Numismatist's dream

Over 100 years ago, a sketch was made of a potential $100 face value coin (free WSJ Yahoo! link). The coin was never made, but the sketch's discovery makes for good cocktail party chatter among numismatists. The details:

Such a coin would strictly have been used for commerce between countries, rather than general circulation, due to its hefty weight.

The sketch in question is one of many drawings contained in the so-called George T. Morgan sketch book. Mr. Morgan created one of the most popular silver coins, the Morgan silver dollar. That is the coin that appears in many Hollywood Westerns.

You may be asking yourself, "what is the highest face value U.S. coin actually made". It's the American Platinum Eagle. The market value of these coins is much higher than the face value though, so don't go using them as legal tender, even though you can.

130/30 exchange traded note

I was going through some old starred items in Google Reader and stumbled across an old post from Random Roger about a 130/30 exchange traded note from First Trust. (Roger notes he's skeptical about 130/30 strategies in the post.)

There is a charts of the price history on the First Trust product page for the 130/30 ETN, and it looks like it's fallen from the high 40s in June to the mid 20s in November. The performance of this style of fund/note hasn't turned around since my last post on 130/30 funds.

Small businesses cut back on 401(k) matching contributions

Some small businesses are suspending their 401(k) matches (free WSJ Digg link). This is an unfortunate and disturbing trend. A 401(k) is an extremely important benefit to employees, as seen in these numbers:

A 2007 survey of small businesses by Fidelity Investments found the plans were very important to workers. Almost 70% of the employees said a retirement plan "was critical or very important for businesses to attract and retain employees." The study also found that 49% of employees who had retirement plans said they wouldn't move to companies without them.

I can relate to this. My first real job was with a big company with good benefits. I left it to go to a small company, and the small company's retirement plan was an important consideration. The match at the small company wasn't nearly as good (but the job was much more interesting, so I ended up taking it).

I was especially surprised to learn that only 15-20% of small businesses offer 401(k) plans. I'd like to know the definition of 'small business' used in the survey. Every company under 100 people I've worked for has offered a 401(k) plan.

College endowments predicted to take a big hit

It looks like college endowments, with their bets in alternative assets, aren't escaping bear market that has dealt a hurting to the rest of us. This fact probably doesn't come as a surprise to anyone, but until recently these endowments have seemed invincible, racking up returns that were the envy of everyone. Barron's made some projections on the endowment's losses.

With cash-strapped endowments and other institutional investors looking to sell some of their private-equity funds, an informal secondary market is developing. The going rate is said to be about 50% of stated investment values.

Commodities -- another favored asset class -- have plummeted more than 40% since June 30, with publicly traded oil-and-gas stocks off 50%. Real-estate investment trusts are down 35%. (The S&P 500 is off 28% in that span.)

Contrast this with some endowment's returns over the last decade (these returns are up through June 30.

Harvard's endowment was up an average of 13.8% annually, bringing it to $36.9 billion as of June 30, tops in the academic world. Yale's endowment grew at an average annual pace of 16.3% in the same span, to $22.9 billion, making it second to Harvard in size. Princeton's endowment rose at a 14.9% annual clip, to $16.4 billion. Stanford, in Palo Alto, Calif., also has shined; its endowment rose by 14.2% a year, to $20.4 billion.

The turnaround is staggering. Not entirely unexpected in this market, to be sure, but it goes to show you that even the very best money managers are feeling extraordinary pain.

Resources for renting vacation homes

Renting a vacation home is cheaper than paying for multiple nights at hotel rooms. How can you be sure that you're renting a nice home though? There are many online resources that can help.

Homeaway Inc., the world's largest vacation rental booking company by the number of properties listed, is moving to increase reliable user reviews on its Web sites, so potential renters can have more confidence in their choices. Tripadvisor, a unit of Expedia Inc. that is the market leader in hotel user reviews, plans to add vacation-rental reviews to its site by the end of the year.

Other companies are trying to make the experience of renting a home more like staying in a hotel. Last month, three rental booking companies -- Mountain Reservations, Rooster.com and Mexican Destinations -- joined their inventory and launched the booking Web site VacationRoost.com. The site says customers will get "hotel-like amenities" such as check-in, cleaning services, 24/7 service and maintenance, and the ability to book a rental with a credit card. Late last year, Group RCI, a vacation-rental and time-share-swapping company owned by Wyndham Worldwide, entered the U.S. market with Endless Vacation Rentals. The company says it offers 24-hour help over the telephone, full refunds on canceled reservations, and free over-the-phone concierge service in multiple languages.

The big 3 travel sites (Expedia, Travelocity and Orbitz) are bumping up their activity in the vacation rental space, with Travelocity increasing its condo, B&B and vacation rental inventory by 5 times in the last 2 years.

Solving the bogus vacation property review problem

Being able to trust a review of a vacation property is a problem, right? A small company called FlipKey (which was recently purchased by TripAdvisor) has come up with what I think is a cool a solution. Only solicit and accept reviews from people who have stayed at the property.

Flipkey Chief Executive T.J. Mahony says that only people who have stayed at a property can comment (unlike with hotel reviews on TripAdvisor) because reviews are solicited by an email using booking records. "One of our mantras," to property managers, "are negative reviews are a good thing," because it creates trust with travelers, Mr. Mahony says.

I poked around the site a bit, but couldn't find any places that I have actually stayed to do a comparison, but your mileage may vary.

This rule can limit your 401(k) contribution

(Welcome to those visiting from the Carnival of Personal Finance #178. Read more about the Carnival of Personal Finance. Subscribe to this site.)

There is a little mentioned rule for 401(k) contributions that could limit the contributions (free WSJ Digg link) of the mass affluent or other high earners. The rule is in place to prevent a 401(k) plan from favoring highly compensated employees. Highly compensated is defined as making $105,000 or more in 2008 (this increases to $110,000 in 2009). The basics of the rule are:

higher wage earners can't contribute more than two percentage points more of their salaries than lower wage earners. For example, if highly compensated workers defer 6% of their wages and lower earners save only 2% of their wages, the plan would fail the nondiscrimination test.

This is not a new rule, but it will affect more highly compensated employees as rank-and file employees cut back on contributions to the 401(k) plan to pay other bills. If a 401(k) plan fails this rule, contributions from the high earners in the plan are limited or even returned.

Safe harbor and SIMPLE 401(k) plans not subject to the nondiscrimination test

The IRS has more information on 401(k)s for sponsors and participants at its 401(k) resource guide. Digging through the IRS site you can find that safe harbor and SIMPLE 401(k) plans are not subject to this nondiscrimination rule. A safe harbor 401(k) plan allows employers to make matching contributions or contributions for all eligible employees. The employer contributions are fully vested immediately. A SIMPLE 401(k) plan has different restrictions from the traditional plan, most notably that it's only available for companies with 100 or fewer employees who received at least $5,000 in compensation.

Don't break the buck

I recently received an update to the prospectus to a money market mutual fund I own explaining that the fund would be participating in the U.S. Treasury's Temporary Guarantee Program for Money Market Funds. The Treasury is guaranteeing (subject to some fine print, naturally) that if a money market fund breaks the buck (has a net asset value of under $1 per share) and liquidates, investors in that fund will get the full $1 per share value. The big caveat is this only applies to shares the investor held as of September 19, 2009. If an investor adds shares after that date, then the new shares would not be covered and therefore subject to loss. The program runs until December 18, 2009, but can be extended by the Treasury to September 18, 2009. The Treasury published a list of FAQs on the program too.

The program isn't free

For this protection, my fund will have to pay %0.015 of its net asset value (NAV). This cost will be borne by the fund, not the management company. Yeah, that's a great deal for investors. We have to pay for the insurance on so-called "safe" money market funds that are turning out to be crappy. How about the management companies step up and pay the insurance?

Update:
The guarantee program was extended until April 30, 2009.

Convert IRAs that have plummeted in value to Roth IRAs

A Traditional IRA whose value has fallen off of a cliff is a good candidates to convert to a Roth IRA. You'll have to pay taxes when you do the conversion, but they'll be less than when (if?) the value of the IRA.

When you convert traditional IRA assets to a Roth, you have to pay the income taxes upfront on the account's value -- and in some cases, those values may be next to nothing at the moment.

Kent Lawson, a 66-year-old AT&T retiree in Bloomington, Ind., signed the paperwork last month to convert a traditional IRA containing a $40,000 Lehman Brothers principal-protected note to a Roth. "It's gone to a zero price, so hopefully we can convert it at no value," says David Hays, his financial planner. "We expect it to be worth something eventually, and then he won't owe any taxes on it."

This smacks of market timing, but I think it's a good move. Making this move is a bet that asset values won't fall further, so it carries some risk, but the tax savings could make it a smart one, since there should be no further taxes on a Roth.

One big caveat is that your income must be $100,000 or less in the year of the conversion. This will change in 2010, assuming the tax laws don't change, when anyone, regardless of income, will be able to convert a traditional IRA to a Roth IRA.

Water, water everywhere, and hopefully a drop to drink

What's in the water that we drink? Maybe some nasty stuff (free WSJ Digg link).

Engineers say that U.S. water quality is among the world's best and is regulated by some of the most stringent standards. But as detection technology improves, utilities are finding more contaminants in water systems. Earlier this year, media reports of trace amounts of pharmaceuticals in water across the country drew attention from U.S. senators and environmental groups, who are now pushing for regulation of these substances in water systems.

Of particular concern, experts say, are endocrine-disrupting compounds -- found in birth-control pills, mood-stabilizers and other drugs -- which are linked to birth defects in wildlife. Also alarming are antibiotics, which if present in water systems, even in small amounts, could contribute to the rise of drug-resistant strains of bacteria, or so-called super bugs.

Then the article gets into some he said, she said debates about whether this stuff in the water is dangerous. Bottom line, I'd rather not be drinking this stuff. The story mentions some options.

Better (and more expensive than) the Brita

I use a Brita filter today. It's a simple carbon filter, and it makes my tap water taste better. I did a little studying of the reverse osmosis filter referenced in the article, the K5 Drinking Water Station.

Last April, Elizabeth Beyer, 47, purchased a Kinetico Inc. K5 Drinking Water Station for her father, who had a liver transplant in February. Doctors had advised him to drink only filtered water. The system, which cost $2,100, is meant to remove contaminants ranging from lead to chlorine sediment using reverse-osmosis technology and two additional filters.

Ms. Beyer, who lives in Venice, Fla., says it was worth it. Her water is clearer and crisper. "I can definitely taste the difference," she says. "You can see the difference."

There is a YouTube video on the K5. Looks slick, and is something I'll consider. My tap water tastes pretty good already, and the Brita makes it even better, but I wonder if the Brita is effectively filtering out any pharmaceuticals. Ideally, I'd get myself some double distilled water, but that is way too cost prohibitive.

The K5 is certified by NSF. The NSF site has a cornucopia of information on water, like rainwater collection.

Good tap water

Fortunately, I start with a pretty good base of the tap water I filter. An older story in the Times tells how good our City water is, but does raise some potential future problems.

The upstate water is of such good quality, in fact, that the city is not even required to filter it, a distinction shared with only four other major American cities: Boston, San Francisco, Seattle and Portland, Ore. New Yorkers drink their water from Esopus Creek, from Schoharie Creek, from the Neversink River, straight from the city’s many reservoirs, with only a rough screening and, for most of the year, just a shot of chlorine and chasers of fluoride, orthophosphate and sodium hydroxide.

But that state of affairs may not last. In late spring or early summer, the United States Environmental Protection Agency will decide whether New York water is still pure enough to drink without filtering. Development in the city’s upstate watershed areas, as well as the increasingly stormy weather that comes with climate change, is threatening the water’s mythic purity. If the federal agency does conclude that city water is too sullied to be consumed directly, New York will have to spend huge sums on filtering, close the book on 165 years of filter-free taps — and absorb a major blow to its hometown pride.

[...]

Today, New York water originates in watersheds that sprawl over nearly 2,000 square miles, filling 19 reservoirs and three controlled lakes. The aesthetic and mechanical beauty of the system — 95 percent of which is gravity-fed — causes some officials to wax sentimental. “It’s miraculous that the system replenishes itself,” Ms. Lloyd said. “And if we take care of it, it will provide drinking water for New York forever.”

Organic lawns continued

There's a followup to the organic lawn article (free WSJ Digg link) that caught my attention last year.

But now, a welcome détente has set in. My grass is holding its own and looks good enough that visitors offer compliments -- a first at my house.

I also found the original articles from the author about going organic on a lawn.

Replace your car's sunroof with solar panels

Sunrise Solar is making solar panels that will replace your car's sunroof, according to their press release.

This unique technology replaces the traditional glass sunroof with an advanced solar replacement. The solar sunroof will generate electricity to recharge the vehicle’s batteries while simultaneously cooling the car when parked in a hot climate or warm the car when parked in a cooler climate.

Their site's product page didn't have too much more information about this new sunroof.

Emerging market returns down; shift to frontier markets?

BusinessWeek (using Bloomberg Financial Markets data) has documented some poor returns over the last year for some emerging markets (link to the infographic). Mexico is down 6%, Peru down 42%, Argentina down 17%, Russia down 8%, ... (South Africa is up 2%). Now they're talking about a shift to frontier markets, and list some ETFs that invest in the frontier markets, some of which I've written about before.

Lowering power usage with smart meters

(Welcome to those visiting from the Carnival of Personal Finance #167. Read more about the Carnival of Personal Finance. Subscribe to this site.)

Smart power meters can lower power use by 13%. That's not just a couple of standard deviations in savings we're talking about. And if that power consumption cut comes during peak electric use hours, all of a sudden we're into some real dollar savings.

So what are these smart meters?

The BusinessWeek story sums smart meters (sometimes called advanced meters) up:

Hailed as the perfect marriage of high tech and conservation, smart meters replace the discs and dials of yesterday's meters with microchips and digital displays. When there's a blackout, they can instantly notify utility managers about which households are affected, speeding up recovery times. And paired with compatible appliances in the home, the technology can let customers know what power costs at different times of the day, so they can better manage consumption. Their biggest impact may be on utilities' bottom lines: Since the latest smart meters wirelessly transmit usage data, armies of meter readers could go the way of the milkman.

Another thing the smart meters can do (with the agreement of a customer) is remotely turn down appliances that use a lot of energy, with air conditioners being the best example of this. I would welcome this, since a certain anonymous family member runs our AC entirely too much.

So what's the argument against installing smart meters everywhere?

In one word, cost. It's costing more to install smart meters than the utilities projected (I know, shocking that a hi-tech project has cost overruns), and those costs get passed on to the customers.

just two years into the program, the company is already saying it will have to spend $600 million to complete the project, on top of the $1.7 billion already budgeted. That requires an O.K. from regulators, since the costs ultimately get passed along to ratepayers.

The problem? After upgrading hundreds of thousands of meters, PG&E says the smart gadgets came up short. Among other things, they were supposed to send information to the utility over the power lines. But that proved too costly. PG&E is now planning to replace them with sleeker wireless models.

PG&E says that 70% of the project's costs will be made up in operational efficiencies. That better be passed back to customers like the original project costs will be.

How much could I save if my utility adopted smart meters?

It just so happens that my electric utility filed for a rate increase in 2007, part of which would fund a $340mm project to install smart meters. I could find no mention of the smart meters in the 2008 press release for a rate increase, but I'll assume that the project is still on track.

Looking at the first article to which I linked shows the source of the 13% energy savings I referenced at the top of this post:

Quantifying the customer savings is a challenge. Ahmad Faruqui, a consultant with the Brattle Group, has studied more than a dozen smart-meter tests by utilities and helped conduct a statewide pilot program in California four years ago. He says communities using smart meters show an average 13% drop in peak power usage when customer incentives are in place. But there's a catch: Some 80% of the savings comes from just one-third of the customers.

Let's assume I could get a 10% electric power use savings. I used 1,945 kWh last month, so the 10% savings would be 195 kWh (rounding up). My electric utility has two different per kWh charges, supply and delivery. (I live in the Northeast by the way, where rates have been increasing rapidly.)

Charge type	Dollar charge
Supply	$0.164910
Delivery	$0.070977
Total	$0.235887

My total savings last month might have been:

kWh	x	per kWh savings	=	SAVINGS
195	x	$0.235887	=	$46 (rounding up)

Last month was the peak power bill for the year (it had better be!), so in an average month I'd expect savings of around $30 in the best case.

After digging a little bit more on my utility's Web site, I found a page where I can request to enroll in a program that will charge me less for using power in off peak times by installing a new meter that will measure use during specific time periods. I'll be requesting more information from the utility on this program.

Update:

The savings calculations were too good to be true

I received information back from my electric utility with information on their time of use program, and there are some big gotchas for me.

First, the utility's definition of peak time is 10A.M. to 10P.M. Monday through Friday. Even though I'm at work for a big portion of that time, I'm usually home from 6:30P.M. to 10P.M, and I'm guessing we're using a fair amount of power during that time.

Second, the charges are greater than my standard rate from above during the peak time, but less at the off-peak time. I'd be paying more than the standard rate from above in that 6:30P.M. to 10P.M window. I don't think I could shift a significant portion of my energy use to a non-peak time.

Third, the supply charge is de-regulated and can change monthly (my current charges are regulated by the state.)

Looking at the charges, the peak delivery charge for time-of-use metering in the summer months is nearly three times my current standard delivery charge. The off-peak delivery charge is about 1/10 my current standard delivery charge. The peak supply charge for time-of-use metering in August is nearly double my current standard supply charge. The off-peak supply charge is about 3 cents less than my current standard supply charge.

Insuring the 70s Dodge Challenger

So you've got a classic American muscle car and you want to insure it. Insurance options should be getting better.

Earlier this year, Chubb ended its exclusive arrangement with Grundy Worldwide, the oldest insurance agency specializing in classic and antique cars, and now sells policies directly to collectors as well. To attract business, Chubb lifted a previous mileage restriction on coverage, provides free towing after a breakdown to the garage of your choice and has increased liability limits up to $50 million. Fireman's Fund Insurance Co., a unit of Allianz SE, and American International Group's Inc. Private Client Group are two other high-end property insurers expanding into the market. Added to the longtime players in the market, these new insurers -- which are trying tactics like dropping mileage limits or adding extra coverage -- give consumers more coverage choices.

Finding an estate planning lawyer

I'm searching for an estate planning attorney. I recently stumbled on a blurb in Business Week about avvo.com, which rates lawyers. So I decided to try the site out.

I started with the 'Find Lawyers By Location' links on the right side of the home page, and selected my city (the service isn't available for all cities). That gave me too broad a list, so I clicked on 'Browse lawyers by legal practice area', which took me to the 'Lawyer Search' page.

On the 'Lawyer Search' page, I clicked on the 'View All' link next to 'Browse by practice area', to give me the site's canonical list of all practice areas. Conveniently, 'Estate Planning' and 'Trusts' are in the list, so I did a search on 'Estate Planning' in my area. It returned 640 results. Only 3 of them were reviewed, so the search didn't help me narrow down my choices much.

The next thing I did was to look at the 'Answers and Advice' section of the site, and look at all the estate planning questions and answers. Some of the attorneys posted answers to estate planning questions, so I'll probably at least contact those attorneys that have posted in the forums. It looks like word of mouth is still going to be my best bet to finding an estate planning attorney, at least until avvo.com gets more attorney reviews.

The site also provides some guides to estate planning.

Vanguard's estate planning terms you need to know

Vanguard's site is a great source of financial information. They recently had a story on the 5 estate planning terms you need to know.

Living trust

A living trust is established while you are alive. At your death, any assets in the living trust do not have to go through probate, but pass as you've stated in your trust document.

Common misconception: A trust's primary purpose is to reduce taxes.

"People mistakenly think this, but the trust's most important role is to control your assets," says Ms. Smith.

The story also links to their estate planning brochure.

Frontier funds coverage heating up

Frontier funds are in the news again, this time being covered by Money magazine (see my previous posts on the topic here and here.

Enter the newest fad: frontier funds. They go to places that may have barely functioning stock markets and shaky governments but often have astounding growth rates. Côte d'Ivoire's market spiked 122% in 2007. Namibia's rose 63%.

Within the past year, three funds specializing in frontier stocks have launched: T. Rowe Price Africa & Middle East, Fidelity Emerging Europe, Middle East, Africa and Claymore/BNY Mellon Frontier Markets, an ETF. And more are on the drawing board.

The T. Rowe Price fund and the Claymore/BNY fund were in some previous articles I cited in my old posts. The Money story goes on to point out some rather big risks in investing in frontier markets, and questions whether the individual investor has the stomach for the 50% swings that can happen in these markets.

The emerging markets are still tiny, with only a $191 billion market cap according to the story, so they have a lot of room to grow. But now that the mainstream media is covering these markets more and more, is it really the right time to invest, or is it a sucker's bet now?

Real estate driven tax changes

I wasn't really paying attention to this before, but I've seen quite a few stories on the Housing Assistance Tax Act of 2008 over the last week. (The about.com story gives better examples.)

A few things the new law encompasses

• First-time homebuyer credit of up to $7,500
• Property tax deduction even if you don't itemize
• Better tax credits for low-income housing and renovating old buildings
• More relief for 2005 hurricane victims
• Changes in capital gains exclusion for real estate
• Reporting of credit and debit card payments

Being a law written by our Congress, there are of course other provisions in it (why can't our laws ever be simple changes?). I'm interested in the first-time homebuyer credit and the changes in the capital gains exclusion for real estate.

First-time homebuyer credit

The first-time homebuyer credit is a credit up to $7,500. The 'credit' has to be repaid though over 15 years. And there is an income limit of $95,000 for individuals and $170,000 for married couples filing jointly, so those in the mass affluent segment may not qualify due to income.

Changes in capital gain exclusion for real estate

Previously, the tax laws allowed a homeowner to exclude up to $250,000 in gains (or $500,000 for joint filers) as long as the homeowner owned and lived in the house for at least two years out of the five years ending on the date of sale. Now, any gains will need to be allocated based on usage. Only gains allocated to time spent living in the property as a primary residence will qualify for the tax exclusion

OK, an example really helps to understand this.

Here's an example: Suppose a married couple buys a home on Jan. 1 next year for $600,000, says Mr. Olivieri of White & Case. They plan to hold it as an investment. On Jan. 1, 2012 -- three years later -- they begin using it as their principal residence. They live there two years and sell it on Jan. 1, 2014 for $1.1 million, for a profit of $500,000.

Under the old law, they would have been able to exclude the entire $500,000 gain from their taxable income, Mr. Olivieri says. But under the new law, they could exclude only two-fifths of the gain, or $200,000, since the other three-fifths would be considered attributable to the three years the home wasn't their principal residence, he says.

Insider take on hedge funds and separately managed accounts

Think that the "2 and 20" (or is it "20 and 2") fees charged by hedge funds are outrageous. An investment advisor agrees. It's refreshing to hear a professional give an inside scoop on high priced investment vehicles. The column talks about both hedge funds and separately managed accounts:

To be sure, some brilliant hedge-fund managers have delivered fabulous results. But the odds of getting into one of their funds without being extremely well connected on Wall Street are slim. What you're likely to be sold instead is a hedge fund run by a one-time mutual fund manager who decided to reach for the gold ring.

My strong advice: Stay away.

Separately managed accounts are a different animal. In an SMA, you actually own individual securities (stocks and bonds) rather than shares of a mutual fund -- which are, after all, for the riffraff.

But guess what? The people who run your SMA often work for a mutual fund company. In fact, there's a good chance they run a mutual fund that is similar, if not nearly identical, to your SMA.

He goes on to recommend the CGM Focus mutual fund. I've read many great things about this mutual fund. A story this year in Fortune gives some excellent background on Ken Heebner, the fund's manager.

Cheap custom homes! Fire sale prices! Won't last!

Consumers can get better prices on a custom or semi-custom home these days from a mass market homebuilder (free Yahoo link) (I found the Yahoo link since I had to search Google for the story after I couldn't find it directly on the WSJ site). The housing slump is pushing the builders to find more profitable niches.

A number of big home builders are now getting into the custom-home game -- an area that was once almost entirely the province of boutique builders. Companies such as John Laing Homes, Toll Brothers Inc. and K. Hovnanian Homes are all venturing into a field that takes more time, patience and hand-holding than production building.

The reason is simple: Custom-home building is more profitable for builders. And -- in this tough market -- it also carries less risk: Builders avoid the carrying costs of land, taxes and other monthly expenses that can come with speculative building. Because custom building caters to the upper end of the market, it's doing better than production building right now, says Steve Melman, an economist with the National Association of Home Builders. Although home building of all types is stagnating, he says that the custom share of the market tends to go up during down times, while production building peaks during boom times. In 2007, the custom share of the market was 24%. In 2005, during the peak of the boom, the custom share was 19%.

To see the difference in prices, look at one couple building a house in the Lowcountry of South Carolina. The per square foot cost from Toll Brothers was $137, while custom builders quoted between $170 and $200. The couple had to tweak an existing Toll Brothers design as opposed to a fully custom house, but the price break they got seems worth it. If you're in the market for a custom house, the big builders are worth checking out.

When will the market bottom get here?

When will the market bottom? Some ascribe to the theory it will happen when we have capitulation. A Barron's column says capitulation is coming.

Ahead of that one giant, desperate cry of uncle yet to come, the bear so far appears to be twisting investors, sector by sector, asset class by asset, until the white flag goes up. Slowly but surely, each of the major asset classes, for example, has found itself down from highs: real estate, stocks, bonds, commodities and the dollar.

Bear markets eventually get to all equity sectors, notes Mike O'Rourke, chief market strategist at broker BTIG. After housing, retail, financials -- and energy last week -- have been hit, technology might be next for a further mauling, given the poor trading action and recent disappointing news out of Apple, Google and Microsoft , he says.

The good news is the process is unfolding. The bad news is that there are plenty of stock groups not nearly as beaten-up as the ones mentioned above, and even a few that are up since the market hit a high last fall. Eventually, the bear will get to most, if not all, and investors will collectively cry "uncle!"

I hope the bottom comes this year and not next (or even 2010). I'm continuing to methodically put money into stocks. Not as much money as I used to put in since I want to hold more cash, but I still put money in so that when the bottom comes I catch it with some money invested.

Desert land as an investment

Land is being snapped up in the Southwest by companies to use for solar power projects. It's becoming a modern day gold rush, with the likes of Chevron, PG&E and Goldman Sachs involved.

Just 20 months ago only five applications for solar sites had been filed with the BLM in the California Mojave. Today 104 claims have been received for nearly a million acres of land, representing a theoretical 60 gigawatts of electricity. (The entire state of California currently consumes 33 gigawatts annually.)

The BLM is the Bureau of Land Management, in charge of the federal-land the solar developers want. 60 gigawatts would be a nice addition to the nation's power supply. I'm not sure exactly how to play a solar investment quite yet, but I'd like to get into the right one. If Goldman Sachs is in this, there is big money to be made. Examples of the increase in land prices are:

Such is the land frenzy that farmers in Arizona were paid $45 million for 1,920 acres by Spanish solar company Abengoa so that it could build a 280-megawatt power plant; the land had an assessed value of a few hundred thousand dollars. The company also plunked down $30 million for 3,000 acres in the California Mojave that had traded hands for $1.25 million nine years earlier. That prompted developer Scott Martin to put his adjacent 300-acre parcel - land he had bought only a few months earlier for $457,500 - on the market for $3 million.

For the more technically inclined, the story discusses what will be built on the land.

Most of the power production contemplated for the Mojave will rely on solar thermal technology - the common approach in large-scale generation projects - in which arrays of mirrors heat liquids to produce steam that drives electricity-generating turbines. But a secretive Hayward, Calif., startup called OptiSolar has filed claims on 105,300 acres to build nine gigawatts' worth of photovoltaic power plants, which employ solar panels similar to those found on residential rooftops. (The company also has applied for leases on 21,800 acres in Arizona and Nevada.) To put those ambitions in context, the biggest photovoltaic power plant operating today produces 15 megawatts. Says OptiSolar executive vice president Phil Rettger: "We have a proprietary technology and a business approach that we're convinced will let us deploy PV at large scale and be competitive with other forms of renewable energy."

Collective funds instead of mutual funds

Collective funds are like mutual funds, but generally only available in retirement plans (like 401(k) plans), and are increasing in popularity as investment vehicles in 401(k) plans (free WSJ Digg link). The reason that they're replacing traditional mutual funds? They're cheaper.

Just like mutual funds, collective funds pool investors' assets and invest in stocks, bonds and other securities. The chief difference: Collective funds are typically available only in retirement plans. Because they aren't sold directly to the general public, they generally aren't regulated by the Securities and Exchange Commission.

Collective funds tend to be substantially cheaper than mutual funds, largely because they don't have to comply with SEC regulations or market to retail customers. That's driving 401(k) plans to embrace these products, which are offered by big fund providers like Fidelity Investments, Vanguard Group and Charles Schwab Corp. as well as by banks and trust companies.

Only 58% of large defined-contribution plans such as 401(k)s used retail mutual funds in 2007, down from 65% in 2003, according to research and consulting firm Greenwich Associates. By contrast, 39% of such plans used collective funds last year, up from 33% two years earlier. Other common 401(k) investment options include institutional-class mutual funds sold to retirement plans and other large investors, and "separate accounts," which are custom-designed for a single retirement plan.

I checked my 401(k) and sure enough, the funds I'm invested in are collective funds, not mutual funds. In fact, my 401(k) plan offers more collective funds than mutual funds.

Collective fund drawbacks

The Journal story talks about one drawback of collective funds being that they don't have to update their performance frequently, and that their daily prices aren't reported in newspapers. My 401(k) plan publishes daily price changes of the funds on its Web site, so this hasn't been a problem.

Another drawback cited is that collective funds "can't be rolled over to an individual retirement account when the participant leaves the 401(k), so participants have to transfer their funds into other investment options if they take these assets from the plan." However, I don't see this as a big deal since I've never done a direct in-kind rollover from a 401(k) to a rollover IRA when I've left an employer. I've always liquidated the 401(k) holdings and then rolled over.

Global wealth

I was reading a column about the great returns that financial planners and advisers make for their brokerages. I know, no surprise there. What jumped out at me is how much wealth high net worth individuals now control:

Globally, the wealth of high-net-worth individuals (defined as having net assets of at least $1 million, excluding primary residences) jumped 9.4% last year, to just under $41 trillion. That's more than 30 times the market valuation brokerage firms have lost just this year. Both India and China saw at least 20% jumps in the ranks of their wealthy citizens. In Korea that figure was 19%, and in Russia it was just over 14%. In the oil-rich Persian Gulf...well, you get the drift.

Maybe these factoids are only of interest to me, but I thought I'd point it out.

College endowments are misers

Look at this graph from BusinessWeek. The average percentage of assets college endowments spent per year decreased from 5.1% in 2003 to 4.6% in 2007. It's not because the endowments are shrinking, they grew 17% last year. Click through the entire slideshow for more numbers. A couple of colleges were singled out for boosting aid.

Solar heating in the home

Wendy Bounds has a story in the Journal about her efforts to heat her home through solar power (free WSJ Digg link). The story isn't about using photovoltaics to generate electricity for heating, but rather using a solar-thermal system.

Nationally, an average-size, 4.5 kilowatt residential photovoltaic system costs $40,000 to $50,000, before any tax credits or rebates, according to the Solar Energy Industries Association. The lowest estimate I got was about $17,500 after rebates and credits, with an estimated payback period of 15 years. (A kilowatt-hour equals the energy needed to run a 100-watt bulb for 10 hours.)

But for a smaller investment, sun can be used to heat water for showers, laundry and dishwashing. At $2,000 to $8,000, these solar-thermal systems typically pay for themselves in under a decade. With extra equipment, they also can help heat homes.

The story is full of good links to find local installers and information on tax breaks the feds and states give for solar.

I did a search and found a science fair project that refers to the most efficient photovoltaic cells having 15% efficiency, and the most efficient Stirling engines having 30% efficiency. I found another site that states solar-thermal is 5 times more efficient than photovoltaics at heating water. Solar-thermal is a cheaper, more efficient option for heating water and a home, but won't necessarily provide electric power (unless you want to set up your own solar-thermal electric plant in your backyard.

New version of Fidelity Active Trader Pro

Fidelity has released a new version of its Active Trader Pro, and Barron's has provided a review. The direct link to get more information about Active Trader Pro on the Fidelity site is here. The application is only available to Fidelity customers that have traded 36 times over the past 12 months. By comparison, a tool like TD Ameritrade's Command Center is available for all TD Ameritrade customers, regardless of the TD Ameritrade's trading volume.

Commissions drop from as much as about $20 a trade to as little as $8 for active traders, and ATP itself is free to those who qualify. Transactions can include options as well as stocks and exchange-traded funds. As you trade more, ATP tosses more tools your way, all usable within the app, including Dow Jones news services (an affiliate of Barron's), Level II quotes and interactive charting. Those who trade 120 times or more over 12 months are eligible for Fidelity's back-testing tool, Wealth-Lab Pro.

Again, Fidelity's competitors offer cheaper trades, and free back-testing tools that don't have a minimum trading volume requirement.

The options-order entry screen allows you to create strategies with as many as four legs, so that you can be selling and buying calls at four different strike prices. Options traders will be able to view the greeks, which measure a particular option's potential risk and reward over time from the option's chain displays. They also can use a multi-leg pairing tool that displays bid/ask spreads. They'll also be able to find historical options charts.

Historical options charts are a big draw for me.

Overall, I didn't see anything in the review that would cause me to switch to Fidelity so I could use the tool, but for existing mass affluent customers that are active traders, the tool is worth checking out.

Life insurance calculators

SmartMoney has a fairly comprehensive life insurance needs calculator. I used several online calculators when calculating how much life insurance I needed. In the end, I found the rule of 10 times my annual salary worked as well as the more involved calculators (and was much easier to calculate).

Keep non-mortgage costs for homes in mind

A Connecticut couple is putting up their (amazing) home for sale through a sealed-bid auction. Their reason is that it is too much house for just the two of them (it's a 26,000 square foot house).

The thing in the story that stuck out at me was this:

The upkeep, more than $200,000 a year, was part of what soured the dream.

“It needs a staff — a chef and groundskeepers and gardeners,” Mrs. Cheslock said. “Trees, lawn, gardens, pool, deer-repelling. We have three different kinds of grounds teams.

Keep non-mortgage costs in mind when purchasing a house. There's also time that has to be invested in a house, whether homeowners perform maintenance themselves, or spend the time hiring someone to do it.

(Hat tip to FreeMoneyFinance for this story.)

Americans will be on their own for retiree health care coverage

That's my prediction, anyways. Americans won't be able to count on retiree health care benefits from either Medicare or private company insurance. Take a look at what General Motors just did.

But GM's announcement Tuesday that it would cease medical coverage for its salaried retirees age 65 and above signals that a new era of ever-shrinking benefits has arrived. Beginning in January, even former employees who are already in retirement will lose their benefits, which most of the company's retirees use to supplement gaps in their traditional Medicare coverage. The auto maker will boost monthly pension payouts to help offset the cuts. The company's unionized workers aren't affected by the cut to retiree health benefits.

And here's the advice from the retirement experts:

At this point, employees and retirees "have to feel lucky if they still have retiree [health-care] benefits, and have to start planning for when they won't," says Rick McGill, head of retiree medical consulting for employee-benefits firm Hewitt Associates. He says such benefits are "a dying breed."

Retirement-benefit experts have for some time been recommending that all workers -- even those close to retiring and who've "earned" full retiree benefits -- should assume that those benefits will likely be eliminated, either before or during their retirement, and start planning and saving for it.

Medicare won't be there either

I don't think Medicare will be there to pick up the slack for retirees who lose company sponsored health plans. It's an unsustainable program. Kotlikoff wrote an entire book on the problems. According to Fidelity Investments, which was referenced in the Journal article, "a 65-year-old couple's out-of-pocket health-care costs could reach $225,000 in their remaining years". Sadly, that money is going to have to come from the retiree him- or herself, not from the government. There will no longer be government sponsored health care for the elderly. It's a bum deal, for sure, but we'd better start planning for it.

State and city workers will fare no better than corporate workers

State and municipal workers counting on retiree health care benefits won't make out any better. These old Fortune articles give some good background. Let's not kid ourselves, taxpayers aren't going to fund public sector retiree benefits. They're going to be cut.

Again, this is all very sad, but unfortunately, it's reality. I hope I'm wrong about this, but this doesn't look like a problem that we can grow our way out of.

Brown bagging it

I bring my lunch to work most days. I've been doing this for a couple of years, and it looks like I'm not alone in brown bagging it. I probably save anywhere from $50 to $75 a week by making my lunch at home. (That's money I can use for a cocktail or two after work!)

It's not just the young, entry-level workers who are cutting back. In March, after price increases of 10% to 20% at his favorite midtown Manhattan eateries, Marc Haskell gave up his gourmet spinach salads and turkey wraps and began packing turkey sandwiches from home. The 47-year-old executive vice president of the Glazier Group, a restaurant and hospitality company, says he now saves around $50 a week on lunch.

Eat healthier

I remember when I was a kid my mother used to make my father lunch to take to work. This wasn't necessarily to save money (although that was a plus), but to make sure he didn't eat junk at lunch. You can eat much healthier by bringing your lunch.

Are high mutual fund minimums good?

High mutual fund minimums can be a good thing. The mass affluent segment should investigate funds with higher minimums. Here's a story that gives reasons why (free WSJ Digg link).

But there are reasons for considering paying up. Of course, by raising minimums some funds are being picky about who they let in the front door. But in some cases, they also are trying to control costs and protect shareholders. The fewer shareholders a fund has to deal with, the less it has to spend on annual reports or account maintenance. That can translate into lower annual fees. High minimums can also cool off asset inflows into a hot fund.

Once I'm invested in a good fund, I want the fund to restrict who else can invest. Basically, I want the manager to only have enough money that he or she can invest well. If the fund gets hot, and new money pours in, the manager has to start investing in worse and worse ideas that are going to lower overall returns.

Let me give a simple, canned example. Let's say I have $10,000 in a fund that owns a single stock that returns 20% a year. Therefore, leaving out fund fees for simplification, the fund returns 20% to me a year. Now the fund let's in another investor who invests $10,000. The fund manager invests the new money in a stock that returns 10% a year. Now since I own 1/2 the fund, and the new investor owns the other 1/2, I essentially have $5,000 invested in a stock that returns 20% a year, and $5,000 invested in a stock that returns 10% a year. This has put me in a worst position than when I was the sole investor in the fund.

Discouraging frequent redemptions is another feature I look for in my mutual funds. Frequent redemptions by other shareholders causes either the fund manager to keep cash on hand instead of investing it, or to sell investments to raise cash, potentially selling investments that still have room to run.

Have over $100,000 in cash but want full FDIC insurance

Here's a tip in the Journal's R.O.I. column about how to get full FDIC insurance on deposits over $100,000 (free WSJ Digg link) (the money has to be broken up across multiple accounts).

[...] you can take part in a program known as CDARS run by Promontory Interfinancial. Details are here. This allows you to deposit your money in one bank, which will then parcel it out in federally-insured $100,000 lots to various other banks. Net result: The whole thing is insured.

With CDARs, someone else is breaking up the money into less than $100,000 chunks for you. Their Web site says you can get full FDIC protection up to $50 million. And there aren't any fees. Sounds like a useful service for a mass affluent depositor.

Options trading gaining in popularity among small investors

Despite the risks, options trading is become more popular among non-professional investors (free WSJ Digg link). The numbers tell the story:

This year through June, options trading volume jumped 38% from the same period last year, to 1.7 billion contracts, according to Options Clearing Corp., which clears options transactions. While many of those trades were made by Wall Street pros, individual investors have demonstrated a growing appetite for options, which are, in essence, contracts to buy or sell a stock or other asset at a set price within a certain time period.

[...]

At optionsXpress Holdings Inc. and its younger rival TradeKing -- two brokerage firms catering to small investors -- options-trading volume climbed 21% and 150%, respectively, in the first five months of this year from the same period a year ago. A recent survey by brokerage firm OptionsHouse Inc. found that 60% of online options investors have traded the contracts for five years or less.

Are retail investors going to get burned by options? Only time will tell. The article has a couple of anecdotes about individuals that lost a small fortune trading options.

To satisfy this increase in demand, and to attract even more small investors in options, simplified options products are being rolled out:

The American Stock Exchange in May, meanwhile, launched a simpler type of option -- called a "fixed-return option" -- designed for novices. Buyers of these simplified products face only two possible outcomes at expiration: A return of $100 per contract, or nothing. Bullish investors can purchase a "finish high" option, betting that the underlying stock will be above a certain level on the expiration date, while bears can buy a "finish low" option, betting the stock will be below a certain level on that day.

Personally, I'll stick with my covered call writing. I still remember the warning a friend of mine gave me about options years ago. It only takes a few contracts expiring out of the money before you're wondering where all your cash went.

Why to avoid credit monitoring services

SmartMoney provides 4 reasons to avoid the so-called credit monitoring services.

On the surface, credit monitoring services sound like a foolproof way to insure your credit's health. But, as consumer advocates caution, these services typically aren't worth the money. "Credit monitoring is grossly overpriced," says Gail Hillebrand, senior attorney for Consumers Union, which publishes Consumer Reports. Adds John Ulzheimer, president of consumer education for financial-information web site Credit.com: "I can think of a lot of other ways to spend $150 a year."

Of course, credit bureaus argue that these services are worth every penny. "It's a good tool for managing credit, and that's what's missed in a lot of these conversations," says Steven Katz, a spokesman for TransUnion's TrueCredit.com. Rod Griffin, director of public education for Experian, says not only does their service give consumers around-the-clock access to their credit report, but they also provide invaluable debt management tools to help them improve their creditworthiness. Demitra Wilson, a spokeswoman for Equifax, noted that these services can also make a lot of sense for consumers who don't have the time to regularly check their credit report.

Of course the credit agencies' flacks say this. What should be required is for credit agencies to provide the monitoring service for free. Charging a fee so that a consumer can make sure the credit agency didn't @%@# up and put incorrect data into a credit report because of a mistake or identity theft. That's ridiculous. The burden of proof needs to be on the credit agencies and the companies that report credit data to them, not on the consumer. And I don't care about the cost of this regulation. Credit agencies are multi-billion dollar companies that have the resources to do this. The smart ones would figure out how satisfy the requirement cheaply. OK, enough ranting, let's talk about the reasons.

The story says that the services provide poor fraud protection, don't provide you with the same credit scores that lenders see, have loopholes in their identity theft insurance and (I think most importantly) individuals can monitor their own credit reports for free.

Do it yourself

As the article says, check one of your credit reports every 4 months. Use the free site annualcreditreport.com. DO NOT, DO NOT, DO NOT use another credit reporting site that purports to be free. You'll end up enrolled in some service that you get charged for, and you'll have to call up to cancel it. I try to set a schedule of checking Experian in January, Transunion in May, and Experian in September.

More frontier investing

Barron's recently ran a feature on investing in the Middle East. (See a previous post on the topic here.) The growth prospects there can't be ignored.

Oil-rich economies like Kuwait, Qatar, UAE, Bahrain, Saudi Arabia and Oman are insulated from our energy-induced slowdown. "What the Middle East markets have is Chinese levels of GDP growth, above-average return on equity of over 20% and currencies that are gradually going to de-peg from a weak U.S. dollar," says Jonathan Garner, head of emerging markets for Morgan Stanley in London. The promise of the Middle East was reinforced again recently when the NYSE Euronext paid $250 million to buy a 25% stake in Qatar's Doha bourse.

[...]

Middle East markets generally now trade at about 16 times this year's earnings, with profit-growth forecasts of over 25%-30% this year and next. The figures are skewed by Saudi Arabia, a market mostly closed to foreigners, which sells at just over 21 times earnings even though profit growth is usually lower (15% to 20% this year). Kuwait and Bahrain trade at about 11 times this year's earnings, Qatar at 16 times, UAE at 13 times and Oman at 15 times. In the first half of this year Gulf markets (ex-Saudi Arabia) rose 3.2%, beating the MSCI Emerging Market index's loss of 12.7%, according to Merrill Lynch. The disparity also highlighted how uncorrelated these markets are to much of the rest of the world.

The feature lists several individual stocks for interested investors, a mutual fund and a couple of ETFs. The ETFs are; the Claymore BNY/ Mellon Frontier Markets ETF and the SPDR S&P Emerging Middle East & Africa ETF.

Cars, cars, cars

SmartMoney's feed published numerous car stories at the end of the week. Here are a couple I picked up on.

Buying a new car, get 0% financing

I won't buy a new car. It's a waste of money because of the rapid depreciation of new cars, and I don't have the psychological need to drive a new car. For argument's sake, let's say I was going to buy a new car. I'd want 0% financing on it.

Currently, six major auto makers — including Chrysler, General Motors and Mazda — offer 0% financing, according to Edmunds.com. Most of the models that qualify, however, are gas-guzzling trucks and SUVs that dealers desperately want to clear from their lots. Try to find 0% deals on more popular European luxury models or Japanese compact cars and it will be an exercise in futility. "You won't find a single fuel-efficient vehicle [with 0% APR] unless it's struggling in terms of sales," says Wahl.

OK, I don't really want a gas guzzler, so I'd have to look high and low for a fuel sipper that is struggling in sales.

To qualify for the coveted 0% APR, you'll need a score of at least 680 and, in some cases, 700, says Terry Jackson, an automotive writer with Bankrate.com. [...]

As mentioned earlier, even if your credit score passes muster, you'll still need to afford a down payment of at least 10% in order to lock in that magical 0% rate. If your score is below 680, then forking over a 20% down payment can increase your chances of getting 0% APR, says Jesse Toprak, executive director of industry analysis at Edmunds.com.

Another piece of good advice in the story is to get pre-approved for a car loan from a bank, and then to use that pre-approval as leverage in your negotiations. It's always good to have leverage against the car salesman and to be able to walk away from their offer.

Buying a new car, cash back

There may be a choice between 0% financing and cash back. SmartMoney has this handy dandy online calculator to help in that decision.

Buying a new car, manufacturer to dealer deals

Admittedly, I'm a novice in car buying, but I hadn't heard much about manufacturer to dealer deals:

Often times, auto makers offer dealers financial incentives to sell specific models. In turn, the dealerships don't have to offer this money to the consumer. "It's the type of incentive that most dealerships won't even tell you exists," says Jackson. "The dealer can determine to pass it on to the consumer," or keep it for themselves. More often than not, dealerships will offer this incentive on a vehicle that's not selling well and that they're eager to move off the lot, rather than try to sweeten a deal on a popular car for a hesitant buyer, says Wahl.

[...]

The problem for car buyers is that manufacturer-to-dealer incentives often go unadvertised. Edmunds.com tracks and lists such deals.

Here is the direct link to the rebates and incentives page on Edmunds. I had to provide my zip code so it could look up specific deals in my area. Then I had to click through a couple pages for specific vehicles. As an example, there is $1500 in dealer cash through 9/2/2008 on the Honda Element. That's good information to have in negotiations. Edmunds.com is real blessing for car buyers.

Buying preowned

The next article that caught my eye was on buying a preowned vehicle. I'm planning to buy a certified preowned vehicle with my next car purchase.

Some certified preowned programs are much more comprehensive than others. Chrysler, for example, offers an eight-year or 80,000-mile warranty, roadside assistance and loaner car reimbursement, whereas Jaguar's warranty covers just six months or 10,000 miles and doesn't offer loaner car coverage, according to Edmunds.com. For a complete listing of programs, see Edmunds.com.

(There's another plug for Edmunds.com) Other salient points in the story: you'll pay up for a certified preowned car over a used car; and make sure the certification is a manufacturer's certification, not a dealer's certification.

Selling a used car

So what do I do when I want to unload a used car? Well, I plan on driving my cars into the ground, but for argument's sake, let's assume I want to get rid of a car before it's only useful for the scrap yard.

But here's a way to improve your odds considerably when doing it alone: Move your listing online. Millions of consumers are trolling auto web sites looking for competitively priced used vehicles. According to J.D. Power and Associates, 61% of people who buy used cars and trucks surf the Web during the shopping process. If you want to sell your car quickly and for a good price, it's time to park it on some of the most popular sites.

According to the article, the best sites are AutoTrader.com, CarsDirect.com and eBay Motors. The article also gives the tips of thoroughly cleaning the car before selling it, gathering all the car's service records and getting a vehicle history report.

Financial planner horror story

BusinessWeek's retirement issue carries a story that gives me more reasons to always be on the defensive when talking to a financial planner.

Stan Morrill was confident his nestegg would provide for him and his wife for the rest of their lives. After all, the Eastman Kodak veteran, a factory worker for 31 years, had attended the free financial seminar recommended to him by co-workers. Morrill says the host, Michael J. Kazacos, one of Morgan Stanley's top brokers, dazzled him with a plan that would let him retire at 49. Morrill just had to roll over his pension and 401(k) into a tax-deferred account managed by Kazacos. After that, he could safely withdraw $36,000 a year—plenty to cover his bills—without ever touching the $320,745 principal. "I saw no reason why I should stay and work," says Morrill, who signed on in 1998.

But he says the strategy, which assumed unusually high investment returns of up to 14%, didn't pan out. Morrill's balance now stands at just $57,559, and with little other savings, he's scrambling.

[...]

Aggressive investment brokers are focusing on that yawning gap between perception and reality. Promising early retirement, fat investment returns, and big annual cash withdrawals, they're increasingly succeeding at seducing investors to turn over their retirement accounts—and then putting them in high-fee and often inappropriate investments. "This is emerging as a big problem," says Mary L. Schapiro, CEO of the Financial Industry Regulatory Authority (FINRA), the securities industry's private oversight group, which recently launched a program to train corporate benefits managers to vet financial advisers who run in-house seminars. "The issue has intensified for the next generation of retirees—the largest we've ever seen."

Read the entire story. It's worth it.

Know when to sell

When to sell? When to sell? That's the question SmartStops hopes to answer, and it's profiled in Barron's this week.

When the market is going up, the calculation is designed to give the investor more room to generate added profits. When the market heads down, the exits are moved closer to the current stock price so as to preserve capital. The proprietary calculations are intended to avoid reacting to "market noise" or random events. That way, said Collins, the system avoids whipsaw changes or premature exit triggers of trailing stops. The company is reluctant to go into too much detail about the system beyond the fact that many of its indicators are based on technical analysis.

During the beta, we had a list of 10 stocks, including Google, Intel and IBM, we were following on SmartStops. Eight of them hit short-term exit points during the week of June 23, mostly late in the week when the market fell sharply. We got a sell signal at $21.75 on Intel, for instance, which subsequently dropped to $21.57. SmartStops members receive an e-mail alert when an exit point is reached, and can also check the Website during the trading day to see new recommendations.

OK, so they don't tell you much about what goes into their calculations for the sell price. According to the article, it works:

SmartStops executives showed us a comparison of three investing strategies for the S&P Depository Receipts (SPY) over a 10-year period. The short-term SmartStops strategy ended up with the highest profit, and unlike buy-and-hold, had the investor in the market just 57% of the time. The long-term exit strategy also out-performed a buy-and-hold approach, and was in the market 84% of the 10-year period. Collins says, "We're showing that we can improve people's returns with less risk and less exposure to the market."

The free service of the site is easy to use. After accepting the terms and conditions, you can type in a ticker symbol and it gives you the short-term and long-term sell prices (a 6 month time frame is the delineation between short- and long-term). These are the prices recommended for loss avoidance.

Avoiding probate as a reason to use a trust

A post on one of the blogs I read, Estate Planning as a Career, gives another reason besides avoiding estate taxes to use a trust; avoiding probate:

Probate is expensive. In Florida, the law requires that the personal representative (or executor in other states) hire an attorney to help administer the probate estate. This same law suggests that a reasonable fee for that attorney is three percent of the total gross value of the property passing through probate. Add to that another three percent for the personal representative’s fee and you can begin to see how expensive probate can be.

If you own a $400,000 home and have $200,000 in investments, the six percent of fees can total $36,000. That’s money that your loved ones and heirs will not receive.

Very informative. I don't live in Florida, but I'll be researching the probate process in my own state.

Taxes for the mass affluent to increase

How's that for a headline? This outcome is predicated on the fact that Barack Obama wins the Presidency. The CNN story delves into how Obama's tax plan defines wealthy:

Indeed, under Obama's tax plan, married couples with at least $250,000 in gross income are likely to see their taxes go up if Obama is elected president.

But what about single filers? The line for them would likely be about $200,000, according to an Obama adviser.

The purpose of this post isn't to talk about whom to vote for, but to lay out facts. Are higher taxes on the wealthy good or bad? I have my opinions, but won't go into them here. The mechanism for the increase is simple:

Obama would restore the top two income tax rates to their pre-2001 levels of 36% and 39.6%. Currently they're 33% and 35%.

Impact of the proposed plan on taxes

From what I've read, McCain would keep the rates as is, if not lower them. The latest issue of Fortune has a story with a comparison chart prepared by the Urban-Brookings Tax Policy Center of how taxes would change for the various income levels (unfortunately, the story isn't online. It's the one titled The Evolution of John McCain.) For the $112,000-$161,000 level, McCain's plan decreases taxes by $2,614, and Obama's plan by $2,204. At the $161,000-$227,000 level, McCain's plan decreases taxes by $4,380, and Obama's plan decreases taxes by $2,789. And at the $227,000-$603,000 level, McCain's plan decreases taxes by $7,871 and Obama's plan increases taxes by $12. Obama's plan really starts to increase taxes at the $227,000 and above income levels.

Does Obama's plan really just soak the 'rich'?

The 'not-so-rich' rich that these changes would impact are of course not happy.

Such rhetoric leaves Hammer steaming. "I don't mind paying my fair share, but people act like they're just talking about Bill Gates," he says. "We would definitely feel a hit if our taxes went up." Although a year ago he would not have considered voting Republican in November, now he's not so sure: "Do you vote your heart, or do you vote your wallet?"

[...]

Like Hammer, many facing higher taxes don't consider themselves part of the exalted crowd. They have good incomes, to be sure, particularly compared with the median household income of $48,200. Of the 149 million households filing federal income taxes for 2006, some 3% reported income between $200,000 and $500,000; fewer than 1% claimed income above half a million dollars.

But many also live in high-cost areas with expenses to match—and feel burned by talk of "taxing the rich" that doesn't recognize that $250,000 stretches a lot further in the South or the Midwest than in Manhattan or Silicon Valley. "There is a huge difference between what politicians define as rich and what many Americans would call middle class," says Patrick Anderson, CEO of the Anderson Economic Group and co-editor of The State Economic Handbook.

I understand the point of the family profiled in the story, things are getting tougher for the mass affluent, especially in high cost areas like the coasts. Times are getting tougher for every other American. What isn't seen in the online version of the article, but is in the print version in BusinessWeek, is that the family is posing for a picture in their hot tub, with their pool in the background. If they are looking to get a little sympathy, that isn't the scene they should have painted. I'm sure that the photographic editor had a lot to do with the setup, but still.

Big Brother device lets drivers cut auto insurance bill

Progressive Corp. and GMAC Insurance are testing devices that track driving habits, and offering discounts on auto insurance for measured good driving.

Drivers who participate in these plans have devices installed in their cars that, depending on the technology used, can track the number of miles driven, the speed at which cars are driven and even how often and how hard the brakes are used. By allowing their habits behind the wheel to be monitored, drivers get lower insurance rates -- or pay higher premiums if they're lead-footed road hogs.

Usage-based insurance pricing would mean an estimated two-thirds of households would pay less in premiums than they do now, according to a report by the Hamilton Project at the Brookings Institution, a think tank. Researchers Jason Bordoff and Pascal Noel calculated average savings at about $270 per car, per year. Some analysts and insurers believe that after a slow start, usage-based insurance could take off now that higher gas prices are forcing consumers to drive less anyway.

So, there's a chance that using the device can backfire on a driver, increasing his or her premiums. I can imagine the arguments among family members using a shared car when the insurance company reports bad driving based on the device and ups the insurance premiums.

Vacation (and home) spots threatened by global warming

SmartMoney has a story on six vacation spots threatened by global warming. The one on the list I want to visit one day is Mount Kilimanjaro. However:

If you want to see the storied snowy peak, you had better go before it melts. Since 1912, 82% of the ice fields have disappeared. And they could all be gone between 2015 and 2020 if the ice continues to recede at its current pace, according to Lonnie Thompson, professor of geological sciences at Ohio State University.

It is the highest peak in Africa. It is one of the Seven Summits, and I believe it's the only one that doesn't require technical climbing to scale, meaning you can hike up it.

There other critical sites in SmartMoney's list, like the Maldives, which isn't just a vacation destination. These islands are being threatened with going underwater, which would displace tens of thousands of people.

How one family found a financial planner

Here's the story of how one family found a financial planner they could trust.

More families, it seems, are seeking similar help. In 2006 the average revenue per financial advisory firm was $1.6 million, up from $632,000 in 2000, according to consulting firm Moss Adams. The Pierponts' experience shows how important it is to find the right fit. Like many couples, they relied on referrals and word of mouth to find a financial pro. But their first forays with money managers fell flat. A stockbroker friend of the family put them into some mutual funds, but their accounts were relatively small and they didn't get much attention from the broker. Gary blames himself as well: "I didn't have much of a game plan," he concedes.

[...]

Nor did he like the fact that some financial advisors are paid to push their company's products and services, which made Gary wonder whether they truly had his best interests at heart. Meanwhile, his mortgage business was starting to take off (this was around 2003, when the real estate bubble had begun to bulge), so issues like estate planning and capital gains were weighing on his mind.

Around that time he got another referral from a woman who worked at a title company that did a lot of business with Gary's firm. She told Gary about Kim Anderson at Baltimore-Washington Financial Advisors (BWFA), a fee-only advisory firm where all the counselors are certified financial planners or in the process of getting CFP certification, which takes about two years to complete.

Now, I disagree that using a financial planner is necessary, except for the most complex financial challenges, like trusts and estates. However, I'm happy to see in this case that the family chose a fee-only planner. That's my mantra on using a planner, he or she has to be fee-only.

Active vs. passive fund management

The current issue of Fortune is its investor's/retirement issue, and has several good stories. The obligatory Buffett story is particularly good this time, as it covers a bet between Buffett and a hedge fund as to whether the hedge fund can beat the S&P 500 over 10 years. The basics are:

Protégé has placed its bet on five funds of hedge funds - specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses.

On the other side, Buffett, who has long argued that the fees that such "helpers" as hedge funds and funds of funds command are onerous and to be avoided has bet that the returns from a low-cost S&P 500 index fund sold by Vanguard will beat the results delivered by the five funds that Protégé has selected.

Will 2 and 20 doom Protégé to lose?

The hedge fund selections have a big obstacle to overcome, fees:

A fund of funds normally charges a 1% annual management fee. The hedge funds it puts that money into charge an annual management fee of their own, which for funds of funds is typically 1.5%. (The fees are paid quarterly by an investor and are figured on the value of his account at the time.)

So that's 2.5% of an investor's capital that continually goes for these fees, regardless of the returns earned during a year. In contrast, Vanguard's S&P 500 index fund had an expense ratio last year of 15 basis points (0.15%) for ordinary shares and only seven basis points for Admiral shares, which are available to large investors. Admiral shares are the ones "bought" by Buffett in the bet.

On top of the management fee, the hedge funds typically collect 20% of any gains they make. That leaves 80% for the investors. The fund of funds takes 5% (or more) of that 80% as its share of the gains. The upshot is that only 76% (at most) of the annual return made on an investor's money accrues to him, with the rest going to the "helpers" that Buffett has written about. Meanwhile, the investor is paying his inexorable management fee of 2.5% on capital.

The summation is pretty obvious. For Protégé to win this bet, the five funds of funds it has picked must do much, much better than the S&P.

Personally, I think that individuals can beat the market over an extended period of time (I hear the Bogleheads screaming at me already). However, I don't think that typical hedge fund performance justifies anywhere near their typical fees. In losing years, the hedge funds are still taking their standard 2% management fee, to which I say, thanks for nothing.

Long Bets

Don't miss the part of the story that describes the long bet mechanism that made this bet possible in the first place. It's a cool innovation.

Are hybrid cars worth their premiums?

The Journal, using data from Edmunds.com, analyzed whether the premium price on a hybrid was worth it based on gasoline savings (free WSJ Digg link). The answer is yes, as long as you own the car long enough.

It's the Toyota Prius -- but only if the buyer keeps the car for longer than three years, according to Edmunds.com, a Web site with resources for car buyers. In the Prius vs. Camry example, it takes three years for the hybrid's fuel savings to pay back the premium paid to buy the Prius instead of a comparable gas-powered car.

The analysis used $4.02 for the price of a gallon of gas, and included the $3,000 tax credit for buying a hybrid. Not all hybrids will pay for themselves. The analysis of the Lexus LS600H showed it would take almost 100 years to pay it back, assuming the car is driven 15,000 miles a year. I think we'll all be 'driving' these by then.

Checking out your broker

Here's something I ran across while listening to the SEC's investor education podcasts. It's the FINRA site to check out investment professionals. The description of what the tool allows you to do from its Web site:

FINRA BrokerCheck is a free online tool to help investors check the professional background of current and former FINRA-registered securities firms and brokers. It should be the first resource investors turn to when choosing whether to do business with a particular broker or brokerage firm.

New York 529 plan changes

There have been some recent changes in New York's 529 college savings plan rules.

Governor David A. Paterson has signed a bill into law that eases restrictions to the New York College Choice Tuition Savings Program, allowing relatives, employers and others to contribute to State-sponsored college savings accounts.

Now other relatives (or friends) will be able to contribute funds into the 529 plan that I have open for my child. I'll still be the only one that can get the New York State tax credit, but this is still of benefit because I can manage the money through the 529 account, instead of having to burden other relatives with opening their own accounts if they want to help save for my child's education.

One set of grandparents live in Florida, which doesn't have a state income tax, and therefore the Florida 529 plan doesn't give them any tax incentives. They'd lose nothing by using the New York plan I set up to help save for college. If they lived in a state where they would get tax benefits, it would make more sense for them to use that state's 529 plan, unless it was a truly terrible plan.

Previously rejected funds

In the past five years, more than 20,000 checks, valued at over $57 million, were rejected from these college savings accounts because they were submitted by someone other than the account owner.

That's a big chunk of change that could have been put to good use for college.

Scholarship funds can now donate

These changes also open up opportunities for scholarships, like this neat program:

Richard Stopol, President of New York City Outward Bound, said: “All of us at New York City Outward Bound are thrilled by the passage of this bill. It will enable one of our network schools, the Washington Heights Expeditionary Learning School, to put in place an innovative Work Study/College Preparation program that we hope will eventually become a model for other schools. As part of this program, students will spend a day a week in paid internships and the money earned through those internships will be deposited into College Savings Accounts that will be set up for each student. This will help make college more accessible and affordable for the students, almost of all whom will be first-generation college students.”

How does your garden grow?

More Americans are growing their own vegetables (free WSJ Digg link).

As consumers balk at the rising cost of groceries, homeowners increasingly are cutting out sections of lawn and retiring flower beds to grow their own food. They're building raised vegetable beds, turning their spare time over to gardening, and doing battle with insect pests.

At Al's Garden Center in Portland, Ore., sales of vegetable plants this season have jumped an unprecedented 43% from a year earlier, and sales of fruit-producing trees and shrubs are up 17%. Sales of flower perennials, on the other hand, are down 16%. It's much the same story at Williams Nursery, Westfield, N.J., where total sales are down 4.6% even as herb and vegetable-plant sales have risen 16%. And in Austin, Texas, Great Outdoors reports sales of flowers slightly down, while sales of vegetables have risen 20% over last year.

One of the people profiled in the story devoted almost 1/4 of her yard to a garden. That is commitment.

I wonder if there are any home owner association rules against large gardens. Some associations have rules against solar arrays on roofs, and rules against windmills in yards, so rules against large gardens could be another hurdle to overcome.

When I was a child, a neighbor had a very large garden in their backyard. The produce and vegetables it produced tasted much better than the store bought stuff. Of course, the better taste still didn't make me want to eat vegetables.

The article offers tips to starting a garden, including soil testing and optimal placement of it in a yard.