Investment Mistakes 101

If you want to have a future you must invest in your future. That is true in relationships. It is also true if you ever want to achieve financial freedom. Financial freedom is the point at which you no longer have to work in order to get a paycheck. You are free to pursue your own dreams without worrying about paying the monthly bills.

For most of us, there are two convenient methods of investing. The first is the market, stocks and bonds. The second is real estate that generates an income, rental property. I have decided, at least for now, real estate is not my thing. Paying cash for rental properties is a rich man’s game. Holding a mortgage on a property that someone else may or may not choose to rent makes me nervous. I don’t understand how to evaluate the cost and convenience risk of broken toilets in the night. I rather not deal with tenants, so that leaves me with the great American game, the stock market.

Wait until you have a few thousand in an emergency fund. Then if your employer offers matching money in a 401(k), go for it. Generally, matching money runs about 3%. Even if you are strangling on credit card debt, go ahead and get the 3%. If you need to deposit 3% of your pretax income to get 3%, just go for it. Even if you end up in bankruptcy court, generally your 401(k) will be safe. If you don’t have an employer retirement plan, wait a bit longer, perhaps until you have 2 or 3 months take home pay in an insured savings account. As always, I don’t give one size fits all advice. Use some common sense. If your job is insecure build up that emergency fund until you reach 6 months or more. If you think you have a pretty secure future, you don’t need to be as conservative.

Then start an investment program. If you don’t have a 401(k), start with a Roth IRA. Then move out into more sophisticated tax favored plans appropriate for your particular condition in life. Finally, start a taxable brokerage account.

If you don’t start an investment program, you have just made the first and most serious investment mistake. Don’t worry. You will make mistakes. You will lose money on something. Even Warren Buffet has made mistakes. Start with low cost index funds. That is what is offered by most 401(k) programs. If you don’t want to decide on an age appropriate balance between stocks and bonds, just buy shares in one of the low cost life cycle funds offered by firms like Vanguard. Often life cycle funds are also an option in 401(k) programs.

The second mistake is quitting. No matter your age or the condition of the economy, stay in the game. You might set up a range. I have decided that I will keep between 40% and 55% of my liquid net worth in stocks and stock funds. I will not try to time the market because I can not tell the future. As I grow older it will be harder for me to recover from a serious stock market disaster that wipes out 50% of my holdings, but even my parents, now in their nineties, still have a small percentage of their total holdings in old stock mutual funds and one significant position in a single company. There is something else to think about. Studies indicate that the ability to make investment decisions tends to peak in our mid fifties. Then as we grow older, our capacity to make complex decisions begins to decline. Bonds, bond funds, Certificates of Deposit, and insured money market funds make more sense than shares in individual stocks for the elderly.

The third and fourth mistakes are investing too much at one time or in one company.

The stock market goes up and down, sometimes for no good reason. Don’t try to time the market. Month after month, year after year, keep putting small amounts of money into your accounts. When the market is down your dollars will be buying more shares. When it is sky high you will be buying fewer shares. This is a safe way to build up your resources. It has a name, dollar cost averaging. Look it up.

Your holdings must be diversified. Never have more than 5% of your liquid net worth in a single company, even if that company is your employer. I would also add never have more than 15% of your net worth in any market sector, no matter how safe or glamorous. Internet stocks were all the rage in the late nineties, everybody was getting rich buying pure stupidity. Then the bubble burst. If you lost 70% of the value of your Internet stocks in 2000, a 15% position in that sector would have cost you 10.5% of your liquid net worth, painful but not the end of the world.

British Petroleum (BP) was one of the best managed companies on the planet. Their dividend was as safe as anything in this unhappy world. Then a fire started on one their oil platforms in the Gulf of Mexico. In a matter of weeks BP lost about 50% of its total net worth. If you were holding 5% of your liquid net worth in BP, you would have hardly even noticed anything had happened. If you had half your money in BP, you would have been in a world of hurt.

Be fearful when others are greedy and greedy when others are fearful.
Warren Buffett

Fear and greed drive the market. Avoid mistakes number five and number six by heeding the wisdom of Warren Buffet. Instead of trying to time the market let the market time your behavior. When you are below or above your range for stocks, rebalance. If the market is too high move a bit of your holdings in your tax favored account from stock funds to bond funds to bring things back into balance. This action has no tax consequences. If you chose to sell shares in a taxable account you have to consider taxes. When the market is in the tank and the Drudge Report puts up the dreaded flashing red light over their lead end of the world headline on the stock market, it is time to move out of bond funds into stocks funds. If you have some spare cash, now is the time to dump it into the stock market. In the first quarter of 2009 it was hard to make a mistake buying shares in a quality company.

There are other mistakes to consider that are made by more sophisticated investors. I will discuss them at some future time, but this list of six is plenty for now. The next time you look in the mirror, realize you are looking at your biggest problem. It isn’t the politicians. It isn’t the bankers. It isn’t the deranged mathematical geniuses running flash trading scams. It isn’t the con artists selling penny stocks out of boiler rooms found in New Jersey strip malls. Your biggest investment problem is you. Before pulling the trigger on any investment remember these words, “I can not predict the future.” If you act consistently and carefully over the course of a lifetime with an understanding of your own limitations everything will probably turn out OK.

Body, Soul, and Spirit (Gratitude)

I believe that God generally starts the process of fulfilling our dreams at that point at which we are weakest. For me on my list of seven items, that would be gratitude. As a middle class American and as a Protestant Christian, I have been taught that if I work hard and play the game by the rules, I will get what I “deserve.” Like most human beings my life has had its share of disappointments. I get angry with God and complain. By the way, that is OK. God can handle your tantrums. I think that sometimes God looks at us the same way we look at an unhappy two year old child, with love touched with both sorrow and joy. Of course I am smart enough to know that I should be very thankful that I have not received what I deserve. The wages of sin are, after all, death.

As we receive, it is important that we continually give thanks. As we pursue our goals it is possible that everything we need will fall into our hands in an instant. This is called a miracle and miracles do happen. However, in this world, it is more common that a house is built brick by brick. As we watch the construction of the house of our dreams, give thanks for each piece of wood that is raised and for every dollar added to your investments and savings. Rejoice in your increase as it occurs and cultivate a heart of gratitude.

Gratitude always begins in the present moment. Right now, find something, anything in your life that is good and express your gratitude to the God of the universe. There is nothing that so adds to your happiness, as finding joy in what you have in this present moment.

I am grateful that I live in a country where I am free to follow after God in the light of my understanding, a country where I am free to teach what I believe according to the dictates of my own conscience.

I can honestly thank God that he gave me a secure job in my field for over 27 years. How many Americans have received such a blessing?

I am in good health for my age and I have been given the time and energy to continue to try to improve this gift of good health I have received from our Lord.

I have been blessed to have been given sufficient resources to pay cash for just about everything we have ever owned or obtained. My employer even paid for my Master’s degree.

I thank God for my new home in the beautiful foothills of the Appalachian Mountains.

I am grateful to have the resources to continue to be a lifetime learner.

I thank God for my credit union. Unlike my bank account, I never get hit with any mystery fees or weird charges, and I don’t need to worry about getting nailed by some of the nonsense going on with bank issued credit cards. If I ever have a question or problem even though I no longer live in Maryland, it is a place where everybody knows my name.

You see, it isn’t hard to cultivate gratitude in the present moment.

Do not limit joy and gratitude to your own life but extend it to others. When you see a friend or acquaintance receive something good in their life, experience the joy of gratitude from blessings poured out by our God no matter where they fall. This is the beginning of love. Consider the joy of a mother as she watches her healthy baby take his first steps. Her heart is filled with love and joy even though the blessing falls to another.

Pss.23

[1] The LORD is my shepherd; I shall not want.
[2] He maketh me to lie down in green pastures: he leadeth me beside the still waters.
[3] He restoreth my soul: he leadeth me in the paths of righteousness for his name's sake.
[4] Yea, though I walk through the valley of the shadow of death, I will fear no evil: for thou art with me; thy rod and thy staff they comfort me.
[5] Thou preparest a table before me in the presence of mine enemies: thou anointest my head with oil; my cup runneth over.
[6] Surely goodness and mercy shall follow me all the days of my life: and I will dwell in the house of the LORD for ever.

Body, Soul, and Spirit (Divine Purpose)

Before we set our goals, I think we should check in with the God of the universe and attempt to determine what is in our best interests. Clearly, a criminal can set the goal of becoming the most powerful drug lord in his city. If he then pursues this goal with ruthless congruence, self-confidence, and generosity in sharing his ill-gotten gains with his gang, members of his community, and the police, he can achieve his goal. But if our desire is to live in harmony with the universe, with what is good, and true, and right, then I believe that asking God in prayer for direction in our life is a good place to start. I believe that if I persevere with patience, eventually a path will become visible in the confusion of life.

I am very uncomfortable with the term “The Will of God” as I have heard it taught in many of the churches I have attended. In my mind, it is a term that is front loaded with all sorts of unpleasant emotional baggage. I have heard over and over, that God has this wonderful plan for my life and if I am not utterly obedient, I will miss the mark and my life will lie in ruins. Those of you who are old enough might remember the television show, Let’s Make a Deal with Monty Hall. On this show the contestants would win really nice prizes, like a new color TV. Then Monty would give them the opportunity to trade what they have for what might be contained in a large box or hidden behind a curtain. Everyone knew that sometimes the prize behind the curtain might be an expensive new car or it might be a pet goat. Sometimes preachers have made me feel like God is Monty Hall, playing a cosmic game of Let’s Make a Deal with my life.

Years ago I realized the will of God doesn’t quite work that way. Consider your own relationship with those you truly love. You want what is best for them. You want to bless them. You want to share your life with them. If you really understand love, you don’t want to control them. You know they are free to find their own path. You might wish that your son would major in physics rather than get a job painting skulls on custom motorcycles, but no matter what path he chooses, in your heart you know your job is to bless him and be a part of his life.

As you make important decisions, where to go to school, what major to study, who to marry, ask God for guidance, but be confident that God is not Monty Hall. If you miss “God’s Perfect Will for My Life,” even if there is such a thing, God will not take away your new car and punish you with a pet goat.

If you never complete your degree and become a wife and a mommy, God still wants to bless you and to be a part of your life.

If you complete your degree in Pre-Med or in English, God still wants to bless you and to be a part of your life.

If you find your way to a research laboratory or to the aforementioned custom motorcycle shop, God still wants to bless you and to be a part of your life.

If someone like me with all my shortcomings and character defects could feel that way about those whom I have truly learned how to love, don’t you think our Heavenly Father might love and care for us in a way that is far beyond any level that I could ever possibly hope to achieve?

I love the story of the Prodigal Son. I studied it in some depth during a week long silent retreat. I learned a lot. I learned I have a bad case of the elder brother. I learned it is not the parable of the prodigal or the parable of the elder brother. It is the parable of the Father, of our Heavenly Father.

I even concocted my own version of that story that takes place in Montgomery County, Maryland during the late 1970s. The father in this story owns three car dealerships in the metropolitan area. He has two sons. The youngest rebels and asks for his share of the businesses. The father takes out a loan to raise enough cash to give the younger son the freedom that he desires. Of course the younger son moves to Miami and blows all the money on cocaine, prostitutes, and fast cars. He ends up in a Florida prison on drug charges. The elder son works 12-16 hours a day to help earn enough money to keep the car dealerships from going under during the recession of 1980. His wife even goes back to work so that the elder son can put more money back into the business. Of course, you know the rest. The younger son is released from prison and returns to beg the father’s forgiveness. The father runs across the parking lot to embrace his wayward son. Later that night when the father is throwing a party at an expensive Italian restaurant to celebrate his son’s return, he notices his eldest son is missing. The father gets in his car and drives around a bit before he finds him at the White Flint dealership, sulking in his office. Of course you know the rest of the story. In my version, like the original, there is a lot of hugging and crying.

Jesus tells us that is the way the Father feels about us, Abba, Father, Daddy. He loves us and is always waiting for an opportunity to run towards us, embrace us, and bless us. He wants to bless us and He wants to be a part of our lives. Because of Jesus we are his sons and his daughters. God is not Monty Hall and our lives are not some sort of a cosmic version of a sadistic game show.

Body, Soul, and Spirit (Forgiveness)

“How many enemies-boundless as the sky-might I destroy?
“Yet when the thought of hatred is abolished all enemies are destroyed.”
Shantideva

I feel forgiveness is an important and often missing piece to the puzzle of life, as well as our relationship with money. The best analogy I have is that unforgiveness is like cholesterol in clogged arteries. It blocks the flow of the Holy Spirit in Christians and poisons the life of Christian and unbeliever alike. Left untreated the pain of this problem will increase until the heart can no longer generate enough energy to overcome the constriction in the artery. Untreated the result of unforgiveness is death.

Ultimately Jesus did not tell us to forgive our enemies for our enemies’ benefit. The command to forgive our enemies is for our benefit and for our healing. Like all of us, I have had my problems in this area. Twice in my life I have suffered serious unjust damage to my career at the hands of wicked men. One of them is dead. I think I have done a pretty good job of forgiving that man, but even if I still thought vengeful thoughts about him every day, would it change his life? He is dead. I am alive.

Expressing gratitude for the gift of forgiveness I have received from God and extending love and forgiveness to my neighbor is the better way.

One of my enemies has almost faded from my mind. If I ever happen to feel the pain of unforgiveness constrict my heart, I lift him up to God. I have told God not to hold anything against this man on my account on the Day of Judgment. In my mind and in my heart, I have signed a contract in heavenly places. I believe his sins against me are forgiven now and in eternity. The rest of the problem is just how I choose to feel about what has already been accomplished.

I did better with another player in one of these unfortunate dramas. His sin was one of omission rather than commission and, as far as I know, he is a brother in Christ. I experimented with a spiritual exercise attributed to Father Gerry O’Rourke. It worked. God’s best is a face to face reconciliation but sometimes that is just impossible. In such cases you might find this a useful alternative.

Decide in your heart that you are ready to forgive the person who injured you, totally, absolutely, and unconditionally. If you are not ready, lift that person to God and restate your desire to forgive them. Tell God how much you want to let this go and put this person in his hands. It might take a very long time, but keep at it until you are ready.

Understand forgive does not mean forget. It just means you are releasing any rights you have retained to take any act of vengeance, including hateful speech, character assassination even if true, or intentionally malicious speech. It has been said, “Throw your heart over a fence and the rest of you will follow.” That is pretty much what you are trying to do in this exercise.

Once you are ready, think deeply about the entire situation. Dig deeply into your own heart and remember every injury you have suffered every pain you have felt. Write them down on a piece of paper. Write until you run out of every angry hateful thought you have concerning this person. Then write down, “and anything else that I might remember at a later time.”

Then sit down in a chair. Close your eyes and visualize that person sitting in a chair across from you. Try to make it as real and detailed as you can. Then, silently, in your mind, unload on this person. Let him know everything thing on that list with all the emotions and hurt you feel. If you can, try and imagine how that person might respond. In your mind, let them respond. When this exercise is finished, tell the person that you forgive them, totally, absolutely, and unconditionally. Tell them you release any rights to take acts of vengeance.

Then open your eyes, restate your decision and your commitment to forgive your enemy to God. Stand up, tear the piece of paper into small pieces and throw it away. Then thoroughly wash your hands with soap and water and consider the case closed.

I have seen so much energy wasted in hating or resenting those who have wronged us. In the most extreme cases, a lack of forgiveness almost guarantees that the person will never reach their goal.

Your challenge is to do good in this world. If you spend all your time resenting the success of others, how will you ever reach a position where you will have the resources necessary to be a blessing in this world? If, through God given talent and honest effort someone has experienced success, material or spiritual, rejoice in your sister’s blessings. With delight in your heart it will be easier to learn something of value that you can use to benefit yourself and others.

I am a Christian. I believe in a personal God who created the universe and who is actively involved in His creation, but these principles will work for you, no matter who you are or what you might believe. There are laws in God’s universe that impersonally apply to everyone. Gravity comes to mind. If I jump off the roof of my house I will fall to the ground. It does not matter who I am or what I believe. Likewise the first law of thermodynamics comes to mind. If I eat too much and do not exercise, Christian, Buddhist, or atheist I will gain weight.

Forgiveness is the law of the universe, hatred never ends hatred. Hatred is only ended by love. Vengeance leads to endless blood feuds, whether the participants are Catholics and Protestants in Northern Ireland, Mafia clans in Sicily, tribes in Africa, families in West Virginia, or nations the Middle East. Hatred and vengeance it is not the way of the universe. As you work with your heart, keep this in mind. Whether you pray directly to the God who is, or whether you seek to align your life with the way of the universe, as you forgive your enemy, you will move closer to personal peace, joy, and greater success.

Jesus had so much to say on the subject of forgiveness that it is difficult to select a scripture. This seems like a pretty good example.

Matthew 5

[43] Ye have heard that it hath been said, Thou shalt love thy neighbour, and hate thine enemy.
[44] But I say unto you, Love your enemies, bless them that curse you, do good to them that hate you, and pray for them which despitefully use you, and persecute you;
[45] That ye may be the children of your Father which is in heaven: for he maketh his sun to rise on the evil and on the good, and sendeth rain on the just and on the unjust.
[46] For if ye love them which love you, what reward have ye? do not even the publicans the same?
[47] And if ye salute your brethren only, what do ye more than others? do not even the publicans so?
[48] Be ye therefore perfect, even as your Father which is in heaven is perfect.

When Can I Retire?

“When can I retire?” was a question that was near and dear to my heart for nearly ten years. I think I have explored that question from just about every possible angle. I have written many posts on the retirement question, but it is a subject that comes up again and again.

The first question you need to ask yourself if you are considering retirement is, “Am I having fun?” If your job is fun, keep doing what you are doing until it isn’t fun anymore or your health keeps you from enjoying your work as you once did.

If you are not having fun, the next question to ask is, “Can I afford to retire?” Here is the quick and dirty answer to that question. There are sophisticated retirement calculators on the Internet that can give you a more accurate answer. I suggest you use all of them—at least twice. I did.

Current Gross Combined Family Income X 0.8 = How much you are likely to need in retirement. For example:

$100,000 X 0.8 = $80,000 This amount is how much income this couple will need in retirement.

Let’s say this couple has one defined benefit pension and can draw something from Social Security.

$80,000
-$30,000 in a defined benefit pension
-$20,000 in Social Security
----------------------------------------------
= $30,000 a year shortfall in retirement income

Take the shortfall and multiply it by 25.

In this case $30,000 X 25 = $750,000

This couple needs $750,000 in savings before pulling the trigger on retirement.

Now add up your retirement savings, 401(k) accounts, Roth IRA accounts, bank balances, Certificates of Deposit, everything but the equity in your primary residence.

Do you have $750,000?

Next question, “Do you have health insurance covered until you are eligible for MEDICARE?” This is really important. If you will lose your health insurance when you retire, you better work until you are 65.

Now it starts to get a little tricky. Let’s say our couple who needs $750,000 lives in a high cost of living area like Washington DC. They can move somewhere that is warmer and cheaper, like Greenville, SC. where the cost of living is roughly 75% of the cost of living in Washington. Let’s make that 80% for safety’s sake.

Now the couple doesn’t need $750,000. They can get by on $350,000. “But wait!” as they say in the late night infomercials, “It gets even better.” If you sell that expensive house in Maryland and buy a less expensive house in South Carolina it could free up a lot of cash that could be added into your calculation. Let’s say this couple could reasonably expect to clear $100,000 after the dust settles. Now they only need $250,000 to contemplate a safe retirement.

Studies indicate that you will need 80% of your current income in retirement. That is just an average of how people actually behave. You do not need to be average. If you believe it is in your rational self interest to retire, there are additional acceptable compromises short of the life style you are currently living. Here are some additional questions you need to consider.

The next question you need to ask yourself is hard, “If I work for an additional five years how will this affect my life expectancy?” This question has no hard numerical answer, but look into your own heart, in my case both my physical heart and that other way we use the word heart.

The results of a Boeing study, prominently posted on the bulletin board at work for many years, indicated that every year of work past the age of 55 shortened life expectancy by two years. Is the additional amount of money you will take home over the next five years after subtracting your pension and Social Security benefits that you didn’t receive and the difference in taxes worth ten years of your life? I believe that the latter years of my career shortened my life. Now that I am retired I seem to have more time and energy to be good to myself. I have dropped thirty pounds. I am eating a better diet and doing things that are good for my heart. I don’t know when the good Lord is going to take me home, but I believe that the life I am now leading is making me healthy. I believe it is extending not only the years I may have left but making the quality of my life better and better.

Finally, ask yourself, “What am I going to do with all that extra time?” Curiously you will not find that you have the extra 45 hours in your average work week plus the 10 hours you spend on the road that you expect to find in retirement. Now you are cooking breakfast most mornings then cleaning up the dishes. There goes 5 hours a week, but is anything better than a leisurely breakfast looking out the window at the weed trees growing over the privacy fence in my back yard? I have more time to write. That is a very important part of my new identity. I am catching up with old friends and family members. I am rediscovering my vinyl record collection. In some cases that is just like buying a new album. Our new church is a good fit. We are already involved in a lot of activities. I haven’t yet used all the available cultural resources down the road at Furman University, but we are using our alumni library cards. Having both a public and university library at my disposal is – wonderful.

As you can tell, I am a great fan of retirement. I am certainly not bored. I hardly ever watch TV. If you want to retire and you can’t yet retire, cut your spending to the bone, double down on whatever is going into your 401(k) as well as your taxable investment accounts. If you get really serious about this, you will be amazed at what you can accomplish in even just a few years of conscientious effort backed by diligent study of different investment modalities. Try and change your situation at work. If that doesn’t seem to be possible, change your attitude. THEY can not control your mind. You are in charge of how you choose to view your life even as you are working to change your life.

Body, Soul, and Spirit (Introduction)

A long time ago, before the first Silver Eagle Experiment, before the list of ten rules for young couples, before I even dreamed that this aspect of my life would exist we went on vacation to the island of Maui. At a well known gift store we met a young woman, the store’s sales manager. I guess because business was slow, it was only one year after 911, not many people were flying to Hawaii. We had time to chat with this wonderful, friendly, energetic being. Her outlook on life was enviably healthy, balanced, and positive. However, she did have at least one area of doubt and fear she was willing to share with two friendly strangers from the mainland. She didn’t believe that she and her then fiancé, now husband would ever be able to buy a house on Maui. This was not a completely groundless fear. At the time a modest but nice home on the island ran somewhere in the $750,000 range.

In the weeks that followed our return from paradise, I continued to consider her problem. I already had some financial victories under my belt including paying off a thirty year mortgage in less than ten years. I wanted to encourage her, but I didn’t think she could hear my version of the Northern European work ethic combined with the concept of deferred gratification. Instead of offering her the basic tools of money management, I wrote a letter offering a seven step plan for seeking after and hopefully, obtaining all the good gifts of life.

1) Gratitude
2) Forgiveness
3) Divine Purpose
4) Goal Setting with Congruence
5) Faith
6) The Sisters (Persistence and Patience)
7) Generosity

She was surprised and moved by my letter. Later I learned that over the years she would pull it out and reread it from time to time. I almost hate to tell you the rest of the story. This young woman and her husband were able to buy their house. They won the lottery. Really! They were eligible for a Hawaiian state program. Every year a certain number of qualified applicants are selected for a program that offers the winners of this lottery a large government subsidy, allowing them to buy a home at an affordable price.

Don’t count on winning the lottery.

Later I expanded the list into some of my first blog posts. Some of them are too long, some of them quote too many scriptures, and they are all generally too preachy, but the content is good. They are still posted. I don’t take down blog posts. They are the trail markers I offer my readers as I walk my path.

The list is in no particular order. God will guide you to where you need to start the road to healing not just your finances, but the more important issues of body, soul, and spirit. There is no end to this process, at least not in this world. It is a spiral that takes you to higher and higher levels over the course of your lifetime. Work in one area can cause breakthroughs in another area. As you work down your list, suddenly you will find yourself reminded of an unresolved problem in another area of your life that you thought was under control.

This seven step process is actually something I try to use in my own life with varying degrees of success and failure. Some of it is a reflection on my own experiences, some comes from a semiconscious synthesis of an enormous volume of books and articles read over many years. I started with gratitude because it is a persistent problem area in my life. This morning I realized that if persistence and patience are sisters, then gratitude and forgiveness must be brothers. I have trouble with both and the problems are intertwined. How can I be grateful for all the good things the Lord has given me in this life if I am holding on to disappointments, injuries, pain, and injustice from my past?

Gratitude can not exist in the presence of unforgiveness.

I think it is time for me to revisit this list. Maybe I can rewrite some of my earliest work into something more than a three page letter and less than what I offered back in 2009.

What Broken Dreams do You Have in Storage?

Yesterday morning, after a 45 year delay, I received my high school graduation present in the mail. In 1969 as graduation approached, my father, after some negotiation, agreed to buy me a watch as a graduation present. What I really wanted was a car. That wasn’t happening. My parents wouldn’t even let me buy a car with my own money, but that is another story. I asked for an Omega chronograph that cost around $200. What I received was a Wittnauer chronograph that cost around $100. I was disappointed, but not surprised. It was still a pretty cool looking watch, the type used by rally drivers and fighter pilots. After a few months the stopwatch function quit working. My father took it back for repairs. It worked for another few months then quit. When I asked my father to get it repaired a second time, he told me, “Repair it yourself.” I expect the first repair was under warranty. I expect the second repair would not have been under warranty. Since I couldn’t afford to repair the watch I put it away.

When we moved to South Carolina the watch resurfaced. Wondering if it could be repaired after 45 years, I took it to a local jeweler. He sent it to his watchmaker for an estimate. After a month it returned. The watchmaker told us that there were no longer any parts available for that watch.

That didn’t sound right to me. Longiens Wittnauer is a well known company that is still in existence. I mailed it to the watchmaker in Maryland who repaired my father in law’s 63 year old Hamilton watch. He had a fit over my watch. He practically begged me for an opportunity to repair such an extraordinary piece. He also noted that the first man who repaired the watch did a very poor job. The scars of his bad workmanship were clearly visible. It was obvious he didn’t have the right tools for the job. He estimated $500 to completely rebuild and restore the watch to like new condition, complete with a genuine lizard watch band, just as it came out of the box 45 years ago. I agreed but warned him not to go over $500.

Yesterday, I received the watch. It looks brand new and works perfectly. It is so nice I am afraid to wear it. I didn’t know what I had. I learned that this watch in this condition has a wholesale value around $1,100 to $1,300 and a retail value of somewhere around $1,800 to $2,000. I also learned that just like the good Lord makes people, you can’t tell what is in the watch by looking at the case. Manual chronographs consist of two watch movements stuffed into one case. This one consists of something called a Caliber 330 Longiens movement. The watchmaker thought this a historically significant, especially cool movement. The second part of the watch is called a Valjous 726 Base. The watchmaker considered that a fine product of the Swiss watchmaker’s art, but he didn’t go into orbit over that movement. I read up on both parts of my watch on the Internet. Some consider the Valjous 726 Base the best manual chronograph movement ever made. It is the same movement that was used in Rolex chronographs of the period as well as many other brands that sold at a higher price than Wittnauer. At the time Wittnauer was consider sort of like a Buick when compared to the Cadillac, Lincoln, and Roll Royce watches of the day.

I’ll bet you can guess where I am going with this story. What broken dream have you put into storage? For 45 years I lived with Timex and similar products. They work for 3 to 7 years. Since they cost somewhere around $35 when new, you throw them away when they quit working. Living a Timex life is OK, but do you dream of something better?

Go ahead. Take that broken gift or talent out of storage. Revaluate what you actually have been given. Perhaps when you were first learning to use your God given abilities as a child you failed at some effort. Then perhaps a ham handed teacher with the wrong tools left you with scars. It may not be cheap to repair the damage of a lifetime, but with the help of your friends and perhaps a little professional guidance along the way, you may discover what the Lord placed in your case is the same movement used by Rolex and other high quality brands.

If the first repairman tells you there aren’t any parts still available for someone your age, it may be the truth; but if something doesn’t sound right; if there is still a fire burning in your soul get a second opinion.

I would love to see you live a Rolex life.

I am not talking about filling your life with expensive toys. My prayer is that God will fulfill the deep desires and dreams that He placed in your soul.

Psalm 16:11

You will make known to me the path of life; in Your presence is fullness of joy; in Your right hand there are pleasures forever.

Predicting the Future of the Market

Predicting the future is an implicit component of our investment decisions even though we all know it can’t be done on a reliable basis. However, there are principles that have been proven to be statistically reliable in numerous peer reviewed academic studies and in the real world. Warren Buffet, the greatest living investor, tells us we need read only one investment book, The Intelligent Investor by Benjamin Graham. Berkshire Hathaway, Buffet’s monstrous conglomerate valued at $500 Billion, is testimony that the principles found in the Intelligent Investor actually work. Likewise, the principles taught by Modern Portfolio Theory which can be found in books like, A Random Walk Down Wall Street by Burton Malkiel, have been validated by the success of Vanguard funds. It is almost impossible for the average investor to beat an age appropriate mix of low cost index funds with either managed funds sold by commission salesmen or individual stocks picked by people who love to pick stocks, like me.

Yesterday I read a somewhat hysterical article concerning a world wide buildup in the inventory of unsold new cars. The author of this article bases his fears on photographs found on Google Maps. When were those photographs taken? If you Google my house you will see nothing but a nasty tangle of weeds, even though my house has been under roof for a year.

From time to time a build up of excessive inventory occurs. Usually, this is a harbinger of the next recession. Automobile companies will not continue to build cars that can’t be sold, at least not for very long. When the inventory of any unsold product gets too high, prices drop and layoffs are in the news. Ultimately, the annual industry total assembled Vs total sold will tell the story.

There are a number of signs that the next recession may not be all that far off, but there are some that are still positive. The Shiller Price Earnings Index and corporate profits are at disturbingly high levels that usually are indicative of a significant drop in the market sometime in the near future. On the other hand the Federal Reserve Bank may keep pumping up the economy with funny money. We know that will ultimately have to come to an end, but when? The Index of Leading Indicators and the Index of Coincident Indicators are both kind of flat looking, OK, but they aren’t screaming its time to put new money into the market. On the other hand the Transportation Index is rocking! People are paying good money to ship coal to China, iPhones to stores all over America, and UPS just brought me some new insoles for my walking shoes.

Personally, I am a little nervous, but then I am always a little nervous. It is my nature. We have enjoyed a hell of a run since the first quarter of 2009. When will it end? And it will end. While Wall Street is happy, Main Street isn’t doing so well. The median household income adjusted for inflation continues to drop. These two numbers can not stay far out of whack for very long. If sales fall, so will profits. The best I can do is maintain that age appropriate balance between cash and bond funds on the one hand and stocks and stock index funds on the other hand. For someone my age, 63, depending on who you choose to believe, I should have somewhere between 37% and 60% of my liquid net worth (excludes my primary residence) in low cost stock index funds and shares in individual companies. Personally, I have made the decision to stay between 40% in stocks and 55% in stocks. When I think the market is overvalued, like now, I want to be near the bottom of my range, which I am. When the market is in the tank, I will hopefully have the nerve to move the slider up to 55% in stocks. I did this back in 2008. It worked out really well, but back then I had a job. I was basically throwing new money into the market. Now that I am retired it will be harder to do the right thing with existing money that can not easily be replaced.

Now if I could just get my crystal ball to work....

What Can I Do to Help Create Jobs in the New Millennium?

Some facts from the American Consumers Newsletter reported by Cheryl Russell, Editorial Director, New Strategist Press:

Just 10 occupations employ more than one in five (21 percent) American workers, according to the Bureau of Labor Statistics. Here are those occupations and the annual average wage for full-time workers in 2013, ranked by number employed...

1. Retail salesperson: $25,370,
2. Cashier: $20,420
3. Food prep worker: $18,880
4. Office clerk: $29,990
5. Registered nurse: $68,910
6. Waiter or waitress: $20,880
7. Customer service rep: $33,370
8. Laborer: $26,690
9. Secretary: $34,000
10. Janitor: $25,140

Comparing Men's Income from 1950-2012

Year in which men's median income peaked

Aged 25 to 34: 1973
Aged 35 to 44: 1973
Aged 45 to 54: 1999
Aged 55 to 64: 2003

Percent change in men's median annual income, peak year to 2012

Aged 25 to 34: -27% a loss of $12,485
Aged 35 to 44: -19% a loss of $10,345
Aged 45 to 54: -17% a loss of $9,762
Aged 55 to 64: -13% a loss of $6,407

Please note while all the top ten jobs are necessary and desirable not one of them with the possible exception of laborer can be considered a wealth creating job. U.S. industry reached peak employment in 1978. Since then we have exported over 20 Million wealth creating jobs to the rest of the world.

I am deeply worried about the future of the average man. Fifty years ago a man of average intelligence with a high school diploma who was willing to work 40 to 50 hours a week could reasonably expect the income necessary to support a wife, a couple of kids, a house, and a car. This is no longer true. Even two incomes are sometimes not enough.

The baby boomers grew up in an economic miracle. In the aftermath of World War II, the United States owned the only significant industrial base that hadn’t been severely damaged in the war. Today the rest of the world has caught up with us or is catching up with us. Depending on how you choose to evaluate these questions, we have dropped to number four behind Norway, Australia, and the Netherlands.

For the past forty years or so we have maintained our lifestyle, not by creating more wealth, but by borrowing against the future. Our current national debt has passed $17 Trillion, at $16 Trillion household debt isn’t far behind. What we are doing as a nation simply is not working. Debt is a curse. There are only three things that can be done with debt. Pay it off, which is painful. Default, call it bankruptcy. Or if you control the printing presses you can simply inflate debt out of existence. The last two options tend to cause revolutions, civil wars, and at least one World War.

The time has come for you to choose, whether you are going to be part of the problem or part of the solution. Are you going to continue to buy things you don’t need with money you don’t have or are you going to try in find contentment in what you do have, giving you the opportunity to invest in your future and the future of your country?

Capital accumulation, what our nation really needs to create new high paying wealth generating jobs, begins with an individual decision to opt out of the consumer mentality that uses borrowed money to buy the latest greatest techno-gadget that will be obsolete in six months. I was told by an employee of Kyocera that after a new model cell phone has been on the market for six months they consider it obsolete.

Studies indicate that net worth is only somewhat correlated to income levels. The accumulation of wealth begins when a household decides to spend less than its income. Over time that money is invested in wealth creating enterprises that generate new jobs. The vicious cycle becomes a virtuous cycle. Deferred gratification is a key component to what has been called the Protestant Work Ethic. Quoting Charles Smith, “The key feature of Capitalism is not greed--that existed long before capitalism and flourishes in non-Capitalist societies. The key feature of Capitalism is capital accumulation, i.e. what's left after expenses are subtracted from income, i.e. savings that can then be invested in productive assets.”

Mindfulness and Savings

A friend of this blog has suggested what he has found to be an interesting and effective way to save money. Before making a purchase, large or small, stop; examine your thoughts, feelings, your bodily sensations, and the environment that surrounds you. Even if you only spend a moment or two before you actually make the purchase (or choose not to make that purchase) you are learning the art of mindfulness.

Learning how 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. Does your use of money really contribute to the important goals in your life? Are your purchases really providing satisfaction and fulfillment equal to the hours of your life that they represent?

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.

Become aware of your money. Watch it mindfully as you earn it, as you use it.

If that five dollar latte is thoughtless part of your morning ritual, perhaps you can fulfill your need for caffeine with a thermos of coffee brewed at home. Even if you are buying a super premium blend of organic coffee that costs $15.00 a pound, a cup will cost 50 cents or less.

If at the end of a difficult day you have to return home to three children under the age of seven and a wife who breeds Chihuahuas, an after work latte savored while reading a magazine, as you listen to massage music at your local coffee shop may be the only thing standing between you and the psychiatrist’s couch.

My friend then suggests, if you opt not to buy an item, transfer that money to savings. After all, you were prepared to part with that money just moments before. Really it is no different than a child saving his allowance in a piggy bank for a desirable video game rather than spending it in the present moment on a Coke and a candy bar. The money is still yours. You still possess it, but now you have the gift of an entirely new set of options. Perhaps you want to take your girlfriend out to an expensive restaurant. Perhaps you want to save for a better car. Perhaps you may wish to kick it up from savings to another level, investing it in shares of stock that will pay you dividends for the rest of your life.

Stop, if only for a moment, before making a purchase. Look mindfully at that choice. Listen to your heart.

Then follow the path that leads to freedom.

Investing for the Long Run

Have you ever tried to start a campfire? You start with some really small, preferably dry sticks. Then you build a little teepee of slightly larger sticks over the original pile. Then you light (or try to light) the little pile in the middle. If you are lucky you will get it right on the first try. If not, you try again. Eventually, if you persist, you will get a flame. You watch the flame carefully, blowing on it every now and again, adding more and larger sticks as the flame grows. Finally, you can add some pretty good sized logs. Now you know your fire will continue to burn without a lot of attention. You can turn your mind to other tasks, like roasting hotdogs or even just watching the flames and enjoying the warmth you have created for yourself and your friends.

I don’t know what the future holds in store for American investors. Neither does anyone else. However some opinions are more respected than others. Jeremy Siegel has demonstrated that the American stock market has delivered a remarkably consistent 7% return in real terms between 1802 and 2001. While some decades greatly exceed 7%, some decades produce negative results. However, over any sufficiently long period of time 7% is a pretty good guess. It isn’t a natural law, but the academic community has accepted his research, naming this number Siegel’s Constant.

Rule Number 1: Never lose money.
Rule Number 2: Never forget rule Number 1.
Warren Buffett

There is a problem with just investing in American stocks, expecting to receive Siegel’s Constant, Buffett’s famous rules. What does this mean? Even the Oracle of Omaha, the most successful investor in the world, has lost money on investments. The answer is found in what is termed Modern Portfolio Theory. It turns out that mitigating risk is more important than reaching for return. That is why we diversify, buying bonds, foreign stocks, large cap stocks, small cap stocks, technology, gold, coal, oil, and other tangible resources. When something is going down, there is a pretty good chance something else is going up.

The simplest portfolio consists of low cost stock index funds with an age appropriate amount held in low cost bond index funds. Unfortunately Jeremy Siegel has also demonstrated you can only expect to get 3% to 3.5% from your bonds over the dreaded sufficiently long period of time.

American investors are quite delusional. I have recently read that the average American investor believes that he needs a 10% return to retire. Since inflation has run at an average of 4.0% per year over the last 50 years, they are going to need a whopping 14% return to meet their goals. Then they put their money in insured Certificates of Deposit that currently pay 0.2% or less because they are afraid of the future. Major pension funds, especially those of the 50 states, are commonly predicting returns of 8% and higher. Over the past 15 years the pension fund managers have not generated anything close to 8%. Some state pension funds are already in danger of bankruptcy. Some city and county retirement funds are already bankrupt. Expect to see more of this in the future.

Personally, I think Siegel is an optimist. This country as well as most of the developed world is currently suffering through what some economists term a Kondratieff Winter. There is just too much bad debt that needs to be squeezed out of the world financial system. This is going to take some time. Various heavyweights like Robert Shiller, John C. Bogle founder of the Vanguard Funds (one of my heroes), and the erudite John Hussman are worried about the future returns that might not be generated by the American stock market.

So what can an American investor do? Have you ever tried to start a campfire? You start with some really small, preferably dry sticks…. Perhaps you start by snagging the matching money offered by your company’s 401 (k). If your employer doesn’t offer a 401 (k) use the money from your tax refund to open a Roth IRA, a pretty cool idea especially for the young adult.

Assume a young couple earning a combined gross annual income of $60,000 a year never gets a single raise in their entire 40 year working life. If they save 15% of their pretax income in a retirement account that returns 5.5% they will retire with $1,297,123 that can provide them with an annual income of $51,884 INDEXED TO INFLATION for the rest of their lives. They are safe with or without Social Security. Since our couple paid off their 30 year mortgage they can add $200,000 in home equity to their net worth. Their net worth is pushing $1.5 million even if they have very little in taxable accounts.

Start small. Keep blowing on that little flame. Add more and larger sticks over time. Someday you will enjoy roasting some hotdogs over your fire, or now that you are in the autumn of your life, just enjoy the warmth you have created for yourself, your friends, and your families.

Psalm 121

1 I will lift up mine eyes unto the hills, from whence cometh my help.
2 My help cometh from the LORD, which made heaven and earth.
3 He will not suffer thy foot to be moved: he that keepeth thee will not slumber.
4 Behold, he that keepeth Israel shall neither slumber nor sleep.
5 The LORD is thy keeper: the LORD is thy shade upon thy right hand.
6 The sun shall not smite thee by day, nor the moon by night.
7 The LORD shall preserve thee from all evil: he shall preserve thy soul.
8 The LORD shall preserve thy going out and thy coming in from this time forth, and even for evermore.

Estate Planning Documents

There are three levels of tax preparation. Each one can be appropriate in a particular case. Each one can be grossly inappropriate in another case. As always use a little common sense when making your decisions. Do it yourself with or without tax preparation software such as TurboTax is fine for a typical salary man with a mortgage. If you are frightened by tax forms or your tax returns are getting a little more complicated storefront companies like H&R Block are probably OK most of the time. If you run a small business or are involved in investments that generate a form K or foreign income taxes it is time to talk to a CPA. If you are involved in complex proceedings that could have potentially serious tax consequences such as estate taxes, go directly to a CPA and buy the insurance she sells to protect you in case the IRS takes an interest in any of your returns.

The same kind of logic applies to the preparation of estate documents.

Everyone over the age of 18 needs a will. For a young single person this could be a simple Internet document that will help your parents in the unlikely event of your death. For a young family it is very important to establish custody for your children. You do not want the state courts making that all important decision for you. If you are married make certain that anything significant other than 401(k) accounts and life insurance policies which are tied to a single individual are held in joint tenancy. Then if one partner dies the other can continue to have access to funds without waiting for them to clear probate. As your net worth increases over time, you will reach a point where a simple will is no longer appropriate. At that point talk to an estate planner. Then have a will prepared by a competent attorney.

Everyone should have a list of assets. Put it near or in the same folder as your will. That way your survivors will have a copy of your life insurance policies and the most recent financial statements from banks, brokerage houses, and the like. Note: Make certain your beneficiary forms on life insurance policies are up to date. If you have such a list, your parents will also discover that you have stored your partially restored 1969 Norton Commando in your friend’s father’s barn. As your life becomes more complicated these forms will generate a rather thick three ring binder every year.

Next consider the Advance Health Care Directives. This document informs hospitals, doctors, and most importantly the individual you grant Medical Power of Attorney your healthcare preferences in the event that you are not competent to make those decisions for yourself. Medical Power of Attorney will likely go your spouse. However, if your spouse should die or become incapacitated before you, you need to identify a backup. Personally, I found this form very intimidating. I didn’t understand some of the medical terminology or the life and death consequences of selecting from some of the options presented under each question. Fortunately my wife has worked in hospitals. She was able to explain these decisions to my satisfaction.

You need to grant someone Durable (Financial) Power of Attorney. If your wife or husband is still alive, this shouldn’t be a problem, since they have access to your joint assets anyway. Still you need to complete the form. In the event that your spouse is dead or incapacitated this decision becomes very important. You will have to trust this individual with basically everything you own, since their signature is your signature. This power will not be invoked until it needs to be invoked, but it is a very serious decision. Before that day comes it is likely that you will need to set up a joint checking account that will allow your trusted representative (often a child) access to funds to make certain your bills are paid on time. The day may come when you are still a responsible adult but you just can’t manage to remember everything that needs to be done every month.

Access to your safety deposit box: If you store your will and other important documents in a safety deposit box, make certain that your spouse and the person who will someday have Financial Power of Attorney knows about the existence of this box and has access to it. That means their name needs to be on the form. It does not mean that they need a key. They just need to know where you store the key.

As we continue to witness the death of common sense in this society, there is something else to worry about, a HIPAA Release Form. The Federal Government, in its infinite wisdom passed the Health Insurance Portability and Accountability Act of 1996 (HIPAA). This law makes it very difficult to deal with a loved one’s doctors, insurance companies, and hospitals. If you have this form filled out in advance naming the individual/s with Medical Power of Attorney and Financial Power of Attorney access to your healthcare information, it will greatly simplify their dealings with insurance companies and medical providers. Listen to me! I speak from experience! You can not believe the incredible time wasting silliness this well intentioned law will generate.

While it is likely that your rolodex or Franklin Planner will provide your survivors with all the names, addresses, and telephone numbers they will need to close out your relationship with your doctors, accountants, utilities, phone company, Internet provider, cable TV company, lawyers, insurance agents, advisors, lawn care company, pest control service, etc. etc, having everything in one list seems like a good idea. I don’t have one….yet.

Oh, I forgot, (thank you Forbes Magazine) we live in a digital age. We have usernames and passwords. Where do you have them written down? Will your heirs and your executor understand your cryptic mnemonic clues you used on that list you keep for your own personal requirements? Forbes suggests one of those services like iWallet. Then you will only need to pass on one username and one password to your executor or the individual with Durable Power of Attorney.

If you have minor children or a complex estate involving considerable tax favored assets such as a 401 (k) or a piece of property that has greatly increased in value over time you will need to talk to an attorney about a trust to make certain some responsible individual will manage your money for your children’s benefit until they become adults. Most likely this will be the same person with custody. However, while grandma may be able to handle the distribution from your group life insurance policy, she may not be the best choice for managing a large complex stock portfolio. Tax consequences, potential claims by ex-spouses, and most likely other concerns that have never entered my mind can greatly affect the outcome of probate. That is why you need to investigate a trust even if your children are adults. We have a Charitable Remainder Trust that will protect our tax deferred assets, provide my wife and heir with a guaranteed income, and leave something for the Lord without the icy grip of the taxman ever touching His funds. Fully exploring this topic is way too complex for a blog post. If you are at that stage of life, talk to an attorney.

Then there is the question of funeral instructions. Do you want to be buried in the family plot in Looneyville, Texas? Better write that down if it is not a generally know fact. Seriously, writing down your preferences is a good idea particularly if you belong to a minority religious tradition with unusual funeral requirements. Besides your personal concerns for how your remains are respected, these decisions will have a significant financial impact on your estate. In Atlanta a traditional American funeral without a burial plot or headstone will run you $18,000. The same funeral home offers cremation with a vase for your loved one’s ashes. That service costs $3,000. If you want a particular clergyman or a clergyman from a particular tradition to officiate, make certain that he or she knows about your desire and is willing to provide that service. Then write down that information on your list of instructions.

That pretty much covers the topic of estate planning documents. As always, use a little common sense. If you are an eighteen year old heading off to college, make certain you have at least an Internet will and Advanced Health Care Directives that grant your parents Medical Power of Attorney. As you move through life update these documents every five or ten years or whenever a major change, such as a wedding or the birth of a child, occurs in your life.

Proverbs 3

1 My son, do not forget my teaching, but keep my commands in your heart,
2 for they will prolong your life many years and bring you prosperity.
3 Let love and faithfulness never leave you; bind them around your neck, write them on the tablet of your heart.
4 Then you will win favor and a good name in the sight of God and man.

Will You Ever Break the Chains?

“I heard them talking to one another in murmurs and whispers. They talked about illness, money, shabby domestic cares. Their talk painted the walls of a dismal prison in which men had locked themselves up. And suddenly I had a vision of the face of destiny.”
~Antoine de Saint Exupery

Someone reading this blog entry may actually be in prison. That is unlikely, but possible. It is much more likely that we are living in a prison without bars that we have constructed brick by brick in our own mind. Perhaps you are thinking that you are imprisoned by your job, your boss, your upbringing, your lack of money, health, or age. If think you are in prison, you are in prison, even if you are free. Perhaps the saddest dimension to this problem is that we tend to like the prison cells we have constructed in our own minds. They are familiar, comfortable, and safe.

"We are, each of us, our own prisoner. We are locked up in our own story."
~ (Maxine Kumin

Right now you are arguing with me. In your own mind you are telling me your story, “My case is different. I am really trapped by my lack of money, my lack of a college degree; I have to take care of my mother.” The list of your constraints is endless. The list of my constraints is endless. It is depressing.

If you are trapped in a real prison, it is up to you to devise and implement an escape plan. The warden is not interested in your problems. The guards certainly aren’t going to work for your release. While you can find a few cons you can trust, if most of your fellow inmates aren’t a direct danger to your personal safety, they would rat you out to the warden for a pack of cigarettes. Prisons really are not very nice places. Freedom has to start in your own mind. Perhaps you have information that could put Fat Tony Four Fingers behind bars that you could trade for your freedom, but then you would spend the rest of your life in a different kind of prison, the witness protection program. Perhaps you could dig your way out with a tablespoon. It has been done. Maybe you could take courses and get a law degree. Once you had that degree you could bring so many lawsuits against the warden, the prison, the guards, and the State that they will pay you money to go away and leave them alone. That happens.

It is more likely that you are not in a physical prison but one constructed in your own mind by your circumstances. It is still up to you to devise and implement an escape plan. There are a few trustworthy people in your life who will help you, but most of your friends, coworkers, and even family members will be there telling you what you can’t do. They aren’t going to help you escape. Don’t expect the Government, politicians, your bank, corporations, or your bosses to help you escape, they all profit by keeping you weak and dependent. They want to keep you on their particular version of a chain gang, whether the chains are taxes, debt, or your paycheck, your sweat is buying someone’s private jet. That includes the biggest, baddest, private jet in the world, Air Force 1.

Stop for a day.

Don’t tell me you can’t do it. How much TV do you watch every day? How many hours do you spend surfing the Web or watching stupid animal tricks on Facebook? Take a conscious inventory of your life. Locate the bars, the walls, the locks, the guard towers, the searchlights, everything that keeps you in chains. A good place to start is constructing a balance sheet of your energy assets and energy liabilities. What make you feel alive? What sucks the energy out of your life like a hungry vampire? While you look at the sheet, ask the question, “Why don’t I have the energy I need to do (fill in the blank)?”

I am trying to improve my diet. Salty snacks are one of my weaknesses. So why is there an extra large family size box of Cheez-Its in my pantry? Don’t worry it won’t be there for long, but will it be replaced?

Pick one thought that is limiting you, holding you back, sucking your energy; decide that you are going to do something, how ever small, to break that chain. It may be nothing more than saying, “No.” to an unreasonable demand from a supervisor or a parent (assuming you are an adult). Perhaps you need to say, “No.” to an unhealthy relationship with a friend, a religious group, or a family member. Maybe you just need to put on a pair of shoes, turn off the TV, and go for a walk. Is it dangerous? Maybe? Attempted escape is classified as a felony in most states, but is freedom worth the risk?

Living your life is your responsibility. There are teachers who can show you the way. They have escaped from a situation like yours or perhaps something much worse than what you face. However, it is up to you to break the chains. Nobody else can do that for you.

"Men are not prisoners of fate, but only prisoners of their own minds."
~ Franklin D. Roosevelt

Good Luck? Bad Luck?

Every now and again the role of luck in financial success lifts its ugly little head. I believe this is about the fourth article I have written on the subject. In contracts this concern can appear as a Force Majeure clause that allows for a suspension of the terms of the contract in the case of an act of God. These include events such as earthquakes, tornadoes, riots, or wars. Why God gets blamed for these kinds of events but doesn’t get credit for usually good occurrences, who can say.

Call it luck, the Grace of God, or one of those negative acts of God found in a Force Majeure clause; these kinds of events do play a role in our lives.

However, there is a Swedish saying, "Luck never gives. It only loans."

Events that we choose to describe as lucky or unlucky are by definition rare events. Over time, statistically improbable events tend to balance themselves out both in scientific experiments and in life. The term used in the study of probability for this phenomenon is regression to the mean. In an experiment, a naval architect might make a statement like this, “The drag force on the device at 10 Knots is 155 pounds ± 15 pounds with a confidence of 90%.” That means if you run 100 experiments at 10 Knots you can expect that 90 of them will result in a load between 140 pounds and 170 pounds. Ten of them will fall outside of that range. Good luck? Bad luck? Who can say?

It has been my observation that commitment, hard work, years of preparation, the passionate desire to achieve some goal, and a firm belief in who you are tends to greatly magnify the effects of good luck and minimize the effects of bad luck. If a little spark of good luck hits a pile of the characteristics and behaviors listed above, the results can be as dramatic as a stray cigarette butt flipped into a pile of dry brush soaked in kerosene.

My father was a chemist, a man of great technical integrity. He worked very hard for many years without receiving much attention from his employer. Then one day the laws changed. Paper mills could no longer use chlorine based bleaching agents. My father, now in his mid-sixties, happened to be working on substitute peroxide based bleaching agents. Suddenly, he was a world expert in narrow but highly lucrative technical specialty. His career took off like a rocket. For ten years, at a time when his peers were all retired, he traveled the world. In the process he was presented with a number of prestigious international awards. He was exactly the right man in the right place at the right time. That was luck. However, he was ready for that opportunity. It cost him over 40 years spent in smelly dangerous factories and long unpleasant flights in airplanes solving serious technical problems while frightened managers were screaming at him to hurry up.

There is another dimension to success besides the preparation necessary to take advantage of a “lucky” opportunity. Will you be able to recognize good luck when you see it?

Joseph was his father’s favorite son. He had the gift of prophecy. He was given a coat of many colors. Good luck? Bad luck?

Joseph’s brothers were jealous. They sold him into slavery. Good luck? Bad luck?

Joseph proved himself a hard working honest slave. His master promoted him to management. Good luck? Bad luck?

Now a part of the inner workings of the household Joseph met his master’s dishonest adulterous wife. Because Joseph refused to have sex with this woman, she cried rape. Joseph landed in prison. Good luck? Bad luck?

Because he happened to land in the same prison with some of Pharaoh’s servants, Joseph ultimately was given an opportunity to interpret Pharaoh’s dream. On the strength of this prophecy combined with Joseph’s managerial skill, he became the Chief Operational Officer of Egypt, just when his family happened to be starving to death, very good luck for the nation of Israel.

His brothers were feeling a little guilty and uncomfortable about what they had done to Joseph, especially now that they were completely at his mercy, but Joseph, good man that he was, comforted his brothers saying, “As for you, you meant evil against me; but God meant it for good in order to bring about this present result; to preserve many people alive.”

Twice in my life, my career suffered great and unjust harm at the hands of evil men. It happens. On both occasions some fellow believer spoke Joseph into my life, quoting the first part of that verse, “As for you, you meant evil against me; but God meant it for good.” Both times those words resonated deep in my soul. I believed then as I believe now that God was speaking those words into my life. Both times I persevered to the best of my ability. Both times I was ultimately blessed with a better quality of life than I could have imagined.

Just keep doing your best. Let God take care of the rest.

The Great American Debt Trap

Well the good news is that America is starting to pay down its mountain of household debt. The only category on the increase is student loans. The savings rate (of disposable income) has risen to a paltry 3%. In 2005 it went negative! In a wild spending binge we almost doubled our household debt in five years. Now we have to pay. Don’t look for the American consumer to fuel a great economic boom. They are pretty well tapped out.

I don’t have to tell you, debt is bad. The question now becomes how badly do you want to escape the great American consumer debt trap. What price are you willing to pay for your freedom? As the song says, “Freedom is never free.”

Believe it or not, the first step consists of understanding your plight. People have a way of ignoring or minimizing their financial problems. The technical term is denial. Go ahead, rack ‘em and stack ‘em. Find out how much you owe, what rate of interest you are paying, and how much you will have paid the banks if you continue to make those minimum payments for the next 20 years.

The next step is swearing to the stars, the skies, and the universe that as God is your witness, you will not only be debt free but that you will achieve financial independence. This step really starts when you are tempted to take out just one more loan, to use that credit card instead of an emergency fund, just this one time. That is when you must put your foot down hard saying, “I can’t get out of a hole by digging a deeper hole.” That will be difficult. If you fail on the first try, don’t beat yourself up. Get up off the ground and try harder.

Now comes the boring stuff. You have to live on a budget. You must make sure that your income exceeds your outflow or your upkeep will be your downfall. It is that simple. Doing it your way isn’t working. Live on a formal budget. Account for every penny that comes in and every penny that goes out. Rigorously! Religiously! Without exception! Nobody wants to live on a formal budget. Imagine writing down the cost of every latte you drink for the rest of your life. Who wants to live like that? Once you have things under control there are less rigorous options available such as the 70% budget (live on 70% of your income, allocate 10% for giving, 10% for saving, and 10% for contingencies). You may even reach a point where all you need do is track the monthly increase in your net worth. However, when you are in a deep hole, don’t look for shortcuts. You will regret it.

Cut your spending to the bone. You can live without it. If you have two cars ask yourself if you can live with only one car. The answer is probably yes. We did that for a couple of years. It wasn’t fun but it helped us buy our first house. My favorite rant is reoccurring expenses cell phones, cable, gym memberships and the like. Be especially vicious in your efforts to cut these expenses to the bone. I recently finished taking a personal finance course at our church. Most of the people in that class were already doing the right things. They are a pretty frugal bunch. I was not the only person in the class who reuses paper towels if they are not really dirty. By far the biggest problem was the monthly fast food and restaurant bill. I thought I was the only person who had that problem. I am not alone.

By the way, the only way you can be certain that you are cutting your spending to the bone is bone is by living on a budget. In fact for problem areas, like restaurants, use the envelope system. Put a weekly allocation of actual factual cash money in the restaurant envelope. When that money is gone, it is gone; no more hamburgers; no more coffee; no more restaurant food of any kind until next week.

If we are not talking about mortgage debt, young single folks can find ways to lower housing expenses by sharing an apartment with friends or even doing the boomerang thing for a couple of years until that student debt disappears. Personally, once I left home at 18 for college, I would have rather lived in a cave with a family of bears than return to my parents home, but then I didn’t graduate with any student debt hanging around my neck.

Find some extra money. Sell the motorcycle you are keeping in your parents’ garage. Sell the extra TV, the camera you use three times a year, your collection Transformer toys, and anything else that is likely to generate so extra cash. I know a couple who take this a step further. They buy stuff at local charity stores, such as Goodwill. Then they clean it up and sell it on eBay. Unlike me, they have a pretty good idea of what this stuff is worth, so they are pretty certain to make a profit. If you aren’t that clever, take a second part time, temporary job waiting tables or delivering pizzas. While you are doing a little yard work on the side, don’t stop thinking about the better job in your future. Right now you are digging your way out of the prison fortress, Château d'If. Every spoonful of dirt counts.

By all means track your progress. I had a Lotus 123 spread sheet for DOS to track the effect of my extra payments to principal on my mortgage. I would shout for joy every time I saw an extra $1,000 sent to the bank today peel off multiple thousands off the backside of the loan. It helped give me the incentive to save another $1,000 when that was a very hard thing to do. If you don’t have a spreadsheet program just do the calculations once a month. I wouldn’t be opposed to graphing the results. You could post that visual aid on your refrigerator. Seeing your progress might just help.

You can do this. Others in your situation, or worse, have done it. The road you have to travel is pretty well understood. There are options. You can focus more effort on bringing more money in or controlling what goes out, but at the end of the day you have to satisfy the money equation.

Money In = Money Stored + Money Spent

That equation integrated over the course of your lifetime will determine whether you will remain a debt slave or if by a combination of hard work and the Grace of God you find the financial freedom that I believe is your birthright as a child of God.

Lame Man, Blind Man

When a blind man carries a lame man both go forward.

Look around at your coworkers, at your friends. Look at yourself. Is the life that you are living making you the person you want to become or is there something better?

Are your coworkers the kind of people you want to become when you grow up or are they a bunch of nasty, gossiping, malicious, greedy rats who would gladly stick a knife in your back if it would benefit their ambitions. Some rats would gladly stick a knife in your back for the pure pleasure of harming another. I have seen it.

Are your friends bringing you down to their level? Do they encourage your weaknesses? Do they tolerate your bad behavior or do they challenge you to make yourself a better person?

Look around. It is a certainty that you will become similar to the kind of people you choose to bring into your life. I am not here to tell you who you should become. That question is between you and God. We are all born with different personalities. We all have different gifts. We discover different passions as we walk our unique path. Where and with whom we spend our time is one of the clearest signs that we are walking the right path or the wrong path. Surround yourself with the men and women you want to become.

Then what?

Your responsibilities do not end with yourself. We are all in this together. As you walk your path, with experience you will gain skills, confidence, and resources. It is inevitable that people will cross your path who need what you have to give. I believe God created the universe to work in that manner.

“Freely you have received, freely give.”

You can not fix people. You can’t make everything right for another human being. You can’t heal their pain or find the love they need to make their lives whole. All you can do is offer to share the best tools you have along with instructions on how to use them. Your goal is to help someone else become the person God intended them to be, free, strong, and well able to deal with the vicissitudes of life. Giving in a manner that allows another human being to remain weak, dependent, or wallowing in self pity is never a good thing. Once my wife tried to help a friend with the cost of a car repair; if that money did not go directly up her nose, it allowed other funds to be freed up for that purpose. Tragically, that woman died as she lived. Money can help, but money alone almost never helps.

People have to make hard decisions on how to live their lives. You can not make those decisions for them. You can show them the way. You can encourage them to take the first step, but you can not walk their path for them. As long as they are trying to grow it is your duty to help them grow. If you ever pity another in your life, there is something wrong in the relationship. The goal is compassion. Pity is something that we extend to that poor person over there. Compassion is born of a sharing of hearts, an understanding that we are both in this together. Since pity is normally felt at a distance, if you are feeling pity for a person you are trying to help, they are probably not hearing what you have to say. You have an obligation to continue to encourage, help, and support them as long as they are trying to better their situation. If not, there will come a time when you will need to step away.

It is important that you never forget where you came from or the people who helped you reach a better life. People will come and go in and out of your life as you better discover your path. Some are destined to become permanent fixtures in your circle of friends. Others will only be ships passing in the night. If they ever helped you, if they ever picked you up when you were weak, if they ever listened to you when you were alone in the night, don’t forget you have an obligation to be their friend. The day may come when you possess exactly what they need to take the next step in their life. If not, be ready to stand with them when the time comes. I believe that we will stand with such people not only in this life but in eternity.

"General Grant is a great general. I know him well. He stood by me when I was crazy, and I stood by him when he was drunk; and now, sir, we stand by each other always."
William Tecumseh Sherman

It is well known fact that President Ulysses S. Grant was an alcoholic. It isn’t as well known that General William Tecumseh Sherman suffered from severe depression. During the early days of the Civil War, he suffered from what was then termed “nervous exhaustion.” Many believed he was insane. These two great commanders fought the Civil War together. They supported one another when others wanted them destroyed. They never forgot where they came from or who stood beside them in their darkest hour.

Go thou and do likewise.

Death in America (Revisited)

If you are pushing 80 or have one or more serious health problems, it is time to start planning for your death at a level of detail that is beyond what is contained in your will. Put yourself in the shoes of whoever will have durable power of attorney if you become incompetent as well as the shoes of your executor. Have the list of institutions and individuals that will need to be notified ready to go. Estimate the amount of money that the executor will need to control during the few months that will pass before the estate accounts are activated. For heaven’s sake make certain that this individual has joint tenancy on one or more checking accounts, is named the sole beneficiary on some financial instruments, and has access to your safety deposit box.

Although it is outside the scope of this blog post, let me add that every adult should have a will. For the young a $30 Internet will is probably enough to handle your bank account, car, and stereo system. It isn’t important for you. If you pass, the presence of a will helps your parents.

Once a family member passes on a large number of individuals and institutions require notification. In addition, they usually require an official copy of the death certificate and frequently a copy of the Letters Testamentary, a document issued by a court establishing the authority of the executor to manage the estate of the deceased. This is a frustratingly slow process that always seems to require something else before closure is achieved in any step. Here is a partial list of the calls that must be made.

The Funeral Home
House of Worship
Home Health Care Provider
Social Security
Life Insurance Companies (you won’t know all of them)
Health Insurance Companies
Renter’s or Homeowner’s Insurance Companies
Employer’s Benefit Office
Pension Fund (not the same as the employer in this case)
The family attorney
All the deceased’s doctors
Apartment or Nursing Home Management
Investment Houses
Banks (hopefully you will have the safety deposit box key, when my mother in law died, we didn’t)
Credit card Companies (not a pleasant experience)

Planning for the Funeral

Funeral Home (of course)
Minister (this is particularly important if the deceased was part of a minority faith tradition)
Musicians
Family Members
Friends (this is dangerous as people can get their feelings hurt if handled poorly)

Closing Down the Apartment

Moving and Storage Companies
Apartment Management to Coordinate with Movers
Phone Company/Internet
Newspaper
Cable TV Company
Medical Rental Equipment Companies
Change Address with Post Office
Power Company

Once the family receives the death certificates from the funeral home they can begin the process of official legal notification required to bring the financial issues inside and outside the estate to closure.

Besides dealing with all the emotions of losing a family member death brings a large number of financial problems and difficult responsibilities to the survivors.

Death in America is expensive. My wife had durable power of attorney for her mother. She paid all her mother’s bills with funds from three joint tenancy accounts. When her mother died, durable power of attorney expired. My wife no longer had access to the brokerage accounts that provided funds for the checking accounts that actually paid her mother’s bills. After a will clears probate, someone must be sworn in as executor of the deceased’s will before he will have access to the estate. In the interim, the bills keep coming. At this point a family can only pray that there is enough remaining in the joint tenancy accounts to cover the bills until a separate account for the estate of my can be created to execute the terms of the will.

By the way, a death will create three tax events. The deceased will have to pay taxes until the day of her death. After her death, her estate will pay taxes until it is dissolved. Finally, the heirs will pay taxes as appropriate on any inheritance.

The family attorney informed us that the joint tenancy accounts were not part of the estate. Legally, they belong to my wife. She is not required by law to pay her mother’s bills with that portion of her mother’s money. Such wickedness would have never occurred to me. However, it is easy to see how something like this could start a family fight.

If you are competent at the time of your death you will probably not have a durable power of attorney agreement giving one of your children access to your funds prior to your death or joint tenancy accounts that will allow one of your children access to the funds required to pay your final expenses. This can be easily handled by setting aside a large sum in a CD that names the executor of your will as sole beneficiary. This money will not be considered a part of the estate requiring probate. You will need to instruct the executor that these funds are designated for payment of your bills. If your executor is dishonest, he can take the money and run. There is no way you can avoid trusting someone with your money once you are gone. Hopefully, you have made a wise decision. Burial life insurance policies can also be used for this purpose but they tend not to be very good investments.

There are a lot of bills. A traditional American funeral for my mother in law with a visitation cost $18,000! I wasn’t surprised since I handled the funeral arrangements for my father-in-law eight years earlier. That one cost $16,000. I did not expect prices to go down in the following years. I have instructed my wife not to spend that kind of money on my funeral. It is pretty obvious why cremation is gaining popularity with my generation. A $3,000 funeral, although still too expensive, makes a lot more sense than an $18,000 funeral. My parent’s generation, particularly the women can’t deal with the thought of cremation.

During the final weeks of my mother-in-law’s life my wife was staying in her mother’s apartment in another city. During that time they made three emergency trips to the hospital. Needless to say, my wife let some things, such as remembering to pay all the bills, slip. The final bill from the home health care agency exceeded $20,000. Patients do not receive one bill from a hospital. They receive bills from the ambulance company, the emergency room, individual doctors, and the hospital. These bills are inevitably wrong. They were not submitted to insurance and Medicare or they were submitted improperly. Fortunately, my wife had worked in the hospital system and understood when and what bills to pay.

Working on Work (Addendum)

I am continuing to work on the question of finding the fulfilling job and living a fulfilling life. I think the problem can be condensed to two questions. If you can answer these questions, I believe you are off to a good start finding your path in this material world.

Who do you want to be when you grow up?

When we were children adults would frequently ask us, what do you want to be when you grow up? That is the wrong question. The question that children instinctively answer is the correct question although they don’t understand that they are on the right track. If you were a boy during the 1950s you have might wanted to be Davy Crockett or Mickey Mantle depending on your interests and what your family (especially your father) found exciting. I have observed that young people can change pretty dramatically between eighteen and twenty five, but once they are in their late twenties, you are pretty much looking at the man or woman you will see for the rest of your life. Of course, changing responsibilities will change behavior, but the man or woman inside the suit is pretty much the same person as they were at twenty five. Once you are an adult ask yourself, “Who do I want to be when I grow up?” Take a good long look at the people you really admire. Ask yourself what character traits and skill sets do these people possess that causes me to admire them. The answer might be Warren Buffett, Albert Einstein, Mother Teresa, or Robert E. Lee. The skill sets could be anything from the joy of pure mathematics to ability to deeply touch another’s soul. The character traits could range from command presence to equanimity. Every person on this planet is a unique creation.

What work causes you to lose track of time?

When you are challenged, when you are working in your strengths, you will lose track of not only time but you will lose track of yourself. It is a wonderful experience. Psychologists call it, “flow”. Musicians call it, “In the groove.” Writers talk about words that write themselves as though they were only a stenographer taking dictation. When you are working on school assignments or on your job, take careful note of when large blocks of time simply disappear. If you can find a job that will pay you to lose large blocks of time in this heightened state of awareness, you are on the way to transcendence.

You have found your calling. Work is no longer work. It has become a spiritual quest.