Archives for 2011

Vanguard Becomes More Attractive To Newer Investors As They Cut Fund Minimums To $1000 For Many Popular Funds

One of the most important steps you can take when embarking on your working life is to plan ahead, and start saving for your retirement. Through the wonders of compound interest, small amounts saved today, can multiply and become thousands of dollars later on.

One of my favorite places to take that first step and invest in the past has been Vanguard. The reasons? Their expenses are so low when compared to other companies, and as we all know the expenses that you're paying can make or break your returns. Also, they have a wide offering of index funds to choose from (which I prefer) and even some of their actively managed funds are very affordable.

Now Vanguard is making their offerings even more attractive to newer investors as they announced this month that they were cutting fund minimums to $1000 for a wide range of their more popular funds.

Vanguard Fund Minimums Cut

In their announcement this month Vanguard announced that for the first time a wide range of their Target Retirement Funds would be having an initial investment cost of only $1000.

To help investors take the first step toward a more financially secure retirement, we’re lowering the minimum initial investment for our popular Target Retirement Fund series from $3,000 to $1,000, effective immediately. Previously, only one of our funds, Vanguard STAR® Fund, had a $1,000 minimum.

The Target Retirement funds are among the most popular at Vanguard because they offer an easy way to have a diversified portfolio that changes your risk level as you get closer to retirement, while having the costs be relatively low. It's actually one of the main ways we're investing.

Among the Target Retirement Funds affected by the lower minimums:

Target Retirement 2010
Target Retirement 2015
Target Retirement 2020
Target Retirement 2025
Target Retirement 2030
Target Retirement 2035
Target Retirement 2040
Target Retirement 2045
Target Retirement 2050
Target Retirement 2055

Also affected in this change are a variety of other funds that are having their minimums lowered and standardized.

In addition, Vanguard is standardizing the minimum investment for Investor Shares of nearly all our other funds at $3,000. Previously, fund minimums for the affected funds ranged from $3,000 to $25,000. This change reduces the minimum investment for 15 Vanguard funds, including some of our oldest and largest actively managed funds, such as the Wellington™ Fund, Windsor™ II Fund, and Health Care Fund.

So most other funds have had their minimums lowered to only $3000, which makes them that much more accessible to the average investor.

Cutting Fund Minimums Should Allow Younger Investors

I've been saying for a while that I thought that Vanguard and others should lower their minimums for some funds to allow younger and newer investors to get into the game earlier. It only makes sense. Now Vanguard has done just that, and I think it can only be a good thing.

“Investing early and investing regularly are two of the most important things investors can do to help ensure their retirement readiness,” said Vanguard CEO Bill McNabb. “By reducing the investment requirements for our target-date funds, we hope to encourage more individuals to participate in the financial markets.”

Most people should be able to scrape together $1000 to get started, and I think we'll be seeing quite a few people do just that.

Does this change make you more likely to invest with Vanguard? Have high fund minimums kept you on the sideline in the past?

3 Things You Need To Do Before You Retire

By Miranda Marquit 7 Comments

Many of us look forward to retirement, excited to live the life we have imagined, and ready to put down some of the burdens of work. (For some, a working retirement is actually preferred.) However, before you retire, it's important to plan ahead to make sure that you are ready when the time comes. Before you retire, here are 3 things that you should do:

1. Pay Off Your Consumer Debt

Consumer debt comes with high interest, and no tax deductions. Credit cards, car loans and other consumer loans drain away your wealth, and cause you to squander your money on interest payments. If you have consumer debt during retirement, it can be a really problem. Your cash flow is restricted by your obligations, and you might not actually be able to do the things you want to do.

I'd also consider making sure student loans are also paid off as part of this decision to pay off consumer debt before retirement. The fewer obligations you have, the better.

2. Pay Off Your Mortgage

Many of us are used to thinking of a mortgage as “good” debt. However, when you are retired, any obligation like that can be a real problem. Even with a tax deduction for your mortgage interest, having to make that regular payment can be a problem. Instead, you should try to pay off your mortgage before you retire. That will be one less expense for you during your retirement.

It is also worth it to consider selling your home altogether just before you retire. You should have plenty of equity built up, so when you sell, it can be fairly easy to turn that money around and buy a smaller house, or put the money in an interest bearing account or investment so that it provides you with a steady stream of income that can be used to pay rent on a smaller place. Some people find that downsizing can be attractive when they retire. Others don't want to have to worry about maintaining a home as they age, and prefer to move into a rental or some other facility where they don't have to worry about upkeep and maintenance. Consider your options, and what is likely to best suit you.

3. Have an Idea of What You Want to Do

You should also consider what you want to do well before you retire. Think about whether you want to pursue a hobby, travel, volunteer — or combine all three. Think about what would help you feel good about your retirement, and your life. Having a plan can help you figure out what you need to do in terms of saving money in a retirement account. You can start planning your transition into your retirement lifestyle ahead of time, so that the change is smoother. Someone planning to do a great deal of volunteer work and visit children and grandchildren will plan differently from someone who plans to play a lot of golf and travel. Know what you will want to do, and plan for it, and you will be more likely to have the retirement you want.

How To Stay On Top Of Your Credit Situation By Getting Free Credit Scores And Reports

By Mr. Money 6 Comments

With the passage of the Fair Credit Reporting Act legislation it became a lot easier and friendlier on the wallet for average people to get a better handle on their credit situation. The law attempted to regulate a consumer credit industry that was hard for people to navigate, and make it more accessible – and easier – for people to figure out if there were any black marks on their record. By giving people access to their consumer credit file at least once a year, it was hoped that people could make more informed decisions, and be better able to improve their credit when problems were found. After all, your credit history is more important than ever!

Over the past couple of years it has become even easier for consumers to keep tabs on their credit situation with the launch of companies that will now give you your actual credit agency credit scores (or reports) for free as a tie-in to buy other products. Since you're not obligated to buy anything, however, it can end up being free to get your credit scores or reports. The ways mentioned below to get your credit score are all ways that I've personally used to stay on top of my own credit – and I highly recommend them.

Get Your Free Annual Credit Reports

First, let's start off with the three credit agencies, Equifax, Experian and TransUnion, and how to get a free credit report from each. It's simple. The government has a site at AnnualCreditReport.com that will allow you to get 1 free credit report from each of the 3 agencies every year. It should be noted that this is your credit report, not your credit score – which is not included for free. You normally would have to pay an extra fee to get that.

To maximize the impact that I'm getting from checking my reports I like to stagger checking my credit reports throughout the year. I check one agency every 4 months or so. That way I'm checking my reports more often, and I'm more likely to catch something if there is a problem.

Free Equifax, Experian And TransUnion Credit Scores

Equifax, TransUnion, and Experian all have their own version of a credit score that they put out, and it's a good idea to stay on top of these. Normally you would have to pay to get each one of these, but here’s how to get them for free.

NOTE: There is a myth out there that checking your credit score or report can actually hurt your credit score. That's not true as when you check your own credit it is considered a “soft inquiry”, which has no affect. When a lender checks it is a “hard inquiry”, which does affect your credit.

Equifax Credit Score

Equifax has a 30-day free credit monitoring trial offer. If you sign up for this offer you'll have access your Equifax credit score along with a variety of other perks. Just make sure to cancel the trial before it starts billing or it won't be free.

TransUnion Credit Score

The free credit monitoring service at Credit Karma will give you your TransUnion credit score for free, without giving them a credit card or other payment. I’ve been using Credit Karma for a few years now, and like the ability to get my score for free at any time. So how do they pull your credit file? You'll need to provide a driver's license number and a social security number in order to get your credit score. The service makes money by making product recommendations once you pull your score.

Experian Credit Score

There are a couple of places that you can go to get your Experian credit score for no charge. The first one is my favorite, and conjures up the idea of Alibaba and the forty thieves. It's called Credit Sesame. Credit Sesame is a credit and debt monitoring site that will take a look at your current financial situation, and then try and find better options for any consumer loans you might have. Signing up is easy and free of charge. You'll just need to provide some basic personal details as well as a social security number, and then you'll have access to a monthly credit score pull. I've been using them for a month or so now, and so far I'm loving it!

Another place that will give you your Experian credit score for free is the financial site called Quizzle.com, brought to you by Quicken Loans. This site also asks for some basic personal information and a social security number, and you'll then be provided with your Experian credit score. The site, like the others, is offering the free credit score as a lead-in to try and get you to use their financial products – either home loans via Quicken Loans, or other financial products. One thing I really like about Quizzle as well is that not only do they provide you with a free credit score, but they give you your Experian credit report for free as well! A 2-in-1 free credit score and report deal!

FICO Credit Score

While you can get your TransUnion and Experian credit scores for free without a credit card or signing up for a free trial, the one actually used by many banks, the FICO score, is a bit harder to find free of cost. The only real option at this time that I can find is if you sign up for one of the credit monitoring sites on a free trial. Here's one option:

Equifax 3 in 1 Credit Monitoring Trial (Includes free FICO score)

Again, just remember to cancel before the trial is up, otherwise you'll have to pay.

Get Your Credit Score When Taking Out A Loan

Another way to get a free credit score is to ask for it whenever you sign up for any kind of consumer credit. Whenever you get a loan, anything from an auto loan to a home loan, you may have the right to see the credit score the company used in making their lending decision. Depending on where you're getting the loan, and what agencies they use, you could be getting one two or all three agency scores, or just a FICO score. In any event, it doesn't hurt to ask to see this information, and if necessary, dispute any inaccuracies you find.

Do you currently check your credit scores and reports on a regular basis? Have you ever identified issues or identity theft? Do you have other services you use to find your credit information for free? Tell us about it in the comments!

Get your free credit scores now with GoFreeCredit:

TIPS: Inflation Protection For Your Portfolio

By Miranda Marquit 3 Comments

One of the most insidious threats to your ability to build wealth in the long run is inflation. Inflation is a reduction in your buying power that can make retirement a bit difficult. Keeping your money in a savings account — especially with the low yields we see now — might mean that inflation causes you to lose money sitting in the bank. The same is true of bonds when they have low yields. However, some investors are uncomfortable with relying too much on stocks to help them beat inflation. If you want to add a little more stability to your portfolio while keeping pace with inflation, TIPS might be a workable solution.

What Are TIPS?

Treasury inflation-protected securities (TIPS) are bonds offered by the U.S. government. They are designed to keep pace with inflation, since the principal is adjusted at regular intervals to reflect changes in the Consumer Price Index. The face value is adjusted according to the CPI, and the yield is paid on that higher principal. Realize, though, that deflation can mean that your TIPS principal might be adjusted downward (although never below what you paid).

TIPS Treasury Inflation Protected Securities
Even with recent troubles, and talk of a possible credit downgrade, many still consider U.S. Treasuries the most reliable bonds in the world. The risk of default is always there, but it is generally considered a very low risk.

Things To Consider Before Investing In TIPS

Before you get excited about TIPS, you need to take a few things into consideration. They can work well in your portfolio, and provide you with peace of mind and some help beating inflation. But you need to keep a few things in mind about them:

Yields are generally lower than other Treasuries: Because of the principal adjustment, TIPS have lower yields. There are some instances that — even with inflation in the equation — you can do better overall looking into higher yielding bonds.
You pay income taxes on TIPS adjustments: If you have a net increase in your TIPS principal over the course of the year, you have to pay income taxes on that amount, at your marginal tax rate. You won't receive the cash payout until your bond matures, but you still have to pay taxes on the income. Many people like to hold TIPS in tax-deferred accounts for this reason.
Treasury Direct doesn't provide TIPS for IRAs: One of the reasons that people like TIPS is that you can get them from Treasury Direct without paying fees and commissions. However, the government doesn't offer this service for IRAs and Roth IRAs. In order to add TIPS to your IRA, you have to go through a broker. Some brokers will let you add TIPS to your IRA fee-free — but only if you purchase a minimum amount.
CPI might not accurately reflect your personal inflation rate: A debate among economists and others rages about whether CPI is a “good” measure of inflation. In any case, TIPS won't protect you in the event of rising interest rates in other areas of life, and CPI might not accurately measure your own personal rate of inflation. Take this into consideration as you determine whether or not TIPS are a good inflation hedge in your particular situation.

TIPS really can be a good addition to your portfolio. However, like all investments, you need to carefully consider how they would fit into your overall goals and financial plans.

Ally Bank Investigates Possibility Of Buying ING Direct from ING Group

By Mr. Money 2 Comments

I‘ve written reviews of quite a few banks on this site, which you can find either through the sidebar on this page, or through the savings account page. While none of the banks really have what you would call great rates right now due to the current economic environment, there are a few that have stood out for me when it comes to other things like ease of use and great customer service. Two of my favorite banks that I've reviewed have been Ally Bank and ING Direct. You can read some reviews of those banks here:

Those two banks are the two companies that I actually use and where I've currently got savings accounts open. One of them, ING Direct, I use for goal savings using their easy to use multiple sub-accounts option. If I'm saving for a car, a vacation or anything else I'll just set up a sub-account where I can save for that goal. Ally I use for my large 10 month emergency fund. I've been very happy with both over the past couple of years, and hope to continue using them.

Yesterday, however, I heard some interesting news. It sounds like Ally Bank is currently in talks with ING to buy their US ING Direct online banking division.

Ally To Buy ING Direct?

So why would Ally Bank want to buy ING Direct, and why would they want to sell? ING Group is actually required to sell ING Direct by the European Union after they gave them a $14 billion bailout from the European Union back in 2008. Because of that they've been considering offers not only from Ally, but from Citi Group and others. As of right now Ally's offer has come the closest to getting a deal done.

Ally Bank is looking to buy ING Direct because they'd like to increase their deposit base in order to have some more stable assets as they wind down some of their troubled lending assets. From the New York Post:

Sources told The Post that Ally, the automobile and home mortgage lender, is looking to acquire the online banking business to boost its deposit base and further fortify the lending giant, which accepted a taxpayer handout during the height of the financial crisis.

Ally's interest comes as the bailed-out lender, formerly known as GMAC Financial, prepares for an IPO in the second quarter. Sources said that increasing its deposit base could be a positive that bankers use to attract investors.

Where Are They Now?

So having Ally buy ING is an interesting proposition, but how close is it to becoming an actual deal? According to some sources the deal is pretty far along, and the online bank could fetch in the neighborhood of 10 billion dollars.

ING Direct could fetch as much as $10 billion in a sale, according to sources, although it's not clear what deal terms ING is discussing with potential buyers.

Sources said the ING discussions are relatively “far along” but warned that they could still fall apart. A spokeswoman for Ally declined to comment for this story.

So it sounds like they're getting close, but the deal isn't done yet. My bet is that Ally will want to get the deal done sooner rather than later as they prepare for an IPO in the second quarter, and having a more solid deposit base could be a good sign for investors.

What Does It Mean For Account Holders?

So what could it mean for account holders if Ally does end up buying ING Direct? The effects aren't completely clear, but at least some think it could mean that rates could drop a bit in part due to there being less competition. From bankrate.com:

I asked Bankrate's senior financial analyst Greg McBride about how accountholders fare when their bank is acquired by another institution. He said that while he didn't want to comment on ING specifically, what happens to deposit rates after a buyout depends on who acquires the bank and why.

McBride says that if the bank is being acquired by a competitor in the same segment, usually yields will suffer, because that bank is probably looking to grow market share by consolidating the competition.

So what do you think of the potential Ally Bank/ING Direct wedding? What would it mean for account holders? Will it be a good or bad thing? Tell us in the comments!

Financial Perks Contractors Can’t Take for Granted

By Miranda Marquit 4 Comments

In the world of employees with stable jobs and benefits, there is a lot that can be taken for granted. The self-employed, home business owners, contractors and freelances, though, can't take many of these benefits for granted. Indeed, before leaving their jobs, they often neglect to think about the value of the benefits they receive from work. A story last year on CNN Money claimed that many workers actually cost their employers 25% to 30% — or even 40% — on top of their base salaries.

Those who do not work as employees with benefits, though, don't see the benefits that many workers take for granted. Before you decide that you would be better off on your own, consider the following financial perks that contractors can't take for granted:

Cost of facilities: Your employer pays for your workstation and the supplies in it. Power, water, phone and other utilities are also paid for the company. In many cases, you can even get reimbursed for mileage that you drive on behalf of the company. Once you strike out on your own, whether you are telecommuting or doing some other kind of work, all of those expenses are entirely yours.
Taxes: Many workers, as they look at the money withheld from their paychecks for taxes, don't realize that some taxes are partly covered by their employers. Indeed, there are payroll taxes that your employer is covering, including half of your Social Security tax. Once you are on your own, you pay the employer side as well as the employee side, meaning that your taxes could go up — even if you don't make any more money.
Health insurance: You might gripe about the rising cost of health insurance premiums at work. However, many employers pay a portion of the premiums. When I quit my job to go back to school, I considered COBRA. Then I realized that I would be covering the entire cost of the premiums. I was shocked to realize how much my employer had been paying. Now self-employed, I pay my entire health insurance costs — not contributions from someone else. I did find a reduced price, though, by getting a group plan through an aggregating site.
Retirement plan: When you work for someone else as an employee with benefits, you get help with a retirement plan. Your employer offers different options, and you can have money automatically withdrawn from your paycheck to make saving for the future a little easier. As a contractor, though, you are on your own. No employer matches. You have to look at your options, usually different types of IRAs, to determine what works best for you. You have to remember to make contributions, or set up an automatic debit (and don't spend the money before it can be taken out).
Worker's compensation: If you are injured on the job while working for someone else, your employer picks up the tab for worker's compensation insurance that helps cover your costs. If you are a freelancer, you have to be prepared to cover the costs with your own health insurance, or with the help of disability insurance.

And, of course, one can't forget paid vacation days and other perks. It's true that there are many perks associated with working for yourself. But, before you can weigh the pros of working for yourself, you also need to consider the costs that can come with working on your own.

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