearly tax and insurance bills.  Instead of getting a huge bill all at once during the year, you essentially pay a twelfth of the payment every month to the escrow account.  So, if your yearly property tax bill is $1,000, then you mortgage company will set aside $83 per month in an escrow account.

You can set up your own personal escrow accounts at your bank much the same way.  Now, with automatic payments and transfers through online banking, you can easily set up a reoccurring transfer to fund a personal escrow account (savings account) nicknamed “Car Maintenance”.  For example, my wife and I will be receiving a moving allowance this winter from my work.  It will be almost the same amount of money as the extended warranty would have cost us.  So, we will just deposit it into a separate bank account just for automobile expenses. 

It is estimated that you will spend an average of $100 per month per car on maintenance.  That’s a great rule of thumb, and a safe bet is to save that $100 per month for car repairs.  My wife has driven a Jeep for two years now, and the SUV has had about $1,000 of repairs over that time.  We are doing slightly better than average, but since I have been saving $100 a month for car repairs, we did not have to pay for the new axle and other repairs with a credit card.

Consumer Reports calls extended warranties a sucker’s bet.  Extended warranties are an insurance policy, and companies do not get rich paying out insurance claims.  Most consumers do not even use half the cash value of their warranties.  Extended warranties are a waste of money, and you would be better off self insuring your car maintenance costs with a personal escrow account.  You can also check out this posting on a cost benefit analysis of why automobile extended warranties are not worth their cost.

So, keep building your personal escrow account a little bit every month in order to mitigate the chance that large bills like car repair will devastate your monthly budget.  You can also use personal escrow accounts to smooth out your budget for any yearly or quarterly purchase such as insurance, gym memberships, magazine subscriptions, association dues, club memberships, etc.

If you enjoyed this posting, you might also like these:
1. An Army Second Lieutenant (2LT) Will Earn Over $100,000 in 2032
2. How to Pick a Good Individual Stock to Buy? – Part 1
3. Lump Sum or Dollar Cost Averaging?

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Work At Home Scams Are On the Rise In Tough American Economy

October 6, 2008

Now that things are looking bleak on Wall Street and it is bleeding over onto Main Street, more Americans are looking to make a little extra money any possible way.  Work at home scams are also on the rise during the American financial turmoil.  Below is a list of some of the most famous scams and why they are not worth your hard earned money or precious time.

Stuffing Envelopes.  People have to pay up front fees to get starter kits.  There is a reason that large corporations no longer have a mailroom.  The internet and high priced, technologically advanced sorting and stuffing machines now produce envelopes and flyers in mass production.  A real person could not stuff enough envelopes fast enough to make it worth your time.  Now, there is a new twist on this classic….e-mail processing, which basically can be translated into spamming.

Member Only Sites.  There has been a scam in the past where people working from home were told that they would just have to type sentences into a form for an advertising promotion.  Scam artists would sell access to databases for data entry positions but would not pay employees for their work.

Medical Transcriptionist.  After overpaying for fancy software that many doctors may not even accept and maybe some schooling, a work at home businessperson will then find out that most medical clinics process their own bills, or outsource the processing to firms, not individuals.  The same thing is true with respect to processing medical insurance claims.  Doctor’s clinics do it themselves without the help of a work at home entrepreneur.

Assembling toys.  Most victims never get paid for their work.  Many never recover their start-up fees.  The trick is turning in your toys or crafts to get paid.  Once you finish assembling your first batch of toys, you’ll be told by the company that they “don’t meet our specifications”, and you will not get paid.

Money Mule. People are asked to cash counterfeit checks and then wire the money abroad in this scam.  When the bank realizes the checks are fake, the money is gone and the at home worker is left answering to the law.

Re-shippers.  Scam artists buy goods online with stolen credit cards in this scheme, have them shipped to “re-shippers” who repackage the goods, and then send them to a P.O. Box in another state or country. Like a football player who retaliates, guess who gets caught when the authorities try to trace activity on that stolen card?

We would all like to believe that it is very easy to earn extra money from home.  It is not easy.  If it was easy, then everyone would be doing it.  If everyone was doing it, then it would not pay enough to make it worth your while.  We all make too little and have been made nervous by the current rocky financial climate.  Keep all of your money in your wallet and away from these scams.

Many home based businesses are legitimate.  You should check potential opportunities at your local Better Business Bureau to ensure that they are legitimate.  If you think that you have been a victim of these scams, you can contact the Federal Trade Commission.

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What Should You Do with Certificates of Deposit That Are Maturing? CD Ladder.

October 4, 2008

A friend of mine recently e-mailed me to ask what she should do with a five year certificate of deposit (CD) that recently matured.  And, my advice to her and anyone who is looking to reinvest the money is to think short term.  Interest rates in America will be raising sooner rather than later as the Federal Reserve turns its attention to battle inflation.  Of course right now, the Fed has its hands full dealing with the current bailout plan and shepherd the bill through Congress.  But, right before the financial market turmoil began, the Federal Reserve was looking hard at inflation in America, and they will be looking at it again once the current crisis has abated. 

Fed Funds Rate.  Eventually the Federal Reserve will turn its attention to interest rates and inflation.  With the cost of milk, bananas, gas, and most other consumer staples rising, there will eventually be talks of battling inflation, maybe not now during this presidency but soon thereafter.  A quick lesson on the Federal Reserve. . .a lot of media attention surrounds the Fed Chairman, who is currently Ben Bernanke, and interest rates.  In reality, the Fed does not control the rates that you and I earn on CDs or pay for car loans, etc.  The Fed controls what is called the Federal Funds rate which is the interest rate that banks and the Federal government charges each other overnight.  The Federal Reserve regulates the flow of money through the American economy by adjusting this rate every so often, and it is this adjustment that garners so much attention in the news when the rates move.  Raising the Federal funds rate will dissuade banks from taking out inter-bank loans between each other and the Fed.  Doing so makes cash that much harder to procure for banks, they raise their rates on CDs and savings accounts in order to draw in more money for operations, and then they pass those rate increases onto the loan customers buying new cars, etc. So, the Federal Reserve’s actions have a trickle down effect on the consumer.

Keeping Money In CDs.  So, if you have money maturing in a CD, what do you do with it?  You do not want to lock in a fairly low 5-year CD interest rate when rates will be climbing in a few months.  A CD ladder is a great way to hedge your best against rising interest rates.  A CD ladder is a version of stocks’ dollar cost averaging for certificates of deposit. 

For example:

If you have $10,000 to invest, you could build a CD ladder like the one listed below where you would invest the money in CDs with staggered maturation dates:

$2,000 in a one-year CD
$2,000 in a two-year CD
$2,000 in a three-year CD
$2,000 in a four-year CD
$2,000 in a five-year CD

As each one-year CD matures, you immediately invest your money into a five-year CD.  This keeps one year separating all of your CDs, hence the name CD ladder.

Here is a great website that has a CD Ladder Calculator that you can play around with and get a feel for how much money you would make from this strategy.  While you will not squeeze out every last dime of profit that you possibly could using this plan, you will earn a nice return while setting yourself up to take advantage of increasing interest rates when the Fed raises them.  Another great example of the earnings differences between CD laddering versus investing solely in one-year CDs can by found this great article on bankrate.com.

Investing In Stocks.  If you wanted something better than a CD, most great blue chip stocks (good, big companies) have never been cheaper….same thing with some great mutual funds.  Everything has been beaten up these past few months even great stocks that didn’t deserve it.  Those stocks have just ridden the wave down with the rest of the market, but I have a feeling that they will be back up very soon.

If you enjoyed this posting, you might also like these:
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2. What the Best Way to Fight a Bear? Invest More!
3. Certificates of Deposit (CDs) Are a Waste of Time!

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USAA Reassures Investors and Banking Customers of Safety, Strength, and Liquidity

September 19, 2008

Yesterday, USAA, the banking and investing giant who focuses its business on former and current military members and their families, reassured its customers of the company’s minimal exposure to the current financial crisis. Like most financial services companies, USAA is urging its clients not to loose face in this volatile market and to stick to their long term investing and saving strategies. USAA said in a release that many investors are letting their emotions override their better judgment and an investment’s fundamental values which is causing many stocks and other financial instruments’ values to swing wildly.

Many Americans have used money market funds as a savings account on steroids to provide a little more punch to their savings with cash like liquidity, a higher interest rate, and the safety of a stable $1 share price that does not change. Recent events such as Lehman Brothers defaulting on its bonds that were held by many money market funds at reputable finance companies such as Putnam and Bank of New York Mellon have caused some financial institutions to reduce their money market fund share price to as low as $0.97 and freeze some withdraws for the next seven days. Investors recently pulled a record $89.2 billion from money-market funds on Sept. 17 after the news broke and a small panic ensued throughout the market, according to Bloomberg, the financial news conglomerate. Unlike several of those money market funds that have experienced trouble, USAA has said that their exposure to Lehman Brothers’ common stock is extremely small and that they have absolutely no exposure to Lehman debt. I would be shocked if USAA devalued their money market funds under $1. I expect their share prices to continue providing the safe haven and security that members of the military and their families have grown accustom to receiving.

USAA and Military Money Might continue to encourage investors to review their investing and savings plans and focus on the long term and to be present in the market when the rebound occurs in order to reap the benefits.

Some reasons why USAA is a strong company during this turmoil:
The USAA insurance group is AAA-rated by Standard & Poor’s for financial strength.
USAA Federal Savings Bank remains well-capitalized (not short of cash).
USAA mutual funds have minimal exposure to Merrill Lynch stock and debt.
USAA mutual funds have minimal exposure to Lehman Brothers stock and zero exposure to Lehman debt (bonds).

If you enjoyed this posting, you might also like these:
1. An Army Second Lieutenant (2LT) Will Earn Over $100,000 in 2032
2. How to Pick a Good Individual Stock to Buy? – Part 1
3. Lump Sum or Dollar Cost Averaging?

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