Finance Gourmet Blog

There are a lot of how to save money articles going around these days.  I guess that is what people think about during tougher economic times.  I stumbled across a pretty great one today.

SooperCard

For those of you not from one of the mountain states, King Soopers is a grocery store.  The chain is owned by Kroger whom you may know better.  Anyway, way back in the day, just like all the other grocery stores, King Soopers started a shopper card program where you got savings by using your card.  The card is called a SooperCard.  Now, like a lot of other people, I gave them fake information when I signed up because I was suspicious and didn’t want them selling my name or tracking how many Pop-Tarts I buy.

Several years later, I’m a financial professional and much more astute on how the world of business works, and I now know that at best I was being naive.  After all, the three credit bureaus gladly sell not only your name and address, but your credit score (not the exact score, but you can buy a list of people with over a 700, for example) and how you use credit which is way more invasive than anything the grocery store can ever figure out about you.  I mean, yes it is embarrassing to buy Pepto Bismol, but everyone does it, so not a big deal.

Anyway, I’m in the store the other day and I hear over the intercom that I can go online and download special coupons and offers onto my SooperCard that you can’t get in the store.  Now, I’ve never been much of a coupon guy.  I know what all the news stories say, but it never really worked out to more than a buck or two on my total bill.  The problem is that I can choose between buying the one can of black beans that I need, or I can buy 3 cans of black beans to save 25 cents.  When you factor in that I can probably get a better deal by just buying whichever brand of black beans is on sale, the coupon thing starts to look pretty worthless.  (I even went to the website of that mom who goes on TV shows and says she saves 50%.  I’ve never seen a site so packed with ads in my life.  I think you send your name and address to fifty advertisers just by thinking about the site.)

But, a special offer that I can get online (I’m there all the time) and just automatically put on my card so that if I happen to buy the right stuff I save money, well, that is something I can get behind. 

Coupons and Deals

Since I have never used the website, I had to register my card.  Since I gave them a phony name and address, I had no idea what to enter to register my card.  So, I updated everything with my current information.  (I gave them a GrandCentral phone number, but otherwise, all legit.)  I did it because not long ago, a salesperson at Borders caught me in a good mood and I gave them my email address after signing up for their Borders Rewards program which, unlike the Barnes & Noble program, is free.  Now, they send me too many emails, but the address I gave them long ago succumbed to numerous email offers, so no biggie.  But, on the bright side, every four to six weeks I get an email coupon for 40% off of ANYTHING, online or in store.  That my friends is worth some spam to a bookstore resident like me.

So, I updated my SooperCard information, then forgot all about it and never downloaded any offers, but today I get mail.  The mail is coupons from King Soopers, not lame coupons, good coupons.  For example, my wife drinks Diet Dr. Pepper.  One coupon is for a free refrigerator 12-pack of Diet Dr. Pepper.  That’s it!  No, “buy one get one free”, no “when you spend over $50”, just free, pure and simple. Also included were $3.00 off in Health and Beauty Department (toothbrushes, shampoo, etc…)  $1.50 off of 2 12-packs of Coke (we both drink that) $1.00 off of All (it starts at like $4.00 on sale and works just fine, so whoo hoo!) and so on.

The coupons are obviously printed on the fly, and every one of them is for something we have bought before, so I assume they are targeted at us and our habits.  How great is that? Instead of digging through the 300 coupons I’ll never use in the Sunday paper for $4.00 worth of savings, I get 20 coupons in the mail for stuff I actually buy that will save me $20 or more depending on how many I actually use.  Heck, I went ahead and put them in my wallet.  That way I’m sure to have them when I end up at the grocery store.

Other Companies

If you know of other opportunities like this, let me know.  I’ll get a list going and post it so we can all benefit.  But, I only want good ones.  Nobody needs another source of nickel and dime savings.

Well, I’m off to Safeway’s website to give them my real information.  Maybe I’ll get some good ones from them too

The SEC became concerned that financial reporting and disclosure was in need of some smoothing out and improvement, so in true government fashion, it formed an advisory committee to explore ways to improve financial reporting for investors.

You may recall that I mocked the whole thing based on the fact that A LOT of that complexity is actually the fault of the SEC and other assorted regulators who insist on constantly adding requirements of dubious value.  However, making the system better is making the system better and I welcome the SEC advisory committee’s report even if most of what it does is to undo things the SEC has done before.

So, without further ado, I will download the Advisory Committee’s report elegantly entitled:

FINAL REPORT of the ADVISORY COMMITTEE on IMPROVEMENTS to FINANCIAL REPORTING to the UNITED STATES SECURITIES and EXCHANGE COMMISSION

After quickly reading over the document I will report the recommendations here and … wait a second –

So, the report is 120 pages long and then there are 48 pages of appendixes.  Hmmm.  Well I’ll get back to you a little later.  I guess we won’t be improving things by making them any shorter and easier to read

If you don’t want to wait, you can read it yourself here:  http://www.sec.gov/about/offices/oca/acifr/acifr-finalreport.pdf

Ok, I get asked all the time about where to get the best rates for a savings account.  First off, you want a money market account, not a savings account.   Money market accounts pay better rates in exchange for restrictions that should be very easy for you to meet.

The Online Banks

Next, if you are purely interested in rates, then online banks are the way to go.  There is a catch, but it isn’t what you think.  99% of the online banks you will find through a reputable source are backed by real banks with real assets offering better rates in exchange for not having to hire tellers to process your transactions.  The catch is that you probably still need a regular local bank of some sort to handle certain things.  The time it takes to transfer money from your local bank to your online bank is usually 3 or 4 business days, so we are not talking about instant access to your cash.  However, many online accounts come with ATM cards, so if you just need $40 for gas, no problem, but if you need $800 to cover your mortgage payment, then you’ll need to plan ahead.

If you haven’t shopped for savings rates in a while, you might be in for a little shock.  As you may have noticed, the Fed has been slashing interest rates in an effort to prop up the sluggish economy.  That means loan rates are down (good news), but so are savings rates (bad news).  Right now, you’ll be looking at mid 3% for the highest yeilding accounts and closer to 3% for your more standard accounts.  As always, you can get higher rates with higher balances.

The best place to find online savings rates is at Bankrate.com.  If you aren’t familar with Bankrate, you probably should be.  Overall, it is a pretty honest site without too much flash or smoke.  Yes, there are ads, but they tend to be non-intrusive.  Skip the articles or whatever on the front page and click to go right to what you are looking for whether it is home equity loans, car loans, or bank rates.  Don’t take these rates as the gospell, but they will give you a solid ballpark of what you are going to be looking at when you are ready to move forward.  For example, if you want to refinance your house with a 5.0% loan and the best 30 year fixed loan on Bankrate is 6.125% then you are not going to find a 5.0% loan without some nasty hidden tricks.

Click here to access the High Yield Money Market and Savings Account Rates.  Choose the minimum balance you are looking at and click next.  On this page, click the circle under “Rate After Intro”.  You aren’t some sucker who is going to get all dazzled by a high rate for 3 or 6 months.  You are a savvy customer who wants the goods, not the gimmicks.   Again, don’t take this chart as set in stone.  Use it as a place to start your research.

The Fine Print

Watch out for the fine print.  Most commonly you’ll find things like being required to also have a checking account, or being required to have a direct deposit.  Before you sign up make sure that all the fine print and monthly fees makes sense for you.

The No Research Route

If you don’t want to mess with research, open an INGDirect account.  They probably don’t have the highest rate, but they are a solid respected financial services company and they don’t have any tricks or gimmicks.  They offer a really nice online interface, and if you want to use their online checking (not required) you can link your accounts and move money between them instantly.

Remember, don’t fall for intro rates, and read all the terms and conditions.  It might sound like legal mumbo jumbo, but somewhere in there you will clearly understand if you are required to have direct deposit or make 3 ATM withdrawals per month.  Whatever account you choose, be sure it fits how you use your money.

Ok, technically, it isn’t greenmail, but the actions of Carl Icahn in regards to Yahoo! have been very reminiscent of the old strategy.  Basically, Icahn used his fortune to buy up a large amount of Yahoo stock and then complained loudly in the media about the Yahoo board, specifically about their decision not to sell to Microsoft claiming that shareholder value was not maximized.

What Icahn really means is that his short term investment has not paid off in a way that he would like and instead of admitting that perhaps he made a mistake, he blames Yahoo’s board for not selling out to Microsoft so he could squeeze a profit out of his position.  But, is he right?

Yahoo’s Value and Microsoft’s Offer

Let’s be frank, Wall Street has never been a hyper-accurate barometer of a company’s true worth on any given day, but that inefficiency is what theoretically creates the profit potential in the markets.  By finding and investing in a company that is improperly valued, you can reap the rewards when everyone else realizes that the company is wrongly valued and the price moves to make up for it. 

But, there in lies the rub.  Everyone else must decide it is valued wrong.  It doesn’t matter if you are right!  It is the difference between the NFL playing for a championship and College Football using the voting system.  If you want to win the National Championship in college football, you not only have to be the best team, you also have to convince the right people that you are the best team (sports writers and coaches) because if they all vote for another team, it doesn’t matter how good you are.

So, Yahoo, currently trades around 22.50 per share.  Microsoft offered to buy Yahoo for $31 per share, and then later at $33 per share.  (No word on whether Icahn thinks it was a bad move for Yahoo’s board to say no long enough to get another $2 per share.)  Good deal?

Well, Yahoo’s stock price one year ago was $24.99.  Still, $33 looks pretty good.  On the other hand, at the beginning of 2007, Yahoo’s price was close to $28 per share.  Now, maybe this whole “premium” isn’t so high after all. 

Yahoo’s Stock Performance

Yahoo has declined just over 12 percent since Jan 5, 2007, while the Dow Jones Industrial Average is down 7.75 percent over the same period.  On the other hand, over the most recent 12 months, the Dow is down 17 percent and Yahoo is down just under 11.5 percent.

The point?  Maybe Yahoo’s stock performance isn’t so terrible after all.  Sure, it isn’t doing as well as Google, but neither is Microsoft.

Yahoo’s Future Value

All of this brings us to the real point.  A stock’s price is not about it’s past, it is about it’s future.  The question an investor has to ask himself is whether or not he feels a company will be worth more in the future than it is today.  Specifically, will Yahoo be worth more next year or in five years than it is today?  All this business about maximizing shareholder value depends a great deal on  the answer to this basic question, and that answer depends very much on the time frame you are looking at.

Yahoo is the number two player in the search engine space.  Whether they have maximized that value to date is debatable, but it is not debatable that there is some value in being the number two search provider.  In fact, one could argue that there is so much value there that the current price is cheap.  In that case, Johnny-come-lately-Icahn and his hope to squeeze a profit by taking his large block of stock bought in the low twenties by selling in the low thirties isn’t what is the best shareholder value.  Instead, Yahoo actively and successfully leveraging its number two spot in order to boost its shareholder value to $33 and then to $50 and so on over the next few years would be maximizing shareholder value.

Who is right?  Only time will tell, but for the moment, it looks like Icahn’s “victory” has been to get a seat on Yahoo’s board.  That didn’t work out too well at GM.  We’ll see if he does any better here.

I’ve written recently about our attempt to sell our home without a realtor using Iggyshouse.com.  We used them because we got a free MLS listing and a place to upload a ton of description and pictures.  Their site was down for a disturbingly long time in June and part of July but is back up for now.  The only reason I’m not blasting them is that our MLS listing stayed up the whole time.  Still, proceed with caution.

There was some confusion about the MLS listings caused mostly by the way MLS operates.  As a member of the general public, you can search MLS to your heart’s content, but you cannot directly contact the sellers.  MLS does not list the contact information on any publicly available view of MLS, only on the version that you have to pay for.  This is how MLS maintains its monopoly position and forces people to use realtors.  In fact, one of the warnings from Iggyshouse is that it is against MLS rules to use pictures that have any contact info on them (because then you wouldn’t need a paying subscriber to get a phone number).  So, your picture can’t have your phone number at the top.  It can’t even show the sign in front of your house if there is a name or number on it.

Part of MLS’s settlement with regulators was to open up some but not all of their information and this is one of the areas where MLS won.  So, if you know a realtor you can have them look at the professional’s view that they get and that will have your contact information. 

List on More Than Just MLS

This is why you have to post on some other sites if you want to get buyers who don’t have a realtor.  Craigslist is popular for this, but if you do use it, make sure and put a watermark on your pictures with the address, the sale price, the words “for sale”, and your phone number.  Keep it simple.  Just something like:

3273 Main St – For Sale - $450,000 – 555-555-2395

Scammers like to take the photos and descriptions from legitimate for sale ads and turn them into bogus for rent ads to trick people out of their money.  The watermark should keep them from bothering, or keep people from falling for it.

Also, update your information on Zillow, and on any other free real estate sites you can find.  I’m experimenting with a site called Postlets which supposedly pushes out what you put on their site to multiple real estate sites.  I’ll let you know how that goes.

Good luck.

Today’s inspiration comes courtesy of All Financial Matters (a solid blog with good hard numbers data) who notes that a Money Magazine article called “The Mole” discusses how just because a financial advisor says he puts his clients first doesn’t mean he does.  Really?  Did I miss something?  If it says “I put my clients first” on an attorney’s website does that mean that he does, or does it depend on the attorney?  Are there doctors who over bill your insurance company to boost their income?  Does a waiter ever suggest a more expensive wine to increase his tip?  I’m shocked, shocked, to find out there is gambling going on in here!

All of this, of course, is why you need a good trusted financial advisor in the first place, but that is not why we come here today.  I want to show you something from “behind the scenes” as the Mole says.

Financial Advisors and Commissions

Let’s make up a fake client with a $500,000 account to be invested.  Let’s ignore all taxes and legal implications for the sake of simplicity and concentrate on commissions.  We’ll also assume that the account value stays the same over the years for simplicity.  Do realize though that as your account value changes the fees would change too.  (These are only the fees from the advisor side.  He doesn’t get any of the other fees that you might pay; they go to someone else.)

Option 1: Wrap Account or Fee Account

The standard wrap account charges the client a 1% annual fee to manage their funds.  The firm or advisor eats all the trading costs.

One Year Fee = $5,000

Continuing Fee Each Year = $5,000

Fee over 10 years = $50,000

Option 2: Front-Load Mutual Funds (All one fund family)

Loaded mutual funds take a big knock because of their highest fee (usually around 5.75%) but that fee goes down the more you invest.  The average mutual fund family charges around 2% for amounts over $500,000.  Your advisor usually also receives a 0.25% fee called a trail to the “insiders”.  You’ll see it on your prospectus as a 12b-1 fee.

One Year Fee = $10,000 (Load)

Continuing Fee Each Year = $1,250

Fee over 10 years = $22,500

Option 3: Variable Annuity Suze Orman (and everyone financial writer) Nightmare

Variable annuities are always said to have the highest commissions.  That is only sort of true.  Most variable annuities offer different payout options including all the payout in one year or a smaller first year payout with an ongoing payout.  The financial press always talks about the HUGE COMMISSIONS these products have, so we’ll play their game and go with the big up front payout.  The up-front varies, but on regular products from the big companies it is around 7% to 8%.  You’ll hear about higher ones, but they aren’t the usual products and may not even be approved to sell by lots of firms.

One Year Fee = $40,000

Fee over 10 years = $40,000

Payouts

There are other options, but we’ll stick with these to make things easy.  Now, before you get excited, keep in mind that your advisor doesn’t get to keep all of this money.  Every financial advisor gets a little bit different deal, usually depending on who he or she works for, and how much they produce (sell).  But, this gives you a ballpark idea.

A financial advisor who works for a company that pays for expenses like rent, utilities, staff, and so on generally gets something between a 40% payout and a 60% payout.  A payout is how much the advisor gets from the commission he generates.  So, for easy math let’s say the advisor gets a 50% payout which means if he generates $10,000 in commissions, then he gets paid $5,000 and his firm keeps $5,000.  With me so far?  Good.

An independent advisor gets a higher payout but has to pay all of his expenses including staff benefits and so on.  We’ll stick with the “house” guy for now.

So in our above examples, our advisor makes $2,500 the first year and $2,500 every year after that off of Option 1.  He makes $11,250 the first year and $1,250 every year after for Option 2, and he makes $40,000 the first year and nothing after that on Option 3.  Notice how Option 1 and Option 3 actually make the advisor around the same amount of money over the long run.  This isn’t actually true.  If your advisor is making you even 8% return on your investment then the Option 1 numbers go up and up.  After 5 years the account would be worth over $700,000 (now getting $7,000 per year in fees) and after 10 years it is over a $1 million ($10,000 per year in fees!)

That is why a financial advisor who “screws” you into a variable annuity may not only not be a good advisor for you, but may not be good at his own money either.  Of course, this would help the advisor meet short term goals, but he has basically agreed to service your account for free over the life of your annuity.

In fact, the advisor selling you those loaded mutual funds is probably giving you the cheapest long-term option (he isn’t lying when he says that.)

Do It Yourself

As with everything, everywhere, it is cheaper to do it by yourself.  Remodeling your kitchen?  Save thousands doing it yourself.  Oil Change?  Cheaper if you do it yourself.  Brain surgery?  Good luck, but probably way cheaper if you do it yourself.

Your investments are no different.  Of course, if you don’t know anything about tools and electricity and so on, maybe it is still best for you to hire someone to remodel your kitchen.  He will make money when you do.  If you don’t know anything about investing and managing your money maybe you should hire someone to do it.  He will make money when you do.

Annuities and Insurance Usually Suck as Investments

Don’t get me wrong, I’m not looking to defend annuities as investments.  The vast majority of them are terrible investments for most people and whole life insurance is even worse.  However, there are people for whom they make perfect sense.  I deal everyday with people who are retiring from a company where they spent 30 or 40 years.  They have a 401(k) balance (thanks to matching) of around $300,000 and a pension where they can get a one-time payout of $400,000 or a certain number of dollars per year for life.  But, that number goes down if your spouse gets paid for life after you die.  Also, your kids get nothing if you and your spouse die after just two years!  On the other hand, you don’t want to run out of money before you die.  These are tough questions when it is your money, and your whole life, and not just an exercise on paper.

For these people, annuities sometimes make sense because they can get more per month than they could with including their spouse on the pension, and their heirs will get the remaining balance if they die early, and if they live a long time, the annuity will pay for life.  Yes, I will get a commission for selling them that product, but I ask you, whole has the colder heart here?  Me, who sells them a product that meets all their needs and keeps them from ever having to stare at the T.V. and worry if they will run out of money because of the economy, or the person who says do it yourself, you big baby.  Look at these numbers in black in white.  What’s wrong with you?  Don’t you know you are paying for that help?

Rip-Off Cliche

Seriously, is there no other way to rip off financial planning clients than to sell them a variable annuity?  It seems that every time a financial “insider” or “investigator” runs out of ideas they write a column about variable annuities and trot out the famed widowed-orphaned-school teacher who was sold variable annuities with her tiny pension.  There are TONS of ways you can get ripped off including plenty of do it yourself ways.  Don’t be lulled into security because you aren’t getting an annuity.

Unbelievable.  I grabbed my trusty notebook this morning and wrote a post for the Finance Gourmet from one of the many topics I have listed in there.  Basically, I wrote about how actually saving some money is more important than learning all the tricks to investing money, particularly when you don’t have much money to invest in the first place.

Then, this afternoon I was (finally) going through my feeds that I had ignored in order to keeps from getting thrown off schedule by the 4th of July holiday and the associated vacation we took, I read this at The Simple Dollar which is pretty much the same concept.  He spends some times showing you the numbers instead of relying on the workout analogy like I did.  Anyway, check it out if you want to see more data.