This morning I logged in to our rewards account and saw that our interest payment had been credited – $75 and change. That’s right – 3.80% on our checking account deposits. Try to get that rate at one of the internet-only banks that are blogged about elsewhere until your eyes glaze over. You can’t.

You know what Mr. ToughMoneyLove likes most about a rewards checking account? You are rewarded for what you are not spending.

Other folks like to brag about all of the points and rewards they can earn on their credit cards. That requires buying things. I prefer being rewarded for the money we did not spend.  I like a bank that emphasizes that.

The critics of rewards checking accounts complain about having to make ten debit card transactions each month to receive the top interest rate. It’s as if that will cost them a trip to Tahiti because they didn’t swipe their credit card instead.

Let me tell you how challenging it is to make ten debit card transactions in a month. It’s not. A few trips to the grocery store and stops for gas and you are done.

Does it bother me that these small transactions are taking money immediately out of our checking account? Not when I know that what is still there is earning 3.80%.

Other self-appointed personal finance geniuses (OK – I”m also self-appointed) will argue that strategic use of their credit cards will boost their credit score.

You know that I hate FICO and credit score obsession. I have regularly boasted that I did not know my credit score and have never known it. That changed yesterday.

I received a standard notification in the mail from our community bank as it processes our mortgage refi application. As I was reading the fine print and boilerplate, I suddenly noticed that my credit score was stated on it.

Whoops. I did not expect that so I couldn’t avert my eyes.

I’m no longer a credit score virgin.

So what score did FICO give to someone who dislikes credit and has ignored his credit score for his entire adult life? 793  I’m guessing that’s pretty good considering they tell me the scoring range is 300-850.

So now you might be thinking, if you didn’t know your credit score when you applied for your refi, how did Mr. ToughMoneyLove know he was getting the best available rate? Easy. I asked if I was being offered the best available rate offered to the best customers. I was assured that I was.

I probably didn’t need to ask. Think for a minute. Banks are going to promote their best available rate to get you interested in their mortgage loan product. When they run a credit check on you after you apply, you may be declined or the rate may change if they find something negative. If it doesn’t change, you are good to go.

So my recommendation to you is to think like a saver and not like a spender. Find banks and financial products that reward saving, not spending. They are out there. And keep your focus on responsible spending and building net worth, not your credit score. If you do, everything else will fall into place.

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You don’t want pure anti-correlation either, where your different asset classes always move inversely to each other. Preferably, your investments would change in value in a somewhat independent fashion. This gives your portfolio an opportunity to thrive in good times and to survive in bad times, without a need for constant buying and selling.

There is a problem developing with practical implementation of a portfolio based on an asset non-correlation theory. The problem is that stock correlations are now ridiculously high, at 0.82. This is higher than since 1982, except for the “crash of 1987″ period. To bring even more attention to this situation, here is a recent quote from the Seeking Alpha site:

Over the nearly 40 years of data, there have only been a total of three readings over 0.80 (including the current reading) and only five reading over 0.67! Thus, the current correlation of stocks to the market is indeed quite rare.

What does this mean for the average investor? In one sense, it warns you that all of your perceived stock-picking skills may be to no avail. When a highly-correlated market falls, your picks are likely to tag along, no matter how clever you think you have been.

What can you do to respond to this situation? I’ll tell you what Mr. ToughMoneyLove has done.

First, I checked the relative correlation of our long term holdings. That is easy to do by plotting their respective market movements during the past year (or other period) on a chart. You can quickly do that displaying a Google Finance chart for one of your holdings, then use the “Compare” box to add additional investments from your portfolio to the chart.

When I did this for our ten speed “couch potato” portfolio, I observed that too many of the ten different asset classes were moving in tight correlation. This was not how it was when I first set up the portfolio in 2007.

What I did next was to reduce the number of different investments in the portfolio. I chose asset classes that were consistent with a long term “couch potato” investment plan and that were generally non-correlated. A related motivation was to make it easier to manage risk and to lower transaction costs by using stop loss orders.

If you are a long term investor, I suggest that you investigate the correlation (in today’s market) of your different asset classes. If they are tightly bound together, make a change. If you don’t, you are losing the benefit of owning different classes of investments and increasing your risk.

Or do you have a better idea to share?

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Several months ago we opened a new primary checking account at a community bank paying 3.85% interest on funds up to $25k. Last week we went to that same community bank for a mortgage refinance on our Tennessee home. Bank of America was not competitive so we will be paying off our existing BOA mortgage.

Yesterday I sent instructions to Bank of America to close our home equity line of credit (which we had never used). Our new bank will open one for us with no fees or costs involved. Today I stopped by the Bank of America branch and closed one of our two remaining accounts. This is the account for which BOA started charging account fees after years of providing the account for free.

We will keep the one remaining BOA account for now because it is linked to our brokerage account, where for the time being we get to trade without paying commissions. That will change soon and then we will move our IRAs and other assets in the BOA brokerage account to our Vanguard account. Vanguard is now allowing its brokerage customers to trade Vanguard ETFs commission-free which is an excellent feature.

I am still in the process of simplifying and re-balancing the investment classes in our retirement accounts.  This has involved a series of transactions in our 401(k) self-managed brokerage account. My job in managing risk will be much easier after everything is complete, such as by effectively using stop-loss orders.

What changes are you making in your financial life?

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I quizzed the veteran repairman about his preferences then we started doing some research and looking online. Our big constraint was size.  The way our kitchen is designed, only a counter-depth refrigerator will work. Although no one could tell me why with a persuasive answer (and I asked), counter-depth refrigerators cost more even though they are smaller in capacity. My belief is that counter-depth refrigerators are more desired because of aesthetics so there is an upcharge. They can’t cost more to manufacture.

The other feature we wanted was a bottom freezer with french doors on top instead of a side-by-side. We were tired of years of stooping down to retrieve items from the lower shelves of the refrigerator near the floor.   We also were unhappy that wide objects (e.g. deli trays and pizzas) could not fit on the shelves in either the freezer or refrigerator sections. In fact, as your three sons reached their teenage years, we ended up buying a second refrigerator that we kept in the basement for auxiliary food storage. We simply could not store enough food to feed those guys in a 20 cu. ft. side-by-side.  Finally, we wanted water and ice in the door. We use this frequently, every day.

To get to the point of this post, the cost of a new refrigerator that met our requirements was over $2500. Ouch. That’s a nice vacation trip worth of refrigerator. We are achieving some operational cost savings. Our new Energy Star refrigerator will save us about $80/year in electricity usage. Also, because it is larger by 3 cu. feet and our sons are mostly out of the house, we are shutting down and selling the basement refrigerator, saving another $85 per year.

If you want to run energy cost numbers on your own appliances (replacing or retiring), visit the Energy Star appliance site. Something that really struck me when I ran our numbers is how much more folks in some other states are paying for electricity compared to Tennesseans like us. You can see those numbers here.

The shopping trip was interesting. Lowes had good prices but not much of a selection of models having the features we wanted. Best Buy had a few suitable models (most over $3k) but the salesperson had very little knowledge about them. Indeed, when I told her we wanted a counter-depth refrigerator, she didn’t really understand what that meant.

We went to Sears as a final stop. Sears appliance department a has fully commissioned sales staff and pricing that can vary day-to-day so you need to be careful. Our salesperson was experienced, knowledgeable, and knew not to pressure me. When he learned what we were looking for, he immediately went into “price matching mode.”  By this I mean that when he saw us looking at a highly-rated Samsung unit (we had researched on Consumer Reports), he found a local competitor online offering the same unit for $400 less. He then told us that he could give us that price. I was pleased that he found the price without us having to ask.

We bought the Samsung unit. It had the largest capacity of all units meeting our specs, was fairly priced according to our research, and came with free delivery and haul-off of our old unit.

But $2600 for a refrigerator? I’m still in shock over that.

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Let’s start with this article which summarizes the thoughts of those who believe that the U.S. is on its last legs.

Next, there is the Elliot Wave Theory.  The technical analysts who follow it say that the markets are headed for real trouble and that we all should take cover.

There is also the recent pattern of extreme market correlation in which every class of equity investments rises and falls together. This is a big problem for the so-called stock picking geniuses, of which there are actually none.

So what should the more rational investor do in times like this? The market is now swinging upward, yet again. What if this is a last gasp rally before the negative predictions prove correct?  I’m going to ride it up but limit our downside with trailing stop loss orders on our major equity holdings.  Our new money will continue to flow into non-equity classes, reducing our exposure.

What about you?

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Back next week. Thanks for reading.

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Mrs. ToughMoneyLove has been closely following gold prices and periodically mentioning them to me. I read about gold regularly (it’s hard not too in this economy). I have written here and at Go To Retirement about my lack of faith in gold as a true investment. We had some exposure to gold in our ownership of some commodity and natural resources funds. That apparently not enough to satisfy my beloved.

Anyway, one of our more conventional holdings – a dividend ETF – had been performing very poorly and way below the expectations we had when we bought it. It also replicated assets we own in our tax deferred accounts. I was tired of watching it move down or sideways.

What if the gold bugs who predict gold to hit 5,000 were right?

So I decided to make a defensive move and make Mrs. ToughMoneLove happy at the same time. I sold the dividend ETF and used that cash to buy shares in the SPDR Gold Trust EFT (GLD) on a small dip. Owning shares in GLD is the closest thing to owning gold bullion without having to keep it in your personal storage vault. I have no interest in maintaining a stash of gold coins in the house.

So now instead of wondering if I should buy more gold, I will be asking myself when I should sell it. That has always been a problem for me in analyzing gold as a long term investment.

The odds are we will not sell it until we are ready to spend the cash on a non-investment. Maybe that will be after gold prices make another major run up. If so, will that mean that our economy is in the tank? I hope not.

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