Archives for January 2019

Learning to Cook at Home: A Valuable Investment

Posted on January 30, 2019 // 13 Comments

Cooking at home can save a lot of money as opposed to eating out all the time. We all know that, right? If not, here’s a big green chart to drill it in, taken from How Much Money Do You Save by Cooking at Home? by Wellio:

Here’s what that means on a monthly basis:

Being a good home cook should be viewed as a valuable skill – one that takes an investment of time and effort, but can pay dividends forever. You may not eat at a restaurant or do meal prep every day, but I know that some of you dual-income high-earners are dropping around $1,500 a month on food. That’s closing in on $20,000 a year. Your grandparents probably spent a fraction of that. Converting even a couple of those meals a week can multiply into real money. (Not to mention that home-cooked meals have helped with my weight loss and health goals. Eating out a lot seems to always correlate with weight gain for me.)

The problem is that if you haven’t developed the skill, it’s just too painful. You work hard and are exhausted at the end of the day, why tackle another difficult project? For me, if I have to make an extra stop at the grocery store, I’d rather just stop at the korean BBQ place and buy it ready-to-eat.

If you are just starting out, you can’t expect to be able to whip up a nutritious and tasty meal with the ingredients in your pantry in 30 minutes. You need to set yourself up for success. You need to divide and conquer. On the weekend, you should pick out one or two “easy” recipes that look appetizing to you and buy all of the ingredients that you need. Don’t wait to “pick it up on the way home”. Buy it on the weekend, and carve out 30 minutes of prep time on two weekdays. Remind yourself that it takes time to prepare a meal prep kit too, or even drive somewhere to get take-out. (Okay, Uber Eats and Grubhub are pretty darn convenient. But those delivery fees and tips add up fast!)

This is summarized in my Cooking at Home Flowchart:

dinnerflow2

Once you have some “go-to” weekday meals, you can schedule them and rotate as desired. Once you get a lot of recipes into memory, then you can start to improvise. I’m sorry, but newbies can’t go straight into thinking of recipes as Salt, Fat, Acid, Heat. Maybe if you were the culinary equivalent of Beethoven. I’ve made hundreds of sheet-pan dinners (I like Melissa Clark recipes) and one-pot meals and I still get stuck if I don’t have things thought out ahead of time. If you learn to prep, then that one weekend grocery stop can equal 5 weeknight meals.

Wellio is a food prep company that offers to help you out with recipes and shopping lists. I haven’t used them, but I like that they are trying to attack the pain points in home cooking. I’ve mentioned them previously in Which Meals Offers The Most Nutrition Per Dollar?

Filed Under: Budgeting, Frugal Living //

Empower Banking App Review: 4.30% APY for 30 Days with Each Referral (But Be Careful)

Posted on January 29, 2019 // 8 Comments

Update April 2019: I have had trouble with Empower after opening an account, specifically getting them to credit my interest. I would not recommend Empower as a bank replacement at this time. They do not have have any phone number for customer support and their text-based support is often slow to respond. Combined with the fact that there are no branches, I don’t like that there is nobody to talk to immediately if there is an important problem.

Original post:

The Empower app is a combination of an online checking/savings account and an “AI” assistant that analyzes your income and spending activity from external bank accounts as well. The savings account currently offers a base 2.15% APY and the checking offers 1% cash back on the first $1,000 in debit card purchases each month. A newly referred user can get a 30 day boost of double those numbers – 4.30% APY and 2% cash back. You can get an additional 30-day boost for each friend that you refer. I’ve had this account open for a week now, and here are my thoughts.

Application process (App-only). You must do everything in the iOS or Android app – initial application, funding, transfers, etc. They require all the usual bank things like SSN, but they explicitly state that they will not run a credit check. I don’t believe there is a web browser interface at all. Everyone who opens an account gets both a checking and savings account, plus the digital assistant. Note that when you link an external bank account, the digital assistant will parse through your historical and ongoing transactions and look for ways to save you money. You can easily turn it off, but this may affect the choice of what bank account you wish to link.

(Note: The referral program may only be available to those who use the Apple iOS version of their app. This might have changed already or may change later, but I only have the iOS app running right now.)

Empower Checking has no minimum balance, no monthly fees, no overdraft fees, and free ATM withdrawals from the 25,000 ATMs in the MoneyPass network. In addition, they will reimburse you for one (1) out-of-network ATM transaction each month. I like this last feature as I only take cash out of an ATM about once a month. They give you your debit card number immediately, but will send you a physical Visa debit card as well.

This is a “real” FDIC-insured bank, with deposits insured of up to $250,000 per titled account through Evolve Bank & Trust, FDIC certificate number #1299. The routing number provided in the app is that of Evolve Bank. You can use the routing and account numbers to link your Empower account to other online banks (on their side) without giving Empower access to your transaction history.

The linked debit card offers a base 1% cash back on the first $1,000 in purchases spend each month. Newly referred users get a 30-day boost to 2% cash back, and each time you successfully refer someone to Empower, you will receive another 30-day boost. Debit card purchases have no foreign transaction fees.

Empower Savings has no minimum balance and no monthly fees. The current base interest rate is 2% APY. Newly referred users get a 30-day boost to 4% APY (capped at a $50,000 balance), and each time you successfully refer someone to Empower, you will receive another 30-day boost. You can transfer money between checking and savings instantly, but the savings account is still subject to the federal law limiting withdrawals from savings to six (6) times per month.

Referral program details. There are some important clarifications to their referral program. Here are selected parts:

  • You earn 30 days of boost for each referred friend that opens an Empower bank account and deposits at least $10.
  • Your boost will start the first day the funds clear into your referred friend’s account. If you are already receiving a boost, your boost for any subsequent qualifying referrals will start once any prior boosts conclude. (i.e. invite 3 friends and your can earn three consecutive 30 day boosts).
  • Your referred friends each get a 30 day boost starting the day their deposit of $10 or more clears into their Empower account.
  • During each 30-day boost, each person will earn an additional 1% cashback on the first $1,000 of their debit card transactions during the boost period and an additional 2% per annum Cash Reward on up to $50,000 of savings account balance. The 2% per annum Cash Reward is in addition to the 2.00% APY that is paid on Empower savings accounts.
  • Boost rewards are paid out at the end of each boost period.
  • Invite friends by logging in to your Empower app and sending an invite SMS to your friends.
  • The phone number you text must be the same phone number that your friend signs up for Empower banking with to be eligible.
  • The invited friend cannot be an existing or previous Empower banking customer, nor can they have been invited by someone else in the past.

My experience. Empower feels like the future. Everything is done via app, and it’s kind of creepy. (Yup, that’s my view of the future. Apps and kinda creepy.) The user interface is smooth and I actually like that part. Once you link your external bank, it immediately scans your transactions and points out ways to save money (“You need a new insurance quote! Your premium of $1,234 is too high!” or “Cancel this subscription!”). You may love this feature, or not. My bet is that the megabank apps from Chase, Bank of America, and Wells Fargo will all do this type of stuff eventually.

However, I would not recommend Empower as a bank replacement at this time. They do have have any phone number for customer support and their text-based support is often slow to respond. Combined with the fact that there are no branches, I don’t like that there is nobody to talk to immediately if there is an important problem.

In the end, I don’t see anything drastically new that would make me recommend this app on an ongoing basis unless you had a lot of friends that want a new bank. Lots of online checking accounts offer ATM reimbursements now. 2% APY is common across online savings accounts. The 1% cash back on debit card purchases isn’t that special.

Now, if you did have 12 friends to refer (and $50,000), you could get 4.30% APY on up to $50,000 for a year. That’s an extra $1,150 in annual interest as compared to 2% APY, nothing to sneeze at.

Bottom line. Empower.me is a new fintech banking app that combines a no-minimum checking account, a no-minimum savings account, and AI financial assistant that analyzes your spending and makes suggestions. The feature that makes it noteworthy is that a new user can get a 30 day boost of double their normal interest to 4.30% APY for each friend that they refer to open a new account. However, I would not recommend Empower as a bank replacement at this time due to their lack of even a phone number for customer service. Most online banks have at least a phone number during business hours, and for example Ally Bank has humans available 24/7.

Filed Under: Banking, Deals & Offers //

Historical IRA Contribution Limits 2009-2019

Posted on January 28, 2019 // 3 Comments

ira_heartIndividual Retirement Arrangements (IRAs) are way to save money towards retirement that also saves on taxes. For 2019, the annual contribution limit for either Traditional or Roth IRAs increased to $6,000 (it is roughly indexed to inflation). The additional catch-up contribution allowed for those age 50+ stays at $1,000 (for a total of $7,000). You can’t contribute more than your taxable compensation for the year, although a spouse can contribute with no income if the other person has enough income.

Historical limits. Since I enjoy visual aides, here’s an updated historical chart and table of contribution limits for the last 11 years. I’m happy to say that we’ve both done the max since 2004. Consistently saving for a decade can result in some fat nest eggs!

Year IRA Contribution Limit Additional Catch-Up Allowed (Age 50+)
2009 $5,000 $1,000
2010 $5,000 $1,000
2011 $5,000 $1,000
2012 $5,000 $1,000
2013 $5,500 $1,000
2014 $5,500 $1,000
2015 $5,500 $1,000
2016 $5,500 $1,000
2017 $5,500 $1,000
2018 $5,500 $1,000
2019 $6,000 $1,000

 

Traditional IRAs. If you are covered by a retirement plan at work, deductibility of your contribution to a Traditional IRA is based on your modified adjusted gross income (MAGI) and tax-filing status. See the IRS page on IRA deduction limits. However, there are no income restrictions as to who can contribute to the full contribution limit for a Traditional IRA.

Roth IRAs. It doesn’t matter if you are covered by a retirement plan at work for the Roth IRA, and contributions to a Roth are never deductible (but they aren’t taxed on upon qualified withdrawal). However, the contribution limit and overall eligibility may be capped based on your modified adjusted gross income (MAGI) and tax-filing status. See the IRS page on Roth IRA contribution limits. But wait… high-income earners may be able to get around these income restrictions with a Backdoor Roth IRA (non-deductible Traditional IRA + Roth conversion). Yeesh, I really wish they would simplify all this stuff.

Saver’s Credit. If your income is low enough (less than $63,000 AGI for married filing joint), the Saver’s Credit can get you back 10% to 50% of your contribution (of up to $2,000 per person) when you file your taxes.

Also see: 401k, 403b, TSP Historical Contribution Limits 2009-2019

Sources: IRS.gov, IRS.gov COLA Table [PDF]

Filed Under: Investing, Retirement //

401k, 403b, TSP Historical Contribution Limits 2009-2019

Posted on January 28, 2019 // 4 Comments

401k_limitsEmployer-based retirement plans like the 401(k), 403(b), and Thrift Savings Plan are not perfect, but they are often the best available option to save money in a tax-advantaged manner. For 2019, the employee elective deferral (contribution) limit for these plans increased to $19,000 (it is indexed to inflation). The additional catch-up contribution allowed for those age 50+ stays at $6,000 (for a total of $25,000).

Here’s a historical chart of contribution limits for the last 11 years (2009-2019).

Year 401k/403b Elective Deferral Limit Additional Catch-Up Allowed (Age 50+)
2009 $16,500 $5,500
2010 $16,500 $5,500
2011 $16,500 $5,500
2012 $17,000 $5,500
2013 $17,500 $5,500
2014 $17,500 $5,500
2015 $18,000 $6,000
2016 $18,000 $6,000
2017 $18,000 $6,000
2018 $18,500 $6,000
2019 $19,000 $6,000

 

The limits are the same for both Roth and “Traditional” pre-tax 401k plans, although the effective after-tax amounts can be quite different. Employer match contributions do not count towards the elective deferral limit. Curiously, some employer plans set their own limit on contributions. A former employer of mine had a 20% deferral limit, so if your income was $50,000 the most you could put away was $10,000 a year.

For 2019, the maximum contribution limit when you include both employer and employee contributions is $56,000, an increase of $1,000. The employer portion includes company match and profit-sharing contributions.

The employee salary deferral max limit applies even if you participate in multiple 401k plans.

Sources: IRS.gov, IRS.gov COLA Table [PDF], IRS on multiple plans.

Filed Under: Investing, Retirement //

Investing $10,000 Every Year For the Last 10 Years, 2009-2018

Posted on January 22, 2019 // 3 Comments

keepcalmInstead of just looking at one year of returns, I prefer taking a longer view. Most successful savers invest money each year over a long period of time, these days often into a target-date fund (TDF). Don’t get caught up in the daily news reporting the recent performance of the Dow or 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 annual contribution to a Traditional or Roth IRA has been roughly $5,000 per person. The maximum allowable annual contribution for a 401k, 403b, or TSP plan has been over $10,000 per person. If you have a household income of $67,000, then $10,000 is right at the 15% savings rate mark. Therefore, I’m going to use $10,000 as a benchmark amount. It’s easy to multiply the results as needed.

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 Google spreadsheet, we get this:

Investing $10,000 every year for the last decade would have resulted in a $57,000 investment gain. If, for example, 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 $230,000 over the last decade (and a total balance of $630,000).

Timing still matters, but not as much as you might think due to the dollar-cost averaging and longer time horizon. More importantly, you can’t control that part. You have much more control over how much you save. Here are previous results for January 2007 to December 2016 and January 2008 to December 2017.

Work on improving your career skills (or start your own business), save a big chunk of your income, and then invest it in productive assets. Keep calm and repeat. Our path to financial freedom can be mostly explained by such behavior. The only “secret” here is consistency. We maxed out both IRA and the 401k salary deferral limits nearly every year since 2004. You can build wealth with something as accessible and boring as the Vanguard Target Retirement fund. We received no inheritances and don’t pay a brilliant hedge fund manager.

Filed Under: Investing, Retirement //

Thank You, John C. Bogle

Posted on January 16, 2019 // 6 Comments

Vanguard announced on January 16, 2019 that its founder, John C. Bogle, passed away on at his home in Bryn Mawr, Pennsylvania at 89 years old. There will no doubt be many tributes; here are a few same-day articles from WSJ, Bloomberg, Reuters, and great tweet from Morgan Housel.

Jack Bogle was a champion of thrift, simplicity, and keeping investing costs low. While he reached the popularity level where people would write entire columns about “Why Bogle is Wrong about This or That”, I was always annoyed when people would pick at one little thing he said. I felt that his strongest message was that of common sense. Sometimes it took multiple readings and time, but he really offered a lot of valuable, reasoned knowledge in his books. Almost exactly a year ago, I wrote about my Jack Bogle Appreciation curve:

boglecurve

My first mutual fund investment was in the Janus Mercury fund in the very early 2000s. I was chasing performance and Morningstar ratings, and the fund was actively managed with high turnover and high expenses. Thanks to reading his books, my subsequent investments were in low-cost Vanguard funds that were available to a DIY investor. You can now buy ultra-cheap commission-free ETFs from nearly every brokerage account. New investors may take this for granted, but I’m old enough to remember that this was not always the case! This was solely due to Vanguard’s success:

vanguardbarr

He created a unique structure where the unnecessary “Helper” fees stayed in the pockets of the people who invested with Vanguard (and indirectly anyone who invests in a low-cost index fund today). This has resulted in an estimated $1 trillion saved by average everyday investors.

Today, my family is financially secure and we have a pretty clear plan for the future as well. The majority of my net worth is held at Vanguard. My life was materially improved by a man that I never got the honor to meet. The best I could do was to win a personally-signed book from a charity auction for his foundation.

Thank you, Mr. Bogle. I will try my best to heed your advice.

p.s. If you do not know that I am talking about, please do yourself a favor and read The Little Book of Common Sense Investing from the library or buy a copy. It is very short and a good place to start.

Filed Under: Inspirational //

Chart: Stock Market Declines Are More Common Than You Think

Posted on January 14, 2019 // 1 Comment

prepyourIf you invest in stocks, you know that they go up and down. Below is an S&P 500 histogram (source) showing the distribution of annual returns, which were negative 1/3rd of the time (and thus positive 2/3rd of the time). Not bad, you’ll take those odds, right?

sp500_hist2014

But as the last part of 2018 showed us, returns aren’t all about January to December. There can be big swings in a single month or two which leave people stressed or even panicked. Dimensional Fund Advisors (DFA) had an article about the recent market volatility which included an interesting chart tracking the largest intra-year gains and losses (defined as peak to trough, and trough to peak).

Bottom line. Stock market declines are more common than you think. Since 1979, the average intra-year decline was about 14%! At the same time, 33 out of out 39 years managed to end up with a positive annual return when measured from January to December.

Filed Under: Investing //

Best Interest Rates on Cash – January 2019

Posted on January 9, 2019 // 13 Comments

Here’s my monthly roundup of the best interest rates on cash for January 2019, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much extra interest you’d earn if you are moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 1/9/19.

High-yield savings accounts
While the huge megabanks like to get away with 0.01% APY, getting higher rates is as easy as transferring money electronically from your checking account to an online savings account. The interest rates on savings accounts can drop at any time, so I prioritize banks with a history of competitive rates. Some banks will bait you and then lower the rates in the hopes that you are too lazy to leave.

Short-term guaranteed rates (1 year and under)
I am often asked what to do with a big pile 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 and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • No Penalty CDs offer a locked-in rate with no early withdrawal penalty. That means your interest rate can never go down, but you can still take out your money (once) if you want to use it elsewhere. Marcus Bank has 13-month No Penalty CD at 2.35% APY with a $500 minimum deposit, Ally Bank has a 11-month No Penalty CD is at 2.30% APY with a $25k+ minimum, and CIT Bank has a 11-month No Penalty CD at 2.05% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • First Internet Bank has a 1-year CD at 2.89% APY ($1,000 minimum) with an early withdrawal penalty of 180 days of interest.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, beware that many brokers pay out very little interest on their default cash sweep funds (and keep the money for themselves). 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 2.44% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 2.31%. 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 2.71% SEC Yield ($3,000 min) and 2.81% SEC Yield ($50,000 min). The average duration is ~1 year, so there is more interest rate risk.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.96% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.98% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-Bill interest is exempt from state and local income taxes.

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 1/8/19, a 4-week T-Bill had the equivalent of 2.40% annualized interest and a 52-week T-Bill had the equivalent of 2.60% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 2.24% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 2.16% SEC yield. GBIL appears to have a slightly longer average maturity than BIL.

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 2018 and April 2019 will earn a 2.82% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
  • In mid-April 2019, 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). Some folks don’t mind the extra work and attention required, while others do. There is a long list of previous offers that have already disappeared with little notice. I don’t personally recommend or use any of these anymore.

  • The only notable card left in this category is Mango Money at 6% APY on up to $2,500, but there are many hoops to jump through. Signature purchases of $1,500 or more and a minimum balance of $25.00 at the end of the month is needed to qualify for the 6.00%.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. 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 to near-zero quickly, leaving a “bait-and-switch” feeling. I don’t use any of these anymore, either.

  • The best one left is Consumers Credit Union, which offers 3.09% to 5.09% APY on up to a $10k balance depending on your qualifying activity. The highest tier requires their credit card in addition to their debit card (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases just above the $100 requirement, as for every $500 in monthly purchases you may be losing out on cash back rewards elsewhere. Find a local rewards checking account at DepositAccounts.
  • If you’re looking for a non-rewards high-yield checking account, MemoryBank has a checking account with no debit card requirements at 1.60% APY.

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 building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD.

  • INOVA Federal CU has a 14-month CD at 3.00% APY and a 20-month at 3.15% APY ($200 minimum). 180 day early withdrawal penalty. Premier America CU has 15-month CD at 3.10% APY ($1,000 minimum). Anyone can join these credit unions with via membership in partner organization (see application).
  • United States Senate Federal Credit Union has a 5-year Share Certificate at 3.69% APY ($60k min), 3.62% APY ($20k min), or 3.56% APY ($1k min). Note that the early withdrawal penalty is a full year of interest. Anyone can join this credit union via American Consumer Council.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 2-year non-callable CD at 2.75% APY and a 5-year non-callable CD at 3.20% APY. Watch out for higher rates from callable CDs listed by Fidelity.

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.

  • Willing to lock up your money for 10+ years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 10-year non-callable CD at 3.45% APY. Watch out for higher rates from callable CDs from Fidelity. Matching the overall yield curve, current CD rates do not rise much higher 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. 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. As of 1/9/19, the 20-year Treasury Bond rate was 2.86%.

All rates were checked as of 1/9/19.



Filed Under: Banking, Deals & Offers, Investing //

Navy Federal Credit Union 0% APR No Balance Transfer Fee Promotion

Posted on January 7, 2019 // 13 Comments

navyfed0

Navy Federal Credit Union (NFCU) usually offers a special balance transfer promotion every January that is available to both new and existing NFCU credit cardholders. This year, I don’t see anything on their website, but I did just get a paper mailing from them. If you have an existing NavyFed credit card and are looking to lower your interest rates on balances, it may be worth checking in.

The Navy Federal Platinum credit card is still offering new cardholders 0% APR for 12 months on balance transfer with no balance transfer fee. This card is on my list of the best 0% APR balance transfer offers.

Balance transfer promotions can be good opportunities to lower the interest rate on your existing balances and accelerate any debt payoff plans. Try your best to finish your payments within the introductory period, as the rates will increase significantly after that.

Membership eligibility for NavyFed is restricted primarily to those with a military affiliation – including active duty, veterans, retirees, and family members – but also includes some civilian employees in the Department of Defense. NavyFed offers a variety of solid financial products including mortgage, car loans, and home-buying services.

Filed Under: Credit Cards, Deals & Offers //

My Money Blog Portfolio Asset Allocation and Performance Tracking, Year-End 2018

Posted on January 2, 2019 // 13 Comments

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Here’s my final quarterly portfolio update for Q4 2018. This is how I track my real-world holdings, including 401k/403b/IRAs and taxable brokerage accounts but excluding our house, cash reserves, and a few side investments. The goal of this portfolio is to create enough income to cover our household expenses. As of 2018, we are “semi-retired” and have started spending a portion of our dividends and interest from this portfolio.

Actual Asset Allocation and Holdings

I use both Personal Capital and a custom Google Spreadsheet to track my investment holdings. The Personal Capital financial tracking app (free, my review) automatically logs into my accounts, adds up my balances, tracks my performance, and calculates my asset allocation. I still use my manual Google Spreadsheet (free, instructions) because it helps me calculate how much I need in each asset class to rebalance back towards my target asset allocation.

Here are my YTD performance and current asset allocation visually, per the “Holdings” and “Allocation” tabs of my Personal Capital account, respectively:

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

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard Intermediate-Term Treasury Fund (VFITX, VFIUX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
Fidelity Inflation-Protected Bond Index Fund (FIPDX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Target Asset Allocation. Our overall goal is to include asset classes that will provide long-term returns above inflation, distribute income via dividends and interest, and finally offer some historical tendencies to balance each other out. I make a small bet that US Small Value and Emerging Markets will have higher future long-term returns (along with some higher volatility) than the more large and broad indexes, although I could be wrong. I don’t hold commodities, gold, or bitcoin as they don’t provide any income and I don’t believe they’ll outpace inflation significantly.

I believe that it is important to imagine an asset class doing poorly for a long time, with bad news constantly surrounding it, and only hold the ones where you still think you can maintain faith based on a solid foundation of knowledge and experience.

Stocks Breakdown

  • 38% US Total Market
  • 7% US Small-Cap Value
  • 38% International Total Market
  • 7% Emerging Markets
  • 10% US Real Estate (REIT)

Bonds Breakdown

  • 50% High-quality, Intermediate-Term Bonds
  • 50% US Treasury Inflation-Protected Bonds

I have settled into a long-term target ratio of 67% stocks and 33% bonds (2:1 ratio) within our investment strategy of buy, hold, and occasionally rebalance. (Small changes to 65/35 or 70/30 are also fine.) With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and taxes.

Holdings commentary. On the bond side, I still like high-quality bonds with a short-to-intermediate duration of under 5 years or so. This means US Treasuries, TIPS, or investment-grade municipal bonds. I don’t want to worry about my bonds. Right now, my bond portfolio is about 1/3rd muni bonds, 1/3rd treasury bonds, and 1/3rd inflation-linked treasury bonds (and savings bonds).

On the stocks side, I made a few comments in my 2018 year-end asset class return review. US stocks went down in 2018, but international and emerging markets stocks did even worse. On the flipside, international and emerging markets are a lot cheaper based on various metrics. I remain satisfied with my mix, knowing that I will own whatever successful businesses come out of the US, China, or wherever in the future.

Performance commentary. According to Personal Capital, my portfolio went down 6.9% in 2018. I see that during the same period the S&P 500 has lost 6% (excludes dividends), Foreign Developed stocks lost 14%, and the US Aggregate bond index was basically flat. Of course I didn’t want to see my value fall, but most of the change was due to a lower P/E ratio as opposed to lower earnings from companies.

An alternative benchmark for my portfolio is 50% Vanguard LifeStrategy Growth Fund and 50% Vanguard LifeStrategy Moderate Growth Fund – one is 60/40 and the other is 80/20 so it also works out to 70% stocks and 30% bonds. That benchmark would have a total return of -5.9% for 2018.

I’ll share about more about the income aspect in a separate post.

Filed Under: Goals, Investing, Retirement //

Asset Class Returns by ETF, 2018 Year-End Review

Posted on January 1, 2019 // 4 Comments

yearendreviewAnother one in the books! I don’t track the market daily as I think the discussion is full of noise and after-the-fact justifications. I check my portfolio quarterly to see where to reinvest dividends. At the end of the year, I like to record the annual returns for select asset classes as benchmarked by passive mutual funds and ETFs. Here is the 2018 data taken from Morningstar after market close 12/31/18.

Commentary. In 2017, the performance of every asset class was positive. The lowest positive return was from short-term US Treasuries. For 2018, the performance of nearly every asset class was negative. The highest return was from… short-term US Treasuries. T-Bills and short-term Treasury bonds are slow, steady, and safe.

My favorite “keep-it-simple” multi-asset balanced fund, the Vanguard Target Retirement 2045 fund (roughly 90% diversified stocks and 10% bonds) was down about 7.9% in 2018. (It was up about 21.4% in 2017.) The benchmark for our personal portfolio, a more conservative mix of 70% stocks/30% bonds as we are close to living off it, was down about 6.5% in 2018. (It was up about 15.1% in 2017.)

Despite their relatively poor performance this year, I’m still satisfied with my international and emerging markets holdings on a valuation basis. I’m getting an overall earnings yield on VXUS (Total World ex-US) of ~7.8%, and out of that a dividend yield of ~3.2%. This is compared to VTI (Total US) with an overall earnings yield of ~5.5% and out of that a dividend yield of ~2.0%.

On the bond side, I am also happy that interest rates are back to the point where you actually might earn more than inflation. Currently, the 1-year US Treasury yields 2.63% and a 10-year yields 2.7%. The 5-year TIPS has a 1.0% real yield and a 10-year TIPS has 1.0% real yield.

As usual, I have no predictions about stock prices. However, I am confident that the hundreds of business that I own through these ETFs and mutual funds will choose to distribute a portion of their profits to me in the form of cash dividends. I am also confident that my US government and municipal bonds will pay the promised interest on time. I’ll try my best to spend those dividends and interest and ignore the price swings.

Filed Under: Investing //