Books That Change Lives

Several submissions from readers of the New York Times.

Two standout write-ups.

1. Go, Dog. Go! 

“Go, Dog. Go!” — that epic by P.D. Eastman — has it all: Drama — where are those dogs going? Humor — dogs on scooters, flying helicopters and driving cars! Existential angst — why doesn’t he like her hat? It’s multicultural — blue dogs and red dogs and green dogs! It’s a love story — why yes, he does end up liking her hat!

From “Go, Dog. Go!” — my first book way back in prekindergarten — it was only a short skip to the poems of William Butler Yeats; “The Myth of Sisyphus,” by Albert Camus; the guerrilla ontology of Robert Anton Wilson; and the 10,000 mostly nonfiction books in my home library on Irish history, African-American history, my Pagan spiritual path, world religions and metaphysical matters, the Middle East, quantum physics, the Beatles and rock music. . . .

O.K., maybe that wasn’t a short hop. But my love of reading — as a way to have adventures, explore life, lives and ideas, and satiate my curiosity about the world — began with dogs driving fast cars. I still reread “Go, Dog. Go!” to this day.

Rick de Yampert
Palm Coast, Fla.

2. Atlas Shrugged

When I first read “Atlas Shrugged” for a high school assignment, I was so impressed with Ayn Rand’s philosophy of strength, independence and forging through life on one’s own that I reread the book a few more times in the next few years. The final time I was a young mother and as I read, I realized that there were no children in Rand’s cast of characters, no old people; no one was sick or disabled. Where were they? How were they supposed to manage on their own?

That’s when I became a Democrat, even a socialist. It finally dawned on me that total self-reliance is fine, as long as you’re young, healthy and strong. But no one gets through this life on her own. It takes a village to support a community, to raise and educate children, to care for the sick and elderly. Who wants to live in a world where the weak are thrust aside and forgotten? Rand’s philosophy could never be mine. Her words allowed me to crystallize my own thinking. I grew up.

Barbara Lipkin
Naperville, Ill.

My pick? Maybe John Bogle’s Common Sense on Mutual Funds which has helped me invest more wisely than I otherwise would’ve. Or Chinua Achebe’s Things Fall Apart for similar reasons as to Rick. It was the first of many Achebe, and other, African novels. They have been incredible windows into places and people the West pays little attention to and does not understand or appreciate. My life is richer because of their artistry.

And you?

On New Year’s Resolutions

New Year’s resolutions are a weird example of social contagion because the refreshing of the calendar is an odd catalyst for self-improvement. If anyone’s serious about self-improvement, why wait until such an arbitrary starting point? You shoulda got started yesterday.

Despite that cynicism, I’m all-in on alternative types of resolutions—ones grounded in greater self-acceptance. Maybe people should resolve the following types of things:

  • To accept that I will not eat as healthily as I probably should.
  • To be okay with the fact that I will not exercise as much as I probably should.
  • To not beat myself up for not saving as much money as I probably should.

The Slate staff has taken this one step further by advising that you mark the New Year by embracing vices instead of resolutions—whether sleeping in on weekends, driving when you can walk, or having a cigarette.

Count me in on Slate’s contrarian, probably tongue-in-check thinking, as another viable alternative to most people’s constant striving for some sort of idealized perfection.

Wouldn’t our mental health be better if this year we dedicated ourselves to trying to accept our limits, our insecurities, our imperfections?

I’ll lead the way with this overarching resolution—I resolve to expect less from myself this year. “Friends” will wonder how that’s possible, but they no doubt mean well.

If you think I’ve finally totally lost it, knock yourself out trying this.

Postscript: Via email, a PressingPause loyalist replied thusly:

“I agree the goal of embracing ones imperfections is one of the most valuable, but how does having a goal in general mean someone is striving for idealized perfection?  Also, I like having society wide markers like holidays. I think it makes us feel more like a community.  And some people may stress over breaking their resolutions, but not everyone.  I just think it’s just the idea of new beginnings. Like baptism or new growth in Spring.”

 

 

Forget Stock Market Forecasts

They’re less than worthless.

“. . . the forecasts were often off by staggering amounts, especially when an accurate forecast would have mattered most. In 2008, for example, when stocks fell 38.5 percent, the median forecast was typically cheery, calling for an 11.1 percent stock market rise. That Wall Street consensus forecast was wrong by 49.6 percentage points, and it had disastrous consequences for anyone who relied on it.”

What to do?

“Investing over the long run through low-cost index funds in a broadly diversified portfolio is a reasonable approach for most people.”

The article is concise, clear, cogent, and highly recommended for anyone wanting to strengthen their investing game in the new year.

How To Improve Your Finances

Preamble. In what follows I make assumptions that do not hold for many people. Among the most glaring is that my intended audience is gainfully employed and/or they have enough passive income each month to meet basic needs with some left over. Another assumption is that everyone can improve their finances. If I’m wrong about you, I bet you know someone, maybe a young adult child of yours for example, who could use some help building wealth. Consider forwarding this to them if you think it merits it. Thank you.

Official start. Ever wonder why don’t more moderate to high earner families have more long-term financial security to show for all their hard work? In part because financial analysts and advisors make things more complex than they have to so that people will hire them to manage their money.

As a result of needless complexity, and the associated pursuit of the perfect portfolio, people loose focus on what matters most when it comes to building wealth over time, that is, how much they make and spend month-to-month. If asked, how much do you spend on average each month, how precise would your answer be?

Not nearly as precise as it would be if you backward mapped your expenses. Backward mapping, in contrast to budgeting, entails spending regularly without much attention to detail, then totaling everything up after the fact, or more specifically, at the end of each month. Think of it as an x-ray of current spending.

My expense spreadsheet has 7 columns and 12 rows. The columns are for 1) our primary credit card; 2-3) secondary credit cards used less often; 4) cash/checks/wired payments; 5) one-time expenses divided by 12 which include property taxes, home/auto/umbrella insurance premiums, and professional tax preparation; and 6) medical and dental insurance premiums; and 7) a column where I write what the largest expense of the month was in order to see the most expensive outlays of the year in-a-glance. The 12 rows are for each month of the year.

How to build in one-time expenses like a car purchase or new roof? If I buy a $36k car and sell a $12k one, at the end of the year I’ll increase the average monthly total for that calendar year by $2k.* Or maybe I’ll increase it $1k for two consecutive years.

We’re super lucky that we don’t have to budget. With backward mapping though, which doesn’t require much time with credit card statements and most other financial records on-line, I can tell you within a couple percent what our annual burn rate or overhead is. That’s half the battle.

Then comes income. Probably the younger you are, the simpler it is to tabulate. In my advanced age, my income spreadsheet has several columns because in addition to my salary, my university contributes to my retirement fund each month, and then there’s monthly interest from cash and bond investments, and quarterly dividends from stock investments. The wider your income spreadsheet the better. I know, I know, I need a “side hustle” column. I feel younger just for having written that.

Same as with expenses, I keep a running total month-by-month. Here I can be even more accurate than with expenses, even to the dollar. As a result of these monthly calculations, in two weeks, it will take me about 15 minutes to solve for “C” knowing “A” is expenses and “B” is income. If my income exceeds my expenses, “C” will be a positive number. If my expenses exceed my income, like for the federal government, “C” will be negative. Whichever it is, I will carry the number forward and keep a running total from year-to-year.

Building wealth depends upon creating savings on a month-by-month basis much more than fretting about what the market is going to do tomorrow and trying to craft the world’s most perfect portfolio. By far the best way to increase your net worth by $1,200 a year is to make sure your income exceeds your expenses by $100 month-after-month. By far the best way to increase your net worth by $12,000 a year is to do everything in your power to make sure your income exceeds your expenses by $1,000 month-after-month. By far the best way to increase your net worth by $120,000 a year is to make sure your income exceeds your expenses by $10,000 month-after-month.

If that’s so obvious, why do people spend way more time studying stock market gyrations than figuring out how to limit their expenses and increase their income?

If you do well and end up with a surplus of $1,200, $12,000, or $120,000 at the end of the year, invest 50% of it in low cost bond index funds and 50% in low cost stock index funds (+/- 25% based upon your age and risk tolerance). And repeat.

Invest knowing that the most credible analysts in the financial sector seem to be in agreement that future returns will likely pale in comparison to historical ones. For example, here’s Vanguard on 2019 and beyond:

“U.S. fixed income returns are most likely to be in the 2.5%–4.5% range, driven by rising policy rates and higher yields across the maturity curve as policy normalizes. This results in a modestly higher outlook compared with last year’s outlook of 1.5%–3.5%—albeit still more muted than the historical precedent of 4.7%. Returns in global equity markets are likely to be about 4.5%–6.5% for U.S.-dollar-based investors. This remains significantly lower than the experience of previous decades and of the postcrisis years, when global equities have risen 12.6% a year since the trough of the market downturn.”

Subtract 2-2.5% for inflation and another percent for taxes and returns may be 1-3% above inflation. And that’s not factoring in people’s tendency to trade too much with the associated costs that brings. Good luck depending upon your investment smarts to grow wealth.

Building wealth depends upon maximizing income and minimizing expenses a little or a lot. Of course, that depends upon more than using my suggested spreadsheets. Most likely, among other things, it depends upon the degree to which you grew up with role models who lived below their means; how specialized your knowledge and skills are; whether you live in a modest neighborhood; and ultimately, your capacity to delay purchases.

Lastly, one thing your financial planner won’t tell you. Personal wealth won’t amount to much if we don’t revive the Common Good. For us to flourish we need a federal government that can pass budgets without threatening to shut down. We need political leadership that young people can aspire to. We need labor unions to protect workers’ interests. We need health care that doesn’t penalize people of limited means or those with preexisting conditions. We need to partner with other countries to reduce greenhouse gases and global poverty.

Absent commitment to those things, wealth will elude us.

*get a load of this story

Think Differently

PressingPausers have proven to have little interest in personal finance. Correction. PressingPausers have proven to have little interest in my thoughts on personal finance. Big dif. So why do I persist? Idk.

Just like getting dressed in the morning while on sabbatical, the fact that NO ONE will read this is liberating. Whatever shorts and t-shirt I left splayed on the floor last night are good, not many peeps are going to see me anyways as I write a blog post NO ONE will read. If a blog post falls in the woods. . .

Classic investing advice is to keep investing expenses to a bare minimum; determine what balance of stock, bonds, and cash will enable you to sleep well at night; and keep trading to a bare minimum.

In the US, investors currently have 56% of their assets invested in stocks or more than 10 percentage points higher than its historical average of 45.3%. At the top of the bull market in 2007, it stood at 56.8%. This has a lot of analysts worried that a correction is coming.

Another investing maxim of increasing popularity is to stop trying to outsmart the market. Instead, as Kendrick Lamar advises, “Be humble!” His next vid will prolly be about investing in passive index funds like this. The chorus. . .”Be passive!”

Another oft-repeated investing maxim is never invest more than 5% of your net worth in any individual stock because they’re far too volatile. A mutual fund or exchange traded fund is a basket of hundreds or thousands of individual stocks that go up and down at different times, thus creating a smoother, steadier, long term increase in value.

But damn is AAPL en fuego. Check this missive from a Vanguard forum of knowledgeable investors I’ve taken to reading recently. Wait a minute. That last sentence presumed you’re reading this, which you’re not, so note to self—revise that. This missive from a Vanguard forum of knowledgeable investors has me thinking about chucking conventional investing wisdom and improvising like #3.

“Hi—
Long time lurker first time poster. Thank you to all who have contributed to my education here, absolutely invaluable.
I’m writing about my mother and father in law’s finances, which I am slowly taking over at their request.
FINANCIAL PICTURE
Savings
$425k in various super low interest checking / savings accounts
Investments at Fidelity (unlikely to change brokerages):
Rollover IRA: $675k of which
* 86.8% AAPL he’s a lifelong Apple fanboy, bought $11,500 worth way back when, which is now $575k.”

Hindsight is 20-20, but if I was my daughters age again, for every $2 dollars of savings I could set aside, I’d put $1 in a super safe certificate of deposit and the other in AAPL. And then rebalance annually and pay 15 or 20% on the capital gains. As the aforementioned anecdote intimates, I would’ve done really, really well adhering to this “barbell” plan.

But this way of thinking suggests I’m suffering from an advanced case of “optimism bias” which causes a person to believe that they are at a lesser risk of experiencing a negative event compared to others. Note to self—AAPL can’t continue its recent run. VTI is a much safer, wiser, long-term instrument for building wealth. VTI is also long overdue for a serious correction, or to use the fancy pants mathematical phrase, a regression towards the mean. It’s as certain as the Mariner’s August playoff fade.

Sometime soon, the half of the barbell holding certificates of deposit earning 3-4% is going to bring great comfort.

 

 

 

 

 

Who Are You Drafting Off Of?

Like a lot of introverts, my need for solitude sometimes seems insatiable. Yet, I’m keenly aware we are social beings and that we need others to accomplish much of anything and to have any meaningful shot at genuine happiness.

Even though you won’t find me in the Nisqually Delta with binocs, DSLR camera, and ginormous lens dangling from my neck, or listening to bird calls on my iPad, I enjoy watching the birds we share our new spot with. Yesterday’s airshow was especially good. Two bald eagles took turns nipping each other (foreplay?) while a cormorant glided by obliviously . I also can’t get enough of watching geese and other migratory birds fly by in small, medium, and large “V’s”.

Migratory birds draft off of one other for the same reason cyclists do, to save about 25% of their energy. I wouldn’t be surprised if they also also benefit somehow from the social aspect of flying together.

Are you an investor, if so, are you “flying solo” or are you drafting off of someone more experienced, knowledgeable, and successful? Like this person. What about as a person, are you drafting off anyone to be a better human being? Or maybe, like me, as an educator, parent, and older person, you’re doing your best to, like Nairo Quintana in the picture below, “lead out” others in need of a positive example.

20175944-355979-800x531.jpgPhoto: Tim De Waele | TDWsport.com

Postscript: I love this pic because even though Quintana is working at least 25% harder than Contador and company, he’s totally in control, meanwhile, everyone else is struggling mightily to hold his wheel. If only I had grown up Boyacense.

The Ultimate Personal Finance Challenge

There are two types of investors, active and passive. Active investors are always educating themselves about personal finance; and paradoxically, tend to use passive funds, due to their lower fees and superior performance. In addition, they are purposeful in choosing a particular asset allocation and they monitor their progress regularly. They invest time and energy into increasing their wealth. I’m an active investor.

Passive investors, because they often think they’re not smart enough, often delegate to financial planners upon whom they depend for choosing particular investments and determining an asset allocation. Passive investors tend to end up with active funds with higher fees because they’re not paying very close attention.* They may not open their quarterly statements. Picture them falling asleep at the wheel of a semi-autonomous, financial planner driven car.

The most important thing I’ve learned in thirty years of investing is that there’s an undeniable point of diminishing returns when it comes to business smarts and investing success. Simply put, some of the most well-educated and successful business people I have ever known have made some of the worst investment decisions I have ever seen. And to add insult to injury, they’ve been unable to admit the error of their ways and reverse course. Too smart for their own good.

Personal finance research shows that once active investors master earning more than they spend, wire the difference into specific exchange traded funds monthly, and decide how best to balance bonds and stocks, additional trading detracts from their returns. Think of trading based on possible changes in the market as a “too smart for one’s own good” tax. Here’s one example.

Once you master earning more than you spend, wire the difference into specific exchange traded funds monthly, and decide how best to balance bonds and stocks, your ultimate personal finance challenge is doing nothing. Hence, consider my triumvirate of personal finance resolutions for 2017: 1) I will not be too smart for my own good. 2) I will not try to guess the market’s direction. 3) I will not trade. Or for the sake of additional research, you could guess and trade away and then we can compare returns in 11+ months.

* I hired an advisor in the early 1990s. Learned an expensive, but ultimately, invaluable lesson, no one cares nearly as much about your financial well-being as you do.