Thursday, September 21, 2017

Warren Buffett wins bet that the S&P 500 index would outperform hedge funds

I love investing in index funds.  The simplicity, diversification, and low fees of index funds make it a clear choice for the bulk of our investments.

When you buy a share of an index fund, you actually own a small fractional component of the underlying pool of securities (stocks, bonds, real estate, etc) within the fund.  For example, if you buy a share of a stock index fund such as VTSAX, you own a piece of 3,607 stocks within the United States market.  This fund attempts to mimic the returns of the U.S. stock market.  Owning a large portion of the stock market helps you stay diversified.  If you own one stock and the company collapses, you lose everything.  When you own a piece of thousands of stocks, the winners balance out the losers.   

But don’t just listen to me, some random dude on the Internet.  The greatest stock picker of our time, Warren Buffett himself recommends investing in index funds.  In fact, Buffett has recommended that his wife buy index funds over shares in his own company’s stock. 

Mr. Buffett put his own money on the line when he offered a bet that over a 10-year period from January 1, 2008 to December 31, 2017, the Vanguard S&P 500 fund would outperform a portfolio of at least 5 hedge funds when performance was measured including all fees and expenses.  He publically wagered $500,000 of his own money.  You would think that there would be many investment professionals or stock pickers who would be willing to take on Buffet’s challenge – however only one person took the bet.  A hedge fund manager named Ted Seides of Protégé Partners took the bet and raised the stakes to $1 million.
As for the results? The compounded annual increase for the index fund was 7.8%, while the 5 hedge funds returned only an average of 2.2%.  Cumulatively, the S&P 500 index fund gained 85.4% versus the hedge fund average of 22.0%.  Warren Buffett has easily won his bet!  What is Mr. Buffett doing with his winnings?  He’s donating it all to the charity Girls Inc. of Omaha.

This simple bet goes to show that passive investors, those who buy and hold a simple index fund will likely outperform active investors.  Investment managers are brilliant, well-educated individuals with access to tons of information and data about the stocks that they choose to buy and sell.  These active investors charge a premium to their clients, sometimes as high as 2%.  The Vanguard Total Stock Market index fund only charges 0.04%.

If the “smartest” investors out there can’t even beat or match the average return of the market, what hope is there for an average Joe investor with a “gut feeling” about a certain stock?  Studies consistently find that index funds beat stock pickers handily time and time again.  We will stick to investing in index funds and follow the Bogleheads investment philosophy. 

Our investment portfolio continues to steadily grow.  We hit 100K in June 2014, then 200K in March 2016, then 250K in December 2016, then 300K in June 2017.  Today, we are at 330K. 
Our investments include money in our Roth IRAs, 401Ks, taxable accounts, and 529. This does not include money in our checking accounts, savings accounts or our home equity. 
For those looking for an in depth read about investing in index funds, I highly recommend reading financial blogger Jim Collins' Stock Series of posts here.  If you enjoy listening to podcasts, you can listen to the ChooseFI podcast interviews with JL Collins Part 1 and Part 2.

We continue to invest in index funds even though the market is now at all time highs, because no one knows what the future holds.  Time in the market is much more important than trying to time the market.  For a fun read, check out this article on the world's worst market timer.  The stock market is going to go up and it’s going to go down and we are going to keep steadily contributing along the way.  No one can accurately predict when the peak of the market is.  
There will always be new peaks in the stock market.  We can't consistently predict when the next peak will happen.  We can stay invested and enjoy the ride.

While the best time to have started investing was when you first started making money, the second best time is today.

Wednesday, September 13, 2017

Saving money on our Internet bill

Part of staying financially fit for us is regularly making sure we keep our expenses as low as possible.  We are always working on trying to further cut back where we can.  We’ve already cut a lot of expenses that many people pay without consideration.

Here are some of the expenses we’ve cut out of our budget:
We do all of our own laundry and do not get our clothing dry-cleaned.  My wife cuts my hair, as well as our son’s hair.  I groom my dog regularly (cut hair, bathe, cut nails, and brush teeth).  We do not pay for cable or satellite television.  We do not pay for a house cleaner.  My wife does not get any manicures or pedicures, and she gets a haircut once a year for $20.  We check out books from the library instead of buying them.  We bring our lunches to work and we usually cook dinner at home.  We don’t pay for cell phone service as my office covers it.  We also regularly monitor and keep our car and home insurance rates as low as possible.      

One expense we happily pay for monthly is Internet service. 
We get a lot of value out of being able to have WiFi Internet service at home.  Instead of paying for cable or satellite television, we stream movies, television shows and children’s cartoons on Netflix or Amazon Prime with our Roku media player.  Having WiFi at home also allows us to minimize our cell phone data usage.  We have an older AT&T cell phone plan that only gives us 6GB of data usage with rollover (we average about 3-4GB usage combined).

For the last 7 years, we have used Time Warner Cable Internet service.  The only other option for Internet in our area is AT&T but they only offer very slow speeds.  Over the years, we have been paying around $41.99 to $44.99 for 100Mbps speed Internet service each month.  Every 6 months or so, our bill has gone up by $5, requiring me to call and negotiate a decrease in our bill.  The reps that I speak with over the phone are usually very nice about lowering our Internet bill since we are long term customers.  It’s a minor inconvenience to save that $5 each month, but it adds up to $60 a year.  The phone calls usually only take about 5 to 10 minutes of my time.

Spectrum took over Time Warner Cable a few months ago.  I just found out that our next bill would have a $20 increase from $44.99 to $64.99!  When I called customer service, they told me that I was no longer eligible for promotional pricing and that $64.99 would now be my standard rate.  The rep would not budge or allow me to negotiate any discounts.  $20 each month comes out to be an extra $240 each year on the exact same service. 

I bet most people will see the rate increase, shrug their shoulders, and just pay the bill.  I knew I had to do something about this.

For new customers of Spectrum, the promotional price for the same Internet service is $44.99 for 12 months.  I find it offensive that Spectrum would treat loyal, long-term customers so poorly.  The rep that helped me told me that there was no way she could lower my bill.  She did tell me that there were 2 options to bring my rate down:

1. Cancel my service now and wait 30 days before signing up again as a new customer for the new customer promotional rate.

2. Cancel my service now and then have my wife immediately sign up as a new customer and receive the new customer promotional rate. 

Yes, the rep was actually recommending I cancel my account to save money! Option #2 seemed like a no brainer to me.  I had the rep cancel my account. 

The next morning our Spectrum Internet service was cancelled.  My wife then immediately signed up for a new account.  Spectrum now offers free Internet modem, which they included with the new account.  Although we did already purchase a modem a few years ago, I figured that the new one would probably be more efficient.  On my wife’s lunch break, she drove to the local Spectrum store and picked up the equipment.  Since we were going to do the installation ourselves (everything was practically already set up to run), we were not responsible for any delivery, activation, or installation fees.       

Setting up the new modem was a breeze – I just plugged in the network cable and plug the AC power cord into the outlet.  Our Internet service was up and running again within 5 minutes.  With a few minutes of work we were able to save $20 a month and $240 a year!  

Some people may be okay with throwing money away.  We prefer to spend money on things that bring us value. 

Friday, September 1, 2017

Side hustles August 2017

The great thing about doing side hustles to generate extra income is that you can hustle on your own terms.  The more hard work, time, and creative effort you put in, the more extra money you can make.  You can hustle as little or as much as you want, whenever you want.  It’s your extra money, and you can choose how you want to spend it.  Instead of focusing on what ideas don’t apply to you, try focusing on different side hustle ideas that you can implement to work for your situation.

Once a month (usually on the 1st), I like to post a short summary of our financial and personal situation for the previous month

Welcome to September, did everyone have a good August? 

It’s been a great month for our family.  As usual, we spend all of our free time between playing with our son, friends, and family.  We had a couple of family dinners.  Since we rarely eat out, it's such a treat to be able to go to a restaurant. 
Watching our son grow physically and mentally has been giving us the greatest joy this month.  He’s starting to talk more every day.  He loves going outdoors.  We go out for walks almost every day and really enjoy the exercise.
Our son loves to run along the walking paths in our neighborhood.  He gets excited pointing at all the birds and squirrels that we see.  
He loves touching all the different flowers we see along the way.  
Our son has so much energy and he just loves running everywhere we go.  Here he is running around the clothing racks at the local Goodwill thrift store.  
I’m so glad that our son lets my wife cut his hair every few weeks.  Our son has only gone to get a professional one time for his first haircut.  He didn’t enjoy that experience at all.  And we didn’t enjoy spending $26 on that haircut either.  
Our son getting ready for his haircut in our kitchen
It’s been pretty hot in Southern California over the last few weeks.  This past week we’ve had heat over 100 degrees for the last few days.  Our friend was nice enough to host a pool party for the kids.  Our son loved splashing around in the water.
Since we have 2 year passes to the Discovery Cube, we try to visit as a family once every month or two.  We really like the fact that exhibits here get revamped every few weeks.  Each time we visit our son gets to explore more and more of the center. 

Things are not all sunshine with our son.  While he gives us the most joy, he also gives us the greatest stress, especially when he is throwing a tantrum.  We’ve already had to deal with a few meltdowns.  Any parent of a toddler knows that dealing with a tantrum can really test your patience.  Still, we wouldn’t have things any other way. 

Having a family gives us a huge amount of motivation to strive towards financial freedom.  With a daughter on the way, we know our expenses will be going up soon.  We continue to strive to work at living a financially smarter lifestyle.  Our side hustle income gives our income a boost. 
Anyways, now that you've made it past tons of our family photos, here’s our monthly summary of side income that we have generated in the previous month of August.

Cash back
On 8.21, I received a $25 statement from Citibank on my Dividend card.  This is my oldest credit card that I have owned since 2000.  They recently ran a promotion offering 5% cash back on grocery store and gas station purchases (up to $25).  This was an easy promotion to take advantage of.  I can never say no to free money!  

On 8.26, I received a $1.00 deposit into my Discover Cashback Checking account.  I keep this online checking account open since you can earn 10 cents (up to 100 transactions per month) on debit card purchases, bills paid through Discover’s online bill pay service, or checks cleared.     

Survey Income
On 8.7, I received a check for $20 from E-Rewards Medical

Side Job
On 8.7, I received a check for $162.50 for teaching at the local university.
On 8.28, I received a check for $325 for teaching at the local university.
I love this side job.  It gives me a chance to share my knowledge with students who appreciate learning.  Teaching on the side is very fulfilling for me and also very low stress. 

Rental Income
On 8.5, we received a net profit of $430 from our rental property.

Website Income
On 8.24, I received a $100 direct deposit in our checking account for income generated by the website.  This payment came from Bankrate.  We don't make a lot of income from this website because I only promote and advertise companies or services that we personally use.  Thank you all for your continued support.     

Miscellaneous Income
On 8.5, I won a $500 travel grant as a raffle prize at a continuing education seminar.  Raffle tickets cost me $20 and the proceeds went to a charity, so I would have been happy just counting that $20 as a donation.  This credit has come at a great time since we will be traveling to Las Vegas, Nevada next month for an annual business conference of mine. 
On 8.19, I received total of $10 Amazon credit.  On 8.18, Amazon was selling free Echo Dots for a short while due to a promotional error.  A friend told me about the deal and I immediately ordered one.  The next day, my order was canceled but my friend did receive his free Echo Dot.  As a courtesy, Amazon gave me a $5 promotional credit.  I chatted a rep to complain and they gave me another $5 promotional credit.  

Monthly Totals:
We earned $26 cash back
I earned $20 from a paid survey
I earned $487.50 from my side job teaching at the local university
We earned $430 from rental income
We earned $100 from income from this website
I earned $510 from miscellaneous income

All of this totals $1,573.50 from our side hustles for the month of August.  Not a bad month of cash flow to add to our stash!   
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