Financial stuff

Here is a breakdown of my investment returns for 2013. Although the stock market returned about 32% for the year I managed to do much worse. I don’t think I’ve ever given any advice here on investing in stocks and bonds, but if I did I hope you didn’t take it. I calculated the returns using the portfolio personal rate of return calculator at My Money Blog. The calculator doesn’t give your exact return, but it is close enough.

I have three different investment accounts. My Roth IRA which was invested in a bond fund. My Traditional IRA which is invested in index funds and my dividend stock account which consists of individual dividend stocks. I’ll share how each of them did and why I think they had sucky returns for the year.

I will start with the worst. My Roth IRA which was invested in a bond fund managed to lose 9.09%. This was quite a feat considering the bond fund I invested in lost 8.77% for the year. Somehow I managed to lose just a little more. It could have been even worse. I bailed out of the bond fund and into a money market fund about halfway through the year and it ended even lower than when I bailed out. I’m guessing my return was worse then the bond fund’s return because the additional investments I made early in the year were when the fund had appreciated a bit from the beginning of the year. I knew the bond fund would take a big hit when interest rates began to rise and I had been thinking of switching out of it, but I waited too long to do anything. I’m not sure what I’m going to do with this money now. The money market fund actually has a slight negative return after expenses so I don’t want to leave the money there. I’ll probably put the money back into a different, shorter-term, bond fund, but I am still a little wary of doing that. What would you recommend.

The second worst was my dividend stock portfolio. It managed to return 5.9% for the year. That is pretty bad when the overall market returned 32%. My worst mistake here was not being diversified enough. Part of the reason I wasn’t diversified enough was not having enough money. Since it costs $4.95 to buy a stock, I like to wait until I have a $1000 to invest before purchasing a stock. The most stocks I’ve had in the account was 10 which is still not diversified enough. I had to sell some of them in 2012 because I needed the money so for 2013 I only had seven stocks. A couple of the remaining stock positions were well under $1000 because I had sold part of them when I needed money. The two REITs I had in the portfolio were full positions and their value went down quite a bit due to the entire REIT sector going down over fears of higher mortgage rates. I stopped investing in that account last year and started buying stocks through LOYAL3 . This allowed me to diversify a little more since they don’t have any transaction fees and I can invest as little as $10 in a stock. When you have a small investment amount like I do not having to pay $4.95 to buy and sell the stock makes a difference. The big drawback to Loyal3 for me is that they do batch orders for buying and selling so you can’t be sure what price you will get. I’m holding off on buying any more individual stocks for now because I want to max out my IRA and build up my cash savings a bit.

My traditional IRA account was my best performing account for the year although it still lagged the overall stock market by quite a bit. This account returned 20.64%. The account was invested in a couple of domestic dividend stock index funds, a preferred shares fund, and an international dividend stock fund. The preferred shares fund and international fund both had small losses which dragged down the overall return. This year I’m not going to invest in the preferred shares fund. Also, the two domestic dividend stock funds have a lot of duplicate holdings so I’m just going to invest in the lower cost one from now on. Investing in both is an unnecessary extra cost.

My overall portfolio return for the year was measly 3.51%. I could make that much with a savings account. I’m hoping that with a change of strategy I’ll do better this year.

With the deadline to sign up for a new health care plan through Healthcare.gov approaching a couple weeks ago, I decided to give the web site one more try.  After signing in I saw that there was an option to discard my previous application.  Since that application never let me finish I scrapped it and started a new application.  I was pleasantly surprised that the new application worked and I was able to sign up for a new health insurance plan.  This is how the site should have worked when it first went live.

The only glitch was that when I finished the application there was a link to pay for my health insurance.  That link didn’t work.  I was able to contact the health insurance provider on my own and pay for the insurance.  The health insurance company also left me a voice message and mailed me a bill although I’d already paid my premium by the time those arrived.

After deducting my subsidy amount I will be paying $56 a month for health insurance.  That is $9 cheaper than I am currently paying, but the new plan would be $215 without the subsidy.  If I make more money than I predicted I’ll have to pay back some or all of the subsidy.   If I end up going full-time at my employer and receiving health insurance from them I’ll also have to pay back the subsidy.  On the other hand, if I end up making less than I predicted I could receive an additional subsidy amount when I pay my taxes.

The new plan does have a much smaller maximum out of pocket cap of $6000 compared to the $13,000 of my current plan.  That doesn’t seem like much of an improvement for a plan that costs $150 more a month.   It doesn’t matter much if my maximum out of pocket is $6,000 or $13,000.  Either way I have to pay out of pocket for doctor’s visits which means I won’t be going to the doctor and I won’t actually be receiving any health care for my money.  Either plan only helps me if I become seriously ill or injured.  I’m hoping someday the government can come up with a better solution to health care, but I’m doubtful that will happen.

  Now that I’ve been back from my cruise for a few days and all the expenses have posted on my credit card I’ll share a breakdown of the total cost of my cruise vacation.  This post will just be about the cost of the cruise vacation, I’ll share my thoughts about the cruise in a later post.

I think we did a pretty good job of keeping the total cost of the trip down.  It would have been difficult to cut the level of expenses without impacting our enjoyment of the vacation.  With the benefit of hindsight I might have spent some money differently and if I ever do go on a cruise again I’ll make sure to plan the port excursion days a little better.  The total cost of the trip would have been a lot less if we lived near a cruise port.  One of the many drawbacks of living in the middle of the country is that you are a long way from the ocean.

I’ve broken down the cruise vacation expenses as follows:

Cruise Tickets – $572.94
Air Tickets – $541.40
Travel Ins. – $56.00
Shuttle – $76.00
Parking -$29.00
Cruise tips -$115.00
Other tips -$14.00
Taxi -$22
Progreso – $58
Cozumel -$42
Souvenirs/gifts -$46.85
Drinks -$14

Total -$1587.19

Since we are splitting the cost of the vacation the cost per person we will each end up paying a little under $800 for the trip. That isn’t bad for a 5 night, 6 day vacation. It is a lot less than the trip would have cost us if we had gone during Christmas week.

Some of the expenses have already been paid since they were cash expenses. I tried to put most of the expenses on my credit card since it has a 0% interest rate until May of next year. Since my credit card is a travel rewards card I can also redeem my rewards to pay for some of the travel. Not all of the expenses were categorized as travel expenses so I’ll just have to pay those expenses. It doesn’t really matter that not all of the expenses were categorized as travel expenses since I won’t be able to earn enough rewards to pay off all the expenses that were categorized as travel expenses. My credit card allows me 90 days to redeem my rewards for travel credit. The cruise tickets and airline tickets are already a month old so I only have 60 days to redeem my rewards to pay them. Even if I do some manufactured spend I’m not going to earn anywhere near $1000 in rewards the next 60 days. The on board cruise expenses just posted though so I have 90 days to pay them off with rewards. Even though I won’t be able to pay off all the cruise expenses with travel rewards I should be able to pay off a few hundred dollars worth of the expenses. That will make a fairly cheap vacation even cheaper.

How do you think we did on keeping the cost of the cruise reasonable?

On my way back from the Financial Blogger’s Conference I made a detour to visit my mom. She lives in a small, rural town and almost everyone there drives a truck. A truck is the default vehicle for most of the residents, whether they are male or female, young or old.

This is a poor town and I hate to think how much money it is costing people to drive a truck rather than a fuel efficient car. Some of the people do need the truck for their work, but most people have a truck just because everyone else has a truck so they do too. These trucks are mainly driven back and forth to work and never have anything more than a couple of bags of groceries in the bed. Many of the trucks have accessories such as cattle guards even though the trucks never leave the pavement. I doubt many of the owners of these vehicles have ever figured out how much it is costing them to own a truck.

Some owners might think they need a truck because they do need to load things in the pickup bed a few times a year. If one is only needing the actual functionality of the truck a few times a year it would be cheaper to rent a truck or get a truck hire. Trucks can be rented at a fairly cheap daily rate and Home Depot even rents trucks by the hour. An article at Mr. Money Mustache explains how you can turn a little car into a big one and thus eliminate the need for a truck. The strategies in the post are to add a roof rack or even better add a bumper cargo box since it is more aerodynamic. If those two strategies don’t add enough space it is suggested that a small trailer can be obtained cheaply and be towed by even a relatively small car.  You also can fit a lot in a hatchback or wagon.  I’m able to sleep in the back of my hatchback and used it when I moved out of my latest apartment.

If you are driving a truck, you might ask yourself whether you really need the truck and whether you are getting a good value from owning a truck.

Using the early retirement calculator at Networthify I crunched the numbers for early retirement with an expense level of $500 a month.  This was mostly an academic exercise since I can’t currently live on that low of an amount and that probably won’t change.  The calculator lets you input a number of variables and it is interesting to see how the numbers change depending on which variables are changed.

For the $500 monthly expense scenario, I put in an income of $25,000 and yearly expenses of $6000 and a current portfolio value of $30,000.  The calculator uses a 5% annual return on investment and a 4% safe withdrawal rate by default, although these variables can also be changed.  I chose to leave them unchanged.  The results for this scenario state that I could retire in 5.3 years and I’d have a 76% savings rate.  If I reduce the savings rate down to 50% it would take me 14.3 years to retire.  Even if I changed my annual return on investment from 5% to 10% it would take me 10.9 years to retire with a 50% savings rate.  At the 76% savings rate changing the annual rate of return on investment from 5% to 10% it would take me 4.6 years to retire. Doubling my annual rate of return on investment would only let me retire a few months earlier based on a 76% savings rate.  These calculations make it clear that your savings rate is much more important than your annual return on investment when you are saving a large percentage of your income.

If I were to increase my income to $50,000 a year (which is a much more plausible scenario than reducing my expenses to $6000 a year) I would be able to retire in just 2.5 years based on $6000 of annual expenses.  Using a more realistic expenses level of $12,500 a year I would be able to retire in just 6.6 years at that income level.  Increasing my income from $25,000 to $50,000 would allow me to retire almost 8 years sooner.

Using the early retirement calculator shows that I shouldn’t be overly concerned about my annual return on investment.  What I need to focus on is keeping my expenses low and increasing my income.

Has anyone else used an early retirement calculator to see when they could retire?