Archives for July 2016

Home Country Bias in Stock Market Investing

Vanguard has a new research paper about global asset allocation. One of their findings was that market-cap-weighted indexed portfolios provided higher returns and lower volatility than the average actively managed fund. Thus, they suggest that a good starting point for all investors is a portfolio that is weighted according to the world’s relative market values.

However, in every country that they examined, investors on average had a home-country bias, tending to own more equity from the country they live in than the market-cap weighting would suggest. The chart below is rather striking. Found via Reformed Broker and Abnormal Returns.

homebias1

homebias2

Americans on average hold roughly 80% in US stocks, while the US market makes up 50% of the global market. However, the average Canadian resident holds roughly 60% in Canadian stocks while only making up 3% of the global market. Australian residents hold roughly 66% in Australian stocks while only making up 2% of the global market. I find this very interesting.

This is where I should state proudly that my stock holdings are split 50% US and 50% International, with equal amounts of the Vanguard Total US ETF (VTI) and Vanguard Total International ETF (VXUS) or their mutual fund equivalents. However, I admit that I do worry about the political and economic environments of other countries, especially given current events. On the other hand, I worry that I am being influenced by recent past performance. I usually end up telling myself that I am buying the haystack and letting the markets work themselves out over the long run.

The Vanguard paper also offers a guide to weighing various factors in deciding the amount of your home bias. Here’s a summary chart:

homebias3

Parting.com: Funeral Price Comparison Website

parting0Talking about death is always an awkward topic (even though it will happen to all of us), but this is my version of the many similar PSA-type funeral articles you’ll come across in personal finance magazines and columns.

The standard advice: If you are in the unfortunate circumstance that you are looking for funeral services, you should compare prices and services. The same service and products from two different funeral homes can vary by thousands of dollars. Even worse, some funeral homes are quite aggressive at pushing optional services as “necessary”. It is best to shop around.

Here are some good resources committed to educating shoppers:

The problem with this advice: comparing prices is a big hassle. All these pages will tell you to compare prices, as I just did. The government even requires that funeral homes provide their prices upfront upon request. However, they don’t require them to post them in an itemized manner online, so it is still a hassle to call up multiple places and make sure you are comparing prices for equivalent services. Parting.com is the first “price search engine” for funeral homes that I’ve seen that has apparently manually asked thousands of funeral homes for their price disclosures through phone calls, e-mail, and fax. Here is a screenshot for Los Angeles, California:

parting1

I have not actually used Parting before, but I wouldn’t mind using their work to help me get started. Hopefully their reviews database will fill out over time. I came across other pricing sites, but they either had limited quote coverage or they charge an upfront fee (FuneralPriceFinder and I’mSorryToHear).

You may also consider restricting your search to funeral homes that work with the non-profit Funeral Consumer Alliance, if they have affiliates in your area.

The Power of Default Settings: 401(k) Auto-Enrollment

A new ProPublica article by Lena Groeger discusses the power of default settings in our life – from organ donations to computer font settings. Included was an interesting case study of a company who implemented automatic enrollment into the company 401(k) for new employees. Here’s the drastic difference in the 401(k) participation rate (vs. time at company) for the two groups, auto-enrolled (AE) and not:

autoenroll1

Keep in mind, in both cases the employees could have changed their participation status at any time. No change was ever required, only the default initial setting was changed.

The study cited also points out the auto-enrolled default settings could also make some employees save less than they would have otherwise. For example, if the initial deferred percentage is only set at a 2% savings rate however, many people will just stick to that number whereas if they picked on their own it would be higher. People may believe the default setting to be the “expert recommended” or “popular” choice.

The same thing applies for escalation of savings over time. If there is no auto-escalation feature that increases the savings rate as income increases, some people will stay at the initial default savings setting for years or decades.

Suggested Best Practices. By combining their findings, the following best practices are presented as an example.

  1. Auto enroll all current and future employees into the plan.
  2. Set the initial deferral percentage at no less than 6 percent.
  3. Employ an automatic increase of a 1 or 2 percent deferral rate, to a maximum of no less than 15 percent.

Most of have a lot of great goals (eat better, save more, waste less time), but it will always be hard to make the best decisions all the time. We should respect the power of default settings, and use the same concept to help keep us on the right path for the future. For example, at our company retirement plan, we have an auto-escalation feature but we must opt-in manually. If I invest the energy to turn that option on today, we’ll have a better default for future years, knowing we might get lazy in the future.

New Fidelity Rewards Visa Credit Card Review: 2% Flat Cash Back

new_usbank_fido_visa_200Updated with new info for both new and existing customers. Fidelity has (mostly) converted their rewards credit card line-up to a single version – a Visa Signature issued by Elan Financial Services (subsidiary of US Bank). For new customers, the new Fidelity® Rewards Visa Signature® Card will receive a flat 2% cash back when directed to an eligible Fidelity Investments account. Here is a different link which includes a $100 bonus after you make at least $1,000 in purchases within the first 90 days. Here are the new card highlights:

  • Unlimited 2% cash back, when redeemed into an eligible Fidelity account.
  • No annual fee.
  • Visa Signature benefits, like Concierge service.
  • Chip-enabled and works with Apple, Android, and Samsung Pay.

Eligible Fidelity accounts. The 2% rewards value applies only to points redeemed for a deposit into the following active Fidelity accounts:

  • Fidelity Cash Management Account
  • Fidelity Brokerage account
  • Fidelity-managed 529 account
  • Fidelity Retirement account (IRA, Roth IRA, SEP-IRA, Rollover IRA)

Rewards value will be less than 2% cash back if you choose to redeem your points for other rewards such as travel options, merchandise, gift cards, and/or a statement credit.

Points redemption details. You can either choose automatic or manual redemption. With automatic redemption, once you reach $50 of rewards (5,000 points from net spending of $2,500), your balance will be automatically swept into your designated Fidelity account (or split between multiple Fidelity accounts if you wish). You can also redeem your points “on demand” either by calling in or online after you reach the same 5,000 point minimum balance.

Previous FIA Cardservices customers. You should have received your new Elan-issued cards by now, and been told what the new rewards structure is. There is no new credit check. Your credit card number will be different, but the credit card history (like age of account) should continue as before on your credit reports. Your existing rewards balance will be moved over. Re-enroll your card for online account management at FidelityRewards.com. Re-enroll your cards for rewards redemption after logging into your account at Fidelity.com / Credit Card Snapshot / Manage Rewards Points. You will need your Fidelity account numbers.

There was (understandably) some angry existing customers when they were told they would only start at 1.5% cash back and not the 2% cash back offered to new customers. Some reps told existing customers that they would have apply for a new card in order to get the 2%. However, it appears that Fidelity has softened that decision. If you call up the number on the back of your card and ask them, they should upgrade you to 2% cash back without hassle. But it won’t happen automatically; you must call.

Commentary. Overall, this move makes complete business sense. They negotiated terms that could offer a Visa card with 2% cash back without any tiers. Fidelity uses this card to encourage customers to keep all their assets within Fidelity-branded accounts. You could theoretically now have your checking account, credit card, brokerage account, IRA, 401(k), all with Fidelity.

Their previous issuer, FIA Cardservices was owned by Bank of America, which is essentially a direct competitor. You could also have a Bank of America checking account, BofA credit card, Merrill Edge brokerage account, and Merrill Lynch wealth management account under their umbrella. In fact, I recently opened up a Merrill Edge account and moved over $100,000 of assets and received (1) 100 free stock trades a month and (2) an effective 2.625% back towards any travel with the Bank of America Travel Rewards card (my review). I pay no annual account fees on either product.

Elan Financial Services is a subsidiary of US Bank, but they are less of a direct competitor. You won’t see “US Bank” mentioned anywhere on this card. Elan quietly co-brands with many other financial institutions (over 1,400) who want a credit card but don’t want to handle the back-end details.

Bottom line. I believe it remains a solid cash back card for existing Fidelity customers (or those willing to open a Fidelity account). As a self-directed investor, I also like to keep my options open. I have this new Fidelity card, but I don’t use it. I use the Bank of America card mentioned above because it offers higher rewards for my situation. I also have (but don’t currently use) the Citi Double Cash card (my review) because it is a similarly solid card with no annual fee (and doesn’t require any companion account).

Why do I have all three? My experience is that good credit cards may stop taking new applicants with no prior notice, but as an existing customer you can often continue to receive grandfathered benefits for a long time. I’ve had some version of this Fidelity co-branded card earning 2% cash back since 2004. They also all have no annual fee.

Housing Investment Returns = Price Appreciation + Rental Dividends

Professer Robert Shiller has a new NY Times article entitled Why Land and Homes Actually Tend to Be Disappointing Investments. He computes the historical, long-term inflation-adjusted returns for both farmland and housing:

Over the century from 1915 to 2015, though, the real value of American farmland (deflated by the Consumer Price Index) increased only 3.1 times, according to the Department of Agriculture. That comes to an average increase of only 1.1 percent a year — and with a growing population, that’s barely enough to keep per capita real land value unchanged.

According to my own data (relying on the S&P/Case-Shiller U.S. National Home Price Index, which I helped create), real home prices rose even more slowly over the same period — a total increase of 1.8 times, which comes to an average of only 0.6 percent a year.

Over the same time period (1915 to 2015), the total inflation-adjsuted return of the S&P 500 index including dividends is roughly 6.7% annualized. Here is a recent version of his famous Home Price chart:

shilller2016

Shiller is a smart guy and so I’m sure he knows this, but he always seems to leave out the fact that most people don’t just buy a chunk of land and let it sit there idle until they are ready to sell it again.

  • People use farmland to grow stuff. You know, things like apples and corn and cows. Or you could charge rent to farmers.
  • People either charge rent to others or avoid paying rent themselves on residential housing.

These are all additional sources of investment return beyond just price. Therefore, even if you assume your home’s price will only rise between 0% and 1% above inflation over time, you are still getting more “return” from it in the form of either rent or imputed rent.

Rent will rise roughly with inflation. Indeed, the biggest portion of the Consumer Price Index is housing as shown in the graphic below (source). The great majority of the Housing component is “rent of primary residence” and “Owners’ equivalent rent of primary residence”.

cpi_pie_chart

From FRED, here’s the rent part of CPI divided by overall CPI for as far back as the data series goes (1947). Sometimes rent grows faster than CPI, sometimes rent grows more slowly than CPI. Mostly, it evens out, as one might expect.

cpirent1

For most of the last 20 years, rent has increased faster than CPI inflation:

cpirent2

Estimating your “rental dividend” return. If you have a house that costs $200,000 that would otherwise be rented for $1,000 a month, that is a price-to-annual-rent ratio of 16.7. The inverse of that number is a rough idea of the annual “rental dividend” you could get from the house. That is, $12,000 divided by $200,000 is 6%. Now, a proper real estate investor would take out things like property taxes, insurance, repairs and maintenance. Let’s continue to be very rough and call that 3%. Now, if you assume both rent and expenses will rise roughly in step with inflation, that is an additional 3% real return.

Adding the two parts together, and you’re getting a very rough 3% to 4% real (inflation-adjusted) return. Now, most people acknowledge that housing is local and your specific return can vary widely. Your housing price return if you bought a house in Detroit in 1985 and a house in Mountain View, California is quite different. At the same time, your current housing rental dividend return is going to be a lot higher in Detroit than in Mountain View, California.

(I’m not nearly as familiar with farmland, but I do know people who rent out their property to farmers and ranchers. They seem satisfied with the arrangement. I’m also not including all the psychic rewards of owning your home like being able to remodel and customize things as you wish, nor am I including the costs of doing that remodel.)

If you look at various broad estimates of future stock and bond returns, they are not forecasting much more than 3% to 4% real returns on a diversified and balanced 60/40 stock/bond portfolio. Do housing prices only go up? No. Is every house a good investment? No. However, I also don’t agree with the broad statement that land and homes are disappointing investments.

I’ve explored my own situation and income tax effects more in the previous post Mortgages, Imputed Rent, and Early Retirement.

Lifetime Allocation Pie Chart: Learning, Earning, and Returning

You always see pie charts used to illustrate asset allocation for portfolios. Stocks, bonds, commodities, real estate, etc. How about a pie chart for deciding how to allocate your lifetime:

life_aa

This was one of the “life lessons” provided by entrepreneur Tristan Walker in his Bloomberg profile:

Spend the first third of your life learning, the second earning, and the third returning. I try to shorten earning so I can maximize returning.

Your time on earth is a finite resource. Let’s say you put your life expectancy at 84 years. That works out to:

  • From birth until 28 years old, you are Learning. You are building up your knowledge, skills, and experience. You are building human capital.
  • From 28 to 56 years old, you are Earning. You are converting your human capital to traditional capital – money!
  • From 56 onwards, you are Returning. Once you have enough, it is your turn to give back to your community.

Learning isn’t always done in school. For example, many people will tell you that in your early years, you should take on risks before you develop too many other responsibilities. Start a business, switch careers, or travel the world. Don’t worry about the money in your 20s; your basic food and shelter expenses can be barebones. Invest your time into yourself.

Along the same lines, you won’t stop learning completely at 28 years old, but your focus and priorities may change. As I get close to 40, I feel the growing pressure of providing security for my kids and the pressure of caring for aging parents. In practical terms, you’ll need to invest more of your time into making money. Well, I might change that to earning money and then saving a big chunk of it.

Then one day, hopefully sooner than later, you can move on to giving back in a way that aligns with your personal philosophies. Invest your time towards helping your family, friends, the local community, and the world.

This is a related concept to the Earn, Save, Grow, Preserve lifecyle.

US Stock Ownership in Taxable vs. Tax-Deferred Retirement Accounts

If I was going for a clickbait title, I’d say “No one invests in taxable accounts anymore”. The Tax Policy Center has a new report by Rosenthal and Austin about how the share of U.S. stocks held by taxable accounts has dropped significantly over the last 50 years:

tpc_stockowner

Here’s another view of how the share held by retirement plans has increased:

tpc_stockowner2

The current numbers:

  • ~25% of US corporate stock is held in taxable accounts.
  • ~37% of US corporate stock is held in IRAs, defined contribution (401k) plans, defined benefit (pension) plans.
  • ~38% of US corporate stock is held by foreigners, non-profits, insurance companies, and other plans (governmental, 529 plans).

Between 1965-2015, the percentage held by taxable accounts dropped from ~85% to ~25%. The inverse finding is that the percentage held by tax-deferred retirement accounts and foreigners went from 15% to 75%.

That means that today, 75% of US stock owners may not care about the federal tax rates on dividend and capital gains, because it doesn’t affect them. Either they aren’t fully exposed to those taxes, or the taxes are deferred and withdrawals are tax at ordinary income rates. This trend could affect future tax policy.

Comcast Internet Essentials Review: Affordable Internet Access For Low-Income Households

comcastieComcast offers an affordable internet access program called Internet Essentials that provides high-speed internet service for $9.95 a month + taxes, a subsidized $150 computer with Microsoft Office, and free digital literacy training to eligible groups. Over time, they have expanded their eligibility rules and also added new features. Specifically, you now get:

  • XFINITY Cable Internet Service
  • 10 Mbps download & 2 Mbps upload speeds
  • No credit check
  • No activation or installation fee
  • No contract
  • Free modem + WiFi router rental

Here are the current ways to qualify for this program.

Low-income Families. You are eligible if you have at least one child who qualifies for the National School Lunch Program. If I read the income guidelines for the NSLP correctly, a family of 4 within the contiguous 48 states can’t make more than $31,590 a year to get free lunches during the 2016-2017 school year.

HUD Housing Assistance Households. You are eligible if you receive HUD housing assistance such as Public Housing, Housing Choice Vouchers (Section 8 Vouchers) or Multifamily Vouchers (Project-Based Section 8).

Seniors Pilot Program. You must be 62 years old and live in one of the current eligible areas. You must also be enrolled in an eligible state or federal public assistance program. As of mid-2016, the list includes Boston, Palm Beach County, Philadelphia, San Francisco, and Seattle.

Community College Student Pilot Program. You must be enrolled in an eligible community college, and also be a Pell Grant recipient. As of mid-2016, the list includes select community colleges in Colorado and Illinois.

In addition, for all groups, you must not have any outstanding debt to Comcast that is less than a year old. Families with outstanding debt more than one year old may still be eligible. You must also live in an area where Comcast Internet Service is available but have not subscribed to it within the last 90 days.

Problems and controversy. If you are already a low-income family that stretches to pay for Comcast internet access, you would need to cancel your existing service and then wait for a full 90 days before signing up for Internet Essentials. If the idea is to give your children the educational benefit of internet access, then it may be difficult to go without internet for 90 days.

This program is not supported with government taxes. Instead, it is a way for Comcast to make happy with various government regulators when they want to merge with another huge company. Indeed, Comcast as a monopoly or part of a duopoly in most areas may be the reason why average people are being charged $40 or $60 a month for basic internet access in the first place.

In any case, it exists, millions more households are eligible that aren’t signed up, and I think it is worth spreading the word. Apply online at internetessentials.com or over the phone (1-855-8-INTERNET or 1-855-846-8376).

The Continued Decline of Cooking at Home

nocook0Quartz published an article with the provocative title No one cooks anymore, noting that for the first time Americans are spending more money eating out (including bars and restaurants) than at grocery stores. The trend has been very steady for the last 20+ years, per US Census Bureau data:

nocook1

Although not quite greater than 50%, a similar story is told by USDA data about “food away from home as share of US household food expenditures”:

nocook4

Obviously, some people still cook. A more accurate statement would be that only half of us cook on any given day, and when we do we spend about an hour doing it. That is my interpretation of the following data from the US Bureau of Labor Statistics and their American Time Use Survey (ATUS).

The average American spends 27 minutes a day on food preparation. Women on average spend nearly twice as much time as men, but for everyone it works out to about half an hour a day.

nocook2

But on any given day, only about 56% of people do any food preparation at all. (Again, women more likely than men; I took an average.) Therefore, when a person does cook at home, they are probably doing it for about an hour.

nocook3

The ATUS also tells us that the average American spends 3 hours a day watching TV. Therefore, it’s not that the average American doesn’t have “time” to cook at home, they simply choose not to. Perhaps they are exhausted from work and just want to rest on the couch. It is certainly understandable. Some people argue that the food media makes food appear too perfect and daunting to make. Others have observed that Food Network is become more and more game shows and less and less instructional. Either way, lots of people are watching strangers cook while eating take-out themselves!

If you don’t want to cook, the food industry will certainly help you with that. Heck, you can simply drink Soylent if you don’t want even chew. I must admit there are weeks where my family’s routine is consistent with the cook one day, buy pre-made meal the next day ratio. If you do want to cook more at home, then here are the things that have helped me.

  • Find motivation. Determine the core reason why you want to cook more. Is it health? Is it to save money? Is it for personal fulfillment? For me, I want cooking regularly at home with raw ingredients to be part of my children’s memories and thus future expectations. I don’t want “mom’s food” or “grandpa’s food” to be KFC buckets or Stouffer’s frozen lasagna.
  • Plan ahead. Learn from my flowchart and plan ahead on Sundays. Plan ahead. Plan ahead. Plan ahead.
  • Just jump in. There are a billion recipes out there, many specifically-tailored for quick weeknight meals. Just pick one that looks easy and try it out. After a while, you’ll get better at picking better recipes and/or altering existing recipes to fit your tastes.
  • Don’t aim for perfect nutrition. Go easy on yourself, at least in the beginning. I am a fan of the eat anything, just cook it yourself philosophy. If you want to eat a steak, make a steak. Bake a potato (start in microwave, finish in oven) and use this frozen steak method. The next time, expand and bake some kale chips.
  • Learn with short online videos. Sometimes I think I could build a car from scratch if I had the right YouTube videos. I doubt I would have ever tried making my own porchetta if there wasn’t an instructional video attached with tasty pictures. (It is delicious and very easy with a food processor. Eat as a sandwich with your version of salsa verde.)

Ally CashBack Credit Card Review: 2% Cash Back on Gas and Groceries + 10% Relationship Bonus

allycbccIf you have an Ally Bank savings or checking account, you’ve likely been pitched their new Ally CashBack credit card recently. Here are the highlights:

  • $100 bonus when you make $500 in eligible purchases during the first 3 billing cycles.
  • 2% cash back at gas stations and grocery stores
  • 1% cash back on all other purchases
  • No limits on rewards categories.
  • 10% boost on earned rewards when you deposited into an eligible Ally Bank account.
  • No annual fee.
  • Intro 0% APR for 12 billing cycles on balance transfers. (No 0% APR on purchases.) Balance transfer fee is either $10 or 4%, whichever is greater.

As with all the big banks, Ally is working on their cross-marketing. They want you to keep your checking, savings, IRAs, brokerage, and credit cards all at the same place. Ally’s strong in the online banking side (named best online bank by Money Magazine for the fifth year in a row). Credit cards are here, and a brokerage arm is just around the corner (TradeKing). I am personally interested in such convenience, as for years Ally Bank has been my primary checking, savings, and CD accounts.

Including the 10% relationship bonus, this Visa Signature card would get you 2.2% cash back on gas stations and grocery stores and then 1.1% on all other purchases. While this structure is better than the traditional 1% flat credit cards, the competition has heated up in the last few years. Consider:

The best program to compare against is Bank of America. The BankAmericard Cash Rewards Credit Card offers 1% cash back on every purchase, 2% at grocery stores and now at wholesale clubs, and 3% on gas up to the first $2,500 in combined grocery/wholesale club/gas purchases each quarter. Bank of America also offers a 10% bonus on rewards earned when you redeem your cash back into a Bank of America checking or savings account. However, they also have premium relationship tiers that offer up to a 75% bonus on rewards that would work out to 1.75% cash back on every purchase, 3.5% at grocery stores and wholesale clubs, and 5.25% on gas for the first $2,500 in combined grocery/wholesale club/gas purchases each quarter. To me, this made it worth it to build up a “relationship” with them, including opening up a new brokerage account and new credit cards.

Ally touts this new card as “simple”, but what would have really been simple is a flat 2% cash back card on everything and then a small relationship bonus on top of that. That way, when taken together with an Ally Bank account, the card would have been the best in many respects. Combined with their high-interest deposit accounts, you’d have a combo that could shake up the industry. The weakest point of my Bank of America combo is their piddly 0.05% APY on savings accounts and sad CD rates, whereas one of the strongest points of Ally is the 1.00% APY of their savings account and highly-competitive CD rates.

Bottom line. The rewards are above-average overall, and might be worth a look for Ally-centric customers. However, there are top cards in the marketplace that offer close to a flat 2% on everything, and better gas and grocery-specific cards as well. I personally prefer to pick things à la carte unless the sum is greater than the parts, as is the current situation with Bank of America.

Infographic: 401(k) Plan Participation Stats

As we pass the halfway mark of this year, it was time for my quarterly check-in on my 401(k) account. The best-case scenario for a 401(k) plan is:

  • Company match. A little extra help from your employer is always nice.
  • Good default settings. The set-up process should be easy and completely painless. Ideally, you should be automatically opted-in for a some level of savings into a a diversified, low-cost option.
  • Low-cost investment choices. The less you pay, the more you keep.
  • Low account fees. Ditto.

For more and more Americans, the 401(k) is their primary vehicle for retirement. Here’s a good visualization from Bloomberg about the year-by-year decline of pensions (defined-benefit) and the rise of 401/403b/similar (defined-benefit) plans.

401k_bw2

Here’s another infographic from Bloomberg comparing income level, the availability of a 401(k) or similar plan, and the actual participation rate in such a plans.

401k_bw

The higher the income, the more likely you have access to a 401(k) or similar plan. In the highest-paid quartile, 96% of people with the option do participate. Not too surprising. The most interesting takeaway was that even in the lowest income quartile, if you offer a 401(k) plan, the majority of people will participate! The sad part is that only 35% of the lowest income quartile are even given the option.

Improving all the factors I listed first above (company match, lower fees) is still a good thing and is often talked about. However, it would seem like the best thing would be to widen the availability of such an option to everyone. This was probably the thinking behind the creation of myRA, but behaviorally there are still too many obstacles to signing up for the program. It still requires work and opt-in with no immediate benefit. There’s a reason why there are always sign-up bonuses for bank accounts – filling out applications is tedious.

If every time I was harassed to switch to paperless statements with “just one click”, someone was instead harassed into setting up a retirement plan with auto-contributions with “just one click”, there would be a lot more savings.

Google Fi: Simple, Pay As You Go Cell Plan With High-Speed International Data Included

filogoWe recently returned from a family trip to Europe, and I found myself missing my data plan more than ever before. I kept thinking about the slow 2G data that T-Mobile includes in their postpaid plans and how it might power data-light apps like maps, weather, Uber/taxi, and public transit “when is the next one coming?” apps. (Oh, how it would have helped in the pouring rain in the middle of the city with a 1 and 3-year old…) Why couldn’t this be offered to the rest of us for a half-decent price? I didn’t even consider surfing the web fully, watching a video, or streaming GPS directions due to the fear of a huge bill.

If you are a regular international traveler, you may have heard of the Google Project Fi cell phone plan. Here are the basics:

  • $20 a month flat for unlimited domestic talk and text, unlimited international texts, and tethering. Non-WiFi international calls can get a bit expensive, $0.20 per minute inside the UK for example.
  • $10 a month per gigabyte of data used, either domestic or international. You pay only for what you use, down to the penny! So if you use exactly 1.4 GB of data, you end up paying $14.
  • No annual contract.
  • Taxes and fees not included, as with other postpaid plans.
  • You must use an approved Google phone. The new ones on sale are the Nexus 6P and Nexus 5X (starts at $199 with activation). The older Nexus 6 is also an option.
  • Once you have activated service, you can add additional tablets like select iPads using their data-only SIM card, all while sharing the same data plan.

In the United States, your phone will switch between Sprint, T-Mobile, and US Cellular networks based on which has the best signal. You have full access to the fastest 4G LTE networks where available.

Previously, international data was throttled to 256 kbps, which is roughly 3G speed. On July 12th, 2016, Google announced that due to an agreement with Three, those speed caps will increased “10-20X faster than before”. That means you’d be getting close to full 4G LTE speeds for international data. They also announced a limited-time offer of $150 off the Nexus 6P, bringing the base model down to $349 with activation.

There are some cons. If you are a big domestic data user and/or you have a family plan, Google Fi can end up being more expensive than existing plans from the major providers. There also doesn’t appear to be any plans to support other phones like Apple iPhone or Samsung Galaxy.

Bottom line: Although it won’t work out as the cheapest for everyone, the simple elegance of this plan is the most intriguing feature. For you “digital nomads” out there, recent changes now make Google Fi one of the best plans for frequent international travelers that want high-speed smartphone data wherever they go.

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