Archives for September 2014

Pro Travel Tips: Never Ask If They Speak English

helloI’ve been getting back into podcasts while driving, and have been catching up on the Alton Brown podcast. In the Samantha Brown episode, she shared a good tip about international travel and language barriers that I’ve never read in a guidebook: Never go around asking people if they speak English. Even if you say the question in their home language. Because when you say:

Do you speak English?

What they often hear is:

You speak English, DON’T YOU?

This comes off as a challenge, with the suggestion that you are expected to serve them. It starts off your conversation on the wrong foot. I know, I used to do it myself. You can see their face clench in a defensive manner.

The trick is to simply attempt your question in their home language (with a smile). Even if it is just “Hello” or “Excuse me” and then gibberish. They’ll be able to tell you don’t speak their language well. Most likely, they’ll even be able to figure out you speak English (even if you don’t think you look American) by your accent. Then if they do speak English, they’ll help you. If they don’t, they’ll still try to help you. People tend to be very nice in this regard. As Samantha Brown sums it up:

It’s better to butcher their language and show that you care, rather than speak perfectly in your own language and prove that you don’t.

For more pro travel tips check out Top 20 Hacks to Travel Like a Kiva Pro and How to Travel by Anthony Bourdain.

Discover Card 5% Back At Lowe’s, Shell Gas, or Walgreens

Discover It and Discover More cardholders may be able to get 5% cashback at your choice of one of the following stores: Applebee’s, Bed Bath & Beyond, Lowe’s, Olive Garden, Shell, or Walgreens from now until November 30th, 2014. Subject to a cap of $1,000 in purchases. Valid both in-store and online. I think the best options for most would be Lowe’s (home improvement or wide selection of gift cards to Amazon, etc), Shell (gasoline), or Walgreens (coupon book items, expensive meds, or gift cards). I was able to get the promo by doing the following:

  1. First, log into your existing online account at Discover.com.
  2. Then, come back here and click on this link from the same browser.

You should see this page (click to enlarge):

discoverpick

This is in addition to the standard 5% back categories on the Discover it card, currently 5% back on up to $1,500 in purchases at Online Shopping and Department Stores and movies for 4th quarter of 2014. Selected fine print:

*Sign up to earn 5% Cashback Bonus on up to $1000 in total purchases made at your choice of one of the following stores: Applebee’s, Bed Bath & Beyond, Lowe’s, Olive Garden, Shell, or Walgreens from 10/1/14 (or the date you sign up, whichever is later) through 11/30/14. Once you sign up, no changes can be made to your selection. Purchases made using virtual wallets or third party payment providers will not be eligible. Purchases made outside of the U.S. will not be eligible. Rewards are added to your Cashback Bonus account within 2 billing periods. See Cashback Bonus Program Terms and Conditions for further details.

Math Skills + Social Skills = Higher Earnings $$$

Here’s one for the tiger moms and overachiever parents. From a recent post on the Harvard Business Review blog:

A recent paper from UCSB found that the return on being good at math has gone up over the last few decades, as has the return on having high social skills (some combination of leadership, communication, and other interpersonal skills). But, the paper argues, the return on the two skills together has risen even faster. […]

The analysis found that while math scores, sports, leadership roles, and college education were all associated with higher earnings over the 1979-1999 period, the trend over time in the earnings premium was strongest among those who were both good at math and engaged in high school sports or leadership activities. In other words, it pays to be a sociable math whiz, more so today than thirty years ago.

mathsocial

I suppose it’s interesting to see this supported by data, but my guess is that most STEM professionals would agree that interpersonal skills are just as important as technical skills today. Lots of people are strong technically. To really make the bucks you have to become a manager of people, and you can’t do that if you don’t have good interpersonal skills. I’m sure there are exceptions for start-up geniuses, but again those are exceptions and not the rule.

Math club and team sports it is for my girls!

Anthony Bourdain Quality of Life Quote

Good background and interview with writer/chef/professional traveler Anthony Bourdain in this Fast Company article. His TV show Parts Unknown is one of the few that I watch and the new season starts again soon. I especially enjoyed and am aligned with this quote about his lifestyle:

The one thing these projects all have in common? Bourdain enjoys them. “I’m not looking to rule the world,” he says. “I’m not looking to create a permanent brand. It’s a quality-of-life issue with me. Am I having fun? Am I surrounded by people I like? Are we proud of what we’re doing? Do we have anything to regret when we look in the mirror tomorrow? Those things are huge to me.”

His style is not for everyone’s tastes, but at least he keeps it his style.

Charts: Average New Car Price vs. Average Student Loan Debt 1990-2014

When I was a senior in high school, I still remember my parents offering me a new luxury car instead of tuition assistance. Although I’m pretty sure it was only a test, it did serve to remind me of the cost of tuition and not to waste it. Seeing the average student debt of graduates is now over $30k, I wanted to see how the price of a new car and student debt tracked. These are the best charts that I could fine.

The green line in the first chart tracks the average cost of a new vehicle as rising from ~$15,000 to ~$27,000, within the time period of 1990 to present. I don’t believe the green line is inflation-adjusted. You can see it runs from roughly $15,000 to roughly $27,000. (Source: Atlantic)

newcarprice

The second chart below tracks the average student debt upon graduation over basically the same timeframe, 1990 to present. The non-inflation-adjusted value has risen gone from ~$9,000 to ~$33,000. (Source: WSJ)

avgstudentdebt

It is hard to equate the two values because student debt is just the amount left over after the parent (usually) pays as much as they can while the student is in school. However, this USA Today article suggests that since 2010 parents on average have been paying less.

Five years ago, only half of families reported using grants and scholarships to pay for college. This year, two-thirds of families did, the study shows. […] Meanwhile, parents are contributing less of their income and savings toward college costs, covering 27% of college costs compared with 37% in 2010, the study shows.

At the same time, other reports show that for parents with top 20% incomes, education spending has nearly doubled as a share of their total budget.

Average student debt is definitely growing faster than new car price. But in terms of total size, it is still comparable to the cost of a new car. People finance new cars all the time. Does that make student loans less scary? I don’t know, because financing a new car has always scared me a lot too.

Even after taking the tuition assistance from my parents, I still came out of college with roughly $30,000 in student debt myself, above-average at the time. I like to think that I got better value of my degree than a new car. 🙂

Schwab Personal Choice Retirement Account (PCRA) Review – 401k Brokerage Window

Tax-advantaged 401k and 403b plans can help you save for retirement, but did you know that you’re probably paying for all the costs of this “employee benefit”? 76% of large employers have workers pick up all the costs of 401(k) administration, according to a recent Forbes article Creative Ways to Cut Your 401(k) Fees. The tab is often quietly paid via high-fee mutual funds (which in turn kick back money to the administrator). The article also focuses on brokerage windows, an “escape hatch” that allows employees to move their funds into a self-directed account with a many more investment options. Their availability is growing:

forbeswindow

What is the catch? These self-directed plans have their own set of fees, notably annual maintenance fees and transaction fees. While regular 401(k) plan options may be limited and more expensive on a percentage basis, they usually don’t charge transaction fees each time you buy or sell. For this reason, brokerage windows tend to work better people with larger account balances. With bigger trade sizes, a flat commission is only a small percentage of the total amount involved.

We recently gained access to Schwab’s brokerage window, called the Personal Choice Retirement Account (PCRA). The mechanics were pretty simple. After completing a special application, you could sell a portion (or all) of your existing investments and transfer them into a “Schwab PCRA” bucket. That money then shows up into your linked account at Schwab.com, where you do all your trades.

Commission Schedule and Available Mutual Fund List. Here is the PCRA fee schedule and PCRA mutual fund availability list that was provided to me by Schwab. (I am assuming these documents are the same across all PCRA plans, but I could be wrong. As I’ll explain shortly, just because something is listed does not mean it is available to everyone.)

The commission schedule is pretty similar to what is available in their standard brokerage account. $8.95 ETF and stock trades, $0 trades for Schwab ETFs. No commission on their No-Transaction-Fee mutual fund list (funds have to pay to be on the list), otherwise $50 to buy and $0 to sell. Schwab PCRA does not charge any annual account or maintenance fees, but your Retirement Plan Service Provider may charge account maintenance fees or some form of “recordkeeping fees”. In our case, there is a $50 annual account fee.

The mutual fund list is quite extensive. Let’s say I was trying to buy the Vanguard REIT ETF (VNQ). I searched and found two results:

pcra3

The big caveat in my particular case: ETF and stock trades were not allowed at all. I still tried to make a purchase but got this message:

pcra1

From the fee schedule, I assume that some PCRA plans will offer this feature. But in my case, I had to be satisfied with buying the Vanguard REIT mutual fund (VGSIX) and paying $50 per buy trade. The good news is that I was able to buy Admiral Shares (VGSLX) which has the same expense ratio (0.10%) as the ETF version ($10,000 minimum).

pcra2

Should I use my brokerage window? According to this Money article, just 5.6% of 401(k) investors opt for a brokerage window even with it is offered. The Schwab PCRA has worked out well for me as an alternative to my standard 401k investment options, but only because a few things aligned:

  • My balance was big enough. Paying $50 a year and $50 per trade is only worth it when your balance is big. Let’s say my balance is $100,000. $50 is only 0.05% of $100,000. If I am saving over 0.05% in expense ratios every single year in exchange, that is a great deal. But $50 is a full 1% of a $5,000 balance.
  • There was a better option in the brokerage account. For example, the S&P 500 index fund in my 401k standard menu charges 0.30% annually, while I can access a Schwab S&P 500 index fund at only 0.09% annually. In my case, I wanted cheap access to the REIT asset class which I didn’t have otherwise. Only about 25% of 401k plans offer access to an REIT fund.
  • I don’t trade too frequently. $50 a pop adds up, so I intend to accumulate money in the normal account, and then transfer over a chunk of money once a year to my Schwab PCRA. This way my bi-weekly contributions are invested for free, and I limit my $50 Schwab trades to once or twice a year.

Viggle App Review: Surprise, You Can’t Make Good Money While Watching TV

vigglescreenPapa John’s sent me a code for a free song download the other day. It was really a way to introduce me to the Viggle, a smartphone app which allows users to “check in” when listening to songs or watching TV shows. Similar to Shazam, the app listens for a few seconds and figures out what is on. When you match a show or song, you get Viggle points that can be redeemed for rewards. For example, you get 25 points for a song match and 60 points for watching a standard hour-long TV show. Certain promoted TV shows will offer bonus points.

The standard rewards structure breaks down to getting a penny for matching a song, and 2 cents for watching an hour of TV. A song download is 3,500 points and a Redbox 1-day DVD rental is 4,000 points. This means 25 points is worth a little less than a 1 cent. Even if you watch tons of TV you still have to keep checking in on your phone (exposing yourself to even more ads) so they know you didn’t just leave your phone by the TV all day. The rewards won’t even be cash as the only gift cards offered are to Redbox, Windows Store, and 1-800-Flowers.com.

Here’s my lightning review: Don’t bother. I try to keep an open mind about some of these programs, but this one just sounds awful. From reading various reviews, even the loyal users say the rewards have gotten steadily worse over time. Make money while sitting on the couch and watching TV? Honestly, how did you think it would turn out?!

Discounted Gift Cards: Extra $5 off $100 on Select Brands

Update: The code below for existing users has expired, but new customers can still get $5 off $75 using code RAISE75AF.

hdgiftRaise.com sells discounted gift cards to various retailers. Right now until 09/18 at 3 pm CST they have a coupon code 5RAISE100 that will take an extra $5 off $100 order of gift cards from Home Depot, JCPenney, Starbucks, iTunes, CVS, TJ Maxx, Marshalls, HomeGoods and Bed Bath and Beyond. Good for both new and existing customers.

I have bought used Home Depot gift cards multiple times. Most sites (including Raise) sell them at very close to a 10% standard discount. Why not get another 10% off purchases that can get pretty big when fixing up a house? I’ve even bought them electronically on my iPhone while waiting in line. With this coupon you could theoretically get another 5% off if you found a $100 gift card, for a total 15% discount. I looked but those close to $100 are already sold out at this moment, although their inventory changes constantly. Even so, code could still be worth and additional 2 to 4% off.

What Are The Real-World Benefits of Automated Tax Loss Harvesting?

scheduledTax-loss harvesting (TLH) is a technique used to minimize taxes on your taxable investments by “harvesting” capital losses during market declines. With DIY investors, losses are usually only harvested once a year. But with an computer as your portfolio manager, you could attempt to harvest losses continually on a monthly or even daily basis.

Wealthfront, Betterment, and FutureAdvisor all tout the benefits of their automated tax-loss harvesting services, each claiming that their service could increase your returns somewhere between 1% and 3% a year on average. Those are impressive numbers, and most importantly a much bigger number than the fees they charge. Great deal?

Elisabeth Kashner of ETF.com takes a closer look at those claims. Here is my summary of the noted concerns:

  • Tax-loss harvesting defers your taxes by lowering your cost basis. This means that you’ll have to pay more taxes later when you eventually sell (unless you die or donate it). Data presented by certain robo-advisors do not take this into account, and continue to avoid the subject even when confronted about it directly.
  • Most of the claims rely on theoretical backtested data, not the results of actual client portfolios. This is somewhat understandable as many of them are new, but we find that when real-world results are being published, those excess return numbers have so far been under 1% annualized.
  • More than one of them cherry-picked the period from 2000 to 2013 for their analysis, which has the ideal sequence of returns – big losses first (so you can harvest something) and then big gains afterward (so you can compound your tax-deferred money). If you choose other time periods the numbers can come out significantly less rosy.
  • Most of the analyses assume that the investor is in the highest tax bracket (35% or higher), which maximizes the tax benefit. However, many investors in these services could be in the 15% income tax bracket or even 0% capital gains tax bracket. That will also lower the actual tax benefit of TLH.

Read the article comments as well. There, finance author Rick Ferri adds:

I agree the benefit of TLH isn’t 1%, but it isn’t 0.09% either. The answer is someplace in the middle – and it is investor specific.

I think this quote from the author sums things up well:

My point was not that there is never any value to TLH. It’s that predicting this value is fraught, because there are many variables. Given this variability, I find it questionable that the robo advisors’s marketing materials present best-case scenarios, sometimes without accounting for the terminal capital gains liability caused by the lowered basis.

Essentially, temper your expectations as the numbers being marketed at you are based on best-case scenarios. It is impossible to know the true benefit of tax-loss harvesting ahead of time, but quite possibly less than 1% annualized. This still leaves the possibility for the benefits of automated TLH to outweigh the cost, but it is nowhere near a certainty.

Must, Should, and Financial Freedom

mustIf you struggle with your inner compass at times like I do, definitely read this thought-provoking and inspiring article The Crossroads of Should and Must by Elle Luna:

Should is how others want us to show up in the world — how we’re supposed to think, what we ought to say, what we should or shouldn’t do. It’s the vast array of expectations that others layer upon us. When we choose Should the journey is smooth, the risk is small.

Must is who we are, what we believe, and what we do when we are alone with our truest, most authentic self. It’s our instincts, our cravings and longings, the things and places and ideas we burn for, the intuition that swells up from somewhere deep inside of us.

When reading biographies and interviews of notable people, those who made seemingly bold decisions often remark that it really wasn’t. They just did it. It was a Must. I always wonder if it was also scary for them.

Looking back, I wonder if my own moves were by choice or not. Did I choose to quit my stable job with the bi-weekly paycheck and instead go back to school while supporting myself with online projects? Was I scared? Probably. Did I have any other choice? I only remember that I couldn’t do the job anymore.

Whenever I start feeling like others are controlling my destiny instead of me, I start to panic and plan my escape. I believe this fear of losing control is why I like to hoard money. Money gives you time to work towards a Must:

Money can be a bridge to the freedom of exploring Musts. And it often doesn’t require much. But it does require determination. Money can be used to buy you a day, a week, month of time to work on a Must, which may amount to nothing. Or it can be used to buy a sweater, a suit, a car — the value of which is obvious and low risk.

The article speaks of aligning your everyday actions to your dreams. Your job should be your calling. An artist. A tech start-up. A food truck.

That is a worthwhile goal and while it is important for me to like what I do each day (which I do), I feel differently. Not needing money from a job at all and having absolute freedom to do whatever I want (paid or not), that is what I crave. That is what I think about in the shower. Achieving financial freedom is my Must.

Google Hangouts App Update: Free Voice Calls Over Data for Android and iPhone

hangoutsGoogle has just announced better integration between Google Voice and their Google Hangouts smartphone app. Both iOS and Android apps can now make domestic and international calls through a Wi-Fi or data connection (like 4G). You can also receive calls if you have a Google Voice number. Calls to the U.S. and Canada are currently provided by Google free of charge from all countries where Hangouts calling is available.

What does this mean exactly?

  • For the frugal minimalist, as long as you have a data connection like WiFi, you can now make and receive unlimited domestic voice calls using a basic Apple or Android device. You can pay for a cheap prepaid option as a backup, or simply go without any cellular plan. You can also use voice over data to complement T-Mobile’s $30 plan which offers 5 GB of 4G data but only 100 voice minutes (this plan isn’t heavily-advertised, but scroll down and you’ll find it).
  • For the international traveler, as long as you have WiFi in a supported country you can call back home to the US for free using your phone. No foreign SIM card or even Skype account required.
  • For the international caller, you can more easily use Google Voice’s discounted calling rates which have recently been lowered again. For example, rates to India (mobile or landline) and Mexico (landline) are only 1 cent a minute.

iPhone / Apple iOS. Download the Google Hangouts app and the calling functionality is built-in.

Android. Download both the Google Hangouts app and the Hangouts Dialer app. If you need help, here are directions straight from Google: Make calls with Hangouts on Android.

SMS text message support is also supposedly coming, first to Android devices “in the next few days” and then to iOS devices “soon”.

College Tuition Hasn’t Risen As Much As You Think

gradcapThe new fall semester is underway, which means more college articles! Morgan Housel of Fool.com recently talked about how the increasing cost of college is exaggerated (emphasis mine):

According to the College Board, the annual sticker price of attending a private four-year college increased from $17,040 in 1992 to $29,060 in 2012, adjusted for overall inflation. But grants and scholarships more than doubled during that period. On net, the median annual cost of attending private college went from $10,010 in 1992 to $13,380 in 2012, meaning the amount students actually paid grew half as fast as the sticker price suggests.

Ditto for public four-year schools. The sticker price of tuition was $3,810 in 1992, and $8,660 by 2012, adjusted for overall inflation. That’s a gain of 4.2% per year. But the actual amount students paid went from $1,920 to $2,910, or an annualized gain of 2%. Adjusted for grants, the inflation-adjusted cost of two-year college has actually declined over the last 20 years.

Why would schools balloon the sticker price but make it up with scholarships? A lot of it is marketing. If I say, “Billy, tuition is $20,000 a year,” it sounds high. If I say, “Billy, tuition is $40,000 a year, but we’ll give you a scholarship to bring it down to $20,000,” it’s an offer he can’t refuse. There’s also a rich student, Jimmy, whose parents will pay $40,000 without batting an eye. Jimmy is actually making Billy’s scholarship possible.

By those numbers, the cost of 4-year public college grew at 2% annually above inflation over that 20 year period, while the cost of 4-year private college grew at 1.5% annually above inflation.

The average student debt is roughly $30,000, about the price of the average new car. As Jim of the FreeBy50 blog points out, only a tiny 0.3% of graduates end up with over $100,000 of student loan debt. Any media piece about a struggling student with a six-figure student loan is an outlier.

Now, I’m not saying there aren’t problems. For one, the wages of new graduates are stagnant. But the sky is not falling.

Increasingly, parents should look at listed tuition prices like the sticker price of a car. It’s just a starting point for negotiations. Colleges, especially private colleges, can easily adjust what they actually charge per student based on two variables:

  • Their financial situation, using need-based aid.
  • Their desirability as an applicant, using merit-based aid.

Universities have all sorts of financial aid tricks to adjust actual out-of-pocket costs… various grants and scholarship funds that they can draw from, work-study guarantees, comped room & board, and so on. You can even negotiate your aid package with them further after getting your acceptance letter.

In fact, the industry term is tuition discount rate, which measures the upfront tuition discount given directly from private universities, thus excluding outside scholarships, tax breaks, or subsidies. The NACUBO tuition discount rate for 2013 was 45% and had risen every year for the previous 7 years.

If Billy is a somewhat borderline applicant and his parents have a high income, he’ll may get accepted but must pay full sticker price. If Billy is a very strong applicant, he may get accepted with a partial or full scholarship regardless of income.

This is why parent shouldn’t automatically just tell their kid to go to a state public school. If your child finds the right fit, they could go to private school for close to or less than the cost of public. Many households with modest income and financial assets will be offered substantial grants. Of course, you have to be ready to say “no” if your kid gets in without any aid, meaning the total cost is more than a house (my personal fear!).