AlohaFi AlohaFi

How to Hedge Against Inflation Risk-Free

With inflation growing at the fastest pace since 1982 and surged 6.8% in November year-over-year. Some people make the mistake of thinking that they are getting richer because they are seeing their assets go up in price without seeing how their buying power is being eroded. But there is a way, the U.S. Department of the Treasury is paying a 7.12% annual rate on I Bonds as of November 1, 2021.

I Bonds

With inflation growing at the fastest pace since 1982 and surged 6.8% in November year-over-year. Some people make the mistake of thinking that they are getting richer because they are seeing their assets go up in price without seeing how their buying power is being eroded, but there is a way. The U.S. Department of the Treasury is paying a 7.12% annual rate on I Bonds as of November 1, 2021 through April 30, 2022. After that, the interest will float, depending on inflation. To put into perspective, Chase pays 0.01% on their savings account. That’s a 712% difference.

Every American can buy up to $10,000 I Bonds per year. If you’re married, $20,000. Thus, one can buy up to $20,000 worth of I Bonds before the end of the year and up to $20,000 between January 1 to April 30, 2022, locking in a 7.12% interest rate on up to $40,0000 for 6 months.

It’s important to note, you can’t cash I Bonds out before 1 year. If you cash them out after 1 year but before 5 years, you will have to forfeit the last 3 months of interest. Cashing out after 5 years, you get to keep it all. Interest earned is state and/or local income tax free, but you will owe Federal income tax once you cash out. Another benefit of I Bonds is that they are not bought and sold in the open market. You’re dealing directly with the Federal Government. Meaning the principal value of your investment won’t fluctuate with the market forces of supply and demand. Inflation rising or dropping will determine if you get paid more or less on your investment after April 30, 2022. The Federal Government guarantees your rate will never go below 0% and your principal will never go down. Hence the hedge against inflation.

Why it matters: This is an anomaly that won’t last forever. The average return for the stock market is about 8% and the cap rate on real estate is 4%. We might as well relax and lock in the free guaranteed return of 7.12% without having to do any work, deal with difficult tenants, or worry about the market nosediving. This is the second-highest rate ever offered on I Bonds according to the U.S. Department of the Treasury.

How to Buy I Bonds:

  1. Have a Social Security Number and be a U.S. citizen, whether you live in the U.S. or abroad, U.S. resident, or civilian employee of the U.S. no matter where you live.

  2. Open an Individual Account at TreasuryDirect.gov.

  3. Click the BuyDirect tab.

  4. Select Savings Bonds Series I.

  5. Click Add New Registration and select Sole Owner.

  6. Enter the amount you want to purchase (Minimum $25 and up to $10,000 per year).

  7. Schedule single purchase for a date a few days before the end of the year to make sure it processes on time and click Submit.

  8. Relax and make money at a rate faster than inflation while you sleep.

Read More
AlohaFi AlohaFi

Best Way to Earn HawaiianMiles

The fabled triple dip is nigh and this is the best way to earn points and miles for Hawaiian Airlines if you’re living in Hawaii.

Points and Miles.png

The fabled triple dip is nigh and this is the best way to earn points and miles for Hawaiian Airlines if you’re living in Hawaii, and for those of us lucky to live Hawaii, we all know how expensive the price of paradise is. A goal of this blog is to encourage wokeism by cracking the code and maximizing the return of your hard earned legal tender. If the rich aren’t paying full price for first class, why not you?

Two-day event: Earn 5X HawaiianMiles at Kahala Mall

Two-day event: Earn 5X HawaiianMiles at Kahala Mall

First make sure you’re subscribed to receive e-mails from Hawaiian Airlines to ensure that you’re notified of these seasonal mall events at various local shopping centers that take place throughout the year. At this particular event for every $1 you spend you’ll earn 5 HawaiianMiles.

Screen+Shot+2021-09-22+at+9.59.05+PM.jpg

Next, use a credit card with a reward system that transfers to HawaiianMiles and earns points with bonus categories. Kahala Mall has a Whole Foods and several dining options to choose form. Using the American Express Gold Card for his example for every $1 you spend you’ll earn 4 Membership Rewards points on dining or groceries.

For every $1 we’ve spent so far has earned us 5 HawaiianMiles plus 4 Membership Rewards points. Now remember, Membership Rewards points transfer to HawaiianMiles 1:1. In reality every $1 is earning 9 HawaiianMiles. We’re double dipping now.

Screen Shot 2021-09-22 at 10.12.49 PM.png

Like Hawaiian Airlines, throughout the year American Express comes out with bonus transfer offers through a specified date as shown in the image above. If you don’t have any immediate trips planned, it would be prudent to bank your Membership Rewards points and not transfer to a loyalty program until a special offer appears. I myself only make large transfers a couple of times a year during these special offers and hold on to my HawaiianMiles until I actually need them.

Going back to earning points and miles, for every $1 spent at a special event, using a credit card that transfers to HawaiianMiles with bonus categories, and transferring Membership Rewards points only when a transfer bonus special offer is available, earned 5 HawaiianMiles plus 4 Membership Rewards transferred with a 25% bonus equals 10 HawaiianMiles per $1. Secured the triple dip.

Read More
AlohaFi AlohaFi

What is Dollar Cost Averaging?

Dollar-cost averaging or DCA for short, is a blue print for investing in contrast to market timing.

Dollar Cost Averaging-3.png

Dollar-cost averaging or DCA for short, is a blue print for investing in contrast to market timing. Investing an equal amount regardless of price at regular intervals, in theory, will allow you to realize a lower cost basis than you would have been able to achieve if you would had just dumped a lump sum of cash into the stock market on a single day.

For example, setting up an automatic investment of $500 a month in a Roth IRA on the same date every month would ensure the average price your paying is less than asset’s all time high due to poor market timing whilst maxing out the annual contribution limit of $6,000 for a Roth IRA.

For some months you’ll be buying high. While others you’ll be buying low as shown in the image above. However, averaging out the price you paid over the course of the year if the market is treading up, you’ll be riding the wave on a rocket to the moon.

If you would have invested the entire $6,000 in the S&P 500 on say Feb. 14, 2020, it wouldn’t be until Aug. 21, 2020 where you would break even from the pandemic low. With dollar-cost averaging instead of breaking even you would’ve made money.

Why it matters: Using the DCA technique ensures you’re not buying too much when the price is high while making sure you’re not missing out when the price is a bargain.

Key Takeaways:

  • Dollar-cost averaging is a Set it and Forget it method that eliminates the FOMO anxiety when stocks are on a meteoric rise and the stress of panic selling when the market is crashing.

  • For most people who know little about the stock market, you can’t go wrong using the DCA technique on a low-cost, no-commission, extremely diversified index fund that tracks the S&P 500.

  • In the long run, investors using the DCA technique will lead to better results than trying to time the market due to human temptation of buying high and selling low.

Read More
AlohaFi AlohaFi

U.S. Real Estate is Affordable

Contrary to popular belief, the U.S. housing market is on elf the cheapest in the world.

Contrary to popular belief, the U.S. housing market is one of the cheapest in the world. I’ve many people tell me that real estate is about to crash, and that the bubble is about to pop. However, any mention of this so called “bubble” has been anecdotes. No one has been able to provide empirical evidence of which to base their theory. So I decided to comb through the International House Price Database produced by the Federal Reserve Bank of Dallas and below are my findings:

Mack, A., and E. Martínez-García. 2011. "A Cross-Country Quarterly Database of Real House Prices: A Methodological Note." Globalization and Monetary Policy Institute Working Paper No. 99, Federal Reserve Bank of Dallas.
Mack, A., and E. Martínez-García. 2011. "A Cross-Country Quarterly Database of Real House Prices: A Methodological Note." Globalization and Monetary Policy Institute Working Paper No. 99, Federal Reserve Bank of Dallas.

The Tiffany Blue line is personal disposable income expressed in real terms (RPDI). The black line is the house price index expressed in real terms (RHPI) for the U.S. between 1975 to 2021. When the Tiffany Blue line is above the black line, housing is affordable.

Now peep Canada. The cost to buy a home with respect to their citizens’ disposable income is roughly 75% more expensive than the U.S. The dreaded feeling you get when trying to save for a $1 million dollar California home feels like having to save $1.75 million for Canadians with respect to their income. U.S. real estate looks like a bargain in comparison.

Why it matters: The chart for the U.S. housing market looks normal. There is no bubble. If you or anyone you know is wondering when to buy a home or investment property, the best time and every time for the foreseeable future is yesterday.

Key takeaways:

  • One could argue the data shows the U.S. housing market is about 10% underpriced.

  • When it comes to comparing real estate prices between generations and globally, don’t forget the income side of the equation. Strong labor market, wage inflation.

  • From a global/international perspective, only South Africa is more affordable with the info available.

  • Despite all the issues and imperfections, Americans are still considered to be lucky to live in the land of opportunity.

Read More
AlohaFi AlohaFi

What is a 401(k) Match?

A 401(k) match is the amount an employer contributes in addition to the contribution made by an employee.

A 401(k) match is the amount an employer contributes in addition to the contribution made by an employee. The most common employers match is 50% up to 6% of an employee’s salary. For example:

Employee Salary: $100,000.00
Employer Match: 50% up to 6% of Salary

Employee contributes 6% of their salary or, $6,000. Then, the employer will add 50% on top of what the employee contributed or, $3,000. This match is the equivalent of getting a guaranteed 50% return on your investment. Considering the average annual return of the S&P 500 is 7.9% and not guaranteed, that’s one heck of a deal.

In this scenario by taking advantage of an employer’s 401(k) match, the employee increased their total compensation package by $3,000, effectively increasing their salary to $103,000, without having to work more days, hours, or lifting a finger.

It’s important to note that “up to 6% of Salary” is the max. So if the employee contributes say $7,000, they will still only get from their employer $3,000. To increase the dollar amount of what an employer will add, an employee’s base salary would have to increase. Also, if an employee contributes less than $6,000, they employer will only add 50% of that lower amount. Therefore it is in the best interest of the employee to max their 401(k) match otherwise walk away from the guaranteed return, aka free money.

Why it matters: Taking advantage of your employer’s maximum 401(k) match you’re incentivized to save more for retirement by increasing the total value of your earnings.

Key Takeaways:

  • A 401(k) match are the additional contributions made by employers on top of contributions made by employees.

  • A 401(k) match is a risk-free guaranteed return on an investment - aka free money.

  • Contributing anything less than your employer’s maximum match is the equivalent of leaving free money on the table.

Read More
AlohaFi AlohaFi

How to Payoff Debt Fast

The two methods discussed are tried and true approaches successfully deployed by millions and millions of people along their debt payoff journey.

Debt Snowball.png

The fastest way to payoff debt is to use the Debt Snowball Method. The steps of the method aforementioned is as follows:

  1. Arrange all of your debts from the lowest balance to the highest

  2. Pay the minimum payments for all of your debts except the one with the smallest balance

  3. For the debt with the smallest balance, pay the minimum payment PLUS any extra money you have.

  4. Once you payoff the debt with the smallest balance, pay the minimum payment of the debt with the next smallest balance, plus any extra money you have, PLUS the minimum payment of the first debt you just paid off. This is the beginning of the snowball.

  5. Repeat, adding the minimum payments of all the debts previous debts you paid off to the next one on your list, growing the snowball down a slope, until all your debt is paid off!

Bonus: For the savvy readers, there is an even faster method. One they call the Debt Avalanche. The steps are exactly the same except instead of arranging your debts from the lowest balance to the highest, you will need to arrange them from the highest interest rate to the lowest. The way the math works out is the sooner you payoff debt with the higher interest rates, the less money you’ll be wasting overall on interest, the more money is being used to payoff your principal, thus reducing the amount of total debt you have to payoff and speeding up the process. However, at times your debt with the highest interest rate is also the one with the largest balance. So this method isn’t recommended unless you are physically, mentally, and emotionally ready to accept the challenge.

Why it matters: The Debt Snowball Method is tried and true approach successfully deployed by millions and millions of people to payoff debt. The key to its success the psychological edge from the momentum you get as you payoff each debt by paying off the smallest balances first as opposed to debt with a large balance that seem to take forever to payoff and get that first win.

Key takeaways:

  • The reason the Debt Snowball Method works is because it taps into your emotions to your advantage.

  • With discipline, the Debt Avalanche Method is an even faster way to payoff debt. This is especially true with very high interest debt.

Read More
AlohaFi AlohaFi

Payoff Debt vs. Investing

Before anything else, pay off debt first. If you have any high-interest debt, it’s important to concentrate on paying that off first before you start investing.

Untitled design-2.png

Before anything else, pay off debt first. If you have any high-interest debt, it’s important to concentrate on paying that off first before you start investing. High-interest debt is typically credit card debt or personal loans, I define it as any debt with an interest rate above 7%. I’ll explain later in the post why I use 7% but first let me show you why it’s important to pay off high-interest debt first.

Why it’s important: Debt works the same way as investing except instead of making money while you sleep, you’re losing money while you sleep. 

The big picture: The average annual return of the S&P 500 since its inception in 1926 is conservatively about 7%. The S&P 500 is what you might hear when some people speak of the “Stock Market”. It includes the top 500 largest companies in the U.S. that more or less paints a picture of the broader economy.

Making smart moves with how to push your money through can make the difference in what you are gaining or losing. Say you have a credit card with a balance of $5,000 with an interest rate of 20%. You may also have an extra $5,000 laying around after you’ve fully funded your Emergency Fund. A common question I get asked all the time is “Should I pay off my debt first or invest in the stock market?” 

If you invest the extra $5,000 in the stock market, on an average year your investment would return $350 ($5,000 x 7%). You just made the equivalent of a roundtrip flight between Hawaii and the West Coast without even lifting a finger. Your money is finally working for you and you’re making money while you sleep. Every year on an average year, you’ll get a free flight to Hawaii or your expectation is you will have an extra $350 to spend on whatever your heart desires. While all that is true and fantastic, it’s not the full picture.

Remember the credit card we decided not to payoff right away? Whilst we deployed our $5,000 to work in the stock market, our debt was out there working as well, just as hard and while you sleep. Assuming your credit card balance remained $5,000, our debt ended up costing us $1,000 for the year ($5,000 x 20%). If you take a look at the big picture, instead of you making money, in reality, you are losing money. A net loss of -$650 ($350 - $1,000).

The exception to the rule of thumb of paying off your debt before investing is if the percentage rate o\f the debt in question is lower i.e. your student loan or mortgage. For example, using the scenario above, with a student loan and an interest rate of 2.75% instead of credit card, your debt will cost you $137.50 for the year ($5,000 x 2.75%). Investing instead of paying down your low interest rate would actually result in you making money. A net gain of $212.50 ($350 - $137.50). This is your opportunity cost. If you decide to payoff low interest debt instead of investing, the opportunity cost is the money you’ll be missing out on.

This is why I don’t recommend paying off debt with a interest rate lower than 7%. Some advanced readers might be thinking they can beat a 7%. Some may do it. For multiple years even, but the probability of beating the stock market over the long term isn’t likely. Back in the early aughts five hedge funds bet Warren Buffet $1 million that they could beat the S&P 500 over the course of a decade. Spoiler Alert: They lost. https://money.cnn.com/2018/02/24/investing/warren-buffett-annual-letter-hedge-fund-bet/index.html

Key takeaway: If the interest rate on any your debt is greater than 7%, pay that off first. Play the odds, put yourself and the people you care about in the best position to succeed, and roll with the winners. 

Read More
AlohaFi AlohaFi

About

This blog is for the people who I’ve come across in life who’ve reached out to me about personal finance.

AEED2365-D93E-4FFD-A2FB-559103D4A9BD.JPG

This blog is for the people who I’ve come across in life who’ve reached out to me about personal finance. While all this information is readily available through books and online, hopefully I can help out those of you who don’t know where to begin and save you some time from information overload.

One of my main motivations for writing is to interact with as many people as I can since we all live in different time zones. So please feel free to comment! I hope we can all grow rich together throughout this adventure!

Read More