Archive for October, 2006

T-bills: rate update and using the Certificate of Indebtednesss to manage recurring investments


This week’s 28-day T-bill rate auction was just released and stands at 5.176% APR (5.3% APY), above both the 91-day and 182-day investment rates at 5.108% (5.21% APY) and 5.153% (5.22% APY) respectively. By watching the daily yield curve last week (RSS Feed), I decided to continue investing in the 28-day bill but to hold on putting more money in the 3-month bill because I anticipated a growing spread. Below is this week’s updated chart:

Again, for Californians in the conservative 25% federal income tax and 9.3% state income tax brackets, this puts the tax-effective APY at 6.05%, which should be better than any comparable short-term cash vehicles currently out there.

I decided this week to set up recurring investments at Treasury Direct so that as soon as this 28-day T-bill matures, the money from it will automatically be rolled over into a purchase of another 28-day T-bill. Treasury Direct offers an easy way to do this by providing what’s called a zero-percent Certificate of Indebtedness (C of I). It sounds much more complicated than it is. A zero-percent C of I is nothing more than a non-interest-bearing security (really, you can just imagine it’s a savings account earning 0% interest) that’s only used as a temporary storage place for funds.

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That Oprah’s one smart cookie

Business & entrepreneurship, Current events

Breaking news is that and one week to do it. That cause could be one person or several organizations (relatives are excluded), and she’s handed out a DVD recorder so audience members can film their act to be aired on a future show.

So, philanthropy is great, but doing so at the same time as getting real-world, market-proven, compelling material guaranteeing future revenue (kind of like how American Idol works) is brilliant. Geez, it’s sure to result in an impressive ROI.

Guess that’s why she’s the queen of talk shows! So, if you had this opportunity, what would you do?

Top picks from Carnival of Investing #46: Learn something new

Personal finance

This week’s Carnival of Investing has been posted at My 1st Million at 33. I contributed last week’s post on REIT ETFs, but becoming an investor is nothing if not an ongoing learning activity, and the investment universe is impossible for one person to cover. So, why not see what others have to say? Below are some other posts that were contributed this week that taught me something I didn’t know:

  • A comparison of : I wasn’t aware of the existence of NYU’s art market index. This brief article does a nice job explaining the two classes and the realities of investing in the latter.
  • How to : A nice explanation of how using a margin account carefully and with discipline might lead to better returns on your cash. I use a version of this tactic with Schwab but hadn’t considered it a “strategy” until now. Most of my money is sitting in a money market account (earning around 4.79%…not great, but it’s convenient), and only after I place a trade order do I move the money into my cash account before the trade settlement date. Schwab isn’t mentioned in the list, but the post lists strategies for other brokerages.
  • A nice anecdotal post about Intuit’s consistently cyclical performance (INTU). I wouldn’t buy a stock just based on the post, but it’s a fast and fun read. Reminds me of Prepaid Legal (PPD), which apparently became the “cash generator” for the Accounting department at school because it, too, had a predictable cyclical performance for a while.
  • Understanding are things I hadn’t really considered. The post contains a couple of useful links to the SEC and a Barron’s article ranking various brokers. I’ll have to re-read that SEC article later this evening when I have more time.
  • For those investing in gold, there might be a better way to structure your tax filing: Yet another post covering a topic I hadn’t considered before today. I don’t own any gold at the moment, though.
  • Plenty more where those came from, so be sure to check out the carnival and see what tickles your fancy and your mind.

    Congrats to Blueprint for Financial Prosperity for hitting a milestone


    It seems will be hitting a big milestone very soon by getting over 500K unique visitors over a period of one-and-half years. Personally, I can’t imagine ever approaching that level, but Jim’s helped me a lot by giving me suggestions and tips on my site, and I am sincerely happy for his good fortune :)

    To celebrate, he’s giving away five books at random to a lucky person who leaves a comment on his post with a bad pun/joke in it. So, head on over and give it a try. Oh, and his site’s worth checking out, too.

    Just for Jim, here’s my bad pun contribution: “A lot of money is tainted. It taint yours, and it taint mine!” Ok, showing a little too much of my Southern roots here…

    Happy weekend everyone!

    Diversifying into real estate through REIT ETFs


    I was reminded by that my investment portfolio lacked any exposure to the real estate market. We don’t even own a house, having decided the time is not yet right to buy into the Bay Area. So, earlier this week I decided to look into .

    REITs invest money in companies that build and manage real estate properties and then receive returns in the form of rents and mortgages. By returning 90% of their taxable income to shareholders and meeting some other legal requirements (partially listed in the link above), REITs receive special tax treatment by the IRS. One convenient feature of REITs is that they trade on the stock market exchange, just like other stocks, so they can be one convenient way to diversify into real estate without actually owning your own physical property.

    As usual, I decided to look for an ETF that fit my needs. (I’m rapidly becoming the Queen of ETFs among personal finance bloggers I think.) Among the US-based REIT ETFs offered are RWR (streetTRACKS DJ Wilshire REIT), VNQ (Vanguard REIT), ICF (iShares Cohen & Steers Realty Majors) and IYR (iShares Dow Jones US Real Estate). Despite tracking different indices, it turns out their top 10 holdings are nearly identical, though they appear in a slightly different order and with different weightings. Their expense ratios range from 0.12% (VNQ) to 0.6% (IYR).

    Here’s a key fact: all four of these ETFs invest in equity REITs involved in the ownership and operation of commercial real estate. Specifically, the companies tracked by these ETFs are involved in building and managing retail, office, storage spaces, and apartments. Finding out about these ETFs’ holdings was particularly important to me, because I initially had no idea if they were exposed to the residential real estate market, an area I wanted to avoid for now because I don’t know where it’s headed.

    In the end, I chose to buy some shares of ICF, the REIT ETF that tracks the Cohen & Steers Index. This index is comprised of large and liquid real estate companies that “may benefit from future consolidation and securitization of the US real estate industry” and while its expense ratio is on the high side of the group (0.48%), it has outperformed the other ETFs to more than make up for this amount. I have to suppose this has mostly been due to its greater concentration in a smaller number of assets (ICF has 31 holdings vs. 3 or more times that amount in the other ETFs). I plan on seeing how ICF performs, and if I decide to put more money into US REITs, my next purchase will probably be into VNQ.

    If you’re interested in learning more about REIT ETFs, I recommend reading the VNQ prospectus, even if you end up purchasing another fund. Vanguard really does a fine job of thoroughly explaining their ETFs so that anyone can understand them. Businessweek also has a slightly older but useful mentioned above.