Thursday, May 30, 2013

Physician Heal Thyself

Since my last two posts were on the power of investments and the importance of avoiding debt like it was the Bubonic Plague, I thought I might as well go for the trifecta and cover finding happiness with less, the true basis of frugality. Those three ideas are the basic pillars of financial freedom. However, as I began to work on this post I had to ask myself, “Who are you to be teaching anyone about finding happiness with what you have rather than in what you don’t have when are upsizing not downsizing in retirement?”

For over ten years we have been planning retirement to a city that is warmer, where taxes are lower, and the overall cost of living is less. Within a couple of months we will execute that plan. Even though our new house will cost considerably less than the expected sale price of our old house, it is bigger. As we prepared for the move we discovered that over the last 25 years living in the same house we had accumulated so much stuff that we were choking on it. In addition we are simultaneously attempting to sell off the last of many of the items from my mother-in-law’s estate. I have learned that our stuff is worth a whole lot less than we hoped when actually auctioned off at an estate sale or when we put it up on Craig’s List. I am beginning to believe that we will end up paying someone to haul off some of the oldest and cheapest furniture that will not be making the trip South.

Think about it. How can you expect to find permanent happiness in impermanent things?

For fourteen years my 1996 Honda Prelude was hands down the best car I have ever owned. I hope that title will eventually go to its replacement, a 2010 Acura, but it is too early to tell. After over 180,000 miles even my amazingly reliable fun to drive Prelude finally became a burden. Things just started to go wrong at ever more frequent intervals. It no longer made any sense to keep repairing that car. I was told old cars like my Honda that still look pretty good are often bought by mechanics. They put a few hundred dollars and some labor into the car before selling it to a high school student. I hope whoever gets it they enjoy owning that car as much as I did if only for a few years. Then it is bound for that big scrap crusher in the sky.

Some experiences hold the potential for delivering more real happiness than material objects. The achievement of mastery in a craft or profession brings a quite confidence and pride that lasts a long time. Athletes remember their achievements on the field in great detail years after the game is a forgotten footnote in some record book. This is even true on the high school level. A friend’s son played basketball on his high school varsity team. Each member of the team was given a large photograph of one of their own highlight performances from that year. The boy’s mother didn’t even know what game they were playing when the photograph of her son was taken, but he knew. He remembered that exact moment.

Still there comes a time when neither the force of your personality not the size of your brokerage account will not be able to buy you another hour of life, there comes a time when you will know that you will never drive your Mercedes SLS AMG again; in that hour what will matter; what will bring you real joy?

Faith. The love of your family. Generosity. Forgiveness. These are the foundations to a beautiful life, not a multitude of possessions or even a lifetime of fabulous experiences.

Money is a necessary tool in this material world. Even monks need to take up collections from the faithful for food, shelter, and clothing. Money is a powerful tool. It is the measure of your life’s energy. But it is just a tool. Real happiness is possible. It will occur when your goals and divine purpose become perfectly aligned with your talents and your effort. If you are living in that kind of congruency, you will by definition have enough.

Tuesday, May 28, 2013

A Trick Question

Let me ask you a trick question. Do you want to be sick? Why not? The answer is obvious. We know that sickness leads to suffering and death. Why would we want to suffer? We know sickness is part of the Curse. We know that good health is part of the Blessing. Moral compunctions aside, we avoid behavior, like frequent unprotected sex with strangers, that we know is likely to make us ill. Who wants a Sexually Transmitted Disease? Is a drunken one night stand with some skank worth the potential of a death sentence? Governments enforce quarantines to restrict the movements of infected individuals in order to protect society at large.

Still we willingly expose ourselves to illness under some circumstances. If your child has flu, would you risk infection to care for your child?

Why don’t we think the same way about debt? God repeatedly warns his children to stay out of debt. In fact debt is part of the Curse. Just as the ability to loan money is listed as part of God’s Blessing. (Check out Deuteronomy 28 if you are interested.) Why then are we in such a hurry to put ourselves under something that God clear states is a curse?

There is no such thing as good debt. Scripture is abundantly clear on this point. There is ugly debt. Payday and title loans, instruments to exploit the poor and the ignorant charge up to an APR of 400%! They should be illegal. The misuse of credit cards isn’t much better. In the wrong hands they can become the financial equivalent of crack cocaine.

Then there is bad debt. Car notes and student loans are keeping the middle class in debt slavery for their entire working life.

Should we ever take on debt? I think there is such a thing as tolerable debt. If a loved one needs surgery, medical debt or even bankruptcy may be a consequence. None of us are such reprobates that we would stand by and let one of our children die in order to avoid debt. We all need to live somewhere. Unless you are very lucky you will need to take out a mortgage to buy a home. A loan may be the only way available to begin a new business.

Even under the most ideal circumstances, there is no example in Scripture of God blessing his people with debt. However, there are examples of God cursing wickedness with debt. This fact alone ought to make us pause whenever we consider taking on any debt.

I try to give the people the tools necessary to get out of debt whenever I present Dave Ramsey’s Financial Peace University at my church. I spend less time than I probably should warning the readers of this blog to stay out of debt. Avoiding debt is absolutely the most significant step you can take toward financial freedom. If your waking working hours are not spent servicing debt, then you can begin to save until you reach that happy day when you have enough to be free to pursue whatever is really important in your life without the distraction of a job that is necessary to pay your bills.

If you are working to service your debt, then you understand the meaning of God’s Word when it says, “The borrower is slave to the lender.”

Sunday, May 26, 2013

Nothing Up My Sleeve

I enjoy watching a good stage magician, especially the ones that do those little hand magic tricks. Right under your nose, the Jack of Diamonds disappears into thin air. Then the Queen of Hearts appears from nowhere in that same hand. Once at a conference booth I watched a magician performing card tricks, literally right under my nose. At some point he stole my watch. Of course he gave it back, but I never felt a thing. How did they do that? At least part of the answer is misdirection. The magician gets you looking at the wrong thing. The big green consumer machine is performing its magic tricks every day. Most of us never notice until it is too late.

The other day I watched a new promotion from Kmart. If you spend $50.00 or more at Kmart, you get a coupon that gives you a 30 cent a gallon discount on gasoline. The big message screams, “Free Gas!” You can redeem these coupons at participating BP and Speedway stations. They limit the purchase using that coupon to 20 or 15 gallons respectively. Both companies only allow the use of a coupon for one fill up. If you use less than the maximum you lose. So, the best case scenario is a $6.00 savings after a $50.00 expense. I seldom buy more than 9 gallons of gas at a time. That would give me $2.70 if I didn’t have to drive out of my way to find a BP station. I drive past a BP station once a week, so that is covered. However, the BP station probably charges an average of 15 cents a gallon more than the nearby 7-11 Store. That would make my big savings about $1.35. Don’t get me wrong. If I needed to buy $50.00 of stuff at Kmart, I would certainly redeem that coupon if only for $1.35. I don’t look down my nose at free money whenever it is offered.

Now, let me teach you a better trick, free gas for years! In April 2012 gas prices were headed past $4.00 a gallon. Those kinds of prices are really painful. As a thought experiment, I looked to see how much of my gasoline purchases over the years were covered by my investment in Chevron (CVX). The answer was shocking (at least to me). The answer was, almost all of it.

$4.00 a Gallon Gas

Watch my hands; nothing up my sleeves. You don’t increase your net worth by spending more money. Change the way you view the world. Become an investor. It really doesn’t take all that much to get started. A no fee (that is an important concept) Schwab 1 account requires $1,000 minimum. Trades are $8.95 a pop. There is no minimum trade size. It doesn’t take anything but your signature on a form from your personnel office to start a 401K account. Just do it. Then you will find yourself asking the right questions like, “How can I profit from $4.00 a gallon gas?”

From time to time I am asked for highly specific investment advice by people who don’t want to do the research and don’t want to take any risks. I don’t give that kind of advice. In fact, I can’t give that kind of advice. Any time you invest in anything you are taking a risk. No one knows what the future holds. If any salesman tells you that his company has a secret formula to predict the future, run away. The bad news is that if you invest in the stock market you will lose money. The good news is that it is likely that you will make considerably more money than you lose if you are careful not to invest too much in any one thing or at any one time.

Consider: The most you can lose in a trade is all of it. It is highly unlikely that you will buy stock in a company that will go bankrupt if you exercise a reasonable amount of common sense. Even if that were to happen, if you have invested less than 2% of your net worth in that company it won’t be the end of the world. It is somewhat more probable that you might lose something like 50% of your money in a highly unlikely disaster (sometimes called a black swan) like the BP platform fire, but BP is a well managed company with many assets. If you are patient there is a good chance you will recover most of that money. If you are a bit of a gambler you might even put a little more money into BP after the price of your shares drops 50%. In a bad year all of your positions could lose as much as 40%. Then is the time to buy quality and dividends. Boy that can be hard on the stomach, but Baron Rothschild taught, “Buy on the sound of cannon fire. Sell on the sound of the victory bells.”

There is more good news. In the stock market there is no upper limit on gain. It is pretty easy to double your money in a reasonable time period, like seven or ten years. Tripling your money over the same kind of time periods isn’t impossible.

Remain humble and thankful for any blessings you receive as you invest your money in the market. There is an element of luck in picking what shares to buy.

Now just for grins the famous Penn and Teller Cigarette Routine, one of my favorites. Be sure and always watch what the big green machine is doing—but always watch from the other side.

The Seven Laws of Magic

Friday, May 24, 2013

Education in the New Millennium

Once in a while it seems like a subject just pops up in several unconnected sources on the Internet at more of less the same time. Recently, a number of authors are questioning the relevance of American education given the realities of the new millennium. I believe education in this country, particularly K-12, was designed to feed labor into the industrial machine. College was primarily for the intellectual and social elite. A high school diploma guaranteed lifetime employment at some unskilled or semiskilled job in a factory. Any college diploma guaranteed lifetime employment as a white collar functionary somewhere in the commercial/industrial complex. Large scale democratization of the university began with the GI bill designed to return the veterans of World War II to the civilian work force in a time controlled manner. Now almost every parent believes their child is entitled to a college degree and a good paying job sitting in front of a computer screen.

The educational bureaucracy that started at the beginning of the Twentieth Century has grown. It is the nature of bureaucracies to grow until the size and cost of the associated administrative burden leads to their implosion and collapse. In a recent post I discussed the increase in the cost of higher education. Since 1980 the cost of a university degree has outrun inflation by 500%. K-12 is no better. Since 1962 the cost of educating a student in inflation adjusted constant dollars has increased almost 700% while the quality of the product has declined.

The implosion is already beginning in places like the Chicago public school system, where entire schools have been shut down because they are so badly run they can not be saved. The entire cost of state and local government is beginning to bankrupt a few municipalities and counties in various parts of the country. Obviously, the cost of education is only one component in this problem, but the rising cost and declining quality (particularly in major urban areas) of public education is a disturbing problem.

Serious people are beginning to question the value of a college education. With the cost of a private liberal arts education pushing past the $160,000 mark both parents and their children are beginning to wonder if it is worth that kind of money to get a job as a barista at Starbucks (if you are lucky). It wasn’t that many years ago that conventional wisdom taught that a college degree, any college degree, would be worth about $500,000 over the course of a lifetime.

Some pundits are predicting the demise of the brick and mortar school. I think that is a little premature, but college degrees are being offered on the Internet. The prices are still artificially high, supported by federally guaranteed student loans, but Kevin Kelly’s law states that the cost of digital content will over time asymptotically approach zero. Once the lectures are in the can, a graduate student or a part time contract employee sitting in front of a home computer in his pajamas can grade the papers and facilitate class discussions at a very low cost. While I wouldn’t try to practice medicine without the degree and the license, credentials in some important areas, such as information technology, are becoming less important. The proven ability to set up and operate computer networks for small offices is of greater value than a degree in computer science. Remember, Bill Gates is a college dropout.

It any society, even those with socialist economies, there will always be the wealthy power elite. That is a given. In the new millennium who will do the heavy lifting for the few? Richard Young proposes two groups, the new skill trades and the service support businesses. The skill trades would include medical professionals, engineers and scientists as well as electricians, plumbers, and automotive technicians. Service support workers would include government employees, the military, businesses that service the general needs of society, and large scale agriculture. These two groups would continue to require considerable amounts of specialized training, but not a traditional liberal arts education.

The problem with this model or any similar analysis concerning the changing demands placed upon education is the average individual. There just aren’t enough new economy jobs to absorb large numbers of men and women with average or slightly below average intelligence and no particular skills. In the years following the collapse of 2008 we are beginning to see a small but historically significant decline in the percentage of actively employed Americans. While an educated few, like Henry David Thoreau did is his day, will consciously opt out of the belly of the beast, there is a growing underclass. Over 47 million Americans collect food stamps.

In the years following World War II America was blessed with the only industrial infrastructure in the world that did not suffer serious damage in the war. That gave us two decades of unimaginable prosperity. For the first time in history an unskilled worker could support a family in a manner that was the envy of the world. Now globalization, automation, and government regulation have combined to destroy those jobs. Sources as diverse as Bill Clinton and Steven Jobs have stated those jobs are not coming back.

Jeremiah (8:20)

The harvest is past,
The summer is ended,
And we are not saved.

How then is wealth to be divided now that robots create the robots that create the computers that manipulate the knowledge that defines power in this brave new world?

What is the role of education in the new millennium?

Wednesday, May 22, 2013

Investing for Retirement in Uncertain Times

We live in dangerous times. The governments of the world are fighting off major deflationary pressures generated by trillions in bad loans and valueless derivatives based on those loans by printing paper money and buying up mortgage bonds worth maybe twenty cents on the dollar at face value. The world’s economy is severely distorted. Asset bubbles like real estate bubbles in the United States, Ireland, Spain, and Australia grow and pop. Now interest rates on bonds, certificates of deposit, short term money market funds, and insured savings accounts are in the toilet. The market currently carries a Shiller PE Ratio of 24.45. Historically, 16 is considered about normal. Over 25 is considered evidence of a speculative bubble.

Current Shiller PE Ratio: 24.45 +0.04 (0.17%)

Shiller PE Ratio Data from 1881-May 21, 2013

Mean: 16.47
Median: 15.89
Min: 4.78 December 1920
Max: 44.20 December 1999

So how can we realistically plan for the future? If we can not predict a return of our investments, we can not decide how much to save for our future needs. It turns out there are some useful numbers that are remarkable constant over any “sufficiently” long period of time. The U.S. stock market has averaged 9 percent a year over long periods of time, but that is not a particularly useful number given the threat of inflation. Then there is that “sufficiently” long period of time problem. The stock market is subject of considerable volatility including years when investors have lost as much as 40 percent of their capital.

Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania, has discovered that since 1801 the U.S. stock market has delivered a remarkably consistent return of 6.5% to 7.0% after accounting for the effects of inflation. This number is widely accepted by the academic community and is now know as Siegel’s constant. Siegel has also discovered that bonds return 3.5% after inflation and short term money returns 2.9% after inflation. However these last two numbers do not correlate as closely to a linear model as the history for stocks.

This is pretty much what Warren Buffett is telling American investors. He projects an expected return of 6% to 7% on U.S. stocks in the foreseeable future. He bases this number on a projected increase in the Gross Domestic Product of about 3% and a rate of inflation of 2%. Evidently the sage of Omaha doesn’t believe the Federal Reserve can reignite the inflation of the 1970s with so much debt choking off growth in the world’s economy. He expects that increases in stock prices and dividends will give a return slightly below Siegel’s constant for the next few years. This seems reasonable given the current high valuation of equities.

Really, the more things change the more they remain the same. Investors still need some “safe” money in bonds and near cash assets. You may not earn enough to cover inflation now that the Federal Reserve and Treasury are relentless punishing risk adverse investments, but at least at the end of the term of the bond you do get your money back.

How much in bonds? As I frequently mention, the old rule of thumb was your age in bonds. Hence at age 60 that would be 60% in bonds and 40% in stocks. The new rule of thumb believes that number is too conservative given the risk of inflation. It would suggest at age 60 that an investor hold 55% in stocks and 45% in bonds and cash. I have seen some suggestions that would even bump up the amount held in stocks by another 5%, but this suggestion does not appear to be widely accepted or even widely discussed in the literature.

Even the young, who do not need to worry about the definition of a “sufficiently” long period of time, need to hold something in bonds and cash. When the market does experience a 40% crash, that reserve could give them a once in a lifetime opportunity to scoop up very valuable assets for pennies on the dollar. The older investor does need to worry about the definition of a “sufficiently” long period of time. His productive years are over. There will be no more savings generated by a job to continue to invest after a crash. His time horizon is generated by the actuarial tables. If a 60 year old man loses 50% of his net worth in a single year, it might take 30 years for the market to recover to returns predicted by Siegel’s constant. Such a “sufficiently” long period of time is of no interest to the older investor. I saw that happen to rich old people living at my parents’ retirement community and my mother in law’s senior high rise in 2008. They had too much money in the market, particularly shares in major money center banks. Now they are poor old people living with their children. As of our last visit to Atlanta in March there were still nearly 30 empty units in that senior high rise. Ten years ago there was a waiting list.

I am now on the other side of that problem. I am retired. How much can I safely draw without the fear of outliving my money? The latest numbers from the updated version of Cooley, Hubbard, and Walz’s seminal research published in 1998 as “Retirement Savings: Choosing a Withdrawal Rate that is Sustainable,” has been updated to 2009. These findings have been published in the April 2011 edition of the Journal of Financial Planning. This data now includes the crash of 2008. Once again the 4% rule is vindicated. That means if in the first year of retirement you withdrawal no more than 4% of your retirement savings and then every year thereafter you withdrawal the same amount adjusted for inflation or deflation it is very unlikely you will ever outlive your money.

Here are the rates of success for a 4% inflation adjusted draw for a portfolio of 50% Stocks for 55 thirty year periods beginning in 1926. These numbers indicate that there is only a 4% chance you will outlive your money in thirty years of retirement if you follow the 4% rule.

15 Years 100%
20 Years 100%
25 Years 100%
30 Years 96%

How about a portfolio consisting of 100% stocks with an 8% inflation adjusted draw? The numbers indicate approximately a one in four chance of outliving your money in 15 years. It’s a coin flip that I will outlive my money by year 25. I do not like those odds.

15 Years 76%
20 Years 63%
25 Years 52%
30 Years 42%

One more thing before you go, Please! Let’s be careful out there!

Tuesday, May 21, 2013

Arts, Crafts, and Collectibles

I know two people who have made money buying and selling collectibles. One specialized in autographed baseball memorabilia. He knew what he was doing. He understood the value of his products. He bought at wholesale and sold at retail. Even a knowledgeable expert gets burned now and then. He bought some expensive bats autographed by Barry Bonds before the steroid scandal broke. He thought they would help fund his retirement when Bonds was inducted in the Hall of Fame. Oh Well. I don’t know if he still has those bats but they might be worth more if he can clean the Barry Bonds autograph off the things. The second individual has a Federal Firearms License. He buys and sells guns. He makes money. Again he knows what he is doing. He was able to quickly appraise the value of an old shotgun I inherited from my father in law. He not only buys and sells modern weapons, but he also knows his antiques. Collecting firearms not only is a source of money but great joy. He rejoices every time he adds something desirable to his personal collection.

Although I know a lot of people who collect various items, I don’t know anyone else that consistently supplements their income with their hobby. It is hard to understand the value of art, crafts, and collectibles. I have visited Tamarack in West Virginia. It is the state’s arts and crafts center. The very best artisans (juried by their peers) from all over the state display their products for sale. Some of these products I understand. I worked in a metal finishing plant for four years. I have a pretty good idea of the amount of labor and the level of skill that went into a handmade flintlock rifle or a handmade knife. I look at a price of several hundred dollars for a hand forged knife, without blinking an eye. I am not going to pay that price, but I understand why it is selling at that price. The prices associated with most of these items escape me. On one of these trips I gagged at the price of a tiny basket (maybe 1 ½ inches wide by 1 ½ inches tall with a handle that bowed up 3 or 4 inches). I asked the person behind the counter how they could charge so much for such a tiny thing. One of the guys standing around delivered a fine lecture on the value of that basket. It was made by one of the most famous basket weavers in the world using a technique he learned from a tiny almost extinct Indian tribe in some remote corner of the country. Basically the guy cut down an oak tree. He then peeled little strips of wood off the trunk, boiled them so he could separate the fibers. Then he made the basket out of strips of wood not much bigger than threads. I can’t imagine the number of hours or the quality of skilled labor and love that went into that tiny basket.

But how much is it worth? To whom?

Therein lies the problem. If you find the right person, that purple beanie baby your aunt had in her collection, might be worth $1,300. Most beanie babies I seen in local craft stores sell for 50 cents or $1.00. I have heard similar numbers from the woman handling my mother in law’s estate sale. If you know the value of what you are buying and where it can be sold for that price, more power to you. I think it is totally cool when I get to watch people making money doing what they love. However, for most of us, I think we should not expect to get much of anything out of the art, crafts, and collectibles that clutter our houses.

Buy art, crafts, and collectibles because they bring joy into your life. I have two for real oil paintings. I have no idea if they are worth what I paid for them, but it doesn’t matter. Every time I see those paintings it brings me joy. I also remember buying them from the artist who produced them. To me that is also worth remembering when I view my paintings. I also have about a half dozen or so unusual collector quality knifes. Every now and then I pull them out of their boxes and unwrap them from their protective oil paper coverings to silently admire the craftsmanship that went into their manufacture. Then I put them away. My wife loves collecting little figurines, plush animals, and multi-media sheep statues. These dust catchers cover every flat surface in our house. They bring my wife far more in joy than the price that she paid the artisans who created these items. That is the best way to enjoy art and to support the people who produce the items that bring beauty and joy into our lives. If you find a way to monetize your little indulgence, I tip my hat to you sir, but most of us will never make a dime off our little collections.

--Except for maybe high quality firearms-- They seem to go up in value every year.

Hmmm…. I wonder what my wife would think of that idea given she has problems with investing in cigarette manufacturing companies.

Monday, May 20, 2013

And When I Run I Feel His Pleasure

Eric Liddell: “I believe God made me for a purpose, but he also made me fast. And when I run I feel His pleasure.”

The movie Chariots of Fire is based on the true story of two British athletes as they prepare for and participate in the 1924 Olympics; Harold Abrahams, an intensely competitive Jewish athlete dealing with the unspoken anti-Semitism of the British upper class and Eric Liddell an intensely devout Christian on his way to martyrdom as a missionary in China. In the movie Liddell’s sister Jennie disapproves of the time he wastes in athletic competition. However, Liddell views running as way to glorify God. The quote comes from the scene where Liddell tells his sister that he is going to China as a missionary, but first he is going to compete in the Paris Olympics.

As I study and teach the basics of personal finance and investments, a very obvious question resurfaces again and again in one form or another, “Why are we doing this? What does this have to do with living a good life?” I have come to believe there is a balance that each individual must find for themselves. Life comes with a certain amount of duty and obligation. If you toss out responsibility, living the life you love without considering the needs of others, you are nothing more than selfish and immature. The Bible states that someone who does not take care of his own house is worse than a heathen. If you totally deny who you are, carrying your load as well as the burdens of others, you will exhaust yourself. The fruits of such a life are unhappiness, bitterness, bad health, and ultimately an untimely death.

We earn and spend our money to better enjoy our life and care for those around us. If your money is not accomplishing these goals, you can do better. I have seen studies that indicate there is a close correlation between earnings and happiness up to about $75,000 a year (at least in this country). Beyond that number the correlation between money and happiness breaks down. I guess this indicates that for an American family, a combined income of $150,000 is enough. Even in an expensive metropolitan area like Washington, DC. $150,000 is enough to buy a nice house in a comfortable suburb, an entry level luxury car for the daily commute, and more flat screen TVs than the total number of family members living in the house.

How much is enough?

What makes you happy? Really happy? A lot of real happiness seems to arise in our service to others. Eric Liddell believed God made him for a purpose, the mission field. He also believed God made him fast for a purpose. When he ran he felt God’s pleasure and approval. So what are the duties, obligations, and responsibilities God has placed in your life? Are you a loyal dependable friend? Are you a good employee? Are you caring for your family?

Then there is that other set of questions. Have you found the center of your heart? Have you found those talents and abilities that uniquely make you who you really are?

You will know when you find them. You will know when you have lost yourself in God’s pleasure. As you run your own unique race, you will know. You will really, really know why He has made you, why life is so wonderful because you’re in this world.

Senior Discounts

This list came from a Facebook post. I have not verified the contents for accuracy, but it does give one of my age something to think about and something to ask for!

Keep this list and send a copy to your senior friends and relatives.
As I was waiting in line behind an older gentleman at Wendy's recently, I heard him ask for his senior discount. The girl at the register apologized and charged him less. When I asked the man what the discount was, he told me that ...seniors over age 55 get 10% off everything on the menu, every day.
Being of 'that' age myself, I figured I might as well ask for the discount too.
This incident prompted me to do some research, and I came across a list of restaurants, supermarkets, department stores, travel deals and other types of offers giving various discounts with different age requirements. I was actually surprised to see how many there are and how some of them start at the young age of 50 .
This list may not only be useful for you, but for your friends and family too.
Dunkin Donuts gives free coffee to people over 55 .
If you're paying for a cup every day, you might want to start getting it for FREE.

YOU must ASK for your discount!

Applebee's: 15% off with Golden Apple Card (60+)
Arby's: 10% off ( 55 +)
Ben & Jerry's: 10% off (60+)
Bennigan's: discount varies by location (60+)
Bob's Big Boy: discount varies by location (60+)
Boston Market: 10% off (65+)
Burger King: 10% off (60+)
Chick-Fil-A: 10% off or free small drink or coffee ( 55+)
Chili's: 10% off ( 55+)
CiCi's Pizza: 10% off (60+)
Denny's: 10% off, 20% off for AARP members ( 55 +)
Dunkin' Donuts: 10% off or free coffee ( 55+)
Einstein's Bagels: 10% off baker's dozen of bagels (60+)
Fuddrucker's: 10% off any senior platter ( 55+)
Gatti's Pizza: 10% off (60+)
Golden Corral: 10% off (60+)
Hardee's: $0.33 beverages everyday (65+)
IHOP: 10% off ( 55+)
Jack in the Box: up to 20% off ( 55+)
KFC: free small drink with any meal ( 55+)
Krispy Kreme: 10% off ( 50+)
Long John Silver's: various discounts at locations ( 55+)
McDonald's: discounts on coffee everyday ( 55+)
Mrs. Fields: 10% off at participating locations (60+)
Shoney's: 10% off
Sonic: 10% off or free beverage (60+)
Steak 'n Shake: 10% off every Monday & Tuesday ( 50+)
Subway: 10% off (60+)
Sweet Tomatoes: 10% off (62+)
Taco Bell : 5% off; free beverages for seniors (65+)
TCBY: 10% off ( 55+)
Tea Room Cafe: 10% off ( 50+)
Village Inn: 10% off (60+)
Waffle House: 10% off every Monday (60+)
Wendy's: 10% off ( 55 +)
Whataburger: 10% off (62+)
White Castle: 10% off (62+) This is for me ... if I ever see one again.

Banana Republic: 30% off ( 50 +)
Bealls: 20% off first Tuesday of each month ( 50 +)
Belk's: 15% off first Tuesday of every month ( 55 +)
Big Lots: 30% off
Bon-Ton Department Stores: 15% off on senior discount days ( 55 +)
C.J. Banks: 10% off every Wednesday (50+)
Clarks : 10% off (62+)
Dress Barn: 20% off ( 55+)
Goodwill: 10% off one day a week (date varies by location)
Hallmark: 10% off one day a week (date varies by location)
Kmart: 40% off (Wednesdays only) ( 50+)
Kohl's: 15% off (60+)Modell's Sporting Goods: 30% off
Rite Aid: 10% off on Tuesdays & 10% off prescriptions
Ross Stores: 10% off every Tuesday ( 55+)
The Salvation Army Thrift Stores: up to 50% off ( 55+)
Stein Mart: 20% off red dot/clearance items first Monday of every month ( 55 +)

Albertson's: 10% off first Wednesday of each month ( 55 +)
American Discount Stores: 10% off every Monday ( 50 +)
Compare Foods Supermarket: 10% off every Wednesday (60+)
DeCicco Family Markets: 5% off every Wednesday (60+)
Food Lion: 60% off every Monday (60+)
Fry's Supermarket: free Fry's VIP Club Membership & 10% off every Monday ( 55 +)
Great Valu Food Store: 5% off every Tuesday (60+)
Gristedes Supermarket: 10% off every Tuesday (60+)
Harris Teeter: 5% off every Tuesday (60+)
Hy-Vee: 5% off one day a week (date varies by location)
Kroger: 10% off (date varies by location)
Morton Williams Supermarket: 5% off every Tuesday (60+)
The Plant Shed: 10% off every Tuesday ( 50 +)
Publix: 15% off every Wednesday ( 55 +)
Rogers Marketplace: 5% off every Thursday (60+)
Uncle Guiseppe's Marketplace: 15% off (62+)

Alaska Airlines: 50% off (65+)
American Airlines: various discounts for 50% off non-peak periods (Tuesdays - Thursdays) (62+)and up (call before booking for discount)
Continental Airlines: no initiation fee for Continental Presidents Club & special fares for select destinations
Southwest Airlines: various discounts for ages 65 and up (call before booking for discount)
United Airlines: various discounts for ages 65 and up (call before booking for discount)
U.S. Airways: various discounts for ages 65 and up (call before booking for discount)
Amtrak: 15% off (62+)
Greyhound: 15% off (62+)
Trailways Transportation System: various discounts for ages 50+

Car Rental:
Alamo Car Rental: up to 25% off for AARP members
Avis: up to 25% off for AARP members
Budget Rental Cars: 40% off; up to 50% off for AARP members ( 50+)
Dollar Rent-A-Car: 10% off ( 50+) Enterprise Rent-A-Car: 5% off for AARP members Hertz: up to 25% off for AARP members
National Rent-A-Car: up to 30% off for AARP members

Overnight Accommodations:
Holiday Inn: 20-40% off depending on location (62+)
Best Western: 40% off (55+)
Cambria Suites: 20%-30% off (60+)
Waldorf Astoria - NYC $5,000 off nightly rate for Presidential Suite (55 +)
Clarion Motels: 20%-30% off (60+)
Comfort Inn: 20%-30% off (60+)
Comfort Suites: 20%-30% off (60+)
Econo Lodge: 40% off (60+)
Hampton Inns & Suites: 40% off when booked 72 hours in advance
Hyatt Hotels: 25%-50% off (62+)
InterContinental Hotels Group: various discounts at all hotels (65+)
Mainstay Suites: 10% off with Mature Traveler's Discount (50+); 20%-30% off (60+)
Marriott Hotels: 25% off (62+)
Motel 6: Stay Free Sunday nights (60+)
Myrtle Beach Resort: 30% off ( 55 +)
Quality Inn: 40%-50% off (60+)
Rodeway Inn: 20%-30% off (60+)
Sleep Inn: 40% off (60+)

AMC Theaters: up to 30% off ( 55 +)
Bally Total Fitness: $100 off memberships (62+)
Busch Gardens Tampa, FL: $13 off one-day tickets ( 50 +)
Carmike Cinemas: 35% off (65+)
Cinemark/Century Theaters: up to 35% off
Massage Envy - NYC 20% off all "Happy Endings" (62 +)
U.S. National Parks: $10 lifetime pass; 50% off additional services including camping (62+)
Regal Cinemas: 50% off Ripley's Believe it or Not: @ off one-day ticket ( 55 +)
SeaWorld, Orlando , FL : $3 off one-day tickets ( 50 +)

AT&T: Special Senior Nation 200 Plan $19.99/month (65+)
Jitterbug: $10/month cell phone service ( 50 +)
Verizon Wireless: Verizon Nationwide 65 Plus Plan $29.99/month (65+).

Great Clips: $8 off hair cuts (60+)
Supercuts: $8 off haircuts (60+)_

Friday, May 17, 2013

Our Military Their Debts

A long time ago I lived in the neighborhood of Fort Jackson, the U.S. Army basic training center located near in Columbia, SC. Back in those days there was every kind of sleazy slime ready to exploit our troops that one would expect to see near a major military base except strip clubs. I guessed that had something to do with the number of Baptists in South Carolina. It just wouldn’t look right. A quick Goggle indicates nothing has changed. There are plenty of liquor stores, bars, pay day and car title loan sharking operations, gun stores, and pawn shops near the base. A Goggle on prostitution in Columbia, SC indicates the world’s oldest profession is still thriving in the shadows of the Army’s Training Command. You still have to drive a few miles to find the strip clubs. I guess the Baptists still don’t think that would look right.

Throughout history, soldiers have always been the victims of the parasites whom they defend. I don’t expect human nature to change just because I am disgusted. Our military, particularly young enlisted families don’t have a lot of spare cash. I also expect that they have other things on their minds beyond the monthly budget and the allocation of their contribution to a TSP retirement account. They have been so victimized by pay day loan companies and title loan companies that 7 years ago Congress passed the Military Lending Act which limited these loans to a 36% annual rate. Propublica reports that payday loans typically had an annual rate of 400% and one month car title loan generally ran around 100%.

This was a good start. I would not be displeased to see those protections extended to the civilian poor as well as their brethren in the military. However, as is often the case, well intentioned laws do not change the hearts of men. The usurious bloodsucking slime that operate these storefront loan companies simply changed the terms of their loans to avoid the law.

Here is an example of how things work today from the Propublica article, On Victory Drive, Soldiers Defeated by Debt.

“In June 2011, when Levon Tyler, a 37-year-old staff sergeant in the Marines, walked into Smart Choice Title Loans in Columbia, S.C., it was the first time he'd ever gone to such a place, he said. But his bills were mounting. He needed cash right away. Smart Choice agreed to lend him $1,600. In return, Tyler handed over the title to his 1998 Ford SUV and a copy of his keys. Tyler recalled the saleswoman telling him he'd probably be able to pay off the loan in a year. He said he did not scrutinize the contract he signed that day. If he had, Tyler would have seen that in exchange for that $1,600, he'd agreed to pay a total of $17,228 over two and a half years. The loan's annual percentage rate, which includes interest and fees, was 400 percent.”

The loan even contained an ingenious option as an addendum designed to circumvent the law that allowed an early pay off at 100%, exactly the same terms as the old loans before the change in the law.

Another company, Community Loans, has been sued for flagrantly disregarding this law. Their defense? The soldier sells his vehicle to the company while retaining the option to buy back the car at a higher price, making the transaction a sale not a loan. A lower court has rejected this argument. One of the soldiers named in the suit won a Purple Heart but lost his car to a company without a heart. This is just plain wrong.

The laws against usury need to be tightened up. These predatory loan companies victimize the helpless, the desperate, and the ignorant. How about a cap of 36% on any kind of loan made to a member of one of our Uniform Services? If a company can’t turn a profit on a portfolio of collateralized loans at an APR of 36%, they don’t deserve to be in business.

I have heard that more members of our military lose their security clearances to debt problems than to any other cause. In many military specialties the loss of a security clearance is the end of a career. For this reason members of our military are reluctant to expose their problems to their commanding officers. It is not like the officers in our military do not already have enough on their plate, but I hope they will counsel and help their troops out of their debt problems rather than add to their woes. This kind of openness should include some kind of get out of jail free pass, especially for first time victims of predatory loan scams. As with all social problems in our military this will not happen without pressure from flag officers and the civilian Secretaries of the services.

The article notes, “Soldiers who hide their debt often forego the military's special aid options. Army Emergency Relief and the Navy-Marine Corps Relief Society offer zero-interest loans. But in seeking that help, a soldier risks alerting the commanding officer to his or her troubles, particularly if the sum needed is a large one.”

Until changes in law can be enacted, perhaps a debt/compound interest module needs to be added to the training required by our military. As a civilian employee of the Department of the Navy I was required to take the same training on human trafficking given to uniformed members of that service. It is a good thing to tell a 19 year old sailor on his first liberty after six months at sea, “Don’t get drunk with whores.” Perhaps similar warnings should be given to keep them away from storefront loan sharks.

Thursday, May 16, 2013

The Four Most Dangerous Words

“The four most dangerous words in investing are, it’s different this time.” Sir John Templeton

As the market moves past old record highs fueled by unusually high profit margins, a huge increase in the money supply, as well as the usual suspects; greed and fear, I am once again hearing the four most dangerous words in investing. Yesterday I read an article suggesting that it was too dangerous to stay in conservative dividend paying stocks. Did the author suggest that we should pull some of our profits off the table and wait for a better time to buy? No. He suggested that this time it was different. He suggested that we discard the basic principles of investing, dumping those conservative positions now overvalued by retirement dollars seeking income. He suggested now was the time to take a more aggressive position in cyclicals and technologies because this time it was different.

He may be correct in the short run. Fast money may well shoot stocks with high betas into the stratosphere. However the same beta that predicts these stocks will move faster during a bull market also predict that these stocks will move faster once the bear gets out of his cage. Sometimes the bear moves so fast you will not have time to react until it is too late.

For New Readers from Wikipedia:

“In finance, the Beta (β) of a stock or portfolio is a number describing the correlated volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to. This benchmark is generally the overall financial market and is often estimated via the use of representative indices, such as the S&P 500.”

For example, Johnson and Johnson, a classic widow and orphan stock has a beta of 0.55 much less than that of the general market which by definition is 1.00. Cyclacel Pharmaceuticals Inc, a small development-stage biopharmaceutical company has a beta of 1.99, much higher than that of the general market.

If something goes up too fast and too far, it will come down, there is no escaping gravity of the business cycle as it turns, and it will turn. The roaring 20s were fueled by new technology; radios and automobiles. Everyone believed that this time it was different, stock prices would continue to go up forever.

Here is one quote typical of that era, "Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months." - Irving Fisher, Ph.D. in economics, Oct. 17, 1929

I was too young to enjoy the bull run of the nifty fifty in the late 1960s and early 1970s. Once again it was widely believed that you couldn’t lose money on stocks like Polaroid, Xerox, and ITT. Things went fine until the first oil crisis of 1973. Then we lost a full decade to stagflation.

I am old enough to remember the first gold rush of 1970s. I was too young and broke to participate. I watched gold go from $35.00 an ounce in 1971 to $1,000 an ounce in 1980. Then it fell to around $250 an ounce and stayed there until it was rediscovered about eight years ago. Gold once again peaked in 2011 around $1,900 an ounce. The gold bugs screamed, “This time is different.” It wasn’t different in 1980. It wasn’t different in 2011. I am not selling my gold shares neither will I be buying any more in the foreseeable future. I view gold as a sort of insurance policy that is hedging my position in treasuries. I still believe that gold is an integral component to my portfolio, but I will never believe that it will go up forever. I remind my gold bug friends who sometimes start to think a little like survivalists that if we really face a Road Warrior scenario shotgun shells and gasoline will be the best investments.

The big this time is different disaster that I remember only too well was the dotcom boom of the late nineties. My coworkers abused me for paying off my mortgage early. They told me to borrow more money against my house so that I could invest in the Internet boom. I quite literally remember a conversation in which a coworker who was making more money in the market than as a fulltime Government high grade flat out told me in so many words that this time it was different. He told me I could not lose money on the dotcom revolution. If I remember correctly, he lost over $300,000 in 2000. I remember joking with him, “Come down off the roof. Don’t jump. Things will get better,” and they did get better.

Please! Please! Please! Let’s be careful out there today.

Monday, May 13, 2013

My Best Friend's Wedding

I really enjoyed watching My Best Friend’s Wedding. It was a perverse pleasure watching my wife’s disappointment as the annoying Julia Roberts character lost her man to Cameron Diaz. Weddings are the first big expense a young couple will face. It is an event that may set patterns of spending that could affect the rest of their married life. I first ran into the idea that young people need to plan and save for a wedding in I Will Teach You to Be Rich by Ramit Sethi (a book I strongly recommend to well educated, ambitious young people). My initial reaction was, “This is some kind of weird Indian thing.” Ramit constantly jokes about his upbringing in an Indian immigrant home. In the good old days the father of the bride postponed retirement by a couple of years to give his little princess the wedding of her dreams. In continuing to research this problem, I have discovered things have changed a bit since the good old days.

The average cost of an engagement ring is $5,200! Folks are we crazy! The only way most young men can handle that kind of expense is with some kind of “same as cash” payment plan offered by the jewelry store. If you pay less than the full amount or are late on even one payment here is what will happen. (The Crazy World of Engagement Ring Financing).

Jared: 0% interest if paid in full within 12 months; up to 24.99%.

Kay Jewelers: 0% interest if paid in full within 12 months; up to 24.99%.

Shane and Company: 0% interest if paid in full in 6 months; 27.99%

Zales: 0% interest if paid in full in 6 months; 23.73% to 28.99%

Pay cash for your engagement ring. If you see a wedding on your radar, start saving today. If your hormones can’t wait, buy something you can afford. If that isn’t good enough for her, you now have a good reason to look for a wife somewhere else. I bought an engagement ring for $440. I found the receipt. It was all I could afford. Today, that same stone is worth about $1,500. I discovered that a few years ago when we took the ring in for some repairs. My wife has worn that ring for 38 years. I guess it did its job.

There are many tips on saving money on an engagement ring. None of them are particularly romantic. Strangely, rings just under some threshold are much cheaper than rings that meet some criteria. For example, a 0.96 carat stone will cost considerably less than a 1.00 carat stone. You pay a high price for bragging rights. The Internet is a good place to find a bargain. Also estate sales are a place to find some serious good deals. The article recommends always buy the stone and the setting separately. This not only saves money but allows you the opportunity to inspect the entire stone. As always, don’t be afraid to negotiate. Jewelry is one of the most overpriced products sold in our culture.

OK. You bought the ring. She said yes. Now what? The average American wedding costs $26,989. According to Brides magazine 1/3 of all brides overrun their budget. Sigh, well at least they had a budget. Unless daddy can foot the bill, bride and groom need to sit down and draft a budget. There are wedding calculators on the Internet. Ramit explores some aspects of wedding math in his book. His big surprise take away is that sometimes fixed costs are more important than the number of guests.

Brides, be nice to your bride’s maids. Do not pick out a $4,000 dress they will only wear one time. The same could be said about your dress. Use your connections if possible. Do you know a struggling talented photographer that is trying to go professional? This could save you a ton of money. Even if all the photographs are less than perfect, it really doesn’t matter. You will pick out a couple for display in your home and your parents' home. The rest will sit in an album in a dresser drawer. They will probably never see the light of day until they are discovered by a curious child exploring your bedroom. Ramit recommends putting the cost of the honeymoon on your bridal registry. Suggest that your friends can donate frequent flier miles rather than buy designer pillow cases at that BBB store.

Wedding math is really scary. You and your intended must have a budget. Do not buy whatever strikes your fancy with a credit card. This is not a good way to start a new life together. In “Engaged, 5 Moves to Make” by Aaron Crowe, the author recommends this is the first time a young couple should open a joint account. The wedding account is the exception to the rule. Do not mix your financial accounts until after the wedding. Remember, there may not be a wedding. Once you have set a budget and opened a wedding account, begin to save. The math is simple. $20,000 divided by 12 months is $1,667.67 a month. That could be difficult but with a little help from friends and family you can beat those numbers down.

Ramit suggests that young people start saving for their wedding before a suitable mate appears on the horizon. Chances are you will get married. Wouldn’t it be nice if the cost of the wedding was not your first opportunity for a major disagreement over finances?

Ready? OK?

Wishin’ and Hopin’ and Thinkin’ and Prayin’

Saturday, May 11, 2013

The Big Bad Budget Boogie Man

Once again I am presenting Dave Ramsey’s Financial Peace University for my church. Next week is the dreaded budget class. This is where it either happens or it doesn’t happen. It has been demonstrated that if families who are in financial trouble choose to live on a formal budget there is a good chance they will get out of trouble. If the do not choose to live on a budget they are unlikely to get out of trouble. It’s that simple.

Unfortunately, the formal budget is almost universally viewed as the big bad boogie man of personal finance waiting to choke everything good out of your life. This is particularly true when families really need to make some fundamental changes in their financial behavior. Think about the language, live on or under a budget. Who wants to live on or under a piece of paper? Who wants to be held accountable by a piece of paper?

In 5 Reasons Budgets Fail - and what to do about them, Jodi Helmer explores some of the common complaints about budgets. The most obvious reason is that budgets are inflexible. Yea, limits are inflexible, just like your salary. You have your number. You have to live on that number. Sorry, but that is life in the real world. Over time you must spend less than you earn or you will get yourself into serious trouble. Dave Ramsey teaches that his students should allow a “blow” line on the budget. Every month allocate a portion of your money for mistakes, blown estimates, bad luck, and bad behavior. Money spent off this line requires no explanation. I would even take it one step further; separate his and her blow envelopes. If he wants to play a round of golf, it is none of your business. If she wants a new blouse, you can’t complain. The secret here is that the numbers are reasonable (after all necessities are covered) amounts of money that are allocated in advance.

Sometimes emergencies blow away the monthly budget. That is why you have an emergency fund. If the car breaks down and your budget can’t provide the funds to fix the problem, tap the emergency fund. That is why it is there. This then becomes an off budget expense. Once a family lives on a budget for a number of months a car repair ceases to be an emergency or a budget line expense. Consider, if you have placed $100 a month in the car repair “envelope” (a real envelope, a line on an Excel spreadsheet, or a sub-account in an electronic bank) every month for 10 months you have $1,000 available in a “pre-expended” account ready to buy a new set of tires. Withdraw $500 for the tires. Deposit $100 from the monthly budget. End of story. There, that wasn’t so hard.

Another major whine is, “Tracking every penny we spend is hard.” Yes, tracking your expenses to the penny, by line item, is a time consuming nuisance. The purpose of a budget is planning and tracking your expenses. If you are in the habit of throwing money this way and that whenever you feel like it, tracking every expense to the penny is going to seem unnatural and unpleasant. All I can say is that it works. There is no better way to learn about your habits, weaknesses, and strengths. The name of the game is self awareness. The purpose of a budget is not to stop you from spending money. The purpose of a budget is mindful spending. Ultimately, the purpose of the budget is to allow you to spend your money in a manner that is meaningful to you.

Here is one from the article that I haven’t seen anywhere else, Budgets Put a Focus on Price. Research indicates that people who live on a budget are more likely to buy on the basis of price rather than researching the market for the best buy. Shoppers that have set a price on a line in their budget for an item like a personal computer will spend that amount of money, even if a machine that meets their needs is available at a lower price. Jeff Larson of Brigham Young University, the author of the study, recommends that before placing such a purchase in a monthly budget, focus on the necessary features. Find a machine with the features and capabilities that meets your needs. First shop for features; then scan the marketplace; then add the cost to your monthly budget.

There are priorities in your budget. Of course you must start with your take home pay. Particularly if you are in trouble, start your budget with a line for savings. Even $1,000 in an emergency fund will take a lot of pressure off of the monthly budget.

Once you have subtracted something for the emergency fund, then focus on the necessities of life like shelter (mortgage or rent), food, critical utilities like power and water, clothing (from Goodwill if necessary), and transportation. For most situations this would be an affordable car, but public transportation is an option in some cases.

Once you have taken care of the basic necessities of life go after the minimum payments on your loans (excluding the mortgage) and credit cards.

Then look at everything else.

Dave Ramsey recommends what is termed a zero based budget. That is, every month every dollar coming into a household (by mutual agreement between husband and wife) is given a name before the month begins. The money is to be spent as planned or the budget must be renegotiated. At the end of the month salaries and other inflow minus expenditures and savings must exactly equal zero. Then the process begins again. The simplest version of the zero based budget is called the envelope system. At one time, this system literally used envelopes. For example when a paycheck came into a house a certain amount of cash would be placed in an envelope marked “food.” Any time anyone bought any food, the money had to come out of that envelope. When the envelope was empty, no more food was purchased until the next paycheck.

Living on a budget isn’t fun, but it does work.

Thursday, May 9, 2013

Mind and Body are One

Back in the day, I practiced Tai Chi as a martial art. It was a good experience. While I wasn’t ever good enough to threaten the legacy of Bruce Lee, I learned that I could do things with my body I didn’t believe were possible for me. Our teacher was fond of observing, “Mind and body are one,” as he taught us his art as well as a thing or two about learning and life. Unity of mind and body is a truth about many aspects of life not just the martial arts. When our mind and body are at peace, acting in harmony with one another, we can perform physical feats that are difficult to explain. As mind and body become one, at peace with what we truly value, we can better heal our body and our soul.

One of the great enemies of unity is stress. When our environment or the life we are living is toxic, our body is quick to let our mind know that something is wrong. Stress triggers the release of hormones that prepare our body to fight or run away from the source of our problems. In the short run, when confronted with a real threat this reaction can save our life; if left turned on for too long those same hormones will kill us. If money is a source of stress in your life, your body will let you know something is wrong even if your mind is in a state of delusion or you are living a lie.

Remember the basic money equation:

Money In = Money Stored + Money Spent
(integrated over the course of a lifetime).

If money spent exceeds money in over long periods of time money stored will turn negative as debt destroys your life. That is a source of stress. Arguments over money, for example, are the number one cause of divorce. Excessive debt and/or an obsessively materialistic lifestyle can ultimately kill you.

You can heal yourself. Mind and body can become one. First you must believe that it is possible to turn around your life. Stop. Look deeply at the source of your problems. Take responsibility for your life. Don’t focus on external problems. Discover what you can control; what you can change. It may be you need to find a different job. It may be you need to spend less money on some specific item, like cigarettes. It may be you need to sell a car to get the money you need to pay the rent. It may be you need to cut back on restaurants, so that you can retire before you die. Look deeply into the money equation. There is nothing about that equation you can not change. As you increase money in and decrease money out, money stored will increase. It is simple mathematics. As you continue to increase that number, you can reach freedom. Whatever that word means to you, you can live it.

Find people who will encourage and support positive behavior. We all need two kinds of friends, those who will lift us up when we faint and those who will kick us in the butt when we are lazy or when we indulge in morose self pity. We don’t need friends who tell us it isn’t our fault; the evil bankers did it to us. We don’t need a shopping buddy telling us that buying another pair of shoes will make us feel better. Please be careful whom you choose to bring into your life. We need someone who will encourage us to move in a new direction, past our old limiting beliefs.

Write your own prescription for your own life. I can point out the basic truths of money. I can teach the fundamentals of living on a budget. I can even suggest at least three different paths for beginning investors to explore. I can not live your life for you. If you are deeply honest with yourself, you know what kind of life you need to live so that your mind and body will be in deep harmony with what you truly value. I can not tell you that you need to sell everything you own so that you can be free to become a missionary in some distant land. I can not tell you to go out and get a second job for a couple of years so you can afford to keep your teenage children in their current high school with their friends. The details of your life depend on your values.

Your money is nothing more than a measure of how you use the energy of life. If your use of money is in harmony with your values you will be at peace. If you continue on a path of peace you will find freedom.

Wednesday, May 8, 2013

Income Options (Part III)

Yesterday, I pretty well thought I had finished this series. I had at least one more income idea, foreign bonds issued by developing nations, but I concluded that was a little too risky to even discuss as a serious possibility. At the end of Part II, I mentioned that my GE Capital preferred that was paying over 6% was called back by the company at par. That happened in January, just in time for my retirement. If I was reading my article, I would want to know what happened to that money.

I never give specific investment advice. I’m not that smart. I will tell you what I have done that works and more importantly what I have done that didn’t work. Normally, I would wait until I had some results to report, but in this case I will make an exception. My GE Capital was generating some income that needed to be replaced. I found the same information that I reported in my two earlier posts. It is hard times for the income investor. Bargains are hard to come by.

Closed end funds are an old form of the mutual fund that is almost forgotten. These funds are bought and sold as “companies” on the stock exchange just like any other company. Unlike the more common open funds, closed end funds issue a set number of shares. That money is then used to purchase shares in other companies. Therefore, at least in theory, an investor could take the value of shares held in the fund divide it by the number of shares outstanding and come up with the true value of a share in the closed end fund.

For reasons that are not well understood, these funds can sell at prices that fluctuate, sometimes wildly, around their true value. Benjamin Graham, the godfather of value investing, claimed that an investor can hardly go wrong by buying such a fund with a 15% discount. (Wikipedia) In my research, I found one that was selling at an 11% discount, Black Rock Enhanced Dividend Achievers Trust (BDJ). At the time shares were paying out a 7.5% dividend. I thought that 7.5% with a margin of safety sounded like a pretty good deal. The price of a share has risen by about 5% since I bought them back in February. It is too early to know if this was a good idea or a bad idea, but at least I am off to a good start.

BDJ invests in just the kind of boring stuff I love. Here are the funds top 10 holdings. As you can see it doesn’t do much of anything for diversification since I already own some of these companies. However, it does expose me to some U.S. bank stocks I would normally tend to avoid.

JP Morgan Chase
Wells Fargo
General Electric
Home Depot
Exxon Mobil
Phillip Morris International

BDJ also writes covered calls to juice their returns. That is a subject for another day. However, I need to mention that different kinds of closed end funds can do more than buy and sell shares in other companies, including the use of leverage. They can gamble with borrowed money. If they plan of doing anything unusual with your money, they have to let you know. Wikipedia notes, “Because a closed-end fund is listed on the market, it must obey certain rules, such as filing reports with the listing authority and holding annual stockholder meetings. Thus stockholders can more easily find out about their fund and engage in shareholder activism, such as protest against poor management.”

Economists have a name for the forces we fighting in our quest for income and safety, the efficient market hypothesis. “In finance, the efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.” (Wikipedia) Over the long run, I can’t really find a bargain because all the investors in the world and their computers are privy to the same information that I am using to make my decision. In the long run studies indicate that the efficient market hypothesis is very close to the Truth. However in short term performance, I side with the critics. There are things like insider information that isn’t generally known or factored into market pricing at a given moment in time. The efficient market hypothesis also fails to account for the temporary lunacy of crowds. Remember the dotcom bubble. Companies with no assets, no business plan, no sales, and no profits temporarily enjoyed total capitalization that was higher than well established responsible wealth producing corporations.

As Kenny Rogers Once Observed:

Now ev’ry gambler knows that the secret to survivin’
Is knowin’ what to throw away and knowing what to keep.
’cause ev’ry hand’s a winner and ev’ry hand’s a loser,
And the best that you can hope for is to die in your sleep.

Tuesday, May 7, 2013

Income Options (Part 2)

I knew about commercial junk bond funds that invested in high yield bonds issued by companies that were in serious trouble. I wondered if there were municipal bond funds that invested in bonds issued by municipalities or states that are struggling with their debt loads. Although at least one county and several municipalities have declared bankruptcy rendering their bonds worthless, the municipal bond market taken as a whole has remained pretty stable in spite of the fact several states are looking into the jaws of death as their underfunded pension liabilities come due. Such funds exist. It is a little difficult to find much information on these funds. They appear to be thinly traded specialty items. Last year they racked up about 10% returns. I don’t know how they might do this year. Local and state governments are pretty good about paying their debts since they want to borrow more money at the lowest rates possible---until they can’t. What really scares me is what might happen to this market if a state defaults. That has never happened not even in the great depression, but Illinois, New Jersey, California, and Rhode Island are in trouble. What would the default of an entire state do to the municipal bond market?

Here is the standard formula for Comparing the Yields of Taxable and Tax-Exempt Bonds, from the article By Matthew DiQuollo with the same title.

Taxable Equivalent Yield = Tax-exempt yield / 1 – [tax bracket]

For example, if the tax-exempt yield of the municipal bond you are looking at is 4% and you are in the 25% tax bracket, this is how the formula would work:

4%/1-0.25 = 5.33%

Do you need something else to worry about? The current administration has proposed a cap on tax exempt bond income. If that idea passes, which I doubt, it would certainly raise the interest rates paid by municipalities trying to build schools, roads, and sewer systems. Such a change in the law would probably benefit privately owned water companies as well as private builders looking to fund the so called “Lexus lanes” (low traffic volume toll lanes for those who can afford it) that are growing in popularity around big cities.

Oh, commercial junk bonds? The well known SPDR Barclays Capital High Yield Bond ETF sold under the ticker symbol (JNK) is paying 6.35%. But I have to ask the obvious question. Do you really want to own very much of something that advertises itself as JNK?

Over recent years, master limited partnerships (MLP) have been a way to juice your income a bit without too much risk. These entities enjoy a tax favored status similar to REITs. They are pretty much restricted to the oil and gas pipeline business. These are the people who build and operate our fossil fuel infrastructure including pipelines, storage facilities, terminals, and refineries. As long as Americans buy gasoline for their cars or heat their homes with natural gas, pipeline MLPs will survive in some form. Unfortunately from year-end 2012 to now, the yield on the group has gone from 6.4% to 5.6%. Also they typically have pretty high price earning ratios. That is usually an indication that you are betting their businesses will continue to grow at a pretty exorbitant rate. That may be true if environmental regulators allow the current oil and natural gas boomlet in places like western Pennsylvania to continue. There are still some MLP funds that pay some pretty high yields. Typically they invest in foreign countries that could be considered not all that safe.

There is one more thing to think about when investing in pipeline MLPs. They require a form K when you submit your income tax return. These things are issued pretty late in the tax season and add many pages to your tax return. If you insist on doing your own taxes, you might think twice before investing in something that might get you in over your head. There are also tax considerations that might require consultation with your CPA when and if you decide to sell your shares.

For the record, I own shares in the depressing G fund (government securities), the F Fund that matches the performance of the Barclays Capital U.S. Aggregate Bond Index, and lots of boring dividend paying stocks like Chevron (CVX). I do not currently own any preferred shares but I enjoyed a good run with General Electric until they recalled my shares at par. I own Plum Creek Timber (a specialty REIT), shares in Vanguard’s Intermediate Term Tax Exempt Fund, and Kinder Morgan Partners (KMP), a pipeline MLP.

People! Please! Let’s be careful out there today.

Monday, May 6, 2013

Income Options (Part 1)

It is a tough time for the income investor. That would be us retired folks. The most important consideration for those of us who have passed our prime earning years is stated rather succinctly in the Tao of Warren Buffet, “Rule No. 1: never lose money; rule No. 2: don’t forget rule No. 1″ After safety, a steady reliable stream of income is the highest priority for us old folks. After retirement growth is still a consideration, as the threat of inflation is very real, but preservation of capital and income are of paramount importance. Traditionally bonds were the safe harbor for retired folks. With very little risk it was easy to generate a 5% income stream to support a lifestyle simplified after children left the home. For those willing to take a little more risk, widow and orphans stocks, like Ma Bell, Johnson & Johnson, and solid responsible bank shares paid somewhere around a 4% dividend with the opportunity for at least some growth. Inflation was running around 2%. Life was good.

Today Government inflation numbers no longer include energy or food. This makes Government estimates of inflation quite worthless. It is pretty easy to see where this is leading. Those worthless numbers are fed back into cost of living calculations for Social Security, allowing inflation to eat away at our $55 Trillion problem with unfunded liabilities. The real rate of inflation in 2012 is given at 8% rather than the 3.1% figure provided by Government economists. The Federal Reserve has destroyed interest rates. Today the benchmark Ten Year Treasury yields a paltry 1.75%. The Standard and Poor’s 500 index dividend yield is floating around 2.0% rather than the historic norm of 3.5%. In this dreadful situation, older investors are reaching for better returns to provide the income they need in retirement. All these options contain greater risks than those investments found in conventional models. Options such as retail annuities that limit risk are so expensive they are of little value to the small investor.

We are forced by these circumstances to undertake more risk by investing a larger potion of our retirement savings in stocks. For new readers, the traditional rule of thumb was your age in bonds. Hence at age 60 you would hold 60% of your retirement investments in bonds and 40% in stocks. More recently the new conventional wisdom suggests that you kick up your stock holdings by 15%, hence at age 60 you would have 55% in stocks and only 45% in bonds.

If the Treasury and the Federal Reserve Bank persists in their ZIRP (Zero Interest Rate Policy) that relentlessly punishes savers and conservative investors the percentage that retirees should hold in equity positions may continue to increase. Siegel’s Constant teaches us that the U.S. stock market generates a remarkably consist return of 6.5% to 7.0% after inflation over any long time period. However, as Lord Maynard Keynes observed, “In the long run we are all dead.” If the stock market suffers a 50% meltdown the day after I retire, while I am holding 100% of my retirement investments in stocks, I would need to double my money just to break even. Even if Siegel’s proves to be true over the course of the next thirty years, it won’t do me any good. I saw this happen to a number of formally rich old people in both my mother-in-law’s senior high rise and my parent’s retirement community. Now they are poor old people living with their Baby Boomer children who need to use their money to prepare for retirement not take care of their very elderly parents.

Particularly at this time when the market is at or near historic highs, bargains are hard to find. Older investors seeking better returns have driven up the price of boring old dividend producers like Chevron (CVX) past historic valuations. Now we are turning to somewhat more exotic instruments in the never ending quest for a return that can support a dignified retirement.

Preferred shares provide a higher return, somewhere around 6.8%. Preferred stock is neither this nor that. It isn’t a voting share in the company and it is not a bond. It is a debt instrument that pays a set dividend that does not change. There are a number of risks associated with preferred shares. Typically these shares are issued at a par value, often $25.00. The company has the option of recalling these shares at any time for the par value. In the current environment that is likely to be less than you paid for your shares. If you held those shares for several years, this is not a problem. If the company recalls those shares at par the day after you paid $36.75 per share, you lose.

The bond holders get first shot at interest, then the holders of preferred shares get their cut, finally those who own common stock get their dividends. Some preferred shares can allow the company to defer payment. Sometimes if the company can’t make their dividend payment to holders of preferred shares, they just lose that promised money. In bankruptcy the bond holders get first crack at any asset leftovers after the creditors have been made whole. Preferred shares become worthless. In actual practice it is hard to say how the courts will carve up the carcass of a dead company. When General Motors went into bankruptcy the bond holders, including the pension funds of a number of states were left holding the bag.

The real risk with most preferred shares issued by responsible corporations is inflation. If you are holding a preferred issue that pays 6% of par, you are looking pretty good in today’s bizarre ZIRP world. If suddenly the rates on Ten Year Treasuries jumps from 1.75% to 3.5% because the Chinese get tired of taking our debt or the Federal Reserve Bank slows down its purchase of surplus debt issued by the Treasury that could cut the value of your preferred share in half. Overnight! If the company that issued those shares is unwilling to recall them when Treasuries are yielding 1.75%, they sure won’t recall them when Treasuries are yielding twice that figure.

REITs (Real Estate Investment Trusts) are another option for the investors in search of better yields. “Under U.S. Federal income tax law, a real estate investment trust (REIT) is "any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages" under Internal Revenue Code section 856.” (Wikipedia) By law a REIT must distribute 90% of taxable income in the form of dividends. If a company is organized as a REIT the shareholders avoid paying double taxes on its profits, corporate income tax on the profits; then individual taxes on dividends.

Before exploring REITs as an investment let me add a word of warning. What the taxman giveth, the taxman can taketh away. Back in the day, I bought a nice little dividend machine named Fording Canadian Coal Trust. This company and others like it took advantage of a loophole in Canadian tax law that turned into a bonanza for shareholders. The Canadian Government decided that enough was enough and closed that loophole, dropping the value of my holding to about ½ of what I paid for it. Also the dividend returned from the stratosphere to something more reasonable for a coal company. This story did have a happy ending. I decided that the Chinese would continue to buy high quality metallurgical coal from Fording to fuel their growing steel industry. Coal doesn’t go bad sitting in the ground, so I kept a stiff upper lip and held onto my shares. Eventually something called Teck Cominco bought up all of Fording’s assets at a very high price. I made a nice profit.

REITs buy and manage real estate. There are REITs for just about everything from storage units to skyscrapers. The price of these shares rise and fall with value of the underlying properties. When the real estate bubble popped in 2006 the value of many of these shares dropped between 40% and 70%. Today the total REIT index is paying somewhere around 3.4%, much better than Ten Year Treasuries at 1.75%. However, history indicates that REIT correlate to stock prices, not bond yields. Today the markets are overvalued against historic norms. Is it a good time to buy REITs….hmm? My crystal ball is foggy. The spirits aren’t telling me a thing. In fact the valuation of REITs, driven by a search for better yields, has outpaced the general market since the crash of 2008. Still REITs are a way for the small investor to share in profits generated by income producing real estate, including large commercial properties. There is also the possibility that these holdings could act as an inflation hedge—or not.

As always, Please Let’s Be Very Careful Out There Today!

Saturday, May 4, 2013

5 Friends, 4 Friends, Your Friends, My Friends

“You are the average of the five people you spend the most time with.”
Jim Rohn

Over the years I have posted a number of articles on the importance of who we bring into your lives. It isn’t just about money. We can choose to spend time with people who will challenge and encourage us to move on or we can choose to spend time with people who will tell us what we can’t accomplish because the deck is stacked against us. Are your friends helping you make wise decisions as you move towards your destiny? Are they by word and example pushing you past old limiting beliefs? Or are they holding you back, envious and fearful that perhaps you will go beyond everything they have accomplished in their miserable lives.

Jesus gave a pretty harsh warning about the kind of people we let into our lives, “Give not that which is holy unto the dogs, neither cast ye your pearls before swine, lest they trample them under their feet, and turn again and rend you.” Have you ever opened your heart to a friend, sharing your dreams and your visions only to have them tell you what can not be done? This is deadly when it comes to bettering your financial situation. Jealousy is quick to rear its head when you begin to move towards financial freedom.

We all are burdened with problems that weigh us down, that drag us towards defeat. There are times when I need some sympathy and encouragement because I am carrying a heavy load. I am glad when there is a friend there to share his energy in my hour of need. I have a true friend who seems especially gifted at kicking me in the butt when I am wallowing in self pity. As it is written, “Faithful are the wounds of a friend; but the kisses of an enemy are deceitful.”

If the time you spend with one another is benefiting neither you nor your friend, you must ask the question, “Do we make each other better people?” If the answer is no it may be time to move on, but don’t be too quick to pull the trigger. We are called to serve in different roles with different friends.

In the presence of a true friend we are allowed to have a bad day or act like a fool. We will allow them the same opportunity to stumble and fall. The Bible puts it like this, “As iron sharpens iron, so one person sharpens another.” Iron rubbing on iron is not a pleasant image or sound, but as true friends interact with one another they both grow.

For the past few years I have been moving on in my life. I am learning that there will be friends who can no longer hear me or see me. This grieves me deeply. I don’t know what to do but move on. Upon reflection I have concluded that in past times when I experienced a major life transformation, some of my friends fell away from me like leaves fall from a tree in autumn. At first they continued to cling, but without effort most of these relationships ultimately floated away, succumbing naturally to the wind and the rain. I can think of only two such friendships that were ended with any effort on my part. I will not speak of this. I only hope it will never happen again.

Different kinds of friends enter and leave our life. Two examples from scripture are the four friends who tore the roof off a house in an effort to lower their sick buddy into the Master’s presence. These are friends who are a constant part of our life over many years. We all have friends who have covered our back on many occasions. Usually, there are not many of these friends who meet the definition given in Ecclesiasticus, “A faithful friend is the medicine of life; and they that fear the Lord shall find him,” but thankfully they are there when we need them.

A second kind of friend is covered in the parable of the Good Samaritan, someone who enters our life at a critical juncture, steering us in the right direction at the right time or perhaps even saving our life. Yes, sometimes a total stranger will cover your back when you are most in need.

Just for today, go out there and be a friend. In the end, I have learned the spiritual calculus of friendship has nothing to do with double entry bookkeeping, for sometimes in giving we receive more from a friendship than we could possibly imagine.

Thursday, May 2, 2013

For Where Your Treasure Is....

For where your treasure is, there will your heart be also.
Matthew 6:21

That is a verse that is often quoted from the pulpit, as a basis to encourage the faithful to lay up treasures in heaven. That would be correct. In context that is exactly what Jesus was teaching. However, I think there is a lot more to that verse than meets the eye.

First consider a pretty obvious application. If you show me your checkbook and your credit card statement, I can make a pretty good guess about the condition of your heart. Your treasure generally flows in the direction of your heart. If you are skimping on food in order to put your children in a first class private school. That says something about your heart. If 25% of your take home salary goes to a monthly car payment for that Porsche sitting in your driveway, it tells me something else. Sadly, the day may come when this will no longer be true. Your heart will no longer be in that Porsche, but your treasure could continue to flow in that general direction.

There are other dimensions of truth in this statement. Perhaps your greatest treasure is time. How do you spend it? Where your time is there will your heart be also is equally true. Do you spend your time in night school bettering your chances for promotion? That tells me something about the condition of your heart. Do you spend your time coaching your kid’s soccer team? That tells a different story about your heart. Do you spend your time watching the Redskins or Dancing with the Stars? That tells still another story.

This teaching can be flipped. It is still true. Look deeply into your heart. Where does your emotional energy flow? That is a pretty good indication of what you treasure. If you see your children in your heart, that is a good thing. If you see avarice or wrath or lust or even your home theater in your heart, you might want to change your path.

Maintaining balance in a heart that tends to tip towards self and sin can get pretty tricky. Consider this blog. I expend a lot of time and emotional energy trying to convince people they can change their life for the better. That is a good thing. I also spend a lot of time worrying about MY money. Jesus warns us that man can not serve both God and Money. I guess I am teaching others how to find their way safely across a minefield even while I am transversing the same minefield. Hmm…. Something for me to think about.

The point is not condemnation but self awareness. Learning to manage money or any aspect of our life begins when we wake up. It is so easy to drift through life in a deluded slumber. There is so much to do, so much to distract us from what we really want, health; love; joy; peace. Look at the ebb and flow of your treasures, money, time, and emotional energy as you journey through this vale of tears. Don’t make things worse than are or try to sugarcoat the truth. Just look into your own heart. Accept what you see. If you have made mistakes, forgive yourself. If you face problems, even problems that are not of your own making, just accept that they exist.

Remember, when you know the truth, the truth will set you free.

Treasures in Heaven

19 “Do not store up for yourselves treasures on earth, where moths and vermin destroy, and where thieves break in and steal.
20 But store up for yourselves treasures in heaven, where moths and vermin do not destroy, and where thieves do not break in and steal.
21 For where your treasure is, there your heart will be also.
22 “The eye is the lamp of the body. If your eyes are healthy, your whole body will be full of light.
23 But if your eyes are unhealthy, your whole body will be full of darkness. If then the light within you is darkness, how great is that darkness!
24 “No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.

Wednesday, May 1, 2013

Index VS Managed Funds

The effect of expense ratios and sales loads on mutual funds can be enormous. The following example comes from a lurid and sensationalistic piece of agitation propaganda, “PBS Drops another Bombshell: Wall Street is Gobbling up Two Thirds of your 401K.”

Here is the example they give to support their hypothesis.

“Pull up a compounding calculator on line. Take an account with a $100,000 balance and compound it at 7 percent for 50 years. That gives you a return of $ 3,278,041.36. Now change the calculation to a 5 percent return (reduced by the 2 percent annual fee) for the same $100,000 over the same 50 years. That delivers a return of $1,211,938.32. That’s a difference of $2,066,103.04.”

While this example is mathematically accurate, nobody puts $100,000 in an account and then doesn’t touch it for 50 years, but the author does make her point. If you aren’t careful, the Wall Street investment machine will end up keeping way too much of your money.

Let’s return from cloud cuckoo land and compare a few sound realistic investment alternatives. Dave Ramsey teaches his students can reasonably expect a 12.0% return on retail stock mutual funds. While defending this position Dave Ramsey states, “I own a mutual fund with an 11.98% average return since 1934, 13.4% average over the last three years. Is your investment adviser too STUPID to find this?”

In an article entitled “Dave Ramsey: American Funds (AIVSX)” the author identifies the fund in question, American Funds ICA (AIVSX), a sound well managed fund that has in fact been around since 1934 and it has delivered an average return of 12.0% over 78 years.

But let’s dig a little deeper into those numbers and compare them to a low cost index fund and a low cost managed fund that is directly comparable to AIVSX. First of all while 13.4% over the last three years sounds pretty outstanding, the return for the S&P 500 during the same three year period was 16.6%. The poster child for retail managed funds sold by commission salesmen didn’t beat the S&P.

Three years isn’t a very long time horizon. Seventy eight years is of no interest to me. The managers that founded the fund are pushing up daisies in the Eternal Rest Memorial Gardens, as their great grandchildren are pulling the trigger on today’s trades.

First let’s look at the effect of expenses on a hypothetical $50,000 investment for 20 years. American Funds AIVSX carries a 5.75% sales load and an annual expense ratio of 0.62%. Compare this to two offerings from Vanguard. First the Vanguard 500 Index Fund (VFIAX), a low cost index fund with no sales load and an annual expense ratio of 0.05%; then the Vanguard Growth and Income Fund (VGIAX), like the American Funds offering, an actively managed fund. However, VGIAX carries no sales load and an expense ratio of 0.25%.

Here are the results after 20 years at an average 9.0% return:

$233,218 American Funds AIVSX
$277,432 Vanguard 500 Index Fund
$266,537 Vanguard Growth and Income

And the winner is---the low cost index fund. By the way, $16,597 of that $44,214 difference was savings on loads and fees.

In that example we assumed the three funds all would produce the same return on your investment. Let’s take a look at what really happened over the last ten years.

7.44% American Funds AIVSX
8.52% Vanguard 500 Index Fund
8.03% Vanguard Growth and Income

Once again the low cost index fund is the clear winner. This is not an anomaly. The most recent numbers I can find indicate that 0.4% of managed funds outperform the S&P 500 over the last 10 years. There are approximately 18,000 mutual funds out there. Do you think you are lucky enough to pick one of the 72 winners? The odds of picking the winner of next year’s Superbowl out of a hat are much better, 1/32 or 3.125%. There are reams of academic studies that support the position that low cost index funds are your best bet.

Here is a recent study from Morningstar:

How Expense Ratios and Star Ratings Predict Success

Here is a very valuable tool allowing a detailed comparison of any mutual fund with Vanguard alternatives. While Vanguard is no longer the only low cost player in town, their offerings are still always worth checking out before making a decision.

Cost Comparison Tool