New Tax Bill: Pay State and Property Taxes By End of 2017

taxpaidThe new tax bill that takes effect in 2018 raises the standard deduction and caps certain itemized deductions. Therefore, if you will itemize your deduction in 2017, you may want to grab whatever you can this year to get the full value of those deductions. (This assumes you are not subject to AMT.) Here’s a brief summary of your options.

  • State and Local Income Taxes. You can’t prepay 2018 state taxes in 2017. However, you should pay all your 2017 taxes in 2017. Specifically, if you make estimated quarterly tax payments, you should makes your 4th Quarter state/local payment by December 31, 2017 rather than wait until the deadline which is usually close to the federal deadline of January 18, 2018.
  • Property Taxes. You can’t prepay 2018 property taxes in 2017. However, if you have property taxes based on 2017 assessments (partial or whole), you should make those payments by December 31, 2017. Basically, have you received a bill already? Pay it now. Some counties are actually trying to make things easier for you. See these NYT and WaPo articles for details. Things can get complicated if you usually pay via mortgage escrow.
  • Charitable contributions. On a related note, you may want to make your charitable contributions by the end of 2017, as you may not be able to deduct your donations if you will fall under the standard deduction in 2018.

More: IRS Advisory, NY Times, National Law Review

My Money Blog Portfolio Asset Allocation, 2017 Year-End Update

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Here is a year-end update on my investment portfolio holdings for 2017. This is my last-minute checkup in case I need to rebalance to make another other tax-related moves. This includes tax-deferred 401k/403b/IRAs and taxable brokerage holdings, but excludes things like our primary home, cash reserves, and a few other side investments. The goal of this portfolio is to create enough income to cover our regular household expenses.

Actual Asset Allocation and Holdings

I use both Personal Capital and a custom Google Spreadsheet to track my investment holdings. The Personal Capital financial tracking app (my review, join free here) automatically logs into my accounts, tracks my balances, calculates my performance, and gives me a rough asset allocation. I still use my custom Rebalancing Spreadsheet (instructions, download free here) in order to see exactly where I need to direct new investments to rebalance back towards my target asset allocation.

Here is my portfolio performance for the year and rough asset allocation (real estate is under alternatives), according to Personal Capital:

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Here is my more specific asset allocation, according to my custom spreadsheet:

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Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard Small Value ETF (VBR)
Vanguard Emerging Markets ETF (VWO)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Target Asset Allocation. Our overall goal is to include asset classes that will provide long-term returns above inflation, distribute income via dividends and interest, and finally offer some historical tendencies to balance each other out. I don’t hold commodities futures or gold (or bitcoin) as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. I also try to imagine each asset class doing poorly for a long time, and only hold the ones where I think I can maintain faith.

Stocks Breakdown

  • 38% US Total Market
  • 7% US Small-Cap Value
  • 38% International Total Market
  • 7% Emerging Markets
  • 10% US Real Estate (REIT)

Bonds Breakdown

  • 50% High-quality, Intermediate-Term Bonds
  • 50% US Treasury Inflation-Protected Bonds

I have settled into a long-term target ratio is 67% stocks and 33% bonds (2:1 ratio) within our investment strategy of buy, hold, and rebalance. With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and income taxes.

Performance, details, and commentary. According to Personal Capital, my portfolio has gained 15.08% overall in 2017 (with a few days left to go). In the same time period, the S&P 500 has gained 19.73% (excludes dividends) and the US Aggregate bond index has gained 3.53%. For the first time in a while, my sizable allocation to developed international and emerging markets stocks has boosted my overall return.

My stock/bond split is currently at 70% stocks/30% bonds due to the continued stock bull market. I continue to invest new money on a monthly basis in order to maintain the target ratios. Once a quarter, I also reinvest any accumulated dividends and interest. I don’t use automatic dividend reinvestment. This way, I can usually avoid creating any taxable transactions unless markets are really volatile.

For both simplicity and cost reasons, I am no longer buying DES/DGS and will be phasing them out whenever there are tax-loss harvesting opportunities. New money is going into the more “vanilla” Vanguard versions: Vanguard Small Value ETF (VBR) and Vanguard Emerging Markets ETF (VWO).

I’m still somewhat underweight in TIPS and REITs mostly due to limited tax-deferred space as I don’t want to hold them in a taxable account. My taxable muni bonds are split roughly evenly between the three Vanguard muni funds with an average duration of 4.5 years. I may start switching back to US Treasuries if my income tax rate changes signficantly.

529 Plans Will Allow Private School K-12 Tax-Free Withdrawals

529Starting in 2018, qualified educational expenses for 529 plans will include up to $10,000 a year in tuition and expenses for primary and secondary school expenses (public, private, or religious). Previously, you could only use it towards qualified college expenses. There were also some related changes to ABLE accounts for individuals with special needs – listed here.

Put simply, you can now pay for up to $10k a year of private K-12 school through a 529 plan. If this impacts you, you may consider making a 529 contribution now before December 31st, 2017 as you are allowed annual contributions of $14,000 per person ($28,000 per couple) while still avoiding gift taxes. You would then be able to make contributions in both 2017 and 2018.

Front-loading a 529 early and with a lot of money. The NY Times lays out a scenario where a wealthy family puts in $200,000 at birth (not sure why they use this amount as it would exceed annual gift tax limits even with front-loading) and then uses the money to pay for K-12 private school. This could theoretically save a wealthy family $30,000 in taxes.

If you have that kind of money, it may be worthwhile to explore front-loading, but be careful as their example assumes a reliable 6% return every single year. In the real world, investment returns can be quite volatile, and if you make a $10,000 withdrawal every year, you run the risk of depleting your account entirely before college. Other possible options are to start funding a 529 even before your child’s birth to start accumulating those future tax-free capital gains.

Using the 529 as a just-in-time passthrough. Around 30 states offer a in-state tax benefit on 529 plans. If you are paying for a private school anyway, you may be able to save some money by simply using the 529 as a passthrough account. Contribute to 529, grab the tax benefit, and then immediately withdraw (starting in 2018) to pay for K-12 tuition. Some states like Montana and Wisconsin specifically disallow this in-and-out practice, but most do not (although they could start).

Things can still change. This Reuters article points out that states may change their own laws in response. They could add minimum holding periods, cap their deductions, or add income restrictions. I am also curious as to what, if any public school “expenses” are technically eligible.

Personally, I don’t think this will change my 529 usage plans significantly. My state does not offer a tax benefit, so there is little benefit to the passthrough option. Maybe if short-term rates go up high someday and you can earn 5% in a bank account, it might become worth the effort to park some money in there temporarily. The other primary benefit is federal tax-free investment gains, and it takes a while for that compounding action to accumulate. If I get lucky and my balance gets really big, I could perhaps see taking some money out before college if they end up in private high school. Realistically though, I doubt my balances will greatly exceed four years of college tuition (times three kids!).

Blue Cash Preferred from American Express Review: 6% Cash Back on Groceries

Blue Cash Preferred w ButtonThe Blue Cash Preferred® Card from American Express is a cash back rewards card with a unique feature that still hasn’t been copied by competitors: 6% cash back at US stand-alone supermarkets on up to $6,000 per year in purchases. If you spend $500 average per month on supermarkets, that alone will earn you $360 every year in rewards. Highlights:

  • $200 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.
  • 6% Cash Back at US stand-alone supermarkets up to $6,000 per year in purchases (then 1%).
  • 3% Cash Back on gasoline at at US stand-alone gas stations
  • 3% Cash Back at select major US department stores
  • 1% cash back on all other purchases.
  • Intro APR: 0% for 12 months on purchases and balance transfers, then a variable rate, currently 14.24% to 25.24%.
  • $95 annual fee.

For more information about this card and to apply online, visit CardRatings.com.

Tracking and last-minute holiday shopping. Every December, I personally use this card to buy gift cards at standalone grocery to use up the annual limit and get 6% back. My local Safeway has an entire wall of options, but I usually go with Amazon, Apple iTunes, or Starbucks. You can easily track how much you’ve spent on groceries on your online account. Just go to “Statements & Activity” > Chart logo (Graph and Filter your Transactions), and then click on “Merchandise and Supplies”. Adjust dates as necessary. Screenshot:

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Supermarkets details. “US stand-alone supermarkets” means that superstores, convenience stores and warehouse clubs are not considered supermarkets. This means no Super Wal-Mart, no Super Target, no Costco. Examples of merchants that count (and this is not a complete list!!) are Safeway, Meijer, Vons, Whole Foods, Winn-Dixie, and online supermarkets such as FreshDirect.

Gasoline details. “US stand-alone gas stations” means that superstores, supermarkets, and warehouse clubs that sell gasoline are not considered gas stations. This means no Target, no Costco, no Sam’s Club. Examples of merchants that count (and this is not a complete list!!) are Exxon, Mobil, Hess, Shell, Gulf, Murphy USA, Murphy Express.

Major US Department stores details. These are the only stores that qualify:

• Bealls
• Belk
• Bloomingdale’s
• Bon Ton Stores
• Boscov’s
• Century 21 Department Stores
• Dillard’s
• J.C. Penney (JCP)
• Kohl’s
• Lord & Taylor
• Macy’s
• Neiman Marcus
• Nordstrom
• Saks Fifth Avenue
• Sears
• Stein Mart

Annual fee. The card has a $95 annual fee, so you’ll want to utilize that 6% cash back on groceries to maximize your value. If you spend the max cap of $500 a month at supermarkets, at 6% back that would net you $360 cash back in a year vs. $60 at 1% cash back. Note that spending $31 per week at supermarkets at 6% cash back will result in over $95 Reward Dollars per year to cover the annual fee.

If you don’t like the idea of paying an annual fee, the Blue Cash Everyday Card from American Express offers 3% at U.S. supermarkets on up to $6,000 per year in purchases with no annual fee. It currently offers a $150 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.

Cash back is officially given in the form of Reward Dollars that can be redeemed as a statement credit, gift cards, and merchandise. Statement credit are as good as cash, so I just stick with that.

Bottom line. The Blue Cash Preferred® Card from American Express has a top feature of 6% cash back at US supermarkets, along with 3% cash back at gas stations and select major department stores. I treat this card like one of my 5% cash back cards, except there are no rotating categories or activation to worry about. Supermarket purchases all go straight on this card, while I try to remember it as well for my occasional department store purchase. Then in December, I use up the rest of the $6,000 annual spending limit on gift cards for holiday presents.

For more information about this card and to apply online, visit CardRatings.com.

“Disclaimer: This content is not provided or commissioned by the issuer. Opinions expressed here are author’s alone, not those of the issuer, and have not been reviewed, approved or otherwise endorsed by the issuer. This site may be compensated through the issuer’s Affiliate Program.”

Healthcare Flexible Spending Accounts: Last-Minute FSA Eligible Ideas

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Updated. Here’s my annual reminder to get back all the money you put into your Healthcare Flexible Spending Accounts (and other such accounts) before the end of the year. First, here are some possible exceptions:

  • Some plans allow a grace period until March 15th of the following year as opposed to a December 31st deadline to use your 2017 funds, but it may only apply to claims and not late purchases. Check with your employer.
  • Some plans allow participants to carry over up to $500 in unused FSA funds into next year. Check with your employer.

What are FSA-eligible expenses? Here are the large, well-organized lists:

Quick tip. Certain over-the-counter (OTC) items such as cough medicines, pain relievers, acid controllers, and diaper rash ointment require a prescription for reimbursement. In addition to the written prescription for the OTC medicine, you should obtain a detailed receipt that includes the following:

  • Date of service or purchase
  • Name or description of the item
  • Amount of purchase

Last-minute FSA-eligible items. If you didn’t exhaust your funds with insurance copays or deductibles, here are eligible items that you can still buy over-the-counter without a prescription. Examples included are the best-sellers in each category at Amazon.

Finally, only your FSA administrator can provide you with the exact guidelines for reimbursement according to your plan. I learned this the hard way when our FSA administrator switched one year from in-house to Conexis. Wow, Conexis was a pain in the butt. So many hurdles and rejections without good explanations. I had to submit some claims three times before finally getting approved. If you count the time wasted, I probably lost money by participating in the FSA at all. The other employees in the company must have also complained so much that the very next year, FSA reimbursement was again managed in-house.

Ally Bank 11-Month No Penalty CD Review: 1.60% APY for $25k+

(Update: As of 1/4/18, Ally has dropped some of the rates below. Please refer to their website for the most current rates.)

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Updated. As of 12/19/17, Ally Bank raised the rate on their 11-month No Penalty CD and their 12-month traditional CD. Here are the new interest rates for the No Penalty CD under their tiered structure (as of 12/19/17):

  • 1.75% APY at $25,000 minimum opening deposit
  • 1.35% APY at $5,000 minimum deposit
  • 1.15% APY at no minimum deposit.

The 11-month No Penalty CD is unique in that while the 1.75% APY rate is locked in at deposit, you can still withdraw your principal and interest without penalty at any time (well, you do have to wait at least 6 days from the deposit date). In other words, your interest rate can never go down, but you can still jump ship if rates rise or if there is a better promo elsewhere.

If you recently opened one of these, remember that Ally Bank offers a “Ten Day Best Rate Guarantee”:

When you fund your CD within 10 days of your open date, you’ll get the best rate we offer for your term and balance tier if our rate goes up within that time. The Ally Ten Day Best Rate Guarantee also applies at renewal.

If you have an existing No Penalty CD past the 10-day rate guarantee, this means you may consider closing it and then opening up a new one at a higher rate. You will have to withdraw everything at once – there are not partial withdrawals. If you have an Ally savings or checking account, you can close the old CD, see the deposit in your savings/checking, and open up a new CD all in minutes online. (Note that savings accounts are limited to 6 withdrawals per month, so use your checking if possible.) You will be extending the term out another 11 months, but since you can also close it at any time it isn’t much of a concern.

Here’s a screenshot of my withdrawal showing no penalty and instant availability when withdrawn directly into an Ally account:

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You can use my Ultimate Rate-Chaser Calculator to get an idea of how much additional interest you’d earn if you switched over.

Alternatives to consider.

  • Top online savings accounts rates offer slightly lower rates, but you have more liquidity in and out.
  • Ally 12-month CD is now at 2% APY with no minimum balance, which is a current top rate if you are willing to be locked in with an early-withdrawal penalty.
  • CIT Bank 11-Month No Penalty CD is a similar product, currently at 1.55% APY but with a lower $1,000 minimum deposit. These two banks have leapfrogged each other in the past, so it will be interesting to see what happens in the future.

Ally No Penalty CDs and traditional CDs can be a convenient companion to the Ally Bank Online Savings and Interest Checking accounts, which are my primary bank accounts.

Rates updated 12/19/17.

Infographic: 529 State Tax Deduction Value Comparison Map 2017

Amongst the many things to consider at years-end is a contribution to a 529 college savings account. (I just made my contribution for kid #3.) In addition to the federal tax-free growth towards qualified college expenses, more than 30 out of 50 states offer some level of tax deductions for 529 contributions. Some require you to contribute to the official in-state plan, while others let you contribute to any plan.

SavingForCollege.com offers a visual comparison of these state tax benefits in the following infographic. They assume a couple filing jointly with a $100,000 taxable income and contributing $100/month for each of two children. The darker the blue, the bigger the benefit.

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This may not apply exactly to your situation, but it can still provide you a quick take as to whether you should investigate further. They do have a calculator that churns out specific numbers, but unfortunately you must pay for a premium subscription. Here are some related posts:

5% Cash Back Credit Cards: Rotating Categories Update 2018 Q1

5percentback Activation for 1st Quarter 2018 is now open. Last chance for Q4 2017 bonuses. The credit cards below offer a hefty 5% cash back on categories that rotate each quarter. It takes a little extra attention, but I also rack up over a hundred dollars in additional rewards per year without changing my spending habits. You can also buy gift cards with the 5% back now but spend the gift cards later.

None of these have an annual fee, so it costs me nothing to keep them around. New cardmembers may also get an upfront sign-up bonus.

Chase Freedom VisaChase Freedom Visa – $150 Cash Bonus

From October 1st through December 31st, 2017 you can earn 5% cash back on up to $1,500 spent in the following categories:

  • Walmart (includes SuperCenters, Walmart Neighborhood Markets, Walmart.com, and Walmart branded gas stations operated by Walmart)
  • Department Stores (includes JCPenney, Kohl’s, Macy’s, Nordstrom, and Nordstrom Rack)

From January 1st through March 31th, 2018 you can earn 5% cash back on up to $1,500 spent in the following categories:

  • Gas Stations
  • Internet/Cable Phone services
  • All purchases made with Chase Pay, Android Pay, Apple Pay or Samsung Pay digital wallets

Enroll each quarter at ChaseBonus.com. As long as you activate by the end of the quarter the rewards are retroactive. All other purchases earn 1% back, with no tiers or expiration of rewards. Technically, you earn Ultimate Rewards points which can also be converted to frequent flier miles instead of cash. Currently, the Chase Freedom card is offering $150 bonus cash back if you sign up and make $500 in purchases in your first three months.

Discover it 14 ImageDiscover it® Cashback Match

From October 1st through December 31st, 2017 you can earn 5% cash back on up to $1,500 spent in the following categories:

  • Amazon.com
  • Target

From January 1st through March 31th, 2018 you can earn 5% cash back on up to $1,500 spent in the following categories:

  • Gas Stations
  • Wholesale Clubs

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Enroll after logging into your online account (look on the right-hand side). 5% rewards won’t apply until after you activate your rewards, so it is best to activate now before you forget.

If you are a new applicant and sign up via my Discover Card referral link by the end of 2017, you will get a $50 Cashback Bonus after your first purchase within 3 months of being approved. You will also get Cashback Match for an entire year – a dollar-for-dollar match of all the cash back you’ve earned at the end of your first year, automatically. That means for the first year your 5% cash back purchases becomes 10% cash back, and your 1% cash back purchases become 2% cash back. Plus, at the end of the year that $50 sign-up bonus will also be doubled to $100. If you apply after 1/1/18, you’ll still get the 5%/10% and 1%/2% doubling but the bonus will become a $50 statement credit (not subject to doubling).

You can verify this on the application page by clicking on “See rates, rewards and other info” and looking for this text:

TERMS OF CASHBACK BONUS OFFER: Get a $50 Cashback Bonus after you make your first purchase within 3 months of being approved. Promotional award will be applied within 8 weeks. The promotional award is in addition to the Cashback Bonus earned on all purchases.

usbankcashplusU.S. Bank Cash+ Visa Signature Card. This card unique in that you get to choose the two 5% cash back categories every quarter, out of a preset selection of niche categories like “Fast Food” or “Department Stores”.

You also get to choose a single 2% cash back category from a preset selection of broader categories like “Gas Stations” or “Grocery Stores”. 1% cash back on everything else. No limit on total cash back earned. However as you see below getting 2% is not that special, so this card is only really good if you spend significantly in the available niche categories. Importantly, you must remember to choose your categories each quarter, even if they stay the same! If you do not choose your categories, all purchases revert to only earning 1% cash back for that quarter.

5% Cash Back at Amazon. Get 5% back at Amazon.com all year long with the Amazon Prime Rewards Visa Signature Card. Prime membership required.

Citi Dividend 5%. This card is no longer available to new applicants, but if you still have the grandfathered card you can activate to get 5% cash back at gas stations and car rentals during Q1 2018. You are capped at $300 cash back for the calendar year.

Don’t settle for the “1% on everything else” that these cards offer. Get 2% cash back or higher. The following cards currently have the ability to offer cash back rewards as high as 2% or even greater. Please read my card-specific reviews for details.

Last-Minute Gifts: Amazon Gift Card Discounts including Starbucks, Whole Foods, Boston Market, Hotels.com, Free Holiday Tins, Etc.

Look for Amazon to offer up lots of discounted gift cards and/or bonus stuff with gift cards for procrastinators, most guaranteed to arrive by Christmas. Click, click, done. Some of these deals are good enough for self-gifting.

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Up to 20% off Various Retailer Gift Cards. These go in and out of stock and the retailers vary. They had Whole Foods but that sold out quickly (may go in and out, waitlist was available for me). Right now I see Boston Market, Coldstone, Hotels.com, and Famous Footwear.

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Get $5 Amazon promo credit if you buy $50 in Starbucks gift cards. Applies to digital gift cards only. Use promo code COFFEE. You should see details under “Special offers and product promotions”.

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Free Snowflake Gift Tin with Amazon Gift Card. Make your gift card stand out and feel more substantial with a free tin. Also available in Snowman tin, Santa tin, Holiday Pop-Up box, and red ornament tin.

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Free Limited Edition Gund Teddy Bear with Amazon Gift Card. Posted about this earlier, looks like the minimum is still $100 for now.

I’ll keep updating this post as I’m sure Amazon will roll out some more deals later.

MMB Ultimate Interest Rate Chaser Calculator

calc150Thinking about moving your cash to a different bank account with a higher interest rate? It’s been a while, but the short-term rates on online savings accounts are going up. Don’t get paid nothing by your megabank. Use this handy calculator to find out how much more money you could earn by switching, which you then can weigh against the time and effort required.

My Money Blog Ultimate Rate Chaser Calculator

How much money are you going to move? (no commas) $
Enter the interest rate (APR) currently being earned:   %
Enter the new interest rate (APR):   %
How many days of lost interest will you have?   day(s)
The approximate number of days you must keep your money at the new rate to break even money-wise is:   days
Assuming the rate difference remains the same,
in 1 month you’ll have earned an extra (estimated):
  
After 6 months, you’ll have earned an extra (estimated):   

Notes

  1. This calculator is based on a rate-chasing breakeven time formula developed previously which takes into account the “days of lost interest”, or the time in between transfers where the money is not earning interest in either account.
  2. Although you will get a very similar answer either way (especially for low interest rates), note that it asks for APR, not APY. I also made a APY to APR calculator if you only have APY and want to be exact.
  3. Usually, there can be between 0-3 days of lost interest when going from one bank to another. This depends on the policies of either bank and also which bank initiates the transfer. This value can significantly affect the break-even time.
  4. The 6-month value (182 days) isn’t simply 6 times the 1-month value (30 days), as the calculator takes into account the time needed first to “break-even”.
  5. Another factor to consider is how likely the current rate difference will persist. Interest rates on savings accounts can change at any time, whereas certificates offer a fixed rate over the guaranteed period.

Last updated 12/14/17.

Gyft Promo Code: $5 off $50 Lowe’s Gift Gard

gyft0Gyft just sent me an e-mail that you can get $5 off a $50 Lowe’s gift card with promo code holiDIY, good for existing customers. Offer ends 12/25/17 at 11:59pm ET or while supplies last. The terms say that the promo code can be redeemed 5 times per household/account while supplies last. So technically this could be $25 off $250 in Lowe’s gift cards.

You could stack this promo with this 11% off Lowe’s mail-in rebate (may need to scroll down to 2nd page). This rebate offer is only valid at specific Lowe’s locations (scroll down to last page).

Here are some other gift card deals from Gyft:

  • Get $5 off a $40 Chef’d Gift Card with promo code CHEFHAT. Offer ends 12/31/17 at 11:59pm ET or while supplies last. Promo code can be redeemed 2 times per household/account while supplies last.
  • Buy a $25 Domino’s Gift Card and get an extra $5 card with promo code PIECEFUL. Offer ends 12/31/17 at 11:59pm ET or while supplies last. Promo code can be redeemed 2 times per household/account while supplies last.

Fundrise Starter Portfolio eREIT vs. Vanguard REIT ETF: Comparison Setup

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This is a follow-up to my post about exploring the real estate crowdfunding capital stack. I have started an experiment to compare the equity side with comparison between a real estate crowdfunding start-up (Fundrise eREIT Starter Portfolio) and a mainstream real estate ETF (Vanguard REIT ETF) with $35 billion in assets. The question is essentially:

How will a concentrated basket of roughly 20 whole properties bought on the private market compare with an index fund tracking the largest public-traded REITs in the US over the same 5-year period?

Fundrise Starter Portfolio. Despite the “starter” title, the Fundrise Starter Portfolio is actually a simple 50/50 mix of their first two eREITs: the Fundrise Income eREIT and the Fundrise Growth eREIT. These private eREITs utilize recent crowdfunding legislation to own a basket of individual real estate properties. It is open to all investors (not restricted to accredited-investors) and has a minimum deposit of $500. You must buy shares directly from Fundrise, and there are liquidity restrictions as this is meant to be a long-term investment.

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I purchased $1,000 worth of Fundrise shares on 10/20/2017. Specifically, 50 shares @ $10.00/share for the Income eREIT and 48.780488 shares @ $10.25/share for the Growth eREIT. Here’s a current screenshot as of 12/13/17 from my account page.

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Here’s a map of locations for the current holdings. Most are apartment complexes, condominiums, and hotels.

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Vanguard REIT ETF. The Vanguard REIT ETF (VNQ) is one of the largest index funds to invest in publicly-traded real estate investment trusts (REITs). You can purchase it via any brokerage account. You have the liquidity of being to sell on any day the stock market is open. A single share currently costs about $85, not including an trade commission. I own VNQ in my retirement portfolio, but will be using Morningstar tools to track the performance of a $1,000 investment bought on the same date of 10/20/17. As of 12/13/17, the VNQ holdings are worth $995.95.

You are holding a tiny slice of (tens of?) thousands of office buildings, hotels, nursing homes, shopping centers, apartment complexes, and so on. Here are the top 10 holdings as of 10/31/17 per Vanguard:

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The Fundrise Starter Portfolio is waiving their advisory fees until 12/31/17 and will be 0.15% after that. Each underlying eREIT will also have their own internal fees for managing the properties. The Vanguard REIT ETF has an expense ratio of 0.12%, with each public REIT having their own internal costs to manage their properties. Due to scale, I would expect the net effect of fees to be significantly higher for the Fundrise assets than for the Vanguard ETF. We will see if Fundrise can provide higher net returns for this concentrated holding.

Fundrise will announce dividend distributions on a quarterly basis, as well as provide updates to NAV, so I will probably update quarterly as well. I plan on holding onto this investment for at least 5 years. This will allow the investments to “play out” a bit and also avoid any early redemption fees.

You can learn more about all Fundrise eREIT options here. I have written about my past experiences in my Fundrise eREIT review and Fundrise Liquidity and Redemption review.