Net Worth Comparison

I have found that posts about net worth are very popular in the PF blogosphere. Perhaps it is people's natural curiosity -- wanting to assess how one is doing compared to others. When you read new blog, do you find yourself asking questions like: How old is this blogger? How much does this person make? Am I doing better than them?


One of the most popular posts at PFStock asks the question: Are You Wealthy? This post examines a formula from the book The Millionaire Next Door. For your reference, the formula is repeated here:

Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

From this formula, I used the example of a 40 year old who makes $100,000 a year. In this case, the expected net worth of that person is $400,000.

In addition to this formula, I want to mention a couple of other websites to look at. CNN Money has a Net Worth Comparison Tool that asks you to enter your age and annual income. It then gives you the median net worth a particular age or income level. In the case of the 40 year old making $100,000 a year, the median net worth based on age is $44,875 and based on income is $363,125. You can see that although it is a realistic scenario, these median values are very different. The result is also much different from the Millionaire formula, and it does not tell you what your net worth should be. But, it does give you an idea of how you compare to others based on age and income.

Another website that I would like to mention is NetworthIQ. This site has compiled a set of Net Worth Statistics based on what its members have reported. In the case of a 40 year olds, the median net worth was $462,658. And for for those making $100,000 a year, the median net worth was $260,828. This data was current as of 1/26/2008. In addition to age and income you can compare net worth based on education, occupation, and state of residence.

Some would argue that the NetworthIQ data is not a good representation of the population as a whole. This is because the net worth people report is not audited, and you can see only what people choose to disclose. Arguably, there are those who may have overestimated the value of their home, cars, and personal property in order to inflate their net worth. But taken with a grain of salt, one can still find some usefulness in the numbers.

So there you have it: three ways that you can compare your net worth to others. Enjoy.

For updated data, see Net Worth Update.

DC

PF Stock Welcomes Cruise Critic Readers

PFStock has recently been mentioned by the critically acclaimed cruise website Cruise Critic. An editor for Cruise Critic contacted me after reading my posts about Cruise Line Shareholder Benefits. He was interested in writing a news piece about the shareholder perks that were offered by Carnival and Royal Caribbean, and to get some background information from me.

I have actually been a reader of Cruise Critic for over 10 years, so I was pleased to have the opportunity to be profiled there. Welcome to my new readers; I hope that you will stick around to read some of my personal finance posts.

PF Stock

The Rule of 72

How long does it take for an investment to double? This is a question that is often asked, and there is a very simple formula that can be used to estimate the time it takes for your money to double. This formula is called "The Rule of 72". And the rule is:

Years to double = 72 / Interest Rate

Suppose that you were to deposit your money in the bank at an interest rate (APY) of 4%. Conceptually, you are giving the bank a loan on your money, and expect to be paid back your principle plus interest. In this example, you can expect your investment to double in 72/4 = 18 years. If you can find an interest rate of 6%, you would expect it to double in 72/6 = 12 years. The rule of 72 is also known as "the rule of 70". Using this rule, if you had an interest rate of 5%, the investment would double in 70/5 = 14 years.

At this point, I would typically go into a mathematical derivation (using such numerical concepts as natural logarithms) showing how this rule came into being. However, I will spare you the gory details this time.

One other thing is that I will mention is a similar "Rule of 115". This rule is used to estimate the time that it takes for an investment to triple in value. Similarly, the rule is:

Years to triple = 115 / Interest Rate

Again using the 5% interest rate example, it takes 14 years for your money to double. However, it would take 115/5 = 23 years to triple in value. It's all just simple math. Any questions?

National Payday sponsors this post.

PayPal Money Market Fund

I mentioned that I opened a PayPal account in my post about my first eBay experience. As a result of various transactions, I now have a small balance at PayPal. This PayPal balance does not earn any interest unless it is put into the PayPal Money Market Fund. This sweep is not automatically set up. Currently, the fund pays a little less than 3% APY. While this is not spectacular, it is better than the 0% you get for doing nothing.

I have not yet setup the PayPal Money Market Fund. Deposits are not FDIC insured, so I have hesitated. Does anybody use the PayPal Money Market fund? I am interested in getting some feedback before I decide.

DC

Getting the Most from a Cruise Vacation

It may surprise you to consider taking a cruise as an economical way to go on vacation. But when compared to a land-based vacation, you can save a lot of money by taking advantage of the free amenities that a cruise ship has to offer. For example, relaxing on deck in the tropical sun is free as is the shipboard entertainment.

Also generally included in your cruise fare are onboard ship accommodations, ocean transportation, and of course, the food. In the case of dining, a common misconception is that a cruise is an all-you-can-eat buffet. Certainly, there is always a buffet available. However, I prefer to eat my meals in the dining room. On a cruise, the quality of food is about the same as dining in a fine restaurant. You can dine at a leisurely pace, and select from a varied menu. This is the one place where I can tell my wife that, if she doesn't like an entree that she orders, she can always try a different one. And I don't have to worry about paying the bill, which makes it a real bargain.

On the other hand, a cruise not the same as an all-inclusive resort. There are a few items that you will need to budget appropriately for. Generally not included in the cruise fare are alcoholic beverages, shore excursions, tips, and the casino. I once quipped that the Royal Caribbean ship Grandeur of the Seas has a design flaw; there was no easy way to get from my cabin to the dining room without going through the casino. That fact can be hazardous to your wealth.

The key to getting a good price on a cruise is flexibility. If you must travel at a specific time, your choices will be limited. It is wise to shop around and compare different cruise lines and dates. Sometimes, the difference of a week or two can result in large differences in price. Also, some cruise lines offer a "category guarantee". You may receive a discount if you allow the cruise line to assign you a stateroom at the time of sailing, rather than picking a cabin upfront. The last time we did that we paid for an outside cabin, but were upgraded to a nicely sized balcony stateroom for free.

If you are a stock holder in either Carnival (CCL) or Royal Caribbean (RCL) stock, you can take advantage of the shareholder benefit program that each line offers and receive a shipboard credit. Please see my recently updated post about Cruise Line Shareholder Benefits for more information.

I Changed My Mind about Yodlee

After I had written about giving up on Yodlee in my post, So Long Yodlee, I received a comment from an apparent Yodlee representative. I also received another message from Yodlee's senior VP Peter Hazlehurst. Together, their comments expounding the benefits of Yodlee made me think that we were talking about two different products. Their messages mentioned the features of their Yodlee 8.0 platform.

Taking a step backward, Yodlee is an account aggregation service that polls different websites where you have online accounts. These accounts can be aggregated so that you can get a "big picture" look at your financial data. As someone with more than 20 accounts at several different financial institutions, I understand how this type of service can be useful. I mentioned before that I was using two different sites that were "powered by Yodlee". Specifically, these sites were MSN Money and Smith Barney's "My Accounts" feature. Due to problems that I experienced with these websites, I decided to give up trying to make Yodlee's Account Aggregation service work with my finances.

As I mentioned, comments I received on my earlier post got me to reconsider using Yodlee. It turns out that these aggregation services (MSN and Smith Barney) are different from the services offered by Yodlee directly. Intrigued I decided to establish an account directly with the Yodlee MoneyCenter rather than using the other two sites. The differences are like night and day. Let me go over each point that I mentioned in my previous post:

1) Not all banks participate in Yodlee. Countrywide Bank is now available on Yodlee. About three or four of my accounts are still not supported, and I would need to add them manually if I wanted to use Yodlee. According to Peter Hazlehurst, some credit unions use a technology called "CAPTCHA" which shows "squiggly" letters, and Yodlee doesn't support them. The term CAPTCHA is an acronym that means "Completely Automated Public Turing test to tell Computers and Humans Apart". And, I have no idea what a Turing test is.

2) The security and "Secure Sign On" concerns are still there. This is a question of risk versus reward, and should be up to the individual user. How comfortable are you with storing your personal information online with Yodlee? While Yodlee's security is probably very good, if their security was ever compromised, fixing the problem would be a massive headache for its numerous users.

3) The duplicate account problems are taken care of with Yodlee Money Center. By contrast, if I use either MSN Money or Smith Barney, my duplicate accounts are double counted by Yodlee. As far as I know there is no way to eliminate this double counting in these third party applications. So, I have stopped using MSN Money and Smith Barney (Citigroup) for my account aggregation needs.

4) Similarly, extraneous accounts can be turned off in Yodlee MoneyCenter. But they cannot be turned off if I use MSN Money or Smith Barney. Before this change, I had a couple of accounts that I closed years ago, but are still associated with an existing bank login. These accounts would show up as extraneous zero balance accounts.

5) So things definitely work better with Yodlee 8.0 in MoneyCenter. However, I wouldn't consider all of my concerns to be fully resolved. To make a long story short, many of my issues were indeed corrected. But, there still are a few lingering problems. I think that one issue is how much effort one is willing to put in to make Yodlee work for a particular situation.

I will mention two features that I do find very useful in Yodlee are alerts and auto-login. The alerts feature allow you to set alerts if, for example, your account balance drops below a certain amount, or a very large transaction is processed. This feature can help in the early detection of fraud. The other feature I like is auto-login where Yodlee can automatically log you in to some (but not all) accounts with the click of a button. You don't need to remember or type your password. This, of course, makes it all the more important that you keep your Yodlee password secure.

Anyway, I now consider Yodlee to be satisfactory for my purposes. While I still use an Excel spreadsheet to periodically get a complete picture of my finances, Yodlee is a quick way to check on my account balances.

DC

Bank Error In Your Favor?

Has it happened to you, or anybody that you know? Do banks ever make a mistake in your favor? Many years ago, I opened a bank account and deposited $1000. A few days after I opened my new account, I noticed that I had significantly more than the $1000 that I put in. I didn't do anything, and a few days later, I noticed that the amount was corrected.

So, has something like this ever happened to you?

DC

Are You Wealthy?

To answer the question of whether one is wealthy, I will take a quote from The Millionaire Next Door, by Thomas Stanley & William Danko, which I read several years ago. I consider this book to be a classic. Here, the authors discuss what one's expected net worth should be at any given point in life.

Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

To give an example, suppose one is 40 years old and makes $100,000 per year. Then, by the above formula, one's expected net worth is $400,000. The authors then go on to describe the wealthy (prodigious accumulators of wealth, PAWs) as those who have at least double this expected net worth based on age and income. Conversely, one who has accumulated less than half of their expected net worth is known as an under accumulator of wealth, or UAW.

In any case, the suggestion by the two authors is a broad rule of thumb. I would caution one against putting too much weight into the usefulness of a rule of thumb. Nevertheless, armed with this knowledge, you can at least have a rough idea of where you stand with regard to what your savings should be at any point in time.

DC

Update on Cruise Line Shareholder Benefits

Probably the single most popular post on PFStock is my article about Cruise Line Shareholder Benefits. Literally thousands of readers have seen this post. These readers were searching for information about how to get the Shareholder Benefit offered to stock holders of Carnival Corporation (NYSE: CCL), Carnival plc (NYSE: CUK), or Royal Caribbean (NYSE: RCL). With such an overwhelming response, I am surprised that I haven't been contacted by travel agents seeking to capture some of this attention.

In any case, there have been a few changes in the benefit programs, and I think that now is a good time to post an update. I mentioned that each cruise company offers a similar $100 onboard credit for shareholders that book a 7 day cruise and own a minimum of 100 shares. However, I didn't post all of the details at the time.

As a service to my blog readers, I am publishing the details of the Carnival and Royal Caribbean Cruise Lines (RCCL) shareholder benefit programs. If you are considering going on a cruise in the near future, both RCL and CCL require that shareholders own a minimum of 100 shares of their stock. The associated stock symbols are RCL, CCL, and CUK depending on which cruise you are going on.

For Carnival Corporation (including Carnival Cruise Lines, Princess Cruises, Holland America Line, Seabourn, and Cunard Line in North America) the following benefit is offered:

Onboard credit per stateroom on sailings of 14 days or longer: US $250
Onboard credit per stateroom on sailings of 7 to 13 days: US $100
Onboard credit per stateroom on sailings of 6 days or less: US $ 50

Outside of North America, Carnival Corporation also operates P&O Cruises, Ocean Village, Costa Cruises, Aida Cruises, and P&O Cruises Australia. Note that on these ships, the shareholder benefit will be offered in British pounds, Euros, or Australian dollars depending on the currency used onboard the particular cruise ship. The update here is that Carnival no longer operates Windstar, and Swan Hellenic. Cruisers on these cruise lines won't be able take advantage of the shareholder benefit.

Here is the direct link to the Carnival Corporation Shareholder Benefit. It gives the address and telephone numbers for each of the cruise lines that offer this benefit.

For Royal Caribbean (RCCL), Celebrity Cruises, and Azamara Cruises the following benefit is offered:

$250 Onboard Credit per Stateroom on Sailings of 14 or more nights.
$200 Onboard Credit per Stateroom on Sailings of 9 to 13 nights.
$100 Onboard Credit per Stateroom on Sailings of 6 to 8 nights.
$50 Onboard Credit per Stateroom on Sailings of 5 nights or less.

The Shareholder Benefit excludes sailings on Celebrity Xpeditions.

Here is the direct link to the RCCL Shareholder Benefit. This is an FAQ for their program. And this is a PDF file of the information for Royal Carribean International (RCI). Azamara Cruises is a new addition to the RCCL shareholder benefit plan.

In general, you will need to mail or fax either a shareholder proxy card or a copy or your brokerage statement to the company (either RCCL or CCL). This is to prove that you own at least 100 shares of stock.

Personally, I have taken advantage of the CCL shareholder benefit twice. However, I have not (yet) used the RCL benefit. One question that I have been asked is if cruiselines will offer two credits, if two separate shareholders book and share the same stateroom. Unfortunately, the terms of the shareholder benefit state that they allow only one shareholder credit per stateroom (not per passenger).

The other major player in the North American cruise market is Norwegian Cruise Lines (NCL). I previously mentioned that NCL and NCL America were owned by the Genting Group of Malaysia (which also owns the Asian cruise line Star Cruises). NCL is now jointed owned by Star Cruises (Genting) and Apollo Management which recently made a large investment in NCL. Investors cannot buy their stock directly in the United States. Unfortunately, a shareholder shipboard credit is not offered for NCL or NCL America cruises.

And, I wanted to share a picture from our most recent cruise. Here is a photo of the NCL America ship, Pride of Hawaii, docked in Maui.



NCL America had some substantial losses in the recent past caused by downward pricing pressure in the Hawaii market. Although these discounts are good for cruisers, they are bad for cruise lines. For this reason, NCL decided to move the Pride of Hawaii to Europe and rename it the Norwegian Jade.

If you have general questions about the shareholder benefit, or just want to talk about cruising, I invite you to send me an Email. (Note my Email address is listed in the right side column of my blog). Also, the above links may change or go out of date. If you find that the information or links are out of date, please Email me so that I will know to update it.

I have a one final thought. At one time, I did own shares in both CCL and RCL. However, I have since sold off my shares. If you don't already own Carnival or RCCL stock, they are both dividend paying stocks that might be an appropriate part of a diversified investment portfolio. However, I do not recommend buying the stock just to get the shareholder benefit. Make your investment decisions to buy CCL or RCL based on your investment needs, and not on your vacation needs.

A Note from the Author:
Thousands of people have read this post, but neither Carnival nor Royal Caribbean compensate me for directing readers to their websites. A few readers have sent me a message of thanks for pointing out a benefit that they didn't know about, but the vast majority of people pass through without saying a thing. If you have read my posts and have benefited from the information, I want to ask you to consider doing a couple of things to support PFStock.

First of all, please share this information. You can Email this post to friends, or spread the word by Twitter or Facebook. If you participate in a forum, such as those on Cruise Critic, please mention this post or link to the PFStock home page. If your are a blogger, please consider linking to PFStock.

Secondly, consider shopping or purchasing items from PFStock sponsors such as Amazon, or one of the other advertisers in the sidebar. If you are ready to book a cruise, please visit EasyClickTravel.com to shop for a deal on your next cruise.



Thank you for your support and happy travels.

DC

I Got a 1099 for a Signup Bonus

Last year, I opened an interest-free checking account at Bank of America. To be honest, I only opened this "MyAccess Checking" account because they offered me a $75 bonus for signing up. The most ironic thing about this "checking" account was that although they include an ATM card and free online bill payments, they didn't actually include a checkbook with the account.

Getting to the point, I was recently surprised to receive a 1099-INT form from Bank of America. When I opened it up, I saw that the bank had listed my $75 "reward/gift" on line 1 as interest earned. That means that I need to pay tax on my signup bonus. Is this common? I've participated in similar offers in the past, but this is the first time that I've seen a 1099 list a bonus as being taxable. So, I dug up a copy of the original offer, and this is what the fine print said:

We (Bank of America) may report the value of any premium to the IRS.

So, I guess that I was forewarned. A side note is that Bank of America allowed me to fund the account using a credit card. There was no cash advance fee. If you use a miles or points card to open a new account, you would earn points as if your initial deposit was a purchase.

What are other people's experiences with bank bonuses?

DC

The 1099 Waiting Game

By now, you should be receiving the last of your 1099 forms from banks and brokerages for tax year 2007. Together with these 1099s and my W-2 form, I have all the data that I need to prepare my tax returns. But, I am now waiting for my CORRECTED 1099 forms arrive. For several years, I have had to re-figure my taxes due to updated numbers on my tax forms.

For investors, the usual suspects are mutual funds (especially foreign funds), Exchange Traded Funds (ETFs), tax-free bonds, and dividend paying stocks. Starting last year, the Internal Revenue Service (IRS) added two new boxes on the 1099-INT form that report tax exempt interest, and the amount of tax exempt interest that is subject to the Alternative Minimum Tax (AMT). For mutual funds, there are four categories of distributions: long-term capital gains, short-term capital gains, dividends and non-qualified dividends. Mutual funds sometimes classify their distributions incorrectly and need to re-classify them properly. ETFs will sometimes declare a distribution in December, but not pay you until January. Unfortunately, you need to pay taxes on these funds in your prior year's taxes. Sometimes, foreign mutual funds need to calculate the foreign taxes paid by the fund. This calculation often takes a couple of months for the fund to figure out. Foreign taxes paid can be taken as a credit on your U.S. taxes. And, I've had instances where my brokerage put my tax-free interest in the wrong box, listing it as taxable interest. For dividend paying stocks, I've sometimes seen the dividends characterized incorrectly as non-qualified dividends when they were actually qualified dividends (which have preferential tax treatment).

The corrected 1099 forms are sometimes further corrected. In one case, I didn't get my last 1099 corrected until April! Some brokers have already informed their clients that corrected 1099 forms will be mailed until March. I can sometimes predict when one of my 1099 forms is incorrect, and expect to receive a correction. Issues with 1099 forms usually resolve themselves, but it often takes the brokerages and banks a while. For people who are expecting a tax refund, deciding when to file can be a hard call. You want to get your refund back quickly, but you wouldn't want to have to file an amended tax return later...

DC

Updates to the Blogroll

I wanted to take the opportunity to draw attention to a few blogs that I have added to my blogroll. The first blog is Finance Puzzle written by Elias Tsepouridis. This blog chronicles the author's financial thoughts, and he hopes to help his readers along the way. This blog's postings include many areas of personal finance including money saving tips, stock trading, and investing. A spreadsheet tallies a running total of the author's savings.

The second blog is Personal Financier which is written by Dorian Wales. Most articles focus on personal finance, economics, and business. But, the author also offers very insightful posts about making money blogging. Personally, I feel that the articles on this blog are very high quality, and wish that I could be as prolific as this writer is.

Lastly, I want to mention Realm of Prosperity written by Simon, a 20-year old college student. Many of his posts focus on a college student's struggles to make and save money. He has also written about stock investing, eBay, and making small amounts of money by taking internet surveys. His situation reminds me of myself 15 (maybe 20) years ago when I was in college. Currently, he seems to have a declining net worth, but hopefully this is only a temporary setback.

I am looking to add more blogs to my blogroll, so my invitation is still out to PF bloggers. If you have a bona fide personal finance blog, you can have your blog listed for FREE at PFStock (a $120/year value). Please Email me (my contact information is listed in the sidebar) and I will see if you qualify for a free link exchange.

Note that I do not currently link to commercial, real estate, or multi-level marketing blogs. Only personal finance blogs that are written by individual bloggers on a not-for-profit basis qualify for a free listing. Blogs and websites that do not qualify for a free listing may inquire about the low advertising rates offered for PFStock sponsors.

DC

What Happened to the Exuberant PF Bloggers?

It has been almost a year since I wrote my post about Stock Market Volatility. In that post, I poked a little fun at my fellow PF bloggers that have some very ambitious investing goals. Two such bloggers stood out in my mind. Here is what I said:

One blogger, who admits to not having a stock picking philosophy, tell us that he will turn $100k into a cool million over the next ten years. Another blogger scaled back the initial estimate of his net worth growth rate to only 30% per year. Even so, he'll be a millionaire in a little over 4 short years.

The term "irrational exuberance" comes to mind when I read blogs such as these. So, whatever became of these bloggers? Well, the first blogger stopped publishing his blog early last year. He has not been heard from since.

The second blogger has a more interesting story... His blog is still alive and well. After setting forth his goals for the year, he terminated his employment (i.e. quit his job) and ran off with a younger woman. They've shacked up together, and are engaged. He now considers her assets to be a part of his net worth... Hey, I guess that is one way to grow your net worth, huh?

Interestingly, this blogger did actually meet his net worth goal for the year. And if he had cashed out at the time, he would have been ahead. But, after a few bad equity and currency trades, he is again below the goal. He did, however, remove the goal of accumulating a million dollars in four years from his blog, finally conceding that it was overly optimistic. According to the blogger, that goal will take a couple more years.

When I wrote my post, the Dow Jones Industrial Average (DJIA) had just reached its then all-time high of 12,845. To review, the DJIA continued its upward climb, and peaked well above 14,000 this past October. However, it should now be clear to most investors that we are in the midst of a bear market, and the economy is likely heading into a recession. As we all know, this decline was accelerated by the subprime mortgage fiasco.

Now is probably a good time to reiterate and underscore what I have already said to my readers: I have learned not to get too overconfident about the stock market, or my investment abilities. And I have learned to plan for the worst while hoping for the best. While market volatility used to make me nervous and worried, a diversified portfolio definitely helps in times like these. But now regardless if the market goes up or down, I feel that either direction can present a new, different set of opportunities. Look for them!

DC

Tax Preparation Software

It is that time of year again. I have been using tax software to prepare my taxes since 1996. For the first several years, I used TurboTax exclusively. There was one year (I think it was 1999) that Microsoft came out with a program called TaxSaver, but that product has since disappeared. Even though I bought TaxSaver, I ended up using TurboTax for 1999. (Note that in this post, I will be referring to the tax year "TY" version of the software. The current tax products are for tax year 2007, even though it is already 2008.)

In TY 2002, I switched to using TaxCut from H&R Block. This was also the year that TurboTax from Intuit introduced its short-lived product activation scheme. To make a long story short, one was not allowed to install TurboTax on more than one computer, and this caused a lot of discontent among TurboTax users. Also, TaxCut is usually cheaper than TurboTax. I stayed with TaxCut until TY 2005 when I switched back to TurboTax. I feel this was a mistake, as TurboTax 2005 initially did not allow me to import my tax file from TaxCut 2004. Intuit cited "security reasons" as their excuse for not allowing data imported from TaxCut. Intuit later corrected their flaw, but not until after I had already re-entered all of my data into TurboTax manually. I guess that it wasn't really a security issue after all. I could still import my old TaxCut data to TurboTax, but that would wipe out all of the new data that I had already entered.

I have noticed that if you register your copy of either TaxCut or TurboTax with the manufacturer, they will automatically send you a CD-ROM with their software for the following year. Don't be fooled into thinking that you are getting something for nothing. When you read through the fine print, you will find that the software requires you to enter a credit card number to purchase the software. I have found that the software on the CD-ROM that they send you usually costs more than if you bought it from a store.

Once again, I am back to using TaxCut for TY 2007. The TaxCut CD-ROM that I received in the mail did have a $10 rebate coupon for purchases from certain stores. So, I recently I bought TaxCut Premium Federal + State software at Staples. The import of my TaxCut data from last year worked without a hitch. Going forward, I will probably stay with TaxCut, since I'm pretty much fed up with Intuit's TurboTax shenanigans over the past few years.

Another reason for buying the tax software in a store is that they usually offer a rebate for certain financial software. TaxCut offers a rebate on Microsoft Money Plus (Money 2008), and TurboTax offers a rebate for Quicken. I bought MS Money Plus with TaxCut 2007, but I haven't installed Money yet. Ironically, this new version is the first version of Money that requires you to “activate” the product. There is an activation key included with the CD-ROM.

From what I have read on the Internet, one can install MS Money Plus software on two machines using the same key. Also, I read that Microsoft will discontinue support of Money 2007 in September 2009. Until last year, I was still using Money 2004 on one of my computers, so it is very possible I’ll still be using Money 2007 in 2009. For Money Plus, they discontinue online services 2 years after your activation date. That is another reason I will probably postpone activating the new product.

I have always used the Deluxe or Premium "desktop" version of the tax software, which includes the state version of the tax preparation software. However, an online version is available for both TurboTax and TaxCut, which I have not used. I also haven't tried using e-file yet, but I might consider it this year.

One last thing that I wanted to bring up is that that H&R Block is offering a free "Ask a Tax Advisor" session in honor of National Tax Advice Day. Through January 31, 2008 you can have a free email or phone exchange with an H&R Block tax professional. Here is a link to the H&R Block offer. Note that it seems that you have to sign up with a username and password to take advantage of this offer. Another criticism that I have about this offer is that it is only good for this month. I would guess that the average person doesn't even get started with their taxes until February or March. By that time, they will be too late to take advantage of this free advice.

Update: I have been informed in the comments below that TurboTax has a similar offer for free tax advice. In order to be fair, here is a link to the Intuit offer from TurboTax. PFStock does not receive any compensation for this post or for the posting of these links.

So, what tax software does everybody else use?

DC

Calculating APY

Have you ever wondered how banks calculate the annual percentage yield (APY) of a bank account? Suppose that an account pays 4.88% (nominal rate) compounded daily and yields 5.00% APY. The APY is the annual percentage yield, and is the best number to use when comparing rates from different banks. To calculate the APY from the nominal rate, you will need a scientific or financial calculator. A computer spreadsheet could be used instead of a calculator.

Warning: math is involved in the next section. In this example,

1) Enter the interest rate in decimal form: 0.0488
2) Divide the rate by 365 (number of days in a year)
3) Add 1 to the result
4) Then use the y^x key, and type 365 for the number of days.

You should end up with something that says 1.0500069.... The digits after the decimal point represent the APY. In this case, it is 5.00% APY.

Shortcut: In most cases, you can take the nominal interest rate: 0.0488, and hit the e^x key on your calculator to get 1.0500103.... This quickly approximates the APY, assuming that interest is compounded daily.

If you have an account that is compounded monthly, then replace the 365's above with 12 (number of months in a year). In this case, if interest were compounded monthly, then the APY would round off to 4.99% APY.

DC

So Long Yodlee

After being a long-time user of Yodlee's Account Aggregation service, I have decided to give up trying to make it work with my finances. In the past, I have used MSN Money (which uses Yodlee) to track my finances online. But, I have several reasons why I'm about to abandon Yodlee:

1) Not all banks participate in Yodlee. This is annoying because it constantly leaves a hole in my financial picture. Most notably, I have significant holdings at Countrywide Bank, and at a credit union that are not participants in Yodlee's services.

2) Ongoing concerns about security and "Secure Sign On" problems make Yodlee potentially less secure than before. For reference, secure sign on is a multi-screen login feature that an increasing number of banks are now using. Typically you are shown a previously chosen picture and personal phrase during login. In addition to typing your password, the bank will then ask you to answer one or more confirmation questions for added security. These are personal questions that the user previously provided answers for.

In order to get Yodlee to work with these new security measures, you would have to store the answers to each one of these questions with Yodlee. Some examples of these questions are "What is your father's middle name?" and "What is the name of your first school?" If Yodlee's security was ever compromised, fixing the problem might not be as straightforward as changing your login name or password. An attacker could potentially build a database of information based on how you answered these questions for different banks, and more easily assume your identity.

3) Duplicate accounts are not handled well. At TD Ameritrade, my wife and I each have a login which allows us to access our individual accounts and the one joint account that we share. This account is double counted by Yodlee. To add to this confusion, the two "different" accounts may each show a different account value, depending on when the data for each login was updated. Yodlee has not provided a way to eliminate this double counting.

4) Extraneous accounts are an annoyance. I have a couple of accounts that I closed years ago, but are still associated with an existing bank login. These accounts shows up as extraneous zero balance accounts. I cannot delete a single account from Yodlee without deleting all of my accounts at the same bank. This extraneous information is definitely annoying.

5) In a previous post about account aggregation, I mentioned issues with Yodlee double counting the cash balances in my TD Ameritrade accounts. That post attracted the attention of Yodlee's senior VP Peter Hazlehurst who personally contacted me about these issues. Interestingly, immediately after I posted that article, I received a large number of visitors from a Yodlee domain located in India. I presume that Yodlee's customer service folks are based there. To make a long story short, some of my issues were indeed corrected. But as you can see by this post, several other problems are still not fully resolved. If Yodlee approached me again about helping them to resolve their issues, I think that I would decline the invitation. I don't intend to become a beta test site for Yodlee's software.

In one of the comments on my last post about Yodlee, Moneymonk said that "there is no perfect software [when] it comes to personal finance." She is correct there. I'm going back to the only way I know how to get a complete picture of our finances. I am again using an Excel spreadsheet to manually enter and track my financial balances.

DC

Predicting Stock Market Direction

Wouldn't we all like to have some insight into where the stock market is going? I am often asked if I know what the stock market will do. I would be the first to admit that I am not a psychic in that regard. But, I have known for some time that there are ways to predict the direction of the stock market. And no, I am not selling you some get rich scheme. These predictive insights come from the stock futures markets.

The Chicago Mercantile Exchange (CME) trades stock market futures contracts. Specifically these futures contracts are for the S&P 500 and Nasdaq 100. You can often get an idea of how the stock market will do in early trading. The prediction that the CME tells you gets more accurate as you get closer to the opening of the stock markets.

The CME website has a page that shows Globex Flash Quotes. These are quotes for indices. Because of the global nature of the Globex, quotes are often available after hours, and before the market opening. In the example above, large-valued red numbers for the S&P and Nasdaq futures portend a down day in the stock market. Green numbers would predict an up day. However, I will warn you that these "predictions" are only really accurate for about the first half-hour or so of trading. I am sure that you've seen it happen many times where the stock market opens up in the beginning and ends significantly lower. Or the stock market drops in the early minutes of trading, only to recover significantly before the end of the day.

Other places to look for a predictions of the stock market are in the International Market indices. These indices tell you how the overseas markets are doing. If the markets in Asia and in Europe have had a down day, it is likely that the US markets will follow suit.

As a side note here, my DW and I had the opportunity to visit the CME several years ago (before we were married) when we were visiting Chicago. Sadly, however, the CME visitor gallery where you can view traders on the floor of the exchange has closed to visitors since September 2001.

DC

The Backward Investor

Would you rather make 21% in a year on your investment or lose 18% in a year on your investments? Believe it or not there is a subset of investors who would rather lose 18% than gain 21% on their investments. Let me clarify. The Standard and Poors (S&P) 500 index went down 23.37% (excluding dividends) in 2002. In 2003, the S&P 500 gained 26.38%. There is a subset of investors who strive to "beat the S&P 500." This perverse group of people would be thrilled to have lost 18% of their money in 2002 because they would have beaten the S&P 500 by over 5%. (If you didn't invest in the stock market at all and ended up with a 0% return, you would have beaten the S&P 500 by 23% in 2002.) In either case, I didn't exactly see many people celebrating their investment portfolios at the time.

By contrast, These same folks would be bummed out to make only 21% on their investments in 2003 because they would have underperformed the S&P 500 by more than 5%. I don't know about you, but I would happy to make 21% in a year on my investments, and would feel ashamed to have lost 18% in my investments. The truth be told, I used to compare my stock performance against the S&P. I don't do that anymore, after I saw how ridiculous that comparison can be. This reminds me of the "keeping up with the Joneses" comparison in personal finance. My advice is not to constantly compare your portfolio performance with the S&P, Nasdaq, or your neighbors. Instead, strive to improve your own position year over year.

DC

This article was originally published on September 23, 2006. It is being republished today.

Misc. 401(k) Plan Facts

I've come up with a short list of miscellaneous facts about 401(k) plans that are not so commonly known. As always, I'm not an expert, so you might want to contact a tax professional for clarification.

1) Company stock: when you take a distribution, you can take a distribution of stock shares, and pay ordinary income tax on your cost basis. You can hold these shares outside of the 401(k) until you sell your company stock shares. You will then pay taxes only at the lower capital gains rate on the amount gained.

2) 401(k) plans are qualified plans that afford you greater legal protections than a rollover IRA. Of course, this only comes into play only if you are sued later in life.

3) 401(k) plans have a fiduciary duty to invest your money. What this means is that the 401(k) administrators need to select appropriate investment choices for you. This is not the case with an IRA.

4) Contributions to 401(k) plans are indexed to inflation beginning in 2007. In 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act that set forth a schedule for the increases in 401(k) contribution limits. Through 2006, this was $1000 per year. From 2007 onward, the contributions are indexed to inflation (known as a cost-of-living adjustment) rounded to $500 increments. The small increase for this year is because the inflation rate is low. For 2007, the current contribution limit is $15,500.

5) In-service distributions: You don't need to quit your job in order roll money from your 401(k) into an IRA. Companies don't advertise this fact, but in most cases you can request an "in-service distribution" and roll that into an IRA while you are still working there. You will need to read through the company 401(k) plan documents to find the details for your plan.

DC

TD Ameritrade Courtesy Fill Notifications

On my original Ameritrade account, there is an option to receive fill notifications. For those not familiar with the term, a "courtesy fill notification" is notice from the broker that one of your stock orders has gone through. This can be either by Email, phone, or fax, and there is no extra charge for this service. The choice to select a fill notification is found under "Communications" on the "General" tab of the "My Profile" page. And you can get to "My Profile" by selecting "Portfolio & Accounts". In my case, I have the broker call me (through their automated phone system) whenever a trade has been executed. There was a time when a real person would call to notify you of your trade, but that seem like a thing of the past now.

I think that this is a useful feature on my Ameritrade account, but I don't see this same option in the TD Ameritrade accounts that were converted over from TD Waterhouse. I am assuming that you cannot get automatic fill notifications if you had a Waterhouse account. Has anybody else been able to setup courtesy fill notifications from their former Waterhouse account?

DC

Countrywide Bank Update

I have two updates to my post about Countrywide Bank. First of all Countrywide has increased it SavingsLink interest rate to 5.5%, with a $10,000 minimum account balance. Considering that many Certificates of Deposits (CDs) don't even pay that much, this interest rate is quite impressive.

I mentioned that SavingsLink accounts have to be linked to a savings or checking account at another financial institution for you to access your money. At the time of my post, Countrywide only allowed one linked account at a time. Furthermore, the process of linking and unlinking accounts is cumbersome. So, the other update is that recently received an Email from Countrywide saying that they've increased the number of external linked accounts to 5. Though I haven't yet tried adding more accounts, this improvement should take away some of the pain of transferring funds between Countrywide and other banks.

Lastly, a reader of PFStock expressed some concern about Countrywide Financial (NYSE: CFC), the parent company of Countrywide Bank. CFC stock has been buffeted over the past year by sub-prime concerns. Indeed, CFC is down over 50% from its 52-week high. And, I do understand the reader's concern. But actually, because Countrywide Bank is FDIC insured, this is not something that depositors need to worry about as long as they stay within the FDIC insurance limits.

DC

Link Exchange

You can have your blog listed for FREE at PFStock. I am looking to add more blogs to my blogroll. If you have a bona fide personal finance blog, please Email me (my contact information is listed in the sidebar) about exchanging links. Note that I do not currently link to commercial, real estate, or multi-level marketing blogs.

Only personal finance blogs that are written by individual bloggers on a not-for-profit basis qualify for a free listing in the blogroll. Blogs and websites that do not qualify for a free listing may inquire about the low advertising rates offered for PFStock sponsors.

DC

Business 2.0 = Fortune 1.0

I just received my last issue of Business 2.0 magazine. This post is a follow-up to my article about Business 2.0 going out of business. A note on the cover of the magazine answers my question about what will happen to the issues remaining in my subscription that have already been paid for. They will substitute one copy of Fortune magazine for every 2 paid copies of Business 2.0 remaining. There is also an option to request a refund if you are not happy with receiving Fortune as a substitute.

DC

NetBank Closes Down

As of Friday (September 28) NetBank has been closed down, and the FDIC has now taken over the bank. According to the FDIC, "No advance notice is given to the public when a financial institution is closed." However, I have written extensively about NetBank, and readers of PFStock would have been given full advanced warning that NetBank was on the brink of closure.

To summarize the current situation, depositors with less than $100,000 at NetBank have their deposits fully insured by the FDIC, and their accounts will be transfered to to ING DIRECT. Depositors with over $100,000 may have a portion of their funds that are uninsured, and will lose half of the uninsured amount. Investors in NetBank stock should fully expect to lose ALL of their money. NetBank is essentially bankrupt at this point and stock investors do not usually recover any funds.

PFStock's coverage of NetBank began over a year ago on September 20, 2006, when I posted here that I was about to begin the process of withdrawing my money from NetBank and close my account with them. In that post, Sayonara NetBank, I referred to this process as "evacuating my money." There and in subsequent posts on PFStock, I cited deteriorating financial conditions at NetBank as one of my prime reasons for closing out my account. At that time, I conceded that NetBank was not likely to be forced into bankruptcy, but was wrong.

Over the course of the last year, financial results at NetBank continued to deteriorate. The company eliminated its dividend, and later ousted its CEO in October 2006. Even before this event, I had speculated that something fishy was going on at NetBank. And, I asserted that NetBank could no longer remain competitive with other banks in its online market space.

After a set of staggering losses, NetBank's independent auditor resigned. The stock was eventually delisted from Nasdaq, after it fell well below $1. In May 2007, NetBank made an agreement to sell a substantial portion of its remaining assets to privately held EverBank. This deal was supposed to have been completed by July, but it recently fell through. As recently as my September 10 posting, I speculated that the EverBank deal was in serious jeopardy. With the collapse of this deal, it became obvious that NetBank had exhausted all of its options, and was only be a matter of time before NetBank would be forced by government regulators to liquidate.

The NetBank bankruptcy saga has been an interesting ride. But as the story is nearing an end, this may likely be my last post about NetBank.

Further reading:

NetBank Continued 9/10/2007
NetBank Again 8/5/2007
NetBank's Demise 5/22/2007
The Decline and Fall of Internet-only Banks 12/1/2006
Unprofitable and Unstable, NetBank Ousts its CEO 10/3/2006
More on NetBank 10/2/2006
Sayonara NetBank 9/20/2006

DC

MS Money Plus (2008) System Requirements

A while back, I posted an article about issues that I was having with Microsoft Money 2004. I have the 2007 version of MS Money, and found it to be generally good, but there are a few features that are missing. For example, you can more easily switch between investments in the 2004 version. There is a drop-down box that allows you to quickly view any securities that you've entered into MS Money, but this feature doesn’t exist in the 2007 version. Also, the 2007 version of Money only runs under Windows XP Service Pack 2 (SP2) or Windows Vista.

For 2008, Microsoft has renamed their financial software as "Microsoft Money Plus". Have you seen the system requirements? Again, you need to be running either Windows XP Service Pack 2 (SP2) or Windows Vista.

Looking at the box for MS Money Plus (Deluxe version), I was actually shocked by the system requirement to run the software under Windows Vista. For PCs running Windows XP, the minimum requirements are quite reasonable: a Pentium II 300-MHz or faster processor (or compatible), and 128 MB of RAM.

However, for those with PCs running Windows Vista, the requirements are much more demanding: a Pentium (or compatible) 1 gigahertz (GHz) or faster 32-bit (x86) or 64-bit (x64) processor, and a whopping 1 GB of RAM.

I’m starting to question why the requirements are so drastically different for Windows Vista versus the same software running under Windows XP. Is Vista version of MS Money Plus so phenomenally superior to Windows XP? Is there anybody who has the software that can give some insight as to what the main differences are between the two software versions?

DC

Business 2.0 Is Out Of Business

I previously mentioned that I subscribe to Business 2.0 magazine. I've had a subscription off and on since the magazine's first issue. The parent company of Business 2.0, Time Warner, is pulling the plug on the magazine. I believe that the October 2007 issue of Business 2.0 will be its last.

I know that they are no longer offering new subscriptions to Business 2.0. However, I wonder what will happen to the issues that I've already paid for... Will they offer a refund, or substitute another financial magazine like Money or Fortune? So far, I haven't heard anything about plans for current Business 2.0 subscribers.

DC

Cosmetic Changes at Sun Microsystems

I own shares in Sun Microsystems. Sun has recently made a couple of largely cosmetic changes to its stock. First of all, Sun has changed their stock ticker symbol from SUNW to JAVA. They put out a press release giving a few reasons for this change. The truth is that this change is mostly cosmetic. But I did have to manually change the stock ticker symbol in Microsoft Money and other records that I use to keep track of my cost basis. I also occasionally read the message boards at Yahoo Finance, and noticed that Yahoo has not yet setup a message board under Sun's new ticker symbol: JAVA.

Another largely cosmetic change is that Sun Microsystems will ask its shareholders to authorize a 1 for 4 reverse stock split at its Annual Meeting of Stockholders on November 8, 2007. This won't affect most shareholders, other than having to remember to correctly account for the change in their tax basis. As an example, suppose that a shareholder has 1000 shares of JAVA and it trades at $6 before the reverse split. After the split, this person would own 250 shares that are trading around $24. In either case, the total value of the stock holdings is the same, and the cost basis doesn't really change. However, an issue that might come up is if one ends up with a fractional share after the reverse split (i.e. one doesn't own a multiple of 4 shares of stock). In this case, the balance of the fractional shares will be paid out in cash. This, albeit small, transaction might end up being a taxable event for shareholders.

For years, I have used Sun Microsystems computers for my work, designing semiconductor chips. I remembered that the original stock symbol (SUNW) stands for Stanford University Network Workstation. But, I haven't heard it called that since I was in college.

DC

TD Ameritrade Spam Frustrations

I write about TD Ameritrade so much that I've considered calling my blog "The Unofficial TD Ameritrade Blog". Anyway, I am still receiving spam at my Ameritrade and Waterhouse Email addresses. It is getting very frustrating. In a previous post on the topic, I mentioned how I use a unique Email address for my Ameritrade accounts. What is particularly frustrating is that now many of these spam messages are making it through my spam filter.

I know that I am not the first person to write about getting SPAM at my Ameritrade Email address, as it has been reported by other PF bloggers. I created a unique Email address for my Ameritrade account through Yahoo's "AddressGuard" feature. The only entity that knows my Ameritrade Email address is Ameritrade itself. However, I have been getting spam at this address. Whenever this happens, I change my Email address to a new one, and delete the old Email address.

This has happened at least four or five times already (I lost count). However, it is the first time that the Email address that I used for Waterhouse has been compromised. I currently receive similar spam at both my Ameritrade and Waterhouse Email addresses. I have also been getting correspondence from other bloggers who are experiencing the same issue with TD Ameritrade.

Through my site meter, I have some insight about who reads my blog. I can confirm that employees of TD Ameritrade read my blog regularly, and that they are very much aware of the spam issue. The site meter typically shows Ameritrade employees as accessing my blog from either Nebraska, New York, or New Jersey. In some cases, employees of TD Ameritrade have been specifically searching for "Ameritrade spam" on the web. However, these readers have never responded to any posting that I've made; the silence from TD Ameritrade employees is deafening. Perhaps TD Ameritrade has a policy of not allowing its employees to comment in public forums.

In any case, I hope that TD Ameritrade gets it act together soon. They really need to plug up the holes in their security.

DC

NetBank Continued...

By now, I thought that I would be finished writing about the demise of NetBank. On May 21st, NetBank announced that it was selling a substantial portion of what remaining assets it has to privately held EverBank. At that time, I noted in my posting that when this sale closes, NetBank, as you know it, would be no more. According to the parties involved, this deal between NetBank and EverBank was supposed to be completed in late June or early July, resulting in the conversion of NetBank accounts to EverBank. However, June, July, and even August have passed without any further word on the state of the conversion. Then this notice appeared on the NetBank website:

NetBank is still actively working to transfer its deposit relationships to EverBank, an award-winning national financial services provider with an exceptional value proposition. When we announced our agreement with EverBank in May, we expected to first complete the sale of other bank investments to have the means necessary to meet the terms of the EverBank agreement. The sale of these investments is taking longer than originally anticipated.

Is the NetBank/EverBank deal in jeopardy? Apparently NetBank was not able to come up with the means to live up to their part of the deal. This is what else the NetBank site says:

EverBank remains interested in acquiring NetBank customers, and we continue to believe our customers would be well served by EverBank. If we consummate the EverBank agreement, we will let our customers know what to expect from an account conversion standpoint as early as possible. If the agreement is not consummated, NetBank expects to pursue another partner for its deposit relationships based on direction it received from its primary regulator.

I think that the key word here is "if". What does it mean to NetBank account holders? Mainly that your money may be in a state of limbo for a while longer. However, for NetBank (OTC: NBTK.PK) stock holders, your money is pretty much already lost, as I have said before. Note that NetBank is no longer listed on the Nasdaq, but now trades as a pink sheet stock.

DC

My First eBay Experience

Recently, I opened an eBay account and started bidding on items. Let me take a step backward for those who are not familiar with how eBay works. Before I opened an eBay account, I setup an account on PayPal which is like a bank account that you use to pay for eBay items. While it is not entirely necessary, most sellers on eBay prefer PayPal. One can also pay with a credit card, but PayPal is the entity that handles the transaction. So, I figured that I would have to end up opening a PayPal account anyway.

I was in the market to buy a Hewlett Packard 92274A (74A) toner cartridge for my 13 year old HP LaserJet 4MP printer. For the record, a new one of these replacement cartridges cost about $90 retail. On eBay I saw that they could be had for a lot cheaper, especially those that are designated as remanufactured cartridges. My first 4 or 5 attempts to buy a cartridge didn't meet with much success as I was outbid (sometimes at the very last minute) by somebody else. Up until this point, I had been bidding on cartridges one at a time. Frustrated by my lack of success, I started putting in bids on multiple items at once, hoping that I might be able to get one of them. To make a long story short, my bidding now became too successful, and I ended up winning two toner cartridges from the same seller. This is where the fun began.

I immediately tried to contact the seller to see if he would be willing to combine the shipping charges since most sellers do that when you win multiple auctions. There was no reply to my Emails after a couple of days. I then contacted eBay to see if I could get the seller's phone number. This is when I found out that his telephone was disconnected! Not a great first experience. So, I informed eBay, and they also could not confirm his contact information. For reference, when this happens eBay restricts the member's activities until the outdated contact information is corrected. I eventually got this updated info. So finally after several days, I did make contact with the seller, and he was willing to knock a few dollars off of the shipping. I then made my payment through PayPal.

What happened next was that I think the seller went on vacation or something. Again, there was no response to my Emails. *sigh* After another week or so, I made contact again, and he informed me that my goods had already been shipped. So, then it was up to UPS to deliver the goods. This also seemed to take forever, but in reality it took about 8 days.

In the end, about 3 weeks after the saga began (with setting up a PayPal account), I completed my first eBay purchase. This experience is certainly the opposite of when you just go into a store and walk out with the product you want. I did end up saving quite a bit over the $90+ I would have paid at say Office Depot. But, I wonder if it was worth the hassle. Since I consider this purchase from eBay a learning experience, I would say that it is interesting to learn how the mechanics of the system work. My new toner cartridge is now in my old printer, and I have one more cartridge to spare. These cartridges last me about 2 years each, so I'm set for a while.

I think I'll go looking for something else to buy now.

DC

Update on Office Depot Rebates

On April 27, I wrote about my experiences with Office Depot rebates. I did finally get all of my rebates, but not before a very long waiting period. I usually have good success with rebate offers for products that I buy. I estimate that I participate in maybe two dozen rebates a year, and have not had any problem 80-90% of the time. However, over the past year, I have sent in three rebates for products that I bought at Office Depot and had a problem receiving each one. If a problem happens with receiving a rebate, I usually consider it a fluke or coincidence. But since I had a problem three times in a row with the same retailer, I think that this is more than just a coincidence.

In each case, my rebate got "stuck" in their system. I waited almost half a year for a rebate on blank DVD media that I bought the day after Thanksgiving. I have talked to their customer service (at Web-Rebates.com), and they said that they would try to "expedite" the rebate. Most of the time, the rebate showed up as in the "Required Validation Period" in their online tracking system. In any case, Office Depot is now officially off my list of places of where I will shop for rebate items. Curiously, I have not had problems with other retailers who also use "Web-Rebates.com" for rebate submissions.

I have also heard from other readers who had the same problem with Office Depot rebates. In one case, a reader spent a great deal of effort, but it still took over 6 months to get the rebate check. That person no longer trusts Office Depot and immediately went to a bank to cash the $20 check, for fear that it would bounce. Does anybody else have a similar experience with Office Depot?

DC

Countrywide Bank SavingsLink

On PFStock, I have posted extensively about my experiences with NetBank. I have found a replacement for the funds that I withdrew from NetBank when I closed my account with them. The winner is ... Countrywide Bank.

Recently, I opened a SavingsLink account at Countrywide Bank. The highlights are that they pay 5.25% APY interest if you have more that $10k, and 5.4% APY if you have over $50k. The interest rate drops to 4.0% APY if your balance is below $10k. The account itself works like an ING or iGo savings account. If you are not familiar with these, the SavingsLink account is an online only account that must be linked to a regular savings or checking account that you have at another institution. This is pretty much the only practical way to transfer funds in or out.

Countrywide Bank actually has a branch within walking distance of my home. But unlike most regular banks, the branch doesn't have an ATM and a prominently displayed sign says that they don't have any cash in the branch. When I asked the asked the sole employee of this office how to make a deposit, he showed me a deposit envelope, which was actually a Federal Express envelope. Apparently if you give them a check, they will send by overnight mail to Texas where the deposit is processed. Countrywide did send me a few postage paid deposit envelopes, but I assume that the FedEx method would be faster.

The SavingsLink account doesn't come with either checks or an ATM card. So, most transactions have to go through your linked account. SavingsLink only allows one linked account at a time, and the process of linking an account is cumbersome. Countrywide Bank uses what is known as "trial deposits". When you request that they link an external account to your Countrywide Bank account, they will make two random deposits (of less than $1.00 each) to your external account and ask you to verify the amounts that were deposited. This is to assure that you are actually the owner of the external account, and this process usually takes 2-3 days to complete. One other little hassle is that deposits are subject to a 10 business day hold. This basically means that you won't be able to withdrawal any deposit for a period of two weeks.

In spite of a few hassles to setup a Countrywide SavingsLink account, their interest rates are much better than at NetBank. Indeed, the 5.4% APY rate is better than the vast majority of bank savings accounts available.

DC

This article was originally published on May 1, 2007. It is being republished today due to previous posting problems.

Bankruptcy and IVAs

In a discussion with one of the sponsors of PFStock, the topic of an Individual Voluntary Arrangement (IVA) was brought up. I was not familiar with IVAs, so I decided to do a little research into the topic. In the United Kingdom, when a person declares bankruptcy, the details of the bankruptcy are advertised in the local press.

Due to the Insolvency Act of 1986, individuals in the United Kingdom have an alternative if they wish to avoid bankruptcy. This option, called an Individual Voluntary Arrangement (IVA) , is an agreement between a debtor and creditors. The debtor agrees to pay a monthly sum, usually for 5 years, to their creditors through this arrangement. This sum is divided up between the creditors, who accept the sum in settlement of the amount owed.

The monthly payment is based on one's income and expenditure. In general, more than 75% (in value) of the creditors must agree in order for the IVA to be approved. A standing order authority (usually a company) will be set up to handle the payments.

An IVA might be suitable for people who cannot pay their debts. To read more about IVAs, I suggest the following website: Debt Advice Trust. The Debt Advice Trust is a not-for-profit charity in the UK with the aim of helping people get out of debt by giving free, impartial advice. The site has a forum and lots of in-depth FAQs on debt and staying debt-free.

Brokerage Survey Results

The results of PFStock's first brokerage survey are in. TD Ameritrade is the most popular brokerage among PFStock readers with 80% of the votes. The next most popular brokerage is SogoInvest with 20% of the votes. Thank you to all that voted.

In the latest poll, PFStock asks how much of your banking do you do online? Personally I do most, but not all, of my banking online. This leads to a lot of frustration when the bank website goes down. For example, yesterday when I got ready to pay a bunch bills on the Washington Mutual (WaMu) website, I got the following error message "Our site is temporarily unavailable due to a scheduled technology upgrade." So in the meanwhile, my bills are lined up next to the computer, waiting for WaMu's website to come back to life...

Please vote using the poll in the right sidebar.

DC

TD Ameritrade Online Documents

It seems that TD Ameritrade is having some issues with its online documents. For a while, my July online statements were not available online. The TD Ameritrade website had this notice regarding "July Statement Availability":

Electronic Statements for July are currently unavailable for some clients. We are working to make them available as soon as possible. We apologize for any inconvenience. If you have further questions please contact Client Services.

But a larger issue for me is that I am missing several of my trade confirmations from the May-June 2007 time frame. These are trade confirmations that were previously listed under the "History & Statements" tab, but mysteriously disappeared sometime last week. A couple of Emails and a call to TD Ameritrade APEX customer service assured me that they are "aware of the problem and expect to have this issue resolved quickly." Well, it has been more that a week and my trade confirmations have not yet reappeared.

Banks and brokerages encourage their clients to agree to online delivery of account documents in part because it saves them money in the form of printing and mailing costs. I don't know about you, but when I agree to the arrangement of having my documents kept online, I also expect to be able to access them whenever I want. TD Ameritrade is only one example, as I think that most people who bank online can describe a situation where they were unable to access the online system because it was "down for maintenance" or "undergoing system enhancements". Is it any wonder that many people are still hesitant to do all of their banking online?

Also, I thought that I would update readers on my TD Ameritrade Warning that the brokerage would start to charge for monthly paper statements. They recently posted the following information about "Former TD Waterhouse clients receiving paper statements":

Most former TD Waterhouse clients who received paper statements in their old accounts will now receive paper statements on a quarterly basis in their TD AMERITRADE account. There is no fee for quarterly paper statements. Statements are also available in electronic or monthly paper formats. Electronic statements are free, monthly paper statements are available for a $2 monthly fee (free for Apex clients). To change how often you receive statements or the format you receive them in, login to your account and go to My Profile (under Portfolio & Accounts), then select Statements (located in the Communication section) and click the "edit" link.

Since I'm an Apex client, I get my monthly paper statements delivered for free. I did notice that the new TD Ameritrade statements take about two weeks longer to arrive versus the old TD Waterhouse statements, which came quickly. However, if they I did charge me for statements, I would probably opt for only quarterly statements.

DC

AOL Time Warner Settlement

A couple weeks ago, I received a class action settlement check for some AOL Time Warner stock that I purchased a long time ago. In fact, the purchases of stock go back as far as 1999. To make a long story short, this settlement stems from the botched merger of America Online and Time Warner in which investors lost a lot of money. Time Warner currently trades on the NYSE as symbol TWX. Of course, the check that I received is much less than the amount that I lost trading the stock.

I filled in and mailed the proof of claim form for the AOL Time Warner class action settlement over a year and a half ago. Usually, these types of settlements are handled by a firm called Gilardi and Co. This is the first time I ever received a settlement check, and I've already figured out that these matters can take a long time. Has anybody else received a settlement for securities litigation? Do you know how one is supposed to report this on their taxes?

DC

NetBank Again

On the morning of September 20, 2006, I posted here that I was about to begin the process of withdrawing my money from NetBank and close my account with them. In that post, Sayonara NetBank, I referred to this process as "evacuating my money." There and in subsequent posts on PFStock, I cited deteriorating financial conditions at NetBank as one of my prime reasons for closing out my account. Even then, I conceded that NetBank was not likely to be forced into bankruptcy, but in the event that they did declare bankruptcy, it would be a hassle for depositors to get their funds back from the FDIC.

Let's take a look back over the last ten months at NetBank (Nasdaq: NTBK). On September 20th, the stock closed at $6.10. Today, NTBK trades at a mere $0.22 (and is on the verge of being delisted). And, NTBK recently reached an all-time low of $0.18 (a 97% decline). This decline is not surprising considering NetBank's deteriorating financials. From NetBank's previous press releases and other information available at their website, we can clearly see a series of quarterly losses over the past year. And early last year, NetBank stopped paying its shareholder dividend saying that they needed "to protect the company's capital base and tangible book value from further erosion."

Then on October 3rd, NetBank announced that it would be replacing its CEO. Even before this event, I had speculated that something fishy was going on at NetBank. A worst-case scenario could be that NetBank customers would need to recover their funds from the FDIC if NetBank becomes insolvent. However, I noted that while this is certainly possible, it is not the most likely case. Nevertheless, I asserted that NetBank could no longer remain competitive with other banks in its market space.

According to a more recent NTBK press release dated February 21, 2007, NetBank recorded a net loss of $202 million or $4.36 per share for 2006. This loss of $4.36 per share over the 12-month period is absolutely staggering when you consider that the entire company is only valued at $0.22 a share. Unfortunately, what is really lacking from NetBank's report is any type of good news. To further exacerbate the already existing problems, NTBK has received a notice from the Nasdaq Stock Market that the company's common stock is subject to delisting. NetBank has been delinquent in its regulatory filings because its former independent auditor resigned as of November 9, 2006. Since then, NTBK has been having difficulty bringing a new auditor on board. Again, this cannot be construed as good news.

And, the other shoe dropped on May 21st. NetBank announced that it is selling a substantial portion of what remaining assets it has to privately held EverBank. Here are a couple of statements from the NTBK press release:

The company has been under extreme financial pressure for more than a year due to a difficult mortgage origination market, a flat yield curve environment and other factors. These pressures have resulted in large operating losses that have significantly reduced the company's capital position and prompted heightened regulatory oversight.

And:

Regulators have been increasingly concerned about the bank's capital and earnings trends and advised management to find an alternative immediately that covered all of the bank's deposit obligations.

Doesn't this seem to imply that the aforementioned "regulators" forced NetBank to essentially liquidate its remaining assets in order to protect depositors' money? And the NTBK stock price has reacted very negatively to these developments.

So, what is left of NetBank? According to NetBank CEO, Steven F. Herbert, "Our remaining businesses will include our mortgage servicing operation, along with our retail prime mortgage franchise, Market Street Mortgage." My interpretation is that there won't be anything left of the online banking operation, after EverBank takes its share. So substantially I can say that as you and I know it, the online bank, NetBank is no more!

Further reading:
The Decline and Fall of Internet-only Banks
Unprofitable and Unstable, NetBank Ousts its CEO
More on NetBank
NetBank's Demise

DC

This article was originally published on April 15, 2007. It is being republished today due to previous posting problems. It has been updated.

Money Market Choices for TD Ameritrade

The series of posts that I made about my experiences with TD Ameritrade have been very popular at PFStock. Perhaps the most popular of my posts was the one where I exposed Ameritrade's "Hidden" cash sweep account. I have recently come across another cash (money market) option for TD Ameritrade account holders. This is another fund offered through "The Reserve" (website: ther.com).

The fund is called the Reserve Yield Plus Fund Class R (symbol: RYPQX), and is classified by The Reserve as an "enhanced cash fund". Currently, this fund pays in the neighborhood of 5.4% APY. This rate is much better than the default TD Ameritrade cash option which puts you in a sweep account that pays less than 1% interest.

However, unlike the other Reserve funds (offered through Ameritrade's Total Asset Plan) that I've talked about before, this fund is not available as a sweep option which automatically places your uninvested cash into a money market account. Instead it is traded like a No-Transaction Fee (NTF) mutual fund. You would need to put in a mutual fund order each time that you want to buy or sell the fund.

Now I have a few questions for my readers. Has anybody invested in this type of enhanced cash fund before? Do you need to report each mutual fund sale (each time you take money out of the fund) as a broker transaction on Schedule D of your tax return? Presumably, the fund tries to maintain a $1/share valuation, and each transaction would represent $0 in capital gains. And, does anybody know if TD Ameritrade would count each NTF transaction toward qualification for their premier (or APEX) trading status?

I suppose that I would be remiss if I didn't add that The Reserve Yield Plus Fund contains the following disclaimer:
This Fund is not a money market fund. Achievement of the Fund’s objectives cannot be assured. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Yields may vary.

Since the first time that I mentioned the Reserve Yield Plus Fund, I discovered that cash you have in RYPQX is not counted as funds available for trading by TD Ameritrade. Arguably funds held in RYPQX can be considered as cash, but not as "available cash" for the purpose of trading. TD Ameritrade only counts the cash sweep balance here. What this means is that if you want to buy a new stock and don't have enough money in your cash sweep, you will have to sell RYPQX before placing an order.

I think that TD Ameritrade made this process unnecessarily cumbersome. Because RYPQX trades like a mutual fund, there is a 1 day settlement period on funds. For stocks, the settlement date is 3 days later. So in theory, one should be able to execute a stock trade and then later liquidate enough fund holdings to cover the trade in time for settlement. However, the new TD Ameritrade website will not allow you to even enter an order if it thinks you don't have enough in your cash sweep. By my memory, the former Waterhouse website did not have this particular restriction on placing stock trades.

DC

This article was originally published April 11, 2007 . It is being republished because of previous posting problems. It has been updated.

Welcome to the New PFStock

I have finally gotten around to updating my blog template, and resolving the issues that I had with Internet Explorer 7 and the new Blogger Beta. I have tried to keep the same color scheme as the original PFStock. However, I have changed the underlying template. One interesting feature of my new template is that the blog post pane will resize itself depending on the size of the browser window. Also, it is much easier for me to add (or remove) list items on the side bar using the new Blogger template. For example, updating the blogroll or sponsors section is much easier than before.

This reminds me that I am still looking to add more blogs to my blogroll. If you have a bona fide personal finance blog, please Email me (my contact information is listed in the sidebar) about exchanging links. Note that I do not currently link to commercial, real estate, or multi-level marketing blogs. However, you are welcome to contact me about advertising rates for the sponsors section.

After Google converted PFStock to Blogger Beta, I had experienced some problems with the RSS feed. As a result, my readership at PFStock dropped. For the record, the correct RSS feed for PFStock posts is now http://pfstock.blogspot.com/feeds/posts/default or http://pfstock.blogspot.com/feeds/posts/default?alt=rss and http://pfstock.blogspot.com/feeds/comments/default for comments. Because of this and a few other posting problems, I plan to republish some of my blog posts that readers may have missed.

Lastly, I wanted to mention the addition of polls to PFStock. Currently, I am asking readers to vote on which brokerage they use. So far, TD Ameritrade is the most popular brokerage among PFStock readers. This is not surprising since I do tend to write a lot about that broker. Anyway, if you haven't voted yet, please try to get your vote in before the poll closes.

DC

MSN Money Fiasco

MSN Money has recently "upgraded" its online account services. According to their website, MSN Money’s banking services have been updated to improve the online banking experience. This can be described in one word: fiasco! I logged into MSN to find that nearly all of my bank and brokerage accounts had little red exclamation points next to them. These exclamation points mean that the login information for each of these accounts needs to be updated.

It might be acceptable if I only had to re-enter the new updated information. But in most cases, I had to go through the whole process as if I were adding a new account. Then I have to delete the old account. I have to repeat this process as many times as I have accounts. So far, this task has already taken me hours, and I'm not even half way done.

Great job, Microsoft!

DC

Update on Discover Card

I mentioned getting cash back at supermarkets when using a Discover Card. By choosing cash back (also known as cash over) as a option during checkout, this works out as a nice interest-free loan. I pay off the card every month, and it saves me a trip to the ATM. I even said that I earn cashback on the cash back since it goes on my statement as being a purchase. Well, I guess that it couldn't last forever.

My last Discover Card statement had two supermarket transactions, that say "cashover $50". They now separate out the "cash over" part from the "purchases" part of the transaction. I am no longer earning a cashback bonus on the cash over amount. Oh well. At least it still saves me a trip to the ATM.

Again, I do not recommend this strategy to people who run a balance on their credit card, and end up paying interest charges on the cash over amount.

DC

Whole Foods Recommendation Withdrawn

In the past, I made a stock recommendation to buy Whole Foods Market Inc (Nasdaq: WFMI). However, due to recent events involving the CEO of Whole Foods, PFStock is withdrawing its recommendation of Whole Foods (WFMI). To make a long story short, Whole Foods CEO John Mackey has admitted to making anonymous comments about Whole Foods and its competitors on Yahoo Finance. Using the Yahoo user ID "rahodeb," Mackey had posted negative comments about a competitor, Wild Oats Markets Inc (Nasdaq: OATS). These comments were made prior to Whole Foods' offer to acquire Wild Oats.

This type of behavior is simply not appropriate for a CEO-level employee. As a direct result of Mackey's reckless judgment, Whole Foods is now the subject of a Securities and Exchange Commission (SEC) inquiry. Needless to say, this is not good news. Due to these recent developments, I cannot recommend WFMI to anybody.

DC

TD Ameritrade's Cost Basis Tool

I had previously mentioned that TD Ameritrade has added a gain/loss tracking tool called GainsKeeper to their website. I have used GainsKeeper before, and I believe that it can be very helpful to keep track of investment cost basis. However, there are a few obstacles to their new tool.

For me, GainsKeeper didn't have any cost basis information for investments that I bought before 2003. I had to go through a process known as "baselining" to tell the online tool what I originally paid for my stocks and mutual funds. For the most part, this process is straightforward if you have your cost basis handy. However, if a stock or fund has undergone a stock split, spinoff, or merger, it can get very confusing. For example, I had a mutual fund that was merged into another one, and I had to manually figure out the cost basis, and update it in GainsKeeper.

TD Ameritrade uses this GainsKeeper cost basis information to figure the Unrealized Gain (Loss) on your monthly statement. If it doesn't know what you paid, it shows "NP" for the Average Cost, and leaves the gain amount blank. On the other hand, I noticed that the GainsKeeper cost basis doesn't seem to be reflected on the "Balances & Positions" page. New trades are almost immediately reflected here. This leads me to conclude that TD Ameritrade uses two different sources for the cost basis data. The fact that they do this can lead to confusion.

Going forward, I think that GainsKeeper has the potential to provide accurate cost basis information at a glance. But, I do have a wishlist of improvements to GainsKeeper that I think would be easy to make. First of all, I would like to see a bigger font size; my eyes are not what they used to be. I'd like to see green and red colors used to indicate a gain or a loss. Another improvement would be for GainsKeeper to flag securities that could potentially trigger a wash sale if you buy or sell. Currently, GainsKeeper divides all gains into long and short term, giving you a subtotal for each. How about adding a line that gives you the total gain too? Lastly, I found that if you make a trade during the day, GainsKeeper doesn't reflect that trade until the next day. This could be updated in real-time.

DC

Interest Compounded Continuously

Have you heard of the concept of continuous compounding? This is a question that I posed a while back while commenting on a post at My Money Blog. In that post, the author, Jonathan asked the question if it matters whether interest is compounded monthly or daily. The answer was that it doesn't make much difference.

In Jonathan's post, he included the following example of a $10,000, 1-Year CD paying 5% APR (Annual Percentage Rate). He then went on to calculate the amount of money you would end up with after one year of compounding.

At this point, some readers might like to review my post about how to calculate APY on a bank account, as the following math is similar. For an account that is compounded monthly, you will have the following after one year:

$10,000 x (1 + .05/12)¹² = $10511.62

And if this amount is compounded daily, you would end of with this amount:

$10,000 x (1 + .05/365)³⁶⁵ = $10,512.67

In other words, you'd end up with $1.05 more by compounding daily versus compounding monthly.

I have always held that it is best to compare the Annual Percentage Yield (APY) for deposit accounts, rather than Annual Percentage Rate (APR). And, the author agrees with this sentiment.

But getting back to the original question, what about continuous interest compounding? This is not compounded daily, hourly, every minute, or every second, but continuously. Many people (erroneously) believe that if they could have their savings compound continuously, then they would have an infinite amount of money. However, taking the formula above, in the limit that the 365 goes to infinity (continuous compounding), the formula results in this one:

$10,000 x exp(.05) = $10,512.71

…or about 4 cents more than compounded daily. Note: This formula uses the e^x key on a scientific or financial calculator.

In reality, no bank offers continuous compounding. But if it did, you would probably realize that it was certainly an advertising gimmick because even continuous compounding doesn't make much of a difference.

DC