Archives for March 2011

Scottrade Offers Low-Cost, Commission-Free Focus Morningstar ETFs

Update: As of late 2012 Scottrade announced that they would liquidate their FocusShares ETFs.

Scottrade bought FocusShares as a subsidiary and has joined the free ETF landscape. They introduced 15 new low-cost Focus Morningstar ETFs which passively track several major broad indices. Discount brokerage Scottrade will allow account holders to trade them commission-free without any holding limits or additional requirements. You don’t need a certain balance, and you could trade as little as one share at a time. Here’s a list of the ETFs:

Focus Morningstar US Market Index ETF (FMU)
Focus Morningstar Large Cap Index ETF (FLG)
Focus Morningstar Mid Cap Index ETF (FMM)
Focus Morningstar Small Cap Index ETF (FOS)
Focus Morningstar Basic Materials Index ETF (FBM)
Focus Morningstar Communication Services Index ETF (FCQ)
Focus Morningstar Consumer Cyclical Index ETF (FCL)
Focus Morningstar Consumer Defensive Index ETF (FCD)
Focus Morningstar Energy Index ETF (FEG)
Focus Morningstar Financial Services Index ETF (FFL)
Focus Morningstar Healthcare Index ETF (FHC)
Focus Morningstar Industrials Index ETF (FIL)
Focus Morningstar Real Estate Index ETF (FRL)
Focus Morningstar Technology Index ETF (FTQ)
Focus Morningstar Utilities Index ETF (FUI)

Tracking Indexes
It’s a bit annoying that all these guys track a proprietary index from Morningstar. For example, the US Market Index ETF tracks the Morningstar® US Market Index, the Large Cap Index ETF tracks the Morningstar® Large Cap Index, and so on. I know they probably end up very close to other broad indexes, but it makes performance comparisons more difficult. Perhaps they really wanted the Morningstar brand on them, or maybe the licensing fees are a lot cheaper than MSCI or S&P charges? Maybe both.

Expense Ratios
One of the major attractions of these new ETFs are their super-low expense ratios. In most cases, they are the cheapest in their sector, even lower than Vanguard. The US Market Index ETF charges a mere 0.05% annually. They provide a ETF expense comparison chart.

However, Vanguard’s structure has them offering ETFs “at cost”, which means that employees are getting paid, but there are no profits going off to eagerly waiting shareholders. Vanguard’s US Market Index ETF (VTI) is huge with nearly $20 billion in assets, and they are charging 0.07%. There is absolutely no way Scottrade & Focus are making money on these things at 0.06%, somebody is subsidizing the heck out of them and will be losing money for a while. If these don’t do very well, then they will either shut them down or raise expense ratios in the future.

Would I Buy Them?
First, competition is good, and I’m happy that people are realizing that costs do matter. If you really wanted exposure to these areas and already have a Scottrade account, this does makes them very convenient. You can open an account with just $500, and there are no minimums or maintenance fees. I can see how Scottrade-affiliated financial advisors would like them, as it lower costs for clients already committed to the platform, and they can rebalance without commissions.

There are similar free ETF offerings from Fidelity, Schwab, and TD Ameritrade

If you are an individual investor buying ETFs as a long-term holding, my preference would be to open an account at Vanguard, buy their ETFs with no commission as well (or mutual funds), and be able to feel confident that your costs will always remain reasonable. They also have a much wider selection, including international stocks and bond funds. FocusShares already shut down all their ETFs once back in 2008 already. Are these added risks worth $2 a year for every $10,000 invested?

More coverage: IndexUniverse, WSJ.

Why Does Everyone Love Groupon?

Cartoon site Oatmeal released their State of the Web a while back, and it included a bit about the deal-a-day site Groupon.

So true! But who doesn’t like a deal. 🙂 Their customer service is solid too, I had a problem with a local Groupon recently and they refunded it immediately without hassle. I don’t quite get how they’re worth $15 billion, but who knows. Here’s another spot-on Oatmeal observation about websites for restaurants.

eBay $7 for $15 on Groupon

Groupon has a national deal today where you can get $15 worth of credit at eBay for only $7. Nearly 25,000 have been bought already.

Limit 1 per person. Limit 1 per order. Valid only on in the U.S. Must have a registered eBay and PayPal account. Credit card info may be required at checkout. Not valid towards service fees. No cash back. May apply value toward tax & shipping. May use over multiple visits.

If you don’t have a Groupon account already (what!?), please use my sign-up link, and I’ll get some Groupon credit for referring you. Then visit the deal link. Thanks!

$100 Tradeking Referral Offer Ends March 31st April 14th

The $100 Refer-A-Friend promo for has been unusually popular this time around. If you get a referral from an existing account holder, open a new account with at least $1,000, and make a trade, both people will get $100. I’ve already gotten paid $500 for 5 referrals since the beginning of March, and the referred have gotten paid too, so TK is both opening accounts quickly and crediting the money faster than in previous promos.

Visit this post for details. Offer expires March 31st, 2011, but you have 30 days from initial application to fund. (And yes, according to TK Live Chat you can double-dip this with the $150 broker transfer fee refund.)

Update 3/31: Extended to April 14th!

Have An Investment Advisor? Make Them Sign This Fiduciary Pledge

The SEC has officially recommended that anyone that provides personalized investment advice to retail consumers should be subject to a fiduciary standard of conduct. Put simply, this means that anyone under the “financial adviser/money manager” umbrella has to be legally required to put your interests ahead of their own. Currently, many people providing advice are simply salespeople with fancy titles. As you might expect, big Wall Street firms are pouring millions toward lobbying efforts to stop it.

Tara Siegel Bernard of the NY Times writes in her Will You Be My Fiduciary? blog post about one CFP who’s started circulating his own Fiduciary Pledge. The idea is to get your investment planner/portfolio manager to sign it. Sounds like a good test to me.

The Fiduciary Pledge

I, the undersigned, pledge to exercise my best efforts to always act in good faith and in the best interests of my client, _______, and will act as a fiduciary. I will provide written disclosure, in advance, of any conflicts of interest, which could reasonably compromise the impartiality of my advice. Moreover, in advance, I will disclose any and all fees I will receive as a result of this transaction and I will disclose any and all fees I pay to others for referring this client transaction to me. This pledge covers all services provided.



Ron A. Rhoades writes an RIABiz article outlining how applying the SEC recommendation could alter the financial landscape for clients, leading to reduced fees for individual investors (and thus higher returns and bigger nest eggs) and more difficult justifications for creating “sh***y investments”.

Because fiduciary advisors operate under a fiduciary standard of due care, and because fees and costs of investment products do matter, closer scrutiny of the “total fees and costs” of pooled investment vehicles and other financial products would occur. As a result, portfolio turnover within funds would decline dramatically, and even greater pressure would be brought to bear on other aspects of the fees and costs of pooled investment vehicles. However, true fiduciaries would not have to choose the lowest cost product; rather, they would justify, as part of their due diligence process, why each fee and cost was worthwhile for the investor client to incur.

Not everyone wants to manage their own investments. But if you are paying someone for help, I would agree that they should be a fiduciary at a bare minimum.

The Problem With A Retirement Based On The Stock Market

As far as retirement calculators go, the new one over at the Scottrade Knowledge Center is pretty nice. It does the whole Monte Carlo thing, running theoretical scenarios based on historical data. There are fancy interactive sliders that let you input your current portfolio balances, annual contributions, and your future expenses. The result is a pretty chart:

But the same problem always occurs whenever retirements depend heavily on market returns. If future returns are on the low side of history, I could end up broke* and eating dog food by age 90. If future market returns are high, then I could die with $10 million in the bank. What the heck do I need with that much money at age 90?

One way to avoid this is to have a very conservative portfolio of safe and short-term bonds (or TIPS). This has the slight inconvenient problem of requiring a very high savings rate. (Or lottery winnings, a large inheritance, or other windfall.)

Now, it would be nice to have a way to share the risk with others out over longer periods of time. Give up some of the potential upside, in return for some downside protection. This usually involves an insurance company (annuities) or the government (Social Security). Which do you want to trust with a big chunk of your hard-earned money? It’s a tough call. 🙂

* This isn’t technically true. I’m sure in reality, if my portfolio was doing so poorly, I would adjust my spending however I could. But I would have to decrease my standard of living.

Amazon Appstore Opens For Android: Free Angry Birds

The Amazon Appstore for Android OS smartphones has opened, and they are offering new free apps every day to promote it. Yesterday’s app was Angry Birds Rio (still free)… Wednesday was World Series of Poker: Hold ’em Legend (not free anymore), Thursday is Doodle Jump.

Even though I don’t really play games, I really should upgrade to an iOS or Android phone when my contract ends in August. Some of the apps out there nowadays are really useful.

What Is A “Safe” Savings Rate? How About 16.62%

The term “Safe Withdrawal Rate” (SWR) usually refers to the amount of your portfolio that you can withdraw each year in retirement safely without running out of money. The “4% rule” is often used, which says that if you want $40,000 inflation-adjusted every year safely , you need $1 million as your target.

Reader Dave thoughtfully sent me an interesting Financial Advisor magazine article about an upcoming academic paper by Dr. Wade Pfau that takes a look at this from another angle. What if you wanted to figure out a “Safe Savings Rate”?

Let’s say you save for 30 years, and then retire (spend) for 30 years. The traditional SWR only depends on the 30-year period when you are saving reach that target number. Instead, what if you looked at the entire 60 year period together. This ends up smoothing things out, because periods of high return are often followed by periods of low return, and vice versa.

Here are the baseline assumptions. The goal is to withdraw 50% of current salary, inflation-adjusted, during retirement. You maintain a constant asset allocation of 60% stocks and 40% bonds (T-Bills). Results are in the chart below. The blue line is the saving rate according to the 4% rule, and the black line is based on the new 60-year test period using actual investment returns.

Based on market data since 1871, a savings rate of 16.62% would have worked every time. As you can see the black line is also much more consistent over time. Can everyone manage that? Maybe not, but few people are satisfying the 4% rule as well.

The given scenario is not one-size-fits-all, but it would be interesting if this research was expanded into some sort of retirement calculator. For example, all other things held the same, if you saved for 40 years, the safe saving rate drops to 8.77%. If you saved for only 20 years, the safe saving rate rises to over 30%. I’ll have to wait for the published paper to see what happens if you go a bit riskier into say 80% stocks/20% bonds, or if it accounts for changing allocations over time.

Update: Here is a link to the working paper [PDF].

Chase Sapphire Preferred: $625 towards Travel

Chase Sapphire Preferred ImageThe Chase Sapphire Preferred® Card is a rewards credit card offering new cardholders 50,000 bonus points after you spend $4,000 in purchases within the first 3 months. 50,000 points can be redeemed for $625 in travel when you redeem through Chase Ultimate Rewards™ since they offer a 25% boost towards airfare and hotels. Earn 5,000 additional bonus points after you add the first authorized user and make a purchase in the first 3 months from account opening. No annual fee for the first year, $95 in future years. Additional details here.

New: Earn 2 points per dollar spent on dining & 1 point per dollar spent on all other purchases.

(This card is the “big brother” of the regular Chase Sapphire® Card, where you can get 10,000 points after you spend $500 in purchases within the first 3 months, and an additional 2,500 bonus points after you add the first authorized user and make a purchase in the first 3 months from account opening. There is no annual fee in the first year or subsequent years.)

“Disclaimer: This content is not provided or commissioned by the issuer. Opinions expressed here are author’s alone, not those of the issuer, and have not been reviewed, approved or otherwise endorsed by the issuer. This site may be compensated through the issuer’s Affiliate Program.  “The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.”

Reading Blocked New York Times and Wall Street Journal Articles

Starting Monday, the New York Times will limit visitors to to only 20 articles per month. They’re trying to drive more paid subscriptions. However, they also don’t want to kill off the traffic that tends to be lucrative for attracting advertisers, like search engine visitors and social media users. The Wall Street Journal has been limiting access to their online articles for a while now as well.

Many people know this already, but a quick tip is to copy and paste the article title into Google, and then click on the link from the Google search results. Alternatively, try Google News specifically. (Google may get capped after a while too, so try Bing.) You’ll be able to read the full article. Try it out with the last WSJ article I linked to, which is normally blocked:

Schwab To Spend $1B On OptionsXpress

Additionally, Gizmodo shares more tricks to view the Times, and another fellow made a simple bookmarklet.

It’s a hard balance between paid and advertiser-supported content, and I do value some of their content, but honestly I won’t pay for it if I can’t share it online with other readers to read for themselves. I suppose we’ll see if this nag-ware experiment works.

Charles Schwab Buys OptionsXpress Brokerage

I got an e-mail this morning that my trading account with OptionsXpress is merging with Charles Schwab. Well, considering Schwab (SCHW) has a market cap over 20 times that of OptionsXpress (OXPS), it’s more like they bought OX for their options/futures trading platform and active-trader clients. The WSJ reports:

OptionsXpress shareholders will get 1.02 shares of Schwab stock in exchange for each OptionsXpress share. That values OptionsXpress at $17.91 a share–a 17% premium based on Friday’s closing prices. OptionsXpress’s stock jumped 17% to $17.90 Monday, while Schwab finished up 0.5% to $17.65.

That 17% premium works out to valuation of $1.0 billion. Looks like I’m going to be Schwab customer for the first time. What about commission rates? OX’s options rates are very competitive.

Schwab doesn’t “have any plans right now to take away the OptionsXpress platform” at this time, Bettinger said. The firm said it would try to implement across the combined company the lower of the merging companies’ commission rates.

OptionsXpress still has their $100 sign-up bonus offer live, so if you want a Chuck Schwab account, this way you’ll get a bonus for joining. Here’s a link to my perhaps-soon-to-be-stale OptionsXpress review.

5 DVD Rentals for $2 from Blockbuster Express – Groupon

Groupon has a nationwide deal again that will get you five one-day rentals at Blockbuster Express kiosks for $2. The regular cost would have been $5. I don’t really get the limitation of one per person when you can buy seemingly unlimited as “gifts”. By the way, Blockbuster Express kiosks are owned by NCR, not the Blockbuster Video that is in bankruptcy.

Note: You can only use one free code per transaction. In order to use all five promo codes you must rent (and check-out) five separate times. I tend to use these Blockbuster kiosks more than Redbox ones simply because they are at Safeway grocery stores, but the idea is basically the same.

If you don’t have a Groupon account already (what!?), please use my sign-up link, and I’ll get some Groupon credit for referring you. Then visit the deal link. Thanks!

Valid through May 1, 2013. Limit 1/person, may buy more as gifts. Valid only at any Blockbuster Express kiosks and for online reservation for pickup at kiosks. Not valid on Blu-ray or Hot List titles. Groupon value reduces by $3 after 5/1/2013, except where prohibited by law.