After testing some standard 38mm width FSA bars, I decided to pull the trigger on a set of 38mm Zipp SL-70 Aero bars. The installation was pretty straight forward and I really like how they look!
I've had a request to see a detail shot of the cable housing.
And finally with some handlebar tape.
Step 1: I want to 3D print something large.
Step 2: Discover there aren't any realistic large format 3D printers.
Step 3: Make one yourself.
It's a familiar template to those who follow the maker / startup culture. "I want something; it doesn't exist; I'll make it myself".
A friend at my day job, Jason, has fostered an ambitious design and manufacturing hobby to the point of stand-alone profitability, specializing in reproducing and improving various parts for obscure European cars (I'm sure he'll argue against my use of obscure here). He's been involved in machining, both manual and CNC, since he was mentored by his father in the craft as a kid. I have my own storied history with obscure European cars (racing an Alfa Romeo in college), and my dad is a machinist too, so we became fast friends when we met. Admittedly though, our paths have diverged a bit: while I may be pretty handy with a Harbor Freight drill press, I managed to learn effectively nothing about machining from my father, and have happily, resolutely, relegated obscure European cars to my past.
I've followed Jason's exploits for the last few years, including his recent linking up (through a brief foray into the world of digital currency mining [a.k.a.Bitcoins]) with another entrepreneurially minded engineer named Andrew. Andrew was recently employed in the medical engineering space, through which he gained three-dimensional (3D) printing experience.
Briefly, I'll try to give a quick explanation on 3D printing: it's like drawing with toothpaste. Imagine you wanted a miniature replica of an Egyptian Pyramid. You would first squeeze out some toothpaste in the shape of a square, then fill it in. Now you have a toothpaste square.
Next, you draw another square, only a little bit smaller, on top of the first square. Then again, a smaller square on that. Then again, until the final square you draw is just a dot of toothpaste on top. If you are as bad at toothpaste painting as I am with Microsoft Paint, then your Great Toothpaste Pyramid would look pretty lousy, like the one below. But hopefully it gets the point across.
An extrusion-type 3D printer (which is what we're talking about here) does the same thing, except it's a robot doing the drawing, and it doesn't use toothpaste, but some type of meltable material, like plastic. The robot pulls in some plastic from a spool, melts it, draws with it, the plastic hardens, then the robot moves up a little and draws another layer. There are other styles of 3D printers, but those are outside the scope of what we're talking about today.
Back to Jason and Andrew. After doing some experimenting with an available 3D printer, they came to the realization there weren't any solutions on the market to print large designs. The most popular and familiar 3D printer company, MakerBot (which is now selling at Home Depot), makes a printer that can create an item as large as 1 ft. x 1 ft. x 1.5 ft. high, but they wanted something bigger. Like 3 ft. x 3 ft. by 3 ft.
So they made one.
I had seen some prototype pieces in the early stages when visiting Jason's shop, but hadn't been over in many months; I was due for a visit.
I walked in to check out the fully functioning prototype, developed and manufactured under their new company name, Cosine Additive.
They were about 70% through printing a demonstration part on their AM1 prototype. This hollow orange design would be nearly impossible to create on a traditional machine, making it a "show-off" part to help market the printer.
This is a close-up of the print head. As it moves back and forth along the silver ball screw, it draws in the orange plastic from a spool at the rear of the machine, melts it, then extrudes (or "squeezes") it out of a precisely sized nozzle. The plastic hardens within a few seconds after.
The large grey block holding everything together is a prototype piece that they actually printed on a small commercially available printer. The production version of the machine will have a solid metal piece.
They had a number of spools on a cart behind the machine from which the printer pulls material. Jason is the guy in the striped shirt.
The power feeds and controllers are really nicely laid out in a sliding tray beneath the print area.
Since my visit, Jason and Andrew have made a number of improvements to the machine as you see in this post and taken it to a number of trade expositions where the response has been excellent. Good luck guys!
Barbecue is serious business, especially in Texas.
On a recent trip to Austin, my wife, Ryann, and I decided to tackle the infamous Franklin Barbecue. For those who haven't heard of this BBQ temple, it has been consistently ranked as the top barbecue restaurant in Texas and has established a bit of a cult following. I've actually attempted to eat there on two different occasions over the past couple of years, but was surprised to find a multiple hour wait both times I showed up; I was hungry at the time and in no shape to stand outside in 90+ degree heat for hours, so I bailed. Since those visits, the infamous wait has grown along with the purported unparalleled deliciousness of the food. Arriving later won't yield the desired result, either, as they supposedly sell out of food on a regular basis.
This time, we knew the scope of the task at hand, so we would be prepared. We would be in town on a Tuesday, reportedly one of their slowest days. In fact, there are multiple foodie websites that claim only a 90 minute wait on both Tuesdays and Wednesdays. Perfect.
We got up at a decent time on said Tuesday, planning to be in line at 9:30am, ready for the 11:00am restaurant open. Good plan, right? We rolled up to the restaurant to this:
Let me clarify what's going on here:
Here's the front of the line right around when we got there at 9:30am. See the people at the front? They got there around 6:00am. On a Tuesday. For the 11:00am open.
I took pictures as I walked back toward our place in line.
See the girl in the yellow shirt in the upper left? That's Hailey, a Franklin employee whose job it is to manage the line. We'll come back to her.
The line continues around the corner, up, and to the right. We were close to the end.
I took a video, attempting to capture the length of the line, and the dedication to barbecue:
Right around 9:45am, Aaron Franklin, the owner and recent James Beard Best Chef Award Winner, came out to his truck (bumper sticker: BRISKET IS MY SPIRIT ANIMAL) parked next to where we were posted up in line. Ryann had been doing some reading about Franklin BBQ before our visit, so she recognized him as he loaded an air compressor into the truck bed.
"Excuse me, are you Aaron?"
"Hey there, yes, that's me!"
"Wow, can I take a picture with you?"
"No problem, thanks to all you guys for hanging out here and waiting!"
Soon after our star encounter, Hailey found her way to our part of the line in back, holding a clipboard. It was just before 10:00am at that point. Keep in mind at this time, we didn't know how fast the line moved, and expected a 1.5 - 2 hour wait, just like the internet said.
Hailey: "Good morning, guys. At this point in the line, you can probably expect to eat around 2:30pm"
Wait. What? 2:30? 4.5 hours from now?
"Yeah. We'll probably still have brisket."
Wait. What? Like, you might not? Like, I could stand here for 4 and a half more hours, then not get brisket?
"Well, we're pretty good at estimating, so you should be fine."
She then asked what we planned on ordering (3 lbs brisket, 1 sausage links, 1/2 lb pulled pork), explaining that there wouldn't be any turkey or ribs left by the time we got to the counter. She marked down our order on her clipboard and moved on to the people behind us in line.
When she got to the people after them (so, 2 places behind us), she proclaimed that they would be the last people to get brisket, and handed them an "official" sign:
She then established a large gap in the line, and started explaining to everyone behind that point that they probably wouldn't be getting any brisket. And definitely no turkey or ribs. General discussion among the non-brisketeers ensued, followed by a slow abandonment by most people behind the "Last Man Standin'".
At this point, Ryann and I had a general discussion of our own. She said she would be happy to stay, but we'd need a chair, a hat, some snacks, drinks, and sunscreen. We had come dramatically ill-prepared for such a long, hot, outside wait.
Fortunately, there was CVS less than 300 yards around the corner, so the decision was made. I would go for supplies, and we would stay for barbecue!
CVS had chairs right by the register, and I gathered the rest of the items on the list. I was not the only one in there shopping to survive the line.
I returned to The Franklin Line, and we waited.
It wasn't really like standing in line at Disneyland, or at Marshall's, though. It was a fun atmosphere, more akin to tailgating than waiting in line. The line itself moved so slowly, even once the doors opened, that you only had to move every 15-20 minutes; plenty of time to set up your chair and get comfortable.
The line was full of locals and tourists alike; just in the groups close to us, we talked to people from Austin, Houston, Florida, Illinois, San Diego, and Australia. There were picnic blankets, coolers of beer and drinks, and board and card games everywhere; we made fast friends with those around us and really enjoyed the time spent outside, relaxing.
Inevitably, I had to use the restroom, which wasn't a problem. There is a side door that leads into the restaurant, and people are in and out all day. I snuck a preview picture of the operation when I went in:
As the line shrunk in size, the "TAKE A CHAIR, LEAVE A CHAIR : )" corral slowly filled back up. My guess is if you're early enough, you can just snag one out of here. Obviously, we were quite late, and had no such opportunity.
Hailey came through the line multiple times throughout the day, updating everyone on the status of the wait and meat availability. Believe it or not, they nailed both the time at which we would eat, and the amount of people that would get food. Credit to the folks in line, too, for not ordering more than they said they would once they got to the counter, which would have screwed up the count.
We asked Hailey some questions while she was around.
Q: Why does the line move so slowly?
A: The limiting factor is the meat slicer behind the counter. He is very skilled and efficient, but it still takes 1-3 minutes per person in line to prep the meat. They've tried to find more slicers, but Aaron is very particular about the cut quality, and they haven't found more people up to the standard required to run a second line.
Q: This business is so wildly successful, with demand exponentially outstripping supply. Why haven't more locations been opened?
A: The simple answer is quality control. Aaron is exceedingly demanding of the high quality product they provide, and doesn't believe it could be maintained at this time in higher volume and/or more locations. Quality comes first, by a large margin.
Q: Is the amount of meat available each day consistent? Will people who show up at 9:30a always get food?
A: Yes and no. They cook a similar amount each day, but the amount available to the folks in line varies depending on how many pre-orders for hot food have been placed.
Q: So can I pre-order and skip the line?
A: Definitely. However, you have to order 5 lbs. of meat, minimum, and the pre-order list is usually filled 2-3 months in advance. When they open up a time slot for pre-order, they get over 500 emails in less than an hour. There are no guarantees you will get your order, even if you get in there early. Pre-orders must be picked up between 10:00am and 10:30am, otherwise you have to wait in line to get it. Don't be late!
Q: With all the people in line, is there a problem with seating in the restaurant?
A: Not usually. There are 14 - 15 tables inside the restaurant, and because the line moves so slowly, there are generally open seats.
Q: When is the best time of day to arrive?
A: Your best shot at getting food with a short wait is to come between 2:30pm and 3:00pm, then take whatever is left. You might get lucky and get what you want, but if you don't, you didn't have to wait in the massive line.
Q: How long does the brisket take to make?
A: Between the meat prep, smoking, post-cooking care, and slicing, each brisket takes 44 hours worth of work.
After the Q&A, we finally made it inside. As we worked our way along, I picked up a hat and t-shirt which were in bins next to the line. Plenty of time to try them on and figure out the right size.
One of the things we learned early in the line, and you can see on the far left "sign" below, is you can show up at any point during the day, skip the line, and pick up a chilled, vacuum sealed whole brisket to go!
We were so excited at this point, we could hardly stand it. Additionally, it looked like we were definitely going to get brisket, which we weren't 100% sure of, being so close to the end of the line.
Here's our final order. 2 lbs of brisket to go, 1 lb to eat in, 1/2 lb pulled pork, 1 sausage link, beans, potato salad, coleslaw, and bread.
Not pictured: a hat and t-shirt. Which I was wearing. Total: $120
We made it!! This is us, ready to enjoy the fruits of our (mild, full of beer, snacks, good weather, and good company) suffering:
The slicer gave us a nice variety of lean and moist brisket.
Our hopes were exorbitantly high, but the brisket far exceeded them.
I've had a lot of barbecue during my 11 years in Texas, and this was definitively the best (Killen's in Houston is solidly in 2nd place; it's excellent, but not as good as this by a measurable amount. 3rd place is so far below these 2 that I won't even choose one). The sausage was very good, but didn't amaze me; same goes for the pulled pork. Killen's pulled pork is much better. I wasn't wild about the sides either. Again, Killen's sides are really fantastic, so score another point there. However, the brisket here at Franklin was on such another level, it does stand above all the rest. As I found out later, one of the reasons the Franklin brisket is so good is they pay a premium for all natural (no hormones, antibiotics, etc) meat from Creekstone Farms in Kansas. Whatever the reasons, I can't wait to go back.
While it was a long day and a long wait to "just have some barbecue", we had such a good time, we wouldn't hesitate to do it again. It seems that no matter what time you get there, you're in for a 4.5 - 5 hour wait (first in line got there at 6, ate at 11; last in line got there at 9:45a, ate at 2:45p), but I would probably get there around 8:00am next time to avoid the sold-out-meat-stress. That way I can try some turkey and ribs!
And we have leftovers!!
So far the refreshed road bike has ridden really well, but I've really been looking forward to getting new aerodynamic wheels. If this is the first you're hearing of this road bike refresh project, make sure to check out:
Here's a reminder of how the bike looked at the completion of part 3, and how it's looked while being ridden the last few weeks.
From the beginning, I'd planned on fitting a set of Flo Cycling's 60mm aero wheels to the bike. I've been riding their 90mm front and Disc rear wheels on my triathlon bike for about 6 months, and I love them. They are fast, look good, offer great braking in all conditions (thanks to an aluminum brake track), cost less than half of comparably performing wheels, and come from a company with outstanding customer service. I had multiple questions about my first set and had answers from the owners/founders of the company within 24 hours. Usually less. So I'm happy to try and get another set for my road bike.
The tricky thing about getting Flo wheels is I'm not the only one with such high opinions of them. The triathlon community (and increasingly, the road cycling community) has been clamoring for these wheels since they debuted 3 years ago. For a number of reasons (with which I agree; many do not and are quite outspoken about it), Flo have decided to keep their production order sizes to around 700 wheels every 45-60 days; as a result, the wheels sell out within 5 minutes of online ordering being enabled. This means you need to plan ahead, get on the ordering mail list, and be ready at 10am Pacific Time when the order is opened. Both times I've attempted an order, I've been able to get what I wanted, but my online order has been completed within 1 minute of the order window opening.
I ordered my Flo 60's during Order 18 at the beginning of February. There were some shipping delays because of the extra-snowy conditions, but they finally arrived.
I paired them with Continental GP4000 SII 23mm tires (recommended by Flo as the most aerodynamic tire pairing, wind-tunnel tested) and off-the-shelf Bontrager butyl tubes from my local bike shop (thanks, Bike Barn, for stocking 80mm valve length tubes!). I ordered an extra 11-28T 11-spd Ultegra 6800 rear cassette so I can keep the old DT Swiss Axis 2.0 wheels ready for trainer/emergency use.
After having a terribly difficult time mounting the GP4000 SII tires on my other wheels, I thought to try warming these ones before attempting to mount. I just set them in front of the space heater I had running to warm my garage. Pro tip: make sure to properly vent the space in which you're heating rubber; I can't imagine the fumes are good for you.
The rims have pretty sharp edges around the spoke mounting holes, which don't mix well with inflated tubes; hence, rim tape.
Rim tape isn't actually tape at all; it's a barely stretchable circle of rubbery material designed to protect the inflated tube from sharp edges. Installation entails stretching it around the circumference of the rim, seated so that it covers all the spoke holes.
It's not complicated to install, just make sure you have the hole in the rim tape aligned with the hole in the rim through which the inflation valve stem on the tube is placed. Like so:
Once you have the rim tape in place, make sure you don't have any twists or folds in it, like below. These will cause problems.
Because there is a non-removable carbon fairing as part of the rim, a standard 42mm valve-length tube won't work on its own. The valve won't reach past the fairing, and it will be impossible to inflate the tire. One way to get around this is to use valve extensions, like the ones recommended by Flo from Silca. I won't go into detail about valve extenders/extensions, but if you're interested, this 5 minute video (from Flo Cycling) does a nice job explaining the different types and how they're used:
While these extenders are unavoidable with a 90mm deep wheel, they can be avoided on a 60mm deep wheel by using the 80mm valve-length tubes I mentioned before. It's a simpler, less error-prone way to go, so that's what I chose to do with my wheel set. You can see that the 80mm length works nicely with the 60mm wheels; there's plenty of valve exposed to easily inflate the tires.
The moderate heating I applied to the Continental tire made it noticeably easier to get it over the rim. First is to get one bead of the tire on the rim...
...then put a little bit of air in the tube,...
...insert the valve through the hole in the rim, work the tube underneath the tire onto the rim, then get the second bead of the tire onto the rim. I was so preoccupied with wrestling the tire onto the rim, I forgot to take a photo. It's not too bad getting the first 80% on, but I used a tire lever to get the last little bit over the rim. There are numerous videos available to show different techniques of getting a tire onto a rim, so I won't belabor the point.
The last thing to do before inflating, and this is important, is to work your way around the rim, checking that the tube is fully inside the housing of the tire. If the tube is pinched or sticking at all underneath the tire edge/bead, it will go flat as soon as you inflate it. This is called a pinch flat and it is horribly demoralizing, so make sure the tube is fully seated inside the tire.
One of the reasons the Flo wheels are so aerodynamically sound is the wide rim. It allows for the proper tire to sit very nicely on the rim, providing a nice smooth transition for passing air, as seen below on the fully installed and inflated tire.
Almost ready for the swap!
For the rear, I needed to install a new cassette.
This is a close-up of the Flo rear hub. They use their own design. I got the EZO Stainless Steel bearing version, instead of the ceramic. I didn't want to pay the extra $100 (per wheel) for, from what I'm able to ascertain, miniscule gains and higher maintenance requirements. This is the Shimano/SRAM compatible cassette mount. The picture shows the silver spacer needed to mount a 10-speed cassette. I use 11-speed, so I removed that before installing my cassette.
Try not to drop the cassette when removing from the package. You'll end up with spacers and gears everywhere. Like this:
The largest 3 gears are one piece.
Paying careful attention, stack the spacers and gears properly, then tighten and torque the cassette using a Park Tool Cassette Lockring adapter (the black hex shaped item below).
The rear tire mounting process was identical to the front, so I won't repeat it.
| Component | Weight (grams) | Notes |
|---|---|---|
| Complete Front Wheel | 1,266 | Flo 60 wheel, rim tape, tube, tire, skewer |
| Complete Rear Wheel | 1,660 | Flo 60 wheel, rim tape, tube, tire, skewer, cassette |
| Front Wheel | 866 | Flo 60 front, wheel only |
| Rear Wheel | 1,053 | Flo 60 rear, wheel only, with 11-spd hub |
| Rim Tape | 20 | weight for (1) piece of tape, Flo Cycling |
| Tubes | 109 | weight for (1) tube, Bontrager Butyl, 80mm valve stem length |
| Skewer | 52 | weight for (1) skewer, from Flo Cycling |
| Tire | 211 | weight for (1) tire, Continental GP4000 SII, 700 x 23 |
| Rear Cassette | 256 | Shimano Ultegra CS-6800, 11-spd, 11-28T |
| Old Complete Front Wheel | 1,265 | DT Swiss Axis 2.0 Wheel, Specialized Turbo 23mm tire |
| Old Complete Rear Wheel | 1,839 | DT Swiss Axis 2.0 Wheel, Specialized Turbo 23mm tire, Shimano 105 11-spd cassette |
So the new front wheel is actually 1g heavier, but will have the massive aero benefits of the wide, 60mm design. The new rear wheel gives me the aero benefit, plus a 179g weight savings- sweet!
Here's everything all mounted up! I love the look and hope to enjoy increased performance!
***EDITOR'S NOTE: Originally, this was supposed to be a short, direct post about why you shouldn't pay a financial advisor. However, it became much more detailed (and informative) than planned, and exploded in length. If you just want to see the plan, I'll make another attempt soon. If, however, you want to learn a great deal more, read on!***
Recently, I've had a number of family and friends ask me questions about personal finance and investing. They ask partly because my day job is in finance, but partly because of how frequently I talk about it. Instead of trying to improvise my thoughts every time, I thought it might be useful to put them in writing. I'll give a sort of primer on some of the more common options that you might have heard about, then talk about how I would allocate money for investment based on some criteria that I'll lay out as well. How do you know that this information is any good? The strongest endorsement I can give to the following investing information is this:
This is the data I've used to invest my own money.
Okay, here we go.
Let's start with a situation that many are faced with: You have some money that you'd like to grow, we'll say $100, but the savings accounts at your bank are offering a measly 0.01%. That means that if you put your $100 in this savings account from Chase on January 1st, you'll have $100.01 on December 31st. Yep, you made 1 penny. Brutal. In fact, if you left it in there for 10 full years, you'd have $100.10. It would take 6,932 years to double that money to $200.
The upside is that this is (essentially) risk-free. The downside is that inflation will make your $200 worth nothing. Fortunately, we can do better without materially increasing the risk. Before we continue, though, here's a table to organize the numbers. We'll add to this table as we explore more investment options:
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
Indeed, we can do much better. This savings account from Ally Bank pays 0.99%. After 1 year, your $100 would be worth $100.99, and in 10 years would be worth $110.35. You'll have $200 just after the 70 year mark- a significant improvement. And it's still insured by the U.S. Government
The drawback compared to the Chase account is that Ally is only available online, so no branches for walk-in service. You can still move the money quite easily between your other (regular) bank accounts online, so this isn't too much of a minus. This is about as good as you're going to get for a fully liquid (get your money at any time with no penalty), no-risk investment. At the time of writing this, U.S. inflation is 0.8%, so this account will at least keep your money from losing value over time. Here's our updated table:
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
| Ally Online Savings | 0.99% | $100.00 | $100.99 | $110.35 | 70 |
But, if you don't need the money for at least 5-years, you can get 2.25% for a 5-year CD (certificate of deposit) from other online banks like Barclays. You'll have $102.25 at the end of year 1, $111.77 at the end of the 5-year term, then $124.92 at the end of year 10 if you put that into another 5-year CD at the end of year 5. You'll have your $200 in year 32, and are well-covered against current inflation. The downside is that if you remove the money before the end of the 5-year term, you will have to pay penalties. In the case of the linked Barclays account, the penalty is 180 days of interest. Not a huge amount, but certainly enough to eat into your investment returns. However, FDIC insurance makes this virtually risk-free.
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
| Ally Online Savings | 0.99% | $100.00 | $100.99 | $110.35 | 70 |
| Barclays 5-yr C.D. | 2.25% | $100.00 | $102.25 | $124.92 | 32 |
So those are the "risk-free" bets, but that's not why you're here. You're looking for a better return, like stocks and bonds. Some people might mention real-estate investing as a place to look for a better return, but I don't like the risk profile, the maintenance portion, and its illiquid (much harder to buy and sell) nature.
Since we're moving from less risky to more, I'll move next to:
Bonds.
A bond, also referred to as a "fixed-income security", is a loan from an investor to another entity (could be a company, a city, or a government) that has a fixed interest rate that is returned over a fixed period of time.
The details behind bonds can be quite complicated, so if you're looking to become an expert, which I certainly am not, a good place to start is Investopedia's Bond Tutorial. An example of a common, liquid bond is the United States 10 year Treasury Note. The current interest rate (also called the coupon rate) is 2.00%. When you buy one of these bonds directly from the government, say a $100 bond, you are going to get that 2% each year, for 10 years, and then get your $100 back at the end of that 10 years.
This means that you're going to get $2.00 per year, then the $100 at the end. So at the end of 10 years, you'll have $120. Now, since we're assuming that each dollar earned on investments gets reinvested (which you'd better do, to harness the power of compounding interest), the 2% growth gives you $121.90 at the end of year 10, and $200 will come in year 36.
You can actually log on to Treasury Direct, open an account, and buy these bonds directly. However, those who have been paying attention will notice that this particular bond is actually yielding a worse return than the FDIC-insured 5-yr CD from earlier. (How can the banks make money with a higher rate? Well, they take the money from your locked in CD and loan it out at rates from 3% to over 10% for mortgages, business loans, etc.) In fact, even the U.S. 30 year bond is only paying 2.56%- incredibly low for being locked in that long. These interest rates rise and fall with the interest rates that are set by the Federal Reserve. The incredibly low bank rate currently set by the Fed keeps the return low on bonds, but it also allows for the record-low mortgage rates we enjoy.
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
| Ally Online Savings | 0.99% | $100.00 | $100.99 | $110.35 | 70 |
| Barclays 5-yr C.D. | 2.25% | $100.00 | $102.25 | $124.92 | 32 |
| U.S. 10-yr Bond | 2.00% | $100.00 | $102.00 | $121.90 | 36 |
Take note that U.S. Bonds are relatively risk-free; as long as the U.S. is able to borrow money and pay its debts, the bonds will continue to yield return.
However, we now will travel into the higher return area of investing, so let's be 100% clear here:
Everything from here on out is risky. There is a very real chance that you could lose money over some period of time.
I'll do my best to accurately profile the risk with each subsequent investment, but I just want everyone to be clear. Now, there are obviously a lot of other bond options besides just the U.S. Government, most of which pay more than the U.S. Government. One popular option is what is called a "municipal bond" or "muni". These are issued by local governments (like States and Cities) to fund projects and initiatives. These can yield a better return, but you are taking on a bit more risk. Let's look at an example:
A popular option amongst muni investors is California State Bonds. If you look at the table in the link, you can see that many of these bonds pay 3%-5%, some even as high as 8.75%. Make sure to note, however, the maturity date. While you can buy and sell bonds at any time, longer duration bonds are generally accepted as higher risk, because there is more time for the Fed to change interest rates, which will affect the price of the bond. For simplicity, we'll just assume you're going to hold onto the bond and collect the coupon rate until maturity. (Again, if you're interested in bond pricing and how it affects return, check out the Investopedia Tutorial. I've decided to draw the line on this one and say that bond pricing is outside the scope of this article. Keep in mind, though, that the municipality [city or state] that issued the bond can pay it off early, just like you can pay off your mortgage early. This means you won't get the coupon payments for whatever time period was left until maturity).
Anyhow, let's take a look at one partiular bond, chosen by me, at random. Here's theCALIFORNIA HEALTH FACILITIES FINANCING INSURED NORTHERN CALIFORNIA - 13033L6U6 bond. It's offering a 4% coupon, which is a common return for these type of bonds, and because of the pricing, will yield you that 4% as you'd hope. Here's how that will look for our returns chart:
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
| Ally Online Savings | 0.99% | $100.00 | $100.99 | $110.35 | 70 |
| Barclays 5-yr C.D. | 2.25% | $100.00 | $102.25 | $124.92 | 32 |
| U.S. 10-yr Bond | 2.00% | $100.00 | $102.00 | $121.90 | 36 |
| California Health Facilities Bond | 4.00% | $100.00 | $104.00 | $148.02 | 18 |
Now we're getting into some real returns. The other benefit to most municipal bonds is that the returns are TAX-EXEMPT. For someone in the 30% tax bracket, that means the return on the bond will be 30% better than having just a 4% interest savings account (so effectively this 4% bond becomes a 5.2% return!). The reason these bonds are tax-exempt is because the Federal Government supports public-improvement projects. They want you to invest in improving California's Health Facilities, rather than burying the money in a 4% savings account (if it existed), so they'll waive the taxes for you. Nice! This does mean that not all municipal bonds are tax-exempt, though. The government isn't too concerned about new sports stadiums, for example, so a local bond measure to fund such a project will not be tax-exempt.
So, how's the risk profile look for one single California bond? Well, if California overspends its budget too much (which is a very real possibility, due to the fact that it has done that in the past), they'll quit paying bond holders. Then you get 0% return. The bond market is pretty efficient at properly pricing the risk of non-payment for each bond, so the yield of each particular bond will tell you how risky it is. The higher the yield, the riskier the bond.
The last specific type of bond I'll address here is the Corporate Bond. These are bonds issued by companies, compared with governments and states as we've examined before. The advantage of these is that the returns can be quite high, while the disadvantage is...
Okay, all together now...
They are riskier.
As an example, we'll take a look at a corporate bond issued by a company I'm a bit familiar with (I own some common stock of the company), Exco Resources, a small oil and gas company headquartered in Dallas, TX. In 2014, they issued some bonds to raise money for exploration and land leasing costs. The coupon rate for these bonds is an excellent 7.5%. At the time, oil prices were over $100, and business was looking pretty good, they just needed a bit of cash to keep the ball rolling. Here's a link to a Seeking Alpha article talking about these bonds. 7.5% sounds great right? Here's how the returns look:
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
| Ally Online Savings | 0.99% | $100.00 | $100.99 | $110.35 | 70 |
| Barclays 5-yr C.D. | 2.25% | $100.00 | $102.25 | $124.92 | 32 |
| U.S. 10-yr Bond | 2.00% | $100.00 | $102.00 | $121.90 | 36 |
| California Health Facilities Bond | 4.00% | $100.00 | $104.00 | $148.02 | 18 |
| Exco Corporate Bond | 7.50% | $100.00 | $107.50 | $206.10 | 10 |
Now, since those bonds have been issued, oil prices have dropped into the $40/barrel range and there has been real talk of Exco facing bankruptcy. If that happens, you won't get your coupon payments, AND you won't get your initial investment back, so the money is gone. This is this risk that comes with 7.5% return.
Before we continue on in our asset-class list, I'm going to jump sideways for a moment here to address "mutual funds". A mutual fund is simply "an investment program funded by shareholders that trades in diversified holdings and is professionally managed" (thanks, Google). There are hundreds of companies that offer mutual funds, and they charge a small fee (anywhere from 0.05% to 3.00% per year) to take your $100 and spread it across any number of things, like stocks, bonds, real-estate, etc. The convenience to you is that you just have to keep track of one investment yourself, the actual mutual fund. You invest in mutual funds by buying shares of the funds, just as you would in a stock, but the price on a fund only changes once a day (after the markets are closed for the day). We'll take a look at some examples of mutual funds to get a better idea of how they work.
While it seems that there are nice returns to be had by investing in bonds, there is a decent amount of risk associated with the higher return stuff, and just not that great of return on the more secure stuff. Wouldn't it be nice to be able to invest your $100 across a bunch of bonds to get the exact return and risk that you would like?
That's exactly what a "bond fund" does for you. Instead of having to pick and choose for yourself, a financial company (like Vanguard, or PIMCO, or Charles Schwab) will do the picking, then take whatever amount of money you'd like to invest, pool it with others like you who want to invest in bonds, and buy the bonds for you. As the individual bonds move up in down in price and yield, the bond fund price moves with them. However, with hundreds, sometimes thousands, of bonds in each fund, the risk that one bonds stops paying is hardly noticeable. Now, if the Fed moves interest rates, which affects all bond pricing, the bond fund price can move dramatically. This is one of the risk factors that allows a higher return than something guaranteed, like the CD's and Savings accounts we talked about earlier.
Let's take a look at one of these bond funds. We'll look at the one I like, the "Vanguard Total Bond Market Index Fund". This is a mutual fund that is administered by the company, Vanguard Funds. You can look up the price and characteristics by symbol ("VBTLX"), but here's a link for convenience.
This particular fund has returned 4.72% over the last 10 years, without too much drama (we'll look at a stock fund in a bit that has experienced A LOT of drama, and caused investors large amounts of stress). In fact, Vanguard advertises a 2 rating out of 5 (1 = very low risk, 5 = very high risk) for riskiness, which is nice and low for moderately worry-free investing.
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
| Ally Online Savings | 0.99% | $100.00 | $100.99 | $110.35 | 70 |
| Barclays 5-yr C.D. | 2.25% | $100.00 | $102.25 | $124.92 | 32 |
| U.S. 10-yr Bond | 2.00% | $100.00 | $102.00 | $121.90 | 36 |
| California Health Facilities Bond | 4.00% | $100.00 | $104.00 | $148.02 | 18 |
| Exco Corporate Bond | 7.50% | $100.00 | $107.50 | $206.10 | 10 |
| Vanguard Total Bond Fund | 4.72% | $100.00 | $104.72 | $158.60 | 16 |
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
| Ally Online Savings | 0.99% | $100.00 | $100.99 | $110.35 | 70 |
| Barclays 5-yr C.D. | 2.25% | $100.00 | $102.25 | $124.92 | 32 |
| U.S. 10-yr Bond | 2.00% | $100.00 | $102.00 | $121.90 | 36 |
| California Health Facilities Bond | 4.00% | $100.00 | $104.00 | $148.02 | 18 |
| Exco Corporate Bond | 7.50% | $100.00 | $107.50 | $206.10 | 10 |
| Vanguard Total Bond Fund | 4.72% | $100.00 | $104.72 | $158.60 | 16 |
| Vanguard Long-Term Bond Fund | 7.36% | $100.00 | $107.36 | $203.43 | 10 |
Notice the return on this is nearly as good as our sketchy Exco Resources corporate bond from earlier, but the risk is much lower. However, it's been a bumpier ride than the Total Bond Fund, shown here (notice the significant dip in 2013):
I'm happy with that coverage for bonds, so let's move on to the big time:
So we've made it to the riskiest of assets: single stocks of public companies. There are fortunes to be made and lost trading individual stocks, and you've got a 50-50 shot in the short term on any given trade, because in the short-term, anything can happen. There exist mountains of research on stocks and probabilities, along with as just as many opinions on said research. If you're into it, dig in; I'm not interested in going there, so I'm going to continue to give my own opinion.
With over 100,000 publicly traded companies in the world, we could probably come up with an example to fit any theory, but we'll look at a couple that I've chosen because of some representative characteristic.
Let's start with a popular, volatile stock: Netflix. Here's a 10-year performance chart:
Those price swings are up 1000% (OMG I'm so rich!!) and down 80% (OMG why didn't I cash out!?!?). If you could take the heat, it certainly would have worked out for you, but there would be some serious drama. Not to mention, there's a chance it could head right back down tomorrow.
Let's look at one that hasn't worked out so well in the last 10 years: Citigroup. Here's a 10-year performance chart:
Yep, that thing sold off 90% in the financial crisis and hasn't come anywhere close to being back. Ouch.
And there are variations all in between. In general, though, stocks are well-regarded as high-risk, high-reward investments. Surely, however, there must be a way to get some exposure to stocks without taking on the extreme risk of single stocks? Of course, we'll look to mutual funds that hold stocks, just like we looked at mutual funds that hold bonds. We'll toss our two extreme examples in the chart for fun anyhow.
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
| Ally Online Savings | 0.99% | $100.00 | $100.99 | $110.35 | 70 |
| Barclays 5-yr C.D. | 2.25% | $100.00 | $102.25 | $124.92 | 32 |
| U.S. 10-yr Bond | 2.00% | $100.00 | $102.00 | $121.90 | 36 |
| California Health Facilities Bond | 4.00% | $100.00 | $104.00 | $148.02 | 18 |
| Exco Corporate Bond | 7.50% | $100.00 | $107.50 | $206.10 | 10 |
| Vanguard Total Bond Fund | 4.72% | $100.00 | $104.72 | $158.60 | 16 |
| Vanguard Long-Term Bond Fund | 7.36% | $100.00 | $107.36 | $203.43 | 10 |
| NETFLIX Stock (from 3/2005) | 47.2% | $100.00 | $304.72 | $4,776.15 | 0.32 |
| Citigroup Stock (from 3/2005) | -19.8% | $100.00 | $107.14 | $11.33 | ? |
I don't advocate buying single stocks as an investment strategy at all, for all the reasons we've seen. However, there must be a way to enjoy a good return with just a bit more risk, right? Absolutely: stock mutual funds. The one I like the best is, surprise, Vanguard's Total Stock Market Index Fund (symbol "VTSAX"). This is a mutual fund that holds 3,798 U.S. stocks, weighted in such a way as to price just like an index. This last bit is important, so I'll explain.
An "Index Fund" is a type of mutual fund that invests money according to a certain formula. A Dow-Jones Index Fund, for example, will just invest in the 30 stocks that make up the Dow Jones Industrial Average, and it will invest in the same proportions as the Dow Index. That way, if the Dow is up 0.37% on a given day, the Dow "Index Fund" will be up that exact same 0.37%. There are funds that mimic all sorts of indices: the S&P500, the NASDAQ Top 100, S&P 500 Health Care (this will be made up of hospitals, drug companies, etc), NYSE Technology, etc, etc. The point of these funds is that there isn't some fund manager deciding what and when to buy and sell in hopes of beating the general market; they will perform exactly as they are designed, and normally are much lower cost than the actively- managed funds. The Vanguard Total Stock Market Index Fund charges just 0.05% per year, compared with the normal 1%-3% of other mutual funds.
While that extra 0.95%-2.95% may not sound like much, it is. Check out the table below- it compares the growth of $10,000 over 10 years in 2 funds. Fund A costs 0.05% per year, while Fund B costs 1.55% per year. We'll assume they both return 7% BEFORE costs. Look what happens.
| Year | Fund A(7% return, 0.05% fee) | Fund B(7% return, 1.55% fee) |
|---|---|---|
| 0 | $10,000 | $10,000 |
| 1 | $10,695 | $10,545 |
| 2 | $11,438 | $11,119 |
| 3 | $12,233 | $11,725 |
| 4 | $13,083 | $12,364 |
| 5 | $13,992 | $13,038 |
| ... | ... | ... |
| 10 | $19,579 | $17,000 |
| ... | ... | ... |
| 20 | $38,336 | $28,902 |
| ... | ... | ... |
| 30 | $75,062 | $49,135 |
So after just 10 years, the expensive "Fund B" has returned an excellent 70%! But wait, the low-cost "Fund A" has returned an even better 95%! That's an additional 25% on your initial investment. So while that 1.5% extra may not seem like a lot, it is. In fact, if you draw it out to 20 and 30 years (the amount of time you might be invested before retirement), you can see the difference EXPLODE! And, that's being generous to the actively-managed, expensive "Fund B". There are practically 0 actively managed funds that are able to even match the general market's performance over a 10-year run. So in reality, the difference would most likely be much greater.
Okay, back to our Vanguard Total Stock Market Index Fund.
As we'd hope with taking on the additional risk of investing in stocks, we've also gained return: the 10-year annual return is 8.47%. But as we've learned previously, these high-return assets can be a bit of a bumpy ride. Vanguard considers this a 4 out 5 on the risk/reward scale. To wit, here's what the last 10 years have looked like:
While it may look minimized because of the last 6 years of upward movement, this fund, along with the stock market in general, lost 55% of its value from the peak in late 2007 to the valley in early 2009. The movement was so extreme that it heralded the coming of the "Great Recession" as it's called now. In fact, the losses were so great, and the discomfort so unbearable, that many people pulled their money out of the market in 2009 and have yet to reinvest it. It's an easy thing to say now how that was not a good idea, but at the time, it seemed that the market could continue down to zero.
Note also that it took nearly 5 and a half years for the market to get back to its October 2007 levels. As volatile as the stock market is, this exact situation could absolutely happen again, so as common investing advice says (and I agree with it this time), it's not recommended to have money that you may need to rely on to live, in the stock market.
Back to the happy side of investing in stocks- if you don't need the money for awhile, there is no better place to earn than in a low-cost, U.S.-based index fund. You'll find this advice from esteemed investors such as Warren Buffet, Charlie Munger, and John Bogle. I've tried many different strategies myself, and I've finally settled on this particular one as well. Here's our updated chart:
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
| Ally Online Savings | 0.99% | $100.00 | $100.99 | $110.35 | 70 |
| Barclays 5-yr C.D. | 2.25% | $100.00 | $102.25 | $124.92 | 32 |
| U.S. 10-yr Bond | 2.00% | $100.00 | $102.00 | $121.90 | 36 |
| California Health Facilities Bond | 4.00% | $100.00 | $104.00 | $148.02 | 18 |
| Exco Corporate Bond | 7.50% | $100.00 | $107.50 | $206.10 | 10 |
| Vanguard Total Bond Fund | 4.72% | $100.00 | $104.72 | $158.60 | 16 |
| Vanguard Long-Term Bond Fund | 7.36% | $100.00 | $107.36 | $203.43 | 10 |
| NETFLIX Stock (from 3/2005) | 47.2% | $100.00 | $304.72 | $4,776.15 | 0.32 |
| Citigroup Stock (from 3/2005) | -19.8% | $100.00 | $107.14 | $11.33 | ? |
| Vanguard Total Stock Market Fund | 8.47% | $100.00 | $108.47 | $225.47 | 9 |
Some may have noticed that I said "U.S.-based" when I recommended how to invest in stocks. That will lead me into our last, and probably most controversial, section:
I don't like 'em. I've tried to make them part of my own portfolio for many years, but I'm over and done with it. Pretty much every single piece of investing advice will say to have some international exposure; this includes all the experts in finance and "modern portfolio theory".
It's just as easy to buy an International Stock Index fund, like Vanguard's Developed Markets Fund (symbol "VTMGX"). This fund contains 1,406 stocks of international companies spread across Europe, Asia, and Australia. Now, this is a "Developed Markets" fund, so think England, France, Japan, and Australia. When you hear "Emerging Markets", think Russia, Brazil, India, and China. As you would guess, the Developed Markets are considered less risky, but Vanguard still places the Developed Markets Fund at a 5 out 5 on the risk/reward scale.
So, with such a high risk, we should get the high reward, right? Well, the Vanguard Developed Market Fund has a 10-year return of 4.51%, not even as high as our 2/5 risk level bond fund. And it still hasn't recovered from the losses of the Great Recession. Here's the performance chart:
And while the Emerging Markets fund, Vanguard's Emerging Markets Stock Fund (symbol "VEMAX"), hasn't been around 10 years yet, the chart doesn't look any better:
I've spent a great deal of time speaking with my educated foreign connections (from places like China and Bulgaria), trying to figure out why those markets haven't prospered as the U.S. has in the last 5 years. Their answers were the same: corruption and fraud. Many (certainly not all) of these foreign countries and corporations struggle to keep on the straight and narrow. Embezzlement, tax fraud, insurance fraud, and misreporting are all common occurences in some of these places, so unless I become intimately familiar with a foreign company, I won't be continuing any foreign investment. Here's our chart with the Developed Markets added in:
| Annual Return | $$ Invested | $$ After 1 year | $$ After 10 years | Years to Double $$ | |
|---|---|---|---|---|---|
| Chase Savings | 0.01% | $100.00 | $100.01 | $100.10 | 6,932 |
| Ally Online Savings | 0.99% | $100.00 | $100.99 | $110.35 | 70 |
| Barclays 5-yr C.D. | 2.25% | $100.00 | $102.25 | $124.92 | 32 |
| U.S. 10-yr Bond | 2.00% | $100.00 | $102.00 | $121.90 | 36 |
| California Health Facilities Bond | 4.00% | $100.00 | $104.00 | $148.02 | 18 |
| Exco Corporate Bond | 7.50% | $100.00 | $107.50 | $206.10 | 10 |
| Vanguard Total Bond Fund | 4.72% | $100.00 | $104.72 | $158.60 | 16 |
| Vanguard Long-Term Bond Fund | 7.36% | $100.00 | $107.36 | $203.43 | 10 |
| NETFLIX Stock (from 3/2005) | 47.2% | $100.00 | $304.72 | $4,776.15 | 0.32 |
| Citigroup Stock (from 3/2005) | -19.8% | $100.00 | $107.14 | $11.33 | ? |
| Vanguard Total Stock Market Fund | 8.47% | $100.00 | $108.47 | $225.47 | 9 |
| Vanguard Developed Markets Stock Fund | 4.51% | $100.00 | $104.51 | $155.45 | 16 |
I do recognize, though, that the international market could explode upwards starting tomorrow, giving the best returns seen on Earth to date, and I'll really look like a fool.
Such is the way with investing, though. I try to make the best decision possible with the information at hand.
Originally, this was supposed to be a short, direct post about why you shouldn't pay a financial advisor. Because this turned into a monster of a post, I've made another attempt at how the financial advising and wealth management industry is a scam: a DIY to effectively managing your own money.
Thanks for reading, and please leave corrections, advice, insights, and rants in the comments below.
