Archives for January 2018

The Fall of Landlines and Rise of Cell Phone-Only Households

Posted on January 16, 2018 // 12 Comments

Here’s an interesting chart from Statista showing how landline telephones are slowly dying away and being replaced by cell phones only.

landlines

In 2004, more than 90 percent of households in the U.S. had an operational landline phone – now it’s (significantly) less than 50 percent.

We use our cell phones almost exclusively, but we technically have a home phone line (though not a landline). If you still want home phone service, consider purchasing an Obi200 VoIP box and use it with Google Voice to get free home phone service over your internet at the great price of $0 a month and no taxes. Setup takes under 15 minutes and you can use your existing landline phones.

We should be thankful that long distance phone calls no longer cost so much, as I still remember the days of calling cards and when 10 cents a minute was cheap. (I’m getting rather old…) Heck, we are only paying $6 a month for unlimited cell phone service this year.

Filed Under: Frugal Living //

Berkshire Hathaway vs. S&P 500: Shrinking Edge?

Posted on January 15, 2018 // 5 Comments

It is well-known that the CEO of Berkshire Hathaway (BRK) is Warren Buffett, and that its long-term performance has crushed the S&P 500. This is usually illustrated with an impressive chart like this one from Business Insider:

brkvsp500_bi

I’m currently reading A Man for All Markets by Edward Thorp. Among his many impressive accomplishments, Thorp even managed to be an early investor in Berkshire Hathaway. However, an ongoing theme in the book is that edges don’t last forever. He includes a chart in his book about how the performance gap between BRK and the S&P 500 has narrowed over time (I added the pink highlighting):

brkvsp500_red

The book states that the dates were chosen when “the price graphs suggested that they were natural divisions”. Now, even Warren Buffett and Charlie Munger have stated upfront that future returns for Berkshire will be much more modest than in the past. Their current asset size is simply too large. Of course, they still maintain they’ll do just fine, otherwise they’d just give up (or at least pay a dividend). It will be interesting how their edge holds up in the future.

Disclosure: My investment portfolio is predominantly invested in indexed and low-cost funds, but I do hold some Berkshire Hathaway shares in my 5% “play money” portfolio of individual stocks and marketplace real-estate investments. I still want to go to a BRK shareholder meeting in Omaha one of these years.

Filed Under: Investing //

Sam’s Club: Free 3-Month Membership Extension (or Full Refund Upon Cancellation)

Posted on January 11, 2018 // 15 Comments

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(Update: Sam’s Club has added that language that this offer is limited to “members in closing clubs”. I’m not sure if that includes if you live in the same area as a closing club.)

Sam’s Club is offering all of their members a free 3-month extension if you fill out the linked form by March 31, 2018. This is in response to their sudden closure of 63 Sam’s Club locations (about 10% of all stores).

Alternatively, you can cancel your membership and receive a full refund via electronic gift card within 7 days (I want to say you can use this at Wal-Mart, otherwise where would you spend it? Just pay the 5% surcharge?) or mailed check within 6 weeks. If you take the free extension, you can still decide to cancel with free refund later.

Filed Under: Deals & Offers //

50% of American Households Don’t Own Any Stocks At All

Posted on January 11, 2018 // 1 Comment

Here’s another stat to add to your knowledge. For roughly half of Americans, the stock market’s record highs don’t help at all, according to a recent Washington Post article. This chart shows that half of US household have no exposure to stocks, either directly or indirectly:

ownsstock

Direct vs. indirect. The academic paper by Dr. Wolff of NYU was a bit confusing with their terminology. From what I read, “direct” stock ownership means owning individual shares of stock. “Indirect” stock ownership includes “mutual funds, trusts, or various pension accounts”. Here, the term “pension accounts” include defined contribution accounts like IRAs, 401(k), and 403(b) plans. However, assets in defined benefit plans, which is the more traditional definition of the term “pensions”, are not included under “pension accounts”. Social Security is also excluded. Got that?

In theory, you don’t need to own stocks to have a comfortable retirement. You could have a mix of other resources like Social Security, private company pension plan, bank deposits, bonds, whole life insurance, commercial property, residential rental property, and so on. However, I’m willing to bet there is a healthy correlation between owning one and owning multiple forms of these productive assets.

Financial freedom means owning enough productive assets to get off the treadmill of work, spend, work, spend. I know there are probably good reasons why many people have trouble finding the money to invest in stocks. I don’t have an easy fix. However, one small tip for those on the margin is to get that spark and start viewing such assets with desire. The same desire as a nicer car or kitchen remodel. I get excited when I buy another chunk of VTI or VXUS. Others get excited when they acquire another rental property. Find a way to start your snowball.

Filed Under: Investing //

Markets Rise and Fall: Is Your Portfolio Ready For Both?

Posted on January 9, 2018 // 15 Comments

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It would be great if you could invest in things with high and reliable returns, going up and up consistently like clockwork and without worry. Unfortunately, that’s usually the sign of a Ponzi scheme. The chart above illustrates what you have to deal with in the real world. It shows how the S&P 500 (1949-2016) has had both significant losing streaks and big winning streaks, often one right after the other.

The source is Ric Edelman and The Most Important Chart on Investing You’ll Ever See and it comes via Barry Ritholtz and Edelman’s Favorite Investing Chart. Here’s a selected quote from the Edelman site:

This chart clearly shows that when stock prices are rising, they rise a lot and for a long time.

When prices fall, they fall a little and for a short period.

[…]

When you notice that stock prices are declining, don’t be upset. Instead become excited about what lies ahead.

Barry Ritholtz adds:

The usual caveats apply — post Great Depression took 25 years to return to breakeven, and Japan circa 1989 still needs the Nikkei Dow to almost double to get back to the high from almost 30 years ago. If you were retiring during those periods you were pretty much hosed. Still, the cyclicality of markets is very worth noting.

In my opinion, the takeaway is that your investment plan must be ready for both green and red streaks. For one, you need to be able to stay in the market and capture a good chunk of those long green streaks. Bailing out of a winning streak can cause you miss out a lot of money. At the same time, you need to survive those red streaks, which may not look that scary on the chart but are actually terrifying. (Remember that to simply get even from a 50% drop, you’d have to have a subsequent 100% rise.) This can be a tricky balancing act.

Filed Under: Investing //

What If You Invested $10,000 Every Year For the Last 10 Years? 2008-2017 Edition

Posted on January 8, 2018 // 10 Comments

keepcalmInstead of just looking at one year of returns, here’s an annual exercise that helps you look at the bigger picture. You may know the 10-year historical return of the S&P 500, but most of us didn’t just invest a big lump sum of money a decade ago, and most of us don’t just invest in the S&P 500.

Investment benchmark. There are many possible choices for an investment benchmark, but I chose the Vanguard Target Retirement 2045 Fund. This all-in-one fund is low-cost, highly-diversified, and available in many employer retirement plans as well open to anyone with an IRA. In the early accumulation phase, this fund is 90% stocks (both US and international) and 10% bonds (investment-grade domestic and international). I think it’s a solid default choice where you could easily do worse over the long run.

Investment amount. For the last decade, the maximum allowable contribution to a Traditional or Roth IRA has been roughly $5,000 per person. That means a couple could put away at least $10,000 a year in tax-advantaged accounts. If you have a household income of $67,000, then $10,000 is right at the 15% savings rate mark.

A decade of real-world savings. To create a simple-yet-realistic scenario, what would have happened if you put $10,000 a year into the Vanguard Target Retirement 2045 Fund, every year, for the past 10 years. You’d have put in $100,000 over time, but in more manageable increments. With the handy tools at Morningstar and a quick Google spreadsheet, we get this:

2008-2017x10k

For every $10,000 you put in annually over the last 10 years, you would have a ~$80,000 investment gain on top of the $100,000 in contributions. For example, if you were a couple that both maxed out their 401k and IRAs at roughly $20k each or $40k total per year, that would leave you with a gain of roughly $360,000 over the last decade (and a total balance of $760,000).

Some of that money was invested right before the crash in 2008/2009, and some has only been in the market for a few years. $10,000 invested in the beginning of 2008 would have dropped down to $5,500 in value before the rebounding. Not every year will turn out to be as good as this year, but taking it all together provides a more balanced picture.

Earn money, save a big chunk of it, and then invest it in your choice of productive assets. Keep calm and repeat. The investment side of our path to financial freedom can be mostly explained by such behavior. (Add in maxing out a 401(k) each year as well if you can.) Something as accessible and boring as the Vanguard Target Retirement Fund can make you rich. You don’t need a secret trading strategy or exclusive hedge fund manager.

Filed Under: Investing, Retirement //

Best Interest Rates on Cash – January 2018

Posted on January 7, 2018 // 21 Comments

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Short-term interest rates are rising. Megabanks make billions by pay you nothing for your idle cash. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much additional interest you’d earn if you switched over. Rates listed are available to everyone nationwide. Rates checked as of 1/7/18.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, there are a number of online savings accounts offering much higher rates. Keep in mind that with savings accounts, the interest rates can change at any time.

  • DollarSavingsDirect at 1.60% APY, CIT Bank at 1.55% APY, both with no minimum balance requirement. SalemFiveDirect 1.50% APY, Synchrony Bank 1.45% APY, GS Bank 1.40% APY.
  • I currently keep my “hub” account at Ally Bank Savings + Checking combo due to their history of competitive rates, 1-day external bank transfers, and overall user experience. I then move money elsewhere if the rate is significantly higher (and preferably locked in via CD rate). The free overdraft transfers from savings allows to me to keep my checking balance at a minimum. Ally Savings is now lagging a bit at 1.25% APY.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, you should know that money market and short-term Treasury rates have been rising. The following money market and ultra-short bond funds are not FDIC-insured, but may be a good option if you have idle cash and cheap/free commissions.

  • Vanguard Prime Money Market Fund currently pays an 1.38% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.23%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 1.83% SEC Yield ($3,000 min) and 1.93% SEC Yield ($50,000 min). The average duration is 1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.68% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.81% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. More info here.

Short-term guaranteed rates (1 year and under)
I am often asked what to do with a big wad of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple. If not a savings account, then put it in a short-term CD under the FDIC limits until you have a plan.

  • CIT Bank 11-Month No-Penalty CD is at 1.55% APY with a $1,000 minimum deposit and no withdrawal penalty seven days or later after funds have been received. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you can always jump ship if rates rise. Full review. You can open multiple CDs in smaller increments if you want more flexibility.
  • Ally Bank No-Penalty 11-Month CD is paying 1.60% APY for $25,000+ balances and 1.25% APY for $5,000+ balances. Similar product, higher rate at the moment, higher balance requirement. Ally is a full-featured bank with checking/savings/etc.
  • Synchrony Bank has a 12-month CD is at 2.00% APY with a $2,000 minimum deposit. (Ally Bank had a similar rate that ended on 1/2/18, so I don’t know how long the Synchrony rate will last either.)

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between November 2017 and April 2018 will earn a 2.58% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. At the very minimum, the total yield after 12 months will be 1.29% with additional upside potential. More info here.
  • In mid-April 2018, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). The offers also tend to disappear with little notice. Some folks don’t mind the extra work and attention required, while others do.

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop quickly, leaving a “bait-and-switch” feeling. But the rates can be high while they last.

  • Consumers Credit Union offers up to 4.59% APY on up to a $20k balance, although getting 3.09% APY on a $10k balance has a much shorter list of requirements. The 4.59% APY requires you to apply for a credit card through them (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases small as well, as for every $500 in monthly purchases you may be losing out on 2% cashback (or $10 a month after-tax). Find a local rewards checking account at DepositAccounts.
  • Note: Northpointe Bank, mentioned previously, no longer has their Rewards Checking account on their website and is not accepting new applications. Unclear how long existing accountholders will be grandfathered. That’s just how it goes with these types of accounts.

Certificates of deposit (greater than 1 year)
You might have larger balances, either because you are using CDs instead of bonds or you simply want a large cash reserves. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider a custom CD ladder of different maturity lengths such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account.

  • Advancial Federal Credit Union has their 18-month CD at 2.05% APY ($50k min) and a 24-month CD at 2.14% APY ($50k min). The early withdrawal penalty is 180 days of interest. Anyone can join with a $5 membership fee to the Connex Professional Network.
  • Ally Bank has a 5-year CD at 2.25% APY (no minimum) with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 18-months you’d still get an 1.64% effective APY even after accounting for the penalty.
  • Northern Bank Direct has a 4-year CD at 2.51% APY with a $500 minimum. I had to mention this top rate, but watch out for the huge early withdrawal penalty of 3-years of interest! Hanscom Federal Credit Union still has their 4-year Share Certificate at 2.50% APY (180-day early withdrawal penalty) if you also have Premier Checking (no monthly fee if you keep $6,000 in total balances or $2,000 in checking). HFCU also offers a 3% APY CU Thrive “starter” savings account with balance caps. HFCU membership is open to active/retired military or anyone who makes a one-time $35 donation to the Nashua River Watershed Association.
  • United States Senate Federal Credit Union has a 60-Month Share Certificate at 2.76% APY ($60,000+), 2.70% APY ($20,000+), and 2.63% APY ($1,000+). Anyone can join this credit union via partner organization American Consumer Council for a one-time $10 membership fee. (ACC lets you become eligible for multiple credit unions.)

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve. (The yield curve has been flattening in recent months.)

  • Willing to lock up your money for 10+ years? You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer the same FDIC-insurance. As of this writing, Vanguard is showing a 10-year non-callable CD at 2.75% APY (Watch out for higher rates from callable CDs from Fidelity.) Unfortunately, currently CD rates do not rise much higher even as you extend beyond a 5-year maturity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty, so I avoid it. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years.

All rates were checked as of 1/7/18.

Filed Under: Banking, Deals & Offers, Investing, Treasury Bills and Bonds //

S&P 500 Monthly Total Returns 1990-2017: First 14-Month Win Streak

Posted on January 3, 2018 // 3 Comments

I mentioned in my 2017 asset class roundup that the S&P 500 went up every single month in 2017 and how that was the first time that had ever happened. According to the WSJ Daily Shot, the S&P 500 is actually on a 14-month positive streak. Here’s a chart showing the monthly total returns of the S&P 500 from 1990 to 2017.

sp500streak

I wanted to save it for future reference, but I don’t have any good lessons from this chart. I suppose it is good to know that there are a few 10%+ drops within a month. Otherwise, I wouldn’t read too much into it.

Filed Under: Investing //

Discounted Apple iPhone $29 Battery Replacement: Available Now

Posted on January 2, 2018 // 5 Comments

iphone6sroseIn case you missed it, Apple disclosed that their operating system slows down the phone in some cases if the battery gets too old. As part of their official explanation and apology, Apple has reduced the price of a OEM battery replacement to $29, cheaper than even most third-party repair shops.

Apple is reducing the price of an out-of-warranty iPhone battery replacement by $50 — from $79 to $29 — for anyone with an iPhone 6 or later whose battery needs to be replaced, available worldwide through December 2018.

If you’re frugally nursing an older iPhone, this is a good opportunity to spend $30 and improve your daily performance and improve battery life. If you sell your phone later on, you might even note the battery replacement date and reclaim some of that cost. This offer should be most appropriate for 6/6 Plus, iPhone 6s/6s Plus, or iPhone SE users as they are most likely to be out of warranty and old enough to benefit from a new battery.

The announcement said availability would start late January 2018, but Techcrunch says this is available now, so go ahead and set up those Genius Bar appointments. I confirmed this online just now with our iPhone 6:

iphone29

If you make an appointment at an Apple Store and they have the battery in-stock, you can usually have it done in less than an hour. (Ideally you’ll just shop or eat.) You can also chose to have them mail a box to your home, where you’ll pack up your phone and they’ll send it back in 5-9 business days.

In addition, third-party site iFixit has reduced their DIY battery install kits to $29 or less. This can be a good alternative you are impatient or have an older iPhone 5/5s/5c (plus a steady hand).

Filed Under: Deals & Offers //

DietBet Review: Using Money To Motivate You To Lose Weight

Posted on January 2, 2018 // 24 Comments

dietbet180It’s that time of year, and since I eventually lost 50 pounds with the help of this and other weight-loss betting sites (and have kept it off since), and I wanted to share my experiences including both positive and negative aspects.

DietBet.com runs weight-loss challenges where I bet my own hard-earned cash that I could lose 10% of my body weight within 6 months. More specifically, a group of folks (strangers or friends) agreed on a weight loss goal, put money into a community pot, and the winners split the pot. Here’s a look back at how the process worked along with some helpful tips and detailed numbers.

Game basics. You pick from a list of available “games” that are starting soon. All of them have a goal of either losing 4% of your body weight in 4 weeks (Kickstarter), or 10% in 6 months (Transformer). I chose the 10% goal and picked the group with the most participants because Dietbet uses the poker rake model where the winners take money from the losers. This is smart because Dietbet doesn’t risk any of its own money (also doesn’t have any incentive for you to lose).

dietbetfinal0

Weigh-in rules and tips. Your weight is verified each round by uploading two pictures: one with your feet on a digital scale, and another of your entire (lightly-clothed) body on the same scale. You are given a special keyword to ensure that the weigh-in is done during a 48-hour window. Here are my tips:

  1. Use the smartphone app. Having the smartphone app made it so much easier to snap the pictures and upload with a few taps. iOS and Android only.
  2. Check the dates with your work schedule. During one of my weigh-ins, I was on the road. Dietbet says digital scales are “preferred” but the only thing at my hotel’s gym was a non-digital balance scale. My submission was still accepted. If my hotel gym didn’t have a scale at all, I would have had to search for a Wal-Mart or something.
  3. Know the rules and give yourself time for rejections. One of my submissions was initially rejected because I was wearing running shoes (in that same hotel gym) and I forgot that shoes aren’t allowed in the pictures. You only get a 12-hour grace period after a rejection to re-submit a qualifying weigh-in.

Overall, I felt that Dietbet was fair and quick when judging my weigh-in pictures. You may also be “audited” and be required to submit a video verification. I did not get audited.

Money details. The bet amounts can vary by game, but mine was for $25 a month times 6 months. I was offered one month free ($25 discount) if I paid $125 upfront, but since this is all about the behavioral component for me, I wanted the monthly charge to show up on my credit card bill. Players who have chosen to place their bets on a monthly basis may drop out at any time and avoid being charged for future, unplayed rounds.

There is one round per month; Rounds 1 to 6. Half of the total money bet is put towards Round 1 through 5. That is $25 x 6 / 2 = $75, split across 5 rounds is $15 per round. The other half is put toward the final weigh-in round. So $75 is bet on Round 6. Here’s a screenshot that shows my actual winnings from each round:

dietbetfinal2

  • Round 1 Breakdown: $16.09 (7% ROI on $15 bet)
  • Round 2 Breakdown: $26.94 (80% ROI)
  • Round 3 Breakdown: $31.36 (109% ROI)
  • Round 4 Breakdown: $31.50 (110% ROI)
  • Round 5 Breakdown: $30.42 (103% ROI)
  • Round 6 Breakdown: $152.87 (104% ROI)

I ended up winning $289.19, for a net win of $139.18. That’s a solid 93% return on my $150 initial bet! According to their documentation, the average “win” is 50% to 100% of your contribution. I would venture to guess that the 6-month games have a higher overall payout due to a higher difficulty level.

As noted above, Dietbet makes their money by taking a cut of the gross pot before distribution, between 10% to 25%. In a previous post, I erroneously assumed that the numbers being reported above were before fees were taken out. The numbers are actually net of fees. (You are always guaranteed never to lose money if you win, which otherwise technically could happen if enough people win.)

Your winnings can be withdrawn either via PayPal or paper check, but you have to pay a $5 fee and make special request for a paper check. When withdrawing via PayPal, you won’t pay any fees, and I was sent my money within a hour. Here’s screenshot proof of my winnings payout showing no fees.

Warnings. When signing up for a challenge, Dietbet will automatically add $20 of “Official Weigh-in Tokens” to your cart. These are not mandatory. I think using the word “Official” is misleading. They should use “Optional” or “Additional” instead. You should treat them as extra raffle tickets for prizes like Fitbits and such. If you want that, fine, but otherwise be sure to remove them otherwise it’s just wasted money.

Bottom line. I committed to a Dietbet Challenge to lose 10% of my initial weight over 6 months. You can see upcoming Dietbet games here. I lost the weight, completed my verifications without hassle, won the bet, and was paid my winnings. There were a lot of factors that helped me lose weight and change my eating habits:

  • Loss aversion is quite a strange thing. Even though 25 bucks a month isn’t all that much money, the prospect of losing it was a powerful motivator.
  • The Dietbet community board for my challenge was quite positive in supporting other people towards their weight-loss goals.
  • I created extra motivation by telling people about the challenge as I didn’t want to admit publicly to failure.

While Dietbet was not there to cook my healthy meals, exercise for me, or keep me away from the late-night Doritos, it was the missing catalyst that I needed to get my health back on track. For other people this might be a heart attack or other medical issue. I’m glad I didn’t have to wait for something like that. Even if I “lost” the challenge but also lost 5% of my body weight, I might have still seen it as an overall positive experience.

See my separate Healthwage Review, a similar service. You can do both at the same time.

Filed Under: Behavioral Economics, Deals & Offers, Reviews //

Investment Returns By Asset Class, 2017 Year-End Review

Posted on January 1, 2018 // 4 Comments

yearendreview

Happy New Year! As the markets have closed for the last time in 2017, it’s time for a year-end review. While I do rebalance my portfolio quarterly, I only dig into performance numbers once a year. That’s a big change from a decade ago, when I would calculate my net worth down to the dollar multiple times a week. Here are the trailing 1-year total returns for select asset classes as benchmarked by passive mutual funds and ETFs. Data via Morningstar as of 12/31/17.

annual2017ret

annual2017ret2

Commentary. Most people who owned a diversified portfolio in 2017 had another year of solid returns. I hope you were on the ride. One of my “keep-it-simple” recommendations, the Vanguard Target Retirement 2045 fund (roughly 90% diversified stocks and 10% bonds) was up about 21.4% in 2017. For the curious, you can compare with 2016 asset class returns.

Our personal portfolio, a more conservative mix of 70% stocks/30% bonds as we are close to living off it, was up about 15.1% in 2017. We are at the point where portfolio gains significantly outpaced our employee income this year.

As happens each year, many things happened that I did not predict. I thought 2016 was a pretty good year given higher valuations, but my 2017 returns were twice as high. I certainly did know that the S&P 500 was going to give a positive return every single month of 2017. (This was the first year that has happened, ever.) In addition, stock market volatility was near all-time lows at the same time the threat of nuclear war is probably the highest in my lifetime. Interesting times.

Instead, I have faith that a diversified basket of productive assets (stocks, private businesses, real estate, farmland) has the best probability to be worth more over the long run. In the short run, I will try to spend no more than a modest withdrawal rate of 3% a year, mostly dividends and interest that are automatically distributed. That way, my portfolio will still have the ability to rebound even after an extreme drop in value.

The goal remains to spend my time in a manner that is aligned with my values. I am thankful for another year of physical health, the opportunity to do work that I enjoy, and quality time with family and friends.

Filed Under: Investing //
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