Archives for October 2017

Scare-Testing Your Risk Tolerance on Halloween

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jackoIt’s Halloween as I finishing writing this, and soon little ghosts and ghouls will be lining up to score treats from my great-aunt. She’s lived through some amazing times. It’s really hard to predict how you will handle a scary situation until you are actually faced with it. The fear, the uncertainly, the doubt. Sometimes the best you can do is try to scare yourself and imagine your response.

Scary stories. Instead of a horror flick, I read all 240+ posts from an October 2008 Bogleheads thread where a 75-year-old retiree discussed whether or not to cash out some of his portfolio. What happened October 1st to October 8, 2008? The S&P 500 went down 25%. In a week.

sp500_0810

Even if you managed to keep it together then, March 2009 rolled around and you found yourself down over 55% from a little more than a year ago.

sp500_0903b

Scary news articles. On Google Finance, if you look back at historical quotes, they will adjust the “News” box to include articles from that time period. Here’s a few I picked out:

Scary numbers. Here are historical S&P 500 drawdowns from user BlueEars.

1973 down 38% in 21 months (understated because of inflation)
1980 down 27% in 13 months
1990 down 19% in 3 months
2000 down 49% in 31 months (growth bubble, SP500 loaded with it)
2007 down 42% in 12 months to date

Lessons?

  • Know your own tendencies. We did live through 2008/2009, but it felt like a different time. We were barely 30 years old and both employed. We “lost” a six-figure balance but we didn’t need it immediately. We did not sell any stocks and kept up all our automated 401k and IRA contributions. The hardest part was rebalancing, because that required action. Lesson: I tend to freeze and do nothing.
  • Everyone is different. One poster had 33% cash, 33% bonds, 33% stocks and was still in a panic. Others wanted to increase their stock holdings to 90% or higher. Some bought in after the first major drop but then got nervous when it kept dropping.
  • Stocks can drop 50% very quickly. Whatever you have in stocks, imagine it cut in half. Are you okay with that? Are you sure? I think I would be more nervous today given our much larger portfolio size. Therefore, our current asset allocation is more conservative (66% stocks/34% bonds).
  • Cash helps keep you calm. If you don’t need the money for a long time, it’s easier to be detached. However, retirees tend to view investment loses in terms of “years of expenses”. If you usually take out $50,000 a year to cover spending, and then your portfolio drops by $500,000, that’s an entire decade of spending “lost”. Knowing that you already have at least 3-5 years of withdrawals in a safe money bucket can help.

If you are willing to read something longer, I recommend The Great Depression: A Diary. 2008/2009 was bad, but things could have been much worse. It’s easy to not appreciate safe assets when things are going well.

qara.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Book Review: A History of Gold in the United States

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onenationgold

Having been born after 1971, I have never lived in a time when the dollar was backed by gold. In an effort to learn more about the gold standard, I recently finished One Nation Under Gold: How One Precious Metal Has Dominated the American Imagination for Four Centuries by James Ledbetter. In other words, this is a history of gold in America. Here are my overall takeaways:

I always thought that the pre-1971 gold standard meant that for every dollar printed, there was a certain amount of gold set aside in a vault. This turns out to be false. A long time ago, gold coins actually circulated as currency. But the more modern version of a gold standard simply means the government agrees to sell gold bullion on demand at a fixed dollar price (ex. $35 for an ounce of gold).

Under the gold standard, countries rarely had enough gold in their vaults to cover if everyone decided to redeem their currency. As a result, countries including the United States were constantly worried about running out of gold and used various political tricks to prevent too many redemptions. If the fixed ratio was $35 an ounce and people could get the equivalent of $36 an ounce somewhere else, there would be a big spike in demand and the US would have to ship out tons of gold. If the vaults went empty, that could cause a financial crisis. The system was constantly under stress.

Every major currency has ended up being forced off the gold standard, usually in times of severe stress. Wars. International trade deficits. Economic depressions. In 1933, the US government was again running low on gold and so they devalued from $20.67/oz. to $35/oz (a devaluation of over 40%). In addition, they banned domestic individuals from owning gold from 1933-1974. (Hmmm… a gold standard where you couldn’t actually get gold…) In 1971, with both the Vietnam War and ongoing trade deficits, Nixon ended international convertibility of the US dollar to gold.

I’ve read that every fiat currency in history has eventually failed. Well, it’s also true that every gold standard in history has eventually failed. Just a thought that kept running through my head while reading this book. Gold-backed currency has its own set of problems.

Harry Browne: Wise investment mind or paid salesman for gold industry? You may have heard of Harry Browne as the creator the Permanent Portfolio: 25% stocks/25% cash/25% long-term bonds/25% gold. Well, this book mostly mentions Browne as a shady doomsday salesman for the gold industry. He wrote books that promoted a specific gold company (Pacific Coast Coin Exchange) and then got paid $100,000 (~$600,000 in 2017 dollars) by that company. That’s not all… The SEC shut down PCCE for having no actual gold in vaults and instead buying things like private jets with the money. Here is a 1974 NY Times article about the company.

The chance that the US goes back on a gold standard is very, very, very small. The gold standard did restrict governmental power, and some people like the sound of that. However, governments like having the ability to expand and contract the money supply to overcome stressful events like war and economic recessions. Will they wield that power wisely and effectively? Mistakes will be made, but I don’t see how they will voluntarily give up that flexibility. The question is not whether fiat currency is perfect, it is about which is better amongst imperfect options.

In the end, perhaps it is better that there is an open market for gold. Today, individuals can exchange gold for dollars and dollars for gold whenever they want. Gold ETFs let you buy gold with few clicks and lower transactional costs than physical gold. If you like market-cap weighting, consider a 1% gold portfolio.

I’m not a history buff in general, and perhaps that is why I found this book rather dry and hard to finish. There is no flowing narrative like a Michael Lewis book. However, I felt like I did learn some useful lessons and I’m glad I finished it.

qara.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

XKCD on Credit Card Reward Optimization

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XKCD has some clever observations about the pursuit of credit card rewards:

xkcdccrewards

I definitely spend more time thinking about optimizing things than is… optimal? rational? That’s why I started a website, so I can justify it as a business pursuit! 🙂 Here’s another good one from XKCD:

efficiency

Don’t forget the time cost of “Arguing with strangers on internet about A vs B”.

Final mention: XKCD Remix: The Secret Life of Personal Finance Bloggers.

qara.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Morningstar Star Ratings, Still Less Useful Than Expense Ratios

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jeapordy_shadeFor investment nerds, the recent Wall Street Journal article The Morningstar Mirage was high drama. The subtitle got straight to the point:

Investors everywhere think a 5-star rating from Morningstar means a mutual fund will be a top performer—it doesn’t.

Morningstar ratings mainly reflect past performance. However, something called “mean reversion” usually happens. If a fund has done well recently, it will have a high rating. But it usually doesn’t stick. The WSJ has a good visual:

wsj_mstar1

This quote is spot on: “Morningstar’s star ratings for funds are clearly used in the industry to imply that funds that performed well in the past will do so in the future.” Check out the fund flows into the Permanent Portfolio Fund when they were 5-star. Just a couple years later, chheck out the fund flows out when they drop to 1-star.

wsj_mstar2

Morningstar responded with Setting the Record Straight on Our Fund Ratings, which in my opinion just repeated the top graphic above. People think the left part will hold. Reality is the right part.

The Journal’s analysis found that most five-star funds perform somewhat better than lower-rated ones, yet on the average, five-star funds eventually turn into merely ordinary performers.

More importantly, something was conspicuously missing from this rebuttal…

Expense ratios are a more dependable predictor of performance. Source: Morningstar. Back in 2010, Russell Kinnell of M* had what the NY Times called “an act of radical and admirable transparency” in his article How Expense Ratios and Star Ratings Predict Success. Here’s my 2010 post about it.

If there’s anything in the whole world of mutual funds that you can take to the bank, it’s that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds. […] Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.

Smart investors know about this article. Morningstar executives choose not to mention it. Why would they? They charge fund companies $10,000 a pop to brag about their 5-star ratings in ads.

This is where my pragmatic side kicks in. I like Morningstar overall. I’m glad they exist. You just have to pick what you consume carefully.

  • Morningstar creates a lot of high-quality, free stuff for DIY investors. They have great free data, some nice tools, and many helpful articles from knowledgable authors. I link to them regularly. I talk about star ratings never.
  • People love star ratings systems. There’s a reason why you see stars on every Amazon product page. Most people don’t want to filter out everything themselves. They want the feeling that some fancy algorithm has hand-picked the best funds for them. They want easy.
  • Financial advisors love star ratings systems. If the financial advisor makes a pick and it goes bad, then whose fault is it? Not mine, I followed the rating system and followed the experts! Financial advisors are incentivized to stay close to the pack, as if they stick out in the wrong way, they will get fired. This is known as minimizing career risk.
  • This is not a perfect analogy, but Morningstar is kind of like Whole Foods. You could make some great food at decent prices using their raw ingredients and 365 product line. But 1/3rd of the store is prepared foods, and the most popular are stuff like pizza, sushi, mac & cheese, chicken nuggets, and chicken wings. Why do they sell these things? It is what the customer wants, and they are a for-profit corporation.

10 years from now, I predict that the system will be exactly the same. Morningstar wants to keep it, most clients want to keep it, and the financial advisors want to keep it. Morningstar stock plunged when the WSJ story broke, but recently bounced back up. I suspect people came to the same conclusion as I did.

Bottom line. The WSJ article reminds us of an important lesson. Morningstar “5-star ratings” are simply markers of past performance. Reversion to the mean usually happens. Consider long-term past performance as one factor amongst many, but don’t chase 5-star funds. Expense ratios are a better predictor of future returns than M* star ratings. If anything, simply avoid 1-star funds.

qara.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Early Retirement Income Update 2017 Q3: Do I Have Enough Yet?

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dividendmono225

How do you know when you portfolio is enough to retire on? You have to figure out a withdrawal strategy first. This is a tricky question and full of worries about running out of money. You could take out a fixed amount (i.e. $50,000 a year). You could take out a fixed percentage (i.e. 4% a year). You can adjust for inflation. You can implement upper or lower guardrails.

Personally, I appreciate the behavioral reasons why living off income while keeping your ownership stake is desirable. The analogy I fall back on is owning a rental property. If you are reliably getting rent checks that increase with inflation, you can sit back calmly and ignore what the house might sell for on the open market.

I’ve also come to feel that dividend yield can be a quick-and-dirty way to adjust your withdrawal rate for valuation. For example, if the price of S&P 500 index goes up while the dividend payout stays the same, then wouldn’t it be prudent to simply spend the same amount? Check out the historical S&P 500 dividend yield via Multpl. Focus the last 20 years – the yield was highest in the 2008 crash and lowest in the 2000 tech bubble.

sp500dy_1710

Now check out the absolute dividend amount (inflation-adjusted), also via Multpl:

sp500d_1710

Note that if you only buy “high-yield” stocks and “high-yield” bonds, that actually increases the chance that those yields will drop sooner or later. I am trying to reach some sort of balance where I spend the income on a “total return” portfolio.

Even the venerable Jack Bogle advocated something similar in his early books in investing. He suggested owning the Vanguard Value Index fund and spending only the dividends as way to fund retirement.

One simple way to see how much income (dividends and interest) your portfolio is generating is to take the “TTM Yield” or “12 Mo. Yield” from Morningstar (linked below). Trailing 12 Month Yield is the sum of a fund’s total trailing 12-month interest and dividend payments divided by the last month’s ending share price (NAV) any capital gains distributed over the same period. SEC yield is another alternative, but I like TTM because it is based on actual distributions (SEC vs. TTM yield article).

Below is a very close approximation of my most recent portfolio update. My current target asset allocation is 66% stocks and 34% bonds, and intend that to be my permanent allocation upon early retirement.

Asset Class / Fund % of Portfolio Trailing 12-Month Yield (Taken 10/23/17) Yield Contribution
US Total Stock
Vanguard Total Stock Market Fund (VTI, VTSAX)
25% 1.85% 0.46%
US Small Value
Vanguard Small-Cap Value ETF (VBR)
5% 1.81% 0.09%
International Total Stock
Vanguard Total International Stock Market Fund (VXUS, VTIAX)
25% 2.57% 0.64%
Emerging Markets
Vanguard Emerging Markets ETF (VWO)
5% 2.34% 0.12%
US Real Estate
Vanguard REIT Index Fund (VNQ, VGSLX)
6% 3.90% 0.23%
Intermediate-Term High Quality Bonds
Vanguard Intermediate-Term Tax-Exempt Fund (VWIUX)
17% 2.81% 0.48%
Inflation-Linked Treasury Bonds
Vanguard Inflation-Protected Securities Fund (VAIPX)
17% 2.99% 0.51%
Totals 100% 2.53%

 

If I had a $1,000,000 portfolio balance today, a 2.5% yield means that it would have generated $25,000 in interest and dividends over the last 12 months. (The muni bond interest in my portfolio is exempt from federal income taxes.) Some comparison numbers (taken 10/23/2017):

  • Vanguard LifeStrategy Moderate Growth Fund (VSMGX) is a low-cost, passive 60/40 fund that has a trailing 12-month yield of 2.06%.
  • Vanguard Wellington Fund is a low-cost active 65/35 fund that has a trailing 12-month yield of 2.48%.

These income yield numbers are significantly lower than the 4% withdrawal rate often quoted for 65-year-old retirees with 30-year spending horizons, and is even lower than the 3% withdrawal rate that I usually use as a rough benchmark. If I use 3%, my theoretical income would cover my projected annual expenses. If I used the actual numbers above, I am close but still short. Most people won’t want to use this number because it is a very small number. However, I like it for the following reasons:

  • Tracking dividends and interest income is less volatile and stressful than tracking market prices.
  • Dividend yields adjust roughly for stock market valuations (if prices are high, dividend yield is probably down).
  • Bond yields adjust roughly for interest rates (low interest rates now, probably low bond returns in future).
  • With 2/3rds of my portfolio in stocks, I have confidence that over time the income will increase with inflation.

I will admit that planning on spending only 2% is most likely too conservative. Consider that if all your portfolio did was keep up with inflation each year (0% real returns), you could still spend 2% a year for 50 years. But as an aspiring early retiree with hopefully 40+ years ahead of me, I like that this method adapts to the volatility of stock returns and the associated sequence of returns risk.

qara.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Early Retirement Portfolio Asset Allocation, 2017 Third Quarter Update

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portpie_blank200

Here is an update on my investment portfolio holdings after the third quarter 2017. This includes tax-deferred 401k/403b/IRAs and taxable brokerage holdings, but excludes things like our primary home, cash reserves, and a few other side investments. The purpose of this portfolio is to create enough income to cover our regular household expenses.

Target Asset Allocation. The 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 don’t hold commodities futures or gold as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. I also try to imagine each asset class doing poorly for a long time, and only hold the ones where I think I can maintain faith.

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 is 67% stocks and 33% bonds (2:1 ratio) within our investment strategy of buy, hold, and rebalance. With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and income taxes.

Actual Asset Allocation and Holdings

aa_portpie_1710

Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard 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 High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Performance and commentary. According to Personal Capital, which aggregates all of my investment holdings across different accounts, my portfolio has gained 7.41% over the last 6 months since my last update. In the same time period, the S&P 500 has gained 9.21% (excluding dividends) and the US Aggregate bond index has gained 1.34%.

pcport_1710

Things are currently at 69% stocks/31% bonds. For the most part, I continue to invest new money on a monthly basis in order to try and maintain the target ratios. Once a quarter, I also reinvest any accumulated dividends and interest. I don’t use automatic dividend reinvestment. This way, I can usually avoid creating any taxable transactions unless markets are really volatile.

For both simplicity and cost reasons, I am no longer buying DES/DGS and will be phasing them out whenever there are tax-loss harvesting opportunities. New money is going into the more “vanilla” Vanguard versions: Vanguard Small Value ETF (VBR) and Vanguard Emerging Markets ETF (VWO).

I’m still somewhat underweight in TIPS and REITs mostly due to limited tax-deferred space as I don’t want to hold them in a taxable account. My taxable muni bonds are split roughly evenly between the three Vanguard muni funds with an average duration of 4.5 years. I may start switching back to US Treasuries if my income tax rate changes signficantly.

In a separate post, I will track dividend and interest income.

qara.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Housing Has Higher Long-Term Returns Than Stocks?

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housemoneyI finally got around to reading an academic paper that looked a bit dry but had a great title: The Rate of Return on Everything, 1870–2015 ] by Jorda, Knoll, Kuvshinov, Schularick, and Taylor. I wonder which of the authors came up with that.

One of the major findings that was residential housing – when you add up the returns from both price change and imputed rent – had a higher overall average return than stocks (equities). Not only did housing have higher returns, but it also had lower volatility (standard deviation). Here’s a chart that compares housing and equities:

jorda1b

When the paper was released, places like the Financial Times discussed the paper’s conclusions but none of them addressed my two immediate questions.

Did they account for the maintenance and management costs of rental real estate? If you own a rental property, you may still have to pay for lawn maintenance, replacing roofs, HVAC units, interior and exterior painting, replacing carpets, and various other issues. To be fairly compared with equities, you should also account for property management costs. Here’s are excerpts that deal with maintenance and repairs:

To the best of the authors’ knowledge, this study is the first to present long-run returns on residential real estate. We combine the long-run house price series presented by Knoll, Schularick, and Steger (2016) with a novel dataset on rents from Knoll (2016). For most countries, the rent series rely on the rent components of the cost of living of consumer price indices as constructed by national statistical offices and combines them with information from other sources to create long-run series reaching back to the late 19th century.

A number of additional issues have to be considered when constructing returns on housing. First, any homeowner incurs costs for maintenance and repairs which lower the rental yield and thus the effective return on housing. We deal with this issue by the choice of the benchmark rent-price ratios. Specifically, in the Investment Property Database (IPD) the rental yields reflect net income (i.e., net of property management costs, ground rent, and other irrecoverable expenditure) received for residential real estate as percentage of the capital employed.

Did they account for the annual property taxes required on residential real estate? In many US states, the annual property tax bill can exceed 1% of the value of the house. Some are closer to 2% annually, and these are owner-occupied numbers. Rental properties may be higher. That’s on top of any potential capital gains you’d owe upon sale of the house, and any taxes you’d owe on rent received. Here’s are excerpts that deal with taxes:

Although the extent of real estate taxation varies widely across countries, real estate is taxed nearly everywhere in the developed world. International comparisons of housing taxation levels are, however, difficult since tax laws, tax rates, assessment rules vary over time and within countries. Typically, real estate is subject to four different kinds of taxes. First, in most countries, transfer taxes or stamp duties are levied when real estate is purchased. Second, in some cases capital gains from property sales are taxed. Often, the tax rates depend on the holding period. Third, income taxes typically also apply to rental income. Fourth, owners’ of real estate may be subject to property taxes and/or wealth taxes where the tax is based upon the (assessed) value of the property.
This section briefly describes the current property tax regimes by country and provides estimates of the tax impact on real estate returns.

With few exceptions, the tax impact on real estate returns can be considered to be less than 1 percentage point per annum.

This is an interesting paper that tries to cover a huge amount of stuff. Estimating the return of all businesses from all countries for the last 150 years? Estimating the return of all residential real estate from all countries for the last 150 years? They mix together a bunch of different datasets, so it’s hard to know exactly the quality level of each and how well they accounted for things like taxes and maintenance.

I’m not sure why they prefer to use arithmetic averages instead of geometric averages, but even if you shave off 1% for additional property taxes and another 1% because you don’t think they account for maintenance costs adequately, housing returns are still at least comparable to equity returns.

Here is the most recent update of the Case/Shiller home price index from Multpl, which tracks US housing prices on an inflation-adjusted basis:

shiller1890

Some people use this to argue that housing returns only keep up with inflation, but home prices ignore the value of rent. The fact that most housing purchases involve a mortgage loan does complicate things a bit.

Bottom line. An interesting paper that compares the long-term returns (last 150 years!) of residential housing and equities. In the long run, some may be surprised that residential housing returns at least matched equity returns, and housing returns had lower volatility. This is a reminder that you can also build wealth via residential real estate, taking into account that rent makes up half of the total return. Stocks are not the only game in town. (Just like with stocks, can is not the same as will.) New services like AirBNB provide an alternate path to monetize residential real estate.

qara.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

California Residents: Southwest Credit Card Companion Pass Shortcut Offer

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Southwest Premier Credit Card ArtIf you are a California resident, check out this special offer on the Southwest Rapid Rewards® Credit Card that provides a shortcut to the SWA Companion Pass:

The Companion Pass lets a designated person fly with you for free on all your Southwest flights – both paid and award flights! (You must still cover taxes and fees from $5.60 one-way.) Usually, you have to fly 100 qualifying one-way flights or earn 110,000 Rapid Rewards points within a calendar year in order to qualify. However, this special offer lets you get it after applying for a new card and making a single purchase of any amount.

Here are some additional things to consider:

  • How California residency is determined: “Individual must have a valid California address as evidenced by their application for the Rapid Rewards® Credit Card.” PO Boxes are not allowed as billing addresses. You should probably have the same billing address on your Rapids Rewards account.
  • You must open the card by 11/30/17, and allow up to 8 weeks after your first purchase to receive the Companion Pass. The pass will be valid until 12/31/18.
  • Chase has a rule that they will automatically deny approval on this credit card if you have 5 or more new credit cards from any issuer on your credit report within the past 2 years (aka the 5/24 rule).
  • Not available to either (i) current cardmembers of any Rapid Rewards Credit Card, or (ii) previous cardmembers of any Rapid Rewards Credit Card who received a new cardmember bonus for a Rapid Rewards Credit Card within the last 24 months.
  • Rapid Rewards® points won’t expire as long as your card is open or you have flight-earning or partner-earning activity at least once every 24 months.
  • You must still pay the annual fees of $69 or $99, depending on the card.

Southwest recently announced that they plan to start flying to Hawaii, but the flights probably won’t be until late 2018 or early 2019. Therefore, you might try to time your purchases so that you get the 40,000/60,000 point bonus in 2018 as part of a larger plan to earn 110,000 points throughout 2018 and get another Companion Pass good through the end of 2019.

qara.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Social Security Provides Majority of Retirement Income for Most Americans

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The Washington Post has a rather depressing article on The New Reality of Old Age in America, which includes the following chart about Social Security:

ss_percent

For 1/3rd of recipients age 65+, Social Security represents 90% or more of all their income. For 61% of recipients age 65+, Social Security represents at least half of all their income. In other words, Social Security is the cornerstone of retirement for the majority of Americans. Not a company pension. Not IRAs or 401k withdrawals.

Many articles like to explain how waiting until age 70 (the latest possible) to start withdrawals is mathematically the best move, but in reality the most common withdrawal age is 62 (the earliest possible). You only get about 75% of the monthly benefit at age 62 as compared to waiting until “full” retirement age (66 for current new retirees), but you get the money sooner.

Young people like to say things like “I don’t plan on Social Security being around when I retire”. (I probably said something like this too when I was in my 20s.) I have since talked to people whose sole income is Social Security. Nowadays, I don’t see how it could go away.

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Gene Hackman and Dustin Hoffman on Mental Accounting

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Richard Thaler won the Nobel Prize for Economics this year for his pioneering work in Behavioral Economics. Of course, he promptly said he would spend the prize money “as irrationally as possible”. Here’s a light-hearted Q&A from the NY Times. Linked was a funny example of mental accounting, told by Gene Hackman about Dustin Hoffman. (Warning: There is a single f-bomb.)

Well, Hackman says when they were both young actors he was over at Dustin Hoffman’s house and Hoffman asks him for a loan.

Hackman goes into the kitchen and sees all these Mason jars with labels — “entertainment” and “books” and “rent” — and they all have money in them. Except for one, the one that says “food.” So he says to Hoffman: “You have plenty of money, why do you need money?” And Hoffman says, ‘There’s no money in the food jar. I can’t touch the other money. ”

They laugh, they go on, it’s funny but you know, it’s serious. Because we all do that.

If you can’t see the embedded video, here is the YouTube link.

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Amazon Prime: Buying Add-On Items Without Minimums w/ Alexa

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alexaboxOn of the main benefits of Amazon Prime is that you can buy things whenever you want with no minimum purchase requirement, shipped to you for free. Mostly. Amazon classifies some of their lower-priced products as “Add-On” items, which must be bundled with $25 of items shipped by Amazon, excluding gift cards.

I understand the reason for this. I usually don’t even use 1-day or 2-day shipping even on larger orders. I pick up the No-Rush shipping credit and then let Amazon bunch up my orders and ship them more efficiently. However, I like actually making the purchase, otherwise some things will languish in my cart and I wonder why it never came. Also, this lets me lock in the current price for items that are temporarily discounted. Sometimes I want a $6 item but I just ordered $100 off stuff yesterday and I don’t need anything else.

You can have Add-On items ship without meeting the minimum purchase requirement by ordering it via the Alexa voice assistant. If you don’t have an Echo Dot or similar, you can also access Alexa on-demand via the Amazon Fire TV Stick, the Amazon Dash Wand with Alexa, and now through the Amazon Music app. These also let you access Alexa-only deals.

Here’s an additional time-saving trick, picked up from minisnoey of SD:

  • For example, let say you need Virbac C.E.T. Enzymatic Oral Hygiene Chews, Small Dog, 30 count. It costs $8 but is an add-on item.
  • If you tried to order via Alexa and say “order dog chews”, there are a hundred types of dog chews. It might take a long time for Alexa to figure out the exact type, size, and count of dog chews that you want. Some people have resorted to spelling out the product name letter-by-letter. T-E-D-I-O-U-S.
  • However, this time place the Add-On item in your online shopping cart via website or Amazon app. Do not buy it yet.
  • Now using Alexa, ask to buy the item “order dog chews”. Alexa should now know that you want the dog chews that are in your cart. She will verify the name and price, and you can now buy it via Alexa without any minimum order requirement. Frustration-free ordering.

Many times, I already have another order in process so it just gets bundled along.

Bonus tip: This deal is still working: $10 bonus on your first RE-order via Alexa ($10 minimum order).

In order to qualify for the $10 credit offer, you must: (1) be an Amazon Prime member that has never made a reorder with Alexa Voice Shopping and (2) order a physical product in your Amazon.com Order History of at least $10. The reorder must be made using voice shopping on your device with Amazon Alexa.

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MoviesAnywhere: 5 Free Digital Movies After Linking Accounts

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moviesany1

MoviesAnywhere is a service that links up movies that you bought online at one retailer and lets you view them on another retailer. For example, you might buy a movie from iTunes and watch it from Amazon Video. This “digital movie locker” service used to be called Disney Movies Anywhere, but just expanded to include Disney, 20th Century Fox, Sony Pictures, Universal, and Warner Bros. Per e-mail from iTunes:

We wanted to let you know that Disney Movies Anywhere has expanded its list of participating studios to include Disney, 20th Century Fox, Sony Pictures, Universal, and Warner Bros. As a result, the service has rebranded to Movies Anywhere.

As Disney Movies Anywhere transitions to Movies Anywhere, you’ll need to create a new Movies Anywhere account in the Movies Anywhere iOS app or at the Movies Anywhere website before you can reconnect it to your Apple ID.

To encourage people to switch over, they are offering up to 5 free movies after you sign up at MoviesAnywhere for a new account and link up retailers (Vudu, iTunes, Amazon Video, Google Play). There is no promo code required (scroll down to see banner), but it is a limited-time offer.

  • Link one retailer, and get Ice Age and Ghostbusters (2016) for free.
  • Link a second retailer, and get Big Hero 6, Jason Bourne, and The Lego Movie for free.

I’ve used this feature for Disney movies, and I like the added convenience. I got my 5 free movies without issue instantly after linking.

qara.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

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