Dr. Oleson -- Financial Tips

WHY ARE YOU BROKE... ?

noreply@blogger.com (Dr. Oleson) — Thu, 29 Jul 2010 21:59:00 +0000

When contemplating financial success, my mind tends to focus on the knowledge and skills needed -- the "what should I be doing" in order to achieve financial success concepts. This past week I read an interesting blog post from MoneyPlan SOS that focused instead on the common mistakes people make -- the "what should I not be doing" if I want to get ahead.

Many of the issues he raises are very commonplace, "average" ways of thinking about money. Perhaps there is a good reason the "average" person isn't in a very enviable financial situation ... ?? Some food for thought at least.

Things people say that keep them broke ...

1. I'm too __________ (old, young, ... broke) to save money.

2. I deserve __________.

3. I did it to improve my credit score.

4. My student loan/mortgage is "Good debt."

5. He told me I would __________.

6. The "Little Man" can't get ahead.

7. I can write off the interest on my taxes.

8. How much a month?

9. I have retirement covered, Social Security __________.

10. When I __________, then I'll be able to __________.

RENTERS INSURANCE

noreply@blogger.com (Dr. Oleson) — Mon, 14 Jun 2010 16:49:00 +0000

(Source: Insurance Information Institute)

Did you know…
Nearly 2/3 of those living in U.S. rental properties are without renters insurance (Source: Independent Insurance Agents & Brokers of America).

Renters insurance provides financial protection against the loss or destruction of your possessions when you rent a house or apartment. While your landlord may be sympathetic to a burglary or a fire, destruction or loss of your possessions is not usually covered by your landlord’s insurance. Because in most cases, renters insurance covers only the value of your belongings, not the physical building, the premium is relatively inexpensive (usually about $150-$300 per year).

By purchasing renters insurance, your possessions are covered against losses from fire or smoke, lightning, vandalism, theft, explosion, windstorm and water damage (not including floods). Like homeowners insurance, renters insurance also covers your responsibility to other people injured at your home or elsewhere by you, a family member, or your pet, and pays legal defense costs if you are taken to court.

Renters insurance covers the additional living expenses if you are unable to live in your apartment because of a fire or other covered peril. Most policies will reimburse you the difference between your additional living expenses and your normal living expenses but still may set limits as to the amount they will pay.

There are two general types of renters insurance policies you may purchase:
1. Actual Cash Value – pays to replace your home or possessions minus a deduction for depreciation up to the limit of your policy.

2. Replacement Cost – pays the actual cost of replacing your home or possessions (no deduction for depreciation) up to the limit of your policy.

With either policy, you may want to consider purchasing a “floater.” A standard renters policy offers only limited coverage for expensive items such as jewelry. If you own property that exceeds these limits, it makes sense to supplement your policy with a floater. A floater is a separate policy that provides additional insurance for your valuables and covers them for perils not included in your policy such as accidental loss.

Other Resources:
Your State Department of Insurance is a great, informational resource:
Find your State's Department: http://www.naic.org/state_web_map.htm

FINANCIAL BENEFITS OF COMPETITION

noreply@blogger.com (Dr. Oleson) — Mon, 10 May 2010 04:48:00 +0000

In my life, I have found competition to be healthy - on the racquetball court, at work ... it motivates me to be better. I've also found it to be of great benefit in my financial life. Competition motivates companies to offer lower interest rates and fees, lower insurance premiums, lower commissions, better products, or suffer the consequences (lost business opportunities). That should be a pretty strong motivator!

Value of Competition.
Earlier in the week (05/04/10), Vanguard announced a dramatic reduction in their commissions charged on stock trades as well as commission-free trades on Vanguard ETF (exchange traded fund) transactions. Viewed in isolation, this would be big news. In reality, this is just one more domino to fall in the name of competition ... Vanguard was merely following the lead of Fidelity and Schwab, a couple of its primary rivals.

Fidelity Headline (February 3, 2010). "Trade 25 ETFs -- Commission Free" ...

Schwab Headline (November 2, 2009). "Schwab rolls out free-trade ETFs" ...

Healthy competition tends to bring out the best in individuals and companies. When companies compete, consumers win ...

A BEST WAY TO GET OUT OF DEBT?

noreply@blogger.com (Dr. Oleson) — Fri, 23 Apr 2010 03:47:00 +0000

Is one way better than another to get rid of debt? The answer to your question will likely differ depending on who you ask.

“FINANCIAL” METHOD. Nearly every "financial" person will advise that debts should be paid off in a particular order -- start with highest interest rate and move to the lowest interest rate (done by rolling the payment from one debt to another as debts are paid off). While this method makes perfect sense from a mathematical point of view, more and more people are finding that there is another method [often overlooked] that works better for their psyche ...

PSYCHOLOGICAL METHOD. This system of debt repayment, popularized by Dave Ramsey, is often referred to as the debt snowball. This method organizes one’s debt from the smallest balance to the largest balance. This method will not likely save the most money or time (as the interest rates are not likely to align in that manner), but many find this approach very empowering and motivating because they see progress quickly (envision being on a diet where you are seeing progress quickly ... becomes much easier to stick with it). Focusing on the smallest balance first will accomplish this end by providing some quick victories.

In using either of these methods, pay the minimum amount on all debts except for your “focus” debt (smallest balance in psychological method; highest interest rate in financial method); pay as much as possible on the focus debt until it is eliminated and then approach the next debt in the list with similar intensity. As debts are eliminated, the debt snowball will get bigger and bigger.

I’m not arguing against the merits of the financial method as outlined above. Obviously, if someone has the discipline to adhere to the plan, you’ll save the most time and the most in interest expenses by following its tenets. The psychological method merely takes a seemingly more “human” approach to finances that suggests that people will be more likely to stick with their ‘financial diet’ if they see those ‘debt pounds’ coming off quickly. That is what Personal Finance is all about – doing what works best for you - which very well may be something different than the next person. The point is to get out of debt [the end]; don't get caught up in the means to the end. How you decide to do it is much less important than actually doing it!

PowerPay, a free online tool developed by Utah State University Extension will allow you to play around with both of these debt repayment methods. I wrote a detailed explanation of the PowerPay system about a year ago if you're unfamiliar with it...

IDENTITY THEFT RESOURCES

noreply@blogger.com (Dr. Oleson) — Thu, 18 Mar 2010 05:46:00 +0000

Identity theft is an issue that is regularly in the news - over the past couple of years, I’ve written multiple financial tips on the potentially devastating effects of identity theft. It is frightening to think that there are more than 8 million "new" victims each year in the U.S. I’d like to review the general strategies available to consumers to help minimize ID theft that have been shared prior and discuss some resources.

Personally Viewing Your Credit Report. Every 12 months you can order a report from each credit reporting agency for free. Most consumer experts suggest staggering your reports (ordering one every four months). Use the free, official government site only: www.annualcreditreport.com, NOT freecreditreport.com.

Opt Out. One way to reduce the risk of ID theft is to reduce the number of solicitations you receive. You can opt out of credit card and phone solicitations easily - see tip post from earlier this month

Fraud Alert. This is a ‘flag’ you can place on your credit report after being victimized. This alerts potential creditors that you are a potential fraud victim. Unfortunately, creditors aren’t required to abide by [or even check] the alert.

Credit Monitoring Service. A service where an annual fee is assessed to tell you when people are viewing your credit file. Most services honestly don’t add much of a benefit beyond what you can do for free [see above].

Credit Freeze. This is a very intriguing option and the only viable option that allows you to stop ID theft before it happens rather than reacting to issues after they surface. Consumers Union has compiled a helpful Credit Freeze Guide that provides answers to frequently asked questions and discusses state by state procedures and information.

FDIC – “Don’t Be An On-line Victim” (free CD-ROM). Free resource on guarding yourself against internet thieves and electronic scams. The free CD-Rom can be ordered at the FDIC website.

The ID theft resource has seven sections:
- Introduction to identity theft
- Introduction to electronic scams
- Protecting your information
- Protecting your computer
- What to do if you are a victim
- Help for identity theft victims
- Resources

ADDITIONAL ID THEFT RESOURCES.
– Deter, Detect, Defend
– Fighting Back
– FTC ID Theft Site
– Guard Against Internet Fraud
– National Data
– Publications
– Resolving Specific Problems
– State Data
– Test Your Knowledge

OPTING OUT -- PHONE, MAIL, & CREDIT OFFERS

noreply@blogger.com (Dr. Oleson) — Wed, 03 Mar 2010 04:49:00 +0000

I don't think anyone would argue that being bombarded by solicitations can be extremely annoying. It's been almost two years since I shared resources for opting out of such unwanted solicitations and felt it was a good time for a reminder ...

The National Do Not Call Registry allows you to register both land lines and cell phones online at https://www.donotcall.gov or over the phone (1-888-382-1222 - calling from the number you are registering). Registration is free and used to be effective for five years. With the passing of the Do-Not-Call Improvement Act of 2007 (signed in Feb. 2008), numbers placed on the registry will be removed permanently (unless/until you opt in). Solicitors affected by the legislation are required to stop the calls to you within 31 days of registration.

Registration won't stop all telemarketer calls. Banks, phone companies, airlines, insurance companies, nonprofit charitable organizations, and politicians are not under the jurisdiction of the FTC, and won't be impacted by the list. In addition, the list only applies to calls across State lines. Sales calls within a State will still be permitted unless you also opt out of solicitations through your State do not call registry (a separate registration process unless your State integrated their list with the national one which some did when the Federal list was initiated in 2003). State info is available at: http://www.the-dma.org/government/donotcalllists.shtml.

Under the Fair Credit Reporting Act (FCRA), credit reporting agencies are permitted to include your name on lists used by creditors or insurers to make firm offers for credit or insurance. The FCRA also enables you to opt out, which prevents the credit reporting agencies from providing the information contained in your credit file to others if you so desire.

Here are two good ways to stop [or at least slow] offers for credit:

(1) Go to www.OptOutPrescreen.com (or call 888-5-optout). These are the credit reporting agencies opt in/opt out resources to stop the agencies from selling your information to direct marketers. You can opt out for a five-year period or permanently (you can always opt back in if you decide you miss the mail!). If you use the website provided, you can fill out a very brief, simple form to opt out. It will then provide a screen with the information you provided that you will need to print out, sign, and mail to the address provided in order to permanently opt out. If you don’t do that last step (print and mail), it will opt you out for a 5-year period instead.

(2) Direct Marketing Association (DMA) Do Not Mail file (https://www.dmachoice.org). The site also shares information for getting off of commercial e-mail lists.

Credit card companies get consumer information from other sources in addition to those mentioned above, so, while these two methods will considerably slow down credit card offers, the offers won't necessarily stop completely. For additional info, review the FAQ page for opting in/out at: https://www.optoutprescreen.com/faq.htm.

AVOID COMPOUNDING YOUR MISTAKES

noreply@blogger.com (Dr. Oleson) — Mon, 22 Feb 2010 04:31:00 +0000

About four years ago I wrote about a HORRIBLE investment product -- the H&R Block Express IRA. Anyone that has read anything I've written for any period of time knows how much I love the Roth IRA; a great way to save for retirement (making after-tax contributions that grow tax free)! H&R Block steered more than half a million people into a money losing IRA that the lawsuit that was filed against them described as an "unsuitable, fraudulently marketed, poorly performing, fee-ridden account that actually shrinks over time"... Fraudulently marketed seems pretty apparent given the fact that for the majority of participants, the fees exceeded their interest payments (that was the case for 85% of the accounts as of the time I wrote the original blog)! I've tried to wrap my arms around who this product might be appropriate for; sorry, I can't think of anyone who would be best served by a retirement account whose only investment option is a money market.

Obviously, the story of predators taking advantage of consumers is not a new one. It is painful given the fact that these are people that at a very base level did the right thing (investing their tax returns into an IRA). It is more painful because many of these people compounded their problem. When they realized the "scam" they pulled their money. Many of them closed their account, incurring termination fees from H&R Block, as well as tax penalties from the IRS since they cashed out the account rather than rolling it over to a "reputable" account.

I was pleased to read last month that H&R Block will refund nearly $20 million to those customers who bought the junky IRA product. If you are looking to roll over your account or open a new account. I have several past posts relating to quality companies - I've also supplied some additional links below.

Investing Resources
- Consumer-friendly Investment Company
- Financial Planning Resources

- Clark Howard Investing Guide
- Get Rich Slowly
- Mutual Fund Investor's Center

TAX ASSISTANCE

noreply@blogger.com (Dr. Oleson) — Wed, 03 Feb 2010 05:31:00 +0000

Numerous resources are available to assist the majority of taxpayers with free tax preparation assistance as well as free electronic filing of tax forms. Assistance is now available through the VITA (Volunteer Income Tax Assistance) Program, Tax Counseling for the Elderly (through AARP), and MilitaryOneSource (in addition to VITA) for members of the military. These free programs are a tremendous boon to consumers as they provide an avenue to avoid tax preparation fees as well as costly refund anticipation loans.

In addition to free assistance in preparing tax returns, most sites also provide free electronic tax filing (e-file). E-filing will also enable you to receive your refund more quickly; offering options for directly depositing the refund into checking, savings, IRAs, or splitting your refund between multiple accounts.

VITA.
The VITA Program offers free tax help to low- to moderate-income (generally, $49,000 and below) people needing assistance in preparing their own tax returns. VITA sites are generally located at community centers, libraries, schools, and other convenient/ accessible locations. To locate the nearest VITA site, call: 1-800-829-1040.

VITA FOR MILITARY PERSONNEL & FAMILIES.
The military also has a strong VITA Program. Marines, airmen, soldiers, sailors, guardsmen, and their families receive free tax preparation assistance at offices within their installations. These sites provide free tax information, tax preparation, and assistance to military members and their families. The primary distinction with this and other VITA sites is the ability to work with individuals that are trained and equipped to address military-specific tax issues.

TAX COUNSELING FOR THE ELDERLY.
The Tax Counseling for the Elderly (TCE) Program provides free tax help to people aged 60 and older. In conjunction with the IRS-sponsored TCE Program, AARP offers their Tax-Aide counseling program at more than 7,000 sites nationwide during the filing season (February 1 – April 15). Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-middle income with special attention to those ages 60 and older. For more information on TCE call 1-800-829-1040. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit the AARP Tax-Aide website.

ADDITIONAL TAX RESOURCES.
-- Current Tax Info (deductions, exemptions, tax brackets, etc.)
-- Do I Have To File? (often worthwhile even if you don’t “have to”)
-- Education Tax Benefits
-- Federal Tax Forms
-- Free File Online Tax Preparation Sites
-- State Tax Forms
-- Understanding Taxes (interactive IRS tutorial)

GETTING ORGANIZED

noreply@blogger.com (Dr. Oleson) — Wed, 27 Jan 2010 05:04:00 +0000

The beginning of a new year is a great time to put your financial house in order! Before discarding all of your files, however, you should know what documents to hold onto and for how long ...

The following are some general suggestions/guidelines about how long you should keep your personal finance records on file (Source -Bankrate.com)...

RECORD KEEPING RULES OF THUMB...

Bank Records. Keep from one year to permanently. Focus particular attention on those expenses related to taxes, such as business expenses and mortgage payments.

Bills. Keep from one year to permanently. In most cases, when the payment from a bill has cleared, you can get rid of the bill. Bills for large item purchases (jewelry, appliances, cars, furniture, computers, etc.) should be kept in an insurance file for proof of their value in the event of theft/loss or damage.

Brokerage Statements. Keep until you sell the securities. You need the purchase/sales slips from your stocks or mutual funds to prove whether you have capital gains or losses at tax time.

Credit Card Receipts and Statements. Keep from 45 days to 7 years. Keep your original receipts until you get your monthly statement; toss the receipts if the two match up. Keep the statements (with tax documents) for seven years if tax-related expenses are documented.

Home Documents. Keep from 6 years to permanently. Keep all records documenting the purchase price and the cost of all permanent improvements (remodeling, additions, and installations). Keep records of expenses incurred in selling and buying the property (such as legal fees and real estate commissions) for 6 years after you sell your home. Holding onto these records is important because any improvements you make on your house, as well as expenses in selling it are added to the original purchase price to determine your cost basis. This adds up to a greater profit when you sell your house, thus lowering your potential capital gains tax.

IRA Contributions. Keep indefinitely. If you have made a nondeductible contribution, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.

Paycheck Stubs. Keep for one year. When you receive your annual earnings statement (W-2 or 1099) from your employer, make sure the information matches - if it does, toss the stubs, if it doesn't, request a corrected form.

Retirement Plan Statements. Keep from one year to permanently. Keep the quarterly statements from your 401(k) or other plan statements until you receive the annual summary ... if everything matches up, you can then toss the quarterly statements. Keep the annual summaries until you retire or close the account.

Tax Information. Keep returns, canceled checks/receipts, charitable contributions, mortgage interest and other information for 7 years. Why so long? The IRS has 3 years from your filing date to audit your return if it suspects good faith errors. They have 6 years to challenge your return if it thinks you underreported your gross income by 25% or more. There is no time limit if you failed to file or filed a fraudulent return.

ADDITIONAL RECORD KEEPING RESOURCES.
- Recordkeeping for Individuals (IRS Pub. 552)
- Record Keeping (Iowa State University Extension)

ARCHIVED TIPS (2009)

noreply@blogger.com (Dr. Oleson) — Tue, 12 Jan 2010 16:31:00 +0000

The beginning of a new year provides a great opportunity to look forward to the year ahead and identify areas for needed personal improvement; it also affords time to look back and review the financial and other missteps (growth opportunities) from the past year... As I have done in the past, I have created a topical/organized archive of tips from the past year. The links will allow you to easily review prior tips. You can also view a chronological archive of all my financial tips at the blog site or directly at:

--> 2008 Archive of Financial Tips
--> 2007 Archive of Financial Tips
--> 2006 Archive of Financial Tips

CREDIT MANAGEMENT.
- Credit C.A.R.D. Reform (05.2009)
- Disputing Credit Reporting Errors (01.2009)
- Fair Credit Billing Act (04.2009)
- First Wave of CC Changes (08.2009)
- FreeCreditReport .GOV (11.2009)
- Specialty Credit Reports (04.2009)
- Your Credit - What are Your Rights (03.2009)

DEBT MANAGEMENT.
- Debt Management Strategies (07.2009)
- Fair Debt Collection Practices Act (03.2009)
- Statute of Limitations on Debt (03.2009)

FINANCIAL/CONSUMER LITERACY.
- Becoming Financially Fit (12.2009)
- Consumer Action Handbook (07.2009)
- FINRA - Advocate for Investors (09.2009)
- 'My Money' Resources (05.2009)

FINANCIAL PLANNING.
- Consumer-Friendly Investment Company (11.2009)
- Free Planning Assistance (01.2009)
- Free Tax Assistance (02.2009)
- Index vs. Active Fund Management (05.2009)
- Mutual Funds (Prospectus into Perspective) (11.2009)
- Recharacterization = IRA 'Do-Over' (01.2009)
- Should You Convert (12.2009)
- 'Suitable' Investments (03.2009)
- What is Your 401(k) Costing You (08.2009)

INSURANCE.
- Creating a Home Inventory (04.2009)
- Gap Insurance (06.2009)

MONEY MANAGEMENT.
- $$ Information Hodge-Podge (09.2009)
- 2-1-1 - Locating Community Resources (09.2009)
- Financial Goals (08.2009)
- Flexible Spending Accounts (02.2009)
- High Yield Checking (04.2009)
- Is Extra Effort Worth it Financially (10.2009)
- Overdraft Fees - Constancy Amidst Change (10.2009)
- Rethinking Risk Tolerance (12.2009)
- Should I Refinance (05.2009)
- Staying Rational During an Emotional Time (02.2009)
- Truth in Lending (04.2009)

OTHER.
- Affinity Fraud (02.2009)
- Discount Travel Resources (06.2009)
- Financial Sites - My 'Faves' (10.2009)

STUDENT RESOURCES.
- Consolidating Private Student Loans (07.2009)
- Income-Based Repayment and Loan Forgiveness (06.2009)
- July 1 - Scheduled Student Loan Changes (06.2009)

FREE FINANCIAL PLANNING ASSISTANCE IN 2010

noreply@blogger.com (Dr. Oleson) — Wed, 06 Jan 2010 21:14:00 +0000

"JUMP-START YOUR RETIREMENT PLAN"
FREE FINANCIAL PLANNING ASSISTANCE

Kiplinger's Personal Finance & NAPFA
(FRIDAY, JANUARY 22 & TUESDAY, JANUARY 26)

For the ninth year, Kiplinger’s Personal Finance Magazine is working with the NAPFA (National Association of Personal Financial Advisors) Consumer Education Foundation to provide free, objective financial planning advice for consumers. The beginning of the New Year is a great time to get a financial checkup.

NAPFA (http://napfa.org) is the leading professional organization for fee-only financial advisors. Regardless of your current stage of life, this is a great opportunity to jumpstart your financial plan (and follow through on your New Years resolution!) and address questions you may have about retirement savings, estate planning, taxes, insurance, college savings, etc. Last year, thousands of people received assistance. Typically, fee-only planners charge an hourly rate of $150 to $300.

Make sure you have relevant documents on hand to make the most of your time. If your question(s) are too complex to be addressed on the spot, you may be directed to the NAPFA site to find a planner in your area. A planner can aid you in making rational [rather than emotional] financial decisions. The services are available to anyone.

Where do you go to obtain the free assistance?
*CALL – 888-919-2345
*ONLINE – http://www.kiplinger.com/links/jumpstart
Dr. Mark Oleson

RETHINKING RISK TOLERANCE

noreply@blogger.com (Dr. Oleson) — Tue, 29 Dec 2009 04:48:00 +0000

The turbulent stock market of the past two years has investors and financial planners alike rethinking the way they assess and manage risk tolerance. According to a recent Brinker Capital poll, 76% of financial advisers stated that they needed to reassess how they measure risk tolerance. The flaws of a plain vanilla approach to risk management -- relying on age-based portfolios (or other products that oversimplified the issue of risk) -- have been exposed. Have you reassessed how you measure and manage investment risk?

While the plunging stock market has been painful to investors (even with the monumental rise in the market since March, we are still SUBSTANTIALLY below the November 2007 record levels), there have been some valuable learning opportunities, particularly in regard to risk management. Historically, risk tolerance has largely been established by time horizon (how long do you have until retirement to ride out the ups and downs of the market?). The assumption was that if you had enough time, you should be more heavily invested in stock (which is sound in theory). The problem? Queasy stomachs! Many people can't handle volatile fluctuations in the market and the result is selling at inopportune times. A recent Money Magazine article (November, 2009) reported findings by FinaMetrica:

Only 7% of investors can stand to have more than 75% of their total investments in stock, and only 1% can handle more than 87% in stocks! Also, according to Vanguard, 42% of their 401(k) accounts held more than 80% of portfolio in stock investments, while it is estimated that roughly 4% of investors can tolerate a portfolio that is more than 80% in stocks.

Like any other financial information, take it with a grain of salt, but it is definitely worth some thought and some personal examination of one's investments relative to risk tolerance. Consider not only how much risk you should be taking when you invest, but how much pressure can you handle before cracking? Don't put yourself in a vulnerable situation.

Some other valid points from the Money article ...

Don't take risk unnecessarily. If you are a good saver and put away a large percentage of your income, you in turn can afford to take less risk to accommodate the same goal as someone saving less money. Just because you're comfortable with risky investments doesn't mean you need to (or should) invest in that manner.

Consider your appetite AND capacity for risk. Most of the tip has addressed one's appetite/comfort with risk. To understand capacity, again consider data supplied by Vanguard ... In 2007, 35% of 401(k) participants over the age of 55 had more than 80% of their accounts in stocks. Even if we were to assume that these individuals had the appetite for risk (didn't make emotional decisions when the market bottomed), did they really have the capacity for the risk? Could they really afford to have lost 50% or more of their nest egg at that stage of their lives?

Comfort with risk doesn't mean you'll achieve your goal. Yes, it is important to find out what your appetite for risk is and invest accordingly. You need to realize that doing so, however, can wind up putting you short of investment goals if you are risk-averse. You can save more or pare down your goals ... an answer that sounds a lot like dealing with a budgeting shortfall - you can spend less or earn more money.

Unfortunately, most (easily available - online) measures of risk are not extremely helpful. They may serve to help you think about your comfort level with risk, but will not help you make decisions regarding asset allocation or appropriately managing risk. For example, Kiplingers Magazine, a very popular Personal Finance magazine provides an online tool to assess risk. If you go to the link you'll see that there are only 6 questions - the time horizon for a 25 year old and 50 year old would be treated the exact same -- 15+ years!! Not a perfect tool by any stretch ... it is free if that is any consolation. The risk tolerance quiz provided by MSN Money provides a questionnaire that is a little more in depth. Just for fun, I googled investment risk tolerance quizzes - and of the 20 that I looked at, only 3 had more than 6 questions that were posed!

How do you assess your own risk tolerance? If you work with a financial advisor/planner, how well do they understand you and your tolerance for risk ...?

SHOULD YOU CONVERT?

noreply@blogger.com (Dr. Oleson) — Wed, 16 Dec 2009 03:11:00 +0000

ROTH CONVERSION.
There has been A LOT written in the past few weeks in financial publications regarding the opportunity for those that have been previously unable (because of income restrictions) to take advantage of Roth IRAs to now convert retirement savings (regular IRAs) into the tax free growth provided by the Roth IRA. Although the income limits on contributing to a Roth account will not go away next year, the limits on converting to a Roth will. The upside to doing so could be substantial -- tax free account growth and no required minimum distributions at 70 1/2 most notably. The decision, however, will ultimately be a personal one, dependent upon your financial situation. There are no "blanket" answers.

Some food for thought... Is it right for me?
- Do you think your tax rate will be higher (or lower) in retirement?
- Can you pay the tax 'bill' with money outside of the retirement assets?
- How long will the money be left in the Roth account to grow?
- Are your current retirement account values depressed?
- Do you have heirs you would like to leave tax free money?

Given an option that financial professionals know will likely be a wildly popular opportunity, many firms have already established helpful educational resources (including calculators) on their websites to help you dissect the issue and better understand the potential costs and benefits of the Roth Conversion. Here are a few to get you started.

Roth Conversion Resources.
---> Fidelity Resources
---> Roth Conversion Calculator
---> Schwab Resources
---> Vanguard Resources

Assuming you're not one of the 13+ million Americans that will find the Roth Conversion information applicable, perhaps you will be eligible for the TAX SAVERS CREDIT. This credit for qualified retirement savings contributions is available to people earning less than $27,750 in 2009 ($55,500 if married filing jointly). Instructions for determining eligibility and calculating the value of the credit can be found on IRS Form 8880. The savers credit reduces your income tax dollar for dollar (not less than zero, however). You can receive a credit of up to $1,000 ($2,000 if married filing jointly). Contributions to most retirement plans are eligible for the credit. The IRS has developed a brochure that outlines the details of the Tax Savers Credit.

BECOMING FINANCIALLY FIT

noreply@blogger.com (Dr. Oleson) — Wed, 09 Dec 2009 00:54:00 +0000

The road to financial fitness can be a daunting one. The path is not smooth nor always the easiest path to navigate. There are unexpected twists and turns and people regularly fall asleep at the wheel. Similarities are often cast between financial fitness and personal fitness.

In either pursuit, following certain key principles has consistently proven to yield success. If you feel like you are a little financially flabby, let me offer a few tips to help you become more financially fit ...

HAVE A FINANCIAL PLAN.
As a financial educator, I've consistently found that this first step - developing your financial blueprint - is the hardest step. The key? Find a budgeting system/ method that will work for you and your personality. Establish goals to guide you and you'll quickly realize that meaningful, purposeful steps will make success obtainable. Numerous free budgeting resources are available - start here.

BE PREPARED.
As an Eagle Scout, I was taught the importance of being prepared. There are several important areas of personal finance with which this motto will serve you well:
- Eliminate Debt
- Have an Emergency Fund
- Maintain Appropriate Levels of Insurance

INVEST FOR YOUR FUTURE.
Invest in yourself - make education a lifelong process. In addition, take part in personal and work retirement programs. When possible, take advantage of any company/ employer matches. Contribute to a 401(k), IRA, and/or other investment programs that maximize the growth of your money through tax free and tax deferred savings vehicles.

START NOW!
As I've said before, start by simply doing something. Go ahead and start small. What I've learned over time is that the majority of personal finance revolves around inertia. Once momentum starts, it tends to continue rolling... not until it starts though! As with personal fitness, the bottom line is discipline ...

MUTUAL FUNDS (Putting the Prospectus into Perspective)

noreply@blogger.com (Dr. Oleson) — Tue, 01 Dec 2009 04:22:00 +0000

While the argument for index funds is a compelling one, there will always be investors that opt for the more "tantalizing" world of actively managed mutual funds. If you find yourself in this camp, understanding the objectives and "fit" of the fund relative to your particular goals is paramount. The mutual fund prospectus will be one of your most valuable tools to address these questions. The prospectus is a summary of a funds investment philosophy, its management, its financial highlights (and lowlights), costs, etc. It is wise to spend time perusing the prospectus prior to ever putting a dollar into a fund. The prospectus ultimately helps you to "know what you're investing in" ...

WHAT AM I LOOKING FOR??

FUND COSTS. One of the first things to examine is the funds cost structure. The amount of money charged in fees tends to vary dramatically from fund to fund.
Expense Ratio – Total percentage of annual assets that a fund takes to cover operational costs (i.e., marketing, etc.). Some funds have expense ratios in excess of 2%; many, however, have expense ratios at or lower than 1%.
Loads – Sales commissions tacked onto funds - come in numerous 'flavors' - front-end, back-end, level, or no-load.

FUND SUMMARY/OBJECTIVE. What is the fund trying to accomplish? What is the philosophy of the company (i.e., value, growth, etc.)? What area is the fund focusing on - a certain sector (i.e., technology, health care, etc.); international companies; small, medium, or large companies, etc.? What are the specific risks with investing in this fund? Obviously the funds objectives are critical - I should be investing in something I understand, as well as something that will ultimately meet my [long-term] investment goals.

FUND HISTORY. How well has the fund performed over the past year, 3 years, 5 years, 10 years, and since inception? How does the fund compare with its index (and "peer" funds) during that time? How did the fund hold up during the market meltdown? How has it rebounded during the market upswing since last March? Keep in mind this is a "rear view mirror" approach to performance and doesn't guarantee that it will continue to perform at the same level that it has in the past (for good or bad).

FUND MANAGEMENT. The importance of fund management seems fairly obvious. A more challenging question perhaps is ... How much of the performance should I attribute to the person(s) managing the fund? Should I sell my fund if the fund manager is no longer managing the fund? Some people prefer funds managed by a group; perhaps group management may have less volatility in the transition if someone were to leave (in theory anyway). What is the experience/ track record of the manager/ management team? Do any research on Peter Lynch during his time running the Magellan Fund at Fidelity if you don’t think the manager of a particular fund makes a difference (he averaged a return of 29% per year during his 13 year tenure)!

FUND TURNOVER. Indicates how frequently a fund buys and sells its holdings. The higher the percentage, the greater the fund's buying and selling activity. A rate of 100%, for example, would indicate that a fund essentially changes all of its holdings once a year. Typically a higher turnover rate generally indicates a more aggressive manager -- engaging in more frequent buying and selling -- a practice which has both pros and cons.

ADDITIONAL INFO. Some funds will also offer information from outside agencies. Companies like Standard & Poor's and Morningstar are independent agencies that rate mutual funds on numerous criteria and rank them relative to "peer funds." Obviously there is more to fund selection than if one of these companies suggests the fund is good, but it is one more thing you can look at in the decision-making process.

GIVE IT A TRY NOW ...
I wanted to make this as easy an exercise for you as possible, so I have taken three mutual funds from three different no-load mutual fund companies and provided the links for you to be able to go directly to the funds prospectus. YOU SHOULD NOT VIEW THIS AS AN ENDORSEMENT OF THE FUNDS. I HAVE SELECTED THREE PROSPECTUSES FOR YOU TO REVIEW TO AID IN AN EDUCATIONAL PROCESS. You will notice that each fund has very different objectives.

-- Fairholme Fund

-- Fidelity Low-Priced Stock Fund

-- T. Rowe Price Mid-Cap Value Fund

FREECREDITREPORT . GOV ??

noreply@blogger.com (Dr. Oleson) — Fri, 13 Nov 2009 03:15:00 +0000

Next month marks the fifth anniversary of the "free credit report" legislation (which enables all consumers to obtain a free credit report from each of the three (Equifax, Experian, and TransUnion) major credit reporting agencies annually). Unfortunately, the misleading freecreditreport.COM ad campaign has been much more visible to consumers than the legitimate free credit report site of the government, located at ANNUALCREDITREPORT.COM ...

I was pleased to see Ron Lieber's "A Free Credit Score Followed by a Monthly Bill" article in the New York Times this past week. He does a nice job outlining the pitfalls of freecreditreport.com (a "service" that not coincidentally is owned by Experian -- one of the major credit reporting agencies). Most notably, people are often unknowingly "signing up" for a $14.95/month credit monitoring service as part of their "free" credit report offer. Don't believe me? Then you must believe that their monitoring services are vastly superior to the competition's services since they own more than twice the market share of the next three largest credit monitoring players combined! In addition, although Experian doesn't share information about subscription turnover, Lieber reported that the average enrollment of a monitoring subscriber was under a year. Not the sound of an intentional purchase.

Apparently the Federal Trade Commission is not buying the pitch either. They have long believed that consumers are being deliberately led away from the "real" free credit report offered by the government and that Experian is profiting from the confusion created (somewhere in the ballpark of $700M per year; not bad given the $54M they spent on the TV and radio spots last year). Recently, to combat the catchy TV jingle, the FTC came up with their own jingles and misleading URL - freecreditreport.GOV ... Nice job FTC!!

"Other sites may turn your head; they say they’re free, don’t be misled. Once you’re in their tangled web, they’ll sell you something else instead."

Their full video ads are below...

CONSUMER-FRIENDLY INVESTMENT COMPANY?!

noreply@blogger.com (Dr. Oleson) — Wed, 04 Nov 2009 03:51:00 +0000

Over time, most of the news for beginning investors hasn't been good news ... Seemingly, one company after another has raised minimum investment requirements as many companies don't want to deal with "those people." I recall about a decade ago as a Professor at Iowa State a large mutual fund company that allowed new investors to open an account with a one-time investment of $100 or an automatic investment of $25 every three months. A short while later they changed their policy and required $50/month automatically (currently one of the lowest options) or a one-time investment of $1500. When I called them to find out why they changed their policy, their answer was understandable -- they had a bunch of accounts with $100 in them. As a financial educator at the time working largely with college students, I recall the frustration as there were very few options that were viable for a college student or new grad wanting to get started with investing. Since then, the viable options have become even fewer.

AUTOMATIC INVESTING OPENS A FEW DOORS.
There are currently a small handful of no-load fund companies that will allow a beginning investor to start with no up front money if they set up automatic investments of $50/month. T. Rowe Price, TIAA-CREF, and USAA (available to the military) are the biggest.

SCHWAB.
I was excited to learn a few months back about Schwab. Charles Schwab is a company that has been around a long time but had never excited me (until now) ... Schwab offers several low cost index funds. An account can be opened with $100. Subseqent investments can be made for as little as $1 (literally a buck - the minimum has been tested). Hearing that did excite me. I was then excited further to see the news release yesterday where they have lauched their own set of ETFs (exchange traded funds -- some homework for you if you don't know what they are) with the lowest expense ratios in the industry and became available starting today (11/3/09) with ZERO COMMISSIONS (half of them rolled out today and the other half will roll out next month). The first ETFs available commission-free. FINALLY SOME GOOD NEWS FOR BEGINNING INVESTORS!! Kudos to a financial company taking some consumer-friendly steps.

PS - If you're curious, no, I didn't go from Iowa State University to Schwab ... I'm actually currently a government contractor providing financial education to the military. Charles can thank me later for the free advertisement, although I have no problem sharing information when it's better than the competition.

OVERDRAFT FEES -- Constancy Amidst Change

noreply@blogger.com (Dr. Oleson) — Tue, 27 Oct 2009 13:46:00 +0000

If you've paid any attention to the media in the last month, you're well aware of the credit card company "ploys" that have been employed to trap consumers (i.e., changing interest rates, fees, and other information) prior to the C.A.R.D. reform scheduled to take effect on Feb. 22, 2010. Some of the recent tactics include closing card accounts, hiking interest rates on existing balances, cutting credit lines, and raising minimum payments. Think you're immune because you don't carry a balance? Think again ... B of A (which already raised rates last June) has moved onto plan B, "experimenting" with annual fees of $29 to $99 based on "risk and profitability" (meaning those of you that don't carry a balance/pay in full monthly).

If you're trying to find a silver lining, there is a small one. One of the card reforms that occurred last August now requires companies to provide a 45 day notice prior to 'significant' changes in contract terms. Accompanying the notification will be steps to take to either close the account or to opt out of the new terms and maintain the old terms (which will close the account but allow you to pay off any debt at the prior terms). The bottom line is that with all of the changes taking place, you'll want to start paying closer attention to the 6-pt font correspondence/legalese your CC company sends you.

OVERDRAFT FEES - CONSTANCY AMIDST CHANGE.
Well, amidst all of the turbulence and change, there has been one constant ... Overdraft fees! I read a study this week that was published by the Center for Responsible Lending about the "explosion" in overdraft fees that have increased 35% in the past two years (not a bad move in revenue in recessionary times)!

Current standard practice for most banks and credit unions is to automatically enroll checking account customers in an expensive overdraft program that generally generates fees of nearly $35 per overdraft. Fortunately, this "service" as most institutions perceive them, will also be modified with the upcoming (February) reform. Consumers will need to authorize financial institutions to provide overdraft "protection" as opposed to simply letting the charge be denied. The CRL findings report that the majority of consumers (~80%), including those that have recently overdrawn their accounts, would prefer that overdrafts not be covered. Obviously this would be very easy to implement as the vast majority of overdraft fees are triggered by debit card transactions and ATM withdrawals, not by checks. In addition to authorizing the overdraft, the law also states that the fees must be "reasonable." Who knows what that means. The fact that over 25% of all debit card transactions are for purchases of less than $10 indicates that a $35 fee would not be reasonable. The fees are currently more than twice the amount of the original overdraft amount. Overall in 2008, consumers owed $45 billion for the $21.3 billion of credit that was extended. Unfortunately, the most likely to fall into this trap? Lower income groups and young adults (18-25).

To put the ridiculousness of overdraft fees into perspective, consider this. Americans will spend considerably more on overdraft fees this year ($23.7B) than books ($14.2B) or postage ($18.3B).

Additional Findings of Interest:
* 50+ million checking accounts overdrawn over 12 month period.
---> Over 1/2 of those (27 million) had 5+ overdraft incidents.
---> 18 million consumers had 10+ overdraft occurrences.

* Banks/CUs collected nearly $24 billion in overdraft fees in 2008.
---> Analysts estimate this will balloon to $27 billion for 2009.

* Banks make more on covering overdrafts than CC penalty fees.

Additional Resources:
-- Center for Responsible Lending Full Report
-- FDIC Study of Overdraft Programs
-- Overspending on Debit Cards is a Boon for Banks (NY Times)
-- Proposed Amendments to Regulation E

IS EXTRA EFFORT WORTH IT FINANCIALLY?

noreply@blogger.com (Dr. Oleson) — Wed, 14 Oct 2009 01:13:00 +0000

When I was a professor of personal finance, it continually surprised me to hear comments from students suggesting just how "convenience-driven" they were. When asked to choose between a financially prudent choice and one based sheerly upon convenience (i.e., selecting a lower interest rate at one institution vs. a higher rate with their existing bank/credit union), most selected the convenient (higher cost) alternative. Even after nearly a decade of teaching personal finance (and a degree in psychology), that frame of mind still doesn't add up for me. I personally believe that a little bit of added effort can pay big financial dividends. Let me offer a couple tangible examples ...

AUTO LOANS.
Auto loans can be a very 'tricky' product, particularly for used vehicles. Often, interest rates sit at double digits. Information supplied by Bankrate shows that an "average" 48 month loan for a used car is currently 7.7% (slightly lower (7.56%) for a 3-year loan). I am definitely an advocate of using Bankrate as a tool with which to compare loan offers and gauge expectations.

I've seen several references in the past few months to Pentagon Federal Credit Union and their impressive car loan rates (3.99% used auto loan rates!). The lesson here? It's more than just simply shopping to find the best rate ... I think most people would automatically discount this option assuming "I can't do this because I'm not a member of the military." Before giving up (particularly given the current economic environment where many companies are opening a back door to customers when the front door seems to be closed), look a little closer ... Not only is credit union membership [at Pentagon Federal] open to the military; but also to government employees, Red Cross volunteers, as well as members of the National Military Family Association (a group open to anyone willing to pay the one-time $20 membership fee) ... a pretty small price to pay for a sub-4% interest rate!

MANAGING RISING INSURANCE PREMIUMS.
When our insurance renewal came recently in the mail (informing us that our premium would be increasing 20% over last year), I first called to find out why. There were no accidents, no insurance claims, no change in credit status, or any other 'logical' explanation for the increase. When they didn't have any good answers, I informed them that I'd be calling to cancel the policy in a few days. I called them later that week to inform them that I wouldn't be renewing our policy after we not only found a lower cost option; we found a policy that cost less than we had been paying the prior year! Be willing to stretch yourself and go beyond your comfort zone and you'll often find "greener grass." FYI - www.insure.com, www.insweb.com, and www.insurancefinder.com are some of my favorite online resources for insurance shopping.

I would argue that if you look around, you'll see that a little extra effort will go a long way in your financial world ... you'll save more, spend less, and more prudently invest and plan for the future. THE LESSON?? A little bit of extra effort can pay big dividends.

FINANCIAL SITES -- MY 'FAVES'

noreply@blogger.com (Dr. Oleson) — Thu, 01 Oct 2009 16:36:00 +0000

I'm frequently asked to share information about good places to gather financial information. Where is a good site to find a credit card? Where would be a good place to open a Roth IRA? How do I go about freezing my credit?... etc.

This week, I have decided to share some of my favorite financial websites. Keep in mind that these are MY faves, thus the links provided are my opinions (appropriate since this is MY blog). This is designed to strictly be informational; it is not intended to be an exhaustive list by any stretch (I decided to stop after 20 topics). Feel free to share your faves (doctormoneyman@gmail.com).

CREDIT RESOURCES.
- Credit Card Search
- Credit Freeze Information
- Credit Scoring
- Ordering Free Credit Report

FINANCIAL PLANNING RESOURCES.
- Asset Allocation
- Bonds
- Index Investing - Top 3 (A, B, C)
- Insurance Information
- Mutual Fund Analysis
- No Load Mutual Fund Companies - Top 5 (A, B, C, D, E)
- Saving For College
- Tax Assistance

OTHER FINANCIAL RESOURCES.
- Budgeting
- Cooperative Extension
- Financial Calculators
- Identity Theft
- Interest Rate Information
- Managing Debt
- Organizing Financial Records
- Student Financial Aid

$$ INFORMATION HODGE-PODGE

noreply@blogger.com (Dr. Oleson) — Fri, 25 Sep 2009 01:51:00 +0000

I came across several interesting financial tidbits this week in my reading - I figured I'd just informally share some of the information in a little different format than usual ...

Learning Lessons From the Market.
It would seem that the volatility in the market would have created a prime opportunity to evaluate one's portfolio, reassess risk tolerance, and become more interested in knowing what is going on in your financial world. An ideal learning opportunity! An April, 2009 Charles Schwab survey suggests otherwise. Hopefully you have taken the chance the market has provided to become more engaged in your personal finances (Source - 8/31/09 issue of Barron's). What have you done in the past two years (since the beginning of the market decline?

From the Schwab survey...
- 39% of fund investors changed their portfolio allocation.
- 45% have tried to become more knowledgeable about their investments.
- 47% aren't personally involved in managing their funds.
- 36% don't know what mutual funds they own.

Marriage and Money.
The top causes of arguments among married couples? According to research by the Center for Marital and Family Studies at the University of Denver, money is the #1 cause of arguments (although it becomes less of an issue the longer you're married); children are #2.
For those married 1-8 years, money is the source of 43% of arguments.
For those married 9-25 years, money is the source of 38% of arguments.
For those married 26+ years, money is the source of 23% of arguments.

Debt Collection.
According to the Federal Trade Commission (FTC), nearly 80,000 complaints were received about third-party debt collection agencies in 2008 (more than any other industry). The most common gripes:
- Calling incessantly (35%)
- Demanding more than the amount owed (33%)
- Failing to send the required written notice (16%)
- Calling at work after being instructed not to (10%)
- Broadcasting the problem to neighbors & colleagues (9%)

The FTC is currently seeking reform to modernize the Federal Debt Collection Practices Act. The FDCPA was established in 1977! Consumer debt, the debt collection industry, and technology look nothing like it did 30 years ago. You can read the FTC report here.

Life Insurance Awareness.
September is life insurance awareness month in Missouri. Now is a great time to review your existing coverage/needs. Complete story available here.

F.I.N.R.A. -- ADVOCATE FOR INVESTORS

noreply@blogger.com (Dr. Oleson) — Thu, 17 Sep 2009 17:41:00 +0000

The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for securities firms doing business in the U.S. It is not the regulatory function of FINRA, however, with which I would like to focus ... they also happen to be huge advocates for investors and consumer protection. FINRA believes that investor education is the key to protection. They argue that by utilizing "the Internet, the media and public forums, we help investors build their financial knowledge and provide them with essential tools to better understand the markets and basic principles of saving and investing." The FINRA Investor Education Foundation is the largest foundation in the U.S. focused on investor education.

WHAT FINRA DOES:
- Host educational forums offering unbiased investor resources/tools.
- Inform of potential scams & actions taken against dishonest brokers.
- Provide resources/tools to help investors evaluate products & professionals.

Informational Resources.
- Frequently Asked Questions
- Investor Alerts (via e-mail)
- Investor Newsletters
- Investor Podcasts
- News Releases
- Understanding Financial Professional Designations

Investor Tools.
- 529 (College Savings) Plan Expense Analyzer
- BrokerCheck
- Investment Risk Meter
- Investment Scam Meter
- Investor Complaint Center
- Mutual Fund Analyzer

2-1-1 -- LOCATING COMMUNITY RESOURCES

noreply@blogger.com (Dr. Oleson) — Tue, 08 Sep 2009 03:02:00 +0000

At some point in life, all of us will find ourselves in need of some type of support or assistance - physical, emotional, educational, financial, or otherwise. This support can come from many potential sources including (but not limited to) family, friends, work, church, or community. Historically, one of the greatest challenges has been finding those resources ... no longer!

2-1-1 is a toll-free number that connects people with community resources. By dialing 211, you now have access to information on resources of all types from one central database. People are available to help 7 days a week, 24 hours a day. Calling the confidential hotline or viewing the websites (see below for each state site) will connect you with hundreds of services in your local community.

What types of community services/resources are available?
BASIC NEEDS - Food, Rent/Mortgage Assistance, Utility Assistance
PHYSICAL/MENTAL HEALTH - Health Care, Counseling, Alcohol/Drug Rehab
WORK INITIATIVES - Educational & Vocational Training, ESL, Job Training
CHILDREN, YOUTH & FAMILIES - After-School Programs, Tutoring, Mentoring
SUPPORT FOR SENIORS & DISABLED - Adult Day Care, Meals, Respite Care

This is just a small sampling of the support and assistance programs available. In addition to the free call, each state also has a useful website with a wealth of information and search tools to "find" resources. I've gone ahead and done the legwork and provided a link to each state program below for you... There is also a National Call Center.

211 STATE WEB RESOURCES.
ALABAMA, ALASKA, ARIZONA (unfunded and shut down earlier in the year),
ARKANSAS, CALIFORNIA, COLORADO, CONNECTICUT, DELAWARE (NO CALL CENTER OR WEBSITE), FLORIDA, GEORGIA, HAWAII, IDAHO, ILLINOIS, INDIANA, IOWA, KANSAS, KENTUCKY, LOUISIANA, MAINE, MARYLAND, MASSACHUSETTS, MICHIGAN, MINNESOTA, MISSISSIPPI, MISSOURI, MONTANA, NEBRASKA, NEVADA, NEW HAMPSHIRE, NEW JERSEY, NEW MEXICO, NEW YORK, NORTH CAROLINA, NORTH DAKOTA, OHIO, OKLAHOMA, OREGON, PENNSYLVANIA, PUERTO RICO, RHODE ISLAND, SOUTH CAROLINA, SOUTH DAKOTA, TENNESSEE, TEXAS, UTAH, VERMONT, VIRGINIA, WASHINGTON, WASHINGTON DC METRO AREA, WEST VIRGINIA, WISCONSIN, and WYOMING (NO CALL CENTER OR WEBSITE).

WHAT IS YOUR 401(k) COSTING YOU?

noreply@blogger.com (Dr. Oleson) — Tue, 01 Sep 2009 03:41:00 +0000

More and more employers are passing costs onto employees. Healthcare costs which historically have had roughly an 80%/20% employer-employee cost split has now shifted to closer to 70%/30%. A study by the Government Accountability Office suggests that investment fees (fees charged by companies managing mutual funds and other products for services related to operating the fund) are now almost exclusively borne by plan participants (you and me). The impact of fees (even minimal fees) over time is a concept that never ceases to amaze me. In the GAO study referenced above, a 1% per year additional fee (which may not sound like a lot) reduced the sample retirement account by nearly 17% after 20 years!

The GAO Study reviewed the topic of Private Pensions, specifically exploring the changes that are needed to provide 401(k) plan participants better information on investment fees:

THE BOTTOM LINE FINDINGS FROM THE STUDY.
- Fee information is not provided in a standardized manner;
- Results in challenging comparison of investment options and fees;
- Suggestion that investment fees become more transparent;
- That service providers disclose compensation (& potential conflicts).

SUGGESTIONS FOR INVESTORS.
Review the funds expense ratio (the funds operating fees). This is the most effective way to compare fees. It is common for consumers to not be concerned because they assume these issues don't apply to them. With 401(k)s, it is likely the opposite is the case - poor 401(k) plans are the norm - you should be concerned! Few investment options and expensive funds (i.e., index funds with expense ratios exceeding 1%) are all too common. Take action! Poor plans will remain the norm until people push for better plans. The Motley Fool provides a great resource to help arm you in your request for change. It shares the ammunition you'll need (Your Plan's Summary Annual Report, Summary Plan Description, and/or Fee Arrangement) as well as a sample letter that will provide the factual information needed (rather than merely an emotional argument) to get things rolling in the right direction. Good luck!

FIRST WAVE OF CC CHANGES ...

noreply@blogger.com (Dr. Oleson) — Mon, 24 Aug 2009 03:13:00 +0000

Thursday of last week (8/20) marked the first wave of the much anticipated (and much needed) credit card legislative changes for consumers. Below is a summary of the credit card modifications (8/20/2009) ...

EXTENDED GRACE PERIOD.
All credit card statements must be mailed 21 days prior to due date, rather than the prior 14 day grace period. The law states that a card company cannot charge late fees if statements are not delivered at least 21 days before the payment due date.

45 DAY NOTIFICATION.
A 45 day notice prior to any increase in APR (annual percentage rate) and any "significant changes" in contract terms (as deemed by the Federal Reserve Board) must now be afforded consumers. This notification must explain the steps for cardholders to take to exercise their rights to cancel the account -- a toll free number and deadline for opting out must be provided.

RIGHT TO OPT OUT.
Consumers will have the right to cancel ("opt out" of) a card to avoid adverse changes in terms. This would provide the card holder with the ability to repay the card balance under the original terms (hopefully this is obvious, but opting out would preclude the consumer from continuing to use the card for new purchases). There are a few key exceptions to this opt out policy:

(1) Consumers cannot opt out of increases in the minimum payment
(2) Consumers cannot opt out of rate changes on variable rate cards
(3) Consumers 60 days late (or more) making payments cannot opt out
(4) Consumers cannot opt out of reductions in credit limits

The next waves of legislative changes will take place in February and August 2010. The following link provides a helpful view of the credit card reform timeline. Also, I posted an overview of the C.A.R.D. Reform in May that discusses in more detail these upcoming changes.