Why I Blog About Mutual Funds

On January 19th, 1996, I walked into my bank and asked for help investing my savings. The 'salesman' I met sold me some funds with a song and dance about his recommendation being a good portfolio for someone my age with my risk tolerance.

At the time, I knew nothing about investing, so I did not know that there were reasonable alternatives that did not entail 5% back end sales loads and absurd expense ratios (all four of these terrible funds have expenses over 1 1/2%).

Here is what I was sold:

$1000 Putnam New Opportunities 28.629 shares PNOBX
$1000 Putnam Global Growth 102.249 shares PEQBX
$4000 Putnam Growth and Income 251.731 shares PGIBX
$2000 Putnam Voyager Fund 139.958 PVOBX

Not only did I pay way more than necessary, I missed out on huge gains that many other mutual funds were racking up. Most other funds in the same categories these 4 funds invest in would have been better options.

Had I held on to those funds, my initial investment would be worth $15,120.25 today. That is not even double my original investment for a diverse portfolio invested in equities for over a decade.

I'm not going to go on a rant about Putnam. These days you can google Putnam and easily find out how well it is doing.

I watched my funds lag their peers during the hot 90's market and on March 3rd, 2000 I sold them and invested in a portfolio of Janus funds.

My timing could not have been worse.

Seriously.

I missed the peak of the dot.com bubble by 3 days.

Here is what I bought:

That's right- I'm sitting on a 29.70% loss, 8 years later. Maybe I should link to this post instead of my current disclaimer!

What upsets me more than that loss, however, is the $@!#@#* who sold me those terrible Putnam Funds.

"Why?" you might ask, "At least with the Putnam Funds, you would have made money."

Yes, I answer, but had I known in 1996, what I knew in 2003, which was not much about economics or timing, but a bit more about low cost no-load funds... and invested my $8000 in 4 roughly equivalent Janus funds from the group of Janus funds I actually bought in 2000...


...I would have more than tripled my investment.

My current approach for non-retirement investing is to invest in no-load, no-fee funds with low expenses that have a long record of doing well in their respective categories compared to their peers and indexes. I pick funds from different fund families when all other things are roughly equal. And I pick funds that allow $100 or lower subsequent investments so I can add to each fund consistently over time.

I have actually held on to JAGIX, JAMRX and JAENX. I traded in JAWWX for JAOSX a while ago. And by adding to those funds, I have made up some ground.


The experience of getting hosed by my bank and then getting wupped by bad timing provided incentive for me to learn more about investing. I'm not sure I have the right formula now, but I feel much better about my approach and am learning more all the time.

Etrade Banking is Not Really Banking

"Etrade Banking is Not Really Banking"

What the heck does that mean?

I'm going to go out on a limb and make the claim that part of the banking experience is being able to access your cash. I opened an Etrade Checking account in December of last year. I have yet to be able to go to an ATM machine and withdraw cash from this account.

Last year I offered this advice to others who might try and change banks:

"Don't close your old bank until your new one is active and you have used it. If issues arise- your ATM PIN does not work for example, and you have already closed your old account, you will create undue stress for yourself."

Thankfully, I followed this advice, but I could not have known then that I picked an example I would actually face and how unbelievably bad the experience of opening a bank account with Etrade would be.

I did not get the $25 signup bonus as promised until I pestered them.

They did not send me an ATM card until I pestered them many many times.

How many times, you ask?


Sure, I could have hounded Etrade in February, but I was preoccupied with my emergency appendectomy.

So in mid March, I got my ATM and I got instructions concerning how to set the PIN. I called the number provided and set my PIN to be the same as my Citibank PIN so I would not have to remember 2 numbers. Today I went to an ATM, actually excited that I was all set and would finally be able to start using this account so I can close the other one and I got a message.

A little love message from Etrade:

"Invalid PIN"

So I pulled out my Citibank card and withdrew some cash.

Perhaps one could forgive Etrade for being unable to adequately support the banking services they are offering given the troubles they've had as a company.


But my other account is with Citibank who has shown you can dramatically run your company into the ground...


...and still provide basic banking functionality to your customers.

So far Etrade Banking has provided me with a place to park my savings that is better than the sweep account in my Etrade brokerage, but at this point, Etrade Bank's savings rates are no longer competitive.

You have to scroll wayyyyy down the list on Bank Deal's recent summary to find Etrade since there are still several banks offering over 4% and etrade is down to 3.10%.

So maybe I'll close this account and look for a better option. The bar has been set pretty low. I'll keep you posted.

I hope Donald Layton, Etrade's new CEO reads this. He has a long way to go to turn things around.

In January, I changed the mutual funds in my brokerage account to no longer automatically reinvest dividends and capital gains. At least I tried to. I noticed last week that one of my funds reinvested. Once again, I notified Etrade's customer service. They saw the error and are working to fix it... Those poor reps. They reply very quickly, but the business they are trying to support appears to be in chaos.

Donald, help me!!!!!

Correction- JPMorgan Rate 1.69%

I wish I had taken a screenshot of the rate I was looking at when I wrote this post so I can see what I did wrong! I must have been posting much too hastily.

The JPMorgan Municipal Money Market Fund offered in Etrade's Brokerage account currently yields 1.69% This is less than 2.70% it was yielding in December, but much more than the 0.64% I posted yesterday. I did start that post a day or two before I published it but I can't imagine rates changed that much in two days.

My apologies!


Thanks to David for commenting and helping me realize I was wrong. To further clarify: the California Fund Yields 1.56%. This is equivalent to 2.65% if you pay the highest possible Federal and State taxes as a CA resident: "Based upon the highest combined federal and California individual income tax rate of 44.3%."

David asks how to keep up with the best account a bank is offering. First of all, when you do your taxes, calculate your actual tax rate. That will help you get a sense of how much more than 1.56% you are keeping by using a CA specific money market fund as a resident of CA.

Both the bank rate and money market rate have dropped as well as rate at most every bank out there, so the goal is not to find an that is not dropping (if that is your goal, CDs might help, but you'll miss out when rates go up if you are tied up in a CD). Banks (like Etrade) play games with their competition, keeping rates higher a little longer, trying to woo customers over, only to then drop the rate, maybe more than the competition.

If you really want to keep on top of the best bank offers out there, I recommend checking out the Bank Deals weekly summary. If you have an Etrade Brokerage then opening the Etrade Savings account may make sense so that you can keep your cash in either the Brokerage or the Savings account, whichever is better for you at the time based on rates and your taxes. I'm glad I opened the savings account since it can take a while to transfer money to and from the Brokerage account from a non-Etrade bank.

That said- don't close your old bank until your new one is doing everything your old one did.

I am still waiting on an ATM card for the Etrade Checking account I opened in December.

Let that serve as an example of the quality of service you might encounter using discount online services versus a local branch. So assess your tolerance for hassle before making too many changes.

Falling Interest Rates- Savings vs Money Market at Etrade

Bank Deals has an update about Etrade Bank rates. The author also notes that Etrade has extended its $25 sign up bonus.

I opened a complete savings account at the end of last year and they did not credit my account $25 within 30 days as promised.

Once I pointed this out, they credited me the next day.

Bank Deals does not cover money market funds in brokerage accounts, but it is interesting to note that Etrade's Brokerage offers "JPMorgan Municipal Money Market Fund" which is tax free. It currently returns 0.64%. It was returning 2.70% as recently as 12/30/07.

I had much of my savings in my brokerage as it gave me over 3% after taxes which was better than my Citibank Savings account. Then I jumped on Etrade's 5% +$25 offer! Well the 5% rate may not have lasted but I am still earning more than what Citibank was paying me in December.

And I'm glad I moved my cash out of my brokerage. Less than 1% interest is terrible.

Yea Etrade Bank, Boo Etrade Brokerage

I recently posted about how Etrade failed to post my $25 sign up bonus in the timeframe they commited to.

After a gentle reminder to their customer service department, the $25 was promptly posted.


Still no ATM card, but I sent that request via snail mail so I don't expect to hear back for a while.

Then when Etrade does the right thing, another issue crops up.

A couple of days ago I tried to add a small amount to a mutual fund I own: PNRZX Jennison Natural Resources Z.

Etrade's interface listed the details- this is a no load fund with $0 minimum for additional investments meaning I can add $5 if I want- some funds require at least $100 or $1000, etc.

Then when I tried to buy, I got an error message. I had added a little to this fund in early January so I was surprised by the issue. I sent another note to Etrade's customer service inquiring about the error. They must be getting tired of me, but I don't make these issues up.

They responded:

"Thank you for your message regarding trading PNRZX. I apologize for any confusion. We no longer have a selling agreement with Jennison to sell the PNRZX fund. I have submitted a request to see if we can get another selling agreement but there is no guarantee that we are able to get an agreement. If you wish to sell the fund you can contact us by phone and we can place the trade for you. We can not allow you to purchase more shares through us until we have a selling agreement with the fund company."

Ok- so that is a bummer, but what irks me is they did not let me know. I own the fund, I add to it regularly. I have to find out by getting an error message and miss an investment opportunity? How hard is it to query out investors who own a fund when they lose the ability to buy or sell that fund through their interface and send us a heads up? How many other Etrade investors own this and are going to try and sell their holding and be thwarted?

Morningstar still lists that the fund is available through Etrade? See how Etrade is advertising itself on Morningstar's site above this false information?



I sent Morningstar an update that the fund is no longer available through Etrade. I'll let you know what they say.

You'll also note in the image above that the fund has an initial investment minimum of 10 million dollars. I put a little less than that (understatement) into the fund back in May 2006 (my initial investment is up almost 23%, the addition I made in Jan is down 5%).

I wonder if Jennision is trying to cut down on new cash coming into the fund, but does not want to close it to new investors for some reason. I also wonder if other fund companies are terminating buy agreements with Etrade and if this is a symptom of bigger issues? I really have no idea in either case, I just know if I want to sell the fund, I have to call Etrade and then try and avoid the fee they charge for phone orders...


Anyway, I understand that fund companies are going to do what they want, but I would have appreciated a notice about the change before I actually tried to add to my holding.

Etrade Bank Account Has Been Nothing But Trouble So Far

As I mentioned at the end of last year, I am switching banks. I chose Etrade and opened the account. So far the experience has been very poor.

I chose the account for a number of reasons.

1) The rate was 5% when I signed up.

That did not last a month. It is now 4.40%. This is the most excusable thing that has happened. Since the 'Fed' lowered rates significantly in January and Etrade is not the only bank that has lowered rates in response. They post clearly that rates can change.

2) I thought my checking account would include an ATM card.

Etrade will not send me an ATM card until I fax in or mail a request. This is a Bank account. They advertise no ATM fees as a big feature. But you don't get an ATM card unless you fax a request for one? I guess one way to avoid ATM fees is to not get an ATM card... This is silly because, it was not clarified in the sign up process, and I got an ATM for my Etrade Brokerage without this much hassle. I also got my ATM card for my previous online bank account without this much hassle.

3) There was a $25 sign up bonus.

I signed up with an offer of $25 if I opened the account before Dec, which I did, as a new Etrade Bank account which it was, with money from outside Etrade which I used.


The details above (click for a larger view) specify that $25 will be credited to my account within 30 days of it being funded. Well my initial deposit posted 12/28/07. It has been more than 30 Days. The funds have not posted.

My experience with Etrade's bank account so far has been terrible. I'll keep you posted about if I get my ATM card and if they finally post my sign up bonus.

Deposit Your Checks at Home with a Scanner!

When I was researching a new bank account, one of the features I heard about from a friend whose bank offers it, is the ability to scan a check for deposit on a home computer.

I have been banking online since 1999 and when I first signed up with Citibank, they sent me free- prepaid envelopes for deposits. It took time for the check to go through the mail, but this worked fine for me. Of course it did not take long for Citibank to drop that feature, and of course they did not notify me as a customer that this change was coming or when it happened. Since there are no branches anywhere near where I live or work, I now have to pay to make deposits. This is one of a long list of offenses that led me to begin the process of changing banks.

So it has been a drag that to bank online means I have to pay for a stamp to mail in a check.

When my friend told me he scanned checks and that the scanner worked just fine on his Mac, I was pumped. Problem is, his bank is only available to military personnel or their families.

Well it looks like this feature may be coming to more banks soon! Read here for more info.

Opening a New Online Bank Account

I discovered bankdeals.blogspot.com a long time ago. Ken, the author, was one of the first sites to link to mine for which I was very grateful. More importantly, his site is a great resource for researching bank offers of all kinds, all around the country.

For a while I have been watching this site and keeping track of banks that offer much better rates than my own.

After reading chapter one on banking in Russell Bailyn's new book Navigating the Financial Blogosphere, I was inspired to take a look at how I park my cash and make some changes.

Many online savings accounts offer interest rates that are outperforming all the diversified mutual fund portfolios I have been tracking since May 1st. In reality, the top savings rates 5-5.50% are pretty close to the results of the mutual fund portfolios since the 5% rate is annual and most of the funds are up about 3%. YTD most of the Mutual fund portfolios have earned around 10%, but with a lot of volatility.

But your cash has to sit somewhere and 5% with no risk is not a bad place to park it. I mentioned above that my current bank's rates are not competitive. The truth is that I do not keep much cash there, so my motivation to change has not been great. Let's look at how I manage my cash, why, and the changes I am making.

I currently bank with Citibank. I have my paycheck deposited automatically into my checking account and I maintain a small balance in my savings account. I use yodlee.com to keep track of my bank, investment, retirement, mortgage, and credit card accounts. As paychecks come in and bills come due I pay my bills online and move any leftover cash from Citibank into my Etrade brokerage. I don't do this so I can invest the extra savings, but because cash in my Etrade account earns a tax free 2.70% APY compared to my Citibank Savings account which earns a taxable 1.76% APY.

My Citibank account has refunded all ATM fees (in the US anyway) for a long time, which is the main reason I have kept it. I have been able to use any ATM in the USA without worrying about fees. These days, many banks offer this service, so it is worth re-evaluting.

My Etrade brokerage account notes that 2.70% tax free is equivalent to a taxable 3.65% for those in the 35% tax bracket. I am not in that bracket, so my after tax rate is not that high. Since there are many banks offering over 5%, I do not need to worry about my exact after tax earnings. I will make more in a taxable account as long as it earns over 3.65% before taxes and finding a bank that pays that will be easy.

Two other things to note, especially as banks struggle and potentially go out of business. My Etrade Brokerage account is covered by federal insurance up to $500,000. Banks are covered
for up to $100,000 (though not all banks are covered so do your research). Again, I do not have enough money for this to factor in my decision, but if you have over $100,000 you are looking to park somewhere, think about how to spread it around to ensure that it is all covered, in case any given institution goes under. Second, if you are at risk of paying the Alternative Minimum Tax, taking a lower tax free rate may avoid even greater taxes by keeping your adjusted gross income low enough to avoid the AMT. If this is an issue for you, you may want to consult a professional.

Here are the top deals for savings accounts listed at bankdeals (12/28/07):


I am not interested in promo rates, though there is no guarantee any of these rates will stay where they are, especially if Ben Bernanke keeps lowering rates over at the Fed. I'm also not interested in a high minimum amount requirement. UFB Direct is interesting at 5.22%, but I am going with Etrade at 5.05% and here is why:

When I transfer funds from Citibank to my Etrade brokerage, the funds take a long time to become available in the Brokerage account. With an Etrade bank account I will be able to transfer funds between my brokerage, retirement and bank account with no delay. Etrade is giving me $25 to sign up (but this offer ends on the 31st so act fast if you want it). Also, there are incentives in both Etrades brokerage and bank account to maintain certain minimum balances for more benefits and to avoid account maintenance fees. If I moved the cash I have in my brokerage to UFB, I might lose some of those benefits or owe fees.

I also set up an Etrade MaxRate checking account which has a 4.0% APY. I will switch my direct deposit to this account once it is up and running and I have the ATM card and have given everything a test run. This means that even during the brief period my paycheck sits in my checking account before I pay my bills and transfer any savings, I will be earning a higher rate as well.

In summary I was using Citibank checking for ATM fee refunds and transferring savings into my brokerage earning a tax free 2.70% APY. I am switching to Etrade Max-Rate checking with unlimited ATM fee refunds, and 4.0% taxable APY and will transfer cash savings to Etrade Complete Savings earning 5.05% taxable APY.

Some tips:

• Don't close your old bank until your new one is active and you have used it. If issues arise- your ATM PIN does not work for example, and you have already closed your old account, you will create undue stress for yourself.
  
• Etrade Max-Rate checking has a fee unless you: 1) Maintain a minimum average balance of $5,000 in your Max-Rate Checking Account 2) Set up and maintain a direct deposit of $200 or more per month (A combination of direct deposits totaling $200 does not satisfy this requirement) 3) Maintain a combined balance of $50,000 or more in linked E*TRADE Securities, E*TRADE Bank, and employee stock plan accounts (including vested in-the-money options, stock option plan shares, ESPP shares, and released restricted stock) accounts 4) Execute at least 30 stock or options trades during a calendar quarter in a linked E*TRADE Securities account.

Online Banking

A friend recently asked me what I think about ING's new online checking account. I did not know much about it so I checked out Bank Deal's site and found a nice post.

The savings rate is ok for balances under $50k. If you have more than $50K in cash, it seems silly to keep it in a checking account. They do not issue check books and you cannot use all ATMs for free. I actually have an online bank account with Citi. I signed up during the height of the dot.com foolishness because they were giving out free Palm Pilots. I still keep the account but I have very little cash in it because the interest rates are sad. I keep it because I can use any ATM with no fee from Citi and complete reimbursement of fees from any other ATM up to a monthly limit which I never go over.

I actually use my etrade brokerage as a savings account as I have a tax free money fund (which helps since I live in Mass.). And I can transfer funds back and forth from etrade to Citi whenever I need to. I use Yodlee to keep track of all the accounts side by side and to keep track of the log-in info.

etrade actually has ATM cards and check books for their brokerage and I know someone who was trying to use their brokerage as a checking and savings account all in one. I will try and see how it is working for them...

If I were to open any new bank account I would choose eloan as they seem to have the highest rates on savings accounts among the better known online banks- but they do have a $5000 minimum...

How to keep track of it all…

I work at a college which switched retirement plans but allowed me to leave my older 403(b) contributions with the previous company. I have a bank account, IRA, and a brokerage account. I also have a mortgage, gas and electric bills, various credit cards, cell phones, etc. All told I have about 20 accounts to keep track of.

Many people advise to combine as many accounts as possible, but if you are disciplined and can keep track of it all, some accounts have different options and some credit cards offer different services, so arguments can be made for keeping various options open. If you do not want to consolidate for whatever reason, you are left with the need to get organized.

How can one easily keep track of 20+ accounts? Check out yodlee.com Some banks offer Yodlee’s tools through their sites if you have an account with them so you may have seen this before. This service has been around and been free for a while- if you go directly to yodlee.com.

This service allows you to enter each account and enter your account name and password . Then when you log in to your Yodlee account, Yodlee logs in to each of your other accounts using your information and pulls the details together into one page.

To use a service like this you have to ask how much you trust Yodlee’s security processes and how valuable you find the consolidation. Personally, I love it. Once a month I log on, see my bills, add up how much I own, click on the button to log on to each credit card and the mortgage- Yodlee logs me on automatically without me needing to remember the account name for each site. I pay each bill and I can see if I have any extra money left over to move into my brokerageaccount and invest (not likely this time of year!).

I can see my total retirement savings, my non-retirement savings, my debt, etc. You can add any additional amount- even if you have an account that is not supported by Yodlee. For example, if you own a home, you can go to zillow.com, get an estimate on your home and enter the value as an account. If you have entered your mortgage, it will display your monthly statement as well as your total debt. Looking at your home's value next to its estimated worth you can how much equity you have built in your home.

Sure you can paste all of this into excel, or buy some financial software to help manage this, but Yodlee is free, makes paying bills and transferring funds a snap, and gives a quick snapshot of all your accounts without any maintenance.