Easy Ways to Cut Costs and Boost Wealth
It is not as easy to increase wealth through investing as it was a few years ago. To boost wealth, investment returns have to be supplemented with cost cutting. Many firms are making this more difficult by increasing prices and various fees. Here’s my quick review of the best ways many of you can increase wealth this year by saving money.
Financial accounts. It’s been a tough few years for most financial service firms. Their answer is to increase minimum account balances and charge new or higher fees. Even low-cost Vanguard has joined the pack in raising fees on at least some accounts.
The best way to avoid these fees is to consolidate accounts. Brokers and mutual funds love large accounts and often don’t impose most of their fees on these accounts. In addition, very large accounts not only avoid the fees but might get extra services. Depending on the firm, you might get a special telephone number with a dedicated account representative or team, additional research, and other services.
Don’t despair if your account totals less than $100,000 (a key price break point at most firms). Most firms consider related accounts as one for fee purposes. Related accounts are those of either family members or businesses.
I have long recommended consolidated investment accounts at one or two mutual funds or brokerage firms to simplify your investing. Now it is more than a matter of convenience. You need to consolidate to reduce costs and perhaps to receive additional services. I’m making this easier to do. Each month I will publish a list of recommended funds at each of the major mutual fund families and also for most NTF fund programs.
Reconsider NTFs. The “mutual fund supermarket” pioneered by Charles Schwab & Co. is extremely popular with investors. You can invest in virtually any mutual fund you want, use one telephone number or one web site, and receive only one account statement. Schwab calls its program OneSource, and Fidelity calls its FundsNetwork.
These supermarkets offer a number of no transaction fee (NTF) funds that can be purchased without paying a commission or other trading fee. Instead, the broker is paid a percentage of the account balance by the mutual fund. In return the broker does the recordkeeping and mails required statements and other materials to the investor. A transaction fee is imposed investor only if the fund is held for less than a minimum time, usually six months or less.
While investors like not paying a trading fee, many investors might benefit by paying the fee and not seeking out NTF funds.
Schwab and others claim the NTF programs shift costs from mutual funds to the brokers and do not increase overall costs. Some observers disagree and believe funds increase expenses to cover the broker’s fees. For example, Harbor Capital Appreciation recently joined the NTF program and increased fees to new investors to cover the Schwab fees. Studies also have shown mutual fund fees rising in recent years despite larger account balances and the use of technology. NTF fees could be part of the reason.
Suppose in March 2002 you invested $10,000 in Harbor Capital Appreciation through Schwab. You would have owed $70 in fees to Schwab. If you purchase the fund now through the NTF program, you won’t pay Schwab a fee. Instead, you will pay an extra $43 of fund expenses each year, part of which Harbor will pay to Schwab.
Clearly, a long term investor is better off paying transaction fees than higher expenses. A small investor and one who plans to hold a fund for less than two or three years benefits from the NTF program. The instances in which an NTF fund is a disadvantage might increase. Schwab traditionally charged NTF funds 0.35% of assets but is raising that to 0.40%. Fidelity says it still will charge 0.35%.
Hotel bargains abound. Hotels joined airlines in a post-Sept. 11 depression. You can find hotel bargains, but you have to know where to look to get the best deals. Many hotels are selling empty rooms in blocks to consolidators, especially to the web site consolidators. That is where you can get the best prices most of the time. But you have to get the right website.
Priceline.com is likely to have the best price most of the time. The problem with Priceline is that you have to commit to buying before knowing the name of the hotel and exactly where it is located. If you are flexible and just want the lowest price, this isn’t a problem. Otherwise, you might want to try other sources. You can get an idea of which hotel you’ll get from Priceline by checking BiddingForTravel.com. It posts reports from buyers of their successful bids, though there is no way to verify the information.
Hotwire.com also usually offers prices as good or better than Priceline’s. Hotwire also won’t name the hotel until you make the purchase. You do get to define the neighborhood you want and the type of hotel, such as a four-star rating. You also are not committed to buying whatever the site has at your named price.
I’ve always had good luck getting the best hotel and airline prices through travelocity.com, partly because it has a partnership with hotels.com. It also identifies all the available hotels and prices before you purchase. Expedia.com never has had the lowest prices when I’ve checked, and it has a $25 change or cancellation fee. Always check a hotel’s own web site to see if it offers the same price as one of the web services. You also might get some additional benefits, especially if you are in the hotel’s frequent stay program.
Your best move is to start by booking a reservation at a hotel you want to stay in that has a generous cancellation policy. Then check a broad-based site such as orbitz.com and travelocity.com. Major hotels also are planning a new site at travelweb.com. That will give you an idea of the general market prices. If nothing there strikes your fancy, regularly check back to travelocity.com, expedia.com and hotels.com. Offerings at these sites change regularly. Finally, shortly before the trip take a try at priceline.com and hotwire.com. The best way to maximize savings is to be flexible about your travel time and exact location.
You might even be able to get discount prices at luxury hotels. Web sites that specialize in these deals are wanderluxe.com, luxury-link.com, luxres.com, quikbook.com and alluxuryhotels.com. To get the best prices at the luxury hotels and resorts, you need to be flexible about your travel dates and destination.
Dining out for less. The slow economy is putting discount pressure on restaurants, even the high-priced ones. Some restaurants offer frequent diner discounts or promote special deals to those who sign up for their mailing or e-mail lists.
You also can get price breaks by joining a discount club or broker.
Dinnerbroker.com provides a discount to those who book online with the site. The deals vary and usually are available to early or late diners. Restaurant.com allows you to buy a discount certificate to use at participating restaurants. When paying your bill, put the certificate with your cash or credit card for credit. Idine.com charges a $49 annual fee and has 7,000 participating restaurants. You pay by the credit card registered with the site, and a discount automatically is credited to your card a few days after dining.
