Wise Money Decisions

I like Walter Updegrave’s Ask The Expert column on CNN Money.  His advice generally makes a lot of sense.

In March he got a question from a 28 year old with Roth IRA money in a 2045 target date retirement fund.  The reader’s account had been pummeled over the previous couple months and he/she asked whether he/she should do something different or just “suck it up” and keep investing (you can’t tell the reader’s gender from the column, unless “A.P.” is a non-gender neutral name that I’m not aware of).

Updegrave advised the reader that he/she shouldn’t “suck it up” because sucking it up is for sports not investing.  Then he used his next 828 words to give advice that can only be summed up as “suck it up.”

I’d like to add one important point to Updegrave’s advice.  There is no reason for the reader to be concerned about the ups and downs of a Roth IRA that is 30 years from its first withdrawal. 

In fact, the best thing that could happen to the reader is a stock market crash for the next 25 years, followed by a drastic upward climb just before he/she withdraws money from the account as the market takes up the slack of 25 years of under-performance. 

Why would that be better?  Because the reader would invest at attractive prices during the 25 years.  He/she would be worse off if the market steadily climbs during the 25 years.

It’s the same reason why I’m not bothered with the market’s awful performance the last few weeks.  After yet another horrible day today, it was announced the Dow is in recession territory at 10% below its all-time high from nine months ago. 

Music to my ears.  Every other long-term investor with a 5 year or longer investing horizon should be happy too. 

I just wish I had more money to throw in.

There have been reports of gas stations refusing to accept credit cards.  Here’s why:

Let’s say the credit card company charges the gas station a 2% fee.  A Honda Accord pulls up and buys 15 gallons.  When gas was $2/gallon, the Accord paid $30 for his gas.  The credit card company charged the gas station 60 cents for the transaction, or about 4 cents/gallon.  The station was left with a few cents of profit per gallon.

Now that gas is $4.50/gallon, the credit card company charges $1.35 for the same transaction, or 9 cents/gallon.  The higher fee pushes the station’s profit into negative territory.  The more the station sells, the more it loses. 

There’s an old Silicon Valley joke about the start-up that told its investors, “We lose money on each sale, but we make it up on volume.”  

To be fair, it’s not an old joke at all.  Before 2001 it wasn’t a joke so much as a business plan.  About that time people remembered their fifth grade math.  Multiply your sales revenue by a negative number, and you get a negative number. 

I hope you’re thinking, “But wait, even though the fee is higher, the station is making more per gallon and should be able to absorb the fee.” 

But alas, the station doesn’t make more per gallon.  The extra revenue is eaten up by oil producers, oil refiners, gasoline transporters, and government taxing authorities that are higher on the proverbial totem pole than the station. 

So what are the stations doing?  Some have stopped accepting credit cards.  Others are joining an effort to persuade the credit card companies to charge lower fees.

What should you, the mighty consumer, do?  Continue using your gas rewards credit card.  The station will make less from your patronage.  If that makes you feel bad, you can console yourself with the hundreds of reward dollars you’ll save each year. 

If you still feel bad, use your rewards dollars to buy Cheetos from the gas station.