MANY OF US HAVE found ourselves with free time on our hands. I’ve read that folks are filling their days with shopping, baking, exercising and binge-watching TV. May I suggest another activity, one that may prove profitable? Over the past few years, I’ve found significant amounts of money in unlikely places. These treasures often come not just with monetary benefits, but also great memories. Here are four places to look: 1. Forgotten savings bonds. I’m old enough to remember when paper savings bonds were a common gift for birthdays and holidays. Many companies also had savings bond buying programs, encouraging employees to invest and pitching it as an act of patriotism. If you signed up, the money to be invested was taken out of your paycheck. Paper bonds were then mailed to you and you’d dutifully tuck them away for the future. I’ve been organizing my financial documents lately and I came across an envelope with a bunch of Series I savings bonds. I entered the required information in the Treasury Direct savings bond calculator and, much to my surprise, found they were worth nearly $10,000. I’ll bet many folks have old savings bonds hidden in the back of desk drawers. 2. Lost assets. Each state has unclaimed property that it holds, waiting for the owners to come forward. I haven’t checked every state, but I can attest to Pennsylvania’s efficiency. I recently found almost $1,000 in my father’s name. There were funds from an insurance company’s demutualization, an old savings account and the return of a security deposit from the Philadelphia Gas Co. Most of these were from the 1950s and 1960s. My father died in 1999, so the funds were divided between my two brothers and me. A decade or so ago, we also found almost $17,000 in my wife’s aunt’s name. They were shares she received in 1984 from the breakup of the Bell telephone companies. Searching for and claiming lost assets takes a little effort. You’ll want to try variations on your and your relatives’ names. I’ve seen claims with and without middle names. It helps if you know relatives’ old addresses. Be prepared to prove your right to inherit. We’ve had to supply death certificates and have our signatures notarized. 3. Gift certificates. I recently found several hundred dollars in unused gift certificates. Some were for local restaurants. There were also a few iTunes gift cards. I checked and all are still valid. I’m looking forward to a nice brunch with family after things reopen. 4. Spare change. Perhaps the most prosaic of hidden treasure, spare change is often ignored or forgotten. When my father-in-law died, we cashed in several huge bottles of change. It was about $900, which more than paid for the post-funeral luncheon. My wife and I have an old coffee can we fill with spare change. Right now, it easily contains $100 or more. While a student at Penn State, our son got involved in THON, a fantastic student-led charity. The charity is renowned for raising millions by collecting change, so we dedicated the contents of our coffee can to that cause. A bit of unused change added up to a nice donation. I’ve noticed that members of the Greatest Generation often hide cash in their homes. Why? Many were immigrants or the children of immigrants. They also grew up during the Great Depression and knew hard times. If your parents are still around, you might ask if they have a hidden stash. Got a stash of your own? Perhaps you should let your children know—before it’s too late. Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. His previous articles include Taking the Hit, Buyer Take Care and Numbers Game. Follow Rick on Twitter @RConnor609. [xyz-ihs snippet="Donate"]

SERIES I SAVINGS bonds have garnered a lot of press over the past year. Thanks to higher inflation, these bonds have become a lot more attractive. Although savings bonds have historically been a go-to gift for birthdays, baptisms and bar mitzvahs, they’re more complicated than you might think. I bonds have a number of features that can confuse the average investor, me included. Series I savings bonds, or I bonds, are designed to protect an investor from losing money to inflation. Each bond’s return has two components: a fixed rate of interest and an inflation rate. The latter is based on the Consumer Price Index CPI-U, it changes every six months and the change affects both newly purchased bonds and those that were bought earlier. Meanwhile, the fixed rate is set when you purchase the bond and it stays the same for the 30-year life of the bond you own. The fixed rate had been at 0% until Nov. 1, 2022, when it was raised to 0.4%. On May 1, the fixed rate increased again, to 0.9%. The inflation rate that drives I bond returns is revised every six months, on May 1 and Nov. 1. When your bond is credited with that inflation rate depends on when you bought it. For example, if you purchased a bond in January, the inflation rate would be the rate announced the previous Nov. 1. Your January-issued bond’s inflation rate then changes every six months, in July and January, based on the inflation adjustment announced the prior May 1 and Nov. 1. Got that? The combined rate for bonds bought between May 1 and Oct. 31 is 4.3%. This is the sum of the 0.9% annual fixed rate plus two times the semiannual inflation rate of 1.69%, or 3.38% annually. The actual formula is a bit more complicated, but this is close enough. For comparison, today’s 4.3% is less than half of May 2022’s meaty 9.62% This is an area of confusion for many people. Each I bond has a six-month interest-rate period that starts on the first day of the month that the bond was bought. That bond’s rate will be the composite rate in effect on the date of purchase, and it will last for six months. When the Treasury resets the inflation adjustment on May 1 and Nov. 1, those changes won’t necessarily apply immediately to your existing bonds. For example, I purchased several I bonds in mid-April as birthday gifts. My TreasuryDirect account shows that those bonds have an April 1 issue date. They have a composite interest rate of 6.89%—a 0.4% fixed rate plus an annualized 6.49% inflation adjustment, which was announced on Nov. 1. The bonds will continue to earn that 0.4% fixed rate for the next 30 years. The inflation adjustment, however, will change every six months, on Oct. 1 and April 1. Another confusing aspect of I bonds: how and when interest is earned. New I bonds begin earning interest on the first day of the month you purchase the bond. That means that, even if you purchase a bond at the end of the month, you’ll receive interest for that entire month. The way that interest is added to your I bond, however, is a bit complicated. The interest earned in any month is credited to your account on the first day of the following month. The implication: It makes sense to wait until the beginning of a month to sell a savings bond to make sure you’ve received the previous month’s interest. Interest on an I bond compounds, but not like a traditional savings account. With a traditional savings account that compounds daily, each day’s interest is added to the principal, and the following day’s interest is calculated on the principal plus the accumulated interest. With an I bond, the accumulated interest is compounded semiannually. This means that every six months after the month of issue, the accumulated interest is added to the principal to establish a new principal value. This is also the date when the new composite interest rate is set for your bond. The new, larger principal then earns interest at the new composite rate for the next six months. [xyz-ihs snippet="Mobile-Subscribe"] To find the current value of your bonds, check your TreasuryDirect account or use the website’s Savings Bond Calculator. To make this even more confusing, the value of any bonds that are less than five years old doesn’t include the latest three months of interest, reflecting the three-month interest penalty for early withdrawal that applies during those first five years. This suggests that, for new bonds, you won’t see any interest show up in your account until the beginning of month No. 5. A recent article by Harry Sit of The Finance Buff describes a clever strategy for replacing existing I bonds that have a 0% or low fixed rate with newer bonds with the 0.9% fixed rate. This assumes you plan to hold bonds for the long term. Any bonds purchased between May 2020 and October 2022 have a 0% fixed rate. You can’t sell savings bonds in the first 12 months after you’ve bought them. But once you reach the 12-month mark, you could sell your 0% bonds and use the proceeds to purchase new bonds with today’s 0.9% fixed rate. Sit’s strategy involves waiting until at least three months after May 1, so that the three-month interest penalty you pay would be the three months when your bond is earning today’s lower 3.38% “variable” rate—the annualized inflation adjustment for the current six month period. Three months of interest at that rate is about 0.85%. With the sales proceeds reinvested at today’s new fixed rate of 0.9%, you would break even after a year. Keep in mind that, depending on which month you bought your savings bond, you might not enter the new, low inflation-adjustment period until much later this year—and thus you shouldn’t necessarily rush to sell your low-rate I bonds this summer. Harry Sit’s article has more details. Also keep in mind that buying a new bond starts a new 12-month “no sell” period, plus the purchase would count toward the $10,000 annual purchase limit. You would also be liable for taxes owed on the interest received from the redeemed bond. There’s a final bit of timing involving I bonds. Earnings from I bonds are subject to federal income taxes, but not state or local taxes. You have a choice of recognizing the bond’s income for federal tax purposes in the year you earn it or, alternatively, you could wait until you sell the bond to report the income. Most folks opt for the latter, so they benefit from the tax-deferral. Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles. [xyz-ihs snippet="Donate"]

WE ALL SUFFER, in ways large and small, from COVID-driven shortages. The global supply chain has been disrupted, affecting automobiles, furniture, building supplies and much more. But the impact really hit home last month when my brother-in-law called and told me he couldn’t find his favorite bourbon. He lives in central North Carolina, where liquor sales are limited to state-owned stores. He had to go to three stores to find his backup brand, Maker’s Mark. His favorite—and apparently many other bourbon fans’ first choice—is Eagle Rare. It’s aptly named. It has been very hard to find for the last year or more. Prices have gone up accordingly. Eagle Rare is made by Buffalo Trace Distillery in Frankfort, Kentucky. The distillery also makes the eponymous Buffalo Trace, which is a fine, mid-priced “everyday” bourbon. It’s in short supply, too. I searched my region for Eagle Rare. After calling 11 stores, I found one outside Atlantic City, New Jersey, that had five bottles. I was so excited to find it, I asked them to put all five aside and said I would be right over. When I got there, they had them in a box at the counter, waiting for me. After I paid, I realized that—in my excitement—I had neglected to ask the price. It was $69.99 per bottle, a significant premium over the prices listed for Eagle Rare at most local stores. Of course, my local stores didn’t have any in stock, and couldn’t guarantee when they would have some. I paid the inflated price without complaint. But on my way out, I checked the price of comparable bourbons. Their prices were in line with what I expected. Had the Eagle Rare price gone up following my phone call? According to industry sources and others, there are problems at nearly every step of the alcohol supply chain. This includes sourcing glass bottles, increasing international shipping costs and a shortage of truck drivers. This creates a compounding effect, one that’s worsened the situation over the course of the pandemic. Buffalo Trace is undertaking a $1.2 billion facility upgrade, but it will be years until its supply capability will catch up to current demand. I wonder if Eagle Rare will still have the same cachet then, or if some new brand will be the latest rave? Whenever I find myself getting caught up in a buying frenzy, I think about behavioral economics and try to figure out what tenets I might be violating. I’m sure I’m guilty of breaking several in my chase for Eagle Rare. It’s obviously a fungible good. For a substitute, I’m partial to Angel’s Envy, which I can usually find at a $20 discount to Eagle Rare. My story has a happy ending. I brought the Eagle Rare to our annual Thanksgiving week family reunion. My brother-in-law was very happy—and, equally important, happy to share.

MY BROTHER AND I recently reminisced about the investment club we helped found in the late 1980s. The club’s benefits were threefold: financial education, the pooling of money and camaraderie. Our club was composed of family and friends. We met monthly. When we started, investing was largely a manual process. There were few discount brokers and even they charged relatively high fees. You bought and sold with a phone call, and mailed checks for payment. Meanwhile, many mutual funds had significant investment minimums that were above our modest means. At the outset, we decided to invest half of our pooled money in blue chip stocks. To avoid brokerage fees, we started dividend reinvestment plans (DRIPs) with the companies we wanted to invest in. We eventually had accounts with Exxon Mobil, Merck, GE, Motorola and Ford. To set up these plans, some companies required investors to be an existing shareholder, meaning we had to buy at least one share on the open market. Thereafter, the DRIP typically allowed us to purchase shares directly from the company involved, sometimes in amounts as little as $10. Many companies would sell us shares either commission-free or for a modest fee. We would also reinvest our dividends in additional shares. Some companies even sold their shares at a discount to the current market price, though this seems to be infrequent nowadays. DRIPs were a great way to slowly accumulate shares of a quality company, offering a simple way to dollar-cost average into our chosen stocks. Automatic dividend reinvestment compounded our returns. The downside of DRIPs included their tax treatment. Dividends were—and are—taxed in the year they’re received, even if you reinvest them. Also, selling can be tricky. DRIP shares are generally not marketable on the stock exchange. Rather, the shares are purchased and redeemed directly from the company. When our club sold shares, companies would often charge a fee of $5 to $15. My brother and I discussed whether DRIPs still make sense today. With low- and zero-cost brokerage firms available, many of the barriers to investing are gone. Charles Schwab, for example, offers a basically free trading platform with no account minimum. When you purchase securities or funds, you can opt to reinvest your dividends. Fidelity Investments and Vanguard Group offer similar services. And robo-advisors such as Betterment offer diversified portfolios with automatic rebalancing, tax-loss harvesting, dividend reinvestment and no investment minimum, all for 0.25% of assets per year. The day of the DRIP may have passed. But in its time, it was a valuable tool for those of us with modest sums to invest.

I RECENTLY HAD a chance to go back in time. An alumnus from my high school is spending his retirement documenting the school’s football program. He’s done an amazing job. He created a YouTube channel populated with an extensive library of game films dating back to the 1950s. I recently stumbled across the channel, and scrolled to my senior year, which was 1974-75. I played tight end on arguably the worst team in my high school’s long and storied history. We had won five and lost three the previous year, and the local paper predicted we’d win our division. Instead, we lost every game. I was a bit apprehensive as I opened the first game of my senior year. I remembered the final score (we lost 10-7) and some of the details. What I didn’t realize was how badly our team played. We fumbled five times in the first quarter. Before the game was over, we had several more fumbles and an interception. Our quarterback got pummeled. A high school football game can be condensed into 25 minutes of viewing with good editing. It didn’t take long to watch the whole game. I think I played every offensive play. We ran a very simple offense, more 1950s than 1970s. We only passed when absolutely necessary. My primary role was blocking. I watched the film closely and felt I played pretty well. I blocked well in direct runs, and especially when the offensive tackle and I would double team the defensive end. The challenge was when I had no one in front of me, and I was supposed to find a linebacker to block. They knew we were most likely running the ball, and they played close to the line. It made it harder to reach them before they got to the runner. I found myself wishing I’d been a better player, that I was stronger and faster and more experienced. I thought of the things I could have done to be better prepared or to contribute more to the team. One thing I noticed, however: I never stopped hustling. Often in football, you see the players on the opposite side of the play’s direction take a play off. On the film, I was happy to see that even when the play went to the other side I hustled down the field to find somebody to block. This worked well a few times, helping the ball carrier extend his run. Later in the day, as I was thinking about the film, I started thinking about how many other things I wished I could do over. I’ve always felt that way about investing. I should’ve known about Berkshire Hathaway 10 years before it became iconic. I should have put more into GE stock when I worked for the company, and then sold it all before the crash. I should have moved all of my 401(k) into Lockheed Martin stock when it dropped toward $20, and not sold until it broke $400. I watched a good friend accumulate Apple stock around $20. There are so many others I missed. Instead, my wife and I worked hard, saved in our 401(k)s, drove sensible cars, took camping vacations, invested for our children’s education and paid off our mortgage. We ended up okay. I sometimes still regret not being a better investor. But I’m happy I never stopped hustling.

I RECENTLY WROTE an article about our purchase of a new primary residence, and our plans for our existing beach house. On the same day, HumbleDollar published a companion article that I also wrote. That second piece discussed the tax implications—and complications—of converting a former primary home to a rental property. We had purchased the new home using a mortgage, and our plan was to refinance the beach house and use those funds to pay off the mortgage on our new primary residence. Borrowing seemed preferable to withdrawing a large sum from our retirement accounts and triggering a big tax bill. Our hope: After all this maneuvering, we’d have a mortgage-free primary home, and a mortgaged second home. The second home would be dual use: We’d rent it out during the summer season and use it occasionally during the off-season. Here’s what I said toward the end of my earlier article: I’ve spoken to our mortgage person about refinancing the beach house so our new, primary residence has no mortgage. This makes financial sense because there’s a strong tax incentive to have a mortgage on the rental property. Expenses incurred in owning a rental property, including mortgage payments, are deductible against the rental income received. Unfortunately, the reference to the deductibility of mortgage payments was vague to the point of being misleading. Several commenters gently pointed out the glaring error in my article. Where did I go wrong? The Tax Cut and Jobs Act (TCJA) of 2017 made significant changes to the tax code, including changes to tax brackets, increasing the standard deduction, and limiting the deductibility of state and local taxes. The law also made key changes to the home-mortgage interest deduction rules—rules that many financial experts are unaware of, as I’ve discovered over the past few months. Prior to the enactment of TCJA, married couples filing jointly could deduct mortgage interest on up to $1 million of what the IRS calls “home acquisition debt.”  Home acquisition debt is defined as mortgage debt that was used to buy, build or substantially improve your home. You could also deduct interest on an additional $100,000 of home-equity debt used for any purpose. Any mortgages originated after Dec. 15, 2017, are governed by the new TCJA rules. The limit for total home acquisition debt was lowered to $750,000, unless you're married filing separately, in which case the limit drops to $375,000. This limit applies to the combined amounts of all mortgages on your primary and second home. The TCJA also eliminated the deductibility of the additional $100,000 of home-equity debt. Under TCJA, any home-equity loans are combined with all mortgages in counting toward the $750,000 limit. There’s also another important proviso: Only home acquisition debt is counted in this calculation. What about refinancing your mortgage to, say, access some of the equity in your home for personal use? Publication 936 provides this guidance: “Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt not used to buy, build, or substantially improve a qualified home isn't home acquisition debt.” Note that the qualifying phrase “just before the refinancing.” This means that the interest on a “cash-out” refinanced mortgage, where you borrow more than you currently owe, is not likely to be totally deductible if any of the additional funds weren't used to substantially improve your home. There are special grandfathering rules for mortgages that predate the TCJA. The interest on mortgages initiated before Oct. 14, 1987, is generally fully deductible, regardless of how you used the proceeds. Loans taken after Oct. 14, 1987, but before Dec. 15, 2017, are subject to the home acquisition debt rule and a $1 million limit. There are special rules for second homes, including second homes that you occasionally rent out.  If you rent out the house, and use it for 15 days or more of personal use, you divide the expenses proportionally between the rental use and personal use.  This is the IRS, so there are lots of interesting nuances and caveats. If you’re interested in the topic, financial-planning expert Michael Kitces published an excellent article explaining the changes. Our refinancing plan included using a new mortgage on our vacation home to pay off our primary home mortgage. But this wouldn’t count as “buying, building or substantially improving” our vacation home, and thus the mortgage interest on that loan wouldn't be fully deductible. But that may not be the end of this tortured tale. The wild card: The TCJA changes to the home-mortgage interest deduction sunset at year-end 2025. If Congress does nothing, we go back to the pre-TCJA rules for deducting mortgage interest. Stay tuned. Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles. [xyz-ihs snippet="Donate"]