What is the Best Roth IRA Broker?

Every week I get at least one email from a reader asking me which broker is the “best” for their Roth IRA. The number of emails jumps exponentially after the new year and, fortunately, falls after April 15th! You have until April 15th, 2011 to decide if and how much you will contribute to your Roth IRA for 2010. If this is the first year you’re contributing to a Roth IRA, you’ll also have to pick who you want to watch over your money.

Before you decide where to put your money, you really need to decide what you want to invest in. If you want to invest it in mutual funds, you’ll be best served going with the company that runs the funds you like. The two big names in the mutual fund space are Fidelity and Vanguard. If you really like their funds, I recommend you open a mutual fund account directly with them because you will be able to buy and sell shares for free.

If individual stocks are more your thing, then you’ll want to pick a broker that offers services you like at a cost that’s affordable. Discount brokers are all the rage these days, with sub-$5 stock commissions and all the research you could ever want. My personal opinion is that as long as you can satisfy the minimum balance requirements and the fees aren’t expensive, the broker is less important. I personally like TradeKing because their customer service has been rated one of the best and I’ve never had issues with it myself (I use their online chat feature all the time). They aren’t necessarily the cheapest anymore, there are a few even cheaper, but there’s a bit of an inertia effect there (I have my stocks there and I don’t trade much, so I don’t want to go through the process of moving them).

I’m about to provide you with a bunch of information from a variety of brokers but I want you to know one thing – it doesn’t matter which broker you pick. It is more important that you start contributing towards your retirement as soon as possible because each year you wait is another year you lose out on gains. Some will charge you $15 a trade, some will charge you $5, but those all pale in comparison to how much you lose if you let that decision paralyze you.

* Zecco offers 10 free stock trades a month when you maintain a $25,000 balance or execute at least 25 trades a month, otherwise it’s $4.50 a trade.

Vanguard is a special case because they have two types of accounts. They have a fund account where you can only buy and sell Vanguard funds, those fees are listed in the above table. They also have a brokerage account where you can buy stocks, bonds, ETFs, etc. The fees for both are different. Here is the full fee schedule for the brokerage account. I’m not really sure why they segregate it in this way, it’s annoying, but they like to keep the two worlds apart.

If you have a Roth IRA, where do you keep it and why?

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Finovate Fall 2010 Recap

As many of you know, I spent the first two days of the week attending Finovate Fall 2010. It’s billed as a demo of the cutting edge in personal finance technology and it certainly delivered the cutting edge, it’s just that the cutting edge in finance just doesn’t appear to be as sexy as the likes of other areas (pesky security issues and whatnot). Larry Chiang, someone I had a chance to hang out with (he’s been mentioned in the past on Bargaineering), said it best (and I paraphrase) – “Banking 2.0 is like Web 0.9.”

Sounds a little harsh but there is one caveat – I think there’s a lot of stuff in fraud detection and other financial technologies that is cutting edge and certainly not web 0.9. The problem is that these technologies are also invisible to folks like you and me, it excited me but it’s really relevant to bank technologists. Since they were outside the scope of Bargaineering, I won’t be covering them, but as a former software engineer some of that stuff was interesting to listen to.

I’m penning this post on the train ride home to Baltimore so much of this is fresh in my mind. I’ll do more in depth looks at some of the companies I had a chance to talk with but these were just some of my thoughts about the companies I saw.

There are a lot of personal finance management (PFM is the acronym I learned this week) applications out there! We all know the now-deadpooled Wesabe and the now-acquired Mint, but there were several at Finovate with a decidedly different feel. MoneyStrands uses intelligence (and they showed me a slick looking integrated budgeting tool that I think will help a lot of people budget), Kiboo facilitates conversations between parents and their kids, Pageonce with their slender dashboard and powerful smart phone capabilities (fully functional PFM entirely wrapped up in an app), and of course, Yodlee.

A company that I didn’t know beforehand, except in passing, was Wonga. They are located in the UK, no operations in the United States, and they give short term loans (under 1,000£, fewer than 35 days). I sat with their CEO Errol and chatted for quite some time, so I got a chance to really know him, as well as his company. To say there can’t be a more standup guy than Errol in what’s really considered the “pay day loan” business would be an understatement. (case in point, they reject 70% of applicants and they don’t sell that data… most companies would sell it to their partners) I won’t be reviewing them in a separate post because they aren’t available in the United States (though they should be), which is why they get a small shout-out in this wrap-up.

There were 7 Best in Show awardees – Betterment, BillShrink, Bundle, Dynamics, oFlows, PayNearMe, and Secure Key. Keep on the lookout for reviews of Betterment and BillShrink’s new StatementRewards offering. The others I either didn’t get a chance to talk (Bundle, PayNearMe) to or weren’t relevant to you guys (Secure Key).

All in all, the show was great and well organized. I think that the presentation format of 7 minutes per presenter was great, it kept the demos going quick and kept them fresh. There were adequate breaks, which gave you a chance to meet with companies, meet with other attendees, and watch the presentations at your leisure (they were broadcast into the demo area). It’s no surprise Finovate often has a waiting list (I heard from a presenter that the wait list was around

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New 2011 Form 1099-K

Back in college, I used to sell all sorts of things on eBay for a little extra cash. Two of the more legitimate things I sold were John Deere hats, made popular by Ashton Kutcher and his Punk’d show, and Washington Wizards Michael Jordan jerseys, made popular when Jordan made his brief return to the NBA. Back then, as is the case today, eBay sellers had to report that income on their income tax returns. Many don’t because there’s no checks and balances in place forcing them, there aren’t any W-2s or 1099-MISCs for them because eBay doesn’t pay them, a multitude of sellers do.

The times have changed and now the IRS has produced a draft Form 1099-K used to report Merchant Card and Third-Party Payments made to your ID number (social or employer ID number) in each month. This is a way for the IRS to capture some of the underreported income since sellers will not have to reconcile the third-party transactions, such as through PayPal, with their incomes.

There are a few huge caveats. If you have gross sales of less than $20,000 a year or fewer than 200 transactions, then 1099-K reporting will not be necessary. This is so your small time sellers, like those emptying their attics, don’t get stuck with a paperwork nightmare while actual businesses are still on the hook for sales.

This new form isn’t limited just to PayPal and eBay, though chances are that’s what most of you guys, myself included, are most concerned about anyway.

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How To Win McDonald’s Monopoly Game

MacDonald’s Monopoly game for 2010 has started!

McDonald’s announced that this year’s Monopoly game will start on October 5, 2010 and end on November 1, 2010 (official rules)

Every year McDonald’s runs its very popular Monopoly game where you get a Monopoly property sticker/game piece with selected items. If you get all the properties in a color group, you get to win that cash prize. In addition to these properties, you can get instant win stickers as well for free Wi-Fi time, Wal-Mart gift cards, McDonald’s food, and even a 2011 Shelby. The cash prizes range from $5 up to $1 million!

The secret to winning a prize in the McDonald’s Monopoly Game is to understand how the game works. McDonald’s is pretty savvy about how they setup the game. You win prizes when you collect all the properties in a particular color group. They control the number of prizes by limiting one of the properties, usually the last property listed alphabetically, and the key is to find those “rare” pieces.

For 2010, the rare pieces are:

Mediterranean Avenue ($50 prize, 5000 prizes)Vermont Avenue ($100 prize, 1500 prizes)Virginia Avenue ($200 SpaWish® Gift Certificate, 250 prizes)Tennessee Avenue ($1,000 prize, 250 prizes)Kentucky Avenue (Beaches Resorts – The Luxury Included® 4 Day/3 Night Family Vacation for two adults & two children 15 years or under, 122 prizes)Short Line Railroad (EA SPORTS Trip, 8 prizes)Ventnor Avenue ($25,000 prize, 5 prizes)Pennsylvania Avenue ($50,000 prize, 4 prizes)Boardwalk ($1 million dollar prize, 2 prizes)

If you’re curious, the $1 million top prize isn’t lump sum. It’s a $50,000 annual payment for 20 years.

The pieces (which include two “stamps”) are included on the following products: Medium Fountain Drinks; Medium and Large Hot McCafés; Medium and Large Cold McCafé including Smoothies and Frappés (excludes McCafé Shakes); Hash Browns; Big Mac; 10-piece Chicken McNuggets®, McGriddles, and Filet-O-Fish. Individuals who purchase 20-piece Chicken McNuggets® or Large Fries specially-marked packaging will receive two (2) Game Pieces (4 stamps).

As always, you can always do a little horsetrading to get the pieces that you need. Remember, if you get a rare piece, you’re pretty much set. People will try to negotiate using common pieces (Park Place is pretty much worthless, since you need the uber-rare Boardwalk piece… if you have that, you can easily negotiate down someone with Park Place since it’s worthless without you). If you need a place to trade, I’ve always suggested a place like Fatwallet Forums.

The cheapest item on the menu that offers game pieces are the hash browns. For an average of a dollar, you get two game pieces and it is slightly cheaper, and faster, than mailing in a self-addressed, stamped envelope ($0.88 for two stamps). Some people have had success just buying the game pieces without the food… since you probably don’t want to be eating a stack of has browns as a breakfast.

As for the healthiest option, I’d go with a cup of coffee or any one of their other coffee-like products.

As I alluded to before, you can always get game pieces for free. Send a “legibly handwritten, self-addressed, stamped envelope with your address (first and last name, street address, city, state, and zip or postal code) to:

2010 MONOPOLY Game at McDonald’s Game Piece Request
P.O. Box 49229
Strongsville, OH 44149-0229

In addition to the awesome property prizes, there are a number of instant win prizes. Some of these I wasn’t really a big fan of, they seem more like trial subscriptions than a “prize” that you’ve won. I’ll let you decide:

Food Prizes – Medium French Fries, any Large Beef Sandwich, any Breakfast Extra Value Meal®, Small McFlurry® or Fruit ‘N Yogurt Parfait, Small Soft Drink or Small Hot Premium Roast Coffee (excluding McCafe®), and any Breakfast Sandwich.Three (3)-Month Pogo.com™ Subscription – EA SPORTS™ video gameTwenty Snapfish® Photo Prints – With 4,000,000 of these prizes, this prize is the second most common prize.Wal-Mart Gift Card – Several prizes are Wal-Mart gift cards ranging in value from $5 (966k winners) to $5,000 (10 winners).Free RedBox Rental – There are 1,350,000 of these and this is the third most common instant win prize, with your chances at 1 in 405.Fifty Dollars – There are 4,000 of these prizes available, you get a check for $50.Five hundred Dollars – There are 500 of these prizes available, you get a check for $500.EA SPORTS Ultimate Game RoomXbox 360 Game System – There are 3,000 of these prizes available, but you will only get these off an order of large fries or Angus burger.$10,000 Dollars – Four $10,000 prizes available.$25,000 Dollars – Four $25,000 prizes available.2011 Shelby GT500 – Last but not least, there are two cars.

It doesn’t hurt to try and I don’t know how likely it is that you’ll snag a Shelby through the mail… but good luck!

(Photo: sundazed)

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Your Take: Who Should I Talk To At Finovate Fall 2010?

On Monday I’ll be attending Finovate Fall 2010 to see the latest and greatest in financial technology in the great city of New York. There are a ton of presenters there, many I’ve heard of and many I’ve not. Some of the companies I’ve heard of before include Billshrink, Bundle, Smarty Pig, Credit Sesame, and Yodlee. There are, however, plenty I haven’t like Hidden Levers, Matchfund, oFlows, and Wonga (I’m just looking at the logos of demoing companies and pulling the names I do and don’t recognize).

I’ll probably check out many of the consumer direct demos (for example, Jack Henry Banking seems like a B2B solution, so I probably won’t be talking to them) but I wanted you to tell me who I should talk to and what you want me to ask them! I’ll probably stop by the companies I’m very familiar with just to see the new stuff they’re doing and then branch out from there, but let me know what interests you so I know what I should cover!

Also, if you’re going to be there, let me know and we can meet up at the conference.

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Commission Denies Postage Rate Hike Request by Post Office

News alert: The United States Post Office is hemorrhaging money.

It’s estimated that the USPS will lose a staggering $7 billion in 2010 after losing nearly $4 billion last year. If you’re wondering why you get so much junk mail, it’s because “business mail” is one of the few profitable parts of the existing mail volume. According to Postmaster General John E. Potter, 90% of the revenue comes from business mail. Media mail, which I’m a big fan of, is unprofitable. Magazines are unprofitable.

When the Postal Regulatory Commission decided last week that the Post Office couldn’t raise the price of postage, I thought it was a great idea. This forces the USPS to address it’s structural problems… unfortunately everything they do requires Congressional approval, which takes forever. The USPS had requested an increase of 5.6% (averaged across all mailing methods). Normally, rate hikes are capped at inflation but with the recession, retiree benefits, and other demands, they are permitted to request an increase.

Postal Service denied rate hike [CNN Money]

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Beware Investing Gimmicks

I was reading USA Today a couple weeks ago when I saw John Waggoner’s column about the Dogs of the Dow investing strategy. It’s a pretty easy strategy and one that I find really appealing. All you do is buy equal amounts of the ten highest dividend yielding components of the Dow each year and swap them out each year.

The strategy relies on the idea that each of the thirty components of the Dow is a stable company that will be here for decades to come. The ones with the highest yields are simply the companies that have had their share price beaten down by Mr. Market. By buying into the companies with the highest yields, you’re assuming you’re buying good companies at a discount and that they will eventually revert to the mean.

One problem… and Waggoner, to his credit, states it right off the bat, there are problems with “formulaic investing,” or what I consider gimmicky investing, and the fact that the Dogs of the Dow have performed terribly until this year is an example of that. (I don’t like the term formulaic because isn’t all analysis in some way formulaic?)
There are a lot of little gimmicks like Dogs of the Dow and many of them are popular to talk about when they work and popular to ignore when they don’t. “Sell in May And Go Away” is another popular one of these investing gimmicks that says you should sell all of your stocks in May, buy bonds, then shift back into stocks in November. While you may scoff at the idea, since 1950 the Dow, on average, has gained 7.4% from November through April while only 0.4% from May through October (Huffington Post).

Another popular one is the January Effect, first observed by Donald Keim at the University of CHicago. It says that stocks tend to increase in the month of January because investors have been selling stocks into the end of the year for tax purposes, so you should buy them in January as investors re-enter positions after the 30 day wash rule period.

In the end, there is no “get rich quick” system for the stock market for the individual investor. It’s a random walk and you can only “win” by buying for the long term and waiting.

As an aside, let’s say one of these gimmicky investing schemes does actually work. Eventually, and usually very quickly, it’ll fail under its own popularity. If some strategy were to work, everyone would pile into it and the strategy wouldn’t work anymore. Dogs of the Dow looks great on paper: buy stable blue chip companies when they’re down and out, recycle each year, book the profits. The problem with that strategy is that blue chip companies can go kaput just as easily as “unstable” startups. When that happens, this strategy takes a huge hit as 10% of it goes to zero.

In the end, there’s no shortcut to investing in the stock. You have to do your homework, diversify, and reduce your costs… which is why index funds are so appealing (but also so boring).

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What’s Bullion?

So a few weeks ago I wrote about bearer bonds because I’d heard of them in movies and thought they were, besides insanely protected works of art, the thing to steal if you were going to steal anything. Another term I’d heard in the movies a lot was “bullion” and I knew it was related to gold and other precious metals but I wasn’t 100% sure what it meant.

Bullion actually refers to any previous metal whose value is tied to the metal itself and not some fiat money designation assigned by a government. So the bullion coins produced by the United States Mint have no value designation, they are valued at it’s actual metal value. You can buy 1 oz., 1/2 oz., 1/4 oz., and 1/10 oz. of American Eagle Gold and Platinum Bullion coins.

Determining the value of a bullion coin requires three pieces of information – the precious metal, its weight, and the purity. You get the weight of the coin in troy ounces, multiply it by its purity, and then again by the value per troy ounce. American Eagle Gold Coins use 22 karat gold with a 91.67% gold (2% silver, 5.33% copper) and it’s actually quite funny to see the “face value” up against the actual value.

1/10 oz – Face value of $51/4 oz – Face value of $101/2 oz – Face value of $251 oz – Face value of $50

Gold at over $1,200 a troy ounce, its value as bullion is far greater than its face value.

(Photo: sirqitous)

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