Socially responsible investing

A friend of mine at work asked about our SRI (socially responsible investment) fund available from our 403b provider. I did a little digging in the prospectus' and here is what I found. The equity index fund had fees of 0.23% and the "Balanced" SRI fund costs 0.91% annually. The balanced fund is weighted 60% Stocks 40% Bonds. The Equity index fund is 100% stocks. They where a little vague in their descriptions of SRI criteria and they can redefine them at will without notice to shareholders. Here is an example of the wording.

The Portfolios seek to invest in companies that:

• Take positive steps to improve environmental management and performance, advance sustainable development, or provide innovative and effective solutions to environmental problems through their products and services.
  
• Maintain positive diversity, labor relations, and employee health and safety practices, including inclusive and robust diversity policies, programs and training, and disclosure of workforce diversity data; have strong labor codes ideally consistent with
  the International Labor Organization (“ILO”) core standards, comprehensive benefits and training opportunities, and sound employee relations, as well as strong employee health and safety policies, safety management systems and training, and positive safety performance records.
  
• Observe appropriate international human rights standards in operations in all countries.
  
• Respect Indigenous Peoples and their lands, cultures, knowledge, environment, and livelihoods.
  
• Produce or market products and services that are safe and enhance the health or quality of life of consumers.
  
• Contribute to the quality of life in the communities where they operate, such as through stakeholder engagement with local communities, corporate philanthropy and employee volunteerism.
  
• Uphold sound corporate governance and business ethics policies and practices, including independent and diverse boards, and respect for shareholder rights; align executive compensation with corporate performance, maintain sound legal and regulatory compliance records, and disclose environmental, social and governance information.
• Develop good attitudes towards puppies.*

If BeePee was offering Environmentally friendly gas for 10 cents more per gallon would it sell?

Here is my take on socially responsible investing. I prefer maximizing my investing results by keeping my costs down. This frees me to give to charities that I pick and value. This is an indirect relationship though. When wealth is created I feel more free to be more generous with my giving even though it is not coming directly from My 403b. By choosing an SRI  you put that choice in an insurance/financial companies hands. The extra 0.68% buys you a fund manager that is hopefully benevolent and probably keeps you out of tobacco and maybe oil but who knows. Seems like too much work to keep up with what your SRI is invested in. 

I ran some numbers on bankrate.com. If you invest 3k a year in your 401k/403b for 10 years the extra 0.68% costs you $1575.00 over the ten year period. $9000.00 over a twenty year period. This calculation assumes a 6% annual return. The power of compounding can work against you too!

One good thing about this fund is that you would be more balanced in your investment types but there are cheaper ways to be diversified.  

If it is a matter of morals. i.e. dirty money. I feel that all money is dirty. Root of all evil! But that is a question only you can answer for yourself.

Happy investing!

*made this up

Big Fish, Big Pond

There has been some noise about Billionaire's dumping their US Stock holdings. That this is a sign of the end times for the US Stock market. Just buy their book and they will tell you how to "Save" your finances from the coming calamity.

Let's  apply a little logic shall we. It seems that the election is currently leaning towards a Democratic victory in the fall. This will mean higher taxes in the future (so does a Republican win btw, they just won't say it out loud). Especially capital gains taxes (Taxes on investment income). The stock market has rallied quite well since the 2008 debacle. The potential for a huge upswing in stock prices seems low in the near term. When you have low potential for profits and a high potential for more taxes you get one result. SELL!

Warren Buffet and George Soros are just practicing tax efficiency. Or in this case presumptive tax efficiency. What does this mean to the average investor? Nothing. If most of your savings are in an IRA/ROTH, 401k/403b retirement account, You are already tax efficient. Just make sure you are well diversified. We are always just around the corner from the next financial calamity. The key is to be prepared. Timing the market is a fools errand. 

The one exception would be an IRA to ROTH IRA conversion. If you can afford to do the conversion this year you may save some presumptive tax dollars. More on IRA conversions soon!

Who has your financial best interests at heart?

Some of my friends and coworkers have been surprised to hear that I write a Personal Finance blog. I admit it's a little out of character for me. Like when I bought and drove a Volvo. But I thought I'd share why I got into this.

In 1999 I got a 8-5 full-time Job plus some freelance weekend work. This left me with a little extra cash. I was not used to this so I sought a way to invest it so I wouldn't spend it on stupid crap. Which was my modus operandi at the time (More on Sam's club later). I got an advert from American Express Financial and decided it was time to talk to someone.

I met with Adam. A young fresh suit who was there to help. He talked me into a "Whole life" plan. Which was an insurance product that "grows" tax free but the fees for these accounts can run from 2%-6%. It's hard to tell because financial insurance products are not regulated by anyone. Not even  the SEC. So they do not have to explicitly disclose all of the fees associated with a fund. They are most often buried deep in the fine print.

I met with my accountant a few months later to do my taxes and informed him of WHAT I HAD DONE! He smirked and told me to get out and get out fast. He asked me how much I was into this scheme. About a thousand bucks, I replied. Kiss it goodbye, he said. It's like a band-aid, Just rip it off. You will do nothing but bleed cash to these people if you stay there. So I fired Adam the next week, forfeited one thousand bucks, and have never been happier. Adam was shocked and when he demanded to know why I was getting out, All I had for the guy was "My accountant told me to run".  Stay away from insurance products unless you know what you're doing they have a very small niche that 99.9% of do not need.

This financial waste made me ask myself - Who has your best financial interests at heart? YOU DO!. Well you better get financially literate quick. So that's it. I have been interested in it as a serious hobby for 10 or 11 years now.

So feel free to ask a question. I learn as much or more from the process. You can email me and ask for your question to be anonymous. I will strip out any ID details. Don't get ripped off like I did!

thefettler@yahoo.com

Nominal

I think one of the reasons I enjoy financial management is that I can relate to it in my work-life. As a sound person you try to balance everything that you hear so that they are just the right level for listening. This is also true in asset allocation. Re-balancing is a lot like setting everything to nominal or equalizing. When a particular asset does really well. Small caps, for instance have been doing quite well over the past few years. When I re-balance I take the profit and reinvest it in my portfolio in a "cash" equivalent account. After I have culled the winners I decide who, what, and if I should buy into other sectors.

I regret not taking profit more than I regret being low in a certain asset class. Example? Europe, my asset allocation lists 2% but I have 0% currently. I will stick with cash for that 2% until I see some Euro zone cooperation. I used to have 4% in Europe but I moved 2% to Scandinavia and 2% to "cash". I don't think I will put more than 2% in Europe ever again but who knows.


I'm sorry I am on such a re-balance kick but it's probably the most important part of being your own financial manager. After the last month I sure am glad I rebalanced in May!

Visualize Frugality

I find it helps to visualize life without stuff or services. Pick one thing at a time. It does not matter if it is a necessity or superfluous. I like to go through this mental exercise to see where I can save money. What would life be like without cable TV? What would life be like without the house I am living in now? Without certain members of my family? Without pets? Without the car I drive? What if we were a one car family? Or a no car family? I know this seems a little gloomy but in the end you will think of savings that you would not have thought of in your current state of mind. Even if it is an incremental decrease in your spending, It all adds up. Collectively this will save you quite a bit of cash. Here is a list of things I have come up with to save more.

Trade in your smartphone for an ipod touch and a prepaid cell phone. This trick saves me $40-$50 a month. Dump your cable for watching shows online. Cut out those coffees at Starbucks and make your own. Pack a lunch. Stay away from the snack machines by having your own healthy snacks in your desk/bag. Try to buy used by going to garage sales, thrift stores, craigslist, the reuse center, and estate sales. Keep your car longer. Trade down to more basic transport. Or dump your car for bus and bike. Is your car worth enough to maintain full insurance coverage.


I would love to hear what you all do to be more frugal. Just leave a post in the comments section of my blog. which can be found at http://fettlersfinancial.blogspot.com/ 


Feel free to recommend this blog to your friends and family. Encourage them to read the first set of posts so they will have a firm foundation in personal finance. The more the merrier!

Rebalancing tips

So, I'm in the middle of a rebalance and thought of a couple things to share. I like to rebalance twice a year. Once in May and once in October. I find that there is calendar volatility related to summer. Maybe folks take there hands off the proverbial tiller for a summer vacation. I used to use my birthday but since it came in the summer I always seemed late to party when it came to the "protection" that rebalancing provides.

My online brokerage that services my Roth/IRAs has different monthly pricing structures. Ranging from [No monthly fee for $4 purchases & $9.95 sales. Or $12 monthly fee for 12-$1 purchases & $7.95 sales] I always chose the "Free" account except for the months that I rebalance. That saves me $80 a year!

I only purchase 1 investment per month when it comes to my monthly autopilot ROTH IRA savings. This keeps my normal monthly fee down to $4. I purchase my way towards balance by changing what that one investment is depending on my portfolios needs.

Remember to Rebalance across all of your accounts!

22. When to pay for professional help.

22. When to pay for professional help.

This can be a tricky decision. You may always feel that you need professional help. If you understood most of "Anyone's financial plan" you can manage your own portfolio. Where that breaks down for me is during retirement. Later in life I might not have the mental capacity, logic skills, or brain power to manage my portfolio. I will probably enlist a Certified Financial Planner (They must be certified!) to maintain my Bond/CD ladders and implement my retirement plan. I'll handle it for 5-10 years and then hand it over to the CFP Probably around age 70. There will be a lot of vetting and I will be very involved until I physically can not attend meetings.

Since I will probably be paying 1% of my portfolio for this service, the later in life I start using a CFP the cheaper it will be. I want that 1% to compound and grow for as long as possible. Don't wait too long though. You may lose the capacity to communicate your plan or develop a relationship with your CFP.

There are different types of CFPs.

• Fee only CFP - paid by the hour. Good for a check up but may not fit the bill for long term management.
• CFP on retainer - Good for ongoing help. 
• CFP that takes a regular percentage of your portfolio. Sometimes these folks have a conflict of interest. The more money they make you (and expose you to risk) the more he or she makes. 

Watch out for the CFPs that push products. They probably get a financial incentive to sell certain products. Those products are rarely good for the investor. Never use an insurance agent or anyone pushing "Whole life" plans or Annuities. Insurance agents are not regulated and do not have to disclose their fees. Which can be as high as 6%. Be sure to run your potential CFP though  the following sites.

http://www.napfa.org/
http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/
http://www.cfp.net/
http://www.nasaa.org/
http://www.naic.org/
http://www.sec.gov/

The WSJ had a great article on picking a CFP.
http://guides.wsj.com/personal-finance/managing-your-money/how-to-choose-a-financial-planner/

That's it for my "Anyone's financial plan" series. I hope you found the information useful and easily digested. Refer back to the series as needed and refer your friends and relatives to the blog. Insist they start from the beginning. From here on my blog will be more topical and probably have shorter posts more often. I have been stock piling ideas for posts but have had to hold off until the foundation of financial planning was done. I felt that until we had that foundation in place, my posts would have no context.

Source
http://www.getrichslowly.org/blog/2007/04/24/when-and-how-do-you-hire-a-financial-planner/