Sold My Bellsouth Holdings

As part of my action plan to improve my returns, I decided to sell my holdings in Bellsouth. With the recent stock price movement from the planned merger with AT&T, I thought it was a good opportunity to move my investment dollars to help round out my portfolio.

While I haven't really posted much details about my stock investment asset allocation, I already know I am underexposed to smallcaps and international asset classes in my portfolio. My plan was to sell the Bellsouth stock and invest the proceeds in a smallcap ETF in my Sharebuilder account.

I had 148.5294 shares of Bellsouth. However 10 shares were in certificate form, the remaining were in my DRIP account. I decided to only sell 138.5294 in my DRIP account because 1) I couldn't readily locate the certificates and 2) the 10 share were a gift from my grandmother. I figured selling off about 93% of my investment was good enough for now.

I mailed my request into the Bellsouth DRIP account administrator to sell the shares and received a check about 10 days later for $4,798.17. The stock sale cost me $21.08 in commissions. I moved this money into my Sharebuilder account and am planning on funding a ETF purchase with it.

ETF Purchase Plan
I plan to invest the money in Vanguard's Extended Market VIPER (VXF). I am a little concerned because I never like to buy anything that is hitting a 52-week high; but at this point I feel making some small asset allocation corrections is more important than timing the market. I decided to dollar cost average in by starting with a $1500 investment and will add the remaining amount into the ETF on any future pullbacks.

So Much for Trying to Account for My Tax Liability

At the end of last year, I made an accounting adjustment for what I estimated my additional tax liability might have been for 2005. There was a great deal of uncertainty for me on how I was going to treat my rental property for 2005 so I conservatively estimated my additional liability would be $3,000. I thought this would more accurately reflect my true net worth.

It turns out I was way off. Not only didn't I need to account for the additional tax liability, I am currently waiting for both a federal and state income tax refund. So much for trying to plan ahead.

I'll be removing the $3,000 tax liability from my upcoming monthly net worth statement so my monthly results will reflect a $3,000 gain above normal.

2006 Tax Witholding Planning

While I'm on the tax subject, nows as good as any to look at my tax situation for 2006. Unfortuntely its just as muddled as it was for 2005. While the net tax loss on the rental property will be significantly less than in was in 2005, I may still look for a new primary residence and could reap the tax benefits if I purchase a home.

I plan to leave my withholding the same for now and may revisit it as things begin to fall into place. My preference would be to owe some income tax (no sense in giving Uncle Sam a free loan). As long as at least the same amount is withheld in 2006 that I paid in 2005, I shouldn't have to worry about paying any underpayment penalties.

Transferring Brokerage Assets to Sharebuilder

I have decided to consolidate some of my DRIP and brokerage accounts to simplify my finances and reduce account fees. Since I am most frustrated with my Etrade account I decided to start by pulling everything out of this account and transferring it to my Sharebuilder account.

Here is the progress I have made so far:

1) I decided to do this now since its the beginning of the quarter which should give me the most time to leave my Etrade account open and get everything transferred before they charge me a service fee of $40.

2) I needed to figure out what Etrade was going to charge me to move these assets. I had 3 stock investments and some cash sitting in my Etrade account. Currently, Etrade's fees were $25 are a partial transfer and $60 for a full account transfer. I decided to request a transfer of the 3 stock holdings hoping Etrade would only charge me $25 for the partial transfer, then I could just transfer out the cash in the account via an online transfer. I am hoping this will save me money.

3) Next I went to Sharebuilder's web site to find out how to do a transfer. Sharebuilder has a Transfer Assets to Sharebuilder form. I had to fill it out, listing the assets I wanted to transfer, get it notarized at the local bank, then fax it along with a recent Etrade statement to Sharebuilder.

4) Unfortunately, Sharebuilder is not an ACATS (Automated Customer Account Transfer System) eligible broker, so the transfer of assets must be done manually.

5) I got an email the same day I sent the request from Sharebuilder saying they have received my request and it could take 4-5 weeks to transfer.

6) Now I wait and see.

Sharebuilder Account Review

Last August I opened a Sharebuilder account with a $50 deposit to give it a test drive. In addition, I recently started an investment in Johnson & Johnson in my account.

Overall I am very pleased with my Sharebuilder account. When you consider the cost to buy stock is $4 vs $15.95 for my Etrade account its hard not to like that fact that your savings money.

Sharebuilder Pros
-A $4 purchase fee is hard to beat (on the Basic no subscription fee plan)
-Professional site, easy to navigate like most major brokerages
-No fee dividend reinvestment plans for holdings
-No minimums or account maintenance fees. This is probably the biggest benefit to me. I have had brokerage accounts at Olde/H&R Block and Etrade and both periodically raised minimums and account maintenance fees to reduce my returns.

Sharebuilder Cons
-The site allows you to download transaction files for MS Money/Quicken, however it doesn't have the autosync feature that most major brokerages offer that allow you to download transaction directly from your personal finance software. This is my biggest drawback.
-It is not intuitive how the purchase fee is charged. When you make an investment the site prompts you for the amount you want to invest, but doesn't tell you that your purchase fee will be deduct from the investment amount. Once you understand how the fee is deducted, its no big deal.
-I couldn't find any indepth research reports on stocks as I would expect for most major brokerages.
-Sharebuilder is not an ACATS (Automated Customer Account Transfer System) eligible broker which means transferring holdings from another brokerage to your Sharebuilder account could take longer than normal.
-The company is still building its customer base so its fee structure could become more expensive once the company's new customer growth slows.

I am going to continue using my Sharebuilder account and begin to consolidate some of my accounts to it. I am going to start by looking at my Etrade account and Merck DRIP account to see if I can save money by consolidating them to this account.

Get Vanguard Voyager Premium Service

Vanguard, like many investment management companies has personalized levels of service for their clients with significant assets. For instance, clients with $1 million or more at Vanguard qualify for the Vanguard Flagship Service or clients with $250,000 to $1 million get the Vanguard Voyager Service.

I recently found out that I now get the Vanguard Voyager Service which basically qualifies me for no account maintenance fees or IRA fees on my account. In addition I can get Turbotax Deluxe for $4.95 (even cheaper than I got Taxcut Deluxe this year) along with some other benefits.

As you may notice looking at my recent net worth statements, my entire net worth isn't even $250k so how is it possible I am getting the Vanguard Voyager service?

Well I wish I could say I devised a brilliant scheme to get it, but it more plays to dumb luck. I am just lazy and left my mailing address on my Vanguard investment accounts as my parents address and not my own. Apparently Vanguard recently began treating all accounts in the same household (ie same mailing address) with the same level of service, so now I get the same level of service my parents get.

This certainly creates an interesting opportunity for those with close ties to family that all have accounts with Vanguard. If you and your parents and/or siblings all have your Vanguard accounts registered to the same mailing address you could all potentially benefit by qualifying for Voyager or even Vanguard's Flagship Service.

Now I need to find out if I have any rich distant relatives that might help me qualify for Flagship Service ;-).

Update: I finally achieved Vanguard Flagship Service.

Taking Assessment of My Portfolio Returns, Part 7: Lessons Learned

To recap, here is a summary of my total net worth and eash asset class returns for 2005:

Asset	12/31/2004	Return	RoR
Retirement Accounts	$ 62,360	$ 8,331	13.36%
Net Cash Accounts	$ 77	$ 778	1012.10%
Investment Accounts	$ 26,262	$ (685)	-2.61%
Company Ownership	$ 31,022	$ (8,892)	-28.66%
Investment Property	$ 38,560	$ 2,562	6.64%
Total Return	$ 158,281	$ 2,094	1.32%

Note: These returns are after factoring out my 2005 savings.

While this has been a somewhat painful process to go through, I think this has shown me some things are going well and others have room for improvement. I have recognized that learning and improving my individual stock investment strategy is going to take time and patience.

Lessons Learned:
-I need to develop a strategy that prevents my portfolio from being too overweight in my employer's stock performance. Since I still participate in my employer's ESPP, if I continue to "do nothing" my exposure to the company's stock performance will outweigh the rest of my portfolio.
-I am not a great individual stock investor, yet.
-I need to limit the portion of net worth that I utilize in my individual stock investment strategy until I can successfully demonstrate consistent performance.


Action Plan
-I need to reduce ownership in IBM. I have been saying I will do this for many months, but have been waiting for the stock price to rebound a bit. My plan will be to sell off at least 25% of my IBM holdings in the next 2-3 months. I will also begin to make firm commitments to liquidate further ESPP purchases on at least an annual basis to maintain the percentage of my portfolio in IBM stock.
-I am selling my holdings in my Bellsouth DRIP. With the recent announcement of a planned merger with AT&T and subsequent increase in stock price, I feel comfortable liquidating my long term holdings of this company.
-Proceeds from the liquidation of these IBM and Bellsouth holdings will be used to start positions in a few ETFs in my Sharebuilder account (namely to increase my smallcap and international exposure).
-I am not going to make any other great changes to my individual stock investment strategy, rather I will invest a smaller portion of my new savings in individual stocks and divert the remaining portion to a few mutual funds or ETFs to help round out my investment portfolio.


In the near future plan to take a look at my stock asset allocation and take a look at how it breaks down. I already know I need more smallcap and international exposure, but I am not sure how much I need.

Wachovia Free Checking Account

I currently have a Wachovia Express Checking account with a Ready Reserve account that acts as overdraft protection. I opened these accounts in college and have used them ever since. I have been very happy with these Wachovia accounts. I pretty much do all my banking at the ATM or using the Free Online Billpay service that Wachovia offers. I recently decided I needed to open a second Wachovia Free Checking account to help keep things separate for my self employment activities.


Enrollment
I decided to sign up for the account on Wachovia's web site. The process was pretty straight forward. I selected the "Free Checking" account I was able to identify my existing account so most of my information was prefilled for the account.

I had to make an initial deposit of $100 to open the account which I transferred from my existing account. The account has no minimum balance requirement so once the account was opened I just transferred the money back to my original account.

I did try to link my new checking account to my Ready Reserve account for overdraft protection, which the web site said you could do, but it rejected my Ready Reserve account number.

Welcome Package
Within 24hours of enrolling, my new checking account appeared in my Wachovia online account page. I quickly received my initial account information via a letter a few days later.

Linking My ATM Card and Ready Reserve Account
Since I wasn't able to link my Ready Reserve account for overdraft protection I went to my local Wachovia branch to see if they could help. I was able to have a Wachovia employee link my existing Ready Reserve account to my new checking account as overdraft protection within a few minutes. I was also able to get my new checking account added to my existing ATM card. This way I will be able to make any deposits or withdraws via the ATM or Online Bill Pay service.

Unexpected Fee for Checks
About a week after I opened the account I received a package of checks which surprised me since when I enrolled it mentioned nothing about ordering checks. I logged into my Wachovia account online and saw they also were nice enough to charge my checking account $16 for these checks I didn't ask for. However, I did send an email to Wachovia customer service and shortly received a reply that they would remove the $16 charge for the unrequested checks.

The small inconvenience to get my ATM card/overdraft setup and check fee aside, I am very happy with my new Wachovia checking account. The convenience of being able to stay with the same bank to add a new checking account without much hassle makes me a happy customer so far.

Earn Airline Travel Vouchers

This week I am on a business trip for work and have already earned a $250 AA travel voucher and a $10 meal voucher from American Airlines. All I had to do was volunteer to get "bumped" off the flight to my destination and catch the next flight that was 2hrs 7min later. In effect I earned over $100/hr by sitting around and eating $10 in free food. I am hoping I might be able to pick up one more travel voucher on my return flight to Raleigh.

This is a really easy way to save money on airline tickets regardless of how often you fly. Airlines regularly offer travel vouchers for those passengers they can shuffle off flights that the airline has overbooked. For those that know the system, this can be a lucrative way to get big savings for little time or effort.

Let me start by saying I am not an expert on earning these travel vouchers and encourage everyone to add other tips in the comments below.


Rules of Thumb for Getting Travel Vouchers
You have to schedule your trip to create opportunities to get bumped by the airline. This means:

1) When you are planning a trip I try not to tightly plan things close to arrival/departure times. Its a good practice anyway what traveling at the mercy of the weather and various airport delays, but its even more important if you want to try and earn travel vouchers.

2) Don't catch the last flight of the day if you can help it. I always try and book the second to last flight of the day. This way if they ask for volunteers to "bump" off the flight, there is still a flight to my destination that same evening and it won't inconvenience me more than a couple of hours.

3) Book on flights that are already almost full or during typical busy times. For instance, there are alot of Friday or Thursday late afternoon, early evening flights that are booked from business travelers headed home for the weekend.

4) Try and keep your hops to a minimum. There are exceptions, but the more "hopping" you do the harder it will be to take advantage of getting bumped from any flight other than your final destination flight. For example, if your flight is Atlanta->Chicago->St Louis->San Jose then really the only hop you would probably want to get bumped from is your St Louis->San Jose flight. If you got bumped from any of the others, it would be very hard to arrive at your destination in reasonable proximity to your planned arrival.

5) The fewer in your traveling party the more opportunities you can take advantage of. The airline is typically looking for 1-3 people to get bumped depending on their overbooked situation, so the less people in your group usually means you will have better chances. However, the more people in your party, the more travel vouchers you can earn per bump. If you were traveling with 2 other people, you could earn $750 in vouchers compared to $250 for just yourself.

6) It doesn't work every time, but for every trip you take you basically have 2 opportunities, the flight to your destination and the return flight to your origin. Create your travel plans around these flights to maximize your opportunities.


How does it work?
Typically the airline attendant will just announce 15-30min before the scheduled boarding time that they are looking for volunteers to get "bumped" and what they are offering in terms of compensation (aka travel vouchers, meal vouchers, extra miles, etc). Then you just go up to the station and tell them you are willing to get bumped.

Other Tips:
-I try and make sure I am at the gate as early as possible so I can hear if they need volunteers.
-I'm too lazy to do this, but I have seen people just approach the flight attendants and ask them if they are going to need anyone to get bumped so they won't miss the opportunity.
-Get familiar with the flight schedules before your actual trip so you know in advance your booked flight times and the flight times of later flights. This way you won't need to think about the impact and whether you want to get bumped if they need someone.
-Make sure they can give you a confirmed seat on the next flight out; otherwise they could leave you hanging around alot longer than you thought.
-Ask for more. I don't know if it works, but if they desperately need someone, I would bet an airline might give you more then they announced such as extra airline miles, larger travel voucher, meal voucher, etc.
-Keep in mind the travel vouchers are typically good for 1 yr after issue. If you or someone you know isn't taking another trip in the next year, this could be a waste of your time.

Additional Info:
Info on bumping and travel vouchers.
FAQs on getting bumped.

2005 Federal Income Tax Analysis

Over the weekend I finished my 2005 federal income taxes. This was the most complex return for me due in part to the mid-year conversion of my house to a rental property.

Background Work
Prior to finishing my 2005 taxes this weekend, I had started some work to get to this point:
-I had purchased Taxcut for $8.96 after rebates to help me with this year's taxes.
-At the end of 2005 I reserved $3,000 of my net worth as tax liability because after I quick analysis I thought I would owe a significant amount in taxes. Now that all the dust has settled this turned out to be significantly off; I am filing for refunds on both my state and federal taxes.

Where It Went
Here is a breakdown report from Taxcut of where my money went:


I am surprised that such a high percentage of my income went to federal taxes (16%). If I recall correctly I only paid about 12% in federal income taxes for 2004. I had assumed I would pay roughly the same percentage for my 2005 taxes.


Breakdown of My 2005 Tax Return

Retirement Accounts
I maxed out my 2005 401(k) contributions and maxed out my 2005 IRA contributions in a Roth IRA.

Capital Gains
I maxed out the capital gain losses mostly as a result from carryover losses from stock sales made a couple years ago.

Interest & Dividends
As detailed earlier, I increased my interest and dividend income in 2005.

Primary Residence Conversion
I had to do calculations to determine what mortgage interest and property taxes I could deduct for the early part of year in which I treated my house as a primary residence.

Rental Property
By far the most laborious part of my return, I had to calculate and document many items for the rental activity:
-cost basis for rental property used in rental activity
-cost basis for items used in the rental including the w/d, refrigerator, etc
-cost basis for bathroom remodel project
-insurance premiums including the % from 2004's premiums and the % from the premiums paid in 2005. This included dwelling and liability insurance.
-amount of mortgage interest and property taxes paid for the house after it was converted to a rental property
-utilities between when the house was converted to a rental property and when it was occupied
-cleaning and maintenance expenses including cleaning supplies, materials used for maintenance,
-standard mileage deduction, luckily I started using a log book to record my trips related to the rental activity so this was pretty easy


Tax Reduction Strategies for 2006
I don't really have any well defined strategies other than hopeful plans to purchase a new primary residence. If I buy a primary residence, the mortgage interest and property taxes will both help reduce my taxable income for the year. However, I haven't yet found the right opportunity for me. After going through my 2005 tax return, I can honestly say I really hope an opportunity presents itself in the near future.


Benchmarking with Fellow Personal Finance Blogger's Tax Returns:
Jane Dough paid about 12% in federal income tax.
Five Cent Nickel only paid about 3% in federal income tax (WOW!).
Madame X paid $11,624 in federal income taxes.
Update: Financial Freedumb paid 17.3% in federal income tax.
Update: Flexo paid 10.9% in federal income tax.

I used to Love Etrade, Now I am Ready to Toss Them

I opened an Etrade brokerage account back in 1996 and loved the lower commissions and easy access to trading. Now adays Etrade seems to have higher commissions than their competitors and I think the customer service is horrible. With my latest series of Etrade problems, I have had enough.

Back in November I logged into my Etrade brokerage account and was just reviewing my account activity and was surprised to see a line item for "Mandatory Reorg fee" for $20. It appeared to be for the exchange of 1 share of Palmsource stock for cash (as a result of a buyout of the company) that I got from the Palm spinoff. The share only netted me $18.50 in cash so I was a little mad that it somehow cost me $20 to get the $18.50 for the share.

On November 19th I submitted a help request on their web site to inquire about the "Mandatory Reorg fee" and to see if they could remove it since it seemed crazy that the fee was worth more than the stock. I immediately got the standard form email response:

Thank you for contacting E*TRADE Securities. The reference number for your inquiry is XXXXXX-XXX. Your inquiry is important to us and during this period of high volumes our goal is to respond within 1 to 3 business days. We appreciate your patience.

Sincerely,



E*TRADE Securities LLC

Customer Service

http://www.etrade.com



P.S. This message is your confirmation that we have received your inquiry. Please do not respond, since we cannot answer messages sent to this e-mail's return address.


A second email and over ONE MONTH later I finally got a response other than an auto reply message.


After this incident I started mulling over the possibilities of changing brokerage companies. As a result I decided to cancel the DRIP enrollment for the Anheuser Busch stock in my account since you can't transfer fractional shares when you transfer your holdings to another company. The request went through ok and I received a notice confirming I was no longer in the DRIP plan. I even went on the Etrade web site and confirmed the stock in my account was no longer enrolled in the DRIP plan. However a few days later BUD paid its dividend and oddly enough it was reinvested into BUD stock.

Needless to say I have submitted another customer request, but I don't expect a reply for about another 24 days or so.

Taking Assessment of My Portfolio Returns, Part 6: Investment Property

In the 1st part of this series I determined that the total return for my net worth was a measly $2,094. In the 2nd and 3rd parts, I found my retirement and cash accounts had respectable returns of $8,331 and $778 respectively, for the year. In the 4th and 5th parts, I found my stock and company ownership investment accounts had an embarrassing returns of -$685 and -$8,892.

The last piece of my net worth is my rental property. This property was my primary residence that I converted to a rental property during the early part of 2005 after a major bathroom remodel.

You may not agree with my methodology, but I had to make a couple assumptions to calculate my return:
-all equity gained from principal paydown over the course of 2005 will count as part of my investment gain
-I am ignoring the bathroom remodel expenses as I treated those as expenses in 2005 that reduce my savings rate so if I counted them here I would be double counting those expenses
-I am only counting mortgage/escrow payments for the last 5 months of the year (basically the months the house was rented) as expenses

Lets take a look at the equity change in my property:

Description	12/31/2004	12/31/2005	Change
Equity in Rental	$38,586.00	$ 40,842.00	$2,256.00

I had a net change of $2,256 in equity for my rental property. This was calculated by finding the difference of the value of the property (I used the original purchase price) and the remaining mortgage balance.

For 2005 I had rental income of $6,000. My monthly mortgage/escrow payment is $975.83. I also had $814.85 in maintenance and other expenses for the property.

Here are the results:

Description	Income/(Exp)
Rental Equity Gain	$ 2,256.00
Rental Income	$ 6,000.00
Mortgage/Escrow Payments	$ (4,879.15)
Maintenance	$ (814.89)
Total	$ 2,562.04

Not bad. By these calculations I came out ahead by $2,562 on this rental property. This should improve in 2006 as the property should be rented for the full year.

I'll go ahead and calculate a Rate of Return although this calculation ignores alot of the costs and advantages that come with this property. I am calculating a rate of return based on my calculated equity in the property, but this ignores things such as closing costs, bathroom remodel costs, and other expenses like appliances I bought. It also doesn't factor in any of the tax advantages of rental property (which are another discussion) nor any amount the property may have appreciated.

	12/31/2004	Return	RoR
Rental Property	$ 38,586.00	$ 2,562.04	6.64%

So while I don't really place much weight on this calculation, I think it gives me a rough idea of the rate of return for this investment. Given the added benefits of appreciation and tax losses, I believe this investment property will do well in 2006 and beyond.

In the final installment to this series, I will recap my review and try to figure out what I need to focus on in 2006 to improve my overall return.

March 2006 Net Worth Update (+$10,478)

Here's my net worth update for March as of 3/31/2006. Its my first 5 digit monthly increase this year. However, I received my annual bonus from IBM this month which accounts for a significant portion of this month's gains.

	Feb-06	Mar-06	Change	%
Cash & Equivalent	$ 3,923.09	$ 9,422.55	$ 5,499.46	140.18%
Saving	$ 36,427.91	$ 36,434.73	$ 6.82	0.02%
Brokerage	$ 46,245.23	$ 46,261.02	$ 15.79	0.03%
Roth IRA	$ 22,236.00	$ 22,912.04	$ 676.04	3.04%
401(k)	$ 75,143.24	$ 78,415.04	$ 3,271.80	4.35%
Stock Option	$ -	$ -	$ -	0.00%
ESPP	$ 32,270.53	$ 33,554.25	$ 1,283.72	3.98%
Rental Equity	$ 41,211.82	$ 41,397.93	$ 186.11	0.45%
Other Assets	$ -	$ -	$ -	0.00%
Receivable	$ 1,205.00	$ -	$ (1,205.00)	-100.00%
Reserve Funds	$ -	$ -	$ -	0.00%
Loans	$ (30,503.01)	$ (29,759.23)	$ 743.78	-2.44%
Tax Liability	$ (3,000.00)	$ (3,000.00)	$ -	0.00%
Total	$ 225,159.81	$ 235,638.33	$ 10,478.52	4.65%

Highlights for March
-All credit card debt (except current month's purchases) is in the form of 0% APR balance transfers earning interest in my savings accounts.
-I hit a milestone this month as my net worth reach 10% of my personal finance goal.
-I continued my indepth look into the 2005 return on my entire net worth (Net Taxable Investment Accounts:-$685, Net Company Ownership Return:-$8,892 ).
-I calculated the cost basis for my rental property and then determined the depreciable amounts of personal property, land improvements and building structures.


Stock Investments for March (Outside of 401k & ESPP):
$450 in Roth IRA
Since I am still trying to increase my cash on hand (for major purchases in the months ahead), I refrained from additional investing for the month.