Archives for December 2013

S&P 500 Total Dividend Growth Charts

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While dividend size is not the primary driver of my investment decisions, I still love seeing dividend distributions arrive in my brokerage account and consider them a critical part of my portfolio’s total return.

Eddy Elfenbein of Crossing Wall Street created the chart below, plotting both the S&P 500 index value (blue) and its dividends (red). The vertical axes are scaled 50:1, so that when they cross the dividend yield is 2%. We see that while dividends don’t always go up in the short term, they have been bouncing back and growing along with stock prices today (unlike during the dot-com boom).

 

If you take a step back and look at the bigger picture, Multpl.com has a chart showing the dividend growth for the S&P 500 on a real (inflation-adjusted) basis since 1870. While the dividend yield remains at historical lows, the total amount of dividends still appear to grow faster than inflation over longer (10+ year) periods. Note the vertical axis is on a log-scale.

Retirement Portfolio Update – Year-End 2013

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Here’s a 2013 year-end update of our retirement portfolio, which includes employer 401(k) plans, self-employed retirement plans, Traditional and Roth IRAs, and taxable brokerage holdings. Cash reserves (emergency fund), college savings accounts, experimental portfolios, and day-to-day cash balances are excluded. The purpose of this portfolio is to eventually create enough income on its own to cover all daily expenses.

Target Asset Allocation

This has been mostly the same for over 6 years, although I did make some slight tweaks in my last June 2013 update.

I try to pick asset classes that are likely to provide a long-term return above inflation, as well as offer some historical tendencies to be less correlated to each other. I don’t hold commodities futures or gold because theoretically their prices should only match inflation. In addition, I am not confident in them enough to know that I will hold them through an extended period of underperformance (and if you don’t do that, there’s no point). 2013 turned out to be a tough year for both gold and commodities funds.

Our current ratio is about 70% stocks and 30% bonds within our investment strategy of buy, hold, and rebalance. With low expense ratios and low turnover, we minimize our costs in terms of paying fees, commissions, and taxes.

Actual Holdings

Here is our year-end asset allocation snapshot:

Stock Holdings (Ticker Symbol)
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
PIMCO Total Return Institutional* (PTTRX)
Stable Value Fund* (2.6% yield, net of fees)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
US Savings Bonds

The holdings haven’t changed through the latter half of this year, just some additional purchases of existing funds.

In terms of performance, in general stocks had a great year while bonds pretty much went nowhere or slightly down. I don’t expect everything to go up every year, not to mention my portfolio is bigger than I could have expected just a few years ago, so I can’t complain. Here are some 2013 YTD total returns for selected representative funds as of 12/27/13:

Stocks
Total US VTI +33%
Total International VXUS +14%
US Small Cap Value DES +37%
Emerging Market Small Cap Value DGS -5%
US REITs VNQ +3%

Bonds
Short-term Muni VMLUX +0.5%
Intermediate-term Muni VWALX -3%
Inflation-protected bonds -9%

2013 New Year’s Resolution Follow-Up

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It’s time to check up on our 2013 New Year’s Resolutions, which I gave the eloquent theme “Get our crap together” (in case one or both of us dies). I will roughly follow this GYST checklist.

Will and trusts. We are fortunate to have a family friend who is an estate lawyer, and she was able to assist us with creating all of these legal documents. They included:

  • Designating a Durable Power of Attorney for financial and medical decisions, including backups.
  • Designating who would take care of our children, including backups
  • Distribution of assets and personal items. Mostly the money will go into a trust for the kid(s).

Living Will. In case one or both of us are incapacitated, this included:

  • Medical power of Attorney and backup in case of being physical incapacitated
  • Advanced directives
  • Discussions of our wishes with family.

If you can find a good estate lawyer, I would recommend that route as they should have the experience to explain all of the potential issues in your state including being prepared for future law changes. I may try to write about the general issues later once I learn more. I also meant to compare my documents with those produced by services like Legalzoom, but haven’t gotten around to that. As for costs, it will vary depending on how complicated your situation is and how many additional documents you need prepared and reviewed (power of attorney, trust, etc.).

Life insurance. We each have a $1,000,000 term life insurance policy. We think this number is more than adequate given our future expected needs and our existing savings. If one of us dies, the other will ideally not have to work anymore. If both of us die, there should be enough to cover all living expenses plus any educational expenses. To get an idea of cost, try Term4Sale.com.

Short-term disability. We both have short-term disability through our employers. I don’t feel it is necessary to buy an additional individual policy as we have sizable cash reserves.

Long-term disability. Mrs. MMB obtained an individual long-term disability insurance tailored to her profession. This was done through a recommended local insurance broker. I did not pursue buying a long-term disability plan. This is due to the fact that I felt our portfolio is large enough to provide a substantial cushion, and also due to the fact that the physical demands of my job aren’t very high and thus I worried it would be hard to qualify for benefits. Upon further thought, however, I do think I should at least price it out. Another thing to do in 2014.

Financial Education

  • Passwords. All major passwords are stored in an encrypted password manager, with most sites having a unique complex password such that one hacked database won’t affect the security of other accounts. My wife uses it all the time now and is familiar with it.
  • Cash reserves. We have one year of expenses in cash held in an FDIC-insured bank account. This will provide a cushion so that nobody will have to worry about money until life insurance proceeds arrive.
  • Spousal budget education. We did have a few discussions about our current monthly cashflow situation (income and expenses) and what spending levels could be supported with our current portfolio and with the addition of any life insurance proceeds.
  • Spousal investor education. Can my spouse manage the finances without me? Probably, but not as optimally as I’d like. I did very little in this area, and this will be the focus on our 2014 resolutions.

I think we did pretty good in terms of estate planning, but for 2014 I’ll need to be much more proactive in sharing my investing knowledge. I’d like to learn how to make some simple videos and share them on Youtube.

Tomales Bay Oysters – An Unforgettable Meal at Everyday Prices

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Not to turn this into a food blog, but talking about The French Laundry reminded me of another awesome Northern Californian meal you could have at a mere fraction of the cost.

Both the Tomales Bay Oyster Company and the Hog Island Oyster Company have farms located by the ocean about an hour north of San Francisco. Anyone can drive up and shuck live oysters that were harvested hours ago just a few feet away. Sit on wooden picnic tables and save money by bringing everything else yourself for a gourmet picnic – shucking knives, lemon, wine, crusty bread, cheese, and so on. Eat them raw or cook them on provided grills. A dozen oysters costs $10-$20 depending on size and type. A comparable meal at a restaurant would cost more than twice as much and wouldn’t be as fresh.

These were the best oysters that I’ve ever had at any price!

I’m trying to think of similar opportunities where you can get the highest-quality ingredients without the white tablecloth, do some of the work yourself, and enjoy an unbeatable meal for the cost of a chain restaurant. When I was younger, we used to catch crabs using chicken necks and a net. Hunting your own meat and fishing also come to mind, although those require a bit more equipment and skill.

Here’s a quote from Ernest Hemingway’s “A Moveable Feast” found in a recent Yelp review that will make oyster-lovers salivate.

As I ate the oysters with their strong taste of the sea and their faint metallic taste that the cold white wine washed away, leaving only the sea taste and the succulent texture, and as I drank their cold liquid from each shell and washed it down with the crisp taste of the wine, I lost the empty feeling and began to be happy and to make plans.

How to Get French Laundry Reservations Without Losing Your Mind

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Businessweek has a profile of the latest exclusive, farm-to-table, 16-course-meal restaurant, including a list of the “five toughest restaurant reservations in America”.

I found myself smiling because I recently ate at one of the places on that list – The French Laundry in Yountville, California – with just one phone call. How did I get a reservation? By wringing yet another benefit out of credit cards, of course!

The reservation process for The French Laundry is relatively egalitarian. Reservations are only accepted exactly two months ahead either via phone call or OpenTable.com exactly at 10:00am. No walk-ins allowed. I tried for days with repeated phone calls and frantic clicking, all with no luck.

Then I discovered that some people were able to get reservations using their American Express “Black” card, a card for big spenders willing to pay a $5,000 initiation fee and a $2,500 annual fee. I have a lot of credit cards, but this isn’t one of them.

However, others mentioned using the Concierge feature of Visa Signature cards. Look for the Visa Signature logo on that back of your existing cards. Here are some popular credit cards that are a Visa Signature, many with nice sign-up bonuses and no annual fee:

  • Chase Sapphire Preferred® card (review)
  • Chase Freedom card (review)
  • Citi American Airlines Visa Signature card (review)

So I called the special Visa Concierge number (800-953-7392) and asked for help making a reservation for two. The next day, they called back and said that they couldn’t get me a reservation, but that they would keep trying and get back to me when they did. It took a little over a month, but one day I got a message that they had secured me a reservation on a Monday about 6 weeks ahead and for me to confirm that I wanted it. I surprised my wife with the news, and we decided to go for it as a special anniversary celebration.

I’ve read that certain high-demand restaurants have an arrangement with certain credit card companies to set aside a certain amount of seats for their “concierge” services. I imagine most people never use them. I don’t know if someone from Visa Signature really tried to call in every single day, if they have some sort of automated system for snapping up cancellations, or perhaps there is some sort of lottery. All I know is that it worked for me, and it should work for you if you’re flexible on dates.

As for the meal, the food and service were excellent, and we don’t regret splurging for such a memorable eating experience and Napa Valley trip. We even framed the menu and put it in our kitchen. At the same time, we have no plans to spend $600 on dinner again anytime soon. 🙂

Amazon Mom and Subscribe & Save Tips

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There is a minor kerfuffle going on with Matthew Yglesias and his post How to Save Money on Amazon With a Fake Baby vs. internet ethicists including Gawker.

Short version: If you sign up for Amazon’s Subscribe & Save program and add at least 5 items in that month’s delivery, then you’ll get 15% off every item in that delivery instead of just 5%. However, if you are a member of Amazon Mom (free with Amazon Prime trial) and do the exact same things (add at least 5 items to that month’s delivery), then you’ll get 20% off every item in that delivery. There goes Amazon… contributing to overpopulation and fake babies.

I didn’t even notice this difference because we signed up for Amazon Mom a while ago as we had a real baby, but I do like the 20% off on wipes, diapers, baby food pouches, and addictive indian curry packets. (Oh, I really don’t care about the kerfuffle. People can decide for themselves.)

Buy more, pay less? I usually sign up for everything recurring every month, and then cancel whatever I don’t need when I get their warning e-mail that things will ship soon. Sometimes I don’t reach five items, although if you sort by price*, there are several cheap S&S-eligible things that you can actually save money by buying them. For example, if you have 4 items totaling $80, then adding an additional item will save you 15% extra, or $12. So adding anything that costs less than $12 will actually reduce your final bill.

* Try this link for Grocery items and in the top-right corner click “Sort by Price: Low to High”. Try this link for Baby foods. The prices don’t always seem to sort correctly, but if you scan the first few pages it helps.

HealthyWage: Lose Weight, Make Money?

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A few well-publicized academic studies have shown that financial incentives can be very effective in helping people lose weight. As a result, there is now a website called HealthyWage.com that will actually pay you money if you can prove you dropped a certain amount of weight. You can even risk your own money, in order to provide both a carrot and a stick (shouldn’t it be HealthWager?). There are a few different “challenges” available:

  • Free $100 BMI Challenge. You must go from an obese BMI (BMI>30) to a healthy BMI (BMI<25) in one year. The free BMI Challenge pays a $100 prize with no upfront fee. Alternatively, you can put up a maximum of $300 at risk in order to win the max prize $1,000.
  • 10% Challenge. You wager $150 and double your money ($300) if you lose 10% of your weight over six months.
  • $10,000 Team Challenge. Competition between groups of people during preset 3-month intervals, with the top prize being $10,000. The entry fee is $25/month for three months (or a one-time $75 fee).

In terms of verification, you can either make short video of yourself following their specific instructions (continuous video, calibrate scale, show entire body, etc.) or visit a fitness or medical professional (health club worker, doctor, etc.). Supposedly, the website is funded by “advertising dollars from insurance companies, health-care systems, and food companies, as well as some government money”.

I respect that they are trying something new. It would be cool if they could help people achieve long-term weight loss, although just the hurdle of having to remember to do something a year later will probably win them a lot of bets. I’m not eligible for the freeroll, but I might try the 10% Challenge out in January… you know, post-holiday food coma.

Stop Wasting Money on Vitamin Supplements

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“Enough Is Enough: Stop Wasting Money on Vitamin and Mineral Supplements” is the title of an editorial in the Annals of Internal Medicine that address three different studies released in the same issue about the role of vitamin and mineral supplements in preventing chronic diseases. The abstract:

In this issue, 3 articles address vitamin and mineral supplements for prevention of chronic diseases. […] They conclude that most mineral and vitamin supplements have no clear benefit, might even be harmful in well-nourished adults, and should not be used for chronic disease prevention.

Specifically, beta-carotene, vitamin E, and possibly high does of vitamin A were found to “increase mortality” (not good). The three articles and the editorial were found via the NPR article “The Case Against Multivitamins Grows Stronger“.

One review found no benefit in preventing early death, heart disease or cancer. Another found that taking multivitamins did nothing to stave off cognitive decline with aging. A third found that high-dose multivitamins didn’t help people who had had one heart attack avoid another.

Steven Salzberg, a professor of medicine at Johns Hopkins says that “The vast majority of people taking multivitamins and other supplemental vitamins don’t need them. I don’t need them, so I stopped.”

I don’t think multivitamins are going away, and physicians are still recommending them for certain groups like expecting mothers. But perhaps Sheldon Cooper was right and most of us are just buying the ingredients for “very expensive urine“.

Health Savings Accounts: Defer Reimbursement But Keep Receipts Forever

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I always tell myself to do more research on Health Savings Accounts (HSAs), but I lack motivation because we have great health insurance benefits and not even the option of an HSA-eligible high-deductible plan. I know, what a tough problem to have ;).

Still, the benefits of HSAs include tax-deductible contributions, tax-free earnings growth, and tax-free withdrawals when used for qualified medical expenses. Because of this, HSAs are often nicknamed “Healthcare IRAs” and have the potential to be very useful for retirement planning.

A popular tip is to contribute the maximum allowable amount to your HSA every year ($3,300 individual, $6,550 family for 2014) and then invest that tax-deferred money so that you can have a big pile of money eligible for healthcare expenses when you are old and creaky. Some people recommend not taking any withdrawals even if you have current medical expenses and just pay for it out-of-pocket. This way, your contributions will be able to enjoy potentially decades of tax-free growth. There is no maximum allowable balance. There is no mandatory disbursement age.

In addition to all that, the Mad FIentist has a great post on How to Hack Your HSA where I learned that:

  • There is no time limit between when you incur a qualified healthcare expense, and when you can make a tax-free withdrawal of the same amount.*
  • By saving up all your medical receipts but not claiming them, you can effectively defer that qualified withdrawal indefinitely. For example if you pay your $2,000 bill now, you’ll still be able to take out $2,000 tax-free at any time you wish in the future. Meanwhile, that initial $2,000 can be left in there to grow in a variety of investment options, like stock index fund or ETF.

Now, you can still only take out $2,000 tax-free and not whatever that $2,000 grew to. However, as you get older you will likely have more medical expenses including copays or coinsurance payments. HSA money can also be taken out tax-free to pay for COBRA premiums and Medicare deductibles and Part B/C/D premiums. Finally, once you reach age 65, withdrawals for non-qualified reasons will be taxable as income without penalty, acting very similar to a Traditional IRA. If you did that before 65, you’d be subject to a 20% penalty.

This is an intriguing wrinkle, but I’d be wary of keeping my receipt for 20 or 30 years and then trying to redeem them. The IRS states that you “must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source”. What if the IRS starts asking questions? The doctor’s office that did the procedure may be long gone. How do you prove that you didn’t just Photoshop the receipt?

[Read more…]

New Site Design

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Just a quick note that I finally updated this site’s design after many, many years. The primary goal of this redesign was to improve usability and readability across modern computer screens, which now span from 30″ widescreen monsters to 3.5″ smartphones. I’m also trying to improve navigation so that readers can easily find the more timeless posts amidst the many other time-sensitive posts. I still have a lot of work to do by going through my archives and cleaning things up.

Please let me know if anything is broken or just what you think of it. Thanks!

Visualizations of Investment Performance by Asset Class 2011-2013

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The blog Short Side of Long has a nice post discussing the relative performance of several different asset classes over the last few years. The charts especially caught my eye, and I went over to Stockcharts.com to make my own with the asset classes that I prefer to follow.

Here are 2013 year-to-date price charts for selected major asset classes (using representative ETFs): total US stock market (ticker VTI), total international stock market (ticker VXUS), total US bond market (ticker BND), inflation-protected US bonds (ticker TIP), and gold (ticker GLD). Dividends are not included. As mentioned earlier, 2013 was year where assets didn’t move in sync (lower correlations).


(click to enlarge)

The chart below shows the same ETFs over all of 2012. Looking back, it felt like every asset class ended positively and everything was recovering in 2012.

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Americans Spend 5 Hours a Day Watching TV

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Americans are watching more TV than ever at least according to Nielsen and AllThingsD. Television remains the biggest chunk of the nearly 60 hours of media consumed every week. Here’s how those 60 hours break down across TV, radio, online, and mobile in 2012.

If you did the quick math like I did, yes 35 divided by 7 days is an average of 5 hours of TV per day. Five hours! Even with all the buzz about Netflix, the numbers haven’t changed all that much over the last few years:

I did some quick searching and found the 2012 American Time Use Survey (ATUS) by the U.S. Bureau of Labor Statistics gave some slightly different numbers:

Watching TV was the leisure activity that occupied the most time (2.8 hours per day), accounting for about half of leisure time, on average, for those age 15 and over.

(I’m not sure what the cause of this big difference is, my best guess is that the BLS survey depends on self-reported answers, while Nielsen data includes set-top boxes that quietly track actual usage. People may think or only want to admit they watch less TV than they really do.)

I don’t begrudge anyone the act of decompressing after a day of work. I watch TV to relax too. But sitting for 3-5 hours in front of the TV every single day? I don’t see how someone who does that can also complain about being “too busy” to cook their own food or do other self-improvement projects. Learn a new skill, get a better job, start a side business. Warren Buffett’s investment partner friend Charlie Munger recommends working for yourself an hour every day. I mean, who else is going to do it?