Archives for May 2014

Best Baby Registry? Return Policy, Completion Discount Comparison (Updated)

Updated details, added new stores, and added our own experience. You’re gonna have a baby! Part of the whirlwind is deciding where to start your baby registry. Similar to wedding registries, you go to the store, pick up a bar code scanner, and simply zap everything you want to put onto your registry. They usually provide you a checklist so you don’t forget anything. You can also add and remove items on registry online, and track what items were bought.

Here are the results of my research after scouring the respective sites and reading various baby forums, comparing factors including selection, price, customer service, return policies, and completion discounts:

Babies R Us

  • Pros: Large selection, registry works both in-store and online. Registry Rewards program where you get points when other people buy from your registry. You can return items to a physical store up to a year after arrival date, with certain restrictions (see below). In-store items on registry can be returned without receipt. Works with Shoprunner.
  • Cons: Prices tend to be higher in general. Some items are online-only, and thus not available in stores. Online-only items can be returned to a physical store for store credit, but if they are mailed back then the refund credit goes to the original purchaser, not you. Also, such items require a gift receipt or online packing slip.

Completion Discount: Physical coupon arrives 6-8 weeks before stated arrival date. They mail you a 10% off coupon good for a one-time purchase (technically valid for one calendar day) that can include some or all of the remaining items on your registry, with some restrictions:

The completion offer is not valid on diapers, formula, furniture, “R”US Gift Cards, Special Orders, Buyer Protection Plan, Video Game Hardware, Kiddie Kandids and Motherhood Maternity merchandise. It is not valid on prior purchases.

Amazon.com Baby Registry

  • Pros: Large selection, online-only. Competitive prices in general, plus no sales tax in many areas for now. Return policy offers a free prepaid return mailing label if you return the item in new and unopened condition within a year from date of delivery. You will get a gift certificate with the value (purchaser will not be notified). Also offers universal registry features if you want.
  • Cons: Can’t return things to a physical store. For easy returns, items must be “sold by Amazon.com” and not a third-party seller. Otherwise, you are subject to the return policy of that specific seller. Of course, you probably didn’t buy the items so you have no control over this.

Completion Discount: You become eligible 30 days prior to stated arrival date, receiving 10% off a one-time order up to $5,000 worth of good from remaining items on registry. If you are an Amazon Mom member with Prime, you’ll get a 15% off completion discount instead. Applies only to items sold by Amazon.com, and only items that are deemed baby-related by Amazon are allowed.

Target Baby Registry

  • Pros: Convenient for gift givers, lots of stores nationwide. Competitive prices in general. You can return or exchange any item on your registry in-store, with or without receipt. Will be easier to use up Target gift cards since they sell everything from toothpaste to furniture.
  • Cons. In-store selection is more limited and varies by location.

Completion Discount: Physical coupon sent to you, activates after due date. Good for 10% off all remaining items either in-store or online, you can use it both online and offline as long as it’s the same day. (Some people report that the 10% coupon works on all items in that one purchase at Target, but I can’t confirm.)

Buy Buy Baby

  • Pros: Very large selection, registry works both in-store and online. You can all return items to a physical store, even without receipt, for store credit. As this is the baby branch of Bed, Bath, and Beyond, you can use BBB 20% off coupons (sign-up online for mailing list to get coupons regularly). Overall better reviews from mommy forums regarding customer service.
  • Cons: Limited store locations. Prices may be higher on average. However, Buy Buy Baby also does price-matching to online stores like Amazon (see below).

Do you price match items I find advertised for less at another website/retail store?
We will gladly match our direct competitors’ prices on identical items. Please call us at 1-800-436-3048 so a Customer Service Representative can assist you. Exceptions may apply.

Completion Discount: Valid after due date. 10% off all remaining items, you will receive both a physical coupon in the mail and a coupon code via e-mail, so make sure both are accurate. (Some people report that the 10% coupon works on all items, not just remaining items in registry. May vary by each store policy, similar to the acceptance of expired 20% off coupons.)

The Rest

Here are some other baby registry alternatives:

Walmart Baby Registry was very basic. There is no special registry return policy, it’s just their standard gift return policy which means you’ll need a gift receipt. Without a gift receipt, you’ll be limited to a certain number of returns and be required to submit your driver’s license. There is no completion discount. Still, if you do most of your other shopping at Wal-mart as opposed to Target, it’s probably convenient to register here and be able to use any store credits or get gift cards from Wal-mart.

TheBump has a universal-style registry that lets you include items from Amazon, Buy Buy Baby, and several smaller retailers. I didn’t really want to deal with gifts coming from that many different retailers, all with their own unique return policies.

Wishpot is another universal registry that allows to add any item from any store online, and then people can “reserve” that item to give to you. A price comparison engine helps gift givers see where the item is the cheapest. Again, this method makes it difficult to return items as people may buy them from online stores that require you to arrange and pay for return shipping or have a gift receipt, or stores that you don’t have near you. It seems more focused on making things easier for the gift giver than the gift recipient.

BabyLi.st is another universal baby registry option. You can add items from any retailer (even sites like Etsy.com) or non-stuff like college tuition, dog-walking, or baby sitting hours. Again, this method makes it potentially difficult to return items but it appears that you can also choose the retailer you want it from (whether people will actually buy it from there is a separate question). They recently announced a 10% completion discount good at four stores: Diapers.com, Land of Nod, The Honest Company, and Giggle.

Our Baby Registry Experience

In the end, we decided to register at Babies R Us and the Amazon.com Baby Registry. We would have chosen Buy Buy Baby over Babies R Us, but there was no BBB near us. Babies R Us will work best for friends and family that prefer to browse and then buy something in a physical store. Amazon is more convenient for people that want to ship us something directly, but still has a good return policy for the most part. In the end, we were happy with the results. We used the completion discount from both Amazon and Bed Bath and Beyond without issue, but definitely bought more stuff from Amazon. We did return some duplicate things to Bed Bath and Beyond instead of mailing it back to Amazon, and it took us nearly a year to spend all the credit (mostly because we were too lazy to drive back out to the store and we tend to buy a lot of baby stuff used).

We decided to leave out Target for the sake of simplicity and did not regret it, although we have since bought lots of gifts for other expecting parents from Target.

Most People Still Prefer Cash And Debit Cards Over Credit Cards

The Federal Reserve recently released a report about about consumer payments [pdf], and it had some interesting results (at least to me). Via Business Insider. Here are the distilled highlights.

Cash is still the most frequently used form of payment, as measured by number of transactions. This is partly due to the fact that cash totally dominates for payments less than $10. In terms of value, electronic payments (online billpay and ACH payments using bank account numbers) have the largest share.

realdebitcards5

This next chart shows that debit card use is actually growing faster than any other form of payment:

realdebitcards6

Overall, debit cards are also the most preferred form of payment… but it does vary with income. 55% of consumers with household incomes less than $25,000 per year prefer cash over anything else, while 66% of households making more than $200,000 per year prefer credit cards over anything else.

realdebitcards4

People seem to have an either/or relationship with debit cards and credit cards. You either use one or the other predominantly.

realdebitcards3

Initially, I was surprised by the popularity of debit cards. (I prefer credit cards and am one of those people who haven’t used a debit card in years.) My hunch is that people think of debit cards as the closest thing to electronic cash. The money gets zapped out of your checking account and your balance decreases instantly. As long as you decline overdraft “protection”, if you hit zero your purchase will be declined. I admit it does have the appeal of simplicity.

Although I treat my credit card purchases the same as cash and always pay in full each month, credit cards do come with more complexity and the knowledge that the credit card company is lying in wait in case you feel like taking on a little debt. But in return I earn cash back rewards, get better consumer protection against fraud, and enough sign-up bonuses to fly me around the world once in a while.

Why Non-Traded REITs Are a Horrible Investment

housemoneyJust as important as finding a good investment is knowing what investments to avoid at all costs. If you simply manage to avoid putting any money into financial sinkholes, you’ll come out ahead. I’ve already mentioned the common mistake of cashing out your 401(k) when moving jobs.

Joshua Brown of The Reformed Broker has some great insights into the sales-driven world of products peddled to us retail investors. He talks about non-traded REITs (real estate investment trusts) as opposed to publicly-traded REITS that you can buy via a low-cost, diversified fund like the Vanguard REIT Index Fund (VNQ or VGSIX). Non-traded REITs have been increasingly popular in the current low interest environment as they are structured to look like they provide a solid income stream.

In this recent post, he shares a hilarious fictional conversation that would happen if the broker was abnormally honest about the fees involved. Read the whole thing, but here’s a snippet:

With your portfolio size and risk tolerance I would recommend a $100,000 investment. Given that amount let’s first go over the fees. If you invest $100,000 I will be paid a commission of $7,000. My firm is going to get $1,500 – $2,000 in revenue share. My wholesaler, the salesman that works for the investment’s sponsor company, will get $1,000. He is a great guy, buys me dinner all of the time and takes me golfing. The sponsor company is going to get around $3,000 to pay for some of the costs they incurred in setting up the investment. So all in on Day 1 there will be around $87,000 left over to actually invest. I bet you are getting excited.

You hand over $100,000, and after everyone has gotten their cut, there is only $87,000 actually left over to invest in anything. It doesn’t matter what property they buy, the odds are completely stacked against you already. Studies have shown that publicly-traded REITs have higher historical returns than non-traded REITs. On top of that, non-traded REITs have poor liquidity and you may be locked in for 5 years or more. Despite all this, over $20 billion of non-traded REITs were sold in 2013.

Here’s a Reuters article by James Saft that goes into more detail about the many disadvantages of non-traded REITs. Amongst the more amusing excerpts:

When a financial advisor tried to sell my sister a fee heavy non-traded REIT last year, pitching it as an alternative to fixed income, I told her she ought to fire him. […]

The Financial Industry Regulatory Authority, an industry funded oversight body, went so far as to issue an “investor alert” about non-traded REITs in May of last year, warning about inaccurate and mis-leading marketing of the vehicles as well as other risks. Just to give a flavor of the company in which non-traded REITs are traveling, the most recent FINRA investor alert was about marijuana stock scams.

Bottom line: Avoid non-traded REITs. If you want commercial real estate exposure, buy a low-cost fund like VNQ or VGSIX.

Limited-Time Offer: 60,000 Bonus Points For Chase Ink Bold and Ink Plus, $300 For Ink Cash

myinkboldUpdate: This LTO is now EXPIRED

Chase has just boosted the sign-up bonuses on their Ink cards. The Ink Bold Card and Ink Plus Card cards now offer 60,000 Ultimate Reward points after spending $5,000 within 3 months, which are worth 60,000 United miles, $600 cash, or $750 towards travel. That is 20% or 10,000 points higher than the standard offer. I believe this matches the highest bonus ever for these three cards.

The Ink Cash Card with no annual fee and 0% interest for 12 months is offering a $300 bonus (up from $200) after spending $3,000 within 3 months.

Chase Ink Bold Card bonus link

  • For a limited time, earn 60,000 bonus points after you spend $5,000 in the first 3 months from account opening. That’s $750 toward travel when you redeem through Chase Ultimate Rewards.
  • No interest charges because it’s a pay in full charge card.
  • Earn 5X points per $1 on the first $50,000 spent annually at office supply stores, and on cellular phone, landline, internet, and cable TV services.
  • No foreign transaction fees.
  • 1:1 point transfer to leading frequent travel programs with no transfer fees.
  • Direct access to a live service advisor anytime.
  • Free Employee Cards.

The 5X rewards on office supply stores from these two cards are handy as you can buy a wide variety of gift cards at Staples, Office Max, and Office Depot from prepaid cell phone reloads to Amazon gift cards to Home Depot and other retailers. This effectively gets you back 5X Ultimate Rewards points on a lot of your everyday spending.

Chase Ink Plus Card bonus link

  • For a limited time, earn 60,000 bonus points after you spend $5,000 in the first 3 months from account opening. That’s $750 toward travel when you redeem through Chase Ultimate Rewards.
  • With Ink Plus, you have the cash flow flexibility with the choice to pay over time or pay in full.
  • Earn 5X points per $1 on the first $50,000 spent annually at office supply stores, and on cellular phone, landline, internet, and cable TV services.
  • Earn 2X points per $1 on the first $50,000 spent annually at gas stations and for hotel accommodations when purchased directly with the hotel.
  • No foreign transaction fees.
  • 1:1 point transfer to participating travel programs with no transfer fees.
  • Free Employee Cards.

The major difference is the Ink Bold is a charge card that you must pay in full each month and Ink Plus is a credit card where you can carry a balance. The good thing about this is that you can get both cards for the same business and thus both bonuses.

Chase Ink Cash Card bonus link

  • For a limited time, earn $300 bonus cash back after you spend $3,000 in 3 months from account opening.
  • 5% cash back on the first $25,000 spent annually at office supply stores, and on cellular phone, landline, internet, and cable TV services.
  • 2% cash back on the first $25,000 spent annually at gas stations and restaurants.
  • 1% cash back on all other card purchases with no limit to the amount you can earn.
  • 0% introductory APR for 12 months on purchases and balance transfers.
  • No annual fee.

Many people aren’t aware of the fact that they can apply for business credit cards, even if they are not a corporation or LLC. The business type is called a sole proprietorship, and you may be a consultant, freelancer, or other one-person business. This is the simplest business entity, but it is fully legit and recognized by the IRS. On a business credit card application, you should use your own legal name as the business name, and your Social Security Number as the Tax ID.

Best Buy vs. Rent Calculator Ever? Interactive & Fully Customizable

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There are a plethora of buy vs. rent calculators out there, but virtually all of them make at least some fixed assumptions. They might assume that you could invest the difference between renting and buying in the stock market at 8% return while you disagree, or they might assume that your property tax rate is 3% when it is only 0.5%.

The New York Times already had a pretty good one, but their new Buy vs. Rent calculator is the most interactive, user-friendly, fully customizable version that I have ever seen. Here are the factors that it lets you adjust:

  • Home details (price, length of ownership)
  • Mortgage details (rate, downpayment size, length)
  • Future growth rates (Home price appreciation rate, rent appreciation rate, overall inflation rate, investment return rate)
  • Taxes (Property tax rate, your marginal income tax rate)
  • Transaction costs (closing costs on purchase, commission paid on selling)
  • Costs of homeownership (maintenance, HOA fees, utilities covered by landlord, homeowner’s insurance)
  • Costs of renting (security deposit, broker’s fee, renter’s insurance)

If I could find a flaw with the calculator, it would be that you now have the power to tweak your assumptions to reach your desired answer of renting or buying. “Well, if I adjust investment return a bit higher, and I reduce the commission to sell with a discount real estate agent, and stay in there a couple extra years… we should buy!”

Of course, an accompanying NYT article points out that buying a home isn’t all about the numbers.

Recommended Reading List for Young Investors

ifyoucanbookI just finished reading If You Can: How Millennials Can Get Rich Slowly, a free starter book on personal finance by respected author William Bernstein. As the PDF was only 16 pages long, you could probably finish it during a lunch hour or commute. I recommend it, but even Bernstein notes that his “inexpensive, small booklet” is more of a map than a complete book. Included were several book assignments to address specific topics. The idea is a young person could read all of these books over the span of a year or two and round out their financial education. In the meantime, start saving 15% of your income!

Here is the recommended reading list:

Bernstein thinks it tacky to recommend his own books, so let me do it. Back when I was a young lad with no investing knowledge (2004), my favorite introductory book was Four Pillars of Investing by William Bernstein. (The new edition is really just the old edition though, so buy a used copy of the old edition and save some money.) However, more recently I have heard good things about Investor’s Manifesto which supposedly has less math-y stuff.

I’ve read all but two of these books and agree that they were all excellent building blocks of knowledge. Most if not all of these books have been around for a while and should be readily available for free at your local library. Even if you pay for them, the return will be well worth the investment. I added a new copy of all seven books to my cart and it came to under $100 at Amazon ($91.48 to be exact). Good graduation gift ideas?

Mortgage Qualification and Credit Scores

Sometimes I wonder what all the fuss about credit scores is about. But mortgage underwriting is one area where it is very important, mostly due to the unwillingness or inability of lenders to look beyond a subprime credit score. Many brokers that intend to offload their loans to Fannie Mae or Freddie Mac use default screening software where credit scores are a critical factor in automated acceptance. They don’t want to see any blemishes – that means adequate down payment size, clearly documented income, and solid credit scores.

How good does your credit need to be? The chart below compares the distribution of credit scores for purchase loans from 2001 (before the housing bubble got going) to today (source).

mtgcredit1

Here is a similar chart that shows the overall credit trends over the last decade (source):

mtgcredit2

In 2001, around 13% of loans went to borrowers with credit scores below 620. By 2013, that number had dropped like a rock to under 0.2%. That doesn’t even warrant a pixel on the bar chart. Hardly anyone with a credit score under 620 today qualifies for a conventional mortgage. Somewhat better news is the share of borrowers with scores of 640-779 have held steady. So working to get into that range may be worth the effort if you really want to buy a house.

Looking forward, as refinances have started to drop significantly, lenders may have to loosen their standards in order to keep their profits up (source).

mtgcredit3

Government regulators may also be adding their own pressure to improve loan access if the housing market starts to struggle again.

Vanguard Personal Advisor Services Review – Low Cost Managed Portfolio and Guidance

vglogoMany people hire a financial advisor because they aren’t comfortable investing on their own, and they appreciate having an experienced person to talk to whenever they have any questions. However, this usually means paying at least 1% of your portfolio assets every year to that person. Especially given the current low interest rate environment, 1% is a huge number and could eat up a large percentage of future returns.

Vanguard has recently rolled out a new product called Vanguard Personal Advisor Services (PAS) where someone will work with you to create a financial plan, implement your portfolio for you, and be available to update and discuss that plan as needed. The minimum asset size is $100,000 and the cost is 0.3% of assets annually, which is much lower than the industry standard. As a DIY investor, I was interested in this service for my spouse in case I am somehow incapacitated one day. Here are my findings based on calling in as a customer to three different Vanguard reps and various online sources*. Anything quoted below is taken directly from this detailed Vanguard brochure [pdf].

Qualifications. You must have a minimum of $100,000 of investable cash or securities. Eligible accounts include individual accounts (including IRAs), joint accounts, and certain trust accounts. Note that 401(k) plan assets are not included.

Fees and costs. Vanguard PAS will charge you 30 basis points (0.30%) annually. Fees will be calculated quarterly and based on your average daily balance the prior calendar quarter. The fee will be calculated across all securities in the portfolio, with the exception of money market fund positions. This does not include the underlying expense ratios of any mutual funds or ETFs that you may own in the portfolio.

Annual Financial Plan and Personal Review. First, Vanguard will gather information from you via an online questionnaire (and telephone discussion if needed) in order to “understand your financial objectives, such as your age, specific financial goals, investment time horizon, current investments, tax status, other assets and sources of income, investment preferences, planned spending from the Portfolio, and your willingness to assume risk with the cash and securities being invested in the Portfolio.” They will focus on your specific goals, which can include planning for college, saving for a home, establishing a rainy-day fund, or saving for retirement. They will take into account things like Social Security, pensions, IRAs, 401(k) plans, and other investment accounts held outside of Vanguard.

Vanguard PAS will then create a draft financial plan for you based on this information, which you will discuss with a Certified Financial Planner (CFP) to finalize and approve. At least annually, your advisor will schedule another phone conference with you to see if there have been any changes in your “financial situation, other assets or sources of income, investment time horizon, investment objectives, planned spending from the Portfolio, or desired reasonable restrictions” that may require a new Financial Plan to be approved.

(Side note: There is a separate Vanguard Financial Plan product that is similar to the plan part of this service, but you must implement the recommended portfolio yourself and it is a one-time consultation. The recommended portfolio for both products should very similar if not identical. The cost is $1,000 for those with under $50k in combined assets at Vanguard, $250 for $50k-$500k in assets, and free for over $500k in assets. The Finance Buff got one and did a review.)

Portfolio construction and Investment methodology. Their investment methodology incorporates Vanguard’s company values of advocating low costs, diversification, and indexing. As a result, recommended portfolios will mostly include Vanguard’s broad index funds and/or ETFs. They can and will take into account your existing positions or special requests, as long as they meet certain standards. Taken from their brochure:

The recommendations made by VAI in connection with the Service will normally be limited to allocations in Vanguard Funds and will generally not include recommendations to invest in individual securities or bonds, CDs, options, derivatives, annuities, third-party mutual funds, closed-end funds, unit investment trusts, partnerships, or other non-Vanguard securities, although you may be able to impose reasonable restrictions upon our investment strategy.

They will work to maximize after-tax return. They will not attempt to “predict which investments will provide superior performance at any given time”. No market timing here.

Quarterly portfolio review and rebalancing. Each quarter (with timing determined by your contract anniversary date), they will review your portfolio. If your portfolio asset allocation deviates from the target asset allocation by more than 5% in any asset class, they will rebalance your portfolio by buying and selling the appropriate funds. There is a prescribed fund hierarchy in order to do this will minimal tax impact.

Ongoing contact and advice. At any time, you can contact a Vanguard PAS advisor to talk about your financial plan. There are no set limits on how many times you can contact them. I was told that if you have $100,000 to $500,000 in assets, you will be directed to a team pool of CFP advisors. If you have 500k or higher, you will be assigned a specific person to be “your advisor”. Of course that person may change from time to time if they switch jobs, etc.

No DIY Trading! You are not allowed to make any trades yourself in any portfolio managed by VPAS. You must call your Vanguard advisor and discuss and proposed changes for them to execute. Online trading will be disabled in your account. This may be weird for long-time DIY investors.

In your Service Agreement, you’ll agree not to purchase or sell securities in your Portfolio while enrolled in the Service, and you’ll be blocked from such activity until you terminate the Service. You’ll also be prohibited from establishing or maintaining other services on any accounts in the Portfolio, including but not limited to checkwriting and automatic trading services (such as automatic investment/withdrawal/exchange) and setting required minimum distribution (RMD) payments. Other account transactions or services may be restricted or unavailable through the web experience, but can be processed or enabled with the assistance of your advisor.

Recap and Commentary

This is a managed portfolio product. That means that they will determine a low-cost portfolio of Vanguard funds (mostly index) based on your specific needs, implement it for you, and provide ongoing advice and adjustments as needed. Everything will be done through a Vanguard representative, not with the click of your mouse. Such guidance will ideally help you handle your emotions when it comes to investing, as there will be someone to help you keep following your plan during both up and down markets. There will be someone to talk with whenever you have any life changes or additional questions.

0.30% of $100,000 is only $300 a year, making this quite a bargain at that level. At much higher asset sizes, I would prefer switch to a flat fee as paying $5,000 or more every year starts to feel a bit steep. I would say that if you have under $100,000, don’t fret and just buy a Vanguard Target Retirement Fund as that is essentially a simple managed portfolio.

After doing my research, my new suggestion to my wife is to pay for Vanguard Personal Advisor services if I am unable to manage our investments. She is brilliant but lacks the interest (and time if I’m gone with our kids and all) to do it on her own and I trust Vanguard to do a fine job. The reasonable fees, ability to keep my assets at Vanguard, and assigned human advisor make it better in my opinion than any other “robo-advisor” option. Still, I hope she never has to sign up. 😉

* More coverage: Bogleheads blog, NY Times, Michael Kitces, InvestmentNews

Everbank 5 Year MarketSafe Treasury CD Review – FDIC Insured Principal, Rising Rate Participation

marketsafe2Interest rates remain very low, but at the same time we are constantly being warned that they could spike up soon. What is a conservative investor to do?

Everbank’s lineup of MarketSafe CDs are a new wrinkle on FDIC-insured bank CDs that try to take advantage of these current low interest rates. They are basically a hedged bet on something like currencies, precious metals, or commodities. If things don’t work out, the principal you put in is protected with FDIC insurance so you’ll always get that back, just with no interest in the worst case. If your selected market bet does pan out, you’ll get an interest payment based on that upside.

Their newest product is the 5-yr MarketSafe Treasury CD which bets on rising interest rates. I don’t pay much attention to gold or currency prices, but interest rates are easier to understand. Here’s the pitch:

With this latest MarketSafe CD, seek 3.3 times any upside growth in the 10-year Treasury yield during the CD term.3 Full protection of your deposited principal comes standard.1 Act by June 11, 2014 to take advantage.

Sound intriguing, but as usual let’s dig into the details.

The CD has a term of 5 years. You must fund it by 6/11/2014 and the maturity date is 6/21/2019 where you’ll get your principal plus any interest accrued (“market upside payment”). You can’t make any early withdrawals (well, technically you can but you lose the principal protection and are subject to penalties). The minimum opening deposit is $1,500. No monthly or account fees. Available for IRAs.

The market upside payment is based on the following formula using the 10-Year US Treasury yield:

(yield at maturity - initial yield) x 3.3 x deposited principal

Comments:

  • While the formula multiplies the rate difference by 3.3, this includes all the interest you’ll get for 5 years. As an example, if you had a 5-year CD paying 2% annually, that’s a 10.4% total return at the end of 5 years. (You can find a 5-year CD at 2.25% APY at GE Capital Retail Bank).
  • The current 10-year Treasury yield is roughly 2.6% (this could change by issue date). If you want a 10% return after 5 years from this MarketSafe CD, 10-year yields would have to rise by 3% to 5.6% in June 2019.
  • If the 10-year Treasury yield stays constant or drops between the initial date and maturity date, you will only get back your original principal.

I won’t make a rate prediction because I have no idea where rates are headed. Here’s a historical chart of the 10-year Treasury yield over the last 20 years (FRED):

fred10ust20yr

The last time the 10-year yield was near 5.5% was around 2002. Rates would have to go higher than that to beat a top 5-year traditional CD. However, keep in mind that with this product you are getting both upside potential and principal protection. In exchange for such risk reduction, it can’t be a slam dunk. If rates do rise up to say 5.5%, then the people who actually bought 10-year bonds today would be looking at a significant loss of principal.

Is P2P Lending So Successful That It Doesn’t Need You Anymore?

lcvsprBeing a peer-to-peer lender been a bumpy ride. Prosper Marketplace was first, but if you were an early investor/lender you’d have been lucky to have gotten back what you put in as most people had negative returns. Then came LendingClub with stricter credit standards and preset interest rates. Both companies operate with similar structures now and appear to have created a viable business model. In fact, LendingClub is planning an IPO with their last funding valuation at $3.8 billion. That’s pretty rosy considering they made just $7 million of profit in 2013, their first year of profitability in 7 years.

I’m not a big lender but I have invested over $15,000 of my own money into P2P loans. In the beginning, I would read every single loan listing as it usually included a story about what the borrower was going to do with the money (pay down debt, start a new business, buy a 200 sf tiny house). After a while, I started using automated software to match with loans, but it still felt like individuals lending money to other individuals. Today, a significant portion of loans are sold to institutional investors like hedge funds, pension funds, and even banks according to the New York Times article “Loans That Avoid Banks? Maybe Not“:

At Prosper, which has been courting institutional lenders over the past year, more than 80 percent of the loans issued in March went to those firms. More than a dozen investment funds have been formed with the sole purpose of investing in peer-to-peer loans. […] Santander Consumer USA, the United States arm of the Spanish bank, has an agreement to buy up to 25 percent of Lending Club’s loans.

I spoke to a LendingClub representative, and they stated that their investor base is currently “about 1/3 direct retail investors, 1/3 high-net-worth investors, and 1/3 institutional investors.”

Here’s a thought experiment: If somebody like Chase Bank goes to a P2P lender and buys a bunch of unsecured loans made to individuals, is that really much different than that same person just carrying a balance on a Chase credit card?

It used to be individuals who took the risk of lending and reaped any rewards of higher interest. The P2P company just cares about volume as it takes a fee from every loan. But if that volume comes from big financial firms that want first dibs, does that mean the individual investors will only get left with the scraps?

The loans not taken by these sophisticated investors go back to a fractional lending pool that is open to both individual investors and institutions. That doesn’t sit well with some. “The institutional investors are snapping up all the worthwhile loans,” one investor wrote on Prosper’s blog, echoing many comments. […] “By cherry-picking, almost by definition what they leave behind is not as good,” says Giles Andrews, founder and chief executive of Zopa, a British peer-to-peer lender that so far has dealt only with individual lenders.

Perhaps the best sign that P2P lending sites have become a legitimately good investment is that Wall Street and other professional investors are now crowding us out?

Sam’s Club Membership Deal – Zulily

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Deal site Zulily has a special Sam’s Club Plus membership deal where for $45 you get over $91 of value:

  • One-year Sam’s Club Savings membership ($45 value), which includes a membership card for the primary cardholder and a complimentary membership card for a spouse or other household member.
  • $20 Sam’s Club gift card
  • Coupons good for free stuff ($26.83 total value):
    • Free Take and Bake Pepperoni or Cheese Pizza (16”, up to a $7.99 value)
    • Free Cheesecake Squares (16 count, a $11.98 value)
    • Free 5” x 7” Canvas Mini Print With Stand (a $6.86 value)

New members only, so you can’t use this to renew a current membership. Deal ends May 19th, 2014 at 6am PDT, and must be redeemed by August 17, 2014. Free stuff can be redeemed up to 30 days after joining. Valid at any Sam’s club location.

Remember that you can save a bit more on your Zulily purchases with cashback shopping sites like eBates ($5 new customer bonus) and Mr. Rebates ($5 bonus).

Manilla Shutting Down. Online Bill Management Alternatives?

checkappA few readers e-mailed me to let me know that bill management website Manilla.com announced that they will be shutting down. Surprising, as they were just mentioned in Money magazine last month!

Manilla will be closing on July 1, 2014. This was a hard decision given that, over the past three years, Manilla has won many awards […] but was unable to achieve the scale necessary to make the economics of the business viable.

As noted in my now-useless Manilla review, many people enjoyed having all of their bills located in a central place. It was also nice that they offered to store all your old bills forever… or in this case September 30, 2014 after which they will be destroyed.

What are good Manilla alternatives? Here are several services that offer similar features in no particular order, please feel free to add more in the comments. I haven’t gotten to try them all out yet, so share your experiences as well.

  • Finovera – “Our mission is to make the process of receiving, managing, paying and organizing household bills and documents simple, automatic and effortless.”
  • Enfold – “Enfold is a free-for-life virtual filing cabinet where you can safely store and organize all your important documents and account information.”
  • MoneyStream – “Not just an organizer or bill-payer, MoneyStream brings everything together in one secure place—and then shows you a future view of your money so you can see at a glance where you stand and where you’re going.”
  • Check (formerly PageOnce) – A free smartphone app that both organizes and tracks balances, with the added feature of letting you pay your bills through the app. I don’t think it stores past statements past a certain time period.
  • Mint – Owned by Intuit, Mint is more budget-centric and tracks all of your transactions. You can’t pay bills through the software (although it will send you bill reminders) and it doesn’t store actual monthly statements.
  • Mobilligy – “Mobilligy puts all of your bills in one app that lets you review, manage and pay your bills for free – anytime, anywhere.”
  • FileThis – “FileThis is like a personal assistant for your paperwork. It automatically collects, files, tags, and organizes your online documents in a digital filing cabinet. Never lose another bank statement, legal paper, tax form, insurance document, or other important piece of paperwork.”
  • Doxo – “All your provider accounts and information together at last. Back up all your critical documents automatically to your personal cloud storage. Receive and pay bills from connected providers with doxoPAY.”
  • Personal Capital – similar account aggregation focus as Mint, plus some investment portfolio analysis features.
  • Zumbox – “Your postal mail delivered online. Your documents stored securely, forever.”
  • Intuit Paytrust = “PayTrust’s all-in-one online bill pay allows you to easily receive, track, and pay all your bills online.”
  • MyCheckFree – “Receive and pay your e-bills at one easy, secure location.”
  • Yodlee Labs – “This is a site where Yodlee will launch (and test) all of its latest (account aggregation) products before they are launched anywhere else in market.” If you just want most recent, most-refined version, sign up at Yodlee Moneycenter.

With Manilla and Everpix, I am reminded that any offer to store your stuff “forever” really means “as long as we keep making enough money”. Personally, I’m still using my bank’s Online Billpay service along with AutoPay with credit card where possible. For archival purposes, I download any paperless bills in PDF format to a folder on my computer, which is automatically backed up daily to my external hard drive and also instantly synchronized with my free Dropbox.com cloud account. However, if I can truly view and pay all my bills in one simple mobile app and a few taps, I’d be up for that.