This resolution is for your mid sixties self. If you haven't met him or her there are aps out there whereby you can take a picture of yourself and age it. If you have problems saving then do it and meet your future self. It helps some people.
Now I know many people don't like to think about getting older. Get over it. I'm older and semi retired and it's great. Admittedly there are days where it is harder to get up in the morning and I get tired earlier in the evening. But balanced against this is the wisdom I've gained over the years ;) I don't do nearly as many stupid things as in my youth.
Anyways what about the resolution? It is simple. Save at least 15% of your paycheck towards your retirement. Not for a new pick up truck, not for an exotic vacation but towards your retirement. Have it taken out of your paycheck and learn to live on what is left.
Ok, so now you're protesting. You can't live the life style you are accustomed to if you are putting aside 15%. First off consider that for some (many?) of you it isn't 15% less income because you get a tax break if using a 401(k) or an IRA and secondly some of you have a company match. So, to get at the 15% isn't such a burden.
But if it is still a stretch take a hard look at your lifestyle. Think about functionality versus other motives for what you spend on. Is that car for getting from point A to point B or is it to send a message that you hope gets people to think you are making the big bucks.
Thorsten Veblen
wrote a famous book, The Theory of the Leisure Class, in 1899 in which he introduced the concept of "conspicuous consumption". The idea was that people emulate the economic class above them. As such we buy many things not for their use but for the image they project. Consider that we buy silverware because it is similar to what the wealthy use not for its functionality.
Granted that Veblen may not be the easiest to relate to in today's world. Instead you may want to check out
Money Mustache.
IMHO he is the best current writer on frugality and the early retirement movement. If he can't inspire you to live a more moderate life style then you are uninspirable.
Bottom line: Resolve to save at least 15% of income in 2017. Your future self will thank you!
Friday, December 23, 2016
Wednesday, December 21, 2016
I Apologize
I apologize to all those people over the past three years to whom I talked and tried to the best of my ability to get into the stock market. I wish I was more persuasive. We sat together at the table (or Skyped) and looked at the huge amount you had in Certificates of Deposit at .75% or in money markets at 0.1% and I pleaded for you to open an account at Schwab (or the discount broker of your choice) and choose a low fee S&P 500 Index Fund for 60% of the assets.
I argued that the U.S. economy is the most innovative in the world, that products will be forthcoming that neither of us could foresee that would be in demand. We couldn't foresee Fitbits, or driverless trucks, or drones delivering packages. We couldn't foresee virtual reality. But all of it came and is coming big time.
You worried over government shutdowns, a slowing economy, the European Union breaking up and more recently Brexit and Trump. In your thinking you kept going back to the downturn in 2008 despite the fact that you had many years to recover if the market experienced a meltdown in the short run. To no avail I tried to emphasize that such a meltdown is a gift to the long term investor who is accumulating a nest egg for retirement.
The saving grace for me are the many who did invest for the first time and who gained the confidence and knowledge that put them on the path they need to be on. They held to a well defined asset allocation and have seen their assets appreciate significantly to return well above the rate of inflation. They learned to manage their own assets and avoid the egregious fees charged by the industry.
They are excellent examples of how straight forward it is to become do-it-yourself investors and participate fully in the free market capitalistic system.
I argued that the U.S. economy is the most innovative in the world, that products will be forthcoming that neither of us could foresee that would be in demand. We couldn't foresee Fitbits, or driverless trucks, or drones delivering packages. We couldn't foresee virtual reality. But all of it came and is coming big time.
You worried over government shutdowns, a slowing economy, the European Union breaking up and more recently Brexit and Trump. In your thinking you kept going back to the downturn in 2008 despite the fact that you had many years to recover if the market experienced a meltdown in the short run. To no avail I tried to emphasize that such a meltdown is a gift to the long term investor who is accumulating a nest egg for retirement.
The saving grace for me are the many who did invest for the first time and who gained the confidence and knowledge that put them on the path they need to be on. They held to a well defined asset allocation and have seen their assets appreciate significantly to return well above the rate of inflation. They learned to manage their own assets and avoid the egregious fees charged by the industry.
They are excellent examples of how straight forward it is to become do-it-yourself investors and participate fully in the free market capitalistic system.
Saturday, December 17, 2016
Are You Freaking Out About Bonds?
Interest rates are rising and do-it-yourself investors know that pushes bond prices down. The mainstream media loves this kind of story. Scaring investors is a whole genre within the financial reporting sphere. The reporting today anticipates the shock coming when investors check out their quarterly statements.
Well, actually (here's the news for the mainstream news) most investors, if interested, can go online and see their up-to-date results. Waiting for quarterly statements is last century for many investors, especially DIY investors.
So, what about bonds? Let's take the perspective of an investor, i.e. someone who invests longer term.
The index most widely used to measure bond market performance is the
Barclay's (formerly Lehman) Aggregate Bond Index.
It is an intermediate bond index and is to the bond market what the S&P 500 is to the stock market. It tracks all investment grade bonds in the U.S. with a maturity of greater than one year (once a bond comes to within a year of maturity it is dropped from the index). Thus, the index includes U.S. Treasury Notes and Bonds, Corporate issues, and U.S. Agency issues. It is the most widely used benchmark by professional bond managers to assess and report on their performance. As a point of reference, most surveys are reporting that professional, active bond managers are under performing the Aggregate Index this year.
So how has it done? The yield on the benchmark 10 year Treasury Note has had a nasty back up from 2.22% at the beginning of the year to 2.60% as of Friday's close. So what has been the impact on performance? Shorter term the fear mongers are right. Over the past 3 months the Index has had a total return of -3.55%. But for the year-to-date the return is +1.62%! Pretty good compared to what people are getting on certificates of deposit and especially on money market fund.
In fairness, the return is not great compared to inflation. Still not something to freak out about. The yield on the index is 2.36% and this will be an important return determinant of the the longer term performance.
Most often investors capture this return by using the
AGG
exchange traded fund which has an expense ratio of .06%, i.e. 6 basis points.
Also, it is notable that, just as there are many way to play off the S&P 500 in the stock market, there are many ways to buy bond index funds that will perform differently than the Barclay's Aggregate Index. There are funds, for example that focus on different sectors and funds that have much different durations.
The above information as well as much more can be found by plugging the ticker symbol AGG into
Morningstar.
You'll note at the site that there is a "performance" link which provides up-to-date performance.
Well, actually (here's the news for the mainstream news) most investors, if interested, can go online and see their up-to-date results. Waiting for quarterly statements is last century for many investors, especially DIY investors.
So, what about bonds? Let's take the perspective of an investor, i.e. someone who invests longer term.
The index most widely used to measure bond market performance is the
Barclay's (formerly Lehman) Aggregate Bond Index.
It is an intermediate bond index and is to the bond market what the S&P 500 is to the stock market. It tracks all investment grade bonds in the U.S. with a maturity of greater than one year (once a bond comes to within a year of maturity it is dropped from the index). Thus, the index includes U.S. Treasury Notes and Bonds, Corporate issues, and U.S. Agency issues. It is the most widely used benchmark by professional bond managers to assess and report on their performance. As a point of reference, most surveys are reporting that professional, active bond managers are under performing the Aggregate Index this year.
So how has it done? The yield on the benchmark 10 year Treasury Note has had a nasty back up from 2.22% at the beginning of the year to 2.60% as of Friday's close. So what has been the impact on performance? Shorter term the fear mongers are right. Over the past 3 months the Index has had a total return of -3.55%. But for the year-to-date the return is +1.62%! Pretty good compared to what people are getting on certificates of deposit and especially on money market fund.
In fairness, the return is not great compared to inflation. Still not something to freak out about. The yield on the index is 2.36% and this will be an important return determinant of the the longer term performance.
Most often investors capture this return by using the
AGG
exchange traded fund which has an expense ratio of .06%, i.e. 6 basis points.
Also, it is notable that, just as there are many way to play off the S&P 500 in the stock market, there are many ways to buy bond index funds that will perform differently than the Barclay's Aggregate Index. There are funds, for example that focus on different sectors and funds that have much different durations.
The above information as well as much more can be found by plugging the ticker symbol AGG into
Morningstar.
You'll note at the site that there is a "performance" link which provides up-to-date performance.
Tuesday, December 6, 2016
A Great Gift
Recently I received a call from a young man seeking my advisory services. As an advisor my satisfaction comes from helping people get on a path to a successful retirement. This means steering them clear of high priced advisors who underperform, avoiding costly Funds that overcharge, and ensuring that the size of their nest egg will be sufficient to produce the income they need in retirement.
But this young man was a different case than I usually handle. He had just gotten out of prison on drug related charges and while in prison had read "Millionaire Teacher", which he found in the prison library, by Andrew Hallam. By reading the book he had come to understand how people build wealth by saving and investing intelligently. The book inspired him to do the same and he enlisted my services to get going. Full disclosure: I, along with a couple of other advisors, are mentioned in the book.
He related to me how his parents and entire family are poor but he had attained a job and was primed to start investing on a regular basis. To say the least this was one of my most satisfying consultations.
But the bottom line here is receiving the methodology. Admittedly, there are a number of books that describe how to invest in low cost Funds, allocate assets, and rebalance as needed. "Millionaire Teacher" is one and it is a good one. It is well written and can be read in a couple of weekends.
In my opinion it is a great life changing gift, especially for the young couple ( many of whom are financially illiterate) starting out in the professional work world. But many in mid-career find it useful as well.
So, I suggest instead of showing up with the soon to be consumed bottle of wine at the holiday party or putting a DVD of "Deadpool" under the tree consider "Millionaire Teacher". It is an excellent choice for the budding DIY investor. As this blog and many others have harped on for a long time DIY investing done intelligently can save huge amounts and increase the size of the nest egg over longer periods of time.
For additional background check out Andrew Hallam's website.
But this young man was a different case than I usually handle. He had just gotten out of prison on drug related charges and while in prison had read "Millionaire Teacher", which he found in the prison library, by Andrew Hallam. By reading the book he had come to understand how people build wealth by saving and investing intelligently. The book inspired him to do the same and he enlisted my services to get going. Full disclosure: I, along with a couple of other advisors, are mentioned in the book.
He related to me how his parents and entire family are poor but he had attained a job and was primed to start investing on a regular basis. To say the least this was one of my most satisfying consultations.
But the bottom line here is receiving the methodology. Admittedly, there are a number of books that describe how to invest in low cost Funds, allocate assets, and rebalance as needed. "Millionaire Teacher" is one and it is a good one. It is well written and can be read in a couple of weekends.
In my opinion it is a great life changing gift, especially for the young couple ( many of whom are financially illiterate) starting out in the professional work world. But many in mid-career find it useful as well.
So, I suggest instead of showing up with the soon to be consumed bottle of wine at the holiday party or putting a DVD of "Deadpool" under the tree consider "Millionaire Teacher". It is an excellent choice for the budding DIY investor. As this blog and many others have harped on for a long time DIY investing done intelligently can save huge amounts and increase the size of the nest egg over longer periods of time.
For additional background check out Andrew Hallam's website.
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