I usually buy Treasury Inflation Protected Securities (TIPS) directly from U.S. Treasury (TreasuryDirect.gov) at every auction and reissue. Due to some changes in their policy, scheduling future purchases (other than the very first auction) is not possible anymore. This is very annoying and hopefully, they’ll bring back the old scheduling system again. In the meantime, here is a tentative auction schedule for TIPS from the FAQ at the website. I hope I remember to visit the website often to schedule these transactions.
- 5-year TIPS: April and October
- 10-year TIPS: January, March, May, July, September, and November
- 30-year TIPS: February and August.
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It has been one year since I started dabbling in options as a strategy to boost investment income. I sold out-of-the-money covered calls for many stocks that I hold. There are three possible outcomes when these contracts reached expiration:
- Stock price stays below the strike price of the call option and the contract expires worthless. For most of my options, this was the case. I got to keep the premium I received with no change in stock positions.
- On two options, the stock price was above strike price. I didn’t want to sell the stock, hence I bought back the options. As the buying was done close to expiration, there was no time premium left and even on those trades ended up with small profits.
- On two options, the stock price was above strike price on expiration and they got assigned. I sold the stock and started buying them back in following weeks. After I had to sell those shares, the whole market had a correction and my buying back price was lower than my selling price. Profit was made in these trades, too.
Even if one plays options very conservatively (which I did), they don’t always yield profits. There is an improved chance of making profits versus a loss. In my case, I was just lucky that all trades turned out profitable. The biggest chunk of money was made from expiration of worthless options. One can look at this strategy as if getting an extra dividend payment for holding the stock. The only problem is that money made from option trading is taxed as regular income and not as dividends which are taxed at lower rate.
Anyway, I made more than enough money through these trades to support my yearly wine consumption. Hope to keep this streak going in 2010.
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Interest rates on savings are at an abysmally low levels. Even ING Direct is offering only 1.3% on savings accounts. The highest interest you can get in a savings account right now is 1.7% from American Express. It is easy to open and operate this account just like ING.
The new rates on I-series savings bonds are up to 3.6%. They can be bought directly from the U.S. Treasury at treasurydirect.gov. The fixed rate on new bonds is 0.3% and the inflation index component is 3.3% for the next 6 months. The way things are going, I don’t think the inflation is going to go down again like last year. So, I-bonds are as good as or better than any 5 year term CD at a bank. The I-bonds can be cashed after 5 years without any penalty. Before than, 6 months interest is withheld as penalty. This is similar to owning a 5 year term CD.
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I remember reading somewhere, “There are only so many hours in a day that one can sell to make money. It is important to have passive sources of income, i.e. money received for doing nothing.”
Investments generating regular interest (CDs & bonds) and dividend (stocks, ETFs, mutual funds) payments is an obvious choice. To squeeze out some more money on top of the dividends from a stock or ETF, writing covered calls is a great strategy. If there are 100+ shares of a stable company in your portfolio, you should consider writing a covered call.
Disclaimer: I am not a financial professional. Don’t do anything solely based on what you read here. I am not responsible for your losses but, you may send me a cut from your profits.
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A trip to the Galapagos Islands is one of those things that I must do before I am ready to die. It is probably still too early to drag the kids out on such a big voyage. Our current goal is to do this in 2015 when Adit will be 9 years old and hopefully would be interested in it. Ashwini is probably ready for it even now.
As it is going to be an expensive trip, we have started a separate savings account for the Galapagos trip fund. With $100 per month contribution, it won’t accumulate enough in 6 years to cover all costs but, at least it would be enough to pay for the airfares.
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We have become more efficient with using coupons for grocery shopping than before. We go to the same store every week and use the grocery store card that gathers and tracks all the grocery spending information. At the bottom of the bill, it shows a cumulative total of all the money saved with coupons and other promotions. I remember for 2008, our total was just shy of $200. This year it is already $240 and we still have 5 more months to go.
A few months ago, Stop&Shop introduced a scan-it, a scanner device that lets you scan your groceries when you put them in your cart directly in grocery bags, preferably reusable bags, not plastic ones. Stop&Shop offers 5c discount for each reusable bag that you bring to the store. At the checkout counter, you scan a barcode at the register and it downloads you shopping cart into the register. Saves a lot of time as you are not handling the stuff you bought again and again. Some special savings and coupons get added when you use the scan-it device. This definitely accounts for our increased savings at the grocery store. Also, we try to buy things that we normally use when they are on sale, rather than waiting till we run out of them.
Sunday paper is a good source of grocery coupons but, we didn’t find any other use for the paper and stopped buying it. Now, we get our coupons from Couponmom.com and e-coupons at Upromise.com.
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A few months ago, I wrote about adding corporate bonds to my portfolio for the first time. Due to the economic situation, even the investment-grade bonds were practically on sale. I bought some in February and some more in March.
Within last 4-5 months, their price has appreciated significantly. Without counting the interest payments that I received, these investments have gone up by 9.98% in value. That is about 25-30% annual yield. On average their interest yield is 5.65%. I don’t expect them to continue to climb but, even if they hold on to the current gains and keep making interest payments, I’d be very very happy.
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I noticed that in our last paychecks we received some extra money (about $33 per paycheck) because the amount of federal income tax witholding was less. In the stimulus bill passed in February 2009, there is a provision called “making work pay” tax credit. It amounts to a tax credit of 6.2% of taxable income, upto a maximum of $400 for single filers and $800 for joint married filers. Instead of one lump sum check it is put into every paycheck. There are income limits for phasing out; here are the details.
We are not eligible to receive it just like how we were not eligible for Bush’s stimulus check last year. The treasury department sent out the Bush checks depending on who is eligible according to their 2007 tax returns. But, this time, they are cutting tax witholding for everyone who gets a paychecks. The problem is not only that we are getting something that we shouldn’t, but we are getting double of something we shouldn’t get, because we have two paychecks coming in the household. Next year while filing taxes, I’ll have to pay it all ($1600) back. So, I am going to do what Obama administration doesn’t want me to do. In stead of spending this stimulus money that I shouldn’t have received, I am diverting it to a savings account, so, I can keep it ready for tax filing in April 2010.
People who are eligible for this credit will also have a problem of getting double credit if they have two or more incomes coming into the household. They are applying this credit to every paycheck without any consideration. So, watch out and adjust your witholdings or be prepared to pay extra $400 or $800 to IRS in April 2010.
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I have been a customer of C(Sh)itibank for the last 17 years. I used to do banking with them but, closed those accounts after very frustrating customer service experiences. Since 2002, my only connection with them is their “Upromise” flavor mastercard. I never had any problems with that and was happy to see the cashback going to Upromise every month. I don’t know the background details but, recently they announced that Bank of America will take over the Upromise card and that switch happens at the end of this month. The credit card is still active but, they have already disabled electronic payment option on the account. I went to their website last night to setup a payment but, couldn’t. Thankfully, there is enough time for a paper check to get to them by USPS before the due date. In the last 5 years, this is probably the only time for sending a paper check for any credit card payment.
What if I had tried to setup the payment very close to the due date like I usually do? I wouldn’t have had enough time to mail a check and Citibank would have happily charged me a late fee. Bastards! I know that it will not be noticed as payments are processed by machines and not people but, I wrote a message in memo line of the check, in big bold letters: “CITIBANK, YOU SUCK!” I am so glad my relationship as a customer with this stinking company is coming to an end.
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I wrote sometime last year about micro-finance and had mentioned a website called kiva.org that lets you lend money to people in developing countries. Over the last one and half year, I participated by lending $25 about every month. Over time my loan portfolio grew to 14 loans. Two out of these 14 are already paid-off completely and now, from the remaining 12 loans, I get about $25 back each month in payments. So, going forward I either don’t put new money in Kiva and just recycle the moeny I receive in payments or fund $50 in loans every month.
When I visited the website this morning, they have no loans waiting for funds, all the loans are funded. It is amazing that people are eager to loan money out at no interest to hard-working strangers on the other side of the Earth who are trying to get their small business going. It is worth noting that the default rate on Kiva loans is very small (about 2%). I guess it is safer to help out another hard-working person than puting your money in stock market and watch it disappear.
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