Over the last decade I have learned a lot about investing. My father used to be a stock broker so he helped a bit. I have also read, and continue to read quite a bit about investing, and actively manage my own retirement accounts. I know what a PE is, I know how to evaluate companies and I know how to use the powerful tools on the Internet to analyze potential investments. I speculate from time to time as well.

Exchange Traded Funds (ETF’s) go by different names but that’s the corect term. These can be very effective investment tools because of their often extremely low operating costs. You could easily create a well diversified (sector & asset class) portfolio composed of nothing but ETF’s.

The expense ratios can be as low as .09%. That’s 1/10th of a percent expense ratio each year. You will not find any fund, even an Index Fund this cheap. This is why I love these things. Compound those savings across 20 years, and it makes a difference.

Anyone that knows much about investing knows that it’s very difficult to beat the overall markets performance. Typically when people say "the market" they mean the S&P 500. In fact, most fund managers don’t typically outperform the S&P consistently. So the cheaper you can keep your expenses (buy/sell costs, loads...), the better.

ETF’s are often also more tax efficient than most actively managed funds. Funds that have a high turnover ratio cost you more money in taxes, than those with lower turnover rates.

You can buy ETF’s that track any index you like pretty much (S&P 500, NASDAQ 100, DOW, Russel 2000, Wilshire....) and you can find ETF’s to track industries/sectors like natural gas. You can also buy ETF’s that track international markets at a high macro level, like all of Asia, or a very micro level such as Japan. The options keep increasing and the popularity is rising.

A couple of other great things about ETF’s:

1) They are bought and sold just like stocks. You don’t have to wait till close of market for your buy/sell orders to happen. They are as liquid as any stock.

2) There is no front end or backend load like there are with many funds. You simply pay the normal commission for buying and selling, which can be quite cheap. This adds up to higher total returns for your investment.

ETF’s have sub categories, and have general names like iShares (Barclays Global Investors), SPIDR (Chunks of S&P) and many more.

CASES WHERE ETF’s ARE NOT SO GOOD

If you are doing dollar cost averaging, ETF’s might end up costing you more, because you pay commissions each time you buy more shares. Here funds may win out. Although I have read studies where the perfomance gains of dollar cost averaging is actually worst than just buying one time and holding.

GOOD LINKS

As a board member I was involved with selecting a new vendor for 24 hour front desk services. Very expensive. Actually fully about 17% of our operating budget.

I have not been happy with our management companies business skills in terms of vendor selection or negotiating better prices. I feel they should be our advocate, when in reality they do very little to save us money.

I suggested to the manager of the building and the higher up manager that we ask for 10% off of the quoted price for 1 year. They literally laughed and scoffed at me. Even the condo board members were saying maybe that’s too much, or could even be insulting to the vendor.

I asked for their consent to let me negotiate directly with the president of the company. They agreed. I told them that nobody is talk to them except for me as to mess up my strategy.

Well I waited about a week, and I called the president. I told her that we really did like her company, but regrettfully their price was just too high for us. Which it actually was a bit. I thought about low balling her, and working back and forth for the price I wanted, but decided instead just to give her our bottom line.

I actually wanted about 7 or 8% off the total price, but I asked for 10% off and said that if she could give us the service for 1 year at this price, we would go with her. She called me back and said she could not do that price, but offered $10,000 from her initial quote. I then came back and said ok, but can you gurantee no price increases for at least 2 years. We worked out a middle ground on this, but I got what i wanted for the most part and she got a new client.

In the end, I got 7% off the initial quoted price, and an agreement to only increase the contract costs by 2% a year. To me this was not a surprise, but when you are dealing with people that don’t understand business it was. Namely the condo board, the building manager and the community manger. I enjoyed proving to them that you can negotiate and get quite a bit off.

 LESSONS

- Sometimes if you are on the board you have to lead by example. I think I did that here, and since then the managers at least realize they better try to negotiate.
- Don’t accept the first thing anyone offers you ever. Always at least try to negotiate.
- Understand your position and where you have leverage. In this case, the vendor really wanted us to be a client. That was my leverage.
- Always ask for more off than you actually want. Gives you some breathing room, and also makes the other person feel better when they get you to move from that price. This is pretty standard negotiating but thought I would throw it anyhow.

Most people I know are aware I’m on my condo board. It’s definately a thankless job but I do feel I’m really having an impact and saving my building a good deal of money. So far this year, I think have saved us $14,000 by negotiating contracts. That’s a drop in the bucket, but it’s1.6% of the overall budget saved. 

In Rockvilled today doing infrastrucure testing for beta.aarp.org. One of the final things on our list before launch.