Nest Thermostat ROI & Installation

I’m pretty sure everyone is familiar with the Nest thermostat and the company’s sales pitch.  But I’ll humor those of you that may not be: Nest promises to save you money by reducing heating and cooling costs by “learning” your daily schedule and adjust your heating or air conditioning when you aren’t in the house. According to the Nest website:

 “Because the Nest Thermostat learns how and when to keep you comfortable, it knows how and when to save energy. To prove it, we looked at energy bills of real people in 41 states before and after they got Nest Thermostats. Then we watched the data roll in from two independent studies – from real homes with real families and real thermostats. The results were clear: on average the Nest Thermostat saved 10-12% on heating and 15% on cooling. Based on typical energy costs, we’ve estimated average savings of $131 to $145 a year. That means the Nest Thermostat paid for itself in under two years.”

The site provides a detailed white paper outlining their calculations as well as a slick calculator based on where you live to estimate your potential savings:

Potential Nest Savings
Potential Nest Savings

Aside from the savings, Nest also layers slick techy functions on top where you can control the thermostat remotely, adjust your schedule, and see pretty reports all from your smart phone.

Cool iPhone Things image05

Now I’m a gadget head and the cool features were more than enough to make want one but I have resisted for the past several years since we already had programmable thermostats and I never believe company provided information that their product will save you money, even with fancy white papers. The $250 ($180 on sale) price tag was just too expensive of a gamble.

 The Real Return on Nest

But recently they have made a big push rolling out “Rush Hour Rewards”. This is a program where they have partnered with local energy companies to offer rebates to customers that will let them adjust the thermostat during peak energy hours. The Nest site describes it like this:

 “Rush Hours typically happen on very hot summer days or very cold winter days - usually about 6-12 times a season. But this number depends on the overall weather patterns for the season and your Nest energy partner. Typically, you won’t get more than one Rush Hour in a day or Rush Hours for more than three days in a row, and there are rarely more than a dozen Rush Hour days per season (winter or summer).”

The natural response is that you don’t want to just fork over control to your utility company but here is the most important part:

 “You also stay in control and can change the temperature any time during a Rush Hour.”

So what do you get in return for allowing them to “influence” your thermostat? Well that varies by participating utility company but my local company is offering $100 electric bill credit when you enroll your Nest Learning Thermostat (maximum of two) in Rush Hour Rewards. After the first year, you get additional $40 credit on their electric bills for each subsequent year they participate in the program.

Considering a Nest thermostat can be purchased for $245 on Amazon or roll the dice and find them in the $180 range on eBay that seems to be a pretty good return. Sign me up, I’m sold.

Installation Troubles

Now I’m pretty handy and have replaced several thermostats in the past, usually converting an old school version to a programmable so I didn’t think installation would be any problem. Boy was I wrong.

My current house which was built in 2014 had one of these newer thermostats which uses only three data wires to the thermostat and then has a remote wiring hub that wires everything back to the units:

Original Setup
Original Setup

Since the new unit requires five wires back the unit I knew I was in trouble. Still I pressed on.

Up into the attic and I took apart the remote unit to see:

At this point I realize I’m in over my head.

Although I consider myself as DIY as they come, I called in the pros. I have a great HVAC guy who came out rescued me while also allowing me to watch and ask questions. This was super important since I wanted to install another Nest (remember my electric provider will give you credits for TWO).

He basically bypassed the entire board you see above and wired the thermostat directly to the HVAC units. The other hitch, and I’m really happy he was there to show me, was my unit had an overflow cut off that had to be Daisychained to the power wire.

Here is the nice, clean HVAC board:

Inside the HV Unit
Inside the HVAC Unit

And all though hard to see, to the left of this picture is the daisychained overflow cut off power wires:

The attic is dark, give me break
The attic is dark, give me break

So there was an extra $120 installation cost on this but I can confirm that after this lesson I was able to install the second Nest with no problem.

Also confirmed already is the initial $100 credit from my electric provider, it showed up on my very next statement without issue. Now we’ll have to wait and see if the Nest Forecast cost savings materialize but either way, I love the techie features!

If you have any questions, please post and ask, I’d be happy to offer any advice I can.


Why Do You Want to Retire Early?

If you’re the soul lost on the internet that wound up here, I have one question for you:


I guess you could be here for the fitness articles but if you’re here for the early retirement articles then again I ask:


On the surface it seems like a simple question that could be answered with a simple response but the more I ask myself that question, the more complex the answer becomes. For me, it’s not to avoid my job. I actually enjoy my job. It certainly is freedom, but not just in the “have time to do what I want” sense. It’s to have the freedom to be who I want.

In the process of growing up and having children, the one thing I’ve lost and miss most is the ability to reinvent. This has always been a secret skill of mine and may be the number one reason for my success (whatever limited success that is so far).

In elementary school I was painfully nerdy. I was on the chess club. I went through a period when I thought it was cool to only wear white. I didn’t play any organized sports because since I grew up in center city, I wasn’t exposed to them very much and more importantly, I was scared.

I realized the anxiety and fear was preventing me from being the person I wanted to become so at the end of seventh grade when my parents moved to just outside the city, I decided I was going to reinvent myself.

It took some time to work up my nerve but in the spring of 8th grade, I tried out for the school baseball team.This was the first time I had ever played organized baseball and was competing against kids who had played since tee-ball. It didn’t go well. Frankly, I sucked. And justifiably so, didn’t make the team. If you’ve never had to check a publicly posted sheet to see how you rank with other kids; only to find out you don’t cut it, you haven’t lived. A posted cut list when your 12 is what true grit is made of. I don’t have the slightest clue what the coach’s name was but thank you for the character building.

I was undeterred though. The next year was my freshmen year of high school in a school of 4,000+ kids and I decided to try out for my favorite sport, football. I grinded out the season (frosh football was no-cut) but was on the field for exactly two live plays: one kickoff coverage (it was returned for a TD) and one play at Defensive End where I was called for offsides.

The reinvention was obviously a work in progress.

I went through the winter debating if I was going to make another run at baseball. During that time, I met a few sophomores who played lacrosse and we’re recruiting for the team. I had no idea what lacrosse was but they kept selling it and more importantly to me at the time, stressed how short on freshmen players they were and pretty much guaranteed that freshmen who came out would start on the freshman team. Considering my last two sporting attempts, this sounded pretty good.

And it was. Lacrosse ended up being a sport I was built for. Not that I didn’t still suck first year but but there was a glimmer of light at the end of the tunnel so I went all in. It was a rough year but started every game for the Freshmen team at goalie and by the end of the season had improved a lot.

That summer I got a job at Dairy Queen. By the end of the summer I was offered a manager position there but more importantly it taught me that I didn’t want to me a manager there. In fact, it was a life goal to never work fast food again. When I wasn’t at DQ learning that lesson, I was in front of a brick wall with my lacrosse stick getting better.

When fall came around, I used my new DQ motivation to sign up for a lifeguard training class (I had some free time since I had bailed on the unsuccessful football attempt). This also changed my life. The instructor was also the HS swim coach. Although I had never swam competitively, I lived in a pool every summer since I was one and according to the coach, the team really needed some decent swimmers.

Now I was a swimmer and a lacrosse player. By my senior year I was co-captain of both (in fairness, swimming was because was a vote by the players and did not really reflect my talent or value to the team).

There are many high school movies based on the transformation happening to kids during puberty but, in my slightly biased view, mine was especially amazing.

Mistakes were not made of course. Along the way, I picked up some bad habits from some bad friends in the quest to be cool.

When I went off to college I shed these bad friends and most of my bad habits. My friends in college were much more inline with who I was inside and who I continue to be today. I was still a bit of a crazy wing nut however.

After graduation, I cleaned up and straightened out more becoming more corporate which has worked out well for my career but long for the freedom to morph and grow into my next phase of life. As long as I work, it will prevent me from changing due to all of its comfort and golden handcuffs.

And that is why I want to retire early.


Boom Bust Boom, Protect Yourself from the Next Crash

Recently I had a chance to watch Boom Bust Boom (streaming now on Netflix). The movie’s aim is to explain the never ending economic cycle of massive speculative increases (booms or bubbles) and then equally as massive decreases (busts or crashes). It’s an entertaining way to digest an economics lesson with songs and puppets and does a very good job of explaining some historic economic crises including the Dutch tulip crash, the British South Sea Bubble, and the stock market crash of 1929.

It then examines the developments surrounding each bubble, what similar characteristics they share, why it seems like they can’t they be prevented. The general gist is under-regulated speculation combined with massive group-think leads to most asset bubbles.

Several economists presented their opinions with the most but the one that seemed to be most responsible for their hypothesis was the economist Hyman Minsky who felt financial and economic regulation go in opposing cycles. When an asset bubble is popped, a crisis ensues and regulation is tightened. The regulations are generally effective and provide a stable economic environment but the new stable environment is soon taken for granted (prior lessons forgotten) and regulations are gradually loosened. This opens the door for the next crises. Since reaction is based on human nature, all economic systems are inherently unstable. The only way to protect ourselves from “ourselves” are to enact regulations which are harder for us undo.

At this becomes the point, the movie loses steam. Other than the great history lesson, it lacks very much on the solutions front since it does not suggest what regulations should be put in place (other than one economist talking about separating banking functions) nor how any regulation can be made more permanent. I’m not going to offer much steam either and instead propose ignoring solutions, instead let’s focus on identifying asset bubbles and protecting yourself.

This should be topic priority since several economists including Professor Robert J. Shiller (who is featured in Boom Bust Boom), feel we could currently be heading for another stock market crash. Here in his 2015 presentation explains his view: Robert J. Shiller: Anxious about the Next Bubble (I also am fascinated by his idea there is a robot fear hanging over the market but since he can not support it with any data it’s kind of moot thus far). If you have less of an attention span but still want to hear Professor Shiller’s views, here is the more edited-for-TV version from CNBC.

It’s hard to argue with him since the data is scarey.

To provide some highlights: At one point in his career Shiller developed a modified price-earnings ratio called the Cyclically Adjusted Price Earnings ratio (CAPE). High levels of CAPE tend to be followed by poor stock market performance over long intervals of time. Here is a graph showing the CAPE from 1965 to 2015:

CAPEAs you can see the United States average over that time frame is roughly 17. In July 2015 however, it reached 27. The only other times in recent history it reached those levels where right before the crash in 2000 and the crash in 2007. We know what happened.

Looking at this information in a different way, we can look at Warren Buffett’s favorite metric, market cap to Gross Domestic Product (GDP):

Buffett Indicator


Again you can see the same pattern. The Buffett Indicator has not been as high as it is right now since right before the crash in 2000 and 2007.

Lastly, we can also look at the investor confidence data from Yale’s School of Business:

Investor Confidence

This information was also cited in Shiller’s presentation as the index has not been as low as it is right now since the period leading up to the crash of 2000. It is well below the levels before the 2007 crash as well. Confidence is important because as it weakens it makes investors susceptible to negative news stories about investing and opens them up the possibility of retreat.

Retreat in this analogy equals crash if you’re not following along.

Now comes the tricky part. What do you do?

One quote comes to mind:

“The market can stay irrational longer than you can stay solvent.”

-John Maynard Keynes

And there lies the problem with even the economists that predict these market crashes. Timing is a bitch.

In the CNBC interview with Professor Shiller linked above, he is even asked if he has pulled his money from the stock market and he replies that he has not. The reason has so be that he understands that as long as the momentum keeps moving up, everyone is making money.

In the movie The Big Short, Michael Burry (played by Christian Bale) has all the data and has committed everything he has to shorting the housing market. But as the market is moving as he predicted, his shorts still aren’t paying and he is confronted by nervous investors. He responds, “I may have been early, but I’m not wrong,” to which the skeptical investor responds “It’s the same thing.”

Although Burry ends up making a fortune on the bets, the investor is right. Being wrong about timing can be just as costly, if not more so, than being wrong. But there are also lost returns to consider associated with not being part of the market and you can’t stay on the sidelines earning 1% forever.

I’m also too aggressive and not really that risk averse (although this article is focused on how to not lose a ton of money in the next crash). I could still sleep at night losing 50% so I’m going to keep playing and risk losing. I would of course prefer not to.

So what to do?

The Plan

First I’m going consolidate some of my smaller holdings and then purchase Trailing Stop Orders on each of my positions above $10K.

For those who have not used Trailing Stop Orders before, here is E*Trade’s explanation:

Trailing stop orders are designed to help you protect any gains and limit losses automatically. The order follows the stock’s movement tick by tick so you don’t have to.

With a trailing stop order, you set the stop as a distance in either points or percent from the stock’s current bid or ask price (the bid price for sell orders and the ask price for buys). This is in contrast to a regular stop on quote order, where the stop is set as a fixed price.

After you submit your trailing stop order, the stop price adjusts itself automatically, following (or “trailing”) the stock’s bid or ask price, but moving only in a direction favorable to you, in accordance to the parameters you defined for your order.

As a hypothetical example, let’s say you own shares of stock XYZ (currently trading at $15), and you decide to place a trailing stop order with a trailing stop value of $1. (You can also set this value as a percent.) This means that you want to sell the shares when the bid price falls $1 from the highest point it reaches after order placement. In other words, $1 is the maximum you want your trailing stop level to be away from the prevailing bid price. Your initial trailing stop level, then, gets set at $14 – or $1 below the current bid – and the trailing stop will ratchet up if the stock price rises. If XYZ climbs to $18 without falling $1 at any point along the way, your trailing stop level will rise to $17, moving up in lock step with the bid price. If XYZ then dips below $17, your order will then be triggered and sent to the market center for execution as a market order. In the same way, if the stock had immediately fallen from $15 to $14, your order would have been triggered for execution at that time.

The cost for each of these gems is $9.99 per position and you’re only charged that if the order is actually executed! Otherwise this peace of mind is absolutely free! That’s pretty amazing!




How Much is that POS Garage Fridge Costing You!?!

As I wait for the repair person to show up to service the old refrigerator in my garage we store bulk purchases of frozen food, milk (we go through just under a gallon a day), and beer (we go through slightly less than a gallon a day), I began to wonder how much exactly it cost to run this POS.

The first cost is just to keep it running. About once a year it breaks down. This doesn’t cost me too much: last time it was $75. There is a wonderful appliance guy in my area, Able Appliances (run by a father and son team) we’ve been using for years that is as trustworthy as they come. Every time you call they try to teach you about the appliance over the phone and have you check for problems so you can service it yourself. They act as if they really don’t want to take your money instead they want to give you fun projects. When I had more time, I would have loved to go down these rabbit holes but sadly, with a full time job and two kids to chase around these boondoggles are too much.

Judging from what the son thought was the issue this time, I would expect this repair to be similar in cost to the last repair so let’s guess $75.

Other than repair costs, there are the operating costs. Two primary factors drive the cost of a garage refrigerator:

  1. These are usually older models. A consumer might typically buy a new refrigerator for the kitchen and move their older, less efficient refrigerator to the garage. These older models can cost more to run.
  2. Regardless of where you live in the country, if you use air conditioning in your house (far from a sure thing if you’re a MMM reader), your garage is typically warmer than your kitchen. The refrigerator will have to work harder to maintain the larger temperature difference between the inside and outside of the appliance.  

So what does all that cost? provides a nice calculator to estimate the annual costs to operate a refrigerator based upon the unit’s size, approximate year, and electricity rate in your area. And although they also have the option of comparing it to a newer model, they also seem to be equally stressing the cost savings associated with just dumping it. I found that refreshing since I assumed they would just be trying to convince you to upgrade.

According to their calculations, it would cost my unit about $76.49/year to run.

Energy Star Costs to Run

The calculator doesn’t make an adjustment for the garage temperature difference so tack on another 10% to bring our operating total to $84.14.

Now add on the yearly repair totals on and we get a total yearly expense to keep it running of $159.14.

“So convenient a thing to be a reasonable creature, since it enables one to find or make a reason for everything one has a mind to do.”
― Benjamin Franklin

So let’s find some reasons to enable this spending!!

The main justification for the fridge is that it allows me to buy in bulk.  Texas is not a walking/or biking sized human environment. Before I have MMM lighting me up in a post, I realize it could be if I had time, in fact on the weekends I try to bike everywhere but it’s not convenient. To help reduce the number to car trips I to have to make, I try to maximize purchases when shopping at my #1 shopping location: Costco.

Costco milk is about $1/gallon cheaper than anywhere else in my area so when I go, I go big.

There is never less than 4 gallons of milk (usually 5) in my cart when we leave, which immediately go into my garage fridge. As I mentioned in the opening, with two small female humans living in my house, we do through close to a gallon per day. Just to be conservative, let’s say 0.75 gallons/day. Multiply that by 365 days in a year and we get 273.75 gallons of milk per year consumed. Saving $1/day, I’ve just justified the cost of fridge!

Boom. Drop the mike (or milk in this case), I’m out!

That was really simplistic, I realize. I’m sure I could get two gallons of milk in my main fridge and then we’re really only talking about the cost each week of making one more trip to Costco. That’s still 52 more trips each year! I hate shopping so I would pay $3/trip just to not have to go and instead ride by bike or spend time with my kids.

I think as my kids get older and outgrow living off milk and two or three staple foods, I could see getting rid of the fridge but not yet.

Verdict: Keeping the POS.

The Suburbs are a Ponzi Scheme

I was raised in an urban environment, center city Philadelphia to be exact, but now raise a family in a northern suburb of Dallas. The conveniences of raining kids here are wonderful: everything is new, safe, and schools are great. The problem is it’s unsustainable.

This is not a new or unnoticed issue. The suburbs being a Ponzi scheme is widely written about by Charles Marohn on his website He chronicles the history of the suburbs, their funding sources over time, the structural issues the funding sources have created, and what we can do to correct their course. His goal is to change how we develop our country and ensure it’s done in a sustainable way.

Because of his critical critique of how suburbs are managed he is often derided as anti-sprawl but he really doesn’t care as long as its sustainable. It’s a very interesting perspective as someone with a great interest in economics and he has a very laudable goal.

Sadly, my goal is much more selfish and is only to stay ahead of property value declines in my own area. To do this I need to review what the issues are.

The basic argument in economic terms is that the city council of my town, as do all the others, have incentives to grow the town through additional infrastructure projects but the true costs are borne by others many years later. When towns are quickly growing, the city issues long term bonds that are paid for by the boost to property taxes from nice new houses the residents moving in. These new residents are happy to pay to live in the shiniest new suburb.

City councils however are far too likely to underestimate the true cost of maintenance on this new infrastructure and the eventual replacement or upgrades needed to support sustainability. City councils are, after all, politicians so they are unlikely to raise taxes to pay for these costs escalations so another round of bonds are issued to do “upgrades” which they also bury some of the maintenance costs into as well. The can is thus kicked down the road until it becomes unsustainable.

Once the town starts to become behind on the maintenance to a point that is visible to the current residents, the most mobile (usually wealthier and higher property tax paying) residents begin  moving to newer, faster growing suburbs.  The suburb then enters a disastrous cycle of lower property values (as the residents move out) and increasing taxes (to make up for the lower property values). The increasing property taxes then makes the town less attractive for potential new residents, further decreasing property values, increasing the need for higher taxes… This is a death spiral for the town.

So where is the tipping point? Is my town at it or yours?

There appears to be two ways to look at it, either through the life cycle of the projects being undertaken and when they will come up for renewal/updating or by analyzing the population growth which pays for the new investments.

Looking at the life cycle of investments is a good start as it looks at the true issue and the cost associated with it. It should be pretty easy to find out when the largest capital infrastructure investments were made in your town as it should be public record. My town publishes its debt schedule online showing when capital was spent:

Debt Schedule

Because of the amazing growth the city has seen, the issuances before 2007 have all been paid off. That’s good from a debt management standpoint but the roads are still aging and will need to have ongoing maintenance.

The useful life of a concrete road, which these are, is 30 years. As the roads approach that age, they will require additional maintenance before needing replacement at the end of its useful life. Based on this, the first round of road replacements should begin in 2033 with another big bubble in 2036.

That may seem far off but it’s only 17 years.

Fortunately for my city, it’s still growing fast. Current population is 146K with a projected population in 2020 of 186K. The town as well as the greater Dallas area is booming, I can’t imagine a scenario where that population goal isn’t achieved. And as long as there is a continuous stream of new buildings and property taxes coming in, covering the cost of new maintenance expenses and debt service should not be a problem.

If there wasn’t such strong population growth, I would be looking at selling my house at close to the 17 year mark before taxes started to increase to cover the higher maintenance expenses and well as new debt service on the replacement road.

But my kids should finish school in 15 years anyway and my wife are planning to downsize. I can sleep easy and I hope you can too in the town you live in.

If you want more information on building or knowing if your town is a healthy one, check out



How to Invest a Windfall

Not to humble-brag but I have an expected windfall of about $50K coming my way which is currently not earmarked. My initial gut reaction was to pay down rental property debt with it.I’ll get into all reasons later but in recent months I’ve been reading some early retirement blogs and freeing up some cash flow associated with debt payments would be consistent with that goal.

But then I started thinking about if debt reduction really provided the best return on my investment and wanted to formally explore some other options in greater detail. If after I wrote out all the pros and cons of my choices, debt reduction was still the best option then it really must be.

These are the options I’ve considered so far:

Pay Down Debt on Rental Property

The only debt our household has is related to real estate, either on our primary residence or on the 3.5 rental properties (one of our rental properties is owned with a partner). We don’t have any student loans, credit cards, or car loans so the low hanging fruit is already taken care of.

The highest of any of the mortgages is 4.85% on the most recent property we purchased. It doesn’t seem like that high of a rate, especially since interest on a rental property is deductible against rental income. The issue is that the interest is not tax deductible for me since all of my properties show loses and passive activity losses can not be offset against ordinary income (our household modified adjusted gross income (MAGI) is above $150,000 phaseout for the exemption). Since the losses can not be offset against any positive income, the interest is not tax deductible and is therefore a 4.85% after tax interest rate.

Assuming a 30% marginal tax rate, the before tax rate that needs to be compared to all other investments then becomes roughly 6.3%.

Paying down debt is guaranteed however, creating quite a pro for the move. Every penny put towards it will achieve the forecasted 6.3% before tax return. As volatile as the markets have become over the past few years a guaranteed return is comforting.

It also places the funds out of reach.This could be good or bad depending on how you look at it. It’s good that it eliminates any desire to spend it but but it’s also bad since it reduces liquidity. A home equity line of credit could be secured on the house to ensure availability of this equity but there are fees associated and lots of paperwork associated with getting it set up and using it.

Purchase Another Rental Property

At one point in my life I had a goal of purchasing one rental property per year. Then some major real estate setbacks occurred, mainly losing about $25K on a failed property in a poor neighborhood in Philly. After that experience, I lost my appetite for investing in real estate and pulled back. It took me about four years to jump back in. Prices were not fully recovered from the 2009 crash but continuing to buy throughout the entire crash would have given me some great returns.  

Then in 2012 I found myself with some excess cash on hand looking for a home. I jumped back in and invested in a rental property and then less than six months later, purchased another in 2013. Both of these properties were purchased based on location and school districts and have been very successful so once again the idea of purchasing one property per year has been rattling around in my head.

The lump sum amount would be more than enough for the downpayment on another property, pay closing costs, plus any miscellaneous repairs that would be needed. $40K was the average investment of the last two properties purchased. Unfortunately, property values have continued to escalate since that time and to match the return realized on those properties, I would have to reach further into either more dangerous areas or areas further outside of my metro area that are “up and coming”.

This option is also less attractive due to my aforementioned passive loss situation. An additional property would create more passive losses without any offsetting income. Not very tax efficient.

Peer Lending

Peer lending has been getting a lot of press in the blogosphere but I have doubts about it. Having a wife who works for an advertising company, I’m well aware of the influence companies have over the message put out by bloggers. Not that I’m doubting the ER blogger intentions, but the attention they have focused on peer lending seems unwarranted compared to other investment options.

Peer lending is sure to have returns greater than saving accounts, standard CDs or bonds but that has to be obvious right? There is additional risk and work associated with this option, so it has to provide higher returns to attract investors. In this same category, are new peer investment options like PeerStreet which is basically peer lending with real estate securitization build in. Several of these blogger are posing their realized real-world results as a way of proving out the investment but these experiments have all started over the past few years in a recovering market. I’m nervous about what happens if the market turns. It could be devastating to these investment options.

With an estimated return (based on the sites own estimates) around 7%, it doesn’t seem worth the additional risks given better options are available.

Invest in Stocks

Compared to the other options, investing in the stock market seems the most pedestrian. Its boring, obvious, and a million other people are writing about it.

Still, this options provides more flexibility and liquidity compared to the other options and after reviewing the average return data, the highest average return. Here is the historical average for the S&P 500-Stock Index averaged by decade (all numbers assume dividends are reinvested):

  • 1980s:+14.1%
  • 1990s: +14.9%
  • 2010s: -0.9%
  • 2010-2016: +12.6% 

Now I am of the belief a correction is imminent but will it be worse that the 1987 correction? The 1980s still finished up 14% even with the crash happening towards the end of the period. It seems that the commonly sited average of 10% is more than accurate.

The downside of investing in stocks is that the money is sitting in a pretty liquid account, increasing the temptation that as the balance grows to make rash and foolish decisions with the funds. Five years ago this would have been a real consideration for me but over the past year I’ve really come to appreciate controlling costs with a goal of retiring early. I think I’ve outgrown (most) of my desire for never ending toys.


After reviewing the expected returns along with the pros and cons, I’ve ended up back at the boring choice of investing in the stock market. To end this entry, let’s just pretend I’m going to invest the full balance in low fee index funds.

What Kills American Healthcare

Naked Economics: Undressing the Dismal Science by Charles Wheelan is an absolute page turner of a book, amazing since it’s a book about economics. But before even finishing the entire book, I needed to stop and write down a couple thoughts.

(A) It should be required reading for everyone but especially those who feel the need to express opinions about politics or public policy. The book dives into the secondary impact of hot topic policy decisions such as free trade, tax rates on various income levels, and brand power.

And (B), the book will provide a better understanding on the macroeconomy which will improve your investment decisions and provide general market understanding. A better understand about macroeconomics creates better invest decisions (ie higher returns) by identifying trends and what the impact of policy decisions will be. This information will help you retire sooner (and seem smarter to your dumb friends).

The book discussed in plain English all of the normal economist hot topics including:

  • The power of markets
  • Why incentives Matter
  • The Government and the Economy
  • Economics of Information
  • Productivity and Human Capital
  • Financial Markets
  • The Power of Organized Interests
  • Keeping Score
  • The Federal Reserve
  • International Economics
  • Trade and Globalization
  • Developmental Economics

One of my favorite pet issues is Free Trade, specifically the complete lack of understanding of the issue by the general populace which is then used by politicians to peddle fear and promise to build trade barriers to “protect” domestic jobs. That idea is complete nonsense. Still, I don’t want to rant on that here. I haven’t even made it that far in the book yet. But you can expect a rant about that topic later.  

In the chapter titled “Economics of Information” the market for insurance is discussed. It details the relationship between each party in the transaction and who has access to what information. Specifically, the healthcare industry is rife with situations involving asymmetrical information. These are transactions where one side has more information than the other. Examples of this would be someone that has a drug or drinking problem or engages in some other kind of highly risky behavior.

An asymmetrical market is different than the strong market theory that is the prevalent theory in the stock market. Theoretically in a strong market, all available information is baked into a stock’s price.

The asymmetry of information in healthcare puts the insurer at a disadvantage when pricing policies. The insurance companies therefore have to charge a higher premium to insure against what they don’t know and to ensure profits.

This should immediately be of a major concern to any American not just because of their physical health but also because of their financial health. Medical bills continue to be the leading cause of bankruptcy in America.

I even have a personal story of my retired mother at age 72 having to pay $60,000 of her own money (not the bill to the insurance provider) in a single year for dental bills. Fortunately in her case it did not cause bankruptcy but it was a significant portion of the savings she spent a lifetime accumulating as a public school teacher.

Mr. Wheelan’s simplifies the entire healthcare market:

Here are the relevant economics: (1) We know who is sick; (2) increasingly we know who will become sick; (3) sick people can be extremely expensive; and (4) private insurance doesn’t work well under these circumstances. That’s all straightforward. The tough part is philosophical/ideological: To what extent do we want to share health care expenses anyway (if at all), and how should we do it? Those were the fundamental questions when Bill Clinton sought to overhaul health care in 1993, and again when the Obama administration took it up in 2009

This passage should seem dated to us since the book was last updated in 2010 but sadly, none of these issues have been resolved. Politicians on the right are still campaigning on promises of overturning Obamacare after they win. Politics, especially at the campaign level are nonsense however, so I’m really not interested in the rhetoric.

Depending on how much research you’ve done into the healthcare issue in the past, Wheelan’s items 1, 3, and 4 will not be new ideas to you. In economics these factors together are what is called adverse selection: if given the choice, only the sick will pay to get insurance. They would wait until they were sick and then run out and purchase some to pay the doctor’s bill.

Insurance doesn’t work if everyone in the insurance pool is sick. If still forced to provide insurance, insurance companies will realize the costs and charge the participants in the pool rates close to what the cost of the treatments cost plus a profit margin. There would be no point in buying such a policy, it would be cheaper just to pay the bills yourself to avoid the processing fees and profit margins the insurance company charges. Insurance only works in a large pool of participants with risk characteristics which are predictable within a range but uncertain enough for each individual participant to not know if they will need it or the insurer to know who exactly will need it.

The pooling issue is the basis of Obama’s “personal mandate”. This feature is required for any form of insurance to work. Although controversial and interesting, the personal mandate still isn’t where I want to discuss because Wheeler’s most interesting thoughts revolve around #2 of his four point summary (although I feel the mandate is MUST to make it work).

Wheeler’s hypothesizes what will ultimately doom “private” insurance is not out of control fees or political interests (which would have been my answer) but instead it will be the scientific developments in the field of genome mapping. According to, gene testing and screening can already:

  • Diagnose disease
  • Identify gene changes that are responsible for an already diagnosed disease
  • Determine the severity of a disease
  • Guide doctors in deciding on the best medicine or treatment to use for certain individuals
  • Identify gene changes that may increase the risk to develop a disease
  • Identify gene changes that could be passed on to children
  • Screen newborn babies for certain treatable conditions

The information gene screening will be able to provide is set to expand exponentially over the next few years. It will have revolutionary changes for both how diseases are treated and for the insurance industry. Insurance companies are going to have a financial interest in knowing who is going to be sick and when, gene sequencing will tell them.

The writing is on the wall and some people are already reading it. In 2008 the United States federal government adopted the Genetic Information Nondiscrimination Act (GINA). The goal of GINA is to prohibit employers from using the results of genetic testing for hiring or compensation purposes and health insurance companies from results to make underwriting (rate) decisions.

So you do you think it will work? If so, I have a bridge in New York and some slightly damp investment property in Florida to sell you. Insurance companies have such a strong incentive to use this information it’s doubtful regulation will prevent them from doing so. In the end, they will either find a way to get the information directly or a way to tease it out of other data sets and exclude candidates based upon known risks. When this happen, you’ll see exactly what Wheelan predicts, a complete collapse of the current private insurance system and a need to shift to a universal single provider system.

What concerns me is we’re not discussing this very known risk now. It needs to be a public conversation and move towards a system that works in this brave new world? It’s frustrating the government is going to wait until enough people fall through the cracks before acknowledging the problem. In the time it will take for public opinion to reach its crescendo of frustration could take years and in the meantime hundreds if not thousands of citizens could either die or go bankrupt from medical bills.

Whatever you believe, read Naked Economics: Undressing the Dismal Science by Charles Wheelan. After reading it you’ll have a better understanding of the world around you and be better able to explain your opinions on the geopolitical matters that affect your money.

What do you think? Are you worried about health care? Do you think our current year is all that it’s cracked up to be?

Store apps: Lazy Man’s Coupons

I have always written off coupon clipping as an unproductive, overly time consuming habit not worth pursuing due to the time it takes to sift through all the garbage mailers and newspaper ads but recently I’ve reconsidered it. Thanks to technology, store apps have become more useful and with almost no additional work they can generate real savings while simultaneously saving you some time in the store (especially with the Target app).  

This revelation all started with a trip to Kohl’s. All I needed was some new dress socks for work but if you are fortunate enough to not know how Kohl’s works, the store gamifies coupon shopping. It’s my mother in-law’s favorite place to shop because if you go in there properly prepared, you’re often paying 50-70% below the sticker price with all the rack discounts, coupons, mailers, and other deals. But for the lazy and not properly prepared, the discount is limited to discount advertised on the race (which is still often over 20% because, well, that is how Kohl’s markets all their crap). Kolh’s works on the sucker’s marketing theory that everything is on sale, all the time… 

So as I was driving to my local Kohls, my lack of preparation dawned on me. It was too late, I needed these socks. But I had revelation… what about the Kohl’s app? There had to be coupons in it right?!??! Kohl’s coupons everywhere right?!?!? RIGHT?!?

I carefully downloaded it while at, let’s say, a red light.

Opening the app, I selected my local store as my default location and sure enough it had a coupon in the app for an additional 20% after any other discounts. I’m sure my final price was still above what my mother in-law would have paid but I still considered it a win given my lack of preparation.

Given this experience and the fact I really only shop at two stores, I decided to explore the store apps of two places I shop:


As far as money goes, this is where my family spends a bulk of its grocery budget. Milk, eggs, fruit, and most of our other staples are purchased here so it was the first app I looked at.

The navigation menu allows users to browse Warehouse Coupons, Online Offers, Shop, locate a warehouse, access the Photo Center, create a shopping list, use the travel services, access your membership, the pharmacy, the business center, read their Costco Connection newsletter, access the settings, and give feedback.

The first thing I did was locate the closest warehouse and set it my local Costco. The warehouse tool uses your GPS to approximate your current location show it on the map. In my case, I was setting this up at my office so I had to move the map to the area closer to my home and select the Costco there. It was all straightforward and hopefully will only need to be done once.

Then I went into browse coupons to see if there was anything we regularly buy in the coupon section. It seems like there are hundreds of items there so I was in luck. You can then “clip” the coupon to shopping list.

The shopping list function is where I really started to like the app. Currently, I keep separate lists for each store in my all-time favorite app, Evernote, and add items to them as needed but since the Costco app can create lists I’m going to move my ongoing list to that. The clipped coupons are added to the list automatically as “clipped” but then can also be added manually. This is really useful for everyday generic items like milk.  

Now this is where it’s really cool because based on what you add, Costco searches to see if similar items are on sale. On my list I had entered yogurt and Costco had found a yogurt on sale so it added the “savings” button to the right of the item. Clicking on this button displayed the sale item.

In my case, this was not an acceptable yogurt but I can envision cases where this search could generate some additional savings.


The next most frequented store for me is Target. They actually have two apps, the Target app and another app made by Target called Cartwheel.

Cartwheel is the slicker app of the two but it’s basically a digital version of their circular displaying sale items and flashing how much time is left before the sale ends. The entire app is just marketing crap. Additionally, all of the sale items are already brought into the main Target app without having to use this so the Cartwheel app is going to be deleted before this is posted.

Back to the Target app itself. It works in pretty much the same was as the Costco app, first you select your local store and go from there. Coupons or sale items can be found in the cartwheel section of the app and then added to your list.

In the list section, items can be manually added to your list. It has the same great feature as the Costco app of searching for deals on items with the same description as what you have added. In my example, there happened to be a sale on milk.

One huge advantage the Target app has over the Costco app is that it puts the aisle number for every item on the list PLUS the app will re-order your list when you get to the store to generate your most efficient route through the store!! I absolutely love that feature. I can not tell you how many times I’ve wandered through the store looking for some random item like marshmallows that we only purchase a few times a year (for camping). I expect this feature alone will save me 10-15 minutes every time I go to the store!

The bad side of the Target list however is that when an item is removed from the list, it’s gone forever. If you want add it back, you need to re-type in the item. This sucks for commonly purchased items that you would like to store on the list and just un-click when you need to purchase it. The Costco app saves the item for later use.

Neither of these apps will save you a ton of cash but if you only shop in a few stores downloading the apps can make you a more efficient shopper since you’ll have a plan and if coupons do exist you can save a few bucks each time you go. All that for almost no extra work.

TurboTax, TaxAct, Proseries, Fishback Tax & The Story of a Simple Partnership Return

Being a CPA by trade (although I work in industry now), I should have a simple problem to solve: filing a 1065 partnership tax return. And not just filing any partnership return either; it is a terribly simple rental property jointly owned in a LLC with one other partner. This should be Lindey Lohan easy.  

In prior years, this filing was done using the professional grade, super-duper kick ass Intuit ProSeries software. Everything about the software I loved other than one key thing: the cost. It’s a costly piece of software for someone that does not do a high volume of taxes professionally.

The basic version cost $279 and then each return cost $49 for the federal with an additional $29 for the state return. Several years ago I was filing 5-6 returns for friends and family that made this palatable but now I’m not. This put me on the path to searching for a less costly alternative. The cheapest option would have been to file the return by hand using paper forms but then I would have to type up the K-1 letters and risk numerous typos. Huge pain in the ass. I wanted to find software to do it.

First I evaluated software for my personal tax return and came to the conclusion that Intuit TurboTax with their top-of-the-line home and business package would be best because in 2015 my wife still had her consulting business. Since it’s also an Intuit package, I figured in the future years if I wanted to convert back to the Proseries version, it would be fairly seamless. The home and business package cost $79.64 over at Amazon with one state download included (always buy it through Amazon and not directly through Intuit). Included in the software cost is five free federal filings plus one state download. If the software is required for additional states, that is $39.99 plus the filing fee of $19.99 per state.

Shame on me but when I purchased this, I didn’t read the fine print and assumed that with “business” in the title, it would also have the ability to file a partnership return. Perhaps for an additional fee, but still have the ability. Wrong.

If you want to file a Partnership 1065 using TurboTax you need to additionally purchase TurboTax Business. Notice no “home and” before the business there!! Just a tad bit confusing.  

The cost for the TurboTax Business at Amazon is $119.99. At that point I was frustrated about having already purchasing the other software so I decided to expand my search and look for other options.

I had recently just read a Mr. Money mustache article talking about him paying to have his own taxes filed. Now this is something I would have never, ever considered since:

A) I’m a CPA

B) I think it doing your own taxes
provides an understanding of where you are financially

C) It costs money!

But he mentioned a company called Fishback Tax. Fishback Tax is basically an online accounting firm providing tax filing, including partnership returns, for a flat rate of $100. Being a CPA and having charged for returns in the past, that rate is pretty amazeballs. Out of curiosity, and the cost of their promised service being below the price of just the software I needed to file the return, I decided to check it out and give it a shot.

On their website,, I signed up (February 20) and the next day they emailed me access to private portal where documents could be uploaded into their system. I uploaded my prior year return as well a complete proforma P&L for the rental.

Add cricket noises.

There was no confirmation or response from anyone that the documents has been received. On March 2 I decided to follow up since not having the K-1s was preventing both my partner and I from moving forward with our own taxes. The did respond that day and told me that it would be 2 to 3 weeks before someone would reach out to me to follow up on the return. As of March 17, I have still not heard back from anyone.

Since this is holding up two people’s return (including my own), this level of customer service is not going to cut it. The slow response time was also not giving me much confidence in their overall service quality.

Back to the drawing board once again. I should’ve reevaluated my just doing this by paper for free but it still seemed like a pain in the ass. Plus, I still had the itch to try something new just to evaluate a new process or software.

One thing that has been around for years now that I had yet to try was a purely online tax preparation software. Everything I had tried to this point has been a downloaded desktop version. All of the major software providers offer such as service so I priced out the different packages online and found the TaxAct online package was fairly reasonably priced ($49.99 plus an additional $19.99 for the state return) and it was TurboTax’s competitor. That would give me a different perspective on their packages.  

I’m not sure what I was expecting since was my first time using a purely online service but I’ll it was pretty awful.

Right off the bat, there was no import ability for anything other than a prior year TaxAct file. This is in stark contrast to the TurboTax’s desktop version that can import a prior year return even from a .pdf (including a scanned paper copy). The pdf import method is far from perfect but it does give a basic starting point.

After you get past manually typing in your basic information, the navigation is difficult. The software tries to simplify the process by providing a step-by-step process to follow but they don’t simultaneously provide functionality to jump around through the return. At no point can you switch from step-by-step to form view even after the service is paid for. Not having a form view makes it difficult to review the return compared to prior year returns or to quickly adjust for mistakes that might have been made.

I was able to fight through all the crappiness finish my return. The return was so simple that there were no major issues but I would have hated to work through a more complex return with this software. But the mission was complete, it was cheap (all in for the filing it was it $69.98) and the return is filed.

Although it was a headache, when the dust settled I saved $242 across all the returns I filed (2 individual returns, one partnership, across 3 states) compared to the prior years Proseries cost. That’s some real coin so although this was not a smooth process, it’s one that I’ll probably repeat next year.

Tankless Hot Water Heaters: Is the return there?

Last week, BOBVILA.COM via Zillow posted an article Tankless Water Heaters: When, Why, and How to Buy One and it made me think back to the decision my wife and I made on one about two years ago.

The article gives a general overview of tankless units, the pros and cons, etc and cites some numbers regarding the possible savings. But nowhere does it calculate your actual return on making the investment. Do the cited cost savings really justify the initial cost? A tankless water heater is not cheap and at the end of the day all you’re getting is the same hot water from either source.

The article implies there are real, hard saving but reading other articles such as this 2008 one by Consumer Reports called “Tankless water heaters, They’re efficient but not necessarily economical” seem to question the actual return.

Almost two years ago now my wife and I were going through the process of building our home and picking out the various upgrades we wanted and the the tankless hot water heater was major topic. The builder wanted $1,729 to install the Rinnai RL94iN Natural Gas Tankless Water Heater. This was a large line item so we began wading through all the information and I started whipping up some spreadsheets.

Estimating costing savings for a hot water heater is a tricky issue since it’s based on several variables including energy costs, water usage, and the temperature of the water being fed into your house. The Consumer Reports article cited above includes their estimate of the average savings as $70-80/month. This is an old article however (6 years old at the time of our decision) and the technology surely has changed.

The Rinnai website has it’s own customizable calculator as well which calculated my estimated savings by switching to their RL94iN to be $160/month. Using this number of course is fraught with issues as well since it is being provided by the very people trying to sell you something. Just a slight conflict of interest…

So what to use in my analysis? I decided to split the difference and use $120/month, the average between the CR number and the Rinnai number.

Notes on the analysis:

The useful life of a tankless unit is estimated at 20 years compared to 10 years for a tanked unit. My house would have required two units so by choosing a tankless until, the estimated savings in year 10 are increased by $800 ($400 x two units).

My decision was also for new construction so the initial outlay was financed, spreading the cost of the tankless unit over the entire mortgage period (30 years). Given that the mortgage term is longer than the useful life, there will be payments in the future when benefits will not be received. To adjust for this, the future value of the $1,729 note at the end of each duration of my analysis is assumed to be paid.

The financing rate as well as the discount rate for the Net Present Value calculation was my mortgage rate of 3.25%.

Lastly, I just wanted to know how it would all work out if I didn’t finance the heater and instead purchased it upfront so the analysis was repeated.


The return works out great if you finance it and keep the unit and the house for the entire 20 years:

5 Year

10 Year

20 Year









Note: MIRR is the Modified Internal Rate of Return and takes the IRR one step further to assume cash flows received are reinvested at a certain rate of return. This is what you should always be using. Find out more here.

But the return decreases quickly. If you are only keeping your home ten years or less, it’s terrible and the breakeven seems to be right around 13 years which just so happens to be the average length of home ownership in the USA (see my LED light article for citations here).

The results are roughly the same if the unit is purchased upfront, although worse in the shorter durations and better at the longer ones:

5 Year

10 Year

20 Year









The entire spreadsheet can be found here: Tankless Unit IRR & NPV

So what did we do?

Our youngest child is 3 so we are planning to stay in the this house for at least 15 years. We also appreciated the smaller amount of space that tankless unit takes up so we decided to roll the dice on the tankless unit. Only time will tell if we will actually remain the house beyond the 13 years needed to break even but no doubt this is a risky bet. I think that for most people a tankless hotwater heater remains a poor choice compared to the cheaper older technology.

We have been happy with the performance however, we are right on line for the size of unit we have give the number of people we have in the house but we have yet to have any issues with the unit not keeping up with the demand for hot water.

Choose the lower upfront cost of the tanked unit, bank the difference and don’t expose yourself to the risk of not staying in the house long enough to see your MIRR on the tankless unit.