jlcollinsnh http://jlcollinsnh.com Money - Life - Business Thu, 30 Oct 2014 22:10:48 +0000 en-US hourly 1 Tuft & Needle: A better path to sleep http://jlcollinsnh.com/2014/10/26/tuff-needle-a-better-path-to-sleep/ http://jlcollinsnh.com/2014/10/26/tuff-needle-a-better-path-to-sleep/#comments Mon, 27 Oct 2014 03:35:32 +0000 http://jlcollinsnh.com/?p=6274  Mansion6

About a decade ago and roughly a mile from where I lived at the time there was a mansion on a hill. As I don’t much care about mansions I don’t recall many of the details. I do remember a huge pool in the center of the house with columns running along the sides and reaching up to the glass ceiling far above and the various courtyards that the sprawling building wrapped around. These I remember because they were where the party was held.

Hundreds of people attended this annual event. The man who owned the house invited all his friends, all his employes and, to avoid complaint, all the neighbors. That last was how we made the cut.

The fine liquors flowed and the food was wildly diverse. Both were relentlessly replenished and each courtyard held a different live band. Indeed, the best Blues I’ve ever heard was in one of those courtyards here in New Hampshire. And I grew up in Chicago.

It was the kind of party Gatsby would have thrown if Gatsby had had, you know, real money.

I got to know our host fairly well over the years. He made his money in many and various enterprises and unfortunately one of these involved buying and bulldozing the 150 acres of woods behind my house. This land had been logged by the earliest settlers who then tried to farm the rocky soil, building beautiful stone walls in their vain attempts to clear the fields. Eventually they gave up and the forest returned. When hiking it I was always trespassing, of course.

I enjoyed it mostly in late Fall, Winter and early Spring when the bugs were gone and the low, marshy spots were frozen. The dog and I would wander about, inspecting the old hunter’s blinds and the two shot-up derelict cars from the 1940s. It was hilly terrain and there was a lovely little pond tucked into a ravine. Chunks of granite stuck up out of the ground here and there and a couple of these made fine spots to sit, rest and enjoy a cigar. Only once did I ever see anyone else back there.

By the time his crews had finished, the hills were leveled, the pond drained, the derelict cars hauled off and not even the granite outcroppings remained. I couldn’t identify a single landmark I’d once known. In their place was a nice flat suburban subdivision with winding roads named after his daughters and million-dollar houses on the rise.

But his real money was made selling mattresses. He owned a chain of retail stores for that purpose. Because I knew him, I got to know just how incredibly profitable selling “discount” mattresses is. Because he tore down “my” forest, when I needed one I bought from his competitor. I still paid too much.

I paid too much partially because his competitor enjoyed the same handsome markups and partially because I bought a high quality mattress. This quality assessment I based on the fact that it was expensive and fancy.

I was willing to pay for expensive and fancy because I don’t sleep well. Most folks chalk this up to the likelihood that I have a bad conscience. Could be.

Unfortunately, the expensive and fancy new mattress did nothing for my conscience or my insomnia. In fact, we had it replaced three times.

Each time they sent out a Mattress Inspector. Did you know there were such things as Mattress Inspectors? I didn’t.

Anyway, each time the inspector came to our home, took careful measurements, sent in his report and shortly thereafter we received a new mattress. Seems it would have been cheaper just to send out the replacements without the inspector but then, what do I know?

This was all very odd as presumably the inspector found the mattress defective and yet each replacement was exactly the same. Finally we gave up and just chose to live with it, looking forward to the time when we could justify replacing it. Hopefully with a better choice.

As it happens, earlier this year I was planning to do just that. Not a task I was looking forward to. Then, in the summer, I received an email from Daehee Park.

T&N founders on bed

Mr. Park and his partner John-Thomas Marino

Operating this blog I get lots of emails trying to entice me into featuring some product or another so as to pawn it off you. It takes me about 3 seconds to hit the delete button. I was a breathe away from doing the same with Mr. Park’s.

But something made me pause. I read it more carefully and decided to respond. Among other things I said:

“So my first question is, do you really read my blog and has it really helped in launching your business? I’d ask that you take a moment to tell me how and what you like about it, just so I know this isn’t a spam email.”

I figured this would chase him away. But instead I got a reply that said in part:

“I originally came across your blog through a link/comment over at Mr. Money Mustache.

“Following your advice, especially the Stock Series, I got my personal savings plan in order while bootstrapping Tuft & Needle. I opened a Roth IRA for the first time and set up a 401k plan for the company. I took your portfolio advice and selected the recommended low-cost Vanguard funds (mainly VTSAX). It was tough getting it going while committing resources to a startup, but I’m glad I developed the ritual and habit early on.

“My favorite and most useful post, which I also refer our team members to is this one: http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/

Then, being the astute businessman he clearly is, he went on to tell me a bit more about his company:

“Back in 2012, my co-founder JT and I left the software technology industry in Silicon Valley and launched Tuft & Needle with $6,000 of our own savings. We’ve grown quite a bit since then. We’re now 15 team members and we did over $1MM in sales in the first quarter of 2014.

“…we are trying to a) cut out the middleman markups and b) put the customer experience first.”

It didn’t take long for me to start thinking of these guys as the Republic Wireless of the mattress space. That is, a way to buy a better mattress at a lower cost and not have to do business with the guy who ripped up “my” forest. Not that I’m one to hold a grudge.

So I began my due diligence. Anyone who reads this blog knows I value simplicity and here the T&N folks score big.

You chose what thickness you want (5″ or 10″) and you chose what size you need. That’s it. You’re done.

I also value, well, value. Depending on size, your T&N mattress will cost you between $200 and $600. That’s right. You can’t pay more than $600 even for their biggest, thickest king size mattress. Shipping is, as it always should be in my opinion, free.

Didn’t take long before my personal order was in: 10″ Queen. $500. To put that price in perspective, my same-sized fancy mattress from the “discount” store in 2007 cost $1299.

It arrived, as promised, on the appointed day. When I got home I expected to find a large rectangle waiting to be unpacked. Instead it was a more compact, but still large, cylinder. That’s interesting, I thought.

This cylinder was tightly wrapped in plastic and as I carefully cut this away the mattress, which had been very tightly rolled and bound, began to inflate. “Inflate” is really the wrong word. It wasn’t actually being pumped up with air or anything. But that’s what it looked like. That, or some monster breaking free of it’s bonds.

Mmmm, I thought, this can’t be good; as much fun as it is to watch.

I don’t like air mattresses and I couldn’t get the whole inflate concept out of my head. But I shouldn’t have worried.

In short order it expanded (ah, that’s the better word) to it’s full size and has proved comfortably firm. And, importantly, when I move or my wife does, the movement isn’t transferred across to the other person.

I’ll let you go to their very cool website for the details of how these mattresses are made and why they perform so well. But I will say one of the best things is that these guys aren’t just middle-men. They custom manufacture their products to their own specifications.

T&N crafting_0065

 So, we’ve been sleeping on our T&N mattress for a couple of months now and we remain thoroughly impressed. I doubt we’ll need another for many years to come, but when we do this is where we’ll return.

Ok, let’s see. What else?  Well…

…They offer a 30 day trial and a 7-year warranty. I can’t speak to either of those because there is no way I’m letting them have mine back. But I do like the attitude reflected in what they say about it:

“Contact us if you’d like to make a return so that we may begin our hassle-free process for a full refund.”

…They don’t pick up and dispose of your old mattress. This initially concerned me but at their suggestion we contacted The Salvation Army and the problem was solved easily enough and in a way that benefited somebody else.

…They don’t sell box springs. But we already had ours. Plus, if I were buying a bed frame again I’d get a platform style. It’s that whole simplicity ethic again. Box springs really are silly extra things.

That’s about it.

So if you need a mattress, and I can’t imagine you’ve read this far if you don’t, this is the place I use.

I like the company. I like their product,  I like their prices,  I like their service, I like their style, I like their business ethic and approach and I like them.

That’s why Tuft & Needle is only the third company ever, along with Betterment and Republic Wireless, I’ve accepted as an affiliate. For me each is a big step and one I’m slow to take.


If you click on the ad directly above, it will take you to that really cool website I mentioned earlier. There you’ll find lots more information and you can begin your own due diligence.

Then, if you decide to buy (and by way of full disclosure) this blog will earn a small commission. Your price is the same regardless.

Oh, in case you’re wondering, as nice as it is, my new T&N mattress has not cured my insomnia. But, I’m a whole lot more comfortable now staring thru the darkness at the ceiling.

 

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Nightmare on Wall Street: Will the Blood Bath Continue? http://jlcollinsnh.com/2014/10/18/nightmare-on-wall-street-will-the-blood-bath-continue/ http://jlcollinsnh.com/2014/10/18/nightmare-on-wall-street-will-the-blood-bath-continue/#comments Sat, 18 Oct 2014 07:00:12 +0000 http://jlcollinsnh.com/?p=6171 nightmare_by_jflaxman-d71ifma

Nightmare on the Wall (Street)

Courtesy of jflaxman

The headline for today’s (Saturday, Oct 18th) post I ripped off from a major financial media outlet. I’m so ashamed.

It was the actual headline from a piece they put up this past week to describe the market action on Wall Street. They should be even more ashamed.

Yikes! Nightmares and Blood Baths. Oh, my.

So what actually happened? Well, let’s see.

The market, as measured by the S&P 500, stood at ~1908 at the opening bell on Monday October 13th. This was already down ~100 points, or 5% from it’s all time high of ~2008 a couple of weeks back.

By Wednesday it had dropped to ~1823, triggering the “Blood Bath” headline and many more like it. That was another 4.5% drop, bringing the total loss from that all-time high to ~9.2%. Not quite the 10% that defines a market “correction” — a common and healthy event.

Also not quite enough to make it worth my trouble to rebalance my allocation and pick up some now cheaper shares. Even if I had been quick enough to do so.

And quick you’d have needed to be. Thursday and Friday brought the S&P back up to ~1887, trimming the loss from the all-time high to a meager 6%. Oh, well. Maybe next week.

So what to make of such a headline?

Well, perhaps the author has never actually seen a financial nightmare or blood bath and so mistook this week’s little blip for one. Or maybe the dramatic Halloween themed phrasing was simply too sweet to resist. Or maybe it is no more than the media’s relentless need for attention; a scary new costume to wear for the day.

But if the financial media is in such a tizzy over this not quite correction, imagine the panic if we get a real one. Or a Bear (-20%). Or an actual market crash of 40%+. With “nightmare” and “blood bath” already used up, it’s gonna be tough to write headlines for those.

Of course it is all too silly. Sensible people know we’ll all be dead of Ebola before the month’s end.

Meanwhile, here at jlcollinsnh.com we had an actual nightmare. After getting steadily more and more glitchy over the last several weeks, the blog crashed and burned. I won’t bore you with details, but the issues were major and tough to resolve.

Fortunately, I had gotten an excellent response to my Help Wanted post. As it happens, I was in conversation with my new personal hero, Lucas, when the blog fully ground to a halt. He jumped in and after two days of almost non-stop effort the site is back and the issues mostly resolved.

My apologies if you tried to log on this week and found it either completely down or painfully slow. It should be all better now with just a couple of formatting issues yet to be repaired.

If you tried to leave a comment this week, please check to see if it made it through. One of the issues was the blog got slammed with a huge volume of spam. We were dumping it overboard by the bucket full and buried in the tens of thousands might have been yours. Please post it again.

Also, if you’ve posted a question bear with me. Not having access to the blog for the better part of the week, and all the time this has taken, has me behind. But I’ll get there.

The really cool thing to come out of this has been the chance to connect with some great people, like Lucas, who so value what happens here they stepped up to volunteer their help and ideas. More than I can possibly use.

My thanks to those of you who have already helped and to those still standing by, ready and able. It has been an honor to connect with each of you and a relief to know you have my back.

In addition to the technical support needed to solve these immediate issues, I now have access to still more cool ideas and the talent to implement them.

One change you’ll already notice is the ads that had been in the right hand column are gone. The banner ad at the top and the square ad imbedded in some posts, like this one, are from Google Adsense. I have no control over what companies and products appear. But if you choose to click on them and poke around on their sites, this blog earns a few bucks to keep the lights on.

The other source of light-keeping-on revenue around here are the affiliate partners. These are companies and products I do choose. You can tell which ones, because I write a full post about them describing why I endorse them. But this is tough. There is very little out there I think enough of to recommend to you.

So far, I’ve only found two: Betterment and Republic Wireless. If you click on the links in those posts, and then chose to buy from or do business with those companies, the blog earns a commission.

I’m excited that I have finally found a third and hope to have a post up about them shortly. You won’t believe what the product is, but I’m already very happily using it myself.

Oh, and if you are wondering why I don’t have an affiliate relationship with Vanguard, it is simply because they don’t have them. Maybe someday…

In addition to the changes with the ads, shortly you’ll be seeing some new features in that column. There might even be a new theme and design in the works. Plus I’ve got a folder full of post ideas waiting for me to make the time. So stick around and keep a sharp eye.

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While Wall Street is having self-induced nightmares and the blog has gone thru some real ones, Mrs. jlcollinsnh and I have been out and about enjoying the New Hampshire Fall.

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I hope the world and life is as beautiful where you are!

Update –Monday October 20: The market closed today at 1904, down 4 points from where it stood at the beginning of last week — the week of nightmares and bloodbaths. That’s down .002%. You can’t make this stuff up.

Update 2 — Revenue spike: Since putting up this post I’ve noticed a spike in ad revenue. This is odd because, as I mentioned above, the Skyscraper ad that used to appear in the sidebar has been eliminated. I did this for a cleaner look and I fully expected, and was prepared to accept, a drop in revenue as a result. The only conclusion is that some of you have chosen to support the blog by clicking into the remaining ads. To those who have, I thank you!

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Help Wanted http://jlcollinsnh.com/2014/10/08/help-wanted/ http://jlcollinsnh.com/2014/10/08/help-wanted/#comments Wed, 08 Oct 2014 20:07:35 +0000 http://jlcollinsnh.com/?p=6140

help-wanted-pony-express

Pony Express

When I launched this blog back in the good old days, I barely knew what a blog was. I had heard the term but I had never actually seen one. I joke that the first blog post I ever read was the first post I ever wrote. If it is funny it is because it is true.

In that Spring of 2011 I was writing some letters to my daughter concerning a few financial things I thought she should know but that she wasn’t yet ready or willing to hear. These were my insurance against the possibility that should I not be around if and when the time came, she’d still be able to access what I had to say.

I shared these with a business friend who suggested other friends and family members might find them useful. He suggested the blog and pointed me to WordPress. This is why it is titled jlcollinsnh.com; I wanted these people to know it was me. I never dreamed it would have a broader audience. For that matter, I had no idea there were other financial blogs out there, most with clever and descriptive names.

After about a year, thanks in large part to this guest post Mr. MM asked me to write, the readership here began to explode. The blog now has an international audience and generates ~100,000 pages views a month from ~35,000 unique visitors. I’m told this is pretty good.

I’m not sure about that, but what I do know is that keeping it up and running has become increasingly more expensive and complex. Last Spring, for instance, it crashed and burned – finally going off-line completely. By imposing on the generosity of my blogging friends and Mrs. jlcollinsnh, who is far more temperamentally suited than I in dealing with this stuff, we finally realized we needed a more robust hosting service, picked one and got the site migrated.

Mainly because we really didn’t know what we were doing or how to do it, it was a bloody nightmare. It felt like God telling me my blogging days had run their course, and I very nearly shut the doors. But cooler heads prevailed.

I’m glad they did. Almost every day I get emails or comments from readers telling me how valuable the information here has been for them. The praise is almost embarrassing, but I’d be lying if I didn’t also admit to it being very gratifying. Motivating, too. Perhaps more than anything I’ve ever done, with this blog I have the feeling of contributing in a positive way.

The blog has also introduced me to many new and fascinating friends and their ideas. It has allowed me to help create cool new events like the Chautauquas and to attend cool events created by others like FinCon.

So I have reason to want to continue with it. But the problems have not gone away and the expenses are growing.

Over the past week the blog has again begun to have some operating issues and, at the suggestion of Synthesis (my new host since last Spring), I just updated to their more powerful (and costly) service. However, there are still snags and they have given me a list of plugin changes, upgrades and deletions they suggest. Plus WordPress is nagging me to upgrade to 4.0.

I’m very reluctant to take these steps because, in the past, one change leads to something else not working creating a snowball effect that has me sitting on the window ledge. I’m clearly going to need help.

Who better to ask than the smartest people in the world: The readers of this blog.

help-wanted $10

If you have the technical expertise and believe in the mission of this blog (and that last is very important to me), please read on. Here’s what I think I need:

1. Technical WordPress support. Keeping the blog updated and the plugins current and optimal.

2. Design help. Making the blog as appealing, simple, useful and easy to read and navigate as possible.

3. Technical interface with Synthesis, either directly or helping me understand how to work with them effectively.

4. Help to better monetize the blog. As I mentioned, the costs of operating it are rising. While I’ve added Adsense and have a couple of affiliate programs with Betterment and Republic Wireless, I don’t really understand how these things work and how they might work better for me. Or if there are other options that might work better still.

This is further complicated by the fact there are many ways to monetize that don’t serve my readers and which I am therefore unwilling to adopt. Here the reader will always come first and anyone wanting to help in this regard should be on board with this ethic.

5. Other important stuff I’m not experienced enough to know I need.

I don’t expect, or even want, only one person to do all this.

In addition to technical expertise I’m looking for people who sweat the details, take the time to understand what is being asked and who are great communicators. People who respond promptly, are dead reliable and who do what they say they will when they say they will. It’s a lot to ask for the little tasks this blog needs, but that’s why I’m only interested in people who deeply understand and value what I’m trying to do here.

If you think you’d like to help, send me an email: jlcollinsnh@comcast.net

In it tell me who you are, what you can do, how I can know you can do it, why you want to, why I can trust you and why we’ll have fun working together. Also, how working with you would work. Be sure the subject line reads: Help Wanted: name of what you can help with

Thanks!

 

Addendum: Forum

Another thing I’d like to do is to create a forum here, like that on MMM but smaller and more focused. I’d see it taking the place of Ask JLCollins and as a way for readers to interact and help each-other. I’d join in as needed and as I had time.

But I’d need someone who knows how to create such a thing and volunteer moderators.  Any takers? If so, shoot me an email to address in the post with — Help Wanted: Forum — in the subject line.

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Chautauqua 2014: Lightning strikes again! http://jlcollinsnh.com/2014/09/15/chautauqua-2014-lightning-strikes-again/ http://jlcollinsnh.com/2014/09/15/chautauqua-2014-lightning-strikes-again/#comments Mon, 15 Sep 2014 23:34:33 +0000 http://jlcollinsnh.com/?p=6009 P8110227

Well, this was a rare delight.

Photo courtesy of Kate

Last year’s Chautauqua was so much fun, attracted such cool people and was just so damn epic it seemed unlikely to repeat. But it did, and this year we got coffee! Let’s start with that.

Chau gouri 7

Our hosts: Coffee grower Cheryl and her husband Rich

Photo courtesy of Gouri

Cheryl, who owns and operates Above the Clouds Retreats, splits her time between Texas and her finca (farm) in Ecuador. On that finca she grows coffee and this year’s Chautauqua convened just after the coffee harvest. Lucky timing! At our opening session each attendee found a small burlap sack in front of them filled with coffee beans from her land, and a coffee mug emblazoned with: Ecuador!

I love coffee. I’ve been drinking it now for over half a century. I’ve had none better and, for a couple of short weeks after my return, I enjoyed a rich aroma and robust flavor that briefly returned me each morning to this year’s magical week. But now it’s gone. One more reason I’m already dreaming of next year!

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Hacienda Cusin

Photo courtesy of Nick

As before, and hopefully again for 2015, this year’s Chautauqua was held at Hacienda Cusin, a gorgeous old estate and monastery built in the Andes mountains in 1602. It is about 2 hours north of Quito and near the famous market town of Otavalo. It is built of stone and wood and many of the rooms, including mine this year, have fireplaces. It can get chill in the evenings up in those mountains and it is a warm pleasure to return to your room to find the fire the staff has got roaring. Not to mention the hot water bottle they’ve placed in your bed, toasting the sheets.

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As before, the speakers’ presentations were the center piece of the week.

Photo courtesy of Geraint

Cheryl, one of the most relentlessly happy people I’ve ever met, had the group hanging on her every word as she described her sometimes difficult journey and the techniques of happiness she’s acquired along the way.  Mr. Money Mustache focused on how developing a ruggedness in your approach to life creates greater satisfaction and less need for money.

This, in turn, allows you to live on less than you earn, freeing up the capital to invest in building your financial freedom. My role was then to discuss exactly how to invest this money. Our new speaker this year, Jesse Mecham, wrapped up the week with his engaging talk on the sheer joy of starting something entrepreneurial and the pursuit of knowledge with reckless abandon.

In short we talked about:

  • How to bring happiness into your life.
  • How to develop the courage to be free and to live life on your own terms.
  • How to arrange your life in such a way as to have an abundance of what is important, while shedding what is not.
  • How to invest your excess funds so that they grow to support you, allowing you to turn your full attention to Happiness, Freedom and Abundance.
  • How to strike out on your own.

Chau kate 1

Of course the conversation didn’t end with the presentations

Photo courtesy of Kate

As with last year, each speaker had a schedule of one-on-one sessions with those attendees who had chosen them. In my case, the original seven scheduled grew to twenty by week’s end as more people asked for time after my talk. It was exhausting, but exhilarating. These sessions are my favorite part of the week.

We also created an extra two-hour financial Q&A session one morning. It was a lively discussion and about 18 or 20 chose to attend. The rest went on the optional hike in the mountains. Both were great successes and we’ll offer each again next year.

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Financial Q&A in the Monastery courtyard

Photo courtesy of Geraint

When we weren’t engaged in presentations, conversations and general hanging about, we were off exploring a bit of Ecuador. Everything from Otavalo and its famous markets to the Equator to the stunning beautiful Lake Cuicocha where we had lunch and a boat ride in the crater of a volcano.

Sometimes Ecuador came in to visit us:

P8100185This year’s kinder and gentler shaman.

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Dancing on the Hacienda lawn

Photos courtesy of Kate

There was also our now traditional day of community service:

Chau gouri 5

Construction was done…

Photo courtesy of Gouri

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Kids were played with…

Photo courtesy of Susan

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Pinatas were broken..

Photo courtesy of Mr. Money Mustache

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Treats were gathered…

Photo courtesy of Kate

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…and rides were given in Cheryl’s “Ecu-truck”

Photo courtesy of Nick

The cost of this building project was funded from the Chautauqua revenues, and the commitment to help improve local lives continues long after our departure. 10% of the profits go back into Project One, Cheryl’s local Ecuadorian charity. Thanks to those who have attended, she is no longer funding it alone.

All thru the week participants continued the discussions, sharing their hopes, dreams and plans. Encouraging and reinforcing each-others efforts and commitment. As one person said, “I have found my tribe.”

And what an amazingly diverse tribe it was. Not just in race, religion (and lack of the same) and sexual orientation, although we enjoyed all three. But in:

  • Age – Ranging from geezers like me to folks in their twenties.
  • Occupations – Crossing the spectrum from high tech to international aid. People working for organizations ranging from the Canadian Red Cross to Google to USAid to FranklinCovey to Trout Unlimited; to name but a few. Entrepreneurs, engineers, sales people, a fellow blogger and a woman now back in war-torn Sudan doing her part to make life there a little better. Even a finance professor. To my surprise and great honor, she teaches my Stock Series in her class. Kinda blows me away.
  • Wealth – Ranging from multi-millionaires to people who’ve heroically shattered the grip of debt. Some already FI, some on their way.
  • Geography – They came from all over the US and Canada, Europe and Australia. A German, two Brits, a Scot and an Argentinian. The two Aussies get the award for furtherest distance traveled, but then, don’t they always? Coming in from the Sudan, by way of Canada, was only good for second place. Although, for spiritual distance, it gets my vote.

You might think such a wide-ranging group would be a recipe for conflict. You would be wrong.

Indeed, just as with last year, the single thing folks enjoyed most from their experience in Ecuador, was the chance to be with like minded people. The path of freedom, independence and financial security is surpassingly rare. Most of us are surrounded by family, friends and co-workers who not only don’t get it, they don’t believe it is possible. The chance to spend a week with people who do is the greatest, and most unexpected, value attendees take away.

If this sounds like your tribe too, maybe you’ll join us in 2015.

Finally, those of you who have read my post on how to travel know I don’t carry a camera. I lack the skill and interest. Fortunately, it doesn’t matter. There were attendees present who take far better pictures than I ever could, and I’ve been pleased to have already scattered this post with their work. Let’s end it with sharing still more:

Photos courtesy of Kate, Susan, Gouri, Nick, Mr. Money Mustache and Pamela.

Chau - pam4 Chau - Pam 5 Chau - pam 3 Chau - pam 2 Chau - Pam Chau kate c Chau kate d Chau kate d chau kate 4 Chau kate 3 Chau kate 2 Chau kate 1 Chau mmm 5 Chau mmm 4 Chau mmm 3 Chau mmm 2 Chau mmm 1 Chau gouri 9 Chau gouri 7 Chau gouri 6 Chau gouri 5 Chau gouri 4 Chau gouri 3 Chau gouri 2 chau gouri 1 chau nick 9 chau nick 8 chau nick 7 chau nick 6 chau nick 5 chau nick 4 chau nick 3 chau nick 2 chau nick 1 IMG_6190 IMG_6142 IMG_6124 IMG_2462 IMG_2403 IMG_2391 IMG_2375 IMG_2364 photo 5 photo 4 photo 3 photo 2 photo 1 IMG_1184 IMG_0960 IMG_0897 IMG_0750 2Cuicocha 2Cuicocha2 P8150518 P8140443 P8140412 P8130349 P8110249 P8110227 P8100185

 

Another take:

Chautauqua 2014: Higher elevation and new insights

A comic that captures the ethic:

itchy feet

Here’s an interview with the author.

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Stocks — Part XXVI: Pulling the 4% http://jlcollinsnh.com/2014/08/25/stocks-part-xxvi-pulling-the-4/ http://jlcollinsnh.com/2014/08/25/stocks-part-xxvi-pulling-the-4/#comments Mon, 25 Aug 2014 04:14:18 +0000 http://jlcollinsnh.com/?p=4195 Money working cartoon

Courtesy of Fritz Cartoons

At some point, if you have been following the Simple Path to Wealth described in these posts, you will be able to chose to have your assets pay the bills rather than your labor.

How quickly you reach this point will have much to do with your saving rate and how much cash flow you require. In any event, your assets will have reached the point where by providing ~4% they can cover all your financial needs. Or said another way, your assets now equal 25-times your annual spending.

Having left your employment, you will have rolled any employer based retirement plans, such as a 401k, into your IRA, and the investments themselves, will be split between stocks and bonds held in the allocation that best matches your personal risk profile. Ideally, these will be in Vanguard’s low-cost index funds: VTSAX for the stocks and VBTLX for the bonds.

As we discussed in The 401k, 403(b), IRA and Roth Buckets post, these two funds will be in your tax-advantaged and ordinary (taxable) buckets. By this time you will have pared these down to just three: IRA, Roth IRA and taxable. My suggestion — and personal portfolio — is to hold them as follows:

  • VBTLX in the IRA, as it is tax-inefficient.
  • VTSAX in the Roth IRA, because this is the last money I would spend and the money most likely to be left to my heirs. Roths are an attractive asset leave upon your death and, since this is my most long-term money, the growth prospects of VTSAX make it the preferred investment here.
  • VTSAX also goes into the taxable account as of the two funds, it is the more tax-efficient.
  • VTSAX is also held in our regular IRAs, as even it can benefit from tax-deferral.

As you can see, if you are single, you will actually have four fund accounts. VBTLX in your IRA and VTSAX held in all three places: Roth, IRA and taxable. If you are married, your allocation might look something like ours.

I hold:

  • VTSAX in my Roth and in my regular IRA.
  • Our entire bond allocation in VBTLX in my regular IRA.

My wife holds: VTSAX in her Roth and in her regular IRA.

Jointly we hold: VTSAX in our taxable account and minimal cash for spending needs in our savings and checking accounts.

So together we have two Roths, two IRAs and one taxable account. Across these we have one investment in VBTLX and five in VTSAX. Our allocation is 75/25, VTSAX/VBTLX.

It is also very possible that, even if you’ve embraced this Simple Path, you still have other investments. If these are in your tax-advantaged accounts you’ve likely rolled them tax-free into Vanguard. But if they are in taxable accounts, the prospect of a hefty capital gains tax might have persuaded you to hold on to them. When I retired, we also had some of these “cats and dogs”, mostly in the form of individual stocks I had yet to break the habit of playing with.

At this point the discussion risks becoming a bit complex. There is almost an endless array of ways you might withdraw the ~4% you’ll be spending from your investments. So, let’s start with the mechanics of how this works and then I’ll share with you some guiding principles and exactly what we are doing and why. From there you should have the tools you need to form your own strategies.

Mechanics

If you hold your assets with Vanguard, or any similar firm, the mechanics of withdrawing your money could not be easier. With a phone call or a few clicks online, you can instruct them to:

  • Transfer a set amount of money from any of your investments on whatever schedule you chose: Weekly, monthly, quarterly or annually.
  • Transfer any capital gains distributions and/or dividends and interest as they are paid.
  • You can log on their website and transfer money with a few clicks anytime.
  • Or any combination of these.

This money can be transferred to your checking account or anywhere else you choose. A phone call to Vanguard, and most any other firm, will get you friendly and helpful assistance in walking though it all the first time.

Principles

Next, let’s look at some of the guiding principles behind the approach we use and which I am about to share.

First, notice that in constructing our 75/25 allocation, we look at all of our funds combined, regardless of where they are held.

Second, we have all dividends, interest and capital gains distributions re-invested. I am not captivated by the idea of “living only off the income” as many are. Rather, I look toward drawing the ~4% the research has shown a portfolio like mine can support.

Third, I want to let my tax-advantaged investments grow tax-deferred as long as possible.

Fourth, as I am within ten years of age 70 1/2, I want to move as much as I can from our regular IRAs to our Roths, consistent with remaining in the 15% tax bracket. This strategy is described in detail in the post on RMDs (required minimum distributions). 

Fifth, once we hit age 70 1/2 and are faced with RMDs, these withdrawals will replace those we had been taking from our taxable account.

Pulling the 4% in action

1. First we think about the non-investment income we still have coming in. Even once you are “retired,” if you are actively engaged in life you might well also be actively engaged in things that create some cash flow. We are no longer in a savings mode, but this earned money is what gets spent first. And to the extent it does, it allows us to draw less from our investments and in turn allows them still more time to grow.

Cats-Dogs

2. Remember those “cats & dogs” I had left over in our taxable accounts? Upon entering retirement, those were the first assets we spent down. We started with the ugliest ones first. While you may or may not chose to follow the rest of our plan, if you have such remnants left in your own portfolio, I strongly suggest this is how you off-load them. Do it slowly, as needed, to minimize the capital gains taxes. Of course, if you have a capital loss in any of them, you can dump them immediately. You can then also sell some of your winners, using this capital loss to offset those gains. Any tax loss you can’t use, you can carry forward for use in future years. You can also use up to $3000 per year of these loses to offset your earned income.

3. Once those were exhausted, we shifted to drawing on our taxable VTSAX account. We will continue to draw on this account until we reach 70 1/2 and those pesky RMDs.

4. Since the taxable VTSAX account is only a part of our total, the amounts we now withdraw each year far exceed 4% of the amount in it. The key is to look at the withdrawals not in terms of the percent they represent of this one account, but rather in the context of the whole portfolio.

5. We could set up regular transfers from the taxable VTSAX as described above, but we haven’t. Instead my wife (who handles all our day-to-day finances) simply logs on to Vanguard and transfers whatever she needs whenever she notices the checking account getting low.

6. This withdrawal approach may seem a bit haphazard, and I guess it is. But as explained in this post, we don’t feel the need to obsess over staying precisely within the 4% rule.

7. Instead, we keep a simple spreadsheet and login our expenses by category as they occur. This allows us to see where the money is going and to think about where we might cut should the market plunge and the need arise.

8. Each year I calculate what income we have and, consistent with remaining in the 15% tax bracket, I shift as much as I can from our regular IRAs to our Roths. This is in preparation for the RMDs coming at age 70 1/2. When that time comes, I want our regular IRA balances to be as low as possible.

9. Once we reach age 70 1/2, we will stop withdrawing from our taxable account and let it alone again to grow once more. Instead, we will start living on the RMDs that now must be pulled from our IRAs under the threat of a 50% penalty.

10. While I’m fairly certain the money in our taxable account will last until we reach 70 1/2, if it were to run out we’d simply begin drawing money from our IRAs ahead of the RMDs. In essence, this would be the money I had been shifting into the Roths. And, again, I’d strive to keep what we withdrew consistent with staying in the 15% tax bracket.

11. Despite my efforts to lower the amounts in our regular IRAs, the RMDs, once we are both forced to take them, will likely exceed our spending needs. At this point we will reinvest the excess in VTSAX in our taxable account.

There you have it. While you could, you don’t have to follow this exactly. You are free to adapt what works best for your situation and temperament.

For instance, if the idea of touching your principle goes against your grain and you want to spend only what your investments earn, you can instruct your investment firm to:

  • Transfer all your dividends, interest and capital gain distributions into your checking account as they are paid.
  • Since all these together will likely total less than that ~4% level, should the need arise, you could occasionally log on and simply transfer some more money by instructing that a few shares be sold.
  • Or have your dividends, interest and capital gains transferred as they are paid and schedule transfers from your taxable account on a regular basis to bring the total up to ~4%.

For example, if you had $1,000,000 in your portfolio allocated 75/25 stocks and bonds:

  • At 4% your withdrawals equal $40,000
  • Your $750,000 in VTSAX earns ~2% dividend, or $15,000
  • Your $250,000 in VBTLX earns ~3% interest, or $7,500
  • That totals $22,500 and if that’s all you need, you’re done.
  • But if you want the full $40,000, the remaining $17,500 you’d withdraw from your taxable account. Taken monthly it would be ~$1498.

This seems overly cumbersome to me and I present it only to illustrate how someone focused on living on only their investment income might approach things.

Here’s what I would Not do

scolding

I would not set up a 4% annual withdrawal plan and forget about it.

As we saw in this post, the Trinity Study set out to determine how much of a portfolio one could spend over decades and still have it survive. Adjusting each year for inflation, withdrawals of 4% annually were found to have a 96% success rate. This became the 4% Rule designed to survive the vast majority of stock downturns so you wouldn’t have to worry about market fluctuations in your retirement.

It made for a great academic study and it is heartening that in all but a couple of cases the portfolios survived just fine for 30 years. In fact, most of the time they grew enormously even with the withdrawals taking place. Setting aside that in a couple of the scenarios this approach would leave you penniless, in the vast majority of cases it produced vast fortunes. Assuming you neither want to be penniless or miss out on enjoying the extra bounty your assets will likely create, you’ll want to pay attention as the years roll by.

This is why I think it is nuts to just set up a 4% withdrawal schedule and let it run regardless of what happens in the real world. If markets plunge and cut my portfolio in half, you can bet I’ll be adjusting my spending. If I was working and got a 50% salary cut I would, of course, do the same. So would you.

By the same token, in good times, I might choose to spend a bit more than 4% knowing the market is climbing and that provides a strong wind at my back. Either way, once a year I’ll reassess. The ideal time is when we are adjusting our asset allocation to stay on track. For us, that’s on my wife’s birthday or whenever the market has had a 20%+ move, up or down.

True financial security, and enjoying the full potential of your wealth, can only be found in this flexibility. As the winds change, so will my withdrawals. I suggest the same for you.

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Stocks — Part XXV: HSAs, more than just a way to pay your medical bills. http://jlcollinsnh.com/2014/08/18/stocks-part-xxv-hsas-more-than-just-a-way-to-pay-your-medical-bills/ http://jlcollinsnh.com/2014/08/18/stocks-part-xxv-hsas-more-than-just-a-way-to-pay-your-medical-bills/#comments Mon, 18 Aug 2014 04:51:41 +0000 http://jlcollinsnh.com/?p=5877 HSA_works

Much as been changing in the world of health care here in the US. While the opinions on these changes vary widely, one thing I can say with some certainty is that the number of people having access to and choosing High-Deductible Health Insurance Plans is likely to increase. These plans basically allow you to “self-insure” for part of your health care costs in exchange for lower premiums.

In the past, most health insurance plans came with very low deductibles and paid for most every medical cost beyond them.

Those were the good old days.

As medical costs have skyrocketed, so have the insurance premiums required to provide such comprehensive coverage. Now, by having the insured (that is to say, you) shoulder some of the risk, the high-deductible plans are able to offer insurance against catastrophic illness and injury at more affordable rates. In exchange the insured (you, again!) is responsible for paying the first medical bills out of pocket each year, typically $5-10,000. To make this a bit more affordable and attractive, Health Savings Accounts (HSAs) were created to help handle these out-of-pocket expenses.

Basically, these are like an IRA for your medical bills and, as we’ll see, the way they’ve been constructed creates some very interesting opportunities.

With an HSA, as of 2014, you can set aside up to $3300 for an individual and $6550 for a family each year. Like an IRA, you can fund this account with pre-tax money. Or, put another way, your contribution is tax-deductible. You can open an HSA regardless of your income or other tax-advantaged accounts to which you might also be contributing.

Here are some key points:

  • You must be covered with a High-Deductible Health Insurance Plan to have an HSA.
  • Your contributions are tax deductible.
  • If you use a payroll deduction plan through your employer, your contribution is also free of Social Security and Medicare taxes.
  • You can withdraw the money to pay qualified medical expenses anytime, tax and penalty free.
  • Any money you don’t spend is carried forward to be used when you need it.
  • Qualified medical expenses include dental and vision, things often not part of health care insurance plans these days.
  • You can use your HSA to pay the health care costs of your spouse and dependents, even if they are not covered by your insurance plan.
  • If you withdraw the money for reasons other than medical expenses, it is subject to tax and a 20% penalty.
  • Unless you are age 65 or over, or if you become permanently disabled; in which case you’ll owe only the tax due.
  • When you die, your spouse will inherit your HSA and it will become his or hers with all the same benefits.
  • For heirs other than spouses, it reverts to ordinary income and is taxed accordingly.

HSA-Allergy

This is also a good moment to point out that, while HSAs are often confused with FSAs (Flexible Spending Accounts), they are not at all the same. The key difference is that with an FSA, any money you don’t spend in the year you fund the account is forfeited. The money in your HSA, and anything it earns, remains yours until you use it.

What we have here is a very useful tool, and one well worth funding for those who have access to it. But as promised above and as might be said on a late-night TV infomercial…

Wait, there's more

Remember how I said this creates some very interesting opportunities? Some additional key points:

  • You are not required to pay your medical bills with your HSA.
  • If you chose you can pay your medical bills out-of-pocket and just let your HSA grow.
  • As long as you save your medical receipts, you can withdraw money from your HSA tax and penalty free anytime to cover them. Even years later.
  • While those who plan to use this money to pay current medical bills are best served (as with all money you plan to spend in the short-term) keeping it in an FDIC insured savings account, that’s not the only option.
  • You can choose to invest your HSA anywhere. Such as in index funds like VTSAX.
  • Once you reach the age of 65, you can withdraw your HSA for any purpose penalty free, although you will owe taxes on the withdrawal  unless you use it for medical expenses.

As we sit back and ponder all this, an interesting option occurs.Suppose we fully funded our HSA and invested the money in low-cost index funds? Then we’d pay our actual medical expenses out-of-pocket, carefully saving our receipts, while letting the HSA grow and compound tax-free over the decades.

In effect, we’d have a Roth IRA in the sense that withdrawals are tax-free and a regular IRA in the sense that we got to deduct our contributions to it. The best of both worlds.

If we ever needed the money for medical expenses, it would still be there. But if not, it would grow tax free to a potentially much larger amount. When we are ready, we can pull out our receipts and reimburse ourselves tax-free from our HSA, leaving any balance for future use. And should we be fortunate enough to remain healthy, after age 65 we can take it out to spend as we please, just as with our IRA and 401K accounts, paying only the taxes then due.

And how about those nasty RMDs discussed in Part XXIV? Well, so far the law has been silent on this point. It could go either way. Keep your fingers crossed.

The bottom line is that anyone using a high-deductible insurance plan should fund an HSA. The benefits are simply too good to ignore.

Once you do, if you choose, you can turn it into an exceptionally powerful investment tool. I suggest you do.

Addendum 1:

My pal, The Mad Fientist, calls this “Hacking your HSA” and he has created this cool graphic illustrating it:

I suggest you click anywhere on the above to see his full post describing the process,

as well as his post The Ultimate Retirement Account.

 

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Stocks — Part XXIV: RMDs, the ugly surprise at the end of the tax-deferred rainbow http://jlcollinsnh.com/2014/07/27/stocks-part-xxiv-rmds-the-ugly-surprise-at-the-end-of-the-tax-deferred-rainbow/ http://jlcollinsnh.com/2014/07/27/stocks-part-xxiv-rmds-the-ugly-surprise-at-the-end-of-the-tax-deferred-rainbow/#comments Sun, 27 Jul 2014 04:23:16 +0000 http://jlcollinsnh.com/?p=5856  rising from bed

 Illustration courtesy of The Hindu

Someday, if all goes well and you haven’t already, you’ll wake up to find you’ve reached the ripe old age of 70 1/2. Hopefully in good health, you’ll rise from bed, stretch and greet the new day happy to be alive. You’ve worked hard, saved and invested, and now are  contentedly wealthy and secure. Since you’ve diligently maxed out your tax-advantaged accounts, much of that wealth might well be in those, tax deferred for all these years. On this day, if you haven’t already, you’ll begin to fully appreciate the “deferred” part of that phrase. Because your Uncle Sam is waiting for his cut and he figures he’s waited long enough.

Except for the Roth IRA, all of the tax-advantaged buckets discussed in Part VIII of this series have RMDs (required minimum distributions) as part of the deal and these begin at age 70 1/2. This includes Roth 401k and 403(b) plans. Those you can and should roll into your Roth IRA the moment you get a chance anyway.

Basically this is the Feds saying “OK.  We’ve been patient but now, pay us our money!”  Fair enough.  But for the readers of this blog who are building wealth over the decades, there may well be a very large amount of money in these accounts when the time comes. Pulling it out in the required amounts on the government’s time schedule could easily push us into the very highest tax brackets.

Make no mistake, once you reach 70 1/2 these withdrawals from your IRAs, 401Ks, 403(b)s and the like are no longer optional. Fail to take your full distribution and you’ll be hit with a 50% penalty. Fail to withdraw enough and the government will take 50% of however much your short fall is. That’s right, they will take half of your money. This is not something you want to overlook.

The good news is that if you hold your accounts with a company like Vanguard, they will make setting up and taking these distributions easy and automatic, if not painless. They will calculate the correct amount and transfer it to your bank, money market, taxable fund or just about anyplace else you chose and on the schedule you chose. Just be sure to get the full RMD required each year out of the tax-advantaged account on time.

Just how bad a hit will this be? Well, there are any number of calculators on-line and you can plug-in your exact numbers for an accurate read of your situation. Vanguard has their own, but so do companies like Fidelity and T. Rowe Price. To give you an idea of what the damage might look like, I plugged into Fidelity’s to provide the following example.

You’ll be asked your birth date, the amount of money in your account as of a certain date they specify (12/31/13 when I did it) and to select an estimated rate of return. I chose January 1, 1945, $1,000,000 and 8%. No, those are not my real numbers. In a flash the calculator gave me the results year by year. Here’s a sample:

Year        RMD       Age       Balance 

2015        $39,416       70        $1,127,000

2020       $57,611       75         $1,367,000

2025       $82,836     80         $1,590,000

2030      $116,271     85         $1,742,000

2035       $154,719    90         $1,750,000

The good news is that even with these substantial withdrawals, the total of our account will continue to grow. Of course, as we’ve discussed before, these are estimated projections. The market might do better or worse than 8% and it most certainly won’t deliver 8% reliably each year on schedule.

The bad news is, not only do we have to pay tax on these withdrawals, the amounts could push us into a higher tax bracket. Or two. This, of course, will depend on how much income you have rolling in from your other investments, social security, pensions and the like.

To give you a frame of reference, here are the tax brackets for 2014:

    • 0 to $18,150 — 10%
    • $18,150 to $73,800 — 15%
    • $73,800 to $148,850 — 25%
    • $148,850 to $226,850 — 28%
    • $226,850 to $405,100 — 33%
    • $405,100 to $457,600 — 35%
    • over $457,600 — 39.6%

Based on this we can see that, even with no other income, by age 90 our taxpayer’s RMD of $154,719 will put him in the 28% tax bracket even without considering any other income.

And that’s based on starting with only $1,000,000. Many readers applying the principles on this blog and starting in their 20s, 30s, 40s and maybe even 50s can easily expect to have several multiples of that by the time they reach 70 1/2.

Something important to note here, and that confuses many people, is that this doesn’t mean he pays 28% of the full $154,719 in taxes. Rather he pays 28% only on the amount over the $148,850 threshold of the bracket. The rest is taxed at the lower brackets on down. Should his other income bump him over the $226,850 threshold for the 33% bracket by, say, one dollar, he will only pay 33% in tax on that one dollar.

Of course, if you think of the RMD as the last money added, that is the money taxed at the highest rate. For instance, if he has $73,800 in other income, taking him right up to the 25% bracket line, any amount of RMD will be taxed at 25% or more.

It is worth noting that all of this is before any other deductions and exemptions, and those serve to reduce your taxable income. While looking at all the possible variations is a discussion beyond the scope of this post, we can consider an example. For 2014 a married couple gets a standard deduction of $12,400 and personal exemptions of $7900 ($3950 each). In effect this means they don’t reach the 25% bracket until their AGI (adjusted gross income) reaches $94,100. ($94,100 – $7900 – $12,400 = $73,800)

shrugging-shoulders girl

So is there anything to be done?

Possibly.

Assuming when you retire your tax bracket drops, you have a window of opportunity between that moment and age 70 1/2.  Let’s consider the example of a couple who retires at 60 years old, using the numbers above. They have a 10 year window until 70 1/2 to reduce their 401k/IRA holdings. They are married and filing jointly. For 2014:

  • The 15% tax bracket is good up to $73,800.
  • The personal exemption is $3950 per person or $7900 for our couple.
  • The standard deduction is good for another $12,400.
  • Add all this together and they have up to $94,100 in income before they get pushed into the 25% bracket.

If their income is below this $94,100 they might seriously consider moving the difference out of their IRA and/or 401k and taking the 15% tax hit.  15% is a very low rate and worth locking in, especially if 10 years from now their tax bracket could be twice that or more.  True they lose the money they pay in taxes and what it could have earned (as we saw with the Roth v. deductible IRA discussion in Part VIII), but we are now only talking about ten years instead of decades of lost growth.

So, if they have $50,000 in taxable income they could withdraw $43,700. They could put it in their Roth, their ordinary bucket investments or just spend it. Rolling it into a Roth would be my suggestion and is in fact what I am personally doing.

You don’t have to wait until you are 60 or even until you are fully retired to do this. Anytime you step away from paid work and your income drops, this is a strategy to consider. Especially if you find yourself in the 0%-10% tax brackets. This is a variation of the Roth Conversion Ladder the Mad Fientist shared with us in Part XX. However, remember the further away from age 70 1/2 you are, the more time you give up during which any money you pay in tax today could have been earning for you over the years.

There is no one solution. If as you approach age 70 1/2, your 401k/IRA amounts are low, you can just leave them alone. If they are very high however, starting to pull them out even at a 25% tax bracket might make sense. The key is to be aware of this looming required minimum distribution hit so you can take it on your own terms.

One final note. We’ve touched a bit on tax laws in this post. While the numbers and information is current as of 2014, should you be reading this a few years after publication, they are sure to have changed. The basic principles should hold up for some time, but be sure to look up the specific numbers that are applicable for the year in which you are reading.

 

Addendum 1: 

In the comments below, Kenneth points out that Roth 401k and 403(b) plans DO have RMDs, unlike Roth IRAs. The solution is to roll your Roth 401k into your Roth IRA as soon as the opportunity presents itself. One more, of many, reasons to move from your employer based plans as soon as you are able.

Addendum 2:

Also in the comments, Mr. Frugalwoods wonders if there isn’t a charitable giving option/solution to dealing with RMDs. How to Give Like a Billionaire

Addendum 3:

Reader Sean points out in the comments an exception to the age requirement, and his explanation is much clearer than the IRS FAQ he cites as his source:

Hi Mr. Collins – just thought I would point out that there is a way to defer taking RMDs out of your employer’s 401(k) plan.

The IRS code allows someone who is over 70.5 to defer taking RMDs if he or she is not a 5% (or greater) owner of the employer and still a current employee. Note that the plan’s legal document must allow for this (it is an employer option to write this into the plan’s legal document, and most do this – but it is always good to check with this much money, taxes, and a potential for 50% penalty on the line.)

So if you continue to work for an employer past age 70.5, and you have no ownership in the employer, you could choose not to have these withdrawals, if you plan allows.

See http://1.usa.gov/1v7brrI for RMD FAQs. FAQ #1 states this exception.

So theoretically, this could open up the possibility of rolling over all of your tax deferred monies into that employer’s plan, and continue to work, and defer RMDs into the future…

 

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Summer travels, writing, reading and other amusements http://jlcollinsnh.com/2014/07/08/summer-travels-writing-reading-and-other-amusements/ http://jlcollinsnh.com/2014/07/08/summer-travels-writing-reading-and-other-amusements/#comments Tue, 08 Jul 2014 04:57:34 +0000 http://jlcollinsnh.com/?p=5411  

deer hugging

Katerina Plotnikova Photographs

Lake Michigan

The beach just steps out side the Shamba door

Summer is full upon us and so are the jlcollinsnh annual travels. This year we are headed back to our in-laws beach house on Lake Michigan in Wisconsin. It is a drop dead gorgeous setting with sandy beach stretching for miles in both directions. We call it Shamba, a Swahili word meaning, near as I can figure, a remote rural place. It is one of my favorite places in the world and we are fortunate that they graciously allow us its use.

In addition to walks on the beach, I’ll have some serious downtime to spend on the book. I’m about half way through the first major rewrite and with any luck will have rough manuscript completed by the time we leave. From there it is a process of polish, polish, polish.

Hacienda Cusin 2

Looking over the rooftops of Hacienda Cusin

We’ll have about a week back in New Hampshire before I head down to Ecuador for this year’s Chautauqua. We had an absolute blast last year and I am really looking forward to it. Plus being up in the Andes, it will be a welcome break from summer’s heat. While this event sold out in less than two weeks, word is due to cancellations we now have two spots open. If you are interested: Above the Clouds Retreats.

In my own post, Travels with “Esperando un Camino”, I talk about our prefered style of travel. This is what Somerset Maugham has to say:

“I admire the strenuous tourist who sets out in the morning with his well-thumbed Baedecker to examine the curiosities of a foreign town, but I do not follow in his steps; his eagerness after knowledge, his devotion to duty, compel my respect, but excite me to no imitation. I prefer to wander in old streets at random without a guidebook, trusting fortune will bring me across things worth seeing; and if occasionally I miss some monument that is world-famous, more often I discover some little dainty piece of architecture, some scrap of decoration, that repays me for all else I lose. I am relieved now and again to visit a place that has no obvious claims on my admiration; it throws me back on the peculiarities of the people, on the stray incidents of the street, on the contents of the shops.”

From The Skeptical Romancer

Same concept. He just says it more succinctly, with greater style and much more elegantly.

Meanwhile, here’s some random stuff that caught my eye and educated or amused me. Sometimes both.

aquascaping-4[2]

Charm of Light, designed by Timucin Sagel of Istanbul, Turkey

The landscape above is entirely underwater. As are these.

Urban Agroecoloy: 6,000 lbs of food on 1/10th acre

How talking about frogs leads to internet porn:  Explaining sex to an eight-year-old

Imagine you are a Martian sitting on your front porch sipping your morning coffee when this comes bouncing past:

How to get to Mars

Ever wonder what the journey to financial independence might look like in real-time? My pal the Mad Fientist is putting his Guinea Pig thru it right now:

Image

The Guinea Pig Experiment

Do you hate thinking, talking, reading about insurance? Especially life insurance? Me too. Might be why I never wrote about it for the blog. Now I don’t have to:

No one wears a bulletproof vest hoping to get shot

Yeah, it’s about insurance, but an easy and useful read anyway. Cool title, too.

How about taxes? Curious as to what your taxes might look like in retirement? While everybody’s situation will vary, here are two excellent posts from my pal Jeremy detailing his own tax strategy as he travels the world as an early retiree: Never pay taxes again and his actual 2013 tax return.

Space X falcon9-hero-1024x368

Reminiscing about the glory days of 2008 and losing 400k in the stock market

cat-canoe-gif

More on why VTSAX is the cat’s meow from:

Budgets are sexy and Thrifty Gal

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Sunk Costs: how to look forward not backward.

Here’s why jlcollinsnh.com can enjoy such a large European readership:

english speeaking -eu

Courtesy of Jakub Marian

  earth map on hands

What country fits you best?

The results say India for me. Well, I’ve been there a couple of times, but that was back in the ’80s. Might be time to go again!

World languages

Itchy Feet

Mad man philospher

Words of Wisdom from a (possibly) mad man

Selling Puppets in Manhattan

flower hooker's lips

“Hooker’s Lips” and other bizarre flowers

Coca-Cola magazine ads from 1960s (5)

See that thing on the guy’s finger. That’s a pull-tab, the way cans were opened once upon a time. They found their way onto the ground everywhere. People used to speculate as to what archeologists would make of these things in the distant future. I haven’t seen one in decades.

Here are more Coke ads from the 1960s. Slices of life back in the day.

In my Manifesto I end by saying: Read.

There is nothing you can’t learn, no place you can’t go, if you read.

So let me end this post with a few of the books I’ve read of late and highly recommend:
While out in New Mexico this past May, my friend Trish handed me a book of short stories by Somerset Maugham. She had marked three for me. I had heard of Maugham of course, but somehow never got around to reading him. I finished those three stories that night and was hooked. Returning home I picked up this one:

Maugham’s The Razor’s Edge might now be my all time favorite novel, although I still love Cold Mountain. Written in 1943 and set in the 1920s, it is the story of engaged Larry and Isabel. One who wants the free-spirit life of roaming and learning and the other who craves the luxuries and status wealth can provide. The dialog that leads to them to take their separate ways is stunning. Fun, but also an important read for those walking a different path.

In my luggage as we head to Shamba are two more of his novels, a collection of short stories and a collection of his travel writings. I’m not sure if these will inspire me in my work on my own book, distract me from it completely or leave me too discouraged in the face of such superb writing to continue with it. But I know I’ll enjoy the reading of them.

The 100 Year Old Man is laugh out loud funny and the story of an amazing life that unfolds simply by following fate where it leads.

Wash is a beautifully written and constructed novel set in the early 1800s. It is about slavery without all the clichés to which books about slavery typically fall prey.

Back in March while in Antigua, Guatemala more than once I’d stop by Sobremesa for a late dinner. The crowds had cleared by then and what was left was always an interesting mix of characters. One traveler was carrying Shantaram. Alex, the joint’s owner, reached below his counter and produced his own copy. At some 900 pages it is an intense travel adventure that will have you literally tasting the flavor of India as you read. Perfect book for your travels, exotic or home based.

One last thing. Sometime this winter I’m thinking of traveling to Uruguay and/or Argentina. If you happen to live there and/or have a connection and might be interested in meeting and offering some suggestions, please let me know.

Enjoy your summer!

Addendum – Ethical InvestingOverall I am not a fan of ethical investing. Not because, I hope, I’m not ethical but because anytime you ask investments to do more than make money for you, you begin to ask too much. Plus what is ethical is subject to very wide interpretation. Still it is a question that is important to many people and it comes up around here on a regular basis. My friend, FF, just published this excellent post both describing ethical investing and making the case for it. When the question comes up in the future I’ll just link to it. :)

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Moto X, my new Republic Wireless Phone http://jlcollinsnh.com/2014/07/02/moto-x-my-new-republic-wireless-phone/ http://jlcollinsnh.com/2014/07/02/moto-x-my-new-republic-wireless-phone/#comments Wed, 02 Jul 2014 18:06:56 +0000 http://jlcollinsnh.com/?p=5802 moto s

Moto X, my new phone

Long-term readers might recall my original review of Republic Wireless and their dreadful Defy XT phone last October. In short, I said great company to deal with, but wait until they make the Moto X phone available before you sign up. Having dealt with the Defy XT since then, that was excellent advice.

The good, no make that great, news is the Moto X has been on the market for a while now and I just got mine a couple of weeks ago. It is light-years better and a piece of technology that actually has made my life better and cheaper.

Better because the Moto X is far more user-friendly and cheaper because now I can switch between plans. With the new Moto X phone they are now offering four different plans. Here they are, as described by RW and cribbed directly from their website:

$5 Wi-Fi only plan
This is the most powerful tool in your arsenal of options. Why? You can drop your smart phone bill —at will— to $5. If you’re interested in getting serious about cutting costs, you can use this tool to best leverage the Wi-Fi in your life to reduce your phone bill. It’s also the ultimate plan for home base stickers and kids who don’t need a cellular plan. It’s fully unlimited data, talk and text —on Wi-Fi only.

 $10 Wi-Fi + Cell Talk & Text
One of our members, 10thdoctor said :  “I use WiFi for everything, except when I’m traveling and for voice at my school.” Yep, this is the perfect plan for that. Our members are around Wi-Fi about 90% of the time. During that 10% of the time where you’re away from Wi-Fi, this plan gives you cellular backup for communicating when you need to. This plan both cuts costs and accommodates what’s quickly becoming the norm: a day filled with Wi-Fi.

$25 Wi-Fi + Cell (3G) Talk, Text & Data
Lots of people are on 3G plans today and are paying upwards of $100 a month on their smart phone bills. That’s nuts. This plan is here for you during the times when you need the backup of cell data. For folks who want to surf Facebook and check email in the car (as a passenger!) or who travel regularly for work, this option lets them enjoy all the benefits of Wi-Fi with the luxury of 3G cellular data. You may find you only want this cellular back up part of the month —no problem! Switching during the month to the $5 or $10 plan is easy, and is a great way to keep more money in your wallet.

 $40 Wi-Fi + Cell (4G) Talk, Text & Data
We heard you tell us that you wanted a super fast option, so we added this arrow to your quiver. This plan is here for you when you’ve got a road warrior kind of month, and you’ve got a serious need for speed. Have to get work done on a long train ride? And need to work fast? This is your guy. Just like the other plans, it’s just a few clicks away.

Will I be able to switch between plans?
Yes! When you purchase a new Moto X phone, you’ll be able to choose whatever plan you like—and you can also switch plans up to twice per month as your needs change. For example, if you know you’ll be taking a vacation and might require more cell data one week, you can switch to a cell data plan right from your phone and then switch back to a Wi-Fi “friendlier” plan once you return home.

That ability to switch as your needs dictate has been pretty sweet for me. Mostly the $10 Plan serves my needs just fine, and that’s half the cost of the $20 per month I was paying with the Defy XT. When I travel domestically, I’ll bump up to the $25 plan so I can pick up the internet on the road. For my international trips I’ll drop down to the $5 Wi-Fi only plan since that’s all that works overseas anyway.

My wife picked up the new and less expensive Moto G phone and she likes it just fine. In fact, I’m hard pressed to tell the difference, although I’m told the X takes better pictures. But then our needs are modest.

So now, unlike my review last Fall,  I can recommend both Republic and their phones without reservation. If you’d like to give it a try yourself, just click on the ad below. By way of full disclosure if you sign up, this blog will earn a commission.

Since the Deft XT is my only other smart phone experience, I also asked my more tech-savvy pal Lito what he thinks of his new Moto X. You might recall Lito from the cool guest post he wrote: Cafe No Se. Here are his comments:

    • Big screen
    • Great graphics
    • Quite fast with in-phone processing (not including surfing the web)
    • Surfing is still quite good for $25/mo but it’s no I-Phone and depends on service
    • Surfing on wi-fi is pretty damn fast
    • The phone has a really cool operating system. It walks you through tons of features that it has. It really personalizes with you, and helps you get there. This was helpful since I haven’t used fancy technology in a long time (Lito has spent the last few years in Guatemala, where I met him) and feel like I missed the gap. I think this would be spectacular for an older audience that is intimidated by technology.
  • I love the company. I’ve had only the fastest/friendliest/best service. It feels so much more personal than any other company I’ve had before.
  • Call quality isn’t amazing, but it’s pretty good.
  • The speakers are really, really good for listening to music. Super loud, clear, and with a great range. This phone is nice if you want mobile music.
  • I really like the swipe texting. It’s a lot more intuitive than you’d think. It’s almost always spot on. Truly incredible.
  • 8GB seems like plenty of room for photos and a little music and some games.
  • I like how google links up lots of my things together without me paying attention. For example it gave me an update on my flight status even though all it must have had for info was an email somewhere. I programmed nothing as a reminder.
  • Even though the only change I made was upgrade from $10 to $25 I love the feeling that there’s no contract. You already know that, though.
  • Short battery life, but charges fast, too. Dead to 100% in about an hour and a half. (Battery life has been fine for me, but then I’m coming from the Defy XT where it was a real issue.)
  • It sounds weird, but I don’t like that when I set it down on the counter or whatever that the screen almost always auto rotates to widescreen. I realize I can set it to lock, but I like the rotate option. I think it’s just too sensitive. (Ha! I had never noticed this, but yep it does. Not an issue for me.)
  • The phone screen is confusing and I often call people accidentally just by holding the phone. If part of my hand wraps around the screen I touch a contact and it dials. I really don’t like that. It’s annoying.
  • The “Ok, Google NOW” touchless control is a little disappointing. I thought I was going to be able to have a sort of dialogue with the phone by giving it direct commands like “search my email for bla bla bla” but the majority of things I want to accomplish just end up as a search in a google bar.
  • Sometimes I feel like the phone is really hot in my pocket and I think  it’s plotting to take over the world or something. It’s obviously running programs or something and I know it’s burning battery. This may be a factor of its “always on” mode. At any time if you say “Ok, Google now” it’ll respond. That must cost a lot of battery. These things can be turned off, though.

If you have experience with Republic and any of their phones, please share your thoughts in the comments. Thanks!

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Stocks — Part XXIII: Selecting your asset allocation http://jlcollinsnh.com/2014/06/10/stocks-part-xxiii-selecting-your-asset-allocation/ http://jlcollinsnh.com/2014/06/10/stocks-part-xxiii-selecting-your-asset-allocation/#comments Tue, 10 Jun 2014 23:16:58 +0000 http://jlcollinsnh.com/?p=5597 ying yang

Life is balance and choice. Add more of this, lose a little of that. When it comes to investing, that balance and choice is informed by your temperament and goals.

If I had it to do over, this blog would be likely named The Simple Path to Wealth after one of my very earliest posts and currently the working title of my upcoming book.

Financial geeks like me are the aberration.  Sane people don’t want to be bothered.  My daughter helped me understand this at just about the same time I was finally understanding that the most effective investing is also the simplest.

Complex and expensive investments are not only unnecessary, they under-perform.  Relentlessly fiddling with your investments almost always leads to worse results. Making a few sound choices and letting them run is the essence of success, and the soul of the simple path to wealth.

If you’ve read this far in the Stock Series you already know this. You also know that, with simplicity as our guide, we look at our investing lives in two broad stages using just two funds:

The Wealth Acquisition Stage and the Wealth Preservation Stage.  Or, perhaps, a blend of the two.

VTSAX (Vanguard Total Stock Market Index Fund) and VBTLX (Vanguard Total Bond Market Index Fund)

The wealth acquisition stage is when you are working and have earned income to save and invest. For this stage I favor 100% stocks and VTSAX is the fund I prefer. If financial independence is your goal, your savings rate in these years should be high. As you invest that money each month it serves to smooth out the market’s wild ride.

You enter the wealth preservation stage once you step away from your job and regular paychecks and begin living on income from your investments. At this point I recommend adding bonds to the portfolio. Like the fresh cash you were investing while working, bonds help smooth the ride.

Of course, in the real world the divisions might not always be so clear. You might find yourself making some money in retirement. Or over the years you might move from one stage to the other and back again more than once. You might leave a high-paying job to work for less at something you love. For instance, in my own career it was never about retirement and there were many times when I stepped away from working for months or even years.

But using this framework of two stages and two funds, you have all the tools you need to find your own balance. In determining that balance you’ll also want to consider two additional factors: How much effort you are willing to apply and your risk tolerance.

Effort

For the wealth acquisition stage an allocation of 100% stocks using VTSAX is the soul of simplicity. Further, most studies have shown that this allocation provides the best return over time. But not all. Some studies suggest that adding a small percentage of bonds, say 10-20%, actually outperforms 100% stocks. You can see this effect by playing with this calculator: Vanguard Retirement Nest Egg Calculator You’ll also see that adding too great a percentage of bonds begins to hurt results.

Now remember that these studies are not carved in stone and like all calculators this one relies on making certain assumptions about the future. The difference in projected results between 100% stocks and an 80/20 mix is tiny. How those results actually unfold over the decades is likely to be equally close and the ultimate winner is basically unpredictable. For this reason, and favoring simplicity, I recommend 100% stocks using VTSAX.

That said, if you are willing to do a bit more work, you could slightly smooth out the wild ride and possibly outperform over time by adding 10-25% bonds. If you do, about once a year you will want to rebalance your funds to maintain your chosen allocation. You might also want to rebalance anytime the market makes a major move (20%+) up or down. This means you will sell shares in whichever asset class has performed better and buy shares in the one that has lagged.

Ideally you will do this in a tax-advantaged account like an IRA or 401k so you don’t have to pay tax on any capital gains. Having to pay capital gains taxes would be a major drawback and another reason to focus on holding just VTSAX. This rebalancing is simple and can be done online with Vanguard. It should only take a couple of hours a year. But like changing the oil in your car, it is critical that you actually do it. If you like this idea but are unsure you’ll remember to rebalance or simply don’t want to be bothered, here are two fine options:

Betterment

Target Retirement Funds

Both allow you to choose your allocation and then they will automatically rebalance for you. They cost a bit more than the simple index funds you’d use doing it yourself — you are paying for that extra service — but they are still low-cost.

Risk

Basically, bonds smooth the ride and stocks power the returns. The more you hold in stocks the better your results and the more gut wrenching the volatility you’ll be required to endure. The more bonds, the smoother the ride and the lighter the results. If you are going to hold stocks you need to be mentally tough enough not to panic when they plunge. And make no mistake, over the decades you own them, plunge they will. Usually at the most unexpected times.

There is a major crash coming and you’ve got to…

tougher up cupcake

…because nobody can predict when, despite all those claiming they can.

Let’s be clear. Everybody makes money when, as it has now since 2009, the market is on the rise. But what determines whether it will make you wealthy or leave you broken and bloody at the side of the road, is your ability to stay the course and ride out the storms. If you have any doubt as to your ability in this regard, you will be better off avoiding stocks. Regardless of what the calculators say.

Factors to consider in assessing your risk tolerance.

Temperament. This is your personal ability to handle risk. Only you can decide, but if ever there was a time to be brutally honest with yourself this is it.

FlexibilityHow willing and able are you to adjust your spending? Can you tighten your belt if needed? Are you willing to move to a less expensive part of the country? Of the world? Are you able to return to work? Create additional sources of income? The more rigid your lifestyle requirements, the less risk you can handle.

How much do you have? As we’ve discussed, the basic 4% rule is a good guideline in deciding how much income your assets can reasonably be expected to provide over time. If you need every penny of that just to make ends meet, your ability to handle risk drops. If, on the other hand, you are spending 4% but a big chunk of it goes towards optional hobbies like travel you can handle more risk.

Taking all these considerations into account, here’s what we do personally:

Our daughter is just beginning her career and her wealth acquisition stage. She wants things to be a simple as possible. She is 100% in VTSAX and likely will be for decades to come.

I am retired and my wife will be shortly. Assessing the three risk factors above our personal tolerance is very high. We hold an aggressive allocation of 75/25 stocks/bonds. The more common and conservative recommendation for our age would be 60/40 or even 50/50.

Our allocations very well might not fit your needs. But this post should give you an idea of how to approach the question and reading the Stock Series will help you understand just what you are dealing with when investing in the market. After that, you have to know yourself.

FAQ:

What if I can’t buy VTSAX, or even Vanguard?

What if I live in Europe?

What would the bursting of the bond bubble look like? (Thanks to Kenneth in the comments for this one)

When should I make the shift into bonds?

This is very much a function of your tolerance for risk and your personal situation.

For the smoothest transition you might start slowly shifting into your bond allocation 5 or 10 years before you are fully retired. Especially if you have a fixed date firmly in mind.

But if you are flexible as to your retirement date and more risk tolerant, you might stay fully in stocks right up until you make the change. In doing so the stronger potential of stocks could get you there sooner. But if the market moves against you, you’ll have to be willing to push your retirement date back a bit.

Of course, anytime you shift between the acquisition and preservation stages, you’ll want to reassess and possibility adjust your allocation.

Balance and choice. Yin and yang

Does age matter?

As you’ll note from above, I’ve divided investment stages by life stages rather than using the more typical tool of age.

This is an acknowledgment of the fact that people are living much more diverse lives these days. Especially the readers of this blog. Some are retiring very early. Others are retiring from higher paid positions into lower paid work that more closely reflects their values and interests. Still others, like I did, are stepping in and out of working as it suits them, their stages fluidly shifting.

So age seems not to matter. At least not as much as it once did.

But that said, age does begin to limit your options as it advances. Age discrimination is a very real thing, especially in the corporate world. As you get older you may not have all the same options readily available as in your youth. If your life journey involves stepping away from highly paid work occasionally, you’ll do well to consider this.

Further, as you age you steadily have less time for the compounding growth of your investments to work.

Both these considerations will influence your risk profile and you might well want to consider adding bonds a bit earlier if that’s the case.

Is there an optimal time of year to rebalance?

Not really. I’ve yet to see any credible research indicating a particular time of year works best. Even if someone were to figure it out, everybody would rush to it negating the effect.

I do suggest avoiding the very end/beginning of the year. It is a popular time for rebalancing and many are engaged in tax selling and new buying. I prefer to avoid the possible short-term market distortions might cause. Personally, we rebalance once a year on my wife’s birthday. Random and easy to remember.

I have some of my investments in tax-advantaged accounts and some in regular accounts. How can I rebalance across those?

This can be cumbersome and you’ll just have to work with what you have. While it is best to hold bonds in tax-advantaged accounts, it does complicate rebalancing.

First, you should be considering all your investments as a whole when figuring your allocation.

Next, as a rule it is better to buy and sell in tax advantaged accounts to avoid creating taxable events.

Unless you happen to have capital loses in a given year. Then it is best to take them in your taxable accounts when possible.

For instance, you might own VTSAX in both an IRA and in a taxable account. Should you need to sell to rebalance that year, sell in the taxable account to capture the loss. You can deduct it against any other gain you happen to have, including any capital gain distributions. You can also deduct up to $3000 against your earned income. Any loss leftover you can carry forward to use in future years.

Does more frequent reallocation improve performance?

Some contend it can over time. Betterment makes this case. I’m not sure I fully buy the premise, but I do like the way they use your new contributions and any dividends to make it happen efficiently. It is a bit more work, but if you like you can also do this yourself with your index funds.

What might my taxes look like in the Wealth Preservation/retirement stage?

While everybody’s situation will vary, here are two excellent posts from my pal Jeremy detailing his own tax strategy as he travels the world as an early retiree: Never pay taxes again and his actual 2013 tax return.

There you have it: The considerations you’ll need to review and the tools you’ll need to use to create the asset allocation that best fits your situation. I’d be very curious to hear what your asset allocation looks like and why. Please leave a comment if you are willing to share. Oh, and let me know if I missed anything that belongs in the FAQ.

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