401(k) Contribution Limits Have Increased For 2018

The start of a new year brings with it many things and I’m not just talking about a bunch of resolutions you will break before February first rolls around. I’m talking about important stuff - stuff that will alter your paycheck.

Your Paycheck Is Going To Change

New tax rates go into effect at the first of the year, so you’ll likely notice the amount you have withheld in taxes changes. You could end up with a slightly bigger or smaller paycheck in 2018.

One change in 2018 that people may overlook is an increase in the contribution limit to 401(k) and 403(b) plans. The maximum amount you can contribute to these plans has increased by $500. The new maximum is $18,500. Few people actually reach that maximum, but if you were one of those people in 2017, you can now add a bit more to your savings in 2018.

As a side note, this is the first time this limit has increased since 2015.

If you are 50 years old or older in 2018, the catch-up contribution limit remains unchanged at $6,000. So if you will turn 50 years old in 2018, your maximum 401(k) contribution is $24,500.

Others Changes Are Also Happening

There are also changes to the amounts you can contribute to traditional IRAs. The phase-out income limits for who can contribute to Roth IRAs also changed. See this page at the IRS website for a list of all the retirement savings-related changes for 2018.

Make Changes, But Do So Carefully

If you are one of the lucky ones that is able to max out their 401(k) contributions, be sure to increase your contributions in January. But when doing so, please keep in mind that if you increase your contribution too much, you may end up missing out on some company matching. See my previous article here about this.

Option Writing For Passive Income Part Two

Back in August, I wrote about making passive income by selling cash backed naked puts. If you haven't read that post, I suggest you first go back and do that now. After four months of doing this, I thought I'd post about how it's going so far.

I made four trades total, each time selling 5 or 6 contracts with an expiration date three to four weeks out. Details of three of those trades can be found at these two posts. The fourth trade ended the day I am writing this (Dec. 15) when the options expired out of the money. Last week, Realty Income stock dropped and I thought there was a pretty good chance I would be called and have to buy the stock. However, the stock rallied 2 points this week to close at just over $57. My $55 options expired out of the money. This investment netted me a 9.11% annualized ROI. 

Compare This To Straight Out Buying The Stock 

The total amount of money I have received from trading naked puts since August is $899.70. How does this compare to if I had just bought the shares outright?

I sold my first puts on August 10. At that time, I sold 5 contracts, which translates to 500 shares. My other three trades were for 6 contracts, or 600 shares. So for this comparison, let's assume I bought 500 shares on August 10 and another 100 shares when I sold my second put - October 6.

Realty Income also pays a monthly dividend. If I owned the stock, I would have received this money, but, as an option writer, I do not. Furthermore, the company also raised the dividend during this period. So this comparison needs to include any dividends I might have received. (For the sake of simplicity, I'm going to assume I would not have reinvested the dividends and instead just took them as cash.)

The closing price for the stock on August 10 was $57.02. This would have been my cost to buy 500 shares. The closing price on October 6 was $56.48. This would be been my cost to buy an additional 100 shares, bringing my total shares to 600.

Had I bought the shares outright, my total gain would have been any price appreciation of the stock between when I purchased it and today plus any dividends received. Since my last batch of options expired today, we'll take today's closing price of $57.40 as a sell price for this comparison. My options figures include commissions, so we'll also take those into account for the stock purchase scenario.

Here are two tables showing the calculations. This first shows gains from the stock price going up. A negative price indicates a purchase, a positive price, a sale. The second table shows the dividends I would have received. The Dividend Record Date is the date I have to own the stock in order to be eligible to receive the dividend. The Dividend Payment Date is when the dividend is paid.

A Hefty Increase

As you can see, had I bought the stock outright, I would have made $733.30.

By selling naked puts, I earned $899.70.

I made 23% more by selling naked puts!

It Gets Better

And let's look at this another way to see how it can get even better. Assume the stock closed below the option strike price ($55) today and my options were called. I would be forced to buy the stock at $55. But don't forget, I've already been paid $0.40 per share to sell the option in the first place. Now let's also take into account the money I received from the previous three times I sold puts that were NOT called ($.55, $0.30, and $0.40 per share), that means I've already received a total of $1.65 per share. So if I had to buy today at the option price of $55, my actual net cost would be $55 - $1.65 or $53.35 per share. That means I would only have lost money if the stock closed below $53.35 per share. That's quite a bit of downside protection built in!

The more astute of you will realize that the more times I sell puts that are not called, the greater my downside protection becomes.

What's The Catch?

So why doesn't everyone do this? That's a good question. My overall profit was helped by one big factor - my options were never called. I was never forced to exercise the options, so I maximized my investment. I'd like to think this is because I'm a fantastic stock picker, but I'm not. In the long run, no one is. I happen to know this stock fairly well because it's been my main investment for over a decade.

The market is still volatile and things could have gone differently. If the the stock experienced a rally, I would have missed out on it. The price could have dropped a lot and I might have been forced to buy at a price over market value.

But here's the thing: I'm completely OK with my options being called. I wouldn't mind paying slightly over market value for this stock. Obviously, I would prefer my options are not called - I'll take that extra 23%, thank you very much - but I like the underlying stock and I would have no problems owning it. So this is pretty much a risk-free investment for me: If the options aren't called, I keep the money and do it again the following month. If they are called, I buy the stock and hold on to it. I'm happy either way.

I'm trading earning extra cash and getting a higher ROI now for the possibility of missing out on a big price increase. By only selling options with 3 or 4 weeks until they expire, I'm also minimizing this risk somewhat.

Make Some Extra Cash Before You Buy

Not everyone is in my position. This won't be a suitable investment strategy for many people. However, if there is a stock you are looking to buy, it might be worth your while to investigate this investment tactic as a way to pick up some extra cash as you buy the stock.

Cryptocurrency Update

Back in July, I wrote about how some people are putting their retirement savings into cryptocurrencies like Bitcoin or Ethereum. This is incredibly risky and stupid. However, if you have some extra money you can afford to lose, gambling money, if you will, it might be fun to experiment with cryptocurrencies. As I mentioned in that post, that is what I did.

My Experience With Cryptocurrencies

I initially purchased $200 worth of Ethereum around the time I wrote that previous post. Approximately 3 weeks later, the exchange rate fell and I bought another $200 worth. I used Coinbase as my vendor. I signed up using a referral link like this one, which gave me a free $10 worth of Bitcoin when I bought $100 worth of any cryptocurrency Coinbase supports (which currently is Bitcoin, Ethereum, and LiteCoin). You'll get the same deal if you use that link to open an account.

I opted to buy Ethereum because it was cheaper than Bitcoin and I felt it had more potential for growth. When I bought, I was credited $10 worth of Bitcoin for the referral bonus, which worked out to about 0.003697 Bitcoin. Doing the math, you can see that one Bitcoin was worth $2,704.90 at the time. Today, one Bitcoin is worth about $16,000 (after peaking at over $17,000 today). My $10 had grown to about $60.

I purchased a total of 1.38918114 Ethereum for the sum amount, including the Coinbase commission, of $406. One Ethereum was trading for about $287.94 at the time. As of this writing, one Ethereum is worth $462.07. I sold my coins and received $623.20 after commissions.

To keep the math simple, let's assume I bought all my Ether at the same time - 160 days ago. My ROI then works out to 53.5% in 160 days. That gives an annualized ROI of 122.04%!

My ROI on Bitcoin is infinite, since I got that money for free.

Not too shabby!

I'm Getting Nervous - Time To Exit

As I said, this was gambling money for me. I was prepared to lose it all. I thought about selling just enough Ether to recover my initial investment and letting the rest ride, but in the end, I decided against that, for the following reasons:

I am hearing all sorts of stories now about how Bitcoin is in a bubble. Personally, I think it is, as are all cryptocurrencies. I think they were when I bought some. Nevertheless, I bought some as a gamble to see what would happen. I'm not adverse to bubbles and it is possible to make money in them. The trick is being able to get out before they burst.

Although I believe Etherium is a more stable currency long term (and thus, less susceptible to huge value crashes due to its ability to run programs in the blockchain) right now, its value is closely tied to Bitcoin and they tend to move somewhat in sync. So if Bitcoin crashes, I think Ether will as well.

Over one million dollars worth of Ethereum, approximately 15% of the Ethereum network traffic, is being used to run a Pokemon-like game called Cryptokitties.  Farmville, anyone?

Bitcoin has reached a level of mass inroads into the general financial markets. Mutual funds that trade cryptocurrencies have been formed. Wall Street  hedge funds are investing in it. The Chicago Board Options Exchange has started selling Bitcoin futures.


The potential for Bitcoin price manipulation seems credible.


Keep in mind, these are virtual currencies. There is NOTHING underlying Bitcoin or Ethereum to give it its value.

To me, all of this adds up to a bubble.

I decided not to be greedy. The run-up may continue for quite some time. However, news of problems, such as hundreds of millions of dollars in lost digital currency, wallet providers getting hacked and closing down,  and cryptocurrency hard forks has made me very nervous. I decided I was happy with my 122% ROI and cashed out.



Note: Two days after I sold my Ether, Coinbase suspended all trades in Ether and Litecoin when a rally caused prices to spike. Ether was trading at over $630 - almost $200 higher than when I sold two days ago - but if you can't trade, the run-up does you no good. This unreliability of the trading platform is another thing that was making me nervous. And it's not just Coinbase. Other virtual currency wallet companies can do the same thing. There is very little regulation of these companies right now.

Goal Update: End Of November, 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 November, 2017
Current value: $37,550
Change from last Month: +1,385
Percent of Goal:  34.53%

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:

My SQL courses on Udemy generated $96.64 of income. One of my courses was selected to be part of the Udemy for Business program. This means Udemy will be including the course in a package of courses that they sell to businesses. I will earn income based on minutes viewed for courses in this program rather than earning a flat fee per course sold. There seems to be great potential for a large number of students with this program.

And speaking of getting paid per minute viewed, I received my first payment from SkillShare. I made $11.14. Not bad considering I only have 5 students there and they have only watched about 200 minutes of my courses so far. Next month is looking better: I'm up to 11 students and 300 (additional) minutes already.

Cash Backed Naked Put Update

As I mentioned last month, Realty Income stock took a bit of a dip and I was able to sell some cash backed puts at what I felt was a very safe strike price. I received $231 for selling puts with a strike price of $52.50. Sure enough, the price rebounded and when the options expired, the stock was trading at $56.48. This means I keep the $231 I received and was not forced to buy any stock. This three week investment netted me a 10% annualized ROI.

I turned around and made pretty much exactly the same trade on November 22 - I sold 6 puts for $0.40 for a net income of $231. This time, the strike price was $55 with an expiration date of Dec. 15. I have a feeling my options might be exercised when that date rolls around and I'll have to buy the shares. As of this writing, the stock is trading at $55.55. It has to stay above $55 for 2 more weeks for the options to expire worthless (which I want). My mistake, if you can call it that, was that I miscounted the weeks remaining in this option when I sold it. I normally like to only have about 2-3 weeks until the option expires but this time, I sold options 4 weeks out. That gives me a little more exposure than I like.

Assuming the options don't get called, I'll have made a 9.11% annualized ROI. If the stock closes on Dec. 12 below $55, I'll have to buy 600 shares at $55 each. I'm not opposed to that. I like the stock and have no problem owning it at that price. It's just that then I'd be earning a 4.66% ROI from the monthly dividend instead of roughly double that by selling options each month. We'll have to wait and see how this one turns out.

In other news, I've changed jobs! Starting yesterday, I'm now working for a new company based in the Washington area. Although not the reason for the change, the new position did come with a 28% salary increase, plus a significant signing bonus. There was one drawback, but I'll get into that next week. Once I know what my regular paycheck will be, I'll be re-figuring my budget. I expect I'll be able to up the amount I put in the Tesla fund each month!

Net Worth Update

Our net worth increased by $9,922 over last month. This is more or less just a reporting adjustment. Mint finally resolved their issue with accessing my 401(k) account, so that figure finally got updated after a couple of months. (Note there is no more red dot next to the Investments" category.) I did pay about $10,000 in a repair bill for the new house, but the check has not cleared the bank yet, so that's not reflected in this month's numbers.

October 2017

November 2017

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

Equifax Gives Free Credit Monitoring To Pretty Much Everyone In The U.S.

In July, Equifax discovered its security systems had been compromised and the financial data of up to 143 million Americans had been stolen. Compromised data included names, addresses, social security numbers, drivers license numbers, birth dates, and credit card numbers. It was, quite frankly, a colossal screw up.

Equifax has a website you can use to see if your data was part of the compromised information. Visit https://trustedidpremier.com/eligibility/eligibility.html and enter your last name and the last 6 digits of your social security number.

If your data was affected, I would strongly suggest signing up for the TrustedID Premier service Equifax is providing for free. Do this by visiting https://www.equifaxsecurity2017.com/ and clicking the Enroll Now button. Enrollment is offered for free through January 31, 2018.

And here's a bonus - even if your data was not affected, you can still sign up for one year of this free service. Yes, anyone and everyone in America can sign up for this for free before January 31! Note that when signing up, you will be asked certain questions from your credit history - things like what street have you lived on, who you've had a mortgage with, etc. These are multiple choice questions and should be fairly easy to answer.

This is 100% free. There is no auto-renewal after 1 year where you have to pay. You don't have to provide any payment information to sign up.

The Benefits

By signing up for TrustedID Premier, you get:

• Identity Theft Monitoring - Your credit report at all three major credit bureaus will be monitored for suspicious activity.
• Free copy of your Equifax Credit report - This is in addtion to your yearly free copy you can get from annualcreditreport.com
• Ability to lock your Equifax credit report - This will prevent unauthorized third parties from accessing you credit. This is slightly different than a credit report freeze (more on that later).
• Social Security Number Monitoring - They will monitor the internet for appearances of your social security number of sites that sell such information.
• $1 Million Dollars Of Identity Theft Insurance - This will pay for certain out of pocket expenses if you are affected by identity theft.

Lock Versus Freeze

The old way to stop people from accessing your credit report was to put a freeze on it. You can unfreeze your report by phone, mail, or online by using a PIN you set up when your placed the freeze. Placing or removing a freeze can cost money, depending on the state you reside in.

I've done this in the past and it was a pain in the ass. This was probably because I forgot my PIN and had to jump through all kinds of hoops to prove my identity.

A lock is a more modern process and can be readily turned on and off with mobile devices. This can be done immediately and on demand.

Both locks and freezes must be done for each credit bureau separately.

The Bottom Line

The Equifax data breach was huge and its full effect might not be felt for some time. Your stolen data may be sitting dormant for months before it gets sold. Be proactive and protect yourself from identity theft by enrolling for a year of free coverage with TrustedID Premier.

I Reached A Passive Income Milestone! Let Me Show You How You Can Do It Too.

I’ve written before about passive income and why it is great. It’s the underlying basis for this blog – I plan on paying for my Tesla with passive income.

Sometimes, passive income can be boring. Actually, I prefer it to be boring. When I talk about passive income, I want the same, predictable amount coming to me each month (or, even better, an increasing amount). I’m not looking for huge gains one month and losses another. Slow and steady wins the race. But then, there's boring and there's boring.

Boring Boring

The most boring type of passive income is bank account savings. If you have an account that pays you any interest at all, it’s probably under a buck a month. *Yawn* That’s boring and even I will admit it’s probably a little too boring.

Run-Of-The-Mill-Boring

If you own a dividend paying stock, that can be boring too, but it’s a bit closer to the type of boring I like. Hopefully, the company you’ve invested in regularly increases the dividend and rarely, if ever, reduces it. If you are reinvesting the dividends, you end up buying more shares of the stock each time the dividend is paid. Because the stock price varies, the amount of the stock you get when reinvesting will vary. This is my kind of boring. Still, unless you own a good chunk of shares, it’s probably a small amount you get each time the dividend is paid.

Exciting Boring!

My favorite kind of boring, the exciting boring, if you will, is royalties. Royalties are the income you receive for something you created. You spend some time once creating something and then you can sell that something over and over, making money each time, with no further effort on your part. Royalties can be really small – check out some of my monthly updates and you’ll find sometimes I receive a penny for my ebook royalties – but they can be larger as well.

Source Of Passive Income Excitement

With royalties, the excitement comes from two components: volume and time.

The more of something you sell, the more money you make. Even if it’s a small amount on each item individually, if you sell enough of something, those little amounts join forces and become large amounts.

Time is the other big component. You’ve already invested your time creating whatever it is you are selling. If you can keep selling that item for years, your income will add up.

This really hit home for me this month because my online courses just crossed a major milestone:

That's a lot of smackaroos!

This month, I crossed the $10,000 threshold for income from my online courses! I created and sold my first course in August 2013. My total monetary cost was $149 for a microphone. I spent several hours developing and recording my first course. The subsequent three courses were made more quickly, as I had gained a lot of experience with my first one.

After that initial work, I have done next to nothing. I’ve had a spend a few minutes here and there answering questions from a student or two, but for the most part, once I published the courses, my work was done.

Four years later, those courses have made me over ten thousand dollars! They are still generating income. Furthermore, I recently posted them on another training site and they have started earning me money over there as well.

Small incomes over a long time period. That’s the type of boring I like.

You Can Do It Too

There are many ways to create a royalty stream and you should pick the one that best suits your skills and knowledge. I chose to create computer-related courses, but you can make courses about almost anything. See my post here about this type of side hustle.

If you are musically inclined, try writing, performing, or producing music. Create some songs and sell those.

Do you prefer words to music? Write stories.

Paint.

Take photographs.

The internet makes it very easy for anyone to create content and sell it. If your content can be delivered electronically, you have no ongoing production costs, no shipping charges, no assembly. You can sell your creation over and over, automatically. Just sit back and collect the income.

I know that is making it sound easy. You do need to be able to produce something that people want or have a need for. It helps greatly if you are knowledgeable in your subject. But if you really enjoying doing something, you probably already are knowledgeable about it anyway.

The costs of entry are so low, there is really no excuse to not try. Look what my investment of $149 and a couple of weekends has returned so far!

Get out there and create your own passive income stream!

Your House Is Not An Investment

"Your house is not an investment." - My grandfather

My grandpa told me this one day when I was a teenager. He was driving me home from somewhere and we were stuck in traffic on the freeway. I don't remember what the whole conversation was about, but that line stuck in my mind because it was the opposite of what I heard so often before: "The path to the American Dream starts with home ownership."

Many people, including financial advisors, advocate home ownership as a top financial goal to strive for. And for many people, this is perhaps a smart move. Real estate values generally rise over time although, as we have seen in the last decade, there can be dramatic corrections. A mortgage payment is a type of forced savings plan because you are forced into paying down your principal each month, building up your equity in your house that you can recoup when you sell it.

But to call your home an investment is not true. As any home owner will tell you, it costs money to own a house. I'm not talking about the mortgage payment. I'm talking about all the expenses that go into keeping a house in a livable condition. Consider:

• Your refrigerator died and all the food inside went bad and had to be thrown out. Plus, you had to buy a new refrigerator.
• Your yard is overgrown with weeds, so you need to hire a gardener or buy a lawn mower and spend your weekends keeping the plants under control. 
• The yard attracts pests, so you need to hire a pest control company to stop the bugs from invading your family room.
• The water taps for your washing machine have corroded and are now leaking all over the floor.
• Rodents played in your crawlspace and destroyed the vapor barrier, which needs to be replaced before the wood walls start rotting.
• The condensation drain line for the air conditioner in the attic plugged up, causing the drain pan to overflow and you now have water damage to your ceiling.
• A glass seal on your double pane window broke and let water in, which damaged the window sill. Both the sill and window need to be replaced.
• After 15 years, the insulation in your attic has broken down and needs to be replaced.

I'm not making this up. Every one of those things has happened to me at some house I have called home. We're talking tens of thousands of dollars in repairs.

If it regularly costs you money, it's not an investment.

Investments put money in your pocket. Your home does not put money in your pocket.

The only time a house is an investment is when you own it and rent it to someone else. Then, it's putting money in your pocket.

This isn't to say owning a home is bad. I don't think it is. You need a place to live and a house provides that. You get the benefits of a mortgage interest tax deduction, but you also have the maintenance expenses. One could make a persuasive argument that it's just as smart financially to rent an apartment as it is to buy a house.

So look at your house as a place for you to live and raise a family. Fix it up the way you want. Make it yours.

Just don't think of it as an investment.

Goal Update: End Of October 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 October, 2017
Current value: $36,165
Change from last Month: +1,201
Percent of Goal:  33.3%

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 just over $1,200 this month!

I was able to sell another round of cash-backed naked puts of Realty Income for a net income of $171. In terms of a dollar amount, this is less than I made last month doing this, but because the options I sold this month have a shorter time until expiration - two weeks - my annualized ROI is actually higher. The options expired out of the money on 10/20, so I earned an annualized ROI of 10.22%, higher than the 8.28% I made last month.

Realty Income stock took a little bit of a dive in the fourth week of October, so I turned around and sold another 6 contracts on 10/23 for $0.40 per share with a strike price of $52.50. They expire 11/17, which is three weeks out. That's about one week longer than I prefer, but the stock was heading down, so I thought it would be a good time to make a little money. The 52-week low for the stock is $53.63, so I think there's a good chance these options will expire out of the money. Total cash received for this was $231 and I stand to make a 10% annualized return.

My courses on SkillShare.com have seen a little bit of activity. Students have watched 188 minutes total of my three courses. I don't have details on how much income that translates to yet - October stats aren't paid out until November 16th. I don't expect it will be much. I should note I haven't really done any promotion for these courses (other than what I have written about here) and I've only got a total of 5 students enrolled. I'm going to wait to see what the payout is before deciding how much effort I should put into promoting them. I've got one more class ready to publish over there, but I'm going to wait until my other classes have more students. When you publish a new course, students of your other courses are automatically notified of your new offering, so that's free advertising.

Over on Udemy however, I picked up another $128.60 in income.

I earned a whopping $0.01 on my ebook royalties.

Achievement Unlocks!

It's been a while since I last unlocked an achievement and this month, to make up for it, I've unlocked two!

I crossed the $35,000 saved threshold!

And I reached 33.3% of my goal!

For those old folks that remember vinyl

Relocation Update

We have moved into our new house! We've still got boxes everywhere and are trying to figure out where to put stuff. We also had to have some maintenance work done to the house, so that is a big reason why our net worth dropped this month - several thousand dollars worth of new paint, new carpet, repairs, etc. Our garage is filled with furniture that does not fit into the new house, so I'm also selling that off a piece at a time on Craigslist.

Net Worth Update 

Our net worth dropped by $2,069 from last month. This was due to the aforementioned repairs. Some bills have not come in yet, so next month I'm expecting another drop of about $10,000.

September 2017

October 2017

You can see we've moved some money from our investment accounts to cash in anticipation of the upcoming bills.

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

When Stocks Keep Giving After You Have Sold Them

Over a year ago, I wrote this piece about how to go paperless. As a small aside in the post, I said:

(I have been involved in some class action lawsuits regarding stock purchases made years ago, so I felt I should keep all my old brokerage statements.) 

Class action lawsuits against companies are somewhat controversial. On the one hand, they do serve a valid purpose of holding companies accountable when they wrong a large number of people for damages that would be too small for any one individual to sue for. On the other hand, there are a lot of questionable lawyers that abuse the process and use class action suits as a way to generate income for their law firms.

No matter your position on them, they are here to stay and when one comes my way, I will take advantage of it.

Today, I reaped the benefits of my paperless lifestyle. I received notification of a class action lawsuit against THQ (who was actually an old employer of mine). To receive a claim from the lawsuit, you need to submit proof that you bought or sold THQ stock within a certain time period. That proof needed to be in the form of brokerage statements.

If I did not have electronic records, I wouldn't even bother tracking this information down. The time frame in question was between May, 2011 and February, 2012. I've got a lot of brokerage accounts. It probably would take me a couple of hours to go through paper copies looking for transactions involving THQ stock.

eStatements to the rescue!

Because I have gone paperless, all my statements are stored in .PDF files. Furthermore, Windows can read .PDF files and can index the contents. So I just navigated to my brokerage statements folder on my computer, typed "THQ" in the Search bar, and bam! I got a list of all my statements that contained THQ. Because I use a naming convention based on the date, I was able to easily find the three brokerage statements I needed for the class action suit.

I Was Just Paid $600 An Hour!

I printed them out, filled out the claim form, and mailed it in. Total time spent: about 30 minutes. Based on the claim form instructions, I should receive about $301 from the lawsuit. Not bad! And it's even better when you realize that I just made more money from stocks I sold over 5 years ago!

If you want to go all out with the class action lawsuits, you can visit www.classactionrebates.com for a list of hundreds of class actions lawsuits you might be a party to.

Pie-Based Investing with M1 Finance

Pies are delicious and with the holidays approaching, I'm looking forward to the cornucopia of pies that my family seems to produce this time of year. Those pies do a great job expanding my waistline, but they don't do so well when it comes to expanding my financial accounts.

Financial Pies

 Enter M1 Finance. This innovative new way to invest combines the automation of robo-brokers with the flexibility and control of a traditional brokerage account.

The concept is simple. You define a pie chart showing how you want your investments allocated - say 20% in conservative investments, 20% in stock of one company, and 60% in a mutual fund - and M1 does the rest! Each time you make a deposit, which can be scheduled to occur on a regular basis, M1 will purchase equities in the proportion your pie directs. M1 even purchases fractional shares, so your money is always invested as quickly as possible. No waiting around until you accumulate enough to purchase a full share!

Don't know what your pie should look like? M1 offers professionally created and managed pies for a variety of investments styles and objectives.

Over time, some assets will outperform others and your pie may get out of balance. A simple click of  a button will rebalance your investments. If you are using a pre-defined pie, this is done automatically for you each quarter.

Of course, all this can be done on your phone or tablet with their easy to use app.

How Much Does It Cost?

M1's pricing structure beats a traditional brokerage any day. Rather than pay a commission on each trade, M1 charges a low flat fee based on how much money you have invested with them. Your first $1,000 is free. For balances between $1,000 and $100,000, the fee is only 0.25% per year. Accounts large than that get a lower fee of just 0.15%. Keep in mind this is for unlimited trades. Rebalance every day if you want.

As of December, 2017, M1 is completely free! Full details are in their blog post here, including how they plan to make money going forward. But this is now a great win for consumers!

Regular Investing Is The Key

Studies have shown that the best way to build wealth in the stock market is to make regular investments. M1's combination of regular, periodic deposits and fractional share purchases ensure that you are able to get invested quickly and often. Furthermore, regular, periodic investing is the basis of dollar cost averaging, another proven technique to help manage risk.

There are no setup fees and all accounts under $1,000 are free, so you have nothing to lose by trying them out! Click here to open an account.



Note: From time to time, I may recommend products or services. I may receive some form of compensation. See my disclosure page for full details.

Goal Update: End of September 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 September, 2017
Current value: $34,964
Change from last month: +$1,099
Percent of Goal:  32.15%

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 almost $1,100 this month. Net income from my online courses was $94.89. Income from my ebooks was $1.16. I also received $7.72 from a class action lawsuit settlement.

My cash-backed naked puts of Realty Income expired out of the money and I was able to keep the $266.70 premium I collected last month. I've got a limit order in to try selling some again for another 8% ROI and I need the price of the stock to drop a little bit before that order gets filled.

This month I also published my online SQL Servers courses at a new site: SkillShare.com! Their revenue model is a bit different from Udemy's model. At Udemy's, students purchase individual classes and the instructor gets a portion of the purchase price. At SkillShare, students can subscribe for as little as $8.25 per month and they get unlimited access to ALL the courses on the site - so far that's over 17,000 courses. Instructors are paid based on how many minutes of their courses have been viewed. It will be interesting to see how my income numbers compare between the two sites.

If you are interested in learning about many different topics, SkillShare looks to be a very cost-attractive way to go. They do offer free courses that do not require a monthly subscription, but if you would like to join, please use this link and I'll get a small kickback that will help me get my Tesla a little bit faster. (You don't have to take the class that link points to. Just use it to sign up and take any class you want, even if it's not one of mine.) My courses can be found at https://www.skillshare.com/user/shaunstuart.

Relocation Update

Escrow closed on our new house last week. We're waiting for new paint and carpet to be installed and then we will move in. Unfortunately, it looks like that won't be until near the end of October.

Net Worth Update 

Our net worth rebounded from last month, showing a gain of $20,880.That's pretty much exactly what our earnest money deposit was. If you recall, last month we paid it, but we didn't technically own the house yet, so it looked like a big debit to Mint. Now that we actually own the house, that amount is showing up as equity in the property.

Mint still can't access my 401(k) provider's website, so Mint is showing my 401(k) about $4,000 lower than it really is.

August 2017

September 2017

Our cash took a huge drop as we paid our down payment for the house. Our credit card total shot up because we've been charged for our new carpet. We've got money in the bank to cover that. I'm just waiting until I get my bill to pay it.

And yeah... We've got a half a million dollar mortgage. Welcome to Washington!

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

The Crazy Seattle Housing Market

I just bet $20,000 that a house has nothing seriously wrong with it, based on nothing more than a 10 minute walk-though by myself and my wife. Although I enjoy going to Las Vegas, I’m not usually one to make such large bets. Seattle forced me to.

This Market Is So F-ing Crazy!

Housing markets vary across the country. In Arizona, when we sold our house a month ago, the market was fairly depressed. Prices had rebounded some from their all-time lows, but it was still considered a buyer’s market. There were more people looking to sell their homes than people wanting to buy one. This put downward pressure on prices, as any student of supply and demand can explain.

The Seattle area, on the other hand, is completely the opposite. Partly due to the many large tech companies headquartered here offering high paying jobs, many people are moving here and housing is scarce. There is not much un-developed land to build new houses on and what contractors are doing is buying up blocks of 5 to 10 existing houses, tearing them down, and building new ones in their place. Even existing homes are sold usually with a week. They could be sold in days, but most sellers wait for a week to get all offers and then choose the highest one. Basically, every home on the market is sold at a silent auction.

The New Home Process Turned Us Off

When my family first moved here, we were looked at buying a newly built home. New developments usually consisted of 10-20 homes or fewer. The builder would release the homes for sale one at time, usually at the rate of one every two or three weeks. If you wanted one of these houses, you needed to jump through a bunch of hoops. First, you had to apply for a loan using the builder’s lender. You didn’t have to end up using them, but you had to go through the whole pre-approval process with them, presumably so the builder knew you could afford to buy the house. Then, you had to get on an email list and be prepared to make an offer at a moment’s notice.  This is how the process works:

When a new home goes up for sale, people on the mailing list receive notice of the sale at 5 PM the day before. You then had to reply to the email with your offer before 9 AM the following day, telling the builder how much you will pay. The builder picks the highest offer.

Yes, the selling price is only a suggestion. The market is so crazy here, people are paying MORE than the asking price, even for new construction.

Did I mention most of these new houses don’t even have models built? You’re buying based on drawings.

If your offer was not accepted, you get to wait for the builder to release the next house. You can bet the next asking price will be $50,000 or more higher than the one for the last house you bid on, and that’s not counting how much people will bid over the asking price.

Used home sales are even crazier

If you want to buy a used home, you have the same general auction-like process. Most homes go up for sale and there is an open house the first weekend it is listed. The agent then collects all the offers for one week and, at the end of the week, the buyer selects the one they like the best. But for existing homes, there are some added twists.

In a normal market, a bid for a home usually includes a clause stating that you can get a home inspection and if the inspection turns up something wrong with the property that the seller refuses to correct, you can cancel the contract and get your deposit back. Not here. In order for your offer to be considered, you have to waive your right to cancel based on the inspection results. Or rather, you waive your right to get your earnest money deposit back if you cancel.

In a normal market, a bid for a home usually includes a clause stating that if you can’t obtain financing, you can cancel the contract and get your earnest money back. Not here. Don’t even bother considering to submit a bid unless you are pre-approved. Not pre-qualified. Pre-approved.

In a normal market, if the appraisal comes back lower than the sales price and your bank refuses to loan you more than the appraised price, you can cancel your contract. Not here. In order for your offer to be considered, you have to waive your right to cancel based on the appraisal. This means if your appraisal comes back $50,000 less than the sales price and your lender won’t let you borrow that extra $50,000, you have to come up with that $50,000 yourself. Or cancel the contract and forfeit your earnest money deposit.

In a normal market, an earnest money deposit is normally $1,000. It’s typically just a token, yet somewhat substantial, amount to indicate you are serious. When I sold my house in Arizona, the buyer put up $10,000 in earnest money, which I thought was a huge amount.  Up here, the typical earnest money deposit is $20,000 or more. Non-refundable upon contract acceptance. If the sellers accept your offer and you cancel for any reason, kiss that money goodbye.

Oh, and another thing. Your earnest money isn’t held until the sale is complete and escrow closes. For your offer to even be considered, you need to not only make the earnest money non-refundable, but also specify that it can be released to the seller within 5 days of contract acceptance.

And finally, your offer better include an escalation clause, or in layman’s terms, your silent auction clause. This clause says something to the effect of “we’re offering x dollars for your home, but we’ll actually pay up to y dollars if someone bids more than us and we will beat the other higher offer by z dollars.” Might was well shop for a house on eBay.

In this ultra-seller’s market, you basically give up all your rights to a refund of your sizeable earnest money deposit. And then you hope someone else doesn’t come in with an all-cash offer.

Our experience

When we heard about the crazy way new homes were being sold, we decided to ignore new homes altogether. The whole process just reeked of those Black Friday Christmas sales that start at 4 PM on Thanksgiving where people get trampled to death. The fact that each new home was priced at least $50,000 more than the last also turned us off.

So we turned to used homes. We found one we liked priced at $600,000 that had just come on the market. We made an offer with all the “must-haves:”

• A $15,000, non-refundable earnest money deposit. 
• The money would be released to the sellers 5 days after escrow opened.
• We offered $625,000 and stated we would beat any higher offers by $5,000 up to a maximum price of $685,000.
• We waived our rights to an inspection and waived the financing contingency.
• We also offered to let the sellers live in the house up to 3 months after closing, rent free, while their new house was finished being built.
• At the advice of our agent, we also included a personal letter saying how much we loved the house and hoped to live there. Tugging at the ol’ heartstrings can’t hurt.

We thought that was a pretty solid offer. Nope.  We did not get the house. There were 19 offers total (after only being on the market 1 week).  Final sales price: $750,000

Yes, the house sold for $150,000 MORE than the asking price.

Crazy.

This market is unsustainable. A crash has to be coming.

The Part Where We Prevail

We were quite depressed after losing out on our first offer. Things looked bleak and I wasn’t sure how we were ever going to buy a place. A week or two later, another property came on the market that we liked. It was an older home, priced at $595,000 and smaller than the other homes we looked at.

We put in an offer and were hopeful for a variety of reasons. There were not a ton of people at the open house. The house also did not have some of the features most people seemed to look for in a house these days: The two guest bedrooms were a bit on the small side, so I figured it might not suit the needs of many people. Because our daughter will be heading off to college in 5 years, we felt we could make do with the smaller rooms. The master bathroom and closet were small. If we got the house, we were planning on remodeling those areas in time, so we’d live with it until then.

On the positive side, the kitchen was newly remodeled and pretty nice. The backyard was also very nice. It wasn’t huge, but it was tiered with nice gardens.

Our offer was:

•  $620,000 and we’d beat higher offers by $5,000 up to a max of $663,000
• We waive all the financing and inspections again. 
• Our earnest money deposit was $20,000, non-refundable and available to the sellers after 5 days.
• We also included another letter saying how much we loved the house.

The seller was accepting offers until Monday at 10 AM, when they would make a decision. My agent kept pestering the selling agent to gauge what the interest was. The Friday before offers were due, there had been none received. Wow. Our hopes rose.

We submitted our offer on Sunday and, at that point, there were still no other offers. This was looking good, although now I was starting to wonder if there was some fatal flaw others had seen that I had missed.

Ten AM Monday came and went without a word. At noon, my agent called theirs and was told there were a total of three offers and their agent was on her way to meet the sellers now to go over them. Their agent confided that she thought ours was the best offer.

Wow. Only three offers. I liked those odds.

Hours more went by, still with no word. It was not until around 5 PM that we finally heard back. We got the house! And at our initial offering price of $620,000! Their agent did say that the sellers liked our little note about the house. They were a couple in their 70s and I think they wanted to know their house would be going to a family that appreciated it.

As of this writing, we’re still in escrow and all is looking well. Once we own the house, we’ll get an inspection to see what all needs to be fixed. We’ll also re-carpet and paint and then move in.

It's Not Impossible. You Just Have To Be Different Than Everyone Else.

So there you have it. Even though this is a really tough market to buy a house in, we managed to get our second offer accepted. I think the secret was to be willing to accept a slightly non-typical house and try to make a personal connection to the seller. We still had to pay $30,000 over the asking price, but in the current environment, I’m fine with that.

Goal Update: End of August 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 August, 2017
Current value: $33,865
Change from last month: +$1,583
Percent of Goal:  31.14%

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 just over $1,500 this month. Net income from my online courses was $113.03. No new income from my ebooks, but I will have some next month.

Apart from my regular savings contributions, the only income in August came from my selling cash-backed naked puts, as I talked about two weeks ago. This trade is looking like it will turn out to be a good one. I sold 5 put contracts on Realty Income at 55, expiring Sept. 15. With less than 2 weeks before expiration, the stock is currently trading at 58. Assuming it stays over 55, it looks like I will be able to keep the premium I collected ($266.70) and repeat this process next month.

Relocation Update

My family and I are now officially Washington residents! My house in AZ sold and we are living in the Evergreen State. Last week, despite the crazy real estate market here, we found a house we liked and managed to get our offer accepted. This was no small feat! More details on that in an upcoming post. Suffice it to say that it is such a seller's market here, I had to do things I never would do in any other type of market.

We close escrow on our new house at the end of the month!

Net Worth Update 

Our net worth took a dive this month, at least according to Mint.com. We show a drop of $48,440! Yikes! But all is not doom and gloom. We put a $20,000 earnest money deposit on our new house. Because we don't actually own it yet, that property does not show up in the net worth calculations, but the drop in cash does. So we're really only down $28,440. Gee. I feel so much better.

Some of the rest of the drop can be explained by a couple of things. My 401(k) provider changed their website, so Mint can't yet get current data from it. It's about $2,000 below what it really is.

We also paid for half of our moving expenses in August. As I mentioned back in the February 2017 update, my wife got a relocation bonus and we're using that to pay for our move. Our net worth has been artificially inflated the past couple of months as we held on to that money. Now it's time to spend it, so our net worth will be dropping. We'll pay the second half of the moving costs after we get into our new house and the movers deliver our stuff. That should be sometime in October, if all goes as planned.

July 2017

August 2017

Note: Mint.com categorizes our HELOC as a credit card debt, not a loan, hence the apparently high credit card balance. No more HELOC so I can finally get rid of this note!

Take a good look at that Loans figure - ZERO DOLLARS! It won't be that for another 30 years! Cash is also at an all time high due to the money we received from selling our Arizona house.

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

Option Writing For Passive Income

As I've written about in the past, my real estate partner doesn't have enough deals to invest in, so I've been looking for alternate places to put my funds to work. I was toying with the idea of investing in RealtyShares. I think this is a viable option for the future, but right now I need my funds to be a little bit more liquid. I'm looking to buy a house after our move to Washington. The funds I am investing are technically my Tesla funds, but the housing market is so crazy here, I may need to borrow from them, so I don't want to lock them up for an extended amount of time. (More on this is a later post.)

Enter Option Investing

I have already traded options for passive income in the past. What I did then was sell covered calls. When you sell a call, you are giving someone the right to buy the stock from you at a certain price within a certain amount of time. It's called covered because you already own the shares you have promised to sell. (If you didn't own them, it would be called a naked call.)

Selling Covered Calls

Covered call selling is about the safest way to use options to generate additional income from a stock. In return for agreeing to sell the stock to someone at a certain price, that someone pays you a fee, called the option premium. If the expiration date arrives and the stock is trading above the price you agreed to sell it at, the option buyer makes money because you have agreed to sell them the stock at a price below the current market value. You lose out on any additional gains above what you agreed to sell for. If the stock is trading below the agreed on option price, you get to keep the money the option buyer paid you and your stock (since it would be cheaper for the option buyer to buy the stock on the open market then from your agreed upon higher price).

Here's an example of a trade I actually made back in 2007 and wrote about on my old blog:

I sold 5 March 17 calls with a strike price of 55 for $1.25 per share per contract. One contract is good to buy 100 shares of stock, so I've sold someone the right to buy 500 shares of SFI from me at $55 per share on or before March 17. For this right, they paid me $625, or $1.25 per share times 500 shares. If the stock price on March 17 is below $55 per share, their contract is worthless (since they can buy the shares on the open market for less). If it is above $55, then they can exercise their contract and I must sell them the shares at $55 per share. But because they have already paid me $1.25 per share for the option, I actually make $56.25 per share.

Obviously, I hope the price on March 17 is below $55, but even if it isn't, I'm not worried. It can go up to $56.25 and I still won't be losing money.

In that case, the options expired out of the money (meaning at the option expiration date, the stock was under $55/share) and I was able to keep the premium I collected and did not have to sell the stock.

 Selling Naked Puts

A few months ago, I read a couple of posts over at Early Retirement Now where they talked about another strategy - selling naked puts. (I recommend you read their posts, as they go into much more detail than I will.)

In a nutshell, when you sell a put, you are agreeing to buy stock from someone at a specified price, even if the price on the open market is lower. For the person buying the put, this represents insurance against price drops. Even if the price drops to zero, they have a contract to sell it to someone at a higher price.

But for the person selling the put, i.e., the person guaranteeing to buy the stock at a certain price, this represents a potential loss. If the stock price does drop, they would have to buy the stock at the higher price. Why would you want this?

Well, as the folks over at Early Retirement Now point out, many mutual fund managers are highly risk averse and don't want to take any losses, so there is a big market for puts. If you can get a good price, the risk vs. reward ratio can be good enough to make this an attractive offer for the put seller.

There are some things the put seller can do to minimize the risk. Most importantly, keep the length of the option contract as short as possible. The folks at ERN trade futures options with an expiration date one week out. I don't have the funds required to do that, so I'm trading options on common stock with a one month expiration date. I'm also only selling puts on stocks I am willing to own and hold. In my case, this means Realty Income, my favorite REIT.

By the way, if you want to sell puts and you have the cash to cover any purchase you might be forced to make, you should ask for your brokerage account to be approved for cash-backed naked put selling. This is one of the option trading levels available at most brokerages.

My Trade

I made a spreadsheet to make the calculations easier. Here's a screenshot:

Click to enlarge

What I am really trying to do is get a certain rate of return. In most investments, you calculate the rate of return by taking the income or profit received divided by the amount of money you invested, then converting that percentage to a yearly percentage figure. But when you sell a naked put, this formula can't be used.

Why? Because I really haven't invested any money! I simply received money in exchange for promising to buy stock from someone at a certain price. I have incurred no out of pocket expense. You can't divide by zero, so how do you calculate the rate of return in this case?

I did some research and there are a couple different methods people use, but the one I settled on is this: you treat the money you would be forced to spend to buy the stock at the specified price as your investment.

So, looking at the spreadsheet above, the cells highlighted in green indicate the cash I would need to spend if my puts were called (i.e., if I was forced to buy the stock at the option strike price).

With that definition out of the way, we can go over the rest of the spreadsheet. The first couple of cells show the date of the trade, the expiration date of the option contract, and how far away that is in days and years. I also enter the current stock price, the total amount of cash I have in my account, and how many option contracts I want to sell. (One contract controls 100 shares of stock.)

The cells in the next column contain commission data and the dividend data of the underlying stock, used in calculations later.

The bottom rows of cells is where the calculations are performed. I enter two strike prices and the price those puts are selling for. The next column, net stock cost if called, gives me the net price per share I would pay, taking into account the option premium I receive. In the case of the 55 put, I was paid a $0.55 per share premium, so if my put was called and I had to buy, I would actually only be paying $54.45 per share ($55 - $0.55).

The Net Income cell shows my how much cash I get from selling the number of contracts specified above (5) minus the various commissions and fees.

The two yield columns tell me what my rate of return is. This is calculated using the cash needed if called figures (green cells) and the time until expiration fields. One value is straight percentage and the other is an annualized return (per annum, or p.a.).

The two fields for stock dividend yield don't play much of a role in my decision to sell a put, but are more for informational purposes. They calculate the dividend yield of the stock at the strike price and at the strike price taking into account the premium I received from selling the put. As I said, I'm only doing this with stocks I would be happy to own, so I like to see what my dividend yield would be if my option is called and I had to buy the stock.

My Criteria

In order for me to sell a put, I'm looking for an annualized return of at least 8%. As you can see above, the 55 put meets this criteria. In fact, this spreadsheet shows an actual trade I made.

As long as Realty Income stock is trading above $55 on September 15, I get to keep the $266.70 I received for selling the put and I don't have to buy any stock. Then I can sell another put the following month.

I'll keep you posted on how this turns out.