Are you getting tired of all the economic doom and gloom? Me too. So today, I thought I’d change gears and spend a little time talking about a recent financial success that we’ve experienced…

The Backstory

Back in January of 2004 we had been homeowners for about 2 years, we had three kids with another on the way, and we had just gotten to the point where we had a nice, fully funded emergency fund. Never content to rest on our laurels, my wife and I decided that we wanted to try to wring a bit more out of our safety net.

At the time, our e-fund would’ve covered close to six months of living expenses, and we weren’t crazy about the idea of leaving a bunch of potential interest earnings on the table. At the same time, interest rates for online savings accounts were at low tide.

Around that same time, I ran across a screaming hot deal on five year CDs at Pentagon Federal Credit Union — 5.25% APY, which was way, way, way above the going rate at the time. The problem was, this was our emergency fund, and we weren’t crazy about the idea of locking it away for five years.

The concern here is that,if you break a CD early, you face penalties in the form of recapture interest. Penalties are typically in the range of 3-6 months interest, and if it happens early on, you might even lose a portion of your principal.

The Non-Laddered CD Solution

Our solution? We bought five equal, non-laddered CDs. The thinking here was that we’d be able to maximize our interest earnings by getting the 5 year rate on the full amount, but the non-laddered CDs would make the make money somewhat “modular” (i.e., we could break into just a portion of it if a smallish emergency cropped up).

In reality, the interest rate difference meant that we’d likely come out ahead as long as we didn’t need to tap into that money within the first six months or so. By breaking the money into multiple CDs, we just further reduced our risks.

In the end, our goal was to sock this money away, maximize our earnings on it, and do everything within our power to avoid touching it. All the while, we were working on building up other savings and investments in parallel to these CDs. The goal was to make it through that five year term without needing that money, such that we’d have roughly a nice chunk of change coming due in January 2009.

Success

As of two days ago, we’ve officially survived the entire five year period without touching that money. To be honest, it was a bit anti-climatic, as it became clear two years ago that we’d succeed. Regardless, we now have a nice little chunk of change coming due, and we have other resources to depend on in a pinch.

Given the above, we now have some thinking to do. Should we plow this money into our mortgage? Use it to further build up our long term investments? We still haven’t decided. But it’s a good position to be in.

What About You?

Now it’s your turn. Do you have any recent(ish) financial successes that you’d like to share with the world? If so, please don’t hesitate to leave a comment. Or, if you’ve recently set any major financial goals, feel free to share those. With any luck, these goals will grow into future successes.

—
Related Articles at fivecentnickel.com:

     » Building an Emergency Fund
     » Ten Things to Do With Your Tax Refund
     » Buying Non-Laddered CDs With Your Emergency Fund
     » Saving for College
     » The $1000 Emergency Energy Rebate
     » Help a Reader: Buy a House or Wait?
     » Keeping Cash on Hand
     » Weekly Roundup - 04/20/07

With all the recent news about struggling and/or failing retailers, I thought that now might be a good time to talk a bit about liquidation sales. Sure, the signs in the window claim that “Nothing is Held Back” and “Everything Must Go,” but are you really be offered the deal of the century? When it comes to liquidation sales, things are not always as they appear.

How it Works

For starters, liquidation sales are typically run by a third party liquidator who buys up the stock in failing stores and then turns around and sells it themselves. Getting rid of the merchandise is actually a secondary goal, at least at first.

The primary goal is of liquidators is, not surprisingly, to wring every last cent that they can out of their investment. This means that products aren’t necessarily priced to sell, at least not at first.

Pricing Games and Other Gotchas

In order to offer an apparent discount, liquidators often raise prices to the manufacturer’s suggested retail price (MSRP) before applying any discounts. Thus, even with a 10% initial discount you might end up paying more for than you would have before the sale started.

Because these sales typically run for several months, the liquidator has plenty of time to prey on the consumer ignorance and make a killing by offering small discounts off inflated prices. By the time they get down to serious discounts, most everything that you actually wanted in the first place will be gone. The irony here is that many consumers will happily overpay for items at a store that couldn’t stay in business by selling the same merchandise at better prices.

Another problem is that, because the store is going out of business, all sales are typically final. This means that, in the event that you have trouble with your purchase, you’ll be stuck dealing with the manufacturer rather than being able to take it back to the retailer. Is it worth saving a few dollars to deal with these sorts of headaches? In some cases, yes. But in other cases, it’s not.

Some Tips for Shopping Liquidation Sales

For those of you that are planning on braving the liquidation sale crowds, here’s a list of six tips shopping at liquidation sales:

1. Don’t set foot in the store unless you actually need something. It’s easy to get swept up in the excitement of sale and make purchases that you’ll later regret. The problem here is that, as noted above, liquidation sales are typically final, such that you won’t have an opportunity to re-think your decision and return the item in question.
2. Do your homework. While it’s possible to get a great deal, it’s also possible to get totally hosed. Since you already know what you want to buy (see tip #1) there’s no excuse for not knowing exactly how much you could get it for elsewhere.
3. Be leery of extended warranties. I’ve never been a fan of extended warranties. In the case of liquidation sales, you should be even more cautious, as the warranty may or may not outlive the merchant. In most cases, you should probably just rely on the manufacturer’s warranty, which will be unaffected by the merchant’s closing.
4. Don’t forget to spend your gift cards. Since the company is going under, the clock is ticking. If you don’t spend it before the sale ends, your gift card will be little more than a souvenir from a bygone era.
5. Pay with a credit card.This is especially true for items that will be delivered. If your stuff never shows up, you can always go through your card issuer to get your money back.
6. Beware the last minute sale items. As the clock winds down, many liquidators will bring in outside merchandise and sell it alongside the stuff they’re liquidating. In some cases, this is simply stuff they didn’t sell when liquidating a different retailer, but in other cases they’ll actually be pushing reconditioned goods.

—
Related Articles at fivecentnickel.com:

     » Shady Jewelry Store Advertising Tactics
     » Weekly Roundup - Christmas Tree Edition
     » Carnivals - Week of 04/21/08
     » Moving Sale Results
     » Preparing for our Moving Sale
     » Buyer Beware: Sharper Image Gift Card Restrictions
     » Appealing Our Property Tax Re-Assessment (Followup)
     » Twelve Tips for Preparing Your House for Sale

Jeff Bezos, the founder and CEO of Amazon (AMZN), looks a bit mad. Stick thin and without a hair on his head he is both bug-eyed and frenetic. He has the look of a man who has never slept.

Bezos founded Amazon in 1994, which makes him one of the internet’s few elder statesmen. While the other old guard tech companies like Microsoft (MSFT), Ebay (EBAY), and Yahoo! (YHOO) have not aged well, Amazon is in the midst of the best period in its history.

The 2008 holiday season was a bust for both traditional retail and e-commerce. Research operation comScore reported that online holiday spending hit $25.5 billion, which was down a couple of percentage points from the same period in 2007.

Amazon announced its fourth quarter earnings today. Revenue was up 18% to $6.7 billion. The spread between that growth and the rest of the industry is extraordinary. Net income increased 9% to $225 million.

Amazon also said that it would grow as much as 19% in the current quarter. Forrester Research today said it expects e-commerce sales to be up only 11% for 2009.

So, there is clearly something magical about Amazon. The largest company in a sector in any industry is not supposed be among the fastest growing.

The first key to the company’s success is the breadth of it product offering. Amazon started as an online bookstore. Now it sells everything from DVDs to PCs to jewelry. Consumers do not have to go to half a dozen destinations to get what they want. They can buy almost anything there is to buy online at Amazon.com.

Amazon has been around for well over a decade. That makes it “safe” which is still an issue for some people who hand out credit card data when they shop on the Internet. The company has a stellar reputation for customer service. Earlier this month ForeSee Results asked 9,000 holiday e-commerce shoppers how they ranked retail websites for customer satisfaction. Amazon was in the top five. Probably no one would be surprised to hear that Apple (AAPL) was as well.

While Amazon has the largest range of products available online, it acts as if it were a start-up company. Not unlike Apple (AAPL), Amazon under the leadership of Bezos has some new and exciting product every year. For 2008, that was the Kindle portable book reader. When Oprah got her hands on one, Amazon could not keep them in stock. The product gives customers access to over 200,000 titles each of which can be downloaded wirelessly in a few minutes. In 2007, Amazon introduced its video-on-demand product which allows consumers access to premium content over the internet.

Amazon is not just good at what it does. It is good at what it is going to do. That gives the company an aura not entirely unlike Apple’s. Consumers want to know what Apple will do next. People look at Amazon the same way.

Bezos has done something which is nearly impossible. He has operated his company well since it was started 14 years ago and he makes it a more exciting place to shop as each year passes.

Douglas A. McIntyre

Textron (TXT) Weak earnings outlook. Drops to $8.83 from 52-week high of $65.52.

Eastman Kodak (EK) Poor earnings and layoffs. Down to $5.01 from 52-week high of $20.91.

Black & Decker (BDK) Cuts jobs. Cuts outlooks. Sells off to $31.02 from 52-week high of $74.24.

Dow Chemical Company (DOW) More concerns about finances and Rohm & Haas (ROH) buyout.

Websense (WBSN) Poor fourth quarter results. Dips to $11.38 from 52-week high of $24.60.

Douglas A. McIntyre