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Personal Finance

Financial Advisor to Investor: Don’t panic!

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Below, an exchange that started with an update from my financial advisor.

Beloved youngish partner of Financial Dudes, LLC, to Funny about Money:

To enhance our ability to remain patient with respect to our long-term investment strategy, we raised the cash level in your portfolio again, by trimming allocations to specific securities.

In addition, we initiated the process to upgrade the quality of our client’s money market holdings to a U.S. Treasury based money market to avoid the turmoil swirling around some money market funds. If you were not in a U.S. Treasury money fund, you will see some activity in your affected accounts in the next day or so.

There certainly has been a tremendous amount of news to digest lately, and we are navigating these markets with your long-term goals in mind. We have seen, and likely will continue to see, short-term volatility in the value of many investments that we hold.

If you have any questions or concerns, simply give us a call.

Funny to BYPoFD:

Thanks, John–

I have about ten or twelve grand in Vanguard’s Prime Money Market fund. VG is claiming it’s not invested in Lehman or related unhappy sites, & so I’m guessing it’s OK to leave the money there… Would you advise moving that money to a different fund? Or into a credit union money market, which just now earns a grand 1.88 percent?

best, –vh

BYPoFDto Funny:

We just moved it to be on the safe side and don’t think there will be any issues with the money market. We will move it back at some point. I wouldn’t really fret the Vanguard money market as they are normally on the conservative side and I don’t think there will be any issues.

Funny toBYPoFD:

Good. I’d pretty much reached the same conclusion.

Doesn’t appear to be much safety anywhere in the current storm, eh?

BYPoFD to Funny:

Not really. Even putting it under your mattress you run the risk of someone stealing it. Eventually we will work through all the problem companies and the ones that survive will be the big winners like in the early 90’s. This seems to be happening with BofA.

The long and the short of it:

Don’t dive out of your money market fund. Especially if it’s with Vanguard. Stay the course.

Money market drops below a dollar a share

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Here’s a little gem in today’s International Herald-Tribune: the Primary Fund, part of one of the largest and oldest money market funds around, has dropped its share value to 97 cents.

Now a loss of three cents a share isn’t going to break any of us up in business. But…well, heck. Dunno about you, my friends, but being the cheapskate that I am, I don’t want to see even three pennies go away. I have a fair amount sitting in Vanguard’s Prime Money Market, cash saved to pay off the Renovation Loan and to double as an emergency fund. Since it’s not invested in stocks or bonds, it could just as easily lay fallow in the credit union as at Vanguard. At the credit union, it’s insured.

So I called Vanguard this afternoon, where I learned I was far from the first to harry the call center employees with fussy questions about their money market funds. The young woman I reached assured me that “Vanguard is very confident” (uhm…is this a statement with meaning?) and that its money market funds are not invested in any instruments presently known to be at risk.

O.K.

I guess.

Path of least resistance is to leave the money at Vanguard. Path of medium resistance is to write a check on the fund and pay down the Renovation Loan by ten or eleven grand (and maybe plant some vegetables in the backyard to cover for the proposed emergency). Path of most resistance is to move everything over to the credit union, whose arcane rules assign a different return to each of the half-dozen different accounts it offers and so will require some figuring out.

Hmmm… Bogle, can your successors be trusted? Probably. It’s at least a strong maybe.

Do I want to pay off that loan right this minute? Nope. With the economy melting down around us, I want cash.

Am I making a larger pittance on cash savings at Vanguard than at the credit union? Yes. But only if Vanguard’s Prime Money Market Fund never breaks the dollar.

Looks to me like the path of most resistance could be the best way to go: identify the best-paying CU account (money market: 1.88%; CD: 2.23% for 3 months to 3.92% for 5 years; savings: 5% up to $1,000 and .75% over $1,000) and move the money over there.

Good grief. Just look at the complexity of those options. Makes me not want to think about it! Gut instinct, though, suggests I’d make a little less at the CU but sleep better with savings insured up to $100,000. The wee dividends don’t matter, but that deposit insurance sure does.

Scary times

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Well, we all had quite the adventure yesterday. I woke up an hour ago—12:30 in the morning local time—wondering if I should move all my investments into the money market. Nothing like the dead of night to ramp up the panic factor.

In fact, though, I see that Vanguard lost all of $738.13 against many tens of thousands of dollars, and so I’m feeling a little saner.

Don’t have up-to-the-minute data on how the big IRA (a different fund) that Stern and Reimer manage is doing, but in past slumps Stern has worked the occasional small miracle. Checking the current holdings, I see he dumped Morgan Stanley and AIG a while back…and interestingly, we own Bank of America. How does that man know? He’s bought my son’s employer, so I guess he doesn’t expect that outfit to crash in flames soon. A fair amount of oil: Occidental, Exxon, and Conoco Phillips. And…hmmm…he’s moved a ton of money into cash reserves. Yipe!

At any rate, I guess I won’t be going broke soon. Later, maybe, but not today.

Why are we paying for this?

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So this morning I call The Hartford to find out whether jacking up the deductible on my homeowner’s insurance will save enough to help keep my in the house after retirement. The punch-a-button maze robot answers the phone with “If you are calling regarding property damage from a hurricane, please press 1…”

Is there any question why our homeowner’s insurance is surpassing unaffordable? If I maxed out the deductible at $4,000, it would save me all of $21.50 a month…not worth the risk of having to cut four grand out of retirement funds in the event of a fire or a falling tree. Raising my deductible from $250 to $2,000, as I decided to do, will save $114 a year: a grand $9.50 a month. Who pays for all the repairs insurance companies shell out to people who stubbornly insist in living in the way of hurricanes, tornadoes, wildfires, landslides, and earthquakes? That’s right: you and me, in the form of ever-soaring insurance premiums.

As we scribble, an army of rescuers is searching for more than 2,000 morons who flat refused to obey mandatory evacuation orders. These clever folks—those who can be found—are being ferried out by boat and helicopter. These are the same hardy denizens who graced Internet news videos as they were sitting around a bar getting drunk a couple of days ago. Now they’re whining because they have no air conditioning, water, or toilets.

“The storm was easy,” the New York Times quotes one Brenda Shinette, who at 51 is old enough to have known better. “I feel like I want to pass out, but I can’t tell if it is from too much heat or too little food.”

Is it possible to pass out from a deficiency of I.Q. points?

“Next time they should warn people about this, not the storm itself,” said another bright soul surprised by such details as floods, power outages, water outages, toilet outages, snakes, mosquitoes,roving packs of dogs,and rotting food.

What is it about get the hell out now get out get out get out you will die if you do not get out that you don’t understand?

“I thought we were going to need Noah’s ark,” said one Elizabeth Madson, who at 45 not only is old enough to know better but who has lived on this hugely at-risk island for seven years. “It was horrific. I would not wish that on anybody. . . . Anymore, if they say a hurricane is on its way, I’m leaving two days before.”

Some mules can learn if you whap them upside the head with a two-by-four.

It’s easy to make fun of individual morons. But then we have the corporate morons. How much do you suppose our insurance premiums will rise to cover the losses to the owners of the now-nonexistent Balinese Room, a nightclub built 600 feet into the gulf, and the Flagship, a hotel on a pier extending 1,000 into the gulf?

And how much will our taxes rise to cover the services of hundreds of search-and-rescue workers, to repair and rebuild utility infrastructures, to clean up the flood-deposited muck, to rebuild levees intended to turn back the sea so these fools can move right back in?

The normal elevation of Galveston Island is8.7 feet above sea level. Much of the developed part has been artificially elevated, andit’s sinking.

Whether or not you believe global warming and its consequent flooding, violent storms, and drought are all a figment of the liberal imagination, you have to agree that we as a people should not have to pay for the folly of individuals and corporations that insist on parking themselves in harm’s way. Living at sea level directly in the historic path of huge, massively violent storms comes under the heading of parking yourself in harm’s way. So does living in a trailer in tornado alley; building your house in the middle of a beetle-infested, drought-stricken forest; living in hills covered with chaparral evolved to actually benefit from wildfires; dwelling atop an earthquake fault; and taking up residence on the side of a dormant volcano. The rest of us should not pay for the predictable results.

It’s past time We the People brought a stop to this nonsense.

The federal government should tell insurers not only that they do not have to insure property in high-risk regions, but that they cannot insure it. It should be against the law to insure homes and businesses in places like Galveston Island—or in any other area at high risk of natural disaster.

Whatever tax incentives exist to encourage building in these areas should be eliminated. In fact, federal, local, and state governments should charge exponentially higher taxes to anyone who insists on living in fire, flood, and earthquake zones. And people who require the need of search-and-rescue teams after ignoring officials’ warnings to evacuate should be made to pay the entire cost of the rescue operation that gets them out of trouble. Let the folks who can’t understand why they need to get out of the way of a hurricane the size of the entire state of Texas pay for the cost of rescuing them!

The increasing cost of insurance and property taxes, when combined with the rising cost of food, utilities, and gasoline, very likely will force me out of my paid-off home when I retire. Who’s going to rescue me? Who’s going to rescue any of us who can no longer afford the cost of underwriting other people’s folly?

Photo: Aftermath of 1900 Galveston hurricane
byKeystone View Company

Thank goodness! And . . . gasp!

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Two scary envelopes arrived in the mail today: one from the county tax assessor and one from my financial manager. I figured both would bring bad news.

And yea verily: even though the sale value of my house has dropped $50,000 over the past couple of years, the assessor’s biannual estimate of its value has gone up by $33,000, raising my taxes from the $1,500 I paid when I moved in about four years ago to almost $2,100.

However, this moment of gloom was relieved by a report from the redoubtable Stern and Reimer, who, despite the drumbeat of unnerving economic news, contrived to make my investments earn $2,265 in August.

LOL! Just about enough to pay the taxes!

In fact, I have the tax money in hand, accumulated by dint of a $300-a-month setaside from my paycheck. So I can pay the assessor this year. But next year: ????

The $3,600 annual impound into a savings account is to cover property tax, homeowner’s insurance, and car insurance. It used to cover annual car registration, too, but because my car is now eight years old, I can pay that out of cash flow. If my car were newer, I couldn’t do that.

Now the problem is . . . the combined cost of 2008’s property tax, homeowner’s insurance, and car insurance will come to $3,700.

And three hundred bucks a month is pushing the envelope of what I can afford to set aside. State employees received no merit or COLA increases this year, and will not as long as the economy is in the toilet. In the past, we’ve gone several years at a time with no raises whatsoever. So: they raise our taxes, but they don’t raise our pay.I haven’t retired yet, and already the basic cost of keeping the government from confiscating my home or my car and providing enough coverage to rebuild if the aluminum wiring sets fire to the joint is passing my ability to pay it.

What this demonstrates is what I’ve already begun to suspect: I will not be able to stay in my home in retirement.

If there was any question about that, this tax bill answers it, plain and clear.

The limits of automatic bill-paying

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In this morning’s New York Times, Ron Lieber reconsiders an earlier rave he wrote for “Your Money” about automating every penny you pay out. He notes that some people are wary of allowing business entities access to their checking accounts, largely out of concern over potentially costly errors. Others, he reports, have run into serious problems: one woman, for example, arranged to pay her phone bill on her credit card. Alas, when the expiration date came and went, no one bothered to tell the phone company, which soon sent a surly letter threatening to cut off her service.

While I’m an enthusiastic proponent of automatic bill paying, I do draw some lines. And I draw a wide, bold black line at charging up utilities on a credit card!

If anything happens that the card is canceled — whether to protect you from identity theft or because you decide to close the account — you are the one who gets to call every creditor and change your payment arrangements, a major nuisance, indeed. The potential hassle factor is just too high.

In fact, credit card statements are the only bills I do not have paid by automatic electronic funds transfer. Why? I just can’t bring myself to trust credit-card issuers. Those folks are not our friends. I want to see each statement and check each charge off against my Quicken or Excel records before forking over any cash.

For a long time, I felt that way about the phone company, too. Not so much because Qwest seemed untrustworthy (though a degree of incompetence presented itself, the company never seemed outright treacherous, the way credit-card lenders do), but because I’ve had people hack into my phone number and run up fraudulent toll calls. Here, too, I wanted to check the statement before sending any money.

I do authorize the utility companies, the city water department, and two insurance companies to bill my checking account directly. I did so because, before I switched my accounts to a credit union, the bank where I did business charged a fee when customers had money automatically transferred from the bank’s end but charged nothing when the creditor itself absorbed money out of the customer’s account. Why, I do not understand.

If I had it to do over again, I would go the other way around: retain control of the amount and date of payment, rather than permitting creditors to directly debit the account. This service is free at the credit union, but I didn’t know that when I made the switch. Now I’m too lazy and too busy to mess with changing a half-dozen payment arrangements.

Undoubtedly other issues present themselves. Identity theft? Seems to me you’re as much at risk of that when you send a check to some boiler room as you are when you pay electronically — possibly more so. Service snafus? They’re everywhere. Overdrafts? You need a system and some self-discipline to be sure enough money resides in your account to pay your bills…just as you do when you pay by check or cash.

Automatic bill-paying has many advantages. As with everything in life, we need to apply some common sense.