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.

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.

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.

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."

Worst Financial Advice

There is an old saying, which is not applicable to finance, "The road to Hell is paved with good intentions." The adage warns that having good intentions will not automatically synch up with the execution or results. Accordingly, there several piece of financial advice that make me laugh because when applied incorrectly or timed poorly, these nuggets of advice are better left unheard.

1. "Buy low; sell high"

Not all advice is equal

At best, this phrase is a simple answer for “how do you make money in the market?” As advice, it is virtually useless since it gives no meaningful instruction. At worst, the end result is constantly selling your winners to buy perennial losers.

2. "Never invest in something you don't understand"

If you learn by doing (as everyone does), then this advice leaves you nowhere to begin. You cannot understand the market or investments without being in them, which leaves nowhere to start. Even the most successful investors in the world understand how little sense the movement of the stock markets make.

3. "Time is money"

Neither is a renewable nor unlimited resource. There are certainly situations by which “time is money” is a reasonably adequate adage, but it is neither universally true nor good advice. Out of context and in the wrong minds, this phrase creates more confusion than clarity.

4. "Hope is not a strategy"

This can be a snarky response to hearing someone say “Here’s hoping.” Except, hope comes after putting a strategy in place, so this phrase can turn a wannabe soothsayer from a smartass into a dumbass quickly when used abundantly.

5. "If you do what you love, you'll never work a day in your life"

There is a small but important difference between this phrase and "If you love what you do, you'll never work a day in your life." The latter can be great advice for the right people. But the former advice could ensure financial ruin. If you grow up following this advice with poor execution, then it might as well be a cautionary tale, "if you only do what you love, then you'll never work a day in your life," because you are unproductive, selfish &/or immature. As Dave Ramsey (a man who seemingly loves what he does) loves to say, “Adults devise a plan and follow it; children do what feels good.”

Lessons from a Kick-Six

Scoring on an unlikely play
will not win the game 

On Sunday, September 26, 2021, Arizona Cardinals (2-0) attempted an ill-fated field goal, which resulted in a rare "Kick Six," where Jacksonville Jaguars (0-2) returned the kick from one endzone to the other. As a result, the game went from 10-10 to 16-10 at the half. 

Another result was that the halftime show aired the play no less than five times, questioning the decision repeatedly. Jaguars were gifted a great opportunity, and they capitalized on it fully. Instead of falling behind three points, they took a six-point lead into the locker room.

Then, there was another half of the game to play, and Arizona Cardinals had a stronger second half, winning 31-19. After all the advantages of that improbable touchdown gave them, Jaguars were only able to notch three more points, which was not nearly enough to win the game. The "Kick Six" still made highlight reels throughout the evening and it was shared across Twitter, but it was not a once-and-done solution to winning the game. In reality, any team expecting to win games with a "Kick Six" will not fare well throughout a full season.

Here is the loosely connected analogy to finance. That "Kick Six" touchdown reminded me of getting a big economic win, such as exposure to cryptocurrency, NFT, $GME or the like. Getting the big lead is only one part. Holding onto it is a different game altogether. Buying into Bitcoin 10 years ago has been spectacular, but NFTs may become nothing more than a beanie baby-esque fad and what happens to $GME remains to be seen early next year as those oversized increases then qualify for long-term capital gains.

More important than a single play, economically or athletically, is the strategy for the full game. Sticking to the strategy is quite often the singular skill that separates winners from losers, if not in sports, then at least for professional careers or in finance.

I warn people who are expecting a large inheritance (or hoping a big lottery win) can provide their financial stability that having money in and of itself does not equate to any money management skills. 

Herein lies the beauty of slowly building wealth. Your knowledge often expands as your wealth does, even if both are abstract concepts. There is an immeasurable benefit to that unity.

BOOK REVIEW: "Everyday Millionaires" (2019)

I have listened to more Ramsey Solutions programming this year than I have throughout the rest of my life combined. As such, I have heard their constant references to the 10,000 millionaire survey that they conducted recently, rattling off numerous statistics repeatedly each week. It made me wonder whether the book "Everyday Millionaires" had more information than the same statistics provided on the show.

Specifically, I was curious whether introverts had an advantage in becoming millionaires. If "being weird" or rejecting the habit of "buying things that you do not really want with money that you do not really have to impress people that you do not really like" were keys to becoming a millionaire, then it seemed as though a disproportionate percent of millionaires might be introverts. To my delight, this answer was in the book and the numbers were very close. Of the 10,000 millionaires that they surveyed, 53% identified as introverts and 47% identified as extroverts (p.90). Granted, I was unable to ascertain whether this distinction aligned with Meyers-Briggs definitions of the terms or if it was self-reported. Regardless, it was interesting to get my answer, and I was surprised that it was so close!

The rest of the book is a quick read, especially for loyal listeners since they have heard most of it already or know where the material is going. Chris Hogan is a natural salesman, so his energy was a bit dialed down by the written word, but his pitch remains the same. There were some questionable promises made, such as paying off the house equates to a life of no more bills and not owing anything to anyone anything ever again (monthly utilities would still be due in a paid-off house, not to mention taxes, which he somewhat preemptively addressed while dismissing the fantasy that "financial freedom" alleviates a person from paying attention to their finances. (p.213-214).

Regardless, here are 20 of the most interesting quotes or other tidbits that I took away from reading over the past week:

(1) "I'm okay missing out on potential gains that could bring probable pain" (in short, the focus of an investment should be on its probable reward, not potential reward) (p.47)

(2) "If there's one thing I've learned from the millionaires we studied, it is that shortcuts are for suckers. The long road may not get you there as quickly as you ant, but it will get you there" (in short, if you don't work hard for your money, your money won't work hard for you) (p.58)

(3) "I know from experience that more (money) does not equal better (money), if you are not ready for it" (p.79)

(4) "Psychologist Rollo May once said, 'The opposite of courage is not cowardice, it's conformity'." (p.88)

(5) "Some people need to imagine a villain working against them to excuse their own failings or lack of motivation." They cannot (or won't) say, 'it's my fault I'm not winning' so they parrot the same tired old phrases they might have heard from their parents. There's a problem with this fallback position though. You'll never make any progress as long as you're making excuses." (p.89)

(6) There's a difference between "someone saying, "It can't be done" (and) someone saying, "You can't do it." (p.105) 

(7) Don't hide your mistakes, or hide from your mistakes (p.107, paraphrased)

(8) "In fact, 98% of (millionaires) say they actively integrate feedback from other people. Despite their success, they know they always have more to learn, and they look to a supportive network to teach them new things and encourage them along the way." (p.111)  

(9) "Sometimes I didn't need marching orders; I just needed encouragement" (p.112)

(10) "When you plan for obstacles, they don't shake your confidence or interrupt your progress when they happen." (p.114)

(11) "Millionaire-minded people don't let the unknown scare them off. Instead, 94% of the millionaires we studied say they're willing to try difficult (tasks) to get new results." (p.116)

(12) "Understand that a goal is simply a promise you make to yourself." (p.161)

(13) "Work brings a profit, but mere talk leads only to poverty" (Proverbs 14:23) (p.170)

(14) "In total, the ability to work hard gives you an advantage, builds your confidence, allows you to experience gratitude, leads to self-improvement, and makes you intentional in all other areas." (p.175)

(15) "We found that 96% are always trying to learn new things. They want to find new ways to do their jobs better (because) as you get better at your job, you produce greater results." (p.177)

(16) "Millionaires don't find time; they make time." (p.179)

(17) "Consistency requires planning, preparation, patience and passion." (p.192)

(18) (Millionaires) "are simple, humble, happy people who you would never know were millionaires" (p.213)

(19) "It turns out that, once you can afford to buy whatever you want, you may not want to anymore." (p.224)

(20) "When you help someone else," Thomas said, "you forget about your own problems" (p.229)

The Full Motley -- 4Q, 2020

Risk management is the core of all forms of management. The definition of risk stems from uncertainty, often being classified by sources of uncertainty. Political risk refers to political instability, among other things. Conventional wisdom would suggest that presidential elections increase political instability. Therefore, if I were a betting man, I would have been placing bets that the market's reaction to an inconclusive election last week was erase all of its most recent gains. As we know now, the market's actual reaction was to soar higher! The Dow even set new record highs this week.

I was recently asked whether I thought markets would still be overpriced at 2018 values today. My response was that once I learned the market does not care what I think, I stopped gauging my market moves based on what I think should happen. I would have placed my money on markets retracting from its gains during a depressed job market and an intentional economic slowdown as a response to the global pandemic. Maybe I know better what the market should do than the market itself. Probably not.

Then again, the nature of risk is that the higher the risk, the higher the return. Perhaps it is not fully unreasonable to question this strong reaction in the face of such uncertainty (plus, the majority of the gains I am referencing occurred after most media outlets had projected a winner, and the latest included early reports of a Coronavirus vaccines). Whether or not I know better, it is truly irrelevant and my decisions should not be based on what I think, much less what I think I know.

In market lingo, those "betting men" are called day-traders. The size of their losses can match the size of their gains, and in the end, day trading results in a below average risk-adjusted return.

For wealth preservation, risk management is tantamount to its success. Thus, instead of taking bets on how the markets will react to any given situation, managing the majority of active portfolios through dollar-cost averaging and periodic reallocations will provide better risk-adjusted returns. When the market introduces strong elements of risk or volatility, an emotional response is innate to the human condition.

In my case, this quarterly reallocation consisted wholly of removing increases (approximately 1.3% of total portfolio assets) from all funds except Total Bond Market Index, so I directed those assets into that one fund.

The Full Motley -- 2Q, 2020

Only you are responsible for your portfolio.

"Only you can prevent forest fires" was ingrained into our American lexicon during the 1980s. The focus was on the importance of taking individual responsibility for our personal actions that may lead to greater issues, in this case a sweeping wildfire that creates billions in damage.

Personal responsibility has often been an online battlefield, but personal finance is unquestionably one area that requires individual responsibility for personal actions. Unlike uncontrolled wildfires, the consequences are often contained to the individual who is accountable. Social media often endorses both a victim mentality and self-empowerment simultaneously with minimal success. Those two mindsets are difficult (if not impossible) to maintain as an amalgamation.

While sweeping wildfires in the stock market are known as stock market crashes, we are helpless to prevent them. But protecting it from burning our personal accounts can be managed through a few general rules. Creating a target allocation, creating an investment plan and creating investment goals are important because they can answer how to manage through unexpected market crashes. For long-term investing, including wealth accumulation, market crashes are unlikely to disrupt allocations, plans or goals. It may modify them to varying degrees, but focusing on what you can control, instead of worrying over what you cannot control, will ease the anxiety that can be ever-present in a market crash.

My investment plan includes quarterly reallocations, resetting the account balance back to my own target allocation. In my case, when the market plummeted shortly after my first quarter reallocation, I knew that my next reallocation was only 10 weeks away. If the market furiously declined for the entire 10 weeks, then my reallocation would be hefty. If the market fell and then quickly recovered, then my reallocation would be insignificant. Instead, the market fell and then slowly started regaining its losses unsteadily, so this reallocation was relevant.

Unsurprisingly, I pulled money from my two bond funds to place back into the three equity funds. The biggest surprise was the fact that my domestic stock index fund received a very small amount ($50). The difference was mostly in the active domestic equities fund. Individuals selecting stocks had a slower recovery than the broad index. Ideally, those strategic choice will show up in a later reallocation. Otherwise, this active domestic equities fund is a losing investment (because the amount allocated into that fund is returning less than the next closest alternative, i.e. my domestic stock index fund).

Two Truths & A Paradox

Truth #1-Past performance is no guarantee of future results.
Truth #2-The definition of insanity is doing the same thing over & over, and expecting a different result.

Are these two truths a paradox, or is one (or both) simply untrue? The answer is largely in the semantics, as is often the case. Although past performance does not guarantee future results, doing the same thing repeatedly rarely generates different results (most other things equal).

Once I was discussing personal finance with a friend who questioned the benefits of setting money aside for the future with "what if you die early?" To which I sharply responded, "what if you don't?!" As I have discussed before, "what if" can be a precarious game that portends mistakes.

The drivers of personal finance are uncertainty and probabilities. Over time, stocks generally return better performance than bonds or cash equivalents. Likewise, human generally live 80 years. Neither generality ensures that stocks will outperform bonds and cash in any given year any more than it can ensure survival through the year. Regardless, if stocks outperform bonds and cash seven of every 10 years with higher average annual performance for each period, then expecting stocks to outperform bonds and cash over the long run is highly reasonable (the opposite of insanity).

Even when expectations change, it is generally best to stay the course, at least until the changes become more certain. Several years ago, I was talking to a friend about an obligatory market recession because the bull run had been going for so long. She referred me to a source, citing that the man had been projecting this downturn for the past five years, to which I quipped "So, he has been wrong for the past five years." She quickly defended him, before realizing what I had said was in fact true. That bull market has continued fairly strongly through today as the Dow Jones has 30,000 on the horizon.

Until domestic stocks prove to be unreliable performers, they are the best foundation of a growth portfolio for the next 10 year or more. Perhaps decades from now, international stocks will have proven to outperform domestic stocks significantly more often than not, in which case they may become a better foundation for growth portfolios. But projecting that shift today and shorting domestic stocks as a result has not been a reasonable strategy.

The Full Motley -- 1Q, 2020

Another anniversary entry today, starting my 11th year of financial blogging. In that time, I have gone from the recordkeeping department of a finance company to community college for a Paralegal Studies Program into work at a small bankruptcy firm to the legal department of a finance company. During this time, I have been contributing to my Roth IRA and my 401(k) accounts when available (too bad I missed out on that misunderstood myRA by a few months).

There were a couple years though that I did not max out my Roth IRA. Honestly, I did not even contribute to my Roth IRA for that year I was in school. Why? Due to those personal circumstances.

I have been of the mindset lately that financial bloggers need to put more emphasis on the “personal” in personal finance. It is misleading to promote personal finance as a series of rules to follow. Those rules are guidelines or self-discipline, adjustable to circumstances. I have been fortunate enough to max out my Roth IRA for many years, but when financial bloggers say to “max out your IRA,” people think “I cannot reach the max, so that advice won’t do any good.” The end result is a step in the wrong direction. Contributing half of the maximum amount would still be progress in the right direction (with the ultimate destination being financial security). I would love to hear that advice worded as “Contribute to your Roth IRA, maxing it out when you can.” That advice not only supports starting with smaller amounts, but even places that as an expected starting place. It is rare that someone has the financial freedom to adjust their finances immediately. Most have to not only learn good habits but also break their bad habits, and those steps may not happen concurrently.

My quarterly reallocations are almost always moving small percentages. This move saw about 0.7% of the account moving into domestic bonds and international equities, taken predominantly from the domestic equities and a sliver from international bonds. Although it was less than 1% of the account balance, the dollar amount equating 1% has risen significantly over the past 11 years because the account balance has almost tripled since April 30, 2011. There have been no new contributions since that time, and recently, I even learned that my employer put more money into this account than I did. The amount I set aside was not even a large amount (about the sum of my annual income when I was first hired there). Regardless, this account is currently the single largest portfolio of my net worth today.

Patience is a virtue, and patience pays, especially in the stock market. I have my own first hand testament to it, but I read an interview with John Hancock’s Retirement Plan Services CEO Patrick Murphy recently, and I wanted to share it because it is another voice saying what I have for years. His words rang more powerful to me, in large part through his current position and dismal early-life circumstances. (The following comes from Emily Laermer and some of his responses were edited for brevity and clarity by Ignites.)

Q: How did you get into the industry?

I got into this business not to help people accumulate wealth, but to help people avoid becoming poor.

I’m one of six kids. My parents got divorced when I was young, and then my dad died. He left us no life insurance, no savings, no nothing. My mom was left with six kids, and we had to figure out how to fend for ourselves. And we lived on welfare for a long time.

Fast forward, I muddle my way through high school, I get the opportunity to play college football and get an education. And then I took an economics class, and I learned about financial services. And I realized that what happened to my family never has to happen to anybody. It’s tragic enough to lose a parent and a bread-winner, but then to be plunged into poverty because of a lack of planning? That was a big, "aha!" moment for me.

I’m a big believer in the power of financial security. You can break the cycle of poverty by helping people acquire the skills and the habits.

Q: How do you get investors to actually start saving money?

Sometimes I tell them my story. I’m living proof that this stuff actually works — and it works well.

I started saving when I was 22 years old. It’s a real basic formula. Everybody’s trying to figure out how to time the market and how to outsmart the system. It’s not really that complex. I tell them to start early, save as much as they can and then increase over time. Then, just invest wisely.

Q: What plan design features tend to work best?

I’m a big believer in auto features. It’s not that people are stupid; people are nervous and stressed. That creates inaction.

If we can just auto enroll them and auto escalate them, and provide auto advice, then people eventually start to really engage. Then they get confidence, and then they start to learn more, and then they become more proficient. But trying to do all that up front is hard.

Q: You’ve been in the industry for over 30 years. What change has had the biggest impact?

Technology. Previously, it was really people-intensive labor to provide the kinds of services to participants that we can provide now. Now, it’s easy, scalable and cost effective to provide the level of real personalized service that was so expensive and cumbersome 30 years ago.

Now you can provide a better experience for the customer with greater levels of compliance. And quality and accuracy are more cost-effective. We can actually serve more people in a higher-quality way and run a profitable business at the same time.

Q: What trends will most impact the industry in the next decade?

The HSA market is really interesting. Health care is a big competing cost for companies and for employees, as it relates to what prevents them from saving for retirement.

HSAs are a way to invest for future health care costs. A lot of people today use them as a pass-through to pay for current-year medical expenses. But they are also a really powerful tool to help address a growing need in retirement.

What people forget is that their medical expenses might not be that high when they first retire, but their leisure expenses will be really high. And then later, that kind of flips. So they don’t really travel as much, but their health care expenses increase.

Q: What is the biggest challenge facing the retirement industry?

It’s helping customers understand the value that we provide. We’re in an era of fee compression, where everybody wants the lowest-cost thing. And everybody’s like, "Cheaper is better."

Cheaper is not better.

What adds value is helping customers understand the value that we provide to them.



Contact the reporter on this story at elaermer@ignites.com or (212) 542-1226.
Link:https://www.ignites.com/c/2635223/319293/living_proof_that_this_stuff_actually_works_hancock_retirement_chief

Another Inconvenient Truth

Have you ever noticed that the prices of items at a convenient store are significantly more expensive than identical items at a grocery store? Have you ever noticed that, although it is a one-stop shop, the size of a Walmart Supercenters is 175,000 sq. ft. on average? We know that the rich get richer and the poor get poorer, but there are very few identifiable expenses that explain the difference.

One reason is convenience charges. Unlike buying tickets off Ticketmaster or other online retailers, where “convenience charge” appears on the itemized receipt, most convenience charges are explained only by strange pricing differentials. Your closest convenience store is not going to sell as many gallons of milk as your grocer for a couple reasons. One, because the price of milk is more expensive at the convenience store. Two, because there are so many more convenience stores than grocers. Whether one is a chicken and the other is an egg, I do not know. But a convenience store will earn more on each unit of milk sold – while a grocer will have lower margins and a higher volume of sales.

Why buy from a convenience store, instead of your grocer? There is no discernible reason to, unless you just like paying more (which, arguably would be the opposite of reasonable, as the I-didn’t-pay-enough tax fund in Arizona has proven). Except, there is a matter of convenience.

It is easier to drive a block to the closest convenience store to buy milk than to go to your local grocer or even a Walmart Supercenter. The building is smaller, so everything is closer together. The higher prices limit the number of customers, so there is no wait. You can get a gallon of milk in five minutes from a convenience store, or you can spend 20 minutes going to Walmart and back. Time is money, so there are people willing to pay for convenience.

Your pizza order is going to be subject to a delivery charge if you have it brought to you. (Ditto for  Grubhub, UberEats, Postmates, and the like.) We know them as a delivery charge. A convenience charge by any other name would still reach as high.

What is the problem with convenience charges then? They become very expensive if you do not realize when you are paying them. If you cannot be bothered to leave your home for a meal, and you want fast-food instead of preparing something at your house, then you have every right to order delivery – but it comes at a price. You could have saved more by slightly “inconveniencing” yourself, either by planning ahead and stocking cupboards with easy meals or by stopping at a drive-through before coming home.

The great debate among people who say that they never splurge is when they rack up these expenses repeatedly – daily, even multiple times a day. Not being aware of how much more you pay than you should does not mean it does not exist. When the counterpart of the debate say they are living below their means, this is a big part of what they mean. They can afford convenience charges, but they opt for more inconvenient options to avoid them. They can afford bigger homes or nicer cars, but they transfer the benefits obtained from those purchases and redirect it elsewhere, most likely into their own wealth accumulation. I remember going to lunch with a friend of mine who had a (quite frankly) surprisingly nice car! I told him how great his car looked, to which his kneejerk reply was, “thanks, I’m not sure it is worth how much I pay for it.”

There are conveniences that come with a nice car, to be sure, but whether the sum of those conveniences match the price is another issue. The hidden expenses of a nicer car, including the higher quality tires and more expensive repairs and maintenance, add up subtly.

The Full Motley -- 10 Year Anniversary (1Q, 2019)

No matter what age you are or which period you are tracking, ten years is a long time! As it is, ten years ago today was when I started tracking my 401(k) because the markets were about as low as I could imagine them, and I was so curious what was next. As it turned out, the markets would bottom out within a month and then begin on a record long bull run that did not end until December 2018. Basically, it was a 10-year period in which it was much harder to lose money than make money!

Regardless, a lot happened in that time: I quit my job, I went to school, I attempted to re-career from the finance industry into the legal field, I ended up in the legal department of a finance company, and I had to modify my 401(k) investments when my provider changed the investment options. As of today, I am also halfway through a M.B.A. program! Having worked in finance for 10 years though, this program feels more like it is papering down my knowledge base than brand new studies, which is not a bad thing.

My current ECON class textbook had an interesting take on active management versus indexing:

"Mutual fund investors have a choice between putting their money into actively managed mutual funds or into passively managed index funds. Actively managed funds constantly buy and sell assets in an attempt to build portfolios that will generate average expected rates of return that are higher than those of other portfolios possessing a similar level of risk. In terms of Figure 35.3, they try to construct portfolios similar to point A, which has the same level of risk as portfolio B but a much higher average expected rate of return. By contrast, the portfolios of index funds simply mimic the assets that are included in their underlying indexes and make no attempt whatsoever to generate higher returns than other portfolios having similar levels of risk.

"As a result, expecting actively managed funds to generate higher rates of return than index funds would seem only natural. Surprisingly, however, the exact opposite actually holds true. Once costs are taken into account, the average returns generated by index funds trounce those generated by actively managed funds by well over 1 percent per year. Now, 1 percent per year may not sound like a lot, but the compound interest formula of equation 1 shows that $10,000 growing for 30 years at 10 percent per year becomes $170,449.40, whereas that same amount of money growing at 11 percent for 30 years becomes $220,892.30. For anyone saving for retirement, an extra 1 percent per year is a very big deal.

"Why do actively managed funds do so much worse than index funds? The answer is twofold. First, arbitrage makes it virtually impossible for actively managed funds to select portfolios that will do any better than index funds that have similar levels of risk. As a result, before taking costs into account, actively managed funds and index funds produce very similar returns. Second, actively managed funds charge their investors much higher fees than do passively managed funds, so that, after taking costs into account, actively managed funds do worse by about 1 percent per year.

"Let us discuss each of these factors in more detail. The reason that actively managed funds cannot do better than index funds before taking costs into account has to do with the power of arbitrage to ensure that investments having equal levels of risk also have equal average expected rates of return. As we explained above with respect to Figure 35.3, assets and portfolios that deviate from the Security Market Line (SML) are very quickly forced back onto the SML by arbitrage, so that assets and portfolios with equal levels of risk have equal average expected rates of return. This implies that index funds and actively managed funds with equal levels of risk will end up with identical average expected rates of return despite the best efforts of actively managed funds to produce superior returns.

"The reason actively managed funds charge much higher fees than index funds is because they run up much higher costs while trying to produce superior returns. Not only do they have to pay large salaries to professional fund managers, but they also have to pay for the massive amounts of trading that those managers engage in as they buy and sell assets in their quest to produce superior returns. The costs of running an index fund are, by contrast, very small since changes are made to an index fund’s portfolio only on the rare occasions when the fund’s underlying index changes. As a result, trading costs are low and there is no need to pay for a professional manager. The overall result is that while the largest and most popular index fund currently charges its investors only 0.18 percent per year for its services, the typical actively managed fund charges more than 1.5 percent per year.

"So why are actively managed funds still in business? The answer may well be that index funds are boring. Because they are set up to mimic indexes that are in turn designed to show what average performance levels are, index funds are by definition stuck with average rates of return and absolutely no chance to exceed average rates of return. For investors who want to try to beat the average, actively managed funds are the only way to go."

Fairly rousing endorsement for  what I have been following in the past 10+ years. Of course, the recurring question has been whether rebalancing quarterly has been too often, but this past quarter is a good example of its merits. On November 10, 2018, we had no idea what the next three months would be like! The markets were shaky, but a Christmas Eve Massacre saw the Dow plummet 650 points.

There were two ways to go: one, panic and make immediate changes or two, stay the course. In this case, staying my course involved weathering the fall for the next two months and then buying into the depleted markets by moving other assets that might have appreciated in that time. As it turned out, the market has recovered most of its losses since its recent lows, so staying the course was the best choice.

Therefore, my move for this rebalance was minor (as the past several have been). Instead of taking money from the stock funds though, this time I put money into those stock funds. Specifically, I took 1.5% from my International Stock Index Fund, 4.7% from my Bond Market Index Fund, and 4% from my International Bond Fund, and I placed that amount into my PRIMECAP Fund (53%) and my Total Stock Market Index Fund (47%). Nothing close to approaching 10%, but just like in baseball, winning in wealth creation is more about the consistent singles and doubles than the occasional home runs.

Remembering John Bogle (1929-2019)

On Jack Bogle

https://about.vanguard.com/who-we-are/a-remarkable-history/founder-Jack-Bogle-tribute/
by Tim Buckley

As you may already know, this is a sad day for Vanguard.

We lost a good friend. And mutual fund investors everywhere have lost one of their most passionate advocates.

Jack Bogle was the founder of our company, and its leader for more than two decades.

By creating a client-owned company—or as he himself liked to say, “the only mutual mutual fund company,” Jack Bogle put billions of dollars back into the pockets of investors.

And he influenced the entire mutual fund industry in a positive manner. Without Vanguard, I'm certain that costs would be higher for investors across the mutual fund industry.

In many ways, Jack was a man of contrasts:

• He was a student of history … but he was also a forward-thinking innovator.
• He could readily quote lines from Shakespeare or Sophocles … but he could just as capably tell you what just about any Vanguard fund returned yesterday. And the day before. And the day before that.
• He valued conventional principles like hard work and thrift … but he took tremendous personal and professional risks to follow his vision.
• He revolutionized the complex mutual fund industry … but he did so with fundamentally simple concepts like low costs and client-focus.

You know, Jack was fond of saying that he left his old job at Wellington Management Company—where he had worked for almost 2½ decades—in the same way that he began his new job at Vanguard: “Fired with enthusiasm!”

He carried that enthusiasm throughout his Vanguard career, and he inspired millions as a crusader for the everyday investor.

He liked to remind us that our clients are “honest-to-God, down-to-earth, human beings, each with their own hopes, fears, and financial goals.”

In a daily business that is so often characterized by numbers and forms and paperwork, that perspective is refreshing—and so important. It’s why we’re here.

We send our condolences to Jack’s wife, Eve, to their children and grandchildren, and to all those who were close to Jack over the course of his remarkable life.

If Finances Get Too Heavy

A long while back, I noted that I might discuss financial gravity sometime. Let me get on that now!

I believe the concept of financial gravity first appeared on my radar in a post by Jim Wang, who is an amazing financial blogger and most of his posts are easily digestible and I have reprinted his material on my blog before. He discusses the concept using an airplane, but the concept might be more visually appealing when considering a hot air balloon.

Either way, the concept is that our expenses are our financial gravity. The goal is to be airborne or levitate, so financial gravity is an opposing force. If we had no financial gravity, then 100% of our income would be placed toward our financial goals. However, we all have financial gravity because it is expensive to be alive. Plus, our consumerism culture puts a premium on spending.

The theory of financial gravity is that our expenses equate to the weight that we are putting into our airplane or hot air balloon. Whether you visualize it as our baggage or our own body weight, the less weight, the less effort it will require to become airborne. The more weight we have, the more effort it will exhaust to get airborne -- as well as sustain that status.

While everyone has expenses, the makeup of our expenses is almost as unique as we are individually. Even if two people earn the same, they are not going to spend it in the same ways. Therein lies the first part of the solution of financial gravity, jettison the excess baggage. Cutting expenses is taught all the time, but financial gravity provides a different visual and approach to the tired subject. If you want that brand name latte every morning because the coffee in the office is not the same, then it will weigh down your financial goals. Simply stated, the daily lattes are part of your financial gravity. Cutting out daily lattes for coffee in the office would equate to upwards of $1300 annually, which could be placed into a Roth IRA instead, and it would be earning for you. It would become the fuel for your airplane or hot air for the balloon.

Doubling the benefit, cutting out daily lattes means you have one less expense to satisfy, so not only is an extra $1300 being spent toward gas to fund your financial goals, but you will need less money to stay airborne because you have lost that extra weight.

Perhaps going without specialty lattes is too much of a sacrifice. Changing a daily latte habit into a weekly treat would change those numbers slightly. You would only set aside $1050 per year, but you would get to have a latte every week. This might be an additional benefit in that the latte would become more of a treat and less of a chore.

If swapping out specialty lattes for coffee from the office is laughable, then other areas of delaying gratification could be found in comparable exchanges. Maybe it is the weekly movie nights, or the drinks before, after and/or during live games, or declining invitations to happy hour and other social gatherings (perhaps even weddings when the invitations get excessive). Wherever those minor expenses add up in excess of the personal rewards; that is, wherever the drama exceeds the fun. I have heard "coming of age" stories where the subject realized that going out clubbing both nights of every single weekend had lost its appeal.

Do not underestimate how much your social circles weigh into your financial gravity. Being responsible enough to prioritize your social calendar is a good trait. Playing a victim of requests for your presence is not a good trait. Presumably, few friends are so close that that their personal finances are taken into consideration when making social plans. The assumption becomes that the invitation will be declined if the event is not a priority. If your long-term financial goals are more important than weekly clubbing events, then that is a sign of maturing. If your friends do not follow suit, then you may just be maturing ahead of them.

Daily lattes, weekly movie nights, happy hours, tailgating, clubbing, etc. are all weighing down your financial goals by giving you less money to set aside and bloating your personal maintenance.