Monday, May 23, 2016

Mortgages

Aka, why I will not be paying down my mortgage down (except to get to parity before I refinanced) anytime in the near future. Yep, I am addressing the holy war item of the personal finance world, "Should I pay down my mortgage?" In my case? No. *mostly

As a veteran (key since I have a 10% disability which allows for no cost refinancing) I have refi'd a number of times (and this is the third property that I have owned). I think I may be done for while now, since I am down to 3.25% APR. Now I love spreadsheets, so I spent quite some time crunching numbers. Because of the refinance I got back my escrow and skipped a payment, so I ended up with a fairly nice cash reserve (that I parked in a Betterment Safety Net account (40% stocks, 60% Bonds)) that I will slowly draw down over the next 4.5 years to get the principle down to the same amount I would have left on my old loan (and ends a month earlier than my previous loan). Did I mention that I really, really love using spreadsheets (and as a good husband I make sure that my wife has access to them and understands them)?

But then? I am going to stop (for a long time most likely). Why? Because mortgages are "good" debt. Right now even when I pull out the standard deduction and itemize, I come out ahead. And while the end result of an early paydown is nice (no payment other than insurance and Taxes!) you also have an asset that is mostly non-liquid (maybe a bit by HELOC, but those are tightening up like mortgages have) asset that, when you look at the historic return on property falls into the lowest category, below even bonds (note I said historically, this period seems to be an anomaly). I personally have set the goal of not letting my home equity represent more than 25% of my family's net worth (and at no point exceeding the amount I have in my cash/taxable accounts, like it does right now).

My "net" cost

  • P+ I + T + Insurance (no PMI, as a VA loan there is no PMI, even if I didn't already have 20%+ equity)
  • I + T is deductible (whatever your top marginal tax rate is, in my case that is ~33% for both Federal and State)
  • So gross cost is P + (I+T) * 2/3 + Insurance (but wait, if you look at it as I see it)
  • However, remember that P is increasing your share of the asset (increasing equity, lowering the overall loan... effectively an investment (a bad one, since in general property that you live in is among your worst asset classes historically)), so really, the big question is can you get similar housing for the cost of 2/3 * (I+T) + Insurance? In my area? You can probably hear my laughter from wherever you are reading this.
Now there are some additional costs. Maintenance is another factor (HVAC's die, Roof's rot, painting needs to occur) but relative to my mortgage payment (and like a good saver I even have a special account for home maintenance that I automatically stuff money into every month (I need to do more but what I have it at is barely twice the cost of the insurance... which is 1/60th of my payment)) it is fairly low. Because I have a townhouse there is an association fee (we have a shared garage so there is some value from that on top of landscaping and snow removal) and there is always the hidden risk of an assessment in the future.

On a final note there will be a point in the far (15-20 year range) that this situation changes. As your Interest component decreases there may come a point where the mortgage slips into the "bad" debt category, where the net cost makes a standard deduction viable again, which removes the tax advantage from the mortgage. And by that point, based on my portfolio it may make sense to start piling on to the mortgage again. 

Friday, May 20, 2016

Weekly Weight (6/20)

263.1

A little bit of concern but it has been a weird week (Drill this past weekend, where I passed my annual PT test (18:07 2 mile run, 60 push-ups in 2 minutes, 55 sit-ups in 2 minutes) and height and weight, then off to Florida to "vacation" with the kids/wife/parents (I had all the intentions of running every day, hitting the gym, etc. but those plans did not survive the enemy, I only got one run in and no other workouts, other than a lot of walking). With a 2 week trend I am a little annoyed (but I am doing a partial fast day today to set me back on the right course).
  • Week 0
    • 260.9
  • Week 1
    • 257.8
  • Week 2 
    • 260.1
  • Week 3 (now)
    • 263.1

I got a new Fitbit HR (to replace my Dead Basis Peak) so I am getting used to that again.

Friday, May 13, 2016

Betterment

So in addition to Personal Capital the other investing tool (other than my legacy accounts at USAA, which I have been reducing to limit my capitol gains exposure and to lower my overall cost (which I figured out from Personal Capital's Fee Analyzer and Investment Checkup ) is Betterment (https://www.betterment.com/) or better yet betterment.com/invite/danielbuchholz (since that is a win-win link, you get the cool features of Betterment for a 6 month for free, so do I (for a month), not that their fees are bad). Betterment is one of several "Robo-Investors" that have little to no personal contact, using questionnaires to determine what the ideal risk is for the investor and then giving them the tools to execute a portfolio based on that risk profile.

So there are always going to be people out there that will tell you that any fee's are bad and to avoid them at all cost, putting the entire sum into market tracking ETF (the current main love of most PF people is Vanguard, with their low entry cost, low fee on the ETF's). But I think that there are a few features of Betterment that offer some value to everyone but the most motivated investors:

  • Tax Loss Harvesting:
  • Automatic Re-balancing
    • In addition to spreading your investment across multiple assets (to give you an acceptable level of diversification) they will also re-balance your portfolio if it strays significantly from your ideal ratio (if it hits more than a 3% aggregate difference). It will also invest any additional money you put in to bring the investment ratio back to your target. 
    • https://www.betterment.com/portfolio/
  • No transaction fee (but there is a cost)
    • While they do charge a baseline fee (currently .35% for 0-10k, .25% for 10k-100k, and .15 for any amount above 100k) any additional costs for the features above (and for putting new funds in or pulling them out) is rolled into that baseline fee.
    • https://www.betterment.com/pricing/
I think this Robo-Investor trend is pretty neat (I am a technologist after all) and it makes getting into investing a lot easier for the novices to journeyman level investors.

The one feature that is lacking and may cause me to defect to another Robo-investor is a lack lack of options for UGMA/UTMA (Uniform Gift/Transfer to Minors Act) to put my kids money in. I do use a 529 for my kids (my state plan allows for me to deduct from State taxes so that works for me) but outside of some initial large gifts to my kids that went into the 529, the rest goes into their personal account. But savings accounts are a joke so I have at least some of their money now as "sub" accounts on my Betterment account (another neat feature, you can create multiple investing goals, all with different target portfolios).

Thursday, May 12, 2016

Weekly Weight (6/12)

260.1

Some may freak out (ZOMG, the scale must always be lower than the previous one). But as a trend line it is still going down and I feel comfortable with my general fitness (still getting stronger, Deadlift (3 sets x 6 for all of these) 270, Squat 235, Bench Press 250 and faster on my runs).


  • Week 0
      • 260.9
  • Week 1
      • 257.8
  • Week 2 (now)
      • 260.1

Next week may be bad (and a day late) as I have Drill this weekend and then a quick family trip until Thursday (so I also don't really see a fast day until maybe Friday of next week). But the trick is to eat as right as possible and get as much physical activity as possible.

Friday, May 06, 2016

Weekly Weight (6/5)

For transparency, and to keep me motivated, I am going to toss in a weekly weight report. Thursday is a good day to do it since I probably have been eating fairly clean (before heading into the weekend that offers more temptations).

So thanks to some fast days (Tuesday and Thursdays... they are more partial fast days since it simply means that I pretty much have nothing but coffee (with some cream) and some fish oil, though I will toss in some protein shakes if I am working out (with a little BCAA )) I am happy to see the lowest weight in 4 years (basically since I got back from Afghanistan in January 2012 I was 245lb, and by May 2012 I was 265 with a long upward climb until my embarrassment point of April 2015 where I tipped the scales at 287.5).

Last week (we will call that week 0) :

  • 260.9

Thursday : (week 1)

  • 257.8

Wednesday, May 04, 2016

TSP

(side note, been reading a lot of personal finance blogs in the past year or so every so often I am going to hit items like that in the future)

I am not a financial advisor so take this with a grain of salt, this is just my observations.

As a federal employee (times 2 actually, since I am federal civilian and a Army National Guard Officer) I get the opportunity to invest in the federal Thrift Savings Plan (TSP). On my civilian side it is a solid deal (considering that it is in addition to a defined benefits plan, FERS, that while nice isn't as nice as all the other other government employee programs (for some (good) reason state and local plans are the ones that really seem to create a lot of the controversy, because they were underfunded by their organizations and are insanely generous)).

Some basics. First off, for any federal civilian employee under FERS, if you are not contributing 5% of your salary, you are leaving money on the table (there is an automatic 1% contribution, but to get the full matching you really need to do 5%, which gets the other 4% matching fees into your account, where it can start doing some work for you.

Now the biggest complaint against TSP is the lack of fund selection, which is a fair complaint, since there are only 5 basic options (2 of which are effectively bond funds). Some of these complaints come from before 2001, since back then there were only 3 funds, the 2 bond funds and a general stock fund. But the 3 other options should give you a comprehensive risk exposure across a number of asset classes.  They are:


  • C Fund - Mirrors the S&P 500. 
  • S Fund - Mirrors the Dow Jones U.S. Completion Total Stock Market Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index.
  • I Fund - Mirrors the MSCI EAFE (Europe, Australasia, Far East) Index.
  • G Fund - The one controversial part of TSP and the frequent focus of legislation. If they ever change it to non-favorable terms (right now they get a weighted average of 4+ year returns of the Treasury notes, which means we are getting long term rates on a short term asset, which has attracted the attention of the Congress-critters)  I know I will be engaged in a rebalancing in that event.
  • F Fund - Matches Barclays Capital U.S. Aggregate Bond Index, which is more variable than the G Fund but often has a higher return. Less stable but more like regular bond funds.
There are also some "L" Funds that build a basket of the above items and are centered around when you expect to retire, basically slowly shaping your investments to be more conservative options the closer that date gets.

So overall, while solid it doesn't sound like the best deal (beyond of course putting in that minimal 5% to make sure you aren't leaving money behind). But the kicker comes when you look at fees. As of 2015 (https://www.tsp.gov/InvestmentFunds/FundsOverview/expenseRatio.html) the average expense ratio is .029%, which is the lowest among all my assets (and because just a little over 71% of my retirement assets, 55% of my total assets, it drags down my average to .05% in annual fees).

When I get a little older (maybe when I hit 50, 55) I may have to do some analysis of whether, from a tax perspective, it makes sense to explore the Roth TSP option.

BTW, one interesting feature. You can effectively make a loan to yourself (https://www.tsp.gov/PlanParticipation/LoansAndWithdrawals/loans/index.htmlfor up to $50,000. Other than a $50 cost, the interest rate you get is the effective rate of the G Fund. But the more interesting part is that any interest you pay is put into your account (so basically the marginal cost is keeping that amount loaned at a lower rate than it could  earn in the other funds).  


Sunday, May 01, 2016

April "Reads"/Reads

Lots of driving for the Army leads to more "reading"of audio books:
  • Joe Ledger: Special Ops (Joe Ledger #5.5) by Jonathan Maberry
    • A great collection of short stories. The Joe Ledger world combines high tech, investigation, action and, yes, a little of the unexplained (in some ways this is the X-Files from operators perspective as opposed to a more passive special agent perspective). They fill in some of the backstories of specific books and/or characters. This was a excellent way to prepare for the release of the new book in the Joe Ledger series later this month. (5/5) 
  • Do Unto Others (Freehold: Ripple Creek #2) by Michael Z. Williamson
    • Bodyguards. You may ask yourself, what can be more boring that being a bodyguard. Well.. When you are the bodyguard for the only child (daughter) of the richest man in human space? Well, then things get complicated. Located in the Freehold universe (authoritarian Earth that embodies the nanny state, but also containing Freehold, libertarian paradise) this is the story of the Ripple Creek bodyguards (from the previous book, Better to beg Forgiveness) who have the difficult task of keeping this young woman alive. (4/5) 
  • The Dark Between the Stars (Saga of Shadows #1) by Kevin J. Anderson
    • Bringing back most of the surviving cast of the Saga of the Seven Suns, this book jumps 20 years into the future (so now the children of the main characters are involved as well). There is a new bad guy for the hero's to face, as well as some returning bad guys and some new allies. It will be interesting to see how the story continues to develop, as the scope of this story is pretty far reaching (which leads to some significant jumps in perspective). Overall a solid story. (3.5/5)
  • Chaos (A New World #1) by John O'Brien
    • It was an entertaining read. The world is going down due to a flue virus, and the vaccine turns out to be worse than the disease. My one big issue was that it seemed to easy for the main character, Jack. He flies an C-130, there just happens to be one with extra internal fuel tanks. The only person he encounters in the sky is his girlfriends brother? Yeah, I want to be this guys friend since he appears to be the luckiest guy alive (and of course his GF is one of the few survivors at the military base in Kuwait she is at). I will definitely read (listen to) the next book to see where this goes. (3/5)