Impending doom!

By Josh July 31, 2018

If you’ve seen almost any headlines lately (and for the last 8 years, amirite?) the next big stock market pullback is just around the corner. Liz from Chief Mom Officer shared a headline recently that Morgan Stanley was predicting the biggest stock-market selloff in months! (insert scary music) Nobody should be afraid of a pullback that is the biggest when measured in Days/Weeks/Months…

With all of the gloom and doom in the news media, the links inevitably get shared across social media. These dark thoughts creep into our mind, and fear begins to set in. For those who are more risk averse, these feelings of impending doom may cause them to scale back their stocks and put more investable assets into bonds or cash-equivalents like a money market account.

I’m here to tell you, that’s the exact WRONG thing to do, just like trying to time the market.

First off, if you are reading my blog (thank you, thank you!), you are most likely in the wealth accumulation phase of your life. Due to your age and remaining years in the workforce, you should be heavily tilted towards stocks, rather than in “safe” assets like bonds and cash. Most of us can agree that cash is actually not a safe asset, since it is guaranteed to lose value due to inflation. Then what about bonds?

My problem with bonds is that the young investor investing in bonds is locking in a lower rate of return for the perception of additional safety from turbulent stock prices. When stocks run up double-digit percentages, bonds are earning a few percentage points. That’s 70% under-performance, if we’re talking 10% vs. 3%. And we all know that stocks go up over the long term, so why the fear of short-term losses with a portfolio heavily invested in stocks? Young investors should be giddy about lower prices, as long as they’re still putting money to work through workplace retirement plans, IRAs, HSAs and brokerages via dollar cost averaging. Who doesn’t love to buy their favorite things on sale?

So beware of the click-bait headlines, the talking heads shouting on TV, and the viral news stories. A successful portfolio has a well thought-out plan for the inevitable scenarios when stock prices do fall. A successful investor will stick with the plan, or make minor adjustments to their strategy given a changing marketplace. Chasing safety is just as bad as chasing performance, and in fact can do long-term damage to your portfolio advancement by causing you to lose years of compounded market gains during the accumulation phase of your investing career.

If you’re an older investor, it may make sense to have an allocation in bonds and cash-equivalents, but I hope you aren’t using the old “100 minus your age” allocation. That rule of thumb may have been appropriate in decades-past, but bonds used to return a solid 5% on average, and CDs used to return 8-12% in the late 1980s. Now, with rising interest rates, which means bond prices are falling, you’re lucky if you have a positive return on bonds at all. I hope you will consider adjusting the “rule” to 120 minus your age, or similar.

Fabled PF guru JL Collins has been early-retired for quite a few years now, and his portfolio remains at 75% VTSAX (stock index fund) and 25% VBTLX (bond index fund). If you look at the results of the Trinity Study, the 75/25 allocation yields one of the top overall returns, and yet provides a modicum of safety during downturns to smooth the ride.

Tracking every penny coming into my life

By Josh July 28, 2018

Ever since J. Money used to write about his “Challenge Everything” mindset/challenge/fund a few years ago, I have been meaning to do something similar and cut out all sorts of frivolous/wasteful spending in my life. But since I’m the ultimate lazy, single dude, I have definitely not completed that task yet. I did take away from his series that small amounts of money really add up! Sometimes that money comes in the form of unexpected sums from an insurance rebate, found money on the ground, selling a few items that are just sitting around your house, or in many Millennials’ cases, a side hustle.

Confession: Starting on January 1, 2016, I began tracking every penny, nickel, dime, quarter, and dollar that came into my life from every source OUTSIDE of my day-job paycheck. The results have blown my freaking mind!

First, the amount of money that must have passed through my hands, without “knowing it” in past years would have added up to a tidy sum. In 2016, my first year of tracking this, the total amount was over $17,000!! In 2017, that number ballooned to OVER $33,000!! So far in 2018 (7 months, more or less), I’m sitting at over $13,700, and I’ve cut WAAAAAY back on my side hustle.

Secondly, knowing that it has come into my life gives me a reason to put a purpose to where it goes. In the past, any extra money had a habit of disappearing on a new video game, DVD, some other technology, or one year I went back and tallied up nearly $3,600 in golf course greens fees <– same year, I put $0 in either my Roth or Traditional IRA. YIKES! Now I actually realize that I was paid back $3,430.97 in travel reimbursement/per diem for work travel in 2016, so I can apply those funds towards my IRA (I mean, that’s what I DID in 2016, and I maxed it out!)

Third, I don’t take any of this money for granted. When money is easy-come, easy-go (You’re welcome for planting Bohemian Rhapsody into your head), it’s very easy to think that another unexpected windfall is just around the corner to bail you out of a stupid spending decision. Now I have the empirical evidence to show me that this money has come into my life, and I better have something to show for it, or at least a very cool memory and story to tell!

I think at this point, I should just post a chart to show all of the money that has come into my life (again, outside of my day job paycheck) over the past 31 months:

chart(1)

The amounts that stick out the most both came in 2017. First, I spent a lot of time concentrating on my Uber side hustle in 2017, because in August 2017 I bought my new-to-me Toyota Camry Hybrid, and I wanted to pay that sucker off as quickly as possible. In all, it took me 86 days to kill the car loan. The second (and larger) big spike was from selling nearly $10,000 of physical silver bullion that I had purchased over the years of 2012-2016, all the while the spot price of silver was falling, from around $35 down to under $14 per ounce.

Interesting or odd payments that fell into the Miscellaneous category:

$31.74 – My one and only paid blog article in 2016 (after PayPal fees)

$41 – total of 3 secret shopper tasks I completed.

$25 as a gift from a total stranger that I helped to save Christmas for her husband. Backstory, she lived in Colorado, but was purchasing a puppy for her husband as a Christmas gift. Unfortunately, the puppy was born in Indiana, so she was paying the breeder for the purchase and transport (airline) cost of getting the puppy to her in Colorado – or so she thought. Apparently, there’s more than just 1 Josh Overmyer, and his email address has some numbers mixed in with his name. Well my email doesn’t have those numbers, so when she sent me over $1,300 for a puppy that I had no idea I had 😉 I politely declined the PayPal payment, and sought to help her figure out what was going on, how to get the money refunded to her checking account, and overall just being a totally good guy, like I was raised to be in the Hoosier Hospitality state of Indiana. She was so thankful that I wasn’t an opportunist and ran off with her money, she sent me an unsolicited $25 as a thanks. This may be the best $25 I ever received… you don’t really expect people to appreciate you for just doing the right thing.

$41.05 – I received a $20 free play certificate from a local casino, and I put that voucher into the slot machine and punched a button for about 15 minutes, then cashed out my winnings of a whopping 205% hehe

$21.75 for selling old DVDs online.

Nearly $100 in iBotta rebates before I quit using the app.

And my bank bonuses and Tradelines payments round out the more exciting random money amounts of the past couple years. Bank account interest payments, though, have not added much to the bottom line ($147 or an average of less than $5/month).

Lending club withdrawals include both principal repayment and interest that I collected on my 366 loans.

Overall, I think this exercise was a major success, and I plan to continue tracking these sources of extra windfalls in my life, no matter how big or small.

 

Additional passive income sources

By Josh July 26, 2018

Despite making more money at my (new) day job than I’ve ever made before in my career, I am constantly looking for other ways to add to my banking and investment accounts. This post will cover two that are easy and relatively lucrative!

Bank Account Bonuses

Every once in a while, I receive fliers in the mail that are basically advertisements for banks trying to get me to open up a new checking or savings account with them. Until the past couple years, I would toss those straight into the trash, because I already had a free checking account, had been with my then-bank for 10+ years, and didn’t want to cause any extra work for myself in keeping track of multiple bank accounts across various banking institutions, credit unions, etc.

But as part of my growing travel-hacking knowledge base, I became familiar with Doctor of Credit, which also maintains a list of bank account bonuses that are available at any given time. This list opened up a world of *free* income to me, as long as I could read the fine print and comply with all of the listed requirements.

So what type of requirements does a bank spell out in order to get the bonus? Sometimes you have to set up Direct Deposit and receive a couple deposits from your employer or a certain amount of deposits such as $500. Other bonuses require a minimum number of debit card purchases/swipes, and I’ve been known to make 5 minor transactions in quick succession to meet the minimum requirement (pack of gum, 1 gallon of gas, a bottled beverage, etc). One bonus I am currently working on achieving requires either a direct deposit OR $2,500 minimum balance, 1 debit card purchase, 1 bill-pay of a recurring bill, AND a mobile check deposit. I will receive a $250 bonus for doing each of those 4 things!  The one I received most recently was for setting up a Business Checking Account, for my Uber business, duh! 😉 This offer required a $1,500 minimum daily balance for 60 days, and a combination of 5 debit card transactions and/or ACH deposit/payments. I did 5+ of both, just to be sure! Free $300 in my account just the other day, which is basically a 20% return in 60 days for the $1,500 I parked there for a couple months.

So why do banks offer these bonuses? First, they think most people aren’t going to follow-through with all of the requirements, so they won’t have to honor the bonus. Second, they get you used to using the account for debit purchases, direct deposits and bill-pay, so they think inertia will work against the consumer and they will stay-put. Thirdly, many checking and savings accounts have monthly fees, but there are *almost always* a way to have the monthly fees waived, which usually requires a minimum balance of $1,500 in a checking account or up to $15,000 in a savings account, to remain fee-free. But I think that if I can figure out how to switch my behaviors TO this new account, I can just as easily switch FROM the account.

If you decide to proceed with going after these bank account bonuses, the best thing I can tell you is to read the terms and conditions carefully, keep a copy of those terms, and make sure you meet them within the specified amount of time. The next best thing I can tell you is that these bonuses ARE TAXABLE INCOME and will be reported to the IRS on a 1099-INT form. But I have earned $1,350 so far this year from bank account sign-up bonuses, and that’s almost 2 whole mortgage payments ($680/month) for me, so this is not an insignificant sum in my budget. And finally, beware that many of the accounts have language that the account must remain open and with a positive balance for 6 or 9 months, or the bonus will be clawed-back upon closure.

Tradelines

This next topic is a lot scarier to many people, and I spent a lot of time trying to wrap my head around it before ultimately giving it a try last December. I want to caution you, dear reader, that this is something I tried, did successfully for about 5 months, then stopped participating because I had one of my oldest credit accounts shut down without warning.

Tradelines are basically any contract you have with a banking institution for a consumer line of credit. AKA a credit card. You have a contract in place to borrow up to a certain limit, with payback terms, including interest payments per the agreed-upon terms. These tradelines are reported to the credit bureaus, and they are what make up your credit report.

So how does one make money with Tradelines? You basically “rent” access to them! There are companies out there who need a supply of tradelines to sell as inventory to borrowers with poor credit who need a temporary bump in their credit score to apply for a home or car loan of their own. The process is to add the person as an “Authorized User” on your long-standing, excellent credit account, thereby having your credit card tradeline report to the borrower’s credit report for a few months. The borrower NEVER gets any information about you, and they never receive an Authorized User card – the card (if issued at all) will be sent to you.

It generally only took me about a minute to log into my online accounts with a given credit card, click “add authorized user”, type in their personal information (first/last name, address, email address, sometimes SSN) and they would begin to receive a credit score boost within a month. At the end of 2-3 months, I would usually need to make a phone call (2-10 minutes depending on how much hold-time) to remove the authorized user. The telephone agent will ask if you can get the card back from the user (which you can do, because you’re still holding onto the card in the first place), and you tell them yes. Then you destroy the card! And you get paid anywhere from $50-75 for cards that have been open 2-5 years, and can earn quite a bit more for older cards and/or higher credit limit cards.

So why did I stop? As I mentioned before, I had one of my oldest credit cards shut down by Discover. I opened the card in 2012, because I liked the idea of 5% cashback on rotating quarterly categories. Discover actually had one of the easiest processes to add AND remove Authorized Users, so I thought things were going along really well… that is, until I tried to remove my 4th and add my 5th Authorized Users on the same day. I think that must’ve raised red flags at Discover, because my online request was denied and I had to make a phone call. “No problem,” I thought… “Discover has excellent, US-based phone agents.” I was able to talk to an agent and get the request approved. But then, a month or so later, without any digital or mailed communication, my DiscoverMore Card was shut down.

In all, I “rented” out my good credit (score over 800 on all of my recent credit card applications and using all of the free tracking apps) on 17 occasions. This earned me a total of  $1,125 in 5 months, and I probably only spent a total of 2 hours online to add, and on the phone to remove, the authorized users. But after my Discover shutdown, I didn’t want to risk having the same thing happen with Chase (my beloved travel hacking cards issuer), so I stopped participating in the program.

The Wealthy Accountant has a good write-up about Tradelines, with more details than I have provided. Check out his post if you want to learn more.

Peer-to-Peer lending results

By Josh July 25, 2018

Peer-to-Peer lending sites have been around for quite a while now, so you’ve probably heard of them or even considered checking them out. If you’re not aware of Prosper or Lending Club, or the concept of Peer-to-Peer (P2P) lending sites, WomenWhoMoney has a great write-up on the pros and cons of P2P.

I initially read about P2P lending from Financial Samurai and Budgets Are Sexy, and I took the bait in April 2015. My main goal was to diversify my investments so that not everything I have would be correlated to the stock market. I took a look at both Prosper and Lending Club, but it seemed like Lending Club was the larger of the two sites and offered more loans for investors such as myself.

Every loan offered on the site would be for amounts up to $35,000 (later increased to $40,000) and individual investors would make a claim on $25 or $50 of each loan, to spread the risk of every loan across multiple investors. In that same vein, investors will spread their investable cash across dozens or hundreds of loans to spread their exposure to the risk of any individual investor defaulting.

In all, I invested in 366 loans, and all of my loans were $25 initial value. I also bought a few loans on the secondary market to test out that feature and see how those loans would perform. My total contributions were about $7,500 of my own cash, and I initially had the account set up to automatically reinvest the proceeds of my monthly payments into new loans.

After a few months, I decided to start screening loans by myself instead of using the Lending Club preset conditions. My personal parameters included annual salary of at least $50,000 and credit score of at least 750. I also tried to fund loans that were for “Green Loans” but they were often very rare on the platform back in 2015 and early 2016 when I was funding new loans.

My initial results were pretty good. Excellent, even. In my first six months of investing on Lending Club, my returns were nearly 10.9%. But then little cracks started appearing. After a few months, I had several loans that were beginning to become delinquent. Sometimes the borrower would catch up and pay a minor late fee, but a few slipped to 31-120 days late. Around the 1-year mark, I had my first two loan defaults. My returns slipped to 8%, but I had more winners than losers, which was the whole purpose behind investing in a few hundred loans.

At some point, Lending Club made major news for a scandal that rocked the company to its core. The CEO resigned. The news stories talked about a scam going on within the company where fake loans were being offered to investors by insiders, in order to prop up loan returns and rates. Fortunately all of that has been corrected, but I can’t help but feel like I was sold a lie and my returns have tanked in the intervening couple years.

So where am I now? After 39 months of investing with Lending Club, many of my initial loans have been paid off. In fact, of the 366 total loans I funded, 182 have been fully paid off, which is nearly 50%. Unfortunately, those are offset by 75 loans that have been “charged off” with no expectation of ever seeing another dime from those debtors. Of the remaining loans, 103 are current, 2 are in their grace period (up to 15 days after due date), 2 are 16-30 days late, and 2 are 30-120 days late so there’s a good chance those 2 will be charged off as well.Screenshot_20180728-085108~2

I started off with over 10% returns, which was awesome because it’s comparable to stock market returns, albeit with the risk of complete loss of principal from any given loan. Those shrank to 8% by the end of year one. As of today, I’m down to an annualized return of 1.55% return, which is pitiful! My online savings account with Marcus by Goldman Sachs pays 1.80% and there’s no chance of losing any of my starting principal! For this reason, I am withdrawing all of my loan proceeds (principal payback and accrued interest) and investing that money in my taxable brokerage at Vanguard (VTSAX, of course).

Overall, I’m glad I took a chance at diversifying my investment income, but I’m disappointed by the results. P2P lending has turned me off of other crowdfunding options such as crowdfunded real estate. Those site may work for some people, but I’m afraid of what happens when the next real estate slowdown causes pain for those investments.

Thanks to Liz from Chief Money Officer for the feature on her Weekend Roundup!

Mid-year 2018 update!!

By Josh  June 30, 2018

Can you believe that 2018 is already half over? It’s been a really busy year for me so far (details below), so time has just been flying by! I started this blog on January 5th 2018 with a post about writing down goals so you can track them, and I figured 6 months later it was time to follow up on my progress. So here they are again, with individual updates below:

  1. lose weight, obv
  2. achieve 1/4m NW
  3. draw down my travel miles/points through actual travel, not point expiration
  4. give up unhealthy/unproductive habits (especially driving for Uber)
  5. actively meet new & interesting people (Hello #FinCon18)
  6. begin a creative pursuit

1. I do not have good progress to report on this one. I actually have no idea what my starting point was for 2018 (bonehead move, Josh). But I recently started a new job that provided an opportunity for a Health Reimbursement Account (up to $500/yr in tax-free money to spend on health-related costs), but I had to go through a health assessment and have blood work done to set a baseline. I weighed in at a whopping 365.8 lbs. That’s 40 pounds more than Vince Wilfork and 30 pounds more than William “Refrigerator” Perry. So obviously this has sparked a renewed vigor in my daily actions to try and move the needle downward and make my weight loss goals to achieve that free $500. Wish me luck!

2. I have made progress this year on my net worth goal of $250,000, but in the past month it seems to be disappearing. I reached $245k in late May, but sit around $235k right now. Main culprit appears to be that Zillow has dropped my house value by $11k in the past 2 months. I also missed a few weeks of getting paid while I was between jobs.chart

3. Speaking of being between jobs; I was able to draw-down some of my travel points balances on a 13-day trip around the US from April 30-May 12. I had to turn in my work vehicle and computer equipment to headquarters in Tallahassee, so I decided to start my “Freedom trip” and used various points/miles from Delta, IHG, Hilton Honors, Hyatt, and JetBlue. I spent less than $217 out of pocket for a trip to Tallahassee, Atlanta, Los Angeles, Seattle (by train), Boston, and back home to Fort Myers, FL. Across those 5 programs, I spent a total of 206,940 points/miles, keeping in mind that not all points and miles are valued the same. I estimated a total cost savings of $3,596 by using points & miles. And I still maintain almost 700,000 across various programs for future travel!

4. After writing a 3-part series on the ups and downs of driving Uber as a side hustle, I picked up the habit again. I did it, in part, because Spring Break is the busiest time of year here in Southwest Florida, and also because I knew I had the job change coming up and needed to stash some extra cash to help ease that transition. I’m happy to say I’m now done with Uber (caveat: I turn on the app during my ~1 hour commute, each way, which earns me enough to cover my fuel expenses).

5. I’m still super stoked for #FinCon18 but I have been trying to meet new people in other settings, as well. I recently had the opportunity to attend a national conference of the Association of State Floodplain Managers (yes, I’m a total geek), and I gave a presentation on a one-of-a-kind project I worked on for the past 3.5 years. Having that platform, while slightly terrifying, provided an opening for me to share how much I love being an expert in my field and that I relish in the opportunity to help others. I had people from all over the country come up to me throughout the rest of the conference and try to pick my brain or otherwise engage in conversations about their own programs. It was such a great week, even though it was Phoenix, in June!! I’m also getting ready to attend the annual ESRI User Conference in San Diego on July 9-13. I have never been to this conference before, so it will be eye-opening and another opportunity to meet complete strangers.

6. Creative pursuit!! As you can now see, I have migrated this simple WordPress-hosted blog onto my own domain! www.joshovermyer.com belongs to me for the next 10 years, and I just paid to migrate it to a business page on WordPress for the next 2 years, so I am going to have to put some more effort in over here now. I should have the extra time, now that I’m done with Uber (again, for emphasis). I also still have some amazing creative ideas for items to bring to FinCon, so I will need to explore ways to make those ideas in my head become a reality. If anyone wants to help me make my sparks of creativity become actual things, I would love to talk to you about them.

Roth or Traditional IRA?

By Josh Originally drafted July 11, 2016. Posted March 10, 2018

Congratulations! You’ve decided to put your retirement future in your own hands and open an Individual Retirement Arrangement (IRA). But which should you choose, a Traditional IRA or a Roth IRA?

A Traditional IRA allows an individual to invest money pre-tax. That is the one true time when you can “Pay Yourself First”, even before Uncle Sam gets his hands on part of your paycheck. Investments grow tax-deferred, and you pay ordinary income taxes when you withdraw the money in retirement.

A Roth IRA is an account whereby the individual invests money after tax has already been paid. The same contribution limit of $5,500 still applies (in 2018), so why invest after-tax dollars? Upon the age of 59.5, all of the money in a Roth IRA can be withdrawn tax-free, because taxes were already paid in the current year, none are due on the investment dollars, nor the growth on those dollars.

So how do you decide which is right for you? It depends on your outlook.

If you expect tax rates to go up in the future, or you will have more income that puts you into a higher tax bracket, it might make sense to pay the income taxes today and invest in a Roth IRA for tax-free retirement dollars later.

If you have a high salary today and plan to live on less income in the future, a Traditional IRA is the way to go, to lower your taxable income in the present and pay taxes in a lower tax bracket in the future.

If you aren’t sure what to think, it is possible to split your $5,500/year investment into both. This year I already maxed out my IRA contributions, with $3,000 going into Traditional IRA (to lower my current taxes) and $2,500 into my Roth IRA (to give me tax-free withdrawals in retirement).

Another consideration is what types of investments you will be making with each account. Some investments such as stocks or REITs pay dividends, which may be treated as taxable income. Consult a tax professional to see what is right for your preferred investment choices.

Some people prefer the Traditional IRA because $5,500 of your annual income can go straight to the account and you’ve met your annual maximum contribution and will reduce your taxable income by $5,500. On the other hand, one must earn $6,160 before taxes (assuming 12% for this example) to earn $5,500 after taxes for the maximum Roth IRA contribution, and there are no tax benefits in the current year.

There are income limitations for Roth IRA contributions, which vary depending on marital status. Some people have figured out a back-door Roth conversion from Traditional IRA contributions, but taxes must be paid in the year of the conversion.

A final word on the Traditional vs. Roth IRA battle royale is that there is no wrong decision. In fact, it may be useful to employ any of the different combinations explained above, including contributing to a Traditional IRA during your working years, and then using a Roth IRA conversion ladder as your income shrinks in retirement. Many Early Retirees use this strategy to combine the tax benefits during their working years with the tax-free income benefits during early retirement.

Financial products I use

By Josh March 4, 2018 but will be maintained periodically

[Caution: Many of the links below are referral links. They will not cost you anything extra, but I may earn some commission ($$ or travel points) if you click them and sign up for the products that I use and love!]

Banking:

JPMorgan Chase – I signed up in November 2016 and was awarded a $300 bonus for opening a Chase Total Checking account. I avoided monthly fees by maintaining at least $1500 daily balance. I also signed up recently for a Chase Business Checking account for my side hustle, to keep my business and personal finances separate. I got a free $300 for that, as well.

Charles Schwab High-Yield Checking: I signed up in February 2018 to receive a $100 bonus. This required me to also open a Charles Schwab brokerage account, with a minimum of $1,000 balance. The AWESOME thing about Charles Schwab bank is they refund ALL ATM FEES, including FOREIGN ATMs, which makes this a must-have for world travelers. The account also pays 0.20% interest, which is very high for a checking account.

Credit Cards:

Chase Sapphire Reserve (This card has a $450 annual fee, but many people find it is more than worth it, based on the benefits). Don’t let the $450 annual fee scare you, since it offers an annual $300 travel credit that offsets 2/3 of that fee. Other benefits include Priority Pass Select membership that allows you to use over 1000 airport lounges around the world, free Global Entry or TSA Pre-check ($100 or $85 value), primary rental car insurance, excellent travel insurance and price protection coverage that come with all Visa Infinite cards. Earns Ultimate Rewards that are worth 1.5c each in the Chase Ultimate Rewards Travel portal. 3x earning on Travel and Dining expenses, with 1x on everything else.

Chase Freedom – no annual fee card that earns 5% cashback on a different spending category every quarter, up to $1,500 per quarter ($75 cashback).

Chase Freedom Unlimited – no annual fee card that earns 1.5% cashback on every purchase, every time. This is a great card to use for any spending that is not covered by a bonus category on another card. Pair this card with a Chase Sapphire (Preferred or Reserve) to make the cashback value worth more (1.25x or 1.5x).

Southwest Rapid Rewards Priority – This card ($149 annual fee) is also from Chase, and earns Rapid Rewards for free flights on Southwest Airlines. I upgraded to this card for the increased annual point bonus, 4 free upgrades to A1-A15, 20% off in-flight purchases, and a $75/year Southwest travel credit. They also have a Premier card, a Plus card and a business version, and some people sign up for 2 cards back-to-back to earn the minimum of 110,000 points required for the Southwest Companion Pass, which allows a companion to fly FREE (only pay September 11th security fee of $5.60 each way) for the remainder of the calendar year in which you earn the Companion Pass, AND ALL OF THE NEXT YEAR! Woo hoo free flights!

Starwood Preferred Guest by American Express ($95 annual fee) – This card and hotel program may seem obscure at first, but the program is excellent! A new perk of this card is you get a free night certificate on your cardmember anniversary. Starwood is now part of Marriott, and you can redeem these points at over 10,000 hotels worldwide. In addition, points are transferable to several airline programs at attractive rates, including a bonus of 5,000 points when you transfer in increments of 60,000.

Hyatt card: The main perk of this credit card is that for an annual fee of $75, you get a free night certificate, good for any Category 1-4 Hyatt hotel. For example, you could get one night at the Hyatt Regency Dusseldorf (in Germany), that has nightly rates up to $1,598, or $605/night on average. The card also comes with a sign-up bonus of 40,000 points, which could be used for up to 8 nights at a 5,000/night Hyatt hotel, but a more common redemption would be 2 nights at 20,000 points each. You can get this card AFTER 5/24 status with Chase.

IHG Card: IHG or InterContinental Hotels Group is a large chain that includes Holiday Inn, Holiday Inn Express, Crowne Plaza, Hotel Indigo, InterContinental, Staybridge Suites, Candlewood Suites, Even, avid, and Kimpton, among others. The major pluses on this card are the ability to get it AFTER 5/24 status with Chase, and a free night certificate for any property in exchange for the $89 annual fee. Also comes with Platinum Elite benefits as long as you hold the card.

Investment accounts:

Vanguard – because most of the funds you want to buy are Vanguard funds anyway. Why pay some middle-man when you can invest directly with them? I’m all about the VTSAX (Total stock market index fund – Admiral Shares) with 0.04% fees.

Betterment – I used Betterment for a few years while I was slowly building up my account balances and wanted their globally-diversified set of 12 index funds, balanced however you choose between stocks and bonds (I did 90/10). But once I decided to take a more active role in my investments, it didn’t make sense to pay 0.25% to Betterment when I could get the same funds for 84% lower fees with Vanguard. But it’s a great place for beginners!

Charles Schwab – One of the requirements of my High Yield Checking account with Schwab was that I set up a brokerage account with a minimum of $1000. Trading fees are $4.95, which is better than other brokerages I have used in the past (almost a decade ago, though).

Fidelity – I just signed up for this one for a $200 bonus offer. Fidelity, Schwab and Vanguard are the three titans of the low-cost investing world. Now I have some money with all 3.

 

 

Soured on P2P loans

By Josh Originally drafted July 11, 2016, Published March 4, 2018

A couple years ago, there was a scandal at leading Peer-to-Peer (P2P) lending platform Lending Club(Referral link, if you read this post and still think it might be worth it for your investment portfolio). I won’t go into any more details here, but this news was the final straw for me as I had already been contemplating my exit from P2P loans.

My P2P experiment began in April 2015 with a desire to invest some money that is not directly correlated with the Stock Market. For those of you who are unaware, P2P loans are made by groups of investors, each contributing $25-50 each, and the borrower pays back the loan with interest. Investors reduce their risk by investing across dozens or hundreds of loans, and can decide to take the profits as they come in, or reinvest the proceeds into new loans, similar to Dividend Reinvestment plans. The idea is that your money grows more money; rinse and repeat.

So that’s why I invested with Lending Club, and I have had 366 loans in the past 3 years. Unfortunately, I have already had 70 loans “charged off” which means the borrower defaulted on the loan and Lending Club was unable to collect any payments for a period of about 4 months, so they and their “advanced collectors” deemed the loan unrecoverable. I also have 4 loans that are 31-120 days late, so many of those will also default soon.

Some of my individual loans have been paid back early, in their entirety. 132 of those loans, to be exact. Most are still making steady monthly payments and progressing as expected towards $0 balance. But I have been disappointed and pissed off by a few that have taken out a new loan (up to $40,000 is now allowed) and summarily filed for Chapter 13 Bankruptcy. Others have taken out new loans to purchase expensive cars, and never made a single payment or only attempted to make a few before giving up.

P2P loans are unsecured (no collateral provided), so it is possible to lose your entire investment ($25 at a time). Lending Club advertises that no investor with at least 100 loans (minimum $2500 invested) has had a negative return, so the bad is outweighed by the good.

In the personal finance blogosphere, it is easy to get wrapped up in the idea that everyone is working to make progress on their debt goals, investment goals, and retire financially free. But the real world is still full of people making a lot of money mistakes and/or downright awful people looking to take advantage of the opportunity for an unsecured loan that they can decide to never pay back. I have made loans to people who make more money in a year than I make in 10 years, and they defaulted. I guess lifestyle inflation can really catch up to people, even those making a half-million dollars a year.

Not factoring in adjustments for loans that are late or on their way to default, I’ve earned about 1.52% on an annualized basis, which is not great (barely above my risk-free 1.5% interest in my savings account at Discover). But if I click the toggle button, it shows an adjustment down to 0.92% currently. Lending Club has data on historical losses from each category, such as loans in the Grace Period are likely to experience loss 28% of the time, versus late 31-120 days are likely to experience loss 74% of the time.

Due to these factors, I have begun withdrawing the principal and interest being paid on a weekly basis. I would rather work on paying a little extra on my mortgage than to continue investing in P2P loans with a chance of losing my entire investment into any individual loan.

The 4% Rule is 100% Safe

By Josh, February 28, 2018

If you’ve stumbled across my site and haven’t heard of the Trinity Study and the 4% Safe Withdrawal Rate, go ahead and click over to Google to read about it. I’ll wait…

For the rest of you, we’ve all heard about the 4% rule as a safe withdrawal rate in retirement. Something like 97% of portfolio balances end up being positive after any scenario of stock/bond performances in the past 100+ years when using a 4% withdrawal rate. Close enough for me, I’d consider it 100% safe, because I love rounding. 🙂

So why do I think the 4% rule is safer than you might think? First, it assumes that you will never make another dollar of earned income for the rest of your life. It’s like saying that you retire one day and spend the next 3-4 decades sitting in a rocking chair, sipping lemonade, and reminiscing about days gone by. I don’t know about you, but when I think about retirement, I think about spending more time on hobbies I enjoy, possibly teaching some classes, and/or spending my time with other creative endeavors. Some of these things will be volunteer, while others might earn me some kind of paycheck or royalty (if I write a book or something?) I might start buying items on the cheap at local garage sales and then selling them for more money online. The possibilities are endless when you aren’t chained to a desk chair for 40 hours a week, 52 weeks a year!

Another reason the 4% rule is 100% safe is that you don’t just withdraw 4% on January 1st and hope that remaining 96% grows back to its 100% self again throughout the year. For example, and for simplicity’s sake, on January 1 you withdraw 0.33% (1/12th of 4%) to live on for the month of January. February 1 you do the same thing, and so on. The beauty of this is that 99.67% is still in your account after January 1, which is 3.67% higher than if you withdrew 4% of your account balance all at once. The money only makes money when it is still in your account!

Reason #3 is that you don’t have to ALWAYS withdraw 4% each year. Maybe you don’t have any big travel plans this year, you don’t need a new roof on your house, and you don’t need a new car this year. With a paid-off house and no travel expenses, it may be possible to comfortably live on 2-3% for a given year.

The fourth reason that 4% safe withdrawal rate is 100% safe is that it does not factor in any Social Security or Medicare coverage. Some of your basic living expenses and a chunk of health care costs are covered by the Federal Government, even in the bleakest of scenarios for those 2 major programs. You can log onto SSA.gov to see your anticipated Social Security earnings at each given retirement age (62-70) and factor that money into your calculations for how much you need to withdraw to meet your minimum obligations. It is likely that you will need far less than you think you need to withdraw in retirement.

And the final reason is that your living expenses may Decrease, not Increase, as you age. As a newly-minted retiree, most people want to spend on lavish vacations, maybe buy expensive toys (collector car?) or tools for a new hobby (gardening?). But do you have the same energy at 85 as you do at 62? Of course not. By 85, if you still have good health, you may not want to travel the world any longer, or drive fancy cars, and you lost the energy to do manual work like gardening. If any or all of those are the case, it may be possible to live on less than 4% in some of your golden years.

 

The Tweet that Started this blog…

On the evening of January 5th, 2018, I posted this Tweet and it generated higher-than average interest, including a request for a blog post to explain what all of this means:Screenshot_20180201-023011

So, due to a request from Penny at ShePicksUpPennies.com, I’m writing this post on my re-launched blog to help explain what all of this is about, and why I would introduce so much additional hassle into my everyday transactions.

SportClips is my go-to place when I need to get a professional-looking haircut. Sometimes I cut my own. As the name implies, SportClips allows the customers to watch sports while getting their haircut, so their clientele is majority male. They continue the sports theme with their pricing scheme, a standard haircut is the Varsity, while kids are Junior Varsity. The MVP treatment includes the Varsity haircut, plus a relaxing shampoo in a massage chair, and a neck and shoulder massage with a hand-held massage tool.

J.P Morgan Chase (Chase) is my favorite banking institution, but it has very little to do with their brick and mortar locations or their banking procedures. Chase issues some of the most-rewarding consumer credit cards, with their Chase Sapphire and Chase Freedom “families” of cards. The rewards earned with Chase Sapphire (Preferred or Reserve) cards are called Ultimate Rewards, and those points are able to be transferred to nearly a dozen travel partner airlines and hotels. Chase Freedom and Chase Freedom Unlimited only earn “cash-back” value, but if you have a Chase Sapphire Preferred (CSP) or Chase Sapphire Reserve (CSR), you can transfer that “cash-back value” into Ultimate Rewards, and then the points can be transferred to airline and hotel partner programs.

Chase Freedom Unlimited is easy to understand; all purchases earn 1.5c per dollar spent, on every purchase with no limits on the cash-back bonus. Chase Freedom earns 1c per dollar spent, with the exception of a specific category that changes each quarter. Those quarterly categories are worth 5c cash-back, up to a maximum of $1500 per quarter, which means $75 cash-back can be earned each quarter with the Freedom card.

CSP and CSR have access to the Chase Ultimate Rewards travel portal, where the cardholder can book travel directly through Chase, just like they might from other OTA sites like Expedia or Priceline. CSP provides a value of 1.25c per Ultimate Reward point (URs) when booking travel through the travel portal. CSR provides 1.5c per UR in value.

Getting back to the Tweet in question, I used my Chase Freedom card to earn 5% back in the first quarter of 2018 by making the purchases via a mobile wallet (AndroidPay in this case). All of the various mobile wallets work for this category, including ApplePay, SamsungPay, AndroidPay and Chase’s own ChasePay. I just received an email this week that AndroidPay is being changed to GooglePay in the coming weeks. By transferring the 5% cashback value earned on my Chase Freedom card to my CSR (remember, 1.5x value), I effectively turned that 5% category into a 7.5% category for the MVP haircut on Jan 5th. For the $23 haircut and $5 tip ($28 total), I earned $1.96 in value. This compares favorably against a 2% cashback card ($0.52 that I would have earned).

Rounding out the Tweet, I frequently use different credit cards to purchase gift cards at grocery stores, Best Buy or Walmart to maximize limited-time offers such as 10% cashback for purchases with ChasePay in December for holiday shopping at Best Buy and Walmart (2 separate offers). Now I am sitting on a hoard of gift cards to restaurants, gas stations, Walmart, Starbucks and Lowe’s. I decided to pick some gift cards out of the drawer and enjoy a meal at Chili’s and a hot beverage (Caramel Apple Spice) at Starbucks without spending any additional dollars on my credit cards.

With one of those 10x offers at Best Buy, I bought $300 in gift cards, earned 10c back per dollar spent, and then transferred that cash-back value to my CSR for 1.5x additional value towards travel. Therefore, I earned $30 x 1.5 = $45 in travel for purchasing $300 in gift cards for future purchases that I will use throughout the upcoming year. 15% back for just knowing how to do it, where and when = win! 🙂