Archives for April 2010

April 2010 Spending Snapshot

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I’ve been trying to track our expenses better using Mint.com, which means combing through transactions and manually correcting many of the automatic categorizations. I think it’s working, at least in that I hate doing it so much that didn’t make a purchase today so I wouldn’t have to categorize it later. 🙂

I found the home page chart greeting me today amusing:

We did pretty good this month, but it would seem like all we do is eat and drive (and in the case of fast food, probably both at the same time). I notice that housing and utilities aren’t included, but I’m not going to tweak the targets until I have a couple months of spending data first.

Healthcare Reform Highlights For The Self-Employed

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Until now, I haven’t written much about healthcare reform issues – it’s just feels so daunting and politically-charged. I do support the eventual separation of work and health insurance, as I think that all unemployed, partially-employed, and self-employed individuals should get access to affordable healthcare. As the dust settles a bit, I took a look through the many attempts of media to break down the healthcare reform bill into manageable bites. Here are my notes:

2010

  • Employers with fewer than 25 employees (more if you have part-time employees) and less than $50,000 in average wages may be eligible for tax credits worth up for 35% of paid premiums. Note: The tax deduction is not available to sole proprietors, so you may want to consider an LLC or corporation form.
  • All health insurance plans must allow people to maintain dependent coverage for children until they turn 26. This could help out the many young and self-employed. Also prohibits insurers from denying coverage to children because of preexisting health problems.
  • If you are self-employed and have medical conditions that make it hard to find any health insurance at all, there will be a high risk pool set up to create “affordable” premiums. I wonder how affordable that will actually end up being.
  • Insurers will no longer be able to put lifetime limits on coverage, or cancel policies that are already in service (except for fraud).
  • Starting September 2010, all coverage must include basic preventive care. As many small businesses can now only afford catastrophic coverage, this may mean additional benefits.

2011

  • Companies with less than 100 employees will be eligible for grants to set up wellness programs. Employers can offer employees bonuses of up to 30% of the cost of insurance.

2013

  • Limits medical expense contributions to tax-sheltered flexible spending accounts (FSAs) to $2,500 a year, indexed for inflation. (I wonder how much it costs to administer one of these for a self-employed person.)

2014

  • All U.S. citizens and legal resident must have health insurance, or else pay a fine. People who are satisfied with their employer-provided coverage don’t have to do anything.
  • Health plans no longer limit coverage based on preexisting conditions, or charge higher rates to those in poor health. Premiums can vary only by age, place of residence, family size and tobacco use. Wow!
  • Individuals and small businesses with up to 100 employees will be able to shop for coverage from newly-created health insurance exchanges. Theoretically, this will allow individuals to get rates just as competitive as current large group plans.
  • Small business owners who purchase coverage through the exchanges can receive a two-year tax cut for up to 50% of what they contribute toward their employee health insurance premiums.
  • Individuals may receive income-based tax credits for insurance bought from the exchanges. Sliding scale credits will eventually phase out for households above four times the federal poverty level, until about $43,000 for an individual or about $88,000 for a family of four.

Sources: CS Monitor, Health Reform and Small Business, USA Today, HealthReform.gov

LendingClub P2P Loan Portfolio Performance Update

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Wow… The last time I wrote about LendingClub was about 6 months ago. Since then, I haven’t really been keeping up with person-to-person lending, which in this case are unsecured credit card-like loans between individuals. Looks like they got a new logo and revamped their website! I kind of miss the old Halloween colors.

Lending Club Portfolio
Back then, I had 62 loans outstanding, of which 58 were current, one was 30+ days late, and three were paid off early. Today, my portfolio has 90 loans, of which 77 are current, three are 30+ days late, one was charged off completely, and 9 have already been paid off early. My current invested principal is ~$1,800, and I’ve received over $1,100 in payments already (principal + interest). The new loans must have been acquired close to October, as I don’t even remember the last time I logged into this account. I suppose that’s good in terms of it being a low-maintenance investment. 🙂

Performance & Commentary
In the last 6 months, my portfolio’s “Net Annualized Return on Investment” based on my interest payments received went from 9.14% to 4.45%. LendingClub puts me in the sad 12th percentile of investors:

What happened? Some bad loan-picking, perhaps some bad luck, but mostly age. The sharp drop itself is due to my recently charged-off loan and how their return calculation takes into account late loans. A “late” loan will affect your calculated return because you’re not receiving those monthly payments. On a $100 loan that might be $3.xx a month. But most late loans eventually turn into defaults. After 120 days late or so, LC will officially recognize the fact that you’ll never see the rest of your $100, and your return will suffer accordingly. Quick example – If you have 50 equal-sized loans, and two go bad immediately, that’s 4% of your principal gone.

As I stated before, if you have loans that are younger than 1-2 years old, do not expect your current return number to be your final return to maturity. One major reason why the advertised average return is so high, is that the average investor has very young loans in their portfolios. My oldest loan was issued back in December 2007. If you just look at the loans that are already 2 years old (full term is 3 years), you’ll see that the average return is only about 4-5%.

This doesn’t mean investors won’t still capture some risk premium for their loans, but I wouldn’t expect 9% returns over 3 years. This is not a low-risk investment, even though I still like the idea of making some fun and helpful loans. With much more data now available, I’ll be looking more into performance trends in a future post.

New Lender Incentives – Free $25 to $250 Bonus
If you are interested trying P2P lending with no risk, you can still use this special $25 lender sign-up link to get a free $25 to try it out with no future obligation. There is no credit check and you don’t even have to deposit anything. After you are approved, the $25 will show up in your account balance, and you can lend it out immediately.

For those that have done their research and are willing to jump in with both feet, those that are willing to invest at least $2,500 at once and link a bank account can get a $250 bonus when you get a referral from an existing member. (Yes, you must actually invest $2,500 in loans.) Send me an e-mail if interested.

If you’re looking to borrow at LendingClub, it’s relatively straightforward. Give some information, and see what interest rate they offer you. Compare it with your credit card, Prosper, or other financing options. If you like it, fill out your application carefully (verify income if possible) and go for it. If you don’t like the rate or the full amount is not funded, you can either accept partial funding or walk away with no obligation.

Savings Calculator: Does 1% More Make A Difference?

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If you’re like me, your 401k plan comes with a little newsletter each month. A common theme in the world of personal finance advice is to nudge up your savings by one more percentage point a year.

For the “average” person, this is probably not a bad idea. According to the PSCA‘s 52nd Annual Survey of Profit Sharing and 401(k) Plans, the average contribution to a retirement savings plan in 2009 was about $2,114 at a rate of only 5.5% based on a $38,428 annual salary.

Assuming yearly salary raises of 3% and a 6.3% annual rate of return, bumping up that contribution rate by just one percentage point, to 6.5%, could potentially improve savings by close to $6,000 in 10 years and more than $46,000 in 30 years. [source]

But who’s average? The NY Times brings us another pretty interactive calculator where you can input your own numbers and play around. You’ll see what would happen if you increased your savings by one percent, and also what would happen if you increased your savings by 1% every year – up to a max of putting away 16% per year.

I always have to remind myself that $100,000 won’t buy nearly the same amount of stuff in 20 or 30 years. I need to check my math, but you could simply put down how much you expect your raises and investments to outpace inflation, which should provide inflation-adjusted amounts.

Death and Taxes 2011: Visual Guide to the Federal Budget

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The 2011 edition of the Death and Taxes poster is out, which outlines in spectacular detail how the United States federal budget spends its (your?) tax dollars. View the huge image online, or buy it as a 2 ft. x 3 ft poster. If you haven’t seen it before, you really should check it out.

Due to what the creator deems complexity and size constraints, the poster focuses on the $1 Trillion discretionary portion of the budget. Discretionary spending refers to the portion of the budget which goes through the annual Congressional debates every year, and amounts to about 1/3rd of the total budget. Currently, the biggest chunk goes to defense spending. Want to know how much the V-22 Osprey gets? It’s on the poster ($2.2B).

The other 2/3rds of the federal budget is mandatory spending, which includes programs which are funded by eligibility rules or payment rules. An example is welfare. If you’re eligible, you get it. The only way to change how much is spent is by changing the eligibility rules.

The poster does include a little chart on the bottom right about the total federal budget, but I think it tries to convey too much information in a very small space. Here’s a simpler breakdown from the 2007 budget, courtesy of PerotCharts. As you can see, entitlement programs like Social Security and Medicare are also huge expenses.

And here’s another breakdown of the 2009 total spending via Wikipedia.

As long as take all of this into perspective, this graphic does a great job of making a complex subject accessible. Not sure how long this will last, but right now with code BOGO you can get two posters for $24 + $1.50 shipping.

Energy Star Appliance Rebates Available Nationwide

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“You may be eligible to receive rebates from your state or territory for the purchase of new ENERGY STAR qualified appliances. These rebates are being funded with $300 million from the American Recovery and Reinvestment Act of 2009. Under this program, eligible consumers can receive rebates to purchase new energy-efficient appliances when they replace used appliances.”

Each state is running their own program. California just started their Cash for Appliances program yesterday, and it’s much better than I thought it was. Some states have already ended their programs (sorry!).

For example, on a $500 front-loading washer that we were looking at, certain CA residents (by zip code) could get $300 back in rebates! That’s $200 from the state of California, $50 from WaterEnergySavings.com (PG&E + local water utility), and another $50 from PG&E. This is on top of the potential water and electricity savings that you’d would get from switching away from an old top-loading washer.

Click on your state on this map for more information. Here are some frequently asked questions.

Anyone Use CarBargains.com Price Negotiation Service?

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The car buying strategy that I hear recommended most often is to

  1. decide on which car you want, down to all the options
  2. e-mail (or previously fax) the fleet managers of 3-5 local dealers, and ask for their best deal
  3. pit each of them against each other until you have the “best” best deal
  4. go in, sign paperwork, drive away happy

Sounds easy, but in practice seems like it might be tedious and time-consuming, not to mention uncomfortable for those that don’t like to haggle. However, I keep hearing mentions of CarBargains, run by a non-profit, will do all the negotiating for you if you pay them $200 ($175 if you are a subscriber to Consumer CHECKBOOK magazine).

Seems like it might just be worth it, but I haven’t heard any in-depth testimonials that aren’t on their site. Their press section includes several positive reviews from such magazines as Money and Kiplinger’s Personal Finance. They also offer a money-back guarantee if you can beat their price “without using their information”, although that would be hard to prove…

Has a reader out there actually used CarBargains recently? If you’d be willing to share your experience in detail, please contact me directly. I’d like to write a post with detailed price quotes and model information. If you participate and agree to having me interview you, I have some ideas for compensation. 🙂

Lonely Planet Offers Free iPhone Apps To Travelers

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In response to the disruption caused by a certain Icelandic volcano, Lonely Planet has made their iPhone apps for 13 European cities free until April 22nd. These usually cost $15.99 each, and seemed to work fine on my iPod Touch. From their blog:

‘Travellers stuck in unfamiliar places need access to practical information as well as suggestions on what to do whilst stranded’, said Tom Hall, Lonely Planet Travel Editor. ‘That’s why we’re giving away iPhone city guides to major affected destinations.’

I think it’s a nice gesture on their part and also good PR. Heck, I didn’t even know Lonely Planet offered apps until today. Should make for some neat reading. Here are direct iTunes links to the included cities:

  • Amsterdam
  • Barcelona
  • Berlin
  • Budapest
  • Copenhagen
  • Istanbul
  • London
  • Moscow
  • Munich
  • Paris
  • Rome
  • Stockholm
  • Vienna

Portfolio Check: Do You Need Investment Management Help?

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I received a thought-provoking comment last week on my Fidelity Portfolio Advisory Service review. Since this post is a couple months old by now, I doubt most readers saw it. After reading it, my first guess was that somehow the visitor was interested about Fidelity PAS and also read up about my own investing activities.

Even thought the comment wasn’t blatantly baised, on a gut instinct, I checked the IP. As I suspected, the visitor came from a Fidelity Investments internet domain. Still, that doesn’t mean the person is necessarily wrong, just most likely works for Fidelity. 🙂

Anyhow, the comment from “Ryan”:

I would ask yourself why you were “stuck” in cash and missed the market rally. Was it because you were emotionally involved? Trying to time the market and got in/out at the wrong time? Where you frozen to the point where you didn’t know what to do? Those kind of mistakes can REALLY hurt a portfolio’s return in the long run. I would say if you are ready to commit to a discipled strategy and stick to your asset allocation & rebalancing plan, you are ready to manage the portfolio on your own. You can also think about taking 10% of your portfolio to invest in individual stocks to see if you can get lucky with a few and boost your overall return. But you also have to be prepared to do your homework (jim cramer says an hour a week per stock, so thats 10 hr/week) on those stocks. If you are honest with yourself and don’t think you will have the time, expertise, or interest to keep up with the management of your portfolio, best to have someone do it for you whether it be through actively managed funds or professional management.

I both agree and disagree with parts of this comment.

Yes, I agree that it is one thing to set up and asset allocation and re-balancing plan, and it is another to execute it in times of uncertainty and market turmoil. This is your family’s future. Right now, with the S&P 500 at 1200, it would be good to look back over the last couple of years and see if you kept your stock/bond ratio at your desired targets when the markets were doing much worse. We you unsure? Scared to pull the trigger? Wanted the economy to get “just a bit better” before jumping back in?

However, I don’t agree that if you did have problems, the solution is “actively managed funds or professional management”. Well, not exactly. Why not go back to something simple and low-cost, like the Vanguard Target Retirement Funds? You will receive the power of passive investment into thousands of companies representing every industry around the world. You’ll also be invested in high-quality investment grade bonds from the US government, US agencies, and strong corporations. And you don’t have to worry about rebalancing, because they will do it for you. All at a rock bottom price of about 0.20% of assets annually ($20 a year for every $10,000 invested).

Take VTIVX, the fund for folks retiring around 2045. Want an IRA? Set up automatic investments into VTIVX. Got more to spare from the paycheck? Set up a automatic investment in a taxable account? Got a bonus? Throw it into VTIVX or similar. Scared? Just sit tight, VTIVX will rebalance for you. Don’t sell. Don’t buy anything else. Inaction is actually in this case. No, it won’t be perfect, but it will be a lot better that most of the other options out there. If you had trouble recently, perhaps it’s time to go back to simplicity?

In any case, there is no way I’d pay 1.74% in annual fees to Fidelity to manage my portfolio. Such crazy-high fees can also REALLY hurt a portfolios return, like facing a 50 mph headwind. I’d choose a Vanguard Target Retirement fund of comparable allocation over a 15+ year period vs. any Fidelity PAS portfolio any day of the week and twice on Sunday.

Savings I-Bonds March 2010 CPI Update: 1.54% Variable Rate

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New inflation numbers for March 2010 were announced today, so it’s time for the usual semi-annual update and rate predictions.

New Inflation Rate
September 2009 CPI-U was 215.969. March 2010 CPI-U was 217.631, for a semi-annual increase of 0.77%. Using the official formula, the variable interest rate for the next 6 months will be approximately 1.54%, depending on the fixed rate. Here’s math:

217.631/215.969 = 1.00769, or a semi-annual increase of 0.77%. Using a fixed rate of the existing 0.3%:

Variable rate = 2 x Semiannual inflation rate + (Semiannual inflation rate X Fixed rate)
Variable rate = 2 x 0.0077 + (0.0077 X 0.003)
Variable rate = 0.0154, or 1.54%

Buying Now = ~2.33% APR, 11-month investment
If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.3%. You will be guaranteed an variable interest rate of 3.06% for the next 6 months, for a total rate of 3.36%. For the 6 months after that, the total rate will be 0.3 + 1.54 = 1.84%.

You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur a 3-month interest penalty. However, a known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. Let’s say we buy at the end of this April, hold for the minimum of one year, and pay the 3-month interest penalty for redeeming within 5 years. You’ll be able to sell on April 1, 2011 for an actual holding period of 11 months.

Taking into account the 3-month penalty, that leaves you with a 2.33% annualized return, which is also exempt from state income taxes on the interest. This is slightly better than any 1-year bank CD that I can find right now, keeping in mind the liquidity concerns and the purchase limits (see below).

Buying Later? If you wait until May 1st, you will get a new unknown fixed rate plus 1.54% for the first 6 months. My wild guess for the fixed rate would be 0.4% at most, probably less. The next 6 months will be based on an unknown rate based on future inflation. If you really want inflation protection, these I-Bonds may be a viable alternative to TIPS, but I wouldn’t pick them for short-term funds due to the low guaranteed rate.

Low Purchase Limits
The annual purchase limit is now $5,000 in paper I-bonds and $5,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov. As for paper, here is a post on how to buy paper savings bonds from your local bank. Some larger banks may have an electronic process.

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

Short Film: The Cheapest Man in the Room

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Do you think you’re cheap? Or know someone who is? Well, unless you’ve brought supermarket cheese samples on a date, they may not be when compared to The Cheapest Man in the Room.

Ross Carter lives a normal life … for a guy on a budget. Some people call him thrifty, or economical, or even a money saver – Ross is all of those and more. He is surrounded by hilarious people, including his cheap old mentor Harold, his all-knowing roommate Dwayne, and the glamorous lady at the Country Time Senior Center – Geena. Life is good for Ross and his coupons, 2 for 1 sales, and free car washes, but that all changes when he meets the lovely Jenny Shree, an intelligent young woman and world traveler. Jenny is not impressed with Ross’s cheap ways – which includes bringing a bag of old wine to a date – and she challenges Ross on his cheapness.

This is a fun short film that doesn’t take itself too seriously. Stealing public toilet paper, and then splitting them from 2-ply to singly-ply in order to make it last longer? Nah… I can’t give up my Charmin Ultra. 🙂 Found via Guzzo.

Insurance Quiz: Can You Beat 4 out of 10 Correct?

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Argh… they got me. I usually filter out PR emails, but I went ahead and took the Insurance Intelligence Quiz by the National Association of Insurance Commissioners (NAIC). According to them, a recent survey found Americans only answered an average of 4 out of 10 questions correctly. The quiz turned out to be reasonably quick and the questions weren’t horrible, so I figured I’d share it for the semi-competitive folks out there that want to test their insurance knowledge.

Quiz Spoilers below…

I ended up getting 8 out of 10 correct. I did not know that auto insurance was not required in all 50 states. Well, technically not required in New Hampshire and Wisconsin. I found this information from Carinsurance.com:

New Hampshire state law does not require minimum auto insurance coverage. However, if you are at-fault in an accident without having insurance coverage you will be required to get car insurance. In this state it is advised that if you own a vehicle you get at least some type of bodily injury coverage, in addition to $25,000 worth of property damage.

Many people believe that Wisconsin does not require insurance, which is true however you must have other means to pay for damages you cause if you are at fault in an accident.

Wisconsin has a financial responsibility law that pertains to any motorist licensed to drive in Wisconsin. This law is designed to make sure anyone operating a vehicle has insurance or enough money to pay for damages to others that may have been caused by a motor vehicle. These requirements may be met through an automobile liability insurance policy, a surety bond, personal funds or a certificate of self-insurance.

I also missed the 100/300/100 question, which is bodily(per person)/bodily(total cap)/property damage. This is a quick way to check up on how much your insurance covers in the even of an accident. I used to think my insurance was pretty cheap, only to find out it was because my coverage limits were near the state minimum.