Financial Beat

By Yvonne Chilik Wollenberg

Wealth: A million bucks ain't what it used to be

Most millionaires don't think they're wealthy. Of more than 1,200 people with a net worth of at least $1 million interviewed for a recent survey, about half said they wouldn't feel rich until they had at least $5 million. Nearly 90 percent of the millionaires said they were comfortable or very comfortable, according to the survey, conducted by Phoenix Home Life Mutual Insurance. Only 9 percent admitted to being "extremely well off."

The ultra-rich are becoming more common. The number of households with a net worth of at least $5 million grew 46 percent over the last five years, to nearly 600,000, according to a report by the Spectrem Group. In fact, the average family in its survey has a net worth of more than $25 million.

But here's more proof that money doesn't buy happiness: Two-thirds of the millionaires in the Phoenix survey say they're too busy to enjoy their family and friends. And more than half of those with more than $5 million worry that their children are being spoiled by their wealth.

Mutual Funds: SEC passes a truth-in-labeling rule

If you bought shares in the Acme Utilities Fund, would it bother you to know that it was loaded with technology stocks? The Securities and Exchange Commission thinks so, and has finally passed a rule—first proposed in 1997—banning misleading names in mutual funds. Under the new regulation, a fund must invest at least 80 percent of its assets in whatever kind of investment its name suggests. A fund with the phrase "stock fund" in its name can't have 30 percent of its holdings in bonds, for example, and a fund called "Japan fund" can't invest mostly in Latin America.

The 80 percent rule covers funds with names referring to an investment type, industry, country, or geographic region. However, it doesn't apply to funds with names suggesting investment strategies, such as growth, value, index, small capitalization, or global.

The SEC is giving mutual funds until July 31, 2002, to comply. An estimated 350 funds will have to change their name or investment mix to meet the new parameters.

Autos: High ratings for on-board directions

Most people who've bought cars with high-tech built-in navigational systems like them so much that they wouldn't buy another vehicle without one. The upscale devices help drivers find their way on unfamiliar roads, sometimes with turn-by-turn instructions, and are available on 26 models. Nearly half of consumers give the devices a truly outstanding or excellent rating, and more than half say they use them at least weekly, according to J.D. Power and Associates.

The most popular use of the navigational guides is to find the shortest route or unfamiliar addresses. Drivers also use the gadgets to find restaurants, airports, and other services.

The highest-ranked device is Alpine Electronics of America's DVD system in the Acura RL, followed closely by Denso's CD-ROM-based system for the Lexus GS. One gripe consumers have concerns user-unfriendly manuals, which can be difficult to understand.

Student Debt: Today's kids really love plastic

College graduates will head into the world of work with some heavy debt on their shoulders. The typical college student has three credit cards and owes $2,700, according to a study of undergraduates by Nellie Mae, a subsidiary of Sallie Mae, a leading provider of federal loans to students. The number of students with at least one credit card has increased 11 percentage points since 1998, and average debt has soared nearly $1,000 in the past two years. In a study of graduate students, the financial picture is even worse. Ninety-five percent have at least one card, with an average balance of $4,776.

While students use plastic for CDs and jeans, they take out bank loans to pay for tuition. The median loan debt is $12,500 for undergraduates and $20,300 for grad students. For those finishing medical or law school, according to Nellie Mae, median student loans total $37,500 for combined undergraduate and graduate debt.

If your college-age children can't seem to hold down their debt, and talking to them about the wise use of credit cards doesn't help, at least look for the best rates. Go to www.bankrate.com .

Investing: Your own money manager—a worthwhile idea?

For mutual fund investors, tax time can be truly maddening. It's bad enough that equity funds lost an average of 4.5 percent last year, according to Lipper, the fund-tracking firm. But because of the way funds manage assets, you could own shares in a sinking stock and still have to pay capital gains tax on it.

For example, assume that a year ago you bought shares in ABC Fund, which has owned stock in XYZ Industries for five years. The stock did very well until recently, when it took a significant drop—and ABC sold it. ABC now owes capital gains tax on its profit in XYZ, and it allots your share of the tax to you. But you never took part in the gain.

As a result, some disgruntled investors are turning to an investment tool that wasn't accessible to them until recently—the privately managed account. Traditionally available only to institutional or very wealthy investors, such accounts have become more proletarian, as management companies have lowered their fees and minimum investment requirements. You can now open a managed account for $50,000; a few years ago, the minimum was $500,000.

A managed account is handled by a professional money manager, but the investments are entirely yours, which makes the account more tax-efficient than a mutual fund, explains Ryan Tagal, senior analyst at Cerulli Associates, a Boston research firm.

"There is no evidence that the performance of managed accounts is better than that of mutual funds," says Tagal. "The tax efficiency is the big selling point. Having full control over stock purchases and sales means more control over tax bills."

Total assets of managed accounts are estimated at $290 billion in 2000, up sharply from $70 billion in 1993, according to Cerulli Associates data. The average fee is 1.89 percent. Many large brokers are beginning to make managed accounts more affordable. But managed accounts are also available on the Web. At WrapManager ( www.wrapmanager.com), the fee is 1.25 percent, the minimum is $100,000, and customers get a choice of 55 money managers.

RunMoney ( www.runmoney.com) offers access to money managers from Lockwood Financial services, where the minimum is also $100,000. Fees begin at 1.75 percent and decline as account assets rise to $4 million. After that, they're negotiable. At myMoneyPro.com ( www.mymoneypro.com ), the account minimum is $50,000, and fees start at 1.95 percent.

The author is a freelance writer in Teaneck, NJ.

 

Yvonne Wollenberg. Financial Beat. Medical Economics 2001;8:23.