Money, Investing and More on Consumerism Commentary: A Personal Finance Blog (2)

Podcast 28: Dan Solin, Investing for Retirement

by Flexo on November 1, 2009

in Podcast

In today’s episode of the Consumerism Commentary Podcast, our guest is Dan Solin, author of The Smartest Retirement Book You’ll Ever Read and other books in the “Smartest Book” series.

Tom Dziubek talks with Solin about planning for retirement.

Production Number: S02E02
Segment Number: 41

To listen, use the player above (Adobe Flash required), download the podcast here, subscribe to the podcast RSS feed, or use the iTunes link. Note: open links in a new window (Ctrl-click or Command-click) to avoid interrupting the podcast.

[00:00] Introduction from Flexo
[00:32] Interview with Dan Solin, author of the “Smartest Book You’ll Ever Read” series
– [00:48] Rethinking investing
– [02:03] Index funds
– [02:50] Exchange traded funds
– [04:19] Using your 401(k)
– [05:37] The value of the dollar
– [08:20] 4% safe withdrawal rate
– [09:14] Dan’s incident with Jim Cramer
– [13:08] Dan’s Golden Rules for Retirement
– [14:35] Fee-only financial planners
– [15:37] Registered investment advisors
– [17:35] Immediate annuities
– [19:29] Setting aside two years of living expenses
[21:35] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

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Opening an SFGI Direct Savings Account Earning 2.25% APY (Updated)

by Flexo on October 30, 2009

in Banking

It’s not every day that I find a bank account offering more than 2% APY, but as of October 30, 2009, I’ve discovered one thanks to a reader. “Ski Naut” contacted me yesterday to ask about SFGI Direct’s offer of 2.25% APY. I had not heard of the bank, so I looked into it.

SFGI Direct is the online banking division of Summit Community Bank, based in Moorefield, West Virginia. Deposits at Summit and SFGI Direct are covered by the FDIC as you would expect for any legitimate bank in the United States. To open the online savings account at SFGI Direct, customers will need to provide the typical personal information including Social Security number and employment information. The account requires a $500 minimum balance and initial funding deposits are limited to a maximum of $25,000.

For some people, SFGI Direct may be one of the fastest bank account opening processes from application to use. Like a small number of other banks, SFGI Direct allows “Instant Verification.” Most banks still offer only “Micro-Deposit Verification,” or the even more antiquated “Check Verification.” This means that after your application for opening an account is approved, if you link your new SFGI Direct account to an outside bank that supports this feature, rather than waiting two to three days for Micro-Deposit Verification, you can provide your account access details for the linked account. SFGI Direct will securely and privately confirm your account details with the external bank and allow you to immediately initiate your initial funding deposit.

I attempted to use the Instant Verification option to fund a new SFGI Direct account from ING Direct. Unfortunately, ING Direct’s verification process requires the customer to choose ten identifying questions. I don’t believe I set up ten questions and answers at ING Direct initially, so I was relegated to the slower Micro-Deposit Verification. After the weekend, I will be able to confirm my ownership of my linked account and initiate my funding transfer.

With this generous interest rate in comparison to other savings accounts, I have added SFGI Direct to the list of high-yield savings and checking account interest rates. You can SFGI Direct here.

Update: New customers are not currently welcome at SFGI Direct. As of Friday, November 6, the bank has closed its online application and presented this message on their website:

On Friday, November 6th SFGI Direct will again remove the “Apply Now” button from our website. As many of you noticed in July we removed the “Apply Now” button for approximately 2 months. It is our philosophy to deliver a competitive product to our clients.

SFGI Direct has chosen a strategy to slow down account growth by limiting the application process for new clients instead of dramatically cutting the rates on loyal customers.

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$50 Bonus for New Prosper Lenders

by Flexo on October 30, 2009

in Investing

Peer-to-peer lending institution Prosper is offering a $50 bonus for new lenders who sign up for for the service and bid on two loans. Peer-to-peer lending is an interesting way for people to qualify for loans and to lend money to others. In an economy where savings account interest rates are under 3% or 2%, it’s tempting to put cash to better use through these direct loans. There is a possibility to earn much more than you would by putting cash in a savings account as long as loans are chosen carefully and you’re willing to accept risk.

There is something appealing about working outside the banking system. Peer-to-peer lending takes a specific power of the financial industry and puts in the hands of individuals.

I tried Prosper a few years ago. A friend of mine was looking to consolidate his credit card balances, but was looking for a better option that putting several thousand dollars onto one high-interest card. His plan was to apply for a loan on Prosper and use the funds to pay off his credit cards. He would then only need to worry about one payment each month with a lower total payment and a lower interest rate than what he would likely get with a credit card.

When he asked me about Propser, I offered to help him out by bidding to provide a portion of the funding for the loan. The idea of being an investor appealed to me, but unfortunately, the state of Texas prevented him from participating on Prosper at that time. It is my understanding that he would qualify only for an interest rate higher than allowed by the state.

My adventures with Prosper ended before they began. And I won’t be able to get started. As I began to research investing in a portfolio of loans at Prosper and bidding on individual loans, I was greeted by this message:

Unfortunately, at this time lenders in New Jersey are not able to bid or transfer money to Prosper. If you have portfolio plans, they have been paused. You may transfer money out of your Prosper account as they become available from loan payments.

If you reside in a state where Prosper is allowed to do business, consider signing up for an account and qualifying for the $50 bonus. What is your experience with Prosper?

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GMAC Asking for a Third Bailout From Taxpayers

by Flexo on October 29, 2009

in Economy

Through today, GMAC has received government bailout funds totaling $12.5 billion. The company is asking the Obama administration for $5.6 billion more. One might say that in a true democracy, GMAC would need to ask permission from each taxpayer whose funds would go towards shoring up the company’s balance sheet, a move that would make GMAC appear more stable on paper. But we have a representative democracy, where Congress makes decisions that occasionally reflect the will of the members’ constituents.

GMAC might receive their third bailout. Industry analysts agree that the failure of GMAC would have a devastating ripple effect throughout the rest of the economy. If GMAC fails, so would the companies who depend on GMAC to offer loans to customers, General Motors and Chrysler. The failure of these companies in turn would result in the failures of suppliers and dealers. The government has already pumped so much taxpayer money into these companies that their failure would signal a broader failure of the entire bailout process. Also, GMAC’s total bailout is still less than the financial injections Citigroup and Bank of America have received.

In personal finance, an additional bailout for a failing company would be similar to throwing good money after bad. For example, if one makes a poor purchasing decision while buying a car, costly repairs might be necessary. Rather than cutting the losses and getting rid of the car, one might continue putting money into the black hole, and after time, the money that you spent on the purchase and repairs could have purchased a nicer car that ran without problems.

There is no guarantee that another bailout will save GMAC in the long run.

GMAC is the parent company of Ally Bank, formerly known as GMAC Bank, an online bank that has drawn in more customers with a savvy advertising campaign and high interest rates. The American Bankers Association forced the FDIC to request Ally Bank to lower its rates because other banks couldn’t compete with Ally’s new strength acquired with the help of taxpayers.

If GMAC were to fail, Ally Bank depositors should be safe as long as they have stayed within FDIC’s coverage limits.

I think it may be time to start allowing companies like GMAC, those who require funding from taxpayers to improve their balance sheets and who have little prospect for paying taxpayers back, to fail. There are signs the economy is recovering. Maybe it is time to let the market and capitalism work itself out. Those companies who remained conservative will survive and those who chased bad loans and complex derivatives without sufficiently considering risk will step aside.

Do you think GMAC should receive another bailout?

Photo credit: jim.greenhill
3rd Rescue Considered for GMAC, Eric Dash, New York Times, October 28, 2009

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ING to Sell Online Bank ING Direct By 2013

by Flexo on October 28, 2009

in Banking

Here in the Untied States, ING Direct, a banking arm of the large financial company ING Group from the Netherlands, offers more than just high-yield online savings accounts. The bank also offers investments and mortgages, and some of the latter may have been too risky, like those sold and packaged into securities by domestic banks.

ING Group received a taxpayer bailout of €10 billion ($14.9 billion) and the European Commission is forcing the financial company to restructure in order to repay this loan. Part of this deal involves taking ING’s insurance companies public and selling the United States’ ING Direct by 2013.

The effect of this sale remains to be seen. Some time between today and the end of 2013, ING Direct will be owned by another company. This bank was one of the first to operate without any brick-and-mortar branches and the first to be an unmitigated success. When I first started paying attention to my finances at the start of this decade, the recommendations for ING Direct flowed from every information channel. With the highest interest rates in the savings account business, unusually capable customer service, and a slick and functional website, the bank was a favorite among the die-hard personal finance fans at the Motley Fool discussion boards.

More recently, ING Direct has moved from excellent to very good. I still recommend this bank to people who want a hassle-free experience, but their rates are no longer as competitive and their electronic checking account is not the best in class. For those with more money to put in savings, those who would benefit from a higher interest rate, I usually offer additional options.

ING Direct’s corporate message in response to those customers concerned about recent news of the impending sale is that your money is safe. I don’t think safety is the real concern. Accounts at the bank are insured by the FDIC, so even if the bank fails safety isn’t a problem. These are the questions you should have right now:

Who will purchase the bank and will ING Direct’s core values change?
If the core values change, will they be for the better (more competitive interest rates, for example) or for the worse (scaled back operations and customer service, for example)?
What new account fees will be introduced?
ING Direct employs about 1,200 in Delaware and another thousand more across the country. Will they have jobs and for how long?

These questions will not be answered for some time.

I do not see the announcement of this sale as a reason to move money out of ING Direct now. I will be watching developments closely, however. With the bulk of my savings in ING Direct, I am very sensitive to the fact that they do not offer the highest interest rate available. For years, the bank has counted on customers like me: those who first deposited when the interest rates were high and competitive and who have stayed around as other banks consistently offer higher rates. But I do not owe my loyalty to a company and will be quick to shop around if I am no longer getting a good deal considering cost, return, and service.

Photo credit: diaper
ING to sell Delaware-based bank in [sic] 2013, Eric Ruth, The News Journal, October 27, 2009
Post-Bailout Blues as Europe Orders ING Group to Sell 2 Units, Eric Dash, New York Times, October 26, 2009

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Hulu and the Subscription Model

by Smithee on October 27, 2009

in Consumer

This is an editorial by Smithee and a plea for your help in shaping the future of entertainment.

At our house, we enjoy some Hulu programming on occasion. Even though during the recent DVR years I’ve become accustomed to skipping commercials, I don’t mind them on Hulu, for these reasons:

I’ve only seen one per commercial break
They haven’t been suddenly, obnoxiously loud
Hulu is free, and so advertising makes sense

And so far, there’s no ability to skip them. I can deal with that, because in an episode of, say, “Defying Gravity” on Hulu, there are five commercial breaks, for a total of five minutes of Lipitor commercials (at first, every episode would play five of the same Lipitor commercial, it was almost funny). I can accept five minutes. That means about 9.6% of a 43-minute show is an ad. That’s fine, so long as the service is free.

But that is going to change sometime in 2010. Hulu is owned by NewsCorp (who owns roughly half of everything), and they have decided:

It’s time to start getting paid for broadcast content online. I think a free model is a very difficult way to capture the value of our content. I think what we need to do is deliver that content to consumers in a way where they will appreciate the value. Hulu concurs with that, it needs to evolve to have a meaningful subscription model as part of its business

Anything more specific than this decision is just speculation: subscriptions for what, everything? premium channels only? groups of channels? Nobody knows.

What I propose is unacceptable is this: a subscription fee for any user, for any content, so long as the advertising remains part of the experience. In other words: unskippable ads are no problem, subscription fees for any content are no problem, but both together would be a problem.

You and I have a chance right now to help influence and inform Hulu’s decision to go forward with a subscription model, before we let ourselves get duped.

Sadly, we’ve been letting ourselves get duped for a long time.

Newspapers, Cable TV, mobile phones

Newspapers are filled with advertisements, and they also expect you to pay for each copy. The same is true of magazines. In fact you could argue that any fashion magazine is just one huge multi-part advertisement. So, I don’t read them. Oh, I look at the news online all the time, but between my banner-blindness and various browser plugins, it’s not often I see an advertisement.

TV is a different story. TV used to be just like radio: the good parts were ad-supported, and you also had a station that relied on member subscriptions. Cable messed that all up, and we were too busy with the colorful new channels to notice. A cable company would set up shop in your town and tell you all about the dozens of extra options you’d get for $X / month. We were totally psyched to get MTV and Nickelodeon at our house, but it didn’t occur to me until later than since the cable company replaced our over-the-air channels, we were now paying for something that used to be free. Thirteen free somethings, in fact (UHF was admittedly pretty empty).

There’s an argument that in the case of OTA / broadcast channels, what you’re paying the cable company for is consistent quality of signal. I’d be happy to see some proof of that, in the form of a cable company’s accounting spreadsheet. I’m sure that NBC is charging the cable ~~companies~~ regional monopolies a fee to include their programming, and cable is passing that cost on to the customer.

The mobile phone business model just depresses me whenever I think of it. Here’s how a phone worked since the time it was invented: if you called someone, you were expected to pay for it, but if someone called you, it was free. This makes total sense: the phone call recipient didn’t intend to have that conversation, he or she isn’t really responsible. Besides that, this seemed to work very well for decades, and phone companies never changed it. That is, until we were tooling around town with phones in our pockets and cars. Since it was new and fancy, providers decided to invent a different business model: you’d be paying for calls now whether you started it or not.

As far as I know, mobile phone companies have never had to justify this to their customers en masse.

AOL vs. World of Warcraft

Remember those CDs of AOL software? They were everywhere. It seemed like you’d get a new version in your mailbox every three months, especially if you weren’t even a customer. They were free, because AOL’s business model was a monthly fee for access, content, and software upgrades. And AOL did fine for a long time.

Everquest came along and messed that all up, charging both a monthly fee and an upfront fee for the software, and now WoW players suffer the same fate. You’re paying the company twice for the same things they were going to be doing anyway. What is wrong with us? Why do we enable companies to use more than one business model at a time?

Advertising is a replacement for subscriptions

And vice versa: subscriptions are a replacement for advertising. Advertising is one business model, and subscriptions are another. Employing both for the same product is unacceptable.

I’d like to ask for your help now in spreading this message to the managers at Hulu, so they understand the intelligent way to move forward is to either saddle us with a recurring fee and remove the commercials, or leave the commercials in an otherwise free service.

On Hulu’s discussion forum, there are already many threads decrying the decision to start charging. You could try adding your own voice there, or e-mailing feedback@hulu.com. Another less elegant method would be to add an irrelevant comment on one of the entries at the official Hulu blog. In my experience, site owners are more likely to read blog comments than they are discussion forums, but your mileage may vary.

Hulu’s Free Glory Days Are Official Numbered, John Herrman, Gizmodo, Oct. 22 2009

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