The Value of Money

Cash Versus Credit
The Value of Money – Cash versus Credit

According to Forbes, “Using a credit card makes it easier to spend money. Scientific studies have shown that people are more likely to complete a purchase if they intend to pay with a credit card than if they intend to pay with cash. Credit cards don’t produce the same kind of psychological barrier.”

There is no doubt that credit cards are convenient, allow one to track purchases in an organized fashion, help in the establishment of credit (good or otherwise), and may offer rewards that are of value to the consumer. They can also be particularly useful in separating business from personal expenses. Personally, I have a card that rewards me with points for cash back or shopping, and I always choose the cash back since the catalog prices are often more than you would pay for the same item if you bought it outright.

So, without discounting the benefits of credit cards, I’ve seen cases where the downside outweighs the benefits if not used responsibly and with forethought. To put it simply, credit cards allow you to spend money that you may not have with a single swipe. I also think it’s important to reconnect with the idea that you are actually taking out what could amount to being a very expensive loan every time you use your credit cards.

Try this exercise: Over the next month, every time you buy something use cash, moola, bills, a wad of dead presidents – real money, regardless of what you like to call it. Physically count the money you are spending before handing it over to the cashier, especially if it’s a large purchase. It’s a rather visceral experience and one that will instantly reconnect you with the fact that you are spending real, hard-earned money. If you do this on a regular basis, you might find yourself spending less, and your credit card bill will certainly be lower at the end of the month!

Will that be cash or credit?

Prior Month in the Markets

The S&P 500 was relatively flat in March, starting the month at 1859 and ending at 1872. This is despite some mid-month volatility given the headlines from the Fed and Russia. With the broad nature of this index, I tend to assess the market’s performance using this benchmark.

That said, there was 3% move to the downside in the tech and biotech heavy Nasdaq Composite, which fell from 4342 to 4199 due to corrections in some high-flyers in those sectors, but I believe this offers some buying opportunities, particularly in biotech.

S&P 500 Chart for March 2014 (click chart for link)

The markets were temporarily spooked mid-month when the Fed indicated that rates may rise sooner than expected, but on the last day of the month Fed chief Yellen provided some calming words, stating that “extraordinary” support for the economy would continue for “some time to come”. With the economy not moving one way or the other on balance this month, I continue to recommend a diversified allocation that includes cash to take advantage of select opportunities as they arise.

Finally, the benchmark 10-year Treasury bond finished the month up 7 basis points from February’s close, ending March at 2.73%, still well below the closely watched 3% mark. Longer-dated maturities continued to perform well.

IRA Contribution Reminder

If you are contributing to an IRA, and did not make a contribution in 2013, your deadline to do so for the 2013 tax year is April 15, 2014.

A Little Something About Me

Several years ago, I found myself interested in seeing if I could adopt a houseplant without killing it in three weeks. If so, it would promise to be a new longevity record in my journey of plant stewardship, and so I bought a Pothos, which I was told could hold up to anything short of a direct blast from a flamethrower. My success (the plant is still kicking five years later) led me to become more adventurous, and in 2013 I discovered that orchids are a beautiful addition to my home, though slightly more challenging to care for. After killing the first one by overwatering, I’m pleased to say that I have three thriving varieties now and hopefully more to come. If I had known that there was a Looney Toons connection, I would have tried it years ago!

Daffy Duck Orchid
An orchid that looks like Daffy Duck!

Have a great April!

Alan Goodman

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