Friday, August 7, 2009

GM slight of hand...0% becomes 7.2%

Recently I got a letter from GM/Saturn offering me a deal on a new Saturn Astra. I was sent the letter because I was a long-time GM owner. I was later told that this was GM's way of saying thank you. It turns out that a thank you from GM is as bankrupt as the company itself.

I visited the Saturn showroom and got a quote for a new Astra XR with 0% financing for six years. With all calculaltions completed, the car would cost $26,456.35. A lot of money for a soon to be orphaned car. If I paid cash, I could have the car for $4000 less but then I would be paying interest to the bank. The salesperson assured me that borrowing from the bank in order to pay cash for the car or simply paying more up front and taking the no interest loan from GM would amount to about the same monthly payment.

Today, I saw an Saturn Astra ad in my paper. $13,990 gets you a 2009 XE with air, it said in large red type. Of course to get that price you must be a "current Saturn" owner. The price is actually $14,990 for most folk as most folk are not current Saturn owners. Oh wait, the published price also includes a credit of $4000 for paying cash. So, if like most people, you don't fork over cash for your new car, the price is more like $18,990.

You must add $1400 to cover freight, and there are still the taxes and the registration fee with which to contend. By the time you walk away with your new $13,990 car, you will be out about $21,500. With 0% financing, and $500 down, you will pay about $291.67 per month for your new car.

This works out to be about a 7.2% effective interest rate. Remember, this vehicle sells to others for about $17,500 cash, but you paid $21,500 to be rewarded with a no interest loan. It is no surprise that in the fine print GM admits the effective interest rate is higher than 0%. All pretty cheesy, eh?

I googled "0% scam" and found "The Zero-Percent Financing Scam" by Joseph Ganem. He has a calculator that compares the claimed 0% rate with the rate offered by banks for car purchases. I checked it out and it appears to work. Take a look and have fun. It is an eye-opener. If you're looking to buy a car, this calculator is quite handy.

Why the MSM does not report this scam.

When I worked for a local daily, I tried to interest the paper in doing a 0% interest rate story. The editor I approached readily admitted that they were not going to attack the car companies; they were simply too important to the paper with their many full page ads.

We essentially published press releases from the car companies when it came to their pricing claims. We were, and are, not alone. Read the following from a recent CNN Money story.

"For customers financing $30,000 on a new vehicle purchase, 0% financing would be worth almost $8,000 compared to current rates, said Jesse Toprak, an analyst with the automotive Web site . .

. . . Customers trading in a GM car or truck they now own who forgo the financing offer may be eligible for cash incentives that could total as much $7,000. . . "

Did you catch that? 0% financing supposedly saves you almost $8000 in interest charges but if you had paid cash you could have bought the vehicle for almost $7000 less. Think effective interest rate. In this case a vehicle that sells to others for about $23,000 was sold to you for $30,000. the 0% financing is about a 9.18% effective rate!

Not only do things like this make me suspicious of the car companies but the manner in which they are covered by the press makes me question today's media.

I went to a retirement breakfast for print media folk Wednesday. One of the fellows recalled an incident from his days at the paper. A woman, who felt she had been shafted by a local Chrysler dealer, had taken to the street to picket the dealership. The paper took pictures and interviewed the woman. Soon the dealer was at the paper, first talking with the editorial department and then with advertising. Four decades ago when this happened, the editorial department ignored the pleading of the advertiser and the ad department. The paper ran both the story and the picture. Back then it was an easy decision; it was news.

Thursday, August 6, 2009

Advice for the Blogger Met at the Blogger Dinner

Last night there was a blogger dinner in London, Ontario. Once a month local bloggers get together for a face-to-face get together. They swap stories, laugh, share knowledge on how to best set up their personal sites . . .

One fellow there was talking about investing. He was just starting out and I foolishly told him that I was working on a site that addressed many of his concerns. My site is still in the formative stages, much of it is still be formed in my mind and has not made the transition into code.

If you are that fellow, here is a list of links that may do you some good. Cheers, Rockinon.

This post points out the dangers of not doing one's homework but simply entrusting your financial future to the experts.

One needs trusted benchmarks in order to judge how you are doing. If you made 10% on your investments while a no-brainer benchmark returned 20%, you're doing poorly. Read my post on benchmarks and follow the links. This is important.

If you are serious about investing, then read this and follow the link to Peter Ponzo site. This former university professor and math department head is a clear thinker and a clear writer. If you enjoy math, you'll love his site. If you hate math, you may still enjoy his site. Like I said, he is a good writer.

Lastly, if you are still enthralled with self-proclaimed experts, read this take on Jim Cramer.

Dear blogger, maybe we'll meet again at the September blogger dinner and maybe I'll be able to tell you my Money site is up and running and full of helpful advice.


Monday, August 3, 2009

Freedom Fund down 71% Puts Mattress Up 345%

Since writing this about three and a half years ago, I called London Life to make sure my investment was now in a dividend weighted fund. My personal portfolio is dividend weighted and it does well. My ScotiaBank stock alone, bought early in 2009, is up something like 110 percent while pumping out a dividend every three months. The dividends help pay the bills in retirement.

My London Life investment is still lagging. It is still the worst investment in my portfolio. Heck, the bath I took with PennWest Petroleum (PWT) doesn't come close to matching my present Freedom Fund loss -- and PWT, to its credit, is helping to support my wife and me in our senior years. Who knows, PWT may even recover some of its former value. [True when written. No longer true today. (Feb. 12/2016.)]

I am posting an actual photo, with minimal enhancement, of my June 30, 2009 London Life retirement savings plan statement. It details the loss suffered by my Freedom 55 investment.

I won’t say much. My wife has me on a short leash. She worries about being sued. She wishes I wouldn't post the statement. I am 62, retired, and I do have financial freedom but no thanks to the financial wizards at London Life.

The media has made quite the story of Mr. Madoff and his scam. But I have managed to lose about 71% of this investment without dealing with Madoff or his ilk. I did it right here in London, Ontario — no trip to the Big Apple necessary. Luckily, I didn’t have much invested with London Life but still I’d love to know how much money went to management fees to pay for this sterling work.

I have a rule: putting money under a mattress should never out perform an investment. I would have about 345% more money today if I had just shoved my money under my mattress rather than putting it in a Freedom Fund.

As Rod Serling warned, “You are about to enter another dimension . . . Next stop, the Twilight Zone!”

This is the actual “Total change in value of your investments” graph from my statement. There have been no withdrawals. This fund lost it, all on its own, without any help. Nice work.

Some background: I gave this money to the Freedom 55 rep with instructions to put it where he thought it would perform best. Hey, he was the expert. I believe he shoved it in their best performing fund from the past year. If he did, it was a bad move. I will blog about why later, for now just believe me when I say studies have shown that if you want to have a poorly performing portfolio always ensure your money is in last year's big winner.

Since this money was invested in March of 2000, I'll bet this retirement money went into a dot-com bubble fund. I'm sorry that I don't still have my records but I don't. Next rule, bubbles are not for retirement funds. London Life should know this.

I called and had what was left of my investment moved into another fund but it did not do all that well either. My own money, the money I have taken control of, is well into the black. My personal portfolio is weathering the recession with admirable aplomb.

Oh well, come age 69 — oh, make that 71, the rules were recently changed — London Life is obligated to return at least 75% of my original investment.

Wait! I have had a eureka moment. It's not me that gains freedom at 55 thanks to this fund, it's my adviser at London Life! I have to go back and read the fine print. I may be on to something.

For another view on Freedom 55 check out this blog by Darren Barefoot.
For an update on this blog, to see where the Freedom 55 investment was as of Dec. 31, 2012, follow this link.