Money Management Q&As

May 5, 2006

Comparing auto ownership costs

Q. I'll need to buy a new car soon, and I have several models in mind. Since I'll probably keep the car for at least five years, I want to make sure I choose the one that's apt to cost me the least over the long run. But how can I figure that out?

A. You can get cost of ownership estimates from online calculators available at http://www.edmunds.com and http://www.intellichoice.com. (For Edmunds, scroll to the bottom of the home page and click on True Cost to Own. At the IntelliChoice site, click on New Cars, enter the data for the car you're interested in, then click on Ownership Costs.) Both calculators factor in figures for depreciation, financing, taxes, insurance, fees, fuel, maintenance, and repairs to project the total cost of ownership over five years. Edmunds' calculator also breaks down the figures for each year individually.

Adding a codicil to a will

Q. My coin collection and a few sentimental items will pass to my brother when I die, but now I've decided to leave those things to his newborn daughter instead. Do I need to have an attorney draw up a completely new will to make these changes?

A. No. You can handle a few minor changes on your own by executing a codicil, which is a legal amendment to a will. You must prepare the codicil the same way you did the will: put your wishes in writing, sign the document in front of witnesses and a notary, and have them sign it, too. Then store the codicil with the original will, to avoid the confusion that could result if they get separated.

Hidden price swings that erode returns

Q. I've read that "market impact costs" can erode a mutual fund's returns, but they're not reflected in its expense ratio. What are these costs?

A. Market impact costs are, in effect, the price differences that result from trading large blocks of a single stock. Say a fund's manager wants 500,000 shares, but only 100,000 are typically available each day. That trade may take five or more days to complete. In the meantime, the fund's large order may signal to the market that demand for the stock has increased, and the price per share could rise accordingly over those five or so days. The reverse can also happen if a fund dumps a large block of shares at once.

As you might guess, big funds are particularly susceptible to market impact costs, because they're most likely to buy shares in large lots. But funds that trade shares frequently or buy small-company stocks in great quantities can also be affected. So if a fund you own has all of these characteristics and isn't performing as well as you'd hoped, market impact costs could be one culprit.