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Published: Saturday, 10 October 2020 23:04
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Health Insurance in USA:

Health insurance is one of the highest expense after income taxes. Health insurance premiums are very high in this country, as doctors and medical facilities are ridiculously expensive. Good news is that if you are employed by a business, then a big chunk of your health insurance premium is paid by your employer. The health insurance plans are offered bythe employer, and you choose from one of their plans. You don't have the option of going and buying your own insurance plan. This works in your favor, as the plans offered by employers are way better than what you can buy in open market place.

Insurance Coverage:

When you say health insurance, what does it cover. turns out that general health insurance plans offered by your employer cover everything except Vision and dental expenses. So, employers offer these optional plans to cover dental and vision expenses. Here are 3 types of insurance plans offered by most employers:

1. Health insurance: This is the regular plan for which you pay the highest premium. It covers all medical expenses incurred by you. It costs about $5K in premiums.

2. Dental insurance: This is optional insurance that pays for your dental visits. It costs about $1K - $3K depending on the type of plans your employer offers. This is optional, but I would highly recommend getting this dental insurance, as you will need to get your regular teeth cleanup and checkup. It will pay for itself.

3. Vision Insurance: This is optional insurance that pays for your eye doctor visits. A lot of confusion here is what exactly vision insurance covers. What if I get a eye problem or disese, is that covered by your regular health insurance or by your vision insurance? Almost all eye issues are covered by your regular health insurance as it's considered a medical expense and not a vision expense. The only thing that Vision insurance covers is your regular eye checkup (once a year0 and your prescription glasses or your contact lenses. So, if you don't wear glasses, you can get away without getting any Vision Insurance. However, vision insurance is very cheap. For the whole family, you can get this insurance for less than $500/year. Since this insurance pays a large portion of your eye glasses cost, you can recover all the money that you paid in premium. So, I would highly recommend getting Vision Insurance too.

Health Insurance Plans:

Your company may offer various plans for your health insurance. A new law called "Obamacare" was passed under Obama's president ship. Many older plans were replaced by new plans. IRS dictates what is covered by these plans, how much deductible plans can have, who can be covered, etc. More details for 2019 available on publication 969 of IRS website:

https://www.irs.gov/publications/p969

There are 2 kinds of health insurance plans offered by employers as of 2020:

1. Co-pay plan: This is the traditional copay plan where you pay a $20 or $30 co-pay for visiting any doctor, and the rest is covered by the insurance company. The health premiums in these co-pay plans are higher. Health insurance premium used to be about $15K - $20K for a family of 4 (husband, wife and 2 kids) before Obmacare. However, as you are employed, your employer pays about 80% of your health insurance premium while you pay only 20% of the premium. So, your share of the premium is about $2500. This used to be superb plan as you didn't have to worry about any medical expenses except for your co-pay. Even for baby delivery, these plans charged you a flat $250 co-pay, to cover the entire cost of baby delivery, which actually costed north of $10K to the insurance company. For this reason, babies used to be called "$250 baby", as $250 was all that it would cost to bring a baby in this world.

However, with the Obama Health care reform that came in full force in year 2014, the premiums for these co-pay plans rose fast, and as of 2015, employee share of the premium has gone from $2.5K to about $8K. Also, health insurance companies are increasing co-pay for these kinds of plans. For ex, for baby delivery or other hospital visits, the co-pay is now $500 instead of $250. So, employees and employers are switching to the other pan, which is what the intent of the govt was when it initiated the health care reform. Now, most of the employers don't even give you the option of "co-pay plan". Co-pay plan are guaranteed to be expensive than the other plan, so it makes no sense for anyone to get a co-pay plan anymore. This other plan, in lieu of co-pay plan, is called the High Deductible Healthcare plan (HDHP).

2. HDHP (High Deductible Healthcare Plan): In this plan, there is no concept of co-pay. You pay 100% of medical expenses out of your pocket, until you meet a deductible limit. The health premium in these HDHP plans are lower (at about $1K/year for the employee share of the premium), but the deductible is usually set at $3K, so first $3K of medical expenses have to be borne entirely by you. After you meet this deductible, that is when insurance companies pick up 80%-90% of the medical expense. Then once you hit $6K in total expenses out of your pocket, they start covering 100% of your medical expenses. That typically happens once you have amassed about $30K in medical expenses.

Premiunm: For my HDHP plan at my employer, I pay about $3K per year in premium for a family plan. Family plans are the most expensive, but they cover all the children irrespective of the number (for the same premium). This is one of the places where having more kids pays off.

HSA (Health Savings account): To compensate for the financial hit, govt allows you to set up a HSA (health savings account) in which you can contribute money upto a certain limit (limit was $7000 for the year 2019) free of federal taxes, and use money from this HSA to pay for any qualified medical expenses. You still have to pay SSN and medicare taxes on this money, but it's exempt from federal taxes and state taxes (in most of the states). Also, the money grows tax free, and funds in this HSA never expire. The HSA is just like a normal savings account, and most of the banks will open it for free. However, any money that is moved in or out of HSA is reported to IRS, as IRS wants to make sure that you are using money in this account only for qualified medical expenses, and not for Walmart shopping spree. The bank or custodian of HSA doesn't care about what you do with money in this account. It will approve money for anything that you ask for. It's between you and IRS to figure out in case of any discrepancy. One sweetener that most of the employers add to this plan, is that they contribute free money every year if you have an HSA. Most companies contribute $1K for family plans and $500 for individual plans every year in the HSA. This contribution by employer is tax free from federal taxes, SSN taxes and Medicare taxes. So, this $1K or $500 gets deposited in full without any tax bite. Also, this money never gets reported anywhere as your income, so it's 100% free money.

How much to contribute in HSA:

You should always contribute the maximum amount allowed in HSA. For 2020, it's $7.1K. This is because the money that you or your employer puts in HSA is your money, and remains with you no matter who you work for. So, in the end, you add about $8K money in your HSA every year which you can use for almost all medical expenses. Even if you don't use part of it, there is no penalty and the money remains there until you reach age 65. Most HSA custodians allow you to put money in stock market, that also grows tax free. So, people use it as a kind of retirement account, where they put a big chunk of their balance in the stock market, and try to take out as little as possible, by keeping their medical expenses low. (some people I know of don't even use their HSA for medical expenses, preferring to pay out of their pocket, and keep 100% of their HSA money invested in stocks. I don't see any rational in that). If you withdraw money for any non-medical expense before age 65, then you have to pay a 20% penalty, and applicable income tax. However, if you use it for any medical expense, then there is no penalty and no tax, no matter when you use it.

The best part with HSA comes now. After age 65, you are free to withdraw all the money from HSA for any expense, without any penalty. You just have to pay income tax on that withdrawal, if you are using it for non-medical expense. That's what makes HDHP plans with HSA so lucrative. $8K/year is almost half of your 401K retirement account contribution for a given year. So, once you have maxed out on your 401K contribution, many people try to max out on HSA contribution.

Then upon reaching age 65, you can treat your HSA in 2 ways:

  1. You can treat it as regular 401K account and pay taxes on money that you withdraw. HSA account is no different than 401K account in this case.
  2. You can treat it as regular medical account, and use it for any qualified medical expense. Then you pay no taxes on withdrawal.

Dental Insurance Plans:

Your company may offer various plans for your dental insurance. Choose the one that is lowest cost, as that should suffice to cover most of the regular dental expenses. You can keep following up with your dentist, and if he/she suggests some expensive dental work, then you can sign up for the more expensive dental plan for next year, and get that treatment done the next year.

Vision Insurance Plans:

Your company may offer just one plan for your vision insurance. As I stated before, it's worth taking if any one in your family wears glasses or contact lenses. For me and my family, it's offered at $75/year by my employer. It pays for itself with just 1 pair of eyeglasses bought every year. You can pay a little out of pocket or get the eyeglass entirely free. All regular vision tests are also covered. Your real cost is less than $75, since you are not taxed on this part of income (since it's deducted from your income before any taxation is done). So, assuming 25% tax bracket, your real cost is more like $55. There is absolutely no reason not to get it.

FSA (Flexible Spending account):

We saw one kind of account called HSA that's allowed with HDHP plans. There's another kind of account for eligible medical expenses that used to be allowed before Obamacare came into existence. It was called FSA. FSA accounts could be used with both Co-pay plans and HDHP plans. Previously there used to be only 1 kind of FSA account (aka traditional FSA accounts). Now, there are 2 kinds of FSA accounts:

  1. GPFSA (General Purpose FSA) or Traditional FSA or Traditional Healthcare FSA: This account is offered in lieu of HSA. It is known by so many different names. Your employer may call it by yet another name. We'll call it GPFSA here, but we mean any of these accounts. If you have an HSA account, you can't have a GPFSA account. Your employer offers this account, and you can choose only one: either HSA or LPFSA. LPFSA is what is generally referred to as FSA account in regular talks and on websites (FSA eligible). After Obamacare passed in 2012, FSA was what used to be offered with co-pay plans. But with advent of HDHP plans, HSA accounts were introduced to be used with HDHP plans. IRS disallowed having both HSA and FSA accounts, you could choose only one. So, people on co-pay plan chose FSA (since co-pay plans didn't offer HSA). However people on HDHP plan had the option to choose HSA or FSA. They could choose FSA only if they didn't opt for HSA plan.These kind of FSA were started being called Traditional FSA or GPFSA. GPFSA is inferior compared to HSA account. So if your employer offers HSA, you should always opt for HSA with HDHP plan (don't go for GPFSA).
  2. LPFSA (Limited Purpose FSA): This is another account that is offered by employers. In above section, I said that FSA accounts were dis allowed with HSA. However that was not entirely right. Only traditional FSA (or GPFSA) accounts were dis allowed. A different kind of FSA accounts were still allowed to be used with HDHP plans, but the the kind of expenses you could deduct in these FSA were a lot strict than the LPFSA that were offered above. To alleviate confusion, these FSA accounts that could be used with HSA  were called LPFSA. The good news is that this account can be had on top of having an HSA account. The bad news is that this account can only be used to pay dental and vision expenses (and NO other expenses). Anytime you pay at a eye doctor's office or a dentist, the expense is considered an eligible expense for LPFSA. Any medical expense other than these 2 expenses (vision and dental) can be paid via HSA or GPFSA, but not via LPFSA.

Looks like both of these accounts are referred to as FSA accounts on IRS website, and that is the main source of confusion. In GPFSA any qualified medical expense is eligible, while in LPFSA, only vision and dental expenses mentioned below are eligible (this list is from my employer, but most employers have a similar list for LPFSA. NOTE: this list comes from IRS, so they will be similar irrespective of which employer is offering the plan):

  • Vision expenses not covered by a medical or vision plan, including examinations, treatment, corrective lenses, and contact lenses
  • Dental deductibles, coinsurance, and many other dental care expenses not covered by your dental plan
  • Over-the-counter (OTC) drugs that are prescribed by a physician and related to vision or dental care

A sample list of eligible LPFSA expenses is on this website (this is some employer somewhere, but whatever they list here applies to everyone in USA, since the list eventually comes from IRS):

https://fsafeds.com/explore/lex-hcfsa/expenses?take=100

Any prescribed eye/dental medication (that is available over the counter only) is eligible for LPFSA. No other medication is eligible. For ex let's say you get eye drops for your eyes which are needed because of some medical condition in your eyes. If those eye drops are not available OTC, then they are considered medical expense, and NOT vision expense for LPFSA purposes. So, they won't be covered. Any eye doctor visit or any dental work should be covered by both GPFSA and LPFSA. However, there is again a fine line between medical expense vs vision/dental expense even if performed at the optometrist or the dentist. The dentist or the optometrist will mark each expense with a code that marks that expense as "medical" or "vision/dental". If he/she marked it as "vision or dental", then LPFSA will cover it, else it will not be covered by LPFSA. I've seen almost same kind of eye tests getting marked as "vision" by some optometrist/opthalmologist, while some others will mark it as "medical".

Insurance companies will outright reject any LPFSA claim that you file, if it's marked under "medical" by the eye/dental office. You may ask the doctor's office to classify the treatment as dental/vision. Sometimes they may do it, many times they won't. So, even if the expense should have been a "vision" expense, just the code that these doctors or pharmacy put determines the fate of that expense. It's not worth fighting, as it's just a mentally draining process. If it's not the right code, you are out of luck. Sometimes having a FSA debit card helps a lot. Any expense that you incur at eye doctor's office or at dentist office will automatically be eligible if you pay using this debit card. The debit card is designed specifically to work at only these locations, so you don't have to file claims for expenses that are approved via this card.

There is publication 502 on IRS website that talks about eligible expenses for FSA (it doesn't specify GPFSA or LPFSA). This is the publication that is used by all insurance companies to either grant or deny your claim:

https://www.irs.gov/publications/p502

NOTE: FSA rules were different before Obamacare came (as there was only 1 kind of FSA). You will still see websites which refer to FSA eligible items from that era. They are no longer valid. Also, no one mentions LPFSA. They all talk about FSA eligible (when they really mean GPFSA). We don't really want to have GPFSA as HSA is lot superior. The only account we are interested in is LPFSA. Also note that most of the co-pay/hdhp plans now cover routine checkup for free (thanks to obama healthcare).

Let's see in detail a LPFSA account:

Irrespective of whether you are in traditional co-pay plan or HDHP, you should consider about opening a Limited Purpose flexible spending account (LPFSA). This is beneficial mostly for people, who make < $150K, as you don't pay SSN or medicare taxes on money set aside in your FSA. You don't pay federal taxes either. So, the main advantage of LPFSA over HSA is that you pay no SSN and medicare taxes (about 7.5% of your contribution amount) in your LPFSA, but do so in HSA. So, LPFSA saves you even more money than HSA.

How much to contribute in LPFSA:

There is a maximum limit of $2700 for year 2020 that you can put in your FSA (GPFSA or LPFSA). You can contribute the maximum. The only caveat is that any funds that are unused in FSA account, get confiscated by the employer at the end of the year. However, your emploter may offer you one the 2 choices: 

  • Allow you to roll over $500 from your unused funds to next year or
  • provide you a maximum of 2 and 1/2 month of grace period to use the funds after the end of the year. 

Your employer can allow you only one option, and that's already pre decided by your employer for all employees. So, read your employer's FSA documents to which option your employer offers. $500 rollover is a better option, and is offered by more employers.

Since it's use it or lose it, you have to be very careful about how much you put aside in your LPFSA amount. This amount has to be decided by you before the start of the year, and you can't change it during the year. I think, it's very risky, trying to save an extra 7.5% on tax. Based on my personal experience, $1000 is a reasonable amount to put in an FSA. Especially, if your salary is < $150K and you don't have any big medical expenses pre planned for that year. These are the 2 categories where you can spend most of your FSA money.

Vision expenses: Assuming 4 members in a family, since all 4 of you are going to go for a eye checkup atleast once a year, you will pay about $100 for 4 visits. On top of that, you can buy eye glasses or contact lenses, so you can easily use $100-$200 from your FSA for glasses.

Dental expenses: For dental expenses, you could easily end up spending $200-$500 every year. You are going to make 2 dental visits every year for each of you, but those visits should be totally free as they are mostly covered by your dental insurance. Sometimes you might need to pay $10-$20 per sperson, depending in the type of insurance you have.

So, in the end, you will have no difficulty spending $500 on dental and vision expense. With $1000 as the starting balance in your account, you will easily spend $500, and can rollover remaining $500 to next year (if they are unused). Then depending on how much money you spend from LPFSA, you can readjust how much you want to contribute for next year's FSA. So, risk is pretty low of losing money in LPFSA. People usually go for an FSA account, when they are sure, they are going to have an expensive treatment, such as braces, dental surgery, eye surgery, etc. They get a quote before hand, and contribute exactly that amount of money in FSA to save some extra money on taxes. I put the maximum of $2700 in my LPFSA account, as I'm pretty sure I'll be able to use at least $2200 each year, with all the eye and dental expenses of kids.

Remember: both FSA and HSA reduce your AGI, by the amount that you contribute towards these accounts, so if you looking to bring your AGI down, you can max out the contribution to both of these accounts (about $2.7K for FSA and $7K for HSA for a total of $10K per year). Lowering your AGI, can allow you to take some deductions or get credits when filing your income taxes. Look in the income tax section for more details.

Conclusion:

So, in a nutshell, if you are employed, your total health care expenses can vary between $1K to $6K depending on the plan. Whether co-pay plan or HDHP plan is better depends on your health level. But since 2015, premium costs for co-pay plan are lot higher than premium costs for HDHP plan. Also many employers offer only the HDHP plan. So, it's wise to stick to HDHP plans, and just forget that co-pay plans even exist.

As an example, with my employer, premiums for co-pay plan are about $4K, while the premium for HDHP plan are about $1K. With HDHP plan, upto $3K have to be borne entirely by the employee, between $3K to $6K is borne 80% by insurance company and anything over $6K is borne 100% by the insurance company. So, with HDHP, the min I would ever spend out of my pocket is $0K ($1K in premium - $1K in employer contribution) while the max is around $6K ($6K in expense + $1K in premium - $1K that my employer contributes), while with co-pay plan, the min I would ever spend is $4K while the max is around $5K (just an assumption, as co-pays for visits,emergencies, medicines, etc shouldn't exceed $1K) . So, for my case, going with an HDHP is almost always better, as that can save me a lot of money, if I don't go to a doctor every week. However, when you are going to have a baby, you can save maybe $500 by being in co-pay plan, But that's the only scenario where it may be financially better to stick with co-pay plan.

My advise would be to go with an HDHP, with an HSA and a LPFSA, and use the money in HSA to invest in stock market. Within 30 years, you would be looking at $100K or more in returns in your HSA account, provided FED keeps on printing money !!

 

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Published: Friday, 09 October 2020 20:39
Hits: 2755

SCAMS:

There are so many scams going on that you may lose a good chunk of money if you are not careful when dealing with anyone in USA. Here's a good link on FTC website about how to identify scams and protect yourself from it:

https://www.consumer.ftc.gov/features/scam-alerts

Here are few scams that i've personally been hit with :(

 

1. Moving Companies Scam:

There are Moving companies on internet that move your stuff from one pace to another. The kind that you hire when changing houses, apartments, etc. There are 2 kind of Moving companies. One that are registered with the state, and others that are not registered. Different states have different requirments for registration. The companies that are not registered are in general scammers and corrupt. Craigslist is littered with such companies. They will tell you that they are registered and bonded, and have insurance, but if you ask them their DoT number or any paperwork, they will hang up the phone. The company name and owner names 9i.e The Moving company, owner: Joe) are very generic. They will have a website, and a phone number which changes frequently. They have no address or a fake address, social media page links to some other company with sm=imilar names and good feedback.

What these scammers do is that they will hire a guy or two and a truck to move your stuff. They will not give you any paperwork. They start loading the heavy stuff. If you don't like their loading, you can't back out. They will refuse to unload the stuff. On reaching the destination, they will demand extra money or threaten to never give your stuff back. They basically hold your stuff hostage. At that point, you try to go to the state's transportation website to complain, only to realize that they are unregistered, have no name or address. They may even be criminals who may loot you, take all your stuff, and in extreme cases kill you.

Here's a link to Moving company regulations across all 50 states: https://www.mymovingreviews.com/move/moving-companies-regulations/

Most companies are not limited to a state, but move stff across states. In that case, they are required to have a US DOT number. You can check more details here:

https://www.moving.com/tips/how-to-check-a-moving-companys-usdot-number/

The very first thing to do when hiring any Moving companies is to ask for their USDOT number. If they don't give you one, it's a scammer. Only hire companies which have a USDOT number, and a state license to transport. It will cost you a little more, but you will have ensure your safety and a route to resolution in case things go wrong.Never ever go with unregulated companies. Craigslist has "warning on the bottom" below the liasting for any moving company, warning you about all such pitfalls.

 

2. Utility Bill scam:

This is a very common scam in USA targeting hindi or urdu speaking community. I'm not sure how they get your phone number, but they call you and tell you that they have a great offer for your utllity bill. They usually speak in hindi and are extrememely friendly and courteous. They will say that they pay the bill on your behalf and you pay only 50% of what you owe. When you grow suspicious and ask how do they make money, they will say that have tieup with these utility companies, and they are trying to pass the savings to you. They ask for your utility bill details. Things go ok for first couple of months, and they start adding other bills to your discount.

Over time, the amount of money you pay them grows, and someday they will just disappear with all your money. No bills will be paid to any of the utility companies. I've gotten dozens of such phone calls. So stay clear.

 

3. Survey scam:

The survey scam is a very common scam, there's a high chance that you probably encountered them at least once in your life. If not consider yourself lucky.

Most survey scams start by a text message claiming to be a big company ex: Whole foods, Walmart, Apple, you get the point. They have very authentic looking logo, and text looks credible. They then say that if you do a survey or do a task you will get $100-$500 in return for your survey. But what happens is after you do the task the "Big company" ditches you and you don't get what your promised. In fact, you are out of a couple of thousands of dollars.

Here's a example: The "Big company" sends you a fake check thru ups overnight delivery for a large amount like $2000. The ups envelope and the content inside it including the survey form is very authentic looking. They ask you to go to a store (usually store like walmart) and buy may be 3 giftcards for $500 each and send them the code in 24 hours. They call you a "mystery shopper" or "secret shopper" and advise you not to talk to anybody about the survey. Since they sent you $2000 check, and you sent them only $1500 worth of gift cards, you make $500 in the process, which is yours to keep.

They instruct you "Do not tell the bank about this offer". The check is very real looking, and usually from a local bank. Since you are a smart person, you don't buy the giftcards immediately. You take the check to the bank to cash it out. You ask the bank person about the authenticity of the check. The cashier sees no issues with the check. So, you deposit the check and the money comes to your account in a day or so. You get the money and you feel good about yourself. You go ahead and buy the giftcards and send the code to the "Big company" via text. You are all laughing to yourself as to how easily you made $500 doing virtually nothing.

Now, 4-5 days later you get a cursed email... (this is around what they say) "Hello this is (insert bank name) we regret to tell you the check turned out fake and we withdrew all the money back. You have been charged $35 for the bounced check". Not only you lost $1500, you are stuck with charges for "bounced check" too. You contact the "Big company" via text/phone call. There's no response, as they have moved on to their next "customer". Oops, losing that $1500 hurt. 

Some of these stories with not so happy ending ....

https://www.consumer.ftc.gov/blog/2018/05/scam-story-secret-shopping-and-fake-checks

https://www.consumer.ftc.gov/blog/2020/03/fake-offers-secret-shopper-jobs

 

4. Home Warranty scam:

This may not be termed as a a scam, as it's a business that provides warranty services. You are typically lured into buying this, when purchasing a home. However, all these are utter scam. Never ever buy any of these Home Warranty Plans. See more details under Housing section in "Home Insurance and Warranty".

 

5. General Scams:

Any email or phone call or text saying that your account or credit card has been frozen, and they need to verifying you by clicking on a link are all impersonators. They try to get your login id and password or your credit card details or bank account details. Never ever click or text or call such numbers. Always call the customer service directly by looking at the phone numbers on the back of your card or by going to their website. Doesn't matter how serious that email or text appears to be, disregard it. Nothing is going to happn to your money if you decide to wait. Scammers try to get more details about you or your account with banks or merchants and then try to target you so that they appear legitimate. There are 1000's of posts on FTC website. Read those posts to see how people are getting scammed. As a rule, i never click on any link, even if it appears legitimate. I always call customer service.

Few links below on scams reported to FTC:

Amazon impersonator: https://www.consumer.ftc.gov/blog/2021/10/amazon-impersonators-what-you-need-know?utm_source=govdelivery

 

 

 

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Published: Sunday, 04 October 2020 21:07
Hits: 2840

US Passport:

If you are a US citizen, you are eligible for a US passport. You are a US citizen if you were born here, or if got naturalized here (meaning you applied for US citizenship and got one).

US Passport website: Below is official website, which provides more info on applying

https://travel.state.gov/content/travel/en/passports.html/

Apply for a Passport:

Passport in USA can either be done by mail or in person by going to a USPS post office. There are few instances where you can apply by mail, instead of in-person at a post office.If you are just renewing the passport and are an adult (over 16 years), then you can skip the post office visit and apply via mail. Unfortunately for most of us, a post office visit is required.

Adults (over 16): Your passport is issued for a term of 10 years from the date your passport is processed. Your passport can be renewed by mail, but if you applying for the first time, then you have to apply in person at the passport office.

Minors (below 16): Your passport is issued for a term of 5 years only and can only be renewed in person at the post office.

USPS: Before you apply for a passport, you will need to schedule an appointment with USPS, where you will hand over your application and required fees to the clerk. You will need to go to the below USPS appointment link, and schedule an appointment. You can schedule an appointment at any location in USA.

https://www.usps.com/international/passports.htm

Once you have gotten a confirmation email from USPS for an appointment, follow these steps:

1. Form: Fill up form DS-11. This will take a couple of minutes. Fill up the form online (choose the filler link, since that allows you to fill online and then generate a pdf for you). You then print page 5 and page 6 of this pdf file (you don't need to print other pages). Print the 2 pages on 2 sheets (i.e do NOT print duplex). Pages 1-4 of this form lists all the other details regarding passport application, so read thru it.

https://travel.state.gov/content/travel/en/passports/how-apply/forms.html

2. Evidence: To apply for a passport, you need to be a US citizen, and you need to show proof of a US citizenship. US citizenship is attained 2 ways:

  • Birth: by being born in USA (irrespective of your parent's nationality, you are a US citizen, if you are born in USA).
  • Naturalization: by applying for a US citizenship (see other section on how to acquire citizenship in USA)

Best way to show US citizenship is via birth certificate (if you were born in USA) or via citizenship certificate (the one that was given to you at the naturalization ceremony). If you are renewing the passport, then your current US passport (expired or not) can be used as evidence. You need to get a black and white photocopy of the evidence (which you will submit with application). The original document will be returned to you once it's verified by the USPS clerk. NOTE: if yo are nenewing the passport, then the old passport will also be taken for processing (It will not be returned back to you by the USPS staff. It will come to you in mail)

There is separate set for requirements for minors and adults.

  • Adults (born or naturalized):
    • Proof of citizenship: Bring original birth certificate or citizenship certificate (if you weren't born here) or current US passport, along with a black and white photocopy of that document.
    • Proof of identity: Original Citizenship certificate, current US passport or driver's License can be used as identity proof. Bring a a black and white photocopy of that document. If you are using the same document (Birth certificate or US passport) for both as proof of citizenship and proof of identity, then just photo copy suffices.

 

  • Minors (born in USA):
    • Proof of citizenship: Bring original birth certificate (current US passport won't suffice), along with a black and white photocopy of that document.
    • Presence of parents: Both parents need to be physically present with the minor at the postal office.
    • Proof of identity: Both parents need to bring their original driver's license or passport (US or non-US, doesn't matter). Driver's license is preferred since it's just easy to carry. Both of the parents need to also submit a photocopy of their driver's license. Birth certificate of minor has the name of parents, so the USPS person will check and make sure that the parent's name match with what's in the birth certificate.

3. Photo: You need a passport size photo to go with the application. You can get passport size photo printed at USPS location (where you have your appointment scheduled), but these are expensive. See my link on "Passport photo" section on how to get passport size printed for 10 cents or less. Make sure that passport size has strict "white" background, or else the central passport office will keep rejecting your photos (even though the post office may accept it)

4. Payment: We are applying for a passport book (passport card is not needed). We are not going to use expedited service unless there's an emergency (since it costs extra). It will cost $110+$35=$145 for an adult passport while $80+$35=$115 for a minor passport. You can pay the application fee ($80 or $110) + execution fee ($35) at the post office using a credit card (use credit card so that you can get some cashback. It doesn't cost any extra to pay using a credit card). Some post offices may refuse to take credit card for application fee and/or execution fee, so have a personal check book handy. If you don't have a check book, they will force you to buy a money order to pay the fees, which will cost you extra.

Delivery:

Once the clerk at USPS has taken your application and documents, you just sit back and wait for the passport to come in mail. They will send you an email about the status when it's processed and mailed. You will get your new passport by mail. If you had also sent your old passport too (if renewing), then the old passport will come in a separate mail a few days later. So, don't panic if you don't see your old passport in the first mail. It is on it's way, just a little slower. You can also track the progress on above govt website. They say 10-12 weeks for regular processing, but all my passports have come much sooner than that.Make a colored photocopy of your US passport, and keep it in some other safe place (preferably at your work just as a backup).

Once you get your US passport, you are eligible to travel to a lot of countries without any visa (unfortunately India is not in that list). So make good use of the US passport wink

 

 

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Published: Sunday, 04 October 2020 02:41
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Household Supplies:

This section includes all household items that are needed on daily basis. Target is the best place to buy these household supplies. they usually have $10 GC with $40 household purchase or something similar. These promotions pop up every week, but in different categories. So, if you can wait a couple of months for household supply, you can always get them at a nice discount (and lot cheaper than at walmart, which never have discount on any of these items).

Toilet papers:

Buy from target or Lowes. You can get 1000 sheet roll for a couple of dollars, which will probably last you a year, if you use bidets (see below). There's really no need for toilet paper when you have a bidet, but they do help for extra cleanliness.

Bidets:

In lieu of toilet papers, you can install bidets, which clean your butt hole much more economically and leaves you in a much more hyegenic state. There are tons of bidets available starting from $20 and going all the way up to $1000's of dollars. However, the cheapest ones do the job just fine.

I had purchased over 5 bidets so far, and all of them worked flawless;y for over 5 years. 2 of them died after 6 years of continuous use (one of them started getting no pressure due to torn plastic pipe, while the other started leaking). It's best to throw them away instead of trying to fix it. All of these bidets fit over all the toilet seats that you have installed in toilets. They take less than 10 minutes to install, and you do not need any tools except for maybe a screwdriver to unscrew plastic screws. You can find a lot of youtube videos on how to install your exact model. They are very very easy to install, so don't let anyone talk you out of it.

Few things to keep in mind when purchasing these bidets:

  • There are both single and double nozzle versions available. double nozzle ones are supposed to clean you better. I've never tried double nozzle ones, as they are little expensive. single zozzle ones do the job just fine.
  • There are self cleaning ones now. Not sure if there's any advantage, but nicer to have it.
  • These bidets are very simple design. So, if if something is not working right, you can usually troubleshoot it pretty quick.
  • Always look for leaks. You need to tighten everything with hand, so don't use plier or other tools. There shouldn't be any leak. Make sure the valve that you get with the bidet is put in the connection, else water will start leaking. This rubber may also break over time causing leaks, though I haven't seen one fail so far.

These are the few that I've purchased, and would recommend.

  • Brondell Bidet: Bought this from amazon for $40+tax (for a single nozzle version). I've been using it for a year with no issues so far. It's very thin, and self cleaning. It's on the expensive side, so won't really recommend it price wise. https://www.amazon.com/gp/product/B075MMHQX7

 

  • Luxe Bidet MB110: Bought this in 2012 from amazon for $32. Worked for 8 years before leaking. When I bought it, it didn't spray water at all. I emailed "Vie de Luxe", the official seller for Bidel Luxe on Amazon. Their customer service was extremely friendly and they shipped me a new one entirely free. Later I found out that the hole was not big enough, and that was the reason for water not getting sprayed. On making the hole bigger by pushing in a screw driver, I was able to get it to work.  So, I ended up with 2 for the price of one. https://www.amazon.com/gp/product/B001KKRCFA

 

  • Joy Bidet C1: Bought this from amazon for $24. This also bought from same seller "Vie de Luxe". This also worked flawlessly. Just recently it started leaking after being in service for 8 years. Looks like this brand is discontinued and this seller just sells Luxe Bidets now.

 

  • Dalmo Bidet: Bought this for around $20 on sale, even though the list price is $32. It has self cleaning fetature, and has dual nozzle for feminine/posterior wash. Don't really know what that means. This works great too. https://www.amazon.com/gp/product/B07VGCT4XH

 

 

Paper towels:

This is one of the other time that is totally unneeded, but is sold in huge quantities all over the country. They are made from cutting trees, cost so much to ransport, take up so much shelve space in stores, and are used on a regular basis. If everyone just kept a handkerchief or a peice of cloth with them and wash it regularly, 99% of this wastage could be eliminated, Anyway, married people with kids can't imagine a life if they didn't buy this wastage. I personally don't use these paper towels, but do buy them. Paper towels shouldn't cost more than 0.5 cents per sheet. Ones with 1 ply (real thin ones) go for 0.25 cents/sheet. Good thick ones cost 0.5 cents/sheet. Look for ones that have "choose a size" or smaller cut sheets, as larger sheets just get wasted.Most of the times you just need a paper sheet to clean something, smallest size paper works just as fine as a large sheet.

Best place to buy these are  from Walgreens and Home Depot. They go on sale on Walgreens quite often. Combined with their cash rewards and coupons, you can get 86sheet paper towel for $0.40 (implying 0.5 cents per sheet). I have also seen these on clearance pretty often at Home depot, where they go for 50% off. There it goes for $3 for a pack of 6, costing about the same as walgreens one, but little better quality.

Paper towels usually go on sale on amazon too. This is a link that's expired, but the same deal keeps on coming every few months like a clockwork. There list price is $80 which is nonsense. Here 250 sheets cost a dollar when on sale, implying 0.4 cents per sheet. Papers are of better quality though.

Amazon deal on scotts paper sheet:

https://slickdeals.net/f/15548869-16-pack-of-250-count-scott-essential-multifold-paper-towels-14-45-w-subscribe-save

https://www.amazon.com/gp/product/B0040ZOD04

 

Soap:

Shampoo/conditioner:

 

Cloth Washing detergent:

Dish washing detergent

dish cleaning detergent

 

 

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Published: Saturday, 03 October 2020 20:45
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US Market index:

In the previous, we looked at stock market indices of major countries. Here, we'll look at USA stock market index in detail. There are many US market index. You will see their symbols on the finance websites. However, you can't buy these index directly. You will have to buy a fund that tracks this index. We'll talk about this later. Note that the companies that are part of any index are not set in stone. There is continuous reshuffling of companies that take place in an index to keep it relevant. Many companies get dropped out of the index, because they don't meet the requirements anymore, or they are just not generating enough profits or are not big enough to justify being in the index. I'm listing some of the popular indices below.

1. Wilshire index (W5000): The simplest stock market index in USA is the wilshire index. It simply adds up the market cap of all the companies in USA. So, it covers 100% of the market cap of all US listed companies. It's symbol is W5000. It's current quote can be found here:

https://www.marketwatch.com/investing/index/w5000/charts?countryCode=XX

When the W5000 is at 10,000, it means that the total market cap of all the companies in USA is $10,000B, i.e $10T. So, in this index, any company is weighted based on it's market cap.

W5000 was 33,000 at end of 2019, implying the total market cap of all US public companies was about $33T (there are many criteria for which companies are included in W5000 and which are not, but we'll bypass the details).

As of 2021 year end, it had a market cap of just about $50T (All time intraday high of $49T on Nov 22, 2021). So, in 2 years of pandemic, the total US stock market went up by 50% from a level which was already an all time high !! At end of 2024, market cap went to $60T (20% return in next 3 yrs).

Next 3 index are 3 headline index that are quoted in news all over the world.

2. S&P500 index (SPX): This is a subset of W5000 and includes only 500 US companies from different sectors. These are usually the largest companies in that sector. For US market, S&P500 is a well known index comprising about 80% of the total market. It's the most popular index, and for all practical purposes represents the whole US stock market. In fact, you won't see much difference b/w the returns generated by W5000 vs S&P500 over any long term duration.

This is the link for S&P500 Dow Jones Index: https://www.spglobal.com

As of June 30, 2020, total market cap of S&p500 index was $27T, while total market cap of whole US market based on Wilshire 5000 was $32T. So, S&P500 was about 85% of total market cap. So, returns of S&P500 would come in very close to that of the whole market, so it's wise to stick to S&P500 as an index for investing purpose. Historically S&P500 has given higher returns than Wilshire5000.

3. Dow Jones Industrial Average (DJIA): This is a very small subset of W5000, and comprises of only 30 largest companies. It's prestigious for a company to be part of this index. However, due to it's over reliance on only 30 companies, sometimes it doesn't line up with S&P500 in terms of yearly returns. However, DJIA usually has higher dividend yield,, as most of the companies in this index pay good dividend. However, it;s NOT market cap weighted but stock price weighted, so smaller companies can have bigger impact than larger companies. So, not as reliable as S&P500 index and not a good indicator of US market anymore.

4. Nasdaq Composite index (COMP, IXIC): This is one of the hottest index that is primarily tracking companies listed on Nasdaq stock exchange. This index is also commonly called as "Nasdaq", though Nasdaq is the name of the stock exchange and NOT of the index. website is https://www.nasdaq.com

There are about 2500 (or 4000??) stocks listed on Nasdaq, but only 2000 or so stocks are part of this index. Nasdaq is always associated with Tech stocks, though only 50% of the stocks listed on Nasdaq are tech stocks. Rest are stocks from other sectors as seen in S&P500. However, because of overweight of tech stocks in this index, it is a good barometer of tech stocks. In fact, top 10 stocks in this index account for more than 1/3 of the index performance.

Nasdaq-100 index (NDX): This is a further subset of Nasdaq composite index stocks. It contains top 100 tech stocks in Nasdaq. It accounts for more than 90% of the weight of Nasdaq composite index. That is why Nasdaq-100 is more widely used than Nasdaq composite index. It is heavily allocated towards top performing industries such as Technology (57%), Consumer Services (22%), and Health Care (7%). This is the most popular stock index along with S&P500. This index has consistently beaten S&P500 since it's inception. If you believe stock market will keep on making new highs, then a basket of risky hot stocks will always beat safe stable stocks. Nasdaq-100 proves that.

These are the 100 stocks in Nasdaq-100: https://www.slickcharts.com/nasdaq100

As you can see, just top 12 stocks account for 60% of the index weight. So, bottom half of the stocks aren't even relevant, since they account for  less than 10% of the index weight. But to diversify and reduce risk, they have included these smaller companies, since in tech especially, a very small company can become a very big company in a matter of weeks, so you don't want to miss out on those gains. Nasdaq-100 is the index to stick to instead of Nasdaq composite. when people say they are buying nasdaq, they usually refer to Nasdaq-100.

5. Miscellaneous indices: There are many hundreds of indices available in USA and worldwide which have various misc stocks in them. Russell2000, Rusell3000, etc are many more indices which track small companies, growth companies, stable companies, etc. These indices have lagged behind S&P500, so not worth exploring.

 

 

Comparison of stock index:

Below is the chart showing returns of the 3 stock index from 1980 to 2020. As you can see, all indices track each other. The indices which rise faster during bull markets tend to fall faster during bear markets. However, one thing that is startling to notice is that the ratio of Nasdaq Composite to S&P500 never fell to below 1 except for very brief time in 2003 when Nasdaq had crashed 80% from the peak (i,e if you invested money in Nasdaq in 1980, at no point until 2020 did you end up with less money than if you had invested the same amount in S&P500). You read all these articles about how nasdaq is more risky than S&P500 (since nasdaq is overly concentrated in tech stocks, which is not entirely true), so we should invest in more diversified S&P500 index. But the charts show otherwise. Whether bull or bear market, nasdaq returns never fell below S&P500 returns over any 20 year period. Since markets always makes new highs, nasdaq will almost certainly keep beating S&P500 with lower risk than S&P500. This is the truth of markets that always keep making new highs. AndI'll repeat it again - as long as FED's ponzi scheme supports stock market, Nasdaq is the smarter way to go.

 PERFORMANCE CHART OF 3 MAJOR INDICES

PERFORMANCE CHART OF 3 MAJOR INDICES

As seen from the chart above, Nasdaq index returned 2X the return of S&P500 index or the DJIA index. And that too with a lower risk, since Nasdaq never went below the other 2 indices. In a nutshell, if you believe that markets will always make new highs, you should always invest in Nasdaq composite index rather than S&P500. Dow Jones index is just way too concentrated in few stocks to really consider it (although here DJIA generated better returns than S&P500). However, the best time to invest in Nasdaq index is during a bear market (when market is down 30% from the top), since that is when Nasdaq will give you much better returns than S&P500 (since nasdaq would be down 50% or more if avg market is down by 30%). However markets going down by 30% or more may not be a possibility anymore with FED being in the market to support the market at any dip. In fact it will be harder and harder to see larger dips or market being in red for a long time with Fed's ongoing scam with money printing.

S&P500 went from 10 in 1945 to 100 in 1975 to 1000 in 1997. From 1997 to 2010 it remained around 1000, but went to 7000 in 2025. Overall it went 700X in 80 years, implying 9% avg annual return with dividends not even reinvested.

 

More detailed Analysis of S&P500:

Index value: S&P500 has 500 companies, market cap of which is close to $38T. However, index value is only 4500 (as of 2023), which implies that we divide total market value by some "base divisor", which kind of represents "number of shares". So, S&P500 index value can be thought of as price per share. This base divisor changes every year to adjust for a lot of changes in market (i.e companies getting dropped, added, stock splits, etc). As of 2023, that base divisor is 8.3B, so index value = $38T/8.3B = ~4540. Base value is just a arbitrary number and has no real significance. This index value is known as S&P500 per share value, and all dividends, earnings, etc are quoted based on this per share. It's difficult to get earnings in raw number (i.e earnings in billions of dollars for all s&p500 companies combined) as the base divisor keeps changing every year.

Here's a chart for s&p500 divisor from 2000 to 2020: https://www.yardeni.com/pub/spdivisors.pdf

It went from 8.3B in 2000 to 9.3B by 2005 and then back to 8.3B by 2020. So, for rough calculations, we can take divisor as 8.3B.

Let's delve into few important metrics for S&P500 companies, and they fared historically.

Earnings: Here's a chart of EPS: https://www.gurufocus.com/economic_indicators/58/sp-500-earnings-per-share

As can be seen, EPS went from $5 in 1970 to $135 in 2020 in a span of 50 years implying an EPS growth of 7% per year. Avg nominal GDP growth has been 5% per year. So, earnings grew faster than GDP. Price over earnings or P/E for S&P500 has been around 10-20 with avg of 16.

Dividend: Here's a chart of dividend per share (DPS): https://www.gurufocus.com/economic_indicators/59/sp-500-dividends-per-share

As can be seen, DPS went from $3 in 1970 to $60 in 2020 in a span of 50 years implying an DPS growth of 6% per year. So, DPS grew at same rate as EPS. According to the Wall Street Journal, over the past 50 years the S&P 500’s dividends grew at an average 5.7% per year, outpacing the average 4.1% inflation rate.

Until 1980's, companies were paying about 2/3 of their earnings in dividends, but now they pay only 1/3. As such, until 1982, dividend yield of S&P500 was ~5%. Once the ponzi scheme to lift up the stock market took hold in 1982 via 401K retirement accounts, govt money printing, etc, yields starting going down. 2 things drove this => stock prices rising along with companies distributing less of their income. They went down to 2.2% by 1995, and never got above that level since then (except for brief period in 2008 when market fell by 50%). They did get close to 2% when markets fell by 20% or more. 2% dividend yield for S&P500 will remain a dream forseeable future. Historical yield Link: https://www.multpl.com/s-p-500-dividend-yield

List of top companies paying dividends (as of 2023): https://www.dividendinvestor.com/top-100-dividend-stocks-by-market-capitalization/

Top Dividend payers by year:

  • 2021: These are top 5 dividend payers of S&P500 as of 2021: https://www.fool.com/investing/2021/10/03/5-dividend-stocks-pay-71-billion-a-year-combined/
    • These are: Microsoft ($20B), Exxon Mobil and Apple ($15B), Chase and Johnson and Johnson ($12B). So, just these 5 companies paid out $71B in dividend out of $500B dividend.
  • 2023: Fast forward to 2023, and these are the top 7 dividend players: https://www.fool.com/investing/2023/09/29/7-dividend-stocks-pay-98-billion-year-shareholders/
    • These 7 companies paid about $100B in dividend: Microsoft ($22B), Exxon Mobil and Apple ($15B), Chase, Chevron and Johnson and Johnson ($12B) and Verizon ($11B)
  • 2024: Top dividend payers are same as in 2023.
    • On top of above 7 companies, we have AbbVie ($11B), P&G ($10B), Pfizer ($10B), The Home Depot ($9B), AT&T, Merck and Coca Cola ($8B each), United Health Group, Pepsi ($7B each), Walmart, Cisco, IBM, Altria ($6B each), Texas Instruments ($5B)  as next top dividend payers. Outside of S&P500, we have Petrobras Brasileiro ($17B), Nestle ($12B), HSBC ($11B), Samsung ($11B), Toyota ($10B), BHP, Roche, Shell ($9B each), China Mobile, Novartis, TSMC ($8B each). Alibaba paid it's 1st yearly dividend in 2024 at $5B. All of these are international companies, since any high dividend paying US company would already be in S&P500.
    • Up to 2022, Intel paid out $6B in dividends, but cut it's dividend to 1/3 in 2023, and then entirely eliminated it in 2024. 

Dividend Aristocrats (DA): S&P500 includes companies from all sectors in USA, so it's most widely followed index. About 66 companies in S&P500 (as of 2023) have increased their dividend every year for > 25 years and these companies are known as "Dividend Aristocrats (DA)". Link: https://www.nerdwallet.com/article/investing/top-dividend-aristocrats-list

Some well known names in DA are Walgreens, 3M, IBM, Chevron, Exxon Mobil, Walmart, Target, Coca-cola, Pepsi, Colgate-Palmolive, Procter & Gamble, Johnson & Johnson, Abbott Laboratories, Lowes, McDonalds, Caterpillar, etc.

There's an ETF to track these companies: ProShares S&P 500® Dividend Aristocrats ETF (Ticker: NOBL)

The dividend yield is still low at 2.5%, but higher than S&P500 yield of 1.6%. About 1/2 the companies have dividend yield > 2.5% out of 66 DA (as of 2023). However, the shares here are none of the high flying nasdaq 100 companies, so this ETF won't be able to match Nasdaq100 or S&P500 in returns over a long period of time. However, over the last 30 years, NOBL has beaten S&P500 with less volatility. But this may not be the case going into future. Also, many of these dividend aristocrats don't offer ultra safe dividend, as a sizeable fraction of companies get dropped out of this list from time to time. In 2007, there were 60 dividend aristocrats, but 16 of them either cut or stopped increasing their dividend during 2009 financial crises, thus losing their status. Generally higher the %yield, more likely the axe on the dividend, and more likely a very slow growth of dividend.

Here's a link showing all DA from 1989 to 2023. More than 1/2 of them got dropped over time => https://www.suredividend.com/dividend-aristocrats-list/

Here's a another link showing all DA as of 2023, and then discussing 6 top dividend aristocrats => https://www.simplysafedividends.com/intelligent-income/posts/6-dividend-aristocrats

Dividend Kings (DK): These include all companies that have raised their dividend for > 50 years. These are not limited to just S&P500 companies. There are total of 54 DK as of 2024. None of the tech or fast growing companies are part of DK, so DK aren't able to match S&P500 returns. But they do offer higher dividends, however their dividend raises sometimes trickles to bare minimum increases,just to maintain their status as DK. Just like DA, a lot of companies keep getting dropped from DK too. Altria with it's 7.5% yield stands at top of DK list. Link: https://www.simplysafedividends.com/world-of-dividends/posts/41-2023-dividend-kings-list-all-46-our-top-5-picks

Longest surviving DK/DA: A lot of companies in DA/DK have turned out to be lousy investments or outright gone bankrupt.

2 companies, York Water and Black and Decker have paid dividends continuously for 150+ years. However, both have been lousy investments trailing S&P500 by a wide margin. However, others like Colgate Palmolive and Coco Cola have been big success, both beating S&P500 by a big margin.

  • York water Company (YORW) has paid dividends for 210+ years (620 consecutive quarters) and raised them for 28 straight years.It's a $0.5B company paying $15M in dividends as of 2026. It's stock grew 6X from $5 in 2000 to $30 in 2025, implying a 7% annual price appreciation + 2%-3% in dividends.
  • Stanley Black & Decker (SWK) has paid dividends for 149 years and increased them for 59 consecutive years. It's a $10B company paying $500M in dividends as of 2026. It's stock grew 10X from $7 in 1985 to $70 in 2025, implying a 6% annual price appreciation + 2%-3% in dividends.
  • Colgate Palmolive (CP) has paid a dividend since 1895. It had raised dividend for 63 straight years. It's a $70B company paying $2B in dividends as of 2026. It's stock grew 50X from $1.5 in 1985 to $80 in 2025, implying a 10% annual price appreciation + 2%-3% in dividends. However, it's highly indebted Co with $1B in cash and $8B in debt with a -ve Tangible book value of -$5B (book value or equity is nil).
  • American States Water (AWR) has paid a dividend since 1931. It has raised dividends for 71 straight years.
  • The Campbell's Co (CPB) has paid dividends since 1980's but hasn't raised them every year, so it's neither DA or DK. 
  • General Mills Inc (GIS) 

 

Stock Buyback (SBB): Apart from Dividends, companies return money back to shareholders via Stock Buybacks. Here's a chart of stock buyback (SBB) per quarter: https://www.gurufocus.com/economic_indicators/100/sp-500-quarterly-buybacks-b

As can be seen, SBB went from $100B/year in 2000 to $800B/year in 2020. So, SBB grew 8X in just 20 years. It's astronomical rise, and a pure wastage of earning. The reduced dividends were diverted towards SBB.

Total Shareholder return: Total shareholder return (TSR) is the money that was given back to shareholders. It comprises of dividend and buybacks. Dividends are more important as that's the money we get back from business, and can't be taken away from us, no matter what happens to the company. Buybacks on other other hand is lost money, if the company goes bankrupt.

In year 2020, TSR was $230B, while in 2020,it was $1.3T, implying >5X growth in 20 years.

Book Value: S&P500 book value denotes the total amount of assets (tangible+intangible) minus the liabilities. Here's a chart of book value per share (BPS): https://www.gurufocus.com/economic_indicators/4239/sp-500-book-value-per-share

It rose from 300 in year 2000 to 900 in 2020 implying 5%-6% growth per year. BPS is about 1/4 the value of stock market, so stocks are trading at about 4X the book value, and 2.5X the sales. A lot of the book value is from intangible assets which arise from overpaying over the book value when buying other companies. I couldn't find the data on intangible book value of S&P500 stocks. FIXME.

Sales: S&P500 sales denotes the total amount of sales per year. Here's a chart of sales per share (SPS) per quarter: https://www.gurufocus.com/economic_indicators/101/sp-500-sales-per-share

On a yearly basis, sales went from 180*4=$700/yr in 2000 to $360*4=$1400/yr in 2020. So, sales doubled in 20 years, but profits and Book value tripled during that time.

2000 vs 2020: Below table shows all above stats for S&P500 for year 2000 and year 2020. These 2 years were chosen, as divisor was same for both, so easier to do a comparison.

 S&P500 year 2000 year 2020
Index value  1500  3200
Total S&P500 market value ($T) $12T = 8.3B*1500 $27T = 8.3B*3200
Total USA GDP $10T (Total Wilshire market value = 140% of GDP) $20T (Total Wilshire market value = 160% of GDP)
EPS $50 $130
Total Earnings ($T) $0.4T = 8.3B*$50 (3.5% of total market cap) $1.1T = 8.3B*$130 (4% of total market cap)
DPS $16 $60
Total Dividend ($T) $0.1T = 8.3B*$16 (1% of total market cap) $0.5T = 8.3B*$60 (2% of total market cap)
SBB ($T) $0.1T (1% of total market cap) $0.8T (3% of total market cap)
Total Shareholder return ($T) $0.2T (2% of total market cap, 50% of earnings) $1.3T (5% of total market cap, 110% of earnings)
BPS $300 $900
Total Book Value ($T) $2.5T (total market cap = 5X of book value) $7.5T (total market cap = 4X of book value)
SPS $700 $1400
Total Sales ($T) $6T (total market cap = 2X of sales) $12T (total market cap = 2.5X of sales)

 

2018 vs 2019: Few statistics for S&P500:

1. Earnings: For year 2018, total earning was $1.12T (operating earning was $1.28T). For year 2019, total earning was $1.16T (operating earning was $1.3T). So, earnings came in lower for 2019 compared to 2018. So, on average S&P500 PE ratio has been over 25 when calculated based on past 12 month earnings for 2018 and 2019. Historical average PE ratio has been below 20.

2. Dividends: For 2019, dividends set a record with $486B., while for 2018 it was $456B. So, dividends went up by 7%.

3. Buyback: For 2019, buybacks came in at $729B, while for 2018 buybacks had set a record with $806B. So, buybacks were reduced by about 10% in 2019 compared to 2018. Reason was that there was a rush of buyback in 2018 as Tax changes allowed companies to bring their off shore cash tax free to USA, so most companies spent it on buybacks.

4. Total shareholder return: For 2019, total shareholder return comprising of dividend and buybacks came in at $1.21T, while for 2018, this came in at $1.26T. The decrease was primarily due to lower buybacks.

So, for 2018 and 2019, we see that companies spent more in dividend and buyback, than what they brought in as income. Also, for the last couple of years, S&P500 companies have yielded about 2% dividend yield, and bought back 3% of their stocks, giving an effective yield of 5%. However, companies also issue more shares simultaneously, diluting their stocks, so buyback yield is lower than 3% (companies issue about 1%-2% extra stocks every year)

Conclusion: From above historical data, we see that shareholders get about 4% total return from S&P500 companies (as of 2023). That implies a lower return that what savings banks and CDs are giving, which is > 5%. This doesn't make sense as people are willing to take a lower return of 4% with much higher risk, than take higher return of 5.5% with almost 0 risk. This real return may be skewed data due to few companies being outliers. To get a better value of real return that we shareholders get, we'll look at few of the largest companies in S&P500 individually.

 

 

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