Hi All,
Here is today’s personal finance tip: where possible, minimize fees.
The money you pay in bank account management fees, stock commissions, and mutual fund management fees all cause drag on your financial bottom line. Don’t fall prey to the thinking, “you get what you pay for” – many of the best financial products carry very low fee structures. Don’t let fees destroy your ability to build your wealth!
Best,
James
Now may be a surprisingly good time to consider home renovations if you have the need and funds to make it happen.
Some of the up sides to the poor economy are the reduced pricing for retail items such as construction materials and appliances. You can save a lot of money on these products. Contractors may also come down on their prices as they try to stay busy during the down market.
If you make renovations that improve your home’s energy efficiency you will see reduced energy costs, as well as qualifying for federal tax credits. This is yet another area you can save money.
Some tips on making the most of renovations include:
Buy Energy Star-certified appliances. These will use 10-50% less energy, and a washing machine will save you $550 over the life of the appliance.
According to the gov’s Home Energy Saver site you can save $600-$1,200 annually by improving your home’s energy efficiency.
The American Recovery & Reinvestment Act has tax-credits for up to 30% of the cost of energy-efficient renovations; maxing out at $1,500 in 2009 and 2010. This includes doors, windows, skylights, asphalt, metal roofs, or insulation.
If you want to learn more, check out some resources that give you all the info you need:
Green Remodeling: Changing the World One Room at a Time, by David Johnston and Kim Master
Green Building & Remodeling for Dummies, by Eric Corey Freed
The Homeowner’s Handbook to Energy Efficiency: A Guide to Big and Small Improvements, by John Krigger and Chris Dorsi.
The Northwest Green Home Primer: Hundreds of Ideas for Building, Remodeling, and Buying Green, by Kathleen O’Brien and Kathleen Smith
Live Green, save money, build your wealth, and prosper!
Miel
Hi All,
I’ve been thinking over issues about women in the workforce lately, particular working moms. I have a couple of different examples floating around in my head.
First, you have my twin sister, who headed back to work a month ago after her maternity leave. She’s been on leave since late January, but has been working limited hours from home for the past six weeks or so. She’ll be dropping her three month old and three year old off at day care, and starting back at three days a week for a month or so, and then back to full time after that.
Next, you have a colleague that I would have shared an office with. We overlapped for my first three days while she prepared for maternity leave. She has my same job for another region in Africa. She has decided not to return to the office and to take some time off. She says that there was definitely some pressure as a professional woman to go back to work, but she figured that this time with her son was worth it even if they have to live on peanut butter and jelly sandwiches.
Then, you have my college roommate who has chosen to be a stay at home mom, homeschooling her seven year old and three year old. She is very creative and values her time as a mom. While I haven’t heard her mention going back to work in many years, I do wonder at the barriers that would be against her. With only a couple of year’s experience at entry level jobs she would have a difficult time competing for anything further up on the food chain, even with a high quality liberal arts degree and excellent grades.
Lastly, my friend shared with me about a good friend of hers who has continued with her traveling lifestyle even with kids. The legend was breast pumping around the globe and carrying along baggies of breast milk just to continue to nurse her child. She has managed to continue frequent travel from only a few months after giving birth, thanks to a supportive husband and a full-time nanny. The child is loved, well-cared for, happy, and well-adjusted.
And then I look to myself and wonder. I still can’t say. The debate has to whether to have children, and when, continues around this household. At soonest it would be several years from now, but I still can’t help but consider the impacts the decision to have, or not have, would have on our general lives and in particular my career. My drive for working internationally makes this debate even more difficult.
My parents made it a point to find a good place to raise kids and stay there for the twelve years it took to graduate from high school. In fact, they are still there today. That stability I grew up with I know was foundational in who I am. I respect my parents for making the choices that they did, but I also wonder if I could ever do the same. I guess the flip side of having the geographical stability would be the learning experience of growing up in an internationally oriented world.
It’s hard to say, the jury is still out. I figure I’m not the only professional woman mulling around with these thoughts, so I thought I’d share.
Readers: I’d love to hear from you about being a professional mom.
Happy Mother’s Day!
Miel
For many people, getting started in personal finance can be daunting. The ins and outs of asset allocation, goal setting and deciding how to structure one’s money can sometimes be overwhelming. Because of this, many people choose to hire someone to help them with their cash. While we are not experts in this topic, here are some things you might consider when choosing an advisor.
1) Be Cautious:
Its not an accident that caution is the first point in this posting. Most advisers are actually salespeople. That is to say, they are primarily interested in selling you products like insurance or annuities. This is a conflict of interest because the advisor is usually compensated by a third party for selling you these investments. This kind of reimbursement arrangement means you inevitably come second in the advisers mental calculus.
Some people recommend fee-only or fee-based advising to avoid these conflicts of interest. Fee only advising is also problematic. Fee-only advisers are paid by their clients, BUT they tend to gravitate towards strategies which maximize the amount of money they manage for you. This is a problem in situations when your interests are better served by minimizing the amount of money a professional manager holds for you. For example, you might want to put your money into your own business or your employer sponsored retirement plan, rather than a vehicle the advisor controls.
2) Get Someone Experienced:
Naturally you’ll want to pick someone who knows what they are doing. This means they should have at least two things: 1) a formal education in finance or equivalent experience and 2) be credentialed. This means they should have CFP or CFA (chartered financial analyst) and should be licensed in their state.
Some people don’t agree with me on this second point. But, your financial advisor should be older and richer than you. The benefits of learning from someone older are obvious. Whats less obvious is that they should be richer than you. This is important and bears some thought. If your advisor cannot achieve his or her own financial goals, how can they help you reach yours? I would strongly advise you to select your advisers based on their proven experience and ability to generate wealth. They are, in fact, supposed to help you build your wealth and the last thing you want is someone who doesn’t even know how to build their own wealth!
An additional point here is that markets are cyclical, so its important that you’re working with someone who has been through both up and down markets as well.
3) Get Organized:
No amount of good council will help if you don’t have goals. Before searching for an adviser, its sensible to determine what you want to your financial life to look like. For example, if you want to retire by the time you are 65, you’ll need to determine how much money you need. If you want to have enough income to take a vacation twice a year, you’ll need a goal for that too. Don’t forget, goals should be realistic and measurable. That way you have a shot at meeting the goal and you know when you’ve achieved it.
Also, when goal setting, you might consider reviewing your papers to see what your income, expenses and net-worth are. This will help the goal setting processes and empower you to focus on whats working with your finances and what you could improve. Both reviewing your financial papers and setting goals will help you maximize what a financial adviser can offer you. For more information, check out the SEC’s helpful tips on financial advisor selection.
Happy Hunting!
Best,
James
p.s. We don’t have a financial adviser. We primarily make our major decisions in consultation with one another as well as the real estate, accounting and legal professionals we work with – that is of course, if we can get them to call us back!
Hi All,
While I’m certainly not an expert observer of economic events, one thing thats changed since last years meltdown is the prestige of big financial institutions. This is important, because the popularity of financial firms has allowed them to engage in business practices that ignore the well being of their customers.
Now, I don’t know much about wall street generally, but we do know a little bit about buying stocks, so to illustrate here are four kinds of bad practices that stock brokers do to pad their bottom lines at the expense of customers. I’m posting this both to show whats gone on over the past 20years and to make you, dear reader, aware of what happens you when you decide to buy stocks. You should assume that ALL companies engaged in the sale of stocks are involved in this to some degree.
1) Spread Capture: The spread is defined as the difference between the bid and asked prices. So, if a stock is trading between $10.50 and $11.00 – the 50 cent difference between the prices is called the spread. Spread capture is when the broker will get the stock for $10.50 and turn around and sell it to you for $11.00. Typically retail customers get the wrong end of the spread.
2) Unloading In House Shares: Many brokers are also dealers. This means they have inventories of stocks in their institutional accounts. If the dealer has stock in a company they think is going to decline in value, they will sell you their shares rather than buying them on the open market. Naturally, markups and commissions apply.
3) Stock Loans: Many brokerage account agreements allow your broker under certain circumstances to take a loan and use your securities as their collateral. The brokerage gets all the profit from these deals, you get nothing.
4) Payment For Order Flow: If the stock you are buying trades on the Nasdaq, your broker may get paid for routing your order through the Nasdaq. Specifically in a broker/dealer market the exchange has set up with its members acting as market makers in particular stocks. The problem is that payment for order flow creates an incentive for brokers to route your orders to exchanges that provide the best value for them, NOT for you.
As I mentioned earlier, these practices exist in ALL firms, even discount brokerage houses which are otherwise geared towards small investors like Schwab or Scottrade.
However, on a more optimistic note, there has been some recent discussion of appropriate regulation to address ongoing problems in the financial sector. Hopefully this will include increased transparency and a critical review of some of the worst business practices that have gone on over the past 20 years. It is essential, though, that you understand what is going on when it is your money and your wealth that is being used behind the scenes.
Best,
James
As summer continues to set in, fresh berries and fruit start to dominate the fresh produce aisles. As you browse through produce at your local farmer’s market or grocery store, it is important to keep a few things in mind about value.
It is important to make sure that we are comparing apples to apples for the value of fruit. Sounds simple, but we tend misjudge the price and value of fruits.
For example, typically one thinks of fruit like apples and oranges as less expensive, but over the years these have gone up as well. You can even save money on these purchases when you have the right information. Here are a few things to pay attention to:
Happy Summer!
Miel
Hi All,
If you own Vanguard mutual funds, you should probably read this.
Jason Zweig of the Wall Street Journal is reporting that the Vanguard Group recently bid for the iShares family of exchange traded funds last month (1). This doesn’t seem like a big deal, but it it signals potential problems.
Now, if you’ve spent some time reading about mutual funds, you’ll see Vanguards name crop up as one of the industry’s cheapest providers of index and targeted mutual funds. They run a number of very well known index products including the famous S&P 500 index fund.
Vanguard was founded by John Bogle. Bogle was an astute businessman who understood that bringing value to customers could be achieved by offering them efficient and low cost products. Bogle also pioneered the concept of indexing, or creating products that matched the overall performance of the stock market using weighting and averaging. He is a flexible and nimble thinker. As a result Vanguard now enjoys a reputation as having some of the best low cost mutual funds around and has grown from a small company to a giant with over 10,000 employees.
Unfortunately, Bogle retired a number of years ago, leaving John Brennan in charge of the company (1). This recent move by Brennan should raise concern. It is essentially a shift away from Vanguards core business strategy. Its true they already issue a high number of ETFs, but their core business is selling really cheap index funds. When businesses start to move away from their core mission, bad things can happen.
I’ve seen this several times.
A few years back, TIAA-CREF started to “diversify” outside of their core business of selling variable retirement annuities to offer retail mutual funds. As part of their expansion, their fee structure doubled while at the same time their performance of some of their key funds lagged the overall market. The bottom line was because of TIAA-CREF’s silly management decisions their customers had to take a hit.
In 1999 the Washington Water and Power Company changed their name to Avista. The name change signaled a change in core business activities from providing water and electrical services to include in the CEO’s words “a focus beyond our traditional business roots within the Pacific Northwest” – or in plain language trading energy to make a fast buck. What was the end result? You guessed it. The shares of Avista promptly lost 75% of their value after the name change due to bad energy bets. They also cut their dividend from 40 to 13 cents to add insult to injury.
Bottom line: when a company even hints at changing their core business activities, you’d better hoist the red flag. Typically it introduces a number of additional risks and signals a change in executive culture that’s not always for the better. You could lose a significant portion of your wealth if you do not get out before the boat sinks.
Full disclosure, we have over $10,000 worth of Vanguard funds, primarily their S&P 500 funds, bond market index and inflation index bonds funds.
Best,
James
A good home must be made, not bought.
– Joyce Maynard, writer
Hi All,
It’s a lazy Saturday here for us DINKs. Miel is barbecuing with some classmates and I’m working at home today. If you have a few spare moments you might consider checking out Michael Lewis’ The End of Wall Street. Its a really well written expose on some of business practices, personalities and types of products that brought down Wall street during the subprime meltdown. It could be useful when you make decisions related to investments and whatnot in the future.
Click here for the piece. It is 9 pages, but will go quickly.
Best,
James
Hi All,
The recession appears not have dampened the antics of the rich and well to do. The latest to come out of New York is the story of a Pita bread mogul. Evidently the guy divorced his wife and the judge ordered him to pay $30,000 a month in spousal support. The mogul pled poverty, but the judge didn’t buy it. Evidently the court thought the guys $200,000 mazeratti and $50,000 mattress ment he could afford it.
The full story is at the NY Post.
Best,
James
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