UNU AI Swarm

I recently learned about the UNU beta site through a post on the QT3 forums.

UNU was created by a company called Unanimous AI. Per their website, "UNANIMOUS A.I. develops technologies for Swarm Intelligence, allowing groups to combine their thoughts and feelings in real-time, to answer questions, make decisions, or just have fun." What that means is that they're making use of the idea that asking a large group of people to answer questions is generally going to lead to the best answer, regardless of how much the individuals know about the subject matter.

The site itself is pretty easy to use. You can participate as a guest at first, or create a free account which allows greater participation. There are various rooms to choose from on topics of all kinds, from sports to politics to investing. Once in a room, there's the usual chat room functionality as well as the ability to ask a question to the room at large. Questions are answered by everyone in the room pulling a "puck" onto the answer they like best, using their mouse as a magnet.

Example question. You can see the "puck" in the upper left being moved around by various people's magnet icons.

Like all Internet chat rooms, the UNU rooms have a low signal-to-noise ratio. Dropping into a random room for a few minutes isn't likely to yield anything particularly interesting, but when there's an organized event asking coherent questions some useful answers can be obtained. The UNU blog has quite a few examples of the swarm picking winners in sports, politics, finance, etc.

Since this is only a beta at the moment, the participation is fairly low. Most rooms are capped at 100 participants, and they rarely fill up even during the peak hours of 8 PM to midnight (US Eastern time). I hope they're able to get through this beta period and scale up, because I think it would be much more interesting to see answers generated from a swarm of a few thousand participants. Even with fairly small groups, though, it's an interesting experiment that deserves a look.

Brexit

Assuming you've been anywhere near a news source since last Friday, you already know that the people in the United Kingdom voted to leave the European Union. Approximately 52% to 48%, which is close but still a margin of around a million votes.

Pretty much everyone was surprised by the result. Certainly people outside of England and Wales were, since Scotland, Northern Ireland, and Gibraltar all voted heavily to stay in the EU. So did most of London, where the financial industry is a major player. Much of the media coverage leading up to the vote sounded pretty confident that the "remain" side would win.

Much has been made of Google's report that people in the UK were searching for things like "What does it mean to leave the EU" after the vote. It's tempting to look at that and assume that the voters didn't really know what they were doing. I'm sure that's true in a few cases, but largely I suspect that all the doom and gloom in the media was sending people to the Internet for some hope. Having said that, I'm pretty sure a lot of British voters would love a second chance to vote to stay in the EU.

There's already been a whole lot of weeping and gnashing of teeth over this, from all over the world. Financial markets have dropped like rocks, presumably because investors didn't think Britain would shoot itself in the financial foot. British prime minister David Cameron has promised to resign. Scotland is already talking about another vote for independence from the UK. Pretty much every world leader sounded worried about how this whole thing will play out.

It's going to be rough financially in the UK for a while. A large part of that will be businesses deciding that they should locate elsewhere, due to the coming instability during the EU exit, plus the loss of access to the EU direct market. On top of that, British politics are going to be pretty crazy for a while, since the majority of the current government was heavily in favor of staying in the EU. Political upheaval is rarely good for business.

Outside of the United Kingdom, though, now would be a good time for everyone to calm down over this whole thing. Europe isn't going anywhere, and neither is the United Kingdom. There won't even be any changes for at least months, and more likely years. The world economy will take a hit, but it should be short-lived. There will be a new equilibrium reached before long.

Most importantly, no one should let the media frenzy and the short-term market drops push them into any financial decisions. Short-term market instability is never a good reason to change a financial plan. The only people making significant decisions because of Brexit should be business leaders with interests in the United Kingdom, and even they should be taking it slow.

State-Run Lotteries

The lottery is everywhere. Billboards, TV ads, radio spots, every gas station and convenience store, and a whole lot of other places. It's incredibly popular, and that's a sad thing.

Personally, I've never understood the attraction of the lottery. Don't get me wrong, I get the idea of gambling, and even enjoy a bit of it myself on occasion. But the lottery is a different animal than going to a local casino or out to Vegas. The odds on the big games are so low that I'd barely consider it gambling. More like waving your arms on a clear day in hopes that a storm will suddenly form and hit you with a lightning bolt.

So why do people do it? I suppose a lack of math skills has something to do with it, but I'm pretty sure the real reason is that people like to dream of a fairy-tale-style life change. Quit your job, buy your dream home, pay off all the bills, travel the world...that's the stuff of dreams. An opportunity to realize them is attractive, even if you know the chances are so low that it's almost as likely you'll pick up a winning ticket off the street as pick the numbers yourself.

All that is fine if you know it going in and have the money to spare. Unfortunately, a lot of lottery sales go to people who can least afford to throw money away. The same "big dreams" effect that makes the lottery attractive is most likely to appeal to those with the least spare cash.

The reason all this has been on my mind recently is the number of lottery ads that I happened to run across. I listen to quite a few MLB radio broadcasts, many of which are sponsored in part by their local state lottery, or at least have paid commercials. I see big signs each time I walk into a convenience store, and in most bars. And I happened to drive past several buses with big lottery signs on the side.

But wait, isn't the lottery money usually used to pay for schools and similar government programs? That sounds great, until you realize that the use of lottery funds is used as an excuse to avoid funding through taxes (mostly property and income taxes). If the lottery ever stops making money, those programs will be in some big trouble. Even if that never happens, this kind of school funding is effectively a tax transfer from the wealthy (who would pay a lot of income and property taxes) to the poor (who buy the majority of lottery tickets).

Rather than go on further in this vein, I'll just put a link here to John Oliver's piece on the lottery on Last Week Tonight. Highly recommended, if you haven't seen it yet. He talks about all the things I've mentioned and a few more besides.

So, what should be done? I'd love to see state-run lotteries eliminated completely, but I know that's incredibly unlikely, since it would require action by the very people profiting from the system. I think the best case scenario is restrictions on how lottery money is considered in funding formulas, such that other sources of funding (i.e. income and property taxes) have to be used to pay the full budget for schools and other public services used by all income levels. The lottery money should be directed to programs used primarily by lower-income people (social services, rent assistance, Medicaid, etc), since they're the ones putting the money in. It's not a great scenario, but it's better than the current one.

CD Closure

For years, I've used CDs as a place to keep medium-term savings. Now I'm about to close out my last one, and things will have to change pretty significantly before I'll get another one.

A CD is a certificate of deposit account. It's like a savings account, but instead of being able to deposit and withdraw whenever you like, the account has a fixed term. You have to pay a penalty fee if you withdraw your money before the end date. In return, the interest rate is higher than a normal savings account. Like savings accounts, CDs are FDIC insured.

Using CDs for savings that I expected to use somewhere in the 2-5 year range made sense, back when I first started using them. I got the benefit of the higher interest rate, and the FDIC insurance meant that I didn't have to worry about losing the money if something catastrophic happened in the financial markets. In an emergency, I could get to the money quickly, though it would incur that penalty fee.

If interest rates are decent, CDs make good long-term investments as well. The usual strategy for this is a "ladder." Buy some longer-term CDs, usually 3-5 years, but stagger the maturity dates so you have a portion maturing each year. That way, every year you have the option of renewing or withdrawing part of the money, while still getting the benefit of longer-term interest rates.

Lately, those interest rates have not been decent. From 2008 to 2010, rates fell sharply as the economy slowed. Since then, rates have remained historically low. (Fortunately for us savers, inflation has been low as well, but it's still not a great situation.) Super-low rates means that CDs aren't much better than simply keeping your money in a savings or checking account, where you have easy access to it all the time.

Without the incentive of a reasonable rate of return, I don't see any point in locking my medium-term savings up in account that restricts access. I may look at CDs again in the future if interest rates rise, but until then, basic savings and checking accounts are a better option.

Rolling my 401k into an IRA

My long-term retirement savings have been mostly in a 401k provided by Fidelity, which was set up through my former employer. By long-term, I mean money meant to be used after I reach at least age 59-and-a-half, when 401k and IRA funds can be withdrawn without penalty. Recently I decided to take that money and roll it over into an IRA with Vanguard.

I've thought about doing a rollover for a while now, mainly to consolidate my holdings into one place. I already have a bunch of other Vanguard accounts, and this 401k is my only Fidelity account. Moving it over makes things easier for me to keep track of. As part of the move, I can also change how the money is divided across investment types. That's a nice bonus, since I was charged a trade fee when I did that within the Fidelity plan.

The reason I chose to do this now is that recently the Fidelity plan has changed to charge me a fee every quarter. It's not a lot, but any fee at all is a terrible thing when the entire point of the account is to grow money over time. Per their FAQ, Vanguard is happy to provide me a no-fee IRA account, as long as I use electronic delivery for the various documents they send out. Which I already do, for my other Vanguard accounts.

Since I already have Vanguard accounts, it was really easy to get things started. I just logged in and clicked through a few forms that explained the process. All my personal info was pulled from my existing account, so I didn't have to re-enter anything. I was able to select my new investment funds - two index funds, one for stocks and one for bonds. Each has lower fee rates than the funds I had at Fidelity. At the end of the process, I was given a letter explaining how Fidelity should make out the check used to transfer the money.

Next, I called Fidelity to let them know I wanted to perform the rollover. I couldn't do this part fully online, so I called their customer service. I was pleasantly surprised to get a person on the phone in just a few minutes. No long wait time. The representative was very helpful and even explained that I was actually getting a credit along with the fee, meaning that I wasn't losing any money from it. I appreciated that, but I decided to go ahead with the transfer anyhow, for the benefit of consolidation. To his credit, he didn't try to push me into staying with Fidelity. Once I said I was sure I wanted to go ahead, he finished up the process right away.

Then I had to wait while the check was mailed to me. Fidelity doesn't mail directly to other institutions, which is a little annoying but understandable from their perspective. Less potential for a customer to blame them for another company's mistake. When it arrived a week later, I opened it up and put my Vanguard account number on it, then mailed it to Vanguard. Less than a week later, Vanguard sent me an email confirming that they'd received the check and my rollover was complete.

All told, a fairly painless process. Both Fidelity and Vanguard did a fine job of customer service in making this an easy transaction.

The Big Short

I recently had opportunity to see The Big Short, the 2015 film based on the book of the same name by Michael Lewis. It takes place in the years leading up to the financial crisis of the late 2000s, focusing on a few groups of people that saw the problems developing.

First, the movie is definitely entertaining. The characters are all interesting, and the casting is great. My personal favorite was Christian Bale as Dr. Michael Burry, and I had no complaints about any of the other performances. It starts a bit slowly, but once all the major players have been introduced, there's always something of interest happening. It runs just about 2 hours, and I didn't feel like it dragged out at all.

I consider myself an informed layman when it comes to financial markets in general, and the financial crisis of the late 2000s specifically. Certainly I don't have the depth of understanding that a real insider would, or someone who has studied the subject extensively. But I know about sub-prime mortgages, and credit default swaps, and CDOs, and the general way that the crisis unfolded. So I didn't watch the movie as much to learn what it said about the financial crisis, as I did to see how how it said those things.

As far as explanations goes, I thought the writers did pretty well. Using humorous celebrity cameos to explain bits of financial jargon is a stroke of genius. If you have to figure out a way to get complex and dry information across to the audience, why not make it fun? That shows up in other places, too, such as the Jenga-style tower used to represent bond markets in one meeting. It's still a lot of information to understand if someone were to come in with no clue at all about the subject, but I think they did as well as can be expected with the explanations.

Having said that, there's certainly a lot of complexity about the situation that wasn't included. Do a quick search on "big short fact check" and you'll see a whole lot of people who have written about things the film glosses over, exaggerates, or leaves out entirely. I've read a few of those, and while I don't doubt that they all have their points, it seems to me that they're mostly expecting too much of a movie (or book) that's meant to give the layman both entertainment and understanding. I think the major points that the movie makes are mostly accurate, and trying to explain even more underlying detail would have added only confusion.

When The Big Short ends with some pointed comments about how little has been done to change the system, it certainly makes the viewer think. And that's exactly what you want to see from this kind of film.

Income Tax Time

I finally got around to filing my 2015 income taxes this week. No one's favorite thing to do, but it sure feels good to have it done.

In past years, I've done tax filing much earlier, usually around early February. But then I had a couple of years where I got some late or changed information around the end of February, which is a royal pain. So now I wait until sometime in March to minimize the chance that I'll have to make corrections. I'm running a bit of a risk that some scammer will steal my info and file for me, but I suspect that waiting a month doesn't increase that risk too much. Basic protection of personal info is much more important than that extra month.

Like last year, I used TaxAct for my filing. I've used TurboTax in prior years, but TaxAct is slightly cheaper for my needs, and seems to work just as well. I suppose I could skip the tax-prep software entirely and do it myself with the IRS forms, but I'm afraid I'd miss something. Besides, it's just so convenient to go through a user-friendly guided process rather than trying to wade through the system myself.

The hardest part of the whole process is gathering all the information needed. This year I had six different financial institutions of various kinds sending me forms, plus a few charitable contribution receipts to keep track of. Several sent me more than one form. Some were sent only electronically, some only on paper. There's no good way to make sure you have everything, but I do my best by setting all the paper stuff aside as it hits my mailbox, and keeping a list of all the online accounts I need to check for electronic forms. I'm pretty sure I managed to find it all.

The actual process of entering information into TaxAct is pretty straightforward, once all the paperwork is in order. The hardest part was making sure to find the right spot to enter everything - for instance, it took me a good 10 minutes to track down exactly where I was supposed to put the info on a 1099-B. Got it all eventually, though. Had to skip past a whole lot of stuff that doesn't apply to me, but I'm pretty sure that's true for everyone. The tax code has special cases for a whole lot of people, and I can't imagine anyone uses anything close to all of them.

End result, I don't owe any federal taxes because my income is too low. Which is as expected, with no job income and fairly small amounts of interest from investments. Michigan was happy to take their 4.3%, though, since the state doesn't have the same system of deductions/exemptions as the federal government. So nothing to the feds, and a fairly minor payment to the state...pretty much the same as last year, which is a good thing. The best thing to hear at tax time is that there are no surprises.

Financial Market Instability

If you follow the financial news at all, you know that January 2016 was a pretty poor month in the financial world. Stock markets had all kinds of up and down days, trending more toward down, and there's been all sort of concern over the price of oil and the future of China. It's easy to get caught up in all the fuss.

The S&P 500 index over the last few months. That steep drop around Jan 1 sure made the news.

It's really tempting to react to what goes on in the financial world. When you see headlines screaming about a horrible day on Wall Street, or forecasting doom and gloom because oil prices are crashing, it's easy to think that you need to take some action. Of course, that's the worst time to do anything with your investments. Reacting emotionally to the news of the day is a good way to lose what you've built up over time.

Just about any financial adviser - at least, the ones who actually want to help you - will tell you to make a long term plan and stick to it. That's what I've done, balancing my investments between stocks and bonds, plus a few CDs in case of something catastrophic in the financial markets. Other than occasionally rebalancing the stock/bond ratio, I don't change anything based on what the markets are doing. Putting more money in or taking it out happens when my needs dictate, not based on market changes.

If you follow the news at all, you probably can't avoid hearing about the financial world's latest problems. But that doesn't mean you have to react to it.

Gas is cheap...for now

The news that gas prices in the USA have dropped below an average of $2 per gallon has been everywhere recently. I heard it from the local news, the national news, NPR, and various Internet sources all within the space of a day.

Nothing wrong with saving a bit when filling up your tank, right? Well, sort of. It's nice to see dollar figure down around double the number of gallons, instead of 3 or 4 times. I don't drive a whole lot myself, so I rarely fill up more than a couple of times per month. Plus my car is pretty fuel-efficient, 30-35 miles per gallon. Even so, I like paying less, and those who drive more like it even more.

The problem is the behavior that these low prices encourage. People are buying more big, inefficient vehicles. It's not just the last few months - similar things were being reported back in February 2015. Trucks, SUVs, and other inefficient vehicles are more popular when feeding those hungry beasts is cheaper. I understand the logic, but it's not good long-term thinking.

Buying a vehicle is a medium-to-long-term decision. Most people can only afford to do it once a decade or so. The fuel costs for the car or truck you buy today are going to continue to hit your wallet for many years, and the gas prices may not stay low. Anything from a change in the global oil economy to a local refinery problem to changes in taxes and regulations can cause prices to go up.

Unless you need a large vehicle for your family or as part of your job, it's going to save you money in the long run to go with a smaller, more fuel-efficient vehicle. Not only will you save on regular fuel costs, but overall cost of ownership is lower, as this Consumer Reports article points out (check out the table near the bottom). Consider lower environmental impact and the ability to park in compact parking spots a bonus.

Credit Cards

I've had credit cards since my college days, so using one has become second nature to me. Every once in a while, though, I'll talk to someone who isn't as familiar with credit cards as I am. Here's what I usually tell them.

By the far the most important thing to remember about credit cards is this: Avoid carrying a balance. For anyone new to using credit cards, this probably seems counter-intuitive, since the whole idea of the credit card is to charge things that you pay for later. That's true, but only up until your monthly payment due date. The card provider effectively lends you their money for free from the time you make a purchase until your monthly bill comes due. After that due date, they'll start charging you interest on that loan, and it's almost always a gigantic amount of interest. You avoid that by always paying off your balance each month, so it never carries over.

The card provider would like that gigantic interest, of course, so they use little tricks to try to get you to pay it. Your statement usually says something like "Minimum payment due", which is a small amount like $10 or $20. Don't be fooled...if you charged anything more than that (and you almost certainly did, if you used the card at all), then you'll be hit with interest charges on the remainder of your balance. Another trick is charging interest immediately on certain transactions, not even waiting for the monthly due date. The most common is cash advances (i.e. using your credit card at an ATM). It's best to use only debit cards at ATMs, never credit cards. Sometimes they'll send you what look like blank checks and invite you to use them for whatever you like, but those usually follow the same rules as a cash advance and will get hit with interest right away. Some cards charge you either interest or extra fees on international transactions, so be careful when traveling abroad or order online from international sites.

That all sounds pretty grim so far, I know. So why bother with a credit card at all? There are some good reasons (listed in approximate order of importance):

1. Convenience. Physically, it's easier to carry around the cards than it is to deal with cash. Checks are another option, but a lot of places won't take those any more. If you do any online shopping, a credit card is the simplest method of payment, and usually the fastest.
2. Buff Up your Credit Report. Credit cards show up on your credit report. That can be good or bad, of course, but if you use a credit card regularly and pay it off every month, that shows up as a plus on your credit report. It won't erase any problems you may have had in the past, but it's a good mark to have on that report. This is especially good for young folks who have no real credit history. A few years of good credit card use looks a whole lot better than a blank report. One note of caution: Make sure you use the card regularly. An unused card doesn't help out your report, and might even hurt it.
3. Emergencies. Having the credit available for unexpected expenses is a good safety net. You don't want to use it very often, because of that gigantic interest, but it's better than nothing. If you do have to put some emergency bills on your credit card, make paying that balance off a priority as soon as possible.
4. Rewards. Credit card providers really want you using their card, enough so that they're willing to provide benefits. Everyone's heard of cash back bonuses, or the various airline cards that give you frequent flyer points. I tend to stick with the cash-back cards, even though the reward amounts are generally smaller, because I'm not limited to using the rewards on any specific thing. There's plenty of options if you'd rather get flights or hotels or rental cars, though.

If you don't have a credit card, how do you go about finding one? It's pretty easy to fill out applications online these days, and I suspect most people get a bunch of credit card offers in the mail regularly. (I certainly do, and not all of them even have my name right.) But if those don't work for you, you can also go to your local bank or credit union. If you have a savings/checking account, they'll almost certainly be willing to give you a low-limit credit card. And once you have a card and use it for a while, more offers will almost certainly follow.

I have one card of each major type (Visa, Mastercard, Discover, American Express), so I don't have to worry about ending up somewhere that won't accept a particular type of card. I rotate which one I use by the simple method of always taking the front one out of my wallet, and replacing it in the back. It's probably overkill, to be honest. You can get by fine with just one card in most situations.

Credit cards are a useful tool, as long as you pay attention to your balance and pay it off every month. Use them carefully, and enjoy the bonus rewards!