Questions answered on air for July 5-6
In this edition of Getting Personal, Chris and Tess talk about negotiating with collection agencies, comparing mutual fund fees, lazy investing and an offer too good to be true.
TEXT OF GETTING PERSONAL (FIRST SEGMENT)
Tess Vigeland: Alright, it is that time in the show where we get personal, where we answer all those pesky money questions that you, the listener, have. We also call it “Stump the Farrell.” Of course, our economics editor Chris Farrell is never stumped, are you Chris?
Chris Farrell: Oh, yeah. I think you got me a few times but pesky? I don’t know about pesky.
Vigeland: Alright, let’s go ahead and hit the phones. Our first call is from Erin in Indianapolis, Indiana. Hi Erin.
Erin: Hi, how are you?
Vigeland: We’re good. How are you doing?
Erin: I’m doing great.
Vigeland: Alright, so what do you do there in Indianapolis?
Erin: I’m a radiographer.
Vigeland: A radiographer… Is that medicine, I assume?
Erin: Yeah, I take X-rays and I’m in school to get my degree to do MRIs and CTs.
Vigeland: Oh, so you’re in Grad School?
Erin: Yes, I’m trying to get my Masters in Health Sciences. That’s going to be my focus.
Vigeland: Well, what’s your question for Chris today? Sounds like you’ve got everything handled.
Erin: Oh gosh, no.
Vigeland: No… Oh, OK.
Erin: Well, my life as far as financially has a lot of ups and downs through my life.
Erin: Well, I’m 40 years old and when I was in my 20s and 30s at times when I had really good jobs, I did really well on paying my bills and then when I didn’t have really good jobs and I was in school, I didn’t do very well on paying my bills, if I paid them. Some of my bills I have gone to court because they want their money, which I don’t blame them; I would want mine too. So I have a couple of judgments against me for these credit card bills.
Vigeland: Credit card debt, alright.
Erin: Yes, and my question is now that I have graduated and am able to get those bills taken care of should I call those collection agencies and say I will pay this amount so I can clear it off even though I know it will be considered a charge-off?
Vigeland: What kind of money are we talking about here?
Erin: One is almost $3,000 and then the other is $5,400.
Vigeland: Do you actually want to eventually pay off the entire sum?
Erin: Well, I don’t agree with the entire sum because of all the interest that’s accrued. I agree with the amount that I was charged against when we went to court. That’s why I was wondering if it was OK to make that phone call and see if they would just take the original amount because I could have that in a month.
Farrell: And that is perfectly OK to do. Go ahead and make that phone call, but if you’re going to actually negotiate a deal, you need to get everything in writing because people can say whatever they want over the phone. They don’t have to follow through.
Vigeland: Chris, if she gets an agreement with the collection company to take a lesser amount than what they say she owes, isn’t that called a charge-off and then how does that reflect on her credit score?
Farrell: It will have an impact on her credit score. Now we don’t have the impact that we used to have in the old days where it could be fairly dramatic but again, it will be a negative item on your file but it’s not that big and frankly, I think that there’s this point for everybody where they have to sort of make this certain type of decision, you know, do they want to pay off this debt or not? I tend to believe people should pay off their debts even if it does have an impact on their credit score and that is an approach that people take.
Vigeland: Alright, so Erin, do you think you’ll be making that phone call?
Erin: Oh definitely, it’s my debt and I want to pay it.
Vigeland: Alright, well let us know how it went.
Vigeland: Well, thanks so much for the call.
Erin: No problem.
Vigeland: Alright Chris, let’s reach into the email bag and Gwen wrote in from Boston, Massachusetts. She is a 24-year-old law student and she’s been inspired by the show — yeah — to consider switching her Roth IRA mutual fund to a socially responsible index fund like the Domini Fund. And this is a question we get a lot from folks regarding socially responsible mutual funds. She did some research to compare her current fund to the Domini Fund and she found that her current fund is a better performer on the earnings chart, but it also has higher expense ratios and higher fees — boo.
Vigeland: So her question really is is there a tool out there that will allow her to do some sort of bottom line comparison between the funds?
Farrell: Tess, I have two websites that she can visit. Now what we can compare and come up with concrete numbers are fees, the impact of fees over time. What the return is going to be — you know, you and I could have a good conversation thinking well, I think this is the right part of the market to be in or long-term, but we have no idea.
Vigeland: No, it’s up to the market.
Farrell: It’s up to the market, but we can compare those fees. Now the first one is a new name. We used to call it the NASD. Now it’s FINRA, right?
Vigeland: Right, and in full disclosure, I should say that they are an underwriter of this program.
Farrell: Well, they have the Mutual Fund Expense Analyzer and what’s nice about this is you can compare the expenses, fees of up to three funds, you can also go to the Securities and Exchange Commission website — sec.gov — and at that website they have a Mutual Fund Cost Comparison Calculator. You can see the impact of fees. I think it’s great, this is a great question and it’s important for people to realize that these tools do exist to compare fees and just as returns compound over time we talked about that compounding effect, fees compound over time too.
TEXT OF GETTING PERSONAL (SECOND SEGMENT)
Tess Vigeland: We’re back again with Getting Personal and as always, I’m joined by Chris Farrell, our personal finance expert. And Chris, we’ve got an email from Jeffrey in College Station, Texas. He considers himself what’s called a lazy investor.
Chris Farrell: Which is a good thing because typically that means you own like index funds and you’re not a very active trader, so it can be a very smart approach.
Vigeland: Well, that’s exactly what he says he does, he says he uses index funds and a percentage of assets for what he hopes is a balanced portfolio, but he wants to know how often he should rebalance to these predetermined percentages. First of all, let’s give a really basic definition of what lazy investing is.
Farrell: A lazy investor just wants to be smart over the long haul about how much they have in stocks, how much they have in bonds and then every once in a while check in and make sure that their fund is doing OK. So it’s a real focus on — jargon term here — asset allocation: how much in stocks, how much in bonds. And then once you really put all your work and research into that then you’re just doing some monitoring — no buying, no selling, no trading.
Vigeland: But how about this question of how often you check it and change things?
Farrell: OK, let’s say you were 50 percent stocks, 50 percent bonds — going to keep it real simple. And just because the way the world has worked, you’re now 60 percent stocks, 40 percent bonds… you want to get back to your 50/50. That’s what all the rebalancing does, that’s what he’s asking about. So you can do it once a year. Now usually for most people, that’s not enough. Some people do it quarterly and then other people are a little more active. They’ll typically say, “If my asset allocation gets out of whack by 10 percent, that’s when I make my move,” so it’s not by the calendar. It’s by how much the markets are moving. If I get a 10 percent move, then I’m going to go in there and do my rebalancing.
Vigeland: Alright, let’s go back to the phones. Sean is with us from beautiful Honolulu, Hawaii. How is it hanging there, Sean?
Sean: Things are going well Tess, thanks.
Vigeland: Yeah, how is the surf?
Sean: The surf is nice.
Vigeland: Can I come visit?
Vigeland: Alright, well I understand that you have a question today that you’re asking on behalf of your mother. Tell us a little bit about this.
Sean: Well my mom went to a conference where they told her about some business opportunities as it were, and when she told me about them, she was really excited and they sounded a little bit fishy to me.
Sean: They told her about a couple of things. One was a way to buy tax liens through, you know, their special program and another one was a way to protect your assets through something called a Charitable Remainder Trust and a Family Limited Partnership.
Vigeland: Oh my goodness.
Sean: And when I asked her some questions which I thought might be important, she said that they hadn’t really mentioned any of that stuff, so it kind of bothered me.
Vigeland: Well Chris, I think instead of the Hawaiian music we’re going to need to go to the sirens.
Vigeland: All kinds of red flags going up here.
Farrell: All kinds, geez. I’ve been to a number of these conferences very similar to what your mom went to and they’re not scams in the sense of being illegal, in the traditional sense that we use the word scam, but what they are, they’re products that are sold but should not be bought. They’re very expensive. My bottom line advice to anybody who is tempted to go to one of these seminars: stay away from them because what they’re selling is “Uncle Sam won’t tax you” or “Yeah, you can make 50 percent on your money off of people who have fallen into trouble with their homes” and you know, if any of these programs really worked the way that they’re pitched, we’d all be rich.
Vigeland: So Sean, is this something that your mother has already made the investment?
Sean: Well, unfortunately she did make an investment in a couple of these things and they claim that they are full get your money back and as soon as I heard about it, I urged her to try and get her money back as much as she could. Hopefully she actually can.
Vigeland: Yeah, did they set any sort of time limit on getting her money back?
Sean: On one of the programs that she bought into they had a three-day time limit and I haven’t talked to her since, but I believe that she tried to get her money back within that time period.
Vigeland: OK, Chris, do you know in general, legally are they required to give you your money back if you change your mind?
Farrell: What they have to do is state what is the program — you have three days, you have a week, you have two weeks. They have a fair amount of latitude as long as it’s clearly understood. Now the elderly can get some extra protections and so I think it’s great that she’s trying to get her money back. And here’s the real thing: even if you can’t get all your money back, don’t put good money after bad. Just write it off, move away, walk on.
Vigeland: Alright, does that help you out Sean?
Sean: It helps me out quite a bit. I will make sure to let my mother know.
Vigeland: Alright, good luck.
Sean: Alright, thanks a lot. I appreciate it.
Vigeland: Take care, bye-bye.
Sean: OK, bye-bye.
Farrell: Thank you.
Vigeland: Alright, well unfortunately Chris those are all the questions we can take on this week’s show. Chris, thanks as always for the great advice.
Farrell: Thanks Tess.
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