Tag Archives: financial planning

By Age 35

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Earlier this month, Marketwatch published an article stating that by 35 years old, a person should have twice their salary saved for retirement.

In my view, an imminently sensible goal, but the Millennial blowback on Twitter was fast, furious, and funny. You know what “they” say, goals should be achievable.

Cases in point:

  • By age 35 you should have at least one fork in your cutlery drawer that you just don’t like, and actively frown at if you accidentally grab it.
  • By age 35 you should have a huge box of cables but you can’t throw them out because you’re pretty sure you still need a couple of them but you’re not sure which ones.
  • By age 35 you should have a kitchen cabinet dedicated entirely to plastic bags that contain other, smaller plastic bags.
  • By age 35 you should have approximately 10 times the existential dread you had when you graduated high school.
  • Listen. Meghan Markle wasn’t a duchess til age 36 so stop telling me what I should have by age 35.
  • By age 35, you should have hoarded more books than any human could possibly read in three lifetimes.*
  • By age 35, you should have a big bag of socks that have no matches that you are afraid to throw even one of them away because as soon as you do, you’ll run into its match.
  • By age 35 you should stop paying attention to condescending life advice from strangers writing think pieces.
  • By age 35 you should have a shitload of books. Some of them you have read and are too sentimental to give away. Others (you know in your heart) you will never read and yet you will keep these as well. All of these books have followed you through multiple moves.*
  • By age 35 you should have one pair of jeans you like and a four shirt rotation.
  • By age 35 you should be able to re-watch Bridget Jones and think ‘You’re only 30 and you manage to afford to live alone?’
  • By age 35 you should have a list of documentaries you tell people you want to watch but you don’t watch them because you just never feel like you’re in the right mood.

Go ahead, give it a go, by age 35. . .

*Alison

 

The Credential Conundrum—Limiting Whose Qualified for Which Jobs

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Recently I wrote that I’m lucky that my work as a college prof affords me ample opportunities to learn about myself and become a better person. That doesn’t stop me from daydreaming about other work.

Depending upon the day, I’d like to be Dustin Johnson’s caddy, write a newspaper column, be a subsistence farmer, have a radio talk show. The alternative work that loops the most in my peabrain is money counselor by which I mean a hybrid of a financial planner and a financial therapist. I enjoy managing money a lot and I’m always intrigued by people’s disparate thinking about money’s relative importance and how those differences complicate partnerships. Most of all, I’d enjoy helping people reduce the gaps between what they think about money and how they live their lives.

I didn’t know shit about investing thirty years ago when my parents gifted me some money to save on their federal taxes. Somehow, as a modestly paid school teacher, I knew the gift was an exceedingly rare opportunity to build a little bit of a financial cushion, that is, if I didn’t blow it. So I started reading John Bogle’s books, the first step in my personal finance self education. Today, I’m a good money manager for at least two reasons—my independent studies and I internalized some of my dad’s self discipline.

What I’d like to do for an alternative living is listen to individuals or couples talk about their dreams, their finances, their greatest challenges and then help them clarify their priorities, adjust their spending, restructure their portfolios, and enjoy more open and honest communication about money. There’s gotta be people interested in that doesn’t there?

There’s only one problem, to do that work I’d need a long list of personal finance and counseling licenses and certificates. Absent an alphabet soup of credentials, my self education and life experience don’t count in the formal economy.

Licenses and certificates are required in many sectors of the economy. They are designed to help consumers know they can trust that the holders of the licenses and certificates are competent. Take my work with teachers-to-be. Often people bemoan the fact that a Ph.D. can’t teach elementary, middle, or high school without first completing a formal teacher education program that typically lasts 1-2 years, not to mention passing related requirements including content area exams and a student-teaching based performance assessment.

Similarly, if you want to work on people’s nails or hair, you can’t simply rent a space and hang out a shingle, beauty schools offer formal training that culminates in licenses that enable you to “join the club”. Sometimes, when work is complex and requires specialized expertise, the Credential Industrial Complex contributes to public trust. Other times though, when the related work isn’t terribly complex, like working on nails or driving a cab, they can be used to limit competition.

Money counseling is on the “complex, requiring specialized expertise” end of the continuum, but wouldn’t it be nice if our job gatekeepers, the credentialing officials, devised intelligent ways to give some credit to individuals for self study and life experience. Absent that, everyone has to start from scratch, meaning people on the back nine of life, like myself, are less likely to switch things up.

 

When to Retire?

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Most people retire as soon as they think they can afford to. Every week personal finance periodicals run stories about people delaying retirement due to the housing correction, health insurance inflation, and in the end, insufficient savings.

Look around and you can’t help but see older workers. Prepare to see more and more. A boatload of sixty, lots of seventy, and even some eighty something half or full-time employees.

While tossing the majority of my mom’s office files last week, I came across a remarkable memo my dad wrote on December 3rd, 1990 to the two owners of the major corporation he was running at the time. Here it is:

The three of us should sit down and have a talk. I’m 65 in 1991, and as we have discussed pensions around the office we’ve used 12/31/91 as my retirement date. We should discuss the future leadership of S&E. I find myself ambivalent about retiring or staying on.

He then listed the “PRO’s for staying” including “we are an organization that works and we have good sales and profit growth.” Then he shifted gears:

The CON’s are: I will have been at the helm for 7 years, and a change in leadership could bring fresh ideas, a different approach and faster sales and profit growth.

Age slows one. It’s something none of us avoid. I find myself like the aging ballplayer—I don’t want to stay on when new leadership could take S&E forward more effectively. Others see the slow down before you do.

I feel too strongly about the company and its future to become an impediment. What are your feelings?

The more I reflect on this memo, the more unique I find it that he’s putting the company’s interests before his own. No one enjoyed his work more than my dad and no one out worked him. Yet, he acknowledges “new leadership could take S&E forward more effectively.” That’s like President Obama saying someone else might have a better working relationship with Congress and accomplish more on behalf of the American people. Or an aging college professor saying students might benefit more from an energetic, 30-something academic.

I don’t begrudge any older, moderate income person their decision to work past their prime, but for older, financially secure people, my dad provides a selfless example worth emulating. The question isn’t just what’s best for me, but what’s best for the company or even the community.

Footnote to the story. The owners did sit down with my dad. Shortly afterwards they extended his contract and also named him Chief Executive Officer of a second corporation they owned.

Women Make Better Money Managers

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If you’re of the male persuasion, slowly step back from the check book or computer, and find a woman to take over your financial decision making.

According to Ronald T. Wilcox, a growing body of research reveals distinct differences in how married men and women approach money and investing. Because men tend to be overconfident, they trade stocks and bonds more actively because they think they know what the next market movement will be. As a result, they incur various transaction costs associated with trading but don’t pick assets any better than women. They’re also less likely to listen to financial advice.

Women are less confident than men about their financial abilities, switch investments less often, and are more likely to listen to financial advice. As a result, they generate risk-adjusted returns superior to those of men.

The Wall Street Journal summarizes Wilcox’s findings thusly, “Men may think they know what they are doing when it comes to investing but often do not. Women may think they don’t know what they are doing but often do.”

Truth be told, you can plug in anything you want for “investing” in the last paragraph. Now if you’ll excuse me, the market is about to close and I have some trades to make.

Bonus link—a couple that has figured out how to enjoy a better quality of life despite making considerably less money.

My “not motivated by money” award nomination double bonus link—and favorite 2012 US Olympian and favorite youth sport parents—Missy Franklin, Dick Franklin, and D.A. Franklin.

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.