MONEY best of 2014

7 Ways Tech Made Your Life Better in 2014

A new reason to ditch your cellphone contract, safer credit cards, and five more bright ideas that can help you save money in the year ahead.

Every year, there are innovators who come up with fresh solutions to nagging problems. Companies roll out new products or services, or improve on old ones. Researchers propose better theories to explain the world. Or stuff that’s been flying under the radar finally captivates a wide audience. For MONEY’s annual Best New Ideas list, our writers searched the world of money for the most compelling products, strategies, and insights of 2014. To make the list, these ideas—which cover the world of investing, retirement, health care, college, and more—have to be more than novel. They have to help you save money, make money, or improve the way you spend it, like these seven tech innovations.

  • Best Side Effect of the Hacking Mess

    Chip and Pin credit card transformed into a lock
    Image Source—Alamy

    Safer Credit Cards…Finally

    Chip-and-PIN credit cards include a special chip that makes them harder for hackers to replicate. Though you’re legally protected from having to pay most charges when a card number is stolen, more-secure plastic can save you a lot of hassle. Card companies had been slow to roll out chip-and-PIN—until millions of credit card numbers were stolen from major retailers such as Target and Home Depot. “The frequency and size of the breaches absolutely are driving more rapid adoption of the technology,” says Paul Kleinschnitz of First Data, a payment technology firm. Here are two more things to know about the new cards:

    They don’t eliminate all your risk. Chip-and-PIN makes it harder to create fake plastic but doesn’t stop numbers from being used at online stores. So you should still check your statement regularly for weird charges. Chip-and-PIN is already common in Europe; the new cards work in automated machines there that don’t accept old-fashioned plastic.

  • Best Smartphone Savings

    No-Contract Plans

    Old way: Commit to a contract and pay $200 for a smartphone that really costs $650. Of course, you still pay for the phone as part of your monthly bill.

    New way: Wireless companies are making it easier to separate the cost of the phone and the price of service.

    You can shop for a new plan with your old phone. Low-cost players and now the big carriers offer no-contract plans, which may be $100 cheaper per month for a family. Check with carriers for phone compatibility; look up network quality in your area at rootmetrics.com.

    Or get a new phone. You can buy a phone outright or on installment, and combine that with a no-contract plan. Sometimes, but not always, the total price beats the comparable contract option, so run the numbers. If you do go contract, mark your calendar: After 24 months, switch to no-contract if you don’t care to upgrade.

  • Best Reason to Rent, Not Own, Your eBooks

    Amazon Kindle

    All-You-Can Read Subscriptions

    As with music, books are moving toward an all-you-can read subscription model.

    The Services: The service you pick will hinge on the device you prefer to read with. Scribd ($8.99 per month) lets you read an unlimited number of books, and it quintupled its library this year to 500,000, with 30,000 audiobooks. The service now includes many titles from the big publishers Simon & Schuster and HarperCollins. Works on: iOS, Android, Kindle Fire (but not e-ink readers), Nook tablets.

    Though Scribd is the better service overall, it doesn’t work on Kindle e-ink readers. If you’re devoted to that device, Amazon has its own options. With an Amazon Prime subscription, you can choose from thousands of titles to read for no extra charge (one per month). Kindle Unlimited ($9.99) is like Scribd, but customers and reviewers say it’s hard to find books from the “Big Five” publishers. Works on: iOS, Android, Kindle Fire, and Kindle readers.

    The Gadget: Phone and tablet apps are fine for many readers, but e-ink devices provide a more booklike experience. The new Kindle Voyage has a screen that’s 39% brighter than its predecessor.

  • Best Reason to Rent, Not Buy, Your Music

    Streaming Services

    Why buy songs that you’re rarely going to listen to in a few months? What if you could listen to just about anything—except for a few famous holdouts, like Taylor Swift and the Beatles—for less than the price of one CD per month? (Remember those?) A smart new pricing plan could make 2015 the year you make the switch from buying music to legally streaming it.

    The Service: Spotify lets you listen to any song you want in its vast catalogue. A free version, with ads, works on desktops or allows you to play artists or albums on Shuffle on your phone. Paying up for Spotify Premium ($9.99 a month) gets you no ads and total control on any device. Spotify has rolled out a family plan that lets you add new users for $4.99 each; that way two people in your family can play their own tunes at the same time. Works On: iOs, Android, desktop

    The Gadgets to Listen On: Docking stations are easy to use, with no setup or wires required. The $130 iHome iDL48 works with most iPads and iPhones. A portable speaker lets you get your music off your little earbuds and carry it to any room. The reliable Jawbone Mini Jambox ($130) connects to smartphones, tablets, and most computers through Bluetooth. If your existing stereo has an auxiliary input, an easy fix (in you’re not a hi-fi purist) is to run a cable from the headphone or line-out jack on phone, tablet or PC. Cords are $5 to $10 at Monoprice or Amazon.

  • Best Retro Tech

    2015 Ford Focus
    2015 Ford Focus

    Dashboard Knobs are Back!

    For years cars have become more tech-laden, with systems to let you make phone calls, find local pizza joints, or answer email. Which is nice, unless you prefer to keep your focus on driving. Interiors became a maze of numeric keypads and other control points. Ford says its research shows drivers don’t use or want all that tech. Now it’s retro time. For the 2015 model year Ford Focus, the automaker has eliminated many buttons, and added old-fashioned knobs to systems such as heat and A/C. In the next Fusion, the company is even getting rid of touch screens. — Bill Saporito, Time assistant managing editor, car reviewer at Money.com

  • Best Online Security Fix

    Two-Factor Verification

    Worrying about bank and brokerage hacks is understandable. But money can be replaced—and you have legal protections. What you should worry about is a hacker mining your more vulnerable iCloud photos, Facebook page, or email account and impersonating you. Two-factor verification, a login protocol, makes it vastly harder for hackers to steal your digital life. Here’s what you need to do to set it up:

    Select “login approval” or “two-factor verification” under settings at sites you want to protect. The first time you visit that site on a new computer, you will have to enter a code that’s texted to your phone. (You only need to enter this code the first time you log in from a new computer.) In case you lose your phone, you can print out backup codes, which work once. Once you’ve done this, a hacker would need to guess your password and have physical access to your computer in order to steal your data.

  • Best Apps to Get Before You Travel

    Chi Birmingham

    Taxi Apps

    It’s not always easy to scare up a cab in an unfamiliar city. (Where are the best streets to try to hail one? Should I find a taxi stand? Call ahead?) But smartphones are making it much easier to get around. The Uber app can summon a for-hire private car in numerous cities in 45 countries (though the service has recently come under fire in a few cities). In some big towns, like New York, it will also hail a traditional taxi. Curb and Flywheel also grab regular cabs—check first if they work in the town you are visiting. Want help navigating subways and metros? Hopstop has stop-by-stop directions and travel times, as do the transit directions on the Google Maps app.

MONEY Federal Reserve

Fed Leaves Rates Unchanged, Signals Cautious Stance

Janet Yellen
Federal Reserve Bank Board Chairman Janet Yellen Chip Somodevilla—Getty Images

The Federal Reserve kept interest rates near zero -- and surprised many by not hinting at higher rates.

The Federal Reserve’s Open Markets Committee left interest rates unchanged Wednesday. But in a minor surprise, the central bank declined the opportunity to drop a widely expected hint that it was inching closer to raising rates.

Many on Wall Street and in the financial media had expected the central bank, which wrapped up a two-day meeting in Washington on Wednesday, to prepare markets for higher rates by changing the language of its closely watched economic statement.

The Fed had previously and repeatedly reassured investors that rates would remain low for “a considerable time.” With the U.S. economy steadily improving, many economists expected the phrase to be dropped. But it reappeared in Wednesday’s release.

The Fed’s language did change ever so slightly. The committee, it said, “judges that it can be patient in beginning to normalize the stance of monetary policy.” But it went on to add that it viewed this new assessment as “consistent” with its previous reassurances that the hike would come after a “considerable time.”

The tweaks to the Federal Reserve’s assessment come at a time when the U.S. economy is finally showing signs of sustained strength, with robust third-quarter GDP growth of 3.9% and a November jobs report that was widely regarded as one of the best in months.

But the Fed may have found reason for caution in the stock market’s recent skittishness. Prompted by plunging oil prices and a brewing crisis in Russia, shares have fallen about 5% since December 5. Investors appeared to react positively to the announcement. The Dow had already rallied about 150 points early Wednesday afternoon as news broke that the U.S. planned to normalize relations with Cuba. Immediately following the Fed’s announcement, the Dow was at 17,340, up about 272 points.

 

 

 

 

MONEY Federal Reserve

What Will the Fed Do Today? These Five Numbers Can Tell Us

With the economy and job markets finally looking healthy, the Federal Reserve may signal its first interest rate hike in years.

While you’ve been doing your Christmas shopping, the Federal Reserve’s Open Markets Committee — the club of officials who set short-term interest rates — has been meeting in Washington.

With the economy finally humming along, and interest rates still close to zero, market watchers are wondering how much longer the Fed will hold out before signaling its first rate hike since before the financial crisis.

That step isn’t likely to be taken Wednesday, when the two-day meeting concludes and the Fed issues an official statement. But economists do expect a significant change in the language that the Fed uses to telegraphs its policies.

In particular, the central bank has consistently stated that it will keep rates low for a “considerable time.” But a recent survey conducted by Bloomberg found that four-fifths of economists believe the Fed will drop the phrase today in order to signal a more aggressive time table — and that rates are actually likely to rise in the middle of next year.

In the meantime, here are five data points the Committee is likely discussing. The statement comes out at 2 p.m.

 

GDP

GDP

The economy is growing at a healthy pace. After a blip earlier this year — widely attributed to 2013’s severe winter — the economy grew 3.9% in the third quarter. Hiking interest rates would presumably help fight off unwanted inflation. But it would also slow economic growth and could even throw the country back into a recession. That was a much bigger risk when growth was crawling along at 1% to 2% rate. With growth close to 4%, the Fed may finally be getting ready to move.

 

Payroll

Jobs

Of course, GDP growth doesn’t mean much if you can’t actually get a job. And the employment picture has been downright sluggish in recent years, even at times when the broader economy was showing signs of life. But that’s finally started to change. The most recent jobs report, which showed the economy adding 321,000 jobs in November, was widely regarded as one of the best in years.

 

Inflation

Inflation

While GDP and jobs growth may be robust enough to justify an interest rate hike, the Fed may remain cautious for several reasons. The first one is that there is not much forcing its hand. Interest rates hikes are the central bank’s main weapon for fighting inflation. But with prices rising at less than 2%, there’s not much inflation to fight. That’s good news, meaning the Fed has flexibility to keep rates low if it seems helpful.

 

stocks

Stocks

Like the economy more broadly, the stock market is doing well — up about 12% so far this year. Nonetheless the Fed will want to avoid roiling markets with unexpected news. That’s what happened during 2013’s “taper tantrum” when markets slumped after the Fed let slip plans to taper off its stimulative bond purchases. Since economists are widely expecting the Fed to hint at higher interest rates, that seems unlikely this time…but markets are always fickle.

 

oil

Oil

While the U.S. may be looking rosier, there’s still plenty to worry about in the rest of the world. One dramatic manifestation of these fears: the sudden, sharp drop in oil prices. Booming economies tend to use a lot of energy. Weakening ones less so. In many ways cheap oil helps the U.S. It’s certainly been a boon to Detroit. But it can also have destabilizing effects. It’s the key reason the ruble has crashed in the past few days. It’s also the prime suspect in the U.S. stock market swoon in past two weeks. Shares have fallen nearly 5% since Dec. 5, including 112 points on Tuesday. Those jitters are one more reason the Fed may choose to tread carefully.

MONEY Jobs

Why It’s Still Hard to Find the Job You Really Want

workers at construction site
Don Mason—Gallery Stock

The U.S. economy is adding jobs at a surprisingly fast pace. They just might not be the ones you want.

The U.S. added 321,000 new jobs in November, according to the Labor Department. Although unemployment remained unchanged at 5.8%, the new jobs number beat most economists’ estimates. The strong results follow news on Tuesday that the economy grew at a 3.9% clip in the third quarter. Combined with the preceding period, that represents the fastest six-month expansion in more than a decade.

And yet the job market still feels sluggish for many middle-income job seekers, or those looking for a job that’s better than what they’ve got now.

The problem is that the post-recession economy is still better at producing marginal jobs—think retail and food service gigs—than the comparatively well-paying construction, manufacturing, and government jobs that let middle-class people buy homes and support their families.

That’s led to what some call a “low-wage recovery.” As recently as August, the National Employment Law Project, a labor group, calculated that 41% of job growth in the previous year was in low-wage industries, compared with just 26% in middle-wage industries.

A look at Friday’s numbers suggests that dynamic starting to change, but slowly.

The U.S. added 50,000 more retail jobs in November. There were also 27,000 additional jobs in bars and restaurants.

That kind of growth outpaced growth in sectors like construction, which added 20,000 jobs, and government, which added just 7,000. One bright spot was manufacturing. Economists have long warned this sector, hobbled by trends like automation and competition from low wage countries, isn’t ever likely resume it’s former stature. It’s been making something of comeback nonetheless: 28,000 manufacturing jobs were created in November.

Moody’s Analytics economist Ryan Sweet argues the jobs picture will steadily improve for middle income workers. On Thursday, he forecast construction hiring would continue to show gains in 2015 and 2016, driven in part by the housing market, where supply is getting tight again—Moody’s Analytics recently estimated rental vacancy rates at 20-year lows. Meanwhile, steadily improving GDP should replenish state and local tax coffers, allowing governments to start hiring again. Even Detroit, one of the recession’s biggest victims, has seen its prospects improve. Pointing to low oil prices, Sweet cited a forecast that automakers could sell 17 million cars next year.

These are all the kinds of trends you’d expect to see in a recovery—the surprise is how many years it has taken to get to this point.

 

MONEY municipal bonds

Muni Bonds are Beating Stocks This Year. What to Know Before You Jump In.

Municipal bonds are on a tear. On Monday The Wall Street Journal noted that the normally staid $3.7 trillion sector has returned 8.3% so far this year, outperforming the Dow Jones Industrial Average and highly rated corporate bonds. Readers of MONEY’s print edition shouldn’t be surprised. Our April issue argued these bonds could “make a bid for comeback investment of the year.” If munis are just getting your attention now, here are four things you need to know:

Munis benefit some investors more than others

Munis’ interest payments are exempt from federal and sometimes state and local income tax. That means, all other things being equal, those who pay higher tax rates enjoy a bigger benefit. Just how good a deal is it? Because municipal bond buyers are well aware of the tax perks, muni bonds typically yield less than Treasuriess. So to find out if munis make sense for you, you need to look at the difference between these two yields and compare with your tax rate.

The question can also be complicated factors like where you live and whether you are subject to the alternative minimum tax or the new Medicare tax on investment income.

But there is a basic rule of thumb. Start by subtracting your tax bracket from 1. So if you are in the 33% bracket you are left with 0.67. Then divide the municipal bond’s tax-free yield by the resulting number. Finally compare the result to the yield on a taxable investment. Right now the 10-year Treasury yields about 2.3%. Top-rated muni bonds with similar 10-year durations are yielding 2.1%. The upshot: A muni investor in the 33% tax bracket could grab an after-tax yield of 3.1%. For an investor in the 25% bracket, the after tax yield falls to 2.8%.

Munis aren’t risk free

Although munis may offer an after-tax yield advantage, it comes at a cost. While Treasuries issued by the Federal government are considered iron-clad, municipal bonds’ credit risk can range from triple-A to junk, not unlike bonds issued by companies. While you can certainly buy bonds backed by, say, the State of New York or California, many municipal bonds are issued by less august entities — a particular city or school district. Still others may be backed by a particular stream of revenues — like the tolls collected on a particular road. In all there are more than 15,000 issuers, according to Moody’s. Even counting small issuers, municipal defaults are rare. But political impasses — like the 2008 California budget deadlock — can give the markets jitters, driving down prices. Sometimes, as the news out of Detroit or Puerto Rico show, the problems really are serious.

Where you live has a lot to do with the fund you should buy.

Municipal bonds may carry state and local tax perks. For instance, income from municipal bonds issued by a particular state is typically exempt from state income taxes for residents of that state. In other words, New Yorkers who own New York bonds get a state tax break on top of their federal income tax benefits. That’s why there’s a proliferation of municipal bond mutual funds targeting individual states, especially populous and high-tax ones like New York, California, and New Jersey.

There are some wrinkles that may surprise you, though: Bonds issued by territories like Puerto Rico are exempt from state taxes everywhere. That’s helped make them far more popular than they might otherwise be. (They may even turn up in funds labelled “New York.”) So Puerto Rico’s fiscal problems have had a real impact on individual investors on the U.S. mainland.

If you’re just buying now, the deals are less attractive

Of course, while the tax benefits of municipal bonds can seem attractive, taxes should never be your only consideration for an investment. You also have to judge whether the price you’re getting will turn out to be a bargain, and the yields the bonds are offering now are looking a bit thin. (Remember, as bond prices rise, yields fall.) Muni bonds had a rough 2013, declining about 2.6% at a time when Detroit’s fiscal problems were continually making headlines. But munis haven’t just snapped back. They’ve put together their longest string of monthly gains in two decades, according to the Journal. Such a sharp rally can only mean that investors’ return prospects have gotten a lot less rosy.

“It’s difficult to find real value in the muni market these days, but if you already own munis, you should stick with what you own because it’s hard to replace that income,” Jim Kochan, a senior investment strategist at Wells Fargo Advantage Funds recently told investment bible Barron’s. “Whenever we’ve been at these yields in the past, it’s never been a good time to buy, because the market usually corrects.”

MONEY

Schwab’s Pitch to Millennials: Talk to (Robot) Chuck

Charles Schwab Corp. courts young investors with low-cost online financial advice.

Charles Schwab Corp. became an icon of the 1980s and ’90s bull market by helping individual investors make cheap stock trades.

Schwab made a smart bet that people were willing to research and pick stocks without the advice of a broker, if only they were given the technology (first just the telephone, and later online) to do it for themselves. But the new generation of investors is already comfortable with technology—what they’re increasingly wary of is picking stocks.

Enter the so-called “robo-advisers,” investment firms that rely on computer algorithms to help investors pick a slate of mutual or exchange-traded funds, typically for a lower cost than traditional advisers. Companies like Betterment and Wealthfront have gained thousands of clients and millions in start-up money, hoping that they might become, essentially, the Schwab of the millennial generation.

Not surprisingly, the actual Charles Schwab wants a piece of the action too.

On Monday the San Francisco discount brokerage unveiled its plan for a product called “Schwab Intelligent Porfolios,” which will launch in the first quarter of 2015.

Schwab isn’t the only investment incumbent to try to jump on this trend. Vanguard has been running a pilot version of a program that takes a similar approach. Fidelity recently announced a venture with Betterment, one of the new upstart firms.

All the new web-driven advice services take for granted that many investors—already used to banking online, shopping on Amazon and sharing personal details on Facebook—will be willing to interact with a financial adviser only online or over the phone. In some cases, the services do away with the flesh-and-blood advisers altogether. Instead, a computer model creates a portfolio of stock and bond funds after a customers fill out an online questionnaire about their goals and risk tolerance. Just as with books and music, putting money advice online has been pushing costs down. Working with a traditional financial adviser, you might pay 1% or more assets per years in fees. Advisers like Wealthfront and Betterment charge less than 0.5%.

The new services also tend to be available to a wider group on investors, with minimum portfolios of $25,000 or less. Many traditional advisers look won’t work with clients unless they have at least ten times that amount.

How does Schwab’s planned new service compare the upstarts? The details about Intelligent Portfolios are still a bit thin. Schwab describes the service as offering “technology-driven automated portfolios” but also says “live help from investment professionals” is available. Schwab is being aggressive on cost: It will not levy any asset-based fee at all, and will require as little as $5,000 to invest. Schwab says it will make money when Schwab’s own exchange-traded funds are included as investment recommendations, and from portfolios’ cash holdings which will be in Schwab bank products. Without knowing which ETFs Schwab ends up recommending, it’s difficult to get a sense of the total amount investors will pay. (Some Schwab ETFs are very low-cost, however.)

What is clear is that the new services have changed the game, pushing companies to get the sticker price for basic advice down as low as possible. For example, an older Schwab investment program, it’s ETF “managed portfolio,” allows investors to talk to advisers over the phone and in branches. It charges investors up to 0.9% of their assets a year.

MONEY stocks

3 Things to Know About IBM’s Sinking Stock

141020_INV_IBM
Niall Carson—PA Wire/Press Association Images

IBM's shares plunged 7% Monday after a disappointing earnings report. Can tech's ultimate survivor transform itself one more time?

International Business Machines INTERNATIONAL BUSINESS MACHINES CORP. IBM 0.5264% has long enjoyed a unique status on Wall Street — a tech growth powerhouse that investors also see as a reliable blue chip, with steady profit growth and a hefty dividend. But with the rise of new technologies like cloud computing, Big Blue has struggled to maintain that balancing act.

Now investor confidence has suffered a big blow.

On Monday the company announced the results of a pretty lousy quarter. IBM’s third-quarter operating profit was down by nearly one fifth, and the company failed to generate year-over-year revenue growth for the 10th consecutive quarter.

Big Blue also revealed plans to sell-off its struggling semiconductor business, a move that involves taking $4.7 pre-tax billion charge against IBM’s bottom line. Actually, it is paying another company to take this unit off its hand.

While CEO Virginia Rometty acknowledged she was “disappointed” with IBM’s recent performance, she’s also pledged to turn the company around, led in part by IBM’s own foray into the cloud.

Now, you don’t get to be a 103-year-old tech company without learning to adapt. That’s what IBM famously did in the ’90s, when the computer giant started to shift away from profitable PC hardware in favor of consulting and service contracts for businesses.

But Monday’s dismal earnings show just how hard repeating that trick could turn out to be.

Here’s what else you need to know about the stock:

1) You can’t really call IBM a growth company anymore since its sales aren’t rising.

When it comes to revenues, IBM ranks behind only Apple APPLE INC. AAPL -0.7723% and Hewlett-Packard HEWLETT-PACKARD CO. HPQ 0.2009% among U.S. tech companies. On a quarterly basis, though, sales have actually shrunk for 10 periods in a row, including a 4% slide in the third quarter. The big culprit is cloud computing, in which businesses can access computing services remotely via the Internet.

Since the 1990s, IBM’s model has been premised on selling powerful, expensive computers to large businesses, then earning added profits on contracts to help firms run those machines. But the cloud lets companies rent, not buy, this computing power. “You only pay for what you use,” says Janney Montgomery Scott analyst Joseph Foresi. The result: IBM’s hardware revenues sank 15% last quarter.

2) IBM is racing to be a leader in cloud computing, but with mixed results.

The company has identified four alternative areas of growth. One is the cloud, the very technology eating into IBM’s hardware sales. Big Blue has spent more than $7 billion on cloud-related acquisitions. It’s also going after mobile, IT security, and big data, the analysis of information sets that are too large for traditional computers. An example of that is Watson. IBM’s artificial-intelligence project, which won Jeopardy! in 2011, is being marketed to businesses in finance and health care.

These initiatives have promise, but IBM’s size is a curse. For instance, the company’s cloud revenues jumped 69% to $4.4 billion last year, but with nearly $100 billion in overall sales, “it’s hard to move the needle,” says S&P Capital IQ analyst Scott Kessler.

3) The stock is now much cheaper than its tech peers, but it may deserve to be.

Investors willing to wait and see if these moves will transform IBM may take comfort in the fact that the stock looks cheap. What’s more, the shares yield 2.4%, vs. 2% for the broad market. This could make the company look like a good value.

But investors should tread carefully, says Ivan Feinseth, chief investment officer at Tigress Financial Partners. He notes IBM has spent $90 billion on stock buybacks in the past decade, which has kept the P/E low by increasing earnings per share. Yet none of that money was invested for growth, as evidenced by IBM’s sluggish annual growth rate. It is hard to imagine IBM outmuscling Amazon AMAZON.COM INC. AMZN 0.7288% , Cisco CISCO SYSTEMS INC. CSCO 0.434% , Microsoft MICROSOFT CORP. MSFT 0.2946% , HP HEWLETT-PACKARD CO. HPQ 0.2009% , and Google GOOGLE INC. GOOG 1.0272% in the cloud — and there are better values in tech.

MONEY

4 Reasons Why Bill Gross Leaving Pimco Is Such Big News

Bill Gross, co-founder and chief investment officer of Pacific Investment Management Company (PIMCO).
Bill Gross, co-founder and former co-chief investment officer of Pacific Investment Management Company (Pimco). Jim Young—Reuters

'Bond King' Bill Gross has resigned from the firm he founded. Here's why his move matters.

It many not be LeBron leaving Miami, but on Wall Street, at least, it was arguably an even bigger deal. Bill Gross, long one of the biggest stars in money management, has resigned from the Newport Beach, Calif., asset management giant Pimco and will be heading to Janus Capital in Denver.

Why Gross is such big news

Gross’s $221 billion Pimco Total Return fund (PTTCX) is one of the largest mutual funds on the market—in fact, it has more assets than any bond fund in the world. And it’s a mainstay in many 401(k) plans. So there is a good chance at least some of your retirement savings are at stake. Because it invests largely in a diversified mix of government and corporate bonds, for many people Pimco Total Return is the primary holding for money they don’t put in the stock market.

And since Gross’s fund and Pimco, the firm he founded in 1971, are major players in the market for U.S. Treasuries, he also has been an important public figure, with financial journalists closely following his comments on interest rates, Federal Reserve policy, the U.S. debt and other economic issues. Similar to famous stock investors like Warren Buffett, news that Gross was buying something could move markets.

But Gross has been in the spotlight for less flattering reasons lately. We don’t know all the details; the first news of his departure came from a press releases issued by Janus this morning. Both the Wall Street Journal and CNBC are reporting that Pimco was ready to push him, if he hadn’t jumped.

Maybe it shouldn’t have been a surprise

Gross has a famously quirky personality that helped to build Pimco’s brand. He writes colorful shareholder letters and started practicing yoga before it was cool among money managers. According to one report, Gross didn’t like people to look him in the eye on the trading floor. None of this mattered when Pimco was delivering outsize investment returns. But lately performance has lagged — in the past year Pimco Total Return finished in the bottom tenth of its Morningstar category — in part because of missed calls on the direction the Treasury market. And that may have made his quirks harder for some to take.

After the high profile departure of Gross’ protege and presumed successor Mohamed El-Erian earlier this year, Bloomberg Businessweek put Gross on the cover with the headline “Am I Really Such a Jerk?” Gross didn’t tone it down. In June, he gave what many regarded as an odd speech at a large investment conference, wearing sunglasses and comparing himself to Justin Beiber.

To top it all off, the Wall Street Journal broke news earlier this week that Pimco was being investigated by the SEC. It’s too early to tell where, if anywhere, that could lead. (More here.)

For Pimco, and its investors, it’s a time to wait and see.

While Bill Gross has always been the public face of Pimco, the Newport Beach, Calif., money manager which oversees a total of $2 trillion, is a lot more than Gross.

Businessweek ran a story in May 2013 called “Pimco Prepares for Life After Bill Gross,” noting Gross was 69 at the time. Pimco is known for its deep bench. According to it’s Web site it has more than 700 investment professionals. Another Pimco star, Chief Economist Paul McCulley, who had retired from Pimco in 2010, returned in May.

The big question is whether the investment magic will remain with Pimco or go with Gross. There is one recent precedent worth looking at. In 2009, another high-profile, equally flamboyant bond manager, Jeffrey Gundlach, left his long-time employer, TCW, in acrimonious circumstances and founded a new firm known as DoubleLine. The DoubleLine Total Return (DBLTX) fund has proved a success, beating the market over the past three years and attracting more than $30 billion. But controversy has followed Gundlach too. He made headlines earlier this year after getting embroiled with fund researcher Morningstar.

This may give Janus new life.

If you’re old enough to remember the first Internet bubble — the one that popped in the early 2000s — there’s a good chance you know Janus. For a time, the Denver fund company, which bet and won big on the era’s tech names, seemed like middle America’ gateway to Internet riches. At the peak of the bubble, according the New York Times, half the money flowing into mutual funds went to Janus. That all changed later in the decade when investors departed in droves. Janus has been trying to recapture its former glory ever since.

Since 2002 the company has had five different chief executives. The latest one — a Pimco alum named Dick Weil who arrived in 2010 — has been trying to broaden the company’s focus beyond stock funds. That’s where Gross appears to fit in. According to the Janus release, he’ll be running an “unconstrained bond fund.” Those investments, called unconstrained because they can invest in a wider array of securities than traditional bond funds, have proved popular at a time when ultra-low interest rates have hurt traditional fixed income returns. But as you might guess, there are risks too. Janus is probably betting that Gross’s popularity will reassure investors otherwise reluctant to take another chance with it.

MONEY pimco

What You Need to Know About SEC’s Investigation of Pimco

The Securities and Exchange Commission is investigating one of Wall Street's best known money managers. Here is what you need to know.

On Tuesday, the Wall Street Journal reported that the SEC has been questioning whether Pacific Investment Management Company, more commonly known as Pimco, has been improperly valuing bonds in one of its portfolios to boost the fund’s returns.

While it’s too early to tell whether the SEC will ultimately allege Pimco did anything improper, here are three key takeaways:

This is another black eye for Bill Gross.

Bill Gross, often referred to as “the bond king,” is one of Wall Street’s highest-profile investors. His flagship fund, Pimco Total Return, is a mainstay in many 401(k) retirement plans. And with $220 billion in assets, the fund is one of the largest investment portfolios in the world.

Recently, however, Gross’s star has waned. Misplaced bets on Treasury bonds have hurt Total Return’s performance. Over the past year the fund has finished in the bottom tenth of its category, according to Morningstar.

Gross also recently endured a public split with protege and presumptive successor, Mohamed El-Erian, who left Pimco in March. Since then Gross, long a media darling, has even started to get bad press. This includes a much-talked about Wall Street Journal story making him seem like a difficult boss. Then there was a Bloomberg Businessweek cover story about Gross that asked, “Am I Really Such a Jerk?”

An SEC investigation only adds to his troubles.

The investigation highlights a long-running dispute about bond ETFs.

The SEC investigation appears to be targeting not Pimco’s flagship Total Return mutual fund but a smaller $3.6 billion exchange-traded fund version of Total Return created in 2012. The ETF version has won some fans, in part by outperforming its older sibling. You can read MONEY’s take on the pros and cons of the ETF version here.

Bond ETFs in general are wildly popular. Investors have poured in more than $180 billion since the financial crisis. But they’ve had their share of problems, and the latest controversy won’t help. To understand why, you have to grasp a bit of the nitty-gritty:

Exchange-traded funds are baskets of securities that trade on an exchange like a stock. Their original appeal to investors had a lot to do with their transparency. Investors can look up at any moment precisely what all of the securities in the ETF are worth. By contrast, traditional mutual funds only value their holdings once a day.

This extra transparency is pretty easy to accomplish when ETFs hold stocks, since most stocks trade every day and the prices are published by exchanges. With a little computing power, stock prices can be tallied up and the total published right away.

That’s not necessarily true of the bond market, where many individual bonds rarely change hands daily.

As a result bond ETF values, while still published continually, are really estimates based on trades of similar (but not necessarily precisely matching) bonds. The upshot is that while stock ETFs almost always trade at prices that are within a few pennies of their putative value, bond ETFs aren’t as reliable.

When traders who are buying bond ETFs disagree with official price estimates about the value of the bonds in the ETF’s portfolio, the ETFs can appear to trade at odd-looking prices.

The industry has endlessly debated what should be regarded as the “true” price. The Pimco controversy, as you see below, appears to have a lot to do with whether actual trades or some other estimate of a bond’s value should be regarded as the “true” price.

The investigation shows how complicated bond investing can be.

Pimco’s actions may have actually helped, not hurt, investors, based on the Wall Street Journal’s description. Still, this doesn’t mean the SEC is wrong to explore its actions.

Here’s what seems to be at issue: Bonds are typically traded in large blocks. When bonds aren’t part of these blocks they can be difficult — read expensive — to trade. Apparently, Pimco went around buying up small blocks of bonds, known as “odd lots,” at discounts. Pimco then marked their prices upwards using estimates of their values derived from larger blocks of bonds.

Is there anything wrong with this? It’s hard to tell because we can only speculate about how Pimco felt justified in doing it.

If Pimco really couldn’t resell the bonds at the new, higher prices it seems off base. But it also seems plausible the bonds might genuinely be worth more in Pimco’s hands than they were in the hands of whoever sold them.

Perhaps with Pimco’s enormous size it’s able to combine these small odd lots of bonds into a larger “round” lot, making the sum worth more than the parts. Or perhaps like a broker in any market, Pimco’s contacts and influence mean it can count on reselling the bonds at a higher price than the original owner could. The devil is in the details, which we don’t yet know.

One other thing to keep in mind. Even if this strategy was a smart one, the SEC may still be right to pursue the case. Allowing bond managers to think they have too much leeway with bond valuations is asking for trouble. Pimco’s investors may have benefited in this particular instance.

But regulators are probably right to be sticklers even if they did. Don’t forget that during the financial crisis big banks effectively hid billions in losses by using questionable methods to value bonds.

 

MONEY

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