Thursday, June 26, 2008
If you saw a new $3 fee on a quarterly account statement, would you sweat it before filing it away? If a new tax appeared on your cable TV bill, would you even bother to call and ask about it before you sent your payment?
You would if you were Warren Buffett.
It seems that the billionaire many times over can't help noticing the money minutiae that most of us gloss right on over (if it even catches our eye in the first place).
Take, for example, a $4 line item on Buffett's income taxes several years ago. In one interview, he talked about personally hunting down the provenance of the puzzling entry on his income-tax return. (FYI: It was a royalty payment.)
Don't bother sweating some small stuff
The takeaway is not, as you might suspect, that (a) Warren Buffett has an eagle eye (although he does) or that (b) you should spend every waking hour scouting for accounting errors (unless you consider extreme accounting a sport).
No, the point here is that Warren Buffett notices the little things. And when it comes to managing your finances, you, too, should sweat the small stuff. But (and that's an important "but") make sure it's the right small stuff -- the seemingly minuscule things that actually have monumental effects on your bottom line.
Oh, and one more thing you should know: There are a whole lot of folks who make a handsome living by urging you to let the "minor details" slide right on by unnoticed.
How Wall Street robs your retirement bit by bit
"Don't bother about those digits behind the decimal point," say the Wall Street suits. "What's the big hooey over a few basis points here or there?" they nonchalantly shrug.
In other words, "Don't worry your pretty little head over this nonsense. We've got you covered."
They sure do.
Wall Streeters have certainly covered all their bases by finding myriad ways to siphon money from your account. Perhaps you've heard of the terms "front-end load," "back-end load," "12b-1," "contingent deferred sales charges," or "expense ratio" -- all fancy ways to say one simple thing: "fee."
The worst fee-offenders tend to be specialized mutual funds -- the ones that invest in particular sectors or concentrate on smaller companies. But even large-cap mutual funds -- ones investing in behemoths like ExxonMobil (NYSE: XOM), Wal-Mart (NYSE: WMT), and Hewlett-Packard (NYSE: HPQ) -- get away with highway robbery. Get a load of the fees on these large-cap mutual funds:
Cost to invest $3,000 over three years
Category average cost to invest $3,000 over three years
John Hancock Large Cap Select (MSBFX)
Front-end load (what you pay up front to invest): 5%
Expense ratio: 1.34%
Nationwide Large Cap Value Fund (NPVAX)
Load (front-end): 5.75%
Expense ratio: 1.42%
ING Large Cap Growth (NLCAX)
Load (front-end): 5.75%
Expense ratio: 1.44%
Data from Yahoo! Finance.
Even in the historically low-cost category of index mutual funds -- without the hefty fund-manager salary or fat marketing budget -- you have to watch out for fee funny business.
Consider what it costs to invest in an S&P 500 tracker, all of which count the same companies -- Bank of America (NYSE: BAC), Microsoft (Nasdaq: MSFT), AT&T (NYSE: T), IBM (NYSE: IBM), etc. -- among their top holdings.
Cost to invest $3,000 over three years
Category average cost to invest $3,000 over three years
Morgan Stanley S&P 500 Index (SPIAX)
Load (front-end): 5.25%
Expense ratio: 0.58%
Munder Index 500 (MUXAX)
Load (front-end): 2.5%
Expense ratio: 0.64%
Data from Yahoo! Finance.
And how do these investments compare to, say, the Vanguard 500 Index (VFINX)?
- Top holdings? Nearly identical.
- Overall fund performance (before fees)? Practically indiscernible.
- Fees? A mere 0.15%. That's it. No loads. No 12b-1 fees.
- Cost to invest $3,000 over three years? No contest.
Vanguard's offering will cost you a mere $14.40 in fees. Nothing to break a sweat over.
Don't sweat the small stuff ... if you define $70,000 as "small stuff"
So now that you've winnowed out all investments with crushing front-end loads and high management fees, you can rest easy, right? Only if you want to leave even more money on the table.
The cost to invest is only part of the overall money-making (or money-losing) equation. After all, the more you pay in fees, the less money you have invested to compound and grow over time.
In the scheme of things, sure, the difference between 1% and 1.5% is but a drop in the bucket -- a mere $0.50 of $100. Just $5 out of $1,000. Except that when you're investing those amounts on a regular basis over a long period of time, that 0.5% blip is just a warning tremor of a much bigger disaster to come.
Let's say you sock away $1,000 a year into a mutual fund earning a 10% annualized return with a 1.5% expense ratio. After 43 years, you'd have a pretty respectable $413,314 in your portfolio.
The thing is, you should be sweating bullets -- because you, my friend, have been had.
The little things sure do make a big difference
If, instead, you invested in a mutual fund with the exact same investment objective -- one that achieved identical returns over the same time period -- but charged 0.5% less in fees, you'd be a much happier camper by the time you needed your money.
Again, the only difference is that the expense ratio (a.k.a. "sales fee") is 1% versus 1.5%. Fast-forward to your leisure years -- how much of a difference are we talking about? (I know, I already gave away the punch line, but stick with me for dramatic effect.)
You'd have $480,522 in your portfolio -- $70,000 more just for catching that "inconsequential" 0.5% early on.
Stop your savings’ slow leak, starting right now
If you know where to look for the small stuff that really matters, then you're already acting a lot more like the world's most famous billionaire, who knows that even the smallest leaks steal disproportionate investment potential over time.
Warren Buffett certainly didn't get where he is by letting the little stuff slide, and neither should you.
So stop letting other people pickpocket your savings, and let the Fool help you identify the cheapest (and, of course, the best) investments in every asset class. For our short list of the best index funds for retirement portfolios, check out the "Model Portfolios" section of the Motley Fool Rule Your Retirement service (under "Resources").
Among other things, you'll find specific fund recommendations, as well as the ideal allocation plan for your situation. Click here for a free 30-day trial -- and start sweating the right stuff right now.
Dayana Yochim prefers to "glow," not sweat. When she spots an unsightly fee blemishing her portfolio's earning power, she gracefully dabs her forehead with an embroidered kerchief and then annihilates it. Wal-Mart and Microsoft are Motley Fool Inside Value recommendations. Bank of America is an Income Investor selection. The Motley Fool's disclosure policy works so hard it has permanent pit stains.
A GOLD Coast teenager who wore a T-shirt by English extreme metal band Cradle of Filth that reads 'Jesus is a c**t' has been charged with offensive behaviour.
Above the offensive slogan a nun is depicted masturbating.
A 16-year-old was arrested on Monday for wearing the shirt and was charged with offensive behaviour under the Summary Offences Act 2005 for public nuisance.
Senior Sergeant Arron Ottaway said the teen was walking along Hollywell Road, in Biggera Waters, when a officer saw him.
Police conducted inquiries at Australia Fair, where the teen said he bought the shirt, to find any shops selling it.
The Reverend Matt Hunt of the Helensvale Baptist Church said it was sad people spoke about the Lord in such a way.
"It's fairly common language these days to express sadness, anger or hurt," he said. "It's a degrading word to use and Jesus is anything but that. It's like calling white black."
Mr Hunt said using the Lord's name in vain was a serious sin.
"When someone comes to the point of saying Jesus is the devil or Jesus is 'expletive', the Bible does say be very careful because you're on thin ice."
Gold Coast lawyer Bill Potts said the arrest highlighted Australia's need for a Bill of Rights.
"One of the great problems with our country is that we talk about rights such as privacy and freedom of speech and the like but they are not enshrined or protected in any way as they are in America," he said.
"While there are always limits on freedom of speech, you can't incite violence or anything like that, it seems to be now more than ever that our rights to freedom of speech and freedom of expression should be protected.
"A Bill of Rights which enshrines that protection is long overdue in this country."
Mr Potts said charging the teen was 'ludicrous' and brought the law into disrepute.
"A shirt might offend some and might be amusing to others," he said.
"If a person was wearing the shirt in a church or a religious rally where it was specifically intended to offend or cause disruption, then perhaps the prosecution might stand a chance.
"However, to criminalise juvenile or boorish messages is to bring the law into disrepute. The police are acting like the thought police and censors."
The replacement of traditional fuels with biofuels has dragged more than 30 million people worldwide into poverty, an aid agency report says.
Oxfam says so-called green policies in developed countries are contributing to the world's soaring food prices, which hit the poor hardest.
The group also says biofuels will do nothing to combat climate change.
Its report urges the EU to scrap a target of making 10% of all transport run on renewable resources by 2020.
Oxfam estimates the EU's target could multiply carbon emissions 70-fold by 2020 by changing the use of land.
The report's author, Oxfam's biofuel policy adviser Rob Bailey, criticised rich countries for using subsidies and tax breaks to encourage the use of food crops for alternative sources of energy like ethanol.
"If the fuel value for a crop exceeds its food value, then it will be used for fuel instead," he said.
"Rich countries... are making climate change worse, not better, they are stealing crops and land away from food production, and they are destroying millions of livelihoods in the process."
Opportunity - or crime?
Biofuels are a divisive issue with strong arguments on both sides.
Leaders such as Brazilian President Luiz Inacio Lula da Silva have suggested the biofuel boom provides developing nations with a great opportunity.
He says it creates a profitable export for energy crop producers in Africa, Central America and the Caribbean that could enable them to claw their way out of poverty.
But several aid agencies and analysts have warned of the possible downside of biofuel crop cultivation.One UN adviser went as far as describing biofuels as a "crime against humanity".
CBS consultant Michael Oren says Israel doesn't want to wait for a new administration.
"The Israelis have been assured by the Bush administration that the Bush administration will not allow Iran to nuclearize," Oren said. "Israelis are uncertain about what would be the policies of the next administration vis-à-vis Iran."
Israel's message is simple: If you don't, we will. Israel held a dress rehearsal for a strike earlier this month, but military analysts say Israel can not do it alone.
"Keep in mind that Israel does not have strategic bombers," Oren said. "The Israeli Air Force is not the American Air Force. Israel can not eliminate Iran's nuclear program."
The U.S. with its stealth bombers and cruise missiles has a much greater capability. Vice President Cheney is said to favor a strike, but both Mullen and Defense Secretary Gates are opposed to an attack which could touch off a third war in the region.
U.S. intelligence estimates Iran won't be able to build a weapon until sometime early in the next decade. But Israel is operating on a much shorter timetable.
"The Iranians, according to Israeli security sources, will have an operable nuclear weapon by 2009. That's not a very long time," Oren said.
For now, the Bush administration is counting on new economic sanctions which took effect Tuesday to persuade Iran to give up its nuclear program. But nobody's counting on it.
Last week's introduction of new federal copyright legislation ignited a firestorm with thousands of Canadians expressing genuine shock at provisions that some MPs argued would create a "police state." As opposition to the copyright bill mounts, the most commonly asked question is "Why"?
Why, given the obvious public concern with the bill stretching back to last year, did federal Industry Minister Jim Prentice plow ahead with rules that confirm many of the public's worst fears? Why did a minority government introduce a bill that appears likely to generate strong opposition from both the Liberals and NDP with limited political gain? Why did senior ministers refuse to even meet with many creator and consumer groups who have unsurprisingly voiced disappointment with the bill?
While Prentice has responded by citing the need to update Canada's copyright law in order to comply with the World Intellectual Property Organization's Internet treaties, the reality may be that those treaties have little to do with Bill C-61.
Instead, the bill, dubbed by critics as the Canadian Digital Millennium Copyright Act (after the U.S. version of the law), is the result of an intense public and private campaign waged by the U.S. government to pressure Canada into following its much-criticized digital copyright model. The U.S. pressure has intensified in recent years, particularly since there is a growing international trend toward greater copyright flexibility, with countries such as Japan, New Zealand, and Israel either implementing or considering more flexible copyright standards.
The public campaign was obvious. U.S. Ambassador to Canada David Wilkins was outspoken on the copyright issue, characterizing Canadian copyright law as the weakest in the G7 (despite the World Economic Forum ranking it ahead of the U.S.).
The U.S. Trade Representatives Office (USTR) made Canada a fixture on its Special 301 Watch list, an annual compilation of countries that the U.S. believes have sub-standard intellectual property laws. The full list contains nearly 50 countries accounting for 4.4 billion people, or approximately 70 per cent of the world's population.
Most prominently, last year U.S. Senators Dianne Feinstein and John Cornyn, along with California Governor Arnold Schwarzenegger, escalated the rhetoric on Canadian movie piracy, leading to legislative reform that took just three weeks to complete.
The private campaign was even more important. Emboldened by the successful campaign for anti-camcording legislation, U.S. officials upped the ante at the Security and Prosperity Partnership meeting in Montebello, Que., last summer. Canadian officials arrived ready to talk about a series of economic concerns, but were quickly rebuffed by their U.S. counterparts, who indicated that progress on other issues would depend upon action on the copyright file.
Those demands were echoed earlier by the USTR, which, according to documents obtained under the Access to Information Act, made veiled threats about "thickening the border" between Canada and the U.S. if Ottawa refused to put copyright reform on the legislative agenda.
Faced with unrelenting U.S. pressure, the newly installed industry minister was presented with a mandate letter that required a copyright bill that would meet U.S. approval. The government promised copyright reform in the October 2007 Speech from the Throne, and was set to follow through last December, only to pull back at the last hour in the face of mounting public concern. (Disclosure: I created the Fair Copyright for Canada Facebook group that has more than 60,000 members and played a role in this public opposition.)
In the months that followed, Prentice's next attempt to bring the copyright bill forward was stalled by internal Cabinet concerns over how the bill would play out in public. The bill was then repackaged to include new consumer-focused provisions, such as the legalization of recording television shows and the new peer-to-peer download $500 damage award.
The heart of the bill, however, remained largely unchanged since satisfying U.S. pressure remained priority number one. Just after 11 a.m. last Thursday, the U.S. got its Canadian copyright bill.
French President Nicolas Sarkozy, bottom right (in larger image), and wife Carla Bruni-Sarkozy are rushed onto an airplane by security during a departure ceremony at Ben Gurion Airport in Tel Aviv, Tuesday, June 24, 2008. (AP / Dan Balilty)
The Associated Press
BEN-GURION AIRPORT, Israel -- An Israeli police officer fatally shot himself in the head at an airport farewell ceremony Tuesday for French President Nicolas Sarkozy, prompting bodyguards to whisk the visiting leader and Israeli Prime Minister Ehud Olmert to safety, officials said.
A military band was playing at the time of the shooting, and the dignitaries apparently didn't hear anything. Dark-suited security men quickly ushered Sarkozy and his wife, Carla Bruni-Sarkozy, up the stairs of his plane at Ben-Gurion Airport outside Tel Aviv.
Security guards, their guns drawn, also rushed Olmert and Israeli President Shimon Peres toward their cars. The incident was over within minutes, and Olmert then boarded the plane to tell Sarkozy what happened, witnesses said.
The policeman, who was on a roof about 100 yards from Sarkozy's plane, fell to the ground after shooting himself, and his sheet-covered body lay on the tarmac afterward.
Police spokesman Micky Rosenfeld denied reports that there had been an assassination attempt on Sarkozy, and other police officials said the leaders were never in danger.
"We are currently investigating the circumstances to see whether it was suicide or if he accidentally discharged his weapon," said area police commander Nissim Mor. "His mission was to secure an area to prevent people from reaching the ceremony."
A French presidential spokesman who was on another scheduled flight out of Tel Aviv said he knew nothing about the incident.
Sarkozy was ending a three-day visit. Earlier Tuesday, in the West Bank town of Bethlehem, Sarkozy said Israel's separation barrier in the West Bank would not guarantee its security forever, renewing his call for Israelis and Palestinians to make peace and share the holy city of Jerusalem.
Sarkozy spoke at a news conference alongside Palestinian President Mahmoud Abbas, following his only meeting with Palestinian leaders during his visit, which was aimed primarily at cementing the improved relations between France and Israel after years of frosty ties.
Nevertheless, the French president was unusually frank in his comments critical of Israeli policies.
On Monday, he told the Israeli parliament that there could be no Mideast peace unless Israel halted its West Bank settlement construction and divided Jerusalem. On Tuesday, he focused on the separation barrier that Israel says it has built to keep suicide bombers out. Palestinians denounce the barrier as a land grab.
"You can't protect yourself with a wall, but with politics," Sarkozy said. "What will give Israel security ... is making a democratic Palestinian state."
Israeli government spokesman David Baker said Sarkozy was "a great friend of Israel," adding that "great friends don't always see eye to eye on every issue."
Sarkozy also repeated his call to share Jerusalem, the eastern part of which Palestinians claim as the capital of their future state.
Sarkozy, whose maternal grandfather was a Greek Jew, devoted most of his trip to meetings with Israeli leaders. He also met the parents of an Israeli soldier held by Palestinian militants in Gaza. The young man, Gilad Schalit, also holds French citizenship.
Throughout the visit, he called himself a "friend of Israel" and showered praise on the Jewish state.
"On behalf of France, we would like to declare our true love to Israel -- we love you!'' Sarkozy said at a meeting with businessmen.