financial advice

Mint.com Will Provide Personalized Financial Advice: Beta Test the New Features

by Flexo on April 28, 2009

in Software

Starting today, Mint will begin beta testing some significant new features. Mint, a web application that helps you track your financial transactions, account balances, debt and budget, is branching into financial advice. For a few weeks, beta testers will have exclusive access to these new features described below. I have 200 invitations to share with Consumerism Commentary readers who would like to be part of this beta testing group. Keep reading to find out how you can receive an invitation to the beta testing program.

Almost two years ago, Consumerism Commentary contributor Sasha reviewed Mint, freshly minted. As I mentioned at the time, I figured I would not become a regular user of this software. I am a devoted user of Quicken Home and Business, and I am comfortable with my process. When Smithee noticed that Mint.com had been offering new features earlier this year, I still didn’t pay too much attention.

But I had the chance to speak today with Mint’s CEO Aaron Patzer and experience a preview of the new features the company plans to release to the public in a few weeks. To prepare, I signed into my Mint account for the first time in several months. I was pleasantly surprised to see Mint now supports automatic updates of a variety of investment accounts, loans, and house values, as well offers the option for manual entry accounts for cash expenditures. The charting and reporting functions are much improved.

New features now available for beta testers

Mint wants to get the word out about new additions that take the application’s financial insight and visibility to the next level: action steps to help you improve your financial situation. The developers worked with real, live financial advisers to develop five broad principles for guiding their users towards making healthy financial decisions: knowing your money, spending less than you earn, using debt wisely, investing your savings, and preparing for the unexpected.

A number of tasks are provided for each of these principles, and when you complete these tasks, Mint awards you points. The more points you earn, the higher your score. Mint also explains why each of these tasks is important for a financially fit lifestyle. Here’s what their task suggestions look like:

For each of the tasks, Mint walks you through the decision making process. Based on what Mint knows about your finances — and if you use Mint right, it will know just about everything — the application will provide you suggestions for high-yield savings accounts, even giving you a breakdown of the fees and minimum balance requirements if anything. For optimizing your credit card debt, Mint takes the amount you pay towards your debt each month and tailors its suggestions to your particular spending and payment habits. Based on a few assumptions, Mint explains how much you will save by switching.

It’s true that Mint has a relationship with many banks and credit cards. In other words, if you sign up for a savings account or credit card through Mint, these companies will pay Mint a small fee. According to Aaron Patzer, the choices are presented without preference towards these companies. If the best card for you is the Schwab Bank Invest First Visa Signature Card, it will be listed first, even though Mint may not get paid if you sign up for that particular credit card.

As I mentioned earlier, you receive points for making sound financial decisions. Some examples are surviving a month without being charged bank fees, reviewing your transactions each month, checking your credit report for errors annually, and investing for retirement. The points system is based on a game; you are awarded “trophies” for consistently performing well, a fun incentive for making the right choices.

There is some work to be done. Although the options presented for many of the tasks are personalized, the tasks themselves are only those that would apply to everyone. For example, while health insurance is covered in the fifth principle, life insurance is not. Right now, Mint does not know whether you are someone who would benefit from life insurance. This personalized level of suggestions is not yet possible through Mint. When asked about this, Aaron explained that Mint would not ask participants whether they have dependents, which would help determine more personalized financial advice. They may, however, use home ownership as a trigger; those who own homes are more likely to have dependents and would therefore benefit from life insurance. These enhancements might be developed later.

The competition for online financial management is intense, with Quicken Online and Geezeo adding new features frequently as well. I may be too stubborn to discard all that I have done with my desktop software in favor of a web-based application, but as these online applications mature, I’m starting to see the value for people other than financial novices.

How to become a Mint beta tester

I have 200 invitations available for those who would like the chance to enjoy these new features of Mint several weeks before the broader public, and importantly for the software developers, provide feedback and suggestions. Here is all you need to do in order to receive access.

If you haven’t already, set up an account at Mint.com. It’s free and secure.
Send an email to consumerism-getfit@mint.com requesting access and include the email address you use to log into Mint.

In a few days, you will be inducted into the beta testing program and you will receive access to these new features.

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The Paradox of “Buy Low, Sell High”

by Flexo on February 24, 2009

in Investing

If everyone could “buy low and sell high” when making investment decisions, everyone would be a successful investor. I would never give this advice to anyone. First, it is obvious to anyone who understands basic arithmetic. If you want to make money, you have to sell something for more than you paid for it. This is why people are reluctant to sell houses right now. Buyers are waiting for lower prices because they think the market will continue to go down for some time and sellers — unless they are highly motivated — don’t want to sell until prices go back up.

Second, it is impossible advice to follow. Unless you have inside information on a specific company — and that is very unlikely — you don’t know with certainty whether a stock price is going to up or down over the next month, year, or decade. The price set by the market, with so many buyers and sellers, is generally the accurate price for that stock at that time. The only way to know whether a price was a “low” or a “high” is to look at the numbers well after the fact.

On Friday, the S&P 500 index hit a low point not seen since the mid 1990s. But will future investors look at Friday’s price as a low? It depends on where the stock market goes from here. Many experts predict that the bottom has not yet arrived. Friday’s low might be high compared to what the future may hold if stocks retreat to levels not seen since the 1980s.

In reality, people don’t buy low and sell high. Yes, there is the argument that people follow trends (rather than lead trends), often resulting in buying high and selling low. But more importantly, investors buy when they have cash and sell when they need cash. As it happens, on average, people have cash when the economy is good and need cash when the economy falls. Stocks are often a victim of this same economy. The stock market generally follows the sentiment of the greater economy, so your cash moves into stocks when they are high and moves out back to cash when stocks are low.

This phenomenon is a result of looking at averages; on an individual level, anything can happen. You could be flush with cash while the rest of the economy suffers and more people are out of work, or you could be struggling while everyone else flourishes. On average, economic conditions force investors to buy high and sell low.

One way to turn this around for your own benefit is to try to understand what most people are doing, and do the opposite. If you buy stocks while there is a general tendency among the rest of the market to panic and sell stocks, you have a better chance of buying at a low point. If investing becomes the latest craze and you can’t go anywhere without having stock tips thrown at you, the exuberance could be irrational and you have a better chance of selling at a high point.

Rather than advising someone to “buy low and sell high,” a strategy which would involve knowledge of the future, perhaps it would make more sense to advise to “buy during panics and sell during exuberance.”

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Pay to Be a Financial Expert on Television

by Flexo on October 13, 2008

Last week, I had doubts about the advice provided by a so-called financial expert on the local prime-time network news program. Offering advice in public is a difficult task to do well. You have to appeal to your audience by suggesting solutions appropriate for the bulk of the listeners, a group that can vary in terms of intelligence, experience, and education.

In many cases, what ends up happening is that the advice is geared to the “lowest common denominator” (in the non-mathematical sense) and those in need of personalized financial advice end up feeling dangerously fulfilled by platitudes, rules of thumb, and averages. But aside from financial guru superstars like Suze Orman, Dave Ramsey, and Robert Kiyosaki, how do producers of local news programs find the experts they use for their economic/human interest pieces?

According to “the Mole,” my favorite undercover financial adviser, radio and television stations contact financial professionals in the community. The stations approach financial advisers to invite them to present “expert opinion.” There is a catch, however. The financial adviser must pay the station to appear.

Previously, I assumed two things. First, if you are interviewed on a television or radio show, you are not paid for your appearance, nor do you have to pay the broadcaster. I’ve been interviewed several times for print and radio, and never once have I been paid nor have I received an invoice. Second, if you are a station or program’s “official financial expert” or “resident financial adviser,” you are paid for your affiliation. The station should be lucky to have an expert like you on “staff.”

This is not the way media works. Radio and television considers your appearances as advertisements for your financial advisory business. Accordingly, you must pay in order to appear. While I have no evidence if that was the case with the financial adviser on the ABC news program I happened to catch, if the Mole is correct (and I generally trust what he has to say), it’s likely she paid ABC in order to be their resident expert and have her name and phone number flash across the screen.

It makes sense from a business standpoint as well. Presumably, the news audience will believe that this financial adviser is reputable for her to be “awarded” the post of resident expert. In turn, some of the audience may become clients. This may make the adviser’s fee worth the price of admission.

As consumers, it’s more evidence that we can’t simply trust appearances.

Taking financial advice from radio gurus, the Mole, Money Magazine, October 1, 2008

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Financial Tips for Students Entering College

by Flexo on August 22, 2008

Fourteen years ago this month I was nervous about what was about to transpire. At this time. although I had been away from home for extended periods of time, I was about to leave for college. Honestly, I thought I might be biting off more than I could chew. Rather than living at home and attending a local college like a number of my high school classmates, I was preparing to live on the campus of a major university in another state.

I should have known that I had little to worry about. But there are a few things I wish I had known — or at least thought about — before entering college.

Pay attention to your expenses. For me, my expenses were fairly controlled. On campus, I had a meal plan. My breakfasts, lunches and dinners were paid for in advance and rolled into my tuition and board expenses. In order to eat in one of the many dining halls, all I had to do was flash my student identification card. This meal plan entitled me to a certain number of meals per week in addition to an allotment of “points” which can be used to purchase snacks at other times.

The meals and points expired at the end of each semester, and the college reminded students that “It is [their] responsibility to budget [their] points over the course of the semester/session.” I don’t recall doing any budgeting. I may have known at the time how many meals and points were available to me, but I didn’t do any planning. I ate when I felt like it and bought snacks and other things at the university’s shops when I desired. There was an option to add points to the account, and I’m sure I did this as needed.

Who is paying for college? My undergraduate education was paid for by my parents, a partial scholarship, and loans in my name. If your parents are paying for your education, be careful not to fail any courses. If you fail a class required for your degree, you will have to take that class again, paying for it twice. It’s not worth it, particularly since it’s usually difficult to outright fail a class. Paying for college yourself supposedly gives you ownership of your academic decisions while in school, but if you’re in a situation where you don’t have to worry about affording your own tuition, then consider yourself lucky.

Work shouldn’t interfere with studies. I am quite grateful I didn’t have to pay for most of my undergraduate education. It allowed me to focus on my education and extracurricular resume-building activities in my field rather than focusing on earning income to afford tuition. I did find a few jobs, however. I stayed on campus for winter and summer sessions to take more classes, but with a lighter load during these in-between semesters, I worked in the department library to earn some extra money. I also served as a web consultant in my department, designing their first departmental web site and teaching professors how to publish their own sites for a measly ten dollars an hour.

These jobs provided me with a little extra cash. I probably spent it just as fast as I was earning it, however.

Open a Roth IRA. I wish I had known about Roth IRAs when I started college. It would have been impossible for me to do so without a crystal ball or some other form of premonition. These retirement accounts were brought into existence while I was enrolled in the university, but I did not hear of it until a few years after I had graduated. If I had known that I could put money away for retirement in a tax-advantaged account while I was in such a low tax bracket, I might have taken advantage of the opportunity. Then again, I might not have. It’s hard to imagine retirement before you’ve officially begun a career, but it’s harder to argue with long-term investing in the stock market. If I had invested $1,000 in the S&P 500 index on October 11, 1996, it would be worth $1,825 now (not including reinvested dividends) and much more by the time I retire.

Like many, I played the “stock market game” in elementary school. By the time I entered college, I probably knew only a little more about investing, but my interests lay elsewhere so I did not particularly think about having a secure financial future.

Avoid credit cards. The credit card companies are vultures on college campuses. I remember when I first arrived on campus as a freshman for orientation, one week before the upperclassmen. The companies set tables outside the dorms with applications and free tee-shirts, enticing subfashionable freshmen like myself to sign up. Although I escaped relatively unscathed, having a credit card without a job is asking for trouble.

One particularly sneaky aspect of college-geared credit cards is the introductory offer. The 0% APR on purchases deal sounds great, but what they don’t explain is that you must pay off your entire balance on the card before the promotional period ends, otherwise you could owe back interest as if the 0% APR promotion never existed. It’s always explained in the fine print, but if you have an appointment for orientation, chances are you just want to sign the form and grab the tee-shirt.

Forbes offers these thirteen financial tips for students entering college for the first time.

Use credit cards sparingly
Pay all credit card balances in full
Get the best deal on a checking account
Start saving
Keep track of your spending
Set a limit on entertainment
Shop at second-hand stores
Keep an eye out for free money
Get a part-time job with tips
Walk or ride a bike — don’t drive
Avoid the tax on stupidity
Look for student discounts
Don’t eat out all the time

Tavis Smiley has a number of similar suggestions. He suggests making a budget, shopping smart, and learning to cook.

Had I known what I know now about compounding interest and the tendency for the stock market to increase over time, not just theoretically but from experience, I’d be in a better financial position right now. And it’s not about having more money, it’s about having more options for doing the things I like to do.

Photo credit: Éamon
13 Financial Tips For College Kids, Scott Reeves, Forbes, August 30, 2004
Financial Advice for College Students, Tavis Smiley

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Is a CFP Certification Necessary When Choosing a Planner?

by Flexo on May 9, 2008

I like the new columns from Money Magazine featuring “The Mole,” an undercover financial planner. Like me, The Mole prefers to write anonymously to protect his or her identity. While my reasons for doing so pertain more with my desire to post sensitive personal information, The Mole maintains incognito status because he tends to speak out against the practices of his contemporaries and associates.

Some time ago, I considered publicly becoming a financial adviser or planner. Eventually, I decided it wasn’t the path I wanted to take, but the resulting discussion was interesting. So what does a would-be financial planner need in order to be hired and trusted by customers?

Perhaps a certification. The Mole says “maybe.” He has good things to say about Certified Financial Planners (CFPs), as he is one. This is a quality certification program with stringent requirements. Unfortunately, not all certifications require rigorous education and some have a loose grasp on ethics and fiduciary responsibility.

Now by my last count, there were more than 100 financial designations. Many, like the CFP, take a significant amount of time and expertise to master before the designation is awarded… Unfortunately, many of the others require nothing more than brief courses geared toward sales techniques; how to use emotions to sell annuities to seniors is a popular one.

A strong designation would reduce the chances your financial planner turns out to be sleazy like these annuities salesmen profiled by Dateline NBC.

However, even a designation like CFP does not guarantee the quality of the planner. Regardless of the designation, it’s best to get referrals from satisfied customers before selecting your financial planner. Don’t know anyone who is retaining financial advisory services? You can get referrals from the Financial Planning Association or the National Association of Personal Financial Advisors.

With referrals in hand, research your potential advisers with the North American Securities Administrators Association.

Walter Updegrave, another columnist for Money Magazine, submits the following:

I’d be wary of any advisers who contact me unsolicited, and doubly wary of ones who run free retirement-planning lunches or seminars. Many times such sessions are just a come-on to sell high-priced investments.

The lesson is to remain skeptical. If your adviser isn’t listening to your goals, suggesting products that are right for you, or trading frequently, it may be time to fire him or her, regardless of the adviser’s certification.

Do I Really Need a CFP? [Money Magazine]
Cracking the mysterious code of financial advisers [Money Magazine]

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Take This Rule of Thumb Quiz

by Flexo on January 11, 2008