Friday, May 30, 2008

Avoid fluctuating exchange rates

A new card product can lock in exchange rates, taking away some risk in a falling dollar environment.

Launched earlier this month by Travelex, a London-based foreign exchange company, the Cash Passport allows prospective travelers to lock in exchange rates for euros or pounds before crossing the Atlantic. The prepaid foreign currency card functions like a debit or credit card and works at ATMs and retailers all over the world. (The card itself is issued by MasterCard).
In addition to locking in an exchange rate, use of the card incurs no currency conversion fees. The card costs $9.95, and there are fees for making an ATM withdrawal with the card. There's also the risk that the dollar will rise (U.S. travelers keep wishing for this), which will make the foreign currency account to which the card is tied less valuable.

Tuesday, May 27, 2008

High end 'green' kitchen

The Journal's 'green' writer has created an entertaining and informative article about doing her high end kitchen renovation (free WSJ Digg link) that was as energy efficient and sustainable as possible. The key points were to use sustainable wood for the cabinets and flooring, to use concrete for the countertops, and to use LEDs for the lighting.

Time for an eco-reality check. Despite all the green hype, building an environmentally correct kitchen can be a lot of hard work. Unless you hire a green-educated architect or general contractor, some serious homeowner hands-on is still required. During my journey, I pored over sheets of bamboo plywood in Brooklyn, N.Y., hunted down energy-saving accent lights in Illinois by Web and phone, and spent one frigid afternoon cleaning spilled cellulous insulation off the lawn. I also interviewed five cabinet dealers before finding one who would meet my eco-specs. "This is an industry that hasn't changed a lot, aside from air-conditioning, in the last 100 years," says Michelle Moore, a senior vice president with the not-for-profit U.S. Green Building Council. "It takes courage on the part of initial homeowners to step into the waters."
The renovation cost over $80,000. Those Journal writers must make good scratch. The article sites a study that says certified green homes sold for an 11% premium, which could make the cost worth it.

You can find more about green buildings at the U.S. Green Building Council.

Monday, May 26, 2008

Earn more from cash in brokerage accounts

Here's something to be aware of, brokerages are sweeping the cash in accounts into lower yielding bank deposit accounts instead of money market funds (the story is at the bottom of the BusinessWeek page).

An increasing number of brokerages are, unless a client says otherwise, sweeping customers' stray cash from dividends and other payments not into money-market funds but into their much lower-yielding cousins, bank deposit accounts. Only 4 out of 20 brokerages sweep money into the higher-yielding money funds, according to a survey. The bank sweep accounts had an average yield of 0.56%, compared with 2.47% for a typical money fund. The lowest yield offered: 0.25%.
I checked out my own brokerage's rate differences between the bank deposit account and the money market fund (doing a search for 'cash sweep' to help locate the relevant information). To be entirely technical, the bank deposit account is a money market deposit account. The rates at my brokerage are much higher for the money market fund, but you're required to have $100,000 in cash to use that fund instead of the bank deposit account.

Better be paying taxes on foreign accounts

The IRS is cracking down on U.S. taxpayers that conceal assets in foreign accounts, according to BusinessWeek. Countries have been sharing more information about assets with each other, making it easier to catch tax cheats.

It's not just blatant tax cheats who have reason to worry. The IRS has also focused increased attention on the more than 700,000 U.S. taxpayers thought to be concealing assets in overseas accounts. Some may be doing so unintentionally, like expatriates living abroad and banking locally. A law dating back to 1970 requires a U.S. taxpayer with an overseas account of $10,000 or more to disclose it to the IRS. Until 2004, people who failed to file that special form received a maximum fine of $100,000, and the law was rarely enforced. Now they can face penalties that amount to as much as half the balance in the cloaked accounts, along with prison terms of up to 10 years.
Do the right thing and pay your taxes, or face 10 years in the big house. A pretty easy decision.

Rent a vacation home instead of a hotel room

Can you save over $150 a night by renting a vacation home instead of staying in a hotel room? Probably only in rare circumstances, but you may be able to save a considerable amount.

One way of getting more for your money: hit the Internet to find a vacation rental instead of a hotel room, gaining space and possibly saving a couple of bucks. Today, vacationers can connect directly with second-home owners online.

Having access to a kitchen allows travelers to cook some of their own meals. Also, renters often aren't paying someone to clean up after them as they would at a hotel.

Often, the cost per square foot will be cheaper at a rental than at a hotel. But in some markets, even the larger accommodations will cost you less, says Bob Barnes, chief executive of Salt Lake City-based, a vacation-rental Web site.

"It happens in the Orlando market, it happens in some ski destinations," he says. Renting a condo or privately owned apartment can also be less costly than a hotel room in some urban markets, including Chicago and New York, he adds.

Besides Zonder, the story mentions and, and of course good old

I've had relatives stay in an apartment when visiting us instead of a hotel room, and they saved a bundle on a week and a half stay at Christmastime. There was no maid service, but they had a full kitchen.

Price chopping hits the high end real estate market

This week's Barron's has the goods on the real estate slowdown finally hitting the high end market.

A SLICE OF THE GOOD LIFE -- THE REALLY GOOD LIFE -- HAS GOTTEN a lot more affordable lately. From Miami to Beverly Hills, homes with bowling alleys, theaters, steam rooms, heated decks, six-bay garages and other luxury must-haves are sitting on the market for at least twice as long as they did a year ago, and many sellers are doing what was, until recently, unthinkable: slashing prices. "Sellers are listening to offers they wouldn't have considered before," says Anita Bigelman, a broker/owner at Harding Realty in Miami. "We just sold a house for $10.5 million that was listed for $12 million. Before, that would have never happened."

After seeming impervious to the main market's woes of the past two years, homes in the $5 million-plus market have come down an estimated 10% to 15% in the past two quarters, and they are likely to shed another 10% or more over the next 12 months, according to Housing Predictor, a Destin, Fla., company that crunches data on 250 U.S. regions. "The high-end market is the fortress of the real-estate asset class, and the inner sanctum has been breached," says David Darst, chief investment strategist at Morgan Stanley.

More air travel problems

More flight cancellations

I found the articles I referenced at the end of this post on air travel. Airlines are going to be cancelling more flights, according to this Middle Seat column (free WSJ Digg link). (Yep, another post about this column. It's really excellent, both the column and my posts!) But wait, they're doing this to better passengers overall experience. From the column:

Airlines and airports say they have new procedures to prevent prolonged delays aboard airplanes, and the number of planes left sitting for three hours or more has recently declined.

But there's a trade-off: more cancellations.

Fliers are having to swap one travel nightmare -- being stuck on a plane -- for another -- being stuck in an airport. Carriers defend the choice, saying that being quicker to cancel flights rather than risk leaving planeloads of people marooned allows airlines to recover more quickly from disruptions. And, they say, airports are a much more comfortable place to while away the hours than cramped planes. Passengers have better access to essential services at airport terminals, some of which now have started to keep concessions open all night during weather disruptions and provide essentials like blankets and baby diapers. Some airport vending machines have been stocked with overnight essentials like toothpaste.
It's working too. The number of planes waiting more than 3 hours to take off is down, but cancelled flights are up. Is this a good thing? Is it better to wait in the airport than on the plane. A couple of choice points on this question.
[...] Sometimes it doesn't make sense to impose deadlines -- a flight may be very close to leaving after three hours elapse and neither passengers nor crew want to start over.

"Why should you mandate a pilot to return to the gate when he's No. 2 for takeoff?" asks David Barger, chief executive of JetBlue
Airways Corp.


Widespread cancellations don't sit well with all passengers. Dory Dean Alford, a sales manager who has "platinum" status with American because of her frequent travels, has been left stranded six or seven times by cancellations in the past year. Sometimes, she'd rather try to get where she's going than get left for a day or two. "I'd rather sit three hours because I can get home sooner," she said.
I was a beneficiary (victim?) of this move to more quickly cancel flights at the end of April, on a flight to New York. New York was experiencing thunderstorms, and the airline cancelled a slew of flights into LaGuardia that day. We were fortunately able to get on the first flight the next morning, and we were staying with relatives, so there were no additional hotel costs. We were also notified of the cancellation before we even left for the airport, so we didn't even have to drive to the airport only to drive back.

We were travelling with a small child, so in this instance I didn't mind the cancellation as much. It would have been a nightmare waiting at the airport for the plane's delayed departure, boarding the plane, and then waiting to get clearance to take off to fly to New York.

If I were travelling by myself, coming home from a business trip for example, I would have preferred to risk it and have the airline keep the flight and board me. As long as they have movies to show on the plane and they keep the air conditioning on, I can sit in those seats for hours waiting to take off (which I've done many times). Throw a kid into the mix however, and my story rapidly changes.

Fares will increase

At the end of this BusinessWeek article on the Delta/Northwest merger, there is a prediction on how much fares will increase and what the ramifications are:

[...] That would boost the average cost of a round-trip ticket from $280 to roughly $340.

While the increase may seem small, Kovacs believes it would be enough to price the hoi polloi out of the market and reduce the number of passengers on U.S. carriers from 299 million to 240 million a year. But that may be the price the airlines—and their passengers—must pay for profitability.

From what I've read, even though the number of passengers would decrease, since airlines are cutting their capacity, flights would still be just as crowded. The mass affluent will be able to handle these price hikes, but for some of the less well off, air travel will become an unaffordable luxury.

So prices are going up and the chances of flights being cancelled are going up. Sign me up.

The public's suggestions for fixing the airlines

Finally, CNNMoney offers reader feedback on how to fix the airlines. The writers thesis was that if airlines raise prices and if they also improve the flying experience, customers would be willing to pay. He had many readers agree with him, including:

"Give me back the meal, take my luggage at no additional charge, give me my window or aisle seat without an upcharge, and increase the price of a ticket," wrote Norm from Haddonfield, NJ. "I use and need the airlines and am willing to pay my share to keep them alive and well. Charge what you need to charge. We'll get used to it....just like $4 gas. Stop beating me to death with these ridiculous additional charges."

Yes! Yes! Norm for President! Stop nickle and diming me and put the price in the fare and give me a pleasant flight experience. But do I really think that when airlines raise fares to where they're finally covering their fuel and other costs that they'll improve service? Nope.

Friday, May 23, 2008

U.S. rations silver!

I'm trying a sensationalistic yellow journalism headline for this post. Maybe I can get it into the New York World or New York Journal. So put aside the dire headline and delve into what's happening with U.S. Silver Eagles, as told by the Wall Street Journal (free WSJ Digg link).

The government rationed food during World War II and gasoline in the 1970s. Now, it's imposing quotas on another precious commodity: 2008 dollar coins known as silver eagles.

The coins, each containing about an ounce of silver, have become so popular among investors seeking alternatives to stocks and real estate that the U.S. Mint can't make them fast enough. In March, the mint stopped taking orders for the bullion coins. Late last month, it began limiting how many coins its 13 authorized buyers world-wide are allowed to purchase.

"This came out of nowhere," says Mark Oliari, owner of Coins 'N Things Inc. in Bridgewater, Mass., one of the biggest buyers of silver eagles. With customers demanding twice as many as they did last year, Mr. Oliari would like to buy 500,000 a week. But the mint will sell him only around 100,000.


The rare shortage offers a glimpse into the growing love of a commodity known as "poor man's gold." With more silver mined than gold traditionally, silver has always been far cheaper than gold and today has less than 2% of gold's value.

But silver is growing in popularity, and some investors are betting that its value will surge as inventory shrinks. Big investors are loading up on silver eagles, which are the only American silver coins allowed in individual retirement plans. For small investors, they are an accessible way to get into the metal boom.

"Unlike gold, these coins can be bought by regular citizens," says J.R. Roland, a Brownsville, Tenn., judge who recently began buying the coins -- and trading them on eBay. "In these economic hard times, silver coins are a great way to invest."

While these coins are fun to collect and trade for numismatists, I don't think they make a great investment, even for the mass affluent segment. There are better ways to invest in metals, such as through ETFs or mining stocks. Since the U.S. Mint only sells the coins to wholesalers, individuals are always paying a markup over the real value of the silver in the coin.

The U.S. Mint makes silver, gold and platinum bullion coins in weights of 1/10, 1/4, 1/2 and 1 troy ounce. The gold and silver coins started being minted in 1986, and the platinum in 1998. They have face values on them and are legal tender, but the value of the metal in them is far greater than their face value, so it wouldn't be a good idea to use them at the grocery store. I think it would be a nice to have a complete set of the coins going back to 1986, but purely from a collector's, 'let's give it to the grandkids one day', point of view. Several other countries also mint some beautiful bullion coins, such as Canada and China.

Airline machinations

OK, here is my weekly occasional first roundup of what's happening in the airline industry.

Delay insurance

First up is a story about something airlines used to provide for free (free WSJ Digg link). All right, granted airlines didn't used to provide free delay insurance, but if you were delayed you'd get free meal vouchers and a free hotel room. The basics are as follows:

After last summer's many travel hassles, travel-insurance companies are pushing low-cost policies that include "delay insurance," which pays for hotel rooms and meals if you get stuck. Delay insurance is included in some policies that offer protection like refunds if you fall ill. Cost: Usually less than $50 when flying on inexpensive domestic tickets.
While these policies have long been offered by the travel-insurance companies, the airlines are getting into the game, with Air Canada leading the way.
And airlines are now getting into the protection game, sensing they can make money off the disruption they sometimes create. Air Canada, an innovator in pricing chemes, has launched a new "travel assistance" service that provides hotel rooms and even airfare on rival carriers if you pay $25 to $35 extra per one-way flight when you buy a ticket.


Buying the "On My Way" service, which began three weeks ago, gets you a phone number to call specially trained Air Canada agents who can book and pay for hotels, find seats on other Air Canada flights or book competing airlines if Air Canada doesn't have an option to offer within two hours. Air Canada, a unit of ACE Aviation Holdings Inc., will pay for rental cars if driving is faster, and even make pre-paid meal reservations.
I researched the On My Way service on the site. (Their description of the benefits are here.) The $25 price point is for flights 1000 miles or less, and the $35 price point is for flights over 1000 miles.

Good customer service used to be free!

I remember (and it wasn't that many years ago) when you used to get the hotel room, paltry $10 meal voucher and rebooking for free. I missed a connection in Cincinnati for the last flight to Salt Lake City that day because of a weather delayed New York to Cincinnati flight. When I got off the flight in Cincinnati, the airline had a table set up in the terminal for people who missed their connections. They had the hotel and meal voucher, and ticket for the next morning's flight waiting there for me.

On another occasion I missed a connection in Dallas to New York for the last flight because of weather. The process was a little more painful (no table set up for the passengers, it was a long wait in the customer service line), but I still got the hotel and meal, and even an upgrade to first class on the next morning's flight. The column does delve into this:
When airlines were healthier financially, they often did voluntarily pay to accommodate stranded customers. But for several years now, carriers have more often than not told travelers they are on their own when they get delayed overnight because of bad weather or other travel problems -- a cot in the airport or a hotel room on their own credit card.

Airlines do have to pick up the cost of hotels and provide a few dollars for meals when travelers get stuck somewhere because of an airline problem like a maintenance breakdown. But they won't pay if the problem stemmed from factors out of an airline's control.
American's baggage problem

Next is a good discussion on American's new policy of charging $15 to check your first bag (free WSJ Digg link)! This story has been getting a lot of coverage. Since this came out on Thursday, this column seems to be a special non-Tuesday Middle Seat column (the usual day of publication for the Middle Seat column).

Personally, I'd rather they just charge me a higher ticket price up front. I don't want to have to be fumbling with paying by credit card to check the bag at the counter, or be stuck in line while morons in front of me struggle to find their credit cards to pay this new fee.

There were a couple other things I wanted to talk about, namely the greater propensity for airlines to outright cancel flights and the projected increase in average ticket price, but I can't find the supporting articles right now, so they'll have to wait for another time.

Thursday, May 22, 2008

SmartMoney's annual broker survey - E*Trade comes out on top

On the heels of Barron's online broker rankings comes SmartMoney's annual broker survey. It makes an interesting general observation:

Each year we take an in-depth look at the industry's performance, and it wasn't long before we noticed something new: a blurring of the lines between key players. For years online brokers could be divided into two camps — discount brokers known for cheap trades but not much else, and "premium" discount brokers with higher prices but more products and services. Now that's pretty much out the window. Scottrade may be a discount broker, but it's also opening new branches at a furious pace, giving it more outposts than Charles Schwab. And some traditional "premium" discount brokers now rival discounters when it comes to price: The average commission charged by discounters like Firstrade is about 15 percent less than that of premium players like Fidelity, down from nearly 50 percent just four years ago. "We're all in this arms race," says TradeKing CEO Don Montanaro.
The rankings are done from the perspective of a customer that trades 20 times a year and has $50,000 in an account, which can be the mass affluent segment. E*Trade comes out on top (page 4 of the online article) overall for the second straight year. TradeKing, which was first in Barron's online broker rankings, placed third overall in the SmartMoney rankings.

Thursday, May 15, 2008

Renovating your home? Don't expect to recoup the costs

You probably won't recoup the costs of doing a home improvement project when you sell your home, despite what you see on the home improvement shows on TV. (I admit I love watching those shows.) This should be common knowledge. You'll get even less of a return on the project now, compared to the housing boom days (free WSJ Digg link).

During the housing boom, such ambitious projects would recoup as much as 90 cents on the dollar. Not today. The resale value of improvements in general is sliding, according to experts. In a departure from recent trends, homeowners are getting the best payback from relatively mundane improvements, such as sprucing up the exterior of their house or putting in new windows.

After spending $400,000 remodeling the suburban East Greenwich, R.I., home he bought for $820,000 in 2002, Jonathan Salinger learned he probably couldn't sell it for more than $1.1 million in today's market. That's after posh additions that included landscaping, a pool, an outdoor kitchen, first-floor laundry and mud rooms, and custom cabinetry. As a result, the 45-year-old district manager for a mortgage lender recently decided not to list his house for sale and scratched plans to move the family closer to his children's private school in Providence.


Nationally, returns for all major home-improvement projects are fetching 70 cents on the dollar, according to a Remodeling magazine survey of real-estate professionals conducted late last year. That's down from 80 cents in 2004. Back then, a minor kitchen remodel cost an average $15,300 and recovered an estimated 93% if the home was resold within a year. Today, a similar remodel costs $21,100 and would recoup only about 83%.
The story also points out some improvements, such as backup power generators, that have a regional appeal (the generators being more popular in the West and Southwest. The story says the generators are popular because the extreme weather in those regions can cause blackouts, but I'm thinking blackouts of the more man made variety.)

Monday, May 12, 2008

Roth for a child

You must have taxable income to fund a Roth IRA. There is no age requirement. What do you do if you want a child who doesn't make any W-2 income to be able to fund a Roth? The Journal provided this answer:

The child can fund the account with his or her dollars, or -- more likely -- an adult would "gift" the money.


there is a way to stay legal: Declare the money as self-employment income and file a tax return, suggests Ed Slott, an IRA consultant in Rockville Centre, N.Y. In doing so, you could end up paying self-employment taxes.

But the long-term gains from opening a Roth IRA as a youth are "so powerful," Mr. Slott says, that "it's worth paying the tax to get the Roth."

Saturday, May 10, 2008

Gift taxes when transacting with family members

An article in SmartMoney suggests filing a gift tax form (form 709) every time you engage in a transaction with a family member that is over $12,000 (the annual gift tax exemption). The problem is presented as follows:

Did you sell a house, a car or that inherited Chippendale secretary to your children this year? If so, you should consider filing Form 709. Why? Because the IRS can claim transactions between you and family members were actually disguised gifts. This can potentially happen whenever you sell a hard-to-value asset, like real estate or stock in the family business, to a relative.

Say you sell your vacation home to an adult child for $275,000 in 2008. In your opinion, the $275,000 price represented the full market value at the time. The IRS may disagree. After you are dead and gone, the Feds could audit your estate's tax return and claim the home was actually worth $375,000. This would amount to a $100,000 gift to your child ($375,000 - $275,000), which could trigger a bigger estate tax bill for your heirs. Or if you make lots of taxable gifts during your life, you could wind up owing a bigger federal gift tax bill before you die.
The solution is to file the gift tax form, even though the vacation home sale wasn't a gift. The article gives more specifics, such as the fact that the IRS only has 3 years to challenge the valuation of the vacation home.

This article led me to read up on gift taxes in instructions to IRS publication 709. I didn't know before that there are medical and educational exclusions to gift taxes. I'll have to read through the IRS tax tip on gift taxes and this other article from SmartMoney when I have some time.

Sunday, May 4, 2008

Fidelity and Delta offer (still valid)

I received a letter this week about a Delta SkyMiles offer from Fidelity. If you open a new nonretirement brokerage account with Fidelity and deposit $50,000 you can earn 25,000 Delta SkyMiles. $10,000 will get you 15,000 miles, and $2,500 will get you 5,000 miles. It says the offer expires July 15, 2008. has details.

Updated June 2: I received a postcard that says the offer expires August 15, 2008. The Web page makes no mention of any expiration date.

Updated January 4, 2009: I found another postcard while going through old mail that says the offer expires November 18, 2008, but when I checked the link again today, the page still makes no mention of any expiration date.

Friday, May 2, 2008

Inside scoop on financial planners

'The Mole' has an article that almost perfectly encapsulates my feelings on financial planners. My one complaint would be I wish the story pushed fee-only planners over brokers, but that wasn't really the main point of the story. The payoff:

It's okay to pay a planner for areas where they can add value by helping you reach your financial goals. Just remember that all fee models, including my own hourly model, have some conflicts. You should always understand what's in it for the planner. That's no different than the surgeon who might have an incentive to recommend an operation.

When it comes to paying a planner for market beating performance, just say no. The odds of this working in the long run are way too low to bet your nest egg.

Making the choice to get long-term care insurance

Money Magazine has provided a story on the difficult decision each of us should contemplate on whether or not to get long-term care insurance. The long-term care insurance choice isn't a lay-up like the getting life insurance choice is, where most everyone you speak to will tell you that you need at least some life insurance. Look at some stats from the story:

There's no question that years in a nursing home can decimate your savings. The average facility now costs $213 a day, according to a MetLife survey; based on last year's 3% yearly price increase, by 2030 you can expect to pay $408 a day, or $148,967 a year. For a 2½-year average stay, the tab would be about $372,000.

The chances that you'll need that much care, however, are small. Only 9% of 65-year-olds can expect a lengthy nursing-home stay, according to Milliman (another 18% will need long-term assisted-living care).

Like most other insurances, long-term care insurance gets more expensive as you get older. If you don't get the low rates in your 20s and 30s, it may become prohibitively expensive in your 40s and 50s, as you get closer to the time when you'd need it.