Author: A.T.

Here’s a really neat use of the web. Click here and three minutes from now you will have a choice of four or five competitive life insurance quotes.

If you’ve been putting off buying coverage, fiddling with this site could help get you moving.

If you have coverage, but never really shopped for it competitively, this site could save you a bundle.

If you already have whole life or variable life or one of those other savings-plan types of life insurance, don’t drop it — you’ve already paid the steep up-front sales charges and so forth.

But if you need more, or you haven’t yet got the coverage you need, “term” insurance is the way to go. Term insurance is just plain vanilla insurance: if you die, they pay.

If you have no dependents, you probably don’t need life insurance at all!

Here’s a smart tip from my friend Jane Bryant Quinn’s Newsweek column:

If you put less than 20% down on your house, you probably had to buy mortgage insurance. But did you know that, once your equity in the home reaches 20% (through appreciation and/or your payments), you may be able to stop paying that premium?

Different lenders have different policies, and an appraisal fee will probably be required. But if you’re currently paying mortgage-insurance premiums and think you may qualify to stop, check with your lender. It could put you hundreds of dollars a year ahead.

(Thanks, Jane.)

Some of you buy mutual funds via your stockbroker or discount broker. This can be very convenient. It also means — if you have a “margin account” — that you can borrow against them, just as you can borrow against the value of a stock.

The advantages of margin loans: (1) low interest, often below prime; (2) it’s deductible against investment income (dividends and interest and, in some circumstances, capital gains).

Why pay 18% on a credit card or 10% on a car loan, non-deductibly, when you can pay perhaps 8% for a margin loan, which in your bracket may really be only 4% or 5%?

But what if you don’t have a brokerage account? What if you just own mutual funds directly? Now comes Fidelity AccessLine (SM), which basically offers to put your Fidelity funds into a Fidelity brokerage account so you can borrow against them.

As borrowing goes, it’s cheap and easy. No appraisal fees, no points to pay, no lawyers to hire or “closings” to attend. Just write a check against your account.

Three caveats:

1. If you have no investment income — perhaps because all your dough is in mutual funds that invest in nondividend-paying growth stocks — the margin interest won’t be deductible. You’ll have to carry it forward to a year when you do have investment income against which to deduct it.

2. If you are audited, you may be challenged on your margin-interest deduction if you were not careful in how you drew down these funds. The IRS looks to see the use of borrowed funds to determine tax-deductibility. Margin interest is normally deductible; but if you moved your funds into a Fidelity brokerage account and then wrote a $199,999.95 check against them directly payable to Captain Tom’s Yacht Dealership — or even just a $19,995 check to the local Ford dealership — the IRS might argue that the interest incurred on this loan was not deductible investment interest, but rather nondeductible personal interest. You might be better off switching $250,000 — or $25,000 — from your margin account to your cash account, and then, perhaps a few days later, writing a check for the specific cost of the yacht or Mustang.

I’m not advocating you do anything illegal or cheat Uncle Sam in any way. The rules on this are so grey, it’s anybody’s guess. As a practical matter, you’re likely to be OK.

3. Even at a low rate, and tax-deductible, borrowing is risky. It only makes sense to borrow at, say, 5% after tax, if you have a way to earn 6% after tax. And remember that the interest rate on your margin loan may shoot up — it’s completely variable — and that if it does, chances are good the value of your mutual fund shares will fall (because rising interest rates often mean falling share prices).

Borrowing against your mutual funds to pay off high-interest debt or even to buy a car or make some other investment can certainly make sense. It’s a way to get cash without, for example, selling mutual fund shares and, possibly, incurring heavy capital gains taxes.

But do it with care. You worked hard to build up those mutual fund balances. It would be a shame to hop on the debt treadmill and find yourself going backwards.

One thing I certainly wouldn’t recommend, let alone with the market as high as it is, is borrowing against your mutual fund shares to buy more shares. In hindsight, that could have paid off big the last couple of years — borrowing at 5% after tax to earn perhaps 30% a year in capital gains. Wow. But leverage works both ways. What if you did the same thing now and fund shares fell 30%? In that case, you wouldn’t just lose 30%. You would lose 60% (if you had doubled up on your initial investment) plus the interest, to boot. Oops.

Maybe you read my May 10 comment, about shorting crazily overvalued stocks. I didn’t suggest you do it, because crazily overvalued stocks can become even vastly more crazily overvalued. But we talked about it (and about how to create a “synthetic” short).

One of the examples I gave was stock in a company called Presstek, which Barron’s has been knocking for years. “Someday,” I wrote, “all printers may use the Presstek process. But in the meantime, Presstek earns just a few cents a share, yet sells at 114, up from a 1996 low of 21. Or wait: 114 was last month. Monday it was 149.”

Well, by May 21 it had hit 200. With nearly 15 million shares outstanding, that meant the entire company was valued at about $3 billion — chicken feed these days. It also meant that if you had shorted 1,000 shares, say, at 149, you would have lost $51,000.

When, 11 trading days later (which is to say, Thursday), it had fallen from 200 to 60 (which meant the company was now valued at less than a billion and you would have made $89,000 on your short), I called my broker and asked, smiling to myself, ”Any news on Presstek?”

I should pause here to say that in addition to using a couple of discount brokers, I use a full-service broker — mainly so I can enjoy conversations like these.

“News?” he said, pretending not to understand. “Why?”

“Well,” I said, pretending to take him seriously, “I noticed the stock is down a hundred and forty points.”

“No,” he said, “no, news.” And he broke into a huge laugh, as I knew he would. (For years, I’ve been paying him outsized commissions to hear him laugh.)

“Just normal market fluctuations,” we both guffawed more or less simultaneously.

I will admit it was not a double-over-laughing, punchline sort of joke (which is probably why I have to pay him so much). It was just wry merriment.

But c’mon! Is this market not amusing? From its Thursday low of 60 Presstek managed to inch back up to 95 the next day. “Any news on Presstek?” I called to ask my broker. “No news,” he deadpanned. “I wonder what made it go up so much?”

“Bargain hunting,” I suggested. And he gave me that million-dollar (my cost) laugh.

One last thing I should point out, lest all this frivolity take your eye off the ball. Shorting Presstek would have worked out big — last week. But shorting stocks at the dawn of the millennium, this amazing technological age we live in, is a very easy way to get wiped out and wreck your life.

So there I was, Sunday, around 6:30 in the evening, walking with a friend across 59th Street, enjoying all the New York things you enjoy — the Plaza, for example — and dodging all the things you dodge.

(I normally dodge the horse-drawn carriages, parked around the Plaza, because I’m not all that horsy. But my friend not only is horsy, he actually knew one of the coachmen. Before you could say “Whoa!” we were feeding this very large horse carrots. He’d just come from Pennsylvania — the horse — where he was doing whatever horses do in Pennsylvania, and was now being trained for duty in and around Central Park. Much of the training, apparently, revolves around carrots. You feed the horse 14 or 15 bags of carrots at first — the horse can’t get enough of these things — so that he associates carrots with work and “work is where he wants to be.” Then, once you’ve gotten your point across, the coachman explained, you can economize.)

Anyway, we got a couple blocks further East, and began encountering what in another city might have appeared to be very large crossing guards. As it happened, they were not in the least concerned with pedestrian safety but, rather, were proffering some kind of hand-out.

You see that a lot in the seedier parts of the City — live! nude! — and for a moment it occurred to me that, what with the renaissance of 42nd Street firmly under way, perhaps East 59th Street was becoming the new porn district.

I doubted that, though, and I also felt bad for the hand-out people. After all, they weren’t looking for a hand-out, they were attempting to eke out a living handing things out.

I am not one to waste paper, and yet I am also not one to make a fellow citizen feel worthless. So as my friend passed by, eyes straight forward (not an unwise way to walk the streets of Manhattan, I will admit), I reached out and grabbed one of the fliers and said thanks, fully intending to drop it in the next trash can I saw.

It was a pink half-sheet for Men’s Suits — “Designer Suits at the Lowest Prices” — and I could see my friend begin to roll his eyes. When it comes to clothes, I am known to be a “lowest-prices” kind of guy. Mail-order, mostly. My friend has been trying to wean me away from that, and yet UPS keeps arriving with more bargains.

Anyway, before he could say anything, we had arrived at the address on the flier — 118 East 59th Street — and I was already walking up the stairs. (You don’t get “lowest prices” from a ground-floor establishment. I might not walk a mile for a camel hair coat, but I will surely walk up a flight of stairs to save $400.)

I should say, just before I wind this up, that a young Wall Street friend of mine, who’s also careful with money, spends $1,200 on his suits. And in case you didn’t know, I’m told it’s possible to spend even more — and that successful folks in this neck of the woods frequently do.

Not me.

The whole thing took 15 minutes — two Fioravanti suits, $224 each. Free same-day alterations. Frequent-flier miles from the credit card.

Of course, you can get suits a lot cheaper than $224. But Bill Blass? Chaps? Fioravanti? Perry Ellis? Ungaro? Christian Dior?

Open seven days a week. “All sizes. Large selection.”

You may want to bargain a little. (I didn’t. I just asked the price. He said: $249, but if you buy two I’ll take 10% off, so I did.) And you may have to ask sweetly to get free alterations. (I didn’t. My suits didn’t need much work, so he volunteered to throw that in.)

I’m not sure the name of the place. It seems to be called just Men’s Suits. Like a food store called, say, “Food.”

I realize you may not be from New York. But who among us will not find himself (or his son or grandson) near the Plaza Hotel in the not too distant future? Let other tourists take their hansom cab rides at $34 for the first 30 minutes and $20 for each 15 minutes thereafter, plus tip. You march right on over and buy yourself a suit!

As I was leaving I produced the pink hand-out that had started all this. “Your guy out there did a good job,” I said.

Monday: Should You Borrow Against Your Mutual Funds?

A lot of you are familiar with the Motley Fool website. If you haven’t checked it out, you should.

Most of it’s about stocks. I can’t say I agree with every last nuance (e.g., shorting stocks, they advise, “isn’t nearly as dangerous as most people think” — oh, yeah?). But I certainly enjoy their humor, wisdom and exuberance and admire their success. And in addition to stock-market advice and guidance and fun, you’ll find a bit of vaguely-related money stuff, like a recent article suggesting ways to get a good price on a new car.

One tip:

“Wait till the last week of the month to go car shopping. Dealers are on a month-to-month quota system and have to make space for coming shipments. By the middle of the fourth week, you can bet that those with ‘product’ on the lot are getting pretty impatient.”

For the rest of the Fool’s advice on this topic, click here (link no longer active).

Much of the strategy espoused involves a level of effort I personally would not make. And I advise most money-conscious folks to buy used cars anyway. (“That new car smell is the most expensive fragrance in the world,” I keep telling you. “The best advice on buying a new car is: Don’t.”).

But no one has a more lively, irreverent take than the Motley Fool.

Curious what your car is worth? Ah, the web. Click here. My 1992 Chrysler LeBaron Convertible seems to have a wholesale value of about $8,275, plus $75 for its power seats. I’m richer than I thought. (And the estimated retail value is almost $2,000 more.)

Tomorrow: Buying a New One

Yesterday I described how the most painstakingly chosen mutual funds — Smart Money Magazine’s top eight picks for 1995 — performed a little worse than the low-expense index fund I always recommend if somebody’s having trouble choosing one.

The point? It’s just so tough to beat the market averages consistently! There will always be some who do better and more who do worse (more who do worse, because the averages are just statistics and don’t have to pay fees and commissions). But consistently better? Tough to find.

Continuing with the same theme, and switching now from June’s Smart Money to June’s plain old (but also pretty smart) Money, I was struck by an article that begins on page 27, describing an investment extravaganza 7,389 people attended in Las Vegas April 2.

Were you there?

Money’s reporting sets the scene with Elaine Garzarelli’s standing-room-only address. Garzarelli, you will recall, is the gal who predicted the ‘87 stock market crash almost to the day, and has carried considerable clout on Wall Street ever since.

(She’s bullish, Money reports, thinking that the fair market value for the Dow, based on the cash flow of its 30 member companies, is 6400, and that the bull market has another 25% to go: 7000+.)

Don’t you wish you just had someone like Garzarelli to manage your money for you? She’s one smart cookie, after all, and she is totally immersed in this stuff — lives and breathes it — where you, poor slob, may have a day job in some unrelated field.

The only catch, and this is the part I hadn’t known until I read Money, is that for a while there Garzarelli was running money for people like you and me. “During the time she helped manage Shearson Lehman’s Sector Analysis Fund,” Money reports, “the fund had an annualized return of 4.8% vs. the S&P’s 8.4%.”

So you’d have done considerably better in . . . yep, an index fund.

I called Garzarelli Capital to ask what we should make of this and so far haven’t gotten through. I’m certainly not suggesting I could do any better than she does. I’m just making the point, again today, that the market ain’t easy. You have to compete with folks like Ms. Garzarelli — and even she can’t always do as well as a monkey throwing darts.

(Except that, as I have noted elsewhere, monkeys can’t throw darts. Something about their shoulder joints I think, or maybe they just need practice. But the high-paid chimp I once worked with — we were making a film on investing — was a demon on roller skates but a total wash-out with darts. There were puncture wounds everywhere but the stock pages he’d been told to aim for.)

It’s so interesting. Here is the June cover story of Smart Money touting “Superstar Funds.” It’s the annual feature in which the editors put far more effort than you or I likely could into analyzing the entire universe of available mutual funds in order to find the very smartest picks.

When asked about mutual funds myself, I usually just punt and suggest the Vanguard Index Trust. If pressed, I point to a few other old favorites in the appendix of my book.

But here is Smart Money with a well-researched, well-intentioned, well-written report, selecting just seven funds. There’s no way to know in advance, of course, how well these seven will do. But Smart Money dutifully gives us an update on how well last year’s Smart Money Superstar picks performed. And guess what? If you had invested equally in all eight, you would have been up a whopping 27.7%. Whereas if you hadn’t done all this research and had simply invested in the Vanguard Index Trust, you would have been up 28.2% over the same period.

(And the irony is even a little sharper, because the 27.7% Superstar return doesn’t take into account the “load” some of the Superstars charge. Vanguard, by contrast, charges no load.)

Whether picking specific stocks or specific mutual funds, it’s very hard to beat the market. The no-load, low expense Vanguard Index Trust beat the eight Superstars last year by half a point. There’s no telling what will happen this year, with this crop of Superstars; but wherever they end up — up 25%, down 25% — I’d expect boring old Vanguard do pretty much as well. Why? Because with its very low expenses, it has considerably less of a handicap than the others.

Your big decision with stocks isn’t which ones or which funds to buy, it’s whether to buy them at all and how. My suggestion: an unshakable discipline to invest $1,000 a week or a month or a quarter or a year — whatever amount of “long-term” money you can comfortably set aside — in one or two or three no-load, low-expense mutual funds, and/or some individual stocks you expect to be comfortable holding for a long time (to minimize taxes and transaction costs).

The other big decision is what proportion of your stock market funds to invest in the U.S. market, especially when it’s as high as it is these days, and what proportion in funds that invest overseas.

For the record, Smart Money’s 1995 Superstar picks were John Hancock Special Equities A (up 53% from April 21, 1995 to April 12, 1996), MFS Emerging Growth B (up 43%), the Kaufmann Fund (42%), Oppenheimer Quest Opportunity Value A (31%), Oppenheimer Main Street Income & Growth (27%), Wassatch Aggressive Equity (25%), Crabbe Huson Special (7%) and Parnassus (down 5%).

This year’s Superstar picks are — well, I don’t want to keep Dow Jones from selling magazines, so go read them for yourself.