Social Security approved

I applied for Social Security on June 1, 2024 in advance of turning 70 later this year.  If I recall correctly the website said it would take 30 days for a decision.  However I didn't hear anything until yesterday, August 31.  I received an email saying a decision had been made and upon logging into their website found out that my application had been approved.  This was expected as my case was pretty straightforward having worked for two big employers a combined 40 years.  Nevertheless it took them three months to approve the application.  This made no difference to me as I had applied as early as possible (four months in advance) and am not due my first check until November.  And I have no urgent need for the money.  However if you do need the money or your application is at all complicated it would probably be a good idea to apply as early as you can.     

The amount of your Social Security monthly benefit depends in part on when you start taking it.  You receive the smallest benefit if you start taking it as soon as you are eligible which is when you are 62.  Past age 62 each month you delay taking it increases the amount until you reach age 70.  Further delay past age 70 is pointless as your benefit stops increasing.  I have read (but not verified) that taking the benefit early or late makes little difference from an actuarial stand point. Based on this, I decided to take it as late as possible as that would give me the biggest benefit if I lived a long time and might need it.  Also I tend to procrastinate.

My full retirement age is 66.  According to Social Security this means that starting your benefit four years early at age 62 costs you 25% compared to starting it at age 66.  Whereas waiting until age 70 increases your benefit by 8% a year or 32%.  In practice it is more complicated as there are various inflation adjustments made each year.  In my case I had maximum earnings each year.  Social Security has computed a  table  giving the initial and current monthly benefit based on your age and year you retired for maximum earners like me.  If I had started taking the benefit at my full retirement age in 2020 I would now be getting $3623 a month.  But by delaying until this year I will getting $4873 a month.  Which is  34.5% more.

2023 Portfolio Review

Compared to 2022 my main portfolio in 2023 did better absolutely but worse relative to the market.  As usual I will use VOO, Vanguard's S&P 500 index tracking ETF, as my market benchmark.  In 2022 my portfolio lost 10.79% but outperformed VOO which lost 18.17% by 7.38%.  In 2023 my portfolio was up 15.66% but trailed VOO which was up 26.13% by 10.47%.  For the two years combined I trailed slightly up 3.18% versus 3.21% for VOO.  

In October 2023 I doubled my positions in SCHD and VIG (two ETFs that buy stocks with growing dividends) and increased my position in VPU (Vanguard's utility sector fund).  In what follows I will account for these purchases as if they were made by borrowing from my cash position and repaying the loans without interest at the end of the year.  This is simple but a little biased.

At the start of 2023 I was 45.55% invested in VOO, 30.01% invested in individual stocks, 13.83% invested in ETFs (other than VOO) and 10.61% invested in cash.  During year my VOO position matched the market.  My stocks returned 5.44% underperforming by 20.69 contributing 6.21% to my overall underperformance.  My ETFs returned 11.20% underperforming by 14.95% contributing 2.06% overall.  My cash position returned 5.28% underperforming by 20.85% which contributed 2.21% overall.  This adds up to 10.48% overall underperformance in good agreement with the actual 10.47%. 

Only two of my stocks (JPM and KD) beat the market.  Seven had negative returns (ED, CVS, XOM, MET, NSC DGX, SOUHY and WDS).  One of my ETFs (VGT) beat the market while two (VDE and VPU) had negative returns.

Over the long term I continue to trail the market but perhaps with less volatility as I tend to outperform in bad markets but underperform in good markets.  This may be safer but leads to underperformance in the long bull market we have seen since the 2009 bottom.  Fortunately my approximately 50% position in VOO has kept me from trailing too badly.

Leave a Light On

 I got my monthly gas and electric bill a few days ago and was wondering why my electric use was up 64.6%.  Eventually I thought to check my basement.  It wasn't obvious from the top of the stairs (although it was night) but as I started down it became apparent that there was a light on.  Which I eventually located in a far corner.  I don't go down in my basement much so it could have been burning for months.  This was a little annoying as I have done this before.  I believe I actually checked a few times but only from the top of the stairs.

Assuming a 100 watt bulb this is 2.4 KwH a day.  Which amounts to about $.50 a day which isn't a huge amount amount but does add up.  This by itself doesn't explain the full increase in my bill.  Another factor is the billing period was 33 days this year as opposed to 29 days last year which the utility didn't adjust for.  This still doesn't account for the entire increase so possibly there was some other factor.      

 Anyway if you have an attic or basement or closet that you don't use much and that has lights in it it seems to be a good idea to check every so often that you haven't left a light on. 

2022 Taxes

Hopefully I am now done with my 2022 state and federal income taxes.  I received a refund check from New Jersey last Wednesday, May 17, and deposited it Friday.  As usual I did my taxes using the TurboTax Deluxe program.   Intuit (publisher of the TurboTax programs) tries to upsell more expensive versions of the program but I have always found the Deluxe version to be sufficient.  I filed the returns a few days early on April 12.  I submitted the federal return electronically shortly after midnight and mailed the NJ return on the way to work.  TurboTax tells you to expect to wait 24-48 hours to receive conformation that your return was accepted but in recent years I have gotten a federal confirmation in just a few minutes.  38 minutes this year.  I always mail my New Jersey return because TurboTax charges a fee to file it electronically.

I owed a considerable amount on the federal return.  This was largely because I had some US savings bonds come due (reach final maturity after 30 years) last year.  Tax on savings bond interest is deferred until the bonds are redeemed which is nice but means a big bill when they finally come due.  And the income is considered ordinary and doesn't receive the favorable tax treatment capital gains and dividends do.  Of course I knew the bonds were going to come due and had increased my estimated tax payments but not as it turned out by enough.  I still got a New Jersey refund because savings bond interest (like all interest paid by the federal government) is exempt from state taxes.

I didn't have any major issues with the program.  The handling of state income refunds is no longer a problem as Trump's changes to the tax laws mean I now take the standard deduction and don't deduct state income tax.  Although I live in a blue state the essential elimination of the deduction for state income tax hasn't hurt me because I had been paying the alternative minimum tax which didn't allow this deduction. 

Rare Event

Earlier this month while reviewing my checking account I noticed an oddity.  The last four withdrawals (bill payments for somewhat random amounts) had added up to exactly $1,000.00.  This is pretty unlikely.  Perhaps roughly a one in 100,000 chance of adding up to an exact multiple of $1,000.00.  Recently I have been averaging about 10 transactions per month for this account.  So over 50 years there would be about 6,000 chances for this to occur.  Of course I might also have noticed if some different small number of consecutive transactions had done this.  Still this seems like a once in a lifetime event or close to it.

Making the event even less likely (although probably more noticeable) the before and after balance in the account was an even dollar amount.

2022 Portfolio Review

Last year was a bad year for stocks.  The market as represented by VOO, Vanguard's S&P 500 index fund ETF, was off 18.17% (consisting of a capital loss of 19.53% partially offset by dividends of 1.36%).  My main brokerage account did quite a bit better being off only 10.79% which is outperformance of 7.38% .

During the year I made a number of moves.  Early in the year I sold my WBK ADR's.  WBK is an Australian bank that had not done well and when it was announced the ADR program would be terminated selling seemed the simplest thing to do.  Near the end of the year I belatedly sold my INTC as after many years of missteps I finally got fed up enough to sell.  At the same time I bought VGT, Vanguard's technology ETF, to keep exposure to the sector.  VGT has close to 40% of its funds in just two stocks, AAPL and MSFT.  I would prefer less concentration but bought it anyway.  I also bought RY and BMO the two of the five big Canadian banks that I didn't already own.  And I bought VIG and SCHD two ETFs that try to buy stocks with growing dividends.  Both have low expense ratios and good records.  However VIG invests more in stocks with low current yields than SCHD.  Currently VIG is yielding 2.00%, SCHD 3.63% (compare to VOO at 1.65%).

The following performance figures aren't super precise.  I calculated yearly returns for the buys, sells and dividends received as if the money was kept in cash without interest for the remainder of the year.  All interest on my cash position was attributed to the remaining cash somewhat overstating the actual yield.  As usual I added Canadian tax withheld back in as this is intended to be a before tax accounting.

At the beginning of  2022 I was 50.48% invested in VOO which of course matched the market (as measured by VOO).  I was 29.78% invested in individual stocks which with a return of -4.03% (-6.88% capital, 2.84% income) outperformed the market by 14.14% or 4.21% overall.  I was 13.26% invested in ETFs (besides VOO) which with a return of -4.38% ( -6.99% capital, 2.61% income) outperformed the market by 13.79% or 1.83% overall.  And my cash position of 6.48% (which excludes the cash used for buys made during the year) returned 2.46% for outperformance of 20.63% or 1.33% overall.

4.21%, 1.83% and 1.33% adds up to 7.37% of outperformance in good agreement with the 7.38% cited above.  My performance relative to the market had previously been pretty bad, these results make the overall comparison more respectable although I am still trailing.  However it is possible this performance in a bad market year shows that my portfolio is safer than the market something I am willing to sacrifice a little in expected total return for.  However in a generally rising market my inability to stay fully invested has been a drag on results.  And there is little justification for it as I have substantial cash reserves outside this account.

Pension Unguaranteed

 I started drawing a pension from IBM late in 2009 in the form of a single life annuity.  That is I will receive a fixed monthly payment for the rest of my life.  Initially less than half the monthly payment was guaranteed by the government through the PBGC.  However as I explained here over time this gradually increased until in 2017 the entire amount became guaranteed.  I had thought this meant I had nothing left to worry about (with respect to a default) however this was not quite correct.

Effective January 1, 2023 IBM paid the two largest insurance companies in the United States, MetLife and Prudential, to assume this pension obligation.  Each will be responsible for half presumably to spread the risk.  In the process the PBGC guarantee disappeared which I had not realized could happen.  There are state insurance guarantee funds which will provide some protection for these annuities but it appears that at least in some cases not for the full amount.  Although the risk of a default appears quite small it is a little disconcerting to be in any danger when I had thought I was totally safe in this regard.

Realistically the biggest risk to the pension value has been and remains inflation.  As of the end 2022 the value of my monthly pension payments as measured by the consumer price index (CPI) has decreased by 27%.  So the value has been slowly eroding.  Or over the last two years not so slowly as the decrease in value at the end of 2020 was only 17%.  Fortunately I have other financial resources.  However someone solely supported by a fixed income in retirement is quite vulnerable to inflation over time. 

Gas Pains

Last Sunday (June 19) I filled up my gas tank.  This has been becoming more expensive recently and this time the bill was particularly steep, $69.41.  I suspected this might be the most I had ever paid for a fill up and as best I can tell this is correct.  I did pay over $65 four times in a row during the summer of 2008 but the most was $67.38 on July 26.  This was my previous record.  Of course adjusted for inflation the 2008 amounts would still be higher.  Somehow I suspect it won't take 14 years to beat the new record. 

2021 Taxes

 A rather belated report on my 2021 taxes.  As usual I was a little lazy about getting them done but ended up submitting the federal forms electronically early Monday morning April 11.  As I recall I mailed the New Jersey state forms on Tuesday.  My federal refund was deposited in my bank account April 27 which seems like a fairly normal delay.  Unlike last year it was for the expected amount.  A little annoyingly I owed New Jersey money, for some reason I had increased my federal estimated tax payments but not New Jersey's.  However my underpayment wasn't enough to trigger a penalty.  I continue to use TurboTax and had no notable issues with the software this time.

South Brunswick Saker ShopRite Rant

Another rant this time about the South Brunswick Saker ShopRite supermarket.  Bottom line, their checkers should ring up sale prices correctly.  If they don't and this is later called to their attention they should cheerfully issue a refund for the difference.  Fortunately if they don't and you paid by credit card you may still have recourse.

After a long permitting and construction process a new Saker ShopRite supermarket opened a couple of years ago in Heritage Plaza (adjacent to Heritage Square) along Route 1.  ShopRite is a cooperative supermarket chain with stores in New Jersey and some nearby states.  Saker is their biggest operator with 39 stores many in central New Jersey.

The pandemic has made me reluctant to eat out and the new store is fairly convenient for me to get to so I have been shopping there sometimes.  Just before Christmas I bought a prime rib roast on sale for $4.79 per pound as advertised in their weekly mailed circular.  The shelf markings were not clear so I showed the ad to the checker to make sure I would get the sales price.  I was assured that I would.  I checked the receipt and saw I had received a discount but didn't notice until I got home that it wasn't sufficient to bring the price down to $4.79 per pound.  Apparently the checker should have scanned the ad in to get the full discount.  As it was I was overcharged by $14.83.    

When I returned to the store a week or two later I complained to the service desk about being overcharged.  I expected them to refund me the difference but they somewhat rudely refused to do so.  Although they accepted my version of events they claimed it was my responsibility to see that the sales price was rung up correctly.  Needless to say I disagree.

Fortunately since I had paid by credit card I had some recourse.  I challenged the charge with my credit card provider and yesterday they credited me with the $14.83.  It is unclear to me if my claim was actually adjudicated in any way (I was not asked for and didn't provide any details) or if the amount was too small for ShopRite to bother disputing.  Anyway I got my money.

It is somewhat baffling to me why ShopRite refused to refund the overcharge.  This was an advertised sales price which they should have expected to attract buyers.  Why incur ill will by trying to benefit from their checker's error?  Anyway I will be even more careful in the future.

2021 Portfolio Review

In 2021 my main brokerage account had a total return of 25.68% (23.55% capital gain, 2.13% income).  As usual I will compare to VOO, Vanguard's S&P 500 index ETF, which returned 28.60% (27.02% capital gain, 1.58% income).  So I lagged the market by 2.92%.  This is explained by my not being fully invested, a drag on performance in an up market.  

During the year IBM spun off KD.  I counted the value of the KD shares and the cash I received for a fractional share as part of the IBM capital return.  Other than that I made no buys or sells during the year making computations simple.  Since this is intended to be a before tax accounting I added back some foreign tax withheld to income.

At the start of 2021 my allocations were VOO 49.94%, other ETFs 10.34%, individual stocks 28.07% and cash 11.64%.  Cash returned .01% lagging VOO by 28.59% for 3.32% of overall underperformance.  My stocks returned 28.39% (24.92% capital gain, 3.47% income) lagging VOO by .21% for .05% of overall underperformance.  And my ETFs other than VOO returned 33.14% (29.56% capital gain, 3.58% income) outperforming VOO by 4.54% for .46% of overall outperformance.  This adds up to 2.91% of underperformance in good agreement with the actual 2.92%. 

2021 was a pretty good year for stocks.  My worst stock (not counting KD) in this account was INTL which still returned 6.16%.  And my other brokerage account was up 24.34%.

Last week I sold WBK (ADRs for an Australian bank).  It has done poorly and the ADR agreement was going to expire at the end of January.  So the sensible choice was to take my tax loss and not get stuck with the actual Australian shares which I expect could be problematic.  I also bought some DGX (Quest Diagnostics).  My medical insurer uses them for tests, they seem reasonably competent and I like to buy stock in companies that I have had positive (or at least neutral) customer experiences with.

Zero Bound

I have had a TreasuryDirect account for many years.  This is linked to a bank account and allows you to buy and hold government securities.  From time to time I have used it to buy Treasury bills (TBills) which are government bonds which mature in a year or less.  Bills are sold at a discount and redeemed at their face value when they come due.  You can arrange to have the bills rollover when they come due.  That is the redemption amount is used to buy a new bill (of the same term and amount) with the discount remitted to your linked bank account.  

I had been rolling over 13 and 26 week bills for some time but eventually stopped and moved the money back to my bank account after interest rates remained near zero for years after the financial crisis of 2008.  When interest rates recovered a bit (to around 2%) in 2019 I started buying and rolling over bills again, this time 4 and 8 week (which I don't think they used to offer).  But the COVID epidemic has again caused rates to fall to near zero.  And in the case of the 4-week bills not just near zero, actually zero.  The last few auctions have settled with a zero interest rate.  This is a little annoying although it does have the advantage that I don't have to deal with recording the tiny deposits from a near zero rate.  But it will be really annoying if the rates go negative which they theoretically could do.  I expect the government will try to avoid this but if they don't I will stop the rollovers.  Perhaps I should anyway, my bank isn't paying a lot of interest but it is more than zero.

2020 Taxes

 Although the deadline was extended to May 17 I managed to get my 2020 income taxes done on the usual schedule.  I submitted my federal return electronically late on April 13 and mailed my New Jersey return the next day.  I mailed the New Jersey return because I am too cheap and stubborn to pay the fee (about $20) to submit it electronically.  I used TurboTax Deluxe again as I have every year since 2010 (for tax year 2009).  I have complained about the program in prior years but I didn't have any big issues this year.  One minor problem was some directions which weren't correct for seniors (the tax laws are a little different when you pass age 65) but this wasn't too hard to figure out and I certainly have no desire to return to doing my returns by hand.

My federal refund didn't show up in my bank account until May 5 which seems a bit longer than normal.  For some reason it was for $5.95 more than computed on the return I submitted.  To date I have not received any explanation (perhaps they don't bother sending a letter for such a small amount).  It is possible I copied some number from a 1099 form incorrectly and this was automatically corrected but I don't really know.  This is bugging me a little but probably not enough to pursue the issue.  I haven't heard anything from New Jersey which has sometimes been quicker.  However it's probably not the right time to be expecting record speed.

2020 Portfolio Review

Last year my main brokerage account had a total return of 8.97% (6.75% capital gain, 2.22% income). As usual I will compare to VOO, Vanguard's S&P 500 ETF, which returned 17.98% (16.19% capital gain, 1.79% income).  So I lagged the market by 9.01% which is a substantial amount especially considering that almost half of my portfolio was invested in VOO.

The main reason for my underperformance was that the steady dividend paying stocks that I prefer were out of favor (at least in a relative sense) last year.  At the beginning of the year I had 29.45% of my portfolio in individual stocks and 11.49% in ETFs (other than VOO).  The individual stocks returned 2.49% (-.53% capital gain, 3.02% income) accounting for 4.56% of under performance and the ETFs returned -6.15% (-9.49% capital gain, 3.34% income) accounting for another 2.77% of underperformance.  

A secondary reason for my underperformance was that I was not fully invested.  I started the year with 12.23% in cash (the remaining 46.83% was in VOO). During the year I invested 1.75% of this cash.  The remaining 10.49% in cash only returned about .51% in interest accounting for 1.83% of underperformance.

On March 18 I bought Fortis (FTS) a Canadian utility and added to VPU, Vanguard's utility ETF.  This was good timing as the market bottom (with respect to VOO) was on March 23.  However I would have done better buying VOO which returned about 60% from March 18 as opposed to about 33% for FTS and about 19% for VPU.  Still because of the good timing this portion of my portfolio outperformed by .16%.  This all adds up to 9% of underperformance in reasonable agreement with the actual 9.01%.

Only 2 of my individual stocks (BLK and TGT) beat the market by more than 10%.  Another 4 (BBL, CAT, NSC and UNH) were within 10% of the market return.  The remaining 15 (ALL, BNS, CM, ED, CVS, XOM, INTC, IBM, JPM, MET, PEG, SOUHY, TD, WFC and WBK) trailed by more than 10%. And all of my ETFs (except VOO) trailed VOO over the whole year by more than 10%.

When I started doing these reviews I only had one brokerage account which was funded with the IBM stock I had acquired over many years through their employee stock purchase program and which my new employer required me to mostly sell. I also owned some stock received by gift or inheritance in certificate or book entry form. Starting in 2018 I moved some of this stock as well as some cash and my Value Line mutual fund into a second brokerage account. In 2020 this motley collection returned 13.07%.     

2019 Portfolio Review

After slightly outperforming the market in 2018 my brokerage account under performed again in 2019. This time by almost 6%. Since the market as represented by VOO (Vanguard's S&P 500 index fund) was up 31.14% (28.72% capital gain, 2.42% income) my return of 25.28% (22.25% capital gain, 3.03% income) was still pretty good.

The biggest contributor to my under performance was the fact that my portfolio was not fully invested.  I started the year 12.31% in cash and after one stock purchase in October ended the year 12.23% in cash. In a very good year for the market this cash position (which only earned a bit over 2% in interest) was a substantial drag contributing 3.53% to my under performance. My individual stocks also lagged the market returning 26.09% (22.25% capital gain, 3.83% income) and contributing 1.52% to my under performance. As did my ETFs (besides VOO) returning 24.45% (20.55% capital gain, 3.90% income) and contributing .80% to my under performance.  This adds up to 5.85% of under performance in good agreement with the actual 5.86%.

Only two of my individual stocks outperformed by more than 10% (JPM, TGT).  The rest were either within 10% of the market return (ALL, BBL, BLK, ED, INTC, IBM, MET, NSC, UNH) or lagged the market by at least 10% (BNS, CM, CAT, CVS, XOM, PEG, SOUHY, TD, WFC, WBK).  One of my ETFs lagged the market by over 10% (VDE), the others lagged by less than 10% (VNQ, VPU, VYM).

As noted above I made one purchase during the year.  I bought some UNH (a health insurance company) on Columbus day.  This was good timing for once as UNH came out with a good earnings report and the stock performed well for the rest of the year. Hopefully it will do as well as my AET investment.

Medicare

I recently applied for Medicare and last Friday I received my Medicare card in the mail. The eligibility age for Social Security has been rising but it is still 65 for Medicare. You have a 7 month window to apply starting the third month before the month you turn 65. So I could have applied back in July but I didn't get around to filing my application until September 30.  

The application process was fairly easy, I was able to apply online through the account that I had already set up. The government has resumed the two factor authentication system that caused me problems before but now can send the security code by email (as an alternative to a text message to my non-existent cell phone). As I recall there were just a couple of tricky parts to the application. The application asked when my current health insurance started. I was pretty sure this was the same day as my employment started (which was in fact the case) but thought I should double check with my employer. Then for some reason I had trouble entering the date on the form and eventually gave up and put it in the additional notes section at the end. The other tricky part of the application was that it asked for the exact form of my name on my social security card which required a trip to my safe deposit box to check.

I quickly got an acknowledgement which stated at least five days would be required for a decision. According to some discussion of this I found on the web five days is optimistic and in fact the note accepting my application was dated October 15. Since I expect my case was about as straightforward as possible it appears you should allow at least two weeks. The acceptance note was posted to my online account and said a letter would follow. The letter arrived October 24 and the card sent separately arrived October 25. It appears from the card that my coverage actually started at the beginning of October (as opposed to the day I turned 65).

So it takes almost a month to get your card even when everything goes well. This didn't matter much in my case but if you need coverage as soon as you turn 65 or if you suspect your decision might be held up for some reason I would recommend getting your application in as soon as possible.

Since I am still working with medical insurance from my employer it seemed best to just apply for Medicare Part A which is free. When I stop getting coverage from my current employer I will have an eight month window to sign up for the other parts without penalty (otherwise there is a penalty in the form of higher monthly premiums depending on the length of the coverage gap as the government doesn't want you waiting until you get sick to sign up).          

2018 Income Taxes

I mailed in my 2018 US and NJ income tax returns last Friday, a whole 3 days before the Monday deadline. They had been more or less done for several weeks but because I owed money this year I didn't feel any great urgency to complete the process.  However on the preceding Tuesday my phone and internet went out with Verizon giving a repair estimate of the following Tuesday.  The lack of internet left me with time on my hands which I used to get the returns done a little early.  It also meant I couldn't submit them electronically and had to mail them but I am inclined to do that anyway when I owe money because I am a little nervous about allowing them to pull money from my bank account.

I owed money primarily because I had a large involuntary capital gain (from CVS buying Aetna) last year and I hadn't increased my estimated taxes by quite enough to cover the additional capital gains tax.  The lower federal withholding rates also contributed but the new law did provide me a tax cut.  I ran my 2018 income though the 2017 program and discovered my federal tax was about 6.5% less because of the new law.  Similarly running my 2017 income through the 2018 program showed my 2017 federal tax would have been about 9% less if the new law had taken effect a year earlier.  In both cases the general pattern was the same, my ordinary income tax and the net investment income (or Obama care) tax went up because of the new limit on deducting state and local taxes but I still saved money because I no longer had to pay the Alternative Minimum Tax (AMT).  The AMT doesn't allow deductions for state and local taxes so I hadn't been benefiting from those deductions for some time.

I didn't have any particular issues with Turbo Tax Deluxe which I used again this year perhaps because I am getting use to its annoying features.  It still tries sell you upgrades but they aren't really needed.  

Phishing

I sometimes receive emails pretending to be from a legitimate business such as a bank trying to get me to divulge sensitive information such as account numbers or passwords.  This fraudulent practice is called "phishing".  Such emails are easy to recognize when they purport to be from a business that you do not have a relationship with.  However if you are sending out millions of such emails you don't need a high response rate.  You just need to get lucky a few times with recipients who for one reason or another find the email plausible enough to get past their guard.

This happened to me.  I have a corporate credit card with American Express which I rarely use but had recently used on a business trip.  I had also recently filled out an online form with a financial institution which has moved to a mandatory 2-factor authentication system.  So when I received an email purportedly from American Express (similar to this) asking me to update my authentication information I accepted it as genuine without much thought. 

It is a well known psychological phenomenon that people prefer to incorporate new information into an existing world view rather than rather than use it to overturn previous beliefs.  So once I had accepted the email as genuine I didn't revisit this question as I filled out the attached form despite some in hindsight red flags.  Even when the form asked for my email password (which I refused to provide) I didn't question that the email was genuine believing instead that American Express was being unreasonably nosy.  It wasn't until I was driving to work the next day that the penny dropped and I realized I should consider the possibility that the email was fake.  Still I was a little reluctant to abandon my preexisting belief even as I added up the considerable evidence favoring fake.

Fortunately my mistake will apparently have no serious consequences.  I am not sure any of the information I provided actually got back to the sender as I didn't complete the form and submit it (whereupon according to the link above I would have been redirected to a genuine American Express page).  In any case I notified American Express that evening who told me they hadn't been any recent activity on my card and that I wasn't responsible for fraudulent charges.  All in all they didn't seem very concerned but did give me an email address to forward the fake email to.  I did so and received an acknowledgement so I think I am covered.

I was a little concerned that the email might have ill intentions besides eliciting sensitive information (like for example encrypting my hard drive and requesting ransom to decrypt it) but the link above seems to discount any such possibilities. 

2018 Portfolio Review

In 2018 my brokerage account performed slightly better than the market.  As usual I will use the Vanguard S&P 500 ETF, VOO, as my benchmark.  VOO was down 4.37% (6.31% capital loss partially offset by 1.93% of income).  My account was down 4.21% (6.67% capital loss partially offset by 2.46% of income). Unlike last year I had some transactions during the year which makes breaking down my overall performance a little more complicated.  Aetna (AET) was bought by CVS near the end of 2018, I will figure the performance for the year by taking the year end value of the cash and CVS stock I received.  I also made four stock purchases in the fourth quarter, I will figure yearly performance by assuming I had set aside the cash needed for these purchases at the beginning of the year.  I will continue to ignore the interest earned on dividends I received during the year.  I included the (approximate) interest paid on the cash assumed to be set aside for investment but ignored the interest paid on the cash I received for AET.

At the beginning of 2017 I had  46.59% of the value of my account in VOO, 12.76% in other ETFs, 31.48% in individual stocks and 9.17% in cash (of which 4.50% was used near the end of the year to buy some more individual stocks).  VOO of course matched the market.  The other ETFs collectively underperformed (mostly because of the poor performance of the energy ETF, VDE) and contributed  -.31% to my overall relative performance.  My individual stocks collectively outperformed despite the fact that most (11 out of 17) of them lagged the market.  This was because of AET a big holding which was my best performer (up 11.92% even after accounting for the later drop in the CVS stock I received for it as most of the purchase price was paid in cash).   They added .44% to my overall relative performance.  My stock purchases (BLK, MET, TD and some more CVS) were largely poorly timed coming just before the year end market drop. Collectively they contributed -.28% to my relative performance. My remaining cash of course outperformed a down market contributing .31% to my relative performance.  This all adds up to .16% of outperformance as expected.

As noted above my individual stocks collectively outperformed the market even though many did poorly. Only two (AET and BBL) outperformed by at least 10% while 8 (ALL, BNS, CAT, CM, IBM, WBK, WFC and XOM) underperformed by at least 10%.  The remaining 7 (ED, INTC, JPM, NSC, PEG, SOUHY and TGT) were within 10% of the market performance.  Fortunately the outperformance of AET (whose good performance in previous years had led to it becoming an oversized position) was enough to bring the collective performance above that of the market.

As noted I purchased some stock during the year.  But not enough to use up the cash I received from the AET forced sale.  So my cash position increased to 13.19% at year's end.  I have a general intention to keep this account fully (or nearly fully) invested but in practice this requires more effort than I have been willing to devote to selecting and purchasing stocks.   As it was my buys were not all that carefully researched.  I bought the CVS to bring the share count up to match what my AET share count had been.  I have an account with TD (TDBank) and feel more comfortable investing in companies I have some sort of positive (or at least neutral) relationship with.  AET is my health insurance provider and did very well so I bought MET (MetLife) which provides my dental insurance (both through my employer).  BLK (Blackrock) was my pick in an out of favor sector (which promptly got a lot more out of favor).  I considered other investment management companies like IVZ (Invesco), LM (Legg Mason) or FII (Federated Investors Inc.) which were cheaper in terms of earnings yield but seemed more dependent on high fee active funds (which don't in my opinion have a promising future).  

CVS Buys Aetna

A couple of weeks ago on Wednesday, November 28, 2018 (almost a year after the deal was announced on December 3, 2017), CVS completed its purchase of health insurer Aetna.  This was of particular interest to me because I owned some Aetna shares.  I had bought them in late 2012 when I had some money to invest.  I had Aetna health insurance through my employer and (contrary to the claim by some that everybody hates their health insurer) was satisfied with their performance.  The stock seemed very cheap (in terms of price versus earnings per share) so I bought some.  This worked out quite well as I paid less then $50 per share and the sales consideration (a mix of cash and CVS stock) had value in excess of $210 per share.  So I have a capital gain in excess of $160 per share.  Unfortunately the gain is fully taxable (at capital gains rates) even though part of the purchase price was paid in CVS stock.  Fortunately I adjusted my estimated tax payments throughout 2018 to account for this.  This wasn't actually required (to avoid a penalty) since you aren't required to predict the future and pay estimated tax for income you haven't received yet but convincing the IRS of this requires filling out a complicated form in which you report your income by quarter (approximately) instead of lumping all 2018 income together.  So it seemed simpler to pay in advance although this would have meant getting a large refund if the deal hadn't gone through in 2018.

I held my Aetna shares in a brokerage account.  On Thursday (one day later) the position seemed to be in limbo but by Friday (2 days later) I had the CVS shares and money in my account.  This beats locating and and mailing in paper stock certificates which I have had to do in the past.  CVS initially said (in a statement that appears to have been removed) that the fair market value (for tax purposes) of the CVS shares I received was $79.50 per share (the CVS closing price on Tuesday).  However my broker thinks it is $80.715 (the average of the CVS high and low for Wednesday) which seems more consistent with IRS regulations.  I suppose I will go with whatever the 1099 (which I haven't received yet) says. My broker valued the fractional CVS share (for which I received cash) at $80.2644 per share.  This is close to but slightly less than the CVS closing price on Wednesday of $80.27 (perhaps there was a commission paid when the fractional shares were sold).

In order for the merger to go through CVS had to get various approvals including from the US Department of Justice (USDOJ). The USDOJ approved the deal with certain conditions which CVS agreed to.  Usually such agreements are formalized in a legal settlement which a federal judge has to approve.  Such approval is usually routine and it is normal for companies to complete a merger (as CVS and Aetna did) before the judge has signed off. However in this case the judge, Richard Leon, has been expressing doubts about the wisdom of allowing the merger.  But it is my (layman's) understanding that while the judge may not like the agreement that the USDOJ arrived at, he can't actually block the deal if the USDOJ is willing to allow it since the USDOJ can just drop their lawsuit if the judge doesn't approve the proposed settlement.  Since the main condition was that CVS sell part of Aetna's business the USDOJ has little need for a formal settlement agreement once this sale goes through (as I believe it now has). We will see if this is correct.