Asset Allocation Made Easy

As a DIY investor without a broker, I have been looking around (for a while now) trying to find a tool that will help me allocate my investments in different asset classes and help me rebalance them occasionally. As I will probably elaborate on in an upcoming post, I haven't really been happy with any of the tools that I've tried so far. The tools have either been too simplistic, way too complicated, or the numbers just don't seem to add up. I should note that I have been trying out free tools, when I probably just should have broke down and pay for some advice.

Today I came across the marketriders.com website. The site offers advice on asset allocations in a few flavors. In its most basic form you can pay a $9.99/mo fee for automated advice by answering questions about your time horizons, appetite for risk and age. If you prefer, for $399 you can talk to an advisor who will walk you through things. Or, if you need more help yet you can move your portfolio over the Market Riders and pay them a .50% commission. The company has based its philosophy on the idea that if you get your money in a low cost investment (preferably an ETF that tracks an index) and have the right allocation there's really no need for an expensive broker. They seem genuine when they say they really prefer if people do the investing themselves and don't hire them as their planners. They even impose a requirement that you fire them each year and decide if you want to rehire them.

I think its a good concept. I haven't tried their service out yet, but since they offer a free 30 day trial I will be soon and will post a full review at that time. Market Riders apparently has a database that has over 700 ETF's and provides users with a sample portfolio of ETF's to meet their respective allocation. Why ETF's? Because as counter-intuitive as it may sound, they generally beat the experts. The company also monitors the performance of the investments and will send you an email when it is cost effective to rebalance things. In this sort of market that could prove to be some valuable advice.

Does anyone have experience with Market Riders? I like the concept a lot, we'll see how the model plays out in the service itself. I will report back once I have a chance to kick the tires. I wish them the best, it's about time there was some solid unbiased advice at a fair price.

Link: MarketRiders.com

Image Credit: The New Fine Art's Lab @ Flickr

How to run an investment fraud the Madoff way

The NY Times posted an article this week entitled "How to Run a Financial Fraud" that outlined six steps to run an investment fraud (ala Bernie Madoff) and walk away relatively scott free -- considering you may have stolen billions of dollars. Of course the article doesn't condone the activities or even say that people should expect to get away with things, but it offers some interesting observations on how Madoff consciously did certain things to limit the collateral damage of the fraud for himself and his family. A thumbnail outline of the points made follow below.

1 - Avoid the six year lookback period for fraud
2 - Make substantial transfers to your friends and family
3 - Title your assets in the name of your spouse (preferably in Florida)
4 - Confess when before you get caught so you can control things
5 - Get arrested by the Feds, not the state.

You can read the whole store here at NY Times.

Image: Tracy O @ Flickr

Shocker of the Day: Bling is a Terrible Investment

File this under the "obvious" category. The WSJ Wealth Report has a post reporting that even super high end jewelry doesn't hold its value. Given the fact that the value of jewelry is a subjective thing, that's not too surprising. Additionally, buying jewlery is typically an emotional decision and doesn't involve the rational investing approach that other investments might go through. I think very few people say "at least this engagement ring will be worth twice this much if I ever get divorced and sell off assets." The only reason the story is noteworthy is that it backs up its points with figures from famous jewlery pieces that have been sold by some of the big auction houses. So, if you were planning to drop some money on a rapper chain you might want to find a better place to park all that cash.

Image: Swanksalot @ Flickr

Being Rich Now Apparently Is Harder Than Ever

The Wall Street Journal Wealth Report Blog is reporting that the new thing to do if you're mega wealthy is to have a "family office" to manage your investments, real estate, charitable giving, and travel.  I can't speak from experience, because I'm unfortunately no where near the $100 million dollar mark the article states is the sweet spot for this type of arrangement.  

But, aside from the cachet that having an "office" full of people who report to your every whim and desire -- does having a family office really offer much?  Sounds like this arrangement just brings all the people that average folks already use and brings them in house.  Normal people have accountants, attorneys, bankers, financial planners... and sometimes trust officers or assistants/secretaries.  Anyways, I thought the article was interesting and wanted to pass it on, you can read the entire story over at the WSJ Wealth Blog.

Photo Credit: risastla @ flickr

Link:  WSJ Wealth Blog

What Are You Doing To Beat Inflation?

Energy prices are skyrocketing, food prices are through the roof, seems like everything is costing more these days -- and the thing is -- you're right. Most of us have been effected in one way or another by the rising energy costs, but what about your nest egg. What approaches are you taking to make sure that inflation isn't eating away at your savings and still mitigating some of the risk in your portfolio?

Since most people underestimate the real rate of inflation (and the U.S. Government claims inflation is now at approximately 2%), this doesn't garner much attention - but it's a real concern. I typically steer clear of any type of investment advice here on this site, but want to open it up for discussion since it's something I've been thinking about lately.

Among the many options - Treasury Inflation Protected Bond Funds have become trendy of late [see ETF's: TIP, IPE ; MUTFunds: VIPSX, DIPSX, FINPX), and so have dividend weighted ETF's [see ETF's: PEY, DLS]

What do you think? Are inflation protected bonds the way to go? Dividend paying stocks? Cash?

Consolidate and Close Accounts to Keep Better Tabs on You Financial Situation

One of the great things that a steady stream of new entrants into the online brokerage arena had the effect of doing is to make companies compete harder for your business. There are now plenty of good places to hold your investments and with that said I'm a big believer of consolidating your investments and holding them at a handful on institutions rather than have assets all over the place. Below are the reasons that I think this outweighs the minimal benefits you may find from using a number of providers.

1) Reduce Fees: Many providers reduce or even eliminate fees and commissions once you hit a certain threshold of assets. Some investment houses will throw in free trades, free research, or advisory services if you increase your holdings to a higher tier.

2) Increase Your Sensitivity to Fees: With life being busy and time short, I find that I'm more likely to carefully inspect my monthly or quarterly statement if I have two or three to look at rather than 5. I also am more sensitive to being nickeled and dimmed with fees when I see multiple fees on the same statement rather than one from each investment company.

3) One statement: Many investment companies will provide you with one consolidated statement which makes record keeping a breeze and reduces hassles associated with tracking down important information.
4) Availability of Options: Nearly all the well known brokerage companies have been beefing up their no transaction fee mutual fund offerings which makes it easier for you hold a Janus fund in a Fidelity account or an Ariel fund in a Schwab account. This makes for one stop shopping and as stated earlier one statement. The rise of exchange traded funds (and more and more niche EFT's that act more like mutual funds) allows small and large individuals to level the playing field and diversify without the strings some mutual funds attach.

5) Get a Clear Picture of Your Financial Health: Pooling your investments with one provider is a quick way to see your net worth and if you are meeting your financial goals, whatever they may be.

6) Organize Your Affairs in the Event Something Should Happen to You: No one wants to think about death or serious injury, but if you were hospitalized would a family member or friend be able to track down your money to pay bills? Are your investments spread over 10 fund families held in 10 separate accounts plus your 401(k), Roth IRA, and traditional IRA? If you have a financial power of attorney in place you representative will have an easier time tapping funds that may be needed to settle your affairs or care for you.

Things to note. It should be noted that you want to consider FDIC and SIPC insurance limits that may be applicable to the funds you hold at a single institution. There are plenty of good discount brokers like Fidelity (the king of investment houses), OptionsXpress (a newer discount broker that has grown quickly and has no minimums, T.Rowe (one of the biggest discount fund shops), and Charles Schwab (the big time discount broker).

Many of these providers like Schwab and Fidelity have added high yielding checking account and other banking options to their typical securities offerings (read more here). While the new accounts have big benefits over the brick and mortar checking accounts, most people need somewhere to deposit money in person from time to time. I would suggest that if you are interested in consolidating financial holdings that you keep a completely free checking account at a bank close to your house so you can quickly deposit the occasional check (ask, because your bank will probably try to lead you to an account with minimums and/or fees). Once the money is deposited in your local bank account you can easily move the funds through the ACH system to your other account. This method is much faster than mailing a check to the financial institution.

Schwab Offers High Yield Checking Account

Schwab has thrown its hat into the high interest checking ring recently. For those of you with Schwab brokerage accounts their "Schwab Bank High Yield Investor Checking" may be a convenient addition to your portfolio. A quick look at the account's stats show the following:

Rate: 4% variable APY.
Min: No account minimum.
Fees: No service charges or fees.
ATM: Unlimited ATM fee reimbursement.
FDIC: FDIC insurance up to $100,000.

I think it looks like the high-yield checking is a solid offering from Schwab. For starters, it beats the Electric Orange account from ING in terms of interest rates and features. Additionally, the Schwab money market is paying 4.32% (7-day avg as of 1-20-08), which means that if you give up .32% interest you can gain FDIC insurance and no minimum. A checking account isn't a great place to stash money in terms of investment opportunities, but if you have short term cash or carry a larger than average checking account balance it might be a good thing to look into.

Does a high yield checking account have a place in your portfolio, do you use a money market account with check writing, or just a plain old checking account?

Image: liewcf @ Flickr

Study: U.S. 401(k) Savings Rates Up

Fidelity just released a study that says the median 401(k) balance rose 30% this year. While some of gain is likely attributable to the rather robust (if not chaotic stock market this year, the other 20% or so is a result of people socking more money away. I'm not trying to knock the results here, because any time people take a second look at their investments and put a little more money away for later rather than spending it on a Jamaican vacation I approve. BUT, when you look at the figures cited in the study they are pretty abysmal. Below are the average 401(k) balances for different groups.

• Baby Boomers rose 7 percent to $38,000
• Gen Xers rose 10 percent to $15,000
• Gen Yers rose 21 percent to $2,100

Now here are the average contribution rates.

• Baby Boomers 7.7 percent
• Gen Xers 6.2 percent
  
• Gen Yers 4.6 percent

Hopefully what the statistics don't show is that there is quite a bit of other money that is being invested elsewhere outside the 401(k) plans in vehicles like Roth, or traditional IRA accounts... unfortunately I would guess there is not.

Related Article:
401(k) Flubs 5 to avoid @ CNN

Do Investors Have Too Much Information Available?

I was reading an article over at the FT today about the explosion in benchmarks and equity indices now available to the average investor. It is enough to make your head spin or at least check Investopedia much more than can possibly be healthy.

I know there are a lot of people out there who love gobs of information and can't seem to get enough of it. I find myself drifting the other way in many areas. It's not that I don't like being able to quickly find what I'm looking for or don't love the vast quantities of stuff out there on the internet. I think my problem with the push toward information overload is the opposite, I think I'm turned off by the fact people want the 30 second sound byte version of EVERYTHING. The world's economy is simplified by the FTSE, EFT's have exploded, and there are even website that will ruin the endings of movies you have yet to see.

I hate to sound old, but I just don't think there should be a super-shortcut for everything. I'm from a generation that had the internet in High School... I have been known to IM watch TV and eat dinner at the same time... and have seen friends become borderline stalkers due to Facebook... so why do I have a problem with the short cut polarize everything, cut out all the discussion way that media outlets operate these days?

Image Credit: NedRichards

Stock Market Flirts with 14,000

The market finished at a record high today, although not quite at 14,000. It had traded earlier in the day at that level but did not reach that peak before closing. The market is up over 12% for the year and now some analysts are forecasting 15,000 before the end of the year. When you look at the statistics it is a little bit astonishing. The market moved from 13,000 to 14,000 in a mere 57 days. Additionally, the market has closed at a record 57 trading days this year. This is pretty amazing since oil has been marching upwards.

Of course there are still people losing money in the market and hedge fund pros getting paid gobs of money to lose money for their clients. I think now is still a good time to get into the market although I'm not about to steer you astray and offer stock tips.

If you are looking to get in the market you can open up a brokerage account by tomorrow and start investing. Fidelity and Charles Schwab are perennial favorites, while brokerages like TradeKing and OptionsXpress don't have minimum account balances or service fees.

Head over to the library or half.com, there are plenty of good investing books that can school you in what a P/E ratio is and teach you how to tell if a stock is overvalued. Or pick up "The Intelligent Investor," the book that Warren Buffet has said is one of the best. After you get your feet on the ground with the basics you can read up on what the pro's are doing. For those of you who have cable (and can stomach his personality) Jim Cramer's Mad Money is a solid show for beginners run by a guy who made a killing by running a hedge fund.

Finally, you can see what the big institutional investors are doing for free by checking out what are the most active options. Head over to Yahoo!Finance and Market Watch which are tremendous resources to get you started.

Have something to add? Leave a suggestion in the comments or email me.

Image Credit: Helico

Free Stock Trades?

When I was checking my email last night I came accross an adsense ad for free stock trades. So what you say, I get about 150 of those a week in my spam folder. Well maybe so, but having some spare time I clicked it anyways and it turns out yet another company is trying to use the web to shake up tired business models.

Zecco promises to give you 10 free trades a day or 40 free trades a month for free. After you reach 40 it charges $3.50 per trade (which is still less than most online brokers). The company also does not charge a minimum account balance or maintenance fees unless you are trading on margin. The company has a matrix that lines its fees up against the competitors here.



The interface doesn't look like anything out of the ordinary or too spectacular, but you can't beat the pricing...

Has anyone tried this yet? I haven't used this service at all, but love the premise. I assume (which is always dangerous) that the way the company can keep costs so low is that it fills both sides of the orders clients place. In other words if at all possible waits to find another Zecco customer that is selling what you're buying before it closes the order. However, this isn't uncommon and every broker tries to do this.

I am guessing though that Zecco trades are less than instantaneous - although I haven't heard anything to the contrary, but for me it wouldn't be a big deal. I'm not a day trader and those of you who are day traders are probably using a more robust service anyways. Plus, if you are buying and selling you should be using the good ol' market limit so you can lock in the prices you want to buy or sell at anyways.

I'd love for this service to succeed or at least cause a little disturbance in the pricing structure of the bigger players. If you have used Zecco email me and let me know what you think.

Link:
Zecco.com

Poll This Week: Which Online Broker is Best?

After reading a few articles recently reviewing which online brokers are best at Forbes and Smart Money, I wanted to know what everyone else out there thought. This week I'm polling everyone out there about which online brokerage they think is the best. I added all of the companies that I could think of off hand to the list. If you come up with another you think I should add, leave me a comment and I'll get it up there ... please choose which one you think is the best.

Links
Image - Flickr Hugovk (creative commons)

Sell in May and Go Away?

The Big Picture has an article that suggests long term the axiom "sell in May and go away" may ring true. The site claims that it also holds true for world markets. During "good periods" (Nov-Apr) the S&P 500 has historically returned 8.5% per year during , while the "bad periods" (May-Oct) returned 3.2% per year. Still not terrible, but not great either. Head over to see the full story @ The Big Picture.


Link
Sell in May @ The Big Picture
Image James & Viliga @ Flickr

How Much Would You Pay To Have Lunch With Warren Buffett?

A Chinese business man recently paid $600,000 for lunch with Warren Buffett. The money will go to support the Glide Foundation of San Francisco and was auctioned off over eBay. What does that $600k buy you? Well aside from a good meal at Smith and Wollensky you get to pick the Oracle of Omaha's brain about whatever you want. Hmm, 2nd richest man in the world... owner of 60+ companies... where do you even start?

Signs It's Time to Sell Your Stock

The Motley Fool has an article that goes a little outside the box for advice on when to sell your stock. The research was done on factors outside company performance alone and boils down to two findings. 1) Once a visionary founder steps down that is a clear sign that the stock is headed for trouble (see Gates, Dell, & Bezos). 2) Once a CEO starts buying an estate and fancy cars complacency sets in and the company is headed for trouble.

I think the article is probably right on, but I'm not sure how you make this into an investing strategy. I mean you could dump a stock as soon as a founder or CEO steps down, but it's more difficult to figure out the complacency part of the equation. Take for example Apple, aside from their recent run on iPods, it is really Steve Jobs that people are investing in. He is the conductor that made the company innovate its way out of the funk it was in. You can also look at Google. Larry, Sergi & Eric are willing to take the risks that have made the company just dominant in its field. Both companies will struggle quite a bit when new management takes over eventually.

In the end, investors are buying a stake in the people of a company (unless you are investing in natural resources - mining, petroleum co's where is maybe not so important). If you can find a company with a Jack Welch (Fmr. CEO GE) or John Bucksbaum (Gen. Growth Properties), hold on to it and ride it out. It may not be as sexy as investing in the newest IT thing, but it is a lot more practical - which we at thegoldenparachute.com are big fans of.

Links
Motley Fool - When to Sell Your Stock
Forbes - Best Performing / Worst Performing / Highest Paid CEO's

Free Money... (Well Stock)... No Honestly

I'm always looking for a way to save or make a little money (so long as it is legit and not the slightest bit shady). How does $50 sound... Like there is a catch right? Not exactly, but let me explain. Sharebuilder (a website that lets you buy as little as $1 worth of a share of stock), has a promotion running where they will give you $50 when you open an account. I did this a while back and opened up an account, purchased a couple risky penny stocks (its free money after all) and am sitting back waiting to retire on the beach 30 years from now.

How it works:

• Head over to Sharebuilder.
  
• Enter one of the codes below (all were working at the time of this post) and open up an account.
• Make a trade and 4-6 weeks after your trade is made your $50 bonus gets deposited in your Sharebuilder account.

Code: CAMPUS50
Bonus: $50
Exp: None Found
Link: Link to Open Account

Code: UFALUMNI45
Bonus: $45
Exp: None Found
Link: Link to Open Account

Code: IPLANGIFT
Bonus: $50
Exp: None Found
Link: Link to Open Account

Code: ENTERTAIN40A
Bonus: $45
Exp: None Found
Link: Link to Open Account

Code: SMFALL50
Bonus: $50
Exp: None Found
Link: Link to Open Account

Code: UWALUMNI45
Bonus: $45
Exp: None Found
Link: Link to Open Account

One other thing to consider is if you are a CostCo Member Sharebuilder has a deal where they will give you a $55 bonus if you enter your membership number when signing up. If you are an "Executive Member" you get the $55 bonus plus 25% of your Sharebuilder fees credited back to you. If you are a "Gold Star or Business Member" you can get the $55 bonus plus 10% of your transaction fees credited back to you. If you are interested and a Costco member you can find out more about the offer here.

FYI:

1. I have heard that once your $50 bonus posts you can electronically withdraw that bonus cash without fees once it hits your account, but I haven't done it myself.
   
   
2. You can open additional Sharebuilder accounts and still receive the bonus cash, but space them out by a week or two and use a different code, if you open over 3 accounts you are going to run the risk that they prevent you from opening additional accounts.
   
   
3. Sharebuilder has a pdf form that you can print off and fax to them that will allow you to combine accounts at a later time.
   
   
4. If you are thinking about cutting and running quickly after you receive your bonus be warned that to close your account and transfer all or part of the funds out of your account ShareBuilder charges fees (see the fee schedule below).
   

Links
ShareBuilder

Sharebuilder fee schedule
Fees

CNBC Million Dollar Challenge Update

I've been doing an excellent job wasting time this morning and just logged into CNBC's Million Dollar Challenge. Although I think it is mostly luck, I'm hanging around the top 10% right now. I just wish you could trade more quickly, I don't like waiting till the next day for an order to register... Anyone else find this thing strangely addictive?

PS: The answers to the bonus bucks questions for today are (31% was the profit jump for the Industrial Bank of China, reserve bank of Australia kept rates at 6.25%)

Link
Million Dollar Challenge

Is it Really Worth it to Move That Money? Interest Rate Chaser Calculator

If you are considering moving funds from one account to another for an increased interest rate I found a tool that might be of interest. It lets you play around entering your current return, new return and the amount of time your funds will be unavailable. The calculator then spits out the total time you need to hold the investment to break even. I actually found this while doing some research for myself after being frustrated with the REALLY slow transfers in and out of HSBCDirect. It's a good bank, but the bank must be making an absolute killing off the float from keeping your transfer "pending." Their policies might be enough to make me send my money back to ING or E*TRADE who are significantly faster. Based on my calculations it is 1) worthless to move more money into HSBC to chase their 6.00% new teaser rate and 2) takes nearly two months to make it worth your while to move say money from ING's 4.5% APY to HSBC or ETRADE's 5.05%.

Anyways, check it out. The calculator might be handy if you are say considering moving from one online bank to another or some other for of investment.

Link:

Interest Chaser Calculator

DRIPs a Good Idea for College Students?

When you think of the things you might have purchased or do purchase as a college student beer, music (unlikely), food, and housing probably come to mind. Safe to say DRIPs don't come to mind for many people, if they know what one is at all (a dividend reinvestment program which generally allows fractional share ownership).

How about DRIPs as a smart investment for college students? I don't know about you when you were in college, but I didn't have expendable income to be throwing around investing. Look at the staggering average amount of student loan debt people come out of undergrad with these days or the costs or any professional school. If you can afford that kind of tuition and still have money in the bank then maybe this is a good idea for you.

I remain unconvinced that this is a practical solution, mostly because the article suggests that you start with $200, then make payments of around $50 a month. For the average college kid - who isn't still living off mom & dad's credit cards if we can clarify here - $50 a month is a good chunk of change. True it might only be the equivalent to a cable payment or cell phone bill, but if you are making minimum wage and not working full-time substantial none the less. Let me know what you think.

Wikipedia - DRIPs

Source article at Forbes

Choosing an Online Broker

The Motley Fool has a decent article describing the best places to invest if you have an extra $20, $100, or $1,000 lying around. I think the article is good because it gets people thinking about investing incrementally. It's easy to invest if you already have gobs of money in your pocket. It's much harder when you are starting with a pair of Hamiltons in your wallet.

The article operates under the assumption you have paid off all your high interest debt from credit cards and other not-so-favorable investments.

• If you have $20: The Fool says to consider investing in a DRP (a plan some large companies have allowing employees to purchase stock). That is good advice, but for those of us not working at a fortune 1000 company where else could that $20 be put to work? Regular visitors to the site know I'm a big fan of high yield online savings accounts. They won't make you rich, but are flexible, a good value, and generally have no minimums.
  
  
• If you have $100: The Fool says to consider investing in an index fund. The rub on this type of investment is that you may have that investment chewed up by broker fees. If you get charged $10 to buy the fund, then another $10 a year until your account meets the brokerage minimum, you will have to make more than 11% per year (on the $90 invested after commission) just to stay even. Again I think $100 is better spent in a high yield savings unless you already have a brokerage account up and running. In that case the index fund can start to make more sense.
  
  
• If you have $1,000: Here you have more options. The Fool says a good option is a discount brokerage account charging less in commission than 2% of portfolio value. I think another excellent option is a Roth IRA account. There are plenty of fund families that are no load and if you couple that Roth investment with additional funds each year until retirement you will have a nice little next egg when you turn 65.

Check out the article here for the full scoop