Should You Exchange Vanguard Mutual Fund Investor Shares for Admiral Shares (Even if the Fund is in a Taxable Account)?

Back in 2008-2009, one of the first few mutual funds that I purchased after starting to significantly fund my individual, taxable Vanguard mutual fund account was the Vanguard Small Cap Value Index Fund. This was done in an effort to continue developing my portfolio to my target investment strategy and asset allocation that has been discussed previously on this site.

Since I could only afford an initial investment of $3,000 (minimum required to purchase the fund), I just purchased the normal Investor Shares class of the fund. However, after several years of adding contributions to this individual account and through subsequent rebalancing, my account value held in this specific fund finally ticked over the $10,000 mark in the January 2011 time period. I was pretty pumped!

Vanguard’s Admiral Share Mutual Funds – Features and Qualifications

At this time that I achieved the $10,000 account value mark, since I had always tried to remain abreast of various features offered by Vanguard, I did know that there was indeed another class of mutual fund shares Vanguard had for offer, called Admiral Shares. However, the only things that I really knew about these shares were:

• 1) They offered a lower expense ratio than their Investor Class Share counterparts, and 
• 2) Required a $10,000 fund value minimum in order to purchase.  

Once I had done a little more research on Admiral Shares, I found out the following additional requirements needed to buy this type of mutual fund:

• You must have invested $10,000 or more in a Vanguard index fund that offers Admiral Shares (the minimum for certain sector index funds and tax-managed funds is $100,000), or
• Invest $50,000 or more in a Vanguard actively managed fund that offers Admiral Shares.

Advantages and Disadvantages of Converting to Vanguard Admiral Shares (If You Qualify)

When I found out that Admiral Shares featured a lower expense ratio than the Investor Shares I was currently holding, I was VERY interested in making the change once I had accumulated the $10,000 minimum.

However, at the same time, I was hesitant to make the switch because I worried that changing from the normal Investor Shares to the lower-cost Admiral Shares would represent a traditional mutual fund exchange, initiating a taxable event in the taxable account my Small Cap Value Index Fund is held within.

Because of this, I delayed for 1.5 years while I waited to have enough time to do the full-length, gory analysis to determine if the capital gains taxes I would pay from this taxable event/exchange would be less than the money I would save on the lower expense ratio with the Admiral Shares.

And, would you guess what?! When I sat down two days ago with my Excel spreadsheets ready to do some numerical analysis, I read the webpage below from Vanguard, which said that making the switch from Investor Shares to Admiral Shares in the same mutual fund is tax free, because it is viewed by tax law as the same fund. So, this whole time, I had been worried about something that simply wasn’t the case, due to my ignorance!

Vanguard.com – Changing from Investor Shares to Admiral Shares

To summarize, the advantages and disadvantages of converting to Vanguard Admiral Shares are listed below:

Advantages

• Lower expense ratios, which means you keep more of your returns.

Disadvantages

• No disadvantages. Switching does not represent a taxable event.

The moral of the story is that if you qualify for Admiral Shares, you should switch NOW! 

How Much Did My Ignorance Cost Me? – Implications of Delaying the Conversion

Luckily for me, it appears that delaying the conversion from Investor Shares to Admiral Shares did not cost me a whole lot of money.

From January 2011 until now, my taxable Small Cap Value Index Fund has maintained an average value of $10,500. According to Google Finance, the expense ratio for the Investor Shares version of this fund is 0.35%, while the Admiral Shares version is 0.21%. In other words, the Investor Shares version takes 0.14% more of your money on a per annual basis than the Admiral Shares.

This translates to a loss of only $22 over the 1.5 year time period. So, we’re obviously not “breaking the bank” here, but just think about how much money you could save if you translated this over the 50 years or so I will invest with Vanguard (or whatever it turns in to and my account is handed off to) before and during retirement and that also I would hope that my balances in the accounts would only increase (hopefully).

As an example, let’s consider that the average value of the fund over a 50 year holding period was $200,000. This equates to paying roughly $14,000 more in fees to Vanguard simply by holding the Investor Shares version of the fund (not even taking compound interest in to account, which would further tilt the values in favor of the Admiral Shares).

What Funds Does Vanguard Offer Admiral Class Shares For?

As I mentioned above, all Vanguard funds, unfortunately, do not offer an Admiral Shares class option.

However I figured it would be useful to list out the OPEN (not closed) funds that have Admiral Shares and then compare their expense ratios to their Investor Shares counterparts in a tabular form for easy viewing.

 

Note: To see the source information for this data, click here. Also, if you’re having trouble viewing the picture above OR would like to download a copy of this table for later viewing, click the link below:

Google Docs Spreadsheet – Comparison of Expense Ratios of Admiral and Investor Shares Vanguard Mutual Funds 

As can be seen in the table, Vanguard offers Admiral shares for the majority of their index mutual funds.

• In fact, there are a total of 27 Vanguard mutual funds which have Admiral Shares available. 
• Among these funds, you save an average of 0.13% by switching to Admiral Shares. 
• This equates to an ~52% reduction in fees compared to regular Investor Shares. This is quite an amazing savings!

However, most of Vanguard’s actively managed mutual funds do not have this option. For example, the only actively managed Admiral Shares options are the Tax-Managed mutual funds in the bottom third of the table, which did not actually have a regular Investor Shares option available.

Conclusion

To wrap things up with this post, the moral of the story is that if you qualify for Admiral Shares by meeting the $10,000 account balance minimum, you should switch!…………………..NOW!

There really are no drawbacks to watch out for by making the switch, as switching from Investor Shares to Admiral Shares is tax-free. Vanguard has a total of 27 mutual funds that feature Admiral Shares, so take a look today at your account and see if you qualify to make the change and save 51% on management fees.

How about you all? If you use Vanguard for your investing, have you made the switch from Investor to Admiral Shares? 

If not, what is holding you back from doing so?

Share your experiences by commenting below!

How To Refinance Your Home Mortgage Properly

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With the current state of the economy, many people are now looking to refinance their home mortgage to reduce the interest charges and fees that they are currently paying. Advertisements by home loan companies have led many consumers to believe that refinancing their mortgage is a great idea and will always save them money. While this is often true, there are still many things people need to be aware of to ensure they come out financially better off after refinancing their mortgage.

Here are some tips you should follow to refinance your mortgage properly:

Determine If Refinancing Is Right For You

The first thing you should do before refinancing your mortgage is to decide if refinancing is actually the best option for you. There are many great reasons to refinance your mortgage, such as taking equity out of your home to fund the purchase of a new car or to simply try and reduce your repayments by refinancing into a lower interest rate loan. Whatever your reason for refinancing, you should make sure you have looked at some options other than refinancing, such as car loans or separate home equity loans if you are looking to make a large purchase, to ensure you are making the best financial decision.

Understand The Interest Rate Cycle

Interest rates are constantly changing over the course of many years. To ensure your mortgage refinance is successful you need to refinance at a time when the market interest rates are below what you are currently paying on your home loan minus switching fees. If interest rates are currently higher than what you are paying now, then now is not the time to refinance. Instead, try to postpone refinancing until you can get a better rate. If interest rates are lower than what you are paying now, then you should definitely consider refinancing your loan. But remember, just because the current interest rates may be lower than what you are paying now does not mean it is automatically a good idea to refinance, as you need to also consider the often large fees associated with refinancing.

Be Aware Of All The Costs

A mortgage refinance typically comes with many fees. Some of the main ones you will likely see are: closing costs, loan application fees, and broker fees. When reviewing loan refinance offers from various lenders, it’s important that you understand all the fees that will be charged so you can properly compare different lenders. Also, you need to weigh up the interest rate savings against these costs; you may find that the costs of refinancing your mortgage outweigh the benefits, even if you can get a much cheaper interest rate on your loan! To work all this out, simply find one of the many mortgage refinance calculators that are available online, and work out how much you can save.

No Closing Costs? – Be Weary!

A lot of companies that offer refinance loans also offer the option of no closing costs to try and bring in more customers. These deals may seem like a great choice, but you need to be careful. Often, when a company is offering no closing costs on their loans, they are adding extra hidden fees and higher interest rates to make up the difference. So, if you are offered a refinance loan without closing costs, be sure to check all the fine print to make sure you are actually saving money.

Do Your Own Research – Avoid Brokers

Using the services of a mortgage broker is a very common way of getting a home loan or refinancing your current loan. They can provide you with a lot of information about home loan offers that are available from different lenders. But remember, mortgage brokers are paid on commission, so it is actually in their best interests to sign you up for a higher interest rate loan, because they will get a higher commission. You can still use mortgage brokers as a source of information, but once you have the information from them about several good home loan lenders make sure you contact the companies yourself to inquire about their refinancing options. Also, make sure you do your own independent research into mortgage refinance options that are available, and don’t rely entirely on what your mortgage broker says.

Conclusion

Refinancing your mortgage can be one of the biggest financial decisions you will make. Make sure you know why you are refinancing, do your homework, and don’t let other people tell you what a great deal is; come to your own conclusions by researching your options effectively!

How about you all? Have you ever refinanced your home? If so, why did you do it? 


Looking back on the process, do you feel it was the right decision? Do you know how much money you saved by doing it?


Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/jwthompson2/139445633/sizes/l/in/photostream/

Carnival of Retirement # 28 – July 16th, 2012 Edition

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Joel @ Retiremoose Blog writes Who is really an unbiased financial advisor? – Sources of retirement advice


Jessica @ Budget for Health writes Budget Review: April-June 2012 – Check out our budget review to see how we did over the past 3 months. We had a few surprises come up (getting a new car starter and battery) but managed to finish our 911 fund and invest in two Roth IRAs!


Ted Jenkin @ Your Smart Money Moves writes Why Is Gen XY Worth Less Than Their Parents? – Common sense says it’s no surprise that older Americans are wealthier than young Americans.


Maria @ The Money Principle writes Investing as science, an art form and a game – Investing is challenging, not because of the amount of knowledge we need but because we need different kinds of knowledge.


krantcents @ KrantCents writes The 3 W’s of Success – The 3 W’s of Success is the twenty-third in a series of articles to help you reach your goal.


Suba @ Broke Professionals writes My Financial Bucket List – I’m trying to get the highest return on investment… the investment of life. Here are the top five financial goals on my bucket list. What are yours?


MMD @ My Money Design writes How Much Money Would I Make If I Rented Out A House? – What kind of rate of return would I make if I bought a house and rented it out for rental income? This example will walk through buying a house in my neighborhood and then crunching the numbers to see how much I could make in a year.


Passive Income Earner @ The Passive Income Earner writes Easy Investing With Computershare – Are you familiar with Computershare? I learned about the marvels of Computershare in my mid-thirties and I must admit that I wish I had learned about it in my early twenties.


Evan @ My Journey to Millions writes Building a Retiree’s Income Stream at a Younger Age – In my very limited experience successful Retirees often have multiple streams of income regardless of whether they were intentionally created. These streams of income include:


PPlan @ Provident Plan writes Will There Always Be Poor People? – The issue of poverty is a complicated social issue. Jesus is often quoted as saying You will always have the poor with you. Find out what he really meant.


Teacher Man @ My University Money writes Dollar Cost Averaging Strategy – There is this cool thing that happens when you ignore all the stock picking stuff that people talk about, stop paying attention to the “experts” on TV and simply invest your money in a dispassionate and consistent manner. The aforementioned “cool thing” is that you end up with a lot more money.


Tyler @ Poor Student writes June Dividends – It is that time of the month. That came out wrong perhaps. I mean that I have now collected all my dividends for the month of June. And it was my best month yet.


Tushar @ Start Investing Money writes Are Your Parents Jeopardizing Your Savings Plans? – Are Your Parents Jeopardizing Your Savings Plans without even knowing it? After all, we are a product of our childhood and the way that we were raised…


Robert @ The College Investor writes Cash Cow Stocks: Great for Long-Term Investing – A cash cow is generally defined as a company that turns 5-10% of its sales into cash. Good businesses that can turn sales into true free cash flow usually have a competitive advantage that strengthens their future, which makes them a great investment for long-term investing. 


A Blinkin @ Funancials writes I Was Housed By A Homeless Guy – Sounds ironic, doesn’t it? How could “he who don’t own home” be capable of housing “he who own home?” Confucius can’t even provide understanding on this matter so I suppose I’ll have to explain further.


JP @ My Family Finances writes How Does the Average Family Budget Compare to Yours? – We are obsessed with being more than average. So, if you want to avoid the average family budget, it helps to know what it is.


PITR @ Passive Income To Retire writes Passive Income with a Bed and Breakfast? – It was just last week that I was at a friend’s wedding. It was a great time to celebrate with them, and as it turns out, it was my first time at a bed and breakfast. For the first time, I got a close-up view of what it takes to run a bed and breakfast.


harry campbell @ Your Personal Finance Pro writes Keep Your CD’s Liquid and Still Earn a High Rate of Return – Most investors probably don’t have too many high yielding ‘safe’ investments lying around from the high interest rate days. The 5% CD’s that we all took for granted in 2007-2008 are a thing of the past and I know most people wish they would have locked in a couple more 5 year CD’s at these rates. So in today’s market, what are the best options for investors looking to earn a high return and minimize risk?


Amanda L Grossman @ Frugal Confessions writes Alleviating Financial Stress for the Sake of Your Health – Stress can do horrible things to your body. While everyone’s body reacts to it differently, some of the common ways stress manifests itself is through headaches, migraines, stomachaches, sleep deprivation, ulcers, and panic attacks. Learn how I manage such issues.


Jeff Rose @ Good Financial Cents writes Your Family Vacation vs. Your Retirement, Who Wins? – Families spends countless hours trying to plan the ultimate “Griswold family vacation”. And our family is no different this year. But here’s my question: How much time do you spend planning your vacation vs. planning your retirement?


Daniel @ Sweating the Big Stuff writes Do You Pay Student Loans Bills With a Credit Card? – I love using my credit card for gas (3 percent cash back) when I can, but there are certain situations where you simply can’t use a credit card to pay your bills. I would love to get 1 percent cash back on my rent…


Sicorra @ Tackling Our Debt writes Make More Money, Get Out of Debt, and Live Your Life – Work on following these simple steps so that you can still enjoy life, while you work towards becoming debt free.


Hank @ Money Q&A writes What Is A Cafeteria Plan For Health Insurance? – What is a cafeteria plan for health insurance? It is a type of employee health insurance plan that allows employees to choose from different types of health benefits


Paul Vachon @ The Frugal Toad writes Manage Personal Cash Flow as if You are a Business – Cash Management is vital to the success of a business because it allows the business to pay it’s bills while using cash efficiently to fund day to day operations. Consumers can benefit from managing their own cash in much the same ways a business does.


Investor Junkie @ Investor Junkie writes How Can I Increase Income Safely in Retirement? – Many retirees are asking how they can make more money now that long term CDs with attractive rates are maturing. There are many alternative investments that generate income. In no particular order, here is what I recommend:


Invest It Wisely @ Invest It Wisely writes Zen Personal Finance: My Philosophy, and What It Means to Invest It Wisely – What is zen personal finance? Is it a new-age thing? Is it a type of meditation? Is it a new way of looking at our finances? Read more to learn what it really is!


SB @ One Cent at a Time writes How can you benefit from 401k fee disclosure rule – Starting this month, 401(k) providers must clearly disclose the fees they charge to employers for the retirement savings plans, The fees include investment management, record keeping, administration and other services. How it can benefit you.


Corey @ 20s Finances writes Does the Cash Method Really Work? – One of the many ways that people try to curb their spending habits is to go to an all-cash budget. The reason for making the adjustment is that it helps you weigh the actual cost of each expense because it is actual bills leaving your pocket. It’s not a method that my wife and I use, but it has been helpful for some of our closest friends. Find out why it could help you.

***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6869770873/sizes/l/in/photostream/

Individual Stocks or Index Funds?

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The following is a guest post by Karl Marrion, a money saver and investor who runs the blog, WiseStockBuyer. Enjoy!

Individual Stocks or Index Funds?

Thanks to the web, the average small investor has more options than ever before to invest his or her cash. Readily available information on any publicly held company is within any investor’s grasp within minutes, thanks to online tools like Morningstar.com, Bankrate.com, SEC.gov, and thousands of others.


In addition, there are dozens of stock brokerages that will let anyone buy or sell shares in specific companies. However, there are also dozens of index funds designed to take the hard work out of investing. 


Are you interested in individual stocks or index funds? Read on…

Individual Stocks: The Pros

Individual Stocks: The Cons

Index Funds: The Pros

Index Funds: The Cons

Keep in mind that market indices sometimes have long periods of mediocre performance. You’ll never know, of course, when one of these periods begins or ends. However, index fund investing is designed to make things easier for the small investor, so you shouldn’t spend any time worrying about when to get into, or out of, the markets.


Many small investors put the bulk of their retirement savings into index funds, while putting a little bit of “fun money” aside for dabbling in individual company stocks. Not a bad plan. Is this the plan you should follow? Every investor is different, and each investor is at a different period in his or her life.


Consider your own investing style, financial goals, and aversion to risk before making any decisions on where to put your money. And consider talking to that cute babe across the room about something other than stocks.

My personal approach

Personally, I prefer investing index funds rather than individual stocks. I like to get in after a big crash, when many investors are panic selling. I was a big buyer of index funds during the tech mess of the early 2000’s and the 2008-09 banking crash. I feel for me personally, this gives me a level of risk to reward that I’m comfortable with. Investing at these times takes a lot of nerve, as you are doing the exact opposite of what the masses are doing. Just remember one thing though, most traders are not making money, so you don’t want to be following them.


I use Optionsxpress as a brokerage firm. One thing I like to do when trading indexes is keep expense ratios as low as possible. When investing investing in the S&P 500 index, I use the Vanguard S&P ETF, ticker VOO. This is ETF has the lowest expense ratio of all the S&P trackers and it’s just 0.05%. Typically I have held positions for 6-18 months, depending on what happens in the market. As a general rule of thumb I tend to keep 50% of my portfolio in cash and the other half in equities and commodities.


***Photo courtesy of http://www.flickr.com/photos/argonne/4660306658/sizes/l/in/photostream/

Lost Your Job? Now What?

The following is a guest post. Enjoy! 

Getting the most out of your money

Making the most of that rainy day

Making the most of your redundancy package

Previous Loans

Insurance – Check you’re covered

Tax

Pensions

Getting back into work

How about you all? What are the first steps you took if you suddenly lost your job in the past?


Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/uggboy/4540056800/sizes/l/in/photostream/

Mid Year 2012 Current Asset Allocation and Net Worth Growth – January-June 2012

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I have to apologize slightly in advance for this week being a little heavy in “progress” posts, as it has has been my “catch up” week in evaluating my financial goals (published Monday), net worth progress (this post), and blogging/personal goals for 2012 (published Wednesday).

As I’ve mentioned before, the goal of this running net worth and asset allocation progress update series is twofold:

• 1) To share how I (as a fairly normal non-financial professional) approach various financial issues that come at me throughout life so that you can use my learnings to assist you in your financial decision making, and 
• 2) To make me more accountable in sticking to my various financial goals that I set forth by periodically evaluating my status and making adjustments. 

So, without further a due, let’s get started! As always, if you have any questions, please ask via email or commenting below!

Overall, the 1st half of 2012 has been going pretty well. I’ve been able to make a lot of progress towards my personal, professional, and financial goals (didn’t quite accomplish all of my blogging goals due to running short on time with my day job). And, while the market hasn’t been super-stellar, it has steadily increased a reasonable amount. So, I can’t complain too much. 

With all of the up and down that has occurred, let’s take a look and see how it affected my net worth progress…shall we?

How about you all? How did you progress with your net worth in January-June 2012? What are your thoughts about the strength of the market right now? 

Do you think I should prioritize Individual 401(k) contributions ahead of pre-paying extra amounts of principal on my condo home loan for the rest of 2012 (see details listed above)?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/mplemmon/3203403862/lightbox/

Mid-Year 2012 Financial Goals Check-In and Progress Update

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Happy beginnings of Summer 2012 everyone! I hope you’ve been enjoying the warmer weather and have been able to get outside every once in a while! 


Back in January of this year, I set my financial goals for 2012. Since the year is now almost officially half finished, I figured it would be a good time to sit down and take a few minutes to review how I’ve been doing thus far in reaching or NOT reaching (in some cases) the various targets I set for myself. 

Overall, I would financially rate the 1st half of the 2012 year as being good, but not out-of-this-world stellar. However, I suppose this is somewhat of a normal thing, as I tend to have a greater number of financial commitments that occur during the 1st half of the year, and then during the last part of the year is when I play “catch-up.” The main reason for this is because my big fundraising event that I do each year takes place in early June, so I have to essentially save up and donate a year’s worth of donations in only 5 months or so. Then, the rest of the year, I only give small amounts of money to friends that are doing various fundraising events. 


In addition, I’ve been having to save up larger amounts of cash this year in order to a) build up a savings for dog health care expenses and b) pay estimated taxes. Of course, I’ll go in to more details on each of these points below. Read on! 

So, here goes, a progress update (in bold below) on how I’ve been doing so far in 2012 reaching my financial goals. Enjoy, and I look forward to reading any comments you all have!  

How about you all? How are you doing so far in reaching the goals you laid out for yourself in 2012? What techniques do you find are most effective in holding yourself accountable and on-track for your goals you set?  



Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/jaybock/6030739393/sizes/l/in/photostream/

Breach of Contract Remedies: What to Do?

The following is a guest post. Enjoy!

Types of Breach

Exemption Clauses and Unfair Contract Terms Act (UCTA)

Remedies

How about you all? Have you ever been involved in litigation involving a breach of a contract? Which side of the discussion were you on? 


Do you think people act too quickly these days to try to obtain damages for minor breaches of agreements?


Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/donabelandewen/1045446557/sizes/l/in/photostream/

The Hidden Impact of Your Credit Report

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The following is a guest post. Enjoy! 

Insurance Companies

Insurance companies run your credit report when determining your home and auto insurance rates. Insurers claim that folks with higher credit scores are far less of a risk than those with lower scores. How does this affect you?

“Consumer Reports” notes that drivers with a poor driving record but great credit scores pay as much as 31% less on their auto insurance premiums, while those with clean driving records but bad credit scores pay up to 143% more. Fair or not, having bad credit makes you a bad driver in your insurance company’s view.

The good news is that while about 92% of insurance companies check your score when you apply for a policy the first time around, only about 14% check it for a renewal. If you’re having credit problems, consider sticking with your current insurer while you boost your score.

Employers

An increasing number of employers are checking the credit histories of job applicants. Some companies claim that a good credit score indicates how responsible an employee will be in their professional lives. Other organizations believe that your credit score reflects your level of trustworthiness. If you’re applying for a job with the government or a financial institution, you can bet those companies will run your credit report.

Individuals with poor credit histories won’t be hired because they are considered far more likely to steal company funds or accept bribes from competitors than employees with good credit scores. Your credit score might also affect your chances for promotion. Some companies will check your credit before offering you a higher position. If you have a substandard credit score, you will more than likely be passed over. In some cases, employers who need to lay off people will re-run the credit scores of all employees. Those with the lowest scores are the first to get the pink slip.

Banks

You undoubtedly know that financial institutions run your credit history whenever you apply for a loan. But, did you know that banks check your report whenever you apply to open a new savings or checking account?

The reasoning is that you could very well become overdrawn at some point or another. Your credit score indicates how likely it is that you’ll pay off those overdraft fees.

Utility Providers

Utility providers and cell phone companies commonly run your credit report before providing you with service. If you have credit issues, you could be required to put down a deposit, pay more in plan rates, or even be denied service.

Because of all the hidden impacts of your credit report, make boosting your credit score a number one priority. This could save you thousands of dollars over the course of your lifetime.

How about you all? Has your credit report been run by organizations or companies that you did not expect it from? 


Have you ever had any of the experiences described above (such as had your credit score affect your career opportunities at your employer or your insurance premiums)?


Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/amboo213/4020584983/sizes/o/in/photostream/

Long Term Life Insurance

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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The following is a guest post.

How about you all? Do you prefer term, whole, or universal life insurance plans? Why?


Share your experiences by commenting below!