Money Management Q&As

December 15, 2006

Contractor vs lender; consolidating school loans; noisy neighbors

Assets your will may not cover

I'm only 30 and don't have a will yet, but since I'm heading to Italy next month I may draw up a quick one using a preprinted form, just in case. My only real valuables are simple ones-a coin collection I inherited, my bank account balances, some certificates of deposit, and the money in my 401(k). So this will should be good enough for now, right?

It would be fine for your coin collection and bank accounts but probably won't cover the rest of the assets you named. Chances are you filled out beneficiary forms for those. If so, the assets will pass directly to the people named on the forms, not according to the instructions in your will. In that case you need to update the beneficiary forms if they don't reflect your current wishes. Other assets that may fall into the same trap include life insurance policies, brokerage accounts, and pension accounts.

My wife and I are planning to add an extension onto our home, but since neither of us has a great credit rating we may not be able to get a good loan rate through our bank. A local contractor says that's no problem because he can get decent financing for us. Should we let him?

Probably not. If you can't arrange for reasonable financing through a separate lender, it may mean you can't afford this home improvement right now. In that case, borrowing through the contractor is borrowing trouble: You could wind up forfeiting your house if you can't make the loan payments. Even if you're certain you can handle the debt, check with your state or local consumer affairs office to make sure the law permits contractors to provide financing and find out if any restrictions apply. Also shop around to see what terms other lenders would offer you. If you do opt for the contractor's financing, you'd be wise to limit your down payment (something local law may even require) and tie future payments to the completion of specific work stages, to help ensure that the job proceeds according to schedule.

Does your fund manager eat his own cooking?

In theory, mutual fund managers who invest their own money in the funds they run have an incentive to maximize performance, but is there any evidence that returns actually rise as a result?

Yes, according to a recent study. Researchers reviewed about 1,400 funds and calculated that at the end of 2004 the average manager had a stake of at least $97,000. Even though that figure represented an average of only 0.04 percent of the total assets under management, it was enough to affect fund performance during 2005, they concluded. For every tiny fraction of a percentage point increase in ownership by fund managers, performance rose by 2.5 to 5 times that fraction.

Thanks to an SEC rule, mutual funds must now disclose, within certain broad dollar ranges, how much of their own money their managers invest in funds. If you can't get this information by calling the fund company, you can find it yourself in the fund's Statement of Additional Information. Look for that at the fund family's website or at http://www.sec.gov/edgar.shtml.

Closing accounts with zero balances

While reviewing my credit report I noticed several old accounts with zero balances. I don't remember who the issuers were. How do I get the accounts closed?

First consider whether you really need to close them. Though it may seem counterintuitive, long-held accounts with zero balances may help rather than hurt you when you apply for a new loan. They lengthen your credit history and shrink the ratio between the amount you owe to the credit you have available, which helps paint you as a responsible borrower.