Real concerns about #robo-advisors and #Betterment

Quick summary from reading up on tons of links and discussions on Betterment, Wealthfront, WiseBanyan, etc.

TLDR: real concerns:

  1. You can actually do it better yourself if you put in enough time: both rebalancing and tax loss harvesting (the latter actually only kicks in when there are losses)
  2. Betterment just jacked up their fees, and there is no telling whether they will do it again at any point in the future, which leads us to the third point that is more general for all robo-advisors:
  3. An argument can be made that the whole robo-advisor business model is unsustainable, especially with low initially advertised fees that are the key competitive edge over an ocean of other funds, choice quotes:
    • Charles Schwab is already undercutting both companies with no fees (0.00%), and despite what Betterment will tell you, it’s a great deal.

    • 25 basis points is not a business model, it’s a temporary growth tactic.

Even shorter TLDR: it’s worth paying them if you really want to automatically rebalance and diversify across a range of funds and ETFs for a still-low fee, and hope they can make their model work out. If you are not particularly bent on having, e.g. a slice of bonds and overseas equities, then VTI/VOO/what have you is the way to go.

(Of course, in the context of present day, this assumes you are either not of the opinion that we are in an equities bubble, or it’s not a concern for your portfolio choice)

A healthy bit of #conspiracy theorizing for 2017

Why doesn’t anyone see the obvious? Many years of near-zero interest rate and dumping cheap money into the system produced mediocre economic growth combined with a huge debt and equity bubble (though surprisingly little inflation).

The rate will have to go up to realistic levels at some point, and with it will evaporate the equity bubble, mortgage affordability and the housing market – with debt servicing (consumer, corporate and government) draining all other parts of the economy.

Wouldn’t it be nice if we had a temporary figurehead with historic unfavorable rating to use as a scapegoat to do some bloodletting in this system?

Oh, wait…

Does #SharingEconomy work? Can you make money renting out cars on Turo?

TLDR: Of course not : ) To grow your income, it’s better to invest in your individual strengths (e.g., improving coding skills) and spend less time playing other peoples’ games.

My overall take on sharing services (Airbnb – can never figure out how to cap this word! Uber, Turo, etc): they are temporary exploits of outdated technology and regulation, and people who rely on these services for income too much will not be happy in the long term. There are lots of posts out there tearing up both Airbnb and Uber. I personally don’t believe they are doomed, just do not consider either one as a stable long-term income option. But today let’s take a look at another poster child of the sharing wave of the future: Turo, formerly known as Relay Rides.

Casually browsing the Interwebs you might notice some numbers getting thrown around that may give you an impression that it’s an easy way to get an additional income stream. But after a quick round of research things become significantly less rosy. Let’s do some quick math – first, the fun part:

Revenue

Let’s say we start on the pragmatic side and offer up a boring but practical car for $40/day. After Turo’s cut of 15% (actually 25% with extra protection features, but let’s say we are too cheap) and a pretty optimistic utilization rate of 70% (which means pretty much a non-stop stream of customers to be serviced), we settle at a healthy $714 of revenue per month.

Expenses

For simplicity, let’s consider a new or a lightly used leased car. It is actually a violation of your lease contract to rent it out on Turo, but technically doable and does not affect our calculations too much if we chose to buy instead.

If we take a pretty average lease of a Corolla or an Elantra, it will set us back by about $1500 in down payment+tax+registration plus a monthly payment of about $100, let’s say for 36 months. Let’s also assume that we magically get enough miles to go with it (basis for this assumption: even though you may need up to 3k miles/month for heavy utilization, you can find takeover leases that may actually fit that need for a short period of time, or again, price out a purchase, which will not be very different). That will give us $141.67/mo if we spread out all those expenses over the lease period.

Next, operational expenses. A typical heavy utilization rental takes about three days. This means we rent out 7 times a month. If we decide to do an express wash every time, and a more thorough wash once a month, that’s $65/month in cleaning. Let’s also set aside about $70 a month for arranging the pickups and resolving any logistical problems (e.g., if someone runs late, or an occasional TaskRabbit for a delivery if you are out of town). Let’s also set aside $100/month for repairs – even if there is a warranty, you can and will get into out-of-pocket situations, and about a grand a year does not seem unreasonable. Finally, we need to add the car to the personal insurance to be able to drive it between the rentals, e.g. to the shop. Let’s throw in about $20/mo for some kind of  a super-minimalistic plan (which technically we could skip, but that would be uncool).

All in all this gives us $396.67 in monthly expenses.

Bottom Line

These numbers leave us with about $317.33 in taxable income per car. Which, for a purely theoretical exercise, falls pretty close to what this guy is proudly reporting from the field, considering he got his Chevy Cruze almost for free.

To put things in perspective, if you try to scale and operate, say 5 cars like that, you will be making slightly less than a burger flipper at McDonald’s. For that money, you will have to deal with an average of about 2 customers every day (that includes cleaning the car) and any associated overhead such as people flaking, running late, scratching or staining the car, screwing you over on gas, disputing mileage or just randomly giving you a crappy review. If we tighten the numbers to, say, 90% utilization or even completely remove the cost of the car itself! or find perhaps a higher-end vehicle combination that might yield closer to $1000 in profit per car (though I doubt that number can be achieved in a stable long-term way), that’s still not really the business I would like to be in.

To consider scaling further and doing this full time, you would have to deal with 15-20 cars which gives us 7 pickups+cleanings every day, including the weekends. At this point, a private parking lot near a major airport and a carwash would come in handy, too.

Basic Income #basicincome

The subject is all the rage in nerd blogs and progressive debates. But it’s a bit ridiculous how quick people are to forget history and get carried away with hype. Basic income (various versions of it, and much more along those lines) has been extensively debated and tried in real life for many years. It has serious pros and cons that mostly still hold, even in the world of (gasp) iphones and facebooks. There is a rich body of works and real-life data for anyone who cares to set aside a few dogmas and take an unbiased look around. Yet most vocal people just pretend like nothing of that kind has ever occurred, and the dumb humanity just never happened to think of trying out the groundbreaking Finnish new ways…

To all the gun lovers out there

In 2008, the U.S. had over 12 thousand firearm-related homicides. All of Japan experienced only 11

That’s 11 (eleven) incidents, three orders of magnitude less. Japan’s a bit under a half the size of US population.

The U.S. has the loosest gun laws and a gun homicide rate is 15 times higher than the rest of developed countries.

Nuff said. I love guns, rented from a licensed vendor at the range.

The LendingClub debacle: what does it mean from a lender’s perspective

Short-term: it means nothing. The sky isn’t falling and my adjusted return rate over 3 years is still 13.77%. And MMM et al are still collecting a sweet chunk of referral change for sending the general interwebs population in that direction.

Long-term: will see. Short of catastrophic operational disruption (which I don’t think is the case here), I expect things to move along the same way in this established business (ok, so the startup tag on this post looks pretty ridiculous by now, of course). The threat I’m still concerned about is some economic event which may cause people to default much more. But what will take the biggest hit in that case – equities, funds, real estate or peer-to-peer lending – is anyone’s guess.

Battle of the Grids: 10 ReactJS Grids and Tables

Had to whip up a quick UI for a project, and of course one of the key elements that always comes up is the paginateable, lazy, sortable (and maybe even filterable) table aka the grid. Without further ado, here are the contestants that emerged after some interwebs browsing. Me, I’m making an unoriginal choice to proceed with the most popular one.

component name gh stars gh forks npm april dl’s github npm
fixed-data-table 2377 342 53,209 link link
griddle 1365 241 21,388 link link
react-bootstrap-table 404 164 11,787 link link
reactable 853 134 9,870 link link
reactabular 231 55 2,701 link link
react-data-components 167 60 632 link link
react-table-select 4 1 234 link link
react-infinite-grid 96 19 215 link link
react-grid 0 0 145 link link
react-grid-table 65 18 50 link link

Bonus: here is how to also make fixed-data-table truly lazy and never download all of the bazillion rows into memory when you only need to display about 10.