Archives for August 2017

Tough Times for Conservative Income Investors

Posted on August 16, 2017 // 8 Comments

JP Morgan Asset Management recently released the Q3 2017 update to their Guide to the Markets, which is another of those resources worth bookmarking for future updates. Some folks put a lot of time and energy into it, and it contains a lot of interesting charts and graphs. Here’s just one that caught my eye.

I consider myself a relatively conservative income-oriented investor, and this chart shows why it’s been a tough several years to be that type of investor. For much of the last 30+ years, you could have put your hard-earned money in an FDIC-insured certificate of deposit and enjoyed a guaranteed return above inflation. This isn’t even when shopping around for the top rates, just taking the average bank CD rates.

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Nowadays, you’re just trying to keep the bleeding to a minimum, jumping at the chance to grab a 3% APY long-term CD that might just keep up with inflation.

This also partially explains why the stock market keeps going up and up. Which would you rather have?

  • FDIC-insured cash savings that gives you $1 in annual interest per $100 invested, or a
  • S&P 500 ETF with a 4% earnings yield and 2% dividend yield? In other words, a basket of companies that for every $100 invested earns $4 a year in profit and out of that gives you $2 a year in cash dividends?

I really can’t complain as my overall portfolio of stocks, bonds, and bank CDs has more than doubled in the past several years. Yet, I also share that vague feeling of uneasiness with many other investors.

Filed Under: Investing, Retirement //

Alaska Airlines Dash For Miles Promotion: 3,000 Bonus Miles, Reset Expiration

Posted on August 15, 2017 // Leave a Comment

alaskamilesAlaska Airlines has a Dash for Miles promotion where you can earn up to 3,000 bonus miles: 1,000 bonus miles times three partner sites through September 30, 2017. You must register at the link above first, and then complete at least one transaction from any of the following:

All of these sites are relatively easy to participate in. Mileage Plan Dining has a relatively wide restaurant network and you could link a credit card and buy a $2 soda. Mileage Plan shopping can be triggered with a $5 purchase at Staples.com, Gap.com, or Groupon. The Opinion Terminal only takes the time commitment to fill out an initial survey. (I was able to get the 400 miles after about 15 minutes. Some people only get 5 miles, but that’s enough to trigger the 1,000 point bonus.)

This promo can also be used to reset the expiration of your Alaska Mileage Plan miles for another 24 months. If a Mileage Plan account is inactive for 2 years, Alaska Airlines may close the account, delete any mileage balance and reassign the Mileage Plan number. Deleted mileage can be reinstated for a fee for up to 1 year.

Dash for Miles Challenge Offer Terms & Conditions:

Limited time offer valid August 7, 2017 through September 30, 2017: Mileage Plan™ members who register for this offer and complete at least one transaction with each of Mileage Plan Dining, Mileage Plan Shopping, and Miles for Surveys during the promotional period will receive 1,000 bonus Miles for each partner they earn with. Registration is required prior to the first qualifying transaction. Bonus Miles do not count towards Mileage Plan Elite Status. Bonus Miles will be awarded within six weeks of the last qualifying transaction posting to a member’s account. All terms and conditions of the Mileage Plan program apply. Offer subject to change without notice.

Filed Under: Deals & Offers //

1,000 Marriott Rewards Points for New Visa Checkout Customers

Posted on August 15, 2017 // Leave a Comment

visacheckoutHere’s another promotion for Visa Checkout (they are really pushing this thing). Create a new Visa Checkout account from Marriott.com and earn up to 1,000 free Marriott Rewards points: Earn 500 points when you sign up for Visa Checkout on Marriott.com and 500 points when you use Visa Checkout within 15 days of signing up.

Stack with the Starbucks / Visa Checkout promo. You can have multiple Visa Checkout accounts (each one needs a separate e-mail/phone number and credit card). For this promo, the e-mail address must match between Visa Checkout and Marriott Rewards, so you might need to change one or the other beforehand. Fine print:

Offer valid through 9/24/17 while supplies last. Only new Visa Checkout users eligible. Address on Visa Checkout account must match email address associated with Marriott Rewards member account. […] Allow 6 to 8 weeks from the end of the Promotion Period for delivery of the bonus points award. Marriott Rewards members who have elected in their account profile to earn miles are not eligible for the Promotion.

Filed Under: Deals & Offers //

$20 Starbucks Gift Card for $10 with Visa Checkout

Posted on August 15, 2017 // 2 Comments

sbux_cupFall promo is live. Starbucks is selling $20 Starbucks Gift Card for $10 if you buy it using Visa Checkout instead of credit card directly. Limited to the first 225,000 loads, but if you can still buy a gift card at the link, then the promotion is should still be alive. Otherwise valid 8/14/17 to 9/30/17.

Hey, Starbucks finally figured out that it would be nice to have all this reflected during checkout! A screenshot from my order:

sbux20

Selected terms:

Promotional Offer Terms: Read the following terms to see how you can get a promotional $10 added to the value of your Starbucks eGift Card while supplies last (“Bonus Load”). Starbucks will give away 225,000 Bonus Loads between 8/14/17 and 9/30/17 (“Promotional Period”). To receive a Bonus Load, you must purchase a minimum $10 Starbucks eGift Card with your valid Visa Checkout® Account during the Promotional Period and meet other eligibility requirements below.

Filed Under: Deals & Offers //

Solo 401k – Best Retirement Plan for Self-Employed Business Owners

Posted on August 14, 2017 // 13 Comments

solo401kThe wealth management group Del Monte published a whitepaper on Solo 401k plans, calling it the “financial industry’s best kept secret” and a “powerful and underutilized” retirement plan for self-employed business owners. The 4-page PDF does a good job at summarizing the benefits of a Solo 401k, aka Self-Employed 401k. Perhaps most importantly, the Solo 401k allows the maximum annual tax-sheltered contribution (or ties for the max) for all income levels and ages.

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Here’a a quick benefit comparison against the SEP-IRA and SIMPLE IRA:

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The key difference is the Solo 401k allows an $18,000 salary deferral at any income (i.e. if you make $18k or under, you can put aside all of it) for 2017 and then adds on a profit-sharing component. In addition, Solo 401ks a larger additional “catch-up” contributions at age 50.

I’ve had a Self-Employed 401k through Fidelity for several years, and I have been quite happy with it. The paperwork has been minimal, although you must start filing IRS Form 5500-EZ once your asset exceed $250,000 or face significant penalties. (It’s one page long.) It has been quite flexible – I am able to purchase mutual funds, ETFs, individual stocks, CDs, and individual Treasury and TIPS bonds. There is no annual fee and I’ve only had to pay trade commissions. Fidelity also accepts rollovers from outside IRAs and 401k plans.

Vanguard, Schwab, and TD Ameritrade also offer cheap in-house Solo 401k plans that work well for low-cost DIY investors. There are now several independent providers with “custom” 401k plans which can offer features like 401k loans the ability to invest in alternative asset classes (precious metals, tax liens, real estate, private equity, etc.) at additional cost. Vanguard and TD Ameritrade offer a Roth option; Fidelity and Schwab are only available with “traditional” pre-tax contributions.

Another option to consider is the Solo Defined-Benefit Plan, or “Solo Pension”. The annual maintenance fees are higher and the IRA requirements are significantly more complex, but you can make much larger amounts of tax-deferred contributions (dependent on age and income). The most affordable option appears to be the Schwab Defined-Benefit Plan. If anyone has any experience with this plan, I’d like to hear about it and would be open to a guest post.

Filed Under: Entrepreneurial, Investing, Retirement, Taxes //

Man Who Lived Alone on an Mediterranean Island For Nearly 30 Years

Posted on August 11, 2017 // 4 Comments

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Financial freedom means that you can do what you want. Now consider that if you earn like everyone else and spend like everyone, you’ll end up like everyone else. This is why unconventional people are the most likely to achieve early retirement. I sometimes envy those people who are satisfied with the idea of working 9-5 under a boss until you’re 65 years old. I just can’t do it.

This is why I like reading about unconventional people. Some readers couldn’t get past the fact that Christopher Knight lived alone in the Maine woods for 27 years stole things to eat. Well, here’s a NatGeo story about a person who lived alone on an island for 28 years completely legally. Via NextDraft.

78-year-old Mauro Morandi is the sole caretaker of an Mediterranean island that became closed to tourists after being designated a National Park. He feels very strongly about preserving the island’s natural beauty. He has a job and a purpose. He gets food delivered to him every two weeks and there are limited visitors, so he is not a complete hermit, but he is the island’s only permanent resident. Still, I observed a lot of common ground between these two people who both lived alone for nearly 30 years.

  • They enjoyed the silence. “What I love the most is the silence,” Morandi says. “The silence in winter when there isn’t a storm and no one is around, but also the summer silence of sunset.”
  • They never felt lonely. Morandi says he is always surrounded by life.
  • They made peace with the idea of dying alone. “I will never leave,” Morandi says. “I hope to die here and be cremated and have my ashes scattered in the wind.”
  • They were avid readers.
  • They never got sick. Morandi says he has never gotten sick and attributes this to his good genes. Knight never got sick either, but observed that germs come from other people. If you live alone, there is nobody to spread their foreign germs to you.
  • They view themselves as a small part of the world, not controllers of the world. “We think we are giants that can dominate the Earth, but we’re just mosquitos,” Morandi says.

Here’s another NatGeo story about an off-grid commune in North Carolina, but it didn’t interest me nearly as much. Is it really living off-grid when you live off of donated food and go back into town for WiFi? Is is really a commune when only one person stays year-round? It seems more like a place where people visit and play at being “off grid” for a few months before going back their traditional lives.

Filed Under: Retirement, Simple Living //

College Majors: Job Availability vs. Average Salary

Posted on August 10, 2017 // 5 Comments

gradcapThe American Enterprise Institute used newly-released New York Fed data in their article Major matters in the job market for college graduates. (They probably could have tried harder in their title choice.)

More specifically, they found that high employability doesn’t always match up with higher earnings. In the following chart, the plotted the percentage of recent college graduates with jobs requiring a college degree against the median wage of those recent graduates.

wage_employ

Here are some sample majors for each of the four quadrants:

  • High rate of “full” employment, higher earnings. Chemical Engineering, Nursing, Economics, Accounting, and most majors in the STEM fields.
  • High rate of “full” employment, lower earnings. Education-related majors.
  • Low rate of “full” employment, higher earnings. Political Science, Marketing, and International Affairs.
  • Low rate of “full” employment, low earnings. Theology, Criminal Justice, Performing Arts, English Literature, History, and Philosophy.

Solely following your passions sounds nice, but consider these survey results stating that English majors have the highest rate of regret. I plan on showing my kids this handy Venn diagram along with asking them the Three Questions That Will Guide You Towards The Right Job:

caddell620

Bottom line. The AEI article concludes with “Your college major matters. But it matters in more ways than one.” The data suggests the following warnings:

  • Just because there are lots of jobs in your chosen field, that doesn’t mean your job will pay well.
  • Just because your major has high average income, that doesn’t mean you’ll be able to find a job in that field.

Filed Under: Career, College & Education //

Wealthfront Review: Feature Breakdown and Comparison

Posted on August 9, 2017 // 8 Comments

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Wealthfront is one of the largest independent digital advisory firms (i.e. not tied to a specific brand of funds like Vanguard or Schwab). With a younger target audience (20s to 40s), their offering is for folks that are comfortable having nearly all interactions via smartphone or website. They frequently announce new features and improvements, so I will work to keep this feature list updated.

Diversified portfolio of high-quality, low-cost ETFs. Their portfolios are a diversified mix of several asset classes including: US Total, US Dividend, International Developed, US Corporate Bonds, Muni Bonds, Emerging Market Bonds, REITs, and Natural Resources. For the most part, low-cost Vanguard and iShares ETFs are used. You could argue the finer points of a specific portfolio, but overall it is backed by academic research (Chief Investment Officer is Burton Malkiel).

Direct indexing. If your account is over $100,000, Wealthfront will buy all the stocks in the S&P 500 individually and commission-free. ETF expense ratios are pretty low now, so this is mostly used as an opportunity for more tax-loss harvesting. No other robo-advisor offers this feature. Here is whitepaper that details their position. As long as you meet the $100k minimum, there is no additional cost fee above the standard management fee.

Smart-beta. If your account is over $500,000, Wealthfront created Advanced Indexing as their answer to “smart-beta” investing. It works within its Direct Indexing feature in order to improve tax efficiency. As long as you meet the $500k minimum, there is no additional cost fee above the standard management fee.

wf_new

Financial planning software with outside account integration. Path is Wealthfront’s new financial planning software, launched in February 2017. This service links your external accounts from other banks, brokerages, and 401k plans (similar to Mint and Personal Capital) in order to see your entire picture without having to manually input your balances and transactions. How much do I have invested elsewhere? How much am I spending? How much am I saving? How much can I spend in retirement?

Path can forecast your saving rate using the last 12 months of transactions. Investment returns are estimated using Monte Carlo analysis. It also accounts for your household income, birthdate, and chosen retirement age to estimate how Social Security will affect your retirement income needs. You can change up the variables and see how it will affect your retirement outlook.

College Savings Planning. You can select a college for real-time expense projections, get a customized estimate of financial aid, and receive a personalized college savings plan to cover the difference. This works with or without their own Wealthfront 529 College Savings account.

Account types. Wealthfront now supports taxable joint accounts, trust accounts, 401k rollovers, Traditional IRAs, Roth IRAs, and SEP IRAs. They also offer a 529 College Savings account.

Tax-sensitive account transfers. This is good news if you already have an existing portfolio with unrealized capital gains. Other robo-advisors may have a “switch calculator” to help you decide whether to move over or not, but Wealthfront will actually accept your existing investments and manage it for you alongside your new investments.

If you want to switch advisors or move your brokerage holdings into a diversified portfolio, you typically have to sell all your holdings and move in cash. This means you will more than likely have a large tax bill. Instead of selling your holdings, Wealthfront will directly transfer them into a diversified portfolio tax efficiently, saving you that tax bill.

Tax-efficent asset location. They will place different asset classes in your taxable accounts vs. tax-deferred accounts (IRAs, 401ks) for a higher after-tax return. However, they do not treat them holistically (i.e. putting all one of one asset in IRA and none in taxable). Non-Wealthfront accounts are also not taken into consideration.

Use dividends and new contributions to rebalance. They will use your dividends and new contributions to rebalance your asset classes in order to minimize sells and thus minimize capital gains.

Concentrated holding of a single stock? Wealthfront caters to the tech start-up crowd with a unique Selling Plan service for people with much of their net worth tied up in a single stock. They’ll help you sell your positions gradually in a tax-efficent manner. Currently available to shareholders of: Alphabet, Amazon, Apple, Arista Networks, Box, Facebook, Pure Storage, Square, Twilio, Twitter, Yelp, Zillow.

Daily tax-loss harvesting. Wealthfront software monitors your holdings daily and attempts to find opportunities to harvest tax losses by switching between “similar but not substantially identical” ETFs. If you can delay paying taxes and reinvest them, this can result in a greater after-tax return. The exact “tax alpha” of this practice depends on multiple factors like portfolio size and tax brackets. You can read the Wealthfront side of things in this whitepaper and Schwab comparison. Here is an outside viewpoint arguing for more conservative estimates.

My opinion is that there is long-term value in tax-loss harvesting and especially daily monitoring to capture more losses. However, I also think it’s wise to use a conservative assumption as to the size of that value. (DIY investors can perform their own tax-loss harvesting as well on a less-frequent basis. I do it myself, but it’s rather tedious and I’m definitely not doing it more often than once a year. I would gladly leave it to the bots if it was cheap enough.)

Portfolio Line of Credit. If your taxable balance is over $100,000, Wealthfront will automatically give you a line of credit of up to 30% of your balance. There is no application, no fees, low interest rates, and you can get cash in as little as 1 business day. The rates are advertised to be even lower than a Home Equity Line of Credit (HELOC). Keep your loan balances modest though, as this is a margin lending product and they may force you to sell your investments if your outstanding balance exceeds your available margin.

Fee schedule. The fee schedule for Wealthfront is simple – Everyone gets charged a flat advisory fee of 0.25% of assets annually (first $10,000 waived). All of the features listed above are included. As your asset size increases, you get access to some additional features like Direct Indexing and Advanced Indexing (Smart-Beta).

Bottom line. Wealthfront is an independent digital advisory firm with over $7 billion in assets. Independent which means they aren’t tied to any specific brand of funds like Vanguard, Fidelity, or Schwab. Their main differentiators from the other independent firms (see my Betterment review) are (1) Direct Indexing and Advanced (Smart-Beta) Indexing portfolio management for optimal tax-efficiency and (2) customized assistance with transferring in your existing investments (including company stock) and then selling them tax-efficiently. Other notable features include: Financial planning software that incorporates external accounts, tax-loss harvesting, 529 college saving plan and guidance software, and a portfolio line-of-credit.

Special offer. Open a Wealthfront account via my invite link and get your first $15,000 managed for free, forever. This is an additional $5,000 above the standard $10,000 balance waiver. You can then invite your own friends for more savings (your friend gets $15k managed free as well, and you get another $5k managed for free.)

Filed Under: Investing, Reviews //

Active vs. Passive Funds Debate: Don’t Worry, Be Happy

Posted on August 8, 2017 // 1 Comment

mrworryA common theme in the financial media these days is that “index funds will take over the world armageddon gaaaaahhhh”. People have already used the “bubble” label. Here’s an example of how three charts on the same topic can suggest very different things. First, you’ve probably seen charts like this that encourage you to extrapolate the current upward trend forever…

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How about some context? Yes, passive funds are gaining assets, but there is still a ton of money in active funds:

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Now, what if things are more cyclical? You know, stuff that goes both up and down? Here’s a chart from the Longleaf 2017 Q2 Shareholder letter:

activefund2

The active/passive debate is not new. As the chart [above] shows, performance runs in cycles, and active management is at a low point today. Late in the passive cycle, active investing typically has been declared dead. That declaration has been followed by a strong active management comeback with corresponding disappointment for those who capitulated and owned the index, particularly at its most inflated levels.

In the end, shouldn’t there be a balance? If things get too wacky, then the active stock managers should eventually have easy-pickins and make lots of money on the “dumb” indexers. My guess is that when the market goes down, active funds will get some of their mojo back. Overall, this topic remains in my “not gonna worry about it” folder.

Filed Under: Investing //

Longleaf Partners Funds Shareholder Letters

Posted on August 7, 2017 // Leave a Comment

unconventional180One of the early books that impacted my investing philosophy was Unconventional Success: A Fundamental Approach to Personal Investment by David Swensen. As a very successful manager of the Yale Endowment, he offered common-sense explanations of why low-costs are good and which core asset classes make the most sense to own.

In addition, he pointed out the characteristics to look for in successful active management:

  • Hold a limited number of stocks. Bet boldly on fewer companies (high “active share”), as opposed to being a “closet index fund”.
  • High rate of internal investment. The managers should have a high percentage of their own net worth in the same funds that they ask you to invest in. They should “eat their own cooking.”
  • Limit assets under management. If there is more money flowing in than they can invest efficiently, they should close the fund to avoid asset bloat. This requires them to turn down more money!
  • Reasonable management fees. Active management hash higher internal costs than a passive strategy, but you can still charge less than average.

Swensen pointed out Southeastern Asset Management as an example of a company that most clearly displayed all of these characteristics, but don’t miss the last part of the quote:

Southeastern Asset Management (sponsor of the Longleaf Partners mutual-fund family) exemplifies every fundamentally important, investor-friendly characteristic conducive to active-management success. Portfolio managers exhibit the courage to hold concentrated portfolios, to commit substantial funds side by side with shareholders, to limit assets under management, to show sensitivity to tax consequence, to set fees at reasonable levels, and to shut down funds in the face of diminished investment opportunity.

Even though all the signs point in the right direction, investors still face a host of uncertainties regarding Southeastern’s future active-management success.

Due to this recommendation, I try to keep up with the Longleaf Funds shareholder letters. (You can register for free e-mail updates, even if you don’t own their funds.)

Reading the shareholder letters helps illustrate the many difficulties of active management. Here’s how most of their shareholder letters go, along with specific commentary on individual stocks.

  • Our Partners Fund only holds these 15-25 stocks. Our performance has been [x.xx%]. We have done [better/worse] than our benchmarks.
  • We continue to believe we will generate alpha in the future because we only companies at a significant discount to our conservative appraisals.
  • We claim no ability to predict short-term market moves.
  • We believe that our bottom-up intrinsic value investing approach has positioned the Funds with less risk of permanent capital loss than the relevant indices across all of our strategies.

Their flagship Longleaf Partners Fund (LLPFX) has had attractive performance if you look from inception in 1987:

longleaf1987

However, what if you read Swensen’s book when it was popular in 2005 and thought… I should buy some of that! You would have fallen far behind a simple S&P 500 index fund.

longleaf2005

Here’s what Morningstar has to say about it:

Although Longleaf Partners’ 2016 rebound was welcome, past missteps continue to drag down its record and raise concerns about its prospects.

Longleaf again closed their flagship Longleaf Partners Fund (LLPFX) to new investors in June 2017. Their Small Cap fund has been closed to new investors since 1997. This shows that they are still holding true to the positive characteristics listed above. They could make more money by staying open, but they aren’t. Here’s a snippet from their 2017 Q2 Shareholder letter:

The eight-plus year bull market in the U.S. has made finding qualifying opportunities more difficult, particularly in larger cap companies. In addition, this year’s strong returns in most markets outside of the U.S. have made our on-deck list of prospective investments light around the world. Because we have sold and trimmed businesses whose prices have moved closer to our appraisals, our cash reserves are higher than normal. In June, we closed the Longleaf Partners Fund due to limited new investments and a high cash position.

I respect Southeastern Asset Management and I enjoy reading their shareholder letters. They might end up kicking butt in the future. However, I hold no position on any Longleaf funds because I don’t have the level of faith required to maintain my position. It’s a tough world out there, even when you are doing the “right” things. Note that LLPFX charges 0.95% of assets and multiple large-cap index funds only charge 0.05%. Consider that as of this writing, the trailing 15-year total return of LLPFX is 7.12% annualized. The trailing 15-year total return of the S&P 500 is 9.58% annualized. If you held this in a taxable account, the gap would be even wider.

Bottom line. Longleaf Partners Fund continues to be an example of promising characteristics for an investor-friendly, actively-managed mutual fund. However, their recent performance has still been questionable. They may outperform in the future, but will you stick around to see? Reading their free shareholder letters is a good way to learn about what it’s like to invest in a traditional value-oriented, actively-managed strategy.

Filed Under: Investing // Tagged:

Free 1,000+ Marriott Rewards Points Promotion

Posted on August 3, 2017 // 6 Comments

marriottchirp0

Back again, but different? I’m not sure if this works if you’ve already done it before, but there is a new Chirpify promotional page with a new #RewardsPoints hashtag (instead of #MRpoints) showing the following opportunities:

  • 750 free points. 250 points each for linking your Twitter, Instagram and Facebook accounts.
  • 250 free points. 125 points each for following Marriott Rewards on Twitter and Instagram.
  • ???. There is a vague reference to additional points earning opportunities. “A maximum of 45,000 points per Marriott Rewards account can be earned each calendar year through #RewardsPoints.”

Here’s a link to the FAQ. I don’t know why all these things ask for the ability to post on your behalf, but then promise “we won’t post on your behalf”. So why ask for it? Just as with secondary e-mail accounts, some people choose to keep secondary social media accounts…

Filed Under: Deals & Offers //

Free Collection of Investing Books by Meb Faber

Posted on August 3, 2017 // 7 Comments

investwiththehouse

Free again. Asset manager Meb Faber is promoting the launch of his new book, The Best Investment Writing: Selected writing from leading investors and authors (Vol. 1), by making all four previous self-published books free in Kindle format for a limited time (ends Saturday 8/5). Below are direct links to each book. Check first that the Kindle price is $0 (“0.00 to Buy”), then buy it to own permanently. Do not click “Read for Free”.

Grab them now while they are free, and read later at your convenience. You can read Kindle eBooks on smartphones or on any computer via web browser.

I enjoy reading these books, but I’m always careful when reading about finely-diced backtested strategies that worked well in the past. Before you put your hard-earned money at risk, please realize that even if they continue to work (which is in no way guaranteed given how markets tend to weed out edges), they will still be hard to stick to in real life. At some time, you will underperform other strategies for an extended period of time. You must ride out those low periods in order to achieve any sort of market-beating returns. In my opinion, the fancier the strategy, the harder it is to keep faith.

Filed Under: Deals & Offers, Investing //
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