Archives for June 2017

New Low-Cost Broad Commodity ETFs from GraniteShares

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Commodities are an asset class that some investors include in their portfolio for diversification purposes. Depending on the specific index, you might track the futures market for aluminum, coffee, copper, corn, cotton, crude oil, gold, diesel, lean hogs, live cattle, natural gas, nickel, silver, soybean meal, soybean oil, soybeans, sugar, unleaded gas, wheat, and zinc (image source).

In my experience, when commodities prices have been hot, you see them in a lot of portfolios. When commodities prices have been cold (as they have been recently), you don’t read about them as much. Via ETF.com, there are now a new wave of commodity ETFs that hope to gather assets as the next up-cycle begins.

Here are some of the reasons why people didn’t like commodity ETFs in the past (besides the volatility and poor past performance):

  • Higher costs. Expense ratios for most commodity ETFs were above 0.50% annually, with many closer to 1%
  • Late K-1 tax forms. Most commodities ETFs issued Schedule K-1 forms at tax time, which not only were an extra form to file but they also tended to come very late in the year. You might have all your 1099s by the end of January, but your K-1 might not trickle in until March or even April.
  • Some were actually exchange-traded notes (ETNs), which carried credit risk as they were technically unsecured debt obligations of the issuer. In contrast, ETFs hold securities separately in trust with a custodian. If an ETF issuer fails, you still own the underlying assets.

Here are two new ETFs that address the issues above with (1) have lower costs and (2) a new structure that doesn’t issue K-1 forms:

  • GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB) – This ETF is technically actively-managed, but is benchmarked against the Bloomberg Commodity Index (BCOM). It is structured as a 1940 Act funds and thus does not issue K-1s. The expense ratio is 0.25%. Fact sheet.
  • GraniteShares S&P GSCI Commodity Broad Strategy No K-1 ETF (COMG) – This ETF is technically actively-managed, but is benchmarked against the S&P GSCI commodity Index. It is structured as a 1940 Act fund and thus does not issue K-1s. The expense ratio is 0.35%. Fact sheet.

The 0.25% expense ratio of COMB makes it the cheapest broad commodity ETF available today. (The ETFS Bloomberg All Commodity Strategy K-1 Free ETF (BCI) has an expense ratio of 0.29%.) Now, the following bit from this ETFTrends article brings up the worry that this “no K-1 structure” might produce tracking error against the index.

In an attempt to help investors avoid K-1s, the ETFs do not invest directly in commodity futures but rather gains exposure to these investments by investing a portion of its assets in the GraniteShares BCOM Cayman Limited, a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands. The subsidiary is not an investment company registered under the Investment Company Act of 1940 and has the same investment objective and will follow the same general investment policies and restrictions as the funds.

If you don’t buy the futures directly, what are you buying? Are you saying that you are buying a subsidiary that does buy the futures directly? How does that indirect structure change your investment performance? I don’t know and I don’t plan on buying either ETF, but I thought I’d point it out. ETF.com doesn’t seem to be worried:

Technically, both COMB and COMG are actively managed, but in practice, they are mostly passive funds. The futures portion of the portfolio, up to 25%, is held in a subsidiary based in the Cayman Islands and generally reflects the index, while the collateral is held in a cash portfolio holding fixed-income securities that is managed stateside.

The GraniteShares ETFs above only launched 5/22/17 and the last time I checked ETFdb.com only had about $2.5 million in assets so it is too early to make any judgments. The CEO of GraniteShares is William Rhind, who formerly worked at Blackrock/iShares and as the CEO of the popular SPDR Gold Shares ETF (GLD).

If you like low-cost access to the commodities asset class, this looks to be a positive development. I personally choose not to invest in this asset class as I think the long-term returns will be lower than that of equities. (Lower costs should improve the return outlook, however.) Commodities funds may offer the draw of being a diversification “hedge”, but I don’t want to pay the price of lower returns, high volatility, and higher complexity. There are many smart minds that disagree, so do your own research as well.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Don’t Switch Between Cheap Index Funds To Save Money (Try Cheap Milk Instead)

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

I’ve seen this Schwab commercial multiple times recently, where Schwab touts that one of its index funds costs “3X less than Fidelity” and “4X less than Vanguard”:

I already knew why it bugged me every time I saw it, but I finally ran the numbers. Never mind that this is one cherry-picked fund. Let’s play their game. The index fund in question is the Schwab S&P 500 Index fund at a 0.03% expense ratio. The comparison is the Vanguard 500 Index Fund Investor Shares (VFINX) with an expense ratio of 0.14%. On an investment of $5,000, this works out to $1.50 a year vs. $7 a year. That’s a difference of $5.50 a year, or under 50 cents a month.

But wait, there’s more. Once you reach a $10,000 balance, the Vanguard 500 Index Fund Admiral Shares (VFIAX) will automatically decrease to an expense ratio of 0.04%. Now the difference is $1 per year. That’s 8 cents a month. Schwab funds have been far more expensive than Vanguard for decades, and now that they are bragging about saving you less than 50 cents a month?

Finally, the only way that Schwab can do this is in the first place is that these index funds are a loss-leader. Here’s an excerpt from the Morningstar article Penny-Pinching Index Fund Investors May Pay a Price, which also warns fundholders before switching index fund providers as the tax hit could take decades to overcome.

Existing shareholders in these funds are clear winners in the fee war. But as this race to the bottom nears its inevitable ending (free beta), these investors’ savings will increasingly be measured in dollars and cents. In my mind, these latest exchanges will likely do more to move the needle for fund firms and brokerages like Schwab. In many settings, these low-cost building blocks are simply loss leaders, a cheap gallon of milk meant to entice consumers into the store in hopes that they’ll grab some Cheetos and a pack of gum before they get to the counter.

I think that Schwab has many positive attributes to point out overall, but this commercial was deceptive. I’m happy that low-priced, broadly-diversified index funds are more readily available, but the idea that Schwab is significantly cheaper than Fidelity or Vanguard is laughable. The real numbers show that you could save more money by regularly buying discounted milk than by switching $100,000 from Vanguard to Schwab.

If you haven’t started investing yet, you will most likely be fine with any low-cost provider – iShares, Vanguard, Fidelity, Schwab. If you’ve already started, the absolute cost difference is too small to warrant a change.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Best Interest Rates on Cash Savings – June 2017

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

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Over the past month, short-term interest rates have inching upwards while the overall yield curve flattened slightly. The value in chasing interest rates continues to rebound ever so slowly, especially if you have idle cash in a megabank paying 0.01% APY or less. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. Rates checked as of 6/5/17.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, the online banks with a history of competitive rates offer online savings accounts clustered around 1% APY. An important feature to note with savings account is that their interest rates can change at any time.

  • As I’ve been “bait-and-switched” a few times and there are no lucrative rates that make it worth taking another risk, I am currently sticking with Ally Bank Online Savings for their reliably competitive rates and overall good user experience. Their online savings is currently at 1.05% APY.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, you should know that money market and short-term Treasury rates have been inching upwards. It may be worth the effort to move your money into a higher-yielding money market fund or ultrashort-term bond ETF.

  • The Vanguard Prime Money Market Fund has increased their SEC yield now to 0.97%. The default sweep option is the Vanguard Federal Money Market Fund, which only has an SEC yield of 0.75%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • The following bond ETFs are not FDIC-insured, but if you want to keep “standby money” in your brokerage account and have cheap/free trades, it may be worth a look. Both the PIMCO Enhanced Short Maturity Active Bond ETF (MINT) and the iShares Short Maturity Bond ETF (NEAR) have a 1.43% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. More info here.

Short-term guaranteed rates (under 1 year)
I am often asked what to do with a big wad of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, inheritance). Honestly, I wouldn’t get fancy or take unnecessary risk. Just keep it safe in a short-term CD or online savings account that in insured under the FDIC limits until you have a plan.

  • Palladian Private Bank has a 6-month promotional rate of 1.30% APY guaranteed (maximum initial deposit of $100k) for new accounts. After the first 6 months, the rate reverts back to their normal rate (currently 0.90% APY). Since the initial promo rate is fixed, this makes it the highest guaranteed 6-month CD rate available.
  • Salem Five Direct is advertising 1.25% APY on balances up to $500,000. The good news is that this rate is guaranteed until 7/1/18 – more than a year away – and since it is a savings account you can still move your money in and out without penalty. The bad news is that this rate is for new customers only.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between May and October 2017 will earn a 1.96% rate for the first six months, and then a variable rate based on ongoing inflation after that. While that next 6-month rate is currently unknown, at the very minimum the total yield after 12 months will around 1% with additional upside potential. More info here.
  • In mid-October, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with high interest rates. The risks are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). The other catch is that these good features may be killed off without much notice. My NetSpend card now only has an eligible balance up to $1,000.

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 over a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Rates can also drop quickly, leaving a “bait-and-switch” feeling. But the rates can be high while they last.

  • Consumers Credit Union offers up to 4.59% APY on up to a $20k balance, although 3.09% APY on a $10k balance is more realistic unless you satisfy a long list of requirements. Note that the 4.59% APY requires you to apply and get approved for an additional credit card through them (other credit cards offer $500+ in sign-up bonuses) and also spend $1,000 on it every month. Keep your 12 debit purchases small as well, as for every $500 in monthly purchases you may be losing out on 2% cashback (or $10 a month on after-tax benefit). Find a local rewards checking account at DepositAccounts.

Certificates of deposit
If you have a large cushion, it’s quite likely to just sit there for years. One option is to keep your money in longer-term investments where you can still take it out in a true emergency and pay a reasonable early withdrawal penalty. Alternatively, you could create a CD ladder of different maturity lengths such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account.

  • Connexus Credit Union is offering a 1-year Share Certificate at 1.50% APY (90-day early withdrawal penalty) and a 3-year Share Certificate (180-day early withdrawal penalty) at 2.00% APY. Both have a $5,000 minimum deposit. Anyone can join this credit union via partner organization Connexus Association for a one-time $5 fee.
  • Hanscom Federal Credit Union is offering a 4-year Share Certificate at 2.50% APY (180-day early withdrawal penalty) if you also have Premier Checking (no monthly fee if you keep $6,000 in total balances or $2,000 in checking). HFCU also offer a 3% APY CU Thrive “starter” savings account. HFCU membership is open to active/retired military or anyone who makes a one-time $35 donation to the Nashua River Watershed Association.
  • Ally Bank Savings also has a 5-year CD at 2.25% APY with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 18-months, you can get a 1.64% effective APY even after accounting for the penalty.

Longer-term Instruments
I’d use these with caution, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10+ years? Did you know that you can buy certificates of deposit via Vanguard’s bond desk? These “brokered CDs” still offer the same FDIC-insurance. As of this writing, you can get a 10-year non-callable CD that pays 2.75% APY. Fidelity has a new Model CD Ladder tool that will construct a ladder for you, but you need an account to see it in full action. (Unfortunately, current long-term CD rates do not rise much higher even as you extend beyond a 5-year maturity.) Prices will vary daily.
  • How about two decades!? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). You could view as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years. Too long for me.

All rates were checked as of 6/5/17.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


How To Make Your Life Completely Miserable

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

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If you are a fan of Charlie Munger and his principle of inversion, you will enjoy this video by CGP Grey* about the 7 Ways to Maximize Misery. Sometimes the best solution to a problem comes by approaching it backwards. Found via Abnormal Returns. Briefly, here are the 7 ways:

  • Stay still.
  • Screw with your sleep.
  • Maximize your screen time.
  • Use your screen to stoke your negative emotions.
  • Set V.A.P.I.D. goals – Vague, Amorphous, Pie in the Sky, Irrelevant, and Delayed.
  • Pursue happiness directly.
  • Follow your instincts.

Charlie Munger himself might add two more things:

  • Be unreliable.
  • Be lazy.

This is according to his 2007 USC Law School Commencement speech:

Let me use a little inversion now. What will really fail in life? What do you want to avoid? Such an easy answer: sloth and unreliability. If you’re unreliable it doesn’t matter what your virtues are. Doing what you have faithfully engaged to do should be an automatic part of your conduct. You want to avoid sloth and unreliability.

It can be surprisingly instructive to know that we can become happier by simply avoiding these common behaviors. There are even more – the video is based on the book How to Be Miserable: 40 Strategies You Already Use by Randy J. Paterson. Added to my long to-read list.

* I referenced another CGP Grey video in my post Why Didn’t Technology Create a 4-Hour Workday? and why the solution is to accumulate assets towards financial freedom.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Join Marriott Rewards, Get 1,000 Free Miles + Double Miles

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

marriottchirp0The loyalty program for Marriott Hotels (which recently bought Starwood) is running a promotion for new members. If you enroll in Marriott Rewards through this link, you will earn 1,000 bonus miles from one of the airlines below, as well as double miles on your stays from 6/4/2017 through 9/2/2017 (up to 35,000 bonus miles). Here are the eligible programs:

  • AeroMexico ClubPremier
  • Air Canada Aeroplan
  • Avianca-TALA Lifemiles
  • British Airways Executive Club (Avios)
  • Etihad Guest
  • Lufthansa Miles & more
  • Qatar Privilege Club

Usually you don’t get anything for joining, so this is worth mentioning especially if you have a Marriott-chain stay coming up. Existing Marriott Rewards members are not eligible. The expiration date says 12/31/17 but it may not last that long.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Free Digital HD Movie: A Stork’s Journey

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

storkLooking for some free family-friendly entertainment? The new movie A Stork’s Journey is currently free to redeem on Google Play (digital HD version). You can stream it to your computer, smartphone, or TV box. Limited offer from June 1 to June 28, 2017. I’m not really sure why, but it’s not going to be released in theatres until June 30th.

Here’s the trailer and short summary:

Featuring the voice talents of Drake Bell (Superhero Movie, Drake and Josh), YouTube star Justine “iJustine” Ezarik, and Jane Lynch (Glee, Wreck-It Ralph), A Stork’s Journey follows Richard, a sparrow orphaned at birth and raised by storks who believes that he is a stork, too! But when winter comes and the storks prepare to migrate to Africa, his stork family must reveal his true identity and leave him behind in the forest with the other sparrows since he would not survive the long journey. Determined to prove he is a stork after all, Richard ventures south on an epic adventure, accompanied by friends big and small, to unleash his true potential and be reunited with his family.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.