Give a Gift that Keeps on Giving
Give a unique and special gift this holiday season. It is a gift of connection, a gift of hope, and a gift that believes that poor people can use their ingenuity and hard work to break out of the cycle of poverty.

Your gift can help fund loans to poor people who could start a business, save, and work their way out of poverty. And when you purchase a gift certificate of $20 or more on MicroPlace, we’ll give you a free gift certificate of $20 to send to someone else on your shopping list!

To learn more about Microplace check out these posts, including my last microlending update.

50,000 British Airways miles is enough for an economy class transatlantic flight from USA to their “Europe Zone 1″, which includes the United Kingdom, Belgium, France, Germany, Ireland, Luxembourg, Netherlands and Switzerland. Note that “all reward flights are subject to taxes, fees, charges and surcharges, including airline surcharges.”, which can add up. I did a quick search and for a random San Francisco (SFO) to London (LHR) flight in March 2010 that cost $807, the taxes and fees alone were $387.

You’ll also need to fly out of a major city that BA services (see route map). Still, two free flights from US to London even for a few hundred dollars each is a big discount for those looking to buy such a ticket anyways.

What if you like to fly in style? 100,000 miles is good for a single business class ticket from USA to Europe Zone 1… and the fees are more reasonable on a relative basis. A business class flight from SFO to Paris (CDG) in March 2010 would have cost around $4,700 in cash, but the fees/taxes are only about $400 as well:

Finally, if you can manage to spend $30,000 a year on the card, you can even earn a 2-for-1 companion voucher. Time to buy some coins? Thanks to reader Paul for the tip.

One thing that I did like was her discussion of planned vs. perceived obsolescence. Here are the definitions from the film glossary:

Planned obsolescence: designing and producing products in order for them to be used up (obsolete) within a specific time period. Products may be designed for obsolescence either through function, like a paper coffee cup or a machine with breakable parts, or through “desirability,” like a piece of clothing made for this year’s fashion and then replaced by something totally different next year. Planned obsolescence is also known as “design for the dump.”

Perceived obsolescence: the part of planned obsolescence that refers to “desirability”. In other words, an object may continue to be functional, but it is no longer perceived to be stylish or appropriate, so it is rendered obsolete by perception, rather than by function. Fashion is all about perceived obsolescence, and it could be said that perceived obsolescence is the number one “product” of the advertising industry.

Non-Consumer Alarm!
This made me think about how companies have made easy it is to identify “non-consumers”, which usually leads to them being mocked somehow. Let’s take cars. Models change very often, even if just slightly, so it’s very easy to tell that my car is 10 or 15 years old. My wife and I are often told by our friends and family that our cars don’t match our job titles/income levels. Same with cell phones. If your phone doesn’t have at least a QWERTY keyboard these days, it’s a freaking antique.

As for clothes, I’m always happy that I’m a guy because my closet of long-sleeved dress shirts, cotton polo shirts, slightly baggy jeans, and cargo shorts have managed to last me for over a decade now. Meanwhile, to be a mainstream woman, you went from flare jeans to low-ride jeans to the new thing - skinny jeans. I won’t even go into shoes (UGGs??).

Try it next time you’re in a crowded area, at work, or visit someone’s house. See if you can pick out who hasn’t bought the newest version of something in the last few years.

*You can either watch the video in Flash at the main site or below on YouTube. The part about planned vs. perceived obsolescence is at 12:35 (total length: 20 minutes).

Click below or on the thumbnail above to see the whole thing.

Credit to Scordit.

The way I see it, LendingClub (review, $25 bonus, performance update) basically looked at all the problems that Prosper had and tried their best to fix them. So now, Prosper is back, and in turn looks a lot like LendingClub. For example, LC requires a 660 minimum credit score to qualify for their lowest grade loan (amongst other things), and now Prosper requires a new borrower to have at least a 640 credit score with their new ratings system. With both, you can have them automatically construct a portfolio for you based on your risk/return preference, and you can buy/sell notes before maturity on a open trading market.

Prosper still has their “reverse auction” eBay-style method of determining the interest rate, but lenders are now are restricted to a specific range of interest rates. (LendingClub simply sets the interest rates for you.)

In order to stimulate lending activity, they have a few incentives going on. If you sign up as a lender and bid on two loans (minimum total investment of $50), they will provide you a free $50 bonus. Click here and on the orange “Invest Now” button and you’ll see it. You must reinvest this $50 by the end of 2009. On top of that, Prosper is also offering a 1% or 2% “rebate” back if you invest at least $1,000 or $5,000, which would help juice your returns. Details:

Starting on October 12 if you invest $1,000 - $4,999 you will receive a 1% cash rebate into your Prosper account or, invest $5,000 or more and receive a 2% cash rebate into your Prosper account. Lenders must invest the funds during the promotional period of October 12 through November 15 by being a winning bidder on loan listings that result in funded loans. Notes purchased through the trading platform are excluded from the promotion. Once you have bid and invested on the loan listings your 1% or 2% cash rebate will be deposited into your Prosper account by December 4.

As a long-term investment, a 0.3% real yield makes I-Bonds a slightly worse choice than Inflation-Protected Treasury Bonds (TIPS). As of yesterday, a 5-year TIPS had a 0.73% real yield.

As a short-term investment, it depends on how you think inflation will turn out in the near future. If you buy a new I-Bond in November, you will earn 0.3% fixed + 3.06% based on inflation = 3.36% for the first 6 months. The second 6-month rate will be 0.3% + a variable rate based on inflation from September 2009 to March 2010.

(Savings Bond Reminders: You must hold for at least a year (or 11 months and a day if you buy on the last day of the month). If you hold for less than 5 years, there is a penalty of the last 3-months interest. Savings bond interest is exempt from state income taxes, and all taxes can be deferred until the time of bond redemption.)

Worst case scenario, there is deflation of worse than 0.3% which makes the total rate zero for the 2nd six months. Earning 3.36% for 6 months with an 11-month holding period gives you an effective rate of approximately 1.83% APY. This is only slightly lower than the top yields for a 12-month CD. If the annualized inflation rate over the 2nd 6 months is just 1%, your effective rate after the 3-month interest penalty rises to 2.00%. It’s not a screaming buy, but if you are looking for 1+ year safe investment and haven’t exceed your annual purchase limits, I would personally buy them over a bank CD since you do well in cases of rising inflation and okay otherwise.

For more background, see the rest of my posts on savings bonds.

Here’s a timely offer, at least for me. New-ish online broker OptionsHouse is offering 100 free trades when you open a new account with at least $3,000 with the promo code FREE100. The 100 free trades work for both stock and options trades, and are good for 60 days after funding. On top of that, their regular price for stock trades is only $2.95, while their options trades cost a flat $9.95 with no additional contract fees. Finally, there are no monthly minimum balances and no maintenance fees. Not a bad price structure.

Quality-wise, they promote the fact that Barron’s rated them #1 in Trade Experience and in the top tier overall in their March 2009 broker review. Although not a big name yet, they do seem like they are ready for serious traders. Here’s a snippet of the review:

Pros: As its name suggests, Options House has a lot of great tools for the options trader. Backed by market maker Peak6, this broker lets its retail customers use quite a few professional-level tools. Building a spread is very intuitive on this system, as is rolling a call or put from one strike to another. The site’s motto is “Fast matters,” and that goes for everything from finding possible trades to populating an order ticket to executing the trade itself.

Portfolio-analysis tools are top-notch here, too. The Risk Viewer includes a what-if calculator showing what could happen based on various market scenarios.

Options House also offers the Maxit tax-management tool for free. Although this is a Web-based platform, it has the flexibility and power of many of the software platforms.

Cons: No mobile access yet. However, the company says it is coming later this year. Limited fixed-income and mutual-fund offerings.

As noted I am starting to invest in some ETFs, so I might give these guys a spin. After looking through their fee schedule I noticed that they all partial outgoing ACAT transfers for free, which means that it won’t cost very much for me to move my holdings out if I need to. (Just transfer the important holdings out, keep one unimportant holding, and then sell it later.) I hope their free tax-management tools does my Schedule D for me.

Update: I just applied - relatively straightforward application, at the end you need to fax/mail in a signature page and a copy of your driver’s license or utility bill. They allow ACH funding online.

The most commonly-noted drawback of ETFs is that you must buy them like a stock and thus pay trade commissions. However, if you buy these within a Schwab brokerage account, there are no commissions charged. Here is a chart comparing the new Schwab ETFs and their corresponding competitor from Vanguard. The ETFs don’t necessarily track the exact same index, but they are pretty similar.

This is definitely worth a second look. A possible criticism is that Schwab may increase expenses and reinstate trading fees in the future, which may lead to tax hits if you wish to switch back to other ETFs. Meanwhile, Vanguard has a long track record of rock-bottom expense ratios. However, it may also be that increased competition in this area by others like Fidelity and E-Trade will prevent this from happening.

Credit Card Debt
In the past, I have taken money from credit cards at 0% APR and placed it into online savings accounts, bank CDs, or savings bonds that earn 4-5% interest (much less recently), and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way.

However, given the current lack of great no fee 0% APR balance transfer offers, I am no longer playing this “game” and have just paid off my last 0% offer for now. This makes the net worth chart a bit funny, but it should clear up next month.

Retirement and Brokerage accounts
Our total investment portfolio increased by a few thousand dollars since last month. DW’s 401k was already maxed out at $16,500. I made another $1,000 contribution to my Solo 401k, for a total of $16,500 contributed in 2009 as well. (I forgot the limit was $16,500 and not $15,500 last month…) This makes us done with our goal of maxing out both our 401k salary contributions for 2009.

I am starting to build up too much cash, and have started investing for retirement in a taxable brokerage account as well. In the interest of tax efficiency, I’ll have to move around some investments in order to keep bonds in the tax-advantaged IRAs/401k and the “extra” stocks in taxable. I expect to finish investing $20,000 this week.

Taking that additional 20k into account, our total retirement portfolio is now $211,095, or on an estimated after-tax basis, $170,047. At a 4% withdrawal rate, this would provide $567 per month in tax-free retirement income, which brings me to 23% of my long-term goal of $2,500 per month.

Cash Savings and Emergency Funds
We keep a year’s worth of expenses in our emergency fund. Another $10,000 is earmarked for upcoming home improvement projects that I keep putting off (minor roof repair and solar water heating).

Home Value
I am no longer using any internet home valuation tools to track home value. Some people have suggested using my tax assessed value, but I also think that is too high. I simply picked what I felt is a conservative number based on recent comparables, $480,000, and keep it for at least 6 months if not a year. (Currently on month 2 out of 6.) For the most part I am concerned about mortgage payoff, which I still plan to accomplish in 20 years at most.

You can view previous net worth updates here.

As a rewards card, it offers 1 point for every dollar in purchases (100 points = $1, or the usual 1% back). The nice part is that redemptions are easy - you can even redeem in $1 increments as long as above $25, so you could cash out $27 or $113 without anything left over. There are no earning caps, or points expiration dates.

In addition, you can get double points on airfare booked through their Ultimate Rewards website. It also promotes a “premium, dedicated service line that gives you access to a live person anytime, 24/7.” Fine print:

10,000 bonus points
You will qualify for and receive your bonus after your first purchase/first use of the card. First purchase/first use includes purchases, balance transfers, or any checks that are used to access your account, and excludes cash advances. After qualifying, please allow 6 to 8 weeks for bonus points to post to your account. This one-time bonus offer is valid only for first-time cardmembers with new accounts.

• Parent #1 opens a new Ohio 529 account using a referral from an existing user (details below). They list the child’s name as beneficiary. Parent #1 earns $25 incentive.
• Parent #2 open a new Ohio 529 account as well, using a referral from Person #1. This account can also list the child’s name as beneficiary. Parent #1 earns $50, and Parent #2 earns $25.
• Both people also start a automatic savings plan with just a $25 minimum monthly deposit (details below). This earns another $25 each.
• Add them all up, and that amounts to $150 in free money towards college. All the applications and deposits are done electronically quickly and with minimal hassle. Keep up the automatic deposits, and make saving for college easy.

Refer-A-Friend Bonus
If you open a new account and enter the referral code of an existing member, the new member will get a $25 bonus into their account. The referring member will get $50. My referral code is 2439350. This current promotion expires December 15, 2009. Many more details here.

$25 Systematic Savings Bonus
If you start a new recurring electronic funds transfer (EFT) from your bank account into your 529 account of at least $25 per month for 3 months, you will receive a separate bonus of $25. This recurring transfer must be started by January 31, 2010. Many more details here.

Have you heard of this? A network of dentists will buy back your Halloween candy for $1 to $2 per pound at HalloweenCandyBuyBack.com. After a few zip code searches, there actually does seem to be a few dentists in many metro areas. They are then encouraged to donate the candy to be sent to troops overseas.

Seems like an idea with good intentions, but somehow seems funny to me. Candy is bought by my neighbors, which is given out free to kids in costume, which gets sold to dentists for cash, and then is finally donated?

As a kid, the best part was trading candy between friends afterward. (I’ll add that I was always made to brush regularly and have never had a cavity in my life.) What was your favorite Halloween candy? I still love Dum-Dum lollipops.

Factor #1: How Long Will You Keep Your Job?
Even if you have a bad 401k plan, remember that as soon as you leave that company, you can roll over those tax-advantaged funds into a Rollover IRA at the company of your choice! You may or may not have a good idea of how long you’ll stay there, but the fact is most of my friends have not worked at any company longer than 5 years or so.

(A few plans offer what is called in-service withdrawals, where you can roll over your 401k fund into a IRA without leaving your employer. These are rare, but it’s worth asking about.)

Factor #2: Can You Help Your HR Department Make A Change?
The reason why expensive 401k plans exist is because they tend to be cheap for the employer. Essentially, the administrative costs for running the plan are shifted to the employees. Big companies tend to have better plans because they offer enough assets for companies like Vanguard to jump in.

Still, you might be able to enact some change. Print out some material about how high plan expenses can really hurt performance and thus people’s retirements. Talk to your co-workers, and make it an worker attraction/retention issue. You may not need to switch providers, but perhaps they’ll at least offer a better option or two. I’ve even read about Congress considering a law requiring all 401k plan administrators offering at least one index fund option.

Factor #3: How Expensive Is It?
Unfortunately for Robert, he shared his available investment options along with their annual expense ratios, and they are the worst I’ve seen yet:

Blackrock Fundamental Growth C MCFGX 1.94%
Blackrock Global Allocation C MCLOX 1.88%
Blackrock Government Income Portfolio C1 BGIEX 1.53%
Blackrock International Value C MCIVX 2.60%
Blackrock Large Cap Core C MCLRX 1.97%
Blackrock Large Cap Value C MCLVX 2.00%
Blackrock Value Opportunities C MCSPX 2.34%
Davis New York Venture C NYVCX 1.71%
Evergreen Core Bond C ESBCX 1.45%
J P Morgan Dynamic Small Cap Growth C VSCCX 2.12%
Mfs Total Return C MTRCX 1.52%

It may be tempting to think “well, no matter how bad the plan is, it will still be better than a taxable account, right?” Wrong. Actually, given current tax rates, it can be better to keep your money in a taxable brokerage account than in a 401(k) plan if the options are expensive enough. Here are some quick and dirty examples.

Let’s say you put in $10,000 in a taxable account. You invest in an index fund with 0.20% expense ratio. The broad US stock market earns 8% per year. Since you get the gains minus expenses, you get 7.8% per year. You get a 15% tax hit at the end for long-term capital gains. Your final after-tax balance after 30 years is $80,906. (Yes, I’m ignoring the annual taxation of dividends for now.)

Let’s say you put in $10,000 of after-tax money in a Roth 401(k). You buy a Blackrock fund with 2% expense ratio. Again, on average, all mutual funds that invest in the broad US stock market will earn the market returns (8%) minus expenses (2%), giving you a 6% return per year. However, you have no tax hit at the end since it is a Roth. (You’d get the same result with pre-tax money in a Traditional 401k.) Your final after-tax balance is only $57,434.

The above is a very simplified comparison, but the point is that the gradual annual hit of a high expense ratio can overcome the tax break advantage. Usually this takes an expense ratio above 1% and a long time horizon.

Recap / WWMMBD
If you think that your current plan options will continue to be this bad for the next 10 years or more, and you don’t think you’ll leave your company before then, then it may indeed be better to just invest outside a 401k plan. (Keep up the IRA contributions!) However, I think that soon 401k plans will be more tightly regulated, and the trend is for plans to at least offer a few low-cost options. I know my plan seems to get a little better every year. If it were me, I’d probably suck it up and still tuck money away in the 401k in the hopes of a brighter future.

I’ve spent the last few hours browsing on Swaptree, which is a website that allows you to swap your books, CDs, DVDs, and video games with other members. You just list the items that you want to trade and the items that you want, and Swaptree sets up trades for you. You can also view a big list of other things you could get in trade. If you see a swap you like, you just pay for shipping your items out, the site does not charge any fees. (It appears to be ad-supported.)

You can list items you want to trade quickly by entering the UPC or ISBN code on the item. Everything is one-for-one. For example, one book is traded for one video game. The site tries to create more possibilities by figuring out 3-way and even 4-way trades between members. Trust is gained by an eBay-like rating system. There is also a postage-printing service that makes it easy to make postage labels and drop your package off without waiting in lines.

I kind of view Swaptree as the $3 store:

1. You list all your old books/CDs/DVDs/games you don’t want and aren’t using. Good weekend project.
2. You now have a store in which everything is essentially priced at $2-$3, the cost of shipping your stuff out. Just listing a few books can offer up hundreds of options.
3. If you want something specific, list it on your Want list so others have a greater opportunity to create a working swap.
4. Be quick though, as some of the good items get snapped up fast!

I know, this doesn’t take into account the value of your media, but I would say this is best for things that have been sitting around for a while. Why list a bunch of items that might be worth a few bucks on eBay and be subject to $1 in eBay/PayPal fees, not to mention paying listing fees for each item that doesn’t sell.

You are allowed to ship via Media Mail, which is based on weight (ex. $3.16 for a 3 lb. package). However, if you ship in a padded envelope and it is under 9 ounces, shipping via First Class is both cheaper and faster.

This might be cool for kids. The Spend Save Bank randomly deposits coins into either the ‘Save’ or ‘Spend’ section. It’d be even better if there was a option to set what percentages you want to split between spend and save, but I guess that would be a lot more complicated than a swiveling tray. Via Gizmodo via bookofjoe.

“Like a slot machine that never loses.” Ha! Here are some more funny piggy banks I’ve ran across.

More specifically, if you sign up for Google Voice with your existing number, you’ll get:

* Online, searchable voicemail
* Free automated voicemail transcription
* Custom voicemail greetings for different callers
* Email and SMS notifications
* Low-priced international calling

If you already have a Google Voice account, go to Settings and look for a link by your cell phone number. If you want one, people have been getting their invite requests filled within a few days. Don’t forget all the ways you can save money with Google Voice.

It would be convenient to have voicemail-to-text sent automatically via SMS. However, currently it appears that Sprint does not support free call forwarding and charges 20 cents per minute, so I’m left out for now. A short explanatory video from Google is below:

Can I get around the $20,000 annual buying limit by purchasing I-bonds in my child’s name?

After doing some research, it does appear that yes, you can exceed the usual purchase limits by buying more bonds in the names of your children. Currently, the annual purchase limit is now $5,000 in paper bonds and $5,000 in electronic bonds per series type (EE/I) and per Social Security Number. Thus, a couple could buy a total of $20,000 per year in I-Bonds.

From the TreasuryDirect Change in Annual Purchase Limit FAQ:

I’m buying bonds for myself and my children through my TreasuryDirect account. How does the limit apply to these purchases?

You can buy up to $5,000 each year of electronic Series EE and I bonds in TreasuryDirect on which you are the primary owner, plus up to the limit of each series in the name of each child for whom you’ve established a linked account in the child’s name as primary owner. Minor linked accounts are sub-accounts of your own master account, but do not provide you with ownership rights to securities held in the linked sub-accounts.

The next question is do you have the ability to buy and sell the bonds? From the TreasuryDirect Establish an Account for a Minor page:

A Minor account is a custodial account you may establish for a child under the age of 18 if you are a parent, natural guardian, or person providing chief support. You may purchase, redeem, receive gift deliveries, and perform other transactions within the account on behalf of the minor. When the minor reaches age 18 and establishes his or her own Primary account, you may de-link the securities from the Minor account to move them to the newly established account.

Other considerations
Since these bonds will be bought in the name of a minor, they are the one that will receive the interest income when redeemed. This might actually be a good tax move, as a child can earn a certain amount of income ($1,900 in 2009) before it is subject to tax at the parent’s higher rate. See this IRS page for more info.

When the child turns 18, it is then in their control and you can no longer perform most transactions like selling the bonds. In addition, there is also the education exclusion which can allow bond owners to avoid paying tax on the interest when used for qualified higher education expenses. If you’re thinking of doing this, remember that the bond has to be in the parent’s name, not the child’s name. More details here.

A maximizer is like a perfectionist, someone who needs to be assured that their every purchase or decision was the best that could be made. The way a maximizer knows for certain is to consider all the alternatives they can imagine. This creates a psychologically daunting task, which can become even more daunting as the number of options increases. The alternative to maximizing is to be a satisficer. A satisficer has criteria and standards, but a satisficer is not worried about the possibility that there might be something better. Ultimately, Schwartz agrees with Simon’s conclusion, that satisficing is, in fact, the maximizing strategy.

If you can’t tell already after 10 seconds of reading this site, I am a hardcore maximizer. I love collecting data, poring over alternatives, finding out secret exceptions, all so I can choose the “best” choice. I prefer the term “good enough-er” to satisficer. For some people, the second it reaches the “good enough” stage, they are done and move on.

A Pathetic Maximizer Story
This happened just last week. A friend of mine comes over, and brings some McDonald’s with him. After he leaves, I go to throw out the garbage but notice an unpeeled Monopoly game piece. I peel it out of curiosity, but I get no instant-win and two random streets (St. James Place and Atlantic Avenue). But wait… I vaguely know that one of the rules of the game is that if you collect all the streets of a neighborhood (same color), you win a cash prize. However, some streets are given out all the time, while others are very rare. What if I had one of the rare pieces?

Of course, I then had to fire up the computer and search for the rare pieces. Lo and behold, Wikipedia also has a list of all the rare pieces. For example, Ventnor Avenue is also yellow like Atlantic, but is always the “missing” piece and thus essentially worth $25,000 by itself. My pieces were of course worthless. But I still had to know.

Maximizing and Investing
I began to think about how this relates to personal finance. In investing, you’d obviously like to maximize your returns. However, it is very difficult to know in advance which stock or mutual fund will outperform the rest. You could read books, financial statements, interview executives, or watch CNBC all day. You could listen to Warren Buffett’s every bowel movement and dissect all his annual shareholder letters for hints and tips.

Or if you’re like me, you may decide that even though the market isn’t perfectly efficient, it is still very efficient especially when costs like mutual fund fees, trade commissions, and tax considerations are taken into account. I now invest passively, and agree to be “satisficed” with the returns of the world markets minus costs. But even here, I am trying to maximize my returns by minimizing costs by buying Vanguard index funds or similar ETFs so that my portfolio costs less than 0.20% of assets annually.

Better to Satisfice?
The things I could maximize financially go on and on. From bank interest rates to cell phone plans, credit card reward structures to auto insurance premiums. Would I be happier if I just picked something “good enough” and moved on? Perhaps it is you readers that are the smartest, letting us slightly kooky bloggers do all the research for you, and then just picking what is good enough for you!

Where maximizing hurts most is when it stops you from taking action. It doesn’t matter if your interest rate is 1.8% vs. 1.85% when your money is still stuck in a 0% checking account at some megabank. It doesn’t matter if you get the optimal 401k asset allocation if you’re not even contributing the most you can to the plan. For me, I have been putting off fixing up my house and adding solar hot water for several months because I want to find the “best” contractor. Meanwhile, I’m still using too much electricity and the tax breaks may expire.

Are there some things where you maximize, and others where you satisfice?

* Earn 15,000 Membership Rewards bonus points when you spend $1,000 in your first 3 months of Card membership. MR points are very versatile, and can be converted to 15,000 frequent flier miles in a number of programs (or 10 Southwest credits), or you can simply get $150 in gift cards at several stores like Home Depot, Crate & Barrel, or Macy’s. I think you can also get cash equivalents at a reduced ratio.

* Offers 3X points on airfare, 2X points on gas and groceries, and 1X points on everything else.

* Earn 15,000 Membership Rewards bonus points when you spend $30,000 per calendar year.
* No annual fee for your first year. After that it is $175.

There are two ways to maximize this offer. The easy way is to simply sign-up, grab the 15,000 MR points bonus, and then cancel anytime within the first year, that’s a quick $150+ bonus which is rare these days.

The only other scenario is that you are a big spender and purchase a lot of airfare, because triple MR points is pretty rare and you’ll have to reach that $30,000 spending target to offset the $175 annual fee after the first year.

What was your inspiration to go on this adventure?
In Israel, it is mandatory to serve in the armed forces for at least 3 years. After that you just want to get away, and Asia is the perfect destination for someone who’s just saved up 3 years worth of the army’s 100$-a-month salary. Also, Israel’s a pretty small country, so there isn’t much domestic travel to be had like there is in the US.

The itinerary my girlfriend (Michal) and I came up with was mostly about avoiding the rainy season, and minimizing air travel. Air travel is expensive and boring, and you try to avoid it if you have a lot of time to spend.

How did you come up with your budget? Did it end up costing more or less than you thought?
We sat down and did some serious homework, mostly on websites like lonelyplanet.com and their forums. The budget they offered sounded ridiculously low, so we nearly doubled everything we read about, and came up with a rough estimate of about 10,000$ for the two of us, for the entire year.

What we realized, however, is that not only were the estimates online pretty accurate, but also that two people don’t spend exactly twice as much as one - lots of things are shared (such as meals, transportation, hotel rooms etc.) and so it’s more like budgeting for a person and a half rather than two.
We were very pleasantly surprised when we came back home to count our remaining traveler’s cheques and see we still have about 3,500$ left over for next time!

How did you fund it? Did you save up the cash upfront, borrow some money, work while on the trip, or some other combination?
In preparation for our trip, we both took on extra work and saved up every Shekel we made. It took us about 5 months. Once we reached our goal of 10,000$, we exchanged all our cash into traveler’s cheques - a great way to keep your money both liquid and safe when abroad. Luckily for us, the exchange rates were in our favor the whole time, which gave our savings an extra 2%-5% throughout the journey.

Walk us through a typical day on your Year in Asia trip.
Most days would begin with trying to find breakfast - not always an easy task. Most Asian countries do not serve what we would consider breakfast, especially my vegetarian Michal. Although chicken porridge and spicy rice is very nice, it’s not everyone’s idea of the right way to start your day. After eating some novel type of cookie in spiced tea, we would set off to whatever National Monument/UNESCO World Heritage Site/Giant Temple/Yearly Festival was in the town on that day. After a day’s tour of the attraction we would start hunting for a suitable lunch, which meant looking around for a street stall with a good crowd, or a local restaurant with a queue. Nothing says fresh like a long line of customers, and Asian vendors normally close their stalls every day when they’ve exhausted all their stock, so food is never kept overnight and doesn’t have time to spoil. Another plus is that the food is not made of pre-cut ingredients, which makes preparation slower, but at least you see exactly what you’re getting so there are no surprises.

Evening was normally a time for sitting on the beach, going to some performance or sitting in some tea-shop with friends. For a while we had a small kitchen in our room, so I would cook dinner for us while Michal practiced yoga. In China we bought a Wii, and at night we’d plug it in and invite friends over for kart racing - it’s OK to enjoy modern fun even when on the road!
We spent a lot of time on trains and buses, getting from A to B. Sometimes as long as 27 hours! Israel’s longest train ride is only 4 hours long.

What are some basic money-saving tips you might offer us readers?

One idea is to stay aware of your budget, even when you’re on vacation. We met too many people who weren’t keeping track of their spending, and that’s a surefire way of going overboard. Michal and I calculated a daily projected budget (not including things already paid for like insurance or flights), and every day we’d sit and go over all our purchases and write down in our diary how much over- or under-budget we were. It was a fun way to remind ourselves of everything we were doing, as well as a great way to keep track. Also, we were able to go wild sometimes, knowing exactly how much surplus we had on our budget.

Another thing to think about is that almost everything you do is a compromise between time and money. The more “guided” or “organized” your trip is, the less time you spend on questions like “what do you want to do today?”, “where to go next?” and “how many hours is the train going to be late today?”. On the other hand, the more you rely on other people to make arrangements for you, the more money you’ll spend. For example, we went to many national parks around Nepal without a tour agency. Although it took us 3 days to see what most people saw in only 2, we did spend about half of what the tours were charging for the same itinerary. So almost every decision you make - to walk or to take a rickshaw, to search for another hotel or to stay in the one you’re next to - all have to do with finding your budget’s “sweet spot” between spending more time or more money. Feel OK about spending more to save time every now and then, but try and keep it balanced.

Another thing to remember, is that in Asia prices are much more negotiable. In the US it’s possible to bargain, but most consumers just shop around until they find someone who makes them a good offer without any haggling at all. Not so in Asia - finding a good price is normally a combination of guessing the worth of some item (based on experience, the average wage in that country etc.) asking around for a few baseline price offers (preferably in places where you don’t really intend to buy it) and then haggling with someone to fine tune the price. It’s a huge waste of time, but it’s the way business work in that part of the world. Some people shy away from this, saying it doesn’t really matter (what’s a dollar more here and there?), and that they’d rather just pay whatever they’re asked, but it adds up to a very big difference, AND it’s the socially accepable thing to do. Just remember - always go for a lower price than you’d be willing to pay, so you can go up later and let the seller feel respected. If they say 300, don’t feel wrong offering 25. You can always go up to 50 later. Also, never underestimate the power of walking away! You can always come back to a store and resume negotiations from the same point - and you’ll probably be stopped with a better deal on the way out.

Not everyone is honest in Asia. A lot of people tried to cheat us: from simple cons like overcharging us for our bus fare, to impostors trying to sell us phony jewelery or their “original” artwork. A lot of common sense is needed, as well as the “hutzpa” to ask other people for help. Don’t feel bad looking to see what other people are paying for the same item you’re buying! Learning the numbers (in speech as well as in writing) of the local language is unbelievably helpful, and it changes people’s attitude towards you as well.

An international student card was a big help. ISIC cards are pretty cheap (you can even get fake ones made in Thailand in under an hour if you lose the original) and around China mostly they proved worth considerably more than their weight in gold. They’re light.

Try roughing it out sometimes. We found that the “hard sleeper” trains in China were actually perfectly good for our needs, and that sleeping in the air conditioned train in India was too cold and boring - in the “normal” berths you meet so many interesting characters!

What are some non-financial travel tips you might offer us?

• Follow Nike’s advice: Just Do It! Try things, eat things, talk to people, experiences strange religious ceremonies. It’s the reason to travel, isn’t it?
• Don’t worry! Almost every place we went to had everything we needed, and if we were in trouble people always helped out. You won’t get stranded, lost or murdered in Asia. You won’t starve, be bored or get lonely. Just keep your wits about you, and your money well hidden, and all the rest will fall into place. Really, it will. (Although travel insurance isn’t a bad idea.)
• Take classes - learn to play the sitar, cook Thai food, make silver jewelery, surf. Using a skill you’ve learned abroad is twice as fun.
• Try to represent your country as an exemplary tourist - respect other people’s beliefs and customs, no matter how infuriating they may be.
• Don’t worry too much about planning your trip. Although knowing your general route is a good idea, it’s surprising little villages that you get to on the way to somewhere else that are the real attraction in world travel. Leaving extra time in case you want to linger longer or take a detour is essential.
• Try to be ecologically conscious during your trip. Minimize the use of plastic, dispose of waste properly, and try to forgo flying.

What are some “controversial” ways to save money that you tried?
We hitchhiked quite a bit. It’s a good way to get around and meet people, but it can also be dangerous. Most of the time, especially if you’re traveling as a couple, it’s quite alright.
I had used couchsurfing.org to find places where people would put me up for a few nights in a spare room (or the living-room floor!). This not only saves on money and time - finding the right hotel requires both - but you also see the way locals live in a much more intimate way. It’s amazing how many great families will open their hearts and homes to a complete stranger. We have decided to keep an extra room in our new flat in Kiryat Shmone, Israel, for any couchsurfers who might want to visit.
I slept a few times in my tent, which I bought in Thailand. If you’re in a really expensive country (such as Macau) for only one night, opening a tent on the beach can be very romantic. It works in airports, too! If you’re not sure you’ll make it to your morning flight, it’s always an option.

What was the scariest moment on your trip?
The firsts were always the scariest. Our first day in Kathmandu, just getting off the plane and realizing it’s a whole new world out there, was overwhelming. We ran away from all the sights, smells and sounds that attacked us from all sides into the first hotel we found, and went immediately to sleep although it was only late afternoon. The third world’s quite a shock, even if you think you’re prepared. You get used to it, though, but it takes time.

When we got off our first bus ride in Nepal we were on our knees thanking god for our very lives. It was a night-long ride on an overcrowded bus without headlights hurtling in complete darkness down winding cliffside roads, using its horn instead of its brakes. Oh, and did I mention, we were sitting ON THE ROOF?

Our first night in India was scary, too. We’d just arrived to discover it’s an eight-day holiday, with all banks closed and no available hotel rooms anywhere! We walked around Bihar, India’s second-poorest state (and that’s saying something!) without any money in the middle of the night, and to top it all there was a locust infestation so we were covered in bugs from head to toe. WE were rescued from sleeping in the train station (which had four dead beggars lying in one corner, covered in locusts) by an Indian priest! He took us home, cooked us some food and let us sleep in his bed until our train arrived.

What was the one place you’d want to most visit again? Why?
I feel like Bangkok is probably the place I’d like to visit again most. It’s such a wold city, full of everything a tourist can want. From great markets where you can get lost all day to the best food on the planet. It’s also such a great place to meet other tourists and share travel stories, and the Thai people are just so welcoming it’s hard not to fall in love with their beautiful capital. It’s a place worth revisiting, and often.

Anything else that you wanted to add?
Yes! I just want to say to everyone that thinks traveling is a waste of time, just because it’s “unproductive”, that they’re flat wrong. Not many experiences can change your life and your personality as much as close contact with other peoples, lifestyles and opinions. It’s so very important to get out of your comfort zone once in a while and see what else you can do, and if you’re doing it already - do it on a grand scale. It’s possible. It’s affordable. It’s the best fun you’ll ever have.

Anybody else got a bit of wanderlust from reading all that?

Why Bond Values Change With Interest Rates
Let’s say you bought a bond from the US Treasury for $1,000 at pays 4% annual interest once a year ($40). What if the next day, market conditions change and now the US Treasury offers $1,000 bonds paying 5% interest ($50). Nobody would buy your bond for $1,000 anymore, they’d only pay $800 for it, since $40 is 5% of $800. This is why you may have read that bond prices tend to move in the opposite direction of interest rates.

So what’s the next level of understanding? I think this recent Vanguard Blog article on bonds expands on things nicely. The primary point is that the impact of rising or falling rates on bond returns varies depending on time horizons and the duration of your bonds.

Maturity vs. Duration
When you look at the stats for a bond mutual fund, you’ll see both average maturity and average duration. While a bond’s maturity is how long before your principal is repaid, the fact that most bonds pay out regular interest payments (coupons) changes the actual sensitivity to interest rates. This is where average duration comes in - it takes into account the relative discounted cash flows to accurately measure price sensitivity with respect to interest rate. Short version: Look at duration, not just maturity.

Time Horizons
The table taken from the article shows how the impact of interest rates changes with time horizon. In this scenario, you have a bond fund with a duration of 5.8 years and an initial yield to maturity of 4%. Then we see what happens if rates either stay the same, rise to 6%, or drop to 2%. (Rates are assumed to change evenly over two years). As with most bond funds, the interest income is continuously reinvested into new bonds.

If your time horizon is a lot shorter than your duration, then we see that the major risk is rising interest rates. Rising rates can crush your returns, while falling rates can boost them. However, if your time horizon is a lot longer than your duration, then the larger risk is lower interest rates, because as you re-invest your interest payments into new bonds (with lower interest rates), those lower rates will hurt your return in the long run.

Another interest thing to notice is that if you held for the exact length of the duration, 5.8 years in this case, then your annualized return would be very close to your initial yield of 4%, regardless of whether rates rose or fell.

In general, if you’re saving for a short-term goal, it may be wise to pick a duration that is also short enough so that interest rate swings won’t wipe you out. If your time horizon is for a retirement that is decades away, then picking a duration for a bond fund is more about other factors than just predicting upcoming interest rates. Remember, future higher interest rates can actually help your long-term returns. For example, consider the balance between the increased volatility of long-term bonds with their higher long-term historical returns.

No purchase necessary. Void where prohibited. Winners chosen randomly. One entry per person. Good luck!

Update: 6 winners were picked and sent an e-mail. Thanks to readers MattG, Gopi, Greg, and Pete who offered 5 additional invites. For those that didn’t win, I’ve gotten several comments that asking Google directly works and only take about 2 days to get your invite.

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The telecom service Google Voice has been giving now new accounts faster recently, as well as now letting some current users invite others. I already have an account from back when it was GrandCentral, but I just requested an invite from Google and got an invite within 3 days.* Since it appears they are ready to open things up, I thought it might a good time to explore ways that this service can enhance your calling experience and even save you some money.

Calling Features

Google Voice provides you a free phone number, designed to be your primary number, which you can then link up with your existing phone numbers - work, home, and mobile. This About Page provides a nice round-up of the features of Google Voice. Here are the ones I’ve found most useful:

• Ring All Phones. You can choose to ring all your phones when someone calls your GV number, and pick up any one of them.
• Call Screening / Routing / Blocking. If the number is unknown to you, then they have to announce themselves and then you can decide whether to take the call or send it to voicemail. The caller never knows if you actually got the call. You can route specific callers to specific phones, or just block them so you never have to take their call.
• Voicemail to Text. Voicemail messages are transcribed to text for free, and can also be sent to you via SMS text message. It’s not perfect, but you can usually get the gist of the message.

Money-Saving Features

One major way that Google Voice can save you money is by reducing the number of “peak” cell phone minutes you use, so that you can either drop down to the cheapest plan or even go prepaid if you’d like.

Ring All. Since all your phones ring, you can pick up your work phone or landline if it is more convenient, when usually people would just call your cell phone by default. This could reduce your minute usage more than you think.

Never Use Up Any Cell Minutes Using Calling Circles. Also known as T-Mobile MyFaves, Verizon Friends & Family, Sprint Pick3, and AT&T’s A-List. Simply add your GV# to these calling circle programs, and every incoming call can now be free. You’ll need to set the caller ID to show your GV#, and not the originating caller’s ID. However, since there is the screening option where every caller has to state their name, you can still find out who’s calling before answering.

Calling out can be free as well, if a bit more hassle. You can also dial out for free by calling your GV# first, press 2, and then enter the number you wish to dial. If you have internet access it’s easier, just click on the contact on GV website.

Free Long Distance From Landline. If you really want a POTS landline, you can now switch to the cheapest local plan with no long distance. When you want to dial long distance, just call your GV# and have it dial out from there. (If you don’t have a GV# within your local calling area, you must dial out using the internet.) Calls are free to US and Canada.

Free Text Messages. You can send and receive text messages through GV for free. This can be a bit of a hassle, but perhaps you have unlimited data but hate the idea of paying another $10 a month for text messages. (I mean, how are text messages not included under data??) With a data plan, just use your phone web browser or specific GV app for your phone.

Other Possible Uses

Extra Business Number. Instead of using it as your central number, use GV as an alternative number for your business venture, superhero alter ego, or whatever.

For Minimalists / Nomads. Even if you don’t have a landline, VoIP, or even a constant cell-phone, you can now get a phone permanent number. You can access your voicemails online, and call back when you feel like it. Some users have dropped everything except for a prepaid cell phone plan costing less than $10 per month.

Got more tips? Share them in the comments. Want a Google Voice account? Request an invitation here.

(*This is pure speculation, but I used a non-yahoo/gmail/hotmail “paid” e-mail and think it might get a faster response due to the people abusing things by trying to re-sell invites on eBay.)

Over the weekend, I finally got around to reading this Time magazine article about Why It’s Time to Retire the 401(k) which has been getting some buzz. The author promotes bringing back what I call “portable pensions” to replace the employee-controlled 401(k) plan, which would guarantee say 50% of your last year’s salary for the rest of your life. Sounds nice, but how will it work, and who’ll pay for it?

Take the Mr. Shively in the article, who is still working at 68. About 25 years ago, his employer dropped the pension and replaced it with a 401(k). Over those two and a half decades, he has managed to save $70,000 in a 401(k). Yet it is suggested that if only his company kept the pension, he would be getting $1,308 per month, or $15,700 a year. Such a lifetime of cashflow from age 65 would cost at least $200,000 according to ImmediateAnnuities.com ($250,000 if joint, covering a spouse also age 65). Where did the $130,000-$180,000 difference come from?

Pensions are more expensive to run than 401(k) plans. Let’s say you have average employees making $50,000 a year and you match 100% up to 5%. That costs $2,500 a year - bang, you’re done, and you don’t have to worry about investing the money to meet future liabilities. Where does the savings go? Either Shively got paid more (through higher salary or matching contributions) and didn’t save it, or his employer pocketed the savings, or likely a little of both.

This brings us to the other problems of the 401(k) system are, which were explored in this 2001 Barron’s article by William Bernstein after the last stock market crash. “The 401(k) is likely to turn out to be a defined-chaos
retirement plan.”

Employees are not saving enough. Will this be fixed by a portable pension? Only if employers are willing to pay higher total compensation, which is unlikely. Otherwise, will people really be okay with forced savings like an additional mandatory 5-10% contribution? Folks tend to see that as a tax, like Social Security.

Investors are depending on future market returns which will likely not be as high as in the past. The idea of gaining 8% per year, 5% after inflation, sounds nice but may not happen in the future. Current P/E ratios are still above average current. This means people will need to save even more than they thought. Again, where will this money come from?

401(k) expenses are too high, which reduces returns even further. Having a guaranteed income for life requires insurance companies. Which means instead of mutual fund expenses, you’ll have hidden insurance fees and guaranteed returns that will have to be significantly less that market returns. If more transparency and direct competition existed, perhaps the costs could be minimized.

Investors have poor investing knowledge. This is kind of an unsaid reason of why 401(k)s are bad, because there will always be those invested poorly. My concern is related to this recency bias. 401ks got traction initially because markets were hot at the time. Talk of pensions increase now because the recent performance was awful. What happens when the markets get hot again? Will people be happy with their 6% steady increases when others are gaining 30% in year?

I’d like to see what happens with this “portable pension” idea, but the practical realities concern me.