Test drive of Yodlee

So I've been hearing a little about Yodlee, which offers an account aggregation service. That is to say, they will track all of your accounts - bank, mortgage, credit cards, stock, 401k, student loans, etc on one page, as well as offering billpay services and other benefits, all for the low low price of free.

My first thought is that it solves a real life pain point - and the plusses would be a godsend. That thought was immediately followed by another - if someone got ahold of your Yodlee account, and that account has full access to every other account you hold, you could be up a very deep creek without a paddle.

Still, after a little research, I found that Yodlee has a partnership with HSBC, with which I already have some accounts. HSBC in general has some good security methods, so I went ahead and took the plunge and signed up for their EasyView service.

I did take some efforts to protect myself for now. I chose a unique password that's more complex than the one I normally use. I also left my largest accounts - those holding my stocks and 401k - off for now. I did include all of my mortgage info because, while those accounts are large too, there isn't as much someone could do to screw me up by accessing my mortgages online.

So what did I think? I loved it as much as I thought I would. Accounts like my student loans, that I access rarely and have to look up my account information anytime I want to see them, come up as part of the dashboard, just as easily as my bank accounts and credit card info. Bonus - it computes your net worth for you based on the assets and liabilities in it.

There were a few accounts I couldn't get it to synch with - my car loan, for example - but it gives you a method for manually entering the information. I'll just have to update it periodically as I make payments. I've also heard they have partnered with Zillow, so soon it may go out and automatically get the value of my real estate assets and include that as part of my net worth. I've done it manually for now, because having the liabilities listed without the assets was making me cranky.

Overall, I'm very happy and plan to keep using it. I'll wait a while to decide whether to add any login information for my most sensitive accounts. Your risk tolerance may vary.

Back from hiatus

Well, I'm back from my honeymoon. The last month and change has been consumed with preparation and all kinds of things that are generally incompatible with the advice of personal finance professionals. Oh well, I figure as long as we did everything with our eyes wide open, and know exactly where everything fits in my master plan to retire very young, it's all right.

Anywho, now that that craziness is done, things should get back to normal, which means more regular posts here and elsewhere.

Put back that airplane pillow

Maybe I'm naive, but somehow I assumed that airlines replaced the pillow cases on those little white pillows after every flight. Not so much, it turns out. Airlines mostly use the time at the gate to re-fold the blankets and pick up trash. Ugh.

On another note, I recently bought one of those inflatable neck pillows, and it's really nice. Folds up to about the size of my wallet, and it's really comfortable if I only inflate it halfway.

AMT Reform Finally Here?

I did not get hit with the AMT this year, though I was pretty concerned that I would. It's tough to know if you're going to get hit without doing your taxes, and what with other stuff going on, the taxes weren't finished until late. I had a couple of friends that got nailed with it this year. One owed around $10k more than they thought they'd owe, and the other got hit with a surprise, totally unexpected $30k shortfall. Wiped out his savings and had to put off plans to buy a house. Ouch. I breathed a sight of relief when my accountant finally told me I was due a refund.

I am reasonably certain I'm going to get hit in 2007 if there's no change. I got married this year, and apparently that's not doing me any favors tax-wise. One of the effects of my AMT limbo is that I've been completely paralyzed on certain financial decisions. My financial portfolio is very heavily weighted to a couple of investments, and I'd like to diversify by rebalancing. Unfortunately, with this AMT thing hanging over my head I was concerned that the capital gains from my rebalance would reduce my AMT exemption, thus effectivly getting taxed at 22% rather than the standard 15% long term rate.

The Dems have apparently taken up the AMT mantle this year (risky, since many people, like my friend, don't know they're about to get hit with it and will thus never know that the Dems saved them from it). AMT reform presents all kinds of problems (namely, how are they going to make up the shortfall), but it looks like the Dems have finally agreed on a strategy to protect folks who make less than $250k per year. I'm waiting with bated breath.

Real Estate Prices Explained

This article from today's New York Times Magazine is one of the most straightforward explanations I've seen for the factors impacting real estate prices.

The long and the short of it - it's not entirely appropriate to think of real estate as a completely different type of asset class, immune to the vagaries of bubbles and speculation.

Shiller’s gloominess has been widely noted. He thinks we are under the spell of that familiar goblin, mass psychology. Lemming-like, people are buying homes merely because they expect that prices will rise. This certainly holds for speculators, like the manager of a rental-car agency at the Tampa airport who confessed to a customer (an economist) that he owned no fewer than 20 condominiums. And it explains some of the impulse to buy second homes, which are closer to being tradable assets than a primary residence is.

But neither is it appropriate to think of it as being the same. Real estate is much stickier. Quoth The Times:

This is the problem I have with the real-estate-equals-dot-com argument. Most homeowners buy to have a place to live. If prices fall, they react precisely unlike stock traders; rather than bail out, they stay put longer. Every share of Cisco may be for sale every day, but every house is not. Case, Shiller’s partner, tracked 628 home listings in the Boston area during 2006, as prices began to fall. After four months, the majority remained unsold, but the sellers lowered their asking prices by only 3 to 4 percent.

But what I liked most about this article was it's treatment about the value of leverage in real estate investing.

Suppose the stock market did rise 10 percent; after a year you would be up $5,000. Whereas the gain on your home would be 5 percent over the entire purchase price — or $11,000. Over 10 years the gap becomes huge — not to mention over 20 or 30 years. This is the little guy’s (and also Donald Trump’s) trick for accumulating equity: leverage.

It then goes on to talk about how leverage is theoretically practicable for investments in other asset classes, but the truth is that the lending rules for real estate are much more forgiving. If stock prices go down and you are leveraged, you're forced to cover immediately. If that held true with real estate, as the author points out, very few of us would be homeowners. Overall, one of the better articles I've read on this subject.

The Bubbleversary

On March 9, 2000, the NASDAQ stock index hit 5048.62. On March 10, 2000, it began a downward slide from which it has never recovered. On Friday, the NASDAQ closed at 2,387.55, which is a great improvement over 1300 where it sat in September of 2002.

The NASDAQ increased over 500% in the five years leading up to 2000. It had pretty consistently returned 60-70% every five years for the several five year periods before that. There was a lot of talk at the time that things were "fundamentally different". Now it really only matters that large institutional investors thought that, because they move the market. Individual investors really don't have a lot of power to nudge it.

But even if they didn't have market moving power, individuals could still get themselves in a lot of trouble. I remember people who had no business investing in stocks, talking crazy. I remember hearing people say that a stock sounded cheap because it was priced at $10 per share, without any regard for the number of shares outstanding or what that implied about the value of the company. Much less did they try to evaluate the profit the company might return in the future, and what share of that profit their $10 got them.

I remember people buying stock because it was about to split, and they were sure people would buy more stock after it split, driving the price up. They didn't consider that a) a split doesn't change the value of the company and b) even if it did, we ALL knew the stock was splitting, and if it was really that simple a lot of people would have beaten them to the punch.

Anyway, happy anniversary. Did we learn anything? I don't think so. The way I've heard people talk about real estate over the last five years, I'm pretty sure we did the same damned thing just a couple of years later -- people who knew nothing about real estate talking about it "knowingly" like they were Conrad Hilton. Many people think the reckoning has come, but it certainly hasn't felt like a reckoning to me. NASDAQ 2000-2002: now that was a reckoning.

How to hide stuff from burglars

Good post from Personal Finance Advice on how to hide stuff from burglars. They interviewed a burglar who pointed out that if you hide stuff too well, the burglar will tear your place apart looking for your valuables, causing damage that could be even costlier than the theft itself. Since they want to get out as quickly as possible with your valuables, it suggests helping them do that. By hiding a "stash" where it will be found quickly, you may convince the burglar that they've completed their search, and their desire to get out quickly may become the next highest priority. Interesting take.

Free Language Lessons!

The Foreign Service Institute collects language courses developed by the U.S. Government. Since you own part of the U.S. Government, you therefore own an equal share in anything they develop. You've already paid for these, so there's no need to pay again. Their options include Vietnamese, Chinese, French, Italian, and Spanish. Great stuff.

Stupid Ways to Lose Money

Some forum posters on MSN.com have been discussing stupid ways they lost money. I'd have to think long and hard to figure out my worst, but suffice it to say that over the course of my life I've lost five figures easy through really stupid stuff. Here are some examples that leap to mind:

- Countless times have I failed to send in rebates, or failed to return non-fitting articles of clothing within the return period. Being absent minded is costly.

- Losing receipts for work expenses is another of my favorite ways to blow money. Being disorganized is costly.

- My favorite: I went shopping for a new wallet with V-Train, and thought it would be a good idea to test containment ability by stuffing TWO HUNDRED DOLLARS cash into the wallet I was considering purchasing, then seeing how it felt. Eventually I decided not to purchase the wallet, and put it back. Hilarity did not ensue. Being retarded is costly.

I thought reading other people's stories would make me feel better, but it made me feel worse because my examples are dumber.

Manhattan Real Estate Still Bubbling

Real estate prices aren't going down everywhere. According to the Associated Press, median prices for Manhattan apartments have risen 9% in 2006, and the mean price is up 5% over the fourth quarter of '05. The median Manhattan apartment went for an astounding $760,000 in Q4 of '06, 4.27 times the median home price in Boise, and making me wish my real estate holdings were on the other coast.

On the Upper West Side, large apartments are up 48% over a year ago. Condos stayed flat, and Co-Ops went up 3%: impressive when most of the country is experiencing, if not a burst, at least a deflation.

There are no signs of slowing in '07.

Points Don't Pay

A new study coauthored by Penn State and Freddie Mac shows that an overwhelming majority of the time, homebuyers buy more points than they should. A point, or 1% of the cost of the mortgage, lowers your interest rate a specified amount. The cost-benefit analysis simply entails figuring out how many months you'd have to have a the lower interest rate (and lower payment) to make up for the money you spent on the point. Once you buy the points, if you hold the mortgage for less than that breakeven period, you lost money by buying the points. If you hold it longer, your points were positive ROI.

The study showed that only 1.4% of borrowers who bought points ended up holding the mortgage long enough to make the points ROI positive. Of the people who didn't buy points, only 1.5% of people would have been better off purchasing them.

This study shows a couple of things, I think (even assuming the results are skewed by decreasing interest rates that caused a lot of unexpected refinancing). One: people may overestimate how long they're going to keep their mortgages. But a second likely explanation is that people probably don't bother to do the math. For whatever reason, they may just think that lowering your interest rate is worth more than it really is. Important stuff to keep in mind for the next time you look at a home purchase.

PMI Now Tax Deductible!

Wish this had been in place 10 years ago. For mortgages originating in 2007 or later, Private Mortgage Insurance is now tax deductible! Oh, happy day. This effectively cuts the cost of PMI by a third to a half, dramatically changing the balance between accepting PMI, or taking out a 10% piggyback loan at a high interest rate.

I took the piggyback on my last mortgage, and am paying 8.5% interest (effectively 5% or so after tax deduction) on that piece, and that could go even higher since it's a variable rate. If this had been in effect, I'd probably have gone with the PMI.

Of course, you could avoid all of this with a 20% downpayment, but then you'd lose some of the wonderful power of leverage.

Getting Started on the Right Foot

CNN Money gives some sage advice about the right way to ingratiate yourself with your new colleagues when you start a new job...

- keep your good ideas to yourself for a bit, until your coworkers' guard comes down a bit
- be respectful and subdued, not their best friend
- learn the culture, but don't come off as nosy
- find a way to work with, and impress, influential people

The article gives much more detail on the whys and hows, and makes some very solid points.

25 Rules to Grow Rich By

To ring in the New Year, CNN Money has posted 25 Rules to Grow Rich By. They include nuggets like which home upgrades pay for themselves, how to select the right deductible for your insurance, and how much money you'll need to retire.

Rule # 26: Feel free to end your article title in a preposition if the title is otherwise snappy and will generate site traffic and the accompanying advertising dollars.

Expense vs. Waste

I just re-read Andrew Tobias' My Vast Fortune. This book isn't nearly as good as his seminal The Only Investment Guide You'll Ever Need (it really is), but it still contains some interesting nuggets. It was the first book that helped me understand that if the US government maintained a budget deficit every year from now until eternity, it did not necessarily mean we'd eventually go bankrupt (as long as the GDP grows at a faster percentage rate than the deficit).

Anywho, the interesting nugget yesterday was Tobias' view on waste. Getting a parking ticket, says he, is not a waste. You're just transferring money from your account to the government's but that money doesn't disappear and the government will spend it on something (probably something wasteful, but that's not his point). So really, you can't feel too bad about a parking ticket. Think of it as a forced donation to charity. Digging for gold, however, is a waste. The world already has all of the gold that it requires for industrial uses, and it's value for other uses depends upon it's scarcity as a precious metal. Digging for gold expends resources (fuel, labor, parts) and reduces the scarcity of the existing gold, hence it is wasteful.

And I guess by that logic, I was incredibly wasteful on Friday when I ate three quarters of a pizza, and subsequently worked out for 45 minutes in a fit of remorse.

More on Commercial Real Estate

I posted recently about the potential for commercial real estate in Bentonville, Arkansas. Today, a free article from the Wall Street Journal on real estate investors switching into commercial or multi-unit residential investing. The reason is that cash flow is now trumping anticipated appreciation as the key component of the investment. Commercial and multi-unit residentials offer much better cash flow, because they don't have the same speculative inflation priced in. This makes sense, since land appreciates much faster than the buildings themselves (since land is scarce, but buildings can be, well, built).

One notable nugget in the article:

The situation is bleaker for those buying homes and condos as an investment, says Mr. Liang. "They should have very limited expectations on appreciation going forward -- probably 0% to 3% annually for the next five years," he says.

That speaks to why I love real estate as a long term investment. Say properties appreciate 2% per year. If you bought the property on a 90% mortgage (you put 10% down), you're getting a 20% return on your invested money (before expenses, which can be significant). Has there ever been a significant period of time where real estate didn't appreciate a few percent a year? If you ride it out, it provides what I think are higher and safer returns than other types of investments. And in the long term, you can get some great periods of appreciation, like we've had recently. Get someone else to pay your mortgage, and the appreciation will come eventually, turning your $20,000 investment into $200,000 of equity.

The Joy of Refi

The heyday of mortgage refinance may be waning, but it isn't gone. About a year and a half ago, with mortgage rates at historic lows, I refinanced a rental property I own. This is significant: since it used to be owner occupied, I had a pretty good rate relative to the none-owner occupied mortgages that were available to me after I moved out. When I refinanced, rates had finally dropped enough to where the non-owner occupied refi rates would beat my original owner-occupied rate. In order to ensure that I was getting a good deal (it's difficult to make an apples to apples comparison when you're restarting your 30 year clock after a number of years) I took a "no closing costs mortgage", so then I only needed to ensure that the rate offered was lower than my previous 7% rate. As an added bonus, I got the Private Mortgage Insurance (PMI) eliminated at the same time.

The result was that I have several hundred dollars a month back in my pocket, which makes life a lot easier and made it easier for me to finance the monthly payments on my new residential property.

While rates are going up, mortgage refinancing still presents opportunities to save money. For example, a lot of people took adjustable rate mortgages a few years ago that could be getting ready to sting them. If they've gained some appreciation on their property, they could lose the PMI and lock in a rate that, while not the best ever, could beat the heck out of adjustable rates kicking in. If you took an ARM with the expectation that you'd be selling, and have changed your mind, refi could be a real life-saver.

Your Money Is Not Safe at Washington Mutual

Yes, it's a dramatic title for a post. Got your attention? Good.

I'm currently in the process of taking all of my money out of Washington Mutual and moving it to Chase. This is actually a pretty difficult process... with auto billpay, direct deposit, and what not, there is a significant transactional friction involved in changing banks. But I'm still ending my 10 year relationship with Washington Mutual based on what happened to my boss. It's important to note this didn't happen to me... but I was present for parts of it from the beginning, and I absolutely believe that it happened as told to my by my boss.

A couple months ago, my boss ("G") noticed that there was a $2,000 withdrawal from his bank account that he didn't recall having made. By chance, he caught it within a day or two of the withdrawal having been made. After some time discussing it with his wife, he realized that the only explanation was that it was a fraudulent withdrawal. He called Washington Mutual and headed down there with his wife the following morning, by which point another fraudulent withdrawal had been made from second account he had with Washington Mutual. The bank explained that in most cases of identity theft, it was a family member, so he should check around to see if it could be a family member in this case. In the meantime, he asked Washington Mutual to put a hold on ALL his accounts, and they said they would.

Later that morning, I accompanied G to the police station to file a report. There was a lot to find out, but at least he caught it early. Then something happened that caused me, him, and everyone who was aware of what was going on, lose faith in Washington Mutual. Later that day, there was an additional withdrawal. He called and screamed at the bank because they had promised to put a hold, or a flag, or something that should prevent the fraudulent withdrawals from continuing. A day later... another withdrawal. At this point, he had no choice but to close his accounts and withdraw his money, because he had been hit for five figures, and it was clear that Washington Mutual wasn't interested in protecting the money.

After yelling at the bank manager again, it came out that they didn't want to put a hold on the account because they figured it was probably a family member/forgotten withdrawal. They explained that holds are very inconvenient for the customer, so they decided not to implement it. Because they basically did not believe him about the fraud, the losses from his accounts were far greater than if they had acted when they said they would.

Will he get the money back from WaMu? Surely he will. But having 5 figures disappear from your accounts for even a short time is a major inconvenience at best, and could have severe financial consequences (late mortgage payments, etc) at worst. WaMu basically treated him like he was the criminal, and showed an appalling lack of concern for the security of his money.

Given that WaMu has a crappy network and crappy interest rates, the ONLY reason to use them is their supposedly superior customer service. Without that, they're worthless. I'm going with Chase because I like the international presence, but there are plenty of other banking options that are more convenient than WaMu for various reasons.

Get it together, WaMu. Identity theft is no joke.

Skate to Where the Puck is Going

One of the greatest real estate booms in the last twenty years has to have been in Orange County, a big part of which is occupied by the Vietnamese community. Immigrants want to live near each other, and as they've gained prosperity (through their entrepreneurial culture, mostly) they've driven prices in Little Saigon and the surrounding areas ever higher. I've got my eyes open for the next great immigrant influx.

In the meantime, The V Train was in Bentonville, AR last week and noted that the not-exactly-new trend of companies stationing employees, either temporarily or permanently, near WalMart headquarters was yielding some interesting and predictable effects. Yes, a whole slew of new hotel developments and corporate housing have started to go up in this once small town. But there are still no big-city type amenities (restaurants open late, e.g.) catering to the army of business travelers that shows up there every Monday.

You could capitalize on this by moving there and opening a business yourself, or you could invest in some commercial real-estate and take advantage of the "pull-marketing" effect to attract lessees.

Since I don't know jack about Bentonville or commercial real-estate, you can have that little golden nugget for free.

Home Prices Decline 3.5% - It's a big deal

The median price of a home in the US fell by 3.5% over last year's number, to $221,000: the biggest decline on record. If 3.5% doesn't sound like a lot to you, remember that most people buy homes on leverage, i.e. mortgages.

Suppose a year ago you bought a median priced home for $229,000. You put 10% down, so you invested $22,900 of your own cash money. Now suppose the price declined by about 3.5% to $221,000. You've just lost $8,000 of your $22,900, or 35% of your investment! If you turn around and sell it tomorrow because you're afraid the market will continue to decline you'll probably incur transaction fees ranging around 6% (real estate agents, escrow fees, etc), which would wipe out your investment completely. But if you don't turn around and sell it tomorrow, and we have another bad year or two, you could soon owe the bank more money than your house is worth, even though you put down 10% of the money yourself.

And with prime at over 8%, let's hope you didn't buy on a variable rate mortgage, because your payments could soon jack up without giving you the benefit of any additional equity.

Rising interest rates mean some people won't be able to make their payments. Declining prices will mean some people won't be able to solve their payment problem by selling. Hang tight, there's going to be a shakeout.