Home ownership and (not so) routine maintenance

Posted on August 20, 2014August 20, 2014 by Danielle

I’m a born condo dweller so I don’t know why I still have this darn house. Okay, it was because I didn’t follow my own advice and kept the house in the divorce. (See this post for why you shouldn’t.) It wasn’t a terrible decision financially—the divorce valuation was at the height of the bust, so the value has allegedly gone up quite a bit, it has a great home office, and my dog thinks the yard is her kingdom. But the reason I should be living in a condo is because I hate maintenance.

If you’ve slugged it out for a while in a divorce, or been on the rocks for a few years before (my hand is up!), you can bet there’s a ton of deferred maintenance. But even if you’re as on top of maintenance as my mom used to be, you can count on being frenemies with some contractors every year your address is a single family dwelling. It’s very important to recognize the ongoing nature of repairs, and budget for them (especially when you’re thinking through a divorce or retirement).

A decent rule of thumb is to budget 1% of the home’s value for regular, ongoing repairs and maintenance. I suppose this might have been accurate if the ex had been dependable and completed the myriad of projects he either started or ignored. But the first few years after my own divorce I had a ton of clean-it-up projects to fix—including the raining in my office which he had been “getting to” for 7 years.

The 1% is a good place to start, but take a closer look at your home for better estimation. Consider these points:

What’s the house made of? If you have wood siding or a lot of trim, you need a paint job probably every 5-7 years. Get an estimate and divide by 5. If it’s stucco, not so much maintenance but in my first hand experience you occasionally have a piece crack and fall off. Even if you have brick, you’re not home free—tuck-pointing and trim painting will need to be done if you’re not going to develop “unexpected” leaks.
What’s the yard look like? Personally, I’m continually at war with the weeds. In 20 years, I haven’t won, but they really gained ground during two consecutive summers when I first broke my foot and then had to get my dad’s (neglected) home ready for market–I barely touched the yard. My DIY tendencies are rampant when it comes to the yard and I’ve wasted a ton on harebrained ideas—a push mower, lots of plants that I forget to water, and plants sold to me as shade tolerant that succumbed nearly instantly. Nevertheless, if you have a yard you have to budget for plants and trees: replacement plants for the ones that inevitably croak, and tree maintenance. Trees are huge (ugh, pun)—trimming at least every other year, various schemes to abate or prevent pests, and crashes. In 5 years I’ve had to remove 3 trees–$890, $1,600, $2,500. Breathtakingly expensive and often an emergency. If you have teenage kids or are paying for a health club, in my view you don’t need a lawn service. Your mileage may vary. Lawn services, if regular, are not really part of this 1% rule.
How old is your heating plant, water heater, and roof? Make a good guess and put them on the maintenance calendar.
Painting, floor refinishing, and new carpeting are a few things home and condo owners will both need to replace, but for most other issues, the condo assessment fee (if well thought out by the association) should pay for most structural, exterior, or common elements.

As an aside, if you are a condo dweller and want to analyze your assessment, add up the cost of any utilities and insurance it covers, a decent allowance for “saving” for future repairs, and that 1% of value and you have a rough gauge of whether your assessment is reasonable. I’m not quite sure how to measure the aggravation level of finding contractors who actually show up and finish the project.

Every once in a blue moon, I don’t actually spend that 1%. Okay, I do (and more) but I dream about the time when I might get a break. You might not spend that every year, but suddenly get hit with the need to replace the furnace. Start that repair fund now and you’ll keep your plastic in your pocket and your heart in your chest.

So long carpenter. I have to go call the painter.

Antiques Roadshow & investments

Posted on August 5, 2014August 5, 2014 by Danielle

Sure, I love it. So much so that when Antiques Roadshow announced that it was going to be in Chicago for the first time in years, I applied for the ticket lottery immediately. They had 19,000 applications for 6,000 tickets, so I was thrilled when we won two tickets.

If you’re a fan, you probably find it at least as addictive as chocolate truffles. Watching other people live at the show, I spent a lot of time wondering just what the show offers. Everyone hopes they’ll pick something from a trash bin that turns out to be worth six figures, and we saw one or two folks who looked like they were being pulled aside for the big reveal. However, given the lines we saw for painting appraisal, and the absolutely horrible paint-by-numbers art being carried in, I can tell you without a doubt that most of us have absolutely no taste in or knowledge of art. Really, I don’t think I could bear to be an appraiser on that beat, the stuff was so horrible. It must be a thrill to their eyes, too, when they finally spot something good. So, my first lesson is that if you’re going to hang it on a wall, make sure it’s something that has meaning for you, because value is questionable at best.

My second lesson while there is that not only do we probably have little idea of the value of collectibles or much ability to judge such value, but dealers don’t really have a clue, either. You probably know that if you’ve watched many Antiques Roadshow broadcasts, and see the terrible prior advice people have been given, but this time it’s personal. I brought a set of jewelry to be evaluated, which I bought at a reputable antiques show (the Winnetka Antiques Fair) from a reputable and long established dealer. Not one single thing I was told about the jewelry when I purchased it was accurate, at least according to the Roadshow appraiser. It wasn’t the karat weight I’d been told (14kt vs. 15kt.) it wasn’t from the era it had been labeled (U.S. Civil War vs. 1870s), and it wasn’t made where I was told (Italy, vs. England). The only “fact” that slightly mattered to me was that it wasn’t Civil-War era, as I was heavily interested in Civil War re-enacting at the time and that was the “fact” that thrilled me into purchasing the piece.

The third lesson I learned is that the demographic of viewers appears to be baby-boomer or older. Everyone is hoping that something from their early life, or that they inherited, has value. It’s a way of recouping your youth through your possessions—and finding that the changes over time that you see in yourself (perhaps losses) can be redeemed by the increased value of things that once had very low prices. Perhaps it’s innate in us that we want to have something of value that we can pass on to our children.

My biggest fear was that the jewelry would turn out to be worth less than what I paid for it, so it was a great relief to find out that it was worth about 60% more than its original price tag. But I have to confess, one of the games I play when watching the show is, “was it a good investment?” And mostly, I have to answer no. I purchased this jewelry in 2000. If I’d have plunked my money into, say, the fairly conservative Vanguard Wellington fund instead, I’d have a nearly 200% return for the period. Plus, I wouldn’t have paid to insure it for the last 14 years (although I would have had to pay taxes on the Wellington dividends). You can play this game too—listen to how long the person has owned the object, take the amount they paid, and double it for every 10 years of ownership. If they’re not doing at least that well, financially at least they’d have been better off investing it in a balanced fund portfolio. But truthfully, it was much more thrilling at the time to own the jewelry than it would have been to put the same amount into a mutual fund. Fourteen years later, I’m not so sure. I’ve probably worn the darn thing 3 or 4 times.

Then, there are the things that don’t hold their value—most recently, antique dolls and furniture. You may not buy these things strictly as an investment, but you should be very, very careful that you pay on the low side of whatever the current market value is, be able to judge quality pretty well, and be willing to hold the object for as long as it takes for the category to rebound. And be sure it’s insured and properly cared for in the meantime. Probably, don’t own cats or have small children.

The final ouch! is the taxes on collectibles. I have to believe that a fair portion of those who get a big pleasant surprise are thinking about contacting their friendly local auction house. I have never seen this mentioned on the show, but if your tax bracket is above 15% on ordinary income, you’re going to be hit with a 28% capital gains tax on the gain you make from the sale (most other long term investments are taxed at no more than 15% currently). Maybe your kids actually do want to inherit that ugly picture.

Investing for the old and foolish

Posted on July 10, 2014July 10, 2014 by Danielle

I’m pretty tired of hearing about scams involving the elderly that paint older people as doddering children. (It’s a corollary of the cultural motif of “Dad is a Doofus”). But lately, there have been some respectful public service announcements with intelligent looking older people (finally!) warning you to check out any investment advisor and be careful. Great idea which I totally support.

However, like many research projects, the devil is in the details. It just isn’t the easiest thing to find out who is trustworthy and knows what they’re doing. Not any different with a doctor, lawyer, or accountant, really. So here are some ways:

One that doesn’t work is checking out Yelp, endorsements or testimonials on the advisor’s website or LinkedIn, etc. Fee-only advisors are not supposed to have any of these, and you’ll note that there aren’t any on the website you’re currently viewing. In fact, if you see testimonials you can be pretty certain you are looking at a broker’s website, not a fee-only advisor. If you see a tiny footnote on a page mentioning anything about the sale of securities, you’re on a stockbroker website.

You can check to see if the advisor has any complaints registered here.(There’s a corresponding one for brokers, but you shouldn’t be looking for one if you listen to me.) But as any landlord who runs credit checks can tell you, just because nobody has registered a formal complaint doesn’t mean the advisor is trouble free. Worth a look, though.

Check out and read the profiles on the Garrett Network and NAPFA. Okay, I’m biased because I belong to both of these organizations. But they are the leading membership organizations for fee-only advisors. Many Garrett members are one or few-person operations dedicated to helping people with everyday financial questions, personalized for the specific situation. NAPFA members range from one-person shops on up, and some are more focused on investment management. Their profiles will indicate this.

Next, talk to the advisor! Many offer a free get acquainted meeting so you can get a feel for their philosophy and methods. Most people in this industry are convivial, so being “nice” isn’t a reason, alone, to hire any of us. But ask some hard questions:

what would you do if I wanted to be more conservative/aggressive in investing than you recommend?
How did you arrive at your projected return for me?
Give me some examples of tough planning problems you’ve worked on.
What if I don’t like some of your recommendations?
Why do you recommend X?
How did you get into financial planning?
What would you advise if my portfolio took a dive?

NAPFA and Garrett both have information on what to ask an advisor, and tons more information on what to look for.

And here are some dumb questions—I’m answering them now so you don’t have to ask me:

Where do you think the market is going? Who knows? Not me and not your brother in law and not Jim Cramer.
How did you do last year? For whom? I don’t have a canned portfolio for everyone, and many of my planning clients are concerned about many more issues than investment portfolios. In any case, one year tells you nothing.
I have a great investment that will make me 10-15-100%, guaranteed. What do you think of it? Um, call me back when you lose it all.

But let’s return to investing for people over, say, 80 years old. Most likely, this is not a portfolio that has to last another 30 years, or that needs to support the purchase of a new BMW or extensive and frequent travel. If so, of course we can plan for that. But for most people at this age or above, the portfolio needs to help support a decent lifestyle, quality medical care, assistance when needed, and perhaps leave a legacy to children, charity, or both.

No matter what age, a portfolio should take the least risk necessary to achieve the investor’s goals. Sometimes I see a conflict between children who would like their inheritance to be larger and feel the parent is managing too conservatively to maximize return, but only the owner is really entitled to define the degree of risk that is tolerable. Sometimes it’s the opposite—the elder is scrimping in order to leave a larger legacy, at the cost of reasonable comfort and care.

Other tips:

Don’t get desperate or greedy. If it sounds too good to be true, it is.
Know what advice is costing you. As I once told my dad, nobody gives you advice for free just because you’re a nice old guy. Nobody works for free, but know how your advisor is getting paid.
Keep learning. There are plenty of tried-and-trues in financial planning, but some things do change. You should always understand how you are going to make money from the investment, and what the rules are (watch out particularly in insurance).
Don’t believe someone because they’re nice. Believe them because they know what they’re doing and because they’re honest.
Check out the information the advisor puts out. Does the website seem canned? If they blog, does it reflect any personal attitudes and are you comfortable with that kind of advice? Or does the entire website seem like it was put together by corporate headquarters or a production company?
Read the advisor’s ADV. It’s a document designed to protect you, the consumer, by giving you information about how the advisor does business, and what investment philosophy he or she promulgates. Also, you can get information about what the advisor charges, and what type of projects they handle. Generally it’s on the website, but the advisor is required to provide it to you so just ask. (Mine’s on this page.)

As with most thorny decisions, you have to seek a reasonable balance, get advice from someone who has background and expertise, and be guided by that expertise while still using your own common sense. BTW, Warren Buffett is nearly 84. I don’t know anyone that thinks he’s old and foolish.