Wednesday, July 26, 2017

It's Moving Week!

No post this week. We're moving to Washington!

Wednesday, July 19, 2017

Two News Stories That Illustrate How Stupid People Can Be With Money

Look, I know not everyone is a financial genius. I'm certainly not. But I would like to think that most people have some basic level of knowledge, some grasp of rudimentary concepts of what constitutes a good or bad financial decision. A financial equivalent, if you will, of common sense. Like "poking yourself in the eye is bad."

Sadly, the astoundingly high levels of credit card debt the average American carries (over $8,000!) seems to indicate otherwise.

The First Story

Take this story, published, appropriately enough, on the Fourth Of July:

The average length of an auto loan reached 69.3 months in June. That's over five and three-quarters years! For a car loan!

Let me put this another way: That's an almost six year loan to pay for something that has a crazy high depreciation rate! Someone who takes an auto loan for this amount of time will be underwater on the loan immediately and will continue to be underwater for probably 3.5 years, minimum. Yay, America!

I know not everyone can pay cash for a car. I get that it's tough to save money. But come on! If you have to take out a six year car loan in order to get the monthly payments to be something you can afford, then guess what? YOU CAN'T AFFORD THE CAR!

The Second Story

This one is even worse. Actually, there are a couple headlines, but they all say the same thing:

Sweet mother of god!

Are you serious?

People are actually putting their retirement savings into a virtual currency? Into.. nothing?! Why don't you just invest your life savings in tulips?

I have no words. When you start seeing headlines like these, you know we are in a bubble.

Please please please. PLEASE. Do NOT invest your retirement savings in cryptocurrency!

I'm not saying cryptocurrencies won't last or won't take off. In the interest of full disclosure, I recently purchased a bit of one cryptocurrency - Etherium. But I bought a small amount using money I could afford to lose. I bought it with gambling money, not my retirement savings!

Because that's what cryptocurrencies are right now - a gamble!

How'd you like to have your retirement savings invested in Etherium and wake up to this (actual) headline:

Come on people. Start making smart financial decisions. Stop poking yourself in the eye.

Wednesday, July 12, 2017

The Model 3 Is Released! Prepare For The Negativity!

The Model 3 officially went on sale last Friday. Prepare yourself for a flood of negative press for the next couple of weeks or months.

I don't expect the car to be bad. In fact, quite the opposite. I expect the car will be very high quality. But I am expecting a lot of news stories about problems with the car. Furthermore, I'm betting almost all of these so-called "problems" will be driver-related.

When Model 3s start rolling out their new owners, there will be a flood of people who will be getting their first taste of electric vehicles. There will be a learning curve and many people will flounder around against that curve for a bit.

Here are the types of stories I expect to see:

Cost-Related Stories

First, expect stories about how the typical Model 3 costs closer to $50,000 than $35,000. These stories have already appeared and I expect more of them to crop up.

The gist of these stories will be "the car isn't really low cost. It's still more expensive than the typical Toyota / Nissan / GM car."

Well, no.

The price goes higher than $35,000 because, just like every other car on the market, you can upgrade the options it comes with.

The base price for a bare-bones Prius is $23,475. But if I trick it out and add a bunch of options, I can get the price up to $32,646. That's a 39% increase over the base price.

Based on pre-order data, the average Model 3 sales price is $50,000. The increase from the Model 3 base price of $35,000 to $50,000 is 43%, so the Model 3 upgrades are comparable to upgrades on other mass-market cars.

Range-Anxiety Stories

Current owners of Model S and Model X Teslas have had time to adjust to driving an all-electric car. They know taking long road trips takes a bit of extra planning. You can't just throw some suitcases into the back and set out on a three day road trip. Tesla's network of Supercharger stations is large and growing larger every week, but they still aren't as ubiquitous as gas stations.

New drivers will face a learning curve. Instead of miles per gallon, they will have to learn about kilowatt-hours and power regeneration. They will see the car's displayed "miles until empty" counter vary based on speed and elevation changes much more so than in a gasoline powered car.

Expect lots of stranded motorist stories. This isn't a problem with the car. It's a problem with the driver not understanding that driving an electric vehicle will be a little different.

Keep in mind, the vast majority of driving is done locally and range anxiety will not be an issue at all.

Crash-Related Stories

This has happened already with the Model S, so there might not be as many of these. But the Model 3 includes the Autopilot functionality and many people will try it out and push it to its limits. The name is somewhat unfortunate because it's not yet a truly driver-less system and the driver still needs to pay attention to the road.

However, as with anything that goes mass-market, there will be those users that don't follow directions or read the manual. Those people will cause crashes. Again, it won't be the fault of the car. It will be driver error.

It's-Not-As-Green-As-You-Think Stories

There will be a bunch of stories about how the Model 3, and electric cars in general, are not as great for the environment as you might think. There will be analyses showing just how horrible the batteries are for the environment and how long it will take to recoup the costs, etc. These stories have already appeared and seem to pop up every 1 or 2 years.

They are almost always false and written by people with a vested interest against seeing electric vehicles (or Tesla specifically) succeed. A common tactic is to include all the environmental costs incurred in the creation of batteries in the environmental impact of the car, but neglect to include all the environmental costs incurred in drilling, pumping, refining, and transporting gasoline in the environmental costs of a gasoline car.  Whenever you see these types of articles, read them critically and make sure the authors are comparing apples to apples.

The Union Of Concerned Scientists did an in-depth study (warning: PDF link) comparing the environmental impact of electric vehicles to gasoline vehicles. They concluded (emphasis mine):
"From cradle to grave, BEVs (battery-electric vehicles) are cleaner. On average, BEVs representative of those sold today produce less than half the global warming emissions of comparable gasoline-powered vehicles, even when the higher emissions associated with BEV manufacturing are taken into consideration."

So Stay Positive

Despite what I expect to be a deluge to negative-slanted stories, the overall benefits of electric vehicles, and the Model 3 in particular, are enormous.

What types of Model 3 stories are you seeing or expecting to see?

Wednesday, July 5, 2017

Goal Update: End of June 2017

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of June, 2017
Current value: $32,282
Change from last month: +$697
Percent of Goal:  29.69%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

I saw an increase of $697 this month. Net income from my online courses was $100.50. My hard money loan generated $177.17 in income, which is a bit more than normal. See below for details. I received a check for $8.51 from a class action lawsuit settlement. I received $50 in gifts and I turned in a bunch of change for $58.45.

My hard money load was paid off, which means I got my principal back, plus some partial month interest for June. Normally, I would just leave this money with my partner and he would roll it into another loan. However, our biggest borrower has semi-retired, so we don't have as many requests for loans these days. My partner, who also works with other investors, has about $1.5 million in cash waiting to be loaned out and, as a result, he opted to return people's principal when this loan closed because he has no use for it right now. Business has shifted from lots of little loans on properties in not-so-great areas (the ones our biggest borrower specialized in) to fewer but larger loans on properties in nicer neighborhoods.

So now I'm looking for a place to deploy my funds. I still like the money lending business and I am looking at RealtyShares as a possible alternative. A couple of other bloggers I follow, Financial Samurai and Financially Alert, have invested with them. Their initial reports were positive, but I emailed them asking for a follow up to see if their opinions have changed.

One of the things I am concerned about is preservation of capital. If an investment goes south, I'm OK with getting a zero percent overall return as long as all my principal is returned. My hard money lending partner is also very concerned about this and the loans he makes are always at 75% loan-to-value or lower, so if the borrower does stop paying, we can foreclose, sell the property, and still get all our original investment back. I've got a 15 year track record with him. Investing with someone else brings a new set of risks and unknowns. How confident am I with their borrower screening process? With their property valuation methods?

Relocation Update

My house has finally sold! The official close of escrow is August 3rd. The contract was just accepted, so we still have to get through the home inspection. My buyer is pretty solid, so I'm not worried about him not getting a loan. He's pre-qualified for a $250,000 VA loan, but he's making a large down payment and will only need a loan of about $100,000. He put up $10,000 in earnest money, which is a large amount. His offer is also not contingent upon him selling another property. So basically, once we get through the home inspection and come to terms with whatever it finds, the sale should be pretty much a sure thing.

Net Worth Update 

For June, our net worth dropped by $7,788. This is the first time it has dropped since October 2016 and only the second time it has dropped since I've been tracking it.

May 2017June 2017
Note: categorizes our HELOC as a credit card debt, not a loan, hence the apparently high credit card balance.

It's hard to determine where the drop occurred from just these numbers because I'm in the process of moving money around. Because my hard money loan ended and my principal was returned, that money moved from the Property category to the Cash category. From my examination, it looks like the drop has mainly come from a decrease in the value of my house.

My net worth is going to jump around a lot the next couple of months. I'll be selling my current house, which will cause it to jump way up. Then, a little bit later, we'll be buying a new house in Washington, which will cause it to drop quite a bit as we take on a much larger mortgage. It's going to be a bumpy ride!

If you have any questions or suggestions for topics, please drop me a line in the comments section!