Like most of the nation, my family will gather this week with our extended clan to share a meal and a laugh or two.  Thanksgiving is also a time to take a moment to consider those who are not so fortunate.

If you turn those good thoughts into good deeds, your charity might be eligible as a tax deduction.  Uncle Sam put together a useful guide on Year-End Donations.

Cash and Stock

If you give money to your favorite charities, you can usually deduct the amount donated on Schedule A (Itemized Deductions) of your 1040.  There are some limits.  See IRS Pub 526, Charitable Donations, if you have questions.

If you have stocks (equities) that have appreciated in value, donating them instead of cash can mean a bigger tax deduction for you.  See my post earlier this year on this subject.

Used Clothing and Household Goods

The Salvation Army and Goodwill Industries have offices nationwide.  Personally, Goodwill gets my donations, since the Salvation Army discriminates against LGBT folk (hence the lack of a link to it in the preceding sentence).  In many states, the Vietnam Veterans of America will come to your house to pick up your donations, including small pieces of furniture.

You can deduct the fair market value of donated used clothing and household goods.  The IRS Publication 561, Determining the Value of Donated Property, is a starting point, but Goodwill’s guide to valuation is more direct.

Volunteering

Volunteering your time is the greatest gift you can give.  Whether you choose to work with children, seniors, or community organizing, nothing can replace the gift of your experience, energy, and enthusiasm.  Unfortunately, you cannot take a tax deduction for the value of your time.  You can deduct mileage for driving to the place where you volunteer.

However you choose to celebrate this week, best wishes for a happy holiday season.

Related posts: Charitable deductions warm you twice

Disclosure: No positions

Image credit: HowardLake at Flickr

• U.S. Broad Market
• U.S. Large Cap
• U.S. Small Cap
• International Equity (Developed Nations)

In December, they’ll add four more:

• U.S. Large Cap Growth
• U.S. Large Cap Value
• International Small Cap
• Emerging Markets

To keep the rhythm going, I suppose I should list four things I like about the Schwab funds.  Here goes:

• Each fund tracks a Dow Jones or FTSE index, so you can look up exactly what positions it holds.
• Insanely low expense ratios.  The chart below is from the Schwab site comparing its expense ratios to other popular ETF’s.  I’ll point out that Schwab’s expenses are even lower than the Vanguard S&P 500 (VFINX).  Schwab’s expenses are 0.08% (!) for their Large Cap ETF, while Vanguard charges 0.18%
• Commission-free when bought online from a Schwab account.  Schwab’s accounts have low minimums to open, making them accessible to almost everyone.
• Now I can buy ETF’s through dollar-cost averaging.

As I’ve said before, the primary benefit of investing through dollar-cost averaging is that it puts the “when” and “how much” questions  on autopilot, letting you focus on “what” to invest in.  Up to now I’ve avoided ETF’s because my brokerage charges about $12 for an online trade.  To invest in a portfolio of four ETF’s once a month, I would spend $576/year on transaction fees.  Why would I do that when I could instead invest in four no-load low-expense-ratio mutual funds?  (See, for example, my Three-Minute Portfolio and Gold Star Portfolio.)  With commissions set aside, now I can consider Schwab’s index offerings, and they do look interesting, indeed.

Best of all, maybe, just maybe, others will follow suit.  (Are you listening, Vanguard?)  A little competition could be a nice plus to the average investor.

Full disclosure: Long in VFINX.

Disclaimers: This information is provided for educational purposes only.  It may not be an appropriate investment for you. See a financial professional if you have questions about your particular situation.  Investments in mutual funds are not FDIC insured and can cause loss of principal (you can lose money).

The graph below shows the Gold Star Performance in pink.  The blue line is a weighted average of the indexes.  The good news is that the overall markets went up 5.1%.  The better news is that, in the same time period, the Gold Star Portfolio is up 6.9%.

It’s only been three months.  That’s not much to hang your hat on, but I am encouraged that the gains were made fairly steadily.  Each component of the portfolio contributed to its overall performance — there wasn’t a “superstar” or a “dog.”

The graph below shows the relative value of each fund.

It would be more meaningful, though, to see how each component performed relative to its index. So the next graph shows how each component performed relative to its related index.  The graph below shows the value of each component divided by its related index.  A value of one means that a component did as well as its index.  The small cap fund (JSCVX) and the bond fund (TGMNX) performed the best relative to their respective indexes, but all four components did at least as well as their index.

In the above analysis, I used index funds to represent the indexes.  I looked for, but could not find, time-series values for the MSCI EAFE and for the standard bond fund benchmark (Barclays Capital Aggregate Bond).   (Drop me a line, please, if you know of an online source.)

For those of you who like your numbers, here’s the data in tabular format.  By column, it lists the Gold Star Fund name, category, the amount invested on 8/25 for a hypothetical $10,000 portfolio, the amount that each fund position would currently be worth and the overall return (not annualized).  The next column lists the index for each category, and its change over the same period, and the relative weight of each category.

In summary, it looks like the Gold Star Portfolio is off to a good start.  I’ll check it again in another three months and see how it’s doing.

Related Posts: The Gold Star Portfolio

Full disclosure: Long in UMBWX, AMAGX, and JSCVX.

Disclaimers: This information is provided for educational purposes only.  It may not be an appropriate investment for you. See a financial professional if you have questions about your particular situation.  Investments in mutual funds are no t FDIC insured and can cause loss of principal (you can lose money).

In his introductory comments regarding the nascent economic recovery, Kyle said:

Gone (hopefully) are the days of conspicuous consumption as sound personal finance principles come back in fashion.

While I am equally as hopeful that the economy has indeed turned the corner, I’m not so sure that we, the people, have really changed.

When surfing TV last night, I noticed there are as many silly shopping channels as ever.  Surely, if we had mended our spendthrift ways and sworn off late night calls to buy the latest in vegetable-fashioning technology, there would be fewer channels hawking the stuff.

I decided to create a metric for conspicuous consumption, or at least, The Index of Completely Useless Stuff (TICUS) comparing total revenue at QVC to the S&P 500 index over the last few years.

I pulled the QVC data from the annual reports of its parent company, Liberty Media (NASDAQ:LINTA) for the years 2004 – 2009 and normalized it to the 2004 revenue.  I did the same for the S&P 500 index.  QVC sales track the S&P remarkably well for the good years of 2004-2007.  It looks like we spent 2008 doing a little shopping therapy.

I think I’ll just mope on the couch admiring my new tennis bracelet with Diamonique(R) simulated diamond baguettes until this whole nasty recession thing just goes away.

Full disclosure: No positions.  And should you buy the QVC tennis bracelet (I don’t know why you would), I do not receive a commission.

Tip of the hat, also to Ironman at Political Calculations who picked my post on Dollar Cost Averaging as The Best Post of the Week, Anywhere! Grazie.

And a note about manners, Uncle Sam.  I don’t expect you to be overly touchy-feely, but after all, the people reading this document will have just suffered a traumatic life event.  Couldn’t you have started a little gently?  Perhaps, something like “the economy is going through difficult times, and many individuals like yourself have temporarily lost employment.”    But nooooh.  Your opening line is:  “Severance pay and unemployment compensation are taxable.”  Ouch.  Harsh.

Below is Google’s graph of the unemployment rate from the Federal Bureau of Labor Statistics.  The data is not seasonally adjusted, so the little upticks happen every January and June.  I assume January’s uptick is from the end of the Christmas seasonal employment, but why June?  I would think that would be the beginning of the summer employment season.

Here’s hoping that you don’t need this publication.

Full disclosure: No positions.

My post on being a solar cell skeptic was included in this week’s Carnival of Personal Finance hosted at Money Crashers.  Here are a couple of other posts I enjoyed:

• Madison at My Dollar Plan wrote about a calculator at Vanguard.com that compares the cost of an ETF vs. a mutual fund.  It’s a particularly thorough calculator that includes, for example, the bid-ask spread on the ETF purchase.  Now if only the calculator was available at a more general site that included more than just Vanguard’s funds.  (Hint:  Are you listening Google?)

• The Canadian Finance Blog had a solid post with financial tips for soon-to-be-parents.  As the Mom of a young son, the best suggestion I have to expectant parents is to not go overboard in buying stuff (Canadian’s tip #5).  When in doubt, resist the urge to buy.  Babies need a lot less than you might think — a few clothes and toys, but mostly your bountiful love and attention.  They grow out of the baby stage quickly, so thoughtful friends and family might consider buying books or toys that will be useful in 6 or 12 months.

My writeup on over-amped CD’s was included in the Money Hacks Carnival hosted last week at Green Panda Treehouse.  Other notable articles include:

• Mrs. Accountability’s first hand account with Credit Karma and tracking her credit rating.  I’ve been considering trying Credit Karma, but I just hate the idea of putting more of my personal financial information out there on the internet.  Maybe I should just get over it.

• Adam Baker wrote a thorough guest post over at Get Rich Slowly on 9 Ways You Can Knock the Socks off Your Next Landlord.  But really Adam, a rental resume?  I guess it would help in an unusual situation (like when you were trying to land a short-term lease in New Zealand), but it seems a bit overboard for more pedestrian situations.  Regarding rental situations, I’ll add a tip on getting back your deposit:  clean up a bit and then spray the better part of a can of Lysol in the apartment.  And then leave for awhile so you don’t have to breathe the stuff.  It’s never failed that the landlord walks in, takes a whiff, and is impressed.  Maybe the harsh chemicals temporarily blinded them to the bit of crud I left on the baseboards.  Whatever.  It’s worked every time for me.

• I read Bucksome’s post on the benefits of business travel with extra interest, as I am currently on a three-week exile business trip in California.  My favorite personal experience of the trip was introducing a colleague to the joy of tidepooling.  Once she poked a sea anemone and saw it react, she was hooked.  I apologize to all the sea creatures she has subsequently perturbed.

Image credit: brockvicky at Flickr.

Full Disclosure: I have accounts at Vanguard; otherwise, no positions.

Thanks to my new fave blog:  Chartporn.

Polycrystalline Solar Cell

Back in July, I announced the start of a new series of posts on Sustainable Energy, but I haven’t had a chance to actually write about the topic until today.  No time like the present, then, to launch into my favorite diatribe:  Solar Heresy.

My concern about solar cells — specifically silicon photovoltaic cells — is that it takes a great deal of energy to make silicon.

The starting material is sand (silicon dioxide, SiO₂) which is a wondrously stable material.  It takes a lot of energy to reduce SiO₂ to silicon.  It requires additional energy to purify the starting material into the superpure form of a true semiconductor.  To make the higher-efficiency single-crystal solar cells, one also needs to crystallize the material, requiring melting it at 2577 °F (1414  °C) and slowly pulling a crystal out of the melt.  Then there’s the energy needed to create the solar cell including patterning, doping, and annealing.  The solar cell then needs to be packaged, mounted, shipped, and installed.

Single crystal solar cell (At least, I think it's single crystal.)

How many years do I need to run a solar cell before I payback the energy consumed in making it?

I’m not the first person to pose the question.  In fact it has been addressed by a number of studies, with widely varying conclusions.  Bankier and Gale reviewed a group of assessments that ranged from 0.7 to 25.5 years.  Each study had different assumptions — mostly about the mounting frame and type of silicon (polycrystalline or single crystal).  It seems that none of the studies included the energy cost of the sand-to-silicon conversion.

For many years it was acceptable to start the energy cost calculation from polysilicon.  After all, polysilicon is a waste product from the manufacturing of silicon wafers for the computer chip industry.  But this changed in 2008 when several plants were put on line to produce polysilicon just for solar cells (YGE).  China is now a leading producer of polysilicon.  Last time I checked, the main source of energy in China is coal, much of it with a high-sulfur content.

The big picture is that we’re burning high-sulfer coal in China at tremendous rates to make supposedly “green” silicon solar cells.

Until someone can show me a conclusive study that solar cells are energy net positive, I remain a solar skeptic.

Science is sexy

So why all the fuss about solar?  Governments around the world are subsidizing solar production.

Rich nations like to fund solar because it looks like they’re creating high-tech jobs and advancing technology (ESLR, FSLR*).  Emerging nations fund it to try to jump-start their nascent technology infrastructure (CSUN, STP, SOL, TSL).

I’m very much in favor of governmental funding of the science behind alternative energy solutions, but subsidizing the manufacturing and installation undermines the market forces that should select the best solution in a technological meritocracy.  I would rather use Uncle Sam’s money to figure out which of the bazillion solar cell configurations currently under development (or on university sketchpads around the world) is the best solution, rather than burn our limited fossil fuels creating thousands (millions?) of metric tons of mediocre stuff right now.

So what should we do instead?

There are a hundred better ways to save and create energy today.  I’ll write about some of them in future posts in this series.

And now I’ll climb down off my soapbox.  (For now.)

*FSLR.  First Solar, Inc. makes CdTe photovoltaics, not silicon.  They do benefit from government support of solar programs.

Full disclosure: No positions.

Related Posts:

• Sustainable Energy:  If Uncle Sam Went to a Financial Planner…

Image credits: Clearly Ambiguous and toastforbrekkie at Flickr.

Why it’s a Useful Tool

The benefit of dollar cost averaging is this: by investing periodically, you’re more likely to buy shares when prices are low.  The low-priced shares give you the greatest return.

As an example, let’s look at investing in a stock for which the price was $10 in month #1, rose to $15 in month #2, fell to $5 in month #3, and returned to $10 in month #4.  A graph of the stock prices is shown below.

The stock begins and ends at $10, and the average share price is $10.

Let’s assume you buy $1,000 of the stock in each month.  A graph of the number of shares purchased looks like this:

The table below shows the value of the shares purchased each period at the end of the four months.  The greatest “bang for the buck” is from the shares that were purchased at the lowest price.  Note that although the average share price during the four months was $10, because so many shares were purchased at $5, the average price paid per share was $8.57 (=$4,000/466.7).

Since prices tend to fluctuate, buying periodically creates the opportunity to buy shares at lower-than-average prices.

Another advantage of dollar cost averaging is psychological.  It takes market timing out of the picture.  It is impossible to know whether the market is going up or down.  Buying periodically lets you forgive yourself for not buying at the absolute low.  You’ll buy at close to if not spot-on the market low.

Yet another advantage is that it meshes well with the age-old advice of  “paying yourself first.”  Most of us invest for retirement through employer-sponsored retirement plans, where we do, in fact, dollar cost average our investments every paycheck.  Periodic investing is a great way to save for retirement, education, or any other long term financial goal.

Why it’s a Bad Idea

Dollar cost averaging is sometimes suggested as a way to invest a lump sum.  Let’s say you just received a bonus of $4,000, and you decide to invest it in the stock described in the above table.  If you invest it all at once at $10/share, at the end of the four months, you’ll have $4,000.  If you invest it $1,000/month, as above, at the end of the four months, you’ll have $4,667.   But stocks tend to rise (despite the last few years), so the example above would be more realistic if the share price trended upwards.  If the final share price had risen to $11.66 (=$4,667/400), then the lump-sum investment would have been as profitable as the dollar cost averaged.

Transaction fees can quickly erode the advantage of dollar cost averaging.  No-load mutual funds with low minimum reinvestment values are a good choice to avoid this problem.

The financial advantage of dollar cost averaging can be overstated.  In the above example, the stock price is fluctuating 50% per month.  That’s not an investment — it’s a roll of the dice!  And our hypothetical investor only came out 17% ahead (=$667/$4,000).  Lower volatility results in a lower return, as seen in the graph below.  If the maximum and minimum price of the stock differ by only 10% of the average (instead of 50%), then the return from the dollar-cost averaged example above drops to less than 1%.

Why it’s a Marketing Gimmick

When financial companies tout the wonders of dollar cost averaging, they can use it to get you to sign up for a periodic investing program.  Whether this is a good thing or bad depends more on the underlying investment (low cost index funds vs. pork belly futures) than on the mathematics of dollar cost averaging.

Summary

Like many investing concepts, dollar cost averaging can be a useful tool, when appropriately applied.  Personally I think investing monthly (or bi-weekly or quarterly) is a good idea but primarily because it puts your investing on autopilot.  Put your thought into what to invest in and worry less about when to invest in it.

My thanks to David at Credit  Card Offers IQ for selecting my post as an Editor’s Pick for this week’s Money Hacks Carnival. Well, “Editor’s Pick” is my term — he categorized the top tier as “VISA Black.”  After all, it is a credit card site.

I liked several other posts at this Carnival:

• Mrs. Accountability at Out of Debt Again measured the energy consumed by some of her refrigerators and freezers (she seems to have several of each).  I am amazed at how efficient the newer model is.   She gets bonus points for collecting her own data, and I appreciate the extra data point taken “with the ice maker turned off.”  I’m pretty sure the older appliances are eligible for the current “Cash for Clunkers” appliance program.  If she’s going to continue using the additional units, I’d strongly encourage her to update.  (But do you really need two refrigerators and two freezers?)
• Ray at Financial Highway wrote a good three-part article on the probate process and its costs.  Probate is a topic that most of us avoid like ____ and taxes.  It’s good to know what really is beyond the end of the tunnel, past the bright light, well, at least for your heirs.

Beyond the Carnival, I found more recent posts of interest:

• Ron at Invest With An Edge maintains an ETF Deathwatch List, including an ETF that shorts platinum that trades less than $1,000 per day.  How can you keep such a fund open for 17 months?  It reminds me of Jim’s story over at Get Your Financial Ducks in A Row of loser mutual funds and how they are merged into winning funds to keep up appearances.  I’ve never thought of platinum as fodder, but the E-TRACS CMCI Short Platinum Excess Return ETN (PTD) seems to qualify.
• Tadas at Abnormal Returns provides more insight into ETF’s with his post on how larger ETF’s can have lower expense ratios even if they charge higher management fees.  The answer: Larger funds have lower average transaction costs.

Full Disclosure: No positions.

Image credit: Miss Barbara at Flickr.