Friday, December 28, 2007

Hard money lending

I dug around for this story on hard money lending after hearing about it on a Wall Street Journal podcast.

Some mortgage seekers spurned by banks and other traditional lenders are turning to high-cost loans known as "hard-money mortgages."

Once thought of as a last resort for strapped borrowers, these products -- also called "private-money mortgages" -- have different lending standards than traditional mortgages and carry substantially higher interest rates and fees. These days, however, they are attracting a larger, more-affluent group of consumers.
These loans were often used by real estate investors to get quick financing for an investment property, which was later refinanced with a traditional mortgage. The Real Estate section of the Blogs I Read section has links to a couple of blogs that give real world examples of both getting and making hard money loans. Hard money loans are being used for more purposes than these bridge loans in the face of the subprime collapse.

Monday, December 24, 2007

Getting more exotic investment exposure with ETFs

Johnathan Clements provides some ETFs in his latest story that will give more exotic (meaning non-U.S. stocks) investment exposure. The four asset classes are foreign real estate, internation small cap stocks, commodities, and foreign bonds. Investing in these isn't all puppy dogs and ice cream though. He ends the story with this advice:

Intrigued? Remember, we're talking here about volatile investments. My advice: Don't stash more than 10 percent of your total portfolio in any of the funds mentioned above. In fact, a 5 percent allocation is probably plenty.

Wednesday, December 19, 2007

Tuesday, December 18, 2007

Think of the children

Time has almost run out to do some year end tax planning to avoid the 'kiddie tax' for older children. The kiddie tax taxes childrens' unearned income over a threshold at the parents' tax rate. It was designed to discourage the wealthy or mass affluent from shifting investment income to their children to avoid taxes. Once the child's unearned income exceeds the threshold, it gets taxed at the parent's presumably higher tax rate. As an aside, to show how arcane our legislative process is, the change in the kiddie tax for 2008 was part of an Iraq spending bill.

The change to the kiddie tax is that the child's age limit is being raised to under 24 from under 18, although this only applies is the child is a student. If she's not a student, then the limit changes to 18 and under from under 18 (in other words, the limit is being raised by 1 year). The impetus for 2007 taxes will be to have any dependent children between 19 and 23 to recognize any unrealized gains in 2007 to avoid being taxed at a higher rate in 2008.

Let me throw out a hypothetical. Let's say there is a 20 year old student who is really good at stock trading and makes a decent amount of money trading stocks in 2008. Her capital gains in excess of the threshold will be taxed at her parents rate, regardless of the fact that her gains may not be enough to be in that marginal tax bracket. Seems unfair.

Investment advice from the masses

I'm addicted to Wikipedia. I can kill several hours reading through topics like Balkan history on the site. The idea behind wikis is simple, anyone can post and edit articles, and hopefully the best, most accurate and timely information is produced. Now, would I want to get my investment advice from a wiki (free WSJ Digg link)?

Wikinvest itself doesn't report on companies or markets, or even make recommendations about stocks. Its contributors do all of that, writing and editing reams of information about businesses and market trends, and posting earnings data and stock charts that include attempts to explain price moves.

Articles fall into several categories: company profiles, which try to be neutral; bullish and bearish outlooks about those companies; and concepts, which tend to focus on market trends.


The site bases its operation on the theory that a large group of people analyzing a particular situation will, in general, do better than any particular analyst or even a relatively small group of analysts. Contributors to Wikinvest can reveal as much as they want about themselves, or nothing at all.


A recent visit to the site found a total of nearly 400 contributors, who, according to descriptions of themselves that they post on Wikinvest, range from professional money managers and equity research analysts to college students and self-proclaimed beginning investors.
Looking at Wikinvest, I'll say that it's nicely laid out and easy to navigate. I like that it categorizes articles into companies and concepts, so you can get to articles on say, sub prime, very easily under the concept section. I would never use this site for primary research, but I could see reading it for ideas that I would then research independently. As the site's founders say:
Moreover, Mike Sha, Mr. Conrad's partner, says "most people would never place real money on what JohnInvestor23 says he's buying." Mr. Sha says the point of Wikinvest is to "provide the rationale for thinking about an investment you're going to make," not to provide the buy or sell advice itself.
Finally, the story does point out the potential abuse of Wikinvest in pump and dump schemes (which is a problem with any anonymous information available on the Internet).

Sunday, December 16, 2007

Investing beyond emerging markets - the frontier markets

For those with the risk tolerance to handle them, frontier markets offer potential big returns (free WSJ Digg Link).

Long overlooked by all but the most intrepid investors, frontier markets are attracting increasing attention in spite of their small size and often patchy infrastructure. In terms of geography, they are a diverse bunch, ranging from quasideveloped markets in Eastern Europe, to oil exporters in the Persian Gulf, to countries in sub-Saharan Africa and beyond.

Bigger and better-known developing markets such as India and China are famous for their rapid economic growth, but a similar process is also unfolding in many out-of-the-way markets. The countries of sub-Saharan Africa, for instance, are projected to grow 6.8% in 2008, according to the International Monetary Fund, while Kazakhstan is set to expand by nearly 8%. Booming commodity prices, growing investment, and efforts to rein in debt have contributed to the rosier picture.

How an individual can get in

The article gives ways for individuals to get into these markets:
For individual investors, getting dedicated exposure to these markets is tough. T. Rowe Price Group Inc.'s three-month-old Africa & Middle East fund is open to small investors, as is a listed London-based frontier fund run by Progressive Developing Markets Ltd.

Monday, December 10, 2007

Harvard increasing aid for mass affluent

Harvard is increasing financial aid for middle class and upper middle class families (which the mass affluent segment would fall into) (free WSJ Digg link). From the article:

Under its new program, to take effect next fall, the Cambridge, Mass., school said undergraduates whose families earn up to $180,000 a year would be asked to pay 10% or less of their incomes annually for the cost of Harvard, which now totals $45,620.


Under the new policy, families making $120,000 to $180,000 will be asked to pay 10% of their incomes. A family earning $120,000 would pay about $12,000, compared with more than $19,000 under current student-aid policies. Families earning below $120,000 would pay a declining percentage of their incomes, down to zero at $60,000 and below.

There is no mention about what families making more than $180,000 will have to pay.

This is great news. The rising cost of education is a problem for many American families. It's good that Harvard is recognizing this. Families making less than $60,000 will not be expected to pay anything for a Harvard education for their children, which will hopefully open this door to some very smart but low income students. Loans are being eliminated from Harvard's financial aid package and being replaced with grants. It's also nice to see a school reduce the burden on the middle class. I don't think any family, lower income or upper middle income should have to mortgage their future to get its children a top notch education. Should they have to make sacrifices? Yes, absolutely. But they shouldn't have to burden themselves and their children with massive debt.

The link to the Harvard release can be found at the Harvard Gazette.

I also found this story about changes to financial aid that Duke University recently made. It gives a little bit of color on what other schools are doing:
Princeton University gained national attention in 2001 when it announced that it would eliminate all loans for students qualifying for need-based aid. Davidson, Amherst and Williams colleges have also eliminated loans.

Monday, December 3, 2007

Free access to WSJ through Digg

I know I'm late in discovering this, but you can now access an article on the WSJ online for free, through Digg. I'll try to update my old posts with this Digg access, and put it on all WSJ stories going forward.

All about wills

Bankrate has run a good introduction to wills, with answers to many common questions. Here's the most important one - who needs a will?

Experts advise that anyone with significant assets or minor children should have a will.

In the event that you're young, single and without children, think about whether you have significant assets that you want particular people to inherit upon your death. If you want to leave your extensive gold jewelry collection to your best friend instead of your parents, you'd need a will for that.

Thursday, November 29, 2007

Flew Midwest Airlines recently

I flew Midwest Airlines recently. What a treat! The seats are leather and are the size of first class seats on other airlines. The seat pitch isn't the same as first class on other domestic airlines (it's less), but it does seem to be slightly greater than the other domestic's coach offerings (Compare Midwest's 34" to Delta's 32" or United's 31. If I lived in one of Midwest's hub cities (Milwaukee and Kansas City), I'd make it my primary airline.

While I've read articles that suggest Midwest only has one class of seating, they do offer 'Signature' seating on some flights. According to their site, it's only available on some routes (they weren't available on my flights, as it wasn't the plane that has those seats). It's possible to upgrade to those seats for $60.

The free chocolate chip cookies Midwest offers are the best part of the flight. Apparently, they're going to start selling them retail some place in Milwaukee. I'm updating my airline food post just on the basis of the chocolate chip cookies, they were so good.

Friday, November 23, 2007

Automatic rebooking and other useful airline tools

Ignore the headline in this article. It's actually about useful airline tools like automatic rebooking, and not about those useless text message alerts that a flight is going to be delayed that arrive on your cell phone 2 hours after the flight was scheduled for departure. Orbitz seems to be leading the way:

Lockhart, it turns out, is a "care specialist" at Orbitz, a big online travel agency you may think of as just a place to score cheap flights. But with flight delays and airport hassles reaching epic proportions, few travel companies can afford not to guide frustrated customers through their travel problems. At its Chicago headquarters, Orbitz has created a command center staffed by a determined team of former air-traffic controllers, travel agents and even pilots, all focused on freeing folks from airport purgatory. On this day Lockhart, a travel agent for more than two decades, runs up a good tally: 19 of her 24 travelers will get rebooked. "This is my favorite part of the job," she says, after unstranding one more.
Now that is something really useful! No more waiting in line or on hold to rebook canceled flights. This alone is a reason to choose Orbitz over other flight booking options.

Other new services are mentioned in the article, such as Travelocity's reconfirming of hotel rooms before the customer arrives, but none seem as useful as Orbitz's automatic rebooking.

Sunday, November 18, 2007

Friday, November 9, 2007

National Geographic Traveler ombudsman's blog

Christopher Elliott, is ombudsman for National Geographic Traveler magazine, maintains a fabulous travel troubleshooting blog at (I discovered it through the CNN travel site, which syndicates the articles. His site contains many more articles.) It makes for a great read.

Monday, October 22, 2007

Tips for estate planning

Here's a link to an article on MSN filled with tips for estate planning. The article also has many links to other useful articles on estate planning. A few that were useful to me:


Most important? Providing for minor children. Your will should name both a guardian and a financial trustee for your kids in case you and your spouse die.

  • A simultaneous death clause will pass your estate to your children if your spouse dies shortly after you do.
  • Many states require that a third or half of your estate goes to your spouse, even if your will specifies a smaller share.


  • If you want to disinherit a child, spell that out in the will.


Hope my parents don't read the last one. Ha!

Thursday, October 18, 2007

Allegations against a financial planner

Allegations have been made against Ameriprise for selling financial plans that it never delivered.

New Hampshire regulators are investigating allegations that nearly 500 Ameriprise customers in New England paid $300 and more for financial plans but never received them, according to people familiar with the matter. Instead, advisers at Ameriprise appeared to be forging customers' names to make it seem that investors received plans, according to emails that are part of the state investigation.

Getting a good steak when eating out

Jack Daniel's Steak
Originally uploaded by jetalone
With some restaurants cutting corners, you need some tips on getting the best quality steaks when dining out (free WSJ Digg link).

Getting a good steak boils down to making sure you're really getting the USDA prime cut, and going to a restaurant that dry ages the meat. There were several other good pointers, but if you can remember only two things, prime and dry aged are it.

Protecting assets if you lose a lawsuit

The Journal's Getting Going column gives practical advice on how to protect assets from creditors if you lose a lawsuit. Surprisingly to me, being sued is a concern to over 2/3 of Americans.

This is one of our big fears. Over 80% of Americans believe there are too many lawsuits, according to a 2006 survey undertaken for the U.S. Chamber Institute for Legal Reform. An earlier survey, conducted for insurer Fireman's Fund, found that 67% of homeowners were concerned they might personally be sued.

In truth, while certain occupations -- notably doctors and small-business owners -- are frequent legal targets, most of us are unlikely to face a personal lawsuit because of, say, a car accident or because a neighbor tumbles down our stairs.

I'm not surprised that 4/5 of Americans think there are too many lawsuits.

Most tips and advice in the column require you to put assets in retirement type accounts, or retitle the assets. I'll highlight the insurance tip :

Get a personal umbrella-liability insurance policy, which might cost $200 to $400 a year for $1 million of coverage. These policies provide extra protection, over and above the liability limits on your home and auto policies.

The link to the book by Chris Riser mentioned in the article is here.

Saturday, October 6, 2007

Evaluating health insurance

I'm working on benefits enrollment this weekend. I've compiled all of this year's medical expenses to help decide what option to go with. I know that we're very fortunate not to have any health problems. The only times we typically see a doctor is for an annual checkup. This year, we had a baby, which increased our medical expenses. I'm going to use this year's expenses to help decide if we can go with an HSA or whether it's better to stick with our current POS plan.

POS plan basics

I have two options for the 2008 POS plan, a high and a low option. The high option costs about $5400 in premiums to insure my family for 2008, and the low option about $3900 in premiums. The main differences that would affect us come down to the low option copays being $20 more per doctor visit, and the low option covering 80% of certain costs (like lab costs), while the high option covers 90%.

Since we can rely on in-network doctors, both the POS high and low option out-of network deductibles don't really affect us. The out of pocket maximums for both in-network and out-of-network are drastically higher for the low option, so much so that I'd choose the high option if we expected any type of medical costs beyond routine checkups in 2008. The POS high option has in-network out of pocket maximums of $1200 for an individual and $3600 for a family.

HSA plan basics

The HSA/consumer driven plan costs about $3400 in premiums to insure my family for 2008, about $500 cheaper than the POS low option and $2000 cheaper than the POS high option. The HSA/consumer driven option has out of pocket maximums of $2500 for an individual and $5000 for a family. All the plans will cover preventative expenses 100%.

Comparison of the options

This year, we had about $1750 in medical costs beyond our medical insurance premiums. If we chose the HSA/consumer driven option, and had similar medical needs next year, we'd have to exceed the deductible of $1200 for an individual and $2400 for a family before coverage kicked in. This would cut the HSA/consumer driven option advantage from $2000 to $800 ($2000 in annual premium savings less the $1200 deductible).

Next, we exceeded the $1200 individual in-network out of pocket maximum on this year's POS plan and got some bills covered 100%. We'd have to exceed $2500 in expenses under the HSA/consumer driven plan before we got those same bills covered 100%. The POS high option is the better option if we had similar expenses in 2008 as we incurred this year (the low option having already been eliminated for this scenario).

Since I don't expect expenses like this year's in 2008, I'm down to the POS low option or the HSA/consumer driven option. While the HSA/consumer driven option has cheaper premiums, it has the deductible for non-preventative medical expenses, while the POS low option doesn't. A couple of trips to the pediatrician's office with a sick kid could easily wipe out the savings benefits. Because of this, and the fact that our pediatrician doesn't accept the company that provides the HSA/consumer driven option's insurance, meaning we'd have to use out of network benefits, means that I'm going with the POS low option.

The HSA part of the health plan isn't even a factor in my decision, it's the premiums. The premiums are going to have to come down significantly more before I'll consider going with the HSA/consumer driven option.

Friday, October 5, 2007

Studies indicate importance of independent mutual fund boards

This probably isn't a shocking revelation, but it seems that yes, independent mutual fund boards are good (free WSJ Digg link).

A recent study by researchers at Binghamton University and Cornell University found that funds that received good Morningstar governance grades outperformed those with bad grades by 1.2 to 1.9 percentage points a year between late 2004 and the end of last year. Another study indicated that more independent boards have less patience with poorly performing funds, and are more likely to merge them with other funds.
Another interesting thing is that the SEC has started to require boards to explain why they hired a particular fund manager. I can see it now, "Yes, we kept The Vanguard Group as the manager of the Vanguard 500 fund, because, err, the name of the frickin' fund is the Vanguard 500 fund, and they've been running the fund for the last couple of decades." I'm going to have to see if I can track down how often a mutual fund board actually drops an advisor.

Researching hospital care

Following up on yesterday's post on HSAs, here's an old Journal article on sites that have data on hospital quality (free WSJ Digg link). The sites mentioned include:

Airline food

BusinessWeek has a rundown on the current state of airline food offerings. Of course, you have to pay for anything except snacks on most of the airlines the article profiles. Continental is the exception, offering complimentary coach meals. I also did a little additional research. All information was taken from the company Web site. Snacks (including sandwiches) don't count as meals. I only counted food as a meal if it included an entree.

Airline: American
Meal Web page:
Highlights: Can pay with credit or debit card. Complimentary coach meals on Europe, Latin America, Japan, and Hispaniola flights. Complimentary first class meals on all flights over two hours.
Chefs: Nancy Brussat-Barocci, Stephan Pyles, Dean Fearing

Airline: Continental
Meal Web page:
Highlights: Complimentary coach meals on Europe, Latin America, Asia and Caribbean flights. Complimentary coach meals (lunch and dinner) on domestic flights over 3 hours. Complimentary first class meals on all flights system-wide with flying times over two hours.
Chefs: James Canora, Michael Cordúa, Paul Minnillo, Roy Yamaguchi

Airline: Delta
Meal Web page:
Highlights: Complimentary first class meals on Alaska, Hawaii and international flights over five hours.
Chefs: Michelle Bernstein

Airline: Northwest
Meal Web page:
Highlights: Complimentary first class meals. Complimentary coach meals on international flights.

Airline: USAir
Meal Web page:
Highlights: Complimentary first class meals on flights over 3 1/2 hours.

Airline: United
Meal Web page:,6823,1057,00.html
Highlights: Complimentary first class meals on longer flights.

Airline: Midwest
Meal Web page: Highlights: No complimentary meals, but the free chocolate chip cookies (for flights after 10AM are an excellent snack. Can ONLY pay for meals with credit or debit card (genius).

Top 25 travel Web sites

CNN (actually Travel + Leisure) has run a story on the top 25 travel Web sites. I use whenever I'm searching for flights, and really like it. I'll also vouch for as a great tool for finding routes on public transportation.

Thursday, October 4, 2007

Health Savings Accounts

It's benefits enrollment season. This year I'll be investigating Health Savings Accounts(HSAs) to see if they make sense for me. I learned some useful things from the following two articles. First, a personal account of using an HSA from a University of Minnesota professor:

In the name of academic research, finance professor Stephen T. Parente got his physician wife to agree, reluctantly, to make a radical change in their family's medical coverage. The health-economics specialist who teaches at the University of Minnesota's Carlson School of Management had realized he knew a lot about health savings accounts (HSAs) as a scholar. But he had no experience with them as a consumer. So two years ago he enrolled himself and his family in a high-deductible insurance plan linked to a tax-sheltered HSA for medical expenses.


So what has he learned as a consumer? Just as with his previous insurance, he doesn't worry that medical bills will cause financial ruin. Once he exhausts his $5,000 deductible, his insurance kicks in and his family is protected against disaster. In addition, he is now fully covered for preventive care to encourage sound medical habits, a relief with three children, ages 2, 5, and 10. Such services includes immunizations and well-child care, as well as annual physicals and mammograms. Some 82% of high-deductible/HSA plans follow this practice, according to the Kaiser survey.

Parente has been surprised by the cost of using an HSA. The premium of $84.20 per biweekly pay period is only about 12% less than a preferred provider plan, and he thinks the savings should be greater. Parente also puts $3,650 in the HSA to reach the maximum contribution (the university puts in $2,000), but the money belongs to him, not an insurance company.


The savings should be much greater. Why would I assume the increased risk and increased deductible for such a paltry savings? Continuing on:

Parente says there still isn't enough data to confirm whether the combination of consumer-driven insurance and HSAs lives up to its promise. A lot of the talk in health policy circles about savvy consumers shopping for the best deal is hype. The only good price information currently involves pharmaceuticals. Consumers can go online and compare prices of brand-name drugs vs. generic competitors, or mail order vs. local pharmacy, and so on. "But the notion that it's possible to shop for physician prices, that there's a marketplace in doctors, well, it just isn't there," he says.


This article is failing to convince me to go with the HSA/high deductible health insurance plan. Then there is this WSJ article on HSAs (free WSJ Digg link):


The numbers of U.S. workers enrolled in such plans through their jobs (excluding dependents and those in firms with fewer than three workers) grew only slightly, to 2.7 million in 2006 from 2.4 million in 2005, according to the Kaiser Family Foundation. Most do it because either their companies give them no choice or the premiums are the cheapest. Enrollment is growing faster on the individual market and among sole proprietors, but that may be because the plans are often the only affordable option.

Where employees do have a choice, only 19% choose the newfangled plans, the Kaiser study estimates. In the Federal Employees Health Benefits Program,
which has offered the plans for several years, only about 50,000 of its eight million members were enrolled in them in 2006, according to industry estimates. At lightbulb-maker Osram Sylvania, just 5% of employees enrolled in the plans in
2006, their first year.

In addition, those who are in consumer-directed health plans often report lower satisfaction and confusion about how the plans are supposed to work. The general idea is for patients to conserve money in their savings accounts, which are meant to pay for care until they reach their high insurance deductible. In theory, patients who shop carefully could have money left over, which they can keep and let build into savings for bigger health-care costs down the line.


One reason for the frustration is the uphill battle many consumers describe in trying to shop for their health care. Six years ago, Howard Katz, an industrial-design research consultant in rural eastern Pennsylvania, bought a family health plan with a savings account and a deductible that is now $5,650. But getting specific price information on which to base purchase decisions for MRIs, doctor visits and blood work has been difficult, he says.


This article doesn't give me the warm and fuzzies about HSAs either. Still, I'll be doing a careful analysis of my own HSA option soon to see if it's viable.

Wednesday, October 3, 2007

How to sell hybrid cars to America

Prius hybrid
Originally uploaded by Leonid Mamchenkov
Toyota has rolled out (literally, the exhibit is in trailer) a traveling show aimed at educating America about hybrid cars. Despite their popularity, hybrids remain small sellers.
Still, hybrid vehicles overall remain a niche product, mainly purchased by affluent consumers on the coasts. Hybrids of all kinds made up just 1.5% of all new vehicle sales in 2006, with the Washington, D.C., area, Oregon and California ranking in the top three for the highest percentage of hybrids sold among new cars, according to R.L. Polk & Co.

In Indiana, where Toyota made a stop in July, hybrids made up about 1% of new car sales last year. Mississippi, Louisiana and Oklahoma ranked in the bottom three, with hybrids making up a maximum of 0.6% of new car sales, according to R.L. Polk.
What I really need is a truck that gets 50 mpg, but that can still haul all my cargo.

Tuesday, October 2, 2007

Mutual funds growing a pair

I prefer my headline, but the Journal's works too, in a story about mutual funds working for their shareholders' interests (free WSJ Digg link). The short of it is a T. Rowe Price mutual fund owned shares in a company that was being taken private. The Price fund manager thought the buyout price being offered for the company was too low, and then he waged a battle against the buyout offer. In the end he lost, but it's significant that he tried.

Early this year, mutual-fund manager Brian Berghuis learned that a company in his portfolio was targeted for takeover. Normally this would be good news. But when the T. Rowe Price manager examined the offer, he came to a different conclusion: The price for Laureate Education Inc. was so low it was "laughable," he says.


Better known for retirement accounts than rabble-rousing, T. Rowe Price is among a handful of mutual-fund firms that have loudly complained that some of the many recent management buyouts -- in which a public company's managers team up with private investors to buy out shareholders -- haven't been fair. In a traditional takeover by an outside buyer, they say, management's goal is usually to win the highest price for their company. But when managers buy their own operation, there can be an incentive to pay as little as possible.


Early this year, Fidelity Investments took a stand against a private-equity buyout of radio-broadcaster Clear Channel Communications Inc., and helped win improved terms that shareholders approved last week. After Lord Abbett Inc. and other shareholders opposed a proposed private-equity buyout of OSI Restaurant Partners Inc., which operates the Outback Steakhouse chain, the offer was sweetened; the enhanced pact won shareholder approval in June. In July, New York fund manager Pzena Investment Management helped thwart financier Carl Icahn's takeover of auto-parts supplier Lear Corp., rejecting the argument of Mr. Icahn and Lear's management that the price was fair in light of the challenges facing the big U.S. auto makers and their suppliers.

"Eventually, you just say you're not going to take it anymore," says Richard Pzena, the firm's founder.

Why don't mutual funds fight more often?

Critics say mutual-fund companies have dodged these fights in part to avoid offending companies that could be potential customers for investment services. Mutual funds deny that charge.

Fund companies say they've skirted confrontation for other reasons. There are regulatory hurdles. To monitor possible collusion, the SEC requires investors who own more than 5% of a company to register as either "passive" or "active." A passive investor isn't permitted to lobby other investors on matters that affect how a company operates or on votes in corporate elections. An active investor can seek to influence other investors, but those registering as activists are restricted from trading a company's stock for 10 days after filing.

Mutual funds are there for the benefit of their shareholders. Funds should always be fighting for better takeover terms. Stories lie these should be the rule and not the exception.

A money manager becomes an activist

What was behind Berghuis's decision to fight?

For 48-year-old Mr. Berghuis, who joined T. Rowe Price in 1985, the path to activism began in January 2006. That is when one of his holdings, Fairmont Hotels & Resorts Inc., announced a buyout involving a private equity group. The group offered to buy back shares at $45 apiece, a level that valued the company at $3.9 billion.

Mr. Berghuis felt Fairmont's valuable real-estate holdings, which included the 651-room Scottsdale Princess resort in Arizona, would make it worth $65 or more per share. T. Rowe Price went by its traditional playbook: It complained privately to the company, then voted its shares against the deal. The buyout was approved a few months later.

In July 2006, Fairmont's new owners sold the Scottsdale property for $345 million, while continuing to operate the resort. A few months later it sold seven other properties, roughly one-quarter of its portfolio, for $1.5 billion. Mr. Berghuis took the sales to mean his $65-a-share estimate had actually been low. "This was a heist!" he says.

I'm a realist. I don't expect all fund manager's to get religion and oppose sweetheart takeover deals. But it's heartening to see that there are principled ones out there fighting for their funds and the little guy.

Friday, September 28, 2007

More on air travel congestion

It's not your imagination, air travel delays are increasing (free WSJ Digg link). There are numerous reasons for this, as the stories I've linked to discuss. (Overscheduling infuriates me the most.) Here's another:

Yet one fundamental shortcoming in the nation's air-traffic system has gone little discussed: the federal map of routes, largely unchanged since the 1950s, that airplanes are required to follow.

Just like rush-hour freeways on the ground, the nation's airways, particularly on the East Coast, have become choked with traffic. Block one with a small thunderstorm and jets sit on the ground waiting for hours because there's no room for them on other routes.

How were these airways established? It's an interesting bit of trivia.

The nation's airways evolved from air-traffic routes established in the 1920s when the government was developing airmail service. Pilots followed established ground routes, generally flying low enough to trace actual roads and spot one geographic landmark, then another. In 1926, the Air Commerce Act authorized the government to build a network of other navigational aids, beginning with bonfires that were later replaced by illuminated towers and, eventually, radio beacons and radar.

That's right, we're still using routes that were originally marked by bonfires. Has anyone informed these people that Woodrow Wilson is no longer President?

Tuesday, September 25, 2007

Found money

A site called allows you to search for money that has been in accounts you have forgotten about, and that the companies holding this money for you have turned over to the state (this is the principle of escheatment). This MarketWatch article has more:

It [the money] comes from a number of sources, including abandoned savings accounts and stock dividends, and forgotten utility deposits and paychecks. In all of these instances, businesses are legally required to turn the unclaimed money over to the state for safekeeping.
The site is very easy to use. You enter your first and last name and a state, and it conducts a search for you. Of course, it's easier to sort through the results if you have an uncommon name.

Sunday, September 23, 2007

Wrap accounts going bye bye

A recent WSJ article delves into how brokerages are trying to keep customers (free WSJ Digg link) now that wrap accounts are no longer legal. The background is that the courts said brokers couldn't act like investment advisers and get a fee for managing money. Will this be a bum deal for customers who liked to actively trade? Maybe.

Of course, the brokers don't want to give up these potentially lucrative customers, so now they are trying to convert the customers' wrap accounts into nondiscretionary advisory accounts, and are even lowering account minimums (which will potentially allow more of the mass affluent segment to have these accounts).

To help lure clients into its Strategic Advisor account, UBS this summer lowered the investment minimums to $50,000 from $100,000 in investable assets. Citigroup Inc.'s Smith Barney has a minimum investment for its Smith Barney Advisor program of $25,000, which it recently broadened to include household assets.

Most affected is Merrill Lynch, the largest player in fee-based brokerage accounts with about $100 billion in assets. The firm is pitching its nondiscretionary advisory account, known as Merrill Lynch Personal Advisor, as the main alternative to fee-based brokerage accounts, Merrill brokers say.

So what is the difference between the old wrap accounts (fee-based brokerage accounts) and the nondiscretionary advisory accounts? The nondiscretionary advisory accounts
can hold individual stocks and bonds, mutual funds, exchange-traded funds, and cash investments -- investors can get more comprehensive advice from a registered investment adviser, but still call the final shots since the adviser must get the client's permission before making changes.
Customers are also being converted into traditional commission based brokerage accounts. I personally feel that the commission based accounts are the way to go, with a good discount broker, like Schwab, TD Ameritrade or E*Trade.

Mortgage refinancing tax trap

Business Week ran a column on a mortgage interest deduction rule that piqued my interest. The interesting parts:

In general, the IRS lets you deduct 100% of the interest you pay on one or more home mortgages, up to a total loan value of $1 million. But when you refinance and withdraw cash, the rules change: Only the interest on your original mortgage balance, plus an additional $100,000, qualifies for a deduction. (If you want to take out more cash, use a home-equity loan or line of credit. The law allows a separate deduction for interest on borrowings of up to $100,000.)


Here's how the refi tax trap works. Let's say you borrowed $500,000 at 8% in 1998 to buy your house. By 2003, the house had appreciated substantially and the mortgage balance had been whittled down to $450,000. Then you refinanced, taking a new loan of $650,000 at 6%. At tax time, Form 1098 would show that you forked over about $39,000 in interest on the $650,000 mortgage in 2003.


If you use that $39,000 figure to calculate your annual mortgage interest deduction and you're in the 33% marginal tax bracket, you would wind up taking $1,980 more in deductions than you're entitled to, according to William Lazor, a CPA at Kronick Kalada Berdy in Kingston, Pa. That's because you may take a deduction on a mortgage of only $550,000—the $450,000 left on the original loan plus $100,000. On $550,000, the interest paid would be $33,000, says Lazor.

I did some further looking into this by reading IRS Publication 936. It says that any secured debt that's used to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt is not home acquisition debt, but may qualify as home equity debt.

My reading of this publication is that in the example from the article, the $450,000 is the home acquisition debt, and the $100,000 is the home equity debt ($100,000 is the maximum home equity debt you can deduct interest on). I'm a little confused on the first paragraph I quoted, where it implies that the $100,000 in the refinance PLUS a separate $100,000 in another home equity loan can both have their interest expenses deducted. I'll try to contact the author for clarification.

I was able to get in touch with the article author, and she graciously replied to me. She says that the explanation given in the article was confirmed with several tax experts. I'll continue to research this to prove it to myself.

Real estate commissions

OK, so it's a two-year old article in the Times. But I didn't want to lose track of this. See how one couple lowered their real eastate commissions:

Stan and Gloria Wakefield are no fools. They built their three-bedroom house 12 years ago in Ponte Vedra Beach, Fla., an oceanside resort community dotted with golf courses and picturesque inland waterways. The real estate market in the area, near Jacksonville, took off and the house, overlooking lagoons, rose in value to nearly $1 million. "This house has appreciated almost obscenely, " said Mr. Wakefield, a retired naval intelligence officer.

What the Wakefields did next should scare real estate agents everywhere.

They decided to put their house on the market this year, and concluded that the house would sell itself. So why pay a real estate agent a 6 percent commission? They tried negotiating a lower commission with prospective agents, who stood to make about $60,000, but the best they could get was 4.5 percent - and 5.5 percent if the agent had to share the commission with a buyer's agent.

They chose instead to list their property with one of the many real estate services that are challenging conventional brokerage firms, in this case,, an agency that charges a flat fee instead of a commission. The Wakefields had an offer within six days and sold their home for $985,000, paying a $10,000 fee to Assist2sell and $14,775 to the agent who brought in the buyer, for a savings of about
$30,000 over a conventional broker.


Saturday, September 22, 2007

Wall Street Journal Web site to be free?

According to this article in the L.A. Times, Rupert Murdoch is considering dropping the yearly fee for Web access to the Wall Street Journal. The yearly fee for the Online Journal is $99 ($49 if you have a print subscription), which I happily pay. I don't have the print subscription, preferring to read the articles online. I listen to the Journal's podcasts on the way to work instead of reading the print edition. The argument for making the online subscription free is that the increase in ad revenue generated by increased traffic to a free site would offset the lost subscription revenues. I hope that if they make it free, they make the archive free too, so that more people could read the articles to which I link.

Thursday, September 13, 2007

ETFs try to elbow into 401(k)s

ETFs are attempting to make their way into 401(k) plans (free WSJ Digg link), a move that the mutual fund industry is pushing back on. According to the story, 14% of total mutual-fund money is 401(k) accounts, while only 1% of ETF money is in 401(k) accounts. Total mutual-fund assets are $1.49 trillion, while total ETF assets are $500 billion. The arguments the two sides are making are:

ETF providers blame mutual-fund companies, some which run some of the biggest 401(k) plans, saying their resistance stems from fear of competition. ETFs in general charge lower fees than average mutual funds.

Mutual-fund purveyors see it differently. They say that they already offer plenty of low-cost mutual funds that track stock- and bond-market indexes as most ETFs do, and that some of the most heavily touted features of ETFs, such as tax efficiency and flexible intraday trading, offer few advantages in 401(k) plans, which already are tax-advantaged and geared toward long-term investing.

The other challenge is the need to develop trading platforms to trade the ETFs in 401(k) accounts.
The logistics of offering ETFs also complicate things: ETFs can be bought and sold on exchanges like stocks, but most 401(k) programs aren't set up to process the trades. And because they trade like stocks, ETFs charge commissions -- costs that can diminish the returns of workers who make small, regular contributions to their retirement accounts.


To gain a foothold, many ETF providers are either building computerized "platforms" to support trading of ETFs within 401(k) plans or forming partnerships with companies that are. Some firms are devising solutions to minimize ETF trading commissions -- aggregating trades across investor portfolios, for example, to limit the role of stockbrokers and other middlemen.


Firms like BenefitStreet are trying to narrow that gap. The San Ramon, Calif., company, which runs about $8 billion in retirement money for more than 7,100 plans, started offering ETFs from Barclays Global Investors and others in June on a 401(k) platform it sells to client companies. Its approach involves aggregating ETF trades among, say, hundreds or thousands of employees, to diffuse commission costs. It eventually aims to send trades directly to stock exchanges, bypassing floor brokers.

Another small firm, Invest n Retire LLC in Portland, Ore., already trades directly with exchanges and has a patent pending on the method. Rather than bundle the trades, Invest n Retire processes them throughout the day with an automated system that executes them for a few cents a share. RPG Consultants of New York offers a system that places orders to brokers in bulk daily to help keep costs low.

Admittedly, I don't know all the details of how these systems work, but the aggregation and bundling of trades concerns me. One of the great advantages of ETFs is the ability to trade them like stocks, with near real-time execution of the trades. Another is the ability to put limit orders on ETF trades. Anything which would diminish these capabilities, which is what this aggregation and bundling sounds like it would do. I would suggest enhancing the individual stock trading capabilites already in some 401(k) plans to add ETF trading.

The story has some good nuggets of information about the retirement plan industry:
The plans held an estimated $2.7 trillion at the end of 2006, representing about 17% of the overall U.S. retirement market, according to the Investment Company Institute, a mutual-fund industry trade group. (About half of retirement money is held in defined-contribution plans, which include 401(k)s, and in individual retirement accounts, according to the ICI. The other half is in government pension and private-sector defined-benefit plans, as well as annuities.)

Just over half of the money in 401(k) plans was invested in mutual funds as of the end of last year, ICI statistics show, followed by investments in products offered by insurance companies, banks and other institutions.

The $1.49 trillion of mutual-fund money in 401(k) accounts represented about 14% of total mutual-fund assets in the U.S. at the end of last year. While assets in ETFs have more than quintupled to about $500 billion since 2002, less than 1% of 401(k) money is estimated to be in the products.

Wednesday, September 12, 2007

Beyond staid IRAs

The Journal has an article on self-directed IRAs (free WSJ Digg link), specifically delving into making home loans in an IRA.

Through a little-known tool known as a self-directed individual retirement account, individuals can pursue a wide variety of investments, from real estate to businesses. Now, at least several thousand people are trying to goose their retirement savings by using self-directed IRAs to invest in mortgages, according to companies that promote the strategy.


IRA owners pay an annual custodial fee and transaction fees, ranging from $50 to a few thousand dollars a year, depending on asset size and activity. They typically charge borrowers a rate of at least 10%. If the borrower defaults, the IRA can wind up owning the property at a deep discount, since these deals are typically structured with the property as collateral.
But these investments aren't without risk.
For investors, one risk in foreclosing on a house is racking up so many expenses -- from legal fees to repair bills -- that the IRA runs out of money. If that happens, the IRA owner faces a difficult choice: Get a loan, or close out your IRA and pay any taxes or penalties.
Yet they are growing in popularity.
Self-directed IRAs make up less than 2% of the overall $4.2 trillion IRA market, but they are increasing in popularity. And the handful of firms that handle such accounts are logging increased usage by self-styled mortgage lenders.
Self-directed IRAs allow you to invest in other things besides real estate, such as a business, but you have to follow the rules for them set up by the IRS.
Another risk to investors is running afoul of the Internal Revenue Service's rules for IRAs. "You cannot take any kind of fee from your IRA for doing something inside your IRA, and if you have to start using money from other sources to bail out something happening with the loan inside the IRA, that's a big problem," says Natalie Choate, a Boston tax attorney. So it's important to make sure the IRA has enough money in it to pay any legal fees involved in foreclosure, or property taxes and insurance costs if you wind up owning a house for a while before you can sell it.
Investing in real estate or a business would take a considerable amount of capital, more than the $4000 you can put into an IRA in a single year. Presumably, you'd want to use an IRA that had grown into a nice sum, or a rollover from a large workplace retirement plan to fund the self-directed IRA. Self-directed IRAs look to be a way for the mass affluent to attempt to get greater returns and diversify from just stocks and mutual funds.

While doing more research on this topic, I also found this Business Week article from 2006. It talks about some more of the rules you must adhere to:
The biggest risk is "self-dealing," meaning that you've effectively used these tax-deferred funds for current use. Say you take $100,000 from your $1 million IRA to buy property on which you hunt and fish. If the Internal Revenue Service finds out about your personal use of the land, the entire $1 million could be considered distributed, and all the money subject to income tax and withdrawal penalties for account owners younger than 59 1/2. Slott says you shouldn't even let family members use the property, or any other asset in a self-directed IRA. The IRS may decide that there is a benefit to you.
I checked out the site of one of the companies that will help you set up a self-directed IRA, Guidant Financial Group. They offer a number of webinars which I might check out if I have time. Another site to explore is

Yet another resource I've been reviewing is IRS Publication 590 (The IRS publications are excellent resources). According to the publication, there are penalties and taxes for investing in collectibles, borrowing money from an IRA, selling property to an IRA. in a prohibited transaction, that person may be liable for receiving unreasonable compensation for managing the IRA, using the IRA as security for a loan or buying property for personal use (present or future) an IRA with IRA funds. It's a good idea to be familiar with this publication.

Monday, September 10, 2007

Outrageous 401(k) fees

Outrageous 401(k) fees are only one thing angering participants in the plans (free WSJ Digg link). Poor or limited fund choices are also causing Hulk-like feelings.

Similarly, Christopher Davis, an analyst with Chicago research firm Morningstar Inc., wrote last fall that retirement plans were "overly focused on large-cap domestic-stock mutual funds," giving higher-performing small-cap and international funds "short shrift."

Merriman also criticized the fees plan participants were paying. For example, Inc. offered funds in 2005 with an average expense ratio -- the percentage of assets taken out of an investor's account annually -- of 1.14%, Merriman said. The average annual expense ratio for all U.S. stock funds is 0.96%, according to Russell Kinnell, director of mutual-fund research at Morningstar.
For a (possibly unfair) fee comparison, let's look at the fees on the Vanguard International Growth Fund, symbol VWIGX. Vanguard is known for funds with low fees, but this is an international fund, which tend to have higher fees. Yep, much lower than 1.14%.

Sunday, September 9, 2007

Getting a good steak at home

I enjoy a good steak. The best steak I've ever had was at Cabaña las Lilas in Buenos Aires (I took the waitress's advice and got the ribeye). So I enjoyed reading and learned a lot from a Journal article (free WSJ Digg link) and accompanying podcast about how to get steakhouse quality steaks at home.

Americans have grown accustomed to the taste of top-drawer steak since the steakhouse industry began to boom in the early 1990s. But for years, there was a still a difference between the beef served up at these pricey restaurants and the best cuts sold in most stores. That began to change toward the end of the '90s, when more retailers started carrying USDA prime, sometimes dry-aged. The "prime" label is the highest grade assigned to beef by the Agriculture Department based on the amount of marbling, or lines of fat, it contains. Lesser grades, such as choice and select, have less marbling.

... I started buying USDA choice beef at Costco for biweekly steak dinners.

As it happens, that's exactly where the pros told me to shop to find great beef -- the first step in my steak-cooking quest. Elias Iglesias, the 14-year veteran executive chef at the New York branch of Morton's, says though he uses prime at the restaurant, he happily cooks choice meat at home, often buying whole loins at big-box stores such as BJ's or Costco. If you like filet mignon, look for a cut labeled "beef tenderloin"; for strip steaks, buy "strip loin."

Mr. Iglesias then cuts them into even, 1½- to 2-inch steaks himself (filet should be cut 2½ inches thick). The 33-year-old recommends examining packages of precut steaks closely for the degree of marbling. In my experience, well-marbled choice steaks can taste as good as prime if they are properly aged and cooked.


At Peter Luger, where the tin ceilings and beer-hall-style decor hark back to its 120-year history, they go a step further and dry age the meat. There, several tons of beef sit on wooden racks in a huge dry-aging room that has a distinctly pungent, nutty, somewhat sour odor. This arcane and expensive technique -- what one beef expert described to me as "a process of controlled rotting" -- is what gives Peter Luger beef its signature flavor. To my mind, dry-aged beef is the best there is because it's not only tenderized, but much of the liquid evaporates, leaving behind a smaller, but more intensely flavored piece of meat.

Trolling through meat threads on food Web sites Chowhound and eGullet, I discovered a whole subculture of people who forgo buying dry-aged beef and prefer to do it themselves, despite warnings from health experts. Cook's Illustrated, the cooking magazine that rigorously tests recipes, and the Food Network's Alton Brown have also both published recipes for home-aging beef.

Jack Bishop, editorial director of America's Test Kitchen, which owns Cook's Illustrated, says "if safety is your No. 1 concern, you probably don't want to go down the road of aging your beef," but that he believes it is fairly safe if cooks observe strict hygiene and limit the aging to four days. Alton Brown also says aging can be safe if properly done.
Err, I think I'll stick to buying the aged meat instead of trying to do it myself.

Saturday, September 8, 2007

Family offices can make you rich

This probably won't come as a surprise, but running a wealthy family's office can be a very lucrative profession.

Social networking brokers

Some of the newer online brokerages are building out extensive social networking features.

While their concepts and tools may differ slightly, TradeKing, Zecco Holdings, and thinkorswim all operate on the premise that the networking features they offer encourage more trading. On TradeKing and ZeccoShare, the social networking portal of Zecco Holdings, members create profiles that show their investing strategies, key stocks they follow, and if they wish, their recent trades. TradeKing users can even publish blogs to share their investment ideas and thoughts about market conditions.
I haven't investigated these brokerages in detail yet, but I'm always apprehensive of anonymous investment information. I've followed several stocks in the Yahoo! Finance message boards, and while there are occasionally gems of information hidden in posts, I find it to be mostly name calling among posters or unwarranted cheerleading of stocks. The story gives some details on how these brokerages will try to prevent that from happening.
The growing popularity of these sites raises questions about security. TradeKing is governed by the new Financial Industry Regulatory Authority (FINRA). TradeKing keeps FINRA informed of new features, such as the year-old certified trades function, which shows the quantity and price of actual shares traded by customers. "Being a regulated entity, this would be a stupid place to perpetrate a scheme because you're creating a trail attached to your name," Montanaro says.

TradeKing officials also review every blog entry and remove unethical or potentially harmful comments. The company has no suitability rules beyond the warnings listed under the disclosures and terms and conditions tabs on its site, which customers are supposed to read before opening an account.

Air travel congestion

Air travel is just a terrible experience these days. There are many reasons for this. Point fingers and blame almost anyone in the industry. I doubt it's going to improve anytime soon. This fact aggravates me the most:

One of the big reasons flying is so miserable is because airlines schedule more flights at desirable times than airports can handle—much as they sell seats to more passengers than their planes can hold. On a typical Tuesday morning in August at New York's John F. Kennedy International, the airport has enough capacity for around 44 departures between 8 and 9 a.m. But airlines schedule 57, guaranteeing delays, even under perfect conditions.
That is just absolutely moronic. There is no excuse for scheduling more flights than an airport can handle in a given time period.

Thursday, August 30, 2007

Airline lounges shouldn't quit their day jobs

Airline lounge service and amenities are hit or miss, according to a Journal article. Nothing I read in the article would want to make me pay for a day pass for an airport lounge. A sampling of the negative examples:

... In San Francisco, the lounge had very few seats and the lack of windows gave the space a claustrophobic feel. At La Guardia, the men's bathroom was dingy -- the tiles on the floor were cracked and the walls were scuffed.

...Besides Atlanta, all of the Admirals Clubs we visited had serious cleanliness issues. At La Guardia, crumbs and other unidentifiable detritus were scattered on the carpet, on tables and on chairs. In the ladies' room, there was a large puddle on the floor and toilet paper was strewn around. At LAX, several seat cushions had huge gashes, and the bar area was sullied by crumbs and orange peels.
Even the praise of some lounges given is pretty faint.
In Atlanta, the spread was pretty lavish for the low price tag: Complimentary drinks flowed freely from a well-run bar. There was also plentiful snack food (also free) including trays of olives, celery and carrots, as well as cookies, pretzels and nuts.
Wow, free olives. Prices for a day pass range from $25 to $50. I've included links to the Big 6's airline lounge programs below.

American Airlines






Foreign airline lounges rule

A final note, the lounges of non-U.S. airlines sound far superior:
Indeed, U.S. lounges are often no match for those of foreign carriers in overseas airports. Lufthansa's first-class lounge in Frankfurt has a cigar room and passengers are driven to their planes in a Mercedes or Porsche. Virgin Atlantic's "Clubhouse" at London's Heathrow Airport has a Jacuzzi and its own movie theater. There's also usually plenty of free food and drink. But many foreign carriers restrict access to first-class passengers and don't offer day passes.

Wednesday, August 29, 2007

Rich get richer - this is not a capital gains tax rant

This week's Getting Going column in the WSJ discusses how 'wealth begets wealth' (free WSJ Digg link). Mass affluent consumers should be taking advantage of everything mentioned. Looking at the points made:

Financial-account fees. For instance, once you've built up some savings, you are less likely to get hit with bank charges, you will avoid the account-maintenance fees often levied on smaller brokerage accounts, and your mutual-fund company might waive its annual individual retirement account fee.
Keep over the minimum balance in order to avoid these fees. The minimum balances I've seen range up to about five thousand dollars. Also, I make absolutely sure that each individual account kept with a financial institution meets these minimums. Some financial institutions do a total balance across all accounts for fee determination, but some make the fee determination per individual account, and many mutual fund companies set up a separate account for each fund of theirs in which you invest. You could have hundreds of thousands of dollars with a mutual fund company, but if the company has a $5,000 per account minimum and just one of your accounts falls below that $5,000 threshold, you'll get hit with a fee. (Of course, you should call and complain to them and point out how much money you have with them if this happens.)
Even bigger savings could lie ahead. Fund investors with $25,000 or $50,000 invested may pay reduced commissions on broker-sold "A" shares. Favor no-load funds? If you have $100,000 in a Vanguard Group fund -- or $50,000 and you've been invested 10 years -- you can qualify for the firm's lower-expense share class. Similarly, Fidelity Investments offers lower-cost shares to index-fund investors with a $100,000 fund balance.
I'm not even going to get into how anti broker-sold mutual funds I am, so I'll skip that sentence. I didn't know the fact about the Vanguard no-load funds, but sure enough, when I looked at some of my funds' prospectuses, it says that you will get a break on annual expenses the more you have invested.

I'm skipping the part about credit cards because I don't carry a balance, and I wish it was within everyone's means not to have to carry a balance. Borrowing costs, ok,;buy car instead of lease; avoid PMI, yep. Next up, insurance, all right:
Insurance premiums. With your wealth ballooning, your tolerance for financial risk will rise. Before long, you may be comfortable raising the deductibles on your homeowner's and auto insurance, because forking over $1,000 or $2,000 toward fixing storm damage or repairing your crashed car will no longer seem like a financial catastrophe.
Automobile deductibles. My personal feeling on cars is that I don't need a big fancy nice car, and I have the highest possible car insurance deductible. I have some scratches and a cracked plastic panel on my car that I just don't care enough about to get fixed. I'd rather use the money on something else. Now, that will change, of course, when I can get a classic mint condition gas guzzling American muscle car, but I'd still take the highest possible deductible on that. (It's only coming out for Sunday drives. The enviro-liberal-commie in me won't let my childhood fantasies take over that much. Besides, I'll be washing and waxing it the other 6 days of the week.)

Thursday, August 23, 2007

May you all have these choices to make

This week's Barron's cover story was on big private banks at large financial institutions vs. small boutique private banks. Cut to the end to get their recommendation:

FOR CUSTOMERS, THEN, PICKING the right bank is going to start with an honest evaluation of your needs -- not only for now but for five or 10 years down the road. A wealthy family that plans to sell its business shortly may need sophisticated cash management, access to corporate-lending products and investment-banking advice in the short term. That would suggest a big bank. But once that business is sold, issues like estate planning, trust creation and philanthropic ventures may become more critical, and firms of all sizes can excel in that area. Since you won't want to switch banks, you might want to consider a smaller institution with a core expertise in estate planning but with good access to outside M&A experts and bankers specializing in family-business sales. That could stand you in good stead for both now and the long haul.

If you want sophisticated hedge-fund strategies, a giant bank is probably the best bet. But if your goal is to structure the right kind of trust for, say, a disabled grandchild, a trust company might give you more attention.

Monday, August 20, 2007

How to get free financial planning advice - part 3

This is the third in an occasional series on getting free financial planning advice (part 1, part 2). This time I'll go over Vanguard's free benefits (I'm using a list of mutual fund companies from Morningstar as my starting point). All information is from the company Web site.

Program Name: Vanguard Financial Planning Services - Voyager Select Services, Flagship Services

Assets Needed: $500,000 for Voyager Select Services, $1,000,000 for Flagship Services

Type of advisor: Certified Financial Planner

Frequency of advisements: Initial financial plan and annual checkups, unlimited consultations for Flagship Services

Fee benefits: reduced commissions on online trades


Friday, August 17, 2007

Beware fund redemption fees

Mutual funds have had trading restrictions and redemption fees to prevent market-timing for a while now. For example, fund investors may be prevented from making a round trip (purchase and sale) of a fund within 90 days, or they may be hit with a 1-2% redemption fee for selling a fund within 30 days of a purchase. 401(k) plan investors may have been avoiding these restrictions and fees in the past, but that is changing (free WSJ Digg link).

The short version of what's happening:

While redemption fees and trading restrictions aren't new, some investors have been able to avoid these penalties if they hold funds through an "omnibus" account such as a 401(k) plan, which can make it tough for fund companies to detect who's trading and how often. The new rule, which was issued by the SEC in early 2005 after the effects of widespread market-timing became well-known, helps fund companies to peek inside these omnibus accounts and enforce their short-term trading restrictions.
Rules are hitting those who aren't market-timing

But applying these rules are having unintended consequences:

One 47-year-old participant in the plan had a portion of his account automatically switched into the Artisan International Fund. But one week later, he decided to adjust his allocation and moved more than $24,000 from the Artisan fund into a real-estate fund. The participant, who has made only three other trades this year, is hardly a market-timer, Mr. Kaye says. But his move cost him nearly $500 because the Artisan fund charges a 2% redemption fee on shares held less than 90 days.

The participant "felt the system was gamed against him and initially was very resentful," Mr. Kaye says.


In some cases, retirement-plan participants making regular rebalancing trades -- a practice advocated by many financial advisers -- have been flagged by fund companies as potential abusive traders. In plans provided by ePlan Services Inc., a 401(k) administrator and recordkeeper based in Denver, two participants making regular rebalancing trades were singled out by fund companies for potential trading abuses in the past 90 days, says Mark Gutrich, ePlan's president and chief executive. The firm spent hours researching their trades and calling the participants and ultimately convinced the fund companies that the trades weren't abusive, Mr. Gutrich says.
How to not fall into this trap

To avoid this conundrum, I read and understand the fund's prospectus. The restrictions and fees are all disclosed in the prospectus. My own 401(k) plan has several restrictions on a few of the funds it offers. I make sure I understand the round trip rules and redemption fees. It seems that at least once a year the plan sends me another note about another short term trading restriction being put in, so I don't ignore any notices I'm sent.

Monday, August 13, 2007

Income annuities

A study by UPenn shows that income annuities can ensure an income stream for life at a cost less than that of other assets. The study is cosponsored by a life insurance company that sells annuities, so I'm taking it with a grain of salt.

What it means is that retirees who need a nest egg of, say, $1 million, can live the same lifestyle with as little as $600,000 in an income annuity. Looked at another way, $1 million in an annuity will currently generate about $86,000 a year in income for a healthy 65-year-old male, while the same amount invested in a traditional securities portfolio would currently generate between $40,000 and $50,000 annually, depending on the annual withdrawal rate.

That news could offer hope for the millions of workers about to retire with inadequate retirement savings.

"At 65 years old, you're going to need money, on average, until you're 85," says David F. Babbel, an insurance and risk-management professor at the Wharton School who co-wrote the paper with Craig B. Merrill, an insurance and finance professor at Brigham Young University. "But the problem is that 'on average' means half of the people will need continuing income between the ages of 86 and maybe past 100. That's where [retirement-income planning] breaks down."

Outliving retirement funds is a big risk. I fail to see, however, how an insurance company is going to generate returns from your initial annuity purchase to fund the income stream it has to pay you. I'm skeptical of this study, and annuities don't have a great reputation.
Yet the study also found that consumers have been tepid buyers of income annuities to this point. Many worry about costs, illiquidity in a financial emergency and the bad reputation the industry as a whole is often saddled with because of well-chronicled and dubious sales tactics with some variable annuities.

Friday, August 3, 2007

Negotiating hotel deals

Jim Thomas, the author of Negotiate to Win, provided some tips for getting a better hotel deal. My favorite is calling the hotel you want to stay at directly instead of the 800 number.

Wednesday, August 1, 2007

Scoring first class seats

Use check-in kiosk upgrades and coach instant upgrade fares to score a cheap first class airline seat (free WSJ Digg link).

Airlines have expanded their offers of upgrades at check-in kiosks, priced anywhere from $50 to $300. They are also making it easier to find coach tickets that come with instant upgrades (known as Y-UP fares in industry jargon) on their Web sites. AMR Corp.'s American Airlines launched a feature on a few weeks ago that lets users see Y-UP fares with one click (Hit "Search by Price & Schedule.")


American says it incorporated Y-UP fares into its new online function. Before, Y-UP fares, also known as Q-UP and M-UP in airline coding nomenclature, were almost impossible to find on American's Web site (they don't show up under first-class tickets or unrestricted coach). But the fares, sold with coach-class ticket coding so they don't violate corporate travel policies if they prohibit domestic first-class tickets, have grown in popularity, hunted by smart travel agents, road warriors and savvy vacationers in particular., a ticket-searching site, has a search option specifically for Y-UP and Q-UP fares.

FareCompare's Y-UP search is located at

American still has the Y-UP fare finder feature, as described in the story. I was unable to find a similar feature on,, or I did a quick search of the FlyerTalk forums and couldn't find a mention of the other airlines having the upgrade feature, but I don't have time to do a detailed read through and deciphering of the forum to try to rule it out for certain.

Wednesday, July 25, 2007

Finding the best airfares

Step 1 - Choose the destination

The Sunday Journal recently ran a story on finding the lowest airfares. It lays out the process of finding those cheap fares, beginning with a site where the traveler can choose his destination. is a good first stop for leisure travelers with flexible travel dates or locations. You may want to visit the Caribbean sometime this summer, for example, without having a particular city in mind.
The Getaway Maps link mentioned in the article is located here. I started by selecting the airport I wanted to fly out of. I could also have chosen a city, and used all the surrounding airports as the starting point. Then I was able to select from a general region (Europe, Caribbean, Mexico, etc.) and get a list of the destinations from cheapest to most expensive. I chose New York as my starting point, and the Caribbean as my destination. Then I drilled down into Bonaire, and the site showed me what month of the year had the cheapest flights (January, February, March and April, which seems counterintuitive since that's the high season in the Caribbean.)

Step 2 - Choose how soon to go

After choosing the destination, the next step in the article is selecting when to buy the tickets. helps travelers time the ticket purchase once they've decided on a destination.


Travelers can get a graph showing fare history on a select route, along
with a prediction of whether they should buy now or wait a few days.
Farecast didn't have predictions on ticket price changes for a trip to Bonaire. However, it did list about 50 or 60 other cities where I could get predictions on ticket prices over the next 90 days. Most of the destinations were domestic. The site has a pretty straightforward interface. Having used many online flight search tools, it was easy to figure out.

Step 3 - Get a refund if the ticket price drops

Finally, after purchasing the ticket, the article notes a site that can help you get a refund if the ticket price falls. This is especially relevant for the leisure traveler who may be purchasing the tickets far in advance., launched this year, watches fares for specific flights. A handful of airlines, like United andAmerican, will sometimes issue credits if the fare drops after the ticket

Yapta keeps tabs on users' itineraries and sends an email when fares dip, so they can circle back to the airline and ask for a voucher or partial refund.
The link to check on refunds is here.

All in all, an informative article with some good tips.

Monday, July 23, 2007

How to get free financial planning advice - part 2

This is the second in an occasional series on getting free financial planning advice (part 1).

Last time I looked into American Century. This time I'll go over T. Rowe Price's free benefits (I'm using a list of mutual fund companies from Morningstar as my starting point) . All information is from the company Web site.

T. Rowe Price

Program Name: Advisory Planning Services/Select Client Services

Assets Needed: $500,000 for Advisory Planning Services, or $100,000 in new assets. $1,000,000 for Select Client Services

Type of advisor: Advisory counselor and Advisory planning services team

Frequency of advisements: Ongoing consultations

Fee benefits: waiver on small account fee


Wednesday, July 18, 2007

Multiple trustees

Here's another article I read as I research trusts (free WSJ Digg link). More trusts are being set up with multiple trustees.

Increasingly, however, families are "slicing and dicing" trustee duties, says Dennis Belcher, a trust lawyer with McGuireWoods LLP in Richmond, Va. Families are specifying that one trustee, typically an institutional trust company, hold custody of the assets and handle the administrative trustee duties. Meanwhile, another fiduciary -- often a family investment committee -- has the authority to direct investments. Trust creators are also naming separate trustees to handle distributions to beneficiaries.

Monday, July 16, 2007

Better rates on cash

I know all about the online savings accounts offered by HSBC Direct, EmigrantDirect, or ING Direct. An article in BusinessWeek led me to a site where I found better rates on cash than those offered by these online savings accounts. From the article:

Like many retirees, John Urban shops for the best rates on the CDs and money-market accounts that make up a large chunk of his portfolio. The 65-year-old Bristol (R.I.) resident scours the Internet looking for banks offering the highest yields, but lately he often finds the best deals at an online auction run by Zions Direct, a division of Salt Lake City-based Zions First National Bank.

At, the company generally runs five auctions a week of $1,000 CDs, typically with 1- to 18-month maturities. Since debuting on Feb. 27, it has conducted 59 auctions, approximately 60% of which have netted participants rates above the highest available at the time on, which tracks rates nationwide, according to Bankrate's own analysis. Urban, who purchased CDs in six auctions so far, says he checks advertised rates at local banks and on and then submits a bid for a slightly higher yield. "You win some and you lose some, but the rates I've gotten I wasn't able to find elsewhere."
I did a quick comparison of the latest rates Zions displayed on, and they generally seemed at or higher than the best rates I could find through The calendar of upcoming or in progress auctions is located at

With CDs, the cash put in is generally tied up until the CD matures. Presumably this won't be an issue for the mass affluent segment with a high level of liquid investible assets. I can also spread out the investment over several CDs, investing say 1/6 of the cash in a 6 month CD every month for 6 months, and then rolling over the cash if it wasn't needed. If it was needed, there would be a CD maturing every month which would provide cash.

Sunday, July 15, 2007

Alternatives to measuring portfolio performance

Tired of using the S&P 500 as a benchmark against which to measure your portfolio? There are some new options (free WSJ Digg link).

And as investors add more complex assets such as real estate and commodities to their traditional holdings of stocks and bonds, the S&P 500 and other well-known indexes have become even less reliable indicators of whether you're getting a reasonable return from your portfolio given the level of risk you're taking on.


An appropriate benchmark also can show whether any fee you're paying for investment management is money well spent. Without good benchmarks, "you're flying blind," says Bud Green, a principal at Santa Monica, Calif.-based Fortress Wealth Management.


The next step is to build a custom benchmark by assembling a list of index mutual funds and exchange-traded funds that track the asset classes represented in your portfolio. To find out which funds track which asset classes, investors can use the data tool at or the mutual fund and ETF screeners at A boom in ETFs means these funds now track virtually every slice of the market, including high-yield bonds, real estate and emerging market stocks.

Finally, investors can use free portfolio-tracking tools available at sites like or to assemble and track their custom benchmark, along with their actual portfolio. If, for instance, your portfolio is 50% U.S. stocks, 20% foreign stocks, 15% short-term Treasury bonds, 10% real estate, and 5% commodities, you might create a custom benchmark consisting of 50% Vanguard Total Stock Market Index fund, 20% Vanguard FTSE All-World ex-US Index fund, 15% iShares Lehman Short Treasury Bond ETF, 10% DJ Wilshire REIT ETF and 5% PowerShares DB Commodity Index Tracking ETF.
I'm fine with just using the S&P 500 as a benchmark, or the Wilshire 5000. I'll look at the Morgan Stanley EAFE index to measure my foreign mutual fund performance against. I dabbled in creating a custom benchmark as the article laid out, but boy is it time consuming. This could be an opportunity for Yahoo! Finance to add some slick custom benchmarking tools.

Sharing ownership of vacation homes

BusinessWeek has an article on ways to share ownership of vacation homes without destroying family relationships. From the article:

The best way to keep the property and the family intact starts with the original owners. Rather than make heirs joint owners, most lawyers recommend leaving the property to an independent entity, such as a trust or a limited liability company (LLC), and giving the heirs shares in the enterprise. The plans should also include a way to sell or transfer shares. For tax reasons, property should not be placed in a corporation, says Stuart Hollander, a lawyer in Suttons Bay, Mich., and author of the forthcoming Saving the Family Cottage: A Guide to Succession Planning, which he is self-publishing.

(Mr. Hollander's book is on Amazon here.)

Trusts are one area where I will seek out expert advice from a trusts and estates attorney. I'm comfortable handling most other areas of my finances on my own, but when it comes to trusts, I will go to a professional. The article gives other pointers on how to structure the sharing of ownership that is palatable to all family members involved.

Saturday, July 14, 2007

Organic lawns

This has nothing to do with personal finance, the mass affluent, travel, muscle cars or anything else this site is supposed to be about, but I found it interesting (must be the enviro-liberal-commie in me). It's a Journal article on lawn care (free WSJ Digg link).

Thursday, July 12, 2007

130/30 mutual funds

I ran across this article on 130/30 mutual funds in the Wall Street Journal (free WSJ Digg link). Its basic explanation of these long/short funds is:

A 130/30 fund may invest $100 in a basket of stocks, such as those in the Standard & Poor's 500-stock index, then short an additional $30 in stocks believed to be overvalued. That means the fund borrows $30 worth of those overvalued stocks, hen sells them in hopes that they can be replaced with cheaper shares later.
The article gives an indication that investing in these funds may be worthwhile for someone seeking alternative investments, but who doesn't have the money needed to invest in a hedge fund (such as the mass affluent segment).
It's too early to judge most of the 130/30 mutual funds. But Mr. Deutsch said initial results from separately managed accounts -- often run by traditional long-only money managers -- suggest the managers are beating their benchmarks and producing "alpha," or returns above those that a typical investor is expected to make based on market averages.


This article on time-shares has a lot of facts about the industry. I liked its advice that:

time-shares can be a perfectly reasonable purchase — just stay informed. The basic idea is to buy a place that you'll want to visit every year or that is in high demand among other travelers.
I'm able to take advantage of using a time-share through the generosity of relatives. I don't own a time-share myself. The greatest benefit to me is the ability to exchange weeks through services like RCI and Interval International.

The story cites an average cost of a one week time-share of $16,000. That's a lot higher than I expected. There are much better deals than that average, as I've found prices of $3,500 for a week at the last time-share where I stayed. It was an older property, but I still found it very nice, and would consider buying a week there at some point in the future.