What I hope to do here is provide an ongoing narrative with colleagues, friends, family, and others as life presents the opportunity for me to give my 2 cents. What will follow in this forum section will be a series of real life interactions I have had with those who have solicited, or inadvertently stumbled into my zone of passion and received unsolicited advice. Consider this a blog post lite arena. I hope you find it useful.
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Out of Sight, out of Policy? 8/27/22
I would love to see comments on this blog post... some of you have similar situations going on, have had children go through college, or will have in the future. Feel free to comment below.
A week ago Friday, we moved our first born, Mackenzie, into her college dorm room— an emotional experience to be sure! As the academic calendar kicks into gear for a Covid-free (?) 2022-23, the Normans new normal leaves only 4 of us in our home. We are still adjusting to having an empty room, and one less plate at the dinner table. Having said that, my financial planning mind snapped back into form pretty quickly after stroking a digital check for 5 figures for the fall semester of an engineering school education. Specifically, I wondered why I should continue paying elevated auto insurance premiums (87% higher!) in large part due to one of my TWO licensed teenagers. While I am glad we do not live 50 miles further north in the great Commonwealth of Virginia where average premiums for adding a teenage drive jump 138%, we try not to live our lives through comparison, which C.S. Lewis, Teddy Roosevelt, Mark Twain and many others characterize as the “thief of joy,” So while the Joneses of Jamestown are not a concern, the Normans of North Carolina figure they shouldn’t pay for auto insurance on their child who will not be driving a vehicle for 40+ weeks of the year. Turns out, we don’t have to!
The “student away at school discount” is one option. Dropping your child from your insurance policy is another. We went with the latter as 1) our child is less than 100 miles away, which is a precondition for some “student away” discounts and 2) USAA is our carrier, and it turns out that there are only two states in our great country that do not have this option: Hawaii and North Carolina! I can guess why the Aloha State would opt out of this discount, but will be forever mystified how that Tarheel state earned this notorious exemption. So, we just dropped our kid like a hot potato from our policy, and I will add her back the night before she comes home on breaks over the next 4 years. I can do this online, from my recliner, so it is not hard. But is it worth it? We’ll re-evaluate after a year or so, but according to our newly posted semi-annual premium, we will save $311.54 this year. That money would buy a semester’s worth of pizza when I was in college! Today, I hear the kids prefer avocado toast. Either way, this is not a bad savings for a few minutes of work.
The following is an email I sent to both the Treasurer and the President of my HOA. They are friends, and both good and honest people serving their community for free. I just happened to attend our meeting last week where the prospect of investing some/(all?) of our capital reserve fund was mentioned out loud, immediately arresting me from my near coma into a state of immediate arousal, compelling me to speak up.
Perhaps the following is a testament to how my brain is wired, and once the switch is flipped, it's game on!
"Per my comments at the last HOA meeting, I would very much like to help BHR think through the opportunity to invest a portion of our capital account funds so that we can get our money working for us, rather than earning the measly 1.6% (which I assume we are presently getting) in an online savings account. At least that is what my Ally account rate is---what is BHR presently earning on this money?.
This email is a forward of Vanguard's "Organization Account" registration link. I had a nice long conversation with one of their Concierge Agents. Bottom line: Vanguard charges $0 to be the custodian of this account, there are no commissions, and the only fees involved are those on whatever index fund or ETFs chosen for the investment allocation. And, as the largest mutual fund company on the planet, their fees are the lowest anywhere. Also, they are not beholden to two masters like all other custodians who have both shareholders and clients to please--- Vanguard's clients are the owners of the funds, and the funds own the company. Of course there are other low cost custodians, like Fidelity and Charles Schwab, for example.
Companies like Edward Jones and Ameriprise, which you mentioned at the last HOA meeting, make their money off the investors in a fee-based model with high commissioned products, high AUM fees, and other account fees as you can see in this independent review from SmartAsset that I texted you a couple days ago. Unfortunately, the exorbitant fees and commissions are not disclosed on the Ameriprise website, and the maintenance fees and loads on their products they do disclose are 3x, 4x, and even up to 10x the fees you would find at Fidelity, Vanguard, etc. The opacity is by design, so that you have to contact one of their brokers/advisors who will then sell the services they will provide to justify these fees.
As I mentioned at the HOA meeting and in my follow up text to you, I would be happy to help in the decision making process as we decide what to do with BHR's capital funds. When I asked you at the HOA meeting "Why Ameriprise?"you mentioned that you "talked to a friend who was a millionaire and that's what he did." Well, I would love to share what I do, and why. I can also share what my NFC (Norman Financial Coaching) clients do, several with their million(s). The investing game is not that complicated, but 90+% of the population is understandably overwhelmed by the spin Wall Street puts on this endeavor. As a result, far too many people pay far too much money to croupiers who do nothing but extract fees for a service that anyone can do for themselves, with a little bit of education and a little confidence.
I love talking about this stuff--- I do it for a living--- and would be happy to participate in the process as we explore options for investing a portion of the $XXXk in the most efficient and safest way possible. Moreover, if my dues are going to be invested I would love to have a say, participate, and offer a perspective as to how to most safely and efficiently do this.
David
P.S. At the meeting you mentioned gaining a 5% return in safe bond funds? The risk adjusted rate of return (Sharpe ratio) is something I would like to discuss with you because nowhere on the planet can you get a guaranteed 5% return, other than Series I Bonds, which are limited to $10k/per tax ID, which wouldn't apply in BHR's case.