Archives for August 2013

Mosaic: Crowdfund Solar Projects With Just $25, Earn 5% Interest

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Mosaic is a new crowdfunding start-up allows investors to invest in clean energy projects with as little as $25. A solar power farm needs financing to get built. They sell the energy produced to customers like major utilities and then pay investors back. Mosaic takes a cut. Mosaic has recently been more projects since their debut (and sellout) earlier this year.

Below is a screenshot of an actual project with a 12-year horizon with expected 5.5% yield that is currently in funding – the one I was looking at yesterday already funded! If you live in California, you’re likely to be familiar with PG&E which made a 20-year agreement to purchase power from this project. On the production end, Panasonic is guaranteeing a minimum power production level for 12 years (or else they cover the difference). I’m not sure what the interest rates on these types of project would be on the open market, but right now Yahoo Finance shows the average yield on a AAA-rated 10-year corporate bond to be 3.60%.

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Groupon: Sephora $5 for $10 Gift Card

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Groupon is offering a $10 gift card to Sephora for $5. Can be used in store, online, via mobile devices, or at any Sephora inside JCPenney. Limit one per person. I was going to say I’ve never shopped there, but I think I did buy a gift once. Over 100,000 bought, so I guess it is popular.

Remember that you can save even more with cashback shopping sites like eBates ($5 new customer bonus), Mr. Rebates ($5 bonus), TopCashBack (high %), and BigCrumbs (high %).

Chart: Investment Returns Vary, Even Over The Long Run

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Updated and revised 2013. You often hear that stock investing is a sure thing over the “long run”. But as this chart from the NY Times and Crestmont Research shows, there is still a lot of variability involved. The matrix below visually displays the annualized returns for the S&P 500 for every starting and ending year from 1920 to 2010, adjusted for inflation, taxes, and transaction costs.


(click to enlarge)

Your actual returns depend a lot upon when you start, and also when you finally withdraw:

After accounting for dividends, inflation, taxes and fees, $10,000 invested at the end of 1961 would have shrunk to $6,600 by 1981. From the end of 1979 to 1999, $10,000 would have grown to $48,000.

“Market returns are more volatile than most people realize,” Mr. Easterling said, “even over periods as long as 20 years.”

Some further observations:
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Betterment Bond Portfolio Asset Allocation Changes 2013

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Online investment manager Betterment.com recently announced an upcoming change to their portfolio asset allocation, specifically their bond portion. Here’s a visual example of the ETF changes:


(click to enlarge)

I have mixed feelings about this change…

This is a fundamental shift in philosophy and it smells like performance chasing. The original allocation of 100% Treasury bonds (50% Nominal, 50% Inflation-Linked) likely came from David Swensen, as he is the Yale Endowment manager that supported the idea that you should own only the highest-quality bonds and take your risk on the stock side where your interests are aligned with the corporations. (With bonds, corporations and governments are trying to look as safe as possible even if they aren’t. This way, they pay lower interest rates.)

Now, suddenly they want to shift to a “broad global exposure” type of portfolio with lower credit quality and higher risk. Why now? Why was 100% US fine for 3 years but no longer? Perhaps because Treasuries and TIPS in general haven’t been doing that great recently? Perhaps because Emerging Markets bonds have had very high returns during that same period?

Still, it is following general industry movements. Vanguard has also added international bonds to their lineup of Target Retirement Funds. Many more international bond funds are available from many other providers. It appears that the costs for investing in international developed and emerging market bonds have dropped low enough that they can be indexed efficiently. I’m personally not convinced it is necessary and don’t own any international bonds myself, but I can understand the diversification argument.

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Smart DIY Home Security Startups: Canary and Piper

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

I’ve written about my Simplisafe DIY security system which I still use and like, but Canary and Piper are two new startups that are trying to disrupt the industry even further. Similar to what Nest did to thermostats, they use a combination of sleek software, internet access, and compact sensors to create a sleek solution to an old problem.

Each “home security in a box” includes an HD camera, motion sensor, microphone, thermometer, siren, and Piper even adds home automation abilities (say, to turn your lights on or off remotely). Both cost around $200 and won’t require installation or monthly fees. Both will offer companion smartphone apps. Both are asking for funding (including pre-orders) on Indiegogo, with Canary already at over a million dollars and ending in less than 24 hours. I’ll probably wait until these hit the market first, as it’s not exactly clear how they replace a conventional call center. I’m not sure if just sending me text alerts is enough.

Below are the pitch videos for each product:

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Toys R Us, Babies R Us Price Match Policy Update

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Toys R Us and Babies R Us recently improved its in-store Price Match Guarantee policy to include online retailer prices from select merchants (press release). Previously, it only matched price from other physical store. The eligible retailers include Walmart.com, Target.com, BestBuy.com, Sears.com, Kmart.com, buybuyBaby.com, Meijer.com, FredMeyer.com, diapers.com, BabyDepot.com and Amazon.com (excludes Amazon Marketplace items).

Customers can also receive a refund if they find an eligible lower price within a week of the purchase. If you have a smartphone, you can just pull up the website on your phone for price verification. Other exclusions apply, including 1-day sales and Black Friday promotions. Still, simply being able to price-match Amazon is a significant improvement. Here is the press release, plus full details at Toysrus.com/PriceMatch.

Prices are matched after deducting any Toys“R”Us coupons and all other offers from the price. In addition, shipping charges are calculated and factored into the cost of a competitor’s online price before a price match is completed.

I don’t usually shop at these places other than to use up gift cards and store credit, but due to their handy gift registries I do have a lot of those. This enhanced policy would have come in handy many times in the past year! See my baby registry comparison, and our baby registry experience.

Stat of the Day: Tuition Discount Rate

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Right now, freshmen are moving into dorms all around the country and parents are scrambling to pay the bills. I’ve written about how many students don’t pay sticker price on college tuition, but I recently ran across another statistic that tracks the phenomenon. It’s called the tuition discount rate. The version compiled by the National Association of College & University Business Officers (NACUBO) uses this definition:

Tuition Discount Rate: Institutional grant dollars as a share of gross tuition and fee revenue for first-time, full-time freshmen […] gathered from 400 private, nonprofit four-year colleges and universities

Basically, this measures the upfront tuition discount given directly from private universities, thus excluding outside scholarships, tax breaks, or subsidies. The NACUBO tuition discount rate for 2012 was 45% and has risen every year for the last six years. From digging around their website, from 1990 to 2002 the average tuition discount rate increased from 26.7 percent to 39.4 percent. Then things stabilized somewhat until it started rising again in 2007. In rough numbers, over the last 15 years the discount rate doubled from 25% to 50%.

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New Class Action Settlements: Naked Juice, Barbara’s Bakery

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Here are a few new proposed class action settlements that may affect you. They both involve popular food products that marketed themselves as “All Natural” and ran into some controversy:

Naked Juice. If you bought an eligible Naked Juice product between September 27, 2007 and August 19, 2013 you could claim up to $75 with proof of purchase, or up to $45 without proof of purchase. I tend to break down and buy these horribly-expensive drinks when I’m sick.

The payout varies with how much you spent during that time period. As long as you spent $45.01, the proposed settlement will get you $45 without the need to provide receipts. File a claim here.

Barbara’s Bakery. Barbara’s Bakery makes a variety of “healthy” cereals and snacks, most notably for me their popular Puffin cereal which is sold at many natural foods-type stores including Trader Joe’s. Consumers can get up to $100 if they bought eligible Barbara’s Bakery products [pdf] between May 23, 2008 and July 5, 2013. It doesn’t appear that proof of purchase is required upfront, although as usual they may ask for it later. Who saves their cereal receipts?

The payout varies with how much you spent during that time period, starting at a maximum of $5 if you spent $10 or less. As long as you spent over $100, the proposed settlement will get you up to $100. File a claim here.

With all of these class action settlements, you need a lot of patience and a stable mailing address. For example with this old Sprint ETF class actions settlement I wrote about in January 2009, I didn’t get the check until this month, August 2013!

LendingClub and Prosper vs. High Yield Junk Bonds

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Yesterday, I posted a 9-month update on my $10,000 P2P lending portfolio with loans from Prosper and LendingClub. Every so often it is pointed out that lending unsecured money directly to random people at high interest is not very safe, and you could just invest in junk bonds from shakier companies instead.

“Junk” bonds, also known as High Yield bonds, are bonds from companies which have earned a credit rating from one of the major rating agencies that is worse than the “investment-grade” tier. Perhaps the company already has a lot of debt, or its balance sheet is otherwise worrisome. Bonds from some pretty big and well-known companies have been rated junk from time to time.

This is not a detailed analysis and not even technically an apples-to-apples comparison, but I ran some quick numbers to satisfy my own curiosity. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is the largest high yield US corporate bond ETF, with over $15 billion in assets and an expense ratio of 0.50%. Here’s a chart of the credit rating breakdown of the portfolio, taken from their latest Q2 2013 factsheet.

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LendingClub vs. Prosper Loan Performance Comparison, 9-Month Update

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

I invested $10,000 into person-to-person loans in November 2012, split evenly between LendingClub and Prosper. It’s been a little over 9 months since then, so I wanted to give a detailed update in addition to my brief monthly updates. The primary goal of this portfolio is to earn a target return of 8-10% net of defaults, but I also wanted to see if there were significant differences between the two competitors Prosper and LendingClub.

I’m also considering liquidating both portfolios after 12 months have passed. I’m getting a little bored with the experiment, and having to sell the loans would also allow me to compare the ease of selling either company’s loans on the secondary market.

Portfolio Credit Quality Comparison

I wanted to keep these portfolios comparable in terms of risk level, while still trying to maximize overall return net of defaults. Peter Renton of LendAcademy made this helpful chart comparing estimated defaults rates with their respective credit grades. Since each company has their own proprietary credit grading formula, they don’t match up perfectly.

Here’s my portfolio breakdown:

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New 401k Plan Fee Disclosures Completely Worthless?

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

I’ve written about how recent fee disclosure requirements for 401(k) retirement plans have brought a spotlight on bad 401k plans and their potentially embarrassed plan sponsors.

But after reading the fee disclosure on my wife’s own 401(k) plan, I must say that I’m now thinking that maybe nothing really happened at all. Check out what mine says under “Potential General Administrative Fees and Expenses”:

Administrative Fee – Per Account When applicable, other general administrative fees for plan services (e.g., legal, accounting, auditing, recordkeeping) may from time to time be deducted as a fixed dollar amount from your account. The actual amount deducted from your account, as well as a description of the services to which the fees relate will be reported on your quarterly benefit statements.

Translation: We might charge you some fees. We might not. Helpful, eh?

There’s more:

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GMO July 2013 7-Year Asset Class Forecast

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

It may qualify as market noise, but I admit to looking at the GMO 7-Year Asset Class Forecasts whenever they come out once a quarter (or more often now?). You can read it and other market commentary from Jeremy Grantham (whose opinions I respect) for free by registering on their website. The most recent one was released a few days ago:


Source: GMO.com (click to enlarge)

Most of the time, I just like looking at these forecasts because they reinforce the idea that I should rebalance and buy whatever has been underperforming lately. Right now, that’s Emerging Market stocks. I also see some logic in buying some Timber REITs as part of my REIT exposure, as I don’t believe Timber REITs are included in the Vanguard REIT ETF (VNQ). Invest in tree farms!

I don’t like the “High Quality US Stocks” category because it doesn’t explicitly state what those are. How else will we know if the prediction was right?