Morningstar Tries to Clean up Years of Bad Data

This weekend, I sat down to compile the performance of the mutual fund portfolios in my experiment and can't believe what happened.

I use Morningstar to track my portfolios. Morningstar provides data for some 125,000 investment offerings. If you have ever researched a mutual fund, you have seen the fund company tout its Morningstar rating.

Morningstar is currently updating its website. I mentioned this recently as their changes have made it more difficult for me to update my charts. Many of the changes look pretty nice, some I could give or take. Whatever, life is change.

But this weekend was different. The first thing I do each week is log into my portfolios and update each for any dividend or capital gains distributions. For the purpose of this experiment, I reinvest all distributions and have since May 1st, 2007. Usually I have to remember to click an option in one of the menus, but this weekend, I was prompted:


New actions, I expect and every now and then there is an update- an incorrect distribution for example. Fine, no one is perfect.

Well this weekend I was greated with massive corrections going all the way back to the begining of my experiment. Here is an example of just one ETF:


I'm not sure how pervasive the bad information was- was it on the front end of Morningstar's site? Was it included in how Morningstar calculated its fund star rankings? Was it included in the information that fund companies have been using to tout their fund's performances in advertisements?

You might think even years worth of inaccuracies are not THAT big a deal if you are talking about fractions of a cent.

Well, when I post the weekly update, you'll see that mis-recorded split on one ETF was so significant it led one portfolio to jump from 7th place to 4th in my competion.

This is not the first time I've pointed out that Morningstar's data does not seem right to me.

And maybe it is not right now, who knows... Bottom line is Morningstar provides lots of great data, articles and tools. Their portfolio tool is a great resource and I'm glad they provide it for free.

But wow- what gives with not getting the numbers right?

If they're on track now, then kudos for setting things right, but unless my 8 portfolios with almost 100 funds tracked are somehow the only portfolios where this bad data showed up, I'm surprised there is not more communication about these corrections...

The only indication I see that anything has changed is a little blue 'new' next to the renamed place I need to click to update my portfolios.


If you too track your portfolios in Morningstar, after you update your changes when prompted, go click Dividend/Splits to update your portfolio again. For several of my portfolios, I had to update twice to bring things up to date with the data Morningstar is using now.

Summary Mutual Fund Prospectus

Laura Pavlenko Lutton over at Morningstar has forwarded a suggested summary mutual fund prospectus format to the SEC.

Anyone who has looked through a couple of mutual fund prospectuses from different fund companies knows that finding out what a fund is really all about from the prospectus is not an easy task.

I found her letter and example form a solid proposal. I also found her example humorous.

She praises Putnam's description of Putnam Voyager PVOYX as being "very clear and easy to read. They say: 'We invest mainly in common stocks of U.S. companies, with a focus on growth stocks. Growth stocks are issued by companies that we believe are fast-growing and whose earnings we believe are likely to increase over time.'"

She's right- Putnam is very clear about what they do not to mention how they do it. Here is their investment philosophy:


Putnam has been consistent and is very clear about their style. The problem is that Putnam has been consistently terrible. It has "Earned" the lowest possible star rating from Morningstar (One).

With the exception of 2002, this fund has trailed its peers and has consistently bounced around the bottom half of similar funds for a long, long time:


I'll write more about my personal history with this and other Putnam funds soon. In the meantime, hopefully the SEC will adopt a standard for a summary form prospectus making it easier for investors to learn what a fund is really all about. Of course, until then we can simply use Morningstar and other web sites to get this information.

Here is page one of Morningstar's short form proposal (Click image for larger version):

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.

Turbotax Discount 25% Off Available for Anyone

Looking around for discounts off TurboTax, I found one offered by Fidelity. The nice thing is you do not have to be a Fidelity customer to take advantage!

If you are interested, click here.

And then choose the "Visitor Entry" link.

There may be better deals out there but this is the best I found so far.


But- if you file a 1040EZ- be CAREFUL!!!! You can use TurboTax for free at this link.

If you go direct to TurboTax the 1040EZ is free:


But if you want the 25% discount, the 1040EZ costs $14.95:


I understand that 25% off free is difficult to calculate, but come on. Charging $15 to give a discount off something that you give away for free????

That's just wrong.

Go Paperless with Etrade

This year I resolved to focus a little more on being less wasteful. Call it going green. Call it being more efficient. Call it whatever you want.

The bottom line is that everything you do impacts the world in which you live. You will never be aware of most of the impacts. Often the impacts are quite small, individually, and some are good. But many impacts are bad, even in small ways and waste is one thing that is pretty easy to be mindful of and often easy to do something about.

I am one of those kinds of people who actually thumbs through mutual fund prospectuses. Even money market account updates. I don't read them all the way through, but I glance through. So I have never considered it 'wasteful' to get them in the mail.

Truth is, since I have a laptop, it may be more convenient for me to have prospectuses sent to me via email so that I don't have to drag a bunch of paper with me until a good time to read them comes up. And even though I recycle them, it is still a lot of paper that has to be processed for no good reason.

So, I changed my preferences in my Etrade brokerage and IRA accounts. If you use Etrade, you can too and it is easy. I imagine for most brokerages with good online interfaces, it is pretty easy to do. For Etrade, here is exactly how you do it:

Log in.

In the "Accounts" tab, click the "My Info" subtab:

In the "My Info" area, choose the "Account Preferences: tab:


Scroll all the way down to "Account Features" and click the "Edit" link (not shown) next to the option "Electronic Documents:"

This will bring you to the "Go Paperless..." page. Click on the items you want to receive via email instead of in the mail and then click "Submit" (not shown). you can also change your email address here.


That's all there is to it.

I opted to still receive paper copies of account statements, trade confirmations, and tax documents as I file and save all of these. Read here to find out why.

Reinvesting dividends and capital gains in a taxable account

Up until now, I had all my mutual fund dividends and capital gains distributions set to automatically reinvest in my taxable brokerage account.

This creates a bit of work when it comes to calculating the basis on my holdings when I sell a fund, but I don't mind. And with online brokerages, it is not much work at all. Etrade keeps track of the basis and I assume other brokerages do too. So as long as I note the basis before I sell and the holding no longer shows in my portfolio, and the records are accurate for holdings I bought before I started using Etrade, there is no work to do at all.

There are four reasons I turned off automatic dividend reinvesting, anyway:

1) If you sell a no-load no-fee fund within 90 days of purchase you are penalized a fee of $49.99. I do not know that this applies to automatic reinvestments (I assume it does), but I'd rather not worry or risk the hassle.

2) If I think I want to sell a fund, I typically don't add anything to it for a year before I sell so any gains are taxed as long term gains. I have two funds I have not been adding to since last June, thinking I might sell after my last addition to the funds is a year ago or greater. In December the funds distributed and reinvested automatically. This complicates the tax implications of a sale unless I now wait until next December which has slightly agitated my calm.

3) I invest regularly adding small amounts to some holdings to keep my overall portfolio balanced as I want it. Taking gains and distributions as cash and manually adding them to the funds I want to gives me more control over keeping my overall portfolio in balance. For some people (those who would let the cash sit) this might not be a good idea, but I have seen that I regularly take the cash I save in my brokerage and invest it, so this should work well for me.

4) Even though Etrade keeps good records of all my purchases, when Etrade bought my previous brokerage, the old electronic details did not convert over. I assume if Etrade goes under or another firm buys Etrade, or I end up with a new brokerage for any reason, the balances will transfer but the details about my basis will not. Sure I can keep track of everything myself, but to do so is more hassle than it is worth.

If you have an Etrade account that is not a retirement account, or even if it is a retirement account, and you want to un-enroll from automatic reinvesting, simply go to the online service center and type in a request to customer service for them to make the change. For mutual funds, you cannot do it yourself through their interface.

I left my Roth IRA alone so it still automatically reinvests. Since I only add to the IRA once a year, and I cannot add enough to rebalance all the holdings by adding to the market sectors that trailed the year before, and I don't have enough in the IRA for the dividends and distributions to be significant, and the IRA is not taxed like a non-retirement account, it make sense to me to allow the dividends to reinvest.

On an unrelated note, check out the Coyote I saw romping around in the snow in my driveway the other day!

What is an ETN?

I recently rounded up a bunch of securities that invest in food and finance. The securities that invest in financial stocks are ETFs. Some of the securities I found that track food are ETNs which I was not as familiar with.

The best article I found defining ETNs is here. A gross simplification is that an ETN is like a bond that pays no interest whose value is based on the index it tracks. Since an ETN does not actually invest in the index, like an ETF does, its value is closer to the index than an ETF since the ETF has to buy and sell securities to stay in sync with the index.

ETNs are very new and there is a lot about them that is up in the air. So if you foolishly decide to speculate on food prices, not only will you be speculating on the value of the underlying commodities (Or diversifying, if that is what you are up to...hehe), you will be speculating on the security itself.

When you buy an ETF, you are buying fractional shares of the underlying security. If the company that offers the ETF goes kerplunk, you still own the fraction shares and can presumably get your money back. ETNs are Exchange Traded Notes offered by a bank. If the bank goes kerplunk, there is no guarantee there will be funds on hand to pay you back. Of course only giant banks are offering these, but these are the same giant banks writing off billions in bad debt from other new securities they mishandled.

How ETNs should be taxed is also under question. Marketwatch ran a recent article worth reading. Since you own a note and not a fractional share of a security, you are not being paid dividends from that security if it actually pays them (for the record, corn does not currently pay a dividend though it does pop if heated up properly). If you are not paid a dividend, you do not owe taxes on it.

I confess, I do not have a thorough understanding of how ETNs really work from top to bottom and I have not found any articles that appear confident of how ETNs will be taxed in the future and there is some risk that if the IRS decides to tax ETNs unfavorably, the change may be retroactive.

Will the IRS go after ETNs? If you want a glimpse of the politics behind such questions read here.

Speculating on Food and Finance

It is hard to miss the news these days about financial company stocks getting pummeled. At some point, banks and investment companies are going to hit bottom. Buying on that day should net some nice profits once financial companies rebound. Of course, no one knows when that day will come. And even a 100% increase ain't that grand if it takes 10 years to earn. That said, Morningstar posted a nice article identifying some ETFs that track financial companies.

• KBE KBW Bank ETF (major banks)
• IAT iShares Dow Jones U.S. Regional Banks Index (regional banks)
• XLF Financial Select Sector SPDR (diversified financial)
• VFH Vanguard Financial ETF (diversified financial)
• IYF iShares Dow Jones US Financial Sector (diversified financial)

Also check out:

• IXG iShares S&P Global Financials (global financial)
• SWFFX Schwab Financial Services (diversified financial- no transaction fee)
• ICFSX ICON Financial (diversified financial- no transaction fee but high turnover)
  

Another trend that has not gotten as much media coverage (Yet!) but is still in the news on a regular basis is the spike in agriculture prices. Russell Bailyn, whose new book, Navigating the Financial Blogosphere I recently reviewed, wrote a nice overview of the food price situation.

Russell does not mention specific securities in his article so I rounded up a few. Here are some securities that offer various levels of exposure to agriculture commodities:

• DBC PowerShares DB Commodity Index Tracking Fund (Broad Commodities)
• DJP iPath Dow Jones-AIG Commodity Index Total Return ETN (Broad Commodities)
• DBA PowerShares DB Agriculture Fund (Corn, Wheat, Soybeans and Sugar)
• JJA iPath Dow Jones-AIG Agriculture Total Return Sub-Index ETN (Corn, Wheat, Soybeans, Soybean Oil, Coffee, Cotton and Sugar)
• JJG iPath Dow Jones-AIG Grains Total Return Sub-Index ETN (Corn, Wheat, Soybeans)
  

You can even find securities that track individual commodities, but again Morningstar offers insight into why these might not be smart plays.

I do not own any of these, and am not recommending them. M* (Morningstar) points out that in November, XLF was the second most shorted security on the American Stock Exchange.

Shorting a security is when an investor borrows a security from her brokerage, sells it (let's say at $100 a share) and hopes it loses value. Say it goes down to $75 per share. The investor then buys back the number of shares she originally borrowed and returns them to her brokerage pocketing $25 per share. Of course if the price goes up, she has to by back the shares at the higher price potentially costing her far more than she originally invested, depending on how far the price climbs. You can learn a lot more about shorting stocks by reading An American Hedge Fund by Timothy Sykes.

The point is that a lot of folks are speculating on financial securities and there is no way to know if agricultural commodities will continue to rise, but the securities above will rise or fall along with those sectors. I only know that I don't know enough to get into this game...

"But wait, Wylie... I want to speculate on commodities and throw my money away. What are these ETN things you list?"

First of all... you're crazy.

Second, that's a good question. We'll look into that soon!

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.

Misleading Claims About Mutual Fund Turnover

Late November I mentioned that fool.com claims:

"Index fund turnover is around 5% or lower."

as well as:

"A managed mutual fund has an average turnover rate of approximately 85%..."

The statements are simply not true. I like the Motley Fool web site and have read many great articles there so I am surprised to find such inaccurate and misleading statements in the section of their site they are calling "Investing Basics."

I mentioned that the index fund claim struck me as odd because so many of the index funds I track have much higher turnover. A faithful WylieMoney reader let me know that morningstar tracks 706 index funds. Of those, 149 have a turnover ratio of 5% or lower.

So the claim 21% of index funds have turnover of 5% or lower as of the end of 2007 would be truthful. But the claim that "Index fund turnover is around 5% or lower" is just not true.

I imagine it is possible that at one time the average turnover for all Index funds could have been 5%. Perhaps more index funds track indexes which change more often now. Who knows?

The claim "A managed mutual fund has an average turnover rate of approximately 85%..." also does not ring true, but I can see where this may simply be bad grammar. As one who is not grammatically gifted, I have a little more sympathy here, but if what they are trying to say is: "The average turnover of all Managed Mutual funds is approximately 85%", then they should say that. They may also want to mention that general claims like this aren't worth much.

The reason this bothers me is that general claims about fund categories confuse people and create stereotypes that lead to bad decisions.

If you think that you can pick an index fund and will end up with turnover lower than a managed fund in the same category because of statements like these, you are making a big mistake. It is true that if you randomly pick funds from each type, you are more likely to come out with lower turnover from an index fund, but if you are picking funds randomly, you're not being smart.

Take VISGX Vanguard Small Cap Growth Index fund which has a turnover of 40%.
Compare that to BGRFX Baron Growth a managed small growth fund with 21% turnover.

Bottom line is, with Mutual Funds or anything else in life, general claims aren't very useful for informing specific decisions. If turnover is a factor in your choice of a fund (and it should be, even in tax deferred accounts) research the turnover whether it is an index, managed, or quant fund. Also, take everything you read on the interwebs with a grain of salt (this site included!).

I emailed fool.com about this. I hope they either change the wording or explain why I am wrong!

What credit crunch? Part 2

I just don't get it.

Maybe I'm being obtuse.

I read more and more articles about all the adjustable rate mortgages people have that are about to reset and how the entire country will go into foreclosure and the government and banks should do everything they can to help out all the poor souls who got in over their heads when times were good.

Actually, this article gives me some hope that the world is not going crazy... as it outlines a plan in which most people are left being responsible for their own decisions.

If you have an adjustable rate mortgage, refinance it, plain and simple. But wait you say, rates are not good... there is a credit "crunch."

Is it possible that the only crunch you should be worried about is the crunching of cold hard cash in you pocket after you lower your monthly payment?

I live near Boston, not a cheap place to live. 30 year fixed mortgage for no points available today at 5.625%.

I don't care what your lender told you your ARM might reset to, if you can't afford your home loan at 5.625%, you can't afford your home. (Sure there are evil lenders who mislead borrowers, and they should be punished and their victims should be helped).

If you live in the Boston area, check out Powder House. I get no compensation for the referral, I used them myself to refinance several years back for 5.375% with no points. Their closing costs are not the lowest, but for these rates with no points, I have not found a better deal.

Keeping an eye on the Musicians' Village in New Orleans

Earlier this year I was fortunate enough to be part of a team from Berklee College of Music that traveled to New Orleans to volunteer with Habitat for Humanity to help build a Musicians' Village.

I wanted to track the progress of the Musicians' village and the surrounding area so I took some screen shots of the area we were working in from Google Maps and from Zillow.

These sites update their satellite images infrequently so the last shots they have do not even show the houses that were already built when we were there. When they update their images, I'll zoom in and report back.

It will be interesting to track Zillow in particular as this site tracks home value information. I am not sure how much info they will gather on the Ninth Ward but I hope they track data from this area and I hope the value there grows!

Click here for the Google Maps View of where we worked in New Orleans!

This row of houses...


...are on the block indicated below:


Click here for a view of a nearby house in zillow.com.

The houses we worked on at the end of our week...


...are here:


The large cleared area is fast filling up with homes. Note the house showing $0. Directly across the street in the image, there is only grass, but there are already dozens of homes there worth a lot more than $0!


Here is a view from the middle of the field, back in June.

Yodlee hooks up with Zillow!

I have talked about Yodlee before. Let me re-iterate that this totally free service is amazing. I use it to keep track of over 20 accounts!

Now you are probably thinking that 20 accounts is a few too many, and I can understand that. But when you start to count each account you have, checking, savings, visa, discover card, Roth IRA, 401(k)/403(b), and then double that if you are married, you get up there pretty quick. When I bought my hybrid, I opened several credit cards with 0% balance transfers to get 0% financing over an extended period of time. So on and so forth. With a tool as nice as yodlee.com, why bother closing accounts?

So I have my mortgage set up in yodlee, and pay my bill each month there. But I had to create a custom entry and enter the estimated value of my home as a manual account to get a realistic picture of my finances overall. Until this week that is.

I was browsing around one night and saw a link called "Real Estate Center." I clicked it and there was an option to set up my address in a tool that automatically goes to zillow.com and grabs the estimate. If you own a home or are shopping for a home and have not checked out Zillow, you should. It complies local sales information and tabulates home values and contains tons of tons of great information on top of a really neat interface that uses google maps and microsoft's visual earth.

And like yodlee, zillow is free.

So now Yodlee goes out and grabs my account values as well as my home's estimated value and pulls all the info together and provides charts and graphs of changes in value, spending, and now equity in my home = zillow estimate - mortgage!

Why we save...

Back when I first started putting together list of tips for living below your means, a wylie reader commented to me that one way to save money was to not give to your local public radio station.

While I must give props for factuality- you will have more money in savings if you do not give any of it away- I must take the props away because this suggestion is evil.

And by evil I mean 'not good.'

I do not mean to suggest that it is evil to not give to public radio. This tip was inspired by marketing almost as annoying as a head on commercial. And bad marketing is worthy of lengthy criticism. Whether or not you give to public radio specifically is up to you. Whether or not you give at all is a different issue altogether.

MFJ over at myfinancialjourney wrote a very nice post about the fine line of frugality- specifically in regards to giving. And whether or not you have- or think you have- enough money to give some away, you also have time, sweat, and support that you can give.

So I would be ok with suggesting that one way to save is to find a charity you want to support and volunteer if you cannot afford to give cash. But if you can afford to give money, where should you give?

Beats me- that is up to you.

But I am going to list some organizations my wife and I have given to and invite you to share ideas too. If you have suggestions please add a comment on this post or send me an email at wyliemoney at gmail dot com and I will add them to this list.

Health/Quality of Life

• American Cancer Society
• American Heart Association
• Children's Hospital Boston (Thanks Kate)
• Hospice Foundation of Cape Cod
• Jimmy Fund (Thanks Anne)
  
• Leukemia & Lymphoma Society (Thanks Kate)
• Seven Hills Foundation
• St Jude Children's Hospital (Thanks Anne)

Arts and Entertainment

• Boston Jewish Film Festival (specifically in support of Lisa Gossel's film Imagining Peace
• Independent Film Festival of Boston (Thanks Sean)
• Institute of Contemporary Art, Boston (Thanks Greg)
• Isabella Stewart Gardner Museum (Thanks Greg)
• Museum of Fine Arts, Boston (Thanks Greg)

Hunger and Housing

• Habitat for Humanity (more about this soon!)
• Heifer International (Thanks Sean)
• Project Bread (Wylie walks for hunger!)

Education/Training

• Berklee College of Music
• Colorado College
• Hispanic Scholarship Fund (Thanks Gina)
• Ruby Central (Thanks Sean)

Environment

• Mass Audubon Society

Services

• Massachusetts Volunteer Firefighters (Thanks Kate)
• Trustees of Reservations (Thanks Kate)

Disaster Relief

• Music Rising (Thanks Dr. The Edge)

Credit card offers and stopping junk mail

I get a lot of credit card offers. From time to time, I purchase something like a car or major appliance and will apply for a card or two offering 0% interest for a year so I can pay off the purchase over a long period of time at no extra charge. So while I find the credit card offers annoying and incredibly wasteful, I pay attention to them.

Last week a friend asked me if I knew of any credit cards offering 0% balance transfers to finance a new refrigerator and dishwasher. Instead of going through my junk mail, I went to the interweb. After a great deal of crazy and masterful searches on the google I found the incredibly obscure yet highly useful site:

• www.creditcards.com

I clicked on their balance transfer cards link and was able to quickly dig into the fine print to find some options with no balance transfer fees- one of three keys to using this technique without paying one cent. (The other two keys are to pay the minimum balance on time every month and pay the balance in full before the 0% ends.)

Then I realized... "I don't need this junk mail."

I used my mad google chops and found the Federal Trade Commission instructions for stopping unsolicited junk mail credit card offers. This page includes a number of steps to opt out of advertising abuse. The sad news about all this is that these blocks are temporary and even worse- in fine bureaucratic form- the time periods are not the same. This sadness is offset a bit by the astonishing fact, that the time periods are listed! Well except for when they are not...

• Call 1-888-5-OPTOUT (567-8688) 2 years
  
• Write the three major credit bureaus Equifax, Experian, and TransUnion and tell them to quit sharing your info with advertisers (click the link for addresses and a form letter to use). Not clear how long this will last.
  
• The site to stop telemarketers is also included: www.donotcall.gov 5 years
  
• And lastly, the Direct Marketing Association’s information is included so you can contact them and tell them to leave you alone. 5 years

I put myself on the do not call list and immediately (well after a few weeks) noticed a almost complete end to telemarketing calls. If the credit card offers list works half as well, the Lorax will be one happy mossy, bossy man-like creature.

Living below your means- three new tips

Thanks for the suggestions!

Sean posted an excellent tip:

"A trick I was taught is to pay yourself first. These investments are for you and your future and not to be considered another expense along with rent/mortgage, car payments, insurance, etc.

So, what you can do is direct deposit a piece of your paycheck into a separate account, and then use that account to either save for the initial investment, as you point out, or feed those investment accounts. This way, you never see the money, and, really, once you get used to that $50 or $100 not being in your paycheck from week to week, you don't notice it. And then you can increase it by living further below your means, piping a raise right into it, or some other method.

Something else I used to use when I didn't have a lot of money is sharebuilder.com. The fees add up quickly, but for a would-be investor without a lot of starting capital, I think it can be a good entry into the game."

I have not looked into sharebuilder.com and am curious how their fees work. Regardless, the pay yourself idea is a great tip, especially if your habit is to spend the money in your checking account.

David offers:

"I often buy generic products at the grocery store, and when my employer didn't pay for my lunches, I always brought a lunch."

We'll post more about packing your lunch later- and possibly we'll explore how to find an employer who will pay for your lunches, or maybe we will just mock David to try and abate our jealousy.

Finally, Holly wrote a post a while ago and suggests that you make your own coffee. This can easily save you $100 a month if you currently buy coffee out every morning. I like Holly's approach too- do not 'cut out' going to Starbuck's or Dunkin Donuts if you enjoy their sugary treats. Just do not go every day. And if you experiment, you will likely find you can make coffee you like more than what you are paying more for.

Please post any ideas you have as a comment to this post and I will add them to the list as well. You can also email your ideas to me at wyliemoney at gmail dot com.

Tips for living below your means

The hypothetical portfolio I am putting together is designed for an investor who wants to buy a selection of Mutual Funds and add to their investments by adding $100 per month to each fund. To put this plan into action, you would need to come up with up to $2500 per fund for the initial investment and then another $100 per month for each fund.

Here is a breakdown of the amounts for three, five and ten funds:

• For three funds $7500 initial, $300 per month.
• For five funds $12,500 initial, $500 per month
• For ten funds $25,000 initial, $1000 per month

So how can someone come up with this much money on a modest income or on any income for that matter? The answer is simple- live below your means. Many folks live above their means and increase their debt month after month. This plan is not for them. Many spend what they make and as they earn more money, spend more. This plan is not for them. No matter how much you make, the way to save and build wealth is to live comfortably below you means. And while the approach is simple enough, executing is not always easy, especially if you live in an expensive city.

So I am going to start a collection of ideas to reduce the cost of living, making it possible to save and invest. Please post any ideas you have as a comment to this post and I will add them to the list as well. You can also email your ideas to me at wyliemoney at gmail dot com.

• The first suggestion comes from Dave over at east3rd.com. Dave recommends bicycling to work in general and saving money is not his primary motivation- but any time you find a way to save $70 per month, it is an idea worth sharing.
• Sean suggests paying yourself first by directing a small portion of your paycheck straight to a savings account.
• David mentions buying generic products at the grocery store. I would add that you should not get hung up on only buying generic products. If there are one or two things you really think taste better, buy the brand you like and treat yourself.
  
• Holly suggests that you make your own coffee. This can easily save you $100 a month if you buy coffee out every morning. I like Holly's approach too- do not 'cut out' going to Starbuck's or Dunkin Donuts if you enjoy their sugary treats. Do not go every day and when you do go, you'll enjoy the treat even more.
  

Picking a Brokerage

I know a number of folks in the process of rolling old 401(k)s into IRAs or setting up brokerages for the first time. I have discussed the pros and cons of a few brokerages with a few folks, but the truth is, it is hard to compare because the offerings, fee structure, and resources available are very different from firm to firm and there is not a good website that I can find that really compares it all. That said, smartmoney.com has done a nice job of categorizing several brokerages and rating them. They do not explain every feature so you should do more research- but this is a good list of brokerages and summaries of who they might best serve.

I use etrade, because my original brokerage was bought by another brokerage that merged with another that was bought by etrade. This process has not been fun- especially given that my historical records have not been carried over from company to company.

Despite the fact that my experiences with etrade have mirrored those described in the article, I am not surprised that they rated etrade #2 under their premium brokerage category. I got a kick out of (but do not completely agree with) their summary concerning many of the etrade critics that- "...much of (their/our) griping may stem from resistance to change."

Given a plan like my hypothetical non-retirement portfolio of mutual funds that allow $100 monthly or quarterly contributions for NO fee- etrade seems like the best bet.

The bottom line is that when choosing a brokerage- you need to figure out what you want to do with it and how much help you will need doing it. If you are going to roll-over an IRA and invest it in a couple of funds and forget about it until you retire, you do not need a brokerage that offers a ton- just one with the lowest fees possible. If you want to invest actively and do not need help from your brokerage and are ok with really poor customer service, etrade may be your best bet. Smartmoney also mentions: "Lilien, the firm's president, says E*Trade plans to spend an extra $42 million on customer service this year."

Motleyfool has another resource to help you pick a brokerage- I like the comparisons it makes and the info it looks at but it only reviews 4 companies.

etrade updates its mutual fund screener

I have written about etrade and explained that I am using it to pick mutual funds for my hypothetical non-retirement portfolio. I have warned folks picking a brokerage to be wary of fees at any brokerage and decide how you want to use your brokerage account before opening a new account with any company.

I use etrade for my IRA and non-retirement savings and that is why I have access to their mutual fund screener which I have talked a little bit about.

So today, when I signed in to make my next pick, a Large Cap Value fund, I was surprised to see that they have upgraded their fund screener.

The old screener was more or less like what you can find on any financial news web site. But the new features will make it much easier to do what I have been doing: pick no-load funds by sector specifically looking for good non-retirement investments.

Some obvious improvements include being able to exclude closed funds and exclude funds that require huge amounts for initial investments. Even better, as I add criteria, I get a running tally of how many funds are available based on my choices so if I am too restrictive and only a few funds will show when I pull up the details, I can expand my search. The last major improvement is that I can save my criteria- so as I start each new search, all I have to change is the category I am looking at.

So... Specifically I am screening out funds that:

• are available through etrade
• are no-load, no-fee funds
• are available to new investors
  
• have 3-5 stars from morningstar (some index funds end up with 3 stars)
• have below $5000 initial investment (I wish it let me set this at $2500 because that is my actual cut-off for this project
• have an expense ratio below 1.5 (different categories have different averages on this and turnover so this will be a setting I tweak)
• have a low turnover

Here is what the fund screener looks like:





I am poking around a bit and it looks like they have replaced the Standard and Poors report they used to link to each fund with an in-house etrade report. The new report and new detail screens look nice and are easier to navigate through. The one piece missing is the style composition box- which I actually used a good bit. I'll email etrade and ask about it which will also give me a chance to see, anecdotally, if their customer service has improved at all.