Tuesday, July 21, 2009

Car Shopping - Putting you in the driver's seat

As Canadians we tend to wear politeness as a badge. And that means many of us feel uncomfortable haggling over prices--unless we’re on holiday in Mexico.

But when it comes to buying a car, there’s never been a better time to barter. So here's some tips to help you go head-to-head with the hardest-selling car dealers and some pointers to make you sound like you’re a negotiating force to be reckoned with.

It's still a buyers market

I recently visited 5 car dealerships to see what I could negotiate. Today even the luxury dealers that "never" moved on their prices years ago are certainly much more flexible.

But that doesn't mean dealing with your car salesperson will be a cake walk. They're still keen to get the most money they can from every vehicle they sell.

So while there are deals out there, you still need to nudge the salesperson.

Where should I start?

I would highly recommend lots of some research before you head out.

During my test shopping, I pretended that I had no preconceived notion of what I was looking for - from a sedan, to SUV to sports car, I let the sales person sell me. The result? I was exhausted and overwhelmed by the time I hit the 2nd dealership.

Check out books like lemonaid or consumer reports to help you narrow down your choices. They’re also jam-packed with information that will help you sound like you know what you’re talking about

From here I have different approaches depending on whether or not you`re interested in a new car or a used one. For new car purchases, at this point I recommend that people head to the company website. This will save you a considerable amount of time and money. Most sites tell you what models and features are available, the costs, loan/lease calculations and more. Plus, by doing some advanced research, you hopefully won't make an impulse buy that you'll regret later.

My most important tip that could save you money and a regretted purchase

A five minute test drive simply isn't enough.

Here's one not many people think of...I recommend renting the car that you're thinking of buying. Once you've nailed down the vehicle you "think" you love and want to purchase, wait, and rent it for a day or weekend.

Doing that can seem like an added expense, but it can also save you money. For example, my sister in law spent two months researching safety, costs, design and more of her vehicle and of course, took the test drive. Two months later, she's ready to take a few thousand dollar loss to trade the thing in because she hates it so much. If she would have rented the vehicle she was going to buy for a day or two and used it as she would have in life, she would have save herself a both time and money.

When renting the vehicle, ensure you use it as you would in real life. Do you travel on the highway a great deal? Lug the kids in and out with hockey equipment or are you an avid golfer? Plus, by trying out several features like a navigational system, sun roof, dual climate control and more, you can truly see what features are essential for you and your family and which ones you can do without.

What if I want to buy a used vehicle?

It's even more essential that you do your homework. With new cars, the price difference between dealerships is fairly slim. With used cars, depending on the make, model and km's, the price difference can be huge. For a used car, you can go to sites like autotrader.ca to get a sense of prices being offered. Ask around for recommendations of a reputable dealers. And wait to find a dream car. You may have to be patient. But you`ll find the right car at the right price.

A finance manager that I spoke with also highly recommends that buyers get their own independent inspection and check out the vehicle’s history using CarProof which can be purchased at a local registry or online from about $35-$65. An inspection can cost $140 - $500, but doing so could save you big bucks in the long run.

So now I have all my information and I'm ready to bargain. How do I start the negotiations?

Today most dealerships are willing to move on everything from sticker price, to free oil changes for life, the interest rate on your lease/loan and more.

To start the negotiating process, simply ask what’s the best price on the particular make you’re looking at. Not every vehicle in any one dealership has the same room to move on price, manufactures rebates, loan or lease rates. Usually the more incentives offered, the less likely that model is selling successfully and that’s why the dealer offering enticements. So although you want to negotiate a great price, make sure you’re not purchasing a vehicle simply on incentives.

Get the salesperson to first give you their best price and then ask for even more. More often than not, the more time you spend with that individual and them with you, the more they’re invested in making the sale. These sale people expect you to barter, so going back and forth on a deal 2 – 5 times is not out of the ordinary.

Since this is such a major purchase in one’s life, don’t rush the process. Time is money, but when car shopping, a little extra time could save you a mint.

Bring a “bad cop” with you or defer to them. If you’re new or a little squeamish at the thought of negotiating, after asking for the best price, let defer to the bad cop for approval.

Lastly, consider making your final purchase near month end. Most dealerships and sales people are looking to fill their quotas and might be able to move on prices even more than usual. Also, some dealer incentives expire at month end as well.

Today's Globe & Mail - We just hand them our money and shut our eyes

I had an interesting discussion with Sarah Hampson from the Globe on how investors can protect themselves from not only the obvious (to some) scam artists but also, how to keep your advisor in line and what questions you should be asking your financial professional.

Check out her article here - http://www.theglobeandmail.com/life/work/we-just-hand-them-our-money-and-shut-our-eyes/article1225111/

Tuesday, July 14, 2009

Canadian mutual fund industry gets a failing grade for fund fees

Generally, it's not considered good manners to ask people how much money they make. But, with a new study out that criticizes Canada's mutual funds for the high fees they charge, that's a rule you might want to start breaking, at least when it comes to dealing with investment advisors and the products they sell.

The study came from Morningstar USA, a leading independent investment research firm that's widely considered the authority on mutual fund performance.

In this study, Morningstar looked at funds in 16 countries, and the bad news is, when it comes to mutual fund fees, Canada gets a grade of "F" because of the level of our MERs--Management Expense Ratios. These are fees that cover everything from the salary of the fund manager to compensation for the investment advisors, like yours perhaps, who buy these funds for their clients.

Oddly enough, the report didn’t cite specific numbers or averages so I did a little research myself. Depending on the year, I found the average Canadian equity fund has an MER of 2¼% compared to 1.42% for the average American fund.

Now the report does admit that in many countries some costs are not bundled exactly the way they are in Canada, so that may account for some of the difference between Canadian funds and others around the world. And in fairness, we rated up to a B- for our mutual fund industry overall due to the safe regulations in place. But even taking all that into consideration, it still seems that the fees here are higher than elsewhere in the world.

Why should you care about the fees your fund is charging?

The idea of investment in mutual funds is that they take a lot of the worry away that can be associated with investing. Why spend your time and energy trying to pick individual stocks or bonds when you can hand the job over to a professional fund manager? Plus, over 90% of Canadians who invest, own mutual funds.

But here's why these fees matter. When you look at rates of return for mutual funds, you have to remember that they are calculated after the management expense fees are taken off. So the fee represents money that's going to the mutual fund company and possibly to your investment advisor.

Let's look at a $100,000 portfolio earning 6 per cent after fees over 10 years compared to one making 5 percent after fees. The difference over a decade is $13,284 and change. So over the years, even a one percentage point difference in fees between one company or fund and another could have a big impact on the quality of your retirement for example!

I'm not suggesting for a moment that your financial professional should work for free. Everybody deserves fair compensation but the investor should be aware of what those fees are and what their advisor is providing in exchange for advice and planning services.

But what concerns me is that a recent Angus Reid Poll found that of the people who have money invested in mutual funds more than 50% had "no idea" what they were being charged. The industry shouldn't be satisfied with that; they should want their customers to be well informed.

So if MERs and investment fees are new to you or you think you need a refresher, here's three questions to ask your financial professional:

#1 - what am I invested in exactly and why?

#2 - what fees am I paying - for everything - with my investments? And an even better qualifying question would be, If I cashed out everything tomorrow, what fees, if any would I have to pay?

#3 - lastly, every advisor has a bias and is limited by the licenses that they hold. Ask your advisor what theirs are. If they aren't licensed to sell stocks and bonds (only mutual funds for example), chances are they aren't going to recommend them to you.

And if your advisor appears reluctant to answer these kinds of questions?

Don't be afraid to shop around and get a second opinion if you don't get the answers you're seeking. You have a right to know so start with a simply dig out your most recent investment statement and call to your advisor today.

Monday, July 6, 2009

Kids and Money

Okay parents. We're in full summer mode, the kids are out of school and are busy finding new ways to spend your money.

No matter how many times you try to tell them that money does not, in fact, grow on trees, the message isn't getting through.

But first, if you as a parent have a difficult time communicating with your kids about money, you're not alone.

I want to emphasize how important this is: with a recent study citing that our consumer debt in Canada has swollen now to over $1.3 trillion dollars and with over 75% of Canadians possessing less than 3 months savings in a bank account, these adult problems with likely be passed on to our children.

We need to teach kids how to save, spend wisely and respect credit. But many parents find it extremely difficult to talk about finances at home, more difficult than talking to their kids about sex. Money (and might I add the lack of money) is the new taboo of today.

The problem is, most parents don't know where to start. It's not enough to burst into the occasional rant and rave about the cost of things when the kids want money to spend on yet another new video game, or they want to buy an expensive pair of jeans. That's not teaching kids about finances. That's just teaching them to go away and try you again when you might be in a better mood.

Parents need to start talking to their kids on a everyday basis about money.

So here's some suggestions for initiating the "money talk" with your child while having a little fun.

Step one: at any age, I encourage parents to have a piggy bank for their child. This should be a fun and simple account that encourages dialogue about coins, cash and foreign money. To ensure your child always has some fun with spending during their lifetime, allow your child to freely purchase what they desire from this bank without your approval.

Step two: at the age of around 5 - 7, depending on your child, introduce a short-term savings account. Whatever cash flow comes into your child's life (birthday gifts, allowances, etc.), discuss with them what percentage will be allocated to the piggy bank (for their own spending) and how much will be designated for the short-term savings account. The idea here is to teach your child that there are things in life that need to be "saved up" for as in adulthood. Make a list with your child of all the activities or items they wish to have in the next 30-90 days (a swim pass for the summer, a new game or pair of jeans) and figure out which ones will take priority and how your child will save up for them. Have them participate in deciding which to cross off this list, add, etc.

This summer, also try using cash as much as possible when shopping with your child. My fear is that our children will grow up not thinking that money grows on trees, but in little plastic cards such as credit and debit cards. When making purchases with cash, explain to your child the tangibility of such items and how long mom and dad had to work to purchase "x".

Step three: at the age of 15 or 16, I strongly encourage parents to set up a mock credit card with their child. Once they hit 18 and can get a real credit card of their own, the innocent mistakes that can and are made out the gate can haunt them on their credit report for 6 years.

This is a fake credit card extended by the "bank of mom and dad", but make it as official as possible. How much credit you're extending (it may only be $50 or much more), the interest associated, payment due dates, etc. That way, any mistakes made by your child can be easily corrected by you and when they are ready for the actual credit card, they'll be comfortable with responsible use of it.

Lastly, consider designating a monthly family money meeting. Consistency is the key - every 1st or 15th of the month and it doesn't need to last long. Set aside 5 minutes or more to discuss what's on your child's mind regarding finances, investments and how they feel about money (maybe there's been a layoff in your family or with a friend's parent and they're feeling scared.) And parents, don't worry if you don't have all the answers. With the plethora of information on the Internet and the ease of Googling almost anything you'd wish to know, you can learn together.

Catch me on CBC radio nationally

Starting July 2nd, you can now catch me weekly on CBC radio nationwide! Tune in Thursday's and please check your local station for air times. Cities included are: Whitehorse, Winnipeg, Victoria, Toronto, Quebec City, Regina, Vancouver, New Brunswick, Ottawa, Calgary, Thunder Bay, Edmonton, Montreal, Windsor, Charlottetown, Halifax, Cape Breton, and St. John's.

I'll still be in studio with the fabulous Peter Brown for Edmonton's Radio Active every Thursday at 4:10 MST. Over the summer, Peter and I will be answering YOUR financial questions. Please email me at wealth@kelleykeehn.com if you have a money problem on your mind.