Social Security Network

Did you as a small business pay another person or business more than $600 total in 2009 for services rendered? You may have to provide them a 1099-MISC form. There are lots of rules, see the 1099-MISC Instructions for complete details. Here’s a summary: The Internal Revenue Service (IRS) requires businesses (including not-for-profit organizations) to issue a Form 1099 to any individual or unincorporated business paid in excess of $600 per calendar year for services rendered. This is required whether these payments are spread out over the course of the year or are paid in one lump sum payment. The most effective way to obtain the information needed to prepare the Form 1099 is by requiring that an IRS Form W-9 be completed prior to any payment being made. The penalty for failure to file Form 1099 can be as much as 50% of the amount paid for services. If you’ve got your own accountant or payroll service, then you can pay them to generate the proper forms and send out these 1099s. (They are supposed to be sent out to independent contractors by January 31st following the end of the tax year in which you made the payments.) But if you’re a micro-business or a one-person show and still do all your own taxes, you can easily generate a few 1099-MISCs yourself. You can get blank forms sent to you for free from this IRS order form. You’ll need at a minimum, Form 1099-MISC and Form 1096. You cannot use the PDFs that you find online; they are only examples. The page says it may take 4-6 weeks, but I got mine in less than two weeks. If you need them faster, you can buy them from any office supply store like Staples or OfficeMax. As noted above, get a W-9 form filled out by the person you paid, and follow the directions. Finally, if you buy TurboTax for Business (not the personal edition), the software can also generate both 1099 and W-2 forms for you.

Morningstar Lifetime Allocation Indexes
Morningstar recently started publishing their Morningstar Lifetime Allocation Indexes, which are designed as benchmarks for mutual funds that shift their asset allocation as a target retirement date nears. An example is the Vanguard Target Retirement 2045 fund (VTIVX), a buy-and-hold fund designed for those retiring around the year 2045. Created using historical performance data with Ibbotson Associates, the indexes provide asset allocations that are optimized based on Modern Portfolio Theory. The asset classes included are US and international stocks, US and international bonds, inflation hedges like TIPS and commodities, and cash. However, the interesting part is that their “efficient frontier” optimization model incorporates the idea of human capital, which is defined as the present value of a person’s future earnings. Here is a chart from their factsheet explaining the idea (click to enlarge): Accordingly, there are 13 indexes with three different risk profiles – aggressive, moderate, and conservative. It is recommended that you choose the proper profile not based on your love of risk-taking, but based on the quality of your human capital: Human capital is defined as the present value of a person s future earnings. This ability to work and earn money over time is like a giant bond that provides fairly stable cash flows. The human capital bond is not investment-grade for all investors however. Some investors have stable income streams and thus should have a higher capacity for market risk. Others have income streams that are more sensitive to economic conditions and should therefore have a more conservative financial asset allocation. Without further ado, you can view all the asset allocations here. I’ll probably make a nice graph out of this later. For now, let’s say I wanted to retire at about age 50 in the year 2030, and I feel my human capital is moderately stable. The Moderate 2030 asset allocation looks something like this: 84% Stocks – US 57% – International 27% 10% Bonds – US 10% 6% Inflation Hedges – Treasury Inflation-Protected (TIPS) 1% – Commodities 5% I don’t really have any further thoughts on it, besides the fact that I don’t think we should necessarily base everything on historical returns. It might be better to try and figure out the source of those returns. Otherwise, it’s just another data point to add to the many model asset allocations out there.

ETrade Bank Savings Accounts now by Discover Bank?
Just got this e-mail from regarding my ETrade Bank online savings account: We are writing to let you know that your E*TRADE Bank account referenced above will soon be transferred to Discover Bank, and become a Discover Online Savings Account. This follows our plan to focus more exclusively on providing optimal investing solutions to our customers. We expect the transfer to occur on or about March 7, 2010. Discover Bank sounds okay from what I’ve read, and the APY on my whopping 3 cent balance will go up from 0.50% to 1.35% APY, but the only reason I kept the E*Trade account around was for its speedy funds transfers. I don’t use any ETrade brokerage services since they are too expensive and the phone hold times are too long. (I do enjoy the commercials, though.) Time to close the account?

Notes and Lessons from Liar s Poker: Rising Through the Wreckage on Wall Street
Here’s a book review of an oldie-but-goodie. Liar’s Poker by Michael Lewis is a non-fiction account of the author’s experiences as a 24-year old the 1980s who started working as a bond salesman for Salomon Brothers, one of the most powerful investment banks at the time (now folded into Citigroup). Half of the book is an insider’s view of the fast-paced and testosterone-driven world of trading and sales on Wall Street. Lewis explains terms like “Big Swinging Dick” and how he made of dollars of profits for the company, sometimes by necessarily screwing a few customers over. Don’t ever forget their priorities! Here is a quote from a 2008 Portfolio article where Lewis takes a look back: When I sat down to write my account of the experience in 1989 Liar s Poker, it was called it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future. Unless some insider got all of this down on paper, I figured, no future human would believe that it happened. The other half explains how some of the most powerful securities in the world were created – namely high-yield “junk” bonds (which exploded in the late 1980s) and mortgage-backed securities (which took longer, and exploded in the late 2000s). They saw an opportunity: From the early 1930s legislators had created a portfolio of incentives for Americans to borrow money to buy their homes. The most obvious of these was the tax deductibility of mortgage interest payments. The next most obvious was the savings and-loan industry. The savings and loan industry made the majority of home loans to average Americans and received layers of government support and protection. The breaks given savings and loans, such as deposit insurance and tax loopholes, indirectly lowered the interest cost on mortgages, by lowering the cost of funds to the savings and loans. The savings and loan lobbyists in Washington invoked democracy, the flag, and apple pie when shepherding one of these breaks through Congress. They stood for homeownership, they’d say, and homeownership was the American way. To stand up in Congress and speak against homeownership would have been as politically astute as to campaign against motherhood. Nudged by a friendly public policy, savings and loans grew, and the volume of outstanding mortgages loans swelled from $55 billion in 1950 to $700 billion in 1976. In January 1980 that figure became $1.2 trillion, and the mortgage market surpassed the combined United States stock markets as the largest capital market in the world. Following the money, in 1986 Salomon Brothers created the first mortgage derivative. Soon after, they figured out how to take BBB-rate bonds with a unknown maturity and perform financial voodoo to create top AAA-rated bonds with more predictable maturities. (A good explanation of collateralized debt obligations (CDOs) and tranches is in the video Crisis of Credit Visualized.) Lewis also learned the trader mentality: Many of the trades that [mentor] Alexander suggested followed one of two patterns. First, when all investors were doing the same thing, he would actively seek to do the opposite. The word stockbrokers use for this approach is contrarian. Everyone wants to be one, but no one is, for the sad reason that most investors are scared of looking foolish. Investors do not fear losing money as much as they fear solitude, by which I mean taking risks that others avoid. When they are caught losing money alone, they have no excuse for their mistake, and most investors, like most people, need excuses. They are, strangely enough, happy to stand on the edge of a precipice as long as they are joined by a few thousand others. But when a market is widely regarded to be in a bad way, even if the problems are illusory, many investors get out. All in all, this book was a very fun read. It reminded me of somewhat of Ugly Americans by Ben Mezrich, but Liar’s Poker had a much more authentic and feel of historical significance to it.

ING Direct Business Savings Reference Code: $100 Bonus
ING Direct has an business version of their popular online savings account, called Orange for Business. It has no minimum balance requirements and no maintenance fees, while currently paying 1.05% APY. As with their personal account, you’ll need to link this account with a business account under the same legal name. You can also get a $100 bonus upon opening an account by using the Reference Code BSA298 on your online application. Expires 2/28/2010.

Fidelity Offers Free Commissions on iShares ETFs, Make Your Own Free Portfolio
In addition to their new $7.95 per trade price structure, Fidelity is also waiving commissions completely for 25 iShares ETFs. This appears to be a partnership where iShares partially compensates Fidelity themselves for promoting their ETFs. Fidelity receives compensation from the ETF sponsor and/or its affiliates in connection with a marketing program that includes promotion of iShares ETFs and certain commission waivers. Additional information about the sources, amounts, and terms of compensation is described in the ETF’s prospectus and related documents. Fidelity may add or waive commissions on ETFs without prior notice. Technically, you could make a relatively complete passive portfolio consisting entirely of these iShares ETFs. For example, if you wanted a stock portfolio encompassing the entire world in proportion to their current market capitalization share, you could go with 45% IWV (Broad United States) 40% EFA (Broad Developed Europe & Pacific) 15% EEM (Emerging Markets) Since these ETFs have pretty good trading volume, the bid-ask spreads should also be reasonably small. For the bond portion, one possibility would be 50% AGG (Broad, Investment Grade Taxable US Bonds) and 50% TIP (US Treasury Inflation-Protected Bonds) assuming you had room in a tax-advantaged account like an IRA. Not a recommendation, just what I might buy for myself. Here’s the entire list: US Equity Russell 1000 Growth (IWF) Russell 1000 (IWB) Russell 1000 Value (IWD) Russell 2000 Growth (IWO) Russell 2000 (IWM) Russell 2000 Value (IWN) Russell 3000 (IWV) S&P 500 Growth (IVW) S&P 500 (IVV) S&P 500 Value (IVE) S&P Mid Cap 400 Growth (IJK) S&P Mid Cap 400 (IJH) S&P Mid Cap 400 Value (IJJ) S&P Small Cap 600 Growth (IJT) S&P Small Cap 600 (IJR) S&P Small Cap 600 Value (IJS) International Equity MSCI ACWI (ACWI) MSCI EAFE (EFA) MSCI EAFE Small Cap (SCZ) MSCI Emerging Markets (EEM) Bonds Barclays Aggregate (AGG) Barclays TIPS (TIP) iBoxx $ Investment Grade Corporate (LQD) JP Morgan USD Emerging Markets (EMB) S&P National AMT-Free Municipal (MUB) Vanguard, it’s your move… how about commission-free ETFs for Vanguard Brokerage Service customers?

At Last – The Truth About Vitamins.
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At Last – The Truth About Vitamins.
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Mint.com Wants Limited Power of Attorney
A reader recently asked me about what I thought about the fact that financial aggregation site Mint requires you to give them limited Power of Attorney when using their website. There was also a recent discussion on Bogleheads about it. You can find it in the Terms of Use Agreement page. For purposes of this Agreement and solely to provide the Account Information to you as part of the Service, you grant Intuit a limited power of attorney, and appoint Intuit as your attorney-in-fact and agent, to access third party sites, retrieve and use your information with the full power and authority to do and perform each thing necessary in connection with such activities, as you could do in person. YOU ACKNOWLEDGE AND AGREE THAT WHEN INTUIT IS ACCESSING AND RETRIEVING ACCOUNT INFORMATION FROM THIRD PARTY SITES, INTUIT IS ACTING AS YOUR AGENT, AND NOT AS THE AGENT OF OR ON BEHALF OF THE THIRD PARTY. You understand and agree that the Service is not sponsored or endorsed by any third parties accessible through the Service. Sounds serious! My first thought is that without this clause, Mint could not perform their intended service of being a one-stop shop for all of your online financial accounts. They would essentially have to walk up to every single site and ask for permission to be an official portal for them, yet at the same time be released from liability. That would be basically impossible. In the end, you are basically giving up some of your rights in exchange for the convenience of having all your accounts checked for you at once. If you are worried about something going wrong with either Mint, a rogue employee, or a malicious hacker getting access to your personal information, then you might consider limiting what accounts you link. Along that line, I would think that credit cards would be both the most helpful to link since you can then track your expenses, while also having the least exposure to fraud. This is because as long as you report any fishy behavior to your credit card issuers as soon as you find it, you likely won’t be liable for any unauthorized charges. (And if you monitor regularly with Mint, you’ll be that much more likely to notice…) However, I for example would be more hesitant to link my Vanguard and Fidelity accounts with the bulk of my IRAs and brokerage accounts, as the benefits aren’t as great. Most of my net worth is stored at those brokers, and any screw-up would be highly stressful. Besides, I can usually check my balances at those sites separately with little added effort. What do you think?

Best Banks With Consistently High Interest Rates
It’s one thing to find a bank with a high interest rate, and another thing to have that rate stay high. Many banks post teaser-like rates to attract deposits, and then hope you’ll be lazy and stay while they gradually become uncompetitive. A post yesterday on the NY Times Bucks blog explored ways to counter this. Bankrate does a quarterly ranking of top banks with consistently high yields, which is based on the number of times within the quarter that an institution s yield was among the top 20 for the product category and the relative position of the yield in relation to the others in the product category. But that’s only one quarter. So the Times asked them which banks have been on top for every single of the last eight consecutive quarters (Q1 2008 to Q4 2009). Good idea! The next natural question: Which of these banks has the highest rates now? So I visited each site and found the current rates (as of 2/25/10) for their highest yielding savings account (or money market) and their 12-month CD. Since some of the rates were tiered, I picked the rate for a $10,000 deposit and also included the minimum balance needed to avoid fees. Here are the results, sorted by top overall yield: Banks Online Savings / Money Market 12-month CD EverBank 1.51% APY / 2.25% Intro ($5k+) 1.49% APY Discover Bank 1.40% APY ($10k+) 1.60% APY Ally Bank 1.39% APY (No min) 1.59% APY Stonebridge Bank 1.25% APY ($1k+) 1.50% APY Intervest National Bank 1.13% APY ($500+) 1.50% APY American Bank 0.90% APY ($10k+) 1.30% APY MetLife Bank 0.85% APY ($10k+) 1.15% APY First National Bank of Baldwin County 0.50% APY ($5k+) 1.35% APY M&T Bank, NA 0.50% APY (No min) 1.10% APY UmbrellaBank (now Beal Bank) 0.50% APY ($1k+) 1.06% APY BankDirect 0.15% APY ($10k+) 1.11% APY

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