FNC
Jonas Max Ferris
Question: Should I trade some of my Microsoft stocks for Texas Instruments?

Jonas Max Ferris: No. I bought Texas Instruments (TXN) in my Cashin' In Challenge Portfolio back in 2004 when it was in the $22 range. It's more expensive today (even with the recent pullback in chip stocks in general) at around $30. However, I also more recently recommended Microsoft (MSFT). Texas Instruments future is a bit more exciting (and the stock price knows it) and investors — even long term tech bulls — are writing Microsoft off for dead.

While owning both is a good idea at these levels, add new money to TXN before selling MSFT to buy or you're just selling duds and gravitating to what's hot (a cycle you want to break). I made money in my Challenge portfolio on TXN because it was out of favor, not chasing it after it ran up.

The dour outlook on Microsoft's future where a PC operating system driven world is less important is a bit overdone in my book. Google (GOOG), which still makes almost all their money from advertising, isn't really worth half a Microsoft (as is the current market value of the two companies) but highlights investors optimism and pessimism over the two business models. Tech investors like companies that grow, and often pay so much for visible and fantasy growth that even actual wildfire growth can't make the investment work out.

As a warning, both are tech stocks and susceptible to 25% drops or more. Buying TXN and selling MSFT doesn't do much to lower your overall portfolio risk, in fact it may increase it in the short run as Microsoft's business model, while tired longer run, is quite stable shorter run. Both rely heavily on new tech devices being sold — sales which tend to plummet during recessions.

Question: I am retired and widowed. Since the stock market has been so up and down, should I just put my savings (less than $100,000) in a savings account paying 3%? I feel that I am too old to always be keeping an eye on the stock market.

Jonas Max Ferris: The stock market is always up and down. The key is to only invest an amount of money that you can stand to see go up and down. The single biggest mistake investors make is investing too much of their portfolio and panic selling after an ordinary 10% - 20% drop in the market — often right before the market turns around.

Consider putting some of your money in a low fee stock index fund like Vanguard 500 Index (VFINX) — perhaps just 25% if you are nervous about losing money. A larger chunk, say 50%, should be in lower risk investments. A low fee bond index fund like Vanguard Total Bond Index (VBMFX) is a decent choice with limited downside (perhaps 10% in a down market for bonds) and a roughly 5.25% yield. The rest (25%) could be in a virtually no risk investment like a Vanguard money market fund — the Vanguard Prime Money Market Fund, currently yielding just under 5%. Fidelity has an equally good and cheap lineup of similar funds.

Buy these funds through Vanguard to save on commissions that an ordinary broker may charge.

As for earning 3% in savings - shoot higher. I've linked my checking account to HSBC Direct and ING's Orange Savings account (both are “online” savings accounts — FDIC insured with no risk). You can sweep money in anytime and earn over 4% (these are not teaser rates but current rates will change with swings in shorter term interest rates). HSBC Direct currently yields a whooping 4.8%. You bank branch can't come close to matching these rates on liquid FDIC insured money with no minimum or transfer fees.

Question: I pay my credit card and bills on time every month. Is it possible to just call up my credit card company and get my rate lowered? Do you have any advice on how to go about doing this? Thanks -- Kathy

Jonas Max Ferris: It is very possible — the key is to be in a good bargaining position.

First of all, if you pay your entire credit card balance on time each month technically it doesn't matter what the interest rate is because you are not going to get hit with any interest charges. If you are such a user, focus on other benefits like reward points, cash back, free rental car insurance, or my personal favorite, free double warranty on electronic purchases.

If you are a revolver, and always make a timely payment but sometimes (or every time) pay less than the total balance due on your cards, you'll want to get a card with the lowest possible interest rate. This is way more important than earning frequent flier miles or hotel points. Paying 10% instead of 20% a year on a $10,000 average balance means saving $1,000 a year in interest. While every card company offers low teaser rates, the best deals are cards that have low rates all the time.

While you can check a site like bankrate.com for cards with low rates, you may also get a good rate just by calling your current card company. Every major bank (Chase, Citibank, etc) has several cards — some with high rates, some with low rates. If you call about getting your rate lowered permanently, they will often oblige — AS LONG AS YOU ARE CALLING THE SHOTS. This often means some “name” change to your card, like going from “gold” to “premium advantage” status or some marketing mumbo jumbo.

If you have good credit you can be very picky these days. Card companies will be falling all over you to give you cards with 9% fixed (or semi fixed at least) rates on all purchases, and some will give you one time loans for 2.9% to 5.9% for LIFE. GM can't even borrow money at these rates, and we're talking about unsecured loans here.

Good credit means borrowing money and paying it back on time and not letting your used up credit exceed about half of your available credit (shoot for 25% or less if possible). When the card companies pull up your file and see you have dealt yourself a good credit hand, they offer you a good deal because they know how easy it is for a catch like you to go find a better deal elsewhere. Card companies aren't stupid. People use up all their available credit before going bankrupt.

If you have bad credit — and this could simply mean missing a few payments to your utility company, much less a card company, or just using up too much of your available credit — card companies will stick it to you. In fact, card issuers are just waiting — nay hoping — for you to mess up so they can flip you to their “default” rate of 29% (or more) — a hard prison to get out of because other lenders won't be so quick to offer you credit.

Bottom line, banks give good deals to those who don't seem to need the money. Make it look like you don't really need it, then give 'em a call.

Question: We are a 26-year-old couple getting married and want to invest our wedding money in the best way possible. (We estimate receiving 25k.) My fiancé is still in grad school, and I am paying off student loans. Should we put the money toward paying off our educations? Or should we invest it in a mutual fund?

Jonas Max Ferris: As an investment advisor, I should tell you to pay off all debts to society before investing because it's unlikely you'll earn more investing than the rate on your debts — especially after taxes, commissions, and the like. Plus it's a lower risk strategy — imagine your investments go sour, you lose your job (the two can be correlated with the economy) AND you still have your debts.

That said, I'd only pay off high interest rate debt like credit cards (and then only if you WON'T rack the debt right back up). Student loan interest is acceptable debt to carry. For one, unless you earn a lot of money ($65,000 per year single filers or $130,000 for joint filers) the interest is deductible on your taxes (thank you, Al Gore). Credit card interest is not deductible (thank you Ronald Reagan).

Thanks to government backing, student loan interest rates are ultra low given they are secured by nothing but your social security number. The key is to consolidate the loans at as low a rate as possible, which you can do by calling the government (1-800-848-0979) who probably has your current loan. Also setup automatic deduction of payment from your checking account because the government will give you a discount on the rate if you do. Hurry, as rates are going up on July 1, 2006.

Its important to start investing early and keep in the habit of adding to your portfolio (as well as making timely debt payments). If you don't plan on using this newfound wealth to buy a home in the next few years, buy a stock mutual fund, as you are young enough to take on some risk. Try Bridgeway Blue Chip 35 (BRLIX) with about $20,000 (don't panic if your account drops by $5,000 in a rough market) and put $5,000 in a high yield savings account (see below) for a rainy day.

Question: Which stock is better these days -- Coca-Cola (KO) or PepsiCo (PEP)? I remember the big rivalry of the '80s -- are they still the 'big two' despite emerging new soft drink brands?

Jonas Max Ferris: I've recommended KO before and got stuck in the ole' value trap — the stock's cheap and it stays stubbornly cheap as it goes nowhere slow. Pepsi on the other hand, has been hot and the stock reflects it. At these prices I have to say I still prefer KO — it still pays a nice low tax dividend and is a safe place for money even if it only grows revenues at the pace of the broader economy.

The real action in beverages is in energy drinks - an area largely missed by the big two. Red Bull and Hansen Natural's (HANS) Monster Energy come to mind. The later is a very hot stock, unlike KO, but far more dangerous.

Coke and Pepsi are too big to catch trends early, too big to consider launching a new product that they don't think has big potential. Later they try to buy upstarts at inflated prices after failing to catch up with their own products.

This is not the first time big soda missed out on consumer beverage trends — remember Snapple? I don't think you'll go wrong with KO or even PEP. The business models are safe and the hot beverages of today often go sour in a hurry.

The real trouble with a stock like KO is the same thing haunting many of the largest 100 or so companies in America — their stocks got so expensive in the 1990s that it could take a decade or more for the fundamentals to catch-up to the stock prices (or the stock prices to come down to the fundamentals). I've been too early on this call that enough is enough with U.S. mega cap stocks going nowhere, but sitting it out in KO at these levels is a better strategy than switching to some highflying small cap stock at this stage of the large stock down, small stock up correction. Maybe I need to drink more Red Bull to stop being such an investing dullard.

Jonas Max Ferris is a regular contributor on "Cashin' In" (Saturdays at 11:30am ET and Mondays at 5:30am ET) and is co-founder of MAXfunds.com .