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.)