Financial Update – Jan 2019

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • As you have surely heard, Jack Bogle (founder of Vanguard) died a couple of weeks ago. Mr Bogle had a profound effect on my life. It was his Little Sense of Common Sense Investing book that was of the first investing books that I read in my early 20s. This book taught me the basic investing principles of minimizing costs with index funds, having patience, and keeping the eye on the distant prize. Through this book and others, I became an impassioned ambassador of Bogle’s message. As a newly minted engineer I was so excited about the topic that I hosted a lunchtime seminar in which around 30 colleagues attended in which I shared what little I knew about investing. What fascinated me at the time was that hardly any of my brilliant colleagues had ever heard of an index fund before, much less understood the financial benefit from using them. This fascination with investing and people’s general ignorance on the topic drove eventually drove me to pursue an MBA and eventually a PhD. While I’ve taken a lot of classes on investing in the past decade, the most important lessons I ever learned were encompassed in the simple messages that I first read from Mr Bogle. I’ll be forever grateful for the Bogle’s innovations and teachings.
    • Warren Buffet on Bogle (link).
      • Warren Buffet says that Bogle has saved investors tens of billions of dollars in investing fees and that this number will grow over time to hundreds of billions of dollars in investing fees.
    • MyMoneyBlog’s Tribute to Jack Bogle (link).
    • Bogleheads pay tribute to Bogle (link).
  • The Man Who Saved the World (link).
    • Poignant documentary. Worth watching. Horrifying to think about.
  • GoCurryCracker on choosing an international equity allocation (link).
  • WSJ Article: The World is Getting Quietly Better (link).
    • It’s easy to lose sight of this fact in the doom-and-gloom news cycle.

Life

  • Survived the polar vortex in which temps dropped to around -20°F with wind chill (negative teens without). Drove to work those few days. Biked the remainder. Studded snow tires seem to be doing a good job of keeping me upright in snow & ice.
  • This happened last month, but it is too funny not to write down. Life is tiring: parenting….work….exercise…life. My wife and I took our kids to the library on a Saturday in December. I was exhausted, so I found a quite corner of the library by the kid’s section and sat down. My eyelids weighed a thousand pounds, eventually causing me to succumb to falling asleep at the library. An indeterminate amount of time later I was awoken abruptly by a librarian who chastised me for sleeping in the library, saying it was forbidden (my undergraduate self, who made it a daily ritual of sleeping in the library while trying to study, would beg to differ!!!).
  • My oldest daughter recently received some gift cards to Barnes & Noble. She loves reading, but I explained to her how she could get books for free from the library or cheaper used from Amazon (cheaper than used B&N). As a result, I explained that it is far more valuable to have the equivalent amount in cash than it is to have gift cards to an inferior retailer. I then explained how she could recoup 80% or more of the cash value by selling the gift card on Raise.com. After seeing the horrible inefficiency of this, my second oldest daughter screamed in disgust “what is the point of gifting gift cards then?!?!”. To date, it is the proudest moment I’ve ever experienced as a father…having my own flesh and blood realize the infuriatingly inefficiency surrounding non-cash gifts. May this be a life lesson she won’t soon forget!
    • Speaking of infuriatingly inefficient gift giving, last month I had the pleasure of watching my frugal brother walk circles around Costco for 2 hours, frantically trying to find a last-minute gift for my folks. The whole time he was cursing the inefficiency of gift giving, particularly to those who already have everything they need/want, despite the societal expectation to give gifts anyway.
  • I played around with the new BoA Cash Rewards you-pick 3% category (i.e. the 5.25% with platinum honors status). Whereas before it was exclusively gas transactions that earned the 3% (i.e. 5.25%), going forward it is my choice between gas, online shopping, drug stores, home improvement, etc. The last few days I learned that there is a bit of an arbitrage here. For example, a Costco Cash gift card purchased at Costco.com or a gift card purchase from Raise.com codes as “online shopping” the same as a transaction from Amazon.com would. Since Costco Cash cards can be used in the warehouse, this translates to 5.25% cash back at Costco (and their gas pumps). Additionally, since almost any store will have gift cards available on Raise.com, practically any merchant (airlines, hotels, restaurants) will be eligible for this 5.25% cash back from BoA.
    • The nuisance going forward with this approach is the hassle of carrying around gift cards. For Costco, I’m considering a monthly $1k card purchase, profiting me $17.5/month in extra rewards (almost two free pizzas!) relative to the existing BoA setup I blogged about previously. For the Raise.com stuff, most of those purchases are instantaneous egift cards, so it’s not a big deal. Plus, Raise.com sells discounts at a discount anyway (and also offers an extra 1% cash back via Ebates portal). When you lump those discounts together, they easily sum to over 10% cash back on many merchants.
    • If anything, the new change in BoA policy makes my previously posted BoA credit card strategy even more lucrative than it was before.

 


Biking to work in 0°F weather with windchill.

The WSJ managed to snap a photo of me after my bike commute and put it on their front page!

Just joking. Here is the real me after my morning commute on Jan 31. After a fellow biker chastised me (correctly) a year ago for blaring my podcasts on a speaker at 2x speed, I now use headphones to listen to podcasts on the way to work. Many of you may be wondering what that thing is around my neck. It is a women’s scarf. Not just any women’s scarf, but a $5.00 infinity woman’s scarf that I stole from my younger daughter who purchased it with her own money.


This picture was taken over a year ago from this how-to-shop-at-costco-like-a-boss post (link). Perhaps the company will use my picture on their packaging going forward?

When the weather is above 20°F, the snow isn’t all bad. After driving 5 hours, we found a hill big enough to sled on!

This month’s finances

  • The good:
    • Transferred our IRAs to Fidelity. We’re now all-in on Fidelity. I love the simplicity of having work retirement plans, IRAs, and HSAs at the same administrator. I love having access to the new zero expense ratio funds. We continue to keep $100k of VTSAX (due to its superior tax efficiency to FZROX) at Merrill Edge to fulfill the BoA credit card rewards requirement.
      • Within our IRAs and HSA, we now have all of this money held in the 0% ER FZILX.
      • Transitioned to Fidelity’s CMA account as our primary checking account. I like it so far. Currently yields slightly over 2% by holding SPAXX. The downside is that cash isn’t “swept” automatically into SPAXX. It requires the purchasing of SPAXX. However, SPAXX is automatically liquidated upon funds being withdrawn from the account.
    • Paid $35 to renew our family membership to the Haffenreffer Museum of Anthropology for the third consecutive year, a museum we have never visited and have no intention of ever visiting.
      • It is the cheapest way to gain access to hundreds of museums, excluding those within a 90 mile radius from your home. We particularly like visiting Denver’s Natural Museum of History while travelling there.
  • The bad/abnormal:
    • After much introspection during our long driving over the holidays, we concluded that reinstating our $84/month YMCA membership for access to swimming during wither months is one of the few ways in which we could spend more money to significantly increase our happiness. We’ll probably drop the membership once the weather improves but I’m glad to have it reinstated.
      • Relatedly, we spent $224 on swim lessons (or swim team for older kids) for 4 of our 5 kids. I’m pretty stingy, but this seems to be money well spent. Particularly since swim team helps drain energy from rambunctious kids who would otherwise redirect this energy into beating each other up or bouncing around the house breaking things. Plus, swimming is a good life skill.
    • Another surgery. Bills to come some time in the next decade. We’ll hit our “out of pocket” max early this year (once the bills come), ushering in the second straight “year of unlimited medicine” for our family. We are adjusting our behavior accordingly to front load all remaining foreseeable procedures for 2019 so hopefully 2020 will be a “year of no medicine”?

Full version is downloadable here (link).  

 

Footnotes:

  1. I lazily approximate home value as my historical purchase price.
  2. I have a 15Y mortgage which results in much larger principal payments than a 30Y mortgage. Since principal payments are simply transfers from one pocket (assets) to another (debt reduction), I treat such cash flows as savings.
  3. ~$0 cell phones described here.
  4. All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, medicine, toys, etc).
  5. Nobody knows the perfect asset allocation. Just pick one and run with it. Use a target date retirement fund as a benchmark if you want some guidance (link).
  6. My low portfolio expense ratio is the primary reason why I don’t hold target-date funds, which have expense ratios anywhere from 0.16% to 1%. I can achieve a much lower expense ratio on my own due to Admiral shares, etc. And it’s not hard. Plus, a DIY portfolio allows one to tax-loss-harvest more easily.
  7. ETF’s are slightly more annoying to hold relative to index funds. With ETF’s, you must deal with bid-ask spreads as well as the inability to buy partial shares. With a simple index fund, you don’t have to deal with either of these issues. Bogleheads discussion here (link).
  8. I continue to own VTSAX rather than FZROX and in my taxable brokerage account because it is more tax efficient due to lower capital gains distributions. Bogleheads discussion here (link).
  9. The one blight in my expense ratio analysis is my 529 plan. The underlying Vanguard fund is almost free to hold (0.02%), but the high administrative fees bring the total cost of holding the fund to 0.29%. I abhor fees and would likely avoid 529 plans if I didn’t get to deduct up to $10k of contributions per year on my state return, saving myself $700/year in state income taxes.
  10. CA’s 529 plan has the lowest expense ratio US equity index fund of any in the US. I’d have 100% of my money here if not for the state tax deduction I receive in my own state.
  11. I own one share of Berkshire Hathaway (B Class) for the sole purpose of getting 4 free tickets/year to Berkshire’s annual meeting.
  12. I bought 100 shares MoviePass for $0.0127/share to be able to tell my students that I held a stock that went to zero. So far, the stock price stubbornly remains above zero.

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17 thoughts on “Financial Update – Jan 2019”

  1. Out here is CA it is not legal to ride a bicycle or drive a car with headphones on. It can mask the sound of an approaching vehicle or siren. If your commute is entirely off streets with cars you might be ok, if not you might want to reconsider the safety aspects of it.

    Reply
    • Thanks for the note Mike. 95% of my commute is on a dedicated bike path with the remaining 5% on a sleepy 25 MPH road in which I simply camp out in the middle of the lane (as I bike 20mph). During non-winter months I have a rear view mirror I attach to my sunglasses, so that certainly helps with awareness behind me.

      If I were riding on heavily trafficked roads with lots of car activity, I surely wouldn’t have headphones in. To be honest, without dedicated bike trails, I wouldn’t ride at all. I’m not a fan of bikes and cars mixing because it takes one idiot driver texting to kill a biker. There is pretty much nothing a biker can do to prevent this. The dedicated bike trails are one of my favorite parts about my town.

      Reply
  2. >>Additionally, since almost any store will have gift cards available on Raise.com, practically any merchant (airlines, hotels, restaurants) will be eligible for this 5.25% cash back from BoA.<<

    Not quite 5.25%, but with the Target REDcard, you can get a 5% discount on any airline, hotel, or restaurant gift card you purchase at Target.

    Reply
    • Hernan,

      During the school year, I drive my kids to their elementary school with my bike on the trunk of my sedan, park near their school, then bike 5.3 miles in to work (one-way). During the summer when the kids are out of school, the distance grows to 7.2 miles since I start from home.

      I’ve been doing this pretty much daily for about 13 years now since graduating undergrad across 4 states. Is it hard? After doing something daily for 13 years, it becomes less hard because it’s a habit.

      I consciously don’t buy a parking pass for most of the year (Dec & January being the exception), so I’m essentially pre-committing myself to biking since parking on campus is a nuisance (and expensive). The podcasts certainly help break up the monotony. I love the health benefits from hopping on the bike for at least 10 miles / day. It helps me get some fresh air & helps me sleep better. I like that I have forced a mandatory exercise routine into my day to overcome my natural laziness. If I don’t bike, it’s too easy to justify not working out after a long day at work.

      Reply
  3. I very much enjoyed this update! Could you speak a little bit about your switch over to Fidelity’s FZILX? Does the benefit of FZILX’s 0% ER outweigh the assumed tax efficiency (cap gains distributions) of Vanguard’s VTIAX? By the way, I think your FN #8 needs updated, as it appears you no longer own VTIAX as of Jan-19 🙂

    Thanks!

    Reply
    • I hold all of my zero ER Fidelity funds within my IRAs and HSA. Therefore any tax inefficiency is moot. In my taxable brokerage account I continue to hold VTSAX for tax efficiency reasons. You are correct, though, that I no longer hold VTIAX. I updated FN#8 accordingly. Thanks for the questions!

      Reply
  4. I would be interested in your thoughts on Fidelity CMA vs. your prior banking setup as I am also considering consolidation of IRA’s/HSA(already moved to Fidelity)/Checking/Savings at Fidelity but just want to make sure I am not missing anything on the CMA account.

    Thanks!

    Reply
    • Robert,

      My prior checking account setup was a local credit union that earned me 2% if I did 12 debit card transactions per month. My monthly ritual was 12 $0.50 amazon gift card transactions to reload my account. A nuisance that took me about 2 minutes. Going forward with CMA, my earlier nuisance is replaced with the nuisance of remembering to purchase SPAXX when my direct deposit hits. Nothing a google calendar reminder can’t remedy, but I’d prefer it to be swept automatically into SPAXX. The upside to Fidelity CMA is free ATM withdrawals, infinite transactions, good bill pay support, etc. The downside to Fidelity is rates are slightly lower than Ally savings (2% vs 2.2%), though Ally is limited to 6 transactions/month. The downside to Fidelity as opposed to my old setup is it’s impossible to deposit cash directly to Fidelity. It’s now a two-step process of depositing to my (essentially extinct) old account at a local ATM then transferring to Fidelity. But this nuisance is true of any online bank and I’ve been used to it as a user of Ally for more than a decade.

      If I had to do it over again, I’d consider using a Fidelity brokerage account as a checking account over a Fidelity CMA as a checking account. Why? In a brokerage account, almost all of the advantages of the CMA carry over but in the brokerage account you can automatically sweep into SPAXX. I think the disadvantage of the Fidelity brokerage as a checking account is the lack of ATM reimbursements. Given that I seldom use ATM’s (perhaps once a year), it seems that the Fidelity brokerage may be better. For some people Ally savings might be even better, though I hate the lack of check writing and the limitation of 6 transactions per month. With credit card optimization (we have several credit cards), simply paying off our credit cards would almost take us to the max of 6 transactions.

      Long story short, I think I’ll keep the current system for a while.

      Reply
  5. Thanks for the info! We are currently with Ally, so already dealing with the transfer limits from savings and lack of ability to deposit any cash (cash being a non issue). I feel like the manual purchase of the MM fund is similar to what we have currently been doing with transfers to/from savings, though agree it would be nice to have it auto swept. Maybe I’ll open a brokerage for the checking piece and use the CMA for ATM’s as needed, though not sure that helps consolidate or simplify anything.

    I do have a CMA account already from the Fidelity 2% CC and recently ACH’d funds into the account from an established connection and had a ~5-7 day hold on those funds being available for withdrawal, or even internal transfer to the HSA. Do you notice any of these delays/holds on your transfers, check deposits or paycheck into the account? I did “pull” the funds into Fidelity, so potentially should have done a “push” instead, but just curious if this is the norm with the account.

    Thanks again for the insight!

    Reply
  6. If you are an Executive member at Costco will you be downgrading since Costco Cash cards are excluded from the 2% bonus? I’m thinking if most of my Costco spend will be via these cards it no longer makes sense to pay an extra $60/yr. Btw gas is also excluded from 2% so it’s nice to use cash cards for gas and get 5.25% off!

    Reply
  7. Prof,

    Have you ever looked at portfoliocharts.com and considered an adjustment to your allocation? It’s not my site (I just like it) but I’ve been considering adjusting my portfolio to Golden Butterfly or Pinwheel. I’m in a similar financial situation as you, less kids, and am conflicted over the reduced variation of those portfolios compared to the old past performance doesn’t predict future results thing. Curious your thoughts.

    Reply
    • That website is really neat. It’s been a while since I hopped on it.

      Regarding altering my allocations to the ones you mentioned, I’m a huge fan of the three-fund portfolio (https://www.bogleheads.org/wiki/Three-fund_portfolio) and see no need to deviate from it for the rest of my life. I think that any portfolio that claims to be superior to this is built on pure speculation (extrapolating past returns & correlations). For me, I simply say to myself “I want to own the entire world.” It’s that simple.

      Reply

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