Archives for May 2009

Ally Bank Review: Online Savings, 9-month, and 12-month CDs

You may have been seeing a bunch of purple ads for something called Ally Bank recently. Actually, this “new” bank used to be GMAC Bank. But besides a cosmetic name change, they have revamped the website and tweaked their product offerings. Their pitch: “No minimum deposits. No monthly fees. No minimum balance. No sneaky disclaimers.”

Here are the products that are most compelling, with interest rates:

12-month CDAn Ally Bank 12-month CD has a top rate available for a 12-month CD with no minimum deposit restrictions. Interest is compounded daily.

No-Penalty 11-month CD – No early withdrawal penalty, daily compounded interest. With an uncertain future rate outlook, this seems like a good compromise between a savings account and a CD. If rates stay low (or get lower?!) you can stay in the CD and get a great return. If rates start rising, you can keep earning the higher rate up until you withdraw without penalty.

APY Online Savings Account – A competitive rate for an online savings account, a la Capital One 360 and such. No minimum balance, no fees, as you’d expect. Daily compounded interest. A differentiating factor to this account is their fast and easy transfers between Ally and your other banks.

FDIC Coverage & More
I noticed that they now also offer 24/7 telephone customer service and even share the current wait time online. Neat idea, I wish more sites did this:

Ally Bank is FDIC-insured, which means accounts are insured at least to $250,000. The new $250,000 limit was recently extended to at least the end of 2013, after which it is still $100,000.

Warren Buffett’s Original Money Management Fee Structure

Here’s a another little fact from The Snowball that I found interesting. When Warren Buffett set up his first investing partnerships where he agreed to manage other people’s money, he wanted a compensation agreement that was fair and equitable.

I got half the upside above a four percent threshold, and I took a quarter of the downside myself. So if I broke even, I lost money. And my obligation to pay back losses was not limited to my capital. It was unlimited.

The last part meant he could lose more money than he put actually invested into the partnership. He would cover a quarter of all losses from his partners, even if it meant selling his house or other assets. Now that is what I call a true alignment of interests.

Sure, half of the upside past 4% is a lot, but can you imagine any modern hedge fund agreeing to such a fee structure that would expose them to losses? Nope, they get “2+20”, which means 2% of assets no matter what plus 20% of profits, which really encourages them to just swing for the fences. If they implode (which many did recently), they simply pack up and open a new fund down the street.

It’s hard enough these days to find a mutual fund manager where a substantial part of their net worth is invested in the fund they manage.

CollegeAdvantage Refer a Friend Program Expires Soon

A quick reminder that the deadline for getting $25 for each of your kids from the Ohio CollegeAdvantage 529 program is May 31st, 2009. I contacted them about the referral program, and they said that just the application must be submitted by Sunday, May 31st. The opening deposits don’t have to post by then, but they will have to post eventually in order to get the bonus. This agrees with the fine print below. When you fill out your application, you immediately get an account number.

A new account with a valid referral code provided in the application must be established by May 31, 2009 in order for both the referring Account Owner and new Account Owner to be eligible for the $25 bonus.

Power Link Dump: Gas Prices, Commodities, Asset Class Forecasts, & More

Here are some neat links from readers and interweb wanderings. I want to expand on them later as well.

Petrofix: Hedge and cap gas prices
A website that will let you control your cost of gasoline in the near future – for a price. If gas prices rise, they pay you the difference. If they fall, you are out the hedge price. The risk? Well, first I haven’t checked out the prices. Also you pay now, but who knows if the company will be around to fulfill their promises in the future. I’d rather hedge against higher gas by buying an oil ETF or use real options with better liquidity. (Disclosure: I did buy some OIL in my fun portfolio at end of 2008.)

The Great Commodities Debate with Larry Swedroe and Rick Ferri
A long multi-part series on HardAssetsInvestor about the role of commodities within a portfolio. Should you add them to your asset allocation? Swedroe and Ferri flesh out their arguments in a moderated battle, and I still don’t know who wins. However, I am glad I didn’t buy commodities the last two years or so when they were in vogue.

Jeremy Grantham / GMO 7-Year Asset Class Forecasts
Each month, Jeremy Grantham and GMO publishes on the web its predictions of the future return for various asset styles over the next seven years. You must register for free on his site to download them. Grantham has gotten increased publicity recently due to how accurate his previous predictions have been. You can read his 2009 Q1 newsletter “The Last Hurrah and Seven Lean Years” without registration. In the end, he’s just another guy with an opinion, but at least he is forthright about it.

Breakdown: The Credit CARD Act of 2009
Cap of StopBuyingCrap has a nice concise list of the changes to credit card laws coming in February 2010, in case you didn’t feel like reading the entire thing. It will be interesting to see how this shakes out. I think that rumors of annual fees or eliminating grace periods for people who don’t carry balances are just scare tactics by credit card lobbyists. They’ll continue to make money from merchant transaction fees, as always.

Google PowerMeter
An online tool that monitors your home’s power usage in real time. Currently only available in very limited areas where people have the right “smart meters” already installed. Sounds even cooler than my Kill-a-Watt energy meter.

Revitalize Your Aging PC With a Fresh Installation of Windows

I apologize for the recent lack of posts, I’ve been having some computer issues. I’ve been experiencing the usual sluggishness that happens after you’ve had Windows for a while, but recently it had been unbearably slow. Even after running multiple anti-virus and anti-malware software, defrag utilities, registry cleaners, I just gave up and had to re-install the operating system. Of course, I’m bad and only make sporadic backups so it took me a while to organize my files and make proper backups.

Although not directly related to finances, I found that re-installing a fresh copy of Windows on your computer can make a huge difference in speed and usability, so much so that you can delay buying a new computer for a while (within reason). This post is somewhat specific to Dell laptops since that is what I have, but much of it is still applicable to all Windows PCs.

According to this How To Restore or Reinstall Microsoft Windows page at Dell, I had a few choices after backing up all my data:

System Restore
This is a Windows OS feature, so it should available across all PC laptop brands. It allows you to revert back to certain setpoints in your system’s past, hopefully back to a date in which everything was running smoothly. But I had been experiencing a slow and gradual decline, and none of the dates I picked improved my situation. It might work better for other folks. The good news is that you can also switch back to your original state.

Restore From Hidden Partition
Most recent Dell laptops have a hidden partition on the hard drive that contains a backup copy of your computer’s original factory software. The official name is Dell PC Restore by Symantec. You just have to hold Ctrl+F11 during start-up. I’m sure this would be great for most people. Unfortunately, my attempt failed. “Your installation was unsuccessful. Please call Dell Support”. Grrr.

Most other companies have a similar setup. For example, I did a successful factory reset on a family member’s Acer computer with Alt+F10. All I had to do was backup their pictures, and I was done in under an hour.

Restore from Recovery OS Disc
I was then left with the final option of manually re-installing the operating system with my Windows XP CD. Two houses and three years ago, I probably had it. Now, it’s nowhere to be found. (Side note: Some computer have you make the recovery CDs yourself. Do it before it crashes!) Luckily, I found that you can request a new recovery CD from Dell:

Dell Customers can now request a set of backup discs containing the factory-installed operating system as well as the device drivers and utilities specific to your system. Requests are limited to one (1) set of backup discs per system purchased.

There was no mention of needing a warranty, which made me hopeful since mine had already expired. After submitting my request, I received an e-mail saying that they would send me a Recovery CD for free, though they did make it very clear they didn’t have to since my warranty had expired. Still, they did FedEx it to me overnight at no charge, so I was very pleased with the service in this situation. Other brands may charge a nominal fee.

Final Result: Laptop that feels like new. Total Cost: $0. 🙂 I am now back up and running, and it is amazing how much difference a fresh install makes. The cobwebs and grimy buildup is gone! I did spend hours on the backup and everything, but even if I bought a new laptop, I’d still have to spend hours reinstalling new apps and transferring files.

More Links
HP Notebook PCs – Repairing or Reinstalling The Operating System

Transfer Between Delta and Northwest Frequent Flier Miles

Delta and Northwest Airlines are merging, and right now you can go ahead and transfer frequent flier miles between the Northwest WorldPerks and Delta SkyMiles programs with no fees. You can even move them back and forth as you like. This is nice if you don’t have enough of either individually to get an award, but after combining you do. Also, if you link your Northwest and Delta accounts by May 31st, you’ll get 500 bonus miles.

According to this timeline, they will eventually all be merged into SkyMiles anyway in December 2009.

5/25 Only: Old Navy Flag T-Shirts 2 for $5

As you celebrate and observe this Memorial Day, here is a quick deal. Old Navy’s popular Flag t-shirts are Buy 1 Get 1 Free today, May 25th, making then 2 for $5. Only in stores. All colors, all sizes. Outfit the family for cheap? More Old Navy coupons here.

ABC’s Un-Broke: The Seth Green Cribs Edition

ABC is running a one-hour TV special called Un-Broke: What You Need to Know About Money on Friday May 29th. As part of the promotion, Seth Green provides us with his financially-savvy edition of MTV Cribs.

I wonder if that is really his house? Somehow I seriously doubt it. Family Guy has to pay better than that, yo!

[Direct video link. Via Mrs. Micah.]

Personal Finance Ratios: Savings-to-Income, Debt-to-Income, and Savings Rate-to-Income

There was a recent post on how much savings one should have at age 30 over at the Bogleheads forum. Being 30 myself, I was intrigued, but I am in the camp that believes that there is no right answer at 30. You’re still so young that you could just be out of school for a few years, and at that time it’s mostly up to how much student loan debt you racked up. Most important might be your ability to live under your means, and that you’re learning a valuable skill of some sort.

However, there was mention of a paper the the FPA Journal called Personal Financial Ratios: An Elegant Road Map to Financial Health and Retirement, where the author presents a variety of ratios as a rough benchmark to help clients determine whether they are on track to retire by age 65. These include Savings-to-Income, Debt-to-Income, and Savings Rate-to-Income.

The actual numbers depend on how you believe your investments will perform annually after inflation. (5% on the left table, 4% on the right.) Definitions below.

Savings include the current value of one’s investments, such as a 401(k), IRAs, brokerage accounts, investment real estate, and the value of any private business interests. The home is excluded as an investment. Debt comprises all debt, including mortgage, student loans, car, and consumer debt. Savings rate refers to the percentage of pre-tax income an investor is saving each year out of their total income.

A Hypothetical Example
Let’s take a look at a hypothetical 45-year-old individual to see how he might use the ratios to assess his financial circumstances. This person has the following financial statistics:

Salary $110,000
Mortgage $125,000
Auto Loan $25,000
Investments $260,000
Annual Savings $10,000
Employer 401(k) Match $3,000

Based on these statistics, the hypothetical individual ratios are as follows:

Savings to Earnings: $260,000 / $110,000 = 2.36
Debt to Earnings: ($125,000 + $25,000) / $110,000 = 1.36
Savings Rate to Earnings: ($10,000 + $3,000) / $110,000 = 11.8 %

As for us, we’re doing okay according to the table for age 30 regarding the savings-to-income ratios (0.5) and savings rate-to-income ratios (50%+). Our debt-to-income ratio is a bit high though, at around 2. Of course, this is highly dependent on our income number, which might change if we downshift with kids. I guess that’s another reason to wait until we’re a bit older to really start benchmarking like this.

One thing I don’t like about the ratios is that home equity is never included, because the author says that it’s hard to extract home equity. Okay, I agree on that point, but there is no mention of compensating for renters in the analysis. If I have no debt at age 65 + a paid-off house, that’s a lot different than no debt at 65 + still paying rent forever. My largest expense by far is housing (greater than all other expenses combined), and having that taken care of changes my retirement outlook drastically.

So… should we be using these ratios as a benchmark?

Tidbits From Warren Buffett’s Biography, The Snowball: The Early Years

snowball_bookI am currently reading The Snowball: Warren Buffett and the Business of Life by Alice Schroeder. As an authorized biography of Warren Buffett intended for the general public and not a book specifically about investing per se, I think that so far it is excellent. I have only recently started learning more about Buffett, but he is certainly an intriguing person. Schroeder is an excellent writer, and provides both detail and insight into his life as well as does a especially good job of explaining the financial aspects of his activities.

Here are some of the notes that I took while reading the book so far, covering his early years:

  • The Snowball title is a metaphor. “Life is like a snowball. The important thing is finding wet snow and a really long hill” How did Buffett’s portfolio grow so big? He started early, and with relentless focus came the power of compounding returns. (He specifically states that credit card debt is a huge obstacle in starting your own snowball!)
  • As a teenager, why did Warren want money? A quote from Buffet:

    It could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself. I didn’t want other people directing me. The idea of doing what I wanted to do every day was important to me.

    A amazingly common sentiment among those that end up very rich. Independence, not money, as the primary goal.

  • Since he felt socially awkward growing up, he was inspired by Dale Carnegie’s now-famous book How to Win Friends and Influence People. Here are some of the rules that he took upon himself to follow:

    Everyone wants attention and admiration. Nobody wants to be criticized.
    The sweetest sound in the English language is the sound of a person’s own name.
    The only way to get the best of an argument is to avoid it.
    If you are wrong, admit it quickly and emphatically.
    Ask questions instead of giving direct orders.
    Give the other person a fine reputation to live up to.
    Call attention to people’s mistakes indirectly. Let the other person save face.

  • By the time he was 16 years old, Warren Buffett had saved up $5,000. This was primarily through delivering over 500,000 newspapers, along with other small enterprises. If adjusted for inflation, $5,000 at that time would be the equivalent of $53,000 in 2007. Talk about a head start for that snowball.

Chase Checking Account $100 Bonus Coupon Code

Chase Bank is offering a $100 bonus if you open a new Chase Checking(sm) account with $100 and either set up direct deposit or make five debit card purchases. Through the link, they will e-mail you a coupon with a unique code that you must print out and physically bring into a local Chase branch. Selected fine print:

Bonus/Account Information — To qualify for the cash bonus you must open a new Chase CheckingSM account with a $100 minimum opening deposit of new money (money not currently held by Chase or its affiliates). Also, within 60 calendar days of account opening, you must initiate a monthly direct deposit such as payroll, pension or Social Security, or have at least five debit card purchases using your PIN or signature posted to your account. The cash bonus will be deposited into your new account within 10 business days after the initial direct deposit or the five debit card purchases have posted to your account. Limit one personal checking account-related cash bonus/premium per customer, per calendar year.

Offer available only at Chase branded branches, excluding branches in California. Expires 6/23/09. One thing I noticed is that the “Chase Checking” account requires either direct deposit or 5+ debit card purchases each month to waive the monthly fee, something not required by the similar WaMu Free Checking bonus.

WaMu (not Chase yet) Free Checking $100 Bonus

WaMu is offering a $100 bonus (Update 2: Found new link, thanks to reader Matt) if you open a WaMu Free Checking account and set up direct deposit or make five debit card purchases. Selected fine print:

Bonus/Account Information — To qualify for the reward, you must open a new checking account with a $100 minimum opening deposit of new money (money not currently held by this bank). Also, within 60 calendar days of account opening, you must initiate a monthly direct deposit such as payroll, pension or Social Security, or have at least five debit card purchases (using your PIN or signature) posted to your account. The reward will be deposited into your new account within 2 weeks after the initial direct deposit or the five debit card purchases have posted to your account. Limit one personal checking account-related reward/premium per customer, per calendar year.

Based on this text, it would appear that this promotion would be available to existing customers opening an additional new checking account, as long as you haven’t had a bonus within this calendar year. Offer expires 6/16/09.

Although WaMu is to become Chase, these “WaMu branded products are only available at WaMu branded branches. In CA only, WaMu branded products available at Chase branded branches.” Sooner or later, your account will be converted to the Chase Free Extra Checking account.