Category Archives: Money Matters

Beer Summit

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I know, I know, I know, most over-reported story of the year. But there’s one element of the story still deserving of attention. Allegedly U.S. Brewery Distributor execs were very upset that the  beers of choice were produced by foreign owned companies. One was heard asking, “What does this phrase ‘globalization’ of which you speak mean?”

Now, picture these execs sitting in a country club restaurant after 18 holes of golf. I’m going to go be presumptuous and guess that as well-to-do business executives they’re pro free market, pro capitalism, pro Milton Friedman. But when the invisible hand slaps them in the face and foreign competitors erode their market share, they whine and seemingly seek privileged status. 

Why is it that U.S. business execs sing the praises of free markets until they end up getting their asses handed to them by foreign competitors?

The Great Financial Disconnect

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The notion of financial success is slippery because it’s subjective. For the sake of discussion, let’s define it as  living debt free and having some sort of savings for future goals. The average American reportedly has $9,300 of credit card debt so we’re setting the bar relatively high.

How might one live debt free and accumulate savings? 

By living according to a relatively straightforward equation. Consistently earn more than you spend. The hard part for people is doing that three, four weeks a month; ten, eleven, twelve months a year; eight, nine, ten years a decade. 

Let’s think about the equation more deeply. Earning is almost always thought of as one’s salary, and of course, that’s an important part of it. However, earning can take other forms such as investing one’s savings wisely which generates investment income. Obviously, the more one saves, the more they generate in investment income. If I have $1,000 saved and earn 5% and you have $1m saved and earn 5%, you earn $49,950 more than me a year. For the vast majority of people, investment income is a small fraction of their annual salary-based earnings.

On the surface, spending is a straightforward concept, but there’s several  types including relatively fixed recurring expenses (insurance premiums, mortgage payments, property tax payments), relatively fluctuating recurring expenses (utility bills, groceries/restaurants, clothing), discretionary expenses (entertainment, travel), and unanticipated expenses (root canal, counseling).

This most simple of conceptual frameworks gives rise to two fundamental questions. How does one increase their earnings and how does one reduce their expenses?

But here’s the amazing thing, the personal finance conversation in this country focuses almost exclusively on an altogether different question–what’s the best way to invest? 

This exasperating disconnect isn’t unique to the personal finance industry. Education reformers focus on a whole host of things–technological bells and whistles, standards, standardized tests–that have little positive effect on the teacher-student relationship.

So, let’s return to the example of being debt free with $1,000 of savings. Imagine we’ve assembled a focus group of fee-based certified financial planners to advise me. I suspect, even though they’re fee based, at least nine out of ten would spend all of their limited time debating the relative merit of different investment tools including indexed mutual funds, ETFs (exchange traded funds), TIPS (treasury inflation-protected securities), gold, bonds, whatever. 

How to invest savings is a legit question, but at best the third most important. 

For the life of me, I can’t figure out why even fee-based planners focus almost exclusively on investment strategies when what people really need help with is how to increase earnings and reduce expenses.

20-200-2 Much?

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Is getting 20 years and  200,000 miles out of our 1993 Toyota Camry Wagon 2 much to ask?

I ask because at 16 and 163 I’m starting to feel like a surfer at the end of a long ride pressing up and down on the board with my feet while trying to get the most out of the 12 inches of white water.

I could write a “Marley and Me” like book about the car and me, but oddly we never named it. One admittedly short chapter would be about the time I drove into the garage and THEN realized the bikes were on the roof. 

The picture below isn’t the actual car, but it looks an awful lot like it. I had bike racks drilled directly onto the roof early on and the wife must have been mad at me a few years ago when she dented in the right front bumper. 

Tinting the windows was the best decision ever. Let’s just say the ladies have paid the wagon and me A LOT more attention ever since. 

Mechanically it’s pretty solid, and the tires are relatively new, but the driver’s door handle snapped off a while back so now I have to grab the remaining two inches with two fingers. There are annoying electrical problems too. The interior dome light doesn’t work even after replacing the bulb so I keep a flashlight handy. And after replacing the turn signal bulbs, the instrument panel lights shuts off after every use of a turn signal (all fuses are fine). Blondie and blonder found that very entertaining on the way to school last week. I wouldn’t wish the upholstery on anyone and the inside roof has a bit of residue from where water probably seeped in through the holes that were drilled for the rack.

Oh, and sometimes it won’t start until it feels like it even though the battery is relatively new (faulty safety neutral switch?).

Killer radio though and a good radio compensates for a lot of shortcomings.

Since I don’t know if the air bag will open, and gas prices have plummeted, I’ve taken it back over. I’d rather kill myself than my wife. “Here lies Dad. He took one for the fam.”

Speaking of dads, mine always got 8 years out of his American cars back in the day. I think he’d be proud that I’ve doubled him up and I like to think he’s rooting for me to stay on the bull until it completely tires.

I have to admit though, the Venza looks nice and I’ve been looking at “pre-owned” Highlander Hybrids on Craigslist. The question is, can I hold off until the London Olympics? I wouldn’t bet on it.

Shirking Responsibility

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I wonder, is it within your nature and my nature to shirk responsibility?

Educators often complain that students don’t take sufficient responsibility for their mistakes. That shouldn’t come as a surprise because if we’re honest with ourselves, we’re slow to accept responsibility for some of our unflattering actions. Too often, instead of admitting fault and applying ourselves to resolve problems, we expend energy trying to pin mistakes on others.

Example one. A friend’s son’s team lost a close football game this season “because the ref threw the game” as a result of a “vendetta” against the firey head coach. As the poor calls built up, the other coaches and my friend went nuts, and no surprise, the players complained mightily about the outcome long after the final whistle. Youth learn more from what we do than what we say, but in this case is was a combination of what was said and done. I told my friend the coaching staff taught a powerful lesson that day. When things don’t go your way, pin it on others. 

What if they had said, “Refs are human and make mistakes. Usually they balance out. If we had played as well as we’re capable, the game wouldn’t have been that close. We will not be the type of team that pins losses on the refs. We will take responsibility for tough losses. Now go congratulate the other team and remember the lesson of this game: if you let the other team hang around, anything can happen.”

Example two. Recently some college presidents have made noise about suing the investment teams that are managing their shrinking endowments. Here’s what I’d like to ask each of these presidents. Are you kidding me? These are the same investment teams that the presidents were praising the last few years for their double digit returns. News flash, markets go down. The lesson of 2008, sometimes a lot. Unless some of the investment teams were from the Madoff school of investing, and guaranteed annual gains, the presidents need to accept endowment losses without blaming their once golden money managers. 

Example three. From a distance it appears as if the gay marriage backers who opposed Prop 8 in California didn’t like the outcome and want a do-over. I know this controversy is white-hot and complex. What I don’t understand is how can any state allow propositions of questionable constitutional quality onto the ballot in the first place? Didn’t the state election commission ask “If the proposition passes, will it run afoul of the constitution?” Assuming the election commission was competent, I believe the opponents of Prop 8 should accept the fact that 52% of voters supported it and focus their energies on reversing the decision in the next election.

Choosing a College 2

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In hindsight my “Choosing a College 1” post was among the more ridiculous I’ve written this year.  

Here’s the comment I kept expecting someone to write, “What planet are you living on Byrnes? Do you really think ANY 17-19 year old in the country will choose their college based on the thoughtfulness of the general education program? That’s not even as important as the school’s colors, whether the cafeteria serves frozen yogurt, and whether the dorms get high speed internet and cable television.” 

Thank you for being so apathetic. 

Thanks to that apathy, I’m going to make another maybe even more ridiculous suggestion for choosing a college: choose one you can afford.

I’m going to go even farther and suggest the student and their family start thinking about how they’re going to afford to send their future children/grandchildren to college.

From today’s newspaper the headline reads “Rising Tuition, Credit Crunch Threaten Affordability of Higher Education”. Here are the first two sentences: A new study on American higher education gave all but one state a failing grade on affordability, and warned that college could soon be out of reach for most Americans. The biennial study by the nonprofit National Center for Public Policy and Higher Education gave 49 states an F for affordability, up from 43 two years ago. California passed with a C because of its community college system.

The author went on to say if current trends continue, in 25 years, college will be out of reach for most families.

When it comes to college decision making, people seemingly assume you get what you pay for. Sometimes that’s true, but not always. I received an excellent education (some may dispute that) at a large public institution that was one-third the price of most small private ones. 

I work at an expensive, smallish private institution that likes to tell anyone that will listen that we provide a much better education than the larger, less expensive publics. The argument is go to the large public school if you like being thought of as a number in large classes taught by overextended graduate teaching assistants.

Most of my classes were taught by exceptional scholars. I learned early on to take initiative and knock on their doors during office hours. By doing so I made the humungous college much smaller. They’d stop typing (yeah I’m old) their next book and we’d talk about the course content or the paper I was working on. Interestingly, few of my students come to office hours. 

I had some brilliant graduate teaching assistants who were inspiring beginning teachers. I remember one who got pissed at us for not being prepared for a discussion. After ripping us in ways we deserved, he walked out. We were stunned and way more prepared for the next discussion.  The TA’s taught “discussion sections” of 25 students. Yes, the lecture was 400, but there were also 16 sections that met weekly. 

I learned as much outside of class as in because our student body was incredibly diverse and our campus drew a steady stream of fascinating speakers including national and world leaders. Every night, somewhere on campus, there was an interesting documentary or lecture. Then there were the world class libraries where most of my learning took place.

In another recent newspaper article on college affordability, a family said they were going to take out loans to pay their child’s $41,000 college tuition. I’d like to ask them why. I’d suspect they’d say because it’s an investment in his/her future. 

There are at least three problems with this line of thinking.

1) As I’ve tried to illustrate, tuition and the quality of the educational opportunities provided aren’t perfectly correlated.

2) Stretching financially inevitably leads to unnecessary stress.  College expenses are similar to home construction expenses, there are always unanticipated hidden costs. For example, once I assigned an extra book mid-semester. It was available on Amazon.com for $10, but a few students said they couldn’t afford it. I like to think of myself as compassionate, but I had a hard time processing those objections in the context of our $30,000 tuition/room/board.  

3) The principle of compound interest makes building wealth relatively easy if young people start saving early. But increasingly, young people are graduating from their expensive colleges in serious debt, thus sacrificing the compound interest window.

I don’t understand why more people don’t strategize on how to get through college debt free.

I know, I know that’s not the American way, with our negative savings rate. Live in the present, spend freely. Don’t worry about future debt.

In the end, maybe someone will bail you out.

Where’s the bottom?

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In a late January post titled “Market Downturn” I wrote, “Our mutual fund company provides an unusually helpful service that helps me keep historical perspective. When I log on to its website there’s a “Portfolio Watch” that shows our asset allocation. Currently, it’s short-term reserves, 3.5%; bonds, 38%; stocks, 58.5%. Then there’s a link to “Historic Risk/Return, 1926-2006.” Average return, 8.8%. Best year, 35.7% (1933). Worst year, -25.9 (1931).

Then I added, “This won’t sell many papers or fill much time on cable television, but after an unusually strong six year run, the market is returning to the mean.”

What I meant to write was, “The market is mean, very, very mean.”

I was thinking the market might end down 10-15%. -25.9% was from so long ago, it seemed fictional. I doubt I was alone in not taking the previous worst case scenario seriously. If I had seriously considered it, my aforementioned asset allocation would have been more conservative. With five/six weeks left in the year, I’d be thrilled with the previous worst year of -25.9%.

Can’t believe I just wrote that.

Here are the first few sentences from Jason Zweig’s commentary in Saturday’s Wall Street Journal titled, “1931 and 2008: Will Market History Repeat Itself?”

“Over the two weeks ended Nov. 20, 2008, the Dow Jones Industrial Average fell 16%. Over the two weeks ended Nov. 20, 1931, the Dow fell 16%.  If you think that is scary, consider this: In the final five weeks of 1931, the Dow fell 20% further. Then it went on to lose yet another 47% before it finally hit rock-bottom on July 8, 1932.” Later he adds, “When the Dow finally stopped going down, in July 1932, it had lost 88% in 36 months.”

How does anyone learn to invest? My hunch is for better or worse most of us learn from our parents’ modeling and then trial and error. Sure some study it in school, but I suspect that’s a small number of people in higher education. Few K-12 schools do anything to promote financial literacy. 

I am self-taught. In my 20’s and then 30’s I inherited a little money, and although I wasn’t very materialistic, I wanted to be a good steward of it. I understood it represented a unique opportunity to establish more savings than I normally would be able to as an educator. So I parked most of it in CD’s.

In the meantime, I asked a wealthy friend in his 60’s for advice and he recommended his financial planner to me. I was a naive numbskull and followed the planner’s advice too passively. As a result, I ended up in poor investments that paid him nice commissions. It took some time and money to start over.

In the end, that setback was a blessing, because at a relatively young age, I realized no planner anywhere cares half as much about my family’s future as I do and so I resolved to educate myself. I began reading. The seminal book was Bogle on Mutual Funds. His writing was accessible enough for me to understand and embrace his recommendations regarding asset allocation and passive index fund investing. I knew I wasn’t smart enough to pick individual stocks and was relieved to learn I didn’t need to be.

Starting over, I invested in low-cost index mutual funds right as the bull market was beginning. Long story short, by the end of the 90’s I felt like making money in the markets was a piece of cake. 

Fast forward to this week when my brother asked me the conventional question a lot of people are wondering, “Where’s the bottom?”

Of course the only people who really care about that question are those with cash reserves. I’m not among them so I’m not obsessing about perfectly timing the bottom. Each Friday I think if this isn’t the bottom it’s darn close and if I had cash reserves, I’d go in now. Then, after this morning’s run, I read Zweig’s commentary over a mountain of cereal, and felt like hurling.

Maybe I’m wrong again and there’s still along ways to go.

I suggest asking two different questions. First, what’s your time horizon? If you invest in stock index funds now with money you don’t need for five to ten or ten to twenty years, I’d invest now despite Zweig’s horrific historical data. Many index funds are on sale at 35-60% off their December 31, 2007 prices.

Second, what’s your “sleep at night” asset allocation? If you’re distracted on a daily and nightly basis by your portfolios declining values, adjust it. The downturn has adjusted mine all by itself. My former 3.5% cash-38% bonds-58.5 stocks split is now 3-47-50.

The litmus test of whether I’ve learned a valuable lesson from this historic downturn is whether I adhere to Bogle’s suggestion that your bond holdings should always equal your age. I turn 47 in February so right now I’m spot on.

What will happen when the market eventually picks up steam again though? Will I get greedy and “forget” to rebalance like many of my higher education colleagues did seven/eight years ago before the correction mucked up their retirement plans?

Please do me a favor. Every few years from now until I expire, stop me and ask, “Byrnes, what percentage of your portfolio is in bonds?” If I fail to answer quickly and clearly, and if my answer is not within 3% of my age, you hereby have my permission to rough me up.

Thanksgiving DayS

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Thanksgiving is my favorite holiday of the year, hands down. Especially when I can avoid congested freeways and flying.

In part because it’s among the least commercial.

We don’t have any elaborate traditions really, we tend to slow down, kick on the gas fireplace, catch up with one another, eat too much, and reflect on how much we have to be thankful for. On the weekend we’ll cap it off with 24 hours in Seattle where I’ll burn off some of the extra calories in the Seattle Half Marathon. 

Interesting context for Thanksgiving this year. People are losing their jobs while their homes and retirement accounts rapidly decline in value. And despite the excitement generated by profound political change, there’s deep-seated foreboding about our economy and the world’s economy. Recently, my international stock index fund crossed the “minus 50% year to date” threshold.  

On a personal level, this academic year is shaping up to be considerably more stressful than normal. And yet, I have so much to be thankful for. . . a secure job, inspiring students, wonderful friends, a healthy and loving family, a warm home, ample food, a beautiful place to live, a peaceful political transition, and I could go on and on.

What I wonder though is how can we infuse a Thanksgiving-like appreciation for all we have to be thankful for throughout the year? 

At the beginning of this year, I wrote about our impending trip to Norway in this way, “My hope is we’ll be changed as a result of our Northern retreat, both individually and collectively.  When school and full-time work begins again in September, and we return to our regular routines, I hope there’s a legacy of intimacy that helps us better manage the pace of modern life and relate to one another and others with even more patience, kindness, and love.”

I don’t feel as if I’ve succeeded in managing the pace of modern life, therefore, I doubt that I’m relating to my family and others with increased patience, kindness, and love.

Managing the pace of modern life and incorporating a Thanksgiving-like appreciation throughout the year are closely related. Slowing down is a prerequisite for taking stock of one’s personal “for this I give thanks” list. 

More specifically, a commitment to daily meditation or prayer helps, as well as, associating with people who have a year-round thanksgiving-orientation.

How do you combat cynicism and negativity? What suggestions do you have for me as I try to be even more thankful throughout the year?

Where To Put Your Money Now

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Provocative title, huh. Just wish I had thought of it. I’ve been wanting to write on the financial crisis, but I’m still in shock and haven’t figured out where or how to start.

So I’m going to pass the baton by recommending Mark Cuban’s most recent post. Just what he needs I’m sure, more readers. For those with limited sports literacy, Cuban is the billionaire owner of the NBA’s Dallas Mavericks.

Since you probably don’t have any debt, pass the link on to someone that does. Jeez, when is some big time blogger going to throw me a bone? 

Normally I don’t like people as cocky as Cuban, but his passion and ordinary guy sensibility seem to compensate. He knows technology and his success story is interesting. In short, if he decides to sign me to a 10-day contract, and I happen to be between academic terms, I’ll play for him.

Wal-Mart

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I’ve never been a bumper sticker person maybe because I believe the world is too complex for five or six word assertions like “I don’t shop at Wal-Mart.” 

Do those with bumper stickers on their cars really think their five or six words are going to change other driver’s minds about who to vote for or where to shop? If not, what’s the point of advertising your politics?

To the “I don’t shop at Wal-Mart” drivers I say so what.  Wal-Mart revenues are approximately $100B a year. Do you really think your $50-$100 a week is creating change? A few years before Wal-Mart began employing millions of Chinese, Confucius said, “The journey of a thousand miles begins with a single step.” But your individual impact on Wal-Mart is probably far less than a single step.

Forgive me for not applauding you.  

I don’t support Wal-Mart, but I know my decision not to shop there is inconsequential if I don’t convince others who feel as if they have to shop there to make ends meet to find smaller, more labor and environmental friendly alternatives.  

Most of the “I don’t shop at Wal-Mart” cars I see suggest the drivers are middle or upper-middle class or wealthy. Easy for the economically secure to pass on Wal-Mart because, like me, they can afford to pay more at other retailers some of whom get a pass on questionable business practices of their own because progressives are busy directing their ire at the biggest kid on the playground.

A few years ago when I was teaching summer school in central Washington my hotel was across the street from a Wal-Mart SuperCenter. I had never been in one so I ventured in under the guise of “academic research.” I was utterly blown away by the prices which were considerably less than Costco’s where I shop regularly.

Most of the families appeared poor, probably first generation Mexicans working on farms in the area. As an English speaker, I was in the minority. I thought if I were in their shoes, politics be damned, I’d be shopping there too.

They’re not doing anything illegal. 

Of course the low prices are the result of low wages in China and in U.S. stores, nearly non-existent health coverage, and other reprehensible business practices that the left has detailed in documentary’s like “Wal-Mart: The High Cost of Low Price.” 

Not illegal, but unethical. But can we realistically expect law-abiding working class citizens who feel they have to shop at Wal-Mart to connect the economic, environmental, social, and geopolitical dots? What if they lean in to your Volvo with the “I don’t shop at Wal-Mart bumper sticker and say, “I’m busting my hump earning minimum wage. My only goal is for my children to have more opportunities. Someday I hope they can afford to shop at smaller, independent retailers that pay their employees livable wages.”

So I’m waiting to see a variation of the Wal-Mart bumper sticker, one that reads, “I convinced ten working class families not to shop at Wal-Mart.”

Then, I’ll be really impressed.

Breaking Point

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How much can a guy take?

Today I watched my daughter beat my personal record in the 500 free. I know the book of parenting states very clearly that parents should celebrate whenever their offspring surpass them.

To which I say bullshit.

After I get this little run over with on Sunday, I will begin my quest to reclaim the family crown.  Just in case, please get Lance Armstrong’s pharmacist on the line (that was for you T!).

And yesterday, I watched years of personal economic progress erode in a few hours.  

So I guess yesterday I had my assets handed to me and today I had my ass handed to me.

At least a woman was nominated Vice-President.