The Full Motley -- 4Q, 2022

Oh my, where did the time go? I guess there are two ways to answer that question. Having missed the third quarter update, even though I submitted a quarterly rebalancing transaction as usual, I wondered whether I was too busy or too disheartened to scribe a blog entry at that time.

Truly, there is no time like now! 

On the one hand, even though the market is cyclical and bear markets are inevitable, each is brought upon through a unique set of circumstances. Not one bear market has started because an alarm rang out and signaled for everyone to start selling (although, a solid counter-argument could be made for that being the start of the Dotcom crash with that alarm being Y2K not ending the world, as so many cynics insisted was possible). Whatever balance of circumstances that sent the markets down, weighted heavily by the Fintech sector and cryptocurrency market, which appropriately are taking the brunt of this bear market, it was due time given the strength of the bull market(s) from 2009 through the end of last year.

On the other hand, there is no time like now because this bear market has been long enough and strong enough to signal the last-chance to buy at these prices. Whether this opportunity extends another year or two, when bear markets surrender, the resulting whiplash propels markets to new heights without looking back to the prior bear market. This year, the 52-week low of the Dow Jones is 28,660. In February 2009, it was 6500. If you had purchased shares of an index fund in February 2009, they would be valued 4-1/3 times higher at the worst point of this year.

Truly, there is no time like now. Is that a blessing or a curse? It all depends on how you look at it (and what you do with it).

As for my rebalance, I found it surprising that my best-performing fund in the past three months (which included the trough of September) was by far the actively-managed equity fund! Active fund managers swear that superior returns are found in actively managed funds (go figure!) but I have rarely found that to be true. But I will give credit when credit is due and note that this past quarter was a great example of times where actively managed funds can significantly outperform passively managed funds.

Bad Habits That Prevent Saving

Six bad financial habits that are keeping you from saving money

https://www.msn.com/en-us/money/personalfinance/6-bad-financial-habits-that-are-keeping-you-from-saving-money/ss-BB1fwp1Q

by Deb Hipp

1.You don’t have a plan

If your strategy for building emergency savings is “Whenever I have extra money, I’ll deposit it in my savings account,” it is no wonder that your emergency savings has never exceeded a few hundred bucks. Plenty of people do not have enough money to pay monthly bills right now, let alone extra funds they do not know what to do with.

If you want to build emergency savings, it is time to make a plan to regularly deposit money in savings each month. Set an achievable savings goal – $1,000, for example – as the initial amount you would like to reach. Do not make your initial savings goal so ambitious you get frustrated along the way. You can always adjust once you meet your first goal.

2. You have no budget

Without a clear idea of where your money is going, you will not get far when it comes to designating a monthly amount for emergency savings. Creating a budget may seem intimidating, but you will be pleasantly surprised at how easy – and even fun – creating a monthly budget can be with all the online tools out there.

For example, you may want to use one of the many budgeting apps available to create a budget and track where your money goes. For example, Mint is a free budgeting app that also links to your bank and credit card accounts to track spending.

3. You are not taking advantage of automatic payroll deductions

Just think how painless it would be to deposit money into an emergency savings if you did not have to do it yourself. Chances are, you would barely miss $50, $100 (or even more if you can afford it) from each paycheck.

If you have not signed up with your employer for automatic withdrawals into your savings account, do it now. You will reach your savings goal much faster.

4. Dining out too much

We all enjoy the convenience of takeout or a night at a restaurant but if you dine out several times a week, you are probably blowing through anywhere between $400 to $1,000 a month, depending on how fancy or frequent you like your dining experience.

Try going on a dining-out fast for a month while cooking at home and deposit the money you would have spent going out to eat in emergency savings instead. At the end of the month, you may be so impressed with how much you saved that cutting back on dining out becomes a regular habit.

5. Paying fees

You may not pay attention to all those ATM fees, cash advance fees and maybe occasional credit card late fees, but they add up fast. If you need to withdraw cash, visit the ATM at your bank to avoid a fee. As for cash advances, it is a good idea to avoid those altogether, since those transactions carry an array of fees and higher interest rates than regular credit card purchases.

6. Hanging out with big spenders

If you are running around with people who love to charge meals at expensive restaurants, get cash advances from ATMs and bounce from club to club every night, you are going to spend a fortune right along with them.

No one is saying you have to ditch your good-time friends. But while trying to save money, it is a good idea to cut back on the time you spend on entertainment and dining out and sock that money away in emergency savings instead.

One more, from me: You spend too much time “escaping” from life

Most people have therapeutic escapes, which most often show themselves as our hobbies. Many hobbies are rather expensive, but even those that lack up-front costs rear their ugly head in the form of lost time. If you spend 2-3 hours a day or more on a hobby, whether it is sports, gaming, shopping, social media, etc., do not be surprised when you do not advance beyond your status quo. These lost hours add up into lost opportunities and lost money. The solution is the same as others on the list: make a plan, budget your time. Every 15 minutes is 1% of our day, so plan thoughtfully.

The Full Motley -- 2Q, 2022

You put $1,000 into an index fund, but ... what does that even mean? 

Conventional wisdom says that you should never invest in something you do not understand. The problem is that advice leaves most people with nowhere to start. I prefer to start now, then "learn by doing" to understand my investment. With that advice in mind, let us take a deeper look into investing in an S&P 500 index fund.

In this case, we put $1,000 into an index fund at the start of the year. Today, we only have $900. Did we make the wrong choice? Did we pick the wrong fund? Did we invest at the wrong time? Or, is this all a scam? 

First, it is important to understand what happened to our money. We put $1,000 into an index fund. At that point, the index fund was valued at $50 per share. This $50 is its "net asset value" (NAV), which technically means the weighted value of all the stocks in the mutual fund on that day's closing, but effectively, it is the price per share of the mutual fund. Therefore, when we put in $1,000, we bought 20 shares of the index fund (i.e., $1,000 / $50 per share = 20 shares). 

In this example, the index is down 10% so far this year. Accordingly, the NAV of the index fund falls to $45. Now, the value of our 20 shares is only $900. Overall, our investment is down $100, because the index is down 10%. The index closes anew every weekday (excluding holidays) and the NAV is calculated every day after the index closes. 

Because the S&P 500 index will replace failing companies with more promising companies over time, the index is setting itself up for better success in the long run. Accordingly, the NAV of our index fund will rise over time. Periodically, our index fund will also distribute dividiends and capital gains (always be sure to have those reinvested in your fund!) so if the fund paid a dividend of $2.25 per share, then we would gain another share (i.e., $2.25 x 20 = $45 = NAV of index fund). 

Let us jump a bit ahead: the economy suddenly has had a strong turnaround, pushing the index (and our index fund's NAV) much higher. Our index fund's NAV is now $60, and we have 21 shares (20 from our $1000, plus 1 share from reinvested dividends). Without our doing anything else after opening & funding the account with $1,000, our investment is now worth $1,260. Over time, these $260 gains can double, triple, or increase tenfold. Obviously, it varies based on the number of shares you own. 

Now, have you ever heard someone say “I lost all my money in the stock market,” so ... what does that even mean? 

In short, it can mean a few things – but it would not mean they put $1,000 into an S&P 500 index fund and lost all of it. If the person is not simply embellishing, then they might mean that they lost all of their gains above their initial investment as the stock market dropped. That can happen. It most likely will happen when you start investing. It happened to me between starting in 2003 and the “Great Recession” in 2008-09. Thankfully, I spent 2006-07 with regret for not putting more money into the market in 2003, so when the Great Recession happened, I saw it as buying shares at yesteryear’s prices today. That is a rare opportunity, and as such, it is long gone now. But today, the market is falling from its 2021 peaks, and it couple drop below what it was through most of 2020. The market’s initial reaction to the global pandemic in mid-March 2020 was a major depression (somewhat different than the type of major depression many people experienced at that same time) so I doubt that the current trends will match the lows of 2020. 

Regardless, this decline in the market is an ideal time to begin investing. Putting $1,000 in right now will buy more shares than $1,000 would have bought at the end of last year. As the NAV increases and the fund reinvests its dividends, the value of the investment will increase exponentially.

Signs You're Living Beyond Your Means

15 Alarming Signs That You're Living Beyond Your Means
https://www.msn.com/en-us/money/personalfinance/15-alarming-signs-that-you-re-living-beyond-your-means/ss-AAVR2f1

by Larissa Runkle

Believing that the gambler’s fallacy is not a fallacy

Living above your means is a classic money mistake that is all too easy to fall into. Whether you are spending more than your budget allows, or you are not setting enough aside to pay for the essential bills, it is hard to see exactly where the problem began once you finally notice it.

These harmful money habits tend to sneak up, which is why we have created this list of 15 signs you are living above your means — complete with our best advice for getting back on track and protecting your finances. Worried you might be setting yourself up for some bad financial surprises? Keep reading to find out.

You are only making minimum payments on credit cards

One sure sign you are living above your means is only being able to afford to make minimum payments on your credit cards. Racking up credit card debt is never a good thing, but especially if you are doing it at a rate that makes catching up impossible. Although the occasional big purchase on your credit cards is fine, if you find yourself constantly buying things that take months to pay off, it is probably a good idea to slow down and reel in your budget.

You are using your credit card to pay for vacation

Speaking of using your credit card to pay for impossibly large purchases, using it to cover your vacation costs without paying it off is another sure sign you are living above your means. Because most vacations will cost far above any paycheck, paying for them using a credit card is a dangerous gamble that could cost you dearly in interest payments.

Instead, consider setting aside a small amount of money in a savings account each month. The best savings accounts offer a higher-than-average annual percentage yield, which can help you earn a little extra in interest. By making regular small deposits, you will be able to watch your travel fund grow into something that can easily finance your next dream destination.

Your savings account is not growing

Another sure sign you might be overspending is when your savings starts to stagnate. Making regular deposits into your various savings accounts is important, not only for the peace of mind it brings, but also in the event that you need to tap into your savings to cover an unexpected cost. Instead of constantly shopping for all your latest wishlist items, consider redirecting some of that spending to make sure you’re saving up enough to be financially secure.

You have stopped your retirement contributions

Unfortunately, it is all too common to start neglecting your retirement funds whenever money is tight. But unless you plan on working the rest of your life, planning for retirement should be at the top of your list when it comes to how you allocate your income. One thing that can be helpful for getting back on track is coming up with a budget. Budgeting does not mean depriving yourself of everything, but rather finding a smarter way of spending that still allows for reaching your financial goals.

You are living paycheck to paycheck

Nobody likes living paycheck to paycheck, and yet we have all been there at least once. Barely scraping by on your expenses between paychecks is a sure sign you are living above your means, and that you should consider revising where your money is going and how quickly. Skip the drama of not knowing whether you will be able to pay for your essentials by trying out a simple envelope budgeting method — a classic style of budgeting that ensures your most important expenses get paid for first.

Your money is gone, but you do not know where

Another stressful money situation to be in (and a clear sign of overspending) is when your checking account seems to continuously turn up lower than you expected — as in, the money has been spent but you do not know how. One way to get around this is by using a budgeting app such as Clarity or Truebill. This app will not only help you keep track of where your money goes, but also offer helpful tips for cutting expenses and saving more toward the things that matter.

Your debt balance remains the same

As with your various savings accounts, when your debt balances stay the same for too long, it is a sure sign you are living above your means. Because unpaid debts are likely costing you in accumulated interest, delaying your payments is never a good idea. Rather than avoiding your debts, try to put a cap on how much debt you are accumulating, then make a plan to start paying them back little by little each month. There are different approaches you can take to get out of debt, including the debt avalanche and debt snowball methods.

Making your monthly payments is a struggle

Bills, loans, mortgages — all of these things demand monthly payments, and if you have recently started falling behind, it could be time to rethink how your income is being spent. One solution is the Mvelopes app. Much like the envelope budgeting method mentioned above, this system of saving has you put aside enough money to cover your major expenses immediately after getting paid — that way, you never have to worry about being able to afford your monthly bills again.

You are seriously considering a high-interest loan

High-interest loans like payday loans are a risky financial move for anyone, but especially if you are already struggling to make ends meet. Rather than jumping right in and signing on the first loan you are offered, take a minute to consider your options. Ask yourself why you need to take out a loan in the first place, and if there is an alternative to the funds you need. For instance, choosing one of the best side hustles could be a good option if you have room in your schedule. Revisiting your budget will also likely be important if you find yourself in this position.

You are buying things you cannot afford to pay for upfront

Much like maxing out your credit card balance every month, buying things you cannot afford to pay for is bad news when it comes to the health of your finances. For some, buying things out of budget might be a necessity. If that is the case, try and find a way to regularly set aside some of your income to pay for those things. If it is just a matter of splurging on expensive wishlist items, just remember: there is no way anything you buy will make you as happy as a well-earned sense of financial security.

You justify unnecessary spending

Another story so many of us tell ourselves is that we really need this new phone or that new thing for the house or a nice new dress to be happy — when, in fact, we really do not. Retail therapy (and the addictive spending behavior that comes with it) is a real problem, and it all starts with justifying unnecessary spending. Rather than continuing to come up with reasons to buy things, try and switch your mindset to start a savings habit. For this, it helps to come up with some clear financial goals and have a way to regularly track your progress. When you do so, you can change the question from “why do I need this?” to “would I rather have this or that important thing I am saving up for?”

You are avoiding your bills

Although they might seem like they are hiding in that big pile of mail, the fact is that your bills are not going anywhere, and avoiding them will only make things worse. Instead of pretending they do not exist, come up with a plan to conquer your bills. This might include things like renegotiating the monthly cost of your bills, or even coming up with a simple solution for lowering those bills. Whatever it is, start taking baby steps toward paying them off — we promise, the peace of mind will be worth the expense.

You are receiving collection calls

When things go unpaid, the collection agencies start calling. This is a sure sign not only that you are living above your means, but also that you may need to rethink how to manage your money. The first step here is to figure out what the collection agencies are calling about, and if you can afford to pay it back straight away. If not, you may need to negotiate something called a collection agency payment plan. Either way, do not waste any time ignoring these calls, especially because the damage of unpaid debts could far outweigh the cost of repaying them.

Your credit score has taken a hit

After several months of taking on debt or neglecting to pay your bills on time, you can expect to see your credit score to take a pretty big hit. Again, do not underestimate the power of a good credit score, as this number often determines your buying or borrowing power when it comes to things like big purchases (a home or car), loans, and even new credit cards. Take the time to find out why your credit score has dropped, then take the necessary steps to fix it. This could be as simple as getting a handle on your budget and ensuring you make your monthly payments on time, or as complicated as working with a credit repair company. The right option for you will depend on your financial situation.

You are losing sleep over money

Whether it is the stress of unpaid bills or just living paycheck to paycheck, your financial health will often affect your physical well-being as well. Although we often take the time to address our personal self-care, we easily forget about the importance of financial self-care. Fortunately, you have the power to change that. Take a hard look at your finances so you can pinpoint where the problems are. Then get on a path to fixing them, and make a promise to yourself to practice better financial self-care.

The bottom line

Living beyond your means is an all too common problem, and whenever you find yourself in this situation, it is important to do the work to fix it. Although a few weeks or months might pass without issue, overspending will always catch up in the form of neglected savings accounts and unpaid debts. Do not let yourself become a victim of overspending. Instead, work on setting a budget you can reliably stick to — one that allows for paying your bills, working toward your financial goals, and still splurging every once in a while on the fun stuff.

BOOK REVIEW: "The Secrets of a Millionaire Mind" (2005)

For a long time, I have been planning to read financial books and share my favorite takeaways, like I had a couple months ago for "Everyday Millionaires." Unfortunately, a plan without action is just a want, so I was determined to make it move beyond a want. In order for more books to review, I visited Goodwill last December and purchased two books. The well-known "Rich Dad; Poor Dad" (Robert Kiyosaki) and the relative unknown "The Secret's to a Millionaire Mind" by the relatively unknown T. Harv Eker.

There are lots of deterrents to this book, primarily its resemblance to a high-pressure sales pitch for upsells, but at face value and just beyond, there was a wealth of knowledge beyond the standard "Think & Grow Rich" fare. It focused more on why we think the way we do than why we do what we do, and truly that distinction is a critical difference in all-around wealth than appreciated. It is one reason why so many lottery winners can win big but still outspend their gains.

The first part of the book introduces a "Wealth Principle" (or "Money Blueprint") formula that reads as "T --> F --> A = R" and it means "Thoughts lead to feelings; Feelings lead to actions; Actions equal Results." Ultimately, we do what we feel more than what we think.

This lesson is not only reinforced by repetition, but also by actions. Readers must accept it to get anything out of the book. So much of the book was written to drive cynics insane, intentionally or not. If you let your thoughts stop you from getting anything out of the book, it is to your own detriment in the long run.

I had mixed feelings throughout, especially the pro-MLM rhetoric, but I found the book to be an excellent thought experiment (plus, the target audience is for entrepreneurs, many of whom have the potential to become billionaires, which is not me).

Here are 39 of his Wealth Principles discussed in the book:

1. "When the subconscious mind must choose between deeply rooted emotions and logic, emotions will almost always win" (p. 22)

2. "If your motivation for acquiring money or success comes from a non-supportive root such as fear, rage or the need to 'prove' yourself, your money will never bring you happiness." (p. 31)

3. "The only way to permanently change the temperature in the room is to reset the thermostat. In the same way, the only way to change your level of financial success 'permanently' is to reset your financial thermostat." (p. 44)

4. "Consciousness is observing your thoughts and actions so that you can live from true choice in the present moment rather than being run by programming from the past." (p. 45)

5. "You can choose to think in ways that will support you in your happiness and success, instead of ways that don't." (p. 51)

6. "Money is extremely important in the areas in which it works, and extremely unimportant in the areas in which it does not." (p. 57)

7. "When you are complaining, you become a living, breathing 'crap magnet'." (pg.58)

8. "There is no such thing as a really rich victim!" (pg. 60)

9. "If your goal is t o be comfortable, chances are you will never get rich. But if your goal is to be rich, chances are you'll end up mighty comfortable." (p. 64)

10. "The number one reason most people don't get what they want is that they do not now wat they want." (p. 68)

11. "If you are not fully, totally, and truly committed to creating wealth, chances are you won't." (pg. 70)

12. "The Law of Income: You will be paid in direct proportion to the value you deliver according to the marketplace." (pg. 73)

13. "Bless that which you want." (Huna philosophy) (pg. 94)

14. "Leaders earn a heck of a lot more money than followers!" (pg. 104)

15. "The secret to success is not to try to avoid or get rid of or shrink from your problems; the secret is to grow yourself so that you are bigger than any problem." (pg. 107)

16. "If you have a big problem in your life, all that means is that you are being a small person!" (pg. 108)

17. "If you say you are worth, you are. If you say you are not worthy, you are not. Either way you will live into your story." (pg. 113)

18. "If a hundred-foot oak tree had the mind of a human, it would only grow to be 10-feet tall!" (pg. 114)

19. "For every giver, there must be a receiver, and for every receiver, there must be a giver." (pg. 116)

20. "Money will only make you more of what you already are." (pg. 119)

21. "How you do anything is how you do everything." (pg. 121)

22. "There is nothing wrong with getting a steady paycheck, unless it interferes with your ability to earn what you are worth. There's the rub, it usually does." (pg. 123)

23. "Never place a ceiling on your income." (pg. 125)

24. "Rich people believe 'you can have your cake and eat it too.' Middle-class people believe 'cake is too rich, so I'll only have a little piece.' Poor people don't believe they deserve cake, so they order a doughnut, focus on the hole and wonder why they have 'nothing'." (pg. 134)

25. "The true measure of wealth is net worth, not working income." (pg. 138)

26. "Where attention goes, energy flows and results show." (pg. 143)

27. "Until you show you can handle what you've got, you won't get any more!" (pg. 147)

28. "The habit of managing your money is more important than the amount." (pg. 147)

29. "Either you control money, or it will control you." (pg. 153)

30. "Rich people see every dollar as a seed that can be planted and earn a hundred more dollars, which can then be replanted to earn a thousand more dollars." (pg. 165)

31. "Action is the 'bridge' between the inner world and the outer world." (pg. 167)

32. "A true warrior can tame the cobra of fear." (pg. 167)

33. "It is not necessary to try and get rid of fear in order to succeed." (pg. 168)

34. "If you are only willing to do what is easy, life will be hard. But when you are willing to do what is hard, life will be easy." (pg. 169)

35. "The only time you are actually growing is when you are uncomfortable." (pg. 171)

36. "Training and managing your own mind is the most important skill you could ever own, in terms of happiness and success." (pg. 174)

37. "You can be right or you can be rich, but you cannot be both." (pg. 180)

38. "Every master was once a disaster." (pg. 182)

39. "To get paid the best, you must be the best." (pg. 185)

Thankfully, the book is not just soundbites, even if his writing (and speaking) often comes off that way. There were far more perils of wisdom splattered throughout the book, and I share a few of those below (but, admittedly, if I re-read his book, then I would likely have a significantly different set of takeaways):

"Wanting alone is useless. Have you noticed that wanting doesn't necessarily lead to having? Notice also that wanting without having leads to more wanting. Wanting becomes habitual and leads only to itself, creating a perfect circle that goes exactly nowhere." (pg. 65)

"Research shows that the happiest people are those who use their natural talents to the utmost. Part of your mission in life then must be to share your gifts and value with as many people as possible. That means being willing to play big." (pg. 75)

"Poor people expect to fail. They lack confidence in themselves and in their abilities. Poor people believe that should things not work out, it would be catastrophic. And because they constantly see obstacles, they are usually unwilling to take a risk. No risk, no reward (...) Although poor people claim to be preparing for an opportunity, what they're usually doing is stalling." (pg. 79)

"One of the reasons rich people are bigger than their problems (is) they don't focus on the problem; they focus on their goal (...) Either you are whining about the problem or you are working on the solution." (pg. 109) --> End goal: complaining?

"Don't wait to (invest), (invest) and then wait." (pg. 163)

"The more comfortable you 'have to be,' the fewer risks you will be willing to take, the fewer opportunities you will be willing to take, the fewer people you will meet, and the fewer new strategies you will learn." (pg. 171)

--> I note herein that the interesting caveat is that money is power, so quite often you will find that, once you have a lot of money, you can make yourself right -- but then, you might stop growing.

-"Becoming rich isn't as much about getting rich financially, as about whom you have to become, in character and mind, to get rich. I want to share a secret with you that few people know: the fastest way to get rich and stay rich is to work on developing yourself." (pg. 183)

-"The goal of creating wealth is not primarily to have a lot of money, the goal of creating wealth is to help you grow yourself into the best person you can possibly be." (pg. 184)

The Full Motley -- 1Q, 2022

For 13 years now, I have been sharing my thoughts on personal finance, growing accordingly. Rebalancing my old 401(k) quarterly has kept me actively. I have seen many trends come and go, relying most heavily on indexing to increase my wealth. And it has. At my next quarterly update, I will have been with my current employer for as long as I was with this previous employer. I look forward to sharing the differences between those accounts at that time.

For now, we have seen another early retreat in the first quarter of a year. These declines have not been rare in recent years. Has it become a trend? I would be wary to insist that is the case, largely because of how many times I have seen trends reverse as soon as they are identified, not to mention the disruption to conventional wisdoms. Regardless, the two biggest moves in my account this quarter saw me pull money from Total International Stock Index Fund and direct most of it into the Total Bond Market Index Fund. The other movement from the actively managed equity fund to the passively managed equity index fund and international bond index fund was significantly less than those major moves.

Thankfully, I was fully prepared to make moves in the market during this quarter having seen it happen enough times in the recent past. These moves will continue to pay dividends in the coming years. As an old saying (that I recently heard) goes, "do not wait to invest; invest and then wait."