Postage rates will rise on Monday, May 11th. For example, a first-class stamp will become 44 cents, up from 42 cents. For some reason my Costco keeps reminding me of this, promoting the fact that they are selling a pack of 100 Forever stamps at a whopping 25 cent discount to face value. I thought retail stores didn’t profit from selling stamps?

Forever stamps allow you to buy stamps once and know they’ll be good forever – you never have to worry about future rate changes or buy those annoying 1-cent stamps. However, there is no point in stocking up on them, because Forever stamps are not a good investment. For one, postage rates have not outpaced inflation historically. But more importantly, according to the 2006 Postal Accountability and Enhancement Act, the postage rate will never be allowed to outpace inflation.

It seems the best you can do is by right before the next hike (like right now). I suppose I should just buy the Costco 100-pack and not have to worry about stamps for the next five years or so.

Sources: Slate and Postal Accountability and Enhancement Act

Brokerage firm Schwab lowered the annual expense ratios on many of its in-house mutual funds this week. For example, the Schwab S&P 500 Index Fund (SWPPX), which used to have an expense ratio of 0.36%, now has an expense ratio of 0.09%. That’s just $9 a year for every $10,000 invested. In addition, the minimum initial investment in each of the Schwab Equity Index Funds is now only $100, with no minimum balance requirements.

According to this CNN Money article, “This is not a promotional offer… These are permanent reductions.” This is basically what Fidelity did a few years ago when it lowered their S&P 500 index fund expense ratios to 0.10%, and they have kept it that low since, so there’s hope. Although technically they can always raise the expenses later, I do think ongoing competition will make it hard for them to do so. From the prospectus:

Schwab and the investment adviser have agreed to limit the “net operating expenses” (excluding interest, taxes and certain non-routine expenses) of the Investor Shares, Select Shares and e.Shares to 0.09% for so long as the investment adviser serves as the adviser to the fund. This agreement may only be amended or terminated with the approval of the fund’s Board of Trustees.

Also at 0.09% and $100 to start, there is the Schwab Total Stock Market Index Fund (SWTSX) which tracks the entire US Market (not just the largest 500 or so companies) through the Wilshire 5000 Index.

Schwab Traditional and Roth IRA accounts
I took a quick look at the Schwab IRA accounts, and they appear to have no account fees or minimums. You must initially open with $1,000, but that is waived if you make an automatic monthly transfer of at least $100.

Overall, this is a nice development for smaller investors with Schwab that want to invest in some broad index funds. However, I’ll stick to Vanguard for my IRAs since their fees are nearly as low on the Total US funds, and Vanguard is still much cheaper on all other asset class index funds.

If you’re interested in what Warren Buffett and Charlie Munger said in their famous Question & Answer session of the 2009 Berkshire Hathaway Annual Meeting, the best raw source I found was this page of the Omaha World-Herald. It’s written in a “live blog” format, which seems to cover all the major questions in easy-to-read bites with adding too much extra opinion or analysis.

Due to the current market conditions, many investors are wondering if investments in gold should be added to their portfolios to hedge against future inflation risks. In the video below (direct link), author Larry Swedroe discusses why he thinks gold is not an appropriate hedge against inflation, as well as some alternative investments.

The debate about gold will probably continue on for eternity, but I tend to lean towards his analysis because gold is too volatile for my tastes. I do like the idea of keeping some physical gold bullion as a hedge against economic collapse, but not as ETFs taking up a huge chunk of my portfolio. I would rather have something that would fit into traditional asset allocations plans, providing both stability and a good (but not perfect) hedge against inflation. So let’s explore the recommended alternatives:

In tax-advantaged accounts like IRAs, Swedroe instead recommends Treasury Inflation-Protected Securities (TIPS) which adjust with the Consumer Price Index (CPI). For this, I have bought shares of the Vanguard Inflation-Protected Securities Fund (VIPSX). I could buy individual funds directly from the government at no cost, but for now I like the simplicity. I even increased my allocation recently.

In taxable accounts, he recommends highly-rated municipal bonds with a relatively short average maturity of 3-5 years. For this, I am looking to buy shares of the Vanguard Limited-Term Tax-Exempt Fund (VMLTX). It is currently about 83% AA/AAA rated municipal bonds, and keeps a maturity of between 2 and 6 years (currently 2.8). The yield is currently a tax-exempt 2.12%, and it has a low expense ratio of 0.20%. If inflation does rise, the yield should rise to keep up.

I’m actually surprised he didn’t bring up commodities funds here as well, which I’ve seen him recommend as insurance against unexpected severe inflation.

Apparently my post on the million dollar account balances at Zecco Trading got picked up by The Consumerist over the weekend, but the tone was changed with the inflammatory title “Worst April Fools’ Day Joke Ever: Zecco Pretends To Give Away Millions”. People got excited, the SEC got involved, and the entire post over there has since been revised (see URL for original title) to incorporate the official reply from Zecco:

On April 1, 2009, one of our vendors provided Zecco Trading with an incorrect data feed which caused some customers to see erroneously high buying power. This error was quickly corrected, but about 1% of our customers were impacted. All positions in excess of our customers’ true buying power have since been closed. Except in a very small number of egregious and fraudulent cases, customers will not be responsible for losses (or gains) incurred for trades in excess of their buying power.

Additionally, we want to make it clear that contrary to some reports, this was not in any way intentional and was not an April Fool’s joke. We take the integrity of our customers’ accounts very seriously and we have taken measures to ensure this does not happen again. We sincerely apologize to our customers if this caused any confusion.

To be fair to Zecco, I never said it was an April Fools’ joke, I only said it happened on April Fools’ Day and because of that there was (understandable) speculation as to whether it was a joke or a system glitch. It turns out it was the latter. Either way, it’s always a bad idea to spend money that you know isn’t yours.