Archives for July 2009

Goldstar: Half-Off Local Events In 8 Major Cities

Feeling the recession, but still want to get out of the house? You might consider signing up for Goldstar, which helps you to “Go out more”. They offer half-price tickets on plays, concerts, sporting events, and museum exhibits.

So far, it includes events in these areas: Los Angeles, San Francisco, Chicago, D.C. Metro, New York, Boston, San Diego, and Las Vegas. Events are summarized into weekly e-mails, and there is also a social networking component where they collect a lot of individual reviews of each event.

For example, if you live in the SF Bay Area, you could ride an all-day Golden Gate Bay Cruise this weekend for $11, see the Giants play baseball tonight for just $5, watch professional beach volleyball for $5, or even watch bassist Charlie Haden at Yoshi’s Jazz Club for free.

They do tack on a service fee for each ticket, which varies but is at least disclosed relatively early. I saw from $2 to $6 per ticket. Also, for each new friend you refer that joins Goldstar, you get $1 credit towards service fees.

Free Wireless Internet Access at Barnes and Noble

Barnes & Noble bookstores and AT&T are now offering free wireless internet access to everyone. You can use this storefinder to see which ones have free Wi-Fi. Seems like they are now promoting their own e-Books as well through the service. Via Lifehacker.

You can still get 2 hours of free Wi-Fi every day from Starbucks if you register a gift card and use it once a month. Sometimes you just need a change of scenery to get the inspiration going again.

EPA Changes MPG Ratings Last-Minute For Cash For Clunkers

In my post Does My Car Qualify For Cash for Clunkers?, one of the major requirements was that the car must have a combined fuel economy of 18 mpg or less, according to FuelEconomy.gov. Many people have been complaining that their old car gets nowhere near the mileage that the website says they do, but at least there was a definitive source.

But wait. Due to some government wackiness, last week the EPA changed the ratings on nearly a hundred models of cars so that they no longer qualify. For example, some versions of the 1988 Toyota 4Runner SUV now have combined MPG ratings of over 19. The buzz about Cash for Clunkers has been going on for months, so people have been getting ready to trade-in their old vehicles. In fact, the bill runs retroactive to July 1st, so many are already driving their new vehicles!

From this CNN Money article:

Even though the program’s basic requirements have been known since it was created by Congress earlier this year, Cash for Clunkers didn’t become official until Friday. So as part of the official launch, the EPA conducted “quality assurance and quality control effort regarding fuel economy calculations on more than 30,000 vehicle model types spanning the past 25 years,” according to an e-mail sent by EPA spokesman Dale Kemery.

As a result, 86 car models became newly eligible for the program. However, 78 models became ineligible, EPA spokeswoman Cathy Milbourne said in a statement released Tuesday night.

In other words, if you were close before, check your mileage numbers again. Your car may now qualify even though you didn’t before, or it may no longer qualify at all.

Rental Property vs. REZ Residential Index ETF

Many people see owning a rental property as a ticket to prosperity. But wouldn’t it be nice if you could simply own an interest in a rental property, but not have any of the accompanying hassles? I’m far from an expert in this field, but let’s take a look at an REIT that invest in residential real estate.

What is an REIT?
REIT stands for Real Estate Investment Trust. From the National Association of REITs website:

A REIT is a company that owns, and in most cases, operates income-producing real estate such as apartments, shopping centers, offices, hotels and warehouses. Some REITs also engage in financing real estate. The shares of many REITs are freely traded, usually on a major stock exchange.

To qualify as a REIT, a company must distribute at least 90 percent of its taxable income to its shareholders annually. A company that qualifies as a REIT is permitted to deduct dividends paid to its shareholders from its corporate taxable income. As a result, most REITs remit at least 100 percent of their taxable income to their shareholders and therefore owe no corporate tax.

Since all the REIT income usually “passes through” straight to the shareholders, you are getting relatively direct exposure to real estate. You’re not investing in raw materials, a homebuilder, or some other derivative.

REZ Residential ETF
The iShares FTSE NAREIT Residential Plus Capped Index Fund (ticker REZ) is an ETF that tracks the FTSE NAREIT All Residential Capped Index. Here is the breakdown by industry breakdown and also the top 10 holdings.

As you can see, this is not the same as owning a single-family house, or even a bunch of single family houses. The fund holds interests in apartment complexes, healthcare facilities such as seniors housing communities and skilled nursing facilities, and also self-storage companies. For example, you can search online through the apartment complexes owned by Equity Apartments.

The annual expense ratio for REZ is 0.48%, which is on top of the built-in costs spent by each individual REIT. iShares also has ETFs focused on the different sectors such as Retail (retail stores, shopping malls) and Office/Industrial (office and industrial buildings).

ETF Advantages
One obvious advantage of owning an ETF instead of a single rental property is simplicity. You don’t have to spend time and effort dealing with finding tenants, maintenance issues, or problems with local government. You don’t have to search for properties to buy, negotiate prices, or obtain financing. You also don’t have to ever worry about keeping up cashflow, as there are no mortgage payment due each month.

Then there’s liquidity. If you need to sell, REZ has decent share volume so you can just type in a sell order and you’re done. You pretty much know the market price at all times.

Which One Is Better?
Here’s the tough question. Which will have the better return? With a single property, you are looking at monthly cashflow and property appreciation (plus possible tax benefits). With the ETF, you have your quarterly dividends and share price appreciation.

REZ currently has a current distribution rate of 5.11% based on its last quarterly dividend of 0.3003 cents per share, while the dividend yield listed on Yahoo! is 8.84% based on TTM (sum of all dividends paid out in the trailing twelve month period). According to the iShares page the Price/Earning ratio was 33 and the Price/Book ratio was 1.73 as 6/30/09.

The trailing 1-year total return of REZ is -39.64% according to Morningstar. (Too new for older numbers.) However, depending on how much your rental house was leveraged, many private investors could have done much worse. If you put $10,000 down on a $100,000 house and the house dropped just 5% in value, you would have essentially lost 50% of your $10,000 as well. I’m not sure what the total leverage of the REITs in this ETF are.

Also, we have to go back to the fact that this REIT doesn’t hold a bunch of detached single-family houses. Healthcare facilities seem like they would be a good source of income in a growing field. However, they could also be susceptible to political changes in Medicare rules.

I think its safe to say that any individual property could do worse or better than REZ. Perhaps a better question is how much you value diversification. Instead of putting your money into one property in one area, with an ETF you are instead owning a slice of thousands of different properties across the country. If you have high confidence in your abilities to select and manage a single property, that might be the better way to go.

Jamba Juice Buy One Get One Free Coupon

Jamba Juice just sent me this buy 1 get 1 free coupon. Expires 8/9. Good for those overheating states right now! Yes, it is overpriced fruit.

Steal This Book

How do you read a book that you can’t buy in bookstores or find in libraries… because people keep stealing them since the title is Steal This Book? Even used copies are selling for double the retail list price. By reading a ripped off copy on the internet, of course. 😉

Written by activist Abbie Hoffman in 1970, Steal This Book is basically a counter-culture guidebook to that era, and is self-described as a “manual of survival in the prison that is Amerika.” It promotes its own twisted view of morality, which is that it is okay to steal from everyone from the government to business owners like grocery stores, but not other Yippie activists. The “Survive!” section is basically a “How to see the US on zero dollars a day” travel book.

Whether the ways it describes to rip-off shit are legal or illegal is irrelevant. The dictionary of law is written by the bosses of order. Our moral dictionary says no heisting from each other. To steal from a brother or sister is evil. To not steal from the institutions that are the pillars of the Pig Empire is equally immoral.

The topics covered are very wide-ranging, although many are now out-dated. I’ll “steal” the description at Wikipedia:

The book includes advice on such topics as growing marijuana, starting a pirate radio station, living in a commune, stealing food, shoplifting, stealing credit cards, preparing a legal defense, making pipe bombs, and obtaining a free buffalo from the U.S. Department of the Interior.

Most people will probably be offended by a lot of the content, but I basically viewed it as a mix of history, entertainment, and knowledge. There are even congee recipes from National Liberation Front fighters. I’m also the type of guy who likes to know how all the scams work. Samples:

Free postage: “When mailing to the same city, address the envelope or package to yourself and put the name of the person you are sending it to where the return address generally goes. Mail it without postage and it will be “returned” to the sender.”

Free food: “In restaurants where you pay at the door just before leaving, there are a number of free-loading tricks that can be utilized. After you’ve eaten a full meal and gotten the check, go into the restroom. When you come out go to the counter or another section of the restaurant and order coffee and pie. Now you have two bills. Simply pay the cheaper one when you leave the place.”

Panhandling: “A good prop is a charity canister. You can get them by going to the offices of a mainstream charity and signing up as a collector. Don’t feel bad about ripping them off. Charities are the biggest swindle around. 80% or more of the funds raised by honky charities go to the organization itself. New fancy cars for the Red Cross, inflated salaries for the executives of the Cancer Fund, tax write-offs for Jerry Lewis. You get the picture.”

Never even thought about this: You can get $150 to $600 in advance by willing your body to a University medical school. They have you sign a lot of papers and put a tattoo on your foot. You can get the tattoo removed and sell your body to the folks across the street.

Why Social Security Is Going Broke: Two Simple Charts

In 1940, the required age to receive full benefits from Social Security was 65. According to chart below, most people didn’t even reach 65 at that time. Today, average life expectancies are over 11 years longer (and still rising), yet the full retirement age is only 67. That’s a lot of people getting paid out.

The way Social Security works, taxes from current workers go straight to paying for the benefits of current retirees. Your money is not being “saved” anywhere to be withdrawn later. In 1950, there were 7.3 working-age people for each person over 65; now, the ratio is 4.7 to 1, and it is scheduled to drop to 2.7 to 1 by 2035. That’s a lot less people paying in.

These alarming demographics don’t help Medicare either, which has even more problems! The idea of having everyone work for 40 years and then retire for 20 years is going to be very hard to sustain.

The above information was taken from the 2003 paper Demographics and Capital Market Returns, which as the title suggest also talks about the effects on future stock market performance, as well as proposing some potential solutions. Found via Capital Ideas.

The Hawthorne Effect and Better Money Management

I was reading an article in Wired Magazine about improving one’s health with new personal metrics devices such as the Nike+iPod kit, which is a neat device that helps you easily track and records details about your running. Did you know that all it measures is the amount of time your foot is on the ground? (That time is inversely proportional to your speed.)

The Hawthorne Effect
In the 1920s, the management at the Hawthorne Works factory decided to try some things to improve productivity. When they improved the lighting, workers assembled parts faster. When they were given more breaks, workers assembled faster. But then, the reduced the lighting back to normal, and productivity was still increased. After months of tinkering, when all the work conditions were set back to the original state, productivity remained higher. The fact that they were being watched was the primary reason things changed.

The idea that the act of observing itself will change the phenomenon being observed became known as the Hawthorne Effect (also known as the “observer effect”), and has since been confirmed by many other follow-up studies.

Application to Personal Finances
While this seems like common sense, it is actually quite powerful to know that simply noting down what you spend every day or month in itself may improve your finances. You could set a budget or analyze trends later, but don’t worry about that for now. Don’t judge your expenses. Don’t try to change them. Just track them.

On that front, online aggregation sites like Quicken Online, Yodlee, Mint, and Geezeo make the data collection easier, just like the Nike gadget takes away the stopwatch and logbook. They all pull up your transactions automatically (if you trust them with your passwords and data). Otherwise, I still see nothing wrong with using simple pen and paper and/or a spreadsheet.

Making a Habit
Nike also found that once a Nike+iPod user uploads five runs to the software, the user is much, much more likely to keep running and uploading data. Maybe it would be good to set a goal of tracking expenses for… 5 weeks? 5 months? We need time to get addicted to the stats!

Warning: Banks Automatically Renew CDs Upon Maturity, 7-Day Grace Periods

It’s hard to believe that back in August 2008, I was able to get a 5% APY 12-month CD from Washington Mutual (now Chase). Since it’s almost time, I called today to see if I could designate how I wanted the funds to be disbursed upon maturity. However, I was told that I actually had to wait until the actual maturity date, and then call them within a 7 day grace period. If missed that short window, then it would automatically renew into another CD of the same term, and I’d be subject to early withdrawal penalties. (Up to 6-months of interest, which can mean you get back less than your initial principal.)

After a bit of research, it seems that many of the big banks do this. For example, with Bank of America, for CD account terms that are 7-27 days, there is a 1 calendar day grace period. For CD account terms that are 28 or more days, there is a 7 calendar day grace period. Yes, one calendar day, not business day, so if it’s a Sunday or holiday you still have to contact them? I’ve also read that some banks require you to physically enter a branch or send a snail-mail letter.

On the other hand, other places that I’ve dealt with, like Pentagon Federal Credit Union, allow you to choose how the CD should be treated right when you open it. I can have the CD renew, have the funds transferred to a PenFed checking account, or have it sent to me by check. I can even choose to either reinvest the dividends or have them sent to me monthly. I guess this is another example of credit unions often being more consumer-friendly.

Meanwhile, I guess I’ll just have to set up some Google Calendar alerts to text me repeatedly when this thing matures. The current traditional CD is paying only 0.25% APY, and the online CD is 1.25%.

You can keep up with where I’m putting my cash here.

Should Home Equity Be Part Of Your Portfolio Asset Allocation?

When people talk about asset allocation, they usually refer to the relative amount of stocks or bonds in their portfolio (like the model portfolios shown here). But I am occasionally asked whether to include personal home equity in asset allocation. If you have a significant amount of home equity, does this mean you are overexposed to the Real Estate sector? Should you change your other investments to compensate?

Conspiracy Theory Argument
Professional portfolio managers are usually paid based on a percentage of assets under management, or when you make trades. Since they don’t usually control your home equity, they can’t charge you for it, which is why some say the industry secretly decided it shouldn’t be included in asset allocations.

I’m not so sure about this one. Most people don’t have professional money managers. And if they do, for example I’m betting that most advisors would include a huge 401(k) in their planning even they didn’t control it.

Pricing and Liquidity Argument
It is very hard to determine the true market value of an individual house. You can’t sell only a portion of it, which means you can’t rebalance relative to other asset classes. Because of these issues, some people say personal home equity shouldn’t be included.

Still, this is also true of investment/rental properties, which I think should be included in asset allocations just as much as owning any company with physical assets.

My Answer: It Depends?
I plan on staying in the same geographical area indefinitely. Once I’ve committed to buying a place, I’m mainly trying to pay off all “future rent” at once. If I never move, then obviously it won’t much to me what happens to housing prices. If housing prices in my area go up, then my house value will go up, and an alternative house I want to buy will go up. The opposite will be true if housing prices go down. Over the long term, prices should pretty much match inflation. So I don’t consider my house as part of my portfolio.

However, if I planned to sell my house upon retirement, and then use the money to move to a significantly cheaper home and use the difference to cover other expenses, then I would care about my house value because I would have to “cash out” at some point. Some people end up relying on a reverse mortgage to pay for things, which would be a similar scenario.

Outliers: Hard Work, Luck, and Success

Why do some people exceed far more than others? This is the question asked by the book Outliers: The Story of Success by Malcolm Gladwell. The short book argues that most people erroneously believe that very successful people are primarily products of a high intelligence and lots of talent. But there are many other variables out there, ranging from their date of birth, to their family’s cultural background, to sheer luck.

But the most important relationship was between hard work and luck. In the Chapter called “The 10,000 Hour Rule”, Gladwell states that it takes 10,000 hours to master a subject – be it hockey, music, or computer programming. There are no shortcuts to this.

However, Bill Gates got 10,000 hours of computer time while attending an elite private school before he even reached college in 1973, at a time when many top universities didn’t even have computer labs. Before they became famous, The Beatles ended up playing at a club in Germany for over 8 hours a day, 7 days a week. This meant they accumulated more live stage time (1,200 performances) in a couple years than most bands had in a lifetime. In other words, they both had a nice does of luck to be able to get their 10,000 hours in when very few others had the same opportunity.

At the same time, they also had the ambition and drive to actually complete those 10,000 hours. Sometimes I think that “talent” is no more than loving something so much that you don’t mind spending endless hours doing it.

So to be extraordinarily successful, you need both luck and hard work. People can interpret these stories differently. One person might say “Yup, those guys were successful because they were more lucky than I was.” and then feel better about their lives. The thing to remember is that between hard work and luck, you can control only one.

If you don’t put in the hours, there is essentially zero chance of success. If you do, then when opportunity hits, you can flourish. Gladwell connects the Chinese proverb stating “No one who can rise before dawn 360 days a year fails to make his family rich” to a special public school network within low-income areas that creates kids who can compete with those from private schools in wealthy suburbs.

Although I was initially afraid that this book would try to put too much emphasis on the role of luck, in the end it actually reinforced my own basic beliefs about hard work. You can’t control the cards you are dealt. All you can do is play them as best you can.

myFICO Coupon: 25% to 30% off Codes

Update February 2011: Use coupon code FICO25 for 25% off!

Here’s a newly released coupon for 25% off real FICO scores at myFICO.com. Use the promotional code FICOHELP25 to get 25% off, the best discount currently available:

Update: For the Equifax credit score only, you can get it for $10.95 using the code SW94608. $5 off equates to a little over 30% off.

You enter the promo code relatively late in the buying process, right before entering your credit card information. Look for this:

Experian no longer allows Fair Isaac to sell FICO scores to consumers at all (even though lenders still buy and use them). They sell their own “FAKE-O” version now. Lenders almost always use FICO scores in their decisions, so those are the only ones you should pay for.

For the diligent, a cheaper alternative is to sign up for a free 30-day trial of ScoreWatch, which includes two free Equifax scores and reports. Just remember to cancel as soon as you decide you don’t need it anymore. You are allowed to cancel online, without having to even call in.

You can always request your credit reports (not scores) once every 12 months at AnnualCreditReport.com. If you’ve already done that, you can still try these other direct methods for the unemployed, those denied credit, and victims of identity theft.