dcsimg
As featured in The Wall Street Journal, Money Magazine, and more!

avatar You are viewing an archive of articles by Luke Landes. Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View 's Google Profile.

Luke Landes


When your life is out of control, nothing seems to go right. You have the worst luck, and you can’t seem to get ahead with anything, whether a project, a goal, or even simple things like taking care of daily tasks.

Regaining control of your life is imperative. For your finances, you can do that by paying attention, changing your mindset, taking an inventory, tracking changes in your finances, budgeting, and seeking support from family, friends, and even strangers. This was one of the major premises behind Consumerism Commentary.

The same is true in all aspects of your life, especially those in which you’d like to see change or improvement.

Control comes through the practice of making better decisions, those decisions that take your future into consideration. Sure, if you’re struggling to survive, “the future” is a luxury. I understand that. But even small steps towards control can help you move forward towards having the freedom to consider more than just how your family will survive paycheck to paycheck. When the situation is controlling you, you feel helpless. But starting to control the small things in life will offer the confidence to, stamina for, and even luxury of making life better for your future.

Being in control can be a significant achievement. But the work isn’t over once you have control. I realized this while watching a baseball game. It was a subway series, with the New York Mets visiting the Bronx to play crosstown rivals the New York Yankees.

The commentator used the phrase “command and control” in discussing the talents of a pitcher. Every pitcher who makes it to the major league should be in control consistently. That means they should be able to throw fastballs for strikes and get other types of pitches in the strike zone on demand, whenever desired.

Brandon Katz describes in Bleacher Report, a baseball blog, what happens when pitchers do not have control: “Without control, basically all hell breaks loose for the guy on the mound. If you don’t have a good feel for your pitches, then it’s going to be a night of free base runners and a lot of runs due to unintentional walks and undoubtedly a multitude of pitches up in the zone.”

Command is another matter. Having command of the pitch is what separates the great players from the everyday. Katz describes pitching command thusly: “Pitchers with good command have the talent to place their pitches any where they want within the strike zone; they are able to throw not just strikes, but good strikes.”

This is also what happens when pitchers are in sync with their catchers. The two players determine for every pitch the speed, direction, pattern, and target, and a pitcher with perfect command hits that target every time. When the catcher wants a cutter to approach the strike zone from the the top outside corner but land in the catcher’s mitt low and inside, the pitcher with good command makes that happen. When the catcher wants a series of three fastballs starting low and ending high and outside, tricking the batter into swinging at a fastball out of the strike zone, good command is necessary for the plan to result in a strikeout.

Control is just the beginning. I’m in control of my finances. I know I’m spending only what I can afford to spend, less than I earn with enough to save for the future. I am like a major league pitcher. Just my presence in the major league means I’ve outshone hundreds or thousands of others on teams in Little League, high school, college, and the minor league.

But I’m not Matt Harvey (or whoever your favorite superstar pitcher might be). I do not have complete command of my financial performance. Not only do I rely on the stock market to take my net worth higher, but I haven’t determined how to invest in such a way that I can position myself the best for my future.

While many would be satisfied with a diversified portfolio of index stock and bond funds, when your needs involve a regular income, protection of your assets, tax efficiency, and growth for taking advantage of a variety of opportunities, things get more complicated. I can throw my strikes, but I’m still learning about the finer points of money management — the skills that will get me to the point where I can just show up on the mound and batters get nervous.

For example, I’m in the process of moving out of New Jersey. My portfolio until recently included as part of my bond portfolio the Vanguard index fund that’s exempt from New Jersey state income tax. The purpose of that was to keep my overall tax burden lower while being able to (relatively) count on some steady income. But if I’m not a resident of New Jersey and not paying New Jersey income taxes, the tax benefit of the investment is irrelevant to me. And quite possibly a waste of an investment opportunity.

And one might argue that the state of New Jersey is in such a bad condition that it was a bad investment in the first place.

But now I have the full investment previously in the New Jersey bond fund sitting in a sweep account earning a paltry (taxable) 0.01% interest. I need to come up with a plan to invest this amount soon, as opportunity cost — the cost of doing nothing compared to potential results — is a real thing and quite expensive. My initial thought is to stop worrying about tax efficiency, particularly considering I am not sure what my plans for residence will be beyond the fall of this year. A strong suggestion in continuing the income portion of my portfolio is to look at the Vanguard Intermediate Term Corporate Bond Index.

Clearly, the trickier pieces of my investment game — being able to paint the corners with my strikes — is not where it needs to be yet. My control is on point; my command requires some work before I’ll get my All-Star Game invitation.

Here’s what I need to do.

Dive deeper into investment research. Until now, it’s been enough to know that the stock market index generally returns 8% over long periods of time for those who buy and hold and don’t react to market news. It’s been enough to know that bond indexes can balance stock indexes and prevent some damage in market downturns without a major detrimental effect to overall returns.

I’m still not interested in investing a major portion of my portfolio in individual stocks, but if a unique investment opportunity comes my way, I will need to be able to evaluate the offer and make a decision that is as informed as possible. I have some business opportunities coming my way, and I’d hate to miss something important because I wasn’t able to analyze the situation effectively.

Talk to more people in similar situations. I’ve done a great job of helping people and teaching others what I know. I’m always available for friends who want business advice or would like to take their blogging to the next level.

Because I found myself paving the way and perhaps doing things that haven’t been done on a large scale before, and have been that way for about three decades, I haven’t done the best job of seeking out mentors when what I’ve wanted to learn has all ready been perfected by others. Whether it’s success in business management or investing, I need to spend some time talking to established experts in addition to mentoring others who see my successes as something similar to what they’d like to achieve.

Practice over and over. It’s great to avoid mistakes, but there’s often to better learning substitute than making mistakes and having to deal with the consequences. The mistakes I’ve made throughout my life — and I’ve made many both pertaining to and beyond my finances — have forced me to learn on my feet, adjust, and improve. I’ve made poor decisions regarding working with others, I’ve had to learn to live with hurt in personal relationships, and I’ve misjudged people. Mistakes like these have given me more insight.

As I make more investing decisions, I’m sure I’ll make more mistakes. More opportunities coming my way means more opportunities to fail. But the experience I gain when that does happen will be valuable — and as long as I don’t rely too much on the success of any particular decision, I should be able to whether failures and use the knowledge gained to my advantage later, increasing my command, not just control, of my finances.

Photo: Flickr Creative Commons

{ 0 comments }

After the stock market closed on Friday, my portfolio was at an all-time high. That was likely also the case for a lot of investors living in the United States who are similar to me: earning income, investing in the stock market with a buy-and-hold strategy for the future, and leaving money invested during the stickier economic times.

Continuing to invest in the stock market throughout the recent recession was an essential part of long-term success with investing. Not all investors had this luxury, as the recession hit hard. Many workers lost their job and their income at the same time investing in the stock market was crucial for eventually receiving those promised long-term average returns.

According to a new survey, more than half of Americans don’t own stocks or stock-based investments like mutual funds.

But should this be surprising? Should stock owners look at those who do not own stocks with judgment or from a perspective of superiority? Is the lack of ubiquitous investing a result of ineffective financial education?

CNN calls the data reflective of an “alarming trend for America’s financial future” and for some reason compares the number of stock market investors with the number of daily coffee drinkers. After all, if Americans simply invested in stocks with the money spent on daily coffee drinks, the country would supposedly be wealthier — and sleepier.

Despite the proliferation of the 401(k) retirement plan as a replacement for employer pensions and the increasing tendency for employers to automatically enroll new employees in 401(k) plans, stock market investing still hasn’t penetrated the psyche of a majority of those living and working in the United States.

Most auto-enrollment settings will default to a money market index, probably because the employer doesn’t want the liability of choosing a riskier investment without the required education and an opt-in confirmation for investing in the stock market. There is also a view that the 401(k) plan was flawed from the start, giving a huge cash cow to Wall Street when millions of employees throughout the United States could be enrolled in programs that generate high fees for the financial industry.

This is not the right time to have this discussion.

The overall conversation in society about finances changes with the tenor of the times. From 2008 to 2010 or so, the idea of frugality had something of a renaissance. Commentators and financial experts extolled the virtues of saving money, being prepared for emergencies, and living life frugally. Let’s cut unnecessary expenses like cable television and get used to accepting any job available. When unemployment is high, we can question the value of higher education, even though the data always show that more education leads to lower unemployment and higher lifetime income.

During that recession, those Americans who didn’t save money during the better times were judged as poor managers of their own finances. Money management was now cool, with Mint.com and mobile apps for couponing rising to prominence.

Since that time, the stock market has skyrocketed, with the S&P 500 increasing 186.2% since March 6, 2009. Now commentators are criticizing Americans for not being invested in stocks at that time to take advantage of the best buying opportunities we might see for decades — at the same time the country was reeling in unemployment.

March 6 represented the bottom of the market as measured by the vast stock market index. But you wouldn’t have known that the future for stocks was so bright if you looked at what the media was reporting. Here’s the New York Times on March 6, 2009:

As government data revealed that 651,000 more jobs disappeared in February, a sense took hold that growing joblessness may reflect a wrenching restructuring of the American economy.

The unemployment rate surged to 8.1 percent, from 7.6 percent in January, its highest level in a quarter-century. In key industries — manufacturing, financial services and retail — layoffs have accelerated so quickly in recent months as to suggest that many companies are abandoning whole areas of business.

“These jobs aren’t coming back,” said John E. Silvia, chief economist at Wachovia in Charlotte, N.C. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.”

Most economists now assume American fortunes cannot improve before the last months of the year…

The monthly snapshot of the national employment picture revealed an even bleaker picture as the government revised upward the job losses in December and January. The economy has shed at least 650,000 jobs for three straight months, the worst decline in percentage terms over that length of time since 1975…

“The people who do what I do in the Detroit area are a dime a dozen,” said Kim Allgeyer, 46, a machine toolmaker in Westland, Mich., who was laid off in January from a company that makes assembly lines for the automakers. Unable to find another full-time job, he is subsisting on day labor and one-week stints for contractors. “Who’s going to put me to work?” he asked. “Where’s the work at? It’s just a great big black hole.”

Much the same can be said for financial services, which gave up 44,000 jobs in February…

Retailers are shuttering stores as the era of easy money fueled by rising house prices and abundant credit gives way to a period in which millions of households are forced to confine their spending to their paychecks…

This reflected the general feeling in the United States. The future looked grim, and the only people who were investing when the outlook seemed to be so bad were those who had the fortitude (and the money) to keep investing throughout the downturn.

And now, we’re in the opposite position. I wouldn’t be quick to call the stock market’s position today a historic high, but we have had the benefit of a good bull market in stocks since March 6, 2009. The conversation has changed.

We’re not asking, “Why weren’t you saving money and watching your wallet these past several years?” We are asking, “Why haven’t you been investing in the stock market these past several years?”

In fact, this is what the new survey asked respondents. Among the majority of Americans who are not invested in stocks right now, more than half say they don’t have the money. Maybe this is true. There are still many people in the United States without jobs, many living paycheck-to-paycheck, many focusing on affording the basic necessities of life without putting their existence in jeopardy.

But there are also many who just don’t prioritize investing in stocks because the recession taught them that they need to prioritize saving and paying down debt over risky investments. Perhaps they got burned in the recession and don’t want the same thing to happen — another temporary recession in my lifetime is inevitable.

Now that the stock market completed its bounce back to former highs, the media wants to encourage more investing in the stock market. Reporters and financial experts couldn’t take that approach in 2009 without alienating the vast majority of readers who were struggling financially during the recession. Today, the surveys are about who is investing in the stock market (and those who aren’t are missing out). A few years ago, the surveys were about who is saving a good percentage of their income (and those who weren’t were missing out).

I can’t tell the future, but I do know this: When the world is telling you to invest in stocks, be cautious; when the world is telling you to be cautious, look for opportunities.

{ 1 comment }

Banks in the United States are undergoing a major transformation in credit card technology, a process similar to the one Europe successfully completed several years ago. Despite the technological advances in mobile payment that have already rendered plastic cards obsolete, the financial industry wants to replace every magnetic stripe credit card in every wallet.

When I received a business credit card in the mail last week, in an envelope anyone paying attention would recognize as a new credit card delivery, it featured a new security measure: a chip. The embedded computer chip stores information, like the magnetic strike, that ties the card to my identity and my bank account (and in this case, my business credit card account).

Credit card issuers are going through the process of replacing magnetic stripe credit cards with embedded chip cards because they are supposedly less prone to fraud. For instance, there’s a chance that using a chipped credit card would have prevented a different credit card number of mine from being stolen a few weeks ago and used in places which I had never visited.

But are these cards really less prone to fraud? No. Is the banking industry wasting millions of dollars replacing credit cards before they expire? Yes. Is the banking industry using this as a way to earn more money from retailers? Yes. Will the credit card issuers raise consumers’ fees to cover the increased cost of producing and distributing these cards? Probably.

Here’s why these chip-embedded credit cards are a waste of time, money, and effort for the industry and offer no more protection for the consumer.

1. The new cards still contain a magnetic stripe. If the magnetic stripe makes it easy for cards to be duplicated, the only way to eliminate that vulnerability is to eliminate the stripe! But without the magnetic stripe, billions of card readers currently in use by merchants would be rendered useless.

The banking industry wants retailers to “upgrade” all card readers to those that read chips at a significant cost to the retailers. But stripe readers will still be around for a while.

2. The new cards don’t require a PIN. In Europe, chip-and-PIN cards have a better chance of reducing fraud, because they can only be used with knowledge of a secret code. Because PIN transactions in the United States are less profitable for credit card issuers than signature transactions, issuers will stick with the more profitable signature requirement.

A PIN involves a second layer of protection, while a signature provides no protection at all. Signatures aren’t checked when credit card transactions are processed.

3. The credit card numbers are still stored digitally. Regardless of the card type — chip or magnetic stripe — all credit card numbers in the United States are fifteen or sixteen digits long with a simple algorithm to determine which numbers are valid and which are invalid. These numbers are stored in a database or a computer’s memory the same way.

If a hacker is able to access a database of credit card numbers, those customers are vulnerable regardless of the type of credit card they own.

4. Chip duplicators already exist. These devices may be more expensive than credit card duplicators with magnetic stripe technology, but they’ve been in use in Europe for as long as chip-and-PIN credit cards have been around. If a hacker does retrieve your credit card number from a database, he or she can print a credit card with a chip that duplicates that card for in-person use.

5. Fraud is moving online. Even with a chip, when you want to use your credit card for a transaction over the internet, you’ll still need to type your card number into a website. Companies that do not protect those databases (or for some reason accept credit card information over an unencrypted connection) will allow your credit card number to be exposed regardless of whether the physical credit card has a magnetic stripe or a chip.

Perhaps the chip-embedded credit card is a small piece of overall “security theater.” Consumers will feel more protected because their plastic contains something new and novel, but there’s no real improvement for the avoidance of fraud. In fact, by feeling more confident about using plastic, some consumers may feel emboldened to use the credit card in a situation where they might not be safe.

The production and distribution of credit cards with the chip seems to be nothing but a bridge between today’s current method for payments and newer card-less technology that is all ready becoming more widespread. Mobile payments like Apple Pay represent the future, and plastic with or without a chip is getting in the way. The obstacle here is that the banking industry controls the plastic, and outside companies control mobile payment schemes.

To eliminate fraud in the payments industry or to reduce it by a significant amount, the industry must eliminate static credit card numbers. Some banks all ready offer software that will address this issue for online purchases. Consumers can click a button to receive a single-use credit card number that they can use for a transaction of a certain amount, and after that transaction is processed, the credit card number will no longer be valid.

Other technology replaces credit card numbers or accompanies the numbers with a token — another code, but secure and unknown to the purchaser and the retailer — which must be verified through a separate system to confirm the transaction is valid. This token is unique for every transaction.

The unique identifier, whether a separate credit card number for each transaction or a token, is the only way to significantly reduce credit card fraud. Until these are required for every transaction and the magnetic stripe is eliminated, fraud problems will continue to grow.

The chip-embedded card is no solution. When Europe switched to a chip-and-PIN credit card, which in theory should be safer than a card with a chip that doesn’t require a PIN like these in the process of being released in the United States, fraud increased.

This is not a solution. This is a way for banks to force retailers to buy expensive equipment. The financial industry wants to shift the burden of fraud to the retailers. Today, banks pay for unauthorized use of a stolen credit card or credit card number. The companies are now telling retailers that if they don’t upgrade their devices to handle chip-embedded credit cards, those retailers will be responsible for paying for fraudulent transactions — even though the chip does little to prevent fraud.

In addition, retailers pay higher fees per transaction for processing chip-embedded cards, just like they pay higher fees for processing cash back rewards cards and other premium credit cards over basic credit cards and debit cards with PINs.

Well, there’s always cash. Until you want to buy something online, anyway.

{ 6 comments }

Congratulations to the owners of LearnVest, a financial planning start-up that is in the process of finalizing a deal with Northwestern Mutual wherein the latter will be acquiring the assets and business of the former. In a deal of more than $250 million in cash, a company that provided early funding for the start-up will now be the sole owner.

LearnVest entered the market as a service that put women in touch with resources, including financial planners, to help them reach their financial goals. The company later expanded its reach to men, as well.

But it’s quite probable, as Michael Kitces points out, that the value Northwestern Mutual sees in LearnVest isn’t in its small advisory clientele, it’s in the membership base for personal financial management software. This part of the business caters to more than 1.5 million customers.

The acquisition doesn’t come as much of a surprise. It behooves old financial companies to integrate businesses that have been successful in attracting younger customers. Millennials are more inclined to be customers of businesses that started online, use marketing that is catered to how the generation perceives itself, and are led by people who seem to have more in common with them.

But it’s those old financial companies that have the money, thus they provide capital funding for start-ups and are the most interested in making acquisitions like these. And you can be sure that the companies that provide the funding are those who benefit the most in an eventual sale and have influence in the management of the start-up companies during their funding periods.

But where does this leave LearnVest advisory customers? Are they now clients of Northwestern Mutual? In short, yes.

There is a legal regulation that prevents this from happening automatically. In order for one financial advisory to turn clients over to another which is the case in this acquisition, the Investment Advisors Act requires that customers give consent to the change.

And LearnVest is making this “easy” for customers. Any customer not taking an action is considered to have given his or her consent; in order to refuse consent, a customer must close his or her account. While LearnVest claims this is to make the change easy for customers, it’s really just an “opt-out” option, assuming customers agree with the change even if they don’t know about it.

This is the same tactic that consumer groups have fought against in other areas. Many services require an “opt in” confirmation of subscription, or even multiple confirmations just to be safe.

It’s unlikely that much will change immediately with this acquisition. Customers will likely retain their membership as is, and will be assigned to the same advisers. But if one of the reasons for becoming a customer with LearnVest was the opportunity to get financial advice from outside the “establishment,” financial industry’s old guard, and work with a company that seemed to be geared to you, you may not be interested in being a part of this new evolution of the start-up.

And LearnVest hasn’t yet communicated the acquisition to all of its customers. The company has presented a few social media posts with a link to a list of answers to frequently asked questions, and I expect emails to customers will be forthcoming. One of LearnVest’s Twitter posts was the first I heard of the acquisition, and that led me to check the news for the details.

Considering LearnVest has only managed to obtain 10,000 advisory customers over six years, this does not seem to be a huge concern for the company.

Born in 1976, I don’t quite fit the description of the Millennial generation (or Generation Y), yet I probably have more in common with the generation than I do with Generation X. It’s hard to say. Like Millennials, I’ve lived most of my life with technology like email, but only because I was a geeky kid and ran bulletin board systems from my house, learned how to code in various programming languages on my own, and built my first website in college when the cast majority of colleges didn’t even have their own websites.

Yet I hate text messages. So I obviously can’t be a Millennial.

I prefer desktop Quicken to Mint.com and other online personal finance management software — but I do have dreams about designing a successful financial mobile app that Millennials — and I — would want to use. I prefer talking in person to a financial advisor over allowing algorithms to suggest my financial actions. This would make LearnVest better for me than other “automatic” or “robo” advisers.

LearnVest’s advisory might be something I would explore if Vanguard didn’t present me with access to a Certified Financial Planner any time free of charge and if I didn’t have friends and colleagues with the CFP designation all happy to offer me their advice.

Northwestern Mutual plans to keep LearnVest’s operations separate, at least for the immediate future, so potential and existing advisory clients shouldn’t be too concerned about the change. The source of the company’s funding is still and has always been the financial industry and venture capitalists, except for the $75,000 CEO Alexa von Tobel reportedly invested with her own money.

The influence within the company doesn’t change much other than giving other investors a cash distribution to exit their ownership and leaving Northwestern Mutual with complete control. Maybe that’s a big change. Maybe it will mean very little. But if it’s affecting only 10,000 of the 1.5 million LearnVest customers, I think the bigger question is what the insurance company will be able to do with any data stored by the personal financial management software.

Are you a customer of LearnVest? Do you think this is a move in the right direction for the company?

{ 1 comment }

Life Is and Isn’t About the Money

by Luke Landes
Life and Money

Accumulating money is not a real goal for anyone’s life. Growing wealth is not the point. People don’t work hard because they want to see their bank balance grow; those of us who track our finances and chart our net worth over time aren’t trying to compete in some financial competition. I imagine there are ... Continue reading this article…

1 comment Read the full article →

The IRS Tax Scam and What Happens When You Owe Taxes

by Luke Landes
Telephone

For a few years, a ring of criminals believed by the U.S. government to be based in India have been involved in a pervasive tax scam. Callers impersonate IRS officials, connect with American taxpayers, and convince many that they have an outstanding bill for tax payments. The scam has been so pervasive that it has ... Continue reading this article…

3 comments Read the full article →

How the Financial Media and Stock Market Analysts Manipulate You

by Luke Landes
BBY XRT

Best Buy, the big box retailer that most shoppers have abandoned sometime in the last decade and a half in favor of Amazon.com, announced better-than-expected earnings for the last three months of 2014, which includes the all-important holiday season. The announcement sent the financial media into a frenzy, as many had all but dismissed Best ... Continue reading this article…

4 comments Read the full article →

Which Money Script Do You Live By?

by Luke Landes
Couch

Your money script is a story you tell yourself about money. This story, the way you approach your finances, an outlook on a certain segment of your life, can have a significant effect on your behavior. In the growing field of financial psychology, the money script is a key element for clients and patients. Financial ... Continue reading this article…

5 comments Read the full article →

Three Overlooked Tools for Repairing Credit

by Luke Landes
Sue the creditor

This is a guest article by Neal Frankle. Neal is a Certified Financial Planner® in Los Angeles. He is also the senior editor for WealthPilgrim.com, MCMHA.org and CreditPilgrim.com. Your credit report is like a financial passport. If it’s clean you’ll find the doors to the financial world wide open. Your credit journey will be carefree ... Continue reading this article…

1 comment Read the full article →

When It Makes Sense to Work For Free

by Luke Landes
Intern

How much is your time worth? This is a terrible question, and it usually begets a terrible answer. It’s a question that motivational speakers use to encourage people to make sure they’re optimizing their ability to earn an income. There’s nothing wrong with that per se, but it leads to some poor conclusions. For instance, ... Continue reading this article…

2 comments Read the full article →
Page 1 of 49012345···50100150···Last »