Educate thyself, part 5: Quest for inexpensive investing

In the early 2000's I had an account with one of the big brokerage houses (now gobbled up by even bigger brokerage house). It was a full-service brokerage. I could not trade by just clicking a mouse. The problem was that my significant other was working for that brokerage house, and we couldn't have a brokerage account anywhere else due to "compliance".I had to call my broker and ask him to buy or sell something for me. Usual cost of such 30-sec. conversation was $49-$53. Not that he did anything special. He would just say: "Lemme see what the ask is..." and then declared that he "put it in". That was it. He never bothered me with his sales pitches, probably because I had a minuscule account balance. But even back then I wasn't that naive to think that this broker thinks about my financial well-being first before his own.

Now, immediately after my significant other changed jobs I closed that account and moved whatever was in it into a discount brokerage house ( back then it was Ameritrade). Now the trades were $9.99. Customer service was bad, transaction cost was much better but still way too high for regular investing. I was still better off just having an account with, say, Vanguard or T. Rowe Price and buy an broad-based index fund a little bit at a time without having to pay for a transaction (those big mutual fund companies even provide postage-paid envelopes for those sending their contributions in form of checks). So I was going the mutual fund way for a while.Then I learned about ShareBuilder. It allowed you to buy regularly for about $4 per buy. ( and I think, more for sells).Better, I thought, but for some reason I didn't open an account with them.



The real opportunity came when Wells Fargo announced ( about 2 years ago) that if you hold $25,000 in combined assets with them (even including 10% of your outstanding mortgage), then they'll give you 100 trades per year free through their so-called PMA account. They also waived the IRA custodial fees and the yearly fees for maintaining the HELOC with them.Yea, that's what I'm talking about. Now I could buy very inexpensive index ETF's for free!
Then bank of America started offering something similar. Also, there's this Zecco website-they also give free trades. Now I minimized my investment expenses as much as I could. Good.

Perfect Cosmo

As a doctor, I know perfectly well and encourage everyone to enjoy alcoholic beverages in moderation.

However, if you do decide to have a drink, let it be a high quality drink, which is not necessarily obtained in an overpriced bar or restaurant. It can be prepared at home.

I, for one, enjoy an occasional Cosmopolitan.
For making it, you'll need:
1. 2 oz. of vodka. Don't believe those who said that the more expensive the vodka, the better your Cosmo. Price of vodka in your Cosmo has almost no bearing on the quality of your Cosmo. I select grain vodkas, though, for I never tried potato-based vodkas. You can go light on vodka and use only 1 oz. of it.
2. 1 oz. of cranberry juice. It has to be a pure cranberry juice, not those Ocean Spray cocktails.You can get it in any health food stores or Trader Joe's.
3. 1 oz. or Triple Sec or Cointreau/Grand Marnier . The latter is usually much more expensive than the former. I use Triple Sec.
4. 1/2 oz. of lime juice.- fresh is always better, but concentrate will do, too.

These ingredients needs to be shaken in a ... yes, a shaker with broken ice. You don't have to shell out a lot for a shaker- most liquor stores sell them for $5-10 ( I think they take them out of the liquor gift boxes and just sell them separately)
I take 4-5 cubes of ice and split them in halves using an ice pick (which always invokes the images from "Basic Instinct")
The whole mixture is to be shaken 10-15 times ( an English bartender guide suggests shaking until you hands are cold)
Pour it into a martini glass (again, can be obtained for a liquor store for cheap), straining the ice either through a built-in strainer, or through a separate strainer.
Enjoy!
You'll be amazed at how different this drink tastes from an $8 drink from that hip cocktail lounge.
I think it's because a bartender has a plastic jug under the counter with all the ingredients (except vodka) premixed in it. When the day (er..night!) is over, this jug goes into a fridge, until the next night.

Educate thyself, part 4: Expenses of investing

Now, there are all kinds of expenses when it comes to investing, expenses that you have to pay no matter whether you're up or down.
Here's an incomplete list of them:
1. Expense ratios of mutual funds and ETF's- these are percentages of the money invested that are deducted by mutual fund companies to compensate themselves ( from 0.18% for Vanguard S&P 500 Index Fund to 2-3% for actively managed mutual funds, and from 0.09% for S&P 500 ETF's to... I don't really know what is the highest)
3. Additional fees on certain mutual funds ( 12b-1 fee, for instance, is paid by a mutual fund to whatever organization is selling this fund to an investor, but these fees are coming out of investor's pocket)
2. Brokerage fees. These are paid for a transaction (buy/sell) only if you have a real brokerage account.If you invest directly into certain mutual fund , those fees are not paid. ( these brokerage fees can be as low as zero, yes, nil with certain discount brokerages, esp. on a limited number of trades and as high as $50 with so-called "full -service" brokerage.)
4. Custodial fees for IRA accounts. Sometimes they're waived for accounts with higher balances.
All of the above mentioned fees are going to financial industry.
5. Taxes for taxable accounts. Sometimes taxes are due on mutual funds even though you as an investor didn't sell your shares. These are , obviously, Uncle Sam's cut.

So the easiest and the surest thing in investing is to minimize all these multiple fees so it will be more left for us to really invest.
In the next posts I'll try to describe what I did to cut these costs.

Building wealth part 4: educate thyself, part 3

Now, since the stock market is the way to go if I was to achieve my goal of being financially independent, while learning basics of investing, i came across the book of renowned John Bogle ( I quoted him and provided a link to his interview in one of my previous posts) called The Little Book of Commonsense Investing. The first most interesting thing I learned is that, per John Bogle, it's close to impossible to control your rate of return on your investments, since you can't control the market. But what you CAN do is to control your expenses, that is, the expense ratios of your mutual funds, if you have them, brokers' commissions, annual custodial fees for IRA's etc.
That made sense to me since if fell into this frugality category, which can bring substantial benefits whether you're investing or simply saving.
So I embarked on the search for minimum expenditures while investing, which I'll try to describe in my next posts.

Living rich without BEING rich

Now, foreclosures hit the Hamptons' properties. People face foreclosures on their $1-10 million houses. As it turns out, these people are (or were?) living like rich without being rich.
The Wall Streeters mentioned in the article might not have any wealth built during all these years of financial boom( the same Wall Streeters serve as financial advisers for lots and lots of people!)
Instead, they had a lifestyle of the rich.
http://www.nypost.com/seven/05122008/news/regionalnews/trouble_in_li_paradise_110497.htm

Educate thyself: mutual fund mechanics

Mutual fund was first created back in 1924, 5 years prior to the worst stock market crash (so far) in history. The idea was truly ingenuous- collect the money from investors, invest them in all kinds of securities, and issue the mutual fund shares to those investors in exchange for their money. What securities the investors' money will be invested into is entirely up to the management team of the mutual fund.

The upside of this idea was that all of a sudden, the average investor gained access to the very broad spectrum of securities-stocks, bonds, real estate etc., and all for a relatively small initial investment. Before this invention, you've got to buy individual securities to achieve diversification of this kind.
Now, the downside: the expenses. In an actively managed mutual fund, the expense ratio (percentage of the money under management that is deducted each year) can be as high as 2% annually (we're talking about mutual funds bought outside retirement vehicles like 401k, where you can find even more "expensive" funds). It means that no matter whether your investment goes up or goes down in price, you've got to keep paying these percentages to the mutual fund company. Billions of dollars each year are collected that way from investors.

How do they use all these money collected from investors? At least 70% of it goes toward managers’ salaries.

Taxpayers are likely to pick up the tab for bad mortgages

In my post from May 5 I stated that private debt of banks, mortgage companies etc. will likely become socialized, i.e. will become that of taxpayers. This is the confirmation of this statement:http://www.connpost.com/localnews/ci_9199245
Federal Housing Administration will guarantee( if this bill becomes a law) $300 billion in highly risky mortgages, those that no private institution in the right state of mind would guarantee.