Chorus

"On a good day, we can part the seas. On a bad day, glory is beyond our reach."

Thursday, August 31, 2023

Things Poor People Will Never Understand

Earlier this month, I saw an interesting headline reading "11 Things Poor People Will Never Understand About The World" that I expected to be a fascinating read, expecting it to twist the known habits that financially grounded individuals make that we have read thousands of times. Unfortunately, the majority of that article focused on the secret world of the rich, e.g. concierge services, renting celebrities, opting in or out of Forbes' wealthiest lists, without touching much (if at all) on where the financially illiterate population fail.

It inspired me to think of a few examples on my own that would more accurately live up to the headline.

*Know Thyself*

It is a cliché, but I watched a video from How Money Works on YouTube that concluded with a message about the importance of understanding your capabilities, your capacity and your limitations when it comes to professional and personal success. This aspect of "know thyself" is often ignored, especially in a social media world of generalized information perpetuating hustle culture and the power of positive thinking. It recaptured my common saying that "personal finance is personal." Yes, there are common grounds and a couple truisms (such as the more money you save and/or the more money you make equals the more money you will have).

For all the good that the power of positivity has brought certain people, there are cautionary tales severed from the mantra where people took on too much or set out to do the truly impossible. No amount of confidence will allow humans to fly. Likewise, all the logistics pointing to epic failures like Fyrefest, WeWork, Theranos or (most recently) OceanGate are insurmountable for that whole "fake it 'til you make it" ideology.

Individually, when an unprepared or incapable person seeks a life of wealth as the driver and enters a school of medicine to be a surgeon, that person is more likely to fall far short of their plan and end up deeply indebted in school loans. Comparatively, an average student who kept pace with the median income throughout a career and followed the recommended 15% savings into a basic index fund could end up in a better place, simply because they understood their own limitations without having to learn it through expensive lessons.

*Life is NOT Short*

This one harkens back to the 1999 film Magnolia where the wealthy but dying Earl Partridge (played by Jason Robards) lamented these words to his estranged son, Frank T.J. Mackey (portrayed by Tom Cruise). Time is a neutralizing currency, where everyone is entitled to the same 24 hours a day, irrespective of their wealth (or lack thereof), their age, or their individual traits. 

My generation was hounded with "Life is short" so heavily that I feel many received the wrong message. If life were short, then it would be much easier to endure discomfort when the promise of resting in peace is right around the corner. But "life is short" is too simple to be a truism. There are some people living every day as if it were their last who become exhausted and defeated. It would be like training for a marathon by learning to sprint. Life is not as short as this overused cliché may have promised some people, and those people need to prepare properly for life as a marathon.

*Sacrificing > Suffering*

Piggybacking off the prior message, not all discomfort is endured the same. There is a big difference between sacrificing and suffering. To borrow from Dave Ramsey, "Adults devise a plan and follow it; children do what feels good." That planning can be the difference between making sacrifices to build a better life and suffering through life's challenges. The quintessential book on this topic for many could be the 2002 classic "A Purpose-Driven Life" by Rick Warren.

This message was taught to most children in my generation through ants and a grasshopper. Ants spent their sunny days stockpiling necessities for a rainy day whereas the grasshopper capre diemed the day, spending the time doing what felt good. When the seasons changed, the sacrifices that the ants had made bypassed the suffering that the grasshopper endured. 

*Status Quo is NOT Static*

Personally, this one has driven me crazy when I hear my financially instable friends make plans that only resolves their current struggles. One of my favorite 1995 films was The Last Supper where the antagonist (at least, an antagonist to the main characters, but they were not the stereotypical protagonists) empathized with the struggles of the main characters by simply relating, "Life gets harder every day." I do not know where this message was lost on others, but so many people fail to realize the reality of emergencies or that struggles are inevitable. That whole "Why Do Bad Things Happen to Good People?" query is another thing that drives me crazy personally. As humans being, how is anyone too good for bad things? 

Alas, I love to say "Life only gets easier when you try harder." For the uninitiated, they might misunderstand that advise as personal slander. Like a guilty man disputing his weapon of choice in court. It is not to say that those without an easy life have not tried hard nor that life improves with a little more effort. My words were construed to be understood that life will only get easier when you constantly put forth more effort than life is hard.

*All Plans Require Maintenance*

Admittedly, this one could have been tied into the non-static status quo above, but I felt the reality that all plans requiring maintenance is an overlooked lesson worthy of a separate entry. This message could be a chorus at every business school. Business schools teach students a large array of metrics to monitor the evolution of plans and how to keep them from falling off the rails, even if it requires redirecting the plans to "stake where the puck will be." Those lessons also apply to life with very little modification.

While the whole Dave Ramsey mantra of adults making plans is undoubtedly true, the unspoken understanding about plans is that they rarely pan out as initially envisioned. Plans consistently require modifications, renewed strategies and other testing. Just as the status quo will always change, planning to restore the status quo is only a temporary fix. Eventually (and probably sooner than later), the status quo will be disrupted again. By planning to maintain status quo, you are limiting your room for growth. Financial success is grounded in growth. Just as we invest our excess savings to grow, we as people must find time for plans to grow professionally and personally, lest time passes us by.

*Waiting to Next Year Is an Insurmountable Financial Mistake*

I used to work in the call centers of a financial service provider overseeing employee retirement plans. A big part of our job was to explain these accounts to the participants, so they taught us exactly what to do with these accounts. Even still, an embarrassing number of employees did not invest in the company's employee retirement plan (myself included for many months). Despite this, I managed to explain to active participants how to invest. I had one memorable caller who asked me a common question, "when is the best time to invest." I am still proud of myself with my response, "Now. The best time to invest is always now. No one will ever know the ideal time to start investing, so it is more important to just start now so that you are already investing when the ideal time to invest occurs." 

When I teach Junior Achievement to high school seniors, one of the ideas in relation to investing that I reiterate is "if you wait until next year to start investing, you will never be as rich as you would be if you started today." This notion is the basis of compounding, which I describe as "the one exception to the rule that if it seems to good to be true, it is."

*Ignore your wealth*

I was thinking about this idea very recently. One of the secrets to my personal success was not a strategic forethought, but I only discovered its benefits as an afterthought. I surrounded myself with "starving artist" types, and the amount of money it saved me is incalculable. As life advice, this message would fail. No one should select their social circle by hanging out with poor people intentionality. In my case, I was drawn to the artist-type and lifestyle. Hanging out with local musicians and working with a local wrestling troupe were how I spent my late-20s and 30s. It was what I wanted to do and where I wanted to be. That said, the fact that my friends could not afford extravagant outings became a huge financial benefit for me. Ironically, most of the time I would spend the least at dinner, even though I unquestionably had the highest means within the group. In essence, we think of the "starving artist" as one who do not earn enough to afford big meals, but really, spending more than enough to keep you nourished is a spending choice, not a matter of income.

The message that could be useful advice here is to separate your wealth from your active accounts. I remember reading an article online from CNN or Newsweek after the Enron collapse of firsthand accounts of people who lost everything in its wake. The couple whose mistakes were apparent to all but them were the pair who said, "We did everything right. We only invested what we could afford to lose, and we made sure it was in a separate account." Whew, good for them! "But once we had accumulated a large sum, we started living a lifestyle that reflected it." To quote Charlie Brown, "AUGH!!" The ideas of only investing what you can afford to lose and living a lifestyle that reflect your wealth are mutually exclusive; you cannot have it both ways! 

The idea of "stealth wealth" has permeated the personal finance landscape so well that it now has that alliterate rhythmic reference. It is the notion that the most efficient way to have your money work hard for you is to leave that money alone to continue working. Micromanagers have a bad wrap in the workplace. Apply those criticisms to how you manage your finance. Hire the most efficient employees and just get out of their way. Invest in great investment vehicles, and just let them take you where you planned to go.

Thursday, August 10, 2023

The Full Motley - 3Q, 2023

We are halfway through the third quarter of 2023, so it was time for another quarterly rebalance of my old 401(k) account. There has been a distinctly recurring trend of moving less than 1% of this account balance each time. Therefore, I was somewhat surprised to see more than 2% of my account balance was moving during this quarterly rebalance. Predictably, it was moving money from both of my equity funds (index and active) into the other three funds. Less predictably though, the active Domestic Equity fund had risen more than the Domestic Equity Index fund. More than half of the amount moving went into my International Equity Index fund, with about 40% of the amount moving going to my Domestic Bond Index fund, and about 10% of the remainder went into my International Bond Index fund.

As indictive of this transaction, the past quarter has been very good for domestic equities. Unfortunately, the drivers have been limited to a few of the same (notorious at this point) blue chip tech stocks, such as AAPL and NVDA. As an analyst, one problem I have found in rebalancing as frequently as every quarter is that it resets the playing field each quarter, so if a strong run were continuing, it can minimize the tailwind or shorten the runway. On the other hand, if the forthcoming quarter saw a reversal (in keeping with the "buy again on Labor day" limerick), then this exchange would remove money from the strong assets before they hit a headwind.

As an investor, I am agnostic toward these analyses. The most important thing is that I funded the account when I had the opportunity, and with a gentle maintenance, I have fostered its substantial growth over the past decade and I still have more than a decade left to continue fostering more growth.

Tuesday, May 23, 2023

The Full Motley -- 2Q, 2023

I passed through another quarterly rebalance, and although I submitted the rebalance, I failed to post a blog entry about it. No matter, it was as uneventful as most of the others have been lately (although, I was surprised to see the slant toward International Equity this quarter).

Instead of another rebalance discussion though, I wanted to share this brief article I saw today that I felt reworded tired principles in a new wisdom.


Money Expert Jaspreet Singh Says ‘Becoming Wealthy Is Surprisingly Simple’ — Here’s Why

by Cameron Diiorio


What’s the one piece of money advice you wish everyone would follow and why?

The one piece of money advice I wish everyone would follow is: make yourself rich before you make everyone else around you rich. When you go out and wear Lululemon pants with your Gucci belt and Apple AirPods — you look rich, but the people who are actually getting rich are Lululemon, Gucci, and Apple (not to mention their shareholders, too). The person who isn’t getting rich is you. I want you to flip it around. Make yourself rich first by using your money to buy investments. Then, go out and buy all the Lululemon, Gucci, and Apple you want when you can afford it.


What’s the most important thing to do to build wealth?

Becoming wealthy is surprisingly simple. That doesn’t mean it is easy, it’s actually really tough, but there are only three steps. First, you have to spend less than what you make. Second, you have to work to earn more money. And third, you have to invest the money you don’t spend. Starting with step one, if you spend all of your money, you will never have a chance to become wealthy. This is where most Americans fail. Most Americans work to buy nice things like fast cars, nice vacations, and luxury clothes. But if you spend all your money, you will never become wealthy. Then, you have to work to earn more money. Regardless of how cheap you are, there will always be a limit to how many expenses you can cut. But there’s no limit to how much money you can earn. That means you have more upside by learning how to make more money. YouTube has made this financial education much more accessible, and it’s free! Finally, you have to invest the money. Just like how you can’t get rich by spending all your money. You also won’t become wealthy by saving all your money. You have to invest your money if you want to become wealthy. Where do you invest? Stocks, rental properties, businesses, and your own education. While this can sound very daunting, the good news is you can start investing with less than $100. You just have to get started!


What’s your best tip for fighting the impacts of inflation?

High inflation disproportionately benefits asset owners and it hurts consumers. In other words, inflation makes investors richer and it makes regular people poorer. So, what can you do? Own investments. Diversification doesn’t hurt either. For example, 2% of my investment portfolio is physical gold. When you have high inflation, the value of the dollar falls, causing the price of gold to go up. But, of course, always do your own due diligence before you make an investment and consult a licensed financial advisor.


What’s the biggest mistake people make when it comes to money, and what should they do instead?

The biggest money mistake people make is not doing anything. Time is our most valuable asset [and] wealth takes time to build. If you don’t start, you will never see any of the success — while your time gets sucked away. Get started. Experience is the best teacher and you can’t get experience until you start.

Sunday, February 12, 2023

The Full Motley -- 1Q, 2023

 Putting the past behind us can lead to a bright future. More importantly though is learning a lesson from the past to add to the proverbial toolbox to bring into the future. These live-and-learn lessons apply to finance as much as any other regard of life.

We are midway through the first quarter of 2023, where all experts expect a bounce back from the ~20% of 2022. By all accounts, that is how things have gone for the first six weeks of the new year. Ideally, this will continue (probably not in a straight line, although even the recent past year has been anything BUT a straight line).

As usual, some sectors will recover more quickly than others. Hence the benefit of rebalancing. I submitted my quarterly rebalance for Friday, I moved just less than 1% of the overall account balance, and it all came from a single fund: Total International Stock Index Fund. Based on this information alone, we know that the international equity sector has outperformed domestic equities, domestic bonds and international bonds significantly over the past three months. 

Unfortunately, this information means very little for the future. Next quarter, I might find myself moving money back into the international equity fund, or more could come out of it. The important thing is that it is relatively overvalued compared to my other sectors, so "buy low; sell high" logic supports the idea of selling some from the top to bring into the lagging sectors. This strategy works best when broadly invested across a few sectors and/or index funds because any of these four sectors are equally likely to out- or underperform in a given quarter.

Friday, November 11, 2022

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.

Friday, June 10, 2022

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.

Friday, May 13, 2022

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.