Tracking Inflation: Consumer Price Index vs. MIT Billion Prices Project

AFter calculating the new savings bond rate, I noticed that from March 2012 to March 2013 the inflation rate per the Consumer Price Index was only 1.5% over the past year. Whenever you see the government announce a relatively low inflation numbers, there will always be people shouting “the government manipulates the inflation data!”. I looked into this previously with my post Does The Government Underestimate Inflation Through The CPI? Short answer: Yes they do, but maybe not in the way you think.

Usually, this is followed by the anecdotal argument “Does gas ever go down? Does your rent ever go down?”. It certainly feels like prices are rising quicker than that. My water bill just got hiked another 10%. The thing is, we always notice the increases, but tend not to notice when prices drop. When something is cheaper, we just chalk it up to being great bargain hunters. Truth is, gas prices did go down for a while.

Another way to keep an eye on inflation is with MIT’s Billion Prices Project (previous post) which tracks prices in real-time by grabbing them from websites. By checking on 50,000+ different prices daily covering everything from prescription drugs to clothing to real estate, this alternative inflation measurement has the potential to keep governments “honest” with their numbers.

Index Values: CPI vs. BPP

[Read more…]

Quicken Mac 2007 OS X Lion Compatible Version Released

I know that there was some noise when the Mac OS X 10.7 Lion was released and Quicken 2007 for Mac was reported by Intuit to be incompatible with any computer running the new operation system. Next, they release Quicken Essentials for Mac which was a neutered version of Quicken which quickly angered long-time customers even more. So they promised they would rewrite it to work on OS X Lion. Well, it has finally arrived. Cost is $15. Thanks to reader Paul for the tip.

Data migration. According to their FAQ, users can import data from Quicken 2005, 2006 or 2007 for Mac, as well as from Quicken Essentials for Mac. File conversion is not possible for Quicken 2004 for Mac and prior versions.

So now you can pay more to use their 5-year old software, hurray! I still think it’s pretty clear that Intuit isn’t going to spend too much more effort improving Quicken, instead they are spending more money on Mint.com which is online and free to users (ad-supported). Has anyone tried it out yet?

The Problem With A Retirement Based On The Stock Market

As far as retirement calculators go, the new one over at the Scottrade Knowledge Center is pretty nice. It does the whole Monte Carlo thing, running theoretical scenarios based on historical data. There are fancy interactive sliders that let you input your current portfolio balances, annual contributions, and your future expenses. The result is a pretty chart:

But the same problem always occurs whenever retirements depend heavily on market returns. If future returns are on the low side of history, I could end up broke* and eating dog food by age 90. If future market returns are high, then I could die with $10 million in the bank. What the heck do I need with that much money at age 90?

One way to avoid this is to have a very conservative portfolio of safe and short-term bonds (or TIPS). This has the slight inconvenient problem of requiring a very high savings rate. (Or lottery winnings, a large inheritance, or other windfall.)

Now, it would be nice to have a way to share the risk with others out over longer periods of time. Give up some of the potential upside, in return for some downside protection. This usually involves an insurance company (annuities) or the government (Social Security). Which do you want to trust with a big chunk of your hard-earned money? It’s a tough call. 🙂

* This isn’t technically true. I’m sure in reality, if my portfolio was doing so poorly, I would adjust my spending however I could. But I would have to decrease my standard of living.

What Is Your Portfolio’s Current Asset Allocation?

If you haven’t been keeping close track of it, your portfolio’s asset allocation may have shifted significantly over the past year. Your relative mix of assets like stocks, bonds, or real estate has a great impact on the volatility and expected future return of your portfolio.

Morningstar has a bunch of helpful tools for managing your investment portfolio, but many of them require a paid membership. However, one handy trick is that anyone can use many of these premium features for free at the T. Rowe Price website by signing up for a free account with nothing but an e-mail address.

Portfolio Manager
This tool lets you enter all your portfolio holdings, which it then stores for you and allows you to track it with automatically updated prices. You can either track all your future transactions as you go, or just input your updated holdings every few months like I do.

Portfolio X-Ray
Once you enter your holdings, simply look for the Portfolio X-Ray tab and you’ll have a complete breakdown of the true asset allocation of your overall portfolio. Does your “small cap” fund really own a bunch of mid-caps and large-cap funds? X-Ray will reveal your true exposure to stock style (i.e. Small/Mid/Large, Growth/Blend/Value), geographical regions (i.e. Japan, US) , stock sectors (i.e. Telecom, Energy), average expense ratio, and more.

If you’d rather have a quick peek without needing to register at all – but also without the ability to save your portfolio – try the Morningstar Instant X-Ray tool.

If you already have a target asset allocation in mind, now might be a good time to to rebalance your assets back towards that target. Rebalancing is a way to maintain the risk/reward balance that you have chosen for your investments, and also forces you to buy temporarily under-performing assets and sell over-performing assets (buy low, sell high). If you are looking for a bit more guidance, here are my favorite posts on investing.

MIT’s Real-time Inflation Calculator

A lot of people are worrying about inflation or deflation in the future. The most widely used definition of inflation is the Consumer Price Index, which is published monthly by the Bureau of Labor Statistics and is based on a basket of consumer goods using price surveys from cities around the country. This takes a while, so the CPI for December would be published in mid-January.

Professors Roberto Rigobon and Alberto Cavallo at the MIT Sloan School of Management started the Billion Prices Project which, directly pulls data from online retailers from around the world. In the US, the software is tracking 550,000 items from 53 retailers. The best part – since it’s all automated, the numbers are updated daily! The goal is to predict the CPI before they even announce it. You can see from the charts below that the two track reasonably well together.

Daily BPP Index vs. CPI

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Annual Inflation (over last 365 days)

If they start to vary widely, which one should be considered inaccurate? Via the NY Times.

ING Your Number: Retirement Calculator Assumptions and Factors

I was watching TV this weekend and kept seeing commercials about ING’s Your Number, which is an online calculator that supposedly helps you plan for retirement by telling you how much you need to save. Here’s one of them if you haven’t heard of them before:

After trying it out and finding out my 7-digit number, I wanted to see what was “under the hood”. Monte carlo simulations? Spits out random number to mess with your head? Maybe my Google-Fu is weak, but I couldn’t find anything except this Your Number worksheet [PDF] from ING dated 2009. The final numbers don’t match up, but it does provide some insight into how the current calculator works. Using this information and trying lots of permutations, I tried to backtrack how each question affects the final output.

Factors and Assumptions

Current age. This factor appears to be used solely to calculate how many years you have left until retirement. Since the ING Your Number is the amount of money you need at the time of retirement, it increases every year with inflation. This is an important fact to note, as needing $1 million today would be the same as needing $2 million 30 years from now due to inflation alone. (Inflation is assumed to be roughly 3% annually.)

Marital status. The calculator says “We’re not trying to pry into your personal life, but whether or not your married has an impact on your number.” Nosy or not, it actually doesn’t seem to matter. I tried all kinds of inputs, but I couldn’t find any that changed based on being married or not. Let me know if I missed something here.

Current household income. At first glance, you’d think your current household income wouldn’t affect Your Number necessarily, since it later on asks for the actual income required during retirement. I noticed that making slight changes in your current income doesn’t affect Your Number at all. However, large changes do – it appears that this number is used to estimate future social security benefits. If your current income is really low, then your future benefits will also be low, which increases Your Number.

Age at retirement. This factor is used twice – once along with your current age to find how long you have until retirement, and again with your death age to find years in retirement. The more years you plan to spend in retirement, the greater Your Number will need to be in order to maintain a margin of safety.

Annual income required during retirement. A recommended amount is 80% of your pre-retirement income, but I hate that rule-of-thumb. Instead, this is probably the hardest part of the calculator because it requires the most personal and in-depth thought. Is your house paid off and are you going to stay in it? How much of your current income goes towards work expenses? What activities do you plan to do in retirement?

Provide income through what age? As noted above, this “death age” is used to calculate the amount of years you’ll spend in retirement. I kind of wish they just assumed 100 or something for this, it seems a bit morbid to guess when you’ll die.

In the end, Your Number is essentially your annual retirement income multiplied by a factor ranging from 5 to 30, depending on how long your retirement horizon is. It could have just told people to multiply by 25 and be just as accurate (or inaccurate) . As you might expect with any calculator that tries to help plan your retirement by asking five questions, Your Number is mostly a marketing gimmick designed to connect you with ING-affiliated financial advisors and insurance salesmen. That doesn’t mean you still don’t want to try it, though, right? 🙂

What’s yours?

Getting Organized In The Google Era (Book Summary)

I ran across Getting Organized in the Google Era in an airport bookstore last month, and while I wasn’t enamored enough to pay the $23 retail hardcover price, I did add it to my library want list. The author Douglas Merrill was formerly the Chief Information Officer at Google, so I figured he might know something on the topic of organizing data in the digital age. Here are my notes.

First of all, this is not a detailed organizational framework like that of the best-seller Getting Things Done by David Allen. It’s actually more like a series of blog posts that ended up being stretched into a book. Merrill uses a very casual, storytelling style of writing with lots of (sometimes awkward) personal stories and song lyrics mixed in. It skips around a lot, from high-level organizational philosophies to tips on using Gmail to how his girlfriend died of cancer.

Organizational Principles

In the end, the book’s overall theme did stick to the subtitle of “How to Get Stuff out of Your Head, Find It When You Need It, and Get It Done”, and I did write down a lot of good basic principles from the book. Here they are, paraphrasing:

  • Don’t keep stuff in your head, get it out as soon as possible. Write it, type it, say it, whatever. Either paper and digital might be better for any specific task.
  • Always trying to multitask can actually make you less efficient overall.
  • Stories make it easier to remember information.
  • Don’t spend forever organizing your information, just search for what you need. Desktop searching, Google web searches, Gmail e-mail search, online calendars – use them to simplify things.
  • When overwhelmed or hitting a roadblock, break big tasks into smaller ones.
  • Try to integrate work with life instead of trying to balance them together. When people say the want a “work-life balance”, that’s usually just code for wanting to work less.

Useful Tools and Services

Another good part of the book was his list of software and websites that he found useful in organizing his life. Most are free, but some do cost money. A few are only on Mac OS X. Like I said, this seems like it would make a nice blog post… and now it is one 😉 I’m only listing the favorites.

  • Google. His favorite search engine, what a surprise. There are lots of little shortcuts in Google that help save you time. Want flight info? Just type the flight number in. UPS Tracking number? Just type it in. Here’s a cheatsheet straight from the source.
  • Quicksilver. Desktop search/application management/launcher tool. Mac only. [download, free]
  • Gmail. The best feature of Gmail is that you can quickly search through every single one of your e-mails, reducing the need to carefully organize everything. However, using some simple labels and filters can still help you group conversations and topics. Also has good spam filters.
  • Adium / Pidgin. Connects to multiple instant messages services all at once. Free. Adium is for Mac, Pidgin is for Windows.
  • Dropbox. Easy to use, online shared hard drive in the “cloud”. Good for storing, sharing, and syncing across computers. 2GB free, 50GB for $10/month. [website]
  • Things. To-Do List / Task manager software. [download, $49.95]
  • Xmarks. Put your web browser bookmarks online so you can sync across computer and access anywhere. Works with Firefox, Internet Explorer, and Safari. [website, free]
  • Google Health. Allows you to store and manage all of your health information in one central place. Even though I use a lot of Google stuff, I am still wary of sharing this type of data with Google. [website]

A related book that I also plan on reading soon is Upgrade Your Life by Gina Trapani of Lifehacker.

Free Download: Microsoft Money Plus Sunset Deluxe

Personal finance software Microsoft Money was discontinued as of mid-2009, but Microsoft recently released Money Plus Sunset Deluxe and Money Plus Sunset Home and Business available for free download.

Why?…
The stated reason for these editions is to avoid any ongoing online activation/re-activation issues with old software. Do be aware that the online abilities are disabled (no online quotes, no bill payment, no statement downloads initiated by Money, no data sync with MSN Money online services). There will not be any additional support available from Microsoft, only online self-help and through other users.

Money Plus Sunset Deluxe is designed to be a replacement for expired versions of Money Plus Essentials, Money Plus Deluxe, and Money Plus Premium versions. Money Plus Sunset Home and Business is designed to be a replacement for expired versions of Money Plus Home and Business.

Worth a download?
If you’re okay with staying offline, this version of MS Money might serve as an adequate free personal accounting and tracking software for a while longer. You can still manually import MS Money OFX files from your bank or other financial institutions. The Business versions allow to you print invoices. If you have an older version of Money, this is basically a free upgrade to the last edition sold.

Otherwise, it’s probably time to take another look at Intuit Quicken if you still want a full-featured desktop solution, which starts at about $40.

Ask The Readers: Favorite Personal Finance Apps for iPhone & iPod Touch?

No, I didn’t get an iPhone. But I did get an iPod Touch over Thanksgiving weekend. (Hurray for Amazon matching Apple Store Black Friday prices!) I know, I know, as a financial blogger I’m supposed to shun such trendy toys, but it was a gift! My parents got one for my sister as well as themselves, and I am assigned to teach them how to use it when I visit in December.

(I’m excited because my HTC TouchPro2 with my $30 Sprint SERO can be hacked to share it’s 3G connection as a WiFi Router, so I can get my iTouch online anywhere I have cell coverage. Nearly an iPhone!)

Another perk is that now I can review all those personal finance apps out there. I know there are a lot of budgeting apps, the Mint.com app, and various ones for banks and brokerage companies.

What are your favorite apps? Which ones were worth the money, and which ones weren’t? Which free and non-free apps would you like me to review? Share in the comments below.

Tracking Investment Portfolio Using Google Docs

I spent a little time tinkering with Google Docs Spreadsheets today, trying to use it to track the asset allocation of my investment portfolio.

GoogleFinance() Function
This function allows you to import data from Google Finance like current stock prices, p/e ratios, or performance. Here is the Google Docs Help page. For example, if you want to pull up the price of a share of Google stock, you’d enter this into a cell.

=GoogleFinance("GOOG"; "price")

Importing Personal Data
I could not find an easy way to import my actual holdings into Google Docs, but I’m not sure if you want that capability due to privacy concerns. Google Docs does allow you to import from RSS or XML feeds. I ended up just manually entering the ticker symbols and number of shares I held for each mutual fund. This means I will have to update my 401(k) funds after each paycheck, and my other holdings when I make a transaction or when a dividend is paid.

Shared Example
Below is a shortened version of my online file, as a quick example.

You can view the full version more easily here. To edit, go to File and click on “Create a copy…”. You can then poke around and change the ticker symbols to your own.

In the full version, I have columns that compare my current asset allocation percentages to my target percentages. This can help people who wish to rebalance when their allocations are off by a certain amount. I can see that I am currently overweight in Emerging Markets due to their recent run-up, and underweight in TIPS. Everything else seems close enough.

The pie charting function seems a little buggy, I couldn’t get it to show the proper labels.

Microsoft Money Discontinued, Transfer Your Data To Quicken

If you use Microsoft Money to manage your finances, you should know that Microsoft will no longer be selling MS Money after June 30th, 2009. From the Microsoft product page:

With banks, brokerage firms and Web sites now providing a range of options for managing personal finances, the consumer need for Microsoft Money Plus has changed. After suspending annual updates of Money Plus in 2008, Microsoft is announcing today that we will no longer offer Microsoft Money Plus for purchase after June 30, 2009.

But more importantly, your online services will also be discontinued soon. This means stock and mutual fund quotes, tax rate updates, and banking services like their billpay.

For Money Plus Deluxe, Premium and Home & Business customers, online services expire two years after initial activation or Jan. 31, 2011, whichever is earlier; for Money Plus Essentials it is one year after activation or Jan. 31, 2011, whichever is earlier. You can verify your expiration date in Money Plus by selecting Help / About Microsoft Money; it appears to the right of the serial number.

Ditched by Money, but Quicken Wants You
I suppose that this means Intuit wins the desktop personal finance software war. Indeed, it looks like Microsoft has really given up, as their last step is to make it easy for users to move to Quicken.

We’re working closely with Microsoft to develop an easy way for Money users to transfer data into Quicken desktop products. We’re assessing how we can make this capability a reality in conjunction with the release of Quicken 2010 in the fall.

An Intuit representative e-mailed me saying that they are working quickly on making a conversion file that would seamlessly move data from Money to Quicken.

In the meantime, Quicken is directly targeting the Money orphans by offering up to a $50 discount on Quicken products until the end of June: $20 off Quicken Deluxe, $30 off Quicken Premier and Home & Business, and $50 off Quicken Rental Property Manager.

Free Quicken Online & Others
But wait, MS Money says the primary reason they shut down is that many banks and brokerages are offering free aggregation services which provide a similar service. Indeed, there are also standalone aggregation sites like Yodlee, Mint, and Geezeo. And if you want a free desktop finance software with double-entry accounting, there is the open-source GnuCash, though it certainly lacks some polish.

But wait, why didn’t they just do their own online version? Intuit introduced Quicken Online, which is now free and tries to add a little Quicken flavor to the usual aggregation model. More competition would have been good. I guess they spent all their energy on Bing.

Access Morningstar X-Ray, Portfolio Management Tools For Free

Morningstar.com has a bunch of helpful tools for managing your investment portfolio. Many of them are free, but some require you to be a member. Premium membership is not cheap at $174 a year ($115 with Fidelity account), although you do get other features like mutual fund analyst reports. But since I’m not interested in those, I was happy to discover that most of the free tools and even some of the normally paid tools are available to all at T. Rowe Price. You don’t even need an account with them. Both sites require free registration (basically just e-mail).

Here is a roundup of the tools that are available, along with links to both sites where available. Since many of the tools are integrated, I have found it easier just to keep all my data at T. Rowe Price.

Portfolio Manager (TRP / Morningstar)
Portfolio Manager “enables you to track, rebalance, and analyze your portfolio. It includes a complete picture of all your holdings’ prices and performance – individual securities and funds together – in a convenient one-page format that’s updated throughout the trading day.” You can either track all your transactions as you go, or just input your current holdings. The Morningstar version differs by appearing to be slightly newer, and allows you to import your portfolio from an external Quicken/Money/Broker .csv file.

Portfolio X-Ray and Portfolio Instant X-Ray (TRP / Morningstar)
The Morningstar Portfolio X-Ray tool is a great tool that lets your look “under the hood” of your mutual funds. Does your “small cap” fund really own a bunch of mid-caps and large-cap funds? X-Ray will reveal your true exposure to stock style (i.e. Small/Mid/Large, Growth/Blend/Value), geographical regions (i.e. Japan, US) , stock sectors (i.e. Telecom, Energy), and individual equities (i.e. type, Top 10 holdings).

Also, by looking at your portfolio as a whole, you can see your true asset allocation. Maybe some of your funds have overlap that you didn’t know about. The “Instant” version, which the only version available for free at Morningstar, does not allow you to save your portfolio X-rays for future sessions.

Asset Allocator (TRP / Morningstar Premium Only)
Asset Allocator “is a quick, simple calculator that shows the probability of achieving an investment goal based on current portfolio value, investment mix, and savings rate.” Fun to play with for a while, but if you aren’t savvy it can create the illusion that the answer to reaching your goals is simply to increase your stock percentage until you get the return you want. Use with caution.

Portfolio Watchlist (TRP / Morningstar)
Portfolio Watchlist “helps you track your investments against pricing and volume targets in a convenient one-page format that’s updated throughout the trading day.” Basically the same as Portfolio Manager above, but you can track a bunch of different model portfolios. This is great for creating a benchmark for your performance, or seeing what would happen if you tweaked something.

IRA Calculator (TRP / Morningstar)
A somewhat basic tool, but still handy. The IRA Calculator has three different sections: Eligibility (determine your contribution limit for a Roth or Traditional IRA), Comparison (compare various scenarios to find out which type of IRA works best for you), and Conversion (find out whether it makes sense to convert a Traditional IRA to a Roth IRA).