Archives for November 2008

Good Time To Hedge Against Higher Gasoline Prices?

Posted on November 13, 2008 // 30 Comments

I just filled up my tank for the least amount of money in a long time. When I first wrote about hedging against rising oil costs, the national average was $3.70/gal and headed towards $4/gal. Now it’s around $2.15. Remember when we were all afraid of $5 gas? Which got me thinking, perhaps now is a good time to reconsider hedging gas prices?

Example scenario: If you drive 12,000 miles per year and your car gets 25 MPG, that means an annual fuel bill of $1,920 with $4 gas. But with $2 gas, your annual bill is now only $960. Makes sense, a doubling of price from $2 to $4 again will lead to a doubling of cost – nearly $1,000 per year.

Now let’s say you buy $1,000 of one of the two major oil ETFs tracking crude oil prices, USO or OIL. (Use a broker with free trades.) If crude oil prices jump again, then the value of these stocks should roughly rise to compensate. If $4/gal comes back, your annual fuel bill would rise by $1,000, but your oil futures stock should also rise by $1,000. You’re virtually fully hedged this way, even if gas goes to $6/gal or higher.

So I suppose being fully hedged means buying as much oil ETF annually as you spend on gasoline in that time. Effectively, you are buying a year’s worth gasoline ahead of time and locking in that price. If gasoline wasn’t so difficult to store for long periods, you could do this manually.

Now, there is no free lunch here. If gas prices drop even further, then you won’t be able to benefit from cheaper gas either. A drop to $1 gas would leave you missing a savings of $500 per year, although I have a hard time seeing it drop that far.

Cost of hedging. Don’t forget, you could have invested that $1,000 somewhere else. If you assume an annual return of 8%, that’s a missed opportunity cost of $80 per year. Of course, we all know now that assuming stable 8% returns is not good. If it would have been held in a bank instead (a more likely scenario), then a 3.5% APY leads to an annual cost of $35, or $3/month.

Hedging is about having a price that you are comfortable paying, so that you don’t have to worry about unexpected price swings. Usually, it is also the case that you are more afraid of a potential rise than a potential drop. Gas prices have been one of the more volatile parts of our budget, and we could use this period of lower prices to build your hedge. Is it worth paying $3/month for such a hedge? I’ll let you decide.

Filed Under: Budgeting //

Ask The Readers: Skype As Replacement Phone Service?

Posted on November 12, 2008 // 54 Comments

A reader wrote in about using Skype as a replacement phone service. This was good timing because I also wanted to ask about using Skype internationally.

Skype While Traveling Internationally?
I’m preparing for my trip to Spain, and have the following plan for keeping in touch. All calls are routed to my cell phone, which doesn’t work abroad. I am bringing my laptop, so with WiFI I can use SkypeOut to call and check voicemail once a day, at 2.1 cents/minute. I can then make more calls to the US as needed. According to the Skype FAQ, it only matters where I’m calling to, not where I’m calling from. I can even call places in Spain for 2.1 cents/minute.

Am I missing anything with this plan?

My Experiences with Skype
I have used Skype for a few months during a remote work assignment when I had to take long calls that my cell phone plan wouldn’t support. I simply bought a SkypeIn number, which allowed me to take regular phone calls and participate in conference calls. The phone quality was good, but I used it only for a a few months, and always for scheduled calls and with a headset. I never used it with a regular phone, and never had to respond to incoming calls.

Cheap PC-to-Phone Plug Adapter
Here is a D-Link DPH-50U Skype USB Phone Adapter that only costs $10 after rebate ($20 before). It connects to your computer’s USB port, and creates two regular RJ-11 phone jacks that you can plug in traditional landline phone systems. Only works with Windows. The reviews seem to be positive overall. For those with problems, the general consensus seems to be that you need to install the newest Windows Vista drivers from the D-Link website (even if you run XP).

Anyone with experience using this product? I know there are other cool but expensive stuff out there like the Skype WiFi Phone.

If it works, you could replicate a landline for $8/month including taxes. SkypeIn is $60/year ($5/month) and gives you a phone number and unlimited incoming calls, and SkypeOut is $2.95/mo for unlimited calling to US and Canada. Just get one of those combos with multiple handsets and you can still have phones all around the house. (My favorite are Panasonics which take generic NiMH AAA batteries – cheap to replace!)

Cons are that you’d have to connect it to a computer that is turned on all day. Another disadvantage would of course be the inability to make emergency calls. With Skype, you will not get any 911 service – not even the e911 available with some VoIP providers – nor will it work without power and internet access. Not a big deal for the many of us who have already gone cell phone only.

Filed Under: Frugal Living //

Shorter Full-Retirement vs. Longer Semi-Retirement?

Posted on November 11, 2008 // 38 Comments

Which would you rather do:

A) Work 40 hours/week for 15 years, and then not work at all for the next 15 years, or

B) Work 20 hours/week for 30 years?

If you were to ask me a few years ago, I would have picked A. Now, I’d much rather have B. Of course, it’s not as simple as just picking one or the other. Some sample considerations:

  • At most jobs, you can’t simply decide to work less hours and get pro-rated pay. A job change or some clever negotiations with management might be necessary. Self-employment may be better suited to option B.
  • Even if you can work half-time, often you lose your healthcare benefits. This might be reasonable if you are single, but for a family with kids the costs can be pretty high. Might need to investigate alternative ways to get group coverage (professional association, creating your own small business insurance group).
  • For option B, you have less money coming early on, but you have more time for compound interest to occur before taking withdrawals. The opposite is true for option A – more money upfront, but you’ll need to start spending sooner.
  • The (historically) optimal investing asset allocation might be different for both situations.
  • With option B, depending on timing and desire, you would have more ability to spend time with your children when they are young. Is time upfront worth more than time later? Quite possibly.
  • I think it would be hard for me not to work at all. For one, there is the stress of trying to live off a finite amount of money. Second, one would need to find another purpose in life to fill all the hours. Others might find it really easy…
  • Option A gives you a bit of leeway if investment returns don’t pan out as you’d like. Maybe you’ll work a bit longer than 15 years. Trying to make up lost savings when you are older may be more difficult (ageism) and/or tiresome (just age).
  • Lower annual income with option B might leave you with lower overall tax hit.
  • Behaviorally and psychologically, it may be easier to spend less if you force yourself to make less.

I need a better name than “semi-retirement”. Downshifting? Half-retirement? Half-working? Working 9-1?

Filed Under: Retirement //

MyCorporation Free Corporation/LLC Coupon Code

Posted on November 10, 2008 // 24 Comments

Update: MyCorporation is now running a promotion where they have free filing services for all of December with coupon code MYGIFT!

The coupon code for a free LLC or Inc filing from MyCorporation is FREE149. More information here. Again, this is only valid 11/11/08, 6AM–6PM PST. A reader writes in that there is a “delayed filing” option where you can check out now but have the filing done for 2009.

Filed Under: Deals & Offers //

Coinstar Promo: $40 in Coins = $50 in Gift Certificates

Posted on November 10, 2008 // 12 Comments

Coinstar is running a 2008 Holiday Promotion where you can turn $40 in loose change into $50 of Amazon.com gift certificates (or any gift certificate that they offer). Not a bad way to get rid of some change and pay for some holiday shopping. Selected fine print:

The $10 holiday bonus offer ends 12/07/08. Offer valid at participating Coinstar Centers in the U.S. only and excludes Puerto Rico. Consumer will receive a $10 gift card or eCertificate for the same brand that was originally cashed in for. Please expect 6-8 weeks for delivery. Offer good on qualified transactions made between November 7, 2008 and December 7, 2008. Transactions occurring before of after these dates are not eligible for this offer. Offer is only valid on coin transactions. Limit one per name or household.

Directions:

  1. Use the Coinstar machine locator to find one that dispenses eCertificates, as not all of them do.
  2. Cash in at least $40 in coins, and choose to convert to an Amazon.com gift certificate. There are no fees with eCertificates.
  3. At the bottom of your receipt, there will be directions for you to mail in the “rebate”.
  4. In 4-6 weeks, they will e-mail you a code for another $10 GC.

The especially industrious could combine this with buying $1 coins from the US Mint to get credit card points.

Filed Under: Deals & Offers //

First Look: DollarSavingsDirect vs. EmigrantDirect

Posted on November 9, 2008 // 41 Comments

I went ahead and opened an account at DollarSavingsDirect and their attractive 4.0% APY. WaMu had dropped their savings rate to 2.5% APY, and DollarSavingsDirect still seems to be in their “new bank customer accumulation” stage, which means keep the rates high as long as possible. Might as well take advantage of loss leaders…

People have called EmigrantDirect and DollarSavingsDirect clones of each other. I mean, your money is at the same bank – Emigrant Bank, FDIC Certificate #12054 and the home pages look very similar. But man, they truly did a cut-n-paste job. Check out the identical internal interfaces, down to the color scheme:

The application was straightforward and efficient – completely online, no paperwork to sign or print out, and your deposit is done using only routing and account numbers. Took less than a week to get up and running. I would pick your funding account carefully, because adding additional bank relationships does require paperwork.

As noted, the major difference is that with DollarSavings you need to maintain a $1,000 minimum balance to get the 4.0% APY, unlike Emgirant with no minimum. Good news is that there are no fees at DSD if you drop below $1,000 though, just a lower 1.0% APY.

Filed Under: Banking //

Free Incorporation/LLC Service From MyCorporation

Posted on November 8, 2008 // 29 Comments

Already started your own business, or thinking of doing so? Want to go “legit” and form an LLC or corporation? I received an heads up from about a promo next week Tuesday where you can get a free incorporation service worth $149:

On Tuesday, November 11, 2008 from 6am to 6pm (pacific time), MyCorporation is offering a special promotion titled FREE FOR A DAY. For one day only, MyCorporation will process a new Corporation or Limited Liability Company for FREE. That’s a savings of $149 off regular service fees (note: document shipping, state fees, publication fees, and additional product fees are additional). This is the first time this promotion has ever been offered!

MyCorporation is owned by Intuit, of TurboTax and Quicken fame. (And more recently, of free Quicken Online.) These types of pseduo-legal services are a middle ground between filling out the filing paperwork all by yourself and hiring a lawyer to do it. They perform services like checking your name to make sure it is not violating any other trademarks, making sure you filled out the forms with no common errors, and helping you start out with all the additional paperwork obligations of a separate legal entity.

Although the standard advice always seems to be “go with a lawyer”, I ended up incorporating my own home business in 2006 with one of their popular competitors, LegalZoom. I was very satisfied with their service, and even talked to a real person on the phone about some details. (They do a lot of cheap wills and trusts too.) I think I paid about $200 + filing fees. A lawyer would have cost around $1,000 + filing fees.

The decision to incorporate is not always simple, but I wanted to throw it out there so interested folks can think a bit about good reasons to incorporate, whether to go LLC or corporation, possible available names, and other details. One book that I recommend is from Nolo Press is LLC or Corporation? How to Choose the Right Form for Your Business. I chose to go the S-Corp route primarily to reduce self-employment taxes. The window for this promotion is small, but you still have to pay $50+ in state filing fees, so don’t take it too lightly. Offer is supposed to show up on the website on Monday.

Update: MyCorporation is now running a promotion where they havefree filing services for all of December with coupon code MYGIFT!

Filed Under: Entrepreneurial //

Marriage and Money: Can Love Overcome Financial Incompatibility?

Posted on November 7, 2008 // 69 Comments

I know a lot of different friends who are happily married. Republicans and Democrats. Catholics and Hindus. Dog-lovers and Cat-lovers. Rich families and not-so-rich. Even Ohio State and Michigan alumni! However, I recently met a recently-engaged guy from Washington who was sharing his wedding worries. Here’s the short version:

  • He is from a middle-class family in a rural area. She is from an upper class family in the posh area of town.
  • He currently earns $30,000 a year. In a couple of years, he will probably make double that. She currently makes around $30,000 per year, with limited upside potential.
  • She has stated that she needs a $20,000 engagement ring, as that is what all her friends are getting. He’s been saving for a while…
  • She will not let her kids go anywhere else but the same private school that she attended. Current annual tuition: $15,000.
  • How rich is her family? She recently “found” 1,000 Euros laying around in her room (lives at parents’ house), and is now taking a trip to Europe to spend it.
  • His dream wedding is a backyard bar-b-que. Her dream wedding is going to cost $100,000. Her parents will pay for most of it.

When I first heard this story, I thought I was hearing a pitch for a new movie with Jennifer Aniston and Vince Vaughn. But this is their reality, and they do seem in love. Still, I don’t understand it from either side. How can he think they can afford such a lifestyle? How can she think they can afford such a lifestyle? Something’s got to give, and I hope they can work it out.

Is it possible in the real world for love to overcome completely different financial tastes? As I get older, I feel more and more that compatibility in this area is simply too important not to have.

(On a related note, I just have to say that adult allowances have been working great for us as a way to reduce judgments on discretionary spending.)

Filed Under: Family //

Should I Invest In My 401(k)’s Stable Value Fund?

Posted on November 6, 2008 // 28 Comments

While investigating the bond options in my wife’s 401(k), I noticed that the only “safe” option in her account was a Stable Value fund. I have noticed this label before, but never really paid them much notice. What is a stable value fund?

The pitch: “Cash with better interest”. You get the safety and stability of principal found in a money market fund, but with the higher returns of an intermediate bond fund. Here is a graph from 1990-2006 via the Stable Value Investment Association website (yellow is money market, blue is stable value, and red is bond fund):

How? In essence, stable value funds invest in intermediate-term bonds and similar investments, but the usual day-to-day fluctuations are smoothed out by the guarantee of an insurance company. For example, the insurance company guarantees that a certain amount of interest will be paid. If the actual return from investments fall short, the insurance company makes up the difference. If the actual investments outperform, then the insurance company keeps the difference.

This insurance guarantee also keeps the per-share price (NAV) at $1, much like a money market fund, even though the assets being held are riskier. Because they are limited to qualified retirement plans like a 401(k) or 403(b), they are allowed to use “book value accounting” instead of the more strict daily “market value accounting” required of most retail mutual funds.

What are the risks? In most cases, even if investments perform poorly, the insurance company will eat the loss rather than face the bad publicity. This is similar to money market funds. However, the danger is when things go so bad that the insurance company goes bankrupt. An example is the Trust Advisors Stable Value Plus fund which failed, as outlined by this NY Times article. Although technically the investors eventually recovered all their principal, it took over a year for everything to settle. There have been other isolated instances where investors have lost a portion of their principal.

To invest or not? Stable value funds are pretty popular, and found in 2/3rds of all 401(k) plans. Who wouldn’t want a fund with hardly any volatility that pays high interest? The fund in my wife’s 401(k) is “guaranteed” to earn 4.55% for all of 2008. Be careful though, because they are not all made the same. According to this study by JP Morgan Chase, returns from good/bad stable value funds can differ by up to 2% per year.

As for safety, I would treat it like a money market fund in that you should only buy if you trust the insurer and learn about the actual holdings. Otherwise, buy a bond fund somewhere else if you smell something fishy. Unfortunately, if you really want a “safe” holding place inside your 401(k), many times you don’t have much choice. Finally, I would also point out that in the end they are still bonds, and are subject to the risk of having their modest returns eaten up by inflation. If you are a young investor, stocks still provide the best long-term growth prospects.

Filed Under: Investing //

Discover Card Holiday Mall Promotion: $20 off each $200 spent

Posted on November 5, 2008 // 11 Comments

Discover $20 Gift CardDiscover Card is again running their Holiday Mall Promotion, which gives you $20 back for every $200 that you spend at limited mall locations.

Get a $20 Discover® Gift Card when you make $200 in purchases with your Discover Card at a participating mall between 11/01/08–01/04/09, while supplies last. Original receipts and the Discover Card used to make the purchases must be presented to a participating mall’s Customer Service by 01/04/09. Limit 5 Gift Cards per account, while supplies last, during the promotion period. Gift Card is valid through July 31, 2009.

Basically, you can get up to 10% back if you spend an exact multiple of $200, with a maximum $100 off $1,000 per Discover card account. (Additional cardholders seem to count as a separate “account”.) Not a bad deal if you’re gonna spend that much anyways. Mmm… Macbook…

During a previous year, a reader happened upon a loophole: If you return your purchase, there is no requirement to return the gift cards. Maybe you found something cheaper elsewhere. This brought up some ethical problems. Keep them? Or try handing them back to the Customer Service clerk? But be careful, because if you end up deciding to buy more stuff again later, you won’t be able to participate again since they don’t have any official mechanism to return the gift cards.

New Discover Card Sign-Up Promotions: $50 to $100
This would go nicely with the Discover More Card which now offers 0% on balance transfers and purchases for 15 months. 1% cash back on most purchases, and 5% back on rotating special categories.

The Miles by Discover Card also offers 12,000 Miles (1,000 miles per month with any purchase for a year). This can be redeemed for $100 cash credit towards any travel purchase put on the card (air, hotel, car rental), or you can get a $50 gift card + $25 cash.

Filed Under: Credit Cards, Deals & Offers //

Series I Bonds November 2008 Fixed Rate: 0.7%

Posted on November 4, 2008 // 6 Comments

The new fixed rate for Series I Savings Bonds (“I Bonds”) was announced on Monday to be 0.7%. A few readers asked if I thought this was a good time to buy.

As a long-term investment, a 0.7% real yield makes I-Bonds a poor choice, as you can buy TIPS with much better yields. As of yesterday, a 5-year TIPS had a 3.66% real yield.

As a short-term investment, it depends on how you think inflation will turn out in the near future.

If you buy now in November, you will earn 0.7% fixed + 4.94% based on inflation = 5.64% for the first 6 months. The second 6-month rate will be 0.7% + a variable rate based on inflation from September 2008 to March 2009. So far, the markets seem to suggest that there is a decent possibility that there might even be deflation for this period. 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.

Worst case scenario, there is deflation of worse than 0.7% which makes the total rate zero for the 2nd six months. Earning 5.64% for 6 months with an 11-month holding period gives you only an effective 3.07% APY. If say, inflation is 1%, you’d get an effective 3.54% APY for the minimum 11-month hold. Even if this is exempt from state taxes, the tax-equivalent yield won’t be far above 4%. You can do better with bank CDs.

The only scenario where I-Bonds may be better than what you can get from a bank is if you think annualized inflation will be higher than 1.5% over the next 6 months. Personally, combined with the lack of short-term liquidity, I don’t think I’d take that bet right now.

For more background, see my last post on savings bonds.

Filed Under: Savings Bonds //

Election Day Freebies: Starbucks, Ben & Jerry’s, Krispie Kreme, and More

Posted on November 4, 2008 // 10 Comments

Along with performing your civic duty today, you can pick up some free food from these locations. Some require an “I Voted” sticker, while others just take your word for it.

Starbucks – Free coffee
On November 4, 2008, Starbucks will give voters a free tall brewed coffee at participating U.S. stores. After voting, voters must go to a Starbucks store, where they’ll be given a tall (12 oz) cup of brewed coffee at no charge (limit one per customer). [source]

Krispy Kreme – Free star-shaped doughnut
Krispy Kreme will celebrate National Election day by offering all retail customers with an “I Voted” sticker a free star shaped doughnut with patriotic sprinkles. [source]

Ben & Jerry’s – Free ice cream
Come to participating scoop shops on November 4th from 5-8pm, and you’ll get a free scoop of ice cream. [source]

Chick-fil-A – Free chicken sandwich
At participating stores, bring in your “I voted” sticker into your local Chick-Fil-A on Tuesday, November 4th and get a free chicken sandwich. Man, do I miss living near a Chick-fil-A and their sweet tea refills…

Books-A-Million Bookstores – Free coffee
Wear your “I voted Sticker” to Books A Million on election day and recieve a cup of Joe on us! [via e-mail].

Some of these offers may make you turn in your “I Voted” sticker, so if you want to go to more than one, try to grab a few extra stickers at the polls. Early and absentee voters… you might want to print out the image above on glossy paper. 🙂

Resources: Dealnews, SlickDeals

Filed Under: Deals & Offers //
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