Investing Curiouscatblog

Tag: fees

  • Lazy Golfer Portfolio Allocation

    There are many asset allocation strategies; which often are pretty similar. In general they oversimplify the situation (so an investor needs to study and adjust them to their situation – though most don’t do this, which is a problem). In general, I think asset allocation suggestions are too heavily weighted on bonds, and that is even more true today in the current environment – of could that is just my opinion.

    I ran across this suggested allocation in Eyewitness to a Wall Street mugging which I think has several good values.

    • It focuses on low fee, market index funds. Fees are incredibly important in determining long term investment success
    • It has lower bond allocation than normal
    • It has more international exposure than many – which I think is wise (this suggested portfolio is for those in the USA, USA portion should be lowered for others)
    • It includes real estate (some suggested allocations miss this entirely)

    In my opinion this allocation should be adjusted as you get closer to retirement (put a bit more into more stable, income producing investments).

    My personal preference is to use high quality dividend stocks in the current interest rate environment. I would buy them myself which does require a bit more work than once a year rebalancing that the lazy golfer portfolio allows.

    I would also include 10% for Vanguard emerging markets fund (VWO) (for sake of a rule of thumb reduce Inflation Protected Securities Fund to 10% if you are more than 10 years from retirement, when between 10 and 1 year from retirement put Inflation Protected Securities Fund at 15% and Total Stock Market Index Fund at 35%, when 1 year from retirement or retired lower emerging market to 5% and put 5% in money market.

    Depending on your other assets this portfolio should be adjusted (large real estate holdings [large net value on personal home, investment real estate…] can mean less real estate in this portfolio, 401k holdings may mean you want to tweak this [TIAA CREF has a very good real estate fund, if you have access to it you might make real estate a high value in your 401k and then adjust your lazy portfolio], large pension means you can lower income producing assets, how close you are to retirement, etc.).

    The Lazy Golfer Portfolio (Annually rebalance the fund on your birthday and ignore Wall Street for the remaining 364 days of the year) contains 5 Vanguard index funds

    • 40% Total Stock Market Index Fund (VTSMX)
    • 20% Total International Stock Index Fund (VGTSX)
    • 20% Inflation Protected Securities Fund (VIPSX)
    • 10% Total Bond Market Index Fund (VBMFX)
    • 10% REIT Index Fund (VGSIX)

    Related: Retirement Planning, Looking at Asset Allocation – Lazy Portfolio Results – Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation – Starting Retirement Account Allocations for Someone Under 40 – Taking a Look at Some Dividend Aristocrats

  • Picking the Right Bank Can Eliminate ATM Fees

    Unfortunately large banks have a very strong tendency to try to take as much of your money as they can get away with. Rather than having to stay ultra-vigilante (as though I am in business with a thief that I have to watch ever minute or expect my money to be stolen) I would rather pick those I going into business with to avoid those seeking to rip me off. Credit unions are usually the best bet. Some credit unions join nationwide ATM networks, so if ATMs are important to you check this out before selecting a credit union.

    Hate ATM fees? Try these fee-friendly banks

    In fact, if you frequent an out-of-network ATM once a week, you could end up paying more than $200 in ATM fees a year.

    If you’re looking to avoid those fees, Ally, Charles Schwab (SCHW, Fortune 500) and USAA not only let all of their customers use out of network ATMs free of charge, but they also refund the fees that their customers are charged by other banks. State Farm Bank doesn’t charge you for going out of network and reimburses fees of up to $10 charged by other banks.

    In general, the best advice is to avoid large banks like you would someone with a dangerous communicable disease.

    BankSimple is a very promising new offering from Alex Payne, one of Twitter’s first employees and CTO of BankSimple, that promises “to simply put people first. Real customer service, no surprise fees, and a deep desire to help people is what makes BankSimple different.” Now the large banks are perfectly comfortable saying they try to help while trying to find any way possible to trick customers out of money. So Banksimple’s words don’t mean much. but I think there is a real chance they will be different. It is a great market to be in, huge amounts of money to be made and your competitors all treat customers egregiously poorly. That should give you a great opportunity to gain a huge market share.

    They are not yet open for business but it might open in early 2011. They are not actually going to be a bank, but instead provide the customer value and partner with existing banks (so we can deal with someone that isn’t trying to rip us off and they can let some bank deal with the administration of managing the money.

    Related: Worst Business Practices: Fees to Pay Your Bills – Credit Card Regulation Has Reduced Abuse By Banks – FDIC Study of Bank Overdraft Fees – Sneaky Fees

  • Worst Business Practices: Fees to Pay Your Bills

    Some companies (Banks, Verizon, Comcast, credit card insurers, United, car dealers…) continually find new ways to be hostile to customers. It really is amazing people put up with their horrible practices. The latest from the fees to check bags, fees to for paying company expenses, waste your time on voice mail hell if you want to talk to us crowd is fees to pay bills using automated systems.

    The customer hostility of these companies is part of their DNA. We should recognize the new attempts to fleece customers but there is no reason to be surprised by the new, ever more hostile customer behavior of these companies. There are alternatives for consumers, just find them, and support them. Some industries are dominated by customer hostile companies (which can make avoiding them hard): banks (both consumer and investment banks), credit cards, airlines, cable companies, cell phone service. Even in those industries you can find ethical companies: Southwest Airlines, many credit unions, CarMax…

    Paying to pay your bills

    if you are to go Chase, Wells Fargo, Bank of America and you want to use their automated phone system — no human beings within sight — $15.
    …
    And yet these guys are charging $15. I asked Chase, “How can you charge that much for an automated transaction?” They said, “Well, that’s how much we charge.” And you look at some of the other charges out there. For instance, this week Verizon Communications is introducing a new $3.50 charge if you pay your bill online, automated phone system, or to a service rep without using their recurring, automatic bill paying system.


    A fee to pay your bill? Yep

    AT&T is a little better. It charges $5 if you pay by phone with a real, live service rep, but there’s no charge for using the company’s automated system.

    Time Warner Cable charges $4.99 to pay by phone with a human being, but it too charges nothing to use the automated system.

    “People pay for a product or service,” said Doug Heller, executive director of Consumer Watchdog, a Santa Monica advocacy group. “They shouldn’t have to pay again just for the right to pay them.”

    Related: Protect Yourself from 11 Car Dealer Tricks – Poor Customer Service: Discover Card – Best Buy Asks Man to Change His Name – Is Poor Service the Industry Standard?

  • Credit Card Regulation Has Reduced Abuse By Banks

    Most of the practices deemed unfair or deceptive by the Federal Reserve have disappeared from new credit card offers since federal passage of the Credit CARD Act last year, according to a new report by the Pew Charitable Trusts, Two Steps Forward: After the Credit CARD Act, Cards Are Safer and More Transparent – But Challenges Remain.

    The report finds that issuers have eliminated practices such as “hair trigger” penalty rate increases (disproportionate charges for minor account violations), unfair payment allocation, and raising interest rates on existing balances. However, Pew’s research also highlights a sharp rise in cash advance fees, continued widespread use of other penalty interest rates and an emerging trend of credit card companies failing to disclose penalty interest rates in their online terms and conditions.

    One interesting tidbit from the report which studied the 12 largest banks and 12 largest credit unions: together these institutions control more than 90 percent of the nation’s outstanding credit card debt.

    Less than 25 percent of all cards examined had an overlimit fee, which is down from more than 80 percent of cards in July 2009. Additionally, mandatory arbitration clauses, which can limit a consumer’s right to settle disputes in court, are now found in 10 percent of cards compared to 68 percent in July 2009.

    At least 94% of bank cards and 46% of credit union cards (once again showing credit unions are likely to be a better option – though not always)came with interest rates that could go up as a penalty for late payments or other violations. But nearly half these warnings failed to inform the consumer of the actual penalty interest rate or how high it could climb.

    Bank cash advance and balance transfer fees increased on average by one-third during this period, from 3% of each transaction to 4%. Credit union cash advance fees went up by one quarter, from 2% to 2.5%. Both increases (which again show how poorly banks fair in comparison) are unconscionable given the incredible low costs of money today. You should not pay these ludicrously high fees.

    Related: Credit Card Issuers Still Seeking to Take Your Money – Continued Credit Card Company Customer Dis-Service – Legislation May Finally Pass to Address the Worst Credit Card Fee Abuse (Dec 2007)

  • Retail Credit Card Fees Much Higher in the USA

    Retailers Ready for Fight on Credit-Card Fees

    Americans are being forced to pay significantly higher swipe fees whenever they use their credit cards than any of their peers in the industrialized world, according to a report by the Merchants Payments Coalition.

    The report, released Thursday by a coalition of retailers, supermarkets, drugstores and other businesses, found that Americans currently pay about $2 in “interchange” fees for every $100 they spend using credit cards. The fee is actually paid by retailers, though consumers feel it in a higher retail price. This rate is twice that charged in the U.K. and New Zealand, four times the rate levied in Australia and more than six times the cross-border rate charged in the European Union, the study says..
    …
    “If we paid the same low credit- and debit-card swipe fees as consumers in Australia pay, then the net benefit for American consumers would have totaled $125 billion over the last four years,” the report says.

    It truly is amazing how incredibly poor the banking services in the USA are. The banks have managed to provide mediocre service at exceedingly high prices. It sure seems to be due to unfair trade practices (allowed by poor regulation). See our tips on how to avoid getting ripped off by credit card companies, though it won’t help with these excessive fees.

    Related: Continued Credit Card Company Customer Dis-Service – More Outrageous Credit Card Fees – Hidden Credit Card Fees – Poor Customer Service by Discover Card

  • More Outrageous Credit Card Fees

    Sneaky changes to your credit cards

    Although banks are scooping up billions in bailout money or borrowing money from the Federal Reserve at as low as 0%, they aren’t passing on those savings to consumers. Credit card interest rates have increased for many major card issuers and even doubled or tripled for some consumers who pay their bills on time. Bank of America is raising interest rates on about 4 million customers with balances. Citigroup and Capital One have also jacked up rates.

    Credit card interest rates are typically pegged to the prime rate, which has fallen from 5.25% a year ago to 3.25% now. But the national average rate for credit cards has actually risen over that period, moving from 11.3% to 12.4%
    …
    * The standard balance transfer fee has risen to 3%, and Bank of America recently joined Discover in increasing that fee to 4% on certain offers.

    * Cash advance fees had been 3%, but Bank of America now has 5% cash advance fees for money obtained through ATMs and at banks, and 4% fees on advances via direct deposit and checks.

    * Foreign transaction fees — charged when you make purchases in other countries or use foreign banks — are going up for many cardholders. Starting June 1, Bank of America will begin charging for a service it had previously provided free: Transactions made in U.S. dollars but processed through foreign banks (such as online purchases from overseas merchants using foreign banks) will be hit with 3% fees.

    The incredibly large fees are a good reason to not use your credit card for these activities. 5% to get money from an ATM. You have to be crazy to submit to such a fee. The banks continue to fight with the airlines for who can keep providing the most horrible customer service.

    Related: How to avoid getting ripped off by credit card companies – Sneaky Credit Card Fees – Avoid Getting Squeezed by Credit Card Companies – Incredibly Bad Customer Service from Discover Card – more posts on credit cards

  • FDIC Study of Bank Overdraft Fees

    According to the FDIC study of bank overdraft programs during 2007, 75% of banks automatically enrolled customers in automated overdraft programs (which charge high fees). By contrast, 95% of banks treated linked-account programs as opt-in programs, requiring that customers affirmatively request to have accounts link (which are normally do not charge customers high fees).

    Automated overdraft usage fees assessed by banks ranged from $10 to $38, and the median fee assessed was $27. About one-fourth of the surveyed banks (24.6 percent) also assessed additional fees on accounts that remained in negative balance status in the form of flat fees or interest charged on a percentage basis.
    Fees assessed for linked-account and overdraft LOC programs were typically lower than for automated overdraft programs. Almost half of the banks with linked-account programs (48.9 percent) reported charging no explicit fees for the service. The most common fee associated with linked-account programs was a transfer fee; where charged, the median transfer fee was $5.

    There really is no excuse (other than trying to gouge your “customers”) for these fee levels. Charging any money to just move money from a customers saving account to checking account is just making it obvious the bank doesn’t want to serve the bank wants to take money from you. The banks in the sample used by FDIC earned an estimated $1.97 billion in NSF-related fees in 2006, representing 74 percent of the $2.66 billion in service charges on deposit accounts reported by these banks.

    Consumer complaints about automated overdraft programs were received by 12.5 percent of banks that operated these programs, compared with consumer complaints from less than 1.0 percent of banks offering linked-account programs and 1.5 percent of banks offering overdraft LOC programs. Complaints about automated overdraft programs were more common for large institutions than for small institutions (21.7 percent versus 10.6 percent).

    A small fee when lending the customer money may be justified but the banks seem to just operate in order to have a big pool of people to catch them with big fees. The model seems to be if we get more “customers” we can catch more of them with one fee or another. It is not an honorable business model to try and catch your customers with huge fees for minor items.

    Make sure you have a free linked-account overdraft protection that will tap your saving account if your checking account falls below 0. If they don’t have such a free program, choose a bank or credit union that does. Also an overdraft line of credit might be wise. If the fee is more than $10, go somewhere where they are not so greedy. You also will owe interest on your borrowings (probably a ludicrously high interest rate).

    Related: Don’t Let the Credit Card Companies Play You for a Fool – 10 Things Your Bank Won’t Tell You – Hidden Credit Card Fees – FDIC Limit Raised to $250,000