My Money Blog

Bogle on Earning Dividend Income From Stocks

Jonathan — Wed, 16 May 2012 10:20:15 +0000

I was following an interesting discussion about living off of dividend income from stocks over at the Bogleheads forum, and member Beagler posted a link to a excerpt on income investing from the book Bogle on Mutual Funds.

You may know that John Bogle is the founder of Vanguard, now one of the largest fund organizations in the world and a pioneer in low-cost index funds. But what I really like about his books is his focus on common sense as the foundation for his advice. An example of this is his Gotrocks parable [pdf] adapted from Buffett. But back to this excerpt. He first points out how stock dividends have been a good way to create an income stream over the long run that grows faster than inflation.

Of course, by investing in common stocks you assume the risk that dividends will decline during periods of recession or depression [...] What is truly remarkable is that the record of dividend payments by U.S. corporations heavily favors rising dividends over declining dividends, almost irrespective of prevailing business conditions.

Here’s a chart of the historical S&P 500 annual dividend, inflation-adjusted. (Note this is absolute dividend, not dividend yield percentage.)

Image credit to Multpl.com, data from S&P and Shiller

Now, the problem is that you can also pay too much for dividends. He shares an example of how if you were comparing the dividend income from a diversified stock portfolio yielding 3% and growing at 6% annually or a long-term bond yielding 7% each year, it would take 26 years for the dividend income to total the bond income payments.

Unfortunately, defining what constitutes too high a price for dividends is a fallible exercise, one that must take into account not only the average historical valuations for stocks but the current valuations for other investment alternatives as well. History suggests that stocks are relatively expensive when the price paid for $1 of dividends is above $30 (i.e., a yield of 3.3%) and relatively cheap when the price paid is less than $20 (a yield of 5%). However, stocks may well be attractive at a yield of, say, 3.5% if there are compelling reasons to assume that their dividends will increase rapidly or if yields on other classes of financial assets are relatively unattractive.

In the example shown in Figure 2-5, buying a portfolio of stocks at a 3% yield rather than a bond at a 7% yield might not be a sensible investment, especially considering the incremental risk incurred in holding stocks. When stocks yield 4.5% and bonds yield 6%, that may be quite another story.

What would Bogle say right now, when the S&P 500 yield is ~2% and 30-year Treasury bonds are ~3%? The relative difference between the stock yield and the bond yield is less than 1%. I would argue that his last sentence would suggest stocks are actually preferred over other classes at this point.

Now, I’m not turning in a stock bull, and I still have about 70% stocks and 30% bonds in my portfolio, but this line of thinking makes me happier with my 70% in stocks. I’ve also been looking more at living off of dividend income in “early retirement”.

Bogle on Earning Dividend Income From Stocks from My Money Blog.

US Government Budget Breakdown: 50 Years Ago vs. Today

Jonathan — Wed, 16 May 2012 10:00:04 +0000

Below is a chart of the breakdown of government spending from 50 years ago, 25 years ago, and today. There are many differences between the political and economic environments of 1962 vs. 1987 vs. 2012, but I still think it’s still very interesting. Image credit to Lam Thuy Vo of NPR Planet Money, using data from the Office of Management and Budget. Click on chart to view original post and additional commentary.

US Government Budget Breakdown: 50 Years Ago vs. Today from My Money Blog.

SmartMoney Magazine Top Online Broker Rankings 2012

Jonathan — Tue, 15 May 2012 10:00:15 +0000

SmartMoney magazine has released the results of their Annual Broker Survey in its June 2012 issue. Check out the attached article for additional commentary and insight into rankings and methodology. You’ll find my own commentary on their findings below.

SmartMoney 2012 Top 10 Overall

Best in Commission & Fees Category (5 stars)

Scottrade doesn’t have a rock-bottem per-trade commission at $7 a trade, but it’s lower than average and they still win overall due to lower fees elsewhere – such as annual fees, inactivity fees, fees to use a phone, or close out an account.

Best in Customer Service Category (4 stars+)

One important factor here was speed of reply in addition to accuracy, and per the article all of the brokers surveyed now offer Live Chat online except for WellsTrade. I think TradeKing was the first to offer this feature?

Trends

Prices are still dropping, although more slowly. SmartMoney reports that in 1994 the average commission price surveyed was $28. Last year, $8.27. This year, only $7.96. Note that every single one of their top 10 brokers have per-trade stock commissions of under $10. I suppose anything higher would just seem greedy now.
Banking. More firms are adding banking features like debit cards and billpay to make it more likely that you’ll keep all your money there, joining firms like Merrill Lynch (Bank of America) and WellsTrade (Wells Fargo) which are already closely aligned and owned by big banks.
Smartphone and iPad apps. These are indeed cool, but the brokers really love them because they increase your trade activity.

Omissions

SmartMoney mentions the the Merrill Edge BofA deal, where you can get 30 free trades a month if you hold a combined $25,000 as cash in your *deposit* accounts only at Bank of America. However, they don’t mention the WellsTrade deal which offers 100 free trades a year if you hold a combined $25k across acounts including your brokerage balance, but instead requires a PMA checking account that you have to keep active with “in-person” activity like writing a physical check at least once a year.

WellsTrade and Zecco enter the top 10 this year, but Vanguard and OptionsXpress were bumped out. Vanguard was #7 in their 2011 rankings. There was no mention of what happened… I’d like to know if they were notably worse in some area or were simply excluded? OptionsXpress was bought by Schwab last year, but still runs an independent site.

Finally, there was no mention of the quantity and quality of the commission-free ETF lists offered by the majority of these brokers. If anything, I thought that was more important to mention than smartphone apps that scan product barcodes at the grocery store.

Finding The Best Broker For You

Don’t forget to compare these results with the Consumer Reports 2012 Rankings and the Barron’s 2012 Rankings. The key is to drill down to see which broker satisfies your personal set of needs the best, as there is a lot of fluff in there. This is why I’d rather look at specific sub-rankings more closely than the big headline “Top 10″ rankings.

Take the “Banking” category, which included as a criteria but some brokers just don’t offer banking services and I don’t think they should be penalized for it. Another area I don’t care about is “Research” tools. I’ve ever used a broker for research. Morningstar offers me everything that I need, otherwise I just look at Google/Yahoo quotes and look for related news and blog articles. I don’t see how a discount broker would have the time or resources for unique analysis. Just give me cheap trades with good fills, solid customer service when I need it, and track my capital gains and tax lots accurately.

SmartMoney Magazine Top Online Broker Rankings 2012 from My Money Blog.

Simplisafe Alarm Review: Cheap, Effective DIY Home Security

Jonathan — Mon, 14 May 2012 09:04:55 +0000

Old security system vs. New security system

I’ve never had a security system until now, other than our dogs which are all bark and no bite. I suppose the main reason for that is that I didn’t own enough property to be worth protecting. Burglars could take everything and it would perhaps fetch $600 total on Craigslist, which is less than what a year of ADT monitoring fees might cost.

Combine the baby nesting instinct with a rash of recent break-ins in our quiet neighborhood, and my mindset has changed. I wanted a home security system, but I didn’t want to pay $60 or even $30 a month for monitoring. The monthly bill is where companies make most of their profit. $60 a month = $720 a year = $7,200 over a decade.

After some research, we settled on a company called Simplisafe. Here’s a list of reasons why we chose it:

Wireless. Simplisafe uses GSM cellular technology, which means you don’t need a landline (which can also easily be cut by a criminal). Wireless monitoring was a requirement for me, and usually costs extra with other brands.
Affordable up-front cost. The total cost of equipment was about $400 to completely cover my 2,000 sq. ft. house. You could probably cover an apartment or condo for $200-$300.
DIY Installation. You order it, and install it yourself using the included 3M sticky tape. No drilling holes. Installation literally took less than half an hour. (Their YouTube video has it done in one minute.) If I moved, I just remove the sensors and buy some new sticky pads for $10.
Affordable monitoring fee with no contract. Again, the monthly fee is where your cost over time adds up, and you’re usually stuck in a 2 or 3-year contract. Simplisafe 24/7 monitoring is only $15 a month with no contract. You can add instant text message alerts for an optional $5 a month. That’s is pretty much as cheap as UL-listed monitoring will cost. If you prefer, you don’t have to buy monitoring at all and you’ll just have a loud audible alarm (you can also buy extra sirens) which may be adequate for condos and apartments.
Battery-powered. The base station has a rechargeable battery that will last up to 8 hours in a power outage. All the rest of the sensors use their own individual lithium battery. This means the entire system will work in a power outage or if the power is cut on purpose.
Expandable. Everything is a la carte on the website, so you buy just as many sensors as you need. They recommend a contact sensor for each entry into the house, and motion sensors to cover important areas.
UL-listed 24/7 Monitoring. On a cheap system, I imagined the monitoring system to be two minimum-wage employees taking turns in an apartment. But Simplisafe is certified by United Laboratories just like ADT and commercial fire alarm systems. Central station monitoring is provided by AMCEST Corporation (UL #S2299). This may also make you eligible for a discount on your homeowners or renters insurance.

Also see short write-ups in NY Times and CNN Money.

I’m happy with the system, and it’s been in use for over 30 days. I often forget to disarm the system before I get home, so when I get home I get warning beeps and have to enter the PIN into the keypad or use the key fob within 30 seconds. If I didn’t, they would call a listed phone number and ask for the secret passphrase, otherwise they would call the police. I don’t see how anyone could enter the house and take something valuable without setting off at least one sensor and having the police within a minute along with a loud alarm. Even if someone breaks in and immediately breaks the base station, the signal is already sent. When you’re at home, there is a “Home” setting where the contact sensors are armed but the motion sensors are not. We also purchased a “panic” button to place by your bedside for instant alarm activation.

I would say that one thing I’m worried about is that I am depending on the system to tell me if/when the individual lithium batteries run out of juice. But the base station makes a little beep whenever one of the sensors is set off, so you know it’s still working. The lithium batteries are supposed to last 5 years. I also do not get video monitoring. I could buy an additional DVR setup from Costco for a one-time cost, but I’m really not interested in that much surveillance. Finally, depending on your area you may need to file for a security system permit with a small fee.

For now, I’m paying the extra $5 a month since I like getting text messages whenever the system is armed and unarmed. You’ll also get an alert if there is a power outage or any sensor is set off. I might get rid of it once the cool factor wears off and I trust the system more.

You can get 5% off a Simplisafe system with code SAFENOW or $25 off with code LM25OFF (better unless your total is over $500).

Note: I bought the original Simplisafe. They just announced Simplisafe 2.0 for pre-order which has a few more features like a smartphone app and fancier sensors like glass breakage and carbon monoxide. The basic setup and technology is still the same, but you need the 2.0 base station to take advantage of the new features. However, the 2.0 costs $25 a month, so I’m sticking with the original for $15 a month.

If you already have a home security system, I would recommend looking into switching to a cheaper UL-listed monitoring service once you are out of contract like NextAlarm.

Simplisafe Alarm Review: Cheap, Effective DIY Home Security from My Money Blog.

Half-Off Movie Night: 2-For-1 Tickets with Visa Signature

Jonathan — Fri, 11 May 2012 11:57:54 +0000

Offer is back for 2012. Every Friday this summer from now until August 17th, you can get 2-for-1 movie tickets from Fandango.com if you have a Visa Signature card and use it to buy the tickets. You can also get $5 off $25 in Fandango Bucks gift cards for the rest of the week.

Tickets must be purchased on a Friday for a Friday show time. Limit 1 movie ticket per Visa Signature card purchase, per 30 day period following the date of a purchase in connection with this offer.

Check out your credit cards, you may be surprised to have one and not know it. If you’ve gone after some of the juicy $500+ sign-up bonuses this year, you probably have one of these cards.

Chase Sapphire Preferred with $500 in travel bonus = Visa Signature card
British Airways card offering 100,000 bonus Avios points = Visa Signature
Hyatt Credit Card with 2 free hotel nights at any Hyatt in the world = Visa Signature

If you are a member of AMC Stubs, you can get the Fandango service fee waived as well at those theaters (membership costs $12 a year, they have discounted it previously). Time to see The Avengers!

Half-Off Movie Night: 2-For-1 Tickets with Visa Signature from My Money Blog.

What’s The Record For Multiple Mortgage Refinances Within a Short Period?

Jonathan — Fri, 11 May 2012 10:04:18 +0000

…because it looks like I’m getting another one. After seeing repeated news articles titled “Mortgage rate set record lows”, I’m now looking at refinancing to a 15-year fixed mortgage for 3% with all lender closing costs covered. I’ve seen multiple quotes for under 3% and getting under or close to zero in net fees.

Here’s a chart of the historical mortgage rate averages, courtesy of HSH.com. It includes the 30-year fixed, 15-year fixed, and the 5/1 30-year adjustable. Since I bought my home less than 5 years ago, 30-year fixed mortgage rates have ranged from a high of 7% to just above 4% today.

Even though I stopped trying to predict mortgage rates a while ago, I still find it hard to believe that I started with an interest rate of over 6% and now could be paying under 3% with a no-cost refi.

Alternative investments
If I successfully close on this loan, I don’t know if I’ll be aggressively paying it down as much as before. It’s important to note that the risk levels are not the same for the options below, but the interest rate environment is finally tipping to the point that I’d consider investing instead of paying off 3% debt.

I could buy super-safe US Treasury bonds, with yields at ~2.2% for a 15-year maturity. Interest on Treasury bonds are exempt from state income taxes.
I could buy a municipal bond fund like the Vanguard Intermediate-Term Tax-Exempt Fund (VWIUX), which invests in investment-grade municipal bonds. The fund holdings have a duration of about 5 years and yields nearly 2% federally tax-exempt. If you’re in the highest tax bracket, that would be an effective yield of ~3%.
If I lived in California, I could buy shares of the Vanguard California Long-Term Tax-Exempt Fund (VCITX) with 2.60% yield that is exempt from both federal and state income taxes, with a duration of 6.4 years. That could be an effective yield of well over 4%.
I could take on more risk and buy shares of mature, dividend-paying companies. The Vanguard Equity Income Fund (VEIRX) has a current dividend yield of nearly 3%.

I’m going through a local mortgage broker, but you can find similar rates over at Amerisave. If the “all lender fees and points” is negative, that means the credit they give you is more than all closing costs including appraisals and title insurance. (Anyone use them before?) Compare that with rate quotes from and Quicken Loans.

What’s The Record For Multiple Mortgage Refinances Within a Short Period? from My Money Blog.

Use Multiple Motivations For Frugality: Environmental, Simplicity, Health, Spiritual, Philanthropy

Jonathan — Thu, 10 May 2012 10:27:27 +0000

Reaching financial independence faster boils down to either increasing your income or decreasing your expenses. This is why so many books and blogs focus on frugality and saving money. However, too often the term frugality conjurs up the image of an old woman eating gruel while separating her double-ply toilet paper into single-ply.

After an interesting conversation about how vegetarians often have different motivations (religious, ethical, environmental, amongst others), I thought about the many driving forces that can result in frugality.

Purely Financial
Let’s start hypothetically, and say that all you care about is money and you cut expenses purely because you would rather invest that dollar and have it produce income for you. You could move into a smaller house, buy a fuel-efficient car, walk or use public transportation instead of driving when possible, make dinner from scratch at home instead of ordering dinner at the restaurant, and cancel the cable TV service. But if you won the lottery tomorrow, you’d drive your Hummer everywhere, eat at Morton’s Steakhouse once a week, and subscribe to everything from ESPN to HBO and add in the 5-DVD Netflix plan to top it all off.

Environmental / Green
But wait, you are rather concerned about preserving natural resources, so perhaps you’d still walk a little more and buy a fuel-efficient car. A smaller house would probably use up less electricity and heating oil as well. Using raw ingredients to cook uses less wasteful packaging made of plastic and styrofoam.

Simplicity / Minimalism
If you want to reduce chaos and clutter in your life, then you may still have a reason to move into a smaller home since that’ll force you to get rid of some extra things. Do you really need a big car, or is a hatchback or station wagon enough? Hey, the Europeans make do, as gas costs $10 a gallon there.

Physical Health
Walking or biking is much healthier than driving, so you won’t need that Hummer as much. Medical studies have shown that the more time you spend sitting, the shorter your lifespan, so you don’t want to be that TV-watching couch potato.

Self-Empowerment
Sure, you could pay someone to cook your food, but wouldn’t you feel great if you knew how to brine a turkey, make your own beer, or grow your own vegetables? This might also apply to whatever other skills you want to pick up. Home repair, appliance repair, auto repair, landscaping, investing…

Religious / Philanthropic
The sooner you reach financial independence, the sooner you can start giving more back to society and serving others instead of trying to make money.

So in the end, you could be the same person, with or without a big pile of money. (Maybe not. I’d get some cool toys.) A more practical idea would be to use these other motivations to make saving money more appealing. You’re not buying a compact car because you’re cheap, you’re being minimalistic and environmentally conscious. You’re not skipping Olive Garden because you’re broke, you’re doing it because you know how to can make your own risotto at home that’s even better. Find a different (higher?) cause. (The extra thousands of dollars growing in your brokerage account won’t hurt either.)

Use Multiple Motivations For Frugality: Environmental, Simplicity, Health, Spiritual, Philanthropy from My Money Blog.

Blue Cash Preferred from American Express Review: $150 Bonus + 6% Back on Groceries

Jonathan — Wed, 09 May 2012 09:27:18 +0000

(Updated with Amazon confirmation info.) The Blue Cash Preferred from American Express Card offers a whopping

6% cash back on purchases at supermarkets
3% cash back on gas and department store purchases
and 1% cash back on everything else.
6% back on Amazon gift certificates bought via supermarkets. Finally, don’t forget that you can buy a lot of nice gift cards at popular stores at supermarkets – I’ve seen Home Depot, Best Buy, Macy’s, Sears, and various gas stations and even Amazon.com. (Update: Confirmed to work for Amazon gift cards bought at Safeway stores. I bought it in along with other grocery purchases.)

In addition, there is now a $150 welcome bonus for new cardholders when you spend $1,000 or more within your first 3 months. The card has a $75 annual fee, but keep in mind that spending $25 a week on groceries, that 6% back will earn enough cash ($78) to pay for the annual fee by itself. The Blue Cash Preferred also has 0% APR interest on purchases for 12 months.

The regular Blue Cash Everyday from American Express gives you $100 cash back bonus after spending $1,000 in eligible purchases in the first 3 months, pays 3% cash back on purchases at supermarkets, 2% cash back on gas and department store purchases, and 1% cash back on everything else and has no annual fee.

If you spend less than a combination of $175 per month on groceries and $100 on gas per month, then the Blue Cash Everyday would give you more money back overall. Otherwise, the Preferred above works out better. Both cards offer the simplicity of cash back on the major “need” categories of groceries and gas, great for those that don’t like dealing with rotating categories or don’t travel very much.

If you get some sort of application error, you should try clearing your cookies or using the Private Browsing or Incognito option in your web browser. This worked for me to see the application page.

Blue Cash Preferred from American Express Card application link

Blue Cash Preferred from American Express Review: $150 Bonus + 6% Back on Groceries from My Money Blog.

SunTrust Bank & Delta Check Card – 30,000 Bonus Miles Promotion

Jonathan — Wed, 09 May 2012 09:22:24 +0000

SunTrust Bank is offering 30,000 Delta Skymiles for opening a new checking account by 6/30 with qualifying direct deposit and choosing the Delta SkyMiles World Check Card. Available in AL, AR, FL, GA, MD, MS, NC, SC, TN, WV, VA and Washington, D.C. The debit card does have a $75 annual fee but do you get 1 mile per $1 spent (for those that avoid credit cards). However, you don’t get the free checked bags or Priority Boarding of the Delta American Express credit card.

Still it’s not a bad deal, $75 for 30k miles if you live near a SunTrust branch. Some of the text suggests that you can get 15k of those miles with just the new checking account and no debit card, but it’s not entirely clear. Direct deposit must be $100 or more. The “Balanced Banking” checking account option has a $12 monthly fee, waived with a $3,000 minimum balance across Suntrust accounts. Selected fine print below:

Checking Account Offer: Open a new qualifying SunTrust checking account with qualifying Direct Deposit and select the Delta SkyMiles World Check Card to receive 15,000 bonus miles. The checking account must be opened between 5/1/2012 and 6/30/2012. The offer is only available on new SunTrust checking accounts and cannot be combined with any other offer. To qualify for the 30,000 bonus miles offer, a Delta SkyMiles World Check Card must be opened with the checking account. Please allow 6-8 weeks for miles to be credited to your Delta SkyMiles account after the first qualifying Direct Deposit is made, which must be made by 9/30/2012. A qualifying Direct Deposit is a direct deposit of your salary, pension, Social Security or other regular monthly income of $100 or more per deposit electronically deposited to your account during statement cycle by your employer or an outside agency. Transfers from one account to another or deposits made at a banking location or ATM do not qualify as a Direct Deposit.

SunTrust Bank & Delta Check Card – 30,000 Bonus Miles Promotion from My Money Blog.

Hedging Gas Prices Revisited: Gasoline ETF UGA vs. Retail Gas Prices

Jonathan — Tue, 08 May 2012 10:00:40 +0000

Summer is coming, and that often mean rising gas prices. A comment from reader Thadf reminded me of an old post from late 2008 about hedging gas prices using ETFs. He points out that looking back, using the United States Gasoline ETF (UGA) was a much better hedge than using alternative ETFs like the United States Oil ETF (USO) and iPath S&P GSCI Crude Oil TR Index ETN (OIL) which tracked crude oil futures instead of unleaded gasoline.

All of these ETFs use futures to try and match the price movements of a commodity, but they don’t actually hold the commodity itself as storage and transaction costs would be cost-prohibitive. The concern back then was that UGA only started trading in February 2008 and was thinly traded so the bid/ask spreads could be wide and NAV premiums could be high. Today, UGA still has significantly net assets than OIL or USO.

Here’s a chart of the past 3-year performance of USO vs. OIL vs. UGA, via Google Finance:

Here’s a chart comparing the past 3-year price change of UGA vs. gasoline prices at the pump. UGA daily closing prices from Yahoo Finance, national average gas prices from the US Energy Information Administration.

The tracking looks better than expected, considering the concerns I’ve read about contango and hedge fund manipulations. UGA’s expense ratio is 0.80%. I wonder how much trouble it would be to trade gasoline (RBOB) futures directly on the NYMEX.

Is hedging gas prices worth the effort for the average consumer? Probably not. Unless you are especially sensitive to a price spike for some reason, any money is better invested for the long run. But if that’s your goal, your better option would appear to be UGA.

Hedging Gas Prices Revisited: Gasoline ETF UGA vs. Retail Gas Prices from My Money Blog.

Maximizing Your Maternity and Paternity Leave Options

Jonathan — Mon, 07 May 2012 10:00:50 +0000

As new parents-to-be, we have been exploring our options for paid and unpaid family leave from work. This is not meant to be an exhaustive list, but I was pretty surprised by all the possible permutations that you could do. I would add that while knowing your legal rights is important, I also support the idea of working with your employer and co-workers to make the process easier on everyone.

Your Work Contract
Most employers offer their full-time salaried worker’s some length of paid maternity leave, and it’s usually spelled out clearly in the lawyer-ese language of your work agreement. A few employers even offer paid paternity leave. Making an appointment to discuss all your options with Human Resources can be time well spent. Keep in mind that you are subject to the laws of the state where you work, not where the company is based.

In addition, you may be eligible for a longer unpaid leave-of-absence. For example, a big company may allow you up to one full year of leave and your same job (or comparable) will still be yours when you come back.

Short-Term Disability Insurance
Depending on your insurance plan and local laws, being pregnant or taking time off to bond with a new child may be covered under short-term disability insurance. This means you may be eligible for an additional period after your paid maternity leave where you will get a disability benefit that is somewhere around 50% of your normal pay (subject to caps).

Family and Medical Leave Act (FMLA)
The FMLA entitles an eligible employee to take up to 12 workweeks of job-protected unpaid leave for the birth or placement of a child, to bond with a newborn or newly placed son or daughter, or to care for a son or daughter with a serious health condition. You may or may not be required to use up your paid vacation days first. To be eligible for FMLA benefits, an employee must:

work for a covered employer;
have worked for the employer for a total of 12 months;
have worked at least 1,250 hours over the previous 12 months (~24 hours per week average); and
work at a location in the United States or in any territory or possession of the United States where at least 50 employees are employed by the employer within 75 miles.

Under some circumstances, employees may take FMLA leave intermittently – taking leave in separate blocks of time for a single qualifying reason – or on a reduced leave schedule – reducing the employee’s usual weekly or daily work schedule. If FMLA leave is for birth and care, or placement for adoption or foster care, intermittent leave is subject to the employer’s approval. To get that permission, you should approach your employer in a way that suggests that taking the leave in chunks would disrupt the office operations less than taking all 12-weeks at once. For example, you may propose a 4-day workweek over a period of several months to a year, as opposed to leaving entirely for three.

State-Specific Family Leave Laws
Each state can have their own separate family leave and/or disability laws that may grant you more time and/or pay. Running a Google search for “[Your State] Family Leave Act” or “[Your State] Family Leave Laws” should locate the appropriate information.

Let’s take the most populous state and the California Family Rights Act (CFRA). Under federal law, any leave taken for a pregnancy-related disability is part of your FMLA 12-week limit. However, in California, an eligible employee who is disabled on account of pregnancy, childbirth, or related medical conditions is entitled to take Pregnancy Disability Leave (PDL) for up to four months. In addition to that, an eligible employee could then take 12 weeks of family leave to care for and bond with a new child under FMLA/CFRA. That adds up to a total possible leave of 7 months.

Sources: U.S. Department of Labor, CA Dept. of General Services, CA Fair Employment and Housing Commission

Maximizing Your Maternity and Paternity Leave Options from My Money Blog.

Best BPA-Free Food Storage Containers For Baby Food and More

Jonathan — Fri, 04 May 2012 11:13:23 +0000

If you’re like me, you have a cabinet in your kitchen stuffed with a scratched and stained mess of Gladware, Ziploc, or Tupperware food containers and an even larger stack of lids that never seem to fit. I even remember telling myself to stick with one brand and three sizes, but after years of dinner parties, brown-bag lunches, and outdoor potlucks, entropy has kicked my butt. Add in the baby on the way, and I wanted to reset and replace with BPA-free (linked to cancer and hormonal disorders) containers and perhaps buy additional ones for storing baby food.

The creators of America’s Test Kitchen ran another test (like with the knives) of the major brands of plastic food containers including Gladware, Ziploc, Rubbermaid, Sterilite, OXO, and more. All were BPA-free and they used the rectangular/square 8-cup sizes. They froze them, put stinky food in them, microwaved them with chili, washed them repeatedly, submerged them in water to test for leaks, and more. Being frugal doesn’t mean just buying the cheapest thing out there, it’s about finding the best value for the price.

The winner? For plastic food containers, the winner was Snapware MODS (update: now “Snapware Airtight”) which featured good performance across all categories. However, the reviews on this 38-piece set of Snapware Airtight for $40 shipped at Amazon.com seem to be worsening over time, and look at the pictures the constructions does look slightly less “beefy”. I did find a cheaper 20-piece set for $15 shipped at Wal-mart that may be worth trying out. It may be better to recognize that most of the better performing containers use the kind of seal that Snapware uses with snap-down “wing” flap, silicone gaskets, and a lid with full wraparound ridges.

For glass containers, the winner was Kinetic Go Green Glasslock, which is also sold under Glasslock by Snapware. Made of microwave-safe tempered glass, this type of container seems to be enjoying a comeback due to all the concerns about microwaving plastic. I have to say, it does sound like a great idea as long as you don’t drop things a lot (like me). Freezer safe. Add in that airtight lid, and I’m sold.

The main drawback beside fragility is the additional cost. You can buy their 16-piece set for $70 at Amazon.com including free shipping, although I’d rather buy a six-piece set of a medium-size for about $30-$40. All seem to have overall good reviews, and I also noticed that people seem to really love these cute Wean Green Wean Cubes Baby Food Glass Containers, which are also made by Glasslock (Snapware). Hopefully these can last a long time. Besides, there’s always that baby registry…

Best BPA-Free Food Storage Containers For Baby Food and More from My Money Blog.

Sell in May and Go Away? How About Remember To Rebalance In May and November

Jonathan — Thu, 03 May 2012 09:31:20 +0000

“Sell in May and go away” is a rhyming market-timing slogan that may never… go away. Here’s a graphic that seems to support the idea that stocks have historically performed much worse between May and October than the rest of the year. Credit to Reuters/Scott Barber via Abnormal Returns. Data set is the MSCI World Index from 1971-2011.

Meanwhile, The Big Picture shares a bunch of graphs from TheChartStore that don’t make it look so clear-cut. Looking at this one, why shouldn’t just bail out every September? Data set is the S&P 500 from 1928-2011.

Larry Swedroe tests the theory out using 30-day Treasury bonds as the alternative investment in this CBS Moneywatch article:

He looked at returns through 2007 from six start dates since 1950. “Sell in May” beat “buy and hold” if you started investing in 1960, 1970 and 2000, but not if you started in 1950, 1980 or 1990. “It’s pure randomness,” Swedroe says. “How would you ever know when to start?”

Throw in the tax implications of all that buying and selling, and I agree. Do you really want to base your investing strategy on a data-mining result that has no logical explanation behind it? Sounds too much like driving a car using only your rearview mirror.

However, Tadas Viskanta of Abnormal Returns has what I think is a reasonable compromise – what if you just decided to rebalance your portfolio at the very end of April and the very end of October? You should rebalance your portfolio regularly anyway, so why not do it twice a year, six months apart. If your target asset allocation is 70% stocks/30% bonds and now you’re at 80/20 due to the recent run-up, why not go back to 70/30. If things end up at 60/40 in November, then again, go back to 70/30.

You could call it “Remember to Rebalance in May and November”. It even rhymes! If “sell in may” really works, you’ll get some benefit from this mean reversion wackiness. If it’s just noise, you portfolio shouldn’t theoretically be hurt any more than picking other months.

Sell in May and Go Away? How About Remember To Rebalance In May and November from My Money Blog.

Chase Exclusives: 10% Extra Cash Back on Chase Freedom, 1% Cash Back on Chase Mortgage Payments

Jonathan — Wed, 02 May 2012 12:46:44 +0000

Chase Exclusives is a program that encourages you to open a Chase checking account whenever you have any other relationship with Chase. I closed my Chase (formerly WaMu) account a while back after they slowly started making it harder to keep as a secondary account, but some of these perks actually seem pretty good. I remember hearing something about them, but never actually took a good look at the details until now.

10% Extra Cash Back + 10 cents per purchase on Chase Freedom
The Chase Freedom Visa card is a popular cash back card that features 5% cash back on rotating categories and 1% back on everything else. This quarter you’ll get 5% back on all purchases at grocery stores (up to $75 cash back a quarter based on $1,500 in purchases). Check out my page on 5% cash back credit cards for more info.

However, if you have a Chase checking account, they will add an additional 10 points + 1 extra point for every $10 in purchases. Since 100 points is worth $1, that’s basically saying every purchase on the Chase Freedom earns 10 cents plus 1.10% cash back and every 5% category purchase earns 10 cents plus 5.1% cash back. For someone like me that puts everything on their credit card for easy expense tracking, that can add up especially with smaller purchases.

Currently, the Chase Freedom has a promotion offering $100 bonus cashback if you sign up and make just $500 in purchases in your first three months.

1% Mortgage Cash Back program
If you have both a Chase checking account and a Chase mortgage, you can earn 1% cash back on your mortgage payments (principal + interest). You have to have the checking account open before the mortgage closing, and enroll in automatic payments from said account within 60 days of closing. If you take the option of having your 1% cash back applied towards your loan principal, that works out to shortening a 30-year fixed mortgage by 9 months if you stick with it. (They really should make this an option on other mortgages, paying just 1% extra instead.)

I don’t know how good Chase mortgage rates are, but I’d probably get a quote now from Chase just to see if they are competitive. Overall though, it would probably be better to just get a better interest rate and pay extra towards your principal as if you had a higher mortgage (takes discipline).

$150 New account opening bonus
Thinking about opening a new account? You can also get a $150 bonus through this link if you open a Chase Total Checking account with $100 and set up direct deposit (new customers only). To avoid monthly service fees, you must do any one of the following each statement period:

Have monthly direct deposits totaling $500 or more made to this account, or
Keep the daily balance in your checking account at or above $1,500, or
Keep an average balance of $5,000 or more in your checking and other types of qualifying Chase accounts.

Chase Exclusives: 10% Extra Cash Back on Chase Freedom, 1% Cash Back on Chase Mortgage Payments from My Money Blog.

Obihai + Google Voice = Free VoIP Phone Until End of 2012

Jonathan — Wed, 02 May 2012 10:44:04 +0000

Update 5/2/12: Obihai is offering free refurbished units to members of the United States Armed Forces (Army, Navy, Marine Corps, Air Force & Coast Guard) that are stationed outside of the US, while supplies last. A nice gesture. More information here. Other than that, overall these boxes continue to have great reviews online.

Are you still looking for a home phone solution that’s cheaper than a landline? A new startup called Obihai has started making ATA VoIP boxes that are actually easy to set up. You buy their box, add in Google Voice (GV) service, plug in a normal landline phone, and it will use GV to make and receive phone calls. No computer required.

Now, Google Voice/Gmail has promised free long distance within the US and Canada for the rest of ~~2011~~ 2012. Past that, it’s unknown so I wouldn’t want to commit too much money upfront, even though the box is compatible with other VoIP providers.

They also offer number porting from cell phones now for $20. If you have a landline phone number you wish to port over, you’ll have to port it over to a cell phone first, and then port it over to GV. (Don’t ask me why.)

Available at Amazon, the OBi100 model is currently $43.99 with free shipping, and all you need to get yourself set up. They also have a slightly more expensive OBi110 model that allows you to bridge a traditional POTS landline with your new VoIP gadgetry, which I figure most people won’t need if the point is to save money by ditching your landline in the first place.

Obihai + Google Voice = Free VoIP Phone Until End of 2012 from My Money Blog.

Will Housing Prices Track Inflation Over The Long Run?

Jonathan — Tue, 01 May 2012 08:19:59 +0000

The Calculated Risk blog has shared an updated graph of inflation-adjusted housing prices through 2011, based on Prof. Shiller’s data.

Mr. McBride also digs a little deeper and argues that because Shiller changed up the data series he was using in 1987, the true slope of the line should be a little more slightly positive. Using the original data series would result in an overall slope of housing prices increase slightly faster than inflation (1.5% per year) vs. the Shiller line (0.5% per year). His conclusion:

In many areas – if the population is increasing – house prices increase slightly faster than inflation over time, so there is an upward slope for real prices.

This reminded me of this chart via Sober Look that compared the US age distribution in 2000 and 2010 (US Census). The Boomers are getting old, and there is a little gap before the Echo Boomers come in. How will this affect housing prices in the future?

To me, the main takeaway is still that housing prices over the long run don’t rise much faster than inflation. This is not unexpected, as the cost of housing is by definition a big component of inflation. Of course, housing also provides dividends in the form of rent. So if you actually owned a house instead of most people “owning” a house with a big fat mortgage, your overall return on investment would be much better. I can’t wait to really own my house so I can earn that imaginary (imputed) rent.

In reality, what many people seem to do nowadays is hold on and rent out their properties for less than their mortgage payment and hope for price appreciation. This might work I suppose, and one could argue from the graph that prices overall are now close to historical averages. There are now some places where you can buy a house that rents for more than the mortgage payment, but unfortunately not anywhere near me (unless we’re talking huge down payment). As for me, I suppose I’ll just stick with owning low-maintenance REITs and getting my “rental income” that way.

Will Housing Prices Track Inflation Over The Long Run? from My Money Blog.

Ally Bank Teases Us With eCheck Deposit Via iPhone App

Jonathan — Tue, 01 May 2012 04:53:52 +0000

Ally Bank released their new mobile banking apps for Apple iOS and Android OS smartphones today, but the functionality is still rather basic. You can check your balances and transfer funds between your Ally accounts.

What caught my eye was under the “Coming Soon” section… the ability to finally deposit checks by taking a picture of them on your smartphone and zapping it into the cloud. You can currently already do remote check deposit via scanner, but I fail to see why the smartphone app is taking so long. Chase does it, Fidelity does it, even PayPal does it. Anyhow, I hope it comes soon to my “everyday” bank account (and part of my emergency fund), for now all I have is this teaser screenshot.

(p.s. Ally, there’s no need to spend research and development money on an ATM locator, because with the unlimited fee rebates, any ATM is my ATM! These days you’re never more than 100 ft away from an ATM anyway.)

Ally Bank Teases Us With eCheck Deposit Via iPhone App from My Money Blog.

Why Mutual Fund Fees Are Important But Often Ignored + More Vanguard Fee Savings

Jonathan — Mon, 30 Apr 2012 09:33:28 +0000

I am often reminded when talking with friends and coworkers that most people don’t understand the important of low fees when it comes to investing. The Vanguard blog had a recent post exploring why a 1% expense ratio is much more significant than it appears. The problem is that expense ratios aren’t charged to you directly as a line item like an overdraft fee or a monthly bill – it is quietly taken away in tiny pieces from your returns which makes it easy to ignore.

For another, fees are expressed as a fraction of assets. A 1% equity management fee seems small and reasonable. “One percent” just sounds tiny – as in “there’s a 1% chance of rain tomorrow.” But suppose you reframe fees in other terms. Suppose you expect a stock fund to earn 8% over the long run. Assuming inflation of 3% and a tax rate of 25%, you’re in effect paying one out of every three dollars of future expected return in costs.* A fee of “one third of all of the money you make” sounds like a lot, especially when many money managers could do worse than the market averages.

Basically, if you are expecting to earn 3% a year above inflation after taxes, paying 1% to a manager is like paying 1/3rd of all your earnings. As you can see below, I could own the S&P 500 for as little as 0.05%. Things get even worse when looking at bond funds and their tiny yields.

Research has shown repeatedly that costs matter more than star ratings and past performance. The lower the expenses, the less headwind year in and year out.

With that knowledge, Vanguard has announced another round of fee cuts! Vanguard says the price drops are a result of them being client-owned and passing on any savings resulting from increased assets. Others speculate that it’s a reaction to competition from other low-cost ETF providers like Schwab. Either way, investors win. The drops are pretty small, but to me it’s like getting a little guaranteed boost in returns that will compound every year. A selected sample of funds with fee drops below:

Funds In My Personal Portfolio	Old expense ratio	New expense ratio
Vanguard 500 Index Fund (Admiral/ETF Shares)	0.06%	0.05%
Vanguard Total Stock Market (Admiral/ETF)	0.07%	0.06%
Vanguard Small-Cap Value Index Fund (ETF)	0.23%	0.21%
Vanguard Small-Cap Value Index Fund (Investor)	0.37%	0.35%
Vanguard Total Bond Market Index Fund (Admiral/ETF)	0.11%	0.10%
Vanguard Inflation-Protected Securities Fund (Investor)	0.22%	0.20%

Admiral shares are now open in most index funds with a $10,000 investment, and you can always start like I did with the Investor shares at $3,000 and convert to Admiral when the balances grow. ETFs usually offer the same low expense ratios as Admiral shares, but you should also keep in mind the cost of trade commissions. Buying Vanguard ETFs and mutual funds directly with an account with Vanguard is free. TD Ameritrade also offers commission-free trades on a wide variety of Vanguard ETFs (along with other providers).

Over the last year or so, Vanguard has made several moves that lowered my portfolio costs. They added Admiral shares, removed purchase fees on their Emerging Markets fund, and dropped expense ratios again.

Why Mutual Fund Fees Are Important But Often Ignored + More Vanguard Fee Savings from My Money Blog.

Earn 750 United MileagePlus Miles For Joining MyPoints.

Jonathan — Mon, 30 Apr 2012 04:36:08 +0000

Just received this e-mail, does not appear to be targeted. Earn 750 bonus MileagePlus miles when you sign up for MyPoints at their link and keep your membership active for 30 days.

MyPoints is a program where you get points for reading marketing e-mails, taking surveys, and they are also a shopping portal like eBates. I used to use them but haven’t for a few years as the points have gotten even more devalued to the point that I don’t bother accumulating them.

But 750 United miles is worth taking 2 minutes to sign up with a temporary anti-spam e-mail address and forgetting about it. 750 miles is 3% of a 25k roundtrip award.

Earn 750 United MileagePlus Miles For Joining MyPoints. from My Money Blog.

Amazon Instant Video Free $3 Credit with Twitter Link

Jonathan — Sun, 29 Apr 2012 04:52:31 +0000

Amazon is giving away a $3 credit towards Amazon Instant Video purchases if you connect your Amazon and Twitter accounts. Amazon will make you follow them @amazonvideo and tweet a message about the promo. It kind of worried me giving so much control over to Amazon, but you can always remove the link afterwards. Must tweet by May 1st, use credit by May 31st.

While you’re at it, follow @mymoneyblog as well. I do share links and smaller deals on Twitter that you won’t see on the blog. Tweets are re-syndicated on my Facebook page as well.

Amazon Instant Video Free $3 Credit with Twitter Link from My Money Blog.

Link Digest: Mixing Work & Passion, Invest in Memories, Stable Value Fund Warning, and More

Jonathan — Fri, 27 Apr 2012 09:39:13 +0000

Here are some more links worthy of sharing:

The Overjustification Effect
A smorgasbord of behavioral psychology that questions the idea that there is nothing better in the world than getting paid to do what you love. This is a very complicated topic but the article makes some good observations.

Memory as a Consumer Durable (Atlantic)
Another twist on the whole “buy experiences, not things” theory. What if you treated a memory as “consumer durable” good much like refrigerators, furniture, or a car? In similar ways, they provide constant satisfaction and/or pleasure, and they last a very long time. In that case, should we acquire them while we’re young so we can enjoy them the rest of our lives?

Stable value 2.0, fewer investor guarantees (Reuters)
If you own a stable value fund in your retirement plan, you should check to see if changes were made to any of its principal guarantees.

The 401(k): Americans ‘just not prepared’ to manage their own retirement funds (WaPo)
401k were designed to be a supplemental account to pensions, but now they are a replacement. If you know what you’re doing, it’s good, and it’s nice because you can take the money with you across jobs. But the total account balances are nowhere near what people need to retire as a whole. Maybe we need something else.

“If the 401(k) is supposed to be the primary retirement vehicle for the average American worker, then it needs to be consistent with the information and financial ability of the average American worker, who is just not prepared to manage funds like that over the course of a lifetime.”

GMO 2012 1st Quarter Letter
The most recent letter from Grantham talks some sense about why most managers can’t afford to have the proper long-term mentality for market-beating returns.

…ignoring the volatile up-and-down market moves and attempting to focus on the slower burning long-term reality is simply too dangerous in career terms. Missing a big move, however unjustified it may be by fundamentals, is to take a very high risk of being fired. Career risk and the resulting herding it creates are likely to always dominate investing.

CarrierCompare: The iPhone app your carrier doesn’t want you to see (CNN)
An iPhone app that takes data (signal strength, response time and speed) from users and analyzes it together to find which carriers have the best service and coverage for any given area. (Update: Apple has since removed it from the App Store.)

Link Digest: Mixing Work & Passion, Invest in Memories, Stable Value Fund Warning, and More from My Money Blog.

List of Cheap, Basic Prepaid Cell Phone Plans – Under $10 a Month!

Jonathan — Thu, 26 Apr 2012 08:07:02 +0000

Nowadays, it seems everyone has a cell phone. What if you just want a really basic phone plan for light calls (“are you here yet?” “where are you?”) and emergencies? Or you may be thinking about getting an additional phone for grandparents, kids, or other relatives. The good news is now you can get a frugal plan for less than $10 a month.

Here are the cheapest prepaid cellular plans with nationwide coverage assuming light usage. The benefits of prepaid are that there are no credit checks, no long-term contracts, and most phone taxes other than sales tax are already rolled into the cost instead of an extra $5 a month. They may even work with smartphones for people who are okay with data usage only where there is WiFi coverage (potentially home, office, and many cafes).

You may have never heard of some of these names before, but if you look under the hood you may find they use the same cell towers as the big companies (AT&T, Verizon, Sprint) all at a fraction of the cost.

T-Mobile
With a T-Mobile Prepaid plan, you can buy 1,000 minutes for $100 that will last an entire year before they expire and you are required to refill. That’s $8.33/month. In addition, that will get you on their Gold Rewards plan which gets you 15% extra minutes on future refills and in future years you can buy as little as 35 minutes for $10 or 460 minutes for $50 and that will also last you an entire year. The Gold Rewards status lasts as long as you keep your prepaid account account, so in future years you could be spending just $50 a year or less.

New basic phones are about $25, and new Android phones start at $99 direct from T-Mobile. You can also buy a SIM card to put in an off-contract T-Mobile phone or any unlocked GSM including the Apple iPhone.

Page Plus Cellular (Verizon MVNO)
By purchasing bulk minutes from the Verizon Wireless network as a MVNO, Page Plus Cellular offers the coverage of Verizon and the ability to use off-contract Verizon phones (iPhones are blocked still I believe). You can buy a 2,000 minute card for only $80 that will also last an entire year before you are required to refill. Note that there is a $0.50 per monthly service fee charged on the 25th of every month on top of the refill card cost, so a year would cost $86. That’s only $7.16 a month.

Alternatively, you can buy 100 minutes for $10, which lasts 120 days after activation. That can result in only paying $36 a year ($10 x 3 plus $.50 a month), but you have to watch your minute usage and renewal dates carefully. They also have a $12 recurring monthly plan that provides 250 minutes, 250 text mesages, and 10mb of data. Their own phone selection is limited but you can buy off-contract Verizon phones from eBay, just watch out for stolen phones with banned IMEI/ESNs.

H20 Wireless (AT&T GSM MVNO)
H20 Wireless sells 2,000 minutes for $100 that is valid for one year. Additional minutes are 5 cents, and additional texts are 5 cents each as well.

You can use old AT&T phones on H20 wireless. This also means you can rock an AT&T iPhone (can be locked, off-contract) and look like the cool kids but only pay $100 a year for service instead of $700+. Of course, you won’t have a data plan. (If you want data, check out StraightTalk where you can get a $45 Unlimited plan using AT&T iPhone via their SIM card.)

Kajeet (Sprint MVNO)
Kajeet is meant for kids and has built-in parental controls. But they do have a really cheap $4.99 a month plan that includes a dinky 10 minutes included. Additional minutes are 10 cents each, and text messages are 10 cents each as well. Not a bad option for very low usage.

You can buy a new Android phone from them right now for $99, but other than that the phone selection isn’t very good for cheap phones (important for kids that lose/break them often). The bad news is that the parental controls mean that you can’t just bring over any old Sprint phone either.

Other providers with good low-usage options (but not as good as those above in my opinion) include:

TracFone (MVNO for Verizon, AT&T, T-Mobile, and Sprint) You can buy 800 minutes for $120 good for one year, which includes double minutes on all future airtime. You can later buy 120 minutes for $20 that lasts 90 days, or $6.66 a month.
PlatinumTel (Sprint MVNO) $10 for 90 days, with no minutes included. Instead, you pay a flat 5 cents a minute for talk, 2 cents per text, or 10 cents per MB.

List of Cheap, Basic Prepaid Cell Phone Plans – Under $10 a Month! from My Money Blog.

Creating Retirement Income Only From Dividends and Interest?

Jonathan — Wed, 25 Apr 2012 09:59:55 +0000

What happens when you finally want to live off of your portfolio? Most withdrawal methods call for a combination of spending dividends and selling shares to cover the rest. But what if you wanted to live only off of dividends from your stocks and the interest from bonds? I was curious to see how this would have worked out historically.

Let’s say you had $100,000 invested in a mutual fund, and you had to live off the dividend income produced from those shares without any additional buying or selling. I found historical price data and dividend distributions for select funds from Yahoo Finance that went back to 1987-1990, and added up the trailing 12 months of dividends to see how much money they would have generated over a year’s time.

The Vanguard Wellesley Income Fund (VWINX) is a low-cost, actively-managed fund which has been around since 1970. It is composed of approximately 35% dividend-oriented stocks and 65% bonds (mostly corporate for higher yields). This conservative allocation is designed to create a steady income stream with less focus on capital appreciation. Let’s see how $100,000 invested in 1988 would have done in terms of income:

In 1988, interest rates were relatively high and $100,000 of Wellesley shares would have created nearly $9,000 of annual income. In 2012, that same set of shares would be worth $156,000 and your income would be about $5,400 annually. The income produced had some swings, but overall did not seem to track with inflation although the share price did better. According to the CPI, $100,000 in 1988 would buy as much stuff as $180,000 today.

The Vanguard 500 Index Fund was the first index fund available to the public and is now one of the largest funds in the world, passively following the S&P 500 index of large US companies since 1976 and thus always 100% stocks. Even though this is not a dividend-focused fund, it still does produce a regular stream of dividends from the companies it tracks:

In contrast, $100,000 of the Vanguard 500 Fund would have only created about $2,700 of income in 1988, but that income has grown over the next 24 years to about $8,800 today in 2012. Also of high significance is that the value of your $100,000 worth of shares from 1988 would be worth around $500,000 today.

This is just a limited snapshot of two funds, but it would suggest that you can’t just buy an income-oriented fund that has a large chunk of bonds and expect to sit back and spend whatever dividends are spit out. However, things would have turned out much better if one was reinvesting a big chunk of those Wellesley dividends when the overall yield was high. I can still envision a income-oriented portfolio, but I will have to set a reasonable withdrawal rate that isn’t too high and have the discipline to plow the rest back into buying more shares.

Creating Retirement Income Only From Dividends and Interest? from My Money Blog.

Ooma Telo Phone Service $10/Month Deal + Long Term Review

Jonathan — Tue, 24 Apr 2012 07:23:24 +0000

If you’re unfamiliar, the Ooma Telo is a VoIP system that creates a home phone service through your broadband internet. Just plug in your regular landline phones and go. Features include unlimited domestic long distance, 911 service, caller ID, voicemail, and call waiting. In addition to the one-time purchase price, new customers must pay a share of government taxes and regulatory fees that works out to about $4 or $5 a month.

Long-Term Review
I bought my system in December 2009 for a then-good deal of $158, and I remembered worrying about the FCC shutting them down because I couldn’t believe their business model could be so cheap over the long haul. Well, I’ve now gotten nearly 2.5 years of home phone service for that $158, working out to a little over $5 a month. (Early adopters with the original Core system were grandfathered out of tax recovery charges.) It appears now that as long as the government gets their share of phone taxes and fees, they won’t be shutting down Ooma any time soon.

The best compliment I can give about the Ooma system that I don’t even notice that it’s not a landline. It just works reliably. In my entire time of ownership I remember reading about a few hours of downtime in the middle of night, and nothing within the last year. The call quality is always great, and I can even use my fax machine with it. In some ways it’s even better than my old landline, because I can get an e-mail whenever a voicemail is left, and I can listen to it online or on my smartphone.

The “unlimited” phone service technically has a limit of 5,000 minutes per month under the explanation that it is meant for personal use. That works out to an average of nearly 3 hours per day, every day, so that’s close enough to unlimited for me. They do regularly bug you to upgrade to their Premier level of service which has added features for another $10 a month, but I’ve never felt the need to. Just make sure your number is on the Do Not Call list and you should be fine.

~~$109.99~~ $134 Deal
The retail price is $199 (Amazon). But right now, Ooma has a $50 mail-in rebate (pdf) on their new Telo system if purchased by 4/30/12. In addition, one of their approved retailers OfficeMax.com is selling the system for ~~$199.99~~ $229.99 but with the coupon code BIGDEALS (valid through 4/28) you get 20% off for a final checkout price of ~~$159.99~~ $184 with free shipping. After the rebate, your net price would only be ~~$110~~ $134.

(Officemax hiked up the pre-discount price from $199.99 to $229.99 (higher than retail!) right after I wrote my post. Lame. If you are serious about buying an Ooma, as a current Ooma customer I have 5 single-use coupon codes that will get you $50 off if you buy at Ooma.com by 4/30/12. This will get you to $150 but is not combinable with the rebate. Contact me if interested.)

Paying the one-time $134 and say $4.50 a month in taxes over two years would work out to an all-in average phone bill of $10 a month. This is much, much cheaper than any landline bill, and still much cheaper than Vonage VoIP. One alternative is the Obihai + Google Voice combo, but as of right now that’s only guaranteed to be free through the end of 2012. I know that many people are cell-phone only now, but for many households the most frugal option might be a Ooma box plus a basic prepaid phone plan that can also run $10 a month or less. Whenever possible, lower those recurring monthly expenses!

Ooma Telo Phone Service $10/Month Deal + Long Term Review from My Money Blog.

Financial Status Bar & Goal Updates

Jonathan — Mon, 23 Apr 2012 09:39:09 +0000

It’s time for some Spring cleaning and I have updated this post which explains my ratio-based method of tracking our financial progress towards early retirement (as shown by the status indicator on the top right of every blog page). I’ve made some clarifications/edits and also added links to recent updates.

Cash Reserves / Emergency Fund

Our goal is to always have a full year of expenses in cash equivalents as our “emergency fund”. (This is not the same as a year of income. Our expenses are much lower than our income.) This is a cushion for a variety of potential events including job loss, health concerns, or other unplanned costs. It also allows us to take a more long-term view with our investment portfolio since we know we won’t have to touch it.

Since our emergency fund is relatively large, I try to maximize the yield. If we stuck it all in a money market fund, the yield would be barely above zero. With a bit of work, our cash earns a blended rate of over 2% annually without taking on extra risk. We use the same accounts to make money from no fee 0% APR balance transfer offers, but currently don’t play that “game”. Here are recent updates on where we keep our cash:

March 2012 Cash Reserves Update
May 2011 Cash Reserves Update
January 2011 Cash Reserves Update

Home Equity

I don’t think everyone should buy a house (or more accurately, take out a huge loan on a house). I don’t necessarily think it works out a very good investment over time. However, if you are geographically stable, I do think buying and eventually owning a house free and clear can be a solid component of an early retirement plan. My current forecast is to have our house paid off in 10-15 years. Housing is very expensive where I live, so once that mortgage payment is gone, the actual income my investments will have to produce will drop drastically.

There are many ways to define home equity, and I am sticking to a simple method of calculating home equity by taking 100% minus (outstanding mortgage balance / original home purchase price). As of 2011, our home price has rebounded to over the original purchase price according to a refinance appraisal and comparable sales. Overall, I’d rather enjoy having continuous progress without worrying about my home’s exact market value. Here are some historical mortgage updates:

November 2011 Mortgage Payoff Update
February 2011 Mortgage Payoff Update

Investment Portfolio

The goal of my investment portfolio is allow withdrawals to support our needed expenses in “retirement”. Again, income and expenses are not the same thing. After mortgage payoff, I expect our required expenses to be less than 25% of our current income. I like to assume a simple 3% safe withdrawal rate, which means for every $100,000 saved, I can generate $3,000 a year of inflation-adjusted income for the rest of our lives. I used to use 4%, but since our target “retirement” age is in our 40s and not 60s, I feel that 3% is better. Even 3% is not guaranteed, but again it does provide a quick estimate of progress. Here are recent portfolio updates:

February 2012 Investment Portfolio Update
November 2011 Investment Portfolio Update
July 2011 Investment Portfolio Update

My initial goal was to try and keep the home equity and expense replacement ratio about the same so that both will reach 100% at the same time, but we’ll see. I am still (very slowly) researching shifting to a more income-oriented portfolio that yields about 3% and has a principal value that can grow with inflation.

The actual implementation of my plan will probably require more flexibility. At some point, I plan on using some of my money and invest in an immediate annuity to hedge against living too long (a problem I hope to have). I’ll also need to vary my exact withdrawal rates a bit from with market conditions. Once I reach age 70 or so, Social Security will kick in something. I don’t think Social Security will disappear although I do expect means-testing, but I also don’t expect to be so rich as to not get anything.

Financial Status Bar & Goal Updates from My Money Blog.