Archives for August 2012

Dividend Yield Definitions: SEC Yield vs. 12-Month or TTM Yield

When looking at the dividend payout of stocks and ETFs, there are actually a few different ways to measure dividend yield. In general, dividend yield is defined as:

\frac{\text{annual dividends per share}}{\text{share price}}

However, there are various ways you can define either of those terms. For the annual dividends, are you looking in the past, or projecting forward? Are you taking the share price at the end of last month, or the most current market price? When looking up information online, you should check to see which definition they are using.

SEC Yield / 30-day Yield
This standardized calculation for ETFs and mutual funds takes the dividends and interest accrued minus fund expenses during the most recent 30-day period ending on the last day of the previous month. That value is annualized (projected forward) and then divided by net asset value (NAV) at the end of that period. This figure works best for funds with regular dividend payments like many bond funds, but not so well for funds with uneven dividend distributions over a year.

Forward Dividend Yield / Projected Dividend Yield
This calculation for individual stocks takes the company’s most recent dividend payment and annualizes it. For example, if the last quarterly dividend paid was 25 cents, it would assume the annual dividend to be $1.00 (even though it may not be). Then divide that by current share price.

12-Month Distribution Yield
This calculation used by Morningstar adds up the trailing 12-month’s income distributions from a fund and divides by the last month’s ending NAV (plus any capital gains distributed). This provides a historical view of actual dividends that were paid, but may not accurately represent the future.

Trailing 12 Month (TTM) Yield
Similar to above, but for individual stocks. Add up all the dividend payments from the last 12 months, and then divide by the current share price. This backward-looking method can help smooth out any variable or seasonal payouts over a year’s time.

Digital Postal Mail / Zumbox Review

Digital Post Mail, formerly just known as Zumbox, is a service that tries to turn all your physical mail into digital format. Hat tip to reader Christina. My first reaction was that it seems very similar to According to TechCrunch, Digital Post Mail has been around for a few years and just received another round of venture capital.

I signed up for the service, and since I already did a detailed review of Manilla, I’ll just share what I see as the main differences between Manilla and and Zumbox:

Zumbox allows you to keep getting both physical and digital mail concurrently. When you link a new provider on Zumbox, you will get a digital version of your mail but your snail mail will keep coming. You can opt-in to go paperless if you want, but it’s not required. With Manilla, once you start accepting paperless bills they will automatically convert you to digital-only (they store everything online so you can still print out the bills if you wish). For both services, they make money by charging a small fee to the provider as they save money on printing and mailing things to you.

Currently, Manilla has more providers available to their service. Zumbox seems to have added many of the major providers (Citi, Chase, AT&T, Verizon, Comcast), but not as many as Manilla. For example, Manilla has State Farm Insurance and my local electric company, and Zumbox does not. Hopefully, the gap will narrow quickly.

Zumbox confirms your mailing address by sending you a verification code via snail mail. Manilla does not, relying only on online logins and passwords. By doing this, Zumbox is able to match your address with all the other organizations that have you on their mailings list, including things like charities and catalog providers. I haven’t finished this process yet, but it’ll be interesting to see what they match me up with and if I can cut down on the junk mail (sorry USPS!).

Free 2-Year Subscription to Kiplinger’s Personal Finance Magazine

Here’s a link for a free 2-year subscription to Kiplinger’s Personal Finance magazine from RewardsCountry. There is a short survey on the second page, mine was something about watches. There is no credit card required so they can’t auto-renew or charge you later, and I’ve had good luck with many of these free magazines, so it may be worth the 2-3 minutes of your time.

SmartMoney magazine is already gone (at least in print, will still have articles online), so perhaps you’ll have an antique to show your grandkids. I’m actually looking forward to my WSJ weekend subscription substitution.

Coinstar Promotions and Codes – Bonus $5 in Amazon MP3s

The standard fee to cash in coins at a Coinstar kiosk is 9.8%, which I think is way too high, and you should explore other options for depositing loose coins. However, if you redeem for one of their gift certificates there is no fee, and there are often promotions that make it even better.

From 8/27 to 9/23/12, if you pour in $20 of coins and redeem for a $20 gift certificate (no fee, good for anything at Amazon), you’ll get a free additional $5 code good only for Amazon MP3s. The code prints automatically on the bottom of the receipt, so if have a lot of coins you can break them into $20 increments and get multiple $5 Amazon MP3 credits. That’s not a bad deal if you shop at Amazon regularly and also like digital music. The bonus code expires 10/31/12.

I still prefer getting my coins deposited at my local bank with no fees, as I can get 6% off any gift certificate anyway with my American Express Blue Cash Preferred which gets 6% back on anything bought at a grocery stores – including gift cards. If you have a rewards card with a grocery bonus, don’t forget this option when buying gift cards.

Stock Market Returns Are Never Average

I was updating my portfolio spreadsheet over the weekend and noticed that many of my funds have been a quite a roll recently. The trailing one-year total return of the US stock market is over 21%. I don’t know of any market “expert” that called that, do you? Here’s the return data for the Vanguard Total US Market ETF (VTI) via Morningstar:

(click to enlarge)

This brings me to a great quote on “lumpy” asset returns by David Merkel on Aleph Blog:

Asset returns are not what the financial planners tell you. Asset returns are lumpy. They are feast and famine, with more feast than famine, but with enough famine scare a lot of people away. The good returns come when most are scared, and think the market is rigged. The bad returns come after a period of prosperity, and those that don’t understand the market start investing, because it seems to be free money.

In other words, that 8-10% average annual return of the stock market that we always bring up? That never happens. Here are the annual returns of the Total US Market ETF for the last 10 years:

(click to enlarge)

Up, down, up, down. If you’re going to invest in stocks you should expect this erratic behavior and the resulting uncomfortable feelings, and hopefully figure out how to deal with them. I recommend trying to keep things methodical with buy-hold-rebalance.

Virgin America Visa Credit Card Review: 20,000 Point Bonus = Free Flights

The Virgin America Visa® Signature Card is currently running a limited-time bonus of 20,000 Elevate points after your first purchase of any amount (ends August 31st). I haven’t flown Virgin America before, but they are an airline similar to JetBlue and Southwest in that they are trying to offer very low fares within their specific network of airports. Their frequent flier program uses something called “Elevate Points” where you can book any flight using points blackout dates using variable pricing. So the question is, what can 20,000 Virgin America points get me? More than I thought, actually.

Let’s take the short flight from San Francisco to Las Vegas. A quick search shows me that I could buy a SFO-LAS roundtrip in October for $137.60. If I choose to price out the exact same trip with Elevate points, I see that it costs 5,396 points and a $5 security fee:

In this case, 20,000 points would nearly equate to 4 such short roundtrips. At such a conversion rate, 20,000 bonus points would be worth $491 in Virgin America airfare (2.5 cents per point). What about a long-haul flight? How about a nonstop flight from Los Angeles to New York City:

Here, the LAX-JFK flight came out to either $297.60 or 12,838 points + $5 security fee. This time, 20,000 points would work out to $455 in Virgin America airfare (2.3 cents per point). A similar query for LA to Washington DC yielded similar results. Given that this card does have an annual fee of $49, the net value of the bonus is up in the $400 range, making this a pretty good bonus if you take such flights. In addition, every year (including the first year) you get a discount code good for $150 off a companion ticket.

The rewards system for purchases is 3 points per $1 on Virgin America purchases and 1 point per $1 spent everywhere else. If it were me, I’d manage my spending on this card carefully to earn just enough points to use up all those bonus points. Finally, this card is issued by Barclaycard, which means it should be easier to get approved as compared to Citi or Chase if you’re like me and already have a bunch of cards from the major issuers.

  • Virgin America Visa® Signature Card application link

LivingSocial Takeout & Delivery: $1 for $10 Value

Back again for limited time. LivingSocial is spreading into being a central site for ordering takeout and delivery from local restaurants. Right now they are offering $10 worth of food for only $1. Check out their restaurant list first before you buy. Entire value must be used in a single order and is only applicable to your sub-total. I ran a quick test order and they don’t appear to add a surcharge although delivery fees vary, also food prices may be higher than in the restaurant.

Financial Freedom and Parenthood

Last week I finally got to meet the most beautiful girl in the entire world:

I’ve only been a parent for a matter of days and am actively suffering from sleep deprivation, but here are some thoughts which I can revisit later and probably laugh at my own foolishness and naïveté. 🙂 I look forward to the adventure!

How does the arrival of children affect my journey towards financial freedom? Of course, having kids means I want to spend time raising them as opposed to paying someone else to, so not having to work would definitely help with that. However, I also imagine that when the kids are at school then I’ll have at least a half day free for other pursuits. We’re definitely talking more about a scenario where we both work about half-time. In fact, that day may be coming soon. Health insurance remains a concern here, I’ll have to report back on my search for self-employed health insurance.

The cost of raising kids. In general, I think my philosophy on raising kids will be to teach them how to fish as opposed to giving them fish. So I’ll spring for lessons for things like swimming and musical instruments – and even world travel in hostels with kids – but I’m fine with being the weird house with no cable TV, no video games, and instead having lots of books and a vast board game selection. Is it hard just to temporarily subscribe to cable once every two years only for the Olympics?

As for baby time, we plan on trying a few things to save money. Breast milk is obviously cheaper than formula. (Breast pumps are covered by health insurance now, as part of the Affordable Care Act.) As she grows, I expect her to eat pretty much what we eat, perhaps either blended or pressure-cooked. Cloth/reusable diapers seem to save money over disposable ones, especially if you can stretch them across at least two kids, and we do plan on having more children. We’ve got a ton of clothes as gifts, some hand-me-downs, and new grandparents itchy to spoil her, so we’re not worried about that part just yet.

College tuition? Seems so far away. I’m personally okay with them taking on some student loans, but Mrs. MMB got a lot of parental support for college, so she wants to pay that forward. Actually, we already started a 529 years ago ironically due to a credit card, I just have to switch the beneficiary once her Social Security number comes in. Let’s hope that the tax sheltering lets compound interest do its thing.

Library Elf – Free Alerts To Prevent Overdue Library Books

Library Elf is a third-party website worth checking out that helps you keep track of library books that are due soon, overdue, and ready for pickup. Their free service offers basic e-mail reminders on borrowed items that are either due soon or overdue for a single library card.

Their premium service features text message alerts, alerts for holds that are ready for pickup, and the ability link up multiple library cards (handy for families) for a $20 annual fee. New users get a free trial. If you’re really lucky your local library might be listed as a subscriber, meaning they’ve paid a bulk fee so that all of their patrons get premium service for free.

If you really want to manage multiple cards with basic alerts while still avoiding the annual fee, there is a simple workaround. Simply sign up each person’s card with a unique e-mail address (don’t all kids have their own e-mails now?), and then make a filter to forward the Elf e-mails to your primary desired e-mail. Even simpler, if you use Gmail you can use “” and “” to sign up for separate accounts, but all incoming e-mail will end up at the same place.

I love my local library, but their online library software leaves a lot to be desired. Hold notices still arrive only by snail-mail which I think is wasteful since they could just use e-mail. Until a few months ago, I had to call in to renew any titles; finally at least I can do that online. I only get overdue notices if I’m already late by over a week. I guess I’m just frustrated because I know that this type of thing is not very difficult to program and implement. I know that returning late library books are my responsibility, but a better system would prevent overdue books overall and thus improve book availability for everyone.

Life Insurance Advice From a Life Actuary

Life insurance tends to be one of those things that you know may be good for you, but is so easy to put off. For one, it makes you confront something uncomfortable: possibly untimely death. On top of that, some insurance products are so complicated that even the people selling them often don’t fully understand. Who designs these things anyway?

A life actuary works for an insurance company and analyzes the many factors involved: the likelihood of death in various circumstances, the investment returns generated by premiums charged (minus expected payouts), and pricing decisions that balance profit margin with market competitiveness. They have strong mathematical and analytical backgrounds and passing all the exams for full credentialing usually takes several years. In other words, these people make sure the insurance company makes money in the end no matter what happens.

(Fun fact: Being an actuary consistently ranks as one of the best jobs out there due to the combination of high pay, solid demand, and low stress.)

So I was happy to see a post on an investing blog I read called “What Insurance do Actuaries Buy?“. What beer do brewmasters drink? What toothbrush do dentists use? The author David Merkel is a CFA and also used to be a life actuary. Excerpts from his response below:

Actuaries avoid complexity in insurance products. Why? In general, complex products hide high profit margins. Products that are easy to analyze, like term life insurance, are competitive, and profit margins are low.

Also, they tend to use insurance as catastrophe cover, because they know that having insurance companies pay on a lot of small claims is expensive on average.

There is an exception to all of this. If you are so rich as to need to stiff the taxman, buying cash value insurance policies can make a lot of sense. In that case, wealthy actuaries with clever tax advisors buy cash value life insurance. Death benefits do not pass through the estate.

This aligns with most of the unbiased advice I’ve read on life insurance. If a death in your household would be a financial catastrophe, then you need life insurance. Don’t waste money insuring on your cell phone or laptop that will be outdated next month. Use that money to secure your family.

Term life insurance is the easiest to compare across providers, which results in the slimmest profit margins and affordable costs. Term is best for the vast majority of people. More complicated types of life insurance may have proper application in very limited situations for the very wealthy with estate planning needs. A good place to start is which doesn’t include every provider but does provide good info and the same prices that an insurance broker would charge you.

This post is participating in the Life Insurance Movement, organized by Jeff Rose of Good Financial Cents, a group writing project about life insurance.

TradeKing and Zecco Merger Details

If you’re an account holder at either online broker TradeKing or Zecco Trading, you probably know that the two agreed to merge recently. I think the merger makes sense, as they were pretty similar and there is room for savings in consolidation. I have accounts at both TradeKing and Zecco, so it will be interested to see how things work out in the end. The merger is currently awaiting regulatory approval, and here’s what I understand so far:

  • For the next few to several months, both sites will continue to operate separately until they are fully integrated.
  • Expect the pricing of trades should remain the same at $4.95 per stock or options trade plus $0.65 per options contract.
  • As they already use the same backend clearing firm (Apex Clearing, formerly Penson Financial), you shouldn’t need to make any changes and future statements should look similar. Bank ACH relationships should transfer over without issues.
  • What will it be called? TradeZecco? ZeccoKing? Actually, TradeKing will be the permanent name of the combined company, similar to how United + Continental = United. Zecco was supposed to stand for “zero commissions”, a business model that didn’t work out for them.

What will the final merged product look like? Let’s hope they pick the best features of both sides and drop the worst ones. Zecco’s Forex trading system is gambling as far as I am concerned. The time-consuming login process of TradeKing is something I’d like to see disappear. The features that I would like to keep are the Live Chat Customer Service of TradeKing along with the forward-thinking mobile trading apps of Zecco. As TradeKing is the larger firm, I would guess that their users would undergo the least amount of change in the future.

This may also be the last time you can double-dip on any bonuses, like the TradeKing Referral bonus and the Zecco Friends program, as the two accounts should be merged into one eventually.

Zeek Rewards: Same Ponzi Scheme, Different Victims

I read on CNN today that a company called “Zeek Rewards” was just shut down by the SEC for being a ponzi scheme. After some research into how ZeekRewards worked, all the same telltale signs were there from the original Ponzi scheme and also another scheme that became popular in 2006.

Here’s a synopsis of the original Ponzi scheme, based on my reading of the book Ponzi: The Incredible True Story of the King of Financial Cons:

Let’s start with Charles Ponzi, an Italian immigrant in the 1920s who promised a 50% return in only 45 days, compared to the 3-4% [annual returns] that banks were giving out at the time. He stated that the crazy returns he got were from some sort of international transactions involving postal stamps and currency exchanges. The first people involved were skeptical, but when he delivered on the promise in 45 days, people started rushing in with their money. At his peak, he had about $10 million (in 1920s money!!) of other people’s cash. Of course, there was a spectacular collapse when the government finally stepped in and shut it down. Even at the end, Ponzi still had many devoted followers who refused to believe it was a scam.

The 12DailyPro story from the same previous post (2006 SEC press release): debuts, and promises a 44% return on your money in only 12 days, as compared to the ~4% [annualized returns] banks are giving out now. The investment program states that the money comes from users surfing websites with advertisements for about 5 minutes a day, amongst other vague things. The first people involved were skeptical, but as the site consistently delivered the said returns, people started rushing in with their money. Millions of dollars are reported to have went through the company. Due to recent investigations by various state and federal authorities, the site has shut down, with many people losing tens of thousands of dollars. Even during this collapse, 12DailyPro still has many devoted followers who refuse to believe it was a scam.

The Zeek Rewards Story
Zeek Rewards debuts in 2011, and promised a 1.5% daily return on investment, as compared to the ~1% APY banks are giving out now. The program proudly states that it’s not an “investment”, but they are simply “profit-sharing” with you in exchange for marketing their penny auction website with the simple task of posting ads on public classified sites like Craigslist. The first people involved were skeptical, but as the site consistently delivered the said returns, over a million people started rushing in with their money. As of August 2012, the SEC has frozen $225 million in investor funds that remain in the company’s bank accounts, while millions have been siphoned off for the operators of this scam. Even after being shut down, Zeek Rewards still has many devoted followers who still support the site and believe it was legit.

From what I could gather from a Google cache, a purchase of “VIP Sample Bids” (1 VIP ProfitPoint = $1) would earn a ~1.5% return daily for 90 days (ex. $1,000 would return $15 after one day) and then expire. You could then reinvest your money again into more bids to compound your returns, meaning a $500 initial investment could turn into over $15,000 in a year. This time, the victims thought this impossibly easy return for work that took minutes a day was legit because they were told it was profit-sharing from promoting the penny auction site. (By the way, penny auction sites are ripoffs as well, but most are legal ripoffs for now.)

There will always be scams. What I can’t believe is that the ringleader Paul Burks was allowed to settle the case without admitting any wrongdoing by agreeing to pay a $4 million penalty with no jail time! From reading the press release, it’s hard to decipher how much the SEC will recoup of the “several” million that Burks already stole. Such lax enforcement and soft penalties all but guarantees this will happen again.