March 25, 2016

Best of Blogs for Week of March 25th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week

DQYDJ asks Can You Trust A Roboadvisor With Your Money?


March 22, 2016

Rich People Have Half Their Money In Real Estate and Cash

I'm not certain what the common perception of the assets of the wealthy are but I'd think that ownership of stocks is a big part of it.    I think of business ownership as a lot of it.   When you look at the list of richest people in the US you've got Bill Gates, Warren Buffet, the Walton family (Walmart heirs), etc.     Those people own businesses or stock in businesses.  

But on average most of the wealthy in the world aren't heavily invested in stocks or businesses.   Most of the wealthy ($30M+) have their money in real estate and cash as much as anything else.    Bloomberg ran the article Ranks of World's Wealthiest Thin Most Since the Financial Crisis in which we find a pie chart showing the asset mix of the wealthiest.

Half of their money is in :
Primary Residence and second homes = 24%
Real Estate = 11%
Cash = 15%

The other half :
Financial investments = 28%
Personal business 19%
collectibles and precious metal 3%

I'm surprised to see such a high amount in cash at 15%.   Personal housing is also very high at 24%.

I'm not saying its good or bad.   I kind of think its telling that the really rich people have so much in cash and their own housing.    For people that rich to have so much tied up in their own homes doesn't seem so smart.   If you've got $100M and own $25M worth of houses.   That seems like a lot of house.  But then I suppose housing isn't a BAD investment generally.   It usually at least keeps up with inflation (with rare exception like 2007).  

The amount of cash that the wealthy have is also pretty surprising.    If you've got $50M do you really need $7.5M cash balance?     That seems awfully high.    Maybe its a indication the rich are more conservative with their finances.    It could also be skewed by the international mix of the people they looked at.  Maybe if you live in China or France or Brazil then having cash is the smarter way to go.


March 18, 2016

Best of Blogs for Week of March 18th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week

I agree with MyMoneyBlog that They May Not All Be, But Your Financial Advisor Should Be a Fiduciary

The Big Picture has also written a lot on the Importance of Fiduciary Standard


5 Large Pizzas for $23.5 at Papa Johns

First get a Groupon for a $25 egift card for Papa Johns for $25 plus 2 pizzas.   That deal will give you the $25 gift card and two promo codes for two pizzas.    Use Ebates  to buy the groupon and you get 6% back for $1.50 cash.  That makes the net cost $23.50

Then use your $25 gift card to order two pizzas using promo code CRAVE2 (expires 3/27) which gives you two pizzas for $7.99 each.   This will use up most of your gift card.   While making this order also enter the FREETHROW (expires 4/4) promo code to get yet another free pizza.

In total you'll have spent $23.50 and end up with 5 large pizzas.    You'll also have about $9 left on that gift card for another order if you want or to use for delivery charges.    Delivery is $4 at least where I live but you can do carry out for free.

To get 5 pizzas : 

1. Go to Ebates  and the follow link to Groupon.
2. At groupon find the Papa Johns deal and buy it
3. Get your $25 egift card for Papa Johns, also get promo codes for 2 pizzas.
4. AT use CRAVE2 to add two pizzas to your shopping card and then add FREETHROW which will give you a one free pizza on your next order use the gift card to pay.

This will give you 2 pizzas now and then 3 more free pizzas for later purchases.

Standard Ebates blurb:To get cash back from Ebates you need to be signed up with Ebates.  Then simply go to Ebates to get the referral to the store before you do your shopping.  I also get a referral bonus if you use my links to sign up with Ebates.   


This article contains referral links which will pay this site a referral commission.

March 17, 2016

Who Paid the 91% Tax Rate In The 1960s?

Back in 1960's we had a 91% top marginal tax rate.   Gee thats high.   It must have sucked to be a rich  1% guy back then... or did it?    Who actually paid that 91% rate?

The 91% rate was on only the top marginal income.   In Tax Foundations history of the tax rates we can see that the 91% rate was only on the income over $400,000.     If we inflation adjust that $400k to 2016 we come out with about $3.2M.    This is not just your high paid doctor then, we're talking very rich people.   However we can't really tell who made that kind of money back in the 60's by just inflation adjusting as high incomes have ballooned over the decades.   Lots of people make >$3M now.

Looking at an old Census report we can see that there were about 60M people / families with incomes.   We can also see from that report that the top 1% started at about $25,000.   Inflation adjusted that $25k is about $200k today.   But todays 1% is more in the $400k level.

Figure 2 and 3 from this report : Striking it Richer: The Evolution of Top Incomes in the United States gives us the % of total income earned by the top 1% and the top .01% respectively.   Roughly speaking the top 1% in 1960 made about 10% of the personal income and the top 0.01% made about 1% of all personal income.   Total personal income was about $418B.   I got that from this source who got it from the BEA.  I tried finding the 1960 figures on the BEA but couldn't find it easily.

Add this all up and we have : 
$418B total personal income 
60M people/families making incomes
1% of people (=600k people) make 10% of incomes or $41B
0.01% of people (6000 people) make 1% of incomes or ~$4B
Therefore the top 6000 people make average incomes of about $667k

Roughly speaking I'd estimate that the top 5,000 to 10,000 people in the US in the early 60's would have incomes high enough to fall in the top 91% tax bracket.

However, that doesn't mean they actually paid that 91% tax bracket.   I bet a lot of those ultra rich people found some pretty good tax loopholes.

March 13, 2016

How To Die Penniless

Lets say theoretically that you're single with no kids.   Does it make sense to die with a pile of money in the bank or wouldn't you rather enjoy spending that money while you're still alive?     I think optimally you should try to die broke after spending every last dime.   But thats easier said than done. If you plan wrong and run out of money you'll spend your retirement broke.   Thats no fun.     If you plan wrong and die with money then you'd miss the enjoyment of having spent it when you're alive.  So how do you die penniless?

You can accomplish the goal mostly by buying an annuity.    On the day you retire, you could take 100% of your assets and then use that money to buy a single life fixed income annuity with a cost of living adjustment.   You're basically broke, but you've got a large check coming every month which you can squander on a month by month basis until you pass.

It would be easier to rent a house instead of owning.    Its easier to rent in general too.   This plan will maximize your monthly spend so you can rent whatever you want.    Renting will also give you a lot of flexibility to live wherever you want.    Course the downside with renting is that its not permanent and your landlord can stop renting to you unexpectedly (with proper notice).    And if you're elderly then moving with little notice is likely to be a big pain.   For that reason owning a house may be preferred.

If you own a house you could mortgage it with a reverse mortgage.   That will allow you to tap the equity in the house and convert it into fixed income and then leave virtually zero equity when you pass.   This however may not work out if you pass early.   You could have equity left in a home even with a reverse mortgage if you pass shortly after taking out the loan.    Instead you could do a cash out refinance on the property for the highest LTV you can and then add a HELOC on top of that.   You could use HELOC to drain as much equity as possible from the property on an ongoing basis.   You likely can't get 100% out but after costs of sale, and settling other debts you could get close.

You don't want to have $0 in the bank since you'll need some money to operate your life.   But you can negate that equity with some ongoing debt.   You can use credit cards to float some debt.   If you use a card to pay all your bills you'll have up to a full months expenses floating on credit at any given time.

If you want to have $5-10k in the bank at any given time to pay bills and live your life, then you might get one of those 0% promo deals for $10k and then float that $10k all the time.   Shortly before the promo time period is up, you could transfer that $10k debt to another 0% promo deal.

You can prepay your funeral costs.

You can lease a car instead of owning.   Leasing isn't a great financial deal usually, but in this case it will let you drive a nice car for cheap and minimize equity if when you die.

This isn't Brewsters Millions.   I'm not necessarily advocating you squander all your money or spend it needlessly just to spend it.     Give away unneeded money while you're alive alive.   Most charities would like to have your money today instead of tomorrow.   You'll get the satisfaction of being around to see your money doing good.   Plus you can even get a tax deduction for giving it now too.     You can also do a charitable gift annuity which will both help your favorite charity and provide a fixed income stream.


March 11, 2016

Best of Blogs for Week of March 11th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week

MyMoneyBlog covers Making Your Nest Egg Last: Safe Withdrawal Rates vs. Sustainable Withdrawal Rates   (spoiler : its 3-4%)

MMB also shares tax season info with  Free State Income Tax E-File Options For All 50 States (Updated 2016) and TurboTax vs. TaxACT vs. H&R Block Online 2016 Lightning Review

The Big Picture tells us How Many Active Managers Outperform Their Benchmarks?   (very few)


March 10, 2016

You Should Probably Buy a Used Nissan Leaf

I'm not trying to tell you what to do but, you should probably buy a used Nissan Leaf for your next car.

If you need a pickup truck for work or commute over 80 miles a day and your job lacks electric chargers then you can skip this article.

At least if you want a cheap vehicle.   Leafs are cheap to operate due to the electric drive train.   Its significantly cheaper to charge the battery in a Leaf than it is to fill a gastank full.   A Leaf is going to cost you around 2¢ per mile in electricity and a decent 30MPG car is going to run ~7¢ for $2 gas.   Leafs also benefit from a fat tax credit.   Lastly the Leaf will have low repair and maintenance costs compared to normal gas engine cars ( no oil changes, fewer moving engine parts things to break).

Edmunds has a True Cost to Own metric that figures the total cost to own a car for 5 years.   Below I compared several select, relatively economical and inexpensive car 2013 models.  

A selection of 2013 model year cars is below with the TCO, cash price and the ratio of TCO/price.

TCO cash price ratio
Buick  Verano $29,557 $12,039 2.5
Chevy Cruze Eco $26,434 $10,536 2.5
Chrysler 200 Touring $28,388 $10,870 2.6
Dodge Dart $27,512 $12,449 2.2
Ford Fiesta S $23,066 $7,345 3.1
Honda Fit $25,119 $12,442 2.0
Honda  Civic coupe ex $25,912 $13,789 1.9
Hyundai Accent GLS $24,510 $9,432 2.6
Mazda 3 $25,630 $12,084 2.1
MINI Cooper $29,959 $12,447 2.4
Nissan Leaf $19,652 $9,991 2.0
smart fourtwo $22,862 $5,320 4.3
Suburu Impreza 2.0i $27,664 $13,885 2.0
Toyota Prius 2 $24,887 $15,212 1.6
Toyota Corolla $25,174 $11,300 2.2
VW  Beetle TDI $27,785 $11,538 2.4

The Leaf comes as the cheapest car to own and operate.    I picked the 2013 model year pretty arbitrarily but you could also compare 2012 or 2011.

Some people worry about the battery life in a Leaf but they come with a 8 year / 100,000 mile warranty for the 2013 model year.    If you buy a 3 year old car and operate it 5 years you're likely to have warranty coverage for the battery the entire time.   And theres really zero reason to think the battery will fail shortly after the warranty expires any more than we'd expect a gasoline engine to explode a day after its warranty ends.

Financially a Leaf is a good choice.  


March 8, 2016

The Middle Class Shrinking Isn't The Bad News I Thought It Was

Take a look at this chart  from the Pew Research center:

As you can see there the middle income group is shrinking.   But look closer.    The high income group is growing.    From 1971 to 2015 the high income group grew from 4% to 9%.    Thats a 5% increase.   The middle-high group also grew from 10% to 12% or a 2% increase.    On the low end the growth was less.    The low income group increased from 16% to 20% for a 4% increase.  The upper low group stayed the same at 9%.  

Yes the middle class is shrinking.    But the good news is that the higher income groups are growing more than the low income group.

Of course its not good news that the low income group increased in the past 5 decades.   I had assumed though that all of the erosion of the middle class was putting people into the ranks of the poor.   Thats not the case.   More than not, people who used to be middle class is migrating upwards.


March 6, 2016

Maximizing My Credit Card Rewards For Grocery Spending

I've got the Sallie Mae Barclay card that gives 5% cash back on grocery store spending for the first $250 a month spent.    I use that at grocery stores usually for at least one of our weekly grocery trips.  For the rest of our grocery spending I have used the Fidelity Amex card with its 2% rate on everything.

Sometimes its a little hard to juggle which card to use.   Usually on the first grocery trip of the month its a given I'd use the Sallie Mae card as one trip doesn't hit the $250 limit.    But what if the first trip is for $110 of groceries and the second trip is $200?   I usually do some quick math and figure the amount of rewards I'd get with either card.   With that example I would have $140 left on the 5% rate and then $60 at 1% for $7.60 on the Sallie card or $4 on the Fidelity so its smarter to use the Sallie card.  Unless.... I thought I might have some smaller grocery bills under $140 to max out the 5%.  It comes down to guesswork.

Last year in January I spent about $178 on the Sallie card and $369 on the Fidelity card.   I made $8.90 from Sallie and $7.38 from Fidelity for $16.28 total in rewards.  If I'd juggled it just right I could have put $248 on the Sallie and $299 on the Fidelity.  I would have only had to use my Sallie card for one more $70 purchase.   That would have given me $12.40 plus $5.98 for $18.38 total rewards.   Thats $2.10 more in rewards for picking the right card once.

Oh, and I had forgot that the Amex Blue cash card I've got actually gives 3% back in rewards so I should have used that all year and earned an extra point just for using that instead of the Fidelity.

I figure if I had optimized my cards for groceries that I could have gotten about $70 more in rewards over the year on grocery spending.

One way I can easily optimize the spending exactly is to start the month by using the Sallie mae card to buy a $250 gift card at our grocery store.   Then use that gift card for our groceries until it runs out and then put the rest on the Amex Blue cash.   This would give me the maximum rewards without having to do any math at all.   The downside of this is having to do that one extra transaction to buy the gift card first.


March 4, 2016

Best of Blogs for Week of March 4th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week

MyMoneyBlog gives his Netspend Card 5% APY Savings Account Review
If you want to jump through a couple hoops it will pay 5% on up to $5000

Bloomberg says It Just Got Even Harder to Trust Financial Advisers  (via The Big Picture)
In which they document up to 19% of brokers have been disciplined for misconduct at some big name investment firms.   And point out that " 44 percent of advisers who leave a job due to misconduct are hired by another firm within a year"  

DQYDJ tells us about The Complete History of the 401(k) Contribution Limit


March 3, 2016

Performance of a Couple Old REITs Versus Inflation Over Time

How do REITs hold up versus inflation?    I'd assume they ought to do OK.    I'd think holding real estate ought to be a good hedge against inflation in general.   People gotta live somewhere.   I decided to look at the oldest REITs I could find to get a longer term picture. says in their timeline that the first REITs were : "The first REITs--Bradley Real Estate Investors, Continental Mortgage Investors, First Mortgage Investors, First Union Real Estate (now Winthrop Realty Trust, NYSE: FUR), Pennsylvania REIT (NYSE: PEI) and Washington REIT (NYSE: WRE)--are created. The latter three are still in existence today."

FUR and PEI have history at Yahoo finance going back to the 70's.   I pulled the historical prices from yahoo and then I averaged out the annual adjusted close prices for each year.   Those adjusted close prices include dividends and splits.

I got inflation info from US Inflation Calculator who got it from the BLS.

Here's the chart with their adjusted close average monthly prices adjusted to inflation :

What we're looking at here is the historical prices of the two REITs over time adjusted to inflation.

PEI did OK longer term.    FUR was shaky.      If you bought PEI back in the 70's you'd have spent around $2 a share in 2015 dollars and that REIT trades for over $18 as I write this.   But if you bought FUR in most of the 80's and 90's you'd be behind inflation.

The housing bubble inflated REIT values abnormally.   If you bought a REIT during the peak of the housing bubble then you'd have trouble recovering from it even now.   In hindsight, both PEI and FUR would have been poor choices if you'd bought them around 2006 or 2007.

FUR's long term performance has been really up and down.  I don't know why this is.   I haven't looked at the history of that stock to see if theres an answer.

Keep in mind that this is only two REITs here.    Thats not much of a sample size to make any broad conclusions from.   But there are only a handful of REITs that have been around since the 70's and I wanted to get a look at how REITs hold up versus inflation over a longer period.


March 2, 2016

Look Up Your Broker with FINRAs BrokerCheck

If you use an investment firm with a broker you can look them up by name at the FINRA BrokerCheck website.   FINRA regulates brokers.   The BrokerCheck site will give details on the brokers registration and list any complaints or violations against them.

From the site :

"FINRA oversees the people and firms that sell stocks, bonds, mutual funds and other securities. Simply type in your current or prospective broker’s name to see employment history, certifications, and licenses—as well as regulatory actions, violations or complaints you might want to know about. You also can get information about your broker’s firm. There’s no reason not to check."


March 1, 2016

Millenials Don't Save For Retirement, Which is Nothing New Really, Except They Do save...

Have you heard that Millenials don't save enough?     OK then did you later hear that they in fact do save?   Did you further hear that they save more than anyone else?   Kids these days...

I recall seeing this topic in vaguely remembered news story headlines or reported via hearsay on the internet.   Its declared : Millenials don't save!       Then its rebutted :  Yes they do!

I did a google search and found some articles :

Younger Generation Faces a Savings Deficit  (Nov. 2014)
This one talks about the millenials having a -2% savings rate.  

‘Irresponsible’ Millennials Saving More Than Almost Every Other Group (Feb 2015)
Reported "least 56 percent of millennials reported saving at least 5 percent of their income last year, compared to 52 percent of Americans overall"

Why Millennials Are Saving at a Younger Age Than Any Other Generation (Nov 2015)
which reported that "millennials began saving at a median age of 22, Gen X at 27, and boomers at 35"

More than half of millennials have less than $1,000 (Dec 2015)
Sounds bad but then they point out that most age groups are in the same boat mostly.

Millennials Are Outpacing Everyone in Retirement Savings (Jan 2016)
Points out that the kids increased their savings rates "The typical 20-something is now stashing away 7.5% of income vs. just 5.8% in 2013." while other generations didn't.

These all muddy the picture by talking about different things.   How much do they save.  When do they start saving?   What is their "savings rate"?    etc.

Lets look at some hard data from the ERBI.
Retirement Plan Participation: Survey of Income and Program Participation (SIPP) Data, 2012,
Take a look at Figure 3 from that document.

I'll summarize.   From 1988 to 2012 :

21-30 year olds saved 33-39%
31-40 year olds saved 51-57%
41-64 year olds saved ~60%

Participation in 401k plans by age group has been fairly consistent for ~25 years.   Fewer young people save and more old people save.  

Now look at figure 4 on the same report.  It breaks down savings rates by income level.  

75-80% of people who make over $50k saved.
14-21% of people making $5-10k saved.

Now lets look at the report 401(k) Plan Participants: Characteristics, Contributions, and Account Activity

They say the most frequently cited reason for NOT participating in a retirement plan was :
"No extra money to save"

Ok so lets add this all up...

Young people save at the lowest rate.  
This really hasn't changed much at all in the past 25 years.  
Savings rates are directly and clearly related to income levels.
The biggest reason people don't save is lack of money to save.
Young people make less money than older people (on average).

Nothing to see here folks.

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