Friday, October 21, 2016

From My Reader

I thought I'd start a weekly habit of sharing some of my favorite blog posts of the week with you all.  Hopefully you enjoy them as much as I do.

The author of It Pays Dividends turned 30 and shared 30 life lessons with us. Smart guy.

The Conservative Income Investor reviewed Southern Company, a utility my high school economics teacher really liked.

This article reviews two stocks I own, VF Corporation and Target.

Kayln at Creative Savings writes about Amazon Prime.  I'm a member and I found benefits I wasn't using.

Monevator talked about education via MOOCs.

We don't generally itemize our deductions on our tax return since we have no mortgage interest, but we bought two cars this year and this article reminds me that we need to take a look at the sales tax we paid and see if it makes a difference regardin tax deductions.

Index funds are all the rage now (and they are where most of our assets are invested) but this article gives the potential negatives.

Passive Income Dude reviews his third quarter.

My Dollar Plan lets us know about a $60 credit available from Amazon.

Daily Trade Alert wrote about Health Savings Accounts.

Dividend Growth Investor writes about tax-advantaged accounts.

Any links you'd like to share?  Leave them in the comments.


Friday, October 14, 2016

I'm Co-Hosting Financially Savvy Saturday

Welcome to Financially Savvy Saturdays, the savviest personal finance blog hop on the planet, created specifically for personal finance writers! We welcome all things money here. Whether you've written anything from your net worth update to frugal ways to make dinner, you're invited to link-up. If it ties into personal finance, we want to read it! FinSavSat Banner
Racing Towards Retirement
This weekend we're excited to welcome back Ruth Ann from Racing Towards Retirement, where she writes about, you guessed it, life closer to retirement and how to prepare for that next step in life. Tweet about it. You can use #finsavsat when tweeting about the party! Concerns about SEO? Recently many bloggers have decided to stop participating in events such as Carnivals. If you're worried about how participating in this link-up could effect your SEO, I'd encourage you to check out this article. Interested in co-hosting? Co-hosting is fun AND easy. If you’re interested, you can email us via brokeGIRLrich(at)gmail(dot)com or info(at)diseasecalleddebt(dot)com with any questions. Or if you're ready to take the plunge, you can sign up on this Google doc. If you’ve co-hosted before and enjoyed it, please consider doing it again! If you’re interested but nervous about getting involved, please email one of us, we love talking to new bloggers and would enjoy explaining how blog hops work and getting you more involved!

Feature of the Week

As this week's visiting co-host, Ruth Ann has selected her favorite post from last week's blog hop to be this week's feature - What Is Financial Abuse? by Femme Frugality.
If you submit a post, you could be featured in next week's party!

We do have a couple of rules for participation. Those who don't follow the rules will have their link taken down.

1. Your post must be written in the past seven days, related to personal finance and not be solely a giveaway. 2. Be sure to include a link to one of your hosts by copying and pasting the html in one of the boxes below into your linked up post. You have the option of the button or a text link. 3. Follow your hosts. You can follow brokeGIRLrich on Google+, Facebook, Twitter, Pinterest, OR by subscribing to her RSS feed. Also, you can follow Racing Towards Retirement on Twitter, Pinterest OR Bloglovin. 4. Comment on at least one post before and after you that have joined the party. 5. HAVE FUN!

Please copy and paste this button into the post you link up:

Disease Called Debt

OR copy and paste this code for a text link:

 *Part of Financially Savvy Saturdays on
" rel="nofollow">brokeGIRLrich, and" rel="nofollow">Racing Towards Retirement*

Link Love: Some Blogs I Enjoy

I'm a blog addict; I have lot of blogs I follow through Bloglovin and Feedly and I'd like to share some of them  with you today.

Dividend Growth Investor talks about investing in stocks that pay dividends.  He talks about companies as well as techniques, resources etc.  For example, his latest article is about Interactive Brokers and why they are a good brokerage for dividend investors.

Dividend Yield--Stock, Capital, Investment is another blog about dividend investing.

Good Financial Sense covers a range of investing, retirment and financial planning topics.

ProBlogger talks about blogging; I don't follow much of their advice but I do enjoy reading about how the cool kids do things.

Passive Income Pursuit is another investing blog.

Daily Trade Alert has really good analyses of stocks.

Dividend Diplomats is another dividend investing blog.  Are you noticing a theme?

DivGroPro.  Yes, another one.

MoneyNing:  A general personal finance blog.

Motley Fool:  Includes stock tips and general investing information

Retire Before Dad:  General investment and financial planning info, including an analysis of the stocks available via Loyal3.

Do I read everything these folks publish?  No.  I follow them on Bloglovin and/or Feedly.  I open the app when I get a minute and scroll through the feeds and click through when they look interesting.

What are some blogs you read?  Do you use bookmarks, or a feed reader or ...?

Friday, October 7, 2016

Should I Hire a Financial Advisor?

A couple of years ago we decided that the answer to the question "Should I hire a financial advisor?" was yes.  I guess a more accurate way to describe the situation is that we allowed someone to sell us on the idea of hiring him as financial advisor, and if you read my prior posts on the subject, you'll learn that we fired the financial advisor, so in some ways I'm telling you here what the conclusion of this post will be--sort of--but stick around, it's not quite that cut and dried.

First, Decide Why You Want to Hire a Financial Advisor

As far as I'm concerned, there are three reasons to hire anyone to do anything:

  • I'm not able to do it.  That's why the electrician was here installing a ceiling fan, and why the dentist pulled my tooth.
  • I don't want to do it.  That's why my son cuts my grass.
  • I could do it, but you'll do a better job.  I could have painted the house, but the painter did a much nice job than I would have, and I don't have to think very hard to come up with a way I'd rather spend my weekend.
I think that if you are going to hire a financial advisor, you first need to decide which of those reasons applies.  Maybe you really know nothing about finances.  On the other  hand, you may know enough to know you hate fooling with it and gladly outsource the job.  Of course you may think that a professional will get better results that you would.  

Secondly, Decide What You Want from the Financial Advisor

Yes, I know, you want the financial advisor to take your dimes and turn them into dollars overnight--but you and I both know that's not going to happen.  The key to being happy in any professional relationship is having clear expectations and having those expectations met. You may love your doctor because he gets you in and out of the office promptly and always gives you a prescription for something (who knows or cares what) that fixes the problem.  I may hate the same doctor because he always rushes through the appointment and doesn't take time to explain the various options for treating my symptoms and he always just tried to stick a prescription in my hand without explaining what it is, how it works or what the alternatives are.  Our expectations are different.  The fact that I don't like him doesn't mean your doctor does a bad job; it means he isn't the doctor for me.

Back to the finanical advisor.  What do you want from him or her?  Part of this ties back to the reason you chose to hire one.  Do you see yourself offloading a chore that you could do, but choose not to?  Are you trying to find someone who knows more about at least some aspects of finance than you do?  Here are some things people want financial advisors to do:
  • Help them minimize taxes
  • Help them set out a savings and investing plan
  • Select investments, monitor their performance and move in and out of them at the proper time
  • Help them set up their finances  to account for long-term goals like retirement or the care of a special-needs child
In our case, what we really wanted was help developing a long-term plan to invest my inheritance and to decide how much to save for the rest of our working lives so as to fund our retirement and the long term costs of providing for my autistic son.  We also were in favor of minimizing taxes.  At the time we hired the advisor, we  had not been keeping up with the investments we had and really weren't up on what mutual funds were considered the best at that time, so having someone pick a portfolio for us didn't seem like a bad idea, but it was pretty low on the list.  Mostly what we wanted was a plan.  

The advisor we hired was our CPA--the guy we go to when I run into issues with our tax return.  If I don't run into issues, I do our taxes.  Like any good businessman, once we used him for one thing, he tried to sell us another and since we knew we were about to get a nice-sized pot of money, we bit.  For us, hiring this advisor was the wrong choice.   

We should have asked more questions up front and made it clear that we were looking for a plan, particularly a plan to deal with my son.  Unfortunately, it became clear after we were working with him that he had little knowlege about the programs for and laws about finances and the disabled.  That was strike one.

We wanted to minimize our taxes (doesn't everyone?). We had money in IRAs and money that wasn't in IRAs and both pots of money were invested in the same way.  I don't claim to be a tax expert, but it seemed to me that taxable accounts should invest in things expected to grow over time, but which do not throw off a lot of current income, and that if you are going to invest in something that throws off current income, an IRA is the place for it.  The only tax advise we got was to consider a Roth conversion but he wouldn't endorse any calculator we found that showed the likely results of doing so because he couldn't guarantee investment results.  Strike two.

Before You Shop for an Advisor, Consider What You'd Consider a Reasonable Fee for the Services You Want

Eveyone has to eat, and everyone deserves to be paid for their work.  However, all of us have to consider how much we are willing to pay for any service, and the best time to do that is before you start to shop.  You may have to change your number once you look around, but have one in mind.  I would gladly have paid someone $200/hour to develop the plan we were looking for and the same to yearly review our investments and savings and to advise us if we were on track.  I would expect this person to be up-to-date on the laws and programs regarding the disabled.  

Financial advisors charge in a lot of different ways, but it seems hourly is not a popular choice.  A percent of assets under managment is popular and with the size of our account, over about two years we paid over $6,700.00 for a computer to put us into that company's model portfolio for people of our age and risk tolerance.  We got little to no plan, just a projection like you could find on the website of just about any mutual fund company.  And no, they didn't earn their commission by the outsized returns--the money we managed ourselves did better.  Strike 3.  

If You Are Considering a Financial Advisor

If you are considering hiring a finanical advisor because you want to dump this problem in someone else's lap, and you understand the fee structure and consider it worth it, go for it.  Make sure the person you hire is competent and honest but maintain enough knowledge of the markets and finances to monitor what is happening.  

If you think a financial advisor is going to make you more money than a diversified portfolio of index mutual funds, ask the advisor to show you past performance.  Few mutual fund managers can beat the market on a regular basis; when you add the fees of a finanical advisor, out performing the market becomes very difficult.  

If you are looking for particular services, make sure the advisor offers them, and how.  I wish I had.

Friday, September 30, 2016

Quarterly Portfolio Review

The end of a quarter is a good time to review your investments, decide if they are perfoming as you think they should, and make any adjustments you consider necessary.  The thing to remember is that you need to have a plan, you need to remember that markets go up and down, and that you need to make rational decisions, not emotional ones.  Here are some factors to consider:

How Is Your Asset Allocation?

You need to determine what asset allocation is appropriate for you at this stage of your life.  If you aren't sure what that allocation should be, take a look at at the target date funds by Vanguard, Fidelity, or your favorite fund family.  Pick the one closest to your projected retirement year and then look at its composition.  Target date funds are usually superfunds made of other mutual funds, which give you an added layer of fees.  If you are able to spend a few minutes 2-4 times a year reviewing your portfolio, create your own target date fund and just rebalance it yourself.  If the stock market has gone up a lot so that you are way overweighted in stock funds, sell some and buy bonds or whatever other asset you need to round out your allocation and bring it back in line with your goals.

We will be selling some funds to get our asset allocation back into balance.  The stock market has been good to use this quarter.

Has There Been a Substantial Change to an Investment?

You are keeping up with your investments in the financial press and blogs, aren't you?  Has something changed with an investment that could cause it not to be useful to you anymore?  For example, marketplace lender Prosper has just announced that it is shutting down the secondary market for its notes.  If you were counting on being able to use the secondary market to liquidate your account if necessary, now is the time to get out.  Has your actively managed mutual fund just lost its long-term manager?  Did your rental house just flood?  When something big about an asset changes, investors need to consider whether they still want or need the investment.

Since we have other liquid assets, Prosper's change is not a great concern to me; however, it will make me think twice before adding more money to my Prosper account. 

How Are Your Assets Performing?

The general rule is that you own stocks for growth and bonds for income. Generally speaking, as the market goes, so do most stocks.  Different sectors of the market do well at different times and if we could predict which ones would do best in a certain time period, we'd be rich,  Still, the performance of most mutual funds can be compared to one index or another.  If the stock market is up, and your fund is down, do you know why?  Compare your funds to other funds that purport to do the same thing.  How are yours doing? It may be time to get out of one fund and into a similar one.  You are more likely to get burned than to make money constantly shifting from one hot fund to the next but don't stay with poorly performing funds out of inertia.  The research now shows that very few fund managers manage to beat the indexes long term; a low-cost index fund is the best bet for most poeple. 

We still  have a large number of mutual funds which were purchased for us by our ex-financial advisor.  There is a $20 per fund charge to sell the shares, and in general we have the same funds in three different accounts so we haven't been in a hurry to sell them.  We keep an eye on them and as long as they are perfoming close to their benchmark, we leave them alone. However we had four funds that were underpeforming their bencharks and the market as a whole by 5-10%.  We dumped them and will re-invest the proceeds in Vanguard index funds.  

What Are Your Plans for the Near Future?

Are you going to need money for a car?  Does college tuition start next  year?  Is retirement almost here?  Do you need to get more liquid?  Do you need more income?  Should you put money in taxable accounts or in retirement accounts?  

We'll finish with college tuition at Christmas, but high school tuition will start in June.  We just bought two new (to us) cars so we should be set there for a while.  We have mutual funds in a taxable account, but it doesn't look like we are going to need the money any time soon.  Unfortunately, with all the expenses this year, we haven't been able to fund our Roth IRA's.  However, we've decided to move some of that taxable money into our Roth's.  The rules on Roth IRAs will allow us to withdraw that money if necessary, but if not, it grows tax-free and that's a good thing.  

Smart investors make a plan, change it if necessary after logical reflection and then periodically determine if they are on the best path.  When is the last time you reviewed your investment portfolio?

Friday, September 23, 2016

Kickfurther Defaults

As those who read this blog regularly know, I invest some money via Kickfurther, a platform that finances inventory for businesses.  In short, a business creates on offer on Kickfurther that states what inventory they are purchasing with investor's money, along with the rate of return and time frame.

How is a Kickfurther Offer Designed?

Wanda's Wonderful Widgets might want to finance 1000 blue widgets, which cost them $10 each to make, and which they sell for $20.  They believe that once they have the money in hand, it will take two months to make the widgets, and then four months to sell them.  They write an offer asking for $10,000 for six months, with an investor profit of 10% (a typical return, though some companies offer more and some less).  By some process Kickfurther does not publicize, it is determined how much of the revenue, per widget, goes to Kickfurther and how much goes to the vendor.  That split determines the PSR--the percent sold for return.  Let's assume that for these widgets, there is a 70/30 KF/Vendor split.  For every $20 widget sold, Kickfurther gets $14 and Wanda gets $6.  That means that 786 widgets have to be sold to give Kickfurther their $11,000.  The PSR is about 79%.

How is a Kickfurther Payback Supposed to Work?

If things go the way they are supposed to, investors look at the offer and believe that it is in their best interest to invest, and do so.  The vendor then gets the money, pays for production or buys the inventory, and starts to sell it.  Once the lead time for production passes, the vendor starts repaying the investors.  The way it is supposed to work is that as the product sells, Kickfurther gets paid.  In the case of our widgets, if Wanda has sold 300 widgets when the first payment comes due, she is suppposed to pay Kickfurther $4,200 (300X$20X70%).  If she only sold 100, she only owes $1400.  Wanda is supposed to pay monthly until she has sold enoough to repay Kickfurther completely.  Obviously, the lower the PSR, the more room Wanda has to discount the product, offer samples or otherwise sell for less than the originally figured price.

What if the Widgets Don't Sell?

What if six months has come and gone and Wanda has only sold 200 widgets?  At that point the investors can vote (on a dollar weighted basis) to either let Wanda continue to sell the widgets, or to end the contract.  If they decide to end the contract, Kickfurther gives Wanda the option of purchasing the remaining inventory for enought to make the investors whole, or of turning the inventory over to Kickfurther, which will then attempt to sell the widgets.  

How Has This Played Out in Real Life?

Kickfurther is a relatively new platform that is learning while it is growing.  Originally vendors were pretty much on the honor system as far repaying backers.  Most who have repaid their backers have done so in a linear fashion--dividing the total amount due by the number of projected payments and paying that amount monthly, or until they wanted to do another offer.  There have been a number of companies who have not paid anything or who have paid so little that it seems hard to believe the sales did not require a larger payment (and in some cases the vendors have admitted to having sales but using the revenue for other expenses).  Kickfurther has said they have tightend up their contracts and, for new offers, will require reporting on inventory sold.  Suffice to say there have been times when backers should have been repaid more quickly, and I suspect some where they were paid with the vendor's money, just to stay on track.

Is Kickfurther Really a Consignment Sales Platform?

Honestly, at this point, I don't think so.  If Kickfurther really wants to enforce the consignment sale contract they need to 
  • Assure that money raised goes to purchase inventory.  There was an offer up this week from a swimwear company that said in the offer that part of the money raised would go to advertising, not inventory.  
  • Integrate into the vendors' sale system and automatically transfer KF's share of the revenue away from the company as payment is received.  Otherwise you are asking investors to make a decison on the credit-worthiness of the company as opposed to the saleability of the merchandise.  
As things stand now, vendors are on the honor system as far as paybacks go.  They have no incentive to stick to the contract if sales are better than expected and every incentive to not use other money to pay off the offer if sales are worse than expected.

  Also, getting action from Kickfurthe requires at 50% vote of the investors.  I have one co-op that is over 140 days late with their first payment and KF has done nothing because 50% of the investors have not voted "no-confidence".  I don't have a problem with the "no confidence" vote if a vendor is selling, paying and way behind schedule.  At that point it becomes a decison for investors: Do you think KF will do a better job of selling this merchandise than what the vendor is?  If you think KF will, then vote "No confidence".  However, when a company is clearly in breach of contract (or even apparently in breach of contract if they have all that merchandise and have been unable to sell it) then KF needs to step in legally which the business and/or its owners can still be found. 

In another case, the company was sold and the new company has refuesed to pay.  The "no confidence" vote is under 50% .  In that case KF did step in despite the lack of vote, and sued the new company.

I still think the concept of Kickfurther is good; the question is whether the contracts can be designed to be enforceable and whether the offered rates are sufficient to offer a profit to investors.  If you think you'd like to invest via Kickfurther, use this link and you'll get $5.00 towards your first co-op.  

Friday, September 16, 2016

Morality and Investing

About the Book:

Offering time-tested wisdom on the complexities of the investment process, this guide provides advice on how to invest in a morally responsible way. It provides information on how to screen and exclude companies according to a clear set of faith-based criteria: those who support or service the abortion industry, producers and distributors of pornography, and companies involved in embryonic stem cell research. Based on this set of guidelines, as well as the success of the Ave Maria Mutual Funds, the guide demonstrates that high returns are achievable without supporting companies that do not support similar values. Also included is insightful commentary on the current political policies affecting the country’s financial state.

My Comments:

Good Returns: Making Money by Morally Responsible Investing is written by the founder of the Ave Maria family of mutual funds.  The Ave Maria funds practice what they call morally responsible investing--they do not invest in companies that promote abortion or donate to its supporters, sell or promote pornography or which have policies supportive of homosexual or other non-marital sexual unions.  He contrasts "morally responsible investing" with "socially responsible investing" which generally supports left-leaning causes. 

While this is a book about investing and the economy; not about religion, the author, George Schwartz, does quote papal writings on the economy and a little scripture.  He sees free-market capitalism as a moral good and socialism as a moral evil.  The book is definitely pro-Regan, anti-Obama. 

Good Returns: Making Money by Morally Responsible Investing has its good points, and its weaknesses.  The first chapter, on money and morality is excellent.  The next two chapters were about Schwartz himself, and frankly, I wasn't that interested.  He then spends a couple of chapters talking about his investment principals, and about how investors think.  Those chapters were good.  Chapters 6 and 7 are highly political; my husband will love them.  They do serve the purpose of reminding the investor how politics affects the economy, for good and for bad--and how even good intentions, like  providing home ownership for those kept out by traditional lending practices, can have bad effects--like the housing bubble and its subsequent pop.  Chapters 8-11 are, in many ways, commercials for the Ave Maria funds. If you know nothing about investing or financial planning, there is good information there--and even those who read investment books may learn something about investing that they can use, even if they never buy Ave Maria mutual funds.

While most of us want to follow our values, most of us also invest with the idea of making money.  One question that came to my mind after reading this book was "How well do Ave Maria funds do?".  Ave Maria has a Rising Dividend fund which outpeformed the S&P 500.  Morningstar give it four stars and the expense ratio is 0.92%.  Their Growth Fund has also outperformed the S&P 500.  However their Values Fund and World Equity Fund trail their indexes.  Still, I don't think any of them are really bad investments and I do like the idea of investing in companies that share my moral values.