Would you go to plastic surgeon who promised no bill for his services? How about a dentist who asks only for a couple bucks? Or a mechanic who says he’ll trade a candy bar for fixing your brakes. At first, it may sound great- but as the oxygen mask gets lowered over your face and you’re wheeled into the operating room would you have a second thought? Why is this guy doing it for free? Is it really free? Can the work be that great? Will my brakes function when I’m flying down the highway at 65 mph and the car in front of me slams on his brakes?
When I was in 10th grade I read a book called Zen and the Art of Motorcycle Maintenance, by Robert Pirsig. Pirsig’s metaphysical views aside, it included a fascinating discussion of the idea of quality. You see, I think I’m a lot like most of my clients. I’d rather have extra money to spend on vacations and concert tickets than use it to buy braces for my kids from the respected dentist and tires with the extra good stopping capability. I skimp when I can and go without whenever possible. But sometime, somewhere, just like you, I draw the line.
Last week I received an e-mail informing me that I could buy a mutual fund similar to one I (and all of my clients) already own, but that has an expense ratio 30 basis points cheaper. Fantastic, I thought! Then I did the research- the fund returned two percent less than the one I owned. What good is a cheap investment if the total return is worse?
So much effort is being expended right now on investment cost minimization that I worry quality is going out the door. And while Chrome’s pursuit of low cost investments and minimization of trading fees and expenses is relentless, we too draw the line somewhere. I worry that someday soon those who pursue a strategy of only looking at cost will be stunned at what their cheap advice really cost them. Because, as the old adage goes, you get what you pay for.
The Prior Month
Stocks, as measured by the S&P 500, fell 2.1% in June as debt negotiations between Greece and its European creditors broke down towards the end of the month. Greek Prime Minister Alexis Tsipras called for a snap national referendum in early July on whether Greece should accept the European bailout, as offered, or push for a better deal (this referendum would later result in a “no” vote- more on this later).
Outside of the Greece saga, thirty year mortgage rates again rose slightly to 3.93% and the unemployment rate dropped to 5.3%. Treasury interest rates rose so bond prices fell as the Federal Reserve indicated they continue to plan on raising benchmark interest rates later this year.
While Germany’s Angela Merkel scratches her head and wonders what went wrong, Greece’s Alexis Tsipras is pretty excited about his victory. Tsipras’ happiness figures to be short-lived, however. It’ll be a long, hard road for Greece from here.
“Greece” is no doubt the password for July. As I write this, in early July, the national referendum mentioned earlier has resulted in a “no” vote to the bailout as offered. The ability of European political & financial structures to handle the Greek decision will decide the direction of the next few weeks. Europe feels they are prepared to deal with whatever may come of Greece. We shall see. European and Greek politicians and bankers will also have to wrestle with just what a “no” vote really means. Will the two sides return to the bargaining table, or will Europe (and Angela Merkel) give Greece “das boot?” Nobody really knows for sure.
While Europe struggles with Greece the U.S. will see second quarter earnings season beginning. I feel like a broken record when I say expectations are subdued- but once again, they are. Companies continue to struggle to make top line revenue grow despite their ability to financially engineer an improving bottom line. With the future of greater Europe now thrown in doubt it will be interesting to see if the U.S. Federal Reserve continues to push an autumn rate hike. We think they may well back off this plan- fearful of “Grexit” aftershocks.
I never saw the 1981 drama, Das Boot, but I can only imagine the Greeks might soon be wishing they had the life preserver this fellow from the movie has on. Maybe a re-make with David Hasselhoff is in order?
Credit Tip of the Month
Opening a new account isn’t likely to hurt your credit score that much. While you shouldn’t open a new account right before you plan to apply for a new loan (like a mortgage), if you do see a great credit card deal come by, don’t worry about it’s impact on your score and go ahead and snag it. The new card issuer will research your credit before extending a line to you (and this will cost you a few points) but the overall impact will be fairly negligible. Also note that for mortgages, auto loans, and student loans you can apply multiple times over a 30 day period (i.e. rate shop)- it will only count as one “hit.”
Yardbusters was back in force in June. While the weeds were deep and the brush thick and overgrown, they were no match for our pruners, loppers and saws. Join us if you can Saturday, July 18th, for the next Yardbusters of the season. For those unfamiliar with the program, Yardbusters is a group of volunteers organized through Boulder County Care Connect that help the elderly and disabled of Boulder county take care of their yards. So join me as we take care of some general yard maintenance like mowing, raking, weeding and/or trimming. Free lunch provided. E-mail me if you’re interested in coming.
13% of adults say that the “last day of summer” is the occasion they dread most.
Have a great July,
Steve Zakelj, CFP ®