Month: November 2006

Picking the best 529 College Savings Plan

/ Adam Nash / 16 Comments

As I mentioned in an earlier post, my wife and I were blessed with the birth of our second son eleven days ago. Believe it or not, my mind has already turned to the topic of college savings for our children, and I thought I’d share my research to date on the subject.

If you are not familar with 529 plans, you can think of them as 401k plans, but for college savings. They are an outgrowth of the original state-based, pre-paid tuition plans, which have since been adapted to become generic savings vehicles for college with significant tax advantages. There are other vehicles available, but none offer the combination of significant savings limits, tax benefits, college financial aid benefits, and control that the 529 plans offer.

Almost every personal finance journal now does annual reviews of each state-based 529 plan. Here is a great one from Money magazine that reviews them state-by-state.

When choosing a 529 plan, it is worth keeping the following things in mind:

  1. You do not need to choose the plan from your state. This is really important, because some of the state plans are terrible, with high expenses and poor fund choices. The ability to pick any state plan is a really great option for investors – imagine if you could pick among not just your company’s 401k plan, but the 401k plan from any company!
  2. Check to see if your state offers you tax advantages. Some states allow you to deduct 529 contributions from your state taxes. I live in California, which despite having a sky-high income tax rate, does not let you deduct anything. This is important, however, because in states with tax benefits, it might be worth sticking with the in-state plan.
  3. You can open one for almost any family member. Most people think about college savings only for their children, but 529 plans can actually be opened for anyone under 30. The whole point is that the person who opens the plan controls the money, but it only has tax advantages if used towards the college education of a person under 30.
  4. You are not locked in! You can actually change dependents on a plan once a year, and change state plans once a year. Don’t let the complexity stop you from opening a plan as soon as possible. It is very easy to change. Interestingly, you can use this ability to open a plan for your unborn children! Just open a plan for someone else, and once your children are born, switch the plan to them. A great way to get more than 18 years of compounded interest towards saving for college.
  5. The sooner you start the better. In the past 20 years, college tuition rates have grown at a compounded rate of 8%. The only way you are going to keep up with that type of growth is to save early, save often, and use the high expected return of investments like stocks to meet your targets. Compounding works best the earlier you start. The money you contribute in years 0-4 is likely 2-4x more valuable than the money you contribute in years 14-18.
  6. Expense ratios matter! Expense ratios are your enemy. This is money that is taken out of your investments, regardless of your return. A difference of 0.5% might seem small, but on $10,000 that is a loss of $4377 over 18 years. That’s real money. 529 plans often charge fees three different ways: on the funds, on the plan, and for the fund management firm.
  7. Save big dollars like a 401K, but withdraw tax-free like a Roth IRA! 529 plans really are the best of both worlds. You can contribute up to $12,000 per year (with a special $60,000 if you want to bundle 5 years of contributions at once). But if you use the withdrawals for qualified education expenses, you will pay zero tax on the earnings. So this isn’t tax-deferred saving… this is truly tax-free saving on all gains in the account. More details on this site.
  8. Save for retirement first. You can borrow money for college, but you cannot borrow money for retirement. College savings plans should only be put in place once your retirement savings plan is in place.

More tips from Money magazine and SmartMoney magazine are available.

When my son Jacob was born two years ago, I decided to open a Nevada 529 plan through Vanguard. Vanguard is known for its history of running low cost index funds, and for its tireless advocacy for investor rights. Vanguard actually runs plans for 13 different states, but the Nevada plan is the one that is fully integrated with Vanguard, which is an added bonus if you have retirement accounts with Vanguard (I do).

The expense ratios for the Nevada plan are good – depending on the fund, anywhere from 0.6% – 0.8% total. They also have a wide selection of investment choices.

However, last year I was disappointed to find out that Utah has an even cheaper plan run by Vanguard, with expense ratios closer to 0.4%. Of course, Utah charges a $25/year fee for out-of-state investors, but still, I started to think about moving Jacob’s plan over.

Then, yesterday, I get this letter from Vanguard. Given their commitment to low fees, they have reduced the expense ratios on the Nevada plan to 0.5% – 0.7%, still with no annual fee.

This is why I love to do business with firms like Vanguard. Their entire marketing message and differentiation is low fees. Like a company that always raises dividends on their stock, I firmly believe Vanguard is always working to lower the prices of their investment alternatives. They are like Wal-Mart for saving.

So, I’m sticking with the Nevada plan, and I’ll be opening one up for Joseph just as soon as I get his Social Security number. If you are interested in researching plans, CNN Money has a great set of recommendations (Utah, Nevada & Michigan top their list).

Update (1/21/2007): I’ve posted a new article on how to take advantage of the ability to change beneficiaries for 529 plans. Check it out.

The Robots Have Spoken: Humans Taste Like Pigs

/ Adam Nash / 2 Comments

A slightly unnerving article on Good Morning Silicon Valley tonight:

Doesn’t this violate one of Asimov’s Three Laws of Robotics?

The news comes from Japan, where a robot built to detect smell and taste also evaluated the taste of the reporters covering the story.  Apparently the writer “tasted” like prosciutto and the cameraman like bacon.

It is going to be very interesting over the next twenty years as we learn to view humanity through the eyes of our non-human creations.  Despite Asimov’s best intention, they will likely not be bound by our explicit or implicit moral codes or societal norms.  At least, not completely.  We are are immensely biased and subjective when evaluating ourselves – it will likely be quite illuminating to start learning about ourselves from non-human sources.

Then again, maybe it’s just because I saw this news on Friday, the night Battlestar Galactica airs, and I’m a little sensitive to the idea that machines might decide that they like the taste of bacon.  BTW If you are not watching Battlestar Galactica, you are missing one of the best shows on television.

Personal Note: Jacob & Joseph

/ Adam Nash / 1 Comment

If you read the “About this blog…,” you’ll see that I promised that this was my personal blog. What that means is that readers need to expect to put up with a certain amount of the typical “baby pictures” and “book reviews” posts.

So far, I’ve been really good about this, but I’m about to write a post about picking college savings plans, and I realized I’ve never posted anything about my children. This is particularly problematic since my wife and I were blessed with the birth of our second son less than two weeks ago, on October 30.

So, without further ado, here are my top two priorities, in order of age:

Jacob with Pumpkin
Jacob Monroe Nash, with a pumpkin for Halloween

 

Joseph Isaac Nash
Joseph Isaac Nash, resting at one week old

Insights on Design: Marissa Mayer & Google Search Results

/ Adam Nash / 2 Comments

I picked up this snippet from John Battelle’s Searchblog yesterday:

Marissa Mayer, at Web 2.0 today, shared insights into some lessons Google has learned in trying to serve users. The take-away is that Speed is just about the most important concern of users—more than the ability to get a longer list of results, and more valuable than highly interactive ajax features.

What was most interesting to me, however, was the comments below about how the most effective results from testing were the opposite of what users believed they preferred:

…they didn’t learn that from asking users, just the opposite. The ideal number of results on the first page was an area where self-reported user interests were at odds with their ultimate desires. Though they did want more results, they weren’t willing to pay the price for the trade, the extra time in receiving and reviewing the data. In experiments, each run for about 8 weeks, results pages with 30 (rather than 10) results lowered search traffic (and proportionally ad revenues) by 20 percent.

The reason I wanted to highlight this insight here is that it offers up perhaps one of the greatest challenges across any design practice that tries to focus on the customer experience: what people say they want, and what actually performs best are not necessarily the same. In fact, I would argue that they are different in most cases.

This challenge is not a surprise for professionals in marketing, politics or finance. These fields have long recognized that there is a large difference in what people say they will support vs. what they actually do support. However, it’s a particular challenge in product design because so many people want to “provide the best possible user experience”.

At every company I have worked for, there has always been a large debate about how to do the best product design. Do you reach out, through focus groups and customer visits, and ask your best customers what new improvements they would like to see? Or do you quietly observe, through testing and product metrics, and then use inspired design professionals to produce the great advance in usability?

As a product professional, I truly believe that the answer is to do both. There is no doubt that listening to your customers directly can give you great insight into their experience and their prioritization of problems. This insight is the key to customer empathy, which I believe is the key to customer-centric design in any field.

At the same time, it is extremely important to recognize that the rationalization that many people give when making choices may not be fully informed. They likely do not realize all of the options available to them, or the options that are available technically. They are likely not experts trained in design, finance, marketing, technology, or psychology. Observation, whether direct or indirect, is they key for more informed experts to help produce solutions that the customer may not understand are possible. Customers will ask you for a candle, when what they really want is portable light. They will ask you for a VCR with fast rewind, instead of a DVD player.

So, in this case, to borrow the corporate-speak, you need to embrace the AND. Listen to your customers, empathize with them, know them as they know themselves. But measure and observe, review the data, and leverage the professional expertise of the product team to delight your customer with solutions that they didn’t even realize were possible. Once you have those designs, you have to test and tune them. You’ll know when you are on the right track when you find yourself surprised and delighted by your customer insights and design results.

Subscribe to my Blog via Email: FeedBlitz

/ Adam Nash

A little over a year ago, Scott Kleper wrote a post about RSS Readers.  Without reproducing it here, the basic idea was that Scott doesn’t see the need for dedicated blog readers.  Instead, he prefers to use his rich email application to read his blogs.  In fact, he basically hacked together his own solution for translating all of his favorite blogs into regular email streams.

I myself still use My Yahoo to keep track of most of my blogs, although that is definitely having scaling issues.  However, now that I have my own blog, I’ve realized that most of my friends and family don’t have any sort of regular, blog-reading system.

Sure, if I send them an email, they’ll read my most recent posts.  But they have no daily process to “check up” on a blog, or to receive notification when a new post arrives.

To them, the web is still something you use when they want something.  They have nothing set up to receive a “push” from a site to let them know something interesting is available.

Well, I think I found a solution.  Feedblitz is a great little service that makes it easy for people to subscribe to an RSS feed, like a blog, via email.  It even allows the feed owner to customize the output in some very interesting ways.

I’ve set it up for this blog, and I hope that means that more of my friends and family who are not “blog savvy” will be able to read my posts.

I’ve added the link to my right column, but if you are interested, just click the following link to subscribe to this blog via email:

Click here to subscribe to Psychohistory via email

Let me know what you think.

When is a Penny worth two cents?

/ Adam Nash / 2 Comments

When you factor in current metal prices, the US Mint is in a bit of a pickle.

I caught this article today on Seeking Alpha, which discusses a lot of topics, ranging from the new US Mint commercials, to the cost of making the penny and the nickel.

Who’s Minding The Mint

According to this report from July 2006, the US penny is made up of 97.5% Zinc, and 2.5% Copper. As of July metal prices, it cost the US approximately 1.4 cents to mint a penny. Given the recent rise in metal prices since then, it may be closer to two cents now.

According to this link from the US Mint, they produced 7.348 Billion pennies in 2006.  If they mint the same in 2007, that means we’ll lose approximately $73.5 Million in production costs of pennies alone.
Everyone picks on the penny, but I thought this tidbit about the nickel was interesting also, since it looks like it is in the same boat:

And speaking of nickels, composed of 75 percent nickel and 25 percent copper, this coin has its own budget problems. When the calculation was done in July with the price of nickel at $13 a pound, the value of the metal content alone came out to almost seven cents.

If other production costs and the current metal price are factored in, it’s closer to a dime.

I’m a little surprised that there hasn’t been some form of arbitrage to buy pennies in bulk and sell them for scrap metal. Maybe the scrap prices are still too low to make it worthwhile.

Already, with Platinum and Gold prices rising, you’ve seen a breakout of new metals in relatively fancy jewelery (like wedding bands) – Titanium, and in some cases, Tungsten Carbide! I wonder if we’ll need to do a metal rotation in our currency to “less expensive” metals.

It seems that inevitably the smaller coins will eventually vanish – not due to inflation, but due to the growing use of digital forms of payment (credit/debit cards, key fobs, cell phones).

In the meantime, though, when someone gives you a few pennies and a nickel for change, you can feel smug about getting double your money’s worth in metal.

Riya tries again as Like.com

/ Adam Nash / 1 Comment

I read a lot of news today about Riya trying to reinvent itself as Like.com today. Of all the coverage, Don Dodge’s summary resonated with me the most.

Riya tries again as Like.com

I think Don uses Riya to summarize of the key takeaways I had from my own experience in venture capital:

The lesson for entrepreneurs is don’t have preconceived notions about how your product/service will be used. Test with lots of different customers to discover where they see value. Remember, it is not about the technology…it is about the problem it solves.

Personally, while I find Riya’s technology truly exciting in its potential, this new direction feels a bit too manufactured, a bit too orchestrated and timely. It rings of smart people figuring out strategy behind closed doors, rather than a true customer-driven request or need.

Metadata tagging of blogs and pictures is hot right now, but tagging of video is just getting started. Is it that hard to believe that in a few years, when studios build the digital versions of their properties for distribution (either BD/HD DVD and/or download versions) that they will tag them with the appropriate commercial content? Wouldn’t it be easier for software on the web or on your TV box to just then link to appropriate interesting items (like boots, dresses, cars, other product placements) to a rev-share storefront for the studio? And wouldn’t the owners of that content want to control that linkage – charge for it, since it’s their property (the movie, the show, the shot) that’s driving the demand?

This is hot technology and it’s incredibly generalized, but in many cases we tend to look for the ultimate solution when a very simple, manual process can hit the business need 80/20. So I’m still not sure this is a business vs. a cool demo.

BTW If you haven’t tried it out, go see the Like.com Alpha site.

Goodbye Eudora. Goodbye Safari. Hello, Apple Mail & Firefox.

/ Adam Nash / 1 Comment

To everything, turn, turn turn
There is a season, turn, turn, turn
And a time for every purpose under heaven.
A time to be born, a time to die
A time to plant, a time to reap
A time to kill, a time to heal
A time to laugh, a time to weep (continued)

I guess I’m getting overly sentimental about saying goodbye to my favorite internet applications, but the time has come.

I’ve been using Eudora on the Mac since 1992, when I finally got a dorm room in-wall connection to the Internet at Stanford. I have thousands of folders, gigabytes of email. I have little notes to classmates, friends, family from the last 15 years. I even have some very cute, flirty notes that I had sent in 1997 at Apple to the woman who would later become my girlfriend and then wife.

But Eudora has been so long abandoned by its owner (Qualcomm), so underdeveloped (it still lacks HTML email), and so unmanageable (archaic search functionality) that it is time to say goodbye. I will miss your ability to easily read Unix mailboxes, your simple file structure, and most of all, your ability to execute filters on a manual key-command trigger.

I’m moving to Apple Mail, and I’m also moving the brave new world of “search-based” email management. Instead of thousands of folders, I’ll just have one for “saved email”, and I’ll use “smart folders” to save searches for key people or topics.

I’m less attached to Safari, but I’ve stuck with it because of its tight integration into Mac OS X. I’m just tired of website forms not working properly on Safari 2.x. It seems I have to use Firefox more and more often anyway, just to be compatible with many of the websites I visit. Firefox 2 looks strong enough, and Mac-like enough for me to move over. Maybe I’ll change my mind again with Safari 3.0 in a few months, but for now, I’m making the move.

I found a nice application to move bookmarks from Safari to Firefox, so I’m good to go. I’ll post if there are any problems.

So, goodbye old friends. You will always have a place in my heart.

Should Election Results Be Posted in Realtime?

/ Adam Nash / 2 Comments

I’ve been watching the 2006 Election Results all night, and I thought I’d share a discussion I had with my uncle tonight. Well, debate is more like it.

So far with this blog, I haven’t really solicited many opinions here. But maybe it’s time for me to try one of those “Tell me what you think” posts.

The question is:
“Will the United States move to realtime election results in the next 20 years?”

I’ll represent some of the key points from the discussion here, and I’d love it if you’d comment with your own thoughts and feedback. (I’ve simplified the arguments and made them more third person for readability)

Me: People are demanding realtime information more and more with the advent of technologies like the Internet. I know many people who want to know election results as they happen, not waiting until the polls closed. I think the United States might move to realtime election results in the next 20 years.

Uncle: Never. Releasing results before the polls close would definitely affect the outcome. It will never happen.

Me: No doubt it would influence the outcome. But it’s unclear to me that it would influence it in a bad way.

Uncle: If your candidate is losing, you might get discouraged and not go to the polls.

Me: Sure, if your candidate is losing, you might be discouraged from voting. Or, it might inspire you to actually go to the polls and vote. It’s hard to say that it would hurt anything, although it would change the dynamic.

Uncle: This country has a long tradition of secret ballots. Voting is a personal thing, it’s not supposed to be disclosed.

Me: It would still be anonymous. You could easily make sure to only report results in an anonymous fashion, not identifiable. Secret ballot is about people not facing persecution for who they voted for, not delayed results.

Uncle: It will never happen. No country reports elections like that, why would we change?

Me: Everything is moving towards more information and more transparency. It’s very hard to argue in a Democracy that less transparency is a good thing (though not impossible in some cases). Just because it hasn’t been historically possible or expected doesn’t mean that now that it is possible, it won’t be expected. The reason I say 20 years is that 20 years will roughly be the time before the “computer generations” – Gen X & younger – outnumber the Baby Boomers.

Uncle: I think you are way to focused on the computer thing. It will never happen.

I’ll give my Uncle the last word… not.

It’s not about computers, it’s about an insatiable demand for information immediately to help inform decisions. As it becomes common in more and more areas of life, it seems to me that people will expect it in others, like politics.

I’m actually not saying this necessarily will happen, but it’s interesting to think about:

  1. Whether it will or won’t happen?
  2. Would it be a good thing or a bad thing?

In 1980, Jimmy Carter conceded at 6:04pm, before the polls had closed on the west coast. Similar issues have taken place over the past two decades.

So, what do you think? Let’s see if we can break my comment record on this blog with more than three on this post! 🙂

2006: The Year of 7 Foot Tall Tomatoes

/ Adam Nash / 5 Comments

One of the things I have not shared yet on this blog is that I love to garden.

When I moved back to the Bay Area in 2001, my wife and I lived in an apartment for two years. However, even there, I managed to jury-rig five planter boxes and some grow lights on a timer to try and grow herbs, peppers, and tomatoes on the balcony. They turned out surprisingly well, although I never got a lot of fruit out of the tomatoes.

One of the great things about owning a home, for me, has been the ability to garden. In 2004, I built three planter boxes in the backyard, and this was the first year I tried to grow tomatoes in them.

Wow.

My son, Jacob, who is exactly 3 feet tall, is provided for some sort of scale.  The redwood box around the tomatoes is approximately  seven (7) feet tall.

Nothing magical about the box.  Just 1 foot above the ground, one inch cedar planks.  Soil is 1/2 compost, 1/2 standard bag soil.  I planted three tomato vines this year – a hybrid grape tomato (red), a lemon boy hybrid (yellow), and an heirloom variety called Mr. Stripey (red & yellow stripes).  All did shockingly well, although the two hybrids are the overgrown ones.

There is a funny story for the redwood frame.  In August, we went away on vacation.  When we came back, the tomato plants had grown so large they actually tipped over and bent the 3 1/2 foot steel cages!  I had to rebend the cage as best I could, chop away about half of the plants, and then build the redwood frame around them to support the entire mass.

We lost about 1/2 the plant mass, but I saved the vines.  Within a month, they had grown another two feet tall, filling the frame!

It’s nice to live in a climate where tomato plants still think November is a time to be in bloom – I’ve been harvesting my third crop this past week… if the weather holds off, it looks like I might sneak in a fourth.

Anyway, enjoy the pictures.  For those curious about the trellis behind the tomatoes, I also grew lemon cucumbers and cantaloupes this year, in a 3×3 box with a 6 foot trellis.  I must have harvested over 50 cucumbers and a dozen cantaloupes from that small space (two vines each).  Amazing!  I highly recommend “vertical gardening” for the space challenged.

I’ll save the story of my peppers for another time.  Not quite as exciting as the habanero explosion of 2005 anyway…

Blogs I Read: Herb Greenberg

/ Adam Nash

I have been reading Herb Greenberg since he was a financial columnist for the San Francisco Chronicle (yes, there was a time when I had a subscription to that paper).

I followed him to TheStreet.com, and even ponied up $99 a year for a while for the privilege of reading his articles.

Now, he is at CBS Marketwatch, and even better, he has a blog!

You want to read Herb regularly if you are a fundamentals-based investor, and you like to read pieces about hot companies where some of the numbers may be in question.  Herb is very good about admitting mistakes, but I have to say, he’s normally very ahead of the curve with company problems.  As a result, there are quite a few CEOs out there who hate him.

Here are a couple of posts from his blog today that explain why Patrick Byrne, CEO of Overstock.com, hates Herb:

Overstock: It’s a conspiracy, I tell ya – a conspiracy!

More Overstock: Why Investors got Byrned. 

You might not realize it from these pieces, but Herb was writing about rising inventory levels and low turnover long before the public-facing numbers turned.

He’s fairly high on my RSS feed list.  I think if you invest in individual stocks, he should be on yours as well.

Why I love Timber as an Asset Class

/ Adam Nash / 18 Comments

I found this article on the Motley Fool this week called “Is Lumber the New Gold“, and it reminded me why Timber might be my favorite asset class of all.

I was first introduced to Timber as an asset class at Harvard Business School, in one of my classes on Venture Capital & Private Equity. Dave Swensen, who managed the Yale endowment for over 20 years, discussed the strategy that led Yale to incredible outperformance in the 1980s and 1990s. He took the endowment from $1.3 Billion to $14 Billion, using a strategy very different than his colleagues.

It would be a whole different post to sing the praises of Mr. Swensen, and his philosophy on investing has now become public knowledge since he released a book on the subject. In his discussion with the class, I remember his specific comments on assets that had extremely attractive risk/reward ratios. Private Equity is one, to be sure, but he also allocated over 20% of his funds to “real assets”, which included Timber.

Timber is fascinating as an asset class. Here is a summary, cribbed from a recent post on Seeking Alpha:

  • Excellent Returns. Annual returns of 14.5% since 1972. Better returns than any common asset class (stocks, bonds, real estate, commodities)
  • Less Volatility than Stocks. What? More reward with less risk? It shouldn’t be true, but it here at least empirically.
  • Timber is counter-cyclical with Stocks. Especially nice to have an asset that zigs when the stock market zags.
  • Money grows on Trees. Fundamentally, you have to like the fact that 6% growth every year comes from the fact that trees just grow bigger with natural sun & water. The value of trees is also non-linear, in that growers can just “not cut” in weak years for timber prices, and make even more in subsequent years.

Here’s a nice post from Seeking Alpha in July on why Timber should outperform in an inflationary market. It even features my personal favorite REIT stock in the sector, Plum Creek Lumber (PCL), which I’ve owned since 2002.

You have to love the web. I found this fantastic blog post from 2005 on Timber. Couldn’t have said it better myself.

Until recently, it was very hard to invest in timber without a portfolio allocation in the millions of dollars. However, now, there are several ways to add timber to your portfolio. My favorite are the REIT stocks, like PCL & RYN, which allow you to own companies who have a primary business in owning & maintaining timber land. Given the regulations around managing timber land, and the tax-advantages of the REIT structure, it’s hard to get better direct exposure.

It’s interesting, but as the trend continues towards development & environmental protection, these firms should have an even more compelling advantage as the supply of quality timber dwindles, and the regulatory environment grows more arduous. Even the sleepy paper companies are starting to look more valuable for the timber land that they own, rather than the product they produce.

It’s so interesting that money, in some cases, really can grow on trees.

Update (6/13/2007): A commenter forwarded me to a webpage that had a link to one of my favorite articles on timber as an ivnestment, from a 2001 issue of Smart Money magazine.  Check it out here.

VMware Fusion goes Beta & Virtualization for Mac OS X Intel goes Pro

/ Adam Nash / 1 Comment

Hot. Hot. Hot.

That’s all I can say about the launch of the beta program for VMware’s virtualization platform for Mac OS X on Intel.

There is a great write-up on the new beta on tuaw.com (The Unoffical Apple Weblog)

What’s exciting about this release?

  • Run multiple OSes.  You can run a large number of x86 OSes on VMware, including Windows & Linux.
  • Run as many instances as you want.  Why stop at running two?  VMware customers have gotten used to running as many as their hardware can support.  The Mac  Pro with four Xeons can certainly handle more than two.
  • Virtual Appliances.  Pre-configured OS images set up to serve as network servers – all running on a single machine.  There are over 300 virtual network appliances to choose from.
  • Leverage Multiple Cores. Unlike Parallels, VMware understands how to use multi-core chips, like the Intel Core Duo and Xeon chips that Apple machines use.
  • Drag & Drop between Windows & Mac.  This is the major gap in the current Parallels software.  You will want to move files between the two.

I currently don’t find the need to run Windows much – except for Outlook at work.  Given the fact that no other Intel machine can run Mac OS, this makes owning a Mac likely the most flexible choice for people who prefer the Mac for personal use, but need Windows or Linux from time to time.