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


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.

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 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 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).

INGCompareMe: How Do YOU Compare With Others Financially?

Here’s another comparison site to waste some Friday afternoon time on – From their press release – “INGCompareMe makes it possible for anyone to see where they stand in relation to others on a wide range of saving, spending, investing, debt and personal finance matters.”

The comparison database was initially fed by a survey conducted by ING of over 5,000 adults who participated in workplace retirement savings plans. But as more people use the site (like you), their answers are also incorporated into the results.

I’m sure the ultimate goal is to sell you some sort of ING financial advice, but since the tool is anonymous I took it for a whirl. Of course, the question below provides the most insight:

Only 10% of people are below average? I guess I also live in Lake Wobegon. 🙂

Worry-Free Investing: Calculate Your Risk-Free Savings Rate For Retirement

Conventional advice has been that we should invest in some mix of stocks and bonds to reach our retirement goals. But as we’ve seen, rolling the dice on a varying return distribution every year can be quite stressful. What if we start our retirement planning based on buying a safe investment that guarantees a steady after-inflation return instead? This question is posed in the book Worry-Free Investing by Bodie and Clowes.

Treasury Inflation-Protected Securities (TIPS) are bonds that promise you a total return that adjusts with the CPI index for inflation. Very generally, it works like this: if the stated real yield is 2% and inflation ends up at 4%, your return would be 6%. TIPS are issued and backed by full faith of the U.S. government, so they are as safe as they get. As your investment the automatically adjust with inflation, you will never have to deal with the stomach-churning swings of stocks, and also you avoid the risk of underperforming inflation that traditional (nominal) bonds have.

How much would you have to save if you decided to take zero market risk and invest solely in TIPS? The book outlines the mathematical formulas to use, but also provides a free spreadsheet calculator to do the heavy lifting for us. I uploaded it to ZohoSheets:

I would recommend playing with the numbers a bit. To start, the book was written in 2003 when the real rates were relatively high at around 3%. Given the recent history of the 20-year TIPS yield (shown below), I would assume a maximum of a 2.5% real interest rate.

I would also change the replacement rate to something that more closely tracks your specific expected expenses. The book recommends the income required to maintain your “minimum acceptable living standard”. For the skeptical and/or early retirees, don’t put in anything for Social Security. Finally, don’t forget to input your current savings.

You now have your personal risk-free savings rate to reach your goals. (Warning: It might be really high! If so, try retiring at 65 and input something for Social Security.) But let’s say you need to save 10%, but you are able to save 15%. You could put the 10% in the ultra-safe TIPS, and put the other 5% in something riskier to boost your returns while still guaranteeing a minimum future income. I’ll share a possible solution from the book once I get access to a flatbed scanner.

Now, there are lots of potential glitches with this simulation. For one, there is reinvestment risk because the TIPS real interest rate will continue to vary, and could drop to much lower levels. The government could even conceivably stop selling new TIPS at any time. Some people are skeptical that the CPI properly tracks inflation. Finally, TIPS are taxed at ordinary income levels, so one should keep them in tax-advantaged accounts. However, most people’s 401ks don’t include TIPS as an option! Otherwise, taxes are going to hurt returns.

In the end, I think a portfolio of 100% TIPS is impractical for most people. However, I definitely like TIPS as a component, and see this thought process as a way to estimate a “target” savings rate that can let those so-inclined to take less risk and sleep better at night.

Archives: Useful Homebrew Financial Calculators

calc.jpgIf have to repeatedly have to make a calculation and I can’t find it elsewhere to my liking, I usually try and make my own calculator to save time in the future. Below are links to ones that I still use regularly, I wanted to point them out because they tend to get lost in my archives. Hopefully, they can be useful to you as well.

Ultimate Interest Rate Chaser Calculator
A “rate chaser” is someone who move their money to whichever bank offers the highest interest rates. For example, due to various promotions I have over 10 accounts open at various online banks. This calculator helps you figure out how much money you’ll earn by switching.

True Cost of Impulse Buying Calculator
Being smart with money is all about choices and priorities. Would you rather have another $300 iPod, or realize that with compound interest you could have an $2,000 more (inflation-adjusted!) later on. You’re not just saving $300, you’re shaving weeks off your retirement date!

Your Portfolio’s Rate of Return – Estimation Calculator
When trying to figure out your portfolio’s performance, don’t just trust the performance stats of your mutual fund or that number on your statement. Calculate it independently using this simple calculator. It gives surprisingly good estimates.

Your Portfolio’s Rate of Return – Exact Calculator
Slightly more complicated to use, but more accurate. You must know the dates and corresponding amounts of cash inflows and outflows.

Asset Allocation Guide: Percentage Of Your Portfolio In Stocks?
The calculator at the bottom shows you how your stocks/bonds ratio might look if you use popular Target Date mutual funds as a reference.

0% Balance Transfer Profit Calculator Tool
My series of articles on How To Make “Free” Money From 0% APR Balance Transfers has been very popular and many readers have also jumped in. Despite the risks, I’m still happily earning some money from the credit card companies for a change, and haven’t missed any payments.

This calculator is for the analytical types that want to have a better idea of profit potentials. The calculator takes into account minimum payments required by credit card issuers. Use in conjunction with my list of best 0% APR balance transfer offers.

Make Money From Credit Cards: 0% Balance Transfer Profit Calculator Tool

My series of articles on How To Make “Free” Money From 0% APR Balance Transfers has been very popular and many readers have also jumped in. Despite the risks, I’m still happily earning some money from the credit card companies for a change, and haven’t missed any payments. From the beginning, people have asked me to make a spreadsheet or calculator in order to estimate the potential profit from such endeavors. I initially decided against doing so because there are lots of different variables at stake that make an exact prediction close to impossible. However, I think it may still be useful to obtain some more realistic numbers.

Without further ado, I present to you the…

0% Balance Transfer Profit Calculator

Enter savings account APY: %
Enter starting balance: $
Enter the monthly minimum payment percentage (2%) %
Your interest earned:   $
(See assumptions and definitions below)

Inputs and Definitions

  1. Arbitraged Interest Rate (APY) – Where are you putting the money you’re borrowing for free? This is the interest rate of the investment vehicle (savings account, CD, Treasury bond) you are using, or perhaps the interest rate of the existing loan (car, home equity, student) that you are paying down.
  2. Starting Balance (dollars) – How much money are you transferring?
  3. Monthly Minimum Payment (%) – Usually you must still make a monthly minimum payment on the outstanding balance during the 0% period, which will decrease your profit potential slightly. This is usually around 2%, but may vary between 1.5% and 4%.


  1. The balance transfer is for 12 months at 0% APR, with no balance transfer fee. You can find my list of the best 0% APR offers here with low or no balance transfer fees here.
  2. The interest is assumed to compound monthly, which allows me to convert from APY to APR, and then to a periodic rate. Compounding frequency is a variable here, but doesn’t change the numbers too much.
  3. I am ignoring the time required to actually convert the balance transfer into cash earning interest. Sometimes this can take up to a few weeks, sometimes it is much faster. Instead of guessing, I just leave it be.
  4. I am also ignoring things like grace periods and the timing of statement cycles and due dates, which can actually increase the time that your borrowed money is earning interest, and thus your profit.
  5. If you are earning interest in a taxable bank account, you will likely owe income tax on that interest at your marginal rate. This is not accounted for in the calculator, but is a simple calculation.

(If you’re confused about what I am talking about, please refer to the tutorial mentioned above.)

Example Profit Calculation
Let’s say you obtain $15,000 and place it in a bank account paying 5.25% APY, with a 2% monthly payment. Using our assumptions, the 5.25% APY is equivalent to 5.13% APR, or earning 0.4273% of the balance each month.

Beginning of Month #1: You have $15,000 in the bank. Total balance left on credit card: $15,000. Nothing is due yet.
End of Month #1: You earn $64.10 in interest, but also need to pay back $300 (2% of $15,000) out of your bank balance for the minimum payment.

Beginning of Month #2: Total in bank:$14,764.10. Total balance left on credit card: $14,700.
End of Month #2: You earn $63.09 in interest, but also need to pay back $294 (2% of 14,700).

This continues for 12 months, as shown below:


At the end of the 12th month, your bank balance is $12,477.87, and you still owe $11,770.75 on the card. You pay it off completely, leaving you with the resulting estimated profit of $707.12.

Play around with the calculator. Some people actually have over $100,000 out at once, earning them thousands of dollars a year. My credit limits aren’t quite that high…. yet!